Commonwealth Bank of Australia Annual Report 2007

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FY2007 Annual Report · Commonwealth Bank of Australia

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Annual Report 2007

Ours*

Commonwealth Bank of Australia ACN 123 123 124

Chairman’s Statement

Chief Executive Officer’s Statement

Highlights

Banking Analysis

Funds Management Analysis

Insurance Analysis

Shareholder Investment Returns

Presentation of Financial Information

Integrated Risk Management

Description of Business Environment

Corporate Governance

Directors’ Report

Five Year Financial Summary

Financial Statements

Income Statements

Balance Sheets

Statements of Recognised Income and Expense

Statements of Cash Flows

Notes to the Financial Statements

Directors’ Declaration

Independent Audit Report

Shareholding Information

International Representation

Corporate Directory

Contents

215

216

218

222

223

224

Chairman’s Statement

Introduction

The 2007 financial year has been a successful one for the
Commonwealth Bank (“the Group”). We have achieved a very
strong financial result and made another record dividend
payment to Shareholders.

Your Board is focused on directing the Group to achieve
superior long term Shareholder value. During the year the Group
made good progress on many initiatives which, as further
developed, will contribute significantly to our long term objective.

Results

The Group reported a statutory net profit after income tax (“net
profit after income tax”) for the 12 months to 30 June 2007 of
$4,470 million – an increase of 14% on the prior year. Cash net
profit after income tax grew 18% to $4,604 million excluding the
profit from the sale of the Hong Kong Insurance Business during
2006. Including the profit on sale of the Hong Kong Insurance
Business cash net profit after tax increased by 14% with cash
return on equity increasing from 21.3% to 22.1%. Cash earnings
per share were up 16% to 353 cents per share (12% including
the profit on sale of the Hong Kong Insurance Business).

Some of the achievements over the year were:

• Record profit achieved with cash net profit after

tax

increasing 18% to $4,604 million;

• Shareholders were rewarded with a record final dividend of
149 cents per share taking the total dividend for the year to
256 cents per share, an increase of 14%;

• Strong performance from all businesses with Banking, Funds
Management and Insurance all delivering double digit
earnings growth;

• Significant progress in the execution of the five key strategic
priorities as the Group reinvests in the businesses to drive
future profit growth;

• Solid growth in Banking income of 10%, following growth in
average interest earning assets of 15% to $316 billion and
net interest margin contraction of 15 basis points (including
10 basis points of underlying margin contraction);

• Growth in Funds under Administration of 17% to $177 billion
supported by both strong underlying inflows and positive
investment market returns;

• Growth in insurance premiums of 21% to $1,400 million and

improved operating margins;

• Strong growth in Total operating income of 11% with
expense growth of 7%. The expense growth includes
ongoing reinvestment in our businesses through recruitment
of front line staff and increased spend on strategic initiatives;
and

• Continued stability in credit quality level across the portfolio.

The Banking business delivered a full year underlying Net profit
after income tax of $3,763 million, representing a 17% increase
on the prior year. This performance was supported by significant
business lending volume growth, solid home loan growth and
targeted investment in areas which will drive future profitability.
Credit quality remained sound with loan impairment expense
remaining stable as a proportion of lending assets.

The Australian Retail Banking business performed strongly with
underlying net profit after income tax up 10%. This result reflects
the strategic targeting of profitable growth in a competitive
market, disciplined cost management and continued sound
credit quality.

2 Commonwealth Bank of Australia Annual Report 2007

Highlights for the year included good home loan growth assisted
by improved branch network performance in the second half,
good inflows to all major deposit product categories and further
productivity gains and technology savings largely offsetting the
additional investment in front line staff. The improvements made
to the retail product range were illustrated by the awarding of five
star ratings to seven deposit products and three credit card
products by Cannex.

Business, Corporate and Institutional businesses delivered an
outstanding result, increasing underlying net profit after tax by
24%. This was driven by good performances across all
businesses, with solid growth achieved in lending and deposit
balances, favourable trading conditions and record CommSec
trading volumes. Further investments were made during the
year in both staff numbers and increased project spend to
support the strategic expansion of Business Banking activities.

In the competitive New Zealand Banking industry, ASB Bank
again performed well. ASB achieved statutory profit growth in
local currency terms of 8% (excluding the impact of AIFRS
hedge accounting). For the fifth consecutive year, ASB Bank
was recognised as New Zealand’s “Bank of the Year” by the UK
based Banker Magazine.

The Funds Management business delivered another excellent
result. Underlying net profit after tax increased 23% over the
prior year to $492 million. Funds under Administration grew by
17% to $177 billion as a result of strong net fund flows and
favourable investment markets. First Choice further increased its
share of the Platform market to 8.5%. First Choice has now
exceeded $39 billion in Funds under Administration, achieving a
growth rate of 51% in the last 12 months.

Insurance business delivered an 18%

in
The
underlying net profit after income tax to $253 million, with strong
sales volumes and good progress on the cross-sell initiative.

increase

Dividends and Capital

The Board declared a record final dividend of 149 cents per
share, a 15% increase on last year’s final dividend. The final
dividend, which is fully franked, will be paid on 5 October 2007.
This will take total dividends for the year to 256 cents per share,
up 14% on last year. Over the last three years dividends have
grown at an annual compound rate of 12%.

The Group continues to issue new shares to satisfy the
requirements of its Dividend Reinvestment Plan.

During the year dividend and interest payments were also made
to the holders of the Group’s various capital securities: PERLS
II, PERLS III, Trust Preferred Securities 2003, Trust Preferred
Securities 2006, ASB Capital Preference Shares and ASB
Capital No 2 Preference Shares.

The Group continued to actively manage its capital.

•

In September 2006, a number of changes were made to the
Group’s Dividend Reinvestment Plan, which were advised to
Shareholders on 5 October 2006. As a result of these
changes, the dividend reinvestment plan participation rate
increased markedly to 37.6% from previous levels of 18%;

• An issue of $700 million of hybrid securities, called Funds
Management Securities, was completed in September 2006;
and

• An offer of Perpetual Exchangeable Resaleable Listed
Securities (PERLS IV) was announced on 1 June 2007. The
offer raised $1,465 million in July. These securities are
structured
regulatory capital
requirements for Non-Innovative Residual Tier 1 Capital,
effective January 2008.

to meet APRA’s new

The issue of these securities forms part of the Group’s ongoing
commitment to efficient capital management.

In February 2007, the Group’s long term credit rating was
upgraded by Standard and Poor’s to ‘AA’ from ‘AA-‘ with the
short term rating affirmed at ‘A-1+’. Moody’s Investor Services
upgraded the Group’s long term rating from ‘Aa3’ to ‘Aa1’ and
reaffirmed the short term rating at ‘P-1’ in May 2007.

Outlook

The economy performed well in 2007 with strong credit growth in
housing, personal and business lending, supported by low levels
of unemployment and robust capital expenditure.

While the outlook for the Australian economy for the 2008
financial year remains positive, there is some risk from recent
instability in global financial markets. However, given the mix of
the Group’s business and, in particular, its strong retail franchise,
the Group is well positioned to continue to deliver strong returns.

Credit growth for the 2008 financial year is likely to remain
strong although growth in business credit, which ran at nearly
19% in the 2007 year, may begin to slow. Despite recent rate
rises, housing credit growth is expected to be slightly stronger
due to continued high demand assisted by the migration of
skilled workers to Australia. However, consumer credit growth is
likely to slow from the 15% experienced in 2007 to between 8.5
– 10.5%.

The current high level of competitive intensity is not anticipated
to decline in the coming year. Despite this, all of the Group’s
businesses are performing well and the investments we are
making coupled with quality execution will ensure that we remain
competitive.

Taking all these factors into consideration, the Group expects to
again deliver EPS growth in the coming year which meets or
exceeds the average of its peers through a continued focus on
delivering exceptional customer service and profitable growth.

Chairman’s Statement

Corporate Governance and Board Performance
It has been another busy and successful year for the Board and
I would like to thank my fellow Directors for their contribution and
dedication. I would particularly like to extend my appreciation to
Warwick Kent and Frank Swan who will retire at this year’s
Annual General Meeting on 7 November 2007.

Frank and Warwick have been members of the Board since July
1997 and June 2000 respectively. During this time, they have
made invaluable contributions as members of the Board’s Audit
and Risk Committees (and Frank as a member of the Board
Performance and Renewal Committee). We thank Warwick and
Frank for their contributions and wish them well in their
retirement from the Board.

I would like to welcome two new Directors to the Board. Harrison
Young and Sir John Anderson joined the Board on 13 February
2007 and 12 March 2007 respectively. Harrison Young had a
distinguished career in investment banking for more than thirty
years and was Managing Director and Vice Chairman of Morgan
Stanley Asia from 1997 to 2003. Sir John Anderson has held
many senior positions in the financial services industry in New
Zealand including Chief Executive and Director of ANZ National
Bank Limited and the National Bank of New Zealand. I am sure
their skills and contributions will complement and enhance the
performance of the Board.

Conclusion

It has been an exciting year for the Group. We have made
significant progress on the four strategic priorities during the
year. We are particularly pleased about the good results
achieved in the Customer Service priority where we are
receiving fewer retail customer complaints and more customer
compliments. We have also identified a fifth strategic priority
which is Profitable Growth where we are looking at different
areas to enhance growth opportunities. Our progress on these
strategic initiatives and the delivery of yet another good financial
result is attributable to the commitment and hard work of our
people. I would like to recognise, congratulate and thank all our
employees for their contribution to the success of the Group.

I would also like to thank our customers and Shareholders for
their confidence in and continued support of the Commonwealth
Bank.

John Schubert

Chairman

15 August 2007

Commonwealth Bank of Australia Annual Report 2007 3

Chief Executive Officer’s Statement

Introduction

The 2007 financial year has been another good one for the
Group with all of our businesses performing well. The year’s
success again demonstrates the quality and diversity of the
businesses we have and the commitment of our people to
realising our vision of being Australia’s finest financial services
organisation through excelling in customer service.

At an operational level the Group maintained its momentum
from last year and reported a very good result. We have
delivered cash earnings per share growth (excluding the impact
of the sale of our Hong Kong Insurance Business in the prior
year) of 16%. Cash return on equity was up 80 basis points to
22.1%. A particularly pleasing aspect of the result was that as
well as delivering a strong result we continued to invest in
growth initiatives which will help to underwrite our future profit
growth.

We continued to focus on profitable growth, avoiding business
which we perceived to have a high risk profile or which did not
meet our return criteria. As a result our credit quality remains
strong. We are confident going into the new financial year but
recognise that business will remain competitive. However, we do
not plan to trade-off credit quality for growth.

Last year we identified four strategic priorities to lift business
performance and growth: Customer Service; Business Banking;
Technology and Operational Excellence; and Trust and Team
Spirit. We made significant progress again
in
progressing these four strategies and I am very pleased with
what has been achieved, and the positive impact it is having for
all our businesses. During the course of the year we introduced
one additional strategic priority – Profitable Growth.

this year

Customer Service

Customer service remains the Group’s top strategic priority and
while we have made real progress we still have some way to go
before we achieve a level of service which we are happy with.
Examples of our customer service initiatives in 2007 include:

• The embedding of our Sales and Service culture has
remained a priority. In particular, we have placed emphasis
on training our front line people where we have focused on
disciplines around customer needs analysis, business
referral initiatives and “taking ownership and following up”;

• We are investing in our front line and becoming more

accessible to our customers. Examples include:

- We are refurbishing retail branches and opening new

branches;

- We increased customer facing staff in both Retail and
Business Banking. In business we are adding more
bankers in Local Business Banking, our Agribusiness
and middle market business;

- We have introduced more flexible opening hours in
in 65

including Saturday

trading

our branches
branches;

- We are opening new Business Banking centres and
providing 24 hour, seven days per week phone
access for our local business and rural customers;

For our rural customers, we launched Agriline, a
telephone service operated by specialist agribusiness
bankers;

- We have introduced a new operating model into the
retail branch network, giving our branch managers
greater autonomy, which will better meet the needs of
our customers and our people; and

4 Commonwealth Bank of Australia Annual Report 2007

- We have continued to train wealth management and
insurance advisers, placing them in our retail bank
branches
for our
to provide specialist advice
customers.

• We are continuously reviewing and refining our product
portfolio and introducing new and improved products which
we believe will make us more competitive. We have also
rationalised some of our product offering to provide simpler
and more tailored solutions for customers; and

• We are also simplifying our procedures and processing to
improve our responsiveness and are introducing auto-
decisioning in many parts of our business to speed up
approval and processing times.

These initiatives are being noticed by our customers who are
telling us that our service is getting better. In the Retail Bank we
have seen significant improvements over the year with our Roy
Morgan customer satisfaction scores up 5.6% - our best rating in
ten years. In both the Retail and Business Banks we are seeing
significant declines in customer complaints and a corresponding
increase in customer compliments.

Business Banking

While we have strong relationships with a significant proportion
of Australian businesses and are generating good quality profit
growth, we have opportunities within a number of segments of
Business Banking to improve our performance and grow our
business. During the year we progressed important initiatives to
improve Business Banking including:

• We have completed the restructuring of the business to

better align it with the needs of our business customers;

• We are making good progress increasing our Business
Banking “footprint” by employing new Business Bankers,
adding new Business Banking centres and putting Business
Bankers back into selected branches – we are on track to
add 25 new Business Banking Centres by June 2009;

• We have rolled out our CommSee for Business across our
branch and call centre networks which is providing us with
the information platform to support the selective growth of our
Business Banking “footprint”;

• We have built CommBiz, our new internet based Business
Banking offering, and have successfully rolled it out to over
10,000 of our business customers;

• We have developed a new and improved portfolio of
business banking products and simplified our Business
Banking processes and approval procedures; and

• We have invested in people and new technology to make it
easier for our customers to deal with us. For our rural
customers we launched Agriline with 23 new Agriline
specialists and
for our small business customers we
launched Local Business Banking Online.

Technology and Operational Excellence

The initiatives in this area are designed to deliver greater
efficiency across the Group and to provide us with the
technology
through
increase our competitive
innovative process and systems. Progress to date includes:

leverage

• We have bedded down our new Enterprise Information
Technology (EIT) team and we have reorganised the
function into a more co-ordinated and effective structure;

• We have achieved our target of delivering efficiency savings

across EIT of $100 million;

Chief Executive Officer’s Statement

• We have seen significant improvements in systems stability
and resilience and have improved our security, controls and
disaster recovery capabilities;

• We executed a significant number of initiatives designed to
improve customer service, increase operational efficiency
and provide increased security to the Group and its
customers. These initiatives include:

Dual factor identification;

The rollout of CommBiz;

Ongoing CommSee enhancements;

Global Markets systems improvements;

MediClear;

- Wealth management cross sell initiative; and

New margin lending facility systems for FirstChoice.

• We have continued to restructure our relationship with our IT
providers with the execution this year of a new desktop
agreement with EDS which will deliver savings and improved
service levels to the Group; and

• We have continued to refine our more focused approach to
Group wide procurement – building on the progress we have
made over the last three years.

Trust and Team Spirit

The commitment, engagement and enthusiasm of our people go
to the heart of our success as an organisation and our ability to
deliver on our strategies. Over the year we have put in place a
number of initiatives in this area including:

• We are continuing to see a greater level of collaboration
across the Group and we have better aligned the Group with
the needs of our customers;

• Our people are seeing continued improvements in the
organisation and this is being reflected in a number of ways,
including an increased focus on customer service;

• We have increased our focus on our people with the
introduction of a number of initiatives designed to enhance
their well-being; and

• We have continued to support our community by making
significant commitments to a range of initiatives including
financial literacy, environmental partnerships and one-off
assistance for communities in need of help.

We are already beginning to see positive results with improved
engagement scores in internal surveys, positive feedback from
our people and the community and a substantial decrease in
employee injury rates and staff turnover.

Profitable Growth

During the year the Group identified profitable growth as an
additional strategic
initiative. This additional priority was
introduced to ensure we remained focused on identifying
opportunities which will ensure that we continue to grow and
create long term value for our Shareholders. Examples of
current growth initiatives include:

• We have a number of investments in Asia with the most
significant being our existing businesses in Indonesia and
China. While these investments are still relatively small, they
are all performing well and we continue to look for further
opportunities to invest in these and other attractive Asian
markets;

• Our Funds Management business has grown rapidly since
we acquired Colonial in 2000 and we believe that we have
the expertise and the scale to continue to expand this
business both locally and internationally. CFS Global Asset
Management is looking at a wide range of opportunities to
expand its business and during the year launched over 20
new funds including infrastructure funds to hold and manage
(on behalf of investors) our interest in the recently acquired
UK infrastructure company, AWG plc;

• Premium Business Services has a high level of expertise in
its Global Markets Group and has used this to leverage
product capabilities across a broad range of the Group’s
existing customers base. It is also introducing innovative
products and looking at how we might utilise existing
expertise to take advantage of opportunities to grow in
selective global markets; and

• We also recognise that there are significant opportunities to
better develop our existing customer base and continue to
focus on the opportunities that this presents to drive
profitable growth.

Looking Ahead

I am very pleased with the progress we made in 2007.
Financially we had a very good year and we have momentum
going into the 2008 financial year. Obviously the financial
services sector will remain competitive but we believe we are
well able to meet these challenges and our target for the 2008
year is to generate earnings growth which is equal to or exceeds
the average of our peers. I am also pleased with the progress
that we have made on executing our strategic agenda and am
confident that in the coming year our Shareholders increasingly
see the benefits of the significant investments that we are
making.

The Group’s ability to deliver the strong performance we have
seen over the past year would not have been possible without
the goodwill and commitment of our people. I am very grateful
for the high level of support I have received across the
organisation and am enormously impressed with the quality and
skills of our people.

It is a great privilege to lead this organisation and I am confident
that we can continue to deliver for our people, our customers
and our Shareholders.

Thank you.

Ralph Norris

Chief Executive Officer

15 August 2007

Commonwealth Bank of Australia Annual Report 2007 5

Highlights

Financial Performance and Business Review

Performance Highlights

Net Profit after
Income Tax

Statutory basis
Cash basis
Cash basis ex HK sale

Full Year

Half Year

30/06/07

30/06/06

30/06/07

31/12/06

4,470
4,604
4,604

3,928
4,053
3,908

2,279
2,333
2,333

2,191
2,271
2,271

The Group’s net profit after tax (“statutory basis”) for the year
ended 30 June 2007 was $4,470 million, an increase of 14% on
the prior year. The final dividend of $1.49 per share is another
record and the total dividend for the year is $2.56 per share.
Cash earnings per share(1) increased 16% on the prior year to
353.0 cents.
The net profit after tax (“cash basis”)(1) increased 18% to $4,604
million.

The Group’s Return on equity (“cash basis”) has improved by 80
basis points over the year to 22.1%.

The Group has delivered another strong performance during the
year, through continued improvement in customer service and a
focus on profitable growth. Key financial performance highlights
over the year were:

• Solid growth in Banking income of 10% on the prior year,
following growth in average interest earning assets of 15% to
$316 billion and net interest margin contraction of 15 basis
points (including 10 basis points of underlying margin
contraction);

• Growth in Funds Under Administration of 17% to $177 billion
supported by both strong underlying inflows and positive
investment market returns;

• Growth in insurance premiums of 21% to $1,400 million and

improved operating margins;

• Strong growth in Total operating income of 11% with
expense growth of 7%. The expense growth is driven by
ongoing reinvestment in our businesses through recruitment
of front line staff and increased spend on strategic initiatives;
and

• Continued stability in credit quality across the portfolio.

The result for the half year ended 30 June 2007 was solid with
net profit after tax (“cash basis”), increasing by 17% to $2,333
million compared with the prior comparative period. The Group
has invested significantly in the current half in support of its
strategic priorities. The current half was also impacted by three
fewer days and seasonally higher bad debts. This resulted in a
3% increase in cash profit compared with the prior half.

Other performance highlights specifically relating to the Group’s
strategic priorities over the year included:

• Significant increases in customer satisfaction scores;
• Streamlining and simplifying the operation of the branch
decision makers and
local
linkage between performance and

the

network, empowering
strengthening
remuneration;

• Early success of

the Wealth Management cross-sell
initiatives with a 15% increase in total referrals and a 30%
increase in new General Insurance sales.

Financial Condition

The Group’s assets increased by $56 billion to $425 billion
(2006: $369 billion), while total lending assets increased by $38
billion to $304 billion, reflecting growth across a range of lending
products.

The Bank’s capital position remains strong. The Tier One Capital
Ratio decreased from 7.56% to 7.14%, reflecting acquisition of a
major infrastructure asset and growth in Risk Weighted Assets
from $216 billion to $245 billion due to strong growth in lending
assets. The Total Capital Ratio increased from 9.66% to 9.76%,
due to the issue of $2,331 million of Lower Tier Two Capital. The
Group’s long term credit rating has been upgraded by Standard
& Poor’s to ‘AA’ from ‘AA-’.

APRA’s revised prudential standards, effective 1 July 2006,
resulted in transitional relief for prudential regulations until 31
December 2007 of $1,715 million – comprising $1,641 million
Tier One Capital, and $74 million Upper Tier Two Capital.

Capital management initiatives undertaken during the year
included the Dividend Reinvestment Plan (“DRP”), and the issue
of hybrid securities and Lower Tier Two Capital.

The Bank has an integrated risk management framework to
identify, assess and manage risks in the business. The risk
profile is measured by the difference between capital available to
absorb loss and risk as assessed by economic capital required.

Dividends

The total dividend for the year is another record at $2.56 per
share.

The final dividend declared is $1.49 per share which takes the
full year dividend to $2.56, an increase of 32 cents or 14% on
the prior year. The dividend has been determined based on net
profit after tax (“cash basis”). On this basis the dividend payout
ratio for the year is 73.0%.

The dividend payment is fully franked and will be paid on 5
October 2007 to owners of ordinary shares at the close of
business on 24 August 2007 (“record date”). Shares will be
quoted ex–dividend on 20 August 2007.

The Group issued $518 million of shares to satisfy Shareholder
participation in the Dividend Reinvestment Plan (“DRP”) in
respect of the interim dividend for 2006/07.

Dividends per Share (cents)

256

224

183

197

• Launch of CommBiz transactional banking service and the
Local Business Banking Online networking platforms to
further enhance service quality to business customers; and

Jun 04

Jun 05

Jun 06

Jun 07

(1) Excluding the profit from the sale of the Hong Kong Insurance Business

during the 2006 financial year.

6 Commonwealth Bank of Australia Annual Report 2007

Highlights

Full Year Ended

Half Year Ended

Group Performance Summary

Net interest income
Other banking income
Total banking income
Funds management income
Insurance income
Total operating income
Shareholder investment returns
Profit on sale of the Hong Kong Insurance Business
Total income
Operating expenses
Loan impairment expense
Net profit before income tax
Corporate tax expense (1)
Minority interests (2)
Net profit after income tax (“cash basis”)
Defined benefit superannuation plan income/(expense)
Treasury shares valuation adjustment
One-off AIFRS mismatches
Net profit after income tax (“statutory basis”)

Represented by:
Banking
Funds management
Insurance
Net profit after income tax (“underlying basis”)
Shareholder investment returns after tax
Cash net profit after tax excluding the sale of the
Hong Kong Insurance Business

Profit on sale of Hong Kong Insurance Business
Net profit after tax (“cash basis”)

30/06/07
$M
7,036
3,432
10,468
1,874
817
13,159
149
-
13,308
6,427
434
6,447
1,816
27
4,604
5
(75)
(64)
4,470

3,763
492
253
4,508
96

4,604

-
4,604

30/06/06
$M
6,514
3,036
9,550
1,543
742
11,835
101
145
12,081
5,994
398
5,689
1,605
31
4,053
(25)
(100)
-
3,928

3,227
400
215
3,842
66

3,908

145
4,053

Jun 07 vs
Jun 06 %
8
13
10
21
10
11
48
large
10
(7)
(9)
13
(13)
13
14
large
25
-
14

17
23
18
17
45

large
14

30/06/07
$M
3,551
1,754
5,305
981
435
6,721
64
-
6,785
3,283
239
3,263
916
14
2,333
1
(37)
(18)
2,279

1,896
260
142
2,298
35

2,333

-
2,333

31/12/06
$M
3,485
1,678
5,163
893
382
6,438
85
-
6,523
3,144
195
3,184
900
13
2,271
4
(38)
(46)
2,191

1,867
232
111
2,210
61

2,271

-
2,271

Jun 07 vs
Dec 06 %
2
5
3
10
14
4
(25)
-
4
(4)
(23)
2
(2)
(8)
3
(75)
3
61
4

2
12
28
4
(43)

-
3

(1) For purposes of presentation, Policyholder tax benefit and Policyholder tax expense components of corporate tax expense are shown on a net basis.

(2) Minority interests include preference dividends paid to holders of preference shares in ASB Capital.

Shareholder Summary

Dividend per share – fully franked (cents)
Dividend cover – cash (times)
Earnings per share (cents)

Statutory – basic
Cash basis – basic
Cash basis – basic excluding the sale of Hong Kong
Insurance Business
Dividend payout ratio (%)

Statutory
Cash basis

Weighted avg no. of shares – statutory basic (M)
Weighted avg no. of shares – cash basic (M) (1)
Return on equity – cash (%)

Full Year Ended

30/06/07

30/06/06

256
1. 4

344. 7
353. 0

224
1. 4

308. 2
315. 9

353. 0

304. 6

75. 2
73. 0
1,281
1,289
22. 1

73. 3
71. 0
1,275
1,283
21. 3

Jun 07 vs
Jun 06 %
14
n/a

12
12

190bpts
200bpts
-
-
80bpts

Half Year Ended

30/06/07

31/12/06

149
1. 2

175. 1
178. 3

107
1. 6

169. 6
174. 7

178. 3

174. 7

Jun 07 vs
Dec 06 %
39
n/a

3
2

86. 1
84. 1
1,286
1,293
22. 0

63. 8
61. 5
1,276
1,284
22. 3

large
large
1
1
(30)bpts

(1) Fully diluted EPS and weighted average number of shares (fully diluted) are disclosed in Note 7 to the Financial Statements.

Commonwealth Bank of Australia Annual Report 2007 7

Highlights

Balance Sheet Summary
Lending assets (1)
Total assets
Total liabilities
Shareholders’ Equity

Assets held and Funds Under Administration (FUA)
On Balance Sheet:
Banking assets
Insurance Funds Under Administration
Other insurance and internal funds management assets

Off Balance Sheet:
Funds Under Administration
Total assets held and FUA

30/06/07
$M
304,100
425,139
400,695
24,444

31/12/06
$M
286,814
397,261
374,774
22,487

397,093
19,814
8,232
425,139

157,257
582,396

367,250
21,040
8,971
397,261

146,622
543,883

As at
30/06/06
$M
266,096
369,103
347,760
21,343

340,254
20,792
8,057
369,103

130,721
499,824

Jun 07 vs
Dec 06 %
6
7
7
9

Jun 07 vs
Jun 06 %
14
15
15
15

8
(6)
(8)
7

7
7

17
(5)
2
15

20
17

(1) Lending assets comprise Loans, advances, and other receivables (gross of provisions for impairment and excluding securitisation) and Bank acceptances of

customers.

Key Performance Indicators

Banking
Underlying net profit after tax ($M)
Net interest margin (%)
Average interest earning assets ($M) (1)
Average interest bearing liabilities ($M) (1)
Expense to income (%)

Funds Management
Underlying net profit after income tax ($M)
Operating income to average Funds Under
Administration (%)
Funds Under Administration – spot ($M)
Expense to average FUA (%)

Insurance
Underlying Net profit after income tax ($M)
Inforce premiums ($M) (2)
Expense to average inforce premiums (%)

Capital Adequacy
Tier One (%)
Total (%)
Adjusted Common Equity (%)

Full Year Ended

30/06/07

30/06/06

3,763
2. 19
316,048
294,792
45. 8

3,227
2. 34
274,798
255,100
47. 7

Jun 07 vs
Jun 06 %

17
(15)bpts
15
16
4

Half Year Ended

30/06/07

31/12/06

1,896
2. 16
325,380
303,171
46. 1

1,867
2. 22
306,868
286,548
45. 6

Jun 07 vs
Dec 06 %

2
(6)bpts
6
6
(1)

492

400

260

232

1. 15
177,071
0. 71

1. 12
151,513
0. 71

3bpts
17
-

1. 16
177,071
0. 72

1. 13
167,662
0. 71

253
1,400
36. 3

7. 14
9. 76
4. 79

215
1,156
38. 6

7. 56
9. 66
4. 50

18
21
6

(42)bpts
10bpts
29bpts

142
1,400
34. 7

7. 14
9. 76
4. 79

111
1,340
36. 2

7. 06
9. 78
4. 70

3bpts
6
(1)

28
4
4

8bpts
(2)bpts
9bpts

(1) Average interest earning assets and average interest bearing liabilities have been adjusted to remove the impact of securitisation. Refer to Note 4 to Financial

Statements, Average Balance Sheet.

(2) During the current year the basis of calculating General Insurance inforce premiums was amended, the main change being the exclusion of badged premiums. Prior

periods have been restated on a consistent basis.

Credit Ratings

Fitch Ratings
Moody’s Investor Services
Standards & Poor's

Long term
AA
Aa1
AA

Short term
F1+
P-1
A-1+

Affirmed
Jun 07
Jun 07
Jun 07

The Group continues to maintain a strong capital position which is reflected in its credit ratings. In February 2007 Standards & Poor’s
upgraded the Group’s long term credit rating from AA- to AA. In May 2007, Moody’s Investor Services upgraded the Group’s long term
credit rating from Aa3 to Aa1. Additional information regarding the Group’s capital is disclosed in Note 35 to Financial Statements.

Important Dates for Shareholders

Full Year Results Announcement
Ex-Dividend Date
Record Date
Final Dividend Payment Date
Annual General Meeting
2008 Interim Results Date

8 Commonwealth Bank of Australia Annual Report 2007

15 August 2007
20 August 2007
24 August 2007
5 October 2007
7 November 2007
13 February 2008

Highlights

Cash EPS Performance (cents) (1)

Underlying Net Profit after Tax By Segment ($M) (1)

353.0

+ 16%

304.6

264.8

206.6

3,420

351

3,078

274

4,508

+ 17%

3,842

400

Jun 04

Jun 05

Jun 06

Jun 07

Jun 04

Jun 05

Jun 06

Jun 07

Banking

Funds management

Insurance

Banking Expense to Income

Lending Assets ($B)

50.8%

49.4%

+ 14%

304

266

47.7%

236

45.8%

206

Jun 04

Jun 05

Jun 06

Jun 07

Jun 04

Jun 05

Jun 06

Jun 07

Funds Under Administration ($B)

Annual Inforce Premiums – Australia & New Zealand ($M)

177

+ 17%

152

1,400

+ 21%

1,156

123

110

1,091

1,020

Jun 04

Jun 05

Jun 06

Jun 07

Jun 04

Jun 05

Jun 06

Jun 07

(1) 2004 is presented on a previous AGAAP basis; 2006 is presented excluding the profit from sale of the Hong Kong Insurance Business.

Commonwealth Bank of Australia Annual Report 2007 9

Banking Analysis

Financial Performance and Business Review
Performance Highlights

The full year underlying net profit after tax of $3,763 million for
the Banking business increased by 17% on the prior year.

The strong performance during the year was supported by:

• Significant business lending volume growth of 19% since

June 2006 to $91 billion;

• Solid volume growth in home loans, up 13% since June 2006

to $175 billion;

• Domestic deposit volume growth of 17% since June 2006 to
$175 billion including the doubling of NetBank Saver
balances which now total over $8 billion;

• Net interest margin decreased 15 basis points over the year,
comprising 10 basis points of underlying margin contraction
and five basis points due to the higher level of liquid assets
held and AIFRS accounting volatility;

• Targeted

investment

future
profitability balanced by cost control in other areas, resulting
in operating expenses increasing 5% on the prior year; and

in areas which will drive

• Continued stability in the credit quality across the portfolio.

The underlying net profit after tax for the second half of the year
increased by 2% to $1,896 million. The current half was
impacted by a $45 million increase in investment spend on
strategic initiatives. As in previous years, the second half
performance was dampened by
fewer days and
seasonally higher bad debts.

three

Detailed disclosure of business highlights by key business
segments and product categories is contained on pages 14 - 19.

Net Interest Income

Net interest income increased by 8% on the prior year to $7,036
million. The growth was a result of continued strong volume
growth reflected by an increase in average interest earning
assets of 15% offset by a 6% reduction in net interest margin.

During the second half of the year net interest income increased
2%. This represents 3% growth on an underlying basis, with the
positive impact of AIFRS hedging reclassification more than
offset by the dampening impacts of three fewer days and a 50
basis point increase in the pensioner savings deeming rate in
April. The increase in net interest income was driven by 6%
growth in average interest earning assets and net interest
margin contraction of six basis points.

Average Interest Earning Assets

+ 15 %

316,048

49,971

266,077

274,798

42,175

232,623

)

M
$
(

s
t
e
s
s
A
g
n
n
r
a
E

t
s
e
r
e
t
n
I
e
g
a
r
e
v
A

350,000

300,000

250,000

200,000

150,000

100,000

50,000

Jun 06

Jun-07

Non-Lending Interest Earning Assets (Excl Bank Accept)

Lending Interest Earning Assets

Average interest earning assets increased by $41 billion over
the year to $316 billion, reflecting a $33 billion increase in
average lending interest earning assets and $8 billion increase
in average non-lending interest earning assets.

Average home loan balances increased by 10% since 30 June
2006 and by 3% since December 2006. Both these growth rates

10 Commonwealth Bank of Australia Annual Report 2007

were impacted by the $7 billion securitisation undertaken in
March as part of ongoing capital management initiatives.
Excluding this impact, the increase in gross home loan balances
was 11% over the full year and 5% over the half year.

Personal Lending average balances have increased by 13%
since June 2006 and 7% since December 2006. This result
continues to be largely driven by strong growth in margin
lending.

Average balances for Business, Corporate and Institutional
lending increased 24% since June 2006 and 9% since
December 2006, driven by lending to large institutions.

Net Interest Margin

Underlying net interest margin declined by 10 basis points.
Increased holdings of liquid assets and AIFRS hedging volatility
added a further five basis points, bringing total net interest
margin decline to 15 basis points. The key drivers of the margin
reduction were:

Liquid Assets: Average non lending interest earning assets have
increased by $8 billion, resulting in headline margin contraction
of six basis points.

AIFRS Volatility: The yield related to certain non-trading
derivatives is reclassified to other banking income under AIFRS,
which distorts the calculation of net interest margin. In the
current year this had the effect of increasing headline margin by
one basis point, net of increased hybrid instrument distributions.

Asset Pricing & Mix: Mainly the impact of strong competition in
the home lending segment in both Australia and New Zealand
(five basis points); and personal lending portfolio repricing (three
basis points). Business lending margin has remained stable
overall with some improving margins on domestic lending
offsetting growth in lower margin offshore portfolios.

Cash Rate & Deposit Pricing: The combined impact of cash rate
increases during 2006 on deposits, repricing of certain products
and increasing proportion of lower margin savings accounts was
a net benefit of three basis points. This was more than offset by
an increase in the deeming rate on pensioner savings (one basis
point); and yield curve impact from tightening of bill rate to cash
rate spread and replicating portfolio (five basis points).

NIM movement since June 2006

5 bpts

underlying 10 bpts

2.35%

2.34%

(0.06%)

0.01%

(0.08%)

2.25%

2.15%

2.05%

(0.03%)

0.01%

2.19%

Jun 06

Liquid
Assets

AIFRS
Volatility

Asset
Pricing &
Mix

Cash Rate
& Deposit
Pricing

Other

Jun 07

During the second half net interest margin decreased by six
basis points on both a headline and an underlying basis due to
the offsetting impact of liquid asset growth and AIFRS volatility.

Underlying margin contraction was due to:

• Asset Pricing & Mix impact of three basis points due to
competitive pricing of home loans and growth in the lower
yielding margin lending portfolio; and

• Cash Rate & Deposit Pricing related contraction of three
basis points due to similar influences as described above.

Additional information, including the Average Balance Sheet, is
set out in Note 4 to Financial Statements.

Banking Analysis

Key Performance Indicators

Net interest income
Other banking income
Total Banking income

Operating expenses
Loan impairment expense
Net profit before income tax

Income tax expense
Minority interests
Net profit after income tax ("cash basis")
Net profit after income tax ("underlying basis")

Full Year Ended

Half Year Ended

30/06/07
$M
7,036
3,432
10,468

30/06/06
$M
6,514
3,036
9,550

Jun 07 vs
Jun 06 %
8
13
10

30/06/07
$M
3,551
1,754
5,305

31/12/06
$M
3,485
1,678
5,163

Jun 07 vs
Dec 06 %
2
5
3

4,797
434
5,237

1,447
27
3,763
3,763

4,558
398
4,594

1,339
28
3,227
3,227

(5)
(9)
14

(8)
4
17
17

2,443
239
2,623

713
14
1,896
1,896

2,354
195
2,614

734
13
1,867
1,867

(4)
(23)
-

3
(8)
2
2

Productivity and Other Measures

Net interest margin (%)
Expense to income (%)
Effective corporate tax rate (%)

Full Year Ended

Half Year Ended

30/06/07
$M
2. 19
45. 8
27. 6

30/06/06
$M
2. 34
47. 7
29. 1

Jun 07 vs
Jun 06 %
(15)bpts
4
150bpts

30/06/07
$M
2. 16
46. 1
27. 2

31/12/06
$M
2. 22
45. 6
28. 1

Jun 07 vs
Dec 06%
(6)bpts
(1)
90bpts

Total Banking Net Profit after Tax (“Underlying
Basis”)
Australian Retail products
Business, Corporate and Institutional products (1)

Hedging and AIFRS volatility (2)

Asia Pacific

Hedging and AIFRS volatility(2)

Other (2)
Total Banking Net profit after tax (“underlying basis”)

Full Year Ended

Half Year Ended

30/06/07
$M
1,840
1,529
2
390
59
(57)
3,763

30/06/06
$M
1,678
1,236
(41)
356
17
(19)
3,227

Jun 07 vs
Jun 06 %
10
24
large
10
large
large
17

30/06/07
$M
928
767
1
201
85
(86)
1,896

31/12/06
$M
912
762
1
189
(26)
29
1,867

Jun 07 vs
Dec 06 %
2
1
-
6
large
large
2

(1) During the current year certain Balance Sheet risk management operations have been merged within the Financial Markets product of the Business, Corporate and
Institutional segment; and the methodology for overhead cost allocation between Banking segments has been refined. Prior periods have been restated on a
consistent basis.

(2) During the current half the impact of Hedging and AIFRS volatility has been separately disclosed within the Business, Corporate and Institutional and Asia Pacific

segments. Prior periods have been restated on a consistent basis.

Other Banking Income

Factors impacting Other banking income were:

Full Year

Half Year

30/06/07
$M
1,729
896
555
271
3,451
(19)
3,432

30/06/06
$M
1,635
800
505
175
3,115
(79)
3,036

30/06/07
$M
870
479
249
112
1,710
44
1,754

31/12/06
$M
859
417
306
159
1,741
(63)
1,678

Commissions
Lending fees
Trading income
Other income

Non-trading derivatives
Other banking income

Excluding the impact of AIFRS non-trading derivative volatility,
Other banking income increased 11% over the year.

Other Banking Income

3,500

2,800

2,100

1,400

700

3,115

175
505

800

1,635

3,451
271
555

896

1,729

Jun 06

Jun 07

Commissions

Lending Fees

Trading Income Other

• Commissions: increased by 6% on the prior year to $1,729
million. The increase was driven by a 22% increase in
CommSec brokerage volumes and increased volume of
initial public offering activities;

• Lending fees: increased by 12% on the prior year to $896
million. The result was driven by an increase in lending
volumes, particularly line fees related to the business and
corporate lending portfolios;

• Trading income: increased 10% on the prior year to $555

million reflecting favourable market conditions; and

• Other income: increased $96 million on the prior year. The
current year includes a $79 million gain on the sale of the
Group’s share in Greater Energy Alliance Corporation Pty
Limited (“Loy Yang”) and $58 million in relation to the sale of
Mastercard shares. The prior year includes $32 million
relating to the Mastercard initial public offering. The level of
asset sales is not inconsistent with historic experience.

Other income in the second half decreased by $47 million to
$112 million. After adjusting for the timing of Loy Yang,
Mastercard and other property asset sales, other income was
flat.

The current half result decreased by 2% compared to the prior
half after excluding the impact of non-trading derivatives. This
was the result of a reduction in trading income in the current half
and the timing of asset sales impacting other income.

Commonwealth Bank of Australia Annual Report 2007 11

Banking Analysis

Operating expenses

Underlying operating expenses within the Banking business
increased by 5% on the prior year to $4,797 million. Operating
expenses were impacted by:

• Average salary increases of 4% reflecting the competitive
domestic labour market and the effect of inflation on general
expenses;

• Ongoing investment in front line staff across each of our key

businesses, with staff numbers rising 3% over the year;

• Continued investment in various projects supporting the
strategic priorities of the Group most notably the Business
Banking and Global Markets growth initiatives, which were
accelerated in the current half contributing to a $35 million
half-on-half increase in investment spend; and

• Continued productivity

through
process simplification initiatives, including $100 million of cost
savings in IT expenditure during the year.

improvements achieved

During the second half of the year operating expenses increased
4% to $2,443 million, driven by similar factors (particularly the
accelerated investment).

Banking Expense to Income Ratio

The underlying Banking expense to income ratio improved from
47.7% for the full year ended 30 June 2006 to 45.8% in the
current year representing a productivity improvement of 4%. The
improvement reflects strong income growth, targeted growth in
investment spend and discipline in underlying cost control.

Productivity

49.4%

47.7%

45.8%

50%

48%

46%

44%

42%

40%

The lower effective tax rate was principally due to the utilisation
of domestic capital losses in the current half and was also
assisted by lower offshore tax rates.

Provisions for Impairment Losses

Total provisions for impairment losses at 30 June 2007 were
$1,256 million. This includes a collective provision of $1,034
million, which expressed as a percentage of gross loans and
acceptances is 0.32%. The current level reflects:

• Stable arrears rates within the Group’s consumer lending

portfolios;

• The high proportion of low risk home loans within the credit

portfolio; and

• Risk ratings downgrades and specific provisions within the

business lending portfolio.

Risk Weighted Assets on Balance Sheet ($M)

160,000

140,000

120,000

100,000

80,000

60,000

40,000

20,000

129,247

110,971

87,217

78,981

Jun 05

Jun 06

Jun 07

Risk Weighting
0%

Risk Weighting
20%

Risk Weighting
50%

Risk Weighting
100%

3,348

3,181

Jun 2006

Jun 2007

Gross Impaired Assets ($M)

450

421

350

326

338

250

150

Jun 06

Dec 06

Jun 07

Loan Impairment Expense

The total charge for loan impairment expense for the year was
$434 million, which is 19 basis points of average risk weighted
assets. During the second half the loan impairment expense
increased by 23% to $239 million. This was driven by general
growth in risk weighted assets, risk ratings downgrades in the
corporate middle market segment and seasonal influences.
Loan impairment expense on consumer loans remained steady
in the second half as a proportion of risk weighted assets.

Gross impaired assets were $421 million as at 30 June 2007,
compared with $326 million at June 2006.

The Group remains well provisioned, with total provisions for
impairment as a percentage of gross impaired assets of 298%.

Taxation Expense

The corporate tax charge for the year was $1,447 million, an
effective tax rate of 27.6%.

The effective tax rate for the half year ended 30 June 2007 was
27.2% compared to 28.1% in the prior half.

12 Commonwealth Bank of Australia Annual Report 2007

Total Banking Assets & Liabilities
Interest earning assets
Home loans including securitisation
Less: securitisation
Home loans excluding securitisation
Personal
Business and corporate

Loans, advances and other receivables (1)
Non-lending interest earning assets
Total interest earning assets
Other assets (2)
Total assets

Interest bearing liabilities
Transaction deposits
Savings deposits
Investment deposits
Other demand deposits
Total interest bearing deposits
Deposits not bearing interest
Deposits and other public borrowings
Debt Issues
Other interest bearing liabilities
Total interest bearing liabilities
Securitisation debt issues
Non interest bearing liabilities (3)
Total liabilities

Provisions for Impairment
Collective provision
Individually assessed provisions
Total provisions for loan impairment
Other credit provisions (4)
Total provisions for impairment losses

Banking Analysis

30/06/07
$M

31/12/06
$M

190,337
(15,633)
174,704
20,074
90,601

285,379
49,553
334,932
62,161
397,093

41,915
49,975
76,856
26,157
194,903
8,479
203,382
69,753
43,719
308,375
15,737
53,355
377,467

1,034
199
1,233
23
1,256

176,721
(10,754)
165,967
18,237
84,215

268,419
45,792
314,211
53,039
367,250

36,070
47,380
72,188
24,892
180,530
8,289
188,819
71,431
40,320
292,281
11,130
46,788
350,199

1,040
171
1,211
19
1,230

As At
30/06/06
$M

167,121
(12,607)
154,514
17,228
76,044

247,786
40,283
288,069
52,185
340,254

35,771
42,729
67,364
20,325
166,189
7,038
173,227
65,086
34,890
266,165
13,505
44,515
324,185

1,046
171
1,217
24
1,241

Jun 07 vs
Dec 06 %

Jun 07 vs
Jun 06 %

8
45
5
10
8

6
8
7
17
8

16
5
6
5
8
2
8
(2)
8
6
41
14
8

(1)
16
2
21
2

14
24
13
17
19

15
23
16
19
17

17
17
14
29
17
20
17
7
25
16
17
20
16

(1)
16
1
(4)
1

Asset Quality

Gross loans and acceptances ($M)
Risk weighted assets ($M)
Gross impaired assets ($M)
Net impaired assets ($M)
Collective provisions as a % of risk weighted assets
Collective provisions as a % of gross loans and
acceptances
Individually assessed provisions for impairment as a %
of gross impaired assets (5)
Loan impairment expense as a % of average risk
weighted assets annualised (6)
Loan impairment expense as a % of gross loans and
acceptances annualised

Full Year Ended

30/06/07

30/06/06

321,653
245,347
421
222
0. 42

280,282
216,438
326
155
0. 48

Jun 07 vs
Jun 06 %
15
13
(29)
(43)
(6)bpts

Half Year Ended

30/06/07

31/12/06

321,653
245,347
421
222
0. 42

299,085
234,569
338
167
0. 44

Jun 07 vs
Dec 06 %
8
5
(25)
(33)
(2)bpts

0. 32

23. 8

0. 19

0. 13

0. 37

(5)bpts

24. 5

(70)bpts

0. 20

0. 14

1bpt

0. 32

23. 8

0. 20

0. 15

0. 35

(3)bpts

23. 4

40bpts

0. 17

(3)bpts

0. 13

(2)bpts

(1) Gross of provisions for impairment which are included in Other assets.

(2) Other assets include Bank acceptances of customers, derivative assets, provisions for impairment and securitisation assets.

(3) Non interest bearing liabilities include derivative liabilities.

(4) Included in Other provisions.

(5) Bulk portfolio provisions of $99 million at 30 June 2007 ($92 million at 31 December 2006 and $91 million at 30 June 2006) to cover unsecured personal loans and
credit card lending have been deducted from individually assessed provisions to calculate this ratio. These provisions are deducted due to the exclusion of the
related assets from gross impaired assets. The related asset amounts are instead included in the 90 days or more past due disclosure.

(6) Average of opening and closing balances.

Commonwealth Bank of Australia Annual Report 2007 13

Banking Analysis

Australian Retail

Consumer Finance (Personal Loans and Credit Cards)

The Australian Retail product segment performed strongly over
the year, with underlying net profit after income tax increasing by
10% to $1,840 million. This result reflects the strategic targeting
of profitable growth in a competitive market, disciplined cost
management and continued sound credit quality.

Total income in the Consumer Finance portfolio grew by 3%
over the year. The current year includes $58 million in relation to
the sale of MasterCard shares in January 2007. The prior year
included $32 million relating to the MasterCard initial public
offering.

The Group’s focus remains on profitable growth, achieved
through effective product pricing and other initiatives.

The Group’s low-rate credit card (“Yellow”) continues to attract
strong customer support, with over 240,000 accounts opened
since launch in March 2006.

Retail Deposits

Deposit revenue increased by 7% on the prior year, driven by a
combination of strong volume growth and improved margins.
Second half revenue was only marginally down on the prior half,
despite the negative impact of three fewer calendar days, the
increased pensioner savings deeming rate in April and seasonal
balance outflows from transaction-based accounts.

Deposit balances grew by 9% over the year, with all major
product categories recording good inflows, including Transaction
Accounts, Term Deposits, Cash Management Accounts and
NetBank Saver. Whilst some deposit market share was ceded in
the first half of the year due to aggressive pricing by competitors,
the position has stabilised in the second half.

Operating Expenses

Expense growth was contained to 2% over the full year and 1%
in the second half. Productivity improvements and technology
savings have largely offset the cost of additional front line
customer service staff and other sales and service related
investments. Productivity gains
further
improvements in the expense to income ratio, which fell from
46.6% in the prior year to 45.2%.

contributed

Loan Impairment Expense

Loan impairment expense for the full year was $349 million. In
the current half the expense was $185 million, an increase of
$21 million on the prior half driven by normal seasonal factors.
Loan impairment expense to risk weighted assets reduced over
the year reflecting a continued focus on credit quality. Home
loan impairment expenses remain broadly in line with prior
years. Personal loan quality continues to improve as new
business progressively replaces lower quality loans written in
2004/05. While the market has seen some deterioration, the
Group’s credit card arrears rates continue to trend in line with
expectations and at a lower level than last year.

Market Share Percentage
Home loans (1)
Credit cards (1) (2)
Personal lending (APRA and other
households) (3)
Household deposits
Retail deposits

30/06/07 31/12/06 30/06/06

18. 5
18. 8

16. 4
29. 0
21. 6

18. 4
19. 3

16. 4
28. 8
21. 9

18. 7
20. 3

16. 1
29. 3
22. 2

(1) 31 December 2006 comparatives revised.
(2) As at 31 May 2007.
(3) Personal lending market share includes personal loans and margin loans.

Business Review

Over the year, a number of initiatives have been implemented to
help ensure the Group achieves its vision to be Australia’s finest
financial services organisation through excelling in customer
service. Highlights included:

• The continued revitalisation of the branch network, including
the refurbishment of existing sites, the opening of six new
branches and the introduction of extended Saturday trading
at 65 of the busiest branches;

• Further changes to the branch network operating model
which give
local management greater authority. Key
customer processes have been further streamlined. This has
been supported by new
remuneration and bonus
arrangements for branch managers depending on the size,
contribution and performance of branches;

• The creation of more than 600 new front line customer

service positions since October 2005;

• The continued utilisation of CommSee, the Group’s market-
leading customer information and management system, as a
central element of sales and service processes;

• The implementation of more effective sales and service
training programs, including entry training for new customer
service staff, and sales and service leadership training for all
front line team leaders; and

•

Improvements to the product range as illustrated by the
awarding of five star ratings* to many of the Group’s deposit
accounts and credit card products (* Source: Cannex).

As a result of these and other actions, the Group has seen:

• Significant improvements in Customer Satisfaction ratings;

• A reduction in customer complaints of over 40% since June

2006;

•

Improvements in a range of staff engagement measures; and

• Strong volume growth leading to stabilised and growing

market shares across key product lines.

Home Loans

Home loan revenue increased by 4% over the year to $1,466
million. Balances grew by 11% over the year, including strong
second half growth of 7% driven by improved network sales
performance. Margin compression over the year occurred
predominantly in the first half, reflecting strong growth in lower
margin package and fixed rate loans and the tightening of the
yield curve ahead of the August 2006 and November 2006 cash
rate rises.

Second half revenue was in line with the first half, with strong
volume growth offsetting the negative impact of three fewer
calendar days. Despite strong competition, market share was
held constant in the second half of the year, underpinned by
strong network sales and the continued success of third party
banking.

14 Commonwealth Bank of Australia Annual Report 2007

Australian Retail (1)

Full Year to June 2007

Banking Analysis

Home loans
Consumer finance
Retail deposits
Australian Retail products

Net
Interest
Income $M
1,294
708
2,107
4,109

Other
Banking
Income $M
172
424
676
1,272

Total
Banking
Income $M
1,466
1,132
2,783
5,381

Expenses
$M (2)

Loan
Impairment
$M

Underlying
Profit after
Tax $M

2,430

349

1,840

Full Year to June 2006

Net
Interest
Income $M
1,260
732
1,938
3,930

Other
Banking
Income $M
151
368
674
1,193

Total
Banking
Income $M
1,411
1,100
2,612
5,123

Expenses
$M (2)

Loan
Impairment
$M

Underlying
Profit after
Tax $M

2,388

354

1,678

Half Year to June 2007

Net
Interest
Income $M
650
357
1,046
2,053

Other
Banking
Income $M
85
233
339
657

Total
Banking
Income $M
735
590
1,385
2,710

Expenses
$M (2)

Loan
Impairment
$M

Underlying
Profit after
Tax $M

1,224

185

928

(1) During the current period the methodology for allocation of total Australian Retail income between products and segments has been refined. Prior periods have been

restated on a consistent basis.

(2) During the current period the methodology for overhead cost allocation has been refined. Prior periods have been restated on a consistent basis.

Major Balance Sheet Items (gross of impairment)

Home loans (incl securitisation)
Consumer finance (1)
Total Assets – Australian Retail products
Home loans (net of securitisation)

Transaction deposits
Savings deposits
Other demand deposits
Deposits not bearing interest
Total Liabilities - Australian Retail products

(1) Consumer Finance includes personal loans and credit cards.

30/06/07
$M
161,406
10,809
172,215
145,773

18,980
39,349
38,754
2,599
99,682

31/12/06
$M
150,834
10,602
161,436
140,080

18,323
37,898
37,710
2,930
96,861

As At
30/06/06
$M
144,834
10,640
155,474
132,227

16,993
36,176
35,893
2,362
91,424

Jun 07 vs
Dec 06 %
7
2
7
4

Jun 07 vs
Jun 06 %
11
2
11
10

4
4
3
(11)
3

12
9
8
10
9

CBA Home Loan Approvals by State

CBA Home Loan Balances by State

QLD 19%

(Jun 06: 18%)

QLD 17%

(Jun 06: 17%)

NSW 30%

(Jun 06: 33%)

NSW 37%

(Jun 06: 39%)

VIC 29%
(Jun 06: 28%)

VIC 27%
(Jun 06: 27%)

Other 9%
(Jun 06: 9%)

WA 13%
(Jun 06: 12%)

Other 9%

(Jun 06: 8%)

WA 10%

(Jun 06: 9%)

Commonwealth Bank of Australia Annual Report 2007 15

Banking Analysis

Business, Corporate and Institutional

Financial Markets

The Business, Corporate and Institutional product segment
delivered underlying net profit after tax of $1,529 million, an
increase of 24% on the prior year. Included in the current year is
a $55 million after tax profit on the sale of the Group’s share in
Greater Energy Alliance Corporation Pty Limited (“Loy Yang”).
Excluding this amount, profit increased 19% on the prior year.

Business Review

Business Banking is one of the Group’s strategic priorities with
the aspiration to be widely regarded as the Business Banking
partner of choice. Good progress was made over the past year
against this objective, with performance highlights including:

• Opening of eight new Business Banking Centres and
recruitment of 72 new sales people in the first year of a three
year expansion program, targeting 25 new sites and 270 new
sales people in total by the end of the third year;

• Re-introduction of Business Bankers into branches, with 135
recruited and 85 operating within the branch network after
completing a rigorous induction and training program;

• Launch of 24 hour, 7 days per week, 365 days per year
remote customer service centre for local business customers
supported by a new team of 78 Local Business Banking
Associates. Local Business Banking Online was also
launched, providing new ways for our customers to interact
with us and each other;

• Launch of Agriline, a dedicated customer service centre for
our rural customers, supported by a new team of 23 Agriline
Associates. In addition, 30 additional Agribusiness sales
people were recruited as part of an expansion in rural
banking; and

• Launch of CommBiz, a new transaction banking platform for
businesses of all sizes from institutional and corporate clients
to small business customers. Over 10,000 customers have
already migrated from legacy platforms since its launch in
December 2006.

Institutional Banking continued to have strong momentum,
achieving above market growth rates. This has been achieved
through a
integrated debt and equity capital
management, financial and commodity risk management and
transaction banking, combined with key competencies in growth
industries.

focus on

Global Markets and Treasury has undertaken an investment in
people and technology to provide a platform for future growth
opportunities. The Global Markets and Treasury team ended the
year at number one on the Australian debt capital markets
ranking and has substantially increased the Australian equity
capital markets ranking following a number of key equity deals
completed during the year.

CommSec maintained its position as Australia’s number one
broker platform by volume and benefited from strong market
conditions, with a new monthly volume record set in June 2007
of 1.1 million trades. Other highlights included CommSec
winning
the Platinum Asset
Management initial public offering and the launch of CommSec
Self Managed Super Fund.

the Lead Manager role

for

Corporate Banking

Corporate Banking
transaction services and merchant acquiring.

includes commercial and corporate

This line of business achieved income growth of 10% on the
prior year following balance growth in the newly introduced
Business Online Saver product and strong growth across higher
margin commercial and corporate Current Accounts. Cash rate
increases in the first half also contributed to the income growth.

16 Commonwealth Bank of Australia Annual Report 2007

Financial Markets includes financial markets and wholesale

operations, treasury, equities broking (including CommSec) and

structured products, capital markets services (including IPOs
and placements) and margin lending.

Financial markets income has increased 14% on the prior year

following continued favourable trading conditions and increased

customer flows. Growth in investment markets has resulted in

record CommSec trading volumes and margin lending balances
have increased 40% on the prior year.

Lending and Finance

Lending and Finance includes asset finance, structured finance

and general business lending.

Lending and Finance income increased by 21% on the prior

year. This includes the impact of the pre-tax gain on sale of the

Bank’s share in Greater Energy Alliance Corporation Pty Limited
(“Loy Yang”) during the year of $79 million.

Lending and Finance assets have increased $11 billion or 11%

on the prior year. The increase has been driven by continued

growth in the Australian and New Zealand syndicated loan
market and in structured finance transactions.

Operating Expenses

Operating expenses of $1,741 million represented 10% growth

compared to the prior year. This was driven by general salary

increases and higher employee numbers. In addition, the Group

significantly increased investment to support the strategic

expansion of the Business Banking and Financial Markets

activities. Productivity gains contributed to further improvements

in the expense to income ratio, which fell from 47.1% in the prior
year to 45.0%.

Loan Impairment Expense

Loan impairment expense for the full year was $7 million higher
than the prior year at $75 million. This was due to an increase in
our assessment of portfolio risk and specific provisions related to
the corporate middle market segment in the current half, which
drove a $35 million increase in loan impairment expense on the
prior half.

Market Share

Business lending market share to non-financial corporations, as
measured by APRA, has increased by 30 basis points since 30
June 2006 to 12.4%.

Asset finance market share has decreased by 130 basis points
to 13.2% since 30 June 2006. The decline reflects the maturity
of this business segment, which has been characterised by
aggressive price competition coupled with competitor expansion.

Business deposit market share of non-financial corporations, as
measured by APRA, has increased by 110 basis points since 30
June 2006 to 13.0%.

Market Share Percentage

30/06/07 31/12/06 30/06/06

Business lending – APRA
Business lending – RBA (1)
Asset finance
Business deposits – APRA
Equities trading (CommSec) (1)

12. 4
12. 9
13. 2
13. 0
4. 4

12. 5
13. 0
13. 9
12. 0
4. 4

12. 1
13. 2
14. 5
11. 9
4. 3

(1) Prior period comparatives have been revised.

Banking Analysis

Business, Corporate and Institutional (1)

Full Year to June 2007

Corporate Banking
Financial Markets
Lending and Finance
Business, Corporate and Institutional products

Net
Interest
Income $M
555
500
1,005
2,060

Other
Banking
Income $M
366
803
636
1,805

Total
Banking
Income $M
921
1,303
1,641
3,865

Expenses
$M (2)

Loan
Impairment
$M

Underlying
Profit after
Tax $M

1,741

1,529

Hedging and AIFRS volatility (excluded from above)

135

(132)

Corporate Banking
Financial Markets
Lending and Finance
Business, Corporate and Institutional products

Full Year to June 2006

Net
Interest
Income $M
496
440
870
1,806

Other
Banking
Income $M
344
708
491
1,543

Total
Banking
Income $M
840
1,148
1,361
3,349

Expenses
$M (2)

Loan
Impairment
$M

Underlying
Profit after
Tax $M

1,577

1,236

Hedging and AIFRS volatility (excluded from above)

(104)

(58)

(41)

Half Year to June 2007

Corporate Banking
Financial Markets
Lending and Finance
Business, Corporate and Institutional products

Net
Interest
Income $M
281
291
510
1,082

Other
Banking
Income $M
179
393
313
885

Total
Banking
Income $M
460
684
823
1,967

Hedging and AIFRS volatility (excluded from above)

106

(105)

Expenses
$M (2)

Loan
Impairment
$M

Underlying
Profit after
Tax $M

908

767

(1) The components of the three Business, Corporate and Institutional product segments have been rearranged during the current year, in order to align with the wider
divisional restructure which was undertaken during the year as part of a re-focus on customer service. Prior periods have been restated on a consistent basis.

(2) During the current period the methodology for overhead cost allocation has been refined. Prior periods have been restated on a consistent basis.

Major Balance Sheet Items (gross of
impairment)

Interest earning lending assets
Bank acceptances of customers
Non-lending interest earning assets
Margin loans
Other assets (1)
Total Assets (2)

Transaction deposits
Other demand deposits
Deposits not bearing interest
Certificates of deposits and other
Due to other financial institutions
Liabilities at fair value through Income Statement
Debt issues
Loan Capital
Other non interest bearing liabilities (1)
Total Liabilities (2)

Balance Sheet by Product Segment (3)
Assets
Corporate Banking
Financial Markets
Lending and Finance
Other (2)
Total Assets
Liabilities
Corporate Banking
Financial Markets
Lending and Finance
Other (2)
Total Liabilities

30/06/07
$M
80,464
18,721
41,530
8,070
25,842
174,627

21,578
29,347
4,084
25,573
14,199
4,228
84,556
9,818
43,317
236,700

2,762
49,137
115,446
7,282
174,627

46,359
58,580
29,542
102,219
236,700

31/12/06
$M
74,029
18,395
41,723
6,542
19,486
160,175

16,648
26,162
3,686
24,923
12,390
3,783
82,381
9,724
36,805
216,502

2,669
40,800
112,713
3,993
160,175

39,953
51,376
27,655
97,518
216,502

As At
30/06/06
$M
66,343
18,310
35,471
5,758
19,947
145,829

16,426
23,641
3,520
20,178
11,333
2,085
77,848
9,744
36,703
201,478

1,061
36,228
104,086
4,454
145,829

37,375
40,838
27,303
95,962
201,478

Jun 07 vs
Dec 06 %
9
2
-
23
33
9

Jun 07 vs
Jun 06 %
21
2
17
40
30
20

30
12
11
3
15
12
3
1
18
9

3
20
2
82
9

16
14
7
5
9

31
24
16
27
25
large
9
1
18
17

large
36
11
63
20

24
43
8
7
17

(1) Other assets include intangible assets and derivative assets, and Other non interest bearing liabilities include derivative liabilities.

(2) Includes Group Funding, Balance Sheet Management and other capital not directly attributed to the product based segments above.

(3) During the current year, reclassifications of Balance Sheet amounts between product segments were made to align with the wider divisional restructure. Prior periods

have been restated on a consistent basis.

Commonwealth Bank of Australia Annual Report 2007 17

• For the fifth consecutive year, ASB Bank was recognised as
New Zealand’s “Bank of the Year” by the UK based Banker
Magazine.

Underlying net profit after tax increased 6% in the second half to
$193 million(1). This result reflects continued strong lending
growth, stabilisation of margins and the strengthening of the
New Zealand Dollar.

Other Asia Pacific Business

The highlights in this region during the year were:

• Acquisition of an 83% stake in Arta Niaga Kencana (Bank
ANK) in Surabaya region of Indonesia adding 20 branches;

• Continued branch expansion in PT Bank Commonwealth in
Indonesia with four new branches added during the year;

•

the Group’s

Increasing
in Hangzhou City
Commercial Bank to maintain 19.9% equity stake following
an investment by the Asian Development Bank; and

investment

• The launch of a new customer website “Moving to Australia?”
in five different languages to make opening a bank account
even easier for overseas customers moving to or doing
business in Australia.

Loan Impairment Expense

Total loan impairment expense for the Asia Pacific region was
$18 million, which is in line with the prior year. The current half
expense increased by $8 million, due to some deterioration in
both retail and corporate portfolios in New Zealand.

Market Share

Home loan market share in New Zealand remained stable
throughout the year at 23.1% as at 30 June 2007.

Retail deposit market share in New Zealand increased 90 basis
points during the year to 21.2% as at 30 June 2007.

Market Share Percentage

30/06/07 31/12/06 30/06/06

NZ lending for housing
NZ retail deposits

23. 1
21. 2

23. 1
20. 7

23. 1
20. 3

(1) Represents Group Management view for the product segment rather than
statutory view, excluding the impact of Hedging and AIFRS volatility.

Banking Analysis

Asia Pacific

Asia Pacific Banking incorporates the Group’s retail, business,

commercial, rural and treasury banking operations in New

Zealand, Fiji, Indonesia and China.

Underlying net profit after tax for Asia Pacific businesses
increased 10% to $390 million(1) compared to the prior year.
ASB Bank in New Zealand represents the majority of the

business.

During the year, the accounting impacts arising from the
application of “AASB 139 Financial Instruments: Recognition
and Measurement” resulted in a gain of $85 million (before tax)
within Total banking income. This impact, referred to as
“Hedging and AIFRS volatility” was driven by:

• Mark to market accounting gains on economic hedges which
do not qualify for AIFRS hedge accounting and hedge
ineffectiveness of $117 million; offset by

• Accounting losses on the economic hedge of New Zealand
operations due to the difference between hedged currency
rate and actual rate of $32 million.

These accounting gains and losses are not reflective of the
underlying economic reality, as all exposures are fully hedged
within risk limits.

ASB Bank

The New Zealand banking industry continued to be very
competitive during 2007, characterised by aggressive pricing
particularly on home loans. Against this challenging background
ASB Bank achieved statutory net profit after tax growth in New
Zealand Dollar terms of 8% (excluding the impact of AIFRS
hedge accounting).

This result was driven by:

• Strong asset growth represented by total lending balances
increasing by NZD 6,170 million or 16% over the prior year
including a 14% increase in home lending volumes;

• Solid growth in retail deposits of 16% to NZD 24.5 billion,
mainly due to a 23% increase in FastSaver, BusinessSaver
and Term Investment balances;

• Margin contraction for the year of ten basis points, most of
which occurred during the first half, with margins declining
only three basis points in the second half. The majority of this
was driven by tightening home loan margins and changes in
product mix such as the re-weighting of the deposits portfolio
towards higher interest rate savings products; and

• Continued low impairment losses.

Other performance highlights included:

• Continued achievement of a market leading position in

customer satisfaction rates among the major banks;

• Broadening access for customers to banking services with
internet and telephone banking supplemented by banking
updates to mobiles phones and 20 branches now operating
seven days a week;

• Winner of

the TUANZ Business

Internet eCommerce
Financial Services award in recognition of the ASB Fastnet
Classic online banking service;

• ASB Group was appointed one of the default providers for
the Kiwisaver Retirement scheme which was launched by
the NZ government to encourage employees to save
consistently during their working lives; and

18 Commonwealth Bank of Australia Annual Report 2007

Asia Pacific (1)

ASB Bank
Other
Asia Pacific

Banking Analysis

Full Year to June 2007

Net
Interest
Income $M
732
32
764

Other
Banking
Income $M
285
33
318

Total
Banking
Income $M
1,017
65
1,082

Expenses
$M

Loan
Impairment
$M

Underlying
Profit after
Tax $M

515

390

Hedging and AIFRS volatility (excluded from above)

(28)

113

ASB Bank
Other
Asia Pacific

Net
Interest
Income $M
680
42
722

Other
Banking
Income $M
291
29
320

Total
Banking
Income $M
971
71
1,042

Hedging and AIFRS volatility (excluded from above)

Expenses
$M

Loan
Impairment
$M

Underlying
Profit after
Tax $M

509

356

Full Year to June 2006

ASB Bank
Other
Asia Pacific

Net
Interest
Income $M
386
16
402

Other
Banking
Income $M
137
12
149

Total
Banking
Income $M
523
28
551

Hedging and AIFRS volatility (excluded from above)

(28)

149

121

Expenses
$M

Loan
Impairment
$M

Underlying
Profit after
Tax $M

255

201

Half Year to June 2007

(1) During the current period the impact of AIFRS derivative hedging has been excluded from the Asia Pacific total and is disclosed separately above. Prior periods have

been restated on a consistent basis.

Major Balance Items (gross of
impairment) (1)

Home lending
Other lending assets
Non-lending interest earning assets
Other assets
Total Assets – Asia Pacific

Debt issues
Deposits (1)
Liabilities at fair value through the Income Statement
Other liabilities
Total Liabilities – Asia Pacific

Balance Sheet by Segment

Assets
ASB Bank
Other
Total Assets - Asia Pacific

Liabilities
ASB Bank
Other
Total Liabilities - Asia Pacific

30/06/07
$M
28,931
11,332
8,023
1,965
50,251

935
23,094
15,203
1,853
41,085

47,995
2,256
50,251

38,926
2,159
41,085

31/12/06
$M
25,887
11,279
6,938
1,535
45,639

180
21,038
14,204
1,414
36,836

43,379
2,260
45,639

34,885
1,951
36,836

As At

30/06/06
$M
22,287
10,531
4,812
1,321
38,951

744
18,040
11,727
772
31,283

36,724
2,227
38,951

29,306
1,977
31,283

Jun 07 vs
Dec 06 %
12
-
16
28
10

Jun 07 vs
Jun 06 %
30
8
67
49
29

large
10
7
31
12

11
-
10

12
11
12

26
28
30
large
31

31
1
29

33
9
31

(1) Asia Pacific Deposits exclude deposits held in other overseas countries (30 June 2007: $5 billion, 31 December 2006: $6 billion and 30 June 2006: $5 billion).

Commonwealth Bank of Australia Annual Report 2007 19

Funds Management Analysis

Financial Performance and Business Review

Investment Performance

Performance Highlights

Underlying net profit after tax increased 23% over the year to
$492 million for the Funds Management business reflecting
continued strong revenue growth across the business.

The underlying net profit after tax result for the second half of the
year increased 12% on the prior half to $260 million driven by
continued growth in the funds management business and strong
investment performance.

Funds Under Administration increased 17% to $177 billion as at
30 June 2007.

Business Review

Industry conditions have been positive with strong investment
markets and retail flows underpinning growth over the year.

Net fund flows for the year ended 30 June 2007 of $1.8 billion
were impacted by the disengagement of a major client from the
Avanteos platform. Excluding Avanteos, net funds flow for the
year was over $7 billion, most of which occurred in the second
half.

The drivers of this strong underlying net funds flow for the year
were:

•

Investors taking advantage of superannuation legislation
changes which contributed to $9.2 billion FirstChoice net
flows for the year ended 30 June 2007. With over $39 billion
in Funds Under Administration, FirstChoice has experienced
growth of 51% in the last 12 months; and

• Solid institutional flows generated by the CFS Global Asset

Management business.

During the year, a goodwill impairment of $40 million was
recognised in relation to Avanteos.

Other key developments within the business include:

• CFS Global Asset Management ongoing expansion into
infrastructure

alternative asset classes and developing
capabilities both domestically and in Europe;

• CFS Global Asset Management is the joint lead partner in a
consortium which acquired AWG plc, an infrastructure
company which provides water services in the UK. As at 30
June 2007 13% of the Group’s interest in AWG plc had been
sold down to infrastructure funds;

• CFS Global Asset Management, through its joint venture
First State Media Group, acquired a major music copyright
catalogue in May 2007. The purchase will be the foundation
asset for a media focused investment fund to be launched
later in the calendar year;

• CFS Global Asset Management launched the First State
Cinda Leaders Growth Equity Fund with joint venture
partners China Cinda Asset Management;

• New products launched by CFS during the year include a
lending solution, and 12 new

fully
investment options on the FirstChoice platform;

integrated margin

• Commonwealth Financial Planner numbers increased during
the year by 68 to 702. The first adviser training program was
completed in early 2007 with 42 graduates and the second
program commenced in February 2007 with 27 entrants.
During the year referrals increased by 15%; and

• CFS Global Asset Management incubated or launched in
excess of 18 new products globally during the year, including
long/short funds, new fixed interest products, Asian and
international
Global Property Securities products
distribution, and a range of institutional multi-asset products.

for

20 Commonwealth Bank of Australia Annual Report 2007

Investment performance has been solid with 74% of funds
outperforming benchmark on a three year basis, and 66% of
funds outperforming on a one year basis.

Operating Income

Operating income increased by 21% to $1,883 million for the
year underpinned by an 18% increase in average Funds Under
Administration and strong investment performance driving an
increase in performance fees.

During the second half of the year, Operating income increased
by 10% to $985 million. This result was due to an 8% increase in
average Funds Under Administration on the prior half and an
increase in margins.

Margins increased three basis points over the year due to
growth in higher margin asset classes, performance fees and
improved distribution margins partially offset by the general trend
toward the lower margin platform offering.

Operating Expenses

Volume expenses, which predominately comprise external
distribution and trail commissions, increased by 27% over the
year which is in line with growth in Funds Under Administration
and underlying growth and mix of retail and wholesale inflows.

Operating expenses increased by 16% on the prior year to $890
million. The key drivers of expense growth include:

•

Investment in the international expansion of the CFS Global
Asset Management business;

• Establishment of competitive remuneration schemes in the
asset management business to attract and retain high quality
talent;

•

Increased spend on strategic projects including the Wealth
Management cross-sell
initiative and new product
development (eg. margin lending facility); and

Investment on system simplification initiatives.

•
Despite significant investment in the expansion of CFS Global
Asset Management, the expense to net operating income ratio
decreased from 57.6% to 55.7% over the year.

Taxation

The corporate tax expense for the year was $232 million,
representing an effective tax rate of 32.1% compared with
28.4% for the prior year. The increase in the effective tax rate is
due
tax differences. As previously
disclosed, the prior year included a tax benefit from the
recognition of international losses not previously brought to
account.

to one-off permanent

Market Share

In the latest Plan for Life market share statistics, the Group is
ranked 1st in total Australian retail market share at 14.2%. The
Australian retail market share has been impacted by the
disengagement of a major client from the Avanteos platform.
FirstChoice increased its share of the Platform market to 8.5%.

Australian retail (1) (2)
New Zealand retail (1)
Firstchoice platform (1) (2)

30/06/07 31/12/06 30/06/06

14. 2
15. 8
8. 5

15. 4
16. 1
8. 2

15. 4
16. 0
7. 7

(1) Prior period comparatives have been restated.

(2) As at 30 March 2007.

Funds Management Analysis

Full Year Ended

Half Year Ended

30/06/07
$M
1,874
9
1,883

14
1,897

285
890
1,175
722
708

232
-
490
492

30/06/06
$M
1,543
9
1,552

14
1,566

224
765
989
577
563

164
3
410
400

Jun 07 vs
Jun 06 %
21
-
21

30/06/07
$M
981
4
985

31/12/06
$M
893
5
898

-
21

(27)
(16)
(19)
25
26

(41)
large
20
23

10
995

141
467
608
387
377

132
-
255
260

4
902

144
423
567
335
331

100
-
235
232

Jun 07 vs
Dec 06 %
10
(20)
10

large
10

2
(10)
(7)
16
14

(32)
-
9
12

Key Performance Indicators

Operating income – external
Operating income – internal
Total operating income

Shareholder investment returns
Funds management income

Volume expense
Operating expenses
Total operating expenses
Net profit before income tax (“cash basis”)
Net profit before income tax (“underlying basis”) (1)

Corporate tax expense (2)
Minority interests
Net profit after income tax (“cash basis”)
Net profit after income tax (“underlying basis”) (1)

(1) Underlying basis excludes Shareholder investment returns.

(2) For purpose of presentation, Policyholder tax benefit and Policyholder tax expense are shown on a net basis (30 June 2007: $175 million and 30 June 2006: $193

million).

Funds Under Administration

Funds under administration – average
Funds under administration – spot
Funds under management – spot
Net funds flows (excluding Avanteos)
Net funds flows

Productivity and Other Measures

Operating income to average Funds Under
Administration
Total expenses to average Funds Under Administration
Operating expenses to net operating income (total
operating income less volume expenses)
Effective corporate tax rate

Full Year Ended

Half Year Ended

30/06/07
$M
164,404
177,071
139,685
7,126
1,763

30/06/06
$M
139,082
151,513
118,682
5,287
10,830

Jun 07 vs
June 06 %
18
17
18
35
(84)

30/06/07
$M
171,264
177,071
139,685
5,744
(313)

31/12/06
$M
158,010
167,662
128,312
1,382
2,076

Jun 07 vs
Dec 06 %
8
6
9
large
large

Full Year Ended

Half Year Ended

30/06/07
%

30/06/06
%

Jun 07 vs
Jun 06 %

30/06/07
%

31/12/06
%

Jun 07 vs
Dec 06 %

1. 15
0. 71

55. 7
32. 1

1. 12
0. 71

57. 6
28. 4

3bpts
-

3
(370)bpts

1. 16
0. 72

55. 3
34. 1

1. 13
0. 71

56. 1
29. 9

3bpts
(1)

1
(420)bpts

Underlying Net Profit After Tax growth of 23% on the prior year

800

700

600

500

400

300

200

100

400

T
A
P
N
g
n
y

l
r
e
d
n
U

6
0
n
u
J

331

(61)

(125)

(53)

492

(2)

490

g
n
i
t
a
r
e
p
O

e
m
o
c
n

s
e
s
n
e
p
x
e
e
m
u
o
V

g
n
i
t
a
r
e
p
O

s
e
s
n
e
p
x
e

e
t
a
r
o
p
r
o
C

x
a
T

y
t
i
r
o
n
M
+

t
s
e
r
e
t
n
I

T
A
P
N
g
n
y

l
r
e
d
n
U

7
0
n
u
J

s
n
r
u
t
e
R

T
A
P
N
h
s
a
C

7
0
n
u
J

t
s
e
v
n
I

r
e
d
o
h
S

Commonwealth Bank of Australia Annual Report 2007 21

Funds Management Analysis

Funds Under Administration

FirstChoice
Cash management
Legacy products (1)
Retail Products (2)
Other retail (3)
Australian retail
Wholesale
Property
Other (4)
Domestically sourced
Internationally sourced
Funds Under Administration (excl Avanteos)
Avanteos
Total – Funds Under Administration

Funds Under Administration

Opening
Balance
30/06/06
$M
26,177
3,690
34,669
64,536
886
65,422
29,815
13,909
3,708
112,854
29,461
142,315
9,198
151,513

Opening
Balance
30/06/05
$M
16,128
4,182
35,225
55,535
844
56,379
24,894
13,456
2,886
97,615
22,508
120,123
2,941
123,064

Opening
Balance
31/12/06
$M
31,588
3,453
34,976
70,017
1,242
71,259
32,892
13,538
3,697
121,386
35,087
156,473
11,189
167,662

Full Year Ended 30 June 2007

Inflows
$M
17,191
2,066
2,757
22,014
412
22,426
12,902
1,014
136
36,478
15,625
52,103
2,603
54,706

Outflows
$M
(7,995)
(2,751)
(7,426)
(18,172)
(257)
(18,429)
(10,037)
(2,411)
(608)
(31,485)
(13,492)
(44,977)
(7,966)
(52,943)

Investment
Income &
Other (5)
$M
4,172
125
4,022
8,319
575
8,894
1,789
2,331
399
13,413
8,342
21,755
2,040
23,795

Netflows
$M
9,196
(685)
(4,669)
3,842
155
3,997
2,865
(1,397)
(472)
4,993
2,133
7,126
(5,363)
1,763

Full Year Ended 30 June 2006

Inflows
$M
13,077
2,417
3,268
18,762
182
18,944
13,099
1,074
192
33,309
12,097
45,406
6,142
51,548

Outflows
$M
(5,287)
(3,061)
(7,669)
(16,017)
(235)
(16,252)
(11,810)
(2,144)
(481)
(30,687)
(9,432)
(40,119)
(599)
(40,718)

Investment
Income &
Other (5)
$M
2,259
152
3,845
6,256
95
6,351
3,632
1,523
1,111
12,617
4,288
16,905
714
17,619

Netflows
$M
7,790
(644)
(4,401)
2,745
(53)
2,692
1,289
(1,070)
(289)
2,622
2,665
5,287
5,543
10,830

Half Year Ended 30 June 2007

Inflows
$M
10,913
1,038
1,634
13,585
330
13,915
7,288
450
81
21,734
8,303
30,037
1,459
31,496

Outflows
$M
(4,693)
(1,442)
(4,388)
(10,523)
(139)
(10,662)
(5,507)
(551)
(336)
(17,056)
(7,237)
(24,293)
(7,516)
(31,809)

Investment
Income &
Other (5)
$M
1,737
81
1,800
3,618
183
3,801
(204)
1,406
193
5,196
3,783
8,979
743
9,722

Netflows
$M
6,220
(404)
(2,754)
3,062
191
3,253
1,781
(101)
(255)
4,678
1,066
5,744
(6,057)
(313)

Closing
Balance
30/06/07
$M
39,545
3,130
34,022
76,697
1,616
78,313
34,469
14,843
3,635
131,260
39,936
171,196
5,875
177,071

Closing
Balance
30/06/06
$M
26,177
3,690
34,669
64,536
886
65,422
29,815
13,909
3,708
112,854
29,461
142,315
9,198
151,513

Closing
Balance
30/06/07
$M
39,545
3,130
34,022
76,697
1,616
78,313
34,469
14,843
3,635
131,260
39,936
171,196
5,875
177,071

(1) Includes stand alone retail and legacy retail products.

(2) Retail products (excluding Avanteos) align to Plan for Life market release.

(3) Includes listed equity trusts and regular premium plans. These retail products are not reported in market share data.

(4) Includes life company assets sourced from retail investors but not attributable to a funds management product (e.g. premiums from risk products). These amounts

do not appear in retail market share data.

(5) Includes foreign exchange gains and losses from translation of international sourced business.

22 Commonwealth Bank of Australia Annual Report 2007

Funds Management Analysis

FirstChoice – Fund Manager Destination

Business Mix of Funds Under Administration

Avanteos
3%
(Jun 06: 6%)

Property
8%
(Jun 06: 9%)

Wholesale
20%
(Jun 06: 20%)

Other Retail
1%
(Jun 06: 1%)

Other
2%
(Jun 06: 2%)

Retail
Products
43%

(Jun 06: 43%)

CBA 45%
(Jun 06: 44%)

External 55%
(Jun 06: 56%)

Internationally
sourced
23%
(Jun 06: 19%)

Total Funds Under Administration – Asset Class

Externally
Managed
21%

(Jun 06: 18%)

Other 2%
(Jun 06: 1%)

Property
Securities 14%

(Jun 06: 14%)

Cash & Fixed
Interest 26%
(Jun 06: 29%)

Australian
Equities 18%
(Jun 06: 19%)

Global Equities
19%
(Jun 06: 19%)

FirstChoice Funds Under Administration Balance & Market Share

40,000

35,000

30,000

25,000

20,000

15,000

10,000

5,000

+ 51%

10%

Jun
02

Sep
02

Dec
02

Mar
03

Jun
03

Sep
03

Dec
03

Mar
04

Jun
04

Sep
04

Dec
04

Mar
05

Jun
05

Sep
05

Dec
05

Mar
06

Jun
06

Sep
06

Dec
06

Mar
07

Jun
07

FirstChoice FUA $M

FirstChoice FUA Market Share %

Commonwealth Bank of Australia Annual Report 2007 23

Insurance Analysis

Financial Performance and Business Review

New Zealand

The Life
predominantly under the Sovereign brand.

Insurance operations

in New Zealand operate

New Zealand’s net profit after tax (“cash basis”) increased 12%
on the prior year to $105 million. The main drivers of this result
were:

• Market leading growth in new business sales with Sovereign
capturing 33.8% of new business sales market share over
the year compared to 32.7% in the prior year;

• A continuation of positive investment returns;
• Low lapse rates on existing business; offset by
• A deterioration in claims experience from 2006 with a higher

incidence of disability and term life claims.

The market share of inforce premiums at 30 June 2007 was
31.8%, an increase of 40 basis points over the year.

Operating Income

Operating income increased 10% on the prior year to $817
million. The prior year was impacted by the inclusion of the
operating results of the Hong Kong Insurance Business until its
sale
income
increased by 17% on the prior year.

in October 2005. Excluding

this, operating

Life Insurance income increased 11% to $745 million on the
prior year, and by 19% excluding the operating results of the
Hong Kong Insurance Business. This reflects strong volume
growth and favourable claims experience.

General Insurance income of $72 million was flat compared with
the prior year despite strong sales growth. The result was
impacted by claims associated with recent NSW storms in the
Hunter region which had a greater financial impact than that of
Cyclone Larry in the prior year.

Operating Expenses

Total operating expenses of $282 million (excluding volume
related expenses) increased 3% on the prior year.

Increases in operating expenses included:

•

Increased spend on strategic projects including the Wealth
Management cross-selling initiatives;

Introduction of Branch
selected Bank branches;

Insurance Representatives

into

• Product development across Life and General Insurance

lines;

•

Investment on system migration and simplification to further
reduce the number of insurance systems used and reduce
ongoing costs;

• Development costs

launch of
in preparation
compulsory savings in New Zealand under the KiwiSaver
program; offset by

the

for

• Reduction in expenses since the sale of the Hong Kong

Insurance Business.

Corporate Taxation

The effective corporate tax rate for the year was 28.1%
compared with 27.3% in the prior year.

Performance Highlights

Underlying net profit after tax for the Insurance business
increased 18% on the prior year to $253 million. This growth rate
was impacted by the inclusion of the operating results of the
Hong Kong Insurance Business for part of the prior year.
Another measure of Insurance business performance is planned
profit margins, which increased by 26% on the prior year.

The result was driven by:

• Solid inforce premium growth in Australia and New Zealand;

• Positive claims experience; and

•

Increased investment in the business.

Full year net profit after tax (“cash basis”) decreased by 16% to
$351 million, impacted by the profit on sale of the Hong Kong
Insurance Business of $145 million in the prior year. After
adjusting the result for the sale of the Hong Kong Insurance
Business, net profit after tax increased by 30%.

Underlying net profit after tax for the half year ended 30 June
2007 was up by 28% on the prior half.

The Group remains the largest life insurer in Australia, New
Zealand and Fiji.

Business Review

Australia

Full year underlying net profit after tax for the Australian
insurance business increased 28% on the prior year to $160
million.

Net profit after tax (“cash basis”) increased 29% on the prior
year to $234 million, reflecting growth in Shareholder investment
returns over the year together with strong volume growth and
improved operating margins.

Key performance drivers were:

•

Inforce premium growth of 20%, reflecting strong sales
volumes and progress of the cross-sell initiative;

Improvement in planned life margins and operating margins
on the prior year;

• Good claims experience; and

• Strong Shareholder investment returns.

Other highlights for the Australian Insurance business included:

• A significant increase in new business over the year

particularly in Group Life Risk;

• CommInsure increased its Total risk market share to 14.2%
an increase of one percentage point since 30 June 2006;
• The introduction of 130 Branch Insurance Representatives
as part of the cross-sell initiative positively impacting on
General Insurance sales (30% increase in new business
sales);

• Ongoing simplification and rationalisation of systems and

processes;

• Launch of online quoting tool for planners aimed at reducing
the time and complexity of insurance and annuity quotes to
improve conversion rates; and

• Continued good claims management.

24 Commonwealth Bank of Australia Annual Report 2007

Insurance Analysis

Key Performance Indicators

Insurance
Life insurance operating income
General insurance operating income
Total operating income

Shareholder investment returns
Profit on sale of the Hong Kong Insurance Business
Total insurance income

Volume expense
Operating expenses (1)
Total expenses
Net profit before income tax

Corporate tax expense (2)
Net profit after income tax (“cash basis”)
Net profit after income tax (“underlying basis”) (3)

Full Year Ended

Half Year Ended

30/06/07
$M

30/06/06
(4)
$M

Jun 07 vs
Jun 06 %

30/06/07
$M

31/12/06
$M

Jun 07 vs
Dec 06 %

745
72
817

135
-
952

182
282
464
488

137
351
253

669
73
742

87
145
974

181
275
456
518

102
416
215

11
(1)
10

55
-
(2)

(1)
(3)
(2)
(6)

(34)
(16)
18

406
29
435

54
-
489

93
143
236
253

71
182
142

339
43
382

81
-
463

89
139
228
235

66
169
111

20
(33)
14

(33)
-
6

(4)
(3)
(4)
8

(8)
8
28

Productivity and Other Measures

Operating income to average inforce premiums
Expenses to average inforce premiums
Effective corporate tax rate excluding impact of profit
on sale of Hong Kong Insurance Business

Full Year Ended

Half Year Ended

30/06/07
%
63. 9
36. 3

30/06/06
(4)

%
62. 9
38. 6

Jun 07 vs
Jun 06 %
100bpts
6

30/06/07
%
64. 0
34. 7

31/12/06
%
60. 7
36. 2

Jun 07 vs
Dec 06 %
330bpts
4

28. 1

27. 3

(80)bpts

28. 1

Sources of Profit from Insurance Activities
The Margin on Services profit from ordinary activities
after income tax is represented by:

Planned profit margins
Experience variations
General insurance operating margins

Operating margins
After tax Shareholder investment returns
Profit on sale of the Hong Kong Insurance Business
Net profit after income tax (“cash basis”)

Full Year Ended

Half Year Ended

30/06/07
$M

30/06/06
(4)
$M

Jun 07 vs
Jun 06 %

30/06/07
$M

31/12/06
$M

Jun 07 vs
Dec 06 %

184
56
13
253
98
-
351

146
48
21
215
56
145
416

26
17
(38)
18
75
-
(16)

90
49
3
142
40
-
182

94
7
10
111
58
-
169

(4)
large
(70)
28
(31)
-
8

(1) Operating expenses include $9 million internal expenses relating to the asset management of Shareholder funds (30 June 2006: $9 million).

(2) For purpose of presentation, Policyholder tax benefit and Policyholder tax expense components of corporate tax expense are shown on a net basis (30 June 2007: $91

million, 30 June 2006: $138 million).

(3) Underlying basis excludes Shareholder investment returns and the profit on the sale of the Hong Kong Insurance Business.

(4) Includes impact of the operating performance of the Hong Kong Insurance Business until its sale in October 2005.

Geographical Analysis of Business Performance

Australia

New Zealand

Asia

Total

Full Year Ended

Net Profit after Income Tax
(“cash basis”)

Operating margins
After tax Shareholder investment
returns
Profit on sale of Hong Kong Insurance
Business
Net profit after income tax

30/06/07
$M
160

30/06/06
$M
125

30/06/07
$M
88

30/06/06
$M
77

30/06/07
$M
5

30/06/06
$M
13

30/06/07
$M
253

30/06/06
$M
215

-
234

-
181

-
105

-
94

-
12

(17)

145
141

-
351

145
416

Australia

New Zealand

Asia

Total

Half Year Ended

Net Profit after Income Tax
(“cash basis”)

Operating margins
After tax Shareholder investment
returns
Net profit after income tax

30/06/07
$M
92

31/12/06
$M
68

27
119

47
115

30/06/07
$M
47
8

31/12/06
$M
41
9

30/06/07
$M
3
5

31/12/06
$M
2
2

30/06/07
$M
142
40

31/12/06
$M
111
58

182

169

Commonwealth Bank of Australia Annual Report 2007 25

Insurance Analysis

Annual Inforce Premiums (1)
General insurance (3)
Personal life
Group life
Total

Australia
New Zealand
Total

Annual Inforce Premiums (1)
General insurance (3)
Personal life
Group life
Total

Australia
New Zealand
Asia (4)
Total

Annual Inforce Premiums (1)
General insurance (3)
Personal life
Group life
Total

Australia
New Zealand
Total

Opening
Balance
30/06/06
$M
169
732
255
1,156

854
302
1,156

Opening
Balance
30/06/05
$M
154
785
265
1,204

795
296
113
1,204

Opening
Balance
31/12/06
$M
179
789
372
1,340

988
352
1,340

Full Year Ended 30 June 2007

Sales/New
Balances
$M
55
153
206
414

359
55
414

Lapses
$M
(40)
(87)
(79)
(206)

(192)
(14)
(206)

Other
(2)

Movements

$M
-
34
2
36

-
36
36

Full Year Ended 30 June 2006

Sales/New
Balances
$M
49
137
71
257

210
47
-
257

Lapses
$M
(34)
(81)
(48)
(163)

(151)
(12)
-
(163)

Other
(2)

Movements

$M
-
(109)
(33)
(142)

-
(29)
(113)
(142)

Half Year Ended 30 June 2007

Sales/New
Balances
$M
26
79
70
175

148
27
175

Lapses
$M
(21)
(43)
(58)
(122)

(115)
(7)
(122)

Other
(2)

Movements

$M
-
7
-
7

-
7
7

Closing
Balance
30/06/07
$M
184
832
384
1,400

1,021
379
1,400

Closing
Balance
30/06/06
$M
169
732
255
1,156

854
302
-
1,156

Closing
Balance
30/06/07
$M
184
832
384
1,400

1,021
379
1,400

(1) Inforce premium relates to risk business. Savings products are disclosed within Funds Management.

(2) Includes foreign exchange movements.

(3) In the current period the basis of calculating General insurance inforce premiums was amended, the main change being the exclusion of badged premiums. Prior

periods have been restated on a consistent basis.

(4) Other movements represent the sale of the Hong Kong Insurance Business.

Inforce Premiums

Inforce premiums increased by 21% on the prior year. This was achieved through consistent growth in both Australia and New Zealand.
General Insurance premiums increased by 9% on the year.

Market Share Percentage – Annual Inforce Premiums
Australia (total risk) (1) (2)
Australia (individual risk) (1) (2)
New Zealand

(1) As at 31 March 2007.

(2) Prior period comparatives have been revised.

30/06/07
14. 2
12. 7
31. 8

31/12/06
14. 4
12. 7
31. 5

30/06/06
13. 2
12. 3
31. 4

26 Commonwealth Bank of Australia Annual Report 2007

Shareholder Investment Returns

Funds management business
Insurance business (1)
Shareholder investment returns before tax
Profit on sale of Hong Kong Insurance Business
Taxation
Shareholder investment returns after tax

Full Year Ended

Half Year Ended

30/06/07
$M
14
135
149
-
53
96

30/06/06
$M
14
87
101
145
35
211

Jun 07 vs
Jun 06 %
-
55
48
-
(51)
(55)

30/06/07
$M
10
54
64
-
29
35

31/12/06
$M
4
81
85
-
24
61

Jun 07 vs
Dec 06 %
large
(33)
(25)
-
(21)
(43)

(1) Excluding profit on sale of the Hong Kong Insurance Business.

Shareholder investment returns of $149 million before tax was driven by strong positive returns across all asset classes.

Shareholder Investment Asset Mix (%)

Local equities
International equities
Property
Sub-total

Fixed interest
Cash
Sub-total
Total

Shareholder Investment Asset Mix ($M)
Local equities
International equities
Property
Sub-total

Fixed interest
Cash
Sub-total
Total

Australia
%
1
-
26
27

29
44
73
100

Australia
$M
7
-
368
375

400
620
1,020
1,395

As At 30 June 2007

New Zealand
%
1
1
-
2

52
46
98
100

As At 30 June 2007

New Zealand
$M
2
6
1
9

242
214
456
465

Asia
%
-
20
29
49

50
1
51
100

Asia
$M
-
17
25
42

43
1
44
86

Total
%
1
1
20
22

35
43
78
100

Total
$M
9
23
394
426

685
835
1,520
1,946

Commonwealth Bank of Australia Annual Report 2007 27

Presentation of Financial Information

"Underlying net profit after tax" refers to net profit after tax, “cash
basis”, before certain operating expenses and
initiatives
including Shareholder investment returns and profit on sale of
the Hong Kong
in October 2005.
Insurance Business
"Underlying net profit after tax" is referred to across all
businesses. The underlying profit is the result of 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.

"Underlying" productivity ratios:

• Exclude Shareholder

investment

returns

from

funds

management and life insurance income;

• Exclude policyholder tax from the funds management income

and life insurance income lines;

• Exclude the effect of profit on sale of the Hong Kong

Insurance Business in October 2005; and

• Exclude the impacts of transition to AIFRS on unwinding

structured transactions.

"Underlying" productivity ratios have been presented to provide
what management believes to be a more relevant presentation
of productivity
these
adjustments enable comparison of productivity ratios from period
to period to be more meaningful as it reflects the Group’s core
operating performance.

ratios. Management believes

that

Definitions

In this Annual Report, the Group presents its profit from ordinary
activities after tax on a “statutory basis”, which is calculated in
accordance with the Australian equivalents to International
Financial Reporting Standards (“AIFRS”).

The Group also presents its results on a “cash basis”. "Cash
basis" is defined by management as net profit after tax and
minority interests, before treasury shares valuation adjustment,
defined benefit superannuation plan expense and one-off AIFRS
from expiry of pre-AIFRS hedging
mismatches arising
transactions recognised in the period. Management believes
"cash basis"
the Group’s
is a meaningful measure of
performance and it provides the basis for the determination of
the Bank’s dividends.

The Group also presents its earnings per share on a statutory
basis and on a cash basis. Earnings per share on a statutory
basis is affected by the impact of changes in the treasury shares
valuation adjustment, defined benefit superannuation plan
expense and one-off AIFRS mismatches arising from expiry of
pre-AIFRS hedging transactions recognised in the period.
"Earnings per share (cash basis)" is defined by management as
net profit after tax and outside equity interests, before treasury
shares valuation adjustment, defined benefit superannuation
plan expense and one-off AIFRS mismatches arising from expiry
of pre-AIFRS hedging transactions recognised in the period,
“cash basis” net profit after tax as described above, divided by
the weighted average of the Bank’s ordinary shares outstanding
over the relevant period.

28 Commonwealth Bank of Australia Annual Report 2007

Risk Management

The Group integrated risk management framework identifies,
assesses, manages and reports risks and risk adjusted returns
on a consistent and reliable basis. The resulting risk profile of the
Group is assessed against the Group’s risk appetite.

One key dimension of the Group’s risk profile is measured by
the amount of economic capital required to support its risk
exposures.

Economic capital is derived from underlying exposures to credit,
market, operational and insurance risks in the banking, and
wealth management (insurance and
funds management)
businesses of the Group.

Independent review of the risk management framework is
carried out through Group Audit.

The
following sections describe
integrated risk management framework.

the components of

the

Credit Risk

Credit risk is the potential of loss arising from failure of a debtor
or counterparty to meet their contractual obligations. 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. This includes
consideration of the probability of default (PD), the exposure at
the time of default (EAD) and the loss given default (LGD) that
would consequently be experienced.

Various risks are considered when calculating PD, EAD and
LGD. Considerations include the potential for default by a
borrower due to management, industry, economic or other risks
and include the mitigating benefits of collateral.

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 Group uses a portfolio approach to the management of
credit risk (refer to Note 15 to the Financial Statements)
comprised of the following:

• A system of industry limits and targets for exposures by

industry;

• A large credit exposure policy for aggregate 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 credit portfolio.

The credit portfolio is managed in two distinct segments:

(i) Retail Segment:

This segment is comprised of housing loan, credit card, personal
loan
facilities, some leasing products and most secured
commercial lending up to $1m. These portfolios are managed on
a delinquency band approach.

(ii) Risk Rated Segment:

This segment
is comprised of commercial exposures.
Management of risk 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.

Integrated Risk Management

Provisions for impairment are raised where there is objective
evidence of impairment and at an amount adequate to cover
assessed credit related losses. Credit losses arise primarily from
loans but also from other credit instruments such as bank
liabilities, guarantees and other
acceptances, contingent
financial instruments and assets acquired through security
enforcement.

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 capital, collective
provision requirements, and credit portfolio stress testing.

Off Balance Sheet Arrangements

As detailed in Note 1 (ii) to the Financial Statements, the Group
conducts a Loan Securitisation program through which it
packages and sells loans as securities to investors. Liquidity
facilities are provided at arms length to the program by the Bank
the Australian Prudential Regulation
in accordance with
Authority
liquidity
(“APRA”) Prudential Guidelines. These
facilities are recognised by the Bank as Contingent Liabilities as
commitments to provide credit.

The Group is involved with a number of special purpose entities
(“SPEs”) in the ordinary course of business, primarily to provide
funding and financial services to our customers. 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 including consideration of exposure
to the majority of benefits or risks of the SPE, and accordingly,
determination of the existence of control involves management
judgment. The Group has no off-balance sheet financing entities
that it is considered to control.

Operational and Strategic Business Risk

The Group’s operational and strategic business
management
financial and business goals.

framework supports

the achievement of

risk
its

Operational Risk is defined as the risk of economic gain or loss
resulting from:

•

Inadequate or failed internal processes and methodologies;

• People;

• Systems; or

• External events.

Strategic Business Risk is defined as the risk of economic gain
or loss resulting from changes in the business environment
caused by the following factors:

• Economic;

• Competitive;

• Social trends; or

• Regulatory

Commonwealth Bank of Australia Annual Report 2007 29

Integrated Risk Management

Each business manager is responsible for the identification and
assessment of these risks, and for maintaining appropriate
internal controls. The Group’s operational risk framework and
governance structures supports these efforts through a suite of
risk mitigating policies, the reporting of internal loss incidents
and key risk indicators, qualitative and quantitative assessment
of risk exposures, and skilled operational risk professionals
embedded throughout the Group.

The Group’s operational
risk measurement methodology
combines expert assessment of individual risk exposures with
internal loss data to calculate operational risk economic capital
and determine potential loss.

The Group continues to benchmark and monitor its insurance
risk transfer program for efficiency and effectiveness. This is
primarily achieved through a methodology that optimises total
Shareholder returns and determines the most appropriate blend
of insurance risk transfer and economic capital.

Business Continuity Management

Business Continuity Management (“BCM”) within the Group
involves the development, maintenance and testing of advance
action plans to respond to defined risk events. This ensures that
business processes continue with minimal adverse impact on
customers, staff, products, services and brands.

BCM constitutes an essential component of the Group’s risk
management process by providing a controlled response to
business disruption events that could have a significant impact
on the Group’s critical processes and revenue streams. It
includes both cost-effective responses to mitigate the impact of
risk events or disasters and crisis management plans to respond
to crisis events.

A comprehensive BCM program including plan development,
testing and education has been
implemented across all
business units.

Compliance Risk Management

Compliance risk is the risk of legal or regulatory sanctions,
material financial loss, or loss of reputation that the Group may
suffer as a result of its failure to comply with the requirements of
relevant laws, industry standards and codes.

The Group’s Compliance Risk Management Framework
(CRMF) is a key element of the Group’s integrated risk
management framework. The CRMF is consistent with the
Australian Standard on Compliance Programs; as such it fulfils
the Group’s obligations under the Corporations Act 2001 and the
Bank’s Australian Financial Services Licence. The CRMF
incorporates a number of components
including Group
Standards, a Group Obligations Register and Guidance Notes
that detail specific requirements and accountabilities. These are
frameworks
complemented by business unit compliance
including obligations registers, standards and procedures.

The CRMF provides for the assessment of compliance risks,
implementation of controls, monitoring and testing of framework
effectiveness, the escalation, remediation and reporting of
compliance incidents and control weaknesses.

The Group's compliance strategy is based on two fundamental
principles:

• Line Management in each Business Unit are responsible for
ensuring their business is and remains compliant with
legislative, regulatory, industry code and organisational
requirements; and

• Business Unit Compliance and Group Compliance work
together to independently monitor, overview and report on
compliance to management, compliance committees and the
Board.

Security Risk

Security risk is defined as threats associated with theft and
fraud, information and IT security, protective security and crisis
management.

The Group’s security risk management framework forms part of
the operational risk framework and sets out the key roles,
responsibilities and processes for security risk management
across the Group.

Market Risk

Balance sheet positions may be affected by a change in the
value, volatility or relationship between market rates and prices.

Market risk arises from the mismatch between assets and
liabilities in both the banking and insurance businesses and from
controlled trading undertaken in pursuit of profit. The Group
trades diverse financial instruments including interest rates,
foreign currencies, equities and commodities and transacts in
both physical and derivative instruments.

A discussion and analysis of the Group’s market risk is
contained in Note 43 to the Financial Statements. Information on
trading securities is further contained in Note 10 to the Financial
Statements. Note 2 to the Financial Statements contains the
contribution of financial markets trading income to the Group.

In the trading book of the banking business, market risk is
measured by a Value-at-Risk (VaR) model. This model uses the
distribution of historical changes in market prices to assess the
potential for future losses. The VaR model takes into account
correlations between risks and the potential for movements in
one portfolio to offset movements in another. Actual results are
back-tested 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.

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.

30 Commonwealth Bank of Australia Annual Report 2007

Integrated Risk Management

The following tables provide a summary of VaR by product.

VaR Expressed based on 97.5%
confidence

Average VaR During
June 2007
Half Year $M

Average VaR During
December 2006
Half Year $M

Average VaR During
June 2006
Half Year $M

Group
Interest rate risk
Exchange rate risk
Implied volatility risk
Equities risk
Commodities risk
Credit spread risk (1)
Diversification benefit(1)
Total general market risk
Undiversified risk (1)
ASB Bank
Total

3. 61
0. 78
0. 69
0. 15
0. 65
4. 22
(4. 17)
5. 93
1. 60
0. 45
7. 98

3. 08
0. 54
0. 57
0. 14
0. 71
-
(1. 73)
3. 31
6. 75
0. 27
10. 33

2. 95
0. 65
0. 61
0. 09
1. 20
-
(2. 24)
3. 26
6. 53
0. 30
10. 09

The 97.5% confidence interval is used internally by management for operational monitoring of traded market risk. The 99.0% confidence
interval is shown to enable external comparison.

VaR Expressed based on 99.0%
confidence

Average VaR During
June 2007
Half Year $M

Average VaR During
December 2006
Half Year $M

Average VaR During
June 2006
Half Year $M

4. 60
0. 95
0. 88
0. 19
0. 81
6. 19
(6. 24)
7. 38
1. 72
0. 55
9. 65

4. 07
0. 72
0. 74
0. 18
0. 93
-
(2. 38)
4. 26
7. 93
0. 34
12. 53

3. 76
0. 77
0. 80
0. 11
1. 61
-
(3. 03)
4. 02
7. 68
0. 40
12. 10

(1) In the half year to 30 June 2007, the Group implemented a new methodology for the measurement of credit spread VaR. The new methodology now captures the

diversification benefit between credit spread risk and other risk types. Prior periods’ credit spread risk are reported in undiversified risk.

The liquid assets held include 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, overnight interbank loans and high
quality securities. More detailed comments on the Group’s
liquidity and funding risks are provided in Note 43.

life

the

insurance business arises

from
Market risk
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.
Wherever possible, the Group segregates policyholders’ funds
from Shareholders’ funds and sets investment mandates that
are appropriate for each.

The investment mandates for assets in policyholders’ funds
attempt to match asset characteristics with the nature of policy
obligations. The ability to match asset characteristics with policy
obligations may be constrained by a number of factors including
regulatory constraints, the lack of suitable investments as well as
by the nature of the policy liabilities themselves.

A
for
large proportion of policyholders’ assets are held
investment linked policies where the policyholder takes the risk
of falls in the market value of the assets.

the

invested or

A smaller proportion of policyholders’ assets are held to support
policies where life companies have guaranteed either the
principal
investment return (“guaranteed
policies’”) where investment mandates for these classes of
policies emphasise lower volatility assets such as cash and fixed
interest. The Group no longer sells guaranteed policies. Inforce
business contains guaranteed policies sold in the past and on
which the Group continues to collect premiums.

Liquidity risk is not a significant issue in life insurance
companies. The life insurance companies in the Group hold
substantial investments in highly liquid assets such as listed
shares, government bonds and bank deposits. Furthermore,
processing time for claims and redemptions enables each
company to forecast and manage its liquidity needs.

Commonwealth Bank of Australia Annual Report 2007 31

Integrated Risk Management

Derivatives

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 are
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
the use of
risk policies where appropriate and
reinsurance. The experience of the Group’s life insurance
business and those of the industry as a whole are reviewed
annually.

through

Derivative instruments are contracts whose value is derived from
one or more underlying financial instruments or indices defined
in the contract. The Group enters into derivative 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 to the Group’s financial markets
activities. Derivatives are also used to manage the Group’s own
exposure to market risk. The Group participates in both
exchange traded and Over-the-counter (“OTC”) derivatives
markets.

The Group recognises all derivative financial instruments in the
Balance Sheet at their fair value. Refer Note 1 (ff) to the
Financial Statements for further information.

Exchange Traded Derivatives

Exchange traded derivatives are executed through a registered
exchange, for example the Australian Securities Exchange. The
contracts have standardised terms and require lodgement of
initial and variation margins in cash or other collateral at the
Exchange, which guarantees ultimate settlement.

OTC Traded Derivatives

The Group buys and sells financial instruments that are traded
“over-the-counter”, rather than on recognised exchanges. The
terms and conditions of these transactions are negotiated
between the parties, although the majority conform to accepted
market conventions. Industry standard documentation is used,
most commonly in the form of a master agreement supported by
individual transaction confirmations. The documentation protects
the Group’s interests should the counterparty default, and
provides the ability to net outstanding balances in jurisdictions
where the relevant law allows.

32 Commonwealth Bank of Australia Annual Report 2007

Description of Business Environment

Australia

Financial Services

Financial services providers in Australia offer a wide range of
products and services to consumer and business customers,
encompassing retail, business and institutional banking, funds
management, superannuation,
investment and
stockbroking services. The domestic competitive landscape
includes the four major banks, the regional banks, building
societies and credit unions, foreign entrants to the Australian
market, local and global investment banks and fund managers,
private equity firms, insurance companies and third party
distributors.

insurance,

Banking

The Australian banking sector performed strongly in the 1990s
and early this millennium, largely driven by strong growth in
lending. More recently, however, there has been slowing credit
growth and more active management of credit by consumers.
Together with an increase in the activities of new entrants, this
has led to intensifying competition and to downward pressure on
margins.

The major banks which offer a full range of financial products
and services through branch networks, call centres, the internet,
ATMs and third party intermediaries across Australia, have
responded to the increased competition by improving efficiency
and by an increased focus on customer service, resulting in
increased customer satisfaction scores across the industry.

The regional banks, whilst smaller than the majors, mostly now
operate across state borders. They have experienced strong
growth in targeted product segments (especially mortgages)
facilitated by an increased acceptance by customers of third
party brokers.

The last decade has seen a dramatic increase in the third party
broking sector across a number of products, in particular
mortgage lending. The increased competition amongst brokers
is reducing margins which in turn is encouraging consolidation of
brokers within and across products.

Funds Management

Substantial growth continues in funds management, especially
within the superannuation (pension funds) segment. The recent
simplification of superannuation legislation including the removal
of taxes on end benefits for over 60s will support continuing
growth
investment and self managed
superannuation.

in superannuation

The ageing of the population will see an increase in the demand
for income generating assets. There is also increasing demand
for above market return investments which has seen an
increased allocation of funds to boutiques, hedge funds, private
equity players and alternative asset classes.

The corporate bond market in Australia has also benefited from
the growth in funds under management with many of the major
Australian corporates now directly accessing capital markets
domestically and around the world.

Insurance

Recent consolidations within the Life Insurance sector are
expected to continue to achieve economies of scale. Growth in
the sector is expected to continue given current levels of
underinsurance.

The general insurance market is mature, diversified and highly
competitive. Margin pressure and other competitive activity will
necessitate targeted growth strategies.

Long-term trends that impact Financial Services

Long-term trends that impact the Financial Services providers in
Australia and New Zealand include: increasing consumer power
as a result of electronic delivery channels; an ageing population
impacting retirement savings and the provision of retirement
solutions and placing pressure on labour supply; and an
increased concern amongst
to
sustainability.

the community

relating

New Zealand

The Group’s activities in New Zealand are conducted through
ASB Group. Through its wholly owned subsidiaries, Sovereign
Group and ASB Group Investments, ASB Group also competes
in the New Zealand insurance and investment market.

in Australia,

the New Zealand banking system

As
is
characterised by strong competition. New Zealand banking
activities are led by four financial services groups, owned by the
big four Australian major banks. In addition, there are several
financial institutions operating largely in the wholesale banking
sector. As in Australia, there is strong competition with non-bank
financial institutions in the areas of funds management and the
provision of insurance. Major trends in the New Zealand market
include continued margin pressure, a slowing housing market,
declining net migration and the commoditisation of retail lending.

Financial System Regulation in Australia

Australia has by international standards a high quality financial
financial products and services
system which
consistently regardless of the type of financial institutions
providing them.

regulates

Since July 1998, financial services regulators in Australia have
comprised five separate agencies: The Reserve Bank of
Australia, the Australian Prudential Regulation Authority, the
Australian Securities and
the
Australian Competition and Consumer Commission and the
Australian Transaction Reports and Analysis Centre. Each
the different
agency has system-wide responsibilities
objectives of government oversight of the financial system. A
description of these agencies and their general responsibilities
and functions is set out below.

Investments Commission,

for

Reserve Bank of Australia (“RBA”) is responsible for monetary
policy, financial system stability and regulation of the payments
system.

Commonwealth Bank of Australia Annual Report 2007 33

Description of Business Environment

The Australian Prudential Regulation Authority (“APRA”) has
responsibility for the prudential supervision of banks, building
insurance
societies and credit unions,
companies,
funds
(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.

friendly societies and superannuation

life and general

The Australian Securities and Investments Commission (“ASIC”)
has responsibility for regulating and enforcing Company and
financial services laws to protect consumers, investors and
creditors.

The Australian Competition and Consumer Commission
(“ACCC”) promotes competition and fair trade to benefit
the
the community
consumers, business and
administration of The Trade Practices Act 1974.

through

The Australian Transaction Reports and Analysis Centre
(“AUSTRAC”) has responsibility for overseeing compliance with
the Anti-Money Laundering and Counter Terrorism Financing
Act.

The Corporations Act 2001 provides for a single licensing
regime for sales, advice and dealings in financial products and
services, consistent and comparable financial product disclosure
and a single authorisation procedure for financial exchanges and
clearing and settlement facilities. The current financial services
regulatory framework is intended to facilitate innovation and
promote business while at the same time ensuring consumer
protection and market integrity.

The Federal Government passed into law in June 2004 a
package of proposals (known as CLERP 9) dealing with audit
regulation and corporate disclosure. CLERP 9 is designed to
ensure Australia has an effective regulatory and disclosure
framework that provides the structures and incentives for a fully
informed market.

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.

The prudential framework applied by APRA is embodied in a
series of prudential standards and other requirements including:

(i) Capital Adequacy

Under APRA capital adequacy guidelines, Australian banks are
required to maintain a ratio of capital (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 One”)
and for the Bank together with its banking subsidiaries (“Level
Two”). 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 Three”) for conglomerate groups will be
implemented to coincide with Basel II. For information on the
capital position of the Bank and Basel II, see Note 35 to the
Financial Statements.

(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 high quality liquid
assets to meet liquidity requirements.

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) and other highly liquid market securities. More
detailed comments on the Group’s liquidity and funding risks are
provided in Note 43 to the Financial Statements.

Supervisory Arrangements

(iii) Large Credit Exposures

The Bank is an Authorised Deposit-taking Institution (“ADI”)
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 and that sound management
practices are followed.

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.

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.
Exposure to 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 15 to the Financial Statements.

(iv) Ownership and Control

In pursuit of transparency and risk minimisation, the Financial
Sector (Shareholding) Act 1998 embodies the principle that
regulated financial institutions should maintain widespread
ownership. The Act applies a common 15% shareholding limit
for ADIs, 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 ACCC in relation to competition considerations
and APRA on prudential matters. The Treasurer may also
financial
delegate approval powers
institution seeks to acquire another.

to APRA where one

34 Commonwealth Bank of Australia Annual Report 2007

Description of Business Environment

The Government’s present policy is that mergers among the four
major banks will not be permitted until the Government is
satisfied that competition from new and established participants
in the financial industry, particularly in respect of small business
lending, has increased sufficiently.

financial reporting,

The financial condition of life insurance companies is monitored
through regular
lodgement of audited
accounts, the preparation of a financial conditions report
(prepared by the company’s approved actuary) and supervisory
inspections.

Proposals for foreign acquisition of Australian banks are subject
to approval by the Treasurer under the Foreign Acquisitions and
Takeovers Act 1975.

Life and general insurance companies are also subject to similar
Fit & Proper and Governance requirements as those applying to
ADIs.

(v) Banks’ Association With Non-Banks

Critical Accounting Policies and Estimates

There are formal guidelines (including maximum exposure limits)
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 the sale or
disposal of its business, or effect a reconstruction or carry on
business in partnership with another bank, without the consent
of the Commonwealth Treasurer.

(vi) Fit & Proper and Governance

ADIs are subject to APRA’s “Fit and Proper” and “Governance”
prudential standards. ADIs are required to implement a Board
approved Fit and Proper policy covering minimum requirements
for the fitness and proprietary of their responsible persons
(directors and designated members of senior management etc).
ADIs also have to comply with APRA’s Governance prudential
standard which sets out requirements for Board size and
composition,
independence of directors and other APRA
governance matters.

(vii) Supervision of Non-Bank Group Entities

The Australian life insurance company subsidiaries, general
insurance company subsidiaries and
the superannuation
trustees of the Group also come within the supervisory review 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. Trustees operating
APRA regulated superannuation entities are required to hold a
Registrable Superannuation Entity (“RSE”) licence from APRA.

insurance companies are subject

General
to prudential
standards including capital adequacy, liability valuation, risk
management and reinsurance arrangements. Compliance with
APRA regulation for general insurance companies is monitored
through regular returns, lodgement of an audited annual return,
and Auditor certification covering prudential matters.

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 and results, since they require
to make difficult, complex or subjective
management
judgements, some of which may relate to matters that are
inherently uncertain. These decisions are reviewed by a
Committee of the Board.

These include judgements as to levels of provisions for
impairment of loan balances, and actuarial assumptions in
determining life insurance policy liabilities. An explanation of
these policies and the related judgements and estimates
involved is set out below.

Provisions for Impairment

Provisions for impairment are recognised where there is
objective evidence of impairment, at an amount adequate to
cover assessed credit related losses.

Credit losses arise primarily from loans but also from other credit
instruments such as bank acceptances, financial guarantees
and commitments, contingent liabilities, financial instruments
through security
and
enforcement.

investments and assets acquired

Individually Assessed Provisions

Individually assessed provisions are raised where there is
objective evidence of impairment and full recovery of principal is
considered doubtful.

Individually assessed 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 and are measured as the difference between a
financial asset’s carrying amount and the present value of the
expected future cash flows (excluding future credit losses that
have not been incurred), discounted at the financial asset’s
original effective interest rate. Short term balances are not
discounted.

Commonwealth Bank of Australia Annual Report 2007 35

Description of Business Environment

The areas of judgement where key actuarial assumptions are
made in the determination of policyholder liabilities are:

• Business assumptions including:

− Amount, timing and duration of claims/policy payments

− Policy lapse rates

− Long term maintenance expense levels;

• 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 the
statistical analysis using their experience and judgement.

Additional information on the accounting policy is set out in Note
1 (hh) Life Insurance Business, and Note 38 Life Insurance
Business details the key actuarial assumptions.

Individually assessed provisions (in bulk) are also made against
retail segments 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 credit risks identified in specific
segments in the credit risk rated portfolio. These provisions are
derived primarily by reference to historical ratios of write-offs to
balances in default.

Individually assessed provisions are provided for from the
collective provision.

Collective Provision

All other loans and advances that do not have an individually
assessed provision are assessed collectively for impairment.

The collective provision is maintained to reduce the carrying
amount of portfolios of similar loans and advances to their
estimated recoverable amounts at the Balance Sheet date.

The evaluation process is subject to a series of estimates and
judgements.

In the credit risk rated 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 retail 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 collective provision to the level
assessed is taken to profit and loss as set out in Note 14 to the
Financial Statements.

Life Insurance Policyholder Liabilities

Life insurance policyholder liabilities on life insurance contracts
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 Balance Sheet
and are measured at net present values or, if not materially
different, on an accumulation basis after allowing for acquisition
expenses. Policyholder liabilities on life insurance contracts are
calculated in accordance with the principles of Margin on
Services (“MoS”) profit reporting as set out in Actuarial Standard
AS 1.04: Valuation of Policy Liabilities issued by the Life
Insurance Actuarial Standards Board.

36 Commonwealth Bank of Australia Annual Report 2007

Corporate Governance

The Board carries out the legal duties of its role in accordance
with the Bank’s values of trust, honesty and integrity and having
regard
the Bank’s customers, staff,
Shareholders and the broader community in which the Bank
operates.

interests of

the

The Board delegates to the Chief Executive Officer the authority
to achieve the Bank objective of creating long term Shareholder
value for its Shareholders through providing financial services to
sustained best-in-industry
its
performance in safety, community reputation and environmental
impact.

customers and providing

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:

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, and approving

the

strategies and financial objectives;

− Approving major corporate and capital initiatives and
limits

in excess of

approving capital expenditure
delegated to management;

− Establishing appropriate systems of risk management;

and

− Monitoring the performance of management;

• Approving documents (including reports and statements to
Shareholders) required by the Bank’s Constitution and
relevant regulation;

• Employment 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.

Board Membership

Position Title

Director (1)
J M Schubert

R J Norris

R J Clairs

C R Galbraith

S C H Kay

W G Kent (2)

F D Ryan

F J Swan(2)

D Turner

Non-Executive,
independent
Executive

Non-Executive,
independent
Non-Executive,
independent
Non-Executive,
independent
Non-Executive,
independent
Non-Executive,
independent
Non-Executive,
independent
Non-Executive,
independent

J S Hemstritch Non-Executive,

H H Young (3)

independent
Non-Executive,
independent

J A Anderson (4) Non-Executive,

independent

Committee Membership
Board Performance
& Renewal

People
& Remuneration

Chairman
Chief Executive Officer

Chairman

Member

Audit

Risk

Member

Chairman

Member

Chairman

Member

Member Chairman

Member

(1) Mr Daniels and Ms Ward retired at the Bank’s Annual General Meeting on 3 November 2006.

(2) Mr Kent and Mr Swan are due to retire at the Annual General Meeting to be held on 7 November 2007.

(3) Mr Young was appointed to the Board with effect from 13 February 2007. In accordance with the Bank’s constitution and the ASX Listing Rules, he will stand for

election at the Annual General Meeting to be held on 7 November 2007.

(4) Sir John was appointed to the Board with effect from 12 March 2007. In accordance with the Bank’s Constitution and the ASX Listing Rules, he will stand for election at

the Annual General Meeting to be held on 7 November 2007.

Commonwealth Bank of Australia Annual Report 2007 37

Corporate Governance

Constitution

The Constitution of the Bank specifies that:

• That no Non-Executive Director has ever been employed by

• 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 nine nor more
than 13 (or such lower number as the Board may from time
to time determine). The Board has determined that the
number of directors shall be 12; 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.

for existing Directors,

The Board has established a policy that, with a phasing in
term of Directors’
provision
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).

the

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.

themselves

to conduct

to being required

in
In addition
accordance with the ethical policies of the Bank, Directors are
required to be meticulous in their disclosure of any material
contract or relationship in accordance with the Corporations Act
and this disclosure extends to the interests of family companies
and spouses. Directors are required to strictly adhere to the
constraints on their participation and voting in relation to matters
in which they may have an interest in accordance with the
Corporations Act and the Bank's policies.

Each Director may from time to time have personal dealings with
the Bank. Each Director is involved with other companies or
professional firms which may from time to time have dealings
with the Bank. Details of offices held by Directors with other
organisations are set out in the Directors' Report and on the
Bank's website. Full details of related party dealings are set out
in notes to the Financial Statements as required by law.

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 other 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' tenures to ensure that skill sets remain
appropriate in a dynamic industry.

Education

Directors participate in an induction program 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 process includes an assessment
of the performance of the Board Committees and each Director.

the

After consideration of
the performance
assessment, the Board will determine its endorsement of the
Directors to stand for re-election at the next Annual General
Meeting.

results of

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.

All the current Non-Executive Directors of the Bank have been
assessed as
that
determination, the Board has taken into account (in addition to
the matters set out above):

independent Directors.

reaching

• The specific disclosures made by each Director as referred to

above;

• Where applicable, the related party dealings referrable to
each Director, noting that those dealings are not material
under accounting standards;

• That no Director is, or has been associated directly with, a

substantial Shareholder of the Bank;

38 Commonwealth Bank of Australia Annual Report 2007

Selection of Directors

The Board Performance and Renewal Committee has
developed a set of criteria for Director appointments which has
been adopted by the Board. The criteria are aimed at creating a
Board capable of challenging, stretching and motivating
to achieve sustained outstanding Company
management
performance in all respects. These criteria, which are reviewed
annually, aim to ensure that any new appointee is able to
contribute to the Board constituting a competitive advantage for
the Bank and:

• Be capable of operating as part of an exceptional team;

• Contribute outstanding performance and exhibit impeccable

values;

• Be capable of inputting strongly to risk management, strategy

and policy;

• Provide skills and experience required currently and for the

future strategy of the Bank;

• Be excellently prepared and receive all necessary education;

• Provide

important and significant

input and
questions to management from their experience and skill;
and

insights,

• Vigorously debate and challenge management.

regularly compares

The Committee
the skill base and
experience of existing Directors with that required for the future
strategy of the Group 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
Board Performance and Renewal 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 and relevant Board policies
including time commitment, code of ethics and continuing
education. All current Directors have been provided with a letter
confirming the terms of their appointment. A copy of the form of
letter of appointment appears on the Bank’s website.

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 Board
Performance and Renewal, People & 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;

Corporate Governance

• 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 regularly 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 Company
documents and information and to meet with management;
and

to obtain access

• The Bank has

in place a procedure whereby, after
appropriate consultation, Directors are entitled to seek
independent professional advice, at the expense of the Bank,
to assist them to carry out their duties as Directors. The
policy of the Bank provides that any such advice is generally
made available to all Directors.

Ethical Standards

Conflicts of Interest

In accordance with the Constitution and the Corporations Act
2001, Directors are required to disclose to the Board any
material contract in which they may have an interest. In
compliance with section 195 of the Corporations Act 2001 any
Director with a material personal interest in a matter being
considered by the Board will not be present when the matter is
being considered and will not vote on the matter. 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.

Share Trading

The restrictions imposed by law on dealings by Directors in the
securities of the Bank have been supplemented by the Board of
Directors adopting guidelines which further limit any such
dealings by Directors, their spouses, any dependent child, family
Company or family trust.

Commonwealth Bank of Australia Annual Report 2007 39

• Reviews accounting policies to ensure compliance with
current laws, relevant regulations and 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,
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

accounting standards, other mandatory
statutory requirements; and

their conformity with
reporting 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.

The Committee, at least annually, meets separately with each of
the chief internal audit executive and the external Auditor,
without management, as part of the process of ensuring
independence of the audit functions.

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 attributes defined under the
rules of the SEC, his responsibilities are the same as those of
the other Audit Committee members. He is not an Auditor, does
not 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 Board has
also determined that Fergus Ryan is independent within the
meaning of
the definition of audit committee member
independence used by the New York Stock Exchange.

responsible

is
the preparation of

for oversight of
The Audit Committee
management
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.

Corporate Governance

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 the date of the Annual
General Meeting until 14 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
to
executives of the Bank.

those securities. Similar restrictions apply

In addition, Bank policy prohibits:

• For Directors and executives who report to the Chief
Executive Officer, any hedging of publicly disclosed
shareholding positions; and

• For executives, any trading (including hedging) in positions

prior to vesting of shares or options.

Remuneration Arrangements

Details of the governance arrangements and policies relevant to
remuneration are set out in the Directors’ Report - Remuneration
Report.

Audit Arrangements

Audit Committee

The Charter of the Audit Committee incorporates a number of
is
to ensure
policies and practices
independent and effective. Among these are:

the Committee

that

• The Audit Committee consists entirely of independent Non-
Executive Directors, all of whom are financially literate and at
least one has expertise in financial accounting and reporting.
The Chairman of the Risk Committee is also a member of the
Audit Committee. 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 the chief internal audit executive and also
separately with the external Auditors independently of
management;

• The Audit Committee is responsible for nominating the
external Auditor
for appointment by
the Board
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 Corporations Act and
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;

40 Commonwealth Bank of Australia Annual Report 2007

Non-Audit Services

Auditor

Corporate Governance

The Board has in place an Independent Auditor Services Policy
which only permits the Independent Auditor to carry out audit
services which are required by statute and related services
which are an extension of, or an adjunct to, those audit services.
All other non-audit services are prohibited unless the Audit
Committee determines otherwise in any particular case. 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:

• Bookkeeping or services relating to accounting records or

Financial Statements of the Bank;

• Financial information systems design and implementation;

• Appraisal or valuation services and fairness opinions;

• Actuarial services;

•

Internal audit outsourcing services;

• Management functions, including acting as an employee;

• Human resources;

• Broker-dealer, investment adviser or investment 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;

• Related services connected with

lodgement of
statements or documents with the ASX, ASIC, APRA, SEC
or other regulatory or supervisory bodies;

the

• 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.

Ernst & Young was appointed as the Auditor of the Bank at the
1996 Annual General Meeting. On 12 December 2006, the
Board agreed to recommend to the 2007 Annual General
Meeting,
the appointment of PricewaterhouseCoopers as
Auditor, effective from the beginning of the 2008 financial year.

The audit partner from Ernst & Young will attend the 2007
Annual General Meeting of the Bank and will be available to
respond to Shareholder audit related questions.

The Bank currently requires that the partner managing the audit
for the external Auditor be changed within a period of five years.

The Chief Executive Officer is authorised to appoint and remove
the chief internal audit executive only after consultation with the
Audit Committee.

to comply with U.S. Auditor

Due to SEC rules that apply to various activities that the Group
continues to undertake in the United States, notwithstanding the
Bank’s De-registration under the Exchange Act (see “US
Sarbanes Oxley Act” below), the Group and its Auditor must
continue
independence
requirements. The SEC requested several years ago that the
Bank produce documents and information relating to all services
provided by the Bank’s external Auditors, Ernst & Young, since
July 1, 2000, that may impact on the independence of the
external Auditors under U.S. rules. The Bank understands that
the SEC has made similar requests to certain other Australian
companies registered with the SEC and their accounting firms.

The Bank has produced the documents and information
requested, as well as documents and information regarding
certain relationships that Ernst & Young professionals had with
the Bank. Certain of the services and relationships that are the
subject of such documents and information were or may be
impermissible under SEC
to Auditor
independence.

relating

rules

If the SEC determines that the above matters or any other
services provided by Ernst & Young to the Commonwealth Bank
Group did not comply with applicable rules, the SEC may
impose or negotiate a broad range of possible sanctions.
Although the Bank cannot predict the nature of any future action
by the SEC, based on information currently available to the
Bank, the Bank does not believe the outcome of the SEC’s
inquiry will have a material adverse financial effect on the
Commonwealth Bank Group.

Commonwealth Bank of Australia Annual Report 2007 41

Board Performance and Renewal Committee

The Board Performance and Renewal Committee of the Board
critically reviews, at least annually, the corporate governance
procedures of the Bank and the composition and effectiveness
of the Commonwealth Bank of Australia 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

in place

“Guidelines

securities. The Group’s

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
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 Group’s
activities in compliance with continuous disclosure requirements.
Management procedures are
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 Group’s Executive
Committee. Matters reported are assessed and, where required
by the Listing Rules, advised to the market. A Disclosure
Committee has been
the
requirements for disclosure of information 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.

to provide advice on

throughout

formed

Corporate Governance

Risk Management

Risk Committee

The Risk Committee oversees credit, market, and operational
risks assumed by the Group in the course of carrying on its
business.

The Committee considers the Group’s credit policies and
ensures that management maintains a set of credit underwriting
standards designed to achieve portfolio outcomes consistent
with the Group’s risk/return expectations. In addition, the
Committee
the Group’s credit portfolios and
recommendations by management for provisioning for Loan
Impairment.

reviews

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
reviews progress in implementing management procedures and
identifying new areas of exposure relating to market, funding
and liquidity risk.

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.

The Committee meets, at least annually, with the Chief Risk
Officer, in the absence of other management to allow the
Committee to form a view on the independence of the function.

Framework

The Bank has in place an integrated risk management
framework to identify, assess, manage and report risks and risk
adjusted returns on a consistent and reliable basis.

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 15 and 43 to
the Financial Statements.

42 Commonwealth Bank of Australia Annual Report 2007

Ethical Policies

Values Statement

The Group demands the highest standards of honesty and
loyalty from all its people and strong governance within the
Group.

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 to the Bank’s Equal Employment

Opportunity policy and programs;

• To maintain confidentiality in the affairs of the Group and its

customers; and

• To be absolutely honest in all professional activities.

These standards are regularly communicated to staff. In
addition, the Group 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.

Our People

The Group is committed to providing fair, safe, challenging and
rewarding work, recognising the importance of attracting and
retaining high quality staff and consequently, being in a position
to excel in customer service.

There are various policies and systems in place to enable
achievement of these goals, including:

• Fair Treatment Review;

• Equal Employment Opportunity;

• Occupational Health and Safety;

• Recruitment and selection;

• Performance management;

• Talent management and succession planning;

• Remuneration and recognition;

• Employee share plans; and

• Supporting Professional Development.

Behaviour Issues

The Group 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
the Audit
Committee, noting the status of resolution and actions to be
taken.

Corporate Governance

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
comprehensive framework of Corporate Governance Guidelines
which are designed to properly balance performance and
conformance and thereby allow the Bank to undertake, in an
effective manner, the prudent risk-taking activities which are the
basis of its business. 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

Previously the Group complied with a number of the provisions
of the Sarbanes-Oxley Act of 2002 (“SOX Act”), because it was
an SEC Registrant under the Securities Exchange Act of 1934
(“Exchange Act”). The Group announced to the Australian Stock
Exchange on 4 June 2007 that it had decided to terminate the
registration of its ordinary shares under section 12(g) and its
reporting obligations under section 15(d) of the Exchange Act
(“De-registration”). The decision to seek De-registration was
based on the Group concluding that it had access to ample
sources of external liquidity which did not depend on markets
requiring SEC registration, and that the costs associated with
complying with the complex and prescriptive US regulation as a
consequence of that registration outweighed any benefits to the
Group.

to maintain much of

the controls
The Group continues
framework established to comply with the SOX Act. Specifically,
the framework allows the Group to monitor and evaluate the
design and effectiveness of internal controls over financial
reporting that are in place to ensure that all material information
is duly disclosed in this report. However, because of De-
registration, the Bank’s external Auditor will not be required to
issue attestation reports regarding the Bank’s internal controls
over financial reporting. Therefore, there can be no independent
assurance regarding the effectiveness of those controls.

Commonwealth Bank of Australia Annual Report 2007 43

Directors’ Report

report,

together with

The Directors of the Commonwealth Bank of Australia submit
their
the
Commonwealth Bank of Australia (“the ‘Bank”) and of the
Group, being the Bank and its controlled entities, for the year
ended 30 June 2007.

report of

financial

the

The names of the Directors holding office during the financial
year are set out below together with details of Directors’
experience,
and
organisations in which each of the Directors has declared an
interest.

responsibilities

qualifications,

special

John M Schubert, Chairman

Dr Schubert has been a member of the Board since 1991 and
Chairman since November 2004. He is Chairman of the Board
Performance & Renewal Committee and a member of the
People & Remuneration Committee. He was a member of the
Risk Committee until 30 April 2006. He holds a Bachelor’s
Degree and PhD in Chemical Engineering and has executive
experience in the petroleum, mining and building materials
industries. Dr Schubert is the former Managing Director and
Chief Executive Officer of Pioneer International Limited and the
former Chairman and Managing Director of Esso Australia Ltd.

Chairman: G2 Therapies Limited, Great Barrier Reef
Foundation.

Director: BHP Billiton Limited, BHP Billiton Plc and Qantas
Airways Limited.

Interests: Academy of Technological Science and
Other
Engineering (Fellow),
Institute of Engineers (Fellow) and
Honorary Member & Past President, Business Council of
Australia.

Dr Schubert is a resident of New South Wales. Age 64.

Ralph J Norris, DCNZM, Managing Director and Chief
Executive Officer

Mr Norris was appointed as Managing Director and Chief
Executive Officer with effect from September 2005. Mr Norris
had been Chief Executive Officer and Managing Director of Air
New Zealand since 2002 and had been a Director of that
Company since 1998. He retired from that Board in 2005 to take
up his position with the Bank. He is a member of the Risk
Committee.

Prior to his appointment at Air New Zealand, Mr Norris had a 30
year career in Banking. He was Chief Executive Officer of ASB
Bank Limited from 1991 until 2001 and Head of International
Financial Services from 1999 until 2001.

In 2005, Mr Norris retired from the Board of Fletcher Building
Limited where he had been a Director since 2001.

Other Interests: New Zealand Institute of Management (Fellow)
and New Zealand Computer Society (Fellow).

Mr Norris is a resident of New South Wales. Age 58.

Reg J Clairs, AO

Mr Clairs has been a member of the Board since 1999 and is
Chairman of the People & Remuneration Committee. As the
former Chief Executive Officer of Woolworths Limited, he had 33
years experience in retailing, branding and customer service.

Chairman: The Cellnet Group

Director: David Jones Limited

Other Interests: Australian Institute of Company Directors
(Member).

Mr Clairs is a resident of Queensland. Age 69.

44 Commonwealth Bank of Australia Annual Report 2007

Colin R Galbraith, AM

Mr Galbraith has been a member of the Board since 2000 and is
a member of the Audit Committee and Board Performance &
Renewal Committee. He is a special advisor for Gresham
Partners Limited.

Chairman: BHP Billiton Community Trust.

Director: OneSteel Limited and Australian Institute of Company
Directors.

Other Interests: CARE Australia (Director) and Royal Melbourne
Hospital Neuroscience Foundation (Trustee).

Mr Galbraith is a resident of Victoria. Age 59.

S Carolyn H Kay

Ms Kay has been a member of the Board since 2003 and is also
a member of
the People & Remuneration and Audit
Committees. 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: Brambles Industries Limited and Starlight Foundation.

Other Interests: Australian Institute of Company Directors
(Fellow) and Allens Arthur Robinson (External Member of the
Board).

Ms Kay is a resident of New South Wales. Age 45.

Warwick G Kent, AO

Mr Kent has been a member of the Board since 2000 and is a
member of the Audit and Risk Committees. He was previously a
Director of Colonial Limited, appointed in 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.

Other Interests: Walter and Eliza Hall Trust (Trustee), Australian
Institute of Company Directors (Fellow), Australian Society of
CPAs (Fellow), Finsia (Senior Fellow) and the Chartered
Institute of Company Secretaries (Fellow).

Mr Kent is a resident of Western Australia. Age 71.

Fergus D Ryan

Mr Ryan has been a member of the Board since 2000 and is
Chairman of the Audit Committee and a member of the Risk
Committee. He has extensive experience in accounting, audit,
finance and risk management. He was a senior partner of Arthur
Andersen until his retirement in 1999 after 33 years with that firm
including five years as Managing Partner Australasia. Until 2002,
he was Strategic Investment Co-ordinator and Major Projects
Facilitator for the Commonwealth Government.

Member: Prime Minister's Community Business Partnership and
Chairman of the Partnership Sub Committee on Corporate
Social Responsibility.

Director: Australian Foundation Investment Company Limited,
Clayton Utz, National Australia Day Council and Deputy
Chairman for National Library of Australia.

Other Interests: Committee for Melbourne (Counsellor) and
Pacific Institute (Patron).

Mr Ryan is a resident of Victoria. Age 64.

Directors’ Report

Frank J Swan

Mr Swan has been a member of the Board since 1997 and is
Chairman of the Risk Committee and a member of the Audit
Committee and Board Performance and Renewal Committee.
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.

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 66.

David J Turner

Mr Turner was appointed to the Board in August 2006 and is a
member of the Risk Committee.

Until his retirement on 30 June 2007, Mr Turner was CEO of
Brambles. He occupied that role since October 2003. He joined
Brambles as Chief Financial Officer in 2001 having previously
been Finance Director of GKN plc. Mr Turner has also served as
a member of the Board of Whitbread plc and as Chairman of its
Audit Committee from 2000 until 2006. He is a Fellow of The
Institute of Chartered Accountants in England and Wales and
has wide experience in finance, international business and
governance.

Chairman: Asia Society AustralAsia Centre

Director: Florey Neuroscience Institutes and Financial Services
Volunteer Corps in New York

Mr Young is a resident of Victoria. Age 62.

Sir John A Anderson, KBE

Sir John joined the Board on 12 March 2007. He is a member of
the Risk Committee. Sir John is a highly respected business and
community leader, having held many senior positions in New
Zealand finance including Chief Executive and Director of ANZ
National Bank Limited from 2003 to 2005 and the National Bank
of New Zealand Limited from 1989 to 2003.

In 1994, Sir John was awarded Knight Commander of the Civil
Division of the Order of the British Empire, and in 2005 received
the
“Outstanding Leadership
inaugural Blake Medal
Contributions to New Zealand”.

for

Chairman: Television New Zealand Limited and New Zealand
Cricket Inc.

Director: International Cricket Council

Other Interests: Institute of Financial Professionals New Zealand
(Fellow), Institute of Directors (Fellow), New Zealand Society of
Accountants (Fellow) and Australian Institute Banking and
Finance (Life Member).

Sir John is a resident of Wellington, New Zealand. Age 61.

Director: Brambles Limited

A B (Tony) Daniels, OAM, retired 3 November 2006

Mr Turner is a resident of New South Wales. Age 62.

Jane S Hemstritch

Ms Hemstritch was appointed to the Board effective 9 October
2006 and is a member of the People & Remuneration
Committee.

Ms Hemstritch was Managing Director - Asia Pacific, Accenture
Limited from 2004 until her retirement in February 2007. In this
role, she was a member of Accenture’s global executive
leadership team and oversaw the management of Accenture’s
business portfolio in Asia Pacific. She holds a Bachelor of
Science Degree in Biochemistry and Physiology and has
professional expertise in technology, communications, change
management and accounting. She also has experience across
the financial services, telecommunications, government, energy
and manufacturing sectors and in business expansion in Asia.

Director: The Global Foundation

Other Interests: Institute of Chartered Accountants in Australia
(Fellow), Institute of Chartered Accountants in England and
Wales (Fellow), Chief Executive Women Inc. (Member) and
Council of Governing Members of The Smith Family.

Ms Hemstritch is a resident of Victoria. Age 54.

Harrison H Young

Mr Young joined the Board on 13 February 2007. He is a
member of the Risk Committee. At the time of appointment to
the Board, Mr Young retired as Chairman of Morgan Stanley
Australia, a position he had held since 2003. In an investment
banking career of more than thirty years, he did business in
twenty countries and advised eight foreign governments. From
1997 to 2003 he was a Managing Director and Vice Chairman of
Morgan Stanley Asia. Prior to that he spent two years in Beijing
as Chief Executive of China International Capital Corporation.
From 1991 to 1994 he was a senior officer of the Federal
Deposit Insurance Corporation in Washington.

Mr Daniels was a member of the Board from 2000 until his
retirement in November 2006. He was also a member of the
People & Remuneration and Risk Committees. He has
extensive experience in manufacturing and distribution, being
Managing Director of Tubemakers of Australia for eight years to
1995, during a long career with that Company. In addition to
serving as a Director of various public companies, he has also
worked with government in superannuation, competition policy
and export facilitation.

Director: 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 72.

Barbara K Ward, retired 3 November 2006

Ms Ward was a member of the Board from 1994 until her
retirement in November 2006. She was also a member of the
Audit and Risk Committees. She holds Bachelor of Economics
and Master of Political Economy degrees 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, Allco Finance Group Limited,
Multiplex Limited and Multiplex Funds Management Limited.

Other Interests: Sydney Opera House Trust (Trustee) and
Australian Institute of Company Directors (Member).

Ms Ward is a resident of New South Wales. Age 53.

Commonwealth Bank of Australia Annual Report 2007 45

Directors’ Report

Other Directorships

The Directors held directorships on other listed companies within the last three years as follows:

Director

Company

J M Schubert

BHP Biliton Limited
BHP Biliton Plc
Qantas Limited
Worley Group Limited

R J Norris

Air New Zealand Limited
Fletcher Building Limited

R J Clairs

David Jones Limited
Cellnet Group Limited

Date Appointed

Date of Ceasing
(if applicable)

01/06/2000
29/06/2001
23/10/2000
28/11/2002

18/02/2002
17/04/2001

22/02/1999
01/07/2004

28/02/2005

30/08/2005
09/08/2005

A B Daniels

AGL Energy Limited

04/08/1999

18/10/2005

C R Galbraith

OneSteel Limited
GasNet Australia Group

S C H Kay

Brambles Industries Limited
Symbion Health Limited

W G Kent

West Australian Newspaper Holdings Limited
Coventry Group Limited
Perpetual Trustees Australia Limited (Group)

F D Ryan

Australian Foundation Investment Company Limited

F J Swan

Foster’s Group Limited
National Foods Limited
Southcorp Limited

D J Turner

Brambles Limited

B K Ward

Lion Nathan Limited
Multiplex Group
Allco Finance Group Limited

Directors’ Meetings

10/11/2006

02/03/2007

01/11/2006
06/11/2006
31/07/2005

30/06/2005
29/07/2005

25/10/2000
17/12/2001

01/06/2006
28/09/2001

02/02/1998
01/07/2001
01/05/1998

08/08/2001

26/08/1996
11/03/1997
26/05/2005

21/03/2006

20/02/2003
26/10/2003
29/04/2005

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 of Australia during the financial year were:

Director

J M Schubert
R J Norris
R J Clairs
C R Galbraith
S C H Kay
W G Kent
F D Ryan
F J Swan
D J Turner
J S Hemstritch
H H Young
J A Anderson
A B Daniels
B K Ward

No. of Meetings

(1)

(2)

Held
12
12
12
12
12
12
12
12
12
8
4
3
6
6

Attended
12
12
12
12
12
12
11
11
12
8
4
3
6
6

(1) The number of meetings held during the time the Director was a member of the Board.

(2) Ms Hemstritch was appointed effective 9 October 2006. Mr Young was appointed effective 13 February 2007. Sir John was appointed effective 12 March 2007. Mr

Daniels and Ms Ward retired 3 November 2006.

46 Commonwealth Bank of Australia Annual Report 2007

Committee Meetings

Risk Committee

Audit Committee

People & Remuneration
Committee

Directors’ Report

Director

J M Schubert
R J Norris
R J Clairs
C R Galbraith
S C H Kay
W G Kent
F D Ryan
F J Swan
D J Turner
J S Hemstritch
H H Young
J A Anderson
A B Daniels
B K Ward

Director

J M Schubert
C R Galbraith
F J Swan

No. of Meetings

(1)

Held
6
7
2
2
2
7
7
7
7
1
2
2
2
2

No. of Meetings
Attended
6
7
2
2
2
7
7
7
7
1
2
2
2
2

No. of Meetings

(1)

Held

No. of Meetings
Attended

No. of Meetings

(1)

Held
8

8
5
8
8
5

No. of Meetings
Attended
8

Board Performance & Renewal
Committee

No. of Meetings

(1)

Held
8
8
8

No. of Meetings
Attended
8
8
8

(1) The number of meetings held during the time the Director was a member of the relevant committee.

Principal Activities

integrated

financial services

institutional banking, superannuation,

The Commonwealth Bank Group is one of Australia’s leading
including retail,
providers of
life
business and
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, credit
cards, retail deposits and discount stockbroking, and is one of
Australia’s largest issuers of personal loans. The Group also
offers a full range of commercial products including business
loans, equipment and trade finance, and rural and Agribusiness
products. For corporate and institutional clients, the Group offers
a broad range of structured finance, equities and advisory
solutions, financial markets and equity markets solutions,
transactions banking, and merchant acquiring.

The Group has full service banking operations in New Zealand,
Fiji and Indonesia.

The Group also has wholesale banking operations in London,
New York, Hong Kong, Singapore, Indonesia, regions of China,
Tokyo and Malta.

(ii) Funds Management

The Group is Australia’s largest funds manager and largest retail
funds manager in terms of its total value of Funds Under
Administration, and is Australia's largest manager in retail
superannuation pensions and annuities by Funds Under
Management. The Group’s funds management business is
managed as part of the Wealth Management 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.

The Group also has funds management businesses in New
Zealand, the UK and Asia.

(iii) Insurance

The Group provides term life insurance, investment contracts,
annuities, master trusts, investment products and household
general insurance.

The Group is Australia’s largest insurer based on life insurance
assets held.

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 net profit after income tax and minority interests for
the financial year ended 30 June 2007 was $4,470 million (2006:
$3,928 million).

The net operating profit for the year ended 30 June 2007 after
tax, and before defined benefit superannuation plan adjustment,
valuation adjustment, one-off AIFRS
treasury
mismatches and Shareholder investment returns was $4,508
million. This is an increase of $666 million or 17% over the year
ended 30 June 2006.

The principal contributing factors to the profit increase were
strong growth in banking income following growth in average
lending assets. Funds management and insurance income
growth was strongly supported by solid growth in both Funds
Under Administration and inforce premiums.

Commonwealth Bank of Australia Annual Report 2007 47

Directors’ Report

Operating expense growth was 7%, driven by salary increases,
the commencement of spend on a number of strategic initiatives
and ongoing compliance expenditure, partly offset by the
realisation of expense savings.

Dividends

The Directors have declared a fully franked (at 30%) final
dividend of 149 cents per share amounting to $1,939 million.
The dividend will be payable on 5 October 2007 to Shareholders
on the register at 5pm on 24 August 2007. Dividends paid in the
year to 30 June 2007 were as follows:

• As declared in the 30 June 2006 Annual Report, a fully
franked final dividend of 130 cents per share amounting to
$1,668 million was paid on 5 October 2006. The payment
comprised cash disbursements of $1,368 million with $300
million being reinvested by participants through the Dividend
Reinvestment Plan; and

•

In respect of the year to 30 June 2007, a fully franked interim
dividend of 107 cents per share amounting to $1,380 million
was paid on 5 April 2007. The payment comprised cash
disbursements of $862 million with $518 million being
reinvested
the Dividend
Reinvestment Plan.

participants

through

Review of Operations

An analysis of operations for the financial year is set out in the
Highlights section in pages 6 to 9 and in the sections for
Banking, Funds Management and Insurance on pages 10 to 13,
20 to 21 and 24 to 25. A review of the financial condition of the
Bank is set out in the Highlights on page 6.

Changes in State of Affairs

During the year, the Group continued to make significant
progress in implementing a number of strategic initiatives.

The initiatives are designed to ensure a better service outcome
for the Group’s customers.

Progress within the major initiatives included the following:

• The continued utilisation of CommSee, the Group’s market-
leading customer information and management system, as a
central element of sales and service processes;

•

Improvements to the product range as illustrated by the
awarding of five star ratings* to many of the Bank’s deposit
accounts and credit card products; (*Source: Cannex)

•

Introduction of 130 Branch Insurance Representatives as
part of the cross-sell initiative positively impacting on General
Insurance sales (30% increase in new business sales).

There were no significant changes in the state of affairs of the
Group during the financial year.

48 Commonwealth Bank of Australia Annual Report 2007

Events Subsequent to Balance Date

On 1 June 2007, the Bank announced an offer of Perpetual
Exchangeable Resalable Listed Securities (PERLS IV). The
offer raised $1,465 million in July 2007. The issue of PERLS IV
forms part of
the Bank’s capital management strategy,
structured to meet APRA’s new regulatory capital requirements
for Non-Innovative Residual Tier One Capital, effective January
2008. At 30 June 2007 this would increase Tier 1 to 7.72% and
and Total Capital to 10.35%.

On 1 August 2007, the Bank announced that it had made a $373
million takeover bid via scheme of arrangement for the broking
and wealth management company IWL Limited for $6.57 per
share. Should this acquisition proceed, this would result in a
for
deduction against Tier One, Total Capital and ACE
intangibles and goodwill created from acquisition. Given the
Bank's strong level of capitalisation, it is expected this will have a
minimal impact.

The Directors are not aware of any other matter or circumstance
that has occurred since the end of the financial year that has
significantly affected or may significantly affect the operations of
the Group, the results of those operations or the state of affairs
of the Group in subsequent financial years.

Business Strategies and Future Developments

Accommodation Strategy

On 12 July 2006 the Bank announced its strategy to relocate
approximately 5,000 staff from the Sydney Central Business
District (CBD) to Sydney Olympic Park or Parramatta by 2009-
2010. This would result in rationalisation of the existing Sydney
CBD property space.

In July 2007 the Group reassessed its plans and it is currently
intended that only approximately 3,500 staff will relocate, with an
additional 2,500 staff to be situated in the Sydney CBD. A
number of relocations have already taken place within Sydney
CBD premises. These have not had a material financial impact
on the Group’s results.

In the majority of cases the relocations are in line with the Bank’s
lease expiry profile. Where lease expiries occur beyond the
relocation dates, opportunities will be taken to sub-let the space.
At this stage, it is not anticipated that future relocations will have
a material financial impact on the Bank’s results

Business Strategies

Business strategies, prospects and future developments, which
may affect the operations of the Group in subsequent financial
years, are referred to in the Chief Executive Officer’s Statement
on page 4. In the opinion of the Directors, disclosure of any
further information on likely developments in operations would
be unreasonably prejudicial to the interests of the Group.

Environmental Regulation

The Energy Efficiency Opportunities Act 2006 (EEO) which aims
to promote energy efficiencies by business, commenced on 1
July 2006.

The Group, including several Colonial First State managed
funds, is required to comply with the EEO, and has registered
with the Federal Government for this purpose.

The EEO requires the Group to lodge a 5 year energy efficiency
assessment plan by 31 December 2007, and to report to the
Government and publicly by 31 December 2008, and each
subsequent year, on assessments carried out under the plan.

Directors’ Report

The Group does not anticipate any obstacles in complying with
the legislation. Considerable energy efficiency work has already
been undertaken, including the metering of energy use across
the Group during the last five years.

The Group is not subject to any other 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 Group has developed credit policies to ensure this is
managed appropriately.

Directors’ Shareholdings

(b) to such other officers, employees, former officers or former
employees of the Company or of its related bodies corporate as
the directors in each case determine,

(each an “Officer” for the purposes of this article).

19.2 Indemnity

The Company must indemnify each Officer on a full indemnity
basis and to the full extent permitted by law against all losses,
liabilities, costs, charges and expenses (“Liabilities”) incurred by
the Officer as an officer of the Company or of a related body
corporate.

Particulars of shares held by Directors in the Commonwealth
Bank or in a related body corporate are set out in the
Remuneration Report within this report.

19.3 Extent of indemnity

The indemnity in article 19.2:

Options

An Executive Option Plan
(“EOP”) was approved by
Shareholders at the Annual General Meeting on 8 October 1996
and its continuation was further approved by Shareholders at the
Annual General Meeting on 29 October 1998. At the 2000
Annual General Meeting, 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 hurdle for the 2001 ERP grant was met.

All option grants have now met their specified performance
hurdles and are available for exercise by participants.

During the financial year and for the period to the date of this
report 696,400 shares were allotted by the Bank consequent to
the exercise of options granted under the EOP and ERP. Full
details of the Plan are disclosed in Note 33 to the Financial
Statements. No options have been allocated since the beginning
of the 2002 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.

No options have previously been granted to the Chief Executive
Officer. Refer to the Remuneration Report within this report for
further details.

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

Articles 19.1, 19.2 and 19.3 of the Commonwealth Bank of
Australia’s Constitution provides:

“19. Indemnity

19.1 Persons to whom articles 19.2 and 19.4 apply

Articles 19.2 and 19.4 apply:

(a) to each person who is or has been a Director, secretary or
senior manager of the Company; and

(a) is enforceable without the Officer having to first incur any
expense or make any payment;

(b) is a continuing obligation and is enforceable by the Officer
even though the Officer may have ceased to be an officer of the
Company or its related bodies corporate; and

An indemnity for employees, who are not directors, secretaries
or senior managers, is not expressly restricted in any way by the
Corporations Act 2001.

The Directors, as named on pages 44 and 45 of this report, and
the Secretaries of the Commonwealth Bank of Australia, being J
D Hatton, and C F Collingwood are indemnified under article
19.1, 19.2 and 19.3 as are all the senior managers of the
Commonwealth Bank of Australia.

Deeds of indemnity have been executed by Commonwealth
Bank of Australia consistent with the above articles in favour of
each Director.

A deed poll has been executed by Commonwealth Bank of
Australia consistent with the above articles in favour of each
secretary and senior manager of the Bank, each Director,
secretary and senior manager of a related body corporate of the
Bank (except where in the case of a partly owned subsidiary the
person is a nominee of an entity which is not a related body
corporate of the Bank unless the Bank's Chief Executive Officer
has certified that the indemnity shall apply to that person), and
any employee of the Bank or any related body corporate of the
Bank who acts as a Director or secretary of a body corporate
which is not a related body corporate of the Bank.

Directors’ and Officers’ Insurance

The Commonwealth Bank has, during the financial year, paid an
insurance premium in respect of an insurance policy for the
benefit of those named and referred to above and the directors,
secretaries, executive officers and employees of any related
bodies corporate as defined in the insurance policy. The
insurance grants indemnity against liabilities permitted to be
indemnified by the Company under Section 199B of the
Corporations Act 2001. In accordance with commercial practice,
the insurance policy prohibits disclosure of the terms of the
policy including the nature of the liability insured against and the
amount of the premium.

Commonwealth Bank of Australia Annual Report 2007 49

Directors’ Report - Remuneration Report

Remuneration Report

Key Terms

Introduction

Remuneration Philosophy

People & Remuneration Committee

Remuneration for the Year Ended 30 June 2007

Remuneration Mix

Fixed Remuneration

Short Term Incentive (STI)

Long Term Incentive (LTI)

Equity Reward Plan (ERP) and Equity Reward (Performance Unit) Plan (ERPUP) Modification

Group Performance for the Year Ended 30 June 2007

Short Term Performance

Summary of Group Performance

Long Term Performance

Enhanced Remuneration Framework from 1 July 2007

Objectives

Outcomes

Key Drivers

STI Enhancements

LTI Enhancements

Benefits for Key Stakeholders

New Variable Remuneration Life Cycle – Year Ended 30 June 2008

Directors’ Remuneration

Managing Director and CEO

Non-Executive Directors

Remuneration of Key Management Personnel and Other Executives

Remuneration of Directors

Remuneration of Executives

Termination Arrangements

STI Allocations

LTI Allocations

Equity Holdings of Key Management Personnel and Other Executives

Shareholdings

Share Trading Policy

Option Holdings

Shares Vested

Total Loans

Individual Loans

Terms and Conditions of Loans

Other Transactions

50 Commonwealth Bank of Australia Annual Report 2007

Directors’ Report - Remuneration Report

Key Terms

To assist readers a number of key terms and abbreviations used in the Remuneration Report are set out below:

Term

Definition

Australian Equivalents to
International Financial
Reporting Standards (AIFRS)

Australian Generally
Accepted Accounting
Principles (AGAAP)

Base Remuneration

The Australian equivalent to International Financial Reporting Standards (AIFRS) adopted by the Group from 1
July 2005.

The financial reporting standards adopted by the Group up to and including the year ended 30 June 2005.

Cash and non-cash remuneration paid regularly with no performance conditions. Calculated on a total cost basis
and includes any Fringe Benefits Tax related to Salary Packaging.

Board

Committee

The Board of Directors of the Bank.

The People & Remuneration Committee of the Board.

Earnings Per Share (EPS)

The portion of a company's net profit after tax allocated to each outstanding ordinary share.

Equity Reward (Performance
Units) Plan (ERPUP)

A cash-based Equity Reward Plan (see below) replicator scheme where grants are delivered in the form of
Performance Units.

Equity Reward Plan (ERP)

The Group's long term incentive plan in place for grants made up to and during the year ended 30 June 2007.

Fixed Remuneration

Consists of Base Remuneration plus employer contributions to superannuation. For further details please refer
to page 53.

Group

Commonwealth Bank of Australia and its subsidiaries.

Group Leadership Rights
Plan (GLRP)

International Financial
Reporting Standards (IFRS)

The Group's long term incentive plan to apply from 1 July 2007 for the CEO and Group Executives.

Reporting standards which have been adopted by the International Accounting Standards Board (IASB), an
independent, international organisation supported by the professional accountancy bodies. The IASB objective
is to achieve uniformity and transparency in the accounting principles used by businesses and other
organisations for financial reporting globally.

Key Management Personnel

Persons having authority and responsibility for planning, directing and controlling the activities of the entity,
directly or indirectly, including any Director (whether executive or otherwise) of that entity.

Long Term Incentive (LTI)

Grants to participating executives of ordinary shares in the Bank that vest if, and to the extent that, a
performance hurdle is met over at least a three year period. For further details please refer to page 54.

NPAT

Options

Other Executives

Peer Group

PACC

Remuneration

Net profit after tax.

A right to acquire a Bank share on payment of an exercise price if relevant performance hurdles are met.

Those executives who are not Key Management Personnel but are amongst the “Company Executives” or
“Group Executives” as defined by the Corporations Act 2001 and for whom disclosure is required in accordance
with section 300A(1)(c) of the Corporations Act 2001.

The group of competitors that the Group is compared to in order to determine if the performance hurdle is met
under the ERP and ERPUP.

Net profit after capital charge.

All forms of consideration paid, payable or provided by the Group, or on behalf of the Group, in exchange for
services rendered to the Group. In reading this report, the term “remuneration” means the same as the term
“compensation” for the purposes of the Corporations Act 2001 and the accounting standard AASB124.

Remuneration Mix

The weighting of each component of remuneration (Fixed Remuneration, STI and LTI) for each employee group.

Reward Shares

Shares in the Bank granted under the Equity Reward Plan and subject to a performance hurdle.

Salary Packaging

An arrangement where an employee agrees to forego part of his or her cash component of Base Remuneration
in return for non-cash benefits of a similar value.

Short Term Incentive (STI)

Remuneration paid with direct reference to the individual’s performance over the preceding financial year. For
further details please refer to page 53.

STI Deferral

Withholding a portion of STIs for later payment. For STI payments made for the 2007 financial year, a portion of
STI is withheld for one year and paid in cash for the CEO, executives who (in a reporting sense) are no more
than two levels removed from the CEO and some other executives. For further details please refer to page 53.

Total Shareholder Return
(TSR)

Calculated by combining the reinvestment of dividends and the movement in the Bank’s share price and utilised
as a performance hurdle for the ERP and ERPUP.

Commonwealth Bank of Australia Annual Report 2007 51

Directors’ Report - Remuneration Report

Introduction

The Group’s remuneration strategy has supported its people
engagement objectives and provided employees with
competitive remuneration and valuable rewards for outstanding
performance. It has supported the key behaviours which
generate Shareholder value and are necessary to support
achievement of the Group’s vision.

People & Remuneration Committee

The People & Remuneration Committee of the Board consists
entirely of independent Non-Executive Directors.

It is this independence which allows the Committee to ensure
that the Group’s remuneration framework can reflect the guiding
principles of its remuneration philosophy.

The Committee has an active and ongoing role in evaluating any
proposed enhancements to the framework, and seeks advice
and information from independent sources in order to satisfy
itself
remain
that
competitive.

remuneration practices

the Group’s

The Committee oversees all executive
arrangements and currently consists of:

remuneration

• Mr Clairs (Chairman);

• Ms Hemstritch (from 9 October 2006);

• Ms Kay; and

• Dr Schubert.

Mr Daniels served as a member of the Committee until his
retirement on 3 November 2006.

The CEO attends Committee meetings by invitation, but does
not attend in relation to matters that can affect him.

The Committee’s activities are governed by its terms of
reference, which are available on the Group’s website at
http://shareholders.commbank.com.au.

the Group and

This Remuneration Report sets out the Group’s remuneration
framework
for Key Management Personnel and Other
Executives. It demonstrates the links between the performance
It discloses
of
remuneration arrangements, equity holdings, loans and other
transactions for Key Management Personnel. This report meets
the disclosure requirements of both accounting standard
AASB124, and the Corporations Act 2001.

individuals’ remuneration.

The employment and remuneration environment is an area of
significant challenge for the financial services industry. To meet
the challenges, and remain competitive in the employment field,
the Group has committed to investing resources to develop and
enhance its remuneration framework.

The 2008 financial year will see some significant and exciting
enhancements to the Group’s remuneration arrangements.
These enhancements aim to strengthen the motivation of
executives to produce superior performance.

Remuneration Philosophy

The guiding principles of the Group’s remuneration philosophy
for all Key Management Personnel, Other Executives and
employees generally are:

• To motivate employees to produce superior performance in

achieving the Group’s vision;

• To be transparent, and

to be simple to understand,

administer and communicate;

• To be competitive; and
• To be flexible enough to ensure that the remuneration
arrangements for specific roles can reflect the external
market.

The Group has enjoyed success over the years in delivering
solid Shareholder returns. The guiding principles of
the
remuneration philosophy support this success.

52 Commonwealth Bank of Australia Annual Report 2007

Directors’ Report - Remuneration Report

Remuneration for the Year Ended 30 June 2007

The Group provides remuneration for its employees in the
following components:

The Group’s remuneration structure is designed to motivate
employees for quality short and long term performance.

• Fixed Remuneration;

• Short Term Incentive (STI); and

• Long Term Incentive (LTI).

The weighting of each of these components differs for each
employee, depending on their role and seniority within the
Group. Typically, there is greater weighting on the variable
components (STI and LTI) for more senior employees.

Remuneration Mix

The relationship of fixed and variable remuneration (potential
short term and long term incentives) is approved for each level
of executive management by the Committee.

Where market practice requires, the structure for some specialist
(high revenue-generating) roles differs from that which generally
applies. For such specialists, a greater proportion of the variable
component of remuneration may be in STI rather than LTI, but
the overall mix of remuneration is still heavily weighted towards
“at risk” pay.

For the financial year ended 30 June 2007, the target
remuneration mixes that applied for all individuals in each of the
following executive groups are:

Target Remuneration Mix

Fixed

STI

CEO

23%

33%

LTI

44%

Group Executives

30%

40%

Executive General Managers

40%

30%

General Managers

50%

35%

15%

Fixed Remuneration

Fixed Remuneration comprises Base Remuneration, calculated
on a total cost basis including the cost of Salary Packaging and
employer contributions to superannuation. (Note that Salary
Packaging arrangements are available
to employees on
individual contracts and to a limited extent to some other
employees.)

For the year ended 30 June 2007, STI payments for General
Managers and above were based on a combination of Group-
wide, Business Unit and individual performance, as assessed
through the Group’s performance management system. Group-
wide and Business Unit performance is assessed against the
factors discussed earlier.

The Group sets Fixed Remuneration competitively, facilitated by
regular independent benchmarking analysis and advice.

Short Term Incentive (STI)

All employees participate in some form of STI arrangement.
Individual STI potentials (as applicable) are set at the beginning
of the financial year.

The Committee, in conjunction with the Board, determines the
pool of STI payments available for the performance year with
reference to the Group’s business performance relative to
targets. Those targets that are not disclosed are commercially
sensitive.

The assessment of business performance takes into account
factors which include financial results and progress against the
Group’s five strategic priorities of Customer Service, Business
Banking, Technology and Operational Excellence, Trust and
Team Spirit and Profitable Growth.

reference

Individual performance for Key Management Personnel and
other executives is assessed by measuring actual results of key
targets and
performance
indicators against operating
behavioural standards with
their area of
responsibility. Examples of key performance indicators can
include profitability, market share, asset growth, costs and
strategic priorities. These targets are set at the beginning of the
financial year and payments are determined through the Group’s
performance management framework. Employees generally do
not receive an STI payment unless their individual performance
is at least meeting expectations.

For the performance year ended 30 June 2007, STI deferral
applied for the CEO, Group Executives, Executive General
Managers and some other executives. These STI payments
were delivered in two components:

• 50% as an immediate cash payment; and

• 50% paid as cash, deferred for one year, plus interest on the
deferred amount. Generally, the employee will need to
remain in employment with the Group up to the end of the
deferral period to receive this portion.

Commonwealth Bank of Australia Annual Report 2007 53

Directors’ Report - Remuneration Report

Long Term Incentive (LTI)

The Group’s LTI arrangements for grants made up to and during
the year ended 30 June 2007 are known as the Equity Reward
Plan (ERP). Selected executives in General Manager roles and
above have participated in this plan. Grants are delivered in the
form of ordinary shares in the Bank that vest in the executive in
some proportion, to the extent that a performance hurdle is met.

For a limited number of executives, a cash-based ERP replicator
plan is operated where grants are delivered in the form of
Performance Units. This is known as the Equity Reward
(Performance Unit) Plan (ERPUP).

Grants under the ERP and ERPUP (“the LTI plans”) are made at
the commencement of the financial year and are subject to a
performance hurdle. For the July 2006 grant, if the Bank’s Total
Shareholder Return (TSR) meets the 51st percentile of a Peer
Group of Australian financial services companies, over a three to
four year period, a proportion of the grant will vest according to
the vesting scale below and the grant will close.

The percentage of shares vesting rises with
increased
performance. To receive the full value of the LTI grant, the
Group’s performance must be in the top quartile of the Peer
Group.

Relative TSR was selected as the performance measure based
on its link to Shareholder value.

For the July 2006 grant, initial testing will occur in July 2009.
Otherwise, one re-test applies at which time the grant will close.
Arrangements were adjusted for this grant to restrict re-testing to
only occur on one occasion, 12 months after initial testing, at
which time a maximum of 50% of the original grant may vest.

The People & Remuneration Committee believes that the re-
testing opportunity is appropriate given the small Peer Group
and the relative volatility in rankings that can result from this.
Given that only a maximum of 50% of the shares can vest on re-
testing, the Committee is satisfied that the performance hurdle is
suitably challenging for the July 2006 grant.

Summary of performance hurdle for LTI Plan grants

The table below provides a summary of the LTI plan grants from previous years that were in operation during the year ended 30 June
2007.

Year of
Grant
2002
2003
2004
2005
2006

Performance Period
Aug 2002 to Oct 2005
Aug 2003 to Oct 2006
Sept 2004 to Sept 2007
July 2005 to July 2008
July 2006 to July 2009

Retesting
Every 6 months to Oct 2007
Every 6 months to Oct 2008
Every 6 months to Sept 2009
Every 6 months to July 2010
Once only in July 2010, if necessary

Expiry date
if unvested
2 Oct 2007
1 Oct 2008
23 Sept 2009
14 July 2010
15 July 2010

Status
as at 30 June 2007
50% vested
100% vested
78th percentile
82nd percentile
80th percentile

The vesting scales of the above grants are as follows, based on the relative TSR performance hurdle:

Years of Grant
2002, 2003, 2004 & 2005

2006

Vesting Scale
<50th percentile = Nil Shares
50th – 67th percentile = 50% - 75% of shares
68th – 75th percentile = 76% - 100% of shares
<51st percentile = Nil Shares
51st – 75th percentile = 50% - 100% of shares

The straight line vesting between the 51st and 75th percentile
for the July 2006 grant simplifies the plan, while maintaining a
suitably challenging performance hurdle.

In assessing whether the performance hurdles for each grant
have been met, the Group receives independent data from
Standard & Poor’s 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 by ranking each company in the
Peer Group and the Bank in order of TSR growth from the
commencement of each grant.

A weighting for each company in the Peer Group is determined
by dividing the market capitalisation of the relevant company by
the total market capitalisation of the Peer Group. The Bank’s
percentile ranking is determined by aggregating the calculated
weighting of each company ranked below the Bank.

The Peer Group chosen for comparison currently consists of:

Adelaide Bank

Macquarie Bank

AMP

National Australia Bank

ANZ Group

QBE insurance

AXA

St George

Bank of Queensland

Suncorp-Metway

Bendigo Bank

Westpac Banking Group

IAG

Certain executives
in Colonial First State Global Asset
Management (CFS GAM) participate in a specific cash-settled
LTI arrangement relating to that business. Allocations under this
arrangement vest at portions between 50% and 100%
depending on the CFS GAM net profit before tax growth rate
over three years. No vesting occurs if the growth rate is below a
specified threshold.

54 Commonwealth Bank of Australia Annual Report 2007

Directors’ Report - Remuneration Report

Equity Reward Plan (ERP) and Equity Reward (Performance Unit) Plan (ERPUP) Modification

In September 2006, the Board sought an independent review
of the TSR performance hurdle that applies to Reward Shares
and Performance Units granted since 2002.

the Bank based on
the measurement period. Prior

The Group measures TSR performance by ranking Peer
the TSR
Group companies and
performance over
to 2
November 2006, weightings were based on market
capitalisation at the end of the measurement period. Weighting
the Peer Group outcomes based on market capitalisation at
the end of the measurement period was in effect exacerbating
the impact that the share price had on the result.

For example, if a Peer Group company had a large share price
rise during the performance period, then its end period market
capitalisation would have also increased.

As a result, this company would have an exacerbated effect on
the TSR ranking – from the higher share price, and from the
higher market capitalisation weighting. The reverse is true if a
company’s share price were to fall.

Based on the findings of that independent review, on 2
November 2006, the Board resolved to modify the ERP and
ERPUP performance measurement. The revised methodology
now applies a weighting based on the market capitalisation
values set at the beginning of the measurement period only. This
means there is no longer change to the market capitalisation
weightings over the life of the grants. The revised methodology
provides
indication of relative TSR
performance.

the most appropriate

As a result, the 2002 and 2003 LTI grants vested at a higher rate
than they would have under the previous methodology. The
following table summarises the impact on vesting of these
grants.

Year of grant

2002

2003

Old Methodology
Performance
46th percentile
68th percentile

Vesting
Nil

78% vesting

New Methodology
Performance
60th percentile
77th percentile

Vesting
50% vesting

100% vesting

The following tables illustrate the number of shares and Performance Units which were affected by the modification for the Group’s
Key Management Personnel and Other Executives, and the value attributed to them. The price of Bank shares on 3 November 2006
was $47.81.

ERP Shares

No. shares outstanding

Value

Expiry date

2002 grant – pre
modification

2002 grant – post
(1)
modification

2003 grant – pre
modification

2003 grant – post
(2)
modification

148,700

$4,801,153

2 Oct 2007

148,700

$7,109,347

2 Oct 2006

194,900

$7,862,266

1 Oct 2008

194,900

$9,318,169

1 Oct 2006

(1) 50% of the 2002 grant vested in November 2006 with the remainder lapsing.

(2) 100% of the 2003 grant vested in November 2006.

ERPUP Performance Units

No. units outstanding

Value

Expiry date

2002 grant – pre
modification

2002 grant – post
(1)
modification

2003 grant – pre
modification

2003 grant – post
(2)
modification

5,400

$162,486

2 Oct 2007

5,400

$258,174

2 Oct 2006

10,500

$207,480

1 Oct 2008

10,500

$502,005

1 Oct 2006

(1) 50% of the 2002 grant vested in November 2006 with the remainder lapsing.

(2) 100% of the 2003 grant vested in November 2006.

The impact of the modification was assessed using actuarial
valuations.

The 2002 ERPUP grant was valued immediately prior to the
modification at $17.72 per unit due to previous low probability of
vesting. The modification resulted
in 50% vesting at 3
November 2006 at a value of $47.81 per unit resulting in an
additional expense for Key Management Personnel and Other
Executives of $1.0 million. The 2003 ERPUP grant was valued
at $19.76 per unit immediately prior to the modification, which
increased its value to $47.81 per unit.

This resulted in an additional expense of $0.3 million for Key
Management Personnel and Other Executives. Both of these
expenses included tax and dividend adjustments. The increase
in actuarial value for the 2002 ERP grant was $15.52 per share
and for the 2003 ERP grant was $7.47 per share. The
additional expense for Key Management Personnel and Other
Executives equated to $3.8 million.

total additional cost of

The
for Key
Management Personnel and Other Executives of $5.1 million
was expensed in the 2007 financial year.

the modification

The following grants for financial years 2004 and 2005 did not increase in value as a result of the modification and there was no
impact on the 2006 grant as it incorporated the terms of the modification.

ERP Share/ERPUP
Performance Units

No. units outstanding

Value

Expiry date

2004 ERP – pre
modification and post
modification
211,700

2004 ERPUP – pre
modification and post
modification
14,000

2005 ERP – pre
modification and post
modification
342,388

2005 ERPUP – pre
modification and post
modification
14,000

$5,421,637

$358,540

23 September 2009

$6,738,196

14 July 2010

$275,520

15 July 2010

Commonwealth Bank of Australia Annual Report 2007 55

Directors’ Report - Remuneration Report

Group Performance for Year Ended 30 June 2007

Following is an overview of the Group’s performance for the
year ended 30 June 2007, in the context of the remuneration
criteria. Continuing strong results, driven by progress made on
our strategic priorities towards achieving the Group’s vision,
have meant that variable remuneration awarded to executives is
at the higher end of their potential.

The Key Performance
reference to the Group’s 5 strategic priorities, being:

Indicators are set with particular

• Customer Service;

• Business Banking;

• Technology and Operational Excellence;

Details of the remuneration outcomes which have resulted from
the following business success are provided on pages 61 to 72
of this remuneration report.

• Trust and Team Spirit; and

• Profitable Growth.

The following table provides a description of the Group’s
performance in relation to each strategic priority for the year
ending 30 June 2007.

Short term performance – Year Ended 30 June 2007

The Group’s STI framework is underpinned by a performance
through which all employees are
management system,
assessed on outcomes and behaviours.

Summary of Group Performance

Strategic Priorities

Commentary

Customer Service

Business Banking

Technology & Operational
Excellence

Trust & Team Spirit

Profitable Growth

The Group’s vision is ‘to be Australia’s finest financial services organisation through excelling in
customer service’. The Group has made significant progress on this strategic priority including investing
in front line staff, adding over 1,000 new front line roles in the 2007 financial year. In addition to the
opening of new branches in strategic locations, 65 branches are now open for Saturday trading, and the
hours of other branches have been extended to better meet the needs of our customers.

The Group has a more competitive product portfolio which is now being widely recognised receiving
Money magazine’s “Best of the Best” 2007 awards for eight retail products, and seven Cannex five star
awards being earned by deposit and credit card products.

Customer complaints have fallen 40% in the last 12 months, and the Group is also seeing an
improvement in customer satisfaction scores, with independent Roy Morgan survey results reaching ten
year highs and the Group achieving the second highest improvement of the other major banks over the
2007 financial year.

There has been pleasing progress on the Business Banking strategic initiative. During the year, the
Group made significant progress in increasing the presence of business bankers in branches with 135
business bankers now recruited. Rebuilding of the business banking footprint continues with eight new
business banking centres opened in this financial year.

In February 2007, the Bank introduced a new service model in Local Business Banking with the launch
of a 24/7 remote customer service centre and a networking platform for small business customers. In
addition, in May 2007, Agriline, a new purpose built telephone based business centre was opened. This
service is designed primarily for smaller Agribusiness customers, but it also provides an additional layer
of service for larger customers.

CommBiz, the Bank’s new, state-of-the-art, internet based banking channel has been rolled out and
over 10,000 customers have been successfully migrated from legacy systems.

The Group has continued to invest heavily in technology and operational excellence. Initiatives in this
area have focused on delivering greater efficiency across the Group as well as implementing
technology solutions to increase competitive leverage through the introduction of innovative processes
and systems. Notable achievements for the year include more than $100 million of efficiency savings
across EIT, improvements in systems stability and disaster recovery capabilities, and the delivery of a
significant number of technology projects to improve customer service and operational efficiency.

The Group’s internal measures indicate significant improvement in employee engagement. The internal
culture survey shows across the board improvement in Collaboration, Accountability, Recognition &
Reward, Engage in development and Simplicity (CARES) behaviours with the biggest improvements in
the retail bank. Other measures are continuing to improve, including workplace injury rates which have
fallen 30% over the last twelve months, and voluntary employee turnover which fell 13%.

During the year, the Board introduced a new strategic initiative of Profitable Growth. There are a number
of areas that the Group is focusing on in driving Profitable Growth. These include an Asian expansion
program, cross business unit referrals, Global Markets and Treasury, and Global Asset Management
and Alternative Investments. The following graphs illustrate the Group’s NPAT and EPS performance
on a cash basis over the last five years.

56 Commonwealth Bank of Australia Annual Report 2007

Directors’ Report - Remuneration Report

Cash NPAT performance 2003 to 2007 ($M)

Cash EPS performance 2003 to 2007 (cents)

4,604

4,053

3,492

2,579

2,695

4,800

4,200

3,600

3,000

2,400

1,800

1,200

600

400

350

300

250

200

150

100

315.9

353.0

264.8

202.6

206.6

Jun 03
AGAAP

Jun 04
AIFRS

Jun 05

Jun 06

Jun 07

Jun 03

Jun 04

Jun 05

Jun 06

Jun 07

AGAAP

AIFRS

Long term performance

Long term performance for LTI grants up to and including the year ended 30 June 2007 is measured on the Bank’s Total Shareholder
Return (TSR) relative to its peers.

The following graph indicates the Bank’s TSR by showing share price and dividend growth over the past 5 years.

Dividends Per Share (cents)

Share Price ($)

cents
280

260

240

220

200

180

160

140

120

$
60

Jun 02

Jun 03

Jun 04

Jun 05

Jun 06

Jun 07

Commonwealth Bank of Australia Annual Report 2007 57

Directors’ Report - Remuneration Report

Enhanced Remuneration Framework from 1 July 2007

Objectives

Key Drivers

Some key enhancements to the remuneration framework were
recently approved by the People & Remuneration Committee
effective from 1 July 2007. The new arrangements have been
designed to achieve the following objectives:

• Provide competitive remuneration arrangements that deliver
superior rewards for achievement with reference to the
vision;

the
The Group commissioned external
incentive arrangements and obtained
its
effectiveness of
feedback from executives. This work concluded that incentives
should be more closely linked to performance within an
employee’s span of control and influence.

research on

With this information and the above objectives in mind, incentive
arrangements have been enhanced as follows.

• Provide arrangements which better align the interests of

STI Enhancements

executives with Shareholders over the long term;

• Make enhanced customer satisfaction, as a driver of
sustained competitive advantage, a key objective around
which LTI success is measured;

• Provide a better linkage between variable remuneration and
the areas which can be influenced by each executive; and

• Build on the existing remuneration framework, which has
to deliver quality

historically motivated employees
performance and promoted Shareholder value.

Outcomes

The following flow chart illustrates the key outcomes of
implementing the enhanced remuneration framework, and the
driving forces connecting each outcome:

Competitively reward employees
for superior performance

Increase shareholder wealth

Achieve business plan

Enhance customer experience

New remuneration framework
driven by business plan

targets within

• STI potentials for the CEO and members of the Group’s
Executive Committee will be determined by a ratio of twice
Fixed Remuneration. Whilst the STI potential has increased,
the existing
the Group’s performance
management framework have been refined to allow for three
levels of stretch targets on each Key Performance Indicator
(KPI). This means that the ability of the participant to access
the increased potential will only occur where there have been
outstanding levels of performance.

The STI potential for other executives will also increase, to
offset the narrowing of LTI grants to only the CEO and
Executive Committee members.

• For executives in General Manager roles and above, 1/3 of
the STI payment will be used to acquire shares in the Bank
which will be held in trust for three years. After the three year
vesting period, the executive will receive the shares and any
dividends accrued over the vesting period.

These shares will generally be subject to forfeiture in
circumstances of dismissal or resignation prior to the
conclusion of the vesting period.

• The value of STI payments is determined with reference to
the performance of the individual and the business against
certain KPIs. The weighting of each of these factors has
been adjusted for each executive group, to ensure the criteria
are more within the area of control and influence of each
executive. As a general principle, there will be more
weighting on the individual element.

• The Group’s objectives concerning behaviours, safety and
compliance will also be reflected in the criteria for becoming
eligible for a STI payment.

These enhancements to the STI plan provide a simple, more
direct link between the interests of executives with those of
Shareholders, through aligned and challenging targets and the
building of a direct, substantial and long term holding in Bank
shares.

58 Commonwealth Bank of Australia Annual Report 2007

Directors’ Report - Remuneration Report

LTI Enhancements

New grants under the current LTI plan will cease and a new plan
known as the Group Leadership Rights Plan (“GLRP”) will be
put in place.

The objective of the new plan is to motivate participants to
increase profitability and customer satisfaction in order to
improve long term Shareholder value and achieve the Group
vision.

Participants will share in the growth in the Group’s Net Profit
after Capital Charge (PACC), where superior NPAT growth and
customer satisfaction results have been achieved.

These performance measures place the Group’s profitability and
customer service uppermost, and reward participants for driving
long term Shareholder value. The criteria are based on results
which participants can directly influence and which are publicly
available.

The Group Leadership Rights Plan will have the following
features:

• The plan will provide performance rights to the CEO (subject
to Shareholder approval) and Group Executives, dependent
on the Group’s growth in Profit After Capital Charge (PACC)
and performance against a customer satisfaction hurdle over
a 3 year performance period;

• A new performance hurdle which measures the Group’s
performance on customer satisfaction criteria, and compares
the scores with its peer group;

• The performance rights will be granted provided growth in
NPAT exceeds the average of the Group’s peers and subject
to the customer satisfaction requirements, and will be
exercisable for Bank shares at any time over the following
ten years;

• Participation will generally be limited to the CEO and other
Executive Committee members. For Executive General
Managers and General Managers, the new STI share
deferral arrangement provides a strong ‘LTI effect’ and builds
a direct, substantial and long term holding in Bank shares.

Customer satisfaction performance hurdle for GLRP

Research has shown a direct correlation between higher levels
of customer satisfaction and higher Shareholder returns.

Customer satisfaction is of the highest importance to the
Group’s overall performance, and forms the basis of its vision.

To date, the use of a Total Shareholder Return (TSR)
performance hurdle has enabled the Group to reward the
achievement of relative success against a Peer Group.

However, the small size of the Peer Group, and the relatively
high weighting of some companies within it, has meant that the
Group’s percentile ranking can be volatile and does not always
match its actual financial achievements.

As a result of this volatility, executives generally had limited
influence over the outcome. In recognition of this, the Group has
developed performance hurdles which deliver reward for driving
the Group’s financial success through achievement of its
strategic priorities and vision. This should provide a more
relevant link between executives’ behaviours, their motivation
and the success of the Group in delivering Shareholder value.

Well established independent external surveys were selected to
form the basis for the customer satisfaction hurdle.

In order to determine the level of achievement of the Group
against the performance hurdle, scores are taken for the Group
and its four main competitors (ANZ, National Australia Bank,
Westpac and St George).

A ranking is then determined and a vesting scale applied.

The People & Remuneration Committee will have discretion to
review the appropriateness of the LTI reward to ensure it is truly
reflective of performance.

GLRP Allocation Pool

The GLRP allocation will be determined with reference to a pool.
The pool will be a percentage of the growth in PACC measured
over the three year period.

The level of PACC growth will determine the value of
performance rights which can be allocated. The percentage of
the allocation that participants are entitled to receive is driven by
NPAT growth relative to peers and the customer satisfaction
ranking.

Benefits for Key Stakeholders

The enhanced remuneration framework has been designed to
reflect the interests of key stakeholders. The following benefits
have been identified for each stakeholder group:

• Customers – customer satisfaction is at the core of the
Group’s vision and is a key performance measure of the
executive team’s incentive arrangements. Customers can
expect the Group to be fully focused on meeting their needs;

• Shareholders – by closely aligning the enhanced STI plan
and GLRP with the Group’s business objectives, the
remuneration framework encourages and rewards superior
performance in the areas which will drive Shareholder
returns; and

• Employees – performance measures for STI and GLRP are
closely linked to what employees can directly influence. The
measures are transparent and flexible enough to reflect
varied roles. Superior performance against stretch targets will
generate significant rewards.

Commonwealth Bank of Australia Annual Report 2007 59

Directors’ Report - Remuneration Report

New Variable Remuneration Life Cycle – Year Ended 30 June 2008

This life cycle depicts how the enhanced variable remuneration arrangements for the CEO and the other Executive Committee members
will operate.

July 2007

July 2008

July 2009

July 2010

July 2011

• July 2008 STI
payments
deferred into
Bank shares will
vest after 3
years

LTI measurement
and allocation

• GLRP pool is
determined
(percentage of
PACC growth
over the past 3
years)

• Performance is
tested against
relative NPAT
and customer
satisfaction
hurdles

• Depending on
the Group’s
relative NPAT
and customer
satisfaction
ranking against
the peer group,
a proportion of
the GLRP
allocation pool
value may vest
and be granted
as performance
rights which are
exercisable
immediately.
The LTI grant is
closed

• Performance
reviews

• STI payments
determined

• 2/3 of STI
payment is
made
immediately in
cash, the other
1/3 is deferred
into Bank shares
for 3 years

The following is set
for each executive:

• STI potential
• Performance

plans (including
Key
Performance
Indicators,
behaviours,
targets and
stretch targets)

The following is set
for the performance
period:

• LTI Potential for
each executive,
being a potential
share in the
GLRP pool; and

• Relative NPAT
and customer
satisfaction
performance
hurdles

STI

LTI

60 Commonwealth Bank of Australia Annual Report 2007

Directors’ Report - Remuneration Report

Directors’ Remuneration

Ralph Norris (Managing Director and CEO)

Summary of Remuneration Arrangements

Mr Norris’ remuneration consists of fixed and variable (at risk)
components.

Fixed Remuneration

the year ended 30 June 2007, Mr Norris’ Fixed

For
Remuneration was 33% of total remuneration.

Variable Remuneration

Mr Norris’ variable remuneration consists of short and long-term
incentives. Variable remuneration for the year ended 30 June
2007 was 67% of total remuneration.

For the year ended 30 June 2007, a Short Term Incentive (STI)
was delivered in two components: 50% made as an immediate
cash payment and 50% deferred in cash. Performance was
measured against Key Result Areas. The Board has assessed
Mr Norris’ performance for the year and has approved a total
STI payment of $2.85 million.

This assessment took into account the following factors:

• Progress in relation to the Group’s five strategic priorities of
Customer Service, Business Banking, Technology and
Operational Excellence, Trust and Team Spirit and Profitable
Growth (the Group’s performance against these is described
earlier);

• Business and financial results;

• Recruitment and development of top management;

• Employee engagement initiatives;

• The Group’s sales and service culture; and

• Relationships with external stakeholders

the
general community, investors, regulators, government and
the media.

including

A Long Term Incentive (LTI) was allocated in July 2006 in the
form of Reward Shares under the Group’s Equity Reward Plan.
Vesting will only occur where the Group’s Total Shareholder
Return (TSR) at least meets the 51st percentile of the
comparator group of companies. At the 2005 Annual General
Meeting (AGM), the Board sought and was granted Shareholder
approval for a maximum of $12 million of reward shares to be
allocated to Mr Norris in three tranches prior to the 2007 AGM.
An allocation under the Group Leadership Rights Plan is
intended to be made in place of the final tranche, which will
therefore not be awarded.

Terms and conditions of appointment

The Board determines Mr Norris’ remuneration, 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 Norris which was effective from
22 September 2005. Remuneration is subject to review annually
by the Board. Mr Norris’ remuneration arrangements are
detailed on page 64 and follow the same principles as other
executives.

in cases other

Mr Norris’ contract provides for no end date, although he may
resign at any time by giving six months’ notice. The Group may
terminate Mr Norris’ employment,
than
misconduct, on six months’ notice. In this case, the Group will
pay all Fixed Remuneration relating to the notice period, and any
outstanding statutory entitlements. Any unvested STI or LTI
amounts will be payable at the discretion of the Board. There is
also a provision allowing Mr Norris to terminate the agreement if
a material change to his status occurs, and to receive benefits
as if the Group had terminated his employment.

On ceasing employment with the Group, Mr Norris is entitled to
receive his statutory entitlements of accrued annual and long
service leave as well as accrued superannuation benefits. This
arrangement is the same for all executives.

Non-Executive Directors

Remuneration Arrangements

Remuneration for Non-Executive Directors consists of base and
committee fees within a maximum of $3,000,000 per annum as
approved by Shareholders at the Annual General Meeting held
on 5 November 2004. The total remuneration for Non-Executive
Directors is less than that approval. No component of Non-
Executive Director
upon
remuneration
performance.

contingent

On appointment to the Board, Non-Executive Directors enter into
a service agreement with the Bank in the form of a letter of
appointment. The letter of appointment, a copy of which appears
on the Group's website, summarises the Board policies and
terms, including remuneration, relevant to the office of Director.
All Non-Executive Directors have entered into a form of service
agreement.

The policy of the Board is that the aggregate amount of fees
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 Board Performance and Renewal Committee annually
reviews the fees payable to individual Non-Executive Directors
and takes into account relevant factors and, where appropriate,
receives external advice on comparable remuneration. The last
review was conducted in December 2006 and changes to the
level of remuneration were agreed with effect from 1 January
2007.

Non-Executive Directors have 20% of their annual fees applied
to the mandatory on-market acquisition of shares in the Bank. In
addition, Non-Executive Directors can voluntarily elect
to
sacrifice up to a further 80% of their fees for the acquisition of
shares, or into superannuation.

The Bank’s Non-Executive Directors’ fee structure provides for a
base fee for all Directors of $190,000, and a base Chairman’s
fee of $620,000. In addition, amounts are payable where
Directors are members of, or chair a Committee. Details of the
breakdown of each Non-Executive Directors' fees as at 30 June
2007 is provided on page 62. The Bank also contributes to
compulsory superannuation on behalf of Non-Executive
Directors.

Commonwealth Bank of Australia Annual Report 2007 61

Directors’ Report - Remuneration Report

Details of Components of Non-Executive Directors’ Fees as at 30 June 2007

Director
J M Schubert (2)
J Anderson
R J Clairs
C R Galbraith
J S Hemstritch
S C H Kay
W G Kent
F D Ryan
F J Swan
D J Turner
H H Young

Total

Committee Remuneration

People &
Remuneration
$
20,000

40,000

20,000
20,000

Board
Remuneration
$
620,000
190,000
190,000
190,000
190,000
190,000
190,000
190,000
190,000
190,000
190,000

Audit
$

25,000

25,000
25,000
50,000
25,000

Board
Performance
& Renewal
$
10,000

10,000

(1)

Total
$
650,000
210,000
230,000
225,000
210,000
235,000
235,000
260,000
265,000
210,000
210,000

Risk
$

20,000

20,000
20,000
40,000
20,000
20,000

2,520,000

100,000

150,000

140,000

30,000

2,940,000

(1) Non-Executive Directors sacrifice 20% of these fees on a mandatory basis under the Non-Executive Directors Share Plan (NEDSP). There was a change in

Committee memberships from 1 November 2006. Fees were adjusted as from 1 January 2007.

(2) Mr Schubert resigned from the Risk Committee effective from 1 May 2007.

Retirement Benefits

Under the Directors’ Retirement Allowance Scheme, which was
approved by Shareholders at the 1997 Annual General Meeting,
Directors previously accumulated a retirement benefit on a pro
rata basis to a maximum of four years’ total emoluments after
twelve years’ service. No benefit accrued until the Director had
served three years on the Board. In 2002, the Board decided to
discontinue
the Directors’ Retirement Allowance Scheme
without affecting the entitlements of the then existing Non-
Executive Directors. Since that time, new Directors have not
been entitled to participate in the scheme.

The Board resolved with effect from 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 has resulted in
remuneration arrangements being expressed
in a more
transparent manner.

The entitlements of the Non-Executive Directors under the Directors’ Retirement Allowance Scheme are:

Directors’ Retirement Allowance Scheme

Director

J M Schubert
J Anderson (1)
R J Clairs
A B Daniels (2)
C R Galbraith
J S Hemstritch (1)
S C H Kay (1)
W G Kent
F D Ryan
F J Swan
D J Turner (1)
B K Ward (2)
H H Young (1)

Total

Increase in Accrued Benefit in Year
$
-
-
-
-
-
-
-
-
-
-
-
-
-

Entitlement as at 30 June 2007
$
636,398
-
202,989
-
159,092
-
-
159,092
168,263
266,173
-
-
-

1,592,007

(1) Sir John Anderson, Ms Hemstritch, Ms Kay, Mr Turner and Mr Young were appointed as Directors after the closure of the scheme.

(2) Mr Daniels and Ms Ward retired at the 2006 Annual General Meeting on 3 November 2006 and received payments of $160,618 and $370,180 respectively,

representing their entitlements under the Scheme.

62 Commonwealth Bank of Australia Annual Report 2007

Directors’ Report - Remuneration Report

Remuneration of Key Management Personnel and Other Executives

The executives and Directors listed in the tables below include Key
Management Personnel (KMP) and Other Executives during the
year ended 30 June 2007. The KMP are the CEO, members of the
Group’s Executive Committee and all members of the Board.

The position and tenure for each of the executives and Directors
listed are shown on the following table. The subsequent tables
refer to these employees by surname and initials only.

Name

Position

Tenure (if not full year)

Non-Executive Directors
J M Schubert
J Anderson
R J Clairs
A B Daniels
C R Galbraith
J S Hemstritch
S C Kay
W G Kent
F D Ryan
F J Swan
D J Turner
B K Ward
H H Young

Chairman
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director

Managing Director and CEO
R J Norris

Managing Director and CEO

Executives
M A Cameron

Group Executive, Retail Banking Services

B J Chapman

Group Executive, Human Resources and Group Services

D P Craig
L G Cupper
S I Grimshaw
H D Harley

M R Harte
G L Mackrell
R M McEwan
J K O’Sullivan
G A Petersen
W Negus

Group Executive, Financial and Risk Management
Group Executive, People Services
Group Executive, Premium Business Services
Group Executive, Group Strategic Development

Group Executive, Enterprise IT & Chief Information Officer
Group Executive, International Finance Services
Group Executive, Retail Banking Services
Chief Solicitor and General Counsel
Group Executive, Wealth Management
Chief Executive Officer, Colonial First State Global Asset Management

Commenced on 12 March 2007

Retired on 3 November 2006

Commenced on 9 October 2006

Commenced on 1 August 2006
Retired on 3 November 2006
Commenced on 13 February 2007

Ceased employment on 10 May
2007
Commenced in role of Group
Executive, Marketing and
Communications on 20 July 2006.
This role was expanded to Group
Executive, Human Resources and
Group Services on 14 November
2006.
Commenced on 11 September 2006
Retired on 3 November 2006

Ceased employment on 16 June
2007

Commenced in role on 14 May 2007

Commonwealth Bank of Australia Annual Report 2007 63

Directors’ Report - Remuneration Report

Individual remuneration details for Directors for the year ended 30 June 2007 are set out below:

Remuneration of Directors

Short Term Benefits

Cash
(1)

Fixed
$

Cash STI
payment
At Risk
$

STI Deferred in
Cash
At Risk
$

Other Short
Term
Benefits
$

Post-
employment
Benefits

Share-based Payments

Super-
annuation

(2)

Fixed
$

LTI Reward
Shares
At Risk
$

NEDSP
(1)
Fixed
$

Termination
Benefits
$

Other Long
Term
Benefits
$

Total
Remuneration
$

51,090
-

505,096
478,665

J M Schubert
2007
2006
J Anderson
2007
2006
R J Clairs
2007
2006
A B Daniels (3)
2007
2006
C R Galbraith
2007
2006
J S Hemstritch
2007
2006
S C Kay
2007
2006
W G Kent
2007
2006
F D Ryan
2007
2006
F J Swan
2007
2006
D J Turner
2007
2006
B K Ward (3)
2007
2006
H H Young
2007
2006
Non-Executive Director Total
2007
2006

175,277
171,529

55,233
159,562

88,260
163,551

90,171
-

174,553
159,562

175,901
163,551

92,767
179,507

187,112
155,573

42,214
-

56,614
163,551

1,757,806
1,795,051

63,518
-

Managing Director and CEO
R J Norris
2007
2006
Director Grand Totals
2007
2006 (4)

1,467,450
921,642

3,225,256
3,068,193

-
-

45,459
43,082

4,598
-

15,775
15,438

-
-

88,943
14,720

36,759
-

15,710
14,361

15,831
14,720

109,467
16,156

16,840
14,002

105,257
-

5,095
14,720

5,717
-

465,451
147,199

-
-

126,603
119,666

12,658
-

43,937
42,882

13,918
39,891

42,427
40,888

29,112
-

43,748
39,891

44,088
40,888

48,595
44,877

46,885
38,893

35,918
-

14,266
40,888

15,879
-

518,034
448,764

1,425,000
-

1,514,063
650,000

81,125
846,963

792,672
1,248,358

1,237,635
483,045

-
-

677,158
641,413

68,346
-

234,989
229,849

69,151
199,453

219,630
219,159

156,042
-

234,011
213,814

235,820
219,159

250,829
240,540

250,837
208,468

183,389
-

75,975
219,159

85,114
-

2,741,291
2,391,014

52,040
-

6,569,985
4,150,008

1,425,000
-

1,514,063
650,000

81,125
846,963

1,258,123
2,791,114

1,237,635
(2,408,578)

518,034
448,764

-
8,772,464

52,040
-

9,311,276
14,281,420

Group totals in respect of the financial year ended 30 June 2006 do not necessarily equal the sum of amounts disclosed for individuals listed above as there are some different individuals
specified as Directors in 2007.

(1) For Non-Executive Directors, this includes that portion of base fees and committee fees paid as cash. Non-Executive Directors also salary sacrifice 20% of their fees on a mandatory basis

under the Non-Executive Directors Share Plan (NEDSP). Further details on the NEDSP is contained in Note 33.

(2) Represents company contribution to superannuation and includes any allocations made by way of salary sacrifice by Executives.

(3) Mr Daniels and Ms Ward retired at the 2006 Annual General Meeting on 3 November 2006.

(4) The grand total values for the year ended 30 June 2006 include STI deferred shares at risk to the value of $121,500.

64 Commonwealth Bank of Australia Annual Report 2007

Directors’ Report - Remuneration Report

Individual remuneration details for Executives for the year ended 30 June 2007 are set out below:

Remuneration of Executives

Short Term Benefits

Cash
(1)

Fixed
$

Non
Monetary
Fixed
$

(2)

Cash STI
payment
(3)
At Risk

STI Deferred
in Cash
(4)

At Risk

Other Short
Term
Benefits
$

Post-
employment
Benefits

Share-based Payments

Super-
annuation

(5)

Fixed
$

LTI Reward
Shares
(6)

At Risk

LTI
Performance
Units At Risk
$

Termination
Benefits

(7)

Other Long
Term
Benefits

(8)

Total
Remuneration
$

832,990
833,465

8,826
10,260

-
382,485

-
-

59,975
59,995

210,476
346,920

-
-

131,948
-

-
-

1,244,215
2,058,110

312,164
-

331,674
-

144,739
-

601,128
-

125,259
-

397,554
-

112,213
-

113,426
-

9,726
-

8,236
-

306,647
-

325,812
-

23,225
634,500

3,542
10,260

-
-

1,215,608
1,026,000

10,200
10,260

556,600
506,000

591,388
506,000

807,300
839,500

9,866
9,837

-
324,000

-
-

774,720
-

142,138
-

993,599
643,900

751,906
396,886

81,288
74,000

1,713,785
560,429

1,245,159
60,500

482,321
449,894

632,568
117,500

10,260
-

296,100
64,575

314,606
64,575

310,618
115,825

42,500
708,500

111,929
-

600,724
710,000

10,260
10,260

415,000
363,400

440,938
363,400

-
-

202,503
80,907

1,270,275
419,034

116,999
-

1,321
-

47,612
-

50,588
-

17,725
-

8,730
-

-
-

181,058
-

848,665
755,600

10,260
10,260

332,645
291,200

395,935
331,200

442,521
542,233

10,260
10,260

410,576
282,449

436,237
282,449

-
-

96,800
94,400

734,820
313,517

476,449
102,543

607,463
219,233

-
-

16,535
-

14,935
-

2,050,992
-

1,685,914
-

1,483,303
-

-
-

3,255,575
1,734,296

-
-

28,148
-

4,197,017
2,752,689

2,843,432
-

-
-

5,388,078
2,065,231

-
-

14,647
115,825

1,733,228
1,070,975

18,599
-

2,958,299
1,997,626

2,729
-

19,651
-

19,945
-

426,762
-

2,438,776
1,846,177

2,403,451
1,466,779

M A Cameron (9)
2007
2006
B J Chapman (10)
2007
2006
D P Craig (11)
2007
2006
L G Cupper (12) (13)
2007
2006
S I Grimshaw (13)
2007
2006
H D Harley (13) (14)
2007
2006
M R Harte
2007
2006
G L Mackrell (13)
2007
2006
R M McEwan (15)
2007
2006
J K O’Sullivan
2007
2006
G A Petersen
2007
2006
Total Remuneration
2007
2006

5,756,239
6,527,775

92,757
84,017

2,677,344
2,214,109

2,887,178
2,014,109

473,082
115,825

4,582,851
1,896,325

6,150,372
869,932

578,612
-

4,458,683
3,595,308

135,189
115,825

27,792,307
17,701,262

Other Executives (13)
W Negus
2007
2006

1,004,395
932,836

10,260
10,260

888,000
886,000

943,500
886,000

-
-

67,164
67,164

212,720
194,994

1,779,157
-

-
-

23,257
-

4,928,453
2,977,254

Total Remuneration for Executives
2007
2006 (16)

6,750,634
8,408,211

103,017
104,537

3,565,344
6,241,109

3,830,678
7,251,109

473,082
115,825

4,650,015
2,014,191

6,363,092
1,381,151

2,357,769
-

4,458,683
3,595,308

158,446
-

32,710,760
29,975,050

Grand totals in respect of the financial year ended 30 June 2006 do not necessarily equal the sum of amounts disclosed for individuals listed above as there are different individuals specified as
Executives in 2007.

Amounts in the table above reflect remuneration for the time the Executive has been in a Key Management Personnel role i.e. pro-rating is applied relative to the date the Executive commenced
or ceased a Key Management Personnel role. Remuneration earned as an Executive prior to appointment to a Key Management Personnel role is not included in the amounts shown for that
Executive.

(1) Reflects the amounts paid in the year ended 30 June and is calculated on a total cost basis. Included may be annual leave accruals and salary sacrifice amounts with the exception of salary

sacrifice superannuation which is included under 'Superannuation'.

(2) Represents the cost of car parking (including FBT).

(3) Cash STI payment represents the amount of cash immediately payable to an Executive in recognition of performance for the year ended 30 June, with the exception of STI sacrificed to

superannuation which is included under 'Superannuation'.

(4) STI deferred in Cash represents the mandatory deferral of 50% of STI payments for Executives for performance to the year ended 30 June 2007. These amounts are deferred until 1 July

2008. Generally, the Executive will need to be an employee of the Bank at the end of the deferral period to receive this portion.

(5) Represents company contribution to superannuation and includes any allocations made by way of salary sacrifice by Executives.

Commonwealth Bank of Australia Annual Report 2007 65

Directors’ Report - Remuneration Report

(6) The ‘fair value’ of LTI reward shares has been calculated using a Monte-Carlo simulation method, incorporating the assumptions below :

Reward Share Valuation Assumptions

Purchase Date
30-Nov-02
30-Nov-02 Modification
29-Oct-03
29-Oct-03 Modification
22-Sep-04
5-Nov-04
23-Nov-05
3-Nov-06

Fair Value
$16.75
$15.52
$16.36
$7.47
$16.72
$19.72
$24.51
$30.62

Exercise Price
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00

Risk Free Rate Assumption Term
57 mths
1 day
58 mths
1 day
59 mths
57 mths
56 mths
47 mths

5.35%
6.13%
5.70%
6.13%
5.48%
5.61%
5.65%
6.04%

Dividend Yield
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil

Volatility
20.0%
15.0%
20.0%
15.0%
15.0%
15.0%
15.0%
15.0%

The assessment has been made as at purchase date for each ERP grant based on the expected future TSR performance of the Bank and each member of its
Peer Group. The annualised equivalent of the ‘fair value’ in respect of the number of shares for each grant has been amortised on a straight line basis over the term
of the grant.

The one-off modification detailed on page 55 of this report resulted in an increase in the 2002 and 2003 LTI grant values that was expensed in full in the year ended
30 June 2007. The one-off adjustment reflected in the table for each participant is as follows - Mr Cameron $321,781, Ms Chapman $249,963, Mr Cupper
$678,205, Mr Grimshaw $883,911, Mr Harley $555,829, Mr Mackrell $649,072, Mr McEwan $140,250, Mr O'Sullivan $250,245 and Mr Petersen $183,920. There
was no impact on other Key Management Personnel and Other Executives as they did not participate in the 2002 and 2003 LTI grants. The 'LTI Reward Shares At
Risk' column amounts shown for Messrs Cameron, Cupper and Harley also reflect some reversals of disclosed amounts in respect of forfeitures of the 2004 and
2005 ERP grants upon ceasing employment, as required under AASB124.

(7) Represents any severance payments made on termination of employment. For Messrs Cupper and Harley, Termination Benefits include a pro rata grant of

Performance Units. These were granted in place of the Reward Shares originally granted under the ERP arrangements. The Reward Shares were automatically
forfeited on ceasing employment with the Group. The Performance Units may vest at a future date, depending on the performance of the relevant grant. They may
receive all, some or none of these Performance Units, depending on the performance of the grant over the relevant periods. These grants are at Board discretion
and are consistent with termination arrangements for executives who have unvested ERP Reward Shares when they exit the Group.

(8) All Other Benefits payable that are not covered above.

(9) Mr Cameron ceased employment on 10 May 2007.

(10) Ms Chapman commenced in her role of Group Executive, Marketing and Communications on 20 July 2006 and this role was expanded to Group Executive, Human

Resources and Group Services on 14 November 2006.

(11) Mr Craig commenced in his role on 11 September 2006.

(12) Mr Cupper retired from the Group on 3 November 2006. Mr Cupper’s STI payment otherwise deferred and payable on retirement was immediately payable and has

been included under ‘Superannuation’.

(13) Mr Negus, who is not a Key Management Person, and Messrs Cupper, Grimshaw, Harley and Mackrell are the five executives who received the highest

remuneration for the year ended 30 June 2007 as defined in the Section 300A of the Corporations Act 2001.

(14) Mr Harley ceased employment on 16 June 2007.

(15) Mr McEwan commenced in his role on 14 May 2007.

(16) Total Remuneration for Executives total values for the year ended 30 June 2006 included a value of $863,609 for STI deferred shares at risk.

Termination Arrangements

Executives who cease employment with the Group during a
given performance year (ie 1 July to 30 June) will generally not
receive a 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.

Deferred cash or shares from previous STI awards are usually
forfeited where the executive resigns or is dismissed. In
circumstances of retrenchment, retirement or death any cash will
generally be paid and unvested shares will generally vest
immediately. LTI grants are generally forfeited where the
executive resigns or
In circumstances of
is dismissed.
retrenchment, retirement or death, the executive or their estate
may, at Board discretion, retain a pro-rated grant of LTI. Vesting
of any LTI retained by the executive will still be subject to the
performance hurdle relevant to that grant.

The Group’s executive contracts generally provide for severance
payments of up to six months in cases where termination of
employment is initiated by the Group, other than for misconduct
or
these
unsatisfactory
arrangements apply to:

performance. Exceptions

• Messrs Grimshaw and O’Sullivan, whose contracts allow for
a twelve months severance payment where termination is
initiated by the Group; and

• Ms Chapman and Mr McEwan, whose severance payments
are linked to years of service with a maximum 64 weeks
payment after 19 years service.

There is also generally a four week notice period for either party
to terminate the agreement. An exception to this is Mr McEwan,
who has a three month notice period.

The contracts for Key Management Personnel and Other
Executives do not have a fixed term.

Upon ceasing employment with the Group, executives are
entitled to receive their statutory entitlements of accrued annual
and long service leave, as well as accrued superannuation
benefits.

66 Commonwealth Bank of Australia Annual Report 2007

Directors’ Report - Remuneration Report

STI Allocations for Executives for the Year Ended 30 June 2007

M A Cameron (4)
B J Chapman (5)
D P Craig (6)
L G Cupper (7)
S I Grimshaw
H D Harley (8)
M R Harte
G L Mackrell
R M McEwan (9)
R J Norris
J K O’Sullivan
G A Petersen
Other Executives
W Negus

Percentage
Paid
%
-
50
50
-
50
-
50
50
50
50
50
50

Percentage
Forfeited
%
-
-
-
-
-
-
-
-
-
-
-
-

Percentage
(1)
Deferred

Minimum Total
(2)

Value

Maximum Total
(3)

Value

%
-
50
50
-
50
-
50
50
50
50
50
50

$
-
312,164
306,647
-
556,600
-
296,100
415,000
47,612
1,425,000
372,645
410,576

$
-
643,838
632,458
-
1,147,988
-
610,706
855,938
98,199
2,939,063
768,580
846,813

(1) Will generally vest on 1 July 2008 and be paid in July 2008, subject to not being forfeited due to resignation or misconduct including misrepresentation of

performance outcomes. Will generally vest and be immediately payable in circumstances of retrenchment, retirement or death.

(2) For those executives with a minimum total value greater than zero, this reflects the 50% component of the STI payment which is immediately payable determined by
actual performance over the year ended 30 June 2007. Executives generally do not receive an STI payment unless their individual performance is at least meeting
expectations.

(3) Includes interest component calculated at 6.25% of the deferred amount.

(4) Mr Cameron ceased employment on 14 May 2007.

(5) Ms Chapman commenced her role of Group Executive, Marketing and Communications on 20 July 2006 and this role was expanded to Group Executive, Human

Resources and Group Services on 14 November 2006.

(6) Mr Craig commenced in his role on 11 September 2006.

(7) Mr Cupper retired on 3 November 2006.

(8) Mr Harley ceased employment on 16 June 2007.

(9) Mr McEwan commenced in his role on 14 May 2007.

LTI Allocations to Executives for the Year Ended 30 June 2007

R J Norris
M A Cameron (3)
B J Chapman (4)
D P Craig (5)
L G Cupper (6)
S I Grimshaw
H D Harley (7)
M R Harte
G L Mackrell
R M McEwan (8)
J K O’Sullivan
G A Petersen
Other Executives
W Negus (9)

Percentage
(1)

Paid

%
-
-
-
-
-
-
-
-
-
-
-
-

Percentage
Forfeited
%
-
100
-
-
-
-
70
-
-
-
-
-

Percentage
(1)
Deferred

%
100
-
100
100
-
100
30
100
100
100
100
100

100

Current
Allocation
(No. of Shares)
90,910
-
17,046
22,728
-
32,500
8,130
14,318
24,318
13,636
20,580
25,000

Minimum Total
Value
$
-
-
-
-
-
-
-
-
-
-
-
-

Maximum Total
(2)

Value

$
3,961,858
-
742,865
990,486
-
1,416,350
354,305
623,978
1,059,778
594,257
869,876
1,089,500

n/a

1,475,000

(1) Will vest in July 2009 or July 2010 subject to the service conditions and the performance hurdle being met (see page 59). In circumstances of retrenchment,

retirement or death, the executive or their estate may, at Board discretion, retain a pro-rated grant of LTIs.

(2) This equals the “No. of shares/performance units” multiplied by the Bank’s closing share price at the Commencement Date of the grant (14 July 2006), which was

$43.58.

(3) Mr Cameron ceased employment on 10 May 2007.

(4) Ms Chapman commenced in her role of Group Executive, Marketing and Communications on 20 July 2006 and this role was expanded to Group Executive, Human

Resources and Group Services on 14 November 2006.

(5) Mr Craig commenced in his role on 11 September 2006.

(6) Mr Cupper retired on 3 November 2006 and was not allocated Reward Shares in the year ended 30 June 2007.

(7) Mr Harley ceased employment on 16 June 2007 and retained a pro-rated LTI allocation.

(8) Mr McEwan commenced in his role on 14 May 2007. Mr McEwan participates in ERPUP. For details of ERPUP see page 164.

(9) Mr Negus participates in a cash settled LTI arrangement that is specific to Colonial First State Global Asset Management (CFS GAM). Allocations under this

arrangement vest depending on the CFS GAM net profit before tax growth rate over three years.

Commonwealth Bank of Australia Annual Report 2007 67

Directors’ Report - Remuneration Report

Equity Holdings of Key Management Personnel and Other Executives

Shareholdings

Share trading policy

All shares were acquired by Directors on normal terms and
conditions or through the Non-Executive Directors’ Share Plan.

Shares awarded under the Equity Reward Plan and the mandatory
component of the Equity Participation Plan are registered in the
name of the Trustee of the employee share plan trust. For further
details of the Non-Executive Directors’ Share Plan, Equity Reward
Plan, previous Executive Option Plan and Equity Participation Plan
refer to Note 33 to the Financial Statements.

The Group has guidelines restricting the dealings of Directors
and executives in Bank securities. These guidelines are
discussed in more detail in the Corporate Governance section of
this Annual Report.

Details of shareholdings of Key Management Personnel and
Other Executives (or close family or entities controlled, jointly
controlled, or significantly influenced by them, or any entity over
which any of the aforementioned hold significant voting power)
are as follows:

Shares held by Directors

Name
Directors
J M Schubert
J Anderson (3)
R J Clairs (4)
A B Daniels (5)
C R Galbraith
J S Hemstritch (6)
S C H Kay
W G Kent
R J Norris

F D Ryan
F J Swan
D J Turner (7)
B K Ward (5) (8)
H H Young (9)

Total For Directors

Class

Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Reward Shares
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Reward Shares

Balance
1 July 2006

21,188
10,000
16,988
18,691
10,030
15,400
4,390
16,113
10,000
100,328
8,242
6,974
-
6,629
-
144,645
100,328

Acquired/Granted
as

Remuneration

(1)

On Exercise of
Options

Net Change

(2)

Other

2,545
-
898
443
856
165
852
869
-
90,910
954
844
301
454
-
9,181
90,910

-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-

685
-
-

518
-
659
88
-
-
-
363
-
126
20,000
22,439
-

Balance
30 June 2007

24,418
10,000
17,886
19,134
11,404
15,565
5,901
17,070
10,000
191,238
9,196
8,181
301
7,209
20,000
176,265
191,238

(1) For Non-Executive Directors, represents shares acquired under NEDSP on 14 August 2006 and 12 March 2007 by mandatory sacrifice of fees. All shares acquired
through NEDSP are subject to a 10 year trading restriction (shares will be tradeable earlier if the Director leaves the Board). For Sir John Anderson and Mr Young
the first purchase of shares under NEDSP will occur in August 2007. For Mr Norris this represents Reward Shares granted under the ERP and subject to a
performance hurdle. The first possible date for meeting the performance hurdle is 15 July 2009 with the last possible date for vesting being 15 July 2010. See Note
33 for further details on the NEDSP and ERP.

(2) “Net Change Other” incorporates changes resulting from purchases and sales during the year.

(3) Sir John Anderson was appointed to the Board with effect from 12 March 2007.

(4) Mr Clairs’ 1 July 2006 balance has been restated.

(5) Mr Daniels and Ms Ward retired at the 2006 Annual General Meeting on 3 November 2006.

(6) Ms Hemstritch was appointed to the Board with effect from 9 October 2006.

(7) Mr Turner was appointed to the Board with effect from 1 August 2006.

(8) Ms Ward continued to hold 250 PERLS II Securities as at 30 June 2007.

(9) Mr Young was appointed to the Board with effect from 13 February 2007.

68 Commonwealth Bank of Australia Annual Report 2007

Directors’ Report - Remuneration Report

Balance
30 June 2006

Acquired/Granted
as
Remuneration

On Exercise of
Options

Net Change

(2)

Other

-
2,848
89,620
-
-
-
-
-
-
51,355
3,267
106,440
25,308
4,691
148,940
26,281
3,853
118,140
-
-
-
34,930
3,392
110,800
-
-
-
8,916
3,351
82,690
9,907
1,850
55,780

3,680
-
40,500
160,377
23,252
752,910

-
-
31,818
-
-
17,046
-
-
22,728
-
-
-
-
-
32,500
-
-
27,272
-
-
14,318
-
-
24,318
-
-
-
-
-
20,580
-
-
25,000

-
-
-
-
-
215,580

-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-

-
-
-
-
-
-

-
(2,848)
(121,438)
-
-
-
-
-
-
50,575
(3,267)
(106,440)
4,691
(4,691)
(76,300)
13,457
(3,853)
(145,412)
-
-
-
4,878
(3,392)
(55,100)
-
-
-
36,851
(3,351)
(33,500)
4,745
(1,850)
(16,000)

-
-
-
115,197
(23,252)
(554,190)

Balance
30 June 2007

-
-
-
-
-
17,046
-
-
22,728
101,930
-
-
29,999
-
105,140
39,738
-
-
-
-
14,318
39,808
-
80,018
-
-
-
45,767
-
69,770
14,652
-
64,780

3,680
-
40,500
275,574
-
414,300

Shares held by Executives

Name
Executives
M A Cameron (3)

B J Chapman (4)

D P Craig (5)

L G Cupper (6)

S I Grimshaw

H D Harley (7)

M R Harte

G L Mackrell

R M McEwan (8)

J K O’Sullivan

G A Petersen

Other Executives
W Negus

Total for
Executives

(1) Represents:

(1)

Class

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

Ordinary
Deferred STI
Reward Shares
Ordinary
Deferred STI
Reward Shares

• Deferred STI - acquired under the mandatory component of the Bank’s Equity Participation Plan (EPP). Shares were purchased on 31 October 2004 in two equal

tranches, vesting on 1 July 2005 and 1 July 2006 respectively. See Note 33 to the Financial Statements for further details on the EPP.

• Reward Shares - granted under the Equity Reward Plan (ERP) and are subject to a performance hurdle. The first possible date for meeting the performance hurdle

is 23 September 2007 with the last possible date for vesting being 15 July 2010. See Note 33 for further details on the ERP.

(2) “Net Change Other” incorporates changes resulting from purchases, sales and forfeitures during the year by executives and vesting of deferred STI and Reward

Shares (which became ordinary shares).

(3) Mr Cameron ceased employment on 10 May 2007.

(4) Ms Chapman commenced in her role on 20 July 2006. Ms Chapman holds 10,000 Perpetual Preference Shares in ASB Capital Notes 2.

(5) Mr Craig commenced in his role on 11 September 2006.

(6) Mr Cupper retired on 3 November 2006 and was not allocated Reward Shares in the year ended 30 June 2007. He acquired 6,000 PERLS III securities during the

year, and continued to hold them at 30 June 2007.

(7) Mr Harley ceased employment on 16 June 2007.

(8) Mr McEwan commenced in his role on 14 May 2007.

Commonwealth Bank of Australia Annual Report 2007 69

Directors’ Report - Remuneration Report

Option Holdings

On 1 July 2006, Mr L G Cupper held options over 75,000 Bank shares, which have an exercise price of $30.12 per share. None of these
options were exercised during the year, and at 30 June 2007, Mr Cupper continued to hold options over 75,000 shares which were
vested and exercisable. Mr Cupper retired on 3 November 2006.

Shares Vested During the Year ended 30 June 2007

Name
Directors
R J Norris

Executives
M A Cameron (1)
B J Chapman (2)
D P Craig (3)
L G Cupper (4)
S I Grimshaw
H D Harley (5)
M R Harte
G L Mackrell
R M McEwan (6)
J K O’Sullivan
G A Petersen
Total for Key Management Personnel

Other Executives
W Negus
Total

(1) Mr Cameron ceased employment on 10 May 2007.

(2) Ms Chapman commenced in her role on 20 July 2006.

(3) Mr Craig commenced in his role on 11 September 2006.

(4) Mr Cupper retired on 3 November 2006.

(5) Mr Harley ceased employment on 16 June 2007.

(6) Mr McEwan commenced in his role on 14 May 2007.

Deferred STI Vested

Reward Shares Vested

2,848
-
-
3,267
4,691
3,853
-
3,392
-
3,351
1,850
23,252

-
23,252

27,300
-
-
44,250
56,800
39,700
-
40,350
-
33,500
12,000
253,900

-
253,900

70 Commonwealth Bank of Australia Annual Report 2007

Directors’ Report - Remuneration Report

Total Loans to Key Management Personnel and Other Executives

Year Ended
30 June

Balance
1 July
$000s

Interest
Charged
$000s

Interest Not
Charged
$000s

Write-off

$000s

Balance
30 June
$000s

Number in
Group at
30 June

Directors

Executives

Total for Key
Management
Personnel

Other Executives

Total

2007
2006

464
-

9,178
9,894

9,642
9,894

554
554

10,196
10,448

21
379

425
550

446
929

35
31

481
960

-
-

464
5,729

5,965
9,284

6,429
15,013

443
442

6,872
15,455

1
1

6
7

7
8

1
1

8
9

Details of Individuals with Loans above $100,000 in the reporting period are as follows:

Individual Loans above $100,000 to Key Management Personnel and Other Executives

Balance
1 July 2006
$000s

Interest
Charged
$000s

Interest Not
Charged
$000s

Write-off

$000s

Balance
30 June 2007
$000s

Highest
Balance
in Period
$000s

Directors
R J Norris (1)

Executives
B J Chapman (1) (2)
M A Cameron (3)

S I Grimshaw

H D Harley (4)
G L Mackrell
R M McEwan (1) (5)
J K O’Sullivan

G A Petersen

Total for Key
Management Personnel

Other Executives
W Negus

Total

464

825
358
300
857
391
304
1,017
218
1,500
582
614
274
647
200
101
155
800
-

9,607

442
112

10,161

18
6
19
29
13
36
25
2
97
43
38
7
42
12
-
1
33
1

443

33
2

478

-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-

-
-

-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-

-
-

464

1,037

-
303
300
-
-
280
647
218
1,500
759
515
178
647
-
-
-
450
192

6,453

442
1

825
358
302
978
393
304
1,017
218
1,500
760
618
275
647
200
101
155
800
192

10,680

442
1

6,896

11,123

(1) Balance declared in NZD for Mr Norris, Ms Chapman and Mr McEwan. Exchange rate taken from Reserve Bank of Australia as at 29 June 2007.

(2) Ms Chapman commenced in her role on 20 July 2006.

(3) Mr Cameron ceased employment on 10 May 2007.

(4) Mr Harley ceased employment on 16 June 2007.

(5) Mr McEwan commenced in his role on 14 May 2007.

Commonwealth Bank of Australia Annual Report 2007 71

Directors’ Report - Remuneration Report

Transactions other than Financial Instrument
Transactions of Banks

All other transactions with Key Management Personnel, Other
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 entities not controlled by the Group.

Mr Galbraith was a partner in the law firm Allens Arthur
Robinson to 31 January 2006. Mr Galbraith was a salaried
adviser to this law firm from 1 February 2006 to 30 June 2007.
Allens Arthur Robinson acted for the Group in the provision of
legal services during the financial year. The fees for these
services amounted to $1,867,268.

Audit

Certain disclosures required by AASB124 have been made in
this Remuneration Report. Pages 50 to 72 of this report have
been audited as required.

Terms and Conditions of Loans

All loans to Key Management Personnel and Other Executives
(or close family or entities controlled, jointly controlled, or
significantly influenced by them, or any entity over which any of
the aforementioned hold significant voting power) have been
provided on an arm’s length commercial basis including the term
of the loan, security required and the interest rate (which may be
fixed or variable).

Other Transactions of Key Management Personnel and
Other Executives and Related Parties

Financial Instrument Transactions

Financial instrument transactions (other than loans and shares
disclosed above) of Key Management Personnel and Other
Executives occur in the ordinary course of business on an arm’s
length basis.

Disclosure of financial instrument transactions regularly made as
part of normal banking operations is limited to disclosure of such
transactions with Key Management Personnel and Other
Executives and entities controlled or significantly influenced by
them.

All such financial instrument transactions that have occurred
between entities within the Group and their Key Management
Personnel and Other Executives have been trivial or domestic
and were in the nature of normal personal banking and deposit
transactions.

72 Commonwealth Bank of Australia Annual Report 2007

Directors’ Report

Amounts paid or payable for audit services to Ernst & Young
totalled $12,368,000 and to other auditors totalled $90,000.

The Bank has in place an Independent Auditor Services Policy,
details of which are set out in the Corporate Governance section
of this Annual Report, to assist in ensuring the independence of
the Bank’s external auditor.

The Audit Committee has considered the provision, during the
year, of non-audit services by Ernst & Young and has concluded
that the provision of those services did not compromise the
auditor independence requirements of the Corporations Act.

The Audit Committee advised the Board accordingly and, after
considering the Committee’s advice, the Board of Directors
agreed that it was satisfied that the provision of the non-audit
services by Ernst & Young during the year was compatible with
the general standard of
the
Corporations Act.

independence

imposed by

The reasons for the Directors being satisfied that the provision of
the non-audit services during the year did not compromise the
auditor independence requirements of the Corporations Act are:

• The operation of the Independent Auditor Services Policy
during the year to restrict the nature of non-audit services
engagements, to prohibit certain services and to require
Audit Committee pre-approval for all such engagements; and

• The relative quantum of fees paid for non-audit services

compared to the quantum of audit fees.

The above Directors’ statements are in accordance with the
advice received from the Audit Committee.

Auditor’s Declaration of Independence

We have obtained an independence declaration from our
auditor, Ernst & Young as presented on the following page.

Incorporation of Additional Material

This report incorporates the Chairman’s Statement (pages 2 to
3), Highlights (pages 6 to 9), Analysis sections for Banking
(pages 10 to 19), Funds Management and Insurance (pages 20
to 26) and Shareholding Information (pages 218 to 221) sections
of this Annual Report.

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
Commonwealth Bank of Australia since 1994.

the

From 1985-1994, he was a solicitor with the Bank’s Legal
Department.

He has a Bachelor of Laws degree from Sydney University and
was admitted as a solicitor in New South Wales. He is a Fellow
of Chartered Secretaries Australia and a Member of the
Australian Institute of Company Directors.

Carla Collingwood was appointed a Company Secretary to the
Bank in July 2005.

From 1994 until 2005, she was a solicitor with the Bank’s Legal
Services Department, before being appointed to the position of
General Manager, Secretariat. She holds a Bachelor of Laws
degree (Hons.) and a Graduate Diploma in Company Secretary
Practice from Chartered Secretaries Australia.

Non-Audit Services

Amounts paid or payable to Ernst & Young for non-audit
services provided during the year, as set out in the Annual
Report in Note 39 to the Financial Statements are as follows:

Regulatory audits, reviews, attestations and assurances
for Group entities – Australia

Regulatory audits, reviews, attestations and assurances
for Group entities – Off shore

APRA reporting (including the tripartite review)

Financial and other audits, reviews, attestations and
assurances for Group entities - Australia

Financial and other audits, reviews, attestations and
assurances for Group entities – Off shore

Assurance services relating to Sarbanes Oxley legislation
compliance

Agreed upon procedures and comfort letters in respect of
financing, debt raising and related activities

Total

$’000

582

770

1,168

239
2,776 (1)

(1) An additional amount of $4,948,000 was paid to Ernst & Young by way of
fees paid for Non-Audit Services provided to entities not consolidated into
the Financial Statements, being managed investment schemes and
superannuation funds. $4,532,000 of this amount related to statutory
audits, with the residual relating to reviews, attestations and assurances.

Signed in accordance with a resolution of the Directors.

J M Schubert

Chairman

15 August 2007

R J Norris

Managing Director and Chief Executive Officer

Commonwealth Bank of Australia Annual Report 2007 73

Directors’ Report

Auditor’s Independence Declaration to the Directors of Commonwealth Bank of Australia

In relation to our audit of the financial report of Commonwealth Bank of Australia for the financial year
ended 30 June 2007, to the best of my knowledge and belief, there have been no contraventions of the
auditor independence requirements of the Corporations Act 2001 or any applicable code of professional
conduct.

Ernst & Young

S J Ferguson

Partner

15 August 2007

74 Commonwealth Bank of Australia Annual Report 2007

Liability limited by the Accountants Scheme, approved
under the Professional Standards Act 1994 (NSW).

Five Year Financial Summary

2007
$M

7,036
6,272
13,308
434

6,427
-
6,427
6,447
(1,816)
(27)
4,604
5
(75)
-
(64)
-

2006
$M

6,514
5,567
12,081
398

5,994
-
5,994
5,689
(1,605)
(31)
4,053
(25)
(100)
-
-
-

AIFRS

(1)

2005
$M

6,026
5,076
11,102
322

5,719
150
5,869
4,911
(1,409)
(10)
3,492
(53)
(39)
-
- -
-

2004
$M

5,410
5,081
10,491
276

5,500
749
6,249
3,966
(1,262)
(9)
2,695
-
-
201
-
(324)

4,470

3,928

3,400

2,572

3,763
492
253
4,508
96
-
-
4,604
5
(75)
(64)
-
-
4,470

3,227
400
215
3,842
66
-
145
4,053
(25)
(100)
-
-
-
3,928

2,913
351
156
3,420
177
(105)
-
3,492
(53)
(39)
- -
-
-
3,400

2,675
274
129
3,078
152
(535)
-
2,695
-
-
-
(324)
201
2,572

AGAAP

(1)

2003
$M

5,026
4,373
9,399
305

5,312
239
5,551
3,543
(958)
(6)
2,579
-
-
(245)
-
(322)

2,012

2,376
233
65
2,674
73
(168)
-
2,579
-
-
-
(322)
(245)
2,012

299,779
425,139

203,382
400,695

24,444
15,158

259,176
369,103

173,227
347,760

21,343
12,087

228,346
337,404

168,026
314,761

22,643
10,938

189,391
305,995

163,177
281,110

22,405
17,700

160,347
265,110

140,974
242,958

20,024
14,995

245,347

216,438

189,559

169,321

146,808

316,048
294,792

274,798
255,100

244,708
225,597

214,187
197,532

188,270
174,737

341,588
55,916
27,635
425,139

304,831
43,318
20,954
369,103

280,255
41,383
15,766
337,404

252,652
35,059
18,284
305,995

221,248
27,567
16,295
265,110

Income Statement
Net interest income
Other operating income
Total operating income
Loan Impairment expense
Operating expenses:

Comparable business
Initiatives including Which new Bank

Total operating expenses
Net profit before income tax
Corporate tax expense
Minority interests
Net profit after income tax (“cash basis”)
Defined benefit superannuation plan income/(expense)
Treasury shares valuation adjustment
Appraisal value uplift/(reduction)
One-off AIFRS mismatches
Goodwill amortisation
Net profit after income tax attributable to Equity holders of
the Bank

Contributions to profit (after tax)
Banking
Funds management
Insurance
Net profit after income tax (“underlying basis”)
Shareholder investment returns
Which new Bank
Profit on sale of the Hong Kong Insurance Business
Net profit after income tax (“cash basis”)
Defined benefit superannuation plan expense
Treasury shares valuation adjustment
One-off AIFRS mismatches
Goodwill amortisation
Appraisal value uplift/(reduction)
Net profit after income tax

Balance Sheet
Loans, advances and other receivables
Total assets

Deposits and other public borrowings
Total liabilities

Shareholders’ equity
Net tangible assets

Risk weighted assets

Average interest earning assets
Average interest bearing liabilities

Assets (on Balance Sheet)

Australia
New Zealand
Other
Total assets

(1) The Group adopted AIFRS accounting standards for the reporting period beginning 1 July 2004. As a result the 2007, 2006 and 2005 results are presented on an

AIFRS basis, while the 2004 and 2003 results are presented on the previous AGAAP basis.

Commonwealth Bank of Australia Annual Report 2007 75

Five Year Financial Summary

Shareholder Summary
Dividend per share – fully franked (cents)
Dividend cover – statutory (times)
Dividend cover – cash (times)
Dividend cover – underlying (times)
Earnings per share (cents)

Basic

Statutory
Cash basis
Underlying basis

Fully diluted
Statutory
Cash basis
Underlying basis
Dividend payout ratio (%)

Statutory
Cash basis
Underlying basis

Net tangible assets per share ($)
Weighted average number of shares (statutory basic)
Weighted average number of shares (fully diluted)
Weighted average number of shares (cash basic)
Weighted average number of shares (cash fully diluted)
Number of Shareholders
Share prices for the year ($)

Trading high
Trading low
End (closing price)

Performance Ratios (%)
Return on average Shareholders’ equity

Statutory
Cash basis
Underlying basis

Return on average total assets

Statutory
Cash basis
Underlying basis

Capital adequacy – Tier One
Capital adequacy – Tier Two
Deductions
Capital adequacy – Total
Net interest margin

Other Information (numbers)
Full-time equivalent employees
Branches/services centres (Australia)
Agencies (Australia)
ATMs (proprietary)
EFTPOS terminals
EzyBanking locations

2007

2006

AIFRS

(1)

2005

256
1. 4
1. 4
1. 3

344. 7
353. 0
345. 6

339. 7
347. 8
340. 7

75. 2
73. 0
74. 5
11. 65
1,281
1,344
1,289
1,352
696,118

56. 16
42. 98
55. 25

20. 7
22. 1
21. 6

1. 2
1. 2
1. 2
7. 14
3. 41
(0. 79)
9. 76
2. 19

224
1. 4
1. 4
1. 3

308. 2
315. 9
299. 4

303. 1
310. 5
294. 7

73. 3
71. 0
74. 9
9. 42
1,275
1,329
1,283
1,338
698,552

47. 41
36. 62
44. 41

20. 4
21. 3
20. 2

1. 1
1. 1
1. 1
7. 56
3. 10
(1. 00)
9. 66
2. 34

197
1. 3
1. 3
1. 3

259. 6
264. 8
259. 2

255. 3
260. 5
255. 0

77. 0
74. 9
76. 5
8. 54
1,260
1,316
1,269
1,325
704,906

38. 52
28. 79
37. 95

18. 2
18. 8
18. 4

1. 1
1. 1
1. 1
7. 46
3. 21
(0. 92)
9. 75
2. 43

2004

183
1. 1
1. 1
1. 3

196. 9
206. 6
237. 1

196. 8
206. 5
237. 0

93. 5
89. 1
77. 6
12. 22
1,256
1,257
1,256
1,257
714,901

33. 54
27. 00
32. 58

12. 5
12. 7
14. 6

0. 9
0. 9
1. 1
7. 43
3. 93
(1. 11)
10. 25
2. 53

AGAAP

(1)

2003

154
0. 9
1. 3
1. 4

157. 4
202. 6
210. 2

157. 3
202. 5
210. 0

97. 7
75. 9
73. 3
11. 41
1,253
1,254
1,253
1,254
746,073

32. 75
23. 05
29. 55

10. 5
13. 1
13. 6

0. 8
1. 0
1. 0
6. 96
4. 21
(1. 44)
9. 73
2. 67

37,873
1,010
3,833
3,242
177,232
907

36,664
1,005
3,836
3,191
148,220
862

35,313
1,006
3,864
3,154
137,240
841

36,296
1,012
3,866
3,109
126,049
815

35,845
1,014
3,893
3,116
129,259
760

Productivity
Total net operating income per full-time (equivalent)
employee ($)
Employee expense/Total operating income (%)
Total operating expenses/Total operating income (%)

351,385
24. 4
48. 3

329,506
23. 4
49. 6

314,388
24. 1
52. 9

289,040
24. 3
59. 6

262,212
26. 4
59. 1

(1) The Group adopted AIFRS accounting standards for the reporting period beginning 1 July 2004. As a result the 2007, 2006 and 2005 results are presented on an

AIFRS basis, while the 2004 and 2003 results are presented on the previous AGAAP basis.

76 Commonwealth Bank of Australia Annual Report 2007

Income Statements
Balance Sheets
Statements of Recognised Income and Expense
Statements of Cash Flows
Note 1
Note 2
Note 3
Note 4
Note 5
Note 6
Note 7
Note 8
Note 9
Note 10
Note 11
Note 12
Note 13
Note 14
Note 15
Note 16
Note 17
Note 18
Note 19
Note 20
Note 21
Note 22
Note 23
Note 24
Note 25
Note 26
Note 27
Note 28
Note 29
Note 30
Note 31
Note 32
Note 33
Note 34
Note 35
Note 36
Note 37
Note 38
Note 39
Note 40
Note 41
Note 42
Note 43
Note 44
Note 45
Note 46
Note 47
Note 48
Note 49
Note 50

Accounting Policies
Profit
Income
Average Balances and Related Interest
Income Tax Expense
Dividends
Earnings Per Share
Cash and Liquid Assets
Receivables due from Other Financial Institutions
Assets at Fair Value through Income Statement
Derivative Assets and Liabilities
Available-for-Sale Investments
Loans, Advances and Other Receivables
Provisions for Impairment
Credit Risk Management
Asset Quality
Shares in and Loans to Controlled Entities
Investment Property
Property, Plant and Equipment
Intangible Assets
Other Assets
Assets Held for Sale
Deposits and Other Public Borrowings
Payables due to Other Financial Institutions
Liabilities at Fair Value through Income Statement
Income Tax Liability
Other Provisions
Debt Issues
Managed Funds Units on Issue
Bills Payable and Other Liabilities
Loan Capital
Detailed Statements of Changes in Equity
Share Capital
Minority Interests
Capital Adequacy
Maturity Analysis of Monetary Assets and Liabilities
Financial Reporting by Segments
Life Insurance Business
Remuneration of Auditors
Commitments for Capital Expenditure Not Provided for in the Accounts
Lease Commitments – Property, Plant and Equipment
Contingent Liabilities, Assets and Commitments
Market Risk
Retirement Benefit Obligations
Controlled Entities
Investments in Associated Entities and Joint Ventures
Director and Executive Disclosures
Related Party Disclosures
Notes to the Statements of Cash Flows
Disclosures about Fair Value of Financial Instruments

Financial Statements

78
79
80
81
83
97
99
100
106
109
110
111
111
112
114
120
123
126
130
137
141
141
142
144
145
146
146
147
147
147
148
149
151
152
152
159
161
166
167
172
174
177
183
183
184
185
187
197
200
203
204
204
210
212

Commonwealth Bank of Australia Annual Report 2007 77

Financial Statements

Income Statements
For the year ended 30 June 2007

Interest income
Interest expense
Net interest income
Other operating income
Net banking operating income (1)

Funds management income
Investment revenue
Claims and policyholder liability expense
Net funds management operating income

Premiums from insurance contracts
Investment revenue
Claims and policyholder liability expense from
insurance contracts
Insurance margin on services operating income

Total net operating income

Loan Impairment expense
Operating expenses:

Comparable business
Which new Bank

Total operating expenses
Defined benefit superannuation plan
income/(expense)
Net profit before income tax
Corporate tax expense
Policyholder tax expense
Net profit after income tax
Minority interests
Net profit attributable to Equity holders of the
Bank

2007
$M
23,862
16,826
7,036
3,341
10,377

1,871
2,120
(2,020)
1,971

1,117
858

(932)
1,043

2006
$M
19,758
13,244
6,514
3,036
9,550

1,589
2,098
(2,064)
1,623

1,052
1,031

(970)
1,113

Group
2005
$M
16,781
10,755
6,026
2,845
8,871

1,247
1,956
(1,871)
1,332

1,132
1,186

(1,243)
1,075

2007
$M
20,068
14,916
5,152
5,522
10,674

-
-
-
-

-
-

Bank
2006
$M
16,027
11,305
4,722
5,540
10,262

-
-
-
-

-
-

13,391

12,286

11,278

10,674

10,262

Note
2
2

2,14,15

434

398

322

390

380

2,44
2
5
5

6,427
-
6,427

8
6,538
1,775
266
4,497
(27)

4,470

5,994
-
5,994

(35)
5,859
1,569
331
3,959
(31)

3,928

5,719
150
5,869

(75)
5,012
1,374
228
3,410
(10)

3,400

4,882
-
4,882

8
5,410
933
-
4,477
-

4,477

4,604
-
4,604

(35)
5,243
976
-
4,267
-

4,267

(1) Net Banking operating income of the Bank is greater than the Group due to the receipt of tax exempt intragroup dividends.

Earnings per share:

Basic
Fully diluted

Dividends per share attributable to Shareholders
of the Bank:

Ordinary shares
PERLS (1)
Trust preferred securities (TPS) – issued 6
August 2003 (1)
PERLS II – issued 6 January 2004 (1)
Trust preferred securities (TPS) – issued 8
March 2006

(1) Instruments reclassified to loan capital on adoption of AIFRS from 1 July 2005.

Net profit after income tax comprises:

Net profit after income tax (“underlying basis”)
Shareholder investment returns (after tax)
Which new Bank (after tax)
Profit on sale of the Hong Kong Insurance Business

Net profit after income tax (“cash basis”)

Defined benefit superannuation plan income/(expense)
Treasury shares valuation adjustment
One-off AIFRS mismatches
Net profit after income tax (“statutory basis”)

78 Commonwealth Bank of Australia Annual Report 2007

Note

2007

2006

Cents per share

Group
2005

7
7

344. 7
339. 7

308. 2
303. 1

259. 6
255. 3

256
-

-
-

7,821

224
-

-
-

197
1,115

7,795
908

4,508
96
-
-
4,604

5
(75)
(64)
4,470

3,842
66
-
145
4,053

(25)
(100)
-
3,928

3,420
177
(105)
-
3,492

(53)
(39)
-
3,400

Balance Sheets
As at 30 June 2007

Assets
Cash and liquid assets (1)
Receivables due from other financial institutions
Assets at fair value through Income Statement:

Trading
Insurance
Other (1)

Derivative assets
Available-for-sale investments
Loans, advances and other receivables
Bank acceptances of customers
Shares in and loans to controlled entities
Investment property
Property, plant and equipment
Investment in associates
Intangible assets
Deferred tax assets
Other assets

Assets held for sale
Total Assets

Liabilities
Deposits and other public borrowings
Payables due to other financial institutions
Liabilities at fair value through Income Statement
Derivative liabilities
Bank acceptances
Due to controlled entities
Current tax liabilities
Deferred tax liabilities
Other provisions
Insurance policy liabilities
Debt issues
Managed funds units on issue
Bills payable and other liabilities

Loan capital
Total Liabilities
Net Assets

Shareholders’ Equity

Share capital:

Ordinary share capital
Other equity instruments

Reserves
Retained profits
Shareholders’ equity attributable to Equity
holders of the Bank

Minority interests:

Controlled entities
Total Minority Interests
Total Shareholders’ equity

Financial Statements

2007
$M

10,108
5,495

21,469
23,519
4,073
12,743
9,672
299,779
18,721
-
-
1,436
836
7,835
922
7,157
423,765
1,374
425,139

203,382
14,386
19,431
16,680
18,721
-
882
1,576
878
21,613
85,490
310
7,346
390,695
10,000
400,695
24,444

Group
2006
$M

5,868
7,107

15,758
24,437
2,207
9,675
11,203
259,176
18,310
-
258
1,313
190
7,809
650
5,141
369,102
1
369,103

173,227
11,184
13,811
10,820
18,310
-
378
1,336
821
22,225
78,591
1,109
6,053
337,865
9,895
347,760
21,343

2007
$M

7,401
5,772

20,287
-
448
13,862
8,468
247,281
18,721
37,512
-
1,112
749
2,788
665
6,786
371,852
21
371,873

178,944
14,322
5,206
16,786
18,721
45,558
800
731
734
-
47,760
-
6,366
335,928
10,422
346,350
25,523

Bank
2006
$M

4,819
7,464

13,926
-
396
9,938
9,914
212,699
18,439
36,150
-
1,026
114
2,738
392
4,624
322,639
1
322,640

155,956
11,131
2,085
10,955
18,439
32,435
334
640
690
-
52,198
-
4,299
289,162
10,688
299,850
22,790

14,483
939
2,143
6,367

13,505
939
1,904
4,487

14,691
1,895
2,622
6,315

13,766
1,895
2,657
4,472

23,932

20,835

25,523

22,790

512
512
24,444

508
508
21,343

-
-
25,523

-
-
22,790

Note

8
9
10

11
12
13
15
17
18
19
46
20
5
21

23
24
25
11
15
-
26
5
27
38
28
29
30

33
33
32
32

(1) During the current year, certain ASB Bank overnight settlement account balances were reclassified from Assets at fair value through Income Statement to Cash and

liquid assets. Prior periods have been restated on a consistent basis.

Commonwealth Bank of Australia Annual Report 2007 79

Financial Statements

Statements of Recognised Income and Expense
For the year ended 30 June 2007

Note

32,44

32
32

32
32
32

Actuarial gains and losses from defined benefit
superannuation plans
Gains and losses on cash flow hedging
instruments:

Recognised in equity
Transferred to the Income Statement
Gains and losses on available-for-sale
investments:

Recognised in equity
Transferred to the Income Statement on disposal
Transferred to the Income Statement on
impairment

Revaluation of properties
Transfer from Foreign Currency Translation
Reserve to the Income Statement on disposal
Exchange differences on translation of foreign
operations
Income tax on items transferred directly to/from
equity:

Foreign Currency Translation Reserve
Available-for-sale investments revaluation
reserve
Revaluation of properties
Cash flow hedge reserve

Net income recognised directly in equity
Profit for the period
Total net income recognised for the period

Attributable to:

Equity holders of the Bank
Minority interests

Total net income recognised for the period

2007
$M

414

429
120

28
(138)

-
79

(13)

10
(23)
(168)
792
4,497
5,289

5,262
27
5,289

2006
$M

Group
2005
$M

387

110

89
(58)

51
(33)

(3)
19

-
-

-
29

2007
$M

414

125
167

18
(119)

-
75

(232)

(141)

(119)

(6)
(4)
(11)
253
3,959
4,212

4,181
31
4,212

(1)

-
-
-
(2)
3,410
3,408

3,398
10
3,408

14
(23)
(87)
464
4,477
4,941

4,941
-
4,941

Bank
2006
$M

387

58
(51)

52
(31)

(3)
14

(8)

7
(3)
(2)
420
4,267
4,687

4,687
-
4,687

80 Commonwealth Bank of Australia Annual Report 2007

Statements of Cash Flows (1)
For the year ended 30 June 2007

Cash Flows From Operating Activities
Interest received
Interest paid
Other operating income received
Expenses paid
Income taxes paid
Net decrease/(increase) in trading securities
Assets at fair value through Income Statement
(excluding life insurance)
Life insurance:

Investment income
Premiums received (2)
Policy payments (2)

Liabilities at fair value through Income Statement
(excluding life insurance)
Cash Flows from operating activities before
changes in operating assets and liabilities

Changes in operating assets and liabilities arising
from cash flow movements
Movement in investment securities:

Purchases
Proceeds from sale
Proceeds at or close to maturity

Movement in available-for-sale investments:

Purchases
Proceeds from sale
Proceeds at or close to maturity

Lodgement of deposits with regulatory authorities
Net (increase) in loans, advances and other receivables
Net (increase)/decrease in receivables due from other
financial institutions not at call
Net (increase)/decrease in securities purchased under
agreements to resell
Life insurance business:

Purchase of insurance assets at fair value through
Income Statement
Proceeds from sale/maturity of insurance assets at
fair value through Income Statement

Net increase in deposits and other borrowings
Net proceeds from issuance of debt securities
Net increase in payables due to other financial
institutions not at call
Net increase/(decrease) in securities sold under
agreements to repurchase
Changes in operating assets and liabilities arising
from cash flow movements
Net cash provided by/(used in) operating activities
Cash Flows from Investing Activities
Payment for acquisition of entities and management
rights
Proceeds from disposal of controlled entities
Proceeds from disposal of entities and businesses (net
of cash disposals)
Dividends received
Net amounts received from controlled entities
Proceeds from sale of property, plant and equipment
Purchases of property, plant and equipment
Payment for acquisitions of investments in
associates/joint ventures
Purchases of intangible assets
Purchases of assets held for sale
Net decrease in other assets
Net cash (used in)/provided by investing activities

Financial Statements

Note

2007
$M

2006
$M

23,123
(16,405)
4,627
(5,699)
(1,942)
-

19,712
(12,555)
4,319
(5,813)
(1,980)
-

Group
2005
$M

16,781
(10,720)
4,559
(5,678)
(985)
318

2007
$M

19,471
(14,614)
2,826
(4,364)
(1,056)
-

Bank
2006
$M

16,268
(11,348)
2,715
(4,318)
(1,117)
-

(1,715)

(307)

(3,206)

(1,926)

2,296
2,431
(5,346)

2,399
2,338
(4,938)

1,572
3,183
(4,664)

-
-
-

5,722

1,445

3,373

7,092

4,620

4,366

2,430

-
-
-

(22,214)
728
21,891
(8)
(37,885)

-
-
-

(28,189)
646
24,831
(29)
(31,996)

(22,608)
396
22,799

-
-
-
(7)
(31,721)

-
-
-

(21,411)
1,101
20,582
(2)
(35,037)

833

(881)

1,097

2,089

(1,647)

537

991

(1,867)

-
-
-

504

778

-
-
-

(25,310)
558
21,828
(1)
(28,936)

(793)

740

(8,476)

(8,078)

(14,165)

8,842
26,361
6,316

9,398
12,799
14,605

15,281
6,332
17,934

-
20,914
(5,254)

-
13,284
13,331

1,865

2,571

449

1,864

2,566

1,943

328

(1,480)

2,013

328

(1,451)
5,641

(3,458)
1,162

(4,702)
(336)

(15,008)
(12,578)

(2,405)
(1,627)

(7)
-

16
3
-
53
(314)

(6)
(130)
(1,091)
(800)
(2,276)

(414)
553

35
4
-
32
(385)

(152)
(90)
-
31
(386)

(40)
-

173
3
-
30
(286)

(42)
(92)
-
1,055
801

-
-

-
1,881
11,760
49
(242)

(6)
(51)
-
(738)
12,653

(26)
-

-
2,080
1,531
17
(329)

(102)
(95)
-
371
3,447

49(a)

49(e)
49(c)

(1) It should be noted that the Group does not use these accounting Statements of Cash Flows in the internal management of its liquidity positions.

(2) Represents gross premiums and policy payments before splitting between policyholders and Shareholders.

Commonwealth Bank of Australia Annual Report 2007 81

Financial Statements

Statements of Cash Flows (1)
For the year ended 30 June 2007

Cash Flows from Financing Activities
Buy-back of shares
Proceeds from issue of shares (net of costs)
Proceeds from issue of preference shares to
minority interests
Proceeds from issue of other equity instruments
(net of costs)
Dividends paid (excluding Dividend Reinvestment
Plan)
Net movement in other liabilities
Net sale/(purchase) of treasury shares
Issue of loan capital
Redemption of loan capital
Other
Net cash (used in) 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

2007
$M

-
19

(2,284)
219
55
1,865
(965)
(228)
(1,319)

2,046
2,038
4,084

49(b)

2006
$M

(500)
49

939

(2,163)
139
(10)
2,446
(915)
1
(14)

762
1,276
2,038

Group
2005
$M

-
66

323

(2,083)
(330)
(60)
1,233
(1,392)
55
(2,188)

(1,723)
2,999
1,276

2007
$M

-
19

(2,229)
1,197
(55)
1,865
(965)
(20)
(188)

(113)
241
128

Bank
2006
$M

(500)
49

1,895

(2,163)
(3,313)
(2)
3,152
(918)
(93)
(1,893)

(73)
314
241

(1) It should be noted that the Group does not use these accounting Statements of Cash Flows in the internal management of its liquidity positions.

82 Commonwealth Bank of Australia Annual Report 2007

Note 1 Accounting Policies

General Information

The Financial Statements of the Commonwealth Bank of
Australia (the “Bank”) and the Bank and its subsidiaries (the
“Group”) for the year ended 30 June 2007, were approved and
authorised for issue by the Board of Directors on 15 August
2007.

The Bank is incorporated and domiciled in Australia. It is a
company limited by shares that are publicly traded on the
Australian Stock Exchange. The address of its registered office
is Level 7, 48 Martin Place, Sydney, NSW 1155, Australia.

The 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 Group during the financial
period were:

(i) Banking

The Group provides retail banking services including housing
loans, credit cards, personal loans, savings and cheque
accounts, and demand and term deposits. The Group also offers
commercial products including business loans, equipment and
trade finance, and rural and Agribusiness products. The Group
also has full service banking operations in New Zealand, Fiji,
and Indonesia. The Group has wholesale banking operations in
London, New York, Hong Kong, Singapore, Indonesia, regions
of China, Tokyo and Malta.

(ii) Funds Management

The Group’s funds management business comprises 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. The Group also has funds management businesses in
New Zealand, the United Kingdom and Asia.

(iii) Insurance

term

insurance, disability

The Group provides
insurance,
annuities, master trusts, investment products and household
general insurance. 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.

(a) Bases of accounting

This general purpose Financial Report for the reporting period
ended 30 June 2007 has been prepared in accordance with the
International Financial Reporting
Australian equivalent
Standards (“AIFRS”) and the requirements of the Corporations
Act 2001.

The basis of the AIFRS standards are the International Financial
International
Reporting Standards (“IFRS”)
Accounting Standards Board. As a result of complying with
AIFRS, the Group accounts also comply with IFRS, and
interpretations adopted by
International Accounting
Standards Board.

issued by

the

The preparation of the Annual Financial Report in conformity
with AIFRS requires management to make estimates and
assumptions that affect the amounts reported in the Financial
Statements and accompanying notes.

Notes to the Financial Statements

The use of available information and
the application of
judgement are inherent in the formation of estimates. Actual
results could differ from these estimates.

(b) Basis of preparation

The Financial Statements are prepared on the basis of historical
cost except that the following assets and liabilities are measured
at fair value: derivative financial instruments, assets and
liabilities at fair value through Income Statement, available-for-
sale investments, insurance policy liabilities, domestic bills
discounted which are included in loans, advances and other
receivables, investment property which backs liabilities paying a
return linked to the fair value or returns from assets including the
investment property, owner-occupied property, defined benefit
plan assets and liabilities, employee share-based remuneration
liabilities and recognised assets and liabilities attributable to the
hedged risk in a hedging relationship that qualifies for hedge
accounting treatment.

For the financial year ended 30 June 2005 and all prior years the
Annual Financial Report was prepared under the Australian
accounting standards applicable to reporting periods beginning
prior to 1 January 2005 (“AGAAP”).

The accounting policies which changed as a result of the
adoption of AIFRS were applied retrospectively and consistently
by the Group from 1 July 2004, except for the following financial
instruments and insurance standards which were adopted and
applied from 1 July 2005 onwards:

i) AASB 132 Financial
Presentation;

ii) AASB 139 Financial
Measurement;

Instruments – Disclosure and

Instruments – Recognition and

iii) AASB 4 Insurance Contracts;

iv) AASB 1023 General Insurance Contracts; and

v) AASB 1038 Life Insurance Contracts.

Differences in measurement, recognition and disclosure arising
from these standards have been noted where relevant in the
change in accounting policy section within each topic.

Comparison with 2005 results should be read in conjunction with
the following accounting policy notes.

AIFRS was applied retrospectively subject to the following
elections under AASB 1 First-Time Adoption of AIFRS:

i) not to restate any past business combinations that occurred
prior to 1 July 2004 in preparing the Group’s opening AIFRS
Balance Sheet at 30 June 2005; and

ii) to transfer the Foreign Currency Translation Reserve as at 1
July 2004 to Retained Profits.

The Group has applied previous AGAAP
the 2005
comparative information to financial instruments and insurance
contracts within the scope of the above standards.

The Financial Report is presented in Australian dollars.

The following standards, interpretations and amendments will be
applied by the Group from the financial year commencing 1 July
2007:

• AASB Interpretation 10 Interim Financial Reporting and
Impairment, applicable to annual reporting periods beginning
on or after 11 November 2006; and

Commonwealth Bank of Australia Annual Report 2007 83

Notes to the Financial Statements

Note 1 Accounting Policies (continued)

• AASB Interpretation 11 AASB 2 Group and Treasury Share
Transactions and AASB 2007-1 Amendments to Australian
Accounting Standards arising from AASB Interpretation 11,
are applicable to annual reporting periods beginning on or
after 1 March 2007.

The Group expects to adopt the following interpretations from
the financial year commencing 1 July 2007:

• AASB Interpretation 13 Customer Loyalty Programmes (once
issued), applicable to annual reporting periods beginning on
or after 1 July 2008. The initial adoption of Interpretation 13
will result in loyalty award credits being recognised as
deferred revenue at the time related income is earned, based
on their fair value. Deferred revenue would be recognised
when the loyalty award credits are subsequently claimed.
The Group has not yet evaluated the financial impact of this
interpretation.

The following standards and amendments will be applied by the
Group from the financial year commencing 1 July 2008:

•

AASB Interpretation 12 Service Concession Arrangements
and AASB 2007-2 Amendments to Australian Accounting
Interpretation 12 are
Standards arising
applicable to annual reporting periods beginning on or after
1 January 2008. The Group has not yet evaluated the
financial impact of this interpretation.

from AASB

The following standards and amendments were available for
early adoption but have not been applied by the Group in these
Financial Statements:

• AASB 7 Financial Instruments: Disclosure (August 2005)
supersedes AASB 130 and the disclosure requirements of
AASB 132. AASB 7 is applicable for annual reporting periods
beginning on or after 1 January 2007;

• AASB 8 Operating Segments Reporting and AASB 2007-3
Amendments to Australian Accounting Standards arising
from AASB 8 (February 2007) are applicable for annual
reporting periods beginning on or after 1 January 2009;

• AASB 2005-10 Amendments

(September 2005) makes

to Australian Accounting
Standards
consequential
Instruments:
to AASB 132 Financial
amendments
Disclosures and Presentation, AASB 101 Presentation of
Financial Statements, AASB 114 Segment Reporting, AASB
117 Leases, AASB 133 Earnings per Share, AASB 139
Financial Instruments: Recognition and Measurement, AASB
1 First-time Adoption of Australian Equivalents
to
International Financial Reporting Standards, AASB 4
Insurance Contracts, AASB 1023 General
Insurance
Contracts and AASB 1038 Life Insurance Contracts, arising
from the release of AASB 7. AASB 2005-10 is applicable for
annual reporting periods beginning on or after 1 January
2007;

• AASB 2007-4 Amendments

to Australian Accounting
Standards Arising from ED 151 and Other Amendments
(April 2007) allows additional choices in the application of
AASB 107 Cash Flow Statements and AASB 131 Interests in
Joint Ventures, amends the definition of “separate financial
statements” in certain standards, removes the commentary
from AASB 119 Employee Benefits that Australia does not
have a sufficiently active and liquid market for high quality
corporate bonds for the purpose of discounting employee
benefit liabilities, and removes many of the additional
Australian disclosure requirements in a number of standards,

84 Commonwealth Bank of Australia Annual Report 2007

other than those considered particularly relevant in the
Australian environment.

AASB 2007-4 is applicable for annual reporting periods
beginning on or after 1 July 2007; and

• AASB 2007-6 Amendments

to Australian Accounting
Standards Arising from AASB 123 (June 2007) and Revised
AASB 123 Borrowing Costs (June 2007) which removes the
option to expense borrowing costs related to “qualifying
assets”. AASB 2007-6 and the revised AASB 123 are
applicable for annual reporting periods beginning on or after
1 January 2009.

The initial application of AASB 7 from 1 July 2008 is not
expected to impact the financial results of the Bank or the Group
as the standard is concerned only with disclosures.

The initial application of AASB 8 will result in reporting of
segment information by Primary Segments only; Secondary
is
Segment
considering the advantages that early adoption in 2008 may
make to the transparency of the Group’s segment disclosures.

reporting will be discontinued. The Group

The initial application of AASB 2007-4 is not expected to impact
the financial results of the Bank or the Group other than a
reduction in the defined benefit employee benefit liability arising
from the application of a higher discount rate than that of
government bonds.

The initial application of AASB 2007-6 is not expected to
materially impact the financial results of the Bank or the Group.

Other standards and amendments are unlikely to have a
material effect on the Group.

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 the entity.

Potential voting rights are considered when assessing control. A
number of consolidated entities were formed by the Group for
the purpose of asset securitisation transactions and structured
debt issuance, or to accomplish certain other narrow and well-
defined objectives. Such entities may acquire assets directly or
indirectly from the Bank or its affiliates. Additionally, some of
these entities are bankruptcy-remote (i.e. their assets are not
available to satisfy the claims of creditors of the Group or any
other of its subsidiaries). These entities are consolidated in the
Group’s Financial Statements when the majority of exposure to
risks and benefits from the entity resides with the Group.

All balances and transactions between Group entities, including
unrealised gains and
losses, have been eliminated on
consolidation.

The consolidated Financial Statements also include the Group’s
share of the financial results of entities where the Group holds
an investment in, and has significant influence over, the financial
and operating policies of the entity. This is normally evidenced
when the Group owns 20% or more of the voting rights.

Associated companies are defined as those entities over which
the Group has significant influence but there is no capacity to
control. Investments in associates are carried at cost plus the
Group’s share of post-acquisition profit or loss and other
reserves. The Group’s share of profit or loss of associates is
included in the Group’s profit and loss.

Note 1 Accounting Policies (continued)

(d) Revenue recognition

Revenue is recognised to the extent it is probable that economic
benefits will flow to the Group and the revenue can be reliably
measured. The principal sources of revenue are interest income
and fees and commissions.

Interest income

Interest income is recognised on an accrual basis using the
effective interest method. Further information is included in Note
1 (g) Receivables from other financial institutions, Note 1 (j)
Available-for-sale investments, Note 1 (l) Loans, advances and
other receivables, and Note 1 (m) Leasing.

Lending fees

Fee income and direct costs relating to loan origination,
financing or restructuring and to loan commitments are deferred
and amortised to interest income over the expected life of the
loan using the effective interest method. Fees received for
commitments which are not expected to result in a loan are
recognised in the profit and loss over the commitment period.

Loan syndication fees where the Group does not retain a portion
of the syndicated loan are recognised in income once the
syndication has been completed. Where fees are received on an
ongoing basis and represent the recoupment of the costs of
maintaining and administering existing loans, these fees are
recognised in profit and loss on an accrual basis.

Fees and commissions

fees

When commission charges and
to specific
transactions or events, they are recognised in income in the
period in which they are earned. However, when they are
charged for services provided over a period, they are recognised
in income on an accrual basis.

relate

Other income

Trading income is recognised when earned based on changes
in fair value of financial instruments and is recorded from trade
date. Further information is included in Notes 1 (e) Foreign
Currency Translations, 1 (i) Assets at fair value through Income
Statement, and Note 1 (ff) Derivative financial instruments. Life
insurance business income recognition is explained in Note 1
(hh).

(e) Foreign currency translations

The functional and presentation currency of the domestic
operations of the Bank has been determined to be Australian
Dollars (“AUD”) as this currency best reflects the economic
substance of the underlying events and circumstances relevant
to the Bank. Each entity and overseas branch within the Group
has also determined their functional currency based on their own
primary economic indicators.

All foreign currency monetary items are revalued at spot rates of
exchange prevailing at Balance Sheet date and changes in the
spot rate are recorded in the profit and loss. Foreign currency
forward, futures, swaps and option positions are revalued at
appropriate market rates applying at Balance Sheet date.

Notes to the Financial Statements

Non-monetary assets and liabilities that are measured in terms
of historical cost in a foreign currency are translated using the
exchange rate at the date of transaction. Non-monetary assets
and liabilities denominated in foreign currencies that are
measured at fair value are translated into AUD at foreign
exchange rates ruling at
fair value was
determined.

the dates

the

With the exception of the revaluations classified in equity,
unrealised foreign currency gains and losses arising from these
revaluations and gains and losses arising from foreign exchange
dealings are included in the profit and loss.

The foreign currency assets and liabilities of overseas branches
and controlled entities with an overseas functional currency are
converted to AUD at Balance Sheet date in accordance with the
foreign exchange rates ruling at that date. Profit and loss items
for overseas branches and controlled entities are converted to
AUD progressively throughout the year at the spot exchange
rate at the date of the transaction. All resulting exchange
differences are recognised in the Foreign Currency Translation
Reserve (“FCTR”) as a separate component of equity.

Translation differences arising from conversion of opening
balances of Shareholders’ funds of overseas branches and
controlled entities at year end exchange rates are reflected in
the FCTR. The Group maintains a substantially matched
position in assets and liabilities in foreign currencies and the
level of net foreign currency exposure does not have a material
impact on its financial condition.

(f) Cash and liquid assets

Cash and liquid assets includes cash at branches, cash at
banks, nostro balances, money at short call with an original
maturity of three months or less and securities held under
reverse repurchase agreements. They are measured at face
value or the gross value of the outstanding balance. Interest is
recognised in profit and loss using the effective interest method.

(g) Receivables from other financial institutions

Receivables from other financial institutions include loans,
deposits with regulatory authorities and settlement account
balances due from other banks. They are measured at the gross
value of the outstanding balance. Interest is recognised in profit
and loss using the effective interest method.

(h) Financial instruments

Financial instruments are classified into one of the following
categories which determines their measurement basis:

• Assets at fair value through Income Statement (Note 1 (i))

• Available-for-sale investments (Note 1 (j))

• Derivative assets (Note 1 (ff))

• Loans, advances and other receivables (Note 1 (l))

• Liabilities at fair value through Income Statement (Note 1 (x))

• Liabilities at amortised cost

• Derivative liabilities (Note 1 (ff))

• Shareholders’ equity (Note 1 (ee))

Commonwealth Bank of Australia Annual Report 2007 85

Notes to the Financial Statements

Note 1 Accounting Policies (continued)

Insurance

Except for restructured facilities referred to in Note 1(l) Loans,
advances and other receivables, 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.

Insurance investment assets are investments that back life
insurance contracts and life investment contracts. They are
measured at fair value based on quoted bid prices or using
appropriate valuation techniques. Refer to Note 1 (hh), Life
insurance business for further details.

The Group has no held to maturity investments.

Other

In line with the exemption provided by AASB 1, comparative
information in relation to financial instruments for periods prior to
1 July 2005 was not restated on an AIFRS basis and is
presented in accordance with former AGAAP.

Offsetting financial instruments

The Group offsets financial assets and liabilities where there is a
legally enforceable right to set off, and there is an intention to
settle on a net basis or to realise the asset and settle the liability
simultaneously.

Derecognition of financial assets

Financial assets are derecognised either when sold, or when the
rights to receive cash flows from the financial assets have
expired or have been transferred, or when the Group has
transferred substantially all the risks and rewards of ownership.
In transactions where substantially all the risks and rewards are
neither retained nor transferred, the Group would derecognise
assets if control was no longer retained, or if control was
retained the assets would be recognised to the extent of the
Group’s continuing involvement.

Other investments include financial assets which the Group has
designated at inception as at fair value through Income
Statement. Subsequent to initial recognition fair value is
measured using quoted bid prices where available. Quoted mid
prices, where available, are used to measure fair value in a
portfolio with offsetting risk positions.

Non-market quoted instruments are valued using valuation
techniques, based on market conditions and risks existing at
Balance Sheet date.

(ii) Change in accounting policy

The following changes occurred on 1 July 2005:

Trading securities were reclassified into Assets at fair value
through Income Statement.

Insurance investment assets were reclassified into Assets at fair
value through Income Statement.

Other investments is a new category of financial asset within
Assets at fair value through Income Statement. These assets
were previously carried at cost, or amortised cost, predominantly
as investment securities.

(i) Assets at fair value through Income Statement

(j) Available-for-sale investments

Assets at fair value through Income Statement is a new class of
financial asset applicable from 1 July 2005.

(i) Current accounting policy

financial assets are managed and

Assets at fair value through Income Statement include assets
held for trading and assets that upon initial recognition are
designated by the Group as at fair value through Income
Statement. This designation is made when it reduces significant
accounting mismatches between assets and related liabilities,
the group of
their
performance is evaluated on a fair value basis, or where the
asset is a contract which contains an embedded derivative.
These assets are recognised on trade date at fair value with
transaction costs including brokerage, commissions and fees
taken directly to profit and loss. Subsequent changes in fair
value are recognised in other operating income. Dividends
earned are recorded in other operating income. Interest earned
is recorded within Net Interest Earnings using the effective
interest method.

Assets at fair value through Income Statement are classified into
three subcategories: Trading, Insurance and Other.

Trading

Trading assets are short and long term public, bank and other
debt securities and equities that are acquired and held for
trading purposes. Subsequent to initial recognition, fair value is
measured using quoted bid prices where available. In a trading
portfolio with offsetting risk positions, quoted mid prices, where
available, are used to measure the fair value. Non market
quoted assets are valued using valuation techniques based on
market conditions and risks existing at Balance Sheet date.

86 Commonwealth Bank of Australia Annual Report 2007

(i) Current accounting policy

Available-for-sale investments are short and long term public,
bank and other securities and include bonds, notes, bills of
exchange, commercial paper, certificates of deposit, equities
and rolling loan originations and syndications.

Available-for-sale investments are initially recognised at fair
value including transaction costs, and thereafter at fair value.
Investments whose fair value cannot be reliably measured are
valued at cost. Gains and losses arising from changes in fair
value are reported in the Available-for-sale investments reserve
taxes until such
within equity net of applicable
investments are sold, collected, otherwise disposed of, or
become
Interest, premiums and dividends are
reflected in other operating income when earned.

impaired.

income

Available-for-sale investments are tested for impairment in line
with Note 1 (n) Provisions for impairment.

Upon disposal or impairment, the accumulated change in fair
value within
is
transferred to profit and loss and reported within other operating
income.

the Available-for-sale

investments reserve

(ii) Change in accounting policy

From 1 July 2005 financial assets previously classified as
investment securities were predominantly
to
Available-for-sale investments and Loans, advances and other
receivables.

reclassified

Investment securities, which were previously recognised at cost
or amortised cost which were reclassified to Available-for-sale
investments, were restated to fair value. Changes in fair value
were included within the Available-for-sale investments reserve.

Notes to the Financial Statements

Note 1 Accounting Policies (continued)

Impairment of loans, advances and other receivables

(k) Repurchase agreements

Securities sold under agreements to repurchase are retained
within the Available-for-sale investments or Assets at fair value
for
through
accordingly in line with Note 1 (j) and (i) respectively.

Income Statement categories and accounted

Liability accounts are used to record the obligation to repurchase
and disclosed as Deposits. Securities held under reverse
repurchase agreements are recorded within Cash and liquid
assets.

(l) Loans, advances and other receivables

Loans, advances and other receivables are financial assets with
fixed and determinable payments that are not quoted in an
active market.

term

finance

lending,

They include overdrafts, home loans, credit card and other
financing, redeemable
personal
loans, bill
leases. Loans,
preference shares, securities and
advances and other receivables are initially recognised at fair
value including direct and incremental transaction costs. They
are subsequently measured at amortised cost using the effective
interest method and are presented net of provisions for
impairment. Where loans, advances and other receivables are
originated with the intent to be sold immediately or in the short
term, they are recorded in Assets at fair value through Income
Statement.

Note 1 (d) and Note 1 (n) provide additional information with
respect to revenue recognition and impairment respectively.

Non Performing Facilities

Individual provisions for impairment are recognised to reduce
the carrying amount of loans and advances to their estimated
recoverable amounts. Individually significant provisions are
calculated based on discounted cash flows.

The unwinding of the discount from initial recognition of
impairment through to recovery of the written down amount is
recognised as interest income. In subsequent periods, interest in
arrears/due on non performing facilities is recognised in profit
and loss when a cash payment is received/realised and the
amount is not designated as a principal payment.

Restructured Facilities

When the original contractual terms of facilities (primarily loans)
are modified, the accounts become classified as restructured.
Such accounts continue to accrue interest as long as the facility
is performing in accordance with the restructured terms. If
performance is not maintained, or collection of interest and/or
principal is no longer probable, the account will be returned to
the non performing classification. Facilities are generally kept as
non performing until they are returned to a performing basis.

Assets Acquired Through Securities Enforcement (AATSE)

Assets acquired in satisfaction of facilities in default (primarily
loans) are recorded at net market value at the date of
acquisition. Any difference between the carrying amount of the
facility and the net market value of the assets acquired is
represented as an individually assessed provision or written off.
AATSE are further classified as Other Real Estate Owned
(“OREO”) or Other Assets Acquired Through Security
Enforcement (“OAATSE”) and classified in the appropriate asset
classifications in the Balance Sheet.

The Group has individually assessed and collective provisions
for impairment as explained in Note 1 (n).

(m) Leasing

Leases where the Group transfers substantially all the risks and
rewards incident to ownership of an asset to the lessee or a third
party are classified as finance leases. A receivable at an amount
equal to the present value of the lease payments, including any
guaranteed residual value, is recognised.

Income on finance lease transactions is recognised on a basis
reflecting a constant periodic return based on the lessor’s net
investment outstanding in respect of the finance lease.

The difference between the gross receivable and the present
value of the receivable is unearned finance income and is
recognised over the term of the lease using the effective interest
method. Finance lease receivables are included in Loans,
advances and other receivables.

Leases where the Group retains substantially all the risks and
rewards incident to ownership of an asset are classified as
operating leases.

Operating lease rental revenue and expense is recognised in
profit and loss on a straight-line basis over the lease term. The
Group classifies assets leased out under operating leases as
property, plant and equipment. These assets are depreciated
over their expected useful lives on a basis consistent with similar
fixed assets.

(n) Provisions for impairment

(i) Current accounting policy

Financial assets

Financial assets, excluding Derivative assets and Assets at fair
value through Income Statement, are reviewed at each Balance
Sheet date to determine whether there is objective evidence of
impairment.

A financial asset or portfolio of financial assets is impaired and
impairment losses are incurred if, and only if, there is objective
evidence of impairment as a result of one or more loss events
that occurred after the initial recognition of the asset and prior to
the Balance Sheet date (“a loss event”) and that loss event or
events has had an impact on the estimated future cash flows of
the financial asset or the portfolio that can be reliably estimated.
If any such indication exists, the asset’s carrying amount is
written down to the asset’s estimated recoverable amount.

Loans, advances and other receivables

The Group assesses at each balance date whether there is any
objective evidence of impairment.

If there is objective evidence that an impairment loss on loans,
advances and other receivables has been incurred, the amount
of the loss is measured as the difference between the asset’s
carrying amount and the present value of the expected future
cash flows (excluding future credit losses that have not been
incurred), discounted at the financial asset’s original effective
interest rate. Short-term balances are not discounted.

Commonwealth Bank of Australia Annual Report 2007 87

Notes to the Financial Statements

Note 1 Accounting Policies (continued)

The Group has individually assessed provisions and collectively
assessed provisions. Individually assessed provisions are made
against individually significant financial assets and groups of
financial assets with similar credit risk characteristics.

Individually significant provisions are assessed as the difference
between an asset’s carrying amount and the present value of
estimated future cash flows discounted at the asset’s original
effective interest rate.

All other loans and advances that do not have an individually
assessed provision are assessed collectively for impairment.
Collective provisions are maintained to reduce the carrying
amount of portfolios of similar loans and advances to their
estimated recoverable amounts at the Balance Sheet date.

The expected future cash flows for portfolios of assets with
similar risk characteristics are estimated on the basis of historical
loss experience. Loss experience is adjusted on the basis of
the effects of current
current observable data to reflect
conditions that did not affect the period on which the loss
experience is based and to remove the effects of conditions in
the period that do not currently exist. Increases or decreases in
the provision amount are recognised in the profit and loss.

Available-for-sale investments

When a decline in the fair value of an Available-for-sale
investment has been recognised directly in equity and there is
objective evidence that the asset is impaired, the cumulative loss
is removed from equity and recognised in the profit and loss.

If in a subsequent period the amount of an impairment loss for
an available-for-sale debt security decreases and the decrease
can be linked objectively to an event occurring after the
impairment event, the impairment is reversed through profit and
loss. However, impairment losses on available-for-sale equity
securities are not reversed while the asset is still recognised.

Goodwill and other non-financial assets

Goodwill balances and intangible assets with an indefinite useful
life are assessed for impairment at each reporting date or more
regularly where an indication of impairment exists. Please refer
to Note 1 (t) Intangibles for more details on goodwill and
intangibles impairment testing. If any such indication exists, the
asset’s carrying amount is written down to the asset’s estimated
recoverable amount and the loss is recognised in the profit and
loss in the period in which it occurs.

The carrying amounts of the Group’s other non-financial assets
are reviewed at each Balance Sheet date to determine whether
there is any indication of impairment. If any such indication
exists, the asset’s recoverable amount is estimated.

The recoverable amount of an asset or cash generating unit can
be the greater of the fair value less cost to sell, or value in use.
The Group’s policy is to use the fair value less costs to sell in
assessing
is
recognised whenever the carrying amount of an asset or its
recoverable amount.
cash-generating unit exceeds
Impairment losses are recognised in the profit and loss.

recoverable amount. An

impairment

loss

its

A previously recognised impairment loss (except for goodwill) is
reversed if there has been a change in the estimates used to
determine the recoverable amount. However, the reversal is not
to an amount higher than the carrying amount that would have
been determined, net of amortisation or depreciation, if no
impairment loss had been recognised in prior years.

Off-balance sheet items

Provisions for impairment on off-balance sheet items such as a
commitment are reported in other provisions. Measurement of
provisions is discussed further in Note 1 (aa) Provisions.

The amounts required to bring the provisions for impairment to
their assessed levels are recognised in profit and loss.

(ii) Change in accounting policy

Prior to 1 July 2005, under previous AGAAP and in line with
market practice, the Group’s General provision for Loan
Impairment was maintained to cover non identified probable
losses and latent risks inherent in the overall portfolio of
advances and other credit transactions.

Under AIFRS, the Group recognises impairment provisions in
respect of only those advances and credit transactions for which
there is objective evidence of impairment at Balance Sheet date.

As a result of this change, there was a reduction in the amount
of the Bank’s collective provisioning for impaired loans.

The transitional provisions for loan impairment resulted in
adjustments to existing provisions being taken to Retained
Profits.

The difference between the post-tax equivalents of the previous
general provision and
the new collective provision was
appropriated from Retained Profits to a separate component of
equity - General Reserve for Credit Losses.

(o) Bank acceptances of customers

The exposure arising from the acceptance of bills of exchange
that are sold into the market is recognised 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
recognised in profit and loss when earned.

(p) Shares in and loans to controlled entities

Equity contributions to controlled entities are carried in the
Bank’s Financial Statements at the lower of cost of acquisition or
recoverable amount, and loans to controlled entities are
measured at amortised cost using the effective interest method.

These assets are measured at fair value when impaired and a
provision is raised as per Note 1 (n) Provisions for impairment.

(q) Investment property

Investment properties are classified as properties held to earn
rental income and/or for capital appreciation.

The Group carries investment property which backs liabilities
paying a return linked to the fair value or returns from assets
including the investment property at fair value based on a
valuation performed by professional valuers. Valuations are
carried out annually. Fair value movements are recognised in
profit and loss in the year in which they arise.

88 Commonwealth Bank of Australia Annual Report 2007

Notes to the Financial Statements

Note 1 Accounting Policies (continued)

(r) Assets classified as held for sale

Assets are classified as held for sale when their carrying
amounts will be recovered principally through sale within 12
months. They are measured at the lower of carrying amount and
fair value less costs to sell unless the nature of the assets
requires it to be measured in line with another accounting
standard. Where this is the case the assets measurement basis
will be outlined separately in Note 22 Assets Held for Sale.

Assets classified as held for sale are neither amortised nor
depreciated unless the nature of the asset requires it.

(s) Property, Plant and Equipment

The Group measures its property assets (land and buildings) on
a fair value measurement basis using independent market
valuations.

Revaluation adjustments are generally reflected in the Asset
Revaluation Reserve, except to the extent they reverse a
revaluation decrease of the same asset previously recognised in
profit and loss. Gains or losses on disposals are determined as
the difference between the net disposal proceeds, if any, and the
carrying amount of the item. Realised amounts in the Asset
Revaluation Reserve are transferred to the Capital Reserve.

Equipment is measured at cost less accumulated depreciation
and provision for impairment, if any. Depreciation is calculated
principally on a category basis at rates applicable to each
category’s useful life using the straight-line method and treated
as an operating expense charged to profit and loss.

Computer software is capitalised at cost and classified as
Property, Plant and Equipment where it is integral to the
operation of associated hardware.

The useful lives of major depreciable asset categories are as
follows:

Buildings

Shell

Integral plant and equipment:

Carpets

All other (air-conditioning, lifts)

Non integral plant and equipment:

Maximum 30 years

10 years

20 years

Fixtures and fittings

10 years

Leasehold improvements

Equipment

Security surveillance systems

Furniture

Office machinery

EFTPOS machines

Lesser of unexpired
lease term or lives as
above

7 years

8 years

5 years

3 years

Depreciation rates and methods underlying the calculation of
depreciation of items of property, plant and equipment are kept
under review to take account of any change in circumstances.

No depreciation is charged on freehold land, although, in
common with all long-lived assets, it is subject to impairment
testing, if deemed appropriate.

Property, plant and equipment are periodically reviewed for
impairment. Where the carrying amount of an asset is greater
than its estimated recoverable amount, it is written down
immediately through profit and loss to its recoverable amount.

Where the Group expects the carrying amount of assets held
within property, plant and equipment to be recovered principally
through a sale transaction in the short-term rather than through
continuing use, these assets are classified as Held for sale.

(t) Intangibles

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
recognised in the Balance Sheet.

Goodwill is reviewed annually for impairment at each reporting
date, or more frequently if events or changes in circumstances
indicate that it might be impaired. For the purposes of
impairment testing, goodwill is allocated to cash-generating units
or groups of units. A cash-generating unit is the smallest
identifiable group of assets that generate independent cash
flows. Goodwill is allocated by the Group to cash generating
units or groups of units based on how goodwill is monitored by
management.

An impairment loss is recognised for a cash-generating unit if
the recoverable amount of the unit/group of units is less than the
carrying amount of the unit/group of units.

The recoverable amount of
is
calculated as the fair value less costs to sell, measured using
readily available market data and assumptions. Impairment
losses on goodwill are not subsequently reversed.

the cash-generating units

Gains and losses on the disposal of an entity are net of the
carrying amount of the goodwill relating to the entity.

The acquired component of any excess of the net market value
over net assets of the Group’s life insurance controlled entities is
classified as goodwill.

Computer software costs

Where computer software costs are not integrally related to
associated hardware, the Group recognises them as an
intangible asset where they are clearly identifiable, can be
reliably measured and it is probable they will lead to future
economic benefits that the Group controls.

The Group carries capitalised software assets at cost less
amortisation and any impairment losses.

These assets are amortised over their estimated useful lives on
a straight-line basis which is usually three years.

Any impairment loss is recognised in the profit and loss when
incurred.

Software maintenance costs are expensed as incurred.

Commonwealth Bank of Australia Annual Report 2007 89

Notes to the Financial Statements

Note 1 Accounting Policies (continued)

(ii) Change in accounting policy

Prior to 1 July 2005 payables to other financial institutions were
carried at the gross value of the outstanding balance.

Prior to 1 July 2005 interest was recognised on an accrual basis.
There was no substantial change in the carrying value of
Payables to other financial institutions as a result of the above
changes.

(x) Liabilities at fair value through Income Statement

Liabilities at fair value through Income Statement is a new class
of financial liabilities applicable from 1 July 2005.

(i) Current accounting policy

The Group designates certain liabilities at fair value through
Income Statement on origination where those liabilities are
managed on a fair value basis. The liabilities are recognised on
trade date at fair value and transaction costs are taken directly to
profit and loss. Subsequent changes in fair value are recognised
in profit and loss. For quoted liabilities, quoted offer prices are
subsequently used to measure fair value. Quoted mid prices are
used to measure liabilities with offsetting risk positions in a
fair value. For non-market quoted
portfolio at
liabilities,
subsequent
fair values are determined using valuation
techniques.

(ii) Change in accounting policy

Prior to 1 July 2005 Liabilities at fair value through Income
Statement were predominantly classified as deposits from
customers and debt issues at amortised cost.

(y) Income taxes

Income tax on the profit and loss for the period comprises
current and deferred tax.

Income tax is recognised in profit and loss, except to the extent
that it relates to items recognised directly in equity, in which case
it is recognised in equity.

Current tax is the expected tax payable on the taxable income
for the year, using tax rates enacted or substantially enacted at
the Balance Sheet date, and any adjustment to tax payable in
respect of previous years.

Deferred tax is provided using the Balance Sheet liability
for temporary differences between the
method, providing
carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes.

The amount of deferred tax provided is based on the expected
manner of realisation or settlement of the carrying amount of
assets and liabilities, using tax rates enacted or substantially
enacted at the Balance Sheet date which are expected to apply
when the deferred tax asset is realised or the deferred tax
liability is settled.

A deferred tax asset is recognised only to the extent it is
probable that future taxable profits will be available against
which the asset can be utilised. Deferred tax assets are reduced
to the extent that it is no longer probable that the related tax
benefit will be realised.

The Commonwealth Bank of Australia Group elected to be taxed
as a single entity under the tax consolidation system with effect
from 1 July 2002.

Other Intangibles

Other intangibles comprise acquired management fee rights and
customer lists where they are clearly identifiable, can be reliably
measured and where it is probable they will lead to future
economic benefits that the Group controls.

The Group carries capitalised management fee rights and
customer lists at cost less amortisation and any impairment
losses. These assets are either deemed to have indefinite lives
and assessed annually for impairment, or are amortised over
their estimated useful lives on a straight-line basis.

Any impairment loss is recognised in the profit and loss when
incurred.

(u) Other Assets

Other assets include all other financial assets and include
interest, fees and other unrealised income receivable, and
securities sold not delivered. These assets are recorded at the
cash value to be realised when settled.

The net surpluses or deficits that arise within defined benefit
superannuation plans are recognised and disclosed separately
in other assets and bills payable and other liabilities. As the
Bank carries a net surplus, no funding of the Australian defined
benefit superannuation plan is currently required, therefore the
related income or expense has been treated as a non-cash item.

(v) Deposits from Customers

(i) Current accounting policy

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 initially recognised at fair value
including directly attributable transaction costs and subsequently
measured at amortised cost. Interest and yield related fees are
recognised on an effective interest basis.

the Group has hedged deposits with derivative
Where
instruments, hedge accounting rules are applied (refer to Note 1
(ff) Derivative financial instruments).

(ii) Change in accounting policy

Prior to 1 July 2005 interest was recognised on an accrual basis.
There was no substantial change in the carrying value of
deposits and other public borrowings as a result of this change.

(w) Payables to other financial institutions

(i) Current accounting policy

Payables to other financial institutions include deposits, vostro
balances and settlement account balances due to other banks.
They are recognised at fair value including directly attributable
transaction costs at inception.

to other

Payables
institutions are subsequently
recognised at amortised cost. Interest and yield related fees are
recognised using the effective interest method.

financial

Where the Group has designated payables to other financial
institutions as Liabilities at fair value through Income Statement,
the changes in fair value are reported in profit and loss (refer
Note 1 (x) Liabilities at fair value through Income Statement).

90 Commonwealth Bank of Australia Annual Report 2007

Notes to the Financial Statements

Note 1 Accounting Policies (continued)

Defined benefit superannuation plans

The Bank has formally notified the Australian Taxation Office of
its adoption of the tax consolidation regime. In addition to the
Group electing to be taxed as a single entity under the tax
consolidation regime, the measurement and disclosure of
deferred tax assets and liabilities has been performed in
accordance with the principles in AASB 112, and on a modified
stand alone basis under UIG 1052.

Any current tax liabilities/assets (after the elimination of intra-
Group transactions) and deferred tax assets arising from unused
tax losses assumed by the Bank from the subsidiaries in the tax
consolidated group are recognised in conjunction with any tax
funding arrangement amounts (refer below).

Any difference between these amounts is recognised by the
Bank as an equity contribution to or distribution from the
subsidiary.

The Bank recognises deferred tax assets arising from unused
tax losses of the tax-consolidated group to the extent it is
probable that future taxable profits of the tax-consolidated group
will be available against which the asset can be utilised.

Any subsequent period adjustments to deferred tax assets
arising from unused tax losses assumed from subsidiaries are
recognised by the Bank only.

The members of the tax-consolidated group have entered into a
tax funding arrangement which sets out the funding obligations
of members of the tax-consolidated group in respect of tax
amounts.

(z) Employee benefits

Annual leave

The provision
outstanding liability to employees at Balance Sheet date.

for annual

represents

leave

the current

Long service leave

The provision for long service leave is discounted to the present
value, is subject to actuarial review and is maintained at a level
that accords with actuarial advice.

Other employee benefits

The provision for other employee entitlements represents
liabilities for staff housing loan benefits, a subsidy to a registered
health fund with respect to retired and current employees, and
employee incentives under employee share plans and bonus
schemes.

The Group engages in equity settled share-based remuneration
in respect of services received from certain of its employees.
The fair value of the share-based remuneration which is to be
settled with the Bank’s shares is calculated at grant date and
amortised to profit and loss against the Equity Compensation
Reserve over the vesting period, subject to service and
performance conditions being met.

When allocating share-based payments, shares in the Bank are
acquired on-market and held within a Trust. The shares held by
the Trust are consolidated, reclassified as “Treasury Shares”
and accounted for as a deduction from Share Capital. On
settlement the shares are issued and recognised against the
Equity Compensation Reserve.

currently

The Group
two defined benefit
sponsors
superannuation plans for its employees. The assets and
liabilities of these plans are legally held in separate trustee-
administered funds. They are calculated separately for each
plan by assessing the fair value of plan assets and deducting the
amount of future benefit that employees have earned in return
for their service in current and prior periods discounted to
present value. The discount rate is the yield at Balance Sheet
date on government securities which have terms to maturity
approximating to the terms of the related liability. The defined
benefit superannuation plan surpluses and/or deficits are
calculated by fund actuaries. Contributions to all superannuation
plans are made in accordance with the rules of the plans. As the
Australian plan is in surplus, no funding is currently necessary.

losses

Actuarial gains and
to defined benefit
superannuation plans are directly recorded in Retained Profits.
The net surpluses or deficits that arise within defined benefit
superannuation plans are recognised and disclosed separately
in Other assets and Bills payable and other liabilities.

An additional non-cash income or expense is recognised
reflecting the accrual accounting charge to profit and loss
associated with defined benefit superannuation plans.

Defined contribution superannuation plans

The Group sponsors a number of defined contribution
superannuation plans. Certain plans permit employees to make
contributions and earn matching or other contributions from the
Group. The Group recognises contributions due in respect of the
accounting period in the profit and loss. Any contributions unpaid
at the Balance Sheet date are included as a liability.

(aa) Provisions

Provision for dividend

A provision for dividend payable is recognised when dividends
are declared by the Directors.

Provisions for restructuring

Provisions for restructuring are recognised where there is a
detailed
for restructure and a demonstrated
commitment to that plan.

formal plan

Provision for self-insurance

The provision for self-insurance covers certain non-lending
losses and non-transferred insurance risks. Actuarial reviews
are carried out at regular intervals with provisioning effected in
accordance with actuarial advice.

(bb) Debt issues

(i) Current accounting policy

Debt issues are short and long term debt issues of the Group
including commercial paper, notes, term loans and medium term
notes. Commercial paper, floating, fixed and structured debt
issues are recorded at cost or amortised cost using the effective
interest method.

Premiums, discounts and associated issue expenses are
recognised using the effective interest method through profit and
loss from the date of issue to ensure that securities attain their
redemption values by maturity date.

Commonwealth Bank of Australia Annual Report 2007 91

Notes to the Financial Statements

Note 1 Accounting Policies (continued)

(ii) Change in accounting policy

Prior to 1 July 2005, certain hybrid financial instruments were
previously classified as equity with the associated distributions
reported as dividends paid. These are now classified as loan
capital and the associated distributions reported as interest
expense.

Interest, inclusive of premiums, discounts and associated issue
expenses were previously recognised in profit and loss on a
straight line basis.

(ee) Shareholders’ equity

Ordinary share capital is the amount of paid up capital from the
issue of ordinary shares.

Treasury Shares are deducted from Ordinary share capital.
Gains or losses on the reissue of Treasury Shares are
recognised in Shareholders’ Equity within Retained Profits.

The movement between the acquisition and reissue price of
Treasury Shares remains within Shareholders’ Equity.

The General Reserve is derived from revenue profits and is
available for dividend payments except for undistributable profits
in respect of the Group’s life insurance businesses.

The Capital Reserve is derived from capital profits (refer to Note
1 (s) Property, Plant and Equipment) and is available for
dividend payments.

A General Reserve for Credit Losses has been appropriated
from Retained Profits
to comply with APRA’s prudential
requirements.

From 1 July 2005 certain hybrid financial instruments previously
recorded in Shareholders’ Equity were reclassified as Loan
capital (refer to Note 1 (dd) Loan Capital).

(ff) Derivative financial instruments

(i) Current accounting policy

The Group has a significant volume of derivative financial
instruments that include foreign exchange contracts, forward
rate agreements, futures, options and interest rate, currency,
equity and credit swaps.

Derivative financial instruments are used as part of the Group’s
trading activities and to hedge certain assets and liabilities.
Derivatives that do not meet the hedging criteria are classified as
derivatives held for trading, or as other derivatives.

Changes in fair value of derivatives are recognised in the profit
and loss unless designated within a cash flow hedging
relationship.

Derivative financial instruments utilised for hedging

relationships

The Group uses derivative instruments as part of its asset and
liability management activities to manage exposures to interest
rate, foreign currency and credit risks, including exposures
arising from forecast transactions. Hedge accounting can be
applied subject to certain rules for fair value hedges, cash flow
hedges and hedges of foreign operations. Cash flow and fair
value hedges are the predominant hedges applied by the Group.
Swaps are the major financial instruments used in the Group’s
hedging arrangements.

Interest is recognised in profit and loss using the effective
interest method. Any profits or losses arising from redemption
prior to maturity are taken to profit and loss in the period in which
they are realised.

Where the Group has designated debt instruments at Fair value
through Income Statement, the changes in fair value are
recognised in profit and loss (refer to Note 1 (x)) Liabilities at fair
value through Income Statement.

Embedded derivatives with economic characteristics and risks
that are not wholly related to the economic characteristics and
notes of the host instruments are separated from the debt
issues.

Hedging

The Group hedges interest rate and foreign currency risk on
certain debt issues. When hedge accounting is applied to fixed
rate debt issues, the carrying values are adjusted for changes in
fair value related to the hedged risks rather than carried at
amortised cost. Refer
to Note 1 (ff) Derivative financial
instruments.

(ii) Change in accounting policy

Prior to 1 July 2005 premiums, discounts and issue expenses
were recognised on an accrual basis through the profit and loss.

The requirement to separate embedded derivatives from debt
issues was applied from 1 July 2005.

(cc) Bills payable and other liabilities

(i) Current accounting policy

Bills payable and other liabilities includes interest, fees, defined
benefit superannuation plan deficit, other unrealised expenses
payable and securities purchased not delivered.

Any superannuation plan deficit is recorded in line with Note 1
(z) Employee benefits while the remaining liabilities are recorded
at amortised cost using the effective interest method.

Where the Group has designated bills payable and other
liabilities at fair value through Income Statement, the changes in
fair value are reported in profit and loss (refer to Note 1 (x)
Liabilities at fair value through Income Statement).

(ii) Change in accounting policy

Market revaluation of trading derivatives previously recorded in
bills payable and other liabilities were reclassified to derivative
financial instruments from 1 July 2005.

(dd) Loan capital

(i) Current accounting policy

Loan capital is debt issued by the Group with terms and
conditions, such as being undated or subordinated, which qualify
for inclusion as capital under APRA Prudential Standards. Loan
capital debt issues are initially recorded at fair value plus directly
attributable transaction costs. After initial recognition loan capital
debt issues are measured at amortised cost using the effective
interest method.

Interest inclusive of premiums, discounts and associated issue
expenses are recognised in profit and loss using the effective
interest method over the expected life of the instrument so that
they attain their redemption values by maturity date. Any profits
or losses arising from redemption prior to expected maturity are
recognised in profit and loss in the period in which they are
realised.

92 Commonwealth Bank of Australia Annual Report 2007

Note 1 Accounting Policies (continued)

Swaps

Interest rate swap receipts and payments are accrued to profit
and loss using the effective interest method as interest of the
designated hedged item or class of items being hedged over the
term for which the swap is effective as a hedge.

Similarly with cross currency swaps, interest rate receipts and
payments are recognised on the same basis outlined in the
previous paragraph. In addition, the initial principal flows are
revalued to fair value at the current market exchange rate with
revaluation gains and losses recognised in profit and loss
against revaluation losses and gains of the underlying hedged
item or class of items.

Fair value hedges

For fair value hedges, the change in fair value of the hedging
derivative, and the hedged risk of the hedged item, is recognised
immediately in the Income Statement within other operating
income. If the fair value hedge relationship is terminated for
reasons other than the derecognition of the hedged item, fair
value hedge accounting ceases and, in the case of an interest
bearing item, the fair value adjustment of the hedged item is
amortised to profit and loss over the remaining term of the
original hedge.
the
unamortised fair value adjustment is recognised immediately in
profit and loss.

is derecognised

the hedged

item

Cash flow hedges

A fair valuation gain or loss associated with the effective portion
of a derivative designated as a cash flow hedge is recognised
initially in Shareholders’ Equity within the Cash Flow Hedge
Reserve. Amounts in the Cash Flow Hedge Reserve are
transferred to profit and loss when the cash flows on the hedged
item are recognised in profit and loss. Gains and losses resulting
from cash flow hedge ineffectiveness are recorded immediately
in profit and loss.

A fair valuation gain or loss represents the amount by which
changes in the fair value of the expected cash flow of the
hedging derivative differ from the fair value of the changes (or
expected changes) in the cash flow of the hedged item.

Where the hedged item is derecognised, the cumulative gain or
loss is recognised immediately in profit and loss. If for reasons
other than the derecognition of the hedged item, cash flow
hedge accounting ceases, the cumulative gains or losses are
amortised to profit and loss over the remaining term of the
original hedge.

Notes to the Financial Statements

A positive revaluation amount of a contract is reported as an
asset and a negative revaluation amount of a contract as a
liability.

Embedded derivatives

A derivative may be embedded within a host contract. If the host
contract is not already measured at fair value with changes in
fair value reported in profit and loss, and where the economic
characteristics and risks of the embedded derivative are not
closely related to the economic characteristics and risks of the
host contract, the embedded derivative is separated from the
host contract and accounted for as a stand-alone derivative
instrument at fair value.

(ii) Change in accounting policy

Prior to 1 July 2005, derivative assets and derivative liabilities
were not recognised at fair value, fair value and cash flow hedge
relationships were not applied, and embedded derivatives were
not separately recognised.

(gg) Commitments to extend credit, letters of credit,
guarantees, warranties and indemnities issued

(i) Current accounting policy

Contingent liabilities are possible obligations whose existence
will be confirmed only by uncertain future events, or present
obligations where the transfer of economic benefit is uncertain or
cannot be reliably measured. Contingent liabilities are not
recognised, but are disclosed, unless they are remote.

Financial guarantees are given to banks, financial institutions
and other bodies on behalf of customers to secure loans,
overdrafts and other banking facilities, and to other parties in
connection with the performance of customers under obligations
related to contracts, advance payments made by other parties,
tenders, retentions and the payment of import duties.

Financial guarantee contracts are initially recognised at fair
value.

Subsequent to initial recognition, financial guarantees are
measured at the higher of the initial measurement amount, less
amortisation calculated to recognise fee income earned, and the
best estimate of the expenditure required to settle any financial
obligation at the Balance Sheet date.

Any increase in the liability relating to financial guarantees is
recognised
is
recognised in profit and loss when the guarantee is discharged,
cancelled or expires.

liability remaining

in profit and

loss. Any

Net Investment Hedges

(ii) Change in accounting policy

Hedges of net investments in overseas subsidiaries are
accounted for in a manner similar to cash flow hedges. Any gain
or loss on the hedging instrument relating to the effective portion
of the hedge is recognised in the FCTR and the gain or loss
relating to the ineffective portion is immediately recognised in
profit and loss. Gains and losses accumulated in the FCTR are
transferred to profit and loss when the overseas subsidiary is
disposed of.

The Group initially recognises derivative financial instruments at
the fair value of consideration given or received.

They are subsequently remeasured to fair value based on
quoted market prices, or broker or dealer price quotations. Non
market quoted instruments are subsequently valued using
valuation techniques based on market conditions and risks
existing at Balance Sheet date.

Prior to 1 July 2005, credit related instruments (other than credit
derivatives) were treated as contingent liabilities and not
recognised until the Group was called upon to make a payment.

Fees received for providing these instruments were recognised
in profit and loss over the life of the instrument and reflected in
fees and commissions receivable.

(hh) Life Insurance Business

(i) Current accounting policy

The Group’s life insurance business is comprised of insurance
contracts and investment contracts as defined by AASB 4.

Commonwealth Bank of Australia Annual Report 2007 93

Notes to the Financial Statements

Note 1 Accounting Policies (continued)

Life Insurance Liabilities and Profit

Insurance contracts are accounted for in accordance with the
Investment contracts are
requirements of AASB 1038.
accounted
instruments with a separate
for as
management services element in accordance with AASB 118,
139 and 1038. Details are set out below.

financial

All assets, liabilities, revenues, expenses and equity are
included in the Financial Report irrespective of whether they are
designated as relating to policyholders or to Shareholders.

All assets backing insurance liabilities are classified as Assets at
fair value through Income Statement. They are measured at fair
value based on quoted bid prices or using appropriate valuation
techniques.

Life insurance contract liabilities are measured at the net present
value of future receipts from and payments to policyholders
using a risk free discount rate (or expected fund earning rate
where benefits are contractually
the asset
performance), and are calculated in accordance with the
principles of Margin on Services (“MoS”) profit reporting as set
out in Actuarial Standard AS 1.04: Valuation of Policy Liabilities
issued by the Life Insurance Actuarial Standards Board.

linked

Life investment contract liabilities are measured at fair value in
accordance with AASB 139 as Liabilities at fair value through
Income Statement.

Returns on all investments controlled by life insurance entities
within the Group are recognised as revenues. Investments in the
Group’s own equity instruments held within the life insurance
statutory funds and other funds are treated as Treasury Shares
in accordance with Note 1 (ee) Shareholders’ equity.

Initial entry fee income on investment contracts issued by life
insurance entities is recognised up front where the Group
provides financial advice. Other entry fees are deferred and
recognised over the life of the underlying investment contract.

Participating benefits vested in relation to the financial year,
from unvested policyholder benefits
transfers
other
liabilities, are recognised as expenses.

than

Reinsurance contracts entered into are recognised on a gross
basis.

Premiums and Claims

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.

(i) Life insurance contracts

Premiums received for providing services and bearing risks are
recognised as revenue. Premiums with a regular due date are
recognised as revenue on a due and receivable basis.
Premiums with no due date are recognised on a cash received
basis. Insurance contract claims are recognised as an expense
when a liability has been established.

(ii) Investment contracts

Premiums received include the fee portion of the premium
recognised as revenue over the period the underlying service is
provided and the deposit portion recognised as an increase in
investment contract liabilities. Premiums with no due date are
recognised on a cash received basis. Fees earned for managing
the funds invested are recognised as revenue. Claims under
investment contracts represent withdrawals of
investment
deposits and are recognised as a reduction in investment
contract liabilities.

94 Commonwealth Bank of Australia Annual Report 2007

Life insurance contract 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 policy payments are used to
determine profit recognition.

insurance contract and

Investment assets are held in excess of those required to meet
life
liabilities.
Investment earnings are directly influenced by market conditions
and as such this component of profit varies from year to year.

investment contract

Participating Policies

insurance contract policy

Life
participating policies include
Shareholder profit margins and an allowance
supportable bonuses.

to
liabilities attributable
the value of future planned
future

for

The value of supportable bonuses and planned Shareholder
profit margins account for all profit on participating policies based
on best estimate assumptions.

Under the Margin on Services profit 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.

Life Insurance Contract Acquisition Costs

Acquisition costs for life insurance contracts include the fixed
and variable costs of acquiring new business. These costs are
effectively deferred through the determination of life insurance
contract liabilities at the balance date to the extent that they are
deemed recoverable from the expected future profits of an
amount equivalent to the deferred cost.

Deferred acquisition costs are amortised over the expected life
of the life insurance contract.

Life Investment Contract Acquisition Costs

Acquisition costs for investment contracts include the variable
costs of acquiring new business. However, the deferral of
investment contract acquisition costs is limited by the application
of AASB 118 to the extent that only incremental transaction
costs (for example commissions and volume bonuses) are
deferred. The
in
accordance with AASB 139 is no less than the contract
surrender value.

investment contract

liability calculated

Managed Fund Units on Issue – held by minority

unitholders

The life insurance statutory funds and other funds include
controlling interests in trusts and companies, and the total
amounts of each underlying asset, liability, revenue and
expense of the controlled entities are recognised in the
consolidated Financial Statements.

to external unitholders remain as

When a controlled unit trust is consolidated, the share of the unit
holder liability attributable to the Bank is eliminated but amounts
due
the
consolidated Balance Sheet. The share of the net assets of
controlled companies attributable to minority unit holders is
disclosed separately on the Balance Sheet. In the Income
Statement, the net profit or loss of the controlled entities relating
to minority interests is removed before arriving at the net profit or
loss attributable to Equity holders of the Bank.

liabilities

Notes to the Financial Statements

Note 1 Accounting Policies (continued)

(kk) Comparative figures

(ii) Change in accounting policy applicable from 1 July 2005

(a) AASB 1038 requires income from investment contracts and
insurance contracts sold by life insurance businesses to be
disclosed separately.

(b) From 1 July 2005, the actuarial calculation of some
insurance contract liabilities was affected by a change in the
determination of the discount rate.

(c) Certain acquisition costs related to investment contracts
which were deferred under previous AGAAP were no longer
deferred from 1 July 2005.

(d) Since 1 July 2005 the minority interests in controlled unit
trusts of the life insurance companies no longer qualify as equity.
As a result, from 1 July 2005 the Group reclassified outside
equity interests in life insurance statutory funds and other funds
as liabilities.

(e) Initial entry fee income on investment contracts issued by life
insurance entities is recognised up front where the Group
provides financial advice. Other entry fees are deferred over the
life of the underlying investment contract.

(f) AASB 1038 requires separate disclosure of investment
contract and insurance contract liabilities.

(ii) Asset Securitisation

The Group conducts an asset securitisation program through
which it packages and sells assets as securities to investors.
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. Therefore the Group is considered to hold the
majority of the residual risks and benefits within the entities
through which asset securitisation is conducted and so it
consolidates these entities.

Liabilities associated with asset securitisation entities and related
issue costs are accounted for on an amortised cost basis using
the effective interest method. Interest rate swaps and liquidity
facilities are provided at arm’s length to the program by the
Group in accordance with APRA Prudential Guidelines.

Derivatives return the risks and rewards of ownership of the
securitised assets to the Bank and consequently the Bank
cannot derecognise
is
these assets. An
recognised inclusive of the derivative and any related fees.

imputed

liability

For further details on the treatment of securitisation entities, refer
to Note 1 (c) Consolidation.

(jj) 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.

The assets and liabilities of these Trusts and Funds are not
included in the consolidated Financial Statements as the Group
does not have direct or indirect control of the Trusts and Funds.
Commissions and fees earned in respect of the activities are
included in the Income Statement of the Group.

Where necessary, comparative figures have been adjusted to
conform with changes in presentation in these Financial
Statements.

As discussed in note 1 (a) and (b) the 2005 comparative figures
have not been restated in relation to AASB 132 Financial
Instruments: Disclosure and Presentation, AASB 139 Financial
Instruments: Recognition and Measurement, AASB 4 Insurance
Contracts, AASB 1023 General Insurance Contracts and AASB
1038 Life Insurance Contracts. These standards have not been
applied against 2005 comparative information in line with the
exemption provided by AASB 1 First-time adoption of Australian
Equivalents to International Financial Reporting Standards.

The Group has applied its previous AGAAP in preparing the
2005 comparative information within the scope of the above
standards.

(ll) Roundings

The amounts contained in this Financial Report and the
Financial Statements are presented in Australian Dollars and
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).

(mm) Critical Accounting Policies and Estimates

to be more

These Notes to the Financial Statements contain a summary of
the Group’s significant accounting policies. Certain of these
policies are considered
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.

important

for

loan balances, actuarial assumptions

These policies include judgements as to levels of provisions for
impairment
in
determining life insurance policy liabilities and determining
whether certain entities should be consolidated. An explanation
of these policies and the related judgements and estimates
involved is set out below.

Provisions for Impairment

Provisions for impairment are recognised where there is
objective evidence of impairment and at an amount adequate to
cover assessed 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.

Individually Assessed Provisions

Individually assessed provisions are raised where there is
objective evidence of impairment and full recovery of principal is
considered doubtful.

Commonwealth Bank of Australia Annual Report 2007 95

Notes to the Financial Statements

Note 1 Accounting Policies (continued)

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.

The areas of judgement where key actuarial assumptions are
made in the determination of policyholder liabilities are:

• Business assumptions including:

• Amount, timing and duration of claims/policy payments;

• Policy lapse rates; and

• Acquisition and long term maintenance expense levels;

• 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 the
statistical analysis using their experience and judgement.

Additional information on the accounting policy is set out in Note
1 (hh) Life Insurance Business, and Note 38 Life Insurance
Business details the key actuarial assumptions.

Consolidation of Special Purpose Entities

The Group assesses whether a special purpose entity should be
consolidated based on the risks and rewards of each entity and
whether the majority pass to the Group. Such assessments are
the Group’s
predominately
securitisation program and structured transactions.

the context of

required

Individually assessed provisions (in bulk) are also made against
statistically managed segments 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 credit risks
identified in specific segments in the credit risk rated portfolio.
These provisions are derived primarily by reference to historical
ratios of write-offs to balances in default.

Individually assessed provisions are provided for from the
collective provision.

Collective Provision

All other loans and advances that do not have an individually
assessed provision are assessed collectively for impairment.

The collective provision is maintained to reduce the carrying
amount of portfolios of similar loans and advances to their
estimated recoverable amounts at the Balance Sheet date.

The evaluation process is subject to a series of estimates and
judgements.

In the retail 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 collective provision to the level
assessed is recognised in profit and loss as set out in Note 14
Provision for Impairment.

96 Commonwealth Bank of Australia Annual Report 2007

Note 2 Profit
Profit before income tax has been determined as follows:

Interest Income
Loans
Other financial institutions
Cash and liquid assets (1)
Assets at fair value through Income Statement (1)
Available-for-sale investments
Investment securities
Controlled entities
Total Interest Income

Interest Expense
Deposits (1)
Other financial institutions
Liabilities at fair value through Income Statement (1)
Debt issues
Controlled entities
Loan capital (1)
Total Interest Expense
Net Interest Income

Other Operating Income
Lending fees
Commission and other fees
Trading income
Net gains and (losses) on disposal of non-trading instruments
Other financial instruments (including non-trading derivatives)
Dividends – Controlled entities
Dividends – Other
Net (losses) and gains on sale of property, plant and equipment
Funds management and investment contracts income
Insurance contracts income
Other
Total Other Operating Income
Total Net Operating Income

Notes to the Financial Statements

2007
$M

20,778
470
419
1,470
725
-
-
23,862

9,027
674
1,229
5,183
-
713
16,826
7,036

896
1,729
555
147
(110)
-
3
(15)
1,971
1,043
136
6,355
13,391

2006
$M

17,304
333
287
1,149
685
-
-
19,758

7,385
475
1,013
3,795
-
576
13,244
6,514

800
1,635
505
45
(79)
-
4
4
1,623
1,113
122
5,772
12,286

Group
2005
$M

14,846
229
198
785
-
723
-
16,781

7,063
257
-
3,084
-
351
10,755
6,026

733
1,545
440
(13)
-
-
3
4
1,332
1,075
133
5,252
11,278

2007
$M

16,715
506
327
1,072
597
-
851
20,068

8,570
653
209
3,409
1,400
675
14,916
5,152

833
1,344
492
128
(232)
1,879
3
(15)
-
-
1,090
5,522
10,674

Bank
2006
$M

13,739
319
271
796
241
-
661
16,027

6,663
433
371
2,398
854
586
11,305
4,722

714
1,330
498
31
333
2,078
2
(1)
-
-
555
5,540
10,262

Loan Impairment Expense (Note 14)

434

398

322

390

380

(1) During the current year, certain balances and associated interest amounts have been reclassified between categories. Further information on the specific nature of each

reclassification is provided in Note 4 Average Balances and Related Interest. Prior periods have been restated on a consistent basis.

Commonwealth Bank of Australia Annual Report 2007 97

Notes to the Financial Statements

2007
$M

2,746
89
8
61
139
34
152
3,229
-
3,229

367

22
59
73
22
71
74
688
-
688

304
206
119
192
62
24
907
-
907

109
104
691
326
8
97
268
1,603
-
1,603

6,427
-
6,427
8
6,538

2006
$M

2,419
39
8
66
123
34
134
2,823
-
2,823

338

22
56
64
9
73
59
621
-
621

364
227
137
201
43
13
985
-
985

118
98
636
307
6
116
284
1,565
-
1,565

5,994
-
5,994
(35)
5,859

Group
2005
$M

2,274
74
7
67
115
32
104
2,673
50
2,723

331

21
58
63
8
71
61
613
13
626

331
248
150
204
17
6
956
52
1,008

112
108
614
288
3
103
249
1,477
35
1,512

5,719
150
5,869
(75)
5,012

2007
$M

2,059
89
(27)
54
114
31
73
2,393
-
2,393

312

21
47
43
12
64
42
541
-
541

286
175
119
165
59
24
828
-
828

94
77
498
259
-
91
101
1,120
-
1,120

4,882
-
4,882
8
5,410

Bank
2006
$M

1,872
39
(14)
59
111
30
31
2,128
-
2,128

284

21
46
38
-
67
32
488
-
488

332
200
134
173
36
13
888
-
888

104
74
406
249
-
110
157
1,100
-
1,100

4,604
-
4,604
(35)
5,243

Note 2 Profit (continued)

Staff Expenses
Salaries and wages
Share-based remuneration
Superannuation contributions
Provisions for employee entitlements
Payroll tax
Fringe benefits tax
Other staff expenses
Comparable business
Which new Bank
Total Staff Expenses

Occupancy and Equipment Expenses
Operating lease rentals
Depreciation:
Buildings
Leasehold improvements
Equipment
Operating lease assets
Repairs and maintenance
Other
Comparable business
Which new Bank
Total Occupancy and Equipment Expenses

Information Technology Services
Application maintenance and development
Data processing
Desktop
Communications
Amortisation of software assets
IT equipment depreciation
Comparable business
Which new Bank
Total Information Technology Services

Other Expenses
Postage
Stationery
Fees and commissions
Advertising, marketing and loyalty
Amortisation of other intangible assets (excluding software)
Non-lending losses
Other
Comparable business
Which new Bank
Total Other Expenses

Comparable business
Which new Bank
Total Operating Expenses
Defined benefit superannuation plan income/(expense)
Profit before income tax

98 Commonwealth Bank of Australia Annual Report 2007

Notes to the Financial Statements

Note 3 Income

Banking
Interest income
Fees and commissions
Trading income
Net gains and (losses) on disposal of non-trading instruments
Net gains and (losses) on other financial instruments (including non-
trading derivatives)
Dividends
Net (losses) and gains on sale of property, plant and equipment
Other income

Funds Management, Investment and Insurance contracts
Funds management and investment contract income including
premiums
Insurance contract premiums and related income
Investment income (1)

Total income

2007
$M

23,862
2,625
555
147

(110)
3
(15)
136
27,203

1,871
1,117
2,978
5,966
33,169

2006
$M

19,758
2,435
505
45

(79)
4
4
122
22,794

1,589
1,052
3,129
5,770
28,564

Group
2005
$M

16,781
2,278
440
(13)

-
3
4
132
19,625

1,247
1,132
3,142
5,521
25,146

2007
$M

20,068
2,177
492
128

(232)
1,882
(15)
1,090
25,590

-
-
-
-
25,590

Bank
2006
$M

16,027
2,044
498
31

333
2,080
(1)
555
21,567

-
-
-
-
21,567

(1) Includes goodwill impairment of Avanteos investment of $40 million in the year to 30 June 2007 (2006: Profit on sale of the Hong Kong Insurance Business of $145

million and goodwill impairment on Symetry investment of $21 million).

Commonwealth Bank of Australia Annual Report 2007 99

Notes to the Financial Statements

Note 4 Average Balances and Related Interest
The following 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
rate for each of the years ended 30 June 2007, 30 June 2006
and 30 June 2005. Averages used were predominately daily
averages. Interest is accounted for based on product yield,
while all trading gains and losses are disclosed as Trading
income within Other banking income.

Where assets or liabilities are hedged, the amounts are shown
net of the hedge, however individual items not separately
hedged may be affected by movements in exchange rates.

The overseas component comprises overseas branches of the
Bank and overseas domiciled controlled entities.

Non-accrual loans were included in interest earning assets
under Loans, Advances and Other receivables.

The official cash rate in Australia increased by 50 basis points
during the year while rates in New Zealand increased by a total
of 75 basis points.

In the current year, certain interest income and expense items
have been reallocated across the average Balance Sheet line
items to better reflect the underlying changes in yield. This
reallocation is necessary due to the impact of AIFRS hedge
accounting and
instrument reclassifications. The
average Balance Sheet for the year ended 30 June 2006 has
been restated on a consistent basis.

financial

Average Interest Earning
Assets and Income

Cash and liquid assets

Australia
Overseas (1)

Receivables due from other financial
institutions
Australia
Overseas

Assets at fair value through Income
Statement – Trading

Average
Balance
$M

4,665
2,828

3,801
4,604

Interest

258
161

179
291

2007
Average
Rate
%

Average
Balance
$M

5. 5
5. 7

4. 7
6. 3

3,581
1,442

3,016
4,007

Australia
Overseas (2)

15,466
3,169

1,054
284

6. 8
9. 0

12,161
3,388

Assets at fair value through Income
Statement – Other

Australia
Overseas (1) (2)
Investment securities

Australia
Overseas

Available-for-sale investments

Australia
Overseas

Loans, advances and other
receivables
Australia
Overseas
Intragroup loans

Australia
Overseas

Average interest earning assets and
interest income including intragroup
Intragroup eliminations
Total average interest earning
assets and interest income
Securitisation Home Loan Assets

431
2,418

-
-

5,645
6,944

29
103

-
-

335
390

217,128
48,949

16,066
3,703

-
8,199

-
404

324,247
(8,199)

23,257
(404)

316,048
13,344

22,853
1,009

6. 7
4. 3

355
2,707

-
-

5,010
6,508

-
-

5. 9
5. 6

7. 4
7. 6

-
4. 9

7. 2
4. 9

7. 2
7. 6

Interest

221
66

145
188

725
262

22
140

-
-

349
336

2006
Average
Rate
%

Average
Balance
$M

6. 2
4. 6

4. 8
4. 7

3,716
1,215

2,394
3,791

6. 0
7. 7

11,535
3,850

6. 2
5. 2

-
-

4,375
8,400

7. 0
5. 2

-
-

Interest

178
29

61
168

603
182

-
-

296
418

-
-

192,086
40,537

13,527
3,012

7. 0
7. 4

171,249
34,183

11,822
2,427

-
9,623

-
338

284,421
(9,623)

19,331
(338)

274,798
10,887

18,993
765

-
3. 5

6. 8
3. 5

6. 9
7. 0

-
5,793

-
92

250,501
(5,793)

16,276
(92)

244,708
8,568

16,184
597

2005
Average
Rate
%

4. 8
2. 4

2. 5
4. 4

5. 2
4. 7

-
-

6. 8
5. 0

-
-

6. 9
7. 1

-
1. 6

6. 5
1. 6

6. 6
7. 0

(1) During the current year, certain ASB Bank overnight settlement account balances and associated interest income were reclassified from Assets at fair value through
Income Statement to Cash and liquid assets. Prior periods have been restated on a consistent basis.

(2) During the current year, product mapping of certain ASB Bank balances and interest income amounts were amended to align more closely with the Bank. Prior
periods have been restated on a consistent basis.

100 Commonwealth Bank of Australia Annual Report 2007

Notes to the Financial Statements

Note 4 Average Balances and Related Interest (continued)

Average Non-Interest Earning Assets

Bank acceptances

Australia
Overseas

Assets at fair value through Income Statement -
Insurance
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 (%)

2007

Average
Balance
$M

18,779
-

19,352
2,680

1,075
165

20,619
5,675

(1,132)
(96)
67,117
396,509

19. 5

2006

Average
Balance
$M

18,014
-

20,529
3,468

978
158

20,699
5,113

(1,144)
(86)
67,729
353,414

19. 0

2005

Average
Balance
$M

16,263
-

22,929
4,542

893
144

23,822
3,303

(1,430)
(142)
70,324
323,600

18. 3

Commonwealth Bank of Australia Annual Report 2007 101

2005

Average
Rate
%

5. 1
7. 7

1. 9
4. 2

4. 0
3. 4

2. 9
3. 3

-
-

6. 0
2. 8

5. 8
3. 9

1. 6
-

4. 5
1. 6

4. 5
5. 3

Notes to the Financial Statements

Note 4 Average Balances and Related Interest (continued)

2007

2006

Average Interest Bearing
Liabilities and Loan Capital
and Interest Expense

Average
Balance
$M

Time deposits
Australia
Overseas (1)
Savings deposits

Australia
Overseas (1)

Other demand deposits

Australia
Overseas (1) (2)

Payables due to other financial
institutions
Australia
Overseas

Liabilities at fair value through
Income Statement

Australia
Overseas (1)

Debt issues
Australia
Overseas
Loan capital
Australia
Overseas (2)

Intragroup borrowings

Australia
Overseas

Average interest bearing liabilities
and loan capital and interest
expense including intragroup
Intragroup eliminations
Total average interest bearing
liabilities and loan capital and
interest expense
Securitisation Debt Issues

Non-Interest Bearing
Liabilities

Deposits not bearing interest

Australia
Overseas

Liabilities 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 and Loan Capital
applicable to overseas operations
(%)

Interest

4,085
1,072

1,016
313

2,314
227

153
521

284
945

3,417
872

559
154

404
-

Average
Rate
%

Average
Balance
$M

6. 1
5. 8

2. 6
6. 7

4. 8
6. 4

5. 8
5. 4

7. 3
6. 7

6. 0
5. 5

6. 7
8. 1

4. 9
-

60,725
15,732

31,832
3,632

44,544
3,602

1,982
7,649

2,038
13,266

46,315
14,603

7,936
1,244

9,623
-

Interest

3,533
932

603
222

1,905
190

119
356

192
821

2,547
577

450
126

338
-

67,186
18,406

38,550
4,703

48,337
3,563

2,627
9,724

3,881
14,170

57,403
15,977

8,358
1,907

8,199
-

Average
Rate
%

Average
Balance
$M

Interest

3,183
1,356

586
105

1,653
180

61,826
17,716

31,304
2,489

41,235
5,297

1,707
6,292

50
207

-
-

34,853
16,540

2,095
462

5,566
772

5,793
-

321
30

92
-

5. 8
5. 9

1. 9
6. 1

4. 3
5. 3

6. 0
4. 7

9. 4
6. 2

5. 5
4. 0

5. 7
10. 1

3. 5
-

302,991
(8,199)

16,336
(404)

5. 4
4. 9

264,723
(9,623)

12,911
(338)

4. 9
3. 5

231,390
(5,793)

10,320
(92)

294,792
13,861

15,932
894

5. 4
6. 4

255,100
11,541

12,573
671

4. 9
5. 8

225,597
9,911

10,228
527

5,896
1,473

18,779
-

20,100
2,344

9,107
7,399

65,098

373,751
22,758

396,509

5,797
1,170

18,014
-

20,731
3,040

11,476
4,552

64,780

331,421
21,993

353,414

5,512
1,121

16,263
-

20,732
3,900

14,607
3,927

66,062

301,570
22,030

323,600

21. 3

20. 7

19. 3

(1) During the current year, product mapping of certain ASB account balances and associated interest expense were amended to align more closely with the Bank. Prior periods

have been restated on a consistent basis.

(2) During the current year, the impact on yield of economic hedges of Loan capital has been reclassified to the Other demand deposits category.

102 Commonwealth Bank of Australia Annual Report 2007

Notes to the Financial Statements

Note 4 Average Balances and Related Interest (continued)

Net Interest Margin

Total interest earning assets
excluding securitisation
Total interest bearing liabilities
excluding securitisation
Net interest income & interest
spread (excluding securitisation)
Benefit of free funds
Net interest margin

Avg Bal
$M

Income
$M

2007
Yield
%

Avg Bal
$M

Income
$M

2006
Yield
%

Avg Bal
$M

Income
$M

2005
Yield
%

316,048

22,853

7. 23

274,798

18,993

6. 91

244,708

16,184

6. 61

294,792

15,932

5. 40

255,100

12,573

4. 93

225,597

10,228

4. 53

6,921

1. 83
0. 36
2. 19

6,420

1. 98
0. 36
2. 34

5,956

2. 08
0. 35
2. 43

Geographical analysis of key categories

Full Year Ended

Loans, Advances and Other
Receivables
Australia
Overseas
Total

Non-lending Interest Earning
Assets
Australia
Overseas
Total

Interest Bearing Deposits
Australia
Overseas (1)
Total

Other Interest Bearing Liabilities
Australia
Overseas (1)
Total

Avg Bal
$M

Income
$M

2007
Yield
%

Avg Bal
$M

Income
$M

2006
Yield
%

Avg Bal
$M

Income
$M

217,128
48,949
266,077

16,066
3,703
19,769

7. 40
7. 57
7. 43

192,086
40,537
232,623

13,527
3,012
16,539

7. 04
7. 43
7. 11

171,249
34,183
205,432

11,822
2,427
14,249

30,008
19,963
49,971

154,073
26,672
180,745

72,269
41,778
114,047

1,855
1,229
3,084

7,415
1,612
9,027

4,413
2,492
6,905

6. 18
6. 16
6. 17

24,123
18,052
42,175

4. 81
6. 04
4. 99

137,101
22,966
160,067

6. 11
5. 96
6. 05

58,271
36,762
95,033

1,462
992
2,454

6,041
1,344
7,385

3,308
1,880
5,188

6. 06
5. 50
5. 82

22,020
17,256
39,276

4. 41
5. 85
4. 61

134,365
25,502
159,867

5. 68
5. 11
5. 46

42,126
23,604
65,730

1,138
797
1,935

5,422
1,641
7,063

2,466
699
3,165

2005
Yield
%

6. 90
7. 10
6. 94

5. 17
4. 62
4. 93

4. 04
6. 43
4. 42

5. 85
2. 96
4. 82

(1) During the current year, the impact on yield of economic hedges of Loan capital has been reclassified to the Other demand deposits category.

The overseas component comprises overseas branches of the
Bank and overseas domiciled controlled entities. Overseas
intragroup borrowings have been adjusted into the interest
spread and margin calculations to more appropriately reflect the
overseas cost of funds. Non–accrual loans were included in
interest earning assets under loans, advances and other
receivables.

In calculating net interest margin, assets, liabilities, interest
income and interest expense related to securitisation vehicles
have been excluded. This has been done to more accurately
reflect the Group’s underlying net margin.

Change in Net Interest Income

Due to changes in average volume of interest earning assets and interest bearing liabilities
Due to changes in interest margin
Change in net interest income

Year Ended
2007 vs 2006
Increase/(Decrease)
$M
934
(433)
501

Commonwealth Bank of Australia Annual Report 2007 103

Notes to the Financial Statements

Note 4 Average Balances and Related Interest (continued)

Changes in Net Interest Income:

Volume and Rate Analysis

Interest Earning Assets
Cash and liquid assets

Australia
Overseas (1)

Receivables due from other financial institutions

Australia
Overseas

Assets at fair value through Income Statement - Trading

Australia
Overseas (2)

Assets at fair value through Income Statement - Other

Australia
Overseas (1) (2)
Investment securities

Australia
Overseas

Available-for-sale investments

Australia
Overseas

Loans, advances and other receivables

Australia
Overseas
Intragroup loans

Australia
Overseas

Changes in interest income including intragroup
Intragroup eliminations
Changes in interest income
Securitisation home loan assets

Interest Bearing Liabilities and Loan Capital
Time deposits
Australia
Overseas (3)
Savings deposits

Australia
Overseas (3)

Other demand deposits

Australia
Overseas (3) (4)

Payables due to other financial institutions

Australia
Overseas

Liabilities at fair value through Income Statement

Australia
Overseas (3)

Debt issues
Australia
Overseas
Loan capital
Australia
Overseas (4)

Intragroup borrowings

Australia
Overseas

Changes in interest expense including intragroup
Intragroup eliminations
Changes in interest expense
Changes in net interest income
Securitisation debt issues

June 2007 vs June 2006

June 2006 vs June 2005

Volume
$M

Rate
$M

Total
$M

Volume
$M

Rate
$M

Total
$M

63
71

37
33

211
(18)

5
(14)

-
-

41
23

1,808
631

-
(60)
2,782
60
2,917
179

384
157

152
68

172
(2)

38
104

154
58

635
65

26
60

(60)
-
1,965
60
2,051
934
142

(26)
24

(3)
70

118
40

2
(23)

-
-

(55)
31

731
60

-
126
1,144
(126)
943
65

168
(17)

261
23

237
39

(4)
61

(62)
66

235
230

83
(32)

126
-
1,460
(126)
1,308
(433)
81

37
95

34
103

329
22

7
(37)

-
-

(14)
54

2,539
691

-
66
3,926
(66)
3,860
244

552
140

413
91

409
37

34
165

92
124

870
295

109
28

66
-
3,425
(66)
3,359
501
223

(7)
8

23
10

35
(29)

11
71

(148)
(208)

174
168

1,453
462

-
98
2,255
(98)
2,035
162

50
29

61
10

87
109

11
69

(148)
(210)

175
168

252
123

-
148
800
(148)
774
6

43
37

84
20

122
80

22
140

(296)
(418)

349
336

1,705
585

-
246
3,055
(246)
2,809
168

(60)
(135)

410
(289)

350
(424)

10
59

137
(74)

12
54

96
411

660
(65)

136
33

98
-
1,556
(98)
1,396
718
91

7
58

115
84

57
95

96
410

(208)
180

(7)
63

148
-
1,035
(148)
949
(254)
53

17
117

252
10

69
149

192
821

452
115

129
96

246
-
2,591
(246)
2,345
464
144

(1) During the current year, certain ASB Bank overnight settlement account balances and associated interest income were reclassified from Assets at fair value through

Income Statement to Cash and liquid assets. Prior periods have been restated on a consistent basis.

(2) During the current year, product mapping of certain ASB Bank balances and interest income amounts were amended to align more closely with the Bank. Prior

periods have been restated on a consistent basis.

(3) During the current year, product mapping of certain ASB account balances and associated interest expense were amended to align more closely with the Bank. Prior

periods have been restated on a consistent basis.

(4) During the current year, the impact on yield of economic hedges of Loan capital has been reclassified to the Other demand deposits category.

104 Commonwealth Bank of Australia Annual Report 2007

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 year
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).

Geographical analysis of key categories

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)

2007
%

2. 04
0. 26
2. 30

0. 92
0. 68
1. 60

1. 83
0. 36
2. 19

2006
%

2. 21
0. 24
2. 45

0. 97
0. 67
1. 64

1. 98
0. 36
2. 34

2005
%

2. 33
0. 25
2. 58

1. 03
0. 68
1. 71

2. 08
0. 35
2. 43

(1) Difference between the average interest rate earned and the average interest rate paid on funds.

(2) 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.

(3) Net interest income divided by average interest earning assets for the year.

Commonwealth Bank of Australia Annual Report 2007 105

Notes to the Financial Statements

Note 5 Income Tax Expense

Profit from ordinary activities before Income Tax
Banking
Funds management
Insurance
Defined benefit superannuation plan expense

Prima Facie Income Tax at 30%
Banking
Funds management
Insurance
Defined benefit superannuation plan expense

Tax effect of expenses that are non-deductible/income non-
assessable in determining taxable profit:

Current period
Taxation offsets and other dividend adjustments (1)
Tax adjustment referable to policyholder income
Non–assessable gains
Tax losses recognised
Tax losses assumed by the Bank under UIG 1052
Difference in overseas and offshore banking unit tax rates (2)
Other (3)

Prior periods
Other
Total income tax expense

Income Tax Attributable to Profit from ordinary activities
Banking
Funds management
Insurance
Corporate tax expense
Policyholder tax expense
Total income tax expense

Effective Tax Rate
Total – corporate
Banking – corporate
Funds management – corporate
Insurance – corporate

Recognised in the Income Statement
Australia
Current tax expense
Deferred tax expense/(benefit)
Total Australia
Overseas
Current tax expenses
Deferred tax expense
Total Overseas
Total income tax expense

2007
$M

5,146
805
579
8
6,538

1,544
241
174
3
1,962

(55)
186
-
(24)
-
(43)
35
99

(20)
2,041

1,423
215
137
1,775
266
2,041

2006
$M

4,594
643
657
(35)
5,859

1,378
193
197
(11)
1,757

(57)
232
(43)
(35)
-
(13)
44
128

15
1,900

1,328
139
102
1,569
331
1,900

Group
2005
$M

4,057
508
522
(75)
5,012

1,217
153
157
(23)
1,504

(48)
160
-
(9)
-
(3)
(2)
98

-
1,602

1,197
88
89
1,374
228
1,602

28. 3
27. 6
34. 1
28. 1

28. 4
29. 1
30. 8
19. 7

28. 7
30. 1
21. 8
22. 4

2007
$M

5,403
-
-
8
5,411

1,621
-
-
2
1,623

(556)
-
-
(20)
(85)
(36)
(2)
(699)

9
933

933
-
-
933
-
933

17. 2
17. 2
-
-

Bank
2006
$M

5,278
-
-
(35)
5,243

1,584
-
-
(11)
1,573

(615)
-
-
(14)
-
(17)
49
(597)

-
976

976
-
-
976
-
976

18. 6
18. 6
-
-

2,209
(390)
1,819

141
81
222
2,041

1,366
382
1,748

114
38
152
1,900

1,403
(5)
1,398

175
29
204
1,602

1,322
(392)
930

3
-
3
933

655
318
973

3
-
3
976

(1) During the current year exempt and concessionally taxed dividends received by overseas entities have been included in taxation offsets and other dividend

adjustments. Prior periods have been restated on a consistent basis.

(2) During the current year tax rate differences in foreign jurisdictions and the Australian offshore banking unit have been separately disclosed. Prior periods have been

restated on a consistent basis.

(3) 2005 comparatives have been restated to include life insurance transitional fee relief.

The share of associates’ income tax expense included in total income tax expense in Income Statement is $17 million for 2007 (2006:
$1 million, 2005: $2 million).

106 Commonwealth Bank of Australia Annual Report 2007

Notes to the Financial Statements

Note 5 Income Tax Expense (continued)

The significant temporary differences are as follows (1):
Deferred tax assets arising from:

Provision for employee benefits
Provisions for impairment on loans, advances and other receivables
Other provisions not tax deductible until expense incurred
Recognised value of tax losses carried forward
Financial instruments
Other
Set off of tax
Total deferred tax assets
Deferred tax liabilities arising from:

Property asset revaluations
Lease financing
Defined benefit superannuation plan surplus
Intangible assets
Financial instruments
Other

Set off of tax
Total deferred tax liabilities (Note 26)

Deferred tax assets opening balance:
Movement in temporary differences during the year:

Provisions for employee benefits
Provisions for impairment on loans, advances and other receivables
Other provisions not tax deductible until expense incurred
Tax value of loss carry-forwards utilised
Financial instruments
Other

Set off of tax
Deferred tax assets closing balance (1)

2007
$M

2006
$M

Group
2005
$M

288
371
136
8
170
316
(367)
922

55
330
544
10
482
522
(367)
1,576

650

27
21
(10)
(1)
(25)
19
241
922

261
350
146
9
195
297
(608)
650

29
312
368
10
626
599
(608)
1,336

651

-
(81)
34
9
42
164
(169)
650

261
431
112
-
153
133
(439)
651

29
296
215
11
409
400
(439)
921

587

29
8
31
-
(50)
(180)
226
651

Deferred tax liabilities opening balance:
Movements in temporary differences during the year:

Property asset revaluations
Lease financing
Defined benefit superannuation plan surplus
Intangible assets
Financial instruments
Other

Set off of tax
Deferred tax liabilities closing balance (1) (Note 26)

1,336

921

572

26
18
176
-
(144)
(77)
241
1,576

-
16
153
(1)
217
199
(169)
1,336

29
(43)
25
11
(234)
335
226
921

2007
$M

262
326
107
8
156
118
(312)
665

55
110
544
-
290
44
(312)
731

392

17
(15)
22
(1)
94
(91)
247
665

640

26
(34)
176
-
(296)
(28)
247
731

Bank
2006
$M

245
341
85
9
62
209
(559)
392

29
144
368
-
586
72
(559)
640

599

5
(84)
(15)
9
(11)
27
(138)
392

872

-
(148)
153
-
275
(374)
(138)
640

(1) Exchange differences on deferred foreign tax balances are taken to income to match the treatment of exchange differences on the underlying assets and liabilities.

Deferred tax assets not taken to account (1)
Valuation allowance
Opening balance
Prior year adjustments
Benefits now taken to account
Benefits arising during the year not recognised
Closing balance

2007
$M

2006
$M

131
62
(30)
7
170

159
(40)
(35)
47
131

Group
2005
$M

170
(33)
(9)
31
159

2007
$M

72
61
(22)
4
115

Bank
2006
$M

79
7
(14)
-
72

(1) The deductible temporary differences do not expire under current tax legislation. Deferred tax assets have not been taken to account in respect of the above items

because it is not probable that future taxable profits will be available against which the Group can utilise the benefits therefrom.

Commonwealth Bank of Australia Annual Report 2007 107

Notes to the Financial Statements

Note 5 Income Tax Expense (continued)

Expiration of carry-forward losses

At 30 June 2007 carry-forward losses expire as follows:

From one to two years
From two to four years
After four years

Losses that do not expire under current tax law
Total

Potential future income tax benefits of the company arising
from:

• Capital losses arising under the tax consolidations systems;

and

• Tax losses and timing differences in offshore centres,

have not been recognised as assets because recovery is not
probable.

These benefits could amount to:

• $130 million (2006: $72 million) in capital losses; and

• $40 million (2006: $59 million) in offshore centres.

These potential tax benefits will only be obtained if:

• 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 for
claiming capital losses and deductions imposed by tax
legislation; and

• No changes in tax legislation adversely affect the company

in realising the benefit from deductions for the losses.

Group
2005
$M

3
3
36
117
159

2007
$M

-
6
25
84
115

Bank
2006
$M

-
10
29
33
72

2007
$M

3
9
25
133
170

2006
$M

2
14
30
85
131

Tax Consolidation

Tax consolidation legislation has been enacted to allow
Australian resident entities to elect to consolidate and be
treated as single entities for Australian tax purposes. The
Commonwealth Bank of Australia has elected to be taxed as a
single entity with effect from 1 July 2002.

New Zealand Subsidiaries

Certain subsidiaries of the Bank in New Zealand are being
audited by the Inland Revenue Department (IRD) as part of an
industry-wide review of structured finance transactions.

Assessments have been received from the IRD in respect of
two structured finance investments in relation to the 2001 and
2002 financial years. Notices of Proposed Adjustment have
been received for other similar investments for later years.

The Group is confident that the tax treatment it has adopted for
these investments is correct, and any assessments received
will be disputed.

108 Commonwealth Bank of Australia Annual Report 2007

Notes to the Financial Statements

Note 6 Dividends

Ordinary Shares
Interim ordinary dividend (fully franked) (2007: 107 cents, 2006:
94 cents)
Interim ordinary dividend paid – cash component only
Interim ordinary dividend paid – dividend reinvestment plan
Total dividends paid

Preference Shares (1)
Preference dividends paid (fully franked) (2007: nil, 2006: nil,
2005: 1,115 cents)
Provision for preference dividend

Other Equity Instruments (1)
Dividends paid

2007
$M

2006
$M

862
518
1,380

992
219
1,211

-
-

Group
2005
$M

883
200
1,083

29
10

2007
$M

862
518
1,380

-
-

Bank
2006
$M

992
219
1,211

-
-

Total dividends provided for, reserved or paid
Other provision carried

1,435
7

1,211
6

1,214
4

1,380
7

1,211
6

Dividends proposed and not recognised as a liability (fully
franked) (2007: 149 cents, 2006: 130 cents, 2005: 112 cents) (2)

1,939

1,668

1,434

1,939

1,668

Provision for dividends
Balance as at 1 July 2006
Provisions made during the year
Provisions used during the year
Provisions reversed during the year
Balance at 30 June 2007 (Note 27)

6
3,048
(3,048)
-
6

14
2,646
(2,645)
(9)
6

14
2,437
(2,437)
-
14

6
3,048
(3,047)
-
7

14
2,646
(2,645)
(9)
6

(1) Reclassified to loan capital on adoption of AIFRS from 1 July 2005.

(2) The 2005 final dividend was satisfied by cash disbursements of $1,173 million and the issue of $261 million of ordinary shares through the dividend reinvestment
plan. The 2006 final dividend was satisfied by cash disbursements of $1,368 million and the issue of $300 million of ordinary shares through the dividend
reinvestment plan. The 2007 final dividend is expected to be satisfied by cash disbursements of $1,454 million and the estimated issue of $485 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 2007, the amount of credits available, at the
30% tax rate as at 30 June 2007 to frank dividends for
subsequent financial years, is $559 million (2006: $nil). This
figure is based on the combined franking accounts of the Bank
at 30 June 2007, 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 2007, franking debits that will arise

from the payment of dividends proposed for the year and
from
that
franking credits
distributing in subsequent financial periods.

the Bank may be prevented

The Bank expects that future tax payments will generate
sufficient franking credits for the Bank to be able to continue to
fully frank future dividend payments. These calculations have
been based on the taxation law as at 30 June 2007.

Dividend History

Half Year Ended

31 December 2004
30 June 2005
31 December 2005
30 June 2006
31 December 2006
30 June 2007 (4)

Cents Per
Share
85
112
94
130
107
149

Date Paid
31/03/05
23/09/05
05/04/06
05/10/06
05/04/07
-

Half-year
(1)

Payout Ratio

Full Year
(1)

Payout Ratio

Full Year
Payout Ratio
(2)
Cash Basis

DRP
Participation
(3)

Rate

DRP
Price

%
65. 6
88. 6
60. 6
86. 5
63. 0
86. 1

%
-
77.0
-
73. 3
-
75. 2

%
-
74. 9
-
71. 0
-
73. 0

35. 90
37. 19
43. 89
45. 24
50. 02
-

%
18. 6
18. 2
18. 1
18. 0
37. 6
-

(1) Dividend Payout Ratio: dividends divided by statutory earnings.

(2) Payout ratio based on net profit after tax before defined benefit superannuation plan expense, treasury shares valuation adjustment, and one-off AIFRS mismatches.

Includes Which new Bank expenses for the year ended 30 June 2005 and the profit on sale of CMG Asia for the year ended 30 June 2006.

(3) DRP Participation Rate: the percentage of total issued share capital participating in the Dividend Reinvestment Plan.

(4) Dividend expected to be paid on 5 October 2007.

Commonwealth Bank of Australia Annual Report 2007 109

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 after income tax
Less: Preference share dividends
Less: Other equity instrument dividends
Less: Other dividends – ASB preference shares
Less: Minority interests
Earnings used in calculation of basic earnings per share
Add: Profit impact of assumed conversions
Preference shares
Other equity instruments
Loan capital
Earnings used in calculation of fully diluted earnings per share

Weighted average number of ordinary shares (net of treasury shares) used in the calculation
of basic earnings per share
Effect of dilutive securities – share options and convertible loan capital instruments
Weighted average number of ordinary shares (net of treasury shares) used in the calculation
of fully diluted earnings per share (1)

Cash Basis Earnings Per Ordinary Share
Basic
Fully diluted

Reconciliation of earnings used in the calculation of basic cash basis earnings per share
Earnings used in calculation of earnings per share (as above)
Less: Defined benefit superannuation plan expense after income tax
Add: Treasury shares valuation adjustment after income tax
Add: One-off AIFRS mismatches
Earnings used in calculation of basic cash basis earnings per share
Add: Profit impact of assumed conversions
Preference shares
Other equity instruments
Loan capital
Earnings used in calculation of fully diluted cash basis earnings per share

Weighted average number of ordinary shares (net of treasury shares) used in calculation
of basic cash basis earnings per share
Effect of dilutive securities – share options and convertible loan capital instruments
Weighted average number of ordinary shares (net of treasury shares) used in calculation
of fully diluted cash basis earnings per share (1)

(1) Figures presented in this table have been rounded.

2007
C

344. 7
339. 7

2006
C

308. 2
303. 1

Group
2005
C

259. 6
255. 3

4,497
-
(55)
-
(27)
4,415

-
-
150
4,565

2007
M

1,281
62

3,959
-
-
-
(31)
3,928

-
-
100
4,028

3,410
(39)
(76)
(16)
(10)
3,269

23
67
-
3,359

Number of Shares
2005
M

2006
M

1,275
54

1,260
56

1,344

1,329

1,316

353. 0
347. 8

315. 9
310. 5

264. 8
260. 5

4,415
(5)
75
64
4,549

-
-
150
4,699

2007
M

1,289
62

3,928
25
100
-
4,053

-
-
100
4,153

3,269
53
39
-
3,361

23
67
-
3,451

Number of Shares
2005
M

2006
M

1,283
55

1,269
56

1,352

1,338

1,325

Basic earnings per share amounts are calculated by dividing net
profit for the year attributed to ordinary equity holders of the
parent by the weighted average number of ordinary shares
outstanding during the year.

Diluted earnings per share amounts are calculated by dividing
net profit attributable to ordinary Shareholders (after deducting

interest on the convertible redeemable loan capital instruments)
by
the weighted average number of ordinary shares
outstanding during the year (adjusted for the effects of diluted
options and diluted convertible non-cumulative redeemable
loan capital instruments).

110 Commonwealth Bank of Australia Annual Report 2007

Note 8 Cash and Liquid Assets

Australia
Notes, coins and cash at banks
Money at short call
Securities purchased under agreements to resell
Bills received and remittances in transit
Total Australia

Overseas
Notes, coins and cash at banks (1)
Money at short call
Securities purchased under agreements to resell
Total Overseas
Total Cash and Liquid Assets

Notes to the Financial Statements

2007
$M

1,754
1
4,164
65
5,984

2,803
901
420
4,124
10,108

Group
2006
$M

1,629
4
2,629
131
4,393

811
356
308
1,475
5,868

2007
$M

1,364
-
4,164
97
5,625

13
797
966
1,776
7,401

Bank
2006
$M

1,210
-
2,629
133
3,972

4
210
633
847
4,819

(1) During the current year certain ASB Bank overnight settlement account balances were reclassified from Assets at fair value through Income Statements to Cash and

liquid assets. The prior period has been restated on a consistent basis.

Note 9 Receivables Due from Other Financial Institutions

Australia
Placements with and loans to other banks and financial institutions
Total Australia

Overseas
Deposits with regulatory authorities (1)
Other placements with and loans to other banks and financial institutions
Total Overseas
Total Receivables from Other Financial Institutions

(1) Required by law for the Group to operate in certain regions.

2007
$M

2,809
2,809

83
2,603
2,686
5,495

Group
2006
$M

3,191
3,191

74
3,842
3,916
7,107

2007
$M

3,283
3,283

4
2,485
2,489
5,772

Bank
2006
$M

3,700
3,700

3
3,761
3,764
7,464

Commonwealth Bank of Australia Annual Report 2007 111

Notes to the Financial Statements

Note 10 Assets at Fair Value through Income Statement

Trading
Insurance
Other (1)
Total Assets at Fair Value through Income Statement

2007
$M
21,469
23,519
4,073
49,061

Group

2006
$M
15,758
24,437
2,207
42,402

2007
$M
20,287
-
448
20,735

Bank

2006
$M
13,926
-
396
14,322

(1) During the current year, ASB Bank overnight settlement account balances were reclassified from Assets as fair value through Income Statement to Cash and liquid

assets. The prior period has been restated on a consistent basis.

Trading

Australia
Market Quoted:

Australian Public Securities
Commonwealth and States
Local and semi-government

Bills of exchange
Certificates of deposit
Medium term notes
Other securities
Non-Market Quoted:
Commercial paper

Total Australia
Overseas
Market Quoted:

Government securities
Eurobonds
Certificates of deposit
Medium term notes
Floating rate notes
Commercial paper
Non-Market Quoted:
Commercial paper
Bills of exchange
Other securities

Total Overseas
Total Trading Assets

2007
$M

1,117
2,777
4,709
5,484
3,604
550

Group
2006
$M

422
860
2,982
5,031
2,846
43

2007
$M

1,117
2,777
4,709
5,484
3,604
724

Bank
2006
$M

422
860
2,982
5,031
2,846
24

770
19,011

648
12,832

770
19,185

800
12,965

383
378
789
55
365
86

208
188
6
2,458
21,469

361
349
1,408
60
392
82

138
135
1
2,926
15,758

336
377
-
-
365
24

-
-
-
1,102
20,287

220
349
-
-
392
-

-
-
-
961
13,926

112 Commonwealth Bank of Australia Annual Report 2007

Notes to the Financial Statements

Note 10 Assets at Fair Value through Income Statement (continued)

Insurance

Equity Security Investments:

Direct
Indirect

Total Equity Security Investments
Debt Security Investments:

Direct
Indirect

Total Debt Security Investments
Property Investments:

Direct
Indirect

Total Property Investments
Other Assets
Total Life Insurance Investment Assets

Investments
Backing Life
Risk
Contracts

Investments
Backing Life
Investment
Contracts

Investments
Backing Life
Risk
Contracts

Investments
Backing Life
Investment
Contracts

2007
$M

620
948
1,568

882
2,865
3,747

87
357
444
76
5,835

2007
$M

2,160
5,332
7,492

1,965
5,569
7,534

217
967
1,184
1,474
17,684

2007
$M

2,780
6,280
9,060

2,847
8,434
11,281

304
1,324
1,628
1,550
23,519

2006
$M

685
1,156
1,841

579
2,598
3,177

182
463
645
87
5,750

2006
$M

2,013
5,725
7,738

1,924
5,497
7,421

313
854
1,167
2,361
18,687

2006
$M

2,698
6,881
9,579

2,503
8,095
10,598

495
1,317
1,812
2,448
24,437

Direct investments refer to positions held directly in the issuer of
the investment. Indirect investments refer to investments that are
held through unit trusts or similar investment vehicles.

All financial assets within the life statutory funds have been
determined to back either life insurance or life investment
contracts.

Disclosure on Asset Restriction

Investments held in the Australian statutory funds may only be
used within the restrictions imposed under the Life Insurance Act
1995.

The main restrictions are that assets in a fund may only be used
to meet the liabilities and expenses of the fund, to acquire
investments to further the business of the fund, or as distributions
when solvency and capital adequacy requirements are met.

Participating policyholders can receive a distribution when
solvency requirements are met, whilst Shareholders can only
receive a distribution when the higher levels 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.

The Group also holds investments in the Colonial First State
Property Trust Group and Colonial Mastertrust Wholesale funds
(including Fixed Interest, Australian Shares, International Shares,
Property Securities, Capital Stable, Balanced and Diversified
Growth funds) through controlled life insurance entities, which
have been designated as Assets at Fair Value through Income
Statement instead of being accounted for under the equity
accounting method.

Instead, these investments are brought to account at fair value at
Balance Sheet date in compliance with the requirements of AASB
1038: Life Insurance Business.

Other (1)

Fair value structured transactions
Receivables due from financial institutions
Term loans
Other lending
Total Other Assets at Fair Value through Income Statement

2007
$M

1,363
657
1,984
69
4,073

Group

2006
$M

1,005
407
616
179
2,207

2007
$M

425
-
-
23
448

Bank

2006
$M

369
-
-
27
396

(1) Designated at Fair Value through Income Statement at inception as they are managed by the Group on a fair value basis.

Commonwealth Bank of Australia Annual Report 2007 113

Notes to the Financial Statements

Note 11 Derivative Assets and Liabilities

Derivative contracts

Cash flow hedges

The Group uses interest rate swaps and cross currency swaps
to minimise the variability in cash flows of interest-earning
assets, interest-bearing liabilities or forecast transactions caused
by interest rate or foreign exchange fluctuations. For the year
ended 30 June 2007, there has been no material gain or loss
associated with ineffective portions of cash flow hedges.

Gains and losses on derivative contracts designated as cash
flow hedges are initially recorded in Shareholders’ equity but are
reclassified to current period earnings when the hedged cash
flows occur, as explained in Note 1 (ff) Derivative financial
instruments. As at 30 June 2007, deferred net gains on
flow hedges
derivative
accumulated in Shareholders’ equity were $637 million (2006:
$88 million). The amount recognised in Shareholders’ equity at
30 June 2007 related to cash flows expected to occur within one
month to approximately 30 years of the Balance Sheet date, with
the main portion expected to occur within three years.

instruments designated as cash

As at 30 June 2007, the fair value of outstanding derivatives
designated as cash flow hedges was $1,280 million (2006: $615
million) of assets and $415 million (2006: $290 million) of
liabilities. Amounts reclassified from gains/(losses) on cash flow
hedging instruments recognised in equity to current period
earnings due to discontinuation of hedge accounting were
immaterial.

Net Investment Hedges

The Group uses forward foreign exchange transactions to
minimise the Group’s exposure to currency translation risk of
some of its net investments in foreign operations. For the year
ended 30 June 2007 there has been no material gain or loss
associated with ineffective portions of net investment hedges.

Gains and losses on derivative contracts relating to the effective
portion of the hedge are recognised in the Foreign Currency
Translation Reserve. Gains and losses accumulated in Foreign
Currency Translation Reserve are reclassified in current period
earnings when the overseas subsidiary is disposed of as
explained in Note 1 (ff) Derivative financial instruments.

Each derivative is classified as held for “Trading”, held for
“Hedging”, or as “Other” derivatives. Derivatives classified as
“Hedging” are derivative transactions entered into in order to
manage the risks arising from non-traded assets, liabilities and
commitments
in Australia and offshore centres. Other
derivatives are those held in relation to a portfolio designated at
fair value through Income Statement.

Derivatives transacted for hedging purposes

the accounting requirements

The Group enters into derivative
transactions which are
designated and qualify as either fair value or cash flow hedges
for recognised assets or liabilities or forecast transactions.
Forward Foreign Exchange transactions are also designated as
hedges of currency translation risk of net investments in foreign
operations. The Group also enters into derivative transactions
which provide economic hedges for risk exposures but do not
for hedge accounting
meet
treatment. As stated
financial
instruments, the Group uses Credit Default Swaps (CDSs) and
equity swaps as economic hedges to manage credit risk in the
asset portfolio and risks associated with both the capital
investment in equities and the related yield respectively, but
cannot apply hedge accounting to such positions. Gains or
losses on these CDSs and equity swaps have therefore been
recorded in trading income.

in Note 1 (ff) Derivative

Derivatives designated and accounted for as hedging
instruments

The Group’s accounting policies for derivatives designated and
accounted for as hedging instruments are explained in Note 1
(ff) Derivative financial instruments where terms used in the
following sections are explained.

Fair value hedges

The Group’s fair value hedges principally consist of interest rate
swaps, cross currency swaps and futures. Fair value hedges are
used to limit the Group’s exposure to changes in the fair value of
its fixed-rate interest bearing assets or liabilities that are due to
interest rate or foreign exchange volatility.

For the year ended 30 June 2007, the Group recognised a net
gain of $14 million (2006: $20 million net loss) (reported within
other operating income in the Financial Statements), which
represents the ineffective portion of fair value hedges.

As at 30 June 2007, the fair value of outstanding derivatives
designated as fair value hedges was $463 million (2006: $516
million) of assets and $2,451 million (2006: $2,644 million) of
liabilities.

114 Commonwealth Bank of Australia Annual Report 2007

Notes to the Financial Statements

Note 11 Derivative Assets and Liabilities (continued)

Derivative Assets and Liabilities
Held for trading
Held for hedging
Other derivatives
Total recognised derivative assets and
liabilities

Derivatives held for trading
Exchange rate related contracts:

Forward contracts (1)
Swaps
Futures
Options purchased and sold

Total exchange rate related contracts

Interest rate related contracts:

Forward contracts
Swaps
Futures
Options purchased and sold
Total interest rate related contracts

Credit related contracts:

Swaps

Total credit related contracts

Equity related contracts:

Swaps

Total equity related contracts

Commodity related contracts:

Swaps
Options purchased and sold
Total commodity related contracts

Total derivative assets/liabilities held for
trading

Face Value

1,115,684
121,495
58,774

Fair Value
Asset
$M

2007

Fair Value
Liability
$M

10,666
1,743
334

(13,230)
(2,866)
(584)

Face Value

972,789
114,612
31,646

Group
2006

Fair Value
Asset
$M

Fair Value
Liability
$M

8,257
1,131
287

(7,779)
(2,934)
(107)

1,295,953

12,743

(16,680)

1,119,047

9,675

(10,820)

287,107
130,962
-
57,220
475,289

6,956
433,693
142,487
46,036
629,172

5,928
5,928

381
381

2,506
2,408
4,914

2,312
3,715
-
51
6,078

1
3,915
71
110
4,097

18
18

-
-

422
51
473

(4,134)
(4,184)
-
(50)
(8,368)

(1)
(4,129)
(54)
(173)
(4,357)

(17)
(17)

(44)
(44)

(394)
(50)
(444)

247,862
104,942
8,063
17,051
377,918

64,865
404,493
83,075
34,899
587,332

3,073
3,073

-
-

2,944
1,522
4,466

2,423
2,735
15
190
5,363

1
2,443
3
94
2,541

6
6

-
-

299
48
347

(2,257)
(2,095)
-
(193)
(4,545)

(2)
(2,824)
(29)
(119)
(2,974)

(8)
(8)

-
-

(200)
(52)
(252)

1,115,684

10,666

(13,230)

972,789

8,257

(7,779)

(1) Comparatives have been restated on a consistent basis with the current year.

Commonwealth Bank of Australia Annual Report 2007 115

Notes to the Financial Statements

Note 11 Derivative Assets and Liabilities (continued)

Derivatives designated as fair value hedges
Exchange rate related contracts:

Forward contracts
Swaps
Options purchased and sold

Total exchange rate related contracts

Interest rate related contracts:

Swaps
Futures

Total interest rate related contracts

Equity related contracts:

Swaps

Total equity related contracts

Commodity related contracts:

Swaps

Total commodity related contracts

Face Value

1,285
12,041
-
13,326

26,336
-
26,336

292
292

1
1

Fair Value
Asset
$M

2007

Fair Value
Liability
$M

74
300
-
374

83
-
83

6
6

-
-

(14)
(772)
-
(786)

(1,657)
-
(1,657)

(8)
(8)

-
-

Face Value

16
13,554
101
13,671

25,047
1,500
26,547

159
159

47
47

Group
2006

Fair Value
Asset
$M

Fair Value
Liability
$M

-
342
-
342

170
3
173

-
-

1
1

-
(534)
-
(534)

(2,099)
-
(2,099)

(10)
(10)

(1)
(1)

Total fair value hedges

39,955

463

(2,451)

40,424

516

(2,644)

Derivatives designated as cash flow hedges
Exchange rate related contracts:

Forward contracts
Swaps

Total exchange rate related contracts

Interest rate related contracts:

Swaps

Total interest rate related contracts

-
2,152
2,152

79,388
79,388

-
369
369

911
911

Total cash flow hedges

81,540

1,280

-
(40)
(40)

(375)
(375)

(415)

1,237
2,677
3,914

70,274
70,274
74,188

3
314
317

298
298
615

-
(9)
(9)

(281)
(281)

(290)

Total derivative assets/liabilities held for
hedging (1)

121,495

1,743

(2,866)

114,612

1,131

(2,934)

(1) Prior year comparatives have been restated on a consistent basis.

116 Commonwealth Bank of Australia Annual Report 2007

Notes to the Financial Statements

Note 11 Derivative Assets and Liabilities (continued)

Other Derivatives
Exchange rate related contracts:

Forward contracts
Swaps
Options purchased and sold

Total exchange rate related contracts

Interest rate related contracts:

Forward contracts
Swaps
Futures
Options purchased and sold
Total interest rate related contracts

Credit related contracts:

Swaps

Total credit related contracts

Equity related contracts:

Options purchased and sold

Total equity related contracts

Commodity related contracts:

Forward contracts

Total commodity related contracts

Face Value

8,374
7,834
164
16,372

5,673
29,802
5,313
1,445
42,233

-
-

21
21

-
-

Fair Value
Asset
$M

2007

Fair Value
Liability
$M

77
98
2
177

1
155
1
-
157

-
-

(212)
(186)
(2)
(400)

(1)
(170)
-
(4)
(175)

-
-

Face Value

6,802
5,838
252
12,892

7,691
8,069
1,916
627
18,303

275
275

171
171

5
5

Group
2006

Fair Value
Asset
$M

Fair Value
Liability
$M

171
88
1
260

1
17
-
-
18

-
-

8
8

1
1

(28)
(20)
(6)
(54)

(2)
(27)
-
(1)
(30)

-
-

(1)
(1)

Identified embedded derivatives
Total other derivatives

148
58,774

-
334

(9)
(584)

-
31,646

-
287

(21)
(107)

Total recognised derivative assets/liabilities

1,295,953

12,743

(16,680)

1,119,047

9,675

(10,820)

Commonwealth Bank of Australia Annual Report 2007 117

Notes to the Financial Statements

Note 11 Derivative Assets and Liabilities (continued)

Derivative Assets and Liabilities
Held for trading
Held for hedging
Other derivatives
Total derivative assets and liabilities

Derivatives held for trading
Exchange rate related contracts:

Forward contracts (1)
Swaps
Futures
Options purchased and sold
Derivatives held with controlled entities

Total exchange rate related contracts

Interest rate related contracts:

Forward contracts
Swaps
Futures
Options purchased and sold
Derivatives held with controlled entities

Total interest rate related contracts

Credit related contracts:

Swaps
Derivatives held with controlled entities

Total credit related contracts

Equity risk related contracts

Swaps
Derivatives held with controlled entities

Total equity related contracts

Commodity related contracts:

Swaps
Options purchased and sold
Total commodity related contracts

Total derivative assets/liabilities held for
trading

Face Value

1,172,891
90,878
400
1,264,169

Fair Value
Asset
$M

2007

Fair Value
Liability
$M

12,522
1,340
-
13,862

(14,084)
(2,683)
(19)
(16,786)

Face Value

1,004,062
94,052
2,788
1,100,902

287,107
130,632
-
57,220
39,223
514,182

6,956
433,676
142,487
46,036
16,620
645,775

5,928
173
6,101

381
1,538
1,919

2,506
2,408
4,914

2,314
3,699
-
51
1,736
7,800

1
3,926
71
110
46
4,154

18
-
18

-
77
77

422
51
473

(4,134)
(3,958)
-
(50)
(867)
(9,009)

(1)
(4,167)
(54)
(173)
(115)
(4,510)

(17)
-
(17)

(44)
(60)
(104)

(394)
(50)
(444)

247,862
104,435
8,063
17,051
18,877
396,288

64,865
404,470
83,075
34,899
12,926
600,235

3,073
-
3,073

-
-
-

2,944
1,522
4,466

Bank
2006

Fair Value
Asset
$M

Fair Value
Liability
$M

8,944
991
3
9,938

2,423
2,733
15
190
327
5,688

1
2,443
3
94
362
2,903

6
-
6

-
-
-

299
48
347

(8,179)
(2,755)
(21)
(10,955)

(2,257)
(1,962)
-
(193)
(406)
(4,818)

(2)
(2,824)
(29)
(119)
(127)
(3,101)

(8)
-
(8)

-
-
-

(200)
(52)
(252)

1,172,891

12,522

(14,084)

1,004,062

8,944

(8,179)

(1) Comparatives have been restated on a consistent basis with the current year.

118 Commonwealth Bank of Australia Annual Report 2007

Notes to the Financial Statements

Note 11 Derivative Assets and Liabilities (continued)

Derivatives designated as fair value hedges
Exchange rate related contracts:

Forward contracts
Swaps
Derivatives held with controlled entities

Total exchange rate related contracts

Interest rate related contracts:

Swaps
Futures
Derivatives held with controlled entities

Total interest rate related contracts

Equity related contracts:

Swaps

Total equity related contracts

Commodity related contracts:

Swaps

Total commodity related contracts

Face Value

13
11,876
165
12,054

23,651
-
484
24,135

292
292

1
1

Fair Value
Asset
$M

2007

Fair Value
Liability
$M

-
300
-
300

57
-
-
57

6
6

-
-

-
(742)
(31)
(773)

(1,615)
-
(11)
(1,626)

(8)
(8)

-
-

Face Value

-
13,544
229
13,773

24,896
1,500
803
27,199

159
159

47
47

Bank
2006

Fair Value
Asset
$M

Fair Value
Liability
$M

-
341
-
341

110
3
2
115

-
-

1
1

-
(534)
(4)
(538)

(1,962)
-
(45)
(2,007)

(10)
(10)

(1)
(1)

Total fair value hedges

36,482

363

(2,407)

41,178

457

(2,556)

Derivatives designated as cash flow hedges
Exchange rate related contracts:

Swaps
Derivatives held with controlled entities

Total exchange rate related contracts

Interest rate related contracts:

Swaps

Total interest rate related contracts

Total cash flow hedges

Total derivative assets/liabilities held for
hedging

983
328
1,311

53,085
53,085

54,396

364
-
364

613
613

977

-
(21)
(21)

(255)
(255)

(276)

980
744
1,724

51,150
51,150

52,874

281
-
281

253
253

534

-
(6)
(6)

(193)
(193)

(199)

90,878

1,340

(2,683)

94,052

991

(2,755)

Other Derivatives
Interest rate related contracts:

Swaps
Derivatives held with controlled entities

Total interest rate related contracts

Credit related contracts:

Swaps

Total credit related contracts

Equity related contracts:

Options purchased and sold

Total equity related contracts

Identified embedded derivatives
Total other derivatives

Face Value

252
-
252

-
-

148
400

Fair Value
Asset
$M

2007

Fair Value
Liability
$M

Face Value

2,383
-
2,383

275
275

130
130

(10)
-
(10)

-
-

(9)
(19)

-
2,788

Bank
2006

Fair Value
Asset
$M

Fair Value
Liability
$M

-
-
-

-
-

3
3

-
3

-
-
-

-
-

(21)
(21)

-
-
-

-
-

Total recognised derivative assets/liabilities

1,264,169

13,862

(16,786)

1,100,902

9,938

(10,955)

Commonwealth Bank of Australia Annual Report 2007 119

Notes to the Financial Statements

Note 12 Available-for-Sale Investments

Australia
Market Quoted:

Australian Public Securities:

Local and semi-government
Shares and equity investments
Medium term notes
Floating rate notes
Mortgage backed securities
Other securities

Non-Market Quoted:

Australian Public Securities:

Local and semi-government

Medium term notes
Shares and equity investments
Other securities

Total Australia
Overseas
Market Quoted:

Government securities
Bills of exchange
Certificates of deposit
Eurobonds
Medium term notes
Floating rate notes
Other securities

Non-Market Quoted:

Government securities
Certificates of deposit
Eurobonds
Floating rate notes
Other securities

Total Overseas
Less specific allowances for impairment
Total Available-for-sale investments

2007
$M

2,376
41
524
605
1,417
191

80
-
54
158
5,446

174
78
1,763
161
365
967
436

36
-
-
66
181
4,227
(1)
9,672

Group
2006
$M

1,892
511
415
465
1,576
800

84
70
217
2
6,032

265
244
2,390
391
456
571
509

9
17
31
118
192
5,193
(22)
11,203

2007
$M

2,378
37
517
-
1,417
-

-
824
38
91
5,302

51
78
1,741
147
171
931
50

-
-
-
-
-
3,169
(3)
8,468

Bank
2006
$M

1,894
502
407
-
1,576
510

-
61
158
941
6,049

63
244
2,366
354
243
430
84

-
17
31
45
-
3,877
(12)
9,914

Available-for-sale investments revalued to fair value resulted in a gain of $28 million (2006: $51 million) recognised directly in equity. As
a result of sale, derecognition or impairment of Available-for-sale investments, gains of $138 million (2006: $36 million) were removed
from equity and reported in profit and loss for the year.

120 Commonwealth Bank of Australia Annual Report 2007

Notes to the Financial Statements

Note 12 Available-for-Sale Investments (continued)

Australia
Australian Public Securities:

Local and semi-government

Medium term notes
Floating rate notes
Mortgage backed securities
Other securities and equity investments
Provisions
Total Australia

Overseas
Government securities
Bills of exchange
Certificates of deposit
Eurobonds
Medium term notes
Floating rate notes
Other securities and equity investments
Total Overseas
Total Available-for-sale investments

Group
At 30 June 2007

Amortised
Cost
$M

Gross
Unrealised
Gains
$M

Gross
Unrealised
Losses
$M

2,411
535
605
1,416
441
(1)
5,407

210
78
1,764
164
366
1,033
619
4,234
9,641

81
1
-
1
4
-
87

-
-
-
1
-
1
-
2
89

(36)
(12)
-
-
(1)
-
(49)

-
-
(1)
(4)
(1)
(1)
(2)
(9)
(58)

Fair
Value
$M

2,456
524
605
1,417
444
(1)
5,445

210
78
1,763
161
365
1,033
617
4,227
9,672

Maturity Distribution and Weighted Average Yield

Group
Maturity Period at 30 June 2007

0 to 3 months 3 to 12 months
%

1 to 5 years
%
$M

5 to 10 years 10 years or more
%

Non-
Maturing
$M

Total
$M

Australia
Australian Public Securities:

Local and semi-
government

Medium term notes
Floating rate notes
Mortgage backed securities
Other securities and equity
investments
Provisions
Total Australia

Overseas
Government securities
Bills of exchange
Certificates of deposit
Eurobonds
Medium term notes
Floating rate notes
Other securities and equity
investments
Provisions
Total Overseas
Total Available-for-sale
investments

Additional Disclosure

150
-
5
-

95
-
250

138
-
1,536
26
194
81

179
-
2,154

6. 73
-
6. 86
-

5.83
-
-

7. 28
-
5. 77
4. 68
4. 53
4. 28

4. 43
-
-

504
-
75
-

190
(1)
768

12
78
215
93
27
617

349
-
1,391

6. 48
-
7. 11
-

4.68
-
-

6. 65
4. 11
5. 37
5. 59
5. 94
6. 04

6. 21
-
-

1,603
363
388
-

36
-
2,390

60
-
12
42
144
316

89
-
663

6. 21
6. 27
6. 69
-

6.00
-
-

2. 40
-
5. 86
2. 64
4. 74
5. 11

4. 50
-
-

199
161
86
-

67
-
513

-
-
-
-
-
8

-
-
8

2,404

2,159

3,053

521

6. 61
5.87
6. 65
-

6.33
-
-

-
-
-
-
-
4. 53

-
-
-

-
-
51
1,417

-
-
1,468

-
-
-
-
-
11

-
-
11

1,479

-
-
6. 74
6. 51

-
-
-

-
-
-
-
-
7. 09

-
-
-

-
-
-
-

56
-
56

-
-
-
-
-
-

-
-
-

2,456
524
605
1,417

444
(1)
5,445

210
78
1,763
161
365
1,033

617
-
4,227

9,672

Proceeds at or close to maturity of Available-for-sale investments in 2007 were: $21,891million (2006: $24,831 million).

Proceeds from sale of Available-for-sale investments in 2007 were: $728 million (2006: $646 million).

Commonwealth Bank of Australia Annual Report 2007 121

Notes to the Financial Statements

Note 12 Available-for-Sale Investments (continued)

Australia
Australian Public Securities:

Local and semi-government

Medium term notes
Floating rate notes
Mortgage backed securities
Other securities and equity investments
Provisions
Total Australia

Overseas
Government securities
Bills of exchange
Certificates of deposit
Eurobonds
Medium term notes
Floating rate notes
Other securities and equity investments
Provisions
Total Overseas
Total Available-for-sale Investments

Maturity Distribution and Weighted Average Yield

Group
At 30 June 2006

Amortised
Cost
$M

Gross
Unrealised
Gains
$M

Gross
Unrealised
Losses
$M

1,892
486
465
1,576
1,481
(22)
5,878

275
244
2,408
421
457
688
703
-
5,196
11,074

84
-
-
-
77
16
177

-
1
-
2
-
1
1
-
5
182

-
(1)
-
-
(28)
(15)
(44)

(1)
(1)
(1)
(1)
(1)
-
(3)
(1)
(9)
(53)

Fair
Value
$M

1,976
485
465
1,576
1,530
(21)
6,011

274
244
2,407
422
456
689
701
(1)
5,192
11,203

Group
Maturity Period at 30 June 2006

0 to 3 months 3 to 12 months
%

1 to 5 years
%
$M

5 to 10 years 10 years or more
%

Non-
Maturing
$M

Total
$M

Australia
Australian Public Securities:

Local and semi-
government

Medium term notes
Floating rate notes
Mortgage backed securities
Other securities and equity
investments
Provisions
Total Australia

-
17
75
-

64
(2)
154

125
160
1,660
123
20
36

-
-
2,124

2,278

-
5. 69
6. 08
-

4. 59
-
-

8. 95
2. 94
4. 62
6. 75
6. 88
4. 20

-
-
-

100
-
88
-

-
(11)
177

5. 60
-
6. 08
-

-
-
-

1,702
309
242
-

331
(6)
2,578

61 11. 29
3. 24
84
3. 90
706
5. 09
81
5. 75
24
3. 86
102

80
-
41
218
412
522

20
-
1,078

5. 50
-
-

681
-
1,954

6. 22
6. 09
6. 08
-

6. 68
-
-

2. 55
-
4. 48
5. 20
5. 66
4. 06

5. 79
-
-

108
110
-
-

19
(2)
235

8
-
-
-
-
28

-
(1)
35

1,255

4,532

270

7. 17
5. 93
-
-

7. 11
-
-

3. 04
-
-
-
-
5. 12

-
-
-

122 Commonwealth Bank of Australia Annual Report 2007

66
49
60
1,576

-
-
1,751

6. 14
6. 05
6. 08
6. 04

-
-
-
-

-
-
-

1,116
-
1,116

-
-
-
-
-
1

-
-
1

1,752

-
-
-
-
-
7. 12

-
-
-

1,976
485
465
1,576

1,530
(21)
6,011

274
244
2,407
422
456
689

701
(1)
5,192

-
-
-
-
-
-

-
-
-

1,116 11,203

Notes to the Financial Statements

Note 13 Loans, Advances and Other Receivables

Australia
Overdrafts
Housing loans (1)
Credit card outstandings
Lease financing
Bills discounted
Term loans
Redeemable preference share financing
Other lending
Other securities
Total Australia

Overseas
Overdrafts
Housing loans
Credit card outstandings
Lease financing
Bills discounted
Term loans
Redeemable preference share financing
Other lending
Other securities
Total overseas
Gross loans, advances and other receivables

Less
Provisions for impairment (Note 14):

Collective provision
Individually assessed provisions against loans and advances

Unearned income:
Term loans
Lease financing

Net loans, advances and other receivables

2007
$M

2,902
161,406
7,185
4,532
3,640
68,577
-
1,339
11
249,592

1,605
28,931
533
531
33
20,027
1,194
183
303
53,340
302,932

(1,034)
(199)

(941)
(979)
(3,153)
299,779

Group
2006
$M

2,672
144,834
6,997
4,924
2,779
56,950
1
597
-
219,754

2,435
22,287
428
139
7
15,282
1,194
8
438
42,218
261,972

2007
$M

2,902
158,068
7,185
1,324
3,640
65,777
-
989
11
239,896

34
94
-
160
33
8,742
-
147
3
9,213
249,109

Bank
2006
$M

2,672
141,121
6,997
1,352
2,779
52,579
1
949
-
208,450

-
87
-
137
7
5,730
-
-
24
5,985
214,435

(1,046)
(171)

(934)
(645)
(2,796)
259,176

(907)
(176)

(938)
(157)

(515)
(230)
(1,828)
247,281

(510)
(131)
(1,736)
212,699

(1) Includes securitised loan balances for 2007 of $15,633 million (2006: $12,607 million) in the Group and $15,164 million (2006: $9,977 million) in the Bank. Liabilities

of similar values are included in Debt Issues (Group) and due to controlled entities (Bank).

Finance Leases
Minimum lease payments receivable:

Not later than one year
Later than one year but not later than five years
Later than five years

Lease financing

2007
$M

1,462
2,583
1,018
5,063

Group
2006
$M

1,271
2,792
1,000
5,063

2007
$M

388
883
213
1,484

Bank
2006
$M

501
838
150
1,489

Commonwealth Bank of Australia Annual Report 2007 123

Notes to the Financial Statements

Note 13 Loans, Advances and Other Receivables (continued)

Australia
Government and other public authorities
Agriculture, forestry and fishing
Financial, investments and insurance
Real estate:

Mortgage (1)
Construction (2)

Personal
Lease financing
Other commercial and industrial
Total Australia

Overseas
Government and other public authorities
Agriculture, forestry and fishing
Financial, investments 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

Group
Maturity Period at 30 June 2007

Maturing 1
Year
or Less
$M

Maturing
Between 1 &
5 Years
$M

Maturing
After 5 Years
$M

281
1,123
3,802

19,200
967
9,078
1,412
21,131
56,994

123
883
2,901

3,868
307
624
50
6,704
15,460
72,454

42,177
8,929
51,106
15,910
5,438
21,348
72,454

386
1,321
1,873

11,928
860
8,689
2,404
24,031
51,492

194
1,123
2,226

3,592
68
31
179
2,695
10,108
61,600

36,482
4,904
41,386
15,012
5,202
20,214
61,600

1,103
1,555
1,498

130,278
407
485
716
5,064
141,106

219
2,160
2,320

21,471
137
5
302
1,158
27,772
168,878

97,830
5,295
103,125
42,254
23,499
65,753
168,878

Total
$M

1,770
3,999
7,173

161,406
2,234
18,252
4,532
50,226
249,592

536
4,166
7,447

28,931
512
660
531
10,557
53,340
302,932

176,489
19,128
195,617
73,176
34,139
107,315
302,932

(1) Principally owner-occupied housing. While most of these loans would have a contractual term of 20 years or more, the actual average term of the portfolio is less

than five years.

(2) Financing real estate and land development projects.

124 Commonwealth Bank of Australia Annual Report 2007

Notes to the Financial Statements

Note 13 Loans, Advances and Other Receivables (continued)

Australia
Government and other public authorities
Agriculture, forestry and fishing
Financial, investments and insurance
Real estate:

Mortgage (1)
Construction (2)

Personal
Lease financing
Other commercial and industrial
Total Australia

Overseas
Government and other public authorities
Agriculture, forestry and fishing
Financial, investments 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 (3)
Australia
Overseas
Total Fixed Interest Rates (3)
Gross Loans, Advances and Other Receivables

Group
Maturity Period at 30 June 2006

Maturing 1
Year
or Less
$M

Maturing
Between 1 &
5 Years
$M

Maturing
After 5 Years
$M

234
1,053
3,758

14,570
1,107
6,522
1,222
16,351
44,817

291
517
1,808

3,142
125
386
50
4,399
10,718
55,535

32,577
4,252
36,829
12,239
6,467
18,706
55,535

1,287
1,495
4,617

12,724
768
8,932
2,707
16,855
49,385

67
780
3,175

2,769
87
127
84
2,547
9,636
59,021

29,968
4,492
34,460
19,417
5,144
24,561
59,021

7
759
1,308

117,540
210
547
995
4,186
125,552

22
1,797
3,020

16,376
56
8
5
580
21,864
147,416

84,203
4,526
88,729
41,349
17,338
58,687
147,416

Total
$M

1,528
3,307
9,683

144,834
2,085
16,001
4,924
37,392
219,754

380
3,094
8,003

22,287
268
521
139
7,526
42,218
261,972

146,748
13,270
160,018
73,005
28,949
101,954
261,972

(1) Principally Owner-occupied housing. While most of these loans would have a contractual term of 20 years or more, the actual average term of the portfolio is less

than five years.

(2) Financing real estate and land development projects.

(3) Variable and fixed interest rates have been restated.

Commonwealth Bank of Australia Annual Report 2007 125

Notes to the Financial Statements

Note 14 Provisions for Impairment

Provisions for impairment losses
Collective provision
Opening balance (1)
Total charge against profit and loss for impairment losses
Net transfer to individually assessed provisions
Impairment losses recovered
Adjustments for exchange rate fluctuations and other items

Impairment losses written off
Closing balance

Individually assessed provisions
Opening balance (1)
Charge against profit and loss for:
New and increased provisioning
Less write-back of provisions no longer required

Net transfer from collective provision

Discount unwind to interest income

Adjustment for exchange rate fluctuations and other items
Impairment losses
Closing balance
Total provisions for loan impairment
Other credit provisions
Total provisions for impairment

2007
$M

2006
$M

1,046
434
(507)
103
9
1,085
(51)
1,034

171

523
(16)
507

(6)

(5)
(468)
199
1,233
23
1,256

1,021
398
(440)
127
(7)
1,099
(53)
1,046

191

468
(28)
440

(13)

(3)
(444)
171
1,217
24
1,241

Group
2005
$M

1,393
322
(352)
81
2
1,446
(56)
1,390

143

408
(56)
352

(3)
(335)
157
1,547
-
1,547

2007
$M

938
390
(477)
93
-
944
(37)
907

157

490
(13)
477

(6)

(3)
(449)
176
1,083
23
1,106

Bank
2006
$M

915
380
(404)
90
(1)
980
(42)
938

174

427
(23)
404

(13)

(2)
(406)
157
1,095
24
1,119

(1) The opening balance at 1 July 2005 includes the impact of adopting AASB 132, AASB 137 and AASB 139 which have not been applied to the 2005 comparatives in

accordance with AASB 1.

Coverage Ratios
Collective provision as a % of gross loans and acceptances
Collective provisions as a % of risk weighted assets
Individually assessed provisions for impairment as a % of gross
impaired assets (1)
Total provisions for impairment as % of gross impaired assets

2007
%

0. 32
0. 42

23. 8
298. 3

2006
%

0. 37
0. 48

24. 5
380. 7

Group

2005
%

-
-

23. 8
391. 6

2007
%

0. 32
0. 42

23. 8
n/a

Bank

2006
%

0. 33
0. 43

24. 5
n/a

(1) Bulk portfolio provisions of $99 million at 30 June 2007 ($91 million at 30 June 2006 and $62 million at 30 June 2005) to cover unsecured personal loan and credit
card lending have been deducted from individually assessed provisions to calculate this ratio. These provisions are deducted due to the exclusion of the related
assets from gross impaired assets. The related asset amounts are instead included in the 90 days or more past due disclosure.

126 Commonwealth Bank of Australia Annual Report 2007

Notes to the Financial Statements

Note 14 Provisions for Impairment (continued)

Total Loan Impairment Expense
The charge is required for:
Individually assessed provisioning
New and increased provisioning
Less provisions no longer required
Net individually assessed provisions
Provided from collective provisioning
Charge to profit and loss
Collective provisioning
Direct write-offs
Recoveries of amounts previously written off
Movement in collective provision
Funding of individually assessed provisions
Charge to profit and loss

2007
$M
434

523
(16)
507
(507)
-

51
(103)
(21)
507
434

2006
$M
398

468
(28)
440
(440)
-

53
(127)
32
440
398

Group
2005
$M
322

408
(56)
352
(352)
-

56
(81)
(5)
352
322

2007
$M
390

490
(13)
477
(477)
-

37
(93)
(31)
477
390

Total charge to profit and loss for Loan Impairment
expense

434

398

322

390

Individually Assessed Provisions for Impairment by Industry Category

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 individually assessed provisions

(1) Principally owner-occupied housing.

(2) Primarily financing real estate and land development projects.

2007
$M

2006
$M

-
3
2

23
1
104
-
52
185

-
-
1

4
-
1
1
7
14
199

-
4
1

19
2
97
1
42
166

-
-
1

2
-
2
-
-
5
171

Bank
2006
$M
380

427
(23)
404
(404)
-

42
(90)
24
404
380

380

Group
2005
$M

-
16
1

3
7
63
5
49
144

-
-
1

11
-
1
-
-
13
157

Commonwealth Bank of Australia Annual Report 2007 127

Notes to the Financial Statements

Note 14 Provisions for Impairment (continued)

Loan Impairments Written Off by Industry Category

Loan Impairments 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
Gross Loan Impairments written off

Loan Impairments Recovered
Australia
Overseas
Total Loan Impairments Recovered
Net Loan Impairments written off

(1) Principally owner-occupied housing.

(2) Primarily financing real estate and land development projects.

2007
$M

2006
$M

Group
2005
$M

-
3
1

20
12
409
6
58
509

-
-
-

-
-
7
-
3
10
519

99
4
103
416

1
8
1

9
5
388
6
68
486

-
-
-

-
-
7
-
4
11
497

122
5
127
370

-
1
4

8
4
280
4
83
384

-
-
-

6
-
-
-
1
7
391

76
5
81
310

128 Commonwealth Bank of Australia Annual Report 2007

Notes to the Financial Statements

Note 14 Provisions for Impairment (continued)

Loan Impairments Recovered by Industry Category

Loan Impairments Recovered
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 Loan Impairments Recovered

(1) Principally owner-occupied housing.

(2) Primarily financing real estate and land development projects.

2007
$M

2006
$M

Group
2005
$M

-
1
1

1
1
78
5
12
99

-
-
-

-
-
4
-
-
4
103

-
1
2

1
-
100
1
17
122

-
-
-

-
-
5
-
-
5
127

-
2
3

1
1
60
1
8
76

-
-
-

-
-
4
-
1
5
81

Commonwealth Bank of Australia Annual Report 2007 129

Notes to the Financial Statements

Note 15 Credit Risk Management

The Group has clearly defined credit policies for the approval
and management of credit risk. Credit underwriting standards,
which incorporate income/repayment capacity, acceptable terms
and security and loan documentation tests exist for all major
lending areas.

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
is generally
term revolving consumer credit
while short
unsecured.

A centralised exposure management system records all
significant credit risks borne by the Bank. 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.

The credit risk portfolio is divided into two segments, retail and
credit risk rated.

The retail segment is comprised of housing loan, credit card,
personal loan facilities, some leasing products and most secured
commercial lending up to $1 million. These portfolios are
managed on a delinquency band approach. The retail portfolios
are reviewed by the Business Credit Support and Monitoring unit
while the secured commercial lending is reviewed as part of the
Client Quality Assurance process and overview is provided by
the Portfolio Quality Assurance unit. Facilities in the retail
segment become classified for remedial management by
centralised units based on arrears status.

Credit risk rated exposures are comprised of commercial
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 Portfolio Quality Assurance unit, which is independent of the
business units and which reports on its findings to the Board
Risk Committee. Credit processes, including compliance with
policy and portfolio standards, and application of risk ratings, are
examined, and reported where cases of non-compliance are
observed.

Impairment of Financial Assets

Under AASB 139 impairment losses are recognised to reduce
the carrying amount of loans and advances to their estimated
recoverable amounts. Individually assessed provisions are
made against individually significant financial assets and those
that are not individually significant including groups of financial
assets with similar credit risk characteristics. The Bank creates
an individually assessed provision for impairment when there is
objective evidence that it will not be able to collect all amounts
due. The amount of the impairment is the difference between the
carrying amount and the recoverable amount, calculated as the
present value of expected cash flows, including amounts
recoverable from guarantees and collateral, discounted at the
original effective interest rate.

130 Commonwealth Bank of Australia Annual Report 2007

Therefore, interest will continue to be accrued on impaired loans
based on the revised carrying amounts and using appropriate
effective interest rates.

Risk rated portfolios are assessed at each Balance Sheet date
for objective evidence that the financial asset or portfolio of
assets is impaired. Impaired assets in the credit risk rated
segment are those facilities where an individually assessed
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. Impaired assets in the retail
segment are those 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.

The Bank creates a further “portfolio impairment” where there is
objective evidence that components of the loan portfolio contain
probable losses at the Balance Sheet date, will be identified in
the future, or where insufficient data exists to reliably determine
whether such losses exist. The estimated probable losses are
based upon historical patterns of losses. The calculation is
based on statistical methods of credit risk measurement and
takes into account current cyclical developments as well as
economic conditions in which the borrowers operate.

The occurrence of actual credit losses is erratic in both timing
and amount and those that arise usually relate to transactions
entered into in previous accounting periods. In order to make the
business ultimately accountable for any credit losses they suffer
but also to give them the incentive to align their credit risk
decisions and risk adjusted pricing with the medium term risk
profile of their credit transactions, the Bank uses the concept of
expected loss for management purposes. Expected loss is a
statistically based measure intended to reflect the annual cost
that will arise, on average, over time, from transactions that
become impaired, and is a function of the probability of default,
current and likely future exposure to the counterparty and the
likely severity of the loss should default actually occur.

The Bank uses a portfolio approach to the management of its
credit risk. A key element is a well diversified portfolio. The Bank
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 Bank is involved in credit derivative transactions,
has purchased various assets in the market, and has carried out
various asset securitisations and a Collateralised Loan
Obligation issue.

For further information about the accounting policy for provisions
for impairment see Note 1 (n).

Master Netting Arrangements

The Bank further restricts its exposure to credit losses by
entering into master netting arrangements with counterparties
with which it undertakes a significant volume of transactions.
Master netting arrangements do not generally result in an offset
of Balance Sheet assets and liabilities as transactions are
usually settled on a gross basis. However, the credit risk
associated with favourable contacts is reduced by a master
netting arrangement to the extent that if an event of default
occurs, all amounts with the counterparty are terminated and
settled on a net basis. As at 30 June 2007, master netting
arrangements reduced the credit risk by approximately $4.8
billion (2006: $3.7 billion).

Notes to the Financial Statements

Note 15 Credit Risk Management (continued)

Total Gross Credit Risk by Industry

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 Loan Impairment
Loss Rate (%) (3)

2007
$M

10,603
5,938
38,496

167,040
4,222
19,010
4,532
82,035
331,876

1,271
4,180
18,702

29,962
592
663
531
15,017
70,918

2006
$M

6,765
5,227
30,114

149,958
3,501
16,566
4,924
68,253
285,308

904
3,097
21,469

23,267
294
524
139
14,686
64,380

Group
2005
$M

7,125
5,029
38,588

134,913
2,211
14,970
5,055
54,837
262,728

1,385
3,392
18,250

21,747
346
581
195
10,667
56,563

402,794
(1,920)
400,874

349,688
(1,579)
348,109

319,291
(1,572)
317,719

434
0. 11

398
0. 11

322
0. 10

(1) Principally owner-occupied housing.

(2) Primarily financing real estate and land development projects.

(3) The loss rate is the charge as a percentage of the credit risk.

The Group has a good quality and well diversified credit
portfolio, with 49.1% of the exposure in domestic mortgage
loans and a further 14.3% in finance, investment and insurance
(primarily banks). The credit risk exposure represented by
Overseas accounts is 17.7% at $70.9 billion of which mortgage
loans account for 42.2% at $30 billion.

Overall over 67% of individually rated exposures in the
commercial portfolio (including government and finance) are of
investment grade or equivalent quality.

Commonwealth Bank of Australia Annual Report 2007 131

Notes to the Financial Statements

Note 15 Credit Risk Management (continued)
The following table sets out the Group’s credit risk by industry and asset class as at 30 June 2007.

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

Assets at
Fair Value
through
Income
Statement
$M

Available
For Sale
Investments
$M

Loans
Advances
and Other
Receivables
$M

Bank
Acceptances
of
Customers
$M

Derivatives
$M

Contingent
Liabilities
$M

3,894
-

2,456
-

1,770
3,999

439
1,811

1,049
58

995
70

Total
$M

10,603
5,938

10,193

7,173

1,445

14,828

2,007

35,687

-
-
-
-
4,924
19,011

383
-

977

-
-
-
-
1,098
2,458
21,469

-
-
-
-
2,948
5,445

210
-

161,406
2,234
18,252
4,532
50,226
249,592

536
4,166

1,841

7,447

-
-
-
-
2,176
4,227
9,672

28,931
512
660
531
10,557
53,340
302,932

-
582
633
-
13,811
18,721

-
-

-
-
-
-
-
-
18,721

-
55
3
-
2,753
18,746

62
12

5,634
1,351
122
-
7,373
17,552

167,040
4,222
19,010
4,532
82,035
329,067

80
2

1,271
4,180

3,351

2,400

16,016

-
4
-
-
172
3,601
22,347

1,031
76
3
-
1,014
4,606
22,158

29,962
592
663
531
15,017
68,232
397,299

5,412
83
402,794

Other Risk Concentrations
Receivables due from other financial institutions
Deposits with regulatory authorities
Total Gross Credit Risk

(1) Principally owner-occupied housing.

(2) Primarily financing real estate and land development projects.

Risk concentrations for contingent liabilities are based on the credit equivalent balance in Note 42 Contingent Liabilities, Assets and
Commitments. Risk concentrations for derivatives are based on the credit equivalent balance in Note 43 Market Risk.

132 Commonwealth Bank of Australia Annual Report 2007

Notes to the Financial Statements

Note 15 Credit Risk Management (continued)
The following table sets out the Group’s credit risk by industry and asset class as at 30 June 2006.

Assets at
Fair Value
through
Income
Statement
$M

Available
For Sale
Investments
$M

Loans
Advances
and Other
Receivables
$M

Bank
Acceptances
of
Customers
$M

Derivatives
$M

Contingent
Liabilities
$M

3,551
-

1,528
3,307

8
1,814

52
38

344
68

122

9,683

1,103

6,518

1,484

26,923

Total
$M

6,765
5,227

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

1,282
-

8,013

-
-
-
-
3,537
12,832

361
-

-
-
-
-
2,338
6,011

144,834
2,085
16,001
4,924
37,392
219,754

-
-

380
3,094

1,543

518

8,003

-
-
-
-
1,022
2,926
15,758

-
-
-
-
4,674
5,192
11,203

22,287
268
521
139
7,526
42,218
261,972

Other Risk Concentrations
Receivables due from other financial institutions
Deposits with regulatory authorities
Total Gross Credit Risk

(1) Principally owner-occupied housing.

(2) Primarily financing real estate and land development projects.

-
411
429
-
14,545
18,310

-
-

-
-
-
-
-
-
18,310

-
143
3
-
2,486
9,240

69
2

5,124
862
133
-
7,955
15,970

149,958
3,501
16,566
4,924
68,253
282,117

94
1

904
3,097

4,352

3,137

17,553

-
3
-
-
195
4,621
13,861

980
23
3
-
1,269
5,507
21,477

23,267
294
524
139
14,686
60,464
342,581

7,033
74
349,688

Commonwealth Bank of Australia Annual Report 2007 133

Notes to the Financial Statements

Note 15 Credit Risk Management (continued)
Impaired Assets by Industry and Status

As at 30 June 2007

Impaired
Assets
$M

Provisions
for
Impairment
$M

Total Risk
$M

Write-offs
$M

Recoveries
$M

Group

Net
Write-offs
$M

-
5
4

115
9
50
28
187
398

-
-
-

13
-
2
1
7
23
421

-
3
2

23
1
104
-
52
185

-
-
1

4
-
1
1
7
14
199

-
3
1

20
12
409
6
58
509

-
-
-

-
-
7
-
3
10
519

-
(1)
(1)

(1)
(1)
(78)
(5)
(12)
(99)

-
-
-

-
-
(4)
-
-
(4)
(103)

-
2
-

19
11
331
1
46
410

-
-
-

-
-
3
-
3
6
416

10,603
5,938
35,687

167,040
4,222
19,010
4,532
82,035
329,067

1,271
4,180
16,016

29,962
592
664
531
15,016
68,232
397,299

5,412
83
402,794

Industry

Australia
Government and public authorities
Agriculture, forestry and fishing
Financial, investment and insurance
Real estate:

Mortgage (1)
Construction (2)

Personal
Lease financing
Other commercial and industrial
Total Australia

Overseas
Government and public authorities
Agriculture, forestry and fishing
Financial, investment and insurance
Real estate:

Mortgage (1)
Construction (2)

Personal
Lease financing
Other commercial and industrial
Total Overseas
Gross Balances

Other Risk Concentrations
Receivables due from other financial institutions
Deposits with regulatory authorities
Total Gross Credit Risk

(1) Principally owner-occupied housing.

(2) Primarily financing real estate and land development projects.

134 Commonwealth Bank of Australia Annual Report 2007

Notes to the Financial Statements

Note 15 Credit Risk Management (continued)
As at 30 June 2006

Industry

Australia
Government and public authorities
Agriculture, forestry and fishing
Financial, investment and insurance
Real estate:

Mortgage (1)
Construction (2)

Personal
Lease financing
Other commercial and industrial
Total Australia

Overseas
Government and public authorities
Agriculture, forestry and fishing
Financial, investment and insurance
Real estate:

Mortgage (1)
Construction (2)

Personal
Lease financing
Other commercial and industrial
Total Overseas
Gross Balances

Other Risk Concentrations
Receivables due from other financial institutions
Deposits with regulatory authorities
Total Gross Credit Risk

(1) Principally owner-occupied housing.

(2) Primarily financing real estate and land development projects.

Impaired
Assets
$M

Provisions
for
Impairment
$M

Total Risk
$M

Write-offs
$M

Recoveries
$M

Group

Net
Write-offs
$M

-
12
2

40
7
56
12
183
312

-
1
-

6
4
2
-
1
14
326

-
4
1

19
2
97
1
42
166

-
-
1

2
-
2
-
-
5
171

1
8
1

9
5
388
6
68
486

-
-
-

-
-
7
-
4
11
497

-
(1)
(2)

(1)
-
(100)
(1)
(17)
(122)

-
-
-

-
-
(5)
-
-
(5)
(127)

1
7
(1)

8
5
288
5
51
364

-
-
-

-
-
2
-
4
6
370

6,765
5,227
26,923

149,958
3,501
16,566
4,924
68,253
282,117

904
3,097
17,553

23,267
294
524
139
14,686
60,464
342,581

7,033
74
349,688

Large Exposures

Concentrations of exposure to any debtor or counterparty group
are controlled by a large credit exposure policy. All exposures
outside the policy are approved by the Board Risk Committee.

5% to less than 10% of Group’s capital resources
10% to less than 15% of Group’s capital resources

The following table shows the aggregated number of the Bank’s
counterparty Corporate and Industrial exposures (including
direct and contingent exposures) which individually were
greater then 5% of the Group’s capital resources (Tier One and
Tier Two capital):

2007
Number
-
-

2006
Number
-
-

2005
Number
1
-

Commonwealth Bank of Australia Annual Report 2007 135

Notes to the Financial Statements

Note 15 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.

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 Loan Impairment, unearned income, interest reserved
and unearned tax remissions on leveraged leases (3)
Net Loans, Advances and Other Receivables

(1) Principally owner-occupied housing.

(2) Primarily financing real estate and land development projects.

(3) Interest reserved not recognised under AIFRS from 1 July 2005.

2007
$M

1,770
3,999
7,173

161,406
2,234
18,252
4,532
50,226
249,592

536
4,166
7,447

28,931
512
660
531
10,557
53,340
302,932

2006
$M

1,528
3,307
9,683

144,834
2,085
16,001
4,924
37,392
219,754

380
3,094
8,003

22,287
268
521
139
7,526
42,218
261,972

2005
$M

3,000
3,213
5,882

129,913
1,694
14,504
5,055
31,201
194,462

216
3,372
7,027

20,765
271
552
195
4,624
37,022
231,484

(3,153)
299,779

(2,796)
259,176

(3,138)
228,346

136 Commonwealth Bank of Australia Annual Report 2007

Notes to the Financial Statements

Note 16 Asset Quality

Impaired Assets

The Group follows the Australian disclosure requirements for
impaired assets contained in AASB 130: Disclosures in the
Financial Statements of Banks and similar Financial Institutions.

There are three classifications of impaired assets:

(a) Non Performing, comprising:

(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 terms will result
in immediate reclassification to non-performing.

• Any credit risk facility against which an individually assessed

provision for impairment has been raised;

comprising:

• Any credit risk facility maintained on a cash basis because of
significant deterioration in the financial position of the
borrower; and

• Other Real Estate Owned (“OREO”), comprising real estate
where the Group assumed ownership or foreclosed in
settlement of a debt; 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-performing. Interest on these
facilities is then only taken to profit if received in cash.

• Other Assets Acquired through Securities Enforcement
(“OAATSE”), comprising assets other than real estate where
the Group has assumed ownership or
in
settlement of a debt.

foreclosed

Impaired Asset Ratios
Gross impaired assets as a % of gross loans and acceptances
Net impaired assets as % of:
Gross loans and acceptances
Total Shareholders’ Equity

2007
%

0. 13

0. 07
0. 91

2006
%

0. 11

0. 06
0. 73

Group
2005
%

0. 16

0. 09
0. 97

Commonwealth Bank of Australia Annual Report 2007 137

Notes to the Financial Statements

Note 16 Asset Quality (continued)

Impaired Assets

Australia
Non-Performing loans:

Gross balances
Less provisions for impairment
Net Non-Performing Loans

Restructured loans:
Gross balances
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-Performing loans
Gross balances
Less provisions for impairment
Net Non-Performing Loans

Restructured loans:
Gross balances
Less specific provisions
Net Restructured Loans

Asset Acquired Through Security Enforcement (AATSE)

Gross Balance
Less provisions for impairment
Net AATSE
Net overseas impaired assets

Total Net Impaired Assets

2007
$M

2006
$M

398
(185)
213

-
-
-

-
-
-
213

23
(14)
9

-
-
-

-
-
-
9

312
(166)
146

-
-
-

-
-
-
146

14
(5)
9

-
-
-

-
-
-
9

Group
2005
$M

362
(144)
218

-
-
-

-
-
-
218

14
(13)
1

-
-
-

-
-
-
1

222

155

219

138 Commonwealth Bank of Australia Annual Report 2007

Notes to the Financial Statements

Note 16 Asset Quality (continued)

Movement in Impaired Asset Balances

Gross Impaired Assets

Gross impaired assets at beginning of period
New and increased
Balances written off
Returned to performing or repaid
Gross Impaired Assets at Period End

2007
$M
326
928
(482)
(351)
421

2006
$M
395
745
(450)
(364)
326

Group
2005
$M
363
769
(350)
(387)
395

The following amounts comprising loans less than $250,000 are reported in accordance with regulatory returns to APRA. They are not
classified as impaired assets and therefore not included within the above impaired assets summary.

Loans Accruing but Past Due 90 Days or More (Consumer segment)

Housing loans
Other loans
Total

Net Interest Forgone on Impaired Assets

Australia non-performing facilities
Overseas non-performing facilities
Total Interest Forgone

Interest Taken to Profit on Impaired Assets

Australia
Non-performing facilities
Restructured facilities
Overseas
Non-performing facilities
Other real estate owned
Total Interest Taken to Profit

2007
$M
198
144
342

2007
$M
5
-
5

2006
$M
155
137
292

2006
$M
11
-
11

2007
$M

2006
$M

7
-

-
-
7

11
-

-
-
11

Group
2005
$M
183
119
302

Group
2005
$M
13
-
13

Group
2005
$M

9
-

-
-
9

Commonwealth Bank of Australia Annual Report 2007 139

Notes to the Financial Statements

Note 16 Asset Quality (continued)
Impaired Assets – Non Performing Loans

Australia
2007
$M

Overseas
2007
$M

Total
2007
$M

Australia
2006
$M

Overseas
2006
$M

Non-Performing Loans
With provisions
Without provisions
Net balances
Less provisions for impairment
Net Non-Performing Loans

Restructured Loans
Gross balances
Less provisions for impairment
Net Restructured Loans

Other Real Estate Owned (“OREO”) (1)
Gross balances
Less provisions for impairment
Net OREO

Other Assets Acquired Through Security
Enforcement (“OAATSE”) (1)
Gross balances
Less provisions for impairment
Net OAATSE

Total Impaired Assets
Gross balances
Less provisions for impairment
Net Impaired Assets

Non-Performing Loans by Size of Loan
Less than $1 million
$1 million to $10 million
Greater than $10 million
Total

Performing Loans 90 days past due or more (2)

235
163
398
(185)
213

-
-
-

398
(185)
213

194
151
53
398

279

15
8
23
(14)
9

-
-
-

23
(14)
9

14
9
-
23

250
171
421
(199)
222

172
140
312
(166)
146

-
-
-

421
(199)
222

208
160
53
421

342

-
-
-

312
(166)
146

140
125
47
312

250

10
4
14
(5)
9

-
-
-

14
(5)
9

11
3
-
14

Group
Total
2006
$M

182
144
326
(171)
155

-
-
-

326
(171)
155

151
128
47
326

292

(1) Other real estate owned and other assets acquired through security enforcement are sold through the Group’s existing disposal processes. These processes are

expected to take no longer than six months.

(2) Comprising loans less than $250,000 in accordance with regulatory returns to APRA. They are not classified as Impaired Assets and therefore are not included

within Impaired Assets.

140 Commonwealth Bank of Australia Annual Report 2007

Notes to the Financial Statements

Note 17 Shares in and Loans to Controlled Entities

Shares in controlled entities
Loans to controlled entities
Total Shares in and Loans to Controlled Entities

2007
$M
23,311
14,201
37,512

Bank
2006
$M
21,619
14,531
36,150

Note 18 Investment Property

Investment Property

Investment property which backs liabilities paying a return linked
directly to the property’s fair value is measured at fair value
through profit and loss. The fair value is based on valuations
performed by an independent valuer who holds a recognised
and
recent
experience in the location and category of the investment
property being valued.

relevant professional qualification and has

2007
$M
-

Group
2006
$M
258

2007
$M
-

Bank
2006
$M
-

This investment represents a 50% interest in a long-term
freehold lease over property which is currently classified as an
asset held for sale in Note 22.

Amounts recognised in profit and loss relating to investment property

Rental income (1)
Net gains or losses from fair value adjustments (1)
Direct operating expenses (2)
Total

(1) This income is disclosed as part of Other operating income – Other in Note 2.

(2) This expense is disclosed as part of Other operating income – Other in Note 2.

Investment Property (reconciliation)

Opening balance
Net gains or losses from fair value adjustments
Assets reclassified to assets held for sale
Closing balance

2007
$M
15
23
(2)
36

2007
$M
258
23
(281)
-

Group
2006
$M
17
6
(2)
21

Group
2006
$M
252
6
-
258

Commonwealth Bank of Australia Annual Report 2007 141

Notes to the Financial Statements

Note 19 Property, Plant and Equipment

Land and Buildings
Land

At 30 June 2007 valuation
At 30 June 2006 valuation
Closing balance

Buildings

At 30 June 2007 valuation
At 30 June 2006 valuation
Closing balance

Total Land and Buildings

Leasehold Improvements

At cost
Provision for depreciation
Closing balance

Equipment
At cost
Provision for depreciation
Closing balance

Assets under Lease

At cost
Provision for depreciation
Closing balance

2007
$M

Group
2006
$M

2007
$M

Bank
2006
$M

215
-
215

361
-
361
576

822
(441)
381

891
(565)
326

189
(36)
153

-
199
199

-
288
288
487

732
(416)
316

794
(505)
289

238
(17)
221

193
-
193

333
-
333
526

691
(387)
304

606
(366)
240

51
(9)
42

-
182
182

-
263
263
445

633
(362)
271

511
(301)
210

100
-
100

Total Property, Plant and Equipment (1)

1,436

1,313

1,112

1,026

(1) Assets held for sale has been separately disclosed in Note 22.

Land and buildings are carried at fair value based on independent valuations performed in 2007, refer Note 1 (s). Under the cost model
these assets would have been recognised at the carrying amount outlined in the table below.

Carrying Amount of Land and Buildings under the Cost Model:

Land
Buildings

Total Land and Buildings

2007
$M

115
245
360

Group
2006
$M

125
225
350

2007
$M

109
229
338

Bank
2006
$M

122
210
332

142 Commonwealth Bank of Australia Annual Report 2007

Notes to the Financial Statements

Note 19 Property, Plant and Equipment (continued)
Reconciliation of movements in the carrying amount of Property, Plant and Equipment.

Reconciliation

Land
Opening balance
Acquisitions
Disposals/transfers to Assets held for sale
Disposals
Net revaluations
FX translation adjustment
Closing balance

Buildings
Opening balance
Acquisitions
Acquisitions attributed to business combinations
Disposals/transfers to Assets held for sale
Disposals
Net revaluations
Depreciation
FX translation adjustment
Closing balance

Leasehold Improvements
Opening balance
Acquisitions
Acquisitions attributed to business combinations
Disposals
Transfers
Depreciation
FX translation adjustment
Closing balance

Equipment
Opening balance
Adjustment to opening balance
Acquisitions
Disposals/transfers
Depreciation
FX translation adjustment
Closing balance

Assets Under Lease
Opening balance
Acquisitions
Disposals/transfers
Depreciation
Closing balance

2007
$M

Group
2006
$M

2007
$M

Bank
2006
$M

199
-
(9)
(3)
26
2
215

288
52
-
(11)
(2)
53
(22)
3
361

316
122
-
(4)
-
(59)
6
381

289
-
139
(12)
(97)
7
326

221
1
(47)
(22)
153

174
9
5
(6)
20
(3)
199

293
39
2
(13)
(7)
(1)
(22)
(3)
288

293
87
9
(6)
(7)
(56)
(4)
316

249
(1)
136
(13)
(77)
(5)
289

116
114
-
(9)
221

182
-
(9)
(3)
24
(1)
193

263
51
-
(11)
(1)
51
(21)
1
333

271
83
-
(3)
-
(47)
-
304

210
-
107
(9)
(67)
(1)
240

100
1
(47)
(12)
42

159
8
5
(6)
17
(1)
182

257
35
-
1
(6)
(3)
(21)
-
263

245
77
-
(5)
-
(46)
-
271

153
(1)
109
-
(51)
-
210

-
100
-
-
100

Commonwealth Bank of Australia Annual Report 2007 143

Notes to the Financial Statements

Note 20 Intangible Assets

Intangible Assets
Goodwill
Computer software costs
Management fee rights
Other
Total Intangible Assets

Goodwill
Purchased goodwill – Colonial
Purchased goodwill – other
Total Goodwill

Computer Software Costs
Cost
Accumulated amortisation
Total Computer Software Costs

Management Fee Rights (1)
Cost
Total Management Fee Rights

Other
Cost
Accumulated amortisation
Total Other

Goodwill (reconciliation)
Opening balance
Additions
Impairment
Closing balance

Computer Software Costs (reconciliation)
Opening balance
Additions:

From purchases
From internal development

Amortisation
Closing balance

Management Fee Rights (reconciliation)
Opening balance
Additions

From acquisitions

Closing balance

Other (reconciliation)
Opening balance
Additions:

From acquisitions

Amortisation
Closing balance

2007
$M

7,163
297
311
64
7,835

6,705
458
7,163

420
(123)
297

311
311

85
(21)
64

7,200
3
(40)
7,163

229

20
110
(62)
297

311

-
311

3
(8)
64

Group
2006
$M

7,200
229
311
69
7,809

6,705
495
7,200

290
(61)
229

311
311

82
(13)
69

7,214
7
(21)
7,200

182

-
90
(43)
229

224

87
311

39
(6)
69

2007
$M

2,522
262
-
4
2,788

2,229
293
2,522

377
(115)
262

-
-

4
-
4

2,522
-
-
2,522

212

19
90
(59)
262

-
-

-
-
4

Bank
2006
$M

2,522
212
-
4
2,738

2,229
293
2,522

268
(56)
212

-
-

4
-
4

2,522
-
-
2,522

153

-
95
(36)
212

-
-

4
-
4

(1) Management fee rights have an indefinite useful life under the contractual terms of the management agreements and are subject to an annual valuation for

impairment testing purposes. No impairment was required as a result of this valuation.

144 Commonwealth Bank of Australia Annual Report 2007

Notes to the Financial Statements

Note 20 Intangible Assets (continued)

Segment Allocation of Goodwill

Segment
Banking (1)
Funds Management (2)
Insurance (2)
Total

2007
$M
4,360
2,230
573
7,163

Group
2006
$M
4,360
2,267
573
7,200

(1) The allocation to Banking includes goodwill related to the acquisitions of Colonial, State Bank of Victoria and 25% of ASB Bank.

(2) The allocation to Funds Management and Insurance principally related to the goodwill on acquisition of Colonial.

Impairment Tests for Goodwill and Intangible Assets with Indefinite Lives

Goodwill has been allocated for impairment testing purposes to
cash-generating units in the following business segments:
Banking, Funds Management and Insurance. Under AASB 136
a cash-generating unit to which goodwill has been allocated is
tested for impairment annually.

Whenever the cash-generating unit is impaired, the carrying
amounts containing goodwill are written down
the
recoverable amount that has been determined based on net
selling price less costs to sell, using an earnings multiple
applicable to that type of business, or actuarial assessment.

Australian
Retail Banking
$M
4,149

Funds
Management
(Excluding
Property)
$M
2,152

Funds
Management
(Property)
$M
78

Australian
Life
Insurance
$M
131

New Zealand
Banking
$M
211

New Zealand
Life Insurance
$M
442

Carrying amount of goodwill

Group
At 30 June 2007

Key Assumptions Used in Selling Price less Cost to Sell Calculations

the Group’s Banking and
Earnings multiples relating
Australian Life
Insurance and Funds Management cash-
generating units are sourced from publicly available data
associated with valuations performed on recent businesses
displaying similar characteristics to those cash-generating units,
and are applied to current earnings.

The key assumptions used when completing the actuarial
assessment included new business multiples, discount rates,
investment market returns, mortality, morbidity, persistency and
expense inflation. These have been determined by reference to
historical company and
industry experience and publicly
available data.

The New Zealand Life Insurance cash-generating unit is valued
via an actuarial assessment.

Note 21 Other Assets

Accrued interest receivable
Defined benefit superannuation plan surplus
Accrued fees/reimbursements receivable
Securities sold not delivered
Intragroup current tax receivable
Current tax assets
Other
Total Other Assets

Note

2007
$M
2,091
1,813
832
1,144
-
122
1,155
7,157

Group
2006
$M
1,346
1,228
669
1,088
-
-
810
5,141

2007
$M
1,893
1,813
581
632
352
-
1,515
6,786

Bank
2006
$M
1,329
1,228
385
659
217
-
806
4,624

Commonwealth Bank of Australia Annual Report 2007 145

Notes to the Financial Statements

Note 22 Assets Held for Sale

Available-for-sale investments (1)
Loans, advances and other receivables (1)
Investment property (2)
Property, plant and equipment
Total Assets Held for Sale

2007
$M
765
306
281
22
1,374

Group
2006
$M
-
-
-
1
1

2007
$M
-
-
-
21
21

Bank
2006
$M
-
-
-
1
1

(1) During the year ended 30 June 2007 the Group purchased through Colonial First State a 32% stake in AWG plc. The stake was acquired through the purchase of
preference shares and Eurobonds that on acquisition were classified as Assets Held for Sale ($1.3 billion) as the Group intends to dispose of its holding into
Australian and European based infrastructure funds within the next 12 months.

Until sold, the Eurobonds are being measured on the same basis as Loans, advances and other receivables, while the preference shares are being measured on the
same basis as Available-for-sale investments.

Since acquisition the Group has sold down $189 million worth of Eurobonds and preference shares.

(2) This investment property is measured in accordance with the Group’s policy for investment property backing liabilities that pay a return linked directly to its fair value.

Note 23 Deposits and Other Public Borrowings

Australia
Certificates of deposit
Term deposits
On demand and short term deposit
Deposits not bearing interest
Securities sold under agreements to repurchase
Total Australia

Overseas
Certificates of deposit
Term deposits
On demand and short term deposits
Deposits not bearing interest
Securities sold under agreements to repurchase
Total Overseas
Total Deposits and Other Public Borrowings

Maturity Distribution of Certificates of Deposit and Time Deposits

2007
$M

20,165
50,888
93,994
6,662
3,323
175,032

903
16,416
9,183
1,818
30
28,350
203,382

Group
2006
$M

18,185
43,210
81,547
5,872
1,380
150,194

959
13,790
7,088
1,166
30
23,033
173,227

2007
$M

20,165
49,454
93,970
6,660
3,323
173,572

903
4,245
94
30
100
5,372
178,944

Bank
2006
$M

18,185
41,611
83,913
5,876
1,380
150,965

959
3,922
71
9
30
4,991
155,956

Group
At 30 June 2007

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

Maturing
Three Months
or Less
$M

Maturing
Between Three
& Six Months
$M

Maturing
Between Six &
Twelve Months
$M

Maturing
After
Twelve Months
$M

15,195
29,200
44,395

610
10,467
11,077
55,472

2,342
7,887
10,229

56
2,984
3,040
13,269

1,806
11,797
13,603

202
2,522
2,724
16,327

822
2,004
2,826

35
443
478
3,304

Total
$M

20,165
50,888
71,053

903
16,416
17,319
88,372

(1) All certificates of deposit issued by the Bank are for amounts greater than $100,000.

146 Commonwealth Bank of Australia Annual Report 2007

Notes to the Financial Statements

Note 24 Payables Due to Other Financial Institutions

Australia
Overseas
Total Payables due to Other Financial Institutions

2007
$M
4,208
10,178
14,386

Group
2006
$M
3,354
7,830
11,184

2007
$M
4,210
10,112
14,322

Bank
2006
$M
3,353
7,778
11,131

Note 25 Liabilities at Fair Value through Income Statement

Deposits and other borrowings (1)
Debt instruments (1)
Trading liabilities
Total Liabilities at Fair Value through Income Statement

2007
$M
6,687
8,779
3,965
19,431

Group
2006
$M
6,153
5,573
2,085
13,811

2007
$M
-
241
4,965
5,206

Bank
2006
$M
-
-
2,085
2,085

(1) Designated at Fair Value through Income Statement at inception as they are managed by the Group on a fair value basis. Designating these liabilities at Fair Value

through Income Statement has also eliminated an accounting mismatch created by measuring assets and liabilities on a different basis.

The change in fair value of financial liabilities designated at Fair Value through Income Statement was predominantly attributable to
changes in the benchmark interest rate.

The increment on top of the carrying amount that the Group would be contractually required to pay at maturity to the holder of these
financial liabilities is $77 million (2006: $99 million).

Note 26 Income Tax Liability

Australia
Current tax liability
Deferred tax liability (Note 5)
Total Australia

Overseas
Current tax liability
Deferred tax liability (Note 5)
Total Overseas
Total Income Tax Liability

2007
$M

866
1,181
2,047

16
395
411
2,458

Group
2006
$M

368
1,234
1,602

10
102
112
1,714

2007
$M

797
712
1,509

3
19
22
1,531

Bank
2006
$M

329
640
969

5
-
5
974

Commonwealth Bank of Australia Annual Report 2007 147

2007
$M

281
186
95
26
94
83
6
107
878

2007
$M

37
15
(26)
26

85
56
(47)
94

90
25
(32)
83

-
-
-
-

71
66
(30)
-
107

Group
2006
$M

280
186
66
37
85
90
6
71
821

Group
2006
$M

18
37
(18)
37

100
32
(47)
85

66
26
(2)
90

91
(46)
(45)
-

82
59
(66)
(4)
71

2007
$M

267
163
90
26
-
82
7
99
734

2007
$M

37
15
(26)
26

-
-
-
-

87
25
(30)
82

-
-
-
-

60
63
(24)
-
99

Bank
2006
$M

267
167
66
37
-
87
6
60
690

Bank
2006
$M

18
37
(18)
37

-
-
-
-

66
23
(2)
87

91
(46)
(45)
-

41
54
(35)
-
60

General Insurance Claims

This provision is to cover future claims on general insurance
contracts that have been incurred but not reported.

Self Insurance and Non-Lending Losses

This provision covers certain non-lending losses and non-
transferred insurance risk. The provision is reassessed annually
in consultation with actuarial advice.

Notes to the Financial Statements

Note 27 Other Provisions

Provision for:
Long service leave
Annual leave
Other employee entitlements
Restructuring costs
General insurance contract outstanding claims
Self insurance/non-lending losses
Dividends
Other
Total Other Provisions

Note

Reconciliation

Restructuring costs:
Opening balance
Additional provisions
Amounts utilised during the year
Closing balance

General insurance claims:
Opening balance
Additional provisions
Amounts utilised during the year
Closing balance

Self insurance/non-lending losses:
Opening balance
Additional provisions
Amounts utilised during the year
Closing balance

Which new Bank costs:
Opening balance
Transfers
Amounts utilised during the year
Closing balance

Other:
Opening balance
Additional provisions
Amounts utilised during the year
FX translation adjustment
Closing balance

Provision Commentary

Restructuring costs

This provision was raised to provide for formally identified and
planned Group restructures and is expected to be utilised by the
end of the 2008 financial year.

148 Commonwealth Bank of Australia Annual Report 2007

Note 28 Debt Issues

Short Term Debt Issues
Long Term Debt Issues
Total Debt Issues

Short Term Debt Issues
AUD Promissory Notes
AUD Bank Bills
AUD Commercial Paper
US Commercial Paper
Euro Commercial Paper
Other
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)
Develop Australia bonds (all AUD)
Eurobonds
Total Long Term Debt Issues

Maturity Distribution of Debt Issues
Less than three months
Between three months to 12 months
Between one year and five years
Greater than five years
Total Debt Issues

Notes to the Financial Statements

2007
$M
27,315
58,175
85,490

523
505
2,828
7,793
1,581
4
14,081
27,315

30,675
10,918
3,062
3,071
6,876
148
-
3,425
58,175

9,698
17,617
35,259
22,916
85,490

Group
2006
$M
22,838
55,753
78,591

1,081
505
-
6,861
4,248
6
10,137
22,838

29,475
12,479
1,785
4,088
5,102
147
217
2,460
55,753

8,138
14,700
40,874
14,879
78,591

2007
$M
10,288
37,472
47,760

-
-
459
837
917
4
8,071
10,288

20,403
3,629
3,062
2,477
6,852
148
-
901
37,472

4,767
5,521
23,546
13,926
47,760

Bank
2006
$M
11,034
41,164
52,198

-
-
-
-
4,248
6
6,780
11,034

27,172
4,232
1,785
2,084
4,897
147
-
847
41,164

5,640
5,394
30,428
10,736
52,198

The Bank’s debt issues include a Euro Medium Term Note
program under which it may issue notes up to an aggregate
amount outstanding of USD 50 billion. The Bank also has a US
Medium Term Note program under which it may issue notes up
to an aggregate amount outstanding of USD 15 billion. Notes
issued under debt programs are both fixed and variable rate.
Interest rate risk associated with the notes is incorporated within
the Bank’s interest rate risk framework.

Subsequent to 30 June 2007, notable debt issuances of the
Bank under these specified programs include:

• USD medium term notes: between one and five years – USD
49 million (AUD 58 million); greater than five years – USD
242 million (AUD 285 million);

• CHF medium term notes: between one and five years – CHF

200 million (AUD 191 million);

• EUR medium term notes: greater than five years – EUR 2.5

million (AUD 4 million);

• JPY medium term notes: between one and five years – JPY
20 billion (AUD 192 million); greater than five years – JPY
14 billion (AUD 135 million);

• SGD medium term notes: between one and five years –

SGD 4 million (AUD 3 million); and

•

ILS medium term notes: greater than five years – ILS 97
million (AUD 27 million).

Where any debt issue is booked in an offshore branch or
subsidiary, the amounts have first been converted into the
functional currency of the branch at a branch defined exchange
rate, before being converted into the AUD equivalent.

Where proceeds have been employed in currencies other than
that of the ultimate repayment liability, swaps or other risk
management arrangements have been entered into.

Commonwealth Bank of Australia Annual Report 2007 149

Notes to the Financial Statements

Note 28 Debt Issues (continued)

Short Term Borrowings

The following table analyses the Group’s short term borrowings for the financial years ended 30 June 2007, 2006 and 2005.

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

AUD Commercial Paper
Outstanding period end (1) (3)
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

2007

2006

Group
2005

(AUD Millions, except where indicated)

7,793
10,438
7,953

5. 3%
5. 3%

1,581
1,581
940

4. 2%
4. 7%

3,955
9,619
7,413

6. 3%
6. 4%

6,861
13,717
9,754

4. 4%
5. 2%

4,248
4,441
3,177

4. 4%
5. 2%

1,592
2,665
1,880

6. 3%
6. 4%

10,661
10,698
10,341

1. 2%
1. 5%

4,976
6,146
3,800

2. 2%
2. 8%

1,838
2,110
1,790

5. 8%
5. 7%

(1) The amount outstanding at period end is reported on a book value basis (amortised cost).

(2) 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 differences

between face value and book value would not be material given the short term nature of the borrowings.

(3) Other short term borrowings have been included in AUD Commercial Paper for the purposes of this analysis.

Exchange Rates Utilised

AUD 1.00 =

Currency

USD
EUR
GBP
JPY
NZD
HKD
CAD
CHF
ILS
SGD

As At
30 June
2007
0. 8497
0. 6319
0. 4241
104. 889
1. 102
6. 6426
0. 8987
1. 0470
3. 6054
1. 3023

As At
30 June
2006
0. 7428
0. 5848
0. 4053
85. 276
1. 214
5. 7698
0. 8247
0. 9167
3. 3042
1. 1796

150 Commonwealth Bank of Australia Annual Report 2007

Notes to the Financial Statements

• The CDBL’s liabilities continue to remain guaranteed by the

Commonwealth of Australia; and

• CDBL ceased to write new business or incur additional
liabilities from 1 July 1996. From that date, new business
that would have previously been written by CDBL is being
written by the rural arm of the Bank.

The due payment of all monies payable by CDBL to a person
other than the Commonwealth of Australia 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 of Australia
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 (also known as Colonial State Bank)

The enabling legislation for the sale of the State Bank of New
South Wales Limited (SBNSW), the State Bank (Privatisation)
Act 1994 – Section 12 and the State Bank (Corporatisation) Act
1989 – Section 12 (as amended), provides in general terms for
a guarantee by the NSW Government in respect of all funding
liabilities and off-balance sheet products (other than demand
deposits) incurred or issued prior to 31 December 1997 by
SBNSW until maturity and a guarantee for demand deposits
accepted by SBNSW up to 31 December 1997. Other
obligations incurred before 31 December 1994 are also
guaranteed to their maturity. On 4 June 2001 Commonwealth
Bank of Australia became the successor in law to SBNSW
pursuant to the Financial Sector Transfer of Business Act 1999.
The NSW Government guarantee of the liabilities and products
as described above continues unchanged by the succession.

Note 28 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 Banks Act 1959 (as amended) at 30
June 1996. This guarantee has been progressively phased out
following
the Commonwealth of Australia’s
shareholding in the Bank on 19 July 1996.

the sale of

transitional arrangements

The
the
Commonwealth of Australia’s guarantee are contained in the
Commonwealth Bank Sale Act 1995.

for phasing out

In relation to the Commonwealth of Australia’s guarantee of the
Bank’s liabilities, transitional arrangements provided that:

• All demand deposits and term deposits were guaranteed for
a period of three years from 19 July 1996, with term deposits
outstanding at the end of that three year period being
guaranteed until maturity; and

• All other amounts payable under a contract that was entered
into, or under an instrument executed, issued, endorsed or
accepted by the Bank at 19 July 1996 will be guaranteed
until their maturity.

Accordingly, demand deposits are no longer guaranteed. Term
deposits outstanding at 19 July 1999 remain guaranteed until
maturity. The run-off of the Government guarantee has no effect
on the Bank’s access to deposit markets.

Commonwealth Development Bank

On 24 July 1996, the Commonwealth of Australia sold its 8.1%
shareholding in the Commonwealth Development Bank of
Australia Limited (CDBL) to the Bank for $12.5 million.

Under the arrangements relating to the purchase by the Bank of
the Commonwealth of Australia’s shareholding in the CDBL:

• All

lending assets as at 30 June 1996 have been
quarantined in CDBL, consistent with the charter terms on
which they were written;

Note 29 Managed Funds Units on Issue

Managed funds units on issue

2007
$M

310

Group
2006
$M

1,109

2007
$M

Bank
2006
$M

Managed funds units on issue represents the liability to minority interest unit holders in funds which have been consolidated by the
Group.

Commonwealth Bank of Australia Annual Report 2007 151

Notes to the Financial Statements

Note 30 Bills Payable and Other Liabilities

Note

2007
$M
978
1,949
1,794
29
1,519
1,077
7,346

Group
2006
$M
830
1,587
1,408
65
1,097
1,066
6,053

2007
$M
800
1,710
1,322
29
981
1,524
6,366

Bank
2006
$M
773
1,408
1,057
65
655
341
4,299

Bank
2005
$M

49
124
131
719
-
-
-

2007
$M

44
84
118
647
750
1,166
824

2006
$M

50
96
135
740
750
1,166
942

3,633

3,879

1,023

275
25
353
191
-
-
286
-
412
354
300
200
95
588
300
475
71
318
95
300
334
48
235
-
200
353
765
350
150

275
25
404
235
539
493
352
-
471
370
300
200
117
673
300
513
81
288
117
300
364
59
269
-
-
-
-
-
-

275
25
549
216
501
408
387
130
536
373
300
200
127
711
300
501
126
322
-
-
-
-
-
-
-
-
-
-
-

2007
$M

44
84
118
647
750
1,166
-

2006
$M

50
96
135
740
750
1,166
-

2,809

2,937

275
25
353
191
-
-
286
-
412
354
300
200
95
588
300
475
71
318
95
300
334
48
235
166
200
353
765
350
150

275
25
404
235
539
493
352
-
471
370
300
200
117
673
300
513
81
288
117
300
364
59
269
151
-
-
-
-
-

Group
2005
$M

49
124
131
-
-
-
-

304

275
25
549
216
501
408
387
130
536
373
300
200
127
711
300
501
126
322
-
-
-
-
-
-
-
-
-
-
-

7,239

6,896

5,987

7,073

6,745

5,987

(48)
10,000

62
9,895

-
6,291

(284)
10,422

64
10,688

-
7,010

Bills payable
Accrued interest payable
Accrued fees and other items payable
Defined benefit superannuation plan deficit
Securities purchased not delivered
Other liabilities
Total Bills Payable and Other Liabilities

Note 31 Loan Capital

Currency
Amount (M) Footnotes

USD38
USD71
USD100
USD550
AUD750

FRN
FRN
FRN
TPS
PERLS II
PERLS III AUD1,166
TPS

USD700

Tier One Loan Capital
Exchangeable
Exchangeable
Undated
Undated
Undated
Undated
Undated
Total Tier One Loan
Capital
Tier Two Loan Capital
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
Subordinated
Subordinated
Subordinated
Total Tier Two Loan
Capital

FRN
FRN
Notes
EMTN
EMTN
EMTN
EMTN
Notes
Notes
EMTN
MTN
FRN
EMTN
EMTN
FRN
EMTN
EMTN
Notes
EMTN
FRN
EMTN
Loan
EMTN
Notes
FRN
EMTN
EMTN
FRN
MTN

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

(10)

(11)

(12)

(13)

(14)

(15)

(16)

(17)

(18)

(19)

(20)

(21)

(22)

(23)

(24)

(25)

(26)

(27)

(28)

(29)

(30)

(31)

(32)

(33)

(34)

AUD275
AUD25
USD300
JPY20,000
USD400
GBP200
JPY30,000
AUD130
USD350
GBP150
AUD300
AUD200
JPY10,000
USD500
AUD300
EUR300
USD61
NZD350
JPY10,000
AUD300
CAD300
JPY5,000
USD200
NZD183
AUD200
USD300
USD650
AUD350
AUD150

Fair value hedge and
effective yield
adjustments
Total Loan Capital

152 Commonwealth Bank of Australia Annual Report 2007

Note 31 Loan Capital (continued)

(1) USD 300 million undated Floating Rate Notes (FRNs) issued
11 July 1988 exchangeable into dated FRNs.

Outstanding notes at 30 June 2007 were:

Undated:

USD 37.5 million

(2) USD 400 million undated FRNs issued 22 February 1989
exchangeable into dated FRNs.

Outstanding notes at 30 June 2007 were:

Due February 2008:

USD 7 million

Due February 2011:

USD 64 million

(3) USD 100 million undated capital notes issued on 15 October
1986.

The Bank has entered into separate agreements with the
Commonwealth of Australia relating to each of the above issues
(the “Agreements”) which qualify the issues as Tier One capital.

The Agreements provide that, upon the occurrence of certain
events listed below, the Bank may issue either fully paid ordinary
shares to the Commonwealth of Australia or (with the consent of
the Commonwealth of Australia) rights to all Shareholders to
subscribe for fully paid ordinary shares up to an amount equal to
the outstanding principal value of the relevant note issue or
issues plus any interest paid in respect of the notes for the most
recent financial year and accrued interest. The issue price of
such shares will be determined by reference to the prevailing
market price for the Bank’s shares.

Any one or more of the following events may trigger the issue of
shares to the Commonwealth of Australia or a rights issue:

• A relevant event of default (discussed below) occurs in
respect of a note issue and the Trustee of the relevant notes
gives notice to the Bank that the notes are immediately due
and payable;

• The most recent audited annual Financial Statements of the

Group show a loss (as defined in the Agreements);

• The Bank does not declare a dividend in respect of its

ordinary shares;

• The Bank, if required by the Commonwealth of Australia and
subject to the agreement of the APRA, exercises its option to
redeem a note issue; or

•

In respect of Undated FRNs which have been exchanged to
Dated FRNs, the Dated FRNs mature.

Any payment made by the Commonwealth of Australia pursuant
to its guarantee in respect of the relevant notes will trigger the
issue of shares to the Commonwealth of Australia to the value of
such payment.

The relevant events of default differ depending on the relevant
Agreement. In summary, they cover events such as failure of the
Bank to meet its monetary obligation in respect of the relevant
notes; the insolvency of the Bank; any law being passed to
dissolve the Bank or the Bank ceasing to carry on general
Banking business in Australia; and the Commonwealth of
Australia ceasing to guarantee the relevant notes. In relation to
Dated 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.

Notes to the Financial Statements

(4) TPS 2003

Each trust preferred security represents a beneficial ownership
interest in the assets of CBA Capital Trust. The sole assets of
CBA Capital Trust are the funding preferred securities issued by
CBA Funding Trust, which represent preferred beneficial
ownership interests in the assets of CBA Funding Trust, and a
limited CBA guarantee.

CBA Funding Trust applied all of the proceeds from the sale of
the funding preferred securities to purchase the convertible
notes from the Bank’s New Zealand Branch.

The trust preferred securities provide for a semi-annual cash
distribution in arrears at the annual rate of 5.805%. The
distributions on the trust preferred securities are non-cumulative.
CBA Capital Trust’s ability to pay distributions on the trust
preferred securities is ultimately dependent upon the ability of
CBA to make interest payments on the convertible notes.

The Bank’s New Zealand branch will make interest payments on
the convertible notes only if and when declared by the Board of
Directors of CBA. The Board of Directors is not permitted, unless
approved by APRA, to declare interest.

If interest is not paid on the convertible notes on an interest
payment date, holders will not receive a distribution on the trust
preferred securities and, unless at the time of the non-payment
the Bank is prevented by applicable law from issuing the CBA
preference shares, convertible notes will automatically convert
into CBA preference shares, which will result in mandatory
redemption of trust preferred securities for American Depository
Shares (“ADS”).

No later than 35 business days prior period to June 30, 2015,
holders may deliver a notice to CBA requiring it to exchange
each trust preferred security for CBA ordinary shares. The Bank
may satisfy the obligation to deliver ordinary shares in exchange
for the trust preferred securities by either delivering the
applicable number of ordinary shares or by arranging for the
sale of the trust preferred securities at par and delivering the
proceeds to the holder. Subject to the approval of APRA,
holders may exchange trust preferred securities for the Bank’s
ordinary shares earlier than June 30, 2015 if, prior to that date, a
takeover bid or scheme of arrangement in relation to a takeover
has occurred.

If CBA Capital Trust is liquidated, dissolved or wound up and its
assets are distributed, for each trust preferred security owned,
the holder is entitled to receive the stated liquidation amount of
US $1,000, plus the accrued but unpaid distribution for the then
current distribution period. Holders may not receive the full
amount payable on liquidation if CBA Capital Trust does not
have enough funds.

The trustees of CBA Capital Trust can elect to dissolve CBA
Capital Trust and distribute the funding preferred securities if at
any time certain changes in tax law or other tax-related events or
the specified changes in US investment Company law occur.

Neither the trust preferred securities nor the funding preferred
securities can be redeemed at the option of their holders. Other
than in connection with an acceleration of the principal of the
convertible notes upon the occurrence of an event of default,
neither the trust preferred securities nor the funding preferred
securities are repayable in cash unless the Bank’s New Zealand
branch, at its sole option, redeems the convertible notes.

Commonwealth Bank of Australia Annual Report 2007 153

Notes to the Financial Statements

Note 31 Loan Capital (continued)

The Bank’s New Zealand branch may redeem the convertible
notes for cash: before 30 June 2015, in whole, but not in part,
and only if the specified changes in tax law or other tax-related
events, the specified changes in US investment Company law
and‚ changes in the "Tier One'' regulatory capital treatment of
the convertible notes, or certain corporate transactions involving
a takeover bid or a scheme of arrangement in relation to a
takeover described in this offering memorandum occur; and at
any time on or after 30 June 2015. The Bank’s New Zealand
branch must first obtain the approval of APRA to redeem the
convertible notes for cash.

CBA guarantees:

• Semi-annual distributions on the funding preferred securities
by CBA Funding Trust to CBA Capital Trust to the extent
CBA Funding Trust has funds available for distribution;

• Semi-annual distributions on the trust preferred securities by
CBA Capital Trust to the extent CBA Capital Trust has funds
available for distribution;

• The redemption amount due to CBA Capital Trust if CBA
Funding Trust is obligated to redeem the funding preferred
securities for cash and to the extent CBA Funding Trust has
funds available for payment;

• The redemption amount due if CBA Capital Trust is obligated
to redeem the trust preferred securities for cash and to the
extent CBA Capital Trust has funds available for payment;

• The delivery of ADSs to CBA Capital Trust by CBA Funding
Trust if CBA Funding Trust is obligated to redeem the
funding preferred securities for ADSs and to the extent that
CBA Funding Trust has ADSs available for that redemption;

• The delivery of ADSs by CBA Capital Trust if CBA Capital
Trust is obligated to redeem the trust preferred securities for
ADSs and to the extent that CBA Capital Trust has ADSs
available for that redemption;

• The delivery of funding preferred securities by CBA Capital
Trust upon dissolution of CBA Capital Trust as a result of a
tax event or an event giving rise to a more than insubstantial
risk that CBA Capital Trust is or will be considered an
investment Company which is required to be registered
under the Investment Company Act;

• The payment of the liquidation amount of the funding
preferred securities if CBA Funding Trust is liquidated, to the
extent that CBA Funding Trust has funds available after
payment of its creditors; and

• The liquidation amount of the trust preferred securities if CBA
Capital Trust is liquidated, to the extent that CBA Capital
Trust has funds available after payment of its creditors.

The CBA guarantee does not cover the non-payment of
distributions on the funding preferred securities to the extent that
CBA Funding Trust does not have sufficient funds available to
pay distributions on the funding preferred securities.

Trust preferred securities have limited voting rights.

Trust preferred securities have the right to bring a direct action
against the Bank if:

• The Bank’s New Zealand branch does not pay interest on or
the redemption price of the convertible notes to CBA Funding
Trust in accordance with their terms;

• The Bank’s New Zealand branch does not deliver ADSs
representing CBA preference shares to CBA Funding Trust
in accordance with the terms of the convertible notes;

154 Commonwealth Bank of Australia Annual Report 2007

• The Bank does not perform its obligations under its
guarantees with respect to the trust preferred securities and
the funding preferred securities; or

• The Bank does not deliver cash or ordinary shares on 30

June 2015.

(5) 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 (“CMIL”) issued $750m of Perpetual
Exchangeable Resettable Listed Securities (“PERLS II”). These
securities qualify as Tier One capital of the Bank. These
securities are units in a registered managed investments
scheme, perpetual in nature, offering a non-cumulative floating
rate distribution payable quarterly. The Distributions paid to
PERLS II Holders are sourced from interest paid on the
Convertible Notes issued by the Bank (through its New Zealand
Branch) to CMIL.

The Distribution Rate is a floating rate calculated as the Bank Bill
Swap Rate plus a margin of 0.95% multiplied by (1- Australian
corporate tax rate).

The Bank expects Distributions to be fully franked. If CMIL gives
notice that a Distribution in any Distribution Period will not be
fully franked, PERLS II Holders may elect to exchange their
PERLS II on the next Distribution Date.

If any Distribution is not paid in full within 20 Business Days after
a Distribution Date, the Bank must not pay any interest, declare
or pay any dividend or distribution from the income or capital of
the Bank, return any capital or undertake any Buy-backs,
redemptions or repurchases in relation to any securities of the
Bank that rank equally for interest payments or distributions with,
or junior to, any Capital Securities of the Bank that rank equally
with PERLS II unless and until either:

• Four consecutive Distributions are paid in full;

• The Bank (with the approval of APRA) and CMIL have paid
PERLS II Holders an amount or amounts (in aggregate)
equal to their full distribution entitlements for four consecutive
Distribution Periods; or

• PERLS II Holders pass a Special Resolution approving the
payment, dividend, distribution, capital return, Buy-back,
redemption or repurchase.

The first Rollover Date will be 15 March 2009. On this date and
each subsequent Rollover Date, the Bank can reset some of the
terms of its Convertible Notes including the Margin over BBSW.

PERLS II Holders may request that their PERLS II be
exchanged on the Rollover Date. PERLS II Holders who do not
request exchange will be deemed to have accepted the new
terms offered.

In addition to exchange on a rollover date, PERLS II Holders
may request that each PERLS II be exchanged:

• Upon the occurrence of a Change of Control Event; or

•

If CMIL gives notice that a Distribution will not be fully franked
for any Distribution Period.

On exchange, at the Bank’s election, PERLS II Holders will
receive for their PERLS II, one or a combination of the following
alternatives:

• The number of Ordinary Shares determined as set out

below; or

• $200 cash (subject to APRA approval).

Note 31 Loan Capital (continued)

The Bank, subject to APRA approval, may exchange some or all
of the PERLS II, at its election, for Ordinary Shares or $200 cash
for each PERLS II:

(i) on a Rollover Date;

(ii) if a Regulatory Event or Tax Event occurs;

(iii) if the Responsible Entity is removed or retires as responsible
entity of the Trust and the Bank has not given its consent to the
change of the responsible entity;

(iv) if PERLS II Holders requisition a meeting to approve an
amendment to the Constitution or to remove the Responsible
Entity as responsible entity of the Trust and the Bank has not
given its consent to such amendment or change of responsible
entity;

(v) if the ability of the Responsible Entity to redeem PERLS II is
impaired or removed; or

(vi) if the aggregate Face Value of PERLS II is less than $50
million.

PERLS II will automatically exchange for Ordinary Shares if:

• A Default Event occurs; or
• An APRA Event occurs.
PERLS II Holders will be entitled to vote at any meeting of
Unitholders of the Trust. PERLS II do not have voting rights at
any meeting of the Bank.

(6) PERLS III

On 6 April 2006 a wholly owned entity of the Bank (Preferred
Capital Limited)
issued $1,166 million of Perpetual
Exchangeable Repurchaseable Listed Shares (PERLS III).
PERLS III are preference shares in a special purpose Company,
(the ordinary shares of which are held by the Bank), perpetual in
nature, offering a non-cumulative floating rate distribution
payable quarterly. The shares qualify as Tier One capital of the
Bank.

The Dividends paid to PERLS III Holders will be primarily
sourced from interest paid on the Convertible Notes issued by
CBA NZ to PCL. The payment of interest on the underlying
Convertible Notes and Dividends on PERLS III are not
guaranteed and are subject to a number of conditions including
the availability of profits and the Board (of the Bank in relation to
Convertible Note interest, or of PCL in relation to PERLS III
Dividends) resolving to make the payment.

The Dividend Rate is a floating rate calculated for each Dividend
Period as the sum of the Margin per annum plus the Market
Rate per annum multiplied by (One – Tax Rate). The Initial
Margin is 1.05% over Bank Bill Swap Rate and the Step-up
Margin, effective from the “Step-up Date” on 6 April 2016, is the
Initial Margin plus 1.00% per annum.

If each PERLS III Holder is not paid a dividend in full within 20
Business Days of the Dividend Payment Date, the Bank is
prevented from paying any interest, dividends or distributions, or
undertaking certain other transactions, in relation to any
securities of the Bank that rank for interest payments or
distributions equally with, or junior to, the Convertible Notes or
Bank PERLS III Preference Shares. This Dividend Stopper
applies until an amount in aggregate equal to the full dividend on
PERLS III for four consecutive dividend periods has been paid to
PERLS III Holders.

Notes to the Financial Statements

PERLS III will automatically exchange for Bank PERLS III
Preference Shares:

• On a failure by PCL to pay a Dividend;
• At any time at the Bank’s discretion; or
• 10 Business Days before the Conversion Date
Subject to APRA approval, PCL may elect to exchange PERLS
III for the Conversion Number of Bank Ordinary Shares or $200
cash for each PERLS III:

• On the Step-up Date or any Dividend Payment Date after the

Step-up Date; or

If a Regulatory Event or Tax Event occurs

•
PERLS III will automatically exchange for Bank Ordinary Shares
if:

• An APRA Event occurs;
• A Default Event occurs; or
• A Change of Control Event occurs.
PERLS III will be automatically exchanged for Bank PERLS III
Preference Shares no later than 10 Business Days prior to 6
April 2046 (if they have not been exchanged before that date).

Holders are not entitled to request exchange or redemption of
PERLS III or Bank PERLS III Preference Shares.

Holders of PERLS III are entitled to vote at a general meeting of
PCL on certain issues. PERLS III holders have no rights at any
meeting of the Bank.

(7) TPS 2006

On 15 March 2006 a wholly owned entity of the Bank issued
USD 700 million (AUD 942 million) of perpetual non-call 10 year
trust preferred securities into US Capital Markets.

Each trust preferred security represents a preferred beneficial
ownership interest in the assets of CBA Capital Trust II. The
trust preferred securities are guaranteed by CBA. The trust
preferred securities form part of the Bank’s Tier One capital.

CBA Capital Trust II is a statutory trust established under
Delaware law that exists for the purpose of issuing the trust
preferred securities, acquiring and holding the subordinated
notes issued by a CBA NZ subsidiary, the subordinated notes
guarantee and the CBA preference shares.

Cash distributions on the trust preferred securities are at the
fixed rate of 6.024% payable semi-annually to 15 March 2016.
Cash distributions on the trust preferred securities will accrue at
the rate of LIBOR plus 1.740% per annum payable quarterly in
arrears after that date.

Cash distributions on the trust preferred securities will be limited
to the interest CBA NZ Sub pays on the subordinated notes,
payments in respect of interest on the subordinated notes by
CBA NZ Branch as guarantor under the subordinated notes
guarantee and, after 15 March 2016, the dividends CBA pays on
the CBA preference shares. Payments in respect of cash
distributions will be guaranteed on a subordinated basis by CBA,
as guarantor, but only to extent CBA Capital Trust II has funds
sufficient for the payment

There are restrictions on CBA NZ Sub’s ability to make
payments on the subordinated notes, CBA NZ Branch’s ability to
make payments on the CBA NZ Branch notes and the
subordinated notes guarantee and CBA’s ability to make
payments on the CBA preference shares. Distributions on the
trust preferred securities are not cumulative.

Commonwealth Bank of Australia Annual Report 2007 155

Notes to the Financial Statements

Note 31 Loan Capital (continued)

Failure to pay in full a distribution within 21 business days will
result in the distribution to holders of one CBA preference share
for each trust preferred security held in redemption of the trust
preferred securities.

If CBA Capital Trust II is liquidated, dissolved or wound up and
its assets are distributed, for each trust preferred security,
holders are entitled to receive the stated liquidation amount of
US$1,000, plus the accrued but unpaid distribution for the then
current distribution payment period, after it has paid liabilities it
owes to its creditors.

The trust preferred securities are subject to redemption for cash,
qualifying Tier One securities or CBA preference shares if CBA
redeems or varies the terms of the CBA preference shares. The
trust preferred securities are also subject to redemption if any
other assignment event occurs.

If the CBA preference shares are redeemed for qualifying Tier
One securities or the terms thereof are varied, holders will
receive one CBA preference share or US$1,000 liquidation
amount or similar amount of qualifying Tier One securities for
each trust preferred security held.

Holders of trust preferred securities generally will not have any
voting rights except in limited circumstances.

The holders of a majority in liquidation amount of the trust
preferred securities, acting together as a single class, however,
have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the property trustee
of CBA Capital Trust II or direct the exercise of any trust or
power conferred upon the property trustee of CBA Capital Trust
II, as holder of the subordinated notes and the CBA preference
shares.

Trust preferred securities holders have the right to bring a direct
action against:

• CBA NZ Sub if CBA NZ Sub does not pay when due interest
on the subordinated notes or certain other amounts payable
under the subordinated notes to CBA Capital Trust II in
accordance with their terms;

• The Bank if it does not perform its obligations under the trust

guarantee; and

• CBA NZ Branch or the Bank if CBA NZ Branch does not
the subordinated notes

perform
guarantee or under the CBA NZ Branch notes.

its obligations under

The Bank will guarantee the trust preferred securities:

• Cash distributions on the trust preferred securities by CBA
Capital Trust II to holders of trust preferred securities on
distribution payment dates, to the extent CBA Capital Trust II
has funds available for distribution;

• The cash redemption amount due to holders of trust
preferred securities if CBA Capital Trust II is obligated to
redeem the trust preferred securities for cash, to the extent
CBA Capital Trust II has funds available for distribution;

• The delivery of CBA preference shares or qualifying Tier One
securities to holders of trust preferred securities if CBA
Capital Trust II is obligated to redeem the trust preferred
securities for CBA preference shares or qualifying Tier One
securities, to the extent CBA Capital Trust II has or is entitled
to receive such securities available for distribution; and

• The payment of the liquidation amount of the trust preferred
securities if CBA Capital Trust II is liquidated, to the extent
that CBA Capital Trust II has funds available for distribution.

156 Commonwealth Bank of Australia Annual Report 2007

trust guarantee does not cover

to pay
The
distributions or make other payments or distributions on the trust
preferred securities to the extent that CBA Capital Trust II does
not have sufficient funds available to pay distributions or make
other payments or deliveries on the trust preferred securities.

failure

the

Upon the occurrence of an assignment event, with respect to the
subordinated notes comprising a part of the units CBA Capital
Trust II holds to which such assignment event applies:

• The subordinated notes will detach from the CBA preference
shares that are part of those units and automatically be
transferred to CBA;

•

If the assignment event is the cash redemption of CBA
preference shares, upon receipt, CBA Capital Trust II will pay
to the holders of the trust preferred securities called for
redemption the cash redemption price for those CBA
preference shares and the accrued and unpaid interest on
the subordinated notes that were part of the units with those
CBA preference shares;

for each US$1,000

If the assignment event is not the cash redemption of CBA
preference shares, CBA Capital Trust II will deliver to all
holders of trust preferred securities in redemption thereof one
CBA preference share
liquidation
preference of trust preferred securities to be redeemed or, if
qualifying Tier One securities are delivered, US$1,000
liquidation amount or similar amount of qualifying Tier One
securities for each US$1,000 liquidation amount of trust
preferred securities to be redeemed, and the CBA preference
shares or qualifying Tier One securities will accrue non-
cumulative dividends or similar amounts at the rate of
6.024% per annum to but excluding March 15, 2016 and at
the rate of LIBOR plus 1.740% per annum thereafter.

If the Bank is liquidated, holders of CBA preference shares will
be entitled to receive an amount equal to a liquidation
preference out of surplus assets of US$1,000 per CBA
preference share plus accrued and unpaid dividends for the then
current dividend payment period plus any other dividends or
other amounts to which the holder is entitled under the
Constitution.

Subject to APRA’s prior approval, prior to the occurrence of an
assignment event that applies to all of the subordinated notes,
the Bank may pay an optional dividend on the CBA preference
shares if CBA NZ Sub or CBA NZ Branch, as guarantor, has
failed to pay in full interest on the subordinated notes or the
Bank has failed to pay in full dividends on the CBA preference
shares on any interest payment date and/or dividend payment
date.

On or after 15 March 2016, the Bank may redeem the CBA
preference shares for cash, in whole or in part, on any date
selected by us at a redemption price equal to US$1,000 per
share plus any accrued and unpaid dividends for the then
current dividend payment period, if any.

Prior to 15 March 2016, the Bank may redeem the CBA
preference shares for cash, vary the terms of the CBA
preference shares or redeem the CBA preference shares for
qualifying Tier One securities, in whole but not in part, on any
date selected by the Bank:

•

If the CBA preference shares are held by CBA Capital Trust
II, upon the occurrence of a trust preferred securities tax
event, an adverse tax event, an investment Company event
or a regulatory event; or

If the CBA preference shares are not held by CBA Capital
Trust II, upon the occurrence of a preference share
withholding tax event, an adverse tax event or a regulatory
event.

Notes to the Financial Statements

Note 31 Loan Capital (continued)

Holders of CBA preference shares will be entitled to vote
together with the holders of our ordinary shares on the basis of
one vote for each CBA preference share:

•

• During a period in which a dividend (or part of a dividend) in

respect of the CBA preference shares is in arrears;

• On a proposal to reduce share capital;

• On a proposal that affects rights attached to the CBA

preference shares;

• On a resolution to approve the terms of a Buy-back

agreement;

• On a proposal for the disposal of the whole of the Group’s

property, business and undertaking; and

• On a proposal to wind up and during the winding up of the

•

Group.

The rights attached to the CBA preference shares may not be
changed except with any required regulatory approvals and with
the consent in writing of the holders of at least 75% of the CBA
preference shares.

CBA NZ Sub may not make payments on the subordinated
notes, CBA NZ Branch may not make payments on the
subordinated notes guarantee or the CBA NZ Branch notes and
CBA may not make payments on the CBA preference shares if
an APRA condition exists; if a CBA stopper resolution has been
passed and not been rescinded or if CBA NZ Sub, CBA NZ
branch or CBA, as the case may be, is prohibited from making
such a payment by instruments or other obligations of CBA.

If distributions, interest or dividends are not paid in full on a
payment date; the redemption price is not paid or securities are
not delivered in full on a redemption date for the trust preferred
securities or the CBA preference shares, then the Bank may not
pay any interest; declare or pay any dividends or distributions
from the income or capital of CBA, or return any capital or
undertake any buy-backs, redemptions or repurchases of
existing capital securities or any securities, or instruments of
CBA that by their terms rank or are expressed to rank equally
with or junior to the CBA NZ Branch notes or the CBA
preference shares for payment of interest, dividends or similar
amounts unless and until,

•

In the case of any non-payment of distributions on the trust
preferred securities on any distribution payment date, on or
within 21 business days after any distribution payment date,
CBA Capital Trust II or CBA, as guarantor, has paid in full to
the holders of the trust preferred securities any distributions
owing in respect of that distribution payment date through the
date of actual payment in full;

In the case of any non-payment of a dividend on the CBA
preference shares on any dividend payment date, CBA has
paid (A) that dividend in full on or within 21 business days
after that dividend payment date, (B) an optional dividend
equal to the unpaid amount of scheduled dividends for the 12
consecutive calendar months prior to the payment of such
dividend or (C) dividends on the CBA preference shares in
full on each dividend payment date during a 12 consecutive
month period;

interest on

the case of any non-payment of

In
the
subordinated notes on any interest payment date, (A) on or
within 21 business days after any interest payment date, (i)
CBA NZ Sub or CBA NZ Branch, as guarantor, has paid in
full to the holders of the subordinated notes any interest and
other amounts owing in respect of that interest payment date
(excluding defaulted note interest) through the date of actual
payment in full or (ii) with the prior approval of APRA, CBA
has paid in full to holders of the subordinated notes an
assignment prevention optional dividend in an amount equal
to such interest and any other amounts, or (B) CBA has paid
dividends on the CBA preference shares in full on each
dividend payment date during a 12 consecutive month
period; and

In the case of any non-payment of the redemption price or
non-delivery of the securities payable or deliverable with
respect to CBA preference shares or the trust preferred
securities, such redemption price or securities have been
paid or delivered in full, as applicable.

then there are restrictions on the Bank paying any interest on
equal ranking or junior securities.

(8) AUD 275 million extendible floating rate note issued
December 1989, due December 2014;

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. The
Agreement provides for the Bank to issue either fully paid
ordinary shares to the Commonwealth of Australia or (with the
consent of the Commonwealth of Australia) rights to all
Shareholders to subscribe for fully paid ordinary shares up to an
amount equal to the outstanding principal value of the note issue
plus any interest paid in respect of the notes for the most recent
financial year and accrued interest. The issue price will be
determined by reference to the prevailing market price for the
Bank’s shares.

Any one or more of the following events will trigger the issue of
shares to the Commonwealth of Australia or a rights issue:

• A relevant event of default occurs in respect of the note issue
and, where applicable, the Trustee of the notes gives notice
of such to the Bank;

• 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

• Any payment made by the Commonwealth of Australia
pursuant to its guarantee in respect of the issue will trigger
the issue of shares to the Commonwealth of Australia to the
value of such payment.

Original issue size was $300 million; $25 million matured in
December 2004.

(9) AUD 25 million subordinated FRN, issued April 1999, due
April 2029.

(10) USD 300 million subordinated notes, issued June 2000, due
June 2010.

Commonwealth Bank of Australia Annual Report 2007 157

Notes to the Financial Statements

Note 31 Loan Capital (continued)

(11) JPY 20 billion perpetual subordinated EMTN, issued
February 1999.

(12) USD 400 million subordinated EMTN, issued June 1996,
matured July 2006.

(13) GBP 200 million subordinated EMTN, issued March 1996,
matured December 2006.

(14) JPY30 billion subordinated EMTN, issued October 1995 due
October 2015.

(15) AUD 130 million subordinated notes comprised as follows:
AUD 10 million fixed rate notes issued 12 December 1995,
matured 12 December 2005. AUD 110 million floating rate notes
issued 12 December 1995, matured 12 December 2005. AUD
five million fixed rate notes issued 17 December 1996, matured
12 December 2005. AUD five million floating rate notes issued
17 December 1996, matured 12 December 2005.

(16) USD 350 million subordinated fixed rate note, issued June
2003, due June 2018.

(17) GBP 150 million subordinated EMTN, issued June 2003, due
December 2023.

(18) AUD 500 million subordinated notes, issued February 2004,
due February 2014; split into AUD 300 million fixed rate notes
and AUD 200 million floating rate notes.

(19) JPY 10 billion subordinated EMTN, issued May 2004, due
May 2034.

(20) USD 500 million subordinated EMTN issued June 2004 (USD
250 million) and August 2004 (USD 250 million), due August
2014.

(21) AUD 300 million subordinated floating rate notes, issued
February 2005, due February 2015.

(22) EUR 300 million subordinated EMTN, issued March 2005,
due March 2015.

(23) USD 100 million subordinated EMTN, issued March 2005,
due March 2025. Partial redemption of USD 39.5 million in
September 2005.

(24) NZD 350 million subordinated notes, issued May 2005, due
April 2015.

(25) JPY 10 billion subordinated notes, issued November 2005,
due November 2015.

(26) AUD 300 million subordinated floating rate notes, issued
November 2005, due November 2015.

(27) CAD 300 million subordinated notes, issued November 2005,
due November 2015.

(28) JPY5 billion subordinated loan, issued March 2006, due
March 2018.

(29) USD 200 million subordinated notes, issued June 2006, due
July 2016.

(30) NZD 183 million subordinated notes issued June 2006, due
June 2016.

(31) AUD 200 million subordinated floating rate notes, issued
September 2006, due September 2016.

(32) USD 300 million subordinated floating rate notes, issued
September 2006, due September 2016.

(33) USD 650 million subordinated floating rate notes, issued
December 2006, due December 2016.

(34) AUD 500 million subordinated notes, issued May 2007, due
May 2017; split into AUD 150 million fixed rate notes and AUD
350 million floating rate notes.

158 Commonwealth Bank of Australia Annual Report 2007

Notes to the Financial Statements

Note 32 Detailed Statements of Changes in Equity

Equity Reconciliations
Ordinary Share Capital
Opening balance
Buy back of shares
Dividend reinvestment plan
Exercise of executive options under employee share ownership schemes
(Purchase)/sale and vesting of treasury shares (1)
Issue costs
Closing balance

Other Equity Instruments
Opening balance
Issue of instruments
Issue costs
Closing balance

Retained Profits
Opening balance
Actuarial gains and losses from defined benefit superannuation plans
Realised gains and dividend income on treasury shares held within the Group’s
life insurance statutory funds (1)
Operating profit attributable to Equity holders of the Bank

Total available for appropriation
Transfers (to)/from general reserve
Transfers (to)/from general reserve for credit losses
Interim dividend – cash component
Interim dividend – dividend reinvestment plan
Final dividend – cash component
Final dividend – dividend reinvestment plan
Other dividends
Closing balance

2007
$M

13,505
-
818
19
141
-
14,483

939
-
-
939

4,487
414

45
4,470

9,416
54
-
(862)
(518)
(1,368)
(300)
(55)
6,367

Group

2006
$M

13,486
(500)
481
50
(10)
(2)
13,505

-
947
(8)
939

3,063
387

85
3,928

7,463
(239)
(92)
(992)
(219)
(1,172)
(262)
-
4,487

2007
$M

13,766
-
818
19
88
-
14,691

1,895
-
-
1,895

4,472
414

-
4,477

9,363
-
-
(862)
(518)
(1,368)
(300)
-
6,315

Bank

2006
$M

13,739
(500)
481
50
(2)
(2)
13,766

-
1,895
-
1,895

2,555
387

-
4,267

7,209
-
(92)
(992)
(219)
(1,172)
(262)
-
4,472

(1) Relates to movement in treasury shares held within life insurance statutory funds and the employee share scheme trust.

Commonwealth Bank of Australia Annual Report 2007 159

Notes to the Financial Statements

Note 32 Detailed Statements of Changes in Equity (continued)

Reserves
General Reserve
Opening balance
Appropriation (to)/from retained profits
Closing balance
Capital Reserve
Opening balance
Reversal of revaluation surplus on sale of property
Closing balance
Asset Revaluation Reserve
Opening balance
Revaluation of properties
Transfers on sale of properties
Tax on revaluation of properties
Closing balance
Foreign Currency Translation Reserve
Opening balance
Currency translation adjustments of foreign operations
Transfer to the Income Statement on disposal
Tax on translation adjustments
Closing balance
Cash Flow Hedge Reserve
Opening balance
Gains and losses on cash flow hedging instruments:

Recognised in equity
Transferred to Income Statement
Tax on cash flow hedging instruments
Closing balance
Employee Compensation Reserve
Opening balance
Current period movement
Closing balance
General Reserve for Credit Losses (1)
Opening balance
Appropriation from retained profits
Closing balance
Available-for-Sale Investments Reserve
Opening balance
Net gains and losses on available-for-sale investments
Net gains and losses on available-for-sale investments transferred to Income
Statement on disposal
Impairment of available-for-sale investments transferred to Income Statement
Tax on available-for-sale investments
Closing balance
Total Reserves

Shareholders’ Equity attributable to Equity holders of the Bank
Shareholders’ Equity attributable to Minority Interests
Total Shareholders’ Equity

2007
$M

1,221
(54)
1,167

285
2
287

131
79
(2)
(23)
185

(241)
54
-
(13)
(200)

429
120
(168)
440

34
(85)
(51)

350
-
350

65
28

(138)
-
10
(35)
2,143

23,932
512
24,444

Group
2006
$M

982
239
1,221

282
3
285

119
19
(3)
(4)
131

(63)
(232)
41
13
(241)

89
(58)
(11)
59

23
11
34

258
92
350

56
51

(33)
(3)
(6)
65
1,904

20,835
508
21,343

2007
$M

570
-
570

1,536
2
1,538

107
75
(2)
(23)
157

(6)
(119)
-
(1)
(126)

125
167
(87)
211

34
(85)
(51)

350
-
350

60
18

(119)
-
14
(27)
2,622

25,523
-
25,523

Bank
2006
$M

570
-
570

1,533
3
1,536

99
14
(3)
(3)
107

2
(8)
-
-
(6)

58
(51)
(2)
6

23
11
34

258
92
350

35
52

(31)
(3)
7
60
2,657

22,790
-
22,790

(1) While the Group is required to maintain a Prudential General Reserve for Credit Losses (“GRCL”) to cover credit losses estimated over the life of portfolio facilities, from 1
July 2006 the Australian prudential regulator, APRA, no longer requires banks to maintain a minimum provisioning benchmark of 0.5% (after tax) of risk weighted assets.
The Group’s GRCL within Shareholders’ Equity, which is over and above APRA requirements, has been retained as part of the Prudential General Reserve for Credit
Losses for prudential reporting purposes.

160 Commonwealth Bank of Australia Annual Report 2007

Notes to the Financial Statements

Note 33 Share Capital

Issued and Paid Up Ordinary Capital

Ordinary Share Capital
Opening balance (excluding Treasury Shares deduction)
Dividend Reinvestment Plan: Final Dividend prior year
Dividend Reinvestment Plan: Interim Dividend
Share buy-back
Exercise of executive options under employee share ownership schemes
Issue costs
Closing balance (excluding Treasury Shares deduction)
Less Treasury Shares
Closing balance

Shares on Issue
Opening balance (excluding Treasury Shares deduction)
Dividend reinvestment plan issues:
2004/2005 Final Dividend fully paid ordinary shares at $37.19
2005/2006 Interim Dividend fully paid ordinary shares at $43.89
2005/2006 Final Dividend fully paid ordinary shares at $45.24
2006/2007 Interim Dividend fully paid ordinary shares at $50.02
Share buy-back
Exercise of executive options under employee share ownership schemes
Closing balance (excluding Treasury Shares deduction)
Less: Treasury Shares
Closing balance

Terms and Conditions of Ordinary Share Capital

2007
$M

13,901
300
518
-
19
-
14,738
(255)
14,483

Group
2006
$M

13,872
262
219
(500)
50
(2)
13,901
(396)
13,505

2007
$M

13,901
300
518
-
19
-
14,738
(47)
14,691

Bank
2006
$M

13,872
262
219
(500)
50
(2)
13,901
(135)
13,766

1,282,904,909 1,280,276,172 1,282,904,909 1,280,276,172

-
-
6,638,553
10,343,514
-
696,400

7,032,857
4,979,668
-
-
(11,139,988)
1,756,200

7,032,857
4,979,668
-
-
(11,139,988)
1,756,200
1,300,583,376 1,282,904,909 1,300,583,376 1,282,904,909
(2,353,514)
1,292,971,632 1,271,819,651 1,299,385,361 1,280,551,395

-
-
6,638,553
10,343,514
-
696,400

(11,085,258)

(1,198,015)

(7,611,744)

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.

PERLS Redemption

On 6 April 2006, the Bank redeemed the $700 million PERLS. PERLS, which qualified as Tier One capital of the Bank, were replaced with
PERLS III, refer Note 31.

Other Equity Instruments

Other equity instruments issued and paid up

2007
$M
939

Group
2006
$M
939

2007
$M
1,895

Bank
2006
$M
1,895

Shares
700,000

Shares
1,400,000

Trust Preferred Securities 2006

On 15 March 2006 the Bank issued USD 700 million ($947 million) of trust preferred securities into the US capital markets. These
securities offer a non-cumulative fixed rate of distribution of 6.024% per annum payable semi-annually. These securities qualify as Tier
One Capital of the Bank. A related instrument was issued by the Bank to a subsidiary for $956 million and eliminates on consolidation.

Commonwealth Bank of Australia Annual Report 2007 161

to support business

• Growth in net profit after tax (NPAT) less cost of capital; and

Notes to the Financial Statements

Note 33 Share Capital (continued)

Dividends

The Directors have declared a fully franked final dividend of 149
cents per share amounting to $1,939 million. The dividend will
be payable on 5 October 2007 to Shareholders on the register at
5pm on 24 August 2007.

The Board determines the dividends per share based on net
profit after tax (“cash basis”) per share, having regard to a range
of factors including:

• 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;
•

Investments and/or divestments
development; and

• Periodic accounting volatility due to the application of “AASB
139 Financial Instruments: Recognition and Measurement”.

Dividends paid since the end of the previous financial year:

• As declared in the 31 December 2006 Profit Announcement,
a fully franked interim dividend of 107 cents per share
amounting to $1,380 million was paid on 5 April 2007. The
payment comprised cash disbursements of $862 million with
$518 million being reinvested by participants through the
Dividend Reinvestment Plan.

Dividend Reinvestment Plan

The Bank expects to issue around $485 million of shares in

respect of the Dividend Reinvestment Plan for the final dividend

for 2006/07.

Record Date

The register closed for determination of dividend entitlement and
for participation in the dividend reinvestment plan at 5pm on 24
August 2007 at Link Market Services Limited, Locked Bag A14,
Sydney South, 1235.

Ex-dividend Date

The ex-dividend date was 20 August 2007.

Employee Share Plans

The Group had the following employee share plans in place
during the year ended 30 June 2007:

• 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 current ESAP and ERP arrangements 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 2000 meeting to ensure Shareholders were
fully informed.

Changes Since 2006

During the year the Group reviewed its long term incentive
arrangements and decided to cease operation of the ERP.

162 Commonwealth Bank of Australia Annual Report 2007

To strengthen the alignment between Shareholder interests and
executives who previously participated in the ERP, one third of
their STI payments will be deferred into Bank shares for three
years under the Leadership Incentive Share Plan (LISP), with
the first deferral commencing on 1 July 2007. The LISP
arrangement is governed by the Rules of the EPP.

From 1 July 2007 the CEO and Group Executives will receive
long term incentives under the new Group Leadership Rights
Plan (GLRP). The GLRP will provide participants with the
opportunity to share in a pool of performance rights at the end of
the three year measurement period. Participation will generally
be limited to the CEO and Group Executives. The total value
available for distribution at the end of the performance period will
be determined by two performance hurdles:

• The Group’s customer satisfaction ranking compared to the

other four major Australian banks.

A percentage of the growth in the Group’s NPAT less cost of
capital over the three year measurement period will be available
to vest. The pool will be zero if our NPAT growth is not above
average peer NPAT growth over the performance period.

The proportion of the pool that vests will be determined by the
Group’s customer satisfaction ranking compared to ANZ, NAB,
St George and Westpac.

Further details of the GLRP and the LISP are available in the
Remuneration Report.

Employee Share Acquisition Plan (“ESAP”)

The ESAP was introduced in 1996 and provides employees with
the opportunity to receive up to $1,000 worth of free shares each
year if the Group meets the required performance target. The
performance target is growth in annual profit of the greater of 5%
or the consumer price index (CPI change) 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 through the profit and loss. On 3
September 2006, 519,435 shares were granted to 24,735
eligible employees in respect of the 2006 ESAP grant.

The Issue Price for the offer is equal to the volume weighted
average of the prices at which the CBA shares were traded on
the ASX during the 5 trading day period up to and including the
grant date. For the 2006 grant, this was $45.92.

The Group has determined to allocate each eligible employee
shares up to a value of $1,000 in respect of the 2007 grant. As a
result, a total expense of $27 million will be accrued by the grant
date in respect of the 2007 grant, $23 million of which has been
accrued during the 2007 financial year. The shares will be
purchased on-market at the prevailing market price.

Notes to the Financial Statements

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.

Shares acquired under the EPP have been expensed against
the profit and loss account. In the current year, $7 million was
expensed against the profit and loss account to reflect the cost
of allocations under the Plan.

All shares acquired by employees under the EPP are purchased
on-market at the current market price. A total number of
8,269,570 shares have been acquired under the EPP since the
plan commenced in 2001.

Note 33 Share Capital (continued)

Equity Participation Plan (“EPP”)

The EPP facilitates the voluntary sacrifice of both fixed
remuneration and annual short term incentives (STI) to be
applied in the acquisition of shares. The plan also previously
facilitated the mandatory sacrifice of 50% of STI payments for
some employees. However, the mandatory component of EPP
ceased for the year ending 30 June 2005. The compulsory
sacrifice of one third of STI payments for eligible employees
under the LISP forms part of the EPP.

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 Group, 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 were 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 generally
remain employees of the Group until the vesting date. Shares
previously granted under the mandatory component of the EPP
remain subject to their vesting conditions.

Details of purchases under the EPP from 1 July 2006 to 30 June 2007 were as follows:

Allotment Date
14 August 2006
7 September 2006
13 November 2006
13 March 2007

Participants
51
77
1
49

Shares Purchased
37,814
135,923
90
5,649

Average Purchase Price
$44.56
$46.25
$48.24
$49.98

The movement in shares purchased under the mandatory component of the EPP has been as follows:

Details of Movements
Shares held under the Plan at the beginning of year (no.)
Shares allocated during year (no.)
Shares vested during year (no.)
Shares forfeited during year (no.)
Shares held under the Plan at end of year (no.)

July 05 – June 06
2,616,771
56
(1,736,939)
(56,804)
823,084

July 06 – June 07
823,084
-
(759,640)
-
63,444

Commonwealth Bank of Australia Annual Report 2007 163

Notes to the Financial Statements

Note 33 Share Capital (continued)

Equity Reward Plan (ERP)

The ERP is the Group’s long term incentive arrangement for
executives. The Board envisage 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, where recipients pay a set exercise price to
convert each option to one CBA share once the option has
vested, and grants of shares, where no exercise price is payable
for participants to receive CBA shares upon vesting. 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 are conditional on the Group
achieving a prescribed performance hurdle. The ERP
performance hurdle is based on relative Total Shareholder
Return (TSR) with
the Group’s TSR performance being
measured against a comparator group of companies. TSR is
calculated by combining the reinvestment of dividends and
share price movements over the period.

For Reward Shares granted from 2002/03 to 2005/06 inclusive,
a tiered vesting scale was applied so that 50% of the allocated
shares vest if the Group’s TSR return is equal to the 50th
percentile, 75% vest at the 67th percentile and 100% when the
Group’s return is in the top quartile. The minimum vesting period
is three years. There are then four retesting opportunities until
the maximum five year vesting period concludes. All unvested
Reward Shares remaining in the Plan at the end of the vesting
period are forfeited. Employees who exit the Group before the
grant vests forfeit their allocation.

Where the performance 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%.

For Reward Shares granted in the year ended 30 June 2007 a
straight line vesting scale is applied, with 50% vesting at the 51st
percentile, through to 100% vesting at the 75th percentile. The
minimum vesting period for these grants is three years. Further
retesting is restricted to one occasion, 12 months after initial
testing, giving a maximum vesting period of four years. All
unvested Reward Shares remaining in the Plan at the end of the
vesting period are forfeited. Employees who exit the Group
before the grant vests forfeit their allocation.

In September 2006 the Board sought an independent review of
the TSR performance hurdle applied to Reward shares granted
since 2002/2003.

to 2 November 2006,

Prior
the Group measured TSR
performance by ranking peer group companies and the Group
based on the TSR performance over the measurement period.
Weightings based on market capitalisation at the end of the
measurement period of each company whose TSR was less
than the Group’s were aggregated to determine the percentile
rating.

164 Commonwealth Bank of Australia Annual Report 2007

When this methodology was independently reviewed, it became
evident that by weighting the peer group outcomes by market
capitalisation at the end of the measurement period, the Group
was in fact double counting the impact that share price had on
the result.

For example, if a peer group company had a big share price
rise, then its market capitalisation would have also increased. As
a result this organisation will get a double effect – one from the
higher share price, and one from the higher market capitalisation
weighting. The reverse is true if an organisation’s share price
were to fall. The effect was to magnify the impact on the index of
organisations which have extreme outcomes.

On 2 November 2006 the Group’s Board determined to modify
the way the Group measured ERP grant performance. The
revised methodology applies market capitalisation values set at
beginning of the measurement period to weight the peer group
TSR outcomes.

The impact of this change meant that the ERP grants made in
the 2003 and 2004 financial years vested at a higher rate than
expected. As a result an additional cost of $11.6 million was
incurred for these share-based arrangements.

Reward Shares acquired under the share component of the
ERP are purchased on-market at the current market price. In the
current year, a total of $25 million has been expensed through
the profit and loss. The current year expense is higher than last
years due to the additional cost incurred from the modification to
the Plan as well as the inclusion of the most recent ERP grant
which has been charged to the profit and loss since July 2006.

The fair value of shares allocated under the ERP expensed
through the profit and loss over three to five years, reflecting the
expected vesting period.

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. If 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.

(Performance Unit) Plan

For a limited number of executives a cash-based ERP replicator
scheme is operated by way of grants of Performance Units – the
Equity Reward
(ERPUP). A
Performance Unit is a monetary unit with a value linked to the
share price of Commonwealth Bank shares. Performance Unit
grants are subject to the same vesting conditions as the ERP.
On meeting the vesting condition, a cash payment is made to
executives the value of which is determined based on the
Group’s share price on vesting plus an accrued dividend value.

The same TSR performance hurdle modification was made in
respect of the ERPUP. This resulted in an additional expense of
$18.7 million for the year ended 30 June 2007 for these
arrangements.

A total of $33 million for the ERPUP has been expensed to the
profit and loss account in respect of the year ended 30 June
2007. The current year expense is higher than last years due to
the additional cost incurred from the modification to the Plan as
well as the inclusion of the most recent ERPUP grant which has
been charged to the profit and loss since July 2006.

Effective 1 July 2007, the new Group Leadership Rights Plan will
replace the ERP. No further grants will be made under the ERP.

Executive options issued up to September 2001 have not been
recorded as an expense by the Group.

Notes to the Financial Statements

Note 33 Share Capital (continued)

Details of movements in ERP options and shares are as follows:

Options – Details of Movements

Year of Grant
Exercise Price (1) (2)

Held by participants at the start of the year (no.)
Granted during year (no.)
Exercised during year (no.)
Lapsed during year (no.)
Outstanding at the end of year (no.)

Granted from 30 June to the date of report (no.)
Exercised from 30 June to date of report (no.)
Lapsed from 30 June to the date of report (no.)
Outstanding as at the date of report (no.)
Total consideration paid due to exercises to date of report (no.) (6)

July 2005 – June 2006
(5)

(3) (4)

July 2006 – June 2007
(5)

(3)

2001
$30.12

2000
$26.97

2001
$30.12

1,801,600
-
(1,008,300)
(39,800)
753,500

-
-
-
753,500
$30,369,996

137,500
-
(40,000)
-
97,500

-
-
-
97,500
$1,078,800

753,500
-
(326,900)
-
426,600

-
-
-
426,600
$9,846,228

2000

$26.97

197,500
-
(60,000)
-
137,500

-
-
-
137,500
$1,618,200

(1) The Exercise Price is the 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. This is the average exercise price.

(2) The premium adjustment (based on the actual difference between the dividend and bond yields at the date of vesting) was nil.

(3) Performance hurdle was satisfied on 31 March 2004 and options may be exercised up to 13 September 2010.

(4) The opening balance as at 1 July 2005 has been restated reflecting a reallocation of 50,000 options.

(5) Performance hurdle was satisfied on 3 October 2004 and options may be exercised up to 3 September 2011.

(6) No amount is unpaid in respect of the shares issued upon exercise of options during the above period.

Reward Shares – Details of Movements

July 2005 – June 2006

2002

Year of Grant -Total Reward Shares
Held by participants at the start of year (no.) 376,850 462,850 544,900
Allocated during year (no.) (1)
Vested during year (no.)
Lapsed during year (no.)
Outstanding at the end of year (no.)

- 557,253
-
-
-
-
(135,000)
(34,505)
(121,215)
241,850 348,650 423,685 522,748

-
-
(114,200)

2004

2003

(2)

(3)

(4)

(5)

2005

(2)

2002

(3)

2003

July 2006 – June 2007
(6)
(5)
(4)

2004

2005

2006

- 241,850 348,650 423,685 522,748

- 321,150
(639,300)

-
13,117 505,574
-
(64,720)
- 297,395 411,937 440,854

-
(30,500) (126,290) (123,928)

-
-

(219,500)
(22,350)
-

-
Granted from 30 June to date of report (no)
-
Vested from 30 June to date of report (no.)
Lapsed from 30 June to date of report (no.)
(18,175)
Outstanding as at the date of report (no.) 234,100 337,400 408,560 504,573

-
-
(11,250)

-
-
(15,125)

-
-
(7,750)

-
-
-
-

-
-
-
-
-
-
- 297,395 411,937 440,854

-
-
-

(1) The total number of shares allocated during the year represents the number of shares allocated and may not represent the total number that may vest at a later date.
The Group purchases 50% of the maximum number of shares a participant may receive. Additional shares are purchased if required to fulfil the Group’s obligations to
vest shares in participants once the performance of the ERP grant is known.

(2) Performance hurdle was satisfied on 2 October 2006 when 50% of the maximum allocation of this grant vested.

(3) Performance hurdle was satisfied on 3 October 2006 when 100% of the maximum allocation of this grant vested.

(4) This grant will be tested for vesting on 23 September 2007. If performance is below the 75th percentile, retests will be conducted each six months until 23 September

2009.

(5) This grant will be tested for vesting on 15 July 2008. If performance is below the 75th percentile, retests will be conducted each six months until 15 July 2010.

(6) This grant will be tested for vesting on 14 July 2009. If performance is below the 75th percentile, one retest will be conducted 12 months later on 15 July 2010.

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. In addition, Non Executive
Directors can voluntarily elect to sacrifice up to a further 80% of
their fees for the acquisition of shares.

Shares are purchased on-market at the current market price and
a total of 59,242 shares have been purchased under the NEDSP
since the plan commenced in 2001. Since March 2005, shares
have been acquired under the plan on a six monthly basis.

the plan

full dividend
Shares acquired under
entitlements and voting rights and there are no forfeiture or
vesting conditions attached to the shares granted under the
NEDSP.

receive

For the current year, $431,855 was expensed through the profit
and loss reflecting shares purchased and allocated under the
NEDSP.

Commonwealth Bank of Australia Annual Report 2007 165

Notes to the Financial Statements

Note 33 Share Capital (continued)

Details of grants under the NEDSP from 1 July 2006 to 30 June 2007 are as follows:

Grants made under the NEDSP from 1 July 2006 to 30 June 2007

Period
1 January to 30 June 2006
1 July to 31 December 2006

Total Fees Sacrificed
$221,918
$210,068

Participants
9
9

Shares Purchased Average Purchase Price
$44.56
$49.98

4,978
4,203

Executive Option Plan (EOP)

As previously notified
discontinued in 2000/01.

to Shareholders,

this plan was

Under the EOP, the Bank granted options to purchase fully paid
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 Group
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 EOP was discontinued in 2000/2001 and no options have
been granted under the plan since the last grant in September
2000. The performance hurdles for the August 1999 grant and
the September 2000 grant were met in 2004.

Under the Group’s EOP and ERP an option holder generally has
no right to participate in any new issue of securities of the Group
or of a related body corporate as a result of holding the option.
The only exception is when there is a pro rata issue of shares to
the Group’s Shareholders by way of a bonus issue involving
capitalisation (other than in place of dividends or by way of
dividend reinvestment). In this case an option holder is entitled
to receive additional shares upon exercise of the options of 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.

Details of movements for in EOP options are as follows:

Options – Details of Movements

Year of Grant
Exercise Price (1) (2)

Held by participants at the start of year (no.)
Granted during year (no.)
Exercised during year (no.)
Lapsed during year (no.)
Outstanding at the end of year (no.)

July 2005 – June 2006
(5)

(3)

(4)

2000

July 2006 – June 2007
(5)

(4)

(3)

2000

1999
$23.84

450,000
-
(250,000)
(9,400)
190,600

-
-
-
190,600
$5,960,000

$26.97

687,300
-
(437,900)
(23,600)
225,800

-
-
-
225,800
$11,810,163

190,600
-
(165,600)
(25,000)
-

-
-
-
-
$3,947,904

$26.97

225,800
-
(163,900)
(25,000)
36,900

-
-
-
36,900
$4,420,383

(1) The Exercise Price is the 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. This is the average exercise price.

(2) The premium adjustment (based on the actual difference between the dividend and bond yields at the date of vesting) was nil.

(3) The opening balance as at 1 July 2005 has been restated reflecting a reallocation of 50,000 options.

(4) Performance hurdle was satisfied on 28 February 2004 and options may be exercised up to 24 August 2009.

(5) Performance hurdle was satisfied on 31 March 2004 and options may be exercised up to 13 September 2010.

(6) No amount is unpaid in respect of the shares issued upon exercise of options during the above period.

Note 34 Minority Interests

Controlled entities:
Share capital (1)
Total Minority Interests

2007
$M

512
512

Group
2006
$M

508
508

(1) Comprises predominantly ASB Perpetual Preference Shares - $505 million. On 10 December 2002, ASB Capital Limited, a New Zealand subsidiary, issued NZD 200
million (AUD 182 million) of perpetual preference shares. Such shares are non-redeemable and carry limited voting rights. Dividends are payable quarterly and are
non-cumulative. On 22 December 2004, ASB Capital No.2 Ltd, a New Zealand subsidiary, issued NZD 350 million (AUD 323 million) of perpetual preference shares.
Such shares are non-redeemable and carry limited voting rights. Dividends are payable quarterly and are non-cumulative.

166 Commonwealth Bank of Australia Annual Report 2007

Note 35 Capital Adequacy

The Bank is an Authorised Deposit-taking Institution (“ADI”) and
is subject to regulation by 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 Basel Accord issued by the
Basel Committee on Banking Supervision
(“The Basel
Committee”). These requirements define what is 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 as “Level One”) and for the Bank
and its banking subsidiaries (known as “Level Two”). 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
primarily consists of Shareholders’ equity plus other capital
instruments acceptable to APRA, less goodwill. Tier Two Capital
primarily consists of the collective provision for impairment
losses, the General Reserve 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 is deducted from the sum of Tier One and Tier Two
Capital to arrive at the Capital Base.

In accordance with APRA’s methodology, measuring risk
requires one of a number of risk weights to be applied to each
asset on the Balance Sheet and to off-balance sheet obligations.
The 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.

its capital

the
The Bank actively manages
rating
requirements of various stakeholders
agencies and Shareholders). This is achieved by optimising the
mix of capital while maintaining adequate capital ratios
throughout the financial year.

to balance

(regulators,

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 Profits 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 2007 ASB Bank Limited had a Tier One ratio of 9.0% and
a Total Capital ratio of 10.5%.

Notes to the Financial Statements

Regulatory Capital Requirements for Life Insurance and
Funds Management Business

life

insurance companies –

The Group’s life insurance business in Australia is regulated by
APRA. The Life Insurance Act 1995 includes a two tiered
framework for the calculation of regulatory capital requirements
for
“capital
adequacy”. The capital adequacy test for statutory funds is
always equal to or greater than the solvency test (1). At 30 June
2007, for Australian life insurance companies, the estimated
excess over capital adequacy within life insurance statutory
funds was $192 million in aggregate.

“solvency” and

The Group owns Colonial Mutual Life Assurance Society Limited
(“CMLA”), a life insurance company operating in Australia. Life
insurance business previously written by Commonwealth
Insurance Holdings Limited (“CIHL”) was transferred into CMLA
effective 30 June 2007.

There are no regulatory capital requirements for life insurance
companies in New Zealand, though the directors of any
company must certify its solvency under the Companies Act
1993. The Group determines the minimum capital requirements
for its New Zealand life insurance business according to the
Prudential Reserving Guidance Note of the New Zealand
Society of Actuaries.

the Australian Securities and

Fund managers in Australia are subject to responsible entity
regulation by
Investment
Commission (“ASIC”). The regulatory capital requirements vary
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.

APRA supervises approved trustees of superannuation funds
and requires them to also maintain net tangible assets of at least
$5 million. These requirements are not cumulative where an
entity is both an approved trustee for superannuation purposes
and a responsible entity.

The total Group’s life and funds management companies held
an estimated $738 million excess over regulatory capital
requirements at 30 June 2007 in aggregate.

Regulatory Changes

Basel II

The Basel Committee have issued a revised framework for the
calculation of capital adequacy for banks, commonly known as
Basel II. The objective of the Basel II Framework is to develop
capital adequacy guidelines that are more accurately aligned
with the individual risk profile of banks.

The Basel II Framework is based on three “pillars”. Pillar One
covers the capital requirements for banks, Pillar Two covers the
supervisory review process and Pillar Three relates to market
disclosure. The Basel II Framework introduces a capital
requirement for operational risk and, for both credit and
operational risk, allows a choice between three approaches. The
Bank has applied to APRA for accreditation as an advanced
model applicant. Advanced model applicants are expected to
have sophisticated risk management systems for the calculation
of regulatory capital and should need to hold less regulatory
capital than they would if they adopted alternative approaches.

(1) The Shareholders’ fund is subject to a separate capital requirement.

Commonwealth Bank of Australia Annual Report 2007 167

Notes to the Financial Statements

Note 35 Capital Adequacy (continued)

risk and

the Advanced
for credit

Internal Ratings Based
Implementation of
the Advanced
Approach
(“AIRB”)
Measurement Approach (“AMA”)
for operational risk are
scheduled to be implemented in Australia from 1 January 2008.
The Bank
the
is working closely with APRA
Accreditation process and is well advanced in addressing the
remaining requirements.

through

APRA has also introduced a requirement to calculate a capital
charge for Interest Rate Risk in the Banking Book (IRRBB). As
an advanced model applicant for Basel II, APRA requires the
Bank to apply for IRRBB accreditation. This will occur by
December 2007, with implementation scheduled for July 2008.

Total transitional relief of $1,715 million is comprised of $1,641
million relief for Tier One Capital and $74 million of relief for
Upper Tier Two Capital.

Adjusted Common Equity

The Adjusted Common Equity (“ACE”) ratio at 30 June 2007 is
4.79%, an increase from 4.39% at 1 July 2006 (on an AIFRS
basis). Standard & Poor’s did not grant any transitional relief for
the impact of AIFRS adjustments.

Significant Initiatives

The following significant initiatives were undertaken during the
financial year to actively manage the Bank’s capital:

Conglomerate Groups

Tier One Capital

APRA has advised that for conglomerate groups a third level of
capital adequacy (“Level Three”) will be implemented. APRA
defines a conglomerate group as a group of companies
containing one or more Australian incorporated 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 its requirements for internal models, or when it
will complete its review of the Bank’s models.

Whilst the Bank considers that it is strongly capitalised (as
evidenced by its credit ratings), no assurance can be given that
its models will meet APRA’s requirements or that the Bank
meets the Level Three capital requirements.

Active Capital Management

The Group maintains a strong capital position. The Total Capital
Ratio increased from 9.66% at 30 June 2006 to 9.76% at 30
June 2007. The Tier One Capital Ratio decreased from 7.56% to
7.14% during the year reflecting the acquisition of a major
infrastructure asset in the United Kingdom and growth in Risk
Weighted Assets.

Risk Weighted Assets increased to $245 billion at 30 June 2007
due to strong growth in lending assets particularly in the
business/corporate sector.

In February 2007, the Group’s long term credit rating was
upgraded by Standard and Poor’s to ‘AA’ from ‘AA-’ with the
short term rating affirmed at ‘A-1+’. Moody’s Investor Services
upgraded the Group’s long term rating from ‘Aa3’ to ‘Aa1’ and
reaffirmed the short term rating at ‘P-1’ in May 2007.

Adoption of AIFRS and Transitional Relief

The Group adopted the Australian equivalent to International
Financial Reporting Standards (“AIFRS”) on 1 July 2005.
However, APRA required reporting under the previous AGAAP
accounting principles to continue for regulatory capital purposes
until the introduction of revised prudential standards, which took
effect on 1 July 2006.

With the introduction of the revised prudential standards, APRA
granted transitional relief in relation to changes to their prudential
regulations from 1 July 2006 until 31 December 2007.

168 Commonwealth Bank of Australia Annual Report 2007

•

Issue of $300 million and $518 million worth of shares in
October 2006 and April 2007 respectively to satisfy the
Dividend Reinvestment Plan (“DRP”) in respect of the final
dividend for 2005/06 and interim dividend for 2006/07. The
large increase in shares issued in April 2007 as part of the
DRP was primarily as a result of the change in the DRP rules
approved by the Board in September 2006; and

•

In accordance with APRA guidelines, the estimated issue of
$485 million of shares to satisfy the DRP in respect of the
final dividend for 2006/07. This estimate represents a 25%
participation in the DRP in respect of the final dividend.

Tier Two Capital

•

Issue of the equivalent of $2,331 million of Lower Tier Two
Capital;

• The call and maturity of the equivalent of $206 million of Tier

Two note and bond issues;

• Decrease in the value of Tier Two note and bond issues of
$467 million resulting from changes in foreign exchange
movements (whilst these notes are hedged, the unhedged
value is included in the calculation of regulatory capital in
accordance with the APRA regulations); and

• The reduction in Tier Two note and bond issues of $71

million due to amortisation.

Other Capital Initiatives

Issue of $700 million hybrid securities, called Funds
Management Securities (“FMS”) in September 2006. The FMS
coupons, and in some cases repayment of capital, will depend
on the fees generated by the Australian Funds Management
business of the Group. The issue of FMS forms part of the
Group’s ongoing commitment to efficient capital management.

Deductions from Total Capital

During the year a decrease in deductions for investment in non-
consolidated subsidiaries primarily reflects up-streaming of
dividends from the Colonial subsidiary group of companies.

Events Subsequent to Balance Date

On 1 June 2007, the Bank announced an offer of Perpetual
Exchangeable Resaleable Listed Securities (PERLS IV). The
offer raised $1,465 million in July 2007. The issue of PERLS IV
forms part of
the Group’s capital management strategy,
structured to meet APRA’s new regulatory capital requirements
for Non-Innovative Residual Tier One Capital, effective January
2008. At 30 June 2007 this would have increased Tier One
Capital to 7.72% and Total Capital to 10.35%.

Notes to the Financial Statements

Note 35 Capital Adequacy (continued)

Risk-Weighted Capital Ratios

Tier One
Tier Two
Less deductions
Total Capital
Adjusted Common Equity (1)

Regulatory Capital

Tier One Capital
Shareholders’ Equity
Reverse effect to Shareholders’ Equity of AIFRS transition (2)
Reverse effect of AIFRS during the year to 30 June 2006: (2)

Purchase/(sale) and vesting of treasury shares
Actuarial gains and losses from defined benefit superannuation plan
Realised gains and dividend income on treasury shares held within the Group’s life insurance statutory funds
Cash flow hedge reserve
Employee compensation reserve
General reserve for credit losses
Available-for-sale investments
Defined benefit superannuation plan expense
Treasury shares valuation adjustment
Preference share capital
Issue of hybrid instruments
Other

Adjusted Shareholders’ Equity
Treasury shares
Estimated reinvestment under Dividend Reinvestment Plan (3)
Irredeemable non-cumulative preference shares (4)
Eligible loan capital
Deferred fees
Retained earnings (5)
Employee compensation reserve
Cash flow hedge reserve
General reserve for credit losses (after tax)
Available-for-sale investments reserve
Foreign currency translation reserve related to non-consolidated subsidiaries
Asset revaluation reserve
Expected dividend
Goodwill (6)
Intangible component of investment in non–consolidated subsidiaries (6)
Minority interests in life insurance statutory funds and other funds
Capitalised expenses
Capitalised computer software costs
Equity investments in other companies (7)
Defined benefit superannuation plan surplus (8)
Deferred tax
Other
Transitional Tier One Capital relief on adoption of AIFRS (9)
Total Tier One Capital

2007
Actual
%
7. 14
3. 41
(0. 79)
9. 76
4. 79

2007
$M

24,444
-

-
-
-
-
-
-
-
-
-
-
-
-

24,444
255
485
2,535
245
97
752
51
(440)
(350)
35
(8)
(185)
(1,939)
(7,632)
-
-
(136)
(297)
(700)
(1,270)
(37)
(34)
1,641
17,512

Group

2006
Actual
%
7. 56
3. 10
(1. 00)
9. 66
4. 50

2006
$M

21,343
7,183

10
(387)
(85)
(20)
(11)
(92)
(9)
25
100
(687)
1,147
(6)

28,511
-
303
-
281
-
-
-
-
-
-
160
(131)
(1,668)
(4,416)
(5,397)
(1,158)
(122)
-
-
-
-
(9)
-
16,354

(1) Adjusted Common Equity (“ACE”) is one measure considered by Standard & Poor’s in evaluating the Group’s credit rating. The ACE ratio has been calculated in

accordance with Standard & Poor’s methodology as at 30 June 2007.

(2) APRA required regulatory capital to continue to be calculated in accordance with AGAAP accounting principles until 1 July 2006. As such, all material changes to

capital resulting from the Group adopting AIFRS accounting standards on 1 July 2005 have been reversed from regulatory capital for 2006.

(3) Based on reinvestment experience related to the Bank’s Dividend Reinvestment Plan and approved by APRA.

(4) Represents capital instruments classified as debt under AIFRS but approved by APRA as capital instruments.

(5) Represents the write down in retained earnings upon adoption of AIFRS within the non-consolidated subsidiaries.

(6) 30 June 2007 balance represents total Goodwill and other intangibles (excluding capitalised computer software costs) under AIFRS which is required to be deducted

from Tier One Capital. The increase from 30 June 2006 principally represents the intangible component of the carrying value of the life insurance and funds
management business which was transferred to Goodwill on adoption of AIFRS.

(7) Represents the Group’s non-controlling equity interest in a major infrastructure asset.

(8) In accordance with APRA regulations, the surplus (net of tax) in the Bank’s defined benefit superannuation fund which is included in Shareholders’ equity must be

deducted from Tier One Capital.

(9) APRA has granted transitional relief for Tier One and Two Capital (including the value of acquired inforce business of $1,339 million) on adoption of AIFRS, which

expires 1 January 2008.

Commonwealth Bank of Australia Annual Report 2007 169

Notes to the Financial Statements

Note 35 Capital Adequacy (continued)

Regulatory Capital

Tier Two Capital
Collective provision for impairment losses (1)
Other credit provisions (1)
Fair value credit adjustments (1)
General reserve for credit losses (pre-tax equivalent) (1)
Prudential general reserve for credit losses (1)
Future income tax benefit related to prudential general reserve for credit losses
Asset revaluation reserve (2)
Upper Tier Two note and bond issues
Lower Tier Two note and bond issues (3) (4)
Other
Transitional Tier Two Capital relief on adoption of AIFRS (5)
Total Tier Two Capital
Total Tier One and Tier Two Capital

2007
$M

1,034
23
24
500
1,581
(474)
83
191
6,922
(12)
74
8,365
25,877

Group
2006
$M

1,046
-
-
500
1,546
(464)
131
235
5,335
(58)
-
6,725
23,079

(1) Prior to 1 July 2006 APRA required a minimum ratio of 0.5% (after tax) of risk weighted assets which comprised the collective provision for impairment losses and the
General Reserve for Credit Losses. From 1 July 2006 there is no longer a minimum regulatory requirement. The Prudential General Reserve for Credit Losses is
now comprised of the collective provision for impairment losses, other credit provisions, fair value credit adjustments and a general reserve for credit losses within
Shareholders’ equity which is an additional amount reserved over and above APRA requirements.

(2) From 1 July 2006 APRA allows only 45% of the asset revaluation reserve to be included in Tier Two Capital.

(3) APRA requires these Lower Tier Two note and bond issues to be included as if they were unhedged.

(4) For regulatory capital purposes, Lower Tier Two note and bond issues are amortised by 20% of the original amount during each of the last four years to maturity.

(5) APRA has granted transitional relief for Tier One and Two Capital on adoption of AIFRS, which expires 1 January 2008.

Regulatory Capital

Total Capital before Deductions
Deduct:
Investment in non–consolidated subsidiaries (net of intangible component deducted from Tier One Capital):

Shareholders’ net tangible assets in life and funds management businesses
Reverse effect of transition to AIFRS
Capital in other non-consolidated subsidiaries
Value of acquired inforce business (1)
Less: Non-recourse debt

Funds Management securities (2)

Value of acquired inforce business (1)

Other deductions
Total Capital

(1) Value of acquired inforce business (excess of market value over net assets), which was transferred to Goodwill upon adoption of AIFRS.

(2) Funds Management Securities issued September 2006.

Adjusted Common Equity (1)

Tier One Capital
Add:

Deferred Income Tax
Equity investments in other companies (2)

Deduct:

Eligible loan capital
Other hybrid equity instruments
Minority interests (net of minority interests component deducted from Tier One Capital)
Investment in non–consolidated subsidiaries (net of intangible component deducted from Tier One Capital) (3)
Other deductions

Impact upon adoption of AIFRS (4)
Total Adjusted Common Equity

2007
$M

25,877

(1,946)
(592)
(836)
-
2,265
700
(409)
(1,339)
(1,748)
(178)
23,951

2007
$M
17,512

37
700

(245)
(3,474)
(512)
(409)
(178)
(1,641)
11,790

Group
2006
SM

23,079

(1,902)
(592)
(256)
(1,339)
2,077
-
(2,012)
-
(2,012)
(151)
20,916

Group
2006
$M
16,354

-
-

(281)
(3,659)
(508)
(2,012)
(151)
-
9,743

(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 Standard & Poor’s methodology at 30 June 2007.

(2) Represents the Bank’s non-controlling interest in a major infrastructure asset.

(3) Balance at 30 June 2007 excludes $1,339 million associated with excess of market value over net assets which was transferred to goodwill upon adoption of AIFRS.

(4) Standards and Poor’s calculation of ACE Capital did not allow for any relief upon adoption of AIFRS.

170 Commonwealth Bank of Australia Annual Report 2007

Notes to the Financial Statements

Note 35 Capital Adequacy (continued)

Risk-Weighted Assets

On Balance Sheet Assets
Cash, claims on Reserve Bank, short term claims on Australian
Commonwealth and State Government and Territories, and other
zero–weighted assets
Claims on OECD Banks and local governments
Advances secured by residential property (1)
All other assets (1)
Total On Balance Sheet Assets – Credit Risk (2)

Face Value

2007
$M

2006
$M

27,844
15,903
174,435
129,247
347,429

23,301
16,742
157,962
110,971
308,976

Risk
Weights

-
20
50
100

Face Value

Credit Equivalent

2007
$M

3,664
2,133
86,002

2006
$M

3,598
2,365
82,634

1,324,315
1,416,114

1,027,846
1,116,443

2007
$M

3,664
1,041
17,453

21,396
43,554

2006
$M

3,598
999
16,604

14,342
35,543

Off Balance Sheet Exposures
Direct credit substitutes
Trade and performance related items
Commitments
Foreign exchange, interest rate and other market
related transactions
Total Off Balance Sheet Exposures – Credit Risk (3)

Total Risk-Weighted Assets – Credit Risk
Risk-Weighted Assets – Market Risk
Total Risk-Weighted Assets (4)

Group
Risk–Weighted
Balance

2007
$M

2006
$M

-
3,181
87,217
129,247
219,645

-
3,348
78,981
110,971
193,300

Group
Risk-Weighted
Balance

2007
$M

2,884
973
12,015

5,707
21,579

2006
$M

2,786
964
12,049

3,892
19,691

241,224
4,123
245,347

212,991
3,447
216,438

(1) 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”.

(2) 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.

(3) Off-balance sheet exposures secured by the residential property account for $10 billion of off-balance sheet credit equivalent assets ($5.9 billion of off-balance sheet

risk-weighted assets).

(4) In calculating risk weighted assets in accordance with Standard and Poor’s agreed methodology, the equity investment in other companies (June 2007: $0.7 billion,
June 2006: nil) is required to be added to regulatory risk weighted assets as this amount is not deducted from ACE Capital. The risk weighted asset balance as used
for the purposes of ACE Capital ratio for 2007 is $246,047 million (2006: $216,438 million).

Commonwealth Bank of Australia Annual Report 2007 171

Notes to the Financial Statements

Note 36 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 43.

Group
Maturity Period At 30 June 2007

At Call
$M

Overdrafts
$M

0 to 3
months
$M

3 to 12
months
$M

1 to 5
years
$M

Over 5
years
$M

Not
Specified
$M

Assets
Cash and liquid assets
Receivables due from other financial
institutions
Assets at fair value through Income
Statement:
Trading (1)
Insurance
Other

Derivative assets
Available-for-sale investments
Loans, advances and other
receivables (2)
Bank acceptances of customers
Other monetary assets
Total monetary assets

Liabilities
Deposits and other public
borrowings(3)
Payables to other financial institutions
Liabilities at fair value through Income
Statement
Derivative liabilities
Bank acceptances
Insurance policy liabilities
Debt issues and loan capital
Managed funds units on issue
Other monetary liabilities
Total monetary liabilities

5,277

-
312
-
-
-

19,199
-
556
25,344

115,009
2,855

-
-
-
-
-
-
685
118,549

-
-
-
-
-

4,506
-
-
4,506

-
-

-
-
-
-
-
-
-
-

4,831

5,293

161

21,469
2,823
3,349
10,820
2,404

18,967
18,413
3,763
92,132

55,472
9,946

7,401
13,778
18,413
-
9,826
-
5,620
120,456

-
300
414
722
2,159

28,846
308
453
33,363

29,596
1,585

4,811
83
308
-
17,841
-
343
54,567

-
3,755
287
987
3,053

60,615
-
76
68,788

3,238
-

6,226
872
-
-
35,678
-
219
46,233

-
4,098
23
214
2,000

168,680
-
4
175,045

67
-

993
1,947
-
-
32,145
-
-
35,152

Total
$M

10,108

5,495

21,469
23,519
4,073
12,743
9,672

299,779
18,721
5,162
410,741

-
12,231
-
-
56

(1,034)
-
310
11,563

-
-

203,382
14,386

-
-
-
21,613
-
310
996
22,919

19,431
16,680
18,721
21,613
95,490
310
7,863
397,876

(1) Trading assets are purchased without the intention to hold until maturity and are categorised as maturing within three months.

(2) $190 billion of this figure represents 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 five years.

(3) 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 43.

172 Commonwealth Bank of Australia Annual Report 2007

Notes to the Financial Statements

Note 36 Maturity Analysis of Monetary Assets and Liabilities (continued)

Group
Maturity Period At 30 June 2006

At Call
$M

Overdrafts
$M

0 to 3
months
$M

3 to 12
months
$M

1 to 5
years
$M

Over 5
years
$M

Not
Specified
$M

Assets
Cash and liquid assets
Receivables due from other financial
institutions
Assets at fair value through Income
Statement:
Trading (1)
Insurance
Other

Derivative assets
Available-for-sale investments
Loans, advances and other
receivables (2)
Bank acceptances of customers
Other monetary assets
Total monetary assets

2,016

-
153
182
-
-

15,182
-
29
17,562

97,262
1,380

1,987
-
-
-
-
-
10
100,639

-
-
-
-
-

5,107
-
-
5,107

-
-

-
-
-
-
-
-
-
-

3,852

5,923

1,156

15,758
995
1,387
7,484
2,278

16,643
17,531
3,803
75,654

48,772
8,999

5,426
6,471
17,531
-
9,478
-
5,056
101,733

-
1,900
62
986
1,255

18,115
779
81
24,334

24,167
805

2,677
877
779
-
14,700
-
209
44,214

-
2,653
576
833
4,532

58,373
-
6
66,973

2,938
-

2,880
1,047
-
-
42,838
-
469
50,172

-
1,945
-
372
2,022

146,802
-
2
151,171

88
-

841
2,425
-
-
21,470
-
420
25,244

Total
$M

5,868

7,107

15,758
24,437
2,207
9,675
11,203

259,176
18,310
4,176
357,917

-
16,791
-
-
1,116

(1,046)
-
255
17,116

-
-

173,227
11,184

-
-
-
22,225
-
1,109
205
23,539

13,811
10,820
18,310
22,225
88,486
1,109
6,369
345,541

(1) Trading assets are purchased without the intention to hold until maturity and are categorised as maturing within three months.

(2) $167 billion of this figure represents 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 five years.

(3) 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 43.

Commonwealth Bank of Australia Annual Report 2007 173

Notes to the Financial Statements

Note 37 Financial Reporting by Segments

Description of segments

The consolidated entity is organised on a global basis for
statutory purposes into the following segments by product and
service.

The primary sources of revenue are interest income for
Banking, premium and related income for the Insurance
business and other operating income.

Business segments represent the type of service provided and
types of product available.

The geographical segment represents the locations in which the
transaction was booked.

Primary Segment
Business Segments
Income Statement
Interest income
Insurance premium and related revenue
Other income
Total revenue

Interest expense

Segment result before income tax
Income tax expense
Segment result after income tax
Minority interests
Segment result after income tax and minority interests
Net profit attributable to Equity holders of the Bank

Non–Cash Expenses
Intangible asset amortisation
Loan impairment expense
Depreciation
Defined benefit superannuation plan (income)/expense
Other

Group
Year Ended 30 June 2007

Funds
Management
$M
-
-
3,991
3,991

Insurance
$M

-
1,117
858
1,975

Total
$M

23,862
1,117
8,190
33,169

805
(390)
415
-
415
415

-
-
3
-
41

16,826

579
(228)
351
-
351
351

1
-
6
-
-

6,538
(2,041)
4,497
(27)
4,470
4,470

70
434
200
(8)
101

Banking
$M

23,862
-
3,341
27,203

16,826

5,154
(1,423)
3,731
(27)
3,704
3,704

69
434
191
(8)
60

Balance Sheet
Total assets
Acquisition of property, plant & equipment, intangibles and other non–
current assets
Investments in associates
Total liabilities

397,093

18,237

9,809

425,139

410
145
377,467

2
680
15,397

38
11
7,831

450
836
400,695

174 Commonwealth Bank of Australia Annual Report 2007

Notes to the Financial Statements

Note 37 Financial Reporting by Segments (continued)

Primary Segment
Business Segments
Income Statement
Interest income
Insurance premium and related revenue
Other income
Total revenue

Interest expense

Non–Cash Expenses
Intangible asset amortisation
Loan impairment expense
Depreciation
Defined benefit superannuation plan (income)/expense
Other

Group
Year Ended 30 June 2006

Funds
Management
$M
-
-
3,687
3,687

Insurance
$M

-
1,052
1,031
2,083

Total
$M

19,758
1,052
7,754
28,564

643
(331)
312
(3)
309
309

-
-
2
-
1

13,244

657
(241)
416
-
416
416

-
-
5
-
-

5,859
(1,900)
3,959
(31)
3,928
3,928

49
398
164
35
66

Banking
$M

19,758
-
3,036
22,794

13,244

4,559
(1,328)
3,231
(28)
3,203
3,203

49
398
157
35
65

Balance Sheet
Total assets
Acquisition of property, plant & equipment, intangibles and other non–
current assets
Investments in associates
Total liabilities

340,254

19,201

9,648

369,103

510
106
324,185

94
52
16,423

8
32
7,152

612
190
347,760

Primary Segment
Business Segments
Income Statement
Interest income
Insurance premium and related revenue
Other income
Total revenue

Interest expense

Non–Cash Expenses
Intangible asset amortisation
Loan Impairment expense
Depreciation
Defined benefit superannuation plan (income)/expense
Other

Banking
$M

Funds
Management
$M

16,781
-
2,845
19,626

10,755

3,982
(1,197)
2,785
(3)
2,782
2,782

20
322
135
75
84

-
-
3,203
3,203

508
(192)
316
(7)
309
309

-
-
8
-
27

Group
Year Ended 30 June 2005

Insurance
$M

-
1,132
1,186
2,318

Total
$M

16,781
1,132
7,234
25,147

10,755

522
(213)
309
-
309
309

-
-
13
-
-

5,012
(1,602)
3,410
(10)
3,400
3,400

20
322
156
75
111

Balance Sheet
Total assets
Acquisition of property, plant & equipment, intangibles and other non–
current assets
Investments in associates
Total liabilities

304,620

16,191

16,593

337,404

303
19
287,549

8
1
16,832

39
32
10,380

350
52
314,761

Commonwealth Bank of Australia Annual Report 2007 175

Notes to the Financial Statements

Note 37 Financial Reporting by Segments (continued)

Secondary Segment
Geographical Segments
Income Statement
Revenue
Australia
New Zealand
Other countries (1)
Total Revenue

Net Profit Attributable to Equity holders of the
Bank
Australia
New Zealand
Other countries (1)
Total Net Profit Attributable to Equity holders of
the Bank

Assets
Australia
New Zealand
Other countries (1)
Total Assets

Acquisition of Property, Plant & Equipment,
Intangibles and Other non–current assets
Australia
New Zealand
Other countries (1)
Total

2007
$M

26,350
4,517
2,302
33,169

3,538
492
440

2007
%

79. 5
13. 6
6. 9
100. 0

79. 2
11. 0
9. 8

2006
$M

22,802
4,021
1,741
28,564

3,200
387
341

Group
Year Ended 30 June

2006
%

79. 8
14. 1
6. 1
100. 0

81. 5
9. 8
8. 7

2005
$M

20,003
3,361
1,783
25,147

2,778
363
259

2005
%

79. 5
13. 4
7. 1
100. 0

81. 7
10. 7
7. 6

4,470

100. 0

3,928

100. 0

3,400

100. 0

341,588
55,916
27,635
425,139

360
80
10
450

80. 3
13. 2
6. 5
100. 0

80. 0
17. 8
2. 2
100. 0

304,831
43,318
20,954
369,103

564
34
14
612

82. 6
11. 7
5. 7
100. 0

92. 2
5. 5
2. 3
100. 0

280,255
41,383
15,766
337,404

303
37
10
350

83. 0
12. 3
4. 7
100. 0

86. 6
10. 6
2. 8
100. 0

(1) Other countries were: United Kingdom, United States of America, Japan, Singapore, Malta, Hong Kong, Grand Cayman, Fiji, Indonesia, China and Vietnam.

176 Commonwealth Bank of Australia Annual Report 2007

Notes to the Financial Statements

Note 38 Life Insurance Business

The following information 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 calculations.

All financial assets within the life statutory funds have been
determined to support either life insurance or life investment
contracts. Also refer to Note 1 (hh). The insurance segment
result is prepared on a business segment basis, refer to Note
37.

Summarised Income Statement

Premium and related revenue
Outward reinsurance premiums expense
Claims expense
Reinsurance recoveries
Investment revenue (excluding investments in
subsidiaries)

Equity securities
Debt securities
Property
Other

Increase/(decrease) in contract liabilities
Operating income

Acquisition expenses
Maintenance expenses
Management expenses
Other expense
Net profit before income tax
Income tax attributable to operating profit
Net profit after income tax
Net profit after income tax

Sources of Life Insurance Net Profit
The net profit after income tax is represented
by:
Emergence of planned profit margins
Difference between actual and planned
experience
Effects of changes to underlying assumptions
Reversal of previously recognised losses or loss
recognition on Groups of related products
Investment earnings on assets in excess of
policyholder liabilities
Other movements (1)
Net profit after income tax

Life insurance premiums received and
receivable
Life insurance claims paid and payable

Life Insurance
Contracts

Life Investment
Contracts

2007
$M
1,182
(207)
(786)
145

418
147
70
52
(133)
888

158
235
16
9
470
174
296
296

2006
$M
949
(176)
(526)
128

205
230
174
(48)
(192)
744

163
173
18
14
376
148
228
228

178

104

41
(5)

(2)

78
6
296

20
2

70
31
228

2007
$M
257
-
-
-

1,323
444
324
294
(2,111)
531

22
197
8
58
246
205
41
41

(53)
-

8
(1)
41

2006
$M
414
(3)
(127)
-

1,686
372
169
413
(2,165)
759

21
191
7
29
511
255
256
256

200

(41)
-

7
90
256

2007
$M
1,439
(207)
(786)
145

1,741
591
394
346
(2,244)
1,419

180
432
24
67
716
379
337
337

265

(12)
(5)

(2)

86
5
337

Group

2006
$M
1,363
(179)
(653)
128

1,891
602
343
365
(2,357)
1,503

184
364
25
43
887
403
484
484

304

(21)
2

77
121
484

2,749
5,306

2,649
4,803

(1) 2006 includes profit on sale of the Hong Kong Insurance Business.

The disclosure of the components of operating profit after income tax expense are required to be separated between policyholders’
and Shareholders’ interests. As policyholder profits are an expense of the Group and not attributable to Shareholders, no such
disclosure is required.

Commonwealth Bank of Australia Annual Report 2007 177

Notes to the Financial Statements

Note 38 Life Insurance Business (continued)

Life Insurance
Contracts

Life Investment
Contracts

2006
$M

25,241
(19,108)

135

(281)
(1,361)
(97)
4,589

(205)

57
(148)

2007
$M

17,784
-

2,112

1,291

(4,338)
-
121
16,970

-
-

2006
$M

-
19,108

2,165

1,329

(4,133)
(559)
(126)
17,784

-
-

2007
$M

22,373
-

2,254

1,479

(4,540)
-
205
21,771

(148)

(10)
(158)

Group

2006
$M

25,241
-

2,300

1,389

(4,414)
(1,920)
(223)
22,373

(205)

57
(148)

545

3,182

3,625

3,597

4,170

3,896
4,441

13,788
16,970

14,159
17,784

18,016
21,613

18,055
22,225

Reconciliation of Movements in Policy
Liabilities

Contract policy liabilities
Gross policy liabilities opening balance
AIFRS transition adjustment (1)
Net increase/(decrease) in contract liabilities
reflected in the summarised Income Statement
Contract contributions recognised in policy
liabilities
Contract withdrawals recognised in policy
liabilities
Non-cash movements
FX translation adjustment
Gross policy liabilities closing balance

Liabilities ceded under reinsurance
Opening balance
Decrease/(increase) in reinsurance assets
reflected in the summarised Income Statement
Closing balance

Net policy liabilities at 30 June
Expected to be realised within 12 months
Expected to be realised in more than 12
months
Total Insurance Policy Liabilities

2007
$M

4,589
-

142

188

(202)
-
84
4,801

(148)

(10)
(158)

415

4,228
4,643

(1) Reclassified upon adoption of AIFRS insurance standards from 1 July 2005.

178 Commonwealth Bank of Australia Annual Report 2007

Notes to the Financial Statements

The movement in any key variable will impact the performance
and net assets of the Group and as such represents a risk.

Note 38 Life Insurance Business (continued)

Sensitivity Analysis

The Group conducts sensitivity analyses to quantify the
exposure to risk of changes in the key underlying variables such
as interest rate, equity prices, mortality, morbidity and inflation.
The valuations included in the reported results and the Group’s
best estimate of future performance are calculated using certain
assumptions about these variables.

Variable

Expense risk

Interest rate risk

Mortality rates

Morbidity rates

Discontinuance

Market Risk

Impact of movement in underlying variable

An increase in the level or inflationary growth of expenses over assumed levels will decrease
profit and Shareholders’ equity.

The impact of changes in interest rates on profit and Shareholders’ equity depends on the
relative profiles and matching of assets and liabilities. The Group is exposed to changes in
interest rates on fixed interest assets backing Shareholders’ equity.

For insurance contracts that pay a death benefit, higher rates of mortality will increase the
claims cost and therefore reduce both profit and Shareholders’ equity. For lifetime annuity
contracts, lower mortality rates will increase the duration of annuity payments and therefore
reduce both profit and Shareholders’ equity.

The cost of health-related claims depends on both the incidence of policyholders becoming ill
and the duration of the illness. Higher than expected incidence and duration will increase the
claims costs, reducing profit and Shareholders’ equity.

The impact of the discontinuance rate assumption depends on a range of factors including
the type of contract, the surrender value basis (where applicable) and the duration inforce. An
increase in discontinuance rates will usually reduce profit and Shareholders’ equity

For contracts where benefit payments depend on the value of underlying assets, market risk
is borne by policyholders. However, as the Group derives fee income based on the value of
the underlying funds, a fall in market value will reduce fees, profit and Shareholders’ equity.
The Group is exposed to market risk on assets backing Shareholders’ equity.

The table below shows the sensitivity of insurance contract liabilities (gross and net of reinsurance), current year profits and
Shareholders’ equity to changes in assumptions on key variables. The sensitivity of the insurance contract liability to changes in
assumptions will be dependent on whether the product is (or remains) in loss recognition after the assumptions change and whether
the change is made to an economic assumption. The interest rate sensitivity includes the impact of the change on both the policy
liabilities and assets.

Result of change in assumptions (1)
Interest rates – 1% increase
Mortality and morbidity on lump sum products – 10%
increase in total costs
Annuitant mortality – 20% increase in rate of future mortality
improvement
Morbidity on Income Protection – 10% increase in total cost
Discontinuance – 10% increase in discontinuance rates
Expenses – 10% increase in maintenance expenses
assumption

(1) Represents impact of Australia only.

Gross (before reinsurance)
Policy
Liabilities
2007
$M

Profit/(loss)
2007
$M

Net (after reinsurance)
Shareholders’
Equity
2007
$M

Policy
Liabilities
2007
$M

(13. 7)

(4. 2)

(9. 5)
(1. 3)
-

(0. 4)

11. 1

6. 0

13. 6
1. 8
-

0. 6

(11. 7)

(3. 1)

(9. 5)
(1. 1)
-

(0. 4)

8. 4

4. 5

13. 6
1. 5
-

0. 6

(11. 7)

(3. 1)

(9. 5)
(1. 1)
-

(0. 4)

Commonwealth Bank of Australia Annual Report 2007 179

Notes to the Financial Statements

Note 38 Life Insurance Business (continued)

Life Investment Contract Liabilities

Life Insurance Contract Liabilities

Investment contracts include unit linked contracts and term
certain annuities. They consist of a financial instrument and an
investment management services element, both of which are
measured at fair value. For unit linked contracts, the resulting
liability to policyholders is closely linked to the performance and
the value of the assets (after tax) that support those liabilities.
The fair value of such liabilities is the same as the fair value of
those assets, after allowing for tax.

Appropriately qualified actuaries have been appointed for each
life insurance entity and they have reviewed and satisfied
themselves as to the accuracy of the contract 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 entities.

Components of Life Insurance Contract 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 Life Insurance Contract Liabilities

(1) Including bonuses credited to policyholders in prior years.

Life Insurance Contracts

2007
$M
6,691
1,304
2,067
1,425
(413)
(6,543)
112
4,643

2006
$M
6,205
1,128
1,810
1,321
(407)
(5,705)
89
4,441

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 market.

Insurance contract policy liabilities have been calculated in
accordance with AASB 1038 (Life Insurance Contracts) and the
Margin on Services (“MoS”) methodology as set out in Actuarial
Standard 1.04 – Valuation Standard (“AS1.04”) issued by the
Life Insurance Actuarial Standards Board (“LIASB”). The
principal methods and profit carriers used for particular product
groups were as follows:

Product Type
Individual
Conventional
Investment account
Lump sum risk
Income stream risk
Lifetime annuities

Group
Investment account
Lump sum risk
Income stream risk

Method

Projection
Projection
Projection
Projection
Projection

Profit Carrier

Bonuses or expected claim payment
Bonuses or funds under management
Premiums/expected claim payment
Expected claim payments
Annuity payments

Projection
Accumulation/Projection
Accumulation/Projection

Bonuses or funds under management
Expected claim payments
Expected claim payments

The “Projection Method” measures the present values of
estimated future policy cash flows to calculate policy liabilities.
The policy cash
income,
premiums, expenses, redemptions and benefit payments.

incorporate

investment

flows

Bonuses are amounts added, at the discretion of the life insurer,
to the benefits currently payable under Participating Business.
Under the Life Act, bonuses are a distribution to policyholders of
profits and may take a number of forms including reversionary
bonuses, interest credits and terminal bonuses (payable on the
termination of the policy).

180 Commonwealth Bank of Australia Annual Report 2007

Notes to the Financial Statements

Note 38 Life Insurance Business (continued)

Actuarial Assumptions

Set out below is a summary of the material assumptions used in the calculation of policy liabilities.

Discount Rates

Discount rates are used to discount future cash flows in the
determination of policy liabilities. Where insurance contract
benefits are linked to the performance of the underlying assets,
the discount rates are based on the expected earnings rate on
the assets held (Traditional and Investment Account contracts).
For all other insurance contracts, the discount rates are based
on risk free rates of return. Allowance is made for taxation
where relevant and for the nature and term of the liabilities.

Class of Business (1)

Traditional – ordinary business (after tax)
Traditional – superannuation business (after tax)
Annuity – term and lifetime (exempt from tax)
Term insurance – (before tax)
Income protection business (before tax)
Investment account – ordinary (after tax)
Investment account – superannuation (after tax)
Investment account – annuities (exempt from tax)

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.

June 2007
Rate Range %
4. 38 – 6. 34
5. 32 – 7. 75
6. 52 – 7. 09
6. 25 – 6. 46
6. 25 – 6. 46
4. 55
5. 53
6. 46

June 2006
Rate Range %
6. 00 – 6. 75
7. 33 – 8. 26
5. 79 – 6. 30
5. 58 – 5. 81
5. 58 – 5. 81
4. 21
5. 12
5. 98

(1) For New Zealand, investment earning rates assumed were 3.9% to 5.6% net of tax.

Bonuses

Taxation

The valuation assumes that the long-term supportable bonuses
will be paid, which is in line with company bonus philosophy.
Favourable investment performance over recent years has led
to increases in long-term supportable bonus rates.

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 businesses, expenses continue on the previous
charging basis with adjustments for actual experience, and are
inflation each year.
assumed
Maintenance expenses have increased on some products.

line with

increase

The taxation basis and rates assumed vary by market and
product type. There has been no significant change to the
taxation basis.

Voluntary Discontinuance

Discontinuance rates are based on recent company and industry
experience and vary by market, product, age and duration
line with
inforce. The experience has been broadly
assumptions. There have been no significant changes to these
assumptions.

Surrender Values

Current surrender value bases are assumed to apply in the
future. There have been no significant changes to these bases.

Investment Management Expenses

Mortality and Morbidity

Rates vary by sex, age, product type and smoker status. Rates
are based on standard mortality tables applicable to each
market e.g. IA95-97 in Australia for risk, IM/IF80 for annuities,
adjusted for recent Company experience where appropriate.
Mortality assumptions have been reduced on some term
insurance products.

Investment management expense assumptions vary by asset
classes and are based on investment fees as set out in Fund
Management Agreements. There has been no significant
change to overall investment fees.

Inflation

The inflation assumption is consistent with the investment
earning assumptions.

Benefit Indexation

The indexation rates are based on an analysis of past
experience and estimated long term inflation and vary by
business and product type. There have been no significant
changes to these assumptions.

Commonwealth Bank of Australia Annual Report 2007 181

Notes to the Financial Statements

Note 38 Life Insurance Business (continued)

Risk Management Policies and Procedures

The financial condition and operating results of the Life
Insurance Business in the Group are affected by a number of
key financial and non-financial risks. The objectives and policies
in respect of managing these risks are set out below.

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 are
greater than the best estimate assumptions used to determine
the policy liabilities of the business.

identify potential

Insurance risk is controlled by ensuring underwriting standards
adequately
in
accordance with policy wordings, 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 is reviewed annually.

risk, managing claims

Terms and Conditions of Insurance Contracts

The nature of the terms of the insurance contracts written is
such that certain external variables can be identified on which
related cash flows for claim payments depend. The tables
below provide an overview of the key variables upon which the
related cash flows are dependent.

Nature of compensation for
claims
Benefits, defined by the insurance
contracts, are determined by the
contract. They are not directly
affected by the performance of
underlying assets or the
performance of the contracts as a
whole.

Key variables that affect the
timing and uncertainty of future
cash flows
Mortality
Morbidity
Discontinuance rates
Expenses

Benefits arising from the
discretionary participation feature
are based on the performance of a
specified pool of contracts or a
specified type of contract.

Market earnings rates
Mortality
Discontinuance rates
Expenses

Managed Assets and Fiduciary Activities

Arrangements are in place to ensure that asset management
and other
fiduciary activities of controlled entities are
independent of the life insurance funds and other activities of the
Group.

Disaggregated Information

in Australia and overseas. Under

Life insurance business is conducted through a number of life
insurance entities
the
Australian Life Insurance Act 1995, life insurance business is
conducted within one or more separate statutory funds, which
are distinguished from each other and from the Shareholders’
funds. The Financial Statements of Australian life insurers
prepared in accordance with AASB 1038 (and which are lodged
with
regulators) show all major
components of the Financial Statements disaggregated between
the various life insurance statutory funds and their Shareholder
funds and as well as between investment linked business and
those relating to non-investment linked businesses.

relevant Australian

the

Type of Contract
Non-participating life insurance
contracts with guaranteed terms
(Term Life, Trauma, Disability and
Lifetime Annuities)

Detail of contract workings
Guaranteed benefits paid on death,
ill health or survival that are fixed
and not at the discretion of the
issuer.

Life insurance contracts with
discretionary participating benefits
(e.g. endowment and whole of life)

These policies include a clearly
defined initial guaranteed sum
assured which is payable on death
or maturity. The guaranteed
amount is increased throughout the
duration of the policy by the
addition of regular annual bonuses
which, once added, are not
removed. Bonuses are also added
on some products at maturity.

Solvency

Australian Life Insurers

to support solvency

Australian life insurers are required to hold prudential reserves in
excess of the amount of policy liabilities. These reserves are
required
requirements and provide
protection against adverse experience. Actuarial Standard
AS2.04 – “Solvency Standard” (“AS2.04”) prescribes a minimum
solvency requirement and the minimum level of assets required
to be held in each statutory fund. All controlled Australian
insurance entities complied with the solvency requirements of
AS2.04. Further information is available from the individual
statutory returns of subsidiary life insurers.

Overseas Life Insurers

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
is
local requirements. Further
available from the individual statutory returns of subsidiary life
insurers.

information

182 Commonwealth Bank of Australia Annual Report 2007

Notes to the Financial Statements

Note 39 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
Other services

Total Remuneration of Auditors

2007
$’000

12,368
90
12,458

2,520
256
2,776
15,234

Group
2006
$’000

9,481
176
9,657

5,122
1,423
6,545 (1)
16,202

2007
$’000

10,513
-
10,513

16
-
16
10,529

Bank
2006
$’000

7,559
-
7,559

1,660
782
2,442
10,001

(1) An additional amount of $4,948,000 (2006: $4,056,000) was paid to Ernst & Young by way of fees paid for Non-Audit Services provided to entities not consolidated
into the Financial Statements, being managed investment schemes and superannuation funds. $4,532,000 (2006: $3,923,000) of this amount relates to statutory
audits, with the residual relating to reviews attestations and assurances.

All other fees principally include transaction support services
related to potential and actual acquisition and disposition
transactions and advice regarding implementation of revised
compliance and regulatory requirements.

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. All such services were approved by the Audit
Committee in accordance with pre-approved policies and
procedures.

Audit related fees principally include audit of the Group’s US
disclosures for US investors, services in relation to regulatory
requirements and other services that only the external auditor
can provide, as well as investigations and reviews of internal
control systems and financial or regulatory information.

Note 40 Commitments for Capital Expenditure Not Provided for in the Accounts

Not later than one year
Total Commitments for Capital Expenditure Not Provided for in the
Accounts

2007
$M
34

Group
2006
$M
36

2007
$M
27

Bank
2006
$M
14

Commonwealth Bank of Australia Annual Report 2007 183

Notes to the Financial Statements

Note 41 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

2007
$M

313
778
264
1,355

Group
2006
$M

298
732
255
1,285

2007
$M

284
697
236
1,217

2007
$M

2
3
3
8

Bank
2006
$M

258
610
214
1,082

Group

2006
$M

3
3
2
8

The Group as lessee has no purchase options over premises
occupied. In a small number of cases, the Group as lessee has
a right of first refusal if the premises are to be sold.

There are no restrictions imposed on the Group’s lease of space
other
lease
forming part of
arrangements for each specific premise.

the negotiated

those

than

Group’s share of lease commitments of associated entities due:

No later than one year
Later than one year but not later than five years
Later than five years

Total Lease Commitments – Property, Plant and Equipment

Lease Arrangements

Leases entered into by the Group are for the purpose of
accommodating the business needs. Leases may be over retail,
commercial, industrial and residential premises and reflect the
needs of the occupying business and market conditions. All
leases are negotiated using either
internal or external
professional property resources acting for the Group.

Rental payments are determined in terms of relevant lease
requirements, usually reflecting market rentals.

184 Commonwealth Bank of Australia Annual Report 2007

Note 42 Contingent Liabilities, Assets and Commitments

Notes to the Financial Statements

The Group is involved in a range of transactions that give rise to
contingent and/or future liabilities which are distinct from
transactions and other events that result in the recognition of
liabilities. These transactions meet the financing requirements of
customers and include endorsed bills of exchange, letters of
credit, guarantees and commitments to provide credit. For
further details on these items refer Note 1 (gg).

Details of contingent liabilities and off-balance sheet business 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

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.

Documentary letters of credit represent an undertaking to pay or
accept drafts drawn by an overseas supplier of goods against
production of documents in the event of payment default by a
customer.

Performance related contingents involve undertakings by the
Group to pay third parties if a customer fails to fulfil a contractual
non-monetary obligation.

Commitments to provide credit include all obligations on the part
of the Group to provide credit facilities. These credit facilities are
both fixed and variable.

Fixed rate or fixed spread commitments extended to customers
that allow net settlement of the change in value of the
commitment are written options and are recorded at fair value
(Refer to Note 11).

Other commitments include the Group’s obligations under sale
and repurchase agreements, outright forward purchases and
forward deposits and underwriting facilities. Other commitments
also include obligations not already disclosed above to extend
credit, that are irrevocable because they cannot be withdrawn at
the discretion of the Bank without the risk of incurring significant
penalty or expense. In addition commitments to purchase or sell
loans are included in other commitments.

transactions are categorised and credit equivalents
The
risk based
calculated under APRA guidelines
measurement of capital adequacy. The credit equivalent
amounts are a measure of the potential loss to the Group in the
event of non-performance by the counterparty.

the

for

These transactions combine varying levels of credit, interest
rate, foreign exchange and liquidity risk. In accordance with
Bank policy, exposure to any of these transactions is not carried
at a level that would have a material adverse effect on the
financial condition of the Bank and its controlled entities.

2007
$M

Face Value
2006
$M

Group
Credit Equivalent
2006
$M

2007
$M

2,851
335
84
87
2,046
85,431
10,888
101,722

2,592
342
230
613
1,753
82,162
8,048
95,740

2,851
335
84
17
1,023
16,888
960
22,158

2,592
342
230
123
876
16,135
1,179
21,477

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. The amounts
reflected assume that the amounts may be fully advanced. The
contractual amount of these instruments is the maximum
amount at risk if the customer fails to meet its obligations. The
risk is similar to the risk involved in extending loan facilities.

As 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 $101,722 million
(2006: $95,740 million) detailed above also represent contingent
assets of the Group. Such commitments to provide credit may in
the normal course convert to loans and other assets of the
Group.

Litigation

The Bank is aware of a claim against a subsidiary that has been
filed in court, but not served, relating to amendments to a
superannuation plan made in 1990. The Bank does not believe,
on the information presently available to it, that the claim has
merit or that it will be material.

Neither the 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 Bank or any of its controlled entities. Where some loss is
probable and can be reliably estimated an appropriate provision
has been made.

Commonwealth Bank of Australia Annual Report 2007 185

Notes to the Financial Statements

Note 42 Contingent Liabilities, Assets and Commitments (continued)

Fiduciary Activities

The Group and its associated entities conduct investment management and other fiduciary activities as responsible entity, trustee,
custodian or manager for numerous investment funds and trusts, 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:

2007
$M

2006
$M

115,954
20,036
11,349
9,918
157,257

99,000
15,526
9,353
6,842
130,721

In 2004, the Bank entered into an agreement with Optus Pty Ltd
for the provision of Eftpos Telecommunications Services from 21
October 2004 until 21 October 2007. In March 2007 the Bank
and Optus extended this agreement until 31 August 2008. In
2006 the Bank and Optus entered into an agreement for the
provision of Mobile Telephony services until 2009.

In 2005, the Bank entered into an agreement with Telstra
Corporation Pty Ltd for the provision of Remote Access Services
from 14 July 2005 until 14 July 2008.

Failure to Settle Risk

The Bank is subject to a credit risk exposure in the event that
another financial institution fails to settle for its payments
clearing activities, in accordance with the regulations and
procedures of the following clearing systems of the Australian
Payments Clearing Association Limited: The Australian Paper
Clearing System (“Clearing Stream One”), The Bulk Electronic
Clearing System (“Clearing Stream Two”), The Consumer
Electronic Clearing System ("Clearing Stream Three") and the
High Value Clearing System (“Clearing Stream Four”, only if
operating in “bypass mode”). This credit risk exposure is
unquantifiable in advance, but is well understood, and is
extinguished upon settlement at 9am each business day.

Service Agreements

The maximum contingent liability for termination benefits in
respect of service agreements with the Chief Executive Officer
and other Group Key Management Personnel at 30 June 2007
was $5.1 million (2006: $6.3 million).

Funds under Administration
Australia
United Kingdom
New Zealand
Asia
Total

Certain entities within the Group act as responsible entity or
investment schemes
trustee of virtually all managed
(“schemes”), wholesale and retail trusts (“trusts”) managed by
the Group in Australia, the 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 10)
where an entity within the Group may act as a trustee. Where
entities within the Group act as responsible entity of managed
investment schemes, obligations may exist under the relevant
Constitutions whereby upon request from a scheme member,
the responsible entity has an obligation to redeem units from the
assets of those schemes. 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 2007. The Bank does
not provide a general guarantee of the performance or
obligations of its subsidiaries.

Long Term Contracts

On 30 June 2006, the Bank entered into a six year contract with
EDS (Australia) Pty Ltd, relating to the provision of Information
Technology Services. The contract was signed on 30 June 2006
and was effective from 1 July 2006.

In 1997, the Bank entered into a 10 year contract with EDS
(Australia) Pty Ltd, relating to the provision of Information
Technology Services. This arrangement is in place for remaining
services and has been extended until 28 May 2008.

for

Ltd

the

provision

(TCNZA)

In 2000, the Bank entered into a five year agreement with TCNZ
Australia Pty
of
telecommunications services. In late 2005, the Bank entered into
two separate agreements with TCNZA for the provision of
Network Perimeter Security Services from 1 January 2006 until
1 January 2008 as well as Data Communications Services
effective from 1 September 2005 until 1 September 2008. The
remainder of telecommunication services, with the exception of
Eftpos, Remote Access Services and Mobile Telephony services
currently provided under the Telecommunications Services
Agreement by TCNZA to the Bank, were extended until 1
September 2008. In May 2007 the Bank and TCNZA further
extended the agreement for these services due to expire on 1
September 2008 to 28 February 2009.

186 Commonwealth Bank of Australia Annual Report 2007

Notes to the Financial Statements

Note 42 Contingent Liabilities, Assets and Commitments (continued)

Collateral

The Group has secured liabilities of $5,516 million ($2,354 million in 2006). The table below sets out the assets pledged to secure these
liabilities.

Assets pledged

Cash
Assets at fair value through Income Statement
Available-for-sale investments
Assets pledged

2007
$M
2,069
3,525
-
5,594

Group
2006
$M
1,633 (1)
1,192
58
2,883

2007
$M
2,069
3,525
-
5,594

Bank
2006
$M
1,633
1,192
58
2,883

Thereof can be repledged or resold by counterparty

3,525

1,192

3,525

1,192

(1) These balances include assets sold under repurchase agreements. The liabilities related to these repurchase agreements are disclosed in Note 23.

Collateral held

Cash
Assets at fair value through Income Statement
Collateral held

2007
$M
379
3,271
3,650

Group
2006
$M
312
2,334
2,646

2007
$M
379
3,271
3,650

Bank
2006
$M
312
2,334
2,646

Note 43 Market Risk

The Group in its daily operations is exposed to a number of
market risks. Market risk relates to the risk that market rates and
prices will change and that this will have an adverse affect on
the profitability and/or net worth of the Group, e.g. an adverse
interest rate movement. Market risk also includes the operational
risks of market access for funding and liquidity.

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 the
risk tolerance of the Group. Regular market risk reports are
tabled before the Risk Committee of the Board.

Within the Group, market risk is greatest in the Balance Sheets
of the Banking and Insurance businesses. Market risk also
arises in the course of its intermediation activities in financial
services and in financial markets trading.

Market Risk in Balance Sheet Management

The Risk Committee of the Board approves the Bank’s Balance
Sheet market risk policies and limits. Implementation of the
policy is delegated to the Group Executives of the associated
business units with senior management oversight by the
Group’s Asset and Liability Committee.

For Bank Balance Sheets, market risk includes liquidity risks,
funding risks, 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 actuarially
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 scenarios.

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:

• 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 requirements are integrated into the Group’s liquidity
and funding 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 a large portion of its
AUD funding from a stable retail deposit base, which has a lower
interest cost than wholesale funds. 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. Funding diversification is particularly important in offshore
markets where the absence of any “natural” offshore funding
base means the Group is principally reliant on wholesale money
market and capital market sources for funding. The Group has
imposed internal prudential constraints on the relative mix of
offshore sources of funds.

Commonwealth Bank of Australia Annual Report 2007 187

Notes to the Financial Statements

Note 43 Market Risk (continued)

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.

Market Risk

Australia
Cheque accounts
Savings accounts
Term deposits
Cash management accounts
Debt issues
Bank acceptances
Certificates of deposits
Life insurance policy liabilities
Loan capital
Securities sold under agreements to repurchase and short sales
Liabilities at fair value through Income Statement
Managed funds units on issue
Other
Total Australia

Overseas
Deposits and interbank
Commercial paper
Life insurance policy liabilities
Other debt issues
Loan capital
Liabilities at fair value through Income Statement
Total Overseas
Total Funding Sources

Provisions and other liabilities
Total Liabilities

2007
$M

43,795
32,862
50,888
23,999
70,944
18,721
20,165
19,078
9,195
3,323
4,133
310
4,208
301,621

38,528
9,108
2,535
5,438
805
15,298
71,712
373,333

27,362
400,695

Group

2006
$M

31,962
32,070
43,210
23,387
65,426
18,310
18,185
20,001
8,887
1,380
1,948
1,109
3,354
269,229

30,863
7,710
2,224
5,455
1,008
11,863
59,123
328,352

19,408
347,760

188 Commonwealth Bank of Australia Annual Report 2007

Notes to the Financial Statements

Note 43 Market Risk (continued)

Interest rate risk (Banking)

(b) Economic value

Some of the Group’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
Group 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 Group are based on the
expected repricing characteristics of those products.

The total cash flows are revalued under a range of possible
interest rate scenarios using 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
hedging purposes.

Exposure as at 30 June
Average monthly exposure
High month exposure
Low month exposure

2007
$M
39
60
130
8

2006
$M
117
53
127
7

Interest rate risk in the Group Balance Sheet arises from the

potential for a change in interest rates to change the expected

net interest earnings, in the current reporting period and in future

years. Similarly, interest rate risk also arises from the potential

for a change in interest rates to cause a fluctuation in the fair

value of the financial instruments. Interest rate risk arises from

the structure and characteristics of the Group’s assets, liabilities

and equity, and in the mismatch in repricing dates of its assets

and liabilities. The objective is to manage the interest rate risk to

achieve stable and sustainable net interest earnings in the long

term.

The Group measures and manages Balance Sheet interest rate

risk from two perspectives:

(a) Next 12 months’ earnings

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 Group) 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 following table represent the potential
unfavourable 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
(increase) and the expected unfavourable net change in price of
assets and liabilities held for purposes other than trading.

(expressed as a percentage of
expected next 12 months’ earnings)
Average monthly exposure
High month exposure
Low month exposure

2007
%

1. 3
2. 2
0. 4

2006
%

1. 1
2. 1
0. 2

Commonwealth Bank of Australia Annual Report 2007 189

Notes to the Financial Statements

Note 43 Market Risk (continued)
The following table represents the Group’s contractual interest
rate sensitivity for repricing mismatches as at 30 June 2007 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.

Interest Rate Risk Sensitivity

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.

Repricing Period at 30 June 2007

Australia
Assets
Cash and liquid assets
Receivables due from other
financial institutions
Assets at fair value through Income
Statement:
Trading
Insurance
Other

Derivative assets
Available-for-sale investments
Loans, advances and other
receivables
Bank acceptances of customers
Investment property
Property, plant and equipment
Investment in associates
Intangible assets
Deferred tax assets
Other assets
Assets held for sale
Total Assets

Liabilities
Deposits and other public
borrowings
Payables due to other financial
institutions
Liabilities at fair value through
Income Statement
Derivative liabilities
Bank acceptances
Current tax liabilities
Deferred tax liabilities
Other provisions
Insurance policy liabilities
Debt issues
Managed funds units on issue
Bills payable and other liabilities

Loan capital
Total Liabilities

Shareholders’ Equity
Share capital and other equity
Minority interests
Total Shareholders’ Equity

Derivatives

Net Mismatch
Cumulative Mismatch

Balance
Sheet
Total
$M

0 to 1
month
$M

1 to 3
months
$M

3 to 6
months
$M

6 to 12
months
$M

1 to 5
years
$M

Over 5
years
$M

Not
Interest
Bearing
$M

Weighted
Average
Rate
%

5,984

5,173

2,809

2,375

288

19,011
20,820
423
8,974
5,445

246,565
18,721
-
1,229
836
7,254
771
5,982
303
345,127

18,935
-
401
-
569

154,463
-
-
-
-
-
-
-
-
181,916

50
2,801
-
-
392

15,785
-
-
-
-
-
-
-
-
19,318

-
112
-
-
348

6,930
-
-
-
-
-
-
-
-
7,423

-
169
-
-
392

14,298
-
-
-
-
-
-
-
-
14,859

809

5. 44

113

4. 78

-
3,403
22
-
2,273

52,217
-
-
-
-
-
-
-
-
57,915

-
3,492
-
-
683

3,813
-
-
-
-
-
-
-
-
7,988

26
10,843
-
8,974
788

(941)
18,721
-
1,229
836
7,254
771
5,982
303
55,708

5. 64
6. 94
6. 42
-
6. 44

7. 43
-
-
-
-
-
-
-
-

(3)

175,032

116,046

23,700

14,529

11,927

1,644

524

6,662

5. 71

4,208

3,681

120

111

296

5. 59

4,133
13,140
18,721
866
1,181
842
19,079
70,944
310
7,295
315,751
9,195
324,946

23,536
7
23,543

(2)

3,856
-
-
-
-
-
-
11,357
-
-
134,940
525
135,465

-
-
-
-
-
-
-
20,771
-
-
44,591
3,892
48,483

68
-
-
-
-
-
-
5,304
-
-
20,012
119
20,131

37
-
-
-
-
-
-
6,818
-
-
19,078
-
19,078

150
-
-
-
-
-
-
18,503
-
-
20,297
1,307
21,604

-
22
13,140
-
18,721
-
866
-
1,181
-
-
842
- 19,079 (1)
-
310
7,295
68,096
-
68,096

8,191
-
-
8,737
3,352
12,089

6. 21
-
-
-
-
-
-
6. 33
-
-
-
5. 88
(3)

-
-
-

23,536
7
23,543

-
-
-

13,671

(7,646)

(14,440)

12,238

(3,331)

(492)

60,122
60,122

(36,811)
23,311

(27,148)
(3,837)

8,019
4,182

32,980
37,162

(4,593)
32,569

(35,931)
(3,362)

(3)

(1) 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.

(2) No Balance Sheet amount applicable.

(3) No rate applicable.

190 Commonwealth Bank of Australia Annual Report 2007

Notes to the Financial Statements

Note 43 Market Risk (continued)

Interest Rate Risk Sensitivity

Repricing Period at 30 June 2007

Balance
Sheet
Total
$M

0 to 1
month
$M

1 to 3
months
$M

3 to 6
months
$M

6 to 12
months
$M

1 to 5
years
$M

Over 5
years
$M

Overseas
Assets
Cash and liquid assets
Receivables due from other
financial institutions
Assets at fair value through Income
Statement:
Trading
Insurance
Other

Derivative assets
Available-for-sale investments
Loans, advances and other
receivables
Property, plant and equipment
Investment in associates
Intangible assets
Deferred tax assets
Other assets
Assets held for sale
Total Assets

Liabilities
Deposits and other public
borrowings
Payables due to other financial
institutions
Liabilities at fair value through
Income Statement
Derivative liabilities
Current tax liabilities
Deferred tax liabilities
Other provisions
Insurance policy liabilities
Debt issues
Bills payable and other liabilities

Loan capital
Total Liabilities

Shareholders’ Equity
Share capital and other equity
Minority interests
Total Shareholders’ Equity

Derivatives

Net Mismatch
Cumulative Mismatch

4,124

3,681

2,686

734

358

979

2,458
2,699
3,650
3,769
4,227

53,214
207
-
581
151
1,175
1,071
80,012

390
1,043
426
-
480

16,674
-
-
-
-
-
-
23,428

1,296
1
2,520
-
2,025

6,842
-
-
-
-
-
-
14,021

153
1
74
-
714

3,893
-
-
-
-
-
-
4,958

132
-
333
-
580

5,348
-
-
-
-
-
-
6,401

367
26
253
-
417

19,583
-
-
-
-
-
-
20,646

28,350

16,174

4,126

2,992

2,307

933

10,178

7,895

1,292

572

419

95
-
-
-
-
-
872
-
25,036
-
25,036

9,297
-
-
-
-
-
3,225
-
17,940
-
17,940

-
-
-

1,577
-
-
-
-
-
1,297
-
6,438
-
6,438

-
-
-

1,199
-
-
-
-
-
7,872
-
11,797
-
11,797

-
-
-

3,120
-
-
-
-
-
1,280
-
5,333
182
5,515

-
-
-

15,298
3,540
16
395
36
2,534
14,546
51
74,944
805
75,749

396
505
901

(2)

Not
Interest
Bearing
$M

Weighted
Average
Rate
%

6. 96

865

5. 21

-
1,556
21
3,769
3

(93)
207
-
581
151
1,175
765
9,036

7. 58
2. 33
7. 50
-
5. 39

7. 96
-
-
-
-
-
10. 00
(3)

1,818

6. 51

4. 75

-
3,540
16
395
36
2,534 (1)
-
51
8,390
-
8,390

5. 69
-
-
-
-
-
5. 30
-
-
5. 73
(3)

396
505
901

-
-
-

120
72
23
-
8

967
-
-
-
-
-
306
1,522

10
-
-
-
-
-
-
-
10
623
633

-
-
-

(1,857)

19,777

(2,668)

(16,801)

1,517

(3,465)
(3,465)

15,858
14,393

(1,448)
10,945

(8,064)
2,881

(1,670)
1,211

2,406
3,617

(255)
3,362

(3)

(1) 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.

(2) No Balance Sheet amount applicable.

(3) No rate applicable.

Commonwealth Bank of Australia Annual Report 2007 191

Notes to the Financial Statements

Note 43 Market Risk (continued)

Interest Rate Risk Sensitivity

Australia
Assets
Cash and liquid assets
Receivables due from other
financial institutions
Assets at fair value through Income
Statement:
Trading
Insurance
Other

Balance
Sheet
Total
$M

0 to 1
month
$M

1 to 3
months
$M

3 to 6
months
$M

6 to 12
months
$M

1 to 5
years
$M

Over 5
years
$M

Not
Interest
Bearing
$M

Weighted
Average
Rate
%

Repricing Period at 30 June 2006

4,393

3,413

3,191

2,348

687

12,832
22,091
394
6,924
6,011

217,054
18,310
258
1,156
178
7,057
610
4,270
1

12,763
660
343
-
1,657

140,016
-
-
-
-
-
-
-
-

50
333
38
-
385

16,557
-
-
-
-
-
-
-
-

18,050

-
1,800
-
-
369

6,677
-
-
-
-
-
-
-
-

8,883

-
102
13
-
193

13,371
-
-
-
-
-
-
-
-

13,679

980

5. 05

119

5. 31

-
2,099
-
-
2,453

38,294
-
-
-
-
-
-
-
-

42,846

-
1,777
-
-
340

3,204
-
-
-
-
-
-
-
-

5,321

19
15,320
-
6,924
614

(1,065)
18,310
258
1,156
178
7,057
610
4,270
1

54,751

6. 17
6. 28
6. 20
-
7. 41

7. 14
-
-
-
-
-
-
-
-

(3)

Total Assets

304,730

161,200

Liabilities
Deposits and other public
borrowings
Payables due to other financial
institutions
Liabilities at fair value through
Income Statement
Derivative liabilities
Bank acceptances
Current tax liabilities
Deferred tax liabilities
Other provisions
Insurance policy liabilities
Debt issues
Managed funds units on issue
Bills payable and other liabilities

Loan capital

Total Liabilities

Shareholders’ Equity
Share capital and other equity
Minority interests
Total Shareholders’ Equity

150,194

102,755

19,413

11,508

8,611

1,924

111

5,872

4. 53

3,354

2,967

161

215

4. 70

1,948
8,557
18,310
368
1,234
794
20,001
65,426
1,109
5,156
276,451
8,887

1,948
-
-
-
-
-
-
10,562
-
-
118,232
1,093

285,338

119,325

-
-
-
-
-
-
-
25,766
-
-
45,340
2,484

47,824

-
-
-
-
-
-
-
7,791
-
-
19,514
628

20,142

-
-
-
-
-
-
-
2,457
-
-
11,074
-

11,074

-
-
-
-
-
-
-
14,854
-
-
16,783
1,266

18,049

-
-
8,557
-
18,310
-
368
-
1,234
-
-
794
- 20,001 (1)
58
1,109
5,156
61,459
-

3,938
-
-
4,049
3,416

7,465

61,459

5. 52
-
-
-
-
-
-
5. 99
-
-

5. 22
(3)

19,782
3
19,785

-
-
-

19,782
3
19,785

-
-
-

Derivatives

Net Mismatch
Cumulative Mismatch

(2)

2,827

(25,735)

9,069

11,447

1,378

1,014

44,702
44,702

(55,509)
(10,807)

(2,190)
(12,997)

14,052
1,055

26,175
27,230

(1,130)
26,100

(26,493)
(393)

(3)

(1) 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.

(2) No Balance Sheet amount applicable.

(3) No rate applicable.

192 Commonwealth Bank of Australia Annual Report 2007

Notes to the Financial Statements

Note 43 Market Risk (continued)

Interest Rate Risk Sensitivity

Repricing Period at 30 June 2006

Balance
Sheet
Total
$M

0 to 1
month
$M

1 to 3
months
$M

3 to 6
months
$M

6 to 12
months
$M

1 to 5
years
$M

Over 5
years
$M

Overseas
Assets
Cash and liquid assets
Receivables due from other
financial institutions
Assets at fair value through Income
Statement:
Trading
Insurance
Other

Total Assets

Loan capital

Total Liabilities

Shareholders’ Equity
Share capital and other equity
Minority interests
Total Shareholders’ Equity

Derivatives

Net Mismatch
Cumulative Mismatch

1,475

1,367

3,916

3,112

445

157

2,926
2,346
1,813
2,751
5,192

42,122
157
12
752
40
871
-

64,373

467
832
814
-
471

10,102
-
-
-
-
-
-

17,165

1,470
1
911
-
2,493

5,812
-
-
-
-
-
-

11,199

513
3
26
-
1,172

5,433
-
-
-
-
-
-

7,313

10
1
8
-
352

4,981
-
-
-
-
-
-

5,352

23,033

10,694

6,937

2,567

1,015

7,830

5,144

1,018

283

178

5,541
-
-
-
-
-
4,767
-
26,146
-

26,146

3,993
-
-
-
-
-
4,093
-
16,041
-

16,041

-
-
-

1,271
-
-
-
-
-
69
-
4,190
-

4,190

-
-
-

406
-
-
-
-
-
136
-
1,735
-

1,735

-
-
-

11,863
2,263
10
102
27
2,224
13,165
897
61,414
1,008

62,422

1,053
505
1,558

(2)

299
17
9
-
684

15,446
-
-
-
-
-
-

16,462

651

322

641
-
-
-
-
-
4,100
-
5,714
253

5,967

-
-
-

Not
Interest
Bearing
$M

Weighted
Average
Rate
%

1. 64

167

3. 64

1
1,469
45
2,751
(1)

(71)
157
12
752
40
871
-

6. 20
2. 09
7. 42
-
4. 73

7. 37
-
-
-
-
-
-

6,225

(3)

1,166

5. 69

885

3. 69

-
2,263
10
102
27
2,224 (1)
-
897
7,574
15

7,589

4. 83
-
-
-
-
-
5. 22
-

3. 96
(3)

166
23
-
-
21

419
-
-
-
-
-
-

657

11
-
-
-
-
-
-
-
14
740

754

-
-
-

1,053
505
1,558

-
-
-

5,632

12,782

(2,464)

(3,650)

(11,806)

(494)

(3,349)
(3,349)

7,940
4,591

659
5,250

(33)
5,217

(1,311)
3,906

(591)
3,315

(2,922)
393

(3)

(1) 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.

(2) No Balance Sheet amount applicable.

(3) No rate applicable.

Commonwealth Bank of Australia Annual Report 2007 193

Notes to the Financial Statements

Note 43 Market Risk (continued)

Within 6 months
Within 6 months – 1 year
Within 1 – 2 years
Within 2 – 5 years
After 5 years
Net deferred gains (1)

Exchange Rate
Related Contracts

Interest Rate
Related Contracts

2007
$M
39
-
-
-
-
39

2006
$M
-
-
-
-
-
-

2007
$M
10
228
123
199
38
598

2006
$M
6
7
55
(10)
30
88

2007
$M
49
228
123
199
38
637

Total

2006
$M
6
7
55
(10)
30
88

(1) Following the adoption of AASB 132 and AASB 139 at 1 July 2005 all derivatives including hedging derivatives are now at fair value on the Balance Sheet. For
further details refer to Note 11. The above data reflects those hedge derivatives classified as Cash Flow hedges which have been deferred into the Cash Flow
Hedge Reserve.

Foreign exchange risk

Market Risk in Financial Markets Trading

The Group trades and distributes financial markets products and
provides risk management services to clients on a global basis.

The objectives of the Group’s financial markets activities are to:

• Provide

risk management products and services

customers;

• Efficiently assist in managing the Group’s own market risks;

and

• Conduct profitable trading within a controlled framework,
leveraging off the Group’s market presence and expertise.

The Group maintains access to markets by quoting bid and offer
prices with other market makers and carries an inventory of
treasury and capital market instruments, including a broad range
of securities and derivatives.

In foreign exchange, the Group is a participant in all major
currencies and is a major participant in the Australian dollar
market, providing services
institutional,
corporate and retail customers. Positions are also taken in the
interest rate, debt, equity and commodity markets based on
views of future market movements.

for central banks,

Income is earned from spreads achieved through market making
and from taking market risk. All trading positions are valued at
fair value 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.

Assets at fair value through Income Statement - Trading are
further detailed in Note 10. Note 2 details Financial Markets
Trading Income contribution to the income of the Group. In
addition, this contribution provides important diversification
benefits to the Group.

Foreign exchange risk is the risk to earnings and value caused
by a change in foreign exchange rates. The Group principally
hedges Balance Sheet foreign exchange risks except for long
term investments in offshore subsidiaries.

Market Risk in Financial Services

life

the

insurance business arises

Market risk
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 2007,
Shareholders funds in the life insurance business are invested
78% in income assets (cash and fixed interest) and 22% in
growth assets (shares and property) with the asset mix varying
from Company to Company. Policyholder funds are invested to
meet policyholder reasonable expectations without putting the
Shareholder at undue risk.

leases

The Group provides operating
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
Group utilises policies, limits, controls and industry experts to
ensure that the residual value of equipment is prudently
estimated at the start of the lease and the Group realises the
maximum value of the equipment at lease expiry.

194 Commonwealth Bank of Australia Annual Report 2007

Notes to the Financial Statements

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).

Note 43 Market Risk (continued)

The following table details the Group’s outstanding derivative
contracts as at the end of the year. Each derivative type is split
between those held for “Trading” purposes, those held for
“Hedging” purposes, and “Other” derivatives. Derivatives
classified as “Hedging” are transactions entered into in order to
manage the risks arising from non traded assets, liabilities and
commitments
in Australia and offshore centres. Other
derivatives are those held in relation to a portfolio designated at
fair value through Income Statement.

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.

Derivatives
Exchange rate related contracts
Forwards
Trading
Hedging
Other derivatives

Total Forwards
Swaps

Trading
Hedging
Other derivatives

Total Swaps
Futures

Trading
Hedging
Other derivatives

Total Futures
Options purchased and sold

Trading
Hedging
Other derivatives

Total Options Purchased and Sold
Total Exchange Rate Related Contracts

Face Value

2006
$M

2007
$M

Group
Credit Equivalent

2007
$M

2006
$M

287,107
1,285
8,374
296,766

130,962
14,193
7,834
152,989

-
-
-
-

57,220
-
164
57,384
507,139

247,862
1,253
6,802
255,917

104,942
16,231
5,838
127,011

8,063
-
-
8,063

17,051
101
252
17,404
408,395

4,563
1
159
4,723

5,121
1,327
304
6,752

-
-
-
-

822
-
4
826
12,301

4,314
16
242
4,572

2,730
330
334
3,394

-
-
-
-

240
3
8
251
8,217

Commonwealth Bank of Australia Annual Report 2007 195

Notes to the Financial Statements

Note 43 Market Risk (continued)

Interest rate related contracts
Forwards
Trading
Other derivatives

Total Forwards
Swaps

Trading
Hedging
Other derivatives

Total Swaps
Futures

Trading
Hedging
Other derivatives

Total Futures
Options purchased and sold

Trading
Hedging
Other derivatives

Total Options Purchased and Sold
Total Interest Rate Related Contracts

Credit risk related contracts
Swaps

Trading
Other derivatives

Total Swaps
Total Credit Risk Related Contracts

Equity risk related contracts
Swaps

Trading
Hedging
Total Swaps
Options purchased and sold

Hedging
Other derivatives

Total Options Purchased and Sold
Total Equity Risk Related Contracts

Commodity contracts
Forwards

Other derivatives

Total Forwards
Swaps

Trading
Hedging
Total Swaps
Options purchased and sold

Trading

Total Options Purchased and Sold
Total Commodity Contracts

Total Embedded Derivatives
Total Derivative Exposures

196 Commonwealth Bank of Australia Annual Report 2007

Face Value

2006
$M

2007
$M

Group
Credit Equivalent

2007
$M

2006
$M

6,956
5,673
12,629

433,693
105,724
29,802
569,219

142,487
-
5,313
147,800

46,036
-
1,445
47,481
777,129

5,928
-
5,928
5,928

381
292
673

-
21
21
694

-
-

2,506
1
2,507

2,408
2,408
4,915

64,865
7,691
72,556

404,493
95,321
8,069
507,883

83,075
1,500
1,916
86,491

34,899
-
627
35,526
702,456

3,073
275
3,348
3,348

-
159
159

-
171
171
330

5
5

2,944
47
2,991

1,522
1,522
4,518

32
2
34

6,159
1,583
370
8,112

78
-
-
78

418
-
5
423
8,647

488
-
488
488

44
18
62

-
2
2
64

-
-

642
-
642

203
203
845

19
2
21

4,031
283
67
4,381

-
-
-
-

238
-
2
240
4,642

263
-
263
263

-
3
3

-
19
19
22

1
1

563
1
564

152
152
717

148
1,295,953

-
1,119,047

2
22,347

-
13,861

Notes to the Financial Statements

Note 44 Retirement Benefit Obligations

Name of Plan

Officers’ Superannuation Fund
(“OSF”)
Commonwealth Bank of Australia
(UK) Staff Benefits Scheme
(“CBA(UK)SBS”)

Type
Defined Benefits (1) and
Accumulation

Defined Benefits (1) and
Accumulation

Form of Benefit
Indexed pension and
lump sum

Indexed pension and
lump sum

Date of Last Actuarial
Assessment of the Fund

30 June 2006

1 July 2005 (2)

(1) The defined benefit formulae are generally comprised of final superannuation salary, or final average superannuation salary, and service.

(2) An actuarial assessment of the CBA(UK)SBS at 1 July 2007 is currently in progress.

Contributions

Entities of the Group contribute to the plans listed in the above
table 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 2006 was
completed during the year ended 30 June 2007. In line with the
actuarial advice contained in the assessment, the Bank does
not intend to make contributions to the OSF until further
consideration of the next actuarial assessment of the OSF as at
30 June 2009.

Funding Status of Defined Benefit Plans

An actuarial assessment of the CBA(UK)SBS at 1 July 2005
revealed a deficit of GBP32 million (AUD 76 million at the 30
June 2007 exchange rate). Following from this assessment, the
Bank agreed to contribute at the fund actuary’s recommended
contribution rates. These rates included amounts to finance
future accruals of defined benefits (contributions estimated at
AUD 4 million per annum at the 30 June 2007 exchange rate)
and additional contributions of GBP 3.24 million per annum
(AUD 8 million per annum at the 30 June 2007 exchange rate)
payable over 14 years to finance the fund deficit. An actuarial
assessment of the CBA(UK)SBS at 1 July 2007 is currently in
progress.

Net Market Value of Assets (3)
Present Value of Accrued Benefits (4)
Difference between Net Market Value of Assets And Present Value of Accrued Benefits
Differences as a percentage of plan assets (%)
Value of Vested Benefits (4)

(1)

OSF

CBA(UK)
(2)
SBS

$M
6,995
4,899
2,096
30
4,899

$M
370
425
(55)
(15)
420

Total

$M
7,365
5,324
2,041
28
5,319

(1) The values for the OSF are the fund actuary’s estimates as at 31 March 2007.

(2) The values for the CBA(UK)SBS are the fund actuary’s estimates as at 31 March 2007.

(3) These values have been extracted from the fund Financial Statements as at 31 March 2007 (which are unaudited).

(4) The Present Value of Accrued Benefits and Value of Vested Benefits for the OSF have been calculated in accordance with the Australian Accounting Standard
AAS25 – Financial Reporting by Superannuation Plans. For the 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.

Commonwealth Bank of Australia Annual Report 2007 197

Notes to the Financial Statements

Note 44 Retirement Benefit Obligations (continued)

Defined Benefit Superannuation Plans

The amounts reported in the Balance Sheet are reconciled as follows:

Present value of funded obligations
Fair value of plan assets
Total pension assets as at 30 June
Present value of unfunded obligations
Unrecognised past service cost
Unrecognised actuarial gains and (losses)
Asset/(liability) in Balance Sheet as at 30 June
Amounts in the Balance Sheet:

Liabilities (Note 30)
Assets (Note 21)

Net Asset

The amounts recognised in the Income Statement
are as follows:
Current service cost
Interest cost
Expected return on plan assets
Past service cost
Employer financed benefits within Accumulation
Division
Gains and (losses) on curtailment and settlements
Actuarial gains and (losses) recognised in Income
Statement
Total included in defined benefit superannuation
plan income/ (expense) (Note 2)
Actual Return on Plan Assets

Changes in the present value of the defined benefit
obligation are as follows:

Opening defined benefit obligation
Current service cost
Interest cost
Member contributions
Actuarial gains and (losses)
(Losses) and gains on curtailments
Liabilities extinguished on settlements
Liabilities assumed in a business combination
Benefits paid
Exchange differences on foreign plans
Closing Defined Benefit Obligation

Changes in the fair value of plan assets are as
follows:

Opening fair value of plan assets
Expected return
Experience gains and (losses)
Assets distributed on settlements
Total contributions
Assets acquired in a business combination
Exchange differences on foreign plans
Benefits and expenses paid
Employer financial benefits within Accumulation
Division
Closing Fair Value of Plan Assets

2007
$M
(3,094)
4,907
1,813
-
-
-
1,813

-
1,813
1,813

(30)
(188)
368
-

(137)
-

13
650

(3,388)
(27)
(188)
(13)
290
-
-
-
232
-
(3,094)

4,616
368
282
-
13
-
-
(235)

(137)
4,907

OSF

2006
$M
(3,388)
4,616
1,228
-
-
-
1,228

-
1,228
1,228

(39)
(173)
312
-

(129)
-

(29)
668

(3,593)
(36)
(173)
(14)
184
-
-
-
244
-
(3,388)

4,310
312
356
-
14
-
-
(247)

(129)
4,616

CBA(UK)SBS

2006
$M
(430)
365
(65)
-
-
-
(65)

(65)
-
(65)

(5)
(21)
20
-

-
-

(6)
22

(408)
(5)
(21)
-
12
-
-
-
12
(20)
(430)

329
20
2
-
11
-
15
(12)

-
365

2007
$M
(3,495)
5,279
1,784
-
-
-
1,784

(29)
1,813
1,784

(35)
(209)
389
-

(137)
-

8
669

(3,818)
(32)
(209)
(13)
312
-
-
-
247
18
(3,495)

4,981
389
280
-
31
-
(15)
(250)

(137)
5,279

2007
$M
(401)
372
(29)
-
-
-
(29)

(29)
-
(29)

(5)
(21)
21
-

-
-

(5)
19

(430)
(5)
(21)
-
22
-
-
-
15
18
(401)

365
21
(2)
-
18
-
(15)
(15)

-
372

Total

2006
$M
(3,818)
4,981
1,163
-
-
-
1,163

(65)
1,228
1,163

(44)
(194)
332
-

(129)
-

(35)
690

(4,001)
(41)
(194)
(14)
196
-
-
-
256
(20)
(3,818)

4,639
332
358
-
25
-
15
(259)

(129)
4,981

198 Commonwealth Bank of Australia Annual Report 2007

Notes to the Financial Statements

Note 44 Retirement Benefit Obligations (continued)
Defined Benefit Superannuation Plans (continued)

Experience gains and (losses) on plan liabilities
Experience gains and (losses) on plan assets
Gains and (losses) from changes in actuarial
assumptions
Total net actuarial gains

2007
$M
31
282

259
572

OSF

2006
$M
(55)
356

239
540

CBA(UK)SBS

2007
$M
(3)
(2)

25
20

2006
$M
15
2

(3)
14

2007
$M
28
280

284
592

Total

2006
$M
(40)
358

236
554

Actuarial gains and losses represent experience adjustments on plan assets and liabilities as well as adjustments arising from changes
in actuarial assumptions. Total net actuarial gains recognised in equity from commencement of AIFRS to 30 June 2007 were $1,300
million.

Economic Assumptions

The above calculations were based on the following economic assumptions:
Discount rate at 30 June (gross of tax)
Expected return on plan assets at 30 June
Expected rate salary increases at 30 June (per annum)

2007
%

6. 30
8. 50
4. 75 (1)

OSF

2006
%

5. 80
8. 25
4. 75 (1)

CBA(UK)SBS

2006
%

5. 25
6. 00
4. 10

2007
%

5. 80
6. 30
4. 30

(1) For the OSF, additional age related allowances were made for the expected salary increases from future promotions. At 30 June 2006 and 30 June 2007, these

assumptions were broadly between 1.6% and 2.6% per annum for full-time employees and 1.0% per annum for part-time employees.

The return on asset assumption for the OSF is determined as
the weighted average of the long term expected returns of each
asset class where the weighting is the benchmark asset
allocations of the assets backing the defined benefit risks. The
long term expected returns of each asset class are determined
following receipt of actuarial advice. The discount rate (gross of
tax) assumption for the OSF is based on the yield on 10 year

Expected Life Expectancies for Pensioners

Male pensioners currently aged 60
Male pensioners currently aged 65
Female pensioners currently aged 60
Female pensioners currently aged 65

In addition

Australian government securities.
financial
assumptions, the mortality assumptions for pensioners can
materially
the defined benefit obligations. These
assumptions are age related and allowances are made for
future improvement in mortality. The expected life expectancies
for pensioners are set out below:

impact

2007
Years
30. 2
25. 4
33. 6
28. 5

OSF

2006
Years
30. 1
25. 3
33. 5
28. 4

CBA(UK)SBS

2006
Years
22. 9
18. 5
25. 9
21. 4

2007
Years
23. 2
18. 7
26. 2
21. 6

Further, the proportion of the retiring members of the main OSF
defined benefit division electing to take pensions instead of lump
sums may materially impact the defined benefit obligations. 30%
of these retiring members were assumed to take pension
benefits, increasing to 50% in 2020.

Australian and UK legislation requires that superannuation
(pension) benefits be provided through trusts. These trusts
(including their investments) are managed by trustees who are
legally independent of the employer. The investment objective
of the OSF (the Bank’s major superannuation (pension) plan) is
“to maximise the long term rate of return subject to net returns
over rolling five year periods exceeding the growth in Average

Weekly Ordinary Time Earnings (AWOTE) 80% of the time”. To
meet this investment objective, the OSF Trustee invests a large
part of the OSF’s assets in growth assets, such as shares and
property. These assets have historically earned higher rates of
return than other assets, but they also carry higher risks,
especially in the short term. To manage these risks, the Trustee
has adopted a strategy of spreading the OSF’s investments
over a number of asset classes and investment managers.

As at 30 June 2007, the benchmark asset allocations and
actual asset allocations for the assets backing the defined
benefit portion of the OSF are as follows:

Asset Allocations

Australian Equities
Overseas Equities
Real Estate
Fixed Interest Securities
Cash
Other (1)

Benchmark Allocation
%
27. 5
21. 0
15. 0
25. 5
5. 0
6. 0

Actual Allocation
%
30. 1
20. 8
12. 9
25. 2
6. 2
4. 8

(1) These are assets which are not included in the traditional asset classes of equities, fixed interest securities, real estate and cash. They include infrastructure

investments as well as high yield and emerging market debt.

The value of the OSF’s equity holding in the Group as at 30 June 2007 was $105 million (2006: $95 million). Amounts on deposit with
the Bank at 30 June 2007 totalled $23 million (2006: $7 million). There are no other financial instruments with the Group at 30 June
2007 (2006: $90 million).

Commonwealth Bank of Australia Annual Report 2007 199

Notes to the Financial Statements

Note 45 Controlled Entities

Entity Name

Australia
(a) Banking
Commonwealth Bank of Australia
Controlled Entities:
CBA Investments Limited

Industrie Limited Partnership
Luca Limited Partnership

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
Commonwealth Investments Pty Limited
Sparad (No. 24) Pty Limited Australia
Colonial Finance Limited
PERLS III Trust (formally Preferred Capital Limited)
PERLS II Trust
Loft No.1 Pty Ltd
Loft No.2 Pty Ltd
Fringe Pty Ltd
Lily Pty Ltd
Broadcasting Infrastructure Asset Partnership
Greenwood Lending Pty Ltd
Series 2001-IG Medallion Trust
Series 2002-IG Medallion Trust
Series 2003-IG Medallion Trust
Series 2004-IG Medallion Trust
Series 2005-IG Medallion Trust
Series 2005-2G Medallion Trust
Hemisphere Lane Pty Ltd
Medallion Series Trust 2006 1G
Medallion Trust Series 2007 4P
Medallion Trust Series 2007 5P
2007-1G Medallion Trust No ABN
SHIELD Series 50
GT Operating No.2 Pty Limited
Colonial Employee Share Plan Trust
Crystal Avenue P/L
GT Funding No6 Ltd Partnership
GT Operating No4 Pty Ltd
Devonport Ltd Partnership
Torquay Beach Pty Ltd
Group Treasury Services NZ Limited
Medallion Series 2003-1 SME Credit Linked Trust
Prime Investment Entity Limited

Extent of Beneficial
Interest if not 100%

Incorporated in

99.84%

99.9%

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

200 Commonwealth Bank of Australia Annual Report 2007

Note 45 Controlled Entities (continued)

Entity Name

(b) Insurance and Funds Management
Commonwealth Insurance Limited
Colonial Holding Company Limited
Commonwealth Insurance Holdings Limited
Commonwealth Managed Investments Limited
Colonial AFS Services Pty Limited
Colonial First State Group Limited
Colonial First State Investments Limited
Avanteos Pty Limited
Avanteos Investments Ltd
Colonial First State Property Limited
Colonial First State Property Retail Pty Limited
Colonial First State Property Retail Trust
Commonwealth International Holdings Pty Limited
The Colonial Mutual Life Assurance Society Limited
Jacques Martin Pty Limited
Jacques Martin Administration & Consulting Pty Limited
Gandel Retail Management Trust
Commonwealth Financial Planning Limited
Financial Wisdom Limited
CMG Asia Pty Ltd

Notes to the Financial Statements

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

Commonwealth Bank of Australia Annual Report 2007 201

Notes to the Financial Statements

Note 45 Controlled Entities (continued)

Entity Name

New Zealand
(a) Banking
ASB Holdings Limited
ASB Bank Limited

CBA Funding (NZ) Limited
ASB Capital No. 2 Limited
ASB Capital Limited

CBA USD Funding Limited

(b) Insurance and Funds Management
ASB Group (Life) Limited
Sovereign Group Limited

Sovereign Limited

Colonial First State Investments (NZ) Limited

Kiwi Income Properties Limited
Kiwi Property Management Limited

Other Overseas
(a) Banking
CBA Asia Limited
CTB Australia Limited
PT Bank Commonwealth
National Bank of Fiji Limited
CBA (Delaware) Finance Incorporated
CBA Capital Trust 1
CBA Funding Trust 1
CBA Capital Trust II
CBA (Europe) Finance Limited

Pontoon (Funding) PLC
Quay (Funding) PLC
Burdekin Investments Limited

Pavillion & Park Limited
Newport Limited
CommInternational Limited

CommCapital S.a.r.l

CommBank Europe Limited
CommBankManConsult(Asia)Co Ltd
Parkes S.a.r.l
CommTrading Limited

(b) Insurance and Funds Management
Colonial Fiji Life Limited
Colonial First State (UK) Holdings Limited
First State (HK) LLC
First State Investment Holdings (Singapore) Ltd
First State Investments (Cayman) Limited
PT Astra CMG Life

Extent of Beneficial
Interest if not 100%

Incorporated in

New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand

Singapore
Hong Kong
Indonesia
Fiji
Delaware USA
Delaware USA
Delaware USA
Delaware USA
United Kingdom
United Kingdom
United Kingdom
Cayman Islands
United Kingdom
Malta
Malta
Luxembourg
Malta
Hong Kong
Luxemburg
Malta

Fiji
United Kingdom
United States
Singapore
Cayman Islands
Indonesia

80%

Non-operating and minor operating controlled entities and investment vehicles holding policyholder assets are excluded from the above
list.

202 Commonwealth Bank of Australia Annual Report 2007

Notes to the Financial Statements

Note 46 Investments in Associated Entities and Joint Ventures

PT Astra CMG Life (1)
AMTD Group Limited
China Life CMG Life Assurance Company Limited
Bao Minh CMG Life Insurance Company (2)
CMG CH China Funds Management Limited

Equion Health (Barts) Limited

CFS Retail Property Trust (3)
Colonial Property Office Trust (3)
452 Capital Pty Limited

Hangzhou City Commercial Bank Limited
Alster & Thames Partnership (4)
First State Cinda Fund Management Company
Limited
Total

(1) This entity became a subsidiary on 18 June 2007.

(2) This entity was sold on 18 January 2007.

2007
$M
-
1
11
-
1

437
192
44

143
-

6
836

2006
$M
12
1
11
9
1

-
-
43

102
3

8
190

Extent of
Ownership
Interest % Principal Activities

Country of
Incorporation
Indonesia

Life Insurance
Financial Services Virgin Islands
Life Insurance
Life Insurance
Investment
Management
Financial Services

China
Vietnam
Australia

United
Kingdom
Funds Management Australia
Funds Management Australia
Australia
Investment
Management

50
30
49
50
50

9.5
7
30

19. 9 Commercial Banking China
25

Leasing

Delaware

Funds Management China

(3) These entities are deemed to have become subject to significant influence during the current financial year.

(4) This entity was sold on 17 January 2007.

Share of Associates’ profits/(losses)
Operating profits/(losses) before income tax
Income tax expense
Operating profits/(losses) after income tax

Carrying amount of investments in associated entities

Financial Information of Associates
Assets
Liabilities
Revenues
Expenses

Financial Information of Joint Ventures
Assets
Liabilities
Revenues
Expenses

2007
$M

70
(17)
53

836

2007
$M

17,936
13,163
1,753
1,162

2007
$M

118
85
53
57

Group

Balance
Date
31 Dec
31 Dec
31 Dec
31 Dec
31 Mar

31 Dec

30 Jun
30 Jun
30 Jun

31 Dec
31 Dec

31 Dec

Group

2006
$M

8
(1)
7

190

Group

2006
$M

9,569
9,098
220
89

Group

2006
$M

122
81
65
69

Commonwealth Bank of Australia Annual Report 2007 203

Notes to the Financial Statements

Note 47 Director and Executive Disclosures

Details of the Directors’ and Specified Executives’ remuneration, interests in long-term incentive plans, shares, options and loans are
included in the Remuneration Report of the Directors’ Report. The Company has applied the exemption under Corporations
Amendment Regulation 2006 which exempts listed companies from providing remuneration disclosures in relation to their key
management personnel in their Annual Financial Reports by AASB 124 Related Party Disclosures. These remuneration disclosures
are provided in the Remuneration Report of the Directors’ Report on pages 50 to 72 and are designated as audited.

Note 48 Related Party Disclosures

The Group is controlled by the Commonwealth Bank of Australia, the ultimate parent, which is incorporated in Australia.

A number of banking transactions are entered into with related parties in the normal course of business.

These include loans, deposits and foreign currency transactions, upon which some fees and commissions may be earned. The table
below indicates the values of such transactions for the year ended 30 June 2007.

For the Year Ended and As At 30 June 2007

Associates
$M
120
1
116
93

Joint
Ventures
$M
-
-
-
7

217
-
-

18
-
-

12
-
-

2
-
-

Total
$M
120
1
116
100

229
-
-

20
-
-

For the Year Ended and As At 30 June 2007

Subsidiaries
$M
2,777
2,607
46
273

Associates
$M
65
1
5
17

Joint
Ventures
$M
-
-
-
-

37,512
1,859
2,307

48,286
2,706
1,336

319
-
-

18
-
-

-
-
-

Total
$M
2,842
2,608
51
290

37,831
1,859
2,307

48,304
2,706
1,336

Group

Interest and dividend income
Interest expense
Fees and commissions for services rendered
Fees and commissions for services provided

Loans, advances and equity contributions
Derivative assets
Other assets

Deposits
Derivative liabilities
Other liabilities

Bank

Interest and dividend income
Interest expense
Fees and commissions for services rendered
Fees and commissions for services provided

Loans, advances and equity contributions
Derivative assets
Other assets

Deposits
Derivative liabilities
Other liabilities

204 Commonwealth Bank of Australia Annual Report 2007

Notes to the Financial Statements

Note 48 Related Party Disclosures (continued)

Group

Interest and dividend income
Interest expense
Fees and commissions for services rendered
Fees and commissions for services provided

Loans, advances and equity contributions
Derivative assets
Other assets

Deposits
Derivative liabilities
Other liabilities

Bank

Interest and dividend income
Interest expense
Fees and commissions for services rendered
Fees and commissions for services provided

Loans, advances and equity contributions
Derivative assets
Other assets

Deposits
Derivative liabilities
Other liabilities

For the Year Ended and As At 30 June 2006

Associates
$M
-
-
1
(8)

Joint
Ventures
$M
-
-
11
11

200
-
-

-
-
1

30
-
4

-
-
6

Total
$M
-
-
12
3

230
-
4

-
-
7

For the Year Ended and As At 30 June 2006

Subsidiaries
$M
2,739
854
55
124

Associates
$M
-
-
-
-

Joint
Ventures
$M
-
-
-
1

36,150
680
2,078

38,652
487
1,069

102
-
-

-
-
-

-
-
2

-
-
-

Total
$M
2,739
854
55
125

36,252
680
2,080

38,652
487
1,069

Refer to Note 45 for details of controlled entities.

The Bank’s aggregate investment in and loans to controlled entities are disclosed in Note 17.

Amounts due to controlled entities are disclosed in the Balance Sheet of the Bank.

Details of amounts paid to or received from related parties, in the form of dividends or interest, are set out in Note 2.

All transactions between Group entities are eliminated on consolidation.

Commonwealth Bank of Australia Annual Report 2007 205

Notes to the Financial Statements

Note 48 Related Party Disclosures (continued)

Equity Holdings of Key Management Personnel

Shareholdings

All shares were acquired by Directors on normal terms and conditions or through the Non-Executive Directors’ Share Plan.

Shares awarded under the Equity Reward Plan and the mandatory component of the Equity Participation Plan are registered in the
name of the Trustee. For further details of the Non-Executive Directors’ Share Plan, Equity Reward Plan, previous Executive Option
Plan and Equity Participation Plan refer to Note 33.

Details of shareholdings of Key Management Personnel (or close family members or entities controlled, jointly controlled, or significantly
influenced by them, or any entity over which any of the aforementioned hold significant voting power) are as follows:

Shares held by Directors

Name
Directors
J Anderson
R J Clairs
A B Daniels (3)
C R Galbraith
J S Hemstritch
S C H Kay
W G Kent
R J Norris

F D Ryan
J M Schubert
F J Swan
D J Turner
B K Ward (4)
H Young

Total For Directors

Class

Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Reward Shares
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Reward Shares

Balance
1 July 2006

10,000
16,988
18,691
10,030
15,400
4,390
16,113
10,000
100,328
8,242
21,188
6,974
-
6,629
-
144,645
100,328

Acquired/Granted
as

Remuneration

(1)

On Exercise of
Options

Net Change

(2)

Other

-
898
443
856
165
852
869
-
90,910
954
2,545
844
301
454
-
9,181
90,910

-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-

-
-
-
518
-
659
88
-
-
-
685
363
-
126
20,000
22,439
-

Balance
30 June 2007

10,000
17,886
19,134
11,404
15,565
5,901
17,070
10,000
191,238
9,196
24,418
8,181
301
7,209
20,000
176,265
191,238

(1) For Non-Executive Directors, represents shares acquired under NEDSP on 14 August 2006 and 12 March 2007 by mandatory sacrifice of fees. All shares acquired
through NEDSP are subject to a 10 year trading restriction (shares will be tradeable earlier if the Director leaves the Board). For Sir John and Mr Young the first
purchase of shares under NEDSP will occur in August 2007. For Mr Norris this represents Reward Shares granted under the ERP and subject to a performance
hurdle. The first possible date for meeting the performance hurdle is 15 July 2009 with the last possible date for vesting being 15 July 2010. See Note 33 for further
details on the NEDSP and ERP.

(2) “Net Change Other” incorporates changes resulting from purchases and sales during the year by Directors.

(3) A related party of Mr Daniels beneficially holds an investment of $62,838 in Colonial First State Global Health and Biotech Fund, $403,860 in Colonial First State

Future Leaders Fund and $361,464 in Colonial First State Imputation Fund.

(4) Ms Ward continued to hold 250 PERLS II securities at 30 June 2007.

206 Commonwealth Bank of Australia Annual Report 2007

Notes to the Financial Statements

Note 48 Related Party Disclosures (continued)

Shares held by Key Management Personnel

Name
Executives
M A Cameron

B J Chapman

D P Craig

L G Cupper (3)

S I Grimshaw

H D Harley

M R Harte

G L Mackrell

R M McEwan

J K O’Sullivan

G A Petersen

Total for Key
Management
Personnel

(1) Represents:

Class

Balance
1 July 2006

-
2,848
89,620
-
-
-
-
-
-
51,355
3,267
106,440
25,308
4,691
148,940
26,281
3,853
118,140
-
-
-
34,930
3,392
110,800
-
-
-
8,916
3,351
82,690
9,907
1,850
55,780
156,697
23,252
712,410

Acquired/Granted
as

Remuneration

(1)

On Exercise of
Options

Net Change

(2)

Other

-
-
31,818
-
-
17,046
-
-
22,728
-
-
-
-
-
32,500
-
-
27,272
-
-
14,318
-
-
24,318
-
-
-
-
-
20,580
-
-
25,000
-
-
215,580

-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-

-
(2,848)
(121,438)
-
-
-
-
-
-
50,575
(3,267)
(106,440)
4,691
(4,691)
(76,300)
13,457
(3,853)
(145,412)
-
-
-
4,878
(3,392)
(55,100)
-
-
-
36,851
(3,351)
(33,500)
4,745
(1,850)
(16,000)
115,197
(23,252)
(554,190)

Balance
30 June 2007

-
-
-
-
-
17,046
-
-
22,728
101,930
-
-
29,999
-
105,140
39,738
-
-
-
-
14,318
39,808
-
80,018
-
-
-
45,767
-
69,770
14,652
-
64,780
271,894
-
373,800

• Deferred STI - acquired under the mandatory component of the Bank’s Equity Participation Plan (EPP). Shares were purchased on 31 October 2004 in two equal

tranches, vesting on 1 July 2005 and 1 July 2006 respectively. See Note 33 for further details on the EPP.

• Reward Shares - granted under the Equity Reward Plan (ERP) and are subject to a performance hurdle. The first possible date for meeting the performance hurdle

is 23 September 2007 with the last possible date for vesting being 15 July 2010. See Note 33 for further details on the ERP.

(2) “Net Change Other” incorporates changes resulting from purchases, sales and forfeitures during the year by Executives and vesting of Deferred STI and Reward

Shares (which became Ordinary shares).

(3) Mr Cupper acquired 6,000 PERLS III securities during the year, and continued to hold them at 30 June 2007.

Commonwealth Bank of Australia Annual Report 2007 207

Notes to the Financial Statements

Note 48 Related Party Disclosures (continued)

Option Holdings

On 1 July 2006, Mr L G Cupper held options over 75,000 CBA shares, which have an exercise price of $30.12 per share. None of these
options were exercised during the year, and at 30 June 2007, Mr Cupper continued to hold options over 75,000 shares which were
vested and exercisable. Mr Cupper retired from the Bank on 3 November 2006. No other Key Management Personnel hold options over
the Bank’s shares.

Shares Vested During the Year

Name

Directors
R J Norris

(1) Mr Cameron ceased employment on 10 May 2007.

(2) Ms Chapman commenced in her role on 20 July 2006.

(3) Mr Craig commenced in his role on 11 September 2006.

(4) Mr Cupper ceased employment on 3 November 2006.

(5) Mr Harley ceased employment on 15 June 2007.

(6) Mr McEwan commenced in his role on 14 May 2007.

Deferred STI Vested

Reward Shares Vested

2,848
-
-
3,267
4,691
3,853
-
3,392
-
3,351
1,850
23,252

27,300
-
-
44,250
56,800
39,700
-
40,350
-
33,500
12,000
253,900

208 Commonwealth Bank of Australia Annual Report 2007

Notes to the Financial Statements

Note 48 Related Party Disclosures (continued)

Loans to Key Management Personnel

All loans to Key Management Personnel (or close family members or entities controlled, jointly controlled or significantly influenced by
them or any entity over which any of the aforementioned hold significant voting power) 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).

Total Loans to Key Management Personnel

Year Ended
30 June

Balance
1 July
$000s

Interest
Charged
$000s

Interest Not
Charged
$000s

Write-off

$000s

Balance
30 June
$000s

Number in
Group at
30 June

Directors

Executives

Total for Key
Management
Personnel

2007
2006

464
-

9,178
9,894

9,642
9,894

21
379

425
550

446
929

-
-

464
5,729

5,965
9,284

6,429
15,013

1
1

6
7

7
8

Individual Loans above $100,000 to Key Management Personnel

Balance
1 July 2006
$000s

Interest
Charged
$000s

Interest Not
Charged
$000s

Write-off

$000s

Balance
30 June 2007
$000s

Highest
Balance
in Period
$000s

Directors
R J Norris (1)

Executives
B J Chapman (1) (2)
M A Cameron (3)

S I Grimshaw

H D Harley (4)
G L Mackrell
R M McEwan
J K O’Sullivan

G A Petersen

Total for Key
Management Personnel

464

825
358
300
857
391
304
1,017
218
1,500
582
614
274
647
200
101
155
800
-

9,607

18
6
19
29
13
36
25
2
97
43
38
7
42
12
-
1
33
1

443

-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-

464

1,037

-
303
300
-
-
280
647
218
1,500
759
515
178
647
-
-
-
450
192

825
358
302
978
393
305
1,017
218
1,500
760
618
275
647
200
101
155
800
192

6,453

10,680

(1) Balance declared in NZD for Mr Norris and Ms Chapman. Exchange rate taken from Reserve Bank of Australia as at 29 June 2007.

(2) Ms Chapman commenced in her role on 20 July 2006.

(3) Mr Cameron ceased employment on 10 May 2007.

(4) Mr Harley ceased employment 16 June 2007.

Commonwealth Bank of Australia Annual Report 2007 209

Notes to the Financial Statements

Note 49 Notes to the Statements of Cash Flows

Note 49(a) Reconciliation of Net Profit after Income Tax to Net Cash Provided by/(used in) Operating Activities

Net profit after income tax
Net (Increase)/decrease in interest receivable
Increase/(decrease) in interest payable
Net decrease in trading securities
Net (increase) in assets at fair value through Income Statement
(excluding life insurance)
Net (gain) on sale of investments
Net (gain)/loss on sale of controlled entities and associates
Net decrease/(increase) in derivative assets
Net (gain)/loss on sale property plant and equipment
Loan Impairment expense
Depreciation and amortisation
Increase in liabilities at fair value through Income Statement
(excluding life insurance)
(Decrease)/increase in derivative liabilities
(Decrease) in other provisions
Increase/(decrease) in income taxes payable
Increase/(decrease) in deferred income taxes payable
Decrease/(increase) in deferred tax assets
(Increase)/decrease in accrued fees/reimbursements receivable
Increase in accrued fees and other items payable
Amortisation of premium on investment securities
Unrealised loss on revaluation of trading securities
Unrealised loss/(gain) on revaluation of assets at fair value through
Income Statement (excluding life insurance)
(Decrease)/increase in life insurance contract policy liabilities
Increase in cash flow hedge reserve
Dividend received from controlled entities
Changes in operating assets and liabilities arising from cash flow
movements
Other
Net cash provided by/(used in) operating activities

2007
$M
4,497
(745)
362
-

(7,272)
-
-
(3,068)
16
434
270

6,690
5,860
57
297
175
(272)
(163)
386
-
-

92
(1,460)
547
-

(1,451)
389
5,641

2006
$M
3,959
(99)
784
-

(53)
-
(163)
128
(4)
398
213

1,374
(445)
(92)
(455)
182
184
(88)
133
-
-

(112)
(1,211)
31
-

(3,458)
(44)
1,162

Group

2005
$M
3,410
(17)
64
318

-
(8)
13
-
(4)
322
176

-
-
(86)
406
332
(86)
(41)
106
(4)
408

-
56
-
-

(5,921)
220
(336)

Year Ended 30 June
Bank

2007
$M
4,477
(564)
303
-

(6,038)
-
-
(3,923)
13
390
205

3,016
5,831
43
364
175
(408)
(196)
265
-
-

(21)
10
295
(1,881)

(15,008)
74
(12,578)

2006
$M
4,267
219
24
-

(2,620)
-
-
(381)
2
380
155

504
78
(50)
(430)
(434)
727
71
217
-
-

(22)
-
7
(2,080)

(2,405)
144
(1,627)

Note 49(b) Reconciliation of Cash

For the purposes of the Statements of Cash Flows, cash includes cash, money at short call, at call deposits with other financial institutions
and settlement account balances with other banks.

Notes, coins and cash at banks
Other short term liquid assets
Receivables due from other financial institutions – at call (1)
Payables due to other financial institutions – at call (1)
Cash and cash equivalents at end of year

2007
$M
4,557
967
4,607
(6,047)
4,084

2006
$M
1,703
491
4,657
(4,813)
2,038

Group

2005
$M
1,723
859
2,893
(4,199)
1,276

Year Ended 30 June

2007
$M
1,377
894
3,837
(5,980)
128

Bank

2006
$M
1,213
342
3,437
(4,751)
241

(1) At call includes certain receivables and payables due from and to financial institutions within three months.

210 Commonwealth Bank of Australia Annual Report 2007

Notes to the Financial Statements

Note 49 Notes to the Statements of Cash Flows (continued)

Note 49(c) Disposal of Controlled Entities

Fair value of net tangible assets disposed
Cash and liquid assets
Assets at fair value through Income Statement

Trading
Insurance
Other
Other assets
Life Insurance policy liabilities
Bills payable and other liabilities
Profit on sale
Cash consideration received
Less cash and cash equivalents disposed
Net cash inflow on disposal

Note 49(d) Non-cash Financing and Investing Activities

Shares issued under the Dividend Reinvestment Plan for 2007 amounted to $818 million.

Note 49(e) Acquisition of Controlled Entities

Fair value of net assets acquired
Cash and liquid assets
Minority interests
Goodwill
Other intangibles
Other assets
Bills payable and other liabilities
Cash consideration paid
Less cash and cash equivalents acquired
Net cash outflow on acquisition

Note 49(f) Financing Facilities

Standby funding lines are immaterial.

2007
$M

-
-
-
-
-
-
-
-
-
-

2006
$M

-
2,297
-
148
(1,996)
(41)
145
608
(55)
553

2005
$M

-
-
-
-
-
-
-
-
-
-

2007
$M

2006
$M

2005
$M

-
4
3
-
-
-
7
-
7

-
126
7
122
167
(8)
414
-
414

4
-
14
30
4
(8)
44
(4)
40

Commonwealth Bank of Australia Annual Report 2007 211

Notes to the Financial Statements

Note 50 Disclosures about Fair Value of Financial Instruments

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
fair values shown would be realised in a current transaction.

liabilities

that are not considered

The estimated fair values disclosed do not reflect the value of
assets and
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 considered 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
fair value
information with that of other financial institutions. It is important
that the many uncertainties discussed above be considered
when using the estimated fair value disclosures and to realise
that because of these uncertainties, the aggregate fair value
amount should in no way be construed as representative of the
underlying value of the Commonwealth Bank of Australia.

the Bank’s

Group 2007

Group 2006

Carrying
Value
$M

10,108
5,495

21,469
23,519
4,073
12,743
9,672
299,779
18,721
17,264

203,382
14,386
19,431
16,680
18,721
21,613
85,490
310
7,346
10,000

Fair
Value
$M

10,108
5,495

21,469
23,519
4,073
12,743
9,672
298,008
18,721
17,264

202,786
14,386
19,431
16,680
18,721
21,613
85,584
310
7,346
10,120

Carrying
Value
$M

5,868
7,107

15,758
24,437
2,207
9,675
11,203
259,176
18,310
5,190

173,227
11,184
13,811
10,820
18,310
22,225
78,591
1,109
6,053
9,895

Fair
Value
$M

5,868
7,107

15,758
24,437
2,207
9,675
11,203
258,547
18,310
5,190

173,108
11,184
13,811
10,820
18,310
22,225
76,645
1,109
6,056
9,913

50(a) Fair Value of Financial Assets and Financial
Liabilities

the

These amounts represent estimates of the fair values of the
Group’s financial assets and financial liabilities at Balance Sheet
date based on
following valuation methods and
assumptions. Fair value is the amount for which an asset could
be exchanged, or a liability settled, between knowledgeable,
willing parties in an arm’s length transaction. Quoted market
prices are used to determine fair value where an active market
(such as a recognised stock exchange) exists, as it is the best
evidence of the fair value of a financial instrument. Quoted
market prices are not, however, available for a significant
number of the financial assets and liabilities held and issued by
the Group. Therefore, for financial instruments where no quoted
market price is available, the fair values presented in the
following table have been estimated using present value or
other valuation techniques based on market conditions existing
at Balance Sheet dates. These valuation techniques rely on
market observable inputs wherever possible, or in a limited
number of instances, rely on inputs which are reasonable
assumptions based on market conditions at balance date.

While the fair value amounts are designed to represent
estimates at which these instruments could be exchanged in a
current transaction between willing parties, many of the Group’s
financial instruments lack an available trading market as
characterised by willing parties engaging in an exchange
transaction.

Assets
Cash and liquid assets
Receivables from other financial institutions
Assets at Fair Value through Income Statement:

Trading
Insurance
Other

Derivative assets
Available-for-sale investments
Loans, advances and other receivables
Bank acceptances of customers
Other assets

Liabilities
Deposits and other public borrowings
Payables due to other financial institutions
Liabilities at Fair Value through Income Statement
Derivative liabilities
Bank acceptances
Insurance policy liabilities
Debt issues
Managed fund units on issue
Bills payable and other liabilities
Loan capital

212 Commonwealth Bank of Australia Annual Report 2007

Notes to the Financial Statements

Note 50 Disclosures about Fair Value of Financial Instruments (continued)

Deposits and other public borrowings

The carrying value of non interest bearing, call and variable rate
deposits, and fixed rate deposits repricing within six months,
approximate their value as they are short term in nature or are
payable on demand. Discounted cash flow models based upon
deposit type and its related maturity, were used to calculate the
fair value of other term deposits.

Short term liabilities

The carrying value of payables to other financial institutions and
Bank acceptances approximate their fair value as they are short
term in nature and reprice frequently.

Debt issues and loan capital

The fair values of debt issues and loan capital were calculated
using quoted market price at Balance Sheet date. 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.

Liabilities at Fair Value through Income Statement

Liabilities at Fair Value through Income Statement are carried at
fair value determined using quoted market prices, or valuation
techniques including discounted cash flow models using market
observable inputs.

Derivative Assets and Liabilities

The fair value of trading and hedging derivative contracts, were
obtained from quoted market prices, discounted cash flow
models or option pricing models that used market based and
non-market based inputs.

The fair value of these instruments is disclosed in Note 11.

Life Insurance Policy Holder Liabilities

Life insurance policyholder liabilities are measured on a net
present value basis using assumptions outlined in Note 38. This
treatment is in accordance with accounting standard AASB
1038: Life Insurance Business.

All other financial liabilities

includes

This category
interest payable and unrealised
expenses payable for which the carrying amount is considered
to be a reasonable estimate of net fair value. For liabilities that
are long term, 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.

50(a) Fair Value of Financial Assets and Financial
Liabilities (continued)

The 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 from
other financial institutions and Bank acceptances of customers
approximate their fair value as they are short term in nature or
are receivable on demand.

Receivables from other financial institutions also includes
statutory deposits with central banks. The fair value is assumed
to be equal to the carrying value as the Group is only able to
continue as a going concern with the maintenance of these
deposits.

Assets at Fair Value through Income Statement

Assets at fair value through Income Statement are carried at fair
value determined using quoted market prices or valuation
techniques including discounted cash flow models using market
observable and non-market observable inputs.

Available-for-sale investments

Assets available-for-sale are measured at fair value determined
using quoted market prices. For shares in companies, the
estimated fair values are estimated based on market price
inputs.

Loans, advances and other receivables

The carrying value of loans, advances and other receivables is
individually assessed
net of accumulated collective and
provisions for impairment.

For variable rate loans, excluding impaired loans, the carrying
amount is a reasonable estimate of fair value. The 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.

The fair value of impaired loans was calculated by discounting
estimated future cash flows using the loan’s original effective
interest rate.

Retirement benefit surplus / (liability)

The fair value of the retirement benefit surplus liability is the
carrying value at Balance Sheet date determined using a
present value calculation based on assumptions that are
outlined in Note 44.

All other financial assets

Included in this category are interest and fees receivable,
unrealised income, and investments in associates of $836
million (2006: $190 million), where the carrying amount is
considered to be a reasonable estimate of fair value. Other
financial assets are net of goodwill and other intangibles, future
income tax benefits and prepayments/unamortised payments,
as these do not constitute financial instruments.

Commonwealth Bank of Australia Annual Report 2007 213

Notes to the Financial Statements

Note 50 Disclosures about Fair Value of Financial Instruments (continued)

50(c) The Impact of Profit of the Change in Fair Values
of Financial instruments Estimated using a Valuation
Technique

The Group holds a large portfolio of trading securities and
derivatives that are measured at fair value using quoted market
prices and valuation techniques based on market observable
assumptions. In addition, the Group holds a smaller portfolio of
short term commercial loans and debt issues that have been
designated at Fair Value through Income Statement using
valuation techniques based on market observable assumptions.

The total amount of change in fair value recognised in profit for
the period which was determined using valuation techniques
was $4,571 million loss (2006: $1,067 million net loss). This
comprised an $2,566 million loss in trading income (2006: $82
million gain) and a $2,005 million loss in other operating income
(2006: $1,149 million loss).

50(a) Fair Value of Financial Assets and Financial
Liabilities (continued)

Commitments to extend credit, letters of credit, guarantees,

warranties and indemnities issued

The fair value of these items was not calculated as estimated
fair values are not readily ascertainable. These financial
instruments generally relate to credit risk and attract fees in line
with market prices for similar arrangements. They are not
presently sold or traded. The items generally do not involve
cash payments other than in the event of default. The fee pricing
is set as part of the broader customer credit process and reflects
the probability of default. The fair value may be represented by
the present value of fees expected to be received, less
associated costs, however the overall level of fees involved is
not material.

50(b) The Impact of Fair Values Calculated Using Non-
market Observable Assumptions

The Group’s exposure to financial instruments measured at fair
value based in full or in part on non-market observable
assumptions is restricted to short term loans and margins on
trading securities where pricing is counterparty specific.

These financial instruments comprise a small component of the
portfolios they are part of and have short tenor, such that any
change in the assumptions used to value the instruments to a
reasonably possible alternative do not have a material effect on
the portfolio balance or the Group’s result.

214 Commonwealth Bank of Australia Annual Report 2007

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 of the Bank and the Group, and the additional disclosures included in the Directors’
Report designated as audited, comply with Accounting Standards and in their opinion are in accordance with the Corporations Act
2001;

(b) 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

2007 and of their performance for the year ended on that date;

(c) 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; and

(d) the directors have been given the declarations required under Section 295A of the Corporations Act 2001 for the financial year

ended 30 June 2007

Signed in accordance with a resolution of the Directors.

J M Schubert

Chairman

15 August 2007

R J Norris

Managing Director and Chief Executive Officer

Commonwealth Bank of Australia Annual Report 2007 215

Independent audit report to the members of Commonwealth Bank
of Australia

Scope
We have audited the accompanying financial report of Commonwealth Bank of Australia and the entities it
controlled during the year, which comprises the Balance Sheet as at 30 June 2007, and the income
statement, statement of recognised income and expenses and cash flow statement for the year ended on
that date, a summary of significant accounting policies, other explanatory notes and the directors’
declaration.

The company has disclosed information as required by paragraphs Aus 25.4 to Aus 25.7.2 of Accounting
Standard 124 Related Party Disclosures (“remuneration disclosures”), under the heading “Remuneration
Report” on pages 50 to 72 of the directors’ report, as permitted by Corporations Regulation 2M.6.04.

the Australian Accounting Standards (including

Directors’ Responsibility for the Financial Report
The directors of the company are responsible for the preparation and fair presentation of the financial report
in accordance with
the Australian Accounting
Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining
internal controls relevant to the preparation and fair presentation of the financial report that is free from
material misstatement, whether due to fraud or error; selecting and applying appropriate accounting
policies; and making accounting estimates that are reasonable in the circumstances. In Note 1, the
directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial
Statements, that compliance with the Australian equivalents to International Financial Reporting Standards
ensures that the group accounts, comprising the consolidated Financial Statements and notes comply with
International Financial Reporting Standards. The directors are also responsible for the remuneration
disclosures contained in the directors’ report.

Auditor’s Responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted our
audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply
with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain
reasonable assurance whether the financial report is free from material misstatement and that the
remuneration disclosures comply with Accounting Standard AASB 124 Related Party Disclosures.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial report. The procedures selected depend on our judgment, including the assessment of the risks of
material misstatement of the financial report, whether due to fraud or error. In making those risk
assessments, we consider internal controls relevant to the entity’s preparation and fair presentation of the
financial report in order to design audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the entity’s internal controls. An audit also
includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting
estimates made by the directors, as well as evaluating the overall presentation of the financial report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.

Independence
In conducting our audit we have met the independence requirements of the Corporations Act 2001. We
have given to the directors of the company a written Auditor’s Independence Declaration, a copy of which is
included in the directors’ report. The Auditor’s Independence Declaration would have been expressed in
the same terms if it had been given to the directors at the date this auditor’s report was signed. In addition
to our audit of the financial report and the remuneration disclosures, 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.

216 Commonwealth Bank of Australia Annual Report 2007

Independent audit report to the members of Commonwealth Bank
of Australia

Auditor’s Opinion
In our opinion:

1. the financial report of the Commonwealth Bank of Australia is in accordance with:

a) the Corporations Act 2001, including:

ii.

giving a true and fair view of the financial position of the Commonwealth Bank of Australia and the
consolidated entity at 30 June 2007 and of their performance for the year ended on that date; and

complying with Australian Accounting Standards
Interpretations); and

(including

the Australian Accounting

b) other mandatory financial reporting requirements in Australia.

2. the consolidated Financial Statements and notes also comply with International Financial Reporting

Standards as disclosed in Note 1.

3. the remuneration disclosures that are contained on pages 50 to 72 of the directors’ report comply with

Accounting Standard AASB 124 Related Party Disclosures.

Ernst & Young

Sydney

15 August 2007

S J Ferguson

Partner

Commonwealth Bank of Australia Annual Report 2007 217

Shareholding Information

Top 20 Holders of Fully Paid Ordinary Shares as at 10 August 2007

Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

Name of Holder
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
National Nominees Pty Ltd
Citicorp Nominees Pty Ltd
RBC Dexia Investor Services Australia Nominees Pty Limited
ANZ Nominees Limited
Cogent Nominees Pty Limited
Queensland Investment Corporation
AMP Life Limited
UBS Nominees Pty Ltd
Australian Foundation Investments Company Limtied
UBS Wealth Management Australia Nominees Pty Ltd
Bond Street Custodians Limited
Invia Custodian Pty Limited
Suncorp Custodian Services Pty Ltd
Perpetual Trustee Co Ltd (Hunter)
Australian Reward Investment Alliance
Belike Nominees Pty Limited
Milton Corporation Limited
IAG Nominees Pty Limited

Number of Shares
109,534,755
109,243,847
97,156,842
79,937,793
34,231,769
32,678,825
21,559,338
15,619,621
10,471,991
8,935,570
7,820,245
7,183,084
5,914,456
5,343,237
2,974,043
2,660,326
2,461,333
2,351,881
2,001,210
1,840,740

%
8. 42
8. 40
7. 47
6. 15
2. 63
2. 51
1. 66
1. 20
0. 81
0. 69
0. 60
0. 55
0. 45
0. 41
0. 23
0. 20
0. 19
0. 18
0. 15
0. 14

The top 20 Shareholders hold 559,920,906 shares which is equal to 43.04% 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.

trading activity are published

Details of
in most daily
newspapers, generally under the abbreviation of CBA or
C’wealth Bank. The Bank does not have a current on-market
Buy-back of its shares.

Range of Shares (Fully Paid Ordinary Shares and Employee Shares): 10 August 2007

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

Voting Rights

Under the Bank’s Constitution, each person who is a voting
Equity holder and who is present at a general meeting of the
Bank in person or by proxy, attorney or official representative is
entitled:

• On a show of hands – to one vote; and

• On a poll – to one vote for each share held or represented.

If a person present at a general meeting represents personally
or by proxy, attorney or official representative more than one
Equity holder, on a show of hands the person is entitled to one
vote even though he or she represents more than one Equity
holder.

If an Equity holder is present in person and votes on a
resolution, any proxy or attorney of that Equity holder is not
entitled to vote.

If more than one official representative or attorney is present for
an Equity holder:

• None of them is entitled to vote on a show of hands; and

218 Commonwealth Bank of Australia Annual Report 2007

Number of
Shareholders
523,347
155,448
14,158
5,955
269
699,177
11,768

Percentage
Shareholders
74. 85
22. 23
2. 03
0. 85
0. 04
100. 0
1. 68

Number of
Shares
178,279,588
315,862,011
97,272,252
115,278,342
593,891,183
1,300,583,376
47,242

Percentage
Issued Capital
13. 71
24. 29
7. 48
8. 86
45. 66
100.00
-

• On a poll only one official representative may exercise the
Equity holder’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 Equity holder’s voting rights, not
exceeding in aggregate 100%.

If an Equity holder appoints two proxies and both are present at
the meeting:

•

If the appointment does not specify the proportion or number
of the Equity holder’s votes each proxy may exercise, then
on a poll each proxy may exercise one half of the Equity
holder’s votes;

• Neither proxy shall be entitled to vote on a show of hands;

and

• On a poll each proxy may only exercise votes in respect of

those shares or voting rights the proxy represents.

Top 20 Holders of Perpetual Exchangeable Resettable Listed Securities II (“PERLS II”) as at 10 August 2007

Shareholding Information

Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

Name of Holder
J P Morgan Nominees Australia Limited
Citicorp Nominees Pty Limited
National Nominees Limited
UBS Nominees Pty Ltd
Questor Financial Services Limited
UBS Warburg Private Clients Nominees Pty Ltd
RBC Dexia Investor Services Australia Nominees Pty Limited
HSBC Custody Nominees (Australia) Limited
Invia Custodian Pty Limited
Equitas Nominees Pty Limited
ANZ Nominees Limited
The Australian National University Investment Section
Gordon Merchant No 2 Pty Ltd
Cryton Investments No 9 Pty Ltd
Tynong Pastoral Co Pty Ltd
Bond Street Custodians Limited
Israelite House of David
Lutovi Investments Pty Limited
NSF Nominees Pty Ltd
ANZ Executors & Trustee Company Limited

Number of Units

232,786
205,405
181,223
135,626
86,591
83,521
71,653
50,726
43,830
31,000
27,840
25,000
24,440
17,600
17,450
17,030
15,000
15,000
12,400
10,940

%
6. 21
5. 48
4. 83
3. 62
2. 31
2. 23
1. 91
1. 35
1. 17
0. 83
0. 74
0. 67
0. 65
0. 47
0. 47
0. 45
0. 40
0. 40
0. 33
0. 29

The top 20 PERLS II unitholders hold 1,305,061 units which is equal to 34.81% of the total units on issue. More than 20 PERLS
unitholders are disclosed in the above table due to a number of unitholders having the same number of PERLS II.

Stock Exchange Listing

PERLS II are units in a registered managed investment scheme of which Commonwealth Managed Investments Limited is the
responsible entity and 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 Units (PERLS II): 10 August 2007

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

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 Bank’s ordinary shares will be as set out on
page 218 and the voting rights of the preference shares will be
as set out below.

The holders will not be entitled to vote at a general meeting of
the Bank except in the following circumstances:

•

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 that affects rights attached to the preference

shares;

• On a proposal to wind up the Bank;
• On a proposal for the disposal of the whole of the Bank’s

property, business and undertaking;

Number of
Unitholders
9,510
292
35
21
3
9,861
3

Percentage
Unitholders
96. 44
2. 96
0. 36
0. 21
0. 03
100. 00
0. 03

Number of
Units
1,623,292
622,716
256,792
697,565
549,635
3,750,000
4

Percentage
Issued Units
43. 29
16. 60
6. 85
18. 6
14. 66
100. 00
-

• 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
preference share as
those conferred on ordinary
Shareholders in respect of each ordinary share.

At a general meeting of the Bank, holders of preference shares
are entitled:

• 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 preference share.

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.

Commonwealth Bank of Australia Annual Report 2007 219

Shareholding Information

Top 20 Holders of Perpetual Exchangeable Repurchaseable Listed Shares III (“PERLS III”) as at 10 August 2007

Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

Name of Holder
AMP Life Limited
RBC Dexia Investor Services Australia Nominees Pty Limited
UBS Wealth Management Australia Nominees Pty Ltd
Cogent Nominees Pty Limited
Mr Walter Lawton + Mrs Jan Rynette Lawton
J P Morgan Nominees Australia Limited
Citicorp Nominees Pty Limited
ANZ Executors & Trustee Company Limited
Bond Street Custodians Limited
The Australian National University Investment Section
Mr Reginald Surtees Geary
Catholic Education Office Diocese of Parramatta
Invia Custodians Pty Limited
National Nominees Limited
Questor Financial Services Limited
Equity Trustees Limited
Truckmate (Australia) Pty Ltd
Kerlon Pty Ltd
Avanteos Investments Limited
Henry Kendall Group Holdings Pty Ltd

Number of Shares
375,000
186,860
164,513
147,074
73,235
72,427
71,210
71,084
59,627
51,282
50,000
49,750
44,882
40,700
40,568
36,787
35,000
30,000
25,677
25,000

%
6. 43
3. 20
2. 82
2. 52
1. 26
1. 24
1. 22
1. 22
1. 02
0. 88
0. 86
0. 85
0. 77
0. 70
0. 70
0. 63
0. 60
0. 51
0. 44
0. 43

The top 20 PERLS III Shareholders hold 1,650,676 shares which is equal to 28.30% of the total shares on issue

Stock Exchange Listing

PERLS III are preference shares issued by Preferred Capital Limited (a wholly-owned subsidiary of the Bank) and are listed on the
Australian Stock Exchange under the trade symbol PCAPA, with Sydney being the home exchange. Details of trading activity are
published in most daily newspapers.

Range of Shares (PERLS III): 10 August 2007

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

Voting Rights

PERLS III 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 218 and 219 respectively
for the Bank’s ordinary shares and preference shares.

Number of
Shareholders
16,104
503
44
39
3
16,693
14

Percentage
Shareholders
96. 47
3. 02
0. 26
0. 23
0. 02
100. 00
0. 08

Number of
Shares
2,630,173
1,050,637
336,346
1,150,327
664,798
5,832,281
27

Percentage
Issued Capital
45. 10
18. 01
5. 77
19. 72
11. 40
100. 00
-

220 Commonwealth Bank of Australia Annual Report 2007

Top 20 Holders of Perpetual Exchangeable Resaleable Listed Securities IV (“PERLS IV”) as at 10 August 2007

Shareholding Information

Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

Name of Holder
AMP Life Limited
J P Morgan Nominees Australia Limited
Goldman Sachs JB Were Capital Markets Ltd
Cogent Nominees Pty Limited
UBS Wealth Management Australia Nominees Pty Ltd
RBC Dexia Investor Services Australia Nominees Pty Limited
Citicorp Nominees Pty Limited
ANZ Nominees Limited
Invia Custodian Pty Limited
Suncorp General Insurance Ltd
Mr Peter Kelvin Rodwell
GIO General Ltd
National Nominees Limited
Secure Investments FIB Pty Ltd
DNU Nominees Pty Limited
UCA Cash Management Fund Ltd
Eastcode Pty Ltd
Questor Financial Services Limited
Westpearl Pty Ltd
Suncorp Custodian Services Pty Limtied

Number of Shares
425,000
315,135
250,000
189,750
185,458
184,270
178,488
148,451
128,809
118,000
109,005
94,500
89,956
72,500
59,705
55,000
50,000
48,547
45,000
43,500

%
5. 8
4. 3
3. 41
2. 59
2. 53
2. 52
2. 44
2. 03
1. 76
1. 61
1. 49
1. 29
1. 23
0. 99
0. 82
0. 75
0. 68
0. 66
0. 61
0. 59

The top 20 PERLS IV Shareholders hold 2,791,074 shares which is equal to 38.10% of the total shares on issue

Stock Exchange Listing

PERLS IV are stapled securities issued by The Commonwealth Bank of Australia and are listed on the Australian Securities
Exchange under the trade symbol CBAPB, with Sydney being the home exchange. Details of trading activity are published in most
daily newspapers.

Range of Shares (PERLS IV): 10 August 2007

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
9,437
673
45
45
9
10,209
-

Percentage
Shareholders
92. 44
6. 59
0. 44
0. 44
0. 09
100. 00
-

Number of
Shares
2,190,154
1,514,618
367,939
1,436,240
1,816,049
7,325,000
-

Percentage
Issued Capital
29. 90
20. 68
5. 02
19. 61
24. 79
100. 00
-

Voting Rights

Trust Preferred Securities

PERLS IV confer voting rights in the Bank in the following
limited circumstances:

• When dividend payments on the preference shares are in

arrears;

• On proposals to reduce the Bank’s Share Capital;

• On a proposal that affects rights attached to preference

shares;

• On a resolution to approve the terms of a buy-back

agreement;

• On a proposal to wind up the Bank;

• On a proposal for the disposal of the whole of the Bank’s

property, business and undertaking; and

• During the winding-up of the Bank.

Further more if PERLS IV convert into ordinary shares of the
Bank in accordance with their terms of issue, the voting rights of
the ordinary will be as set out on pages 218 and 219 for the
Bank’s ordinary shares.

550,000 Trust Preferred Securities were issued on 6 August
2003. Cede & Co is registered as the sole holder of these
securities.

700,000 Trust Preferred Securities were issued on 15 March
2006. 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 218 and
219 for the Bank’s ordinary shares and preference shares.

Commonwealth Bank of Australia Annual Report 2007 221

International Representation

Australia
Head Office
Commonwealth Bank of Australia
48 Martin Place,
Sydney NSW 1155
Telephone: (61 2) 9378 2000

New Zealand
ASB Bank Limited
Level 28 ASB Bank Centre
135 Albert Street, Auckland
Telephone: (64 9) 377 8930
Facsimile: (64 9) 358 3511
Managing Director
Hugh Burrett

Sovereign Group Limited
33-45 Hurstmere Road
Takapuna, Auckland
Telephone: (64 9) 487 9000
Facsimile: (64 9) 486 1913
Managing Director
Simon Blair

Asia Pacific
Fiji Islands
Colonial National Bank
Colonial Life Limited
3 Central Street, Suva
Telephone: (67 9) 3214 400
Facsimile: (67 9) 3303 448
Managing Director
Laurie Mellsop

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
Paul Au

CBA Management Consulting
Room 3805-3806 K.Wah Centre
1010 Huahai (M) Road
Shanghai 200031
Telephone: (86 21) 6103 6500
Facsimile: (86 21) 6103 6598
Head of Investment Banking
Vivienne Yu

CommFinance
Level 7
Zhong Ya Building
458 Wu Lu Mugi (N) Road
Shanghai
Telephone: (86 21) 6249 9659
Facsimile: (86 21) 6249 9682
Chief Executive Officer
Guo-Xiong Jiang

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
Chong Lee

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
Paul Au

First State Cinda Fund Management
No. 29 Dong Zhong Street
Dong Cheng District
Beijing
Telephone: (86 10) 6418 1266
Facsimile: (86 10) 6418 1243
Regional Head Asia
Lindsay Mann

Hong Kong
15th Floor, Chater House
8 Connaught Road,
Central
Hong Kong
Telephone: (852) 2844 7500
Facsimile: (852) 2801 6916
Regional General Manager Asia
Stephen Poon

Hong Kong Commonwealth Bank of Australia
Room 1307-1308, Chater House
8 Connaught Road
Central
Hong Kong
Telephone: (852) 3667 8900
Facsimile: (852) 3667 8939
Executive General Manager
Peter Fancke

First State Investments (Hong Kong) Limited
Level 6, Three Exchange Square
Central
Hong Kong
Telephone: (852) 2846 7555
Facsimile: (852) 2868 4742/4783
Regional Head Asia
Lindsay Mann

India
CBA Representative Office
Unit 201, Level 2 (front portion) of Embassy
Classic
No. 11, Vittal Mallya Road
Bangalore 560001
Telephone: (91 80) 2210 7413
Fascimile: (91 80) 5112 1462
Chief Representative
Ravi Kushan

Indonesia
PT Bank Commonwealth
Level 3A, Wisma Metropolitan II
Jl. Jendral Sudirman Kav. 29-31
Jakarta 12920
Telephone: (62 21) 5296 1222
Facsimile: (62 21) 5296 2293
President Director
Symon Brewis-Weston

PT Commonwealth Life
11/F Sentra Mulia
Jl. H.R. Rason Said, Kav X-6 No 8
Jakarta 12940
Telephone: (62 21) 250 0385
Facsimile: (62 21) 250 0389
President Director
Malakai Naiyaga

PT First State Investments Indonesia
29th Floor, Gedung Artha Graha
Sudirman Central Business District
Jl. Jend. Sudirman Kav. 52-53
Jakarta 12190
Telephone: (62 21) 515 0088
Facsimile: (62 21) 515 0033
Regional Head Asia
Lindsay Mann

Japan
CBA Branch Office
8th Floor
Toranomon Waiko Building
5-12-1 Toranomon
Minato-ku, Tokyo 105-0001
Telephone: (81 3) 5400 7280
Facsimile: (81 3) 5400 7288
General Manager Japan
Lillian Xia

Singapore
CBA Branch Office
1 Temasek Avenue
#17-01 Millenia Tower
Singapore 039192
Telephone: (65) 6349 7001
Facsimile: (65) 6224 5812
General Manager
Brian McGovern

First State Investments (Singapore)
1 Temasek Avenue
#17-01 Millenia Tower
Singapore 039192
Telephone: (65) 6538 0008
Facsimile: (65) 6538 0800
Regional Head Asia
Lindsay Mann

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
Danny Armstrong

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
General Manager, Head of North America
Ian Phillips

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
Paul Orchart

First State Investments (UK) Limited
3rd Floor, 30 Cannon Street
London EC4M 6YQ
Telephone: (44 20) 7332 6500
Facsimile: (44 20) 7332 6501
CEO
Charlie Metcalf

Edinburgh
23 St Andrew Square
Edinburgh EH2 1BB
Telephone: (44 131) 473 2200
Facsimile: (44 131) 473 2222
Managing Partners
Stuart Paul & Angus Tulloch

222 Commonwealth Bank of Australia Annual Report 2007

132 221 General Enquiries

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Unit prices are available 24 hours a day, 365 days a year.

CommInsure

131 431 Personal Loan Sales

To apply for a new personal loan.

Available from 8am to 8pm, 365 days a year.

131 519 CommSec (Commonwealth Securities)

Available from 8am to 7pm (Sydney Time), 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

131 709 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 (Sydney Time) 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.

1800 011 217 Lost or Stolen Cards

To report a lost or stolen card 24 hours a day, 365 days a year.

131 998 Business Line

For a full range of business banking solutions.

Available 24 hours a day, 365 days a year.

1300 245 463 (1300 AGLINE) AgriLine

A dedicated team of Agribusiness Specialists will help you with
your financial needs. With many of our Business Banking team
living in regional and rural Australia, they understand the
challenges you face. Available from 7am to 7pm, Monday to
Friday (NSW time).

For all your general insurance needs call 132 423 8am to 8pm
(Sydney
visit
www.comminsure.com.au

a week

Time),

days

–

For general claims assistance call 132 420, 24 hours a day,
365 days a year.

For all your life insurance needs call 131 056 8am to 8pm
(Sydney
visit
www.comminsure.com.au

Time), Monday

Friday

–

Colonial First State

Existing investors can call 131 336 from 8am to 7pm (Sydney
time) Monday to Friday. New investors without a financial
adviser can call 1300 360 645. Financial advisers can call

131 836. Alternatively, visit www.colonialfirststate.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 132 828 between 8am and
8pm (Sydney Time), seven days a week.

Commonwealth Bank of Australia Annual Report 2007 223

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/Shareholder

Share Registrar
Link Market Services Limited
Locked Bag A14
SYDNEY SOUTH NSW 1235
Telephone: (02) 8280 7199
Facsimile: (02) 9287 0303
Freecall: 1800 022 440
Internet
www.linkmarketservices.com.au
Email
registrars@linkmarketservices.com.au

Telephone numbers for overseas Shareholders
New Zealand
0800 442 845
United Kingdom
0845 769 7502
Fiji
008 002 054
Other International
612 8280 7199

Australian Stock Exchange Listing
CBA

Annual Report
To request a copy of the Annual Report
please call 1800 022 440

224 Commonwealth Bank of Australia Annual Report 2007