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2003
Commonwealth Bank of Australia ACN 123 123 124
Annual Report 2003
Contact Us
www.commbank.com.au
13 2221 General Enquiries
For your everyday banking
13 1998 Business Line
For a full range of business
including paying bills using BPAY
banking solutions. Available from
our automated service is available
8 am to 8 pm, Monday to Friday
24 hours a day, 365 days a year.
From overseas call +61 13 2221.
Operator assistance is available
between 8 am and 8 pm, Monday
to Friday
13 2224 Home Loans &
Investment Home Loans
To apply for a new home
13 2015 Commonwealth
Financial Services
For enquires on retirement and
superannuation products, or
managed investments. Available
from 8 am to 8 pm (Sydney time),
Monday to Friday. Unit prices are
available 24 hours a day,
loan/investment home loan
365 days a year
or to maintain an existing loan.
Available from 8 am to 10 pm,
365 days a year
13 1519 CommSec
(Commonwealth
Securities)
Available from 8 am to 7 pm
(Sydney time), Monday to Friday.
CommInsure
– For all your general insurance
needs call 13 2423 8 am to 8 pm
(Sydney time), Monday to Friday –
or visit www.comminsure.com.au
– For general claims assistance
call 13 2420, 24 hours a day,
365 days a year.
CommSec provides the information
– For all your life insurance needs
and tools to make smart investment
easy, accessible and affordable for
all Australians. By phone or Internet
at www.commsec.com.au
1800 240 889 Telephone
Typewriter Service
A special telephone banking service
for our hearing and speech impaired
call 13 1056 8 am to 8 pm (Sydney
time), Monday to Friday – or visit
www.comminsure.com.au
Internet Banking
You can apply for a home loan
or credit card on the internet
by visiting our website at
www.commbank.com.au
customers. The service covers all
available 24 hours a day,
the services available on 13 2221.
365 days a year
Available from 8 am to 8 pm,
Monday to Friday
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Stolen Cards
To report a lost or stolen card
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 13 2828 between 8 am and 8 pm
(Sydney time), Monday to Friday
Corporate Directory
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
ASX Perpetual Registrars Limited
Locked Bag A14
Sydney South NSW 1232
Telephone (02) 8280 7199
Facsimile (02) 9261 8489
Freecall 1800 022 440
Internet www.asxperpetual.com.au
Email registrars@asxperpetual.com.au
Telephone numbers for
overseas shareholders
New Zealand 0800 442 845
United Kingdom 0845 769 7502
Fiji 008 002 054
Other International 612 8280 7199
Australian Stock
Exchange Listing
CBA
Annual Report
To request a copy of the annual report
please call (02) 9378 3229
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P
Commonwealth Bank of Australia
ACN 123 123 124
Annual Report 2003
Table of Contents
Chairman’s Statement .............................................................................................................................................................3
Highlights .................................................................................................................................................................................5
Banking Analysis ...................................................................................................................................................................11
Funds Management Analysis.................................................................................................................................................18
Life Insurance Analysis ..........................................................................................................................................................22
Shareholder Investment Return .............................................................................................................................................26
Life Company Valuations .......................................................................................................................................................27
Presentation of Financial Information.....................................................................................................................................29
Integrated Risk Management .................................................................................................................................................30
Risk Management ......................................................................................................................................................30
Credit Risk .................................................................................................................................................................30
Market Risk ................................................................................................................................................................30
Operational and Strategic Business Risk ...................................................................................................................32
Insurance Risk ...........................................................................................................................................................32
Derivatives .................................................................................................................................................................32
Off Balance Sheet Arrangements...............................................................................................................................32
Business Continuity Management ..............................................................................................................................32
Description of Business Environment.....................................................................................................................................33
Corporate Governance ..........................................................................................................................................................37
Directors’ Report ....................................................................................................................................................................44
Five Year Financial Summary ................................................................................................................................................50
Financial Statements
Statements of Financial Performance ........................................................................................................................53
Statements of Financial Position ................................................................................................................................54
Statements of Changes in Shareholders’ Equity ........................................................................................................55
Statements of Cash Flow ...........................................................................................................................................56
Notes to the Financial Statements..............................................................................................................................57
Directors’ Declaration...........................................................................................................................................................168
Independent Audit Report ....................................................................................................................................................169
Shareholding Information .....................................................................................................................................................170
International Representation ................................................................................................................................................173
Chairman’s Statement
The 2003 financial year was characterised by
continuing global uncertainty, but this was offset for us by
the continuing strong performance of the Australian
economy. A buoyant housing sector combined with
modest business growth helped
to produce very
satisfactory results in the banking business. Global and
domestic equity markets displayed a high degree of
volatility and negative returns for most of the period, which
made for quite difficult trading conditions in the insurance
and funds management part of our business. During the
year, the Bank also responded to its rural customers to
help them manage their finances during one of the worst
droughts in Australia’s history.
These external conditions highlight the importance to
the Bank of a strong franchise, backed by a diversified
business portfolio and supported by strong systems of
corporate governance, which I described at some length in
last year’s report.
The Commonwealth Bank’s statutory net profit after
tax for the year ended 30 June 2003 was $2,012 million, a
decrease of 24% on the prior financial year. Net profit from
ordinary activities (‘cash basis’) was $2,579 million, an
increase of 3% on the prior financial year, after charging
against the profit restructuring costs of $214 million and
$45 million representing the cost for two years of grants of
shares to employees under the employee share plan. The
difference between statutory and cash profit comprises
two non-cash items; the amortisation of goodwill and an
adjustment to the appraisal value of the life and funds
management businesses.
Growth in cash profit was driven by a strong
performance from the banking business and an improved
performance from the life insurance business, partly offset
by a reduction in the funds management result for the
year. Total operating expenses
comparable
businesses remained relatively stable compared with the
prior year. For more information on the Company’s
financial performance, please refer
the Financial
Highlights on pages 5 to 10 and Business Analysis on
pages 11 to 28.
for
to
A final dividend of 85 cents per share fully franked
will be paid on 8 October, 2003 bringing the total dividend
for the year to 154 cent’s per share. For the past eleven
years, the Bank has increased each interim and final
dividend above those paid in the preceding year. The
Company’s ability to increase the dividend on each
occasion confirms the maintenance of the underlying
momentum of the operations of the business.
Earlier this year I wrote to shareholders in the light of
some misinformation circulating in the media about the
Bank’s acquisition of Colonial Limited and the nature of
the payment to a former executive. Although conditions in
the wealth management industry have been difficult over
the last couple of years because of the correction in share
prices and the volatility in stock markets, your Board
continues to believe that this acquisition was the correct
strategy for the Bank to have adopted.
Because of demographic factors and the greater
reliance of
the community on superannuation and
retirement savings, your Board believes that the wealth
management business will grow at a faster rate than
conventional banking business in the years ahead. It was
this factor that contributed to the decision to grow this part
3
of the Bank’s business more quickly by adding Colonial’s
wealth management business to that which had already
been developed by the Bank. The Commonwealth Bank
has a distribution system within the financial services
system second to none and on which we are confident we
can build our business in wealth management in concert
with the other financial services we provide.
Colonial was acquired by the Bank issuing shares to
a value of $9.12 billion in 2000. The value ascribed to the
wealth management businesses was $4.47 billion and the
remaining $4.65 billion represented the rest of Colonial’s
entities, the principal one being Colonial State Bank.
Colonial’s banking businesses, comprising the bank and
the banking service subsidiaries, were
integrated
successfully into the Commonwealth Bank’s banking
business. The expected synergy benefits of $450 million
per annum, which were mostly banking related, were fully
realised and in a shorter time frame than projected,
making
the
Commonwealth Bank and its shareholders.
this a very satisfactory
transaction
for
The value of our wealth management businesses
have also increased in value since we acquired Colonial
Limited. At the date of acquisition these businesses were
valued in the accounts at $6.736 billion, comprising
$4.472 billion for the acquired businesses, $1.978 billion
in
for our existing wealth management subsidiaries
Australia and $286 million for the ASB Sovereign business
in New Zealand. The value of these businesses in the
accounts at 30 June 2003 was $8.546 billion. The
increase in value of $1.810 billion comprises retained
profits in the business, changes to Assessed Value
through acquisitions and divestments and changes in net
tangible assets since 30 June 2000 of $772 million and a
net increase in Assessed Value taken to profit of $1.038
billion since that date.
The current accounting standards require the Bank,
with the advice of competent actuaries, to make an
assessment of the value of the wealth management
business based on assumptions of future activity and to
bring this into the profit statement at each half year. In
the period from 30 June 2000 to 30 June 2002 there was
an uplift in this valuation of $1.283 billion. In the first half
of the financial year on which we are reporting there was a
reduction in the valuation of $426 million and an increase
of $181 million in the second half of the year making a net
reduction in the year of $245 million. The net result is that
this represents an increase of $1.038 billion since we
trebled our investment in wealth management by the
acquisition of Colonial.
It
is not
totally surprising
The Assessed Value declined in the past year in a
period when many portfolios have fallen in value, largely
as a result of the correction that occurred in world stock
markets, and when members of superannuation funds
have experienced adverse outcomes in relation to their
that wealth
savings.
management businesses would
similar
experience. But the Bank is in this business for the long
term because of the demographic factors which are likely
to cause wealth management businesses to grow strongly
in the period ahead. We recognise that there are other
factors that will continue to cause volatility in share
markets and to see returns reflect this volatility. Overall,
however, we expect
to be positive.
Involvement in this part of the financial services industry is
considered by your Board to be an area where we can
confidently create value for you, our shareholder.
the net result
share a
Chairman’s Statement
Outlook
Although
reasonably
the Australian
economy remains dependent on recovery in the United
States. While there have been some positive signs, there
are potential significant financial imbalances arising from
the US current account and fiscal deficits.
resilient,
The Australian financial services industry remains
highly competitive, operating
in an environment of
reducing margins with the likelihood of slowing credit
growth. Notwithstanding this, the longer-term outlook for
the banking, insurance and wealth management sectors is
for continuing growth.
Customers will need more convenient and informed
access to financial services, through wealth management
advice, products to respond to the aging of the population
and personalised banking services for payments, savings
and investments. The Board and management of the Bank
have been focussing on how the Bank needs to respond
in this environment. Page 6 of this report outlines the
strategy designed to address these needs.
Having acquired Colonial and added significant
value, the Bank is extremely well positioned to meet the
challenges ahead and to benefit from scale, breadth of
services, and the strength of its proprietary distribution
system.
to be a major
transformational change to deliver the outstanding service
levels, with enhanced staff engagement and simple and
efficient processes required to be more competitive.
there needs
However,
The Bank believes that it has relatively more to gain
from such a change and will announce within the next six
weeks details of the strategies, proposed investments,
expected outcomes and implementation milestones of a
program to achieve these goals.
Your Board is committed to achieving sustainable
growth in all the Bank’s businesses and in growing
sustainable and reliable returns for all shareholders, and
to this end, the Bank intends to maintain its high dividend
payout ratio relative to its peers.
I would like to take the opportunity to thank you for
your continued support.
John Ralph AC
Chairman
20 August 2003
4
Highlights
Key Performance Indicators
Profitability
Underlying Segment Profit after Income Tax:
Banking
Funds Management
Life Insurance
Underlying Profit after Income Tax
Shareholder investment returns (after tax)
Operating expenses - included for first time (after tax)
Net Profit after Income Tax ("cash basis")
Goodwill amortisation
Appraisal value (reduction) / uplift
Net Profit after Income Tax ("statutory basis")
Banking
Net interest margin (%)
Average interest earning assets
Average interest bearing liabilities
Funds Management
Funds under management
Life Insurance
Inforce premiums
Full Year Ended
30/06/03
$M
30/06/02
$M
Increase/
(Decrease)
%
2,401
228
58
2,687
73
(181)
2,579
(322)
(245)
2,012
2,067
360
41
2,468
33
-
2,501
(323)
477
2,655
2.67 2.76
188,270 170,634
174,737 157,105
94,207 102,838
880
810
Shareholder Investment Returns (before Tax)
91
47
Operating Expenses
Comparable business
First time
Total operating expenses
5,292 5,201
-
259
5,201
5,551
Underlying Productivity
Banking expenses to income (%)
Funds Management expenses to average funds under management (%)
Life Insurance expenses to average inforce premiums (%)
52.0
0.85
57.3
54.1
0.73
68.8
Shareholder Measures
EPS - cash basis - basic (cents)
Dividend per share (cents)
Capital Adequacy
Tier 1 (%)
Total (%)
202.6
154
197.3
150
6.96
9.73
6.78
9.80
Full-time Staff Equivalent (FTE's)
35,845
37,245
Unde rlying grow th of 9% on prior ye ar
334
(132)
17
2,687
73
(181)
2,579
3,000
2,800
2,600
2,400
2,200
2,000
2,468
Underlying NPAT
2002
Banking
Funds
Management
Life Insurance
Underlying NPAT
2003
S'holder Invest
Returns
First time
Expenses (after
tax)
Cash NPAT 2003
Underlying measures exclude shareholder investment returns and first time operating expenses along with their
associated tax if relevant. This represents core operating performance, removing the volatility of shareholder earnings and the
impact of strategic initiatives.
5
16
(37)
41
9
large
-
3
(0)
large
(24)
(3)
10
11
(8)
9
94
2
-
7
(4)
16
(17)
3
3
3
(1)
(4)
Highlights (continued)
Financial Performance and Business Review
After deducting goodwill amortisation of $322 million
and a net reduction in appraisal value of $245 million, the
Commonwealth Bank recorded a net profit after income
tax of $2,012 million, or 24% below the prior year.
The net profit after tax (cash basis) for the year
ended 30 June 2003 is $2,579 million, an increase of $78
million or 3% on the prior year.
This result was achieved inclusive of $259 million of
first time expenses related to strategic initiatives of $214
million and $45 million of expense relating to two years
allocations of shares issued to employees under the
employee share program.
This result reflects a strong banking performance
primarily driven by the Australian and New Zealand retail
banking operations. The housing market has primarily
driven the banking performance, with balance growth at
over 17% for the year. The New Zealand performance
reflects strong industry conditions combined with growth in
market shares for retail, business and rural lending.
Results for Institutional and Business Banking were
industry
subdued, primarily
conditions. The weakened demand for credit in the
institutional segment and conditions in global markets
resulted in flat earnings outcomes.
the difficult
reflecting
In Funds Management,
falling equity markets
globally have reduced funds under management and
depressed volumes of inflows, particularly in the first half
of the year.
The underlying profit performance of
the Life
Insurance business includes a one off write down of an
investment asset within Australia. Excluding this the
results of all regions, particularly Asia, were favourable.
The Life Insurance result also benefited from a rebound in
equity markets in the second half of the year.
Underlying operating expenses have increased by
2% over the year, primarily driven by increased volumes,
the set up of the new Premium Financial Services Division
together with increased regulatory expenses associated
with the Funds Management business.
The growth in banking income combined with the
benefit of strategic initiatives undertaken resulted in an
underlying banking productivity improvement of 4% for the
year. The underlying banking expense to income ratio is
52.0% compared with 54.1% in 2002.
The credit quality of the portfolio has improved with
bad debt charge as a percentage of risk weighted assets
decreasing from 0.32% at June 2002 to 0.21% at June
2003. This reflects an absence of significant corporate
defaults compared with the prior year. The home lending
portfolio continues to show low levels of delinquency and
write-offs relative to historical trends.
2002/03 Restructuring Initiatives
During the year the Bank implemented a number of
significant strategic initiatives with the aim of improving
service levels and productivity.
The initiatives undertaken during the year included:
6
(cid:1)
(cid:1)
(cid:1)
Re-organisation within the retail banking operations
aimed at eliminating duplication, inefficiencies and
some back office processing.
Empowerment of front line retail sales staff with
information and decision-making capabilities
to
better meet customer needs.
Redesign of system and relationship management
processes in the business and corporate segments.
Simplification and consolidation of legacy systems
and processes within the Investment and Insurance
business.
The gross expense of these initiatives in the current
year, combined with
the current year benefits and
expected annualised future benefits are set out in the
table below:
(cid:1)
Pre Tax
$M
Full year
to 30
June 2003
Expenses Benefits
Net
Expense
Annual
Benefit
214
69
145
165
The gross expense for the year of $214m is lower
than
the previously reported expectation of $227m.
Initiatives were achieved at a lower expense. The value of
future expected benefits exceeds that previously reported.
As reported in the June 2002 profit announcement, it
was anticipated that the above initiatives would result in a
net reduction in the Bank’s staff numbers of 1,000. This
comprised a reduction of 1,500 from the retail and
business-banking initiatives partly offset by the creation of
customer facing positions in the premium division. Net
staff numbers have reduced by 1,400 over the year. This
comprised a reduction of 1,740 in back office positions
partly offset by the creation of 340 customer-facing
positions.
Bank Strategy
(cid:1)
for customers
The CBA vision is to excel in customer service. To
achieve this we are progressing our strategy to provide a
consistently good range of services to meet the integrated
financial needs of our customers. Implementation is
centred on five key themes.
(cid:1)
Engage our people to provide consistently good
service
through our proprietary
distribution network.
Implement a service and sales based management
culture.
Deepen customer
based bundling.
Simplify our processes and systems to improve
service and productivity.
Optimise the business mix.
There will be a strong focus on listening to our
customers and supporting our people to deliver customer
service results with improved tools and processes as well
as more closely aligning our people and systems to our
service aspirations.
through needs
relationships
(cid:1)
(cid:1)
(cid:1)
Highlights (continued)
Profit Summary
Net Profit after Income Tax ("statutory basis")
Net Profit after Income Tax ("cash basis")
Income
Interest income
Interest expense
Net Interest Income
Other banking operating income
Total Banking Income
Funds management income (1)
Life insurance income (1)
Total Income
Expenses
Operating expenses - comparable business
Operating expenses - included for first time
Total Expenses
Charge for bad and doubtful debts
Net profit before income tax, outside equity interests,
goodwill amortisation and appraisal value (reduction)/uplift
Income tax expense (1)
Net profit after income tax, outside equity interests, goodwill
amortisation and appraisal value (reduction)/uplift
Outside equity interests
Net Profit after Income Tax ("cash basis")
Appraisal value (reduction)/uplift
Goodwill amortisation
Net Profit after Income Tax ("statutory basis")
Contributions to Profit (after income tax)
Banking
Funds Management
Life Insurance
Underlying Profit after Income Tax
Shareholder Investment Returns (after tax)
Operating Expenses - included for first time (after tax)
Net Profit after Income Tax ("cash basis")
Goodwill amortisation
Appraisal value (reduction)/uplift
Net Profit after Income Tax ("statutory basis")
Full Year Ended
30/06/03
$M
30/06/02
$M
Increase/
(Decrease)
%
2,012
2,579
2,655
2,501
(24)
3
11,528
6,502
5,026
2,697
7,723
1,042
634
9,399
5,292
259
5,551
305
3,543
958
2,585
(6)
2,579
(245)
(322)
2,012
2,401
228
58
2,687
73
(181)
2,579
(322)
(245)
2,012
10,455
5,745
4,710
2,552
7,262
1,147
659
9,068
5,201
-
5,201
449
3,418
916
2,502
(1)
2,501
477
(323)
2,655
2,067
360
41
2,468
33
-
2,501
(323)
477
2,655
10
13
7
6
6
(9)
(4)
4
2
-
7
(32)
4
5
3
large
3
large
(0)
(24)
16
(37)
41
9
large
-
3
(0)
large
(24)
(1)
Included within funds management and life insurance income and income tax expense is a $58 million tax credit relating to
policyholder losses (30 June 2002: $36 million tax credit). These amounts were offsetting and therefore the impact on the net profit
after tax is nil.
7
Highlights (continued)
Balance Sheet Summary
Total assets
Total liabilities
Shareholders' equity
Assets held and Funds under Management
On Balance Sheet
Banking assets
Life insurance funds under management
Other life insurance and internal funds management assets
Off Balance Sheet
Funds under management
Shareholder Summary
Dividends per share - fully franked (cents)
Dividend cover - cash (times)
Earnings per share (cents)
Statutory - basic
Statutory - fully diluted
Cash basis - basic
Cash basis - fully diluted
Dividend payout ratio (%)
Statutory
Cash basis
Weighted average number of shares (basic) (number)
Weighted average number of shares (fully diluted) (number)
Productivity and Efficiency
Banking
Expense to income (%)
Underlying expense to income (%)
Funds Management
Expense to average funds under management (%)
Underlying expenses to average funds under management (%)
Life Insurance
Increase/
(Decrease)
%
6
6
5
9
(10)
(1)
6
(8)
3
Increase/
(Decrease)
%
3
-
30/06/03
$M
30/06/02
$M
265,110
242,958
22,152
249,648
228,592
21,056
229,289
22,800
13,021
265,110
71,407
336,517
211,130
25,355
13,163
249,648
77,483
327,131
Full Year Ended
30/06/03
30/06/02
154
1.3
157.4
157.3
202.6
202.5
97.7
75.9
1,253
1,254
150
1.3
209.6
209.3
197.3
197.0
71.7
76.2
1,250
1,252
Full Year Ended
30/06/03
30/06/02
Increase/
(Decrease)
%
54.8
52.0
54.1
54.1
0.89
0.85
0.73
0.73
1
(4)
22
16
Expense to average inforce premiums (%)
57.3
68.8
(17)
Underlying staff expense/total operating income (%)
Total operating income per FTE ($)
Full time staff equivalent (FTEs)
26.14
262,212
35,845
26.35
243,469
37,245
(1)
8
(4)
8
Highlights (continued)
First Time Expenses and Shareholder Investment Returns
Full Year Ended
Underlying measures exclude the following items:
Banking
Strategic initiatives
ESAP
Funds Management
Strategic initiatives
ESAP
Investment returns
Life Insurance
Investment returns
Total
Strategic initiatives
ESAP
Investment returns
Before Tax
30/06/03
$M
After Tax
30/06/03
$M
Before Tax
30/06/02
$M
After Tax
30/06/02
$M
(176)
(41)
(124)
(28)
-
-
-
-
(38)
(4)
13
(26)
(3)
9
-
-
12
-
-
8
78
64
35
25
(214)
(45)
91
(150)
(31)
73
-
-
47
-
-
33
The current year benefits from strategic initiatives of $69 million were reflected in “operating expenses – comparable
businesses”.
Throughout the report underlying measures exclude shareholder investment returns and first time operating expenses, being
strategic initiatives and the cost of ESAP.
Other Items
Dividends
The total dividend for the year is 154c, an increase
of 4 cents or 3% on the prior year.
The dividend payout ratio for the year is 75.9% on a
cash basis, consistent with the prior year payout ratio of
76.2%. The Bank purchased on market the shares
needed to satisfy shareholder participation in the Dividend
Re-investment Plan (DRP) in respect of the interim
dividend for 2002/03. It expects to do the same in respect
of the final dividend for 2002/03.
The dividend payment for the second half of the year
is 85 cents per share. This dividend payment is fully
franked and will be paid on 8 October 2003 to owners of
ordinary shares at the close of business on 29 August
2003 (record date). Shares purchased on or after 25
August 2003 (ex-dividend date) do not qualify for the
dividend.
Dividends were based on Cash Profit Per Share,
having regard to the following:
(cid:1)
Rate of business growth;
(cid:1)
Capital adequacy;
(cid:1)
Investment requirements;
(cid:1)
The cyclical nature of life insurance investment
returns and expectations of long term investment
returns; and
A range of other factors.
Subject to these factors, the Bank will continue to
(cid:1)
maintain a high payout ratio relative to its peers.
Capital Management
The Bank maintains a strong capital position. This is
recognised in its credit ratings. The Bank’s credit ratings
remain unchanged for the year.
9
Long-
term
AA
Aa3
Short-
term
F1+
P-1
Affirmed
Feb 03
Oct 01
AA-
A-1+
Dec 02
Fitch Ratings
Moody’s Investor
Services
Standard and
Poor’s
The risk weighted capital ratios of the Bank are
detailed below.
Risk Weighted Capital Ratios
Tier one
Tier two
Less deductions
Total capital
30/06/03
%
30/06/02
%
6.96
4.21
(1.44)
9.73
6.78
4.28
(1.26)
9.80
(cid:1)
Tier 1 capital is one of the key measures the Bank
uses to manage capital. The increase in the tier one ratio
from 30 June 2002 can be attributed to:
(cid:1)
An increase of $652 million principally due to
retained earnings and the issue of NZD200 million
(AUD181 million) of preference shares by ASB Bank
(included in outside equity interest on the balance
sheet).
An increase in risk weighted assets from $141 billion
to $147 billion. Housing loans secured by residential
mortgages, which attract a concessionary risk
weighting of 50%, increased by $14.4 billion.
investment
As required by APRA,
the
life
insurance and funds management is deducted from
regulatory capital to arrive at the ratios shown above. This
treatment does not recognise the surplus capital held in
the life insurance and funds management businesses, nor
does it give credit for the risk diversification benefits
provided by these businesses.
in
Highlights (continued)
In August 2003, the Bank raised USD550 million
(AUD 824 million) of Perpetual non call 12 year Tier 1
hybrid capital which would have increased Tier 1 capital at
30 June 2003 from 6.96% to 7.52%. These securities
offer a non-cumulative fixed rate distribution of 5.805% per
annum payable semi-annually. The transaction was an
opportunistic response to favourable credit markets in the
United States.
Market Shares
The table below sets out the market share holding
for the current and prior year along key product lines.
We remain a leader in most product lines and have
generally increased our shares, however there has been a
reduction in home loans, and business lending and
Australian retail funds management market shares.
The acceleration of our strategic initiatives relating to
customer service will be key in improving these positions.
Line of Business
30/06/03
30/06/02
Banking
Retail Deposits
Credit Cards
Home Loans
New Zealand Lending
New Zealand Deposits
Merchant Acquiring
Transaction Services
Business Lending
Asset Finance
Funds Management
Australia Retail
New Zealand
Australia Property
Life Insurance
New Zealand
Australia
Hong Kong
24.8%(1)
22.9%(1)
19.5%(3)
20.4%(2)
16.3%(2)
33.9%(2)
22.7%(4)(7)
14.3%(6)
15.1%(8)
14.8%
14.0%(3)
6.3%
28.3%(2)
15.0%(3)
2.5%
24.7%
22.8%
19.9%(5)
19.6%
15.5%
34.5%
21.8%
15.2%
16.5%
15.5%
13.0%
5.2%
26.2%
14.9%
2.1%
(1)
(2)
(3)
(4)
(5)
(6)
as at May 2003
as at April 2003
as at March 2003
as at Feb 2003
as at March 2002 Previously reported 20.1%, which was
revised by APRA to 19.9%
Adjusted to reflect changes in APRA data series
(7) Mid corporate segment
(8)
Business written by CBFC only
10
Banking Analysis
Key Performance Indicators
Profitability
Underlying Profit after Income Tax
Operating expenses - included for first time (after tax)
Net Profit after Income Tax ("cash basis")
Full Year Ended
30/06/03
$M
30/06/02
$M
Increase/
(Decrease)
%
2,401
(152)
2,249
2,067
-
2,067
Operating Income
Net interest income ($m)
Net interest margin (%)
Other operating banking income ($m)
Total banking income ($m)
Other operating banking income/Total banking income (%)
5,026
2.67
2,697
7,723
34.92
4,710
2.76
2,552
7,262
35.14
Operating Expenses
Comparable businesses ($m)
First time ($m)
Productivity and Other Measures
Expense to income (%)
Expense to income - underlying (%)
Effective corporate tax rate (%)
Balance Sheet
Lending assets ($m)
Average interest earning assets ($m)
Average interest bearing liabilities ($m)
Asset Quality
Charge for bad and doubtful debts ($m)
Risk weighted assets ($m)
Net impaired assets ($m)
General provision/Risk weighted assets (%)
Total provisions/Gross impaired assets
(net of interest reserved) (%)
Bad debt expense/Risk weighted assets (%)
4,014
217
3,929
-
54.8
52.0
29.4
54.1
54.1
28.3
175,074
188,270
174,737
161,216
170,634
157,105
305
146,808
434
0.90
449
141,049
614
0.96
239.4
0.21
183.9
0.32
Underlying Banking profit growth of 16%
145
316
144
85
186
2,401
152
2,249
2,900
2,700
2,500
2,300
2,100
1,900
1,700
1,500
2,067
Underlying
NPAT 2002
Net Interest
Income
Other Banking
Income
Bad Debts
Expenses
Tax
Underlying
NPAT 2003
First time
Expenses
(af ter tax)
Cash NPAT
2003
16
-
9
7
(3)
6
6
(1)
2
-
(1)
4
(4)
9
10
11
(32)
4
(29)
(6)
30
(34)
Financial Performance and Business Review
Banking operations produced a very strong result.
The cash profit contribution increased by $182 million or
9% to $2,249 million.
first
Excluding
in
underlying profit is 16% or $334 million. This was
time expenses,
the growth
achieved through strong balance growth, fee initiatives
and an improvement in asset quality.
Underlying operating expenses have
remained
relatively flat, increasing by $85m or 2%, which includes
increased volume and the expense of establishing the
new premium financial services division.
11
Banking Analysis
Financial Performance and Business Review
Retail
Asia Pacific
for
Performance
the year was driven by a
combination of strong revenue growth and expense
efficiencies flowing from process simplification. The
buoyant housing market and increased volumes of credit
card transactions drove the strong retail revenue and
balance performance for the year.
Several key initiatives were implemented during the
improve customer service and efficiency
to
year
outcomes. These included:
(cid:1)
the
Development of the premium financial services
distribution model. This added new expenses to the
Bank, primarily funded by the benefits from other
strategic initiatives. The premium distribution model
is team-based and involves providing clients with
access to a team of advisers, all of whom were
aware of the clients’ relationships with the Bank and
equipped to satisfy the customers financial needs
full range of wealth management
utilising
services. This has been specifically developed to
facilitate superior client experience and over
195,000 banking clients were now being serviced
through this model.
The introduction of a new telling system, improving
service and efficiency levels across the branch
network.
A new home loan system introduced for branch and
mobile lenders, with automatic linkages to back-
office processing areas for significant improvement
in customer service and efficiency levels.
The acquisition of TD Waterhouse. This business
has been
in
aggregate now has over one million Equities Trading
Accounts.
Refinement of the credit card loyalty program,
Commonwealth Awards, enhancing many of its
features for customers. Fee structures for all credit
cards were reviewed and changes implemented
effective January 2003.
During
into CommSec which
integrated
the year
the Reserve Bank proposed
substantial reforms to credit card schemes in Australia.
The impact of these changes combined with an expected
slowing of the housing market will reduce the opportunities
for market driven revenue growth going forward.
(cid:1)
(cid:1)
(cid:1)
(cid:1)
Asia Pacific Banking incorporates the Bank’s retail
and commercial banking operations in New Zealand, Fiji
and Indonesia. ASB in New Zealand represents the
majority of the Asia Pacific Banking business.
the
financial year.
The New Zealand economy grew
strongly
throughout
Interest rates were
increased modestly, which attracted international investors
and resulted in a stronger NZ currency. As a result,
lending and funding growth rates contributed to good
balance sheet growth.
During the year, ASB continued to make progress in
its core business objectives of quality growth, best service,
best team, best processes and best distribution. Key
achievements during the year were:
(cid:1)
Lending growth at well above market rates in the
retail, commercial and rural sectors. The successful
spring and summer
lending campaigns, strong
customer service emphasis and the success of the
‘One Team’ referral program were key factors
contributing to this achievement;
Leading customer service in the Banking sector. For
the fifth consecutive year, ASB was recognised as
the top major retail bank in terms of satisfied and
very satisfied customers in the Auckland University
Bank Customer Satisfaction survey. For the third
consecutive year, ASB was rated the top business
bank for the same criteria;
The focus on process efficiencies has led to many
improved
operational improvements, which also
service levels and lowered expenses to serve, an
example being the approval of housing loans within
an hour of application; and
A focus on the development of distribution capability
led to the launch of ‘financial markets online’, which
provides business and institutional customers with
the ability to purchase foreign exchange on-line,
replacing the telephone ordering service.
(cid:1)
(cid:1)
(cid:1)
Banking operations in Fiji and Indonesia performed well
with modest profit growth for the year.
Institutional & Business
The business climate was subdued over the year
The specific focus in the forthcoming years will be
and as a result, market competition has intensified.
on:
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
to ensure every
Enhancing the premium service experience for our
clients by enhancing systems and further investment
in the training of our people.
Re-designing and refurbishing the branch network to
better service customer needs.
simplifying processes and
Streamlining and
procedures
interaction with
customers is as efficient as possible – from simple
over-the-counter deposits and withdrawals to the
establishment of a new home loan.
Continuing to upgrade key systems, including ATMs
and NetBank, to further improve service delivery.
Simplifying products and better aligning these to the
needs of our customers.
Creating an environment where our people were
continually encouraged, supported, empowered and
motivated to perform at their best.
12
In light of the business environment the focus for the
year was on the continued delivery of innovative solutions
and transforming the business for future growth.
into
implemented. This
During the year, a new client-servicing model, based
involved
on client need was
segmentation of
Institutional,
the client base
Corporate and Business Banking groups, with distinct
Regional segments within business banking established to
meet the needs of clients based outside the metropolitan
the new segmentation,
areas.
simplified technology platforms and streamlined credit
processes for all client segments were rolled out. These
measures enable a more responsive service to clients,
improved productivity and
focus on
generating new business, while preserving the overall risk
profile of the Bank.
In conjunction with
increase
the
Banking Analysis (continued)
include specialised
Supporting the client-servicing model, a range of
new or expanded products were launched during the year.
These
infrastructure
financing products, environmental, agricultural and
precious metal offerings. We were the first bank in
Australia to launch the “Verified by Visa” and “MasterCard
SecureCode” online security programs to make Internet
transactions safer for both clients and merchants.
leasing and
Profit Summary
Net interest income
Other operating income
Total Operating Income
Operating expenses - comparable businesses
Operating expenses - included for the first time
Total Operating Expenses
Charge for bad and doubtful debts
Net Profit before Income Tax
Income tax expense
Outside equity interests
Net Profit after Income Tax ("cash basis")
Net Interest Income
Central to the success of the business over the next
year will be the continued transformation of product
offerings, services, processes and systems and the
ongoing promotion of a high performance culture, which
enables our people to excel in client service.
Full Year Ended
30/06/03
$M
30/06/02
$M
5,026
2,697
7,723
4,014
4,710
2,552
7,262
3,929
217 -
3,929
449
2,884
816
1
2,067
4,231
305
3,187
938
-
2,249
Increase/
(Decrease)
%
7
6
6
2
-
8
(32)
11
15
large
9
Average Interest Earning Assets & NIM Trends
NIM Compre ssion
200,000
180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
-
)
m
$
(
s
t
e
s
s
A
i
g
n
n
r
a
E
t
s
e
r
e
t
n
I
e
g
a
r
e
v
A
2.78%
24,698
2.76%
28,183
135,909
142,451
33,641
2.67%
154,659
3.00%
2.80%
2.60%
2.40%
2.20%
2.00%
1.80%
1.60%
1.40%
)
%
(
M
N
I
2.80%
2.76%
2.72%
2.68%
2.64%
2.60%
0.02%
(0.08)%
2.76%
(0.01)%
(0.01)%
(0.01)%
2.67%
NIM 2002
Official rates
Grow th in
liquid assets
Product
margin
compression
Asset Mix
Funding Mix
NIM 2003
Jun-01
Jun-02
Jun-03
Lending Assets (excl Bank Accept)
Trading Securities & other
NIM
Net Interest Income for the year increased by 7% or
$316 million from $4,710 million in the prior year to $5,026
million in the current year.
The increase in net interest income is due to a 10%
or $18 billion increase in average interest earning assets
between 30 June 2002 and 30 June 2003. This has been
partially offset by a reduction in the net interest margin of
9 basis points from 2.76% at June 2002 to 2.67% in the
current year.
The growth in average interest earning assets
reflects an increase of $13 billion in lending assets and $2
billion in investment and trading securities. The strong
housing market in Australia and New Zealand has
primarily driven the lending asset growth, while the
opportunity to obtain overseas funding has driven the
growth in investment and trading securities. The growth in
average lending assets contributed an additional $479
million volume benefit in net interest income. Further
analysis of the movement in interest earning assets is
provided on page 15.
The reduction in the net interest margin from 2.76%
at June 2002 to 2.67% in the current year has had a
negative effect on interest income of $163 million. The
decline in margin can be attributed as follows:
(cid:1)
A benefit of two basis points from the movement in
Australian official rates in June 2002, which was fully
reflected in the current year and New Zealand cash
rate increases. This was offset by:
The global environment of low overseas interest
rates, combined with favourable exchange rates
created opportunities for acquiring overseas funding
through Debt Issues. The funding acquired more
than exceeded the lending asset growth. The
excess funding was deposited in high quality liquid
assets, reducing the Bank’s net interest margin by
eight basis points.
Further penetration of the home lending broker
market and strong competition across all lending
products reduced the bank margin by one basis
point.
(cid:1)
(cid:1)
13
Banking Analysis (continued)
(cid:1)
The higher mix of home lending assets and trading
and investment securities, lower yielding products,
as a percentage of the total portfolio reduced the
margin by one basis point.
Institutional and business deposits combined with
the growth in Debt
the
proportion of
funding
sources compared with retail funding, thus reducing
the margin by one basis point.
from wholesale
Issues has
increased
funding
(cid:1)
Other Banking Operating Income
3,000
m
$
2,500
)
I
B
O
(
e
m
o
c
n
I
g
n
i
k
n
a
B
r
e
h
t
O
2,000
1,500
1,000
500
0
Other Banking Operating Income
180
426
602
203
489
618
1,173
1,242
120
502
652
1,423
39%
37%
35%
33%
31%
29%
27%
25%
%
e
m
o
c
n
I
g
n
i
k
n
a
B
l
a
t
o
T
/
I
B
O
Jun-01
Jun-02
Jun-03
Commissions
Trading Income
Other Banking Income/Total Banking Income
Lending fees
Other
Other banking operating income has increased by
$145 million or 6% on the prior year, increasing from
$2,552 million for 2002 to $2,697 million for 2003.
Included within other banking income is non-interest
income earned on transaction accounts for the Bank’s
personal, business and corporate customers. The
principal reasons for the increase were set out below:
Growth in commissions and other fees of 15% or
$181 million, was primarily driven by new fee structures on
retail transaction and savings accounts introduced in the
prior financial year. This initiative reflected a simplified fee
structure for customers and a more stable
income
structure for the Bank, which were less dependent on
interest income and transactional volumes. The result
also includes strong growth in credit card transactions,
reflecting market growth combined with successful
campaigns targeted at specific customer segments.
Growth in lending fees of $34 million or 6% reflects a
growth in bank acceptance fees combined with growth in
home lending establishment and service fees. The
growth in home lending fees is partly offset by an increase
in up-front 3rd party broker commissions.
Trailing
commissions were netted against net interest income.
This channel now accounts for 19% of new home lending
fundings, up from 12% in the prior financial year.
Trading income moderately increased by $13 million
or 3% over the prior year. The reduced currency volatility
and weaker credit market adversely
this
business particularly in the first half of the financial year.
impacted
Other banking income of $120 million has decreased
by $83 million on the prior year. The prior year included a
profit on sale of strategic investments, while the current
year includes a provision against a strategic investment,
and
insurance
increased claims within
business on Canberra bush fires.
the general
Operating Expenses – Comparable Business
Expenses
from comparable businesses have
increased by 2% or $85 million from $3,929 million at 30
June 2002 to $4,231 million at 30 June 2003. Expenses
in the current period reflect:
14
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
The benefits from strategic initiatives implemented
during the year, offset by:
Expenses associated with the development of the
Premium Business model.
Volume related increases in credit cards and home
lending.
Increased software amortisation charges following
the implementation of the Bank’s new financial and
HR systems.
Increased expenses on New Zealand operations as
a result of the appreciation of its currency relative to
the Australian dollar.
Enterprise Bargaining Agreement (EBA) increases
have been met through other expense efficiencies.
Productivity Efficiency
The underlying banking expense to income ratio has
improved by 4% from 54.1% for the year ended 30 June
2002 to 52.0% for the year ended 30 June 2003. This
reflects strong
revenue growth generated primarily
through housing and fee initiatives combined with the
benefits of the strategic initiatives and overall productivity
improvements.
Underlying Banking Expense to Income Ratio
57.4%
57.7%
58%
56%
54%
52%
50%
54.2%
54.0%
52.6%
54.1%
51.4%
52.0%
Jun-01
Dec-01
Jun-02
Dec-02
Jun-03
Annual
Half Yearly
The expense to income ratio for the six months
ended 30 June 2003 is 51.4% an improvement from
52.6% for the six months ended 31 December 2002.
Operating Expenses – Included for the First Time
Operating expenses included for the first time within
the banking business were $217 million. This includes the
expense of ESAP of $41 million and strategic initiatives of
$176 million.
The key banking initiatives were the re-organisation
within the retail banking and the redesign of system and
relationship management processes
the business
banking and corporate banking segments.
in
Bad and Doubtful Debts
The total charge for bad and doubtful debts for the
year ended 30 June 2003 was $305 million, a decrease of
$144 million from $449 million in 2002.
The prior year included a small number of large
lending exposures, which
corporate and commercial
became impaired during the first half of that financial year.
Taxation Expense
The corporate
is $938 million, an
tax charge
increase of 15% or $122 million on the prior financial year.
The primary cause of the increased tax charge has been
increased profits. The effective rate of taxation for the
current year is 29.4%, an increase from 28.3% in the prior
year. This reflects the utilisation of capital losses in the
prior year, which has not recurred in the current year.
Banking Analysis (continued)
Major Balance Sheet Items
Major Balance Sheet Items (gross of impairment) - by Product
Gross housing
Securitisation
Housing (net of securitisation)
Personal (1)
Business and Corporate (1)
Bank acceptances
Total Lending Assets
30/06/03
$M
106,683
(6,480)
100,203
12,369
49,305
13,197
175,074
30/06/02
$M
92,886
(7,047)
85,839
11,551
51,309
12,517
161,216
Trading & Investment Securities
21,471
19,155
Deposits and Other Public Borrowings
140,974
132,800
Debt Issues
30,629
23,575
(1) Balances have been restated in 2002 due to reclassification of some products from Business and Corporate to Personal.
Major Balance Sheet Items (gross of impairment) - by Business
Retail:
Lending assets
Deposits
Total
Asia Pacific:
Lending assets
Trading & investment securities
Debt issues
Deposits
Total
Institutional and Business:
Lending assets
Trading & investment securities
Debt issues
Deposits
Total
30/06/03
$M
100,134
68,702
168,836
19,880
2,953
2,570
17,168
42,571
55,060
18,518
28,059
55,104
156,741
30/06/02
$M
87,531
65,835
153,366
16,951
2,126
2,405
13,916
35,397
56,735
17,029
21,170
53,049
147,983
Increase/
(Decrease)
%
15
(8)
17
7
(4)
5
9
12
6
30
Increase/
(Decrease)
%
14
4
10
17
39
7
23
20
(3)
9
33
4
6
Home Loan Balances by Product Type
Lending Assets
Line of Credit
8%
Investment
28%
)
m
$
(
200,000
180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
12,075
53,785
10,405
73,511
12,517
51,309
11,551
85,839
13,197
49,305
12,369
100,203
2001
2002
2003
Housing
Personal
Business Lending
Bank Acceptances
Ow ner
Occupied
64%
15
Banking Analysis (continued)
Retail
Lending Assets
Retail banking lending assets was $100 billion, an
increase of $12 billion or 14% over the prior year. Lending
assets comprises Australian Home Lending and Personal
Lending.
Housing
Home loan outstandings have increased by 16%
over the prior year. This reflects strong performance in
proprietary networks and a growing share of the 3rd party
broker market. This growth was primarily achieved in
line with market demand as a result of the low interest rate
environment and increased demand for investment home
loans influenced by the volatile equity markets. This was
combined with customer service and retention initiatives
undertaken during the year.
The Bank maintained its position as Australia’s
leading home
loan provider, however market share
declined from 19.9% at 31 March 2002 to 19.5% at 31
March 2003 (Source: APRA Residentially Secured All
Lenders). The Bank has increased its share of the 3rd
party broker market to 15% at March 2003 compared with
12% at March 2002.
Recent approvals and fundings have remained
strong.
Personal Lending
Personal lending includes Personal loans, Credit
Cards and Margin Loans.
The Banks market share of personal credit cards
increased from 22.8% at 30 June 2002 to 22.9% at 31
May 2003 (Source: RBA Credit Card Balances). The
above market growth was driven by effective sales and
marketing campaigns.
Margin
approximately 10%.
lending balances have
increased by
Personal loan balances declined marginally over the
year although the second half performance was stronger.
The market for traditional personal lending products
remains under pressure from alternative financing options
such as credit cards and home loan redraw facilities.
Retail Deposits
Retail deposit balances at 30 June 2003 were $68.7
billion, an increase of $2.9 billion over the prior year. This
growth was driven by
for cash
management products and is reflective of weak equity
markets and new compliance requirements on the sale of
cash management trusts. This has been partly offset by a
slight reduction in transaction account balances.
increased demand
The Bank is the largest acceptor of retail deposits in
Australia with a market share of 24.8% at 31 May 2003
compared with 24.7% at June 2002 (Source: RBA)
Asia Pacific
Lending Assets
Lending volumes growth was high primarily driven
by the New Zealand business. Within this business the
growth in housing lending was 18%, rural lending grew
total
24%, business-lending growth was 19%, and
advances increased by 12%. This compared with the
annual market growth rate of 9.1% as measured by
Private Sector Credit (Residents only) (Source: Reserve
Bank of New Zealand).
including
Record growth in ASB’s home loan approvals was
the result of its significant presence in the more rapidly
growing Auckland market, effective Spring and Summer
together with positive market
marketing campaigns,
dynamics
favourable economic conditions,
stable interest rates, and high immigration levels. ASB’s
share of the retail lending market nationwide increased to
20.4% by 30 April 2003 (30 June 2002, 19.6%) and its
share of the rural lending market reached 12.9% by 30
April 2003 (30 June 2002, 12.5%) (Source: Reserve Bank
of New Zealand).
Deposits
ASB’s total deposit growth was 13% compared with
market growth of 8.2% (Source: Reserve Bank of New
Zealand). The majority of ASB’s deposits were sourced
from term investments, with safety and security of capital
being the primary drivers.
Institutional and Business
Lending Assets
Lending assets of $55.1 billion have declined by 3%
from $56.7 billion in the prior year. This is primarily due to
lower foreign currency lending balances, reflecting activity
as well as the strengthening of the Australian dollar
relative to other currencies. Domestic lending balances
were flat over the year; however this included the effect of
syndication in the current year of bridge finance advanced
shortly prior to 30 June 2002, as well as continued credit
portfolio management, in particular with respect to large
exposures. The Bank’s market share of Domestic
Business Lending is 14.3% at June 2003 compared with
15.2% at June 2002 (Source: RBA).
Trading and Investment Securities
Trading and investment securities have increased
9% on the prior year. This is primarily due to short-term
treasury deposits arising as a result of funding operations.
Debt Issues
Debt Issues were $28 billion, an increase of $7
billion on the prior year with the Bank taking advantage of
the low interest rate environment and accessible funding
markets offshore. This provides the Bank with greater
liquidity to fund future lending asset growth.
Deposits
Deposits were $55 billion, an increase of $2 billion or
4% on the prior year. This is due to strong growth in
business and corporate deposits, as a result of strong
growth in business cheque accounts and cash deposit
accounts, through market share growth in transaction
services.
16
Banking Analysis (continued)
Provisions for Impairment
General provisions
Specific provisions
Total Provisions
Total provisions for impairment/gross impaired assets
net of interest reserved (%)
Specific provisions for impairment/gross impaired assets
net of interest reserved (%)
General provisions/risk weighted assets (%)
Bad debt expense/risk weighted assets (%)
Total provisions for impairment for the Bank at 30
June 2003 were $1,530 million, down 5.9% from 30 June
2002. This level of provisioning is considered adequate to
cover any bad debt write offs from the current lending
portfolio having regard to the current outlook.
Specific provisions for impairment have decreased
24.1% from $270 million at 30 June 2002 to $205 million
at 30 June 2003, primarily as a result of lower corporate
defaults in the year as well as a number of provision
reductions due to better than anticipated recoveries and
provision write-offs.
30/06/03
$M
30/06/02
$M
1,325
205
1,530
239.4
32.08
0.90
0.21
1,356
270
1,626
183.9
30.54
0.96
0.32
The general provisions for impairment have reduced
to $1,325 million at 30 June 2003 from $1,356 million at
30 June 2002, a decrease of 2.3%. The general provision
as a percentage of Risk Weighted Assets reduced to
0.90% from 0.96%. This level is consistent with that of
other major Australian banks. The general provision as a
percentage of risk weighted assets has declined over the
last 3 years reflecting the fact that the major growth in
credit has been in home loans which have lower credit risk
than other portfolios. Gross impaired assets less interest
reserved have decreased 27.7% from $884 million to $639
million over the year. This has been primarily due to lower
corporate defaults in the year as well as a number of
provision reductions due
than anticipated
recoveries and provision write-offs.
to better
250,000
200,000
150,000
100,000
50,000
-
A -
A -
A -
B B B
B B B -
A -
A -
A +
A +
A -
A A -
A A A
A +
B B B -
B B B +
B B
A +
B B B
B B B +
B B B
i
l
t
n
e
a
v
u
q
E
r
o
g
n
i
t
a
R
P
&
S
Growth in assets of $15bn drives grow th on balance sheet RWA of $5bn
199,568
77,474
86,378
13,401
22,315
+7% ($15bn)
214,718
-$3bn
74,472
+$18bn
103,987
12,427
23,832
Jun-02
Face Value
Jun-03
123,343
77,474
43,189
Jun-02
Risk Weighting 0%
Risk Weighting 20%
Risk Weighting 50%
+4% ($5bn)
-$3bn
128,950
74,472
+$9bn
51,993
Risk Weighted Value
Risk Weighing 100%
Jun-03
T o p 2 0 E x p o s u r e s t o C o r p o r a t e s ( C o m m it t e d )
Top 2 0 Ex pos ure s a s a % of Tota l Com m itte d Ex pos ure
4 .2 0 %
3 .6 3 %
3 .4 4 %
3 .3 0 %
4 .5 0 %
4 .0 0 %
3 .5 0 %
3 .0 0 %
2 .5 0 %
2 .0 0 %
1 .5 0 %
1 .0 0 %
0 .5 0 %
0 .0 0 %
0
1 0 0
2 0 0
3 0 0
4 0 0
5 0 0
6 0 0
$ m illio n s
D e c 0 1
Ju n 0 2
D e c 0 2
Ju n 0 3
17
(37)
13
-
(43)
(9)
(1)
6
-
(8)
(8)
large
22
16
(5)
Funds Management Analysis
Key Performance Indicators
Profitability
Underlying Profit after Income Tax
Shareholder investment returns (after tax)
Operating expenses - included for first time (after tax)
Net Profit after Income Tax ("cash basis")
Full Year Ended
30/06/03
$M
30/06/02
$M
Increase/
(Decrease)
%
228
9
(29)
208
360
8
-
368
Operating Income
Operating income
Operating income to average funds under management (%)
1,104
1.16
1,213
1.17
Operating Expenses
Comparable business
First time
Funds Under Management
Funds under management - average
Funds under management - spot
Net flows
807
42
761
-
95,333
94,207
(3,725)
104,027
102,838
4,776
Productivity and Other Measures
Expenses to average funds under management - actual (%)
Expenses to average funds under management - underlying (%)
Effective corporate tax rate (%)
0.89
0.85
20
0.73
0.73
21
Financial Performance and Business Review
Performance Highlights
The results for the funds management business
were impacted by market conditions, with cash profit
contribution for the year of $208 million after tax.
Excluding the expenses from restructure initiatives
and shareholder investment returns the underlying profit is
$228 million a 37% decrease on the prior year. This
primarily reflects the effect of depressed equity markets
for most of the year on funds under management, lower
fund flows and the impact of increased compliance and
regulatory expenses.
Business Review
investment products and
The year was characterised by declining world
for
equity markets; changing customer preferences
managed
the
to
regulatory environment. The uncertainty for consumers
created by the third straight year of negative equity returns
and the effects of other world events such as the war on
terrorism placed pressure on net fund flows for the
industry as a whole. The negative returns on equity
markets also impacted on the existing funds under
management and associated fee revenue.
reforms
In addition to these external influences the changes
in management in the earlier part of the year and the
resultant downgrading of ratings on certain Colonial First
State funds by some research houses contributed to the
adverse
the business. The scheduled
withdrawal of funds by Winterthur in the UK and the sale
of the UK private clients business had a structural impact
on the business.
flow of
fund
Against this background increased emphasis was
placed on customer retention and improving product and
distribution offerings. The key initiatives included:
(cid:1)
First Choice product, which was launched in May
2002, performed strongly, achieving $3.2 billion in
funds by 30 June 2003. The business retained more
than 60% of these funds to manage internally.
(cid:1)
(cid:1)
(cid:1)
In September 2002, the respective unit holders
approved the merger of Colonial First State Property
Trust Group (CFT) with the Commonwealth Property
Office Funds (CPA) and Gandel Retail Trust (GAN).
The merger resulted in CPA and GAN creating two
leading sector specific listed property trusts and the
addition of $2.2 billion in FUM. These businesses
have now been successfully integrated and further
strengthen the Bank’s position as a leading property
fund manager.
The establishment of a strategic alliance with 452
Capital, giving exposure to the growing boutique
segment of the funds management industry.
Extension of the First Choice product offering into
the business superannuation market with the launch
of “First Choice Employer Super”.
Rationalising our position in the UK market with the
sale of the Stewart Ivory Private Client business
funds
giving a clearer
management business in the UK.
The investment team in the UK continues to deliver
solid investment results against benchmark, and
fund flows in the second half of the year increased
substantially.
The key strategic initiatives implemented during the
year were focused on process and system simplification
and eliminating duplication. The key initiatives included:
(cid:1)
integration of
focus on our core
(cid:1)
(cid:1)
Successful
the Commonwealth
Investment Management business with Colonial
First State Investments, achieved with minimal loss
of FUM.
Rationalisation of the on-sale product range. In
particular the Colonial First State product suite has
largely been adopted as the on-sale product suite,
with most of the older products from other entities
being closed to new business.
Commencement of a migration product within the
closed products, aimed at reducing the number of
products and systems.
(cid:1)
(cid:1)
18
Funds Management Analysis (continued)
(cid:1)
(cid:1)
The continued migration of closed products into First
State products and onto the First State platform.
The sale of the Bank’s custody business to National
Australia Bank.
Going forward, the funds management business is
positioned well for future growth through its:
(cid:1)
Strong market position and scale across all
segments of the value chain with the number one
market share of retail funds under management at
14.8% at 30 June 2003, a decrease from 15.5% at
June 2002 (Source: Plan for Life).
Profit Summary
(cid:1)
(cid:1)
Broad and diversified distribution, including further
sales growth opportunities through the retail branch
and premium distribution channels.
A strong brand in both the investor and adviser
market places through Colonial First State.
Funds Management
Operating income - external
Operating income - internal
Total Operating Income
Shareholder investment returns
Policyholder tax benefits
Funds Management Income
Operating expenses - comparable business
Operating expenses - included for the first time
Total Operating Expenses
Net Profit before Income Tax
Policyholder tax benefits
Corporate tax expense
Outside equity interests
Net Profit after Income Tax ("cash basis")
Full Year Ended
30/06/03
$M
30/06/02
$M
Increase/
(Decrease)
%
1,091
13
1,104
13
(62)
1,055
807
42
849
206
(62)
54
6
208
1,200
13
1,213
12
(65)
1,160
761
-
761
399
(65)
96
-
368
(9)
-
(9)
8
(5)
(9)
6
-
12
(48)
(5)
(44)
-
(43)
Operating Income
Productivity Efficiency
Operating income for the year is $1,104 million, a
$109 million or 9% decrease on the prior year. Despite
market conditions and significant changes in the product
mix, the operating income to average
funds under
management ratio has been stable at 1.16%.
The key driver of the reduction in operating income
has been the decline in funds under management, which
has been adversely affected, by the decline in equity
markets.
Shareholder Investment Returns
Shareholder investment returns of $13 million were
consistent with the prior year.
Operating Expenses – Comparable Businesses
Expenses for the year were $807 million, a $46
(cid:1)
million or 6% increase on the prior year. This reflects:
(cid:1)
An increase in expenses associated with ASB’s
funds management business whose share of retail
managed fund inflows remained consistently in the
top three of all fund managers in New Zealand.
Increased expenses
in
complying with new regulatory changes, increased
compliance expenses on
legacy business and
underlying staff expense increases. This was partly
offset by lower commissions as a result of lower
volumes of inflows.
in Australia,
incurred
)
m
$
(
M
U
F
e
g
a
r
e
v
A
110,000
100,000
90,000
80,000
70,000
60,000
Underlying Expenses to Average FUM
0.81%
0.85%
0.73%
104,027
94,832
95,333
Jun-01
Jun-02
Jun-03
Average FUM
Underlying Exp/Average FUM
0.96%
0.86%
0.76%
0.66%
0.56%
0.46%
0.36%
0.26%
)
%
(
M
U
F
/
e
g
a
r
e
v
A
p
x
E
g
n
i
y
l
r
e
d
n
U
Expenses as a percentage of average FUM
increased over the year, reflecting the fall in funds and an
increase in expenses.
Operating Expenses – Included for the First Time
These expenses include the expenses of strategic
initiatives. The strategic initiatives undertaken during the
year were the sale of the Bank’s custody business,
integration of the Commonwealth and Colonial First State
Funds Management business and commencement of a
migration and rationalisation program for closed products.
19
Funds Management Analysis (continued)
Taxation
The corporate taxation charge for the year is $54
million a reduction of 44% on the prior year. This
reduction is in line with the reduction in profits with the
effective tax rate stable at 20%. The effective tax rate in
the funds management business is below the standard tax
rate of 30% primarily as a
transitional
concessions on business written within life insurance legal
entities.
result of
Funds Under Management
First Choice
Cash management trusts
Retail
Wholesale
Total FUM
First Choice
Cash management trusts
Retail
Wholesale
Total FUM
Opening
Balance
30/06/02
$M
561
5,634
51,089
45,554
102,838
Opening
Balance
30/06/01
$M
-
6,172
51,902
43,407
101,481
Full Year Ended 30 June 2003
Inflows Outflows
$M
(578)
(1,970)
(12,630)
(16,506)
(31,684)
$M
3,206
1,121
11,052
12,580
27,959
Investment Acquisitions &
Disposals
$M
-
-
2,158
(5,000)
(2,842)
Income
$M
22
178
(562)
(501)
(863)
Full Year Ended 30 June 2002
Inflows Outflows
$M
-
(6,464)
(12,407)
(12,181)
(31,052)
$M
561
5,637
14,509
15,121
35,828
Investment Acquisitions &
Disposals
$M
-
-
-
-
-
Income
$M
-
289
(1,720)
(1,557)
(2,988)
Other
Movements
& Transfers(1)
$M
-
-
(638)
(563)
(1,201)
Other
Movements
& Transfers(1)
$M
-
-
(1,195)
764
(431)
Closing
Balance
30/06/03
$M
3,211
4,963
50,469
35,564
94,207
Closing
Balance
30/06/02
$M
561
5,634
51,089
45,554
102,838
(1)
Includes foreign exchange gains and losses from translation of UK Funds Management business
Funds Under Management
Funds under management were $94 billion at 30
June 2003, a decline of $8 billion or 8% on the prior year.
This result is comprised of net outflows of $4 billion,
investment return losses of $1 billion and net disposals of
$3 billion. The majority of these movements occurred in
the first half of the year.
First Choice
First Choice Funds have increased to $3.2 billion as
at 30 June 2003. This product was launched in May 2002
and enhanced during the year with the launch of the First
Choice Corporate super product. The performance has
been very positive, with the business retaining over 60%
of these funds to manage internally.
Cash Management Trusts
Funds in the Cash Management Trust were $5
billion, a decrease of 12% or $0.6 billion on the prior year.
The reduction in funds invested in the cash management
trust was more than offset by the flow of funds into the
banking retail deposit product and largely reflected the
higher rates available on the banking products as well as
new, more onerous compliance requirements on the sale
of cash management trusts.
Retail
Retail funds under management were $50 billion, a
decrease of 1.2% over the prior year. This result includes
$2.2 billion acquired as part of the Gandel transaction.
20
The net flows from other retail products were
impacted by some substitution of sales from these
products into First Choice, the combined impact was a
funds inflow of $1 billion.
The other primary cause of the outflows has been
customer sentiment regarding investment markets, and a
slowing of inflows and increased redemptions on equity
based products. Consistent with this change in sentiment
the business has also seen a shift from international and
Australian equity products to more defensive investments
such as property and fixed interest.
Wholesale
Wholesale funds under management were $35
billion, a decrease of $10 billion from the prior year.
Included within this decline was an outflow of $3.5 billion
following the previous sale of the UK life business to
Winterthur and $1.5 billion in relation to the sale by First
State UK of its private client business. The underlying
reduction of $5 billion includes $0.5 billion of investment
losses as a result of market volatility and $4 billion in net
outflows. The net out flows occurred primarily in the
Australian business as a result of lost equity mandates
following the departure of personnel in the first half of the
financial year. Consistent with the trend in retail products,
there was also a slowing of inflows and increased
redemptions of equity products generally, which was
exacerbated by some downgrades in researcher ratings of
the Colonial First State Australian equity funds.
Funds Management Analysis (continued)
Funds Under Management
Geographical Segment
Australia
United Kingdom
New Zealand
Asia
Total
30/06/03
$M
78,359
6,908
6,063
2,877
94,207
30/06/02
$M
81,670
12,089
5,690
3,389
102,838
Increase/
(Decrease)
%
(4)
(43)
7
(15)
(8)
21
Life Insurance Analysis
Key Performance Indicators
Profitability
Underlying Profit after Income Tax
Shareholder investment returns (after tax)
Net Profit after Income Tax ("cash basis")
Regional Net Profit after Income Tax - ("cash basis")
Australia
New Zealand
Asia
Operating Income
Operating income
Operating Expenses
Comparable business
Annual Inforce Premiums
Australia
New Zealand
Asia
Productivity and Other Measures
Expenses to average inforce premiums (%)
Effective corporate tax rate (%)
Financial Performance and Business Review
Performance Highlights
The Life Insurance profit increased by $56 million or
85% over the prior year to $122 million. Excluding
investment returns the underlying operating performance
was $58 million, a $17 million or 41% improvement on the
prior year. The improvement in underlying performance
reflected a turnaround in the Asian business and strong
profit growth in New Zealand, partly offset by a one off
write down of an asset in the Australian Business.
Business Review
Australia
The Australian business grew strongly (9% inforce
premiums) in a difficult market to become Australia’s
largest writer of Life risk premium with 15.0% market
share.
During
Growth was achieved through product innovation,
diversifying distribution and focusing on customer service.
introduced some
innovative new benefits and options on personal risk
products, with several firsts in the market such as cash
back, accidental death top ups and loyalty benefits.
the year CommInsure
In addition, diversification of new business sales has
been achieved by an increase in the business volumes
being written through the network channel and also from
increased telemarketing capacity.
Initiatives
in
improving customer service and
productivity implemented during the year were:
(cid:1)
Assistance to customers in completing disability
income tax statements.
22
Full Year Ended
30/06/03
$M
30/06/02
$M
Increase/
(Decrease)
%
58
64
122
71
46
5
41
25
66
84
28
(46)
634
659
484
524
575
221
84
527
187
96
57.3
16
68.8
38
41
large
85
(15)
64
large
(4)
(8)
9
18
(13)
(16)
(58)
(cid:1)
(cid:1)
Development of a new front end delivery system for
use in the retail network.
Introduction of continuation of insurance cover when
loans were paid out or refinanced.
The business was impacted by a failure of a large
investment that resulted in a $30 million loss.
New Zealand
The life insurance operations in New Zealand trade
predominantly under the Sovereign brand.
Sovereign maintained its market leadership position
with market share of in-force business premium income
increasing to 28.3% at April 2003 compared with 26.2% at
April 2002 (source: ISI). This was achieved through
product re-pricing, above market persistency rates and the
continued roll out of Sovereign’s distribution model.
The major focus during the year was streamlining
and improving customer service, a review of key business
processes and legacy systems, the creation of ASB Group
Investments providing synergies between Sovereign and
ASB’s investment business and Phase 1 of a product
rationalisation and simplification program.
Asia
Asia covers our
insurance and pension
life
administration operations in Hong Kong, and our life
businesses in China, Vietnam, Indonesia and Fiji. During
the year the Philippines life insurance operation was
divested.
Life Insurance Analysis (continued)
North Asian economies
faced difficult market
conditions during the financial year due to the impact of
the SARS crisis. The life industry across the region also
suffered from volatility in international equity markets.
these
the Asian
business improved its results, primarily as a result of the
following key initiatives:
Notwithstanding
conditions,
(cid:1)
(cid:1)
(cid:1)
third party pension
The Hong Kong pension administration business
(Commserve Financial) became Hong Kong’s
largest
fund administrator
following the insourcing of additional third party
pension administration business. This provides the
business with a stronger income stream.
Expense control
operations, and
Disposal of the loss making Philippines business.
the Hong Kong
initiatives
in
Profit Summary
Summary Financial Performance
(excluding appraisal value (reduction)/uplift)
Life Insurance
Operating income
Shareholder investment returns
Policyholder tax
Total Life Insurance Income
Operating expenses - comparable business external
Operating expenses - comparable business internal
Net Profit before Income Tax
Income tax expense attributable to:
Policyholder
Corporate
Net Profit after Income Tax ("cash basis")
Full Year Ended
30/06/03
$M
30/06/02
$M
Increase/
(Decrease)
%
552
78
4
634
471
13
150
4
24
122
595
35
29
659
511
13
135
29
40
66
(7)
large
(86)
(4)
(8)
-
11
(86)
(40)
85
Operating Income
Operating Expenses
Operating Income was $552 million for the year, a
decrease of 7% or $43 million on the prior year. This is
primarily due to a significant write down of an individual
asset in the Australian annuity fund of $30 million
combined with a reduction in income in Asia following the
sale of the Philippine business. Underlying performance
has been positive across all regions.
Shareholder Investment Returns
Shareholder investment returns were $78 million for
the year, an increase of $43 million or 123% on the prior
year. This reflected the rebound in global equity markets
in the second half of the year.
Operating expenses were $484 million, a decline of
$40 million on the prior year. This primarily reflected the
sale of the Philippine business in Asia, a reduction in
operating expenses in Hong Kong as a result of expense
control initiatives, and a reduction in business start up
expenses.
Corporate Taxation
The corporate tax expense was $24 million a
reduction from the prior period of $16 million. The
effective tax rate in the prior year reflected losses in the
Asian business. There was no tax benefit booked in
respect of these losses, as it was not considered to be
virtually certain that the losses would be recovered. The
current year result reflects a small profit from the Asian
business.
Sources of Profit from Life Insurance Activities
The Margin on Services profit from ordinary activities after income tax is represented by:
30/06/03
$M
Full Year Ended
30/06/02
$M
Increase/
(Decrease)
%
Planned profit margins
Experience variations
New business losses / reversal of capitalised losses
Operating margins
After tax shareholder investment returns
Operating (Loss)/Profit after Income Tax
104
(38)
(8)
58
64
122
94
(43)
(10)
41
25
66
11
(12)
20
41
large
85
23
Life Insurance Analysis (continued)
Experience variations for the year were $38 million.
This comprised negative experience of $48 million for the
first half of the year, partly offset by favourable experience
of $10m in the second half of the year. The following
experiences contributed to the first half results:
(cid:1) Write down on an investment within the Australian
business of $30 million.
(cid:1) Worse than long term plan persistency within the
(cid:1)
Asian and New Zealand business.
Start up expenses in the Asian Business, being
primarily China, Vietnam and
the Pension
Retirement business in Hong Kong.
The second half favourable experiences reflect:
Geographical Analysis of Business Performance
(cid:1)
Reduction in start up expenses in Asia, following
cost control initiatives and the sale of the Philippine
business, partly offset by
(cid:1) Worse than long term plan persistency within the
Asian and New Zealand business.
The prior full year experience variations of $43
million included:
(cid:1)
(cid:1)
Adverse claims experience in the New Zealand
business.
Although continuing to improve, worse than long
term plan persistency within the Asian Business.
Start up expenses in Asia.
The magnitude of the Asian persistency and start up
expenses reduced in the current year, contributing to the
improved Asian result.
(cid:1)
Underlying Profit after Income Tax
Australia
New Zealand
Asia
Total
Full Year Ended
30/06/03 30/06/02 30/06/03 30/06/02 30/06/03 30/06/02 30/06/03 30/06/02
$M
$M
$M
$M
$M
$M
$M
$M
Operating margins
Investment earnings on assets in excess
of policyholder liabilities
Net Profit after Income Tax
36
35
71
66
18
84
Australia
31
15
46
Asia
25
3
28
(9)
14
5
(50)
4
(46)
58
64
122
41
25
66
The Australian result for the year was $71 million, a
The Asian result for the year was $5 million
reduction of $13 million or 15% on prior year.
Operating margins were $36 million a reduction of
$30 million on the prior year, reflecting the write off of a
significant asset in the first half of this year.
New Zealand
The profit contribution of the New Zealand business
was $46 million, a 64% increase on the prior year.
investment
The operating margin was $31 million, a 24%
the prior year. Adverse morbidity and
increase on
disability claims and
losses on annuity
business impacted the prior period result. The current
period result reflected favourable foreign exchange benefit
and claims experience as a result of improved claims
management, partly offset by higher than planned lapses.
The lapse rate was however, below that experienced in
the industry.
compared with a loss of $46 million in the prior year.
Operating margins were a
loss of $9 million
compared with a prior year loss of $50 million. The
improvement reflected the following:
(cid:1)
result of
income stream as a
the
Stronger
development of the pension fund administration
business.
One-off charges and new business losses, primarily
in the Philippines, adversely impacted the prior year
result.
The current period result reflects improved expense
control, particularly in maintenance expenses, and
improved persistency compared with the prior year.
(cid:1)
(cid:1)
Annual Inforce Premiums
Personal
Group
Total
Australia
New Zealand
Asia
Total
Full Year Ended 30 June 2003
Opening
Sales/New
Balance
Business
30/06/02
$M
$M
581 128
229 59
810 187
527
187
96
810
128
43
16
187
24
Lapses
$M
(78)
(30)
(108)
(80)
(16)
(12)
(108)
Other
Movements
$M
(6)
(3)
(9)
-
7
(16)
(9)
Closing
Balance
30/06/03
$M
625
255
880
575
221
84
880
Life Insurance Analysis (continued)
Annual Inforce Premiums
Personal
Group
Total
Australia
New Zealand
Asia
Total
Full Year Ended 30 June 2002
Opening
Sales/New
Balance
Business
30/06/01
$M
$M
525 137
189 62
714 199
463
161
90
714
124
52
23
199
Lapses
$M
(81)
(22)
(103)
(60)
(26)
(17)
(103)
Other
Movements
$M
-
-
-
-
-
-
-
Closing
Balance
30/06/02
$M
581
229
810
527
187
96
810
Annual inforce premiums increased by $70 million or
9% on the prior year. This reflected an improvement in
the lapse rate from 14.4% in the prior year to 13.3% in the
current year.
The Bank’s Australian market share of inforce
premiums was 15.0% at March 2003, an increase from
14.9% at June 02 (Source: Plan for Life).
Sovereign’s market share of inforce premiums was
28.3% at April 2003, compared with 26.2% at June 2002.
Market share of new business was stable at 27.0%
(Source ISI).
25
Shareholder Investment Returns
Shareholder Investment Returns
Funds Management Business
Life Insurance Business
Shareholder Investment Returns before Tax
Taxation
Shareholder Investment Returns after Tax
Full Year Ended
30/06/03
$M
13
78
91
18
73
30/06/02
$M
12
35
47
14
33
Increase/
(Decrease)
%
8
large
94
29
large
Shareholder Investments Asset Mix (%)
Local equities
International equities
Property
Other (1)
Subtotal
Fixed interest
Cash
Subtotal
Total
Australia
30/06/03
%
27
7
15
-
49
11
40
51
100
New Zealand
30/06/03
%
1
12
3
10
26
19
55
74
100
Asia
30/06/03
%
17
-
-
29
46
54
-
54
100
Total
30/06/03
%
22
6
10
7
45
20
35
55
100
Shareholder Investments Asset Mix ($M)
Local equities
International equities
Property
Other (1)
Subtotal
Fixed interest
Cash
Subtotal
Total
Australia
30/06/03
$M
561
141
302
-
1,004
235
778
1,013
2,017
New Zealand
30/06/03
$M
5
45
11
38
99
72
209
281
380
Asia
30/06/03
$M
89
1
-
236
326
283
-
283
609
Total
30/06/03
$M
655
187
313
274
1,429
590
987
1,577
3,006
(1) Asia other primarily includes the excess of carrying value over net tangible assets
26
Life Company Valuations
The following table sets out the components of the
carrying values of the Bank’s life insurance and funds
management
businesses. These were Directors’
valuations, based on appraisal values using a range of
economic and business assumptions determined by
management, which were reviewed by
independent
actuaries, Trowbridge Deloitte.
In determining the carrying value, Directors have
taken account of a number of market based factors which
result in the adoption of a more conservative valuation that
is $450 million lower at 30 June 2003 ($780 million lower
at 31 December 2002; $748 million lower at 30 June
2002) than that determined by Trowbridge Deloitte. The
Directors have considered the potential impacts to the
appraisal value from continued volatility and uncertainty
within world equity markets and the subdued levels of
industry funds flows.
Some of the key factors allowed for within the
Directors valuation at 31 December 2002, to reflect
current market conditions, have now been incorporated
into the Trowbridge Deloitte valuation at 30 June 2003.
This has led to a reduction in the difference between the
Directors valuation and the Trowbridge Deloitte valuation
of $330 million.
Carrying Value at 30 June 2003
Shareholders net tangible assets
Value of inforce business
Embedded Value
Value of future new business
Carrying Value
(Decrease)/Increase in Carrying
Value since 30 June 2002
Analysis of Movement Since 30 June 2002
Profits
Capital movements (2)
Dividends paid
Disposals/Acquisitions of business(3)
FX Movements
Change in Shareholders NTA
Acquired excess
Appraisal value (decrease)/uplift
(Decrease)/Increase to 30 June 2003
Funds
Management
$M
754
1,123
1,877
3,596
5,473
(110)
Australia
$M
1,264
245
1,509
79
1,588
178
Life Insurance
New Zealand
$M
380
191
571
278
849
61
Funds
Management
$M
Life Insurance
Australia
$M
New Zealand
$M
208
154
(196)
(110)
(4)
52
129
(291)
(110)
71
98
(111)
-
(3)
55
-
123
178
46
1
-
-
(1)
46
-
15
61
Asia (1)
$M
608
4
612
24
636
Total
$M
3,006
1,563
4,569
3,977
8,546
(163)
(34)
Asia (1)
$M
5
36
-
(20)
(92)
(71)
-
(92)
(163)
Total
$M
330
289
(307)
(130)
(100)
82
129
(245)
(34)
(1) The Asian life businesses were not held in the market value environment and were carried at net assets plus any excess representing
the difference between appraisal value and net assets at the time of acquisition. This excess which effectively represents goodwill is
being amortised on a straight-line basis over 20 years.
Includes capital injections and movements in intergroup loans.
(2)
(3) Represents the purchase of management rights in CFS Retail Property Trust, the acquisition of Avanteos, investment in a Chinese funds
management joint venture, disposal of some Colonial First State UK business and disposal of the Philippines life insurance business.
27
Life Company Valuations (continued)
Change in valuations
The valuations adopted have resulted in a total value
reduction of $34 million since 30 June 2002. This
comprised a reduction in carrying value of $222 million in
the period 30 June 2002 to 31 December 2002, partly
offset by an increase in value of $188 million in the period
31 December 2002 to 30 June 2003.
The main components of the reduction of $34 million
between 30 June 2002 and 30 June 2003 comprised:
(cid:1)
A $82 million increase in net tangible assets as
shown above.
Acquired excess of $129 million primarily in relation
to the merger of the Colonial First State Property
Trust.
(cid:1)
(cid:1)
(cid:1)
Group (CFT) with the Commonwealth Property
Office Fund (CPA) and Gandel Retail Trust (GAN)
(“the property trust merger”).
Appraisal value reduction of $245 million.
The capital movements
the current period
primarily include an injection of capital into the funds
management business in relation to the property trust
merger.
in
The appraisal value reduction for the year of $245
million reflects:
(cid:1)
Uncertainty and low returns in world equity markets
and their effect on industry flows.
The performance of the business during the year.
(cid:1)
28
Presentation of Financial Information
Definitions
"Cash basis" net profit after
In this annual report, the Bank presents its profit
from ordinary activities after tax on a “statutory basis”,
which is calculated in accordance with Australian GAAP,
and on a “cash basis”. "Cash basis" is defined by
management as net profit after tax and outside equity
funds
interests, before goodwill amortisation and
value
management and
insurance appraisal
life
(reduction)/uplift.
tax
represents profit derived from business operating income
and operating expenses after tax. The only items excluded
from the net profit after tax are goodwill amortisation and
appraisal value (reduction)/uplift. Management believes
"cash basis" is a meaningful measure of the Bank’s
performance and provides the basis for the determination
of the Bank’s dividends. The goodwill amortisation is an
annual accounting charge to profit, with amortisation
principally over a 20-year period. The appraisal value
reduction or uplift is a movement in the value of the funds
management and life insurance businesses which in part
is driven by external economic factors and markets, such
as world equity markets and interest rates.
The Bank also presents its earnings per share on a
statutory basis and on a cash basis. Earnings per share
on a statutory basis are affected by the impact of changes
in the appraisal value of our funds management and life
insurance businesses. "Earnings per share (cash basis)"
is defined by management as net profit after tax and
outside equity interests, before goodwill amortisation and
funds management and life insurance appraisal value
(reduction)/uplift, divided by the weighed average of the
Bank’s ordinary shares outstanding over the relevant
period. This measure shows the "cash basis" net profit
after tax, as described above, per share.
"Operating Expenses — included for the first time"
refers to one-off costs associated with the strategic
initiatives as outlined in the Bank’s annual report for the
year ended 30 June 2002 as well as additional share-
based compensation following changes to the Bank’s
remuneration structures and policy. These one-off costs
principally relate to restructuring expenses. “Operating
expenses — included for the first time” plus “operating
expenses — comparable businesses” is equal to the
Australian GAAP measure
"operating expenses".
Management believes it is meaningful to highlight these
items in an analysis of our results.
the
(cid:1)
(cid:1)
"Underlying profit" refers to profit after tax, cash
basis, before operating expenses included for the first time
and shareholder investment returns. "Underlying profit" is
referred to across all our businesses. The underlying profit
is
result of our core operating performance.
Management believes it is meaningful to highlight the
underlying profit in order to show performance on a
comparable basis, in particular excluding the volatility of
equity markets and restructuring expenses.
"Underlying" productivity ratios
Exclude expenses included for the “first time”.
Exclude shareholder investment returns from funds
management and life insurance income.
Exclude
funds
management income and life insurance income
lines.
In providing
ratios,
comparatives for the prior period have also been adjusted.
"Underlying" productivity ratios have been presented to
provide what management believes to be a more relevant
presentation of our productivity ratios. Management
believes that these adjustments enable comparison of our
productivity ratios from period to period to be more
meaningful as it reflects our core operating performance.
"underlying" productivity
policyholder
from
the
tax
(cid:1)
.
29
Integrated Risk Management
Risk Management
The
integrated
framework
identifies, assesses, manages and reports risks and risk
adjusted returns on a consistent and reliable basis.
risk management
Independent review is carried out through the audit
role.
The Group’s risk profile
the
difference between capital available to absorb loss and
risk as assessed by economic equity required.
is measured by
“Economic equity” is defined as the potential risk of
loss of one year’s earnings, measured at a standard
consistent with an AA credit rating.
is derived
Economic equity
from underlying
exposures to credit, market, operational and life insurance
risks in the banking, life insurance and funds management
businesses of the Group. In the banking business,
economic equity is a measure of the potential risk of loss
of cash earnings.
funds
management businesses, economic equity is a measure
of the potential risk of loss of the fair value of the
business.
insurance and
the
life
In
The composition of economic equity of the Group
during the financial year ended 30 June 2003 was 53%
credit risk, 13% market risk, 33% operational risk and 1%
insurance risk.
The component measures of economic equity for the
funds management
insurance and
banking,
life
businesses were as follows:
(cid:1)
(cid:1)
(cid:1)
Banking; 76% credit risk, 4% market risk and 20%
operational risk.
Life insurance; 41% market risk, 53% operational
risk, 3% credit risk and 3% insurance risk.
Funds Management; 10% market risk and 90%
operational risk.
The following sections describe the integrated risk
management framework components.
Credit Risk
Credit risk is the potential for loss arising from failure
of a debtor or counterparty to meet their contractual
obligations.
Credit risk arises in the banking business from
lending activities, the provision of guarantees including
letters of credit and commitments to lend, investment in
bonds and notes and financial markets transactions and
other associated activities. In the life insurance business
credit risk arises from investment in bonds and notes,
loans and from reliance on reinsurance. The funds
management business does not generally involve credit
risk from a shareholder perspective.
The measurement of credit risk is based on an
internal credit risk rating system, and utilises analytical
tools to calculate expected and unexpected loss for the
credit portfolio.
The Group uses a diversified portfolio approach for
the management of credit risk (refer also Note 14)
comprised of the following:
(cid:1)
A system of industry limits and targets for exposures
by industry;
A process for considering the risk associated with
correlations between large exposures;
A
for aggregate
large credit exposure policy
exposures to individual commercial and industrial
client groups tiered by credit risk rating and loan
duration; and
A system of country limits for geographic exposures.
(cid:1)
(cid:1)
(cid:1)
These policies assist in the diversification of the
credit portfolio.
The credit portfolio is managed in two distinct
segments:
(cid:1)
(cid:1)
Statistically Managed Segment
Comprises exposures that are generally less than
$250,000 and is dominated by the housing loan
portfolio. Other products in this segment are credit
cards, personal loans and some leasing business.
Credit facilities are approved using scoring and
check sheet techniques.
Risk Rated Segment
Comprises all other credit exposures. Management
is based on the internal credit risk rating system,
which makes an assessment of the potential for
default for each exposure and the amount of loss if
default should occur.
Allowance for expected credit loss in the banking
business commences when an exposure first arises. The
expected loss is re-assessed on a regular basis and
provisioning adjusted accordingly.
A centralised exposure management system records
all significant credit exposures of the Group. Customers,
industry, geographic and other significant groupings of
exposure are regularly monitored.
A centralised portfolio model is used to assess risk
and return on an overall portfolio basis and for segments
of the portfolio. The model also assists in determining
economic equity and general provision requirements, and
credit portfolio stress testing.
Market Risk
Market risk is the potential for change in the value of
on and off balance sheet positions caused by a change in
the value, volatility or relationship between market rates
and prices.
Market risk arises from the mismatch between
assets and liabilities in both the banking and insurance
businesses and from controlled trading undertaken in
pursuit of profit. The Group is exposed to diverse financial
instruments including interest rates, foreign currencies,
equities and commodities and transacts in both physical
and derivative instruments.
A discussion and analysis of the Group’s market risk
is contained in Note 39 to the financial statements.
Information on trading securities is further contained in
Note 10 of the financial statements. Note 2 of the financial
statements contains financial markets trading income
contribution to the Group.
In the trading book of the banking business, market
risk is measured by a value-at-risk (VaR) model. This
model uses the distribution of historical changes in market
prices to assess the potential for future losses. The VaR
model takes into account correlations between risks and
the potential for movements in one portfolio to offset
movements in another. Actual results are backtested to
check the validity of the VaR model.
In addition, because
the VaR model cannot
encompass all possible outcomes, tests covering a variety
of stress scenarios are regularly performed to simulate the
effect of extreme market conditions.
30
Integrated Risk Management (continued)
The following table provides a summary of VaR by product. This is one element of the total integrated risk model used by
the Group. Refer Note 39 to the financial statements for further details.
Average VaR
During
June 2003
Half Year
$M
Average VaR
During
December 2002
Half Year
$M
Average VaR
During
June 2002
Half Year
$M
Average VaR
During
December 2001
Half Year
$M
Group (excluding ASB Bank)
Interest rate risk
Exchange rate risk
Implied volatility risk
Equities risk
Commodities risk
Prepayment risk
ASB Bank
Diversification benefit
Total
3.43
1.31
0.62
0.73
0.32
0.38
0.15
(2.32)
4.62
Trading income for 30 June 2003 increased by 2.7%
over 30 June 2002 without a significant increase in the
VaR during the period.
In the non-traded book of the banking business,
a range of techniques is adopted to measure market risk.
These include simulation of the effects of market price
changes on assets and liabilities for business activities
where there are no direct measures of the effects of
market prices on those activities.
Liquidity risk is the risk that assets cannot be
liquidated in time to meet maturing obligations. Limits are
set to ensure that holdings of liquid assets do not fall
below prudent levels. The liquid assets held are assets
that are eligible for repurchase by the Reserve Bank of
Australia (over and above those required to meet the Real
Time Gross Settlement obligations), certificates of
deposits and bills of exchange accepted by other banks
and overnight interbank loans. More detailed comments
on the Bank’s liquidity and funding risks are provided in
Note 39.
Market risk in the life insurance business arises from
mismatches between assets and liabilities. Guaranteed
returns are offered on some classes of policy. These
liabilities may not be capable of being easily hedged
through matching assets. In addition, market risk may
arise from adverse movements in market prices affecting
fee income on investment-linked policies and from the
returns obtained from investing the shareholders’ capital
held in each life company.
the
Bank
possible,
Wherever
segregates
policyholder funds from shareholder funds and sets
investment mandates that are appropriate for each. The
investment mandates for assets in policyholder funds
attempt to match asset characteristics with the nature of
policy obligations. The ability
to match asset
characteristics with policy obligations may be constrained
by a number of factors including regulatory constraints,
the lack of suitable investments as well as by the nature of
the policy liabilities themselves.
A large proportion of the policyholder assets is held
for investment linked policies where the policyholder takes
the risk of falls in the market value of the assets. However,
as the Bank earns fees on investment linked policies that
are based on the amount of assets invested, it may
receive lower fees should markets fall. Asset allocation for
investment linked policies is decided by the policyholder.
31
3.37
1.47
0.59
0.32
0.35
0.30
0.19
(2.14)
4.45
3.23
2.07
0.59
0.42
0.31
0.21
0.17
(2.39)
4.61
2.60
1.54
0.48
0.47
0.48
0.32
0.14
(2.45)
3.58
A smaller proportion of policyholder assets is held to
support policies where life companies have guaranteed
either the principal invested or the investment return
(‘guaranteed policies’). Investment mandates for these
classes of policies emphasise investment in lower volatility
assets such as cash and fixed interest. The Bank no
longer sells guaranteed policies in Australia or New
Zealand but they continue to be sold in Asia. The
Australian and New Zealand books of in force business
contain guaranteed policies sold in the past and on which
it continues to collect premiums.
Thus, it is likely to be several years before the
Australian and New Zealand inforce book of guaranteed
policies will decline significantly as the policy payments on
maturing policies continues to be offset by the premium
income on the remaining policies. Some guaranteed
policies were sold on the basis of profits being shared
between policyholders and shareholders. Profits are
allocated to policyholders by the declaration of ‘bonuses’.
Bonuses may be declared annually (‘annual bonuses’) or
upon maturity of the policy (‘terminal bonuses’). Once
declared, annual bonuses form part of the guaranteed
sum assured.
Shareholders’ funds in the life insurance business
are on average invested 50% in income assets (cash and
fixed interest) and 50% in growth assets (shares and
property), although the asset mix varies from company to
company. Policyholder
to meet
policyholder reasonable expectations without putting the
shareholder at undue risk.
funds are
invested
Market risk in the funds management business is the
risk that an adverse movement in market prices will result
in a reduction of that element of fee income related to
earnings performance.
in
issue
Liquidity risk is not a significant
life
insurance companies. The life insurance companies in the
Bank hold substantial investments in highly liquid assets
such as listed shares, government bonds and bank
deposits and continue to receive substantial premium
income. Furthermore, processing time for claims and
redemptions enables each company to forecast and
manage its liquidity needs with a high degree of accuracy.
Integrated Risk Management (continued)
Operational and Strategic Business Risk
The Group’s operational and strategic business risk
management framework supports the achievement of the
Group’s financial and business goals.
Operational Risk is defined as the risk of economic
(cid:1)
(cid:1)
(cid:1)
failed
internal processes and
gain or loss resulting from:
(cid:1)
Inadequate or
methodologies,
People,
Systems, or from
External events.
Strategic Business Risk is defined as the risk of
economic gain or loss resulting from changes in the
business environment caused by the following factors:
(cid:1)
(cid:1)
(cid:1)
(cid:1)
Economic,
Competitive,
Social trends, or
Regulatory.
Business owners
for
the
throughout
the Group are
responsible
identification, assessment and
treatment of these risks. These business owners are
supported by the Group’s framework consisting of a
governance structure, a suite of risk mitigating policies, a
measurement methodology and skilled operational risk
professionals embedded throughout the Group.
The Bank’s
risk measurement
operational
methodology provides the basis for the expert assessment
the calculation of
of
operational risk economic equity.
individual risk exposures and
for
Economic capital
the banking business
is
calculated using a quantitative-based expert assessment
of individual operational risk scenarios. For the life
insurance and funds management businesses economic
capital is calculated using worst-case scenarios that
impact upon business risk factors such as pricing, margins
and business volumes.
risk
transfer program
The Group continues to benchmark and monitor its
for efficiency and
insurance
effectiveness. This is primarily achieved through a
methodology to optimise total shareholder returns in
determining the most appropriate blend of insurance risk
transfer and economic capital.
Insurance Risk
There are two risk types that are considered to be
unique to life insurance businesses. These are the risks
that the incidence of mortality (death) and morbidity
(illness and injury) claims are higher than assumed when
pricing life insurance policies, or is greater than best
estimate assumptions used to determine the fair value of
the business.
Insurance risk may arise through reassessment of
the incidence of claims, the trend of future claims and the
effect of unforeseen diseases or epidemics. In addition, in
the case of morbidity, the time to recovery may be longer
than assumed. Insurance risk is controlled by ensuring
underwriting standards adequately identify potential risk,
retaining the right to amend premiums on risk policies
where appropriate and through the use of reinsurance.
The experience of the Group’s life insurance business and
those of the industry as a whole are reviewed annually.
Derivatives
Derivative instruments are contracts whose value is
derived from one or more underlying financial instruments
or indices defined in the contract. The Bank enters into
derivatives transactions including swaps, forward rate
agreements, futures, options and combinations of these
instruments. The sale of derivatives to customers as risk
management products and their use for trading purposes
32
is integral to the Group’s financial markets activities.
Derivatives are also used to manage the Group’s own
exposure to market risk. The Bank participates in both
exchange traded and OTC derivatives markets.
Exchange traded derivatives:
Exchange traded derivatives are executed through a
registered exchange, for example the Sydney Futures
Exchange and the Australian Stock Exchange. The
contracts have standardised terms and require lodgment
of initial and variation margins in cash or other collateral at
the Exchange, which guarantees ultimate settlement.
terms and conditions of
OTC traded derivatives:
The Bank buys and sells financial instruments that
are traded ‘over-the-counter’, rather than on recognised
exchanges. The
these
transactions are negotiated between the parties, although
the majority conform to accepted market conventions.
Industry standard documentation is used, most commonly
in the form of a master agreement supported by individual
transaction confirmations. The documentation protects the
Group’s interests should the counterparty default, and
provides
in
jurisdictions where the relevant law allows.
to net outstanding balances
the ability
The Group’s exposure to derivatives is disclosed in
Note 39 Market Risk.
Off Balance Sheet Arrangements
The Group is involved with a number of special
purpose entities in the ordinary course of business,
primarily to provide funding and financial services to our
customers. Under Australian GAAP these entities are
consolidated in the financial statements if they meet the
criteria of control. The definition of control depends upon
accordingly,
substance
determination of
involves
management judgment. The Group has no off balance
sheet financing entities that it is considered to control.
form,
the existence of control
rather
than
and
As detailed in Note 1 (jj), the Group conducts a Loan
Securitisation program through which it packages and
sells loans as securities to investors. Liquidity facilities are
provided at arm’s length to the program by the Group in
accordance with the APRA Prudential Guidelines. These
liquidity facilities are disclosed within Contingent Liabilities
as commitments to provide credit.
Business Continuity Management
Business Continuity Management (BCM) within the
Group involves the development, maintenance and testing
of advance action plans to respond to defined risk events.
This ensures that business processes continue with
minimal adverse impact on customers, staff, products,
services and brands.
BCM constitutes an essential component of the
Group’s
risk management process by providing a
controlled response to potential operational risks that
could have a significant impact on the Group’s critical
processes and revenue streams. It includes both cost-
effective responses to mitigate the impact of risk events or
disasters and crisis management plans to respond to
crisis events.
Each division in the Group has developed, tested
and maintained Business Continuity Plans. A
comprehensive BCM education program has been
implemented to embed BCM methodologies and capability
throughout the Group.
Description of Business Environment
Competition
The Australian banking market is highly transparent
and competitive. The banks, life companies and non-bank
financial institutions compete for customer deposits, the
provision of lending, funds management, life insurance
and other financial services.
In all there were 45 banking groups operating in
Australia at 30 June 2003. Banks in Australia can be
divided into the following categories: Australian owned
banks, foreign bank subsidiaries and branches of foreign
owned banks.
Among the Australian owned banks (of which there
are 13) the four largest (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 products
and services through branch networks across Australia.
Of the other Australian owned banks, there are
5 regional banks. Each of these had their origins as
a building society and their operations were initially largely
state based. While the smaller of the regional banks have
typically limited their activities to servicing customers in a
particular state or region, they are now targeting interstate
customers and expanding their operations across state
borders. Their growth in mortgage lending has been
facilitated by the proliferation of non-bank mortgage
originators and brokers. The larger regional banks now
operate in several states, if not nationally. Over recent
regional banking sector has undergone
years
substantial consolidation with several of these institutions
amalgamating with other regional banks or being acquired
by major banks.
the
locally
through a
There are 12 foreign owned banks operating in
incorporated subsidiary.
Australia
through
An additional 20 banks conduct operations
a foreign bank branch. While many
foreign banks
operating in Australia initially focussed their activities on
the provision of banking services to the Australian clients
of their overseas parent bank, most have now diversified
their operations, offering local clients a broad range of
financial products and services. Foreign bank branches in
Australia are not able to offer retail deposit and transaction
accounts
foreign banks are
represented in Australia by both a locally incorporated
subsidiary and a branch.
to customers. Five
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 housing. These state-based
institutions are also making headway in achieving multi-
state
coverage, partly encouraged by a more
accommodating regulatory environment.
A further development over recent years has been
the establishment of local single branch banks collectively
referred to as ‘community banks’. Under this model, the
local community effectively purchases, from a regional
bank, the right to operate a franchise of the bank but
within the auspices of the regional bank’s banking
authority. The presence of community banks has added
another dimension to the competitive dynamics of the
market.
In addition, 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,
33
telecommunication companies and utilities. Technological
change has provided opportunities for new entrants with
differing combinations of expertise and has enabled the
unbundling of the value chain.
funds)
Another significant factor in disintermediation in
Australia has been the substantial growth in funds under
the superannuation
management, especially within
(pension
industry. Future growth will be
underpinned by the Australian Government’s continued
encouragement
through
superannuation, a mandatory superannuation guarantee
levy on employers and by means of taxation concessions.
This growth potential continues to attract new entrants to
this market.
long-term
saving
of
The pool of capital represented by funds under
management provides an alternative source of capital to
bank finance for borrowers. The corporate bond market in
Australia has benefited from the growth in funds under
management 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 in major infrastructure projects
undertaken by the corporate sector.
Like Australia, the New Zealand banking system is
characterised by strong competition. The Group’s
activities in New Zealand are conducted through ASB
Group. 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.
New Zealand banking activities are led by five
financial services groups, all owned by UK or
Australian-based banks operating
through nationwide
branch networks.
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 Westpac Trust
(a wholly-owned subsidiary of Westpac). In addition, there
are several financial institutions operating largely in the
wholesale banking sector including Deutsche Bank and
AMP (Australia’s largest insurance group).
Through its wholly owned subsidiary Sovereign
Group, ASB Group also competes in the New Zealand
insurance and investment market, where Royal Sun
Alliance and Tower Corporation are major competitors.
Following the acquisition of Colonial Ltd in June
2000, the Group’s retail operations were extended into the
United Kingdom, numerous Asian markets and the Fiji
Islands; in these markets, the Bank competes directly with
established providers.
Financial System Regulation
Australia has by international standards a high
quality system of financial regulation by international
standards. Following a comprehensive inquiry into the
Australian financial system (the ‘Wallis Inquiry’), the
Australian Government introduced a new framework for
regulating the financial system. The previous framework,
which applied regulations according
type of
institution being regulated, resulted in similar products
being regulated differently. The new functional approach
regulates products consistently regardless of the particular
type of institutions providing them.
the
to
Description of Business Environment (continued)
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
the Basel
Committee on Banking Supervision. From 1 July 2003, a
new Level 3 capital requirement (prescribed by APRA) is
being introduced for conglomerate groups. For information
on the capital position of the Bank, see Note 31 Capital
Adequacy.
those agreed upon by
Funding and Liquidity
APRA exercises liquidity control by requiring each
bank to develop a liquidity management strategy that is
appropriate for itself. Each policy is formally approved by
APRA. A key element of the Group’s liquidity policy is the
holding of a stock of high quality liquid assets to meet day
to day fluctuations in liquidity. The liquid assets held are
assets that are available for repurchase by the RBA (over
and above those required to meet the Real Time Gross
Settlement (RTGS) obligations, AUD CDs/Bills of other
banks and AUD overnight interbank loans). More detailed
comments on the Group’s liquidity and funding risks are
provided in Note 39.
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 25% of
the capital base (prior to 1/7/03 the limit was 30%).
Exposure to authorised deposit taking institutions (ADIs) is
not to exceed 50% of the capital base. Prior notification
must be given to APRA if a bank intends to exceed these
limits. For information on the Bank’s large exposures refer
to Note 14 to the Financial Statements.
that
financial
regulated
Ownership and Control
In pursuit of transparency and risk minimisation, the
Financial Sector (Shareholding) Act 1998 embodies the
principle
institutions should
maintain widespread ownership. The Act applies
a common 15% shareholding limit for authorised deposit
taking institutions, insurance companies and their holding
companies. The Treasurer has the power to approve
acquisitions exceeding 15% 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.
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
industry,
in
particularly in respect of small business lending, has
increased sufficiently.
financial
the
Proposals for foreign acquisition of Australian banks
are subject to approval by the Treasurer under the Foreign
Acquisitions and Takeovers Act 1975.
Since July 1998, the new regulatory arrangements
have comprised four separate agencies: The Reserve
Bank of Australia, the Australian Prudential Regulation
Authority,
Investments
the Australian Securities and
Commission and
the Australian Competition and
Consumer Commission. Each of these agencies has
system wide responsibilities for the different objectives of
system.
government
of
A description of
their general
responsibilities and functions is set out below.
these agencies and
oversight
financial
the
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, insurance companies
and 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.
Australian Securities and Investments Commission
(ASIC) – has responsibility for market conduct, consumer
protection and corporate regulation functions across the
financial system including for investment, insurance and
superannuation products and the providers of these
products.
Australian Competition and Consumer Commission
(ACCC) – has responsibility for competition policy and
consumer protection across all sectors of the economy.
Consistent with its functional approach to regulation,
the Wallis Inquiry proposed a single licensing regime for
financial sales, advice and dealings in relation to financial
products, consistent and comparable financial product
disclosure and a single authorisation procedure
for
financial exchanges and clearing and settlement facilities.
The Financial Services Reform Act 2001 enacted these
proposals and when it comes into force in March 2004
should facilitate innovation and promote business while at
the same time ensuring adequate levels of consumer
protection and market integrity.
The Government is expected to pass into law this
year a package of proposals (known as CLERP 9) dealing
with audit regulation and corporate disclosure designed to
ensure Australia has an effective
regulatory and
disclosure framework that provides the structures and
incentives for a fully informed market.
Supervisory Arrangements
The Bank is an authorised deposit-taking institution
under the Banking Act and is subject to prudential
regulation by APRA as a bank.
In carrying out its prudential responsibilities, APRA
closely monitors the operations of banks to ensure that
they operate within the prudential framework it has laid
down and that they follow sound management practices.
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.
34
Description of Business Environment (continued)
from 1/7/03)
limits applicable
Banks’ Association With Non-Banks
There are formal guidelines (including maximum
that control
exposure
investments and dealings with
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.
Supervision of Non-Bank Group Entities
The life insurance company and general insurance
company subsidiaries of the group also come within the
supervisory purview of APRA.
APRA’s prudential supervision of both life insurance
and general insurance companies is exercised through the
setting of minimum standards for solvency and financial
strength to ensure obligations to policyholders can be met.
to
prudential standards covering capital adequacy, liability
valuation,
reinsurance
arrangements.
insurance companies are subject
risk management
General
and
The financial condition of life insurance companies is
monitored through regular financial reporting, lodgment of
inspections.
audited
Compliance with APRA regulation for general insurance
companies is monitored through regular returns and
lodgment of an audited annual return.
supervisory
accounts
and
Critical Accounting Policies and Estimates
The Notes to the Financial Statements contain a
summary of the Group’s significant accounting policies.
Certain of these policies are considered to be more
important in the determination of the Group’s financial
position, since they require management to make difficult,
complex or subjective judgements, some of which may
relate to matters that are inherently uncertain. These
decisions are reviewed by a Committee of the Board.
These policies include judgements as to levels of
provisions for impairment for loan balances, actuarial
assumptions in determining life insurance policy liabilities
and market valuations of life insurance controlled entities.
An explanation of
related
judgements and estimates involved is set out below.
these policies and
the
Provisions for Impairment
Provisions for impairment are maintained at an
amount adequate to cover anticipated credit related
losses.
Credit losses arise primarily from loans but also from
other credit instruments such as bank acceptances,
contingent liabilities, financial instruments and investments
and assets acquired through security enforcement.
Specific Provisions
Specific provisions are maintained 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. The provisions are
established based primarily on estimates of the realisable
(fair) value of collateral taken.
Specific provisions (in bulk) are also made against
each statistically managed segment to cover facilities
which are not well secured and past due 180 days or
more, against the credit risk rated segment for exposures
aggregating to less than $250,000 and 90 days or more
past due, and against emerging credit risks identified in
35
specific segments in the credit risk rated managed
portfolio. These provisions are derived primarily by
reference to historical ratios of write-offs to balances in
default.
Specific provisions are provided for from the general
provision.
All facilities subject to a specific provision for
impairment are classified as non-accrual, as set out in
Note 15.
General Provision
The general provision represents management’s
estimates of non-identifiable probable losses and latent
risks inherent in the overall portfolio of loans and other
credit transactions.
The evaluation process is subject to a series of
estimates and judgements.
In the Credit Risk Rated Managed segment, the risk
rating system, including the frequency of default and loss
given default rates, loss history, and the size, structure
and diversity of individual credits are considered. Current
developments in portfolios (industry, geographic and term)
are reviewed.
In the Statistically Managed segment the history of
defaults and losses, and the size, structure and diversity
of portfolios are considered.
In addition management considers overall indicators
of portfolio performance, quality and economic conditions.
Changes in these estimates could have a direct
impact on the level of provision determined.
The amount required to bring the general provision
to the level assessed is taken to profit and loss as set out
in Note 13.
Life Insurance Policyholder Liabilities
Life Insurance policy liabilities are accounted for
under AASB 1038: Life Insurance Business. A significant
area of judgement is in the determination of policyholder
liabilities, which involve actuarial assumptions.
All policyholder liabilities are recognised in the
Statement of Financial Position and are measured at net
present values or, if not materially different, on an
accumulation basis after allowing
for acquisition
expenses. They are calculated in accordance with the
principles of Margin on Services (MoS) profit reporting as
set out in Actuarial Standard AS 1.03: Valuation of Policy
Liabilities issued by the Life Insurance Actuarial Standards
Board.
The areas of
judgement where key actuarial
assumptions are made in the determination of policyholder
liabilities are:
(cid:1)
Business assumptions including:
- amount, timing and duration of claims/policy
payments;
- policy lapse rates; and
- acquisition and long term maintenance expense
levels;
(cid:1)
(cid:1)
Long term economic assumptions for discount and
interest rates, inflation rates and market earnings
rates; and
Selection of methodology, either projection or
accumulation method. The selection of the method
is generally governed by the product type.
The determination of assumptions relies on making
judgements on variances from long-term assumptions.
Where experience differs from long term assumptions:
(cid:1)
Recent results may be a statistical aberration; or
(cid:1)
There may be a commencement of a new paradigm
requiring a change in long term assumptions.
Description of Business Environment (continued)
The Group’s actuaries arrive at conclusions
regarding the statistical analysis using their experience
and judgement.
Additional information on the accounting policy is set
out in Note 1 (jj) Life Insurance Business, and Note 34 Life
Insurance Business details the key actuarial assumptions.
Insurance Controlled
Market Valuation of Life
Entities
Interests in controlled entities held by the life
insurance companies are subject to revaluation each
period, such that the investment in the controlled entity is
recorded at market value.
On consolidation the investment in controlled entities
is eliminated and the excess of market value of controlled
entities over their underlying net assets is separately
recognised in Other Assets (Note 21) on the balance
sheet as ‘Excess of Net Market Value over Net Tangible
Assets of Life Insurance Controlled Entities’. This amount
is assessed periodically as part of the valuation of
investments with changes in value taken to profit. This
excess does not require amortisation in the financial
statements.
Appraisal valuations are used to assist the directors
in setting the market value. There are several key
economic and business assumptions involved in the
appraisal valuations, the selection of which involves
actuarial judgement.
Economic assumptions are the long term view on
key economic drivers and comprise investment earnings
rates, risk discount rates and inflation. The economic
assumptions are reviewed as a suite to take account of
the correlation between the movements in each factor.
Business assumptions relate to the performance of
the Group’s businesses, both stand alone and relative to
the market. These assumptions are only altered when
there is a long-term change in views, which is supported
by clearly discernible trends. The assumption setting
process is similar to that used for Margin on Services
policyholder liabilities. The major business assumptions
for life businesses are:
(cid:1)
(cid:1)
(cid:1)
(cid:1)
Sales/new business
Claims
Persistency
Expenses
The major business assumptions
for
funds
management businesses are:
(cid:1)
Sales/new business
(cid:1)
Margins/business mix
(cid:1)
Redemptions
(cid:1)
Cost to income ratio
Details of
the
valuations are set out in Note 34 Life Insurance Business.
the key assumptions used
in
International Accounting Standards
to support
The Financial Reporting Council has announced a
decision
the adoption by Australia of
International Accounting Standards (IAS) by 1 January
2005. The Bank will be required to adopt these standards
for the financial year commencing 1 July 2005. The major
new IAS standards that are expected to most impact the
Bank are in the areas of financial instruments, goodwill,
pension accounting and insurance contracts. A project has
been established to identify all issues associated with
these accounting standard changes. It is too early in the
process to estimate the full financial effect of these new
accounting requirements.
36
Corporate Governance
Board of Directors
Charter
The role and responsibilities of
Directors are set out
responsibilities include:
(cid:1)
in
the Board Charter.
the Board of
The
The corporate governance of the Bank, including the
establishment of Committees;
Oversight of the business and affairs of the Bank by:
− establishing, with management, the strategies
(cid:1)
(cid:1)
Appointment of the Chief Executive Officer; and
Approval of the Bank’s major HR policies and
overseeing the development strategies for senior
and high performing executives.
There
in place a comprehensive set of
management delegations to allow management to carry
on the business of the Bank.
is
(cid:1)
(cid:1)
and financial objectives;
− approving major corporate initiatives;
− establishing appropriate
systems of
risk
management; and
− monitoring the performance of management;
Communicating with
the
and
community, results of, and developments in, the
operations of the Bank;
shareholders
Composition
There are currently 12 Directors of the Bank and
details of
their experience, qualifications, special
responsibilities and attendance at meetings are set out in
the Directors report.
Membership of the Board and Committees is set out
below:
DIRECTOR
BOARD MEMBERSHIP
COMMITTEE MEMBERSHIP
J T Ralph, AC
J M Schubert
D V Murray
N R Adler, AO
R J Clairs, AO
A B Daniels, OAM
C R Galbraith, AM
S C Kay
W G Kent, AO
F D Ryan
F J Swan
B K Ward
Non-executive,
Independent
Non-executive,
Independent
Executive
Non-executive,
Independent
Non-executive,
Independent
Non-executive,
Independent
Non-executive,
Independent
Non-executive,
Independent
Non-executive,
Independent
Non-executive,
Independent
Non-executive,
Independent
Non-executive,
Independent
Nominations
Remuneration
Audit
Risk
Chairman
Chairman
Chairman
Chairman
Deputy Chairman
Member
Chief Executive Officer
Member
Member
Member
Chairman
Member
Member
Member
Member
Member
Member
Member
Member
(cid:1)
At each Annual General Meeting one-third of
Directors (other than the chief executive officer) shall
retire from office and may stand for re-election.
The Board have established a policy that, with a
phasing in provision for existing Directors, the term of
directors’ appointments would be limited to 12 years
(except where succession planning for Chairman and
appointment of Chairman requires an extended term. On
appointment,
to be
available for that position for five years). Directors do not
stand for re-election after attaining the age of 70.
the Chairman will be expected
Ms S C Kay was appointed as a non-executive
Director on 5 March 2003. In accordance with the Bank’s
Constitution and the ASX Listing Rules, she will stand for
election at the Annual General Meeting to be held on 31
October 2003.
(cid:1)
(cid:1)
The Constitution of the Bank specifies that –
The Chief Executive Officer and any other executive
director shall not be eligible to stand for election as
Chairman of the Bank;
The number of Directors shall not be less than 9 nor
more than 13 (or such lower number as the Board
may from time to time determine). The Board have
determined that for the time being, the number of
directors shall be 12; and
37
Corporate Governance (continued)
Independence
The Board regularly assesses the independence of
each Director. For this purpose an independent Director
is a non-executive Director whom the Board considers to
be independent of management and free of any business
or other relationship that could materially interfere with the
exercise of unfettered and independent judgment.
In addition to being required to conduct themselves
in accordance with the ethical policies of the Bank,
Directors are required to be meticulous in their disclosure
of any material contract or relationship in accordance with
the Corporations Act and this disclosure extends to the
interests of family companies and spouses. Directors are
required to strictly adhere to the constraints on their
participation and voting in relation to matters in which they
may have an interest in accordance with the Corporations
Act and the Bank's policies.
Each Director may from time to time have personal
dealings with the Bank. Each Director is involved with
other companies or professional firms which may from
time to time have dealings with the Bank. Details of
offices held by Directors with other organisations are set
out in the Directors' Report and on the Bank's website.
Full details of related party dealings are set out in notes to
the Company's accounts as required by law.
(cid:1)
(cid:1)
All the current non-executive Directors of the Bank
have been assessed as independent Directors. In
reaching that determination, the Board have taken into
account (in addition to the matters set out above):
(cid:1)
The specific disclosures made by each Director as
referred to above;
the
that
(cid:1) Where applicable,
related party dealings
those
to each Director, noting
referrable
dealings are not material under accounting
standards;
That no Director is, or has been associated directly
with, a substantial shareholder of the Bank;
That no non-executive Director has ever been
employed by the Bank or any of its subsidiaries;
That no Director is, or has been associated with a
supplier, professional adviser, consultant
to or
customer of the Bank which is material under
accounting standards; and
That no non-executive Director personally carries on
any role for the Bank otherwise than as a Director of
the Bank.
The Bank does not consider that term of service on
the Board is a factor affecting a Director's ability to act in
the best interests of the Bank. Independence is judged
against the ability, integrity and willingness of the Director
to act. The Board have established a policy limiting
Directors'
that skill sets remain
appropriate in a dynamic industry.
to ensure
tenures
(cid:1)
(cid:1)
Education
Directors participate in an induction programme
upon appointment and in a refresher programme on a
regular basis. The Board have established a programme
of continuing education to ensure that it is kept up to date
with developments in the industry both
locally and
globally. This includes sessions with local and overseas
experts in the particular fields relevant to the Bank’s
operations.
Review
The Board have in place a process for annually
reviewing its performance, policies and practices. These
reviews seek to identify where improvements can be
made and also assess the quality and effectiveness of
(cid:1)
(cid:1)
38
information made available to Directors. Every 2 years,
this process is facilitated by an external consultant, with
an internal review conducted in the intervening years. The
review includes an assessment of the performance of
each Director.
After consideration of the results of the performance
assessment, the Board will determine its endorsement of
the Directors to stand for re-election at the next Annual
General Meeting.
The non-executive Directors meet at least annually,
without management, in a forum intended to allow for an
open discussion on Board and management performance.
This is in addition to the consideration of the Chief
Executive Officer’s performance and remuneration which
is conducted by the Board in the absence of the Chief
Executive Officer.
The Chairman meets annually with
team
executive
performance and
perspective.
to discuss with
them
level of
involvement
the senior
the Board’s
their
from
Selection of Directors
The Nominations Committee have 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
the ongoing
effectiveness of the Board, have the ability to exercise
sound business judgment, to think strategically and have
levels of
demonstrated
professional skill and appropriate personal qualities.
leadership experience, high
to contribute
is able
to
The Committee regularly reviews the skill base and
experience of existing Directors to enable identification of
attributes required in new Directors.
An executive search firm is engaged to identify
potential candidates based on the identified criteria.
Candidates
for appointment as Directors are
considered by the Nominations Committee, recommended
for decision by the Board and, if appointed, stand for
election, in accordance with the Constitution, at the next
general meeting of shareholders.
On appointment, a letter is provided from the
Chairman to the new Director setting out the terms of
appointment.
Policies
Board policies relevant to the composition and
functions of Directors include:
(cid:1)
The Board will consist of a majority of independent
non-executive Directors and the membership of the
Nominations, Remuneration and Audit Committees
should consist solely of independent non-executive
Directors. The Risk Committee should consist of a
majority of independent non-executive Directors.
The Chairman will be an independent non-executive
Director who should also chair the Nominations,
Remuneration and Risk Committees. The Audit
Committee will be chaired by an independent non-
executive Director other than the Board Chairman.
The Board will generally meet monthly with an
agenda designed to provide adequate information
about the affairs of the Bank, allow the Board to
guide and monitor management and assist
involvement
in discussions and decisions on
strategy. Matters having strategic implications are
given priority on the agenda for regular Board
Corporate Governance (continued)
(cid:1)
(cid:1)
meetings. In addition, ongoing strategy is the major
focus of at least two of the Board meetings annually.
The Board have an agreed policy on
the
circumstances in which Directors are entitled to
obtain access
to company documents and
information and to meet with management.
The Bank have in place a procedure whereby, after
appropriate consultation, directors are entitled to
seek
the
independent professional advice, at
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.
Ethical Standards
Conflicts of Interest
In accordance with
the Constitution and
the
Corporations Act 2001, Directors disclose to the Board
any material contract in which they may have an interest.
In compliance with section 195 of the Corporations Act
2001 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.
Share Trading
The restrictions imposed by law on dealings by
Directors in the securities of the Bank have been
the Board of Directors adopting
supplemented by
guidelines which further limit any such dealings by
Directors, their spouses, any dependent child, family
company or 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. Similar restrictions apply to
executives of the Bank.
(cid:1)
(cid:1)
In addition, Bank policy prohibits:
For Directors and executives who report to the Chief
Executive Officer, any hedging of publicly disclosed
shareholding positions; and
For executives, any trading (including hedging) in
positions prior to vesting of shares or options.
Remuneration Arrangements
Remuneration Committee
The Board have established a Remuneration
Committee to:
(cid:1)
(cid:1)
(cid:1)
(cid:1)
Consider changes in remuneration policy likely to
have a material impact on the Group;
Consider senior executive appointments;
Determine remuneration for senior management;
and
Be informed of leadership performance, legislative
compliance
industrial
agreements and incentive plans operating across
the Group.
The policy of the Board is that the Committee shall
consist entirely of independent non-executive Directors.
The Chief Executive Officer attends Committee meetings
by invitation but does not attend in relation to matters that
can affect him.
in employment
issues,
The Committee have an established work plan which
allows it to review all major human resource policies,
strategies and outcomes.
Director Remuneration
The Constitution and the ASX Listing Rules specify
that
remuneration of non-executive
the aggregate
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 the highest
calibre. The latest determination was at the Annual
General Meeting held on 28 October 1999 when
shareholders approved an aggregate remuneration of
$1,500,000 per year. The Nominations Committee reviews
the fees payable to non-executive Directors. Details of
individual Directors’ remuneration are set out in Note 45.
Directors’ fees do not incorporate any bonus or incentive
element.
In August 2000, the Board approved the introduction
of the Non-Executive Directors’ Share Plan which requires
the acquisition of shares by non-executive Directors at
market price through the mandatory application of 20% of
their annual fees. Details of this Plan were set out in the
Notice of Meeting to the 2000 Annual General Meeting.
In July 2002, the Board discontinued the retirement
scheme which provided for benefits to be paid to non-
executive Directors. The terms of this scheme, which were
approved by shareholders at the 1997 Annual General
Meeting, allowed for a benefit on a pro rata basis to a
maximum of four years’ total emoluments after 12 years’
service. The entitlements of the non-executive Directors
at the time of discontinuance will not be affected but no
new members after that time will be admitted to the
scheme.
Chief Executive Officer Remuneration
The remuneration of Mr Murray (Chief Executive
Officer) is fixed by the Board, pursuant to the Constitution,
as part of the terms and conditions of his appointment.
Those terms and conditions are established in a contract
of employment with Mr Murray which was effective from 2
July 2001, with remuneration subject to review, from time
to time, by the Board.
Executive Remuneration
The Group’s Policy in respect of executives is that:
Remuneration will be competitively set so that the
Group can attract, motivate and retain high calibre
local and international executive staff;
Remuneration will
to a significant
degree, variable pay for performance elements, both
short term and long term focused as appropriate,
which will:
−
incorporate,
reward executives for Group, business unit and
individual performance against appropriate
benchmarks and targets;
align the interests of executives with those of
shareholders;
link executive reward with the strategic goals
and performance of the Group; and
ensure total remuneration is competitive by
market standards.
−
−
−
Remuneration will be reviewed annually by the
Remuneration Committee through a process that
considers Group, business unit and
individual
performance, relevant comparative remuneration in
the market and internal and, where appropriate,
external advice on policies and practices;
(cid:1)
(cid:1)
(cid:1)
39
Corporate Governance (continued)
(cid:1)
(cid:1)
long
term
incentive and
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
individual
in an
contract of employment and signed by the executive
and the Bank. The relationship of remuneration,
potential short
term
incentive payments is established for each level of
executive management by
the Remuneration
Committee. For managers within the Bank potential
incentive payments as a proportion of total potential
remuneration
the
increases with
organisation. The structure for some specialists
differs from that which applies generally to executive
management.
Incentive payments for executives, including the
Chief Executive Officer, are related to performance. Short
term incentives actually paid depend on the extent to
which operating targets set at the beginning of the
financial year are achieved. Half of the short term
incentive earned is paid in cash and the balance in two
instalments at yearly
These
instalments are only paid if the Executive is still in the
employ of the Bank on the relevant dates.
in shares.
intervals
level
in
Vesting of options and shares allocated under the
long term incentive plan is directly related to shareholder
value, measured by Total Shareholder Return over a
minimum 3 year period, which requires the return to be
equal to or higher than the average return of peer
institutions for vesting to occur.
As approved by the shareholders at the 2000 Annual
General Meeting, vesting of options and restricted shares
allocated to executives is dependent on the Bank meeting
the performance hurdles in the plan.
The Bank has restructured its long-term executive
incentive plan, effective from the beginning of the 2003
financial year. Previously half the value of long term
incentive benefits under the shareholder approved Bank’s
Equity Reward Plan were paid in options, valued on the
Black-Scholes method, and the other half in Performance
shares valued at market price at the date of allocation.
These options and shares only vest to the executive
provided the prescribed performance hurdles are met.
From the beginning of the 2003 financial year options
have been eliminated from the remuneration package of
executives and the total value of the long term incentives
allocated under the Equity Reward Plan from that date is
in the form of Reward shares.
A
is
introduced
further change
that whereas
previously allocated options and shares vested upon the
average Total Shareholder Return of peer institutions
being exceeded, a sliding scale has been introduced so
that 50% of allocated shares vest if the Bank’s TSR is
equal to the average return, 75% vest at the 67th
percentile in the index and 100% when the return exceeds
the 75th percentile, ie. when the Bank’s return is in the top
quartile.
Options and shares previously allocated under the
Equity Reward Plan will continue until they vest upon the
prescribed performance hurdles being met or they lapse.
Currently, restricted shares purchased on market to
satisfy incentives earned by executives are charged
against profit and loss as are incentives paid in cash and
in deferred shares. As from the beginning of the 2003
financial year, total remuneration, which includes the full
cost of the plan and also the distribution of shares to
employees under the ESAP, have been expensed against
profits.
40
Details of the remuneration paid to the Chief
Executive Officer and the five highest paid other members
of the senior executive team who were officers of the Bank
at 30 June 2003 are set out in Note 46.
(cid:1)
(cid:1)
(cid:1)
to be
the chief
the Chairman of
Audit Arrangements
Audit Committee
The Charter of the Audit Committee incorporates a
number of policies and practices to ensure that the
Committee is independent and effective. Among these
are:
(cid:1)
consists entirely of
The Audit Committee
independent non-executive Directors, all of whom
have familiarity with financial management and at
least one has expertise in financial accounting and
reporting. The Chairman of the Bank is not
the Audit
permitted
Committee.
At least twice a year the Audit Committee meets the
external auditors and
internal audit
executive and also separately with the external
Auditors independently of management.
The Audit Committee is responsible for nominating
the external auditor to the Board for appointment by
shareholders. The Audit Committee approves the
terms of the contract with the external auditor,
agrees
the annual audit plan and approves
payments to the Auditor.
The Audit Committee discusses and
receives
assurances from the external auditors on the quality
of the Bank’s systems, its accounting processes and
its financial results. It also receives a report from the
Auditors on any significant matters raised by the
Auditors with management.
All material accounting matters requiring exercise of
judgement by management are specifically reviewed
by the Audit Committee and reported on by the
Committee to the Board.
Certified assurances are received by the Audit
Committee and the Board that the Auditors meet the
independence requirements as recommended by
the Blue Ribbon Committee of the SEC of the USA.
In carrying out these functions, the Committee:
Reviews the financial statements and reports of the
Group;
Reviews accounting policies to ensure compliance
with current
regulations and
laws,
accounting standards;
Conducts any investigations relating to financial
matters, records, accounts and reports which it
considers appropriate; and
Reviews all material matters requiring exercise of
judgment by management and reports those matters
to the Board.
In addition, 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 policies established by the Committee.
A range of insurance policies maintained by the Group
mitigates some operational risks.
relevant
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
Corporate Governance (continued)
The Committee regularly considers, in the absence
of management and the external auditor, the quality of the
information received by the Committee and, in considering
the financial statements, discusses with management and
the external auditor:
(cid:1)
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 judgments made.
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
approved and signed.
(cid:1)
Non-Audit Services
The Board have in place policies and procedures
governing the nature of non-audit services which can and
cannot be undertaken by the Bank’s Auditors for the Bank
or its subsidiaries. These policies and procedures
incorporate approval by the Audit Committee of all non-
audit services. The objective of this policy is to avoid
prejudicing the independence of the Auditors and to
prevent their developing undue reliance on revenue from
the Bank.
(cid:1)
(cid:1)
(cid:1)
The policy ensures that the Auditor does not:
Assume the role of management;
Become an advocate for their client; or
Audit their own professional expertise.
Under the policy, the Auditor shall not provide the
following services:
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
on
and
deal
related
structuring
Bookkeeping or services relating to accounting
records;
Appraisal or valuation and fairness opinions;
Advice
documentation
Tax planning and strategic advice;
Actuarial advisory services;
Executive recruitment or extensive human resource
functions;
Acting as a broker-dealer, promoter or underwriter;
or
Provision of legal services.
For non-audit services
that are not expressly
following Audit Committee approval
prohibited,
the
processes apply:
(cid:1)
(cid:1)
Pre-approved - the Audit Committee have pre-
approved certain types of services that do not impair
Auditor independence up to a limit of $250,000 per
engagement; and
Specific approval - all other services, including pre-
approved services exceeding $250,000, require
specific formal approval by the Audit Committee, or
a member thereof under delegation, before the
Auditor may be engaged.
Non-audit services are defined as any service
provided by the external Auditor under engagement with
the Bank outside the scope of the external audit. The
scope of the external audit is outlined in the Bank’s annual
audit engagement letter.
The Bank currently
the partner
managing the audit for the external Auditor be changed
within a period of five years.
requires
that
Auditor
Ernst & Young was appointed as the Auditor of the
Bank at the 1996 Annual General Meeting and continues
in that office.
41
The Chief Executive Officer is authorised to appoint
in
remove
internal audit executive
and
consultation with the Audit Committee.
the chief
Risk Management
Risk Committee
The Risk Committee oversees credit and market
risks assumed by the Bank in the course of carrying on its
business.
The Committee considers the Group’s credit policies
and ensures that management maintains a set of credit
underwriting standards designed to achieve portfolio
outcomes consistent with
risk/return
expectations. In addition, the Committee reviews the
Group’s credit portfolios and
recommendations by
management for provisioning for bad and doubtful debts.
the Group’s
The Committee approves risk management policies
and procedures for market, funding and liquidity risks
incurred or likely to be incurred in the Group’s business.
The Committee
implementing
reviews progress
management procedures and identifying new areas of
exposure relating to market, funding and liquidity risk.
in
Framework
The Bank has
risk
management framework to identify, assess, manage and
report risks and risk adjusted returns on a consistent and
reliable basis.
in place an
integrated
A full description of the functions of the framework
and the nature of the risks is set out in the section of the
Annual Report entitled Integrated Risk Management and
in Notes 14 and 39 to the Financial Statements.
Nominations Committee
the Bank and
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 solely of
the
independent non executive directors and
Chairman of
the
Committee. The Chief Executive Officer attends the
meeting by invitation.
that
the Bank shall be Chairman of
In addition to its role in proposing candidates for
director appointment for consideration by the Board, the
Committee
to non-executive
directors and reviews, and advises the Board in relation to
Chief Executive Officer succession planning.
fees payable
reviews
Continuous Disclosure
The Corporations Act 2001 and the ASX Listing
Rules require that a company disclose to the market
matters which could be expected to have a material effect
on the price or value of the company’s securities.
Management processes are in place throughout the
Commonwealth Bank Group to ensure that all material
matters which may potentially require disclosure are
promptly reported to the Chief Executive Officer, through
the
established
deliberations of the Bank’s Executive Committee. Matters
reported are assessed and, where required by the Listing
Rules, advised to the market. The Company Secretary is
responsible for communications with the ASX and for
ensuring that such information is not released to any
person until the ASX have confirmed its release to the
market.
lines, or as a part of
reporting
Corporate Governance (continued)
Ethical Policies
US Sarbanes-Oxley Act
Values Statement
The Bank demands the highest standards of honesty
and loyalty from all its people and strong governance
within the Bank.
Our values statement – “trust, honesty and integrity”
- reflects this standard.
(cid:1)
(cid:1)
Statement of Professional Practice
The Bank have adopted a code of ethics, known as
a Statement of Professional Practice, which sets
standards of behaviour
required of all employees
including:
(cid:1)
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
Employment Opportunity policy and programs;
To maintain confidentiality in the affairs of the Bank
and its customers; and
To be absolutely honest in all professional activities.
These standards are regularly communicated to
staff. In addition, the Bank have established insider trading
guidelines for staff to ensure that unpublished price
sensitive
the Bank or any other
information about
company is not used in an illegal manner.
the Bank’s Equal
to
(cid:1)
(cid:1)
Our People
The Bank is committed to providing fair, safe,
challenging and
the
rewarding work,
importance of attracting and retaining the best staff and
consequently, being in a position to provide good service
to our customers.
recognising
There are various policies and systems in place to
enable achievement of these goals, including :
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
Fair Treatment Review systems;
Equal Employment Opportunity policy;
Occupational Health and Safety Systems;
Recruitment and selection policies;
Performance feedback and review processes;
Career assessment and succession planning;
Employee Share Plan; and
Supporting Professional Development.
Behaviour Issues
The Bank is strongly committed to maintaining an
ethical workplace, complying with
legal and ethical
responsibilities. Policy requires staff to report fraud,
corrupt conduct, mal-administration or serious and
substantial waste by others.
A system has been
established which allows staff to remain anonymous if
they wish for reporting of these matters.
The policy has been extended to include reporting of
auditing and accounting issues which will be reported
directly to the Chief Compliance Officer. The Chief
Compliance Officer reports any such matters to the Audit
Committee, noting the status of resolution and actions to
be taken.
Governance Philosophy
The Board have
consistently placed great
importance on the governance of the Bank, which it
believes is vital to the well-being of the corporation. The
framework of
Bank has adopted a comprehensive
Corporate Governance Guidelines which are designed to
properly balance performance and conformance and
thereby allow the Bank to undertake, in an effective
manner, the prudent risk-taking activities which are the
basis of its business.
On 30 July 2002, a broad US financial reporting and
corporate governance reform law, called the Sarbanes-
Oxley Act of 2002 (the SOX Act), was enacted. By its
terms, this Act applies to the Group because it has certain
securities registered with the US Securities and Exchange
Commission (SEC) under the Securities Exchange Act of
1934 (the Exchange Act).
Under the Exchange Act, the Bank files periodic
reports with the SEC, including an annual report on Form
20-F. Pursuant to the requirements of the SOX Act, the
SEC have adopted rules requiring that the Group’s Chief
Executive Officer and Chief Financial Officer personally
provide certain certifications with respect to the disclosure
contained in the annual report on Form 20-F.
Some of the more significant certifications generally
include:
(cid:1)
That based on their knowledge, the report does not
contain any untrue statement of a material fact or
omit to state a material fact and the financial
statements and other financial information included
within the report fairly present in all material respects
the financial condition, results of operations and
cash flows of the Group;
That they have ensured that appropriate disclosure
controls and procedures have been put in place
such that all material information has been disclosed
and made known to them and they have evaluated
the effectiveness of those disclosure controls and
procedures as of the end of the Group’s fiscal year
and presented in the annual report on Form 20-F
their conclusions about the effectiveness of the
disclosure controls and procedures as of the end of
the most recent fiscal year;
That in respect of internal controls over financial
reporting
the Group’s
external auditors and to the Audit Committee of the
board of directors all significant deficiencies and
material weaknesses in the design or operation of
those internal controls over financial reporting which
are reasonably likely to adversely affect the Group’s
ability to record, process, summarise and report
financial information, and any fraud, whether or not
material,
involves management or other
employees who have a significant role in the
Group’s internal control over financial reporting; and
The annual report on Form 20-F discloses whether
or not there were any changes in internal control
over financial reporting during the period covered by
the annual report on Form 20-F that has materially
affected, or is reasonably likely to materially affect,
the Group’s internal control over financial reporting.
in addition
The Group will
they have disclosed
to providing
that
to
these
certifications make the following disclosures in its annual
report on Form 20-F:
(cid:1)
the effectiveness of
The Group’s Chief Executive Officer and Chief
Financial Officer, with
the assistance of other
the Group’s management, have
members of
evaluated
the Group’s
disclosure controls and procedures as of the end of
the period covered by this report. Based on such
evaluation, the Group’s Chief Executive Officer and
Chief Financial Officer have concluded that the
Group’s disclosure controls and procedures are
effective.
The Group’s Chief Executive Officer and Chief
Financial Officer have also concluded that there
have not been any changes in the Group’s internal
control over financial reporting that have materially
(cid:1)
(cid:1)
(cid:1)
(cid:1)
42
−
−
likely
reasonably
all significant deficiencies in the design or
operation of internal controls over financial
reporting which are
to
adversely affect the Group’s ability to record,
process, summarise and report financial data;
and
that
fraud, whether or not material,
any
involves management or other employees who
have a significant role in the Group’s internal
control over financial reporting.
Evaluation of disclosure controls and procedures
Our Chief Executive Officer and Chief Financial
Officer, with the assistance of other members of the
Group’s management, have evaluated the effectiveness of
the Group’s disclosure controls and procedures as of 30
June 2003. Based on such evaluation, our Chief
Executive Officer and Chief Financial Officer have each
concluded
the Group’s disclosure controls and
procedures are effective.
that
Changes in internal control over financial reporting
No changes in our internal controls over financial
reporting occurred during the year ended 30 June 2003
that have materially affected, or are reasonably likely to
materially affect, our
financial
reporting.
internal controls over
Corporate Governance (continued)
affected, or is reasonably likely to materially affect,
the Group’s internal control over financial reporting.
The SOX Act prohibits an issuer from extending or
maintaining credit, arranging for the extension of credit, or
renewing an extension of credit, in the form of a personal
loan to or for any director or executive officer of the Group,
unless one of the limited exceptions is available. Loans
maintained by the Group before 30 July 2002 are exempt
so long as there is no material modification to any term of
the extension of credit or any renewal of the extension of
credit.
The Group is also required to disclose in its annual
report on Form 20-F for the 2004 financial year, whether it
has adopted a written code of ethics applicable to its
principal executive officer, principal
financial officer,
principal accounting officer or controller, or persons
performing similar functions.
Certifications and Disclosures
In respect of this annual report and as at the date of
this annual report, the Group’s Chief Executive Officer and
Chief Financial Officer make the following Sarbanes-Oxley
related certifications:
(cid:1)
(cid:1)
That they have reviewed the report;
That based on their knowledge, the report does not
contain any untrue statement of a material fact or
omit to state a material fact necessary to make the
statements made, in light of the circumstances
under which such statements were made, not
misleading with respect to the period covered by the
report;
That based on
financial
statements, and other financial information included
in the report, fairly present in all material respects
the financial condition, results of operations and
cash flows of the Group as of, and for, the periods
presented in the report;
That they are responsible for establishing and
maintaining disclosure controls and procedures (as
defined in the US Exchange Act Rules 13a-15(e)
and 15d-15(e)) for the Group and have:
−
their knowledge,
the
designed such disclosure controls and
procedures, or caused such disclosure controls
and procedures to be designed under their
supervision, to ensure that material information
relating to the Group, including its consolidated
subsidiaries, is made known to them by others
within those entities, particularly during the
period in which the report is being prepared;
evaluated the effectiveness of those disclosure
controls and procedures and presented in this
report their conclusions about the effectiveness
of the disclosure controls and procedures, as
of the end of the period covered by this report
based on such evaluation; and
disclosed in this report any change in the
Group’s internal control over financial reporting
that occurred during the period covered by this
is
report
reasonably
the
Group’s
financial
reporting; and
that has materially affected, or
to materially affect,
likely
internal
control over
−
−
(cid:1)
(cid:1)
(cid:1)
That they have disclosed, based on their most
recent evaluation of internal control over financial
reporting, to the Group’s auditors and the Audit
Committee of the Group’s Board of Directors:
43
Directors’ Report
The Directors of
the Commonwealth Bank of
Australia submit their report, together with the financial
report of the Commonwealth Bank of Australia (the ‘Bank’)
and of the Group, being the Bank and its controlled
entities, for the year ended 30 June 2003.
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.
John T Ralph, AC, Chairman
Mr Ralph has been a member of the Board since 1985
and Chairman since 1999. He is also Chairman of the
Risk, Remuneration and Nominations Committees. He is a
Fellow of the Australian Society of Certified Practising
Accountants and has over fifty years’ experience in the
mining and finance industries.
Deputy Chairman: Telstra Corporation Limited.
Other Interests: Melbourne Business School (Board of
Management), Australian Foundation
for Science
(Chairman), Australian Institute of Company Directors
(Fellow), Australian Institute of Management (Fellow),
Academy of Technological Science and Engineering
(Fellow) and member of the Council of Xavier College,
Melbourne.
Mr Ralph is a resident of Victoria. Age 70.
John M Schubert, Deputy Chairman
Dr Schubert has been a member of the Board since 1991
and is Chairman of the Audit Committee and a member of
the Nominations Committee. He holds a Bachelor Degree
and PhD in Chemical Engineering and has experience in
the petroleum, mining and building materials industries. Dr
Schubert is the former Managing Director and Chief
Executive Officer of Pioneer International Limited.
Chairman: Worley Limited Advisory Board and G2
Therapies Limited.
Director: BHP Billiton Limited, BHP Billiton plc, Qantas
Airways Limited and Australian Graduate School of
Management Ltd.
Other Interests: Business Council of Australia (President),
Academy of Technological Science and Engineering
(Fellow), Salvation Army Territorial Headquarters &
Sydney Advisory Board (Member). He is also a Director of
the Great Barrier Reef Research Foundation and a
Director and a Member of the AGSM Consulting Ltd.
Dr Schubert is a resident of New South Wales. Age 60.
David V Murray, Managing Director and Chief
Executive Officer
Mr Murray has been a member of the Board and Chief
Executive Officer since June 1992. He holds a Bachelor of
Business, Master of Business Administration, an honorary
Phd from Macquarie University and has thirty seven years’
experience in banking. Mr Murray is a member of the Risk
Committee.
Director: Tara Anglican School for Girls Foundation
Limited.
Interests:
International Monetary Conference
Other
(Member), Asian Bankers’ Association
(Member),
Australian Bankers’ Association (Member), Asia Pacific
Bankers' Club (Member), Business Council of Australia
(Member), General Motors Australian Advisory Council
(Member), and the Financial Sector Advisory Council
(Member).
Mr Murray is a resident of New South Wales. Age 54.
N R (Ross) Adler, AO
Mr Adler has been a member of the Board since 1990 and
is a member of the Audit Committee. He holds a Bachelor
of Commerce and a Master of Business Administration.
He has experience in various commercial enterprises,
more recently in the oil and gas and chemical trading
industries.
Chairman: Austrade and Amtrade International Pty Ltd.
Director: Australian Institute of Commercialisation Ltd,
AWL Enterprises Pty Ltd and Liberal Club Ltd.
Member: Advisory Council of Equity and Advisory Limited.
Other Interests: Adelaide Festival (Chairman), University
of Adelaide (Council Member and Chairman of the
Finance Committee) and Vice President and Executive
Member of the Australia Japan Business Co-operation
Committee.
Mr Adler is a resident of South Australia. Age 58.
Reg J Clairs, AO
Mr Clairs has been a member of the Board since 1999
and is a member of the Remuneration Committee. As the
former Chief Executive Officer of Woolworths Limited, he
had thirty three years’ experience in retailing, branding
and customer service.
Chairman: Agri Chain Solutions Ltd.
Director: David Jones Ltd, and National Australia Day
Council.
Other Interests: Member of the Institute of Company
Directors.
Mr Clairs is a resident of Queensland. Age 65
A B (Tony) Daniels, OAM
Mr Daniels has been a member of the Board since March
2000 and is a member of the Remuneration Committee.
He has extensive experience
in manufacturing and
distribution, being Managing Director of Tubemakers of
Australia for eight years to December 1995, during a long
career with that company. He has also worked with
government in superannuation, competition policy and
export facilitation.
Director: Australian Gas Light Company, Orica Limited,
and O'Connell St Associates.
44
Directors’ Report (continued)
Other Interests: Australian Institute of Company Directors
(Fellow) and Australian Institute of Management (Fellow).
Mr Daniels is a resident of New South Wales. Age 68.
Colin R Galbraith, AM
Mr Galbraith has been a member of the Board since June
2000. He was previously a Director of Colonial Limited,
appointed 1996. He is a partner of Allens Arthur Robinson,
Lawyers.
Chairman: BHP Billiton Community Trust.
Director: GasNet Australia Group and OneSteel Limited.
Other Interests: Secretary of Council of Legal Education in
Victoria, Deputy Chairman of the Corporate Council of
CARE Australia and a Trustee of the Royal Melbourne
Hospital Neuroscience Foundation.
Mr Galbraith is a resident of Victoria. Age 55.
Warwick G Kent, AO
Mr Kent has been a member of the Board since June
2000 and is a member of the Risk Committee. He was
previously a Director of Colonial Limited, appointed 1998.
He was Managing Director and Chief Executive Officer of
BankWest until his retirement in 1997. Prior to joining
BankWest, Mr Kent had a long and distinguished career
with Westpac Banking Corporation.
Council of the National Library of Australia, a Counsellor
of the Committee for Melbourne and Patron of the Pacific
Institute.
Mr Ryan is a resident of Victoria. Age 60.
Frank J Swan
Mr Swan has been a member of the Board since July
1997 and is a member of the Risk and Nomination
Committees. He holds a Bachelor of Science degree and
has twenty three years senior management experience in
the food and beverage industries.
Chairman: Foster's Group Limited and Centacare Catholic
Family Services.
Director: National Foods Limited.
Other Interests: Institute of Directors (Fellow), Australian
Institute of Company Directors (Fellow) and Australian
Institute of Management (Fellow).
Mr Swan is a resident of Victoria. Age 62.
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 experience in policy development and public
administration as a senior ministerial adviser and in the
transport and aviation industries, most recently as Chief
Executive of Ansett Worldwide Aviation Services.
Chairman: Coventry Group Limited and West Australian
Newspapers Holdings Limited.
Chairperson: Country Energy.
Director: Perpetual Trustees Australia Limited.
Other Interests: Trustee of the Walter and Eliza Hall Trust
and Fellow of
Institute of Company
Directors, Australian Society of CPAs, Australian Institute
of Bankers and the Chartered Institute of Company
Secretaries.
the Australian
Mr Kent is a resident of Western Australia. Age 67.
Fergus D Ryan
Mr Ryan has been a member of the Board since March
2000 and is a member of the Audit Committee. He has
extensive experience in accounting, audit, finance and risk
management. He was a senior partner of Arthur Andersen
until his retirement in August 1999 after thirty three years
with that firm including five years as Managing Partner
Australasia. He was the Strategic Investment Co-ordinator
and Major Projects Facilitator for the Federal Government
from 1999 – 2002.
Director: Rail Infrastructure Corporation, Allens Arthur
Robinson and Lion Nathan 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 49.
S Carolyn H Kay
Ms Kay joined the Board this year and is a member of the
Risk Committee. She holds Bachelor Degrees in Law and
Arts and a Graduate Diploma in Management. She has
extensive experience in international finance having been
an executive at Morgan Stanley in London and Melbourne
for 10 years. Prior to that she worked in international
banking and finance both as a lawyer and banker in
London, New York and Melbourne.
Director: Mayne Group, Treasury Corporation of Victoria
and Deputy Chair Victorian Funds Management
Corporation.
Director: Australian Foundation
Limited and Clayton Utz.
Investment Company
Other Interests: Australian Institute of Company Directors,
Morgan Stanley (Advisor).
Other
Community Business Partnership, a Member of the
Interests: Member of
the Prime Minister’s
Ms Kay is resident in Victoria. Age 42.
45
Directors’ Report (continued)
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
DIRECTORS’ MEETINGS
No. of Meetings Held*
No. of Meetings Attended
J T Ralph
J M Schubert
D V Murray
N R Adler
R J Clairs
A B Daniels
C R Galbraith
W G Kent
F D Ryan
F J Swan
B K Ward
S C Kay
11
11
11
11
11
11
11
11
11
11
11
4
11
11
11
11
9
11
11
11
11
11
11
4
* The number of meetings held during the time the Director held office during the year.
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
5
5
5
5
5
5
5
5
J T Ralph
J M Schubert
D V Murray
N R Adler
R J Clairs
A B Daniels
C R Galbraith
W G Kent
F D Ryan
F J Swan
B K Ward
S C Kay**
J T Ralph
J M Schubert
D V Murray
F J Swan
6
6
6
6
6
2
6
6
6
6
5
2
8
8
8
8
7
8
8
8
NOMINATIONS COMMITTEE
No. of Meetings Held
No. of Meetings Attended
2
2
2
2
2
2
2
2
* The number of meetings held during the time the Director was a member of the relevant committee.
** Ms Kay was appointed to the Risk Committee on 5 March 2003
46
Directors’ Report (continued)
Principal Activities
integrated
including
superannuation,
The Commonwealth Bank Group
leading providers of
is one of
financial
Australia’s
institutional
services
banking,
general
insurance, funds management, broking services and
finance company activities. The principal activities of the
Commonwealth Bank Group during the financial year
were:
retail, business and
life
insurance,
Banking
The Group provides a full range of retail banking
services including housing loans, credit cards, personal
loans, savings and cheque accounts and demand and
term deposits. The Group has leading domestic market
shares in home loans, personal loans, retail deposits and
discount stockbroking and is one of Australia’s largest
issuers of credit cards. The Group also offers a full range
of commercial products
loans,
equipment and trade finance, and rural and agribusiness
products.
including business
The Institutional Banking operations focus on the top
1,000 corporations, government entities and other major
institutions operating in Australasia. Corporate customers
have access to financial markets services, securities
underwriting, trading and distribution, corporate finance,
equities, payments and transaction services, investment
management and custody.
The Group also has full service banking operations
in New Zealand and Fiji.
Funds Management
The Group is Australia’s largest fund manager and
largest retail funds manager in terms of its total value of
funds
under management. The Group’s
funds
management business
the
Investment and
Insurance Services division. These
businesses manage a wide range of wholesale and retail
investment, superannuation and
funds.
Investments are across all major asset classes including
Australian and International shares, property, fixed interest
and cash.
is managed as part of
retirement
The Group also has funds management businesses
in New Zealand, UK and Asia.
Life Insurance
The Group provides
term
insurance, annuities, master
products.
insurance, disability
investment
trusts and
The Group is Australia’s third largest insurer based
on life insurance assets held, and is Australia’s largest
manager in retail superannuation, allocated pensions and
annuities by funds under management.
Life insurance operations are also conducted in New
Zealand, where the Group has the leading market share,
and throughout Asia and the Pacific.
There have been no significant changes in the
nature of the principal activities of the Group during the
financial year.
Consolidated Profit
Consolidated operating profit after tax and outside
equity interests for the financial year ended 30 June 2003
was $2,012 million (2002: $2,655 million).
The net operating profit for the year ended 30 June
2003 after tax, and before goodwill amortisation and
appraisal value reduction was $2,579 million. This is an
increase of $78 million or 3% over the year ended 30 June
2002 and was after expensing $214 million in respect of
restructuring initiatives and after expensing $45 million in
respect of the allocation of shares to employees under the
47
ESAP scheme for both 2002 and 2003 against the 2003
profit. Excluding these, for a like for like comparison the
‘cash basis’ profit grew by 9% over the previous year.
The principal contributing factors to this increase
were a growth in net interest income reflecting strong
housing loan growth together with growth in commissions,
and a decrease in charge for bad and doubtful debts,
whilst underlying operating expenses have increased by
2% over the year, primarily due to the set up of the new
premium division in banking. Funds management income
fell which reflects the effect of depressed equity markets
for most of the year.
Dividends
The Directors have declared a fully franked (at 30%)
final dividend of 85 cents per share amounting to $1,066
million. The dividend will be payable on 8 October 2003 to
shareholders on the register at 5pm on 29 August 2003.
Dividends paid since the end of the previous financial
year:
(cid:1)
through
comprised
As provided for in last year’s report, a fully franked
final dividend of 82 cents per share amounting to
$1,027 million was paid on 8 October 2002. The
payment
cash disbursements of
$832 million with $195 million being reinvested by
participants
the Dividend Reinvestment
Plan; and
In respect of the current year, a fully franked interim
dividend of 69 cents per share amounting
to
$865 million was paid on 28 March 2003. The
payment
cash disbursements of
$699 million with $166 million being reinvested by
participants
the Dividend Reinvestment
Plan.
Additionally, quarterly dividends totalling $36 million
for the year were paid on the PERLS preference
shares and $4 million on the ASB Capital preference
shares.
comprised
through
(cid:1)
(cid:1)
Review of Operations
An analysis of operations for the financial year is set
out in the Financial Highlights on pages 5 to 10 and
Business Analysis on pages 11 to 28.
Changes in State of Affairs
During the year the Bank implemented a number of
significant strategic initiatives which aimed at improving
future productivity and service levels.
(cid:1)
(cid:1)
(cid:1)
(cid:1)
The initiatives undertaken during the year included:
Re-organisation within the retail banking operations
aimed at eliminating duplication, inefficiencies and
some back office processing.
Empowerment of front line retail sales staff with
information and decision-making capabilities
to
better meet customer needs.
Redesign system and relationship management
processes in the small to medium sized business
segments.
Simplification and consolidation of legacy systems
and processes within the Investment and Insurance
business.
The related cost of these strategic initiatives were
incurred during the current year.
There were no other significant changes in the state
of affairs of the Group during the financial year.
Directors’ Report (continued)
Events Subsequent to Balance Date
Environmental Regulation
Corporate Restructure
The Group
(cid:1)
(cid:1)
is
in
the
the Life
the process of a corporate
restructure of the legal entities involved in the Funds
Management and Life
Insurance operations within
Australia. The corporate restructure involves:
(cid:1)
Insurance business of
Transferring
Commonwealth Life Limited to The Colonial Mutual
Life Assurance Society Limited (on 1 July 2003);
Transferring
former Commonwealth Life
Insurance and Funds Management companies into
the Colonial sub-group of companies (during July
and August 2003); and
Simplifying
the
Colonial sub-group of companies (ongoing, to be
substantially completed by December 2003).
The restructure will:
Align the corporate structure and the management
structure; and
Simplify
the
transparency for investors, regulators and creditors.
There is no material effect on the regulatory capital
position of the Bank, or of any of the life insurance
companies, the general insurance company or the funds
management companies arising directly
the
corporate restructure.
the corporate structure within
increasing
corporate
structure,
from
(cid:1)
(cid:1)
Issue of Trust Preferred Securities
On 6 August 2003 a wholly owned entity of the Bank
issued USD550 million (AUD824 million) of trust preferred
securities, subject to a limited guarantee by the Bank, in
the US capital markets. These securities are perpetual in
nature and offer a non-cumulative fixed rate distribution of
5.805%p.a., payable semi-annually. Distributions will be
paid if determined by Directors, or a committee of the
Board, to be payable. If a distribution is not paid the Bank
will not be permitted to pay dividends on any of its
ordinary shares or shares ranking equally with these
securities, including Commonwealth Bank PERLS, until
two consecutive semi-annual dividends are paid. The
securities which qualify as Tier 1 capital for the Bank may
be redeemed by the Bank, subject to the approval of
APRA, on 30 June 2015. If the securities are not
redeemed on 30 June 2015, the holders of the securities
may request
for an
equivalent value of ordinary shares of the Bank. In certain
circumstances, and at any time at the Bank’s discretion,
the trust preferred securities may be redeemed for
representing
American Depository Shares
preference shares of the Bank. Where there has been no
earlier redemption, the trust preferred securities will be
mandatorily redeemed for ADSs on 30 June 2053.
their securities be exchanged
(ADSs)
The issue of trust preferred securities provided a
cost-effective opportunity to supplement the Bank’s Tier 1
Capital and broaden its investor base.
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
the
Major developments, which may affect
operations of the Group in subsequent financial years, are
referred to in the Chairman’s Statement on page 3. In the
opinion of
further
information on likely developments in operations would be
unreasonably prejudicial to the interests of the Group.
the Directors, disclosure of any
48
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, but can
liabilities as
a lender. The Bank has developed credit policies to
ensure this is managed appropriately.
incur environmental
Directors’ Shareholdings
Particulars of shares in the Commonwealth Bank or
in a related body corporate are set out in a separate
titled
section at
‘Shareholding Information’ which is to be regarded as
contained in this report.
the end of
financial
report
the
Options
An Executive Option Plan was approved by
shareholders at the Annual General Meeting on 8 October
1996 and its continuation was further approved by
shareholders at the Annual General Meeting on 29
October 1998. At the 2000 Annual General Meeting,
shareholders approved the establishment of the Equity
Reward Plan. On 31 October 2001, 31 January 2002 and
15 April 2002 a total of 3,007,000 options were granted by
the Bank to 81 executives under this Plan. During the
financial year and for the period to the date of this report
972,500 shares were allotted by the Bank consequent to
the exercise of options granted under the Executive
Option Plan. Full details of the Plan are disclosed in Note
29 to the financial statements.
The names of persons who currently hold options in
the Plan are entered in the register of option holders kept
by the Bank pursuant to Section 170 of the Corporations
Act 2001. 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
titled ‘Shareholding Information’ which is to be regarded
as contained in this report.
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 interest in
any contract or proposed contract that may be made
between the Bank and any of those companies.
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 the Court grants
relief to the person under the Corporations Act 2001,
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”.
Directors’ Report (continued)
An indemnity for employees, who are not directors,
secretaries or executive officers, is not expressly restricted
in any way by the Corporations Act 2001.
The Directors, as named on pages 44 to 45 of this
report, and the Secretaries of the Commonwealth Bank,
being J D Hatton (Secretary) and H J Broekhuijse
(Assistant Company Secretary) are indemnified under
Article 19 as are all the executive officers 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 Commonwealth Bank has, during the financial
year, paid an insurance premium in respect of an
insurance policy for the benefit of those named and
referred to above and the directors, secretaries, executive
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 199B of the Corporations Act
2001.
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.
In accordance with commercial practice,
Directors’ and other Officers’ Emoluments
Details of the Bank’s remuneration policy in respect
is set out under
‘Corporate
of
the Directors and executives
‘Remuneration Arrangements’ within
Governance’ section of this report.
the
Details on emoluments paid to each director are
detailed in Note 45 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 46 of the Financial
Report.
Incorporation of Additional Material
This report incorporates the Financial Highlights,
and
Business Analysis, Corporate Governance
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.
J T Ralph, AC
Chairman
20 August 2003
D V Murray
Managing Director and Chief Executive Officer
49
Five Year Financial Summary
Financial Performance
Net interest income
Other operating income
Total operating income
Charge for bad and doubtful debts
Total operating expenses
Operating profit before goodwill amortisation, appraisal
value uplift, abnormal items and income tax expense
Income tax expense
Outside equity interests
Net Profit after Tax ("cash basis")
Abnormal items
Income tax credit on abnormal items
Appraisal value (reduction)/uplift
Goodwill amortisation
Operating profit after income tax attributable to
members of the Bank
Contributions to profit (after tax)
Banking
Funds management
Life insurance
Profit on operations ("cash basis")
Goodwill amortisation
Appraisal value uplift
Abnormal income after tax
Operating profit after income tax
Financial Position
Loans, advances and other receivables
Total assets
Deposits and other public borrowings
Total liabilities
Shareholders' equity
Net tangible assets
Risk weighted assets
2003
$M
5,026
4,373
9,399
305
5,551
2002
$M
4,710
4,358
9,068
449
5,201
3,543
(958)
(6)
2,579
-
-
(245)
(322)
3,418
(916)
(1)
2,501
-
-
477
(323)
2001
$M
4,474
4,350
8,824
385
5,170
3,269
(993)
(14)
2,262
-
-
474
(338)
2000
$M
3,719
2,420
6,139
196
3,407
1999
$M
3,527
1,997
5,524
247
3,070
2,536
(820)
(38)
1,678
2,207
(714)
(24)
1,469
967 -
20 -
92 -
(47)
(57)
2,012
2,655
2,398
2,700
1,422
2,249
208
122
2,579
(322)
(245)
-
2,012
2,067
368
66
2,501
(323)
477
-
2,655
1,793
323
146
2,262
(338)
474
-
2,398
1,513
36
129
1,678
(57)
1,342
24
103
1,469
(47)
92 -
987 -
1,422
2,700
160,347
265,110
147,074
249,648
136,059
230,411
132,263
218,259
101,837
138,096
140,974
242,958
132,800
228,592
117,355
210,563
112,594
199,824
93,428
131,134
20,024
14,995
19,030
13,639
18,393
12,677
17,472
11,942
6,735
6,471
146,808
141,049
138,383
128,484
99,556
Average interest earning assets
Average interest bearing liabilities
188,270
174,737
170,634
157,105
160,607
145,978
129,163
117,075
114,271
103,130
Assets (on balance sheet)
Australia
New Zealand
Other
Total Assets
221,248
27,567
16,295
265,110
208,673
24,579
16,396
249,648
196,918
20,208
13,285
230,411
187,452
16,661
14,146
218,259
115,510
13,046
9,540
138,096
50
Five Year Financial Summary (continued)
Shareholder Summary
Dividends per share (cents) - fully franked
Dividend cover (times) - statutory
Dividend cover (times) - cash
Earnings per share (cents)
Basic
before abnormal items
after abnormal items
cash basis (4)
Fully Diluted
before abnormal items
after abnormal items
cash basis (4)
Dividend payout ratio (%) (1)
before abnormal items
after abnormal items
cash basis (4)
Net tangible assets per share ($)
Weighted average number of shares (basic)
Weighted average number of shares (fully diluted)
Number of shareholders
Share prices for the year ($)
Trading high
Trading low
End (closing price)
Performance Ratios (%)
Return on average shareholders' equity (2) (5)
before abnormal items
after abnormal items
cash basis
Return on average total assets (2)
before abnormal items
after abnormal items
cash basis
Capital adequacy - Tier 1
Capital adequacy - Tier 2
Deductions
Capital adequacy - Total
Net interest margin
Other Information (numbers)
Full time staff equivalent(6)
Branches/service centres (Australia)
Agencies (Australia)
ATMs (Proprietary)
EFTPOS terminals
EzyBanking
2003
2002
2001
2000
1999
154
0.9
1.3
157.4
157.4
202.6
157.3
157.3
202.5
97.7
97.7
75.9
12.0
1,253m
1,254m
746,073
32.75
23.05
29.55
10.7
10.7
13.3
0.8
0.8
1.0
6.96
4.21
(1.44)
9.73
2.67
35,845
1,014
3,893
3,116
125,959
760
150
1.4
1.3
209.6
209.6
197.3
209.3
209.3
197.0
71.7
71.7
76.2
10.9
1,250m
1,252m
722,612
34.94
24.75
32.93
14.7
14.7
13.1
1.1
1.1
1.0
6.78
4.28
(1.26)
9.80
2.76
136
1.4
1.3
189.6
189.6
178.8
189.3
189.3
178.6
71.2
71.2
75.5
10.2
1,260m
1,262m
709,647
34.15
26.18
34.15
13.5
13.5
12.0
1.1
1.1
1.0
6.51
4.18
(1.53)
9.16
2.78
130
1.2
1.6
184.8
291.2
181.0
184.4
290.7
180.6
115
1.3
1.3
153.4
153.4
158.5
153.1
153.1
158.1
83.5
53.0
85.3
9.2
927m
929m
788,791
74.7
74.7
72.4
6.8
927m
929m
404,728
27.95
22.54
27.69
28.76
18.00
24.05
22.1
34.8
1.1
1.7
7.49
4.75
(2.49)
9.75
2.88
20.5
20.5
1.1
1.1
7.05
3.12
(0.79)
9.38
3.09
37,245
1,020
3,936
3,049
126,613
730
37,460
1,066
3,928
2,931
122,074
659
39,631
1,441
4,020
3,092
116,064
603
30,914
1,162
3,934
2,602
90,152
n/a
Productivity
Total Operating Income per full-time (equivalent) employee($)(6)
Staff Expense/Total Operating Income (%)
Total Operating Expenses (3) /Total Operating Income (%)
262,212
26.1
59.1
243,469
26.4
57.4
235,558
26.7
58.6
198,479
27.8
57.2
178,689
29.0
55.6
(1)
(2)
(3)
(4)
(5)
(6)
Dividends paid divided by earnings. The comparative ratios have been amended to the same basis as the current year. Previously this
ratio was calculated as Dividend per share divided by Earnings per share.
Calculations based on operating profit after tax and outside equity interests applied to average shareholders’ equity/average total assets.
Total Operating Expenses excluding goodwill amortisation and charge for bad and doubtful debts. Note the different business mix
following the Colonial acquisition impacts comparison with prior years.
‘Cash earnings’ for the purpose of these financial statements is defined as net profit after tax and before abnormal items, goodwill
amortisation and life insurance and funds management appraisal value uplift.
2003 shareholders’ equity includes retained earnings before provision for final dividend of $1,066 million. Prior periods’ return on average
shareholders’ equity – cash basis have been restated to exclude the provision for final dividend.
Staff numbers include all permanent full time staff, part time staff equivalents and external contractors employed by 3rd party agencies.
Prior period staff numbers have to restated to reflect this.
51
Financial Statements
Statements of Financial Performance ............................................................................................................................... 53
Statements of Financial Position ....................................................................................................................................... 54
Statements of Changes in Shareholders’ Equity.............................................................................................................. 55
Statements of Cash Flows.................................................................................................................................................. 56
Notes to the Financial Statements..................................................................................................................................... 57
1. Summary of Significant Accounting Policies .................................................................................................................. 57
2. Operating Profit ............................................................................................................................................................. 66
3. Revenue from Ordinary Activities .................................................................................................................................. 68
4. Average Balances and Related Interest ........................................................................................................................ 69
5.
Income Tax Expense..................................................................................................................................................... 73
6. Dividends....................................................................................................................................................................... 75
7. Earnings Per Share ....................................................................................................................................................... 76
8. Cash and Liquid Assets ................................................................................................................................................. 76
9. Receivables from Other Financial Institutions................................................................................................................ 76
10. Trading Securities.......................................................................................................................................................... 77
11. Investment Securities .................................................................................................................................................... 78
12. Loans, Advances and Other Receivables ...................................................................................................................... 81
13. Provisions for Impairment .............................................................................................................................................. 84
14. Credit Risk Management ............................................................................................................................................... 88
15. Asset Quality ................................................................................................................................................................. 95
16. Life Insurance Investment Assets ................................................................................................................................ 100
17. Deposits with Regulatory Authorities ........................................................................................................................... 100
18. Shares in and Loans to Controlled Entities .................................................................................................................. 100
19. Property, Plant and Equipment .................................................................................................................................... 101
20. Intangible Assets ......................................................................................................................................................... 102
21. Other Assets................................................................................................................................................................ 103
22. Deposits and Other Public Borrowings ........................................................................................................................ 104
23. Payables to Other Financial Institutions....................................................................................................................... 105
24. Income Tax Liability..................................................................................................................................................... 105
25. Other Provisions .......................................................................................................................................................... 106
26. Debt Issues ................................................................................................................................................................. 107
27. Bills Payable and Other Liabilities................................................................................................................................ 109
28. Loan Capital ................................................................................................................................................................ 110
29. Share Capital............................................................................................................................................................... 112
30. Outside Equity Interests .............................................................................................................................................. 120
31. Capital Adequacy ........................................................................................................................................................ 121
32. Maturity Analysis of Monetary Assets and Liabilities.................................................................................................... 125
33. Financial Reporting by Segments ................................................................................................................................ 127
34. Life Insurance Business .............................................................................................................................................. 131
35. Remuneration of Auditors ............................................................................................................................................ 137
36. Commitments for Capital Expenditures Not Provided for in the Accounts.................................................................... 138
37. Lease Commitments - Property, Plant and Equipment ................................................................................................ 138
38. Contingent Liabilities ................................................................................................................................................... 139
39. Market Risk ................................................................................................................................................................. 141
40. Superannuation Commitments .................................................................................................................................... 151
41. Controlled Entities ....................................................................................................................................................... 153
42. Investments in Associated Entities and Joint Ventures................................................................................................ 155
43. Standby Arrangements and Unused Credit Facilities................................................................................................... 155
44. Related Party Disclosures ........................................................................................................................................... 156
45. Remuneration of Directors........................................................................................................................................... 158
46. Remuneration of Executives........................................................................................................................................ 160
47. Statement of Cash Flow .............................................................................................................................................. 164
48. Disclosures about Fair Value of Financial Instruments ................................................................................................ 166
Directors’ Declaration....................................................................................................................................................... 168
Independent Audit Report ................................................................................................................................................ 169
Shareholding Information ................................................................................................................................................ 170
International Representation............................................................................................................................................ 173
52
Statements of Financial Performance
For the year ended 30 June 2003
Interest income
Interest expense
Net interest income
Other income:
Revenue from sale of assets
Written down value of assets sold
Other
Net banking operating income
Funds management income including premiums
Investment revenue
Claims and policyholder liability expense
Net funds management operating income
Premiums and related revenue
Investment revenue
Claims and policyholder liability expense
Life insurance margin on services operating income
Net funds management and life insurance operating income
before appraisal value (reduction)/uplift
Total net operating income before appraisal value (reduction)/uplift
Charge for bad and doubtful debts
Operating expenses:
Comparable business
First time
Appraisal value (reduction)/uplift
Goodwill amortisation
Profit from ordinary activities before income tax
Income tax expense
Profit from ordinary activities after income tax
Outside equity interests in net profit
Net profit attributable to members of the Bank
Foreign currency translation adjustment
Revaluation of properties
Total valuation adjustments
Total changes in equity other than those resulting from
transactions with owners as owners
Earnings per share based on net profit distributable to
members of the Bank:
Basic
Fully Diluted
Dividends per share attributable to shareholders of the Bank:
Ordinary shares
Preference shares (issued 6 April 2001)
Net Profit after Income Tax comprises
Net Profit after Income Tax ("cash basis")
Less Appraisal value (reduction)/uplift
Less Goodwill amortisation
Net Profit after Income Tax ("statutory basis")
53
Note
2
2
2003
$M
11,528
6,502
5,026
2002
$M
10,455
5,745
4,710
GROUP
2001
$M
11,900
7,426
4,474
BANK
2002
$M
2003
$M
9,477 8,670
5,336 4,707
4,141 3,963
3
128
(106)
2,675
7,723
1,125
8
(91)
1,042
1,011
620
(997)
634
718
(628)
2,462
7,262
1,083
(393)
457
1,147
866
293
(500)
659
185
(104)
2,300
6,855
67
(52)
914
(608)
3,339 3,634
7,495 7,903
1,079 -
1,145 -
-
1,204 -
(1,020)
695 -
553 -
-
765 -
(483)
-
-
-
-
-
-
-
-
1,676
9,399
1,806
9,068
1,969 -
8,824
-
7,495 7,903
2,13
305
449
385
266
405
2
2
34
5
7
5,292
5,201
259 -
5,201
5,551
(245)
(322)
2,976
958
2,018
(6)
2,012
(129)
3
(126)
477
(323)
3,572
916
2,656
(1)
2,655
(146)
(1)
(147)
5,170
-
5,170
3,977 3,982
259 -
4,236 3,982
-
474 -
(186)
(186)
2,807 3,330
665
2,099 2,665
-
(338)
3,405
993
2,412
(14)
-
708
2,398
98
5
103
2,099 2,665
(16)
(7)
(7)
(16)
1,886
2,508
2,501
2,092 2,649
Cents per share
157.4
157.3
154
1,019
$M
2,579
(245)
(322)
2,012
209.6
209.3
189.6
189.3
150
970
$M
2,501
477
(323)
2,655
136
261
$M
2,262
474
(338)
2,398
Statements of Financial Position
As at 30 June 2003
Note
2003
$M
GROUP
2002
$M
2003
$M
BANK
2002
$M
Assets
Cash and liquid assets
Receivables due from other financial institutions
Trading securities
Investment securities
Loans, advances and other receivables
Bank acceptances of customers
Life insurance investment assets
Deposits with regulatory authorities
Shares in and loans to controlled entities
Property, plant and equipment
Investment in associates
Intangible assets
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
Life insurance policyholder liabilities
Debt issues
Bills payable and other liabilities
Loan Capital
Total Liabilities
Net Assets
Shareholders' Equity
Share capital
Ordinary share capital
Preference share capital
Reserves
Retained profits
Shareholders' Equity Attributable to Members
of the Bank
Outside equity interests:
Controlled entities
Life insurance statutory funds and other funds
Total outside equity interests
Total Shareholders' Equity
5,575
7,066
10,435
11,036
160,347
13,197
27,835
23
-
821
287
5,029
23,459
265,110
140,974
7,538
13,197
-
12
876
819
23,861
30,629
19,027
236,933
6,025
242,958
22,152
6,044
7,728
8,389
10,766
147,074
12,517
30,109
89
-
862
313
5,391
20,366
249,648
132,800
7,864
12,517
-
1,040
1,276
834
25,917
23,575
17,342
223,165
5,427
228,592
21,056
5,356
5,436
8,072
6,831
131,537
13,521
-
2
23,559
608
252
2,708
16,748
214,630
122,946
7,504
13,521
11,308
12
527
684
-
16,684
17,456
190,642
5,937
196,579
18,051
5,673
5,694
6,703
7,560
120,781
13,162
-
54
21,869
641
252
2,965
13,408
198,762
116,898
7,884
13,162
8,591
1,040
654
691
-
11,753
15,905
176,578
5,337
181,915
16,847
12,678
687
3,850
2,809
12,665
687
4,226
1,452
12,678
687
2,095
2,591
12,665
687
2,093
1,402
20,024
19,030
18,051
16,847
304
1,824
2,128
22,152
-
9
-
2,017
2,026 -
18,051
21,056
-
-
-
16,847
8
9
10
11
12
16
17
18
19
42
20
21
22
23
6
24
25
34
26
27
28
29
29
30
30
54
Statements of Changes in Shareholders’ Equity
For the year ended 30 June 2003
Ordinary Share Capital
Opening balance
Buy back
Buy back for dividend reinvestment plan
Dividend reinvestment plan
Employee share ownership schemes
Issue costs
Closing balance
Preference Share Capital
Opening balance
Issue of shares
Issue costs
Closing balance
Retained profits
Opening balance
Reversal of provision for final dividend at 30 June 2002
(on adoption of AASB 1044)
Buy back
Transfers from reserves
Operating profit attributable to members of the Bank
Total available for appropriation
Transfers to reserves
Interim dividend - cash component
Interim dividend - dividend reinvestment plan
Interim dividend - appropriated to dividend reinvestment plan reserve
Provision for final dividend - cash component
Final dividend - appropriated to dividend reinvestment plan reserve
Payment of final dividend (2002) - cash component
Payment of final dividend (2002) - dividend reinvestment plan
Other dividends
Closing balance
Reserves
General Reserve
Opening balance
Appropriation from profits
Transfer to retained profits
Closing balance
Capital Reserve
Opening balance
Closing balance
Asset Revaluation Reserve
Opening balance
Revaluation of investments and properties
Closing balance
Dividend Reinvestment Plan Reserve
Opening balance
Conversion to ordinary share capital and cash dividend
Appropriation from profits
Closing balance
Foreign Currency Translation Reserve
Opening balance
Currency translation adjustments
Transfer to retained profits
Closing balance
Note
29
29
2003
$M
2002
$M
GROUP
2001
$M
2003
$M
12,665
-
(361)
361
13
-
12,678
12,455
-
(158)
329
39
-
12,665
12,521 12,665
-
(361)
361
13
-
12,455 12,678
(275)
(140)
313
40
(4)
687
-
-
687
687
-
-
687
-
700
(13)
687
687
-
-
687
BANK
2002
$M
12,455
-
(158)
329
39
-
12,665
687
-
-
687
1,452
1,160
1,686
1,402
650
1,027
-
250
2,012
4,741
-
(699)
(166)
-
-
-
(832)
(195)
(40)
2,809
3,998
-
(247)
3,751
289
289
4
3
7
-
-
-
-
-
-
250
2,655
4,065
(700)
(693)
(159)
-
(1,027)
-
-
-
(34)
1,452
3,548
700
(250)
3,998
289
289
5
(1)
4
168
(168)
-
-
(65)
(129)
81
(146)
(3) -
(65)
(197)
-
(449)
125
2,398
3,760
(880)
(642)
-
(131)
(765)
(168)
-
-
(14)
1,160
2,793
880
(125)
3,548
1,027
-
-
2,099
4,528
(9)
(699)
(166)
-
-
-
(832)
(195)
(36)
2,591
570
-
-
570
-
-
-
2,665
3,315
-
(852)
-
-
(1,027)
-
-
-
(34)
1,402
570
-
-
570
289
289
1,531
1,531
1,531
1,531
-
5
5
200
(331)
299
168
(17)
98
-
81
-
-
-
-
-
-
-
-
-
-
168
(168)
-
-
(8)
(7)
9
(17)
9 -
(8)
(6)
Total Reserves
Shareholders' Equity Attributable to Members of the Bank
3,850
20,024
4,226
19,030
4,091
2,095
18,393 18,051
2,093
16,847
55
Statements of Cash Flows
For the year ended 30 June 2003
Cash Flows From Operating Activities
Interest received
Dividends received
Interest paid
Other operating income received
Expenses paid
Income taxes paid
Net decrease (increase) in trading securities
Life insurance:
Investment income
Premiums received
Policy payments
Net Cash provided by / (used in) operating activities
Note
2003
$M
2002
$M
11,452 10,683
5
(5,805)
3,706
(5,366)
(926)
(1,159)
4
(6,455)
3,135
(5,438)
(1,258)
(2,484)
GROUP
2001
$M
12,059
14
(7,704)
2,800
(5,583)
(1,252)
(262)
2003
$M
9,204
579
(5,248)
2,668
(4,233)
(838)
(1,814)
BANK
2002
$M
8,839
972
(4,812)
3,087
(4,113)
(376)
(1,353)
644
4,130
(5,855)
(2,125)
870
5,689
(5,704)
1,993
900 - -
6,286 - -
-
-
2,244
318
(5,423)
1,835
47 (c)
Cash Flows from Investing Activities
Payments for acquisition of entities and management rights
Proceeds from disposal of entities and businesses
Net movement in investment securities:
Purchases
Proceeds from sale
Proceeds at or close to maturity
Withdrawal (lodgement) of deposits with regulatory authorities
Net increase in loans, advances and other receivables
Net amounts paid to controlled entities
Proceeds from sale of property, plant and equipment
Purchase of property, plant and equipment
Net decrease (increase) in receivables due from other financial
institutions not at call
Net decrease (increase) in securities purchased under agreements to
resell
Net decrease (increase) in other assets
Life insurance:
Purchases of investment securities
Proceeds from sale/maturity of investment securities
Net Cash used in Investing Activities
Cash Flows from Financing Activities
Buy back of shares
Proceeds from issue of shares (net of costs)
Proceeds from issue of preference shares to outside equity interests
Net increase (decrease) in deposits and other borrowings
Net movement in debt issues
Dividends paid (including DRP buyback of shares)
Net movements in other liabilities
Net increase (decrease) in payables due to other financial institutions not
at call
Net increase (decrease) in securities sold under agreements to
repurchase
Issue 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 period
Cash and Cash Equivalents at End of Period
47(a)
(173)
33
(414) -
(57)
314 - -
(50)
242
66
23
(18,055) (23,488)
295
17,719 22,192
(28)
(13,577) (11,702)
-
72
(143)
109
(164)
15
28
31
(19,676) (15,761) (20,593)
594
19,654 16,449 19,590
(50)
(8,790)
1,027 (5,026)
78
(106)
52
(4,181) (11,022)
64
(103)
- -
157
(132)
513
(855)
(184)
731
(691)
50 (1,376)
(241)
301
(891)
1,504
(298)
125
(1,377)
(312)
(13,091) (13,926)
14,628 14,618
(11,634) (14,309)
(21,229) - -
20,556 - -
(8,705) (16,491)
(4,793)
13
- -
39
182 -
5,129 15,135
(967)
7,054
(1,661)
(1,933)
1,809
(926)
723
(724) -
13
-
39
- - -
3,004 13,112
1,022
4,931
(1,661)
(1,929)
2,110
(1,024)
5,246
(2,099)
(1,368)
(1,010)
(796)
211
1,396
(869)
645
19
3,046
310
901 -
(100)
12,689 14,776
2,460
(1,070)
38
2,498
2,498
1,428
(485)
-
(69)
1,610
(1,348)
1,386
38
3,045
311
600 -
(3)
(15)
7,755 15,575
1,328
(631)
(420)
908
908
277
It should be noted that the Group does not use this accounting Statement of Cash Flows in the internal management
of its liquidity positions.
56
Notes to the financial statements
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
the
requirements of the Banking Act, Corporations Act 2001,
applicable Accounting Standards and other mandatory
reporting requirements so far as the requirements are
considered appropriate to a banking corporation.
report which complies with
financial
The Statements of Cash Flows has been prepared in
accordance with the International Accounting Standard
IAS 7: Cash Flow Statements.
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.
Change in accounting policies
The consolidated entity has adopted
the new
Accounting Standard AASB 1044: Provisions, Contingent
Liabilities and Contingent Assets, which has resulted in a
change in the accounting for the dividend provisions.
Previously, the consolidated entity recognised a provision
for dividend based on the amount that was proposed or
declared after the reporting date. In accordance with the
requirements of the new standard, a provision for dividend
will only be recognised at the reporting date where the
dividends are declared, determined or publicly
recommended prior to the reporting date. The effect of
the revised policy has been to increase consolidated
retained profits and decrease provisions at the beginning
of the year by $1,027 million. In accordance with the new
Standard, no provision for dividend has been recognised
for the year ended 30 June 2003. The change in
accounting policy has had no effect on basic and fully
diluted earnings per share.
The Group adopted the revised accounting standard
AASB 1012: Foreign Currency Translation from 1 July
2002. There were no material changes to the related
calculations.
The Group adopted the revised accounting standard
AASB 1028: Employee Benefits from 1 July 2002. All
employee benefit liabilities expected to be settled more
than 12 months after the reporting date were previously
subject to actuarial review. As a result there were no
material changes to the related liabilities on the adoption
of the revised standard.
Share Based Compensation
In August 2002 the Bank announced that it will
purchase shares to cover the Employee Share Acquisition
Plan (ESAP) and include the full cost as an expense
against profits. ESAP shares earned in respect of the
2002 financial year had not been awarded at the time of
the announcement, and as such the cost of $25 million is
a one off expense in the current year. In addition, current
year ESAP expense accrued for the 2003 financial year is
$20 million and this has also been charged against the
current year’s profit. Similarly, the Executive Reward Plan
has been restructured effective from 1 July 2002, whereby
incentives allocated will be in the form of Reward shares
and not options. This resulted in an increased expense for
the year of $5 million. Other share based compensation
expense for the year was $69 million. This was incurred
and charged against profit on a consistent basis with prior
periods.
(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
for AASB 1038: Life Insurance Business requirements and
where indicated, do not reflect current valuations of non
monetary assets. Domestic bills discounted which are
included in loans, advances and other receivables and
held by the 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 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 it is
determined that there is a capacity to control as defined in
AASB 1024: Consolidated Accounts. All balances and
transactions between Group entities have been eliminated
on consolidation.
The Commonwealth Bank of Australia became the
successor in law to State Bank of New South Wales
(known as Colonial State Bank) effective on 4 June 2001
pursuant to legislation. On that date State Bank of New
South Wales ceased to have a separate legal existence
and all its assets and liabilities became assets and
liabilities of the parent entity Commonwealth Bank of
Australia. This succession in law has no effect on the
consolidated Group. One outcome of this process is that
the carrying amount of the Bank’s investment in Colonial
Group was reduced to reflect the net tangible assets and
goodwill ($2,742 million, refer Note 20) now within
Commonwealth Bank of Australia. There is no effect on
the amount of goodwill in the consolidated financial
statements.
(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 42 to the Financial
Statements.
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 from ordinary activities.
(e)
Foreign currency translations
All foreign currency monetary assets and liabilities
are revalued at spot 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
foreign exchange dealings are
from
losses arising
included in the results.
57
Notes to the financial statements
NOTE 1 Summary of Significant Accounting Policies continued
The
foreign currency assets and
liabilities of
overseas branches and overseas controlled entities are
converted to Australian currency at 30 June 2003 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 spot exchange rate at the date
of the transaction.
Translation differences arising from conversion of
opening balances of shareholders’ funds of overseas
controlled entities at year end exchange rates are
excluded from profit and loss and reflected in a Foreign
Currency Translation Reserve. The Group 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
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.
(g) Financial instruments
The Group is a full service financial institution that
offers an extensive range of on balance sheet and off
balance sheet financial instruments.
For each class of financial instrument listed below,
except for restructured facilities referred to in Note 1(m),
financial instruments are transacted on a commercial
basis to derive an interest yield/cost with terms and
conditions having due regard to the nature of the
transaction and the risks involved.
(h) Cash and liquid assets
Cash and liquid assets includes cash at branches,
cash at bankers and money at short call.
They are brought to account at the face value or the
gross value of the outstanding balance where appropriate.
Interest is taken to profit when earned.
(i) Receivables due from other financial institutions
Receivables from other financial institutions includes
loans, nostro balances and settlement account balances
due from other banks. They are brought to account at the
gross value of the outstanding balance. Interest is taken to
profit when earned.
(j)
Trading securities
Trading securities are short and long term public,
bank and other debt securities and equities that 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
fair value
and
adjustments are reflected in ‘Other Income’. Interest on
trading securities is reported in net interest earnings.
Trading securities are recorded on a trade date basis.
losses on disposal and unrealised
(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
58
amortised cost. Premiums and discounts are amortised
through profit and loss each year from the date of
purchase so that securities attain their redemption values
by maturity date. Interest is reflected in profit when
earned. Dividends on equities are brought to account in
profit on declaration date. Any profits or losses arising
from disposal prior to maturity are taken to profit in the
period in which they are realised. The cost of securities
sold is calculated on a specific identification basis.
Unrealised losses related to permanent diminution in the
value of investment securities are recognised in profit and
the
those securities adjusted
accordingly.
recorded values of
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.
(m) Loans, advances and other receivables
Loans, advances and other receivables include
overdrafts, home, credit card and other personal lending,
term loans, leasing, bill financing, redeemable preference
shares and leverage leases. They are carried at the
recoverable amount represented by the gross value of the
outstanding balance adjusted for provisions for bad and
doubtful debts,
tax
remissions on leveraged leases. Interest and yield related
fees are reflected in profit when earned. Yield related fees
received in advance are deferred, included as part of the
carrying value of the loan and amortised to profit as
‘Interest Income’ over the term of the loan. Note 1 (n)
provides additional information with respect to leasing and
leveraged leasing.
interest reserved and unearned
Non Accrual Facilities
Non accrual facilities (primarily loans) are recorded
on a cash basis
income. Upon
for recognition of
classification as non accrual, all interest charged in the
from profit and
current financial period is reversed
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.
terms modified,
Restructured Facilities
When facilities (primarily loans) have the original
contractual
the accounts become
classified as restructured. Such accounts will have interest
accrued to profit as long as the facility is performing on the
modified basis in accordance with the restructured terms.
If performance is not maintained, or collection of interest
and/or principal is no longer probable, the account will be
returned to the non accrual classification. Facilities are
generally kept as non accrual until they are returned to
performing basis.
Notes to the financial statements
NOTE 1 Summary of Significant Accounting Policies continued
Assets Acquired Through Securities Enforcement
(AATSE)
Assets acquired in satisfaction of facilities in default
(primarily loans) are recorded at net market value at the
date of acquisition. Any difference between the carrying
amount of the facility and the net market value of the
assets acquired is represented as a specific provision for
diminution of value or written off. AATSE are further
classified as Other Real Estate Owned (OREO) or Other
Assets Acquired Through Security Enforcement
(OAATSE). Such assets are classified in the appropriate
asset classifications in the balance sheet.
Bad Debts
Bad debts are written off in the period in which they
are recognised. Bad debts previously specifically provided
for are written off against the related specific provisions,
while bad debts not provided for are written off through the
general provision. Any subsequent cash recovery is
credited to the general provision.
(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 arrangements. Where a
change occurs in the estimated lease cash flows or
available tax benefits at any stage during the term of the
lease, the total lease profit is recalculated for the entire
lease term and apportioned over the remaining lease
term.
In accordance with amendments to AASB 1008:
Leases, all leveraged leases with a lease term beginning
from 1 July 1999 are accounted for as finance leases with
income brought to account progressively over the lease
term.
Leveraged lease receivables are recorded under
loans, advances and other receivables at amounts that
reflect the equity participation in the lease. The debt
provider in the transaction has no recourse other than to
the unremitted lease rentals and the equipment under
lease.
Operating lease rental revenue and expense is
recognised in the profit 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,
contingent liabilities, financial instruments and investments
and assets acquired through security enforcement.
full
Specific provisions are established where
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
the
statistically managed segment to cover facilities which are
in
59
not well secured and past due 180 days or more, against
the credit risk rated managed segment for exposures
aggregating to less than $250,000 and 90 days past due
or more, and against emerging credit risks identified in
specific segments in the credit risk rated managed
portfolio. These provisions are
funded primarily by
reference to historical ratios of write offs to balances in
default.
General provisions for bad and doubtful debts are
maintained to cover non identified probable losses and
latent risks inherent in the overall portfolio of advances
and other credit
transactions. The provisions are
determined having regard to the general risk profile of the
credit portfolio, historical
loss experience, economic
conditions and a range of other criteria.
The amounts required to bring the provisions for
impairment to their assessed levels are charged to profit.
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.
(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 that is taken to
profit when earned.
(q) Deposits with regulatory authorities
In several 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 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 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
At year end,
independent market valuations,
reflecting current use, were obtained for all individual
property holdings (other than leasehold improvements).
Directors adopt a valuation based on this independent
advice. 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
minimal effect on the level of the reserve. The potential
effect of any capital gains tax on disposal has not been
taken into account in the determination of the revalued
carrying amount.
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
less depreciation
is shown at cost
calculated principally on a category basis at rates
applicable to each category’s useful life. Depreciation is
Notes to the financial statements
NOTE 1 Summary of Significant Accounting Policies continued
Such costs are amortised over the assessed useful
life of the projects, up to a maximum of 10 years. The
usual period of amortisation is 2½ years, except for a
small number of
term projects. Software
maintenance costs continue to be expensed as incurred.
longer
(v) Deposits and other public borrowings
Deposits and other public borrowings
includes
certificates of deposits, term deposits, savings deposits,
cheque and other demand deposits, debentures and other
funds raised publicly by borrowing corporations. They are
brought to account at the gross value of the outstanding
balance. Interest is charged to profit when incurred.
(w) Payables due to other financial institutions
Payables due to other financial institutions includes
deposits, vostro balances and settlement account
balances due to other banks. They are brought to account
at the gross value of the outstanding balance. Interest is
charged to profit when incurred.
(x)
Income taxes
The Group has adopted the liability method of tax
effect accounting. The tax effect of timing differences
which arise from items being brought to account in
different periods for income tax and accounting purposes
is disclosed as a future income tax benefit or a provision
for deferred income tax. Amounts are offset where the tax
payable and realisable benefit are expected to occur in the
same financial period. The future income tax benefit
relating to tax losses is not carried forward as an asset
unless the benefit is virtually certain of being utilised
(Notes 5 and 21).
At the date of this report, the Directors of the Bank
have not made a decision whether or not to be treated as
a single entity for Australian income tax purposes, under
the tax consolidation system. For further details, refer to
Note 5.
(y) 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.
leave represents
The provision for annual
The provision
liabilities
the
outstanding liability as at balance date. Actual payments
made during the year are included in Salaries and Wages.
for other employee entitlements
represents
loan benefits,
for staff housing
a subsidy to a registered health fund with respect to
retired employees and current employees, and employee
incentives under employee share plans and bonus
schemes.
The level of these provisions has been determined in
requirements of AASB 1028:
accordance with
Accounting for Employee Entitlements.
the
calculated using the straight line method. It is treated as
an operating expense and charged to profit. The amounts
charged for the year are shown in Note 2. Profit or loss on
sale of property is treated as operating income or
expense. Realised amounts in Asset Revaluation Reserve
are transferred to Capital Reserve.
The useful lives of major depreciable assets are as
follows:
Buildings
- Shell
-
Integral plant and
equipment
carpets
-
all other (air-
-
conditioning, lifts)
- Non integral plant and
equipment
-
fixtures and fittings
Leasehold improvements
Equipment
- Security surveillance
systems
Furniture
-
- Office machinery
- EFTPOS machines
Maximum 30 years
10 years
20 years
10 years
Lesser of unexpired lease
term or lives as above
10 years
8 years
5 years
3 years
The Bank has outsourced
its
information processing and does not own any material
amounts of computer or communications equipment.
the majority of
(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 resulting from
the acquisition of the Colonial Group in June 2000 is set
out in Note 20. Purchased goodwill arising from the
merger with the State Bank of Victoria in 1991 is being
amortised over 20 years. Purchased goodwill arising from
the acquisition of the 25% minority interest in ASB Group
in New Zealand in August 2000 is being amortised over 20
years. The periods of goodwill amortisation are subject to
review annually by the Directors.
(u) Other assets
Other assets include all other financial assets and
includes interest, fees, market revaluation of trading
derivatives and other unrealised income receivable and
securities sold not delivered. These assets are recorded at
the cash value to be realised when settled.
Capitalisation of Computer Software Costs
In accordance with the American Institute of Certified
Public Accountants Statement of Position 98-1
‘Accounting
the Costs of Computer Software
Developed or Obtained for Internal Use’, the Group carries
net unamortised capitalised computer software costs of
$248 million as at 30 June 2003 (2002: $209 million).
for
60
Notes to the financial statements
NOTE 1 Summary of Significant Accounting Policies continued
(z) Provisions for restructuring
(ee) Shareholders’ equity
Provisions for restructuring are brought to account
where there is a detailed formal plan for restructure and a
demonstrated commitment to that plan.
Provision for Restructuring (2000)
In June 2000 the Group acquired a 100% interest in
the Colonial Limited Group of companies. This resulted in
consequent
within
Commonwealth Bank’s existing business. The provision
for restructuring covers the integration of the Colonial
operations into the existing Group and rationalisation of
existing processing and administrative functions. The
principal costs associated with this programme were in the
area of redundancy, property and systems. Refer Note 20
for further details on the Colonial acquisition.
requirements
restructuring
Restructuring Costs (2000)
The integration of Colonial into the Group’s structure
resulted in an expense for restructuring of $106 million
($86 million after tax) being charged to the Bank’s result in
the year ending 30 June 2000.
(aa) Provision for self insurance
The provision for self insurance covers certain non
lending losses and non transferred
insurance risks.
Actuarial reviews are carried out at regular intervals with
provisioning effected in accordance with actuarial advice.
(bb) 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 their
redemption values by maturity date.
Interest is charged against profit as incurred. Any
profits or losses arising from redemption prior to maturity
are taken to profit in the period in which they are realised.
Further details of the Group’s debt issues are shown
in Note 26.
(cc) Bills payable and other liabilities
Bills payable and other liabilities includes all other
financial liabilities and includes interest, fees, market
revaluation of trading derivatives and other unrealised
expenses payable and securities purchased not delivered.
These liabilities are recorded at the cash value to be
realised when settled.
(dd) 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.
and
discounts
associated
Premiums,
issue
expenses are amortised through profit each year from the
date of issue so that securities attain their redemption
values by maturity date. Interest is reflected in profit as
incurred. Any profits or losses arising from redemption
prior to maturity are taken to profit in the period in which
they are realised.
Further details of the Group’s loan capital debt
issues are shown in Note 28.
61
Ordinary share capital is the amount of paid up
capital from the issue of ordinary shares.
Preference Share Capital is the amount of paid up
capital from the issue of preference shares.
General reserve is derived from revenue profits and
is available for dividend except for undistributable profits in
respect of the Group’s life insurance businesses of $2,905
million, including the appraisal value uplift (2002:$3,150
million and 2001:$2,699 million).
Capital reserve is derived from capital profits and is
available for dividend.
Dividend reinvestment plan reserve is appropriated
from revenue profits when the Bank is expecting to satisfy
the dividend reinvestment by the issue of new shares. The
amount of the reserve represents the estimate of the
minimum expected amount that will be reinvested in the
Bank’s dividend reinvestment plan. The allotment of
shares under the plan is subsequently applied against the
reserve. This accounting treatment reflects the probability
that a fairly stable proportion of the Bank’s final dividend
will be reinvested in equity via the dividend reinvestment
plan. No entry is passed to this reserve when the Bank
has determined to satisfy the dividend reinvestment by an
on market purchase of existing shares.
Further details of share capital, outside equity
interests and reserves are shown in Notes 29, 30 and
Statements of Changes in Shareholders’ Equity.
(ff) Derivative financial instruments
financial
The Group enters into a significant volume of
derivative
foreign
instruments
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.
include
that
Derivative financial instruments held or issued for
trading purposes
Traded derivative financial instruments are recorded
at net fair value based on quoted market prices, broker or
dealer price quotations. A positive revaluation amount of a
contract
is reported as an asset and a negative
revaluation amount of a contract as a liability. Changes in
net fair value are reflected in profit immediately they occur.
Derivative financial instruments held or issued for
purposes other than trading
The principal objective
issuing
derivative financial instruments for purposes other than
trading
interest rate,
exchange rate and credit risk associated with certain
assets and liabilities such as loans, investment securities,
deposits and debt issues. To be effective as hedges, the
derivatives are
the
underlying hedged item or class of items and generally
rate or credit
modify
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.
identified and allocated against
to manage balance sheet
rate, exchange
in holding or
interest
the
is
Notes to the financial statements
NOTE 1 Summary of Significant Accounting Policies continued
Swaps
Interest rate swap receipts and payments are
accrued to profit 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 that are received or
made in advance are deferred and amortised to profit 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 against revaluation
losses and gains of the underlying hedged item or class of
items.
Credit default swaps are utilised to manage credit
risk in the asset portfolio. Premiums are accrued to profit
and loss as interest of the hedged item or class of items
being hedged over the term for which the instrument is
effective as a hedge. Any principal cash flow on default is
brought to account on the same basis as the designated
item being hedged. Credit default swaps held at balance
date are immaterial.
Equity swaps are utilised to manage
the risk
associated with both the capital investment in equities and
the related yield. These swaps enable the income stream
to be reflected in profit and loss when earned. Any capital
gain or loss at maturity of the swap is brought to account
on the same basis as the underlying equity being hedged.
Forward rate agreements and futures
losses on
Realised gains and
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 as interest of the hedged item or class
of items being hedged over the term for which the
instrument is effective as a hedge.
forward
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 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 as interest of
the hedged item or class of items being hedged over the
period for which the hedge would have been effective.
Where the underlying hedged item or class of items being
hedged ceases to exist, the derivative instrument hedge is
terminated and realised and unamortised gains or losses
taken to profit and loss.
Further
information
on
derivative
financial
instruments is shown in Note 39.
(gg) 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
the
probability of default. They are recorded as contingent
liabilities at their face value. Further information is shown
in Note 38.
reflects
(hh) 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 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.
loan
Lending fees
Material non refundable front end loan fees that are
yield related and do not represent cost recovery, are taken
to profit over the period of the loan. Associated costs
incurred in these lending transactions are deferred and
netted against yield related
fees. Where non
refundable front end loan fees are received that represent
cost recovery or charges for services not directly related to
the yield on a loan, they are taken to income in the period
in which they are received. Where fees are received on an
ongoing basis and represent the recoupment of the costs
of maintaining and administering existing loans, these fees
are taken to income on an accrual basis.
Commission and other fees
When commission charges and
to
specific transactions or events, they are recognised as
income in the period in which they are received. However,
when they are charged for services provided over a
period, they are taken to income on an accrual basis.
fees relate
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 translations, 1(j)
Trading securities and 1
financial
instruments. Life insurance business income recognition is
explained in Note 1(ii) below.
(ff) Derivative
(ii)
Life Insurance Business
The Group’s life insurance business is accounted for
in accordance with
the requirements of Accounting
Standard AASB 1038: Life Insurance Business, which is
summarised below:
(i)
All assets, liabilities, revenues, expenses and
equity are
report
in
irrespective of whether they are designated as
relating to policyholders or to shareholders.
included
financial
the
(ii)
All assets are measured at net market values.
62
Notes to the financial statements
NOTE 1 Summary of Significant Accounting Policies continued
(iii) All liabilities are measured at net present values.
Policy liabilities are calculated in accordance with
the principles of Margin on Services (MoS) profit
reporting as set out in Actuarial Standard AS 1.03:
Valuation of Policy Liabilities issued by the Life
Insurance Actuarial Standards Board. Other
Liabilities are measured at net present value at
reporting date.
(iv) Any life insurers within the Group that are parent
entities recognise and disclose any excess or
deficiency of the net market values of interests in
subsidiaries over the net assets of those subsidiaries
as an item in the financial report of the life insurer
economic entity.
Premiums and claims are separated on a product
basis into their revenue, expense and change in
liability components unless the separation is not
practicable or the components cannot be reliably
measured.
(v)
(vi) Returns on all investments controlled by a life
insurer entity in the Group are recognised as
revenues.
(vii) Participating benefits vested
the
financial year, other than transfers from unvested
policyholder benefits liabilities, are recognised as
expenses.
in relation
to
(viii) Reinsurance contracts entered into are recognised
Insurance Holdings Limited
on a gross basis.
The Group conducts life insurance business through
(CIHL),
Commonwealth
Commonwealth Life Limited (CLL) and The Colonial
Mutual Life Assurance Society Limited
in
Australia, ASB Life Assurance Limited (ASB Life),
Sovereign Assurance Company, Metropolitan Life
Assurance Company of NZ Limited and Colonial Holding
Company No2 (NZ) Limited in New Zealand and several
subsidiaries and joint ventures throughout Asia. CIHL,
CMLA and ASB Life are the top tier life insurance
companies within the life insurance corporate structure
and they value their interests at market in their controlled
entities at each reporting date. Refer Note 1(pp) for details
of corporate restructure after 30 June 2003.
(CMLA)
Accounting policies and disclosures specific to life
insurance business are required under AASB 1038. These
are provided in this note and Notes 16, 21 and 34.
(i)
Premiums and Claims
Investment linked business
Premiums received, which are in the nature of
investment deposits, have the fee portion of the
premium recognised as revenue and the deposit
portion recognised as an increase in policy liabilities.
Premiums with no due date are recognised on a
cash
the
received basis. Fees earned by
Shareholder for managing the funds invested are
recognised as revenue. Claims under investment
represent withdrawals of
linked businesses
investment deposits and are
recognised as
a reduction in policy liabilities.
(ii) Non-investment linked business
Premiums received
for providing services and
bearing risks are recognised as revenue. Premiums
with a regular due date are recognised as revenue
on an accruals basis. Non-investment linked claims
are recognised as an expense when a liability has
been established.
Market Value Accounting
All assets are valued at net market value (NMV) and
all liabilities at net present value at balance date.
Consistent with the principles of market value accounting,
movements in the net market value of assets and net
present value of
the period are
immediately recognised in profit.
liabilities during
(cid:1)
Life Insurance Investment Assets
Investments are measured at net market values at
balance date. Listed securities are valued at the price
ruling at balance date. Where no quoted market exists, the
Directors adopt various methods determined by internal
and external valuers. In these cases the values are
deemed equivalent
to net market value. Details of
particular methods adopted are as follows:
(cid:1)
Valuation of the investment in the life insurance
controlled entities is based on the appraisal value.
The appraisal value comprises the present value of
future profits from in force business, the estimated
value of profits from future business and
the
shareholders interest in the net worth of the life
insurance Statutory and Shareholder Funds.
Non life insurance controlled entities are valued
using a discounted cash flow method applied to
anticipated future income streams, allowing for
assumptions
growth,
redemptions, expenses, investment returns and fee
the values so
margins. This method allows
calculated to be expressed in the form of appraisal
values, consistent with those calculated for the life
insurance controlled entities. Valuation of
the
investment in the non life insurance controlled
entities is then based on these calculated appraisal
values as at reporting date.
Properties are valued annually by qualified
independent valuers.
Excess of Net Market Value over Net Assets of
Controlled Entities
Interests in controlled entities held by the life
insurance companies are subject to revaluation each
period, such that the investment in the controlled entity is
recorded at market value.
future
about
sales
(cid:1)
On consolidation the investment in controlled entities
is eliminated and the excess of market value of controlled
entities over their underlying net assets is separately
recognised in Other Assets (Note 21) on the balance
sheet as ‘Excess of Net Market Value over Net Tangible
Assets of Life Insurance Controlled Entities’. This amount
is assessed periodically as part of the valuation of
investments with changes in value taken to profit. This
excess does not require amortisation in the financial
statements.
63
Notes to the financial statements
NOTE 1 Summary of Significant Accounting Policies continued
Life Insurance Policy Liabilities and Margin on
Services Profit
Policy liabilities are calculated in accordance with
the principles of Margin on Services (MoS) profit reporting
as set out in Actuarial standard AS 1.03: Valuation of
Policy Liabilities issued by the Life Insurance Actuarial
Standards Board. Policy liabilities are calculated in a way
that allows for the systematic release of planned profit
margins as services are provided to policyowners and the
revenues relating to those services are received. Selected
profit carriers including premiums and anticipated annuity
payments are used to determine profit recognition.
Profit
Life insurance business operating under this profit
recognition methodology can be analysed as follows:
(i)
life
insurer has performed
Emergence of planned profit margins:
In setting premium rates, life insurers will include
planned margins of revenues over expenses. When
the
the services
necessary to establish a valid claim to those margins
and has received the revenues relating to those
services, the planned margins are recognised in
profit. Where actual experience replicates planned
margin assumptions, the planned profit margin will
be released over the life of the policy.
(ii) Difference between actual and planned experience:
(iii)
investment
immediately.
is recognised
Experience profits/(losses) are realised where actual
experience differs from the expected performance
used to determine planned margins. Circumstances
giving rise to experience profits/(losses) include
experience variations in claims, expenses, mortality,
discontinuance and
returns. For
example, an experience profit will emerge when the
expenses of maintaining all in force business in a
year are lower than those allowed for in the planned
margin.
Loss recognition on groups of related products or
reversals of previously recognised losses:
Where future expenses for a group of related
products exceeds future revenues, the anticipated
If unprofitable
loss
business becomes profitable, previously recognised
losses are reversed immediately.
Investment earnings on assets in excess of policy
liabilities:
Investment assets are held in excess of those
required
Investment
earnings are directly influenced by market conditions
and as such this component of profit will vary from
year to year.
Participating Policies
Policy liabilities attributable to participating policies
include the value of future planned shareholder profit
margins and an allowance for future supportable bonuses.
The value of supportable bonuses and planned
shareholder profit margins account for all profit on
participating policies based on best estimate assumptions.
recognition
methodology, the value of supportable bonuses and the
shareholder profit margin relating to a reporting year will
emerge as planned profits in that year.
Under Margin on Services profit
to meet policy
liabilities.
(iv)
Policy Acquisition Costs
Policy acquisition costs
the
include
fixed and
variable costs of acquiring new business. These costs are
effectively deferred through the determination of policy
liabilities at the balance date to the extent that they are
deemed recoverable from premium or policy charges.
Deferred acquisition costs are effectively amortised over
the life of the policy.
(jj)
Loan Securitisation
The Group conducts a loan securitisation program
through which it packages and sells loans as securities to
investors. For its services to the program, the Group
receives
loan servicing, program
management and trustee fees on an arms length basis.
Fee income is recognised in income on an accruals basis
in relation to the period in which the costs of providing
these services are incurred.
fees such as
Interest rate swaps and
facilities are
provided at arms length to the program by the Group in
accordance with APRA Prudential Guidelines.
liquidity
The Group is entitled to any residual income of the
program after all payments due to investors and costs of
the program have been met.
Due to the significant uncertainties inherent in
estimating the underlying loan repayment rates and
interest margins, future cash flows cannot be reliably
measured. Therefore, no asset/liability or gain/loss on sale
of the loans has been recognised. The residual income is
recognised in Other Income when receivable. Interest
rates swaps are recognised in income on an accruals
basis.
(kk) Fiduciary activities
The Bank and designated controlled entities act as
Trustee and/or Manager and/or Custodian for a number of
Wholesale, Superannuation and Investment Funds, Trusts
and Approved Deposit Funds. Further details are shown in
Note 38.
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 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.
The
contributions
superannuation
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.
64
Notes to the financial statements
NOTE 1 Summary of Significant Accounting Policies continued
(mm) Comparative figures
Where necessary, comparative figures have been
adjusted to conform with changes in presentation in these
financial statements.
Statement of Financial Performance and Segment
Reporting
A part of the business previously reported under the
Life
Insurance segment namely Commonwealth and
Colonial Products and part of the ASB business, is now
funds management segment.
reported under
Management believes
this classification more
that
appropriately represents the industry segments in which
the Commonwealth Bank operates. Prior period numbers
have been reclassified accordingly.
the
Share Based Compensation
Share based compensation has been included as a
new line item of expense within the Statement of Financial
Performance and Note 2 Operating Profit which has
resulted in the reclassification of part of the salaries and
wages expense in prior periods. Refer Note 1(a) for
further details.
(nn) Definitions
‘Overseas’ represents amounts booked in branches
and controlled entities outside Australia.
‘Borrowing Corporation’ as defined by Section 9 of
the Corporations Act 2001 is CBFC Limited, Colonial
Finance Limited and their controlled entities.
‘Net Fair Value’ represents the fair or market value
adjusted for transaction costs.
‘Cash Basis’ is defined as net profit after tax and
outside equity interest before goodwill amortisation and
funds management and life insurance appraisal value
(reduction)/uplift.
(oo) Policy Changes (2001)
The Group adopted the requirements at AASB 1038:
Life Insurance Business for the first time from 1 July 1999,
refer note 1 (ii). From 1 July 2000 outside equity interests
in managed investment funds controlled by the life
insurance statutory funds have been brought to account.
As a result life insurance investment assets and outside
equity interests increased by $1,458 million at 30 June
2001 ($588 million at 30 June 2000). This change had no
impact on operating profit after tax attributable to the
Bank. Comparative figures were restated.
The Group elected to apply revised accounting
standard AASB 1005: Segment Reporting from 1 July
2000, prior to its operative date in accordance with
Section 334(5) of the Corporations Act 2001, refer Note
33.
The Group elected to apply revised accounting
standard AASB 1041: Revaluation of Non-Current Assets
from 1 July 2000, prior to its operative date in accordance
with Section 334(5) of the Corporations Act 2001, refer
Note 19.
(pp) Subsequent events
Corporate Restructure
The Group
(cid:1)
(cid:1)
is
in
the
the Life
the process of a corporate
restructure of the legal entities involved in the Funds
Management and Life
Insurance operations within
Australia. The corporate restructure involves:
(cid:1)
Transferring
Insurance business of
Commonwealth Life Limited to The Colonial Mutual
Life Assurance Society Limited (on 1 July 2003);
Transferring
former Commonwealth Life
Insurance and Funds Management companies into
the Colonial sub-group of companies (during July
and August 2003); and
the
Simplifying
Colonial sub-group of companies (ongoing, to be
substantially completed by December 2003).
The restructure will:
Align the corporate structure and the management
structure; and
Simplify
the
transparency for investors, regulators and creditors.
There is no material effect on the regulatory capital
position of the Bank, or of any of the life insurance
companies, the general insurance company or the funds
management companies arising directly
the
restructure.
the corporate structure within
increasing
corporate
structure,
from
(cid:1)
(cid:1)
Issue of Trust Preferred Securities
On 6 August 2003 the Bank, via a wholly owned
entity of the Bank, issued USD550m (AUD824m) of trust
preferred securities into the US capital markets. The
securities will qualify as Tier 1 capital of the Bank. Refer to
Note 29 for further details.
65
Notes to the financial statements
NOTE 2 Operating Profit
Profit from ordinary activities before income tax has been
determined as follows:
2003
$M
2002
$M
GROUP
2001
$M
2003
$M
BANK
2002
$M
Interest Income
Loans
Other financial institutions
Cash and liquid assets
Trading securities
Investment securities
Dividends on redeemable preference shares
Controlled entities
Total Interest Income
10,084
233
137
454
579
41
-
11,528
9,231
165
142
359
517
41
-
10,455
10,253
280
110
548
655
8,077
70
135
362
256
54 -
577
9,477
-
11,900
Interest Expense
Deposits
Other financial institutions
Debt issues
Controlled entities
Loan capital
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 investments and loans
Net profit on sale of property, plant and equipment
Funds management income
Life insurance income
General insurance premium income
Less general insurance claims paid
Other
Total Other Operating Income
Total Net Operating Income before appraisal value
(reduction)/uplift
Charge for Bad and Doubtful Debts (Note 13)
General provisions
Total Charge for Bad and Doubtful Debts
7,533
95
137
276
255
(6)
380
8,670
3,409
205
601
265
227
4,707
3,963
580
1,309
4,732
198
1,352
-
220
6,502
5,026
4,256
193
1,064
-
232
5,745
4,710
5,063
328
1,661
-
374
7,426
4,474
652
1,423
618
1,242
602
1,173
3,795
197
889
243
212
5,336
4,141
599
1,157
200
190
112
-
4
(9)
22
1,042
634
116
(75)
62
4,373
9,399
243
113
133
-
5
78
12
1,147
659
119
(66)
55
4,358
9,068
222
140
64
-
14
56
25
175
162
112
577
2
(9)
13
1,204 -
765 -
107 -
-
(57)
566
35
3,354
4,350
7,495
8,824
216
92
133
969
3
295
11
-
-
-
-
332
3,940
7,903
305
305
449
449
385
385
266
266
405
405
66
Notes to the financial statements
NOTE 2 Operating Profit continued
Staff Expenses
Salaries and wages
Superannuation contributions
Provisions for employee entitlements
Payroll tax
Fringe benefits tax
Other staff expenses
Recurrent expenses
Restructuring
Total Staff Expenses
2003
$M
2002
$M
GROUP
2001
$M
2003
$M
BANK
2002
$M
2,106
13
11
107
26
120
2,016 2,043
11 12
44
39
92 99
32 48
132 116
2,383 2,327 2,357
-
2,538 2,327 2,357
155 -
1,694
(3)
5
95
24
78
1,893
1,697
2
42
83
30
43
1,897
155 -
2,048 1,897
Share Based Compensation
119 63 3
118 62
Occupancy and Equipment Expenses
Operating lease rentals
Depreciation
Buildings
Leasehold improvements
Equipment
Repairs and maintenance
Other
Recurrent expenses
Restructuring
Total Occupancy and Equipment Expenses
Information Technology Services
Projects and development
Data processing
Desktop
Communications
Software amortisation
Recurrent expenses
Restructuring
Total Information Technology Services
354 324
329
289
295
24 26
51 47
53 55
58 56
69 70
29
45
76
60
65
609 578 604
-
612 578 604
3 -
20
41
22
49
52
473
23
37
26
51
26
458
3 -
476 458
191
256
145
171
195 189
255 275
161 155
171 175
167
256
154
148
78 44 25 71 38
763
30 -
797 763
788
-
890 838 788
860 838
30 -
166
227
159
144
767
Other Expenses
Postage
Stationery
Fees and commissions
Advertising, marketing and loyalty
Other
Recurrent expenses
Restructuring
Total Other Expenses
Total Operating Expenses before goodwill amortisation
109 111 108
118 104 104
551 609 524
276 256 252
312 315 430
1,366 1,395 1,418
26 - -
1,392 1,395 1,418
5,551 5,201 5,170
96
90
210
221
154
771
95
86
279
203
139
802
26 -
797 802
4,236 3,982
Appraisal value (reduction)/uplift
Goodwill amortisation
Profit from ordinary activities before income tax
(245)
(322)
2,976
-
477 474 -
(186)
(323)
(186)
(338)
2,807 3,330
3,572 3,405
First time expenses comprise:
Restructuring expenses – as above
214
-
-
214
-
Employee compensation (ESAP) – Note 1(a)
45
-
-
45
-
259
67
259
GROUP
2001
$M
11,900
1,775
426
14
157
28
85
14,385
2003
$M
9,477
1,756
449
579
65
2
566
12,894
BANK
2002
$M
8,670
1,889
441
972
78
836
334
13,220
1079 - -
695 - -
1,698 - -
3,472 - -
10,455
1,860
489
5
109
609
108
13,635
1,083
866
(100)
1,849
330
147 -
477
15,961
474 - -
- -
474 - -
13,220
12,894
18,331
Notes to the financial statements
NOTE 3 Revenue from Ordinary Activities
2003
$M
2002
$M
Banking
Interest income
Fees and commissions
Trading income
Dividends
Proceeds from sale of property, plant and equipment
Proceeds from sale of investments and loans
Other income
Funds Management and Life Insurance
Funds management income including premiums
Life insurance premiums and related income
Investment income
Appraisal value uplift (1)
- recurrent basis
- corporate restructure of funds management business
Total revenue from ordinary activities
11,528
2,075
502
4
72
56
94
14,331
1,125
1,011
628
2,764
-
-
-
17,095
There were no sources of revenue from non-operating activities.
(1) Appraisal value reduction of $ 245 million for year ended 30 June 2003.
68
Notes to the financial statements
NOTE 4 Average Balances 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 2001, 2002 and
2003. Averages used are predominantly daily averages.
The overseas component comprises overseas branches
of the Bank and overseas domiciled controlled entities.
Overseas intragroup borrowings have been adjusted in
the interest spread and margin calculations to more
appropriately
funds.
Non-accrual loans are included in Interest Earning Assets
receivables.
under
the overseas cost of
advances
reflect
loans,
other
and
Full Year Ended
2003
2002
2001
$M
Average Interest Earning Assets and Interest Income
Average Interest Average Average Interest Average Average Interest Average
Rate
Balance
%
$M
Rate Balance
$M
Rate Balance
$M
$M
$M
%
%
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
Overseas
Average interest earning assets and
interest income including
intragroup
Intragroup eliminations
Total average interest earning
assets and interest income
3,293
813
2,446
3,734
-
56
7,360
3,395
4,240
8,062
131,746
23,125
-
-
3,604
191,874
(3,604)
188,270
133
4
79
154
-
-
326
128
261
318
8,496
1,629
-
-
31
4.0
0.5
3.2
4.1
4,290
285
1,822
2,663
138
4
69
96
3.2
1.4
3.8
3.6
2,428
273
2,658
1,595
107
3
159
121
n/a -
174
n/a
-
-
n/a -
n/a
-
29 -
4.4
3.8
6.2
3.9
5,138
2,698
3,774
7,339
248
111
211
306
4.8
4.1
5.6
4.2
5,616
2,587
3,244
6,268
387
161
242
413
6.4 123,006
7.0
19,445
n/a -
7,984
1,288
-
6.5 118,917
6.6
16,992
n/a -
8,983
1,317
7
n/a -
3,232
0.9
-
65
n/a -
3,198
2.0
-
191
11,559
(31)
6.0 173,866
(3,232)
0.9
10,520
(65)
6.1 163,805
(3,198)
2.0
12,091
(191)
11,528
6.1 170,634
10,455
6.1 160,607
11,900
4.4
1.1
6.0
7.6
n/a
n/a
6.9
6.2
7.5
6.6
7.6
7.8
n/a
n/a
6.0
7.4
6.0
7.4
Average Non-Interest Earning Assets
Bank acceptances
Australia
Overseas
13,144
53
Life insurance investment assets
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
26,333
4,070
627
197
24,046
3,303
(1,497)
(150)
70,126
258,396
19.5%
11,965
66
26,853
4,129
681
203
23,617
3,411
(1,546)
(143)
69,236
239,870
18.1%
69
12,074
109
26,580
3,062
1,024
240
21,676
1,835
(1,493)
(84)
65,023
225,630
16.0%
Notes to the financial statements
NOTE 4 Average Balances and Related Interest continued
Average Liabilities and Interest Expense
Full Year Ended
Average
Balance
$M
2003
Interest Average Average Interest Average Average Interest Average
Rate
%
Rate Balance
$M
Rate Balance
$M
2002
2001
$M
$M
$M
%
%
Average Interest Bearing Liabilities and Loan Capital and Interest Expense
Time deposits
Australia
Overseas
Savings deposits
Australia
Overseas
Other demand deposits
Australia
Overseas
Payables due to other
financial institutions
Australia
Overseas
Debt issues
Australia
Overseas
Loan capital
Australia
Overseas
Other interest bearing liabilities
Intragroup borrowings
Australia
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
Life insurance policy liabilities
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
45,674
14,255
32,780
2,788
34,043
2,906
1,752
6,712
17,651
10,738
5,234
204
-
3,604
-
1,956
876
492
100
1,230
78
34
164
1,047
305
212
8
-
31
-
4.3
6.1
1.5
3.6
3.6
2.7
1.9
2.4
5.9
2.8
4.1
3.9
n/a
0.9
n/a
41,283
12,479
1,901
761
32,078
2,444
412
82
29,517
2,386
1,037
63
2,043
5,320
14,578
9,398
65
128
800
264
5,491
88
-
227
5
-
3,232
-
65
-
4.6
6.1
1.3
3.4
3.5
2.6
3.2
2.4
5.5
2.8
4.1
5.7
n/a
2.0
n/a
42,226
9,882
2,519
711
27,835
2,027
603
83
23,813
1,911
1,064
62
1,271
4,238
65
263
17,130
9,965
1,099
562
5,564
116
-
367
7
21
3,198
-
191
-
178,341
(3,604)
6,533
(31)
3.7
0.9
160,337
(3,232)
5,810
(65)
3.6
2.0
149,176
(3,198)
7,617
(191)
6.0
7.2
2.2
4.1
4.5
3.2
5.1
6.2
6.4
5.6
6.6
6.0
n/a
6.0
n/a
5.1
6.0
174,737
6,502
3.7
157,105
5,745
3.7
145,978
7,426
5.1
4,784
871
13,146
53
20,828
3,596
16,034
2,739
62,051
236,788
21,608
258,396
18.9%
5,424
705
11,965
66
23,092
3,457
14,628
3,026
62,363
219,468
20,402
239,870
17.9%
70
6,034
608
12,077
109
23,584
2,617
13,536
2,890
61,455
207,433
18,197
225,630
16.6%
Notes to the financial statements
NOTE 4 Average Balances 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
Trading securities
Australia
Overseas
Investment securities
Australia
Overseas
Loans, advances and other receivables
Australia
Overseas
Other interest earning assets
Intragroup loans
Australia
Overseas
Change in interest income including intragroup
Intragroup eliminations
Change in interest income
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
Debt issues
Australia
Overseas
Loan capital
Australia
Overseas
Other interest bearing liabilities
Intragroup borrowings
Australia
Overseas
Change in interest expense including intragroup
Intragroup eliminations
Change in interest expense
Change in net interest income
30/06/03 vs 30/06/02
Changes due to
Rate
$M
Volume
$M
30/06/02 vs 30/06/01
Changes due to
Total
$M
Volume
$M
Rate
$M
Total
$M
71
-
-
(41)
60
-
(28)
6
-
35
58
-
287
176
-
-
-
1
656
(1)
679
(50)
171
73
16
228
14
32
47
(152)
(24)
(4)
(2)
-
1
-
503
(1)
486
278
(40)
1
-
(49)
(85)
-
(111)
(56)
-
(66)
(165)
-
(1,286)
(205)
(7)
-
-
(127)
(2,227)
127
(2,124)
(568)
(136)
(264)
(17)
(255)
(13)
(32)
(182)
(147)
(274)
(136)
-
(6)
31
1
-
(90)
(25)
-
(139)
(50)
-
(31)
(107)
-
(999)
(29)
(7)
-
-
(126)
(1,571)
126
(1,445)
(618)
35
(191)
(1)
(27)
1
-
(135)
(299)
(298)
(140)
(2)
(6)
(127)
-
(2,310)
127
(2,167)
(42)
(126)
-
(1,807)
126
(1,681)
236
31
(5)
(5)
-
(12)
17
(25)
(10)
23
(17)
(53)
90
-
-
(39)
(17)
39
(7)
(140)
7
70
6
32
1
(24)
2
72
3
(4)
(3)
-
(39)
-
57
39
107
(163)
10
58
78
17
50
12
512
341
-
-
(34)
1,039
34
1,073
55
115
80
18
193
15
(31)
36
247
41
(15)
3
-
(34)
-
723
34
757
316
(36)
5
22
41
103
27
27
29
565
251
-
-
5
1,056
(5)
1,080
195
108
10
12
161
14
(7)
34
175
38
(11)
6
-
5
-
666
(5)
650
479
71
Notes to the financial statements
NOTE 4 Average Balances and Related Interest continued
Changes in Net Interest Income: Volume and Rate Analysis
The preceding table shows the movement in interest
income and expense due to changes in volume and
changes in interest rates. Volume variances reflect the
change in interest from the prior period due to movement
in the average balance. Rate variance reflects the change
Net interest income
Average interest earning assets
Interest Margins and Spreads
in interest from the prior year due to changes in interest
rates.
Volume and rate variance for total interest earning
assets and liabilities have been calculated separately
(rather than being the sum of the individual categories).
2003
$M
2002
$M
5,026 4,710
188,270 170,634
GROUP
2001
$M
4,474
160,607
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 (1)
Benefit of net free liabilities, provisions and equity (2)
Australia Interest Margin (3)
Overseas
Interest Spread (1)
Benefit of net free liabilities, provisions and equity (2)
Overseas Interest Margin (3)
Group
Interest Spread (1)
Benefit of net free liabilities, provisions and equity (2)
Group Interest Margin (3)
2003
%
2.68
0.20
2.88
1.22
0.50
1.72
2.40
0.27
2.67
2002
%
2.75
0.25
3.00
1.16
0.43
1.59
2.47
0.29
2.76
2001
%
2.56
0.43
2.99
1.06
0.55
1.61
2.32
0.46
2.78
(1)
(2)
(3)
Difference between the average interest rate earned and the average interest rate paid on funds.
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 interest income divided by average interest earning assets for the period.
72
Notes to the financial statements
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 from ordinary activities before income tax
Banking
Funds Management
Life insurance
Appraisal value (reduction)/uplift
Goodwill amortisation
Prima facie income tax at 30% (30 June 2001: 34%)
Banking
Funds Management
Life insurance
Appraisal value (reduction)/uplift
Goodwill amortisation
Add (or deduct) permanent differences expressed on a tax effect
basis:
Current Period
Tax rate change
Specific provisions for offshore bad and doubtful debts not tax effected
Taxation rebates (net of accruals)
Tax adjustment referable to policyholder income
Non assessable income - life insurance surplus
Change in excess of net market value over net assets of
life insurance controlled entities
Non deductible goodwill amortisation
Non assessable capital gains
Tax losses recognised
Employee share acquisition plan
Other
Prior Periods
Other
Total Income Tax Expense
Income tax attributable to operating profit
Banking
Funds management
Life insurance
Corporate tax
Policyholder tax
Total 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
73
BANK
2002
$M
3,516
-
-
-
(186)
3,330
1,055
-
-
-
(56)
999
-
(7)
(308)
-
-
-
56
(68)
(35)
(8)
36
(334)
2003
$M
3,187
206
150
(245)
(322)
2,976
956
62
45
(73)
(97)
893
2002
$M
2,884
399
135
477
(323)
3,572
866
120
40
143
(97)
1,072
GROUP
2001
$M
2003
$M
2,512
2,993
478 -
279 -
474 -
(186)
2,807
(338)
3,405
898
853
163 -
95 -
161 -
(56)
842
(114)
1,158
-
13
(36)
(66)
(18)
73
97
-
(18)
-
20
65
-
958
938
54
24
1,016
(58)
958
917
(24)
45
22
(2)
958
853
112
965
(1)
(6)
(7)
-
(3)
(24)
(25)
(25)
(143)
97
-
(35)
(8)
17
(149)
3 -
8
8
(146)
(35)
62 -
-
(43)
(161)
115
(38)
(65)
(8)
26
(136)
-
56
-
-
-
(52)
(134)
(7)
916
816
96
40
952
(36)
916
1,385
(408)
(86)
12
13
916
1,239
146
1,385
(403)
(66)
(469)
(29)
993
-
708
-
665
705
708
104 -
90 -
708
94 -
708
899
993
820
193
(35)
11
625
42
35
6
4 -
708
993
665
-
-
665
-
665
814
(129)
(28)
5
3
665
765
55
820
168
5
173
610
15
625
83
-
83
811
3
814
(149)
-
(149)
Notes to the financial statements
NOTE 5 Income Tax Expense continued
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 21)
Deferred income tax liabilities arising from:
Leveraged leasing
Lease financing
Other
Total deferred income tax liabilities (Note 24)
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 arising during the year not recognised
Closing balance (Note 21)
2003
$M
2002
$M
GROUP
2001
$M
BANK
2002
$M
2003
$M
353
172
525
302
96
16
414
337
288
625
240
100
240
580
488
206
694
328
149
625
1,102
242
70
312
116
2
44
162
257
52
309
34
23
95
152
36
124 -
-
-
168
(34)
(18)
26
142
146
(8)
(27)
57
168
173
(2)
(65)
40
146
132
(71)
(17)
18
62
121
(10)
(27)
48
132
Tax Consolidation
Legislation has been enacted to allow Australian
resident entities to elect to consolidate and be treated as a
single entity for Australian tax purposes. At the date of
this report, the directors of Commonwealth Bank of
Australia have not made a decision whether or not to elect
to be taxed as a single entity. In the event that the tax
consolidation system is implemented, Commonwealth
Bank of Australia has agreed to reimburse their wholly-
owned subsidiaries which form part of the consolidated tax
group for the net deferred tax assets that remain at
implementation date. Alternatively where there exists a
net tax liability, wholly-owned subsidiaries will compensate
Commonwealth Bank of Australia. In future years, should
the Bank enter the tax consolidation regime, tax balances
will no longer be recorded by subsidiaries if they form part
of a consolidated tax group. Tax balances for the
consolidated tax group will be recorded in the financial
statements of the Commonwealth Bank of Australia.
74
Notes to the financial statements
NOTE 6 Dividends
Ordinary Shares
Interim ordinary dividend (fully franked) (2003: 69 cents,
2002: 68 cents, 2001: 61 cents)
Provision for interim ordinary dividend - cash component only
Provision for interim ordinary dividend - dividend reinvestment plan
Declared final ordinary dividend (fully franked)
(2003: nil provided, 2002: 82 cents, 2001: 75 cents)
Provision for final ordinary dividend - cash component only
Provision for final ordinary dividend - dividend reinvestment plan
Other provision
Preference Shares
Preference dividends paid (fully franked) (2003: 1,019 cents,
2002: 970 cents, 2001: 261 cents)
Provision for preference dividend
Dividends provided for or paid
Appropriations to Dividend Reinvestment Plan Reserve
Interim ordinary dividend
Final ordinary dividend
Dividends appropriated to Dividend Reinvestment Plan Reserve
Total Dividends Provided for, Reserved or Paid
Other provision carried
Dividends proposed and not recognised as a liability
(fully franked) (2003: 85 cents, 2002: nil)
2003
$M
2002
$M
GROUP
2001
$M
BANK
2002
$M
2003
$M
699
166
693
159
642
699
166
852
-
-
832
195
-
765 -
-
5 -
1,027
-
28
8
901
26 -
9
1,421
8
1,913
28
8
901
26
8
1,913
-
-
-
901
-
-
-
1,913
131 -
168 -
299 -
901
1,720
-
-
-
1,913
4
5 -
4
5
1,066 -
-
1,066 -
Dividend Franking Account
After fully franking the final dividend to be paid for
the year ended 30 June 2003 the amount of credits
available as at 30 June 2003 to frank dividends for
subsequent financial years is $417 million. This figure is
based on the combined franking accounts of the Bank at
30 June 2003, which have been adjusted for franking
credits that will arise from the payment of income tax
payable on profits for the year ended 30 June 2003,
franking debits that will arise from the payment of
from distributing
dividends proposed for the year and franking credits that
the Bank may be prevented
in
subsequent financial periods. The Bank expects that
future tax payments will generate sufficient franking
credits for the Bank to be able to continue to fully frank
future dividend payments. Dividend payments on or after 1
July 2003 will be franked at the 30% tax rate. These
calculations have been based on the taxation law as at 30
June 2003.
Dividend History
Half Year Ended
31 December 2000
30 June 2001
31 December 2001
30 June 2002
31 December 2002
30 June 2003
Cents
Per
Share
Half-year
Payout
Ratio (1)
Full Year
Full Year
Payout Payout Ratio
Ratio (1) Cash Basis (2)
DRP
DRP
Price Participation
Rate (3)
$
61
75
68
82
69
85
68.2%
74.0%
71.8%
71.6%
143.2%
77.7%
-
71.2%
-
71.7%
-
75.5%
-
76.2%
-
-
30.82
28.79
31.96
31.92
24.75
18.6%
18.4%
18.7%
19.0%
19.2%
97.7%
75.9% -
-
(1)
(2)
(3)
Dividend Payout Ratio: dividends divided by earnings after abnormals.
Payout ratio based on net profit after tax before goodwill amortisation and appraisal value uplift.
DRP Participation Rate: the percentage of total issued share capital participating in the Dividend Reinvestment Plan.
75
Notes to the financial statements
NOTE 7 Earnings Per Share
Earnings Per Ordinary Share
- Basic
- Fully diluted
Reconciliation of earnings used in the calculation of earnings per share
Profit from ordinary activities after income tax
Less: Preference share dividends
Less: Outside equity interests
Earnings used in calculation of earnings per share
Weighted average number of ordinary shares used
in the calculation of basic earnings per share
Effect of dilutive securities - share options
Weighted average number of ordinary shares used
in the calculation of fully diluted earnings per share
Cash Basis Earnings Per Ordinary Share
- Basic
- Fully diluted
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
Agreements to resell
Total Overseas
Total Cash and Liquid Assets
NOTE 9 Receivables from Other Financial Institutions
Australia
Overseas
Total Receivables from Other Financial Institutions
76
2003
c
157.4
157.3
2002
c
209.6
209.3
GROUP
2001
c
189.6
189.3
$M
$M
$M
2,018
(40)
(6)
1,972
2,656
(34)
(1)
2,621
2,412
(9)
(14)
2,389
Number of Shares
2003
M
2002
M
2001
M
1,253
1,250
1,260
1
2
2
1,254
1,252
1,262
c
202.6
202.5
c
197.3
197.0
c
178.8
178.6
GROUP
2002
$M
2003
$M
BANK
2002
$M
1,888
1,330
74 -
2,900
218
4,448
3,194
270
5,426
1,873
-
3,194
296
5,363
168
100
14
50 -
892
908
5,356
300
618
6,044
2 -
10
-
300
310
5,673
2003
$M
1,426
14
2,900
217
4,557
65
377
33
543
1,018
5,575
2003
$M
3,324
3,742
7,066
GROUP
2002
$M
4,333
3,395
7,728
2003
$M
3,287
2,149
5,436
BANK
2002
$M
4,504
1,190
5,694
Notes to the financial statements
NOTE 10 Trading Securities
Australia
Listed:
Australian public securities
Commonwealth and states
Local and semi-government
Treasury notes
Bills of exchange
Other securities
Unlisted:
Local and semi-government
Commercial paper
Certificates of deposit
Medium term notes
Other securities
Total Australia
Overseas
Listed:
Government securities
Eurobonds
Bills of exchange
Other securities
Unlisted:
Government securities
Commercial paper
Certificates of deposit
Other securities
Total Overseas
Total Trading Securities
2003
$M
GROUP
2002
$M
2003
$M
BANK
2002
$M
551
755
-
947
679
-
397
2,141
851
13
6,334
698
938
1,136
603
-
726
-
-
4,101
10,435
72
182
6
1,535
67
10
163
1,883
1,644
2
5,564
150
780
1,122
348
18
401
5
1
2,825
8,389
551
755
-
947
675
-
505
2,142
851
13
6,439
87
938
-
608
-
-
-
1,633
8,072
72
182
6
1,595
987
10
163
1,883
609
2
5,509
20
780
-
361
10
18
5
-
1,194
6,703
77
Notes to the financial statements
NOTE 11 Investment Securities
Australia
Listed:
Australian public securities
Commonwealth and states
Other securities and equity investments
Unlisted:
Australian public securities
Local and semi-government
Bills of exchange
Medium term notes
Other securities and equity investments
Total Australia
Overseas
Listed:
Government securities
Treasury notes
Certificates of deposit
Eurobonds
Medium term notes
Floating rate notes
Other securities
Unlisted:
Government securities
Treasury notes
Certificates of deposit
Eurobonds
Medium term notes
Commercial paper
Floating rate notes
Other securities and equity investments
Total Overseas
Total Investment Securities
2003
$M
2002
$M
GROUP
2001
$M
2003
$M
BANK
2002
$M
1,915
439
1,969
456
1,919
354
1,915
433
1,969
448
-
-
115
57
2,589
804
-
1,045
44
191
5
-
1,379
212
114
-
798
379
4,971
7,560
80
-
942
965
4,341
80 -
18
968
578
4,069
976
2
3,336
-
85 -
57
58
2,463
484
5
14
993
239
324
1,392
804
252
-
1,045
1,118
377 -
666
787
463
-
-
796
239
111
631
1,417
212
174
116 -
6 -
1,343
230
117
29 -
438
957 -
4,368
6,831
6,369
9,705
1,422
98
-
1,343
230
583
-
900
90
6,695
11,036
113
-
1,379
212
114
-
784
1,082
6,697
10,766
78
Notes to the financial statements
NOTE 11 Investment Securities continued
Australia
Australian public securities
Commonwealth and states
Bills of exchange
Medium term notes
Other securities and equity investment
Total Australia
Overseas
Government securities
Treasury notes
Certificates of deposit
Eurobonds
Medium term notes
Floating rate notes
Other securities and equity investments
Total Overseas
Total Investment Securities
Net Unrealised Surplus/(Deficit)
2003
$M
2,118
-
935
1,400
4,453
593
5
1,357
1,260
816
1,215
1,488
6,734
11,187
151
GROUP
Market Value at 30 June
2001
2002
$M
$M
2,109
18
973
1,042
4,142
928
-
1,379
1,263
114
1,158
1,867
6,709
10,851
85
1,926
85
982
463
3,456
379
6
1,416
1,343
172
1,422
1,627
6,365
9,821
116
Gross Unrealised Gains and Losses of Group
The following table sets out the gross unrealised gains and losses of the Group’s investment securities.
At 30 June 2003
Amortised
Cost
$M
Gross Unrealised
Losses
Gains
$M
$M
Fair Amortised
Cost
$M
Value
$M
Gross Unrealised
Losses
Gains
$M
$M
At 30 June 2002
Fair
Value
$M
Australia
Australian public securities
Commonwealth and states
Bills of exchange
Medium term notes
Other securities and
equity investments (1)
Total Australia
Overseas
Government securities
Treasury notes
Certificates of deposit
Eurobonds
Medium term notes
Floating rate notes
Other securities and
equity investments
Total Overseas
Total Investment Securities
1,995
-
942
123 -
- -
11
4
2,118
-
935
2,049
71
18 -
5
968
1,404 -
4,341
127
4
15
1,400
4,453
1,034
4,069
582
5 -
1,357 -
56
1,223
12
822
1,224 -
11 -
-
-
19
18
9
593
917
5 -
1,379
1,257
114
1,161
1,357
1,260
816
1,215
1,482
6,695
11,036
6 -
46
61
85
212
1,488
6,734
11,187
1,869
6,697
10,766
12
88
13
-
-
30
-
-
9
52
140
11
-
-
4
15
2,109
18
973
1,042
4,142
2
-
-
24
-
3
928
-
1,379
1,263
114
1,158
11
40
55
1,867
6,709
10,851
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 Group.
(1)
Equity derivatives are in place to hedge equity market risk in respect of structured equity products for customers. There are $4 million of
net deferred gains on these contracts (2002: $12 million net deferred losses) which offset the above unrealised losses and these are
disclosed within Note 39. At the end of the financial year $1 million of net deferred losses (2002: $98 million of deferred losses) are
included in the amortised cost value.
79
Notes to the financial statements
NOTE 11 Investment Securities continued
Maturity Distribution and Average Yield
The following 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
GROUP
Maturity Period at 30 June 2003
Total
$M
10 years or more
%
$M
5 to 10 years
%
$M
Australia
Australian public securities
Commonwealth and states
Bank bills
Medium term notes
Other securities, commercial
paper and equity investments
Total Australia
Overseas
Government securities
Treasury notes
Certificates of deposit
Eurobonds
Medium term notes
Floating rate notes
Other securities, commercial
paper and equity investments
Total Overseas
Total Investment Securities
Maturities at Fair Value
206 6.07
-
- -
1,332 6.01
-
-
447 6.48 -
457 5.29 -
-
-
-
-
495 7.00
397 4.73
988 5.22
1,098
2,767
19 5.66 -
-
476
-
-
-
-
-
287 5.61
-
1,343 1.99
84 6.62
37 7.28
103 1.33
64 1.27 -
-
-
231 3.10
5 3.10 -
14 1.99 -
995 6.43
785 5.08 -
665 1.17
-
-
77 5.56
-
439 4.83
-
-
-
67 2.65
-
17 2.66
-
421 2.92
945 4.19
37 6.32
79 5.04
2,275
3,373
3,379
3,640
6,407
6,516
617
1,093
1,135
163
163
157
1,995
942
1,404
4,341
582
5
1,357
1,223
822
1,224
1,482
6,695
11,036
11,187
Additional Disclosure
Proceeds at or close
to maturity of investment
securities were $17,719 million (2002: $22,192 million;
2001: $19,697 million).
Proceeds from sale of investment securities were $23
million (2002: $295 million; 2001: $28 million).
Realised capital gains were $7 million and realised
capital losses were $5 million (2002: realised capital gains
$86 million and realised capital losses $14 million; 2001:
realised capital gains $3 million and realised capital losses
$1 million).
80
Notes to the financial statements
NOTE 12 Loans, Advances and Other Receivables
Australia
Overdrafts
Housing loans
Credit card outstandings
Lease financing
Bills discounted
Term loans
Equity participation in leveraged leases
Other lending
Total Australia
Overseas
Overdrafts
Housing loans
Credit card outstandings
Lease financing
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
2003
$M
2,452
87,592
5,227
3,988
2,303
36,742
1,276
604
140,184
2,005
12,611
296
197
7,444
511
13
23,077
163,261
(1,325)
(205)
(618)
(549)
(143)
(26)
(48)
(2,914)
160,347
GROUP
2002
$M
2,513
75,394
4,552
4,094
1,753
38,544
1,331
968
129,149
1,691
10,444
274
256
7,494
695
43
20,897
150,046
(1,356)
(270)
(631)
(426)
(162)
(59)
(68)
(2,972)
147,074
2003
$M
2,452
87,149
5,227
1,543
2,303
31,115
446
618
130,853
BANK
2002
$M
2,513
75,123
4,552
2,044
1,753
32,556
409
900
119,850
-
51
-
80
2,098
-
-
2,229
133,082
-
49
-
110
2,525
-
-
2,684
122,534
(1,152)
(157)
(12)
(157)
(39)
(25)
(3)
(1,545)
131,537
(1,190)
(231)
(29)
(210)
(28)
(55)
(10)
(1,753)
120,781
1,402
2,234
3,636
1,408
2,516
3,924
743
724
1,467
711
1,233
1,944
Leasing Arrangements
Retail Financial Services provides vehicle and
equipment lease finance to a broad range of industries
including transport, service, earthmoving, construction,
manufacturing and mining. Most
finance
arrangements are for terms of between 3 and 5 years and
lease
rentals are generally payable monthly
in advance.
Institutional Banking provides leasing services and hire
purchase to corporate clients for a range of equipment.
They also arrange off-balance sheet finance for large
scale long life plant and equipment across different tax
jurisdictions.
81
Notes to the financial statements
NOTE 12 Loans, Advances and Other Receivables continued
Finance Leases
Minimum lease payments receivable:
No later than one year
Later than one year but not later than five years
Later than five years
Lease Financing
Leverage Leases
Minimum lease payments receivable:
No later than one year
Later than one year but not later than five years
Later than five years
Equity Participation in Leveraged Leases
2003
$M
1,385
2,082
718
4,185
304
575
397
1,276
GROUP
2002
$M
1,598
2,530
222
4,350
225
483
623
1,331
2003
$M
826
686
111
1,623
59
203
184
446
BANK
2002
$M
790
1,213
151
2,154
87
169
153
409
82
Notes to the financial statements
NOTE 12 Loans, Advances and Other Receivables continued
Maturity Distribution of Loans
The following table sets forth the contractual maturity distribution of the Group’s loans, advances and other
receivables (excluding bank acceptances) at 30 June 2003.
GROUP
Maturity Period at 30 June 2003
Maturing
Maturing
Between
One Year One & Five
Years
$M
or Less
$M
Maturing
After Five
Years
$M
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
Australia
Overseas
Total Variable Interest Rates
Australia
Overseas
Total Fixed Interest Rates
Gross Loans, Advances and Other Receivables
517
1,105
1,230
3,447
703
5,388
1,467
17,493
31,350
75
500
1,162
2,947
36
555
116
2,364
7,755
39,105
21,771
5,862
27,633
9,579
1,893
11,472
39,105
348
1,346
533
14,163
732
6,303
2,620
5,860
31,905
79
897
1,175
640
1,226
261
69,982
266
281
1,177
3,096
76,929
68
881
873
3,249
89
305
6,415
84
531
81 -
139
8,991
85,920
456
6,331
38,236
23,941
1,611
25,552
7,984
4,700
12,684
38,236
74,296
2,450
76,746
2,633
6,541
9,174
85,920
Total
$M
1,505
3,677
2,024
87,592
1,701
11,972
5,264
26,449
140,184
222
2,278
3,210
12,611
209
1,391
197
2,959
23,077
163,261
120,008
9,923
129,931
20,196
13,134
33,330
163,261
(1)
(2)
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.
Financing real estate and land development projects.
83
Notes to the financial statements
NOTE 13 Provisions For Impairment
2003
$M
2002
$M
2001
$M
2000
$M
GROUP
1999
$M
BANK
2002
$M
2003
$M
General Provisions
Opening balance
Charge against profit
Acquired provisions, including fair value adjustments
Transfer to specific provisions
Bad debts recovered
Adjustments for exchange rate fluctuations and other
items
Bad debts written off
Closing balance
Specific Provisions
Opening balance
Charge against profit
Acquired provisions, including fair value adjustments
Transfer from general provision for
New and increased provisioning
Less write-back of provisions no longer required
Net transfer
Adjustments for exchange rate fluctuations and other
items
Bad debts written off
Closing balance
Total Provisions for Impairment
Specific provisions for impairment comprise the
following segments:
Provisions against loans and advances
Provisions for diminution
Total
Provision Ratios
Specific provisions for impairment as % of gross
impaired assets net of interest reserved
Total provisions for impairment as % of gross
impaired assets net of interest reserved
General provisions as % of risk weighted assets
Charges to profit and loss for bad and doubtful
debts comprise:
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
1,356
305
1,399
449
- -
(495)
56
1
(350)
74
(9)
1,376
(51)
1,325
1,410
(54)
1,356
1,358
385
51
(411)
88
(29)
1,442
(43)
1,399
1,076
1,081
196
247
214 -
(239)
1,190
266
1,240
405
- -
(457)
44
(3) -
(322)
51 -
(7)
(140)
54
(3)
1,402
(44)
1,358
1,128
(47)
1,081
1,194
(42)
1,152
1,232
(42)
1,190
270
234
432
275
279
231
190
- -
6
219 - - -
416
(66)
350
546
(51)
495
495
(84)
411
236
(96)
140
(11)
(11)
(17)
5
609
(404)
205
1,530
718
(448)
270
1,626
832
(598)
234
1,633
639
(207)
432
1,790
284
(45)
239
(8)
510
(235)
275
1,356
382
(60)
322
496
(39)
457
(17)
(12)
536
(379)
157
1,309
635
(404)
231
1,421
205
270
- -
270
205
233
1
234
431
275
1 -
275
432
157
231
- -
231
157
%
%
%
%
%
%
%
32.08
30.54
36.06
43.03
46.69
24.84
30.72
239.44
0.90
183.94 251.62 178.29
1.06
0.96
1.01
230.22
1.09
207.25 188.96
0.91
0.84
$M
$M
$M
$M
$M
$M
$M
305
449
405
196
- - - - - - -
405
196
266
247
449
305
385
266
247
385
0.19% 0.31% 0.28% 0.16%
0.25%
0.21% 0.34%
84
Notes to the financial statements
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
2003
$M
305
GROUP
2002
$M
449
2003
$M
266
BANK
2002
$M
405
416
(66)
350
(350)
-
546
(51)
495
(495)
-
382
(60)
322
(322)
-
496
(39)
457
(457)
-
51
(74)
(22)
350
305
305
51
(56)
(41)
495
449
449
42
(63)
(35)
322
266
266
42
(44)
(50)
457
405
405
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 1999,
2000, 2001, 2002 and 2003.
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
2003
$M
2002
$M
2001
$M
2000
$M
GROUP
At 30 June
1999
$M
-
3
2
-
10
26
-
8
24
-
35
23
-
15
23
6
-
36
4
112
163
6
4
35
6
134
221
4
6
28
7
77
154
8
6
17
6
110
205
4
35
15
4
82
178
10
11
1 -
12
-
15
-
4
-
13 -
-
1 -
7
-
4
-
20
42
205
3
-
3
-
20
49
270
7
-
3
-
51
80
234
3
-
69
-
141
227
432
3
-
2
-
92
97
275
(1)
(2)
Principally owner occupied housing.
Primarily financing real estate and land development projects.
85
Notes to the financial statements
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 ended
30 June 1999, 2000, 2001, 2002 and 2003.
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 Bad Debts Written Off
Bad Debts Recovered
Australia
Overseas
Bad Debts Recovered
Net Bad Debts Written Off
2003
$M
-
4
26
8
-
209
11
171
429
-
-
16
2
-
7
-
1
26
455
57
17
74
381
2002
$M
-
6
6
11
4
177
18
178
400
1
-
58
2
-
6
-
35
102
502
49
7
56
446
2001
$M
-
10
1
10
14
142
16
301
494
-
-
6
1
-
38
-
102
147
641
59
29
88
553
GROUP
Year Ended 30 June
1999
2000
$M
$M
-
6
2
-
7
4
8
24
104
11
90
245
-
-
-
1
-
4
-
1
6
251
46
8
54
197
9
7
94
11
71
203
-
-
-
1
14
-
3
61
79
282
48
3
51
231
(1)
(2)
Principally owner occupied housing.
Primarily financing real estate and land development projects.
86
Notes to the financial statements
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 ended 30 June
1999, 2000, 2001, 2002 and 2003.
2003
$M
2002
$M
2001
$M
GROUP
Year Ended 30 June
1999
$M
2000
$M
- - -
2
1
1 -
9
-
1
-
30
-
17
49
-
-
1
1
1
30
1
17
59
-
-
-
1
2
28
2
10
46
-
-
2
-
1
3
-
-
1
3
-
3
- - -
2
8
54
3
7
56
25
29
88
-
2
2
-
1
27
2
14
48
-
-
-
-
-
3
-
-
3
51
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 Bad Debts Recovered
-
1
4
-
-
38
2
12
57
-
-
1
-
-
4
-
12
17
74
(1)
(2)
Principally owner occupied housing.
Primarily financing real estate and land development projects.
87
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 reviewed
more frequently. Credit processes, including compliance
with policy and underwriting standards, and application of
risk ratings, are examined, and reported where cases of
non-compliance are observed.
Facilities in the credit risk rated segment become
classified for remedial management by centralised units
based on assessment in the risk rating system. These
facilities are generally those classified as troublesome
(which equate to the APRA classifications of special
mention and substandard) and impaired assets. Impaired
assets in this segment are those facilities where 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 realisable market value of the security net of
estimated realisation costs.
A centralised exposure management system records
all significant credit risks borne by the Group.
The Risk Committee of the Board operates under a
charter of the Board in terms of which the Committee
oversees the Group’s credit management policies and
practices. The Committee usually meets every
two
months, and more often if required.
to
The Group uses a portfolio approach
the
management of its credit risk. A key element is a well
diversified portfolio. The Group is using various portfolio
management tools, including a centralised portfolio model
that assesses risk and return on an overall portfolio and
segmented basis, to assist in diversifying the credit
portfolio. The Group is involved in credit derivative
transactions, has purchased various assets in the market,
and has carried out various asset securitisations and a
Collateralised Loan Obligation issue.
Notes to the financial statements
NOTE 14 Credit Risk Management
The Group has clearly defined credit policies for the
risk. Credit
approval and management of credit
incorporate
underwriting
income/repayment capacity, acceptable
terms and
security and loan documentation tests exist for all major
lending areas.
standards,
which
The Group relies, in the first instance, on the
assessed integrity and ability of the debtor or counterparty
to meet its contracted financial obligations for repayment.
Collateral security, in the form of real property or a floating
charge is generally taken for business credit except for
major government, bank and corporate counterparties of
strong financial standing. Longer term consumer finance is
generally secured against real estate while short term
revolving consumer credit is generally unsecured.
The credit risk portfolio is divided into two segments,
statistically managed and credit risk rated.
Statistically managed exposures generally comprise
facilities of less than $250,000 for housing loan, credit
card, personal loan and some leasing products. These
exposures are generally not individually reviewed unless
arrears occur. The portfolios are reviewed by the business
Credit Support and Monitoring unit with an overview by the
Risk Asset Review unit.
in
for
Facilities
the statistically managed segment
remedial management by
become classified
centralised units based on arrears status. Impaired assets
in this segment are those ‘classified’ facilities that are not
well secured and past due 180 days or more. Most of
these facilities are written off immediately on becoming
past due 180 days or more.
Credit risk rated exposures generally comprise
business and corporate exposures, including bank and
government exposures. Each exposure is assigned an
internal risk rating that is based on an assessment of the
risk of default and the risk of loss in the event of default.
Credit risk rated exposures are generally required to be
reviewed at
they are small
transactions that are managed on a behavioural basis
after their initial rating at origination. 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.
least annually, unless
88
Notes to the financial statements
NOTE 14 Credit Risk Management 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 1999, 2000, 2001, 2002 and
2003. The industry profile of the loans, advances and other receivables content for the five financial years to 30 June 2003 is
shown on page 95.
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 (2)
Construction (3)
Personal
Lease financing
Other commercial and industrial
Total Overseas
Total Gross Credit Risk
Less unearned income
Total Credit Risk
Charge for Bad and Doubtful Debts
Loss Rate (1)
2003
$M
5,810
5,100
19,867
91,956
2,722
12,327
5,264
51,469
194,515
1,709
2,278
14,828
13,428
210
1,391
197
9,080
43,121
237,636
(1,310)
236,326
305
0.13%
2002
$M
5,955
5,480
20,926
85,032
3,837
11,718
5,425
43,531
181,904
1,390
1,863
14,192
10,735
185
343
256
10,173
39,137
221,041
(1,219)
219,822
449
0.20%
2001
$M
6,012
6,308
22,490
73,800
4,547
10,979
6,628
42,893
173,657
385
1,564
11,897
8,085
198
449
146
10,359
33,083
206,740
(1,343)
205,397
385
0.19%
GROUP
At 30 June
1999
$M
6,162
5,303
15,430
49,150
3,830
10,688
3,100
34,955
128,618
493
833
5,631
7,152
579
542
191
7,945
23,366
151,984
(1,169)
150,815
247
0.16%
2000
$M
6,195
6,141
20,908
63,696
4,205
12,911
6,937
47,297
168,290
1,152
1,017
8,008
7,268
152
1,487
217
10,300
29,601
197,891
(1,465)
196,426
196
0.11%
(1)
(2)
(3)
The loss rate is the charge as a percentage of the credit risk.
Principally owner occupied housing.
Primarily financing real estate and land development projects.
The Group has a good quality and well diversified credit portfolio in Australia, with 47.3% of the exposure in mortgage
loans and a further 10.2% in finance, investment and insurance (primarily banks). 18.1% of exposure is overseas, of which
31.1% is in mortgage loans. Overall over 63% of individually rated exposures in the commercial portfolio (including
government and finance) are of investment grade or equivalent quality.
89
Notes to the financial statements
NOTE 14 Credit Risk Management continued
The following table sets out the Group’s credit risk by industry and asset class at 30 June 2003.
Trading Investment
Loans
Advances
and Other Acceptances Contingent
Bank
Industry
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 Balances
Other Risk Concentrations
Receivables due from other
financial institutions
Deposits with regulatory authorities
Total Gross Credit Risk
Securities Securities Receivables of Customers Liabilities Derivatives
$M
$M
$M
$M
$M
$M
Total
$M
1,703
1,995
- -
3,089 -
1,505
3,677
2,024
2
1,281
699
494
74
1,766
111
68
5,810
5,100
8,964 16,542
- -
- -
- -
-
-
2,346
1,542
4,341
6,334
1,701
11,972
87,592 -
387
263
4,364 (3)
420
90
5,264 - -
4,499
10,490
11,707
13,122
26,449
140,184
698
582
- -
3,143
1,135
222 -
148
2,278 - -
1,773
3,210
62
- -
- -
- -
- -
2,970
6,695
11,036
2,268
4,101
10,435
12,611 -
209 -
817
-
1,391 - -
197 - -
662
3,400
15,107
13
75
13,197
2,959
23,077
163,261
-
214
91,956
2,722
2 12,327
5,264
-
6,143 51,469
15,502 191,190
36
-
1,686
2,278
1,764 11,087
-
1
-
-
208
13,428
210
1,391
197
9,080
2,009 39,357
17,511 230,547
7,066
23
237,636
(1)
(2)
(3)
Principally owner occupied housing.
Primarily financing real estate and land development projects.
A review of policy occurred in the year ended 30 June 2003. Amounts available for redraw now attract a credit equivalent factor of 0%
(100% in 2002). Under this policy the 2002 credit equivalent balance would be reduced by $4,542 million.
Risk concentrations for contingent liabilities and derivatives are based on the credit equivalent balance in Note 38,
Contingent Liabilities and Note 39, Market Risk respectively.
90
Notes to the financial statements
NOTE 14 Credit Risk Management continued
The following table sets out the Group’s credit risk by industry and asset class as at 30 June 2002.
Trading Investment
Loans
Advances
and Other Acceptances Contingent
Bank
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 (1)
Construction (2)
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
Securities
$M
Securities Receivables of Customers
$M
$M
$M
Liabilities Derivatives
$M
$M
Total
$M
270
-
3,418
2,049
-
474
2,466
3,893
1,435
359
1,346
2,875
353
76
2,622
458
165
5,955
5,480
5,769 16,593
-
-
-
-
1,876
5,564
-
-
-
-
1,546
4,069
75,394
2,182
11,488
131
1,203
162
5,425 -
6,373
12,449
26,866
129,149
9,507
193
41
-
2,869
15,661
259
- 85,032
3,837
27 11,718
5,425
4,001 43,531
10,679 177,571
-
168
-
1,127
917
-
2,540
204 -
1,863 -
68
3,035
11
-
1,364
1
-
1,301
1,863
2,663 10,797
-
-
-
-
1,530
2,825
8,389
-
-
-
-
3,240
6,697
10,766
10,444 -
185 -
337 -
256 -
4,573 -
68
12,517
20,897
150,046
291
-
6
-
655
2,327
17,988
- 10,735
185
-
343
-
256
-
175 10,173
2,839 35,653
13,518 213,224
7,728
89
221,041
(1)
(2)
Principally owner occupied housing.
Primarily financing real estate and land development projects.
91
Notes to the financial statements
NOTE 14 Credit Risk Management continued
Impaired Assets by Industry and Status
The following table sets out the Group’s impaired asset position by industry and status as at 30 June 2003.
Industry
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 Balances
Receivables due from other financial
institutions
Deposits with regulatory authorities
Total Gross Credit Risk
Total
Risk
$M
Impaired Provisions for
Assets
$M
Impairment Write-offs Recoveries
$M
$M
$M
Net
Write-offs
$M
5,810 -
19
5,100
6
16,542
-
3
2
-
4
26
-
(1)
(4)
-
3
22
91,956 -
2,722
12,327
5,264
51,469
191,190
6
5 -
36
4
112
163
11
12
492
545
-
209
11
171
429
8 -
-
(38)
(2)
(12)
(57)
8
-
171
9
159
372
1,686
46
2,278 -
11,087
5 -
10 -
1 -
16
-
-
(1)
-
-
15
1,391
13,428 -
210 -
1
197 -
68
120
665
9,080
39,357
230,547
7
-
4
-
20
42
205
-
7
-
1
26
455
2 -
-
(4)
-
(12)
(17)
(74)
2
-
3
-
(11)
9
381
7,066
23
237,636
(1)
(2)
Principally owner occupied housing.
Primarily financing real estate and land development projects.
92
Notes to the financial statements
NOTE 14 Credit Risk Management continued
The following table sets out the Group’s impaired asset position by industry and status as at 30 June 2002.
Industry
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 Balances
Receivables due from other financial
institutions
Deposits with regulatory authorities
Total Gross Credit Risk
Total
Risk
$M
Impaired
Assets
$M
Provisions for
Impairment
$M
Write-offs
$M
Net
Recoveries Write-offs
$M
$M
5,955 -
40
5,480
53
16,593
-
10
26
-
-
6
(1)
6 -
85,032 -
16
21
19
583
732
3,837
11,718
5,425
43,531
177,571
6
4
35
6
134
221
177
11
(1)
4 -
(30)
18 -
(17)
(49)
178
400
1,301
55
1,863 -
43
10,797
11
-
12
-
58
1 -
-
(1)
10,735 -
185 -
1
343
256 -
112
211
943
10,173
35,653
213,224
3
-
3
-
20
49
270
7,728
89
221,041
-
-
35
102
502
2 -
(3)
6 -
-
(3)
(7)
(56)
-
5
6
10
4
147
18
161
351
1
-
57
2
(3)
6
-
32
95
446
(1)
(2)
Principally owner occupied housing.
Primarily financing real estate and land development projects.
Large Exposures
Concentration of exposure
to any debtor or
counterparty group is controlled by a 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 counterparty group 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
2003
Number
-
-
2002
Number
-
1
2001
Number
-
2
2000
Number
-
1
1999
Number
1
7
93
Notes to the financial statements
NOTE 14 Credit Risk Management continued
Credit Portfolio Receivables by Industry
The following table sets out the distribution of the Group’s loans, advances and other receivables (excluding bank
acceptances) by industry at 30 June 1999, 2000, 2001, 2002 and 2003.
Industry
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
2003
$M
1,505
3,677
2,024
87,592
1,701
11,972
5,264
26,449
140,184
222
2,278
3,210
12,611
209
1,391
197
2,959
23,077
2002
$M
2,466
3,893
1,435
75,394
2,182
11,488
5,425
26,866
129,149
204
1,863
3,035
10,444
185
337
256
4,573
20,897
2001
$M
1,655
4,734
4,670
65,466
2,548
10,576
6,628
25,782
122,059
165
1,258
2,824
8,045
177
440
146
4,081
17,136
2000
$M
1,681
4,686
5,167
63,471
2,627
11,759
6,937
23,603
119,931
204
996
2,278
7,266
152
1,470
217
3,254
15,837
At 30 June
1999
$M
1,727
4,203
4,048
45,495
2,105
10,144
3,100
20,253
91,075
157
833
1,507
7,151
427
539
191
2,686
13,491
163,261
150,046
139,195
135,768
104,566
(2,914)
(2,972)
(3,136)
(3,504)
(2,729)
160,347
147,074
136,059
132,264
101,837
(1)
(2)
Principally owner occupied housing.
Primarily financing real estate and land development projects.
94
Notes to the financial statements
NOTE 15 Asset Quality
Impaired Assets
The Group adopted
for
the Australian disclosure
requirements
in
AASB 1032: Specific Disclosures by Financial Institutions
with Effect from Financial Year 1997.
contained
impaired
assets
There are three classifications of impaired assets:
(a) Non accruals, comprising:
(cid:1)
(cid:1)
(cid:1)
Any credit risk facility against which a specific
provision for impairment has been raised;
Any credit risk facility maintained on a cash basis
because of significant deterioration in the financial
position of the borrower; and
Any credit risk facility where loss of principal or
interest is anticipated.
All interest charged in the relevant 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 then only taken to profit if
received in cash.
(b) Restructured Facilities, comprising:
(cid:1)
Credit risk facilities on which the original contractual
terms have been modified due to financial difficulties
of the borrower. Interest on these facilities is taken
to profit and loss. Failure to comply fully with the
modified
immediate
reclassification to non accrual.
terms will
result
in
(c) Assets Acquired Through Security Enforcement
(cid:1)
(cid:1)
(AATSE), comprising:
Other Real Estate Owned (OREO), comprising real
estate where the Group has assumed ownership or
foreclosed in settlement of a debt; and
Other
Security
Enforcement (OAATSE), comprising assets other
than real estate where the Group has assumed
ownership or foreclosed in settlement of a debt.
Acquired
Through
Assets
Impaired Asset Ratios
Gross impaired assets net of interest reserved as % of risk weighted assets
Net impaired assets as % of:
Risk weighted assets
Total shareholders' equity
Accounting by Creditors for Impairment of Loans
(US GAAP Definitions)
Impaired Loans (non accrual)
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
2003
%
0.44
0.30
1.96
2003
$M
651
530
159
121
786
30
2002
%
0.63
0.44
2.92
GROUP
2001
%
0.47
0.30
2.09
GROUP
Year Ended 30 June
2001
$M
2002
$M
920
673
225
247
810
30
699
514
203
185
911
51
95
Notes to the financial statements
NOTE 15 Asset Quality continued
Impaired Assets
The following table sets forth the Group’s impaired assets as at 30 June 1999, 2000, 2001, 2002 and 2003.
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
Assets Acquired Through Security
Enforcement (AATSE):
Gross balances
Less provisions for impairment
Net AATSE
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
Asset Acquired Through
Security Enforcement (AATSE)
Gross balances
Less provisions for impairment
Net AATSE
Net overseas impaired assets
Total Net Impaired Assets
2003
$M
545
(25)
520
(163)
357
2002
$M
732
(54)
678
(221)
457
2001
$M
518
(63)
455
(154)
301
GROUP
At 30 June
1999
$M
495
(66)
429
(178)
251
2000
$M
722
(128)
594
(205)
389
- -
1
- - - - -
1
- -
- - - - -
1
- -
1
1
1
1
1
1
- - -
1 -
- - - - -
1 -
- - -
252
302
391
357
457
120
(1)
119
(42)
77
211
(5)
206
(49)
157
197
(5)
192
(79)
113
410
(3)
407
(226)
181
147
(2)
145
(97)
48
- - - - -
- - - - -
- - - - -
- - - - -
- - - - -
- -
1
1
14
- -
- - - -
181
572
(1) -
14
62
314
77
434
157
614
113
415
(1)
96
Notes to the financial statements
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 1999,
2000, 2001, 2002 and 2003.
Gross Impaired Assets
Gross impaired assets at period beginning
New and increased
Balances written off
Returned to performing or repaid
Colonial impaired assets
Gross Impaired Assets at Period End
2003
$M
943
617
(456)
(439)
2002
$M
717
1,069
(481)
(362)
2001
$M
1,135
707
(666)
(459)
665
-
665
943
-
943
717
-
717
Loans Accruing But Past Due 90 Days or More
Housing loans
Other loans
Total
Interest income Forgone on Impaired Assets
Australia non accrual facilities
Overseas non accrual facilities
Total
2003
$M
157
91
248
2003
$M
15
3
18
2002
$M
176
73
249
2002
$M
21
7
28
2001
$M
218
90
308
2001
$M
8
8
16
Interest Taken to Profit on Impaired Assets
2003
$M
2002
$M
2001
$M
GROUP
Year Ended 30 June
1999
$M
2000
$M
657
414
(226)
(194)
651
484
1,135
926
415
(280)
(404)
657
-
657
GROUP
At 30 June
1999
$M
182
23
205
2000
$M
211
64
275
GROUP
Year Ended 30 June
1999
$M
17
10
27
2000(1)
$M
4
5
9
GROUP
Year Ended 30 June
1999
$M
2000 (1)
$M
33
- - -
45
37
14
6 -
- - -
33
51
51
Australia
Non accrual facilities
Restructured facilities
Overseas
Non accrual facilities
Other real estate owned
Total
(1) Excluding Colonial
26
-
27
-
4
-
30
3
-
30
97
Notes to the financial statements
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
Accruing Loans 90 days past due or more (1)
Australia Overseas
2003
$M
2003
$M
431
114
545
(25)
520
(163)
357
113
7
120
(1)
119
(42)
77
GROUP
Total
2003
$M
544
121
665
(26)
639
(205)
434
Australia Overseas
2002
$M
2002
$M
572
160
732
(54)
678
(221)
457
124
87
211
(5)
206
(49)
157
GROUP
Total
2002
$M
696
247
943
(59)
884
(270)
614
-
-
-
-
-
-
-
-
-
-
-
545
(25)
520
(163)
357
158
138
249
545
227
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
120
(1)
119
(42)
77
1
6
113
120
21
665
(26)
639
(205)
434
159
144
362
665
248
732
(54)
678
(221)
457
170
193
369
732
235
211
(5)
206
(49)
157
2
16
193
211
14
943
(59)
884
(270)
614
172
209
562
943
249
(1)
These are loans that 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.
98
Notes to the financial statements
NOTE 15 Asset Quality continued
Colonial State Bank
Indemnified Loan Book
Pursuant to the Sale Agreement between Colonial
and the New South Wales Government, Colonial State
Bank’s loan book as at 31 December 1994 and any further
loan losses (including interest) arising are indemnified by
the NSW Government. This indemnity is to the extent of
90% of the losses after an initial $60 million (which was
provided for by Colonial State Bank as at 31 December
1994). All loans (other than impaired loans) were covered
for a period of three years from 31 December 1994 and for
the duration of the loan in the case of impaired loans so
classified as at 31 December 1997. The sale agreement
also allows for loans to be withdrawn from the indemnity
provided the withdrawal is approved by Colonial State
Bank and the NSW Government and the due processes
are followed.
Pursuant to the sale agreement, the costs of funding
and managing non-performing loans that are covered by
the NSW
indemnities are reimbursed by
the
Government on a quarterly basis.
loan
Selected Regional Exposures
Asia
Over 61% of total exposures relate to financial
institutions. Exposures to Indonesia, Thailand and Korea
represent approximately 17% of the Group’s Asian credit
risk.
The Group’s credit risk exposure to Asian countries as at 30 June 2003 is set out below. The exposures exclude Group
equity investments.
Asian Exposures
Country
Finance
CUSTOMER TYPE
Corporate/ Government
Project
Finance(2)
Multinational
$M
$M
$M
36 - -
314 - -
350 - -
572
16
321
132
20
87
22 -
50 -
74 -
52 -
- -
1 - -
176 -
240
7
41
71
119
709
46
64
316 -
18 -
64
64
380
556
$M
129
1,364
1,493
1
932
7
120
2
129
2,554
APL/NZPL
$M
-
200
200
5
1
38
-
-
44
13
-
-
13
257
China
Hong Kong
Japan
Malaysia
Singapore
Taiwan
Other
Indonesia
South Korea
Thailand
Total
Other Regional Exposures
Region
Finance
Corporate/ Government
CUSTOMER TYPE
Eastern Europe
Latin America
Middle East
$M
-
-
50
Multinational
$M
$M
Project
Finance(2)
$M
APL/NZPL
$M
2003
Total
Exposure(1)
$M
-
-
-
-
6 -
-
-
-
-
-
-
-
-
56
(1)
(2)
Total Exposure - The maximum of the limit or balance utilised for committed facilities, whichever is highest, and the balance utilised for
uncommitted facilities. For derivative facilities, balances are reported on a ‘mark to market plus potential exposure basis.
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.
99
2003
Total
Exposure(1)
$M
165
1,878
2,043
GROUP
2002
Total
Exposure
$M
162
1,558
1,720
759
111
498
22
2
1,392
137
477
91
705
4,140
785
150
612
4
4
1,555
230
534
110
874
4,149
GROUP
2002
Total
Exposure
$M
1
-
116
Notes to the financial statements
NOTE 16 Life Insurance Investment Assets
Equity Security Investments
Direct
Indirect
Debt Security Investments
Direct
Indirect
Property Investments
Direct
Indirect
Other Assets
Total Life Insurance Investment Assets
the
the
issuer of
investment.
Direct investments refer to investments that are
directly with
Indirect
investments refer to investments that are held through unit
investment vehicles. Prior year
trusts or similar
classifications between direct and indirect have been
restated to conform with the basis of current year
disclosure.
Disclosure on Asset Restriction
Investments held in the statutory funds can only be
used within the restrictions imposed under the Life
Insurance Act 1995.
2003
$M
3,559
8,476
12,035
3,574
8,529
12,103
80
2,151
2,231
1,466
27,835
GROUP
2002
$M
3,913
8,542
12,455
4,042
10,204
14,246
283
2,141
2,424
984
30,109
The main restrictions are that assets in a fund can
only be used to meet the liabilities and expense of the
fund, to acquire investments to further the business of the
fund or as distributions when solvency and capital
adequacy requirements are met.
Participating policyholders can receive a distribution
when solvency requirements are met, whilst shareholders
can only receive a distribution when the higher level of
capital adequacy requirements are met.
These investment assets held in the statutory funds
are not available for use by the Commonwealth Bank’s
operating businesses.
NOTE 17 Deposits with Regulatory Authorities
Central banks overseas
Total Deposits with Regulatory Authorities
2003
$M
23
23
GROUP
2002
$M
89
89
NOTE 18 Shares in and Loans to Controlled Entities
Shares in controlled entities
Loans to controlled entities
Total Shares in and Loans to Controlled Entities
2003
$M
-
-
-
GROUP
2002
$M
-
-
-
2003
$M
2
2
2003
$M
11,772
11,787
23,559
BANK
2002
$M
54
54
BANK
2002
$M
10,545
11,324
21,869
100
Notes to the financial statements
NOTE 19 Property, Plant and Equipment
(a) Land and Buildings
Land
At 30 June 2003 valuation
At 30 June 2002 valuation
Closing Balance
Buildings
At 30 June 2003 valuation
At 30 June 2002 valuation
Closing Balance
Total Land and Buildings
2003
$M
GROUP
2002
$M
2003
$M
BANK
2002
$M
141 -
302 -
129
160 -
129
160
233
358 -
233
358
362
518
-
149
149
-
276
276
425
-
141
-
302
443
These valuations were established by the Directors and are lower than valuations prepared by independent valuers. This
valuation process is conducted on an annual basis.
(b) Leasehold Improvements
At cost
Provision for depreciation
Closing Balance
(c) Equipment
At cost
Provision for depreciation
Closing Balance
Total Property, Plant and Equipment
Reconciliation
579
(351)
228
557
(407)
150
821
2003
$M
531
(326)
205
580
(441)
139
862
GROUP
2002
$M
458
(283)
175
279
(208)
71
608
2003
$M
436
(278)
158
318
(260)
58
641
BANK
2002
$M
Reconciliation of the carrying amount of property, plant and equipment at the beginning and end of the 2003 and 2002
financial years.
Land
Opening balance
Disposals
Net revaluations
Closing balance
Buildings
Opening balance
Acquisitions
Disposals
Depreciation
Closing balance
Leasehold Improvements
Opening balance
Acquisitions
Disposals
Transfers
Depreciation
Closing balance
Equipment
Opening balance
Acquisitions
Disposals
Depreciation
Closing balance
160
(19)
-
141
191
(30)
(1)
160
149
(20)
-
129
179
(30)
-
149
358
1
(33)
(24)
302
389
29
(34)
(26)
358
276
1
(24)
(20)
233
312
19
(32)
(23)
276
205
78
(4)
-
(51)
228
139
64
-
(53)
150
101
169
84
(6)
158
62
(4)
5 -
(41)
175
(47)
205
137
62
(4)
-
(37)
158
170
51
(27)
(55)
139
58
35
-
(22)
71
60
25
(1)
(26)
58
Notes to the financial statements
NOTE 20 Intangible Assets
Purchased goodwill - Colonial
Purchased goodwill - other
Realisation of life insurance synergy benefits
Accumulated amortisation
Total Intangibles
2003
$M
5,591
1,155
(332)
(1,385)
5,029
GROUP
2002
$M
5,662
1,125
(332)
(1,064)
5,391
2003
$M
2,671
835
-
(798)
2,708
BANK
2002
$M
2,742
835
-
(612)
2,965
Acquisition of TD Waterhouse
Segment Allocation of Goodwill
On 1 May 2003, the Group acquired a 100% interest
in TD Waterhouse Australian stockbroking operations.
Consideration of $27 million cash was paid for net
liabilities of $3 million resulting in goodwill recognised on
acquisition of $30 million. The goodwill will be amortised
over a period of 10 years, representing the assessed life
of the ongoing business.
Commonwealth Bank Foundation
On 31 December 2002, under the trust deed of the
Colonial Foundation Trust, the Group became entitled to
half of the assets of the Transitional Fund of the Colonial
Foundation Trust. A net amount of $71 million has been
recognised as an investment in the Commonwealth Bank
Foundation, with goodwill paid on the Colonial merger
being reduced also by $71 million. There is no effect on
profit for the year. The Commonwealth Bank Foundation
has been established to encourage developments in
education.
In recognition of the disclosure requirements of US
SFAS 141: Business Combinations and the proposals of
Australian ED 109 Intangible Assets, the Group’s carrying
amount of goodwill at 30 June 2003 is disclosed for each
segment of business.
Segment
Banking(1)
Funds Management(2)
Life Insurance(2)
Total
$M
4,681
270
78
5,029
(1)
(2)
The allocation to banking includes goodwill related to the
acquisitions of Colonial, State Bank of Victoria and 25% of
ASB Bank.
The allocation to funds management and life insurance
principally relates to the goodwill on acquisition of Colonial.
Additional to the Colonial goodwill acquired, $2,548
million in excess of net market value over net assets of life
insurance controlled entities was booked at acquisition of
the Colonial
insurance
funds management and
businesses in June 2000.
life
102
Notes to the financial statements
NOTE 21 Other Assets
Accrued interest receivable
Shares in other companies
Accrued fees/reimbursements receivable
Securities sold not delivered
Future income tax benefits
Excess of net market value over net assets of life
insurance controlled entities
Excess related to outside equity interests (1)
Unrealised gains on trading derivatives (Note 39)
Other
Total Other Assets
2003
$M
1,023
145
492
727
525
GROUP
2002
$M
945
69
398
1,138
625
2003
$M
1,239
50
268
500
312
BANK
2002
$M
966
40
411
961
309
5,540
111
13,907
989
23,459
5,656
-
10,336
1,199
20,366
-
-
13,908
471
16,748
-
-
10,196
525
13,408
(1)
This is an outside equity interest in a funds management business acquired during the year, and is not included in the revaluation in Note
34 Life Insurance Business.
Excess of net market value over net assets of controlled entities of the life insurance businesses:
GROUP
At 30 June 2003
Excess of
Market Value
Over Net Assets
$M
5,071
469
5,540
GROUP
At 30 June 2002
Excess of
Market Value
Over Net Assets
$M
5,210
446
5,656
Net
Assets
$M
2,626
380
3,006
Net
Assets
$M
2,623
301
2,924
Market
Value
$M
7,697
849
8,546
Market
Value
$M
7,833
747
8,580
Potential future income tax benefits of the Company
arising from tax losses and timing differences in offshore
centres have not been recognised as assets because
recovery is not virtually certain. These benefits, which
could amount to $142 million (2002: $168 million), will only
be obtained if:
(cid:1)
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
the
conditions for deductibility imposed by tax legislation;
and
to comply with
(cid:1) No changes in tax legislation adversely affect the
Company in realising the benefit from the deductions
for the losses.
(cid:1)
Commonwealth and Colonial entities
ASB entities
Commonwealth and Colonial entities
ASB entities
Excess of Net Market Value Over Net Tangible
Assets of Life Insurance Controlled Entities.
An internal group restructuring of Colonial’s life and
funds management businesses was completed in June
2000, whereby all these businesses, except for some
Asian businesses, were transferred to The Colonial Mutual
Life Assurance Society Limited (CMLA), a life insurance
controlled entity. These life and funds management
businesses are valued at market value by CMLA.
Consistent with the principles of market value accounting,
as specified by AASB 1038: Life Insurance Business, the
above resulting excess of net market value over net
tangible assets of life insurance controlled entities is not
funds management
amortised. The CFS Property
business was transferred under CMLA in June 2002.
103
Notes to the financial statements
NOTE 22 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 and short sales
Total Australia
Overseas
Certificates of deposit
Term deposits
On demand and short term deposits
Deposits not bearing interest
Securities sold under agreements to repurchase and short sales
Total Overseas
Total Deposits and Other Public Borrowings
2003
$M
11,228
32,398
68,507
5,001
3,231
120,365
2,900
10,326
5,871
921
591
20,609
140,974
GROUP
2002
$M
15,832
28,991
63,844
6,072
757
115,496
2,258
9,035
5,185
806
20
17,304
132,800
2003
$M
11,228
30,448
68,932
5,031
3,232
118,871
1,130
2,295
59
7
584
4,075
122,946
BANK
2002
$M
15,832
26,708
64,038
6,169
753
113,500
904
2,455
16
5
18
3,398
116,898
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 2003.
GROUP
At 30 June 2003
Maturing
Between
Six &
Twelve
Months
$M
Maturing
After
Twelve
Months
$M
723
3,570
4,293
123
627
750
5,043
2,729
2,353
5,082
2
519
521
5,603
Total
$M
11,228
32,398
43,626
2,900
10,326
13,226
56,852
Maturing
Three
Maturing
Between
Months or Three & Six
Months
$M
Less
$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
5,907
20,447
26,354
1,957
7,807
9,764
36,118
1,869
6,028
7,897
818
1,373
2,191
10,088
(1)
All certificates of deposit issued by the Bank are for amounts greater than $100,000.
104
Notes to the financial statements
NOTE 23 Payables to Other Financial Institutions
Australia
Overseas
Total Payables to Other Financial Institutions
NOTE 24 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
2003
$M
2,527
5,011
7,538
2003
$M
433
414
847
GROUP
2002
$M
3,153
4,711
7,864
GROUP
2002
$M
695
540
1,235
2003
$M
2,527
4,977
7,504
2003
$M
355
162
517
BANK
2002
$M
3,255
4,629
7,884
BANK
2002
$M
490
152
642
29
-
29
876
1
10
40 -
10
41
527
1,276
12
-
12
654
105
Notes to the financial statements
NOTE 25 Other Provisions
Long service leave
Annual leave
Other employee entitlements
Restructuring costs
General insurance claims
Self insurance/non lending losses
Other
Total Other Provisions
Restructuring costs:
Opening balance
Additional provision
Amounts utilised during the year
Closing Balance
General insurance claims:
Opening balance
Additional provision
Amounts utilised during the year
Closing Balance
Self insurance/non lending losses:
Opening balance
Additional provision
Amounts utilised during the year
Closing Balance
Other:
Opening balance
Additional provision
Amounts utilised during the year
Foreign exchange translation adjustment
Closing Balance
GROUP
2003
2002
$M
$M
294
302
127
163
116
139
35
29
63 -
55
55
63
77
684
834
BANK
2002
$M
299
149
139
21
-
53
30
691
BANK
2003
$M
21
20
(12)
29
-
-
-
-
53
12
(10)
55
30
39
(6)
-
63
2003
$M
300
143
117
30
66
56
107
819
GROUP
2003
$M
35
20
(25)
30
63
75
(72)
66
55
11
(10)
56
77
51
(18)
(3)
107
106
Notes to the financial statements
NOTE 26 Debt Issues
Short term debt issues
Long term debt issues
Total Debt Issues
2003
$M
17,255
13,374
30,629
GROUP
2002
$M
14,718
8,857
23,575
2003
$M
6,577
10,107
16,684
BANK
2002
$M
4,127
7,626
11,753
Short Term Debt Issues
AUD bill reliquification
AUD promissory notes
AUD bank bills
US commercial paper
Euro commercial paper
Long term debt issues with less than one year to maturity
Total short term debt issues
-
1,643
777
6,163
5,738
2,934
17,255
72 -
1,533 -
1,217 -
6,082 -
3,842
2,651
2,735
3,163
6,577
14,718
72
-
-
-
1,041
3,014
4,127
Long Term Debt Issues
USD medium term notes
AUD medium term notes
JPY medium term notes
GBP medium term notes
Other currencies medium term notes
Offshore loans (all JPY)
Eurobonds
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
The Bank has a Euro Medium Term Note
programme under which it may issue notes (Euro MTN’s)
up to an aggregate amount of USD10 billion. Notes issued
under the programme are both fixed and variable rate.
Interest rate risk associated with the notes is incorporated
within the Bank’s interest rate risk framework.
(cid:1)
(cid:1)
(cid:1)
Subsequent to 30 June 2003, the Bank has issued:
USD medium term notes: 3 months to 12 months –
USD5 million (AUD8 million); between 1 and 5 years
USD45 million (AUD67 million); greater than 5 years
– USD990 million (AUD1,483 million)
HKD medium term notes: between 1 and 5 years –
HKD650 million (AUD125 million)
JPY medium term notes: greater than 5 years –
JPY4.3 billion (AUD54 million)
4,517
3,510
414
1,799
2,752
187
195
13,374
13,348
3,907
10,426
2,948
30,629
3,659
4,517
1,601
2,307
900
414
14
-
1,389
2,682
187
680
614 -
10,107
8,857
10,340
4,378
8,149
708
23,575
3,994
2,696
7,958
2,036
16,684
3,426
1,168
529
14
1,389
680
420
7,626
1,453
2,674
7,112
514
11,753
Where any debt issue is booked in an offshore
branch or subsidiary,
first been
converted into the base currency of the branch at a branch
defined exchange rate, before being converted into the
AUD equivalent.
the amounts have
Where proceeds have been employed in currencies
other than that of the ultimate repayment liability, swap or
other hedge arrangements have been entered into.
107
Notes to the financial statements
NOTE 26 Debt Issues continued
Short Term Borrowings
The following table analyses the Group’s short term borrowings for the financial years ended 30 June 2001, 2002 and
2003.
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
Bill Reliquification (3)
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
GROUP
Year Ended 30 June
2001
2002
2003
(AUD millions, except where indicated)
6,111
6,082
6,163
7,850
7,158
8,973
6,571
6,173
5,890
1.4%
1.2%
5,738
5,990
3,132
1.3%
1.1%
-
250
23
4.9%
-
2,420
3,066
2,476
3.7%
3.9%
2.3%
1.8%
2,651
3,805
2,883
1.2%
0.9%
72
564
268
4.8%
5.0%
2,750
3,455
2,912
4.5%
5.3%
5.6%
4.0%
4,200
5,579
4,533
4.3%
2.3%
639
2,180
1,097
6.0%
5.0%
3,829
5,117
3,637
5.7%
5.0%
(1)
(2)
(3)
The amount outstanding at period end is reported on a book value basis (amortised cost).
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. Any difference between face value and book value would not be material given the short term nature of the borrowings.
Commercial bills sold under non recourse arrangements.
Exchange Rates Utilised
As at
AUD1.00 =
USD
GBP
JPY
NZD
HKD
DEM
CHF
IDR
THB
FJD
PHP
EUR
30 June 2003
0.6677
0.4043
80.036
1.145
5.207
1.143
0.9037
5,528
28.051
1.250
35.737
0.5842
30 June 2002
0.5639
0.3694
67.450
1.155
4.399
1.116
0.840
4,919
23.437
1.188
28.456
0.5706
108
Notes to the financial statements
NOTE 26 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
the
Commonwealth of Australia’s shareholding in the Bank on
19 July 1996.
the sale of
following
The transitional arrangements for phasing out the
Commonwealth of Australia’s guarantee are contained in
the Commonwealth Bank Sale Act 1995.
In relation to the Commonwealth of Australia’s
transitional
the Bank’s
liabilities,
guarantee
of
arrangements provided that:
(cid:1)
(cid:1)
All demand deposits and
term deposits were
guaranteed for a period of three years from 19 July
1996, 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, or under an instrument executed,
issued, endorsed or accepted by the Bank at 19 July
1996 will be guaranteed until their maturity.
Accordingly, demand deposits are no
longer
guaranteed. Term deposits outstanding at 19 July 1999
remain guaranteed until maturity. The run-off of the
Government guarantee has no effect on the Bank’s
access to deposit markets.
Commonwealth Development Bank
On 24 July 1996, the Commonwealth of Australia
sold
the Commonwealth
its 8.1% shareholding
Development Bank Limited (CDBL) to the Bank for
$12.5 million.
in
Under the arrangements relating to the purchase by
the Commonwealth of Australia’s
the Bank of
shareholding in the CDBL:
(cid:1)
All lending assets as at 30 June 1996 have been
quarantined in CDBL, consistent with the charter
terms on which they were written;
(cid:1)
(cid:1)
The CDBL’s liabilities continue to remain 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 CDBL is
guaranteed by the Commonwealth of Australia under
Section 117 of the Commonwealth Banks Act 1959 (as
amended). This guarantee will continue to be provided by
the Commonwealth whilst quarantined assets are held.
The value of the liabilities under the guarantee will
diminish as quarantined assets reach maturity and are
repaid.
State Bank of NSW (known as Colonial State Bank)
The enabling legislation for the sale of the State
Bank of New South Wales Limited (SBNSW), the State
Bank (Privatisation) Act 1994 – Section 12 and the State
Bank
(Corporatisation) Act 1989 – Section 12
(as amended), provides in general terms for a guarantee
by the NSW Government in respect of all funding liabilities
and off balance sheet products (other than demand
deposits) incurred or issued prior to 31 December 1997 by
SBNSW until maturity and a guarantee for demand
deposits accepted by SBNSW up to 31 December 1997.
Other obligations incurred before 31 December 1994 are
also guaranteed to their maturity. On 4 June 2001
Commonwealth Bank of Australia became the successor
in law to SBNSW pursuant to the Financial Sector
Transfers of Business Act 1999. The NSW Government
guarantee of the liabilities and products as described
above continues unchanged by the succession.
NOTE 27 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 39)
Other liabilities
Total Bills Payable and Other Liabilities
2003
$M
993
991
740
699
13,528
2,076
19,027
GROUP
2002
$M
892
944
734
1,548
10,226
2,998
17,342
2003
$M
874
842
567
479
13,502
1,192
17,456
BANK
2002
$M
857
754
640
1,385
10,062
2,207
15,905
109
Notes to the financial statements
NOTE 28 Loan Capital
Currency
Amount (M)
2003
$M
2002
$M
GROUP
2001
$M
2003
$M
2002
$M
BANK
2001
$M
Tier 1 Capital
Exchangeable
Exchangeable
Undated
Tier 2 Capital
Extendible
Extendible
Subordinated
Subordinated
Subordinated
Subordinated
Subordinated
Subordinated
Subordinated
Subordinated
Subordinated
Subordinated
Subordinated
Subordinated
Subordinated
Subordinated
Subordinated
Subordinated
Subordinated
Subordinated
Subordinated
Subordinated
Subordinated
FRNs
FRNs
FRNs
USD300
USD400
USD100
FRNs
FRNs
MTNs
FRNs
FRNs
MTNs
FRNs
Notes
FRNs
EMTNs
EMTNs
EMTNs
EMTNs
EMTNs
EMTNs
EMTNs
Loan
FRNs
FRNs
Notes
Other
Notes
EMTN
AUD25
AUD275
AUD185
AUD115
AUD25
AUD200
AUD50
USD300
USD450
JPY20,000
USD200
USD75
USD100
USD400
GBP200
JPY30,000
NZD100
AUD210
AUD38
AUD130
AUD35
USD350
GBP150
(1)
(2)
(3)
(4)
(4)
(5)
(5)
(6)
(7)
(7)
(8)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
59
142
150
351
25
275
185
115
25
199
50
549
672
248
313
115
152
501
408
444
88
210
38
130
35
524
373
70
168
177
415
25
275
186
115
25
199
50
532
795
293
313
115
152
501
408
525
90
210
38
130
35
-
-
78
187
197
462
25
275
185
115
25
200
50
591
882
326
314
115
152
501
408
582
79
210
38
130
39
-
-
59
142
150
351
25
275
185
115
25
199
50
549
672
248
313
115
152
501
408
444
-
210
38
130
35
524
373
70
168
177
415
25
275
186
115
25
199
50
532
795
293
313
115
152
501
408
525
-
210
38
130
35
-
-
78
187
197
462
25
275
185
115
25
200
50
591
882
325
314
115
152
501
408
582
-
210
38
130
39
-
-
Total Loan Capital
5,674
6,025
5,012
5,427
5,242
5,704
5,586
5,937
4,922
5,337
5,162
5,624
Where a foreign currency hedge is in place to utilise
a loan capital issue in a currency other than that of its
original issue, the AUD equivalent value is shown net of
the hedge.
(1)
USD 300 million undated Floating Rate Notes
(FRNs) issued 11 July 1988 exchangeable into
dated FRNs.
(2)
Outstanding notes at 30 June 2003 were:
USD1.5 million
Due July 2003
USD0.5 million
Due July 2004
USD32.5 million
Due July 2006
USD5 million
undated
:
:
:
:
USD 400 million undated FRNs issued 22 February
1989 exchangeable into dated FRNs.
Outstanding notes at 30 June 2003 were:
USD64 million
Due February 2005
USD24 million
Due February 2006
USD7 million
Due February 2008
:
:
:
110
(3) USD 100 million undated capital notes issued on 15
fully
paid
October 1986.
The Bank has entered into separate agreements
with the Commonwealth of Australia relating to each
of the above issues (the ‘Agreements’) which qualify
the issues as Tier 1 capital.
The agreements provide that, upon the occurrence
of certain events listed below, the Bank may issue
either
the
Commonwealth of Australia or (with the consent of
the Commonwealth of Australia) 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.
ordinary
shares
to
Notes to the financial statements
NOTE 28 Loan Capital continued
to date,
the Bank and
Any one or more of the following events may trigger
the issue of shares to the Commonwealth of Australia
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 of
Australia 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 of
Australia pursuant to its guarantee in respect of the
relevant notes will trigger the issue of shares to the
Commonwealth of Australia 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 of Australia ceasing to guarantee the
relevant notes. In relation to Dated FRN’s which
the
have matured
Commonwealth agreed
relevant
Agreement to reflect that the Commonwealth of
Australia was not called upon to subscribe for fully
paid ordinary shares up to an amount equal to the
principal value of the maturing FRNs.
AUD300 million extendible floating rate stock issued
December 1989:
due December 2004 : AUD25 million
due December 2009 : AUD275 million
The Bank has entered into a separate agreement
with the Commonwealth of Australia relating to the
above 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 of
Australia or (with the consent of the Commonwealth
of Australia) 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 of Australia
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
The Bank, if required by the Commonwealth of
Australia and subject to the agreement of the APRA,
exercises its option to redeem such issue.
to amend
the
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(4)
(cid:1)
(cid:1)
the
trigger
issue of shares
Any payment made by the Commonwealth of
Australia pursuant to its guarantee in respect of the
issue will
to the
Commonwealth of Australia to the value of such
payment.
issued
AUD300 million subordinated notes,
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.
AUD250 million
issued
November 1999, due November 2009; split into
$200 million fixed rate notes and $50 million floating
rate notes.
USD750 million subordinated notes, issued June
2000, due June 2010; split into USD 300 million
fixed rate notes and USD 450 million floating rate
notes.
JPY20 billion perpetual subordinated Euro MTN,
issued February 1999.
subordinated FRN,
(5)
(6)
(7)
(8)
(9)
(10) USD200 million subordinated EMTN,
November 1999, due November 2009.
issued
(11) USD75 million subordinated EMTN, issued January
2000, due January 2010.
(12) USD100 million subordinated EMTN,
issued
January 2000, due January 2010.
(13) USD400 million subordinated Euro MTN issued
June 1996; due July 2006.
(14) GBP200 million subordinated Euro MTN issued
(15)
March 1996; due December 2006.
JPY30 billion subordinated Euro MTN
October 1995; due October 2015.
issued
(16) NZD100 million
subordinated matures
15
December 2009. With a coupon rate of 8.30% until
15 December 2004, after which the rate will be
reset against the three month bank bill benchmark
rate. The subordinated debt is callable on 15
December 2004.
AUD210 million Euro FRN issued 3 September
1996, maturing 10 September 2004.
AUD38 million FRN issued 15 December 1997,
maturing 15 December 2004.
AUD130 million subordinated notes comprised as
follows: AUD 10 million fixed rate notes issued 12
December 1995, maturing 12 December 2005. AUD
110 million floating rate notes issued 12 December
1995, maturing 12 December 2005. AUD 5 million
fixed rate notes
issued 17 December 1996,
maturing 12 December 2005. AUD 5 million floating
rate notes issued 17 December 1996, maturing 12
December 2005.
(17)
(18)
(19)
(20) Comprises 12 subordinated notes and FRN issues.
The face value amounts are less than $10 million
each and are all in Australian Dollars. The maturity
ranges from October 2003 to October 2009.
(21) USD350 million subordinated fixed rate note, issued
June 2003, due June 2018.
(22) GBP150 million subordinated EMTN, issued June
2003, due December 2023.
111
Notes to the financial statements
NOTE 29 Share Capital
Issued and Paid Up Ordinary Capital
Ordinary Share Capital
Opening balance
Dividend reinvestment plan (DRP): 2000/2001 final dividend
Buy back for DRP: 2001/2002 interim dividend
DRP: 2001/2002 interim dividend
Buy back for DRP: 2001/02 final dividend
DRP 2001/2002 final dividend
Buy back for DRP: 2002/2003 interim dividend
DRP 2002/2003 interim dividend
Exercise of executive options
Closing Balance
Shares on Issue
Opening balance
DRP issues:
2001 final dividend fully paid ordinary shares at $28.79
Buy back for 2001/2002 interim dividend
2001/2002 interim dividend fully paid ordinary shares at $31.96
Buy back for DRP: 2001/2002 final dividend
2001/2002 final dividend paid shares at $31.92
Buy back for 2002/2003 interim dividend
2002/2003 interim dividend fully paid ordinary shares at $24.75
Exercise under executive option plan
Employee share acquisition plan issues
Closing Balance
Terms and Conditions of Ordinary Share Capital
Ordinary shares have the right to receive dividends
as declared and in the event of winding up the company,
to participate in the proceeds from sale of surplus assets
Preference Share Capital
Issued and paid up PERLS capital
PERLS on issue
2003
$M
BANK
2002
$M
12,665
-
-
-
(195)
12,455
171
(158)
158
-
195 -
-
166 -
39
12,665
(166)
13
12,678
Number
1,252,921,363
Number
1,244,015,455
-
-
-
(6,111,510)
5,954,040
(4,951,275)
4,951,275
-
6,111,510 -
-
6,753,320 -
2,052,500
899,368
1,252,921,363
(6,753,320)
660,000
-
1,253,581,363
in proportion to the number of and amounts paid up on
shares held. Ordinary shares entitle their holder to one
vote, either in person or by proxy, at a meeting of the
company
2003
$M
687
BANK
2002
$M
687
Number
3,500,000
Number
3,500,000
Commonwealth Bank PERLS
(‘PERLS’) are
perpetual preference shares that offer a quarterly, floating
rate dividend. PERLS represent a less expensive form of
equity funding than ordinary shares and increase the
diversity and flexibility of the Bank’s capital base.
A holder of PERLS on the relevant record date is
entitled to receive on each relevant dividend payment
date, if determined by the Directors to be payable, a
dividend. If a dividend is not paid the Bank will not be
permitted to pay dividends on any of its ordinary shares
until four consecutive dividends are paid on the PERLS.
Holders of Commonwealth Bank PERLS will rank ahead
of holders of ordinary shares in a winding up to the extent
of the issue price of the Commonwealth Bank PERLS.
PERLS are listed and traded on the Australian Stock
Exchange.
Holders of PERLS are entitled to vote at a general
meeting of the issuer in limited circumstances.
112
Notes to the financial statements
NOTE 29 Share Capital continued
Subsequent Event
these
On 6 August 2003 the Bank, via a wholly owned
entity of the Bank, issued USD550 million (AUD824
million) of trust preferred securities, subject to a limited
guarantee by the Bank, in the US capital markets. These
securities are perpetual in nature and offer a non-
cumulative fixed rate distribution of 5.805%p.a., payable
semi annually. Distributions will be paid if determined by
Directors, or a committee of the Board, to be payable. If a
distribution is not paid the Bank will not be permitted to
pay dividends on any of its ordinary shares or shares
ranking equally with
including
Commonwealth Bank PERLS, until two consecutive semi
annual dividends are paid. The securities may be
redeemed by the Bank, subject to the approval of APRA,
on 30 June 2015 and qualify as Tier 1 capital for the Bank.
If the securities are not redeemed on 30 June 2015, the
holders of the securities may request their securities be
exchanged for an equivalent value of ordinary shares of
the Bank. In certain circumstances, and at any time at the
Bank’s discretion, the trust preferred securities may be
redeemed
(ADSs)
representing preference shares of the Bank. Where there
has been no earlier redemption, the trust preferred
securities will be mandatorily redeemed for ADS’s on 30
June 2053.
for American Depositary Shares
securities,
The issue of trust preferred securities provided a
cost effective opportunity to supplement the Bank's Tier 1
capital and broaden its investor base.
Employee Share Plans
The Bank has in place the following employee share
plans:
(cid:1)
(cid:1)
(cid:1)
(cid:1)
Commonwealth Bank Employee Share Acquisition
Plan (ESAP);
Commonwealth Bank Equity Participation Plan
(EPP);
Commonwealth Bank Equity Reward Plan (ERP);
and
Commonwealth Bank Non-Executive Directors
Share Plan (NEDSP).
The ESAP and ERP were each approved by
shareholders at the Annual General Meeting (AGM) on 26
October 2000. Shareholders’ consent was not required
for either the EPP or NEDSP but details were included in
the Explanatory Memorandum to the meeting to ensure
shareholders were fully informed. Shareholders were also
informed at the AGM on 26 October 2000 that the
Executive Option Plan (EOP) would be discontinued.
Employee Share Acquisition Plan (ESAP)
The ESAP provides employees of the Group 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%. Whenever annual profit growth
exceeds CPI change, the Board may use its discretion in
determining whether any grant of shares will be made.
Under ESAP, shares granted are restricted for sale
for three years or until such time as the participating
employee ceases employment with the Group, whichever
is earlier. Shares granted under the plan receive full
dividend entitlements and voting rights. There are no
forfeiture or vesting conditions attached to shares granted
under ESAP.
Effective from 1 July 2002, shares granted under
ESAP offers have been expensed against the Profit and
Loss account. In the current year, 832,458 shares were
granted to eligible employees and $25 million was
expensed against the Profit and Loss account to reflect
the cost of the 2002 grant.
The Bank has determined to allocate each eligible
employee shares up to a value of $800 in respect of the
2003 grant. As a result, an amount of $20 million has
been accrued in respect of the year ended 30 June 2003.
The shares will be purchased on-market at the then
market price.
113
Notes to the financial statements
Details of issues under ESAP are:
Offer
Issue Date
1996
1997
1999
2000
2001
2 Jan 1997
18 Mar 1997
11 Dec 1997
3 Feb 1998
24 Sep 1999
13 Oct 2000
20 Dec 2000
31 Oct 2001
3 Dec 2001
31 Jan 2002
Ordinary
Shares
Issued(1)
27,755
13
3,025
-
-
-
-
-
-
-
Bonus Ordinary
Shares Issued(2)
No. of
Participants
Shares issued to
Each Participant
2,275,910
1,066
1,637,273
232
1,053,199
872,620
805
893,554
3,876
1,938
27,755
13
28,281
4
24,493
24,932
23
26,281
114
57
83
83
58
58
43
35
35
34
34
34
Issue
Price(3)
$12.04
$12.04
$17.16
$17.16
$23.12
$27.78
$27.78
$28.95
$28.95
$28.95
Details of shares purchased under ESAP are:
Offer
Purchase Date
2002
31 Oct 2002
22 Jan 2003
Ordinary
Shares
Purchased
830,874
1,584
No. of
Participants
Shares Allocated to
Each Participant
Allocation
Price(4)
25,178
48
33
33
$29.71
$29.71
(1)
(2)
(3)
(4)
For the 1996 and 1997 Offers, new employee shareholders were granted one ordinary share with the remainder of shares issued as
Bonus Ordinary Shares. For Offers in 1999, 2000 and 2001 both new and existing shareholders were granted Bonus Ordinary Shares.
For the 1996 & 1997 Offers the bonus shares were fully paid up as issued shares utilising the Share Premium Reserve. With the
removal of the Share Premium Reserve the bonus shares were issued from the Share Capital Account.
The Issue Price x Shares issued to each Participant effectively represents about $1,000 of free shares.
The Allocation Price for the offer is equal to the market value which is determined by calculating the weighted average of the prices at
which the shares were traded on the ASX during the 5 trading day period up to and including the grant date. The Allocation Price x
Shares issued to each participant effectively represents about $1,000 of free shares.
114
Notes to the financial statements
NOTE 29 Share Capital continued
Equity Participation Plan (EPP)
The EPP facilitates the voluntary sacrifice of both
fixed remuneration and annual bonus to be applied in the
acquisition of shares. The Plan also facilitates the
mandatory sacrifice of annual performance bonuses.
All shares acquired by employees under this Plan
are purchased on-market at the current market price.
Details of share purchases for the EPP so far are as
follows:
Purchase Date
1 Oct 2001
31 Oct 2001
31 Oct 2001
31 Oct 2001
2 Jan 2002
3 Apr 2002
28 Jun 2002
2 Oct 2002
8 Oct 2002
31 Oct 2002
30 Dec 2002
31 Mar 2003
31 Mar 2003
30 Jun 2003
Number of Participants
19
5
1,640
47
65
67
107
63
5
2,164
68
2
95
76
Number of Shares Purchased
2,073
187
1,564,314
31,752
8,504
7,963
14,384
6,751
2,726
1,955,758
11,421
463
12,187
10,854
Average Purchase Price
$27.40
$29.35
$30.00
$30.13
$30.05
$31.43
$33.15
$30.51
$29.44
$28.22
$27.21
$25.91
$25.90
$29.92
Under the voluntary component of the EPP, shares
purchased are restricted for sale for two years or when a
participating employee ceases employment with the Bank,
whichever is earlier. Shares granted under the voluntary
component of the plan receive full dividend entitlements
and voting rights. There are no forfeiture or vesting
conditions attached to shares granted under the voluntary
component of the EPP.
Under the mandatory component of the EPP, fully
paid ordinary shares are purchased and held in Trust until
such time as the vesting conditions have been met.
Vesting of shares is subject to participants remaining
employees of the Group until the vesting date (generally a
period of one and two years after the bonus award
period).
From 1 July 2001 to 30 June 2002
Details of Movements
Shares held under the plan at the beginning of year
Shares Allocated during year
Shares Vested during year
Shares Forfeited during year
Shares Held Under the Plan at End of Year
From 1 July 2002 to 30 June 2003
Details of Movements
Shares held under the plan at the beginning of year
Shares Allocated during year
Shares Vested during year
Shares Forfeited during year
Shares Held Under the Plan at End of Year
115
Each participant on behalf of whom shares are held
by the Trustee have a right to receive dividends. Once the
shares vest, dividends are paid in relation to those
accrued during the vesting period. The participant may
also direct the Trustee on how the voting rights attached
to the shares are to be exercised during the vesting
period.
Where participating employees do not satisfy the
vesting conditions, shares and dividend rights are
forfeited.
The movement
in shares granted under
the
mandatory component of the EPP has been as follows:
Number of Shares
-
1,578,469
57,645
42,401
1,478,423
Number of Shares
1,478,423
1,968,197
836,437
112,999
2,497,184
Notes to the financial statements
NOTE 29 Share Capital continued
Shares granted under both
the voluntary and
mandatory components of the EPP have been expensed
against the profit and loss account. In the current year,
$66 million was expensed against the profit and loss
account to reflect the cost of allocations under the Plan.
Equity Reward Plan (ERP)
The Board has envisaged that up to a maximum of
500 employees would participate each year in the ERP.
Previous grants under the ERP were in two parts,
comprising grants of options and grants of shares. Since
2001/02, no options have been issued under the ERP. In
2002/03 reward shares only were issued under this plan.
The exercise of previously granted options and the
vesting of employee legal title to the shares is conditional
on the Bank achieving a prescribed performance hurdle.
The ERP performance hurdle is based on relative Total
Shareholder Return
the Bank’s TSR
performance being measured against a comparator group
of companies.
(TSR) with
The prescribed performance hurdle for options and
reward shares issued prior to 2002/03 was:
(cid:1)
The Bank’s TSR (broadly, growth in share price plus
dividends reinvested) over a minimum three year
period, must equal or exceed the index of TSR
achieved by the comparator group of companies.
The comparator group
(previously companies
represented in the ASX’s ‘Banks and Finance
Accumulation
the Bank) was
widened in 2001/02 to better reflect the Bank’s
business since the acquisition of Colonial.
If the performance hurdle is not reached within that
three years
the options may nevertheless be
exercisable or the shares vest, only where the
hurdle is subsequently reached within 5 years from
the grant date.
Index’ excluding
(cid:1)
A further change was introduced in relation to
reward shares granted from 2002/03 onwards.
A tiered vesting scale was introduced so that 50% of
the allocated shares vest if the Bank’s TSR is equal to the
median return, 75% vest at the 67th percentile and 100%
when the Bank’s return is in the top quartile.
Where the rating is at least at the 50th percentile on
the third anniversary of the grant, the shares will vest at a
time nominated by the executive, within the trading
windows, over the next two years. The vesting percentage
will be at least that achieved on the third anniversary of
the grant and the executive will be able to delay vesting
until a subsequent half yearly window prior to the fifth
anniversary of the grant. The vesting percentage will be
calculated by reference to the rating at that time.
Where the rating is below the 50th percentile on the
third anniversary of grant, the shares can still vest if the
rating reaches the 50th percentile prior to the fifth
anniversary, but the maximum vesting will be 50%.
Shares acquired under the share component of the
ERP are purchased on-market at the current market price.
The cost of shares acquired is expensed against the Profit
and Loss Account over a three year period, reflecting the
minimum vesting period. In the current year, $8 million
has been expensed to the profit and loss account
reflecting the cost of reward shares purchased and
allocated under the plan.
Executive options issued up to September 2001 are
not currently recorded as an expense by the Group. If the
options issued in 2001/02 were expensed to the profit and
loss account, the amount recorded by the Group would
have been $6.0 million, based on 2,994,500 options being
issued with a fair value of $2.01 and 12,500 options with a
fair value of $1.53. (The fair value is determined using the
Black-Scholes option pricing model and includes a 50%
discount for probability of options not being exercised).
Details of options issued and shares acquired under
ERP as well as movements in the options and shares are
as follows -
Options
Year of
Grant
Commencement
Date
Issue
Date
Options
Issued
Options
Outstanding
(1)
Participants
Exercise
Price
Exercise
Period
2000
13 Sep 2000
7 Feb 2001
577,500
427,500
13 Sep 2000
31 Oct 2001
12,500
-
2001
3 Sep 2001
31 Oct 2001
2,882,000
2,223,900
3 Sep 2001
31 Jan 2002
12,500
12,500
3 Sep 2001
15 Apr 2002
100,000
100,000
23
1
79
1
1
$26.97(2)
$26.97(2)
$30.12(2)
$30.12(2)
$30.12(2)
14 Sep 2003 to
13 Sep 2010(3)
14 Sep 2003 to
13 Sep 2010(3)
4 Sep 2004 to
3 Sep 2011(4)
4 Sep 2004 to
3 Sep 2011(4)
4 Sep 2004 to
3 Sep 2011(4)
(1) Options outstanding as at the date of the report.
(2) Will be adjusted by the premium formula (based on the actual difference between the dividend and bond yields at the date of the vesting).
(3)
Performance hurdle must be satisfied between 14 September 2003 and 13 September 2005, otherwise options will lapse.
Performance hurdle must be satisfied between 4 September 2004 and 3 September 2006, otherwise options will lapse.
(4)
116
Notes to the financial statements
NOTE 29 Share Capital continued
Details of Movements
From 1 July 2001 to 30 June 2002
Total options held by participants at the start of year
Total options granted during year
Total options exercised during year
Total options lapsed during year
Total options outstanding at the end of year
Details of Movements
From 1 July 2002 to 30 June 2003
Total options held by participants at the start of year
Total options granted during year
Total options exercised during year
Total options lapsed during year
Total options outstanding at the end of year
Total options granted from 30 June 2003 to date of this report
Total options exercised from 30 June 2003 to date of this report
Total options lapsed from 30 June 2003 to date of this report
Total options outstanding as at the date of this report
Shares
2000
Grant
560,000
12,500
-
-
572,500
2000
Grant
572,500
-
-
145,000
427,500
-
-
-
427,500
Year of
Grant
Purchase
Date
Shares
Purchased
Shares
Allocated
Participants
Vesting Period
2000
2001
2002
20 Feb 2001
31 Oct 2001
31 Oct 2001
22 Nov 2002
361,100
2,000
652,100
357,500
361,100
2,000
661,500(1)
545,500(2)
61
1
241
195
14 Sept 2003 to 13 Sept 2005(3)
14 Sept 2003 to 13 Sept 2005(3)
4 Sept 2004 to 3 Sept 2006(3)
2 Sept 2005 to 1 Sept 2007(3)
2001
Grant
-
2,994,500
-
131,400
2,863,100
2001
Grant
2,863,100
-
-
526,700
2,336,400
-
-
-
2,336,400
Average
Purchase
Price
$29.72
$29.25
$29.25
$28.26
(1)
(2)
(3)
In October 2001, 11,400 reward shares were re-allocated to participants receiving the 2001 grant as a result of reward shares forfeited
from previous ERP grant.
In November 2002, 188,000 reward shares were re-allocated to participants receiving the 2002 grant as a result of reward shares forfeited
from previous grants. The total number of reward shares allocated in 2002 represents fifty percent of the maximum entitlement that
participants may receive. It is intended that reward shares required to meet obligations under ERP will be acquired by the trust on-market
during the three years prior to the first measurement point of the performance hurdle.
Performance hurdle must be satisfied within the vesting period, otherwise shares will be forfeited.
Details of Movements
From 1 July 2001 to 30 June 2002
Total reward shares held by participants at the start of year
Total reward shares granted during year
Total reward shares vested during year
Total reward shares lapsed during year
Total reward shares outstanding at the end of year
Details of Movements
From 1 July 2002 to 30 June 2003
Total reward shares held by participants at the start of year
Total reward shares granted during year
Total reward shares vested during year
Total reward shares lapsed during year
Total reward shares outstanding at the end of year
2000
Grant
337,300
-
-
120,200
217,100
117
2000
Grant
361,100
2,000
-
25,800
337,300
2001
Grant
638,800
-
-
120,300
518,500
2001
Grant
-
676,500
-
37,700
638,800
2002
Grant
-
552,000
-
36,700
515,300
Notes to the financial statements
NOTE 29 Share Capital continued
During the vesting period, reward shares are held in
Trust. Each participant on behalf of whom Reward Shares
are held by the Trustee, have a right to receive dividends.
Once the shares vest dividends are paid in relation to
those accrued during the vesting period. The participant
may also direct the trustee on how the voting rights
attached to the shares are to be exercised during the
vesting period.
Executive Option Plan (EOP)
As previously notified to shareholders, this plan was
discontinued in 2000/01.
Under the EOP, the Bank granted options to
purchase ordinary shares to those key executives who,
being able by virtue of their responsibility, experience and
skill to influence the generation of shareholder wealth,
were declared by the Board of Directors to be eligible to
participate in the Plan. Non-executive directors were not
eligible to participate in the Plan.
Options cannot be exercised before each respective
exercise period and the ability to exercise is conditional on
the Bank achieving a prescribed performance hurdle.
The performance hurdle
the same TSR
comparator hurdle as outlined above for the Equity
Reward Plan (ERP) grants prior to 2002/03.
is
If the performance hurdle is not reached within that 3
years (4 years for the second tranche of options granted
to the chief executive officer on 24 August 1999), the
options may nevertheless be exercisable only where the
hurdle is subsequently reached within 5 years (6 years for
the second tranche of options granted to the chief
executive officer on 24 August 1999) from the grant date.
The option plan did not grant rights to the option
holders to participate in a share issue of any other body
corporate.
Details of issues made under EOP as well as
movements for 2001/02 and 2002/03 are as follows:
Commencement
Date
Issue
Date
Options
Issued
Options
Outstanding
Participants
12 Nov 1996
16 Dec 1996
2,100,000
3 Nov 1997
11 Dec 1997
2,875,000
-
-
25 Aug 1998
30 Sep 1998
3,275,000
387,500
24 Aug 1999
24 Sep 1999
3,855,000
3,221,000
13 Sep 2000
13 Oct 2000
2,002,500
1,336,200
25
27
32
38
50
Exercise
Price(1)
$11.85
$15.53(2)
$19.58(2)
$23.84(3)
$26.97(3)
Exercise
Period
13 Nov 1999 to
12 Nov 2001
4 Nov 2000 to
3 Nov 2002
26 Aug 2001 to
25 Aug 2003
25 Aug 2002 to
24 Aug 2009
14 Sep 2003 to
13 Sep 2010
(1) Market value at the commencement date. 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 commencement date.
Premium adjustment (based on the actual difference between the dividend and bond yields at the date of vesting) was nil.
(2)
(3) Will be adjusted by the premium formula (based on the actual difference between the dividend and bond yields
at the date of the vesting).
Details of Movements
From 1 July 2001 to 30 June 2002
Total options held by participants at the start of year
Total options granted during year
Total options exercised during year
Total options lapsed during year
1996
Grant
50,000
-
50,000
-
1997
Grant
125,000
-
75,000
-
1998
Grant
2,975,000
-
1,927,500
-
1999
Grant
3,700,000
-
-
175,000
2000
Grant
1,952,500
-
-
260,800
Total options outstanding at the end of year
-
50,000
1,047,500
3,525,000
1,691,700
Details of Movements
From 1 July 2002 to 30 June 2003
Total options held by participants at the start of year
Total options granted during year
Total options exercised during year
Total options lapsed during year
Total options outstanding at the end of year
Total options granted from 30 June 2003 to date of this report
Total options exercised from 30 June 2003 to date of this
Total options lapsed from 30 June 2003 to date of this report
t
1997
Grant
50,000
-
-
50,000
-
-
-
-
1998
Grant
1,047,500
-
660,000
-
387,500
-
150,000
75,000
1999
Grant
3,525,000
-
-
304,000
3,221,000
-
-
-
2000
Grant
1,691,700
-
-
355,500
1,336,200
-
-
-
Total options outstanding as at the date of this report
-
162,500
3,221,000
1,336,200
118
Notes to the financial statements
NOTE 29 Share Capital continued
Summary of shares issued during the period 1 July 2002 to the date of the report as a result of options being exercised
are:
Option
Issue Date
30 Sep 1998
Shares
Issued
810,000
Price paid
per Share
$19.58
Total
Consideration Paid
$15,859,800
No amount is unpaid in respect of the shares issued upon exercise of the options during the above period.
Under the Bank’s EOP and ERP an option holder
generally has no right to participate in any new issue of
securities of the Bank or of a related body corporate as a
result of holding the option except that if there is a pro rata
issue of shares to the Bank’s shareholders by way of
bonus issue involving capitalisation (other than in place of
dividends or by way of dividend reinvestment) an option
holder is entitled to receive additional shares upon
exercise of the options being the number of bonus shares
that the option holder would have received if the options
had been exercised and shares issued prior to the bonus
issue.
Non-Executive Directors Share Plan (NEDSP)
The NEDSP provides for the acquisition of shares by
non-executive directors through the mandatory sacrifice of
20% of their annual fees (paid on a quarterly basis).
Shares purchased are restricted for sale for 10 years or
when the Director leaves the Board, whichever is earlier.
Shares acquired under the plan receive full dividend
entitlements and voting rights. There are no forfeiture or
vesting conditions attached to shares granted under the
NEDSP.
Shares are purchased on-market at the current
market price and details of shares purchased under
NEDSP so far are:
Quarter Ending
31/12/2000
31/03/2001
30/06/2001
30/09/2001
31/12/2001
31/03/2002
30/06/2002
30/09/2002
31/12/2002
31/03/2003
30/06/2003
Total Fees
Sacrificed
$63,518
$65,918
$61,331
$62,005
$62,005
$62,005
$61,332
$66,959
$68,307
$68,671
$73,797
Participants
11
11
10
10
10
10
10
10
10
11
11
Shares
Purchased
1,989
2,359
1,820
2,454
2,091
1,950
1,848
2,196
2,510
2,653
2,464
Average
Purchase Price
$31.93
$27.94
$33.45
$25.44
$29.65
$31.83
$33.15
$30.51
$27.21
$25.90
$29.92
No trading restrictions were lifted on shares during the period 1 July 2002 to the date of this report.
For the current year, $339,924 was expensed to Profit and Loss account reflecting shares purchased and allocated
under the NEDSP.
Share Buyback
During the financial year ending 30 June 2001, the
Bank’s shareholders equity was reduced by $723 million
pursuant to the buyback of 25.9 million shares.
In March 2001 the Bank made an off market
buyback of $700 million of ordinary shares. The price per
share paid by the Bank for the buyback shares was
$27.84 calculated in accordance with the buyback offer. In
the
accordance with an agreement
reached with
the
Australian Taxation Office $10 per share of
consideration for each share bought back was charged to
paid up capital ($251 million).
The balance of $17.84 per share was deemed to be
a fully franked dividend and charged to retained profits
($449 million). This buyback coincided with the new issue
of preference shares as detailed previously. The balance
of the equity reduction occurred by way of an on market
buyback.
119
Notes to the financial statements
NOTE 30 Outside Equity Interests
Controlled Entities:
Share capital (1)
Reserves
Retained profits
Life insurance statutory funds and other funds
Total Outside Equity Interests
(1)
ASB Perpetual Preference Shares $182 million
2003
$M
GROUP
2002
$M
300
-
4
1,824
2,128
7
-
2
2,017
2,026
On 10 December 2002, ASB Capital Limited, a New Zealand subsidiary, issued NZD200 million (AUD182 million) of
perpetual preference shares. Such shares are non-redeemable and carry limited voting rights. Dividends are payable quarterly
and are non-cumulative.
Gandel Listed Property Trusts - $111 millon
In July 2002 Colonial First State Property Retail Pty
Ltd was incorporated and in August 2002, the Colonial
First State Property Retail Trust
(CFSPRT) was
established. Both of these entities are owned 60% by the
CBA Group and 40% by outside equity interests. On 30
September 2002, unitholders of the Colonial First State
Property Trust Group (CFT), the Commonwealth Property
Office Fund (CPA) and the Gandel Retail Trust (GAN)
the
approved a proposal which saw CPA acquire
industrial/office assets of CFT and GAN acquire the retail
assets of CFT. GAN changed its name to the CFS
Gandel Retail Trust and CFSPRT became the delegated
manager of this trust along with the retail component of a
wholesale property trust.
120
Notes to the financial statements
NOTE 31 Capital Adequacy
to
regulation by
requirements define what
Commonwealth Bank of Australia (“the Bank”) is
subject
the Australian Prudential
Regulation Authority (APRA) under the authority of the
Banking Act 1959. APRA has set minimum regulatory
capital requirements for banks that are consistent with the
is
Basel Accord. These
acceptable as capital and provide for standard methods of
measuring the risks incurred by the Bank. APRA has set
minimum ratios that compare the regulatory capital with on
and off balance sheet assets, weighted
risk.
Regulatory capital requirements are measured for the
Bank (known from 1 July 2003 as “Level 1”) and for the
Bank and its banking subsidiaries (known from 1 July
2003 as “Level 2”). The
funds
management businesses are not consolidated for capital
adequacy purposes.
insurance and
life
for
Regulatory capital is divided into Tier 1 capital and
Tier 2 capital. Certain deductions are made from the sum
of Tier 1 and Tier 2 capital to arrive at the capital base.
Tier 1 capital consists of shareholders equity plus other
capital instruments acceptable to APRA, less goodwill and
less the intangible element of the investment in life
insurance and funds management businesses. Tier 2
capital consists of the general provision for credit losses
and other hybrid and debt instruments acceptable to
APRA. The tangible element of the investment in life
insurance and funds management businesses and any
holdings of capital instruments issued by other banks are
deducted from the sum of Tier 1 and Tier 2 capital to
arrive at the capital base.
The standard method of measuring risk requires one
of a number of risk weights to be applied to each category
of assets on the balance sheet and to categories of off-
balance sheet obligations. The standard risk weights are
100%, 50%, 20% and 0%. It should be noted that the risk
weights are not consistent with loss experience of the
Bank and its subsidiaries. In addition, there is an agreed
method for measuring market risk for traded assets.
The regulatory capital ratios of the Group are shown
on page 11 together with an analysis of the movement in
the capital ratios.
New Capital Accord
The Basel Committee on Banking Supervision (“the
Basel Committee”) issued its latest draft proposals for
changes to the calculation of capital adequacy for banks,
(“the New Capital Accord”) in April 2003. The goal of the
Basel Committee is to finalise the New Capital Accord by
31 December 2003 and to implement it by 31 December
2006. There is a number of aspects of the New Capital
Accord that are yet to be resolved.
The objective of the New Capital Accord is to
develop capital adequacy guidelines
that are more
accurately aligned with the individual risk profile of banks.
The New Capital Accord is based on three “pillars”.
Pillar 1 covers the capital requirements for banks, pillar 2
covers the supervisory review process and pillar 3 relates
to market disclosure.There are three approaches to credit
risk under the New Capital Accord, being standardised
and
internal risk-based (IRB) approaches. The
Standardised Approach is a modified version of the
current approach but with risk weights aligned with the
credit ratings of borrowers and counterparties. Under the
IRB approaches, banks such as Commonwealth Bank that
two
use internal models to calculate and allocate the amount
of capital required for credit risk, may be able to use
components of their own calculations to determine the
amount of regulatory capital required for credit risk. Under
the Foundation IRB Approach, the regulator will in most
cases, provide the parameters. Under the Advanced IRB
Approach, substantially all of the parameters will be those
used by the bank in its internal models. Commonwealth
Bank is targeting the Advanced IRB approach.
The New Capital Accord will introduce a capital
requirement for operational risk. As with credit risk, there
will be three approaches. The Basic Indicator Approach,
the Advanced
the Standardised Approach and
Measurement Approach. The Bank
the
targeting
Advanced Measurement Approach .
is
The current capital requirements for market risk are
not expected to change significantly under the New
Capital Accord.
The Basel Committee has initiated a number of
quantitative impact studies (QIS) to gauge the effect of the
proposed changes. These studies show that Australian
banks adopting the Advanced IRB Approach will see an
overall reduction in the amount of regulatory capital
required, even allowing for the new capital requirement for
operational risk. However, under Pillar 2, there is scope
for the regulator to require capital to be held for other risks
such as interest rate risk in the banking book, business
and strategic risk and credit concentration risk.
funds management companies
The rules for deduction of the investment in life
insurance and
from
regulatory capital will change under the New Capital
Accord. The portion of the investment represented by
what APRA regards as intangible assets, such as self-
generated value of business in force and value of future
new business will continue to be deducted from Tier 1
capital. The portion of the investment represented by net
tangible assets will be deducted 50% from Tier 1 and 50%
from Tier 2 capital (instead of 100% from total regulatory
capital as at present).
Overall,
too many uncertainties
regarding the New Capital Accord to provide reliable
information on the regulatory position of the Group under
the new rules.
there are still
Conglomerate Groups
is an ADI and
APRA has advised that a third level of capital
adequacy will apply from 1 July 2003 for conglomerate
groups (“Level 3”). APRA defines a conglomerate group
as a group of companies containing one or more
incorporated Authorised Deposit-taking
Australian
Institutions (“ADIs”). The Bank
the
Commonwealth Bank Group falls within APRA’s definition
of a conglomerate group. Each conglomerate group will be
required to hold capital that corresponds to the corporate
structure of that conglomerate and the calculation will
have regard to all group members and the capacity to
move surplus capital from one group entity to another. The
regulatory capital requirements for each conglomerate
group will be specific to that group. Therefore, it may not
be possible to compare the regulatory position of the
Commonwealth Bank Group with
that of other
conglomerate groups.
The proposals indicate that the use of internal capital
estimation and allocation models may be permitted.
121
Notes to the financial statements
NOTE 31 Capital Adequacy continued
their
is not yet able
However, APRA
requirements for internal models, nor when they will
complete their review of the Bank’s models. Whilst the
Bank considers that it is strongly capitalised (as evidenced
by its credit ratings), no assurance can be given that our
models will meet APRA’s requirements or that the Group
meets the Level 3 capital requirements.
to specify
Dividends
Banks may not pay dividends if immediately after
payment, they are unable to meet the minimum capital
requirements. Banks cannot pay dividends from retained
earnings without APRA’s prior approval. The Group has
adopted the new accounting standard AASB 1044, which
has resulted in a change in the accounting for dividend
provisions. Under APRA guidelines, the expected dividend
must be deducted from Tier 1 capital.
Regulatory Capital Requirements for Other ADIs In
The Group
ASB Bank Limited is subject to regulation by the
Reserve Bank of New Zealand (RBNZ). RBNZ applies a
similar methodology to APRA in calculating regulatory
capital requirements. At 30 June 2003 ASB Bank Limited
Group had a Tier 1 ratio of 8.12% and a Total Capital ratio
of 10.26%.
Regulatory Capital Requirements for Life Insurance
and Funds Management Business
for
for
the
fund
in each
framework
life
The Group’s life insurance businesses in Australia
are also regulated by APRA. The Life Insurance Act has
regulatory capital
established a
requirements
insurance companies. These
requirements are based on tests aimed at ensuring each
statutory
insurance company has
life
sufficient assets to meet policy and other liabilities under a
range of adverse circumstances. There are two tiers to the
regulatory capital requirements – ‘solvency’ and ‘capital
adequacy’. The solvency test is made assuming each fund
is closed to new business. Failure to meet the solvency
test may result in the appointment of a judicial manager by
APRA. The capital adequacy test assumes each fund
remains open to new business and the reasonable
expectations of policyholders are met. Failure to meet the
capital adequacy test means capital or retained profits
may not be transferred from the statutory funds and may
result in closer regulatory monitoring by APRA. The capital
adequacy test is always equal to or greater than the
solvency test. At 30 June 2003, all statutory funds of the
Group’s life insurance companies in Australia met the
capital adequacy test. At 30 June 2003, for Australian life
insurance companies, the excess over capital adequacy
within statutory
in
aggregate.
funds amounted
to $266 million
life
the Group owned
During 2002/03,
insurance companies
in Australia: Commonwealth
Insurance Holdings Limited (“CIHL”), Commonwealth Life
Limited (“CLL”) and The Colonial Mutual Life Assurance
Society Limited (“CMLA”). The life insurance business of
CLL was amalgamated into CMLA on 1 July 2003 using
the provisions of part 9 of the Life Insurance Act.
three
There are no regulatory capital requirements for life
insurance companies in New Zealand. However the Group
determines capital requirements on a basis similar to the
requirements in Australia.
The life
insurance business
is
regulated by the Insurance Authority of Hong Kong. The
minimum regulatory requirement comprises a solvency
test defined in local regulations and ordinances.
in Hong Kong
Funds managers
in Australia are subject
to
regulation by The Australian Securities and Investment
Commission (ASIC) through their role in supervising
responsible entities. The regulatory capital requirements
vary for responsible entities depending on the type of
Australian Financial Services or Dealers’ Licence held but
a maximum requirement of $5 million of net tangible
assets applies.
APRA
approved
supervises
tangible assets of at
of
superannuation funds and requires them to also maintain
net
least $5 million. These
requirements are not cumulative where an entity is both
an approved trustee for superannuation purposes and
responsible entity.
trustees
Across the total Group, life and funds management
companies held $766 million in excess of regulatory
capital requirements at 30 June 2003 in aggregate.
122
Notes to the financial statements
NOTE 31 Capital Adequacy continued
Risk Weighted Capital Ratios
Tier One
Tier Two
Less Deductions
Total
Regulatory Capital
Tier One Capital
Shareholders' equity
Eligible loan capital
Total Shareholders' Equity and Loan Capital
Add back foreign currency translation reserve related to non-consolidated
subsidiaries
Less asset revaluation reserve
Less goodwill
Less expected dividend
Less intangible component of investment in non-consolidated subsidiaries
Less outside equity interest in entities controlled by non-consolidated subsidiaries
Less outside equity interest in life insurance statutory funds
Total Tier One Capital
Tier Two Capital
Asset revaluation reserve
General provision for bad and doubtful debts (1)
FITB related to general provision
Upper Tier two note and bond issues
Lower Tier two note and bond issues
Less lower Tier two adjustment to 50% of tier one capital
Total Tier Two Capital
Tier One and Tier Two Capital
Less Investment in non-consolidated subsidiaries (net of intangible component
deducted from Tier one)
Less other deductions
Capital Base
(1)
Excludes general provision for bad and doubtful debts in non-consolidated subsidiaries.
2003
Actual
%
6.96
4.21
(1.44)
9.73
2003
$M
22,152
351
22,503
147
(7)
(5,029)
(1,066)
(4,388)
(123)
(1,824)
10,213
7
1,321
(391)
250
4,990
-
6,177
16,390
(2,072)
(42)
14,276
GROUP
2002
Actual
%
6.78
4.28
(1.26)
9.80
GROUP
2002
$M
21,056
415
21,471
90
(4)
(5,391)
-
(4,588)
-
(2,017)
9,561
4
1,351
(392)
297
4,934
(154)
6,040
15,601
(1,741)
(40)
13,820
123
Notes to the financial statements
NOTE 31 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
Claims on OECD banks and local governments
Advances secured by residential property(1)
All other assets
Total On Balance Sheet Assets - Credit Risk(2)(3)
Off-balance Sheet Exposures (4)
Direct credit substitutes
Trade and performance related items
Commitments (5)
Foreign exchange, interest rate and other
market related transactions
Total Off Balance Sheet Exposures - Credit Risk (6)
Total risk-weighted assets - credit risk
Risk-weighted assets - market risk
Total Risk-Weighted Assets
Face Value
2003
$M
2002
$M
Risk
Weights
%
GROUP
Risk-Weighted
Balance
2002
$M
2003
$M
23,832
12,427
103,987
74,472
214,718
22,315
13,401
86,378
77,474
199,568
0%
20%
50%
100%
-
2,485
51,993
74,472
128,950
-
2,680
43,189
77,474
123,343
Face Value
2003
$M
2002
$M
2003
$M
Credit
Equivalent
2002
$M
GROUP
Risk-Weighted
Balance
2002
$M
2003
$M
3,746
992
58,674
4,042
1,157
3,746
463
48,040 10,882
603,726
667,138
583,752 17,475
636,991 32,566
4,042
538
13,400
12,993
30,973
3,238
435
7,832
5,028
16,533
145,483
1,325
146,808
3,597
507
8,491
3,921
16,516
139,859
1,190
141,049
(1)
(2)
(3)
(4)
(5)
(6)
For loans secured by residential property approved after 5 September 1994, a risk weight of 100% applied where the loan to valuation
ratio is in excess of 80%. Effective from 28 August 1998, a risk weight of 50% applies to these loans if they are totally insured by an
acceptable lender’s mortgage insurer. Loans that are risk weighted at 100% are reported under ‘All other assets’.
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, general provision for bad and doubtful debts,
and investments in life insurance and fund management business.
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.
Off-balance sheet exposures for 2002 have been restated to be consistent with 2003, in accordance with APRA’s classification of certain
items for capital adequacy reporting purposes.
The reduction in the risk weighting of commitments was achieved by improved classification of assets by risk weight, principally through
the identification of additional eligible security and by more accurate classification of counterparties.
Off balance sheet exposures secured by the residential property account for $10.4 billion of off balance sheet credit equivalent assets
($5.2 billion of off balance sheet risk weighted assets).
124
Notes to the financial statements
NOTE 32 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, with actual maturities shorter than the contractual terms. Therefore this
information is not relied upon by the Bank in the management of its interest rate risk in Note 31.
GROUP
Maturity Period At 30 June 2003
Assets
Cash and liquid assets
Receiviables due from other financial
institutions
Trading securities (1)
Investment securities
Loans, advances and other receivables (2)
Bank acceptances of customers
Life assets
Other monetary assets
Total Monetary Assets
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
1,033 -
4,542 -
-
-
-
5,575
1,256 -
- -
- -
5,054
756
10,435 -
2,034
1,339
4,457 14,128
1,515
- -
4,109 -
582 -
13,197 -
473
7
1,857
15,616
4,457 66,168
8,495
-
-
6,407
18,094 37,167
-
3,142
21,364 46,721
86,311
-
2,950
5 -
90,517
7,066
10,435
11,036
(1,325) 160,347
13,197
15,304 27,835
631 16,841
14,610 252,332
-
-
-
-
-
1,256 -
Liabilities
Deposits and other public borrowings (3)
Payables due to other financial institutions
Bank acceptances
Life Liabilities
Debt issues and loan capital
Other monetary liabilities
Total Monetary Liabilities
81,385 -
1,438 -
- -
- -
- -
1 -
82,824 -
38,334
5,724
15,138
376
13,197 -
-
4,962
-
-
-
3,911 12,005
-
19,449 16,967
24
-
13,352
17,043
87,650
1,155 - 140,974
-
7,538
13,197
-
23,861 23,861
416 36,654
284 17,352
24,561 239,576
-
-
-
6,970
-
8,125
(1)
(2)
(3)
Trading securities are purchased without the intention to hold until maturity and are categorised as maturing within 3 months.
$87 billion of this figure represents 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 has historically been less than 5 years.
Includes substantial ‘core’ deposits that 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 39.
During the financial year, significant growth in variable rate, long-term loans occurred. This has been funded principally
by at call variable rate retail deposits.
125
Notes to the financial statements
NOTE 32 Maturity Analysis of Monetary Assets and Liabilities continued
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
Life assets
Other monetary assets
Total Monetary Assets
Liabilities
Deposits and other public borrowings (3)
Payables due to other financial institutions
Bank acceptances
Life Liabilities
Debt issues and loan capital
Other monetary liabilities
Total Monetary Liabilities
0 to 3
At Call Overdrafts months
$M
$M
$M
GROUP
Maturity Period At 30 June 2002
3 to 12
Months
$M
1 to 5
Over
years 5 years
$M
$M
Not
specified
$M
Total
$M
2,266 -
3,778 - - -
-
6,044
2,182 -
- -
- -
1,730
- -
4,490 -
2 -
319
5,216
11 -
8,389 - - -
2,883
2,354
4,204 14,918
40,031 73,072
1,316 - -
11,201
3,413
4,332
1,601
25 - -
11,976
49,798 78,839
4,204 59,962
105
14,475
17,012
5,424
772
10,670
16,959
405
32,778
5,671
11,201
1,451
75,368 -
50
1,726 -
- -
1,316 - -
- - - - - -
10,340
- -
4,020
16,594 - - -
4 -
5,521
76,584
77,098 -
6,231
12
16,011
23,058
9,768
4,378
-
-
-
(1,356)
-
15,501
598
7,728
8,389
10,766
147,074
12,517
30,109
12,601
14,743 235,228
-
-
25,917
496
256
13 132,800
7,864
12,517
25,917
29,002
16,854
26,682 224,954
(1)
(2)
(3)
Trading securities are purchased without the intention to hold until maturity and are categorised as maturing within three months.
$75 billion of this figure represents 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 has historically been less than 5 years.
Includes substantial ‘core’ deposits that 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 39.
During the financial year, significant growth in variable rate, long-term loans occurred. This has been funded principally
by at call variable rate retail deposits.
126
Notes to the financial statements
NOTE 33 Financial Reporting by Segments
Primary Segment
Business Segments
Financial Performance
Interest income
Premium and related revenue
Other income
Total Revenue
GROUP
Year Ended 30 June 2003
Funds
Banking Management
$M
$M
Life
Insurance
$M
Total
$M
11,528
-
2,803
14,331
- -
- 1,011
1,133 620
1,133 1,631
11,528
1,011
4,556
17,095
Interest expense
6,502
- -
6,502
Segment result before tax, goodwill amortisation and appraisal
value (reduction)/uplift
Income tax expense
Segment result after tax and before goodwill amortisation
and appraisal value (reduction)/uplift
Outside equity interest
Segment result after tax and outside equity interest before
goodwill amortisation and appraisal value (reduction)/uplift
Goodwill amortisation (1)
Appraisal value (reduction)/uplift (1)
Net Profit Attributable to Shareholders of the Bank
Non-Cash Expenses
Goodwill amortisation
Charge for bad and doubtful debts
Depreciation
Appraisal value reduction
Other
Financial Position
Total assets
Acquisition of property, plant and equipment,
Intangibles and other non-current assets
Associate investments
Total liabilities
3,187
(938)
206
8
150
(28)
3,543
(958)
2,249
-
214 122
-
(6)
2,585
(6)
2,249
208 122
2,249
208 122
305
109
- -
8 11
112
1 -
2,579
(322)
(245)
2,012
322
305
128
245
113
229,289
19,622
16,199
265,110
98
214
216,939
16
12
17,044
6
61
8,975
120
287
242,958
(1)
These are Group items and accordingly are not allocated to the business segments, which is consistent with management reporting.
127
Notes to the financial statements
NOTE 33 Financial Reporting by Segments continued
Financial Performance
Interest income
Premium and related revenue
Other income
Appraisal value uplift
Total Revenue
Interest Expense
Segment result before tax, and appraisal value uplift, goodwill
amortisation
Income tax expense
Segment result after income tax and before goodwill
amortisation and appraisal value uplift
Outside equity interest
Segment result after tax and outside equity interest before
goodwill amortisation and appraisal value uplift
Goodwill amortisation
Appraisal value uplift
Net Profit Attributable to Shareholders of the Bank
Non-Cash Expenses
Goodwill amortisation
Charge for bad and doubtful debts
Depreciation
Other
Financial Position
Total assets
Acquisition of property, plant and equipment,
intangibles and other non-current assets
Associate investments
Total liabilities
GROUP
Year Ended 30 June 2002
Funds
Banking Management
$M
$M
Life
Insurance
$M
10,455
-
3,180
- -
866
-
293
690
13,635
690
1,159
Total
$M
10,455
866
4,163
477
15,961
5,745
- -
5,745
2,884
(816)
399
(31)
135
(69)
2,068
(1)
66
- -
368
2,067
2,067
368
368
66
66
449
109
87
- -
12
7
1
2
3,418
(916)
2,502
(1)
2,501
(323)
477
2,655
323
449
128
90
211,130
20,531
17,987
249,648
147
235
200,885
17 -
48
30
9,584
18,123
164
313
228,592
128
Notes to the financial statements
NOTE 33 Financial Reporting by Segments continued
Financial Performance
Interest income
Premium and related revenue
Other income
Appraisal value uplift
Total Revenue
$M
Funds
Banking Management
$M
11,900 -
-
2,224
-
2,224
-
2,485
-
14,385
GROUP
Year Ended 30 June 2001
Life
Insurance
$M
-
695
553
-
1,248
Total
$M
11,900
695
5,262
474
18,331
Interest Expense
7,426 -
-
7,426
Segment result before tax, goodwill amortisation and
appraisal value uplift
Income tax expense
Segment result after income tax and before goodwill
amortisation and appraisal value uplift
Outside equity interest
Segment result after tax and outside equity interest before
goodwill amortisation and appraisal value uplift
Goodwill amortisation
Appraisal value uplift
Net profit attributable to shareholders of the Bank
Non Cash Expenses
Goodwill amortisation
Charge for bad and doubtful debts
Depreciation
Other
Financial Position
Total assets
Acquisition of property, plant and equipment,
intangibles and other non-current assets
Associate investments
Total liabilities
2,512
(705)
478
(155)
279
(133)
1,807
(14)
323
-
146
-
1,793
1,793
323
323
146
146
385 -
5
108
4
28
-
37
5
3,269
(993)
2,276
(14)
2,262
(338)
474
2,398
338
385
150
37
191,333
20,830
18,248
230,411
129
249
179,733
3 -
94
10,665
57
20,165
391(1)
400
210,563
(1)
Includes intangible assets of $259 million on acquisition of 25 % interest in ASB Group.
129
Notes to the financial statements
NOTE 33 Financial Reporting by Segments continued
Secondary Segment
GEOGRAPHICAL SEGMENTS
Revenue
Australia
New Zealand
Other Countries*
Net profit attributable to shareholders of the Bank
Australia
New Zealand
Other Countries*
Assets
Australia
New Zealand
Other Countries*
Acquisition of Property, Plant & Equipment,
Intangibles and other Non-current Assets
Australia
New Zealand
Other Countries*
2003
$M
%
2002
$M
%
2001
$M
%
13,934
2,025
1,136
17,095
1,385
539
88
2,012
221,248
27,567
16,295
265,110
81.6
11.8
6.6
100.0
68.8
26.8
4.4
100.0
12,651
1,591
1,719
15,961
2,569
178
(92)
2,655
79.3
10.0
10.7
100.0
96.8
6.7
(3.5)
100.0
15,265
1,499
1,567
18,331
2,228
159
11
2,398
83.5
10.4
6.1
208,673
24,579
16,396
83.6
9.8
6.6
196,918
20,208
13,285
83.3
8.2
8.5
100.0
92.9
6.6
0.5
100.0
85.5
8.8
5.7
100.0
249,648
100.0
230,411
100.0
98
6
16
120
81.7
5.0
13.3
100.0
134
26
4
164
81.7
15.9
2.4
100.0
360
29
2
391
92.1
7.4
0.5
100.0
*
Other Countries are:
United Kingdom, United States of America, Japan, Singapore, Hong Kong, Grand Cayman, Philippines, Fiji, Indonesia,
China and Vietnam.
The geographical segments represent the location in which the transaction was booked.
130
Notes to the financial statements
NOTE 34 Life Insurance Business
The following information, in accordance with AASB 1038, is provided to disclose the statutory life insurance business
transactions contained in the Group financial statements and the underlying methods and assumptions used in their
calculation. Also refer Notes 1 (ii) and 21. The life insurance segment result is prepared on a business segment basis, refer
Note 33.
Summarised Statement of Financial Performance
Premium and related revenue
Outward reinsurance premiums expense
Claims expense
Reinsurance recoveries
Investment revenue (excluding investments in subsidiaries)
Equity securities
Debt securities
Property
Other
Life insurance policy liabilities expense
Margin on services operating income
Change in excess of net market values over net assets
of life insurance controlled entities
Life Insurance operating income
Administration expense
Operating profit before income tax
Income tax attributable to operating profit
Operating (loss) profit after income tax
Sources of life insurance operating profit
The Margin on Services operating (loss) profit after income tax is represented by:
Emergence of planned profit margins
Difference between actual and planned experience
Movement in excess of net market value over net assets of controlled entities
Reversal of previously recognised losses or loss recognition on groups of
related products
Investment earnings on assets in excess of policyholder liabilities
Other
Operating (loss) profit after income tax
Life insurance premiums received and receivable
Life insurance claims paid and payable
2003
$M
1,326
(200)
(471)
132
(680)
894
374
46
(546)
875
(245)
630
(697)
(67)
45
(22)
228
(67)
(245)
(11)
73
-
(22)
4,158
5,843
GROUP
2002
$M
1,332
(192)
(447)
89
(1,057)
878
184
(105)
315
997
477
1,474
(757)
717
(22)
695
234
(37)
477
(9)
33
(3)
695
5,734
5,755
131
Notes to the financial statements
NOTE 34 Life Insurance Business continued
Carrying Values of Life Insurance and Funds Management Business
The following table sets out the components of the carrying values of the Bank’s life insurance and funds management
businesses, together with the key actuarial assumptions that have been used. These are Directors’ valuations based on
appraisal values using a range of economic and business assumptions determined by management which are reviewed by
independent actuaries Trowbridge Deloitte.
Analysis of Movement since 30 June 2002
Profits
Net Capital Movements (2)
Dividends paid
Disposals/acquisitions of Business (3)
Foreign Exchange Movements
Change in Shareholders’ net tangible assets
Acquired excess (4)
Underlying Appraisal Value
(Reduction)/ Uplift
(Decrease)/Increase to 30 June 2003
Shareholders’ Net Tangible Assets
30 June 2002 balance
Profits
Net capital movements
Disposals/acquisitions of Business(3)
Foreign Exchange Movements
30 June 2003 balance
Value in Force Business
30 June 2002 balance
Acquisitions of business (4)
(Reduction)/Uplift
30 June 2003 balance
Value Future New Business
30 June 2002 balance
Acquisitions of business (4)
(Reduction)/Uplift
30 June 2003 balance
Carrying Value at 30 June 2003
Shareholders’ net tangible assets
Value in force business
Embedded value
Value future new business
Carrying Value
Funds
Life Insurance
$M
71
98
Asia (1)
Management (5) Australia (6) New Zealand
$M
$M
$M
5
46
208
36
1
154
-
(196)
(111) -
(20)
(110) - -
(92)
(1)
(71)
46
- -
(3)
55
129 -
(4)
52
(291)
(110)
123
178
15
61
(92)
(163)
702
208
(42)
(110)
(4)
754
1,209
71
(13)
-
(3)
1,264
334
46
1
-
(1)
380
679
5
36
(20)
(92)
608
Total
$M
330
289
(307)
(130)
(100)
82
129
(245)
(34)
2,924
330
(18)
(130)
(100)
3,006
1,221 178 179 40 1,618
84 - - - 84
(139)
1,123 245 191 4 1,563
(182)
(36)
67
12
3,660
275
23
45 - -
3
56
278
79
(109)
3,596
80
-
(56)
24
4,038
45
(106)
3,977
754 1,264 380 608 3,006
1,123 245 191 4 1,563
1,877 1,509 571 612 4,569
3,596 79 278 24 3,977
5,473 1,588 849 636 8,546
(1)
(2)
(3)
(4)
(5)
(6)
The Asian life businesses are not held in the market value environment and are carried at net assets plus any excess representing the
difference between appraisal value and net assets at the time of acquisition. This excess which effectively represents goodwill is being
amortised on a straight line basis over 20 years.
Includes capital injections and movements in intergroup loans.
Represents the purchase of management rights in CFS Retail Property Trust, the acquisition of Avanteos, investment in a Chinese funds
management joint venture, disposal of some Colonial First State UK business and disposal of the Philippines life insurance business.
Represents the value of acquired management rights of CFS Retail Property Trust, the acquisition of Avanteos and investment in a
Chinese funds management joint venture.
"Managed Products" business was reported at 30 June 2002 as "Funds Management" and "Life Insurance - Australia - Investment"
business. These businesses have been combined.
"Life Insurance - Australia" business was reported at 30 June 2002 as "Life Insurance - Australia - Risk" business. This business
includes risk, traditional, investment account and annuity business.
132
Notes to the financial statements
NOTE 34 Life Insurance Business continued
The following table reconciles the carrying values of the life and funds management businesses to the value of
investments in non-consolidated subsidiaries as shown in the capital adequacy calculation in Note 31.
Reconciliation of the components of the carrying value to the value of investments in non-consolidated subsidiaries
Intangible component of investment in non-consolidated subsidiaries deducted from
Tier 1 capital comprises:
Value future new business
Value of self-generated in force business
Investment in non-consolidated subsidiaries deducted from Total Capital comprises:
Shareholders’ net tangible assets in life and funds management businesses
Capital in other non-consolidated subsidiaries
Value of acquired in force business (1)
Less non-recourse debt
2003
$M
3,977
411
4,388
3,006
286
1,152
(2,372)
2,072
2002
$M
4,038
550
4,588
2,924
122
1,068
(2,373)
1,741
(1)
The increase in the value of acquired in force business principally relates to the acquisition of management rights of CFS Retail Property
Trust.
Key Assumptions Used in Appraisal Values
The following key assumptions have been used by in determining the appraisal values. Other actuarial assumptions
used in the valuation are described in the section Actuarial Methods and Assumptions.
As at 30 June 2003
Life insurance entities
Australia
New Zealand
Asia
- Hong Kong
- Other
Funds management entities
Australia
As at 30 June 2002
Life insurance entities
Australia
New Zealand
Asia
- Hong Kong
- Other
Funds management entities
Australia
New
Business
Multiplier
8
8
8
various
Risk
Discount
Rate
%
10.8
10.9
11.5
various
Value of
Franking
Credits
%
70
-
-
-
n/a
11.9
70
New
Business
Multiplier
9
8
10
various
n/a
Risk
Discount
Rate
%
11.5
12.0
HKD13.0
USD12.0
various
13.0
Value of
Franking
Credits
%
70
-
-
-
70
The movement in the risk discount rate is based on the change in the underlying risk free rate using a capital asset
pricing model framework. This framework utilises the local 10-year government bond yield as the proxy for the risk free rate.
The movement in risk discount rates have been accompanied by broadly equivalent movements in assumed future
investment returns.
133
Notes to the financial statements
NOTE 34 Life Insurance Business continued
Policy Liabilities
Appropriately qualified actuaries have been appointed in respect of each life insurance business and they have reviewed
and satisfied themselves as to the accuracy of the policy liabilities included in this financial report, including compliance with
the regulations of the Life Insurance Act (Life Act) 1995 where appropriate. Details are set out in the various statutory returns
of these life insurance businesses.
Components of policy liabilities:
Future policy benefits (1)
Future bonuses
Future expenses
Future profit margins
Future charges for acquisition expenses
Balance of future premiums
Provisions for bonuses not allocated to participating policyholders
Total policy liabilities
(1)
Including bonuses credited to policyholders in prior years.
Taxation
Taxation has been allowed for in the determination of
policy liabilities in accordance with the relevant legislation
applicable in each territory.
On 1 July 2000 a new tax regime for life insurance
companies commenced in Australia. The primary effect of
this regime is to tax profits that had previously not been
subject to taxation. Allowance has been made in the
appraisal values and policy liabilities of the life insurance
businesses for the impact of the new tax requirements.
2003
$M
27,426
1,188
1,637
1,420
(916)
(6,956)
62
23,861
2002
$M
29,164
1,493
2,259
1,343
(1,085)
(7,330)
73
25,917
Actuarial Methods and Assumptions
Policy liabilities have been calculated in accordance
with the Margin on Services (MoS) methodology as set out
in Actuarial Standard 1.03 – Valuation Standard (‘AS1.03’)
issued by the Life Insurance Actuarial Standards Board
(‘LIASB’). The principal methods and profit carriers used
for particular product groups, are as follows:
Product Type
Individual
Conventional
Investment account
Investment linked
Lump sum risk
Income stream risk
Immediate annuities
Group
Investment account
Investment linked
Lump sum risk
Income stream risk
Method
Profit Carrier
Projection
Projection
Accumulation
Projection
Projection
Projection
Projection
Accumulation
Projection
Accumulation
Projection
Bonuses / dividends or expected claim payments
Bonuses or asset charges
Not applicable
Premiums/claims
Expected claim payments
Bonuses or annuity payment
Bonuses or asset charges
Not applicable
Claims
Premiums (implied)
Expected claim payments
134
Notes to the financial statements
NOTE 34 Life Insurance Business continued
Actuarial Assumptions
The
‘Projection Method’ measures
the present
values of estimated future policy cash flows to calculate
policy
incorporate
investment income, premiums, expenses, redemptions
and benefit payments.
liabilities. The policy cash
flows
The
‘Accumulation Method’ measures
the
accumulation of amounts invested by policyholders plus
investment earnings less fees specified in the policy to
calculate policy liabilities. Deferred acquisition costs are
offset against this liability.
Bonuses are amounts added, at the discretion of the
life insurer, to the benefits currently payable under
Participating Business. Under the Life Act, bonuses are
a distribution to policyholders of profits and may take
a number of
reversionary bonuses,
including
interest credits and capital growth bonuses (payable on
the termination of the policy).
forms
Class of Business
Traditional – ordinary business (after tax)
Traditional – superannuation business (after tax)
Annuity business (after tax)
Term life insurance – ordinary business (after tax)
Term life insurance – superannuation business (after tax)
Disability business (before tax)
Investment linked – ordinary business (after tax)
Investment linked – superannuation business (after tax)
Investment linked – exempt (after tax)
Investment account – ordinary business (after tax)
Investment account – superannuation business (after tax)
Bonuses
The
valuation assumes
long-term
supportable bonuses will be paid, which is in line with
company bonus philosophy. There have been no
significant changes to these assumptions.
that
the
Maintenance expenses
The maintenance expenses are based on an internal
analysis of experience and are assumed to increase in
line with inflation each year and are assumed to be
sufficient to cover the cost of servicing the business in the
coming year after adjusting for one off expenses. For
participating business, expenses continue on the previous
charging basis.
For other operations maintenance expense
assumptions are based on an analysis of experience over
the past year taking into account future business plans.
‘One-off’ expenses are excluded.
Investment management expenses
Investment management expense assumptions are
based on the contractual fees (inclusive of an allowance
for inflation) as set out in Fund Manager agreements.
There have been no significant changes
these
assumptions.
to
Inflation
The inflation assumption is consistent with the
investment earning assumptions. There have been no
significant changes to these assumptions.
Benefit indexation
The indexation rates are based on an analysis of past
experience and estimated long term inflation and vary by
135
Set out below
the material
assumptions used in the calculation of policy liabilities.
These assumptions are also used in the determination of
appraisal values.
is a summary of
Discount Rates
These are the rates used to discount further cash
flows to determine their net present value in the policy
liabilities. The discount
rates are determined with
reference to the expected earnings rate of the assets that
support the policy liabilities adjusted for taxation where
relevant. The following table shows the applicable rates
for the major classes of business in Australia and New
Zealand. The changes relate to changes in long term
earnings rates, asset mix and reflect the new tax regime
for Australian business.
Discount Rates
June 2003
Rate Range %
5.44 – 6.19
6.65 – 7.58
5.46 – 6.67
3.16 – 3.85
3.16 – 3.85
5.50
4.88 – 5.68
6.33 – 6.84
7.20 – 8.27
3.67
4.46
June 2002
Rate Range %
6.21-6.96
7.58-8.52
6.49-7.86
3.89-4.55
3.89-4.55
6.50
5.89-6.45
7.51-7.96
8.52-9.13
4.41
5.36
business and product type. There have been no
significant changes to these assumptions.
Taxation
The taxation basis and rates assumed vary by
territory and product type. For the Australian business it
reflects the new regime for life insurance companies
effective 1 July 2000.
Voluntary discontinuance
Discontinuance rates are based on recent company
and industry experience and vary by territory, product, age
and duration in force. There have been no significant
changes to these assumptions.
Surrender values
Current surrender value bases are assumed to apply
in the future. There have been no significant changes to
these assumptions.
Unit price growth
Unit prices are assumed to grow in line with
assumed investment earnings assumptions, net of asset
charges as per current company practice. There have
been no significant changes to these assumptions.
Mortality and Morbidity
Rates vary by sex, age, product type and smoker
status. Rates are based on standard mortality tables
applicable to each territory e.g. IA90-92 in Australia for
risk, IM/IF80 for annuities, adjusted for recent company
and industry experience where appropriate.
Managed assets & fiduciary activities
Arrangements are in place to ensure that asset
management and other fiduciary activities of controlled
entities are independent of the life insurance funds and
other activities of the Bank.
Disaggregated Information
the Australian Life
Insurance Act 1995,
Life insurance business is conducted through a
number of life insurance entities in Australia and overseas.
Under
life
insurance business is conducted within one or more
separate statutory funds, which are distinguished from
each other and from the shareholders’ funds. The financial
statements of Australian
in
accordance with AASB 1038, (and which are lodged with
regulators) show all major
the
components of the financial statements disaggregated
between the various life insurance statutory funds and
their shareholder funds.
relevant Australian
insurers prepared
life
Notes to the financial statements
NOTE 34 Life Insurance Business continued
Solvency
Australian Life Insurers
Australian
life
required
insurers are
to hold
prudential reserves in excess of the amount of policy
liabilities. These reserves are required to support capital
adequacy requirements and provide protection against
adverse experience. Actuarial Standard AS2.03 ‘Solvency
Standard’
(‘AS2.03’) prescribes a minimum capital
requirement and the minimum level of assets required to
fund. All controlled
be held
Australian
the
solvency requirements of AS2.03. Further information is
available from the individual statutory returns of subsidiary
life insurers.
Overseas life insurers
insurance entities complied with
insurance
in each
life
life
Overseas life insurance subsidiaries are required to
hold reserves in excess of policy liabilities in accordance
with local Acts and prudential rules.
Each of the overseas subsidiaries complied with
local requirements. Further information is available from
the individual statutory returns of subsidiary life insurers.
136
Notes to the financial statements
NOTE 35 Remuneration of Auditors
Amounts paid or due and payable for audit services to:
Ernst & Young
Other Auditors
Amounts paid or due and payable for non-audit services to
Ernst & Young:
Audit related services
Taxation services
All other services
Corporate finance services
Staff assistance services
Other services
2003
$'000
6,634
137
6,771
752
325
628
1,263
321
3,289
GROUP
2002
$'000
2003
$'000
BANK
2002
$'000
5,197
2,555
100 -
2,555
5,297
1,909
-
1,909
666
435
578
1,551
921
4,151
571
170
528
827
122
2,218
660
103
155
1,551
685
3,154
Total Remuneration of Auditors
10,060
9,448
4,773
5,063
Effective 27 May 2002, the majority of partners of
the
former Australian accounting practice Andersen
became partners of Ernst & Young. A small number of
these partners had loans with the Group on normal
commercial terms. By virtue of Australian Securities and
Investments Commission (ASIC) Class Order 02/0606
dated 24 May 2002 as amended, Ernst & Young were
relieved from compliance with sections 324(1) and 324(2)
of the Corporations Act 2001 until 13 December 2002.
During its currency this Class Order required:
(cid:1)
The Bank to notify ASIC within 30 days of any event
of default or enforcement action taken in respect of
these loans;
The Bank to notify ASIC within 7 days of the signing
of the Auditors’ Report whether, in the opinion of the
the Class Order has been
Audit Committee,
complied with;
Ernst & Young not assign any of these partners to
the audit of the Bank or any controlled entity; and
Ernst & Young to notify ASIC within 7 days of the
signing of the Auditors’ Report whether the audit has
been influenced by these loans.
Ernst & Young were fully compliant with sections
324(1) and 324(2) of the Corporations Act 2001 prior to
expiry of the Class Order on 13 December 2002.
(cid:1)
(cid:1)
The Audit Committee has considered the non-audit
services provided by Ernst & Young and is satisfied that
the services and level of fees are compatible with
maintaining auditors' independence.
in
Audit
relation
to statutory and
Fees for audit services includes fees associated with
statutory audit services, review of the Group's half year
financial statements, audit of the Group's US Form 20-F,
services
regulatory
requirements, and other services that only the external
auditor can provide such as comfort letters on debt issues.
include
accounting and regulatory consultations, due diligence in
connection with acquisitions and disposals and
investigations and verification of internal control systems,
and financial or regulatory information.
fees
tax and GST
compliance and related advice, and tax technology and
related training.
related services
fees principally
Taxation
income
include
All other fees principally include transaction support
services related to potential and actual acquisition and
disposition transactions, research and investigation of
potential suppliers and provision of personnel to assist
alleviate short term non-management resource or skill
needs in areas not subject to audit.
137
Notes to the financial statements
NOTE 36 Commitments for Capital Expenditure Not Provided for in the Accounts
Not later than one year
Later than one year but not later than two years
Later than two years but not later than five years
Later than five years
Total Commitments for Capital Expenditure Not Provided
for in the Accounts
NOTE 37 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 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 five years
Later than five years
Total Lease Commitments - Property, Plant and Equipment
Lease Arrangements
Leases entered into by the Group are for the
purpose of accommodating the business needs. Leases
may be over retail, commercial, industrial and residential
premises and reflect the needs of the occupying business
and market conditions. All leases are negotiated using
either internal or external professional property resources
acting for the Group.
Rental payments are determined in terms of relevant
lease requirements – usually reflecting market rentals.
2003
$M
48
-
-
-
GROUP
2002
$M
42
-
-
-
2003
$M
23
-
-
-
BANK
2002
$M
26
-
-
-
48
42
23
26
2003
$M
GROUP
2002
$M
264
587
160
1,011
274
642
200
1,116
2003
$M
228
503
104
835
BANK
2002
$M
220
508
124
852
27
51
1
79
11
26
2
39
The Group as lessee has no purchase options over
premises occupied.
There are no restrictions imposed on the Group’s
lease of space other than those forming part of the
negotiated lease arrangements for each specific premise.
138
Notes to the financial statements
NOTE 38 Contingent Liabilities
The Group is involved in a range of transactions that
give rise to contingent and/or future liabilities. These
transactions meet
requirements of
customers and include endorsed bills of exchange, letters
of credit, guarantees and commitments to provide credit.
financing
the
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 that would have
a material adverse effect on the financial condition of the
Bank and its controlled entities.
Details of contingent liabilities and off balance sheet business (excluding Derivatives – Note 39) 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
2002
$M
GROUP
Credit Equivalent
2002
$M
2003
$M
1,806
464
1,073
134
1,023
47,652
1,168
53,320
2,075
380
589
22
441
10,519
1,081
15,107
1,806
464
1,073
27
511
13,012
1,095
17,988
2003
$M
2,075
380
589
110
882
58,310
2,720
65,066
Guarantees represent unconditional undertakings by
the Group to support the obligations of its customers to
third parties.
Standby letters of credit are undertakings by the
Group to pay, against production of documents, an
obligation in the event of a default by a customer.
Bill endorsements relate to bills of exchange that
have been endorsed by the Group and represent liabilities
in the event of default by the acceptor and the drawer of
the bill.
The credit equivalent exposure from direct credit
substitutes (guarantees, standby letters of credit and bill
endorsements) is the face value of the transaction,
whereas the credit equivalent 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.
Documentary
letters of credit
represent an
undertaking to pay or accept drafts drawn by an overseas
supplier of goods against production of documents in the
event of payment default by a customer.
Performance
involve
undertakings by
if
a customer fails to fulfil a contractual non-monetary
obligation.
related
the Group
third parties
contingents
to pay
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 raised.
Commitments to provide credit include all obligations
on the part of the Group to provide credit facilities.
Other commitments include the Group’s obligations
under sale and repurchase agreements, outright forward
purchases and
forward deposits and underwriting
facilities.
Contingent Assets
The credit risk related contingent
liabilities of
$65,066 million (2002: $53,320 million) detailed above
also represent contingent assets of the Group. Such
commitments to provide credit may in the normal course
convert to loans and other assets of the Group.
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
the event of non performance by
counterparty.
in
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.
139
Notes to the financial statements
NOTE 38 Contingent Liabilities continued
Indemnities under UK Sale Agreement
Fiduciary Activities
The Group has contingent liabilities that relate to
indemnities given under an agreement for the sale of
Colonial Life (UK) Ltd and Colonial Pension Fund Ltd to
the Winterthur Group.
These indemnities cover potential claims that could
arise from prior period mis-selling activities in the UK for
pension and mortgage endowment products. Under the
sales agreement
liabilities are shared between
Winterthur and the Group on a pre-determined basis.
the
Funds under management
Australia
United Kingdom
New Zealand
Asia
Funds under trusteeship
Australia
The Group and its associated entities conduct
investment management and other fiduciary activities as
responsible entity, trustee, custodian or manager for
including
numerous
superannuation and approved deposit funds, wholesale
and retail trusts. The amounts of funds concerned that are
not reported in the Group’s balance sheet are as follows:
funds and
investment
trusts,
2003
$M
59,318
6,908
3,812
1,369
71,407
28,223
2002
$M
60,234
12,088
3,402
1,759
77,483
21,785
Funds under custody and investment administration
Australia (1)
57,777
79,162
(1)
The Group has agreed to novate a significant portion of this business after year end.
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 Group companies are engaged to act in more
than one capacity (e.g. as trustee and fund manager).
Certain entities within the Group act as responsible
entity or trustee of various managed schemes (‘schemes’),
wholesale and retail trusts (‘trusts’). Liabilities are incurred
by these entities in their capacity as responsible entity or
trustee. Rights of indemnity are held against the schemes
and trusts whose assets exceeded their liabilities at 30
June 2003. Where entities within the Group act as
manager of unit trusts, obligations exist under the relevant
Trust Deeds, whereby upon request from a unit holder, the
manager has an obligation to repurchase units from the
trust or to arrange for the relevant trustee to redeem units
from the assets of those trusts. It is considered unlikely
that these entities will need to repurchase units from their
own funds.
The Commonwealth Bank of Australia does not
its
the performance or obligations of
guarantee
subsidiaries.
Long Term Contracts
the Bank entered
In 1997, the Bank entered into a ten year contract
with an associated entity, EDS (Australia) Pty Ltd, relating
to the provision of information technology services. In
2000,
telecommunications
services agreement with TCNZ Australia Pty Ltd for five
years. The exact amounts of these contracts are unable to
be reliably determined as they are dependent upon
business volumes over the period of the contracts.
into a
Liquidity support
In accordance with the regulations and procedures
governing clearing arrangements contained within the
Australian Paper Clearing Stream (Clearing Stream 1) and
the Bulk Electronic Clearing Stream (Clearing Stream 2) of
the Australian Payments Clearing Association Limited, the
Bank is subject to a commitment to provide liquidity
support to these clearing streams in the event of a failure
to settle by a member institution.
Service agreements
The maximum contingent liability for termination
benefits in respect of service agreements with the Chief
Executive Officer and other executives of the Company
and its controlled entities at 30 June 2003 was $10.6
million (2002: $11.4 million).
140
Notes to the financial statements
NOTE 39 Market Risk
The Bank in its daily operations is exposed to a
number of market risks. A market risk is the risk of an
event in the financial markets that results in a loss of
earnings to or a loss of value of the Group, e.g. an
adverse interest rate movement.
Under the authority of the Board of Directors, the
Risk Committee of the Board ensures that all the market
risk exposure is consistent with the business strategy and
within risk tolerance of the Group. Regular market risk
reports are tabled before the Risk Committee of the
Board.
Within the Group, market risk is greatest in the
balance sheets of the banking and insurance businesses.
Market risk also arises in the course of its intermediation
activities in financial services and in financial markets
trading.
Market risk in the balance sheets
The Risk Committee of the Board recommends for
Board approval, all balance sheet market risk policies and
limits. Implementation of the policy is through the Group
Asset and Liability Committee, with operational
management delegated to the Group Executives of the
associated business units.
For bank balance sheets, market risk includes
liquidity risk, funding risk, interest rate risk and foreign
exchange risk. On life and general insurance balance
sheets, market risk is part of the principal means by which
long term liabilities are managed. In this sense and in
contrast to banking, market risk is structural for these
businesses.
Liquidity risk
Balance sheet liquidity risk is the risk of being unable
to meet financial obligations as they fall due. The Group
manages liquidity requirements by currency and by
geographical location of its operations. Subsidiaries are
also included in the Group’s liquidity policy framework.
Liquidity policies are in place to manage liquidity in a day-
to-day sense, and also under crisis assumptions.
Funding risk
Funding risk is the risk of over-reliance on a funding
source to the extent that a change in that funding source
could increase overall funding costs or cause difficulty in
raising
funding
funds. The Group has a policy of
diversification. The funding policy augments the Group’s
liquidity policy with its aim to assure the Group has a
stable diversified funding base without over-reliance on
any one market sector.
Domestically, the Group continues to obtain the
majority of its AUD funding from a stable retail deposit
base which has a lower interest cost than wholesale
funds. The retail funding percentage has risen from 66%
in June 2002 to 67% in June 2003 due to the growth of
“at call” savings. The relative size of the Group’s retail
base has enabled it to source funds at a lower than
average rate of interest than the other major Australian
banks. However, some of this benefit is offset by the cost
of the Group’s extensive retail network and the Group’s
large share (approximately 49%) of pensioner deeming
accounts.
The cost of funds for Financial Year 2003, calculated
as a percentage of interest exposure to average interest
bearing liabilities, was 3.6% on a group basis consistent
with the 3.6% on a group basis for Financial Year 2002.
The Group obtains a significant proportion of its
funding for the domestic balance sheet from wholesale
sources – approximately 22.7%, excluding Bank
Acceptances. The cost of funds raised in the wholesale
markets is affected by independently assessed credit
ratings.
Under current APRA Prudential Standards, each
bank is required to develop a liquidity management
strategy that is appropriate for itself, based on its size and
nature of operations. The objectives of the Group’s
funding and liquidity policies are to:
(cid:1)
(cid:1)
Ensure all financial obligations are met when due;
Provide adequate protection, even under crisis
scenarios, at lowest cost; and
Achieve sustainable, lowest-cost funding within the
limitations of funding diversification requirements.
(cid:1)
141
Notes to the financial statements
NOTE 39 Market Risk continued
A funding diversification policy is particularly important
in offshore markets where the absence of any ‘natural’
offshore funding base means the Group is principally
reliant on money market and capital market sources for
funding. The Group has imposed internal prudential limits
on the relative mix of offshore sources of funds.
Market Risk
Australia
Cheque accounts
Savings accounts
Term deposits
Cash management accounts
Debt issues
Bank acceptances
Certificates of deposit
Life insurance policy liabilities
Loan capital
Securities sold under agreements to repurchase
Other
Total Australia
Overseas
Deposits and Interbank
Commercial paper
Life insurance policy liabilities
Other debt issues
Loan capital
Bank acceptances and other
Total Overseas
Total Funding Sources
Provisions and other liabilities
Total Liabilities
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.
2003
$M
22,341
32,411
32,398
18,756
19,577
13,122
11,228
20,443
5,937
3,231
2,527
181,971
25,621
258
3,418
10,794
88
75
40,254
222,225
20,734
242,959
GROUP
2002
$M
22,921
32,935
28,991
14,330
14,880
12,449
15,832
22,662
5,336
753
2,888
173,977
22,014
5,682
3,255
3,013
91
68
34,123
208,100
20,492
228,592
142
of risk to the next 12 months earnings. To measure this
longer-term sensitivity, the Bank utilises an economic
value-at-risk (VaR) analysis. This analysis measures the
potential change in the net present value of cash flows of
assets and liabilities. Cash flows for fixed rate products
are included on a contractual basis, after adjustment for
forecast prepayment activities. Cash flows for products
repriced at the discretion of the Bank are based on the
expected repricing characteristics of those products.
interest
rate scenarios using
The total cash flows are revalued under a range of
the VaR
possible
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,
VaR exposure for $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 all existing
assets and liabilities held for purposes other then trading.
Exposure as at 30 June
Average monthly exposure
High month exposure
Low month exposure
2003
$M
34
24
64
4
2002
$M
16
29
59
9
framework
A stress-test
rate risk
augments the two risk management perspectives outlined
above. The results of the stress tests are used to refine
policy and limits where appropriate and are reported to the
Group Asset and Liability Committee.
interest
for
for
The
table
rate
following
interest
represents
sensitivity
the Bank’s
repricing
contractual
mismatches as at 30 June 2003 and corresponding
weighted average effective
interest rates. The net
mismatch represents the net value of assets, liabilities and
off balance sheet instruments that may be repriced in the
time periods shown. All assets and liabilities are shown
according to contractual repricing dates. Options are
shown in the mismatch report using the delta equivalents
of the option face values.
Notes to the financial statements
NOTE 39 Market Risk continued
Interest rate risk (Banking)
Interest rate risk in the bank balance sheet arises
from the potential for a change in interest rates to have an
adverse affect on the net interest earnings, in the current
reporting period and in future years. Interest rate risk
arises from the structure and characteristics of the Bank’s
assets, liabilities and equity, and in the mismatch in
repricing dates of its assets and liabilities. The objective is
to manage the interest rate risk to achieve stable and
sustainable net interest earnings in the long term.
The Bank measures and manages balance sheet
interest rate risk from two perspectives:
(a) Next 12 months earnings
The risk to the net interest earnings over the next 12
months for a change in interest rates is measured on a
monthly basis. Risk is measured assuming an immediate
1% parallel movement in interest rates across the whole
yield curve as well as other interest rate scenarios with
variations in size and timing of interest rate movements.
Potential variations in net interest earnings are measured
using a simulation model that takes into account the
projected change in balance sheet asset and liability
levels 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 the other
assets and liabilities (those priced at the discretion of the
Bank) is measured by taking into account both the manner
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 during the year (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 the purposes other than trading.
(expressed as a % of expected
next 12 months' earnings)
2003
%
2002
%
Average monthly exposure
High month exposure
Low month exposure
1.3
2.1
0.4
1.3
1.8
0.7
(b) Economic value
Some of the Bank’s assets and liabilities have
interest rate risk that is not fully captured within a measure
143
Notes to the financial statements
NOTE 39 Market Risk continued
Interest Rate Risk Sensitivity
Balance
Sheet
Total
$M
1 to 3
0 to 1
6 to 12
month months months months
$M
3 to 6
$M
$M
$M
Repricing Period at 30 June 2003
Not Weighted
Interest Average
Rate
%
over 5
years Bearing
$M
1 to 5
years
$M
$M
4,557
3,667 - -
-
- -
890
3.55
3,325
6,334
4,341
137,424
1,266
753
1,070
6,334 - -
36
8,482
521
7,167
82
80,485
36 - -
200
- - -
16
(1,188)
2,720
25,336
467
2,370
-
499
14,772
1.41
4.64
5.38
6.32
13,122 - - -
-
- -
13,122
-
24,185
5,344
444
71
305
2,178
2,240
13,603
4.04
- - -
-
- - -
-
-
4,552 - -
628 - - -
-
- -
9,342
21,966 -
97,178
9,202
220,434
-
-
-
15,612
- -
- -
- -
5,077
30,234
628
4,552
21,966
53,789
-
-
-
4.79
120,365
82,397
15,572
7,910
4,286
4,246
861
5,093
2.97
892
2,527
1,486
132
13,122 - - -
12 - -
-
-
-
850 -
- -
777 -
- -
20,443 -
19,576
1,458
4,452
16,867 - - -
6,378
17 - -
- -
- -
- -
- -
- -
-
13,122
12
850
777
20,443 (3)
4,949
- -
1,187 -
16,867
-
-
-
-
-
1,152
-
5,937
200,476
734
89,069
2,050
24,892
15 -
5,455
9,515
1,320
10,515
1,818 -
57,164
3,866
19,910 -
-
1,936 - - -
21,846 - - -
-
8,186
(21,935)
623
- - -
- - -
(2)
(2)
(2)
(2)
(2)
-
-
-
- -
- -
- -
19,910
1,936
21,846
39
-
-
7,673
5,414 -
- - -
- - -
(13,826)
(13,826)
(7,504)
(21,330)
450
(20,880)
10,196
(10,684)
27,392
16,708
6,625 (25,221)
(1,888)
23,333
1.54
-
-
-
-
-
5.50
-
3.31
2.44
(1)
(1)
(1)
(1)
(1)
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
Life insurance investment
assets
Deposits with regulatory
authorities
Property, plant and equipment
Intangible assets
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
Life insurance policy liabilities
Debt issues
Bills payable and other
liabilities
Loan Capital
Total Liabilities
Shareholders' Equity
Share capital
Outside equity interests
Total Shareholders' Equity
Off Balance Sheet Items
Swaps
FRAs
Futures
Net Mismatch
Cumulative Mismatch
(1)
(2)
(3)
No rate applicable
No balance sheet amount applicable.
Technically, the life insurance policy liabilities are not interest bearing, but the amount of the liability may change in line with changes in
interest rates. This is particularly so with investment linked policies.
144
Notes to the financial statements
NOTE 39 Market Risk continued
Balance
Sheet
3 to 6 6 to 12
1 to 3
Total month months months months
$M
0 to 1
$M
$M
$M
$M
Repricing Period at 30 June 2003
Not Weighted
over 5 Interest Average
Rate
years Bearing
%
$M
1 to 5
years
$M
$M
1,018
868
53
1 -
- -
96 1.75
3,741
4,101
6,695
22,923
448
1,252
2,390
1,064
2,146
5,273
1,424
495
626
9,155
2,145
1,519
1,816
1,972
79 -
237
458
3,687
9 4.32
84 -
308
30 4.31
397 - 6.26
(37) 7.36
483
75 -
75 - - - - - -
1,717 2.54
710
24
15 2.06
8 - - - - -
193 -
193 - - - - - -
477 -
-
477 - - -
1,780 -
-
5.72
4,355
1,898
- -
1,780 - - - - -
9,533
3,650
23
44,676
12,693
4,455
4,194
7,548
966
117
73
43
20,609
11,472
4,299
2,193
749
861
149
886
4.53
-
763
4,021
5,011
68 - - -
26 - - - -
42 -
159
75 - - - - - -
3.12
75 -
- - - - - - - -
26 -
42 -
3,418 -
2.01
2,160 -
8.13
3.11
- -
- - - - -
3,418 - - - - - -
331
2,160 - - - - - -
88 - - -
2,331
- -
6,607
16,543 13,137
139 -
88 -
2,683
1,050
7,987
1,470
893
288
76
42,482
11,053
114 - - - - - -
192 - - - - -
-
306 - - - - - -
114
192
306
(2)
(2)
(2)
(2)
(2)
(2)
579
368
514
(1,827)
(4,216)
(4,216)
4,065
(562)
101
(3,260)
(5,245)
(9,461)
405 (2,495)
(445)
392
(550)
(109)
(1,016)
(305)
(2,349)
(205) -
247 - -
44 - -
1,417 -
4,991
1,453
(8,008)
(503)
(8,511)
10,135
1,624
2,822 (2,558)
1,888
4,446
(1)
(1)
(1)
(1)
(1)
(1)
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
Life insurance investment assets
Deposits with regulatory authorities
Property, plant and equipment
Intangible assets
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
Life insurance policy liabilities
Debt issues
Bills payable and other liabilities
Loan Capital
Total Liabilities
Shareholders' Equity
Share capital
Outside equity interests
Total Shareholders' Equity
Off Balance Sheet Items
Swaps
Options
FRAs
Futures
Net Mismatch
Cumulative Mismatch
(1)
(2)
No rate applicable.
No balance sheet amount applicable.
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.
The Group has a significant portfolio of loans with fixed interest rates maturing in the one to five years repricing period.
Funding is principally raised from retail deposits with at call variable interest rates. The interest rate risk exposure is managed
in accordance with the principles outlined above in this note.
145
Notes to the financial statements
NOTE 39 Market Risk continued
Balance
Sheet
3 to 6 6 to 12
1 to 3
Total month months months months
$M
$M
0 to 1
$M
$M
$M
Repricing Period at 30 June 2002
Not Weighted
Average
Rate
%
over 5 Interest
years Bearing
$M
1 to 5
years
$M
$M
5,426
4,105 - - - -
-
1,321
2.61
547
202
4,333
5,865
4,069
126,330
295 - -
3,491
5,865 - - - -
2,288
110
60
8,980 15,289
353
64,273 11,551
12,449 - -
- - -
3,390
539
5,174
26,102
- - - - - -
- - -
- - -
18,577 - - - - -
31,044
656 - -
4,866 - -
-
-
- -
14
1,042
25,366 2,175 (1,304)
- 12,449
2,790 13,584
- -
656
-
-
4,866
- 18,577
6,007 50,163
83,110 12,990
9,792 15,567
208,673
407
218
2.46
3.61
6.26
6.82
-
5.82
-
-
-
-
6.38
115,497
77,414 10,110
9,114
3,880
7,458
1,495
6,026
2.61
1
20
3,153
1,105
1,965
12
12,449 - - - - -
1,040 - - - - -
1,235 - - - - -
787 - - - - -
- - -
22,363 - -
14,820
6,469
2,404
2,920
2,134
14,508 - - - - -
927
14,866
1,872
81,740 16,007 10,222
543 -
6,285
5,337
191,189
545
227
2.40
50 -
-
- 12,449
-
1,040
-
-
1,235
-
-
-
787
- 22,363 (3) -
4.67
-
4.18
2.89
348 -
- 14,508
1,768 -
3,661 58,408
12,659 - -
2,009 - -
14,668 - -
- - -
- - -
- - -
- 12,659
-
2,009
- 14,668
3,877
(2) (13,383)
(3,048)
(2) - -
(2) - -
(2) (12,013)
(6,065)
(2) (12,013) (18,078) (14,631)
8,246
- - -
- - -
24,424
21,495 25,729
1,888 -
- -
-
-
4,234 (22,913)
2,816
3,447 11,702
(2,929)
2,420
(1)
(1)
(1)
(1)
(1)
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
Life insurance investment assets
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
Life insurance policy liabilities
Debt issues
Bills payable and other liabilities
Loan Capital
Total Liabilities
Shareholders’ Equity
Share capital
Outside equity interests
Total Shareholders' Equity
Off Balance Sheet Items
Swaps
FRAs
Futures
Net Mismatch
Cumulative Mismatch
(1)
(2)
(3)
No rate applicable.
No balance sheet amount applicable.
Technically, the life insurance policy liabilities are not interest bearing, but the amount of the liability may change in line with changes in
interest rates. This is particularly so with investment linked policies.
146
Notes to the financial statements
NOTE 39 Market Risk continued
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.
The Group has a significant portfolio of loans with fixed interest rates maturing in the one to five years repricing period.
Funding is principally raised from retail deposits with at call variable interest rates. The interest rate risk exposure is managed
in accordance with the principles outlined above in this note.
Balance
Sheet
3 to 6 6 to 12
1 to 3
Total month months months months
$M
$M
0 to 1
$M
$M
$M
Repricing Period at 30 June 2002
Not Weighted
Average
Rate
%
over 5 Interest
years Bearing
$M
1 to 5
years
$M
$M
618
506 - - - - -
112
3,395
2,524
6,697
20,744
2,033
489
851
8,481
107
1,372
1,562
2,095
310
185
1,057
1,548
58
80
142
3,461
520
153
2,370
4,748
64
303
168
77
715 -
(52)
463
2.38
5.97
5.12
4.36
6.95
68
4,007
89
206
525
2,102
31
128
778 -
- - - - - -
451
- - - - - -
- - - - - -
- - - - - -
- - - - - -
2,100
8,248
3,131
3,869
5,136
457
68
2,162
89
206
525
2,102
5,353
-
2.76
-
-
-
-
5.95
40,975 13,138
17,303 10,034
3,536
1,688
827
413 -
805
4.24
756
3,821
4,711
53
68 - - - - - -
81 - - -
68
- - - - - - - -
41
47
3,554
39
2,834
90 - -
7,388
344
41 - - - - - -
47 - - - - - -
3,554 - - - - - -
8,755
344
913
2,834 - - - - - -
90 - - - -
1,279
37,403 14,139
10,875
6,583
2,654
284
371
221
724
2.80
-
-
-
-
3.70
-
7.87
3.87
6,371 - - - - - -
17 - - - - - -
6,388 - - - - - -
6,371
17
6,388
-
-
-
(2)
(2)
(2)
(2)
(2)
(2)
1,252
-
(437)
-
(186)
(186)
3,930
271
(653)
300
(1,891)
(2,077)
1,325 (1,590)
-
285
90
1,375
1,692
-
805
(213)
2,394
317
(4,390)
(271)
-
(177)
2,686
4,378
(527)
-
-
-
-
-
-
-
1,229 (8,423)
5,607 (2,816)
(1)
(1)
(1)
(1)
(1)
(1)
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
Life insurance investment assets
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
Life insurance policy liabilities
Debt issues
Bills payable and other liabilities
Loan Capital
Total Liabilities
Shareholders’ Equity
Share capital
Outside equity interests
Total Shareholders' Equity
Off Balance Sheet Items
Options
Swaps
FRAs
Futures
Net Mismatch
Cumulative Mismatch
(1)
(2)
No rate applicable.
No balance sheet amount applicable.
147
Notes to the financial statements
NOTE 39 Market Risk continued
As at 30 June
Within 6 months
Within 6 months - 1 year
Within 1-2 years
Within 2-5 years
After 5 years
Net deferred gain (loss)
Exchange Rate
Related Contracts
2002
2003
$M
$M
Interest Rate
Related Contracts
2002
2003
$M
$M
2
(3)
1
189
(8)
181
(258)
(25)
(199)
94
123
(265)
(11)
6
17
13
143
168
123
2
(38)
(47)
(157)
(117)
2003
$M
(9)
3
18
202
135
349
Total
2002
$M
(135)
(23)
(237)
47
(34)
(382)
The objectives of the Group’s financial markets
activities are to:
(cid:1)
(cid:1)
(cid:1)
Provide risk management products and services to
customers;
Manage the Group’s own market risks; and
Conduct controlled
in pursuit of profit,
trading
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 and carries
an inventory of treasury and capital market instruments,
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. Trading securities are further detailed in
Note 10 of the financial statements.
Income is earned from spreads achieved through
market making and from taking market risk. 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.
is controlled by
concentrating trading activity in highly liquid markets.
Market
liquidity
risk
Note 2 of the financial statements details Financial
Markets Trading Income contribution of $502 million
(2002: $489 million) to the income of the Group. The
contribution
important
diversification benefits to the Group.
is significant and provides
Residual Value Risk on Operating Leases
The Bank provides operating leases to customers on
equipment such as motor vehicles, computers and
industrial equipment. Residual value risk is the risk that
the amount recouped by selling the equipment at lease
expiry will be less than the residual value of the lease. In
managing this risk the Bank utilises industry experts to
ensure that the residual value of equipment is prudently
estimated at the start of the lease and the Bank realises
the maximum value of the equipment at lease expiry.
Foreign exchange risk
Foreign exchange risk is the risk to earnings and
value caused by a change in foreign exchange rates. The
Bank hedges all balance sheet foreign exchange risks
except for long term investments in offshore subsidiaries.
Net deferred gains and losses
Net deferred unrealised gains and losses arising
from derivative hedging contracts entered into in order to
manage risk arising from assets, liabilities, commitments
of anticipated
the
expected term of deferral are shown below.
together with
transactions,
future
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 rate 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 VaR measure outline above.
Additionally, there is $4 million of net deferred gains
on derivatives (2002: $12 million net deferred losses) used
to hedge equity risk on investments disclosed within Note
11.
Market risk in financial services
Market risk in the life insurance business arises from
mismatches between assets and liabilities guaranteed
returns offered on some classes of policy (which may not
be capable of being hedged through matching assets),
adverse movements in market prices affecting fee income
on investment-linked policies and from returns obtained
from investing the shareholders capital held in each life
company. Shareholders
insurance
funds
business are on average invested 50% in income assets
(cash and fixed interest) and 50% in growth assets
(shares and property) with the asset mix varying from
company to company. Policyholder funds are invested to
meet policyholder reasonable expectations without putting
the shareholder at undue risk.
the
life
in
Market risk in the fund management business is the
risk of an adverse movement in market prices, which
leads to a reduction in the amount of funds under
management and a consequent reduction of fee income.
Market Risk in Financial Markets Trading
The Group’s policy is that exposure to market risk
from trading activities is managed by Institutional and
Business Services. The Group trades and distributes
financial markets products and provides risk management
services to clients on a global basis.
148
Notes to the financial statements
NOTE 39 Market Risk continued
Derivative contracts
The following table details the Group’s outstanding
derivative contracts as at the end of the year.
Each derivative type is split between those held for
‘Trading’ purposes and those for ‘Other than Trading’
purposes. Derivatives classified as ‘Other than Trading’
are transactions entered into in order to manage the risks
arising
and
non-traded
commitments in Australia and offshore centres.
liabilities
assets,
from
The ‘Face Value’ is the notional or contractual
amount of the derivatives. This amount is not necessarily
exchanged and predominantly acts as reference value
upon which interest payments and net settlements can be
calculated and on which revaluation is based.
Derivatives
Exchange rate related contracts
Forwards
Trading
Other than trading
Total Forwards
Swaps
Trading
Other than trading
Total Swaps
Futures
Trading
Other than trading
Total Futures
Options purchased and sold
Trading
Other than trading
Total Options purchased and sold
Total exchange rate related contracts
Interest rate related contracts
Forwards
Trading
Other than trading
Total Forwards
Swaps
Trading
Other than trading
Total Swaps
Futures
Trading
Other than trading
Total Futures
Options purchased and sold
Trading
Other than trading
Total Options purchased and sold
Total interest rate related contracts
Equity risk related contracts
Swaps
Other than trading
Options
Trading
Total equity risk related contracts
Total derivatives exposures
The
‘Credit Equivalent’
is calculated using
a standard APRA 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(ff).
2003
$M
Face Value
2002
$M
GROUP
Credit Equivalent
2002
$M
2003
$M
147,998
5,329
153,327
47,821
19,737
67,558
132,200
5,146
137,346
44,084
14,612
58,696
4,201
291
4,492
3,787
1,569
5,356
4,435
124
4,559
3,061
953
4,014
-
-
-
-
293 -
-
293 -
-
-
-
35,310
1,121
36,431
257,316
33,398
2,292
35,690
126,312
129,086
255,398
31,409
-
31,409
77,641
277
77,918
274,253
31,055
8,983
40,038
128,983
118,880
247,863
79,173
80,736
1,234
27
1,261
11,109
4
37
41
3,737
2,342
6,079
1,334
5
1,339
9,912
6
2
8
2,150
1,372
3,522
18 -
-
18 -
1,563 -
14,028
18,241
5,602 -
18,241
386,878
19,630
342,127
355
-
278
-
247 -
278
602
661,409
600,045
149
152
76
28 -
76
3,606
180
6,318
-
29 -
-
55 -
84 -
13,518
17,511
Notes to the financial statements
NOTE 39 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 trading derivatives and
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 on Trading Derivative Contracts
realised and unrealised gains and losses on trading
securities are reported within trading income under foreign
exchange earnings or other financial instruments (refer
Note 2). In aggregate, derivatives trading was profitable
for the Group during the year.
Fair Value
2002
$M
2003
$M
Average Fair Value
2002
$M
2003
$M
4,753
(4,922)
(169)
3,599
(2,390)
1,209
3,590
(3,451)
139
2,765
(2,288)
477
3,198
(3,245)
(47)
2,996
(2,078)
918
2,996
(2,197)
799
2,619
(2,408)
211
-
2 -
-
2 -
-
-
-
-
-
-
832
(1,138)
(306)
736
826
(903)
(77)
539
783
(920)
(137)
734
4
(4)
-
9
(8)
1
7
(7)
-
564
(517)
47
1,057
14
(13)
1
4,444
(4,911)
(467)
3,049
(3,468)
(419)
4,301
(4,799)
(498)
3,408
(3,891)
(483)
15
(18)
(3)
24
(35)
(11)
258
(145)
73
(73)
113 -
(429)
110
(357)
379
33
(23)
10
223
(146)
77
(411)
323
28
(35)
(7)
92
(75)
17
(473)
584
In accordance with the accounting policy set out in Note 1(ff) the above trading derivative contract revaluations have
been presented on a gross basis on the balance sheet.
Unrealised gains on trading derivatives (Note 21)
Unrealised losses on trading derivatives (Note 27)
Net unrealised gains on trading derivatives
13,907
13,528
379
10,336
10,226
110
150
Notes to the financial statements
NOTE 40 Superannuation Commitments
The Group sponsors a range of superannuation plans for its employees worldwide. Details of major defined benefit plans
with assets in excess of $10 million are:
Name of Plan
Type
Form of Benefit
Officers’ Superannuation Fund (OSF)
The Colonial Group Staff Superannuation
Scheme (CGSSS)
Commonwealth Bank of Australia (UK)
Staff Benefits Scheme (CBA(UK)SBS)
Colonial UK Staff Pension Scheme
(CUKSPS)
Stewart Ivory & Company Limited
Retirement Benefits Scheme (SI&CRBS)
Defined Benefits and
Accumulation
Defined Benefits and
Accumulation
Defined Benefits and
Accumulation
Defined Benefits
Defined Benefits
Indexed pensions and
lump sums
Indexed pensions and
lump sums
Indexed pensions and
lump sums
Indexed pensions and
lump sums
Indexed pensions and
lump sums
Date of Last Actuarial
Review of the Fund
30 June 2000
30 June 2001
1 May 2002
5 April 2002
1 September 2001
Financial Details of Defined Benefits Plans
from
Prior to the financial year ending 30 June 2003, the
Bank prepared the following disclosures using values
extracted
financial statements and actuarial
assessments of each plan which have been prepared in
accordance with
relevant accounting and actuarial
standards and practices. To maintain consistency in
values, the Bank updates these values after each actuarial
assessment of the fund (when the present value of
accrued benefits would be calculated).
In view of market volatility, commencing with the
financial year ending 30 June 2003, the Bank will update
the following values annually using most recently available
information (including values obtained from unaudited
fund financial statements).
Net Market Value of Assets(4)
Present Value of Accrued Benefits(5)
Difference between Net Market of Assets
and Present Value of Accrued Benefits
Difference as a percentage of plan assets
Value of Vested Benefits(5)
(1)
OSF
$M
4,748
3,650
1,098
23%
3,650
(1)
(2)
(2)
(3)
CGSSS CBA (UK)
SBS
$M
$M
351
260
91
26%
252
81
63
18
22%
56
CUKSPS SI&CRBS
$M
243
288
(45)
(19%)
253
$M
23
40
(17)
(74%)
29
Total
$M
5,446
4,301
1,145
21%
4,240
(1)
(2)
(3)
(4)
(5)
The values for the OSF and CGSSS were the fund actuary’s estimates as at 31 March 2003.
The values for the CBA(UK)SBS and CUKSPS were the fund actuary’s estimates as at 31 May 2003.
The values for the SI&CRBS were the fund actuary’s estimates as at 30 June 2003.
These values have been extracted from the latest available fund financial statements (which are unaudited).
The Present Value of Accrued Benefits and Value of Vested Benefits for the OSF and CGSSS have been calculated in accordance with
the Australian Accounting Standards AAS 25. For CBA(UK)SBS, CUKSPS and SI&CRBS, the Present Value of Accrued Benefits and
Value of Vested Benefits have been calculated in accordance with relevant UK 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.
With the exception of contributions corresponding to
salary sacrifice benefits, the Bank ceased contributions to
the OSF from 8 July 1994. Further, the Bank ceased
contributions to the OSF relating to salary sacrifice
benefits from 1 July 1997.
An actuarial assessment of
the OSF, as at
30 June 2000 was completed during the year ended
30 June 2001. In line with 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 2003.
No employer contributions were made to the CGSSS
during the year and the Bank does not intend to make
contributions to the CGSSS until after consideration of the
next actuarial assessment of CGSSS.
Further,
contributions ceased to CGSSS relating to salary sacrifice
benefits from 1 July 1999.
151
Notes to the financial statements
NOTE 40 Superannuation Commitments continued
The Bank has been making contributions to the
CUKSPS and SI&CRBS following receipt of the actuarial
assessments of these funds.
Events Subsequent to Balance Date
On 31 July 2003, the Colonial UK Staff Pension
Scheme (CUKSPS) and Stewart Ivory & Company Limited
Retirement Benefits Scheme (SI&CRBS) were terminated
and each plan’s assets, liabilities, member contributions
the
and
arrangements
transferred
benefit
to
Commonwealth Bank of Australia (UK) Staff Benefits
Scheme (CBA(UK)SBS).
Since 31 July 2003, the Bank has continued to make
its contributions in respect of former members of CUKSPS
and SI&CRBS.
An actuarial review of the merged fund is currently in
progress and the Bank will amend its contributions to the
merged fund in accordance with the Trust Deed following
consideration of the results of this actuarial review.
152
Notes to the financial statements
NOTE 41 Controlled Entities
Entity Name
AUSTRALIA
(a) Banking
Commonwealth Bank of Australia
Controlled Entities:
Commonwealth Development Bank of Australia Limited
CBA Investments Limited
CBA Specialised Financing Limited
Share Investments Pty Limited
CBA Investments (No.2) Pty Limited
CBA International Finance Pty Limited
CBCL Australia Limited
CBFC Limited
Collateral Leasing Pty Limited
Commonwealth Securities Limited
Homepath Pty Limited
Chullora Equity Investments (No.2) Pty Limited *
Chullora Equity Investments (No.3) Pty Limited *
Commonwealth Insurance Limited
Commonwealth Investments Pty Limited *
Commonwealth Property Limited
Infravest (No. 2) Limited
Commonwealth Fleet Lease Pty Limited
Retail Investor Pty Limited
Sparad (no. 24) Pty Limited
Colonial Employee Share Plan Limited
Colonial Finance Limited
Colonial Financial Services Pty Limited
CST Securitisation Management Limited
Emerald Holding Company Limited
TD Waterhouse Holdings (Aust) Pty Limited **
(b) 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
CMG Asia Pty Limited
CMG First State Investment Managers (Asia) Limited
Colonial AFS Services Pty Limited
Colonial Financial Corporation Limited
Colonial First State Group Limited
Avanteos Pty Limited **
Colonial First State Property Limited
Colonial First Statutory Funds Management Limited
CFS Managed Property Limited
Colonial Holding Company Pty Limited
Colonial Holding Company (No.2) Pty Limited
Colonial Financial Management Limited
Colonial Insurance Services Pty Limited
Colonial International Holdings Pty Limited
Colonial Investments Holding Pty Limited
Colonial Investment Services Limited
Colonial LGA Holdings Limited
Colonial Mutual Funds Limited
The Colonial Mutual Life Assurance Society Limited
153
Extent of Beneficial
Interest if not 100%
Incorporated in
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
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Notes to the financial statements
NOTE 41 Controlled Entities continued
Entity Name
(b) Life Insurance and Funds Management continued
Colonial Mutual Superannuation Pty Limited
Colonial PCA Holdings Pty Limited
Colonial PCA Services Limited
Colonial Portfolio Services Limited
Colonial Services Pty Limited
Jacques Martin Pty Limited
NEW ZEALAND
(a) Banking
ASB Group Limited
ASB Holdings Limited
ASB Bank Limited
ASB Finance Limited
ASB Management Services Limited
ASB Properties Limited
ASB Superannuation Nominees Limited
CBA Funding (NZ) Limited
(b) Life Insurance and Funds Management
ASB Group Limited
ASB Life Limited
Sovereign Limited
Colonial First State Investment Managers (NZ) Limited
Colonial First State Investments (NZ) Limited
ASB Group (Life) Limited
Kiwi Income Properties Limited
Kiwi Property Management Limited
Sovereign Life NZ Limited
Sovereign Services Corporation New Zealand Limited
OTHER OVERSEAS
(a) Banking
CBA Asia Limited
CBA (Europe) Finance Limited
CBA (Delaware) Finance Incorporated
CTB Australia Limited
Senator House Investments (UK) Limited (1)
Commonwealth Securities (Japan) Pty Limited
SBV Asia Limited
National Bank of Fiji Limited
PT Bank Commonwealth
(b) Life Insurance and Funds Management
CMG Asia Life Holdings Limited
CMG Asia Limited
CMG Asia Pensions and Retirements Limited
CMG First State Investments (Hong Kong) Limited
CMG First State Singapore Limited
Colonial Fiji Life Limited
Colonial First State International Assets Limited
Colonial First State Investments (Fiji) Limited
Colonial First State Investment Managers (UK) Limited
Colonial Healthcare (Fiji) Limited
Colonial Services (Fiji) Limited
Colonial First State UK Holdings Limited
Waterloo & Victoria Limited
Extent of Beneficial
Interest if not 100%
Incorporated in
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
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
Singapore
United Kingdom
USA
Hong Kong
United Kingdom
Japan
Hong Kong
Fiji
Indonesia
Bermuda
Bermuda
Hong Kong
Hong Kong
Singapore
Fiji
United Kingdom
Fiji
United Kingdom
Fiji
Fiji
United Kingdom
Cayman Islands
51
Non-operating and minor operating controlled entities and investment vehicles holding policyholder assets are excluded
from the above list.
(1)
Wholly owned subsidiary of CBA International Finance Pty Limited.
Small proprietory companies not requiring audit.
Companies purchased during the year.
*
**
154
Notes to the financial statements
NOTE 42 Investments in Associated Entities and Joint Ventures
EDS (Australia) Pty Limited
GROUP
2003 2002
$M
$M
225
238
Computer Fleet Management
-
1
Cyberlynx Procurement Services
PT Astra CMG Life
Allday Enterprises Ltd
China Life CMG Life Assurance Company Limited
Bao Minh CMG Life Insurance Company
CMG Mahon (China) Investment Management
Limited
Mahon and Associates Limited
CMG CH China Funds Management Limited
Avanteos Pty Ltd (1)
Colonial First State Private Ltd
Total
-
12
36
12
-
-
10
1 -
36
7
-
-
1
-
-
1
20
-
287
-
313
Extent of
Ownership
Interest
%
Principal Activities
Balance
Date
35
50
30
50
30
49
50
50
50
50
100
50
Information Technology
Services
Desktop IT Lease
Management
Procurement Services
Life insurance - Indonesia
Financial Services
Life insurance - China
Life insurance - Vietnam
Direct investment in China
Investment Management
Investment Management
Technology and
Development
Investment Management
31 December
30 June
30 June
31 December
31 December
31 December
31 December
30 June
30 June
31 March
31 December
30 June
(1)
Ownership interest increased from 50% as at 30 June 2002 to 100% on 3 March 2003.
The Group also holds investments in the Colonial
First State Property Trust Group and Colonial Mastertrust
Wholesale equity funds (including the Fixed Interest,
Australian Share, International Share, Property Securities,
Capital Stable, Balanced and Diversified Growth funds)
through controlled life insurance entities, which are not
accounted for under the equity accounting method.
Instead, the market values for these investments are
calculated at balance date and are brought to account at
this value in compliance with the requirements of AASB
1038: Life Insurance Business. These investments are
classified as property or equity investments and are not
material components of these asset categories.
Share of associates' profits (losses) after notional goodwill amortisation
Operating profits (losses) before income tax
Income tax expense
Operating profits (losses) after income tax
Carrying amount of investments in associated entities
Opening balance
New investments
Disposals / transfers
Writedown value of investments
Fair value adjustments
Share of associates' profits (losses)
Closing Balance
NOTE 43 Standby Arrangements and Unused Credit Facilities
(of controlled entities that are borrowing corporations)
2003
$M
GROUP
2002
$M
1
-
1
(2)
1
(1)
313
6
(21)
(9)
(3)
1
287
400
8
(85)
(9)
-
(1)
313
2003
$M
Unused
Available
Available
GROUP
2002
$M
Unused
72
-
-
72
23
-
-
23
51
-
-
51
19
-
-
19
Financing arrangements accessible
Bank overdraft
Revolving credit
Other
155
Notes to the financial statements
NOTE 44 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 that 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:
(Chairman)
(Deputy Chairman)
(Managing Director)
J T Ralph, AC
J M Schubert
D V Murray
N R Adler, AO
R J Clairs, AO
A B Daniels, OAM
C R Galbraith, AM
S C Kay
W G Kent, AO
F D Ryan
F J Swan
B K Ward
Details of remuneration received or due and
receivable by Directors are set out in Note 45.
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.
to
the aggregate amount of
Under the Australian Securities and Investments
Commission Class Order referred to above, disclosure is
limited
loans made,
guaranteed or secured by:
(cid:1)
(cid:1)
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.
The aggregate amount of such loans outstanding at
(cid:1)
30 June 2003 was:
(cid:1)
$50,000 to Directors of the Bank (Mr F D Ryan)
(2002: $50,000); and
$3,348,236
(2002: $2,735,036).
to Directors of
related entities
(cid:1)
The aggregate amount of such loans received and repayments made was:
Directors of the CBA
Normal terms and conditions
Directors of related entities
Normal terms and conditions (1)
Loans Received
2003
$
2002
$
Repayments Made
2002
2003
$
$
-
-
-
-
1,691,375
1,055,843
431,123
601,331
(1)
Directors: G J Judd, G H Burrett, J M R Syme, C Seddon, M Hunter, R G Wilkie, C B Millett, S Swanson, M D Widjaja, S Vuetaki,
C Kamea, M Naiyaga, J Wong and A V Villamor.
156
Notes to the financial statements
NOTE 44 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 2003, were:
Director
J T Ralph
J M Schubert
D V Murray
N R Adler
R J Clairs
A B Daniels
C R Galbraith
S C Kay
W G Kent
F D Ryan
F J Swan
B K Ward
Shares Disposed Of
Ordinary
(350,000)
Held
30 June 2002
Ordinary
14,789
12,602
66,638
7,825
11,153
13,718
5,462
-
8,822
5,160
3,051
3,175
Shares Acquired
Ordinary
6,550
1,826
514,308
811
774
1,417
1,117
2,184
886
775
987
884
Held
30 June 2003
Ordinary
21,339
14,428
230,946
8,636
11,927
15,135
6,579
2,184
9,708
5,935
4,038
4,059
Under the Australian Securities and Investments
Commission Class Order referred to above, disclosure of
financial instrument transactions regularly made by a bank
is limited to disclosure of such transactions with a Director
of the entity concerned.
All such financial instrument transactions that have
occurred between the banks and their Directors have
been trivial or domestic and were in the nature of normal
personal banking and deposit transactions.
Transactions other than Financial Instrument
Transactions of Banks
All other transactions with Directors, director related
entities and other related parties are conducted on an
arm’s length basis in the normal course of business and
on commercial terms and conditions. These transactions
principally involve the provision of financial and investment
services by non bank controlled entities. Mr Ralph’s and
Mr Daniels’ interests in investment funds managed by
Colonial First State are detailed above. Additionally, Mr C
R Galbraith is a partner in the law firm, Allens Arthur
Robinson, which acted for the Bank in the provision of
legal services during the financial year. The fees for these
services were $3,795,665.
All other such transactions that have occurred with
Directors, director related entities and other related parties
have been trivial or domestic and were principally in the
nature of lodgement or withdrawal of deposit, unit funds
and superannuation monies.
through
All shares were acquired by Directors on normal
terms and conditions or
the Non-Executive
Directors’ Share Plan (or in the case of Mr D V Murray the
Equity Reward Plan or the previous Executive Option
Plan). Mr D V Murray exercised 500,000 options during
the year, leaving his total holdings of options at 1,250,000
under the Equity Reward Plan and the previous Executive
Option Plan. (No further options will be granted under the
Equity Reward Plan. The Executive Option Plan was
discontinued in 2000.) Mr D V Murray was also awarded
rights to 55,000 shares under the Equity Reward Plan
during the year. He has a total holding of 97,000 shares
under the Equity Reward Plan. Shares awarded under the
Equity Reward Plan are registered in the name of the
Trustee. The transfer of legal title to Mr D V Murray is
subject to vesting conditions and is conditional on the
Bank achieving a prescribed performance hurdle over a
minimum three year period. For further details on the Non-
Executive Directors’ Share Plan, Equity Reward Plan and
the previous Executive Option Plan refer Note 29.
In addition, Mr Ralph holds 100,000 units
in
Commonwealth Property Trust and 495,294 units in
Colonial First State Hedge Fund. Both holdings are held
beneficially. Mr Daniels beneficially holds 73,588 units in
Colonial First Global Health and Biotech fund. A related
party of Mr Daniels holds 59,818 units in Colonial First
State Future Leaders Fund and 84,994 units in Colonial
First State Imputation Fund.
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 that are controlled entities occur in the
ordinary course of business of the banks on an arm’s
length basis.
157
Notes to the financial statements
NOTE 44 Related Party Disclosures continued
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.
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 41 for details of controlled entities.
The Bank’s aggregate investment in and loans to
controlled entities are disclosed in Note 18.
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.
NOTE 45 Remuneration of Directors
Total amount received or due and receivable by non-executive Directors of the Company for the year ended 30 June
2003 was:
Non-Executive Directors
Mr J T Ralph, AC
Dr J M Schubert
Mr N R Adler, AO
Mr R J Clairs, AO
Mr A B Daniels, OAM
Mr C R Galbraith, AM
Ms S C Kay**
Mr W G Kent, AO
Mr F D Ryan
Mr F J Swan
Ms B K Ward
Executive Director
Mr D V Murray (refer Note 46)
Base Fee/Pay Committee Fee Salary Sacrifice(2)
Superannuation(1)
$
216,000
108,000
72,000
72,000
72,000
72,000
25,863
72,000
72,000
72,000
72,000
$
32,000
20,000
16,000
12,000
12,000
20,000
6,465
20,000
16,000
20,000
16,000
$
62,000
32,000
22,000
21,000
21,000
23,000
8,082
23,000
22,000
23,000
22,000
$
5,626*
11,520
7,920
7,560
7,560
8,280
2,910
8,280
7,920
8,280
7,920
Total
Remuneration
$
315,626
171,520
117,920
112,560
112,560
123,280
43,320
123,280
117,920
123,280
117,920
* Mr.J T Ralph turned 70 during the 2002/03 financial year. The Bank’s SG obligations generally cease after a person attains age 70.
** Ms.S C Kay was appointed a Director on 5 March 2003.
(1)
(2)
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.
Under the Non-Executive Directors Share Plan detailed in the Explanatory Memorandum to the Notice of Meeting for the 2000 Annual
General Meeting, Non-Executive Directors are required to receive 20% of their remuneration in shares. This was implemented from the
second quarter of the financial year. Also refer Note 29 for further details.
158
Notes to the financial statements
NOTE 45 Remuneration of Directors continued
Directors' Retirement Allowance Scheme
The Board has discontinued the retirement scheme which provided for benefits to be paid to non-executive directors.
The terms of this scheme, which were approved by shareholders at the 1997 Annual General Meeting, allowed for a benefit on
a pro rata basis to a maximum of four years’ total emoluments after twelve years’ service. The entitlements of the non-
executive directors in office at the time of discontinuance will not be affected and are shown below. No new members will be
admitted to the scheme from that time.
Increase in accrued
benefit in year
$
Entitlement as at
30 June 2003
$
Non-Executive Directors
Mr J T Ralph, AC
Dr J M Schubert
Mr N R Adler, AO
Mr R J Clairs, AO
Mr A B Daniels, OAM
Mr C R Galbraith, AM
Mr W G Kent, AO
Mr F D Ryan
Mr F J Swan
Ms B K Ward
Ms S C Kay (2)
127,635
102,537
34,867
44,194
103,796 (1)
104,132 (1)
104,132 (1)
109,074 (1)
46,924
53,672
-
(1)
(2)
First year of entitlement accumulated for three years service
Appointed as a Director after closure of scheme
1,160,000
577,260
395,342
145,800
103,796
104,132
104,132
109,074
213,657
301,389
-
Total amount received or due and receivable by executive and non executive Directors
(includes accumulated benefits due to Directors who retired during the year)
3,998,811
8,308,940
The number of executive and non-executive Directors whose remuneration fell within these bands was:
2003
$
BANK
2002
$
Remuneration (Dollars)
$40,001 - $49,000
$100,001 - $110,000
$110,001 - $120,000
$120,001 - $130,000
$150,001 - $160,000
$170,001 - $180,000
$290,001 - $300,000
$310,001 - $320,000
$2,510,001 - $2,520,000
$6,990,001 - $7,000,000
Number
1
-
5
3
-
1
-
1
1
-
12
2003
$
Number
-
5
3
-
1
-
1
-
-
1
11
GROUP
2002
$
Total amount received or due and receivable by executive
and non executive Directors of the Bank and controlled entities
10,133,461 15,804,263
159
Notes to the financial statements
NOTE 46 Remuneration of Executives
The following table shows remuneration for the
executive director and five highest paid other members of
the senior executive team reporting directly to the Chief
Executive Officer, who were officers of the Bank and the
Group in the year ended 30 June 2003.
The table does not include individuals who are not
direct reports to the Chief Executive Officer, but whose
incentive based remuneration in any given year is in
excess of that received by a member of the senior
executive team.
Senior Executive Team
Name & Position
Base Pay
(1)
Bonus in respect of
this year (2)
Superannuation
(3)
Other
Compensation
(4)
Total
Remuneration
Paid in
Cash
$
1,625,000
$
375,000
Vested in
CBA
Shares
$
375,000
$
131,625
$
13,000
$
2,519,625
815,616
262,500
262,500
58,724
313,000
1,712,340
870,000
240,000
240,000
67,500
13,000
1,430,500
820,000
217,500
217,500
132,300
13,000
1,400,300
540,000
185,000
185,000
66,802
13,000
989,802
560,000
160,000
160,000
40,320
13,000
933,320
240,411
-
-
63,519
1,204,795
1,508,725
D V Murray
Chief Executive Officer
S I Grimshaw
Group Executive, Investment
& Insurance Services
M A Katz
Group Executive, Premium
Financial Services
M J Ullmer
Group Executive, Institutional
& Business Services
G L Mackrell
Group Executive, International
Financial Services
A R Cosenza
Group Executive, Office of CEO
Retired Executive
P L Polson
Group Executive, Investment
& Insurance Services(5)
(1)
(2)
(3)
(4)
(5)
Base pay reflects amounts paid in the year ending 30 June 2003 and is calculated on a total cost basis and includes any FBT charges
related to employee benefits including motor vehicles.
Bonuses paid are for the year ending 30 June 2003. The Group has a vesting (deferral) arrangement for most executives. 50% of the
bonus payment is paid in cash and the remaining 50% is deferred and vested in the Bank’s shares. Half of the shares will vest after one
year (in 2004) and half will vest after two years (in 2005). Generally shares are only received if the executive is still in the employ of the
Bank on the relevant dates.
The Bank is currently not contributing to the Officers’ Superannuation Fund or to the Colonial Group Staff Superannuation Scheme –
refer Note 40. However, the notional cost of superannuation has been determined on an individual basis for each executive.
Other compensation includes, where applicable, car parking (including FBT), accommodation (including FBT), commencement
payments, retirement allowances, contractual and other payments.
Retired 26 October 2002.
160
Notes to the financial statements
NOTE 46 Remuneration of Executives continued
The following table shows the number of shares granted as well as the amortisation of unvested shares and options for
the year ending 30 June 2003:
Name & Position
D V Murray
Chief Executive Officer
S I Grimshaw
Group Executive, Investment & Insurance Services
M A Katz
Group Executive, Premium Financial Services
M J Ullmer
Group Executive, Institutional & Business Services
G L Mackrell
Group Executive, International Financial Services
A R Cozenza
Group Executive, Office of CEO
Retired Executive
P L Polson
Group Executive, Investment & Insurance
Services(2)
Number of Shares
granted during
the year ended
30 June 2003(1)
No.
110,000
Amortisation for the year ended 30 June
2003 of unvested shares and options
allocated in fiscal years 2001, 2002 and 2003
Share Grants (1)
$
667,973
Option Grants (1)
$
412,347
39,000
48,000
48,000
29,500
29,500
65,189
174,527
168,324
89,830
85,792
232,565
383,601
383,601
220,910
220,161
-
59,526
78,698
(1)
(2)
Since 2002/03, shares only have been allocated under the Equity Reward Plan. Shares are purchased on-market at the current market
price and the cost of the shares acquired is expensed against the Profit & Loss account over a 3 year period. No consideration is
payable by the executive for the grant of shares and the vesting of the executive’s legal title to the executive is conditional on the Bank
achieving the prescribed performance hurdle.
Option Grants previously awarded under the Equity Reward Plan were a right to subscribe for ordinary shares at an exercise price which
was the Market Value (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 Commencement Date) plus a premium representing the time value component of the value of options
(based on the actual differences between the dividend and bond yields at the date of the vesting of the right to exercise the options). No
options have been granted since 2001/02.
The prescribed performance hurdle for Options and Shares issued prior to 2002/03 was –
(cid:1)
the Bank’s Total Shareholder Return (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 a comparator group of companies, excluding the Bank.
if the performance hurdle is not reached within that three years, the Options and Shares may nevertheless be exercisable or vest as
appropriate only where the hurdle is subsequently reached within five years from the Commencement Date. If the performance
hurdle is not met within this period the Options will lapse and entitlement to Shares will be forfeited.
(cid:1)
In relation to Reward Shares granted from 2002/03 onwards, a tiered vesting scale was introduced so that 50% of allocated shares vest
if the Bank's Total Shareholder Return is equal to the median return of the comparator group, 75% vest at the 67th percentile and 100%
when the Bank's return is in the top quartile with a linear relationship between the percentiles.
Where the rating is at least at the 50th percentile on the third anniversary of the grant, the shares will vest at a time nominated by the
executive, within the trading windows, over the next two years. The vesting percentage will be at least that achieved on the third
anniversary of the grant and the executive will be able to delay vesting until a subsequent half yearly window prior to the fifth anniversary
of the grant. The vesting percentage will be calculated by reference to the rating at that time.
Where the rating is below the 50th percentile on the third anniversary of grant, the shares can still vest if the rating reaches the 50th
percentile prior to the fifth anniversary, but the maximum vesting will be 50%.
Options and Shares previously allocated under the Equity Reward Plan will continue until they vest upon the prescribed performance
hurdles being met or they lapse.
The amortisation of Options and Shares disclosed above is calculated as follows –
Options – Calculated using the ‘fair value’ of all outstanding (i.e. currently unexercisable) Options granted in fiscal years 2001 and 2002
(plus second tranche of Options granted to the CEO in fiscal year 2000). The ‘fair value’ (as previously disclosed for US GAAP
purposes) is derived using a Black-Scholes valuation discounted by 50% for the probability of not meeting the performance hurdle. The
annualised equivalent of the ‘fair value’ in respect of each grant has been apportioned on a straight line basis over the period from the
Commencement Date until the first possible vesting date – a period of 37 months (49 months in respect of the second tranche of Options
granted to the CEO in fiscal year 2000). The first tranche of Options granted to the CEO in fiscal year 2000 as well as to other
executives have not yet become exercisable but have passed the first possible vesting date and are not included in the values
calculated.
Shares – Calculated using the market value at the Commencement Date of all outstanding (i.e. currently unvested) entitlements to
Shares granted in fiscal years 2001, 2002 & 2003 discounted by 50% for the probability of not meeting the performance hurdle. The
annualised equivalent of the ‘fair value’ in respect of each grant has been apportioned on a straight line basis over the period from the
Commencement Date until the first possible vesting date – a period of 37 months.
For further details on the Equity Reward Plan, refer Note 29.
Retired 26 October 2002.
161
Notes to the financial statements
NOTE 46 Remuneration of Executives continued
The following table shows the number of executives whose remuneration (excluding Long Term Incentive entitlements)
fell within the stated bands:
Remuneration (Dollars)
$160,000 - $169,999
$250,000 - $259,999
$310,000 - $319,999
$330,000 - $339,999
$390,000 - $399,999
$400,000 - $409,999
$420,000 - $429,999
$430,000 - $439,999
$460,000 - $469,999
$470,000 - $479,999
$490,000 - $499,999
$530,000 - $539,999
$560,000 - $569,999
$570,000 - $579,999
$610,000 - $619,999
$650,000 - $659,999
$710,000 - $719,999
$740,000 - $749,999
$760,000 - $769,999
$780,000 - $789,999
$790,000 - $799,999
$810,000 - $819,999
$820,000 - $829,999
$870,000 - $879,999
$880,000 - $889,999
$930,000 - $939,999
$980,000 - $989,999
$1,100,000 - $1,109,999
$1,110,000 - $1,119,999
$1,200,000 - $1,209,999
$1,220,000 - $1,229,999
$1,260,000 - $1,269,999
$1,370,000 - $1,379,999
$1,380,000 - $1,389,999
$1,400,000 - $1,409,999
$1,430,000 - $1,439,999
$1,500,000 - $1,509,999
$1,640,000 - $1,649,999
$1,650,000 - $1,659,999
$1,710,000 - $1,719,999
$1,760,000 - $1,769,999
$1,960,000 - $1,969,999
$2,500,000 - $2,509,999
$3,590,000 - $3,599,999
$6,210,000 - $6,219,999(1)
$6,990,000 - $ 6,999,999
Total number of executives
BANK
2002
Number
-
-
1
1
1
-
-
1
-
1
1
1
1
-
1
1
1
-
1
1
1
1
-
1
1
-
-
-
1
2
-
1
1
1
-
-
-
-
1
-
1
1
-
1
-
1
28
2003
Number
1 *
2 *
-
1
-
1
1 *
-
1
1 *
-
-
-
2
1
-
-
1
-
-
-
-
4
-
-
2
1
1
1
-
1
-
-
-
1
1
1 *
1
-
1
-
-
1
-
1 *
-
29
GROUP
2002
Number
-
-
1
1
1
-
-
1
-
1
1
1
1
-
1
1
1
-
1
1
1
1
-
1
1
-
-
-
1
2
-
1
1
1
-
-
-
-
1
-
1
1
-
1
-
1
28
2003
Number
1 *
2 *
-
1
-
1
1 *
-
1
1 *
-
-
-
2
1
-
-
1
-
-
-
-
4
-
-
2
1
1
1
-
1
-
-
-
1
1
1 *
1
-
1
-
-
1
-
1 *
-
29
162
Notes to the financial statements
NOTE 46 Remuneration of Executives continued
2003
$
GROUP
2002
$
2003
$
BANK
2002
$
Total amount received or due and receivable by
executives (includes accumulated benefits due
to executives who retired, resigned or were
retrenched during the year).
31,306,809
33,973,600
31,306,809
33,973,600
(1)
*
Includes a payment of $3.39m to a former Colonial First State Executive for an incentive payment in respect of the year ended 30 June
2002. This amount was not included in the equivalent table for the year ended 30 June 2002 as the payment was not finalised until after
the signing of the June 2002 Financial Statement. This amount has now been included in the above bands for the current year.
Additionally, the executive received a $26.54m payment from a provision raised at the acquisition of Colonial for liabilities relating to the
conditions in the contract with that company.
Includes termination payments to 7 retired, resigned, or retrenched executives during the 2002/2003 financial year.
In addition to remuneration shown above, contractual payments have been made or accrued as a consequence of contracts acquired
with the Colonial acquisition.
An executive is a person who is directly accountable and responsible to the Chief Executive Officer, or is a Group employee responsible
for the strategic direction and management of major businesses or risk portfolios.
Remuneration is based on amounts paid and accrued in respect of the financial year.
The Group’s Policy in respect of remuneration of executives is outlined in Corporate Governance on page 39.
163
Notes to the financial statements
NOTE 47 Statements of Cash Flow
GROUP
2003
$M
2002
$M
2001
$M
2003
$M
BANK
2002
$M
Note (a) Reconciliation of Cash
For the purposes of the Statements of Cash Flows, cash includes cash at bankers, money at short call, at call deposits
with other financial institutions and settlement account balances with other banks.
Notes, coins and cash at bankers
Other short term liquid assets
Receivables due from other financial institutions - at call
Payables due to other financial institutions - at call
Cash and Cash Equivalents at end of year
1,492
641
2,528
(3,233)
1,428
2,056
495
2,709
(2,762)
2,498
1,048
544
458
(2,012)
38
1,332
232
1,943
(3,230)
277
1,873
306
1,470
(2,741)
908
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:
(cid:1)
Customer deposits to and withdrawals from deposit
(cid:1)
Accounts, borrowings and repayments on loans,
advances and other receivables;
Note (c) Reconciliation of Operating Profit After
Income Tax to Net Cash Provided by Operating Activities
Net profit after income tax
Decrease/(increase) in interest receivable
Increase/(decrease) in interest payable
Net (increase)/decrease in trading securities
Net (gain)/loss on sale of investment securities
(Gain)/loss on sale of property plant and equipment
Charge for bad and doubtful debts
Depreciation and amortisation
(Decrease)/increase in other provisions
Increase/(decrease) in income taxes payable
(Decrease)/increase in deferred income taxes payable
(Increase)/decrease in future income tax benefits
(Increase)/decrease in accrued fees/reimbursements receivable
(Decrease)/increase in accrued fees and other items payable
Amortisation of premium on investment securities
Unrealised gain on revaluation of trading securities
Change in excess of net market value over net assets of life
insurance controlled entities
Change in policy liabilities
Other assets
Other
Net Cash Provided by / (used in) Operating Activities
(cid:1)
(cid:1)
Sales and purchases of trading securities; and
Proceeds from and repayment of short term debt
issues.
2003
$M
2,018
(78)
62
(2,484)
9
(22)
305
450
(15)
(234)
(166)
100
(94)
6
6
(269)
2002
$M
2,656
210
(60)
(1,159)
(78)
(12)
449
451
(120)
443
(522)
69
(17)
(162)
18
723
GROUP
2001
$M
2,412
159
(278)
(262)
(56)
(25)
385
488
(692)
(371)
(97)
209
(194)
136
24
(186)
2003
$M
2,099
(273)
103
(1,814)
9
(13)
266
269
(7)
(137)
10
(3)
143
(73)
6
(246)
BANK
2002
$M
2,665
152
(146)
(1,353)
(295)
(11)
405
272
(146)
465
(225)
49
(11)
(72)
17
723
245
(2,056)
-
92
(2,125)
(477)
(1,112)
-
693
1,993
(474)
-
-
-
400 -
(21)
257
318
1,835
-
-
-
(245)
2,244
Note (d) Non Cash Financing and Investing Activities
Shares issued under the Dividend Reinvestment Plan for 2001 were $313 million (2000: $253 million) and shares issued
under the Employee Share Plans for 2002 were $39 million (2001: $40 million; 2000: $24 million). Acquisition of entity by
means of an equity issue nil (2000: $9,274 million).
164
Notes to the financial statements
NOTE 47 Statements of Cash Flow continued
Note (e) Acquisition of Controlled Entities
Consideration
Cash paid on acquisitions
Transaction costs
Pre-acquisition dividend received
Fair value of net tangible assets acquired
Cash & liquid assets
Receivables from other financial institutions
Trading securities
Loans, advances and other receivables
Life insurance investment assets
Property, plant and equipment
Other assets
Deposits and public borrowings
Payables due to other financial institutions
Other provisions
Life insurance policy liabilities
Debt issues
Bills payable and other liabilities
Outside equity interest
Excess market value over net assets of life insurance subsidiary
Goodwill
Outflow (inflows) of cash on acquisitions
Cash payments
Transaction costs
Less cash and cash equivalents acquired
Note (f) Disposal of Controlled Entities
Disposal proceeds
Cash receipt on disposal
Fair value of net tangible assets disposed
Net book value of assets disposed
Loss on sale
Inflow of cash from disposal
Cash proceeds
Note (g) Financing Facilities
Standby funding lines are immaterial.
165
2003
$M
2002
$M
2001
$M
71
-
2
73
29
-
-
-
-
-
29
-
-
(8)
-
-
(33)
-
17
26
30
73
71
-
(29)
42
56
418
1 -
- -
418
57
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
57
-
57
4
26
501
2,812
76
42
109
(2,108)
(601)
(3)
(75)
(599)
(64)
(12)
108
51
259
418
56
418
1 -
(4)
414
-
57
2003
$M
2002
$M
2001
$M
33
33
- -
- -
65
(32)
33
- -
- -
- -
33
33
- -
- -
Notes to the financial statements
NOTE 48 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
they cannot be
determined with precision. Changes in the assumptions
could have a material impact on the amounts estimated.
judgment. Therefore,
to
represent estimates at which
While the estimated net fair value amounts are
designed
these
instruments could be exchanged in a current transaction
between willing parties, many of the Group’s financial
trading market as
instruments
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 would be
realised in a current transaction.
lack an available
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.
information with
Because of the wide range of valuation techniques
and the numerous estimates that must be made, it may be
difficult to make reasonable comparisons of the Bank’s net
fair value
financial
institutions. It is important that the many uncertainties
discussed above be considered when using the estimated
net fair value disclosures and to realise that because of
these uncertainties, the aggregate net fair value amount
should in no way be construed as representative of the
underlying value of the Commonwealth Bank of Australia.
that of other
Assets
Cash and liquid assets
Receivables due from other financial institutions
Trading securities
Investment securities
Loans, advances and other receivables
Bank acceptances of customers
Life insurance investment assets
Deposit accounts with regulatory authorities
Other assets
Liabilities
Deposits and other public borrowings
Payables due to other financial institutions
Bank acceptances
Life insurance policy liabilities
Debt issues
Bills payable and other liabilities
Loan Capital
Asset and liability hedges - unrealised gains/(losses)
(Refer Note 39)
Carrying
Value
$M
5,575
7,066
10,435
11,036
160,347
13,197
27,835
23
23,094
140,974
7,538
13,197
23,862
30,629
18,822
6,025
-
2003
Net Fair
Value
$M
5,575
7,066
10,435
11,187
160,441
13,197
27,835
23
23,094
Carrying
Value
$M
6,044
7,728
8,389
10,766
147,074
12,517
30,109
89
19,961
141,186
7,538
13,197
23,862
30,356
18,819
6,350
132,800
7,864
12,517
25,917
23,575
17,184
5,427
353 -
2002
Net Fair
Value
$M
6,044
7,728
8,389
10,851
148,378
12,517
30,109
89
19,751
132,879
7,864
12,517
25,917
24,462
17,203
5,632
(394)
The net fair value estimates were determined by the following methodologies and assumptions:
Liquid assets and bank acceptances of customers
Loans, advances and other receivables
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.
The carrying value of loans, advances and other
receivables is net of general and specific provisions for
doubtful debts and interest/fees reserved.
For variable rate loans, excluding impaired loans,
the carrying amount is a reasonable estimate of net fair
value. The net fair value for fixed rate loans was
calculated by utilising discounted cash
flow models
(i.e. 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.
166
Notes to the financial statements
NOTE 48 Disclosures about Fair Value of Financial Instruments continued
For those debt issues where quoted market prices
were not available, discounted cash flow and option
pricing models were used, utilising a yield curve
appropriate to the expected remaining maturity of the
instrument.
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 that are long term, net fair values
have been estimated using the rates currently offered for
similar liabilities with remaining maturities.
Other provisions including provision for dividend,
income tax liability and unamortised receipts are not
considered financial instruments.
Asset and liability hedges
Net fair value of asset and liability hedges is based
on quoted market prices, broker or dealer price
quotations.
Commitments to extend credit, letters of credit,
guarantees, warranties and indemnities issued
The net fair value of these items was not calculated
as estimated fair values are not readily ascertainable.
These financial instruments generally relate to credit risk
and attract fees in line with market prices for similar
arrangements. They are not presently sold or traded. The
items generally do not involve cash payments other than
in the event of default. The fee pricing is set as part of the
broader customer credit process and
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.
reflects
The net
trading and
Other off-balance sheet financial instruments
fair value of
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 is disclosed in
Note 39.
The net fair value of impaired loans was calculated
by discounting expected cash flows using a rate that
includes a premium for the uncertainty of the flows.
For shares in companies, the estimated net fair
values are based on quoted market prices.
Life Insurance Investment Assets & Policy Liabilities
Life insurance investment assets are carried at net
fair value. Life insurance policy liabilities are measured on
a net present value basis. This treatment is in accordance
with accounting standard AASB 1038: Life Insurance
Business.
Statutory deposits with central banks
In 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.
All other financial assets
Included
in
income,
fees receivable,
this category are
in associates of
investments
unrealised
$287 million (2002: $313 million), and excess of net
market value over net assets of life insurance controlled
entities of $5,540 million (2002: $5,656 million), where the
carrying amount
to be a reasonable
estimate of net fair value.
is considered
Other financial assets are net of goodwill, future
tax benefits and prepayments/unamortised
financial
these do not constitute a
income
payments, as
instrument.
Deposits and other public borrowings
The net fair value of non interest bearing, call and
variable rate deposits, and fixed rate deposits repricing
within six months, is the carrying value as at 30 June.
Discounted cash flow models based upon deposit type
and its related maturity, were used to calculate the net fair
value of other term deposits.
Short term liabilities
The carrying value of payables due to other financial
institutions and bank acceptances approximate their net
fair value as they are short term in nature and reprice
frequently.
Debt issues and loan capital
The net fair values of debt issues and loan capital
were calculated based on quoted market prices as at
30 June.
167
Directors’ Declaration
In accordance with a resolution of the directors of the Commonwealth Bank of Australia, the directors declare that:
(a)
(b)
(c)
the financial statements and notes thereto comply with Accounting Standards and in their opinion are in accordance
with the Corporations Act 2001;
the financial statements and notes thereto give a true and fair view of the Bank's and the Group's financial position as
at 30 June 2003 and of their performance for the year ended on that date; and
in the opinion of the directors, there are reasonable grounds to believe that the Bank will be able to pay its debts as
and when they become due and payable.
Signed in accordance with a resolution of the Directors.
J T Ralph AC
Chairman
20 August 2003
D V Murray
Managing Director and
Chief Executive Officer
168
Independent audit report to the members of Commonwealth Bank
of Australia
Matters relating to the Electronic Presentation of the Audited Financial Report
This audit report relates to the financial report of Commonwealth Bank of Australia (the Bank) for the year ended 30 June
2003 included on the Bank’s web site. The Bank’s directors are responsible for the integrity of the Bank’s web site. We have
not been engaged to report on the integrity of the Bank’s web site. The audit report refers only to the statements named below.
It does not provide an opinion on any other information which may have been hyperlinked to/from these statements. If users
of this report are concerned with the inherent risks arising from electronic data communications they are advised to refer to the
hard copy of the audited financial report to confirm the information included in the audited financial report presented on this
web site.
Scope
The financial report and directors’ responsibility
The financial report comprises the statement of financial position, statement of financial performance, statement of cash
flows, accompanying notes to the financial statements, and the directors’ declaration for Commonwealth Bank of Australia (the
Bank) and the consolidated Group, for the year ended 30 June 2003. The consolidated Group comprises both the Bank and
the entities it controlled during that year.
The directors of the Bank are responsible for preparing a financial report that gives a true and fair view of the financial
position and performance of the Bank and the consolidated Group, and that complies with Accounting Standards in Australia,
in accordance with the Corporations Act 2001. This includes responsibility for the maintenance of adequate accounting
records and internal controls that are designed to prevent and detect fraud and error, and for the accounting policies and
accounting estimates inherent in the financial report.
Audit approach
We conducted an independent audit of the financial report in order to express an opinion on it to the members of the
Bank. Our audit was conducted in accordance with Australian Auditing Standards in order to provide reasonable assurance as
to whether the financial report is free of material misstatement. The nature of an audit is influenced by factors such as the use
of professional judgement, selective testing, the inherent limitations of internal control, and the availability of persuasive rather
than conclusive evidence. Therefore, an audit cannot guarantee that all material misstatements have been detected.
We performed procedures to assess whether in all material respects the financial report presents fairly, in accordance
with the Corporations Act 2001, including compliance with Accounting Standards in Australia, and other mandatory financial
reporting requirements in Australia, a view which is consistent with our understanding of the Bank’s and the consolidated
Group’s financial position, and of their performance as represented by the results of their operations and cash flows.
We formed our audit opinion on the basis of these procedures, which included:
§
§
examining, on a test basis, information to provide evidence supporting the amounts and disclosures in the financial
report, and
assessing the appropriateness of the accounting policies and disclosures used and the reasonableness of significant
accounting estimates made by the directors.
While we considered the effectiveness of management’s internal controls over financial reporting when determining the
nature and extent of our procedures, our audit was not designed to provide assurance on internal controls.
We performed procedures to assess whether the substance of business transactions was accurately reflected in the
financial report. These and our other procedures did not include consideration or judgment of the appropriateness or
reasonableness of the business plans or strategies adopted by the directors and management of the Bank.
Independence
We are independent of the Bank, and have met the independence requirements of Australian professional ethical
pronouncements and the Corporations Act 2001. In addition to our audit of the financial report, we were engaged to undertake
the services disclosed in the notes to the financial statements. The provision of these services has not impaired our
independence.
Audit opinion
In our opinion, the financial report of Commonwealth Bank of Australia is in accordance with:
(a) the Corporations Act 2001, including:
(i) giving a true and fair view of the financial position of the Bank’s and the consolidated Group’s at 30 June 2003
and of their performance for the year ended on that date; and
(ii) complying with Accounting Standards in Australia and the Corporations Regulations 2001; and
(b) other mandatory financial reporting requirements in Australia.
Ernst & Young
Sydney
20 August 2003
S J Ferguson
Partner
169
Shareholding Information
Top 20 Holders of Fully Paid Ordinary Shares as at 19 August 2003
Rank
Name of Holder
Number of Shares
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
JP Morgan Nominees Australia Ltd
National Nominees Limited
Westpac Custodian Nominees Ltd
Citicorp Nominees Pty Limited
RBC Global Services Australia Nominees Pty Limited
Commonwealth Custodial Services Limited
AMP Life Limited
ANZ Nominees Limited
Queensland Investment Corporation
Cogent Nominees Pty Limited
HSBC Custody Nominees (Australia) Limited
Westpac Financial Services Ltd
Invia Custodian Pty Limited
Bond Street Custodians Limited
CSS Board & PSS Board
Australian Foundation Investment Company Limited
Government Superannuation Office
Gladiator Custodian Pty Ltd
UBS Warburg Private Clients Nominees Pty Ltd
NRMA Nominees Pty Limited
125,476,803
83,086,262
79,115,602
55,570,707
38,330,704
20,041,919
17,871,153
16,032,155
13,308,399
11,837,661
7,390,996
5,932,044
4,832,697
4,523,108
4,470,337
4,195,245
3,624,656
3,582,953
3,410,467
3,176,111
%
10.01
6.63
6.31
4.43
3.06
1.60
1.43
1.28
1.06
0.94
0.59
0.47
0.39
0.36
0.36
0.33
0.29
0.29
0.27
0.25
The twenty largest shareholders hold 505,809,979 shares which is equal to 40.35% 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. The Bank does not have a current on-
market buyback of its shares.
Directors Shareholdings as at 20 August 2003
J T Ralph, AC
J M Schubert
D V Murray
N R Adler, AO
R J Clairs, AO
A B Daniels, OAM
C R Galbraith, AM
S C Kay
W G Kent, AO
F D Ryan
F J Swan
B K Ward
Options
1,250,000
Shares
21,339
14,428
230,946
8,636
11,927
15,135
6,579
2,184
9,708
5,935
4,038
4,059
Mr Murray has a total holding of 97,000 shares
under the Equity Reward Plan, registered in the name of
the Trustee.
In addition, Mr Ralph beneficially holds 100,000 units
in Commonwealth Property Trust and 495,294 units in
Colonial First State Hedge Fund and Mr Daniels
beneficially holds 73,588 units in Colonial First Global
Health and Biotech fund. A related party of Mr Daniels
holds 59,818 units in Colonial First State Future Leaders
Fund and 84,994 units in Colonial First State Imputation
Fund.
170
Shareholding Information
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.
Range of Shares (Fully Paid Ordinary Shares and Employee Shares): 19 August 2003
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
578,272
146,784
12,888
5,450
265
743,659
14,461
77.76%
192,877,335
19.74%
295,759,711
1.73%
89,215,343
0.73%
107,083,627
571,111,021
0.04%
100% 1,256,047,037
95,327
15.36%
23.55%
7.10%
8.53%
45.47%
100%
Voting Rights
Trust Preferred Securities
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:
(cid:1)
on a show of hands – to one vote; and
(cid:1)
on a poll – to one vote for each share held or
represented.
If a member is present in person, any proxy or
attorney of that member is not entitled to vote.
If more than one official representative or attorney is
On 6 August 2003 the Bank, via a wholly owned
entity of the Bank, issued USD550 million (AUD824
million) of Trust Preferred Securities, subject to a limited
guarantee by the Bank, in the US capital markets. At 19
August 2003, there were 550,000,000 Trust Preferred
Securities outstanding held by 32 investors. No investor
held more than 20% of the issue.
present for a member:
(cid:1)
(cid:1)
none of them is entitled to vote on a show of hands;
and
on poll only one official representative may exercise
the member’s voting rights and the vote of each
attorney shall be of no effect unless each is
appointed to represent a specified proportion of the
member’s voting rights, not exceeding in aggregate
100%.
If a member appoints two proxies and both are
present at the meeting and the appointment does not
specify the proportion or number of the member’s votes
each proxy may exercise:
(cid:1)
neither proxy shall be entitled to vote on a show of
hands; and
on a poll each proxy may exercise one half of the
member’s votes.
(cid:1)
171
Shareholding Information
Top 20 Holders of Preferred Exchangeable Resettable Listed Shares (PERLS) as at 19 August 2003
Rank
Name of Holder
Number of Shares
1
2
3
4.
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
Commonwealth Custodial Services Limited
Westpac Custodian Nominees Ltd
RBC Global Services Australia Nominees Pty Limited
Invia Custodian Pty Limited
ANZ Executors & Trustee Company Limited
Tower Trust Limited
UBS Warburg Private Clients Nominees Pty Ltd
JP Morgan Nominees Australia Ltd
Boxall Marine Pty Ltd
Questor Financial Services Limited
Bond Street Custodians Limited
AMP Life Limited
Brencorp No 11 Pty Limited
Livingstone Investments (NSW) Pty Limited
Ms Thelma Joan Martin-Weber
Perpetual Trustee Co Ltd (Hunter)
Albert Investments Pty Limited
Felden Pty Ltd
Mr Edward Furnival Griffin + Ms Deborah Ann Griffin
Marbear Holdings Pty Limited
Mrs Fay Cleo Martin-Weber
Professional Indemnity Insurance Company of Australia Pty Ltd
Swinburne University of Technology
286,180
104,460
61,036
57,275
44,187
32,763
29,530
25,344
25,000
24,319
24,169
23,316
15,756
15,000
12,500
12,014
10,000
10,000
10,000
10,000
10,000
10,000
10,000
%
8.18
2.98
1.74
1.64
1.26
0.94
0.84
0.72
0.71
0.69
0.69
0.67
0.45
0.43
0.36
0.34
0.29
0.29
0.29
0.29
0.29
0.29
0.29
The twenty three largest PERLS shareholders hold 862,849 shares which is equal to 24.66% of the total shares on
issue. Twenty three PERLS shareholders are disclosed in the above table due to a number of shareholders having the same
number of PERLS.
Stock Exchange Listing
Commonwealth Bank PERLS are listed on the Australian Stock Exchange under the trade symbol CBAPA, 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 (pref).
Range of Shares (PERLS): 19 August 2003
Range
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
Voting Rights
The holders will be entitled to receive notice of any
general meeting of the Bank and a copy of every circular
or other like document sent out by the Bank to ordinary
shareholders and to attend any general meeting of the
Bank.
The holders will not be entitled to vote at a general
following
the Bank except
the
in
If at the time of the meeting, a dividend has been
declared but has not been paid in full by the relevant
payment date;
On a proposal to reduce the Bank’s share capital;
On a resolution to approve the terms of a buy-back
agreement;
On a proposal
Commonwealth Bank PERLS;
that affects rights attached
to
(cid:1)
(cid:1)
(cid:1)
meeting of
circumstances:
(cid:1)
Number of
Shareholders
Percentage
Shareholders
Number of
Shares
Percentage
Issued Capital
20,555
244
22
13
2
20,836
4
(cid:1)
(cid:1)
(cid:1)
(cid:1)
98.65%
1.17%
0.11%
0.06%
0.01%
100%
2,119,134
487,683
174,329
328,214
390,640
3,500,000
5
60.55
13.93
4.98
9.38
11.16
100.00
On a proposal to wind up the Bank;
On a proposal for the disposal of the whole of the
Bank’s property, business and undertaking;
During the winding up of the Bank; or
As otherwise required under the Listing Rules from
time to time, in which case the holders will have the
same rights as to manner of attendance and as to
voting in respect of each Commonwealth Bank
PERLS as those conferred on ordinary shareholders
in respect of each ordinary share.
At a general meeting of the Bank, holders are
entitled:
(cid:1)
(cid:1)
172
On a show of hands, to exercise one vote when
entitled to vote in respect of the matters listed
above; and
On a poll, to one vote for each Commonwealth Bank
PERLS.
Vietnam
CBA Representative Office
Suite 202-203A
The Central Building
31 Hai Ba Trung, Hanoi
Telephone: (84 4) 826 9899
Facsimile: (84 4) 824 3961
Chief Representative
SRJ Holden
Bao Minh CMG Life Insurance Co Ltd
Level 3, Saigon Riverside Office Center
2A-4A Ton Duc Thang
District 1, Ho Chi Minh City
Telephone: (84 4) 829 1919
Facsimile: (84 4) 829 3131
General Director
R Carkeet
Americas
United States of America
CBA Branch Office
Level 17, 599 Lexington Avenue
New York NY 10022
Telephone: (1 212) 848 9200
Facsimile: (1 212) 336 7725
Executive Vice President, Head of North
America
R Day
Europe
United Kingdom
CBA Branch Office
Senator House
85 Queen Victoria Street
London EC4V 4HA
Telephone: (44 20) 7710 3999
Facsimile: (44 20) 7710 3939
Regional General Manager Europe & North
America
A de Torguat
First State Investments (UK) Limited
3rd Floor, 30 Cannon Street
London EC4M 6YQ
Telephone: (44 20) 7332 6500
Facsimile: (44 20) 7332 6501
Chief Executive Officer, First State International
T Waring
Edinburgh
23 St Andrew Square
Edinburgh EH2 1BB
Telephone: (44) 131 473 2200
Facsimile: (44) 131 473 2222
Chief Executive Officer, First State International
T Waring
International Representation
Australia
Head Office
Commonwealth Bank of Australia
48 Martin Place,
Sydney NSW 1155
Telephone: (612) 9378 2000
New Zealand
ASB Bank Limited
Level 28 ASB Bank Centre
135 Albert Street, Auckland
Telephone: (649) 377 8930
Facsimile: (649) 358 3511
Managing Director
H Burrett
Sovereign Group Limited
33-45 Hurstmere Road
Takapuna, Auckland
Telephone: (649) 487 9000
Facsimile: (649) 486 1913
Managing Director
S Swanson
Asia Pacific
Fiji Islands
Colonial National Bank
Colonial Life Limited
3 Central Street, Suva
Telephone: (679) 3214 400
Facsimile: (679) 3303 448
Managing Director
M Walsh
China
CBA Representative Office
2909 China World Towers 1
1 Jian Guo Men Wai Avenue
Beijing 100004
Telephone: (86 10) 6505 5350
Facsimile: (86 10) 6505 5354
Chief Representative
Y T Au
CBA Representative Office
Room 4007 Bund Center
222 Yan An Road East
Shanghai 200002
China
Telephone: (86 21) 6335 1686
Facsimile: (86 21) 6335 1766
Chief Representative
Y T Au
China Life – CMG Asia Life
Assurance Co Ltd
21st Floor
China Insurance Building
166 Lujiazui Dong Road
Shanghai 200120
Telephone: (86 21) 5882 5245
Facsimile: (86 21) 6887 5720
General Manager
C Lee
Hong Kong
15th Floor, Chater House
8 Connaught Place,
Central
Hong Kong
Telephone: (852) 2844 7500
Facsimile: (852) 2845 9194
Regional General Manager Asia
SRJ Holden
CMG Asia Regional Office
12th Floor CMG Asia Tower
The Gateway, 15 Canton Road
Kowloon
Tsimshatsui
Telephone: (852) 2861 4006
Facsimile: (852) 2520 1119
Regional Managing Director
P Fancke
First State Investments (Hong
Kong) Limited
Level 6 Three Exchange Square
8 Connaught Place, Central
Hong Kong
Telephone: (852) 2846 7555
Facsimile: (852) 2868 4742/4783
Chief Executive Officer, First
State International
T Waring
Indonesia
PT Bank Commonwealth
Ground Flr, Wisma Metropolitan II
Jl. Jendral Sudirman Kav. 29-31
Jakarta 12920
Telephone: (6221) 5296 1222
Facsimile: (6221) 5296 2293
President Director
S Brewis-Weston
PT Astra CMG Life
11/F Sentra Mulia
Jl. H.R. Rasuna Said, Kav X-6 No
8
Jakarta 12940
Telephone: (6221) 250 0385
Facsimile: (6221) 250 0389
President Director
G Coates
Japan
CBA Branch Office
8th Floor
Toranomon Waiko Building
5-12-1 Toranomon
Minato-ku, Tokyo 105-0001
Telephone: (813) 5400 7280
Facsimile: (813) 5400 7288
General Manager
L Xia
Singapore
CBA Branch Office
3 Temasek Avenue #20-01
Centennial Tower
Singapore 039190
Telephone: (65) 6349 7000
Facsimile: (65) 6224 5812
General Manager
R Buchan
First State Investments
(Singapore)
3 Temasek Avenue
#20-01 Centennial Tower
Singapore 039190
Telephone: (65) 6538 0008
Facsimile: (65) 6538 0800
Chief Executive Officer,
Singapore
L Mann
173
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176
Contact Us
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Corporate Directory
Registered Office
Level 7, 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
ASX Perpetual Registrars Limited
Locked Bag A14
Sydney South NSW 1232
Telephone (02) 8280 7199
Facsimile (02) 9261 8489
Freecall 1800 022 440
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overseas shareholders
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Other International 612 8280 7199
Australian Stock
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Annual Report
To request a copy of the annual report
please call (02) 9378 3229
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2003
Commonwealth Bank of Australia ACN 123 123 124
Annual Report 2003