2004
Commonwealth Bank of Australia ACN 123 123 124
Annual Report 2004
C
O
M
M
O
N
W
E
A
L
T
H
B
A
N
K
O
F
A
U
S
T
R
A
L
A
I
A
N
N
U
A
L
R
E
P
O
R
T
2
0
0
4
u
a
.
m
o
c
.
m
m
a
.
w
w
w
–
n
e
r
a
L
c
M
+
r
e
l
l
i
M
g
n
o
r
t
s
m
r
A
y
b
d
e
c
u
d
o
r
P
Commonwealth Bank of Australia
ACN 123 123 124
Annual Report 2004
Table of Contents
Chairman's Statement.....................................................................................................................................................................3
Highlights ........................................................................................................................................................................................5
Banking Analysis.............................................................................................................................................................................9
Funds Management Analysis........................................................................................................................................................17
Insurance Analysis........................................................................................................................................................................21
Shareholder Investment Returns ..................................................................................................................................................24
Life Company Valuations ..............................................................................................................................................................25
Presentation of Financial Information ...........................................................................................................................................26
Integrated Risk Management........................................................................................................................................................27
Description of Business Environment ...........................................................................................................................................30
Corporate Governance .................................................................................................................................................................34
Directors' Report ...........................................................................................................................................................................41
Five Year Financial Summary.......................................................................................................................................................49
Financial Statements ....................................................................................................................................................................52
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……………………………………………………………………………………..………………………………169
Independent Audit Report………………………………………………………………………………………...……………………...170
Shareholding Information…………………………………………………………………………………………………………………171
International Representation……………………………………………………………………………………………………………..175
Chairman’s Statement
The Bank experienced another strong year with the
Australian economy continuing to perform well. Housing
lending remained buoyant for most of the year with early
signs of some slowing towards the end of the year. Very
low levels of corporate and personal defaults were
favourable credit environment.
experienced
in a
to an
recovered which
Investment markets
funds
the performance of
improvement
management and
insurance businesses as well as
contributing to an increase in the assessed value of the
funds management business.
the
led
in
The Bank embarked on the three year Which new
Bank program during the year, the successful execution of
which is critical to the long term success of the Bank. So
it is pleasing to be able to report that very good progress
was made in the first year of the program in the
achievement against the milestones set for the program.
Results
The Bank’s statutory net profit after tax for the year
ended 30 June 2004 was $2,572 million, an increase of
28% over that earned in the prior financial year. Net profit
from ordinary activities (“cash basis”) was $2,695 million,
an increase of 5% over that earned in the prior year. This
increase was achieved after expensing $749 million ($535
million after tax) on the Which new Bank program.
Strong operating performances were recorded by all
businesses, with the underlying profit after tax increasing
by 15% to $3,078 million for the year. Underlying profit
excludes the after tax impact of shareholder investment
returns and the cost of initiatives, including Which new
Bank.
The banking result was driven by the continued
good performance of the Australian and New Zealand
lending operations, partly offset by an anticipated
contraction
funds
management, recovery in funds flows was underpinned by
strong international flows and the continued growth of
business,
FirstChoice, while
performance improved across all regions.
interest margin.
insurance
the net
the
for
In
in
Loan asset quality strengthened during the year,
reflecting the Bank’s ongoing, disciplined approach to risk
management. Productivity
improvement was evident
across all businesses, particularly insurance and funds
management.
For more information on the company’s financial
performance, please refer to the Highlights on page 5.
Dividends and Capital Position
At last year’s Annual General Meeting I informed
shareholders that, although we would be charging the
costs of the Which new Bank program against profit, we
regarded that expenditure as being in the nature of an
investment in the future of the Bank. I said that, for this
reason, we would add back the after-tax cost of the
program to the profit in determining the dividends for the
year. This we did, and determined the total dividend out
of the year’s profit would be $1.83 per share which
represented 73.9% of the adjusted result and a 19%
increase on the dividend for the prior year.
The dividend of $1.83 per share continues the
uninterrupted growth in the dividend rate since the Bank
was privatised and listed as a public company twelve
years ago. The final dividend of $1.04 per share, fully
franked, will be paid on 24 September 2004
The Bank’s capital position
remained strong
throughout the year, sitting comfortably above the Bank’s
target ranges and in conformance with the requirements
of regulators. During the year, the Bank undertook a
number of capital management initiatives that were well
received by shareholders and which provide capital
flexibility for the future. These included the issuance of
hybrid capital and PERLS II, a $532 million share
buyback, a $467 million share purchase plan, and a share
sale facility for small shareholdings. These initiatives were
in addition to the issue of new shares to the value of $389
million under the Dividend Reinvestment Plan during the
year.
Which new Bank
As foreshadowed in last year’s annual report, the
Which new Bank program was announced to the market
in September 2003. Which new Bank is a three-year
strategic program aimed at supporting the Bank’s vision to
excel in customer service. The aim of the program is to
provide better service to customers by engaged people
using improved systems and simpler processes. The
focus is very much on the training and motivating of
people within the Bank and giving them the authority and
accountability to be able to deliver excellence in service.
They can only do this if they have the systems and
processes that allow them to do it. Customers are
beginning to notice differences and these differences will
become more pronounced as the Which new Bank
program is implemented.
During the year, the Board has actively participated
in activities that facilitate a better understanding of the
prerequisites for strategic transformation. In September
2003, the Bank’s Directors spent five days touring the
Bank’s branches, processing centres and call centres in
Australia and New Zealand, gaining first hand experience
of the Bank’s systems and processes. In May 2004, the
Board was pleased to conduct its monthly Board meeting
in Townsville, the Bank’s first regional branch in Australia.
The Board will continue to be active in gaining first-hand
knowledge of the operations of the Bank and its service
standards throughout the duration of the program and
beyond.
Outlook
The Global economy has improved noticeably, with
an expectation of monetary tightening across the major
economies in the near term.
The Australian economy continues to perform well
although growth in domestic spending has slowed as the
construction sector loses some momentum.
Consumer confidence is high while job security
concerns are low and personal incomes are rising.
Businesses should continue to benefit from sustained
capital spending. High levels of spending on infrastructure
are underway.
the housing
slowdown remain a key domestic issue, although the
effects so far have been muted.
The consequences of
Subject to market conditions being maintained, the
(cid:131)
(cid:131)
Bank is targeting:
(cid:131)
Growth
(“EPS”)
in cash Earnings Per Share
exceeding 10% compound annual growth rate
(“CAGR”) over the three year period to 30 June
2006, which is expected to be ahead of industry
growth;
Improvement in productivity between 4-6% CAGR
over this period; and
Growth in profitable market share across major
product lines.
Having
in
the
determining the dividend as set out on page 113, and
subject to no significant change in the Bank’s strategy and
operating environment, the ratio of dividends per share to
“cash” earnings is expected to be maintained at around
the current level (that is, the ratio with Which new Bank
costs added back). The Bank expects that the impact of
expenses related to Which new Bank will be significantly
lower going
to
increase. Accordingly, cash earnings should be
significantly higher and we expect to increase the dividend
per share each year.
forward, and benefits will continue
factors considered
regard
to
Board Changes
This coming Annual General Meeting will mark my
retirement as Chairman and as a Director of the Bank. Mr
Ross Adler has also signalled his intention to retire from
the Board at that meeting. Mr Adler has been a committed
and consistent valuable contributor to the deliberations of
3
Chairman’s Statement continued
the Board since his appointment in 1990. He has served
on the Audit, Remuneration and Risk Committees of the
Board at various times and has always been a diligent
member of those committees.
There have been many changes in the Bank and in
the financial services industry since I joined the Board in
1985 and since I became chairman in 1999. Early during
my term on the Board the Bank was privatised and
became a publicly listed company. There were other
significant structural changes along the way, including the
merger with the State Bank of Victoria and the acquisition
of ASB Bank and Colonial Limited, all of which contributed
to the strengthening of the competitive positioning of the
Bank. During this time there has been considerable
innovation as the Bank has diversified into new lines of
wealth management businesses and led the introduction
of banking technologies, such as telephone and internet
internet broking, with CommSec now
banking and
servicing the greatest number of broking transactions in
the market.
in
Currently,
the Bank
is engaged
the most
important change since its privatisation, with the Which
new Bank program. The execution of this program is vital
for the long term success of the Bank and it is pleasing,
therefore, that such good progress has been made to
date. It is an important underpinning of the Board’s
commitment to achieving strong growth in all of the Bank’s
businesses and in growing sustainable and reliable
returns for shareholders.
I have been privileged to serve on your Board and
as Chairman for the last five years. I am confident that
the Board is well positioned for the future under the
capable chairmanship of John Schubert who will be
succeeding me. I would like to take the opportunity to
thank shareholders, customers and staff
their
continued support of the Bank.
for
John Ralph, AC
Chairman
11 August 2004
3
Dividends
The total dividend for the year is another record at 183
cents per share, an increase of 29 cents or 18.8% on the
prior year. The dividend was determined after adding back
the expenses related to the Which new Bank program
which, although charged against profit, is regarded as an
investment in determining the dividend to shareholders. As
a result, the dividend payout ratio (“cash basis”) for the year
is 89.1% (73.9% with Which new Bank costs added back).
The dividend payment for the second half of the year
is 104 cents per share (85 cents per share in the previous
year). This dividend payment is fully franked and will be
paid on 24 September 2004 to owners of ordinary shares at
the close of business on 20 August 2004 (record date).
Shares will be quoted ex-dividend on 16 August 2004.
During the year, the Bank issued $201 million of
shares to satisfy shareholder participation in the Dividend
Reinvestment Plan (“DRP”) in respect of the final dividend
for 2002/03 and $188 million in respect of the interim
dividend for 2003/04. The Bank expects to issue around
$250 million of shares in respect of the DRP for the final
dividend for 2003/04.
Highlights
Financial Performance and Business Review
The Bank’s net profit after tax (“statutory basis”) for
the year ended 30 June 2004 was $2,572 million, an
increase of 28% on the prior year’s result of $2,012 million.
The current year’s result included an appraisal value uplift
of $201 million, compared with a reduction in the appraisal
value of controlled entities of $245 million for the previous
year.
The Bank posted a strong operating result for the
year, with net profit after tax (“underlying basis”) up 15% to
$3,078 million from $2,674 million for the year to 30 June
2003.
Factors contributing
to
the growth
in operating
performance included:
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
life
Insurance
Continued strong home lending growth domestically
and in New Zealand were the major contributors to
the growth in lending asset balances, which increased
18% to $206 billion;
Improved performance
in Funds Management
following positive investor sentiment in the market and
higher assets under administration;
Significantly stronger general and
results;
Cost control across the business, with operating
expenses increasing only 3.5% during the year;
A favourable credit environment, with very low levels
of corporate and personal defaults;
Initial benefits arising from the Which new Bank
program, offset by
Some margin compression, in line with the industry,
with net interest margin down 14 basis points to
2.53%.
The net profit after tax (“cash basis”) for the year was
$2,695 million, an increase of 5% over the prior year. This
result was achieved after absorbing $535 million (after tax)
of incremental expenses in relation to the Which new Bank
program.
(cid:131)
(cid:131)
In addition, buoyant domestic and global equity
markets led to investment returns on shareholders’ funds in
Funds Management and Insurance increasing to $152
million (after tax) against $73 million in the prior year.
Which new Bank Program
The Bank has made excellent progress in the Which
new Bank program announced to the market in September
2003, meeting all critical project milestones set for the year.
Net benefits realised in 2004 of $237 million exceeded the
market commitment of $200 million.
Investment spend of $634 million for the twelve
months was below the target of $660 million, however, total
impact on 2004 profitability was slightly higher due mainly to
lower levels of capitalisation.
transformation of
Focus during the 2005 financial year will be on the
execution of several major IT projects, as well as a
significant cultural
the domestic
operations. Following the successful pilot of the Bank’s
new integrated customer service system, CommSee, in
Tasmania, the roll out will commence progressively across
the network as further development of the system is
completed.
Overall, the program remains on track to deliver a
total annual net benefit of $900 million by 2006 and beyond,
with a total investment of $1,480 million over the three
years. More detail is included on page 7.
5
Highlights (continued)
Contributions to Profit (after income tax)
Banking
Funds Management
Insurance
Net Profit after Income Tax ("underlying basis")
Shareholder Investment Returns (after tax)
Initiatives including Which new Bank (after tax) (1)
Net Profit after Income Tax ("cash basis")
Appraisal value uplift/(reduction)
Goodwill amortisation
Net Profit after Income Tax ("statutory basis")
Shareholder Summary
Dividends per share - fully franked (cents)
Dividend cover - cash (times)
Dividend cover - underlying (times)
Earnings per share (cents)
Statutory - basic
Statutory - fully diluted
Cash basis - basic
Cash basis - fully diluted
Underlying basis - basic
Underlying basis - fully diluted
Dividend payout ratio (%)
Statutory
Cash basis
Underlying basis
Weighted average number of shares - basic (number)
Weighted average number of shares - fully diluted (number)
Return on equity - cash (%)
Return on equity - underlying (%)
Full Year Ended
30/06/04
$M
30/06/03
$M
Increase/
(Decrease)
%
2,675
274
129
3,078
152
(535)
2,695
201
(324)
2,572
2,376
233
65
2,674
73
(168)
2,579
(245)
(322)
2,012
13
18
98
15
108
large
5
large
1
28
Full Year Ended
30/06/04
30/06/03
Increase/
(Decrease)
%
183
1.1
1.3
196.9
196.8
206.6
206.5
237.1
237.0
93.5
89.1
77.6
1,256
1,257
13.2
15.1
154
1.3
1.4
157.4
157.3
202.6
202.5
210.2
210.0
97.7
75.9
73.3
1,253
1,254
13.3
13.8
19
25
25
2
2
13
13
(0.1)
1.3
Underlying growth of 15% on prior year
299
64
2,674
41
3,078
152
(535)
2,695
$ m
3,500
3,000
2,500
2,000
1,500
1,000
500
0
Underlying
NPAT June 03
Banking
Insurance
Funds
Management
Underlying
NPAT June 04
S'holder Invest
Returns
Which new
Bank initiative
(after tax)
Cash NPAT
June 04
(1)
June 2004 results reflect the Which new Bank program, while the prior year includes strategic initiatives undertaken and the cost of the June
2002 Employee Share Acquisition Plan (ESAP) paid in October 2002.
Important Dates for Shareholders
24 September 2004
5 November 2004
9 February 2005
Full Year Dividend Payment
Annual General Meeting
2005 Interim Results Announcement
6
Highlights (continued)
Net Profit after Income Tax ("statutory basis")
Net Profit after Income Tax ("cash basis")
Net Profit after Income Tax ("underlying basis") (1)
Net Interest Income
Other banking income
Funds management income
Insurance income
Total Operating Income
Shareholder investment returns
Policyholder tax benefit/(expense)
Total Income
Operating expenses
Initiatives including Which new Bank (2)
Total Operating Expenses
Charge for bad and doubtful debts
Net Profit Before Income Tax
Policyholder tax expense/(benefits)
Corporate tax expense
Outside equity interests
Net Profit after Income Tax ("cash basis")
Appraisal value uplift/(reduction)
Goodwill amortisation
Net Profit after Income Tax ("statutory basis")
Full Year Ended
30/06/04
$M
30/06/03
$M
Increase/
(Decrease)
%
2,572
2,695
3,078
5,410
2,846
1,158
678
10,092
196
203
10,491
5,500
749
6,249
276
3,966
203
1,059
9
2,695
201
(324)
2,572
2,012
2,579
2,674
5,026
2,627
1,115
598
9,366
91
(58)
9,399
5,312
239
5,551
305
3,543
(58)
1,016
6
2,579
(245)
(322)
2,012
28
5
15
8
8
4
13
8
large
large
12
4
large
13
(10)
12
large
4
50
4
large
1
28
(1)
(2)
Underlying basis excludes Which new Bank program and Shareholder investment returns.
June 2004 results reflect the Which new Bank program, while prior year includes strategic initiatives undertaken and the cost of the June
2002 ESAP paid in October 2002.
Key Performance Indicators
Banking
Net interest margin (%)
Average interest earning assets
Average interest bearing liabilities
Funds Management
Funds under administration
Insurance
Inforce premiums
Capital Adequacy
Tier 1 (%)
Total (%)
Adjusted common equity
Full Year Ended
30/06/04
$M
30/06/03
$M
Increase/
(Decrease)
%
2.53
214,187
197,532
2.67
188,270
174,737
109,883
98,566
1,167
1,076
7.43
10.25
4.75
6.96
9.73
-
(0.1)
14
13
11
8
0.5
0.5
-
Capital Management
The Bank maintains a strong capital position. This is recognised in its credit ratings which again remained unchanged
during the year.
Credit Ratings
Fitch Ratings
Moody's Investor Services
Standards & Poor's
Long Term
Short Term
Affirmed
AA
Aa3
AA-
F1+
P-1
A-1+
Feb 04
Dec 03
Apr 04
Additional information regarding the Bank’s capital management initiatives are disclosed in Note 31 to the Financial
Statements.
7
Highlights (continued)
Balance Sheet Summary
Total assets
Total liabilities
Shareholders' equity
Assets held and Funds under administration
On Balance Sheet
Banking assets
Insurance Funds under administration
Other insurance and internal funds management assets
Off Balance Sheet
Funds under administration
Productivity and Efficiency(1)
Banking
Expense to income (%)
Underlying expense to income (%)
Funds Management
Expense to average funds under administration (%)
Underlying expense to average funds under administration (%)
Insurance
Expense to average inforce premiums (%)
Underlying expense to average inforce premiums (%)
Underlying staff expense/total operating income (%)
Total operating income per FTE ($)
Full time staff equivalent (FTE's) - Australia
Full time staff equivalent (FTE's) - International
Full time staff equivalent (FTE's) - Which new Bank
Full time staff equivalent (FTE's)
(1)
Productivity changes shown as an annualised percentage change.
Which new Bank Program
Program expenses incurred
Provision for future costs
Investment capitalised
Gross Which new Bank expense
Normal project spend
Expensing of previously capitalised software
Incremental Which new Bank expense - before tax
Incremental Which new Bank expense - after tax
Which new Bank Benefits
Gross benefits
Additional operating expenses
Net benefits
30/06/04
$M
305,995
281,110
24,885
30/06/03
$M
265,110
242,958
22,152
265,062
22,952
17,981
305,995
86,931
392,926
229,289
22,144
13,677
265,110
76,422
341,532
Increase
%
15
16
12
16
4
31
15
14
15
Full Year Ended
30/06/04
30/06/03
Increase/
(Decrease)
%
59.2
50.8
54.7
52.0
0.80
0.76
0.87
0.83
47.3
46.1
50.4
50.4
25.3
278,047
26.5
261,292
28,814
7,060
35,874
422
36,296
29,608
6,237
35,845
-
35,845
(8.2)
2.3
8.0
8.4
6.2
8.5
(4.5)
6.4
(2.7)
13.2
-
n/a
1.3
Full Year
30/06/04
$M
Market
Commitment
$M
634
208
(112)
730
(200)
219
749
535
Full Year Ended 30 June 2004
Revenue
$M
152
(60)
92
Costs
$M
145
-
145
660
210
(180)
690
(200)
215
705
500
Total
$M
297
(60)
237
The impact on current year expenses is the net of $145 million cost benefits, less the impact of additional operating
expenses of $60 million, totalling $85 million.
8
Banking Analysis
Financial Performance and Business Review
Asia Pacific
Banking operations posted a strong result for the year
with underlying net profit after tax up 13% to $2,675 million.
The underlying result was driven by strong growth in home
loan and other personal lending, an improved credit
environment and increased volumes.
Asia Pacific Banking incorporates the Bank’s retail
and commercial banking operations in New Zealand, Fiji,
and Indonesia. ASB Bank in New Zealand represents the
majority of the Asia Pacific Banking business.
During the year ASB Bank achieved strong growth
Expenses in relation to the Which new Bank program
across the loan portfolio, particularly in housing credit.
totalled $499 million (after tax) for the year.
Australian Retail
(cid:131)
(cid:131)
the
in other personal
The strong performance of
retail banking
operations was driven by continued growth in the residential
housing market, improved growth in other personal lending
and solid deposit growth. Performance highlights for the
year to June included:
(cid:131)
Home lending growth of 20%, underpinned by record
in both proprietary and broker
sales volumes
channels.
Strong performance
lending,
assisted by enhancements to the Personal Loan
product and the launch of a new “Platinum” credit card
in March 2004.
Improved arrears levels across the retail lending
portfolios, notwithstanding strong volume growth.
Strong gains
levels,
supported by efficiency improvements in operations
processing areas and branch operations.
Continued growth in online channels, with the Bank’s
NetBank service recognised during the year as the
number one Internet Banking site in Australia (source:
Australian NetGuide magazine May 2004).
Significant progress has been made in the Which new
Bank service transformation program designed to ensure a
better service outcome for our customers. The major
initiatives undertaken across the retail bank during the year
included:
(cid:131)
in underlying productivity
(cid:131)
(cid:131)
Changes to our home loan process, which make
applying for a new loan or changing details on an
existing loan much simpler and easier. Through
system and process improvements, the great majority
of home loan applications through retail proprietary
channels are now either conditionally approved on the
spot or within one business day. Around 70% of
maintenance transactions (such as amending loan
repayments on existing loans) can now be completed
immediately in the branch or over the telephone,
compared with up to 10 days previously.
The commencement of our “Breakaway” Service and
Sales program across our 1,000-strong retail branch
network, encompassing a number of changes to
improve frontline customer service, including new
for all
service-focused performance measures
frontline staff, dedicated service and sales coaching
and changes to staff roles designed to ensure a
greater proportion of time is spent on servicing
customers. Early signs of significant improvements in
service and sales outcomes are being experienced as
this has been rolled out.
The refurbishment of 125 branches to a modern
layout more conducive to effective customer service.
A further 200 to 250 branches are targeted for
refurbishment over the next two years.
A continued emphasis on reducing customer waiting
times, with some branches showing up to a 50%
improvement.
implementation of world class processing
The
techniques
in our back-office processing areas,
delivering both significant efficiency benefits and
improved turnaround times for our customers.
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
Performance highlights were:
Lending growth at well above market rates in the
rural sectors continued
retail, commercial and
loan market share
the year. Home
throughout
increased to 22.2% from 20.6% in June 2003.
Leading customer service in the Banking sector. For
the sixth 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
fifth
consecutive year, ASB was rated the top business
bank on the same criteria.
A focus on technology innovation has led to the ASB
website being judged the best Finance website for the
second consecutive year by NetGuide Web Awards.
The continued focus on process efficiencies has
delivered an end-to-end credit card approval process
which is faster, at a lower cost, and with improved
service delivery.
The banking operations
Indonesia and Fiji
survey. For
the
in
continued to achieve strong balance sheet growth.
Premium, Business, Corporate & Institutional
(cid:131)
(cid:131)
in
The strong domestic economy and strict credit
discipline have led to continued good credit quality. The
market has been characterised by a drive to gain market
share via aggressive pricing and competitive terms and
conditions. Within this competitive environment we have
increased market share
in some segments whilst
maintaining share for the others. Major achievements
during the year have been:
(cid:131)
Growing market share in the business lending market
(source: RBA) with strong performance
the
institutional and corporate segments.
Gained traction in the Transaction Banking segments
through some major client wins. Market share in both
the top 500 and commercial segments continued to
increase (source: East & Partners).
Strong growth in Asset Finance market share (source:
AELA).
Ranked second in Asia Pacific for project finance
deals (source: Thompson).
Maintained number one position in capital markets
(source: Bloomberg, IFR, INSTO).
Participated in the acquisition of the Loy Yang A
power station as joint advisor. This was a landmark
transaction in the energy sector and is the largest
secondary market
the Australian
trade sale
infrastructure sector.
The Premium Financial Services and Institutional &
Business Services business units merged on 18 May to
more effectively meet the many common needs of premium
and business customers. This newly formed business unit,
Premium Business Services, enhances our ability
to
deepen relationships and in doing so, better identify high
quality and relevant ideas for our customers.
in
(cid:131)
(cid:131)
(cid:131)
Other
initiatives undertaken during
the year
to
strengthen the business have been:
(cid:131)
Completion of the redesign program to deliver better
customer alignment and simplified processes.
Development of the CommSee application to further
enhance customer service capabilities.
Continued focus on Customer Service Centres for day
to day servicing to support the relationships with our
clients.
(cid:131)
(cid:131)
9
Banking Analysis (continued)
Key Performance Indicators
Net interest income
Other operating income
Total Operating Income
Operating expenses
Initiatives including Which new Bank (1)
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 Profit after Income Tax ("underlying basis") (2)
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
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 (%)
Full Year Ended
30/06/04
$M
30/06/03
$M
Increase/
(Decrease)
%
5,410
2,846
8,256
4,191
698
4,889
276
3,091
914
1
2,176
2,675
5,026
2,627
7,653
3,982
201
4,183
305
3,165
931
-
2,234
2,376
59.2
50.8
29.6
54.7
52.0
29.4
205,945
214,187
197,532
169,321
197
0.82
175,074
188,270
174,737
146,808
434
0.90
451.8
0.16
239.4
0.21
8
8
8
5
large
17
(10)
(2)
(2)
-
(3)
13
(8.2)
2.3
20bpts
18
14
13
15
(55)
(8)bpts
large
(5)bpts
Underlying growth of 13% on prior year
219
29
(209)
384
(124)
2,675
(499)
2,176
$ m
3,500
3,000
2,500
2,376
2,000
1,500
1,000
500
0
Underlying
NPAT June
03
Net Interest
Income
Other
Banking
Income
Bad Debts
Expenses
Tax
Underlying
NPAT June
04
Which new
Bank
Initiative
(after tax)
Cash NPAT
June 04
(1)
(2)
June 2004 results reflect the Which new Bank program, while prior year results include strategic initiatives undertaken and the cost of
the June 2002 ESAP paid in October 2002.
Underlying basis excludes Which new Bank program.
10
Banking Analysis (continued)
Net Interest Income
Other Banking Operating Income
Average Interest Earning Assets and NIM Trends
2.76%
29,592
2.67%
33,399
141,042
154,871
2.53%
38,093
176,094
220,000
200,000
180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
2.8%
2.6%
2.4%
2.2%
2.0%
1.8%
1.6%
1.4%
1.2%
1.0%
0.8%
0.6%
0.4%
0.2%
0.0%
)
m
$
(
s
t
e
s
s
A
g
n
n
r
a
E
i
t
s
e
r
e
t
n
I
e
g
a
r
e
v
A
Jun-02
Jun-03
Jun-04
Lending Assets (excl Bank Accept)
Non-Lending Interest Earning Assets
Total NIM
Net interest income increased by 8% to $5,410 million
for the year. This increase was achieved through an
increase of 14% in average interest earning assets to $214
billion, offset by a 14 basis point reduction in the net interest
margin to 2.53%.
Volume
The increase in average interest earning assets
represents an increase of $21 billion in lending assets and
$5 billion in non-lending interest earning assets. The
increase in average interest earning assets contributed
$673 million to growth in net interest income.
The largest contributor to the increase in average
the strong
interest earning assets continued
residential lending market in Australia and New Zealand,
with average loan balances increasing by 20% since 30
June 2003
(net of securitisation),
accounting for over 85% of the total increase in average
lending assets.
to $111.4 billion
to be
Margin
2.7%
2.6%
2.5%
2.4%
2.3%
2.2%
2.1%
2.0%
NIM Compression Since June 2003
2.67%
(0.06)%
(0.04)%
(0.03)%
(0.01)%
2.53%
NIM 2003
Grow th in
liquid assets
Funding Mix
Asset mix
Competition
ef fect
NIM 2004
The reduction of 14 basis points in the Net Interest
Margin (NIM) from 2.67% for the year to 30 June 2003 to
2.53% reduced net interest income by $289 million. Factors
impacting the margin reduction include:
(cid:131)
Non lending interest earning assets: Non lending
interest earning assets increased by $4.7 billion
during the year largely as a result of increased
liquidity requirements due to balance sheet growth
and increased market making activities in Global
Markets. This reduced the NIM by six basis points.
Funding Mix: The strong growth in home loans
outpaced growth in retail deposits, resulting in a
higher reliance on wholesale funding. The impact was
to reduce NIM by four basis points.
Asset Mix: The continued strong growth in home loan
balances compared with other
lending reduced
margins by three basis points.
Competition: Represents the net impact of pricing
changes on asset and liability products. Spreads on
housing loans have tightened, offset by improved
spreads on deposit products. The net impact of
competition is a one basis point reduction in the NIM.
(cid:131)
(cid:131)
(cid:131)
3,000
s
n
o
2,500
i
l
l
i
m
$
)
I
B
O
(
2,000
e
m
o
c
n
I
1,500
g
n
i
k
n
a
B
r
e
h
t
O
1,000
500
0
34.7%
2,499
150
489
618
1,242
2,627
79
34.3%
502
652
2,846
120
34.5%
499
724
1,394
1,503
Jun-02
Jun-03
Jun-04
%
e
m
o
c
n
I
g
n
i
k
n
a
B
l
a
t
o
T
/
I
B
O
35%
34%
33%
32%
31%
30%
Commissions
Lending fees
Trading Income
Other
Other banking operating income increased by 8% to
$2,846 million for the year compared with $2,627 million for
the previous year. This includes non-interest income
earned on transaction accounts for the Bank’s personal,
business and corporate customers.
Factors impacting other banking operating income
were:
(cid:131)
(cid:131)
(cid:131)
(cid:131)
to
this
Fees and commissions increased by 8% to $1,503
million driven by increased volumes. CommSec
experienced record trading levels during the year
resulting in an increase in commissions of 72%. The
acquisition and integration of TD Waterhouse effective
increase.
1 May 2003 also contributed
Spending on credit cards by customers increased by
17% during the year though this was partially offset by
the impact of RBA interchange regulations. Personal
transaction fees are less than 5% of the Bank’s total
income.
Lending fees increased by 11% to $724 million.
Growth in retail lending fees was the result of the
increased activity in home lending, margin lending and
overdraft
fees, which was partly offset by
increased mortgage broker volumes and valuation
fees. Institutional and Business fees increased,
reflecting an improvement in market conditions.
Trading income was in line with last year at $499
million.
Other banking income increased by $41 million to
$120 million. The current year includes the profit on
sale of the Fleet Lease business of $43 million and
Bank of Queensland shares of $28 million partially
offset by equity accounted losses of an associate
entity principally related to a change in its accounting
policy ($32 million).
income
The
for General
line
Insurance
(previously
reported in Other Banking Income) has been reallocated to
the Insurance segment and prior year numbers and ratios
have been restated. This reduced other banking operating
income by $47 million for the year ended 30 June 2003 and
$59 million for the year ended 30 June 2004, with a similar
increase in the Insurance total operating income.
The income from the Bank’s financial planners was
reallocated to Funds Management, reducing other banking
operating income by $24 million for the year ended 30 June
2003 and $15 million for the year ended 30 June 2004.
11
Banking Analysis (continued)
Operating Expenses
Bad and Doubtful Debts
Total operating expenses on a comparable basis
increased by 5% to $4,191 million for the current year.
The increase was due to:
(cid:131)
increases of 4% awarded under
the
Salary
Enterprise Bargaining Agreement (EBA).
The full year effect of establishing the Premium
Financial Services business which supported the
strong growth in other banking operating income.
Increases in volume related expenses including
credit card loyalty.
Operational (non-lending) losses incurred in retail
banking and institutional banking.
These increases were partly offset by initial Which
(cid:131)
(cid:131)
(cid:131)
new Bank savings.
Productivity Efficiency
Underlying Banking Expense to Income Ratio
54.1%
55%
54%
53%
52%
51%
50%
49%
52.0%
50.8%
Jun-02
Jun-03
Jun-04
The underlying Banking expense to income ratio
continued to improve from 52.0% for the year ended 30
June 2003 to 50.8% for the current year, a productivity
improvement of 2.3%.
It is expected that productivity gains will accelerate
over the remaining two years of the Which new Bank
program as further cost initiatives are implemented, and
the full year benefits realised.
Which new Bank Program
The key strategic activities carried out in the current
year included service process improvements and branch
refurbishments in Retail Banking Services, as well as the
continued implementation of the IBS redesign program and
process improvements.
Net benefits realised within the Banking operations
during the year ended 30 June 2004 totalled $214 million
pre tax. These benefits are split between ongoing cost
savings of $124 million and revenue benefits of $90
million, and were realised across the following areas:
(cid:131)
Redesign of business and corporate banking and
associated supporting functions.
Several initiatives in the retail banking and premium
financial segments.
General procurement and IT&T savings.
(cid:131)
(cid:131)
The total charge for bad and doubtful debts of $276
million was low compared with the prior two years ($305
million for the year ended 30 June 2003 and $449 million
for the year ended 30 June 2002).
The low interest rates continued to contribute to a
good credit environment, with personal and corporate
arrears and default levels at low levels.
total
The Bank remains well provisioned, with
provisions for impairment as a percentage of gross
impaired assets net of interest reserved of 451.8% (June
2003 : 239.4%) and a general provision as a percentage of
risk weighted assets of 0.82%, compared with 0.90% at 30
June 2003.
Taxation Expense
The corporate tax charge of $914 million is in line
with the prior year and reflects the effect of the incremental
Which new Bank program expenses. The effective tax rate
increased by 20 basis points to 29.6%.
12
Banking Analysis (continued)
Assets & Liabilities
Retail
Major Balance Sheet Items (gross of impairment)
Lending assets - Home Lending
Lending assets - Personal Lending
Deposits
Market Share
Home Loans(3)
Retail deposits(4)
Credit cards(4)
(1)
(2)
(3)
(4)
As reported in the Dec-2003 Profit Announcement
as at May 2004
Source: APRA / ABS
Source: Reserve Bank of Australia
Increase/
(Decrease)
%
20
10
5
30/06/04
$M
104,883
13,160
72,360
30/06/04
19.3%(2)
23.6%(2)
22.7%(2)
30/06/03
$M
87,592
11,989
68,702
30/06/03(1)
19.5%
24.2%
22.8%
Lending Assets
Personal Lending
Australian retail banking lending assets increased by
19% to $118 billion. Lending assets comprise Australian
Home Lending and Personal Lending.
Home Lending
Home loan balances net of securitisation increased by
20% since 30 June 2003 to $105 billion. The increase in
home loans was the major factor contributing to the
increase in total lending assets during the year. This
reflects continued strong demand in both owner occupied
and investment loans. Market share as at 31 May 2004
was 19.3%, compared with 19.5% as reported at June
2003, relating to March 2003 (source: APRA). The Bank’s
market share as at June 2003 was 19.3%.
The Bank maintained
its position as Australia’s
leading home loan provider and has increased its share of
broker originated loans which now account for 16% of the
total Australian book compared with 11% at June 2003,
while 26% of new home loans funded were originated by
third party brokers.
Personal lending includes Personal Loans, Credit
Cards and Margin Loans. Balances increased by 10% over
the year to $13.2 billion reflecting growth in Credit Card
balances and margin lending.
Retail Deposits
total
Retail deposits showed good growth, with
balances increasing by over $3 billion to $72.4 billion.
Competition has intensified within the market as the
improved investment market performance has started to
attract customers back to equity based products. The sale
of Commonwealth Custodial Services Limited during the
year impacted the Bank’s deposit market share by an
estimated 24 basis points.
Asia Pacific
Major Balance Sheet Items (gross of impairment)
Lending assets - Home Lending
Lending assets - Other
Trading & investment securities
Debt issues
Deposits
Market Share
NZ Lending for housing (2)
NZ Retail Deposits(2)
(1)
(2)
As reported in the December 2003 Profit Announcement
Source: Reserve Bank of NZ
30/06/04
$M
16,967
10,018
2,459
5,500
19,176
30/06/03
$M
Increase/
(Decrease)
%
12,611
7,269
2,953
2,281
35
38
(17)
large
17,168 12
30/06/04
30/06/03(1)
22.2%
17.5%
20.6%
16.4%
13
Banking Analysis (continued)
Lending Assets
The New Zealand lending volumes were very strong
during the year across all sectors, particularly in housing
and business lending. Credit demand was strong and
housing activity remained buoyant.
ASB Bank achieved Personal lending growth of 27%,
Rural lending growth of 22% and Business/Commercial
lending growth of 23%. Total operations advances growth
was 26.5%. This compared with the annual market growth
of 11.7% as measured by Private Sector Credit (Residents
only).
Institutional and Business and Group Treasury
Major Balance Sheet Items (gross of impairment)
Lending assets
Trading & investment securities
Debt issues
Deposits
Market Share
Transaction Services (Commercial)(3)
Transaction Services (Corporate)(4)
Business Lending(5)
Asset Finance(6)
ASB Bank’s share of the home lending market
continued to grow, with market share increasing to 22.2%
from 20.6% (source: Reserve Bank of New Zealand).
Focused marketing activity and ASB Bank’s award winning
service and sales performance underpinned this result.
Deposits
Retail funding within ASB Bank increased 15% to
$14.2 billion.
Increase/
(Decrease)
%
11
29
36
30
30/06/04
$M
60,918
23,884
38,542
71,641
30/06/04
24.4%(2)
20.9%(2)
14.2%(2)
16.0%
30/06/03
$M
55,060
18,518
28,347
55,104
30/06/03(1)
22.7%
18.1%
14.0%
15.1%
(1)
(2)
(3)
As reported in the Dec-2003 Profit Announcement
as at May 2004
Source: East & Partners. Survey respondents included
companies with $20 million to $340 million turnover.
(4)
(5)
(6)
Source: East & Partners. Survey respondents are companies
with turnover greater than $340 million
Source: APRA / RBA
Source: AELA (Aust Equip Lessors Assoc)
Lending Assets
Debt Issues
Institutional and Business Lending has increased $5.8
billion or 11% over the year to $60.9 billion. This growth
reflected good transaction activity in Institutional Banking, a
stronger performance in Corporate Banking and steady
growth in Business Banking. Market share as at May 2004
has increased to 14.2% compared with 30 June 2003 of
14.0% (source: APRA).
Trading and Investment Securities
Trading and investment securities increased by $5.4
billion to $23.9 billion at 30 June 2004. This increase is
primarily due to increased liquidity requirements arising
from liability growth.
Debt issues were $38.5 billion at 30 June 2004, an
increase of $10 billion. The increase reflects offshore
funding raised on favourable terms to fund the growth in the
Bank’s assets.
Deposits
Deposits were $71.6 billion, an increase of $16.5
billion. This primarily reflects an increase in business
deposit market share as well as increased use of wholesale
funding to fund the growth in the Bank’s assets.
14
Banking Analysis (continued)
Total Banking
Major Balance Sheet Items (gross of impairment) - by Product
Gross housing
Securitisation
Housing (net of securitisation)
Personal
Institutional and Business
Bank acceptances
Total Lending Assets
Trading & Investment Securities
Deposits and Other Public Borrowings
Debt Issues
30/06/04
$M
129,455
(7,605)
121,850
13,208
55,869
15,019
205,946
30/06/03
$M
106,683
(6,480)
100,203
12,369
49,305
13,197
175,074
26,343
21,471
163,177
140,974
44,042
30,629
Increase/
(Decrease)
%
21
17
22
7
13
14
18
23
16
44
Australian Home Loan Balances by
Product Type at 30 June 2004
Owner
Occupied
57%
Investment
35%
Line of
Credit 8%
Australian Home Loan balances by
Loan Type at 30 June 2004
Variable
Rate 62%
Fixed Rate
21%
Honeymoon
17%
Lending Assets
s
n
o
i
l
l
i
m
$
220,000
200,000
180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
175,074
13,197
49,305
12,369
100,203
205,946
15,019
55,869
13,208
121,850
Jun-03
Jun-04
Housing
Personal
Institutional and Business
Bank Acceptances
Origination of Home Loans funded for the
year (Australia only)
Third Party
26%
Proprietary
74%
15
Banking Analysis (continued)
Provisions for Impairment
General provisions
Specific provisions
Total Provisions
Total provisions for impairment as a % of gross impaired assets
net of interest reserved
Specific provisions for impairment as a % of gross impaired assets
net of interest reserved
General provisions as a % of risk weighted assets
Bad debt expense as a % of risk weighted assets
Total provisions for impairment for the Bank at 30
June 2004 were $1,536 million. 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 by
30% to $143 million at 30 June 2004, primarily as a result of
significant reductions in the level of impaired assets (Gross
Impaired Assets net of interest reserved have reduced by
$299 million since June 2003, a reduction of 47%).
30/06/04
$M
1,393
143
1,536
30/06/03
$M
1,325
205
1,530
451.8
239.4
42.1
0.82
0.16
32.1
0.90
0.21
The general provision for impairment has increased to
$1,393 million at 30 June 2004, an increase of 5% since
June 2003. The general provision as a percentage of Risk
Weighted Assets reduced to 0.82% from 0.90% in the year.
This level is generally consistent with that of other major
Australian banks. The general provision as a percentage of
risk weighted assets has declined over the last three years
reflecting:
(cid:131)
Major growth in credit has been in home loans which
have a lower credit risk than other portfolios;
Continuing strong asset quality in the business book;
and
The reduction in gross impaired assets to the lowest
level in the past decade.
(cid:131)
(cid:131)
Growth in Assets of $36bn drives growth in RWA of $20bn
$ m
300,000
250,000
200,000
150,000
100,000
50,000
0
Gross Assets
(+17%) $36bn
250,856
214,718
74,472
83,256
+$9bn
103,987
+$21bn
+$2bn
+$4bn
12,427
23,832
Jun-03
125,026
15,020
27,554
Jun-04
Risk weighted on balance sheet assets
(+15%) $20bn
148,773
128,950
74,472
+$9bn
51,993
Jun-03
+$11bn
83,256
62,513
Jun-04
Risk Weighting 0%
Risk Weighting 20%
Risk Weighting 50%
Risk Weighting 100%
16
Operating Income
Operating income increased by 4% to $1,172 million
for the year. This was achieved despite the negative impact
from the appreciation of the Australian Dollar and the
reduction of income following the sale of the Bank’s custody
business.
The revenue increase was supported by an 11%
increase in FUA balances from $99 billion in 2003 to $110
billion. Average funds under administration for the year
were $105.5 billion, which is 6% higher than in the prior
year. FUA margins were very resilient with the income to
average FUA ratio decreasing by three basis points to
1.11% over the year.
Shareholder Investment Returns
Shareholder investment returns attributable to the
Funds Management business of $26 million were double
the prior year figure of $13 million reflecting the strong
investment markets during the year.
Operating Expenses
(cid:131)
(cid:131)
Operating expenses consist of two components:
Ongoing operating costs; and
Volume related costs which vary in relation to the
level of business and revenue.
Operating costs were $26 million lower than in the
prior year, reducing from $666 million to $640 million. The
reduction was due to:
(cid:131)
(cid:131)
(cid:131)
(cid:131)
The exit from non-core products in the UK business;
Rationalisation of back office processes;
Rationalisation of legacy systems; and
Favourable exchange rate movements.
Volume related expenses were $8 million higher than
in the prior year, an increase of 5% which was in line with
revenue growth.
Productivity Efficiency
Underlying operating expenses as a percentage of
average funds under administration of 0.76% were down
seven basis points compared with June 2003, a productivity
improvement of 8%.
Which new Bank Program
Costs of $37 million relating to Which new Bank
initiatives include the expenses of continued rationalisation
of systems, development of FirstChoice mastertrust
platform, with a new version launched in May 2004 and
redundancies resulting from the strategic review of the UK
operations. The prior year also includes the one-off cost
relating to the sale of the custody business.
Taxation
The corporate tax charge for the year was $79 million,
an effective tax rate of 22% compared with 20% last year.
The low effective tax rate in this business is largely due to
transitional tax relief on investment style funds management
products within life insurance legal entities. The benefits
derived from this relief are being phased out over a five
year period ending in 2005.
Funds Management Analysis
Financial Performance and Business Review
Performance Highlights
Underlying net profit after tax increased by 18% to
$274 million for the year. This result was achieved on
increased
in a competitive
environment the business focused on tight cost control
which resulted in a 4% reduction in non-volume related
expenses.
revenues of 4% while
Funds under administration (FUA) ended the year at
$110 billion, which is up 11% on 30 June 2003 levels,
assisted by stronger domestic and international investment
markets together with good inflows to the FirstChoice
product in Australia and wholesale mandates in the United
Kingdom.
Business Review
During the year there was a recovery of investment
markets and an associated
investor
confidence. These conditions resulted in a recovery in
flows into the retail funds sector after two years of relatively
poor market returns.
improvement
in
investors
The emerging preference of retail
for
platform products resulted in the more traditional retail
products being in net outflow for the year. In the platform
sector, the Bank was well positioned with the FirstChoice
product increasing its FUA to over $7 billion. This resulted
in the FirstChoice product being the industry leader in
platform net flows during the year (Source: Plan for Life:
March 2004).
International net flows were very strong, particularly in
the United Kingdom, with FUA increasing by 32.5% over the
year.
There was a focus on costs during the year which
resulted in a $26 million reduction in non volume related
expenses. This was achieved despite the business
continuing to incur significant additional costs in respect of
regulatory and compliance matters.
Which new Bank Program
The Funds Management business is a key contributor
to the Bank’s Which new Bank transformation program. The
majority of the Funds Management initiatives undertaken
during the year centred on developing the platform offerings
and investing in our adviser network.
There was also a continuation of
the system
simplification program within the legacy product business
which has and will result in significant cost savings. These
initiatives will substantially improve our capacity to serve
our customers and position the business to meet the
changing preferences of investors. Key highlights of the
initiatives during the year were:
(cid:131)
the
A continuation of the product migration strategy away
from older style closed products. The number of
product systems supporting legacy products has
already been reduced from 17 to 11, and is targeted
to reach five by December 2005.
Launch of
improved FirstChoice mastertrust
platform, with additional services and reporting for
financial planners.
A restructure of back office services to reduce costs
and provide simpler processes.
A strategic review of our UK operations which resulted
in a more targeted product range and a reduction in
the cost base of this business.
(cid:131)
(cid:131)
(cid:131)
Investment Performance
The absolute returns of most of the funds were strong
reflecting the recovery of investment markets. On a relative
basis 70% of funds out-performed their benchmark during
the year. The flagship Australian Equity and Global Equity
funds, however, were below benchmark on a one year
comparative performance which negatively impacted fund
flows.
17
Funds Management Analysis (continued)
Profit Summary
Key Performance Indicators
Funds Management
Operating income - external
Operating income - internal
Total Operating Income
Shareholder investment returns
Policyholder tax expense/(benefits)
Funds Management Income
Volume based expenses
Other operating expenses
Operating expenses
Initiatives including Which new Bank (1)
Total Operating Expenses
Net Profit before Income Tax
Policyholder tax expense/(benefits)
Corporate tax expense
Outside equity interests
Net Profit after Income Tax ("cash basis")
Net Profit after Income Tax ("underlying basis") (2)
Full Year Ended
30/06/04
$M
30/06/03
$M
Increase/
(Decrease)
%
1,158
14
1,172
26
149
1,347
166
640
806
37
843
504
149
79
8
268
274
1,115
13
1,128
13
(62)
1,079
158
666
824
38
862
217
(62)
57
6
216
233
4
8
4
large
large
25
5
(4)
(2)
(3)
(2)
large
large
39
33
24
18
(1)
(2)
June 2004 results reflect the Which new Bank program, while prior year results include strategic initiatives undertaken including the one
off cost relating to the sale of the custody business.
Underlying basis excludes shareholder investment returns and Which new Bank program.
Funds Under Administration
Funds under administration - average
Net flows
Productivity and Other Measures
Operating income to average funds under administration (%)
Expenses to average funds under administration - actual (%)
Expenses to average funds under administration - underlying (%)
Effective corporate tax rate (%)
105,458
846
99,280
(686)
6
large
1.11
0.80
0.76
22.3
1.14
0.87
0.83
20.4
(3)bpts
8.0
8.4
190bpts
Underlying growth of 18% on prior year
44
233
26
(8)
(21)
20
(26)
274
268
$ m
350
300
250
200
150
100
50
0
Underlying
NPAT June 03
Operating
income
Other
operating
expenses
Volume based
expenses
Tax -
Corporate
Underlying
NPAT Jun 04
S'holder Invest
Returns
Which new
Bank initiative
(after tax)
Cash NPAT
June 04
18
Funds Management Analysis (continued)
Funds under Administration
Wholesale
Funds under administration increased by 11% to $110
billion at 30 June 2004. The primary drivers of FUA growth
were the strong investment markets which added $10
billion; the positive net flows in the FirstChoice product, and
the international business.
Offsetting this was the net outflow of the other retail
products due to:
(cid:131)
(cid:131)
(cid:131)
Run-off of legacy products;
Reduced support for the Australian equity funds; and
Industry trend towards platform products.
Average funds under administration of $105.5 billion
for the year ended 30 June 2004 was 6% higher than the
prior year.
FirstChoice and Avanteos
FirstChoice achieved $7 billion
funds under
administration during the year, an increase of 119% over
the prior year. Net flows of $3 billion during the year placed
the product at the top of the industry for platform flows
(source: Plan
for Life March 04). The relaunch of
FirstChoice in May 2004 resulted in record net flows into the
product in June.
The Avanteos business acquired during 2003 and
provider of wholesale wrap products, experienced strong
inflows during the year with FUA approaching $2 billion at
the end of the year.
Other Retail (including Legacy Products)
Other Retail has two major components, being the
closed legacy products and the traditional CFS retail
products.
Other CFS retail funds under administration have
continued to struggle to attract and retain customers as
investors move away from traditional single entity managers
to flexible mastertrust and wrap platforms, like FirstChoice.
The net outflow position of the legacy products results
from the business decision to close most of these products
to new clients. There remains a substantial inforce business
in the legacy products and retention measures to minimise
outflows from these products have been implemented.
Wholesale funds under administration have risen 6%
to $27 billion during the year. Investment returns were $2.7
billion for the year partly offset by $1.1 billion in net
outflows. The net outflows on the wholesale business was
largely attributable to Australian equity funds. Other asset
classes showed good inflows.
Property
Property funds under administration comprise both
listed and unlisted (wholesale) funds. Total property funds
under administration grew by $0.8 billion or 7%, benefiting
from both asset revaluations and acquisitions of new
properties.
Internationally Sourced
International funds net inflows were $2.4 billion for the
year due to some large mandate wins into the Global
Emerging Markets product. Combined with good investment
returns, this resulted in a 32.5% increase in international
FUA over the year.
Definition
Funds under administration include all funds sourced
by platforms such as FirstChoice and Avanteos, including
the assets which are externally managed. This represents a
change from the funds under management disclosed in
previous years.
The change has been made as platform sales
represent the largest growth area in the retail funds industry
and to exclude these funds would present an incomplete
view of the business performance.
The Bank monitors the leading market share position
under both definitions. Comparative numbers have been
restated.
Funds under administration
for FirstChoice and
Avanteos have been represented together for the first time.
Comparative numbers
inflows, outflows and
including
investment income have been restated.
retail
Other
reflecting
investment returns for the year of positive $3.9 billion, offset
by net outflows.
remained steady
funds
19
Closing
Balance
30/06/04
$M
9,010
4,414
37,738
27,020
12,624
90,806
19,077
Closing
Balance
30/06/03
$M
4,192
4,963
37,749
25,485
11,790
84,179
14,387
Funds Management Analysis (continued)
Year Ended 30 June 2004
Funds Under Administration
Opening
Balance
30/06/03
$M
Inflows Outflows
$M
$M
Income
$M
Investment Acquisitions &
Fx
Disposals Movements (1)
$M
$M
FirstChoice & Avanteos
Cash Management
Other Retail
Wholesale
Property
Domestically Sourced
Internationally Sourced
Total - Funds Under
Administration
4,192
4,963
37,749
25,485
11,790
84,179
14,387
5,431
3,178
4,893
12,322
2,023
27,847
7,769
(1,370)
(3,930)
(8,820)
(13,453)
(2,079)
(29,652)
(5,118)
757
203
3,916
2,666
890
8,432
1,592
-
-
-
-
-
-
(255)
-
-
-
-
-
-
702
98,566
35,616
(34,770)
10,024
(255)
702
109,883
Year Ended 30 June 2003
Funds Under Administration
Opening
Balance
30/06/02
$M
Inflows Outflows
$M
$M
Income
$M
Investment Acquisitions &
Fx
Disposals Movements(1)
$M
$M
FirstChoice & Avanteos
Cash Management
Other Retail
Wholesale
Property
Domestically Sourced
Internationally Sourced
Total - Funds Under
Administration
568
5,634
41,953
29,240
8,895
86,290
19,522
4,221
1,121
11,356
10,126
963
27,787
4,603
(614)
(1,970)
(13,867)
(13,329)
(183)
(29,963)
(3,113)
17
178
(1,693)
(552)
(43)
(2,093)
(424)
-
-
-
-
2,158
2,158
(5,000)
-
-
-
-
-
-
(1,201)
105,812
32,390
(33,076)
(2,517)
(2,842)
(1,201)
98,566
(1)
Includes foreign exchange gains and losses from translation of internationally sourced business.
Market Share
Australian Retail – administrator view(2)
New Zealand(3)
Australian Property(4)
(1)
(2)
as at March 2004
Source: Plan for Life. The administrator view considers
market share from the perspective of the company,
which administers the product, and also includes
badged products distributed by separate entities.
30/06/04
14.4%(1)
14.4%(1)
5.5%
30/06/03
14.5%
14.5%
n/a
(3)
(4)
Source: Fund Source Research
Source: UBS Warburg
20
(cid:131)
(cid:131)
Significant reductions in expense levels for the Hong
Kong operations; and
Development of new distribution capabilities.
The Asian business produced $3 million in operating
margins compared with a loss of $9 million for the prior
year. The favourable result for the current year was driven
by:
(cid:131)
(cid:131)
(cid:131)
(cid:131)
Improved investment markets;
Increased sales across all markets;
Expense containment; and
Improved persistency.
The result was impacted by a $16 million write off of
capitalised pre-licence start-up costs in China which was
reflected in Australian shareholder investment returns.
Operating Income
Operating income of $678 million was 13% higher
than in the prior year. Operating income in the prior year
included a write-down of an asset in the Australian annuity
fund of $30 million. Taking this item into account, operating
income was up 8% on the prior year. This was mainly
attributable
inforce premiums, positive
experience on claims and an increase in general insurance
income.
to growth
in
Shareholder Investment Returns
Shareholder investment returns attributable to the
insurance business of $170 million for the year represent an
increase of $92 million on the prior year, reflecting the
rebound in domestic and overseas equity markets.
Operating Expenses
Underlying Expenses to average inforce
premiums
58.5%
50.4%
46.1%
70%
60%
50%
40%
30%
20%
10%
0%
Jun-02
Jun-03
Jun-04
Operating expenses of $517 million decreased by $2
million compared with the prior year, due to a drop in
volume related costs in the Asian business. Non volume
related costs were in line with the prior year, with EBA
related increases in staff costs, and increased compliance
and regulatory related costs being offset by savings
from process
tight cost control and
achieved by
reengineering in the back-office.
The underlying expense to average inforce premium
ratio of 46.1% represents a 9% productivity improvement
over the year.
Corporate Taxation
The corporate tax charge for the year was $66 million
an effective tax rate of 20.8% compared with 17.8% last
year. The low effective tax rate in this business is largely
due to transitional tax relief on certain products within life
insurance legal entities. The benefits derived from this
relief are being phased out over a five year period ending in
2005.
Insurance Analysis
Financial Performance and Business Review
Performance Highlights
The underlying profit after tax for the Insurance
business for the year was $129 million, an increase of 98%
over the prior year. This result was achieved with a 13%
increase in operating income due to improved underwriting
and favourable claims experience. Non volume related
expenses were maintained at last year’s levels driven by
improved efficiency.
Business and Financial Review
Australia
The profit growth in the Australian business was
achieved from strong underwriting performance in both the
general and life risk insurance categories. This was driven
largely by robust claims management, favourable claims
experience and improved profitability in the annuities
market.
Non volume related management expenses were
maintained at last year’s levels at the same time as
providing enhanced customer service levels. This was
achieved
re-
engineering delivering enhanced productivity and efficiency
in the business.
through significant business process
(cid:131)
(cid:131)
(cid:131)
(cid:131)
to more
Key drivers of the current year’s result were:
Premium growth with Life Risk Premiums up 8%.
Strong investment returns.
Improved margins in the annuity market as a result of
a
rational competitive pricing
return
behaviour.
Robust claims management activity driving enhanced
claims expense outcomes despite some
large
weather related claims in the general insurance
segment early in the year.
The group maintained its number one market share of
risk premiums with a 14.8% share of the market.
New Zealand
The life insurance operations in New Zealand operate
predominantly under the Sovereign brand.
The market for risk products was subdued during the
year. However, Sovereign increased market share in new
business from 27% to 28% and maintained its market
leadership position with 28.2% of the inforce premium
market (source: ISI). The business continued to expand
sales through aligned channels such as ASB Bank while
maintaining
traditional
levels of support
the
independent financial advisers.
from
During the year the business fundamentals were
further
tighter
through product
underwriting standards and continued rationalisation of
products and systems.
improved
repricing,
The New Zealand business generated $55 million
profit after tax. This represents a 20% increase on last
year’s result of $46 million.
Asia
Asia
includes
pension
administration operations in Hong Kong, together with life
businesses in China, Vietnam, Indonesia and Fiji. Hong
Kong represents our largest operation in the region.
insurance
and
life
The Asian business continued
to
improve. Key
initiatives during the year included:
(cid:131)
Improved risk profile of Hong Kong business following
amendments to investment mix, product repricing and
product mix;
21
Insurance Analysis (continued)
Profit Summary
Summary Financial Performance
(excluding appraisal value (reduction)/uplift)
Insurance
Life Insurance Operating Income
General Insurance Operating Income
Total Operating Income
Shareholder investment returns
Policyholder tax
Total Insurance Income
Volume based expenses
Other operating expenses - external
Other operating expenses - internal
Operating expenses
Initiatives including Which new Bank (1)
Total operating expenses
Net Profit before Income Tax
Income tax expense attributable to:
Policyholder
Corporate
Net Profit after Income Tax ("cash basis")
Net Profit after Income Tax ("underlying basis") (2)
Productivity and Other Measures
Expenses to average inforce premiums (actual %)
Expenses to average inforce premiums (underlying %)
Effective corporate tax rate (%)
Full Year Ended
30/06/04
$M
30/06/03
$M
Increase/
(Decrease)
%
618
60
678
170
54
902
224
279
14
517
14
531
371
54
66
251
129
551
47
598
78
4
680
228
278
13
519
-
519
161
4
28
129
65
12
28
13
large
large
33
(2)
0
8
(0)
-
2
large
large
large
95
98
47.3
46.1
20.8
50.4
50.4
17.8
6.2
8.5
300bpts
Full Year Ended
30/06/04
Sources of Profit from Insurance Activities
$M
The Margin on Services profit from ordinary activities after income tax is represented by:
Planned profit margins
Experience variations
Other
General insurance operating margin
Operating margins
After tax shareholder investment returns
Net profit after Income Tax ("cash basis")
107
-
(8)
19
118
133
251
30/06/03
$M
Increase/
(Decrease)
%
104
(42)
(8)
11
65
64
129
3
-
-
73
82
large
95
Geographical Analysis of Business Performance
Australia
New Zealand
Asia
Total
Full Year Ended
Net Profit after Income Tax
(“cash basis”)
30/06/04 30/06/03 30/06/04 30/06/03
$M
$M
$M
$M
30/06/04 30/06/03 30/06/04 30/06/03
$M
$M
$M
$M
Operating margins
Investment earnings on assets
in excess of policyholder liabilities
Net Profit after Income Tax
78
101
179
43
35
78
37
18
55
31
15
46
3
14
17
(9)
14
5
118
133
251
65
64
129
(1)
(2)
June 2004 result reflects the Which new Bank program.
Underlying basis excludes shareholder investment returns and Which new Bank program.
22
Insurance Analysis (continued)
Inforce Premiums
Annual Inforce Premiums
General Insurance
Personal Life
Group Life
Total
Australia
New Zealand
Asia
Total
Opening
Balance
30/06/03
$M
196
626
254
1,076
771
221
84
1,076
Full Year Ended 30 June 2004
Sales/New
Business
$M
Lapses
$M
Other
Movements(1)
$M
46
156
53
255
177
42
36
255
(50)
(85)
(34)
(169)
(133)
(16)
(20)
(169)
-
6
(1)
5
-
11
(6)
5
Closing
Balance
30/06/04
$M
192
703
272
1,167
815
258
94
1,167
(1)
Consists mainly of foreign exchange movements.
Annual Inforce Premiums
General Insurance
Personal Life
Group Life
Total
Australia
New Zealand
Asia
Total
Full Year Ended 30 June 2003
Opening
Balance
30/06/02
$M
Sales/New
Business
$M
172
580
229
981
698
187
96
981
51
129
58
238
180
43
15
238
Lapses
$M
(27)
(78)
(30)
(135)
(107)
(16)
(12)
(135)
Other
Movements(2)
$M
-
(5)
(3)
(8)
-
7
(15)
(8)
Closing
Balance
30/06/03
$M
196
626
254
1,076
771
221
84
1,076
(1)
(2)
Life Insurance results for both New Zealand and Asia include savings products. Savings products are disclosed within Funds
Management for the Australian business. Inforce premium relates to risk business only.
Consists mainly of foreign exchange movements.
Annual inforce premiums increased by $91 million or
8% to $1,167 million for the year ended 30 June 2004.
General Insurance lapses include $19 million of rebadged
premiums which ceased to be attributable to the CBA
business due to a FSRA related business restructuring.
The Australian business maintained its leading market
share of inforce premiums despite a reduction from 15.3%
at 30 June 2003 to 14.8% at 31 March 2004. Sovereign
maintained its leading position in New Zealand with a
market share of 28.2%, slightly down from 28.3% at 30
June 2003.
Market Share – Annual Inforce Premiums
New Zealand(4)
Australia (Total Risk)(5)
Australia (Individual Risk)(5)
Hong Kong(6)
30/06/04
28.2%(2)
14.8%(3)
12.8%(3)
2.5%(3)
30/06/03
(1)
28.3%
15.3%
13.0%
2.8%
(1)
(2)
(3)
As reported in the December 2003 Profit Announcement
as at May 2004
as at March 2004
(4)
(5)
(6)
Source: ISI Statistics
Source: Plan for Life
Source: HK Insurance Assoc
23
Shareholder Investment Returns
Shareholder Investment Returns
Funds Management Business
Insurance Business
Shareholder Investment Returns before Tax
Taxation
Shareholder Investment Returns after Tax
Full Year Ended
30/06/04
$M
30/06/03
$M
26
170
196
44
152
13
78
91
18
73
Increase/
(Decrease)
%
large
large
large
large
large
At 30 June 2004
Shareholder Investments Asset Mix (%)
Australia
%
New Zealand
%
Local equities
International equities
Property
Other (1)
Sub-total
Fixed interest
Cash
Other
Sub-total
Total
10
4
22
-
36
39
25
-
64
100
1
6
4
3
14
38
35
13
86
100
At 30 June 2004
Shareholder Investments Asset Mix ($M)
Australia
$M
New Zealand
$M
Local equities
International equities
Property
Other (1)
Sub-total
Fixed interest
Cash
Other
Sub-total
Total
166
64
357
-
587
644
415
-
1,059
1,646
3
26
17
14
60
156
147
52
355
415
(1)
Other assets include the excess of carrying value over net tangible assets.
Domestic and
investment markets
international
rebounded strongly over the year, with the benchmark
S&P/ASX200 price index increasing by 16.7% and the
MSCI World index by 21.8%. All other asset classes (fixed
interest, property and cash) posted positive returns.
Asia
%
4
6
-
4
14
61
7
18
86
100
Asia
$M
25
38
-
21
84
364
42
110
516
600
Total
%
7
5
14
1
27
44
23
6
73
100
Total
$M
194
128
374
35
731
1,164
604
162
1,930
2,661
24
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 are 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 certain market based factors which result
in the adoption of a more conservative valuation that is
$450 million lower at 30 June 2004 ($450 million lower at 30
June 2003) than that determined by Trowbridge Deloitte.
The key consideration by Directors in determining their
value is the continued uncertainty of investment markets
and industry funds flows.
Carrying Value at 30 June 2004
Shareholders net tangible assets
Value of inforce business
Embedded Value
Value of future new business
Carrying Value
Increase/(Decrease) in Carrying
Value since 30 June 2003
Analysis of Movement Since 30 June 2003
Profits
Capital movements (2)
Dividends paid
FX Movements
Change in Shareholders NTA
Appraisal value uplift/(reduction)
Increase/(Decrease) to 30 June 2004
Funds
Management
$M
515
1,850
2,365
2,774
5,139
(334)
Funds
Management
$M
268
(27)
(470)
(10)
(239)
(95)
(334)
Life Insurance
Australia
New Zealand
Asia(1)
Total
$M
1,131
295
1,426
235
1,661
73
$M
415
286
701
277
978
129
$M
$M
600
-
600
24
624
2,661
2,431
5,092
3,310
8,402
(12)
(144)
Life Insurance
Australia
New Zealand
Asia(1)
Total
$M
180
108
(421)
-
(133)
206
73
$M
54
(29)
(9)
19
35
94
129
$M
17
-
-
(25)
(8)
(4)
(12)
$M
519
52
(900)
(16)
(345)
201
(144)
(1)
(2)
The Asian life businesses are not held in a 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 subject to impairment.
Includes capital injections, transfers and movements in intergroup loans.
Change in Valuations
The valuations adopted have resulted in a total
negative change in value of $144 million since 30 June
2003. The main components comprised:
(cid:131)
A $345 million decrease in net tangible assets partially
reflecting improved capital efficiency.
(cid:131)
An appraisal value uplift of $201 million, reflecting
projected sales levels, higher retention rates and
improved equity markets and their effect on industry
flows.
Movem ent in Directors Valuation
519
(864)
8,546
201
8,402
$ m
9,500
9,000
8,500
8,000
7,500
7,000
Directors Valuation
June 2003
Profit
Capital Movements
Including Dividends
Uplift in Value
Directors Valuation
June 2004
25
"Operating Expenses – Initiatives including Which
new Bank” refers to incremental expenses associated with
these initiatives. Prior period numbers refer to the strategic
initiatives as outlined in the Bank’s annual report for the
year ended 30 June 2002 and June 2002 Employee Share
Acquisition Plan costs paid in October 2002 following
changes to the Bank’s remuneration structures and policy.
These incremental costs principally relate to restructuring
expenses. “Operating expenses – Initiatives including
Which new Bank” plus “operating expenses — comparable
business” is equal to the Australian GAAP measure
"operating expenses". Management believes
is
meaningful to highlight these items in an analysis of our
results.
it
"Underlying profit" refers to profit after tax, “cash
basis”, before operating expenses - initiatives including
Which new Bank and shareholder investment returns.
"Underlying profit" is referred to across all our businesses.
The underlying profit is the 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.
(cid:131)
(cid:131)
(cid:131)
"Underlying" productivity ratios:
Exclude expenses of “Initiatives including Which new
Bank”;
Exclude shareholder investment returns from funds
management and life insurance income; and
Exclude policyholder tax from the funds management
income and life insurance income lines.
In
productivity
providing
ratios,
"underlying"
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
ratios. Management
presentation of our productivity
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.
.
Presentation of Financial Information
Definitions
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 interests, before
goodwill amortisation and funds management and life
insurance appraisal value uplift/(reduction). "Cash basis"
net profit after 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 uplift/(reduction).
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. Also for the
year ended 30 June 2004, the Bank has added back the
non-recurring ‘Which new Bank’ costs in considering the
amount to be distributed as dividends to shareholders. 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
insurance
funds management and
businesses which in part is driven by external economic
factors and markets, such as world equity markets and
interest rates.
the
life
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
value
uplift/(reduction), divided by the weighted 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.
insurance appraisal
life
26
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 Bank’s risk profile is measured by the difference
between capital available to absorb loss and risk as
assessed by target equity required.
“Target equity” is defined as the potential risk of loss
of one year’s earnings, measured at a standard consistent
with an AA credit rating.
Target equity is derived from underlying exposures to
credit, market, operational and life insurance risks in the
banking, 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. In
the insurance and funds management businesses, target
equity is a measure of the potential risk of loss of the fair
value of the business.
The composition of economic equity of the Group
during the financial year ended 30 June 2004 was 54%
credit risk, 11% market risk, 34% operational risk and 1%
insurance risk.
The component measures of economic equity for the
banking, insurance and funds management businesses
were as follows:
(cid:131)
Banking: 73% credit risk, 4% market risk and 23%
operational risk;
Insurance: 40% market risk, 50% operational risk, 6%
credit risk and 4% insurance risk; and
Funds Management:; 11% market risk and 89%
operational risk.
The following sections describe the integrated risk
(cid:131)
(cid:131)
management framework components.
Credit Risk
Credit risk is the potential of 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, financial markets transactions and other
associated activities. In the 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 Bank uses a diversified portfolio approach for the
management of credit risk (refer to Note 14) comprised of
the following:
(cid:131)
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.
These policies assist in the diversification of the
(cid:131)
(cid:131)
(cid:131)
credit portfolio.
The credit portfolio is managed in two distinct
segments:
(cid:131)
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.
27
(cid:131)
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.
Provision 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 Bank. 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.
Off Balance Sheet Arrangements
The Bank 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
substance rather than form, and accordingly, determination
of the existence of control involves management judgment.
The Bank has no off balance sheet financing entities that it
is considered to control.
As detailed in Note 1 (jj), the Bank 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 Bank in
accordance with the Australian Prudential Regulation
Authority (“APRA”) Prudential Guidelines. These liquidity
facilities are disclosed within Contingent Liabilities as
commitments to provide credit.
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.
in both
the banking and
Market risk arises from the mismatch between assets
insurance
liabilities
and
businesses and from controlled trading undertaken in
pursuit of profit. The Bank is exposed to diverse financial
instruments including interest rates, foreign currencies,
equities and commodities and transacts in both physical
and derivative instruments.
in Note 39
A discussion and analysis of the Bank’s market risk is
contained
financial statements.
the
to
Information on trading securities is further contained in
Note 10 to the financial statements. Note 2 to the financial
statements contains financial markets trading income
contribution to the Bank.
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.
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 Bank. Refer to Note 39 to the financial statements for further details.
VaR Expressed based
on 97.5% confidence
Group
Interest rate risk
Exchange rate risk
Implied volatility risk
Equities risk
Commodities risk
Prepayment risk
ASB Bank
Diversification benefit
Credit Spread(1)
Total
VaR Expressed based
on 99.0% confidence
Group
Interest rate risk
Exchange rate risk
Implied volatility risk
Equities risk
Commodities risk
Prepayment risk
ASB Bank
Diversification benefit
Credit Spread(1)
Total
Average VaR
During
June 2004
Half Year
$M
Average VaR
During
December 2003
Half Year
$M
Average VaR
During
June 2003
Half Year
$M
Average VaR
During
December 2002
Half Year
$M
2.88
1.09
0.84
0.70
0.37
0.58
0.14
(2.49)
4.11
4.92
9.03
3.02
1.24
0.92
0.56
0.33
0.36
0.20
(2.51)
4.12
-
4.12
3.43
1.31
0.62
0.73
0.32
0.38
0.15
(2.32)
4.62
-
4.62
3.37
1.47
0.59
0.32
0.35
0.30
0.19
(2.14)
4.45
-
4.45
Average VaR
During
June 2004
Half Year
$M
Average VaR
During
December 2003
Half Year
$M
Average VaR
During
June 2003
Half Year
$M
Average VaR
During
December 2002
Half Year
$M
3.69
1.28
1.04
0.98
0.45
0.58
0.19
(3.21)
5.00
5.84
10.84
3.99
1.50
1.26
0.70
0.40
0.36
0.25
(3.26)
5.20
-
5.20
4.31
1.64
0.79
0.93
0.41
0.38
0.20
(3.02)
5.64
-
5.64
4.45
1.75
0.71
0.39
0.42
0.30
0.24
(2.70)
5.57
-
5.57
(1)
At 30 June 2004 the value at risk of the movement of credit spreads has been added to the VaR model. This had previously been
captured in the “Specific Risk” allocation capital charge. Inclusion of a separate risk class reflects growth in this particular market segment
and increasing availability of data on which to model.
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.
possible,
Wherever
segregates
policyholder’s funds from shareholder’s funds and sets
investment mandates that are appropriate for each. The
investment mandates for assets in policyholder’s funds
Bank
the
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 policyholder’s 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
for
lower
investment linked policies is at the discretion of the
policyholder.
fees should markets
fall. Asset allocation
A smaller proportion of policyholder’s 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 inforce 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
28
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:
-
-
-
-
Economic;
Competitive;
Social trends; or
Regulatory.
In each of
the businesses, management
is
responsible
identification, assessment and
treatment of these risks. These business managers are
supported by
the Bank’s framework consisting of a
governance structure, a suite of risk mitigating policies, a
measurement methodology and skilled operational risk
employed throughout the Group.
the
for
The Bank’s
risk measurement
operational
methodology provides the basis for the expert assessment
of
the calculation of
operational risk economic equity.
individual risk exposures and
Target equity for the banking business is calculated
by aggregating individual risk measures which are based
on expert assessment. For the insurance and funds
management businesses target equity is calculated using
worst-case scenarios that impact upon business risk
factors such as pricing, margins and business volumes.
risk
transfer program
The Bank continues to benchmark and monitor its
insurance
for efficiency and
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.
Business Continuity Management
Business Continuity Management (“BCM”) within the
Bank 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
Bank’s risk management process by providing a controlled
response to potential operational risks that could have a
significant impact on the Bank’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.
A comprehensive BCM program
including plan
development, testing and education has been rolled out
across all business units to embed BCM methodologies
and capability throughout the Bank.
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.
Integrated Risk Management (continued)
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.
The current investment mandate for shareholders’
funds reflects a decision taken during this year to reduce
the overall exposure of shareholders’ fund to growth
assets. As at 30 June 2004, shareholders’ funds in the life
insurance business are invested 73% in income assets
(cash and fixed interest) and 27% in growth assets (shares
and property), although the asset mix varies from company
to company. Policyholder funds are invested to meet
policyholder reasonable expectations without putting the
policyholder at undue risk.
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.
Liquidity risk is not a significant issue in 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
income.
Furthermore, processing time for claims and redemptions
enables each company to forecast and manage its liquidity
needs with a high degree of accuracy.
receive substantial premium
to
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 is
integral
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 Over the Counter (“OTC”) derivatives
markets.
the Bank’s
to
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.
OTC traded derivatives
The Bank buys and sells financial instruments that
are traded ‘over-the-counter’, rather than on recognised
exchanges. The terms and conditions of these transactions
are negotiated between the parties, although the majority
conform
Industry
to accepted market conventions.
standard documentation is used, most commonly in the
form of a master agreement supported by individual
transaction confirmations. The documentation protects the
Bank’s interests should the counterparty default, and
provides
in
jurisdictions where the relevant law allows.
to net outstanding balances
the ability
The Bank’s exposure to derivatives is disclosed in
Note 39 Market Risk.
Operational and Strategic Business Risk
The Bank’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
gain or loss resulting from:
Inadequate or
-
methodologies;
People;
Systems; or
External events.
-
-
-
failed
internal processes and
29
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 51 banking groups operating in
Australia at 30 June 2004. 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 14) 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
years
regional banking sector has undergone
substantial consolidation with several of these institutions
amalgamating with other regional banks or being acquired
by major banks.
the
locally
through a
There are 13 foreign owned banks operating in
incorporated subsidiary.
Australia
An additional 24 banks conduct operations
through
a foreign bank branch. While many foreign banks operating
in Australia initially focused 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
to customers. Five foreign banks are represented in
Australia by both a locally incorporated subsidiary and a
branch.
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.
in
the
Changes
financial needs of consumers,
deregulation, and technology developments have also
changed the mode of competition. In particular, the
development of electronic delivery channels and the
reduced reliance on a physical network facilitate the entry
of new players from related industries, such as retailers,
telecommunication companies and utilities. Technological
change 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
management, especially within
the superannuation
industry. Future growth will be
(pension
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
the capital markets,
originator of corporate debt
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.
in
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 four
financial services groups, all owned by Australian-based
banks operating through nationwide branch networks.
The Group’s major competitors in New Zealand are
ANZ and the National Bank of New Zealand (both wholly-
owned subsidiaries of the ANZ Group), Bank of New
Zealand
(a wholly-owned subsidiary of NAB), and
Westpac. In addition, there are several financial institutions
operating largely in the wholesale banking sector including
Deutsche Bank and ABN Amro.
Through its wholly owned subsidiaries, Sovereign
Group and ASB Group Investments, ASB Group also
competes in the New Zealand insurance and investment
market, where Asteron (part of the Promina Group) and
AXA are major competitors.
Following the acquisition of Colonial Ltd in June
2000, the Group’s retail operations were extended into the
United Kingdom, several 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. 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 to the 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.
30
Description of Business Environment (continued)
The prudential
framework applied by APRA
embodied in a series of prudential standards including:
(i) Capital Adequacy
is
required
Under APRA capital adequacy guidelines, Australian
banks are
ratio of capital
to maintain a
(comprising Tier One and Tier Two capital components) to
risk weighted assets of at least 8%, of which at least half
must be Tier One capital. Regulatory capital requirements
are measured for the Bank (“Level 1”) and for the Bank
together with its banking subsidiaries (“Level 2”). APRA
capital requirements are generally consistent with those
agreed upon by
the Basel Committee on Banking
Supervision. APRA has advised that a third level of capital
adequacy (“Level 3”) for conglomerate groups will be
implemented to coincide with Basel 2. For information on
the capital position of the Bank, see Note 31 Capital
Adequacy.
(ii) 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 Certificates of
Deposits/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.
(iii) 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 July 2003 the limit was 30%).
Exposure to authorised deposit taking institutions (“ADIs”)
is not to exceed 50% of the capital base. Prior consultation
must be held with APRA if a bank intends to exceed set
thresholds. For information on the Bank’s large exposures
refer to Note 14 to the Financial Statements.
(iv) Ownership and Control
that
financial
regulated
In pursuit of transparency and risk minimisation, the
Financial Sector (Shareholding) Act 1998 embodies the
institutions should
principle
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
industry,
in
established participants
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.
the Australian Securities and
Since July 1998, the new regulatory arrangements
have comprised four separate agencies: The Reserve
Bank of Australia, the Australian Prudential Regulation
Authority,
Investments
Commission and
the Australian Competition and
Consumer Commission. Each of these agencies has
system wide responsibilities for the different objectives of
government oversight of the financial system. A description
of these agencies and their general responsibilities and
functions is set out below.
Reserve Bank of Australia (“RBA”) – is responsible
financial system stability and
for monetary policy,
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
these
products.
the providers of
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
for
disclosure and a single authorisation procedure
financial exchanges and clearing and settlement facilities.
The Financial Services Reform Act 2001 enacting these
proposals came into force in March 2004. It is intended to
facilitate innovation and promote business while at the
levels of consumer
same
protection and market integrity.
time ensuring adequate
The Government passed into law in June 2004 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.
31
Description of Business Environment (continued)
(v) Banks’ Association With Non-Banks
There are formal guidelines (including maximum
exposure limits applicable from 1 July 2003) that control
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
its business, or effect
a reconstruction or carry on business in partnership with
another bank, without the consent of the Commonwealth
Treasurer.
(vi) Supervision of Non-Bank Group Entities
the sale or disposal of
The Australian 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
audited accounts and supervisory inspections. Compliance
with APRA regulation for general insurance companies is
monitored through regular returns, lodgment of an audited
annual return, and auditor certification covering prudential
matters.
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
instruments such as bank acceptances,
other credit
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
specific segments
the credit risk rated managed
portfolio. These provisions are derived primarily by
reference to historical ratios of write-offs to balances in
default.
in
Specific provisions are provided for from the general
provision.
All
facilities subject
for
impairment are classified as non-accrual, as set out in Note
15.
to a specific provision
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 policyholder 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:131)
Business assumptions including:
- amount, timing and duration of claims/policy
payments;
- policy lapse rates; and
- acquisition and long term maintenance expense
levels;
(cid:131)
(cid:131)
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:
Recent results may be a statistical aberration; or
-
There may be a commencement of a new paradigm
-
requiring a change in long term assumptions.
The Group’s actuaries arrive at conclusions regarding
their experience and
the statistical analysis using
judgement.
Additional information on the accounting policy is set
out in Note 1(ii) Life Insurance Business, and Note 34 Life
Insurance Business details the key actuarial assumptions.
Market Valuation of Life Insurance Controlled Entities
life
in controlled entities held by
Interests
insurance companies are subject to revaluation each
period, such that the investment in the controlled entity is
recorded at market value.
the
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
32
systems and process
additional expenditure in the key areas of staff training and
skilling,
simplification, and
technology. In the period to 30 June 2004 such expenses
have
totaled $749 million and principally comprise
redundancies, expensing of previously capitalised software
of $219 million, process
improvements and branch
refurbishment.
The Group is required to book a provision for
restructuring costs to the extent that it has announced a
plan or started implementing a plan, and has no realistic
alternative but to proceed with the restructuring.
There is a level of management judgement involved
in estimating the planned costs involved and the level of
commitment to the plan, such that it is judged that the plan
will proceed to completion.
On this basis a provision for ‘Which new Bank’ costs
of $208 million was outstanding at 30 June 2004, which is
included in the expenses referred to above.
The cost estimates for the provision were determined
by the businesses concerned taking into account the
details of the planned initiatives and their timing. Other
provisions for restructuring established in the past have
proved to be appropriately estimated at the time. The
provision established in June 2000 when the Group
acquired the Colonial Limited Group of companies to cover
the integration of the Colonial operations into the existing
Group is described in Note 1(z) of the financial statements
for the year ended 30 June 2003. This provision for
restructuring was estimated at $400 million at 30 June
2000. This initial estimate was subsequently revised up to
$545 million in the year ended 30 June 2001. The revision
to costs of restructure principally related to additional staff
redundancy payments and information technology contract
termination costs. The current transformation initiative is a
three year program that is estimated to cost $1,480 million
over the 2004 to 2006 period. It is expected that additional
provisions for ‘Which new Bank’ costs will be established
over
the
this period as
accounting standard are met.
the provisioning criteria
in
Description of Business Environment (continued)
as ‘Excess of Net Market Value over Net Tangible Assets
of Life Insurance Controlled Entities’. This amount is
the valuation of
assessed periodically as part 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,
involves
actuarial judgement.
the selection of which
Economic assumptions are the long term view on key
economic drivers and comprise investment earnings rates,
risk discount
inflation. The economic
assumptions are reviewed as a suite to take account of the
correlation between the movements in each factor.
rates and
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
life
The major business assumptions
liabilities.
businesses are:
-
-
-
-
Sales/new business;
Claims;
Persistency; and
Expenses.
The major business assumptions
for
funds
for
management businesses are:
-
-
-
-
Sales/new business;
Margins/business mix;
Redemptions; and
Cost to income ratio.
Details of the key assumptions used in the valuations
are set out in Note 34 Life Insurance Business.
Provision for Which new Bank costs
On 19 September 2003, the Group launched its
Which new Bank customer service vision. This is a three
year transformation program and involves the Bank in
33
Corporate Governance
Board of Directors
Charter
The role and responsibilities of the Board of Directors
are set out in the Board Charter. The responsibilities
include:
-
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
-
-
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
and financial objectives;
− approving major corporate initiatives;
systems
− establishing
appropriate
of
risk
management; and
− monitoring the performance of management;
Communicating with
the
community, results of, and developments in, the
operations of the Bank;
shareholders
and
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
-
-
Nominations Remuneration Audit
Risk
Chairman
Chairman
Chairman
Chairman
Deputy Chairman
Member
Chairman Member
Chief Executive Officer
J T Ralph, AC
J M Schubert
D V Murray
N R Adler, AO
R J Clairs, AO
Non-executive,
Independent
Non-executive,
Independent
Executive
Non-executive,
Independent
Non-executive,
Independent
A B Daniels, OAM Non-executive,
Independent
C R Galbraith, AM Non-executive,
S C Kay
W G Kent, AO
F D Ryan
F J Swan
B K Ward
Independent
Non-executive,
Independent
Non-executive,
Independent
Non-executive,
Independent
Non-executive,
Independent
Non-executive,
Independent
-
-
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 has
determined that upon the retirement of Mr Ralph and
Mr Adler at the 2004 Annual General Meeting, the
number of directors shall be 10; and
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 has 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, the Chairman will be expected to be available
for that position for five years). Directors do not stand for
re-election after attaining the age of 70.
-
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.
Member
Member
Member
Member
Member
Member
Member
Member
Member
Member
Member
Member
Member
Member
Member
Member
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
the
related party dealings are set out
Company's accounts as required by law.
in notes
to
independent Directors.
All the current non-executive Directors of the Bank
have been assessed as
In
reaching that determination, the Board has taken into
account (in addition to the matters set out above):
-
The specific disclosures made by each Director as
referred to above;
Where applicable,
related party dealings
referrable to each Director, noting that those dealings
are not material under accounting standards;
the
-
34
-
-
Corporate Governance (continued)
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 has established a policy limiting
Directors'
that skill sets remain
appropriate in a dynamic industry.
to ensure
tenures
-
Education
Directors participate in an induction programme upon
appointment and in a refresher program on a regular basis.
The Board has established a program 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 has 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
information made available to Directors. Every two 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 at least annually with members
of the senior executive team to discuss with them the
Board’s performance and level of involvement from their
perspective.
Selection of Directors
The Nominations Committee has developed a set of
criteria for director appointments which have been adopted
by the Board. The criteria set the objective of the Board as
being as effective, and preferably more effective than the
best boards in the comparable peer group. These criteria,
which are reviewed annually, ensure
that any new
appointee is able to contribute to the ongoing effectiveness
of the Board, have the ability to exercise sound business
judgment, to think strategically and have demonstrated
leadership experience, high levels of professional skill and
appropriate personal qualities.
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.
The Bank has adopted a policy whereby, 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:
-
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. 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
in
involvement
in discussions and decisions on
strategy. Matters having strategic implications are
given priority on the agenda for regular Board
meetings. In addition, ongoing strategy is the major
focus of at least two of the Board meetings annually;
The Board has an agreed policy on the basis on
which Directors are entitled to obtain access to
company documents and information and to meet
with management; and
The Bank has 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 generally made available to
all Directors.
-
-
-
-
Ethical Standards
Conflicts of Interest
In accordance with
interest.
the Constitution and
In compliance with section 195 of
the
Corporations Act 2001, Directors are required to disclose
to the Board any material contract in which they may have
the
an
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. In addition, any director
who has a conflict of interest in connection with any matter
being considered by the Board or a Committee does not
receive a copy of any paper dealing with the matter.
in
the securities of
Share Trading
The restrictions imposed by law on dealings by
the Bank have been
Directors
the Board of Directors adopting
supplemented by
guidelines which
limit any such dealings by
Directors, their spouses, any dependent child, family
company or family trust.
further
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 three and
30 days after the announcement of half yearly and final
results and from three 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.
-
In addition, Bank policy prohibits:
For Directors and executives who report to the Chief
Executive Officer, any hedging of publicly disclosed
shareholding positions; and
35
Corporate Governance (continued)
For executives, any trading (including hedging) in
-
positions prior to vesting of shares or options.
Remuneration Arrangements
Remuneration Committee
The Board has established a Remuneration
-
-
-
Committee to:
-
-
-
-
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
industrial
compliance
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 has an established work plan which
allows it to review all major human resource policies,
strategies and outcomes.
Non-Executive Directors’ Remuneration
The Constitution and the Australian Stock Exchange
(“ASX”) Listing Rules specify that the aggregate fees of
non-executive Directors shall be determined from time to
time by a general meeting. An amount not exceeding the
amount determined, is divided among 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 fees 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 44. 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 for the 2000 Annual General Meeting.
The Non-Executive Directors’ Retirement Allowance
Scheme which provides for retirement benefits to be paid
to non-executive Directors was approved by shareholders
at the 1997 Annual General Meeting. The terms of this
scheme allowed for a benefit on a pro-rata basis to a
maximum of four years total emoluments after 12 years
service. In July 2002, the Board closed the scheme to any
newly appointed directors. The entitlement of the non-
executive Directors at the time were not affected and
continued to accrue further benefits.
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, and are consistent with those
applying to other executives of the Bank.
Executive Remuneration
The Bank’s remuneration systems complement and
reinforce its leadership and succession planning systems.
The Bank’s remuneration framework aims to reward
executives with a mix of remuneration appropriate to their
level in the organisation and incorporates a significant
weighting
to
towards variable (“at risk”) pay
performance, both short term and long term. This focus
aims to:
-
reward executives for bankwide, business unit and
individual performance against
targets set by
reference to appropriate benchmarks;
linked
align the interests of executives with those of
shareholders;
link executive reward with the strategic goals and
performance of the Bank; and
ensure total remuneration is competitive by market
standards.
Remuneration and
terms and conditions of
employment are specified in an individual contract of
employment with each executive which is signed by the
executive and the Bank. Remuneration of the Bank’s
executives consists of three key elements”
-
-
-
Fixed Remuneration;
Short Term Incentive (“STI”); and
Long Term Incentive (“LTI”).
The relationship of fixed remuneration and variable
pay (potential short term and long term incentives) is
established for each level of executive management by the
Remuneration Committee.
Fixed remuneration is reviewed annually by the
Remuneration Committee through a process that considers
bankwide, business unit and
individual performance,
relevant comparative remuneration in the market and
internal and, where appropriate, external advice on policies
and practices. The Committee has access to external
advice independent of management.
Actual STI payments for executives depend on the
extent to which operating targets set at the beginning of the
financial year are met.
These targets consist of a number of Key Result
Areas (“KRAs”) covering both financial and non-financial
measures of performance. Included are measures such as
contribution to net profit after tax (“NPAT”), customer
service, risk management, product management, and
leadership/team contribution.
STI Payments to executives are usually delivered in
two components
-
-
Fifty percent made as an immediate cash payment;
and
Fifty percent deferred in the form of shares in the
Bank.
The shares acquired vest in two equal instalments
after one and two years respectively. Dividends on the
shares are not paid to the executive unless and until the
shares vest. Generally, the executive will need to be an
employee of the Bank at the relevant vesting date to
receive the shares.
LTI grants to executives are delivered in the form of
Reward Shares under the Bank’s Equity Reward Plan
(“ERP”).
No value accrues to the executive unless the Bank’s
Total Shareholder Return (“TSR”) at least meets the
median of a peer comparator group of companies. To
receive the full value of the LTI grant, the Bank’s
performance must be in the top quartile of the peer group.
The percentage of shares vesting in the executive will
be based on a sliding scale where 50% of allocated shares
vest if the Bank’s TSR is equal to the median return, 75%
vest at the 67th percentile and 100% when the return
exceeds the 75th percentile, ie. when the Bank’s return is in
the top quartile.
Where the rating is below the median return on the
third anniversary of grant, the shares can still vest if the
rating reaches the median prior to the fifth anniversary, but
the maximum vesting will be 50%.
Purchase of Shares on the Market
Currently, Reward Shares purchased on market to
satisfy incentives earned by executives under the ERP are
charged against profit and loss as are incentives paid in
cash and in deferred shares under the Equity Participation
Plan (“EPP”). As from the beginning of the 2003 financial
year, total remuneration, which includes the full cost of the
ERP and EPP and also the distribution of shares to
employees under the ESAP, have been expensed against
profits.
36
Corporate Governance (continued)
Further Information
Further detail of remuneration arrangements for
Directors and executives of the Bank is outlined in the
Directors’ Report. Individual remuneration details of
Directors and Specified Executives are set out in Note 44
to the Financial Statements.
-
-
-
-
the chief
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:
-
The Audit Committee consists entirely of 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 permitted to be the
Chairman of the Audit 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; and
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 Securities and
Exchange Commission (“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
regulations and
laws,
current
with
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.
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:
-
The financial statements and their conformity with
accounting standards, other mandatory reporting 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.
relevant
-
-
-
-
-
-
The Board has determined that Fergus Ryan is an
“audit committee financial expert” within the meaning of
that term as described in the SEC rules. Although the
Board has determined that this individual has the requisite
the SEC, his
attributes defined under
responsibilities are the same as those of the other Audit
Committee members. He is not an auditor, does not
the rules of
37
perform “field work” and is not a full time employee. The
SEC has determined that an audit committee member who
is designated as an audit committee financial expert will
not be deemed to be an “expert” for any purpose as a
result of being identified as an audit committee financial
expert.
The Audit Committee is responsible for oversight of
management in the preparation of the Bank’s financial
statements and financial disclosures. The Audit Committee
relies on the information provided by management and the
external auditor. The Audit Committee does not have the
duty to plan or conduct audits to determine whether the
Bank’s financial statements and disclosures are complete
and accurate.
Non-Audit Services
The Board has in place an External Auditor Services
Policy which only permits the Independent Auditor to carry
out audit services and audit related services which are an
extension of the audit services and certain other services
pre-approved by the Audit Committee. All other non-audit
services are prohibited. The objective of this policy is to
avoid prejudicing the independence of the Auditors.
-
-
-
-
-
-
-
The policy also ensures that the Auditors do not:
Assume the role of management or act as an
employee;
Become an advocate for the Bank;
Audit their own work;
Create a mutual or conflicting interest between the
Auditor and the Bank;
Require an indemnification from the Bank to the
Auditor;
Seek contingency fees; nor
Have a direct financial or business interest or a
material indirect financial or business interest in the
Bank or any of its affiliates, or an employment
relationship with the Bank or any of its affiliates.
Under the policy, the Auditor shall not provide the
following services:
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
and
design
(cid:131)
(cid:131)
(cid:131)
(cid:131)
systems
functions,
investment
information
to accounting
investment adviser or
including acting as an
Bookkeeping or services relating
records or financial statements of the Bank;
Financial
implementation;
Appraisal or valuation services and fairness opinions;
Actuarial services;
Internal audit outsourcing services;
Management
employee;
Human resources;
Broker-dealer,
banking services;
Legal services; or
Expert services unrelated to the audit.
In general terms, the permitted services are:
Audit services to the Bank or an affiliate, covered by
an engagement
the Audit
Committee, financial and statutory audits of affiliates
and services connected with
lodgement of
statements or documents with ASX, ASIC, APRA,
SEC or other regulatory or supervisory bodies;
Services reasonably related to the performance of
the audit services;
Agreed upon procedures or comfort letters provided
by the Auditor to third parties in connection with the
Bank’s financing or related activities; and
Other services pre-approved by the Audit Committee.
The SEC has requested that the Bank produce
documents and information relating to all services provided
by the Bank’s external auditors, Ernst & Young, since 1 July
2000, in the context of the US auditor independence rules.
The Bank understands that the SEC has made similar
requests to certain other Australian companies registered
with the SEC and accounting firms.
letter approved by
the
(cid:131)
(cid:131)
(cid:131)
The Bank is producing the documents and information
requested.
Although the Bank cannot predict the nature of any
future action if the SEC determines that any services
Corporate Governance (continued)
provided by Ernst & Young did not comply with the SEC’s
rules and while the SEC could seek sanctions of a type or
in amounts not currently known, based on information
currently available to the Bank, it does not believe the
outcome of the SEC’s ongoing inquiry will have a material
adverse financial effect on the Commonwealth Bank
Group.
Auditor
Ernst & Young was appointed as the Auditor of the
Bank at the 1996 Annual General Meeting and continues in
that office.
The audit partner from Ernst & Young attends the
Annual General Meetings of the Bank and is available to
respond to shareholder audit related questions.
The Bank currently
the partner
managing the audit for the external Auditor be changed
within a period of five years.
requires
that
The Chief Executive Officer is authorised to appoint
and remove the chief internal audit executive only after
consultation with the Audit Committee.
Risk Management
Risk Committee
The Risk Committee oversees credit, market, and
operational 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
to achieve portfolio
underwriting standards designed
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
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.
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
independent non executive directors. The Chief Executive
Officer attends the meeting by invitation.
In addition to its role in proposing candidates for
director appointment for consideration by the Board, the
Committee reviews fees payable to non-executive directors
and reviews, and advises the Board in relation to Chief
Executive Officer succession planning.
Continuous Disclosure
The Corporations Act 2001 and the ASX Listing
Rules require that a company discloses to the market
matters which could be expected to have a material effect
on the price or value of the company’s securities. The
38
Bank’s “Guidelines for Communication between the Bank
and Shareholders” sets out the processes to ensure that
shareholders and the market are provided with full and
timely information about the Bank’s activities in compliance
with continuous disclosure requirements. Management
procedures 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 established reporting
lines, or as a part of the 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 has confirmed its
release to the market.
Ethical Policies
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.
-
-
Statement of Professional Practice
The Bank has adopted a code of ethics, known as a
Statement of Professional Practice, which sets standards
of behaviour required of all employees and directors
including:
-
To act properly and efficiently in pursuing the
objectives of the Bank;
To avoid situations which may give rise to a conflict
of interest;
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 has established insider trading
guidelines for staff to ensure that unpublished price
sensitive information about the Bank or any other company
is not used in an illegal manner.
the Bank’s Equal
to
-
-
Our People
The Bank is committed to providing fair, safe,
challenging and
the
rewarding work,
importance of attracting and retaining high quality 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 :
-
-
-
-
-
-
-
-
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 to
the Chief Compliance Officer by the Chief Security Officer,
who administers the reporting and investigation system.
The Chief Security Officer reports any such matters to the
Audit Committee, noting the status of resolution and
actions to be taken.
Corporate Governance (continued)
Governance Philosophy
The Board has consistently placed great importance
on the governance of the Bank, which it believes is vital to
the well-being of the corporation. The Bank has adopted a
framework of Corporate Governance
comprehensive
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. The
Guidelines and the practices of the Bank comply with all
the current best practice recommendations set by the ASX
Corporate Governance Council.
US Sarbanes-Oxley Act
On 30 July 2002, a broad US financial reporting and
corporate governance reform law, called the Sarbanes-
Oxley Act of 2002 (“SOX Act”), was enacted. By its terms,
this Act applies to the Group because it has certain
securities registered with the SEC under the Securities
Exchange Act of 1934 (“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 has 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:
-
-
-
-
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 they have disclosed to 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
to providing
that
these
certifications make the following disclosures in its annual
report on Form 20-F:
-
The Group’s Chief Executive Officer and Chief
the assistance of other
Financial Officer, with
members of
the Group’s management, have
evaluated the effectiveness of 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 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 an exception 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. Ordinary
course lending that is considered “consumer credit” is in
certain circumstances also exempt. Furthermore, in April
2004, the SEC adopted a rule exempting from the
prohibition loans made by foreign banks meeting certain
requirements.
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
financial officer,
principal executive officer, principal
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:
-
-
their knowledge,
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;
for establishing and
That
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:
such disclosure
−
they are responsible
the
designed
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
report
is
reasonably
the
Group’s internal control over financial reporting;
and
that has materially affected, or
to materially affect,
likely
−
−
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:
−
all significant deficiencies (if any) in the design
or operation of internal controls over financial
reporting which are
to
adversely affect the Group’s ability to record,
reasonably
likely
-
-
-
39
Company Secretaries
The details of the Bank’s company secretaries,
including their experience and qualifications are set out
below.
John Hatton has been Company Secretary of the
Commonwealth Bank since 1994.
From 1985-1994, he was a solicitor with the Bank’s
Legal Department.
He has a law degree from Sydney University and was
admitted as a solicitor in New South Wales. He is a Fellow
of the Chartered Secretaries Australia and a Member of the
Australian Institute of Company Directors.
Henry Broekhuijse was appointed a Company
Secretary to the Bank in August 2001.
He
joined
the Commonwealth Bank Legal
Department in January 1979 and has approximately 25
years experience as an in-house lawyer.
He has a BA from Sydney University and an LLB
from the University of New South Wales. He is a Member
of the Law Society of NSW; Australian Corporate Lawyers
Association; City of Sydney Law Society; and the Risk
Management Association – Australia.
Corporate Governance (continued)
−
process, summarise and report financial data;
and
any fraud, whether or not material, that 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 2004. Based on such evaluation, our Chief Executive
Officer and Chief Financial Officer have each concluded
that the Group’s disclosure controls and procedures are
effective.
Changes in internal control over financial reporting
No changes in our internal controls over financial
reporting occurred during the year ended 30 June 2004
that have materially affected, or are reasonably likely to
materially affect, our
financial
reporting. Material changes in our internal controls over
financial reporting will occur from 1 July 2005 with the
transition to International Financial Reporting Standards,
refer to Note 1 (pp) to the Financial Statements.
internal controls over
40
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 2004.
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
for Science
Management), Australian Foundation
(Chairman),
(Chairman), Australian Farm
Australian
(Fellow),
Institute of Company Directors
Australian Institute of Management (Fellow), Australian
Academy of Science (Fellow), Australian Academy of
Technological Science and Engineering (Fellow), Scouts
Australia Victorian Branch (President) and St Vincent’s
Institute Foundation (Patron).
Institute
Mr Ralph is a resident of Victoria. Age 71.
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 Risk and Nominations Committees. He holds a
Bachelor’s 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
former Chairman and
International Limited and
Managing Director of Esso Australia Ltd.
the
Chairman: Worley Group Limited and G2 Therapies
Limited.
Director: BHP Billiton Limited, BHP Billiton plc, and Qantas
Airways Limited.
Other
Interests: Academy of Technological Science
(Fellow), Great Barrier Reef Research Foundation (Deputy
Chairman), AGSM Advisory Board
(Member), and
Business Council of Australia (Member).
Dr Schubert is a resident of New South Wales. Age 61.
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.
(Member), and the Financial Sector Advisory Council
(Member).
Mr Murray is a resident of New South Wales. Age 55.
N R (Ross) Adler, AO
Mr Adler has been a member of the Board since 1990 and
is a member of the Audit and Risk Committees. 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. He is the former Managing Director and
Chief Executive Officer of Santos Limited.
Chairman: Austrade and Amtrade International Pty Ltd.
Director: Australian Institute of Commercialisation Ltd and
AWL Enterprises Pty Ltd.
Other Interests: Adelaide Festival (Chairman), University of
Adelaide (Council Member and Chairman of the Finance
Committee) and Executive Member of the Australian Japan
Business Co-operation Committee.
Mr Adler is a resident of South Australia. Age 59.
Reg J Clairs, AO
Mr Clairs has been a member of the Board since March
1999 and is a member of the Remuneration and Risk
Committees. As the former Chief Executive Officer of
Woolworths Limited, he had thirty-three years’ experience
in retailing, branding and customer service.
Director: David Jones Ltd and The Cellnet Group.
Deputy Chairman: National Australia Day Council.
Other Interests: Institute of Company Directors (Member).
Mr Clairs is a resident of Queensland. Age 66.
A B (Tony) Daniels, OAM
Mr Daniels has been a member of the Board since March
2000 and is a member of the Remuneration and Risk
Committees. He
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.
experience
extensive
has
Director: Australian Gas Light Company and O'Connell St
Associates.
Other Interests: Australian Institute of Company Directors
(Fellow) and Australian Institute of Management (Fellow).
Mr Daniels is a resident of New South Wales. Age 69.
Colin R Galbraith, AM
Mr Galbraith 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 1996.
He is a partner of Allens Arthur Robinson, Lawyers.
Director: Tara Anglican School
Limited.
for Girls Foundation
Chairman: BHP Billiton Community Trust.
Interests:
International Monetary Conference
Other
(Member), Asian Bankers’ Association
(Member),
Australian Bankers’ Association (Member), Asia Pacific
Bankers' Club (Member), Business Council of Australia
41
Director: GasNet Australia (Group) and OneSteel Limited.
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 63.
Barbara K Ward
Ms Ward has been a member of the Board since 1994 and
is a member of the Audit and Risk Committees. 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
experience in the transport and aviation industries, most
recently as Chief Executive of Ansett Worldwide Aviation
Services.
Chairperson: Country Energy.
Director: Lion Nathan Limited, Allens Arthur Robinson,
Multiplex Limited and Multiplex Funds Management
Limited.
Other Interests: Sydney Opera House Trust (Trustee),
Australia Day Council of New South Wales (Member) and
Australian Institute of Company Directors (Member).
Ms Ward is a resident of New South Wales. Age 50.
Directors’ Report (continued)
Other Interests: Council of Legal Education in Victoria
(Honorary Secretary), CARE Australia (Director) and Royal
Melbourne Hospital Neuroscience Foundation (Trustee).
Mr Galbraith is a resident of Victoria. Age 56.
S Carolyn H Kay
Ms Kay has been a member of the Board since March
2003 and is also 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. She was a senior executive at
Morgan Stanley in London and Melbourne for 10 years and
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 Limited and Deputy Chair Victorian
Funds Management Corporation.
Other Interests: Australian Institute of Company Directors
(Fellow).
Ms Kay is resident in Victoria. Age 42.
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.
Chairman: Coventry Group Limited and West Australian
Newspapers Holdings Limited.
Director: Perpetual Trustees Australia Limited Group.
Other Interests: Walter and Eliza Hall Trust (Trustee),
Australian
(Fellow),
Institute of Company Directors
Australian Society of CPAs (Fellow), Australian Institute of
Bankers (Fellow) and the Chartered Institute of Company
Secretaries (Fellow).
Mr Kent is a resident of Western Australia. Age 68.
Fergus D Ryan
Mr Ryan has been a member of the Board since March
2000 and is a member of the Audit and Risk Committees.
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. Until November 2002, he was
Strategic Investment Co-ordinator and Major Projects
Facilitator for the Commonwealth Government.
Member: Prime Minister's Community Business
Partnership and Council of
the National Library of
Australia.
Director: Australian Foundation
Limited and Clayton UTZ.
Investment Company
Other Interests: Committee for Melbourne (Patron), Pacific
Institute (Counsellor) and Special Committee for Mature
Age Workers (Chairman).
Mr Ryan is a resident of Victoria. Age 61.
Frank J Swan
Mr Swan has been a member of the Board since July 1997
and is a member of the Risk and Nominations Committees.
42
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:
No. of Meetings Held(1)
DIRECTORS’ MEETINGS
No. of Meetings Attended
11
11
11
11
11
11
11
11
11
10
9
9
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
DIRECTOR
J T Ralph
J M Schubert(2)
D V Murray
N R Adler(2)
R J Clairs(2)
A B Daniels(2)
C R Galbraith
S C Kay
W G Kent
F D Ryan(2)
F J Swan
B K Ward(2)
DIRECTOR
J T Ralph
J M Schubert
D V Murray
F J Swan
11
11
11
11
11
11
11
11
11
11
11
11
2
2
2
2
(1) 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(1)
No. of
Meetings
Attended
No. of
Meetings
Held(1)
No. of
Meetings
Attended
No. of
Meetings
Held(1)
No. of
Meetings
Attended
8
4
8
4
4
4
8
8
8
4
8
4
8
4
8
3
4
4
8
8
8
4
7
3
7
7
7
7
7
7
7
7
8
8
8
8
8
8
No. of Meetings Held(1)
NOMINATIONS COMMITTEE
No. of Meetings Attended
2
2
2
2
(1) The number of meetings held during the time the Director was a member of the relevant committee.
(2) Directors appointed to Risk Committee in April 2004.
Principal Activities
The Commonwealth Bank Group is one of Australia’s
leading providers of integrated financial services including
retail, business and institutional banking, superannuation,
life insurance, general insurance, funds management,
broking services and finance company activities. The
principal activities of the Commonwealth Bank Group
during the financial year were:
(i)
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. For our corporate and institutional clients, we
offer a broad range of structured finance, equities and
advisory solutions, financial markets and equity markets
solutions, transactions banking, and merchant acquiring.
including business
43
The Group also has full service banking operations in New
Zealand and Fiji. The Group has wholesale banking
operations in London, New York, Hong Kong, Singapore
and Tokyo.
(ii) Funds Management
administration. The Group’s
The Group is Australia’s largest funds manager and
largest retail funds manager in terms of its total value of
funds
funds
under
the
management business
Investment and Insurance Services division. This business
manages a wide range of wholesale and retail investment,
superannuation and retirement funds. Investments are
across all major asset classes including Australian and
International shares, property, fixed interest and cash.
is managed as part of
The Group also has funds management businesses
in New Zealand, UK and Asia.
(iii)
Insurance
The Group provides
insurance, disability
insurance, annuities, master trusts, investment products
and household general insurance.
term
Directors’ Report (continued)
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 2004
was $2,572 million (2003: $2,012 million).
The net operating profit for the year ended 30 June
2004 after tax, and before goodwill amortisation, appraisal
value uplift, shareholder investment returns and costs
related to initiatives including Which new Bank was $3,078
million. This is an increase of $404 million or 15% over the
year ended 30 June 2003.
systems and process
On 19 September 2003, the Group launched its
Which new Bank customer service vision. This is a three
year transformation program and involves the Bank in
additional expenditure in the key areas of staff training and
skilling,
simplification, and
technology. In the period to 30 June 2004 such expenses
and provisions have totalled $749 million and principally
previously
comprise
capitalised software of $219 million, process improvements
and branch refurbishment. The outstanding provision for
Which new Bank costs at 30 June 2004 is $208 million.
redundancies,
expensing
of
to
factors
The principal contributing
this profit
increase were a growth in net interest income reflecting
continued strong housing loan growth together with growth
in commissions, and a decrease in charge for bad and
doubtful debts. Underlying operating expenses have
increased by 4% over the year, primarily due to salary
increases and increases in volume related expenses.
Funds management and insurance income rose which
reflects the effect of rising equity markets for most of the
year and improved underwriting and claims management.
Dividends
The Directors have declared a fully franked (at 30%)
final dividend of 104 cents per share amounting to $1,315
million. The dividend will be payable on 24 September
2004 to shareholders on the register at 5pm on 20 August
2004. Dividends paid since the end of the previous
financial year:
(cid:131)
As declared in last year’s report, a fully franked final
dividend of 85 cents per share amounting to $1,066
million was paid on 8 October 2003. The payment
comprised cash disbursements of $865 million with
$201 million being reinvested by participants through
the Dividend Reinvestment Plan; and
In respect of the current year, a fully franked interim
dividend of 79 cents per share amounting
to
$996 million was paid on 30 March 2004. The
payment
of
$808 million with $188 million being reinvested by
participants through the Dividend Reinvestment Plan.
Additionally, quarterly dividends totalling $37 million
for the year were paid on the PERLS preference
shares; $15 million on the PERLS II (for distributions
in March 2004 and June 2004); $40 million on the
Trust Preferred Securities; and $9 million on the ASB
Capital preference shares.
disbursements
comprised
cash
(cid:131)
(cid:131)
Review of Operations
An analysis of operations for the financial year is set
out in the Highlights on pages 5 to 8 and business analysis
on pages 9 to 25.
Changes in State of Affairs
During the year, the Bank made significant progress
in implementing a number of strategic initiatives under the
Which new Bank program launched in September 2003.
The program is designed to ensure a better service
outcome for the Bank’s customers.
The major initiatives undertaken during the year
included:
(cid:131)
(cid:131)
(cid:131)
Changes to the home loan process, which make
applying for a new loan much simpler and easier;
The refurbishment of 125 branches to a modern
layout conducive to effective customer service;
A continued emphasis on reducing customer waiting
times and changes to frontline customer service roles
designed to ensure a greater proportion of staff time
is spent serving customers; and
A restructure of funds management back office
to reduce costs and provide simpler
services
processes.
In May 2004 the Bank announced the merger of its
Premium Financial Services and Institutional and Business
Services divisions to form Premium Business Services.
This merger did not result in any significant change in the
nature of the business activities.
(cid:131)
There were no other significant changes in the state of
affairs of the Group during the financial year.
Events Subsequent to Balance Date
The Directors are not aware of any matter or
circumstance that has occurred since the end of the
financial year that has significantly affected or may
significantly affect the operations of the Group, the results
of those operations or the state of affairs of the Group in
subsequent financial years.
Future Developments and Results
Major developments, which may affect the operations
of the Group in subsequent financial years, are referred to
in the Chairman’s Statement on page 3. In the opinion of
the Directors, disclosure of any further information on likely
developments
in operations would be unreasonably
prejudicial to the interests of the Group.
Environmental Regulation
The Bank and its controlled entities are not subject to
any particular or significant environmental regulation under
a law of the Commonwealth or of a State or Territory, but
can incur environmental liabilities as a lender. The Bank
has developed credit policies to ensure this is managed
appropriately.
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
its continuation was
An Executive Option Plan (“EOP”) was approved by
shareholders at the Annual General Meeting on 8 October
1996 and
further approved by
shareholders at the Annual General Meeting on 29 October
1998. At the 2000 Annual General Meeting, the EOP was
discontinued and shareholders approved the establishment
of the Equity Reward Plan (“ERP”). The last grant of
options to be made under the ERP was the 2001 grant,
with options being granted 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 in the
2001 grant. During the financial year, the performance
hurdles for the August 1999 and September 2000 EOP
grants were met. During the financial year and for the
period to the date of this report 1,837,600 shares were
allotted by the Bank consequent to the exercise of options
granted under the Executive Option Plan and Equity
Reward Plan. Full details of the Plan are disclosed in Note
44
Directors’ Report (continued)
29 to the financial statements. No options have been
allocated since the beginning of the 2001/02 financial year.
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 previously granted to the
Chief Executive Officer, being a director, refer to Note 44 to
the Financial Statements.
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”.
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 41 to 42 of this
report, and the Secretaries of the Commonwealth Bank,
being J D Hatton and H J Broekhuijse 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
insurance premium
The Commonwealth Bank has, during the financial
year, paid an
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
the
2001.
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,
Remuneration
This report outlines the remuneration arrangements
for Directors and executives of the Bank. In compiling this
report, the Bank has taken into account the requirements
of the Government’s Corporate Law and Economic Reform
Program (“CLERP 9”) which is to take effect for reporting
periods commencing from 1 July 2004. Whilst the Bank is
not required to report under the new CLERP 9 framework
for the year ended 30 June 2004, the Bank believes that
this report will assist in meeting the intent of these reforms
and will ensure that these requirements are met for future
reporting periods.
Remuneration Committee
The Bank’s remuneration arrangements are overseen
by the Remuneration Committee of the Board. The
Committee considers changes in remuneration policy likely
to have a material impact on the Bank and is informed of
leadership performance,
in
employment issues, industrial agreements and incentive
plans operating across the Bank.
compliance
legislative
The Committee also considers senior appointments
and remuneration arrangements for senior management.
The remuneration arrangements for the CEO and his direct
reports are approved by the full Board.
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.
The Committee engages an external consultant to
advise it directly in relation to the remuneration of
executives.
Non-Executive Director Remuneration
The Constitution and the ASX Listing Rules specify
remuneration of Non-Executive
the aggregate
that
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. 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.
Under the Directors’ Retirement Allowance Scheme,
which was approved by shareholders at the 1997 Annual
General Meeting, Directors accumulate a retirement benefit
on a pro-rata basis to a maximum of four years’ total
emoluments after twelve years’ service. No benefit
accrues until the Director has served three years on the
Board. In 2002 the Board decided to discontinue the
Directors’ Retirement Allowance Scheme without affecting
the entitlements of then existing Non-Executive Directors.
After that time new Directors are not entitled to participate
in the scheme. As part of a proposed arrangement relating
to remuneration, the Board will be seeking shareholder
approval at the 2004 Annual General Meeting to terminate
accrual of further benefits under the Scheme and freeze
the entitlements of current members until their respective
retirements. This approach will result in remuneration
arrangements being expressed in a more transparent
manner which does not include retirement benefits (other
than compulsory superannuation).
Remuneration Principles and Structure
The Bank’s remuneration systems complement and
reinforce its leadership and succession planning systems.
The Bank’s remuneration framework aims to reward
executives with a mix of remuneration appropriate to their
level in the organisation and incorporates a significant
weighting
to
towards variable (‘at risk’) pay
performance, both short term and long term. This focus
aims to:
(cid:131)
Reward executives for bankwide, business unit and
individual performance against
targets set by
reference to appropriate benchmarks;
Align the interests of executives with those of
shareholders;
linked
(cid:131)
45
These targets consist of a number of Key Result
Areas (“KRAs”) covering both financial and non-financial
measures of performance. Included are measures such as
contribution to net profit after tax, customer service, risk
management, product management, and leadership/team
contribution.
Depending on
the executive’s
the
organisation, any actual STI payments received are based
on a combination of bankwide, business unit and individual
performance.
level within
On an annual basis, after consideration of
performance against KRAs, an overall performance rating
for the Bank and each individual business unit is approved
by the Remuneration Committee. Individual performance
is assessed by the executive’s manager based on the
Bank’s performance management system.
Executives who are not meeting the expectations of
their role will generally not receive a payment.
The aggregate of annual STI payments available for
executives across the Bank is subject to the approval of
the Remuneration Committee. In the case of the Chief
Executive Officer and his senior direct reports, individual
payments are subject to the approval of the Board.
STI payments to executives are usually delivered in
two components:
(cid:131)
(cid:131)
Fifty percent made as an immediate cash payment;
and
Fifty percent deferred in the form of shares in the
Bank.
Shares are acquired under the mandatory component
of the Bank’s Equity Participation Plan, more details of
which may be
the Financial
Statements. The shares acquired vest in two equal
instalments of one and two years respectively. Dividends
on the shares are not paid to the executive unless and until
the shares vest. Generally, the executive will need to be
an employee of the Bank at the relevant vesting date to
receive the shares.
in Note 29
found
to
Variable Pay – Long Term Incentive (“LTI”)
LTI grants to executives are delivered in the form of
Reward Shares under the Bank’s Equity Reward Plan
(“ERP”).
LTI grants are only made to executives who are able
to influence the generation of shareholder wealth and thus
have a direct impact on the Bank’s performance against
the relevant hurdle. Participation is thus restricted to
executives who, in a reporting sense, are no more than
three levels removed from the Chief Executive Officer.
The quantum of grants made to each executive
depends on their level within the organisation and has
regard to the desired mix between fixed remuneration,
short term and long term incentive as well as the
performance and potential of the individual executive.
No value will accrue to the executive unless the
Bank’s Total Shareholder Return (“TSR”) at least meets
the median of a peer comparator group of companies. To
receive the full value of the LTI grant, the Bank’s
performance must be in the top quartile of the peer group.
The table over the page provides a summary of the ERP
grants that were in operation during the 2003/04 year
(cid:131)
Directors’ Report (continued)
(cid:131)
Link executive reward with the strategic goals and
performance of the Bank; and
Ensure total remuneration is competitive by market
standards.
In determining appropriate
levels of executive
remuneration, the Remuneration Committee engaged an
external consultant to provide independent advice both in
the form of a written report detailing market levels of
remuneration for comparable executive roles as well as the
participation of the independent consultant in the meeting
from which the Committee makes its recommendations to
the Board.
Remuneration and
terms and conditions of
employment are specified in an individual contract of
employment with each executive which is signed by the
executive and the Bank. Remuneration of the Bank’s
executives consists of three key elements:
(cid:131)
(cid:131)
(cid:131)
Fixed Remuneration;
Short Term Incentive (“STI”); and
Long Term Incentive (“LTI”).
The relationship of fixed remuneration and variable
pay (potential short term and long term incentives) is
established for each level of executive management by the
Remuneration Committee.
Currently, the variable component of remuneration is
in the general range of around 35% to 80% of an
executive’s total potential remuneration depending on their
level in the organisation. As a result of the review with the
external consultant of developments in the market, and
benchmarking against peer organisations, the distribution
of total potential remuneration for executives is being
modified in the current year so as to increase the
percentage for the STI component and decrease the
percentage for the LTI component. For senior executives,
including the CEO, the maximum STI potential available
will generally be an amount equal to fixed remuneration.
The structure for some specialists differs from that
which applies generally to executive management. With
specialists, a greater proportion of the variable component
of remuneration may be in short term rather than long term
incentives but the overall mix of remuneration is still heavily
weighted towards ‘at risk’ pay.
Fixed Remuneration
Fixed remuneration is competitively set so that the
Bank can attract, motivate and retain high calibre local and
international executive staff.
Fixed remuneration is reviewed annually by the
Remuneration Committee through a process that considers
individual performance,
bankwide, business unit and
relevant comparative remuneration in the market and
internal and, where appropriate, external advice on policies
and practices. As noted above, the Committee has access
to external advice independent of management.
Fixed remuneration consists of base remuneration
(which is calculated on a total cost basis and includes any
FBT charges related to employee benefits including motor
vehicles) as well as employer
to
superannuation.
contributions
Variable Pay – Short Term Incentive (“STI”)
Actual STI payments for executives depend on the
extent to which operating targets set at the beginning of the
financial year are met.
46
Directors’ Report (continued)
Commencement Date
First Possible Vesting Date
Final Possible Vesting Date
Performance Hurdle
2000 Grant
13 Sep 2000
14 Sep 2003
13 Sep 2005
2001 Grant
3 Sep 2001
4 Sep 2004
3 Sep 2006
TSR vs Peer Group. If the performance
hurdle is not reached after three years the
options may nevertheless be exercisable or
the shares vest, only where the hurdle is
subsequently reached within five years from
the commencement date.
Vesting Scale
< Weighted Average of Peers = 0%
> Weighted Average of Peers = 100%
Status as at 30 June 2004
Peer Group
(GIO and BankWest were
included prior to 19/01/00
and 26/08/03 respectively)
Adelaide Bank
Australia & New Zealand Banking Group
AMP
AXA
Bank of Queensland
Bendigo Bank
IAG
Vested on 31 Mar 04 Not yet vested
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131) Macquarie Bank
(cid:131) National Australia Bank
(cid:131)
(cid:131)
(cid:131) QBE Insurance
(cid:131) Westpac Banking Corporation
St George
Suncorp-Metway
2002 Grant
2 Sep 2002
3 Sep 2005
2 Sep 2007
2003 Grant
1 Sep 2003
2 Sep 2006
1 Sep 2008
TSR vs Peer Group. 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%.
< 50th percentile = NIL
50th – 67th percentile = 50% - 75%
68th – 75th percentile = 76% - 100%
Not yet vested
Not yet vested
The use of a relative TSR based hurdle is currently
market best practice as it ensures an alignment between
comparative
for
executives.
return and
shareholder
reward
the Bank
In assessing whether the performance hurdles for
receives
each grant have been met,
independent data from Standard & Poors which provides
both the Bank’s TSR growth from the commencement of
each grant and that of the peer group (excluding the
Bank). The Bank’s performance against the hurdle is then
determined as follows:
(cid:131)
the peer group
For grants prior to 2002, the TSR of each company
in
is weighted by market
capitalisation to form an index against which the
Bank’s TSR is compared; and
For grants in 2002 and 2003, each company in the
peer group and the Bank is ranked in order of TSR
growth from the commencement of each grant. The
Bank’s percentile
is determined by
ranking
aggregating the weighting within the peer group
(based on market capitalisation) of each company
ranked below the Bank.
The peer group chosen for comparison reflects the
(cid:131)
Bank’s current business mix.
Further details of the ERP may be found in Note 29
to the Financial Statements.
Severance Arrangements
The Bank’s executive contracts generally provide for
severance payments of up to six months in the case of
retrenchment. The contracts generally provide for a four
week notice period.
On exit from the Bank, executives are entitled to
receive their statutory entitlements of accrued annual and
long service leave as well as accrued superannuation
benefits.
Executives who leave the Bank during a given
performance year (i.e. 1 July to 30 June) will generally not
receive an STI payment for that year except in the
circumstances of retrenchment, retirement or death. In
those circumstances a pro-rated payment may be made
based on the length of service during the performance
year.
forfeited where
Deferred shares from previous STI grants are
usually
is
dismissed. In circumstances of retrenchment, retirement
and death any unvested shares will generally vest
immediately.
the executive resigns or
forfeited where
LTI grants are generally
the
executive resigns or is dismissed. In circumstances of
retrenchment, retirement or death the executive or their
estate may, at Board discretion, retain a pro-rated grant of
long term incentives. Vesting of any long term incentives
retained by the executive will still be subject to the
performance hurdle relevant to that grant.
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.
Mr Murray’s remuneration arrangements are in line
with other executives except in relation to the need to
seek shareholder approval of LTI grants.
At the 2004 Annual General Meeting (“AGM”), the
Board will be seeking the approval of shareholders for a
47
Directors’ Report (continued)
maximum of 250,000 shares to be allocated to Mr Murray
under the ERP in two tranches prior to the 2006 AGM.
Mr Murray was granted 110,000 shares in 2002 and
90,000 shares in 2003 from the 200,000 shares approved
at the 2001 AGM. At the 2001 AGM, shareholders also
approved 1,000,000 options to be granted to Mr Murray.
In line with the Bank’s decision to cease granting options
to executives in 2002 none of the 1,000,000 options
approved by shareholders were allocated and it is not
intended to allocate these options.
The severance arrangements
in Mr Murray’s
contract, other than for misconduct, provide for a notice
period of six months and a pro-rata payment of the
average of the previous three years short term incentive
payment, payable in the event of termination by the Bank,
after 1 May but before 30 June each year. In such
circumstances, Mr Murray may exercise all vested options
and obtain vested shares (including those that vest within
two years from the Termination Date) within a period of
three years from the Termination Date.
Individual Remuneration details for Directors and
Specified Executives
The CLERP 9 reforms mentioned earlier in this
report require that individual remuneration details of
Directors and Specified Executives be included in this
report. These requirements duplicate those of Accounting
Standard AASB 1046 which requires these same details
to be set out in the notes to the accounts. To avoid
duplication, individual remuneration details of Directors
and Specified Executives are set out in Note 44.
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
(as amended by ASIC Class Order 04/667).
Signed in accordance with a resolution of the
Directors.
J T Ralph, AC
Chairman
11 August 2004
D V Murray
Managing Director and Chief Executive Officer
48
Five Year Financial Summary
Financial Performance
Net interest income
Other operating income
Total operating income
Charge for bad and doubtful debts
Operating expenses:
Comparable business
Initiatives including Which New Bank
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 uplift/(reduction)
Goodwill amortisation
Operating profit after income tax attributable to
members of the Bank
Contributions to profit (after tax)
Banking
Funds management
Insurance
Profit on operations ("underlying basis")(1)
Shareholder investment returns
Initiatives including Which New Bank
Profit on operations (“cash basis”)
Goodwill amortisation
Appraisal value uplift/(reduction)
Abnormal income/(expense) 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
Average interest earning assets
Average interest bearing liabilities
Assets (on balance sheet)
Australia
New Zealand
Other
Total Assets
2004
$M
2003
$M
2002
$M
5,410
5,081
10,491
276
5,500
749
6,249
3,966
(1,262)
(9)
2,695
-
-
201
(324)
5,026
4,373
9,399
305
5,312
239
5,551
3,543
(958)
(6)
2,579
-
-
(245)
(322)
4,710
4,358
9,068
449
5,201
-
5,201
3,418
(916)
(1)
2,501
-
-
477
(323)
2001
$M
4,474
4,350
8,824
385
5,170
-
5,170
3,269
(993)
(14)
2,262
-
-
474
(338)
2000
$M
3,719
2,420
6,139
196
3,407
-
3,407
2,536
(820)
(38)
1,678
967
20
92
(57)
2,572
2,012
2,655
2,398
2,700
2,675
274
129
3,078
152
(535)
2,695
(324)
201
-
2,572
2,376
233
65
2,674
73
(168)
2,579
(322)
(245)
-
2,012
2,067
368
33
2,468
33
-
2,501
(323)
477
-
2,655
1,793
323
20
2,136
126
-
2,262
(338)
474
-
2,398
1,513
36
116
1,665
13
-
1,678
(57)
92
987
2,700
189,391
305,995
160,347
265,110
147,074 136,059
249,648 230,411
132,263
218,259
163,177
281,110
140,974
242,958
132,800 117,355
228,592 210,563
112,594
199,824
22,405
17,700
20,024
14,995
19,030
13,639
18,393
12,677
17,472
11,942
169,321
146,808
141,049 138,383
128,484
214,187
197,532
188,270
174,737
170,634 160,607
157,105 145,978
129,163
117,075
252,652
35,059
18,284
305,995
221,248
27,567
16,295
265,110
208,673 196,918
20,208
13,285
249,648 230,411
24,579
16,396
187,452
16,661
14,146
218,259
(1)
“Underlying basis” excludes shareholder investment returns, initiatives including Which new Bank, goodwill amortisation, appraisal value
uplift (reduction) and abnormal items.
49
Five Year Financial Summary (continued)
Shareholder Summary
Dividends per share (cents) - fully franked
Dividend cover (times) - statutory
Dividend cover (times) - cash
Dividend cover (times) - underlying
Earnings per share (cents)
Basic
before abnormal items
after abnormal items
cash basis(1)
Underlying basis(2)
Fully Diluted
before abnormal items
after abnormal items
cash basis(1)
underlying basis(2)
Dividend payout ratio (%)(3)
before abnormal items
after abnormal items
cash basis(1)
underlying basis(2)
Net tangible assets per share ($)
Weighted average number of shares (basic) (m)
Weighted average number of shares (fully diluted)(m)
Number of shareholders
Share prices for the year ($)
Trading high
Trading low
End (closing price)
Performance Ratios (%)
Return on average shareholders' equity(4)(5)
before abnormal items
after abnormal items
cash basis
underlying basis
Return on average total assets(4)
before abnormal items
after abnormal items
cash basis
underlying basis
Capital adequacy - Tier 1
Capital adequacy - Tier 2
Deductions
Capital adequacy – Total
Net interest margin
Other Information (numbers)
Full time staff equivalent(6)
Branches/service centres (Australia)
Agencies (Australia)
ATMs (Proprietary)
EFTPOS terminals
EzyBanking
2004
2003
2002
2001
2000.
183
1.1
1.1
1.3
196.9
196.9
206.6
237.1
196.8
196.8
206.5
237.0
93.5
93.5
89.1
77.6
12.2
1,256
1,257
714,901
33.54
27.00
32.58
13.0
13.0
13.2
15.1
0.9
0.9
0.9
1.1
7.43
3.93
(1.11)
10.25
2.53
154
0.9
1.3
1.4
157.4
157.4
202.6
210.2
157.3
157.3
202.5
210.0
97.7
97.7
75.9
73.3
11.4
1,253
1,254
746,073
32.75
23.05
29.55
10.7
10.7
13.3
13.8
0.8
0.8
1.0
1.0
6.96
4.21
(1.44)
9.73
2.67
150
1.4
1.3
1.3
209.6
209.6
197.3
194.6
209.3
209.3
197.0
194.3
136
1.4
1.3
1.2
189.6
189.6
178.8
168.8
189.3
189.3
178.6
168.5
130
1.2
1.6
1.2
184.8
291.2
181.0
179.6
184.4
290.7
180.6
179.2
71.7
71.7
76.2
77.2
10.3
1,250
1,252
722,612
71.2
71.2
75.5
80.2
9.6
1,260
1,262
83.5
53.0
85.3
85.9
9.2
927
929
709,647 788,791
34.94
24.75
32.93
34.15
26.18
34.15
27.95
22.54
27.69
14.7
14.7
13.1
12.9
1.1
1.1
1.0
1.0
6.78
4.28
(1.26)
9.80
2.76
13.5
13.5
12.0
11.4
1.1
1.1
1.0
1.0
6.51
4.18
(1.53)
9.16
2.78
22.1
34.8
19.1
18.9
1.1
1.7
0.9
0.9
7.49
4.75
(2.49)
9.75
2.88
36,296
1,012
3,866
3,109
126,049
815
35,845
1,014
3,893
3,116
129,959
760
37,245
1,020
3,936
3,049
126,613
730
37,460
1,066
3,928
2,931
39,631
1,441
4,020
3,092
122,074 116,064
603
659
Productivity
Total Operating Income per full-time (equivalent) employee ($)
Staff Expense/Total Operating Income (%)
Total Operating Expenses(7)/Total Operating Income (%)
278,047
24.3
59.6
262,212
26.1
59.1
262,856
26.4
57.4
235,558 198,479
27.8
57.2
26.7
58.6
(1)
(2)
(3)
(4)
‘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.
‘Underlying earnings’ for the purpose of these financial statements is defined as net profit after tax and before shareholder investment
returns, initiatives including Which new Bank, abnormal items, goodwill amortisation and life insurance and funds management appraisal
value uplift.
Dividends paid divided by earnings.
Calculations based on operating profit after tax and outside equity interests applied to average shareholders’ equity/average total assets.
50
Five Year Financial Summary (continued)
(5)
2004 and 2003 shareholders’ equity includes retained earnings before provision for final dividend of $ 1,315 million and $1,066 million
respectively. Prior periods’ return on average shareholders’ equity – cash basis and underlying 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 third party agencies.
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.
(6)
(7)
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 ..................................................................................................................................................................65
3. Revenue from Ordinary Activities ......................................................................................................................................67
4. Average Balances and Related Interest ............................................................................................................................68
5.
Income Tax Expense .........................................................................................................................................................72
6. Dividends............................................................................................................................................................................74
7. Earnings Per Share............................................................................................................................................................75
8. Cash and Liquid Assets .....................................................................................................................................................75
9. Receivables from Other Financial Institutions ...................................................................................................................75
10. Trading Securities ..............................................................................................................................................................76
11. Investment Securities.........................................................................................................................................................77
12. Loans, Advances and Other Receivables..........................................................................................................................80
13. Provisions for Impairment ..................................................................................................................................................83
14. Credit Risk Management....................................................................................................................................................87
15. Asset Quality ......................................................................................................................................................................94
16. Insurance Investment Assets .............................................................................................................................................99
17. Deposits with Regulatory Authorities .................................................................................................................................99
18. Shares in and Loans to Controlled Entities........................................................................................................................99
19. Property, Plant and Equipment ........................................................................................................................................100
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 ...................................................................................................................................................118
31. Capital Adequacy .............................................................................................................................................................119
32. Maturity Analysis of Monetary Assets and Liabilities .......................................................................................................123
33. Financial Reporting by Segments ....................................................................................................................................125
34. Life Insurance Business ...................................................................................................................................................129
35. Remuneration of Auditors ................................................................................................................................................135
36. Commitments for Capital Expenditures Not Provided for in the Accounts ......................................................................135
37. Lease Commitments - Property, Plant and Equipment....................................................................................................135
38. Contingent Liabilities and Assets .....................................................................................................................................136
39. Market Risk ......................................................................................................................................................................138
40. Superannuation Commitments.........................................................................................................................................149
41. Controlled Entities ............................................................................................................................................................150
42. Investments in Associated Entities and Joint Ventures ...................................................................................................153
43. Standby Arrangements and Unused Credit Facilities ......................................................................................................153
44. Director and Executive Disclosures .................................................................................................................................154
45. Related Party Disclosures................................................................................................................................................164
46. Statement of Cash Flow...................................................................................................................................................165
47. Disclosures about Fair Value of Financial Instruments....................................................................................................167
Directors’ Declaration............................................................................................................................................................169
Independent Audit Report.....................................................................................................................................................170
Shareholding Information ....................................................................................................................................................171
International Representation ................................................................................................................................................175
52
Statements of Financial Performance
for the year ended 30 June 2004
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 fee 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
Insurance margin on services operating income
Total net operating income before appraisal value
uplift/(reduction)
Charge for bad and doubtful debts
Operating expenses:
Comparable business
Initiatives including Which new Bank(1)
Appraisal value uplift/(reduction)
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)
Other equity instruments (issued 6 August 2003)
Other equity instruments (issued 6 January 2004)
Net Profit after Income Tax comprises:
Net Profit after Income Tax ("underlying basis")
Shareholder investment returns
Initiatives including Which new Bank(1)
Net Profit after Income Tax ("cash basis")
Appraisal value uplift/(reduction)
Goodwill amortisation
Net Profit after Income Tax ("statutory basis")
Note
2
2
3
3
3
3
2004
$M
13,287
7,877
5,410
943
(874)
2,777
8,256
1,175
1,967
(1,809)
1,333
2003
$M
11,528
6,502
5,026
GROUP
2002
$M
10,455
5,745
4,710
128
(106)
2,605
7,653
1,149
8
(91)
1,066
718
(628)
2,462
7,262
1,083
(393)
457
1,147
866
293
(500)
659
2004
$M
11,053
6,649
4,404
1,398
(1,823)
3,737
7,716
BANK
2003
$M
9,477
5,336
4,141
67
(52)
3,339
7,495
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,012
840
(950)
902
1,131
620
(1,071)
680
10,491
9,399
9,068
7,716
7,495
2,13
276
305
449
263
266
2
2
2
34
5
7
7
6
6
5,500
749
6,249
201
(324)
3,843
1,262
2,581
(9)
2,572
(8)
54
46
5,312
239
5,551
(245)
(322)
2,976
958
2,018
(6)
2,012
(129)
3
(126)
5,201
-
5,201
477
(323)
3,572
916
2,656
(1)
2,655
(146)
(1)
(147)
4,226
725
4,951
-
(186)
2,316
669
1,647
-
1,647
10
43
53
3,997
239
4,236
-
(186)
2,807
708
2,099
-
2,099
(7)
-
(7)
2,618
1,886
2,508
1,700
2,092
Cents per share
196.9
196.8
157.4
157.3
209.6
209.3
183
1,065
7,306
402
154
1,019
-
-
$M
$M
3,078
152
(535)
2,695
201
(324)
2,572
2,674
73
(168)
2,579
(245)
(322)
2,012
150
970
-
-
$M
2,468
33
-
2,501
477
(323)
2,655
(1) June 2004 results reflects the Which new Bank program, while prior year includes strategic initiatives undertaken and the cost of the June
2002 ESAP paid in October 2002.
53
2004
$M
6,453
8,369
14,896
11,447
189,391
15,019
28,942
38
-
1,204
239
4,705
25,292
305,995
163,177
6,641
15,019
-
14
811
997
24,638
44,042
19,140
274,479
6,631
281,110
24,885
13,359
687
1,573
3,946
2,840
GROUP
2003
$M
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
2004
$M
6,485
7,068
12,877
6,626
154,139
15,160
-
4
23,677
722
220
2,522
18,849
248,349
142,469
6,611
15,160
14,176
13
690
819
-
24,449
17,888
222,275
7,338
229,613
18,736
12,678
687
-
3,850
2,809
13,359
687
737
2,148
1,805
BANK
2003
$M
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
12,678
687
-
2,095
2,591
22,405
20,024
18,736
18,051
304
2,176
2,480
24,885
304
1,824
2,128
22,152
-
-
-
18,736
-
-
-
18,051
Statements of Financial Position
as at 30 June 2004
Assets
Cash and liquid assets
Receivables due from other financial institutions
Trading securities
Investment securities
Loans, advances and other receivables
Bank acceptances of customers
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
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
Other equity instruments
Reserves
Retained profits
Shareholders' equity attributable to members of
the Bank
Outside equity interests:
Controlled entities
Insurance statutory funds and other funds
Total outside equity interests
Total Shareholders' Equity
Note
8
9
10
11
12
16
17
18
19
42
20
21
22
23
6
24
25
34
26
27
28
29
29
29
30
30
54
Statements of Changes in Shareholders’ Equity
for the year ended 30 June 2004
Ordinary Share Capital
Opening balance
Buy back
Buy back for dividend reinvestment plan
Dividend reinvestment plan
Employee share ownership schemes
Share purchase plan
Closing balance
Preference Share Capital
Opening balance
Closing balance
Other Equity Instruments
Opening balance
Issue of instruments
Closing balance
Retained profits
Opening balance
Reversal of provision for final dividend at 30 June 2002
(on adoption of AASB 1044)
Share buy back
Transfers from reserves
Operating profit attributable to members of Bank
Total available for appropriation
Transfers to reserves
Interim dividend - cash component
Interim dividend - dividend reinvestment plan
Provision for final dividend - cash component
Payment of final dividend - cash component
Payment of final dividend - 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
Reversal of revaluation deficit on sale of property
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
Closing balance
Foreign Currency Translation Reserve
Opening balance
Currency translation adjustments
Transfer to retained profits
Closing balance
Total Reserves
Shareholders' Equity Attributable to Members of the
Bank
Note
29
29
29
2004
$M
12,678
(213)
-
389
38
467
13,359
687
687
-
1,573
1,573
GROUP
2002
$M
2003
$M
12,665
-
(361)
361
13
-
12,678
687
687
-
-
-
12,455
-
(158)
329
39
-
12,665
687
687
-
-
-
2004
$M
12,678
(213)
-
389
38
467
13,359
687
687
-
737
737
BANK
2003
$M
12,665
-
(361)
361
13
-
12,678
687
687
-
-
-
2,809
1,452
1,160
2,591
1,402
-
(319)
142
2,572
5,204
(201)
(808)
(188)
-
(865)
(201)
(101)
2,840
3,751
201
(142)
3,810
289
(9)
280
7
54
61
-
-
-
1,027
-
250
2,012
4,741
-
(699)
(166)
-
(832)
(195)
(40)
2,809
3,998
-
(247)
3,751
289
-
289
4
3
7
-
-
-
(197)
(8)
-
(205)
(65)
(129)
(3)
(197)
-
-
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)
-
81
(146)
-
(65)
-
(319)
-
1,647
3,919
-
(808)
(188)
-
(865)
(201)
(52)
1,805
570
-
-
570
1,027
-
-
2,099
4,528
(9)
(699)
(166)
-
(832)
(195)
(36)
2,591
570
-
-
570
1,531
-
1,531
1,531
-
1,531
-
43
43
-
-
-
(6)
10
-
4
-
-
-
-
-
-
(8)
(7)
9
(6)
.
2,095
3,946
3,850
4,226
2,148
22,405
20,024
19,030
18,736
18,051
55
Statements of Cash Flows
for the year ended 30 June 2004
Cash Flows From Operating Activities
Interest received
Dividends received
Interest paid
Other operating income received
Expenses paid
Income taxes paid
Net increase in trading securities
Life insurance:
Investment income
Premiums received(1)
Policy payments(1)
Net Cash provided by/(used in) Operating
Activities
Cash Flows from Investing Activities
Payments for acquisition of entities and management
rights
Proceeds from disposal of entities and businesses
Disposal of shares in other companies
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
Proceeds from issue of other equity instruments (net
of costs)
Net increase in deposits and other borrowings
Net movement in debt issues
Dividends paid (including DRP)
Net movements in other liabilities
Net increase/(decrease) in payables due to other
financial institutions not at call
Net increase in securities sold under agreements to
repurchase
Issue of loan capital
Redemptions 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
Note
2004
$M
2003
$M
13,101
6
(7,543)
3,410
(5,529)
(1,366)
(4,324)
841
3,562
(4,529)
11,452
4
(6,455)
3,135
(5,438)
(1,258)
(2,484)
644
4,130
(5,855)
GROUP
2002
$M
10,683
5
(5,805)
3,706
(5,366)
(926)
(1,159)
870
5,689
(5,704)
2004
$M
11,045
798
(6,351)
2,375
(4,459)
(886)
(4,672)
-
-
-
BANK
2003
$M
9,204
579
(5,248)
2,668
(4,233)
(838)
(1,814)
-
-
-
46(c)
(2,371)
(2,125)
1,993
(2,150)
318
46(f)
-
63
114
(173)
33
-
(57)
314
-
-
885
114
-
-
-
(25,587)
697
24,407
(18,055)
23
17,719
(23,488)
295
22,192
(15,157)
390
14,904
(15,761)
31
16,449
(15)
66
(28)
(2)
52
(29,328)
-
69
(536)
292
(1,023)
(1,461)
(13,577)
-
72
(143)
(11,702)
-
109
(164)
(22,873)
1,412
7
(175)
(11,022)
1,027
64
(103)
513
50
301
(855)
(344)
731
(1,376)
(241)
(1,039)
(1,537)
(298)
125
(20,286)
21,500
(31,094)
(13,091)
14,628
(11,634)
(13,926)
14,618
(14,309)
-
-
(23,415)
-
-
(8,705)
(532)
505
-
1,573
21,997
13,413
(1,774)
(242)
-
13
182
-
5,129
7,054
(1,933)
(926)
-
39
-
-
15,135
(967)
(1,661)
1,809
(532)
505
-
737
19,254
7,765
(1,726)
113
-
13
-
-
3,004
4,931
(1,929)
(1,024)
(929)
(796)
211
(909)
(869)
206
985
(317)
(2)
34,883
1,418
1,428
2,846
3,046
901
-
19
12,689
(1,070)
2,498
1,428
310
-
-
(100)
14,776
2,460
38
2,498
269
1,784
(317)
(16)
26,927
1,362
277
1,639
3,045
600
-
(15)
7,756
(631)
908
277
46(a)
(1) These were gross premiums and policy payments before splitting between policyholders and shareholders.
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
the
purpose
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 accounting polices applied are consistent with
those of the previous year, except that the criteria for
capitalised information technology software was amended,
refer below.
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
that such
differences would be material.
is not anticipated
it
Unless otherwise indicated, all amounts are shown in
$ million and are expressed in Australian currency.
Software Capitalisation
The criteria
for
technology software
information
capitalisation has been amended, such that only computer
software projects costing $10 million or more are being
capitalised and capitalisation
those
investments that will deliver identifiable and sustainable
customer value and an increase in returns, in a significant
line of business.
limited
to
is
This change has been applied retrospectively and
has resulted in the expensing of $219 million of previously
capitalised software at 1 July 2003.
(b) Historical cost
The
the Bank and
financial statements of
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
their present value unless
otherwise stated.
to
(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.
(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
the Financial
Statements.
in Note 42
to
Investments in associates are carried at cost plus the
Group’s share of post-acquisition profit or loss. The
57
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
losses arising from foreign exchange dealings are included
in the results.
The
liabilities of
overseas branches and overseas controlled entities are
converted to Australian currency at 30 June 2004 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.
foreign currency assets and
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
foreign
currencies and the level of net foreign currency exposure
does not have a material effect on its financial condition.
in assets and
liabilities
in
(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
(as amended by ASIC Class Order 04/667).
(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 and
losses on disposal and unrealised fair value adjustments
trading
are reflected
securities is reported in net interest earnings. Trading
trade date basis.
securities are
recorded on a
Interest on
Income’.
‘Other
in
Notes to the financial statements
NOTE 1 Summary of Significant Accounting Policies continued
(k)
Investment securities
Investment securities are securities purchased with
the intent of being held to maturity.
Investment securities are short and long term public,
bank and other securities and include bonds, bills of
exchange, commercial paper, certificates of deposit and
equities. These securities are recorded at cost or
amortised cost. Premiums and discounts are amortised
through profit and loss each year from the 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 recorded values of those
securities adjusted accordingly.
Investment securities are recorded on a trade date
basis. The relationship between book and net fair values of
investment securities is shown in Note 11.
(l) Repurchase agreements
Securities sold under agreements to repurchase are
retained within the investment or trading portfolios and
accounted for accordingly. Liability accounts are used to
record the obligation to repurchase and are disclosed as
deposits and other public borrowings. Securities held under
reverse repurchase agreements are recorded as liquid
assets.
(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
current financial period is reversed from profit and reserved
if it has not been received in cash.
If necessary, a specific provision for impairment is
recognised so that the carrying amount of the facility does
not exceed the expected future cash flows. In subsequent
periods, interest in arrears/due on non accrual facilities is
taken
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.
loss when a cash payment
to profit and
Restructured Facilities
When facilities (primarily loans) have the original
contractual terms modified, the accounts become classified
as restructured. Such accounts will have interest accrued
to profit as long as the facility is performing on the modified
basis
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 a
performing basis.
in accordance with
the restructured
terms.
58
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 in the statistically
managed segment to cover facilities which are not well
secured and past due 180 days or more, against the credit
risk rated managed segment for exposures aggregating to
less than $250,000 and 90 days past due or more, and
against emerging credit
in specific
segments in the credit risk rated managed portfolio. These
provisions are funded primarily by reference to historical
identified
risks
Notes to the financial statements
NOTE 1 Summary of Significant Accounting Policies continued
The useful lives of major depreciable assets are as
follows:
Buildings
- Shell
- Integral plant and equipment
- carpets
- all other (air-conditioning,
lifts)
- Non integral plant and
equipment
- fixtures and fittings
Leasehold improvements
Maximum 30 years
10 years
20 years
10 years
Lesser of unexpired lease
term or lives as above
Equipment
- Security surveillance systems
- Furniture
- Office machinery
- EFTPOS machines
10 years
8 years
5 years
3 years
The Bank has outsourced
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, the merger
with the State Bank of Victoria in 1991 and from the
acquisition of the 25% minority interest in ASB Group in
New Zealand in August 2000 is each 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
for the Costs of Computer Software Developed or Obtained
for Internal Use’, the Group carries net unamortised
capitalised computer software costs of $107 million as at
30 June 2004 (2003: $248 million). The criteria for
capitalised computer software costs was amended,
effective 1 July 2003, refer to Note 1 (a).
Such costs are amortised over the assessed useful
life of the projects. An amortisation period of 2½ years is
for most software developments. Software
adopted
maintenance costs continue to be expensed as incurred.
(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.
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. 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.
rates applicable
to each category’s useful
Equipment and assets held for lease is shown at cost
less depreciation calculated principally on a category basis
at
life.
Depreciation is 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.
Investment property carried at lower of cost and
recoverable amount is not depreciated in accordance with
the depreciation guidance in AASB1021: Depreciation.
.
59
Notes to the financial statements
NOTE 1 Summary of Significant Accounting Policies continued
(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.
for
(x)
income
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
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).
tax and accounting purposes
The Commonwealth Bank of Australia has elected to
be taxed as a single entity under the tax consolidation
system with effect from 1 July 2002. The Bank has formally
notified the Australian Taxation Office of its adoption of the
tax consolidation regime. 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.
The provision
the
outstanding liability as at balance date. Actual payments
made during the year are included in Salaries and Wages.
leave represents
for annual
The provision
for other employee entitlements
represents liabilities for staff housing loan benefits, 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
(z) Provisions for restructuring
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 ‘Which new Bank’ costs
On 19 September 2003, the Group launched its
Which new Bank customer service vision. This is a three
year transformation programme and involves the Bank in
additional expenditure in the key areas of staff training and
skilling,
simplification, and
technology. In the period to 30 June 2004 such expenses
have
totalled $749 million and principally comprise
redundancies, expensing of previously capitalised software
of $219 million, process
improvements and branch
refurbishment. The outstanding provision for ‘Which new
Bank’ costs at 30 June 2004 is $208 million.
systems and process
(aa) Provision for self insurance
The provision for self insurance covers certain non
lending
insurance risks.
Actuarial reviews are carried out at regular intervals with
provisioning effected in accordance with actuarial advice.
losses and non
transferred
(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 guidelines. Loan capital debt issues are recorded at
cost or amortised cost.
Premiums, discounts and associated 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.
(ee) Shareholders’ equity
Ordinary share capital is the amount of paid up
capital from the issue of ordinary shares.
Preference Share Capital and Other Equity
Instruments is the amount of paid up capital from the issue
of preference shares and other equity
instruments
respectively.
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 $3,106
million, including the appraisal value uplift (2003: $2,905
million and 2002: $3,150 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
foreign
instruments
derivative
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
60
Notes to the financial statements
NOTE 1 Summary of Significant Accounting Policies continued
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 as they
occur.
Derivative financial instruments held or issued for
purposes other than trading
is
in holding or
The principal objective
to manage balance sheet
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
modify
rate or credit
characteristics of the hedged asset or liability. Such
derivative financial instruments are purchased with the
intent of being held to maturity. Derivatives that are
designated and effective as hedges are accounted for on
the same basis as the instruments they are hedging.
identified and allocated against
rate, exchange
interest
the
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
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.
the previous paragraph.
in
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.
61
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
on
instruments is shown in Note 39.
information
derivative
financial
(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
the
broader customer credit process and
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.
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 loan fees. Where non
refundable front end loan fees are received that represent
cost recovery or charges for services not directly related
to the yield on a loan, they are taken to income in the
period in which they are received. Where fees are
received on an ongoing basis and
the
recoupment of the costs of maintaining and administering
existing loans, these fees are taken to income on an
accrual basis.
represent
Commission and other fees
When commission charges and fees relate to
specific transactions or events, they are recognised as
income in the period in which they are received. However,
when they are charged for services provided over a
period, they are taken to income on an accrual basis.
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)
financial
securities and 1(ff) Derivative
Trading
instruments. Life insurance business income recognition
is explained in Note 1(ii) below.
(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 included in the financial report irrespective of
whether
to
policyholders or to shareholders.
they are designated as
relating
(ii) All assets are measured at net market values.
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.
(v) 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.
-
-
-
(vi) Returns on all investments controlled by a life insurer
entity in the Group are recognised as revenues.
to
(vii) Participating benefits vested
the
financial year, other than transfers from unvested
policyholder benefits liabilities, are recognised as
expenses.
in relation
(viii) Reinsurance contracts entered into are recognised
Insurance Holdings Limited
on a gross basis.
The Group conducts life insurance business through
Commonwealth
(CIHL),
Colonial Mutual Life Assurance Society Limited (CMLA) in
Australia, Sovereign Assurance Company Limited in New
Zealand, and several subsidiaries and joint ventures
throughout Asia. CIHL is the top tier life insurance
company within the life insurance corporate structure and
values its interests at market in its controlled entities at
each reporting date.
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
received basis. Fees earned by the Shareholder for
managing the funds invested are recognised as
revenue. Claims under investment linked businesses
represent withdrawals of investment deposits and are
recognised as a reduction in policy liabilities.
(ii) Non-investment linked business
received
for providing services and
Premiums
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
liabilities during
immediately recognised in profit.
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:
62
from
future business and
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
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
about future sales growth, redemptions, expenses,
investment returns and fee margins. This method
allows the values so 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
life
insurance companies are subject to revaluation each
period, such that the investment in the controlled entity is
recorded at market value.
the
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
the valuation of
assessed periodically as part of
investments with changes in value taken to profit. This
excess does not require amortisation in the financial
statements.
Insurance Policy Liabilities and Margin on
Life
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)
Emergence of planned profit margins:
In setting premium rates, life insurers will include
planned margins of revenues over expenses. When
the life insurer has performed 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
replicates planned margin
actual experience
assumptions,
the planned profit margin will be
released over the life of the policy.
(ii) Difference between actual and planned experience:
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 investment 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.
Notes to the financial statements
NOTE 1 Summary of Significant Accounting Policies continued
(iii) Loss recognition on groups of related products or
is
(iv)
recognised
immediately.
reversals of previously recognised losses:
Where future expenses for a group of related
products exceeds future revenues, the anticipated
loss
If unprofitable
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 to meet policy liabilities. 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
Policy Acquisition Costs
Policy acquisition costs include the 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 liquidity facilities are provided
at arms length to the program by the Group in accordance
with APRA Prudential Guidelines.
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.
the significant uncertainties
to
the underlying
in
Due
estimating
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.
inherent
(kk) Fiduciary activities
The Bank and designated controlled entities act as
Responsible Entity, Trustee and/or Manager 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 superannuation contributions expense principally
represents the annual funding, determined after having
regard to actuarial advice, to provide for future obligations
of
all
superannuation plans are made in accordance with the
rules of the plans.
plans. Contributions
defined
benefit
to
(mm) Comparative figures
Where necessary, comparative figures have been
adjusted to conform with changes in presentation in these
financial statements.
(nn) Definitions
‘Overseas’ represents amounts booked in branches
and controlled entities outside Australia.
‘Borrowing Corporation’ as defined by Section 9 of
the Corporations 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
uplift/(reduction).
‘Underlying Basis’ is defined as net profit after tax
(“cash basis”) excluding Which new Bank initiatives,
shareholder investment returns and the cost of the June
2002 Employee Share Acquisition Plan (“ESAP”) paid in
October 2002.
(oo) Policy changes (2003)
The consolidated entity, adopted the new Accounting
Standard AASB 1044: Provisions, Contingent Liabilities
and Contingent Assets, from 1 July 2002 which 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
is only recognised at the reporting date where the
dividends
publicly
recommended prior to the reporting date. The effect of the
revised policy was to increase consolidated retained profits
and decrease provisions at the beginning of the year
ended 30 June 2003 by $1,027 million. In accordance with
the new Standard, no provision for dividend has been
recognised at year end. The change in accounting policy
has had no effect on basic and fully diluted earnings per
share.
determined
declared,
are
or
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 was a
one off expense in the 2003 financial year. In addition,
2003 year ESAP expense accrued for the 2003 financial
year was $20 million. Similarly, the Executive Reward Plan
was restructured effective from 1 July 2002, whereby
incentives allocated were in the form of Reward shares and
not options. This resulted in an increased expense for the
2003 year of $5 million. Other share based compensation
expense for the 2003 year was $69 million. This was
63
Notes to the financial statements
NOTE 1 Summary of Significant Accounting Policies continued
incurred and charged against profit on a consistent basis
with prior periods.
(pp) International Financial Reporting Standards
(IFRS)
Transition Management
The Bank is well progressed in the process of
ensuring that it will comply with the Australian equivalent of
International Financial Reporting Standards (“IFRS”) by
June 2005. This is in line with the conversion timetable as
set out by the Financial Reporting Council of Australia.
The Bank completed its review of the IFRS and their
impact during the planning stage of the project. Conversion
issues were then identified and methodologies designed to
resolve these issues.
The Bank is now progressing to the implementation of
these changes and will complete this process prior to 30
June 2005.
The Bank has not finalised the financial impact of the
change to IFRS.
Key Accounting Issues
The following key areas of difference between current
accounting practice and the treatment under IFRS have
been identified:
(i) Hedge Accounting
Under
financial
IFRS all derivative
instruments,
including those used for balance sheet hedging purposes,
are to be recognised on-balance sheet and measured at fair
value. Hedge accounting can be applied, subject to certain
rules, for fair value hedges, cash flow hedges, and hedges
of investments in foreign operations. The Bank has
formulated a strategy based on the use of both cash flow
and fair value hedging. Cash flow hedges are expected to
be the predominant form of hedging applied by the Bank.
It is expected that these new rules around accounting
for hedge instruments will introduce significant volatility
within equity reserves, and the potential for some minor
volatility within the statement of financial performance.
(ii) Employee Benefits
With the introduction of IFRS, the net surpluses or
deficits that arise within defined benefit superannuation
plans must be recognised in the statement of financial
position. The annual movements in those surpluses or
deficits must be recorded in the statement of financial
performance.
The Bank currently sponsors two defined benefit
plans. Actuarial valuations of these plans are carried out
periodically, and a large surplus currently exists on a net
basis. On transition to IFRS, the comparative period
beginning 1 July 2004 will record an opening Retained
Earnings adjustment reflecting the value of this surplus. For
subsequent periods, the profit is likely to be affected by
significant volatility as the value of the surplus fluctuates.
Given the potential significance of this item we expect to
show it as a separate line item in the statement of financial
performance.
(iii) Provisions for Loan Impairment
In line with market practice, the Bank’s current general
provisioning for impaired loans is designed to take account
of our expectations of probable future losses and latent
risks inherent in the credit portfolio. Under IFRS the Bank
must raise collective provisions in respect of only those
losses for which there is ‘objective evidence’ of impairment
as at each balance date. The methodology to calculate this
provision is still being developed.
As a result of this change, there may be a reduction in
the amount of the Bank’s general provisioning for impaired
loans.
The practice of recording specific provisions for loan
impairment will continue under
IFRS, however, such
provisions must be based on the discounted values of
estimated future cash flows. The discount unwinds during
the period between the initial recognition of the provision
and the eventual recovery of the written down amount,
resulting in the recording of interest in the statement of
financial performance, within interest income.
(iv) Consolidation of Special Purpose Vehicles
IFRS requires the consolidation of certain special
purpose vehicles that are not consolidated under the
current accounting standards.
Vehicles related to the securitisation of Bank assets,
and certain other customer asset securitisation vehicles,
may be consolidated under IFRS. This would result in a
gross up of the assets and liabilities recorded within the
statement of financial position.
There is not expected to be any profit impact arising
from consolidation of these vehicles.
(v) Classification of Hybrid Financial Instruments
The Bank currently has on issue two types of hybrid
financial instruments: Perpetual Exchangeable Resettable
Listed Securities (“PERLS I and II”); and Trust Preferred
Securities (“TPS”). Refer to Note 29 for details. These
instruments are currently classified as equity instruments.
Under IFRS these instruments will be reclassified as
debt within the statement of financial position and dividends
paid will be shown as interest expense.
(vi) Revenue and Expense Recognition
Under IFRS, the Bank will change the way it currently
recognises certain revenue and expense items. Any fee
income integral to the yield of an originated financial
instrument, net of any direct incremental costs, must be
capitalised and deferred over the expected life of the
instrument. This is not expected to have a material impact
on net profit within the statement of financial performance,
however, some re-classifications of revenue between fee
income and interest income will occur.
(vii) Accounting for Life Insurance Business
On transition to IFRS, the asset representing the
excess of the net market value over net assets of the
Bank’s life insurance controlled entities can no longer be
recognised in full. As a result, the Bank will, on the adoption
of the IFRS, cease to recognise any movement in the
appraisal value in the statement of financial performance.
The write off of the internally generated component will
ultimately be reflected against the General Reserve; and
the acquired component will be reclassified as Goodwill
within the statement of financial position and subjected to
an annual impairment test.
(viii) Accounting for Goodwill
On transition to IFRS, Goodwill will no longer be
amortised, but instead, is subject to an annual assessment
for impairment to ensure that the carrying value of Goodwill
is not greater than the recoverable amount. As a result, the
statement of financial performance will no longer include an
expense item reflecting the annual Goodwill amortisation.
(ix) Taxation
A “balance sheet” approach to tax effect accounting is
followed under IFRS replacing the current “statement of
financial performance” approach. This approach recognises
deferred tax balances when there is a difference between
the carrying value of an asset or liability and its tax base. It
is likely there will be some increases in levels of deferred
tax assets and liabilities.
(x) Statement of Financial Position
The following new material line items are expected to
appear within the statement of financial position.
-
‘Derivative assets’ line item, being the fair value of
the Bank’s hedging derivative financial instruments
portfolio which have a positive market value; and a
‘Derivative liabilities’ line item, being the fair value of
the Bank’s hedging derivative financial instruments
portfolio which have a negative market value.
An ‘Available-for-sale assets’ line item, being the fair
investment securities and other
value of
financial assets categorised as available-for-sale.
A ‘Retirement benefit surplus’ asset line item, being
the defined benefit plan surplus.
those
-
-
64
Notes to the financial statements
65
Notes to the financial statements
NOTE 1 Summary of Significant Accounting Policies continued
-
-
-
An ‘Investment contract liabilities’ line item, being the
fair value of the policyholder liabilities associated with
those investment style contracts, which can no longer
be classified as insurance contracts.
A ‘Cash Flow Hedge Reserve’, being the hedge
reserve associated with cash flow hedge accounting.
‘Available-for-Sale Securities Revaluation
An
Reserve’ being the reserve associated with the
unrealised fair value gains and losses on investment
securities and other financial assets categorised as
available-for-sale.
Regulatory Capital Treatment
Several of the above accounting issues affect the
assets and equity items currently included in the calculation
of the Bank’s regulatory capital. Current accounting
definitions for asset and equity measurement are central to
the capital adequacy requirements set by prudential
regulators. The Bank anticipates that APRA will review the
measurement rules in its Prudential Standards in response
to the IFRS changes, however, it is unclear whether capital
measurement will be fully immunised from the IFRS
changes.
NOTE 2 Operating Profit
Profit from ordinary activities before income tax has been
determined as follows:
Interest Income
Loans
Other financial institutions
Cash and liquid assets
Trading securities
Investment securities
Dividends on redeemable preference shares
Controlled entities
Total Interest Income
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 (loss)/profit on sale of property, plant and equipment
Funds management income
Insurance income
Other (1)
Total Other Operating Income
Total Net Operating Income before appraisal value
uplift/(reduction)
Charge for Bad and Doubtful Debts (Note 13)
General provisions
Total Charge for Bad and Doubtful Debts
2004
$M
2003
$M
11,675
182
198
600
607
25
-
13,287
5,949
160
1,506
-
262
7,877
5,410
724
1,503
228
165
106
-
6
80
(11)
1,333
902
45
5,081
10,126
191
150
454
566
41
-
11,528
4,732
198
1,352
-
220
6,502
5,026
652
1,394
200
190
112
-
4
(9)
22
1,066
680
62
4,373
GROUP
2002
$M
9,231
165
142
359
517
41
-
10,455
4,256
193
1,064
-
232
5,745
4,710
618
1,242
243
113
133
-
5
78
12
1,147
712
55
4,358
2004
$M
9,504
90
214
486
229
3
527
11,053
4,833
159
1,081
282
294
6,649
4,404
702
1,256
203
128
106
794
4
(416)
(10)
-
-
545
3,312
BANK
2003
$M
8,077
70
135
362
256
-
577
9,477
3,795
197
889
243
212
5,336
4,141
599
1,157
175
162
112
577
2
(9)
13
-
-
566
3,354
10,491
9,399
9,068
7,716
7,495
276
276
305
305
449
449
263
263
266
266
(1)
Includes an equity accounted loss of $32 million for the year ended 30 June 2004. Principally relates to a change in revenue recognition
accounting policy by the associate entity.
65
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
Comparable business
Initiatives including Which new Bank
Total Staff Expenses (excluding share based
compensation)
Share Based Compensation
Comparable business
Initiatives including Which new Bank
Total Share Based Compensation
Occupancy and Equipment Expenses
Operating lease rentals
Depreciation
Buildings
Leasehold improvements
Equipment
Repairs and maintenance
Other
Comparable business
Initiatives including Which new Bank
Total Occupancy and Equipment Expenses
Information Technology Services
Projects and development
Data processing
Desktop
Communications
Software amortisation
Information technology equipment depreciation
Comparable business
Initiatives including Which new Bank
Total Information Technology Services
Other Expenses
Postage
Stationery
Fees and commissions
Advertising, marketing and loyalty
Other
Comparable business
Initiatives including Which new Bank
Total Other Expenses
Comparable business
Initiatives including Which new Bank
2004
$M
2,152
8
41
115
32
100
2,448
273
2003
$M
2,106
13
11
107
26
120
2,383
155
GROUP
2002
$M
2,016
11
44
92
32
132
2327
-
2004
$M
1,683
(14)
34
101
28
46
1,878
267
BANK
2003
$M
1,694
(3)
5
95
24
78
1,893
155
2,721
2,538
2,327
2,145
2,048
105
-
105
340
21
55
50
68
47
581
20
601
281
238
159
205
11
1
895
292
1,187
112
114
598
311
336
1,471
164
1,635
5,500
749
94
25
119
354
24
51
53
58
69
609
3
612
194
255
178
171
78
1
877
30
907
109
118
551
259
312
1,349
26
1,375
5,312
239
63
-
63
104
-
104
324
26
47
55
56
70
578
-
578
189
275
169
175
44
-
852
-
852
111
104
609
242
315
1,381
-
1,381
5,201
-
280
18
45
22
61
28
454
20
474
247
214
157
178
2
1
799
274
1,073
98
88
369
260
176
991
164
1,155
4,226
725
93
25
118
289
20
41
22
49
52
473
3
476
165
227
176
144
71
1
784
30
814
96
90
210
204
154
754
26
780
3,997
239
Total Operating Expenses before goodwill
amortisation
6,249
5,551
5,201
4,951
4,236
Appraisal value uplift/(reduction)
Goodwill amortisation
Profit from ordinary activities before income tax
201
(324)
3,843
(245)
(322)
2,976
477
(323)
3,572
-
(186)
2,316
-
(186)
2,807
66
Notes to the financial statements
NOTE 3 Revenue from Ordinary Activities
Banking
Interest income
Fee 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 Insurance
Funds management income including premiums
Insurance premium and related income
Investment income
2004
$M
13,287
2,227
499
6
69
874
45
17,007
GROUP
2002
$M
2003
$M
11,528
2,046
502
4
72
56
53
14,261
10,455
1,860
489
5
109
609
108
13,635
2004
$M
11,053
1,958
437
798
9
1,398
535
16,188
BANK
2003
$M
9,477
1,756
449
579
65
2
555
12,883
1,175
1,012
2,807
4,994
1,149
1,131
628
2,908
1,083
866
(100)
1,849
-
-
-
-
-
-
-
-
Appraisal value uplift(1)
Total revenue from ordinary activities
201
22,202
-
17,169
477
15,961
-
16,188
-
12,883
There were no sources of revenue from non-operating activities.
(1) Appraisal value reduction of $ 245 million for year ended 30 June 2003.
67
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 the years ending 30 June
2002, 30 June 2003 and 30 June 2004. 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 reflect the overseas cost of funds.
Non-accrual loans are included in Interest Earning Assets
under loans, advances and other receivables.
Full Year Ended
2004
2003
Average Interest Average Average Interest Average Average Interest Average
Rate
Balance
%
$M
Rate Balance
$M
Rate Balance
$M
2002
$M
$M
$M
%
%
Average Interest Earning Asset and Income Expense
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
4,027
868
3,382
3,776
-
62
9,682
3,445
4,411
8,440
181
17
32
150
-
-
444
156
298
310
149,487
26,607
-
9,927
1,772
-
-
4,102
-
17
4.5
2.0
0.9
4.0
-
-
4.6
4.5
6.8
3.7
6.6
6.7
-
-
0.4
3,293
813
133
17
2,446
3,734
37
154
-
56
7,360
3,395
4,240
8,062
-
-
326
128
261
305
131,746
23,125
-
8,538
1,629
-
-
3,604
-
31
4.0
2.1
1.5
4.1
-
-
4.4
3.8
6.2
3.8
6.5
7.0
-
-
0.9
4,290
285
138
4
3,231
2,663
-
174
5,138
2,698
3,774
7,339
69
96
-
-
248
111
211
306
121,597
19,445
-
7,984
1,288
-
-
3,232
-
65
218,289 13,304
(17)
(4,102)
6.1
0.4
191,874 11,559
(31)
(3,604)
6.0
0.9
173,866 10,520
(65)
(3,232)
3.2
1.4
2.1
3.6
-
-
4.8
4.1
5.6
4.2
6.6
6.6
-
-
2.0
6.1
2.0
214,187 13,287
6.2
188,270 11,528
6.1
170,634 10,455
6.1
Average Non-Interest Earning Assets
Bank acceptances
Australia
Overseas
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
13,877
1
24,430
4,120
792
161
29,452
2,264
(1,411)
(150)
73,536
287,723
13,144
53
26,333
4,070
627
197
24,046
3,303
(1,497)
(150)
70,126
258,396
18.7%
19.5%
68
11,965
66
26,853
4,129
681
203
23,617
3,411
(1,546)
(143)
69,236
239,870
18.1%
Notes to the financial statements
NOTE 4 Average Balances and Related Interest continued
Average Liabilities and Interest Expense
Full Year Ended
2003
Average Interest Average Average Interest Average Average Interest Average
Rate
Balance
%
$M
Average Interest Bearing Liabilities and Loan Capital and Interest Expense
Rate Balance
$M
Rate Balance
$M
2002
2004
$M
$M
$M
%
%
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
57,186
15,963
2,683
1,062
31,178
3,028
514
105
39,044
3,432
1,499
86
1,916
5,042
35
125
21,885
12,855
1,292
213
5,793
210
-
4,102
-
255
8
-
17
-
4.7
6.7
1.6
3.5
3.8
2.5
1.8
2.5
5.9
1.7
4.4
3.8
-
0.4
-
45,674
14,255
1,956
876
32,780
2,788
492
100
34,043
2,906
1,230
78
1,752
6,712
34
164
17,651
10,738
1,047
305
5,234
204
-
3,604
-
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
-
0.9
-
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
5,491
88
-
3,232
-
65
128
800
264
227
5
-
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
-
2.0
-
3.6
2.0
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 197,532
201,634
(4,102)
Non-Interest Bearing Liabilities
Deposits not bearing interest
Australia
Overseas
Liability on bank acceptances
Australia
Overseas
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
5,112
1,059
13,877
1
20,658
3,548
20,655
3,131
68,041
265,573
22,150
287,723
18.2%
7,894
(17)
3.9
0.4
178,341
(3,604)
6,533
(31)
3.7 160,337
(3,232)
0.9
5,810
(65)
7,877
4.0
174,737
6,502
3.7 157,105
5,745
3.7
5,424
705
11,965
66
23,092
3,457
14,628
3,026
62,363
219,468
20,402
239,870
17.9%
4,784
871
13,146
53
20,828
3,596
16,034
2,739
62,051
236,788
21,608
258,396
18.9%
69
Notes to the financial statements
NOTE 4 Average Balances and Related Interest continued
Changes in Net Interest Income:
Volume and Rate Analysis
Volume
$M
Rate
$M
Total
$M
Volume
$M
Rate
$M
Total
$M
30/06/04 vs 30/06/03
Changes due to
30/06/03 vs 30/06/02
Changes due to
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
31
1
12
2
105
2
11
14
1,164
239
-
-
3
1,615
(3)
1,597
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
517
109
(25)
8
186
14
3
(41)
251
48
24
-
-
3
-
877
(3)
879
673
(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
31
(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)
(5)
-
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
17
(1)
48
-
(5)
(4)
118
28
37
5
1,389
143
-
-
(14)
1,745
14
1,759
727
186
22
5
269
8
1
(39)
245
(92)
43
-
-
(14)
-
1,361
14
1,375
384
(17)
(6)
13
26
26
(9)
225
(96)
-
-
(17)
130
17
162
210
77
47
(3)
83
(6)
(2)
2
(6)
(140)
19
-
-
(17)
-
484
17
496
(289)
70
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 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).
Net interest income
Average interest earning assets
Interest Margins and Spreads
2004
$M
GROUP
2002
$M
2003
$M
5,410
214,187
5,026
188,270
4,710
170,634
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)
Net Interest Margin (3)
Overseas
Interest Spread (1)
Benefit of net free liabilities, provisions and equity (2)
Net Interest Margin (3)
Group
Interest Spread (1)
Benefit of net free liabilities, provisions and equity (2)
Net Interest Margin (3)
2004
%
2003
%
2002
%
2.46
0.22
2.68
1.18
0.56
1.74
2.22
0.31
2.53
2.68
0.20
2.88
1.22
0.49
1.71
2.40
0.27
2.67
2.75
0.25
3.00
1.16
0.43
1.59
2.47
0.29
2.76
(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 year.
71
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
Insurance
Appraisal value uplift/(reduction)
Goodwill amortisation
Prima facie income tax at 30%
Banking
Funds Management
Insurance
Appraisal value uplift/(reduction)
Goodwill amortisation
Add/(deduct) permanent differences expressed on a tax effect basis:
Current Period
Specific provisions for offshore bad and doubtful debts not tax effected
Taxation offsets (net of accruals)
Tax adjustment referable to policy holder 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 deductible intergroup losses
Tax losses recognised
Employee share acquisition plan
Other
Prior Periods
Other
Total Income Tax Expense
Income tax attributable to profit from ordinary activities
Banking
Funds management
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
2004
$M
2003
$M
GROUP
2002
$M
BANK
2003
$M
2004
$M
3,091
504
371
201
(324)
3,843
927
151
111
60
(97)
1,152
3
(47)
142
(30)
(60)
97
-
-
-
17
122
3,165
217
161
(245)
(322)
2,976
950
65
48
(73)
(97)
893
13
(36)
(41)
(18)
73
97
-
(18)
-
(5)
65
(12)
1,262
-
958
914
79
66
1,059
203
1,262
931
57
28
1,016
(58)
958
1,128
138
(24)
23
(3)
1,262
977
156
1,133
99
30
129
917
(24)
45
22
(2)
958
853
112
965
(1)
(6)
(7)
2,884
399
135
477
(323)
3,572
866
120
40
143
(97)
1,072
(3)
(24)
(25)
(25)
(143)
97
-
(35)
(8)
17
(149)
(7)
916
816
96
40
952
(36)
916
1,385
(408)
(86)
12
13
916
1,239
146
1,385
(403)
(66)
(469)
2,502
-
-
-
(186)
2,316
751
-
-
-
(56)
695
(2)
(224)
-
-
-
56
136
1
-
5
(28)
2
669
669
-
-
669
-
669
639
(32)
57
5
-
669
633
12
645
20
4
24
2,993
-
-
-
(186)
2,807
898
-
-
-
(56)
842
8
(146)
-
-
-
56
-
-
-
(52)
(134)
-
708
708
-
-
708
-
708
625
42
35
6
-
708
610
15
625
83
-
83
72
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)
Intergroup deferred tax receivable (Note 21)
Deferred income tax liabilities arising from:
Leveraged leasing
Lease financing
Other
Total deferred income tax liabilities (Note 24)
Intergroup deferred tax payable (Note 27)
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)
Tax Consolidation
for Australian
Legislation has been enacted to allow Australian
resident entities to elect to consolidate and be treated as a
single entity
tax purposes. The
Commonwealth Bank of Australia has elected to be taxed
as a single entity with effect from 1 July 2002. The Bank
has formally notified the Australian Taxation Office of its
adoption of the tax consolidation regime. Members of the
tax consolidation group have entered into a tax sharing
arrangement which provides for the allocation of income
tax liabilities between the entities should the head entity,
Commonwealth Bank of Australia, default on its tax
payment obligations.
The Commonwealth Bank of Australia has also
entered into a tax funding agreement with the members of
the tax consolidation group. The tax funding agreement is
effective from 1 July 2002. The agreement is aimed at
achieving an allocation of the Group’s income tax liability to
subsidiaries within the tax consolidated group as if they
were operating on a stand-alone basis. The subsidiaries
party to the agreement will reimburse the Commonwealth
Bank of Australia for an amount calculated as if they were
the
taxed
Commonwealth Bank of Australia will
reimburse
subsidiaries for losses when they are utilised to reduce the
group tax payable.
basis. Similarly,
stand-alone
on
a
2004
$M
GROUP
2002
$M
2003
$M
2004
$M
BANK
2003
$M
369
195
564
-
232
100
52
384
-
353
172
525
-
302
96
16
414
-
337
288
625
-
240
100
240
580
-
274
149
423
317
232
100
-
332
153
242
70
312
-
116
2
44
162
-
5
36
124
-
-
142
(6)
(6)
40
170
168
(34)
(18)
26
142
146
(8)
(27)
57
168
62
(3)
(5)
40
94
132
(71)
(17)
18
62
Calculations at 30 June 2004 have been based on
legislation enacted to that date. Legislation in respect of
leasing and leasing partnerships has not yet been finalised.
Based on the enacted legislation, these calculations have
resulted in a tax credit adjustment of $37 million to the
consolidated tax expense for the year ended 30 June
2004. The tax benefit principally arises from the generation
of capital losses which have been offset against capital
gains arising during the year. This tax benefit has been
partially offset by non tax effected capital writedowns.
ASB Bank
The ASB Bank is being audited by the Inland
Revenue Department as part of the normal Inland Revenue
Department procedures, with a particular
focus on
structured finance transactions. No tax assessments have
been issued.
73
Notes to the financial statements
NOTE 6 Dividends
2004
$M
2003
$M
GROUP
2002
$M
BANK
2003
$M
2004
$M
Ordinary Shares
Interim ordinary dividend (fully franked) (2004: 79 cents, 2003: 69 cents,
2002: 68 cents)
Interim ordinary dividend paid - cash component only
Interim ordinary dividend paid - dividend reinvestment plan
808
188
699
166
693
159
808
188
699
166
Declared final ordinary dividend (fully franked) (2004: nil provided, 2003:
nil provided, 2002: 82 cents)
Provision for final ordinary dividend - cash component only
Provision for final ordinary dividend - dividend reinvestment plan
-
-
-
-
832
195
-
-
-
-
Preference Shares
Preference dividends paid (fully franked) (2004: 1,065 cents, 2003: 1,019
cents, 2002: 970 cents)
Provision for preference dividend
Other Equity Instruments
Dividends paid
Dividends to outside equity interests
Total Dividends Provided or Paid
Other provision carried
Dividends proposed and not recognised as a liability
(fully franked) (2004: 104 cents, 2003: 85 cents, 2002: nil)(1)
28
9
55
8
1,096
5
28
8
-
4
905
4
26
8
28
9
-
-
1,913
15
-
1,048
5
4
28
8
-
-
901
4
1,315
1,066
-
1,315
1,066
(1)
The 2003 final dividend was satisfied by cash disbursements of $865 million and the issue of $201 million of ordinary shares through the
dividend reinvestment plan. The 2004 final dividend is expected to be satisfied by cash disbursements of $1,065 million and the
estimated issue of $250 million of ordinary shares through the dividend reinvestment plan.
Dividend Franking Account
After fully franking the final dividend to be paid for the
year ended 30 June 2004 the amount of credits available
as at 30 June 2004 to frank dividends for subsequent
financial years is $75 million (2003: $417 million). This
figure is based on the combined franking accounts of the
Bank at 30 June 2004, 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 2004,
franking debits that will arise from the payment of dividends
proposed for the year and franking credits that the Bank
may be prevented from distributing in subsequent financial
periods. The Bank expects that future tax payments will
generate sufficient franking credits for the Bank to be able
to continue
future dividend payments.
Dividend payments on or after 1 July 2004 will be franked
at the 30% tax rate. These calculations have been based
on the taxation law as at 30 June 2004.
frank
fully
to
Dividend History
Half Year Ended
31 December 2001
30 June 2002
31 December 2002
30 June 2003
31 December 2003
30 June 2004
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)
$
68
82
69
85
79
104
71.8%
71.6%
143.2%
77.7%
82.7%
103.8%
-
71.7%
-
97.7%
-
93.5%
-
76.2%
-
75.9%
-
89.1%
32
31.9
24.8
28
31.6
-
18.7%
19.0%
19.2%
18.9%
18.8%
-
(1)
(2)
(3)
Dividend Payout Ratio: dividends divided by earnings.
Payout ratio based on net profit after tax before goodwill amortisation and appraisal value uplift/(reduction).
DRP Participation Rate: the percentage of total issued share capital participating in the Dividend Reinvestment Plan.
74
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: Other equity instrument dividends
Less: Dividends to outside equity interests
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
Underlying 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
Securities purchased under 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
75
2004
c
2003
c
GROUP
2002
c
196.9
196.8
157.4
157.3
209.6
209.3
$M
$M
$M
2,581
(37)
(55)
(8)
(9)
2,472
2,018
(36)
-
(4)
(6)
1,972
2,656
(34)
-
-
(1)
2,621
Number of Shares
2004
M
2003
M
2002
M
1,256
1
1,253
1
1,250
2
1,257
1,254
1,252
Cents
237.1
237.0
Cents
210.2
210.2
Cents
194.6
194.3
GROUP
2003
$M
2004
$M
1,488
3
4,091
158
5,740
60
261
18
374
713
6,453
1,426
14
2,900
217
4,557
65
377
33
543
1,018
5,575
GROUP
2003
$M
2004
$M
4,914
3,455
8,369
3,324
3,742
7,066
2004
$M
1,423
-
4,091
156
5,670
-
77
-
738
815
6,485
2004
$M
4,910
2,158
7,068
BANK
2003
$M
1,330
-
2,900
218
4,448
2
14
-
892
908
5,356
BANK
2003
$M
3,287
2,149
5,436
Notes to the financial statements
NOTE 10 Trading Securities
Australia
Listed:
Australian Public Securities
Commonwealth and States
Local and semi-government
Bills of exchange
Commercial paper
Certificates of deposit
Medium term notes
Other securities
Unlisted:
Medium term notes
Other securities
Total Australia
Overseas
Listed:
Government securities
Eurobonds
Bills of exchange
Floating rate notes
Commercial paper
Unlisted:
Commercial paper
Other securities
Total Overseas
Total Trading Securities
2004
$M
GROUP
2003
$M
621
1,114
1,576
885
5,088
1,410
273
268
75
11,310
826
524
772
836
403
17
208
3,586
14,896
551
755
947
397
2,141
745
679
106
13
6,334
698
938
785
603
726
-
351
4,101
10,435
2004
$M
621
1,114
1,576
889
5,088
1,410
267
268
-
11,233
284
524
-
836
-
-
-
1,644
12,877
BANK
2003
$M
551
755
947
505
2,142
745
675
106
13
6,439
87
938
-
608
-
-
-
1,633
8,072
76
Notes to the financial statements
NOTE 11 Investment Securities
2004
$M
2003
$M
GROUP
2002
$M
2004
$M
BANK
2003
$M
Australia
Listed:
Australian Public Securities
Commonwealth and States
Bills of exchange
Other securities and equity investments
Unlisted:
Australian Public Securities
Local and semi-government
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
Eurobonds
Medium term notes
Floating rate notes
Other securities and equity investments
Total Overseas
Total Investment Securities
2,209
30
444
80
448
611
3,822
758
-
1,242
792
425
732
1,121
137
155
1,200
709
354
7,625
11,447
1,915
-
439
80
942
965
4,341
484
5
1,357
993
239
324
1,392
98
230
583
900
90
6,695
11,036
1,969
18
456
80
968
578
4,069
804
-
1,379
1,045
-
377
787
113
212
114
784
1,082
6,697
10,766
2,209
-
433
-
58
69
2,769
715
-
1,228
655
142
121
279
-
155
189
273
100
3,857
6,626
1,915
-
433
-
57
58
2,463
463
-
1,343
796
239
111
631
-
230
117
438
-
4,368
6,831
77
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 investments
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
2004
$M
2,328
30
449
1,034
3,841
897
-
1,223
983
1,622
1,442
1,482
7,649
11,490
43
GROUP
Market Value at 30 June
2002
2003
$M
$M
2,118
-
935
1,400
4,453
593
5
1,357
1,260
816
1,215
1,488
6,734
11,187
151
2,109
18
973
1,042
4,142
928
-
1,379
1,263
114
1,158
1,867
6,709
10,851
85
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 2004
Amortised
Cost
$M
Gross Unrealised
Losses
Gains
$M
$M
Fair Amortised Gross Unrealised
Losses
$M
Cost Gains
$M
Value
$M
$M
At 30 June 2003
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
2,289
30
448
1,055
3,822
895
-
1,242
947
1,625
1,441
46
-
1
11
58
3
-
-
36
-
1
1,475
7,625
11,447
7
47
105
7
-
-
32
39
1
-
19
-
3
-
-
23
62
2,328
30
449
1,034
3,841
897
-
1,223
983
1,622
1,442
1,995
-
942
1,404
4,341
582
5
1,357
1,223
822
1,224
1,482
7,649
11,490
1,482
6,695
11,036
123
-
4
-
127
11
-
-
56
12
-
6
85
212
-
-
11
4
15
-
-
-
19
18
9
-
46
61
2,118
-
935
1,400
4,453
593
5
1,357
1,260
816
1,215
1,488
6,734
11,187
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 $31 million of
net deferred gains on these contracts (2003: $4 million net deferred gains) which offset the above unrealised losses and these are
disclosed within Note 39. At the end of the financial year there were no net deferred gains or losses (2003: $1 million of deferred losses)
included in the amortised cost value.
78
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 2004
Total
$M
5 to 10 years 10 years or more
%
$M
$M
%
Australia
Australian Public Securities
Commonwealth and States
Bills of exchange
Medium term notes
Other securities, commercial
paper and equity investments
Total Australia
Overseas
Government securities
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
Additional Disclosure
6.09
5.30
7.40
5.03
3.06
2.16
6.02
5.72
4.16
4.26
204
30
425
334
993
633
1,228
190
92
446
16
2,605
3,598
3,587
1,303
-
23
721
2,047
196
14
695
942
722
529
3,098
5,145
5,200
5.97
-
9.19
5.61
2.23
0.74
5.76
3.82
3.88
4.68
717
-
-
-
717
66
-
62
591
232
930
1,881
2,598
2,597
6.41
-
-
-
1.33
-
5.50
4.21
4.00
5.81
65
-
-
-
65
-
-
-
-
41
-
41
106
106
6.14
-
-
-
-
-
-
-
1.02
-
2,289
30
448
1,055
3,822
895
1,242
947
1,625
1,441
1,475
7,625
11,447
11,490
Realised capital gains were $6 million and realised
capital losses were $4 million (2003: realised capital gains
$7 million and realised capital losses $5 million; 2002:
realised capital gains $86 million and realised capital
losses $14 million).
Proceeds at or close
investment
securities were $24,407 million (2003: $17,719 million;
2002: $22,192 million).
to maturity of
Proceeds from sale of investment securities were $697
million (2003: $23 million; 2002: $295 million).
79
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
Reedemable preference share financing
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
2004
$M
2,423
104,883
5,890
3,843
3,454
39,708
37
1,120
420
161,778
2,481
16,967
358
175
10,314
262
60
30,617
192,395
(1,393)
(143)
(758)
(541)
(111)
(23)
(35)
(3,004)
189,391
GROUP
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
2004
$M
2,423
101,717
5,890
1,279
3,454
36,943
37
433
587
152,763
-
46
-
81
3,222
-
-
3,349
156,112
(1,242)
(121)
(412)
(151)
(21)
(23)
(3)
(1,973)
154,139
BANK
2003
$M
2,452
87,149
5,227
1,543
2,303
31,115
-
446
618
130,853
-
51
-
80
2,098
-
-
2,229
133,082
(1,152)
(157)
(12)
(157)
(39)
(25)
(3)
(1,545)
131,537
1,072
2,405
3,477
1,402
2,234
3,636
592
617
1,209
743
724
1,467
Leasing Arrangements
Retail Banking Services provides vehicle and
equipment lease finance to a broad range of industries
including transport, service, earthmoving, construction,
manufacturing
finance
and mining. Most
arrangements are for terms of between three and five
years and rentals are generally payable monthly in
lease
advance. Premium Business Services 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.
80
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
2004
$M
1,189
1,861
968
4,018
421
546
153
1,120
GROUP
2003
$M
1,385
2,082
718
4,185
304
575
397
1,276
2004
$M
640
570
150
1,360
217
97
119
433
BANK
2003
$M
826
686
111
1,623
59
203
184
446
81
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 2004.
GROUP
Maturity Period at 30 June 2004
Maturing
Maturing
Between
One Year One & Five
Years
$M
or Less
$M
Maturing
After Five
Years
$M
241
1,451
2,754
14,417
3,786
5,029
1,564
17,889
47,131
69
619
2,211
2,268
5
375
66
2,094
7,707
54,838
32,398
3,558
35,956
14,733
4,149
18,882
54,838
339
1,595
468
13,411
718
5,139
2,299
7,343
31,312
78
1,292
1,816
5,220
2
39
109
1,091
9,647
40,959
17,523
2,827
20,350
13,789
6,820
20,609
40,959
552
879
471
77,055
294
47
1,100
2,937
83,335
35
1,366
1,830
9,479
-
1
-
552
13,263
96,598
53,767
3,935
57,702
29,568
9,328
38,896
96,598
Total
$M
1,132
3,925
3,693
104,883
4,798
10,215
4,963
28,169
161,778
182
3,277
5,857
16,967
7
415
175
3,737
30,617
192,395
103,688
10,320
114,008
58,090
20,297
78,387
192,395
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
(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 five years.
Financing real estate and land development projects.
82
Notes to the financial statements
NOTE 13 Provisions For Impairment
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
Charge to profit and loss for bad and
doubtful debts comprises:
General provisions
Specific provisions
Total Charge for Bad and Doubtful Debts
Ratio of net charge-offs during the period to
average gross loans, advances and other
receivables outstanding during the period
2004
$M
2003
$M
2002
$M
GROUP
2000
$M
2001
$M
1,325
276
-
(202)
79
2
1,480
(87)
1,393
205
-
-
264
(62)
202
1,356
305
-
(350)
74
(9)
1,376
(51)
1,325
270
-
-
416
(66)
350
1,399
449
-
(495)
56
1
1,410
(54)
1,356
234
-
-
546
(51)
495
1,358
385
51
(411)
88
(29)
1,442
(43)
1,399
432
-
6
495
(84)
411
1,081
196
214
(140)
54
(3)
1,402
(44)
1,358
275
-
219
236
(96)
140
2004
$M
1,152
263
-
(189)
66
19
1,311
(69)
1,242
157
-
-
243
(54)
189
BANK
2003
$M
1,190
266
-
(322)
63
(3)
1,194
(42)
1,152
231
-
-
382
(60)
322
3
410
(267)
143
1,536
(11)
609
(404)
205
1,530
(11)
718
(448)
270
1,626
(17)
832
(598)
234
1,633
5
639
(207)
432
1,790
2
348
(227)
121
1,363
(17)
536
(379)
157
1,309
143
-
143
205
-
205
270
-
270
233
1
234
431
1
432
121
-
121
157
-
157
%
%
%
%
%
%
%
42.06
32.08
30.54
36.06
43.03
36.00
24.84
451.76
239.44
183.94
251.62
178.29
403.55
207.25
0.82
0.90
0.96
1.01
1.06
0.79
0.84
$M
$M
$M
$M
$M
$M
$M
276
-
276
305
-
305
449
-
449
385
-
385
196
-
196
263
-
263
266
-
266
0.16%
0.19%
0.31%
0.28%
0.16%
0.18%
0.21%
83
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
2004
$M
276
GROUP
2003
$M
305
264
(62)
202
(202)
-
87
(79)
66
202
276
276
416
(66)
350
(350)
-
51
(74)
(22)
350
305
305
2004
$M
263
243
(54)
189
(189)
-
69
(66)
71
189
263
263
BANK
2003
$M
266
382
(60)
322
(322)
-
42
(63)
(35)
322
266
266
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 2000,
2001, 2002, 2003 and 2004.
2004
$M
2003
$M
2002
$M
GROUP
At 30 June
2000
$M
2001
$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
Total Specific Provisions
-
2
1
6
4
38
3
74
128
-
-
-
6
-
8
-
1
15
143
-
3
2
6
-
36
4
112
163
10
1
-
7
-
4
-
20
42
205
-
10
26
6
4
35
6
134
221
11
-
12
3
-
3
-
20
49
270
-
8
24
4
6
28
7
77
154
15
-
4
7
-
3
-
51
80
234
-
35
23
8
6
17
6
110
205
13
-
1
3
-
69
-
141
227
432
(1)
(2)
Principally owner occupied housing.
Primarily financing real estate and land development projects.
84
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 2000, 2001, 2002, 2003 and 2004.
2004
$M
2003
$M
2002
$M
GROUP
Year Ended 30 June
2000
2001
$M
$M
-
2
6
-
4
26
-
6
6
-
10
1
-
6
2
11
4
177
18
178
400
1
-
58
2
-
6
-
35
102
502
49
7
56
446
10
14
142
16
301
494
8
24
104
11
90
245
-
-
6
-
-
-
1
-
38
-
102
147
1
-
4
-
1
6
641
251
59
29
88
553
46
8
54
197
Bad Debts Written Off
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
5
1
228
8
75
325
6
-
1
1
-
7
-
14
29
8
-
209
11
171
429
-
-
16
2
-
7
-
1
26
Gross Bad Debts Written Off
354
455
Bad Debts Recovered
Australia
Overseas
Bad Debts Recovered
Net Bad Debts Written Off
73
6
79
275
57
17
74
381
(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 Recovered by Industry Category
The following table sets forth the Group’s bad debts recovered by industry category for financial years ended 30 June
2000, 2001, 2002, 2003 and 2004.
Australia
Government and public authorities
Agriculture, forestry and fishing
Financial, investment and insurance
Real estate
Mortgage (1)
Construction (2)
Personal
Lease financing
Other commercial and industrial
Total Australia
Overseas
Government and public authorities
Agriculture, forestry and fishing
Financial, investment and insurance
Real estate
Mortgage (1)
Construction (2)
Personal
Lease financing
Other commercial and industrial
Total Overseas
Bad Debts Recovered
(1)
(2)
Principally owner occupied housing.
Primarily financing real estate and land development projects.
2004
$M
2003
$M
2002
$M
GROUP
Year Ended 30 June
2000
$M
2001
$M
-
5
1
1
-
50
3
13
73
-
-
1
-
-
4
-
1
6
79
-
1
4
-
-
38
2
12
57
-
-
1
-
-
4
-
12
17
74
-
1
-
1
-
30
-
17
49
-
-
1
-
3
-
-
3
7
56
-
-
9
1
1
30
1
17
59
-
-
-
-
1
3
-
25
29
88
-
2
1
1
2
28
2
10
46
-
-
2
-
1
3
-
2
8
54
86
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 amount ultimately
the
borrower.
recoverable
from
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 uses 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
in credit derivative
transactions, has purchased various assets in the market,
and has carried out various asset securitisations and a
Collateralised Loan Obligation issue.
involved
is
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
underwriting
incorporate
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
unit with an overview by the Risk Asset Review unit.
in
Facilities
the statistically managed segment
become classified for remedial management by centralised
units based on arrears status. Impaired assets in this
segment are those ‘classified’ facilities 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 annually, unless 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.
87
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 2000, 2001, 2002, 2003 and
2004. The industry profile of the loans, advances and other receivables content for the five financial years to 30 June 2004 is
shown on page 93.
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
Total Gross Credit Risk
Less Unearned Income
Total Credit Risk
Charge for Bad and Doubtful Debts
Loss Rate (3)
2004
$M
2003
$M
2002
$M
GROUP
At 30 June
2000
$M
2001
$M
5,672
5,616
26,301
110,209
5,791
10,665
4,963
57,539
226,756
2,307
3,277
22,098
17,722
8
420
175
6,144
52,151
278,907
(1,410)
277,497
276
0.10%
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
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
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
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
305
0.13%
449
0.20%
385
0.19%
196
0.11%
(1)
(2)
(3)
Principally owner occupied housing.
Primarily financing real estate and land development projects.
The loss rate is the charge as a percentage of the credit risk.
The Group has a good quality and well diversified credit portfolio in Australia, with 48.7% of the exposure in mortgage
loans and a further 11.6% in finance, investment and insurance (primarily banks). 18.7% of exposure is overseas, of which
34.0% is in mortgage loans. Overall over 67% of individually risk rated exposures in the commercial portfolio (including
government and finance) are of investment grade or equivalent quality.
88
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 2004.
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
Securities Securities Receivables of Customers Liabilities Derivatives
$M
$M
$M
$M
$M
$M
Total
$M
1,735
2,289
-
-
6,664
-
-
-
-
-
-
-
-
-
2,911
11,310
1,533
3,822
1,132
3,925
3,693
104,883
4,798
10,215
4,963
28,169
161,778
11
1,517
437
65
684
1,186
-
302
333
-
5,326
642
116
-
68
5,672
109
5,616
9,160 21,387
-
- 110,209
5,791
1 10,665
4,963
-
49
12,172
15,019
5,956
13,728
6,798 57,539
16,185 221,842
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
-
2,058
-
-
-
-
-
478
3,586
14,896
1,050
902
182
-
98
37
2,269
-
3,277
-
-
-
3,277
5,592
-
-
-
-
-
1,131
7,625
11,447
5,857
-
16,967
7
415
175
3,737
30,617
192,395
-
-
-
-
-
-
-
-
15,019
1,733
-
755
1
2
-
551
3,140
16,868
3,403 18,643
-
-
- 17,722
-
8
420
3
175
-
247
6,144
3,690 48,658
19,875 270,500
8,369
38
278,907
(1)
(2)
Principally owner occupied housing.
Primarily financing real estate and land development projects.
Risk concentrations for contingent liabilities and derivatives are based on the credit equivalent balance in Note 38,
Contingent Liabilities and Assets and Note 39, Market Risk respectively.
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 as 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
Securities Securities Receivables of Customers
$M
$M
$M
$M
Liabilities Derivatives
$M
$M
Total
$M
1,703
-
3,089
-
-
-
-
1,542
6,334
1,995
-
1,505
3,677
2
1,281
494
74
111
68
5,810
5,100
-
2,024
699
1,766
8,964
16,542
-
-
-
-
2,346
4,341
87,592
1,701
11,972
5,264
26,449
140,184
-
387
263
-
10,490
13,122
4,364
420
90
-
4,499
11,707
-
214
2
-
6,143
91,956
2,722
12,327
5,264
51,469
15,502 191,190
698
-
582
-
222
2,278
-
-
148
-
36
-
1,686
2,278
1,135
3,143
3,210
62
1,773
1,764
11,087
-
-
-
-
2,268
4,101
10,435
-
-
-
-
2,970
6,695
11,036
12,611
209
1,391
197
2,959
23,077
163,261
-
-
-
-
13
75
13,197
817
-
-
-
662
3,400
15,107
-
1
-
-
208
2,009
13,428
210
1,391
197
9,080
39,357
17,511 230,547
Other Risk Concentrations
Receivables due from other
financial institutions
Deposits with regulatory authorities
Total Gross Credit Risk
(1)
(2)
Principally owner occupied housing.
Primarily financing real estate and land development projects.
7,066
23
237,636
90
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 2004.
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
5,672
5,616
21,387
110,209
5,791
10,665
4,963
57,539
221,842
2,269
3,277
18,643
17,722
8
420
175
6,144
48,658
270,500
8,369
38
278,907
Impaired Provisions for
Assets
$M
-
19
6
-
15
6
5
294
345
-
-
5
11
-
1
-
1
18
363
Impairment Write-offs Recoveries
$M
$M
$M
-
2
1
-
2
6
6
4
38
3
74
128
5
1
228
8
75
325
-
-
-
6
-
8
-
1
15
143
6
-
1
1
-
7
-
14
29
354
-
(5)
(1)
(1)
-
(50)
(3)
(13)
(73)
-
-
(1)
-
-
(4)
-
(1)
(6)
(79)
Net
Write-offs
$M
-
(3)
5
4
1
178
5
62
252
6
-
-
1
-
3
-
13
23
275
(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
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
$M
Write-offs
$M
Net
Recoveries Write-offs
$M
$M
-
19
6
-
5
11
12
492
545
46
-
5
-
-
1
-
68
120
665
-
3
2
6
-
36
4
112
163
10
1
-
7
-
4
-
20
42
205
-
4
26
8
-
209
11
171
429
-
-
16
2
-
7
-
1
26
455
-
(1)
(4)
-
-
(38)
(2)
(12)
(57)
-
-
(1)
-
-
(4)
-
(12)
(17)
(74)
-
3
22
8
-
171
9
159
372
-
-
15
2
-
3
-
(11)
9
381
5,810
5,100
16,542
91,956
2,722
12,327
5,264
51,469
191,190
1,686
2,278
11,087
13,428
210
1,391
197
9,080
39,357
230,547
7,066
23
237,636
(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
Industrial
the Bank’s counterparty Corporate and
exposures (including direct and contingent exposure)
which individually were greater than 5% of the Group’s
capital resources (Tier One and Tier Two capital):
2004
Number
2003
Number
2002
Number
2001
Number
2000
Number
10% to less than 15% of Group's capital resources
5% to less than 10% of Group's capital resources
-
1
-
-
-
1
-
2
-
1
92
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 2000, 2001, 2002, 2003 and 2004.
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
2004
$M
1,132
3,925
3,693
104,883
4,798
10,215
4,963
28,169
161,778
182
3,277
5,857
16,967
7
415
175
3,737
30,617
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
At 30 June
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
192,395
163,261
150,046
139,195
135,768
(3,004)
(2,914)
(2,972)
(3,136)
(3,504)
189,391
160,347
147,074
136,059
132,264
(1)
(2)
Principally owner occupied housing.
Primarily financing real estate and land development projects.
93
Notes to the financial statements
NOTE 15 Asset Quality
Impaired Assets
The Group
the Australian disclosure
requirements for impaired assets contained in AASB 1032:
Specific Disclosures by Financial Institutions.
follows
There are three classifications of impaired assets:
(cid:131)
(a) Non accruals, comprising:
(cid:131)
(cid:131)
(cid:131)
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:
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:131)
(cid:131)
(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 percentage of risk weighted
assets
Net impaired assets as percentage 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
2004
%
2003
%
GROUP
2002
%
0.20
0.44
0.63
0.12
0.79
0.30
1.96
0.44
2.92
GROUP
Year Ended 30 June
2002
$M
2003
$M
651
530
159
121
786
30
920
673
225
247
810
30
2004
$M
346
194
94
152
499
14
94
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 2000, 2001, 2002, 2003 and 2004.
2003
$M
545
(25)
520
(163)
357
-
-
-
-
-
-
-
-
357
120
(1)
119
(42)
77
-
-
-
-
-
-
-
-
77
434
2002
$M
732
(54)
678
(221)
457
-
-
-
-
-
-
-
-
457
211
(5)
206
(49)
157
-
-
-
-
-
-
-
-
157
614
GROUP
At 30 June
2000
$M
722
(128)
594
(205)
389
1
-
1
-
1
1
-
1
391
410
(3)
407
(226)
181
-
-
-
-
-
1
(1)
-
181
572
2001
$M
518
(63)
455
(154)
301
1
-
1
-
1
-
-
-
302
197
(5)
192
(79)
113
-
-
-
-
-
1
(1)
-
113
415
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
2004
$M
345
(23)
322
(128)
194
-
-
-
-
-
-
-
-
194
18
-
18
(15)
3
-
-
-
-
-
-
-
-
3
197
95
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 2000,
2001, 2002, 2003 and 2004.
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
Loans Accruing But Past Due 90 Days or More
Accruing loans past due 90 days or more
Housing loans
Other loans
Total
2004
$M
665
532
(278)
(556)
363
-
363
2004
$M
168
78
246
2003
$M
943
617
(456)
(439)
665
-
665
2003
$M
157
91
248
Net Interest Foregone on Impaired Assets
Interest income forgone
Australia non accrual facilities
Overseas non accrual facilities
Total
2004
$M
2003
$M
10
-
10
15
3
18
2002
$M
717
1,069
(481)
(362)
943
-
943
2002
$M
176
73
249
2002
$M
21
7
28
Interest Taken to Profit on Impaired Assets
2004
$M
2003
$M
2002
$M
GROUP
Year Ended 30 June
2000
$M
2001
$M
1,135
707
(666)
(459)
717
-
717
657
414
(226)
(194)
651
484
1,135
GROUP
At 30 June
2000
$M
2001
$M
218
90
308
211
64
275
GROUP
Year Ended 30 June
2000(1)
$M
2001
$M
8
8
16
4
5
9
GROUP
Year Ended 30 June
2000(1)
$M
2001
$M
Australia
Non accrual facilities
Restructured facilities
Overseas
Non accrual facilities
OREO
Total Interest Taken to Profit
(1) Excluding Colonial
11
-
3
-
14
26
-
4
-
30
27
-
3
-
30
37
-
14
-
51
45
-
6
-
51
96
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
Australia Overseas
2004
$M
2004
$M
193
152
345
(23)
322
(128)
194
13
5
18
-
18
(15)
3
GROUP
Total
2004
$M
206
157
363
(23)
340
(143)
197
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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
345
(23)
322
(128)
194
18
-
18
(15)
3
108
114
123
345
13
5
-
18
363
(23)
340
(143)
197
121
119
123
363
545
(25)
520
(163)
357
158
138
249
545
120
(1)
119
(42)
77
1
6
113
120
665
(26)
639
(205)
434
159
144
362
665
Accruing Loans 90 days past due or more(1)
224
22
246
227
21
248
(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.
97
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
the NSW
Government on a quarterly basis.
indemnities are
reimbursed by
loan
Selected Regional Exposures
Asia
Over 66% of total exposures relate to financial
institutions. Exposures to Indonesia, Thailand and Korea
represent approximately 25% of the Group’s Asian credit
risk.
The Group’s credit risk exposure to Asian countries as at 30 June 2004 is set out below. The exposures exclude Group
equity investments.
Asian Exposures
Country
Finance
Corporate/ Government
CUSTOMER TYPE
China
Hong Kong
Japan
Malaysia
Singapore
Phillipines
Taiwan
Other
Indonesia
South Korea
Thailand
Total
Multinational
$M
$M
171
803
974
411
100
592
641
313
1
2,058
17
636
199
852
3,884
5
462
467
94
240
244
-
1
2
581
16
85
4
105
1,153
$M
-
-
-
35
40
7
-
-
-
82
171
264
17
452
534
Project
Finance(1)
$M
-
-
-
-
-
-
-
-
-
-
32
-
-
32
32
APL/NZPL
$M
1
227
228
6
-
37
-
-
-
43
10
-
-
10
281
2004
Total
Exposure(2)
$M
GROUP
2003
Total
Exposure
$M
177
1,492
1,669
546
380
880
641
314
3
2,764
246
985
220
1,451
5,884
165
1,878
2,043
759
111
498
-
22
2
1,392
137
477
91
705
4,140
Other Regional Exposures
Region
Finance
Corporate/ Government
CUSTOMER TYPE
Multinational
$M
$M
Eastern Europe
Latin America
Middle East
-
-
65
1
-
8
$M
-
-
-
Project
Finance(1)
$M
-
-
-
APL/NZPL
$M
-
-
-
2004
Total
GROUP
2003
Total
Exposure(2) Exposure
$M
$M
1
-
73
-
-
56
(1)
(2)
Project Finance - Long term lending for large scale projects (such as mining and infrastructure) where repayment is primarily reliant on
the cash flow from the project.
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.
98
Notes to the financial statements
NOTE 16 Insurance Investment Assets
Equity Security Investments
Direct
Indirect
Debt Security Investments
Direct
Indirect
Property Investments
Direct
Indirect
Other Assets
Total Insurance Investment Assets
the
Direct investments refer to investments that are
directly with
Indirect
investments refer to investments that are held through unit
trusts or similar investment vehicles.
Disclosure on Asset Restriction
investment.
issuer of
the
Investments held in the Australian statutory funds can
only be used within the restrictions imposed under the Life
Insurance Act 1995.
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.
NOTE 17 Deposits with Regulatory Authorities
Central Banks Overseas
Total Deposits with Regulatory Authorities
NOTE 18 Shares in and Loans to Controlled Entities
2004
$M
4,433
8,025
12,458
3,518
7,710
11,228
80
2,330
2,410
2,846
28,942
GROUP
2003
$M
3,559
8,408
11,967
3,574
8,273
11,847
80
2,151
2,231
1,790
27,835
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.
2004
$M
38
38
GROUP
2003
$M
23
23
2004
$M
GROUP
2003
$M
2004
$M
4
4
2004
$M
12,156
11,521
23,677
BANK
2003
$M
2
2
BANK
2003
$M
11,772
11,787
23,559
Shares in controlled entities
Loans to controlled entities
Total Shares in and Loans to Controlled Entities
-
-
-
-
-
-
99
Notes to the financial statements
NOTE 19 Property, Plant and Equipment
(a) Land and Buildings
Land
At 30 June 2004 valuation
At 30 June 2003 valuation
Closing balance
Buildings
At 30 June 2004 valuation
At 30 June 2003 valuation
Closing balance
Total Land and Buildings
2004
$M
GROUP
2003
$M
2004
$M
BANK
2003
$M
160
-
160
253
-
253
413
-
141
141
-
302
302
443
148
-
148
231
-
231
379
-
129
129
-
233
233
362
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
(d) Assets Under Lease
At cost
Provision for depreciation
Closing balance
(e) Investment Property (1)
At cost
657
(376)
281
639
(448)
191
579
(351)
228
557
(407)
150
545
(310)
235
333
(225)
108
458
(283)
175
279
(208)
71
67
-
67
-
-
-
-
-
-
-
-
-
252
-
-
-
Total Property, Plant and Equipment
1,204
821
722
608
(1) This investment represents a 50% interest in a long term freehold lease over property.
100
Notes to the financial statements
NOTE 19 Property, Plant and Equipment continued
Reconciliation
2004
$M
GROUP
2003
$M
2004
$M
BANK
2003
$M
Reconciliation of the carrying amount of property, plant and equipment at the beginning and end of the 2004 and 2003
financial years.
Land
Opening balance
Disposals
Net revaluations
Closing balance
Buildings
Opening balance
Acquisitions
Disposals
Revaluation
Depreciation
Closing balance
Leasehold Improvements
Opening balance
Acquisitions
Disposals
Depreciation
Closing balance
Equipment
Opening balance
Acquisitions
Disposals
Depreciation
Closing balance
Assets Under Lease
Opening balance
Acquisitions
Depreciation
Closing balance
Investment Property
Opening balance
Acquisitions
Closing balance
141
(8)
27
160
302
2
(57)
27
(21)
253
228
119
(11)
(55)
281
150
96
(4)
(51)
191
-
67
-
67
-
252
252
160
(19)
-
141
358
1
(33)
-
(24)
302
205
78
(4)
(51)
228
139
64
-
(53)
150
-
-
-
-
-
-
-
129
(3)
22
148
149
(20)
-
129
233
-
(5)
21
(18)
231
276
1
(24)
-
(20)
233
175
117
(12)
(45)
235
158
62
(4)
(41)
175
71
58
-
(21)
108
58
35
-
(22)
71
-
-
-
-
-
-
-
-
-
-
-
-
-
-
101
2004
$M
5,591
1,155
(332)
(1,709)
4,705
GROUP
2003
$M
5,591
1,155
(332)
(1,385)
5,029
2004
$M
2,671
835
-
(984)
2,522
BANK
2003
$M
2,671
835
-
(798)
2,708
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
Segment Allocation of Goodwill
In recognition of the disclosure requirements of US
SFAS 141: Business Combinations and the Australian
Intangible Assets
Accounting Standard AASB 138:
(effective 1 July 2005), the Group’s carrying amount of
goodwill at 30 June 2004 is disclosed for each segment of
business.
Segment
Banking(1)
Funds Management(2)
Insurance(2)
Total
2004
$M
4,379
253
73
4,705
2003
$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
principally relates to the goodwill on acquisition of Colonial.
funds management and
insurance
to
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)
Intergroup current tax receivable
Intergroup deferred tax receivable
Other (2)
Total Other Assets
2004
$M
1,208
223
600
1,540
564
GROUP
2003
$M
1,023
145
492
727
525
2004
$M
1,247
80
602
1,347
423
BANK
2003
$M
1,239
50
268
500
312
5,741
111
12,827
-
-
2,478
25,292
5,540
111
13,907
-
-
989
23,459
-
-
12,798
104
317
1,931
18,849
-
-
13,908
-
-
471
16,748
(1)
(2)
This is an outside equity interest in a funds management business acquired during 2003, and is not included in the revaluation in
Note 34 Life Insurance Business.
Increase primarily relates to increased volume and exchange rate increments receivable on forward foreign exchange balance sheet
hedging contracts.
Potential future income tax benefits of the Company arising
from:
(cid:131) Capital losses arising under the tax consolidations
(cid:131)
system; and
Tax loses and timing differences in offshore centres,
recognised as assets because
have not been
recovery is not virtually certain.
These benefits could amount to:
(cid:131)
(cid:131)
$34 million in tax consolidation potential benefits; and
$136 million (2003: $142 million) in offshore centres.
These potential tax benefits will only be obtained if:
(cid:131)
The Company derives future capital gains and
assessable income of a nature and of an amount
sufficient to enable the benefit from the losses to
be realised;
The Company continues to comply with the
conditions
losses and
deductions imposed by tax legislation; and
for claiming capital
(cid:131)
(cid:131) No changes in tax legislation adversely affect the
the
in realising
the benefit
from
Company
deductions for the losses.
Excess of net market value over net assets of controlled entities of the life insurance businesses:
Commonwealth and Colonial entities
ASB entities
Commonwealth and Colonial entities
ASB entities
GROUP
At 30 June 2004
Excess of
Market Value
Over Net Assets
$M
5,178
563
5,741
GROUP
At 30 June 2003
Excess of
Market Value
Over Net Assets
$M
5,071
469
5,540
Net
Assets
$M
2,246
415
2,661
Net
Assets
$M
2,626
380
3,006
Market
Value
$M
7,424
978
8,402
Market
Value
$M
7,697
849
8,546
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
2004
$M
20,516
38,530
71,115
5,407
3,585
139,153
3,716
11,724
6,852
1,174
558
24,024
163,177
GROUP
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
2004
$M
20,516
36,714
71,289
5,431
3,648
137,598
1,906
2,448
73
11
433
4,871
142,469
BANK
2003
$M
11,228
30,992
68,932
5,031
2,688
118,871
1,130
2,295
59
7
584
4,075
122,946
Maturity Distribution of Certificates of Deposit and Time Deposits
The following table sets forth the maturity distribution of the Group’s certificates of deposit and time deposits as at 30
June 2004.
GROUP
At 30 June 2004
Maturing
Between
Six &
Twelve
Months
$M
Maturing
After
Twelve
Months
$M
293
3,087
3,380
276
818
1,094
4,474
2,127
1,776
3,903
1
528
529
4,432
Total
$M
20,516
38,530
59,046
3,716
11,724
15,440
74,486
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
16,874
20,777
37,651
2,728
8,484
11,212
48,863
1,222
12,890
14,112
711
1,894
2,605
16,717
(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
2004
$M
2,383
4,258
6,641
GROUP
2003
$M
2,527
5,011
7,538
2004
$M
402
355
757
25
29
54
811
GROUP
2003
$M
433
414
847
29
-
29
876
2004
$M
2,383
4,228
6,611
2004
$M
352
332
684
6
-
6
690
BANK
2003
$M
2,527
4,977
7,504
BANK
2003
$M
355
162
517
10
-
10
527
105
Notes to the financial statements
NOTE 25 Other Provisions
Provision for:
Long service leave
Annual leave
Other employee entitlements
Which new Bank costs
Restructuring costs
General insurance claims
Self insurance/non lending losses
Other
Total Other Provisions
Which new Bank costs:
Opening balance
Additional provision
Amounts utilised during the year
Closing balance
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
2004
$M
GROUP
2003
$M
300
130
98
208
-
79
60
122
997
2004
$M
-
208
-
208
30
-
(30)
-
66
44
(31)
79
56
13
(9)
60
107
70
(54)
(1)
122
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
2004
$M
293
112
98
208
-
-
59
49
819
2004
$M
-
208
-
208
29
-
(29)
-
-
-
-
-
55
13
(9)
59
63
6
(20)
-
49
BANK
2003
$M
294
127
116
-
29
-
55
63
684
BANK
2003
$M
-
-
-
-
21
20
(12)
29
-
-
-
-
53
12
(10)
55
30
39
(6)
-
63
106
Notes to the financial statements
NOTE 26 Debt Issues
Short term debt issues
Long term debt issues
Total Debt Issues
Short Term Debt Issues
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
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 (“EMTNs”) up to an
aggregate amount of USD25 billion. Notes issued under
the programme are both fixed and variable rates. Interest
rate risk associated with the notes is incorporated within
the Bank’s interest rate risk framework.
(cid:131)
(cid:131)
(cid:131)
Subsequent to 30 June 2004, the Bank has issued:
USD medium term notes: 3 months to less than 12
months – USD26 million (AUD38 million); between 1
and 5 years – USD964 million (AUD1,379 million);
greater than 5 years – USD468 million (AUD669
million);
CHF medium term notes: between 1 and 5 years –
CHF250million (AUD287 million);
EUR medium term notes: 3 months to less than 12
months – EUR6.7 million (AUD11.5 million); between
1 and 5 years – EUR356 million (AUD613 million);
greater than 5 years – EUR2.5 million (AUD4.3
million);
2004
$M
20,401
23,641
44,042
1,450
490
9,381
3,638
GROUP
2003
$M
17,255
13,374
30,629
2004
$M
6,127
18,322
24,449
1,643
777
6,163
5,738
-
-
-
2,498
5,442
20,401
2,934
17,255
3,629
6,127
8,790
4,453
734
3,837
5,583
40
204
23,641
6,949
13,452
17,542
6,099
44,042
4,517
3,510
414
1,799
2,752
187
195
13,374
13,348
3,907
10,426
2,948
30,629
8,146
2,813
520
1,981
4,822
40
-
18,322
1,925
4,202
12,224
6,098
24,449
BANK
2003
$M
6,577
10,107
16,684
-
-
-
3,842
2,735
6,577
4,517
2,307
414
-
2,682
187
-
10,107
3,994
2,696
7,958
2,036
16,684
(cid:131)
(cid:131)
(cid:131)
JPY medium term notes: Greater than 5 years –
JPY1.2 billion (AUD15.3 million);
CAD medium term notes: between 1 and 5 years –
CAD400 million (AUD431 million); and
HKD medium terms notes: Greater than 5 years –
HKD202 million (AUD307 million).
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 2002, 2003 and
2004.
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
2004
2002
2003
(AUD Millions, except where indicated)
9,381
11,983
8,161
1.1%
1.2%
3,638
6,402
4,798
1.0%
1.2%
-
-
-
-
-
1,940
3,216
2,675
5.2%
5.6%
6,163
8,973
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%
6,082
7,158
6,173
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%
(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
AUD 1.00 =
30 June 2004
30 June 2003
USD
GBP
JPY
NZD
HKD
DEM
CHF
IDR
THB
FJD
PHP
EUR
0.6894
0.3823
74.914
1.097
5.378
1.116
0.8720
6,487
28.229
1.239
38.731
0.5706
0.6677
0.4043
80.036
1.145
5.207
1.143
0.9037
5,528
28.051
1.250
35.737
0.5842
108
(cid:131)
(cid:131)
to write new business or
The CDBL’s liabilities continue to remain guaranteed
by the Commonwealth; and
CDBL ceased
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
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.
to
2004
$M
980
1,325
1,151
1,649
12,188
-
1,847
19,140
GROUP
2003
$M
993
991
740
699
13,528
-
2,076
19,027
2004
$M
950
1,140
829
1,458
12,156
153
1,202
17,888
BANK
2003
$M
874
842
567
479
13,502
-
1,192
17,456
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:131)
(cid:131)
term deposits were
All demand deposits and
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
the Commonwealth
sold
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 Bank of the Commonwealth of Australia’s shareholding
in the CDBL:
(cid:131)
All lending assets as at 30 June 1996 have been
quarantined in CDBL, consistent with the charter
terms on which they were written;
.
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)
Intergroup deferred tax payable
Other liabilities
Total Bills Payable and Other Liabilities
109
Notes to the financial statements
NOTE 28 Loan Capital
Currency
Amount (M) Footnotes
2004
$M
2003
$M
GROUP
2002
$M
2004
$M
2003
$M
BANK
2002
$M
Tier 1 Capital
Exchangeable
Exchangeable
Undated
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
Subordinated
Subordinated
Subordinated
Subordinated
FRN
FRN
FRN
TPS
USD38
USD95
USD100
USD550
FRN
FRN
MTN
FRN
FRN
MTN
FRN
Notes
FRN
EMTN
EMTN
EMTN
EMTN
EMTN
EMTN
EMTN
Loan
FRN
FRN
Notes
Other
Notes
EMTN
MTN
FRN
EMTN
EMTN
AUD25
AUD275
AUD185
AUD115
AUD25
AUD200
AUD50
USD300
USD450
JPY20,000
USD200
USD75
USD100
USD400
GBP200
JPY30,000
NZD100
AUD210
AUD38
AUD130
AUD21
USD350
GBP150
AUD300
AUD200
JPY 10,000
USD250
(1)
(2)
(3)
(4)
(5)
(5)
(6)
(6)
(7)
(8)
(8)
(9)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
(23)
(24)
(24)
(25)
(26)
Total Loan Capital
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.
Outstanding notes at 30 June 2004 were:
: USD0.5 million
Due July 2004
: USD32.5 million
Due July 2006
: USD5 million
Undated
(2) USD 400 million undated FRNs issued 22 February
1989 exchangeable into dated FRNs.
Outstanding notes at 30 June 2004 were:
: USD64 million
Due February 2005
: USD24 million
Due February 2006
: USD7 million
Due February 2008
55
138
145
59
142
150
- -
351
338
25
25
275
275
-
185
-
115
25
25
200
199
50
50
549
549
650
672
240
248
313
313
115
115
152
152
501
501
408
408
429
444
92
88
210
210
38
38
130
130
21
35
512
524
373
373
300 -
200 -
127 -
358 -
5,674
6,025
6,293
6,631
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
-
-
-
-
-
-
5,012
5,427
55
59
70
138
142
168
145
150
177
799 - -
351
415
1,137
25
275
-
-
25
200
50
549
650
240
313
115
152
501
408
429
25
275
185
115
25
199
50
549
672
248
313
115
152
501
408
444
25
275
186
115
25
199
50
532
795
293
313
115
152
501
408
525
- - -
210
210
38
38
130
130
21
35
512
524 -
373
373 -
300 - -
200 - -
127 - -
358 - -
4,922
5,586
5,337
5,937
210
38
130
35
6,201
7,338
fully
USD 100 million undated capital notes issued on 15
October 1986.
The Bank has entered into separate agreements with
the Commonwealth of Australia relating to each of
the above issues (the ‘Agreements’) which qualify the
issues as Tier One capital.
The agreements provide that, upon the occurrence of
certain events listed below, the Bank may issue
either
the
ordinary
Commonwealth of Australia or (with the consent of
the Commonwealth of Australia)
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.
shares
rights
paid
to
(3)
110
Notes to the financial statements
NOTE 28 Loan Capital continued
Any one or more of the following events may trigger
the issue of shares to the Commonwealth of Australia
or a rights issue:
(cid:131)
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.
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(4)
(5)
the Commonwealth of
Any payment made by
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 FRNs which have
matured to date, the Bank and the Commonwealth
agreed to amend the 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.
USD550 million undated Trust Preferred Securities
(TPS) issued on 6 August 2003.
AUD300 million extendible floating rate note 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 Two capital. For capital adequacy
purposes Tier Two 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:
(cid:131)
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;
The Bank, if required by the Commonwealth of
Australia and subject to the agreement of the
APRA, exercises its option to redeem such
issue; or
(cid:131)
(cid:131)
(6)
(7)
(8)
to
the
trigger
issue of shares
the Commonwealth of
Any payment made by
Australia pursuant to its guarantee in respect of the
issue will
the
Commonwealth of Australia to the value of such
payment.
AUD300 million subordinated notes, issued February
1999; due February 2009, split into AUD185 million
fixed rate notes and AUD115 million floating rate
notes. Called and redeemed February 2004.
AUD25 million subordinated FRN, issued April 1999,
due April 2029.
AUD250 million
issued
subordinated
November 1999, due November 2009; split into
AUD200 million fixed rate notes and AUD50 million
floating rate notes.
notes,
(9) USD750 million subordinated notes, issued June
2000, due June 2010; split into USD300 million fixed
rate notes and USD450 million floating rate notes.
JPY20 billion perpetual subordinated EMTN, issued
February 1999.
(10)
(11) USD200 million
subordinated EMTN,
issued
November 1999, due November 2009.
(12) USD75 million subordinated EMTN, issued January
2000, due January 2010.
(13) USD100 million subordinated EMTN, issued January
2000, due January 2010.
(14) USD400 million subordinated EMTN issued June
1996 due July 2006.
(15) GBP200 million subordinated EMTN issued March
(16)
1996 due December 2006.
JPY30 billion subordinated EMTN issued October
1995 due October 2015.
(17) NZD100 million subordinated
loan matures 15
December 2009.
(18) AUD210 million Euro FRN issued September 1996,
maturing September 2004.
(19) AUD38 million FRN issued December 1997, maturing
December 2004.
(20) AUD130 million subordinated notes comprised as
follows: AUD10 million fixed rate notes issued 12
December 1995, maturing 12 December 2005.
issued 12
AUD110 million
December 1995, maturing 12 December 2005. AUD5
million fixed rate notes issued 17 December 1996,
maturing 12 December 2005. AUD5 million floating
rate notes issued 17 December 1996, maturing 12
December 2005.
rate notes
floating
(21) Comprises 8 subordinated notes and FRN issues.
The face value amounts are less than $10 million
each and are all in Australian Dollars. The maturities
range from August 2009 to October 2009.
(22) USD350 million subordinated fixed rate note, issued
June 2003, due June 2018.
(23) GBP150 million subordinated EMTN, issued June
2003, due December 2023.
(24) AUD500 million subordinated notes, issued February
2004, due February 2014; split into AUD300 million
fixed rate notes and AUD200 million floating rate
notes.
JPY10 billion subordinated EMTN, issued May 2004,
due May 2034.
(25)
(26) USD250 million subordinated EMTN issued June
2004, due August 2014.
Subsequent to 30 June 2004, the Bank has issued:
USD250 million increase to the subordinated EMTN issued
June 2004, due August 2014.
111
Notes to the financial statements
NOTE 29 Share Capital
Issued and Paid Up Ordinary Capital
Ordinary Share Capital
Opening balance
Dividend Reinvestment Plan: 2002/2003 Final Dividend
Dividend Reinvestment Plan: 2003/2004 Interim Dividend
Share buy back
Share purchase plan
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
Dividend reinvestment plan issues:
2002/2003 Final Dividend fully paid ordinary shares at $28.03
2003/2004 Interim Dividend fully paid ordinary shares at $31.61
Share buy back
Share purchase plan shares issued at $31.36
Buy Back for DRP: 2001/2002 Final Dividend
2001/2002 Final Dividend fully paid shares at $31.92
Buyback for 2002/2003 Interim Dividend
2002/2003 Interim Dividend fully paid ordinary shares at $24.75
Exercise under Executive Option Plan
Closing balance
2004
$M
12,678
201
188
(213)
467
-
-
-
-
38
13,359
BANK
2003
$M
12,665
-
-
-
-
(195)
195
(166)
166
13
12,678
Number
1,253,581,363
Number
1,252,921,363
7,165,289
5,916,319
(19,360,759)
14,891,250
-
-
-
-
1,812,600
1,264,006,062
-
-
(6,111,510)
6,111,510
(6,753,320)
6,753,320
660,000
1,253,581,363
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 in proportion to the number of and amounts paid up on shares held. A
shareholder has one vote on a show of hands and one vote for each fully paid share on a poll. A shareholder may be present
at a general meeting in person or by proxy or attorney, and if a body corporate it may also authorise a representative.
Preference Share Capital
PERLS
PERLS Capital issued and paid up
2004
$M
687
BANK
2003
$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
its ordinary shares until
dividends on any of
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.
Other Equity Instruments
Other equity instruments issued and paid up
2004
$M
1,573
Number
4,300,000
GROUP
2003
$M
-
Number
-
2004
$M
737
Number
550,000
BANK
2003
$M
-
Number
-
112
Notes to the financial statements
NOTE 29 Share Capital continued
Issue of other equity instruments
Trust Preferred Securities
On 6 August 2003 a wholly owned entity of the Bank
issued USD550 million (AUD832 million) of perpetual non
call 12 year trust preferred securities into the US Capital
Markets. These securities offer a non-cumulative fixed rate
distribution of 5.805% per annum payable semi-annually.
The securities qualify as Tier One capital of the Bank.
PERLS II
On 6 January 2004 a wholly owned entity of the Bank
(Commonwealth Managed
Investments Limited as
Responsible Entity of the PERLS II Trust) issued $750
million of Perpetual Exchangeable Resettable Listed
Securities (“PERLS II”). These securities are units in a
registered managed investments scheme, perpetual in
nature, offering a non-cumulative floating rate distribution
payable quarterly. The securities qualify as Tier One
capital of the Bank.
Share Buy-back
On 29 March 2004
the Bank announced
the
successful completion of its off-market share buy-back. A
total of 19,360,759 shares were bought back at $27.50 per
share, for a total cost of $532.4 million. An amount of $11
per share of the consideration for each share bought back
was charged to paid up capital (total $213.0 million). The
balance of $16.50 per share was deemed to be a fully
franked dividend for tax purposes and charged to retained
profits (total $319.4 million).
In accordance with the draft ATO Class Ruling
CR2004/65, the "market value" of the shares bought back
for tax purposes is $30.42 ("Tax Value"). For capital gains
tax purposes an Australian resident individual or complying
superannuation entity shareholder participating in the buy-
back will be deemed to have disposed of each share
bought back for deemed capital proceeds of $11.00 plus
the amount by which the Tax Value exceeds the buy-back
price. The Tax Value exceeds the buy-back price by $2.92
($30.42 - $27.50). Accordingly, for capital gains tax
purposes, the deemed disposal price for each share sold
into the buy-back is $13.92 ($11.00 + $2.92).
Share Purchase Plan
The Bank introduced a Share Purchase Plan (SPP)
during the year. On 25 June 2004 a total of 14,891,250
shares were issued at $31.36 per share, for a total of $467
million, in respect of the SPP.
Dividends
The Directors have declared a fully franked (at 30%)
final dividend of 104 cents per share amounting to $1,315
million. The dividend will be payable on 24 September
2004 to shareholders on the register at 5pm on 20 August
2004.
Dividends per share are based on net profit after tax
(“cash basis”) per share, having regard to a range of
factors including:
(cid:131)
Current and expected rates of business growth and
the mix of business;
Capital needs to support economic, regulatory and
credit ratings requirements;
The rate of return on assets; and
Investments and/or divestments to support business
development.
Dividends paid since the end of the previous financial
(cid:131)
(cid:131)
(cid:131)
year:
(cid:131)
As declared in last year’s Annual Report, a fully
franked
final dividend of 85 cents per share
amounting to $1,066 million was paid on 8 October
2003. The payment comprised cash disbursements
of $865 million with $201 million being reinvested by
participants through the Dividend Reinvestment Plan;
and
113
(cid:131)
(cid:131)
cash
comprised
disbursements
In respect of the current year, a fully franked interim
dividend of 79 cents per share amounting
to
$996 million was paid on 30 March 2004. The
of
payment
$808 million with $188 million being reinvested by
participants through the Dividend Reinvestment Plan.
Additionally, quarterly dividends totaling $37 million
for the year were paid on the PERLS preference
shares; $15 million on the PERLS II (for distributions
in March 2004 and June 2004); $40 million on the
Trust Preferred Securities, and; $9 million on the ASB
Capital preference shares.
Dividend Reinvestment Plan
The Bank expects to issue around $250 million of
shares in respect of the DRP for the final dividend for
2003/04.
The Dividend Reinvestment Plan continues to be
capped at 10,000 shares per shareholder.
Record Date
The register closes for determination of dividend
entitlement and
the dividend
for participation
reinvestment plan at 5:00pm on 20 August 2004 at ASX
Perpetual Registrars Limited, Locked Bag A14, Sydney
South, 1235.
in
Ex Dividend Date
The ex dividend date is 16 August 2004.
Employee Share Plans
The Bank has in place the following employee share
plans:
(cid:131)
(cid:131)
(cid:131)
(cid:131)
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.
Employee Share Acquisition Plan (“ESAP”)
The ESAP was introduced in 1996 and provides
employees 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 ESAP receive full dividend
entitlements, voting rights and there are no forfeiture or
vesting conditions attached to the shares granted.
Effective from 1 July 2002, shares granted under
ESAP offers have been expensed against the profit and
loss account. In the current year, 683,617 shares were
granted to eligible employees in respect of the 2003 grant.
The Bank has determined to allocate each eligible
employee shares up to a value of $1,000 in respect of the
2004 grant. As a result, an amount of $24 million has been
accrued in respect of the year ended 30 June 2004. The
shares will be purchased on-market at the then market
price.
Notes to the financial statements
NOTE 29 Share Capital continued
From 1 July 2000 to 30 June 2002, details of issues under ESAP were:
Issue Date
13 Oct 2000
20 Dec 2000
31 Oct 2001
3 Dec 2001
31 Jan 2002
Bonus Ordinary
Shares Issued(1)
872,620
805
893,554
3,876
1,938
No. of
Participants
24,932
23
26,281
114
57
Shares issued to
Each Participant
35
35
34
34
34
Issue
Price(2)
$27.78
$27.78
$28.95
$28.95
$28.95
From 1 July 2002, details of shares purchased under ESAP are as follows:
Purchase
Date
Ordinary Shares
Purchased
No. of
Participants
Shares Allocated to
Each Participant
31 Oct 2002
22 Jan 2003
31 Oct 2003
830,874
1,584
683,617
25,178
48
23,573
33
33
29
Allocation
Price(3)
$29.71
$29.71
$27.53
(1)
(2)
(3)
For Offers in 2000 and 2001 both new and existing shareholders were granted Bonus Ordinary Shares 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 for the 2002 Offer and $800 of free shares for the
2003 Offer.
Equity Participation Plan (“EPP”)
The EPP facilitates the voluntary sacrifice of both fixed
remuneration and annual short term incentives (STIs) to be
applied in the acquisition of shares. The Plan also
facilitates the mandatory sacrifice of STI payments.
All shares acquired by employees under this Plan are
purchased on-market at the current market price. A total
number of 5,812,425 shares have been acquired under the
EPP since the plan commenced in 2001.
Details of purchases under the EPP from 1 July 2003 to 30 June 2004 were as follows:
Allotment Date
Participants
Shares Purchased
Average Purchase Price
30 Sept 2003
31 Oct 2003
31 Dec 2003
31 Mar 2004
30 Jun 2004
62
2,453
73
63
71
8,175
2,147,975
9,915
7,527
9,496
$27.89
$27.62
$29.46
$33.32
$32.72
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 purchased under the voluntary
component of the EPP carry full dividend entitlements,
voting rights and there are no forfeiture or vesting
conditions attached to the shares.
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. The
vesting condition attached to the shares specifies that
participants must remain employees of the Bank until the
vesting date (generally a period of one and two years after
the STI award period).
Each participant of the mandatory component of the
EPP for whom shares are held by the Trustee on their
behalf, has a right to receive dividends. Once the shares
vest, dividends which have accrued during the vesting
period are paid to participants. 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 purchased under the mandatory component of the EPP has been as follows:
Details of Movements
July 02 - June 03
July 03 - June 04
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
1,478,423
1,968,197
(836,437)
(112,999)
2,497,184
2,497,184
2,121,075
(1,715,807)
(112,099)
2,790,353
Shares acquired under both
the voluntary and
mandatory components of the EPP have been expensed
against the profit and loss account. In the current year,
$67 million was expensed against the profit and loss
account to reflect the cost of allocations under the Plan.
114
Notes to the financial statements
NOTE 29 Share Capital continued
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.
From 2002/03, Reward Shares have only been 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:131)
in
the ASX’s
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.
(previously companies
The comparator group
‘Banks and Finance
represented
Accumulation
the Bank) was
widened in 2001/02 to better reflect the Bank’s
business mix; and
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:131)
For 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
fifth
rating reaches
anniversary, but the maximum vesting will be 50%.
the 50th percentile prior
the
to
Reward 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 have
the Group.
not been recorded as an expense by
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
2000
13 Sep 2000
7 Feb 01
577,500
402,500
13 Sep 2000
31 Oct 01
12,500
-
2001
3 Sep 2001
31 Oct 01
2,882,000
2,122,700
3 Sep 2001
31 Jan 02
12,500
12,500
3 Sep 2001
15 Apr 02
100,000
100,000
16
1
61
1
1
Exercise
Price
$26.97(2)
$26.97(2)
$30.12(3)
$30.12(3)
$30.12(3)
Exercise
Period
14 Sep 2003 to
13 Sep 2010(4)
14 Sep 2003 to
13 Sep 2010(4)
4 Sep 2004 to
3 Sep 2011(5)
4 Sep 2004 to
3 Sep 2011(5)
4 Sep 2004 to
3 Sep 2011(5)
(1)
Options outstanding as at the date of the report.
(2)
The premium adjustment (based on the actual difference between the dividend and bond yields at the date of vesting) was nil.
(3) Will be subject to adjustment by the premium formula (based on the actual difference between the dividend and bond yields at the date
of the vesting).
Performance hurdle was satisfied on 31 March 2004 and options may be exercised up to 13 September 2010.
Performance hurdle must be satisfied between 4 September 2004 and 3 September 2006, otherwise options will lapse.
(4)
(5)
Options - Details of Movements
Year of Grant
Total options:
Held by participants at the start of year
Granted during year
Exercised during year
Lapsed during year
Outstanding at the end of year
Granted from 30 June to date of report
Exercised from 30 June to date of report
Lapsed from 30 June to date of report
Outstanding as at the date of report
July 02 - June 03
2001
2000
July 03 - June 04
2001
2000
572,500
-
-
145,000
427,500
-
-
-
427,500
2,863,100
-
-
526,700
2,336,400
-
-
-
2,336,400
427,500
-
-
-
427,500
-
25,000
-
402,500
2,336,400
-
-
101,200
2,235,200
-
-
-
2,235,200
115
Notes to the financial statements
NOTE 29 Share Capital continued
Reward Shares
Year of
Grant
Purchase
Date
Shares
Purchased
Shares
Allocated
Participants
Vesting Period
2000
2001
2002
2003
20 Feb 2001
31 Oct 2001
31 Oct 2001
22 Nov 2002
12 Nov 2003
361,100
2,000
652,100
357,500
285,531
361,100
2,000
661,500(1)
545,500(2)
595,600(3)
61
1
241
195
255
14 Sept 2003 to 13 Sept 2005(4)
14 Sept 2003 to 13 Sept 2005(4)
4 Sept 2004 to 3 Sept 2006(5)
3 Sept 2005 to 2 Sept 2007(5)
2 Sept 2006 to 1 Sept 2008(5)
Average
Purchase
Price
$29.72
$29.25
$29.25
$28.26
$28.33
(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 shares were re-allocated to participants receiving the 2002 grant as a result of 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.
In November 2003, 310,069 shares were re-allocated to participants receiving the 2003 grant as a result of shares forfeited from previous
grants. The total number of Reward Shares allocated in 2003 represents fifty percent of the maximum entitlement that participants may
receive – refer to footnote 2 above for further information.
(4) Performance hurdle was satisfied on 31 March 2004 and as a result 195,700 shares vested to participants of the 2000 grant.
(5) Performance hurdle must be satisfied within the vesting period, otherwise shares will be forfeited.
Reward Shares - Details of Movements
Year of Grant
2000
2001
2002
2000
2001
2002
2003
July 02 - June 03
July 03 - June 04
Total reward shares:
Held by participants at the start of year
Granted during year
Vested during year
Lapsed during year
Outstanding at the end of year
Granted from 30 June to date of report
Vested from 30 June to date of report
Lapsed from 30 June to date of report
Outstanding as at the date of report
337,300
-
-
120,200
217,100
-
-
-
217,100
638,800
-
-
120,300
518,500
-
-
-
518,500
-
552,000
-
36,700
515,300
-
-
-
515,300
217,100
-
195,700
21,400
-
-
-
-
-
518,500
-
-
59,000
459,500
-
-
22,500
437,000
515,300
-
-
43,225
472,075
-
-
26,250
445,825
-
597,100
-
10,725
586,375
-
-
28,875
557,500
During the vesting period, Reward Shares are held in
Trust. Each participant on behalf of whom Reward Shares
are held by the Trustee, has 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.
For a
limited number of executives
including
overseas based staff and those approved by the Chief
Executive Officer and ratified by Remuneration Committee
and Board, a cash based ‘share replicator’ ERP scheme is
operated by way of grants of performance units. The
performance unit grants are subject to the same vesting
conditions as the Reward Share component of the ERP.
On meeting the vesting condition, a cash payment is made
to executives whereby the value is determined based on
the current share price on vesting plus an accrued dividend
value. An amount of $5 million has been expensed to the
profit and loss account in respect of the year ended 30
June 2004 to reflect future payments which may be
required under the ‘share replicator’ plan.
Executive Option Plan (“EOP”)
As previously notified to shareholders, this plan was
discontinued in 2000/01.
the EOP,
Under
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
option plan did not grant rights to the option holders to
participate in a share issue of any other body corporate.
The performance hurdle is the same TSR comparator
hurdle as outlined above for the Equity Reward Plan
(“ERP”) grants prior to 2002/03.
The last grant under EOP was made in September
2000. The performance hurdles for the August 1999 grant
and the September 2000 grant were met in 2004.
116
Notes to the financial statements
NOTE 29 Share Capital continued
Details of issues made under EOP as well as movements for 2002/03 and 2003/04 are as follows:
Executive Option Plan (“EOP”)
Commencement
Date
3 Nov 1997
25 Aug 1998
24 Aug 1999
13 Sep 2000
Issue
Date
11 Dec 1997
30 Sep 1998
24 Sep 1999
13 Oct 2000
Options
Issued
2,875,000
3,275,000
3,855,000
2,002,500
Options
Outstanding
-
-
1,875,000
1,144,600
Participants
27
32
38
50
Exercise
Price(1)
$15.53(2)
$19.58(2)
$23.84(2)
$26.97(2)
Exercise
Period
4 Nov 00 to 3 Nov 02
26 Aug 01 to 25 Aug 03
25 Aug 02 to 24 Aug 09(3)
14 Sep 03 to 13 Sep 10(4)
(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.
(2) Premium adjustment (based on the actual difference between the dividend and bond yields at the date of vesting) was nil.
(3) Performance hurdle for the 1999 grant was satisfied on 28 February 2004 and options may be exercised up to 24 August 2009.
(4) Performance hurdle for the 2000 grant was satisfied on 31 March 2004 and options may be exercised up to 13 September 2010.
Details of Movements
Year of Grant
Total options -
Held by participants at the
start of year
Exercised during year
Lapsed during year
Outstanding at the end of year
Exercised from 30 June to
date of report
Lapsed from 30 June to date
of report
Outstanding as at the date of
report
1 July 2002 to 30 June 2003(1)
1 July 2003 to 30 June 2004(1)
1997
1998
1999
2000
1998
1999
2000
50,000
-
50,000
-
-
-
-
1,047,500
660,000
3,525,000
-
1,691,700 312,500
- 312,500
3,221,000
1,271,000
1,336,200
129,100
-
304,000
355,500
387,500
3,221,000
1,336,200
-
75,000
-
-
-
-
312,500
3,221,000
1,336,200
-
-
-
-
-
25,000
12,500
1,925,000
1,194,600
50,000
50,000
-
-
1,875,000
1,144,600
(1)
The EOP was discontinued in 2000/01 and no options have been granted under the plan during the last two reporting periods.
Summary of shares issued during the period 1 July 2003 to the date of the report as a result of options being exercised are:
Option
Issue Date
30 Sep 1998
24 Sep 1999
13 Oct 2000
7 Feb 2001
Shares
Issued
312,500
1,321,000
179,100
25,000
Price paid
per Share
$19.58
$23.84
$26.97
$26.97
Total
Consideration Paid
$6,118,750
$31,492,640
$4,830,327
$674,250
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.
117
Notes to the financial statements
NOTE 29 Share Capital continued
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 a total of 34,009 shares have been
purchased under the NEDSP since the plan commenced in
2001.
Details of grants under the NEDSP from 1 July 2003 to 30 June 2004 were as follows:
Quarter Ending
30/09/2003
31/12/2003
31/03/2004
30/06/2004
Total Fees
Sacrificed
$74,636
$74,650
$73,762
$73,616
Participants
Shares
Purchased
Average
Purchase Price
11
11
11
11
2,678
2,534
2,214
2,250
$27.87
$29.46
$33.32
$32.72
No trading restrictions were lifted on shares during the period 1 July 2003 to the date of this report.
For the current year, $297,000 was expensed to the profit and loss account reflecting shares purchased and allocated under
the NEDSP.
2004
$M
300
-
4
2,176
2,480
GROUP
2003
$M
300
-
4
1,824
2,128
NOTE 30 Outside Equity Interests
Controlled Entities:
Share capital (1)
Reserves
Retained profits
Life insurance statutory funds
Total Outside Equity Interests
(1)
ASB Perpetual Preference Shares - $182 million.
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 million.
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”) approved a
proposal which saw CPA acquire the 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.
118
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
risk weighted on and off balance sheet assets. 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 life insurance and funds management businesses
are not consolidated for capital adequacy purposes.
Regulatory capital is divided into Tier One and Tier
Two capital. Certain deductions are made from the sum of
Tier One and Tier Two capital to arrive at the capital base.
Tier One 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 Two
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 One and Tier Two capital to
arrive at the capital base.
the
In accordance with APRA’s methodology,
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 the 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 Bank are shown
on page 121. An analysis of the movement in the capital
ratios is shown on page 120.
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. Under APRA
guidelines, the expected dividend must be deducted from
Tier One 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 2004 ASB Bank Limited
Group had a Tier One ratio of 8.22% and a Total Capital
ratio of 10.18%.
Regulatory Capital Requirements for Life Insurance
and Funds Management Business
The Group’s life insurance businesses in Australia
are also regulated by APRA. The Life Insurance Act 1995
includes a framework for the calculation of the regulatory
capital requirements for life insurance companies. The
required calculations are based on tests aimed at ensuring
each statutory fund in each life insurance company has
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
119
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. Failure may
also result in closer regulatory monitoring by APRA. The
capital adequacy test is always equal to or greater than the
solvency test. At all times during the year to 30 June 2004,
all statutory funds of the Group’s life insurance companies
in Australia met the capital adequacy test. At 30 June
2004,
the
estimated excess over capital adequacy within statutory
funds amounted to $337 million in aggregate.
insurance companies,
for Australian
life
The Group owns two life insurance companies in
Australia: Commonwealth
Insurance Holdings Limited
(“CIHL”), and The Colonial Mutual Life Assurance Society
Limited
insurance business of
life
Commonwealth Life Limited (“CLL”) was amalgamated into
CMLA on 1 July 2003 using the provisions of part 9 of the
Life Insurance Act. CLL was subsequently deregistered.
(“CMLA”). The
There are no regulatory capital requirements for life
insurance companies in New Zealand. However, the Group
determines the capital requirements for New Zealand on a
basis similar to Australia.
life
is
regulated by the Insurance Authority of Hong Kong. The
minimum regulatory requirement comprises a solvency test
as defined in local regulations and ordinances.
insurance business
in Hong Kong
The
Funds managers
in Australia are subject
to
responsible entity regulation by the Australian Securities
and Investment Commission (“ASIC”). The regulatory
capital
responsible entities
depending on the type of Australian Financial Services or
Authorised Representatives’ Licence held but a
requirement of up to $5 million of net tangible assets
applies.
requirements vary
for
APRA
approved
supervises
tangible assets of at
of
superannuation funds and requires them to also maintain
least $5 million. These
net
requirements are not cumulative where an entity is both an
approved trustee for superannuation purposes and a
responsible entity.
trustees
The
total Group’s
funds management
companies held an estimated $710 million excess over
regulatory capital requirements at 30 June 2004
in
aggregate.
life and
Regulatory Changes
Basel II
In June 2004, the Basel Committee on Banking
Supervision (“the Basel Committee”) issued the Revised
Framework for the calculation of capital adequacy for
banks, commonly known as Basel II. The objective of the
to develop capital adequacy
Basel
guidelines that are more accurately aligned with the
individual risk profile of banks.
II Framework
is
ratings-based
the Basel
two
II Framework.
internal
The Basel II Framework 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
These are
risk under
Standardised and
(“IRB”)
approaches. The Standardised Approach is a modified
version of the current approach, but with risk weights
ratings of borrowers and
aligned with
counterparties. Under the IRB approaches (Foundation
and Advanced), banks such as Commonwealth Bank that
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
the credit
Active Capital Management
The Bank maintains a strong capital position. The
Tier One Capital Ratio increased from 6.96% to 7.43% and
the Total Capital Ratio increased from 9.73% to 10.25%
during the year to 30 June 2004. The Bank’s credit ratings
remained unchanged.
(cid:131)
(cid:131)
(cid:131)
During the year, the Bank achieved strong growth in
Risk Weighted Assets from $147 billion to $169 billion. The
following significant initiatives were undertaken to actively
manage the Bank’s capital:
Tier One Capital
Issue of USD550 million (AUD832 million) of trust
preferred securities in August 2003;
Issue of $750 million of Perpetual Exchangeable
Resettable Listed Securities (“PERLS II”) in January
2004;
Issue of $201 million shares in October 2003 to satisfy
the Dividend Reinvestment Plan (“DRP”) in respect to
the final dividend for 2002/03;
Issue of $188 million shares in March 2004 to satisfy
the DRP in respect to the interim dividend for 2003/04;
In accordance with APRA guidelines, the estimated
issue of $250 million shares to satisfy the DRP in
respect of the final dividend for 2003/04;
The issue of $467 million shares pursuant to a Share
Purchase Plan (“SPP”); and
An off-market share buy-back of $532 million in March
2004 which reduced Tier One Capital.
(cid:131)
(cid:131)
(cid:131)
(cid:131)
Further details of these transactions are provided in Note
29.
(cid:131)
(cid:131)
(cid:131)
Tier Two Capital
Issue of $500 million subordinated medium term notes
settled in February 2004. The notes mature in 2014
and are callable in 2009. The notes qualify as Lower
Tier Two capital;
Issue of JPY10 billion (AUD127 million) subordinated
medium term notes settled in May 2004. The notes
mature in May 2034 and are callable in May 2010. The
notes qualify as Lower Tier Two capital; and
Issue
(AUD358 million)
subordinated medium term notes settled in June 2004.
The notes mature in August 2014 and are callable in
August 2009. The notes qualify as Lower Tier Two
capital.
Deductions from Total Capital
The following movements in deductions have occurred
of USD250 million
during the year:
(cid:131)
(cid:131)
Sale of investment in Bank of Queensland; and
Dividend of $194 million paid to the Bank from the life
insurance and funds management businesses in
excess of the dividend paid in respect of the after-tax
profits of these businesses.
In July 2004, the Bank issued USD250 million
(AUD357 million) subordinated medium term notes. The
notes mature in 2014 and are callable in 2009. The notes
qualify as Lower Tier Two capital.
Notes to the financial statements
NOTE 31 Capital Adequacy continued
used by
the bank
Commonwealth Bank
Advanced IRB approach.
The Basel
in
is
its
internal models. The
the
implement
to
intending
II Framework
introduces a capital
requirement for operational risk. As with credit risk, there
are multiple approaches. The Bank
to
implement the Advanced Measurement Approach.
intending
is
The Basel Committee intends member countries to
adopt and implement the Basel II Framework for financial
years ending in 2006. However, the most advanced
approaches
risk will be
to credit and operational
implemented for financial years ending in 2007, in order
that further impact studies and parallel calculations can be
completed.
The current capital requirements for market risk are
not expected to change significantly under the Basel II
Framework.
There remain a number of uncertainties regarding the
Basel II Framework as it will be applied by APRA and it is
the
to provide reliable
not possible
regulatory position of the Bank under the new rules.
information on
International Financial Reporting Standards
The Bank will be required to adopt International
Financial Reporting Standards (“IFRS”) for the financial
year commencing 1 July 2005 and will report for the first
time under IFRS when the results for the half year ended
31 December 2005 are announced.
Many of the IFRS changes will have an affect upon
the reporting of the Bank’s assets and equity. Current
accounting definitions for asset and equity measurement
are central to the capital adequacy requirements set by
prudential regulators. APRA has stated that it will revise its
prudential standards in response to the IFRS changes.
However, it is currently unclear the impact this will have on
the Bank’s capital adequacy position. Refer to page 64 for
further discussion of IFRS.
Conglomerate Groups
APRA has advised that a third level of capital
adequacy (“Level 3”) will be implemented to coincide with
Basel II. APRA defines a conglomerate group as a group
of companies containing one or more Australian
incorporated Authorised Deposit-taking
Institutions
(“ADIs”). The Bank is an ADI and 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. 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.
The proposals indicate that the use of internal capital
estimation and allocation models may be permitted.
However, APRA has not yet specified their requirements
for internal models, nor when they will complete their
review of the Bank’s models.
Whilst
the Bank considers
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 Bank meets the Level 3 capital
requirements.
that
it
Capital Expenditure
From 1 July 2004, APRA requires banks to deduct
certain capitalised expenses from Tier One capital. On a
pro-forma basis, at 30 June 2004 this deduction would
have been $111 million resulting in a decrease in Tier One
Capital from 7.43% to 7.37% and a decrease in Total
Capital from 10.25% to 10.18%.
120
Notes to the financial statements
NOTE 31 Capital Adequacy continued
Risk Weighted Capital Ratios
Tier One
Tier Two
Less deductions
Total
Adjusted Common Equity(1)
Regulatory Capital
Tier One capital
Shareholders' equity
Eligible loan capital
Estimated reinvestment under Dividend Reinvestment Plan(2)
Foreign currency translation reserve related to non-consolidated subsidiaries
Deduct:
Asset revaluation reserve
Goodwill
Expected dividend
Intangible component of investment in non-consolidated subsidiaries(3)
Outside equity interest in entities controlled by non-consolidated subsidiaries
Outside equity interest in insurance statutory funds and other funds
Other
Total Tier One Capital
Tier Two capital
Asset revaluation reserve
General provision for bad and doubtful debts(4)
Future Income Tax Benefit related to general provision
Upper Tier Two note and bond issues
Lower Tier Two note and bond issues(5)(6)
Total Tier Two Capital
2004
Actual
%
7.43
3.93
(1.11)
10.25
4.75
2004
$M
24,885
338
250
179
(61)
(4,705)
(1,315)
(4,674)
(114)
(2,176)
(19)
12,588
61
1,390
(398)
267
5,338
6,658
GROUP
2003
Actual
%
6.96
4.21
(1.44)
9.73
GROUP
2003
$M
22,152
351
-
147
(7)
(5,029)
(1,066)
(4,388)
(123)
(1,824)
-
10,213
7
1,321
(391)
250
4,990
6,177
Total capital
Deduct:
Investment in non-consolidated subsidiaries (net of intangible component
deducted from Tier One capital)(3)
Other deductions
Capital Base
19,246
16,390
(1,886)
(5)
17,355
(2,072)
(42)
14,276
(1)
(2)
(3)
(4)
(5)
(6)
Adjusted Common Equity (“ACE”) is one measure considered by Standard & Poor’s in evaluating the Bank’s credit rating. The ACE ratio
has been calculated in accordance with the Standard & Poor’s methodology. As the Bank did not disclose this ratio for the previous year,
no comparatives are published.
Based on reinvestment experience related to the Bank’s Dividend Reinvestment Plan.
Refer to Note 34 for a reconciliation of the components of the carrying value of the life insurance and funds management business to the
value of investments in non-consolidated subsidiaries.
Excludes general provision for bad and doubtful debts in non-consolidated subsidiaries.
APRA requires these Lower Tier Two note and bond issues to be included as if they were un-hedged.
For regulatory capital purposes, Lower Tier Two note and bond issues are amortised by 20% of the original amount during each of the
last five years to maturity.
121
Notes to the financial statements
NOTE 31 Capital Adequacy continued
Adjusted Common Equity(1)
Tier One capital
Deduct:
Eligible loan capital
Preference share capital
Other equity instruments
Outside equity interest (net of outside equity interest component deducted from Tier One capital)
Investment in non-consolidated subsidiaries (net of intangible component deducted from Tier One capital)(2)
Other deductions
Other
Total Adjusted Common Equity
2004
$M
12,588
(338)
(687)
(1,573)
(190)
(1,886)
(5)
139
8,048
(1) Adjusted Common Equity (“ACE”) is one measure considered by Standard & Poor’s in evaluating the Bank’s credit rating. The ACE ratio
has been calculated in accordance with the Standard & Poor’s methodology. As the Bank did not disclose this ratio for the previous
year, no comparatives are published.
(2) Refer to Note 34 for a reconciliation of the components of the carrying value of the life insurance and funds management business to the
value of investments in non-consolidated subsidiaries.
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)
Face Value
2004
$M
2003
$M
Risk
Weights
%
GROUP
Risk-Weighted
Balance
2003
$M
2004
$M
27,554
15,020
125,026
83,256
250,856
23,832
12,427
103,987
74,472
214,718
0%
20%
50%
100%
-
3,004
62,513
83,256
148,773
-
2,485
51,993
74,472
128,950
Face Value
2004
$M
2003
$M
Credit
Equivalent
2003
$M
2004
$M
GROUP
Risk-Weighted
Balance
2003
$M
2004
$M
Off-balance sheet exposures
Direct credit substitutes
Trade and performance related items
Commitments
Foreign exchange, interest rate and other
769,742
market related transactions
Total Off Balance Sheet Exposures - Credit Risk(4) 839,201
Total risk weighted assets - credit risk
Risk weighted assets - market risk
Total Risk Weighted Assets
3,293
1,069
65,097
3,746
992
58,674
3,293
483
12,745
3,746
463
10,882
2,836
453
9,238
3,238
435
7,832
603,726
667,138
20,069
36,590
17,475
32,566
5,614
18,141
5,028
16,533
166,914 145,483
1,325
169,321 146,808
2,407
(1)
(2)
(3)
(4)
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 secured by the residential property account for $6.2 billion of off balance sheet credit equivalent assets
($3.1 billion of off balance sheet risk weighted assets).
122
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 39.
GROUP
Maturity Period At 30 June 2004
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(3)
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
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
888
-
5,565
-
-
-
774
-
-
2,646
-
51
390
4,749
-
-
-
4,904
-
-
-
4,904
7,126
14,896
1,952
27,597
8,643
2,948
17,963
86,690
80
-
1,646
70
-
5,145
319
-
2,704
19,883
6,376
554
5
28,544
39,957
-
3,924
-
95,797
-
3,466
-
49,096 102,286
(1,393)
-
17,999
174
16,780
-
-
-
-
Total
$M
6,453
8,369
14,896
11,447
189,391
15,019
28,942
18,532
293,049
88,691
-
48,863
21,191
3,594
838
-
163,177
536
-
-
-
9
89,236
-
-
-
-
-
-
4,564
8,643
-
7,160
17,996
87,226
1,529
6,376
-
13,699
918
43,713
12
-
-
19,162
32
22,800
-
-
-
10,249
8
11,095
-
-
24,638
403
196
25,237
6,641
15,019
24,638
50,673
19,159
279,307
(1)
(2)
(3)
Trading securities are purchased without the intention to hold until maturity and are categorised as maturing within 3 months.
$102 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 the 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 retail deposits and wholesale funding.
123
Notes to the financial statements
NOTE 32 Maturity Analysis of Monetary Assets and Liabilities continued
GROUP
Maturity Period At 30 June 2003
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
0 to 3
At Call Overdrafts months
$M
$M
$M
3 to 12
Months
$M
1 to 5
years
$M
Over
5 years
$M
Not
specified
$M
1,033
1,256
-
-
-
-
-
-
4,542
-
-
-
5,054
10,435
1,339
756
-
2,034
-
-
6,407
-
-
1,256
-
-
-
-
Total
$M
5,575
7,066
10,435
11,036
1,515
4,457
14,128
18,094
37,167
86,311
(1,325)
160,347
-
-
582
4,386
-
-
-
4,457
13,197
3,922
15,616
68,233
-
656
7
21,547
-
4,075
5
47,654
-
3,878
-
91,445
-
15,304
631
14,610
13,197
27,835
16,841
252,332
Liabilities
Deposits and other public
borrowings(3)
Payables due to other
financial institutions
Bank acceptances
Life liabilities(4)
Debt issues and loan capital
Other monetary liabilities
Total Monetary Liabilities
81,385
1,438
-
-
-
1
82,824
-
-
-
-
-
-
-
38,334
15,138
4,962
1,155
-
140,974
5,724
13,197
-
13,352
17,043
87,650
376
-
-
3,911
24
19,449
-
-
-
12,005
-
16,967
-
-
-
6,970
-
8,125
-
-
23,861
416
284
24,561
7,538
13,197
23,861
36,654
17,352
239,576
(1) Trading securities are purchased without the intention to hold until maturity and are categorised as maturing within three months.
(2) $87 billion of this figure represents owner occupied housing loans. While most of these loans would have a contractual term of 20 years
(3)
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.
(4) The maturity profile of Life assets has been reclassified to be on a consistent basis with current year.
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.
124
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
Appraisal value uplift/(reduction)
Total Revenue
GROUP
Year Ended 30 June 2004
Funds
Banking Management
$M
$M
13,287
-
3,720
-
17,007
-
-
3,142
(95)
3,047
Insurance
$M
-
1,012
840
296
2,148
Total
$M
13,287
1,012
7,702
201
22,202
Interest expense
7,877
-
-
7,877
3,091
(914)
2,177
(1)
504
(228)
371
(120)
3,966
(1,262)
276
(8)
251
-
2,176
(302)
-
1,874
268
(17)
(95)
156
251
(5)
296
542
302
276
110
427
38
17
-
8
-
3
5
-
9
-
-
2,704
(9)
2,695
(324)
201
2,572
324
276
127
427
41
265,062
19,878
21,055
305,995
518
194
254,284
6
1
17,439
9
44
9,387
533
239
281,110
Segment result before income tax, goodwill amortisation and
appraisal value uplift/(reduction)
Income tax expense
Segment result after income tax and before goodwill amortisation
and appraisal value uplift/(reduction)
Outside equity interest
Segment result after tax and outside equity interest before
goodwill amortisation and appraisal value uplift/(reduction)
Goodwill amortisation
Appraisal value uplift/(reduction)
Net Profit Attributable to Shareholders of the Bank
Non-Cash Expenses
Goodwill amortisation
Charge for bad and doubtful debts
Depreciation
Which new Bank initiatives
Other
Financial Position
Total Assets
Acquisition of Property, Plant & Equipment,
Intangibles and other Non-Current Assets
Associate Investments
Total Liabilities
125
Notes to the financial statements
NOTE 33 Financial Reporting by Segments continued
Financial Performance
Interest income
Premium and related revenue
Other income
Total Revenue
Interest expense
Segment result before income tax, goodwill amortisation and
appraisal value (reduction)/uplift
Income tax (expense)/credit
Segment result after income tax and before goodwill
amortisation and appraisal value (reduction)/uplift
Outside equity interest
Segment result after income tax and outside equity interest
before goodwill amortisation and appraisal value (reduction)/uplift
Goodwill amortisation(1)
Appraisal value (reduction)/uplift
Net Profit Attributable to Shareholders of the Bank
Non-Cash Expenses
Goodwill amortisation
Charge for bad and doubtful debts
Depreciation
Appraisal value reduction/(uplift)
Other
Financial Position
Total Assets
Acquisition of Property, Plant & Equipment,
Intangibles and other Non-current Assets
Associate Investments
Total Liabilities
GROUP
Year Ended 30 June 2003
Funds
Banking Management
$M
$M
Insurance
$M
11,528
-
2,733
14,261
6,502
3,165
(931)
2,234
-
2,234
(300)
-
1,934
300
305
109
-
112
-
-
1,157
1,157
-
217
5
222
(6)
216
(18)
(291)
(93)
18
-
8
291
1
Total
$M
11,528
1,131
4,510
17,169
-
1,131
620
1,751
-
6,502
161
(32)
129
-
129
(4)
46
171
4
-
11
(46)
-
3,543
(958)
2,585
(6)
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)
Prior years have been restated to reflect the allocations of goodwill amortisation across businesses.
126
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, 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 & Equipment,
Intangibles and other Non-current Assets
Associate Investments
Total Liabilities
GROUP
Year Ended 30 June 2002
Funds
Banking Management
$M
$M
Insurance
$M
10,455
-
3,180
-
13,635
5,745
2,884
(816)
2,068
(1)
2,067
(301)
-
1,766
301
449
109
87
-
-
690
381
1,071
-
399
(31)
368
-
368
(18)
381
731
18
-
7
2
Total
$M
10,455
866
4,163
477
15,961
-
866
293
96
1,255
-
5,745
135
(69)
66
-
66
(4)
96
158
4
-
12
1
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
30
18,123
-
48
9,584
164
313
228,592
127
Notes to the financial statements
NOTE 33 Financial Reporting by Segments continued
Secondary Segment
GEOGRAPHICAL SEGMENTS
Revenue
Australia
New Zealand
Other Countries(1)
Net profit attributable to shareholders of the
Bank
Australia
New Zealand
Other Countries(1)
Assets
Australia
New Zealand
Other Countries(1)
Acquisition of Property, Plant & Equipment,
Intangibles and other Non-current Assets
Australia
New Zealand
Other Countries(1)
2004
$M
17,746
2,671
1,785
22,202
2,091
309
172
2,572
252,652
35,059
18,284
305,995
%
80.0
12.0
8.0
2003
$M
%
2002
$M
%
14,008
2,025
1,136
81.6
11.8
6.6
12,651
1,591
1,719
79.3
10.0
10.7
100.0
17,169
100.0
15,961
100.0
81.3
12.0
6.7
100.0
82.6
11.4
6.0
1,659
265
88
82.4
13.2
4.4
2,012
100.0
2,569
178
(92)
2,655
96.8
6.7
(3.5)
100.0
221,248
27,567
16,295
83.5
10.4
6.1
208,673
24,579
16,396
83.6
9.8
6.6
100.0
265,110
100.0
249,648
100.0
495
29
9
533
92.9
5.4
1.7
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
(1) 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. The New Zealand net profit for
2003 has been restated onto a consistent basis with other years.
128
Notes to the financial statements
NOTE 34 Life Insurance Business
The following information, in accordance with AASB 1038: Life Insurance Business, 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 to Notes 1(ii) and 21. The life insurance segment result is prepared on a business segment
basis, refer to 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 profit after income tax
Outside equity interest in operating profit after income tax
Net Profit After Income Tax
Sources of life insurance operating profit
The Margin on Services operating 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
Operating Profit After Income Tax
Life insurance premiums received and receivable
Life insurance claims paid and payable
2004
$M
1,362
(194)
(501)
139
1,582
558
238
399
(2,315)
1,268
201
1,469
(447)
1,022
(300)
722
(8)
714
186
6
201
10
311
714
3,688
4,356
GROUP
2003
$M
1,326
(200)
(471)
132
(680)
894
374
46
(546)
875
(245)
630
(697)
(67)
45
(22)
-
(22)
228
(67)
(245)
(11)
73
(22)
4,158
5,843
129
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 2003
Profits
Net capital movements(2)
Dividends paid
Foreign exchange movements
Change in Shareholders net tangible assets
Appraisal value uplift/(reduction)
Increase/(Decrease) to 30 June 2004
Shareholders’ Net Tangible Assets
30 June 2003 balance
Profits
Net capital movements(2)
Dividends paid
Foreign exchange movements
30 June 2004 Balance
Value Inforce Business
30 June 2003 balance
Uplift/(reduction)
30 June 2004 Balance
Value Future New Business
30 June 2003 balance
Uplift/(reduction)
30 June 2004 Balance
Carrying Value at 30 June 2004
Shareholders’ net tangible assets
Value inforce business
Embedded value
Value future new business
Carrying Value
Life Insurance
Funds
Management
$M
Australia New Zealand
$M
$M
Asia(1)
$M
268
(27)
(470)
(10)
(239)
(95)
(334)
$M
754
268
(27)
(470)
(10)
515
$M
1,123
727
1,850
$M
3,596
(822)
2,774
$M
515
1,850
2,365
2,774
5,139
180
108
(421)
-
(133)
206
73
$M
1,264
180
108
(421)
-
1,131
$M
245
50
295
$M
79
156
235
$M
1,131
295
1,426
235
1,661
54
(29)
(9)
19
35
94
129
$M
380
54
(29)
(9)
19
415
$M
191
95
286
$M
278
(1)
277
$M
415
286
701
277
978
17
-
-
(25)
(8)
(4)
(12)
$M
608
17
-
-
(25)
600
$M
4
(4)
-
$M
24
-
24
$M
600
-
600
24
624
Total
$M
519
52
(900)
(16)
(345)
201
(144)
$M
3,006
519
52
(900)
(16)
2,661
$M
1,563
868
2,431
$M
3,977
(667)
3,310
$M
2,661
2,431
5,092
3,310
8,402
(1)
(2)
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, subject to impairment.
Includes capital injections and movements in intergroup loans.
130
Notes to the financial statements
NOTE 34 Life Insurance Business continued
The following table reconciles the carrying values of the life insurance 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 One capital comprises:
Value future new business
Value of self-generated inforce business
Other (1)
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 inforce business
Less non-recourse debt
2004
$M
3,310
1,279
85
4,674
2,661
351
1,152
(2,278)
1,886
2003
$M
3,977
411
-
4,388
3,006
286
1,152
(2,372)
2,072
(1) Relates to revised APRA Prudential Standards effective 1 July 2003.
Key Assumptions Used in Appraisal Values
The following key assumptions have been used 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 2004
Life insurance entities
Australia
New Zealand
Asia
- Hong Kong
- Other
Funds management entities
Australia
As at 30 June 2003
Life Insurance entities
Australia
New Zealand
Asia
- Hong Kong
- Other
Funds management entities
Australia
New
Business
Multiplier
8
9
8
Various
n/a
New
Business
Multiplier
8
8
8
various
Risk
Discount
Rate
%
10.9
10.3
12.0
Various
12.5
Risk
Discount
Rate
%
10.8
10.9
11.5
various
Value of
Franking
Credits
%
70
-
-
-
70
Value of
Franking
Credits
%
70
-
-
-
n/a
11.9
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 on the Australian funds management business.
The assumptions for the future new business are set after considering current levels of new business and the expected
growth in business. A review of current experience has resulted in a reduction in the future sales assumption for Australian
funds management.
131
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.
2004
$M
27,779
1,346
1,762
1,472
(527)
(7,266)
72
24,638
2003
$M
27,426
1,188
1,637
1,420
(916)
(6,956)
62
23,861
Taxation
Actuarial Methods and Assumptions
Taxation has been allowed for in the determination of
policy liabilities in accordance with the relevant legislation
applicable in each territory.
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’)
Insurance Actuarial
Standards Board (‘LIASB’). The principal methods and
profit carriers used for particular product groups, are as
follows:
issued by
the Life
Product Type
Method
Profit Carrier
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
Projection
Projection
Accumulation
Projection
Projection
Projection
Projection
Accumulation
Accumulation
Projection
Bonuses or expected claim payments
Bonuses or funds under management
Not applicable
Premiums/claims
Expected claim payments
Annuity payments
Bonuses or funds under management
Not applicable
Not applicable
Expected claim payments
132
Actuarial Assumptions
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 were the rates used to discount further cash
flows to determine their net present value in the policy
liabilities. The discount rates were 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 and asset mix.
Discount Rates
June 2004
Rate Range %
6.11 – 6.86
7.46 – 8.40
6.17 – 6.98
3.45 – 4.15
3.45 – 4.15
5.93
5.61 – 6.04
7.37 – 7.42
8.41 – 8.80
4.32
5.25
6.13
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
5.21
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.
Voluntary Discontinuance
Discontinuance rates were based on recent company
and industry experience and vary by territory, product, age
and duration inforce. The experience has generally been
favourable resulting in reductions in discontinuance rates
for some product lines.
Surrender Values
Current surrender value bases were 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.
Notes to the financial statements
NOTE 34 Life Insurance Business continued
The ‘Projection Method’ measures the present values
of estimated future policy cash flows to calculate policy
liabilities. The policy cash flows incorporate investment
income, premiums, expenses, redemptions and benefit
payments.
the accumulation of amounts
The ‘Accumulation Method’ for investment linked
invested by
measures
policyholders plus investment earnings less fees specified
in the policy to calculate policy liabilities. Deferred
acquisition costs were offset against this liability.
to
Bonuses are amounts added, at the discretion of the
the benefits currently payable under
insurer,
life
Participating Business. Under the Life Act, bonuses are
a distribution to policyholders of profits and may take
a number of forms including reversionary bonuses, interest
credits and capital growth bonuses (payable on the
termination of the policy).
Class of Business
Traditional – ordinary business (after tax)
Traditional – superannuation business (after tax)
Annuity business (after tax)
Term insurance – ordinary business (after tax)
Term 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)
Investment account – exempt (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 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 with
adjustments for actual experience, and are assumed to
increase in line with inflation each year.
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 to these assumptions.
Inflation
The
inflation assumption
investment earning assumptions.
Benefit Indexation
is consistent with
the
The indexation rates are based on an analysis of past
experience and estimated long term inflation and vary by
133
Managed Assets and Fiduciary Activities
Arrangements were 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, that were distinguished from each
other and from the shareholders’ funds. The financial
statements of Australian
in
accordance with AASB 1038: Life Insurance Business,
(and which are
the relevant Australian
regulators) show all major components of the financial
statements disaggregated between
life
the various
insurance statutory funds and their shareholder funds.
insurers prepared
lodged with
life
Notes to the financial statements
NOTE 34 Life Insurance Business continued
Solvency
Australian Life Insurers
Australian life insurers are required to hold prudential
reserves in excess of the amount of policy liabilities. These
reserves were 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
be held in each life insurance fund. All controlled Australian
life
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
-
Overseas life insurance subsidiaries were 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.
134
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
GROUP
2003
$'000
2004
$'000
2004
$'000
BANK
2003
$'000
7,714
134
7,848
1,113
222
203
13
569
2,120
6,634
137
6,771
2,792
-
2,792
752
325
628
1,263
321
3,289
894
136
203
13
284
1,530
2,555
-
2,555
571
170
528
827
122
2,218
Total Remuneration of Auditors
9,968
10,060
4,322
4,773
The Audit Committee has considered the non-audit
services provided by Ernst & Young and is satisfied that
the services and the level of fees are compatible with
maintaining auditors’ independence.
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.
to statutory and
relation
in
Audit related fees principally include accounting and
regulatory consultations, due diligence in connection with
acquisitions and dispositions, and investigations and
verifications of internal control systems and financial or
regulatory information.
Taxation
tax and GST
compliance and related advice, and tax technology and
related training.
income
include
fees
All other fees principally include transaction support
services related to potential and actual acquisition and
disposition transactions, advice regarding implementation
of revised compliance and regulatory requirements, and
provision of personnel to assist alleviate short term non-
management resource and skill needs.
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
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.
135
GROUP
2003
$M
2004
$M
44
2
46
48
-
48
2004
$M
42
-
42
BANK
2003
$M
23
-
23
GROUP
2003
$M
2004
$M
2004
$M
BANK
2003
$M
295
646
207
1,148
264
587
160
1,011
241
522
150
913
228
503
104
835
12
16
-
28
9
18
1
28
Rental payments are determined in terms of relevant
lease requirements, usually reflecting market rentals.
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.
Notes to the financial statements
NOTE 38 Contingent Liabilities and Assets
The Group is involved in a range of transactions that
give rise to contingent and/or future liabilities. These
transactions meet the financing requirements of customers
and include endorsed bills of exchange, letters of credit,
guarantees and commitments to provide credit.
foreign exchange and
These transactions combine varying levels of credit,
In
interest rate,
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.
liquidity risk.
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
2003
$M
GROUP
Credit Equivalent
2003
$M
2004
$M
2,075
380
589
110
882
58,310
2,720
65,066
2,230
362
308
34
449
12,329
1,156
16,868
2,075
380
589
22
441
10,519
1,081
15,107
2004
$M
2,230
362
308
171
898
64,651
7,158
75,778
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.
letters of
Documentary
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.
credit
Performance
undertakings by
a customer
fails
obligation.
related
the Group
to
involve
if
fulfil a contractual non-monetary
third parties
contingents
to pay
Commitments to provide credit include all obligations
on the part of the Group to provide credit facilities.
The
Other commitments include the Group’s obligations
under sale and repurchase agreements, outright forward
purchases and forward deposits and underwriting facilities.
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 event of non performance by
the Group
counterparty.
in
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.
Contingent Assets
The credit risk related contingent liabilities of $75,778
(2003: $65,066 million) detailed above also
million
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.
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.
136
Notes to the financial statements
NOTE 38 Contingent Liabilities and Assets 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 administration
Australia
United Kingdom
New Zealand
Asia
Funds under custody
Australia(1)
The Group and
its associated entities conduct
investment management and other fiduciary activities as
responsible entity, trustee, custodian or manager for
numerous
including
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,
2004
$M
67,393
10,721
7,614
1,203
86,931
2003
$M
61,556
6,908
6,590
1,369
76,423
-
57,777
(1)
The Group has agreed to novate or transfer all of this business to other custodians during the 2004 financial year.
Certain entities within the Group act as responsible
entity or
trustee of virtually all managed schemes
(“schemes”), wholesale and retail trusts (“trusts”) managed
by the Group in Australia, United Kingdom and New
Zealand. The above funds under administration do not
include on balance sheet investments and policyholder
liabilities held in the statutory funds of the life insurance
business (refer to Note 16) where an entity within the
Group may act as a trustee. 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 2004. 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
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, the Bank entered into a 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.
Liquidity support
In accordance with the regulations and procedures
governing clearing arrangements contained within the
Australian Paper Clearing System (“Clearing Stream 1”)
and the Bulk Electronic Clearing System (“Clearing Stream
2”) and the High Value Clearing System (“Clearing Stream
4”, only if operating in ‘bypass mode’) of the Australian
Payments Clearing Association Limited,
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.
the Bank
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 2004 was $8 million
(2003: $10.6 million).
137
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 or a loss of value, 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 Rrisk 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 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.
(cid:131)
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:131)
(cid:131)
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.
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 funds. 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 fallen from 67% in June
2003 to 60% in June 2004 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 of
pensioner deeming accounts.
The cost of funds for Financial Year 2004, calculated
as a percentage of interest exposure to average interest
bearing liabilities, was 4.0% on a group basis compared
with the 3.7% on a group basis for Financial Year 2003.
The Group obtains a significant proportion of its
funding for the domestic balance sheet from wholesale
sources – approximately 29.7% (2003: 22.7%), excluding
Bank Acceptances. The cost of funds raised in the
wholesale markets is affected by independently assessed
credit ratings.
138
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.
2004
$M
24,699
31,067
38,530
20,756
27,688
15,019
20,516
20,834
6,539
3,585
2,383
211,616
28,282
8,776
3,804
7,578
92
-
48,532
260,148
20,962
281,110
GROUP
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
7,802
3,418
3,250
88
75
40,254
222,225
20,733
242,958
139
(b) Economic value
Some of the Bank’s assets and liabilities have
interest rate risk that is not fully captured within a measure
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
possible
the VaR
methodology. The interest rate scenarios are based on
actual interest rate movements that have occurred over
one year and five 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 of $1 million means that in 97.5 cases out of
100, the expected net present value will not decrease by
more than $1 million given the historical movement in
interest rates.
The figures in the following table represent the net
present value of the expected change in future earnings in
all future periods for the remaining term of all existing
assets and liabilities held for purposes other than trading.
Exposure as at 30 June
Average monthly exposure
High month exposure
Low month exposure
2004
$M
2003
$M
19
40
92
19
34
24
64
4
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
purposes other than trading.
(expressed as a percentage of
expected next 12 months' earnings)
2004
%
2003
%
Average monthly exposure
High month exposure
Low month exposure
0.9
1.3
0.5
1.3
2.1
0.4
140
Notes to the financial statements
NOTE 39 Market Risk continued
The following table represents the Bank’s contractual interest rate sensitivity for repricing mismatches as at 30 June
2004 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.
Interest Rate Risk Sensitivity
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 2004
Not Weighted
Interest Average
Rate
%
1 to 5 Over 5
years
$M
years Bearing
$M
$M
Australia
Assets
Cash and liquid assets
Receivables due from
other financial institutions
Trading securities
Investment securities
Loans, advances and other
receivables
Bank acceptances of
customers
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
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
5,740
4,802
-
-
4,914
11,310
3,822
3,657
11,310
81
1,076
-
180
78
-
792
4
2
-
17
-
-
934
3.27
-
-
1,966
-
-
782
101
-
4
2.88
3.53
6.09
158,915
96,547
10,283
8,776 14,148 28,444
1,989
(1,272)
6.89
15,019
-
-
-
-
-
-
15,019
-
24,673
761
2,090
203
247
2,934
2,514
15,924
4.62
-
-
-
-
-
-
-
-
-
1,053
4,270
23,236
-
-
-
252,952 117,158
-
-
-
13,629
-
-
-
-
-
-
9,849 14,418 33,344
-
-
-
-
-
-
5,285
1,053
4,270
23,236
59,269
-
-
-
5.16
139,153
90,121
20,032
14,160
3,418
3,133
826
7,463
3.89
2,383
15,019
14
757
954
20,834
27,688
2,147
-
-
-
-
-
1,428
58
-
-
-
-
-
2,258
15,802
6,539
229,143
-
331
94,027
-
221
22,569
153
-
-
-
-
-
1,834
-
613
16,760
4
-
-
-
-
-
20
-
-
-
-
-
2,022 14,370
-
-
-
-
-
-
5,776
1
15,019
14
757
954
20,834 (1)
-
-
999
-
1,825
6,443 19,348
-
2,550
9,152
15,802
-
60,844
1.19
-
-
-
-
-
5.27
-
4.57
3.14
21,079
2,288
23,367
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
21,079
2,288
23,367
(2)
(2)
(2)
(2)
(2)
(2)
(10,161)
(426)
-
-
(12,663)
-
-
5,171
8,173
176
-
(10,311)
954
-
-
6,264
8,150
75
-
(902)
5,547
175
-
(222)
12,544
12,544
(16,432)
(3,888)
(8,873) 15,193 21,319
1,633
2,432 23,751 25,384
(12,761)
-
-
-
(24,942)
442
(3)
(3)
(3)
(3)
(3)
(3)
(1)
(2)
(3)
Technically, the 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.
No balance sheet amount applicable.
No rate applicable.
141
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 2004
Not Weighted
Interest Average
Rate
%
years Bearing
$M
1 to 5 Over 5
years
$M
$M
Overseas
Assets
Cash and liquid assets
Receivables due from other
financial institutions
Trading securities
Investment securities
Loans, advances and other
receivables
Bank acceptances of
customers
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
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
713
493
116
-
30
-
-
74
2.23
3,455
3,586
7,625
2,005
2,021
827
1,423
1,237
2,193
15
221
622
-
60
374
-
25
1,843
-
22
1,766
12
-
-
3.20
4.29
4.00
30,476
10,868
2,671
2,616
4,233
9,509
700
(121)
6.87
-
-
-
-
-
-
-
-
-
4,269
67
54
32
71
990
955
2,100
2.11
38
-
-
-
-
-
-
38
-
151
435
2,295
53,043
-
-
-
16,281
-
-
-
7,694
-
-
-
3,506
-
-
-
-
-
-
4,768 12,367
-
-
-
3,443
151
435
2,295
4,984
-
-
-
5.22
24,024
14,697
4,636
2,605
1,095
515
14
462
4.22
4,258
-
-
54
43
3,804
16,354
3,338
92
51,967
2,844
-
-
-
-
-
2,919
-
-
20,460
928
-
-
-
-
-
2,411
485
-
-
-
-
-
8,504
1
-
-
-
-
-
328
-
-
-
-
-
-
1,664
-
-
-
-
-
-
481
-
-
7,975
-
92
11,686
-
-
1,424
-
-
2,179
-
-
495
-
-
-
54
43
3,804
47
3,338
-
7,748
2.80
-
-
-
-
-
1.72
-
8.22
2.74
1,326
192
1,518
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,326
192
1,518
(1)
(1)
(1)
(1)
(1)
(1)
3,273
-
(820)
-
(1,726)
(1,726)
5,205
-
(137)
218
5,005
3,279
(186)
(61)
547
(185)
(8,065)
(4,786)
(2,073)
61
410
526
2,268
(2,518)
(6,381)
-
-
(559)
3,248
730
115
-
-
-
3,063
3,793
47
-
-
-
(4,235)
(442)
(2)
(2)
(2)
(2)
(2)
(2)
(1)
(2)
No balance sheet amount applicable.
No rate 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.
142
Notes to the financial statements
NOTE 39 Market Risk continued
Balance
Sheet
Total
$M
0 to 1
month
$M
1 to 3
months
$M
3 to 6
months
$M
6 to 12
months
$M
Repricing Period at 30 June 2003
Not Weighted
Interest Average
Rate
%
1 to 5 Over 5
years
$M
years Bearing
$M
$M
Australia
Assets
Cash and liquid assets
Receivables due from
other financial institutions
Trading securities
Investment securities
Loans, advances and
other receivables
Bank acceptances of
customers
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
Insurance policy
liabilities
Debt issues
Bills payable and other
liabilities
Loan capital
Total Liabilities
4,557
3,667
-
3,325
6,334
4,341
1,266
6,334
82
1,070
-
521
-
753
-
36
-
-
-
36
-
499
-
-
2,720
-
-
467
890
200
-
16
137,424
80,485
7,167
8,482
14,772 25,336
2,370
(1,188)
3.55
1.41
4.64
5.38
6.32
13,122
-
-
24,185
5,344
444
-
-
-
-
71
-
-
-
-
13,122
-
305
2,178
2,240
13,603
4.04
-
-
-
-
-
628
4,552
21,966
220,434
-
-
-
97,178
-
-
-
9,202
-
-
-
9,342
-
-
-
-
-
-
15,612 30,234
-
-
-
5,077
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
2,527
13,122
12
850
777
20,443
19,576
1,486
-
-
-
-
-
4,452
16,867
5,937
200,476
-
734
89,069
892
-
-
-
-
-
6,378
-
2,050
24,892
132
-
-
-
-
-
1,458
-
15
9,515
-
-
-
17
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
13,122
12
850
777
(1)
-
1,152
-
4,949
-
1,187
20,443
-
-
-
-
1,320
5,455 10,515
-
1,818
3,866
16,867
-
57,164
1.54
-
-
-
-
-
5.50
-
3.31
2.44
-
-
-
-
-
-
-
-
-
19,910
1,936
21,846
Shareholders’ Equity
Share capital
Outside equity interests
Total Shareholders' Equity
19,910
1,936
21,846
-
-
-
-
-
-
Off Balance Sheet Items
Swaps
FRAs
Futures
Net Mismatch
Cumulative Mismatch
(2)
(2)
(2)
(2)
(2)
(21,935)
-
-
(13,826)
(13,826)
8,186
-
-
(7,504)
(21,330)
623
-
-
450
(20,880)
39
-
-
7,673
-
-
10,196 27,392
5,414
-
-
6,625
(10,684) 16,708 23,333
-
-
-
(25,221)
(1,888)
(3)
(3)
(3)
(3)
(3)
(1)
(2)
(3)
Technically, the 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.
No balance sheet amount applicable.
No rate applicable.
143
Notes to the financial statements
NOTE 39 Market Risk continued
Balance
Sheet
Total
$M
0 to 1
1 to 3
month months
$M
$M
3 to 6
months
$M
6 to 12
months
$M
Repricing Period at 30 June 2003
Not Weighted
Interest Average
Rate
%
1 to 5 Over 5
years
$M
years Bearing
$M
$M
Overseas
Assets
Cash and liquid assets
Receivables due from
other financial institutions
Trading securities
Investment securities
Loans, advances and
other receivables
Bank acceptances of
customers
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
Insurance policy
liabilities
Debt issues
Bills payable and other
liabilities
Loan capital
Total Liabilities
Shareholders’ Equity
Share capital
Outside equity interests
Total Shareholders' Equity
1,018
868
53
1
-
-
-
3,741
4,101
6,695
1,424
495
626
2,145
1,519
1,816
79
448
1,252
-
237
458
84
1,064
2,146
-
308
397
96
9
30
-
1.75
4.32
4.31
6.26
22,923
9,155
1,972
2,390
3,687
5,273
483
(37)
7.36
75
-
3,650
117
23
8
-
43
-
-
24
-
-
-
-
75
-
73
966
710
1,717
2.54
-
-
-
15
2.06
193
477
1,780
44,676
-
-
-
12,693
-
-
-
7,548
-
-
-
4,194
-
-
-
4,455
-
-
-
9,533
-
-
-
1,898
193
477
1,780
4,355
-
-
-
5.72
20,609
11,472
4,299
2,193
749
861
149
886
4.53
5,011
75
-
26
42
3,418
11,053
2,160
88
42,482
114
192
306
4,021
-
-
-
-
-
1,050
763
-
-
-
-
-
7,987
159
-
-
-
-
-
331
-
-
16,543
-
88
13,137
-
-
2,683
-
-
-
-
-
-
-
-
-
68
-
-
-
-
-
76
-
-
893
-
-
-
-
-
-
-
-
-
1,470
-
-
2,331
-
-
-
-
-
-
-
-
-
139
-
-
288
-
-
-
-
75
-
26
42
3,418
-
2,160
-
6,607
114
192
306
3.12
-
-
-
-
-
2.01
-
8.13
3.11
Off Balance Sheet Items
Options
Swaps
FRAs
Futures
Net Mismatch
Cumulative Mismatch
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(2)
No balance sheet amount applicable.
No rate applicable.
579
368
514
(1,827)
(4,216)
(4,216)
4,065
(562)
101
(3,260)
(5,245)
(9,461)
405
392
(550)
(305)
(2,495)
(445)
(109)
(1,016)
(2,349)
247
44
4,991
1,453
(8,008)
(503) 10,135
1,624
(8,511)
(205)
-
-
1,417
2,822
4,446
-
-
-
-
(2,558)
1,888
(2)
(2)
(2)
(2)
(2)
(2)
144
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
2004
2003
$M
$M
Interest Rate
Related Contracts
2004
2003
$M
$M
99
4
(21)
59
7
148
2
(3)
1
189
(8)
181
(34)
(13)
16
(190)
(698)
(919)
(11)
6
17
13
143
168
2004
$M
65
(9)
(5)
(131)
(691)
(771)
Total
2003
$M
(9)
3
18
202
135
349
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 future transactions, together with the expected
term of deferral are shown above.
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 $31 million of net deferred gains
on derivatives (2003: $4 million net deferred gains) 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 asset returns and guaranteed liability
returns on some policy changes (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. As at 30 June 2004, shareholders funds in the
life insurance business are invested 73% in income assets
(cash and fixed interest) and 27% in growth assets (shares
and property) with the asset mix varying from company to
to meet
company. Policyholder
policyholder reasonable expectations without putting the
shareholder at undue risk.
funds are
invested
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 Premium Business
Services. The Group trades and distributes financial
markets products and provides risk management services
to clients on a global basis.
The objectives of the Group’s financial markets
activities are to:
(cid:131)
(cid:131)
(cid:131)
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
145
an inventory of treasury and capital market instruments,
including a broad range of securities and derivatives.
is a major participant
In foreign exchange, the Group is a participant in all
the
major currencies and
Australian dollar market, providing services for central
banks,
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 to the financial statements.
institutional, corporate and
in
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. Market liquidity risk is controlled by concentrating
trading activity in highly liquid markets.
Note 2 to the financial statements details Financial
Markets Trading Income contribution of $499 million (2003:
$502 million) to the income of the Group. The contribution
is significant and provides important diversification benefits
to the Group.
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.
Derivative Contracts
The table on the next page 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 from non-traded assets, liabilities and commitments
in Australia and offshore centres.
The ‘Face Value’ is the notional or contractual
amount of the derivatives. This amount is not necessarily
exchanged and predominantly acts as a reference value
upon which interest payments and net settlements can be
calculated and on which revaluation is based.
The ‘Credit Equivalent’ is 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).
Notes to the financial statements
NOTE 39 Market Risk continued
Derivatives
Exchange rate related contracts
Forwards
Trading
Other than trading
Total Forwards
Swaps
Trading
Other than trading
Total Swaps
Futures
Trading
Other than trading
Total Futures
Options purchased and sold(1)
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 (1)
Trading
Other than trading
Total Futures
Options purchased and sold
Trading
Other than trading
Total Options Purchased and Sold
Total Interest Rate Related Contracts
Credit risk related contracts
Swaps
Trading
Other than trading
Total Swaps
Total Credit Risk Related Contracts
Equity risk related contracts
Swaps
Other than trading
Options purchased and sold
Trading
Other than trading
Total Options Purchased and Sold
Total Equity Risk Related Contracts
Total Derivatives Exposures
2004
$M
Face Value
2003
$M
GROUP
Credit Equivalent
2003
$M
2004
$M
151,595
30,983
182,578
61,688
38,671
100,359
1
-
1
64,930
126
65,056
347,994
28,311
500
28,811
139,297
201,510
340,807
38,525
17,251
55,776
15,100
4,683
19,783
445,177
147,998
5,329
153,327
47,821
19,737
67,558
3,083
1,504
4,587
5,242
2,855
8,097
-
-
-
-
-
-
69,984
-
69,984
290,869
33,398
2,292
35,690
125,610
127,882
253,492
47,881
-
47,881
14,028
5,602
19,630
356,693
856
2
858
13,542
13
11
24
2,276
3,033
5,309
67
-
67
110
15
125
5,525
348
393
741
741
4,201
291
4,492
3,787
1,569
5,356
-
-
-
1,234
27
1,261
11,109
4
37
41
3,722
1,719
5,441
18
-
18
152
28
180
5,680
15
623
638
638
2,870
3,490
6,360
6,360
702
1,204
1,906
1,906
340
355
33
29
313
25
338
678
800,209
247
-
247
602
650,070
33
1
34
67
19,875
55
-
55
84
17,511
(1) Prior year face value comparatives have been restated.
The Bank has also entered swaps to hedge property values and income related to investment property risk. Each of these has
a face value of $252 million and a credit equivalent of $1 million.
146
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
Credit related trading derivative contracts
Swaps:
Gross unrealised gains
Gross unrealised losses
Net Unrealised Gains on Credit Related Contracts
Equity related contracts
Options purchased and sold:
Gross unrealised gains
Gross unrealised losses
Net Unrealised Gains on Equity 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 to
Note 2). In aggregate, derivatives trading was profitable for
the Group during the year.
Fair Value
2003
$M
2004
$M
Average Fair Value
2003
$M
2004
$M
2,417
(2,742)
(325)
5,718
(4,335)
1,383
4,753
(4,922)
(169)
3,599
(2,390)
1,209
-
(3)
(3)
2
-
2
482
(634)
(152)
903
832
(1,138)
(306)
736
2,673
(2,975)
(302)
5,370
(4,145)
1,225
1
(3)
(2)
822
(1,167)
(345)
576
3,198
(3,245)
(47)
2,996
(2,078)
918
-
-
-
783
(920)
(137)
734
4
(4)
-
4
(4)
-
6
(5)
1
7
(7)
-
4,084
(4,362)
(278)
4,431
(4,899)
(468)
4,833
(5,209)
(376)
4,294
(4,793)
(499)
24
(25)
(1)
66
(57)
9
(270)
17
(11)
6
15
(18)
(3)
258
(145)
113
(358)
13
(12)
1
41
(50)
(9)
155
(123)
32
(352)
16
(13)
3
15
(15)
-
639
20
(20)
-
379
12
(12)
-
227
33
(23)
10
223
(146)
77
(412)
7
(6)
1
17
(17)
-
323
147
Notes to the financial statements
NOTE 39 Market Risk continued
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
2004
$M
12,827
12,188
639
Fair Value
2003
$M
13,907
13,528
379
148
Notes to the financial statements
NOTE 40 Superannuation Commitments
The Group sponsors a range of superannuation plans for its employees world wide. Details of major defined benefit
plans with assets in excess of $10 million are:
Name of Plan
Type
Form of Benefit
Date of Last Actuarial
Review of the Fund
Officers’ Superannuation Fund (“OSF”)
Commonwealth Bank of Australia (UK)
Staff Benefits Scheme (“CBA(UK)SBS”)
Defined Benefits and
Accumulation
Defined Benefits and
Accumulation
Indexed pensions and
lump sums
Indexed pensions and
lump sums
30 June 2003
1 August 2003
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
relevant accounting and actuarial
accordance with
standards and practices. To maintain consistency in
these values after each
values,
the Bank updates
actuarial assessment of the fund (when the present value
of accrued benefits would be calculated).
In view of market volatility, the Bank updates the
following values annually using most recently available
information (including values obtained from unaudited
fund financial statements).
Net Market Value of Assets(3)
Present Value of Accrued Benefits(4)
Difference between Net Market of Assets
and Present Value of Accrued Benefits
Difference as a Percentage of Plan Assets
Value of Vested Benefits(4)
OSF(1)
$M
5,416
3,988
1,428
26%
3,988
CBA
(UK)SBS(2)
$M
333
409
(76)
23%
304
Total
$M
5,749
4,397
1,352
24%
4,292
(1)
(2)
(3)
(4)
The values for the OSF are the fund actuary’s estimates as at 31 March 2004. The OSF’s values include the values for the former
Colonial Group Staff Superannuation Scheme (“CGSSS”) which was terminated on 3 October 2003 with the plan’s assets, liabilities,
member contributions and benefit arrangements transferred to the OSF.
The values for the CBA(UK)SBS are the fund actuary’s estimates as at 31 March 2004. The CBA(UK)SBS’s values include the values
for the former Colonial UK Staff Pension Scheme (“CUKSPS”) and Stewart Ivory & Company Limited Retirement Benefits Scheme
(“SI&CRBS”) which were terminated on 31 July 2003 with each plan’s assets, liabilities, member contributions and benefit arrangements
transferred to the CBA(UK)SBS.
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 have been calculated in accordance with the
Australian Accounting Standards AAS25 – Financial Reporting by Superannuation Plans. For CBA(UK)SBS, the Present Value of
Accrued Benefits and Value of Vested Benefits have been calculated in accordance with relevant UK actuarial standards and practices.
An actuarial review of the CBA(UK)SBS at 1 August
2003, which was finalised in August 2004, revealed a
deficit of around $80 million and the actuary recommended
contributions of 26% of salary
(dollar contributions
estimated at $5 million per annum) to finance future
accrual of defined benefits and additional contributions of
around $8 million per annum payable over 15 years to
finance the fund deficit. The Bank is currently considering
these recommendations.
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
2003 was completed during the year ended 30 June 2004.
the
In
line with
assessment,
to make
contributions to the OSF until further consideration of the
next actuarial assessment of the OSF as at 30 June 2006.
the actuarial advice contained
the Bank does not
intend
in
.
149
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 Investments Pty Limited
Commonwealth Property Limited
Infravest (No. 2) 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
Preferred Capital Limited
Newport Limited
Padang Pty Ltd
M Land Pty Ltd
PERLS II Trust
GT Funding No.1 Pty Ltd
GT Operating No.1 Pty Ltd
Watermark Limited
Emerald Limited
Loft No.1 Pty Ltd
Loft No.2 Pty Ltd
Fringe Pty Ltd
Reliance Achiever Pty Ltd
RA Partnership
Lily Pty Ltd
Pavillion Limited
Leaseway Transportation Pty Limited
Medallion 2003-2G
(b) Insurance and Funds Management
Commonwealth Insurance Limited
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
Colonial First State Investments Limited
Avanteos Pty Limited
Colonial First State Property Limited
Colonial First Statutory Funds Management Limited
150
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
Australia
Australia
Australia
Australia
Australia
Australia
Australia
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
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
Fiji
Indonesia
USA
USA
USA
United Kingdom
Malta
Malta
51
Notes to the financial statements
NOTE 41 Controlled Entities continued
Entity Name
(b) Insurance and Funds Management continued
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
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
PIF Managed Property Pty Limited
Colonial Protection Insurance 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) 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
National Bank of Fiji Limited
PT Bank Commonwealth
CBA Capital Holdings Inc
CBA Capital Trust 1
CBA Funding Trust 1
Seahorse Investments UK Ltd
CommInternational Limited
CommFinance Limited
151
Notes to the financial statements
NOTE 41 Controlled Entities continued
Entity Name
(b) 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
Stewart Ivory Holdings Limited
Waterloo & Victoria Limited
Extent of Beneficial
Interest if not 100%
Incorporated in
Bermuda
Bermuda
Hong Kong
Hong Kong
Singapore
Fiji
United Kingdom
Fiji
United Kingdom
Fiji
Fiji
United Kingdom
United Kingdom
Cayman Islands
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.
152
Notes to the financial statements
NOTE 42 Investments in Associated Entities and Joint Ventures
Extent of
Principal Activities
GROUP Ownership
2004
$M
2003
$M
Interest
%
Balance
Date
EDS (Australia) Pty Limited(1)
193
225
Computer Fleet Management
Cyberlynx Procurement Services
PT Astra CMG Life
Allday Enterprises Ltd
China Life CMG Life Assurance Company
Limited(2)
Bao Minh CMG Life Insurance Company
CMG Mahon (China) Investment Management
Limited
Mahon and Associates Limited
CMG CH China Funds Management Limited
Colonial First State Private Ltd
-
-
12
1
20
12
-
-
1
-
-
-
12
1
36
12
-
-
1
-
Total
239
287
35
50
30
50
30
49
50
50
50
50
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
Investment Management
31 December
30 June
30 June
31 December
31 December
31 December
31 December
30 June
30 June
31 March
30 June
(1)
(2)
Equity accounted loss of $32 million principally relates to a change in revenue recognition policy by EDSA.
Equity accounted loss of $16 million principally relates to a write-off of capitalised start up costs.
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 benefit
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)
2004
$M
(44)
12
(32)
287
-
-
(16)
-
(32)
239
Financing arrangements accessible
Bank overdraft
Revolving credit
Available
2004
$M
Unused
2004
$M
Available
2003
$M
70
-
70
58
-
58
72
-
72
GROUP
2003
$M
1
-
1
313
6
(21)
(9)
(3)
1
287
GROUP
Unused
2003
$M
23
-
23
153
Notes to the financial statements
NOTE 44 Director and Executive Disclosures
This note outlines the remuneration arrangements for
In
the Bank’s Directors and Specified Executives.
accordance with accounting standard AASB 1046 this note
also outlines details of equity holdings, loans and other
transactions Directors and Specified Executives have with
the Bank and its subsidiaries.
Remuneration Committee
The Bank’s remuneration arrangements are overseen
by the Remuneration Committee of the Board. The
Committee considers changes in remuneration policy likely
to have a material impact on the Bank and is informed of
in
leadership performance,
employment issues, industrial agreements and incentive
plans operating across the Bank.
compliance
legislative
The Committee also considers senior appointments
and remuneration arrangements for senior management.
The remuneration arrangements for the CEO and his direct
reports are approved by the full Board.
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.
The Committee engages an external consultant to
advise it directly in relation to the remuneration of
executives.
Non-Executive Directors
Remuneration for Non-Executive Directors consists
of base and committee fees within an aggregate total of
$1,500,000 per year as approved by shareholders at the
Annual General Meeting held on 28 October 1999. Non-
Executive Directors have 20% of their annual fees applied
to the mandatory on-market acquisition of shares in the
Bank.
The Bank contributes to compulsory superannuation
on behalf of Non-Executive Directors.
Under the Directors’ Retirement Allowance Scheme,
which was approved by shareholders at the 1997 Annual
General Meeting, Directors accumulate a retirement benefit
on a pro rata basis to a maximum of four years’ total
emoluments after twelve years’ service. No benefit
accrues until the Director has served three years on the
Board. In 2002 the Board decided to discontinue the
Directors’ Retirement Allowance Scheme without affecting
the entitlements of then existing Non-Executive Directors.
After that time new Directors are not entitled to participate
in the scheme. As part of a proposed arrangement relating
to remuneration, the Board will be seeking shareholder
approval at the 2004 Annual General Meeting to terminate
accrual of further benefits under the Scheme and freeze
the entitlements of current members until their respective
retirements. This approach will result in remuneration
arrangements being expressed in a more transparent
manner which does not include retirement benefits (other
than compulsory superannuation).
Executives (including the Chief Executive Officer)
The Bank’s remuneration framework aims to reward
executives with a mix of remuneration appropriate to their
level in the organisation and incorporates a significant
weighting
to
towards variable (‘at risk’) pay
performance, both short term and long term. This focus
aims to:
(cid:131)
linked
interests of executives with
reward executives for bankwide, business unit and
targets set by
individual performance against
reference to appropriate benchmarks;
align
shareholders;
link executive reward with the strategic goals and
performance of the Bank; and
ensure total remuneration is competitive by market
standards.
Remuneration and
those of
terms and conditions of
employment are specified in an individual contract of
employment with each executive which is signed by the
executive and the Bank. Remuneration of the Bank’s
executives consists of three key elements:
(cid:131)
(cid:131)
(cid:131)
the
(cid:131)
(cid:131)
(cid:131)
Fixed Remuneration;
Short Term Incentive (“STI”); and
Long Term Incentive (“LTI”).
The relationship of fixed remuneration and variable
pay (potential short term and long term incentives) is
established for each level of executive management by the
Remuneration Committee.
Currently, the variable component of remuneration is
in the general range of around 35% to 80% of an
executive’s total potential remuneration and increases with
their level in the organisation. As a result of the review
with the external consultant of developments in the market,
and benchmarking against peer organisations,
the
distribution of total potential remuneration for executives is
being modified in the current year so as to increase the
percentage for the STI component and decrease the
percentage for the LTI component. For senior executives,
including the CEO, the maximum STI potential available
will generally be an amount equal to fixed remuneration.
The structure for some specialists differs from that
which applies generally to executive management. With
specialists, a greater proportion of the variable component
of remuneration may be in short term rather than long term
incentives but the overall mix of remuneration is still heavily
weighted towards ‘at risk’ pay.
Fixed remuneration consists of base remuneration
(which is calculated on a total cost basis and includes any
FBT charges related to employee benefits including motor
vehicles) as well as employer
to
superannuation.
contributions
Actual STI payments for executives depend on the
extent to which targets set at the beginning of the financial
year are met. These targets consist of a number of Key
Result Areas (“KRAs”) covering both financial and non-
financial measures of performance.
Included are
measures such as contribution to net profit after tax
(NPAT), customer service, risk management, product
management, and leadership / team contribution.
STI Payments to executives are usually delivered in
two components:
(cid:131)
(cid:131)
Fifty percent made as an immediate cash payment;
and
Fifty percent deferred in the form of shares in the
Bank.
The shares acquired vest in two equal instalments
after one and two years respectively. Dividends on the
deferred shares are not paid to the executive unless and
until the shares vest. Generally, to receive the shares, the
executive will need to be an employee of the Bank at the
relevant vesting date.
LTI grants to executives are delivered in the form of
Reward Shares under the Bank’s Equity Reward Plan
(“ERP”).
No value will accrue to the executive unless the
Bank’s Total Shareholder Return (“TSR”) at least meets
the median of a peer comparator group of companies
which consists of other Australian banks and financial
institutions. To receive the full value of the LTI grant, the
Bank’s performance must be in the top quartile of the peer
group. Using a comparative TSR based hurdle ensures
that executives only gain where shareholders also benefit.
the severance arrangements
The Bank’s executive contracts generally provide for
severance payments of up to six months in the case of
retrenchment. The contracts generally provide for a four
week notice period. In the case of the Chief Executive
Officer,
in Mr Murray’s
contract, other than for misconduct, provide for a notice
period of six months and a pro-rata payment of the
average of the previous three years short term incentive
payment, payable in the event of termination by the Bank,
after 1 May but before 30 June. In such circumstances, Mr
Murray may exercise all vested options and obtain vested
shares (including those that vest within two years from the
Termination Date) within a period of three years from the
Termination Date.
Refer Note 38 – Service Agreements.
154
Notes to the financial statements
NOTE 44 Director and Executive Disclosures
On exit from the Bank, executives are entitled to
receive their statutory entitlements of accrued annual and
long service leave as well as accrued superannuation
benefits.
Individual remuneration details of Directors and
Specified Executives are set out below.
Remuneration of Directors
Other than for the Managing Director, Directors
receive their remuneration in the form of fees, apportioned
between cash and amounts sacrificed on a mandatory
basis under the Non-Executive Directors Share Plan
(“NEDSP”), superannuation and the Director’s Retirement
Allowance Scheme (see earlier comments regarding
discontinuance of the Scheme).
PRIMARY BENEFITS
POST EMPLOYMENT
BENEFITS
EQUITY BENEFITS
TOTAL
REMUNERATION
Cash
Non
Monetary
STI paid
in Cash
Year
ending
30 June
Super -
Annuation
Retirement
Allowance
Scheme
(Note 2)
(Note 3)
Deferred
STI
LTI Options
NEDSP
LTI
Reward
Shares
(Note 1)
(Note 1)
$
$
$
$
$
$
$
$
$
$
Mr J T Ralph, AC Chairman
245,887
248,000
2004
2003
-
-
-
-
-(5)
5,626
36,479
127,635
Dr J M Schubert Deputy Chairman
-
-
130,545
128,000
2004
2003
-
-
11,749
11,520
46,981
102,537
-
-
-
-
-
-
-
-
-
-
-
-
61,472
62,000
32,636
32,000
343,838
443,261
221,911
274,057
Mr D V Murray Managing Director (see notes to table of remuneration for Specified Executives for details of individual
2004
2003
1,680,000
1,625,000
- 450,000
- 375,000
items)
136,080
131,625
-
-
365,000
326,250
431,666 1,363,362
751,258
868,892
-
-
4,426,108
4,078,025
Mr N R Adler, AO Non-Executive Director
2004
2003
90,435
88,000
-
-
-
-
Mr R J Clairs, AO Non-Executive Director
2004
2003
86,424
84,000
-
-
-
-
8,318
7,920
7,778
7,560
23,717
34,867
38,988
44,194
Mr A B Daniels, OAM Non-Executive Director
2004
2003
86,424
84,000
-
-
-
-
7,778
7,560
41,663
103,796
Mr C R Galbraith, AM Non-Executive Director
2004
2003
89,460
92,000
-
-
-
-
8,051
8,280
46,418
104,132
-
-
-
-
-
-
-
-
Ms S C Kay Non-Executive Director (appointed a Director on 5 March 2003)
2004
2003
97,482
32,328
-
-
-
-
8,773
2,910
-
-
Mr W G Kent, AO Non-Executive Director
2004
2003
89,460
92,000
-
-
-
-
8,051
8,280
46,418
104,132
Mr F D Ryan Non-Executive Director
2004
2003
90,435
88,000
-
-
-
-
8,139
7,920
46,466
109,074
Mr F J Swan Non-Executive Director
2004
2003
89,460
92,000
-
-
-
-
Ms B K Ward Non-Executive Director
2004
2003
90,435
88,000
-
-
-
-
8,051
8,280
8,139
7,920
44,429
46,924
51,566
53,672
Total Remuneration for Directors
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
22,609
22,000
21,606
21,000
21,606
21,000
22,365
23,000
24,370
8,082
22,365
23,000
22,609
22,000
22,365
23,000
22,609
22,000
145,079
152,787
154,796
156,754
157,471
216,356
166,294
227,412
130,625
43,320
166,294
227,412
167,649
226,994
164,305
170,204
172,749
171,592
2004
2,866,447
2003(4) 2,741,328
- 450,000
- 375,000
220,907
215,401
423,125
830,963
365,000
326,250
431,666 1,363,362
751,258
868,892
296,612
279,082
6,417,119
6,388,174
155
Notes to the financial statements
NOTE 44 Director and Executive Disclosures continued
Notes
Amounts in the above table reflect remuneration from the date the Director joined the Board if the Director was not in
that role at the beginning of the financial year. Where this date is after 1 July 2002, the relevant date has been shown in the
table.
(1)
(2)
(3)
For Non-Executive Directors, this includes base fees and committee fees paid as cash. Non-Executive Directors also
sacrifice 20% of their fees on a mandatory basis under the NEDSP. Further detail on the NEDSP is contained in Note
29.
The Bank is not currently contributing to its staff superannuation fund (the Officers’ Superannuation Fund) and a notional
cost of contribution has been determined on an individual basis for those Non-Executive Directors who are a member of
that fund. Some Directors have superannuation contributions made to other funds.
For Non-Executive Directors this represents the increase in their accrued benefit in the year under the Director’s
Retirement Allowance Scheme which was approved by shareholders at the 1997 Annual General Meeting. See earlier
comments regarding discontinuance of the Scheme.
(4) Group totals in respect of the financial year ended 30 June 2003 do not necessarily equal the sum of amounts disclosed
for individuals specified in 2004 as there are differences to the individuals specified in 2003.
(5) Mr J T Ralph turned 71 during the 2003/04 financial year. The Bank’s compulsory superannuation obligations generally
cease after a person obtains age 70.
156
Notes to the financial statements
NOTE 44 Director and Executive Disclosures continued
Remuneration of Specified Executives
PRIMARY BENEFITS
POST
EMPLOYMENT
BENEFITS
EQUITY BENEFITS
OTHER
BENEFITS
TOTAL
REMUN-
ERATION
Year
ending
30
June
Cash
Non
Monetary
(Note 1)
(Note 2)
STI paid
in cash
Superannuation
Deferred
STI
LTI
Options
(Note 3)
(Note 4)
(Note 5)
(Note 6)
LTI
Reward
Shares
(Note 6)
Termination
Benefits
All other
benefits
(Note 7)
(Note 8)
$
$
$
$
$
$
$
$
$
$
Mr M A Cameron Group Executive, Financial & Risk Management (commenced in role on 1 April 2003)
243,200
10,770
170,000
33,034
150,325
10,586
600,000
149,589
13,000
3,241
99,375
-
2004
2003
-
-
- 150,000
-
-
1,275,900
357,220
Mr A R Cosenza Group Executive, Group Strategic Development (ceased in role on 16 June 2004 and proceeded on
2004
2003
575,410
560,000
12,503
13,000
144,262
160,000
45,530
40,320
Long Service Leave)
145,464
118,750
98,214
154,873
365,062
315,056
Mr L G Cupper Group Executive, Human Resources
2004
2003
580,000
560,000
13,000
13,000
156,000
157,500
115,200
60,100
156,875
146,250
118,642
181,946
415,022
342,553
Mr S I Grimshaw Group Executive, Investment & Insurance Services
2004
2003
891,000
774,836
13,000
13,000
280,000
262,500
89,880
399,505
196,875
-
130,054
130,054
498,873
299,538
-
-
-
-
-
-
Mr H D Harley Group Executive, Retail Banking Services (commenced in role on 16 October 2002)
101,500
57,582
700,000
381,699
321,078
153,287
230,000
98,959
130,000
68,675
13,000
9,189
75,578
75,795
2004
2003
-
-
Mr M A Katz Group Executive, Premium Business Services
237,500
228,500
290,000
240,000
910,000
870,000
132,100
67,500
13,000
13,000
2004
2003
197,736
303,243
677,520
563,376
Mr R V McKinnon Group Executive, Technology
2004
2003
540,000
520,000
13,000
13,000
142,500
127,500
38,880
37,440
122,688
105,188
55,804
76,905
253,061
175,191
Mr G L Mackrell Group Executive, International Financial Services
2004
2003
600,000
540,000
13,000
13,000
202,500
185,000
80,500
66,802
166,250
103,500
113,718
162,251
391,143
316,556
-
-
-
-
-
-
Mr J K O’Sullivan Chief Solicitor and General Counsel (commenced in role on 17 October 2003)
2004
2003
493,443
-
9,164
-
140,984
-
35,528
-
-
-
-
-
105,232
-
-
-
Mr G A Peterson Group Executive, Group Strategic Development (commenced in role 17 June 2004)
2004
2003
16,716
-
497
-
4,208
-
2,762
-
2,960
-
-
-
2,559
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,386,445
1,361,999
1,554,739
1,461,349
2,099,682
1,879,433
1,571,156
845,186
2,457,856
2,285,619
1,165,933
1,055,224
1,567,111
1,387,109
784,351
-
29,702
-
Mr M J Ullmer Group Executive, Institutional & Business Services (ceased in role 23 May 2004)
2004
2003
754,959
820,000
6,536
13,000
250,000
217,500
118,202
132,300
244,208
211,000
177,206
303,243
607,176 845,000 332,848
563,376
-
-
3,336,135
2,260,419
Total Remuneration for Specified Executives
2004
6,661,528
2003(9) 5,176,124
119,700 2,010,454
103,430 1,481,993
Notes
1,003,282 1,502,195
981,863 1,388,310 2,739,519
966,952 3,787,051 845,000 332,848
- 150,000
17,229,010
12,893,558
872,319
Amounts in the above table reflect remuneration for the time the executive has been in the role of a Specified Executive,
i.e. pro-rating is applied relative to the date the executive commenced or ceased in the role of a Specified Executive.
Remuneration earned as an executive prior to appointment to a role as a Specified Executive is not included in the amounts
shown for that executive.
Where appropriate, comparative information has been reclassified into appropriate categories.
(1) Reflects amounts paid in the year ended 30 June and is calculated on a total cost basis. Included may be salary
sacrifice amounts (e.g. motor vehicles plus FBT) with the exception of salary sacrifice superannuation which is included
under ‘Post Employment Benefits’.
(2) Represents the cost of car parking (including FBT).
157
Notes to the financial statements
NOTE 44 Director and Executive Disclosures
(3) Represents the STI payment made in cash for the year ended 30 June. Payment made in cash represents the amount of
the payment that is not deferred in the form of shares under the mandatory component of the Equity Participation Plan
(“EPP”) nor voluntarily sacrificed in the form of shares under the voluntary component of the EPP or into superannuation
via voluntary sacrifice. Amounts deferred under the mandatory component of the EPP are amortised over two years from
the date to which the payment relates. Where part of the payment is sacrificed into superannuation, the amount
sacrificed is included under “Post Employment Benefits”. Mr Ullmer’s STI payment for the year ended 30 June 2004 has
been made fully in cash with no mandatory deferral being applied due to his departure from the Bank.
(4) Represents company contribution to superannuation and includes any allocations made by way of salary sacrifice by
executives.
(5) Deferred STI represents the cost of shares acquired under the mandatory component of the EPP. Shares vest in two
equal tranches after one and two years respectively. For example, for STI payments for the year ended 30 June 2003,
half the shares vest on 1 July 2004 and half vest on 1 July 2005. The amount included in remuneration each year has
been amortised on a straight-line basis over the vesting period for each tranche of shares. In the case of Mr Ullmer the
value that would have been amortised in the year ended 30 June 2005 has also been included for the year ended 30
June 2004 as all unvested shares granted under the mandatory component of the EPP vest to him on his departure from
the Bank. See Note 29 for further details on the operation of the EPP.
The value of LTIs disclosed above was calculated as follows:
(6)
(cid:131) The ‘fair value’ of options has been calculated using the Black-Scholes valuation model that incorporates the
assumptions below:
Commencement
Date
24 Aug 1999
24 Aug 1999
(CEO Options)
13 Sept 2000
3 Sept 2001
Fair
Value
$3.14
$3.48
$3.47
$4.01
Exercise
Price
$23.84
$23.84
$26.97
$30.12
Assumptions
Risk Free
Rate
Term
Dividend
Yield
Volatility
5.82%
37 mths
4.82%
20.0%
5.82%
6.00%
5.24%
49 mths
4.82%
37 mths
37 mths
4.41%
4.61%
20.0%
17.9%
20.8%
(cid:131) The ‘fair value’ of shares is the Bank’s closing share price at the Commencement Date for each grant, i.e., $27.64 for
shares granted on 13 Sep 2000, $29.50 for shares granted on 3 Sep 2001, $31.42 for shares granted on 2 Sep 2002
and $27.48 for shares granted on 1 Sep 2003.
(cid:131) As required under AASB 1046 the Bank has estimated the number of options and shares expected to vest in relation
to each grant. The assessment has been made as at 30 June 2004 based on the Bank’s performance against the
relative hurdle. In respect of options and shares granted in 1999 and 2000, 100% of the number granted have
vested. For options and shares granted in 2001, the Bank currently expects 100% of the number granted to vest.
For shares granted in 2002 and 2003, the Bank currently estimates that 50% of the number granted will vest.
(cid:131) The annualised equivalent of the ‘fair value’ in respect of each grant of options and shares (multiplied by the number
that have, or are expected to, vest), has been amortised 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 options
granted to Mr Murray on 24 Aug 1999).
(7) Represents any severance payments made on termination of employment (excluding any payment in lieu of notice).
(8)
All Other Benefits payable that are not covered above, including any payment made in lieu of notice on termination of
employment and other contractual payments.
(9) Group totals in respect of the financial year ended 30 June 2003 do not necessarily equal the sum of amounts disclosed
in 2003.
there are differences
individuals specified
individuals specified
in 2004 as
the
for
to
158
Notes to the financial statements
NOTE 44 Director and Executive Disclosures continued
Equity Holdings of Directors and Specified Executives
Employee Equity Plans – Shares and Options Vested and Exercised During the Year
Name
Deferred STI
Vested
Reward Shares
Vested
Options
Vested
Shares Granted on Exercise of Options
Value in excess of
Exercise Price(1)
Exercise
Price
No.
Directors
Mr D V Murray
10,853
-
1,000,000
-
-
-
Specified Executives
Mr M A Cameron
Mr A R Cosenza
Mr L G Cupper
Mr S I Grimshaw
Mr H D Harley
Mr M A Katz
Mr R V McKinnon
Mr G L Mackrell
Mr J K O’Sullivan
Mr G A Petersen
Mr M J Ullmer
Total Specified
Executives
-
3,851
4,708
-
3,224
7,752
3,491
3,322
-
1,133
6,910
-
10,500
12,500
-
6,300
20,900
4,200
9,600
-
-
20,900
-
-
87,500
-
162,500 100,000
225,000 150,000
-
50,000
375,000 250,000
-
-
-
-
325,000 200,000
25,000
157,500
-
-
-
$23.84
$23.84
-
$23.84
$23.84
-
-
-
-
$23.84
34,391
84,900
1,357,500 750,000
N/A
-
$8.81
$8.91
-
$9.46
$8.29
-
-
-
-
$8.91
N/A
Notes
(1) Difference between the exercise price and closing market value of CBA shares on date of exercise.
Options
Mr Murray is the only Director holding options in the Bank and he did not exercise any during the year ended 30 June 2004.
The Bank’s Non-Executive Directors do not hold any options.
Name
Balance
1 Jul 2003
Granted as
Remuneration
Options
Exercised
Balance
30 Jun 2004
Vested and exercisable
at 30 June 2004
No
Exercise
Price
Directors
Mr D V Murray
1,250,000
Total for Directors
1,250,000
Specified Executives
Mr M A Cameron
Mr A R Cosenza
Mr L G Cupper
Mr SI Grimshaw
Mr H D Harley
Mr M A Katz
Mr R V McKinnon
Mr G L Mackrell
Mr J K O’Sullivan
Mr G A Petersen
Mr M J Ullmer
Total for Specified
Executives
-
227,500
300,000
100,000
137,500
500,000
62,500
232,500
-
-
450,000
2,010,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,250,000
1,000,000
1,250,000
1,000,000
$23.84(1)
$23.84(1)
-
(100,000)
(150,000)
-
(50,000)
(250,000)
-
-
127,500
150,000
100,000
87,500
250,000
62,500
-
232,500
-
-
(200,000)
-
-
250,000
(750,000)
1,260,000
-
62,500
75,000
-
37,500
125,000
25,000
100,000
57,500
-
-
125,000
100,000
507,500
-
$26.97
$26.97
-
$26.97
$26.97
$26.97
$23.84(1)
$26.97
-
-
$26.97
$23.84(1)
$26.97
Notes
(1)
For most executives, ‘Vested and exercisable’ options represents those granted on 13 September 2000 with an exercise
price of $26.97. Mr Murray and Mr Mackrell hold vested but unexercised options granted on 24 August 1999 that have
an exercise price of $23.84.
159
Notes to the financial statements
NOTE 44 Director and Executive Disclosures continued
Shares
Details of shareholdings of Directors and Specified Executives (or relatives or entities controlled or significantly
influenced by them) are as follows:
Name
Class
Balance
1 Jul 2003
Acquired/Granted as
Remuneration(1)
Net Change
Other(2)
Balance
30 Jun 2004
Directors
Mr J T Ralph, AC
Dr J M Schubert
Mr D V Murray
Ordinary
Ordinary
Ordinary
Deferred STI
Reward Shares
Ordinary
Mr N R Adler, AO
Ordinary
Mr R J Clairs, AO
Mr A B Daniels, OAM Ordinary
Mr C R Galbraith, AM Ordinary
Ordinary
Ms S C Kay
Ordinary
Mr W G Kent, AO
Ordinary
Mr F D Ryan
Ordinary
Mr F J Swan
Ms B K Ward(3)
Ordinary
Total for Directors Ordinary
Deferred STI
Reward Shares
21,339
14,428
214,242
16,704
152,000
8,636
11,927
15,135
6,579
2,184
9,708
5,935
4,038
4,059
318,210
16,704
152,000
2,007
1,064
-
13,576
90,000
736
704
704
731
796
731
736
731
736
9,676
13,576
90,000
515
776
61,287
(10,853)
-
118
-
553
379
-
4,083
-
227
119
68,057
(10,853)
-
23,861
16,268
275,529
19,427
242,000
9,490
12,631
16,392
7,689
2,980
14,522
6,671
4,996
4,914
395,943
19,427
242,000
Notes
(1)
For Non-Executive Directors, represents shares acquired under NEDSP on 30 Sep 2003, 2 Jan 2004, 31 Mar 2004 and
29 Jun 2004 by mandatory sacrifice of fees. All shares are subject to a 10 year trading restriction (shares will be
tradeable earlier if the Director leaves the Board). See Note 29 for further details on the NEDSP.
For Mr Murray, represents:
(cid:131)
Deferred STI - acquired under the mandatory component of the Bank’s Equity Participation Plan (“EPP”). Shares
were purchased on 31 Oct 2003 in two equal tranches, vesting on 1 July 2004 and 1 July 2005 respectively. See
Note 29 for further details on the EPP.
Reward Shares - granted under the Equity Reward Plan (“ERP”) on 1 Sep 2003 and are subject to a performance
hurdle. The first possible date for meeting the performance hurdle is 2 Sep 2006 with the last possible date for
vesting being 1 Sep 2008. See Note 29 for further details on the ERP.
(cid:131)
(2)
‘Net change other’ incorporates changes resulting from purchases and sales during the year by Directors and, for Mr
Murray, vesting of Deferred STI shares (which became Ordinary shares).
(3) Ms Ward also purchased 250 PERLS II securities during the year and continued to hold them at 30 June 2004.
160
Notes to the financial statements
NOTE 44 Director and Executive Disclosures continued
Name
Class
Balance
1 Jul 2003
Acquired/Granted
as Remuneration(1)
On Exercise
of Options
Net Change
Other(2)
Balance
30 Jun 2004
Specified Executives
Mr M A Cameron
Mr A R Cosenza
Mr L G Cupper
Mr SI Grimshaw
Mr H D Harley
Mr M A Katz(3)
Mr R V McKinnon
Mr G L Mackrell
Mr J K O’Sullivan
Mr G A Petersen
Mr M J Ullmer
Ordinary
Deferred STI
Reward Shares
Ordinary
Deferred STI
Reward Shares
Ordinary
Deferred STI
Reward Shares
Ordinary
Deferred STI
Reward Shares
Ordinary
Deferred STI
Reward Shares
Ordinary
Deferred STI
Reward Shares
Ordinary
Deferred STI
Reward Shares
Ordinary
Deferred STI
Reward Shares
Ordinary
Deferred STI
Reward Shares
Ordinary
Deferred STI
Reward Shares
Ordinary
Deferred STI
Reward Shares
-
-
10,000
20,000
6,034
50,000
9,365
7,415
53,000
1,000
-
53,000
3,792
4,971
35,300
473,734
11,769
86,900
1,601
5,382
29,700
7,414
5,243
50,100
5,401
-
-
1,623
2,266
11,000
-
10,753
86,900
523,930
53,833
Total for Specified
Executives
Ordinary
Deferred STI
Reward Shares
465,900
Notes
(1) Represents:
-
4,797
22,300
-
5,793
24,700
-
5,702
29,500
-
9,503
37,300
-
5,069
28,700
-
8,689
48,000
-
4,616
20,000
-
6,698
25,600
-
-
33,500
-
2,953
8,000
-
7,874
48,000
-
61,694
325,600
-
-
-
100,000
-
-
150,000
-
-
-
-
-
50,000
-
-
250,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
200,000
-
-
750,000
-
-
-
-
-
(89,500)
(3,851)
(10,500)
(132,159)
(4,708)
(12,500)
(744)
-
-
(40,081)
(3,224)
(6,300)
(316,348)
(7,752)
(20,900)
7,691
(3,491)
(4,200)
13,674
(3,322)
(9,600)
164
-
-
1,133
(1,133)
-
(179,100)
(6,910)
(20,900)
(735,270)
(34,391)
(84,900)
-
4,797
32,300
30,500
7,976
64,200
27,206
8,409
70,000
256
9,503
90,300
13,711
6,816
57,700
407,386
12,706
114,000
9,292
6,507
45,500
21,088
8,619
66,100
5,565
-
33,500
2,756
4,086
19,000
20,900
11,717
114,000
538,660
81,136
706,600
(cid:131) Deferred STI - acquired under the mandatory component of the Bank’s Equity Participation Plan (“EPP”). Shares
were purchased on 31 Oct 2003 in two equal tranches, vesting on 1 July 2004 and 1 July 2005 respectively. See
Note 29 for further details on the EPP.
(cid:131) Reward Shares - granted under the Equity Reward Plan (“ERP”) on 1 Sep 2003 and are subject to a performance
hurdle. The first possible date for meeting the performance hurdle is 2 Sep 2006 with the last possible date for
vesting being 1 Sep 2008. See Note 29 for further details on the ERP.
(2)
‘Net change other’ incorporates changes resulting from purchases and sales during the year by Executives and vesting
of Deferred STI and Reward Shares (which became Ordinary shares).
(3) Mr Katz also purchased 250 PERLS II securities during the year and continued to hold them at 30 June 2004.
ASIC Class Order
Australian banks, parent entities of Australian banks
and controlled entities of Australian banks have been
exempted, subject to certain conditions, under an ASIC
Class Order No. 98/110 (as amended by ASIC Class Order
No. 04/667), from making disclosures of any loan made,
guaranteed or secured by a bank to related parties (other
than
for directors, specified executives and entities
controlled or significantly influenced by them) and financial
instrument transactions (other than shares and share
options) of a bank where a director, or a specified
executive, 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
financial assets or services.
to a bank, other
than
161
Notes to the financial statements
NOTE 44 Director and Executive Disclosures continued
The Class Order does not apply to a loan or financial
instrument transaction which any director, or a specified
executive, 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
Loans to Directors and Specified Executives
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.
Details of aggregates of loans to Directors and Specified Executives (or entities controlled or significantly influenced by them)
are as follows:
Balance
1 July
Interest
Charged
Interest Not
Charged
Write-off
Balance
30 June
$000s
$000s
$000s
$000s
$000s
Number in
Group at
30 June
Year
Ended
30 June
2004
2003
Directors
Specified Executives
2004
2003
36
29
4,633
3,845
3
3
377
193
380
196
-
-
-
-
-
-
-
-
-
-
-
-
22
36
8,829
2,434
8,851
2,470
2
1
6
3
8
4
Total Directors and Specified Executives
2004
2003
4,669
3,874
Details of individuals with loans above $100,000 in the reporting period are as follows:
Name
Directors
Not Applicable
Specified Executives
Mr S I Grimshaw
Mr H D Harley
Mr M A Katz
Mr G L Mackrell
Mr J K O’Sullivan
Mr G A Petersen
Balance
1 July
2003
$000s
Interest
Charged
Interest Not
Charged
Write-off
$000s
$000s
$000s
Balance
30 June
2004
$000s
Highest in
Period
$000s
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,543
2,639
1,543
335
272
245
250
204
116
321
175
175
295
146
1,500
200
861
208
900
800
338
931
245
253
205
116
321
175
175
303
150
1,502
200
941
208
900
800
-
-
335
904
208
251
204
55
274
175
175
300
124
1,500
-
-
-
-
-
19
14
26
35
13
15
13
3
22
11
10
20
9
91
<1
37
8
9
9
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
162
Notes to the financial statements
NOTE 44 Director and Executive Disclosures continued
Terms and conditions of Loans
All loans with Directors and Specified Executives (or
related entities controlled or significantly influenced by
them) have been provided on an arms-length commercial
basis including the term of the loan, security required and
the interest rate (which may be fixed or variable).
Shares of Directors
All shares were acquired by Directors on normal
terms and conditions or through the Non-Executive
Directors’ Share Plan (or in the case of Mr Murray the
Equity Reward Plan, the previous Executive Option Plan
or the Equity Participation Plan). Mr Murray did not
exercise any 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
Murray was also awarded rights to 90,000 shares under
the Equity Reward Plan and 13,576 shares under the
Equity Participation Plan during the year. He has a total
holding of 242,000 shares under the Equity Reward Plan
and 19,427 shares under the Equity Participation Plan.
Shares awarded under the Equity Reward Plan and
Equity Participation Plan are registered in the name of the
Trustee. The transfer of legal title to Mr Murray is subject
to vesting conditions, and, in the case of the Equity
Reward Plan, is conditional on the Bank achieving a
prescribed performance hurdle over a minimum three year
period. For further details of the Non-Executive Directors’
Share Plan, Equity Reward Plan, previous Executive
Option Plan and Equity Participation Plan refer to Note 29.
In addition, Mr Ralph holds an investment of
$175,780 in Commonwealth Property Securities Fund and
an investment of $532,739 in Colonial First State Global
Diversified Strategies Fund. Both holdings are held
beneficially. Dr Schubert holds an investment of $654,683
in Colonial First State Wholesale Diversified Fund. Mr
Daniels beneficially holds an investment of $54,919 in
Colonial First State Global Health and Biotech Fund. A
related party of Mr Daniels holds an investment of
$235,972 in Colonial First State Future Leaders Fund and
$221,772 in Colonial First State Imputation Fund.
Other Transactions of Directors, Specified Executives
and Other Related Parties
Financial Instrument Transactions
Financial instrument transactions (other than loans
and shares disclosed above) of Directors and Specified
Executives with 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.
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, Specified Executive and entities controlled or
significantly influenced by them.
All such financial instrument transactions that have
occurred between the banks and their Directors and
Specified Executives 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, Specified
Executives and their 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. The interests of Mr Ralph, Dr Schubert
and Mr Daniels in investment funds managed by Colonial
First State are detailed above. Additionally, Mr 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 amounted
to $4,059,827.
All other such transactions that have occurred with
Directors, Specified Executives and their 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.
The Directors' Retirement Allowance Scheme
The entitlements of the non-executive directors under the Directors’ Retirement Allowance Scheme are:
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 (1)
Mr W G Kent, AO
Mr F D Ryan
Mr F J Swan
Ms B K Ward
Increase in accrued
benefit in year
$
Entitlement as at
30 June 2004
$
36,479
46,981
23,717
38,988
41,663
46,418
-
46,418
46,466
44,429
51,566
1,196,479
624,241
419,059
184,788
145,459
150,550
-
150,550
155,540
258,086
352,955
(1) Ms Kay was appointed as a Director after the closure of the
scheme
163
Notes to the financial statements
NOTE 45 Related Party Disclosures
Ultimate Parent
Commonwealth Bank of Australia is the ultimate
The Bank’s aggregate investment in and loans to
Australian parent company in the Group.
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.
Other Related Entities
An amount of $548 million (2003: $567 million) was
transactions and services
the Group
in
incurred by
provided by other related entities.
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.
164
Notes to the financial statements
NOTE 46 Statements of Cash Flow
GROUP
2004
$M
2003
$M
2002
$M
2004
$M
BANK
2003
$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
1,548
440
4,124
(3,266)
2,846
1,492
641
2,528
(3,233)
1,428
2,056
495
2,709
(2,762)
2,498
1,421
233
3,230
(3,245)
1,639
1,332
232
1,943
(3,230)
277
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:131)
Customer deposits to and withdrawals from deposit;
(cid:131)
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
Net (gain)/loss on sale of controlled entities
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
Revaluation of life insurance assets
Gain on sale of life insurance assets
Other
Net Cash (used in)/provided by Operating Activities
(cid:131)
(cid:131)
Sales and purchases of trading securities; and
Proceeds from and repayment of short term debt
issues.
2004
$M
2,581
(186)
334
(4,324)
(2)
11
(43)
276
450
185
(36)
(29)
(39)
(107)
412
12
(260)
(201)
777
(1,430)
(456)
(296)
(2,371)
GROUP
2002
$M
2003
$M
2,018
(78)
62
(2,484)
9
(22)
-
305
450
(15)
(234)
(166)
100
(94)
6
6
(269)
245
(2,056)
164
(154)
82
(2,125)
2,656
210
(60)
(1,159)
(78)
(12)
-
449
451
(120)
443
(522)
69
(17)
(162)
18
723
(477)
(1,112)
264
140
289
1,993
2004
$M
1,647
(8)
298
(4,672)
(2)
10
453
263
271
143
(7)
323
(532)
(334)
262
11
(264)
-
-
-
-
(12)
(2,150)
BANK
2003
$M
2,099
(273)
103
(1,814)
9
(13)
-
266
269
(7)
(137)
10
(3)
143
(73)
6
(246)
-
-
-
-
(21)
318
Note (d) Non Cash Financing and Investing Activities
Shares issued under the Dividend Reinvestment Plan for 2004 were $389 million.
165
Notes to the financial statements
NOTE 46 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
Other assets
Other provisions
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
Profit/(loss) on sale
Inflow of cash from disposal
Cash proceeds
Note (g) Financing Facilities
Standby funding lines are immaterial.
2004
$M
2003
$M
2002
$M
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
71
-
2
73
29
29
(8)
(33)
-
17
26
30
73
71
-
(29)
42
56
1
-
57
-
-
-
-
-
-
57
-
57
56
1
-
57
2004
$M
2003
$M
2002
$M
63
63
20
43
63
63
63
33
33
65
(32)
33
33
33
-
-
-
-
-
-
-
166
Notes to the financial statements
NOTE 47 Disclosures about Fair Value of Financial Instruments
These amounts represent estimates of net fair values
at a point in time. Significant estimates regarding economic
conditions, loss experience, risk characteristics associated
with particular financial instruments and other factors were
used for the purposes of this disclosure. These estimates
are subjective in nature and involve matters of judgment.
Therefore, they cannot be determined with precision.
Changes in the assumptions could have a material impact
on the amounts estimated.
to
represent estimates at which
While the estimated net fair value amounts are
these
designed
instruments could be exchanged in a current transaction
between willing parties, many of the Group’s financial
instruments
trading market as
characterised by willing parties engaging in an exchange
transaction. In addition, it is the Bank’s intent to hold most
of its financial instruments to maturity and therefore it is not
probable that the net fair values shown 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.
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 information with that of other financial institutions.
It is important that the many uncertainties discussed above
be considered when using the estimated net fair value
disclosures and
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 because of
realise
to
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 to Note 39)
Carrying
Value
$M
6,453
8,369
14,896
11,447
189,391
15,019
28,942
38
24,721
163,177
6,641
15,019
24,638
44,042
19,140
6,631
-
2004
Net Fair
Value
$M
6,453
8,369
14,896
11,490
188,954
15,019
28,942
38
24,721
163,645
6,641
15,019
24,638
43,651
19,148
6,740
(740)
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
141,186
7,538
13,197
23,862
30,356
18,819
6,350
353
The net fair value estimates were determined by the
following methodologies and assumptions:
Liquid assets and bank acceptances of customers
The carrying values of cash and liquid assets,
receivables due from other financial institutions and bank
acceptances of customers approximate their net fair value
as they are short term in nature or are receivable on
demand.
Securities
Trading securities are carried at net market/net fair
value and investment securities have their net fair value
determined based on quoted market prices, broker or
dealer price quotations.
Loans, advances and other receivables
The carrying value of loans, advances and other
receivables is net of general and specific provisions for
doubtful debts and interest/fees reserved.
For variable rate loans, excluding impaired loans,
the carrying amount is a reasonable estimate of net fair
value. The net fair value for fixed rate loans was
calculated by utilising discounted cash flow 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.
167
Notes to the financial statements
NOTE 47 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
interest payable and
includes
unrealised expenses payable
the carrying
for which
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
in
Included
fees receivable,
this category are
unrealised income, investments in associates of $239
million (2003: $287 million), and excess of net market
value over net assets of life insurance controlled entities of
$5,741 million (2003: $5,540 million), where the carrying
amount is considered to be a reasonable estimate of net
fair value.
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.
168
Directors’ Declaration
In accordance with a resolution of the directors of the Commonwealth Bank of Australia, the directors declare that:
(a)
the financial statements and notes thereto comply with Accounting Standards and in their opinion are in accordance
with the Corporations Act 2001;
(b)
(c)
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 2004 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
11 August 2004
D V Murray
Managing Director and
Chief Executive Officer
169
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 for the year ended 30 June 2004 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 and the
consolidated Group, for the year ended 30 June 2004. 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.
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 and the
consolidated Group, for the year ended 30 June 2004. 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 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:
(cid:131)
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.
(cid:131)
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 judgement 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 Commonwealth Bank of Australia and the Group at 30 June 2004
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
11 August 2004
S J Ferguson
Partner
170
Shareholding Information
Top 20 Holders of Fully Paid Ordinary Shares as at 10 August 2004
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 Limited
National Nominees Limited
Westpac Custodian Nominees Ltd
Citicorp Nominees Pty Limited
RBC Global Services Australia Nominees Pty Limited
Queensland Investment Corporation
Cogent Nominees Limited
AMP Life Limited
ANZ Nominees Limited
Australian Foundation Investment Company Limited
HSBC Custody Nominees (Australia) Limited
CSS Board & PSS Board
Bond Street Custodians Limited
Invia Custodian Pty Limited
Government Superannuation Office
UBS Warburg Private Clients Nominees Pty Ltd
IAG Nominees Pty Limited
Westpac Financial Services Ltd
Suncorp Custodian Services Pty Ltd
Australian Trustees Pty Ltd
121,384,680
90,577,461
87,818,339
63,935,139
30,671,740
19,482,371
16,693,388
15,615,127
15,511,420
6,705,245
6,087,368
4,942,977
4,940,303
4,774,535
4,229,927
3,617,893
3,548,578
3,458,245
2,821,839
2,644,549
%
9.60
7.17
6.95
5.06
2.43
1.54
1.32
1.24
1.23
0.53
0.48
0.39
0.39
0.38
0.33
0.29
0.28
0.27
0.22
0.21
The twenty largest shareholders hold 509,461,124 shares which is equal to 40.31% 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 11 August 2004
Shares
Options
1,250,000
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
23,861
16,268
288,168
9,490
12,631
16,392
7,689
2,980
14,522
6,671
4,996
4,914
Mr Murray has a total holding of 242,000 shares
under the Equity Reward Plan, registered in the name of
the Trustee and 6,788 shares under the Mandatory Equity
Participation plan, also registered in the name of the
Trustee.
In addition, Mr Ralph beneficially holds 100,000 units
in Commonwealth Property Securities Fund and 495,294
units in Colonial First State Global Diversified Strategies
Fund. Dr Schubert holds 483,554 units in Colonial First
State Wholesale Diversified Fund. 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.
171
Shareholding Information
Guidelines for Dealings by Directors in Shares
in
the securities of
The restrictions imposed by law on dealings by
the Bank have been
Directors
the Board of Directors adopting
supplemented by
guidelines which
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
further
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): 10 August 2004
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 and over
Total
Less than marketable parcel of $500
541,661
153,521
13,405
5,646
259
714,492
13,329
75.80%
21.49%
1.88%
0.79%
0.04%
186,343,047
307,584,350
91,805,490
108,615,541
569,657,634
100.00% 1,264,006,062
84,336
14.74%
24.33%
7.26%
8.59%
45.08%
100.00%
Voting Rights
Under the Bank’s Constitution, each member present
at a general meeting of the Bank in person or by proxy,
attorney or official representative is entitled:
(cid:131)
on a show of hands – to one vote; and
(cid:131)
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
present for a member:
(cid:131)
(cid:131)
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:131)
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:131)
172
Shareholding Information
Top 20 Holders of Preferred Exchangeable Resettable Listed Shares (PERLS) as at 10 August 2004
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
Citicorp Nominees Pty Ltd
Westpac Custodian Nominees Ltd
National Nominees Limited
RBC Global Services Australia Nominees Pty Limited
ANZ Executors & Trustee Company Limited
Bond Street Custodians Limited
Tower Trust Limited
Invia Custodian Pty Limited
UBS Private Clients Australia Nominees Pty Ltd
Boxall Marine Pty Ltd
Permanent Trustee Australia Limited
Questor Financial Services Limited
The Australian National University
National Superannuation Trusts P/L
Brencorp No 11 Pty Limited
Livingstone Investments (NSW) Pty Limited
Ms Thelma Joan Martin-Weber
BT Portfolio Services Limited
Albert Investments Pty Limited
Felden Pty Ltd
Marbear Holdings Pty Limited
Mrs Fay Cleo Martin-Weber
Swinburne University of Technology
127,230
67,117
65,120
63,802
42,330
29,764
28,969
27,599
26,293
25,000
25,000
24,292
24,049
21,447
17,667
15,000
12,500
11,200
10,000
10,000
10,000
10,000
10,000
%
3.64
1.92
1.86
1.82
1.21
0.85
0.83
0.79
0.75
0.71
0.71
0.69
0.69
0.61
0.50
0.43
0.36
0.32
0.29
0.29
0.29
0.29
0.29
The twenty three largest PERLS shareholders hold 704,379 shares which is equal to 20.13% 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
trade symbol
Australian Stock Exchange under
CBAPA, with Sydney being the home exchange. Details
the
of trading activity are published in most daily newspapers,
generally under the abbreviation of CBA or C’wealth Bank
(pref).
Range of Shares (PERLS): 10 August 2004
Range
1-1,000
1,001-5,000
5,001-10,000
10,001-100,000
100,001 and over
Total
Less than marketable parcel of $500
Number of
Shareholders
Percentage
Shareholders
Number of
Shares
Percentage
Issued Capital
20,911
268
20
14
1
21,214
4
98.58%
1.26%
0.09%
0.07%
0.00%
100.00%
2,263,069
529,055
150,319
430,938
126,619
3,500,000
5
64.66%
15.12%
4.29%
12.31%
3.62%
100.00%
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
meeting of the Bank except in the following circumstances:
(cid:131)
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;
On a proposal to wind up the Bank;
that affects rights attached
(cid:131)
(cid:131)
to
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
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:131)
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.
(cid:131)
173
Shareholding Information
Top 20 Holders of Perpetual Exchangeable Resettable Listed Securities II (“PERLS II”) as at 10 August 2004
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
National Nominees Limited
Westpac Custodian Nominees Limited
RBC Global Services Australia Nominees Pty Limited
J P Morgan Nominees Australia Limited
AMP Life Limited
UBS Private Clients Australia Nominees Pty Ltd
Citicorp Nominees Pty Limited
UBS Nominees Pty Ltd
Cogent Nominees Pty Limited
Invia Custodian Limited
J Neave Investments Pty Limited
Elise Nominees Pty Limited
ANZ Nominees Limited
Questor Financial Services Limited
Cryton Investments No 9 Pty Ltd
Lutovi Investments Pty Limited
Votraint No.1019 Pty Ltd
Vision Super Pty Ltd
Gordon Merchant No 2 Pty Ltd
Marbear Holdings Pty Limited
469,501
259,653
165,001
155,447
105,208
99,086
86,710
54,340
45,028
30,768
30,000
29,380
27,273
26,226
25,000
25,000
25,000
24,832
24,440
22,500
%
12.52
6.92
4.40
4.15
2.81
2.64
2.31
1.45
1.20
0.82
0.80
0.78
0.73
0.70
0.67
0.67
0.67
0.66
0.65
0.60
The twenty largest PERLS II shareholders hold 1,730,393 shares which is equal to 46.14% of the total shares on issue.
Stock Exchange Listing
Commonwealth Bank PERLS II are listed on the
Australian Stock Exchange under the trade symbol
PCBPA, with Sydney being the home exchange. Details
of trading activity are published in most daily newspapers.
Range of Shares (PERLS II): 10 August 2004
Range
1-1,000
1,001-5,000
5,001-10,000
10,001-100,000
100,001 and over
Total
Less than marketable parcel of $500
Number of
Shareholders
Percentage
Shareholders
Number of
Shares
Percentage
Issued Capital
7,175
289
28
24
4
7,520
1
95.42%
3.84%
0.37%
0.32%
0.05%
100.00%
1,088,882
642,311
232,496
796,502
989,809
3,750,000
5
29.04%
17.13%
6.20%
21.24%
26.39%
100.00%
Voting Rights
PERLS II do not confer any voting rights in the Bank
but if they are exchanged for or convert into ordinary
shares or preference shares of the Bank in accordance
with their terms of issue, the voting rights of the ordinary or
preference shares (as the case may be) will be as set out
on pages 172 and 173 respectively for the Bank’s ordinary
shares and PERLS preference shares.
Trust Preferred Securities
550,000 Trust Preferred Securities were issued on 6
August 2003. Cede & Co is registered as the sole holder
of these securities.
The Trust Preferred Securities do not confer any
voting rights in the Bank but if they are exchanged for or
convert into ordinary shares or preference shares of the
Bank in accordance with their terms of issue, the voting
rights of the ordinary or preference shares (as the case
may be) will be as set out on pages 172 and 173
respectively for the Bank’s ordinary shares and PERLS
preference shares.
174
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 Torquat
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
First State Investments (UK) Limited
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
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
PT First State Investments Indonesia
29th Floor, Gedung Artha Graha
Sudirman Central Business District
Jl. Jend. Sudirman Kav. 52-53
Jakarta 12190
Tel: 62 21 515 0088
Tel: 62 21 515 0033
Chief Executive Officer, First State
International
T Waring
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) 6538 0008
Facsimile: (65) 6538 0800
Chief Executive Officer, First State
International
T Waring
First State Investments (Singapore) Pte
3 Temasek Avenue
#20-01 Centennial Tower
Singapore 039190
Telephone: (65) 6538 0008
Facsimile: (65) 6538 0800
Chief Executive Officer, First State
International
T Waring
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
175
CONTACT US
www.commbank.com.au
13 2221 General Enquiries
For your everyday banking including paying bills using
BPAY our automated service is available 24 hours a day,
365 days a year.
From overseas call +61 13 2221. Operator assistance is
available between 8am and 8pm, Monday to Friday.
13 2224 Home Loans & Investment Home Loans
To apply for a new home loan/investment home loan or to
maintain an existing loan. Available from 8am to 10pm, 365
days a year.
13 1431 Personal Loan Sales
To apply for a new personal loan.
Available from 8am to 8pm, Monday to Friday.
13 15 19 CommSec (Commonwealth Securities)
Available from 8am to 7pm (EST), Monday to Friday.
CommSec provides the information and tools to make
smart investment easy, accessible and affordable for all
Australians, by phone or Internet at www.commsec.com.au
13 17 09 CommSec Margin Loan
Enables you to expand your portfolio by borrowing against
your existing shares and managed funds. To find out more
simply call 13 17 09 8am to 5pm (EST) Monday to Friday
or visit www.commsec.com.au.
1800 240 889 Telephone Typewriter Service
A special telephone banking service for our hearing and
speech impaired customers. The service covers all the
services available on 13 2221. Available from 8am to 8pm,
Monday to Friday.
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 1235
Telephone: (02) 8280 7199
Facsimile: (02) 9287 0303
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
1800 011 217 Lost or Stolen Cards
To report a lost or stolen card 24 hours a day, 365 days a
year.
Australian Stock Exchange Listing
CBA
Annual Report
To request a copy of the annual report please call 1800
022 440
13 1998 Business Line
For a full range of business banking solutions.
Available from 8am to 8pm, Monday to Friday.
13 2015 Commonwealth Financial Services
For enquires on retirement and superannuation products,
or managed investments. Available from 8am to 8pm
(EST), Monday to Friday.
Unit prices are available 24 hours a day, 365 days a year.
CommInsure
For all your general insurance needs call 13 2423 8am to
8pm (EST), Monday to Friday – or visit
www.comminsure.com.au
For general claims assistance call 13 2420, 24 hours a
day, 365 days a year.
For all your life insurance needs call 13 1056 8am to 8pm
(EST), Monday to Friday – or visit
www.comminsure.com.au
Internet Banking
You can apply for a home loan, credit card, personal loan,
term deposit or a savings account on the internet by
visiting our website at www.commbank.com.au available
24 hours a day, 365 days a year.
Do your everyday banking on our internet banking service
NetBank at www.commbank.com.au/netbank available 24
hours a day, 365 days a year.
To apply for access to NetBank, call 13 2828 between 8am
and 8pm (EST), Monday to Friday.
176
u
a
.
m
o
c
.
m
m
a
.
w
w
w
–
n
e
r
a
L
c
M
+
r
e
l
l
i
M
g
n
o
r
t
s
m
r
A
y
b
d
e
c
u
d
o
r
P
2004
Commonwealth Bank of Australia ACN 123 123 124
Annual Report 2004
C
O
M
M
O
N
W
E
A
L
T
H
B
A
N
K
O
F
A
U
S
T
R
A
L
A
I
A
N
N
U
A
L
R
E
P
O
R
T
2
0
0
4