50
51
Statements of Profit and Loss
Balance Sheets
Consolidated Statements of Changes in
Shareholders’ Equity
Statements of Cash Flows
Notes to and forming part of the Accounts
52
53
54
Summary of Significant Accounting Policies 54
62
Operating Profit
Average Balance Sheet and Related Interest 64
68
Abnormal Items
68
Income Tax Expense
70
Dividends, Provided For, Reserved or Paid
70
Earnings Per Share
Cash and Liquid Assets
71
Receivables from Other Financial Institutions 71
71
Trading Securities
72
Investment Securities
75
Loans, Advances and Other Receivables
76
Provisions for Impairment
78
Credit Risk Concentrations
83
Asset Quality
88
Deposits with Regulatory Authorities
88
Shares in and Loans to Controlled Entities
88
Property, Plant and Equipment
88
Goodwill
89
Other Assets
89
Deposits and Other Public Borrowings
89
Payables to Other Financial Institutions
90
Income Tax Liability
90
Other Provisions
90
Debt Issues
92
Bills Payable and Other Liabilities
93
Loan Capital
94
Share Capital
96
Outside Equity Interests
Capital Adequacy
96
Maturity Analysis of Monetary Assets
and Liabilities
Financial Reporting by Segments
Remuneration of Auditors
Commitments for Capital Expenditure Not
Provided for in the Accounts
Lease Commitments - Property, Plant
and Equipment
Contingent Liabilities
Market Risk
Superannuation Commitments
Controlled Entities
Investments in Associated Entities
Standby Arrangements and Unused
Credit Facilities
Related Party Disclosures
Remuneration of Directors
Remuneration of Executives
Statements of Cash Flow
Disclosures about Fair Value of
Financial Instruments
Differences between Australian and
United States Accounting Principles
101
102
104
117
118
120
120
121
123
124
127
98
100
101
129
101
Financial
Statements
1998
This Annual Report is made up of two sections:
1. The “Report to Shareholders” comprising the first 48 pages
(ie all pages prior to this page).
2. The full and detailed financial statements and related notes
for the financial year ended 30 June 1998 (i.e. all pages
following this page).
The “Report to Shareholders” is a concise version of this full
Annual Report document and is available as a separate
booklet for those shareholders who do not want the detailed
information contained on the following pages.
The Commonwealth Bank intends to send the concise version
of the Annual Report (ie the Report to Shareholders) to all
shareholders next year unless they request otherwise.
For those shareholders who have not specifically requested to
receive the full Annual Report, we have included a reply form
in this information pack for you to complete advising us of
your preference for future Annual Reports.
Both versions of the Annual Report are available on the
Shareholder Information page of the Bank’s Internet site at
www.commbank.com.au/today
Directors’ Statement
Independent Audit Report
131
142
143
49
Statements of Profit and Loss
for the year ended 30 June 1998
Commonwealth Bank of Australia and Controlled Entities
E C O N O M I C E N T I T Y
C H I E F E N T I T Y
Note
1998
$M
Interest income
Interest expense
Net interest income
Other operating income
Total operating income
Charge for bad and doubtful debts
Total operating income after charge for bad and doubtful debts
Total operating expenses
Operating profit before goodwill amortisation, abnormal items
and income tax
Goodwill amortisation
Operating profit before abnormal items and income tax
Abnormal expense
Operating profit before income tax
Income tax expense (credit)
Operating profit
Abnormal items
Income tax expense
Operating profit after income tax
Outside equity interests in operating profit after income tax
Operating profit after income tax attributable to members
of the chief entity
Retained profits at the beginning of the financial year
Adjustment on adoption of ISC Life Insurance Rules
Buy back
Transfers from reserves
Total available for appropriation
Transfers to reserves
Dividends (fully franked)
Transfer to dividend reinvestment plan reserve
Provided for payment in cash or paid
Dividends provided for, reserved or paid
Retained profits at the end of the financial year
Earnings per share based on operating profit after
income tax attributable to members of the chief entity:
Dividends provided for, reserved or paid per share
attributable to members of the chief entity:
2
2
2
2
2
2,13
2
2
2
4
5
4
5
39
1(oo)
6
7
6
1997
$M
7,989
4,597
3,392
1,524
4,916
98
4,818
2,959
1,859
43
1,816
200
1,616
588
(72)
516
1,100
22
1,078
794
(11)
-
74
1,935
86
419
522
941
908
1996
$M
1998
$M
7,716
4,319
3,397
1,382
4,779
113
4,666
2,849
1,817
41
1,776
-
1,776
635
-
635
1,141
22
1,119
535
-
-
27
1,681
55
328
504
832
794
6,012
3,227
2,785
1,691
4,476
224
4,252
2,663
1,589
39
1,550
570
980
506
(409)
97
883
-
883
472
-
(384)
200
1,171
-
403
552
955
216
1997
$M
6,561
3,733
2,828
1,390
4,218
85
4,133
2,546
1,587
40
1,547
200
1,347
471
(72)
399
948
-
948
465
-
-
-
1,413
-
419
522
941
472
7,605
4,208
3,397
1,885
5,282
233
5,049
3,091
1,958
46
1,912
570
1,342
641
(409)
232
1,110
20
1,090
908
-
(384)
170
1,784
74
403
552
955
755
Cents per share
117.2
117.5
115.5
104
102
90
The Notes to and forming part of the accounts are an integral part of these accounts.
50
Balance Sheets
as at 30 June 1998
Assets
Cash and liquid assets
Receivables due from other financial institutions
Trading securities
Investment securities
Loans, advances and other receivables
Bank acceptances of customers
Deposits with regulatory authorities
Shares in and loans to controlled entities
Property, plant and equipment
Investment in associates
Goodwill
Other assets
Total Assets
Liabilities
Deposits and other public borrowings
Payables due to other financial institutions
Bank acceptances
Due to controlled entities
Provision for dividend
Income tax liability
Other provisions
Debt issues
Bills payable and other liabilities
Loan Capital
Total Liabilities
Net Assets
Shareholders’ Equity
Share Capital
Reserves
Retained profits
Shareholders’ equity attributable to members of the chief entity
Outside equity interests in controlled entities
Total Shareholders’ Equity
E C O N O M I C E N T I T Y
C H I E F E N T I T Y
Note
1998
$M
1997
$M
1998
$M
1997
$M
8
9
10
11
12
16
17
18
40
19
20
21
22
6
23
24
25
26
27
28
29
1,526
3,448
4,009
6,858
89,816
9,727
832
-
1,662
276
531
11,859
130,544
83,886
3,397
9,727
-
321
1,099
875
10,608
10,746
120,659
2,996
123,655
2,007
4,839
2,635
9,233
81,632
8,874
797
-
2,010
-
574
7,502
120,103
77,880
3,621
8,874
-
291
925
835
10,154
7,698
110,278
2,801
113,079
1,393
3,205
2,698
5,949
72,949
9,737
828
5,583
1,438
278
490
11,402
115,950
72,944
3,008
9,737
359
321
642
830
9,239
10,234
107,314
2,996
110,310
1,930
4,627
2,673
7,406
65,731
8,881
786
5,140
1,750
-
529
7,141
106,594
67,836
3,240
8,881
152
291
554
797
8,755
7,369
97,875
2,801
100,676
6,889
7,024
5,640
5,918
1,845
4,112
755
6,712
177
6,889
1,860
4,078
908
6,846
178
7,024
1,845
3,579
216
5,640
-
5,640
1,860
3,586
472
5,918
-
5,918
The liabilities of the Commonwealth Bank of Australia (the Chief Entity) and its controlled entity, Commonwealth
Development Bank of Australia, as at 30 June 1996 were guaranteed by the Commonwealth of Australia under a statute
of the Australian Parliament. This guarantee is being progressively phased out following the Government sell down of its
shareholding on 19 July 1996. (Refer to Note 25.)
The Notes to and forming part of the accounts are an integral part of these accounts.
51
Consolidated Statements of Changes in Shareholders’ Equity
as at 30 June 1998
Commonwealth Bank of Australia and Controlled Entities
E C O N O M I C E N T I T Y
C H I E F E N T I T Y
Note
1998
$M
1997
$M
1996
$M
1998
$M
1997
$M
1(oo)
28
Issued and paid up capital
Opening balance (ordinary shares of A$2.00 each)
Buy back
Dividend reinvestment plan
Employee share ownership schemes
Closing balance
Retained profits
Opening balance
Adjustments to opening balance
Buy back
Transfers from reserves
Operating profit attributable to members of chief entity
Total available for appropriation
Transfers to reserves
Interim dividend - cash component only
Interim dividend - appropriated to dividend reinvestment plan reserve
Provision for final dividend - cash component only
Final dividend - appropriated to dividend reinvestment plan reserve
Closing balance
Reserves
General Reserve
Opening balance
Discounts on acquisition and other adjustments
Appropriation from profits
Transfer to retained profits
Closing balance
Capital Reserve
Opening balance
Transfers
Closing balance
Asset Revaluation Reserve
Share Premium Reserve
Opening balance
Buy back
Premium from share issues
Employee share acquisition plan issue
Buy back costs and other adjustments
Transfer to capital reserve
Closing balance
Dividend Reinvestment Plan Reserve
Opening balance
Conversion to share capital
Appropriation from profits
Closing balance
Foreign Currency Translation Reserve
Opening balance
Currency translation adjustments
Transfer to retained profits
Closing balance
1,860
(76)
57
4
1,845
908
-
(384)
170
1,090
1,784
74
231
189
321
214
755
2,195
-
74
(200)
2,069
288
1
289
-
1,300
(191)
396
(3)
(2)
(1)
1,499
239
(428)
403
214
56
(45)
30
41
1,981
(200)
74
5
1,860
794
(11)
-
74
1,078
1,935
86
231
180
291
239
908
2,182
-
86
(73)
2,195
289
(1)
288
-
1,754
(801)
357
(5)
(5)
-
1,300
162
(342)
419
239
28
28
-
56
1,898
-
83
-
1,981
535
-
-
27
1,119
1,681
55
203
166
301
162
794
2,155
(1)
55
(27)
2,182
289
-
289
-
1,432
-
326
-
(4)
-
1,754
197
(363)
328
162
62
(34)
-
28
1,860
(76)
57
4
1,845
472
-
(384)
200
883
1,171
-
231
189
321
214
216
1,772
-
-
(200)
1,572
277
-
277
-
1,298
(191)
396
(3)
-
(1)
1,499
239
(428)
403
214
-
17
-
17
1,981
(200)
74
5
1,860
465
-
-
-
948
1,413
-
231
180
291
239
472
1,772
-
-
-
1,772
277
-
277
-
1,752
(801)
357
(5)
(5)
-
1,298
162
(342)
419
239
(4)
4
-
-
Total Reserves
Shareholders’ equity attributable to members of the chief entity
4,112
6,712
4,078
6,846
4,415
7,190
3,579
5,640
3,586
5,918
The Notes to and forming part of the accounts are an integral part of these accounts.
52
Statements of Cash Flows
for the year ended 30 June 1998
Cash Flows From Operating Activities
Interest received
Dividends received
Interest paid
Other operating income received
Staff expenses paid
Occupancy and equipment expenses paid
Information technology services expenses paid
Other expenses paid
Income taxes paid
Tax losses purchased from controlled entities
Net decrease (increase) in trading securities
Net Cash provided by Operating Activities
Cash Flows from Investing Activities
Payments for acquisition of entities
Net movement in investment securities:
Purchases
Proceeds from sale
Proceeds at or close to maturity
Lodgement of deposits with regulatory authorities
Net increase in loans, advances and other receivables
Net amounts paid to controlled entities
Proceeds from sale of property, plant and equipment
Purchase of property, plant and equipment
Net decrease (increase) in receivables due from other
financial institutions not at call
Net decrease (increase) in securities purchased under
agreements to resell
Net decrease (increase) in other assets
Net Cash used in Investing Activities
Cash Flows from Financing Activities
Buy back of shares
Proceeds from issue of shares
Net increase in deposits and other borrowings
Proceeds from long term debt issues
Repayment of long term debt issues
Net increase (decrease) in short term debt issues
Dividends paid
Payments from provisions
Net increase (decrease) in payables due to other financial
institutions not at call
Net increase (decrease) in securities sold under agreements
to repurchase
Proceeds from (repayment of) loan capital
Other
Net Cash provided by Financing Activities
Net Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents at beginning of year
Cash and Cash Equivalents at end of year
E C O N O M I C E N T I T Y
C H I E F E N T I T Y
1998
$M
1997
$M
1996
$M
1998
$M
1997
$M
7,557
18
(4,065)
1,204
(1,705)
(289)
(503)
(468)
(216)
-
(646)
887
8,054
18
(4,342)
1,308
(1,614)
(310)
(251)
(399)
(629)
-
556
2,391
7,939
8
(4,323)
1,426
(1,544)
(257)
(251)
(312)
(449)
-
2,374
4,611
6,084
106
(3,187)
821
(1,467)
(246)
(476)
(365)
(134)
(28)
(591)
517
6,604
200
(3,482)
1,019
(1,396)
(271)
(224)
(320)
(507)
(38)
487
2,072
-
(66)
-
-
(66)
(8,505)
1,787
8,681
(35)
(9,882)
-
196
(78)
(8,887)
1,172
7,013
(86)
(11,353)
-
307
(180)
(9,576)
729
7,956
(52)
(8,488)
-
194
(313)
(7,981)
1,666
8,364
(42)
(8,190)
(184)
167
(51)
(7,517)
1,172
6,291
(90)
(8,414)
(1,123)
281
(134)
809
750
1,750
809
750
347
1,175
(5,505)
(651)
5
6,683
1,355
(1,230)
(970)
(502)
(10)
641
(432)
(11,121)
(658)
(117)
(8,575)
(1,001)
12
6,892
1,414
(299)
1,905
(452)
(59)
-
94
6,070
1,620
(143)
370
(451)
(79)
347
1,118
(3,977)
(651)
3
5,177
1,290
(1,175)
(1,005)
(502)
(11)
641
(427)
(8,636)
(1,001)
3
5,793
1,024
(299)
1,351
(448)
(54)
(869)
325
(559)
(869)
325
(52)
-
(496)
3,263
(1,355)
3,318
1,963
(783)
-
(207)
7,747
(983)
4,301
3,318
(1,994)
1,290
424
6,642
2,678
1,623
4,301
(52)
-
(185)
2,020
(1,440)
3,415
1,975
(783)
-
(208)
5,703
(861)
4,276
3,415
Details of Reconciliation of Cash and Reconciliation of Operating Profit After Income Tax to Net Cash Provided by Operating
Activities are provided in Note 45.
The Notes to and forming part of the accounts are an integral part of these accounts.
53
Notes to and forming part of the accounts
continued
Commonwealth Bank of Australia and Controlled Entities
NOTE 1 Summary of Significant Accounting Policies
Bases of accounting
(a)
In these financial statements Commonwealth Bank of Australia is referred to as the ‘Chief Entity’, or the ‘Bank’, and the
‘Economic Entity’ consists of the Chief Entity and those controlled entities listed in Note 39. The financial statements are
a general purpose financial report which comply with the requirements of the Banking Act, Corporations Law, applicable
Accounting Standards and other mandatory reporting requirements so far as the requirements are considered appropriate
to a banking corporation.
The accounting policies applied are consistent with those of the previous year except for the adoption of equity
accounting, refer (d) Investments in associated companies below.
Further, in accordance with revised International Accounting Standard IAS1, Presentation of Financial Statements,
certain income and expense items have been presented on a net basis. The principal items involved are the netting
of rental income against operating lease rentals and general insurance claims paid shown as a deduction from general
insurance premium income. Refer Note 2. There is no effect on profit and loss.
The financial statements also include disclosures required by the United States Securities and Exchange Commission
(SEC) in respect of foreign registrants. The Statements of Cash Flows has been prepared in accordance with the
International Accounting Standard IAS7, Cash Flow Statements.
The preparation of financial statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates although it is not anticipated that such differences
would be material.
Unless otherwise indicated, all amounts are shown in $ million and are expressed in Australian currency.
Historical cost
(b)
The financial statements of the Commonwealth Bank of Australia and the consolidated financial statements have
been prepared in accordance with the historical cost convention and, except where indicated, do not reflect current
valuations of non monetary assets. Domestic bills discounted which are included in loans, advances and other receivables
and held by the Chief Entity and securities and derivatives held for trading purposes have been marked to market.
The carrying amounts of all non current assets are reviewed to determine whether they are in excess of their recoverable
amount at balance date. If the carrying amount of a non current asset exceeds the recoverable amount, the asset is written
down to the lower amount. In assessing recoverable amounts for particular classes of assets the relevant cash flows have
not been discounted to their present value unless otherwise stated.
Consolidation
(c)
The consolidated financial statements include the financial statements of the Chief Entity and all entities where there
is a determined capacity to control as defined in AASB 1024: Consolidated Accounts. All balances and transactions
between Group entities have been eliminated on consolidation.
Investments in associated companies
(d)
Associated companies are defined as those entities over which the Economic Entity has significant influence but there
is no capacity to control. Details of material associated companies are shown in Note 40.
The Economic Entity has elected to adopt equity accounting in terms of AASB 1016: Accounting for Investments
in Associates for the year ended 30 June 1998. Investments in associates are carried at cost plus the Economic Entity’s
share of post-acquisition profit or loss. The Economic Entity’s share of profit or loss of associates is included in the Profit
and Loss Statement. ASC Class Order No. 97/798 dated 5 June 1997 permits the adoption of equity accounting.
As a result of the change in accounting policy, the effect on profit after tax for the year ended 30 June 1998
is $2 million net loss. The carrying value of investments in associates included in the balance sheet is $276 million. There
was no transitional adjustment to retained profits as the amount was not material. As from 30 June 1998 PT Bank BII
Commonwealth was determined to be no longer a self-sustaining foreign operation and the related Foreign Currency
Translation Reserve balance was transferred to Retained Profits.
Foreign currency translations
(e)
All foreign currency monetary assets and liabilities are revalued at rates of exchange prevailing at balance date. Foreign
currency forward, futures, swaps and option positions are valued at the appropriate market rates applying at balance date.
Unrealised gains and losses arising from these revaluations and gains and losses arising from foreign exchange dealings are
included in profit and loss.
The foreign currency assets and liabilities of overseas branches and overseas controlled entities are converted
to Australian currency at 30 June 1998 in accordance with the current rate method. Profit and loss items for overseas
branches and overseas controlled entities are converted to Australian dollars progressively throughout the year at the
exchange rate current at the last calendar day of each month.
54
NOTE 1 Summary of Significant Accounting Policies continued
Foreign currency translations continued
(e)
Translation differences arising from conversion of opening balances of shareholders’ funds of overseas controlled entities
at year end exchange rates are excluded from profit and loss and reflected in a Foreign Currency Translation Reserve.
The Bank maintains a substantially matched position in assets and liabilities in foreign currencies and the level of net
foreign currency exposure does not have a material effect on its financial condition.
Roundings
(f)
The Chief Entity is an entity of the kind referred to in Corporations Regulation 3.6.05(6) and, in accordance with Australian
Securities Commission (ASC) Class Order No. 97/1005 dated 9 July 1997, amounts in these financial statements have been
rounded to the nearest million dollars unless otherwise stated.
Financial instruments
(g)
The Economic Entity is a full service financial institution which offers an extensive range of on balance sheet and off
balance sheet financial instruments. For each class of financial instrument listed below, except for restructured facilities
referred to in Note 1(m), financial instruments are transacted on a commercial basis to derive an interest yield/cost with
terms and conditions having due regard to the nature of the transaction and the risks involved.
Cash and liquid assets
(h)
Cash and liquid assets includes cash at branches, cash at bankers and money at short call.
They are brought to account at the face value or the gross value of the outstanding balance where appropriate.
Interest is taken to profit and loss when earned.
Receivables due from other financial institutions
(i)
Receivables from other financial institutions includes loans, nostro balances and settlement account balances due
from other banks. They are brought to account at the gross value of the outstanding balance. Interest is taken to profit
and loss when earned.
Trading securities
(j)
Trading securities are short and long term public, bank, other debt securities and equities which are acquired and held
for trading purposes. They are brought to account at net fair value based on quoted market prices, broker or dealer
price quotations. Realised gains and losses on disposal and unrealised fair value adjustments are reflected
in ‘Other Income’ within profit and loss. Interest on trading securities is reported in net interest earnings. Trading
securities are recorded on a trade date basis.
Investment securities
(k)
Investment securities are securities purchased with the intent of being held to maturity.
Investment securities are short and long term public, bank and other securities and include bonds, bills
of exchange, commercial paper, certificates of deposit and equities. These securities are recorded at cost or amortised
cost. Premiums and discounts are amortised through profit and loss each year from the date of purchase so that
securities attain their redemption values by maturity date. Interest is reflected in profit and loss when earned.
Dividends on equities are brought to account in profit and loss on declaration date. Any profits or losses arising from
disposal prior to maturity are taken to profit and loss in the period in which they are realised. The cost of securities sold
is calculated on a specific identification basis. Unrealised losses related to permanent diminution in the value of
investment securities are recognised in profit and loss and the recorded values of those securities adjusted accordingly.
Investment securities are recorded on a trade date basis. The relationship between book and net fair values
of investment securities is shown in Note 11.
Repurchase agreements
(l)
Securities sold under agreements to repurchase are retained within the investment or trading portfolios and accounted
for accordingly. Liability accounts are used to record the obligation to repurchase and are disclosed as deposits and other
public borrowings. Securities held under reverse repurchase agreements are recorded as liquid assets.
In the average balance sheet and profit and loss, repurchase agreements and their related interest expense were
previously netted against investment and trading securities. Repurchase agreements and related interest expense have
been reclassified within other demand deposits. Comparative figures have been adjusted.
Loans, advances and other receivables
(m)
Loans, advances and other receivables include overdrafts, home, credit card and other personal lending, term loans,
leasing, bill financing, redeemable preference shares and leverage leases. They are carried at the recoverable amount
represented by the gross value of the outstanding balance adjusted for provisions for bad and doubtful debts, interest
reserved and unearned tax remissions on leverage leases. Interest and yield related fees are reflected in profit and loss
when earned. Yield related fees received in advance are deferred, included as part of the carrying value of the loan and
amortised to profit and loss as ‘Interest Income’ over the term of the loan. Note 1(n) provides additional information with
respect to leasing and leveraged leasing.
55
Notes to and forming part of the accounts
continued
Commonwealth Bank of Australia and Controlled Entities
NOTE 1 Summary of Significant Accounting Policies continued
(m)
Loans, advances and other receivables continued
Non Accrual Facilities
Non accrual facilities (primarily loans) are placed on a cash basis for recognition of income immediately default
occurs. Upon classification as non accrual, all interest charged in the current financial period is reversed from profit and
loss and reserved if it has not been received in cash.
If necessary, a specific provision for impairment is recognised so that the carrying amount of the facility does not
exceed the expected future cash flows. In subsequent periods, interest in arrears/due on non accrual facilities is taken
to profit and loss when a cash payment is received/realised and the amount is not designated as a principal payment.
Non accrual facilities are restored to an accrual basis when all principal and interest payments are current and full collection
is probable.
Restructured Facilities
When facilities (primarily loans) have the original contractual terms modified, the accounts become classified
as restructured. Such accounts will have interest accrued to profit as long as the facility is performing on the modified basis
in accordance with the restructured terms. If performance is not maintained, or collection of interest and/or principal
is no longer probable, the account will be returned to the non accrual classification. Facilities are generally kept as non
accrual until they are returned to performing basis.
Assets Acquired through Securities Enforcement (AATSE)
Assets acquired in satisfaction of facilities in default (primarily loans) are recorded at net market value at the date
of acquisition. Any difference between the carrying amount of the facility and the net market value of the assets acquired
is represented as a specific provision for diminution of value or written off. AATSE are further classified as Other Real Estate
Owned (OREO) or Other Assets Acquired through Security Enforcement (OAATSE). Such assets are classified in the
appropriate asset classifications in the balance sheet.
Bad Debts
Bad debts are written off in the period in which they are recognised. Bad debts previously specifically provided
for are written off against the related specific provisions, while bad debts not provided for are written off through the
general provision. Any subsequent cash recovery is credited to the general provision.
Leasing and leveraged leasing
(n)
Finance leases are accounted for using the finance method and are included in loans, advances and other receivables.
Income, determined on an actuarial basis, is taken to account over the term of the lease in relation to the outstanding
investment balance.
The finance method also applies to leveraged leases but with income being brought to account at the rate which
yields a constant rate of return on the outstanding investment balance over the life of the transaction so as to reflect the
underlying assets, liabilities, revenue and expenses that flow from the arrangements. Where a change occurs in the
estimated lease cash flows or available tax benefits at any stage during the term of the lease, the total lease profit
is recalculated for the entire lease term and apportioned over the remaining lease term.
Leveraged lease receivables are recorded under loans, advances and other receivables at amounts which reflect the
equity participation in the lease. The debt provider in the transaction has no recourse other than to the unremitted lease
rentals and the equipment under lease.
Operating lease rental revenue and expense is recognised in the profit and loss in equal periodic amounts over the
effective lease term.
Provisions for impairment
(o)
Provisions for credit losses are maintained at an amount adequate to cover anticipated credit related losses. Credit losses
arise primarily from loans but also from other credit instruments such as bank acceptances, contingent liabilities, financial
instruments and investments and assets acquired through security enforcement.
Specific provisions are established where full recovery of principal is considered doubtful. Specific provisions are
made against individual facilities in the credit risk rated managed segment where exposure aggregates to $250,000 or
more, and a loss of $10,000 or more is expected. A specific provision is also established against each statistically managed
portfolio in the statistically managed segment to cover facilities which are not well secured and past due 180 days or more,
against the credit risk rated managed segment for exposures aggregating to less than $250,000 and 90 days past due or
more, and against emerging credit risks identified in specific segments in the credit risk rated managed portfolio. These
provisions are funded primarily by reference to historical ratios of write-offs to balances in default.
General provisions for bad and doubtful debts are maintained to cover non identified possible losses and latent risks
inherent in the overall portfolio of advances and other credit transactions. The provisions are determined having regard
to the general risk profile of the credit portfolio, historical loss experience, economic conditions and a range of other
criteria.
The amounts required to bring the provisions for impairment to their assessed levels are taken to profit and loss.
The balance of provisions for impairment and movements therein are set out in Note 13.
56
NOTE 1 Summary of Significant Accounting Policies continued
(o)
Provisions for impairment continued
All facilities subject to a specific provision are classified as non accrual and interest is only taken to profit when
received in cash.
Abnormal Item – General Provision Charge for Bad and Doubtful Debts
With effect from 1 January 1998 the Economic Entity has refined the methodology used to estimate the provisions for
impairment by adopting a statistically based technique referred to as Dynamic Provisioning. This takes into account
historical loss experience and current economic factors to assess the provisioning requirement over the term to maturity
of the existing credit portfolios. Initial adoption of this technique resulted in an abnormal expense for bad and doubtful
debts of $370 million in respect of the general provision which has been charged to profit and loss in the year ended
30 June 1998.
Subsequent requirements for specific provisions will be funded via the general provision. Accordingly,
it is appropriate to tax effect the general provisioning refer Note 1(y). Refer also Notes 4 and 13.
Bank acceptances of customers
(p)
The exposure arising from the acceptance of bills of exchange that are sold into the market is brought to account
as a liability. An asset of equal value is raised to reflect the offsetting claim against the drawer of the bill. Bank
acceptances generate fee income which is taken to profit and loss when earned.
Deposits with regulatory authorities
(q)
In several countries in which the Economic Entity operates, the law requires that the Economic Entity lodge regulatory
deposits with the local central bank at a rate of interest below that generally prevailing in that market. The amount of the
deposit and the interest rate receivable are calculated in accordance with the requirements of the local central bank.
Interest is taken to profit and loss when earned.
Shares in and loans to controlled entities
(r)
These investments are recorded at the lower of cost or recoverable amount.
Property, plant and equipment
(s)
At year end, independent market valuations, reflecting current use, were obtained for all individual property holdings
(other than leasehold improvements). Directors have adopted a valuation at or below the independent valuation.
Adjustments arising from revaluation are reflected in Asset Revaluation Reserve, except to the extent the adjustment
reverses a revaluation previously recognised in profit and loss. For the current year the revaluation had no effect on the
level of the reserve.
Depreciation on owned buildings is based on the assessed useful life of each building. The book value
of buildings demolished as part of the redevelopment of a site is written off in the financial year in which the buildings
are demolished. Leasehold improvements are capitalised and depreciated over the unexpired term of the current
lease.
Equipment is shown at cost less depreciation calculated principally on a category basis at rates applicable to each
category’s useful life. Depreciation is calculated using the straight line method. It is treated as an operating expense
and charged to profit and loss. The amounts charged for the year are shown in Note 2. Profit or loss on sale of property
is treated as operating income or expense. Realised amounts in Asset Revaluation Reserve are transferred to Capital
Reserve.
The useful lives of major depreciable assets are as follows:
Buildings
Shell
-
Integral plant and equipment
-
-
-
carpets
all other (air-conditioning, lifts)
- Non integral plant and equipment
-
fixtures and fittings
Maximum 30 years
10 years
20 years
10 years
Leasehold improvements
Lesser of unexpired lease term or lives as above
Security surveillance systems
Furniture
Equipment
-
-
- Office machinery
EFTPOS machines
-
10 years
8 years
5 years
3 years
The Bank does not own any material amounts of computer or communications equipment.
57
Notes to and forming part of the accounts
continued
Commonwealth Bank of Australia and Controlled Entities
NOTE 1 Summary of Significant Accounting Policies continued
(s)
Property, plant and equipment continued
Abnormal Item - Information Technology Equipment Values (1997)
In anticipation of a restructuring of the Bank’s information technology processing, including investment
in an information technology business, the carrying value of the Bank’s computer and communications equipment
as at 30 June 1997 was reduced. This reduction was undertaken having regard to the sale of equipment to a global
technology company.
As a result, an abnormal expense of $200 million ($128 million after tax) was charged to profit and loss in the year
ended 30 June 1997. Also refer Notes 4 and 18.
Goodwill
(t)
Goodwill, representing the excess of purchase consideration plus incidental expenses over the fair value of the
identifiable net assets at the time of acquisition of an entity, is capitalised and brought to account in the balance sheet.
The goodwill so determined is amortised on a straight line basis over the period of expected benefit but not
exceeding 20 years. Purchased goodwill arising from the merger with the State Bank of Victoria in 1991 is being
amortised over 20 years, and goodwill on acquisition of Commonwealth Funds Management in December 1996,
Micropay in 1995 and Leaseway in April 1997 is being amortised over 10, 7 and 5 years respectively. The periods
of goodwill amortisation are subject to review annually by the Directors.
Other assets
(u)
Other assets includes all other financial assets and includes interest, fees, market revaluation of trading derivatives
and other unrealised income receivable and securities sold not delivered. These assets are recorded at the cash value
to be realised when settled.
Deposits and other public borrowings
(v)
Deposits and other public borrowings includes certificates of deposits, term deposits, savings deposits, cheque and
other demand deposits, debentures and other funds raised publicly by borrowing corporations. They are brought
to account at the gross value of the outstanding balance. Interest is taken to profit and loss when incurred.
Payables due to other financial institutions
(w)
Payables due to other financial institutions includes deposits, vostro balances and settlement account balances due
to other banks. They are brought to account at the gross value of the outstanding balance. Interest is taken to profit
and loss when incurred.
Provision for dividend
(x)
The provision for dividend represents the maximum expected cash component of the declared final dividend.
The remaining portion of the dividend is appropriated to the Dividend Reinvestment Plan Reserve.
Income taxes
(y)
The Economic Entity has adopted the liability method of tax effect accounting. The tax effect of timing differences
which arise from items being brought to account in different periods for income tax and accounting purposes
is disclosed as a future income tax benefit or a provision for deferred income tax. Amounts are offset where the tax
payable and realisable benefit are expected to occur in the same financial period. The future income tax benefit
relating to tax losses and timing differences is not carried forward as an asset unless the benefit is virtually certain
of being realised. (Note 20).
Abnormal Credit – Tax Effecting General Provision for Bad and Doubtful Debts
The general provision for bad and doubtful debts has been tax effected as at 1 January 1998. This reflects the
adoption of a balance sheet risk based dynamic provisioning methodology which satisfies the recognition requirement
that utilisation of the provision be assured beyond reasonable doubt.
An abnormal credit to tax expense of $337 million has been booked to profit and loss in the year ended 30 June 1998.
Refer also Note 4.
Provisions for employee entitlements
(z)
The provision for long service leave is subject to actuarial review and is maintained at a level that accords with
actuarial advice.
The provision for annual leave represents the outstanding liability as at balance date. Actual payments made during
the year are included in Salaries and Wages.
The provision for other employee entitlements represents liabilities for staff housing loan benefits and a subsidy
to a registered health fund with respect to retired employees and current employees.
The level of these provisions has been determined in accordance with the requirements of AASB 1028, Accounting
for Employee Entitlements.
58
NOTE 1 Summary of Significant Accounting Policies continued
(aa) Provision for restructuring
The provision for restructuring covers information technology transition costs to EDS (Australia) and other outsourcing
arrangements, further rationalisation of processing and administration functions, implementation of the new
organisational structure and reconfiguration of delivery systems. Each of these programmes has associated costs,
principally in the areas of redundancy and property.
Abnormal Item – Restructuring Costs
An abnormal expense for restructuring costs of $200 million ($128 million after tax) has been charged to profit and
loss in the year ended 30 June 1998. Refer also Notes 4 and 24.
(bb) Provision for self insurance
Actuarial reviews are carried out at regular intervals with provisioning effected in accordance with actuarial advice.
The provision for self insurance covers certain non lending losses and non transferred insurance risks.
(cc) Debt issues
Debt issues are short and long term debt issues of the Economic Entity including commercial paper, notes, term loans
and medium term notes which are recorded at cost or amortised cost. Premiums, discounts and associated issue expenses
are amortised through profit and loss each year from the date of issue so that securities attain their redemption values
by maturity date. Interest is reflected in profit and loss as incurred. Any profits or losses arising from redemption prior t o
maturity are taken to profit and loss in the period in which they are realised.
Further details of the Economic Entity’s debt issues are shown in Note 25.
(dd) Bills payable and other liabilities
Bills payable and other liabilities includes all other financial liabilities and includes interest, fees, market revaluation
of trading derivatives and other unrealised expenses payable and securities purchased not delivered.
These liabilities are recorded at the cash value to be realised when settled.
(ee) Loan capital
Loan capital is debt issued by the Economic Entity with terms and conditions, such as being undated or subordinated,
which qualify the debt issue for inclusion as capital under Reserve Bank of Australia (RBA) Capital Adequacy prudential
requirements. Loan capital debt issues are recorded at cost or amortised cost. Premiums, discounts and associated issue
expenses are amortised through profit and loss each year from the date of issue so that securities attain their redemption
values by maturity date. Interest is reflected in profit and loss as incurred. Any profits or losses arising from redemption
prior to maturity are taken to profit and loss in the period in which they are realised.
Further details of the Economic Entity’s loan capital debt issues are shown in Note 27.
Shareholders’ equity
(ff)
Ordinary share capital is recognised at the par value of the amount paid up. Any excess between the par value and
the issue price is recorded in the share premium reserve.
General reserve is derived from revenue profits and is available for dividend except for undistributable profits
in respect of Commonwealth Life Limited of $219 million (1997: $168 million, 1996: $91 million).
Capital reserve is derived from capital profits and is available for dividend.
Share premium reserve is derived from the premium over par value received from the issue of shares. It is not
available for distribution to shareholders in the form of a cash dividend. The share premium reserve may be used
to satisfy the payment of a dividend by an issue of shares to shareholders. The reserve may also be utilised to write off
preliminary expenses, share or debenture issue costs, share buy back costs and discount allowed on any issue of shares
or debentures.
Dividend reinvestment plan reserve is appropriated from revenue profits. The amount of the reserve represents
the estimate of the minimum expected amount that will be reinvested in the Bank’s dividend reinvestment plan. The
allotment of shares under the plan is subsequently applied against the reserve. This accounting treatment reflects the
probability that a fairly stable proportion of the Bank’s final dividend will be reinvested in equity via the dividend
reinvestment plan. This internal accounting methodology for the dividend reinvestment plan was introduced with the
appropriation of the 1995 profit for the final dividend.
Further details of share capital, outside equity interests and reserves are shown in Notes 28, 29 and Statements
of Changes in Shareholders’ Equity.
(gg) Derivative financial instruments
The Economic Entity enters into a significant volume of derivative financial instruments which include foreign exchange
contracts, forward rate agreements, futures, options and interest rate, currency, equity and credit swaps. Derivative
financial instruments are used as part of the Economic Entity’s trading activities and to hedge certain assets and liabilities.
59
Notes to and forming part of the accounts
continued
Commonwealth Bank of Australia and Controlled Entities
NOTE 1 Summary of Significant Accounting Policies continued
(gg) Derivative financial instruments continued
Derivative financial instruments held or issued for trading purposes
Traded derivative financial instruments are recorded at net fair value based on quoted market prices, broker or dealer
price quotations. A positive revaluation amount of a contract is reported as an asset and a negative revaluation amount
of a contract as a liability. Changes in net fair value are reflected in profit and loss immediately they occur.
Derivative financial instruments held or issued for purposes other than trading
The principal objective in holding or issuing derivative financial instruments for purposes other than trading is
to manage balance sheet interest rate, exchange rate and credit risk associated with certain assets and liabilities such
as loans, investment securities, deposits and debt issues. To be effective as hedges, the derivatives are identified and
allocated against the underlying hedged item or class of items and generally modify the interest rate, exchange rate
or credit characteristics of the hedged asset or liability. Such derivative financial instruments are purchased with the intent
of being held to maturity. Derivatives that are designated and effective as hedges are accounted for on the same basis as
the instruments they are hedging.
Swaps
Interest rate swap receipts and payments are accrued to profit and loss as interest of the hedged item or class
of items being hedged over the term for which the swap is effective as a hedge of that designated item. Premiums
or discounts to market interest rates which are received or made in advance are deferred and amortised to profit and loss
over the term for which the swap is effective as a hedge of the underlying hedged item or class of items.
Similarly with cross currency swaps, interest rate receipts and payments are brought to account on the same basis
outlined in the previous paragraph. In addition, the initial principal flows are reported net and revalued to market at the
current market exchange rate. Revaluation gains and losses are taken to profit and loss against revaluation losses and
gains of the underlying hedged item or class of items.
Credit default swaps are utilised to manage credit risk in the asset portfolio. Premiums are accrued to profit and loss
as interest of the hedged item or class of items being hedged over the term for which the instrument is effective
as a hedge. Any principal cash flow on default is brought to account on the same basis as the designated item being
hedged. Credit default swaps held at balance date are immaterial.
Equity swaps are utilised to manage the risk associated with both the capital investment in equities and the
related yield. These swaps enable the income stream to be reflected in profit and loss when earned. Any capital gain
or loss at maturity of the swap is brought to account on the same basis as the underlying equity being hedged.
Forward rate agreements and futures
Realised gains and losses on forward rate agreements and futures contracts are deferred and included as part
of the carrying value of the hedged item or class of items being hedged. The cash flow is amortised to profit and loss
as interest of the hedged item or class of items being hedged over the term for which the instrument is effective
as a hedge.
Options
Where options are utilised in the management of balance sheet risk, premiums on options and any realised gains
and losses on exercise are deferred and included as part of the carrying value of the hedged item or class of items
being hedged. The cash flows are amortised to profit and loss as interest of the hedged item or class of items being
hedged over the term for which the instrument is effective as a hedge.
Early termination
Where a derivative instrument hedge is terminated prior to its ‘maturity date’, realised gains and losses are
deferred and included as part of the carrying value of the hedged item or class of items being hedged. The cash flows
are amortised to profit and loss as interest of the hedged item or class of items being hedged over the period for which
the hedge would have been effective. Where the underlying hedged item or class of items being hedged ceases
to exist, the derivative instrument hedge is terminated and realised and unamortised gains or losses taken to profit and
loss.
Further information on derivative financial instruments is shown in Note 37.
(hh) Commitments to extend credit, letters of credit, guarantees, warranties and indemnities issued
These financial instruments generally relate to credit risk and attract fees in line with market prices for similar
arrangements. They are not sold or traded. The items generally do not involve cash payments other than in the
event of default. The fee pricing is set as part of the broader customer credit process and reflects the probability
of default. They are recorded as contingent liabilities at their face value. Further information is shown in Note 36.
(ii)
Fee income
Lending fees
Material non refundable front end loan fees that are yield related and do not represent cost recovery, are taken
to profit and loss over the period of the loan. Associated costs incurred in these lending transactions are deferred and
60
NOTE 1 Summary of Significant Accounting Policies continued
Fee income continued
(ii)
netted against yield related loan fees. Where non refundable front end loan fees are received that represent cost
recovery or charges for services not directly related to the yield on a loan, they are taken to income in the period
in which they are received. Where fees are received on an ongoing basis and represent the recoupment of the costs
of maintaining and administering existing loans, these fees are taken to income on an accrual basis.
Commission and other fees
When commission charges and fees relate to specific transactions or events, they are recognised as income in the
period in which they are received. However, when they are charged for services provided over a period, they are taken
to income on an accrual basis.
(jj)
The Economic Entity conducts life insurance business through Commonwealth Life Limited (CLL) which is subject
to the provisions of the Life Insurance Act 1995. The shareholders’ interest in CLL, consisting of the shareholders’ fund
and the shareholders’ interest in the statutory funds, is included in the financial statements of the Economic Entity and
has been subject to the stated principles of consolidation.
Life insurance business
The shareholders’ interest in the statutory funds is carried at cost. Policyholders’ interest in the statutory funds
is not included in the consolidated financial statements as the Economic Entity does not have control of such funds
as defined by AASB 1024: Consolidated Accounts.
The profits from the statutory funds are brought to account in the profit and loss of the Economic Entity.
The profits have been determined according to the ‘Margin on Services’ methodology for valuation of policy liabilities
under Actuarial Standard AS 1.01 issued by the Life Insurance Actuarial Standards Board. These profits are then
transferred to general reserves as they are not fully available for distribution until all requirements of the Life Insurance
Act are met.
The value of the net worth and the business in force of CLL (known as the embedded value), to Commonwealth
Bank of Australia has been actuarially assessed to be $480 million as at 30 June 1998 (1997: $400 million), $445 million
in excess of book value (1997: $365 million) in the Chief Entity. This amount has not been included in the balance
sheet.
(kk) Fiduciary activities
The Bank and designated controlled entities act as Trustee and/or Manager and/or Custodian for a number
of Wholesale, Superannuation and Investment Funds, Trusts and Approved Deposit Funds. Further details are shown
in Note 36.
The assets and liabilities of these Trusts and Funds are not included in the consolidated financial statements
as the Bank does not have direct or indirect control of the Trusts and Funds as defined by AASB 1024. Commissions
and fees earned in respect of the activities are included in the profit and loss of the Economic Entity and the designated
controlled entity.
Superannuation plans
(ll)
The Economic Entity sponsors a range of superannuation plans for its employees. The assets and liabilities of these
plans are not included in the consolidated financial statements.
The superannuation contributions expense principally represents the annual funding, determined after having
regard to actuarial advice, to provide for future obligations of defined benefit plans. Contributions to all
superannuation plans are made in accordance with the rules of the plans.
(mm) Comparative figures
Where necessary, comparative figures have been adjusted to conform with changes in presentation in these financial
statements.
(nn) Definitions
‘Overseas’ represents amounts booked in branches and controlled entities outside Australia.
‘Borrowing Corporation’ as defined by Section 9 of the Corporations Law is CBFC Limited and controlled entities.
‘Net Fair Value’ represents the fair or market value adjusted for transaction costs.
‘Abnormal items’ are items of revenue or expense included in operating profit after income tax and considered
abnormal by reason of size and effect on operating profit after income tax for the financial year.
(oo) Adjustments to retained earnings
Commonwealth Life Limited adopted the new Insurance and Superannuation Commission Rules for financial reporting for
the year ended 30 June 1997. This resulted in an $11 million debit adjustment to retained earnings in accordance with ASC
Class Order No. 97/171 dated 17 February 1997.
(pp) Events Subsequent to Balance Date
In July 1998, the Bank entered into a strategic alliance with Woolworths which will provide customers with increased
accessibility and flexibility for their financial services needs.
61
Notes to and forming part of the accounts
continued
Commonwealth Bank of Australia and Controlled Entities
NOTE 2 Operating Profit
Operating Revenue
Operating profit before income tax has been determined as follows:
Interest Income
Loans
Other financial institutions
Cash and liquid assets
Trading securities
Investment securities
Dividends on redeemable preference shares
Controlled entities
Statutory deposits
Other
Total Interest Income
Interest Expense
Deposits
Public borrowings by borrowing corporations
Other financial institutions
Short term debt issues
Long term debt issues
Controlled entities
Loan capital
Other
Total Interest Expense
Net Interest Income
Other Operating Income
Lending fees
Commission and other fees
Trading income
Foreign exchange earnings
Trading securities
Other financial instruments (incl derivatives)
Dividends - controlled entities
- other
Net gain (loss) on investment securities
Net profit on sale of property, plant and equipment
Life insurance and funds management
General insurance premium income
Less general insurance claims paid
Other
Total Other Operating Income
Total Operating Income
Charge for Bad and Doubtful Debts (Note 13)
General provisions
Specific provisions
Total Charge for Bad and Doubtful Debts
62
E C O N O M I C E N T I T Y
C H I E F E N T I T Y
1998
$M
1997
$M
1996
$M
1998
$M
1997
$M
9,490
9,513
9,098 7,703
7,951
6,588
241
88
213
409
59
-
-
7
7,605
3,126
217
218
293
183
-
166
5
4,208
3,397
6,794
286
141
108
591
47
-
11
11
7,989
3,470
190
226
291
234
-
170
16
4,597
3,392
6,485 5,126
226
88
110
344
(34)
150
-
2
7,716 6,012
277
160
202
535
26
-
17
14
177
188
196
174
-
123
2
3,459 2,464
-
192
226
163
11
167
4
4,319 3,227
3,397 2,785
5,403
285
141
118
455
4
142
10
3
6,561
2,891
-
191
243
229
6
170
3
3,733
2,828
488
714
447
568
464
506
454
607
408
498
161
35
47
-
18
101
34
205
79
(46)
49
1,885
70
57
47
-
18
4
44
197
64
(44)
52
1,524
78
41
29
-
8
(10)
21
142
48
(40)
95
147
35
47
156
18
119
31
-
-
-
77
1,382 1,691
5,282
4,916
4,779 4,476
165
68
233
36
62
98
99
14
113
164
60
224
57
57
47
188
12
4
36
-
-
-
83
1,390
4,218
48
37
85
NOTE 2 Operating Profit continued
Staff Expenses
Salaries and wages
Superannuation contributions
Provision for long service leave
Provision for annual leave
Provisions for other employee entitlements
Payroll tax
Fringe benefits tax
Other staff expenses
Total Staff Expenses
Occupancy and Equipment Expenses
Operating lease rentals
Depreciation - buildings
- leasehold improvements
- equipment
Repairs and maintenance
Other
Total Occupancy and Equipment Expenses
Information Technology Services
Projects and development
Data processing
Desktop
Communications
Total Information Technology Services
Other Expenses
Postage
Stationery
Fees and commissions
Non lending losses
Other
Total Other Expenses
Total Operating Expenses
Amortisation of Goodwill
E C O N O M I C E N T I T Y
C H I E F E N T I T Y
1998
$M
1997
$M
1996
$M
1998
$M
1997
$M
1,412
1
32
(7)
-
83
42
59
1,622
141
62
22
103
69
76
473
199
69
87
121
476
75
53
168
-
224
520
3,091
46
1,386
2
46
11
(3)
86
70
65
1,663
133
61
16
160
104
73
547
( 152
(
(
103
255
72
57
127
4
234
494
2,959
43
1,298 1,223
(7)
30
(3)
-
76
9
39
15
(9)
83
74
73
39
34
1,582 1,392
103
86
20
146
97
72
524
( 161
(
(
89
250
63
57
126
58
20
80
55
61
400
180
69
87
113
449
67
43
108
24
241
493
146
(2)
168
422
2,849 2,663
41
39
1,217
(5)
44
11
(4)
80
65
37
1,445
111
57
15
137
98
63
481
( 133
(
(
96
229
65
47
124
4
151
391
2,546
40
Operating Profit before Abnormal Items
1,912
1,816
1,776 1,550
1,547
The Bank outsourced most of its information technology functions to EDS (Australia) in October 1997. This has changed
the mix of operating expenses and has required a change in categorisation of expenses to more appropriately reflect
expenditure into the future. Line by line comparison with prior periods is less meaningful in some instances.
63
Notes to and forming part of the accounts
continued
Commonwealth Bank of Australia and Controlled Entities
NOTE 3 Average Balance Sheet and Related Interest
The table lists the major categories of interest earning assets and interest bearing liabilities of the Economic Entity together
with the respective interest earned or paid and the average interest rates for each of 1996, 1997 and 1998. Averages used
are predominantly daily averages. The overseas component comprises overseas branches of the Bank and overseas
domiciled controlled entities. Overseas intergroup borrowings have been adjusted into the interest spread and margin
calculations to more appropriately reflect the overseas cost of funds. Non accrual loans are included in Interest Earning
Assets under loans, advances and other receivables.
1998
Average Interest Average
Rate
Balance
%
$M
$M
Average
Balance
$M
1997
Interest Average Average
Balance
$M
Rate
%
$M
1996
Interest Average
Rate
%
$M
Average Assets and Interest Income
Interest Earning Assets
Receivables due from other
financial institutions
Australia
Overseas
Deposits with regulatory authorities
Australia
Investment/trading and other securities
Australia
Overseas
Loans, advances and other receivables
Australia
Overseas
Other interest earning assets
Intragroup loans
Australia
Average interest earning assets and
interest income including intragroup
Intragroup eliminations
Total average interest earning assets
and interest income
Non Interest Earning Assets
Bank acceptances
Australia
Overseas
Property, plant and equipment
Australia
Overseas
Other assets
Australia
Overseas
Provision for doubtful debts
Australia
Overseas
Total average non interest
earning assets
Total average assets
Percentage of total average assets
applicable to overseas operations
64
1,882
1,977
106
135
5.6
6.8
2,361
2,747
135
151
809
-
-
756
11
6,225
5,528
352
358
73,797
11,947
-
5,542
1,105
7
5.7
6.5
7.5
9.2
n/a
8,782
4,493
537
303
67,292
9,732
-
5,959
882
11
5.7
5.5
1.5
6.1
6.7
8.9
9.1
n/a
1,621
3,354
94
183
690
17
9,044
3,571
641
256
58,304
8,186
-
5,741
770
14
713
43
6.0
739
46
6.2
1,025
59
102,878
(713)
7,648
(43)
7.4
n/a
96,902
(739)
8,035
(46)
8.3
n/a
85,795
(1,025)
7,775
(59)
102,165
7,605
7.4
96,163
7,989
8.3
84,770
7,716
5.8
5.5
2.5
7.1
7.2
9.8
9.4
n/a
5.8
9.1
n/a
9.1
9,660
34
1,625
209
8,883
2,015
(950)
(86)
21,390
123,555
17.5%
9,825
55
2,188
235
5,646
1,267
(938)
(83)
18,195
114,358
16.1%
10,692
42
2,422
227
4,730
1,278
(994)
(62)
18,335
103,105
16.1%
NOTE 3 Average Balance Sheet and Related Interest continued
1998
Average Interest Average
Rate
Balance
%
$M
$M
1997
Average Interest Average
Rate
Balance
%
$M
$M
1996
Average Interest Average
Rate
Balance
%
$M
$M
Average Liabilities and
Interest Expense
Interest Bearing Liabilities and
Loan Capital
Time Deposits
Australia
Overseas
Savings Deposits
Australia
Overseas
Other demand deposits
Australia
Overseas
Public borrowings by borrowing
corporations
Australia
Payables due to other
financial institutions
Australia
Overseas
Short term borrowings
Australia
Overseas
Long term borrowings
Australia
Overseas
Loan capital
Australia
Other interest bearing liabilities
Intragroup borrowings
Overseas
Average interest bearing liabilities
and loan capital and interest expense
including intragroup
Intragroup eliminations
Total average interest bearing liabilities
and loan capital and interest expense
Non Interest Bearing Liabilities
Deposits not bearing interest
Australia
Overseas
Liability on acceptances
Australia
Overseas
Other liabilities
Australia
Overseas
Total average non interest
bearing liabilities
Total average liabilities and loan capital
Shareholders’ equity
Total average liabilities, loan capital
and shareholders’ equity
Percentage of total average liabilities
applicable to overseas operations
23,336
8,300
1,263
718
22,970
1,680
15,522
1,375
403
104
614
24
5.4
8.7
1.8
6.2
4.0
1.7
24,341
6,487
1,600
529
21,106
1,696
13,016
1,321
538
103
674
26
6.6
8.2
2.5
6.1
5.2
2.0
21,180 1,509
477
5,939
20,346
1,483
12,301
752
641
95
714
23
7.1
8.0
3.2
6.4
5.8
3.1
3,062
217
7.1
2,587
190
7.3
2,291
177
7.7
481
3,175
3,640
1,656
2,631
874
2,891
57
17
201
220
73
133
50
166
5
713
43
3.5
6.3
6.0
4.4
5.1
5.7
5.7
8.8
6.0
221
3,463
3,445
1,354
2,524
968
2,752
15
739
7
219
215
76
191
43
170
16
46
92,363
(713)
4,251
(43)
4.6
n/a
86,035
(739)
4,643
(46)
91,650
4,208
4.6
85,296
4,597
3.2
6.3
6.2
5.6
7.6
4.4
6.2
n/a
6.2
5.4
n/a
5.4
230
2,904
1,740
1,447
1,531
795
1,894
46
9
179
121
75
145
29
123
2
1,025
59
75,904 4,378
(59)
(1,025)
74,879 4,319
3.9
6.2
7.0
5.2
9.5
3.6
6.5
n/a
5.8
5.8
n/a
5.8
3,738
58
9,660
34
9,377
1,990
24,857
116,507
7,048
123,555
16.5%
3,566
53
9,825
55
7,504
1,438
22,441
107,737
6,621
114,358
15.6%
3,604
76
10,692
42
5,726
1,245
21,385
96,264
6,841
103,105
15.3%
65
Notes to and forming part of the accounts
continued
NOTE 3 Average Balance Sheet and Related Interest continued
Commonwealth Bank of Australia and Controlled Entities
Changes in Net Interest Income: Volume and Rate Analysis
The table allocates changes in net interest income between changes in volume and changes in rate over the previous year.
Volume variances have been calculated by multiplying the average of both years’ average interest rates, on average
interest earning assets and average interest bearing liabilities, by the movement in average asset and liability balances.
Rate variances have been calculated by multiplying the average of the average asset and liability balances by the change in
average interest rates. Variances resulting from changes in volume/rate movements have been allocated to each category
in the same proportion as the actual ratio of individual volume and rate variances.
Year ended 30 June 1998
versus 1997
Rate
$M
Year ended 30 June 1997
versus 1996
Rate
$M
Volume
$M
Volume
$M
Total
$M
Total
$M
Interest Earning Assets
Receivables due from other financial institutions
Australia
Overseas
Deposits with regulatory authorities
Australia
Investment/trading and other securities
Australia
Overseas
Loans, advances and other receivables
Australia
Overseas
Other interest earning assets
Intragroup loans
Australia
Change in interest income including intragroup
Intragroup eliminations
Change in interest income
Interest Bearing Liabilities
Time deposits
Australia
Overseas
Savings deposits
Australia
Overseas
Other demand deposits
Australia
Overseas
Public borrowings by borrowing corporations
Australia
Payables due to other financial institutions
Australia
Overseas
Short term borrowings
Australia
Overseas
Long term borrowings
Australia
Overseas
Loan capital
Australia
Other interest bearing liabilities
Intragroup borrowings
Overseas
Change in interest expense including intragroup
Intragroup eliminations
Change in interest expense
Change in net interest income
(27)
(48)
1
(148)
65
544
205
n/a
(2)
590
2
592
(64)
155
43
(1)
116
1
34
9
(19)
12
15
8
(4)
8
n/a
(2)
311
2
313
279
(2)
32
(12)
(37)
(10)
(961)
18
(4)
(1)
(977)
1
(976)
(273)
34
(178)
2
(176)
(3)
(7)
1
1
(7)
(18)
(66)
11
(12)
(11)
(1)
(703)
1
(702)
(274)
(29)
(16)
(11)
(185)
55
(417)
223
(4)
(3)
(387)
3
(384)
(337)
189
(135)
1
(60)
(2)
27
10
(18)
5
(3)
(58)
7
(4)
(11)
(3)
(392)
3
(389)
5
42
(33)
2
(18)
63
831
141
n/a
(17)
1,011
17
1,028
214
45
23
13
40
13
22
-
35
108
(5)
80
7
53
n/a
(17)
631
17
648
380
(1)
1
(8)
(86)
(16)
(613)
(29)
(3)
4
(751)
(4)
(755)
(123)
7
(126)
(5)
(80)
(10)
(9)
(2)
5
(14)
6
(34)
7
(6)
14
4
(366)
(4)
(370)
(385)
41
(32)
(6)
(104)
47
218
112
(3)
(13)
260
13
273
91
52
(103)
8
(40)
3
13
(2)
40
94
1
46
14
47
14
(13)
265
13
278
(5)
66
NOTE 3 Average Balance Sheet and Related Interest continued
Net interest income
Average interest earnings assets
E C O N O M I C E N T I T Y
1998
$M
1997
$M
1996
$M
3,397
102,165
3,392
96,163
3,397
84,770
Interest Margins and Spreads
Interest spread represents the difference between the average interest rate earned and the average interest rate paid
on funds.
Interest margin represents net interest income as a percentage of average interest earning assets. The calculations
for Australia and Overseas include intragroup cross border loans/borrowings and associated interest.
Australia
Interest spread adjusted for interest forgone on non accrual and restructured loans
Interest foregone on non accrual and restructured loans
Interest Spread
Benefit of net free liabilities, provisions and equity
Australia Interest Margin
Overseas
Interest spread adjusted for interest foregone on non accrual and restructured loans
Interest foregone on non accrual and restructured loans
Interest spread
Benefit of net free liabilities, provisions and equity
Overseas Interest Margin
Group
Interest spread adjusted for interest foregone on non accrual and restructured loans
Interest foregone on non accrual and restructured loans
Interest spread
Benefit of net free liabilities, provisions and equity
Group Interest Margin
%
%
%
3.22
(0.04)
3.18
0.43
3.61
1.44
(0.04)
1.40
0.57
1.97
2.89
(0.04)
2.85
0.48
3.33
3.30
(0.07)
3.23
0.64
3.87
1.41
(0.02)
1.39
0.36
1.75
2.98
(0.06)
2.92
0.61
3.53
3.78
(0.11)
3.67
0.73
4.40
1.61
(0.03)
1.58
0.32
1.90
3.43
(0.10)
3.33
0.68
4.01
67
Notes to and forming part of the accounts
continued
Commonwealth Bank of Australia and Controlled Entities
NOTE 4 Abnormal Items
Abnormal expense items:
Restructuring costs (Note 1(aa))
General provision charge for bad and doubtful debts (Note 1(o))
Write down of computer equipment (Note 1(s))
Total Abnormal Items Before Tax
Abnormal tax expense (credit) items:
Restructuring costs (Note 1(aa))
Tax effecting general provision (Note 1(y))
Write down of computer equipment (Note 1(s))
Total Abnormal Income Tax Expense (Credit)
Total Abnormal Items After Tax
E C O N O M I C E N T I T Y
C H I E F E N T I T Y
1998
$M
1997
$M
1996
$M
1998
$M
1997
$M
200
370
-
570
(72)
(337)
-
(409)
161
-
-
200
200
-
-
(72)
(72)
128
-
-
-
-
-
-
-
-
-
200
370
-
570
(72)
(337)
-
(409)
161
-
-
200
200
-
-
(72)
(72)
128
NOTE 5 Income Tax Expense
Income tax expense shown in the financial statements differs from the prima facie tax charge calculated at current taxation
rates on operating profit.
Operating profit before abnormal items and income tax
1,912
1,816
1,776
1,550
1,547
Prima facie income tax at 36%
Add (or deduct) permanent differences expressed on
a tax effect basis:
Current Period
Increase in general provisions for bad and doubtful debts
Specific provisions for offshore bad and doubtful debts
not tax effected
Non deductible depreciation on buildings
Taxation rebates (net of accruals)
Non assessable income - life insurance surplus
Non deductible goodwill amortisation
Employee share acquisition plan
Other
Prior Periods
Other
Income tax attributable to operating profit
Abnormal income tax expense (credit) (Note 4)
688
654
639
558
557
9
28
50
9
29
35
9
(33)
(27)
16
(10)
(13)
(14)
(33)
641
(409)
-
9
(35)
(27)
15
(10)
(23)
(43)
(23)
588
(72)
-
12
(28)
(20)
14
-
(18)
10
(14)
635
-
28
8
(44)
-
14
(10)
(25)
(20)
(32)
506
(409)
-
10
(88)
-
14
(10)
(18)
(63)
(23)
471
(72)
Income tax expense
232
516
635
97
399
68
NOTE 5 Income Tax Expense continued
Income tax expense comprises:
Current taxation provision
Deferred income tax provision
Future income tax benefit
Notional tax expense - leveraged leases
Other
Total Income Tax Expense
The components of income tax expense consist of the following:
Current
Australia
Overseas
Deferred Australia
Overseas
The significant temporary differences are as follows:
Deferred income tax assets arising from:
Provisions not tax deductible until expense incurred
Other
Future income tax benefits (Note 20)
Deferred income tax liabilities arising from:
Leveraged leasing
Lease financing
Accelerated tax depreciation
Other
Total deferred income tax liabilities (Note 23)
Future income tax benefits attributable to tax losses
carried forward as an asset
Future income tax benefits not taken to account
Valuation allowance
Opening balance
Prior year adjustments
Benefits now taken to account
Benefits not recognised
Closing balance (Note 20)
E C O N O M I C E N T I T Y
C H I E F E N T I T Y
1998
$M
1997
$M
1996
$M
1998
$M
1997
$M
245
128
(158)
16
1
232
194
51
245
(13)
-
(13)
232
272
53
325
437
185
47
214
883
375
97
22
22
-
516
326
49
375
141
-
141
516
82
85
167
439
175
74
67
755
546
20
51
18
-
635
508
38
546
89
-
89
635
149
40
189
407
52
74
125
658
189
43
(146)
9
2
97
189
-
189
(92)
-
(92)
97
261
32
293
191
36
47
162
436
295
48
45
11
-
399
295
-
295
104
-
104
399
64
83
147
234
55
74
30
393
-
-
-
-
-
96
6
(4)
34
132
83
7
(2)
8
96
102
5
(24)
-
83
96
6
(4)
23
121
83
7
(2)
8
96
69
Notes to and forming part of the accounts
continued
Commonwealth Bank of Australia and Controlled Entities
NOTE 6 Dividends Provided For, Reserved or Paid
Interim dividend (fully franked) of 46 cents per share
(1997: 45 cents, 1996: 38 cents)
Provision for interim dividend - cash component only
Declared final dividend (fully franked) of 58 cents per share
(1997: 57 cents, 1996: 52 cents)
Provision for final dividend - cash component only
Dividends provided for payments in cash or paid
Appropriations to Dividend Reinvestment Plan Reserve
Interim dividend
Final dividend
Dividends appropriated to Dividend Reinvestment Plan Reserve
Total Dividends Provided For, Reserved or Paid
E C O N O M I C E N T I T Y
C H I E F E N T I T Y
1998
$M
1997
$M
1996
$M
1998
$M
1997
$M
231
231
203
231
231
321
552
189
214
403
955
291
522
180
239
419
941
301
504
166
162
328
832
321
552
189
214
403
955
291
522
180
239
419
941
Dividend Franking Account
The amount of franking credits available for subsequent financial years stands at $474 million. This figure represents the
extent to which future dividends could be fully franked at 36%, and is based on the Bank’s franking account at 30 June
1998, which has been adjusted for franking credits that will arise from the payment of income tax payable on profits of the
1998 financial year, franking debits that will arise from the payment of dividends proposed as at the end of the financial
year and franking credits that the Bank may be prevented from distributing in the subsequent financial year including $25
million as a result of a compromise with the Australian Taxation Office in respect of the buy back.
NOTE 7 Earnings Per Share
Earnings Per Ordinary Share (basic and fully diluted)
Reconciliation of earnings used in the calculation of earnings per share
Operating profit after income tax
Less: Outside equity interests
Earnings used in calculation of earnings per share
Weighted average number of ordinary shares used
in the calculation of earnings per share
1998
c
117.2
$M
1,110
(20)
1,090
M
930
E C O N O M I C E N T I T Y
1997
c
117.5
$M
1,100
(22)
1,078
1996
c
115.5
$M
1,141
(22)
1,119
Number of Shares
M
M
917
969
70
NOTE 8 Cash and Liquid Assets
Australia
Notes, coins and cash at bankers
Money at short call
Securities purchased under agreements to resell
Bills receivable and remittances in transit
Total Australia
Overseas
Notes, coins and cash at bankers
Money at short call
Bills receivable and remittances in transit
Total Overseas
Total Cash and Liquid Assets
E C O N O M I C E N T I T Y
C H I E F E N T I T Y
1998
$M
1997
$M
1998
$M
1997
$M
921
96
328
141
1,486
30
10
-
40
1,526
1,060
37
675
84
1,856
31
-
120
151
2,007
909
-
328
140
1,377
-
16
-
16
1,393
1,060
-
675
84
1,819
-
-
111
111
1,930
NOTE 9 Receivables from Other Financial Institutions
Australia
Overseas
Total Receivables from Other Financial Institutions
2,382
1,066
3,448
2,616
2,223
4,839
2,371
834
3,205
2,590
2,037
4,627
NOTE 10 Trading Securities
Australia
Listed:
Australian Public Securities
Commonwealth and States
Local and semi-government
Other securities
Unlisted:
Commercial paper
Certificates of deposit
Bills of exchange
Medium term notes
Other securities
Total Australia
Overseas
Listed:
Government securities
Eurobonds
Bills of exchange
Other securities
Unlisted:
Government securities
Commercial paper
Other securities
Total Overseas
Total Trading Securities
237
282
-
336
146
656
263
290
2,210
413
306
514
73
4
402
87
1,799
4,009
130
57
185
189
312
996
288
21
2,178
124
275
-
27
-
-
31
457
2,635
237
281
-
336
146
656
263
290
2,209
59
306
-
73
-
1
50
489
2,698
130
57
185
234
312
996
288
21
2,223
124
275
-
27
-
-
24
450
2,673
71
Notes to and forming part of the accounts
continued
Commonwealth Bank of Australia and Controlled Entities
E C O N O M I C E N T I T Y
C H I E F E N T I T Y
1998
$M
1997
$M
1998
$M
1997
$M
1,960
-
578
3,769
20
564
1,914
-
527
3,695
-
524
-
-
17
-
141
455
8
17
34
5
115
301
-
-
-
-
141
13
-
17
-
-
115
22
3,151
4,833
2,595
4,373
179
5
547
539
447
25
-
-
648
227
29
182
879
3,707
6,858
323
5
923
367
687
38
333
435
64
78
-
351
796
4,400
9,233
179
5
547
539
447
25
-
-
647
227
29
182
527
3,354
5,949
323
5
923
367
676
16
-
46
64
78
-
351
184
3,033
7,406
NOTE 11 Investment Securities
Australia
Listed:
Australian Public Securities
Commonwealth and States
Treasury notes
Other securities and equity investments
Unlisted:
Australian Public Securities
Commonwealth and States
Treasury notes
Bills of exchange
Certificates of deposit
Medium term notes
Other securities and equity investments
Total Australia
Overseas
Listed:
Government securities
Treasury notes
Certificates of deposit
Eurobonds
Other securities
Unlisted:
Government securities
Treasury notes
Bills of exchange
Certificates of deposit
Eurobonds
Medium term notes
Commercial paper
Other securities and equity investments
Total Overseas
Total Investment Securities
72
NOTE 11 Investment Securities continued
Gross Unrealised Gains and Losses of Economic Entity
Amortised
Cost
$M
At 30 June 1998
Gross Unrealised
Losses
Gains
$M
$M
Fair
Value
$M
Amortised
Cost
$M
At 30 June 1997
Gross Unrealised
Losses
$M
Gains
$M
Fair
Value
$M
Australia
Australian Public Securities
Commonwealth and States
Treasury notes
Bills of exchange
Certificates of deposit
Medium term notes
Other securities and
equity investments
Total Australia
Overseas
Government securities
Treasury notes
Bills of exchange
Certificates of deposit
Eurobonds
Medium term notes
Other securities and
equity investments
Total Overseas
Total Investment Securities
1,960
-
17
-
141
34
-
-
-
18
-
-
-
-
-
1,994
-
17
-
159
3,777
37
34
5
115
130
-
-
-
13
-
-
-
-
-
3,907
37
34
5
128
1,033
59
3,151 111
-
-
1,092
3,262
865
4,833
88
231
9
9
944
5,055
204
5
-
1,195
766
29
30
-
-
7
53
-
231
3
5
-
-
-
1 1,201
811
8
25
4
361
338
435
987
445
-
15
1
2
3
22
-
-
-
1
-
3
-
376
339
436
990
464
-
1,508
83
3,707 173
284
6,858
1,544
47
63 3,817
63 7,079
1,834
4,400
9,233
68
111
342
-
4
13
1,902
4,507
9,562
Investment securities are carried at cost or amortised cost and are purchased with the intent of being held to maturity.
The investment portfolio is managed in the context of the full balance sheet of the Bank.
Equity derivatives are in place to hedge equity market risk. There are $50 million of net deferred losses on these
contracts (1997: $78 million net deferred losses) which offset the above gains and these are disclosed within Note 37.
At the end of the financial year $80 million of net deferred losses (1997: nil) are included in the amortised cost value.
73
Notes to and forming part of the accounts
continued
Commonwealth Bank of Australia and Controlled Entities
NOTE 11 Investment Securities continued
Maturity Distribution and Average Yield
The table analyses the maturities and weighted average yields of the Economic Entity’s holdings of investment securities.
1 to 12 months
%
$M
Maturity Period at 30 June 1998
5 to 10 years
1 to 5 years
%
%
$M
$M
10 years or more
%
$M
Total
$M
Australia
Australian Public Securities:
Commonwealth and States
Bills of exchange
Medium Term Notes
Other securities, commercial
paper and equity investments
Total Australia
Overseas
Government securities
Treasury Notes
Certificates of Deposit
Eurobonds
Medium Term Notes
Other securities, commercial
paper and equity investments
Total Overseas
Total Investment Securities
Maturities at Fair Value
126
17
-
588
731
64
5
1,114
116
-
248
1,547
2,278
2,331
6.76
5.32
-
6.44
6.75
2.24
6.22
6.33
-
4.09
1,512
-
84
-
1,596
67
-
48
234
29
652
1,030
2,626
2,684
5.89
-
9.11
-
9.25
-
7.86
7.03
-
9.12
6.64
-
9.80
0.11
5.93
-
5.51
6.32
-
6.58
322
-
57
104 *
483
73
-
33
416
-
261
783
1,266
1,368
-
-
-
-
-
-
-
-
6.29
-
-
-
341 *
341
-
-
-
-
-
347
347
688
696
1,960
17
141
1,033
3,151
204
5
1,195
766
29
1,508
3,707
6,858
7,079
includes Equity investments
*
Proceeds at or close to maturity of investment securities were $8,681 million (1997: $7,013 million, 1996: $7,956 million).
Proceeds from sale of investment securities were $1,787 million (1997: $1,172 million, 1996: $729 million).
Realised capital gains were $65 million (1997: realised capital gains $12 million and realised capital losses $8 million, 1996:
realised capital losses $10 million).
74
NOTE 12 Loans, Advances and Other Receivables
Australia
Overdrafts
Housing loans
Credit card outstandings
Lease financing
Bills discounted
Term loans
Redeemable preference share financing
Equity participation in leveraged leases
Other lending
Total Australia
Overseas
Overdrafts
Housing loans
Credit card outstandings
Lease financing
Bills discounted
Term loans
Redeemable preference share financing
Other lending
Total Overseas
Gross Loans, Advances and Other Receivables
Less -
Provisions for impairment (Note 13)
General provision
Specific provision against loans and advances
Unearned income
Term loans
Lease financing
Leveraged leases
Interest reserved
Unearned tax remissions on leveraged leases
Net Loans, Advances and Other Receivables
Lease receivables, net of unearned income
(included above)
Current
Non current
E C O N O M I C E N T I T Y
C H I E F E N T I T Y
1998
$M
1997
$M
1998
$M
1997
$M
2,841
41,137
2,218
3,594
916
25,676
740
1,615
1,290
80,027
519
6,273
134
60
4
5,189
369
-
12,548
92,575
2,707
37,400
1,823
3,032
1,025
22,939
775
1,455
1,565
72,721
379
5,983
123
28
124
3,977
367
88
11,069
83,790
2,876
41,137
2,217
1,123
917
22,173
125
769
738
72,075
-
125
-
-
4
2,260
-
-
2,389
74,464
2,719
37,400
1,823
1,045
1,025
19,234
159
866
718
64,989
-
146
-
-
88
1,585
-
73
1,892
66,881
(1,076)
(279)
(690)
(241)
(995)
(232)
(604)
(211)
(425)
(473)
(295)
(102)
(109)
(2,759)
89,816
(400)
(442)
(177)
(109)
(99)
(2,158)
81,632
-
(130)
(42)
(93)
(23)
(1,515)
72,949
-
(145)
(58)
(101)
(31)
(1,150)
65,731
932
2,249
3,181
816
1,802
2,618
281
712
993
295
605
900
75
Notes to and forming part of the accounts
continued
Commonwealth Bank of Australia and Controlled Entities
NOTE 13 Provisions for Impairment
General Provisions
Opening balance
Abnormal charge
Charge against profit and loss
Transfer to specific provisions
Bad debts recovered
Adjustments for exchange rate fluctuations
Bad debts written off
Closing balance
Specific Provisions
Opening balance
Charge against profit and loss
New and increased provisions
Write-back of provisions no longer required
Transfer from general provision for
New and increased provisioning
Less write-back of provisions no longer required
Net transfer
Adjustments for exchange rate fluctuations and other items
Bad debts written off
Closing balance
Total Provisions for Impairment
Specific provisions for impairment comprise the
following segments:
Provisions against loans and advances
Provisions for diminution
Total
Provision Ratios
Specific provisions for impairment as % of gross impaired
assets net of interest reserved
Total provisions for impairment as % of gross impaired
assets net of interest reserved
General provisions as % of risk weighted assets
Charge to profit and loss for bad and doubtful debt comprises:
General provisions
Specific provisions
Total Charge for Bad and Doubtful Debts
76
E C O N O M I C E N T I T Y
C H I E F E N T I T Y
1998
$M
1997
$M
1998
$M
1997
$M
690
370
165
(155)
48
-
1,118
(42)
1,076
613
-
36
-
80
2
731
(41)
690
604
370
164
(152)
38
2
1,026
(31)
995
521
-
48
-
67
-
636
(32)
604
241
318
211
289
105
(37)
175
(20)
155
(6)
458
(179)
279
1,355
279
-
279
%
152
(90)
-
-
-
6
386
(145)
241
931
241
-
241
%
94
(34)
169
(17)
152
(7)
416
(154)
262
1,257
232
30
262
%
117
(80)
-
-
-
6
332
(121)
211
815
211
-
211
%
33.86
30.24
37.11
29.39
164.44
1.14
$M
116.81
0.79
$M
178.19
1.14
$M
113.51
0.78
$M
165
68
233
36
62
98
164
60
224
48
37
85
NOTE 13 Provisions for Impairment continued
Total charge for bad and doubtful debts
The charge is required for
Specific Provisioning
New and increased provisioning
Less provisions no longer required
Net specific provisioning
Provided from general provision
Charge to profit and loss
General Provisioning
Direct write-offs
Recoveries of amounts previously written off
Movement in general provision
Funding of specific provisions
Charge to profit and loss
Total Charge for Bad and Doubtful Debts
Distribution of Bad Debt Expense
Commonwealth Bank of Australia
CBFC Limited
Commonwealth Development Bank
ASB Bank Limited
Others
Distribution of Provisions for Impairment
Commonwealth Bank of Australia
CBFC Limited
Commonwealth Development Bank
ASB Bank Limited
Others (including consolidation adjustments)
E C O N O M I C E N T I T Y
C H I E F E N T I T Y
1998
$M
233
280
(57)
223
(155)
68
42
(48)
16
155
165
233
1997
$M
1998
$M
98
224
152
(90)
62
-
62
41
(80)
75
-
36
98
263
(51)
212
(152)
60
31
(38)
19
152
164
224
1997
$M
85
117
(80)
37
-
37
32
(67)
83
-
48
85
E C O N O M I C E N T I T Y
1998
$M
1997
$M
224 85
10 5
(5)
-
10 9
(6)
(1)
233 98
G e n e r a l P r o v i s i o n
S p e c i f i c P r o v i s i o n
1998
$M
1997
$M
1998
$M
1997
$M
995
29
16
31
5
1,076
604
28
24
31
3
690
262
6
10
7
(6)
279
211
7
14
6
3
241
77
Commonwealth Bank of Australia and Controlled Entities
Notes to and forming part of the accounts
continued
NOTE 14 Credit Risk Concentrations
Management of the Credit Business
Credit risk is the potential for loss arising from:
•
failure of a debtor or counterparty to meet their contractual obligations; and
failure to recover the recorded value of equity investments arising from individual transactions.
•
The Economic Entity has clearly defined credit policies for the approval and management of credit risk. Credit
underwriting standards, which incorporate income/repayment capacity, acceptable terms and security and loan
documentation tests exist for all products.
The Economic Entity relies, in the first instance, on the assessed integrity and ability of the debtor or counterparty
to meet its contracted financial obligations for repayment. Collateral security, in the form of real property or a floating
charge is generally taken for business credit except for major government, bank and corporate counterparties of strong
financial standing. Longer term consumer finance is generally secured against real estate while short term revolving
consumer credit is generally unsecured.
The credit risk portfolio is divided into two segments - statistically managed and credit risk rated managed.
Statistically managed exposures are generally not reviewed unless arrears occur. Credit risk rated managed exposures
are required to be reviewed at least annually. Both segments are subject to inspection by the Risk Asset Review
function which reports quarterly on its findings to the Board Risk Committee.
Facilities in the statistically managed segment become classified for remedial management by centralised units
based on arrears status. Impaired assets in this segment are those ‘classified’ facilities which are not well secured and
past due 180 days or more.
Facilities in the credit risk rated managed segment become classified for remedial management by centralised units
based on assessment in the risk rating system, which for each exposure makes an assessment of the risk of default, and
then the risk of loss if default should occur. Impaired assets in this segment are those ‘classified’ facilities where either
a specific provision for impairment has been raised, the facility is maintained on a cash basis, a loss of principal
or interest is anticipated, facilities have been restructured or other assets have been accepted in satisfaction
of an outstanding debt.
A centralised exposure management system records all significant credit risks borne by the Economic Entity. This
system is used to monitor concentrations by client, industry, geography and any other concentrations where increased
risk is apparent.
Maximum aggregated credit limits apply for debtors or counterparties (refer Large Exposures below).
Credit risk is actively monitored and reviewed on a portfolio basis with regular independent reviews undertaken
to test the quality of the credit risk portfolio, compliance with policy and underwriting standards, and the effectiveness
of management control. The results of the reviews are reported quarterly to the Board Risk Committee.
78
NOTE 14 Credit Risk Concentrations continued
The following tables set out the credit risk concentrations of the Economic Entity.
Industry
Trading Investment
Loans
Advances
and Other Acceptances Contingent
Bank
R i s k C o n c e n t r a t i o n B y A s s e t C l a s s 3 0 J u n e 1 9 9 8
Securities
$M
Securities Receivables of Customers
$M
$M
$M
Liabilities Derivatives
$M
$M
Total
$M
Australia
Government and Public Authorities
544
1,698
1,216
365 1,034
343
5,200
Agriculture, Forestry and Fishing
-
-
4,128
523
82
58
4,791
Financial, Investment and Insurance
484
17
2,490 2,549 2,358
6,543
14,441
Real Estate - mortgage
Real Estate - construction
Personal
Lease Financing
-
-
-
-
Other Commercial and Industrial
1,182
1,436
-
34,505
94
-
-
1,197
885
708
-
-
14,063
57
242
-
-
20,488 5,042 5,623
1,940
-
-
-
34,599
2,790
14,362
-
1,940
1,303
35,074
Total Australia
Overseas
2,210
3,151
80,027 9,700 9,862
8,247
113,197
Government and Public Authorities
74
208
105
-
312
120
Agriculture, Forestry and Fishing
-
-
640
-
-
-
819
640
Financial, Investment and Insurance
916
1,195
1,449
-
451
1,934
5,945
Real Estate - mortgage
Real Estate - construction
Personal
Lease Financing
-
-
-
-
-
6,304
-
2
-
318
-
187
-
-
-
217
-
173
-
-
4
38
-
-
6,306
505
259
173
Other Commercial and Industrial
809
2,304
3,342
27 1,580
29
8,091
Total Overseas
Gross Balances
1,799
3,707
12,548
27 2,536
2,121
22,738
4,009
6,858
92,575 9,727 12,398
10,368
135,935
Other Risk Concentrations
Receivables due from other financial
institutions
Deposits with regulatory authorities
Total Gross Credit Risk
3,448
832
140,215
79
Notes to and forming part of the accounts
continued
NOTE 14 Credit Risk Concentrations continued
Commonwealth Bank of Australia and Controlled Entities
R i s k C o n c e n t r a t i o n b y A s s e t C l a s s 3 0 J u n e 1 9 9 7
Industry
Trading Investment
Securities
$M
Securities
$M
Loans
Advances
and Other Acceptances Contingent
Bank
Receivables of Customers
$M
$M
Liabilities Derivatives
$M
$M
Total
$M
Australia
Government and Public Authorities
Agriculture, Forestry and Fishing
Financial, Investment and Insurance
Real Estate - mortgage
Real Estate - construction
Personal
Lease Financing
Other Commercial and Industrial
Total Australia
Overseas
Government and Public Authorities
Agriculture, Forestry and Fishing
Financial, Investment and Insurance
Real Estate - mortgage
Real Estate - construction
Personal
Lease Financing
Other Commercial and Industrial
Total Overseas
Gross Balances
Other Risk Concentrations
Receivables due from other financial
institutions
Deposits with regulatory authorities
Total Gross Credit Risk
187
-
1,263
-
-
-
-
728
2,178
131
-
-
-
-
-
-
326
457
2,635
3,811
-
100
-
-
-
-
922
4,833
707
48
1,539
-
-
6
-
2,100
4,400
9,233
1,955
3,185
1,859
32,892
1,138
10,740
4,277
16,675
72,721
28
547
1,494
6,247
151
133
-
2,469
11,069
83,790
115
451
2,431
98
943
264
-
4,524
8,826
-
-
-
-
-
-
-
48
48
417
87
2,958
-
599
56
-
5,835
9,952
179
-
275
-
15
9
-
1,778
2,256
8,874
12,208
201
20
2,858
-
25
-
-
1,063
4,167
3
-
1,612
-
-
-
-
6,686
3,743
11,469
32,990
2,705
11,060
4,277
29,747
102,677
1,048
595
4,920
6,247
166
148
-
38
1,653
5,820
6,759
19,883
122,560
4,839
797
128,196
Risk concentrations for contingent liabilities and derivatives are based on the credit equivalent balance in Note 36,
Contingent Liabilities and Note 37, Market Risk respectively.
80
NOTE 14 Credit Risk Concentrations continued
R i s k C o n c e n t r a t i o n o f I m p a i r e d A s s e t s 3 0 J u n e 1 9 9 8
Industry
Australia
Government and Public Authorities
Agriculture, Forestry and Fishing
Financial, Investment and Insurance
Real Estate - mortgage
Real Estate - construction
Personal
Lease Financing
Other Commercial and Industrial
Total Australia
Overseas
Government and Public Authorities
Agriculture, Forestry and Fishing
Financial, Investment and Insurance
Real Estate - mortgage
Real Estate - construction
Personal
Lease Financing
Other Commercial and Industrial
Total Overseas
Gross Balances
Receivables due from other financial
institutions
Deposits with regulatory authorities
Total Gross Credit Risk
Total
Risk
$M
5,200
4,791
14,441
34,599
2,790
14,362
1,940
35,074
113,197
819
640
5,945
6,306
505
259
173
8,091
22,738
135,935
3,448
832
140,215
Impaired Provisions for
Impairment
Assets
$M
$M
-
20
16
3
8
14
-
113
174
-
1
-
5
10
-
-
89
105
279
-
66
65
-
102
9
2
372
616
-
3
2
-
3
2
-
300
310
926
Write-offs
$M
Recoveries
$M
Net
Write-offs
$M
-
9
4
11
6
86
6
79
201
-
-
3
1
-
6
-
10
20
-
(4)
(6)
-
(1)
(21)
(2)
(12)
(46)
-
-
-
-
-
(2)
-
-
(2)
-
5
(2)
11
5
65
4
67
155
-
-
3
1
-
4
-
10
18
221
(48)
173
81
Notes to and forming part of the accounts
continued
NOTE 14 Credit Risk Concentrations continued
Commonwealth Bank of Australia and Controlled Entities
Industry
Australia
Government and Public Authorities
Agriculture, Forestry and Fishing
Financial, Investment and Insurance
Real Estate - mortgage
Real Estate - construction
Personal
Lease Financing
Other Commercial and Industrial
Total Australia
Overseas
Government and Public Authorities
Agriculture, Forestry and Fishing
Financial, Investment and Insurance
Real Estate - mortgage
Real Estate - construction
Personal
Lease Financing
Other Commercial and Industrial
Total Overseas
Gross Balances
R i s k C o n c e n t r a t i o n o f I m p a i r e d A s s e t s 3 0 J u n e 1 9 9 7
Total
Risk
$M
Impaired Provisions for
Impairment
$M
Assets
$M
Write-offs
$M
Recoveries
$M
Net
Write-offs
$M
6,686
3,743
11,469
32,990
2,705
11,060
4,277
29,747
102,677
1,048
595
4,920
6,247
166
148
-
6,759
19,883
-
104
58
4
45
44
3
573
831
-
1
2
-
-
1
-
71
75
-
21
22
4
11
12
-
152
222
-
1
2
-
-
-
-
16
19
-
15
4
9
14
58
5
69
174
-
-
-
1
2
3
-
6
12
122,560
906
241
186
-
(5)
(8)
-
(1)
(16)
(2)
(31)
(63)
-
-
(2)
-
(2)
(1)
-
(12)
(17)
(80)
-
10
(4)
9
13
42
3
38
111
-
-
(2)
1
-
2
-
(6)
(5)
106
Receivables due from other financial
institutions
Deposits with regulatory authorities
Total Gross Credit Risk
4,839
797
128,196
Large Exposures
Concentration of exposure to any debtor or counterparty, other than to governments and banks, is controlled by the Large
Credit Exposure Policy. All exposures outside the policy are approved by the Board Risk Committee. The following table
shows the aggregate number of the Economic Entity’s corporate exposures (including direct and contingent exposure)
which individually were greater than 5% of the Economic Entity’s capital resources (Tier 1 and Tier 2 capital):
10% to less than 15% of Economic Entitys capital resources
5% to less than 10% of Economic Entity’s capital resources
1998
Number
1997
Number
1
1
7
4
82
NOTE 15 Asset Quality
Credit Portfolio
The Economic Entity manages its credit portfolio in two segments:
Statistically Managed Segment
This segment comprises selected products where the exposures are generally less than $250,000. This segment
is dominated by the housing portfolio. Credit facilities are approved using credit scoring and check sheet techniques.
Risk Rated Managed Segment
This segment comprises all credit exposures not statistically managed.
Management of this segment is based on the credit risk rating system, which for each exposure makes an assessment
of the risk of default, and then the risk of loss if default should occur.
The Economic Entity’s credit risk portfolio is as follows:
Total gross credit risk (Note 14)
Less unearned income (Note 12)
Credit Risk
Credit Segments
Statistically managed
Risk rated managed
Credit Risk
1998
$M
1997
$M
140,215
(1,193)
139,022
128,196
(1,019)
127,177
50,264
88,758
139,022
46,795
80,382
127,177
Charge for bad and doubtful debts for each segment was:
C r e d i t S e g m e n t s
C h a r g e
L o s s R a t e
C h a r g e
L o s s R a t e
Statistically managed
Risk rated managed
Sub-total
Funding to general provisions
Total charge for bad and doubtful debts
The loss rate is the charge as a percentage of the credit segments.
1998
$M
80
137
217
16
233
1998
% pa
0.16
0.15
0.16
0.01
0.17
1997
$M
61
(38)
23
75
98
1997
% pa
0.13
(0.05)
0.02
0.06
0.08
83
Commonwealth Bank of Australia and Controlled Entities
Notes to and forming part of the accounts
continued
NOTE 15 Asset Quality continued
Impaired Assets
There are three classifications of Impaired Assets:
(a) Non accruals, comprising:
•
•
any credit risk facility against which a specific provision for impairment has been raised;
any credit risk facility maintained on a cash basis because of significant deterioration in the financial position of the
borrower; and
any credit risk facility where loss of principal or interest is anticipated.
•
All interest charged in the current financial period that has not been received in cash is reversed from profit and loss
when facilities become classified as non accrual. Interest on these facilities is only taken to profit if received in cash.
(b) Restructured Facilities
•
credit risk facilities on which the original contractual terms have been modified due to financial difficulties of the
borrower. Interest on these facilities is taken to profit and loss. Failure to comply fully with the modified terms will
result in immediate reclassification to non accruals.
(c) Assets Acquired Through Security Enforcement (AATSE), includes:
• Other Real Estate Owned (OREO), comprising real estate where the Bank has assumed ownership or foreclosed in
settlement of a debt; and
• Other Assets Acquired Through Security Enforcement (OAATSE), comprising assets other than real estate where the
Bank has assumed ownership or foreclosed in settlement of a debt.
E C O N O M I C E N T I T Y
Impaired Asset Ratios
Gross impaired assets net of interest reserved as % of
credit risk net of interest reserved
Net impaired assets as % of:
Risk weighted assets
Total shareholders’ equity
1998
%
0.60
0.58
7.91
1997
%
0.63
0.64
7.92
US GAAP SFAS 114 and 118 - Accounting by Creditors for Impairment of Loans
At 30 June 1998, the recorded investment in loans that are considered to be impaired under SFAS 114 was $920 million
(of which $920 million were on a non accrual basis). Included in this amount is $726 million of impaired assets for which
the related allowance for credit losses is $259 million and $194 million of impaired loans that do not have an allowance for
credit losses. The average recorded investment in impaired loans during the year ended 30 June 1998 was $908 million.
For the year ended 30 June 1998, the Economic Entity recognised interest income on these loans of $34 million.
At 30 June 1997, the recorded investment in loans that are considered to be impaired under SFAS 114 was $896 million
(of which $896 million were on a non accrual basis). Included in this amount is $670 million of impaired assets for which
the related allowance for credit losses is $226 million and $226 million of impaired loans that do not have an allowance for
credit losses. The average recorded investment in impaired loans during the year ended 30 June 1997 was $1,008 million.
For the year ended 30 June 1997, the Economic Entity recognised interest income on these loans of $50 million.
At 30 June 1996, the recorded investment in loans that are considered to be impaired under SFAS 114 was
$1,130 million (of which $1,102 million were on a non accrual basis). Included in this amount is $776 million of impaired
assets for which the related allowance for credit losses is $303 million and $325 million of impaired loans that do not have
an allowance for credit losses. The average recorded investment in impaired loans during the year ended 30 June 1996
was $1,417 million. For the year ended 30 June 1996, the Economic Entity recognised interest income on these loans
of $75 million.
84
E C O N O M I C E N T I T Y
E C O N O M I C E N T I T Y
Australia
1998
$M
Overseas
1998
$M
Total
1998
$M
Australia
1997
$M
Overseas
1997
$M
439
177
616
(85)
531
(174)
357
293
17
310
(17)
293
(105)
188
732
194
926
(102)
824
(279)
545
606
225
831
(100)
731
(222)
509
-
-
-
-
-
-
-
-
-
-
-
616
(85)
531
(174)
357
274
183
159
616
265
-
-
-
-
-
-
-
-
-
-
-
310
(17)
293
(105)
188
5
43
262
310
-
-
-
-
-
-
-
-
-
-
-
926
(102)
824
(279)
545
279
226
421
926
25
290
-
-
-
-
-
-
-
-
-
-
-
831
(100)
731
(222)
509
371
283
177
831
288
74
1
75
(9)
66
(19)
47
-
-
-
-
-
-
-
-
-
-
-
75
(9)
66
(19)
47
3
12
60
75
16
NOTE 15 Asset Quality continued
Non Accrual Loans
With provisions
Without provisions
Gross Balances
Less interest reserved
Net Balances
Less provisions for impairment
Net Non Accrual Loans
Restructured Loans
Gross Balances
Less interest reserved
Net Balances
Less provisions for impairment
Net Restructured Loans
Other Real Estate Owned (OREO)
Gross Balances
Less provisions for impairment
Net OREO
Other Assets Acquired Through Security
Enforcement (OAATSE)
Gross Balances
Less provisions for impairment
Net OAATSE
Total Impaired Assets
Gross Balances
Less interest reserved
Net Balances
Less provisions for impairment
Net Impaired Assets
Non Accrual Loans by Size of Loan
Less than $1 million
$1 million to $10 million
Greater than $10 million
Accruing Loans 90 days past due or more
These are loans which are well secured and
not classified as impaired assets but which
are in arrears 90 days or more. Interest on
these loans continues to be taken to profit.
Total
1997
$M
680
226
906
(109)
797
(241)
556
-
-
-
-
-
-
-
-
-
-
-
906
(109)
797
(241)
556
374
295
237
906
304
85
Notes to and forming part of the accounts
continued
Commonwealth Bank of Australia and Controlled Entities
E C O N O M I C E N T I T Y
E C O N O M I C E N T I T Y
Australia
1998
$M
Overseas
1998
$M
Total
1998
$M
Australia
1997
$M
Overseas
1997
$M
Total
1997
$M
NOTE 15 Asset Quality continued
Interest Income Foregone on Impaired Assets
Comprises net interest charged but not taken to profit during the year, and interest assessed for loans on which no interest
has been charged.
Non Accrual Loans
Restructured Loans
OREO
OAATSE
Total
Interest taken to Profit and Loss on Impaired Assets
Non Accrual Loans
Restructured Loans
OREO
OAATSE
Total
34
-
-
-
34
34
-
-
-
34
7
-
-
-
7
-
-
-
-
-
41
-
-
-
41
34
-
-
-
34
52
-
-
-
52
50
-
-
-
50
3
-
-
-
3
-
-
5
-
5
Migration of Impaired Assets
The following table provides an analysis of the movement in the gross impaired asset balances.
Opening balance
Plus - new and increased
Less - balances written off
- return to performing or repaid
Closing balance
906
689
(216)
(453)
926
55
-
-
-
55
50
-
5
-
55
1,185
487
(190)
(576)
906
Asian Exposures
The Economic Entity’s credit risk exposure to Asian countries as at 30 June 1998 is set out below.
C u s t o m e r T y p e
Country
Finance
$M
115
263
378
2,065
8
581
12
7
2,673
87
272
27
386
3,437
China
Hong Kong
Japan
Malaysia
Singapore
Taiwan
Other
Indonesia
South Korea
Thailand
Total
86
Corporate/
Multinational
$M
110
525
635
509
69
104
33
6
721
256
98
209
563
1,919
Government
$M
-
29
29
-
-
5
-
-
5
54
-
18
72
106
Project
Finance
$M
-
-
-
-
-
-
-
-
-
142
-
-
142
142
APL/NZPL
$M
-
162
162
-
1
59
-
-
60
79
-
-
79
301
3 0 / 0 6 / 9 8
3 1 / 1 2 / 9 7
Total
Exposure
$M
Total
Exposure
$M
225
979
1,204
2,574
78
749
45
13
3,459
618
370
254
1,242
5,905
n/a
n/a
1,298
2,839
163
658
89
-
3,749
702
740
256
1,698
6,745
NOTE 15 Asset Quality continued
Country
China
Hong Kong
Japan
Malaysia
Singapore
Taiwan
Other
Indonesia
South Korea
Thailand
Total
Country
China
Hong Kong
Japan
Malaysia
Singapore
Taiwan
Other
Indonesia
South Korea
Thailand
Total
E x p o s u r e C a t e g o r y
3 0 / 0 6 / 9 8
3 1 / 1 2 / 9 7
On BS
O’standing
$M
Undrawn
Commitments
$M
Off BS
O’standing
$M
Pre Settle
Risk
$M
APL/
NZPL
$M
Total
Exposure
$M
Total
Exposure
$M
152
576
728
1,727
69
338
44
10
2,188
342
283
216
841
3,757
38
185
223
264
-
8
1
3
276
66
-
36
102
601
6
5
11
206
7
332
-
-
545
131
48
-
179
735
29
51
80
377
1
12
-
-
390
-
39
2
41
511
-
162
162
-
1
59
-
-
60
79
-
-
79
301
225
979
1,204
2,574
78
749
45
13
3,459
618
370
254
1,242
5,905
n/a
n/a
1,298
2,839
163
658
89
-
3,749
702
740
256
1,698
6,745
P r o d u c t C a t e g o r y
3 0 / 0 6 / 9 8
3 1 / 1 2 / 9 7
Trade
Finance
$M
74
4
78
163
-
-
12
-
175
-
138
2
140
393
Lending
Bkd outside
Asia
$M
55
280
335
402
7
36
-
-
445
-
-
4
4
784
Other Comm
Lending
APL/NZPL
Treasury/
Securities
Total
Exposure
Total
Exposure
$M
67
300
367
384
8
391
33
10
826
539
164
221
924
2,117
$M
-
162
162
-
1
59
-
-
60
79
-
-
79
301
$M
29
233
262
1,625
62
263
-
3
1,953
-
68
27
95
2,310
$M
225
979
1,204
2,574
78
749
45
13
3,459
618
370
254
1,242
5,905
$M
n/a
n/a
1,298
2,839
163
658
89
-
3,749
702
740
256
1,698
6,745
Total Exposure - The maximum of the limit or balance utilised for committed facilities, whichever is highest, and the balance
utilised for uncommitted facilities. For derivative facilities, balances are reported based on the RBA ‘original exposure’
method.
Project Finance - Long term lending for large scale projects (such as mining, infrastructure) where repayment is primarily
reliant on the cash flow from the project for repayment.
On BS O’standing – On balance sheet outstandings are balances of facilities utilised as reported on the balance sheet.
Undrawn Commitments - The excess of limits over utilisations for committed facilities. Further drawdowns are subject
to compliance by the borrower with facility conditions.
Off BS O’standing – Off balance sheet outstandings are balances of off balance sheet facilities utilised (excluding
derivatives).
Pre Settle Risk – Pre settlement risk is the balance of derivative exposures (on RBA ‘original exposure’ basis).
Trade Finance – Trade related documentary letters of credit and other trade products.
APL / NZPL - These are facilities to persons supported primarily by residential property in Australia and New Zealand.
Lending Bkd outside Asia - Lending Booked outside Asia are indirect exposures booked outside Asia where there
is a relationship with the parent entity (such as through a letter of awareness / letter of comfort).
Other – Countries with total exposure of less than $10 million.
n/a – not available.
Information on Asian Exposures has not been disclosed prior to 31 December 1997.
87
Notes to and forming part of the accounts
continued
Commonwealth Bank of Australia and Controlled Entities
NOTE 16 Deposits with Regulatory Authorities
Reserve Bank of Australia
Central Banks Overseas
Total Deposits with Regulatory Authorities
E C O N O M I C E N T I T Y
C H I E F E N T I T Y
1998
$M
1997
$M
831
1
832
793
4
797
1998
$M
827
1
828
1997
$M
782
4
786
Deposits with the RBA are non callable deposits which are required to be maintained at a level equivalent to 1% of the
liabilities of the Bank in Australia.
NOTE 17 Shares in and Loans to Controlled Entities
Shares in controlled entities at cost or recoverable amount
Loans to controlled entities
Total Shares in and Loans to Controlled Entities
-
-
-
-
-
-
3,052
2,531
5,583
2,832
2,308
5,140
NOTE 18 Property, Plant and Equipment
(a) Land and Buildings
Land:
At 30 June 1997 valuation
At 30 June 1998 valuation
Closing balance
Buildings:
At 30 June 1997 valuation
At 30 June 1998 valuation
Closing balance
Total Land and Buildings
-
373
373
-
964
964
1,337
480
-
480
1,039
-
1,039
1,519
-
347
347
-
856
856
451
-
451
914
-
914
1,203
1,365
These valuations were established by the Directors and are lower than valuations prepared by independent valuers.
No adjustments have been taken to asset revaluation reserve in 1998 or 1997.
(b) Leasehold Improvements
At cost
Provision for depreciation
Closing balance
(c) Equipment
At cost
Provision for depreciation
Abnormal write down of computer equipment (Notes 1(s) and 4)
Closing balance
Total Property, Plant and Equipment
NOTE 19 Goodwill
Purchased goodwill
Accumulated amortisation
Total Goodwill
88
254
(129)
125
539
(339)
-
200
1,662
223
(104)
119
1,406
(834)
(200)
372
2,010
242
(126)
116
335
(216)
-
119
1,438
208
(98)
110
1,179
(704)
(200)
275
1,750
835
(304)
531
833
(259)
574
784
(294)
490
784
(255)
529
NOTE 20 Other Assets
Accrued interest receivable
Shares in other companies
Accrued fees/reimbursements receivable
Securities sold not delivered
Future income tax benefits
Unrealised gains on trading derivatives (Note 37)
Other
Total Other Assets
E C O N O M I C E N T I T Y
C H I E F E N T I T Y
1998
$M
1997
$M
1998
$M
1997
$M
794
8
114
1,076
325
8,297
1,245
11,859
868 835
781
8 109
109
32 35
73
489 1,033 473
293 147
167
4,742 8,297 4,742
871 800
1,141
7,502 11,402 7,141
Potential future income tax benefits of the Chief Entity arising from tax losses in offshore centres and timing differences
have not been recognised as assets because recovery is not virtually certain. These benefits, which could amount
to $132 million (1997: $96 million) will only be obtained if:
•
The Chief Entity derives future assessable income of a nature and of an amount sufficient to enable the benefit from the
deductions for the losses to be realised;
The Chief Entity continues to comply with the conditions for deductibility imposed by tax legislation; and
•
• No changes in tax legislation adversely affect the Chief Entity in realising the benefit from the deductions for the losses.
NOTE 21 Deposits and Other Public Borrowings
Australia
Certificates of deposit
Term deposits
On demand and short term deposits
Deposits not bearing interest
By borrowing corporations
Securities sold under agreements to repurchase
Other
Total Australia
Overseas
Certificates of deposit
Term deposits
On demand and short term deposits
Deposits not bearing interest
Total Overseas
2,156
21,679
39,997
3,936
3,183
662
7
71,620
2,938
6,201
3,057
70
12,266
1,700 2,156 1,712
22,415 21,679 22,391
35,535 40,229 35,670
3,929 4,962 4,932
2,924
-
662 714
714
8
1
67,225 69,688 65,420
-
-
975 551
2,076
5,255 2,230 1,820
39 14
3,219
12 31
105
10,655 3,256 2,416
Total Deposits and Other Public Borrowings
83,886
77,880 72,944 67,836
NOTE 22 Payables to Other Financial Institutions
Australia
Overseas
Total Payables to Other Financial Institutions
1,281
2,116
3,397
394 1,252 379
3,227 1,756 2,861
3,621 3,008 3,240
89
Notes to and forming part of the accounts
continued
Commonwealth Bank of Australia and Controlled Entities
E C O N O M I C E N T I T Y
C H I E F E N T I T Y
1998
$M
1997
$M
1998
$M
1997
$M
215
883
1,098
166
755
921
205
436
641
160
393
553
1
-
1
4
-
4
1
-
1
1
-
1
1,099
925
642
554
289
129
316
137
288
123
314
134
218
236
218
236
122
-
122
-
10
35
30
42
875
15
30
50
51
835
10
-
30
39
830
15
-
50
48
797
6,758
3,850
10,608
6,411
3,743
10,154
6,190
3,049
9,239
5,403
3,352
8,755
319
4,219
1,365
827
3,074
1,922
-
4,219
1,245
-
3,074
1,773
855
6,758
588
6,411
726
6,190
556
5,403
NOTE 23 Income Tax Liability
Australia
Provision for income tax
Provision for deferred income tax
Total Australia
Overseas
Provision for income tax
Provision for deferred income tax
Total Overseas
Total Income Tax Liability
NOTE 24 Other Provisions
Provision for:
Long service leave
Annual leave
Other employee entitlements
Restructuring costs
Homes insurance
General insurance claims
Self insurance/non lending losses
Other
Total Other Provisions
NOTE 25 Debt Issues
Short term debt issues
Long term debt issues
Total Debt Issues
Short Term Debt Issues
AUD Promissory Notes
US Commercial Paper
Euro Commercial Paper and Certificates of Deposit
Long Term Debt Issues With Less than
one Year to Maturity
Total Short Term Debt Issues
90
NOTE 25 Debt Issues continued
Long Term Debt Issues
USD Medium Term Notes
AUD Medium Term Notes
JPY Medium Term Notes
E C O N O M I C E N T I T Y
C H I E F E N T I T Y
1998
$M
1997
$M
1998
$M
1997
$M
460
605
460
476
681
853
624
798
813
732
813
732
Other Currencies Medium Term Notes
509
690
293
483
Offshore Loans (all JPY)
Eurobonds (all AUD)
Develop Australia Bonds (all AUD)
Total Long Term Debt Issues
Maturity Distribution of Debt Issues
Less than 3 months
3 months to 12 months
Between 1 and 5 years
Greater than 5 years
Total Debt Issues
558
562
558
562
301
301
301
301
528
-
-
-
3,850
3,743
3,049
3,352
4,653
4,107
4,085
3,099
2,105
2,304
2,105
2,304
2,376
1,474
2,866
877
2,160
889
2,530
822
10,608
10,154
9,239
8,755
The Bank has a Euro Medium Term Note programme under which it may issue notes (EuroMTNs) up to an aggregate
amount of USD5 billion. Notes issued under the programme are both fixed and variable rate. Interest rate risk associated
with the notes is incorporated within the Bank’s interest rate risk framework.
Subsequent to 30 June 1998, the Bank has issued USD200m EuroMTNs due 1999 (AUD323m).
Where any debt is booked in an offshore branch or subsidiary, the amounts have first been converted in to the base
currency of the branch at a branch defined exchange rate, before being converted in to the AUD equivalent.
When proceeds have been employed in currencies other than that of the ultimate repayment liability, swap or other
hedge arrangements have been entered into.
Exchange Rates Utilised
AUD 1.00 = USD
GBP
JPY
NZD
HKD
DEM
CHF
INR
30 June 1998
.6128
.3675
86.3201
1.1930
4.7486
1.1091
.9337
8000
30 June 1997
.7457
.4482
85.2464
1.0992
5.7777
1.2954
1.0846
1890
91
Notes to and forming part of the accounts
continued
Commonwealth Bank of Australia and Controlled Entities
NOTE 25 Debt Issues continued
Guarantee Arrangements
Commonwealth Bank of Australia
The due payment of all monies payable by the Bank was guaranteed by the Commonwealth of Australia under section 117
of the Commonwealth Bank’s Act 1959 (as amended) at 30 June 1996. This guarantee is being progressively phased out
following the reduction of the Commonwealth’s shareholding in the Bank to below 50% on 19 July 1996.
The transitional arrangements for phasing out the Commonwealth’s guarantee are contained in the Commonwealth
Bank Sale Act 1995.
In relation to the Commonwealth’s guarantee of the Bank’s liabilities, transitional arrangements provide that:
• All demand deposits and term deposits will be guaranteed until the end of the day on 19 July 1999, with term
deposits outstanding at the end of the day on 19 July 1999 being guaranteed until maturity; and
• All other amounts payable under a contract that was entered into, or under an instrument executed, issued,
endorsed or accepted by the Bank before 19 July 1996 are guaranteed until their maturity.
Under the terms of an agreement reached between the Commonwealth and the Bank, the Bank will report to the
Commonwealth annually on the level and maturity profile of outstanding liabilities which are subject to the
Commonwealth’s guarantee. The agreement also includes an undertaking from the Bank that it will not seek to extend the
maturity profile of its deposit liabilities beyond that required in the normal course of business during the three years
following 19 July 1996.
Commonwealth Development Bank
On 24 July 1996, the Commonwealth of Australia sold its 8.1% shareholding in the Commonwealth Development Bank
(CDB) to the Bank for $12.5 million.
Under the arrangements relating to the purchase by the Bank of the Commonwealth’s shareholding in the CDB:
• All lending assets as at 30 June 1996 have been quarantined in CDB, consistent with the Charter terms on which
they were written;
The CDB’s liabilities continue to remain guaranteed by the Commonwealth; and
•
• CDB ceased to write new business or incur additional liabilities from 1 July 1996. From that date, new business that
would have previously been written by CDB is being written by the rural arm of the Bank.
The due payment of all monies payable by CDB is guaranteed by the Commonwealth of Australia under Section 117
of the Commonwealth Banks Act 1959 (as amended). This guarantee will continue to be provided by the Commonwealth
whilst quarantined assets are held. The value of the liabilities under the guarantee will diminish as quarantined assets
reach maturity and are repaid.
NOTE 26 Bills Payable and Other Liabilities
Bills payable
Accrued interest payable
Accrued fees and other items payable
Securities purchased not delivered
Unrealised losses on trading derivatives (Note 37)
Other liabilities
Total Bills Payable and Other Liabilities
E C O N O M I C E N T I T Y
C H I E F E N T I T Y
1998
$M
1997
$M
1998
$M
1997
$M
547
817
500
650
7,790
442
10,746
531
312
592
742
458
434
609
904
4,719 7,790
254
587
7,698 10,234
298
624
377
888
4,719
463
7,369
92
NOTE 27 Loan Capital
Tier 1 Capital
Exchangeable
Exchangeable
Undated
Tier 2 Capital
Extendible
Extendible
Subordinated
Subordinated
Subordinated
Currency
Amount (M)
USD300
USD400
USD100
FRNs
FRNs
FRNs
FRNs
FRNs
Euro MTNs
Euro MTNs
Euro MTNs
USD125
AUD300
USD400
GBP200
JPY30,000
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
E C O N O M I C E N T I T Y
C H I E F E N T I T Y
1998
$M
1997
$M
1998
$M
1997
$M
422
563
163
1,148
388
517
134
1,039
422
563
163
1,148
388
517
134
1,039
156
300
501
408
483
1,848
2,996
156
300
501
408
397
1,762
2,801
156
300
501
408
483
1,848
2,996
156
300
501
408
397
1,762
2,801
Total Loan Capital
(1) USD 300 million Undated Floating Rate Notes (FRNs) issued 11 July 1988 exchangeable into Dated FRNs.
Outstanding notes at 30 June 1998 were:
Due July 1998
Due July 1999
Due July 2000
Undated
Outstanding notes at 30 June 1998 were:
Due February 1999
Due February 2000
Undated
:
:
:
:
:
:
:
USD 225.75 million
USD 19 million
USD 48.25 million
USD 7 million
USD 217 million
USD 176 million
USD 7 million
(2) USD 400 million Undated FRNs issued 22 February 1989 exchangeable into Dated FRNs.
(3) USD 100 million Undated Capital Notes issued on 15 October 1986.
The Bank has entered into separate agreements with the Commonwealth of Australia relating to each of the above
issues (the ‘Agreements’) which qualify the issues as Tier 1 capital.
The Agreements provide that, upon the occurrence of certain events listed below, the Bank may issue either fully
paid ordinary shares to the Commonwealth or (with the consent of the Commonwealth) rights to all shareholders
to subscribe for fully paid ordinary shares up to an amount equal to the outstanding principal value of the relevant
note issue or issues plus any interest paid in respect of the notes for the most recent financial year and accrued interest.
The issue price of such shares will be determined by reference to the prevailing market price for the Bank ’s shares.
Any one or more of the following events may trigger the issue of shares to the Commonwealth or a rights issue:
• A relevant event of default (discussed below) occurs in respect of a note issue and the Trustee of the relevant
•
•
•
notes gives notice to the Bank that the notes are immediately due and payable;
The most recent audited annual financial statements of the Group show a loss (as defined in the Agreements);
The Bank does not declare a dividend in respect of its ordinary shares;
The Bank, if required by the Commonwealth and subject to the agreement of the RBA, exercises its option
to redeem a note issue; or
In respect of Undated FRNs which have been exchanged to Dated FRNs, the Dated FRNs mature.
•
Any payment made by the Commonwealth pursuant to its guarantee in respect of the relevant notes will trigger
the issue of shares to the Commonwealth to the value of such payment.
The relevant events of default differ depending on the relevant Agreement. In summary, they cover events such
as failure of the Bank to meet its monetary obligation in respect of the relevant notes; the insolvency of the Bank; any
law being passed to dissolve the Bank or the Bank ceasing to carry on general banking business in Australia; and the
Commonwealth ceasing to guarantee the relevant notes. In relation to the USD 225.75 million of Dated FRNs which
matured in July 1998, the Bank and the Commonwealth agreed to amend the relevant Agreement to reflect that the
Commonwealth was not called upon to subscribe for fully paid ordinary shares up to an amount equal to the principal
value of the maturing FRNs.
93
Notes to and forming part of the accounts
continued
Commonwealth Bank of Australia and Controlled Entities
NOTE 27 Loan Capital continued
(4) USD 125 million Extendible FRNs issued June 1989; due June 1999.
(5) AUD 300 million Extendible Floating Rate Stock issued December 1989; due December 2004.
The Bank has entered into separate agreements with the Commonwealth relating to each of the above issues
(the ‘Agreements’) which qualify the issues as Tier 2 capital. For capital adequacy purposes Tier 2 debt based capital
is reduced each year by 20% of the original amount during the last 5 years to maturity.
The Agreements provide for the Bank to issue either fully paid ordinary shares to the Commonwealth or (with the
consent of the Commonwealth) rights to all shareholders to subscribe for fully paid ordinary shares up to an amount
equal to the outstanding principal value of the relevant note issue or issues plus any interest paid in respect of the
notes for the most recent financial year and accrued interest. The issue price will be determined by reference to the
prevailing market price for the Bank’s shares.
Any one or more of the following events will trigger the issue of shares to the Commonwealth or a rights issue:
• A relevant event of default occurs in respect of a note issue and, where applicable, the Trustee of the relevant
•
notes gives notice of such to the Bank; or
The Bank, if required by the Commonwealth and subject to the agreement of the RBA, exercises its option
to redeem such issue.
Any payment made by the Commonwealth pursuant to its guarantee in respect of the relevant issue will trigger the
issue of shares to the Commonwealth to the value of such payment.
(6) USD 400 million Subordinated Euro MTN issued June 1996; due July 2006.
(7) GBP 200 million Subordinated Euro MTN issued March 1996; due December 2006.
JPY 30 billion Subordinated Euro MTN issued October 1995; due October 2015.
(8)
NOTE 28 Share Capital
Authorised Capital
3,250,000,000 ordinary shares of $2 each
Issued and Paid Up Capital
Opening balance (ordinary fully paid shares of $2 each)
Buy Back
Dividend reinvestment plan
Employee Share Acquisition Plan
Employee Share Subscription Plan
Closing balance
Shares on Issue
As at 30 June 1997
Buy Back
Dividend reinvestment plan issues:
1997 final dividend fully paid ordinary shares at $14.55
1998 interim dividend fully paid ordinary shares at $18.06
Employee Share Acquisition Plan issues
Employee Share Subscription Plan issues
Total shares on issue at 30 June 1998
C H I E F E N T I T Y
1998
$M
1997
$M
6,500
6,500
1,860
(76)
57
4
-
1,845
1,981
(200)
74
5
-
1,860
Number
930,177,235
(38,093,483)
18,511,049
10,093,343
1,640,530
329,600
922,658,274
Employee Share Acquisition Plan
An Employee Share Acquisition Plan was approved by shareholders for a 3 year period at the Annual General Meeting
on 8 October 1996. On 2 January 1997 the Bank allotted 2,303,665 ordinary shares to 27,755 eligible employees for
no consideration under the Employee Share Acquisition Plan. On 18 March 1997 the Bank allotted an additional 1,079
ordinary shares to 13 eligible employees. Each participating eligible employee has been granted one ordinary share
and 82 bonus ordinary shares, which effectively represents $1,000 of free shares at $12.04 per share.
On 11 December 1997 the Bank allotted 1,640,298 ordinary shares to 28,281 eligible employees for no consideration
under the Employee Share Acquisition Plan. On 3 February 1998 the Bank allotted an additional 232 ordinary shares to
4 eligible employees. The 3,025 new eligible employees have been granted one ordinary share and 57 bonus ordinary
shares, which effectively represents $1,000 of free shares at $17.16 per share. The 25,260 previously eligible employees
have been granted 58 bonus shares at $17.16 per share. The bonus shares have been fully paid up as issued shares
utilising the Share Premium Reserve.
94
NOTE 28 Share Capital continued
Employee Share Subscription Plan
An Employee Share Subscription Plan was approved by shareholders for a 3 year period at the Annual General Meeting
on 8 October 1996. On 27 March 1997 a total of 209,400 ordinary shares were issued to 1,149 eligible employees
at a purchase price of $12.74 per share. The purchase price is 95% of the weighted average market price of the shares
on the ASX during the five trading days immediately before the offer date of 25 February 1997. The market price
at date of issue was $12.75 per share.
On 25 September 1997 a total of 171,000 ordinary shares were issued to 971 eligible employees at a purchase price
of $14.84 per share. The purchase price is 95% of the weighted average market price of the shares on the ASX during
the five trading days immediately before the offer date of 26 August 1997. The market value at the date of issue was
$17.22 per share.
On 27 March 1998 a total of 158,600 ordinary shares were issued to 815 eligible employees at a purchase price
of $16.80 per share. The purchase price is 95% of the weighted average market price of the shares on the ASX during
the five trading days immediately before the offer date of 24 February 1998. The market value at the date of issue was
$18.07 per share.
The Employee Share Subscription Plan provides employees of the Bank with the opportunity to purchase ordinary
shares at a 5% discount to the market price of the shares at the time of purchase, subject to a one year restriction
on the disposal of the shares. At the Board’s discretion up to 300 shares per annum may be acquired by employees
who have had at least one year’s continuous service, excluding casual and overseas resident employees. The
opportunity to acquire the shares is available twice a year within a period commencing two days and expiring thirty
days after the Bank’s half yearly and annual results are announced.
Executive Option Plan
An Executive Option Plan was approved by shareholders for a 3 year period at the Annual General Meeting
on 8 October 1996. A total of 2,100,000 options were initially issued on 16 December 1996 to 25 participating eligible
executives, with an exercise price of $11.85 per share and exercise period from 13 November 1999 to 12 November
2001. The exercise price of $11.85 per share was the Market Value (as defined in the Plan Rules) at the Grant Date being
12 November 1996. Market Value is defined as the weighted average of the prices at which shares were traded on the
ASX during the one week period before the Grant Date. The market price at date of issue of the options was $11.93 per
share.
A total of 2,875,000 options were issued on 11 December 1997 to 27 participating eligible executives, with
an exercise price of $15.53 per option and exercise period from 4 November 2000 to 3 November 2002. The exercise
price of $15.53 per share is the Market Value (as defined in the Plan Rules) at the Grant Date being 3 November 1997
which will be adjusted by the premium formula (based on the actual difference between the dividend and bond yields
at the date of the vesting). Market Value is defined as the weighted average of the prices at which shares were traded
on the ASX during the one week period before the Grant Date. The market price at date of issue of the options was
$16.85.
300,000 options, from all grants to date, have been forfeited as at 30 June 1998.
Eligible executives must hold a minimum number of shares as determined by the Board before they are permitted
to take up any options. The minimum holding must be maintained during the five year life of the options. The options
cannot be exercised before 13 November 1999 and the ability to exercise is conditional on the Bank achieving
a prescribed performance hurdle. To reach the performance hurdle, the Bank’s Total Shareholder Return (broadly,
growth in share price plus dividends reinvested) over a minimum three year period, must equal or exceed the index
of Total Shareholder Return achieved by the companies represented in the ASX ‘Banks and Finance Accumulation
Index’, excluding the Bank. If the performance hurdle is not reached after three years, the options may nevertheless
be exercisable only if the hurdle is subsequently reached within the remaining life of the options. The plan is limited
to no more than 50 executives. The option plan does not grant rights to the option holders to participate in a share
issue of any other body corporate.
Sale of Government Shareholding and Share Buy Back
The Commonwealth Government’s sale of its remaining 50.39% shareholding in the Bank was completed on
22 July 1996. The Commonwealth’s sale included a global offering of 399,103,979 of the Bank’s shares in the form
of ‘Instalment Receipts’ and a selective buy back of 100 million shares by the Bank. The final price for the global
offering was set by the Government at $10.45 per share payable in two instalments of $6.00 and $4.45 on 22 July 1996
and 14 November 1997 respectively.
On 14 May 1996, the Bank’s shareholders, other than the Commonwealth of Australia and its associates, voted
to approve the terms of a Buy Back Agreement dated 9 April 1996 pursuant to which the Commonwealth had agreed
to sell, and the Bank had agreed to acquire, 100 million of the Bank’s shares pursuant to a selective buy back under the
Corporations Law.
The price per share paid by the Bank for the buy back shares was $10.008 calculated in accordance with a formula
provided in the Buy Back Agreement and based on the gross proceeds of the first instalment due to the Government
pursuant to its global offering and the net present value of the final instalment due on 14 November 1997.
Payment of $1,001 million for the buy back shares was made to the Commonwealth on 22 July 1996. The buy back
shares were cancelled on that date, as required by the Corporations Law.
95
Notes to and forming part of the accounts
continued
Commonwealth Bank of Australia and Controlled Entities
NOTE 28 Share Capital continued
The Bank’s shareholders’ equity was reduced by $651 million on 29 December 1997 pursuant to the buy back of
38.1 million shares. The price per share paid by the Bank for the buy back shares was $17.08 calculated in accordance with
the buy back offer. In accordance with a compromise reached with the Australian Taxation Office $2 per share of the
consideration for each share bought back has been charged to paid up capital ($76 million) and $5 per share against share
premium reserve ($191 million). The balance of $10.08 per share is deemed to be a fully franked dividend and charged to
retained profits ($384 million).
NOTE 29 Outside Equity Interests
Share Capital
Reserves
Retained profits
Total Outside Equity Interests
E C O N O M I C E N T I T Y
1998
$M
1997
$M
118
130
-
-
59
48
177
178
ASB Bank Limited issued-
• NZD $50 million non cumulative preference shares on 22 December 1995. The preference shares are non voting, non
cumulative, redeemable at the option of ASB Bank and bear a dividend based on a margin above the 5 year bond rate.
57,955,325 ordinary shares to minority shareholders for an issue price of NZD $1 (on a pro rata basis) on 28 June 1996.
•
NOTE 30 Capital Adequacy
In August 1988 the Reserve Bank of Australia (RBA) established guidelines for the capital adequacy of Australian banks,
to strengthen their soundness and stability. These guidelines are generally consistent with those proposed by the
Committee on Banking Regulations and Supervisory Practices of the Bank for International Settlements. They require
Australian banks to have a ratio of capital (comprising ‘Tier 1’ and ‘Tier 2’ capital) to risk adjusted assets and off balance
sheet exposures, determined on a risk weighted basis, of at least 8 per cent, of which at least half must be Tier 1 capital.
Tier 1, or core, capital includes paid up ordinary shares, retained earnings, reserves, other approved capital resources
and minority interest in subsidiaries, less goodwill. Tier 2, or supplementary, capital includes general provisions for bad
and doubtful debts and dated bond and note issues. For capital adequacy purposes Tier 2 debt based capital is reduced
each year by 20% of the original amount during the last five years to maturity.
Risk weighted assets compiled for credit risk purposes are calculated by applying one of five approved categories
of risk weight (0, 10, 20, 50 or 100 per cent) to the assets of the Economic Entity, based primarily on the calibre of the
counterparty. Off balance sheet exposures are firstly converted to on balance sheet credit equivalents using credit
conversion factors relating to the nature of the exposure, then weighted in the same manner as balance sheet assets.
The only exception is for derivatives where a maximum weighting of 50% applies.
In addition to the capital requirements for credit risk purposes, effective from 1 January 1998, Australian banks are also
required to hold sufficient levels of capital to cover market risk of their trading books. Market risk is defined as the risk
of losses in on and off balance sheet positions arising from movements in market price.
RBA require the measure of market risk to be multiplied by 12.5 (ie the reciprocal of the minimum capital ratio of 8 per
cent) to determine a notional Risk Weighted Asset figure. Comparatives for 1997 are not available.
The capital adequacy ratio is calculated by taking the total risk weighted assets (credit risk assets plus notional market
risk assets) as the denominator and the Economic Entity’s capital base as the numerator.
1998
Actual
%
1997
Actual
%
8.07
2.82
(0.40)
10.49
8.64
2.82
(0.57)
10.89
Risk Weighted Capital Ratios
Tier one
Tier two
Less RBA statutory deductions
Total
96
NOTE 30 Capital Adequacy continued
Tier One Capital
Total Shareholders’ Equity
Eligible Loan Capital *
Total Shareholders’ Equity and Loan Capital
Less Goodwill
Less Preference Shares
Total Tier One Capital
Tier Two Capital
General provisions for bad and doubtful debts
FITB related to general provision
Dated note and bond issues
Preference shares
Total Tier Two Capital
Tier One and Tier Two Capital
Less RBA statutory deductions
Total Tier One and Tier Two Capital
*
Included gross of any related swaps.
Risk-weighted assets
E C O N O M I C E N T I T Y
1998
$M
1997
$M
6,889
1,306
7,024
1,073
8,195
8,097
(531)
(47)
(574)
(55)
7,617
7,468
1,076
(337)
1,885
42
690
-
1,702
45
2,666
2,437
10,283
(381)
9,905
(487)
9,902
9,418
F a c e v a l u e
R i s k
W e i g h t s
1998
$M
1997
$M
%
R i s k - w e i g h t e d
B a l a n c e
1997
$M
1998
$M
On balance sheet assets
Cash, claims on Reserve Bank, short term claims on
Australian Commonwealth and State Government and
Territories, and other zero-weighted assets (1)
Longer term claims on Australian Commonwealth, State
and Territory Governments
Claims on OECD banks and local governments
Advances secured by residential property (2)
All other assets
Total on balance sheet assets - credit risk
(1) Other zero weighted assets include gross unrealised gains on trading derivative financial instruments of $8,297 million
4,954
7,566
46,158
57,004
126,414
7,392
10,533
39,420
54,191
120,051
495
1,513
23,079
57,004
82,091
739
2,107
19,710
54,191
76,747
10%
20%
50%
100%
10,732
8,515
0%
(3) (4)
-
-
(1997: $4,742million).
(2) The RBA announced on 17 August 1994 that housing loans approved after 5 September 1994 having a loan to market
valuation ratio in excess of 80 per cent must be risk weighted at 100 per cent. These loans are reported under ‘All other
assets’.
(3) The difference between total on balance sheet assets and the Economic Entity’s balance sheet reflects the alternative
treatment of some assets and provisions as prescribed in RBA’s capital adequacy guidelines, principally goodwill and
general provisions for bad and doubtful debts.
(4) Total on-balance sheet assets exclude debt and equity securities in the trading bank and all on-balance sheet positions
in commodities as they are included in the calculation of notional market risk weighted assets.
97
Notes to and forming part of the accounts
continued
Commonwealth Bank of Australia and Controlled Entities
NOTE 30 Capital Adequacy continued
Off-balance sheet exposures
Direct credit substitutes
Trade and performance related items
Commitments
Foreign exchange, interest rate and other
market related transactions
Total off-balance sheet exposures - credit risk
Total risk-weighted assets - credit risk
Risk-weighted assets - market risk
Total risk-weighted assets
F a c e v a l u e
1998
$M
1997
$M
1998
$M
C r e d i t
E q u i v a l e n t
1997
$M
R i s k - w e i g h t e d
B a l a n c e
1997
$M
1998
$M
2,729
1,593
23,669
2,855
1,380
21,339
2,729
655
9,014
2,855
563
8,790
276,051
304,042
258,990
284,564
9,813
22,211
5,766
17,974
2,188
608
6,010
2,921
11,727
93,818
613
94,431
1,930
524
5,483
1,784
9,721
86,468
N/A
86,468
NOTE 31 Maturity Analysis of Monetary Assets and Liabilities
The maturity distribution of monetary assets and liabilities is based on contractual terms. The majority of the longer term
monetary assets are variable rate products. Therefore this information is not relied on by the Bank in the management
of its interest rate risk.
E C O N O M I C E N T I T Y
M a t u r i t y P e r i o d A t 3 0 J u n e 1 9 9 8
3 to 12
At Call Overdrafts months months
$M
0 to 3
$M
$M
$M
1 to 5
years
$M
Over
Not
5 years specified
$M
$M
Total
$M
Assets
Cash and liquid assets
Receivables due from other financial
institutions
Trading securities (1)
Investment securities
Loans, advances and other receivables (2)
Bank acceptances of customers
Other monetary assets
Total monetary assets
Liabilities
Deposits and other public borrowings (3)
Payables due to other financial
institutions
Bank acceptances
Debt issues and loan capital
Other monetary liabilities
Total monetary liabilities
1,041
-
485
-
-
-
-
1,526
115
-
-
485
-
110
1,751
47,373
431
-
-
174
47,978
-
-
-
2,841
-
-
2,841
3,280
4,009
1,383
5,070
8,849
10,444
33,520
51
-
895
11,940
878
2
13,766
-
-
2,626
33,052
-
79
35,757
-
-
1,934
37,266
-
856
40,056
3,448
2
4,009
-
6,858
20
89,816
(838)
9,727
-
497
11,988
(319) 127,372
-
-
-
-
-
-
19,788
9,260
6,094
1,371
-
83,886
2,648
8,849
1,783
10,837
43,905
312
878
5,891
34
16,375
6
-
2,544
130
8,774
-
-
3,203
-
4,574
-
-
183
139
322
3,397
9,727
13,604
11,314
121,928
(1) Trading securities are purchased without the intention to hold until maturity and are categorised as maturing within
3 months.
(2) $35 billion of this figure represents principally owner occupied housing loans. While most of these loans would have
a contractual term of 20 years or more, and are analysed accordingly, the actual average term of the portfolio is less
than 5 years.
Includes substantial ‘core’ deposits which are contractually at call customer savings and cheque accounts. History
demonstrates such accounts provide a stable source of long term funding for the Bank. Also refer to Interest Rate Risk
Sensitivity table in Note 37.
(3)
98
NOTE 31 Maturity Analysis of Monetary Assets and Liabilities continued
E C O N O M I C E N T I T Y
M a t u r i t y P e r i o d A t 3 0 J u n e 1 9 9 7
0 to 3
At Call Overdrafts months
$M
$M
$M
3 to 12
months
$M
1 to 5
years
$M
Over
Not
5 years specified
$M
$M
Total
$M
Assets
Cash and liquid assets
Receivables due from other financial
institutions
Trading securities (1)
Investment securities
Loans, advances and other receivables (2)
Bank acceptances of customers
Other monetary assets
Total monetary assets
Liabilities
Deposits and other public borrowings (3)
Payables due to other financial
institutions
Bank acceptances
Debt issues and loan capital
Other monetary liabilities
Total monetary liabilities
1,159
348
-
-
225
-
64
1,796
43,787
745
-
-
134
44,666
-
725
123
-
-
-
2,007
4
-
-
2,992
-
-
2,996
4,144
2,635
2,139
4,782
5,930
6,393
26,748
343
-
2,493
11,504
2,944
224
17,631
-
-
3,250
30,776
-
90
34,116
-
-
1,351
31,759
-
767
33,877
-
-
-
4,839
2,635
9,233
(406) 81,632
8,874
-
256
7,794
(150) 117,014
-
-
-
-
4
4
18,208
11,399
4,285
156
45
77,880
2,437
5,930
3,601
7,255
37,431
427
2,944
2,810
754
18,334
12
-
3,918
386
8,601
-
-
2,476
-
2,632
-
3,621
-
8,874
150
12,955
8,719
186
381 112,049
(1) Trading securities are purchased without the intention to hold until maturity and are categorised as maturing within
3 months.
(2) $30 billion of this figure represents principally owner occupied housing loans. While most of these loans would have
a contractual term of 20 years or more, and are analysed accordingly, the actual average term of the portfolio is less
than 5 years.
Includes substantial ‘core’ deposits which are contractually at call customer savings and cheque accounts. History
demonstrates such accounts provide a stable source of long term funding for the Bank. Also refer to Interest Rate Risk
Sensitivity table in Note 37.
(3)
99
Notes to and forming part of the accounts
continued
Commonwealth Bank of Australia and Controlled Entities
NOTE 32 Financial Reporting by Segments
(a) Geographical segments
Revenue
Australia
New Zealand
Other Countries
Operating profit before tax
Australia
New Zealand
Other Countries
Operating profit after tax and outside equity interests
Australia
New Zealand
Other Countries
Assets
Australia
New Zealand
Other Countries
(b) Industry segments
Revenue
Banking
Life Insurance and Funds Management
Finance
Operating profit before tax
Banking
Life Insurance and Funds Management
Finance
Operating profit after tax and outside equity interests
Banking
Life Insurance and Funds Management
Finance
Assets
Banking
Life Insurance and Funds Management
Finance
E C O N O M I C E N T I T Y
$M
1998
%
$M
1997
%
7,718
1,115
657
9,490
1,221
148
(27)
1,342
1,044
73
(27)
1,090
110,120
10,846
9,578
130,544
8,767
214
509
9,490
1,158
81
103
1,342
940
84
66
1,090
124,765
427
5,352
130,544
81.4
11.7
6.9
100.0
91.0
11.0
(2.0)
100.0
95.8
6.7
(2.5)
100.0
84.4
8.3
7.3
100.0
92.4
2.3
5.3
100.0
86.3
6.0
7.7
100.0
86.2
7.7
6.1
100.0
95.6
0.3
4.1
100.0
8,088
977
448
9,513
1,454
128
34
1,616
990
63
25
1,078
101,202
9,994
8,907
120,103
8,897
202
414
9,513
1,443
74
99
1,616
941
75
62
1,078
115,368
359
4,376
120,103
85.0
10.3
4.7
100.0
90.0
7.9
2.1
100.0
91.9
5.8
2.3
100.0
84.3
8.3
7.4
100.0
93.5
2.1
4.4
100.0
89.3
4.6
6.1
100.0
87.2
7.0
5.8
100.0
96.1
0.3
3.6
100.0
Other Countries are:
United Kingdom, United States of America, Japan, Singapore, Hong Kong, Grand Cayman, Netherlands Antilles and
Papua New Guinea.
These operations have a greater proportion of wholesale business with a funding base from predominantly wholesale
markets where margins are very fine. The overseas balance sheet also supports trading activities.
The geographical segments represent the location in which the transaction was booked.
100
NOTE 33 Remuneration of Auditors
Amounts paid or due and payable for audit services to:
Auditors of the chief entity
Other auditors
Amounts paid or due and payable for other services to:
Auditors of the chief entity
E C O N O M I C E N T I T Y
C H I E F E N T I T Y
1998
$’000
1997
$’000
1998
$’000
1997
$’000
2,540
250
2,790
2,432
200
2,632
1,671
-
1,671
1,544
-
1,544
5,040
3,873
5,004
3,448
Total Remuneration of Auditors
7,830
6,505
6,675
4,992
NOTE 34 Commitments for Capital Expenditure Not Provided for in the Accounts
Not later than one year
Later than one year but not later than two years
Later than two years but not later than five years
Later than five years
Total Commitments for Capital Expenditure Not Provided
for in the Accounts
NOTE 35 Lease Commitments - Property, Plant and Equipment
Commitments in respect of non cancellable operating lease
agreements due -
Not later than one year
Later than one year but not later than two years
Later than two years but not later than five years
Later than five years
Total Lease Commitments - Property, Plant and Equipment
Economic Entity’s share of lease commitments of
associated entities -
Not later than one year
Later than one year but not later than two years
Later than two years but not later than five years
Later than five years
Total Lease Commitments - Property, Plant and Equipment
$M
33
-
-
-
33
172
143
280
306
901
$M
25
-
-
-
25
147
116
254
234
751
$M
26
-
-
-
26
138
117
227
223
705
$M
25
-
-
-
25
171
136
304
302
913
9
5
9
11
34
101
Notes to and forming part of the accounts
continued
Commonwealth Bank of Australia and Controlled Entities
NOTE 36 Contingent Liabilities
The Commonwealth Bank and its controlled entities are involved in a range of transactions that give rise to contingent
and/or future liabilities. These transactions meet the financing requirements of customers and include endorsed bills
of exchange, letters of credit, guarantees and commitments to provide credit.
These transactions combine varying levels of credit, interest rate, foreign exchange and liquidity risk. In accordance
with Bank policy, exposure to any of these transactions is not carried at a level which would have a material effect on the
financial condition of the Bank and its controlled entities.
Details of contingent liabilities and off balance sheet business
(excluding Derivatives – Note 37) are:
Credit risk related instruments
Guarantees
Standby letters of credit
Bill endorsements
Documentary letters of credit
Performance related contingents
Commitments to provide credit
Other commitments
Total credit risk related instruments
1998
$M
Face Value
1997
$M
E C O N O M I C E N T I T Y
Credit Equivalent
1997
$M
1998
$M
1,878
396
455
474
1,120
22,693
975
27,991
1,522
808
525
423
957
19,346
1,993
25,574
1,878
396
455
95
560
8,069
945
12,398
1,522
808
525
85
478
6,851
1,939
12,208
Guarantees represent conditional undertakings by the Economic Entity to support the financial obligations of its
customers to third parties.
Standby letters of credit are undertakings by the Economic Entity to repay a loan obligation in the event of a default
by a customer.
Bill endorsements relate to bills of exchange which have been confirmed by the Economic Entity and represent
liabilities in the event of default by the acceptor and the drawer of the bill.
Documentary letters of credit represent an undertaking to pay an overseas supplier of goods in the event
of payment default by a customer who is importing the goods.
Performance related contingents involve undertakings by the Economic Entity to pay third parties if a customer fails
to fulfil a contractual non-monetary obligation.
Commitments to provide credit include all obligations on the part of the Economic Entity to provide funding
facilities.
Other commitments include the Economic Entity’s obligations under sale and repurchase agreements, outright
forward purchases and forward deposits and underwriting facilities.
The transactions are categorised and credit equivalents calculated under Reserve Bank of Australia guidelines for
the risk based measurement of capital adequacy. The credit equivalent amounts are a measure of the potential loss
to the Economic Entity in the event of possible non performance by a counterparty.
The potential loss (exposure) from direct credit substitutes (guarantees, standby letters of credit and bill
endorsements) is the face value of the transaction, where as the exposure to documentary letters of credit and
performance related contingents is 20% and 50% respectively of the face value. The exposure to commitments
to provide credit is calculated by applying given credit conversion factors to the face value to reflect the duration, the
nature and the certainty of the contractual undertaking to provide the facility.
Where the potential loss depends on the performance of a counterparty, the Economic Entity utilises the same
credit policies and assessment criteria for off balance sheet business as it does for on balance sheet business and
if it is deemed necessary, collateral is obtained based on management’s credit evaluation of the counterparty.
If a probable loss is identified, suitable provisions are generated.
Litigation
Neither the Commonwealth Bank nor any of its controlled entities is engaged in any litigation or claim which is likely
to have a materially adverse effect on the business, financial condition or operating results of the Commonwealth Bank
or any of its controlled entities. Where some loss is probable an appropriate provision has been made.
102
NOTE 36 Contingent Liabilities continued
Fiduciary activities
The Economic Entity conducts investment management and other fiduciary activities as trustee, custodian or manager
for numerous investment funds and trusts, including superannuation and approved deposit funds, wholesale and retail
unit trusts. The amounts of funds concerned, which are not included in the Economic Entity’s balance sheet, are
as follows:
Funds under trusteeship
Funds under management
Funds under custody
1998
$M
10,385
21,983
22,300
1997
$M
14,931
23,166
20,724
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 either Commonwealth Investment Services Limited,
Commonwealth Funds Management Limited or Commonwealth Custodial Services Limited acts in more than one
capacity in relation to those funds, eg manager and trustee.
Commonwealth Custodial Services Limited, acts as trustee of the Commonwealth Bank Approved Deposit Fund
and of State Bank Supersafe Approved Deposit Fund. In terms of the relevant Trust Deeds of those Funds, the trustee
has an obligation to repay deposits in the Funds. It is not envisaged that any material irrecoverable liabilities will result
from these obligations.
Commonwealth Custodial Services Limited also acts as Trustee for various controlled superannuation funds and
wholesale unit trusts. The Commonwealth Bank of Australia does not guarantee the performance or obligations of its
subsidiaries including the Trustee of these funds and unit trusts.
Commonwealth Investment Services Limited (CISL) and Commonwealth Funds Management Limited (CFM),
as Managers of the various controlled investment funds and retail and wholesale unit trusts have an obligation under
the Trust Deeds of those funds, upon request of a unitholder, to repurchase units of those funds or to arrange for the
relevant Trustee to redeem units from the assets of the trusts. It is considered unlikely that CISL or CFM would need
to repurchase units from their own funds.
Commonwealth Funds Management Limited (CFM) acts as trustee and manager of various controlled trusts. CFM
has incurred liabilities in its capacity as Trustee, however it has a right of indemnity against the assets of the respective
trusts and as at 30 June 1998 the assets of the trusts exceeds those liabilities incurred. As such CFM does not expect
to have to meet any of those liabilities from its own funds.
Liquidity support
In accordance with the Regulations and Procedures governing clearing arrangements contained within the Australian
Paper Clearing Stream (Clearing Stream 1) and the Bulk Electronic Clearing Stream (Clearing Stream 2) of the Australian
Payments Clearing Association Limited, the Bank is subject to a commitment to provide liquidity support to these
clearing streams in the event of a failure to settle by a member institution.
Year 2000 systems compliance
As reported to the Australian Stock Exchange in May 1998, the Bank expects to have all key applications fully Year 2000
compliant by the end of 1998, with the majority of in house applications having already achieved compliance by
June 1998.
A three phase programme, comprising discovery, planning and remedy, has been underway since 1996. Phases
one and two are complete, and the Bank is currently finalising the remedial phase. The Bank has also begun
comprehensive testing, contingency planning and risk mitigation, which will continue throughout 1998 and 1999.
This testing will include interorganisational testing of the financial payment systems with other financial institutions
which is due to commence in October 1998 and conclude at the end of June 1999.
With regard to our property obligations, a special inventory of all building management systems by building
engineers, dealing with business continuity and health and safety requirements, has established remediation will occur
as follows:
• Critical buildings by end December 1998.
• Non-critical buildings by June 1999.
An inventory of all third party vendor software and hardware has been completed and all upgrades and
replacements identified. The majority were implemented by 30 June 1998, with the remainder due for completion
by 31 December 1998.
The Bank has estimated rectification costs of $115 million, to be expended over three years commencing July 1996.
Expenditure to 30 June 1998 on the total programme is $47 million.
The Bank is confident it will be ready for the change of the century, and believes that depositors’ funds will not
be at risk as a result of the Year 2000 issue.
103
Notes to and forming part of the accounts
continued
Commonwealth Bank of Australia and Controlled Entities
NOTE 36 Contingent Liabilities continued
Service agreements
The maximum contingent liability for termination benefits in respect of service agreements with the Executive Director
and other executives of the Chief Entity and its controlled entities at 30 June 1998 was $10 million (1997: $9 million).
NOTE 37 Market Risk
The Bank in its daily operations is exposed to a number of market risks. A market risk is the risk of an adverse event
in the financial markets that may result in a loss of earnings to the Bank, eg an adverse interest rate movement.
Within the Bank, market risk exists in its balance sheet structure and in financial markets trading.
Market risk in the balance sheet
Market risk in the balance sheet includes liquidity risk, funding risk, interest rate risk and foreign exchange rate risk.
Liquidity risk
Balance sheet liquidity risk is the risk of being unable to meet financial obligations as they fall due. The Bank manages
liquidity risk separately for its domestic AUD obligations and for its foreign currency obligations.
In its domestic operations, the Bank ensures that obligations are met day to day in normal market conditions at lowest
cost. Protection against an unexpected outflow of funds is provided for within the liability management process and from
a stock of high quality liquid assets held surplus to the Reserve Bank of Australia’s Prime Assets Ratio requirements.
Foreign currency liquidity risk is managed by ensuring that a positive cumulative cash flow always exists for the next
7 days’ operations. A stock of liquid assets is included in this protective measure.
Funding risk
Funding risk is the risk of overreliance on a funding source to the extent that change in that funding source would
increase funding cost or cause difficulty in raising funds. The Bank has a policy of funding diversification to ensure that
overreliance is not placed on any one market sector.
The following table outlines the range of financial instruments used by the Economic Entity to raise deposits and
borrowings both within Australia and overseas. Funds are raised from well diversified sources and there are no material
concentrations in these categories.
Australia
Cheque Accounts
Savings Accounts
Term Deposits
Cash Management Accounts
Debt Issues
Bank Acceptances
Certificates of Deposit
Loan Capital
Securities Sold Under Agreements to Repurchase
Other
Total Australia
Overseas
Deposits and Interbank
Commercial Paper
Other Debt Issues
Bank Acceptances and Other
Total Overseas
Total Funding Sources
Provisions and Other Liabilities
Total Liabilities
104
1998
$M
1997
$M
11,824
23,471
24,531
8,651
8,078
9,700
2,156
2,996
662
1,606
93,675
14,382
1,270
1,260
27
16,939
110,614
13,041
123,655
9,341
21,491
24,842
8,389
7,845
8,826
1,700
2,801
714
1,062
87,011
13,881
1,374
1,014
50
16,319
103,330
9,749
113,079
NOTE 37 Market Risk continued
Interest rate risk
Interest rate risk in the balance sheet arises from the potential for a change in interest rates to have an adverse effect
on the net interest earnings of the Bank in the current reporting period, and in future years. Interest rate risk arises from
the structure and characteristics of the Bank’s assets, liabilities and equity, and in the mismatch in repricing dates of its
assets and liabilities. The objective is to manage the interest rate risk to secure stable and sustainable net interest earnings
in the long term.
Next 12 months’ earnings
The Bank measures and manages balance sheet interest rate risk from two perspectives:
(a)
The risk to the net interest earnings over the next 12 months from a change in interest rates is measured on at least
a monthly basis. Risk is measured assuming an immediate 1% parallel movement in interest rates across the full yield curve
as well as other interest rate scenarios with variations in the size and timing of interest rate movements. Potential
variations to net interest earnings are measured using a simulation model which takes into account the projected change
in balance sheet level and mix. Assets and liabilities with pricing directly based on market rates are repriced based on the
full extent of the rate shock that is applied. Risk on other assets and liabilities (those priced at the discretion of the Bank)
is measured by taking into account both the manner in which the products have repriced in the past as well as the
expected change in price based on the current competitive market environment.
The figures in the table represent the potential change to net interest earnings (expressed as a percentage of expected
net interest earnings in the next 12 months) based on a 1% parallel rate shock and the expected change in price of assets
and liabilities held for purposes other than trading.
(expressed as a % of expected next 12 months’ earnings)
Average monthly exposure
High month exposure
Low month exposure
1998
%
2.8
3.4
2.3
1997
%
1.5
3.0
0.5
Economic value
(b)
Some of the Bank’s assets and liabilities have interest rate risk that is not captured within the measure of risk to next
12 month’s earnings, as the risk is beyond the next 12 months. To measure this longer term sensitivity, the Bank utilises an
economic value at risk analysis. This analysis measures the potential change in the net present value of cashflows of assets
and liabilities where repricing dates do not match. Assets and liabilities priced at a variable rate and at the discretion of the
Bank are not included in this measure.
The economic value at risk is determined by recalculating the net present value using a rate movement based on a 95%
confidence level of monthly movements in interest rates. For example, an earnings at risk exposure of $1 million means
that in 95 cases out of 100, the expected net present value will not increase or decrease by more than $1 million given
historical behaviour in interest rates. The figures in the following table represent the net present value of the expected
change in future earnings in all future periods for the remaining term of these existing assets and liabilities held for
purposes other than trading.
Exposures as at 30 June
Average monthly exposure
High month exposure
Low month exposure
1998
$M
1997
$M
78
25
78
7
18
46
72
8
In each case, all market sensitive transactions (including physical assets and liabilities and derivatives) are included in the
risk measures. Prepayment assumptions for measurement of the risk are not a significant issue as the Bank includes mark
to market prepayment clauses in most fixed rate lending contracts.
The table following represents the Economic Entity’s contractual interest rate risk sensitivity from repricing
mismatches as at 30 June 1998 and the corresponding weighted average effective interest rates. The net mismatch
represents the net value of assets, liabilities and off balance sheet instruments which may be repriced in the time
periods shown. The Bank does not use this contractual repricing information to manage its interest rate risk; the risk is
managed using the ‘Next 12 months’ earnings’ and ‘Economic value’ perspectives outlined above. All assets and
liabilities are shown according to contractual repricing dates. Options are shown in the gap using delta equivalents of
the option face values.
105
Commonwealth Bank of Australia and Controlled Entities
Notes to and forming part of the accounts
continued
NOTE 37 Market Risk continued
Interest Rate Risk Sensitivity
R e p r i c i n g P e r i o d a t 3 0 J u n e 1 9 9 8
Balance
Sheet
6 to 12
1 to 3
Total month months months months
$M
$M
0 to 1
3 to 6
$M
$M
$M
1 to 5 Over 5
years
years
$M
$M
Not Weighted
Average
Rate
%
Interest
Bearing
$M
Australia
Assets
Cash and liquid assets
Receivables due from other
financial institutions
Trading securities
Investment securities
Loans, advances and other receivables
Bank acceptances of customers
Deposits with regulatory authorities
Property, plant and equipment
Goodwill
Other assets
Total Assets
Liabilities
Deposits and other public borrowings
Payables due to other
financial institutions
Bank acceptances
Provision for dividend
Income tax liability
Other provisions
Debt issues
Bills payable and other liabilities
Loan Capital
Total Liabilities
Shareholders’ Equity
Outside equity interests in
controlled entities
Total Shareholders’ Equity
Off Balance Sheet Items
Swaps
FRAs
Futures
Net Mismatch
Cumulative Mismatch
# no rate applicable
*
no balance sheet amount applicable
1,486
642
-
-
-
-
-
844
1.28
2,382
2,210
3,151
1,676
2,210
1,095
77,443 38,845
-
831
-
-
87
110,120 45,386
9,700
831
1,448
531
10,938
680
-
53
4,974
-
-
-
-
-
5,707
24
-
322
5,858
-
-
-
-
-
6,204
-
-
332
-
-
660
2
-
528
-
-
161
7,500 18,578 2,946 (1,258)
9,700
-
-
-
1,448
-
-
531
6 10,845
7,832 19,238 3,482 22,271
-
-
-
-
-
-
-
-
-
-
7.67
4.73
5.58
7.49
-
-
-
-
-
5.71
71,620 45,934
6,542
6,250
2,417 4,787
735
4,955
3.43
1,281
9,700
321
1,098
869
8,078
10,120
945
-
-
-
-
1,777
90
103,087 48,746
480
106,083 49,226
2,996
165
-
-
-
-
1,594
-
8,301
953
9,254
-
-
-
4
-
1,474
-
7,728
367
8,095
165
-
-
-
-
6
-
-
-
-
486 2,152
-
3,068 6,945
-
-
-
-
-
-
595
-
9,700
321
1,094
869
-
23 10,007
1,353 26,946
-
2,549 26,946
-
- 1,196
3,068 6,945
6,712
5
6,717
6,712
5
6,717
*
441
* (1,330)
-
*
(3,811)
595
-
598
735
(650)
(641) 2,042
-
-
-
650
1,371
-
-
-
-
-
* (4,729)
* (4,729) (11,492) (12,700) (7,927) 6,408
(1,208) 4,773 14,335 2,304 (11,392)
8,712 (2,680)
(6,763)
4.17
-
-
-
-
5.22
-
7.30
2.97
#
#
#
#
#
As noted above the cumulative mismatch reflects contractual repricing periods. The balance sheet is managed based
on assessments of expected pricing behaviour having regard to historical trends and competitive positioning.
106
NOTE 37 Market Risk continued
R e p r i c i n g P e r i o d a t 3 0 J u n e 1 9 9 8
Balance
Sheet
6 to 12
1 to 3
Total month months months months
$M
$M
0 to 1
3 to 6
$M
$M
$M
1 to 5 Over 5 Interest
years Bearing
years
$M
$M
$M
Not Weighted
Average
Rate
%
Overseas
Assets
Cash and liquid assets
Receivables due from other
financial institutions
Trading securities
Investment securities
Loans, advances and other receivables
Bank acceptances of customers
Deposits with regulatory authorities
Property, plant and equipment
Other assets
Total Assets
Liabilities
Deposits and other public borrowings
Payables due to other
financial institutions
Bank acceptances
Income tax liability
Other provisions
Debt issues
Bills payable and other liabilities
Loan Capital
Total Liabilities
Shareholders’ Equity
Outside equity interests in
controlled entities
Total Shareholders’ Equity
Off Balance Sheet Items
Swaps
Options
FRAs
Futures
Net Mismatch
Cumulative Mismatch
# no rate applicable
*
no balance sheet amount applicable
40
24
-
-
-
-
-
16
-
496
1,066
1,799
367
3,707 1,200
12,373 3,136
27
-
197
93
20,424 5,540
27
1
214
1,197
471
680
653
2,853
-
-
-
-
4,657
51
397
272
-
41
132
1,292 1,132
-
-
-
-
2,012 1,305
-
-
-
-
-
302
700
3,997
-
-
-
-
4,999
48
-
-
12
-
750
(93)
56
-
-
1
-
-
17
- 1,104
1,093
818
5.92
7.23
8.62
8.37
-
-
-
-
7.58
12,266 6,067
3,735
1,501
609
265
26
63
6.22
27
1
6
2,530
626
2,116 1,657
27
(1)
5
894
209
17,572 8,858
-
-
17,572 8,858
310
-
-
-
353
-
4,398
-
4,398
105
-
-
-
311
-
1,917
-
1,917
43
-
-
-
65
-
717
-
717
-
-
-
-
479
-
744
-
744
-
-
-
-
428
-
454
-
454
-
172
172
*
*
*
*
989
-
(507)
(2)
1,687
-
(78)
(695)
266
270
590
680
(299) (2,285)
-
(270)
(13)
8
11
(1)
(358)
-
-
7
1
-
2
1
-
417
484
-
484
172
172
-
-
-
-
* (2,838) 1,173
* (2,838) (1,665)
1,901
236
26
262
1,968
2,230
13
2,243
437
2,680
6.28
-
-
-
4.76
-
-
5.78
#
#
#
#
#
#
107
Notes to and forming part of the accounts
continued
Commonwealth Bank of Australia and Controlled Entities
NOTE 37 Market Risk continued
R e p r i c i n g P e r i o d a t 3 0 J u n e 1 9 9 7
Balance
Sheet
6 to 12
1 to 3
Total month months months months
$M
$M
0 to 1
3 to 6
$M
$M
$M
1 to 5 Over 5
years
years
$M
$M
Not Weighted
Average
Rate
%
Interest
Bearing
$M
1,856 1,269
-
-
-
-
-
587
2,616 2,390
2,178 2,178
4,833 1,020
70,645 34,960
-
793
-
-
2
101,202 42,612
8,826
793
1,776
574
7,105
10
-
1,006
4,167
-
-
-
-
5
5,188
-
-
5
5,002
-
-
-
-
8
5,015
-
-
28
-
-
1,405
9,214 16,751
-
-
-
-
5
9,253 18,161
-
-
-
-
11
-
-
677
1,470
-
-
-
-
-
2,147
216
-
692
(919)
8,826
-
1,776
574
7,074
18,826
67,225 42,204
6,164
5,729
4,511
4,229
166
4,222
394
8,826
291
921
830
382
-
-
1
-
7,766 1,192
16
7,091
93,344 43,795
800
96,145 44,595
2,801
6,734
10
6,744
-
-
-
-
-
1,187
1
7,352
666
8,018
-
-
-
-
-
1,949
7
7,685
-
7,685
-
-
-
-
-
680
-
5,191
-
5,191
12
-
-
-
-
2,254
25
6,520
-
6,520
-
-
-
-
-
504
-
670
1,335
2,005
-
8,826
291
920
830
-
7,042
22,131
-
22,131
6,734
10
6,744
3.87
4.91
5.61
5.97
8.20
-
0.89
-
-
2.42
6.42
4.10
5.27
-
-
-
-
5.78
0.05
5.77
3.53
* 3,113
(712)
*
*
*
418
418
140
(782)
448
1,494
(1,756)
-
(2,562)
-
993
-
(376)
-
#
#
(3,472)
(3,054)
(728)
(3,782)
2,306
9,079
(1,476) 7,603
1,135 (10,425)
(1,687)
8,738
Australia
Assets
Cash and liquid assets
Receivables due from other
financial institutions
Trading securities
Investment securities
Loans, advances and other receivables
Bank acceptances of customers
Deposits with regulatory authorities
Property, plant and equipment
Goodwill
Other assets
Total Assets
Liabilities
Deposits and other public borrowings
Payables due to other
financial institutions
Bank acceptances
Provision for dividend
Income tax liability
Other provisions
Debt issues
Bills payable and other liabilities
Loan Capital
Total Liabilities
Shareholders’ Equity
Outside equity interests in
controlled entities
Total Shareholders’ Equity
Off Balance Sheet Items
Swaps
FRAs
Net Mismatch
Cumulative Mismatch
# no rate applicable
*
no balance sheet amount applicable
108
NOTE 37 Market Risk continued
R e p r i c i n g P e r i o d a t 3 0 J u n e 1 9 9 7
Balance
Sheet
6 to 12
1 to 3
Total month months months months
$M
$M
0 to 1
3 to 6
$M
$M
$M
1 to 5 Over 5
years
years
$M
$M
Not Weighted
Average
Rate
%
Interest
Bearing
$M
Overseas
Assets
Cash and liquid assets
Receivables due from other
financial institutions
Trading securities
Investment securities
Loans, advances and other receivables
Bank acceptances of customers
Deposits with regulatory authorities
Property, plant and equipment
Other assets
Total Assets
Liabilities
Deposits and other public borrowings
Payables due to other
financial institutions
Bank acceptances
Income tax liability
Other provisions
Debt issues
Bills payable and other liabilities
Loan Capital
Total Liabilities
Shareholders’ Equity
Outside equity interests in
controlled entities
Total Shareholders’ Equity
Off Balance Sheet Items
Swaps
FRAs
Futures
Net Mismatch
Cumulative Mismatch
#
*
no rate applicable
no balance sheet amount applicable
151
27
71
13
-
-
-
40
2.43
2,223
457
4,400
10,987
48
4
234
397
18,901
1,510
32
584
1,305
3
1
-
13
3,475
427
14
1,239
4,543
-
-
-
-
6,294
172
9
1,060
745
-
-
-
1
2,000
-
15
353
1,326
-
-
-
2
1,696
-
299
792
3,125
-
-
-
1
4,217
-
88
372
64
-
-
-
-
524
10,655
5,815
2,661
1,274
582
219
-
2,124
3
-
-
769
-
8,711
-
8,711
676
-
-
-
665
-
4,002
-
4,002
422
-
-
-
199
-
1,895
-
1,895
5
-
-
-
3
-
590
-
590
3,227
48
4
5
2,388
607
16,934
-
16,934
112
168
280
-
-
-
-
420
-
639
-
639
45
45
*
*
*
680
478
-
* (4,078)
* (4,078)
3,103
(37)
419
5,777
1,699
(97)
(520)
(430)
(942)
757
(2,002)
75
11
(810)
(53)
(1,656)
4
-
1,881
1,828
-
-
-
-
332
-
332
-
332
(28)
-
-
114
-
-
(121)
45
3
234
380
695
104
-
45
4
5
-
607
765
-
765
112
123
235
-
-
-
5.66
6.74
6.94
8.73
0.42
1.29
-
1.11
7.78
6.05
5.87
0.42
-
-
3.63
-
-
5.58
6.16
#
#
#
164
1,992
(305)
1,687
109
Notes to and forming part of the accounts
continued
Commonwealth Bank of Australia and Controlled Entities
NOTE 37 Market Risk continued
Foreign exchange risk
Foreign exchange risk is the risk to earnings caused by a change in foreign exchange rates.
The Bank hedges all balance sheet foreign exchange risk except for long term investments in offshore subsidiaries.
An adverse movement of 10% in foreign exchange rates would cause the Bank’s capital adequacy ratio to deteriorate
by less than 0.3% (1997: less than 0.2%)
Net deferred gains and losses
Net deferred realised and unrealised gains and losses arising from derivative hedging contracts entered into
in order to manage the risk arising from assets, liabilities, commitments or anticipated future transactions, together
with the expected term of deferral are shown below.
A s a t 3 0 J u n e
Within 6 months
Within 6 months - 1 year
Within 1 - 2 years
Within 2 - 5 years
After 5 years
Net deferred gain (loss)
E x c h a n g e R a t e
R e l a t e d C o n t r a c t s
1997
1998
$M
$M
I n t e r e s t R a t e
R e l a t e d C o n t r a c t s
1997
1998
$M
$M
67
39
181
(20)
348
615
1
4
33
(48)
97
87
63
(6)
12
(63)
(14)
(8)
(14)
(49)
(58)
(75)
(72)
(268)
1998
$M
130
33
193
(83)
334
607
T o t a l
1997
$M
(13)
(45)
(25)
(123)
25
(181)
Net deferred gains and losses are only in respect of derivatives and must be considered in the context of the total
interest rate and foreign exchange risk of the balance sheet. The deferred gains and losses on both derivatives and
on balance sheet assets and liabilities are included in the economic value at risk measure outlined above.
Additionally, there are $50 million of net deferred losses on derivatives (1997: $78 million net deferred losses) used
to hedge equity risk on investments disclosed within Note 11.
Market risk in financial markets trading
Traded market risk is the risk of loss from adverse movements in the level or volatility of market prices in interest rate,
foreign exchange, equity and commodity markets.
Nature of trading activities
The Bank’s policy is that exposure to market risk from trading activities is managed in the Financial Markets area
of Institutional Banking. The Bank trades and distributes financial markets products and risk management services
to clients on a global basis.
Provide risk management products and services to customers;
The objectives of the Bank’s financial markets activities are to:
•
• Manage the Bank’s own market risks;
• Conduct controlled trading in pursuit of profit, leveraging off the Bank’s market presence and expertise.
The Bank maintains access to markets by quoting bid and offer prices with other market makers and carries
an inventory of treasury and capital market instruments including a broad range of securities and derivatives. Positions are
also taken in the interest rate, debt, equity and commodity markets based on views of future market movements.
In foreign exchange, the Bank is a participant in all major currencies and is a major participant in the Australian dollar
market, providing services for central banks, institutional, corporate and retail customers. Derivatives entered into for
trading purposes include swaps, forward rate agreements, futures, options and combinations of these instruments.
Trading securities are further detailed in Note 10.
Derivatives
Derivative instruments are contracts whose value is derived from one or more underlying financial instruments or indices
defined in the contract. They include swaps, forward rate agreements, futures, options and combinations of these
instruments.
The sale of derivatives to customers as risk management products and their use for trading purposes is integral to the
Bank’s financial markets activities. Derivatives are also used to manage the Bank’s own exposure to fluctuations in interest
and exchange rates. The Bank participates in both exchange traded and OTC derivatives markets.
Exchange traded derivatives: The Bank buys and sells exchange traded financial instruments, primarily financial futures
and options on financial futures. Exchange traded derivatives have standardised terms and require lodgment of initial and
variation margins in cash or other collateral at the exchange, which guarantees ultimate settlement.
110
NOTE 37 Market Risk continued
OTC traded derivatives: The Bank buys and sells financial instruments that are traded ‘over-the-counter’, rather than
on recognised exchanges. The terms and conditions of these transactions are negotiated between the parties, although
the majority conform to accepted market conventions. Industry standard documentation is used, most commonly in the
form of a master agreement with individual transaction confirmations. Documentation protects the Bank’s interests should
the counterparty default, and provides the ability to net outstanding balances in jurisdictions where the relevant law
allows.
Profit contribution
Income is earned from spreads achieved through market-making and from changes in market value caused by movements
in interest and exchange rates, equity prices and other market prices. All trading positions are valued and taken to profit
and loss on a mark to market basis. Trading profits also take account of interest, dividends and funding costs relating
to trading activities.
Note 2 details Financial Markets contribution of $243 million to the profit of the Bank. The contribution is significant
and provides important diversification benefits within the Bank’s overall earnings. The risk/reward balance is highlighted
by comparing the profit contribution of $243 million to the ‘value at risk’ (VaR) measure, explained in the section following,
which has averaged approximately $3 million for the half year ended 30 June 1998. The VaR measure highlights that
trading activity is undertaken within a tightly controlled environment where exposure to revenue loss from market price
movements is restricted to tolerable levels based on statistical experience.
The distribution of daily earnings for the half year ended 30 June 1998 is set out in the following histogram:
Distribution of Daily Financial Markets Income
s
y
a
D
f
o
r
e
b
m
u
N
25
20
15
10
5
0
>-1.5
>-1.0
>-0.5
>0
>0.5
>1.0
>1.5
>2.0
>2.5
>3.0
>3.5
>4.0
>4.5
$m
Risks and controls
The broad categories of risks associated with financial market products are credit risk, liquidity risk and market risk. These
risks are independently monitored, controlled and mitigated by a system of limits, the use of various hedging strategies,
credit control, daily revaluations of positions, liquidity management and a regime of accounting and systems controls.
111
Notes to and forming part of the accounts
continued
Commonwealth Bank of Australia and Controlled Entities
NOTE 37 Market Risk continued
Credit risk occurs if a counterparty defaults in performance of its obligations. Credit risk related to financial market
products is assessed on a total basis for each client as part of the Bank’s overall credit management process. The Bank may
require lodgement of collateral for credit exposures arising from derivative products, although this is not a common
practice.
Liquidity risk arises from the possibility that market changes could prevent the Bank readily obtaining prices to allow
it to close out its positions. This risk is controlled by concentrating trading activity in highly liquid markets and limiting the
Bank’s volume of activity in less liquid markets.
Market risk is the risk of loss arising due to adverse price movements in financial markets. The Bank’s major market risks
are interest rate risk and exchange rate risk.
The market risk management policies of the Bank are approved by the Risk Committee of the Board, which also
determines overall market risk appetite. The Risk Committee allocates a total VaR limit and delegates the day to day
control and monitoring of market risk to management who set limits for each trading portfolio. The approval of trading
limits and the monitoring of compliance are the responsibility of a separate Risk Management function within Institutional
Banking. Institutional Banking reports regularly on its trading activity to the Risk Committee. An independent Market Risk
Policy Unit monitors the Group market risk profile and integrates policy on market related exposures across the Group.
The effectiveness of controls is reviewed regularly by internal audit.
Value at risk (VaR)
The Bank uses a VaR measure as the primary mechanism for controlling market risk. VaR is an estimate to a 97.5%
confidence level of the potential loss that could occur if the Bank’s positions were to be held unchanged for one business
day. The VaR measure takes into account correlations between risks, ie where an exposure in one portfolio may be offset
in whole or in part by an exposure in another portfolio. Actual outcomes are independently monitored and daily
backtesting performed to confirm the validity of the assumptions made in the calculation of VaR.
risk type, that is, interest rate, exchange rate, equity, volatility;
In addition to the daily report of aggregate VaR, there are daily risk reports by:
•
• product;
• business unit
During the year, the Bank introduced an improved VaR measure based on full Historical Simulation. The following table
shows the VaR for each trading day since the improved VaR measure was introduced on 2 January 1998.
Daily Value-at-Risk
8
9
-
n
a
J
-
2
0
8
9
-
n
a
J
-
3
1
8
9
-
n
a
J
-
2
2
8
9
-
b
e
F
-
2
0
8
9
-
b
e
F
-
1
1
8
9
-
b
e
F
-
0
2
8
9
-
r
a
M
-
3
0
8
9
-
r
a
M
-
2
1
8
9
-
r
a
M
-
3
2
8
9
-
r
p
A
-
1
0
8
9
-
r
p
A
-
0
1
8
9
-
r
p
A
-
1
2
8
9
-
r
p
A
-
0
3
8
9
-
y
a
M
-
1
1
8
9
-
y
a
M
-
0
2
8
9
-
y
a
M
-
9
2
8
9
-
n
u
J
-
9
0
8
9
-
n
u
J
-
8
1
8
9
-
n
u
J
-
9
2
$m
5.0
4.5
4.0
3.5
3.0
2.5
2.0
112
NOTE 37 Market Risk continued
The Bank trades in numerous products and markets. This provides significant diversification of risk. The following table
provides a summary of VaR by product:
Risk Type
Interest rate risk
Foreign exchange risk
Implied volatility risk
Equities risk
Diversification benefit
Total
Half year to 30 June 1998
High*
$M
4.55
2.08
0.89
0.37
-
4.41
Average
$M
2.92
1.12
0.30
0.13
(1.29)
3.18
Low*
$M
1.94
0.47
0.16
0.00
-
2.26
* The high and low figures for each risk category may not occur on the same day. A diversification benefit therefore cannot
be calculated.
In addition to monitoring VaR at a 97.5% confidence level, monitoring is also performed daily at a 99% confidence level,
and for the worst case outcome over the historical period used for simulation. This additional monitoring provides
a deeper understanding of the risk profile and provides a perspective on possible stress scenarios that may adversely
impact the trading portfolio.
VaR provides a statistical estimate of the risk at the chosen confidence level, and not the size of losses that could
potentially arise in extreme conditions. Recognising this limitation of VaR, monthly stress tests covering a variety
of scenarios are also performed to simulate the impact of extreme market movements on the trading portfolios.
Comparative data on this new basis prior to 2 January 1998 is not available due to the material change in the basis
of measurement, which now takes full account of diversification and correlation effects. The previous VaR risk measure
ignored correlations between risks, ie where a risk in one portfolio may be offset in whole or in part by a risk in another
portfolio.
For comparative purposes previously published VaR measures on an uncorrelated basis up to 31 December 1997 are
included.
Average VaR
During
June 1998
Half
$M
N/A
N/A
3
C o r r e l a t e d
Actual VaR
as at
30 June 1998
Actual VaR
as at
31 Dec 1997
Actual VaR
as at
30 June 1997
$M
N/A
N/A
3
$M
N/A
N/A
4
$M
N/A
N/A
3
Interest rate risk
Exchange rate risk
Total
Maximum VaR
During
U n c o r r e l a t e d
Minimum VaR
During
Average VaR
During
Dec 1997
Half
$M
June 1997
Year
$M
Dec 1997
Half
$M
June 1997
Year
$M
Dec 1997
Half
$M
June 1997
Year
$M
Interest rate risk
Exchange rate risk
Total
12
8
N/A
15
12
N/A
4
3
N/A
7
3
N/A
9
5
14
10
6
16
113
Notes to and forming part of the accounts
continued
Commonwealth Bank of Australia and Controlled Entities
NOTE 37 Market Risk continued
Derivative contracts
The following table details the Bank’s outstanding derivative contracts as at the end of the year.
Each derivative type is split between those held for ‘Trading’ purposes and for ‘Other than Trading’ purposes.
Derivatives classified as ‘Other than Trading’ are transactions entered into in order to manage the risks arising from non
traded assets, liabilities and commitments in Australia and our offshore centres.
The ‘Face Value’ is the notional or contractual amount of the derivatives. This amount is not necessarily exchanged and
predominantly acts as reference value upon which interest payments and net settlements can be calculated and on which
revaluation is based.
The ‘Credit Equivalent’ is a number calculated using a standard Reserve Bank of Australia formula and is disclosed for
each product class. This amount is a measure of the on balance sheet loan equivalent of the derivative contracts, which
includes a specified percentage of the face value of each contract plus the market value of all contracts with an unrealised
gain at balance date. The Credit Equivalent does not take into account any benefits of netting exposures to individual
counterparties.
The accounting policy for derivative financial instruments is set out in Note 1(gg).
114
NOTE 37 Market Risk continued
Derivatives:
Exchange rate related contracts
Forwards
Trading
Other than trading
Total Forwards
Swaps
Trading
Other than trading
Total Swaps
Futures
Trading
Other than trading
Total Futures
Options purchased and sold
Trading
Other than trading
Total options purchased and sold
Total exchange rate related contracts
Interest rate related contracts
Forwards
Trading
Other than trading
Total Forwards
Swaps
Trading
Other than trading
Total Swaps
Futures
Trading
Other than trading
Total Futures
Options purchased and sold
Trading
Other than trading
Total options purchased and sold
Total interest rate related contracts
Equity risk related contracts
Swaps
Other than trading
Options purchased and sold
Other than trading
Total equity risk related contracts
Total derivatives exposures
1998
$M
Face Value
1997
$M
E C O N O M I C E N T I T Y
Credit Equivalent
1997
$M
1998
$M
119,979
-
119,979
126,294
-
126,294
5,880
-
5,880
3,045
-
3,045
11,940
5,231
17,171
8,040
4,533
12,573
775
1,146
1,921
720
554
1,274
84
-
84
98
-
98
-
-
-
-
-
-
35,272
-
35,272
172,506
16,058
-
16,058
155,023
824
-
824
8,625
242
-
242
4,561
11,739
2,586
14,325
14,950
2,037
16,987
4
-
4
11
3
14
37,849
30,128
67,977
24,961
25,799
50,760
1,005
608
1,613
701
483
1,184
39,410
726
40,136
53,001
134
53,135
-
-
-
-
-
-
7,030
65
7,095
129,533
5,675
313
5,988
126,870
51
65
116
1,733
52
-
52
1,250
-
376
-
9
449
449
302,488
10
182
10
558
282,451 10,368
-
9
5,820
115
Notes to and forming part of the accounts
continued
Commonwealth Bank of Australia and Controlled Entities
NOTE 37 Market Risk continued
The fair or market value of trading derivative contracts, disaggregated into gross unrealised gains and gross unrealised
losses, are shown below. In line with the Bank’s accounting policy, these unrealised gains and losses are recognised
immediately in profit and loss, and together with net realised gains on trading derivatives and realised and unrealised
gains and losses on trading securities, are reported within trading income under foreign exchange earnings or other
financial instruments (refer Note 2). In aggregate, derivatives trading was profitable for the Bank during the year.
Exchange rate related contracts
Forward contracts
Gross unrealised gains
Gross unrealised losses
Swaps
Gross unrealised gains
Gross unrealised losses
Futures
Gross unrealised gains
Gross unrealised losses
Options purchased and sold
Gross unrealised gains
Gross unrealised losses
Net Unrealised Gains on Exchange Rate Related Contracts
Interest rate related contracts
Forward contracts
Gross unrealised gains
Gross unrealised losses
Swaps
Gross unrealised gains
Gross unrealised losses
Futures
Gross unrealised gains
Gross unrealised losses
Options purchased and sold
Gross unrealised gains
Gross unrealised losses
Net Unrealised Losses on Interest Rate Related Contracts
Net Unrealised Gains (Losses) on Trading Derivative Contracts
1998
$M
Fair Value
1997
$M
E C O N O M I C E N T I T Y
Average Fair Value
1997
1998
$M
$M
4,332
(3,697)
635
2,321
(2,377)
(56)
3,988
(3,687)
301
1,900
(1,984)
(84)
1,662
(1,925)
(263)
670
(493)
177
1,218
(1,326)
(109)
1,066
(596)
470
5
(4)
1
-
-
-
2
(2)
-
-
-
-
602
(406)
196
569
142
(124)
18
139
401
(297)
104
297
64
(71)
(7)
379
5
(7)
(2)
8
(15)
(7)
5
(9)
(4)
7
(12)
(5)
1,648
(1,725)
(77)
1,535
(1,675)
(140)
1,596
(1,681)
(85)
1,083
(1,524)
(441)
7
(10)
(3)
23
(28)
(5)
13
(14)
(1)
21
(23)
(2)
36
(16)
20
(62)
507
43
(7)
36
(116)
23
41
(12)
30
(60)
237
33
(10)
23
(425)
(46)
In accordance with the accounting policy set out in Note 1(gg) the above trading derivative contract revaluations have
been presented on a gross basis on the balance sheet.
Unrealised gains on trading derivatives (Note 20)
Unrealised losses on trading derivatives (Note 26)
Net unrealised gains (losses) on trading derivatives
8,297
(7,790)
507
4,742
(4,719)
23
116
NOTE 38 Superannuation Commitments
The Economic Entity sponsors a range of superannuation plans for its employees worldwide. Details of major plans with
assets in excess of $10 million are:
Name of Plan
Officers’ Superannuation Fund (OSF)
Commonwealth Bank of Australia (UK)
Staff Benefits Scheme (CBA(UK)SBS)
Financial Details of Defined Benefits Plans
Type
Defined Benefits and Accumulation
Form of Benefit
Indexed pensions and lump sums
Defined Benefits and Accumulation
Indexed pensions and lump sums
Net Market Value of Assets
Present Value of Accrued Benefits
Difference between Net Market Value of Assets
and Present Value of Accrued Benefits
Difference as a percentage of plan assets
Value of Vested Benefits
O S F
C B A ( U K ) S B S
30/06/97
$M
5,302
4,022
1,280
24%
4,022
01/01/97
$M
85
54
31
36%
45
Total
$M
5,387
4,076
1,311
24%
4,067
The above values have been extracted from financial statements and actuarial assessments of each plan which have been
prepared in accordance with relevant accounting and actuarial standards and practices.
Contributions
For the plans listed in the above table, entities of the Economic Entity contribute to the respective plans in accordance with
the Trust Deeds following the receipt of actuarial advice.
With the exception of contributions corresponding to salary sacrifice benefits, the Chief Entity ceased contributions
to the OSF from 8 July 1994. Contributions to the OSF corresponding to salary sacrifice benefits ceased from 1 July 1997.
An actuarial assessment of the OSF, as at 30 June 1997, has been completed during the year ended 30 June 1998.
In line with the actuarial advice contained in the assessment, the Chief Entity does not intend to make contributions to the
OSF until after consideration of the next actuarial assessment of the OSF as at 30 June 2000.
Management of OSF
The Board of Directors of the Trustee of the OSF comprises an equal number of member and Chief Entity representatives.
117
Notes to and forming part of the accounts
continued
Commonwealth Bank of Australia and Controlled Entities
Incorporated in
Extent of
Beneficial
Interest if
not 100%
Contribution to
Consolidated Profit
1998
$M
1997
$M
NOTE 39 Controlled Entities
AUSTRALIA
The Commonwealth Bank of Australia carries on business in various countries throughout the world. All other entities
carry on business in their countries of incorporation.
(a) Banking
897
857
Commonwealth Bank of Australia (Australia only)
Controlled Entities:
Commonwealth Development Bank of Australia Limited
CBA Investments Limited
Antarctic Shipping Pty Ltd
Balga Pty Limited *
Binya Pty Limited *
Brookhollow Ave Pty Limited * (1)
CBA Specialised Finance Limited
Share Investments Pty Limited
CBA Investments (No 2) Pty Ltd
CBA Indemnity Co. Pty Limited
CBA International Finance Pty Limited
Collateral Leasing Pty Limited
Chullora Equity Investments (No.2) Pty Limited *
Chullora Equity Investments (No.3) Pty Limited *
Commonwealth Connect Insurance Limited
Commonwealth Investments Pty Limited
Hazelwood Investment Company Pty Limited
Darontin Pty Limited *
Infravest (No. 1) Limited
Infravest (No. 2) Limited
Micropay Pty Limited
Perpetual Stock Pty Limited *
Retail Investor Pty Limited
Sparad (No. 16) Pty Limited *
Sparad (No. 20) Pty Limited *
Sparad (No. 24) Pty Limited *
Sparad (No. 29) Pty Limited *
Sparad (No. 30) Pty Limited *
Sparad (No. 31) Pty Limited *
(b) Finance
CBFC Group
CBFC Limited
CBFC Leasing Pty Limited
Commonwealth Securities Limited Group
Commonwealth Securities Limited
Share Direct Nominees Pty Limited *
Comsec Nominees Pty Limited *
Fleet Care Services Pty Limited *
Leaseway Australia Pty Limited
118
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
62
58
NOTE 39 Controlled Entities continued
(c) Life Insurance and Funds Management
Commonwealth Custodial Services Limited
Commonwealth Life Limited Group
Commonwealth Life Limited
CLL Investments Limited
CIF (Hazelwood) Pty Limited
Commonwealth Investment Services Limited Group
Commonwealth Investment Services Limited
CISL (Hazelwood) Pty Limited
Commonwealth Funds Management Limited Group
Commonwealth Funds Management Limited
CFM (ADF) Limited
CFML Nominees Pty Limited
NEW ZEALAND
(a) Banking
CINZ Group #
Commonwealth Investments New Zealand Limited
ASB Bank Limited
ASB Finance Limited
ASB Management Services Limited
ASB Properties Limited
ASB Superannuation Nominees Limited
OTHER OVERSEAS
(a) Banking
Commonwealth Bank of Australia (Offshore Branches)
CBA Asia Limited
#
Commbank International NV
Resources and Investment Finance Limited
CBA (Europe) Finance Limited
Brigidina Investments Limited (2)
Senator House Investments (UK) Limited (3)
(b) Finance
Central Real Estate Holdings Group
Central Real Estate Holdings Corporation
Wilshire 10880 Corporation
Wilshire 10960 Corporation
CTB Australia Limited
SBV Asia Limited
Incorporated in
Extent of
Beneficial
Interest if
not 100%
Contribution to
Consolidated Profit
1998
$M
1997
$M
84
75
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
73
63
(30)
21
Singapore
Netherlands Antilles
Papua New Guinea
United Kingdom
Jersey
United Kingdom
USA
USA
USA
Hong Kong
Hong Kong
4
4
75%
75%
75%
75%
75%
51%
Operating Profit After Tax and Outside Equity Interests
1,090
1,078
Non-operating controlled entities are excluded from the above list.
(1)
Incorporated during the year
(2) Wholly owned subsidiary of Share Investments Pty Limited
(3) Wholly owned subsidiary of CBA International Finance Pty Limited
#
*
Controlled entities not audited by Ernst & Young
Small proprietary companies not requiring audit
119
Notes to and forming part of the accounts
continued
Commonwealth Bank of Australia and Controlled Entities
NOTE 40 Investments in Associated Entities
EDS (Australia) Pty Limited (1)
IPAC Securities Limited
PT Bank BII Commonwealth
Electronic Financial Technologies Pty Ltd
(1)
Interest acquired on 26 September 1997.
Book
Value
$M
239
25
12
-
Principal Activities
Balance Date
Extent of
Ownership
Interest
%
35
50
50
50
Information Technology Services
Funds Manager
Banking in Indonesia
Financial Technology Development
31 December
30 June
31 December
30 June
Share of associates’ profits (losses) after notional goodwill amortisation
Operating profits before income tax
Income tax expense
Operating profits (losses) after income tax
Carrying amount of investments in associated entities
Opening balance
New investments
Share of associates’ profits (losses)
Foreign exchange adjustment
Closing balance
E C O N O M I C E N T I T Y
1998
$M
2
(4)
(2)
60
248
(2)
(30)
276
The share of associates net profit for the year ended 30 June 1998 represents the share of associates retained profits at
year-end. There were no other movements in reserves for the year. The Economic Entity’s share of operating lease
commitments is disclosed in Note 35.
NOTE 41 Standby Arrangements and Unused Credit Facilities
(of controlled entities that are borrowing corporations and entities subject to the Financial Corporations Act 1974)
E C O N O M I C E N T I T Y
1998
$M
Unused
Available
Available
1997
$M
Unused
(a) Financing arrangements accessible
Bank overdraft
Bill facilities
(b) Financing arrangements provided
Wholesale finance
Other facilities
17
5
22
1
-
1
10
-
10
-
-
-
-
1
1
-
-
-
13
1
14
3
-
3
120
NOTE 42 Related Party Disclosures
Australian banks, parent entities of Australian banks and controlled entities of Australian banks have been exempted,
subject to certain conditions, under an Australian Securities Commission Class Order No. 97/1016 dated 9 July 1997, from
making disclosures of any loan made, guaranteed or secured by a bank to related parties (other than directors) and
financial instrument transactions (other than shares and share options) of a bank where a director of the relevant entity
is not a party and where the loan or financial instrument transaction is lawfully made and occurs in the ordinary course
of banking business and either on an arm’s length basis or with the approval of a general meeting of the relevant entity
and its ultimate chief entity (if any). The exemption does not cover transactions which relate to the supply of goods and
services to a bank, other than financial assets or services.
The Class Order does not apply to a loan or financial instrument transaction which any director of the relevant entity
should reasonably be aware that if not disclosed would have the potential to adversely affect the decisions made by users
of the financial statements about the allocation of scarce resources.
A condition of the Class Order is that the Bank must lodge a statutory declaration, signed by two directors, with the
Australian Securities Commission accompanying the annual return. The declaration provides confirmation that the bank
has systems of internal control and procedures to provide assurance that any financial instrument transactions of a bank
which are not entered into on an arm’s length basis are drawn to the attention of the Directors so that they may
be disclosed.
Directors
The name of each person holding the position of Director of the Commonwealth Bank during the financial year is:
(Chairman)
(Deputy Chairman)
(Managing Director)
(Executive Director - Retired 11 July 1997)
M A Besley AO
J T Ralph AO
D V Murray
I K Payne
N R Adler
A C Booth
K E Cowley AO
J M Schubert
G H Slee AM
F J Swan
B K Ward
Details of remuneration received or due and receivable by Directors are set out in Note 43.
Loans to Directors
Loans are made to Directors in the ordinary course of business of the Bank and on an arm’s length basis. Loans
to Executive Directors have been made on normal commercial terms and conditions.
Under the Australian Securities Commission Class Order referred to above, disclosure is limited to the aggregate
amount of loans made, guaranteed or secured by:
the Chief Entity to its Directors;
•
• banks which are controlled entities to their Directors; and
• non bank controlled entities to Directors (and their related parties) of those entities.
The aggregate amount of such loans outstanding at 30 June 1998 was:
$468,000 to Directors of the Chief Entity (1997: $690,897); and
•
$1,191,900 to Directors of related entities (1997: $1,159,760).
•
The aggregate amount of such loans received and repayments made was:
Directors of the Chief Entity
Normal terms and conditions (1)
Directors of related entities
Normal terms and conditions (2)
L O A N S R E C E I V E D
R E P A Y M E N T S M A D E
1998
$
1997
$
1998
$
1997
$
-
52,000 111,000
278,256
186,663
178,692 154,522
207,905
(1) Directors: I K Payne, A C Booth, B K Ward
(2) Directors: G J Judd, R J Norris, G A Thorby, W W Moyes, W G Ward-Holmes
121
Notes to and forming part of the accounts
continued
Commonwealth Bank of Australia and Controlled Entities
NOTE 42 Related Party Disclosures continued
Shares of Directors
The aggregate number of shares acquired by, disposed of and held by Directors and their director related entities in the
Commonwealth Bank during the financial year ended 30 June 1998, were:
Director
M A Besley
J T Ralph
D V Murray
I K Payne (retired 11/7/97)
N R Adler
A C Booth
K E Cowley (appointed 30/9/97)
J M Schubert
G H Slee
F J Swan (appointed 11/7/97)
B K Ward
Held
30 June 1997
IR
2,050
2,150
33,750
650
8,300
-
Ordinary
9,071
9,659
17,191
2,537
1,777
283
2,517
2,660
3,000
-
1,140
600
Shares Acquired
Shares Disposed Of
Ordinary Ordinary
1,219
-
5,100
700
633
1,689
IR
-
1,500
-
516
769
8,000
349
170
2,127
111
647
31
-
605
292
219
191
-
-
-
-
-
-
-
Held
30 June 1998
Ordinary
10,602
10,942
47,530
9,946
1,021
8,000
5,261
2,538
1,908
1,660
IR - Instalment Receipts evidence full beneficial ownership in an ordinary share. A second instalment of $4.45 was payable
on the IRs by 14 November 1997 at which time they became fully paid ordinary shares.
All shares were acquired by Directors on normal terms and conditions or under the employee share scheme,
as appropriate. Additionally D V Murray was granted 500,000 options during the year bringing his total holdings
to 800,000 under the Executive Option Plan. Refer Note 28 for details.
Other Transactions of Directors and Other Related Parties
Financial Instrument Transactions
Financial instrument transactions (other than loans and shares disclosed above) of Directors of the Chief Entity and banks
which are controlled entities occur in the ordinary course of business of the banks on an arm ’s length basis.
Under the Australian Securities Commission Class Order referred to above, disclosure of financial instrument
transactions regularly made by a bank is limited to disclosure of such transactions with a Director of the entity concerned.
All such financial instrument transactions that have occurred between the banks and their Directors have been trivial
or domestic and were in the nature of normal personal banking and deposit transactions.
Transactions other than Financial Instrument Transactions of Banks
All other transactions with Directors, director related entities and other related parties are conducted on an arm’s length
basis in the normal course of business and on commercial terms and conditions. These transactions principally involve the
provision of financial and investment services by non bank controlled entities.
All such transactions that have occurred with Directors, director related entities and other related parties have been
trivial or domestic and were in the nature of lodgement of deposit and debenture monies.
Controlled Entities
Transactions with related parties in the Economic Entity are conducted on an arm’s length basis in the normal course
of business and on commercial terms and conditions. These transactions principally arise out of the provision of banking
services, the acceptance of funds on deposit, the granting of loans and other associated financial activities.
The Bank was negotiating to sell certain infrastructure assets to CISL Infrastructure Trust, a controlled entity,
as at 30 June 1998 as a prelude to being on sold into the market. The sale is on an arms length basis, the sale price based
on independent valuations and negotiations with third party underwriters. The Bank’s results at 30 June 1998 include
unrealised gains and losses on infrastructure assets.
Support services are provided by the Bank such as provision of premises and/or equipment, availability of transfer
payment and accounting facilities through data processing etc, and are transfer charged to the respective user entity
at commercial rates.
Refer to Note 39 for details of controlled entities.
The Bank’s aggregate investment in and loans to controlled entities are disclosed in Note 17. Amounts due
to controlled entities are disclosed in the balance sheet of the Bank.
Details of amounts paid to or received from related parties, in the form of dividends or interest, are set out in Note 2.
All transactions between Group entities are eliminated on consolidation.
122
NOTE 42 Related Party Disclosures continued
Commonwealth Development Bank of Australia (‘CDB’)
On 24 July 1996 the Commonwealth Government sold its 8.1% shareholding in the CDB to the Bank.
Commonwealth Guarantee of the Bank’s Liabilities
The liabilities of the Bank and its controlled entity, Commonwealth Development Bank of Australia, as at 30 June 1996 were
guaranteed by the Commonwealth under a statute of the Australian Parliament.
Such guarantee is being progressively phased out following the Government sell-down on 19 July 1996. Refer Note 25
for full details of transitional measures. The removal of the guarantee has not materially affected either the borrowing
costs or the borrowing capabilities of the Bank.
NOTE 43 Remuneration of Directors
Total amount received or due and receivable by non-executive Directors of the Chief Entity for the year ended
30 June 1998 was:
Non-Executive Directors
Mr M A Besley, AO
Mr J T Ralph, AO
Mr N R Adler
Ms A C Booth
Mr K E Cowley AO (2)
Dr J M Schubert
Mr G H Slee, AM
Mr F J Swan (3)
Ms B K Ward
Fees (1)
$
165,720
90,380
61,430
61,430
40,843
64,413
74,413
72,660
64,413
(1)
Includes Directors’ and Committees’ fees.
(2) Mr Cowley was appointed a Director on 30 September 1997.
(3) Mr Swan was appointed a Director on 11 July 1997.
Total amount received or due and receivable by executive and non executive Directors
(includes accumulated benefits due to Directors who retired during the year)
3,608,073
2,766,887
The number of executive and non-executive Directors whose remuneration fell within these bands was:
C H I E F E N T I T Y
1998
$
1997
$
Remuneration (Dollars)
10,000
0 - $
$
50,000
40,001 - $
$
60,000
50,001 - $
$
70,000
60,001 - $
$
70,001 - $
$
80,000
$
90,001 - $ 100,000
$ 120,001 - $ 130,000
$ 160,001 - $ 170,000
$ 170,001 - $ 180,000
$ 650,001 - $ 660,000
$1,060,001 - $1,070,000
$1,320,001 - $1,330,000
$1,840,001 - $1,850,000
Number
-
1
-
4
2
1
-
1
-
-
1
-
1
11
#
*
**
Number
1
-
7
1
1
-
1
-
1
1
-
1
-
14
#
*
Remuneration includes retirement payment to Mr I K Payne who retired on 11 July 1997.
Remuneration includes retirement allowance scheme payments to Mr I Deveson and Mr G M Pemberton who were
paid during the financial year, but actually retired during previous years.
** Remuneration includes retirement allowance scheme payment to Mr G Gleeson.
123
Commonwealth Bank of Australia and Controlled Entities
Notes to and forming part of the accounts
continued
NOTE 43 Remuneration of Directors continued
Total amount received or due and receivable by executive
and non executive Directors of the Bank and controlled entities
E C O N O M I C E N T I T Y
1998
$
1997
$
4,272,934
3,331,388
Remuneration includes share options granted to executive directors under the Executive Option Plan in 1996 and 1997.
The fair value of the options has been determined in accordance with the principles of US SFAS 123 ‘Accounting for
Stock-Based Compensation’. Refer to Notes 28 and 47(c) for details of the Executive Option Plan.
NOTE 44 Remuneration of Executives
The following table shows remuneration for the five highest paid members of the senior executive team who were officers
of the Bank at 30 June 1998.
Senior Executive Team
Name & Position
Year
Base Pay
(1)
Bonus
Other
Compensation
(2)
Total
Compensation
Option
(3)
Grant
Exercise
(3)
Price
Date First
Exercisable
D V Murray
Managing Director & CEO
A E Long
Head of Customer Service
Division
M A Katz
Head of Institutional Banking
M J Ullmer
Group General Manager
Financial & Risk Management
J F Mulcahy
Head of Banking & Financial
Services
1998
1997
1998
1997
1998
1997
1998
1997
1998
1997
$
$
1,000,000
800,000
500,000
312,000
600,000
470,000
(4)
496,712
n/a
450,000
400,000
175,000
120,000
160,000
125,000
150,000
n/a
500,000
380,000
200,000
160,000
$
265,700
85,540
223,573
181,081
133,500
58,790
245,440
n/a
126,000
49,160
$
Number
1,715,700
1,285,540
898,573
613,081
893,500
653,790
892,152
n/a
500,000
300,000
150,000
75,000
250,000
150,000
200,000
n/a
$
15.53
11.85
15.53
11.85
15.53
11.85
15.53
n/a
4 Nov 2000
13 Nov 1999
4 Nov 2000
13 Nov 1999
4 Nov 2000
13 Nov 1999
4 Nov 2000
n/a
826,000
589,160
250,000
150,000
15.53
11.85
4 Nov 2000
13 Nov 1999
(1) Base Pay is calculated on a Total Cost basis and includes any FBT charges related to employee benefits including motor
vehicles.
(2) Other Compensation includes, where applicable, superannuation, housing (including FBT), car parking (including FBT),
and other payments.
(3) Option Grants are a right to buy ordinary shares at an exercise price which is the Market Value ( as defined in the Plan
Rules) at the date of issue of the options, plus a premium representing the time value component of the value
of options. The ability to exercise is conditional on the Bank achieving a prescribed performance hurdle. To reach the
performance hurdle, the Bank’s Total Shareholder Return (broadly, growth in share price plus dividends reinvested)
over a minimum three year period, must equal or exceed the index of Total Shareholder Return achieved by companies
represented in the ASX’s ‘Bank’s and Finance Accumulation Index’, excluding the Bank. If the performance hurdle is not
met, the options will have nil value. The options have a maximum term of five years and are exercisable after three
years. Refer Note 28.
(4) From commencement of employment in October 1997.
Two executives retired during the year. Their total emoluments, including retirement and resignation benefits put them
into the group of the five highest paid executives in the year but they are not included in the table because they were not
in the Bank’s employ at 30 June 1998.
124
NOTE 44 Remuneration of Executives continued
The following table shows the number of executives whose remuneration fell within the stated bands:
E C O N O M I C E N T I T Y
C H I E F E N T I T Y
1998
1997
1998
1997
Remuneration (Dollars)
$ 120,000 - $ 129,999
$ 190,000 - $ 199,999
$ 200,000 - $ 209,999
$ 210,000 - $ 219,999
$ 230,000 - $ 239,999
$ 250,000 - $ 259,999
$ 260,000 - $ 269,999
$ 280,000 - $ 289,999
$ 290,000 - $ 299,999
$ 300,000 - $ 309,999
$ 310,000 - $ 319,999
$ 320,000 - $ 329,999
$ 330,000 - $ 339,999
$ 340,000 - $ 349,999
$ 350,000 - $ 359,999
$ 360,000 - $ 369,999
$ 370,000 - $ 379,999
$ 380,000 - $ 389,999
$ 390,000 - $ 399,999
$ 400,000 - $ 409,999
$ 420,000 - $ 429,999
$ 430,000 - $ 439,999
$ 440,000 - $ 449,999
$ 460,000 - $ 469,999
$ 470,000 - $ 479,999
$ 490,000 - $ 499,999
$ 500,000 - $ 509,999
$ 540,000 - $ 549,999
$ 560,000 - $ 569,999
$ 600,000 - $ 609,999
$ 610,000 - $ 619,999
$ 620,000 - $ 629,999
$ 650,000 - $ 659,999
$ 670,000 - $ 679,999
$ 780,000 - $ 789,999
$ 890,000 - $ 899,999
$ 920,000 - $ 929,999
$ 930,000 - $ 939,999
$ 950,000 - $ 959,999
$1,060,000 - $1,069,999
$1,070,000 - $1,079,999
$1,320,000 - $1,329,999
$1,840,000 - $1,849,999
Total number of executives
Number
1
-
-
1
-
2
-
-
1
2
-
1
-
-
1
2
-
4
1
1
3
2
1
2
1
-
-
1
-
1
-
1
-
-
1
1
1
1
1
1
1
-
1
37
#
#
#
#
Number
-
1
1
-
1
-
1
1
-
1
1
2
2
2
-
2
2
1
3
-
-
-
-
1
-
1
1
-
1
1
1
1
1
1
-
-
-
-
-
-
-
1
-
31
Number
1
-
-
1
-
2
-
-
1
2
-
1
-
-
1
2
-
4
1
1
3
2
1
2
1
-
-
1
-
1
-
1
-
-
1
1
1
1
1
1
1
-
1
37
#
#
#
#
Number
-
1
1
-
1
-
1
1
-
1
1
2
2
2
-
2
2
1
3
-
-
-
-
1
-
1
1
-
1
1
1
1
1
1
-
-
-
-
-
-
-
1
-
31
125
Notes to and forming part of the accounts
continued
NOTE 44 Remuneration of Executives continued
Commonwealth Bank of Australia and Controlled Entities
E C O N O M I C E N T I T Y
C H I E F E N T I T Y
1998
$
1997
$
1998
$
1997
$
Total amount received or due and receivable by executives
(includes accumulated benefits due to executives who
retired during the year).
19,779,164 13,384,814
19,779,164
13,384,814
#
Includes termination payments to 4 retired, resigned, or retrenched executives during the 1997/98 financial year.
An executive is a person who works in Australia and is either a participant in the Bank’s Executive Option Plan
or is otherwise directly accountable and responsible to the Managing Director for strategic direction or operational
management functions. Participation in the Executive Option Plan is limited to executives who, in the opinion of the
Managing Director and the Board are able by virtue of their responsibility, experience and skill to influence the generation
of shareholder wealth.
Remuneration is based on amounts paid and accrued with respect to the financial year, and includes share options
granted to executives under the Executive Option Plan in 1996 and 1997. The fair value of options has been determined
in accordance with the principles of US SFAS 123 ‘Accounting for Stock-Based Compensation’. Refer to Notes 28 and 47(c)
for details of the Executive Option Plan.
1997 comparatives have been restated where appropriate.
The Bank’s Policy in respect of executives is that:
•
reward executives for Group, business unit and individual performance against appropriate benchmarks/goals;
align the interests of executives with those of shareholders;
link executive reward with the strategic goals and performance of the Bank;
ensure total remuneration is competitive by market standards;
Remuneration will be competitively set so that the Bank can seek to attract, motivate and retain high quality local
and international executive staff;
Remuneration will incorporate, to a significant degree, variable pay for performance elements, both short term and
long term focussed as appropriate, which will:
-
-
-
-
Remuneration will be reviewed annually by the Remuneration Committee through a process that considers Group,
business unit and individual performance, relevant comparative remuneration in the market and internal and,
where appropriate, external advice on policies and practices;
Remuneration systems will complement and reinforce the Bank’s leadership and succession planning systems; and
Remuneration and terms and conditions of employment will be specified in an individual contract of employment
and signed by the executive and the Bank.
•
•
•
•
126
E C O N O M I C E N T I T Y
C H I E F E N T I T Y
1998
$M
1997
$M
1996
$M
1998
$M
1997
$M
NOTE 45 Statements of Cash Flows
Note (a) Reconciliation of Cash
For the purposes of the Statements of Cash Flows, cash includes cash at bankers, money at short call, at call deposits with
other financial institutions and settlement account balances with other banks.
Notes, coins and cash at bankers
Other short term liquid assets
Receivables due from other financial institutions - at call
Payables due to other financial institutions - at call
Cash and Cash Equivalents at end of year
951
247
2,925
(2,160)
1,963
1,091
241
3,502
(1,516)
3,318
479
1,270
3,625
(1,073)
4,301
909
157
2,681
(1,772)
1,975
1,060
195
3,294
(1,134)
3,415
Note (b) Cash Flows presented on a Net Basis
Cash flows arising from the following activities are presented on a net basis in the Statements of Cash Flows:
•
•
•
•
customer deposits to and withdrawals from deposit accounts;
borrowings and repayments on loans, advances and other receivables;
sales and purchases of trading securities; and
proceeds from and repayment of short term debt issues.
Note (c) Reconciliation of Operating Profit After
Income Tax to Net Cash Provided by Operating Activities
Operating profit after income tax
(Increase) decrease in interest receivable
Increase (decrease) in interest payable
Net (increase) decrease in trading securities
1,110 1,100
1,141
883
948
(13)
80
171
(33)
78
75
(646)
5
556
(125)
2,374
(32)
(591)
-
487
Net (gain) loss on sale of investment securities
(101)
(4)
10
(119)
(4)
Charge for bad and doubtful debts
Depreciation and amortisation
Other provisions
Increase (decrease) in income taxes payable
Increase (decrease) in deferred income taxes payable
(Increase) decrease in future income tax benefits
Amortisation of discount on debt issues
Amortisation of premium (discount) on investment securities
Unrealised (gain) loss on revaluation of trading securities
Abnormal item
Other
233
233
98
280
113
293
224
197
85
249
(74)
36
63
(71)
34
46
128
(158)
261
26
(484)
492
(241)
(222)
97
22
256
(13)
(147)
200
47
91
61
50
139
56
89
-
85
45
43
(146)
260
29
(484)
492
(180)
(240)
48
45
256
(31)
(147)
200
64
Net Cash provided by Operating Activities
887 2,391
4,611
517 2,072
Note (d) Non Cash Financing and Investing Activities
Shares issued under the Dividend Reinvestment Plan $452 million (1997: $426 million) and Employee Share Acquisition
Plan $28 million (1997: $28 million).
127
Notes to and forming part of the accounts
continued
Commonwealth Bank of Australia and Controlled Entities
NOTE 45 Statements of Cash Flows continued
Note (e) Acquisition of Controlled Entities
During 1997, the Bank acquired 100% of the share capital of Commonwealth Funds Management and Leaseway and the
8.1% minority interest in Commonwealth Development Bank.
Details of controlled entities acquired during the financial year are as follows:
E C O N O M I C E N T I T Y
1998
$M
1997
$M
1996
$M
Consideration
Cash paid on acquisition
Fair value of net tangible assets acquired
Cash
Investment securities
Loans, advances and other receivables
Property, plant and equipment
Other assets
Outside equity interest
Income tax liability
Other provisions
Bills payable and other liabilities
Discount on acquisition
Goodwill
Outflow of cash on acquisition
Cash payments
Less cash and cash equivalents acquired
-
88
-
-
-
-
-
-
-
-
-
-
-
-
-
-
22
2
15
4
6
28
(3)
(5)
(6)
63
(16)
41
88
-
-
-
88
(22)
66
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Financing Facilities
Note (f)
Standby funding lines with overseas banks as at 30 June 1998 amounted to AUD equivalent $21 million (1997: $21 million).
128
NOTE 46 Disclosures about Fair Value of Financial Instruments
These amounts represent estimates of net fair values at a point in time. Significant estimates regarding economic
conditions, loss experience, risk characteristics associated with particular financial instruments and other factors were used
for the purposes of this disclosure. These estimates are subjective in nature and involve matters of judgment. Therefore,
they cannot be determined with precision. Changes in the assumptions could have a material impact on the amounts
estimated.
While the estimated net fair value amounts are designed to represent estimates at which these instruments could
be exchanged in a current transaction between willing parties, many of the Economic Entity’s financial instruments lack
an available trading market as characterised by willing parties engaging in an exchange transaction. In addition, it is the
Bank’s intent to hold most of its financial instruments to maturity and therefore it is not probable that the net fair values
shown will be realised in a current transaction.
The estimated net fair values disclosed do not reflect the value of assets and liabilities that are not considered financial
instruments. In addition, the value of long-term relationships with depositors (core deposit intangibles) and other
customers (credit card intangibles) are not reflected. The value of these items is significant.
Because of the wide range of valuation techniques and the numerous estimates which must be made, it may
be difficult to make reasonable comparisons of the Bank’s net fair value information with that of other financial institutions.
It is important that the many uncertainties discussed above be considered when using the estimated net fair value
disclosures and to realise that because of these uncertainties, the aggregate net fair value amount should in no way
be construed as representative of the underlying value of the Commonwealth Bank of Australia.
Assets
Cash and liquid assets
Receivables due from other financial institutions
Trading securities
Investment securities
Loans, advances and other receivables
Bank acceptances of customers
Deposit accounts with regulatory authorities
Other assets
Liabilities
Deposits and other public borrowings
Payables due to other financial institutions
Bank acceptances
Debt issues
Bills payable and other liabilities
Loan Capital
Asset and liability hedges - unrealised gains/(losses)
(Refer Note 37)
E C O N O M I C E N T I T Y
1998
1997
Carrying
Value
$M
Net Fair
Value
$M
Carrying
Value
$M
Net Fair
Value
$M
1,526 1,526
3,448 3,448
4,009 4,009
6,858 7,079
2,007
4,839
2,635
9,233
2,007
4,839
2,635
9,562
89,816 92,646
81,632
84,958
9,727 9,727
8,874
8,874
832
832
797
797
12,054 12,518
7,301
7,560
83,886 84,305
77,880
78,439
3,397 3,397
9,727 9,727
3,621
8,874
3,621
8,874
10,608 10,828
10,154
10,276
10,616 10,856
2,996 3,170
557
-
7,590
2,801
-
7,574
2,847
(259)
The net fair value estimates were determined by the following methodologies and assumptions:
Liquid assets and bank acceptances of customers
The carrying values of cash and liquid assets, receivables due from other financial institutions and bank acceptances
of customers approximate their net fair value as they are short term in nature or are receivable on demand.
Securities
Trading securities are carried at net market/net fair value and investment securities have their net fair value determined
based on quoted market prices, broker or dealer price quotations.
129
Notes to and forming part of the accounts
continued
Commonwealth Bank of Australia and Controlled Entities
NOTE 46 Disclosures about Fair Value of Financial Instruments continued
Loans, advances and other receivables
The carrying value of loans, advances and other receivables is net of general and specific provisions for doubtful debts and
interest/fees reserved.
For variable rate loans, excluding impaired loans, the carrying amount is a reasonable estimate of net fair value.
The net fair value for fixed rate loans was calculated by utilising discounted cash flow models (ie the net present value
of the portfolio future principal and interest cash flows), based on the maturity of the loans. The discount rates applied
were based on the current benchmark rate offered for the average remaining term of the portfolio plus an add-on of the
average credit margin of the existing portfolio, where appropriate.
The net fair value of impaired loans was calculated by discounting expected cash flows using a rate which includes
a premium for the uncertainty of the flows.
For shares in companies, the estimated net fair values are based on quoted market prices.
Statutory deposits with central banks
In Australia, and several other countries in which the Economic Entity operates, the law requires that the Economic Entity
lodge regulatory deposits with the local central bank at a rate of interest below that generally prevailing in that market.
The net fair value is assumed to be equal to the carrying value as the Economic Entity is only able to continue as a going
concern with the maintenance of these deposits.
All other financial assets
The net fair value includes the value of the net worth and the business in force of CLL (known as the embedded value),
which has been actuarially assessed to be $480 million as at 30 June 1998 (1997: $400 million), $445 million
(1997: $365 million) in excess of carrying value in the Chief Entity.
Also included in this category are fees receivable, unrealised income and investments in associates ($276 million)
where the carrying amount is considered to be a reasonable estimate of net fair value.
Other financial assets are net of goodwill, future income tax benefits and prepayments/unamortised payments as these
do not constitute a financial instrument.
Deposits and other public borrowings
The net fair value of non interest bearing, call and variable rate deposits, and fixed rate deposits repricing within six
months, is the carrying value as at 30 June. Discounted cash flow models based upon deposit type and its related maturity,
were used to calculate the net fair value of other term deposits.
Short term liabilities
The carrying value of payables due to other financial institutions and bank acceptances approximate their net fair value
as they are short term in nature and reprice frequently.
Debt issues and loan capital
The net fair values of debt issues and loan capital were calculated based on quoted market prices as at 30 June. 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 was used.
All other financial liabilities
This category includes interest payable and unrealised expenses payable for which the carrying amount is considered
to be a reasonable estimate of net fair value. For liabilities which are long term, net fair values have been estimated using
the rates currently offered for similar liabilities with remaining maturities.
Other provisions including provision for dividend, income tax liability and unamortised receipts are not considered
financial instruments.
Asset and liability hedges
Net fair value of asset and liability hedges is based on quoted market prices, broker or dealer price quotations.
Commitments to extend credit, letters of credit, guarantees, warranties and indemnities issued
The net fair value of these items was not calculated as estimated fair values are not readily ascertainable. These financial
instruments generally relate to credit risk and attract fees in line with market prices for similar arrangements. They are not
presently sold or traded. The items generally do not involve cash payments other than in the event of default. The fee
pricing is set as part of the broader customer credit process and reflects the probability of default. The net fair value may
be represented by the present value of fees expected to be received, less associated costs. The overall level of fees
involved is not material.
130
NOTE 46 Disclosures about Fair Value of Financial Instruments continued
Other off-balance sheet financial instruments
The net fair value of trading and investment derivative contracts (foreign exchange contracts, currency swaps, exchange
rate futures, currency options, forward rate agreements, interest rate swaps, interest rate futures, interest rate options),
were obtained from quoted market prices, discounted cash flow models or option pricing models as appropriate.
The fair value of these instruments are disclosed in Note 37.
NOTE 47 Differences between Australian and United States Accounting Principles
The consolidated financial statements of the Bank are prepared in accordance with Generally Accepted Accounting
Principles in Australia (‘Australian GAAP’, refer Note 1) which differ in some respects from Generally Accepted Accounting
Principles in the United States (‘US GAAP’).
The following are significant adjustments between net profit, shareholders’ equity and consolidated balance sheets
disclosed in these accounts and which would be reported in accordance with US GAAP.
Footnote
1998
$M
1997
$M
1996
$M
Consolidated Statements of Profit and Loss
Net profit reported under Australian GAAP
Restatement of deferred tax balances resulting from change in tax rate
Tax effect of increase in general provision for bad and doubtful debts
Employee share compensation
Unrealised net gain on available for sale securities
Pension expense adjustment
Adjustment on adoption of new ISC Life Insurance Rules
Net income according to US GAAP
Earnings per share according to US GAAP (cents)
Shareholders’ Equity
Shareholders’ equity reported under Australian GAAP,
excluding outside equity interests
Tax effect of foreign currency translation reserve
Reinstatement of the deferred tax asset relating to general
provision for bad and doubtful debts
Provision for final cash dividend
Unrealised net gain(loss) on available for sale securities
Prepaid pension cost
Tax effect of prepaid pension cost
Shareholders’ equity according to US GAAP
Consolidated Balance Sheets
Total assets reported under Australian GAAP
Reinstatement of the deferred tax asset relating to general
provision for bad and doubtful debts at year end
Assets relating to life insurance statutory funds
Unrealised net gain(loss) on available for sale securities
Prepaid pension cost
Total assets according to US GAAP
(a)
(a)
(c)
(f)
(i)
(k)
(a)
(a)
(d)
(f)
(i)
(i)
(a)
(e)
(f)
(i)
1,090
-
(248)
(1)
(65)
20
-
796
85.6
6,712
(15)
-
321
198
648
(233)
7,631
1,078
-
28
(57)
-
44
(11)
1,082
118.0
6,846
(20)
248
291
24
616
(222)
7,783
1,119
16
50
-
-
45
-
1,230
127.0
7,190
(10)
221
301
9
548
(197)
8,062
130,544
120,103
109,285
-
7,959
309
648
139,460
248
7,249
37
616
128,253
221
6,307
14
548
116,375
131
Notes to and forming part of the accounts
continued
Commonwealth Bank of Australia and Controlled Entities
NOTE 47 Differences between Australian and United States Accounting Principles continued
(a)
Income Tax
Deferred Income Tax Assets and Liabilities
Australian GAAP follows the liability method of tax-effect accounting. The tax-effect of timing differences which arise
from items being brought to account in different periods for income tax and accounting purposes is disclosed as a future
income tax benefit (FITB) or a provision for deferred income tax. Amounts are offset where the tax payable and the
realisable benefit are expected to occur in the same period. Permanent differences are differences between taxable
income and pre-tax accounting profit where the related income or expense items will never be included in either taxable
income or pre-tax accounting profit.
The Bank has applied SFAS 109 ‘Accounting for Income Taxes’ in the preparation of its US GAAP information.
The differences between the effect of applying the provisions of SFAS 109 and the accounting policy adopted in the
Australian Financial Statements are as follows:
• Australian GAAP requires that an announcement of the Government’s intention to change the rate of company
income tax in advance of periods in which the change will occur is adequate evidence for the deferred tax
balances to be restated. This treatment is not permitted under SFAS 109 ‘Accounting for Income Taxes’ which
requires that the deferred tax liabilities and assets be adjusted in the financial year in which a change in the tax
rate is enacted. The restatement of the deferred tax balances resulting from the 1995 Australian tax rate change
in respect of the 1996 financial year is included as a US GAAP adjustment; and
• under Australian GAAP the criterion for recognition of timing differences is assurance beyond any reasonable
doubt and for tax losses ‘virtual certainty’. The recognition criterion under US GAAP is that the tax
benefit is probable.
The general provision for bad and doubtful debts has been tax effected as at 1 January 1998. This reflects the
adoption of a balance sheet risk based dynamic provisioning methodology which satisfies the recognition requirement
that utilisation of the provision be assured beyond reasonable doubt. Previously the related deferred tax asset associated
with the Bank’s general provision was not recognised. For US GAAP recognition purposes, the related deferred tax asset
is recognised. The 1998 US GAAP net income adjustment of $248 million represents the cumulative deferred tax asset
previously recognised as income for US GAAP. (Also refer Note 1(o)). Similarly for US GAAP purposes, the tax effect of the
foreign currency translation reserve is booked as a deferred tax liability.
Investment Securities
Income from tax exempt securities does not exceed $500,000.
Tax related to gains/losses on investment securities sales is $37 million (1997: $1.4 million, 1996: $3.6 million benefit).
Pension Plans
(b)
In accordance with Australian GAAP, contributions to company sponsored defined benefit pension plans are expensed
as incurred. Other than by way of a note to the financial statements, any surplus or deficit is not reflected in the
consolidated accounts.
US GAAP pension expense, for defined benefit pension plans, is determined using defined methodology that is based
on concepts of accrual accounting. This methodology, which requires several types of actuarial measurements, results
in net amounts of expense and the related plan surplus or deficiency being recorded in the financial statements of the
sponsor systematically over the working lives of the employees covered by the plan. As a result US GAAP reconciliation
adjustments are required. The disclosure requirements of SFAS 87 ‘Employers Accounting for Pensions’ have been
included at footnote (j) within this note.
The Bank has adopted SFAS 87 later than the effective date specified in the accounting standard. To introduce the
information required under SFAS 87 as from the effective date was not feasible. Accordingly an allocation of the pension
obligation/asset has been taken directly to equity based on the number of years elapsed between the effective date and
the date of adoption by the Bank. The adoption date for the purposes of the US GAAP reconciliation information is
1 July 1994 and the remaining amortisation period at the adoption date was ten years.
Employee Share Compensation
(c)
In the Consolidated Statements of Changes in Shareholders’ Equity the Employee Share Acquisition Plan share issue
is shown as a reduction to shareholder reserves. Under US GAAP, SFAS 123 ‘Accounting for Stock Based Compensation’,
this employee share scheme would be considered as part of employee compensation and charged to profit and loss.
The grants of shares are in respect of the Bank’s performance for the prior years.
132
NOTE 47 Differences between Australian and United States Accounting Principles continued
Employee Share Compensation continued
(c)
Further, under US GAAP, in accordance with the Employee Share Acquisition Plan an accrual for the probable grant
of shares is required.
Also under US GAAP, the fair value of the options issued under the Executive Option Plan is included as part
of employee compensation and charged to profit and loss.
The fair value of the options (issued on 16 December 1996), being 45c per option, has been determined using
Black-Scholes option pricing model with the following assumptions at the date of issue: expected volatility of 17.5%, risk
free interest rate of 6.94%, dividend rate of 8.18%, expected life of 39 months and a 50% probability for the performance
hurdle.
The fair value of options (issued on 11 December 1997), being 89c per option, has also been determined using
Black-Scholes option pricing model with the following assumptions at the date of issue: expected volatility of 19.1%, risk
free interest rate of 5.88%, dividend rate of 5.96% expected life of 39 months and a 50% probability for the performance
hurdle.
Movement in Executive Options during the year
Options outstanding at 1 July 1997
Options granted during the year
Options forfeited during the year (December 1996 plan)
Options forfeited during the year (December 1997 plan)
Options outstanding at 30 June 1998
Number
2,100,000
2,875,000
(225,000)
(75,000)
4,675,000
Exercise Price
11.85
15.53
11.85
15.53
Outstanding options at 30 June 1998
December 1996 options
December 1997 options
Number
1,875,000
2,800,000
Exercise Price
11.85
15.53
Expiry Date
12 Nov 2001
3 Nov 2002
The weighted average exercise price for options outstanding at 30 June 1998 is $14.05.
The weighted average remaining contractual life of these options is 4 years.
The other disclosure requirements of SFAS 123 ‘Accounting for Stock-Based Compensation’ in respect of the
employee share plans are included in Note 28.
Provisions
(d)
The term ‘provisions’ is used in Australian GAAP to designate accrued expenses with no definitive payment date.
Provisions, principally disclosed in Note 24 comply in all material respects with US GAAP with the exception of the
provision for the final cash dividend (Note 6), which is not formally declared until the meeting of directors shortly after the
balance date.
Under US GAAP, dividends are recorded as liabilities only if formally declared prior to balance date. This difference
in treatment has been amended in the US GAAP reconciliation of shareholders’ equity.
The provision for restructuring costs at 30 June 1998 of $122 million (refer Note 24) includes staff redundancy costs
of $85 million. The abnormal restructuring charge also includes staff redundancy costs of $37 million which had been
incurred at 30 June 1998. The restructuring charge allows for 3,000 redundancies. A total of 800 redundancies under the
relevant restructuring programmes occurred by 30 June 1998 and approximately 2,200 further are planned. The
redundancies principally involve rationalisation of processing and administration functions, implementation of the new
organisational structure and reconfiguration of delivery systems.
Life Insurance Controlled Entity
(e)
For Australian GAAP the assets of the statutory funds and the liabilities of the funds to its policyholders are excluded from
the consolidated balance sheet (Note 1 (jj)). An adjustment has been made for this in relation to US GAAP. All related
investments are brought to account at market values.
133
Notes to and forming part of the accounts
continued
Commonwealth Bank of Australia and Controlled Entities
NOTE 47 Differences between Australian and United States Accounting Principles continued
Life Insurance Statutory Fund Assets
The following fair value table of the investments of the life company shows the unrealised gains/losses by major category:
At 30 June 1998
At 30 June 1997
Fair
Value
$M
Gross Unrealised Amortised
Cost
Losses
Gains
$M
$M
$M
Fair
Value
$M
Gross Unrealised Amortised
Cost
Losses
Gains
$M
$M
$M
Investments
Government securities
Australia
Overseas
Local and semi-government
securities
Equity investments
Promissory notes
Certificates of deposit
Bank accepted bills
Other investments
Cash
Other assets
791
177
729
2,026
-
-
22
1,112
3,062
40
7,959
28
16
22
488
-
-
-
36
-
-
590
-
1
-
763
162
707
134
1,672
-
-
-
1
-
-
136
-
-
22
1,077
3,062
40
7,505
578
17
973
1,611
869
1,034
795
1,024
290
58
7,249
31
1
34
343
6
12
6
28
-
-
461
-
-
-
30
-
-
-
1
-
-
31
547
16
939
1,298
863
1,022
789
997
290
58
6,819
Fair Value Maturity Distribution of Debt Securities
The tables analyse the maturities on a fair value basis:
At 30 June 1998
At 30 June 1997
Maturing Maturing Maturing Maturing
1 year Between Between After 10
Years
or less
1 and
5 years
$M
5 and
10 years
$M
Total
$M
$M
Maturing Maturing Maturing Maturing
After 10
Years
1 year Between Between
5 and
1 and
or less
10 years
5 years
$M
$M
$M
465
82
358
-
-
-
559
-
-
1,464
113
46
106
-
-
-
-
-
-
265
86
31
18
-
-
-
791
177
729
-
-
22
302 1,112
- 3,062
40
-
437 5,933
1
-
188
869
637
795
313
290
58
3,151
370
1
711
-
272
-
409
-
-
1,763
165
3
46
-
-
-
-
-
-
214
Total
$M
$M
42
13
28
-
125
-
302
-
-
510
578
17
973
869
1,034
795
1,024
290
58
5,638
Investments
Government securities
Australia
Overseas
Local and semi-government
Promissory notes
Certificates of deposit
Bank accepted bills
Other investments
Cash
Other assets
$M
127
18
247
-
-
22
251
3,062
40
3,767
134
NOTE 47 Differences between Australian and United States Accounting Principles continued
Available For-Sale Securities under US GAAP
(f)
Under Australian GAAP, only two categories of securities prevail, namely Investment and Trading Securities. Investment
securities are purchased by the Bank with the intent to ‘hold to maturity’. Trading securities are purchased and held for the
short term, primarily with the intention of making profits from anticipated movements in market rates.
Government securities, held in the investment securities portfolio, were sold during the year following the change in
the Reserve Bank of Australia maximum holding for regulatory requirements. As a result, all Investment Securities have
been reclassified as Available-for-Sale securities for the purposes of US GAAP disclosure. Any capital gain or loss realised on
sale is taken to profit and loss at that time. The cost of available-for-sale securities sold is calculated on a specific
identification basis.
Under US GAAP, these securities are revalued to market and the difference between carrying value and market value
is taken to shareholders’ equity.
Trading securities under Australian GAAP include infrastructure equity securities on hand at 30 June 1998. These
securities are revalued to market with the unrealised gain or loss at balance sheet date taken to profit and loss. Under
US GAAP these securities are classified as ‘Available-for-Sale’ and the unrealised gain taken to shareholders’ equity rather
than profit and loss. The disclosure requirements of SFAS 115 ‘Accounting for Certain Investments in Debt and Equity
Securities’ in respect of available-for-sale securities have been included at footnote (m) within this note.
Net Profit
(g)
Under US GAAP the concept of ‘operating profit’ is not recognised. Net profit under Australian GAAP is operating profit
after tax including ‘abnormal items’ and after deducting outside equity interests.
In performing the US GAAP profit reconciliation, the net profit reported using Australian GAAP is after deducting
goodwill amortisation and abnormal items.
135
Notes to and forming part of the accounts
continued
Commonwealth Bank of Australia and Controlled Entities
NOTE 47 Differences between Australian and United States Accounting Principles continued
Consolidated Balance Sheet
(h)
The following reconciliations are of significant adjustments to Australian GAAP balance sheet categories disclosed in these
accounts and which would be reported in accordance with US GAAP:
Footnote
1998
$M
1997
$M
1996
$M
Assets
Available for sale securities under Australian GAAP
Reclassification to available for sale securities
Restatement of available for sale securities to fair value
According to US GAAP
Investment securities under Australian GAAP
Reclassification to available for sale securities
According to US GAAP
Trading securities under Australian GAAP
Reclassification to available for sale securities
According to US GAAP
Other assets under Australian GAAP
Deferred tax assets on general provision for bad and doubtful debts
Assets relating to life insurance statutory funds
Prepaid pension cost
According to US GAAP
Liabilities
Income tax liability under Australian GAAP
Tax effect of foreign currency translation reserve
Deferred tax liability on unrealised gain on available for sale securities
Deferred tax liability on pension income
According to US GAAP
Provision for dividend under Australian GAAP
Reversal of provision for final cash dividend
According to US GAAP
Bills payable and other liabilities under Australian GAAP
Liabilities relating to life insurance statutory funds
According to US GAAP
(f)
(f)
(f)
(f)
(a)
(e)
(i)
(a)
(f)
(i)
(d)
(e)
-
6,999
309
7,308
6,858
(6,858)
-
4,009
(141)
3,868
11,859
-
7,959
648
20,466
1,099
15
111
233
1,458
321
(321)
-
10,746
7,959
18,705
-
2,129
37
2,166
9,233
(2,129)
7,104
2,635
-
2,635
7,502
248
7,249
616
15,615
925
20
13
222
1,180
291
(291)
-
7,698
7,249
14,947
-
2,838
14
2,852
8,394
(2,838)
5,556
2,883
-
2,883
5,268
221
6,307
548
12,344
1,050
10
5
197
1,262
301
(301)
-
5,992
6,307
12,299
136
NOTE 47 Differences between Australian and United States Accounting Principles continued
Details of Pension Expense and Reconciliation of Funded Status of Pension Plans
(i)
The Bank and its controlled entities sponsor a range of superannuation (pension) plans for its employees worldwide.
The Bank’s accounting policy for superannuation expense, under Australian GAAP reporting, is set out in Note 1(ll)
of the financial statements. The superannuation expense principally represents the annual funding, determined after
having regard to actuarial advice, to provide for future obligations of defined benefit plans. Other details of the Bank’s
major superannuation plans are set out in Note 38 of the financial statements.
For US GAAP purposes, the Bank adopted the disclosure requirement of SFAS 87 ‘Employers’ Accounting for
Pensions’ for the major defined benefit fund, the Officers’ Superannuation Fund (OSF), commencing 1 July 1994. Other
defined benefit funds are immaterial for US GAAP reconciliation purposes.
For the financial year ended 30 June 1996, the Bank adopted 30 June as the measurement date for plan assets and
obligations. Effective from the financial year ended 30 June 1997, the Bank has adopted 31 March as the measurement
date for plan assets and obligations.
The plan assets consist primarily of listed equities, debt securities and property.
The OSF does not hold any equity in the Bank’s paid capital. Amounts on deposit with the Bank at 30 June 1998
totalled $73 million (1997: $145 million and 1996: $4 million). Other investments with the Bank and/or controlled entities
at 30 June 1998 were $40 million (1997: $10 million and 1996: $92 million).
The table displays the elements of the net pension expense for each financial year and the funded status
as at 30 June 1996, 31 March 1997 and 31 March 1998 for the OSF. The assumptions used in the calculations were
a discount rate of 6.50% (1997: 8.00%, 1996: 9.00%), compensation increase rate of 4.25% (1997: 4.50%, 1996: 5.00%) and
return on assets of 7.50% (1997: 8.25%, 1996: 9.00%).
Pension plan
1998
$M
1997
$M
1996
$M
Service cost
Interest cost
Actual return on assets
Net amortisation and deferral of costs
Employer financed benefits within Accumulation Division
Net periodic pension (cost) income
Expensed employer contribution
Less tax effect
Pension expense adjustment - see US GAAP Reconciliation
Fund status at measurement date:
Vested benefit obligation
Non vested benefit obligation
Accumulated benefit obligation
Effect of future salary projections
Projected benefit obligation
Fair value of assets
Funded status
Assets not recognised:
Transitional obligation assets
Unrecognised net loss
Unrecognised prior service costs
Employer contribution from measurement date to balance date
Prepayment of pension costs
(80)
(328)
911
(447)
(24)
32
-
32
(12)
20
3,032
328
3,360
1,004
4,364
(5,279)
(915)
414
(147)
-
-
(648)
(62)
(344)
353
141
(21)
67
1
68
(24)
44
2,924
312
3,236
876
4,112
(4,896)
(784)
483
(315)
-
-
(616)
(68)
(342)
425
69
(14)
70
1
71
(26)
45
2,563
198
2,761
1,061
3,822
(4,815)
(993)
552
(107)
-
-
(548)
Additionally, a deferred tax liability has been taken up for US GAAP reconciliation purposes in respect of the above
prepayment of pension costs.
137
Notes to and forming part of the accounts
continued
Commonwealth Bank of Australia and Controlled Entities
NOTE 47 Differences between Australian and United States Accounting Principles continued
(j)
Employee Benefits - Post Retirement Benefits Other Than Pensions
Health Care Subsidies
The Bank provides a benefit to employees including retirees who were members of the ‘Commonwealth Bank Health
Society (Friendly Society)’ (CBHS) as at 6 July 1995 and met certain criteria. The benefit provided by the Bank is in the form
of financial assistance to eligible employees and retirees with their private health insurance premium. All staff who joined
the CBHS on or after 7 July 1995 are not eligible for any benefits. The CBHS is a friendly society registered under the
Friendly Societies Act 1989 (NSW) and a health benefit organisation under the National Health Act 1953.
As at 30 June 1996, the agreement between the Bank and the Finance Sector Union provided for those members
of the CBHS who were retired as at 30 June 1995 an ongoing fixed subsidy indexed to a maximum of the movements in the
Consumer Price Index whenever the members’ health insurance premiums in CBHS increase. Eligible members who retired
between 30 June 1995 and 31 July 1996 are provided with a fixed ongoing premium subsidy in accordance with their
benefit category. Other than the subsidised health insurance premium, which is fully provided for, the Bank does not have
a post retirement health care liability.
Concessional housing loans
The Bank provides housing loans at concessional interest rates to assist with private housing for staff who meet
certain criteria. Except for certain executive and senior executive staff whose remuneration package excludes a post
retirement concessional interest rate loan, the Bank provides post retirement interest concessions for all retirees on the
following basis. Staff with housing loans prior to 1 April 1997 and taken into retirement may be repaid over the remainder
of the specified term of the loan. Borrowings on or after 1 April 1997 but before 1 April 2002 may be retained in retirement
until 1 April 2007 at which time the concession will cease. Borrowings after 1 April 2002 may be retained into retirement
for a period of five years at which time the concession will cease. No new or additional loans are offered at concessional
interest rates after retirement.
Australian GAAP Compliance
Effective 1 July 1994 the Bank adopted the Australian Accounting Standard AASB 1028: ‘Accounting for Employee
Entitlements’ with respect to the liabilities arising from the post retirement benefits described above. AASB 1028:
‘Accounting for Employee Entitlements’ specifies that employee post retirement benefit liabilities are calculated as the
present value of the estimated future cash flows due to the services of employees provided up to the reporting date.
The adequacy of the full provision for employee post retirement benefits liabilities in the financial statements
is determined in accordance with the requirements of AASB 1028 after considering that employee post retirement benefits
carry limited risks, and after obtaining actuarial advice.
US GAAP Compliance
Prior to the adoption of AASB 1028 the Bank accounted for its obligation for employee entitlements substantially
in accordance with SFAS 43 ‘Accounting for Compensated Absences’. Other than the disclosures discussed above, there
are no US GAAP adjustments or further disclosures under SFAS 106 ‘Employers’ Accounting for Post Retirement Benefits
Other than Pensions’.
Life Insurance
(k)
Under Australian GAAP, transitional adjustments on adoption of the new Insurance and Superannuation Commission Rules
for financial reporting were made directly to retained earnings at the beginning of the 1997 financial year. Under US GAAP
such adjustments were included as part of 1997 financial year profits.
138
NOTE 47 Differences between Australian and United States Accounting Principles continued
Property and Other Non-Current Asset Revaluations
(l)
Each year a review of non-current assets is performed to assess the recoverable amount of non-current assets. The
‘recoverable amount test’ is in accordance with the Australian accounting standard which requires future cash flows
associated with non-current assets to be discounted at a rate which reflects the risk involved. With respect to the
determination of the fair value of non-current assets and the recognition of losses from impairments, the requirements
under Australian accounting standards and the requirements of SFAS 121 ‘Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of’ are essentially the same.
Australian GAAP allows non-current assets including property, plant and equipment to be revalued upwards direct
to an asset revaluation reserve. Assets with a carrying amount greater than their recoverable amount may be revalued
to their recoverable amount. Impairments to asset values, where there is an amount in the revaluation reserve relating
to the relevant asset class, are taken to reduce the revaluation reserve. Impairments to asset values otherwise must be
recorded in the profit and loss. Any subsequent upward reversing revaluations to the same asset class are recorded as
revenue in the profit and loss. With the exception of land, all revalued assets are depreciated over their assessed useful
lives.
Upward revaluations of property, plant and equipment are not allowed under US GAAP, except as part of accounting
for business combinations under the Purchase Method. US GAAP requires impairments of non-current assets to be
recorded in the profit and loss account. Once such impairments have been recorded, subsequent recoveries to the income
statement are not allowed.
A discounted cash flow methodology was used in arriving at the valuation at which the Bank’s property is carried.
No asset writedowns were necessary in 1998, 1997 or 1996. At 30 June 1998, 1997 and 1996 the asset revaluation reserve
shows a nil balance.
Any US GAAP adjustment of revalued assets to an historical cost basis would not be material in the income
statement, shareholders’ equity or carrying value of the property assets.
(m) Available-For-Sale Securities
Amortised
Cost
$M
At 30 June 1998
Gross Unrealised
Losses
Gains
$M
$M
Fair Amortised
Cost
$M
Value
$M
At 30 June 1997
Gross Unrealised
Losses
Gains
$M
$M
Fair
Value
$M
-
-
-
-
-
-
-
-
161
337
36
-
-
-
1,072
3,190
427
34
5
-
138
-
-
38
2,098
17
-
179
1,960
17
-
141
Australia
Australian Public Securities
Commonwealth and States
Bills of exchange
Certificates of deposit
Medium Term Notes
Other securities and equity
investments
Total Australia
Overseas
Government securities
Treasury Notes
Bills of exchange
Certificates of deposit
Eurobonds
Medium Term Notes
Other securities and equity
investments
Total Overseas
Total Available for Sale Securities
Proceeds at or close to maturity of available-for-sale securities during 1998 were $8,681 million (1997: $6,479 million,
1996: $6,170 million).
204
5
-
1,195
766
29
232
5
-
1,201
811
25
-
-
47
987
-
-
1,557
3,831
7,308
1,508
3,707
6,897
351
1,385
2,129
31
-
-
7
66
-
3
-
-
1
21
4
99
128
178
148
252
589
1,183
3,477
3
3
39
-
-
1
1
-
-
278
744
50
50
-
-
-
-
-
-
-
36
-
2
2
-
-
463
34
5
-
278
780
-
-
46
986
-
-
354
1,386
2,166
Proceeds from sale of available-for-sale securities during the year were $1,787 million (1997: $1,172 million,
1996: $729 million). Government securities, held in the investment securities portfolio, were sold during the year following
the change in the Reserve Bank of Australia maximum holding for regulatory requirements. As a result, all Investment
Securities have been reclassified as Available-for-Sale securities.
The fair value of Available-for-Sale securities includes the fair value of derivative hedges.
Realised capital gains were $65 million and realised capital losses were $80 million, (1997: realised capital gains
$12 million, realised capital losses $8 million, 1996: realised capital losses $10 million).
139
Notes to and forming part of the accounts
continued
Commonwealth Bank of Australia and Controlled Entities
NOTE 47 Differences between Australian and United States Accounting Principles continued
(m) Available-For-Sale Securities continued
Maturity Distribution and Average Yield
The table analyses the maturities and weighted average yields of the book value of the Economic Entity’s holdings
of available-for-sale securities:
A t 3 0 J u n e 1 9 9 8
Australia
Australian Public Securities
Commonwealth and States
Bills of exchange
Medium Term Notes
Other securities, commercial
paper and equity investments
Total Australia
Overseas
Government securities
Treasury Notes
Certificates of Deposit
Eurobonds
Medium Term Notes
Other securities, commercial
paper and equity investments
Total Overseas
Total Available for Sale Securities
Maturities at Fair Value
A t 3 0 J u n e 1 9 9 7
Australia
Australian Public Securities
Commonwealth and States
Bills of exchange
Certificates of Deposit
Other securities and equity investments
Total Australia
Overseas
Bills of exchange
Certificates of Deposit
Other securities and equity investments
Total Overseas
Total Available for Sale Securities
Maturities at Fair Value
*
includes equity investments
140
M a t u r i n g
1 year or less
%
$M
M a t u r i n g
b e t w e e n
1 and 5 years
%
$M
M a t u r i n g
b e t w e e n
5 and 10 years
%
$M
M a t u r i n g
a f t e r
10 years
%
$M
Total
$M
126
17
-
627
770
64
5
1,114
116
-
248
1,547
2,317
2,446
6.76 1,512
-
5.32
84
-
5.89
-
9.11
322
-
57
6.44
-
1,596
-
104 *
483
6.75
2.24
6.22
6.33
-
4.09
67
-
48
234
29
652
1,030
2,626
2,748
9.25
-
7.86
7.03
-
9.12
73
-
33
416
-
261
783
1,266
1,418
6.64
-
9.80
0.11
5.93
-
5.51
6.32
-
6.58
-
-
-
341 *
341
-
-
-
-
-
347
347
688
696
- 1,960
17
-
141
-
- 1,072
3,190
204
-
-
5
- 1,195
766
-
29
-
6.29 1,508
3,707
6,897
7,308
M a t u r i n g
1 year or less
%
$M
M a t u r i n g
b e t w e e n
1 and 5 years
%
$M
M a t u r i n g
b e t w e e n
5 and 10 years
%
$M
M a t u r i n g
a f t e r
10 years
%
$M
Total
$M
7.96
-
-
-
-
6.69
-
-
5.69
5.44
2.20
9.14
5.91
6.13
-
34
5
102
141
47
931
351
1,329
1,470
1,521
421
-
-
-
421
-
56
-
56
477
463
6
-
-
-
6
-
-
-
-
6
6
5.40
-
-
-
-
-
-
-
-
-
176 *
176
-
-
-
-
176
176
-
-
-
-
-
-
-
427
34
5
278
744
47
987
351
1,385
2,129
2,166
NOTE 47 Differences between Australian and United States Accounting Principles continued
Impairment of Assets
(n)
SFAS 114 ‘Accounting by Creditors for Impairment of a Loan’ as amended by SFAS 118 ‘Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures’, requires the value of an impaired loan to be measured as the
present value of future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price or the
fair value of the collateral if the loan is collateral dependent. No adjustment is required in the US GAAP reconciliation
as the estimated fair value of the impaired loans is not materially different from the carrying value as at 30 June 1998.
Newly Issued Statements of the Financial Accounting Standards Board
(o)
The Financial Accounting Standards Board (FASB) of the United States of America has recently issued Statements
of Financial Accounting Standards (SFAS) Nos. 130, 131, 132 and 133 which are not applicable to the financial year ending
30 June 1998. The Bank does not believe that, except for SFAS 133, these standards would materially impact the financial
position and results of operations if they were applicable at 30 June 1998.
SFAS 133 ‘Accounting for Derivative Instruments and Hedging Activities’ would be likely to have a material impact on
the financial position and results of operations if it were applicable at 30 June 1998. As of the date of this report the Bank is
yet to determine what this impact would be upon application of the standard.
141
Directors’ Statement
Commonwealth Bank of Australia and Controlled Entities
In the opinion of the Directors of the Commonwealth Bank of Australia:
•
•
•
•
the profit and loss statement and statement of cash flows are drawn up so as to give a true and fair view of the results
and cash flows of the company for the financial year ended 30 June 1998;
the balance sheet is drawn up so as to give a true and fair view of the state of affairs of the company as at 30 June 1998;
at the date of this statement, there are reasonable grounds to believe that the company will be able to pay its debts
as and when they fall due; and
the consolidated financial statements of the economic entity have been made out in accordance with Divisions 4A and
4B of Part 3.6 of the Corporations Law so as to give a true and fair view of:
-
the results and cash flows of the economic entity, constituted by the company and the entities it controlled from
time to time during the financial year, for the financial year ended 30 June 1998; and
the state of affairs of the economic entity, constituted by the company and the entities it controlled at the year’s
end, as at 30 June 1998.
-
The financial statements of the Chief Entity and the Economic Entity have been made out in accordance with applicable
Accounting Standards and other mandatory reporting requirements. The Directors have elected to adopt AASB 1016:
Accounting for Investments in Associates, for the financial year ended 30 June 1998, in accordance with section 285(3)
of the Corporations Law.
Signed in accordance with a resolution of the Directors.
M A Besley AO
Chairman
12 August 1998
D V Murray
Managing Director
142
Independent Audit Report
To the members of the Commonwealth Bank of Australia.
Scope
We have audited the financial statements of the Commonwealth Bank of Australia for the financial year ended
30 June 1998, as set out on pages 50 to 142, including the Statement by Directors. The financial statements include the
accounts of Commonwealth Bank of Australia, and the consolidated accounts of the economic entity comprising the
Commonwealth Bank of Australia and the entities it controlled at the year’s end or from time to time during the financial
year. The company’s directors are responsible for the preparation and presentation of the financial statements and the
information they contain. We have conducted an independent audit of these financial statements in order to express an
opinion on them to the members of the company.
Our audit has been conducted in accordance with Australian and United States Auditing Standards to provide
reasonable assurance as to whether the financial statements are free of material misstatement. Our procedures included
examination, on a test basis, of evidence supporting the amounts and other disclosures in the financial statements, and the
evaluation of accounting policies and significant accounting estimates. These procedures have been undertaken to form
an opinion as to whether, in all material respects, the financial statements are presented fairly by the Directors
in accordance with applicable Accounting Standards, statutory requirements and other mandatory professional reporting
requirements, so as to present a view which is consistent with our understanding of the company’s and economic entity’s
financial position, the results of their operations and cash flows.
The names of the entities controlled during all or part of or at the end of the financial year, of which we have not
acted as auditor, are disclosed in Note 39. We have, however, received sufficient information and explanations concerning
these controlled entities to enable us to form an opinion on the consolidated accounts.
The audit opinion expressed in this report has been formed on the above basis.
Audit Opinion
In our opinion, the financial statements of the Commonwealth Bank of Australia are properly drawn up:
(a)
so as to give a true and fair view of:
(i)
the state of affairs of the company and economic entity as at 30 June 1998 and 1997, and of the company’s results
of operations and cash flows for each of the two years ended 30 June 1998 and the economic entity’s results of
operations and cash flows for each of the three years ended 30 June 1998; and
(ii) the other matters required by Divisions 4, 4A and 4B of Part 3.6 of the Australian Corporations Law to be dealt
with in the financial statements;
(b)
(c)
in accordance with the provisions of the Corporations Law; and
in accordance with applicable Accounting Standards and other mandatory professional reporting requirements.
Accounting principles generally accepted in Australia vary in certain respects from accounting principles generally
accepted in the United States. The application of the United States principles would have affected the determination
of consolidated net income for each of the years in the three year period ended 30 June 1998 and the determination
of consolidated financial position as at 30 June 1998, 1997 and 1996 to the extent summarised in Note 47 to the financial
statements.
ERNST & YOUNG
Sydney
Date: 12 August 1998
S C Van Gorp
Partner
143
13 2221
For your everyday banking including the ability
to pay bills using
Telephone staff available weekdays 8:00 a.m. to 8:00 p.m.
Automated service 7:00 a.m. to 11:00 p.m.
13 2224
To apply for a home loan or to open an account
8:00 a.m. to 10:00 p.m. everyday
13 1998
Business Line
For a full range of business banking solutions
Weekdays 8:00 a.m. to 8:00 p.m.
1 800 240 889
Telephone Typewriter
For our hearing or speech impaired customers
Weekdays 8:00 a.m. to 8:00 p.m.
13 15 19
Share Direct
Easy, low cost access to the stock market
By phone or Internet at www.comsec.com.au
13 2423
Commonwealth Connect Insurance Ltd
For all your home insurance needs or visit
www.commbank.com.au/insurance
13 2420
Commonwealth Connect Insurance Ltd
For home insurance claims assistance
24 hours a day, 365 days a year
13 2015
General enquiries on retirement and superannuation
products, life insurance or managed investments
Weekdays 8:00 a.m. to 8:00 p.m.
144