of Australia
Annual Report 1999
This Annual Report includes the disclosure requirements for both
the United States Securities and Exchange
Australia and
Commission (SEC). It will be lodged with the SEC as an Annual
Report on Form 20F.
If as a shareholder you wish to continue to receive this Annual
Report please complete the enclosed form.
All shareholders will receive a Report to Shareholders (Concise
Financial Report), unless they request otherwise.
Commonwealth Bank of Australia
ACN 123 123 124
1
Financial Information and Analysis
For the year ended 30 June 1999
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
Form 20-F Cross Reference Index.............................................................................................................................. 3
Review of Operations .................................................................................................................................................. 4
Strategic Vision and Business Goals ........................................................................................................................ 5
Description of Business.............................................................................................................................................. 6
Financial Review........................................................................................................................................................ 19
Selected Consolidated Financial Data ................................................................................................................ 19
Management’s Discussion and Analysis of Financial Condition and Results of Operations................................ 25
Overview ............................................................................................................................................................. 25
Integrated Risk Management .............................................................................................................................. 26
Capital Management ........................................................................................................................................... 27
Credit Rating ....................................................................................................................................................... 27
Expansion ........................................................................................................................................................... 27
Guarantee ........................................................................................................................................................... 28
Year 2000 Systems Compliance ......................................................................................................................... 28
Net Interest Income............................................................................................................................................. 29
Bad and Doubtful Debts ...................................................................................................................................... 31
Non Interest Income............................................................................................................................................ 31
Operating Expenses............................................................................................................................................ 32
Occupancy and Equipment Expenses ................................................................................................................ 33
Information Technology Services ........................................................................................................................ 33
Income Tax Expense .......................................................................................................................................... 33
Abnormal Items ................................................................................................................................................... 33
Net Income.......................................................................................................................................................... 34
Capital Adequacy ................................................................................................................................................ 34
Funding and Liquidity .......................................................................................................................................... 35
Cross Border Outstandings by Industry Category ............................................................................................... 36
Corporate Governance.............................................................................................................................................. 37
Directors’ Report ....................................................................................................................................................... 40
Selected Financial Data for Five Years .................................................................................................................... 46
Financial Statements................................................................................................................................................. 48
Statements of Profit & Loss................................................................................................................................. 49
Balance Sheets ................................................................................................................................................... 50
Changes in Shareholders’ Equity ........................................................................................................................ 51
Statements of Cash Flows .................................................................................................................................. 52
Notes to and Forming Part of the Accounts......................................................................................................... 53
Directors’ Declaration.............................................................................................................................................. 151
Independent Audit Report....................................................................................................................................... 152
Shareholding Information ....................................................................................................................................... 153
2
Form 20-F Cross Reference Index (for purpose of filing with US Securities and Exchange Commission)
Page
Currency of Presentation Exchange Rates And Certain Definitions..................................................................... 157
Part I
Description Of Business..................................................................................................................... 6-18
Item 1
Description Of Property ........................................................................................................................ 12
Item 2
Legal Proceedings ................................................................................................................................ 18
Item 3
Control Of Registrant .......................................................................................................................... 154
Item 4
Nature Of Trading Market ................................................................................................................... 155
Item 5
Exchange Controls Affecting Security Holders ................................................................................... 158
Item 6
Taxation.............................................................................................................................................. 158
Item 7
Selected Consolidated Financial And Operating Data ..................................................................... 19-22
Item 8
Item 9
Management’s Discussion And Analysis Of Financial Condition And Results Of Operations.......... 25-36
Item 9A Quantitative and Qualitative Disclosures About Market Risk ............................................. 26-27,113-125
Directors And Officers of Registrant ................................................................................................... 156
Item 10
Item 11
Compensation Of Directors And Executive Officers ........................................................................... 157
Item 12 Options To Purchase Securities From Registrant Or Subsidiaries ......................................... 44,100-102
Item 13
Interests Of Management In Certain Transactions ................................................................. 44,130-132
Part II
Item 14
Part III
Item 15
Item 16
Part IV
Item 17
Item 18
Item 19
Signatures............................................................................................................................................................ 160
Financial Statements (4)
Financial Statements ..................................................................................................................... 49-151
Financial Statements And Exhibits (4)
Defaults Upon Senior Securities (2)
Changes In Securities And Changes In Security For Registered Securities (3)
Description Of Securities To Be Registered (1)
Consolidated Statements of Income for years ended 30 June 1999, 1998 and 1997............................................ 49
Consolidated Balance Sheets as at 30 June 1999 and 1998................................................................................. 50
Consolidated Statements of Changes in Shareholders’ Equity for years ended 30 June 1999, 1998 and 1997.... 51
Consolidated Statements of Cash Flows for years ended 30 June 1999, 1998 and 1997 ..................................... 52
Notes to and Forming Part of the Accounts ........................................................................................................... 53
Report of Independent Auditors ........................................................................................................................... 152
(1)
(2)
(3)
(4)
Not required in this Annual Report.
(a)(b) None.
(a)(b) none (c) not applicable (d) no changes.
Not applicable as item 18 complied with.
Special Note Regarding Forward-Looking Statements
(Required in the context of filings with the US
Securities and Exchange Commission.)
the
under
Certain
statements
captions
‘Management’s Discussion and Analysis of Financial
Condition and Results of Operations’, ‘Disclosure of
Quantitative and Qualitative Information about Market
Risk Inherent in Derivative Financial Instruments,
Other Financial
and Derivative
Instruments,
Commodity Instruments’ and elsewhere in this Annual
Report constitute ‘forward-looking statements’ within
the meaning of the US Private Securities Litigation
Reform Act of 1995. Such forward-looking statements
including economic forecasts and assumptions and
business and financial projections involve known and
unknown risks, uncertainties and other factors that
results, performance or
may cause
the actual
factors
in competitive conditions
achievements of the Bank to be materially different
from any future results, performance or achievements
expressed or
forward-looking
implied by such
include demographic
statements. Such
changes, changes
in
Australia, New Zealand, Asia, United States or United
Kingdom, changes in the regulatory structure of the
banking industry in Australia, New Zealand or Asia,
changes in political, social and economic conditions in
Australia, legislative proposals for reform of the
banking industry in Australia, and various other
factors beyond the Bank’s control. Given these risks,
uncertainties and other factors, potential investors are
cautioned not to place undue reliance on such
forward-looking statements.
3
Review of Operations
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
Profits
$1,422 million after tax and before abnormal
items, up 14% on 1997/98, and up 30% on 1997/98
after abnormal items.
Return on equity
20.54% before abnormal items, up from 18.48% in
1997/98.
1422
Shareholders
The result reflects:
•
•
•
increased lending volumes across all products;
strong growth in financial services business;
a one off profit on the sale of infrastructure
assets;
continued cost containment and productivity
gains;
increased coverage for impaired assets; and
a strong performance by ASB Bank in New
Zealand.
•
•
•
Net Profit ($m)
1206
1251
1422
1078
1090
1997
1998
1999
after tax but before abnormal items
after tax and abnormal items
Earnings per Share
153.4 cents before abnormal items, up 14% on
1997/98 of 134.5 cents. 1996/97 earnings per share
before abnormal items was 131.2 cents.
Assets
$138.1 billion, up 6% on 1997/98 of $130.5
billion, which was up from $120.1 billion for 1996/97.
The Group showed strong growth in its key
lending products; Home Loans up 11%
to
$52.6 billion, Term Loans up 13% to $34.9 billion and
Credit Cards up 13% to $2.7 billion. Balance sheet
growth
interest earnings by
$363 million, however, this was offset by a decline in
interest margins reducing net interest income growth
to $130 million.
increased net
Dividends
The Bank continues to maintain its record of
strong payout ratios with a 1998/99 dividend payout
ratio of 75%. A final dividend of 66 cents per share,
fully franked brought the total dividend for 1998/99 to
115 cents, up 11 cents from 104 cents for 1997/98.
1996/97 total dividend was 102 cents.
4
Return on Equity (%)
before abnormal items
20.5
18.5
18.2
1997
1998
1999
Combining dividends and the appreciation in the
value of the Bank’s shares, total shareholder return for
the year was 34.3% compared with 25.3% in 1998.
The dividend yield based on 30 June 1999 share price
of $24.05 and calculated on the 1998/99 dividends of
49 cents and 66 cents was 4.78%.
Over the last five years, the Bank has produced
an annual return to shareholders in the top quartile of
all banks within the Banks and Finance Index. Going
forward, the aim is to retain this position.
Credit Ratings
Standard & Poor’s Corporation
Moody’s Investors Service, Inc.
Fitch IBCA
Moody’s Bank Financial Strength
Rating
Fitch IBCA Individual Rating
Capital Management
Short
Term
Long
Term
A-1+
P-1
F1+
AA-
Aa3
AA
B
A/B
As part of its capital management program, the
Bank also conducted a successful off market share
buyback in March 1999. The Bank bought back 2.9%
of its ordinary shares for $650 million. This brings the
total of share buybacks to $2.3 billion since 1996.
Year 2000 Compliance
The Bank’s Year 2000 compliance program is
progressing to plan.
Goods and Services Tax
The Goods and Services Tax (GST) legislation
was enacted on 8 July 1999, and will apply from
1 July 2000. The Bank has commenced a program to
implement GST. With the exception of the areas of the
Bank involved in general insurance and
leasing
services, the GST will not directly impact the Bank’s
services until 1 July 2000.
Strategic Vision And Business Goals
Strategic Vision: Commonwealth Bank aims to
help customers manage and build wealth.
We will achieve this by:
Retaining our lowest cost structure
Competitive pressure from existing and new
market entrants,
together with new distribution
technology innovations, will continue to impact on the
margins
traditional core businesses. Our
strategic initiatives will remain focused on ensuring we
retain our low unit cost structure advantage.
in our
•
•
•
•
Key achievements
Cost to Asset ratio has improved to 2.22%.
Cost to Income ratio has improved to 55.6%.
The Woolworths Ezy Banking initiative is being
implemented to provide an alternative low cost
distribution channel to meet the needs of our
existing and new customers looking for a simple,
fresh banking solution.
Focus on telephone and online banking and
financial solutions that provide more efficient
service for a lower cost to the customer and the
Bank.
Expanding our share of customers through online
and direct leadership
Maintaining a competitive cost structure means
growing our customer base
for greater scale
advantage. Internet-based products and services will
be key growth businesses of the future, providing
customers with superior offerings at lower cost. The
Bank
these
developments and is determined to continue to lead
the way.
is currently at
forefront of
the
Key achievements
The number of customers registered for Share
Direct grew by 71%.
NetBank customers more than doubled to over
89,000.
The number of customers registered for our
direct (telephone) operations increased by almost
50% to 2.7 million.
Establishment of eComm and development of
detailed strategies for growing our online and
direct businesses.
Vodafone alliance for mobile phone banking.
•
•
•
•
•
Providing more of the financial services our
customers need
Our customer base is the largest of any financial
institution in Australia (7.7 million including 2 million
young Australians) and we’re continuing to grow. We
can provide more of
financial services our
the
customers need through a wider variety of products.
improving our
This will be achieved
understanding of the needs of each customer, focusing
on
improving service quality and efficiency, and
developing new products and services that are better
attuned to meeting these needs.
through
Key achievements
Growth in funds under management to over
$27 billion.
Restructure of the retail Bank to support a
customer-led business focus.
Customer information management programme
to provide a better understanding of customer
needs.
Listing of Commonwealth Property Office Fund.
•
•
•
•
Building offshore value
Our business has been focused on Australia and
New Zealand. To maximise returns for shareholders
we need to supplement this business with new
revenue streams from larger and
faster growing
markets. As online communication technologies gather
pace, financial services are increasingly becoming
global in their reach and accessibility.
Our analysis suggests that the Bank is well
placed in the technology revolution globally. As such,
we are exploring options to leverage this ‘know how’
into emerging high growth online markets.
Our long term goal is to derive 25% of our market
value from offshore businesses.
•
•
Key achievements
ASB Bank, our presence in New Zealand, has
continued to grow as a full service bank. During
the year the life insurance and financial services
company Sovereign Limited was acquired.
Online entry strategies
markets are under consideration.
for other overseas
Implementing Best Practice People Management
Meeting the needs of our many customers and
shareholders requires strong leadership, shared vision
and a ‘Make it happen’ determination by our people.
Our Best-Practice People Management strategy is
about ensuring our people and business models are
mutually self-reinforcing through:
•
•
•
line-management leadership and accountability;
fair treatment and safe work;
appropriately
recognising
contribution; and
attracting the right people and developing their
talent.
Key achievements
During the year a significant investment has been
made in the rollout of a leadership program to
establish a common
leadership
(over 3,000
behaviour across
executives and senior executives have participated in
these training programmes).
the organisation
framework
rewarding
and
for
•
5
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
line delivery services. Commonwealth Bank has
Australia’s most accessed financial services internet
sites.
The Institutional Banking division focuses on
Australasia’s largest corporations, government bodies
institutions and has banking
and other major
relationships with over 1,000 of
these entities.
Through a partnership approach
to relationship
banking, Institutional Banking delivers innovative and
tailored financial solutions to its institutional clients.
The Technology, Operations and Property
division operates as a discrete business unit to ensure
that Bank staff dealing directly with customers are
provided with best in class technology, infrastructure
and support services and are able to focus on
understanding and fulfilling customers’ needs.
Over the last five years, the Group’s return on
equity has increased from 15.69% for Financial Year
1995 to 20.54% for Financial Year 1999. Over the
same period the Group’s return on average assets
has increased from 1.01% to 1.06%. The Group has
remained capitalised at over 9% of total risk weighted
assets for the last five years, which is above the
Reserve Bank regulatory requirement of 8%.
The Group’s net interest margin has gradually
contracted from 4.03% for Financial Year 1995 to
3.09% for Financial Year 1999. The outlook for the net
interest margin
to
‘Management’s Discussion And Analysis Of Financial
Condition And Results Of Operations’.
subdued. Refer
remains
The re-engineering of the Bank’s processes has
seen branch and service centre numbers fall from
1,474 at 30 June 1995 to 1,162 at 30 June 1999, and
staff numbers, on a full time equivalent basis, fall from
34,383 to 28,964 over the same period.
Staff productivity (total operating income per full
time equivalent employee) has increased by 46%
between Financial Year 1995 and Financial Year
1999 and total operating expenses versus
total
operating income has fallen from 61.3% in Financial
Year 1995 to 55.6% in Financial Year 1999.
The following table sets forth a summary of the
Group’s key ratios for Financial Years 1995, 1996,
1997, 1998 and 1999.
Description of Business
Overview
finance company activities, and
Commonwealth Bank of Australia provides a
wide range of banking, financial and related services
primarily in Australia. These services include general
life
banking,
insurance and funds management. The Bank is
Australia’s largest bank in terms of housing loans and
retail deposits and is the second largest in terms of
Australian assets. The Group is one of the four major
banking groups that collectively control approximately
two-thirds of total assets within the Australian banking
total
industry. At 30 June 1999,
consolidated assets of $138 billion and
loans
outstanding of $102 billion. The Group’s net profit
after tax was $1,422 million for Financial Year 1999.
the Group had
The Group’s banking operations contributed
approximately 88% of its total net profit for Financial
Year 1999 and represented approximately 95% of the
Group’s total assets at 30 June 1999. The Group’s
banking operations consist of the operations of the
Bank, ASB Bank and Commonwealth Development
Bank.
The operations of the core business functions of
the Bank are carried out by Banking and Financial
Services, Customer Service Division and Institutional
Banking.
Banking and Financial Services is responsible
for understanding the needs of our personal and
business customers and
the marketing and
development of products and services. Products and
services include banking, insurance and financial
services, and are distributed to our customers by
Customer Service Division.
The Customer Service Division is responsible for
providing quality sales and service to the Bank’s
customers and managing the most extensive financial
services distribution network in Australia. Services are
provided to over 7.7 million customers through a
national network of almost 100,000 service points,
including the largest branch and agency network in
the country (over 1,150 branches and 3,900 agencies
and over 100 business banking centres as at
30 June 1999), 115 mobile bankers, over 2,600
teller machines (‘ATMs’), over 90,000
automatic
EFTPOS terminals and expanding telephone and on-
6
Key Financial Data
Return on average shareholders’ equity (1)
Return on average total assets (1)
Capital adequacy
Net interest margin
Full time staff equivalent
Branches/service centres (Australia)
Total operating income
per full time (equivalent) employees (A$)
Total operating expenses/total operating income (2)
Y E A R E N D E D 3 0 J U N E
1999
1998
1997
1996
1995
20.54%
1.06%
9.38%
3.09%
28,964
1,162
16.10%
0.87%
10.49%
3.33%
30,743
1,218
16.39%
0.94%
10.89%
3.53%
33,543
1,334
16.27%
1.06%
12.71%
4.01%
34,518
1,390
15.69%
1.01%
11.15%
4.03%
34,383
1,474
190,720
55.6%
170,120
58.1%
145,515
59.9%
137,667
59.4%
130,995
61.3%
(1)
(2)
Calculations based on operating profit after tax and outside equity interests applied to average shareholders’ equity.
Total operating expenses excluding goodwill amortisation.
Y E A R E N D E D 3 0 J U N E
Geographic segments
Revenue (1)
Australia
New Zealand
Other Countries
Net Profit
Australia
New Zealand
Other Countries
Assets (at year end)
Australia
New Zealand
Other Countries
US$M
5,818
645
436
6,899
838
53
48
939
8,801
976
660
10,437
1,270
80
72
1,422
76,364
8,625
6,306
91,295
115,510
13,046
9,540
138,096
1999
1998
(A$ millions, except where indicated)
%
%
84.3
9.4
6.3
100.0
89.3
5.6
5.1
100.0
83.6
9.5
6.9
100.0
9,514
1,115
657
11,286
1,044
73
(27)
1,090
110,120
10,846
9,578
130,544
84.3
9.9
5.8
100.0
95.8
6.7
(2.5)
100.0
84.4
8.3
7.3
100.0
9,484
977
448
10,909
990
63
25
1,078
101,202
9,994
8,907
120,103
1997
%
86.9
9.0
4.1
100.0
91.9
5.8
2.3
100.0
84.3
8.3
7.4
100.0
(1)
Revenue for this table represents total interest income plus total non interest income and proceeds from disposal of assets,
refer Note 2 to Financial Statements for details.
The address of the Bank’s principal executive office is
48 Martin Place, Sydney, New South Wales, 1155,
Australia
is
and
(612) 9378 2000.
telephone
number
its
History and Ownership
The origins of the Bank lie in the former
Commonwealth Bank of Australia which was
established in 1911 by Act of Parliament to conduct
commercial and savings banking business.
Its
functions were later expanded to encompass those of
a central bank. Subsequent legislative amendment in
1959 created a separate Reserve Bank of Australia to
take over the central bank functions.
In December 1990, the Commonwealth Banks
Restructuring Act 1990 was passed, which provided
for:
•
•
the Bank
into a public
the conversion of
company with a share capital, governed by its
Memorandum and Articles of Association but
subject to certain overriding provisions of the
Banking Act - this conversion occurring on
17 April 1991;
the Bank to become the successor in law of the
State Bank of Victoria (SBV) - this occurring on
1 January 1991; and
the issue of shares in the Bank to the public.
An offer of just under 30% of the issued shares
in the Bank was made to members of the Australian
public and staff of the Bank in July/August 1991 to
strengthen the Bank’s capital base
its
acquisition of SBV and to provide a sound foundation
for further development of the Bank’s business.
following
•
7
Description of Business
In October 1993, the Commonwealth sold a
portion of its shareholding in the Bank, thereby
reducing its shareholding to 50.4% of the total number
of issued voting shares.
•
in
In
shares
June/July
June/July
the public offer of
the Commonwealth of Australia, agreed
the Commonwealth
1996,
Government made a public offer of its remaining
50.4% shareholding in the Bank. The offer was fully
subscribed. In conjunction with this offer, the Bank,
pursuant to a buyback Agreement between the Bank
and
to
buyback 100 million shares in the Bank from the
Commonwealth. The public offer and buyback were
completed on 22 July 1996.
In connection with
the
Commonwealth’s
1996,
transitional arrangements were implemented which
provide that:
•
all demand and term deposits will be guaranteed
for a period of three years from 19 July 1996,
when the Commonwealth of Australia ceased to
hold more than 50% of the total voting shares in
the Bank, with term deposits outstanding at the
end of that three year period being guaranteed
until maturity; and
all other amounts payable under a contract that
was entered into before, or under an instrument
executed, issued, endorsed or accepted by the
Bank and outstanding at 19 July 1996, would be
guaranteed by the Commonwealth Government
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
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 the effective time. The liabilities of the
Bank’s subsidiary Commonwealth Development Bank
Limited will continue to remain guaranteed by the
Commonwealth. For full details of all guarantee
arrangements
the Financial
Statements.
refer Note 25
to
in
Australian Banking Operations
The overall structure of the Australian Banking
operations is comprised of three main operating
segments: Retail Financial Services,
Institutional
Banking and Corporate. Retail Financial Services is
comprised of
two divisions, Customer Services
Division and Banking and Financial Services.
Institutional Banking is a stand alone division, while
Corporate comprises the divisions of Financial and
Risk Management, Technology, Operations and
Property, Group Human Resources and Group
Planning and Development.
Banking and Financial Services
The Banking and Financial Services division is
product
for marketing
services,
responsible
8
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
development and brand management for the retail
and small and medium business segments. The
division focuses on assessing customer needs and
servicing those needs for banking, insurance, funds
management and related products and services.
The Bank provides a full range of financial
services to over 7.7 million customers throughout
Australia, including savings and cheque accounts,
demand and term deposits, credit cards, personal
loans and housing
loans, superannuation, and
investment and life insurance products. The Bank
offers a full range of commercial products including
equipment and
rural and
agribusiness products. A team of trained and licensed
investment advisers, conveniently located throughout
the branch network, provide information and advice
on financial and retirement planning.
finance, and
trade
Home lending forms a major part of the Bank’s
business and the Bank continues to be Australia’s
leading home loan provider. As the market leader the
Bank offers a variety of home loan products to meet
the requirements of over 900,000 Australians. The
One Year Guaranteed Home Loan has proved very
popular. This was complemented during the year by a
series of zero establishment fee and interest rate
offers that maintained our competitive position.
The Bank’s leading position in the Personal
Loan market was maintained during the year following
rates and processing
a
improvements to increase the competitiveness of the
product.
reduction
interest
in
has
The Bank
approximately
544,000
relationships with small
to medium enterprises,
serviced through its branch and Business Banking
Centre networks. Around 70% are very small
businesses serviced through the branch network,
while the larger enterprises are serviced by the
network of 104 Business Banking Centres.
Commercial lending approvals to these clients
were up 8.2% in Financial Year 1999 and the Bank
has total commercial assets of $27.3 billion as at
30 June 1999.
the year, reinforcing
A full range of products is offered to meet the
diverse needs of the Bank’s business customers. The
Better Business Package offers reduced overdraft
rates and an innovative range of product solutions,
transaction accounts and business planning software.
New features were added to the Commonwealth Bank
Business Card during
the
product’s unique positioning in the business finance
market. Business customers can now choose
between two types of revolving credit facility in
addition to the standard purchasing card offering.
Quickline users grew by 91% during
the year,
attesting to the fact that the software product provides
business customers with the convenience and ease of
completing banking transactions from their home or
office, 24 hours a day, 7 days a week. A range of rural
and agribusiness products along with equipment and
trade finance is offered to meet various business
needs.
The Commonwealth Bank was named 1999
Bank of the Year in the Personal Investor awards
announced on 28 July 1999.
The Bank has increased its focus on Internet
and online financial services through the formation of
eComm, an e-commerce centre of excellence that
manages the Bank’s online activities from strategy
through to marketing.
its
The Commonwealth Bank already has around
200,000 online customers utilising its NetBank, Share
Direct, Funds Direct, Quickline and Diammond online
services. Since
inception, eComm has also
launched Dot.comm, an internet site designed to meet
the needs of
the youth market, and signed a
partnership with Vodafone to provide a banking
transaction service via Short Messaging Service direct
to mobile digital handsets.
eComm will drive
further development of
Commonwealth Bank’s online services and develop
and manage partnerships in the online world. It will
work across the Bank integrating the Group’s banking,
investment and broking services
the Bank’s
7.7 million personal and business customers.
to
Housing Loans
The Bank’s principal retail lending product is
housing loans, most of which consist of financing the
purchase of owner occupied housing. The Bank is
Australia’s
housing with
lender
approximately 900,000 home loan customers and
$45.5 billion
in outstanding balances as at
30 June 1999.
largest
for
Historically in Australia, housing loans have
been subject to a variable interest rate for a term from
five to thirty years, secured by way of a first mortgage
over the property being purchased. In more recent
years the Bank has sought to provide its customers
with additional choices in connection with its housing
loans. In 1989, the Bank introduced a fixed rate
represents
loan product which now
housing
approximately 30% ($13.7 billion) of total housing loan
outstandings. In December 1995 a Basic Variable
Rate Home loan option (known as ‘Economiser’) was
also introduced (September 1997 for Investment
Home Loans). This allowed clients who did not require
a full range of options (ie, split loans, portability, the
ability to make unlimited special repayments) to
reduce their interest rate. The Economiser now
represents approximately 7% ($3.4 billion) of total
housing loan balances. The Home Equity Facility
(HEF) was relaunched in July 1997 to compete in the
growing line of credit market. HEF has been very
successful with balances of $1.4 billion as at
30 June 1999.
Investment Home Loans total $9.0 billion as at
30 June 1999, following strong growth of 36% in the
year to 30 June 1999. The Bank in October 1998
released an interactive CD ROM ‘Investment Place’, a
new step by step guide to all aspects of residential
property investment. It assists clients throughout the
decision, purchasing, maintenance and sales stages
of an investment property and its financing.
It seeks to position the Bank as the leading
provider of information and advice on residential
property investment.
The Bank provides housing finance up to 80% of
the value of the property. Above this level (to a 95%
insurance would
maximum),
normally be
the Housing Loan
Insurance Corporation (‘HLIC’). In June 1999, loans
with total balances of $7 billion were covered by HLIC
insurance, being 16% of the total portfolio.
lenders’ mortgage
taken out with
Through Commonwealth Insurance Limited, a
wholly owned subsidiary of the Bank, customers (not
only Bank customers) can purchase home, contents
and personal valuables cover at competitive
premiums.
In the year to May 1999, the Bank increased its
lead in market share (All Lenders) for home loan
outstandings by 0.6% to be 4.0% ahead of its nearest
competitor. Market share for May 1999 stands at
20.2% (All Lenders).
Intense competition is expected to continue to
place pressure on the Bank’s margin on housing loan
products. Increased competition is expected also from
new entrants to the rapidly growing online market.
Margin income in 1998/99 has been affected by very
aggressive
fee
discounting. This is expected to continue during
1999/00.
including widespread
pricing
Deposit Products
to maintain
By continuing
the broadest
representation network of any bank in Australia, the
Bank has a relative advantage over competitors in
sourcing retail deposit funds. As at 30 June 1999, the
Bank’s retail deposit base stood at approximately
$67 billion, making the Bank the largest holder of
deposits in Australia, with a market share of 22%
(RBA, May 1999). Term, demand and non interest
bearing deposits accounted for 23.7%, 70.0% and
6.3% of this total respectively. There was a 3% shift in
this deposit mix during the year towards lower interest
cost products away from term deposits. This was a
function of increased demand for the Award Saver
product and a reduction in carded term deposits.
Customer preferences caused a shift from fixed term
to more flexible current accounts. Over the past five
years the Bank’s reliance on funding from domestic
retail sources has remained relatively stable while its
market share in this sector has fallen from over 24%
to
increased
competition within the banking industry and from the
funds management industry.
the current 22.5%,
reflecting
the
Credit Cards
The Bank is the largest issuer of credit cards in
Australia with approximately 2.34 million credit
account holders (Visa, MasterCard and Bankcard) at
30 June 1999, approximately 50% more than the
nearest competitor. The Bank’s cardholder base grew
by 3.7% during Financial Year 1999. Credit card
outstandings grew by 13.2% to stand at $2.5 billion at
30 June 1999.
9
Description of Business
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
in
Competition
the credit card market has
increased as it has become more segmented and
niche driven by new entrants and the diversification by
mortgage originators
In addition,
into
existing card issuing banks have continued to seek
third party co-brand and alliance opportunities, adding
to competition in credit card based loyalty reward
programs. The Bank’s own credit card
loyalty
program, ‘True Awards’, was launched during 1997
and has over 820,000 members to date.
this area.
In addition to its card offerings to the broader
market, the Bank targets specific high net worth
market segments through a range of ‘affinity’ card
programs,
including arrangements with several
professional associations, such as the Australian
Medical Association, and the Law Societies of NSW,
Victoria and Queensland.
By virtue of its shareholding in Mondex Australia
Pty Limited, the Bank is an original global founder in
the Mondex smart card scheme and participated in
MasterCard and Visa pilots of stored value cards in
1996. These are microchip based smart cards offering
an electronic alternative
for small
transactions. Management believes that smart card
to offer significant
technology has
benefits
transmission processing
efficiencies via the potential integration of customer
information within the microchip, it also offers wider
opportunities
relationship
development.
terms of customer
the potential
terms of
to cash
in
in
Financial Services
The Group provides funds management and life
insurance products to a broad range of customers
through its Commonwealth Financial Services (CFS)
group of companies. Commonwealth Financial
Services is the registered business name used by
Commonwealth Life Limited (CLL), Commonwealth
Funds Management Limited and Commonwealth
Custodial Services Limited. Retail products are sold
through
to over
the Bank’s distribution network
557,000 customers (as at 30 June 1999). The Bank is
continuing
its
distribution system.
integrate CFS products
into
to
The Group is the fifth largest funds manager and
second largest retail funds manager in Australia.
Funds under management totalled $27.2 billion as at
30 June 1999, comprising retail funds of $15.6 billion
and wholesale funds of $11.6 billion. Commonwealth
Investment Management manages wholesale funds
on behalf of major Australian companies, government
funds,
the Bank’s staff
superannuation fund. In addition, the group manages
the funds of individual investors in the life company’s
statutory fund and through CFS’ retail unit trust
product range.
friendly societies and
trained and
Approximately 800
licensed
investment advisers, located throughout the branch
network, are available to meet the investment needs
of clients. In Financial Year 1999 gross sales of
$8.3 billion in managed products, superannuation and
other investment products were achieved.
10
CLL
offers
insurance
policies,
term
superannuation/pensions, annuities and investment
products to the retail market. CLL is the sixth largest
life insurance company in Australia and is the second
largest rollover and personal superannuation manager
as well as being the leading allocated pension fund
provider. Annual life insurance premiums have grown
by 19% over 1998/99, following growth of 24% in
1997/98.
Due to the fee based nature of the business, the
main profit driver for the funds management company
is the ability to increase funds under management
while controlling operating costs.
The Bank is well under way in converting its unit
trust business into managed investment schemes as
required by the Managed Investments Act 1998. All
fund managers must comply with the new law by
30 June 2000, however, it is our intention that the
retail funds will be compliant with new law by October
1999.
Commonwealth
(CIL)
(previously Commonwealth Connect
Insurance
Limited), is a wholly owned subsidiary of the Bank,
specialising in general insurance.
Insurance
Limited
CIL has been ranked 18 out of top 20 Private
Direct General Insurers. This is the first time that the
company has
(analysis
in
undertaken by Deloitte Touche Tohmatsu, based on
1997 and 1998 Net Premium Revenue). Net Premium
Income for 1999 increased by 16.4%.
top 20
ranked
the
CIL currently provides buildings, contents and
personal valuables cover. CIL’s customer base is
predominantly comprised of Bank customers who
have purchased insurance at a branch or as part of a
home loan interview. Two thirds of new business is
generated through the network in this manner; the
remainder is generated directly with CIL’s centralised
call centre.
Initiatives undertaken during 1998/99 include
expansion of flexible payment options to include
automated monthly payment by credit card,
‘Honeymoon’ prices for new policyholders, as well as
extending contents coverage to stand alone policies
for owner occupiers and for renters. Simplified policy
documents were introduced in November 1998 in
conjunction with the company’s name change to
Commonwealth Insurance Limited.
Business Services
CBFC Limited
(‘CBFC’), a wholly owned
subsidiary of the Bank, is a specialist provider of
vehicle and equipment finance. CBFC’s primary focus
is on the business sector. Hire purchase, finance
leases and operating leases, including fleet leasing
arrangements, are the dominant product groups. The
primary product distribution channel is the Bank’s
branch and business banking centre network
throughout Australia.
CBFC has total assets of $5.5 billion principally
loan receivables, representing a
comprising net
growth of 12% compared with 30 June 1998.
Equipment finance receivables are well spread
with the maturity of outstanding receivables averaging
less than three years.
CBFC finances its asset portfolio through the
issue of secured debentures to retail investors (and
wholesale investors to a lesser extent), and related
party borrowings from within the Group.
Commonwealth Development Bank of Australia
Limited (‘CDBL’)
to manage
CDBL was established
the
outstanding assets of the former Commonwealth
Development Bank of Australia (‘CDB’), a statutory
corporation of the Commonwealth of Australia whose
initial share capital was 92% owned by the Bank and
the Commonwealth. The Bank
8% owned by
purchased the Commonwealth’s 8% share of CDB
in July 1996. Principal activities of CDB were the
provision of finance and advice to the small business
market in Australia, including primary producers.
CDBL is not writing new business and its assets have
decreased progressively due
to maturity and
repayment.
As at 30 June 1999, CDBL has total assets of
$342 million and shareholders’ equity of $84 million.
Operating profit after tax for the year was $11 million.
Alliances
In December 1998, the Bank signed a 10 year
strategic alliance agreement with a major Australian
retailer, Woolworths Limited, to deliver co-branded
financial services products through its 640 retail
outlets. Woolworths has the largest share of the
Australian retail grocery market and the alliance will
further enhance the Bank’s position as Australia’s
most accessible bank. The co-branded products will
be developed and serviced by
the Bank and
distributed through Woolworths’ outlets. Customer
financial contracts arising via the alliance will be
obligations of the Bank, and the Bank will maintain all
customer information. The Bank also has a number of
existing in-store branches with Franklins Ltd, another
major Australian retailer.
The Bank has also entered into an alliance with
Vodafone to supply financial services information via
the Vodafone network to mobile telephony.
The Bank has entered into a two year agreement
with ninemsn as a preferred supplier of financial
services to their sites. The ninemsn sites are the most
visited Internet sites in Australia.
Customer Service Division
the
largest
Customer Service Division is responsible for
providing quality sales and service to the Bank’s
financial
customers and managing
services distribution network in the country. The
network includes the largest number of branches and
agencies, proprietary ATMs and EFTPOS terminals
as well as an expanding array of telephone and
direct/online services. The distribution network
provides sales and service related
to
customers embracing
full range of financial
the
products and services such as savings and cheque
accounts, demand and term deposits, credit card
services, personal loans and housing loans as well as
functions
life
insurance
investment and
superannuation,
products. The sale of various commercial products –
Electronic Services (such as EFTPOS, Diammond,
BPayTM), Equipment Finance (CBFC, Leaseway,
Fleetcare), Commercial Products (Factoring, Trade
and
Finance,
Rural/Agribusiness products/services also fall under
the responsibility of Customer Service Division.
Business
Finance)
Asset
Within the Division, Direct Banking operates one
of the largest call centre and help desk operations in
Australia handling over 6.4 million calls per month.
Approximately 1,300 telephone service and support
staff are employed to answer customer enquiries and
to promote and sell a range of financial products and
services.
Customer Service Division operates through an
Australia wide network of over 1,150 branches,
approximately 100 business banking centres, over
2,600 ATMs, over 90,000 EFTPOS terminals, 115
mobile bankers and expanding telephone and online
delivery services. The Bank’s branch and service
centre network is complemented by over 3,900
agencies (primarily Australia Post offices) offering a
more limited range of banking services. The majority
of the Bank’s branches and agencies are located in
the eastern states of Australia.
Electronic Banking: Over recent years the Bank
has made good progress in reducing the costs of
providing retail transaction services by migrating
customer transactions out of the more costly branch
network to electronic and telephone channels. The
ratio of customer
to electronic
transactions has improved from 40/60 in June 1995 to
22/78 in June 1999.
initiated branch
in
the country, with
The Bank continues to invest in the development
and expansion of its electronic distribution network.
The Bank operates the largest proprietary ATM
network
terminal numbers
increasing by 4% during Financial Year 1999 to over
2,600 as at 30 June 1999. The ATM network currently
handles approximately 680,000 transactions a day, an
increase of 8% since 30 June 1998. In addition to this
terminal
reciprocal
arrangements with banks, credit unions and building
societies allowing our customers access to almost all
ATM’s in Australia.
the Bank
network,
has
to directly debit
The Bank maintains an extensive EFTPOS
the Bank’s debit and credit
network allowing
their
cardholders
purchases
from retailers such as supermarkets,
service stations and fast food chains. Cash withdrawal
facilities are also available through the EFTPOS
network. The Bank’s EFTPOS terminal population
continues to grow rapidly with terminal numbers
increasing 10% over the year, to over 90,000.
the cost of
EFTPOS in Australia permits customers of any
of the country’s banks to utilise the system. At
31 March 1999 the total domestic EFTPOS terminal
population numbered over 250,000 with the Bank
accounting for some 35% of all terminals at that time.
11
Description of Business
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
the Bank
In addition to its domestic ATM and EFTPOS
networks,
the
international MasterCard, Cirrus/Maestro and VISA
Plus International networks providing its customers
with access to over 460,000 ATMs and 4.1 million
EFTPOS terminals worldwide.
is also a member of
Telephone Banking: The Bank provides a
comprehensive range of services via the telephone,
offering customers access to account and product
details and the ability to transfer funds seven days per
week. The Bank’s telephone-based Customer Service
Centres averaged more than 1.4 million calls per
week during Financial Year 1999, an increase of
almost 50% over the previous twelve months. Sales
increased
through
significantly during the year.
telephone channel also
the
Mobile Banking: As at 30 June 1999 the Bank
had 115 Mobile Bankers, providing customers with the
flexibility to apply for a home loan at a time and
location convenient to them.
Internet Banking: Customers can also access
the Bank’s internet banking service – NetBank (at
www.commbank.com.au) to transfer funds between
accounts, pay bills, view statements and apply for
home loans or credit cards. The number of customers
using NetBank more than doubled over the year to
over 89,000 and the annual number of transactions
increased to 13.8 million.
Technology, Operations and Property
The Group functions of Group Technology,
Banking Operations and Commonwealth Property
operate as a discrete business unit to ensure that
Bank staff dealing directly with customers are
provided with best in class technology, infrastructure
and support services and are able to focus on
understanding and fulfilling customers’ needs.
future
The Bank’s Group Technology area facilitates
the delivery of current and
information
technology and telecommunications services for the
Group. Its activities are focused on the management
of the relationship with our technology partner EDS
Australia, with the objective of ensuring that the
Group’s business units continue to be provided with
flexible and cost efficient
the most responsive,
service. The Group outsourced
information
its
technology requirements to EDSA for an initial ten
year period in October 1997, and acquired a 35%
equity position in EDSA. To date the outsourcing
arrangement with EDS has reduced costs, improved
service levels and opened up a number of new joint
business opportunities.
is
to
Banking Operations’ primary purpose
provide a full service item processing and back
office/operational support function. Specialist centres
across Australia process cheques, vouchers, financial
services transactions, home, personal and business
loans, credit cards and international payment/trade
transactions, and manage the prevention of fraud and
arrears. The focus across all processing centres is to
continually improve productivity using economies of
improvement,
scale, site consolidation, process
benchmarking
practice
comparisons,
management techniques and improved technology.
best
12
An emerging opportunity has seen several external
organisations outsourcing their processing work to the
Bank, enabling
internal
efficiencies through increasing scale. The vision is to
be, by measure and reputation, the best practice
processor in terms of cost, speed and quality.
improvement
further
in
At 30 June 1999, Banking Operations comprised
10 operations processing centres, 5 loan processing
centres, 5 international trade processing centres, a
cards operations centre and employed approximately
4,200 staff.
Description of Property
The Bank operates a large retail based network
extending throughout Australia and, as a result, it has
a substantial holding of freehold land and buildings.
These premises, which
include major owned
commercial properties, other properties, including
branches and other administration centres and
residences, had a carrying value at 30 June 1999 of
(1998: $1,337 million). This carrying
$709 million
value is established by the Directors based on an
annual revaluation of the portfolio to assessed values
into account prevailing economic
and
conditions.
the
independent market valuation amount.
is established at or below
taking
It
is
The Commonwealth Property Division
responsible for the management of the Group’s
freehold and leasehold properties and all aspects of
facilities management. The Group also includes the
property investment funds management operation,
making it one of the leading funds management
groups in Australia. The Group manages both listed
and unlisted funds for wholesale and retail property
investors.
Commonwealth Property
investment and corporate
is a highly skilled
property
real estate
services group. Its focus is on improving returns to
investors and corporate owners of real estate. The
group also provides facilities management services to
the Bank, with an emphasis on achieving reduced
occupancy costs for the Bank.
The Commonwealth Property Office Fund, with
total assets of $633 million, was
the
Australian Stock Exchange. Certain properties
previously owned by the Bank were sold into the
Fund. The Bank does not hold any ownership interest
in the Fund.
listed on
As at 30 June 1999 Commonwealth Property
had $3.4 billion property funds under management.
Institutional Banking
The Institutional Banking division focuses on
Australasia’s largest corporations, government entities
and other major institutions. In addition, Institutional
Banking provides specific products to the Banking and
Financial Services’ customers of the Bank. The
products offered by Institutional Banking facilitate the
linking of providers and users of capital. Products
financial markets, securities underwriting,
include
trading and distribution, corporate finance, equities,
payments and
investment
management and custody.
transaction services,
its
Using
international network,
the Bank
provides Financial Markets products on a 24 hour
basis. These include the structuring and delivery of
foreign exchange, money market and short term
trading,
trading, and
securities
derivatives
international
thereon. The Division’s
strategy is to maintain the Bank’s presence in major
financial centres and
financial markets
business through contact with clients and major
investors, including multinational corporations with
interests in Australasia.
facilitate
interest
fixed
overall
Financial Markets’
income was
$370 million of which 78% was non interest income.
Underlying trading income increased by 13% over the
prior corresponding year. A provision for market and
liquidity risks has been raised. The increase was
broadly based across interest rate and currency
markets. Trading activities capitalised on the global
decline in interest rates over most of the year.
The introduction of the Euro in January went
without incident. Whilst some European countries
experienced payment problems initially, the Bank’s
payments
the start. Many
corporations also began utilising the new currency
immediately.
ran smoothly
from
During the year, the range of Currency and
Interest Rate Option products the Bank is able to offer
has been expanded. We have also extended the
range of currency pairs where we are prepared to
make option prices. This has substantially improved
our ability to develop customised solutions specifically
tailored to individual client requirements. They have
enhanced our core revenue streams and helped to
build our image in the minds of clients as an
innovative bank capable of providing unique solutions
to the most complex of financial problems.
The Bank has also introduced an FX Margin
product, which provides clients with the ability to deal
in Foreign Exchange, whilst ensuring the Bank’s credit
exposure is fully collateralised.
The Bank has achieved leading arranger and
underwriter status in the Australian bond market. The
largest corporate bond transaction for the year was
the Australia Post $530 million offering which was
lead managed by the Bank. The 5 and 10 year
financing was highly successful, setting new
benchmarks for duration, credit quality and liquidity in
the local bond market.
The Bank’s pioneering work on the Kangaroo
bond market continued, with a key lead management
role in the first $1 billion issue by Asian Development
Bank. Lead manager and arranger roles were also
the AAA/Aaa rated
mandated
Kreditanstalt fur Wiederaufbau (KfW), Frankfurt and
Bayerische Landesbank of Munich.
the Bank by
to
In September 1998, the Bank arranged and lead
managed a $303 million mortgage backed securities
issue through the Medallion Trust, a master trust
structure managed by
the Bank’s subsidiary,
Securitisation Advisory Services Pty Limited. The
securities are secured over a portfolio of residential
mortgages owned by the trust and originated by the
Bank. In June 1999, the Bank launched a $1.5 billion
securitisation of Australian and offshore corporate
issue of
credit exposures. This
$180 million credit
institutional
investors. The transaction involved the Bank entering
into a credit swap with the Medallion Trust. This
innovative transaction is a first for the Australian
market and demonstrates
the Bank’s capital
management capabilities.
involved
linked notes
the
to
Another initiative is the Coupon TIC synthetic
instrument which securitises the yields available in the
swap market. It has been developed as a service to
our institutional clients looking for higher yields in the
short term fixed interest market.
During
the year
to provide
the Bank established a
commodities and energy desk
risk
management capabilities for clients in these markets.
A key feature of this initiative is the establishment of
an alliance with ScotiaMocatta
(a member of
Canada’s Scotiabank Group). Under this arrangement
ScotiaMocatta provides hedging facilities to the Bank
in
the precious and base metals markets.
ScotiaMocatta is a global leader in bullion banking
and base metals trading.
The Bank recently announced that it was the first
Australian bank to obtain a full Japanese Securities
registration to strengthen its ability to offer Japanese
investors’ access to Australian and NZ debt markets.
The dual banking and securities presence will
facilitate the development of the Bank’s financial
markets business to a wider range of Japanese
investors under recent deregulated requirements.
The Bank has continued to operate successfully
in the increasingly competitive infrastructure and
privatisation markets, completing a number of deals in
Australia and New Zealand for property development
and financing as well as significant utilities funding.
IB Transaction Services is looking to the latest
Internet technologies to significantly enhance the way
information is transmitted between the Bank and its
clients. This will encompass payment instructions and
other
activities where
traditional forms of communication currently dominate,
in
further enhancing
eCommerce.
the Bank’s positioning
transactional/information
Credit Lyonnais
In July 1999 the Bank acquired Credit Lyonnais
Holding Australia Limited. Within this group, Credit
(a money market
Lyonnais Australia Limited
corporation) is the only operating entity. Whilst a
modest acquisition for the Bank, value will derive from
the existing loan portfolio and niche activities including
securitisation and various structured finance activities.
13
Description of Business
Infrastructure Sales
the year
During
as
as well
construction
the Bank sold
its equity
investments in Statewide Roads (M4 Tollroad) and
Interlink (M5 Tollroad). This sale represents the
conclusion of the Bank’s joint sponsorship role in
developing these landmark private sector transport
projects. As joint sponsor, the Bank took an innovative
role by participating in the initial tender, the design
and
the
phase
commencement of successful operations. The Bank
sold its interests to institutional investors, including
Hastings Fund Management with whom an ongoing
relationship is maintained.
Computer Fleet
In October 1998 the Bank established a 15 year
exclusive alliance with Computer Fleet Management
Pty Ltd to provide information technology leasing and
asset management services
to corporate and
government organisations throughout Australia and
New Zealand. The alliance combines the Bank’s
strength
leasing solutions with
Computer Fleet’s world leading technology and value
added services. Computer Fleet employs a unique
management tool, AssetXpress, which enables clients
to keep an online register of their technology assets.
Success has been substantial and the business is
expected to continue to grow.
in cost effective
Commonwealth Securities Limited
Commonwealth Securities, known as ComSec,
continued to grow strongly, achieving the number one
ranking out of 90 brokers in terms of trading activity in
May 1999. It currently employs 255 full time staff,
which is an increase of 126 over the comparable date
last year. This is due to the growth in the business
requiring additional staff for client inquiries. The share
the ASX
of
total number of
in June 1999 was 7.1%
to 4.1%
in June 1998.
For
the year, ComSec processed almost
800,000 transactions, split evenly between telephone
and Internet orders. The Internet represents an
increasing proportion of total trades. In June 1999, the
total average daily number of trades was 3,200 with
the Internet representing 51.7% of the total.
transactions on
compared
ComSec has developed a fledgling Advisory
business, which currently has 12 advisers, 8 based in
Sydney and 4 in Melbourne.
Funds Direct
This initiative was launched on 24 February
1999 as an Internet site providing clients with a
sophisticated tool to analyse, compare and purchase
investments in more than 250 managed funds from 28
leading Australian fund managers. Investors utilising
this Internet facility pay little or no entry fees if they
choose to invest in one of the funds. The Funds Direct
site receives an average of 800 visitors per day. Since
launch, over 14,000 prospectuses have been ordered
and over 2,000 investments made.
Margin Lending
Launched in January 1999 to continue to provide
our clients with access to debt funding of equities and
unit trust investments, this initiative has had an
excellent response.
14
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
US Share Trading
To meet the demands of clients for international
investment opportunities, Commonwealth Securities
launched a 24 hour service for trading shares on the
major US Stock Exchanges including the New York
Stock Exchange and NASDAQ. It was launched on
30 March 1999 and already over 500 clients have
registered to use the service. It also provides a stock
custody service in co-operation with the Bank of New
York.
Commonwealth Direct Investment Account
On 21 June 1999, the Bank launched a new and
enhanced investment account designed to meet the
special needs of investors who trade securities,
particularly those who trade on the Internet.
Banking.
Institutional
Investment Management and Administration
The Commonwealth Bank Group’s investment
management activities are a separate business unit
within
Commonwealth
Investment Management is one of the top five
institutional investment managers in Australia. Client
funds under management as at 30 June 1999 total
$27.2 billion of which $11.6 billion are wholesale
funds. Over the 12 months to June, the business
experienced significant success in attracting new
business with growth in funds under management of
almost $5.2 billion. The business was awarded first
place in the Global Unit Trusts category of Money
Management’s 1998 Fund Manager of the Year
award, and third place overall.
to
to
custody
services
external
funds and offshore
Fund Services provides wholesale investment
administration and
the
Commonwealth Bank
investment management
business
and
fund managers,
in
superannuation
Australia. As at 30 June 1999, Fund Services
administered over $41 billion of assets. The group is
poised for growth over the coming year with the
implementation of the Managed Investments Act, the
growing trend for investment managers to outsource
their back office processes and an increase in the use
of master custodians by superannuation funds.
investors
New Zealand Banking Operations
The Bank’s operations in New Zealand have
been restructured with the formation of the ASB
Group Limited comprising
the primary operating
entities of ASB Bank Limited and Sovereign Limited.
ASB Group Limited is a 75% owned subsidiary of the
Bank with the remaining 25% held by the ASB Bank
Community Trust, an independent entity within New
Zealand. An arrangement exists between the Bank
and the Trust giving each preemptive rights over the
other’s shareholding in the event of a desire to sell by
either party.
ASB Bank is New Zealand’s longest established
bank. It was founded in 1847 and for most of its
history was a regional savings bank servicing the
Auckland and Northland areas of New Zealand. ASB
Bank now provides personal, business and rural
banking services through a network of 122 branches
throughout New Zealand. ASB Bank employs
approximately 2,700 people on a full time equivalent
basis.
ASB Bank’s primary business is retail banking
with lending for housing, its largest single line of
business. ASB Bank accounts for approximately 4.9%
of Group net income in Financial Year 1999 and 9.3%
of total assets. Compared with the Bank’s operations
in Australia, ASB Bank has a larger proportion of its
business in retail banking and correspondingly less in
corporate and institutional banking.
At 30 June 1999, ASB Bank had total assets of
NZ$14.8 billion ($11.9 billion) and total advances of
NZ$12.5 billion ($10.1 billion). ASB Bank’s net profit
for the year to 30 June 1999 was NZ$116.9 million
($94.1 million), an increase of 8.3% compared with
the NZ$107.9 million ($93.7 million) net profit for the
year to 30 June 1998.
life
listed New Zealand
On 4 December 1998, the Group acquired the
insurance and
publicly
financial services provider Sovereign Limited
for
NZ$238.4 million ($205 million). Sovereign Limited
operates as a stand alone company maintaining its
own brand profile. The acquisition of Sovereign will
complement the operations of ASB Bank through
innovative life assurance activities.
total premium
superannuation,
Sovereign is a leading provider of personal risk
income,
assurance business with
NZ$397 million
including
($320 million)
fifteen months ending
30 June 1999. Sovereign currently accounts for 15%
of all new personal life insurance business generated
by the New Zealand insurance industry. This includes
a 19% share of the term life assurance market. Other
business activities include funds management.
the
for
of
Competition
is highly
The Australian banking market
life
transparent and competitive. The banks,
companies and non bank
institutions
compete for customer deposits, the provision of
lending, funds management, life insurance and other
services.
financial
Banks in Australia can be divided into three
broad categories: major banks, regional banks and
foreign-owned banks. CBA, NAB, Westpac and ANZ
are typically referred to as Australia’s major banks.
Each of the major banks offers a full range of financial
through branch networks
products and services
across Australia.
their domestic
In addition
operations, two of the major banks have significant
operations and investments offshore.
to
The regional banks had their origins as either
State government-owned banks or building societies
whose operations were largely state-based.
significant
At present,
rationalisation
the regional banking sector
is
undergoing
and
consolidation. Reflecting their state-origins, the small
regional banks have typically limited their operations
to servicing customers in a particular state or region.
Increasingly, however, they are targeting interstate
customers and expanding their operations across
state borders. Some of the larger regional banks
operate in several States. Typically their competitive
advantage has been their local community focus.
At 30 June 1999, there were 31 foreign-owned
banking groups operating in Australia through either a
branch or locally incorporated bank subsidiary. Most
of the foreign-owned banks initially focused their
activities on the provision of banking services to the
Australian clients of their overseas parent bank.
Today most have now diversified their operations
offering local clients a broad range of financial
products and services.
The Bank also faces competition from non bank
financial institutions, which compete vigorously for
customer investments, deposits and the provision of
lending and other services. Non bank
financial
intermediaries such as building societies and credit
unions compete strongly in the areas of accepting
deposits and residential mortgage lending, mainly for
owner-occupied
State-based
institutions are making headway in achieving multi-
state coverage partly encouraged by a more
conducive regulatory environment. Specialist non
bank mortgage originators have acquired some
prominence in the residential lending market.
housing.
These
A
recent
the
development
establishment of local single branch banks collectively
referred to as ‘community banks’. Their presence
adds another dimension to the competitive dynamics
of the market.
been
has
funds management markets
life companies) have expanded
The Bank has for some time operated in the life
in
insurance and
competition with a range of non bank financial
institutions. Similarly, non bank financial institutions
(including
their
operations into banking, with a view to offering their
financial services.
customers a broad suite of
International fund managers (and global investment
banks) are also increasing their presence in Australia.
Changes in the financial needs of consumers,
deregulation, and technology developments have also
changed the mode of competition. In particular, the
development of electronic delivery channels and the
reduced reliance on a physical network facilitate the
entry of new players from related industries, such as
retailers, telecommunication companies and utilities.
Technological change is encouraging new entrants
with differing combinations of expertise and an
unbundling of the value chain.
Deregulation has led to further disintermediation
in the Australian finance industry. Traditionally, the
banking industry has been the major intermediary
between the providers of funds (ie depositors) and the
users of funds (ie borrowers).
The
factor
within
especially
A significant
in disintermediation
in
Australia has been the substantial growth in funds
under management,
the
superannuation (pension funds) industry.
Australian Government’s
continued
encouragement of
through
superannuation, by means of taxation concessions
and a mandatory superannuation guarantee levy on
employers, is expected to underpin strong growth in
funds under management. This growth potential
continues to attract new entrants to this market.
term saving
long
15
Description of Business
Growth in the funds management industry has
also contributed to disintermediation through the
direct use of capital markets by borrowers as an
alternative to bank finance. The corporate bond
market in Australia has benefited from this growth with
many of the major Australian corporates directly
accessing capital markets in Australia and around the
world. The Bank, in competition with numerous
domestic and foreign banks, is actively involved as an
originator of corporate debt in the capital markets
especially in the Euro-AUD and Euro-NZD sector and
in the creation of new financing structures including as
arranger and underwriter
infrastructure
projects undertaken by the corporate sector.
in major
New Zealand banking activities are led by five
financial services groups, all owned or largely owned
by UK or Australian-based banks operating through
nation-wide branch networks.
Like Australia, the New Zealand banking system
is characterised by strong competition. Banks in New
Zealand are free to compete in almost any area of
financial activity. As in Australia, there is strong
competition with non bank financial institutions in the
areas of funds management and the provision of
insurance services.
The Group’s major competitors in New Zealand
are ANZ, Bank of New Zealand (a wholly owned
subsidiary of NAB), National Bank of New Zealand (a
wholly owned subsidiary of Lloyds Bank plc) and
(a wholly owned subsidiary of
Westpac Trust
Westpac). In addition, there are several financial
institutions operating largely in the wholesale banking
sector including Bankers Trust New Zealand Limited
(now part of the Deutsche Bank AG Group) and AMP
(Australia’s largest insurance group).
With the acquisition of Sovereign Group, ASB
Bank Group now competes in the New Zealand
insurance and investment market, where Colonial
Group, Royal Sun Alliance and Tower Corporation are
additional major competitors.
By
involving
following a growth strategy,
nationwide market expansion, a focused sales and
service strategy and
recruitment of additional
specialist commercial and rural banking staff, the
Bank’s New Zealand subsidiary, ASB Bank has been
able to significantly increase its market share in retail,
commercial and rural banking during the past five
years. ASB Bank is also diversifying its income
funds
streams with
management and insurance services.
in direct banking,
initiatives
Employees
The Group currently employs approximately
29,000 permanent full time equivalent employees.
Between 30 June 1995 and 30 June 1999 employee
numbers
5,400
by
measured on a full time equivalent basis.
approximately
decreased
In recent years, a significant change has
occurred in the Australian labour market with a
system of enterprise bargaining
the
centralised wage fixation system.
replacing
Three Enterprise Bargaining Agreements (EBAs)
covering Bank staff were ratified by the Australian
Industrial Relations Commission in April 1998. These
16
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
included a ‘core’ agreement covering the majority of
staff, and separate agreements for the Bank’s Direct
Banking and Technology Operations and Property
areas. These agreements are effective until April
2000.
•
•
flexibility
future change
Key outcomes of the agreements include:
increased staffing
to better meet
customer needs through the removal of limits on
the use of part time/casual staff, and through
greater scope to redeploy staff in structural
change;
the establishment of an employment framework
which supports
through 3
separate EBAs, along with the potential to
negotiate further site agreements as required. In
addition, the current agreements provide scope
to negotiate further changes to a range of
employment systems to better align them with
the Bank’s business systems;
the variable proportion of
maximisation of
employment costs through greater use of part
time/casual staff and through increased use of
performance based pay
targeted work
groups; and
containment of salary increases with a 3.5%
increase in May 1998 and a further 4.5% in May
1999.
The identification and implementation of cost
efficiency and staff reduction opportunities provided
is being progressively
by
implemented.
the new agreements
for
•
•
The Bank continues to offer individual Australian
Workplace Agreements to managerial staff and to
targeted work groups. The number of agreements
signed thus far is in excess of 1,300. Once approved
by the Employment Advocate, these agreements
override awards and collective agreements.
In addition to the above, the Bank’s 850 Senior
Executive and Executive staff and over 1,000
specialists are on contract arrangements.
The Bank has made a significant investment in
the rollout of a leadership program to establish a
common framework for leadership behaviour across
the organisation.
Going forward, the Bank will continue to place a
high priority on enhancing its leadership capability,
redesigning its employment systems to better align
them with its business systems and securing and
developing its talent pool for current and future needs.
Financial System Regulation
(the
‘Wallis
Inquiry’),
introduced a new
Australia has a high quality system of financial
regulation by international standards. Following a
comprehensive inquiry into the Australian financial
the Australian
system
Government
for
framework
regulating
financial system. The previous
framework, which applied regulations according to the
type of institution being regulated, resulted in similar
regulated differently. The new
products being
regulates products equally
functional approach
regardless of
institutions
providing them.
the particular
type of
the
•
•
for
the
new
companies
Since July 1998,
these agencies has
regulatory
three separate
arrangements have comprised
agencies: The Reserve Bank of Australia,
the
Australian Prudential Regulation Authority and the
Australian Securities and Investments Commission.
Each of
system wide
responsibilities
the different objectives of
government intervention in the financial system. A
description of these agencies and their general
responsibilities and functions is set out below:
•
Reserve Bank of Australia (RBA) - is responsible
for monetary policy, financial system stability
and regulation of the payments system;
Australian Prudential Regulation Authority
(APRA) - has comprehensive powers to regulate
prudentially banks and other deposit-taking
institutions,
and
insurance
superannuation (pension
funds). Unless an
institution is authorised under the Banking Act
1959 or exempted by APRA, it is prohibited from
engaging in the general business of deposit-
taking; and
Australian
Investments
for
Commission (ASIC) - has responsibility
market conduct, consumer protection and
corporate
the
financial system
investment,
including
insurance and superannuation products and the
providers of these products.
Within the powers vested in them by the new
legislation, the regulators are developing policies and
streamlining regulations to give effect to the objectives
of the functional approach to regulation and other
In particular,
recommendations.
Wallis
guidelines for the regulation of conglomerates and
access to the payments system are being developed
in consultation with industry.
Financial market
in
various emerging market economies, has led to
intense scrutiny of global financial markets and highly
leveraged institutions. There is some pressure for
of
fundamental
financial
future crises. Government
architecture
officials and industry practitioners in Australia are
actively involved in international fora in furthering
these reforms.
functions across
for
instability, particularly
reform
to avert
international
Securities
regulation
Inquiry
and
Supervision of banks
The Bank
is an authorised deposit-taking
institution under the Banking Act and is subject to
prudential regulation by APRA as a bank. The
prudential framework applied by APRA is embodied in
a series of prudential standards including:
Capital Adequacy
Under APRA capital adequacy guidelines,
Australian banks are required to maintain a ratio of
capital
(comprising Tier 1 and Tier 2 capital
components) to risk weighted assets of at least 8%, of
which at least half must be Tier 1 capital. These
guidelines are generally consistent with those agreed
upon by
the Basle Committee on Banking
Supervision. For information on the capital position of
the Bank, see
‘Management’s Discussion and
Analysis of Financial Condition and Results of
Operations – Capital Adequacy’.
Liquidity Management
For an explanation of
the Bank’s
liquidity
policies, refer to Note 37 to the Financial Statements.
Large Credit Exposures
APRA requires banks to ensure that, other than
in exceptional circumstances,
individual credit
exposures to non bank, non-government clients do
not exceed 30% of Tier 1 and Tier 2 capital. Prior
notification must be given to APRA if a bank intends
to exceed this limit. For information on the Bank’s
large exposures, refer Note 14 to the Financial
Statements.
that
the principle
for authorised deposit
Ownership and Control
In pursuit of transparency and risk minimisation,
(Shareholding) Act 1998
the Financial Sector
embodies
financial
regulated
institutions should maintain widespread ownership.
The Act applies a common 15 per cent shareholding
institutions,
limit
insurance companies and their holding companies.
The Treasurer has the power to approve acquisitions
exceeding 15 per cent where this is in the national
interest, taking into account advice from the Australian
Competition and Consumer Commission in relation to
competition considerations and APRA on prudential
matters. The Treasurer may also delegate approval
powers to APRA where one financial institution seeks
to acquire another.
taking
The Government’s present policy is that mergers
among the four major banks will not be permitted until
the Government is satisfied that competition from new
and established participants in the financial industry,
particularly in respect of small business lending, has
increased sufficiently.
Proposals for foreign acquisition of Australian
banks are subject to approval by the Treasurer under
the Foreign Acquisitions and Takeovers Act 1975.
Banks’ Association With Non banks
There are
formal guidelines which control
investments by banks in subsidiaries and associates.
A bank’s equity associations with other institutions
should normally be in the field of finance. APRA has
expressed an unwillingness to allow subsidiaries of a
bank to exceed a size which would endanger the
stability of the parent. No bank can enter into any
agreements or arrangements for the sale or disposal
of its business, or effect a reconstruction or carry on
business in partnership with another bank, without the
consent of the Commonwealth Treasurer.
In carrying out its prudential responsibilities,
APRA closely monitors the operations of banks to
ensure
the prudential
they operate within
framework it has laid down and that they follow sound
management practices.
that
17
Description of Business
APRA currently supervises banks by a system of
off-site examination. It closely monitors the operations
of banks through the collection of regular statistical
returns and regular prudential consultations with each
bank’s management. APRA also conducts a program
of specialised on-site visits to assess the adequacy of
individual banks’ systems for identifying, measuring
and controlling risks associated with the conduct of
these activities.
In addition, APRA has established arrangements
under which each bank’s external auditor reports to
APRA regarding observance of prudential standards
and other supervisory requirements.
Supervision of non bank group entities
The operations of Commonwealth Life Ltd and
Commonwealth Insurance Ltd (the life insurance
company
company
subsidiaries of the Group) also come within the
supervisory purview of APRA.
insurance
general
and
APRA’s prudential supervision of both
life
insurance and general
is
exercised through the setting of minimum standards
for solvency and
to ensure
obligations to policy holders can be met.
insurance companies
financial strength
life
The
financial condition of
insurance
companies is monitored through regular financial
lodgment of audited accounts and
reporting,
supervisory
inspections. Compliance with APRA
is
regulation
monitored through regular returns and lodgment of an
audited annual return.
insurance companies
for general
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
Goods and Services Tax
The Goods and Services Tax (GST) legislation
was enacted on 8 July 1999, and will apply from
1 July 2000. Sales tax will be abolished from that
date, with delayed abolition of Financial Institutions
Duty (FID) to follow from 1 July 2001 and debits taxes
from 1 July 2005. The delay beyond 1 July 2000 in
abolition of state taxes will result in estimated costs in
2000/01 of $190 million in FID and $200 million in
debits tax. These costs are passed onto the Bank’s
customers. The Bank will incur FID and debits tax
costs of $8.5 million pa in its own right.
taxes
similar
Consistent with
in other
jurisdictions, most of the Bank’s activities will be ‘input
taxed’, meaning that GST will not be added to the
charge for the services to the customer, but the Bank
cannot claim back GST charged to it by suppliers.
Apart from areas of the Bank involved in providing
general insurance and leasing services (which either
receive upfront payments or face other ‘transitional’
issues), the GST will not directly impact the Bank’s
services until 1 July 2000.
Legal Proceedings
Neither the Commonwealth Bank nor any of its
controlled entities is engaged in any litigation or claim
which is likely to have a materially adverse effect on
the business, financial condition or operating results
of the Commonwealth Bank or any of its controlled
entities. Where some loss is probable an appropriate
provision has been made.
18
Financial Review
Selected Consolidated Financial And Operating Data
Selected Consolidated Income Statement Data
US$M
1999
1999
1998
1997
1996
1995
(A$ millions, except where indicated)
Y E A R E N D E D 3 0 J U N E
Australian GAAP
Interest income
Interest expense
Net Interest income
Charge for bad and doubtful debts
Non interest income
Operating expenses (incl. Goodwill)
Operating profit before income
tax and abnormal items
Income tax expense attributable to
operating profit before abnormal items
Operating profit after income
tax and before abnormal items
Abnormal (expense)/income
before income tax
Abnormal income tax (expense)/credit
Operating profit after
income tax and abnormal items
Outside equity interest
Net income
Earnings per share before abnormal items (cents)
Earnings per share after abnormal items (cents)
Dividends per share (cents)
Dividends payout ratio (%) (1)
Adjusted for US GAAP
Operating profit after income tax
Earnings per share after abnormal items (cents)
5,120
(2,789)
2,331
(163)
1,320
(2,061)
7,745
(4,218)
3,527
(247)
1,997
(3,117)
7,605
(4,208)
3,397
(233)
1,833
(3,085)
7,989
(4,597)
3,392
(98)
1,489
(2,967)
7,716
(4,319)
3,397
(113)
1,355
(2,863)
6,609
(3,445)
3,164
(182)
1,340
(2,799)
1,427
2,160
1,912
1,816
1,776
1,523
(472)
(714)
(641)
(588)
(635)
(493)
955
1,446
1,271
1,228
1,141
1,030
-
-
955
(16)
939
-
-
1,446
(24)
1,422
153.4
153.4
115
75.0
(570)
409
1,110
(20)
1,090
134.5
117.2
104
77.3
(200)
72
1,100
(22)
1,078
131.2
117.2
102
77.7
-
-
1,141
(22)
1,119
115.2
115.2
90
78.1
-
(28)
1,002
(19)
983
109.2
106.2
82
75.1
988
106.6
1,494
161.2
796
85.6
1,082
118.0
1,230
127.0
892
96.5
(1)
Dividends per share divided by earnings per share (before abnormal items).
Exchange Rates
For each of the Bank’s financial years indicated, the year end, average, high and low Noon Buying Rates are set
out below.
At Period End
Average Rate
High
Low
Y E A R E N D E D 3 0 J U N E
1999
1998
1997
1996
1995
(expressed in US dollars per $1.00)
0.6611
0.6273
0.6712
0.5550
0.6208
0.6809
0.7537
0.5867
0.7550
0.7814
0.8180
0.7455
0.7856
0.7628
0.8026
0.7100
0.7108
0.7412
0.7778
0.7108
On 5 August 1999, the Noon Buying Rate was US$0.6545 = $1.00.
19
Financial Review
Consolidated Balance Sheet Data
(at year end)
Australian GAAP
Assets
Cash and short term liquid assets
Due from other banks
Trading securities
Investment securities
Loans, advances and other receivables
Bank acceptances of customers
Statutory deposits with Central Banks
Property, plant and equipment
Investments in associates
Goodwill
Other assets
Total Assets
Liabilities
Deposits and other public borrowings
Due to other banks
Bank acceptances
Provision for dividend
Income tax liability
Other provisions
Debt issues
Bills payable and other liabilities
Loan capital (1)
Total liabilities and loan capital
Total Shareholders’ Equity (2)
Adjusted for US GAAP
Total Assets
Shareholders’ equity (3)
Consolidated Operating Data
(number) (at year end)
Full time staff
Part time staff
Full time staff equivalent
Branches/service centres (Australia)
Agencies (Australia)
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
1999
US$M
1,199
797
3,112
4,751
67,324
6,394
630
662
186
325
5,915
91,295
61,765
2,148
6,394
312
932
532
7,115
5,624
84,822
1,870
86,692
4,603
1999
(A$ millions, except where indicated)
1998
1997
A T 3 0 J U N E
1996
1995
1,814
1,206
4,708
7,187
101,837
9,672
953
1,001
281
491
8,946
138,096
93,428
3,249
9,672
472
1,410
805
10,763
8,507
128,306
2,828
131,134
6,962
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
6,889
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
7,024
3,065
5,713
2,883
8,394
70,042
10,057
711
2,578
-
574
5,268
109,285
71,381
2,852
10,057
301
1,050
858
6,673
5,992
99,164
2,754
101,918
7,367
2,545
5,033
4,812
7,596
62,707
10,317
659
2,706
-
608
5,791
102,774
67,824
3,802
10,317
240
898
874
4,921
5,602
94,478
1,601
96,079
6,695
98,540
5,063
149,054
7,659
139,460
7,631
128,253
7,783
116,375
8,062
108,885
7,235
26,394
6,655
28,964
1,162
3,934
28,034
6,968
30,743
1,218
4,015
30,566
7,364
33,543
1,334
4,205
31,455
7,964
34,518
1,390
4,214
31,333
7,602
34,383
1,474
4,282
(1)
(2)
(3)
Represents interest bearing liabilities qualifying as regulatory capital.
Including minority interests.
Exclusive of minority interests.
20
Consolidated Ratios and Operating Data
US$M
1999
1999
1998
1997
1996
1995
(A$ millions, except where indicated)
Y E A R E N D E D 3 0 J U N E
Australian GAAP
Profitability
Net Interest Margin (%) (1)
Interest Spread (%) (2)
Return on average shareholders’ equity (3)
before abnormal items (%)
after abnormal items (%)
Return on average total assets (3)
before abnormal items (%)
after abnormal items (%)
Productivity
Total operating income per full time (equivalent)
employee ($)
Staff expense/total operating income (%) (4)
Total operating expenses excluding goodwill
amortisation/total operating income (%) (4)
Capital Adequacy (at year end)
Risk weighted assets
Tier 1 capital
Tier 2 capital
Total capital (5)
Tier 1 capital/risk weighted assets (%)
Tier 2 capital/risk weighted assets (%)
Total capital/risk weighted assets (%)
Average shareholders’ equity/average total assets (%)
Adjusted for US GAAP
Net income as a percentage of year end:
Total assets
Shareholders’ equity
Dividends as a percentage of net income
Shareholders’ equity as a percentage of total assets
3.09
2.69
3.33
2.85
3.53
2.92
4.01
3.33
4.03
3.45
20.54
20.54
18.48
16.10
18.16
16.39
16.27
16.27
16.13
15.69
1.06
1.06
1.01
0.87
1.05
0.94
1.06
1.06
1.04
1.01
126,085 190,720 170,120 145,515 137,667 130,995
29.0
55.6
31.0
58.1
34.0
59.9
33.3
59.4
33.8
61.3
65,816
4,642
2,055
6,176
99,556
7,021
3,109
9,342
7.05
3.12
9.38
5.14
94,431
7,617
2,666
9,902
8.07
2.82
10.49
5.70
86,468
7,468
2,437
9,418
8.64
2.82
10.89
5.79
77,246
7,764
2,297
9,822
10.05
2.97
12.71
6.63
70,383
7,212
917
7,847
10.25
1.30
11.15
6.64
1.00
19.51
71.15
5.14
0.57
10.43
119.97
5.47
0.84
13.90
86.97
6.07
1.06
15.26
67.64
6.93
0.08
12.33
86.64
6.65
(1)
(2)
(3)
(4)
interest
interest
income divided by average
Net
earning assets for the year.
Difference between the average interest rate earned
and the average interest rate paid on funds.
Calculations based on operating profit after tax and
outside equity
average
shareholders’ equity/average total assets.
Total operating income represents net interest income
before deducting charges for bad and doubtful debts
plus non interest income.
interests
applied
to
(5)
Represents Tier 1 capital and Tier 2 capital less
deductions under statutory guidelines imposed by the
include
Reserve Bank of Australia. Deductions
investment
Limited,
Commonwealth
Insurance Limited, Commonwealth
Funds Management Limited and IPAC Securities
Limited and other banks’ capital instruments.
in Commonwealth
Life
21
Financial Review
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
Y E A R E N D E D 3 0 J U N E
1999
US$M
379
389
182
715
207
(4)
(5)
(6)
1999
1996
(A$ millions, except where indicated)
1997
1998 (8)
574
589
275
1,081
314
0.9
0.2
0.4
4.5
230.2
1.1
742
742
279
1,076
466
1.0
0.2
0.5
6.8
182.6
1.1
797
797
241
690
556
0.8
0.1
0.6
7.9
116.8
0.8
997
1,062
318
613
744
0.9
0.1
0.9
10.1
87.7
0.8
1995
1,504
1,583
511
476
1,073
1.0
0.2
1.5
16.0
62.4
0.7
Total impaired assets comprise non accrual loans,
restructured loans, Other Real Estate Owned (OREO)
assets and Other Assets Acquired Through Security
Enforcement (OAATSE).
Specific provisions for impairment include provisions
raised against off balance sheet credit risk.
Average credit risk is based on gross credit risk less
unearned income. Averages are based on current and
previous year end balances.
(7) Gross credit risk less unearned income.
(8)
Numbers and ratios for 30 June 1998 have been
restated based on the amended definition of non
accruals introduced with effect from 31 December
1998. When a client is experiencing difficulties the
account is classified as a non accrual only where a
loss is expected, taking into account the level of
security held.
Consolidated Ratios And Operating Data
Australian GAAP
Asset Quality Data (1) (2)
Non accrual loans (3)
Total impaired assets (net of interest reserved) (4)
Specific provisions for impairment (5)
General provisions for impairment
Net impaired assets (net of interest reserved)
Total provisions for impairment/average credit risk (%) (6)
Charge for bad and doubtful debts/average credit risk (%) (6)
Gross impaired assets/credit risk (%) (7)
Net impaired assets/total shareholders’ equity (%)
Total provisions for impairment/gross impaired assets (%)
General provision for impairment/risk weighted assets (%)
(1)
(2)
(3)
The Bank adopted the disclosure requirements for
Impaired Assets contained in AASB 1032 ‘Specific
Disclosures by Financial Institutions’ with effect from
the 1997 Financial Year. The policies introduced by
the Bank with effect from 1 July 1994, incorporating
the Reserve Bank guidelines issued in December
1993, meet the requirements of AASB 1032. Previous
data for Financial Years 1995 and 1996 has been
adjusted for comparative purposes with adoption of
AASB 1032.
All impaired asset balances and ratios are net of
interest reserved.
Non accrual facilities comprise any credit risk exposure
where a specific provision for impairment has been
raised, or is maintained on a cash basis because of
significant deterioration in the financial position of the
borrower, or where loss of principal or interest is
anticipated.
22
Segment Performance
Profit and Loss
Net interest income
Fees and commissions
Trading income
Life insurance and funds management
Other income
Internal charges (1)
Total operating income
Provisions for impairment
Staff expenses
Provisions (non cash)
Other
Total Staff expenses
Occupancy and equipment expenses
Depreciation
Other
Total Occupancy and equipment expenses
Information technology services
Other expenses
Internal charges (1)
Total operating expenses
Amortisation of goodwill
Abnormal items
Profit before tax
Income tax expense
Outside equity interest
Profit after tax
Balance Sheet
Total Assets
Total Liabilities
Y E A R E N D E D 3 0 J U N E 1 9 9 9
G R O U P
Institutional
Banking
ASB Corporate
Total
A$M
273
240
253
16
75
167
1,024
62
4
212
216
8
42
50
104
48
171
589
-
-
373
68
-
305
A$M
A$M
A$M
US$M
279
94
18
7
9
-
407
11
1
124
125
25
27
52
21
47
-
245
-
-
151
47
24
80
206
8
2
8
46
520
790
3,527
1,281
273
254
189
-
5,524
2,332
847
180
168
125
-
3,652
2
247
163
4
205
209
3
13
16
14
131
(2)
368
40
-
380
183
-
197
42
1,562
1,604
145
310
455
505
506
-
3,070
47
-
2,160
714
24
1,422
28
1,033
1,061
96
205
301
334
335
-
2,031
31
-
1,427
472
16
939
Retail
Financial
Services
A$M
2,769
939
-
223
59
159
4,149
172
33
1,021
1,054
109
228
337
366
280
678
2,715
7
-
1,255
416
-
839
81,583
57,390
40,697
34,251
12,855
11,992
2,961
27,501
138,096
131,134
91,295
86,693
(1)
Internal charges are eliminated on consolidation.
23
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
Financial Review
Segment Performance continued
Profit and Loss
Net interest income
Fees and commissions
Trading income
Life insurance and funds management
Other income
Internal charges (1)
Total operating income
Provisions for impairment
Staff expenses
Provisions (non cash)
Other
Total Staff expenses
Occupancy and equipment expenses
Depreciation
Other
Total Occupancy and equipment expenses
Information technology services
Other expenses
Internal charges (1)
Total operating expenses
Amortisation of goodwill
Abnormal items
Profit before tax
Income tax expense
Outside equity interest
Profit after tax
Balance Sheet
Total Assets
Total Liabilities
Y E A R E N D E D 3 0 J U N E 1 9 9 8
G R O U P
Institutional
Banking
ASB Corporate
Total
A$M
A$M
242
223
229
17
99
140
950
132
4
191
195
5
48
53
101
30
168
547
-
-
271
78
-
193
282
90
14
1
4
-
391
9
1
111
112
22
30
52
21
48
-
233
-
-
149
50
25
74
A$M
143
3
-
(1)
64
556
765
A$M
US$M
3,397
1,150
243
205
235
-
5,230
2,109
714
151
127
146
-
3,247
(45)
233
145
(4)
248
244
(23)
29
6
32
95
(3)
374
45
570
(179)
(270)
(5)
96
25
1,597
1,622
132
341
473
476
468
-
3,039
46
570
1,342
232
20
1,090
16
991
1,007
82
212
294
296
291
-
1,888
29
354
831
144
12
675
Retail
Financial
Services
A$M
2,730
834
-
188
68
141
3,961
137
24
1,047
1,071
128
234
362
322
295
672
2,722
1
-
1,101
374
-
727
75,329
56,894
41,622
35,928
10,793
10,147
2,800
20,686
130,544
123,655
81,042
76,765
(1)
Internal charges are eliminated on consolidation.
for
the
Segment
information
financial year
ended 30 June 1997 is not available in the above
classifications. The Group undertook a major
restructuring program during the financial year ended
30 June 1998. As part of the restructuring program,
the previous business units of Personal Banking,
Business Banking and Commonwealth Financial
Services were reorganised into two new divisions: the
specialist areas of marketing, customer segmentation
and product development became the Banking and
the various
Financial Services Division, while
distribution arms were brought together to form the
Customer Services Division. The Institutional Banking
Division remained largely unchanged. Retail Financial
Services is comprised of two divisions, Customer
Services Division and Banking and Financial Services
Division. Corporate comprises the various head office
functions as well as Technology, Operations and
Property.
24
Management’s Discussion And Analysis Of Financial
Condition And Results Of Operations
The
is based on
following discussion
the
Financial Statements as prepared under Australian
GAAP and included on pages 49 through 151 of this
Annual Report to Shareholders for the Financial Year
ended 30 June 1999. A discussion of the differences
between Australian GAAP and US GAAP, and the
the Financial
impact of
Statements, is set out in Note 47 in the Financial
Statements.
those differences on
Overview
Business Description
The Commonwealth Bank
integrated
financial services business, providing a full range of
banking and financial services to over 7.7 million
Australians and 800,000 New Zealanders via its 75%
owned New Zealand subsidiary, ASB Group Limited.
is an
As at 30 June 1999, the Commonwealth Bank of
Australia Group had:
•
•
total consolidated assets of over $138 billion;
and
over $41 billion in assets under administration,
including over $27 billion of
funds under
management.
The Group’s operations are conducted primarily
in Australia. For Financial Year 1999, Australia
contributed 84% of revenue, 89% of net profit and at
period end accounted for 84% of the Group’s assets.
The Group is represented internationally through
branches in London, New York, Singapore, Tokyo,
Hong Kong and Grand Cayman and representative
offices in Beijing, Shanghai, Hanoi and Jakarta. It also
has a
joint venture arrangement with Bank
Internasional in Indonesia.
The Group’s
revenue and net profit are
principally derived from its banking operations, which
comprise 92% of revenue and 88% of net profit on a
Group basis for Financial Year 1999. However, fee
based
funds
including
management and finance operations represent a
growing proportion of the Group’s revenue and net
profit (12% of net profit).
insurance,
activities
In a recent study, the Commonwealth Bank of
Australia was ranked 17th among the major financial
institutions in the world on the basis of its total
shareholder return/risk performance and 26th in terms
of creation of shareholder value.1
Economy
Being predominantly domiciled in Australia, the
profitability of the Bank is significantly influenced by
the state of the Australian economy, especially with
regard to the level of interest rates, consumer and
business confidence, and growth of the economy. The
Bank’s exposure to Asia represents only 2.7% of total
Credit Risk. (The Bank has no direct exposure to
Russia or Latin America. In addition, the Bank’s
exposures to Eastern Europe and the Middle East
represent 0.1% of total Credit Risk.)
1
Oliver Wyman and Company (1999)
growth
consumer
The current domestic economic outlook
in
Australia is for continued low inflation and low interest
rates. The strong growth of the past year is currently
forecast to continue but at a less buoyant pace.
to be maintained by
is expected
Momentum
respectable
spending,
in
underpinned by moderate growth in employment and
real wages (secured against a backdrop of low
robust productivity gains). The
inflation and
international outlook has
the
finely balanced. There are some
situation
in Japan and other Asian
encouraging signs
economies. Together with a strengthening
in
European growth, these trends should help offset any
possible slowdown in the US economy. However,
actual results could differ from these expectations due
to a number of risks, uncertainties and other factors.
See ‘Special Note Regarding Forward – Looking
Statements’.
improved although
is
Relatively
for
low
interest
loans and deposit
rates and strong
competition
funds within
Australia have placed pressure on interest margins.
The competitive outlook is likely to see margins
remain under some pressure.
In previous economic cycles, the interest rate
environment had a beneficial
impact on bank
profitability through its effect on the overall level of
economic activity. While the historically low levels to
which interest rates have fallen has placed pressure
on net interest margins, this has been accompanied
by sound growth in financial assets and historically
low levels of bad debts. Bank profitability has also
been assisted by diversification into new fee based
activities and material reductions in cost structures.
Assuming continued strong economic growth,
albeit with some easing, low inflation and continued
gains in productivity, the business outlook for financial
services looks generally favourable.
The financial performance of the Bank is also
influenced by government policies
the
taxation regime and the level of regulation in the
banking and financial services industries.
including
Strategy
The Group adopts a strong shareholder value
driven focus. The Bank has a comprehensive and
coordinated strategy in place to achieve its vision of
helping its customers manage and build wealth. This
vision is being pursued by leveraging its position as
the leading distributor in Australia of a broad base of
the largest
financial products and services with
customer base and
to help
customers migrate rapidly into the world of online and
direct distribution.
Brand
Technological changes allow financial service
customers
their banking
activities remotely from bank branches. This reduced
reliance on branches for customer services enables
non banks to offer products and services which were
formerly the province of banks, potentially weakening
banks’ existing customer relationships.
to undertake many of
lowest unit costs
25
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
infrastructure that can adapt as the online world
evolves.
Online options are being considered to increase
the retail financial services revenues from offshore
sources.
Risk Management
The
•
•
of
adjusted
introduction of more sophisticated risk
measurement disciplines has seen developments in
risk/return management. In recent years, the Group
has successfully grown profitability with low earnings
volatility, assisted by:
•
strong portfolio management disciplines and
application
return
risk
methodologies;
a domestic loan book with an emphasis on lower
risk housing lending as opposed to higher-risk
commercial lending; and
a bottom up approach
risk
measurement which develops an increasingly
risk-aware management culture.
Best Practice People Management
Success in this information based business
means providing the very best creative solutions to
meet customers’ diverse needs. This will depend
leadership and appropriately
critically on sound
skilled, well trained, motivated and rewarded staff
willing to accept responsibility and accountability. To
meet this requirement, the Group has in place
comprehensive leadership, management and training
levels. An
programs to develop its staff at all
increasing component of total remuneration is also
being provided on the basis of performance linked to
enhancing overall Bank profitability.
to operating
Integrated Risk Management
•
•
•
The Bank has implemented an Integrated Risk
Management Framework, to measure risk and return
on a consistent basis.
The framework:
Provides for all risk management policies to be
coordinated within
the Financial and Risk
Management Division, with the oversight of the
Risk Committee of the Board.
Identifies and measures risk in the form of
Economic Equity.
Applies risk adjusted returns to allocated equity
on a consistent basis to derive performance
measures
comparable between
businesses.
The management of risk and return is the
responsibility of Business Units, operating within the
Integrated Risk Management Framework policies.
Overall compliance with policies is monitored by
the Financial & Risk
specialist areas within
Management Division (including Group Audit). This
Division also ensures
is consistency
that
between risk policies and measurement processes.
that are
there
Financial Review
The need for the Group to retain a ‘top of mind’
relationship with customers is therefore paramount.
The Group sees the consistent delivery of its brand
vision as critical to its ongoing success, especially in
an online environment. The Group has introduced a
comprehensive brand strategy to align all its activities
to deliver the Brand promise.
Lowest Cost Structure
The Commonwealth Bank’s distribution network
has undergone significant reconfiguration over recent
years. Outlets have been realigned to meet the needs
of personal and business customers, while technology
and changing customer preferences have caused a
major increase in the proportion of transactions
provided by electronic channels. The Group continues
to assist customers to migrate to lower cost forms of
distribution made possible by technological advances.
Internally, the long term outsourcing/joint venture
partnership with EDS is a key initiative aimed at
reducing technology costs while remaining at the
forefront of financial services business applications.
The Group will continue to look for opportunities to
enhance productivity through process-reengineering
to maintain a productivity cost advantage. This will
allow the maintenance of a low cost structure while it
invests in the online business model. The Group
continuously benchmarks its operations against world
best practice to identify further efficiency gains.
Financial Services
Through a series of initiatives aimed at providing
differentiated advice and decision support information
together with a broader range of financial service
offerings, the Group aims to better serve its large
customer base to provide for the growing financial
services needs of the Australian community.
By enhancing collection and use of customer
information and packaging products and services
around customer needs and major events in their
lives, the Group seeks to increase the average
number of products per customer.
This will enable the Group to increase the
proportion of income from non bank businesses to
assist in addressing the interest margin compression.
Online Financial Services
New technology is being embraced to provide
more efficient and relevant services for clients, with an
emphasis on online services. The goal is to enable
customers to conduct a full range of financial services
anywhere, anytime in a seamless global environment.
Through online services, supplemented by direct
channels, the objective is to increase market share
and provide a broad range of cost effective financial
services to each client segment.
The Bank is developing its online banking as a
new business model, not as just another distribution
channel. The Bank’s internet banking and broking
sites are amongst the most actively used of any sites
in Australia. The online strategy is based on flexible
26
The composition of diversified Economic Equity
of the Bank is currently:
Operational
27%
Market
13%
Credit
60%
Economic Equity is defined as:
A risk measure, over a one year time horizon,
consistent with a solvency standard equal to a AA
debt rating (expected default frequency of 5 basis
points). Economic Equity
the
underlying exposures to Credit Risk, Market Risk, and
Operational Risk, allowing for inter-risk diversification.
is derived
from
(i)
Credit Risk
The measurement of the Bank’s credit risk
capital requirement is based on the Bank’s internal
Credit Risk Rating system, and utilises techniques
such as the KMV Portfolio Manager analytics to
calculate Unexpected and Expected loss for the
diversified portfolio.
A description of the management of the Bank’s
credit risk is set out in Note 14 to the Financial
Statements.
(ii) Market Risk
Risk capital
is
measured separately for ‘Traded’ and ‘Non Traded’
(banking book) market risk.
the Bank’s market risk
for
Traded market risk capital is measured by a
market risk engine which has been approved by
APRA for use to identify Regulatory Capital required
to support traded market risk.
Non traded market risk capital is calculated
utilising the same methodology as for traded market
risk, taking into account the different characteristics of
this risk.
A description of the management of market risk
is set out in Note 37: Market Risk of the Financial
Statements beginning on page 113.
(iii) Operational Risk
Operational Risk is defined broadly as all risks
other than credit and market risk, which could cause
volatility of the revenues, expenses and values of the
Bank’s business. Potential volatility
is quantified
though both a bottom up indicative method, and top
down deductive method.
To measure operational risk, business divisions
utilise a risk incident database to assess plausibility of
risk scenarios. Probability of loss is estimated based
on
the mitigating effects of
preventative and impact controls, and applied to a
individual
selected probability distribution. The
risk and
inherent
operational risks are aggregated using a Monte Carlo
simulation.
The potential loss for individual risk is used to
assess large operational risk exposures, while the
aggregated loss amount is a portfolio measure of
economic equity for operational risk.
Operational risks are categorised as strategic
and business risks (eg economic cycle, reputation,
policy formulation, competitive environment, clients
etc); external event risks (eg natural disasters and
supplier risk); internal controls and compliance risks
(regulatory, political, personnel, information etc); and
technology risks.
Capital Management
The Bank’s capital management philosophy is to
generate sustainable returns
to
maintain a buffer above the regulatory minimum
capital in support of risk and to distribute excess
capital back to shareholders. The decision to execute
a further buyback of shares in March 1999 illustrated
this philosophy in action.
to shareholders,
The buyback of shares from the Commonwealth
in July 1996, as part of the Australian Government’s
sale of its remaining shareholding in the Bank,
reduced equity by approximately $1,000 million. A
further buyback of 38.1 million shares occurred on
29 December 1997, which reduced shareholders’
equity by $650 million. In March 1999 the Bank
bought back another 27.4 million shares which
reduced
further
$650 million.
shareholders’
equity
by
a
Credit Ratings
The Bank’s credit ratings at 30 June 1999 are:
Standard & Poor’s Corporation
Moody’s Investors Service, Inc.
Fitch IBCA
Moody’s Bank Financial Strength
Rating
Fitch IBCA Individual Rating
Expansion
Short
Term
Long
Term
A-1+
P-1
F1+
AA-
Aa3
AA
B
A/B
The Bank’s primary growth objective has been to
maintain and, where commercially sustainable,
face of vigorous
in
expand market share
competition in the market.
the
In the Australian market, the Bank has expanded
into growth areas primarily by organic means. The
Bank was a pioneer in online services creating
successful online businesses from the ground up. Its
online site
is Australia’s busiest online banking
service. Commonwealth Securities, the Bank’s online
broking arm, is Australia’s largest Internet broker.
The Bank has supplemented organic growth by
its
to complement
acquiring specific businesses
existing financial services range.
It acquired Commonwealth Funds Management
in 1996; a 50% equity share in the financial planning
the
firm
IPAC Securities Limited
in 1997; and
27
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
be from factors external to the Bank. The risks to the
Bank have been largely minimised due to ongoing
communications and dialogue with key service
providers and the strong focus on business continuity
plan (BCP). These plans target all critical customer
functions to ensure minimal disruption to the day to
day operations of the Bank. In addition to the internal
BCP planning, the Bank is working closely with other
institutions and the Reserve Bank of Australia to put in
place contingency plans at an industry level. The
latter activity includes active follow up with the
industry’s critical suppliers with regard to their Year
2000 readiness and contingency planning. These
business continuity plans and disaster recovery plans
will continue to be reviewed and refined beyond 2000
as part of the Bank’s overall risk management
strategy.
In addition to business continuity planning, the
Bank is initiating a bank wide productions systems
freeze commencing on 1 October 1999 until 3 March
2000. The aim of this freeze is to preserve the Bank’s
Year 2000 readiness in our own internal production
environments and also with systems that are essential
to our participation in the industry wide payments
systems. A number of other preservation strategies
are also in place to ensure the ongoing Year 2000
readiness of the Bank’s systems.
A comprehensive communication programme
has commenced
targeting both business and
consumer client segments with the shared objectives
of raising awareness and building confidence in the
Bank’s ability to maintain normal banking services
through the century change. This programme has
included the sponsorship of a web site with the
Institute of Engineers Australia containing details of
to help
suitably qualified engineers available
businesses with
remediation
activities.
their Year 2000
The Bank has previously estimated
total
rectification costs
issues at
$115 million. We expect to complete the overall
program in line with this estimate. Expenditure to the
end of June 1999 was $87 million.
for Year 2000
The Bank has reported to the Australian Stock
Exchange in March 1999 that depositors’ funds will
not be at risk from Year 2000 issues.
Financial Review
Australian merchant banking operations of Credit
Lyonnais in July 1999.
The Bank has expanded strongly
in New
Zealand through its 75% owned subsidiary, ASB
Bank, which has achieved significant organic growth
and developed leading direct banking capabilities.
ASB Bank expanded its activities in life insurance and
funds management
the acquisition of
through
Sovereign Ltd in 1998.
Guarantee
The
of
withdrawal
progressive
the
Commonwealth’s guarantee has not had any
significant impact on the Bank’s overall cost of funds.
As at 30 June 1999, the weighted average term to
maturity of that part of the wholesale borrowing
program which remains guaranteed until maturity was
approximately 5 years and 3 months (excluding the
Undated Notes, which do not have a fixed maturity
date).
Year 2000 Systems Compliance
to plan. The
The Bank’s Year 2000 programme
three phases of
is
the
progressing
in 1996, have been
programme, commenced
completed. They incorporated a disaster recovery
phase which included a full inventory of hardware and
software, a planning phase involving the compilation
of remedial methods, cost strategies and remediation
included
plans and
remediation and comprehensive testing of all critical
applications.
remedy phase which
the
in
fully
involved
The Bank has been
the
interorganisational testing programme being managed
by the Australian Payments Clearing Association.
Testing of the five interorganisational clearing streams
commenced in November 1998 and was successfully
completed in June 1999. The Bank has also been an
testing
active
Futures
programmes,
Exchange, SWIFT International and global payment
system testing through the main New York clearing
houses.
in
including
the Sydney
participant
external
other
The Bank’s building management systems
by
achieved Year
readiness
2000
project
30 June 1999.
The Bank believes the most likely worst case
scenario in respect of a Year 2000 breakdown would
28
Results of Operations for the Financial Year 1999 versus Financial Year 1998 and Financial Year 1998 versus
Financial Year 1997
Net Interest Income
The following table sets forth the Group’s net interest income for Financial Years 1997, 1998 and 1999.
Interest income
Interest expense
Net interest income
Y E A R E N D E D 3 0 J U N E
1999
$M
7,745
4,218
3,527
1998
$M
7,605
4,208
3,397
1997
$M
7,989
4,597
3,392
The following table sets forth the effect on the
Group’s net interest income for Financial Year 1998
and Financial Year 1999 of changes in (i) the
average volume of interest earning assets and interest
bearing liabilities and (ii) their respective interest rates
during the relevant years.
Due to changes in average volume of
interest earning assets and interest bearing liabilities
Due to changes in average interest rates
Change in net interest income
Net interest income increased to $3,527 million
in Financial Year 1999 compared with $3,397 million
in Financial Year 1998. Increased interest earning
assets, which increased by 11.8% to $114.3 billion in
Financial Year 1999 from $102.2 billion in Financial
Year 1998 more than offset the fall in Group interest
margin. The increase in average interest earning
assets of $12 billion contributed growth of $363 million
in net interest income. This volume effect was partially
offset by the $233 million impact of interest rate
change which reduced net interest margin.
Net
to
$3,397 million in Financial Year 1998 compared to
increased slightly
interest
income
F I N A N C I A L Y E A R
1 9 9 9 V S . 1 9 9 8
I N C R E A S E /
( D E C R E A S E )
$M
F I N A N C I A L Y E A R
1 9 9 8 V S . 1 9 9 7
I N C R E A S E /
( D E C R E A S E )
$M
363
(233)
130
156
(151)
5
$3,392 million in Financial Year 1997. Increased
interest earning assets, which increased by 6.2% to
$102.2 billion in Financial Year 1998 from $96.2 billion
in Financial Year 1997 more than offset the fall in
Group interest margin. The increase in average
interest earning assets of $6 billion contributed growth
of $156 million in net interest income. This volume
effect was partially offset by the $151 million impact of
interest rate changes.
following
the Group’s
table sets
interest spread and net interest margin for the
Financial Years 1997, 1998 and 1999.
forth
The
Interest spread before deduction of interest forgone on
non accrual and restructured loans
Interest forgone on non accrual and restructured loans (1)
Interest spread (2)
Benefit of net interest free liabilities, provisions and equity (3)
Net interest margin (4)
(1)
(2)
Represents interest forgone on loans on which the
Group earns no interest or interest at below market
rates.
Difference between the average interest rate earned
and the average interest rate paid on funds.
(3)
(4)
1999
%
2.71
(0.02)
2.69
0.40
3.09
Y E A R E N D E D 3 0 J U N E
1998
%
2.89
(0.04)
2.85
0.48
3.33
1997
%
2.98
(0.06)
2.92
0.61
3.53
A portion of the Group’s interest earning assets is
funded by net interest free liabilities and shareholders’
equity. The benefit to the Group of these interest free
funds is the amount it would cost to replace them at
the average cost of funds.
Net
earning assets for the period.
income divided by average
interest
interest
29
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
Financial Review
The Group’s net interest margin has been
compressed due to lowering of interest rates on
assets and to a lesser extent on liabilities.
The average interest rate on interest earning
assets for Financial Years 1997, 1998 and 1999 was
8.3%, 7.4% and 6.8%, respectively. The average
interest rate on interest bearing liabilities for Financial
Years 1997, 1998 and 1999 was 5.4%, 4.6% and
4.1%, respectively. Changes in the average interest
rate on interest earning assets and interest bearing
in market
liabilities primarily
interest
levels of
competition.
reflect movements
rates and sustained high
The impact of interest forgone on non accrual
and restructured loans on the Group’s net interest
margin declined from 0.06% in Financial Year 1997 to
Australia
Interest spread before deduction of interest forgone on non accrual
and restructured loans
Interest forgone on non accrual and restructured loans (1)
Interest spread (2)
Benefit of net interest free liabilities, provisions and equity (3)
Net interest margin (4)
Overseas
Interest spread before deduction of interest forgone on non accrual
and restructured loans
Interest forgone on non accrual and restructured loans (1)
Interest spread (2)
Benefit of net interest free liabilities, provisions and equity (3)
Net interest margin (4)
0.04% in Financial Year 1998 and 0.02% in Financial
Year 1999. The reduction in interest forgone is in line
with a general improvement in the Group’s asset
quality.
The benefit from net interest free liabilities,
provisions and equity was 0.61% in Financial Year
1997, 0.48% in Financial Year 1998 and 0.40% in
Financial Year 1999. The decrease in Financial Year
1999 reflects the effect of share buybacks and the
lower interest rate environment. The decrease in
Financial Year 1998 reflects the effect of the share
buyback in December 1997 and the lower interest rate
environment.
On a geographical basis, the Group’s interest
spreads and net interest margins are set forth in the
following table.
Y E A R E N D E D 3 0 J U N E
1999
%
1998
%
3.0
3.2
-
-
3.0
0.4
3.4
3.2
0.4
3.6
1997
%
3.3
(0.1)
3.2
0.6
3.8
1.4
1.4
1.4
-
-
-
1.4
0.4
1.8
1.4
0.6
2.0
1.4
0.4
1.8
(1)
(2)
Represents interest forgone on loans on which the
Group earns no interest or interest at below market
rates.
Difference between the average interest rate earned
and the average interest rate paid on funds.
(3)
(4)
A portion of the Group’s interest earning assets is
funded by net interest free liabilities and shareholders’
equity. The benefit to the Group of these interest free
funds is the amount it would cost to replace them at
the average cost of funds.
Net
earning assets for the period.
income divided by average
interest
interest
The difference in margins and spreads between
the Australian and overseas operations reflects the
different nature of the Group’s business in each of
these geographic areas. The overseas operations
includes significant wholesale loans from a funding
base that predominantly consists of raising funds in
the wholesale markets. The resulting margins are
much narrower.
30
Charge for Bad and Doubtful Debts
The following table sets out the charge for bad and doubtful debts for Financial Years 1997, 1998 and 1999.
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 of profit and loss
Total Charge for Bad and Doubtful Debts
Net charge for bad and doubtful debts increased
by 6% to $247 million in Financial Year 1999 from
$233 million in Financial Year 1998.
Net charge for bad and doubtful debts increased
by 138% to $233 million in Financial Year 1998 from
$98 million in Financial Year 1997, largely due to
increased provisioning
for Asian exposures and
continuing reduction in the level of writebacks and
recoveries of bad debts. Included within abnormal
items
is a charge of
$370 million relating to the general provision for bad
and doubtful debts resulting from the introduction of
Dynamic Provisioning – see Abnormal Items.
for Financial Year 1998
The ratio of general provisions to risk weighted
assets decreased to 1.09% in Financial Year 1999. The
ratio of specific provisions to gross impaired assets
increased from 37.6% at Financial Year end 1998 to
46.7% at Financial Year end 1999. The ratio of specific
provisions to gross impaired assets increased from
30.2% at Financial Year end 1997 to 37.6% at
Financial Year end 1998.
Total Provisions for Impairment for the Group at
30 June 1999 are $1,356 million, no significant change
Lending fees
Commission and other fees
Foreign exchange earnings
Net gain/(loss) on investment securities
Net profit on financing instruments - trading securities
Life insurance surplus and funds management fees
Other income
Total non interest income
The Group’s non interest income increased
9.0% over the prior year to $1,997 million in Financial
Year 1999 and 23.1% over
to
from
$1,833 million
in Financial Year 1998
the prior year
1999
$M
284
(45)
239
(239)
-
44
(51)
15
239
247
247
Y E A R E N D E D 3 0 J U N E
1998
$M
280
(57)
223
(155)
68
42
(48)
16
155
165
233
1997
$M
152
(90)
62
-
62
41
(80)
75
-
36
98
on the total at 30 June 1998 of $1,355 million. This
level of provisioning is considered adequate for the
Group given the credit risks identified in the Credit
Portfolio.
have
Specific
reduced
provisions
from
$279 million to $275 million, a decrease of 1%, while
gross impaired assets less interest reserved have
reduced 21%. The increase in the coverage ratio from
37.6% to 46.7% is primarily the result of higher
provisioning required on the Asia portfolio remaining
after significant writeoff and realisation activity.
The general provision has
to
$1,081 million at 30 June 1999 from $1,076 million at
30 June 1998, an increase of 0.5%. Total Assets have
increased by 6% over the year. The lower increase in
the general provision than total assets primarily reflects
use of
to meet special
provisioning requirements, primarily Asia.
the general provision
increased
Non Interest Income
The following table sets forth the Group’s non
interest income for Financial Years 1997, 1998 and
1999.
Y E A R E N D E D 3 0 J U N E
1999
$M
474
807
155
79
118
254
110
1,997
1998
$M
472
678
161
101
82
205
134
1,833
1997
$M
439
541
70
4
104
197
134
1,489
$1,489 million in Financial Year 1997. The increase in
Financial Year 1999 is principally due to higher fee
income, improved trading income and higher levels of
life insurance and funds management income.
31
Financial Review
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
and $2,967 million in Financial Year 1997. The ratio of
operating expenses, excluding goodwill amortisation,
to total operating income (before deducting the charge
for bad and doubtful debts) was 55.6% in Financial
Year 1999 compared to 58.1% in Financial Year 1998
and 59.9% in Financial Year 1997. This improvement
in Financial Year 1999 was due to the growth in non
interest income together with ongoing programmes to
contain costs.
Included within abnormal items for Financial
Year 1998 is a charge of $200 million for restructuring
costs, and
for
included within abnormal
Financial Year 1997 is a charge of $200 million for
write down of computer equipment. Further details are
provided under discussion of Abnormal Items.
items
The
following
the Group’s
table sets
operating expenses for Financial Years 1997, 1998
and 1999.
forth
1999
$M
1,604
455
505
112
394
3,070
47
3,117
Y E A R E N D E D 3 0 J U N E
1998
$M
1,622
473
476
116
352
3,039
46
3,085
1997
$M
1,663
547
255
92
367
2,924
43
2,967
implementation of the new organisational structure
and reconfiguration of delivery systems.
Full time equivalent staff numbers, on a Group
basis, decreased from 33,543 employees as at
30 June 1997 to 30,743 employees at 30 June 1998
and 28,964 at 30 June 1999, an overall reduction of
13.6% over the two year period. Accompanying the
overall reduction in the number of full time equivalent
staff over the period Financial Year 1997 to Financial
Year 1999, the Bank’s part time employees have
increased to 20.1% of the Group’s work force as
shown in the following table.
Full time equivalent staff have been weighted for
the lower costs per employee of staff on extended
leave; for example, maternity leave, unpaid sick pay
or career break. Comparatives have been similarly
adjusted.
1999
1998
1997
A T 3 0 J U N E
(number of employees, except percentages)
30,566
7,364
33,543
80.6%
19.4%
26,394
6,655
28,964
79.9%
20.1%
28,034
6,968
30,743
80.1%
19.9%
the
increase
financial year whilst
Lending fees have remained steady during the
current
in
commission and other fees is due to changes made to
fee structures in the previous financial year. Card fees
have increased due to higher numbers of and activity
by cardholders and merchants. The increase in
foreign exchange earnings was due to continued
volatility in foreign exchange markets, and higher
levels of customer business. The higher levels of life
insurance and funds management fees resulted from
increased business volumes and higher funds under
management balances.
The increase in Financial Year 1998 included
gains on sales of investment securities.
Operating Expenses
The Group’s total operating expenses (including
the amortisation of goodwill but before abnormal
items) for Financial Year 1999 were $3,117 million, as
compared with $3,085 million in Financial Year 1998
Staff expenses
Occupancy and equipment expenses
Information Technology Services
Fees and commissions
Other expenses
Total operating expenses
Amortisation of Goodwill
Total operating expenses and amortisation of goodwill
Staff expenses decreased by 1.1% in Financial
Year 1999 due to reductions in staff numbers, which
were partially offset by increases in average staff
costs. Staff numbers decreased by 1,779 net (with
400 staff acquired through Sovereign Ltd in December
1998) or 5.8% in Financial Year 1999 with the
continuation of group wide
reorganisation and
rationalisation of processes.
Staff expenses decreased by 2.5% in Financial
Year 1998 largely due to reductions in staff numbers.
in
Staff numbers decreased by 2,800 or 8.3%
Financial Year 1998. This reduction includes the
transfer of 1,400 staff
the
outsourcing of
technology and 800
redundancies which were part of the rationalisation of
functions,
processing
administration
information
to EDSA
following
and
Full time staff
Part time staff
Full time staff equivalent
Full time staff/total staff
Part time staff/total staff
32
The Group’s superannuation costs
(post
retirement benefits) were $1 million in Financial Year
1999, $1 million in Financial Year 1998 and $2 million
in Financial Year 1997. This reflects actuarial advice
that, having regard to the surplus in the principal
superannuation fund, the Officers’ Superannuation
Fund (OSF), the Bank may cease contributions.
An actuarial assessment of
the Officers’
Superannuation Fund (OSF) as at 30 June 1997 was
completed during the Financial Year 1998. In line with
the actuarial advice contained in this assessment, the
Bank 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.
Occupancy and Equipment Expenses
Occupancy and equipment expenses decreased
by 4% in Financial Year 1999 due to rationalisation of
premises occupied by the Group and the full year
effect of the sale of computer and communications
equipment to EDSA. During the year the Bank
continued its property sale and leaseback program,
including the sale of major office properties as part of
the Commonwealth Office Property Fund listing as at
29 April 1999. This program increases rental costs
which are offset by reduced depreciation and holding
costs, and also assists in lowering the Bank’s risk
profile and in its capital management program.
Occupancy and equipment expenses decreased
by 14% in Financial Year 1998 largely due to the fall
in depreciation and repairs and maintenance costs on
equipment following the sale of the Bank’s computer
and communications equipment to EDSA as part of
outsourcing of the information technology function to
EDSA. This was partially offset by an increase in
operating lease rental from the continuing property
sale and lease back program.
Information Technology Services
functions
Comparison with prior years is not meaningful.
The outsourcing of most of the Bank’s information
technology
in October 1997 makes
comparison with prior years difficult. This arrangement
has increased costs in the information technology
services category which are offset in all other expense
categories. The scope of work performed by EDSA
has remained similar to that performed by the Bank’s
information technology division prior to outsourcing,
with savings realised over what the Bank expected to
spend had outsourcing not proceeded.
Income Tax Expense
Before abnormals,
tax expense
increased by 11.4% in Financial Year 1999 due to
increased profit before tax partially offset by a
reduction in the effective rate from 33.5% in Financial
income
Year 1998 to 33.1% in Financial Year 1999. Before
abnormals income tax expense increased by 9.0%, in
Financial Year 1998 compared with Financial Year
1997.
Abnormal Items (including Abnormal Income Tax
Expense)
Abnormal items of revenue or expense are
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.
There were no abnormal items of income or expense
in Financial Year 1999; however,
following
amounts were included in previous Financial Years.
the
Restructuring Costs (1998)
Restructuring costs of $200 million ($128 million
after tax) were charged to profit and loss in the
Financial Year 1998.
General Provision Charge for Bad and
Doubtful Debts (1998)
from
With
1998
effect
1 January
the
methodology used to estimate the provisions for
impairment has been
refined 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 balance required in the general provision to cover
expected losses in the credit portfolio. 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 was charged to profit and
loss in the Financial Year 1998.
Tax Effecting General Provision for Bad and
Doubtful Debts (1998)
The general provision for bad and doubtful debts
was tax effected as at 1 January 1998. This reflects
the adoption of a balance sheet risk based Dynamic
Provisioning methodology which
the
recognition requirement that utilisation of the provision
be assured beyond reasonable doubt.
satisfies
An abnormal credit
tax expense of
$337 million was booked to profit and loss in Financial
Year 1998.
to
Information Technology Equipment Values
(1997)
For the Financial Year 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 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 Financial Year 1997.
33
Financial Review
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
Net Income
Capital Adequacy
Net income increased 30.5% in Financial Year
1999 to $1,422 million from $1,090 million in Financial
Year 1998. Net income increased 1.1% in Financial
Year 1998 to $1,090 million from $1,078 million in
Financial Year 1997. The increase in net income in
the Financial Year 1999 was due to growth in both
interest and non
income coupled with
containment of costs. The increase in net income in
the Financial Year 1998 was due to a growth in fees,
commissions, trading income and sale of investment
securities offset by Abnormal Expenses of
$161 million net of tax.
interest
In August 1988 the Reserve Bank established
guidelines for the capital adequacy of Australian
banks, to strengthen their soundness and stability.
These guidelines are generally consistent with those
proposed by the Committee on Banking Regulations
and Supervisory Practices of
for
International Settlements. Full details of the Group’s
capital adequacy position is disclosed in Note 30 to
the Financial Statements.
the Bank
Risk Weighted Capital Ratios (percentages)
Tier One
Tier Two
Less Deductions
Total
Tier One Capital
Tier Two Capital
Tier One and Tier Two Capital
Less: Deductions
Total Regulatory Capital
Y E A R E N D E D 3 0 J U N E
1999
1998
1997
($ millions, except percentages)
7.05
3.12
(0.79)
9.38
7,021
3,109
10,130
(788)
9,342
8.07
2.82
(0.40)
10.49
7,617
2,666
10,283
(381)
9,902
8.64
2.82
(0.57)
10.89
7,468
2,437
9,905
(487)
9,418
The maturity profile of eligible loan capital as at 30 June, 1999 was as follows:
Tier One
Tier Two (1)
Total
M A T U R I N G I N Y E A R
2000
$M
2001
$M
After 2002
$M
270
-
270
78
-
78
290
2,335
2,625
Total
$M
638
2,335
2,973
(1)
For capital adequacy purposes Tier 2 loan capital is reduced each year by 20% of the original amount during the last five
years to maturity.
Total Tier 1 capital decreased by 7.8% to
$7 billion at 30 June 1999
from $7.6 billion at
30 June 1998, primarily reflecting the $650 million off
market share buyback in March 1999, and the
maturity of approximately $574 million in Tier 1 loan
capital.
Total Tier 2 capital increased by $443 million to
$3.1 billion at 30 June 1999 from $2.67 billion at
30 June 1998. Tier 2 eligible loan capital increased
by $450 million to $2,335 million at 30 June 1999,
from $1,885 million at 30 June 1998 primarily a result
of the issuing of approximately $575 million in debt
capital. The $40 million of ASB Bank preference
shares is included as Tier 2 capital.
to
Total regulatory capital decreased 5.7%
$9,342 million at 30 June 1999 from $9,902 million at
30 June 1998. The Group’s Tier 1 ratio also decreased
to 7.05% at 30 June 1999
from 8.07% at
30 June 1998. The total capital ratio decreased to
9.38% at 30 June 1999 from 10.49% at 30 June 1998.
34
included eligible
The Group’s Tier 1 and Tier 2 capital at
30 June 1999
loan capital of
$638 million and $2,335 million, respectively. In the
aggregate, such eligible loan capital at 30 June 1999
constituted 9.1%, 75.1% and 31.8% of the Group’s
Tier 1, Tier 2 and Total Regulatory capital,
respectively. Approximately $938 million of the Bank’s
eligible
the subject of separate
agreements with the Commonwealth which provide,
under certain circumstances, for the Bank to issue
either
the
Commonwealth, or with
the Commonwealth’s
consent, rights to all shareholders to subscribe for
fully paid Ordinary Shares of the Bank. Management
believes that the possibility that such circumstances
will arise is remote.
paid Ordinary Shares
loan capital
fully
to
is
Funding and Liquidity
In addition to its imposition of capital adequacy
requirements, APRA exercises liquidity control by
requiring the banks it regulates to hold prime assets
(cash, balances with
the Reserve Bank or
Commonwealth and semi government securities)
equivalent to not less than 3% of a bank’s total
liabilities (other than capital). As discussed in Note 37,
this ratio is called the Prime Assets Requirement.
APRA also requires banks to hold an adequate level
of suitable assets to meet day to day fluctuations in
liquidity.
At 30 June 1999 the Bank held domestically
$1,722 million in cash and short term liquid assets, on
a Group basis, up 16% on the comparable figure at
30 June 1998. Approximately 44% of this holding
($752 million) comprised notes, coins and cash at
bankers. In addition, trading securities with a market
value of $3,219 million were held domestically, up
46% on the comparable figure at 30 June 1998. Of
these
trading securities $650 million comprised
Commonwealth and Australian State government
publicly issued securities with the largest component
27.6% being bills of exchange. As at 30 June 1999,
investment securities with a book value of
$3,147 million (market value $3,141 million) were also
the
held domestically, virtually unchanged on
comparable figure at 30 June 1998. Approximately
84% by book and by market value of the holdings of
those
investment securities were Commonwealth
public listed securities.
Overseas holdings of cash and short term liquid
assets totalled $92 million as at 30 June 1999, up
$52 million on the comparable figure at 30 June 1998.
As at 30 June 1999, trading securities with a market
value of $1,489 million were held by the Bank, down
17% on the comparable figure as at 30 June 1998. As
at 30 June 1999 investment securities with a book
value of $4,040 million (market value $4,055 million)
the Bank, up 9% and up 6%
were held by
respectively, on
figures at
30 June 1998.
comparable
the
in
the Bank manages
Because of the differences between its domestic
its
and offshore operations,
liquidity
the domestic and offshore markets
separately. The Bank has followed a deliberate
strategy of diversifying its sources of foreign currency
funding into a range of markets in order to avoid over-
reliance on any one market or maturity term. It has
imposed internal prudential limits on the relative mix
of its offshore sources of funds.
from
funding
The Bank obtains a large proportion of its
domestic
retail deposits, primarily
demand and short term deposits, which have a lower
interest cost than wholesale funds. Over the past five
years, the proportion of the Bank’s domestic funding
that has come from retail sources has been over 70%
and, as at 30 June 1999,
the proportion was
approximately 63%. The relative size of the Bank’s
retail base has enabled it to source funds at a lower
average rate of
the other major
Australian banks. However, some of this benefit is
offset by the cost of the Bank’s retail network and the
Bank’s large share (approximately 40%) of pensioner
deeming accounts which, in the current interest rate
environment are incurring an interest cost above
normal retail deposit accounts.
interest
than
the percentage of
The Bank’s cost of funds for Financial Year
1999, calculated as
interest
expense to average interest bearing liabilities, was
4.1% on a Group basis compared with 4.6% for
Financial Year 1998. In recent years, the Bank has
experienced a movement of retail deposit balances
reflecting
into higher
increased customer awareness of
investment
opportunities in an environment where the level of
interest rates has remained lower and relatively more
stable when compared with the interest rate cycle of
1980s and early 1990s.
interest bearing accounts,
for
the domestic balance sheet
The Bank obtains a growing proportion of its
from
funding
wholesale sources – approximately 22%, excluding
Bank Acceptances and Other Liabilities. The cost of
funds raised in the wholesale markets is affected by
independently assessed credit ratings.
The
removal
progressive
the
Commonwealth’s guarantee has not had a material
impact on the Bank’s overall cost of funds as the
proportion of the Bank’s funding raised from the
wholesale markets with the benefit of the guarantee is
low.
of
35
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
local currency. Local
domicile of the borrower or guarantor of the ultimate
risk. Outstandings include loans, acceptances and
other monetary assets denominated in other than the
currency
counterparties’
activities with local residents by foreign branches and
controlled entities of the Bank are excluded. The table
excludes irrecoverable letters of credit, amounts of
which are immaterial, and includes all local currency
in
outstandings with
Australia.
foreign subsidiaries
located
A T 3 0 J U N E
1999
1998
1997
($ millions, except where indicated)
Japan(1)
Japan(1)
-
-
-
-
-
-
1,303
110
1,413
1.1%
-
2,032
17
2,049
1.7%
Financial Review
Cross Border Outstandings by Industry Category
The following table sets forth the aggregate
cross border outstandings of the Group by industry
category at 30 June 1997, 1998 and 1999. The table
includes those outstandings due from countries where
such outstandings individually exceed 1% of the
Group’s total assets. At 30 June 1999 there are no
countries where cross border outstandings, as defined
below, exceed 1% of total assets.
For the purposes of this presentation, cross
border outstandings are based on the country of
Country
Government
Banks and other financial institutions
Other commercial and industrial
Total outstandings for Japan as a percentage of total Bank assets
(1) Australia has an extensive trading relationship with Japan.
36
Corporate Governance
Board of Directors
The Board of Directors assumes responsibility
for corporate governance of the Bank. It oversees the
business and affairs of the Bank, establishes the
strategies and financial objectives to be implemented
by management and monitors
performance directly and through its committees.
standards of
The Board currently consists of ten Directors.
Membership of the Board and its Committees is set
out below:
DIRECTOR
BOARD MEMBERSHIP
COMMITTEE MEMBERSHIP
Nominations
Remuneration
Audit
Risk
Chairman
Deputy Chairman
Managing Director
Chairman
Member
Member
M A Besley, AO
J T Ralph, AO
D V Murray
N R Adler, AO
A C Booth
R J Clairs, AO
K E Cowley, AO
J M Schubert
F J Swan
B K Ward
Non executive
Non executive
Executive
Non executive
Non executive
Non executive
Non executive
Non executive
Non executive
Non executive
Chairman
Member
Member
Member
Chairman
Member
Member
Member
Member
Chairman
Member
Member
Details of experience, qualifications, special
responsibilities and attendance at meetings of the
Directors are set out in the Directors’ Report on pages
40 to 42.
Mr Clairs was appointed as a non executive
director on 1 March 1999. In accordance with the
Bank’s Constitution and ASX Listing Rules, Mr Clairs
will stand for election as a director at the Annual
General Meeting to be held on 28 October 1999.
Mr G H Slee, AM retired from the Board on
28 February 1999.
•
•
The Constitution of the Bank specifies that:
the managing director and any other executive
directors shall not be eligible to stand for election
as Chairman of the Bank;
the number of directors shall be not less than 9
nor more than 13 (or such lower number as the
Board may from time to time determine). The
Board has determined that for the time being the
number of directors shall be 10; and
at each Annual General Meeting, one-third of
directors (other than the managing director) shall
retire from office and may stand for re-election.
In February 1999, the Board adopted a policy
that, with a phasing in provision dealing with existing
directors,
term of appointment of
directors to the Board would normally be limited to
twelve years.
the maximum
•
The Nominations Committee of
the Board
critically reviews, at least annually, the corporate
governance procedures of
the
composition and effectiveness of the Commonwealth
Bank Board and the boards of the major wholly owned
subsidiaries. The policy of the Board is that the
Committee shall consist of a majority of non executive
directors and that the Chairman of the Bank shall be
Chairman of the Committee.
the Bank and
The Nominations Committee has developed a
set of criteria for director appointments which have
been adopted by the Board. The criteria set the
objective of the Board as being as effective, and
preferably more effective than the best boards in the
comparable peer group. These criteria, which are
reviewed annually, ensure that any new appointee is
able to contribute to the ongoing effectiveness of the
Board, has the ability to exercise sound business
judgment, to think strategically and has demonstrated
leadership experience, high levels of professional skill
and appropriate personal qualities.
by
Candidates for appointment as directors are
the Nominations Committee,
considered
recommended for decision by the Board and, if
appointed, stand for election, in accordance with the
Constitution,
general meeting
of shareholders.
next
the
at
Remuneration Arrangements
The Constitution and the ASX Listing Rules
specify that the aggregate remuneration of non
executive directors shall be determined from time to
time by a general meeting. An amount not exceeding
the amount determined, is divided between
the
directors as they agree. The policy of the Board is that
the aggregate amount should be set at a level which
provides the Bank with the necessary degree of
flexibility to enable it to attract and retain the services
of directors of
latest
determination was at the Annual General Meeting
held on 30 October 1997 when shareholders
approved an aggregate remuneration of $1,000,000
per year. The Nominations Committee reviews the
fees payable to non executive directors. Details of
individual directors’ remuneration and the bands of
remuneration are set out in Note 43. Directors’ fees
do not incorporate a bonus element related
to
performance.
the highest calibre. The
The remuneration of Mr Murray (Managing
Director) is fixed by the Board, pursuant to the
Constitution, as part of the terms and conditions of his
appointment. Those terms and conditions are subject
to review, from time to time, by the Board.
37
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
•
•
the financial statements and their conformity with
accounting standards, other mandatory reporting
requirements and statutory requirements; and
the quality of the accounting policies applied and
any other significant judgements made.
The Committee periodically meets separately
with the Group Auditor and the external auditor in the
absence of management.
The Committee
processes
governing advisory work undertaken by the external
auditor to ensure that the independence of the
external auditor is not affected by conflicts.
reviews
the
The scope of the audit is agreed between the
Committee and the auditor. The external audit partner
attends meetings of the Audit Committee by invitation
and attends the Board meetings when the annual and
half yearly accounts are signed.
Risk Management
The Risk Committee oversights credit, market
and operational risks assumed by the Bank in the
course of carrying on its business.
risk/return expectations.
The Committee considers the Group’s credit
policies and ensures that management maintains a
set of credit underwriting standards designed to
the
achieve portfolio outcomes consistent with
Group’s
the
In addition,
Committee reviews the Group’s credit portfolios and
recommends provisioning for bad and doubtful debts.
The Committee examines risk management
policies and procedures for market, funding and
liquidity risks incurred or likely to be incurred in the
Group’s business. The Committee reviews progress in
implementing management
and
identifying new areas of exposure relating to market,
funding and liquidity risk.
procedures
The Committee ratifies the Group’s operational
risk policies for approval by the Board and reviews
and informs the Board of the measurement and
management of operational risk. Operational risk is a
basic line management responsibility within the Group
consistent with
the
Committee. A range of insurance policies maintained
by the Group mitigates some operational risks.
the policies established by
Independent Professional Advice
The Bank has in place a procedure whereby,
after appropriate consultation, directors are entitled to
seek independent professional advice, at the expense
of the Bank, to assist them to carry out their duties as
directors. The policy of the Bank provides that any
such advice is made available to all directors.
Access to Information
the
The Board has an agreed policy on
circumstances in which directors are entitled to obtain
access to company documents and information.
Corporate Governance
There is in place a retirement scheme which
provides for benefits to be paid to non executive
directors after service of a qualifying period. The
terms of this scheme, which were approved by
shareholders at the 1997 Annual General Meeting,
allow for a benefit on a pro rata basis to a maximum
of four years’ total emoluments after twelve years’
service.
The Board has established a Remuneration
Committee to:
•
•
•
consider remuneration policy for the Bank’s
senior executives and executives;
consider senior executive appointments; and
consider arrangements in the level or structure
of remuneration and benefits for staff generally.
The policy of the Board is that the Committee
shall consist of a majority of non executive directors.
The Committee has an established work plan
which allows it to review all major human resource
policies, strategies and outcomes.
The Bank’s remuneration policy in respect of
executives includes provisions that remuneration will
be competitively set so that the Bank can seek to
attract, motivate and retain high quality local and
international executive staff and that remuneration will
incorporate, to a significant degree, variable pay for
performance elements. A full statement of the Bank’s
remuneration policy for executives and details of the
remuneration paid to six members of the senior
executive team who were officers of the Bank at
30 June 1999 are set out in Note 44.
Audit Arrangements
Ernst & Young was appointed as the auditor of
the Bank at the 1996 Annual General Meeting and
continues to fulfil that office.
is not Chairman of
The Board’s Audit Committee consists entirely of
non executive Directors and the Chairman of the
Committee
the Bank. This
structure reflects the Board’s policy. The Managing
Director attends Committee meetings by invitation.
The Committee oversees the adequacy of the overall
internal control
internal audit
functions within the Group and their relationship to
external audit.
functions and
the
current
policies
accounting
ensure
relevant
In carrying out these functions, the Committee:
reviews the financial statements and reports of
the Group;
to
reviews
compliance with
laws,
regulations and accounting standards;
reviews, as necessary, the policy in relation to
internal audit services within the Group and
reviews internal audit plans for Group members;
reviews reports from external auditors and the
Group’s internal auditor; and
conducts any investigations relating to financial
matters, records, accounts and reports which it
considers appropriate.
The Committee regularly considers,
the
absence of management and the external auditor, the
quality of the information received by the Committee
and,
financial statements,
the
discusses with management and the external auditor:
in considering
in
•
•
•
•
•
38
Ethical Standards
•
•
The Bank has adopted a Statement of
Professional Practice which sets standards of
behaviour required including:
•
to act properly and efficiently in pursuing the
objectives of the Bank;
to avoid situations which may give rise to a
conflict of interests;
to know and adhere to
Employment Opportunity policy and programs;
to maintain confidentiality in the affairs of the
Bank and its customers; and
to be absolutely honest
activities.
These standards are regularly communicated to
staff. In addition, the Bank has established insider
trading guidelines for staff to ensure that unpublished
price sensitive information about the Bank or any
other company is not used in an illegal manner.
in all professional
the Bank’s Equal
•
•
The restrictions imposed by law on dealings by
directors in the securities of the Bank have been
supplemented by the Board of Directors adopting
guidelines which further limit any such dealings by
directors, their spouses, any dependent child, family
company and family trust. The guidelines provide, that
in addition to the requirement that directors not deal in
the securities of the Bank or any related company
when they have or may be perceived as having
relevant unpublished price sensitive
information,
directors are only permitted to deal within certain
periods. These periods include between 3 and 30
days after the announcement of half yearly and final
results and from 3 days after release of the Annual
Report until 30 days after
the Annual General
Meeting. Further, the guidelines require that directors
not deal on the basis of considerations of a short term
nature or to the extent of trading in those securities.
Non executive directors are not entitled to
participate in current employee share plans.
In accordance with the Constitution and the
Corporations Law, directors disclose to the Board any
material contract in which they may have an interest.
In compliance with Section 232A of the Corporations
Law any director with a material personal interest in a
matter being considered by the Board will not be
present when the matter is being considered and will
not vote on the matter.
39
Directors’ Report
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
The Directors of the Commonwealth Bank of
Australia submit
the
their report,
financial statements of the Commonwealth Bank of
Australia (the Bank) and of the Group, being the Bank
and
the year ended
30 June 1999.
its controlled entities,
together with
for
The names of the Directors holding office during
the financial year and until the date of this report are
set out below together with details of Directors’
experience, qualifications, special responsibilities and
organisations in which each of the Directors has
declared an interest.
M A (Tim) Besley, AO. Chairman
Mr Besley has been Chairman and a member of the
Board since 1988. He holds Bachelor degrees in Civil
Engineering and Legal Studies and has forty six
years’ experience in engineering, finance and public
service. Mr Besley is Chairman of the Remuneration,
Risk and Nominations Committees.
Chairman: Leighton Holdings Limited.
Director: O’Connell Street Associates Pty Ltd.
Other Interests: Macquarie University (Chancellor),
Australian Academy of Technological Sciences and
Engineering (President), Australian National Gallery
Foundation (Council of Governors), Legacy Torch
Bearers Committee (Member), Salvation Army - NSW
Advisory Board and Red Shield Appeal Committee
(Member), Royal Botanic Gardens Sydney
Foundation (Trustee), Sir Ian McLennan Achievement
for Industry Award (Trustee), and World Vision of
Australia Board of Reference (Member). Mr Besley is
a resident of New South Wales. Age 72.
John T Ralph, AO. Deputy Chairman
Mr Ralph has been a member of the Board since
1985 and is Chairman of the Audit Committee and
member of the Nominations Committee. He
is a
Fellow of the Australian Society of Certified Practicing
forty seven years’
Accountants and has over
experience in the mining and finance industries.
Chairman: Foster’s Brewing Group Limited and
Pacific Dunlop Limited.
Deputy Chairman: Telstra Corporation Limited.
Director: Pioneer
Limited.
Other
Interests: Melbourne University Business
School (Board of Management), The Queen’s Trust
for Young Australians (National Chairman), Australian
(Chairman), Australian
Foundation
Institute of Company Directors (Fellow), and Advisory
Council of The Global Foundation
(Member).
Mr Ralph is a resident of Victoria. Age 66.
International Limited and BHP
for Science
David V Murray, Managing Director
Mr Murray has been a member of the Board and
Managing Director since June 1992. He holds a
Bachelor of Business and Master of Business
Administration and has thirty three years’ experience
in banking. Mr Murray
the
Remuneration, Risk and Nominations Committees.
is a member of
40
Life
Services
Commonwealth
Investment
Limited,
Chairman:
Commonwealth
Limited,
Commonwealth Insurance Limited, Commonwealth
Custodial Services Limited and Commonwealth Funds
Management Limited.
Director: International Monetary Conference.
Other
Interests: Asian Bankers’ Association
(Member), Australian Bankers’ Association (Member),
Asian Pacific Bankers’ Club (Member), Australian
Coalition of Service Industries (Member), Australian
Institute of Banking and Finance
(President),
Business Council of Australia
(Member), World
Economic Forum (Member), St Mary’s Cathedral
Appeals Committee (Chairman), Macquarie University
Graduate School of Management (Advisory Board),
General Motors Australian Advisory Council
(Member), APEC Business Advisory Council
(Member) and Financial Sector Advisory Council
(Member). Mr Murray is a resident of New South
Wales. Age 50.
Limited
N R (Ross) Adler, AO
Mr Adler has been a member of the Board since 1990
and is a member of the Remuneration Committee. He
holds a Bachelor of Commerce and a Master of
Business Administration. Mr Adler
is currently
Managing Director of Santos Limited. He has
experience
in various commercial enterprises,
more recently in the oil and gas industry.
Director: QCT Resources Limited Group Companies,
Santos
(Group) Companies, Telstra
Corporation Limited, Australian Institute of Petroleum
Limited, Shelrey Pty Ltd, South Blackwater Coal
Limited and Tereny Investments Pty Ltd.
Interests: Art Gallery of South Australia
Other
(Chairman), National Institute of Labour Studies,
Flinders University of South Australia (Governor),
University of Adelaide (Council Member), Business
Council of Australia (Member), Corporations and
Securities Panel (Member) and Australian Institute of
Company Directors (Member). Mr Adler is a resident
of South Australia. Age 54.
Anna C Booth
Ms Booth has been a member of the Board since
1990 and is a member of the Risk Committee. She
holds a Bachelor of Economics (Hons) and has
seventeen years’ experience in the trade union
movement and most recently as General Manager
Corporate Communications of the Sydney Harbour
Casino.
Director: Ausflag Limited.
Other Interests: Tourism Council of Australia (National
Councillor), Shopping Centres Council of Australia
(Special Advisor), Breast Cancer Institute of Australia
(Member), Sydney
Research
Organising Committee
the Olympic Games
Labour Management Studies
(Member)
(Fellow).
Foundation of Macquarie University
Ms Booth is a resident of New South Wales. Age 43.
for Life Appeal
and
for
in
Reg J Clairs, AO
Mr Clairs has been a member of the Board since
1 March 1999. He has thirty three years’ extensive
experience
retailing, branding and customer
service. Mr Clairs is currently a board member of the
Royal Children’s Hospital Foundation of Queensland,
Chairman and a foundation member of the Prime
Minister’s Supermarket to Asia Council. He is also
Deputy Chairman of Woolstock Australia Limited and
a director to the Boards of David Jones Ltd and
Howard Smith Ltd. Mr Clairs
is a resident of
Queensland. Age 61.
in
the media
is a member of
Ken E Cowley, AO
Mr Cowley has been a member of the Board since
September 1997 and
the
Remuneration Committee. He has thirty three years’
industry, having been
experience
since 1976 and
Director of News Limited
that
until July 1997, was Executive Chairman of
company.
Chairman: PMP Communications Limited, R M
Williams Holdings Limited, Ansett New Zealand
International Limited, Melbourne
Limited, Ansett
Storm Football Club Pty Ltd and Nardell Coal
Corporation.
Director: The News Corporation Limited, Independent
Newspapers Limited, Ansett Australia Limited and
Foxtel Management Pty Limited.
Other Interests: Australian Stockman’s Hall of Fame &
Outback Heritage Centre NSW (Chairman) and Royal
Agricultural Society (Councillor). Mr Cowley is a
resident of New South Wales. Age 64.
John M Schubert
Dr Schubert has been a member of the Board since
1991 and is a member of the Audit and Risk
Committees. He holds a Bachelor Degree and PhD in
Chemical Engineering and has experience in the
petroleum, mining and building materials industries.
Dr Schubert is currently Managing Director and Chief
Executive Officer of Pioneer International Limited.
Director: Australian Graduate School of Management
Ltd.
Other Interests: Academy of Technological Science
(Fellow).
Dr Schubert is a resident of New South Wales.
Age 56.
Graham H Slee, AM
Mr Slee was a member of the Board from 1986 and a
member of the Risk Committee until his retirement
from the Board on 28 February 1999. He holds a
Bachelor of Mechanical Engineering and has thirty
seven years’ experience
in engineering and
manufacturing industries.
Chairman: McNee Holdings Pty Limited and Sheet
Metal Supplies Pty Ltd. Mr Slee is a resident of New
South Wales. Age 62.
is a member of
Frank J Swan
the Board
Mr Swan has been a member of
since July 1997 and
the Risk
Committee. He holds a Bachelor of Science degree
and has twenty three years’ senior management
experience in the food and beverage industries.
Director: Foster’s Brewing Group Limited and National
Foods Limited. Mr Swan is a resident of Victoria.
Age 58.
Barbara K Ward
Ms Ward has been a member of the Board since 1994
and is a member of the Audit Committee. She holds a
Bachelor of Economics and Master of Political
Economy and has six years’ experience in policy
development and public administration as a senior
ministerial adviser and twelve years’ experience in the
transport and aviation industries, most recently as
Chief Executive of Ansett Worldwide Aviation
Services. Since 1998, she has pursued a career as a
company director.
Chairman: HWW Limited.
Director: Delta Electricity, Rail Services Australia, and
Data Advantage Limited.
Other Interests: Sydney Opera House Trust (Trustee)
and Australia Day Council of New South Wales
(Member).
Ms Ward is a resident of New South Wales. Age 45.
41
Directors’ Report
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
Directors’ Meetings
The number of Directors’ meetings (including meetings of committees of Directors) and number of meetings attended
by each of the Directors of the Commonwealth Bank during the financial year were:
DIRECTOR
M A Besley
J T Ralph
D V Murray
N R Adler
A C Booth
R J Clairs ##
K E Cowley
J M Schubert
G H Slee #
F J Swan
B K Ward
DIRECTORS’ MEETINGS
No. of Meetings
Held*
No. of Meetings
Attended
13
13
13
13
13
4
13
13
9
13
13
13
13
13
10
13
2
12
12
9
12
13
The number of meetings held during the time the Director held office during the year.
Mr Slee retired 28 February 1999
*
#
## Mr Clairs was appointed Director 1 March 1999
COMMITTEE MEETINGS
Risk Committee
Audit Committee
Remuneration Committee
No. of Meetings
Held *
No. of Meetings
Attended
No. of Meetings
Held *
No. of Meetings
Attended
No. of Meetings
Held *
No. of Meetings
Attended
M A Besley
J T Ralph
D V Murray
N R Adler
A C Booth ♦
K E Cowley (cid:1)
J M Schubert (cid:2)
G H Slee #
F J Swan
B K Ward
9
9
3
3
6
9
9
9
3
3
6
8
4
4
4
4
4
4
6
6
6
5
1
6
6
6
5
1
Nominations Committee
No. of Meetings
Held *
No. of Meetings
Attended
M A Besley
J T Ralph
D V Murray
5
5
5
5
5
5
*
#
♦
The number of meetings held during the time the Director was a member of the relevant committee.
Mr Slee retired as Director 28 February 1999.
Ms Booth moved from Remuneration Committee to Risk Committee on 1 March 1999.
Mr Cowley was appointed to Remuneration Committee on 1 March 1999.
Dr Schubert was appointed to Risk Committee on 1 March 1999.
42
(cid:1)
(cid:2)
Principal Activities
The principal activities of the Commonwealth
Bank Group during the financial year were:
for marketing
Banking & Financial Services Division –
is
responsible
product
development and brand management for the retail and
small and medium business segments. The Division
focuses on assessing customer needs and servicing
those
funds
management and related products and services.
insurance,
services,
banking,
needs
for
Customer Service Division – provides quality
sales and service to the Bank’s customers and is
focused on managing the branch, agency networks
and electronic delivery such as ATM, EFTPOS,
telephone and direct/online services.
Institutional Banking – provides corporate and
general banking,
financing (including
international
trade and project financing), merchant and investment
banking and stockbroking.
Institutional Banking
maintains banking
relationships with 1,000 of
Australasia’s largest corporations, government bodies
and other major institutions.
Technology Operations and Property – facilitates
the delivery of current and
Information
Technology and Telecommunication services for the
Bank, provides a full service transaction processing
function, and
and back office/operation support
manages the property investment and corporate real
estate services of the Bank.
future
Financial and Risk Management – provides
integrated financial, risk and capital management
services to support the activities of the Bank.
ASB Group Limited – 75% owned by
the
Commonwealth Bank, provides personal, business,
corporate and rural banking and life insurance services
in New Zealand.
The only significant change in these activities was
the acquisition within the ASB Group Limited in
December 1998 of Sovereign Limited, a New Zealand
life insurance company, for $205 million. There has
been no other significant change in the nature of these
activities during the year.
Consolidated Profit
Consolidated operating profit after
tax and
outside equity interests for the financial year ended
30 June 1999 was $1,422 million (1998: $1,090
million). There were no abnormal items for the year
ended 30 June 1999.
The 1998 result was affected by a number of
abnormal items, including an abnormal expense for
restructuring costs of $128 million after tax related to
rationalisation of processing and administration
functions, implementation of a new organisational
structure and reconfiguration of delivery systems.
Further with effect from 1 January 1998 the general
provision for bad and doubtful debts is assessed using
a statistical dynamic provisioning methodology. An
abnormal expense for bad and doubtful debts of
$370 million in 1998 in this regard was charged to
profit and loss. Following this change in general
provisioning methodology the general provision was
income
tax effected resulting in an abnormal tax credit of
$337 million. The 1999 consolidated operating profit
before abnormal
tax was
items and
$2,160 million (1998: $1,912 million). The 1999 result
represents a 13% increase over the prior year on a
before abnormal items basis. The principal contributing
factors to this increase were a growth in net interest
income reflecting a 13% growth in lending assets
together with growth in commissions, life insurance
and funds management income and trading income.
Dividends
The Directors have declared a fully franked
(at 36%) final dividend of 66 cents per share
amounting to $605 million. The dividend will be
payable on 30 September 1999. Dividends paid
since the end of the previous financial year:
•
as provided for in last year’s report, a fully
franked final dividend of 58 cents per share
amounting
to $535 million was paid on
30 September 1998. The payment comprised
cash disbursements of $310 million with
$225 million being reinvested by participants
through the Dividend Reinvestment Plan; and
in respect of the current year, a fully franked
interim dividend of 49 cents per share amounting
to $458 million was paid on 26 March 1999. The
payment comprised cash disbursements of
$258 million with $200 million being reinvested by
participants through the Dividend Reinvestment
Plan.
•
Review of Operations
An analysis of operations for the financial year is
set out in the Review of Operations on page 4.
Changes in State of Affairs
The Bank’s shareholders’ equity was reduced by
the
$650 million on 24 March 1999 pursuant
buyback of 27.4 million shares.
to
There were no other significant changes in the
state of affairs of the Group during the financial year.
Events Subsequent to Balance Date
Other than the acquisition of Credit Lyonnais
Holding Australia Limited in July 1999, referred to in
Note 1 to the Financial Report, the Directors are not
aware of any other matter or circumstance that has
occurred since the end of the financial year that has
significantly affected or may significantly affect the
operations of the Group, the results of those operations
or the state of affairs of the Group in subsequent
financial years.
Future Developments and Results
Major developments which may affect
the
operations of the Group in subsequent financial years
are referred to in the Review of Operations on page 4.
In the opinion of the Directors, disclosure of any further
information on likely developments in operations would
be unreasonably prejudicial to the interests of the
Group.
43
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
the Court grants relief to the person under the
Corporations Law, provided that the director, officer or
employee has obtained the company’s prior written
approval (which shall not be unreasonably withheld)
to incur the costs and expenses in relation to the
proceedings’.
The Corporations Law (Section 241) prohibits a
company from indemnifying directors, secretaries and
executive officers against a liability:
•
except for liability to another person (other than
the company or a related body corporate) unless
the liability arises out of conduct involving a lack
of good faith; and
except for a liability for costs and expenses
incurred in defending proceedings in which the
person is successful.
indemnity
An
for employees, who are not
directors, secretaries or executive officers, is not
expressly restricted in any way by the Corporations
Law.
•
The Directors, as named on pages 40 to 41 of
this report, and the Secretaries of the Commonwealth
Bank, being J D Hatton (Secretary) and K G Bourke
(Assistant Company Secretary) are indemnified under
Article 19 as are all the executive officers and
employees of the Commonwealth Bank.
Deeds of Indemnity have been executed by
Commonwealth Bank in terms of Article 19 above in
favour of each director.
Directors’ and Officers’ Insurance
the
The Commonwealth Bank has, during
financial year, paid an insurance premium in respect
of an insurance policy for the benefit of those named
the directors, secretaries, executive
above and
officers and employees of any
related bodies
corporate as defined in the insurance policy. The
insurance grants indemnity against liabilities permitted
to be indemnified by the company under Section
241A(1) of the Corporations Law. In accordance with
commercial practice, the insurance policy prohibits
disclosure of the terms of the policy including the
nature of the liability insured against and the amount
of the premium.
Directors’ and other Officers’ Emoluments
Details of the Bank’s remuneration policy in
respect of the Directors and executives is set out
under
the
‘Corporate Governance’ section of this report.
‘Remuneration Arrangements’ within
Details on emoluments paid to each director are
detailed in Note 43 of the Financial Report. Details on
emoluments paid to the executive director and the
other five most highest paid executive officers of the
Bank and the Group are disclosed in Note 44 of the
Financial Report.
Directors’ Report
Environmental Regulation
The Bank and its controlled entities are not
subject to any particular or significant environmental
regulation under a law of the Commonwealth or of a
State or Territory.
Directors’ Shareholdings
Particulars of shares in the Commonwealth Bank
or in a related body corporate are set out in a
separate section at the end of the Financial Report
titled
to be
regarded as contained in this report.
Information’ which
‘Shareholding
is
Options
An Executive Option Plan was approved by
shareholders at the Annual General Meeting on
8 October 1996. On 30 September 1998, the Bank
granted options over 3,275,000 unissued ordinary
shares to 32 executives under the Executive Option
Plan. On 31 May 1999, 26,000 shares were allotted
consequent to an exercise of options granted under
the Plan. Full details of the Plan are disclosed in
Note 28 to the Financial Statements.
The names of persons who currently hold
options in the Plan are entered in the register of
options kept by the Bank pursuant to Section 216C of
the Corporations Law. The register may be inspected
free of charge.
For details of the options granted to a director,
refer to the separate section at the end of the
Financial Report
Information’
which is to be regarded as contained in this report.
‘Shareholding
titled
Directors’ Interests in Contracts
A number of Directors have given written
notices, stating that they hold office in specified
companies and accordingly are to be regarded as
having an
in any contract or proposed
contract that may be made between the Bank and any
of those companies.
interest
Directors’ and Officers’ Indemnity
Article 19 of
the Commonwealth Bank’s
Constitution provides: ‘To the extent permitted by law,
the company indemnifies every director, officer and
employee of the company against any liability incurred
by that person (a) in his or her capacity as a director,
officer or employee of the company and (b) to a
person other than the company or a related body
corporate of the company. The company indemnifies
every director, officer and employee of the company
against any liability for costs and expenses incurred
by the person in his or her capacity as a director,
officer or employee of the company (a) in defending
any proceedings, whether civil or criminal, in which
judgment is given in favour of the person or in which
the person is acquitted or (b) in connection with an
application, in relation to such proceedings, in which
44
Incorporation of Additional Material
This report incorporates the Review of Operations, Corporate Governance and Shareholding Information
sections of this Annual Report.
Roundings
The amounts contained in this report and the financial statements have been rounded to the nearest million
dollars unless otherwise stated, under the option available to the Company under ASIC Class Order 98/100.
Signed in accordance with a resolution of the Directors.
M A Besley AO
Chairman
11 August 1999
D V Murray
Managing Director
45
Selected Financial Data for Five Years
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
1999
$M
1998
$M
1997
$M
1996
$M
1995
$M
3,527
1,997
5,524
247
3,117
2,160
-
714
-
1,446
24
1,422
1,143
104
68
1,315
122
56
1,493
(47)
(24)
1,422
-
1,422
3,397
1,833
5,230
233
3,085
1,912
(570)
641
(409)
1,110
20
1,090
1,096
98
(30)
1,164
87
66
1,317
(46)
(20)
1,251
(161)
1,090
3,392
1,489
4,881
98
2,967
1,816
(200)
588
(72)
1,100
22
1,078
1,028
85
21
1,134
75
62
1,271
(43)
(22)
1,206
(128)
1,078
3,397
1,355
4,752
113
2,863
1,776
-
635
-
1,141
22
1,119
984
71
20
1,075
59
48
1,182
(41)
(22)
1,119
-
1,119
3,164
1,340
4,504
182
2,799
1,523
-
493
28
1,002
19
983
907
63
(2)
968
49
52
1,069
(39)
(19)
1,011
(28)
983
101,837
138,096
93,428
131,134
6,735
6,471
99,556
114,271
103,130
89,816
130,544
83,886
123,655
6,712
6,358
94,431
102,165
91,650
81,632
120,103
77,880
113,079
6,846
6,450
86,468
96,163
85,296
70,042
109,285
71,381
101,918
7,190
6,793
77,246
84,770
74,879
62,707
102,774
67,824
96,079
6,568
6,087
70,383
78,461
69,300
115,510
13,046
9,540
138,096
110,120
10,846
9,578
130,544
101,202
9,994
8,907
120,103
92,456
7,903
8,926
109,285
86,191
6,986
9,597
102,774
Profit and Loss
Net interest income
Other operating income
Total operating income
Charge for bad and doubtful debts
Total operating expenses (including goodwill)
Operating profit before abnormal items and income tax expense
Abnormal items
Income tax expense (credit)
Operating profit before abnormal items
Abnormal items
Operating profit after income tax
Outside equity interests
Operating profit after income tax attributable to shareholders
Contributions to profit
Banking
Australia
New Zealand (ASB Bank)
Other countries
Life insurance and funds management
Finance
Profit on operations
Goodwill amortisation
Outside equity interests
Operating profit after income tax before abnormal items
Abnormal expense (after income tax)
Operating profit after income tax and abnormal items
Balance sheet
Loans, advances and other receivables
Total assets
Deposits and other public borrowings
Total liabilities
Shareholders’ equity
Net tangible assets
Risk weighted assets
Average interest earning assets
Average interest bearing liabilities
Assets (on balance sheet)
Australia
New Zealand
Other
Total Assets
46
Shareholder Summary
Dividends per share (cents) - fully franked
Dividends provided for, reserved or paid ($million)
Dividend cover (times)
Earnings per share (cents)
before abnormal items
after abnormal items
Dividend payout ratio (%) (1)
before abnormal items
after abnormal items
Net tangible assets per share ($)
Weighted average number of shares (basic)
Number of shareholders
Share prices for the year ($)
Trading high
Trading low
End (closing price)
Performance Ratios (%)
Return on average shareholders’ equity (2)
before abnormal items
after abnormal items
Return on average total assets (2)
before abnormal items
after abnormal items
Capital adequacy - Tier 1
Capital adequacy - Tier 2
Deductions
Capital adequacy - Total
Net interest margin
Other Information (numbers)
Full time staff
Part time staff
Full time staff equivalent
Branches/service centres (Australia)
Agencies (Australia)
ATMs
EFTPOS terminals
Productivity
Total Operating Income per full time (equivalent) employee ($)
Staff Expense/Total Operating Income (%)
Total Operating Expenses (3) /Total Operating Income (%)
(1)
(2)
Dividends per share divided by earnings per share.
Calculations based on operating profit after tax and
average
outside equity
shareholders’ equity/average total assets.
interests
applied
to
1999
1998
1997
1996
1995
115
1,063
1.3
104
955
1.1
102
941
1.1
90
832
1.3
82
772
1.3
153.4
153.4
134.5
117.2
131.2
117.2
115.2
115.2
109.2
106.2
75.0
75.0
6.82
927m
75.1
77.2
6.28
924m
404,728 419,926 426,229 275,204 274,247
78.1
78.1
6.68
969m
77.7
87.0
6.74
917m
77.3
88.7
6.70
930m
28.76
18.00
24.05
19.66
13.70
18.84
16.00
9.93
16.00
12.05
9.20
10.46
9.58
7.05
9.33
20.54
20.54
18.48
16.10
18.16
16.39
16.27
16.27
16.13
15.69
1.06
1.06
7.05
3.12
(0.79)
9.38
3.09
1.01
0.87
8.07
2.82
(0.40)
10.49
3.33
1.05
0.94
8.64
2.82
(0.57)
10.89
3.53
1.06
1.06
10.05
2.97
(0.31)
12.71
4.01
1.04
1.01
10.25
1.30
(0.40)
11.15
4.03
26,394
6,655
28,964
1,162
3,934
2,602
90,152
28,034
6,968
30,743
1,218
4,015
2,501
83,038
30,566
7,364
33,543
1,334
4,205
2,301
63,370
31,455
7,964
34,518
1,390
4,214
2,113
43,703
31,333
7,602
34,383
1,474
4,282
1,643
20,250
190,720 170,120 145,515 137,667 130,995
33.8
61.3
33.3
59.4
29.0
55.6
31.0
58.1
34.0
59.9
(3)
Total Operating Expenses excluding goodwill
amortisation.
47
Financial Statements
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
Statements of Profit and Loss ...............................................................................................................................49
Balance Sheets .......................................................................................................................................................50
Consolidated Statements of Changes in Shareholders’ Equity .........................................................................51
Statements of Cash Flows .....................................................................................................................................52
Notes to and Forming Part of the Accounts.........................................................................................................53
1 Summary of Significant Accounting Policies......................................................................................................53
2 Operating Profit .................................................................................................................................................61
3 Average Balance Sheet and Related Interest....................................................................................................63
4 Abnormal Items .................................................................................................................................................66
5
Income Tax Expense .........................................................................................................................................67
6 Dividends, Provided For, Reserved or Paid.......................................................................................................68
7 Earnings Per Share ...........................................................................................................................................68
8 Cash and Liquid Assets .....................................................................................................................................69
9 Receivables from Other Financial Institutions ...................................................................................................69
10 Trading Securities .............................................................................................................................................69
11
Investment Securities .......................................................................................................................................70
12 Loans, Advances and Other Receivables..........................................................................................................73
13 Provisions for Impairment ..................................................................................................................................75
14 Credit Risk Concentrations ................................................................................................................................80
15 Asset Quality .....................................................................................................................................................87
16 Deposits with Regulatory Authorities .................................................................................................................93
17 Shares in and Loans to Controlled Entities........................................................................................................93
18 Property, Plant and Equipment..........................................................................................................................93
19 Goodwill.............................................................................................................................................................94
20 Other Assets......................................................................................................................................................94
21 Deposits and Other Public Borrowings ..............................................................................................................94
22 Payables to Other Financial Institutions.............................................................................................................95
Income Tax Liability...........................................................................................................................................95
23
24 Other Provisions ................................................................................................................................................95
25 Debt Issues........................................................................................................................................................96
26 Bills Payable and Other Liabilities .....................................................................................................................98
27 Loan Capital ......................................................................................................................................................99
28 Share Capital...................................................................................................................................................100
29 Outside Equity Interests...................................................................................................................................102
30 Capital Adequacy ............................................................................................................................................103
31 Maturity Analysis of Monetary Assets and Liabilities .......................................................................................105
32 Financial Reporting by Segments....................................................................................................................107
33 Remuneration of Auditors ................................................................................................................................110
34 Commitments for Capital Expenditure Not Provided for in the Accounts .........................................................110
35 Lease Commitments - Property, Plant and Equipment....................................................................................110
36 Contingent Liabilities........................................................................................................................................111
37 Market Risk......................................................................................................................................................113
38 Superannuation Commitments ........................................................................................................................126
39 Controlled Entities ...........................................................................................................................................127
40
Investments in Associated Entities ..................................................................................................................129
41 Standby Arrangements and Unused Credit Facilities ......................................................................................129
42 Related Party Disclosures ...............................................................................................................................130
43 Remuneration of Directors...............................................................................................................................132
44 Remuneration of Executives............................................................................................................................133
45 Statements of Cash Flows...............................................................................................................................136
46 Disclosures about Fair Value of Financial Instruments ....................................................................................137
47 Differences between Australian and United States Accounting Principles.......................................................140
Directors’ Declaration ..........................................................................................................................................151
Independent Audit Report....................................................................................................................................152
Shareholder Information ......................................................................................................................................153
48
Statements of Profit & Loss
For the year ended 30 June 1999
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 Bank
Retained profits at the beginning of the financial year
Adjustment on adoption of ISC Life Insurance Rules
Buyback
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 Bank:
Dividends provided for, reserved or paid per share attributable
to members of the Bank:
1999
$M
7,745
4,218
3,527
1,997
5,524
247
5,277
3,070
2,207
47
2,160
-
2,160
714
-
714
1,446
24
1,422
755
-
(404)
1,087
2,860
99
316
747
1,063
1,698
G R O U P
1997
$M
7,989
4,597
3,392
1,489
4,881
98
4,783
2,924
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
1998
$M
7,605
4,208
3,397
1,833
5,230
233
4,997
3,039
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
1999
$M
6,352
3,451
2,901
2,161
5,062
78
4,984
2,755
2,229
39
2,190
-
2,190
645
-
645
1,545
-
1,545
216
-
(404)
1,001
2,358
-
316
747
1,063
1,295
B A N K
1998
$M
6,012
3,227
2,785
1,639
4,424
224
4,200
2,611
1,589
39
1,550
570
980
506
(409)
97
883
-
883
472
-
(384)
200
1,171
-
403
552
955
216
Cents per share
153.4
117.2
117.2
115.0
104.0
102.0
Note
2
2
2
2
2
2,13
2
2
2
4
5
4
5
39
1(oo)
6
7
6
The Notes to and forming part of the accounts are an integral part of these accounts.
49
Balance Sheets
As at 30 June 1999
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 Bank
Outside equity interests in controlled entities
Total Shareholders’ Equity
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
G R O U P
1998
$M
1999
$M
1999
$M
B A N K
1998
$M
Note
8
9
10
11
12
16
17
18
40
19
20
21
22
6
23
24
25
26
27
28
29
1,814
1,206
4,708
7,187
101,837
9,672
953
-
1,001
281
491
8,946
138,096
1,526
3,448
4,009
6,858
89,816
9,727
832
-
1,662
276
531
11,859
130,544
93,428
3,249
9,672
-
472
1,410
805
10,763
8,507
128,306
2,828
131,134
83,886
3,397
9,727
-
321
1,099
875
10,608
10,746
120,659
2,996
123,655
1,746
1,182
3,251
6,708
82,952
9,672
952
7,108
796
292
451
7,952
123,062
80,940
2,886
9,672
4,276
472
897
742
6,340
7,525
113,750
2,828
116,578
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
6,962
6,889
6,484
5,640
3,526
1,511
1,698
6,735
227
6,962
1,845
4,112
755
6,712
3,526
1,663
1,295
6,484
177 -
6,484
6,889
1,845
3,579
216
5,640
-
5,640
The Notes to and forming part of the accounts are an integral part of these accounts.
50
Consolidated Statements of Changes in Shareholders’ Equity
As at 30 June 1999
Issued and paid up capital
Opening balance
Transfer from share premium reserve
Buyback
Dividend reinvestment plan
Employee share ownership schemes
Issue costs
Closing balance
Retained profits
Opening balance
Adjustments to opening balance
Buyback
Transfers from reserves
Operating profit attributable to members of Bank
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
Appropriation from profits
Transfer to retained profits
Closing balance
Capital Reserve
Opening balance
Transfers from reserves
Closing balance
Asset Revaluation Reserve
Revaluation of investments
Transfers to capital reserve
Closing balance
Share Premium Reserve
Opening balance
Buyback
Premium from share issues
Employee share acquisition plan issue
Buyback costs and other adjustments
Transfer to capital reserve
Transfer to issued capital
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
Note
28
1(oo)
G R O U P
1999
$M
1998
$M
1997
$M
1999
$M
1,845
1,499
(246)
426
5
(3)
3,526
755
-
(404)
1,087
1,422
2,860
99
275
183
472
133
1,698
1,860
-
(76)
57
4
-
1,845
908
-
(384)
170
1,090
1,784
74
231
189
321
214
755
1,981
-
(200)
74
5
-
1,860
794
(11)
-
74
1,078
1,935
86
231
180
291
239
908
1,845
1,499
(246)
426
5
(3)
3,526
216
-
(404)
1,001
1,545
2,358
-
275
183
472
133
1,295
B A N K
1998
$M
1,860
-
(76)
57
4
-
1,845
472
-
(384)
200
883
1,171
-
231
189
321
214
216
2,069
99
(1,088)
1,080
2,195
74
(200)
2,069
2,182
86
(73)
2,195
1,572
-
(1,002)
570
1,772
-
(200)
1,572
289
-
289
-
-
-
1,499
-
-
-
-
-
(1,499)
-
214
(397)
316
133
41
(33)
1
9
288
1
289
-
-
-
1,300
(191)
396
(3)
(2)
(1)
-
1,499
239
(428)
403
214
56
(45)
30
41
289
(1)
288
-
-
-
1,754
(801)
357
(5)
(5)
-
-
1,300
162
(342)
419
239
28
28
-
56
277
665
942
665
(665)
-
1,499
-
-
-
-
-
(1,499)
-
214
(397)
316
133
17
-
1
18
277
-
277
-
-
-
1,298
(191)
396
(3)
-
(1)
-
1,499
239
(428)
403
214
-
17
-
17
Total Reserves
Shareholders’ equity attributable to members of the Bank
1,511
6,735
4,112
6,712
4,078
6,846
1,663
6,484
3,579
5,640
The Notes to and forming part of the accounts are an integral part of these accounts.
51
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
Statements of Cash Flows
For the year ended 30 June 1999
Cash Flow 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
Lodgment 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
Buyback 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
1999
$M
1998
$M
7,796
6
(4,071)
1,972
(1,510)
(313)
(481)
(452)
(363)
7,557
18
(4,065)
1,152
(1,705)
(289)
(503)
(416)
(216)
- -
(646)
887
(408)
2,176
G R O U P
1997
$M
8,054
18
(4,342)
1,273
(1,614)
(310)
(251)
(364)
(629)
-
556
2,391
1999
$M
6,343
584
(3,219)
1,652
(1,353)
(279)
(456)
(358)
(292)
(40)
(209)
2,373
B A N K
1998
$M
6,084
106
(3,187)
769
(1,467)
(246)
(476)
(313)
(134)
(28)
(591)
517
(196) -
(66)
(196)
-
(13,337)
146
11,993
(121)
(11,819)
(8,505)
1,787
8,681
(35)
(9,882)
- -
196
(78)
809
652
(81)
229
(8,887)
1,172
7,013
(86)
(11,353)
-
307
(180)
750
(13,129)
147
12,305
(124)
(10,380)
2,191
640
(55)
229
(7,981)
1,666
8,364
(42)
(8,190)
(184)
167
(51)
809
(465)
347
641
(465)
347
(423)
(13,422)
1,175
(5,505)
(432)
(11,121)
(694)
(9,531)
1,118
(3,977)
(650)
6
9,476
131
(118)
386
(571)
(138)
(477)
(651)
5
6,683
1,355
(1,230)
(970)
(502)
(10)
(869)
(1,001)
12
6,892
1,414
(299)
1,905
(452)
(59)
325
(650)
6
9,367
131
(118)
(2,762)
(568)
(110)
(477)
(651)
3
5,177
1,290
(1,175)
(1,005)
(502)
(11)
(869)
(43)
(52)
(783)
(43)
(52)
(317) -
(496)
3,263
(1,355)
3,318
1,963
1,041
8,726
(2,520)
1,963
(557)
-
(207)
7,747
(983)
4,301
3,318
(317)
437
4,896
(2,262)
1,975
(287)
-
(185)
2,020
(1,440)
3,415
1,975
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.
It should be noted that the Bank does not use this accounting Statement of Cash Flows in the internal
management of its liquidity positions.
52
Notes to and forming part of the accounts
NOTE 1 Summary of Significant Accounting Policies
(a) Bases of accounting
In this Financial Report Commonwealth Bank of
Australia is referred to as the ‘Bank’ or ‘Company’,
and the ‘Group’ or the ‘Consolidated Entity’ consists of
the Bank and its controlled entities. The Financial
Report is a general purpose financial report which
complies 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
capitalisation of computer software costs, refer (u)
Other Assets 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 card issuer reimbursement
costs against merchant service fees. There is no
effect on profit and loss.
of assets the relevant cash flows have not been
discounted to their present value unless otherwise
stated.
(c) Consolidation
The consolidated financial statements include
the financial statements of the Bank 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.
(d)
Investments in associated companies
Associated companies are defined as those
entities over which the Group has significant influence
but there is no capacity to control. Details of material
associated companies are shown in Note 40.
Investments in associates are carried at cost
plus the Group’s share of post acquisition profit or
loss. The Group’s share of profit or loss of associates
is included in the Profit and Loss Statement.
The Financial Report also includes disclosures
required by
the United States Securities and
Exchange Commission (SEC) in respect of foreign
registrants. The Statements of Cash Flows has been
prepared
International
Accounting Standard IAS7, Cash Flow Statements.
in accordance with
the
The preparation of the Financial Report 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.
(b) Historical cost
The financial statements of the Bank and the
consolidated financial statements have been prepared
in accordance with the historical cost convention and,
except where
reflect current
indicated, do not
valuations of non monetary assets. Domestic bills
discounted which are included in loans, advances and
other receivables and held by the Company 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
(e)
Foreign currency translations
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 1999
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.
shareholders’
Translation differences arising from conversion
of opening balances of
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.
(f)
Roundings
The amounts contained in this report and the
the
financial statements have been rounded
nearest million dollars unless otherwise stated, under
the option available to the Company under ASIC
Class Order 98/100.
to
53
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
Notes to and forming part of the accounts
NOTE 1 Summary of Significant Accounting Policies continued
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.
(l)
Repurchase agreements
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.
(m) Loans, advances and other receivables
the
term
loans,
leasing, bill
Loans, advances and other receivables include
overdrafts, home, credit card and other personal
lending,
financing,
redeemable preference shares and leverage leases.
They are carried at
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.
Non Accrual Facilities
Non accrual facilities (primarily loans) are placed
on a cash basis for recognition of income. 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.
(g)
Financial instruments
The Group 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
in Note 1(m),
financial instruments are transacted on a commercial
basis
yield/cost with
terms and conditions having due regard to the nature
of the transaction and the risks involved.
to derive an
referred to
facilities
interest
(h) Cash and liquid assets
Cash and
liquid assets
branches, cash at bankers and money at short call.
includes cash at
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.
due
from
other
financial
(i)
Receivables
institutions
Receivables
financial
from other
institutions
includes
loans, nostro balances and settlement
account balances due from other banks. They are
brought
the
outstanding balance. Interest is taken to profit and
loss when earned.
the gross value of
to account at
(j)
Trading securities
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.
(k)
Investment securities
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
their
date of purchase so that securities attain
redemption values by maturity date.
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
to permanent
basis. Unrealised
Interest
related
losses
54
NOTE 1 Summary of Significant Accounting Policies continued
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
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.
If performance
restructured
terms.
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
the general provision. Any
subsequent cash recovery is credited to the general
provision.
through
(n)
Leasing and leveraged leasing
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
the
arrangements. Where a change occurs
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.
in
In accordance with amendments to AASB 1008:
Leases, all new leveraged leases with a lease term
beginning from 1 July 1999 will be accounted for as
finance
to account
progressively over the lease term.
income brought
leases with
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
the
than
equipment under lease.
the unremitted
rentals and
lease
to
Operating lease rental revenue and expense is
recognised in the profit and loss in equal periodic
amounts over the effective lease term.
(o) Provisions for impairment
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,
financial
instruments and investments and assets acquired
through security enforcement.
contingent
liabilities,
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
to
historical ratios of write offs to balances in default.
funded primarily by reference
General provisions for bad and doubtful debts
are maintained to cover non identified probable losses
and latent risks inherent in the overall portfolio of
transactions. The
advances and other credit
to the
regard
provisions are determined having
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.
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 (1998)
This
takes
to estimate
the methodology used
into account historical
With effect from 1 January 1998 the Group
refined
the
provisions for impairment by adopting a statistically
based technique referred to as Dynamic Provisioning.
loss
experience and current economic factors to assess
the balance required in the general provision to cover
expected losses in the credit portfolio. 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 was charged to profit and
loss in the year ended 30 June 1998.
Subsequent requirements for specific provisions
are 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.
55
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
Notes to and forming part of the accounts
NOTE 1 Summary of Significant Accounting Policies continued
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
Leasehold improvements
Maximum 30 years
10 years
20 years
10 years
Lesser of unexpired
lease term or lives as
above
Equipment
- Security surveillance systems
- Furniture
- Office machinery
- EFTPOS machines
10 years
8 years
5 years
3 years
The Bank has outsourced the majority of its
information processing and does not own any material
amounts of computer or communications equipment.
Abnormal Item - Information Technology
Equipment Values (1997)
technology
processing,
In anticipation of a restructuring of the Bank’s
information
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 Note 4.
(t) Goodwill
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.
(p) Bank acceptances of customers
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.
In several countries
(q) Deposits with regulatory authorities
in which
the Group
operates, the law requires that the Group 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.
(r)
Shares in and loans to controlled entities
These investments are recorded at the lower of
cost or recoverable amount.
(s) Property, plant and equipment
than
(other
holdings
At year end, independent market valuations,
reflecting current use, were obtained for all individual
property
leasehold
improvements). Directors adopt 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.
56
NOTE 1 Summary of Significant Accounting Policies continued
(u) Other assets
Other assets includes all other financial assets
and includes interest, fees, market revaluation of
income
trading derivatives and other unrealised
receivable and securities sold not delivered. These
assets are recorded at the cash value to be realised
when settled.
Capitalisation of Computer Software Costs
In accordance with the American Institute of
Certified Public Accountants Statement of Position 98-
1 ‘Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use’, the Group
has capitalised $22 million of costs
to
developing or acquiring computer software for internal
use as from 1 July 1998. The amortisation period for
software will be 2½ years except for certain longer
term projects. Software maintenance costs and Year
2000 project costs will continue to be expensed as
incurred.
related
(v) Deposits and other public borrowings
Deposits and other public borrowings includes
term deposits, savings
certificates of deposits,
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.
(w) Payables due to other financial institutions
financial
Payables due
institutions
to other
includes deposits, vostro balances and settlement
to other banks. They are
account balances due
brought
the
the gross value of
to account at
outstanding balance. Interest is taken to profit and
loss when incurred.
(x) Provision for dividend
The provision
for dividend
the
maximum expected cash component of the declared
final dividend. The remaining portion of the dividend is
appropriated
the Dividend Reinvestment Plan
Reserve.
represents
to
(y)
tax effect of
Income taxes
The Group has adopted the liability method of
tax effect accounting. The
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 (1998)
The general provision for bad and doubtful debts
was tax effected as at 1 January 1998. This reflects
the adoption of a balance sheet risk based dynamic
provisioning methodology which
the
recognition requirement that utilisation of the provision
be assured beyond reasonable doubt.
satisfies
An abnormal credit
tax expense of
$337 million was booked to profit and loss in the year
ended 30 June 1998. Refer also Note 4.
to
(z)
Provisions for employee entitlements
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
liability as at balance date. Actual
in
the year are
included
outstanding
payments made during
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.
(aa) Provision for restructuring
for
The
provision
technology
restructuring
transition costs
covers
information
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 (1998)
An abnormal expense for restructuring costs of
$200 million ($128 million after tax) was charged to
profit and loss in the year ended 30 June 1998. Refer
also Notes 4, 24 and 47(d).
(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 Group 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
redemption values
by maturity date.
their
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 Group’s debt issues are
shown in Note 25.
57
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
Notes to and forming part of the accounts
NOTE 1 Summary of Significant Accounting Policies continued
(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
securities
expenses
purchased not delivered.
payable
and
These liabilities are recorded at the cash value
to be realised when settled.
(ee) Loan capital
Loan capital is debt issued by the Group with
terms and conditions, such as being undated
or subordinated, which qualify the debt issue for
inclusion as capital under APRA. 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
is
redemption values by maturity date.
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.
Interest
Further details of the Group’s loan capital debt
issues are shown in Note 27.
(ff) Shareholders’ equity
Ordinary share capital is the amount of paid up
capital from the issue of ordinary shares.
General reserve is derived from revenue profits
and is available for dividend except for undistributable
profits in respect of Commonwealth Life Limited of
$231 million (1998: $219 million , 1997: $168 million).
Capital reserve is derived from capital profits
and is available for dividend.
plan
Dividend
for distribution
It was not available
Share premium reserve was derived from the
premium over par value received from the issue of
to
shares.
shareholders in the form of a cash dividend. Following
changes to the Corporations Law on 1 July 1998,
shares have no par value and the related Share
Premium Reserve becomes part of share capital.
reserve
reinvestment
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
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.
treatment
reflects
Further details of share capital, outside equity
interests and reserves are shown in Notes 28, 29 and
in
Consolidated
Shareholders’ Equity.
Statements
Changes
of
(gg) Derivative financial instruments
The Group enters into a significant volume of
derivative financial instruments which include foreign
58
exchange contracts, forward rate agreements, futures,
options and interest rate, currency, equity and credit
swaps. Derivative financial instruments are used as
part of the Group’s trading activities and to hedge
certain assets and liabilities.
Derivative financial instruments held or issued
for trading purposes
financial
Traded derivative
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
investment
liabilities such as loans,
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.
NOTE 1 Summary of Significant Accounting Policies continued
the capital
Equity swaps are utilised to manage the risk
asso7ciated with both
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.
investment
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
the
hedge would have been effective. Where
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) Revenue recognition
Revenue is recognised to the extent that it is
probable that the economic benefits will flow to the
entity and the revenue can be reliably measured. The
principal sources of revenue are interest income and
fees and commissions.
Interest income
Interest income is reflected in profit and loss
when earned on an accrual basis. Further information
is included in Notes 1(k) Investment securities, 1(m)
Loans, advances and other receivables and 1(n)
Leasing and leveraged leasing.
costs
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.
lending
incurred
Associated
transactions are deferred and 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.
these
in
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.
for services
However, when
provided over a period, they are taken to income on
an accrual basis.
they are charged
Other income
Trading income is brought to account when
earned based on changes in net fair value of financial
instruments and recorded from trade date. Further
information is included in Notes 1(e) Foreign currency
transactions, 1(j) Trading securities and 1(gg)
Derivative
insurance
business income recognition is explained in Note 1(jj)
below.
instruments. Life
financial
(jj)
Life insurance business
The Group 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 Group and has been subject to the
stated principles of consolidation.
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 Group 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 Group.
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.
59
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
Notes to and forming part of the accounts
NOTE 1 Summary of Significant Accounting Policies continued
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
in
to conform with changes
been adjusted
presentation in these financial statements.
(nn) Definitions
‘Overseas’
represents amounts booked
branches and controlled entities outside Australia.
in
‘Borrowing Corporation’ as defined by Section 9
is CBFC Limited and
the Corporations Law
of
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 1999 the Bank acquired Credit Lyonnais
Holding Australia Limited (CLHAL) which was the
holding company for the Australian operations of
total assets of
Credit Lyonnais. CLHAL has
$1.5 billion. The company was acquired on an
adjusted net assets basis.
A new related accounting standard AASB 1038:
Life Insurance Business will become operative for the
Bank as from 1 July 1999. The standard will require
all life insurance assets and liabilities to be carried at
market value and the first time consolidation of
approximately $10 billion of assets and liabilities in
statutory funds.
to Commonwealth
As part of an internal Group restructuring the
Bank has sold its investment in Commonwealth Life
Limited
Insurance Holdings
Limited, a life insurance wholly owned entity as at
30 June 1999. The sale price was at market value
based on independent advice. The capital gain on
sale eliminates on consolidation at 30 June 1999.
Under the new life insurance accounting standard this
investment in Commonwealth Life Limited will be
carried at market value in the future. This will result in
an increase in the Group’s retained earnings of
$432 million as from 1 July 1999.
(kk) Fiduciary activities
The Bank and designated controlled entities act
as Trustee and/or Manager and/or Custodian for a
and
number
Investment Funds, Trusts and Approved Deposit
Funds. Further details are shown in Note 36.
of Wholesale, Superannuation
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 Group and the designated controlled entity.
(ll) Superannuation plans
The Group sponsors a range of superannuation
plans for its employees. The assets and liabilities of
these plans are not included in the consolidated
financial statements.
60
NOTE 2 Operating Profit
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
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
1999
$M
1998
$M
G R O U P
1997
$M
6,806
165
58
246
425
42
-
-
3
7,745
3,353
207
393
106
-
155
4
4,218
3,527
6,588
241
88
213
409
59
-
-
7
7,605
3,343
218
293
183
-
166
5
4,208
3,397
6,794
286
141
108
591
47
-
11
11
7,989
3,660
226
291
234
-
170
16
4,597
3,392
1999
$M
5,456
153
53
173
365
(36)
186
-
2
6,352
2,651
182
305
93
62
155
3
3,451
2,901
474
807
472
678
439
541
444
672
155
66
52
-
6
79
24
254
94
(63)
49
1,997
5,524
161
35
47
-
18
101
34
205
79
(46)
49
1,833
5,230
70
57
47
-
18
4
44
197
64
(44)
52
1,489
4,881
137
68
52
463
6
84
23
-
-
-
212
2,161
5,062
B A N K
1998
$M
5,126
226
88
110
344
(34)
150
-
2
6,012
2,464
192
226
163
11
167
4
3,227
2,785
438
571
147
35
47
156
18
119
31
-
-
-
77
1,639
4,424
247
-
247
165
68
233
36
62
98
78
-
78
164
60
224
61
Notes to and forming part of the accounts
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
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
Other
Total Other Expenses
Total Operating Expenses
Amortisation of Goodwill
Operating Profit before Abnormal Items
1999
$M
1998
$M
1,406
1
42
2
(2)
77
34
44
1,604
1,412
1
32
(7)
-
83
42
59
1,622
158
51
26
68
64
88
455
145
141
90
129
505
76
69
112
249
506
3,070
47
2,160
141
62
22
103
69
76
473
164
102
89
121
476
75
53
116
224
468
3,039
46
1,912
G R O U P
1997
$M
1,386
2
46
11
(3)
86
70
65
1,663
133
61
16
160
104
73
547
152 )
)
)
-
-
103
255
72
57
92
238
459
2,924
43
1,816
1999
$M
1,265
-
41
1
(2)
74
34
32
1,445
152
47
24
47
51
72
393
137
131
89
122
479
70
57
100
211
438
2,755
39
2,190
B A N K
1998
$M
1,223
(7)
30
(3)
-
76
39
34
1,392
126
58
20
80
55
61
400
180
69
87
113
449
67
43
94
166
370
2,611
39
1,550
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.
Revenue from Operating Activities
Interest income
Fee and commissions
Trading income
Life insurance and funds management
Dividends
Proceeds from sale of property, plant and equipment
Proceeds from sale of investment securities
Other income
7,745
1,281
273
254
6
652
146
80
10,437
7,605
1,150
243
205
18
196
1,787
82
11,286
7,989
980
174
197
18
307
1,172
72
10,909
6,352
1,116
257
-
469
640
147
212
9,193
6,012
1,009
229
-
174
167
1,666
77
9,334
There were no sources of revenue from non operating activities.
62
NOTE 3 Average Balance Sheet and Related Interest
The table lists the major categories of interest
earning assets and interest bearing liabilities of the
Group together with the respective interest earned or
paid and the average interest rates for each of 1997,
1998 and 1999. Averages used are predominantly
daily averages. The overseas component comprises
the Bank and overseas
overseas branches of
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.
1999
1998
1997
Average Interest Average Average Interest Average Average Interest Average
Rate
Balance
$M
%
Rate Balance
$M
Rate Balance
$M
$M
$M
$M
%
%
Average Assets and Interest Income
Interest Earning Assets
Cash and liquid assets
Australia
Overseas
Receivables due from other financial
institutions
Australia
Overseas
Deposits with regulatory authorities
Australia
Overseas
Trading securities
Australia
Overseas
Investment 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
Provisions for impairment
Australia
Overseas
Total average non interest
earning assets
Total Average Assets
Percentage of total average assets
applicable to overseas operations
1,468
119
1,481
1,522
892
2
2,720
1,700
3,052
4,659
58
-
79
86
-
-
149
97
171
254
4.0
-
1,942
156
86
2
4.4
1.3
2,188
68
138
3
5.3
5.7
1,882
1,977
106
135
5.6
6.8
2,361
2,747
135
151
-
-
5.5
5.7
5.6
5.5
809
-
1,297
1,709
2,987
3,662
-
-
83
130
183
226
-
-
6.4
7.6
6.1
6.2
7.5
9.2
n/a
756
-
1,511
357
5,083
4,068
11
-
96
12
303
288
67,292
9,732
-
5,959
882
11
6.3
4.4
5.7
5.5
1.5
-
6.4
3.4
6.0
7.1
8.9
9.1
n/a
83,350
13,306
-
5,899
949
3
7.1 73,797
7.1 11,947
-
n/a
5,542
1,105
7
414
23
5.6
713
43
6.0
739
46
6.2
114,685
(414)
7,768
(23)
6.8 102,878
(713)
5.6
7,648
(43)
7.4
6.0
96,902
(739)
8,035
(46)
8.3
6.2
114,271
7,745
6.8 102,165
7,605
7.4
96,163
7,989
8.3
9,971
32
1,240
211
9,739
2,085
(1,210)
(158)
21,910
136,181
17.2%
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%
63
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
Notes to and forming part of the accounts
NOTE 3 Average Balance Sheet and Related Interest continued
1999
1998
Average Interest Average Average Interest Average Average Interest Average
Rate
Balance
%
$M
Rate Balance
$M
Rate Balance
$M
1997
$M
$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
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
64
31,119
9,201
1,597
591
24,378
2,120
17,247
1,682
643
3,367
6,005
2,130
1,684
808
2,746
-
418
81
626
40
35
172
319
74
76
30
155
4
26,055
8,300
1,464
718
5.1
6.4
1.7
3.8
3.6
2.4
5.4
5.1
5.3
3.5
4.5
3.7
22,970
1,680
15,865
1,375
481
3,175
3,640
1,656
2,631
874
5.6
n/a
2,891
57
403
104
630
24
17
201
220
73
133
50
166
5
5.6
8.7
1.8
6.2
4.0
1.7
3.5
6.3
6.0
4.4
5.1
5.7
5.7
8.8
26,600
6,487
1,768
529
21,106
1,696
13,344
1,321
221
3,463
3,445
1,354
2,524
968
2,752
15
538
103
696
26
7
219
215
76
191
43
170
16
6.6
8.2
2.5
6.1
5.2
2.0
3.2
6.3
6.2
5.6
7.6
4.4
6.2
n/a
414
23
5.6
713
43
6.0
739
46
6.2
103,544
(414)
4,241
(23)
4.1
5.6
92,363
(713)
4,251
(43)
4.6
6.0
86,035
(739)
4,643
(46)
103,130
4,218
4.1
91,650
4,208
4.6
85,296
4,597
5.4
6.2
5.4
3,952
76
9,971
32
9,632
2,383
26,046
129,176
7,005
136,181
16.9%
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%
NOTE 3 Average Balance Sheet and Related Interest continued
Changes in Net Interest Income:
Volume and Rate Analysis
Interest Earning Assets
Cash and liquid assets
Australia
Overseas
Receivables due from other financial institutions
Australia
Overseas
Deposits with regulatory authorities
Australia
Overseas
Trading securities
Australia
Overseas
Investment 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 and Loan Capital
Time deposits
Australia
Overseas
Saving deposits
Australia
Overseas
Other demand deposits
Australia
Overseas
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
Year ended 30 June 1999
versus 1998
Rate
$M
Volume
$M
Total
$M
Year ended 30 June 1998
versus 1997
Rate
$M
Volume
$M
Total
$M
(20)
-
(22)
(28)
-
-
85
(1)
4
58
697
111
-
(17)
839
17
861
272
68
24
22
53
6
7
11
134
19
(45)
(3)
(8)
-
(17)
486
17
498
363
(8)
(2)
(5)
(21)
-
-
(19)
(32)
(16)
(30)
(340)
(267)
(4)
(3)
(719)
3
(721)
(139)
(195)
(9)
(45)
(57)
10
11
(40)
(35)
(18)
(12)
(17)
(3)
(1)
(3)
(496)
3
(488)
(233)
(28)
(2)
(27)
(49)
-
-
66
(33)
(12)
28
357
(156)
(4)
(20)
120
20
140
133
(127)
15
(23)
(4)
16
18
(29)
99
1
(57)
(20)
(11)
(1)
(20)
(10)
20
10
130
(13)
3
(27)
(47)
-
-
(14)
74
(127)
(27)
532
203
-
(2)
470
2
473
(33)
152
40
(1)
116
1
9
(18)
12
15
7
(5)
8
-
(2)
316
2
317
156
(39)
(4)
(2)
31
(11)
-
1
44
7
(35)
(949)
20
(4)
(1)
(857)
1
(857)
(271)
37
(175)
2
(182)
(3)
1
-
(7)
(18)
(65)
12
(12)
(11)
(1)
(708)
1
(706)
(151)
(52)
(1)
(29)
(16)
(11)
-
(13)
118
(120)
(62)
(417)
223
(4)
(3)
(387)
3
(384)
(304)
189
(135)
1
(66)
(2)
10
(18)
5
(3)
(58)
7
(4)
(11)
(3)
(392)
3
(389)
5
65
Notes to and forming part of the accounts
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
NOTE 3 Average Balance Sheet and Related Interest continued
Changes in Net Interest Income: Volume and Rate Analysis
The preceding 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. The volume and rate variances for both
total interest earning assets and liabilities have been
calculated separately (rather than being the sum of
the individual categories).
Net interest income
Average interest earnings assets
Interest Margins and Spreads
1999
$M
1998
$M
G R O U P
1997
$M
3,527
114,271
3,397
102,165
3,392
96,163
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 forgone 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 forgone on non accrual and restructured loans
Interest forgone 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 forgone on non accrual and restructured loans
Interest forgone on non accrual and restructured loans
Interest spread
Benefit of net free liabilities, provisions and equity
Group Interest Margin
3.00
(0.02)
2.98
0.39
3.37
1.45
(0.06)
1.39
0.38
1.77
2.71
(0.02)
2.69
0.40
3.09
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
NOTE 4 Abnormal Items
Abnormal expense item:
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
G R O U P
1999
$M
1998
$M
1997
$M
1999
$M
-
-
-
-
-
-
-
-
-
200
370
-
570
(72)
(337)
-
(409)
161
-
-
200
200
-
-
(72)
(72)
128
-
-
-
-
-
-
-
-
-
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
B A N K
1998
$M
200
370
-
570
(72)
(337)
-
(409)
161
66
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
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)
Income tax expense
Income tax expense comprises:
Current taxation provision
Deferred income (benefit)/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)
G R O U P
1999
$M
1998
$M
1997
$M
1999
$M
2,160
777
1,912
688
1,816
654
2,190
789
B A N K
1998
$M
1,550
558
-
1
7
(27)
(36)
17
-
(19)
(57)
(6)
714
-
714
744
(24)
(34)
8
20
714
710
34
744
(46)
16
(30)
255
78
333
461
209
41
222
933
9
35
9
(33)
(27)
16
(10)
(13)
(14)
(33)
641
(409)
232
245
128
(158)
16
1
232
194
51
245
(13)
-
(13)
272
53
325
437
185
47
214
883
28
-
9
(35)
(27)
15
(10)
(23)
(43)
(23)
588
(72)
516
375
97
22
22
-
516
326
49
375
141
-
141
82
85
167
439
175
74
67
755
-
-
7
(170)
-
14
-
5
(144)
-
645
-
645
640
(25)
13
8
9
645
640
-
640
5
-
5
216
46
262
198
56
40
173
467
9
28
8
(44)
-
14
(10)
(25)
(20)
(32)
506
(409)
97
189
43
(146)
9
2
97
189
-
189
(92)
-
(92)
261
32
293
191
36
47
162
436
-
-
-
-
-
132
(12)
(10)
36
146
96
6
(4)
34
132
83
7
(2)
8
96
121
(12)
(5)
36
140
96
6
(4)
23
121
67
Notes to and forming part of the accounts
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
NOTE 6 Dividends Provided For, Reserved or Paid
Interim dividend (fully franked) of 49 cents per share
(1998: 46 cents, 1997: 45 cents)
Provision for interim dividend - cash component only
Declared final dividend (fully franked) of 66 cents per share
(1998: 58 cents, 1997: 57 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
Dividend Franking Account
The amount of franking credits available for
subsequent financial years stands at $96 million.
This figure represents the extent to which future
dividends could be fully franked at 36%, and is
franking account at
based on
for
30 June 1999, which has been adjusted
franking credits that will arise from the payment of
the Bank’s
G R O U P
1999
$M
1998
$M
1997
$M
1999
$M
B A N K
1998
$M
275
231
231
275
231
472
747
183
133
316
1,063
321
552
189
214
403
955
291
522
180
239
419
941
472
747
183
133
316
1,063
321
552
189
214
403
955
income tax payable on profits of the financial year
ended 30 June 1999, franking debits that will arise
from the payment of dividends proposed as at
30 June 1999 and franking credits that the Bank
may be prevented from distributing in subsequent
financial periods.
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
1999
c
153.4
$M
1,446
(24)
1,422
1998
c
117.2
$M
1,110
(20)
1,090
G R O U P
1997
c
117.2
$M
1,100
(22)
1,078
Number of Shares
M
M
M
927
930
917
68
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
G R O U P
1998
$M
1999
$M
1999
$M
B A N K
1998
$M
752
39
793
138
1,722
31
58
3
92
1,814
921
96
328
141
1,486
30
10
-
40
1,526
757
-
793
138
1,688
909
-
328
140
1,377
-
58
-
58
1,746
-
16
-
16
1,393
NOTE 9 Receivables from Other Financial Institutions
Australia
Overseas
Total Receivables from Other Financial Institutions
621
585
1,206
2,382
1,066
3,448
627
555
1,182
2,371
834
3,205
NOTE 10 Trading Securities
Australia
Listed:
Australian Public Securities
Commonwealth and States
Local and semi government
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
603
47
176
642
890
693
168
3,219
-
212
814
32
22
340
69
1,489
4,708
237
282
336
146
656
263
290
2,210
413
306
514
73
4
402
87
1,799
4,009
317
47
176
642
890
693
168
2,933
-
212
-
32
-
6
68
318
3,251
237
281
336
146
656
263
290
2,209
59
306
-
73
-
1
50
489
2,698
69
Notes to and forming part of the accounts
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
1999
$M
1998
$M
G R O U P
1997
$M
1999
$M
B A N K
1998
$M
2,635
1,960
- -
578
282
3,769
2,611
1,914
20 - -
527
278
564
- -
- -
17
-
- -
141
455
3,151
160
70
3,147
8 - -
17 - -
34 - -
5 - -
141
13
2,595
160
9
3,058
115
301
4,833
234
5
-
583
484
179
5
547
539
447
323
5
234
5
923 -
583
367
484
687
179
5
547
539
447
1
25
- -
- -
648
227
1
25
38
333
1 -
435 - -
647
1,228
227
317
29
27
182
228
527
542
3,354
3,650
5,949
6,708
64
78
29 -
351
796
4,400
9,233
182
879
3,707
6,858
1,228
317
27
228
933
4,040
7,187
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
70
NOTE 11 Investment Securities continued
Market Value
Australia
Australian Public Securities
Commonwealth and States
Treasury notes
Bills of exchange
Certificates of deposit
Medium term notes
Other securities and equity investment
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
Net Unrealised Surplus/(Deficit)
Gross Unrealised Gains and Losses of Group
G R O U P
M A R K E T V A L U E A T 3 0 J U N E
1999
$M
1998
$M
1997
$M
2,637
-
-
-
171
333
3,141
1,994
-
17
-
159
1,092
3,262
3,907
37
34
5
128
944
5,055
243
5
-
1,236
924
20
1,627
4,055
7,196
9
231
5
-
1,201
811
25
1,544
3,817
7,079
221
376
339
436
990
464
-
1,902
4,507
9,562
329
A T 3 0 J U N E 1 9 9 9
A T 3 0 J U N E 1 9 9 8
Amortised
Cost
$M
Gross Unrealised
Losses
Gains
$M
$M
Fair Amortised
Cost
$M
Value
$M
Gross Unrealised
Losses
Gains
$M
$M
Fair
Value
$M
Australia
Australian Public Securities
Commonwealth and States
Bills of exchange
Medium term notes
Other securities and
equity investments
Total Australia
Overseas
Government securities
Treasury notes
Certificates of deposit
Eurobonds
Medium term notes
Other securities and
equity investments
Total Overseas
Total Investment Securities
2,635
-
160
352
3,147
235
5
1,228
900
27
1,645
4,040
7,187
13
-
11
-
24
10
-
46
46
-
-
102
126
11
-
-
19
30
2
-
38
22
7
18
87
117
2,637
-
171
333
3,141
243
5
1,236
924
20
1,627
4,055
7,196
1,960
17
141
1,033
3,151
204
5
1,195
766
29
1,508
3,707
6,858
34
-
18
59
111
30
-
7
53
-
83
173
284
-
-
-
-
-
3
-
1
8
4
47
63
63
1,994
17
159
1,092
3,262
231
5
1,201
811
25
1,544
3,817
7,079
71
Notes to and forming part of the accounts
NOTE 11 Investment Securities continued
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.
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
these contracts
Equity derivatives are in place to hedge equity
market risk. There are $19 million of net deferred
gains on
(1998: $50 million net
deferred losses) which offset the above unrealised
losses and these are disclosed within Note 37. At the
end of the financial year $71 million of net deferred
losses
the
amortised cost value.
(1998: $80 million) are
included
in
Maturity Distribution and Average Yield
The table analyses the maturities and weighted average yields of the Group’s holdings of investment securities.
1 to 12 months
%
$M
1 to 5 years
%
$M
5 to 10 years
%
$M
10 years or more
%
$M
Total
$M
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 9
Australia
Australian Public Securities
Commonwealth and States
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
552
-
90
642
1
5
1,228
145
-
274
1,653
2,295
2,299
6.51
-
5.09
5.72
1.20
5.21
8.78
-
5.23
1,661
102
258
2,021
163
-
-
222
27
624
1,036
3,057
3,033
5.19
8.33
3.62
2.32
-
-
6.69
5.19
7.45
422
58
4
484
71
-
-
533
-
697
1,301
1,785
1,814
6.14
9.80
6.52
5.62
-
-
5.75
-
2.97
-
-
-
-
-
-
-
-
-
50
50
50
50
-
-
-
-
-
-
-
-
5.53
2,635
160
352
3,147
235
5
1,228
900
27
1,645
4,040
7,187
7,196
Proceeds at or close to maturity of investment securities were $12,431 million (1998: $8,681 million,
1997: $7,013 million).
Proceeds from sale of investment securities were $146 million (1998: $1,787 million, 1997: $1,172 million).
Realised capital gains were $85 million and realised capital losses were $6 million (1998: realised capital gains
$65 million, 1997: realised capital gains $12 million and realised capital losses $8 million).
72
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
G R O U P
1998
$M
1999
$M
1999
$M
B A N K
1998
$M
3,821
45,495
2,510
3,966
1,650
29,607
682
1,737
1,607
91,075
2,841
41,137
2,218
3,594
916
25,676
740
1,615
1,290
80,027
3,821
45,495
2,510
1,207
1,654
25,535
89
774
1,052
82,137
2,876
41,137
2,217
1,123
917
22,173
125
769
738
72,075
6,273
519 - -
760
125
85
7,151
134 - -
162
60 - -
166
4
2
2
2,131
2,260
5,250
-
369 - -
- - - -
2,389
74,464
12,548
92,575
2,218
84,355
4
5,189
13,491
104,566
(1,081)
(275)
(1,076)
(279)
(932)
(209)
(995)
(232)
(437)
(489)
(243)
(68)
(136)
(2,729)
101,837
(425) - -
(130)
(142)
(473)
(42)
(38)
(295)
(93)
(62)
(102)
(23)
(20)
(109)
(1,515)
(1,403)
(2,759)
72,949
82,952
89,816
1,250
2,393
3,643
932
2,249
3,181
348
717
1,065
281
712
993
73
Notes to and forming part of the accounts
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
NOTE 12 Loans, Advances and Other Receivables continued
Maturity Distribution of Loans
The following table sets forth the maturity distribution of the Group’s loans, advances and other receivables
(excluding bank acceptances) at 30 June 1999.
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 9
G R O U P
Australia
Government and Public Authorities
Agriculture, Forestry and Fishing
Financial, Investment and Insurance
Real Estate
Mortgage (1)
Construction (2)
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 (1)
Construction (2)
Personal
Lease Financing
Other Commercial and Industrial
Total Overseas
Gross Loans, Advances and Other Receivables
Interest Rate Sensitivity of Lending
Variable Interest Rates
Australia
Overseas
Total
Fixed Interest Rates
Australia
Overseas
Total
Gross Loans, Advances and Other Receivables
Maturing
One Year
or Less
$M
Maturing
Between
One & Five
Years
$M
272
1,464
1,588
3,018
942
3,307
1,144
10,428
22,163
84
205
456
794
315
47
18
1,506
3,425
25,588
12,021
2,510
14,531
10,141
916
11,057
25,588
844
2,046
1,524
7,832
939
7,531
905
8,423
30,044
40
628
525
2,605
112
88
52
719
4,769
34,813
11,825
2,928
14,753
18,218
1,842
20,060
34,813
Maturing
After Five
Years
$M
611
693
936
23,475
224
8,912
1,051
2,966
38,868
33
-
526
4,014
-
142
121
461
5,297
44,165
20,065
889
20,954
18,804
4,407
23,211
44,165
Total
$M
1,727
4,203
4,048
34,325
2,105
19,750
3,100
21,817
91,075
157
833
1,507
7,413
427
277
191
2,686
13,491
104,566
43,911
6,327
50,238
47,163
7,165
54,328
104,566
(1)
Principally owner occupied housing. While most of
these loans would have a contractual term of 20 years
or more, the actual average term of the portfolio is less
than 5 years.
(2)
Financing real estate and land development projects.
74
NOTE 13 Provisions For Impairment
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
Writeback of provisions no longer required
Transfer from general provision for
New and increased provisioning
Less writeback 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 (1)
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 debts
comprises:
General provisions
Specific provisions
Total Charge for Bad and Doubtful Debts
Ratio of net charge offs during the period to Average
gross loans, advances and other receivables
outstanding during the period
1999
$M
1998
$M
1997
$M
1996
$M
1995
$M
1999
$M
G R O U P
B A N K
1998
$M
1,076
-
247
(239)
51
(7)
690
370
165
(155)
48
-
1,128 1,118
(42)
1,081 1,076
(47)
613
-
36
-
80
2
731
(41)
690
476
-
99
-
74
(3)
646
(33)
613
396
-
15
-
105
1
517
(41)
476
995
-
78
(159)
43
-
604
370
164
(152)
38
2
957 1,026
(31)
995
(25)
932
279
241
318
511
713
262
211
152
(90)
155
(141)
333
(166)
-
-
-
-
284
(45)
239
105
(37)
175
(20)
155
(8)
510
(235)
275
(6)
458
(179)
279
1,356 1,355
-
-
-
6
386
(145)
241
931
-
-
-
(4)
521
(203)
318
931
94
(34)
169
(17)
152
-
-
-
198
(39)
159
(7)
(29)
17
416
392
897
(154)
(183)
(386)
511
262
209
987 1,141 1,257
275
-
275
279
-
279
241
-
241
310
8
318
498
13
511
209
-
209
232
30
262
%
%
%
%
%
%
%
46.69 37.60 30.24 29.94 32.28 42.65 37.11
230.22 182.61 116.81 87.66 62.35 232.86 201.44
1.14
0.79
0.68
0.79
1.09
1.14
1.09
$M
$M
$M
$M
$M
$M
$M
247
-
247
165
68
233
36
62
98
99
14
113
15
167
182
78
-
78
164
60
224
0.3%
0.3%
0.1%
0.2%
0.3%
0.1%
0.3%
(1)
Ratios have been restated for 1998 based on the amended definition of non accruals introduced with effect from 31 December
1998.
75
Notes to and forming part of the accounts
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
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
1999
$M
247
G R O U P
1998
$M
233
1999
$M
78
B A N K
1998
$M
224
284
(45)
239
(239)
-
44
(51)
15
239
247
247
280
(57)
223
(155)
68
42
(48)
16
155
165
233
198
(39)
159
(159)
-
25
(43)
(63)
159
78
78
263
(51)
212
(152)
60
31
(38)
19
152
164
224
76
NOTE 13 Provisions For Impairment continued
Specific Provisions for Impairment by Industry Category
The following table sets forth the Group’s specific provisions for impairment by industry category as at 30 June 1995,
1996, 1997, 1998 and 1999.
1999
%
1998
1997
($ millions, except where indicated)
%
%
1996
%
A T 3 0 J U N E
1995
%
- -
-
-
-
-
-
-
-
-
15
23
4
35
15
4
82
178
5.4
8.4
1.5
12.7
5.4
1.5
29.8
64.7
20
16
3
8
14
-
113
174
7.1
5.7
1.1
2.9
5.0
-
40.5
62.3
21
22
4
11
12
-
152
222
8.7
9.1
1.7
4.6
5.0
-
34
50
3
16
17
1
10.7
15.7
0.9
5.0
5.3
0.3
86
77
2
53
26
8
63.0
92.1
185
306
58.3
96.2
227
479
16.8
15.0
0.4
10.4
5.1
1.6
44.4
93.7
- -
-
-
-
-
-
-
-
-
Australia
Government and
Public Authorities
Agriculture, Forestry
and Fishing
Financial, Investment
and Insurance
Real Estate
Mortgage (1)
Construction (2)
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 (1)
Construction (2)
Personal
Lease Financing
Other Commercial
and Industrial
Total Overseas
Total Specific Provisions
- -
1
0.4
- -
-
-
3
1.1
- -
0.7
- -
2
92
97
275
33.5
35.3
100.0
5
10
-
-
89
105
279
1.8
3.6
-
-
31.9
37.7
100.0
(1)
(2)
Principally owner occupied housing.
Financing real estate and land development projects.
1
2
-
-
-
-
16
19
241
0.4
0.8
-
-
-
-
6.7
7.9
100.0
1
2
-
1
-
-
8
12
318
0.3
0.6
-
0.3
-
-
2.6
3.8
100.0
1
3
-
3
-
-
25
32
511
0.2
0.6
-
0.6
-
-
4.9
6.3
100.0
77
Notes to and forming part of the accounts
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
NOTE 13 Provisions For Impairment continued
Bad Debts Written Off by Industry Category
The following table sets forth the Group’s bad debts written off and bad debts recovered for Financial Years 1995,
1996, 1997, 1998 and 1999.
Y E A R E N D E D 3 0 J U N E
Australia
Government and
Public Authorities
Agriculture, Forestry
and Fishing
Financial, Investment
and Insurance
Real Estate
Mortgage (1)
Construction (2)
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 (1)
Construction (2)
Personal
Lease Financing
Other Commercial
and Industrial
Total Overseas
1999
%
-
2.5
1.4
3.2
2.5
33.3
3.9
25.2
72.0
-
-
-
0.4
5.0
-
1.0
21.6
28.0
1998
1997
($ millions, except where indicated)
%
-
4.1
1.8
5.0
2.7
38.9
2.7
35.7
90.9
-
-
1.4
0.5
-
2.7
-
4.5
9.1
-
15
4
9
14
58
5
69
174
-
-
-
1
2
3
-
6
12
%
-
8.1
2.2
4.8
7.5
31.2
2.7
37.1
93.6
-
-
-
0.5
1.1
1.6
-
3.2
6.4
-
20
25
5
17
52
4
93
216
-
-
1
-
-
3
-
16
20
-
9
4
11
6
86
6
79
201
-
-
3
1
-
6
-
10
20
1996
%
-
8.5
10.6
2.1
7.2
22.0
1.7
39.4
91.5
-
-
0.4
-
-
1.3
-
6.8
8.5
-
28
67
7
43
79
5
159
388
-
-
7
-
11
2
-
19
39
1995
%
-
6.6
15.7
1.6
10.1
18.5
1.2
37.2
90.9
-
-
1.6
-
2.6
0.5
-
4.4
9.1
-
7
4
9
7
94
11
71
203
-
-
-
1
14
-
3
61
79
Gross Bad Debts Written Off
282
100.0
221
100.0
186
100.0
236
100.0
427
100.0
Bad Debts Recovered
Australia
Overseas
Bad Debts Recovered
Net Bad Debts Written Off
48
3
51
231
46
2
48
173
63
17
80
106
65
9
74
162
84
21
105
322
(1)
(2)
Principally owner occupied housing.
Financing real estate and land development projects.
78
NOTE 13 Provisions For Impairment continued
Bad Debts Recovered by Industry Category
The following table sets forth the Group’s bad debts recovered by industry category for Financial Years 1995, 1996,
1997, 1998 and 1999.
1999
%
-
3.9
3.9
-
2.0
52.9
3.9
27.5
94.1
-
-
-
-
-
5.9
-
-
5.9
-
2
2
-
1
27
2
14
48
-
-
-
-
-
3
-
-
3
1998
1997
($ millions, except where indicated)
%
%
1996
%
1995
%
Y E A R E N D E D 3 0 J U N E
-
-
-
-
-
-
-
-
4
6
-
1
21
2
12
46
8.3
12.5
-
2.1
43.7
4.2
25.0
95.8
5
8
-
1
16
2
31
63
6.3
10.0
-
1.2
20.0
2.5
38.8
78.8
5
7
-
1
16
2
34
65
6.8
9.5
-
1.3
21.6
2.7
45.9
87.8
5
8
-
4
8
5
54
84
4.8
7.6
-
3.8
7.6
4.8
51.4
80.0
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2
-
-
2
-
-
4.2
-
-
4.2
2
-
2
1
-
12
17
2.5
-
2.5
1.2
-
15.0
21.2
3
-
2
1
-
3
9
4.1
17
16.2
-
2.7
1.3
-
4.1
12.2
-
1
1
-
2
21
-
1.0
1.0
-
1.8
20.0
Australia
Government and
Public Authorities
Agriculture, Forestry
and Fishing
Financial, Investment
and Insurance
Real Estate
Mortgage (1)
Construction (2)
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 (1)
Construction (2)
Personal
Lease Financing
Other Commercial
and Industrial
Total Overseas
Bad Debts Recovered
51
100.0
48
100.0
80
100.0
74
100.0
105
100.0
(1)
(2)
Principally owner occupied housing.
Financing real estate and land development projects.
79
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
Notes to and forming part of the accounts
NOTE 14 Credit Risk Concentrations
in
Facilities
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. Loans are
generally classified as non accrual when receivership,
insolvency or bankruptcy occurs. Provisions
for
impairment are raised for an amount equal to the
difference between the exposure and the estimated
the security net of
realisable market value of
estimated realisation costs. Most loans that are rated
as
impaired are managed by
centralised and specialised units.
troublesome or
A centralised exposure management system
records all significant credit risks borne by the Group.
This system is used to monitor concentrations by
client,
other
geography
concentrations where increased risk is apparent.
industry,
and
any
Aggregated credit limits apply for debtors or
counterparties (refer ‘Large Exposures’).
The Risk Committee of the Board operates
under a charter of the Board in terms of which the
Committee oversees the Bank’s credit management
policies and practices. The Committee usually meets
on a monthly basis and more often if required.
to control
limits and
The Group uses a portfolio approach to the
management of its credit risk. A key element is a well
diversified portfolio. The Group has a system of
industry
industry
targets
concentration. The Group has a large credit exposure
policy for commercial and industrial credit risk, tiered
by credit risk rating and loan duration. The Bank has a
system of country limits in place to control geographic
concentration of credit risk. These policies are to
ensure diversification of the credit portfolio. The
Group is using various portfolio management tools to
diversify the credit portfolio. The Bank is involved in
credit derivative transactions, has purchased various
assets in the market, has carried out various asset
securitisations and has
recently concluded a
Collateralised Loan Obligation issue.
•
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 Group has clearly defined credit policies for
the approval and management of credit risk. Credit
incorporate
underwriting
income/repayment capacity, acceptable terms and
security and loan documentation tests exist for all
products.
standards,
which
to meet
its contracted
integrity and ability of
The Group relies, in the first instance, on the
the debtor or
assessed
counterparty
financial
obligations for repayment. Collateral security, in the
form of real property or a floating charge is generally
for major
taken
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.
for business credit except
The credit risk portfolio is divided into two
segments, statistically managed and credit risk rate
managed. Statistically managed exposures are
generally not individually reviewed unless arrears
occur. Statistically managed portfolios are reviewed
by business unit Credit Support and Monitoring units
with an overview by the Risk Asset Review unit.
Credit risk rated managed exposures are required to
be reviewed at least annually. The risk rated segment
is subject to inspection by the Risk Asset Review unit,
which is independent of the business units and which
reports quarterly on its findings to the Board Risk
Committee. Most risk rated portfolios are reviewed on
a random basis, usually within a period of twenty four
months, by the Risk Asset Review unit. High risk
portfolios are
frequently. Credit
processes,
including compliance with policy and
underwriting standards, and application of risk ratings,
are examined and reported on where cases of non
compliance are observed.
reviewed more
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.
80
NOTE 14 Credit Risk Concentrations continued
Total Gross Credit Risk by Industry
The following table sets out the Group’s Total Gross Credit Risk by industry as at 30 June 1996, 1997, 1998
and 1999. Comparative figures are not available for Financial Year 1995. The industry profile of the loans, advances
and other receivables content for the five financial years to 30 June 1999 is shown on page 86.
Industry
Australia
Government and Public Authorities
Agriculture, Forestry and Fishing
Financial, Investment and Insurance
Real Estate
Mortgage
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
Construction
Personal
Lease Financing
Other Commercial and Industrial
Total Overseas
Total Gross Credit Risk
Less unearned income
Total Credit Risk
1999
$M
1998
$M
A T 3 0 J U N E
1997
$M
1996
$M
6,162
5,303
15,430
37,980
3,830
20,294
3,100
36,519
128,618
493
833
5,631
7,414
579
280
191
7,945
23,366
151,984
(1,169)
150,815
5,200
4,791
17,654
34,599
2,790
14,362
1,940
35,074
116,410
819
640
7,012
6,686
3,743
14,878
32,990
2,705
11,060
4,277
29,747
106,086
1,048
595
7,147
6,247
6,306
166
505
259
148
173 -
6,759
22,110
128,196
(1,019)
127,177
8,091
23,805
140,215
(1,193)
139,022
6,080
3,741
13,642
30,556
2,635
9,869
4,245
24,821
95,589
806
376
7,005
4,545
233
256
1
5,143
18,365
113,954
(963)
112,991
81
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
Notes to and forming part of the accounts
NOTE 14 Credit Risk Concentrations continued
The following tables set out the credit risk concentrations of the Group.
R I S K C O N C E N T R A T I O N O F T H E G R O U P B Y A S S E T C L A S S 3 0 J U N E 1 9 9 9
Industry
Trading Investment
Loans
Advances
and Other Acceptances Contingent
Bank
Securities
$M
Securities Receivables of Customers
$M
$M
$M
Liabilities Derivatives
$M
$M
Total
$M
Australia
Government and Public Authorities
Agriculture, Forestry and Fishing
Financial, Investment and Insurance
Real Estate
Mortgage
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
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
650
-
2,635
-
1,532 -
-
-
-
-
1,037
3,219
-
-
-
-
512
3,147
22
-
814
240
-
1,228
-
-
-
-
653
1,489
4,708
-
-
-
-
2,572
4,040
7,187
1,727
4,203
4,048
34,325
2,105
19,750
3,100
21,817
91,075
157
833
1,507
7,413
427
277
191
2,686
13,491
104,566
387
859
2,594
126
743
208
-
4,717
9,634
625
220
1,176
138
21
4,507
3,529 -
969
13
336 -
-
957
5,636
-
7,479
14,334
-
-
-
69
-
276
5
-
1,220
-
-
-
-
38
38
9,672
1 -
152 -
3 -
-
-
1,912
84
1,309
2,413
6,945
16,747
6,162
5,303
13,857
37,980
3,830
20,294
3,100
36,519
127,045
493
833
5,045
7,414
579
280
191
7,945
22,780
149,825
1,206
953
151,984
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.
82
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 T H E G R O U P B Y A S S E T C L A S S 3 0 J U N E 1 9 9 8
Industry
Trading Investment
Loans
Advances
and Other Acceptances Contingent
Bank
Securities Securities Receivables of Customers
$M
$M
$M
$M
Australia
Government and Public Authorities
Agriculture, Forestry and Fishing
Financial, Investment and Insurance
Real Estate
Mortgage
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
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
544
-
484
1,698
-
17
-
-
- -
- -
- -
1,436
3,151
1,182
2,210
74
208
- -
1,195
916
- -
- -
- -
- -
2,304
3,707
6,858
809
1,799
4,009
1,216
4,128
2,490
34,505
1,197
14,063
1,940
20,488
80,027
105
640
1,449
6,304
318
217
173
3,342
12,548
92,575
Liabilities Derivatives
$M
$M
Total
$M
1,034
82
2,358
343
58
6,543
5,200
4,791
14,441
-
34,599
-
2,790
708 -
14,362
57 -
1,940
-
1,303
35,074
8,247 113,197
-
5,623
9,862
365
523
2,549
94
885
242
-
5,042
9,700
-
-
-
312
-
451
120
-
1,934
819
640
5,945
-
-
-
-
27
27
9,727
2 -
187 -
38
-
29
2,121
6,306
505
259
173
8,091
22,738
10,368 135,935
4
-
1,580
2,536
12,398
3,448
832
140,215
83
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
Notes to and forming part of the accounts
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 T H E G R O U P ’ S I M P A I R E D A S S E T S 3 0 J U N E 1 9 9 9
Industry
Total
Risk
$M
Impaired
Assets
$M
Provisions for
Impairment Write offs
$M
$M
Recoveries
$M
Net
Write offs
$M
6,162 -
55
5,303
47
13,857
-
15
23
-
7
4
37,980 -
101
10
5
278
496
3,830
20,294
3,100
36,519
127,045
4
35
15
4
82
178
9
7
94
11
71
203
493 -
833
5,045 -
-
1 -
-
7,414 -
579 -
280 -
191 -
160
161
657
7,945
22,780
149,825
3
-
2
-
92
97
275
1,206
953
151,984
-
-
-
1
14
-
3
61
79
282
-
(2)
(2)
-
(1)
(27)
(2)
(14)
(48)
-
5
2
9
6
67
9
57
155
-
-
-
-
-
-
-
-
(3)
-
-
(3)
(51)
1
14
(3)
3
61
76
231
Australia
Government and Public Authorities
Agriculture, Forestry and Fishing
Financial, Investment and Insurance
Real Estate
Mortgage
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
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
84
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 T H E G R O U P ’ S 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
Total
Risk
$M
Impaired Provisions for
Assets
$M
Impairment Write offs
$M
$M
Recoveries
$M
Australia
Government and Public Authorities
Agriculture, Forestry and Fishing
Financial, Investment and Insurance
Real Estate
Mortgage
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
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
Large Exposures
5,200
4,791
14,441
-
66
65
34,599
2,790
14,362
1,940
35,074
113,197
-
102
9
2
372
616
-
20
16
-
9
4
3
8
14
-
113
174
11
6
86
6
79
201
819
640
5,945
-
3
2
-
-
1 -
3
-
-
3
2
-
300
310
926
6,306
505
259
173
8,091
22,738
135,935
3,448
832
140,215
5
1
10 -
6
-
10
20
221
-
-
89
105
279
-
(4)
(6)
-
(1)
(21)
(2)
(12)
(46)
-
-
-
-
-
(2)
-
-
(2)
(48)
Net
Write offs
$M
-
5
(2)
11
5
65
4
67
155
-
-
3
1
-
4
-
10
18
173
Concentration of exposure to any debtor or counterparty, other than to governments and banks, is controlled by
the Large Credit Exposure Policy. All exposures outside the policy are approved by the Board Risk Committee.
The following table shows the aggregate number of the Group’s corporate exposures (including direct and
contingent exposure) which individually were greater than 5% of the Group’s capital resources (Tier 1 and Tier 2
capital):
10% to less than 15% of Group’s capital resources
5% to less than 10% of Group’s capital resources
1
7
1
7
1
4
1
4
2
6
1999
1998
1997
1996
1995
Number
Number
Number
Number
Number
85
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
Notes to and forming part of the accounts
NOTE 14 Credit Risk Concentrations continued
Credit Portfolio
Industry Profile
The following table sets forth the distribution of the Group’s loans, advances and other receivables (excluding
bank acceptances) classified by industry category at 30 June 1995, 1996, 1997, 1998 and 1999.
1999
%
1.6
4.0
3.9
32.8
2.0
18.9
3.0
20.9
87.1
0.1
0.8
1.4
7.1
0.4
0.3
0.2
1,216
4,128
2,490
34,505
1,197
14,063
1,940
20,488
80,027
105
640
1,449
6,304
318
217
173
1,727
4,203
4,048
34,325
2,105
19,750
3,100
21,817
91,075
157
833
1,507
7,413
427
277
191
1998
1997
($ millions, except where indicated)
%
%
1996
%
A T 3 0 J U N E
1995
%
1.3
4.4
2.7
37.3
1.3
15.2
2.1
22.1
86.4
0.1
0.7
1.6
6.8
0.3
0.2
0.2
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
-
2.3
3.8
2.2
39.3
1.4
12.8
5.1
19.9
86.8
-
0.7
1.8
7.4
0.2
0.2
-
1,477
2,896
2,211
28,963
1,065
9,456
4,245
13,024
63,337
310
376
1,134
4,545
205
240
1
2,000
8,811
2.0
4.0
3.1
40.1
1.5
13.1
5.9
18.1
87.8
0.4
0.5
1.6
6.3
0.3
0.3
-
2.8
12.2
874
2,538
1,641
26,808
1,084
8,669
3,749
11,262
56,625
274
224
956
3,701
359
168
2
2,474
8,158
1.3
3.9
2.5
41.4
1.7
13.4
5.8
17.4
87.4
0.4
0.3
1.5
5.7
0.6
0.3
-
3.8
12.6
2,686
13,491
2.6
12.9
3,342
12,548
3.7
13.6
2,469
11,069
2.9
13.2
104,566
100.0
92,575
100.0
83,790
100.0
72,148
100.0
64,783
100.0
(2,729)
101,837
(2,759)
89,816
(2,158)
81,632
(2,106)
70,042
(2,076)
62,707
Australia
Government and
Public Authorities
Agriculture, Forestry
and Fishing
Financial, Investment
and Insurance
Real Estate
Mortgage (1)
Construction (2)
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 (1)
Construction (2)
Personal
Lease Financing
Other Commercial
and Industrial
Total Overseas
Gross Loans, Advances
and Other Receivables
Provisions for bad
And doubtful debts,
Unearned income,
interest reserved
and unearned tax
remissions on
leverage leases
Net Loans, Advances
and Other Receivables
(1) Principally owner occupied housing.
(2) Financing real estate and land development projects.
86
NOTE 15 Asset Quality
Credit Portfolio
The Group manages its credit portfolio in two
segments:
Statistically Managed Segment
This segment comprises selected products
where
than
$250,000. This segment is dominated by the housing
portfolio. Credit facilities are approved using credit
scoring and check sheet techniques.
the exposures are generally
less
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 Group’s credit risk portfolio is as follows:
1997
$M
1999
$M
1998
$M
Total gross credit risk (Note 14)
Less unearned income (Note 12)
Credit Risk
Credit Segments
Statistically managed
Risk rated managed
Credit Risk
151,984
(1,169)
150,815
54,556
96,259
150,815
140,215
(1,193)
139,022
50,264
88,758
139,022
128,196
(1,019)
127,177
46,795
80,382
127,177
Charge for bad and doubtful debts for each segment was:
Credit Segments
Charge
1999
$M
Loss Rate
1999
%pa
Charge
1998
$M
Loss Rate
1998
%pa
Charge
1997
$M
Loss Rate
1997
%pa
Statistically managed
Risk rated managed
Sub total
Funding to general provisions
Total charge for bad and doubtful debts
81
151
232
15
247
0.15
0.16
0.15
0.01
0.16
80
137
217
16
233
0.16
0.15
0.16
0.01
0.17
61
(38)
23
75
98
0.13
(0.05)
0.02
0.06
0.08
The loss rate is the charge as a percentage of the
credit segments.
Impaired Assets
for
Impaired Assets contained
The Group adopted the Australian disclosure
in
requirements
‘Specific Disclosures by Financial
AASB1032
Institutions’ with effect from Financial Year 1997. The
Group’s policies incorporate the Reserve Bank of
Australia guidelines issued in December 1993, which
meet the requirements of AASB1032.
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
principal or interest is anticipated.
loss of
At 31 December 1998 the definition of non accruals
was amended to align more closely with APRA
(formerly RBA) guidelines and
industry practice.
When a client is experiencing difficulties the account
is classified as a non accrual only where a loss is
expected, taking into account the level of security
held. To provide comparable provisioning and asset
quality ratios at 30 June 1998 and 30 June 1999,
impaired assets at 30 June 1998 have also been
disclosed under the amended definition.
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
immediate
the modified
reclassification to non accruals.
terms will
result
in
87
Notes to and forming part of the accounts
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
NOTE 15 Asset Quality continued
Impaired Assets continued
(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.
Impaired Asset Ratios (1)
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
1999
%
1998
%
G R O U P
1997
%
0.39
0.32
4.52
0.53
0.49
6.76
0.63
0.64
7.92
(1)
Ratios have been restated from 1998 based on amended definition of non accruals introduced with effect from
31 December 1998.
US GAAP SFAS 114 and 118 - Accounting by Creditors for Impairment of Loans
Impaired Loans
- including non accruals
Impaired Loans with allowance for credit losses
- allowance for credit losses
Impaired Loans with no allowance for credit loss
Average investment in Impaired Loans
Income recognised on Impaired Loans
Y E A R E N D E D 3 0 J U N E
1998
$M
920
920
726
259
194
908
34
1997
$M
896
896
670
226
226
1,008
50
1999
$M
636
636
505
255
131
778
33
88
NOTE 15 Asset Quality continued
Impaired Assets
The following table sets forth the Group’s impaired assets as at 30 June 1995, 1996, 1997, 1998 and 1999.
Australia
Non accrual loans:
Gross balances
Less interest reserved
Gross balance (net of interest reserved)
Less provisions for impairment
Net non accrual loans
Restructured loans:
Gross balances
Less interest reserved
Gross balance (net of interest reserved)
Less specific provisions
Net restructured loans
Other Assets Acquired Through Security
Enforcement (OAATSE):
Gross balances
Less provisions for impairment
Net OAATSE
Net Australian impaired assets
Overseas
Non accrual loans:
Gross balances
Less interest reserved
Gross balance (net of interest reserved)
Less provisions for impairment
Net non accrual loans
Restructured loans:
Gross balances
Less interest reserved
Gross balance (net of interest reserved)
Less specific provisions
Net restructured loans
Other Real Estate Owned (OREO)
Gross balances
Less provisions for impairment
Net OREO
Net Overseas impaired assets
Total net impaired assets
1999
$M
495
(66)
429
(178)
251
1
-
1
-
1
-
-
-
252
147
(2)
145
(97)
48
-
-
-
-
-
14
-
14
62
314
1998 (1)
$M
616
(85)
531
(174)
357
-
-
-
-
-
-
-
-
357
310
(17)
293
(105)
188
-
-
-
-
-
-
-
-
188
545
1997
$M
831
(100)
731
(222)
509
-
-
-
-
-
-
-
-
509
75
(9)
66
(19)
47
-
-
-
-
-
-
-
-
47
556
A T 3 0 J U N E
1996
$M
1995
$M
1,060
(108)
952
(300)
652
1,500
(129)
1,371
(473)
898
29
(9)
20
-
20
37
(11)
26
-
26
6
(6)
-
672
6
(6)
-
924
51
(6)
45
(10)
35
142
(9)
133
(26)
107
-
-
-
-
-
-
-
-
-
-
39
(2)
37
72
744
47
(5)
42
149
1,073
(1)
Under revised definition of non accrual assets introduced 31 December 1998 net impaired assets at 30 June 1998 would have
been $466 million.
89
Notes to and forming part of the accounts
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
NOTE 15 Asset Quality continued
Movement in Impaired Asset Balances
The following table provides an analysis of the movement in the gross impaired asset balances for Financial Years 1995,
1996, 1997, 1998 and 1999.
Gross impaired assets at period beginning
New and increased
Balances written off
Returned to performing or repaid
Gross impaired assets at period end
1999
$M
926
415
(280)
(404) (1)
657
1998
$M
906
689
(216)
(453)
926
Y E A R E N D E D 3 0 J U N E
1996
$M
1,732
390
(269)
(668)
1,185
1995
$M
2,555
773
(541)
(1,055)
1,732
1997
$M
1,185
487
(190)
(576)
906
(1)
Includes $99 million reduction due to revised definition of non accruals introduced 31 December 1998.
Loans Accruing But Past Due 90 Days or More
Accruing loans past due 90 days or more
Housing loans
Other loans
Total
Interest Income Forgone on Impaired Assets
Interest income forgone
Australia Non Accrual Facilities
Overseas Non Accrual Facilities
Total
Interest Taken to Profit and Loss on Impaired Assets
Australia
Non Accrual Facilities
Restructured Facilities
Overseas
Non Accrual Facilities
OREO
Total Interest to Profit and Loss
1999
$M
182
23
205
1999
$M
17
10
27
1999
$M
33
-
-
-
33
1998
$M
249
41
290
1998
$M
34
7
41
1998
$M
34
-
-
-
34
A T 3 0 J U N E
1996
$M
336
29
365
1995
$M
257
44
301
Y E A R E N D E D 3 0 J U N E
1996
$M
75
5
80
1995
$M
112
11
123
Y E A R E N D E D 3 0 J U N E
1996
$M
1995
$M
70
5
-
6
81
62
-
1
-
63
1997
$M
267
37
304
1997
$M
52
3
55
1997
$M
50
-
-
5
55
90
NOTE 15 Asset Quality continued
Impaired Assets
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
Total
G R O U P
G R O U P
Australia Overseas
1999
$M
1999
$M
Total
1999
$M
Australia Overseas
1998
$M
1998
$M
366
129
495
(66)
429
(178)
251
145
2
147
(2)
145
(97)
48
511
131
642
(68)
574
(275)
299
439
177
616
(85)
531
(174)
357
293
17
310
(17)
293
(105)
188
Total
1998
$M
732
194
926
(102)
824
(279)
545
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
616
(85)
531
(174)
357
274
183
159
616
310
(17)
293
(105)
188
5
43
262
310
926
(102)
824 (1)
(279)
545 (1)
279
226
421
926
1
-
1
-
1
-
-
-
-
-
-
496
(66)
430
(178)
252
173
142
180
495
-
-
-
-
-
1
-
1
-
1
14
-
14
14
-
14
-
-
-
-
-
-
161
(2)
159
(97)
62
5
27
115
147
657
(68)
589
(275)
314
178
169
295
642
(1)
Under the revised definition of non accrual assets introduced at 31 December 1998, Net Balances would be $742 million, and
Net Impaired Assets $466 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.
182
23
205
265
25
290
91
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
Notes to and forming part of the accounts
NOTE 15 Asset Quality continued
Asian and Other Regional Exposures
Approximately 65% of the Bank’s Asian exposures relate to counterparties rated investment grade equivalent or
better. Almost 47% of total exposures relate to financial institutions. Exposures to Indonesia, Thailand and Korea
have reduced by 24% in the Financial Year 1999 and represent approximately 23% of the Bank’s Asian credit risk.
The Group’s credit risk exposure to Asian countries as at 30 June 1999 is set out below.
Country
Finance
Corporate/ Government
Customer Type
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
$M
21
205
226
968
7
361
5
5
1,346
61
264
24
349
1,921
Multinational
$M
85
554
639
291
60
103
16
4
474
162
92
128
382
1,495
$M
-
45
45
223
-
1
-
-
224
50
-
17
67
336
Product Category
Trade
Finance
$M
Lending Bkd Other Comm
Lending
outside Asia
$M
$M
13
1
14
-
-
-
4
1
5
-
110
1
111
130
41
277
318
287
1
21
-
-
309
5
-
-
5
632
51
371
422
220
7
404
16
8
655
358
73
143
574
1,651
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
for
30 June 1998 were reported based on the RBA
‘original exposure’ method, from 1 July 1998 balances
are reported on a ‘mark to market plus potential
exposure’ basis.
facilities, balances
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.
Trade Finance - Trade related documentary
letters of credit and other trade products.
92
Project
Finance
$M
-
-
-
-
-
-
-
-
-
94
-
-
94
94
APL/NZPL
$M
1
164
165
-
4
38
-
-
42
50
-
-
50
257
APL/NZPL
$M
1
164
165
-
4
38
-
-
42
50
-
-
50
257
Treasury/
Securities
$M
1
155
156
975
59
40
1
-
1,075
4
173
25
202
1,433
1999
Total
Exposure
$M
1998
Total
Exposure
$M
107
968
1,075
1,482
71
503
21
9
2,086
417
356
169
942
4,103
225
979
1,204
2,574
78
749
45
13
3,459
618
370
254
1,242
5,905
1999
Total
Exposure
$M
1998
Total
Exposure
$M
107
968
1,075
1,482
71
503
21
9
2,086
417
356
169
942
4,103
225
979
1,204
2,574
78
749
45
13
3,459
618
370
254
1,242
5,905
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
of
through
entity
awareness/letter of comfort.
guarantee
letter
or
a
Other - Countries with total exposure of less
than $10 million.
The Group had total exposures at 30 June 1999 of
$163 million to Eastern Europe, Latin America and the
Middle East.
NOTE 16 Deposits with Regulatory Authorities
Reserve Bank of Australia
Central Banks Overseas
Total Deposits with Regulatory Authorities
1999
$M
952
1
953
G R O U P
1998
$M
831
1
832
1999
$M
951
1
952
B A N K
1998
$M
827
1
828
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
Loans to controlled entities
Total Shares in and Loans to Controlled Entities
- -
- -
- -
3,065
4,043
7,108
3,052
2,531
5,583
NOTE 18 Property, Plant and Equipment
(a) Land and Buildings
Land
At 30 June 1999 valuation
At 30 June 1998 valuation
Closing balance
Buildings
At 30 June 1999 valuation
At 30 June 1998 valuation
Closing balance
Total Land and Buildings
239
-
239
470
-
470
709
-
373
373
-
964
964
1,337
216
-
216
358
-
358
574
-
347
347
-
856
856
1,203
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 1999 or 1998.
(b) Leasehold Improvements
At cost
Provision for depreciation
Closing balance
(c) Equipment
At cost
Provision for depreciation
Closing balance
Total Property, Plant and Equipment
344
(191)
153
254
(129)
125
505
(366)
139
1,001
539
(339)
200
1,662
311
(176)
135
339
(252)
87
796
242
(126)
116
335
(216)
119
1,438
93
Notes to and forming part of the accounts
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
NOTE 19 Goodwill
Purchased goodwill
Accumulated amortisation
Total Goodwill
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
1999
$M
841
(350)
491
G R O U P
1998
$M
835
(304)
531
1999
$M
784
(333)
451
B A N K
1998
$M
784
(294)
490
795
123
233
350
333
4,978
2,134
8,946
794
103
114
1,076
325
8,297
1,150
11,859
791
23
198
290
262
4,978
1,410
7,952
868
8
32
1,033
293
8,297
871
11,402
Potential future income tax benefits of the Company 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 $146 million (1998: $132 million) will only be obtained if:
•
The Company 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 Company continues to comply with the conditions for deductibility imposed by tax legislation; and
No changes in tax legislation adversely affect the Company 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
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
Total Deposits and Other Public Borrowings
11,000
23,871
41,454
4,555
619
7
81,506
2,295
5,692
3,878
57
11,922
93,428
2,156
24,522
40,337
3,936
662
7
71,620
2,938
6,201
3,057
70
12,266
83,886
11,000
21,188
41,305
4,555
619
-
78,667
534
1,723
10
6
2,273
80,940
2,156
21,679
40,229
4,962
662
-
69,688
975
2,230
39
12
3,256
72,944
Term deposit balances include $2,683 million (1998: $2,852 million) of borrowings secured by charges over the
assets of CBFC Limited Group, a controlled entity of the Bank.
94
NOTE 21 Deposits and Other Public Borrowings continued
Maturity Distribution of Certificates of Deposit and Time Deposits
The following table sets forth the maturity distribution of the Group’s certificates of deposits and time deposits as
at 30 June 1999.
A T 3 0 J U N E 1 9 9 9
Maturing
Three
Months or
Less
$M
Maturing
Between
Three & Six
Months
$M
Maturing
Between
Six &
Twelve
Months
$M
Maturing
After
Twelve
Months
$M
Australia
Certificates of deposit (1)
Time deposits
Total Australia
Overseas
Certificates of deposit (1)
Time deposits
Total Overseas
Total Certificates of Deposit and Time Deposits
4,030
10,799
14,829
1,405
4,321
5,726
20,555
1,541
5,296
6,837
583
643
1,226
8,063
-
4,374
4,374
248
571
819
5,193
(1)
All certificates of deposit issued by the Bank are for amounts greater than $100,000.
NOTE 22 Payables to Other Financial Institutions
Australia
Overseas
Total Payables to Other Financial Institutions
1999
$M
879
2,370
3,249
G R O U P
1998
$M
1,281
2,116
3,397
5,429
3,402
8,831
59
157
216
9,047
1999
$M
799
2,087
2,886
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
General insurance claims
Self insurance/non lending losses
Other
Total Other Provisions
472
933
1,405
215
883
1,098
428
467
895
5
-
5
1,410
1
-
1
1,099
2
-
2
897
286
129
200
57
57
35
41
805
289
129
218
122
285
124
200
57
35 -
35
30
41
52
742
875
Total
$M
11,000
23,871
34,871
2,295
5,692
7,987
42,858
B A N K
1998
$M
1,252
1,756
3,008
205
436
641
1
-
1
642
288
123
218
122
-
30
49
830
95
Notes to and forming part of the accounts
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
NOTE 25 Debt Issues
Short term debt issues
Long term debt issues
Total Debt Issues
Short Term Debt Issues
AUD Promissory Notes
NZD 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
Long Term Debt Issues
USD Medium Term Notes
AUD Medium Term Notes
JPY Medium Term Notes
Other Currencies Medium Term Notes
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
1999
$M
8,009
2,754
10,763
G R O U P
1998
$M
6,758
3,850
10,608
576
119
4,491
1,582
1,241
8,009
124
525
665
399
313
200
528
2,754
319
-
4,219
1,365
855
6,758
460
681
813
509
558
301
528
3,850
6,179
1,830
1,588
1,166
10,763
4,653
2,105
2,376
1,474
10,608
1999
$M
4,118
2,222
6,340
-
-
1,557
1,320
1,241
4,118
124
525
665
395
313
200
-
2,222
3,215
903
1,519
703
6,340
B A N K
1998
$M
6,190
3,049
9,239
-
-
4,219
1,245
726
6,190
460
624
813
293
558
301
-
3,049
4,085
2,105
2,160
889
9,239
it may
The Bank has a Euro Medium Term Note
programme under which
issue notes
(EuroMTNs) up
to an aggregate amount of
is
USD5 billion. At 30 June 1999, USD3.0 billion
outstanding under this programme. Notes issued
under the programme are both fixed and variable
rate. Interest rate risk associated with the notes is
incorporated within the Bank’s interest rate risk
framework.
Where any debt is booked in an offshore branch
or subsidiary, the amounts have first been converted
into the base currency of the branch at a branch
defined exchange rate, before being converted into the
AUD equivalent.
in
When proceeds have been employed
currencies other than that of the ultimate repayment
liability, swap or other hedge arrangements have been
entered into.
96
NOTE 25 Debt Issues continued
Short Term Borrowings
The following table analyses the Group’s short term borrowings for the Financial Years ended 30 June 1997, 1998
and 1999.
US Commercial Paper
Outstanding at period end (1)
Maximum amount outstanding at any month end (2)
Approximate average amount outstanding (2)
Approximate weighted average rate on:
Average amount outstanding
Outstanding at period end
Euro Commercial Paper
Outstanding at period end (1)
Maximum amount outstanding at any month end (2)
Approximate average amount outstanding (2)
Approximate weighted average rate on:
Average amount outstanding
Outstanding at period end
Other Commercial Paper
Outstanding at period end (1)
Maximum amount outstanding at any month end (2)
Approximate average amount outstanding (2)
Approximate weighted average rate on:
Average amount outstanding
Outstanding at period end
Y E A R E N D E D 3 0 J U N E
1999
1998
1997
($ millions, except where indicated)
4,491
5,408
4,419
5.2%
5.0%
1,582
2,267
1,714
4.5%
4.4%
695
781
324
4.6%
4.9%
4,219
4,256
2,501
5.7%
5.6%
1,365
2,813
1,544
5.7%
5.3%
319
604
466
5.2%
5.1%
3,074
3,553
2,519
5.5%
5.7%
1,922
2,089
1,484
5.6%
5.7%
827
867
776
6.3%
5.7%
(1)
(2)
The amount outstanding at period end is reported on a book value basis.
The maximum and average amounts over the period are reported on a face value basis because the book values of these
amounts are not available.
Exchange Rates Utilised
AUD 1.00 =
USD
GBP
JPY
NZD
HKD
DEM
CHF
IDR
30 June 1999
.6599
.4190
79.7934
1.2478
5.1197
1.2487
1.0228
4432
30 June 1998
.6128
.3675
86.3201
1.1930
4.7486
1.1091
.9337
8000
97
Notes to and forming part of the accounts
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 has been progressively phased out
following
the Commonwealth’s
of
sale
shareholding in the Bank on 19 July 1996.
the
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
transitional arrangements
liabilities,
the Bank’s
provided that:
•
•
the end of
all demand deposits and term deposits would be
guaranteed until
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
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
into, or under an
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
and maturity profile of outstanding liabilities which are
subject to the Commonwealth’s guarantee.
Commonwealth Development Bank
On 24 July 1996,
the Commonwealth of
Australia sold
the
Commonwealth Development Bank Limited (CDBL) to
the Bank for $12.5 million.
its 8.1% shareholding
in
•
•
remain
liabilities continue
in CDBL, consistent with
Under the arrangements relating to the purchase
by the Bank of the Commonwealth’s shareholding in
the CDBL:
•
all lending assets as at 30 June 1996 have been
quarantined
the
Charter terms on which they were written;
the CDBL’s
to
guaranteed by the Commonwealth; and
CDBL 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 CDBL is being written by the
rural arm of the Bank.
The due payment of all monies payable by
the Commonwealth of
CDBL
Australia under Section 117 of the Commonwealth
Bank’s Act 1959 (as amended). This guarantee will
continue to be provided by the Commonwealth whilst
quarantined assets are held. The value of
the
the guarantee will diminish as
liabilities under
quarantined assets reach maturity and are repaid.
is guaranteed by
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
1999
$M
1,226
782
615
296
4,687
901
8,507
G R O U P
1998
$M
547
817
500
650
7,790
442
10,746
1999
$M
575
639
601
239
4,687
784
7,525
B A N K
1998
$M
531
592
458
609
7,790
254
10,234
98
NOTE 27 Loan Capital
1999
$M
1998
$M
G R O U P
1997
$M
1999
$M
1998
$M
B A N K
1997
$M
Tier 1 Capital
Exchangeable
Exchangeable
Undated
Tier 2 Capital
Extendible
Extendible
Subordinated
Subordinated
Subordinated
Subordinated
Subordinated
Subordinated
Subordinated
Total Loan Capital
Currency
Amount (M)
USD300
USD400
USD100
FRNs
FRNs
FRNs
USD125
AUD300
AUD185
AUD115
AUD25
FRNs
FRNs
MTNs
FRNs
FRNs
Euro MTNs JPY20,000
Euro MTNs USD400
Euro MTNs GBP200
Euro MTNs JPY30,000
(1)
(2)
(3)
(4)
(5)
(5)
(6)
(7)
(8)
(9)
(10)
113
330
152
595
-
300
185
115
25
251
501
408
448
2,233
2,828
422
563
163
1,148
156
300
-
-
-
-
501
408
483
1,848
2,996
388
517
134
1,039
156
300
-
-
-
-
501
408
397
1,762
2,801
113
330
152
595
-
300
185
115
25
251
501
408
448
2,233
2,828
422
563
163
1,148
156
300
-
-
-
-
501
408
483
1,848
2,996
388
517
134
1,039
156
300
-
-
-
-
501
408
397
1,762
2,801
(1)
(2)
USD 300 million Undated Floating Rate Notes (FRNs)
issued 11 July 1988 exchangeable into Dated FRNs.
Outstanding notes at 30 June 1999 were:
USD19 million
:
Due July 1999
USD48.25 million
:
Due July 2000
USD1.5 million
:
Due July 2003
Undated
USD5.5 million
:
USD 400 million Undated FRNs issued 22 February
1989 exchangeable into Dated FRNs.
Outstanding notes at 30 June 1999 were:
: USD176 million
Due February 2000
Undated
: USD71 million
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.
(3)
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 APRA, 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 Dated FRN’s which have matured to date, 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.
99
Notes to and forming part of the accounts
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
NOTE 27 Loan Capital continued
(4)
to
the above
AUD 300 million Extendible Floating Rate Stock issued
December 1989; due December 2004.
The Bank has entered into a separate agreement with
the Commonwealth relating
issue
(the ‘Agreement’) which qualifies the issue 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 Agreement provides 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 note issue
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 the note
issue and, where applicable, the Trustee of the notes
gives notice of such to the Bank; or
NOTE 28 Share Capital
Issued and Paid Up Capital
Opening balance
Transfer from share premium reserve
Buyback
Dividend reinvestment plan
Employee Share Acquisition Plan
Employee Share Subscription Plan
Issue costs
Closing balance
Shares on Issue
As at 30 June 1998
Buyback
Dividend reinvestment plan issues:
1998 final dividend fully paid ordinary shares at $18.79
1999 interim dividend fully paid ordinary shares at $24.50
Exercise under Executive Option Plan
Employee Share Subscription Plan issues
Total shares on issue at 30 June 1999
•
the Bank, if required by the Commonwealth and
subject to the agreement of the APRA, exercises its
option to redeem such issue.
Any payment made by the Commonwealth pursuant to
its guarantee in respect of the issue will trigger the issue of
shares to the Commonwealth to the value of such payment.
(5)
AUD300 million Subordinated Notes, issued February
1999; due February 2009, split into $185 million fixed
rate notes and $115 million floating rate notes.
AUD25 million Subordinated FRN, issued April 1999,
due April 2029.
JPY20 billion Perpetual Subordinated Euro MTN,
issued February 1999.
USD400 million
issued June 1996; due July 2006.
GBP200 million Subordinated Euro MTN issued March
1996; due December 2006.
JPY30 billion Subordinated Euro MTN issued October
1995; due October 2015.
Subordinated
Euro
MTN
(6)
(7)
(8)
(9)
(10)
1999
$M
B A N K
1998
$M
1,845
1,499
(246)
426
-
5
(3)
3,526
1,860
-
(76)
57
4
-
-
1,845
Number
922,658,274
(27,366,447)
12,114,896
8,260,352
26,000
275,550
915,968,625
Options to purchase securities from registrant or subsidiaries
•
•
•
The Bank has in place the following employee share plans:
Employee Share Acquisition Plan;
Employee Share Subscription Plan; and
Executive Option Plan,
each of which was approved for a 3 year period by shareholders at the Annual General Meeting on 8 October
1996. Continuation of each of the plans for another 3 years was approved by shareholders at the Annual General
Meeting on 29 October 1998.
100
NOTE 28 Share Capital continued
Employee Share Acquisition Plan
The Employee Share Acquisition Plan provides employees of the Bank with up to $1,000 worth of free shares
per annum subject to a performance target being met. The performance target is growth in annual profit of the
greater of 5% or consumer price index plus 2%. Details of issues under this plan are:
Issue Date
1996 Offer
2 January 1997
18 March 1997
1997 Offer
11 December 1997
3 February 1998
Total Ordinary
Shares Issued(1)
Total Bonus
Ordinary Shares
Issued(2)
No. of Eligible
Employees
Participating
Shares Issued
to each
Participant
27,755
13
3,025
2,275,910
1,066
1,637,273
232
27,755
13
28,281
4
83
83
58
58
Issue
Price(3)
$12.04
$12.04
$17.16
$17.16
(1)
(2)
(3)
New employee shareholders are granted one ordinary
share with the remainder of shares issued as Bonus
Ordinary Shares.
The bonus shares were fully paid up as issued shares
utilising the Share Premium Reserve.
The Issue Price x Shares issued to each Participant
effectively represents $1,000 of free shares.
Under the Plan a further grant of up to $1,000
was possible during the year if the Bank had achieved
the year ended
the performance
30 June 1998. As the target was not achieved, no
allotments occurred under this Plan during the year.
target
for
Employee Share Subscription Plan
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 can be acquired by employees who have had
at least one year’s 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. Details of allotments to date under this
plan are:
Issue Date
27 March 1997
25 September 1997
27 March 1998
30 September 1998
26 March 1999
No. of
Ordinary
Shares Issued
No. of Eligible
Employees
Participating
Purchase
Price(1)
Offer Date
Market Value
at Issue Date
209,400
171,000
158,600
81,450
194,100
1,149
971
815
511
1,027
$12.74
$14.84
$16.80
$18.60
$23.36
25 February 1997
26 August 1997
24 February 1998
25 August 1998
23 February 1999
$12.75
$17.22
$18.07
$19.97
$26.25
(1)
The Purchase Price was 95% of the weighted average market price of Commonwealth Bank shares on the ASX during the
five trading days immediately before the Offer Date.
101
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
Notes to and forming part of the accounts
NOTE 28 Share Capital continued
Executive Option Plan
Under the Executive Option Plan, the Bank will
grant options to purchase ordinary shares to those
key executives who, are able, by virtue of their
responsibility, experience and skill, to influence the
generation of shareholder wealth, are declared by the
Board of Directors to be eligible to participate in the
Plan. Non executive directors are not eligible to
participate in the Executive Option Plan.
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 each respective exercise period
other than at Board discretion in terms of Plan rules,
and exercise is conditional on the Bank achieving a
reach
prescribed performance hurdle. To
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
reached within that three years, the options may
nevertheless be exercisable only where the hurdle is
subsequently reached within the remaining life of the
options. The Plan is limited to no more than 50
executives. The options do not grant rights to the
option holders to participate in a share issue of any
other body corporate. Details of issues under this Plan
are:
Issue Date
16/12/96
11/12/97
30/09/98
Total Options
Issued
Eligible
Executives
Participating
2,100,000
2,875,000
3,275,000
25
27
32
Exercise
Price(1)
$11.85
$15.53(2)
$19.58(2)
Expiry Date
Grant Date
Market Price at
Issue Date
12/11/01
03/11/02
25/08/03
12/11/96
03/11/97
25/08/98
$11.93
$16.85
$19.97
Share Buyback
to
The Bank’s shareholders’ equity was reduced by
$650 million on 24 March 1999 pursuant
the
buyback of 27.4 million shares. The price per share
paid by the Bank for the buyback shares was $23.78
calculated in accordance with the buyback offer. In
accordance with an agreement reached with the
Australian Taxation Office $9 per share of
the
consideration for each share bought back has been
charged to paid up capital ($246 million). The balance
of $14.78 per share is deemed to be a fully franked
dividend
profits
($404 million).
retained
charged
and
to
1999
$M
1998
$M
G R O U P
1997
$M
203
118
130
- - -
48
178
24
227
59
177
(1) Market Value at the Grant Date. Market Value is
defined as the weighted average of the prices at which
the Bank’s ordinary shares were traded on the ASX
during the one week period before the Grant Date.
(2) Will be adjusted by the premium formula (based on the
actual differences between the dividend and bond
yields at the date of the vesting of the right to exercise
the options).
682,500 options, from all grants to date, have
been forfeited as at the date of this report. 26,000
options from the 1996 grant, have been exercised as
at the date of this report. There are 7,541,500 options
outstanding at the date of this report.
NOTE 29 Outside Equity Interests
Share Capital
Reserves
Retained profits
Total Outside Equity Interests
102
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 have been adopted by
APRA, and they are generally consistent with those
proposed by
the Basle Committee on Banking
Supervision. 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 four
approved categories of risk weight (0, 20, 50 or 100
Risk Weighted Capital Ratios
Tier one
Tier two
Less deductions
Total
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 (eligible loan capital)
Preference shares
Total Tier Two Capital
Tier One and Tier Two Capital
Less deductions
Total Tier One and Tier Two Capital
per cent) to the assets of the Group, 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
the same manner as balance sheet assets.
in
The only exception
for derivatives where a
maximum weighting of 50% applies.
is
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.
APRA 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.
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 Group’s capital base as the numerator.
1999
Actual
%
7.05
3.12
(0.79)
9.38
1999
$M
6,962
638
7,600
(491)
(88)
7,021
1,081
(347)
2,335
40
3,109
10,130
(788)
9,342
1998
Actual
%
8.07
2.82
(0.40)
10.49
G R O U P
1998
$M
6,889
1,306
8,195
(531)
(47)
7,617
1,076
(337)
1,885
42
2,666
10,283
(381)
9,902
103
Notes to and forming part of the accounts
NOTE 30 Capital Adequacy continued
Risk weighted assets
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 (3) (4)
Total on balance sheet assets - credit risk
(2)
(1998:
(1) Other zero weighted assets include gross unrealised
gains on trading derivative financial instruments of
$8,297 million). APRA
$4,978 million
announced on 28 August 1998
that claims on
Australian Commonwealth, State and Territory
Governments are risk weighted at zero per cent
irrespective of terms.
For loans secured by residential mortgages approved
after 5 September 1994, a risk weight of 100 per cent
applied where the loan to valuation ratio is in excess of
80 per cent. Effective from 28 August 1998, a risk
weight of 50 per cent applies to these loans if they are
totally insured by an acceptable lender’s mortgage
insurer. Loans that are risk weighted at 100 per cent
are reported under ‘All Other Assets’.
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
Face Value
1999
$M
1998
$M
Risk
Weights
%
Risk Weighted
Balance
1998
$M
1999
$M
14,533
10,732
0% -
-
-
6,697
57,478
55,481
134,189
4,954
7,566
46,158
57,004
126,414
10% -
20%
1,339
50% 28,739
100% 55,481
85,559
495
1,513
23,079
57,004
82,091
(3)
(4)
The difference between total on balance sheet assets
and the Group’s balance sheet reflects the alternative
treatment of some assets and provisions as prescribed
in APRA’s capital adequacy guidelines, principally
goodwill and general provisions for bad and doubtful
debts.
Total on balance sheet assets exclude debt and equity
securities in the trading book and all on balance sheet
positions in commodities as they are included in the
calculation of notional market risk weighted assets.
F a c e V a l u e
1999
$M
1998
$M
C r e d i t
E q u i v a l e n t
1998
$M
1999
$M
R i s k W e i g h t e d
B a l a n c e
1998
$M
1999
$M
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
3,027
1,704
32,970
2,729
1,593
23,669
3,027
779
12,941
2,729
655
9,014
283,646
321,347
276,051
304,042
6,598
23,345
9,813
22,211
2,424
770
8,366
1,852
13,412
98,971
585
99,556
2,188
608
6,010
2,921
11,727
93,818
613
94,431
104
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.
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 9
G R O U P
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
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
864
-
950
-
-
-
-
1,814
88
-
-
1,498
-
173
2,623
49,947
657
-
-
235
50,839
-
-
-
2,900
-
-
2,900
-
-
-
-
-
-
1,026
4,708
1,802
7,982
8,804
6,404
31,676
21,178
2,270
8,804
6,040
7,613
45,905
92
-
493
11,624
868
2
13,079
13,256
320
868
2,222
9
16,675
-
-
3,057
35,496
-
12
38,565
8,890
2
-
2,127
237
11,256
-
-
-
-
1,835 -
1,206
4,708
7,187
(943) 101,837
-
9,672
8,238
665
(278) 134,662
43,280
-
982
46,097
93,428
157 -
3,249
-
9,672
-
13,591
517
295
8,769
812 128,709
-
-
2,685
380
3,222
(1)
(2)
Trading securities are purchased without the intention
to hold until maturity and are categorised as maturing
within 3 months.
$36 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.
(3)
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.
105
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
Notes to and forming part of the accounts
NOTE 31 Maturity Analysis of Monetary Assets and Liabilities continued
G R O U P
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
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
1,041
115
-
-
485
-
110
1,751
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
47,373
431
-
-
174
47,978
-
485
-
-
-
-
1,526
-
-
-
2,841
-
-
3,280
4,009
1,383
5,070
8,849
10,444
2,841 33,520
895
11,940
51 -
- -
2,626
-
-
1,934
33,052 37,266
-
856
35,757 40,056
878 -
79
2
13,766
2
-
20
(838)
-
497
(319)
3,448
4,009
6,858
89,816
9,727
11,988
127,372
-
-
-
-
-
-
19,788
2,648
8,849
1,783
10,837
43,905
6,094
9,260
312
6
878 -
2,544
130
8,774
5,891
34
16,375
1,371
-
-
3,203
-
4,574
-
-
-
183
139
322
83,886
3,397
9,727
13,604
11,314
121,928
(1)
(2)
Trading securities are purchased without the intention
to hold until maturity and are categorised as maturing
within 3 months.
$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.
(3)
‘core’ deposits which are
Includes substantial
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.
106
NOTE 32 Financial Reporting by Segments
1999
%
$M
1998
%
$M
G R O U P
1997
%
$M
(a) Geographical segments
Revenue
Australia
New Zealand
Other Countries (1)
Operating profit before tax
Australia
New Zealand
Other Countries (1)
Operating profit after tax and outside equity interests
Australia
New Zealand
Other Countries (1)
Assets
Australia
New Zealand
Other Countries (1)
(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
8,801
976
660
84.3
9.4
6.3
10,437 100.0
9,514
1,115
657
84.3
9.9
5.8
11,286 100.0
9,484
977
448
86.9
9.0
4.1
10,909 100.0
1,933
151
76
89.5
7.0
3.5
2,160 100.0
1,221
148
(27)
91.0
11.0
(2.0)
1,342 100.0
1,454
128
34
90.0
7.9
2.1
1,616 100.0
1,270
80
72
89.3
5.6
5.1
1,422 100.0
1,044
73
(27)
95.8
6.7
(2.5)
1,090 100.0
990
63
25
91.9
5.8
2.3
1,078 100.0
115,510
13,046
9,540
84.3
8.3
7.4
138,096 100.0 130,544 100.0 120,103 100.0
83.6 110,120
10,846
9,578
84.4 101,202
9,994
8,907
9.5
6.9
8.3
7.3
9,576
360
501
91.8
3.4
4.8
10,437 100.0
10,563
214
509
93.6
1.9
4.5
11,286 100.0
10,293
202
414
94.3
1.9
3.8
10,909 100.0
1,944
127
89
90.0
5.9
4.1
2,160 100.0
1,158
81
103
86.3
6.0
7.7
1,342 100.0
1,443
74
99
89.3
4.6
6.1
1,616 100.0
1,252
117
53
88.1
8.2
3.7
1,422 100.0
940
84
66
86.2
7.7
6.1
1,090 100.0
941
75
62
87.2
7.0
5.8
1,078 100.0
131,043
1,309
5,744
96.1
0.3
3.6
138,096 100.0 130,544 100.0 120,103 100.0
94.9 124,765
427
5,352
95.6 115,368
359
4,376
0.3
4.1
0.9
4.2
(1) 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.
107
Notes to and forming part of the accounts
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
NOTE 32 Financial Reporting by Segments continued
Detailed below is Segment Information required
in accordance with US SFAS 131 Disclosure about
Segments of an Enterprise and Related Information.
Operating segments are defined as components
of an enterprise about which separate financial
information is available that is evaluated regularly by
the chief operating decision maker or decision
making group,
In
accordance with the new standard, results have been
presented based on segments as reviewed by the
the Managing
chief operating decision maker,
in assessing performance.
Director, as well as other members of senior
management.
The Bank segments are: Retail Financial
Services, Institutional Banking, ASB Bank Limited
(ASB) and Corporate. Retail Financial Services
comprises the Bank’s Customer Service Division and
Banking and Financial Services. Institutional Banking
comprises debt funding, corporate finance, financial
market activities and the securities business. ASB is a
stand alone bank
in New Zealand. Corporate
comprises head office and service functions.
Profit and Loss
Net interest income
Fees and commissions
Trading income
Life insurance and funds management
Other income
Internal charges (1)
Total operating income
Provisions for impairment
Staff expenses
Provisions (non cash)
Other
Total Staff expenses
Occupancy and equipment expenses
Depreciation
Other
Total Occupancy and equipment expenses
Information technology services
Other expenses
Internal charges (1)
Total operating expenses
Amortisation of goodwill
Abnormal items
Profit before tax
Income tax expense
Outside equity interest
Profit after tax
Balance Sheet
Total Assets
Total Liabilities
Performance Ratios (%)
Retail
Financial
Services
$M
2,769
939
-
223
59
159
4,149
172
33
1,021
1,054
109
228
337
366
280
678
2,715
7
-
1,255
416
-
839
Institutional
Banking
$M
273
240
253
16
75
167
1,024
62
4
212
216
8
42
50
104
48
171
589
-
-
373
68
-
305
G R O U P
Y E A R E N D E D 3 0 J U N E 1 9 9 9
ASB
Corporate
Total
$M
279
94
18
7
9
-
407
11
1
124
125
25
27
52
21
47
-
245
-
-
151
47
24
80
$M
206
8
2
8
46
520
790
2
4
205
209
3
13
16
14
131
(2)
368
40
-
380
183
-
197
$M
3,527
1,281
273
254
189
-
5,524
247
42
1,562
1,604
145
310
455
505
506
-
3,070
47
-
2,160
714
24
1,422
81,583
57,390
40,697
34,251
12,855
11,992
2,961
27,501
138,096
131,134
Total operating expenses/Total operating income
Asset growth
65.44%
8.30%
57.52%
(2.22%)
60.20%
19.10%
46.58%
5.75%
55.58%
5.78%
(1)
Internal charges are eliminated on consolidation.
108
NOTE 32 Financial Reporting by Segments continued
Profit and Loss
Net interest income
Fees and commissions
Trading income
Life insurance and funds management
Other income
Internal charges (1)
Total operating income
Provisions for impairment
Staff expenses
Provisions (non cash)
Other
Total Staff expenses
Occupancy and equipment expenses
Depreciation
Other
Total Occupancy and equipment expenses
Information technology services
Other expenses
Internal charges (1)
Total operating expenses
Amortisation of goodwill
Abnormal items
Profit before tax
Income tax expense
Outside equity interest
Profit after tax
Balance Sheet
Total Assets
Total Liabilities
Performance Ratios (%)
G R O U P
Y E A R E N D E D 3 0 J U N E 1 9 9 8
ASB
Corporate
Total
Institutional
Banking
$M
$M
242
223
229
17
99
140
950
132
4
191
195
5
48
53
101
30
168
547
-
-
271
78
-
193
282
90
14
1
4
-
391
9
1
111
112
22
30
52
21
48
-
233
-
-
149
50
25
74
$M
143
3
-
(1)
64
556
765
(45)
(4)
248
244
(23)
29
6
32
95
(3)
374
45
570
(179)
(270)
(5)
96
$M
3,397
1,150
243
205
235
-
5,230
233
25
1,597
1,622
132
341
473
476
468
-
3,039
46
570
1,342
232
20
1,090
Retail
Financial
Services
$M
2,730
834
-
188
68
141
3,961
137
24
1,047
1,071
128
234
362
322
295
672
2,722
1
-
1,101
374
-
727
75,329
56,894
41,622
35,928
10,793
10,147
2,800
20,686
130,544
123,655
Total operating expenses/Total operating income
Asset growth
68.72%
N/A
57.58%
N/A
59.59%
N/A
48.89%
N/A
58.11%
N/A
(1)
Internal charges are eliminated on consolidation.
for
the
Segment
information
financial year
ending 30 June 1997 is not available in the above
classifications. The Group undertook a major
restructuring program during the financial year ended
30 June 1998. As part of the restructuring program,
the previous business units of Personal Banking,
Business Banking and Commonwealth Financial
Services were reorganised into two new divisions: the
specialist areas of marketing, customer segmentation
and product development became the Banking and
Financial Services Division, while
the various
distribution arms were brought together to form the
Customer Services Division. The Institutional Banking
Division remained largely unchanged. Retail Financial
Services is comprised of two divisions, Customer
Services Division and Banking and Financial Services
Division. Corporate comprises the various head office
functions as well as Technology, Operations and
Property.
109
Notes to and forming part of the accounts
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
NOTE 33 Remuneration of Auditors
Amounts paid or due and payable for audit services to:
Auditors of the Bank
Other auditors
Amounts paid or due and payable for other services to:
Auditors of the Bank
G R O U P
1998
$’000
1999
$’000
1999
$’000
B A N K
1998
$’000
2,593
300
2,893
2,540
250
2,790
1,753
-
1,753
1,671
-
1,671
5,011
5,040
4,905
5,004
Total Remuneration of Auditors
7,904
7,830
6,658
6,675
NOTE 34 Commitments for Capital Expenditure Not Provided for in the Accounts
$M
$M
$M
$M
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
Group’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
7
-
-
-
7
25
-
-
-
25
172
143
347
303
965
147
116
254
234
751
9
-
-
-
9
197
164
394
363
1,118
8
6
16
14
44
25
-
-
-
25
171
136
304
302
913
9
5
9
11
34
110
NOTE 36 Contingent Liabilities
The Group is 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
Face Value
1998
$M
1999
$M
G R O U P
Credit Equivalent
1998
1999
$M
$M
2,030
487
510
244
1,460
32,151
819
37,701
1,878
396
455
474
1,120
22,693
975
27,991
2,030
487
510
49
730
12,155
786
16,747
1,878
396
455
95
560
8,069
945
12,398
Contingent
increased by
liabilities have
$9.7 billion primarily due to the APRA requirement to
include the value of any redraw facilities for owner
occupied and
in
commitments to provide credit.
investment housing
loans
Guarantees represent conditional undertakings
by the Group to support the financial obligations of its
customers to third parties.
Standby letters of credit are undertakings by the
Group 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 Group 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.
related
Performance
involve
undertakings by the Group to pay third parties if a
customer fails to fulfil a contractual non monetary
obligation.
contingents
Commitments
include all
obligations on the part of the Group to provide funding
facilities.
to provide credit
Other
commitments
the Group’s
obligations under sale and repurchase agreements,
outright forward purchases and forward deposits and
underwriting facilities.
include
The transactions are categorised and credit
equivalents calculated under APRA guidelines for the
risk based measurement of capital adequacy. The
credit equivalent amounts are a measure of the
potential loss to the Group 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 Group 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.
111
Notes to and forming part of the accounts
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
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 1999 the assets of the trusts
exceeds those liabilities incurred.
Commonwealth Managed Investments Limited
(CMIL) is a company established to act as the
Responsible Entity of the Bank’s managed investment
schemes. CMIL as Trustee of the Commonwealth
Property Office Fund has incurred liabilities in its
capacity as Trustee. However, it has a right of
indemnity against the Trust and at 30 June 1999 the
assets of the Trust exceeded those liabilities.
EDSA Contract
In 1997, the Bank entered into a ten year
contract with an associated entity, EDSA, relating to
the provision of information technology services. The
exact amount of the contract is unable to be reliably
determined as it is dependent upon business volumes
over the period of the contract.
Liquidity support
clearing
governing
In accordance with
the Regulations and
Procedures
arrangements
contained within the Australian Paper Clearing Stream
(Clearing Stream 1) and the Bulk Electronic Clearing
the Australian
Stream
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.
(Clearing Stream 2) of
Year 2000 systems compliance
The Bank has previously estimated
total
rectification costs
issues at
$115 million. The Bank expects to complete the
this estimate.
overall programme
Expenditure to the end of June 1999 was $87 million.
for Year 2000
line with
in
The Bank reported to the Australian Stock
Exchange in March 1999, that depositors’ funds will
not be at risk from Year 2000 issues.
Service agreements
The maximum contingent liability for termination
benefits in respect of service agreements with the
the
Managing Director and other executives of
Company and its controlled entities at 30 June 1999
was $10 million (1998: $10 million).
NOTE 36 Contingent Liabilities continued
Fiduciary activities
The Group conducts investment management
and other fiduciary activities as responsible entity,
for numerous
trustee, custodian or manager
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 Group’s balance sheet, are as
follows:
Funds under trusteeship
Funds under management
Funds under custody
1999
$M
10,740
27,189
23,965
1998
$M
10,385
21,983
22,300
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
112
NOTE 37 Market Risk
The Group 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 Group, 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 Group manages liquidity risk separately for its
domestic AUD obligations and for its foreign currency
obligations. In both domestic and foreign currency
operations, liquidity policies are in place to manage
liquidity both in a day to day sense, and also under
crisis assumptions.
Domestically, each bank
in Australia must
maintain at all times a minimum proportion of its
balance sheet in specified highly liquifiable assets as
an emergency source of liquidity. This ratio, referred
to as
(‘PAR’),
the Prime Assets Requirement
currently requires the banks to hold prime assets
equivalent to not less than 3% of total liabilities (other
than capital) that are invested in Australian dollar
assets within Australia. Eligible PAR assets comprise
the Reserve Bank,
cash,
and
securities
Commonwealth Government
Australian dollar denominated securities issued by
the central borrowing authorities of State and
Territory governments. In addition to observing PAR,
banks are expected to hold a stock of high quality
liquid assets sufficient to meet day to day liquidity
needs and protect against an unexpected outflow of
funds.
balances with
In April 1998, the RBA announced that the PAR
ratio requirement will be abolished once liquidity
for a non PAR
management policies (suitable
environment) are agreed with individual banks. APRA
is currently in the midst of discussions with the banks
and it is expected new liquidity arrangements will be
in place by end 1999.
Foreign currency liquidity risk is managed by
ensuring that a positive cumulative cash flow always
exists for the next 7 days’ operations. This means
that should a crisis situation arise, the Bank would
not need to access new funding from wholesale
markets for at least one week. There is also a cap on
the maximum level of cumulative negative cash flows
at day 28. A stock of liquid assets is included in this
protective measure.
Funding risk
Funding risk is the risk of over reliance on a
funding source to the extent that change in that
funding source would increase funding cost or cause
difficulty in raising funds. The Group has a policy of
funding diversification to ensure that over reliance is
not placed on any one market sector.
Domestically, the Bank continues to obtain the
majority of its AUD funding from its stable retail deposit
base, primarily demand and short term deposits, which
have a lower interest cost than wholesale funds. The
retail funding percentage has fallen over recent years
from 69% in June 1998 to 63% in June 1999 (monthly
averages). The relative size of the Bank’s retail base
has enabled it to source funds at a lower average rate
of interest than the other major Australian banks.
However, some of this benefit is offset by the cost of
the Bank’s retail network and the Bank’s large share
(approximately 40%) of pensioner deeming accounts
which, in the current interest rate environment are
incurring an interest cost above normal retail deposit
accounts.
In recent years, the Bank has experienced a
into higher
movement of retail deposit balances
interest bearing accounts,
increased
reflecting
customer awareness of investment opportunities in an
environment where the level of interest rates has
remained lower and relatively more stable when
compared with the interest rate cycles of the 1980s
and early 1990s.
The Bank’s cost of funds for Financial Year 1999,
calculated as the percentage of interest expense to
average interest bearing liabilities, was 4.1% on a
Group basis compared with 4.6% on a Group basis for
Financial Year 1998.
The Bank obtains a growing proportion of its
funding for the domestic balance sheet from wholesale
sources – approximately 22%, excluding Bank
Acceptances. The cost of
the
wholesale markets
independently
assessed credit ratings. Previously, the Bank has
benefited
the Commonwealth of Australia’s
guarantee of its liabilities in terms of both credit ratings
and the resultant cost of wholesale funds.
is affected by
raised
funds
from
in
the date on which
Under the Commonwealth Bank Sale Act 1995,
this guarantee is being phased out, over a three year
the
period commencing on
Commonwealth’s shareholding in the Bank fell below
50% (ie 19 July 1996). All liabilities incurred prior to
that time continue to be guaranteed until maturity and,
for a period of three years from that time, all deposits
made in that period continue to be guaranteed. Time
deposits outstanding at the end of the transition period
are guaranteed until maturity.
113
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
any ‘natural’ offshore funding base means the Bank is
principally reliant on money market and capital market
sources for funding. The Bank has imposed internal
prudential limits on the relative mix of offshore sources
of funds.
The following table outlines the range of financial
instruments used by the Group 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.
1999
$M
12,104
24,961
23,871
8,789
5,980
9,634
11,000
2,828
619
1,041
100,827
14,292
3,758
1,025
38
19,113
119,940
11,194
131,134
G R O U P
1998
$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
Notes to and forming part of the accounts
NOTE 37 Market Risk continued
of
The
removal
progressive
the
Commonwealth’s guarantee has not had a material
impact on the Bank’s overall cost of funds as the
proportion of the Bank’s funding raised from the
wholesale markets with the benefit of the guarantee
the
following
is
Commonwealth’s
on
guarantee
19 July 1999, negligible change has occurred in retail
deposit funding costs.
the removal of
deposits
low. Similarly,
on
A funding diversification policy is particularly
important in offshore markets where the absence of
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
114
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 Group’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.
The Group measures and manages balance
sheet interest rate risk from two perspectives:
(a) Next 12 months’ earnings
least a monthly basis. Risk
The risk to the net interest earnings over the
next 12 months from a change in interest rates is
measured on at
is
immediate 1% parallel
measured assuming an
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
interest earnings are
to net
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 Group) 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
1999
%
2.1
2.9
1.5
1998
%
2.8
3.4
2.3
(b) Economic value
Some of the Group’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 Group utilises an economic
value at risk analysis. This analysis measures the
potential change in the net present value of cashflows
of assets and liabilities. Cashflows for fixed rate
products are included on a contractual basis, after
adjustment
activity.
Cashflows for products repriced at the discretion of
the Group are based on the expected repricing
characteristics of the products.
prepayment
forecast
for
The total cashflows are revalued under a range
of possible interest rate scenarios using a Value at
Risk (VaR) methodology. The interest rate scenarios
are based on actual interest rate movements that
have occurred over 1 year and 5 year historical
observation periods. The measured VaR exposure is
an estimate to a 97.5% confidence level (one tail) of
the potential loss that could occur if the balance sheet
positions were to be held unchanged for a one month
holding period. For example, value at risk exposure of
$1 million means that in 97.5 cases out of 100, the
expected net present value will not decrease by more
than $1 million given the historical movement 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.
Exposure as at 30 June
Average monthly exposure
High month exposure
Low month exposure
1999
$M
54
48
65
31
1998
$M
78
25
78
7
at
as
and
The
30 June 1999
table following represents
the Group’s
contractual interest rate risk sensitivity from repricing
mismatches
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
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
to
contractual repricing dates. Options are shown in the
mismatch report using delta equivalents of the option
face values.
liabilities are shown according
this contractual
115
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
Notes to and forming part of the accounts
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 9
Balance
6 to 12
1 to 3
Sheet
Total month months months months
$M
$M
3 to 6
0 to 1
$M
$M
$M
1 to 5
years
$M
over 5 Interest
years Bearing
$M
$M
Not Weighted
Average
Rate
%
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
1,722
859
-
-
-
-
-
863
621
3,219
3,147
215
3,219
1,414
88,500 44,457
-
952
-
-
-
117,071 51,116
9,634
952
806
491
7,979
206
-
20
4,869
-
-
-
-
-
5,095
159
-
-
-
-
-
-
332
931
5,830 10,403 22,291
-
-
-
-
-
5,989 10,735 23,222
-
-
-
-
-
-
-
-
-
-
-
-
450
1,634
-
-
-
-
-
41
-
-
(984)
9,634
-
806
491
7,979
2,084 18,830
81,506 48,174
7,714
7,916
5,244
5,169
2,734
4,555
879
9,634
472
1,405
804
5,980
7,443
645
-
-
-
-
1,075
-
17
-
-
1
-
1,880
-
2,828
789
110,951 50,237 10,401
343
6,735
-
6,735
-
-
-
-
-
-
61
-
-
-
-
440
-
152
8,569
-
-
-
153
-
-
-
-
1,061
-
-
6,458
-
-
-
2
-
-
-
-
1,319
-
185
6,675
-
-
-
-
-
-
-
-
205
-
1
9,634
472
1,404
804
-
7,443
1,359
-
4,298 24,313
-
-
-
6,735
-
6,735
*
*
*
*
*
(4,537)
(181)
-
2,917
(6,076)
269
(271)
(2,000)
2,000
(3,839) (13,653)
2,606
(3,839) (17,492) (14,886)
2,006
183
-
2,651
-
-
6,466 19,198
(8,420) 10,778 11,603
-
-
-
825 (12,218)
(615)
3,039
-
-
1.42
8.08
3.99
6.64
6.92
-
-
-
-
-
5.58
3.28
4.55
-
-
-
-
5.03
-
5.59
2.86
#
#
#
#
#
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.
116
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 9
Balance
Sheet
1 to 3
Total month months months months
$M
$M
Not Weighted
3 to 6 6 to 12 1 to 5 over 5 Interest Average
Rate
%
years Bearing
$M
years
$M
0 to 1
$M
$M
$M
$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
Options
FRAs
Futures
Net Mismatch
Cumulative Mismatch
#
*
no rate applicable
no balance sheet amount applicable
92
34
58
-
-
-
-
-
585
1,489
4,040
13,337
38
1
195
1,248
21,025
289
474
656
5,407
38
-
-
-
6,898
233
452
982
1,014
-
-
-
-
2,739
39
262
55
1,415
-
-
-
-
1,771
-
90
124
-
-
184
27
978 1,245
213
-
-
-
-
1,479 5,291 1,485
1,265 4,129
-
-
-
-
-
-
-
-
11,922
7,043
2,591
1,195
837
216
-
2,370
38
5
1
4,783
1,064
1,717
38
-
-
1,356
376
-
-
20,183 10,530
-
227
227
-
-
-
358
-
-
-
1,861
212
-
5,022
-
-
-
145
-
-
-
706
-
3
-
-
-
239
-
-
2,046
-
1,079
-
-
-
-
-
-
-
-
-
-
292
24
-
532
-
-
-
-
-
-
-
329
19
-
348
-
-
-
*
*
*
*
*
*
1,159
-
(339)
-
(2,812)
(2,812)
2,150
-
138
275
280
(2,532)
(8)
-
56
(515)
(742)
(3,274)
96 (3,059)
-
-
-
145
217
11
858 1,711
(705)
(2,416)
(338)
-
-
12
811
106
24
-
-
(106)
-
1
195
1,248
1,362
40
147
-
5
1
-
433
-
626
-
227
227
-
-
-
-
509
615
2.08
5.07
4.90
5.29
7.15
-
-
-
-
6.05
4.16
4.99
-
-
-
4.79
1.84
-
4.28
#
#
#
#
#
#
117
Notes to and forming part of the accounts
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 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
years
$M
Not Weighted
over 5 Interest Average
Rate
years Bearing
%
$M
$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
1,486
642
-
-
-
-
-
844
1.28
2,382 1,676
2,210 2,210
3,151 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
7,500 18,578
-
-
-
-
-
7,832 19,238
-
-
-
-
-
7.67
4.73
5.58
7.49
-
2
-
-
161
528
(1,258)
2,946
9,700 -
-
-
-
1,448 -
-
-
531 -
6 10,845 -
-
3,482 22,271
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
945
-
-
-
-
8,078 1,777
90
10,120
165
-
-
-
-
1,594
-
-
-
-
4
-
1,474
-
165
-
-
-
-
6
-
-
-
-
486 2,152
-
-
-
4.17
9,700 -
321 -
1,094 -
869 -
-
-
-
-
-
595
-
23 10,007 -
5.22
Loan Capital
Total Liabilities
2,996
480
106,083 49,226
953
9,254
367
8,095
-
-
3,068 6,945
1,196
-
2,549 26,946
7.30
2.97
Shareholders’ Equity
Outside equity interests in
controlled entities
Total Shareholders’ Equity
Off Balance Sheet Items
Swaps
FRAs
Futures
Net Mismatch
Cumulative Mismatch
6,712
5
6,717
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
6,712
5
6,717
*
*
*
*
*
441
(1,330)
-
(4,729)
(4,729)
(3,811)
595
-
598
735
(650)
(641)
-
650
2,042
-
-
1,371
-
-
-
-
-
(6,763)
(11,492)
(1,208)
(12,700)
4,773 14,335
(7,927)
6,408
2,304 (11,392)
(2,680)
8,712
#
#
#
#
#
#
*
no rate applicable
no balance sheet amount applicable
118
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
Total month months months months
$M
$M
0 to 1
1 to 3
3 to 6
$M
$M
$M
1 to 5
years
$M
Not Weighted
over 5 Interest Average
Rate
years Bearing
%
$M
$M
Total Assets
20,424
5,540
4,657
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
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 -
1,066
1,799
3,707
12,373
27
1
214
1,197
496
367
1,200
3,136
27
-
197
93
471
680
653
2,853
397
272
1,292
41
132
1,132
302
700
3,997
51 - - -
48
12 -
750 -
(93)
5.92
7.23
8.62
8.37
- - - - - - -
1 -
- - - - -
17 -
- - - - -
1,104 -
- - - - -
818
1,093
4,999
2,012
1,305
7.58
56
12,266
6,067
3,735
1,501
609
265
26
63
6.22
2,116
27
1
6
2,530
626
1,657
27
(1)
5
894
209
-
17,572
-
8,858
310
353
1
105
6.28
43 - -
- - - - - - -
2 -
- - - - -
1 -
- - - - -
4.76
417 -
- - - - -
428 -
479
311
65
- - - - - - -
5.78
1,917
484
717
454
744
4,398
-
172
172
*
*
*
*
*
*
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
172
172
989
-
(507)
(2)
1,687
-
(78)
(695)
266
270
590
680
(2,285)
(299)
(358) -
(270) - - -
(13) - -
7 -
11
8
(1)
(2,838)
(2,838)
1,173
(1,665)
1,901
236
26
262
1,968
2,230
13
2,243
437
2,680
#
#
#
#
#
#
119
Notes to and forming part of the accounts
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 Group 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 Group’s
capital adequacy ratio to deteriorate by less than
0.3% (1998: less than 0.3%).
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
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
1998
$M
1999
$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
1998
$M
1999
$M
86
68
(71)
22
233
338
67
39
181
(20)
348
615
80
6
(64)
(134)
(172)
(284)
63
(6)
12
(63)
(14)
(8)
1999
$M
166
74
(135)
(112)
61
54
T o t a l
1998
$M
130
33
193
(83)
334
607
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 $19 million of net deferred
gains on derivatives (1998: $50 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 Group’s policy is that exposure to market
risk from trading activities is managed in the Financial
Markets area of Institutional Banking. The Group
trades and distributes financial markets products and
provides risk management services to clients on a
global basis.
The objectives of the Group’s financial markets
activities are to:
•
•
•
Provide risk management products and services
to customers;
Manage the Group’s own market risks; and
Conduct controlled trading in pursuit of profit,
leveraging off the Bank’s market presence and
expertise.
The Group maintains access to markets by
quoting bid and offer prices with other market makers
instruments,
and carries an inventory of treasury and capital
market
including a broad range of
securities and derivatives. In foreign exchange, the
Group 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. Positions are also
taken in the interest rate, debt, equity and commodity
markets based on views of future market movements.
in
Trading securities are
further detailed
Note 10.
Derivatives
Derivative
instruments are contracts whose
value is derived from one or more underlying financial
the contract.
indices defined
instruments or
Derivatives entered into for trading purposes include
swaps, forward rate agreements, futures, options and
combinations of these instruments.
in
The sale of derivatives to customers as risk
management products and their use for trading
purposes is integral to the Group’s financial markets
activities. Derivatives are also used to manage the
Group’s own exposure to fluctuations in interest and
exchange rates. The Group participates in both
exchange traded and OTC derivatives markets.
Exchange traded derivatives: The Group buys
and sells exchange traded financial instruments,
primarily financial futures and options on financial
futures.
have
standardised terms and require lodgment of initial and
variation margins in cash or other collateral at the
exchange, which guarantees ultimate settlement.
derivatives
Exchange
traded
120
NOTE 37 Market Risk continued
Derivatives continued
these
OTC traded derivatives: The Group buys and
sells financial instruments that are traded ‘over the
counter’, rather than on recognised exchanges. The
terms and conditions of
transactions are
negotiated between the parties, although the majority
conform to accepted market conventions. Industry
standard documentation is used, most commonly in
form of a master agreement supported by
the
individual
The
documentation protects the Group’s interests should
the counterparty default, and provides the ability to
net outstanding balances in jurisdictions where the
relevant law allows.
confirmations.
transaction
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 Trading Income
contribution of $273 million (1998: $243 million) to the
income of the Bank. The contribution is significant and
provides important diversification benefits within the
Group’s overall earnings. The risk/reward balance is
highlighted by comparing the income contribution of
$273 million to the ‘value at risk’ (VaR) measure,
explained
following, which has
averaged approximately $2.36 million for the year
ended 30 June 1999. 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 section
in
The distribution of daily earnings for the year
ended 30 June 1999 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
50
45
40
35
30
25
20
15
10
5
-
>-3.0
>-1.5
>-1.0
>-0.5
>0
>0.5
>1.0
$m
>1.5
>2.0
>2.5
>3.0
>3.5
>4.0
>4.5
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
liquidity
control, daily
management and a regime of accounting and
systems controls.
revaluations of positions,
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 Group’s overall credit
require
management process. The Group may
lodgment 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 Group readily
obtaining prices to allow it to close out its position.
This risk is controlled by concentrating trading activity
in highly liquid markets and limiting the Bank’s volume
of activity in less liquid markets.
121
Notes to and forming part of the accounts
NOTE 37 Market Risk continued
Risks and controls continued
Market risk is the risk of loss arising due to
adverse price movements in financial markets. The
Group’s major market risks are interest rate risk and
exchange rate risk.
The Risk Committee of the Board recommends
for Board approval the market risk management
policies of the Group and 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
function within
separate Risk Management
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.
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
Value at risk (VaR)
The Group 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 Group’s positions were to
be held unchanged for one business day. The VaR
measure takes into account correlation 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.
In addition to the daily report of aggregate VaR,
there are daily risk reports by:
•
•
•
Risk type, that is interest rate, exchange rate,
equity, volatility;
Product; and
Business unit.
The following table shows the VaR for each
financial year ended
the
trading day during
30 June 1999.
Daily Value-at-Risk
2 9-J ul-9 8
2 6- A u g-9 8
2 3- S e p-9 8
2 1- O ct-9 8
1 8- N
o v-9 8
1 6- D
e c-9 8
1 3-J a n-9 9
1 0- F e b-9 9
1 0- M
ar-9 9
7- A pr-9 9
5- M
a y-9 9
2-J u n-9 9
3 0-J u n-9 9
$6,000,000
$5,000,000
$4,000,000
$3,000,000
$2,000,000
$1,000,000
$0
1-J ul-9 8
122
NOTE 37 Market Risk continued
The Group trades in numerous products and markets. This provides significant diversification of risk. The
following table provides a summary of VaR by product:
Risk Type
VaR During Half Year to
30 June 1999
VaR During Half Year to
31 Dec 1998
VaR During Half Year to
30 June 1998
High *
$M
Avg
$M
Low *
$M
High *
$M
Interest rate risk
Foreign exchange risk
Implied volatility risk
Equities risk
Commodities risk
Diversification benefit
Total
2.97
2.15
0.83
0.10
0.14
-
3.37
2.02
0.83
0.53
0.04
0.11
(1.33)
2.20
1.34
0.08
0.38
0.01
0.00
-
1.41
3.04
4.73
0.81
0.81
-
-
5.18
Avg
$M
1.97
1.35
0.58
0.14
-
(1.51)
2.53
Low *
$M
High *
$M
1.30
0.43
0.33
0.00
-
-
1.65
4.55
2.08
0.89
0.37
-
-
4.41
Avg
$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
Actual**
VaR as at
31 Dec 1997
$M
4.55
0.95
0.16
0.00
-
(1.26)
4.40
*
**
The high and low figures for each risk category may
not occur on the same day. A diversification benefit
therefore cannot be calculated.
Comparative data is not available for the half year
ended 31 December 1997 due to a material change in
the basis of measurement from 2 January 1998. The
ignored correlation
previous VaR
between risks. The actual VaR as at 31 December
1997 has been calculated and
for
comparative purposes.
risk measure
is supplied
In managing the risk the Group aligns itself with
industry experts. These industry experts ensure that
the residual value of equipment is prudently estimated
at the start of the lease and the Group realises the
maximum value of the equipment at lease expiry.
Derivative contracts
following
The
the Group’s
outstanding derivative contracts as at the end of the
year.
table details
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 two year 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.
that could potentially arise
VaR provides a statistical estimate of the risk at
the chosen confidence level, and not the size of
losses
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.
leases
Residual Value Risk on Operating Leases
The Group provides operating
to
customers on equipment such as motor vehicles,
computers and industrial equipment. A residual value
risk arises when equipment is not fully depreciated at
lease expiry. Residual value risk is the risk that the
amount recouped by selling the equipment at lease
expiry will be less than the residual value on the
lease.
Each derivative type is split between those held
for ‘Trading’ purposes and for ‘Other than Trading’
purposes. Derivatives classified, as
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.
‘Other
The ‘Face Value’ is the notional or contractual
amount of
is not
the derivatives. This amount
necessarily exchanged and predominantly acts as a
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).
123
Notes to and forming part of the accounts
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
1999
$M
Face Value
1998
$M
G R O U P
Credit Equivalent
1998
$M
1999
$M
92,721
43
92,764
12,244
6,050
18,294
218
-
218
41,028
-
41,028
152,304
6,863
8,527
15,390
56,534
36,343
92,877
44,602
454
45,056
8,471
61
8,532
161,855
119,979
-
119,979
2,521
-
2,521
5,880
-
5,880
11,940
5,231
17,171
84
-
84
35,272
-
35,272
172,506
11,739
2,586
14,325
37,849
30,128
67,977
39,410
726
40,136
7,030
65
7,095
129,533
954
810
1,764
-
-
-
662
-
662
4,947
1
-
1
1,261
634
1,895
775
1,146
1,921
-
-
-
824
-
824
8,625
4
-
4
1,005
608
1,613
-
-
-
-
-
-
41
61
102
1,998
51
65
116
1,733
278
278
314,437
449
449
302,488
-
-
6,945
10
10
10,368
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
Options purchased and sold
Other than trading
Total equity risk related contracts
Total derivatives exposures
124
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 Group’s accounting policy, these unrealised
gains and losses are recognised immediately in
profit and loss, and together with net realised gains on
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
trading derivatives and realised and unrealised gains
and losses on trading securities, are reported within
trading income under foreign exchange earnings or
2).
instruments
other
In aggregate, derivatives trading was profitable for the
Group during the year.
(refer Note
financial
G R O U P
Fair Value
1998
$M
1999
$M
Average Fair Value
1998
$M
1999
$M
1,804
(1,473)
331
1,181
(1,165)
16
14
(16)
(2)
409
(293)
116
461
4,332
(3,697)
635
1,662
(1,925)
(263)
5
(4)
1
602
(406)
196
569
2
(3)
(1)
5
(7)
(2)
2,490
(1,902)
588
1,656
(1,727)
(71)
3,988
(3,687)
301
1,218
(1,326)
(108)
12
(13)
2
(2)
(1) -
536
(374)
162
678
3
(6)
(3)
401
(297)
104
297
5
(9)
(4)
1,530
(1,697)
(167)
1,648
(1,725)
(77)
1,806
(1,930)
(124)
1,596
(1,681)
(85)
16
(11)
5
22
(29)
(7)
(170)
291
7
(10)
(3)
36
(16)
20
(62)
507
20
(11)
9
31
(20)
11
(107)
571
13
(14)
(1)
41
(12)
30
(60)
237
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
4,978
(4,687)
291
8,297
(7,790)
507
125
Notes to and forming part of the accounts
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
NOTE 38 Superannuation Commitments
The Group 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
Type
Form of Benefit
Officers’ Superannuation Fund (OSF)
Commonwealth Bank of Australia (UK)
Staff Benefits Scheme (CBA(UK)SBS)
Defined Benefits and Accumulation
Defined Benefits and Accumulation
Indexed pensions and lump sums
Indexed pensions and lump sums
Financial Details of Defined Benefits Plans
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
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 Group contribute to the respective plans in
accordance with the Trust Deeds following the receipt
of actuarial advice.
the
contributions
exception
corresponding to salary sacrifice benefits, the Bank
ceased contributions to the OSF from 8 July 1994.
Further, the Bank ceased contributions to the OSF
With
of
OSF
30 June 1997
$M
CBA(UK)SBS
1 January 1997
$M
5,302
4,022
1,280
24%
4,022
75
47
28
37%
39
Total
$M
5,377
4,069
1,308
24%
4,061
corresponding
1 July 1997.
to salary sacrifice benefits
from
An actuarial assessment of the OSF, as at
30 June 1997 was completed during the year ended
30 June 1998.
the actuarial advice
contained in the assessment, the Bank 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.
line with
In
Management of OSF
The Board of Directors of the Trustee of the OSF
comprises an equal number of member and Bank
representatives.
126
NOTE 39 Controlled Entities
AUSTRALIA
(a) Banking
Commonwealth Bank of Australia (Australia only)
Controlled Entities:
Commonwealth Development Bank of Australia Limited
CBA Investments Limited
Antarctic Shipping Pty Ltd *
Australian Bank Limited
Balga Pty Limited *
Binya Pty Limited *
Brookhollow Ave Pty Limited *
CBA Specialised Financing Limited
Share Investments Pty Limited
CBA EDSA IT Assets Partnership
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 Insurance Limited (1)
Commonwealth Investments Pty Limited *
Hazelwood Investment Company Pty Limited *
Commonwealth Managed Property 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 * (5)
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
Incorporated in
Extent of
Beneficial
Interest if
not 100%
Contribution to
Consolidated Profit
1998
$M
1999
$M
1,104
897
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
Australia
Australia
Australia
49
62
127
Notes to and forming part of the accounts
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
NOTE 39 Controlled Entities continued
(c) Life Insurance and Funds Management
Commonwealth Custodial Services Limited
Commonwealth Insurance Holdings Limited
Commonwealth Life Limited
CLL Investments Limited
CIF (Hazelwood) Pty Limited
Commonwealth Investment Services Limited Group
Commonwealth Investment Services Limited
Commonwealth Managed Investments 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
#
ASB Group Limited (2)
ASB Bank Limited
ASB Finance Limited
ASB Management Services Limited
ASB Properties Limited
ASB Superannuation Nominees Limited
CBA Funding (NZ) Limited
(b) Life Insurance
ASB Group Limited (2) #
ASB Life Limited
Sovereign Limited
OTHER OVERSEAS
(a) Banking
Commonwealth Bank of Australia (Offshore Branches)
CBA Asia Limited
CBA (Europe) Finance Limited
CBA (Delaware) Finance Incorporated
Brigidina Investments Limited (3) (5)
Senator House Investments (UK) Limited (4)
Commonwealth Securities (Japan) Pty Limited
(b) Finance
Central Real Estate Holdings Group
Central Real Estate Holdings Corporation
Wilshire 10880 Corporation
Wilshire 10960 Corporation
CTB Australia Limited
SBV Asia Limited
Operating Profit After Tax and Outside Equity Interests
Incorporated in
Extent of
Beneficial
Interest if
not 100%
Contribution to
Consolidated Profit
1998
$M
1999
$M
117
84
75%
75%
75%
75%
75%
75%
75%
75%
75%
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
Singapore
United Kingdom
USA
Jersey
United Kingdom
Japan
USA
USA
USA
Hong Kong
Hong Kong
80
73
68
(30)
4
4
1,422
1,090
Non-operating controlled entities are excluded from the above list.
(1)
(2)
During the year Commonwealth Connect Insurance Limited changed its name to Commonwealth Insurance Limited.
ASB Group Limited is a 75% owned subsidiary of the Bank. ASB Group Limited owns 100% of ASB Bank Limited and ASB
Life Limited.
(3) Wholly owned subsidiary of Share Investments Pty Limited.
(4) Wholly owned subsidiary of CBA International Finance Pty Limited.
(5)
#
Disposed of during the 1999 Financial Year.
Controlled entities not audited by Ernst & Young.
Small proprietary companies not requiring audit.
*
128
NOTE 40 Investments in Associated Entities
Extent of Principal Activities
Book
Value Ownership
Interest
%
$M
Balance Date
EDS (Australia) Pty Limited
IPAC Securities Limited
PT Bank BII Commonwealth
Electronic Financial Technologies Pty Ltd
Corporate Fleet Management
238
23
13
-
7
Information Technology Services
35
50
Funds Manager
50 Banking in Indonesia
50
50 Desktop IT Lease Management
Financial Technology Development
31 December
30 June
31 December
30 June
30 June
Share of associates’ profits (losses) after notional goodwill amortisation
Operating profits before income tax
Income tax expense
Operating profits after income tax
Carrying amount of investments in associated entities
Opening balance
New investments
Share of associates’ profits (losses)
Foreign exchange adjustment
Dividends paid
Closing Balance
1999
$M
G R O U P
1998
$M
(1)
1
-
276
6
-
-
(1)
281
2
(4)
(2)
60
248
(2)
(30)
-
276
NOTE 41 Standby Arrangements and Unused Credit Facilities
(of controlled entities that are borrowing corporations and entities subject to the Financial Corporations Act 1974)
(a) Financing arrangements accessible
Bank overdraft
Bill facilities
(b) Financing arrangements provided
Wholesale finance
Other facilities
1999
$M
G R O U P
1998
$M
Available
Unused
Available
Unused
50
5
55
-
-
-
-
1
1
-
-
-
17
5
22
-
1
1
1
-
1
-
-
-
129
Notes to and forming part of the accounts
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
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 ASIC Order No. 98/110 dated 10 July 1998, 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 parent 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 and
Investments Commission accompanying the Annual
Report. 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:
M A Besley, AO
J T Ralph, AO
D V Murray
N R Adler, AO
A C Booth
R J Clairs, AO
K E Cowley, AO
J M Schubert
G H Slee, AM
F J Swan
B K Ward
(Chairman)
(Deputy Chairman)
(Managing Director)
(Appointed 1 March 1999)
(Retired 28 February 1999)
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 and Investments Commission Class Order referred to above, disclosure is
the Bank 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.
limited to the aggregate amount of loans made, guaranteed or secured by:
•
•
•
The aggregate amount of such loans outstanding at 30 June 1999 was:
$1,863,945 to Directors of the Bank (1998: $468,000); and
•
$1,084,533 to Directors of related entities (1998: $1,191,900).
•
The aggregate amount of such loans received and repayments made was:
Directors of the CBA
Normal terms and conditions (1)
Directors of related entities
Normal terms and conditions (2)
(1)
(2)
Directors: A C Booth, K E Cowley and B K Ward
Directors: G J Judd, R J Norris, G A Thorby and W W Moyes
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
1999
$
1998
$
1999
$
1998
$
1,600,000 -
204,055
111,000
123,886
186,663
231,252
154,522
130
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 1999, were:
Director
M A Besley
J T Ralph
D V Murray
N R Adler
A C Booth
K E Cowley
J M Schubert
G H Slee (retired 28/02/99)
F J Swan
B K Ward
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
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
the Executive
to 1,300,000 under
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
Bank and other 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 and Investments
to above,
Commission Class Order
transactions
disclosure of
regularly made by a bank is limited to disclosure of
such
the entity
concerned.
transactions with a Director of
referred
instrument
financial
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
Shares Acquired
Shares Disposed Of
Ordinary Ordinary
547
122
2,512
388
54
-
273
99
87
993
-
1,250
1,159
-
-
-
179
-
Held
30 June 1999
Ordinary
10,156
11,064
48,792
9,175
1,075
8,000
5,534
1,828
1,747
parties have been trivial or domestic and were in the
nature of lodgment of deposit monies.
Controlled Entities
Transactions with related parties in the Group
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.
to Commonwealth
As part of an internal Group restructuring, the
Bank has sold its investment in Commonwealth Life
Limited
Insurance Holdings
Limited, a life insurance wholly owned entity as at
30 June 1999. The sale price was at market value
based on independent advice. The capital profit is
reserve at
included
30 June 1999. The capital reserve is eliminated on
consolidation. Also refer Note 1(jj).
the Bank’s
capital
in
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.
131
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
Notes to and forming part of the accounts
NOTE 42 Related Party Disclosures continued
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.
NOTE 43 Remuneration of Directors
Such guarantee is being progressively phased
out
sell-down on
following
full details of
19 July 1996. Refer Note 25
transitional measures. The removal of the guarantee
has not materially affected either the borrowing costs
or the borrowing capabilities of the Bank.
the Government
for
Total amount received or due and receivable by non executive Directors of the Company for the year ended
30 June 1999 was:
Non executive Directors
Mr M A Besley, AO
Mr J T Ralph, AO
Mr N R Adler, AO
Ms A C Booth
Mr R J Clairs, AO(3)
Mr K E Cowley, AO
Dr J M Schubert
Mr G H Slee, AM(2)
Mr F J Swan
Ms B K Ward
Executive Director
Mr D V Murray (refer Note 44)
Base Fee/Pay
$
Committee Fee
$
Superannuation (1)
$
Total Remuneration
$
200,000
90,000
60,000
60,000
20,054
60,000
60,000
46,589
60,000
60,000
-
15,000
10,000
15,014
-
3,342
23,356
10,000
25,000
15,000
-
7,350
4,900
5,250
1,404
4,435
5,835
3,961
5,950
5,250
200,000
112,350
74,900
80,264
21,458
67,777
89,191
60,550
90,950
80,250
(1)
The Bank is currently not contributing to the Officers’ Superannuation Fund. A notional cost of superannuation has been
determined on an individual basis for certain of the Directors. Other Directors have superannuation contributions made to
other funds.
(2) Mr Slee retired 28 February 1999.
(3) Mr Clairs was appointed Director 1 March 1999.
Retirement Benefit
The aggregate amount of ‘prescribed benefits’ (as defined by Section 237 of the Corporations Law) given by the
Bank during the year ended 30 June 1999 was $287,708 being a payment made to Mr G H Slee pursuant to the
Directors’ Retirement Allowance Scheme approved by shareholders at the 1997 Annual General Meeting.
1999
$
B A N K
1998
$
Total amount received or due and receivable by executive and non executive Directors
(includes accumulated benefits due to Directors who retired during the year)
3,156,330
3,477,583
The number of executive and non executive Directors whose remuneration fell within these bands was:
Remuneration (Dollars)
30,000
20,001 - $
$
40,001 - $
$
50,000
60,001 - $
$
70,000
70,001 - $
$
80,000
80,001 - $
$
90,000
$
90,001 - $ 100,000
$ 110,001 - $ 120,000
$ 160,001 - $ 170,000
$ 190,001 - $ 200,000
$ 340,001 - $ 350,000
$1,060,001 - $1,070,000
$1,710,001 - $1,720,000
$1,990,001 - $2,000,000
Number
1
-
1
1
3
1
1
-
1
1 *
-
-
1
11
Number
-
1
4
2
-
1
-
1
-
-
1 #
1
-
11
*
#
Remuneration includes retirement payment to Mr G H Slee who retired on 28 February 1999.
Remuneration includes retirement payment to Mr I K Payne who retired on 11 July 1997.
132
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
1999
$
G R O U P
1998
$
4,902,942
4,142,444
NOTE 44 Remuneration of Executives
The following table shows remuneration for the executive director and five highest paid other members of the senior
executive team who were officers of the Bank and the Group for the year ended 30 June 1999.
Senior Executive Team
Name & Position
Year
Base Pay(1)
Bonus
D V Murray
Managing Director &
CEO
M J Ullmer
Group General
Manager
Financial & Risk
Management
M A Katz
Head of Institutional
Banking
A E Long
Head of Customer
Service Division
J F Mulcahy
Head of Banking &
Financial Services
R J Scrimshaw
Head of Technology,
Operations & Property
1999
1998
1999
1998
1999
1998
1999
1998
1999
1998
1999
1998
$
1,000,000
1,000,000
$
700,000
450,000
Super-
annuation(2)
$
41,332
97,200
Other
Compensation(3)
$
249,600
168,500
Total
Remuneration
$
1,990,932
1,715,700
Option
Grant(4)
Number
500,000
500,000
700,000
(5)496,712
250,000
150,000
126,000
89,408
159,600
156,032
1,235,600
892,152
200,000
200,000
600,000
600,000
340,000
160,000
500,000
500,000
270,000
175,000
600,000
500,000
320,000
200,000
420,000
(6)163,288
230,000
130,000
45,000
45,000
20,178
42,120
45,000
37,500
25,200
12,247
129,600
88,500
210,441
181,453
9,600
88,500
9,600
3,470
1,114,600
893,500
250,000
250,000
1,000,619
898,573
175,000
150,000
974,600
826,000
250,000
250,000
684,800
309,005
125,000
n/a
(1) Base Pay is calculated on a Total Cost basis and includes any FBT charges related to employee benefits including motor
vehicles.
(2) The Bank is currently not contributing to the Officers’ Superannuation Fund (OSF) – refer Note 38. For 1999, notional cost of
superannuation has been determined on an individual basis for each executive. In 1998, a notional cost of superannuation
spread across all members of the relevant Division of the OSF was used.
(3) Other compensation includes, where applicable, housing (including FBT), car parking (including FBT) and other payments.
(4) 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 commencement 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. Options issued during the year to
executives under the Executive Option Plan have an exercise price equivalent to the Market Value of the Bank’s ordinary
shares as at the Grant Date of the options. 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. Additionally, options granted in 1997 and 1998 will
be adjusted by a premium formula (based on the actual differences between the dividend and bond yields at the date of the
vesting of the right to exercise the options). As the options are subject to a performance hurdle, the achievement of which is
uncertain, the amount included as remuneration in the above table is nil. Under the Bank’s US GAAP disclosures, fair value of
options for purposes of inclusion in the potential compensation expense has been determined using the Black-Scholes option
pricing model, being $1.05 per option issued on 30 September 1998 and 89c per option issued on 11 December 1997. Refer
Notes 28 and 47(c) for further details.
(5) From commencement of employment in October 1997.
(6) From commencement of employment in February 1998.
133
Notes to and forming part of the accounts
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
NOTE 44 Remuneration of Executives continued
The following table shows the number of executives whose remuneration fell within the stated bands:
1999
Number
G R O U P
1998
Number
1999
Number
B A N K
1998
Number
Remuneration (Dollars)
$ 120,000
$ 150,000
$ 200,000
$ 250,000
$ 260,000
$ 280,000
$ 290,000
$ 300,000
$ 320,000
$ 340,000
$ 350,000
$ 360,000
$ 370,000
$ 380,000
$ 390,000
$ 400,000
$ 410,000
$ 430,000
$ 440,000
$ 450,000
$ 460,000
$ 470,000
$ 480,000
$ 490,000
$ 500,000
$ 510,000
$ 550,000
$ 570,000
$ 600,000
$ 630,000
$ 650,000
$ 680,000
$ 710,000
$ 770,000
$ 820,000
$ 890,000
$ 930,000
$ 970,000
$ 1,000,000
$ 1,060,000
$ 1,070,000
$ 1,110,000
$ 1,230,000
$ 1,710,000
$ 1,990,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$ 129,999
$ 159,999
$ 209,999
$ 259,999
$ 269,999
$ 289,999
$ 299,999
$ 309,999
$ 329,999
$ 349,999
$ 359,999
$ 369,999
$ 379,999
$ 389,999
$ 399,999
$ 409,999
$ 419,999
$ 439,999
$ 449,999
$ 459,999
$ 469,999
$ 479,999
$ 489,999
$ 499,999
$ 509,999
$ 519,999
$ 559,999
$ 579,999
$ 609,999
$ 639,999
$ 659,999
$ 689,999
$ 719,999
$ 779,999
$ 829,999
$ 899,999
$ 939,999
$ 979,999
$ 1,009,999
$ 1,069,999
$ 1,079,999
$ 1,119,999
$ 1,239,999
$ 1,719,999
$ 1,999,999
-
1 *
-
-
1
-
2
-
1
-
-
-
-
1
2
1
1
1
-
1
1
1
2
2
1
1
1
-
-
1
1
1
1
-
-
-
1
1
1
-
-
1
1
-
1
1
-
1
2
-
1
-
2
1 #
1
1
3 #
3
1
-
4
1
1
3
-
-
-
-
-
-
1
-
1
1
-
-
-
-
1
1
3
-
-
-
1 #
1 #
-
-
1
-
-
1 *
-
-
1
-
2
-
1
-
-
-
-
1
2
1
1
1
-
1
1
1
2
2
1
1
1
-
-
1
1
1
1
-
-
-
1
1
1
-
-
1
1
-
1
1
-
1
2
-
1
-
2
1 #
1
1
3 #
3
1
-
4
1
1
3
-
-
-
-
-
-
1
-
1
1
-
-
-
-
1
1
3
-
-
-
1 #
1 #
-
-
1
-
Total number of executives
31
37
31
37
134
NOTE 44 Remuneration of Executives continued
Total amount received or due and receivable by
executives (includes accumulated benefits due
to executives who retired during the year).
1999
$M
G R O U P
1998
$M
1999
$M
B A N K
1998
$M
18,623,129
19,058,944
18,623,129
19,058,944
*
Includes termination payment to 1 retired, resigned, or
retrenched executive during the 1998/99 financial
year.
#
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. 1998
comparatives have been restated where appropriate.
The Group’s Policy in respect of executives is
that:
•
•
Remuneration will be competitively set so that
the Group can seek to attract, motivate and
retain high quality
international
executive staff;
Remuneration will incorporate, to a significant
degree, variable pay for performance elements,
both short term and long term focused as
appropriate, which will:
local and
•
•
•
•
individual
performance
reward executives for Group, business unit
and
against
appropriate benchmarks/goals,
align the interests of executives with those
of shareholders,
link executive reward with the strategic
goals and performance of the Group,
ensure total remuneration is competitive by
market standards;
•
•
•
the market and
Remuneration will be reviewed annually by the
Remuneration Committee through a process that
considers Group, business unit and individual
performance, relevant comparative remuneration
in
internal and, where
appropriate, external advice on policies and
practices;
Remuneration systems will complement and
reinforce the Group’s leadership and succession
planning systems; and
terms and conditions of
Remuneration and
employment will be specified in an individual
contract of employment and signed by the
executive and the Bank.
135
Notes to and forming part of the accounts
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
NOTE 45 Statements of Cash Flows
Note (a) Reconciliation of Cash
1999
$M
1998
$M
G R O U P
1997
$M
1999
$M
B A N K
1998
$M
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
784
238
912
(2,491)
(557)
951
247
2,925
(2,160)
1,963
1,091
241
3,502
(1,516)
3,318
757
197
886
(2,127)
(287)
909
157
2,681
(1,772)
1,975
Note (b) Cash Flows presented on a Net Basis
Cash flows arising from the following activities
are presented on a net basis in the Statement of Cash
Flows:
•
customer deposits to and withdrawals from
deposit accounts;
•
•
•
loans,
borrowings and repayments on
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
1999
$M
Operating profit after income tax
(Increase) decrease in interest receivable
Increase (decrease) in interest payable
Net (increase) decrease in trading securities
Net (gain) loss on sale of investment securities
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
Net Cash provided by Operating Activities
1,446
(1)
(35)
(408)
(79)
247
192
68
261
50
(8)
206
57
216
-
(36)
2,176
1998
$M
1,110
(13)
75
(646)
(101)
233
233
(74)
46
128
(158)
261
26
(484)
492
(241)
887
G R O U P
1997
$M
1999
$M
1,545
1,100
77
80
47
5
(209)
556
(84)
(4)
78
98
157
280
19
36
224
(222)
31
97
31
22
206
256
53
(13)
(147)
216
200 -
(18)
2,373
47
2,391
B A N K
1998
$M
883
(33)
(32)
(591)
(119)
224
197
(71)
45
43
(146)
260
29
(484)
492
(180)
517
Note (d) Non cash Financing and Investing Activities
Shares issued under the Dividend Reinvestment Plan $426 million (1998: $452 million) and Employee Share
Acquisition Plan - nil (1998: $28 million).
136
NOTE 45 Statements of Cash Flows continued
Note (e) Acquisition of Controlled Entities
In December 1998, the Group acquired 100% of
life
the Share Capital of Sovereign Limited, a
insurance company.
During 1997, the Group acquired 100% of the
share capital of Commonwealth Funds Management
1999
$M
1998
$M
G R O U P
1997
$M
and Leaseway and the 8.1% minority interest in
Commonwealth Development Bank.
Details of controlled entities acquired during the
financial year are as follows:
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
Borrowings
Income tax liability
Other provisions
Bills payable and other liabilities
Policy liabilities
Excess market value over net assets of life insurance subsidiary
Discount on acquisition
Goodwill
Outflow of cash on acquisition
Cash payments
Less cash and cash equivalents acquired
Note (f) Financing Facilities
205
-
88
9
260
671
4
28
(28)
(460)
-
(4)
(72)
(358)
50
155
-
-
205
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
22
2
15
4
6
28
-
(3)
(5)
(6)
-
63
-
(16)
41
88
205
(9)
196
-
-
-
88
(22)
66
Standby funding lines with overseas banks as at 30 June 1999 amounted to AUD equivalent $24 million
(1998: $21 million).
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
in a current
instruments
transaction between willing parties, many of the
be exchanged
could
Group’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.
137
Notes to and forming part of the accounts
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
NOTE 46 Disclosures about Fair Value of Financial Instruments continued
Because of
range of valuation
the wide
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
the many uncertainties discussed above be
that
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.
Carrying
Value
$M
1,814
1,206
4,708
7,187
101,837
9,672
953
9,046
1999
Net Fair
Value
$M
1,814
1,206
4,708
7,196
105,768
9,672
953
9,489
Carrying
Value
$M
1,526
3,448
4,009
6,858
89,816
9,727
832
12,054
93,428
3,249
9,672
10,763
8,451
2,828
-
93,737
3,249
9,672
10,791
8,558
2,862
73
83,886
3,397
9,727
10,608
10,616
2,996
-
G R O U P
1998
Net Fair
Value
$M
1,526
3,448
4,009
7,079
92,646
9,727
832
12,518
84,305
3,397
9,727
10,828
10,856
3,170
557
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
loans was
calculated by discounting expected cash flows using a
rate which includes a premium for the uncertainty of
the flows.
impaired
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 Group operates, the law requires that the Group
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 Group is only able to
continue as a going concern with the maintenance of
these deposits.
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)
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.
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
138
NOTE 46 Disclosures about Fair Value of Financial Instruments continued
All other financial assets
Included in this category are fees receivable,
unrealised income and investments in associates of
$281 million (1998: $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
acceptances
and
approximate their net fair value as they are short term
in nature and reprice frequently.
institutions
bank
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
for similar arrangements. They are not
prices
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.
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.
139
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
Notes to and forming part of the accounts
NOTE 47 Differences between Australian and United States Accounting Principles
The consolidated financial statements of the
Group 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
in
these financial statements and which would be
reported in accordance with US GAAP.
disclosed
balance
sheets
Footnote
1999
$M
1998
$M
1997
$M
1,422
-
(27)
65
38
(4)
-
1,494
1,090
(248)
(1)
(65)
20
-
-
796
1,078
28
(57)
-
44
-
(11)
1,082
(20)
(10)
18
(206)
(51)
(257)
(277)
1,217
161.2
229
10
239
229
1,025
85.6
18
(3)
15
33
1,115
118.0
6,735
(3)
6,712
(15)
6,846
(20)
-
472
-
6
708
(255)
(4)
7,659
-
321
(65)
263
648
(233)
-
7,631
248
291
-
24
616
(222)
-
7,783
138,096 130,544 120,103
-
10,241
9
708
248
7,249
37
616
149,054 139,460 128,253
-
7,959
309
648
Consolidated Statements of Profit and Loss
Net profit reported under Australian GAAP
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
Goodwill amortisation
Adjustment on adoption of new ISC Life Insurance Rules
Net income according to US GAAP
Other Comprehensive Income
Foreign currency translation reserve
Unrealised holding gains on available for sale securities
Less reclassification adjustment for gains/losses included in net income
Total other comprehensive income
Total comprehensive income according to US GAAP
Basic and diluted earnings per share on net income 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 on trading securities transferred to available for sale securities
Unrealised net gain on other available for sale securities
Prepaid pension cost
Tax effect of prepaid pension cost
Goodwill amortisation
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)
(c)
(f)
(i)
(k)
(p)
(a)
(a)
(d)
(f)
(f)
(i)
(i)
(k)
(a)
(e)
(f)
(i)
140
NOTE 47 Differences between Australian and United States Accounting Principles continued
Income Tax
(a)
Deferred Income Tax Assets and Liabilities
tax-effect of
Australian GAAP follows the liability method of
timing
tax-effect accounting. The
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 Group has applied SFAS 109 ‘Accounting
for Income Taxes’ in the preparation of its US GAAP
information.
•
the criterion
the change will occur
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:
•
for
Under Australian GAAP
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.
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
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 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 Group’s
general provision was not recognised. For US GAAP
recognition purposes, the related deferred tax asset
income
is recognised. The 1998 US GAAP net
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
securities sales
1997: $1.4 million).
to gains/losses on
investment
is $28 million (1998: $3.7 million,
(b) Pension Plans
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’ and SFAS 132 ‘Employers
Disclosures about Pensions and Other Post
Retirement Benefits’ have been included at footnote
(i) within this note.
The Group 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 Group. 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.
(c) Employee Share Compensation
issue
is shown as a reduction
In the Consolidated Statements of Changes in
Shareholders’ Equity the Employee Share Acquisition
Plan share
to
shareholder reserves. Under US GAAP, SFAS123
‘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
Group’s performance for the prior years.
Further, under US GAAP, in accordance with the
Employee Share Acquisition Plan an accrual for the
probable grant of shares is required. For 1999 a US
GAAP adjustment of $25 million has been included.
141
Notes to and forming part of the accounts
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
NOTE 47 Differences between Australian and United States Accounting Principles continued
(c) Employee Share Compensation continued
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. For 1999 a US GAAP
adjustment of $2 million has been included.
fair
The
value of options
(issued on
16 December 1996), being 45¢ per option, has been
determined using the 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
(issued on
11 December 1997), being 89¢ per option, has been
value of options
fair
determined using the 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.
fair
The
value of options
(issued on
30 September 1998), being $1.05 per option, has also
been determined using the Black-Scholes option
pricing model with the following assumptions at the
date of issue: expected volatility of 19.4%, risk free
interest rate of 4.79%, dividend rate of 5.99%,
expected life of 39 months and a 50% probability for
the performance hurdle.
Movement in Executive Options during
the year
1999
Weighted Average
Exercise Price*
1998
Weighted Average
Exercise Price*
Options Outstanding at the start of the year
Options Granted during the year
Options Forfeited during the year
Options Exercised during the year
Options Outstanding at the end of the year
4,675,000
3,275,000
382,500
26,000
7,541,500
$14.05
$19.58
$14.66
$11.85
$16.43
2,100,000
2,875,000
300,000
4,675,000
$11.85
$15.53
$12.77
$14.05
The exercise price for options granted in 1997 and 1998 will be adjusted by the premium formula (based on the actual
*
difference between the dividend and bond yields at the date of vesting).
Outstanding Options at 30 June 1999
Number
Exercise Price
Expiry Date
December 1996 Options
December 1997 Options
September 1998 Options
1,704,000
2,612,500
3,225,000
$11.85
$15.53
$19.58
12 Nov 2001
3 Nov 2002
25 Aug 2003
for
The provision
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.
restructuring costs at
30 June 1999 of $57 million (refer Note 24) includes
staff redundancy costs of $31 million with the balance
relating principally
to occupancy and equipment
expenses. This represents the remaining portion of
the $200 million abnormal
restructuring charge
booked during the year ended 30 June 1998. It is
planned that this remaining provision be substantially
utilised during the year ended 30 June 2000.
The accounting policy adopted by the Group for
restructuring provisions is detailed in Note 1(aa).
The weighted average exercise price for options
outstanding at 30 June 1999 is $16.43.
The weighted average remaining contractual life
of these options is 3 years and 4 months.
The other disclosure requirements of SFAS 123
‘Accounting
in
respect of the employee share plans are included in
Note 28.
for Stock-Based Compensation’
(d) Provisions
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.
142
NOTE 47 Differences between Australian and United States Accounting Principles continued
(e) Life Insurance Controlled Entity
the
For Australian GAAP the assets of the statutory
funds and
its
liabilities of
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.
funds
the
to
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:
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
At 30 June 1999
Fair Gross Unrealised Amortised
Cost
$M
Losses
$M
Gains
$M
Value
$M
Fair
Value
$M
At 30 June 1998
Gross Unrealised Amortised
Cost
Losses
Gains
$M
$M
$M
741
225
881
17
1
7
12
6
9
2,857
639
7 -
2 -
- -
48
1,827
3,036 -
665 -
712
10,241
135
-
1
-
13
-
-
176
736
230
883
2,353
7
3
-
1,792
3,036
665
9,705
791
177
729
2,026
-
-
22
1,112
3,062
40
7,959
28
16
22
488
-
-
-
36
-
-
590
-
1
-
134
-
-
-
1
-
-
136
763
162
707
1,672
-
-
22
1,077
3,062
40
7,505
Fair Value Maturity Distribution of Debt Securities
The tables analyse the maturities on a fair value basis:
At 30 June 1999
At 30 June 1998
Maturing Maturing Maturing Maturing
1 year Between Between After 10
or less
Years
1 and
5 and
5 years 10 years
$M
$M
Maturing Maturing Maturing Maturing
1 year Between Between After 10
Years
or less
1 and
5 and
5 years 10 years
$M
$M
Total
$M
$M
$M
Investments
Government securities
Australia
Overseas
Local and semi government
Promissory notes
Certificates of deposit
Bank accepted bills
Other investments
Cash
Other assets
$M
43
6
205
7
2
-
526
3,036
665
4,490
432
210
530
-
-
-
751
-
-
1,923
156
7
110
-
-
-
79
-
-
352
110
2
36
-
-
-
471
-
-
619
741
225
881
127
18
247
7 -
2 -
22
251
3,062
40
3,767
-
1,827
3,036
665
7,384
465
82
358
-
-
-
559
-
-
1,464
113
46
106
-
-
-
-
-
-
265
$M
Total
$M
86
31
18
-
-
-
302
-
-
437
791
177
729
-
-
22
1,112
3,062
40
5,933
143
Notes to and forming part of the accounts
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
NOTE 47 Differences between Australian and United States Accounting Principles continued
(f) Available For Sale Securities under US GAAP
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 1998
financial 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
to
30 June 1998. These securities are revalued
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
loss. The disclosure
rather
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.
than profit and
(g) Net Profit
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.
144
NOTE 47 Differences between Australian and United States Accounting Principles continued
(h) Consolidated Balance Sheet
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:
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
Goodwill under Australia GAAP
Reclassification from Other Assets
Goodwill amortisation
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
Reclassification to Goodwill
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
Footnote
1999
$M
1998
$M
1997
$M
(f)
(f)
(f)
(f)
(k)
(k)
(a)
(e)
(i)
(k)
(a)
(f)
(i)
(d)
(e)
-
7,187
9
7,196
7,187
(7,187)
-
4,708
-
4,708
491
155
(4)
642
8,946
-
10,241
708
(155)
19,740
1,410
3
3
255
1,671
472
(472)
-
8,507
10,241
18,748
-
6,999
309
7,308
6,858
(6,858)
-
4,009
(141)
3,868
531
-
-
531
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
574
-
-
574
7,502
248
7,249
616
-
15,615
925
20
13
222
1,180
291
(291)
-
7,698
7,249
14,947
i)
Details of Pension Expense and Reconciliation of Funded Status of Pension Plans
The Bank and its controlled entities sponsor a
its
for
The
policy
accounting
range of superannuation (pension) plans
employees worldwide.
Group’s
for
superannuation expense, under Australian GAAP
reporting, is set out in Note 1(ll) of the financial
statements. The superannuation expense principally
represents
funding, determined after
having regard to actuarial advice, to provide for future
obligations of defined benefit plans. Other details of
the Group’s major superannuation plans are set out in
Note 38 of the financial statements.
the annual
For US GAAP purposes, the Group adopted the
disclosure requirement of SFAS 87
‘Employers’
Accounting for Pensions’ for the major defined benefit
the Officers’ Superannuation Fund (OSF),
fund,
financial year
commencing 1 July 1994. For
ending 30 June 1999,
its
revised
disclosures in accordance with SFAS 132 ‘Employers’
Disclosures about Pensions and Other Post
Retirement Benefits’.
the Group
the
Other defined benefit funds are immaterial for
US GAAP reconciliation purposes.
145
Notes to and forming part of the accounts
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
NOTE 47 Differences between Australian and United States Accounting Principles continued
i)
Details of Pension Expense and Reconciliation of Funded Status of Pension Plans continued
The OSF does not hold any equity in the Bank’s
paid capital. Amounts on deposit with the Bank at
30 June 1999 totalled $46 million (1998: $73 million
and 1997: $145 million). Other investments with the
Bank and/or controlled entities at 30 June 1999 were
$27 million (1998: $40 million and 1997: $10 million).
year as well as the funded status as at 31 March
1997, 31 March 1998 and 31 March 1999 for the
OSF. The assumptions used in the calculations were
a discount rate of 6.25% pa (1998: 6.50% pa,
1997: 8.00% pa), compensation increase rate of
4.25% pa (1998: 4.25% pa, 1997: 4.50% pa) and
return on assets of 7.50% pa (1998: 7.50% pa,
1997: 8.25% pa).
The table displays the elements of the net
in benefit
pension expense and
obligations and fair value of assets for each financial
the change
Pension plan
Service cost
Interest cost
Expected return on assets
Amortisation of transitional obligation assets
Recognised net loss
Amortisation of prior service 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
Reconciliation
Change in benefit obligation:
Benefit obligation at beginning of year
Service cost
Member contributions
Interest cost
Acquisitions
Benefit changes
Actuarial gains
Benefits and expenses paid
Benefit obligation at end of year
Change in fair value of assets
Fair value of assets at beginning of year
Actual return on assets
Total contributions
Benefits and expenses paid
Employer financed benefits within Accumulation Division
Fair value of assets at end of year
Funded status at measurement date:
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
(1) For the financial year ended 30 June 1996, the Group
adopted 30 June as the measurement date for plan
assets and obligations. Effective from the financial year
ended 30 June 1997, the Group adopted 31 March as
the measurement date for plan assets and obligations.
Hence, the change in plan assets and obligations for
1996/1997 financial year is for the 9 months to
31 March 1997.
146
1999
$M
(86)
(284)
388
69
-
-
(27)
60
-
60
(22)
38
4,364
86
31
284
-
-
78
(557)
4,286
(5,279)
(476)
(31)
557
26
(5,203)
(917)
345
(136)
-
-
(708)
1998
$M
(80)
(328)
395
69
-
-
(24)
32
-
32
(12)
20
4,112
80
36
328
-
-
348
(540)
4,364
(4,896)
(911)
(36)
540
24
(5,279)
(915)
414
(147)
-
-
(648)
1997(1)
$M
(62)
(344)
425
69
-
-
(21)
67
1
68
(24)
44
3,822
46
28
258
-
-
242
(284)
4,112
(4,815)
(353)
(28)
284
16
(4,896)
(784)
483
(315)
-
-
(616)
Additionally, a deferred tax liability has been
taken up for US GAAP reconciliation purposes in
respect of the above prepayment of pension costs.
NOTE 47 Differences between Australian and United States Accounting Principles continued
Employee Benefits – Post Retirement Benefits
(j)
Other than Pensions
Health Care Subsidies
The Group provides a benefit to employees
including retirees who were members of the CBHS
Friendly Society Limited (CBHS) as at 6 July 1995
and who met certain criteria. The benefit provided by
the Group is in the form of financial assistance in
respect of 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
the financial assistance benefits.
An agreement between the Group and the
Finance Sector Union provides that those members of
the CBHS who were retired as at 30 June 1995
receive an ongoing fixed subsidy indexed to a
maximum of the movements in the Consumer Price
insurance
Index whenever
premiums in CBHS increase. Eligible members who
retired on or between 1 July 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 Group does not have a post
retirement health care liability.
the members’ health
and
senior
executives)
Concessional housing loans
The Group provides housing
loans at
concessional interest rates to assist with private
housing for staff who meet certain criteria. All staff
who joined the Bank on or after 1 May 1997 are not
eligible to a post retirement concessional interest rate
housing loan. Except for certain staff (including
whose
executives
remuneration package excludes a post retirement
concessional interest rate loan, the Group provides
post retirement interest concessions for retirees who
joined the Bank prior to 1 May 1997 on the following
basis. Staff with housing loans prior to 1 April 1997
and taken into retirement may be repaid over the
remainder of
loan.
Borrowings on or after 1 April 1997 but before 1 April
2002 may be retained into 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.
the specified
term of
the
No new or additional loans are offered at
concessional interest rates after retirement.
Australian GAAP Compliance
Effective 1 July 1994 the Group 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 Group
accounted for its obligation for employee entitlements
substantially in accordance with SFAS 43 ‘Accounting
the
for Compensated Absences’. Other
disclosures discussed above, there are no US GAAP
adjustments or further disclosures under SFAS 106
‘Employers’ Accounting for Post Retirements Other
than Pensions’ and SFAS 132
‘Employers’
Disclosures about Pensions and Other Post
Retirement Benefits’.
than
(k) Goodwill
Upon acquisition of Sovereign Limited
in
December 1998, (refer Note 45(e) for full details), an
asset was brought to account being ‘excess market
value over net assets of life insurance subsidiary’ of
$155 million which under US GAAP would be
accounted for as goodwill.
For US GAAP this asset is being amortised over
a 20 year period on a straight line basis.
Property and Other Non Current Asset
(l)
Revaluations
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
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.
involved. With respect
the risk
to
147
Notes to and forming part of the accounts
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
NOTE 47 Differences between Australian and United States Accounting Principles continued
(l)
Property and Other Non Current Asset Revaluations continued
Australian GAAP allows non current assets
including property, plant and equipment
to be
to an asset revaluation
revalued upwards direct
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.
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 Group’s
property
is carried. No asset writedowns were
necessary in 1999, 1998 or 1997. At 30 June 1999,
1998 and 1997 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.
Upward revaluations of property, plant and
equipment are not allowed under US GAAP, except
(m) Available for Sale Securities
A T 3 0 J U N E 1 9 9 9
A T 3 0 J U N E 1 9 9 8
Amortised Gross Unrealised
Gains Losses
$M
Cost
$M
$M
Fair Amortised
Cost
$M
Value
$M
Gross Unrealised
Losses
Gains
$M
$M
Fair
Value
$M
Australia
Australian Public Securities:
Commonwealth and States
Bills of exchange
Medium Term Notes
Other securities and equity investments
Total Australia
Overseas
Government securities
Treasury Notes
Certificates of deposit
Eurobonds
Medium Term Notes
Other securities and equity investments
Total Overseas
Total Available for Sale Securities
2,635
-
160
352
3,147
235
5
1,228
900
27
1,645
4,040
7,187
13
-
11
-
11 -
19
30
-
24
10
2
- -
38
22
7
18
87
117
46
46
-
-
102
126
2,637
-
171
333
3,141
243
5
1,236
924
20
1,627
4,055
7,196
1,960
138
17 -
38
161
337
141
1,072
3,190
204
1,195
766
31
5 -
7
66
29 -
148
252
589
1,508
3,707
6,897
-
-
-
50
50
3
-
1
21
4
99
128
178
2,098
17
179
1,183
3,477
232
5
1,201
811
25
1,557
3,831
7,308
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 $85 million and
realised capital losses were $6 million, (1998: realised
losses
realised capital
capital gains $65 million,
gains
capital
$80 million
$12 million, realised capital losses $8 million).
1997: realised
and
Proceeds at or close to maturity of Available for
Sale securities during 1999 were $12,431 million
(1998: $8,681 million and 1997: $6,479 million).
from sale of Available
for Sale
Proceeds
securities during
the year were $146 million
(1998: $1,787 million and 1997: $1,172 million).
investment
Government securities, held
the
the 1998
securities portfolio, were sold during
financial year following the change in the Reserve
Bank of Australia maximum holding for regulatory
in
148
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 Group’s holdings
of Available for Sale securities:
At 30 June 1999
Australia
Australian Public Securities:
Commonwealth and States
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
1 to 12 months
%
$M
1 to 5 years
%
$M
5 to 10 years
%
$M
10 years or more
%
$M
Total
$M
552
-
90
642
1
5
1,228
145
-
274
1,653
2,295
2,299
6.51
-
5.09
5.72
1.20
5.21
8.78
-
5.23
1,661
102
258
2,021
163
-
-
222
27
624
1,036
3,057
3,033
5.19
8.33
3.62
2.32
-
-
6.69
5.19
7.45
422
58
4
484
71
-
-
533
-
697
1,301
1,785
1,814
6.14
9.80
6.52
5.62
-
-
5.75
-
2.97
-
-
-
-
-
-
-
-
-
50
50
50
50
-
-
-
-
-
-
-
-
5.53
2,635
160
352
3,147
235
5
1,228
900
27
1,645
4,040
7,187
7,196
(n)
Impairment of Assets
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
required
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 1999.
is collateral dependent. No adjustment
in
(o) Comprehensive Income
the
financial
SFAS 130: ‘Reporting Comprehensive Income’
year ending
to
is applicable
30 June 1999.
the
requires
The Statement
classification of items of other comprehensive income
the display of other
by
retained
from
income separately
comprehensive
earnings and shareholders equity. All prior periods
have been restated to conform to the provisions of
this Statement.
their nature and
Accumulated Other Comprehensive Income Balances
Foreign currency translation reserve
Balance at beginning of financial year
Foreign currency translation adjustment net of tax expense
Balance at end of financial year
Available for Sale securities
Balance at beginning of financial year
Change in fair value of Available for Sale securities
Balance at end of financial year
Total Other Comprehensive Income
1999
$M
26
(20)
6
263
(257)
6
12
1998
$M
36
(10)
26
24
239
263
289
1997
$M
18
18
36
9
15
24
60
149
Notes to and forming part of the accounts
COMMONWEALTH BANK OF AUSTRALIA AND CONTROLLED ENTITIES
NOTE 47 Differences between Australian and United States Accounting Principles continued
the financial year ending 30 June 1999. The Group
does not believe these standards would materially
impact the financial position and results of operations
if they were applicable at 30 June 1999.
133
SFAS
‘Accounting
for Derivative
Instruments and Hedging Activities’ was
issued
in June 1998 and is applicable to the Group from
1 July 2000. This standard may have a material
impact on
financial position and results of
operations if it were applicable at 30 June 1999. As of
the date of this report the Group is assessing the
impact of application of this standard, however as yet
is unable to determine its effect.
the
(p)
Life Insurance
Under Australian GAAP, transitional adjustments
on
of
and
adoption
financial
Superannuation Commission Rules
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 the
1997 financial year profits.
Insurance
for
new
the
(q) Newly
Accounting Standards Board
Issued Statements of the Financial
The Financial Accounting Standards Board
(FASB) of the United States of America has recently
issued Statements of Financial Accounting Standards
(SFAS) Nos. 134 and 135, which are not applicable to
150
Directors’ Declaration
In accordance with a resolution of the directors of the Commonwealth Bank of Australia, we state that in the
opinion of the Directors:
(a)
the financial statements and notes of the Bank and of the Group are in accordance with the Corporations Law,
including:
(i)
giving a true and fair view of the Bank’s and the Group’s financial position as at 30 June 1999 and of their
performance for the year ended on that date; and
complying with Accounting Standards and Corporations Regulations; and
(ii)
there are reasonable grounds to believe that the Bank will be able to pay its debts when they become due and
payable.
(b)
Signed in accordance with a resolution of the Directors.
M A Besley AO
Chairman
11 August 1999
D V Murray
Managing Director
151
Independent Audit Report
To the members of Commonwealth Bank of Australia
Scope
We have audited the Financial Report of Commonwealth Bank of Australia for the financial year ended
30 June 1999, as set out on pages 49 to 151, including the Directors’ Declaration. The Financial Report includes the
financial statements of Commonwealth Bank of Australia and the consolidated financial statements of the Group
comprising the Bank and the entities it controlled at year’s end or from time to time during the financial year. The
Bank’s directors are responsible for the Financial Report. We have conducted an independent audit of the Financial
Report in order to express an opinion on it to the members of the Bank.
Our audit has been conducted in accordance with Australian and United States Auditing Standards to provide
reasonable assurance whether the Financial Report is free of material misstatement. Our procedures included
examination, on a test basis, of evidence supporting the amounts and other disclosures in the Financial Report, 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 Report is presented fairly in accordance with
Accounting Standards, other mandatory professional reporting requirements and statutory requirements, so as to
present a view which is consistent with our understanding of the Bank’s and the Group’s financial position and
performance as represented by the results of these operations and their cash flows.
The audit opinion expressed in this report has been formed on the above basis.
Audit Opinion
In our opinion, the Financial Report of Commonwealth Bank of Australia is in accordance with:
(a)
the Corporations Law including:
(i) giving a true and fair view of the Bank’s and the Group’s financial position as at 30 June 1999 and of their
performance for the year ended on that date; and
(b)
(ii) complying with Accounting Standards and the Corporations Regulations; 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 1999 and the
determination of consolidated financial position as at 30 June 1999 and 1998 to the extent summarised in Note 47 to
the Financial Report.
ERNST & YOUNG
Sydney
Date: 11 August 1999
S C Van Gorp
Partner
152
Shareholding Information
Top 20 Holders of Fully Paid Ordinary Shares as at 5 August 1999
Rank
Name of Holder
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Chase Manhattan Nominees Ltd
Westpac Custodian Nominees
National Nominees Limited
ANZ Nominees Limited
Permanent Trustee Australia Limited
Queensland Investment Corporation Limited
AMP Life Limited
Citicorp Nominees Pty Ltd
Perpetual Trustees Victoria Limited
MLC Limited c/- Westpac Custodian Nominees
National Mutual Trustees Ltd
Mercantile Mutual Life Insurance Company Limited
BT Custodial Services Pty Limited
The National Mutual Life Association of Australasia Limited
Perpetual Trustees Nominees Limited
CSS & PSS Board c/- Chase Manhattan Nominees Limited
BT Custodial Services Pty Ltd
Australian Foundation Investment Company Limited
AMP Nominees Pty Limited
HKBA Nominees Ltd
Number of
Shares
50,381,450
39,854,067
30,885,440
18,814,636
15,456,208
15,161,443
13,459,003
11,581,634
10,828,657
6,751,515
6,182,714
5,792,278
5,313,625
5,073,601
4,669,921
4,645,939
4,578,168
4,032,538
3,374,644
3,348,590
%
5.52
4.37
3.38
2.06
1.69
1.66
1.47
1.27
1.19
0.74
0.68
0.63
0.58
0.56
0.51
0.51
0.50
0.44
0.37
0.37
The twenty largest shareholders hold 260,186,071 shares which is equal to 28.50% of the total shares on issue.
Stock Exchange Listing
The shares of the Commonwealth Bank of
Australia are listed on the Australian Stock Exchange
under the trade symbol CBA, with Sydney being the
home exchange. Details of
trading activity are
published in most daily newspapers, generally under
the abbreviation of CBA or C’wealth Bank.
Directors Shareholdings as at 11 August 1999
Shares
Options
M A Besley, AO
J T Ralph, AO
D V Murray
N R Adler, AO
A C Booth
K E Cowley, AO
J M Schubert
F J Swan
B K Ward
1,300,000
10,156
11,064
48,792
9,175
1,075
8,000
5,534
1,828
1,747
Guidelines for Dealings by Directors in Shares
The restrictions imposed by law on dealings by
Directors in the securities of the Bank have been
supplemented by the Board of Directors adopting
guidelines which further limit any such dealings by
Directors, their spouses, any dependent child, family
company and family trust. The guidelines provide, that
in addition to the requirement that Directors not deal
in the securities of the Bank or any related company
when they have or may be perceived as having
relevant unpublished price sensitive
information,
Directors are only permitted to deal within certain
periods. Further, the guidelines require that Directors
not deal on the basis of considerations of a short term
nature or to the extent of trading in those securities.
153
Shareholding Information
Range of Shares (Fully Paid Ordinary Shares and Employee Shares): 5 August 1999
Range
Number of
Shareholders
Percentage
Shareholders
Number of
Shares
Percentage
Issued Capital
1-1,000
1,001-5,000
5,001-10,000
10,001-100,000
100,001-Over
Total
Less than marketable parcel of $500
272,569
125,152
10,255
4,414
303
412,693
4,590
66.05
30.33
2.48
1.07
0.07
100.00
125,572,304
247,057,304
70,551,790
90,187,357
382,599,870
915,968,625
43,619
13.71
26.97
7.70
9.85
41.77
100.00
Voting Rights
Under the Bank’s Constitution, each member
present at a general meeting of the Bank in person or
by proxy, attorney or official representative is entitled:
•
•
on a show of hands – to one vote; and
on a poll – to one vote for each share held or
represented.
enacted in December 1995. As part of the sale
process, which was completed in July 1996, the non-
Government shareholders agreed on 14 May 1996 to
permit the Bank to purchase from the Commonwealth
approximately $1 billion of its Ordinary Shares held by
the Commonwealth.
of
of
The
sale
remainder
the
the
Commonwealth’s shareholding included the global
offering of 399,103,979 of the Bank’s shares in the
form of ‘Instalment Receipts’. The Instalment Receipts
evidenced full beneficial ownership in an ordinary
share in the Bank. The final price for the global
offering was set by the Commonwealth at $10.45 per
share which was payable in two instalments of $6.00
and $4.45 on 22 July 1996 and 14 November 1997,
respectively.
The Bank’s Ordinary Shares are listed on the
Australian Stock Exchange. In addition, the Bank
established in 1996 a Rule 144A American Depositary
Receipt program (‘Restricted ADR Program’) in the
to Ordinary Shares
United States
purchased in the Rule 144A Offering in the United
States, conducted as part of the global offering of the
Commonwealth’s remaining shareholding in 1996.
American Depositary Shares (‘ADSs’) issued pursuant
to the Restricted ADR Program each represent the
right to receive three Ordinary Shares.
relation
in
than one proxy, attorney or official
If more
representative is present for a member:
•
none of them is entitled to a vote on a show of
hands; and
the vote of each one on a poll is of no effect
unless each
represent a
specified proportion of the member’s voting
rights, not exceeding in aggregate 100%.
is appointed
to
•
Control Of Registrant
The Bank is not directly or indirectly owned or
controlled by another corporation or any foreign
government. At 30 June 1999 there is no person who
is known to the Bank to be the beneficial owner of
more than 10% of the Bank’s Ordinary Shares. Until
recently, under the Banking Act and the Bank’s
Constitution, the Commonwealth has had a special
relationship with the Bank and was required to hold a
minimum of 50.1% of the total voting rights of
Ordinary Shares in the Bank. In May 1995, the
Commonwealth announced its intention to sell the
Commonwealth’s remaining 50.4% shareholding, and
necessary amendments to the Banking Act were
154
Nature Of Trading Market
The Bank’s Ordinary Shares are listed on the
ASX. Trading of the Ordinary Shares on the ASX
commenced on 9 September 1991.
The table below sets forth, for the calendar
periods indicated, high and low closing prices and
average daily trading volumes for the Ordinary Shares
as reported by the ASX.
H I G H
L O W
T R A D I N G
V O L U M E
P E R I O D
C L O S I N G P R I C E
C L O S I N G P R I C E
( N U M B E R O F
$
$
S H A R E S )
Ordinary Shares
1997
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
1998
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
1999
First Quarter
Second Quarter
13.93
16.00
17.28
17.69
18.52
19.49
20.55
23.16
26.65
28.69
11.98
12.39
14.70
14.90
17.49
17.40
18.66
18.50
22.15
23.95
2,134,888
1,662,578
1,747,491
1,761,689
1,671,196
1,724,830
1,952,258
1,513,759
1,714,077
1,727,382
On 30 June 1999, the last sale price of the
Ordinary Shares as reported on the ASX was $24.05
per Share. The Bank’s total market capitalisation was
$22,029 million.
Stamp duty will arise on the sale or transfer of
Ordinary Shares in Australia. Where the transaction is
processed through the ASX by a broker, the rate
generally will be 0.15% for the seller and 0.15% for
the buyer. The rate generally will be 0.3% payable by
the buyer for off market transfers. (Minimum amount
payable is $20 for companies incorporated in the
ACT.)
At 1999 the Bank maintained a restricted Rule
144A American Depositary Receipt (‘ADR’) program
in the United States, representing ordinary shares, for
which The Bank of New York acted as depositary
bank. The ratio of Ordinary Shares per American
Depositary Share (‘ADS’) is 3:1. Because the ADSs
are not publicly listed or traded it is not possible to
provide accurate market price information with respect
to the ADSs.
On 30 June 1999, there were 246 shareholders
with declared addresses in the United States holding
232,198 Ordinary Shares and 1 holder (a nominee
company) of ADRs within the United States holding
595 ADRs representing ordinary shares. In addition,
there are a number of United States shareholders
who hold beneficial ownership in Ordinary Shares
through nominee companies located outside the
United States.
155
are eligible for re-election. The Board of Directors
oversees the Bank’s operation both directly and
through its committees.
The members of the Board of Directors and
executive and senior officers of the Group as at
30 June 1999 are as follows:
Shareholding Information
Directors and Officers Of Registrant
The business of the Bank is managed by a
Board of Directors presently consisting of
ten
Directors who, except for the Managing Director, are
elected on a rotating basis. At each annual general
meeting of the Bank’s shareholders, one-third of the
Directors, excluding the Managing Director, retire and
Board of Directors
Name
Age Position
M A Besley, AO
J T Ralph, AO
D V Murray
N R Adler, AO
A C Booth
R J Clairs, AO
K E Cowley, AO
J M Schubert
F J Swan
B K Ward
Chairman
72
66
Deputy Chairman
50 Managing Director
54
43
61
64
56
58
45
Director
Director
Director
Director
Director
Director
Director
Executive and Senior Officers
Name
Age Position
52
43
45
48
38
40
52
50
39
56
46
37
47
47
43
47
45
49
46
59
50
54
54
51
General Manager, Sales and Service Delivery
Head of Asset Management
Group Financial Controller
Head of Equities
General Manager, Personal Customers
General Manager, eComm
General Manager, Products
General Manager, Group Human Resources
Group Auditor
General Manager, Banking Operations
General Manager, Finance and Operations, Banking and
Financial Services
General Manager, Business Customers
Company Secretary
Head of Institutional Banking
General Manager, Strategic Marketing
General Manager, Sales and Service Victoria/Tasmania
Head of Investment and Insurance Products
Financial Controller, Institutional Banking
Chief Credit Officer
Head of Customer Service Division
Head of Group Planning and Development
General Manager, Lending Services
General Manager, Commonwealth Property
General Manager and Chief Information Officer, Group
Technology
Head of Banking and Financial Services
49
50 Managing Director, ASB Bank
55
41
50
59
48
52
General Manager, Sales and Service NSW/ACT
Head of Financial Markets
Head of Technology, Operations and Property
Chief Solicitor and General Counsel
Group General Manager, Financial and Risk Management
Group Treasurer
P M Andrews
N G Basile
J D Beecher
J J Beggs
A R Cosenza
S B Coulter
N J Cox
L G Cupper
D A Doyle
R C Eddington
J K Evans
H D Harley
J D Hatton
M A Katz
G P Kelly
E J Kinsella
A J Lally
D J Lawler
M A Leonard
A E Long
G L Mackrell
A C McMorron
G K McWilliam
H M Morris
J F Mulcahy
R J Norris
R A Perkins
P G Riordan
R J Scrimshaw
L E Taylor
M J Ullmer
R G Wilkie
156
Director Since
1988
1985
1992
1990
1990
1999
1997
1991
1997
1994
Position held
since
Year Joined
Group
1998
1999
1996
1997
1999
1999
1997
1996
1998
1991
1998
1998
1994
1993
1998
1998
1998
1998
1998
1997
1995
1998
1998
1997
1997
1991
1998
1994
1998
1989
1997
1990
1963
1999
1994
1997
1981
1998
1964
1996
1997
1958
1996
1987
1985
1993
1997
1970
1990
1993
1987
1956
1973
1989
1996
1997
1995
1989
1962
1994
1998
1955
1997
1961
Compensation Of Directors And Executive Officers
The aggregate compensation paid by the Bank
during Financial Year 1999 to all directors and
executive officers as a group (43 persons) was
$20.8 million.
Australian executive officers are members of the
Bank’s principal superannuation fund, the Officers’
Superannuation Fund (OSF). The OSF is a defined
benefit fund. Executive officers who joined the Bank
the
on or after 1 July 1993 are members of
accumulation division of the OSF. From 1 July 1996
the Bank introduced salary sacrifice superannuation
benefits within the OSF for selected employees,
including
sacrifice
superannuation benefits accrued during the 1999
Financial Year in respect of executive officers have
been included in the above aggregate compensation.
contributions
exception
corresponding to salary sacrifice benefits, the Bank
ceased contributions to the OSF from 8 July 1994.
Further, the Bank ceased contributions to the OSF
corresponding to accruing salary sacrifice benefits
from 1 July 1997.
officers. Salary
executive
With
the
of
legislation,
Under Australian
the Bank was
required to provide minimum superannuation benefits
for non executive directors under age 70 equal to 7%
of their cash remuneration in the 1999 Financial Year.
Benefits funded by the Bank during Financial Year
1999 to meet this requirement amounted to $44,355.
The Bank also provides defined benefits to non
executive directors in connection with their departure
from office after three years of service in accordance
with an arrangement approved by shareholders.
The Bank’s executive officers, (including the
Managing Director) may be eligible to participate in
the Executive Option Plan ‘EOP’ and the Employee
Share Subscription Plan ‘ESSP’. Executives who
participate in the EOP are excluded from participating
in the Employee Share Acquisition Plan ‘ESAP’. Refer
Executive Option Plan - Note 28.
that
The Bank’s Constitution provide
the
directors who are not also executive officers shall be
paid an ordinary remuneration which may not exceed
the maximum amount fixed by the Bank in general
meeting from time to time. At the annual general
meeting of the Bank held in October 1997 the
shareholders set a maximum amount of $1 million per
the non executive
to be divisible among
year,
directors as the directors may determine.
Currency Of Presentation And Certain Definitions
The Bank publishes its consolidated financial
statements in Australian dollars. In this Annual Report,
unless otherwise stated or the context otherwise
requires, references to ‘US$’ or ‘US dollars’ are to
United States dollars and references to ‘$’ or ‘A$’ are to
Australian dollars. Merely for the convenience of the
reader, this Annual Report contains translations of
certain Australia dollar amounts into US dollars at
specified rates. These translations should not be
construed as representations that the Australian dollar
amounts actually represent such US dollar amounts or
have been or could be converted into US dollars at the
rate indicated. Unless otherwise stated, the translations
of Australian dollars into US dollars have been made at
the rate of US$0.6611 = $1.00, the noon buying rate in
New York City for cable transfers in Australian dollars
as certified for customs purposes by the Federal
Reserve Bank of New York on 30 June 1999.
Exchange Rates
For each of the Commonwealth Bank’s financial
years, the high, low, average and year end Noon
Buying Rates, see ‘Selected Financial and Operating
Data’ on page 19.
Fluctuations in the exchange rate between the
Australian dollar and the US dollar may affect the
Bank’s earnings, the book value of its assets and its
shareholders’ equity as expressed in US dollars, and
consequently may affect the market price for the
Shares. In addition, fluctuations in the exchange rate
between the Australian dollar and the US dollar will
affect the US dollar equivalent of the Australian dollar
price of the Bank’s Ordinary Shares on the ASX and,
as a result, are likely to affect the market price of the
Shares. Such fluctuations will also affect the conversion
into US dollars of cash dividends, if any, paid in
Australian dollars.
Certain Definitions
The Bank’s financial year ends on 30 June. As
used throughout this Annual Report, the financial year
ended 30 June 1999 is referred to as Financial Year
1999, and other financial years are referred to in a
corresponding manner.
‘Financial Statements’ means the Group’s audited
consolidated balance sheets as of 30 June 1998 and
1999 and consolidated statements of income, cash
flows and changes in shareholders’ equity for each of
the three years in the period ended 30 June 1999,
together with accompanying notes, which are included
elsewhere in this Annual Report.
‘ACCC’ means Australian Competition and Consumer
Commission.
‘APRA’ means the Australian Prudential Regulation
Authority.
‘ASB Bank’ means the ASB Bank Limited, incorporated
in New Zealand.
‘ASX’ means the Australian Stock Exchange Limited.
‘Australian GAAP’ means Australian generally
accepted accounting principles.
‘Bank’, ‘CBA’ or ‘Company’ means the Commonwealth
Bank of Australia (A.C.N. 123 123 124), a banking
corporation incorporated in Australia.
‘Banking Act’ means the Australian Banking Act 1959,
as amended.
‘CDBL’ means the Commonwealth Development Bank
of Australia Limited.
‘Commonwealth’ means
Australia and its Territories.
the Commonwealth of
157
Shareholding Information
Certain Definitions continued
‘EFTPOS’ means Electronic Funds Transfer at Point of
Sale.
or
‘Consolidated Entity’ means
the
‘Group’
Commonwealth Bank of Australia and its controlled
entities.
‘Ordinary Shares’ or ‘Shares’ means the ordinary
shares of the Bank.
‘Reserve Bank’ or ‘RBA’ means the Reserve Bank of
Australia.
‘US GAAP’ means United States generally accepted
accounting principles.
Any discrepancies between
totals and sums of
components in tables contained herein are due to
rounding.
Exchange Controls Affecting Security Holders
The Australian dollar is convertible into US
dollars at freely floating rates and there are no
restrictions on the flow of Australian currency between
Australia and the United States. Under existing
Australian legislation, the Reserve Bank does not
inhibit the import and export of funds, and generally
no governmental permission is required for the Bank
to move funds in and out of Australia. The United
States is not a declared tax haven. Accordingly, at the
present time, remittances of any dividends, interest or
other payment by the Bank to non resident holders of
the Bank’s securities in the United States are not
restricted by exchange controls.
restrict
Apart from withholding tax on dividends and
interest paid to non residents, there are currently no
Australian exchange controls which
the
payment of dividends, interest or other remittances to
holders of securities issued by the Bank provided that
such holders who are not residents of Australia are
not connected with Iraq, Libya or the government of
the Federal Republic of Yugoslavia (Serbia and
Montenegro). The approval of the Reserve Bank is
required for any payments to the Government of Iraq,
its agencies or its nationals or to the Government or
public authority of Libya; any commercial, industrial or
public undertaking owned or controlled (whether
directly or indirectly) by the Government or public
authority of Libya or by an entity that is owned or
controlled by the Government or public authority of
Libya; or to any person acting for or on behalf of the
Government and public authority of Libya or an entity
as described previously. In addition, any transactions
involving the authorities of the Federal Republic of
Yugoslavia (Serbia and Montenegro) or their agencies
will require the specific approval of the Reserve Bank.
foreign monetary
institutions are permitted to invest the official reserve
in Australian domestic
assets of
securities, provided they agree to be stable holders of
Australian dollar assets and to keep the Reserve
Bank informed of their Australian dollar portfolios.
Central banks and other
their country
158
thereof,
Section 16 of the Banking Act provides that in
the event of the Bank becoming unable to meet its
obligations or suspending payment
the
Bank’s assets in Australia shall be available to meet
its deposit liabilities in Australia in priority to all of its
other liabilities. Section 86 of the Australian Reserve
Bank Act provides that in a winding up of the Bank, all
debts due to the Reserve Bank shall, subject to
Section 13A(3) of the Banking Act, have priority over
all other debts of the Bank other than debts due to the
Commonwealth.
Taxation
The following discussion is a summary of certain
Australian tax consequences of the ownership of
Ordinary Shares. For purposes of this discussion, a
‘US Holder’ is any beneficial owner who or that owns
the Ordinary Shares as a capital asset and is (i) a
citizen or resident of the United States, (ii) a domestic
corporation, or (iii) an individual or entity otherwise
subject to United States federal income taxation on a
net income basis. Prospective investors are urged to
consult their own tax advisors regarding the United
States and Australian tax consequences of owning
and disposing of Ordinary Shares.
The
forth below
taxation discussion set
is
intended only as a descriptive summary and does not
purport to be a complete technical analysis or listing
of all potential Australian tax effects to US Holders.
Except as otherwise noted,
the statements of
Australian tax laws set out below are based on the
laws in force as at the date of this Annual Report, and
are subject to any changes in Australian law, and in
any double taxation convention between the United
States and Australia occurring after that date.
from shares
Under Australian law non-residents may be
subject to withholding tax in respect of dividends
in Australian companies
received
depending upon the extent to which dividends are
franked. Also, in limited circumstances (as discussed
below) such non-resident shareholders may be
subject to Australian income tax in respect of gains
made on disposal of shares in Australian companies.
In accordance with
the
Australia/United States double
tax agreement,
withholding tax on dividend income derived by a non-
resident of Australia, who is a resident of the United
States, is limited to 15% of the gross amount of the
dividend.
the provisions of
double
The Australia/United States
tax
agreement referred to in the preceding paragraph was
entered into on 6 August 1982 and represents a
convention between the Government of Australia and
the Government of the United States of America for
the avoidance of double taxation and the prevention
of fiscal evasion with respect to taxes on income. The
agreement applies to residents of one or both of
Australia and the United States of America for the
avoidance of double taxation and the prevention of
fiscal evasion with respect to taxes on income.
Taxation continued
Under Australia’s dividend imputation system
dividends are ‘franked’ dividends to the extent that
they are paid out of income on which Australian
income tax has been paid. Where an Australian
resident individual shareholder receives a franked
dividend, the shareholder receives a tax credit which
can be offset against the Australian income tax
payable by the shareholder. The amount of the credit
is dependent upon the extent to which the dividend is
franked. The extent to which a dividend is franked
typically depends upon a company’s available
franking credits at the time of payment of the
dividend. Accordingly, a dividend paid
to a
shareholder may be wholly or partly franked or wholly
unfranked. Dividends
non-resident
shareholders are exempt from dividend withholding
tax to the extent the dividend is franked. The
unfranked portion of the dividend is subject to 15%
dividend withholding tax.
paid
to
Subject
two exceptions, a non-resident
disposing of shares in Australian public companies
to
•
will be free from tax in Australia. The exceptions are
as follows:
•
Shares held as part of a trade or business
conducted through a permanent establishment
in Australia. In such a case any profit on
disposal would be assessable
to ordinary
income tax. Losses would constitute allowable
deductions.
Shares held in public companies where such
shares represent (or in the past five years have
represented) a holding of 10% or more in the
issued share capital of the company. In such a
case capital gains tax would apply, but not
otherwise.
Capital gains tax in Australia is payable on real
gains over the period in which the shares have been
held, ie the difference between the disposal price and
the original cost indexed for inflation over that period.
Normal rates of income tax would apply to real gains
so calculated. Capital losses are not subject to
indexing; they are available as deductions, but only as
an offset against other capital gains.
159
Signatures
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant certifies that
it meets all of the requirements for filing on Form 20-F and has duly caused this Annual Report to be signed on its
behalf by the undersigned, thereunto duly authorised, in the City of Sydney, Commonwealth of Australia.
COMMONWEALTH BANK OF AUSTRALIA (Registrant)
By:
Name:
James David Beecher
Title:
Group Financial Controller
Date:
11 August 1999
160
Domestic Representation
The members of the Bank’s Executive Committee, listed below, are located at:
Level 3
48 Martin Place
Sydney NSW 1155
Telephone (02) 9378 2000
Postal Address:
GPO Box 2719
Sydney NSW 1155
Group Human Resources
General Manager
Les Cupper
Institutional Banking
Head of Institutional Banking
Michael Katz
Customer Service Division
Head of Customer Service Division
Alf Long
Banking and Financial Services
Head of Banking and Financial Services
John Mulcahy
Head of Products
Neville Cox
Technology Operations and Property
Head of Technology Operations and Property
Russell Scrimshaw
Financial and Risk Management
Group General Manager
Michael Ullmer
161
International Representation
Europe
United Kingdom
Senator House
85 Queen Victoria Street
London EC4V 4HA
Telephone: (44 171) 710 3999
Telex: 883864
Swift: CTBA GB 2L
Facsimile: (44 171) 710 3939
General Manager Europe
S Biggs
Australian Financial & Migrant
Information Service
Senator House
85 Queen Victoria Street
London EC4V 4HA
Telephone: (44 171) 710 3999
Telex: 883864
Swift: CTBA GB 2L
Facsimile: (44 171) 710 3939
Senior Consultant
J O’Brien
Grand Cayman
CBA Grand Cayman
PO Box 501
British West Indies
Americas
United States of America
599 Lexington Avenue (Level 17)
New York NY 10022
Telephone: (1 212) 848 9200
Telex: TRT 177666
Swift: CTBA US 33
Facsimile: (1 212) 336 7725
General Manager Americas
I M Phillips
Singapore
50 Raffles Place #22-04
Singapore Land Tower
Singapore 048623
Telephone: (65) 326 3877
Telex: RS 20920
Swift: CTBA SG SG
Facsimile: (65) 224 5812
General Manager
P Beswick
Vietnam
Suite 202-203A
Central Building
31 Hai Ba Trung
Hanoi
Vietnam
Telephone: (84 4) 826 9899
Facsimile: (84 4) 824 3961
Chief Representative
P R Milton
Indonesia
Plaza BII
Tower 11 (5th Floor)
JI M.H. Thamrin
No 51 Kav 22
Jakarta 10350
Indonesia
Telephone: (6221) 318 4394
Facsimile: (6221) 318 4391
Chief Representative
P R Milton
Japan
8th Floor
Toranomon Waiko Building
5-12-1 Toranomon 5 chrome
Minato-ku
Tokyo 105-0001
Japan
Telephone: (813) 5400 7280
Facsimile: (813) 5400 7288
Telex: J 28167 Combank
Swift: CTBA JP JTS
General Manager
D A Hazelton
Australia
Head Office
48 Martin Place (Level 3)
Sydney NSW 1155
Telephone: (612) 9378 2000
Telex: AA 120345
Swift: CTBAAU2S
Facsimile: (02) 9378 3023
Head of Institutional Banking
M A Katz
New Zealand
Head Office
ASB Bank Ltd
ASB Bank Centre (Level 5)
Corner Albert & Wellesley Streets
Auckland New Zealand
Telephone: (64 9) 373 3427
Facsimile: (64 9) 373 3426
Chief Representative
G Porter
Asia/Pacific
Beijing, China
2910 China World Towers
Beijing China World Trade Centre
1 Jianguomenwai Avenue
Beijing 100004
People’s Republic of China
Telephone: (86 10) 6505 5350
Facsimile: (86 10) 6505 5354
Chief Representative
Y T Au
Shanghai, China
805 Union Building
100 Yan An Road (East)
Shanghai 200002
People’s Republic of China
Telephone: (86 21) 6355 3939
Facsimile: (86 21) 6373 5066
Chief Representative
Y T Au
Hong Kong
1405-1408 Two Exchange Square
8 Connaught Place
Central
Hong Kong
Telephone: (852) 2844 7500
Telex: (852) 60466 CTB HX
Swift: CTB HK HH BKG
Facsimile: (852) 2845 9194
General Manager
S R J Holden
162
Contact Us
www.commbank.com.au
Corporate
Directory
13 2221
13 2224
13 15 19
For your everyday banking including paying bills using BPAY (insert
Bpay logo)
Our automated service is available from 7am to 11pm (Sydney time),
365 days a year. From overseas call +61 13 2221.
For a password and demonstration of the automated service,
call our telephone staff between 8am and 8pm, Monday to Friday.
To apply for a home loan, investment home loan or open an account
Available from 8am to 10pm, 365 days a year.
Commonwealth Securities Limited
Easy, low cost access to the stock market
By phone or Internet at www.comsec.com.au
1800 240 889
Telephone Typewriter Service
A special telephone banking service for our hearing and speech impaired
customers. The service covers all the services available on 13 2221.
Available from 8am to 8pm, Monday to Friday.
1800 011 217
To report a lost or stolen card after hours or at weekends.
Business Line
For a full range of business banking solutions.
Available from 8am to 8pm, Monday to Friday.
Commonwealth Insurance Ltd
For all your home insurance needs or visit
www.commbank.com.au/insurance
13 1998
13 2423
13 2420
13 2015
Registered Office
Level 1, 48 Martin Place
Sydney NSW 1155
Telephone: (02) 9378 2000
Facsimile: (02) 9378 3317
Company Secretary
JD Hatton
Shareholder Information
www.commbank.com.au
Share Registrar
Perpetual Registrars Limited
Locked Bag A14
SYDNEY SOUTH NSW 1232
Telephone Freecall 1800 022 440
or (02) 9285 7111
Facsimile (02) 9261 8489
Internet
www.perpetual.com.au
Commonwealth Insurance Ltd
For home insurance claims assistance 24 hours a day, 365 days a year
Email
Registry_syd@perpetual.com.au
For enquiries on retirement and superannuation products, life insurance
or managed investments.
Available from 8am to 8pm (Sydney time), Monday to Friday.
Unit prices are available 24 hours a day, 365 days a year.
Australian Stock Exchange
Listing
Fully paid Ordinary Shares: CBA
Annual Report
To request a copy of the Annual
Report please call (02) 9378 3229
Internet Banking
You can apply for a home loan or credit card on the internet by visiting our
website at www.commbank.com.au available 24 hours a day, 365 days a year.
Do your everyday banking on our internet banking service NetBank at
www.commbank.com.au/netbank available 24 hours a day, 365 days a year.
To apply for access to NetBank, call Freecall 1800 022 955 between 8am and
8pm (Sydney time), Monday to Friday.
Financial Calendar 2000
Interim Profit result and dividend announced
Ex-dividend date
Record date
Interim dividend paid
Final profit result and final dividend announced
Ex-dividend date
Record date
Final dividend paid
Annual General Meeting, Melbourne 2000
9 February 2000
17 February 2000
23 February 2000
31 March 2000
9 August 2000
17 August 2000
23 August 2000
29 September 2000
26 October 2000
163