DeteRmineD to be better than we’ve ever been.
Annual Report 2011
Commonwealth bank of australia | aCn 123 123 124
Chairman’s Statement
Chief Executive Officer’s Statement
Highlights
Group Performance Analysis
Retail Banking Services
Business and Private Banking
Institutional Banking and Markets
Wealth Management
New Zealand
Bankwest
Other Divisions
Investment Experience
Risk Management
Capital Management
Description of Business Environment
Sustainability
Corporate Governance
Directors’ Report
Five Year Financial Summary
Financial Statements
Income Statements
Statements of Comprehensive Income
Balance Sheets
Statements of Changes in Equity
Statements of Cash Flows
Notes to the Financial Statements
Directors’ Declaration
Independent Auditor’s Report
Shareholding Information
International Representation
Contact Us
Corporate Directory
Contents
2
5
11
15
22
24
26
28
32
36
38
40
41
45
52
55
59
66
94
96
97
98
99
100
102
104
230
231
233
237
238
239
Chairman’s Statement
Introduction
The Group has delivered another good result for the year
despite the uncertain and challenging economic environment.
The result is attributable to the Group’s strong position and the
continued focus on providing solid returns and dividends to our
shareholders. The Group’s strategy and focus of serving our
customers remains paramount. We continue to be conservative
and at the same time sensitive to change in the external
environment, while competing strongly in all the markets and
segments we serve.
Operating and Financial Results
The Group’s cash net profit after tax for the year ended 30 June
2011 was $6,835 million, which represented a 12% increase on
the prior year. Cash earnings per share increased 11% on the
prior year to 438.7 cents, whilst cash return on equity increased
80 basis points to 19.5%.
This solid result was achieved in an environment where the
impacts of the global financial crisis continue to linger. Credit
growth remains low, business and consumer confidence is
fragile and there is significant volatility and uncertainty in global
markets. Despite the challenging market conditions, effective
execution of the Group’s five strategic priorities of Customer
Satisfaction, Business Banking, Trust and Team Spirit,
Technology and Operational Excellence and Profitable Growth
has driven a sound financial performance. The result was
characterised by:
•
Net interest income increasing 7% to $12,658 million,
reflecting a six basis point increase in net interest margin
and 4% growth in average interest earning assets;
•
• Other banking income declining 3% to $3,983 million, with
reduced retail fees and commissions, lower CommSec
brokerage and Markets trading income partly offset by
higher bills income and improved Treasury earnings;
Funds management income increasing 8% to $2,041
million, supported by a 5% increase in average funds
under administration and stronger investment performance,
partly offset by the appreciation of the Australian dollar;
Insurance income declining 9% to $856 million, partly
reflecting the sale of the St Andrew’s insurance business.
After adjusting for the sale of St Andrew’s, insurance
income decreased 4% due to higher claims in the
wholesale and retail life businesses;
•
• Operating expenses increasing 3% on the prior year to
$8,891 million, with 1% of the growth driven by continued
investment in projects supporting the Group’s strategic
priorities. Operating expenses, excluding
investment
expenses, increased 2% reflecting the Group’s disciplined
approach and continued focus on productivity initiatives
which have delivered operational efficiencies; and
•
Impairment expense decreasing 38% to $1,280 million,
mainly
related
impairments.
lower Bankwest property
reflecting
All of the Group’s businesses performed satisfactorily in a
challenging operating environment with highlights for the year;
•
Retail Banking Services cash net profit after tax was
$2,845 million, representing a 16% increase on the prior
year. The result was driven by solid growth in net interest
income partially offset by lower other banking income,
sound management of operational expenses and an
improvement in loan impairment expense;
2
Commonwealth Bank of Australia Annual Report 2011
•
•
Business and Private Banking delivered a strong
performance, achieving cash net profit after tax of $1,039
million, which represents a 16% increase on the prior year.
The business banking segments contributed significantly to
this result, with growth in lending volumes, improving
deposit margins and a lower impairment expense;
Institutional Banking and Markets achieved a cash net
profit after tax of $1,004 million for the year ended 30 June
2011, which represented a 14% decrease on the prior
year, reflecting a decrease in operating income due to
lower trading income in Markets and the effect of the
decline in lending balances in Institutional Banking;
•
related
increase
expenditure.
• Wealth Management’s underlying profit after tax for the
year was $581 million, up marginally on the prior year. A
solid Funds Management and General Insurance result
in claims and
was partially offset by an
compliance
under
Funds
Administration increased 5% on the prior year to $189
billion;
New Zealand cash net profit after tax was NZ$588 million,
an increase of 28% on the prior year. The result was driven
by a strong performance from ASB Bank with margins
benefiting from a shift in portfolio mix towards variable rate
loans and repricing initiatives in response to higher funding
costs;
Bankwest cash net profit after tax for the year ended 30
June 2011 was $463 million, up significantly from the $45
million loss in the prior year. The improved performance
was driven by lower loan impairment expense and a 12%
increase in operating performance; and
•
•
IFS Asia cash net profit after tax was $53 million, an
increase of 18% over the prior year. The key drivers of the
result were a 10% increase in banking income driven by
robust lending growth from the Indonesian retail business
together with strong contributions from the Bank of
Hangzhou and Vietnam
(VIB)
investments and an 18% increase in Insurance income
reflecting improved sales volumes from the Indonesian life
insurance business, particularly bancassurance sales.
International Bank
Dividends and Capital
A final dividend of $1.88 per share was declared - an increase of
11% on the prior year. The total dividend for the year to 30 June
2011 was $3.20 per share, taking the cash dividend payout ratio
for the year to 73.2%. The final dividend will be fully franked and
will be paid on 6 October 2011.
The Group’s Dividend Reinvestment Plan will continue to
operate but no discount will be applied to shares issued under
the plan for the 2011 final dividend.
During the year dividend and interest payments were also made
to the holders of the Group’s various capital securities: PERLS
III, PERLS IV, PERLS V, Trust Preferred Securities 2003, Trust
Preferred Securities 2006, ASB Capital Preference Shares and
ASB Capital No 2 Preference Shares.
The Group maintained a strong capital position and remains one
of a handful of global banks with a AA credit rating. The Tier One
capital ratio was 10.01%, up 86 basis points over the year.
It is this ratio under the Basel II Accord by which the Group’s
capital position is measured. At 10.01%, it is well in excess of
the Board’s current minimum requirement of 7%. However, this
measure will almost certainly be increased under the G-20 and
Basel III initiatives. This is manageable, however, and the
Group’s Balance Sheet will continue to be strengthened with
retained earnings
liquidity
requirements, however, are less certain and the Group remains
actively involved in the consultation process, working closely
with other industry participants and the regulators.
from ongoing profits. The
The Group remains well funded which has enabled it to provide
ongoing support to customers. Strong deposit growth coupled
with subdued credit growth has seen the Group satisfy a
significant proportion of its funding requirements from domestic
deposits. Customer deposits at $349 billion comprised 61% of
the Group’s funding requirement, up from 58% last year.
However, the Board is aware that the level of these deposits can
vary, notwithstanding the attractiveness of the Bank’s terms and
rates compared with other institutions and instruments.
If the level of deposit funding decreases either through lower
deposits or an increase in credit growth, the Group will generally
fund its requirements through accessing the wholesale markets,
both within and outside Australia.
Inevitability the depth of these markets and the cost of funds to
the Group will vary as a result of economic and other pressures
affecting this market. The ongoing strength of the Group’s
balance sheet, coupled with strong performance and the skill of
our people, are important to ensure that this critical pool of
funding remains both accessible and at an optimal cost.
Corporate Governance and Board Performance
In alternate years we use an external firm to assist with the
assessment of Board performance and effectiveness. This year
we performed the review internally. Further detail is provided in
the Corporate Governance section of this Annual Report.
The Risk Committee, which continues to be chaired by Harrison
Young, comprises all members of the Board and reflects the
ongoing importance of the assessment of risk. The membership
of this committee will continue to be kept under review.
Other committees of the Board have a composition that reflects
individual skills and contribution to committee effectiveness.
During the year, two new independent non-executive Directors
joined your Board.
Chairman’s Statement
Chief Executive Officer
You will have seen that Ralph Norris decided to retire at the end
of November this year.
Ralph has been Chief Executive Officer of the Bank for the past
six years. They have been six years of exceptional achievement
in terms of both financial and cultural performance.
Ralph’s unswerving focus on customer satisfaction has driven
the financial results and his attention to developing top talent has
resulted not only in an excellent executive team, but also a pool
of talent for succession to the most senior positions.
On behalf of the Board, I would like to thank Ralph for his
tremendous performance and exemplary contribution to the
Group.
The Board has appointed Ian Narev to succeed Ralph on
December 1st this year. Ian is currently CEO Designate. You will
have read of Ian’s qualifications for the position and his inclusive
and impressive leadership skills as Group Executive responsible
for Business and Private Banking.
Ian has a background as head of strategy within the Group and
prior to that with the financial services practice of McKinsey in
New York, Sydney and Auckland. On top of an excellent
academic grounding, Ian is a senior banker with an outstanding
breadth of experience. In the course of the selection process, we
also assured ourselves that Ian was benchmarked against the
best available talent outside Australia.
Your Board has every confidence in Ian’s ability to deliver the
best possible outcomes for the Group and is ideally suited to
deliver the best possible outcomes in the face of a challenging
future.
Finally, I would like to thank my fellow Directors very much
indeed for their hard work and support during the past year.
Outlook
The 2011 financial year has been a challenging one for the
Group and many of its customers. While the resources sector
has performed well, other parts of the economy have been
subject to headwinds including fragile consumer and corporate
confidence, political uncertainty, a strong currency and natural
disasters.
Ongoing offshore instability continues to impact the domestic
economy and has the potential to place further upward pressure
on wholesale funding costs for domestic banks.
On 1 September 2010, Brian Long was appointed a Director of
the Bank. Brian was a senior partner of Ernst & Young and
Chairman of both the Ernst & Young Global Advisory Council
and the Oceania Area Advisory Council and has had more than
30 years experience in serving as audit signing partner on major
Australian public companies. Brian brings wide accounting,
auditing and governance experience to the Board.
The 2011 financial year has been characterised by subdued
system credit growth and intense competition. At this stage there
is nothing to suggest that the 2012 financial year will see any
material improvement on this front. Nor is it clear what the
catalyst will be for a meaningful revival in consumer and
corporate confidence which is a prerequisite to stronger demand
for credit.
On 16 March 2011, Launa Inman was appointed a Director of
the Bank. Launa has been Managing Director of Target Australia
Pty Ltd since 2005, a leading Australian retailer with more than
25,000 employees and 290 Target and Target Country stores
across the country. Launa’s business and retail experience in
Australia complements the mix of skills and experience on the
Board.
initiatives which will
Against this backdrop the Group will continue to operate in a
disciplined and prudent manner with a focus on driving
sustainable
productivity
improvements in business performance. The Group’s priority is
to maintain a robust and stable financial and operating platform,
which will enable us to support our customers and provide
superior returns to shareholders.
deliver
Commonwealth Bank of Australia Annual Report 2011
3
Chairman’s Statement
Conclusion
While I have no doubt that the 2012 financial year will be a
challenging one for the Group and its customers, I am
nonetheless very optimistic about the Group’s future and its
ability to continue to deliver superior returns to its stakeholders.
While we have much to celebrate about the achievements of the
last 100 years, we also have much to look forward to. As the
Group enters a new era, we have a stable and strong
organisation with a business franchise which is the envy of many
of our peers.
However, despite these obvious advantages, we cannot afford
to be complacent in the face of a rapidly changing domestic and
global competitive environment. In fact we will need to be
increasingly innovative and nimble if we are to take advantage of
the opportunities which will
these
changes. Looking forward, our decisions over the last five years
to invest heavily in technology and productivity initiatives,
including Core Banking Modernisation, have placed us in a
strong position. Our challenge now is to ensure that as an
organisation we optimise these investments for the benefit of our
customers and our shareholders.
inevitably accompany
Finally, I would like to thank our customers and shareholders for
their continuing support for the Commonwealth Bank of Australia
and of course all the staff of the Group on whom we depend for
our success.
David J Turner
Chairman
10 August 2011
4
Commonwealth Bank of Australia Annual Report 2011
Chief Executive Officer’s Statement
On 22 December 2011, the Commonwealth Bank will be 100
years old.
On that day in 1911, the Commonwealth Bank of Australia was
enacted by Parliament, with our first day of trading taking place
on 15 July 1912.
We are a proud company with a proud history.
Our centenary is an important milestone, one that will allow us to
reflect with pride on the difference we’ve made to millions of
Australian families and businesses in this country over such a
long period of time.
I have had the great privilege to lead this organisation for six of
those 100 years. We have achieved a significant amount in that
time, thanks to the collective efforts of every one of our 52,000
staff.
While there remains a lot more to be done, it is opportune to
reflect on some of these achievements, on the eve of our 100
year anniversary, and how they have set us up to deal with the
inevitable challenges we will continue to face, and just as
importantly, how they will enable us to take advantage of the
tremendous opportunities that lie ahead.
I don’t need to remind you that over the past three years, the
world has been through an unprecedented crisis that, at its’
darkest hour, had many fearing for the very future of the global
financial system itself. Around the globe, economies struggle to
recover from the ravages of the Global Financial Crisis (GFC),
and after-shocks continue to be felt, most notably the sovereign
debt crisis that is still being played out across Europe, as well as
debt and growth concerns in the US.
The GFC has precipitated significant changes across global
economies and banking systems.
I would like to talk to you about these changes, how they have
arisen and most importantly how your company is responding to
them.
The story is in three parts:
Navigating the GFC;
The current banking landscape; and
•
•
• Why the Group has continued to outperform.
Navigating the GFC
As a starting point, it is worthwhile briefly reflecting on the
tumultuous events that have occurred over the past three years
or so, and how the Group has responded to the greatest
challenge we have had to face since we became fully privatised
in the mid 1990’s.
At its zenith, the GFC claimed some of the world’s largest and
most well-known institutions, including famous names like
Lehman Brothers, and came close to crippling countless others.
Many large and venerable institutions were only able to survive
thanks to the urgent intervention of regulators and multibillion
dollar tax-payer funded bailouts.
Against this global backdrop, Australian banks were able to
navigate their way through the GFC relatively unscathed,
emerging in a position of strength compared to our global peers.
There are a number of reasons why this was the case, including
the robustness of the Australian economy, our sound regulatory
regime, decisive government action and the strength and
financial discipline of the major banks themselves.
Faced with the uncertainties created by the GFC, the Group
adopted a set of guiding principles and implemented a range of
specific measures to ensure we were able to respond to the
challenge in a proactive manner, including:
•
Further strengthening already strong capital, liquidity and
provisioning levels;
• Maintaining our
traditionally high
lending and credit
•
•
standards throughout the crisis;
Being one of the first banks to prudently adjust loan pricing
as soon as the sustained nature of higher international
wholesale funding costs became apparent; and
Lengthening our portfolio funding maturities and adopting
other measures to ensure our funding position remained
very strong.
The Group’s ability to weather the GFC in such a robust fashion
is evidenced by the fact we have continued to deliver
sustainable financial results, highlighted by a Return on Equity
(ROE) which has remained sector leading here in Australia and
at the upper-end of banking institutions world-wide.
As shown in the chart below, the Group’s ROE experienced only
a slight dip in 2009, reflecting both the impact of higher loan
impairments at the worst point in the crisis, as well as the
prudent decision to increase the Group’s capital base at that
time.
Return on Equity
(Cash)
21.5%
21.7%
20.4%
18.8%
18.7%
19.5%
15.8%
2005
2006
2007
2008
2009
2010
2011
That is not to say that the Australian banking sector navigated
through the GFC without issues. A small number of larger
corporate customers came under pressure, as their business
models were unable to withstand the stresses imposed by the
GFC. In terms of our personal customers, the level of loan
impairments was relatively
that
unemployment in Australia remained low by world standards
throughout the crisis played a critical role in ensuring that the
majority of our customers were able to manage through this
period reasonably well.
low. Certainly,
fact
the
Also important in this regard was the quality of our lending
portfolios, a function of the consistent application of conservative
values over many years. Our home lending, for example, has
always been governed by prudent standards, demonstrated by
the fact that:
• Our portfolio average Loan-to-Value (LVR) ratio has
•
•
consistently been maintained below 50%;
For new home loan borrowers, the average LVR is about
50%, and this too, has remained consistent over time; and
Almost 70% of our home loan customers are paying in
advance of requirements.
The strength of our home loan book is such that losses have
always remained very low.
Commonwealth Bank of Australia Annual Report 2011
5
Chief Executive Officer’s Statement
While overall loss rates amongst our personal customers have
remained relatively low through the GFC, it is true that some of
our customers have experienced some form of stress or
hardship. I am particularly proud of the fact that we were able to
put in place a range of special assistance measures to assist
these customers, including repayment holidays for home loan
customers who had either lost their job or experienced other
types of upheavals.
In a similar vein, more recently we have extended $65 million in
assistance for victims of the Queensland and Victorian floods,
and through our New Zealand subsidiary ASB Bank, similar
assistance measures have been made available to victims of the
Christchurch earthquakes.
The current banking landscape
While it now appears that we are through the worst of the crisis,
the current landscape remains a challenging one. The global
economy is fragile and susceptible to damaging after-shocks,
with the ongoing debt concerns in the Euro zone and the US
being perhaps the most problematic. Growth rates are expected
to remain low in the United States and across most European
Union economies for some time.
In Australia, the operating environment for banks is a very
different one from that which prevailed in the decade or so
before the GFC. Some of these changes might be seen as
welcome ones, others less so. Regardless, these changed
circumstances present a different set of challenges for Australian
banks to deal with.
For simplicity’s sake, I have grouped these changes into two
broad categories which have come to characterise the new
banking environment – (i) higher costs of banking and (ii) lower
credit growth.
(i)
Higher costs of banking
One of the most immediate and obvious impacts of the GFC is
that banking is now a higher cost business than it was before.
Probably the most visible area of increased costs is in relation to
bank funding. By way of background, the funds we use to lend to
our customers have traditionally come from two sources; retail
deposits here in Australia and international and domestic
wholesale markets. The reliance on international debt markets to
finance a large proportion of our domestic lending is a function of
a broader structural imbalance in the Australian economy.
Australia has been running a current account deficit for many
years. This has meant that as a country we have had to seek
funds from overseas to help finance our growth.
The GFC highlighted this structural exposure of the Australian
economy to international debt markets, as the cost of borrowing
money in international markets increased exponentially, as rates
adjusted to what was seen as a much riskier environment to
borrow and lend money.
To illustrate this point, prior to the GFC, it was costing the Group
about 13 basis points or 0.13% above the prevailing market
swap rate to borrow money for a three year term. Today, the
cost the Group incurs to borrow money for the same three year
term is almost 100 basis points (1.00%).
Indicative Long Term Wholesale Funding Costs
(Basis Points)
144
98
17
3
13
17
1 Year
3 Years
5 Years
2007
2011
At the same time, the costs associated with the other part of our
funding – retail deposits, has also risen, as all banks are now
competing more aggressively for this type of funding. This is
reflected in the higher interest rates now being offered for
various deposit products, such as term deposits and online
savings accounts.
The other area that is likely to add to the cost of banking is that
of international regulatory reform.
Globally, regulators have sought to develop and implement a
range of measures designed to strengthen global financial
systems in an effort to ensure we never again face a crisis of the
magnitude of the GFC. As with all reforms however, one of the
greatest risks is that the regulatory response goes too far,
leading to unintended consequences that, in some cases, may
be worse than the problem that is trying to be resolved.
We remain actively engaged with regulators both here in
Australia and overseas to ensure the ultimate outcomes are
measured, sensible, and
improvements
lead
appropriate to each country’s individual circumstances. All the
indications to date suggest that this will be the case.
to practical
Regardless of the final outcomes, it is clear that whatever
measures are progressed, they will add an extra impost to the
cost of banking.
As far as Basel III capital requirements are concerned, there is
no doubt that our capital levels will need to be maintained above
pre-GFC
regulatory minimums. Meeting higher capital
requirements should not present any significant difficulty for the
Group, given our capital levels are already very strong by
international standards, and we continue to generate good
organic capital growth through our consistently strong financial
performance. Our Tier 1 Capital ratio now stands at 10.01%.
Tier 1 Capital Ratio
10.01%
9.15%
7.58%
8.07%
2008
2009
2010
2011
6
Commonwealth Bank of Australia Annual Report 2011
Chief Executive Officer’s Statement
Another area of significant regulatory change is that of liquidity.
There is no doubt that we will need to hold higher levels of liquid
assets, and that the definition for what qualifies as quality
liquidity from the regulators perspective is likely to become more
prescriptive. Holding a higher amount of these assets will add to
the cost of funding customer loans.
(ii)
Lower credit growth
Perhaps the most important lasting effect of the GFC has been
the impact it has had on the collective mindsets of our
customers. Given the scale and magnitude of the GFC and the
fragile nature of the current global economic environment, it is
only natural that people are now more cautious and conservative
than they were before the crisis.
One of the key manifestations of this extra caution is that people
are saving more and borrowing less. As shown in the following
chart, this slowdown in credit growth has been across all key
sectors of the market – both personal and business.
System Credit Growth (%)
25.0
20.0
15.0
10.0
5.0
0.0
2001
-5.0
-10.0
Source: RBA
2006
2011
Housing
Business
Total
As credit growth has slowed, the national savings rate has
grown. Where before people may have borrowed for a home
improvement or to purchase a new car, they are now saving
their money and waiting for “better times”. This increase in
savings can be seen from the chart below.
Household Savings Ratio
(% of household disposable income)
Why the Group has continued to outperform
Since 2005, when I joined this organisation as Chief Executive,
we have been pursuing a consistent and deliberate strategy, at
the heart of which is a desire to transform this organisation into
one that is truly focussed on meeting the needs of our
customers. Our vision has been and remains to be Australia’s
largest financial services organisation through excelling in
customer service.
This vision builds on and recognises our unique heritage as the
Bank for all Australians. It is a strategy which aims to tap the
tremendous potential we have in our franchise, by better
understanding our customers, improving the service we offer
them and doing so in the most efficient way possible.
This is a strategy which has helped deliver strong financial
returns over the past five years, and in many ways has helped
us navigate through the GFC from a position of relative strength.
I would like to take this opportunity to talk to you about why I
think this strategy has ensured we have continued to deliver in
the current environment. There are five elements to our strategy,
and I will talk to each of these in turn.
1.
Customer Satisfaction
Five years ago, Commonwealth Bank trailed the other major
banks by a considerable margin on customer satisfaction. Since
then, we have closed the gap between ourselves and the top-
rated peer bank from 12.5 to 3.6 percentage points.
Retail MFI Customer Satisfaction
77.4%
78.8%
75.2%
2001
2003
2005
2007
2009
2011
64.9%
Source: ABS
The operating environment today is a vastly different one to that
which prevailed here in Australia for many years. For the
foreseeable future, growth is going to be harder to come by, and
all institutions need to work harder and smarter to achieve it.
While many factors will come into play, in my view the most
successful institutions will be those who understand the needs of
their customers’ best and are the most efficient at meeting these
needs.
I would now like to spend some time talking about why I think
your Bank is ideally placed to succeed in this environment.
2006
2011
Top Rated Peer
(1)
CBA
(1) Retail MFI Customer Satisfaction – Roy Morgan Research, Australians 14+
that have an account relationship with that MFI, “Very” or “Fairly” satisfied
with the relationship at that institution. 6 month rolling average.
The gains we have made in improving customer satisfaction are
not just confined to Retail Banking. In Wealth Management, our
FirstChoice platform is consistently ranked at or near the top for
service amongst financial advisors and our FirstWrap platform
ranked first for overall advisor satisfaction in its first year in the
survey.
Commonwealth Bank of Australia Annual Report 2011
7
14
12
10
8
6
4
2
0
-2
-4
Chief Executive Officer’s Statement
In Business Banking, we are ranked outright or equal first in
customer satisfaction for both medium sized businesses (those
with annual turnover between $5m and $50m) and larger
businesses (those with annual turnover of $50m and above).
There is no doubt in my mind that we will achieve our goal of
being the number one bank for customer satisfaction. The
tremendous gains we have already made, the momentum we
have and the commitment of our people to achieving this
outcome makes it inevitable that we will get there.
The more satisfied a customer is, the more likely they are to do
more business with you.
In an environment of constrained credit growth and tighter
margins, improving the service we provide to our customers and
earning more business from them will be one of the key drivers
of future growth. So, it is very pleasing that over the same
period, we have made significant improvements in customer
satisfaction; the average number of products held by each of our
customers has grown by over 20%. We now have the highest
number of products per customer of any major bank in Australia
at 2.64, well ahead of the average of our peers.
Products per customer (1)
Our Business and Private Bank is now delivering consistently
strong financial results, off the back of improved customer
satisfaction levels and stronger volume and market share
outcomes. The business is operating with strong momentum
and we are very well placed to take advantage of the eventual
upturn in business sector demand.
3.
Technology and Operational Excellence
In an environment of softer credit growth and additional cost
pressures, only the most efficient banks will be able to deliver
consistently strong shareholder returns.
We have a very strong track record in this regard, with a
progressive improvement in our cost-to-income ratio in recent
years
Cost-to-Income Ratio (%)
56.7
54.5
51.5
50.5
49.3
48.9
46.4
45.7
45.5
2.70
2.60
2.50
2.40
2.30
2.20
2.10
2.00
2007
2008
2009
CBA
Peer Average
2010
(2)
2011
(1) Roy Morgan Research, Australians 14+, Banking and Finance products per
Banking and Finance customers, six months rolling average.
(2) Average of the major four banks excluding CBA.
2.
Business Banking
When most people think about the Commonwealth Bank it is
probably fair to say they think about things like our extensive
branch network, our heritage as the “people’s bank” or our
leading positions in home lending or retail deposit accounts. It is
less likely they will nominate us as being particularly strong in
business banking.
For many years the Bank was a relatively small competitor in
this segment of the market. However, over the last five years we
have set about addressing our relatively underweight position in
business banking as a core element of our overall Group
strategy.
We have made significant progress in that time:
• Opened 23 new dedicated business banking centres
•
•
•
across the country (45 in total);
Located over 150 new local business bankers in selected
key branches;
Launched CommBiz, our innovative online banking facility
for business customers;
Provided our customers with 24/7 access to business
bankers;
Considerably improved customer satisfaction; and
•
• Grown our market share from 12.1% in June 2006 to
2003
2004
2005
2006
2007
2008
2009
2010
2011
These gains have not been achieved through indiscriminate cost
cutting, nor have they been achieved by under investing in our
business. We have invested over $1 billion back into the
business in each of the past four years.
Through our Technology and Operational Excellence strategy,
we are well advanced in achieving our goal of transforming the
Group’s domestic banking operations into the most efficient in
Australia.
From a technology perspective, much of the focus to date has
been on improving our front end, customer facing systems, to
improve the productivity of our staff and to better enhance the
customer experience. As a result, the Bank now offers the
leading range of
frontline banking systems and delivery
platforms in the Australian market, including:
•
•
•
•
•
CommSee – our leading edge customer interface system,
which was rolled out across our branch and call centre
networks in 2006/07;
NetBank – our market leading online and mobile banking
solution, with almost six million registered users;
CommBiz – our innovative secure online banking solution
which has made banking so much easier for our business
customers;
CommSec – for 15 years the leading online retail broking
platform, accounting for over 50% of all online retail trades
in the market; and
FirstChoice – providing customers with real time access to
secure
portfolio
information and transacting capabilities.
superannuation
investment
and
The next stage of this efficiency evolution is our Core Banking
Modernisation programme.
18.1% in June 2011.
.
8
Commonwealth Bank of Australia Annual Report 2011
Chief Executive Officer’s Statement
I am tremendously excited about the potential of Core Banking.
This is truly a transformational undertaking which I believe will
revolutionise the way we do banking in this country. Once
completed in 2012, we will have transitioned our Australian
banking business to a completely new core operating platform,
replacing the myriad of old standalone systems previously
operating across the various divisions of the Bank.
Since launch in April 2008, we have achieved every key
milestone we have set for ourselves, including:
• Migrated over 50 million customer records to the new
platform;
• Migrated over 10 million deposit and transaction accounts
to the new platform – the largest banking migration in
Australian history; and
•
Replaced overnight “batch” processing with real time, 24/7
banking for millions of customers.
The benefits of real time transactions are already being seen in
customer service improvements and I continue to receive many
positive comments from customers on the real time functionality
of our new systems.
technology upgrade. Supporting
However, it is important not to look on Core Banking as being
simply a
technology
component of the programme is a comprehensive change
programme that is designed to ensure we achieve maximum
leverage and benefit from this investment through changes to
staff roles, dedicated training programmes and specialised sales
and marketing processes.
the
With Core Banking we are building a valuable strategic asset for
the Bank, which will ensure we remain at the forefront of banking
efficiency and productivity for many years to come.
4.
Profitable Growth
Our Profitable Growth strategy is about maintaining discipline in
the Group’s growth agenda, be it organically generated growth
in our traditional markets or our investments in new markets. Put
simply, it means ensuring we earn an appropriate level of return
for all our growth strategies and investments.
Our track record in this regard has been good.
The Group’s acquisition of Bankwest in 2008 is an excellent
example of this discipline in practice. By acquiring these
businesses at a highly attractive price, the Group obtained a
strong business with an important presence in one of Australia’s
fastest growing states, with strong leverage to the mining and
resources boom.
Another key platform of our Profitable Growth strategy is that of
Asia, where we have been pursuing a considered, prudent and
focussed growth strategy over many years. For several years
we have operated the largest foreign network in Indonesia, and
we hold 20% stakes in two City Commercial Banks in China, the
maximum foreign ownership allowed in that country.
Over the past 12 months we have made further progress with:
•
•
•
•
•
•
The launch of our BoComm Life Joint Venture in China;
The opening of a branch in Shanghai China;
The opening of the first CBA branch in India;
The acquisition of a 15% shareholding
International Bank;
The expansion of our existing networks in other countries,
with a further ten branches opened in Indonesia and 43
new ATM’s installed across Indonesia and Vietnam; and
in Vietnam
The opening of three County Banks in Jiyuan, DengFeng
and Lankao, China.
Our Asian growth story is very much focussed on selective
targeted expansion in key growth regions, achieved through a
patient, on the ground understanding of local markets and
jurisdictions built up over many years.
in a way which optimises returns and value
Profitable Growth is not solely about acquisitions and overseas
expansions. Profitable Growth plays just as important a role in
our core domestic businesses, ensuring we continue to manage
these
to
shareholders while meeting the needs of our customers. It
ensures we are continually refining and adjusting our areas of
focus, to take advantage of those opportunities which offer the
greatest return at any particular point in time. We are not an
organisation which chases market share for market share’s
sake.
Profitable growth is all about balancing shareholder value and
customer needs. Our single minded focus in this regard has
enabled us to navigate the GFC from a position of relative
strength, and has seen us continue to outperform, as we fine-
tune this organisation to meet the challenges of the new
environment.
5.
Trust and Team Spirit
Finally, I would like to talk about our people.
All of the success we have had is due to the hard work,
enthusiasm and commitment of our people. They are the ones
who serve our customers every day, who process
the
transactions, who answer the enquiries in our call centres, and
who ensure loans are processed and funded in a timely manner.
Every day there are millions of interactions between our staff
and our customers, and the overwhelming majority of these
interactions are handled professionally and with the highest level
of customer service. The gains we have made in customer
satisfaction are testimony to the efforts and commitment of our
people.
is
One of the most pleasing parts of my job as CEO of the
Commonwealth Bank
the many customer
compliments that I receive every day, highlighting the numerous
examples of situations where our staff have delighted a
customer so much that they have felt compelled to write to me to
share the experience.
read
to
Every day I have the opportunity to talk to staff all across this
organisation, and I am constantly impressed by the level of
enthusiasm they display, and of their absolute commitment to
our journey to be number one in customer satisfaction. More
than any other factor, the energy and drive of the people I meet
every day gives me the utmost confidence that we will achieve
this goal in the very near future.
Commonwealth Bank of Australia Annual Report 2011
9
Chief Executive Officer’s Statement
Summary
The Commonwealth Bank has a proud and distinguished
history. For almost a century, we have been the financial
services organisation that many Australians have relied on for
their banking and financial needs – from their first banking
account, to a loan for their first car, to their first home loan, to
saving for retirement.
Over the course of those 100 years, we have undergone many
changes. Today, we are a significantly more diverse
organisation. From our relatively humble beginnings we are now
a global banking organisation, with a strong and growing
presence outside this country in New Zealand, Asia and around
the world.
In that time, we have faced many challenges, the most recent
and perhaps most significant of these being the Global Financial
Crisis.
As has always been the case, this organisation not only met this
challenge, but emerged from it a stronger organisation than we
have ever been.
The current operating environment poses its own challenges, its
own set of problems and issues.
The message I would like to leave you with is that I am
extremely confident that as an organisation we are well placed
to meet these challenges, and continue to deliver consistently
strong returns to you, our shareholders.
Ralph Norris
Chief Executive Officer
10 August 2011
10
Commonwealth Bank of Australia Annual Report 2011
Group Performance Highlights
Net Profit after
Income Tax
Statutory basis
Cash basis
Full Year Ended
Half Year Ended
30/06/11 30/06/10 30/06/11 31/12/10
$M
6,394
6,835
$M
5,664
6,101
$M
3,342
3,500
$M
3,052
3,335
The Group’s net profit after tax (“statutory basis”) for the year
ended 30 June 2011 was $6,394 million, up 13% on the prior
year.
Return on equity (“statutory basis”) was 18.4% and Earnings per
share (“statutory basis”) was 411.2 cents, up 12% on the prior
year.
The Management Discussion and Analysis discloses the net
profit after tax on both a “statutory basis” and a “cash basis”. The
statutory basis is prepared in accordance with the Corporations
Act 2001 and the Australian Accounting Standards, which
comply with International Financial Reporting Standards (IFRS).
The cash basis is used by management to present a clear view
of the Group’s underlying operating results, excluding a number
of items that introduce volatility and/or one off distortions of the
Group’s current period performance. These items, such as
hedging and IFRS volatility, are calculated consistently year on
year and do not discriminate between positive and negative
adjustments. A complete list of items excluded from statutory
profit is provided in the reconciliation of the Net profit after tax
(“cash basis”) on page 12 and described in greater detail on
page 18.
This result was achieved in a challenging environment where the
impacts of the Global Financial Crisis (GFC) continue to linger.
Credit growth remains at historic lows, business and consumer
confidence is fragile and there is significant uncertainty in global
markets.
Despite these difficult conditions, the Group, with its well
managed, diversified business model and strong and stable
financial platform, has delivered another solid result. This has
been supported by a continued disciplined approach to the
execution of the Group’s five strategic priorities and prudent
management in uncertain times.
Operating income growth was impacted by a low credit growth
environment, strong competition, particularly in the home lending
and deposit markets, together with difficult trading conditions for
the Markets and Wealth businesses.
Operating expenses were managed tightly, laying the platform
for continued investment in the business, including the effective
execution of the Core Banking initiative which is now past the
half way stage, having achieved significant milestones during
the year.
Impairment expense continued to decrease as credit quality
gradually improved however some of the Group’s customers are
finding business conditions challenging. The Group has
maintained a conservative approach to provisioning.
Net profit after tax (“cash basis”) for the year ended 30 June
2011 was $6,835 million, which represented an increase of 12%
on the prior year.
Cash earnings per share increased 11% to 438.7 cents per
share.
Return on Equity (“cash basis”) for the year ended 30 June 2011
was 19.5%, up 80 basis points on the prior year, reflecting
increased profitability and effective capital management.
Performance highlights include:
•
“Bank of the Year” in the 2011 Money Magazine Awards,
for the second year in a row;
Highlights
•
•
•
Awarded the “Australian Financial Institution of the Year –
Major Banks” at the 2011 Australian Banking and Finance
Awards;
Continued investment in the business, including the Core
Banking Modernisation
initiative with customers now
enjoying the benefits of real time banking; and
The Group achieved a major milestone when its first teams
began working out of new state-of-the-art buildings in
Sydney’s Darling Harbour. This facility will be home to
approximately 6,300 staff by early next year.
Capital and Funding
The Group maintained a strong capital position and remains one
of a handful of global banks with a AA credit rating. The Tier One
capital ratio was 10.01%, up 86 basis points over the year.
The Group remains well funded which has enabled it to provide
ongoing support to customers. Strong deposit growth coupled
with subdued system credit growth has seen the Group satisfy a
significant proportion of its funding requirements from domestic
deposits.
Customer deposits made up 61% of the Group’s total funding
source at 30 June 2011, up from 58% in the prior year.
Customer deposits increased $26 billion to $349 billion.
Recent initiatives by global regulators have helped to clarify
future capital and liquidity requirements for the Australian
banking industry. The G-20 and Basel III initiatives regarding
capital are manageable within the timeframes however the new
liquidity rules require further clarification.
The Group remains actively involved in the consultation process,
working closely with other
the
regulators.
industry participants and
Dividends
The final dividend declared was $1.88 per share, up 11% on the
prior year. The total dividend for the year to 30 June 2011 was
$3.20, taking the dividend payout ratio (“cash basis”) to 73.2%.
The final dividend payment will be fully franked and will be paid
on 6 October 2011 to owners of ordinary shares at the close of
business on 19 August 2011 (“record date”). Shares will be
quoted ex–dividend on 15 August 2011.
Outlook
The 2011 financial year has been a challenging one for the
Group and many of its customers. While the resources sector
has continued to perform well, many other parts of the economy
have been impacted by a range of headwinds including fragile
consumer confidence, political uncertainty, a high Australian
dollar and natural disasters.
Ongoing offshore instability, often flowing from the GFC,
continues to impact the domestic economy and has the potential
to place further upward pressure on wholesale funding costs for
the domestic banking industry.
The 2011 financial year has been characterised by subdued
system credit growth and intense competition. At this stage there
is nothing to suggest that the 2012 financial year will see any
material improvement nor is it clear what the catalyst will be for a
meaningful revival in consumer and corporate confidence which
is prerequisite to stronger demand for credit.
initiatives which will
Against this backdrop the Group will continue to operate in a
disciplined and prudent manner with a focus on driving
sustainable
productivity
improvements in business performance. The Group’s priority is
to maintain a robust and stable financial and operating platform,
which will enable us to support our customers and provide
superior returns to shareholders.
deliver
Commonwealth Bank of Australia Annual Report 2011
11
Highlights
Group Performance
Summary
Net interest income
Other banking income
Total banking income
Funds management income
Insurance income
Total operating income
Investment experience
Total income
Operating expenses
Loan impairment expense
Net profit before tax
Corporate tax expense (1)
Non-controlling interests (2)
Net profit after tax
("cash basis")
Hedging and IFRS volatility
Bankwest non-cash items
Tax on NZ structured finance
transactions
Other non-cash items
Net profit after tax
("statutory basis")
Represented by:
Retail Banking Services (3)
Business and Private Banking (3)
Institutional Banking and Markets (3)
Wealth Management
New Zealand
Bankwest
Other (3)
Net profit after tax ("cash basis")
Investment experience - after tax
Net profit after tax
("underlying basis")
Full Year Ended
Half Year Ended
Statutory
Full Year Ended
30/06/11
30/06/10
Jun 11 vs
30/06/11
31/12/10
Jun 11 vs
30/06/11 Jun 11 vs
$M Dec 10 %
$M
Jun 10 %
$M
12,658
3,983
16,641
2,041
856
19,538
121
19,659
(8,891)
(1,280)
9,488
(2,637)
(16)
6,835
(265)
(147)
-
(29)
$M Jun 10 %
11,868
4,112
15,980
1,898
945
18,823
236
19,059
(8,601)
(2,075)
8,383
(2,266)
(16)
6,101
17
(216)
(171)
(67)
7
(3)
4
8
(9)
4
(49)
3
3
(38)
13
16
-
12
large
(32)
large
(57)
$M
6,488
1,924
8,412
1,024
398
9,834
86
9,920
(4,483)
(558)
4,879
(1,372)
(7)
3,500
(49)
(99)
-
(10)
6,170
2,059
8,229
1,017
458
9,704
35
9,739
(4,408)
(722)
4,609
(1,265)
(9)
3,335
(216)
(48)
-
(19)
6,394
5,664
13
3,342
3,052
2,845
1,039
1,004
642
470
463
372
6,835
(81)
2,461
898
1,173
718
388
(45)
508
6,101
(178)
6,754
5,923
16
16
(14)
(11)
21
large
(27)
12
(54)
14
1,453
1,392
532
506
283
236
239
251
507
498
359
234
224
121
3,500
(52)
3,335
(29)
3,448
3,306
12,607
3,630
16,237
2,042
1,118
19,397
n/a
19,397
(9,060)
(1,280)
9,057
(2,647)
(16)
n/a
n/a
n/a
n/a
n/a
6,394
6
(14)
1
6
(9)
1
n/a
1
4
(46)
11
5
-
n/a
n/a
n/a
n/a
n/a
13
5
(7)
2
1
(13)
1
large
2
2
(23)
6
8
(22)
5
(77)
large
-
(47)
10
4
5
2
(21)
1
7
large
5
79
4
(1) For purposes of presentation, Policyholder tax expense components of Corporate tax expense are shown on a net basis (30 June 2011: $166 million, 30 June 2010:
$130 million and for the half years ended 30 June 2011: $66 million and 31 December 2010: $100 million).
(2) Non-controlling interests include preference dividends paid to holders of preference shares in ASB Capital Limited and ASB Capital No.2 Limited.
(3) Comparatives have been restated for the impact of business resegmentation.
Group Return on Equity
Group Return on Assets
21.5%
21.7%
20.4%
18.8%
18.7%
19.5%
15.8%
1.1%
383
4.1
352
3.5
646
668
620
1.0%
6.8
488
6.1
440
4.5
4.7
4.4
0
0
0
0
0
0
0
2005
2006
2007
2008
2009
2010
2011
2005
2006
2007
2008
2009
2010
2011
ROE - Cash (%)
Total Assets ($bn)
Cash NPAT ($bn)
ROA - Cash (%)
12
Commonwealth Bank of Australia Annual Report 2011
Highlights
Shareholder Summary
Dividends per share - fully franked (cents)
Dividend cover - cash (times)
Earnings per share (cents)
Statutory basis - basic
Cash basis - basic
Dividend payout ratio (%)
Statutory basis
Cash basis
Weighted average no. of shares - statutory basic (M)
Weighted average no. of shares - cash basic (M)
Return on equity - cash (%)
Full Year Ended
Half Year Ended
Jun 11 vs
Jun 11 vs
30/06/11
30/06/10
Jun 10 %
30/06/11
31/12/10
Dec 10 %
320
1. 4
411. 2
438. 7
78. 3
73. 2
1,545
1,548
19. 5
290
1. 4
367. 9
395. 5
79. 7
73. 9
1,527
1,531
18. 7
10
-
12
11
(140)bpts
(70)bpts
1
1
80 bpts
188
1. 2
214. 7
224. 4
88. 2
84. 2
1,547
1,551
20. 0
132
1. 6
196. 5
214. 3
67. 5
61. 7
1,542
1,546
19. 2
42
(25)
9
5
large
large
-
-
80 bpts
Credit Ratings
Fitch Ratings
Moody’s Investor Services (1)
Standard & Poor's
Long–term
AA
Aa2
AA
Short–term
F1+
P-1
A-1+
Outlook
Stable
Stable
Stable
(1) On 18 May 2011, Moody’s Investor Services downgraded the long-term credit ratings of the Bank along with the other three major Australian banks.
Market Share Percentage
Home loans
Credit cards (1) (2)
Personal lending (APRA and other Household) (3)
Household deposits
Retail deposits (1) (4)
Business Lending - APRA
Business Lending - RBA (1)
Business Deposits - APRA
Asset Finance
Equities trading
Australian Retail - administrator view (1) (5)
FirstChoice Platform (1) (5)
Australia (total risk) (1) (5)
Australia (individual risk) (1) (5)
NZ Lending for housing
NZ Retail Deposits
NZ Lending to business (1)
NZ Retail FUM (1)
NZ Annual inforce premiums
As at
30/06/11
31/12/10
30/06/10
%
25. 7
22. 6
14. 9
30. 0
26. 9
18. 1
17. 0
21. 2
14. 8
5. 9
15. 0
11. 3
12. 4
13. 3
22. 2
21. 4
9. 1
14. 4
29. 9
%
25. 9
22. 7
14. 6
30. 5
26. 7
18. 6
17. 2
21. 3
14. 6
5. 7
15. 0
11. 2
12. 5
13. 3
22. 4
21. 2
9. 2
14. 5
30. 3
%
26. 1
22. 5
14. 6
31. 3
27. 4
19. 5
17. 4
22. 9
14. 3
6. 3
14. 6
10. 9
12. 6
13. 3
22. 8
21. 6
9. 5
17. 9
31. 0
(1) Prior periods have been restated in line with market updates.
(2) As at 31 May 2011.
(3) Personal lending market share includes personal loans and margin loans.
(4) In accordance with RBA guidelines, these measures include some products relating to both the Retail and Corporate segments.
(5) As at 31 March 2011.
Commonwealth Bank of Australia Annual Report 2011
13
Highlights
Key Performance Indicators
Group
Cash profit after tax ($M)
Net interest margin (%)
Average interest earning assets ($M) (1)
Average interest bearing liabilities ($M) (1)
Funds management income to average FUA (%)
Funds Under Administration (FUA) - average ($M)
Insurance income to average inforce
premiums (%)
Average inforce premiums ($M)
Operating expenses to total operating income (%)
Effective corporate tax rate (%)
Retail Banking Services (2)
Cash net profit after tax ($M)
Operating expenses to total banking income (%)
Business and Private Banking (2)
Cash net profit after tax ($M)
Operating expenses to total banking income (%)
Institutional Banking and Markets (2)
Cash net profit after tax ($M)
Operating expenses to total banking income (%)
Wealth Management
Cash profit after tax ($M)
FUA - average ($M)
Average inforce premiums ($M)
Funds management income to average FUA (%)
Insurance income to average inforce premiums (%)
Operating expenses to net operating income (%) (3)
New Zealand
Cash profit after tax ($M)
FUA - average ($M)
Average inforce premiums ($M)
Funds management income to average FUA (%)
Insurance income to average inforce premiums (%)
Operating expenses to total operating income (%)
Bankwest
Cash net profit after tax ($M)
Operating expenses to total banking income (%)
Capital Adequacy
Common Equity (%)
Tier One (%)
Total Capital (%)
Full Year Ended
Half Year Ended
Jun 11 vs
Jun 11 vs
30/06/11
30/06/10
Jun 10 %
30/06/11
31/12/10
Dec 10 %
6,835
2. 19
576,369
538,843
1. 04
196,254
41. 5
2,063
45. 5
27. 8
2,845
38. 7
1,039
43. 7
1,004
33. 6
6,101
2. 13
553,735
521,338
1. 02
186,418
47. 1
2,005
45. 7
27. 0
2,461
39. 5
12
6 bpts
4
3
2 bpts
5
large
3
(20)bpts
80 bpts
16
(80)bpts
898
44. 9
16
(120)bpts
1,173
32. 0
(14)
160 bpts
3,500
2. 25
578,982
540,772
1. 04
198,851
39. 2
2,050
45. 6
28. 1
1,453
38. 6
532
44. 3
506
34. 2
3,335
2. 12
573,800
536,948
1. 04
194,011
44. 9
2,022
45. 4
27. 4
1,392
38. 7
507
43. 2
498
32. 9
642
718
188,866
179,802
283
359
191,252
186,849
(11)
5
3
4 bpts
(470)bpts
150 bpts
21
12
4
(16)bpts
(240)bpts
(210)bpts
1,572
1. 01
43. 5
60. 1
388
6,616
433
0. 70
49. 2
53. 2
(45)
56. 1
large
(310)bpts
6. 86
9. 15
11. 49
80 bpts
86 bpts
21 bpts
1,608
1. 05
35. 7
65. 6
236
7,599
442
0. 53
47. 9
51. 3
239
52. 3
7. 66
10. 01
11. 70
1,612
1. 05
38. 8
61. 6
470
7,388
451
0. 54
46. 8
51. 1
463
53. 0
7. 66
10. 01
11. 70
5
13 bpts
1
1
-
2
large
1
20 bpts
70 bpts
4
(10)bpts
5
110 bpts
2
130 bpts
(21)
2
2
1 bpt
large
large
1
6
-
(2)bpts
30 bpts
30 bpts
1,580
1. 04
42. 7
57. 7
234
7,162
442
0. 55
47. 6
51. 0
224
53. 7
7
(140)bpts
7. 35
9. 71
11. 50
31 bpts
30 bpts
20 bpts
(1) Average interest earning assets and average interest bearing liabilities have been adjusted to remove the impact of securitisation. Refer to Average Balances and
Related Interest in Note 4.
(2) Comparatives have been restated for the impact of business resegmentation.
(3) Net operating income represents total operating income less volume expenses.
14
Commonwealth Bank of Australia Annual Report 2011
Financial Performance and Business Review
The Group’s net profit after tax (“cash basis”) for the year ended
30 June 2011 was $6,835 million, which represented a 12%
increase on the prior year.
Earnings per share (“cash basis”) increased 11% on the prior
year to 438.7 cents per share, whilst Return on equity (“cash
basis”) increased 80 basis points to 19.5%.
This solid result was achieved in an environment where the
impacts of the GFC continue to linger. Credit growth remains at
historic lows, business and consumer confidence is fragile and
there is significant uncertainty in global markets. Despite the
challenging market conditions, effective execution of the Group’s
five strategic priorities has driven a sound financial performance.
The result was characterised by:
•
Net interest income increased 7% to $12,658 million,
reflecting a six basis point increase in net interest margin
and 4% growth in average interest earning assets;
•
• Other banking income declined 3% to $3,983 million, with
reduced retail fees and commissions, lower CommSec
brokerage and Markets trading income partly offset by
higher bills income and improved Treasury earnings
derived through management of short dated interest rate
exposures;
Funds management income increased 8% to $2,041
million, supported by a 5% increase in average funds
under administration and stronger investment performance,
partly offset by the appreciation of the Australian dollar;
Insurance income declined 9% to $856 million, partly
reflecting the sale of the St Andrew’s insurance business.
After adjusting for the sale of St Andrew’s, insurance
income decreased 4% due to higher claims in the
wholesale and retail life businesses;
•
• Operating expenses increased 3% on the prior year to
$8,891 million, with 1% of the growth driven by continued
investment in projects supporting the Group’s strategic
investment
priorities. Operating expenses, excluding
expenses, increased 2% reflecting the Group’s disciplined
approach and continued focus on productivity initiatives
which have delivered operational efficiencies; and
Impairment expense decreased 38% to $1,280 million,
related
mainly
impairments.
lower Bankwest property
reflecting
•
The Group’s net profit after tax (“cash basis”) for the half year
ended 30 June 2011
the prior half,
underpinned by a 13 basis point improvement in net interest
margin and lower loan impairment expense.
increased 5% on
More comprehensive disclosure of performance highlights by
key business segments is contained on pages 22-40.
Net Interest Income
Net interest income increased by 7% on the prior year to
$12,658 million. This was a result of growth in average interest
earning assets of 4%
together with a six basis point
improvement in net interest margin to 2.19%.
Net interest income increased by 5% on the prior half driven by
average interest earning assets growth of 1% and a 13 basis
point improvement in net interest margin.
Group Performance Analysis
Average Interest Earning Assets
Average interest earning assets increased by $22 billion on the
prior year to $576 billion, reflecting a $12 billion increase in
average lending interest earning assets and a $10 billion
increase in average non-lending interest earning assets.
loan average balances, excluding
Home
impact of
securitisation, increased by $20 billion or 7% since 30 June
2010 to $318 billion.
the
Average balances for business and corporate lending decreased
by $8 billion since 30 June 2010 to $150 billion, largely due to
institutional clients deleveraging their balance sheets, a strategic
shift away from higher risk property and complex lending in
Bankwest and the impact of the strengthening Australian dollar
on foreign currency denominated loans.
Average non-lending interest earning assets have increased $10
billion since 30 June 2010 due to higher levels of liquid assets
driven by balance sheet growth and in anticipation of future
regulatory requirements.
Average Interest Earning Assets ($M)
553,735
4%
76,866
576,369
87,161
476,869
489,208
Jun 10
Jun 11
Lending Interest Earning Assets
Non-Lending Interest Earning Assets
Net Interest Margin
The Group’s net interest margin increased six basis points
compared to the prior year to 2.19%. The Australian contribution
to Group net interest margin (which excludes the IFRS
reclassification and New Zealand) decreased one basis point.
The key drivers were:
Asset pricing and mix: Increase in margin of five basis points,
reflecting the impact of repricing on home loans (six basis
points) and personal loans (one basis point), partly offset by a
reduction in business lending margins (one basis point). The
solid growth in home loans relative to business lending, which
has a higher average margin, resulted in a negative mix impact
(one basis point).
Deposit pricing and mix: Decrease of two basis points as market
competition for retail deposits continues to impact Investment
account margins (one basis point). In addition, the favourable
impact of the increasing cash rate environment on transaction
and savings account margins has been offset by a reduction in
replicating portfolio benefit and ongoing market competition (one
basis point).
Treasury and other: Decrease of four basis points driven by
holding higher levels of non-lending interest earning assets.
Commonwealth Bank of Australia Annual Report 2011
15
2.03%
2.04%
2.15%
Funds Management Income
Group Performance Analysis
NIM movement since June 2010
(1) bpt
0.05%
(0.02%)
(0.04%)
0.04%
0.03%
2.30%
2.20%
2.10%
2.00%
2.13%
2.12%
2.19%
1.90%
Jun 10
Asset
Deposits
(incl.
Replicating
Portf olio)
Treasury
& Other
Sub-total
New
Zealand
(1)
IFRS
Jun 11
The New Zealand contribution to Group net interest margin has
increased three basis points compared to 30 June 2010. This
reflected a shift in portfolio mix as customers switched from fixed
to variable rate home loans together with repricing initiatives.
Group NIM (Half Year Ended)
2.08%
2.12%
2.25%
IFRS (1)
Underlying
2.18%
2.13%
2.30%
2.10%
1.90%
1.70%
1.50%
Dec 09
Jun 10
Dec 10
Jun11
Over the last six months, net interest margin increased 13 basis
points compared to the prior half to 2.25%. Excluding the IFRS
reclassification(1), the underlying net interest margin for the
Group increased 11 basis points. This was mainly due to asset
repricing (seven basis points).
Other Banking Income
Full Year Ended
Half Year Ended
30/06/11 30/06/10 30/06/11 31/12/10
$M
1,946
1,467
717
351
$M
2,006
1,435
597
333
$M
961
760
291
183
$M
985
707
426
168
4,481
4,371
2,195
2,286
(498)
(259)
(271)
(227)
3,983
4,112
1,924
2,059
Commissions
Lending fees
Trading income
Other income
IFRS reclassification
of net swap costs (1)
Other banking
income
(1) The reclassification from Net interest income to Other banking income
relates to certain economic hedges which do not qualify for IFRS hedge
accounting.
Excluding the impact of IFRS reclassification of net swap costs,
other banking income increased 3% on the prior year to $4,481
million.
16
Commonwealth Bank of Australia Annual Report 2011
Factors impacting other banking income were:
•
•
•
Commissions: decreased 3% on the prior year to $1,946
million. This was primarily driven by lower dishonour
exception fees, customer migration to lower fee products
and lower contract note volumes in CommSec;
Lending fees: increased 2% on the prior year to $1,467
million. This was driven by higher commercial bill income,
partially offset by lower early repayment and overdrawn
exception fees;
Trading income: increased 20% on the prior year to $717
million. This was due to improved Treasury earnings
relating to the management of short dated interest rate
exposures, partly offset by lower Institutional Banking and
Markets earnings impacted by a challenging environment
characterised by lower domestic volatility, flattening yield
curves and narrowing credit spreads; and
• Other income: increased 5% on the prior year to $351
million mainly due to higher leasing fee income.
Excluding the impact of the IFRS reclassification of net swap
costs, other banking income decreased 4% on the prior half.
This was mainly driven by lower Markets income following
together with a
continued challenging market conditions
decrease in the counterparty fair value adjustment.
Full Year Ended
Half Year Ended
30/06/11 30/06/10 30/06/11 31/12/10
$M
907
860
208
66
$M
789
811
224
74
$M
458
434
101
31
$M
449
426
107
35
2,041
1,898
1,024
1,017
CFS GAM
Colonial First State
CommInsure
New Zealand and
Other
Funds
management
income
Funds Management income increased 8% on the prior year to
$2,041 million. This outcome was supported by a 5% increase in
average funds under administration (FUA) to $196 billion.
Internationally sourced fund flows were solid and FirstChoice
and FirstWrap attracted their share of net flows ahead of
system.
Investment performance was solid but impacted by difficult
market conditions, particularly through the quarter leading up to
30 June 2011. Base fee contributions were higher as a result of
improved business mix. This was partially offset by the
continued strengthening of the Australian dollar.
Funds management income to average FUA increased by two
basis points to 1.04% compared to the prior year, mainly
reflecting improved business mix.
Funds management income increased 1% compared to the prior
half. Average FUA growth was 2%, with investment performance
being subdued and
to
appreciate.
the Australian dollar continuing
Insurance Income
Loan Impairment Expense
Group Performance Analysis
Loan impairment expense for the year was $1,280 million,
representing 25 basis points of average gross loans and
acceptances. Loan impairment expense decreased 38% on the
prior year, largely driven by:
•
•
•
A significant reduction in Bankwest’s loan impairment
expense following the detailed review and increased
provisioning of the business banking portfolio in the prior
year;
Improved average arrears rates in the unsecured retail
portfolio in this financial year resulting in a lower collective
provision charge for these portfolios; and
Improvement in ASB’s loan impairment expense in line
with the improvement of the economic environment in New
Zealand. This improvement has been partially offset by
provisions set aside to assist customers impacted by the
Christchurch earthquakes.
Half Year Impairment Expense (annualised) as a % of
Average Gross Loans and Acceptances
0.61%
0.55%
0.28%
0.28%
0.22%
Jun 09
Dec 09
Jun 10
Dec 10
Jun 11
Provisions for Impairment
The Group maintains a prudent and conservative approach to
provisioning, with total provisions for impairment losses of
$5,168 million as at 30 June 2011, which is a 5% reduction
compared to 30 June 2010. The current level of provision
reflects:
•
•
•
A reduction of Bankwest provisions as pre-acquisition
troublesome or impaired loans run off, and the credit quality
of new loans improve;
Increased CBA individually assessed provisions associated
with new impaired loans as the conservative coverage of
impaired loans continues; and
A decline in management overlay as the modelled overlay
reduced in line with the reduction in the base collective
provisions. This was partly offset by a slight increase in the
economic overlay.
Full Year Ended
Half Year Ended
30/06/11 30/06/10 30/06/11 31/12/10
$M
625
231
856
-
856
$M
630
261
891
54
945
$M
285
113
398
-
398
$M
340
118
458
-
458
CommInsure
New Zealand and
Other
St Andrew's
Insurance
Insurance
income
Insurance income decreased 9% on the prior year to $856
million. On 1 July 2010 the Group completed the sale of the St
Andrew’s insurance business. Excluding St Andrew’s from the
prior year, insurance income decreased by 4%. This result was
impacted by higher claims in the wholesale and retail life
businesses. The general insurance business saw improved
performance with inforce premium growth of 7% together with
improved claims despite the impact of severe weather events.
Insurance income decreased 13% compared to the prior half.
While inforce premiums increased 4%, the result was impacted
by higher life insurance claims.
Operating Expenses
Operating expenses increased 3% on the prior year to $8,891
million. Of this increase, 1% was driven by continued investment
in projects supporting the Group’s strategic priorities, including
the Core Banking Modernisation initiative. Operating expenses,
excluding investment expenses, increased only 2% on the prior
year. This reflects the Group’s continued focus on productivity
initiatives which have delivered operational efficiencies. This was
offset by inflation-related salary increases, investment in staff
(with full time equivalent employees increasing by 2%) and
higher defined benefit superannuation plan expense (30 June
2011: $137 million; 30 June 2010: $103 million).
Operating expenses increased 2% on the prior half mainly
driven by higher technology expenses.
Group Expense to Income Ratio
The expense to income ratio decreased by 20 basis points over
the prior year to 45.5%. Whilst income growth has slowed, the
Group maintained a continued focus on technology and
operational efficiencies.
47.0%
44.0%
41.0%
38.0%
45.7%
45.5%
41.4%
41.1%
Jun 10
Jun 11
Group expense to income ratio
Banking expense to income ratio
Commonwealth Bank of Australia Annual Report 2011
17
Group Performance Analysis
Collective Provisions
Individual Provisions
3,461
3,327
1,192
1,211
758
830
681
704
782
630
3,043
1,049
598
808
588
1,992
956
116
920
2,169
2,125
922
139
1,108
979
177
969
Jun 10
Dec 10
Jun 11
Jun 10
Dec 10
Jun 11
Overlay
Bankwest
Consumer
Commercial
Taxation Expense
The corporate tax expense was $2,637 million, representing an
effective tax rate of 27.8%.
The effective tax rate is below the Australian company tax rate of
30% primarily as a result of the profit earned by the offshore
banking unit and offshore jurisdictions that have lower corporate
tax rates.
Non-cash items included in statutory profit
Non-cash items are excluded from net profit after tax (“cash
basis”), which is Management’s preferred measure of the
Group‘s financial performance, as they tend to be non-recurring
in nature or not considered representative of the Group’s
ongoing financial performance. The impact of these items on the
Group’s net profit after tax (“statutory basis”) are outlined below
and are treated consistently with prior period disclosures.
Hedging and IFRS volatility
Hedging and IFRS volatility includes unrealised fair value gains
or losses on economic hedges that do not qualify for hedge
accounting under IFRS, including:
•
•
cross currency
currency denominated debt issues; and
interest rate swaps hedging
foreign
foreign exchange hedges relating to future New Zealand
earnings.
Hedging and IFRS volatility also includes unrealised fair value
gains or losses on the ineffective portion of economic hedges
that qualify for hedge accounting under IFRS.
Fair value gains or losses on all of these economic hedges are
excluded from cash profit since the asymmetric recognition of
the gains or losses does not affect the Group’s performance
over the life of the hedge. A $265 million after tax loss was
recognised in statutory profit for the year ended 30 June 2011
(2010: $17 million gain).
Bankwest non-cash items
Integration expenses: As part of the acquisition of Bankwest, the
Group has incurred $246 million of integration expenses since
acquisition. A $66 million after tax expense was recognised in
the year ended 30 June 2011 (2010: $29 million expense).
These items are not recognised in cash profit as they are not
representative of
financial
performance.
the Group’s expected ongoing
18
Commonwealth Bank of Australia Annual Report 2011
Merger related amortisation: The acquisition of Bankwest
resulted in the recognition of fair value adjustments on certain
financial instruments, core deposits and brand name intangible
assets that will be amortised over their useful lives. An $81
million after tax expense was recognised in the year ended 30
June 2011 (2010: $25 million gain).
Loan impairment: In the prior year, a $212 million after tax loan
impairment expense was recognised relating to Bankwest pre-
acquisition loans. This non-cash treatment was consistent with
the treatment of the gain on acquisition of Bankwest.
Tax on NZ structured finance transactions
A $171 million tax expense on New Zealand structured finance
transactions was recognised in the prior year representing a
significant one-off impact from an adverse tax ruling which ASB
Bank and the New Zealand Commissioner of Inland Revenue
settled in December 2009.
Gains/losses on disposal of controlled entities/investments
The statutory profit for the current year includes a $7 million after
tax loss mainly representing the loss on sale of the St Andrew’s
insurance business (2010: $23 million after tax loss from the
disposal of the Group’s Fiji operations and sale of Visa shares).
Treasury shares valuation adjustment
in cash profit
Under IFRS, CBA shares held by the Group in the managed
funds and life insurance businesses are defined as treasury
shares and are held at cost. Unrealised gains or losses are
the underlying
recognised
performance of the asset portfolio attributable to the wealth and
life insurance businesses. These unrealised gains or losses are
reversed as a non-cash item for statutory reporting purposes. A
$22 million after tax gain was included in cash profit in the year
ended 30 June 2011 (2010: $44 million gain).
representing
Policyholder tax
Policyholder tax is included in the Wealth Management business
results for statutory reporting purposes. In the year ended 30
June 2011, tax expense of $166 million (2010: $130 million tax
expense), funds management income of $62 million (2010: $50
million income) and insurance income of $104 million (2010: $80
million income) was recognised. The gross up of these items are
excluded from cash profit as they do not reflect the underlying
performance of the business which is measured on a net of
policyholder tax basis.
Core Banking Modernisation
Gross investment spend remained strong during the year at
$1,179 million, with the primary focus being on the Core Banking
Modernisation (CBM) initiative. The CBM initiative continues to
make significant progress. Highlights over the year include the:
•
•
•
Launch of new retail savings and transaction account
functionality, with over 1.2 million new accounts opened on
the new platform;
Successful migration of 10 million retail savings and
transaction accounts onto the new platform, allowing these
customers to enjoy the benefits of real time banking and
providing the organisation with streamlined customer
centric processes; and
Development of business savings and transaction account
functionality.
Group Performance Analysis
The 2012 financial year will see the launch of business savings
and transaction account functionality and migration of an
additional one million business savings and
transaction
accounts onto
In addition, SAP will be
the platform.
implemented as the primary customer solution for the Group,
with the existing customer system decommissioned. Planning
for the lending phases of the initiative has begun, with
development commencing in the 2012 financial year.
Credit Quality
During the year ended 30 June 2011, the credit quality of the
business and corporate portfolios gradually improved. The retail
portfolios arrears improved over the first half, however there
were some increases in arrears over the second half of the year.
Home loan arrears reduced over the first half of the year, but
that trend reversed over the second half with 30+ day arrears
increasing over the full year from 1.90% to 2.08% and 90+ day
arrears increasing from 1.02% to 1.17%. The increase in arrears
is due to loans originated in 2008 and early 2009, along with the
impact from some home owners finding it difficult to service their
higher monthly payments arising from increasing interest rates.
The increase in arrears also reflects assistance provided to
customers for natural disasters.
Unsecured retail arrears improved substantially over the first half
of the year but experienced some deterioration over the second
half. Credit Card 30+ days arrears fell from 3.09% to 2.99% over
the year, and 90+ days arrears increased slightly from 1.14% to
1.20%. Personal Loans showed significant improvement over
the year with 30+ day arrears falling from 3.69% to 3.07% and
90+ days arrears falling from 1.52% to 1.26%.
The CBA commercial and institutional portfolio improved during
the year with more upgrades than downgrades. In addition,
troublesome assets reduced and impaired assets remained
stable throughout the year.
In New Zealand, asset quality continued to improve with the
broader economy.
Gross impaired assets were $5,297 million as at 30 June 2011,
broadly in line with 30 June 2010. Gross impaired assets as a
proportion of Gross Loans and Acceptances of 1.02% remained
stable compared to 30 June 2010. The impaired asset portfolio
remains well provisioned with provision coverage of 40.12%.
Loans 90 days past due but not impaired have increased to
0.73% of gross loans and acceptances, from 0.65% at 30 June
2010.
Other Credit Quality Metrics
Gross loans and acceptances ($M)
Risk weighted assets (RWA) ($M)
Credit risk weighted assets ($M)
Gross impaired assets ($M)
Net impaired assets ($M)
Collective provision as a % of risk weighted assets
Total provision as a % of credit risk weighted assets
Collective provision as a % of gross loans and
acceptances
Individually assessed provisions for impairment as a
% of gross impaired assets
Impairment expense annualised as a % of average
RWA - cash basis (1)
Impairment expense annualised as a % of average
gross loans and acceptances - cash basis (2)
Full Year Ended
Half Year Ended
Jun 11 vs
Jun 11 vs
30/06/11
30/06/10
Jun 10 %
30/06/11
31/12/10
Dec 10 %
518,075
281,711
246,742
5,297
3,172
1. 08
2. 09
0. 59
512,838
290,821
256,763
5,216
3,224
1. 19
2. 12
1
(3)
(4)
2
(2)
(11)bpts
(3)bpts
0. 67
(8)bpts
518,075
281,711
246,742
5,297
3,172
1. 08
2. 09
0. 59
509,779
285,563
244,608
5,184
3,015
1. 17
2. 25
2
(1)
1
2
5
(9)bpts
(16)bpts
0. 65
(6)bpts
40. 12
38. 19
193 bpts
40. 12
41. 84
(172)bpts
0. 45
0. 25
0. 71
(26)bpts
0. 41
(16)bpts
0. 40
0. 22
0. 50
(10)bpts
0. 28
(6)bpts
(1) Impairment expense as a percentage of average RWA including the Bankwest non-cash loan impairment expense of $304 million was 0.81% for the year ended 30
June 2010.
(2) Impairment expense as a percentage of average gross loans and acceptances including the Bankwest non-cash loan impairment expense of $304 million was 0.48%
for the year ended 30 June 2010.
Commonwealth Bank of Australia Annual Report 2011
19
Interest bearing deposits
Interest bearing deposits increased by $26 billion to $392 billion
as at 30 June 2011, a 7% increase on the prior year.
Targeted campaigns in a highly competitive market resulted in
growth of $19 billion in investment deposits, representing a 12%
increase on the prior year. Transaction deposits increased 8% to
$79 billion.
Other demand deposits decreased 2% compared to the prior
year and decreased 14% compared to the prior half. This was
mainly driven by lower certificates of deposits being replaced by
the growth in customer deposits.
Debt issues
Debt issues have decreased $13 billion to $108 billion as at 30
June 2011, an 11% decrease on the prior year. The decrease in
term funding was driven by the strengthening Australian dollar in
addition to maturing debt being replaced by the growth in
customer deposits. Refer to Note 24 for further information on
debt programmes and issuance for the year ended 30 June
2011.
Other interest bearing liabilities
Other interest bearing liabilities, including loan capital, liabilities
at fair value through the income statement and amounts due to
other financial institutions, decreased $4 billion to $38 billion as
at 30 June 2011, an 8% decrease on the prior year. This was
driven mainly by New Zealand replacing maturing facilities with
debt issues.
Non-interest bearing liabilities
Non-interest bearing liabilities, including derivative liabilities,
insurance policy liabilities and bank acceptances, increased $9
billion to $82 billion as at 30 June 2011, a 12% increase on the
prior year. This was driven predominantly by foreign exchange
volatility impacting derivative liabilities hedging term debt.
Group Performance Analysis
Review of Group Assets and Liabilities
Asset growth of $22 billion or 3% over the prior year, was driven
mainly by growth in home lending and non-lending interest
earning assets, partly offset by lower business and corporate
lending balances as a result of institutional clients deleveraging
and strengthening of the Australian dollar.
Asset growth was funded by an increase in customer deposits
which now represent 61% of total funding (June 2010: 58%).
Wholesale funding decreased compared to the prior year, as a
result of the strong growth in customer deposits, the low credit
growth environment and the strengthening of the Australian
dollar.
Home loans excluding securitisation
Home loans excluding securitisation experienced steady growth
with balances increasing $11 billion to $325 billion as at 30 June
2011, a 3% increase on the prior year. This outcome was
impacted by moderating credit growth and intense price
competition. The Group has maintained its competitive position
through product innovation, targeted discounting and a focus on
customer service.
Personal loans
Personal loans, including credit cards, margin lending and other
personal loans, increased 2% over the prior year. Steady growth
in credit card balances was influenced by new product offerings.
This was offset by a decline in margin lending balances due to
continued conservative investor sentiment. Other personal loans
remained flat compared to the prior year.
Business and corporate loans
Business and corporate loans declined by $6 billion to $148
billion as at 30 June 2011, a 4% decrease on the prior year. This
was driven mainly by institutional clients deleveraging, a
strategic shift away from higher risk property and complex
lending in Bankwest and the strengthening of the Australian
dollar. This was partly offset by solid growth in business lending
in Business and Private Banking.
Non-lending interest earning assets
Non-lending interest earning assets increased $14 billion to $88
billion as at 30 June 2011, an 18% increase on the prior year.
This was primarily an increase in liquid assets in anticipation of
future regulatory requirements.
Other assets
including bank acceptances of customers,
Other assets,
derivative assets, provisions for impairments, securitisation
assets, insurance assets and intangibles, increased $3 billion to
$86 billion as at 30 June 2011, a 4% increase on the prior year.
This was impacted by higher derivative asset balances as a
result of volatility in foreign exchange and interest rate markets.
20
Commonwealth Bank of Australia Annual Report 2011
Total Group Assets & Liabilities
Interest earning assets
Home loans including securitisation
Less: securitisation
Home loans excluding securitisation
Personal
Business and corporate
Loans, bills discounted and other receivables (1)
Non-lending interest earning assets
Total interest earning assets
Other assets
Total assets
Interest bearing liabilities
Transaction deposits (2)
Savings deposits (2)
Investment deposits (2)
Other demand deposits (2)
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
Total liabilities
Provisions for impairment losses
Collective provision
Individually assessed provisions
Total provisions for impairment losses
Less: Off balance sheet provisions
Total provisions for loan impairment
Group Performance Analysis
As at
30/06/11
31/12/10
30/06/10
Jun 11 vs
Jun 11 vs
$M
$M
$M
Dec 10 %
Jun 10 %
335,841
(11,296)
324,545
20,943
148,420
493,908
88,142
582,050
85,849
667,899
79,466
81,680
176,100
54,613
391,859
9,288
401,147
108,421
37,950
538,230
10,231
82,151
630,612
3,043
2,125
5,168
(21)
5,147
327,704
(9,583)
318,121
20,665
148,984
487,770
83,633
571,403
78,239
649,642
72,150
81,798
168,770
63,361
386,079
9,266
395,345
105,086
37,678
528,843
8,523
76,927
614,293
3,327
2,169
5,496
(25)
5,471
323,573
(9,696)
313,877
20,572
154,742
489,191
74,610
563,801
82,529
646,330
73,783
79,435
156,694
55,957
365,869
8,794
374,663
121,438
41,461
528,768
8,772
73,220
610,760
3,461
1,992
5,453
(25)
5,428
2
18
2
1
-
1
5
2
10
3
10
-
4
(14)
1
-
1
3
1
2
20
7
3
(9)
(2)
(6)
(16)
(6)
4
17
3
2
(4)
1
18
3
4
3
8
3
12
(2)
7
6
7
(11)
(8)
2
17
12
3
(12)
7
(5)
(16)
(5)
(1) Excludes provisions for impairment which are included in Other Assets.
(2) Comparatives have been restated following alignment of Bankwest product classifications with the Group.
Commonwealth Bank of Australia Annual Report 2011
21
Retail Banking Services
Financial Performance and Business Review
Retail Banking Services cash net profit after tax for the year
ended 30 June 2011 was $2,845 million, representing a 16%
increase on the prior year. The result was driven by solid growth
in net interest income partially offset by lower other banking
income, sound management of operational expenses and an
improvement in loan impairment expense.
Cash net profit after tax increased 4% compared to the prior half.
The six month result was driven by income growth of 5%
reflecting improved lending margins and volume growth, offset
by a fall in other banking income, and an increase in impairment
expense.
CBA remains committed to excellence in customer service, with
all retail channels performing strongly.
Business performance and innovation highlights during the year
included:
•
•
•
The successful launch of Core Banking with the migration
of 10 million existing accounts to the new platform,
delivering real time banking and new account functionality
to Retail Deposit customers;
The introduction of GoalSaver, a high interest bearing
savings product, and the launch of the new premium
Diamond Awards credit card;
Continued growth in registered Netbank users, with 20% of
monthly log-ons now happening via a mobile device; and
• Ongoing commitment to improving the financial literacy
skills of Australian students through expansion of the
School Banking programme, now in its 80th year.
Service improvement progress and product innovation in the
business was recognised through:
•
“Best Retail Bank in Asia Pacific” and the “Best Retail Bank
in Australia” at the Asian Banker Excellence in Retail
Financial Services Awards;
• Money Magazine “Credit Card Issuer of the Year” and
•
•
•
“Banking Website of the Year” awards;
CANSTAR CANNEX “Best Online Banking” award for the
second year in a row;
“Innovative Mortgage Product of the Year” at the Australian
Banking and Finance awards for the No Fee Variable rate
home loan; and
The iPhone Property Guide application won the “Best of
the Best”, “Best Financial Service” and “Best Mobile
Advertising or Marketing” awards at
the Australian
Interactive Media Industry Awards.
Home Loans
Home Loan income for the year ended 30 June 2011 was
$2,893 million, a 20% increase on the prior year. Average
volume growth was 6% in a period of reduced market activity.
Net interest margin improved, benefitting from portfolio repricing
and the continued roll off of fixed rate loans written at historically
low margins. Funding costs continued to increase as lower cost
funding rolled off and was replaced with higher priced new
wholesale debt.
Other banking income fell 3% primarily due to the abolition of
switching fees for customers refinancing loans with CBA.
Deferred establishment fees for new customers were also
removed in March 2011.
22
Commonwealth Bank of Australia Annual Report 2011
Consumer Finance
Consumer Finance income for the year ended 30 June 2011
was $1,700 million, an increase of 9% on the prior year. This
result benefited from improved margins and volume growth in
both the Credit Card and Personal Lending portfolios. Other
banking income was flat as the impact from the reduction in
over-limit and late payment fees was offset by higher volume
related income.
Other banking income decreased 5% compared to the prior half.
This was a result of seasonally lower credit card spend.
Retail Deposits
Retail Deposit income for the year ended 30 June 2011 was
$2,609 million, a decrease of 7% on the prior year. Net interest
income fell by 5% with continued margin pressure from price
competition and a shift towards lower margin products within the
portfolio offsetting strong average balance growth of 10%. Other
banking income decreased 15% primarily due to the reduction in
exception fees in October 2009.
Retail Deposit income was flat compared to the prior half, as
volume growth eased and margins stabilised.
Distribution
from
Distribution income for the year ended 30 June 2011 was $306
million, an increase of 11% on the prior year. This reflected
increased revenue
foreign exchange products and
commissions received from the distribution of Business Banking
and Wealth Management products through the retail network.
The Group continues to focus on building deeper relationships
with customers and now has the highest average products per
customer(1) of the major banks.
Distribution income increased by 5% compared to the prior half
due to higher foreign exchange income.
Operating Expenses
Expenses for the year were $2,903 million, up 4% on the prior
year, with the cost to income ratio falling to 38.7%. Expenses
included investment spend relating to the Core Banking
Modernisation initiative. Underlying expense growth was 2%,
driven primarily by staff inflationary increases.
Expense growth was 5% in the second half, inclusive of
investment in Core Banking Modernisation. Excluding the impact
of Core Banking, growth was 4%. This was primarily a result of
higher credit card loyalty redemptions in the second half and
increased marketing spend.
Impairment Expense
Impairment expense for the year ended 30 June 2011 was $558
million, a decrease of 24% on the prior year. This result was
supported by improved average arrears rates in the unsecured
portfolio as well as continued investment in collections and credit
decisioning capabilities.
In the second half impairment expense increased 21% as a
result of an uplift in arrears rates and the support that the Group
provided through special assistance to customers following the
severe weather events during the half.
(1) Roy Morgan Research, Australians 14+, Banking and Finance products per
Banking and Finance customers, six months rolling average.
Net interest income
Other banking income
Total banking income
Operating expenses
Loan impairment expense
Net profit before tax
Corporate tax expense
Cash net profit after tax
Net interest income
Other banking income
Total banking income
Operating expenses
Loan impairment expense
Net profit before tax
Corporate tax expense
Cash net profit after tax
Net interest income
Other banking income
Total banking income
Operating expenses
Loan impairment expense
Net profit before tax
Corporate tax expense
Cash net profit after tax
Retail Banking Services
Full Year Ended 30 June 2011
Home Loans
Consumer
(1)
Finance
Retail
Deposits Distribution
$M
2,706
187
2,893
$M
1,281
419
1,700
$M
2,222
387
2,609
$M
-
306
306
Full Year Ended 30 June 2010
(2)
Consumer
(1)
Finance
Retail
Deposits Distribution
Home Loans
$M
2,213
192
2,405
$M
1,143
417
1,560
$M
2,340
457
2,797
$M
-
276
276
(2)
Half Year Ended 30 June 2011
Consumer
(1)
Finance
Retail
Deposits Distribution
$M
660
204
864
$M
1,115
187
1,302
$M
-
157
157
Home Loans
$M
1,441
87
1,528
Total
$M
6,209
1,299
7,508
(2,903)
(558)
4,047
(1,202)
2,845
Total
$M
5,696
1,342
7,038
(2,779)
(736)
3,523
(1,062)
2,461
Total
$M
3,216
635
3,851
(1,486)
(305)
2,060
(607)
1,453
30/06/11
31/12/10
30/06/10
Jun 11 vs
Jun 11 vs
As at
$M
Dec 10 %
Jun 10 %
Balance Sheet
Home loans (including securitisation)
Consumer finance
Other assets
Total assets
Home loans (net of securitisation)
Transaction deposits
Savings deposits
Investments and other deposits
Deposits not bearing interest
Other liabilities
Total liabilities
(1) Consumer Finance includes personal loans and credit cards.
(2) Comparatives have been restated for the impact of business resegmentation.
$M
260,583
13,989
201
274,773
252,438
19,357
59,127
83,951
3,057
2,926
$M
255,484
13,504
243
269,231
249,466
19,060
60,519
78,558
2,984
2,307
250,428
12,961
250
263,639
243,695
19,050
59,206
71,719
2,840
2,519
168,418
163,428
155,334
2
4
(17)
2
1
2
(2)
7
2
27
3
4
8
(20)
4
4
2
-
17
8
16
8
Commonwealth Bank of Australia Annual Report 2011
23
Business and Private Banking
Financial Performance and Business Review
Business and Private Banking delivered a strong performance,
achieving cash net profit after tax of $1,039 million for the year
ended 30 June 2011, which represented a 16% increase on the
prior year.
The business banking segments contributed significantly to this
result, experiencing growth in lending and deposit volumes,
improving deposit margins and a lower impairment expense.
While equities trading market volumes were lower, CommSec
continued to maintain its leading share of the online non
advisory market in a highly competitive environment.
Compared to the prior half, cash net profit after tax increased
5%, with the first half of the year benefiting from the increasing
cash rate environment and three more calendar days.
Performance highlights during the year included:
•
•
•
•
•
•
•
CBA consistently held either equal first or equal second
position in the whole-of-market business banking segment
throughout the past year, according to DBM Business
Financial Services Monitor(1),
CBA was awarded “Best Cash Management Bank in
Australia” for the second year running by the Asian Banker
magazine. The award acknowledges commitment
to
customer service and operational excellence;
Further improvements within CommBiz continued to make
it simpler for customers to do business. These included
improved security
features and greater analytical
functionality giving customers insights into their business,
demographics and cash flow;
CBA launched a new Business Debit MasterCard in
January 2011 and has since issued over 20,000 cards.
The card offers customers greater service, security and
accessibility;
Private Bank was recognised in the Australian Private
Banking Council Awards, winning “Outstanding Private
Banking Institution of the Year” in the $1 million to $10
million category for the third year running;
CommSec was awarded the CANSTAR CANNEX “Online
Share Trading Outstanding Value” award for casual and
active investors, together with a Gold award for “Best
Feature-Packed Online Broker” for the fourth year running
in Money Magazine’s 2011 Best of the Best Awards; and
Equities and Margin Lending was awarded “Margin Lender
of The Year” in Money Magazine’s Bank of The Year
awards in recognition of its competitive pricing and Smart
Risk Management
responsible
lending.
tool which promotes
Corporate Financial Services
Corporate Financial Services income increased 13% on the prior
year to $1,084 million. This was driven by commercial lending
balance growth of 10% and deposit balance growth of 13%.
CBA has maintained outright or equal first position in customer
satisfaction in both the medium and large segments among the
four major banks for 10 out of the past 12 months(2).
There has been ongoing investment in people, systems and
processes and a focus on delivering an outstanding client
experience for new and existing customers. Following a national
rollout,
team has
continued to build on its early success.
the Acquisition Finance and Advisory
24
Commonwealth Bank of Australia Annual Report 2011
Regional and Agribusiness Banking
Regional and Agribusiness Banking income increased 8% on
the prior year to $426 million. This reflected a 5% increase in
lending balances and a 5% increase in deposit balances, whilst
margins were stable.
Through the Specialised Agri Solutions team, the business
continued to focus on identifying and delivering innovative
solutions to customers with more complex needs. The business
has also strongly supported its customers who were affected by
the natural disasters which occurred earlier in the year. In
addition, the business continued to make targeted investment in
frontline staff and brand awareness, and customer satisfaction
has improved significantly.
Local Business Banking
Local Business Banking income increased 9% on the prior year
to $774 million. This was driven by growth in both lending and
deposit balances of 9%.
This result reflected continued investment of business bankers
within the retail branch network and a focus on broadening
frontline staff capabilities. In addition, a proactive outbound
contact programme has reached the majority of customers
resulting in improved customer satisfaction. The business also
successfully launched a new BizAwards credit card in March
2011, which provides additional benefits to customers.
Private Bank
Private Bank income increased 5% on the prior year to $251
million. This result was driven by growth in home lending and
deposit balances.
Funds under administration balances grew 16%, driven by a
stronger financial advisory services offering which includes
enhanced research capabilities and an expanded investment
support function.
Equities and Margin Lending
Equities and Margin Lending income decreased 12% on the
prior year to $410 million. This result reflected lower market
volumes in equities trading and subdued market volumes in
margin lending, while cautious investor sentiment contributed to
strong balance growth in cash management products.
Despite lower equities trading volumes, CommSec maintained
market share above 50% and stable yields in a highly
competitive market while strong market share was also
maintained in margin lending.
Operating Expenses
Operating expenses of $1,335 million increased 3% on the prior
year reflecting a disciplined approach to expense management.
The business continued to make targeted investments in
frontline staff and technology whilst continuing to focus on
achieving operational efficiencies.
Impairment Expense
Impairment expense of $261 million decreased 20% on the prior
year and 7% on the prior half. This trend reflects the strong
underlying quality of the business lending portfolio.
(1) DBM Business Financial Services Monitor (June 2011), average satisfaction
rating of each financial institution’s MFI business customers across all
Australian businesses, six month rolling average. Rank is among four major
banks.
(2) DBM Business Financial Services Monitor (June 2011), average satisfaction
rating of each financial institution’s MFI business customers across all
Australian businesses, six month rolling average. Rank is among four major
banks. Medium segment includes business with annual turnover from $5
million to less than $50 million. Large segment includes businesses with
annual turnover $50 million and above.
Business and Private Banking
Corporate
Regional &
Local
Equities &
Financial
Agri-
Business
Private
Margin
Full Year Ended 30 June 2011
Services
business
Banking
Bank
Lending
Other
$M
528
556
1,084
$M
265
161
426
$M
515
259
774
$M
110
141
251
$M
177
233
410
$M
92
15
107
Corporate
Regional &
Local
Equities &
Financial
Agri-
Business
Private
Margin
Full Year Ended 30 June 2010
(1)
Services
business
Banking
Bank
Lending
Other
$M
541
419
960
$M
257
137
394
$M
461
247
708
$M
114
126
240
$M
183
284
467
$M
87
26
113
Total
$M
1,687
1,365
3,052
(1,335)
(261)
1,456
(417)
1,039
Total
$M
1,643
1,239
2,882
(1,295)
(326)
1,261
(363)
898
Corporate
Regional &
Local
Equities &
Financial
Agri-
Business
Private
Margin
Half Year Ended 30 June 2011
Services
business
Banking
Bank
Lending
Other
Total
$M
258
291
549
$M
133
82
215
$M
260
133
393
$M
54
74
128
$M
86
120
206
$M
45
3
48
$M
836
703
1,539
(682)
(126)
731
(199)
532
30/06/11
31/12/10
30/06/10
Jun 11 vs
Jun 11 vs
As at
Net interest income
Other banking income
Total banking income
Operating expenses
Loan impairment expense
Net profit before tax
Corporate tax expense
Cash net profit after tax
Net interest income
Other banking income
Total banking income
Operating expenses
Loan impairment expense
Net profit before tax
Corporate tax expense
Cash net profit after tax
Net interest income
Other banking income
Total banking income
Operating expenses
Loan impairment expense
Net profit before tax
Corporate tax expense
Cash net profit after tax
$M
Dec 10 %
Jun 10 %
Balance Sheet
Interest earning lending assets (excluding margin loans)
Bank acceptances of customers
Non-lending interest earning assets
Margin loans
Other assets (2)
Total assets
Transaction deposits
Savings deposits
Investments deposits
Certificates of deposit and other
Due to other financial institutions
Other non-interest bearing liabilities (2)
Total liabilities (3)
$M
67,737
9,808
480
4,213
690
82,928
49,309
5,720
41,650
57
403
$M
63,559
9,149
473
4,489
235
77,905
43,461
5,164
38,684
171
366
63,132
10,155
295
4,771
448
78,801
45,026
4,744
37,147
162
895
16,149
113,288
14,580
102,426
15,324
103,298
7
7
1
(6)
large
6
13
11
8
(67)
10
11
11
7
(3)
63
(12)
54
5
10
21
12
(65)
(55)
5
10
(1) Comparatives have been restated for the impact of resegmentation.
(2) Other assets include intangible assets, and Other non-interest bearing liabilities include bank acceptances.
(3) Includes deposits relating to Institutional Banking and Markets as well as Business and Private Banking customers.
Commonwealth Bank of Australia Annual Report 2011
25
Institutional Banking and Markets
Financial Performance and Business Review
Institutional Banking and Markets achieved a cash net profit after
tax of $1,004 million for the year ended 30 June 2011, which
represented a 14% decrease on the prior year, reflecting:
•
•
•
A 5% decrease in banking income to $2,467 million
primarily due to lower trading income in Markets as a result
of lower volatility and the effect of the decline in lending
balances in Institutional Banking;
A reduction in investment allowance tax credits; and
An increase in impairment expense as a result of a write-
back in provisions in the prior year.
Compared to the prior half, banking income decreased 4%
primarily due to a reduction in Markets trading revenue and a
less favourable contribution of the counterparty fair value mark
to market valuation. This was offset by lower impairment
expense reflecting stabilisation in the credit quality of the
portfolio.
The business has maintained its focus of continuous investment
through its foreign exchange platform renewal, enhanced online
Transaction Banking Platform (CommBiz) and continued build-
out of the Institutional Equities and Debt Capital Markets
business. Customer service continues to be a key focus for
Institutional Banking and Markets through deepening client
relationships, growing transaction banking, increasing foreign
exchange market share and developing stronger institutional
investor focus.
Performance highlights in our goal to provide Total Capital
Solutions to clients during the year include:
•
•
East & Partners semi-annual “Australian
Institutional
Banking Markets” survey has listed CBA as best in market
for the last five years in the categories of “Loyalty to the
Relationship” and “Understanding Customers’ Business”.
Over the last five years, CBA has also been cited as the
number one primary lender and ranked first in product
satisfaction for 10 out of the 17 products measured against
the major peer banks;
DBM Business Financial Services Monitor(1) ranked CBA
first or equal first in the Institutional Banking segment in 10
out of the past 12 months;
•
• Global Finance magazine recognised CBA as the best
Australian foreign exchange provider for the third year in a
row based on transaction volume, market share, scope of
global coverage, customer service, competitive pricing and
the use of innovative technologies;
In a global poll, Bloomberg has awarded CBA ninth most
accurate overall foreign exchange forecaster and fifth most
accurate Asia Currency foreign exchange forecaster for the
six quarters ending 30 June 2011;
Insto 12th Annual Distinction Awards (March 2011)
acknowledged CBA as the “Australian Issuer of the Year
(Australian Bond Market)”;
Insto Fixed Income Credit Research poll of institutional
investors (August 2010) ranked CBA as the number one
provider of Australian macroeconomic research and
strategy, and Australian credit research and analysis;
CBA was the multi-product lead relationship banking
provider for the privatisation of Queensland Rail National;
and
•
•
•
•
Institutional Banking and Markets was the arranger and
sole lead manager of a $3 billion Residential Mortgage
Backed Security (RMBS) issue for the CBA Group, which
was the largest Australian dollar RMBS tranche issued
since 2007.
26
Commonwealth Bank of Australia Annual Report 2011
Institutional Banking
Net interest income decreased 5% on the prior year to $1,073
million as a result of a 10% decrease in average loan balances,
higher funding costs and reduced margins on deposits from
transactional banking customers. This was partly offset by the
recognition of deferred fees from the early repayment of debt
facilities and improved deposit volumes from transactional
banking customers.
Other banking income increased 2% on the prior year to $755
million driven by increased leasing fee income and a favourable
contribution from hedging credit exposures.
Other banking income increased 19% on the prior half due to
higher leasing fee income and gains from the sale of an equity
investment in the second half of the year.
Markets
Net interest income increased 6% on the prior year to $220
million primarily due to modest growth in interest earning assets.
Other banking income decreased 19% on the prior year to $419
million due to a challenging trading environment as a result of
flattening yield curves,
lower domestic market volatility,
narrowing spreads and weaker activity in equity capital markets.
This was partly offset by the favourable contribution of the
counterparty fair value mark to market valuation as credit
spreads tightened.
Compared to the prior half, other banking income was down
42% due to a less favourable contribution of the counterparty fair
value mark to market valuation and lower trading income as
market activity remained subdued.
Operating Expenses
Operating expenses decreased slightly on the prior year to $828
million representing a disciplined approach to cost management
across the business while continuing to focus on maintaining a
in
through
competitive advantage
technology and people.
investment
targeted
Impairment Expense
Impairment expense increased 30% on the prior year to $324
million. This was impacted by the write-back of provisions on a
small number of single names in the prior year.
Impairment expense decreased 32% on the prior half due to
continued stabilisation in the credit quality of the portfolio.
Corporate Tax Expense
Corporate tax expense for the year ended 30 June 2011 was
$311 million. The effective tax rate of 23.7% benefited from profit
generated from offshore jurisdictions attracting lower corporate
finance
tax rates and
transactions.
tax credits associated with asset
(1) DBM Business Financial Services Monitor (June 2011), average satisfaction
rating of each financial institution’s MFI business customers across all
Australian businesses, six month rolling average. Rank is among four major
banks. Institutional Banking segment includes businesses with annual
turnover of $100 million and above.
Institutional Banking and Markets
Full Year Ended 30 June 2011
Institutional
Banking
Markets
$M
1,073
755
1,828
$M
220
419
639
Total
$M
1,293
1,174
2,467
(828)
(324)
1,315
(311)
1,004
Full Year Ended 30 June 2010
(1)
Institutional
Banking
Markets
$M
1,127
742
1,869
$M
207
515
722
Total
$M
1,334
1,257
2,591
(830)
(249)
1,512
(339)
1,173
Half Year Ended 30 June 2011
Institutional
Banking
Markets
Total
$M
528
410
938
$M
115
154
269
$M
643
564
1,207
(413)
(131)
663
(157)
506
Net interest income
Other banking income
Total banking income
Operating expenses
Loan impairment expense
Net profit before tax
Corporate tax expense
Cash net profit after tax
Net interest income
Other banking income
Total banking income
Operating expenses
Loan impairment expense
Net profit before tax
Corporate tax expense
Cash net profit after tax
Net interest income
Other banking income
Total banking income
Operating expenses
Loan impairment expense
Net profit before tax
Corporate tax expense
Cash net profit after tax
Balance Sheet
Interest earning lending assets
Bank acceptances of customers
Non-lending interest earning assets
Other assets (2)
Total assets
Certificates of deposit and other
Investments deposits
Due to other financial institutions
Liabilities at fair value through Income Statement
Debt issues
Loan capital
Other non-interest bearing liabilities (2)
Total liabilities
30/06/11
31/12/10
30/06/10
Jun 11 vs
Jun 11 vs
As at
$M
48,097
925
32,664
15,452
97,138
8,241
6,982
13,457
4,234
3,490
544
26,683
63,631
$M
51,414
996
34,953
11,395
98,758
14,421
8,064
11,684
3,891
1,475
555
25,526
65,616
$M
Dec 10 %
Jun 10 %
54,892
1,414
29,434
8,755
94,495
12,834
5,082
10,055
3,974
2,506
627
23,820
58,898
(6)
(7)
(7)
36
(2)
(43)
(13)
15
9
large
(2)
5
(3)
(12)
(35)
11
76
3
(36)
37
34
7
39
(13)
12
8
(1) Comparatives have been restated for the impact of business resegmentation.
(2) Other assets include intangible assets and derivative assets, and Other non-interest bearing liabilities include derivative liabilities.
Commonwealth Bank of Australia Annual Report 2011
27
Wealth Management
Financial Performance and Business Review
Underlying profit after tax for the year was $581 million, up
marginally on the prior year. A solid Funds Management and
General Insurance result was partially offset by an increase in
claims and compliance related expenditure.
Funds under Administration increased 5% on the prior year to
$189 billion as at 30 June 2011. This was supported by solid
internationally sourced fund flows, partly offset by the outflow of
cash mandates and the run-off of the legacy book. FirstChoice
and FirstWrap have achieved an above market share of net
flows in the retail domestic market.
Cash net profit after tax was $642 million, which represents a
9% decrease on the prior year mainly due to the unwinding of
mark to market losses on the Guaranteed Annuities portfolio in
the prior years.
Cash net profit after tax in the second half decreased 21% to
$283 million, reflecting subdued investment market returns,
higher compliance costs and an increase in Life insurance
claims.
CFS Global Asset Management (CFSGAM)
CFSGAM provides asset management services to wholesale
and institutional investors. CFSGAM continues to execute
strategies to capitalise on global growth opportunities and
enhance its domestic business.
Underlying profit after tax of $275 million increased 17% on the
prior year, reflecting strong investment performance and higher
base fee contributions due to improved business mix even as
the Australian dollar strengthened.
Funds under Management as at 30 June 2011 were $149 billion,
up 3% on the prior year mainly driven by improving equity
markets offset by foreign exchange movements.
Investment performance continues to be strong with 76%, 74%
and 83% of funds outperforming benchmark over one, three and
five year periods respectively.
Highlights include:
•
•
•
•
(Small)”
the Year
in excess of 60 global
International Equity Group” and
industry
CFSGAM received
accolades including First State Investments being named
“Best Fund
“Best
Management Group of
the
in
Professional Adviser Awards 2011 (UK);
“Fund Manager of the Year” in Australia at the Standard &
Poor’s
the Year awards,
recognising
range of high-quality
competencies of the business;
Chadstone Shopping Centre won the Laing O’Rourke
award for best Shopping Centre Development for the West
Mall at the Property Council of Australia Innovation and
Excellence Awards in Sydney; and
Investment Manager of
the strength and
First State Infrastructure was awarded “Best Infrastructure
Provider” at the Global Pension Awards 2011 (UK).
Cash net profit after tax of $281 million represents an increase of
6% on the prior year.
Cash net profit after tax in the second half decreased 19% to
$126 million driven by a decline in equity markets and further
strengthening of the Australian dollar.
Colonial First State (CFS)
Colonial First State provides wealth creation solutions for retail
customers and market leading platforms for advisers, offering
product packaging, administration, distribution and advice.
Underlying profit after tax of $141 million decreased 4% on the
prior year, reflecting solid funds growth and stable margins offset
by increasing compliance costs and claims.
28
Commonwealth Bank of Australia Annual Report 2011
FirstChoice and Custom Solutions platforms performed well in a
challenging retail market with positive net flows of $3.4 billion.
Highlights include:
•
•
•
FirstChoice retaining the largest flagship platform as at
March 2011(1) with a market share of 11% and ranked
second for net flows in the year to March 2011 with 24% of
the market;
CFS won the “Best Fund Manager” service level award
from Wealth Insights for the fourth year running. FirstWrap
had the highest overall satisfaction rating from advisers
with FirstChoice ranking second; and
FirstChoice Wholesale
Superannuation
introduced lowered minimum entry limits, positioning it well
for pending “Future of Financial Advice” reforms.
Personal
Cash net profit after tax of $143 million represents a decrease of
1% on the prior year.
Cash net profit after tax in the second half decreased 14% to
$66 million due to slowing markets and compliance activities.
CommInsure
CommInsure is a provider of life and general insurance in
Australia. CommInsure’s strategy continues
focus on
improving service and streamlining processes.
to
Underlying profit after tax of $254 million decreased 11% on the
prior year:
•
Life Insurance performance declined due to higher claims
in income protection and wholesale risk, balanced by
strong growth in bank channels;
• General Insurance performance improved due to volume
growth and improved claims despite the impact of weather
events in the second half of the year; and
•
Legacy funds management income declined in line with
expectations.
Highlights include:
•
Awarded the Plan for Life/Association of Financial Advisers
“Life Insurance Company of the Year” and the “Service
Quality Award”
the second consecutive year,
recognising excellence in new business/underwriting and
claims services;
for
• General
Insurance business awarded
the “Australian
Service Excellence Award” in the NSW Medium Business
category; and
•
Delivery of enhancements to Retail Life products aimed at
improving flexibility and affordability for customers by
allowing existing insurance policies to be integrated with
the FirstChoice and FirstWrap platforms.
Cash net profit after tax of $305 million represents a decrease of
20% on the prior year, mainly due to the unwinding of mark to
market losses on the Guaranteed Annuities portfolio in the prior
years.
Cash net profit after tax in the second half decreased 22% to
$134 million impacted by claims experience in both the Life and
General Insurance business.
Operating Expenses
Total operating expenses of $1,280 million increased 7% on the
prior year. Expense growth reflects strategic investment in the
business to support offshore growth and expansion as well as
meeting the compliance related costs in the retail advice and
platform businesses.
(1) March 2011 Plan for Life quarterly market release.
Wealth Management
Full Year Ended 30 June 2011
Colonial
CFSGAM First State CommInsure
$M
907
-
907
(151)
756
(391)
365
(90)
275
6
281
$M
860
-
860
(171)
689
(489)
200
(59)
141
2
143
$M
209
625
834
(199)
635
(276)
359
(105)
254
51
305
Other
$M
(1)
-
(1)
-
(1)
(124)
(125)
36
(89)
2
(87)
Full Year Ended 30 June 2010
Colonial
CFSGAM First State CommInsure
$M
789
-
789
(126)
663
(358)
305
(69)
236
30
266
$M
811
-
811
(160)
651
(444)
207
(60)
147
(3)
144
$M
226
630
856
(187)
669
(267)
402
(116)
286
94
380
Other
$M
(2)
-
(2)
(1)
(3)
(127)
(130)
40
(90)
2
(88)
Half Year Ended 30 June 2011
Colonial
CFSGAM First State CommInsure
$M
458
-
458
(80)
378
(201)
177
(44)
133
(7)
126
$M
434
-
434
(87)
347
(259)
88
(26)
62
4
66
$M
101
285
386
(103)
283
(140)
143
(42)
101
33
134
Other
$M
-
-
-
(1)
(1)
(61)
(62)
18
(44)
1
(43)
Total
$M
1,975
625
2,600
(521)
2,079
(1,280)
799
(218)
581
61
642
Total
$M
1,824
630
2,454
(474)
1,980
(1,196)
784
(205)
579
123
702
Total
$M
993
285
1,278
(271)
1,007
(661)
346
(94)
252
31
283
St Andrew's
(1)
Insurance
$M
-
54
54
(22)
32
(14)
18
(5)
13
3
16
Funds management income
Insurance income
Total operating income
Volume expenses
Net operating income
Operating expenses
Net profit before tax
Corporate tax expense
Underlying profit after tax
Investment experience after tax
Cash net profit after tax
Funds management income
Insurance income
Total operating income
Volume expenses
Net operating income
Operating expenses
Net profit before tax
Corporate tax expense
Underlying profit after tax
Investment experience after tax
Cash net profit after tax
Funds management income
Insurance income
Total operating income
Volume expenses
Net operating income
Operating expenses
Net profit before tax
Corporate tax expense
Underlying profit after tax
Investment experience after tax
Cash net profit after tax
(1) The St Andrew’s insurance business was sold effective 1 July 2010.
Commonwealth Bank of Australia Annual Report 2011
29
Wealth Management
Summary
Funds under administration - average (1)
Funds under administration - spot (1)
Funds under management - average (1)
Funds under management - spot (1)
Retail Net funds flows (Australian Retail)
Funds Under Management (FUM) (1)
Australian equities
Global equities
Cash and fixed interest
Property and Infrastructure (2)
Total
Full Year Ended
Half Year Ended
30/06/11
30/06/10
Jun 11 vs
30/06/11
31/12/10
Jun 11 vs
$M
188,866
188,511
150,396
148,639
(349)
$M
Jun 10 %
179,802
179,614
144,624
144,298
246
5
5
4
3
large
$M
191,252
188,511
151,411
148,639
317
$M
Dec 10 %
186,849
191,454
149,723
152,791
2
(2)
1
(3)
(666)
large
Full Year Ended
Half Year Ended
30/06/11
30/06/10
Jun 11 vs
30/06/11
31/12/10
Jun 11 vs
$M
Jun 10 %
$M
Dec 10 %
$M
22,336
50,860
50,946
24,497
21,499
45,685
54,180
22,934
$M
22,336
50,860
50,946
24,497
23,716
52,831
52,097
24,147
4
11
(6)
7
3
(6)
(4)
(2)
1
(3)
148,639
144,298
148,639
152,791
Full Year Ended
Half Year Ended
30/06/11
30/06/10
Jun 11 vs
30/06/11
31/12/10
Jun 11 vs
Sources of Profit from CommInsure
Life insurance operating margins
Planned profit margins
Experience variations
Funds management operating margins
General insurance operating margins
Operating margins
Investment experience after tax
Cash net profit after tax
$M
164
(36)
112
14
254
51
305
$M
Jun 10 %
157
2
120
7
286
94
380
4
large
(7)
100
(11)
(46)
(20)
$M
86
(40)
53
2
101
33
134
Full Year Ended 30 June 2011
Opening
Balance
Sales/New
$M
Dec 10 %
78
4
59
12
153
18
171
10
large
(10)
(83)
(34)
83
(22)
Closing
Balance
Annual Inforce Premiums - Risk Business
Retail life
Wholesale life
General insurance
Sub-total
St Andrew's Insurance
Total
Annual Inforce Premiums - Risk Business
Retail life
Wholesale life (3)
General insurance
Sub-total
St Andrew's Insurance
Total
Annual Inforce Premiums - Risk Business
Retail life
Wholesale life
General insurance
Total
30/06/10
Business
Lapses
Other
30/06/11
$M
782
323
408
1,513
71
1,584
$M
208
67
100
375
-
375
$M
(130)
(46)
(72)
(248)
-
(248)
Full Year Ended 30 June 2010
Opening
Balance
Sales/New
$M
-
-
-
-
(71)
(71)
$M
860
344
436
1,640
-
1,640
Closing
Balance
30/06/09
Business
Lapses
Other
30/06/10
$M
697
435
360
1,492
68
1,560
$M
200
66
107
373
23
396
$M
(115)
(178)
(59)
(352)
(20)
(372)
$M
-
-
-
-
-
-
Half Year Ended 30 June 2011
Opening
Balance
Sales/New
$M
782
323
408
1,513
71
1,584
Closing
Balance
31/12/10
Business
Lapses
Other
30/06/11
$M
820
331
424
1,575
$M
103
41
49
193
$M
(63)
(28)
(37)
(128)
$M
-
-
-
-
$M
860
344
436
1,640
(1) FUM & FUA do not include the Group's interest in the China Cinda JV.
(2) This asset class includes wholesale and listed property trusts as well as indirect listed property securities funds which are traded through the ASX.
(3) Lapses include a $130 million reduction as a result of the loss of the wholesale portfolio for the Australian Super business.
30
Commonwealth Bank of Australia Annual Report 2011
Wealth Management
Full Year Ended 30 June 2011
Inflows
Outflows
Net Flows
Investment
Closing
Income &
(6)
Other
Balance
30/06/11
$M
13,690
2,496
3,589
19,775
39
19,814
18,658
1,948
33
40,453
12,857
53,310
$M
(11,194)
(1,599)
(7,210)
(20,003)
(160)
(20,163)
(23,069)
(352)
(156)
(43,740)
(9,462)
(53,202)
$M
2,496
897
(3,621)
(228)
(121)
(349)
(4,411)
1,596
(123)
(3,287)
3,395
108
$M
2,982
425
1,319
4,726
73
4,799
2,985
145
173
8,102
687
8,789
$M
49,118
7,436
20,640
77,194
1,105
78,299
39,624
18,908
3,083
139,914
48,597
188,511
Full Year Ended 30 June 2010
Inflows
Outflows
Net Flows
$M
12,418
1,713
4,021
18,152
42
18,194
17,638
955
36
36,823
11,748
48,571
$M
(9,019)
(1,497)
(7,303)
(17,819)
(129)
(17,948)
(24,631)
(1,759)
(145)
(44,483)
(7,275)
(51,758)
$M
3,399
216
(3,282)
333
(87)
246
(6,993)
(804)
(109)
(7,660)
4,473
(3,187)
Half Year Ended 30 June 2011
Inflows
Outflows
Net Flows
$M
6,969
1,404
1,749
10,122
20
10,142
10,617
188
17
20,964
4,827
25,791
$M
(5,589)
(807)
(3,358)
(9,754)
(71)
(9,825)
(13,026)
(63)
(74)
(22,988)
(5,690)
(28,678)
$M
1,380
597
(1,609)
368
(51)
317
(2,409)
125
(57)
(2,024)
(863)
(2,887)
Investment
Closing
Income &
(6)
Other
Balance
30/06/10
$M
4,286
557
1,274
6,117
86
6,203
2,951
(751)
(94)
8,309
5,282
13,591
$M
43,640
6,114
22,942
72,696
1,153
73,849
41,050
17,167
3,033
135,099
44,515
179,614
Investment
Closing
Income &
(6)
Other
Balance
30/06/11
$M
9
(48)
25
(14)
1
(13)
850
260
(103)
994
(1,050)
(56)
$M
49,118
7,436
20,640
77,194
1,105
78,299
39,624
18,908
3,083
139,914
48,597
188,511
Opening
Balance
30/06/10
$M
43,640
6,114
22,942
72,696
1,153
73,849
41,050
17,167
3,033
135,099
44,515
179,614
Opening
Balance
30/06/09
$M
35,955
5,341
24,950
66,246
1,154
67,400
45,092
18,722
3,236
134,450
34,760
169,210
Opening
Balance
31/12/10
$M
47,729
6,887
22,224
76,840
1,155
77,995
41,183
18,523
3,243
140,944
50,510
191,454
Funds Under Administration
FirstChoice
Custom Solutions (1)
Standalone (including Legacy) (2)
Retail products (3)
Other retail (4)
Australian retail
Wholesale
Property
Other (5)
Domestically sourced
Internationally sourced
Total Wealth Management
Funds Under Administration
FirstChoice
Custom Solutions (1)
Standalone (including Legacy) (2)
Retail products (3)
Other retail (4)
Australian retail
Wholesale
Property
Other (5)
Domestically sourced
Internationally sourced
Total Wealth Management
Funds Under Administration
FirstChoice
Custom Solutions (1)
Standalone (including Legacy) (2)
Retail products (3)
Other retail (4)
Australian retail
Wholesale
Property
Other (5)
Domestically sourced
Internationally sourced
Total Wealth Management
(1) Custom Solutions includes the FirstWrap product.
(2) Includes cash management trusts.
(3) Retail Funds that align to Plan for Life market share releases.
(4) Includes regular premium plans. These retail products are not reported in market share data.
(5) Includes life company assets sourced from retail investors but not attributable to a funds management product.
(6) Includes foreign exchange gains and losses from translation of internationally sourced business.
Commonwealth Bank of Australia Annual Report 2011
31
New Zealand
Financial Performance and Business Review
The New Zealand result incorporates ASB Bank and Sovereign
Insurance businesses. The CBA branch results relating to the
Institutional Banking and Markets business in New Zealand are
not included.
New Zealand cash net profit after tax(1) for the year ended 30
June 2011 was NZ$588 million, an increase of 28% on the prior
year. The result was driven by a strong performance from ASB
Bank with margins benefiting from a shift in portfolio mix towards
variable rate loans and repricing initiatives. Sovereign’s growth
in inforce premiums, positive claims experience and lower lapse
rates were offset by
the Christchurch
earthquakes.
impacts of
the
Cash net profit after tax(1) in the second half increased 1% to
NZ$295 million with the result impacted by the Christchurch
earthquakes.
Following the earthquakes in Christchurch, ASB Bank donated
NZ$1.5 million to earthquake relief funds and launched a
NZ$250 million investment programme, which included NZ$1
million in community assistance grants. This was in addition to
support offered by both ASB Bank and Sovereign to their
customers and people.
ASB Bank
ASB Bank cash net profit after tax(1) for the year ended 30 June
2011 was NZ$504 million, up 42% on the prior year.
Net interest income for the year ended 30 June 2011 was
NZ$1,107 million, up 22% on the prior year reflecting:
•
•
•
Improving home loan margins as a result of a continued
shift by customers from fixed to variable rate loans and
repricing initiatives. Home loan balances remained steady
at NZ$37 billion;
Business lending margins also benefited from a shift in
portfolio mix from fixed to variable rate loans and from risk
based pricing
lending balances
declined slightly as customers continued to deleverage;
and
initiatives. Business
Deposit margins remained under pressure in a competitive
local market with customers moving
towards higher
yielding investment deposits. Balances have increased 3%
to NZ$32 billion.
Other banking income for the year ended 30 June 2011 was
NZ$367 million, up 7% on the prior year due to higher trading
income, partially offset by lower early repayment adjustment
fees from customers.
Operating expenses for the year ended 30 June 2011 were
NZ$733 million, up 10% on the prior year. The increase was
driven by investment in strategic initiatives to benefit and support
ASB Bank’s customers (including Christchurch) and enhanced
risk management, partially offset by disciplined expense
management and efficiency gains.
Impairment expense decreased 42% on the prior year to NZ$72
million, as asset quality improved in line with the broader
economic conditions.
Cash net profit after tax(1) for the second half was NZ$258
million, up 5% on the prior half, reflecting ongoing margin
improvement, partially offset by higher operating expenses.
32
Commonwealth Bank of Australia Annual Report 2011
Key highlights for ASB Bank include:
•
Continued commitment to customer satisfaction has seen
ASB Bank ranked first in an independent survey(2) for being
“the most dedicated to providing the customer with the best
possible service”;
• Multiple awards for innovation, including New Zealand’s
“Best use of Social Media” for the world-first Virtual Branch
on Facebook and CANSTAR CANNEX
Innovation
Excellence Award for the online savings tool “Save the
Change”;
Recognition in the inaugural New Zealand Randstad
Awards for ASB Bank as the employer offering the most
job security; and
•
• Ongoing commitment to the communities in which ASB
Bank operates, including working together with St John to
create safer communities; and school banking and financial
literacy, with more than 100,000 children now having taken
part in the ASB GetWise programme.
Sovereign Insurance
Sovereign cash net profit after tax(1) for the year ended 30 June
2011 was NZ$86 million, a decrease of 17% on the prior year.
The major drivers of the result were:
•
•
•
•
•
Policy valuation gains recognised in the prior year due to
legislation changes in life tax and premium changes in
legacy disability income products;
The non-recurrence of a gain on the revaluation of deferred
tax on policy liabilities in the prior year as a result of the
reduction of the New Zealand corporate tax rate from 30%
to 28%;
Claims due to the Christchurch earthquake, partially offset
by;
5% growth in inforce premiums; and
Positive claims experience and a continued improvement
in risk and health lapse rates.
Cash net profit after tax(1) for the second half was NZ$41 million,
down 9% on the prior half primarily due to the impact of the
Christchurch earthquakes.
Key highlights for Sovereign include:
•
Being accepted as a Qualifying Financial Entity, enabling
Sovereign to provide a high level of support for its advisors
in complying with new
legislation,
streamline distribution processes and offer customers a
greater level of customer protection;
financial advisor
• Winning an Innovation Excellence Award from CANSTAR
CANNEX for Sovereign’s Best Doctors programme, a
service initiative unique in New Zealand; and
•
Continuing its reputation as New Zealand’s most financially
secure life insurance company by retaining an AM Best
A+(3) financial strength rating, the only life insurer in New
Zealand to achieve this rating.
(1) Includes allocated capital charges and other CBA costs.
(2) Source: Colmar Brunton Poll, a member of the Millward Brown Group.
(3) Source: A.M. Best Company
Net interest income
Other banking income (2)
Total banking income
Funds management income
Insurance income
Total operating income
Operating expenses
Loan impairment expense
Net profit before tax
Corporate tax expense
Underlying profit after tax
Investment experience after tax
Cash net profit after tax
Net interest income
Other banking income (2)
Total banking income
Funds management income
Insurance income
Total operating income
Operating expenses
Loan impairment expense
Net profit before tax
Corporate tax expense
Underlying profit after tax
Investment experience after tax
Cash net profit after tax
Net interest income
Other banking income (2)
Total banking income
Funds management income
Insurance income
Total operating income
Operating expenses
Loan impairment expense
Net profit before tax
Corporate tax expense
Underlying profit after tax
Investment experience after tax
Cash net profit after tax
New Zealand
Full Year Ended 30 June 2011
ASB
Sovereign
NZ$M
1,107
367
1,474
54
-
1,528
(733)
(72)
723
(219)
504
-
504
NZ$M
-
-
-
-
257
257
(218)
-
39
34
73
13
86
(1)
Other
NZ$M
(10)
(30)
(40)
(2)
19
(23)
32
-
9
-
9
(11)
(2)
Total
NZ$M
1,097
337
1,434
52
276
1,762
(919)
(72)
771
(185)
586
2
588
Full Year Ended 30 June 2010
ASB
Sovereign
NZ$M
908
342
1,250
61
-
1,311
(666)
(125)
520
(166)
354
-
354
NZ$M
-
-
-
-
251
251
(205)
-
46
45
91
12
103
(1)
Other
NZ$M
(9)
(31)
(40)
(3)
15
(28)
42
-
14
1
15
(11)
4
Total
NZ$M
899
311
1,210
58
266
1,534
(829)
(125)
580
(120)
460
1
461
Total
A$M
840
286
1,126
40
211
1,377
(704)
(54)
619
(150)
469
1
470
Total
A$M
716
278
994
46
213
1,253
(667)
(100)
486
(99)
387
1
388
Half Year Ended 30 June 2011
ASB
Sovereign
NZ$M
NZ$M
(1)
Other
NZ$M
Total
NZ$M
Total
A$M
569
189
758
27
-
785
(378)
(36)
371
(113)
258
-
258
-
-
-
-
126
126
(107)
-
19
18
37
4
41
(12)
(17)
(29)
(1)
15
(15)
13
-
(2)
-
(2)
(2)
(4)
557
172
729
26
141
896
(472)
(36)
388
(95)
293
2
295
421
148
569
20
105
694
(356)
(26)
312
(77)
235
1
236
(1) Other includes ASB and Sovereign funding entities and elimination entries between Sovereign and ASB.
(2) Total Other banking income disclosed in AUD includes realised gains or losses associated with the hedge of the New Zealand operations.
Commonwealth Bank of Australia Annual Report 2011
33
New Zealand
Balance Sheet
Home lending
Assets at fair value through Income Statement
Other lending assets
Non-lending interest earning assets
Other assets
Total assets
Deposits
Liabilities at fair value through Income Statement
Debt issues
Due to other financial institutions (1)
Other liabilities
Total liabilities
Assets
ASB Bank
Other
Total assets
Liabilities
ASB Bank
Other
Total liabilities
Sources of Profit from
Insurance Activities
The Margin on Services profit from ordinary
activities after income tax is represented by:
Planned profit margins (2)
Experience variations (2)
Operating margins
Investment experience after tax
Cash net profit after tax
New Zealand - Funds Under (2)
Administration
Opening balance
Inflows
Outflows
Net Flows
Investment income & other
Closing balance
New Zealand - Annual Inforce
Premiums
Opening balance
Sales/New business
Lapses
Other movements
Closing balance
30/06/11
31/12/10
30/06/10
Jun 11 vs
Jun 11 vs
As at
NZ$M
37,444
4,165
15,148
4,003
4,597
65,357
31,921
7,671
6,910
6,368
7,314
60,184
63,050
2,307
65,357
59,103
1,081
60,184
NZ$M
37,508
4,232
15,740
3,665
4,714
65,859
31,279
10,426
5,680
6,934
6,525
60,844
63,496
2,363
65,859
59,686
1,158
60,844
NZ$M
37,778
5,815
15,960
1,543
4,723
65,819
30,889
13,261
3,805
6,488
6,640
61,083
63,557
2,262
65,819
60,010
1,073
61,083
Dec10 %
Jun 10 %
-
(2)
(4)
9
(2)
(1)
2
(26)
22
(8)
12
(1)
(1)
(2)
(1)
(1)
(7)
(1)
(1)
(28)
(5)
large
(3)
(1)
3
(42)
82
(2)
10
(1)
(1)
2
(1)
(2)
1
(1)
Full Year Ended
Half Year Ended
30/06/11
30/06/10
Jun 11 vs
30/06/11
31/12/10
Jun 11 vs
NZ$M
NZ$M
Jun 10 %
NZ$M
NZ$M
Dec 10 %
58
15
73
13
86
60
31
91
12
103
(3)
(52)
(20)
8
(17)
29
8
37
4
41
29
7
36
9
45
-
14
3
(56)
(9)
Full Year Ended
Half Year Ended
30/06/11
30/06/10
Jun 11 vs
30/06/11
31/12/10
Jun 11 vs
NZ$M
8,771
2,528
(1,529)
999
637
10,407
NZ$M
Jun 10 %
NZ$M
NZ$M
Dec 10 %
7,389
3,233
(2,439)
794
588
8,771
19
(22)
(37)
26
8
19
9,580
1,151
(439)
712
115
10,407
8,771
1,377
(1,090)
287
522
9,580
9
(16)
(60)
large
(78)
9
Full Year Ended
Half Year Ended
30/06/11
30/06/10
Jun 11 vs
30/06/11
31/12/10
Jun 11 vs
NZ$M
NZ$M
Jun 10 %
NZ$M
NZ$M
Dec 10 %
554
87
(55)
(2)
584
516
97
(59)
-
554
7
(10)
(7)
large
5
570
42
(27)
(1)
584
554
45
(28)
(1)
570
3
(7)
(4)
-
2
(1) Includes deposits due to Group companies.
(2) Comparatives have been restated to conform to the presentation in the Wealth Management business.
34
Commonwealth Bank of Australia Annual Report 2011
This page has been intentionally left blank
Commonwealth Bank of Australia Annual Report 2011
35
Retail
Home loan balances increased 10% on the prior year with above
system growth driven by new products and targeted marketing
campaigns. Full year and second half margins improved on prior
periods following repricing in November 2010, partly offset by
increased funding costs.
Retail deposit balances
increased below system growth,
reflecting a strategy of margin management over pricing for
growth.
Business
Business lending balances decreased 13% on the prior year due
to higher risk exposures being managed down. Lending margins
increased on the prior year due to improved product mix.
Business deposit balances increased 2% on the prior year driven
by growth in Transaction Accounts, partly offset by a second half
decrease in lower margin money market balances driving an
improvement in deposit margins.
Operating Expenses
to efficiency gains,
Operating expenses decreased 1% over the prior year to $869
lower consultancy and
million due
discretionary spend. For the six months to 30 June 2011, costs
increased 3% on the prior half due to increased marketing spend
and the continued refresh of the branch network.
Impairment Expense
Impairment expense for the year was $109 million, down 86%
compared to the prior year.
Business lending experienced more stable client ratings, exits
and reductions of troublesome asset exposures and non-
recurrence of property
in
related
Queensland and New South Wales. Retail lending benefited from
higher recoveries driving an overall lower impairment charge.
impairments, primarily
Home loan arrears remained flat on the prior year, while credit
card arrears increased slightly, mainly as a result of the
Queensland floods.
(1) Source: Roy Morgan Research six months rolling average Main Financial
Institution score.
(2) Source: DBM Business Financial Services Monitor (June 2011), average
satisfaction rating of each financial institution’s MFI business customers
across all Australian businesses, six month rolling average on a scale of 0 to
10. Rank is among four major banks.
Bankwest
Financial Performance and Business Review
Bankwest cash net profit after tax for the year ended 30 June
2011 was $463 million, up significantly from the $45 million loss
in the prior year. The improved performance was driven by a
loan
increase
12%
impairment expense.
in operating performance and
lower
Key drivers of the year’s performance were:
•
Banking income increased to $1,640 million, up 5%
compared to the prior year, mainly due to improved deposit
margins and above system home loan balance growth;
• Operating expenses decreased by 1% from the prior year
due to a continuing focus on discretionary expenditure and
efficiency gains from the integration of processes with CBA.
The expense to income ratio continues to improve, now at
53%; and
•
Impairment expense of $109 million, 86% lower than the
prior year due to the non-recurrence of property related
impairment that impacted the prior year.
Lending balances increased 1% on the prior year, with the
increase in home lending partly offset by the strategic run-off of
complex business lending. Lending margins increased on the
prior year with higher funding costs in the first half offset by
improved margins in the second half due to pricing initiatives.
Deposit balances increased 2% on the prior year, however were
down 1% on the first half following a reduction in lower margin
investment deposits. Deposit margins increased on the prior year
due to improved pricing of Term Deposits and Institutional
Clients.
Bankwest retains an absolute focus on customer satisfaction,
with a commitment to value, innovation and service. A number of
initiatives during the year have supported this vision, these
include:
•
•
•
•
Continued reinvigoration of the Bankwest brand in Western
Australia (WA), with new WA-specific marketing strategies;
Further investment in the WA branch network, with four new
branches, 38 branches refurbished and innovative new
customer concepts such as an Express Kiosk;
The implementation of a Drought Assistance Initiative to
support WA Rural & Regional customers who were
impacted by record low winter rainfalls in 2010; and
The successful launch of new internet and mobile phone
banking services.
The success of the above initiatives has been reflected in:
• Winning the AFR Smart Investor 2010 “Bank of the Year
•
•
•
•
Award”;
An outstanding achievement award from the International
Interactive Media Council for the new public website;
Five products receiving gold awards in Money Magazine’s
2011 Best of the Best Awards, including “Best Everyday
Branch Access Account” and
“Cheapest Business
Transaction Account”;
The CANSTAR CANNEX 2011 “Innovation Excellence
Award” for the Business Zero Transaction Account; and
An improvement in both Retail and Business customer
satisfaction, with the Retail score increasing 4.7% to 83.6%
at June 2011(1) and the Business score increasing 0.2 to 6.8
at June 2011(2).
36
Commonwealth Bank of Australia Annual Report 2011
Bankwest
Full Year Ended
Half Year Ended
30/06/11
$M
1,420
220
1,640
(869)
(109)
662
(199)
463
30/06/10
(3)
$M
1,336
233
1,569
(880)
(754)
(65)
20
(45)
Jun 11 vs
30/06/11
31/12/10
Jun 11 vs
Jun 10 %
6
(6)
5
(1)
(86)
large
large
large
$M
741
102
843
(441)
(60)
342
(103)
239
$M
679
118
797
(428)
(49)
320
(96)
224
Dec 10 %
9
(14)
6
3
22
7
7
7
30/06/11
31/12/10
30/06/10
Jun 11 vs
Jun 11 vs
As at
$M
45,673
22,722
8,433
76,828
8,731
7,033
26,956
59
9,064
16,644
3,068
71,555
$M
43,070
23,956
8,813
75,839
8,034
7,189
27,766
25
8,637
15,682
3,647
70,980
$M
Dec 10 %
Jun 10 %
41,681
25,975
7,028
74,684
8,409
6,848
26,584
130
10,211
15,382
2,304
69,868
6
(5)
(4)
1
9
(2)
(3)
large
5
6
(16)
1
10
(13)
20
3
4
3
1
(55)
(11)
8
33
2
Net interest income
Other banking income
Total banking income
Operating expenses
Loan impairment expense
Net profit before tax
Corporate tax expense
Cash net profit after tax
Balance Sheet
Home lending (including securitisation)
Other lending assets
Other assets
Total assets
Transaction deposits
Savings deposits
Investments deposits
Certificates of deposit and other
Debt issues
Due to other financial institutions (1)
Other liabilities
Total liabilities (2)
(1) Includes amounts due to Group companies (30 June 2011: $16.5 billion, 31 December 2010: $15.7 billion, 30 June 2010: $15.4 billion).
(2) Comparatives have been restated following alignment of Bankwest product classifications with the Group.
(3) Net interest income has been restated following an allocation of capital costs previously held centrally in Other.
Integration Progress – Bankwest and St Andrew’s
The integration of the Bankwest and the remaining St Andrew’s
businesses into the Group that began in the 2009 financial year is
now largely complete.
Major outcomes achieved include:
•
•
•
•
•
•
•
Integration of various support functions, including property
and procurement;
Alignment of risk models, data definitions, market rate risk
and pricing models, and operating models;
Upgrade and integration of general ledger and financial
reporting capabilities;
Reciprocal ATM access with customers of both CBA and
Bankwest having access to over 4,000 ATMs, the largest
network of any bank nationally, without paying any
additional fees;
Bankwest and CBA IT interoperability links;
Aligning various IT and business contract arrangements
between Bankwest and CBA, including cheque processing
supplier; and
Establishment of strong and collaborative cross divisional
working arrangements between Bankwest and CBA,
building strong foundations for the future.
The total integration expenditure incurred to complete the
programme was $246 million. Costs synergies of $240 million
(annualised run rate) have largely been delivered, including the
benefits associated with restructuring and the cessation of the
Bankwest east coast branch rollout.
Integration Expenditure (1)
Restructuring
Property
Operations
IT expenditure
Other
Total
Year
Ended
30/06/11
$M
2
28
40
24
-
94
Total
$M
18
41
87
93
7
246
(1) These costs are recognised as non-cash items as they are one off in nature
and therefore are not representative of the Group’s ongoing performance.
Commonwealth Bank of Australia Annual Report 2011
37
Other Divisions
Financial Performance and Business Review
IFS Asia
International Financial Services Asia (IFS Asia) incorporates the
Asian retail and SME banking operations (Indonesia, China,
Vietnam and India), investments in Chinese and Vietnamese
retail banks, the joint venture Chinese life insurance business
and the life insurance operations in Indonesia. It does not include
the Business and Private Banking, Institutional Banking and
Markets and Colonial First State Global Asset Management
businesses in Asia.
IFS Asia cash net profit after tax for the year ended 30 June 2011
was $53 million, an increase of 18% over the prior year. The key
drivers of the result were as follows:
•
•
•
•
•
•
Banking income increased 10% to $204 million driven by
strong lending growth from the Indonesian retail business
the Bank of
together with strong contributions
Hangzhou and Vietnam
(VIB)
investments;
Insurance income increased by 18% to $47 million,
reflecting improved sales volumes from the Indonesian life
insurance business, particularly bancassurance sales;
partially offset by,
from
International Bank
An increase of 12% in operating expenses to $184 million,
largely due to the continued expansion of the Indonesian
businesses.
After adjusting for foreign exchange movements, cash net profit
after tax increased 36% compared to the prior year.
IFS Asia cash net profit after tax for the half year ended 30 June
2011 was $27 million, an increase of 4% on the prior half. Strong
revenue growth from Bank of Hangzhou and VIB was partly
offset by the adverse impact of the strengthening Australian
dollar. After adjusting for foreign exchange movements, cash net
profit after tax increased 8% compared to the prior half.
IFS Asia continued its investment during the year with the key
activities being:
•
•
Expansion of the PT Bank Commonwealth branch and ATM
network in Indonesia bringing the total number of branches
and ATMs to 84 and 129 respectively, from 74 and 89 in
2010;
PTBC lending balances grew 54% during the year, with
growth of 86% in SME, 154% in Consumer and 29% in
Commercial. Net interest margin increased 84 basis points
in 2011;
•
•
• Opening of three County Banks in China in Jiyuan,
DengFeng and Lankao, following the signing of a strategic
cooperation agreement with
the Henan Government
(China’s most populated Province);
BoCommLife was ranked third of the foreign and joint
venture insurers for bancassurance new business premium
in Shanghai;
Development of the bancassurance model between PT
Bank Commonwealth and PT Commonwealth Life in
in PT
Indonesia. 42% of new business sales
Commonwealth Life for the year were sourced via the PT
Bank Commonwealth branch network, up from 27% in the
prior year. Total bancassurance new business sales
increased 124% on the prior year;
PT Bank Commonwealth in Indonesia maintained its
number one ranking among foreign banks for customer
service as rated by Synovate for the sixth consecutive year;
•
38
Commonwealth Bank of Australia Annual Report 2011
PT Commonwealth Life in Indonesia received several
awards during the year in recognition of its strong financial
performance and excellent customer service. The awards
included being the highest ranked life insurance company in
Indonesia by Infobank Magazine, the “Best Mid Size Life
Insurance Company 2011” by Investor Magazine and “Best
Call Centre 2011” by Service Excellence Magazine;
Bank of Hangzhou was ranked number two (out of 147)
among City Commercial Banks
the
prestigious Chinese Banker magazine;
Acquisition of 15% shareholding in VIB on 1 September
2010. VIB appointed two CBA nominated Directors to the
Board following the completion of the transaction. CBA
received Prime Ministerial approval to move to 20%
ownership in VIB in July 2011; and
in a review by
• Official opening of the CBA India Branch in August 2010.
Fiji
The Fiji business was sold on 15 December 2009.
Corporate Centre
Corporate Centre includes the results of unallocated Group
support functions such as Investor Relations, Group Strategy,
Secretariat and Treasury. Operating income in the Corporate
Centre represents the business activities of the Group’s Treasury
function.
Treasury is primarily focussed on the management of the
Group’s interest rate risk, funding and liquidity requirements, and
management of the Group’s capital. The Treasury function
includes:
•
Asset & Liability Management: manages the interest rate
risk of the Group’s non-traded balance sheet using transfer
pricing to consolidate risk into Treasury and hedging the
residual mismatch between assets and liabilities using
swaps, futures and options;
Liquidity Operations: manages the Group’s short term
wholesale funding and prudential liquidity requirements;
• Group Funding: manages the Group’s long term wholesale
•
funding requirements; and
•
Capital Management: manages
requirements.
the Group’s capital
Corporate Centre cash net profit after tax for the year ended 30
June 2011 was $403 million, a 10% decrease on the prior year.
Total banking income decreased 8% to $812 million driven by:
•
Lower Asset and Liability Management earnings from the
impact of the rising interest rate environment on interest rate
positioning and reduced loan prepayment fees; partially
offset by
• Wider spreads achieved on liquid portfolios in Liquidity
Operations; and
•
Increased Capital Management earnings from growth in
retained earnings.
Group wide Eliminations/Unallocated
Group wide Eliminations/Unallocated
intra group
elimination entries arising on consolidation, centrally raised
provisions and other unallocated revenue and expenses.
includes
Group wide Eliminations/Unallocated cash net loss after tax for
the year ended 30 June 2011 was $84 million, a $92 million
decrease compared to the prior year. This was primarily driven by
the release of centrally held impairment provisions of $100 million
in the prior year.
Other Divisions
Full Year Ended 30 June 2011
Corporate Eliminations
(3)
/
IFS Asia
Centre
Unallocated
Total
$M
80
124
204
-
47
251
(184)
(10)
57
(5)
(2)
50
3
53
$M
718
94
812
-
-
812
(267)
-
545
(142)
-
403
-
403
$M
(87)
(81)
(168)
26
(27)
(169)
-
36
(133)
47
(14)
(100)
16
(84)
Full Year Ended 30 June 2010
Corporate Eliminations
Unallocated
IFS Asia
Centre
(4)
$M
62
124
186
-
40
226
(164)
(11)
51
(7)
(2)
42
3
45
$M
883
1
884
-
-
884
(268)
-
616
(167)
-
449
-
449
(3)
/
(2)
$M
(70)
(106)
(176)
28
2
(146)
-
100
(46)
20
(14)
(40)
48
8
$M
711
137
848
26
20
894
(451)
26
469
(100)
(16)
353
19
372
Total
$M
875
19
894
28
42
964
(432)
89
621
(154)
(16)
451
51
502
Fiji
$M
9
3
12
-
6
18
(12)
1
7
(1)
-
6
-
6
Half Year Ended 30 June 2011
(3)
/
Corporate Eliminations
IFS Asia
Centre
Unallocated
Total
$M
40
64
104
(1)
22
125
(89)
(8)
28
(2)
-
26
1
27
$M
351
14
365
-
-
365
(84)
-
281
(70)
-
211
-
211
$M
(31)
(35)
(66)
12
(14)
(68)
-
98
30
(29)
(7)
(6)
19
13
$M
360
43
403
11
8
422
(173)
90
339
(101)
(7)
231
20
251
Net interest income (1)
Other banking income (1)
Total banking income
Funds management income
Insurance income
Total operating income
Operating expenses
Loan impairment expense
Net profit before tax
Corporate tax expense
Non-controlling interests
Underlying profit after tax
Investment experience after tax
Cash net profit after tax
Net interest income (1)
Other banking income (1)
Total banking income
Funds management income
Insurance income
Total operating income
Operating expenses
Loan impairment expense
Net profit before tax
Corporate tax expense
Non-controlling interests
Underlying profit after tax
Investment experience after tax
Cash net profit after tax
Net interest income (1)
Other banking income (1)
Total banking income
Funds management income
Insurance income
Total operating income
Operating expenses
Loan impairment expense
Net profit before tax
Corporate tax expense
Non-controlling interests
Underlying profit after tax
Investment experience after tax
Cash net profit after tax
(1) Excludes the impact of the reclassification of net swap costs from Net interest income to Other banking income related to certain economic hedges which do not
qualify for IFRS hedge accounting (June 2011: $498 million; June 2010: $259 million; half year to 30 June 2011: $271 million).
(2) Net interest income has been restated following an allocation of capital costs to Bankwest.
(3) Represents Group wide eliminations.
(4) Comparatives have been restated for the impact of business resegmentation.
Commonwealth Bank of Australia Annual Report 2011
39
Investment Experience
Full Year Ended
Half Year Ended
30/06/11
30/06/10
Jun 11 vs
30/06/11
31/12/10
Jun 11 vs
Investment Experience
Wealth Management
New Zealand
Other
Investment experience before tax
Corporate tax expense
Investment experience after tax
$M
83
1
37
121
(40)
81
$M
183
1
52
236
(58)
178
Jun 10 %
(55)
-
(29)
(49)
(31)
(54)
$M
52
1
33
86
(34)
52
$M
31
-
4
35
(6)
29
Shareholder Investment Asset Mix (%)
Local equities
International equities
Property
Sub-total
Fixed interest
Cash
Sub-total
Total
Shareholder Investment Asset Mix ($M)
Local equities
International equities
Property
Sub-total
Fixed interest
Cash
Sub-total
Total
As at 30 June 2011
(1)
Australia New Zealand
%
1
-
13
14
23
63
86
%
1
-
-
1
51
48
99
100
100
Asia
%
-
-
-
-
96
4
100
100
As at 30 June 2011
(1)
Australia New Zealand
$M
9
-
242
251
424
1,171
1,595
1,846
$M
2
1
-
3
280
267
547
550
Asia
$M
-
-
-
-
80
3
83
83
(1) Includes Shareholders’ funds in the CFS Global Asset Management, Colonial First State and CommInsure businesses.
Dec 10 %
68
large
large
large
large
79
Total
%
-
-
10
10
32
58
90
100
Total
$M
11
1
242
254
784
1,441
2,225
2,479
40
Commonwealth Bank of Australia Annual Report 2011
Risk Governance
The Board and its Risk Committee operate as the highest level
of the Group’s risk governance and under the direction of their
respective charters. At management level, risk governance is
undertaken by a structured hierarchy of committees and forums
across the Group, each with specified accountabilities. A more
detailed description of the risk governance structure is set out in
the Corporate Governance section of the Annual Report.
Risk Management Organisation
The Group Chief Risk Officer (CRO), who heads the Risk
Management function, oversees independent risk management
for the Group. This unit is comprised of both risk management
teams embedded in the businesses and Group functional teams
that develop controls for each type of risk and who help the
Group understand risk aggregation to enable enterprise wide
risk management. The CRO reports to the Chief Executive
Officer (CEO) and has direct reporting requirements to the Risk
Committee.
Risk management professionals deployed in each Business Unit
measure risks and take actions to ensure businesses adhere to
risk policies and procedures. They also provide insights to assist
the business in making decisions that optimise their risk-
adjusted returns.
the
independent risk management
Whilst
is an
important component of the risk management framework,
business managers are the consequential owners of the risks
taken in their businesses. As risk owners, they are expected to
staff their businesses with employees who are appropriately
knowledgeable about risk and its management.
function
The Group’s risk appetite framework creates transparency over
risk management and strategy decisions and, in turn, promotes
a strong risk culture. Governance processes and disciplines are
connected to the Group’s, and aligned businesses, risk appetite
statements. These promote
risk
management function from the Group’s Business Units and the
Group Audit and Assurance (GAA) function.
independence of
the
Independent review of the risk management framework is
carried out by GAA. They audit the actions of businesses and
risk management teams. In addition, risk management and GAA
support “whistle blower” protocols to encourage employees to
raise issues they believe reveal weaknesses in the Group’s risk
undertakings.
Further
risk governance and
management is included in Note 38 to the Financial Statements.
information on
financial
Risk Appetite
The risk appetite of the Group represents the types and degree
of risk that it is willing to accept for its shareholders in
undertaking its strategic and business actions. Fundamentally, it
guides the Group’s risk culture and sets out quantitative and
qualitative boundaries on risk-taking activities which apply Group
wide.
The Board’s view is that a well articulated risk appetite is
important in giving the Group’s stakeholders a clear expectation
of how the Group will operate from a risk taking perspective.
This expectation is defined by a number of principles and
metrics that are aligned to the Board’s risk philosophy and sets
minimum standards for shareholder value; allowing for resiliency
factors in capital, funding, asset/liability management, liquidity,
risk culture, and other risk mitigants.
Risk Management
Risk appetite is dynamic in nature and is reviewed on a regular
basis in conjunction with the Group’s strategic plans and
business actions. The validation of strategic plans against the
risk appetite ensures that the assessment of current capital
adequacy and future contingent capital plans are also aligned
with the risk appetite.
The Group’s risk culture is to take risks that are adequately
rewarded and that support its aspiration of achieving solid and
sustainable growth in shareholder value. Supporting this culture,
the Group will:
• Operate responsibly, meet the financial needs of its
customers, provide excellent customer service and
maintain impeccable professional standards and business
ethics;
Differentiate between
relatively clearly
discernable distribution of possible outcomes), which is to
be assessed on its merits, and uncertainty (which has an
unknown distribution of possible outcomes that is hard to
discern), which is to be minimised;
(with a
risk
•
• Make business decisions only after careful consideration of
including consideration of potential upside and
risk,
downside scenarios;
Understand the risks it takes on (or the nature of
uncertainties involved), undertaking strategic initiatives or
exposure to new products and services only as sufficient
experience and insight is gained;
Exercise disciplined moderation in risk-taking, underpinned
with strength in capital, funding and liquidity;
Diligently strive to protect and enhance its reputation;
•
•
•
• Maintain a control environment
that, within practical
constraints, minimises risks to the sustainability of its
business; and
•
Promote a culture aimed at the achievement of best
practice
the recognition, assessment, pricing and
in
management of risk.
Risk policies and tolerances support the Group and business
risk appetite statements by:
•
Summarising the principles and practices to be used by the
Group in managing its major risks;
• Quantifying
the
risks,
financial operating
principally credit risk, market risk (both traded and non-
traded) and operational risk; and
limits
for
•
Stating clearly the types of risk outcomes to which the
Group is intolerant.
The Group regularly benchmarks and aligns its policy framework
against existing prudential and regulatory standards. Potential
developments in Australian and international standards, and
best practice are considered during a review.
Risks that are readily quantifiable (such as credit, market and
liquidity risks) have their risk profiles restricted by limits. Other
significant risk categories are not managed in terms of defined
financial limits, but via comprehensive qualitative management
standards and procedures.
Commonwealth Bank of Australia Annual Report 2011
41
Risk Management
Principal Risk Types
The principal risk types, their relevant governing policies and how they support the risk appetite are outlined in the table below.
Risk Type
Credit Risk including
Concentration Risk
Governing Policies
Group Credit Policy;
Country Risk Policy;
Aggregation Policy;
Large Credit Exposure Policy;
Industry Sector Concentration Policy;
and
Securitisation Policy.
How Policy Supports Risk Appetite
Quantitative limits/tolerances:
Control Country Risk through a limits structure that captures cross-
border credit risk exposures to other countries or entities based
overseas;
Set industry limits for exposures by industry;
Govern the authority of management with regard to the amount of
credit provided to any single counterparty after applying the
aggregation policy within the Credit Risk Rated segment; and
Govern all Securitisation activities undertaken by the Group.
Market Risk
Group Market Risk Policy; and
Funds Management and Insurance
Market Risk Policy.
Quantitative limits/tolerances:
Traded Market Risk (VaR and stress testing limits);
Interest Rate Risk in the Banking Book (Market Value Sensitivity and
Net Interest Earnings at Risk limits);
Seed Trust Market Risk limits;
Lease Residual Value Risk limits;
Investment mandates for Insurance Asset and Liability Management
Risk (VaR and stress testing limits); and
Non-Traded Equity limits.
Liquidity and
Funding Risk
Group Liquidity and Funding Policy.
Quantitative limits/tolerances:
Operational Risk
Operational Risk Policy and
Framework.
Liquid asset holdings under name crisis scenario; and
Source of funding (e.g. wholesale) limits and term funding limits.
Management via:
A suite of risk mitigating policies;
Reporting and case management of loss and near loss incidents;
Comprehensive risk assessment and control assurance processes;
Quantitative Risk Assessment Framework and Capital modelling; and
Support from skilled risk professionals embedded throughout the
Group.
Insurance Risk
Risk Management Framework.
Management via:
Compliance Risk
Compliance Risk Management
Framework (CRMF).
Risk Management Strategy and Risk Statement;
Underwriting and claims standards;
Retaining the right to amend premiums on risk policies; and
Re-insurance purchases under policy guidance.
Management via:
The CRMF Minimum Group standards for compliance;
Risk management obligations Register and Guidance Notes that
detail specific requirements and accountabilities for each Business
Unit;
Business Unit compliance frameworks; and
Support from skilled compliance professionals embedded throughout
the Group.
Strategic Business
Risk
Strategic Framework.
Management via a suite of management controls including:
Strategic planning;
Strategic implementation; and
Financial management.
Reputational Risk
Cultural Framework and Statement of
Professional Practice.
Management via:
Support from risk professionals embedded throughout the Group; and
Crisis management testing of leadership team.
42
Commonwealth Bank of Australia Annual Report 2011
Credit Risk
Credit risk is the potential of loss arising from failure of a debtor
or counterparty to meet their contractual obligations. At a
portfolio level, credit risk includes concentration risk arising from
interdependencies between
credit
exposures), and concentrations of exposure to countries,
industry sectors and geographical regions. Exposure to risk also
arises through securitisation activity.
counterparties
(large
The Group’s credit risk policies have been developed as a
matter of sound risk management practice and in accordance
with the expectations of regulators’ prudential standards as well
as legal requirements.
The measurement of credit risk is based on an internal credit
risk-rating system, which uses analytical tools to estimate
expected and unexpected loss for the credit portfolio.
Further
risk management and
measurement is included in Note 39 to the Financial Statements.
information on credit
Market Risk
Market risk is the potential of loss arising from adverse changes
in interest rates, foreign exchange rates, commodity and equity
prices, credit spreads, lease residual values, and implied
volatility levels. Market risk also includes risks associated with
funding and liquidity management.
Risk Management
expected. For the general insurance business, variability arises
mainly through weather related incidents and similar events, as
well as general variability in home, motor and travel insurance
claim amounts.
The management of insurance risk is an integral part of the
operation of the insurance business. It is essential in the control
of claims on an end-to-end basis, from underwriting to policy
termination or claim payment.
The major methods of mitigating insurance risk are:
•
•
•
•
Sound product design and pricing, to ensure that robust
procedures are in place and there are no risks which have
not been priced into contracts;
Regular review of insurance experience, so that product
design and pricing remains sound;
Carrying out underwriting, so
level of risk
associated with an individual contract can be accurately
assessed, charged
through premium rates, and
reserved for;
Claims management, where an assessment is made such
that only genuinely insured claims are admitted and paid;
and
that
the
for
Transferring a portion of the risk carried to reinsurers.
•
Further information on the Life Insurance Business is included in
Note 33 to the Financial Statements.
Further information on market risk is included in Note 40 to the
Financial Statements.
Compliance Risk
Liquidity and Funding Risk
Liquidity risk is the risk of being unable to meet financial
obligations as they fall due. 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.
Further information on liquidity and funding risk is included in
Note 41 to the Financial Statements.
Operational Risk
Operational risk is defined as the risk of economic loss arising
from inadequate or failed internal processes, people, systems or
from external events.
fraud,
includes
business continuity and technology risks.
legal, regulatory,
It
The Group’s operational risk management framework supports
the achievement of its financial and business goals. The
following objectives have been approved by the Risk Committee:
• Maintenance of an effective internal control environment
•
•
and system of internal control;
Demonstration of effective governance,
consistent approach
across the Group;
Transparency, escalation and resolution of risk and control
incidents and issues; and
including a
to operational risk management
• Making decisions based upon an informed risk-return
analysis and appropriate standards of professional
practice.
Insurance Risk
Insurance risk is the risk of loss due to increases in policy
benefits arising from variations in the incidence or severity of
insured events. Risk exposure arises in the insurance business
as the risk that claims payments are greater than expected. In
the life insurance business, this arises primarily through mortality
(death) or morbidity (illness or injury) risks being greater than
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, regulatory bodies, industry standards and codes.
The Group’s Compliance Risk Management Framework (CRMF)
is consistent with the Australian Standard on Compliance
Programmes. It is designed to help the Group meet its
obligations under the Corporations Act 2001, the Group’s
Australian Financial Services Licence and Australian Credit
incorporates a number of components,
Licences. CRMF
including Group policies, a Compliance Obligations Register and
a Compliance Review programme to monitor compliance with
policies.
These are complemented by Business Unit compliance
frameworks
including obligations registers, standards and
procedures.
The CRMF provides for the assessment of compliance risks,
implementation of controls, monitoring and testing of framework
effectiveness and the escalation, remediation and reporting of
compliance incidents and control weaknesses.
The Group's compliance strategy is based on two fundamental
principles:
•
in each Business Unit have
Line management
the
responsibility to ensure their business is, and remains
compliant with, legislative, regulatory, industry code and
organisational requirements; and
• Group and Business Unit regulatory risk and compliance
teams work together to monitor, oversee and report on
compliance to management, compliance committees and
the Board.
Commonwealth Bank of Australia Annual Report 2011
43
Risk Management
Strategic Business Risk
Strategic business risk is defined as the risk of economic loss
resulting from changes in the business environment caused
by the following factors:
Social trends.
Competitive forces at work; or
• Macroeconomic conditions;
•
•
Strategic business risk is taken into account as business
strategies and objectives are defined. The Board receives
reports on business plans, major projects and change
initiatives and monitors progress and reviews successes
compared to plans.
Reputational Risk
Reputational risk arises from the negative perception on the
part of customers, counterparties, shareholders, investors,
debt holders, market analysts, regulators and other relevant
parties of the Group.
This risk can adversely affect the Group’s ability to maintain
existing, or establish new, business relationships and access
to sources of funding. Reputational risk is multidimensional
and reflects the perception of other market participants.
Furthermore, it exists throughout the organisation and
exposure to reputational risk is a function of the adequacy of
the Group’s control of its risk management processes, as
well as the manner and efficiency with which management
responds
influences on Group-related
transactions.
In many but not all respects, adverse
reputational risk outcomes flow from the failure to manage
other types of risk.
to external
Stress Testing Framework
Stress testing is used, in combination with other risk
management practices, to understand, manage and quantify
the Group’s risks.
The Group regularly carries out stress tests across its
various businesses as part of:
•
Formal business strategic planning and capital
assessment at Board level;
Regular risk management exercises;
Business contingency planning; and
•
•
•
Ad-hoc risk stress testing is also regularly undertaken to
identify and assess the risk profile of the Group.
Requests from regulators or external agencies.
The stress testing framework includes:
• Group-wide stress scenarios which inform and engage
the Board in assessing capital requirements and other
key financial outcomes under various severe but
plausible scenarios. These tests are conducted across
businesses with the results aggregated to the Group
level; and
•
Risk Management
testing, which
supports enhanced risk identification, assessment and
management within the Group’s Risk Appetite.
related stress
Such stress testing facilitates a more robust understanding of
the Group’s risks and facilitates better management policies
and predictability of capital requirements in more extreme
circumstances.
Stress testing also provides an input into the formation of
internal views of the adequacy of the Group’s capital,
liquidity, and provisions and the development of capital and
liquidity contingency plans which detail how the Group would
respond to potential future adverse scenarios.
44
Commonwealth Bank of Australia Annual Report 2011
Specific risk types for which stress tests are conducted on a
routine basis for business risk management purposes
include:
•
•
•
•
Credit risk stress tests on a number of retail and
commercial portfolios (which includes stressing the
property prices of the exposures underlying security);
Traded market risk, non-traded interest rate risk, non-
traded equity risk and non-traded
insurance risk
portfolios;
Liquidity stress tests that determine survival horizons
are performed and reported to the Asset and Liability
Committee (ALCO) on a monthly basis. The stress
tests look to identify the timeframe over which high
quality liquid assets could survive under various stress
liability run-off scenarios;
Funding indicators monitor a range of balance sheet
focussing on external market conditions,
metrics
changing
and
concentration; and
business
patterns
activity
of
• Operational risk to assess the potential for operational
risk outcomes.
Risk Management Initiatives
In order to remain effective in constantly evolving economic,
strategic and regulatory environments, the risk management
framework and culture requires a continuous cycle of review
and refinement. Over the last twelve months the Group has
made the following key refinements to its framework:
•
•
•
•
•
•
•
•
•
•
•
•
to provide a roadmap
Developed a refreshed three year risk management
strategic plan
future
for
development of the risk management framework;
Updated the risk appetite statements for the Group and
for each of the Group’s major Business Units;
Explicitly considered risk behaviours into remuneration
policy and practices;
Enhanced the Group’s policy framework by including
the articulation of appropriate lower level sub-limits that
are consistent with Group level limits;
Refreshed credit risk assessment models;
Continued to integrate subsidiary entities into the
Group’s risk management framework and practices;
Undertaken various risk optimisation strategies and
portfolio reviews that have provided insight into key risk
dependencies and resulted in adjusting risk exposure
levels based on available risk-adjusted returns;
Implemented projects that will substantially enhance
core risk systems, data and processes;
Strengthened
the
monitoring of deteriorating credits, the provisioning
process and risk-based pricing models;
Enhanced the structured learning framework for credit
risk management professionals as well as risk training
for front line staff;
Completed annual reviews of policies relating to Credit
Risk, Market Risk, Operational Risk, Compliance Risk
and the Insurance Risk Management Framework;
Enhanced the Group’s risk modelling and stress testing
frameworks to meet the demands of an ever-changing
macroeconomic environment; and
the credit decisioning process,
• Monitored and responded to regulatory changes and
future regulatory changes. The Group has
likely
increased its participation in global financial forums and
taken actions
the
influence
Government to help shape future regulatory reform.
regulators and
to
Capital Management
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 International Convergence of
Capital Measurement and Capital Standards: A Revised
Framework (Basel II) issued by the Basel Committee on
Banking Supervision. These requirements define what
is
acceptable as capital and provide methods of measuring the
risks incurred by the Bank.
The regulatory capital requirements are measured for the
Extended Licence Entity Group (known as “Level One”,
comprising the Bank and APRA approved subsidiaries) and for
the Bank and all of its banking subsidiaries, which includes both
Bankwest and ASB Bank (known as “Level Two” or the
“Group”).
All entities which are consolidated for accounting purposes are
included within the Group capital adequacy calculations except
for:
•
•
The insurance and funds management operations; and
The entities through which securitisation of Group assets
are conducted.
Regulatory capital is divided into Tier One and Tier Two Capital.
Tier One Capital primarily consists of Shareholders’ Equity plus
other capital instruments acceptable to APRA, less goodwill and
other prescribed deductions. Tier Two Capital is comprised
primarily of hybrid and debt instruments acceptable to APRA
less any prescribed deductions. Total Capital is the aggregate of
Tier One and Tier Two Capital.
The tangible component of the investment in the insurance and
funds management operations is deducted from capital, 50%
from Tier One and 50% from Tier Two.
Capital adequacy is measured by means of a risk based capital
ratio. The capital ratios reflect capital (Tier One, Tier Two or
Total Capital) as a percentage of total Risk Weighted Assets
(RWA). RWA represents an allocation of risks associated with
the Group’s assets and other related exposures.
its capital
the
The Group actively manages
requirements of various stakeholders
rating
agencies and shareholders). This is achieved by optimising the
mix of capital, while maintaining adequate capital ratios
throughout the financial year.
to balance
(regulators,
The Group has a range of instruments and methodologies
available to effectively manage capital. These include share
issues and buybacks, dividend and dividend reinvestment plan
(DRP) policies, hybrid capital raising and dated and undated
subordinated debt issues. All major capital related initiatives
require approval of the Board.
The Group’s capital position is monitored on a continuous basis
and reported monthly to the ALCO. Three year capital forecasts
are conducted on a quarterly basis and a detailed capital and
strategic plan is presented to the Board annually.
The Group’s capital ratios throughout the 2010 and 2011
financial years were in compliance with both APRA minimum
capital adequacy requirements and
the Board Approved
minimums.
Capital Management
The Bank is required to inform APRA immediately of any breach
or potential breach of its minimum prudential capital adequacy
requirements, including details of remedial action taken or
planned to be taken.
Dividends
Banks may not pay dividends if, immediately after payment, they
are unable to meet the minimum capital requirements. APRA
does not permit banks to pay dividends from retained profits
without prior approval. Under APRA guidelines, the expected
dividend must be deducted from Tier One Capital.
Current Regulatory Framework
Basel II
The Basel II framework consists of three pillars:
•
•
•
Pillar 1 – defines the rules for calculating the minimum
regulatory capital requirements for credit, market and
operational risk;
Pillar 2 – addresses the supervisory review process
including
capital adequacy
assessment process (ICAAP); and
the Group’s
internal
Pillar 3 – specifies public disclosure requirements to enable
market participants to assess key pieces of information on
risk exposures and processes of a banking group.
The Group, excluding Bankwest, was granted advanced Basel II
accreditation by APRA on 10 December 2007.
From 1 January 2008, the advanced internal ratings based
approach (AIRB) for credit risk and the advanced measurement
approaches (AMA) for operational risk were adopted in the
calculation of RWA.
APRA specifically requested Australian banks to incorporate
regulatory capital for interest rate risk in the banking book
(IRRBB) in their assessment of total regulatory capital from 1
July 2008. IRRBB is the risk that the Bank’s profit derived from
net interest income (interest earned less interest paid), in current
and future periods, is adversely impacted from changes to
interest rates. This is measured from two perspectives; firstly by
quantifying the change in the net present value of the Balance
Sheet’s
the
anticipated change to the net interest income which is reported
in the Bank’s Income Statement. This is not a requirement under
the Basel II Pillar 1 framework.
future earnings potential and secondly; as
There is an agreed methodology for measuring market risk for
traded assets, which remained unchanged from Basel I.
The work undertaken for the Bank to achieve the advanced
accreditation has provided
increased
sophistication in risk measurement and management. This has
increased the flexibility with which the Group manages its
decision making and capital management.
the Group with
Regulatory Changes
There are a number of regulatory changes in progress that will
impact the measurement of capital for the Group in regards to
Banking, General and Life Insurance and Conglomerate Groups.
Commonwealth Bank of Australia Annual Report 2011
45
Capital Management
Banking - Basel Committee Changes
Supervision of Conglomerate Groups
On 16 December 2010, the Basel Committee on Banking
Supervision (BCBS) published details of its main banking
reforms to strengthen global capital and liquidity regulations with
the aim of promoting a more resilient banking sector.
The “Basel III: A global regulatory framework for more resilient
banks and banking systems” reforms are designed to increase
the quality, consistency and transparency of capital, to enhance
the risk coverage framework, and to reduce systemic and pro-
cyclical risks.
The regulations will increase the common equity minimum
requirement from 2% to 4.5%. They introduce a capital
conservation buffer of 2.5%, taking the minimum common equity
requirement to 7%. Tier One and Total Capital minimum
requirements (inclusive of the capital conservation buffer) will
increase to 8.5% and 10.5% respectively. The reforms also
introduce a minimum leverage ratio of Tier One Capital to total
exposures of 3%.
The reforms will be phased in from 1 January 2013 to 1 January
2019.
Banking - APRA Changes
APRA has begun work on developing draft prudential standards
to implement the changes outlined by the BCBS.
is expected
APRA
to release a consultation paper on
implementation in Australia in August 2011. Draft prudential
standards are expected by December 2011, and final standards
are expected in December 2012.
The BCBS and APRA conducted several recent Quantitative
Impact Studies (QIS) to assess the impact of the proposed
changes. The results of these studies are expected to be used
to calibrate appropriate capital levels.
Basel II enhancements announced in July 2009, relating to
securitisation and market risk, will be implemented from 1
January 2012.
General and Life Insurers
APRA released a Discussion Paper titled “Review of capital
standards for general insurers and life insurers” in May 2010,
followed by more detailed technical papers in July 2010. APRA
is seeking to improve the risk sensitivity of its capital standards,
and to introduce a definition and measurement of the capital
base for insurers that is consistent with ADIs. A QIS to assess
the impact of the proposed changes was completed in 2010 and
after some refinements, APRA requested a further QIS be
completed in 2011. The final standards are expected to be
released by APRA in 2012 with implementation to commence in
2013.
The Reserve Bank of New Zealand (RBNZ) issued draft
solvency standards for life insurance operations in August 2010.
Following a period of consultation with the industry, the RBNZ is
close to finalising the standard which will take effect during 2012.
46
Commonwealth Bank of Australia Annual Report 2011
its current prudential supervision
APRA released a Discussion Paper titled “Supervision of
Conglomerate Groups” in March 2010. APRA is seeking to
extend
to
conglomerate groups that have material operations in more than
one APRA regulated industry and/or have one or more material
unregulated entities. The aims of the Level 3 proposal are to
ensure that a conglomerate group holds adequate capital to
protect the APRA regulated entities from potential contagion and
other risks within the group.
framework
A QIS to assess the impact of the proposed changes was
completed in February 2011. Draft capital standards are
expected in 2012 with implementation to commence in 2013.
Pillar 3 Disclosures
Full details on the market disclosures required under Pillar 3, per
prudential standard APS 330 “Public Disclosure of Prudential
Information”, are provided on the Group’s website.
Capital Management
The Group maintains a strong capital position with the capital
ratios well in excess of APRA minimum capital adequacy
requirements (Prudential Capital Ratio (PCR)) and the Board
approved minimum levels at all times throughout the year ended
30 June 2011.
The Group’s Common Equity, Tier One Capital and Total Capital
ratios as at 30 June 2011 were 7.66%, 10.01% and 11.70%
respectively.
The Group’s Common Equity and Tier One Capital increased by
31 and 30 basis points respectively over the prior half, primarily
influenced by both solid cash profit after tax (net of dividend and
DRP) and an overall net reduction in RWA.
The Group’s Total Capital ratio increased 20 basis points over
the prior half to 11.70%, with the benefits from the improvement
in Tier One Capital partially offset by the planned redemption of
a Lower Tier Two instrument.
RWA were $282 billion at 30 June 2011, a decrease of $4 billion
since 31 December 2010. This decrease was primarily
influenced by a $7 billion reduction in Interest Rate Risk in the
Banking Book (IRRBB) RWA with the balance sheet duration
moving closer to its neutral risk position. This was achieved
through treasury risk management activities and change in loan
and deposit pricing terms.
Compared to the prior year, the Group’s Common Equity and
Tier One Capital increased 80 and 86 basis points respectively,
reflecting a solid profit performance and reduction in RWA.
Total Capital increased 21 basis points compared to the prior
year. The benefits from the growth in Tier One Capital being
partially offset by the planned redemption of a number of Lower
Tier Two instruments, and foreign currency translation impacts
of these instruments.
The Group’s Common Equity, Tier One and Total Capital ratios
as at 30 June 2011 under the Financial Services Authority (the
UK regulator) method of calculating regulatory capital as a
percentage of RWA were 10.9%, 13.7% and 15.0%
respectively. This has been provided for comparative purposes
as the Group is not regulated by the Financial Services
Authority.
Capital Initiatives
The following significant initiatives were undertaken during the
year to actively manage the Group’s capital:
Tier One Capital
•
•
•
The DRP for the 2010 final dividend was satisfied in full by
an on market purchase and transfer of shares. As such
there was no impact on the Group’s capital ratios. The
DRP participation rate was 25.8% and follows the removal
of the 1.5% discount;
The allocation of $513 million of ordinary shares in order to
satisfy the DRP in respect of the interim dividend for the
2011 financial year, representing a participation rate of
25.1%; and
The redemption of $65 million in Exchangeable Floating
Rate notes, classified as Innovative Tier One Capital, in
February 2011.
Tier Two Capital
•
•
Redemption of five separate subordinated Lower Tier Two
debt issues totalling $795 million, the majority of which took
place in November 2010; and
Redemption of a $152 million (NZ$ 200 million) Lower Tier
Two debt issue in June 2011.
Regulatory Capital Requirements for Other Major ADI’s
in the Group
ASB Bank Limited
ASB Bank Limited’s (ASB) operations are included in the
Group’s capital requirements however, ASB operates as a
stand-alone Bank under Basel II advanced status and is subject
to regulation by the RBNZ. The RBNZ applies a similar
methodology
regulatory capital
requirements.
in calculating
to APRA
ASB had a Tier One ratio of 11.2% and a Total Capital ratio of
12.8% at 30 June 2011. ASB Bank was in compliance with its
regulatory capital requirements at all times during the year. Once
Basel III reforms are implemented, ASB will be required to report
a common equity ratio.
Bankwest
Bankwest’s operations are included in the Group’s capital
requirements however, Bankwest operates as a stand-alone
Bank under Basel II standardised status and is separately
regulated by APRA. There is a programme to extend the
Group’s advanced accreditation to determine regulatory capital
for Bankwest.
Bankwest’s capital ratios, at 30 June 2011, are in excess of both
APRA minimum requirements and Board approved minimum
levels. The Tier One ratio was 9.1% and Total Capital was
12.9%. Bankwest was in compliance with its regulatory capital
requirements at all times during the year. Once Basel III reforms
are implemented, Bankwest will be required to report a common
equity ratio.
Capital Management
Regulatory Capital Requirements for Insurance and
Funds Management Business
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 life insurance companies –‘solvency’ and ‘capital adequacy’.
The capital adequacy test for statutory funds is always equal to
or greater than the solvency test(1).
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
professional standard, ‘Solvency Reserving for Life Insurance
Business’, issued by the New Zealand Society of Actuaries. The
Group’s general insurance businesses are regulated by APRA
under the Insurance Act 1973. The Group determines capital
requirements for general insurance businesses in accordance
with APRA Prudential Standards.
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 Licence
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 Group’s insurance and funds management companies held
assets in excess of regulatory capital requirements at 30 June
2011. The Group’s Australian and New Zealand insurance and
funds management businesses held $1,014 million of assets in
excess of regulatory solvency requirements at 30 June 2011 (31
December 2010: $1,147 million; 30 June 2010: $1,007 million).
(1) The Shareholders’ fund is subject to a separate capital requirement.
Commonwealth Bank of Australia Annual Report 2011
47
Capital Management
Capital Adequacy
Risk Weighted Capital Ratios
Common Equity (1)
Tier One
Tier Two
Total Capital
Regulatory Capital
Ordinary Share Capital
Treasury shares (2)
Ordinary Share Capital and Treasury Shares
Other Equity Instruments
Trust Preferred Securities 2006 (3)
Total Other Equity Instruments
Reserves (4)
Cash flow hedge reserve
Employee compensation reserve
Asset revaluation reserve
Available-for-sale investments reserve
Foreign currency translation reserve related to non-consolidated subsidiaries
Total Reserves
Retained Earnings and current period profits
Expected dividend (5)
Estimated reinvestment under Dividend Reinvestment Plan (6)
Retained earnings adjustment for non-consolidated subsidiaries (7)
Other
Net Retained Earnings
Non-controlling Interest (8)
ASB Perpetual Preference Shares (8)
Non-controlling interests less ASB Perpetual Preference Shares
Total Fundamental Tier One Capital
As at
30/06/11
31/12/10
30/06/10
%
7. 66
10. 01
1. 69
11. 70
%
7. 35
9. 71
1. 79
%
6. 86
9. 15
2. 34
11. 50
11. 49
As at
30/06/11
31/12/10
30/06/10
$M
23,602
294
23,896
939
(939)
-
392
402
(135)
(191)
(245)
149
372
11,826
(2,930)
733
227
(189)
9,667
528
(505)
23
$M
23,083
301
23,384
939
(939)
-
269
490
(100)
(189)
(22)
118
566
10,534
(2,045)
511
230
(63)
9,167
524
(505)
19
$M
23,081
298
23,379
939
(939)
-
1,089
417
(125)
(194)
(173)
8
1,022
9,938
(2,633)
-
392
(52)
7,645
523
(505)
18
33,958
33,136
32,064
(1) Represents Fundamental Tier One Capital net of Tier One deductions.
(2) Represents shares held by the Group’s life insurance operations and employee share scheme trusts.
(3) Trust Preferred Securities 2006 issued 15 March 2006 of USD700 million. These instruments qualify as Tier One Innovative Capital of the Group.
(4) The Group’s general reserve, capital reserve and foreign currency translation reserve (excluding balances related to non consolidated subsidiaries) qualify as
Fundamental Tier One Capital.
(5) Represents expected dividends required to be deducted from current period earnings.
(6) Dividend Reinvestment Plan (DRP) in respect of the June 2011 final dividend is to be satisfied through the issue of shares, with the assumed reinvestment
rate based on reinvestment experience as approved by APRA. The DRP in respect of the December 2010 interim dividend was satisfied by the issue of
shares. The DRP in respect of the June 2010 final dividend was satisfied in full by an on market purchase and transfer of shares.
(7) Represents cumulative current year profit and retained earnings adjustment for subsidiaries not consolidated for regulatory purposes. This includes adjustments to the
extent to which retained earnings from non-consolidated subsidiaries have not been repatriated to the Bank in dividends (June 2011: $525 million, December 2010:
$522 million, June 2010: $360 million). The retention of these profits are used to fund the future growth of these operations. This has been offset by the one-off write
back adjustments upon adoption of IFRS of $752 million.
(8) Non-controlling interest classified as Tier One Innovative Capital under Basel II regulations. Comprised predominantly of ASB Perpetual Preference Shares of NZD550
million issued by New Zealand subsidiary entities. These shares are non-redeemable and carry limited voting rights.
48
Commonwealth Bank of Australia Annual Report 2011
Capital Adequacy (continued)
Regulatory Capital
Tier One Capital Deductions - 100%
Goodwill and other intangibles (excluding software) (1)
Capitalised expenses
Capitalised computer software costs
Defined benefit superannuation plan surplus (2)
General reserve for credit losses top up (3)
Deferred tax
Tier One Capital deductions - 100%
Tier One Capital Deductions - 50% (4)
Equity investments in other companies and trusts (5)
Equity investments in non-consolidated subsidiaries (net of intangibles) (6)
Expected impairment losses (before tax) in excess of eligible credit provisions (net of deferred tax) (7)
Other deductions
Tier One Capital deductions - 50%
Total Tier One Capital Deductions
Fundamental Tier One Capital After Deductions
Residual Tier One Capital
Innovative Tier One Capital
Non-cumulative preference shares (8)
Non-controlling Interests (9)
Eligible loan capital
Total Innovative Tier One Capital
Non-Innovative Residual Tier One Capital (10)
Less: Residual capital in excess of prescribed limits transferred to Upper Tier Two Capital (11)
Total Residual Tier One Capital
Capital Management
As at
30/06/11
31/12/10
30/06/10
$M
$M
$M
(8,306)
(252)
(1,297)
(53)
(132)
(287)
(8,382)
(242)
(1,100)
(255)
(106)
(47)
(8,470)
(288)
(950)
(221)
(90)
(96)
(10,327)
(10,132)
(10,115)
(317)
(526)
(817)
(396)
(328)
(539)
(748)
(390)
(323)
(518)
(830)
(328)
(2,056)
(12,383)
(2,005)
(12,137)
(1,999)
(12,114)
21,575
20,999
19,950
2,598
505
128
3,231
3,407
-
6,638
2,626
505
198
3,329
3,407
-
6,736
2,728
505
236
3,469
3,407
(225)
6,651
Total Tier One Capital
28,213
27,735
26,601
(1) Represents total Goodwill and other intangibles (excluding capitalised computer software costs) which is required to be deducted from Tier One Capital.
(2) 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.
(3) Capital deduction at 30 June 2011 of $132 million after tax (31 December 2010: $106 million, 30 June 2010: $90 million) to ensure the Group has sufficient provisions
and capital to cover credit losses estimated to arise over the full life of the individual facilities, as required by APS 220.
(4) Represents 50% Tier One and 50% Tier Two Capital deductions under Basel II.
(5) Represents the Group’s non-controlling interest in other companies and unit trusts.
(6) Represents the net equity within the non-consolidated subsidiaries (primarily the Colonial Group) which is deducted 50% from Tier One and 50% from Tier Two Capital.
This deduction is net of $1,452 million in Non-Recourse Debt issued by Colonial Finance Limited (December 2010: $1,446 million, June 2010: $1,495 million) and the
Colonial Hybrid Issue $700 million (December 2010: $700 million, June 2010: $700 million).
(7) Regulatory Expected Loss (pre tax) using stressed loss given default assumptions associated with the loan portfolio in excess of eligible credit provisions (collective
provision and general reserve for credit losses net of tax and individually assessed provision pre tax) are deducted 50% from both Tier One and Tier Two Capital.
(8) APRA approved Innovative Tier One Capital instruments (PERLS III and Trust Preferred Securities 2003 and 2006).
(9) Non-controlling interest classified as Tier One Innovative Capital under Basel II regulations. Comprised predominantly of ASB Perpetual Preference Shares of NZ$550
million issued by New Zealand subsidiary entities. These shares are non-redeemable and carry limited voting rights.
(10) Comprises PERLS IV $1,465 million (less costs) issued by the Bank in July 2007 and PERLS V $2,000 million (less costs) issued by the Bank in October 2009. These
have been approved by APRA as Tier One Non-Innovative Capital instruments.
(11) Residual Capital eligible for inclusion as Tier One Capital is subject to an APRA prescribed limit of 25% of Tier One capital with any excess transferred to Upper Tier
Two Capital.
Commonwealth Bank of Australia Annual Report 2011
49
Capital Management
Capital Adequacy (continued)
Regulatory Capital
Tier Two Capital
Upper Tier Two Capital
Residual capital in excess of prescribed limits transferred from Tier One Capital (1)
Prudential general reserve for credit losses (net of tax) (2)
Asset revaluation reserve (3)
Upper Tier Two note and bond issues
Other
Total Upper Tier Two Capital
Lower Tier Two Capital
Lower Tier Two note and bond issues (4) (5)
Holding of own Lower Tier Two Capital
Total Lower Tier Two Capital
Tier Two Capital Deductions
50% Deductions from Tier Two Capital (6)
Total Tier Two Capital
Total Capital
As at
30/06/11
31/12/10
30/06/10
$M
$M
$M
-
620
86
336
124
-
618
85
350
108
225
603
87
382
83
1,166
1,161
1,380
5,728
(89)
5,639
(2,056)
4,749
32,962
5,990
(35)
5,955
(2,005)
5,111
32,846
7,454
(16)
7,438
(1,999)
6,819
33,420
(1) Residual Capital eligible for inclusion as Tier One Capital is subject to an APRA prescribed limit of 25% of Tier One Capital with any excess transferred to Upper Tier
Two Capital.
(2) Represents the after tax collective provisions and general reserve for credit losses of banking entities in the Group (including Bankwest) which operate under the Basel
II Standardised methodology.
(3) APRA allows only 45% of asset revaluation reserve to be included in Tier Two Capital.
(4) APRA requires these Lower Tier Two note and bond issues to be included as if they were unhedged.
(5) For regulatory capital purposes, Lower Tier Two note and bond issues are amortised by 20% of the original amount during each of the last five years to maturity.
(6) Represents 50% Tier One and 50% Tier Two Capital deductions under Basel II rules.
50
Commonwealth Bank of Australia Annual Report 2011
Capital Adequacy (continued)
Risk Weighted Assets
Credit Risk
Subject to Advanced IRB approach
Corporate
SME Corporate
SME Retail
Sovereign
Bank
Residential mortgage
Qualifying revolving retail
Other retail
Impact of the regulatory scaling factor (1)
Total risk weighted assets subject to Advanced IRB approach
Specialised lending exposures subject to slotting criteria
Subject to Standardised approach
Corporate
SME Corporate
SME Retail
Sovereign
Bank
Residential mortgage
Other retail
Other
Total risk weighted assets subject to standardised approach
Securitisation
Equity exposures
Total risk weighted assets for credit risk exposures
Market risk
Interest rate risk in the banking book
Operational risk
Total risk weighted assets (2)
(1) APRA requires RWA amounts that are derived from IRB risk weight functions be multiplied by a factor of 1.06.
(2) RWA include the consolidation of Bankwest which operates under the Basel II Standardised methodology.
Capital Management
As at
30/06/11
31/12/10
30/06/10
$M
$M
$M
39,180
22,471
4,435
2,517
7,216
55,709
6,398
7,253
8,711
40,129
22,071
4,896
2,557
6,686
56,412
6,761
6,398
8,755
44,252
26,216
5,170
2,800
7,492
55,882
6,772
6,322
9,294
153,890
35,990
154,665
34,339
164,200
35,483
8,048
7,389
4,461
103
1,238
23,515
2,574
4,751
52,079
2,670
2,113
8,040
7,597
4,377
99
1,583
22,605
2,510
4,619
51,430
1,894
2,280
8,872
7,746
4,684
215
1,136
22,436
2,530
5,472
53,091
1,569
2,420
246,742
244,608
256,763
3,162
9,699
22,108
281,711
3,873
17,033
20,049
3,503
10,272
20,283
285,563
290,821
Commonwealth Bank of Australia Annual Report 2011
51
Description of Business Environment
Australia
Financial Services
Financial services providers in Australia offer household and
business customers a wide range of products and services
encompassing retail, business and institutional banking, funds
management, superannuation,
risk
management and stockbroking. The domestic competitive
landscape includes the four major banks, regional banks,
building societies and credit unions, foreign retail banks, local
and global investment banks, fund managers, private equity
firms, insurance companies, brokers and third party distributors.
investment,
insurance,
Banking
While the Australian economy has performed well over the past
year, the domestic banking environment has encountered
headwinds characterised by strong competition, muted credit
growth, elevated funding costs, fragile business and consumer
confidence, regulatory uncertainty, a subdued global economy
and the financial impact of natural disasters.
Despite the challenging operating conditions, all major Australian
banks have reported improved financial results reflected in
higher cash profits, driven by modest growth in operating income
and lower impairments. In addition, major banks have retained
strong capital and liquidity positions, largely through organic
growth, which should see them well placed to meet upcoming
Basel III requirements.
The structure of the Australian financial industry has continued
to evolve over the course of the year. The resilience of the
Australian financial sector has proven attractive to international
investment banks, some are returning to the market after they
withdrew during the GFC, and regional banks and specialist
players are beginning to re-establish themselves.
Lower domestic credit growth has resulted in strong competition
for lending, whilst elevated wholesale funding costs have
continued to put pressure on deposit margins as banks compete
for this source of funding.
In the short
to medium term significant challenges and
uncertainties remain for both the domestic and global financial
systems. Domestic credit growth is likely to remain subdued,
and the impact of recent natural disasters will dampen economic
growth in the short term. In addition, concerns about sovereign
debt credit risk, particularly in Europe, continue to impact global
financial markets. This is likely to result in a continuation of
conservative capital and liquidity settings.
Funds Management
Domestic funds management margins remain under pressure
with further Australian regulatory changes expected to reduce
fees and
requirements and associated
compliance costs. Consolidation of the industry is set to continue
as industry participants seek scale to counteract margin
pressure and expand capabilities.
increase capital
Insurance
Government policy supporting the beneficial treatment of life
insurance inside superannuation is expected to drive strong
growth in the life insurance sector, increasing overall coverage.
At the same time, life insurance distribution dynamics continue
to evolve, with bancassurance, master trusts and industry funds
emerging as the strongest growth channels. To meet the
growing needs of these channels, insurance manufacturers are
placing a greater emphasis on technology and service efficiency.
The general insurance market remains concentrated but is
highly competitive, particularly with the entry of low cost
operators. Industry profitability during the financial year has been
negatively impacted by significant weather related event claims.
New Zealand
The Group’s banking activities in New Zealand are conducted
through the ASB Group and insurance activities through
Sovereign Group.
Competition in the New Zealand banking sector remains
intense, with the four main banks being owned by Australian
parents and accounting for 90% of the total banking system. In
addition, Kiwibank, the New Zealand Government and New
Zealand Post owned and operated bank launched in March
2002, continues to compete aggressively in the retail sector.
The non-bank financial sector remains weak due to elevated
funding costs arising from the GFC. There have been some
collapses and further consolidation of this segment is expected.
The Christchurch earthquake is likely to dampen New Zealand
economic growth in the short term. Lending growth has been
subdued and this is expected to continue, with forecast
economic growth only returning to above 3% in the 2013
financial year.
Competition for retail deposits remains strong as banks move to
secure increased domestic funding whilst at the same time
reduce reliance on wholesale funding.
for
long
term growth outlook
The
funds
management industry remains positive, underpinned by the
proposal
increase
to both simplify superannuation and
compulsory superannuation contributions to 12% by the 2020
financial year.
the Australian
The demand for simple, transparent low fee products is
expected to continue as retail commissions are removed and
investors focus on net-of-fee performance.
Australia’s ageing population and widening retirement funding
gap is expected to drive demand for products which address
market volatility, inflationary threats and longevity risks, and
there continues to be significant demand from global investors
for well managed international funds.
52
Commonwealth Bank of Australia Annual Report 2011
Description of Business Environment
Financial System Regulation in Australia
Supervisory Arrangements
Australia has, by international standards, a high quality financial
system which
financial products and services
consistently regardless of the type of financial institutions
providing them.
regulates
the Australian Securities and
The main regulators of financial services in Australia are the
Reserve Bank of Australia, the Australian Prudential Regulation
Authority,
Investments
Commission, the Australian Transaction Reports and Analysis
the Australian Competition and Consumer
Centre and
Commission. Each agency has system-wide responsibilities for
the different objectives of government oversight of the financial
system. A description of these agencies and their general
responsibilities and functions is set out below.
The Reserve Bank of Australia (RBA) is responsible for
monetary policy, financial system stability and regulation of the
payments system. The RBA also administers sanctions
implemented via the Banking (Foreign Exchange) Regulations
1959.
The Australian Prudential Regulation Authority (APRA) has
responsibility for the prudential supervision of banks, building
societies and credit unions,
insurance
funds
companies,
(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 that protect consumers, investors and
creditors, including the Corporations Act 2001. 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. ASIC is also responsible for the
National Consumer Credit Protection Act and the responsible
lending framework it imposes upon credit providers.
The Australian Transaction Reports and Analysis Centre
(AUSTRAC) has responsibility for overseeing compliance with
the Anti-Money Laundering and Counter Terrorism Financing
Act 2006 and the Financial Transaction Reports Act 1988. As a
provider of financial services in Australia and internationally, the
Group is committed to the principles of the Financial Action Task
Force as the international standard setter for anti-money
laundering and counter-terrorism financing efforts.
The Australian Competition and Consumer Commission (ACCC)
promotes competition and fair trade to benefit consumers,
business and the community through the administration of the
Trade Practices Act 1974.
(DFAT), a
In addition to the above, the Department of Foreign Affairs and
federal government department, has
Trade
responsibility
to
decisions of the United Nations Security Council (UNSC) relating
to sanctions, including the freezing of terrorist assets.
legislation giving effect
implementing
for
The Bank and its subsidiary Bank of Western Australia are
Authorised Deposit-taking Institutions (ADIs) under the Banking
Act 1959 and are subject to prudential regulation by APRA.
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 ADIs 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 programme of specialised on-site visits to assess the
adequacy of individual banks’ systems for identifying, measuring
and controlling risks associated with the conduct of these
activities.
In addition, APRA has established arrangements under which
each bank’s external auditor reports to APRA regarding
observance of prudential standards and other supervisory
requirements.
The prudential framework applied by APRA is embodied in a
series of prudential standards and other requirements including:
(i) Capital Adequacy
APRA has approved the Bank’s application to use the advanced
internal ratings-based approach to credit risk and the advanced
measurement approach to operational risk for the purposes of
calculating capital requirements under the Basel II Framework.
(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 obligations, Certificates of
Deposit / Bills of other banks and overnight interbank loans) and
other highly
liquid marketable securities. More detailed
comments on the Group’s liquidity and funding risks are
provided in Note 41 to the Financial Statements.
(iii) Large Credit Exposures
APRA requires banks to ensure that, other than in exceptional
circumstances, individual credit exposures to non-bank, non-
government clients do not exceed 25% of the capital base.
Exposure to unrelated 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 Group’s
large exposures refer to Note 39 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.
Commonwealth Bank of Australia Annual Report 2011
53
Description of Business Environment
Supervisory Arrangements (continued)
The Commonwealth 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 delegate approval powers to APRA
where one financial institution seeks to acquire another.
The Government’s present policy is that mergers among the four
major banks will not be permitted until the Government is
satisfied that competition from new and established participants
in the financial industry has increased sufficiently.
Proposals for foreign acquisition of Australian banks are subject
to approval by the Treasurer under the Foreign Acquisitions and
Takeovers Act 1975.
(v) Banks’ Association with Non-Banks
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 Treasurer.
(vi) Fit and 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 which
include designated members of senior management. ADIs also
have to comply with APRA’s Governance prudential standard
which sets out requirements for Board size and composition,
independence of directors, executive remuneration 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.
including
standards
Life insurance and general insurance companies are subject to
prudential
risk
management and reinsurance arrangements. Compliance with
APRA
returns,
independent actuarial investigations, auditor certification and
supervisory inspections.
capital adequacy,
is monitored
regulation
through
regular
Life and general insurance companies are also subject to similar
Fit and Proper and Governance requirements as those applying
to ADIs.
Accounting Policies and Estimates
The Group’s accounting policies including critical accounting
policies and estimates are set out in Note 1 to the Financial
Statements.
54
Commonwealth Bank of Australia Annual Report 2011
Sustainability
Sustainability Commitment
Innovative product development
For the Group, sustainability is about being a successful
business today while ensuring long term value is delivered to
customers, people, shareholders and the wider community. The
Group’s sustainability approach centres around five foundations
that are key to the business – Customers, People, Community,
Environment and Governance.
This section of the report covers the first four foundations:
Customers, People, Community and the Environment. Details
about the Group’s Governance approach can be found in the
Corporate Governance section of this report.
The sustainability information in this section, including the
sustainability scorecard of key metrics, captures data from
Australian domestic operations only (excluding Bankwest),
unless otherwise stated.
More detailed information about the Group’s approach to
sustainability, as well as initiatives and achievements, will be
covered in the Sustainability Report 2011, available in October
on www.commbank.com.au/sustainability-reporting.
Customers
Customer satisfaction remains a key focus for the Group and
during the year a number of initiatives were introduced to
support the Group’s retail, business and wealth management
customers, providing
financial solutions and
improvements to the customer experience.
innovative
As illustrated in the metrics table on page 58, customer
satisfaction performance was solid across retail, business and
wealth management customer segments. Refer to the CEO
Statement and Business Unit performance highlights for more
information on the Group’s customer satisfaction achievements
over the year.
Responsible Banking
The Group’s Emergency Assistance Packages were activated to
support both retail and business customers, as well as the
broader community, in all Australian states affected by natural
disasters.
The Group’s flood and cyclone financial assistance totalled $65
million and included:
•
•
Compassionate Assistance Fund of up to $50 million and
CommInsure ex gratia payments of $8 million;
Community Flood Assistance Grants Programme of $5
million; and
Cash donations of $2 million to flood relief appeals.
•
In addition,
•
•
•
$1 billion was set aside for loans to business and
agribusiness customers;
No interest was charged for the first three months on new
or increased overdraft facilities; and
Hardship assistance was offered
Emergency Assistance packages.
through Special
Following the earthquake in Christchurch, ASB Bank donated
NZ$1.5 million to earthquake relief funds and launched a
NZ$250 million investment programme. This was in addition to
the support offered by both ASB and Sovereign to their
customers and people.
During the year the Group developed and launched a number of
new products for retail and business customers. These included:
•
•
•
•
•
The introduction of GoalSaver, a high interest bearing
savings product;
The launch of the new premium Diamond Awards credit
card;
Bankwest launched their first Express Store;
A No Fee Variable Interest Rate Home Loan is available in
the branch, over the phone, online or through a broker; and
The Business Debit Mastercard; customers can access
money from business transaction accounts at ATMs and
pay for purchases using EFTPOS.
Customer-supporting technology
The Group’s Core Banking Modernisation project, initiated in
2008, is changing the Group’s core banking processes and
systems. The world class technology platform is enhancing the
way the Group provides services to customers and the way
business is undertaken.
The programme continued its rollout and achieved significant
milestones during the year. Migrating ten million accounts to a
new platform, delivering real-time banking and new account
functionality to Retail deposit customers.
Youth financial literacy
Improving financial literacy among Australians is one of the
Group’s key goals. During the year, the Group continued its
focus on:
•
•
•
The ‘one million kids’ programme which aims to improve
the financial literacy of more than one million Australian
school children;
The Commonwealth Bank Foundation’s StartSmart
programme, a series of classroom sessions and
workshops designed to help young Australians build better
money management skills; and
The Group’s online game, Coinland. To date over 115,000
children have created an account to experience the online
world and have fun while learning the basics of money
management with the help of characters such as the
Dollarmites and Platy.
People
During the year, a number of initiatives were developed to
benefit the Group’s people, with a particular focus on diversity
(including gender, leadership and disability support), indigenous
employment and culture.
Diversity
In June 2011, the Group launched its Diversity Policy, outlining
the Group’s approach to creating and maintaining an inclusive
and collaborative workplace culture. The Diversity Policy
provides the strategy and measurable objectives with a key
focus on gender diversity. With over 61% of employees in the
Group being female, the aim is to increase the representation of
women in senior management levels from 26.6% in December
2009 to 35% by December 2014. Solid progress was made
towards that goal, with women comprising 28.2% of senior
management roles, as at June 2011.
Commonwealth Bank of Australia Annual Report 2011
55
Sustainability
Disability Support
The Group launched its updated Disability Action Plan (DAP) in
December 2010. The DAP outlines the Group’s strategies for
supporting staff and customers with a disability, mental illness or
other serious health condition. During the year, the Group
appointed a Diversity Support Manager, focusing on leading the
Group’s approach and providing advice and support
to
implementing strategies across the business.
Indigenous Employment Strategy
The Indigenous Employment Strategy remained a key focus.
The Group has made good progress towards its target of
creating 350 additional positions for indigenous Australians by
June 2012, with 30 new indigenous employees joining the
Group over the period.
People and Culture Survey
The Group continued its focus on developing a culture of trust
and team spirit and helping foster people engagement and pride
within the organisation.
In the 2011 people engagement survey, the Group recorded a
People and Culture Indicator (PCI) result of 4.30 and Gallup
GrandMean score of 4.30. This put the Group in the 73rd
percentile in the Gallup Worldwide database.
Safety, Absenteeism and Turnover
The Group’s Lost Time Injury Frequency Rate (LTIFR) has
improved over the past several years due to the continued
implementation of the safety management system. In the 12
months to June 2011 the LTIFR was 1.9, down from 2.9 in the
prior year.
Group absenteeism was broadly in line with the prior year, while
voluntary turnover declined from 12.73% in 2010 to 12.65% in
2011.
Community
The Group continued its ongoing work with a range of Australian
communities through its programmes and partnerships across
health and welfare, the arts, environment, sport and indigenous
affairs.
Natural disaster relief appeal
The Queensland floods and Cyclone Yasi impacted not only the
Group’s customers but also the wider community. In recognition
of both the economic and social significance of community
groups, a Community Flood Assistance Grants Program was
launched by the Group to help support a number of groups. Not-
for-profit community groups that had suffered damage or loss of
uninsured equipment were invited to apply for a grant of up to
$20,000. This was the only programme of its size and scale
offered to community groups in flood-affected areas around
from
Australia. The programme
Queensland, Victoria, New South Wales and Western Australia
representing health, arts and history, children’s wellbeing, sport
and social welfare. A total of 381 groups received grants totaling
over $5 million.
received applications
The Group also donated $2 million to flood relief appeals and
accepted donations through all Commonwealth Bank branches
and online channels. The Australian community showed its
unwavering support for people in need, with the Group collecting
in excess of $44 million in donations from staff and customers.
Community Partnerships
The Group continued its support for cricket from the grandstands
to grassroots through its ongoing sponsorship of the One Day
International Cricket Series and its assistance for local cricket
56
Commonwealth Bank of Australia Annual Report 2011
clubs. In November 2010, the Group’s Grants for Grassroots
cricket programme rolled out for the second year, with over 200
local men’s, women’s, and children’s cricket clubs around
Australia receiving a $1,000 cash grant plus $750 worth of
equipment.
The number of grant applications increased by 43% from the
previous year’s programme.
The Fours and Sixes for Local Pitches initiative, which supported
cricket clubs that had been affected by the Queensland floods,
saw the Group donate $4,000 for every four and $6,000 for
every six hit during the Commonwealth Bank Series match at
the Gabba in Brisbane in January 2011. As a result, a total of
$188,000 was raised to help cricket clubs rebuild and get
players back on the pitch.
The Group’s Staff Community Fund, Australia’s longest running
workplace giving programme, drove a month-long campaign for
the Humour Foundation.
This raised more than $180,000 for the Clown Doctors, an
organisation that brings fun and humour to children’s hospitals
around Australia, using magic, mime and mimicry.
During Legacy Badge Week the Group sold Legacy Badges in
all branches nationally, helping raise over $90,000.
As the major sponsor of Clean Up Australia Day, the Group
hosted over 65 cleanup sites nationally in 2011.
The Group continued its major sponsorship of the Australian of
the Year Awards in 2011. In conjunction with these awards, the
Group developed a new programme – Launching Local Heroes.
This programme supports eight inspiring Australians – one from
each state and territory, all nominated for the Australian of the
Year Awards 2011, to have an even greater impact in the
community.
The Group aims to bring the arts to a broader range of people
from all backgrounds
through
enduring partnerships with Opera Australia, Australian Chamber
Orchestra, Bangarra Dance Theatre and, since June 2010, the
Museum of Contemporary Art.
in Australian communities
The Group continued its support of important health initiatives.
During the year, the Group helped raise more than $452,000 for
the Breast Cancer Institute of Australia from fundraising and the
sale of the Australian Women’s Health Diary in Commonwealth
Bank branches. The Group also continued its support of the
Prostate Cancer Foundation of Australia and their national ‘BBQ
for Prostate Cancer’ awareness campaign. During September
2010, International Prostate Cancer Awareness Month, the
Group surpassed $1 million of funds raised since the start of the
partnership in 1999.
For more
programmes the Group supports visit
information on
the
full
range of community
www.commbank.com.au/about-us.
Indigenous Commitment
During the year the Group has supported various indigenous
initiatives and programmes including participating in National
Aborigines and
Islanders Day Observance Committee
(NAIDOC) week, fundraising and support for the Australian
Indigenous Mentoring Experience (AIME), and the Bawaka
cultural programme in Arnhem Land, which has been attended
by some 60 employees including the Group’s CEO.
The Group is committed to supporting the indigenous enterprise
sector in Australia and working with the Australian Indigenous
to provide a direct
Minority Supplier Council’s (AIMSC)
link between Corporate
business-to-business purchasing
Australia, Government agencies and
indigenous-owned
businesses as well as increase its supply chain diversity.
Environment
Property Environmental Performance
located
The Group continued its shift to environmentally responsible
commercial properties with the construction of Commonwealth
in Sydney's Darling Walk precinct.
Bank Place,
Commonwealth Bank Place consists of two commercial A-grade
office spaces, the North and South Towers, each with eight
levels and retail areas on the ground floor. The first teams took
occupancy in June 2011.
is
Commonwealth Bank Place
targeting a number of
environmental performance ratings including a six star Green
Star rating for its base building office design, a five star Green
Star rating for office interiors and a five star NABERS Energy
rating
for energy use. The buildings adopt a range of
sustainability principles including state-of-the-art technology and
innovative features to help reduce energy consumption of the
facility by 50% and water consumption by 90%, while targeting
80% of waste to be recycled or diverted from landfill.
The buildings encompass multiple working style spaces to cater
for Activity Based Working, where employees choose to work in
the space best suited to the task they are doing at the time. To
maximise mobility, connectivity and efficiency, employees will be
equipped with the latest technology, including laptops with a
built-in webcam for video calls, a unified communication system,
LCD collaboration screens and smart boards, while having
access to a secure wireless network anywhere in the building.
More than 6,000 of the Group’s people will be located in
Commonwealth Bank Place’s North and South Tower buildings
by early 2012.
Managing Carbon Emissions
The Group continued to progress towards its 20% carbon
reduction target during the year, with a number of initiatives and
pilot programmes implemented to reduce the Group’s energy
and fuel consumption. Additional activities are set to be
implemented throughout the remainder of the calendar year and
beyond to further reduce the impacts of increased energy and
fuel prices. The Group remains confident in achieving its 20%
carbon emissions reduction target, from 2008-09 emission
levels, by mid 2013.
Reporting
The Group is subject to the National Greenhouse and Energy
Reporting (NGER) scheme. This provides a consistent reporting
framework for Australia’s greenhouse gas emissions. The
Energy Efficiency Opportunities (EEO) Act provides a framework
for identifying cost-effective energy savings. In October 2010,
the Group submitted its response to the NGER scheme and in
December 2010 published its Energy Efficiency Opportunities
Report 2010.
The Group once again voluntarily reported its carbon emissions
to the Carbon Disclosure Project (CDP) in May 2011. It was
announced as a global sector leader in the Carbon Disclosure
Leadership Index by achieving third place in world-standing for
carbon disclosure within the 2010 CDP Global 500 Report
released in September 2010.
Sustainability
Future Developments
The Group is committed to sustainability and is maintaining its
focus on delivering long term value and ensuring its policies and
practices support customers, staff,
the
community and rigorous corporate governance.
the environment,
The Group will publish its annual Sustainability Report in
October 2011 to share its sustainability performance. The
Sustainability Report 2011 will be available online at:
www.commbank.com.au/sustainability-reporting.
Commonwealth Bank of Australia Annual Report 2011
57
Sustainability
How the Group Performed
Metric (1)
Customers
Roy Morgan Research main financial institution customer satisfaction (2)
Rank
DBM Business Financial Services Monitor (3)
Rank
Wealth Insights Platform Service Level survey (4)
Rank
People
Absenteeism (Average days per full-time equivalent staff member) (5)
Employee turnover (voluntary) (6)
Gallup Survey GrandMean (7)
People and Culture Indicator (8)
Lost time injury frequency rate (LTIFR) (9)
Environment
Property and fleet carbon emissions total (tonnes CO2-e) (10)
2011
2010
2009
75.2%
4th
7.1
Equal 2nd
84.7%
1st
6.0
12.65%
4.30
4.30
1.9
75.6%
2nd
7.0
Equal 1st
86.5%
1st
5.9
12.73%
4.32
4.31
2.9
73.0%
3rd
-
-
84.1%
1st
5.9
11.37%
4.37
4.36
2.4
172,087
176,806
172,752
(1) All metrics capture data from Australian domestic operations only (excluding Bankwest), unless otherwise stated.
(2) The proportion of each financial institution’s MFI retail customers surveyed by Roy Morgan Research that are either ‘Very Satisfied’ or ‘Fairly Satisfied’ with their
overall relationship with that financial institution on a scale of 1 to 5 where 1 is ‘Very Dissatisfied’ and 5 is ‘Very Satisfied’. The metric is reported as a six months rolling
average to June, based on the Australian population aged 14 and over. The ranking refers to the Group’s position relative to the other three main Australian banks
(Westpac, NAB, and ANZ).The competitor set changed in 2010/11 to reflect the four major banks, rank adjustments have been applied historically.
(3) The average satisfaction of each financial institution’s MFI business customers surveyed by DBM Business Financial Services Monitor. Respondents rate their overall
satisfaction with that institution on a scale from 0 to 10 where 0 is ‘Extremely Dissatisfied’ and 10 is ‘Extremely Satisfied’. The metric is reported as a 6 month rolling
average as at June 2011. The ranking refers to the Group’s position relative to the other three major Australian banks. The Group began reporting business customer
satisfaction using the new industry currency, DBM Business Financial Services Monitor in August 2010, however DBM have provided top line back data from June
2010.
(4) The proportion of financial advisers giving the Colonial FirstChoice platform an overall satisfaction score of 7-10, on a scale of 1-10 where 1 is ‘Poor’ and 10 is
‘Excellent’, in the Wealth Insights Platform Service Level survey. Ranking captures the relative position of Colonial FirstChoice compared with bank peer master trusts
measured in the survey, based on the percentage of advisers giving 7-10 for overall satisfaction. Until 2010 this survey was known as the Wealth Insights
MasterTrust/Wrap survey.
(5) Absenteeism is the annualised figure as at 31 May each year. Absenteeism refers to the average number of sick leave days (and, for CommSec employees, carers’
leave days) per full-time equivalent (FTE), reported by domestic, permanent employees. FTE captures domestic, permanent employees (full-time, part-time, job share
or on extended leave).
(6) Employee turnover refers to all voluntary exits of domestic, permanent employees as a percentage of the average domestic, permanent headcount (full-time, part-
time, job share or on extended leave).
(7) The Gallup Survey GrandMean measures the average response, on a 5-point scale (where 5 is the most positive response), summarising the average (mean)
responses to the Gallup Q12 statements, given by employees in the People and Culture survey. The result captures the responses of domestic and international CBA
employees excluding those of Bankwest, ASB Bank and other overseas banking subsidiaries.
(8) The PCI measures the average response on a 5-point scale (where 5 is the most positive response), by summarising the average (mean) responses to 25 People
and Culture Survey statements comprising the Gallup Q12 statements and 13 additional statements selected by the Group, all of which measure progress towards
the Group’s cultural aspiration of trust and team spirit. The surveyed population is the same as for the Gallup GrandMean. The PCI was first measured in 2009.
(9) LTIFR is the reported number of occurrences of lost time arising from injury or disease that have resulted in an accepted workers compensation claim, for
each million hours worked by domestic employees. The metric captures claims relating to domestic employees only (permanent, casual and those
contractors paid directly by the Group). Data is complete as at 30 June each year, however it may be updated in future reports due to late reporting of
incidents that occurred during the year, or the subsequent acceptance or rejection of claims made in the year. To reflect this, the 2010 figure (previously
reported as 2.5) has been adjusted.
(10) Emissions relate to the consumption of electricity, gas and fuel (gasoline and diesel) by domestic retail and commercial properties, the business use of domestic tool-
of-trade vehicle fleet, dedicated bus services, business use of private vehicles, business use of hire cars and domestic ATMs. Due to the electricity billing cycle, 26%
of the 2010-11 electricity data was estimated to meet publication deadlines.
58
Commonwealth Bank of Australia Annual Report 2011
Introduction
This statement outlines the key aspects of the Commonwealth
Bank’s corporate governance framework. The Board has
consistently placed great importance on the governance of the
Group, which it believes is vital to its well-being. The Board has
adopted a comprehensive framework of Corporate Governance
Guidelines, designed to properly balance performance and
conformance. This enables the Group 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
Group comply with
“Corporate Governance
revised
Principles and Recommendations”, dated 30 June 2010,
released by the ASX Corporate Governance Council.
the
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 Group, including the
establishment of Committees;
• Oversight of the business and affairs of the Group by:
-
-
-
Establishing with management and approving the
strategies and financial objectives;
Approving major corporate and capital initiatives and
approving capital expenditure in excess of limits
delegated to management;
Overseeing the establishment of appropriate systems
of risk management including defining the Group’s
risk appetite and establishing appropriate financial
policies such as target capital and liquidity ratios; and
- Monitoring the performance of management and the
environment in which the Group operates;
Corporate Governance
•
•
•
Approving documents (including reports and statements to
shareholders) required by the Bank’s Constitution and
relevant regulation;
Employment of the Chief Executive Officer (CEO); and
Approval of the Group’s major HR policies and overseeing
the development strategies for senior and high performing
executives.
A copy of the Board Charter appears on the Group’s website.
The Board carries out the legal duties of its role in accordance
with the Group’s values of trust, honesty and integrity. It has
regard to the interests of the Group’s customers, people,
shareholders and the broader community in which the Group
operates at all times.
Delegation of Authority
The Board delegates to the CEO the authority to achieve the
its
Group’s objective of creating
through providing
shareholders
its
best-in-industry
and
customers
performance in safety, community reputation and environmental
impact.
long
term value
financial services
sustained
providing
for
to
The CEO is responsible for the day to day management of the
Group and maintaining a comprehensive set of management
delegations under
the Group’s Delegation of Authorities
framework. These delegations cover commitments around
project investment, operational expenditure and non-financial
activities or processes. They are designed to accelerate
decision-making and improve both efficiency and customer
service.
An overview of the Group’s Corporate Governance framework
is outlined below.
Corporate Governance Framework
Independent advice
and assurance
available
Board of Directors
Delegated
authority
CEO
Independent
Directors
CEO
Accountable through
reporting obligations
Provides advice to the CEO
on key decisions made
under management
delegation
Management
delegated
authority
Board Committees
Executive Committee
Audit
Risk
Board Performance
and Renewal
People &
Remuneration
Commonwealth Bank of Australia Annual Report 2011
59
Corporate Governance
Composition
There are currently eleven 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 Membership
Position Title
Committee Membership
Chairman
Board Performance
and Renewal
Chairman
People &
Remuneration
Member
Director
D J Turner
R J Norris
J A Anderson
C R Galbraith
J S Hemstritch
S C H Kay
A M Mohl
F D Ryan
H H Young
B J Long (1)
L K Inman (2)
Non-Executive,
Independent
Executive
Non-Executive,
Independent
Non-Executive,
Independent,
Non-Executive,
Independent
Non-Executive,
Independent
Non-Executive,
Independent
Non-Executive,
Independent
Non-Executive,
Independent
Non-Executive,
Independent
Non-Executive,
Independent
Chief Executive Officer
-
-
Member
-
-
-
-
-
-
-
-
Member
-
-
-
-
-
-
-
Audit
-
-
-
Risk
Member
Member
Member
Member
Member
-
-
-
Chairman
-
Member
Member
Member
Member
Member
-
Member
-
-
-
-
Chairman Member
Member
Chairman
Member
Member
-
Member
(1) Mr Long was appointed to the Board with effect from 1 September 2010. He was elected at the Annual General Meeting held 26 October 2010.
(2) Ms Inman was appointed to the Board with effect from 16 March 2011. In accordance with the Bank’s Constitution and the ASX Listing Rules, she will stand for
election at the Annual General Meeting to be held on 8 November 2011.
Constitution
The Constitution of the Bank specifies that:
•
•
•
The CEO 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 thirteen (or such lower number as the Board
may from time to time determine). The Board has
determined that the number of Directors shall be eleven;
and
At each Annual General Meeting (AGM) one third of
Directors (other than the CEO) shall retire from office and
may stand for re-election.
The Board has established a policy that the term of Directors’
appointments would be limited to 12 years (except where
succession planning for Chairman and appointment of Chairman
requires an extended term). On appointment, the Chairman will
be expected to be available for that position for five years.
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.
Directors are required to conduct themselves in accordance with
the ethical policies of the Group. They are required to be
meticulous in their disclosure of any material contract or
relationship in accordance with the Corporations Act 2001. This
disclosure extends to the interests of family companies and
spouses. Directors are also 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 2001 and the Group’s policies. Each Director
60
Commonwealth Bank of Australia Annual Report 2011
may from time to time have personal dealings with the Group.
Each Director could be involved with other companies or
professional firms which may from time to time have dealings
with the Group. Details of offices held by Directors with other
organisations are set out in the Directors' Report and on the
Group's website. Full details of related party dealings are set out
in the notes to the Financial Statements as required by law.
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
In
•
The specific disclosures made by each Director as referred
to above;
• Where applicable, the related party dealings referrable to
•
•
•
•
each Director;
That no Director is, or has been associated directly with, a
substantial shareholder of the Bank;
That no Non-Executive Director has ever been employed
by the Bank or any of its subsidiaries;
That no Director is, or has been associated with, a supplier,
professional adviser, consultant to or customer of the
Group which is material under accounting standards; and
That no Non-Executive Director has a material contractual
relationship with the Group other than as a Director of the
Bank.
Education
in an
Directors participate
induction programme upon
appointment and in a refresher programme on a regular basis.
This programme of continuing education ensures that the Board
is kept up to date with developments in the industry both locally
and globally. It also includes sessions with local and overseas
experts in the particular fields relevant to the Group’s operations.
Review
The Board has an annual process for reviewing its own
performance, policies and practices. These reviews seek to
identify where improvements can be made. They also assess
the quality and effectiveness of information made available to
Directors. The review process includes an assessment of the
performance of the Board Committees and each Director. Every
two years, this process is facilitated by an external consultant,
with an internal review conducted in the intervening years.
the performance
After consideration of
assessment, the Board will determine its endorsement of the
Directors to stand for re-election at the next AGM.
results of
the
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 CEO’s performance and
remuneration which is conducted by the Board in the absence of
the CEO.
in accordance with
Performance evaluations
the above
processes have been undertaken during the year. Details on
management performance evaluations are contained in the
Remuneration Report section of the Directors’ Report.
Board Performance and Renewal Committee
the composition and effectiveness of
The Board Performance and Renewal Committee reviews
annually the corporate governance procedures of the Group. It
the
considers
Commonwealth Bank of Australia Board and also 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, with the CEO attending the meeting by
invitation.
A copy of the Board Performance and Renewal Committee
Charter appears on the Group’s website.
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. These are aimed at creating a
Board capable of challenging, stretching and motivating
management to achieve sustained, outstanding 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 Group. Each
Director should:
•
•
•
•
•
•
and
exhibit
outstanding
performance
Be capable of operating as part of an exceptional team;
Contribute
impeccable values;
Be capable of inputting strongly to risk management,
strategy and policy;
Provide an appropriate mix of skills, diversity and
experience required currently and for the future strategy of
the Group;
Be excellently prepared and
education;
Provide important and significant insights, input and
questions to management from their experience and skill;
and
receive all necessary
Vigorously debate and challenge management.
•
Professional intermediaries are engaged to identify a diverse
range of potential candidates for appointment as Directors
based on the identified criteria.
Corporate Governance
The Board Performance and Renewal Committee will assess
the skills, experience and personal qualities of these candidates
as well as take into consideration other attributes including
diversity to ensure that any appointment decisions are made in
line with the objectives of the Board and the Group’s Diversity
Policy. A copy of the Policy is available on the Group’s website.
Information on the Group’s diversity strategy can also be found
in the Sustainability section of this report.
Candidates who are considered suitable for appointment as
Directors by the Board Performance and Renewal Committee
are then recommended for decision by the Board and, if
appointed, will stand for election at the next AGM, in accordance
with the Constitution.
The Group 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. These
include 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 Group’s website.
Policies
Board policies relevant to the composition of Committees and
functions of Directors include:
•
•
•
•
•
•
•
The Board will consist of a majority of independent Non-
Executive Directors;
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;
The Chairman will be an independent Non-Executive
Director;
The Audit Committee will be chaired by an independent
Non-Executive Director other than the Chairman;
The Board will meet on a regular and timely basis. The
agenda will provide adequate information about the affairs
of the Group. It also enables the Board to guide and
monitor management, and assist in its involvement in
discussions and decisions on strategy. Strategic matters
are given priority on the agenda for regular Board
meetings. In addition, ongoing strategy is the major focus
of at least one Board meeting annually;
The Board has an agreed policy on the basis on which
Directors are entitled to obtain access to Group documents
and information, and to meet with management; and
The Group has in place a procedure whereby, after
appropriate consultation, Directors are entitled to seek
independent professional advice, at the expense of the
Group, to assist them to carry out their duties as Directors.
The policy of the Group 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
Commonwealth Bank of Australia Annual Report 2011
61
Corporate Governance
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 Group have been supplemented by the Board
adopting guidelines which further limit any such dealings by
Directors, their spouses, any dependent child, family company
or family trust.
The guidelines provide, that in addition to the requirements that
Directors not deal in the securities of the Group 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 AGM until 14 days after the AGM. The guidelines also
require that Directors do not deal on the basis of considerations
of a short term nature or to the extent of trading in those
securities. Similar restrictions apply to Executives of the Group,
which is in addition to the prohibition of any trading (including
hedging) in positions prior to vesting of shares or options.
Directors and Executives who report to the CEO are also
prohibited from:
•
•
Any hedging of publicly disclosed shareholding positions;
and
Entering into or maintaining arrangements for margin
borrowing, short selling or stock lending, in connection with
the securities of the Group.
In June 2010, the Board approved a revised Group Securities
Trading Policy, which replaced the guidelines. This policy
applied to all Directors, employees and contractors of the Group
from 21 September 2010. A copy of the policy is available on the
Group’s website.
Remuneration Arrangements
Details of the governance arrangements and policies relevant to
remuneration are set out in the Remuneration Report.
Audit Arrangements
Audit Committee
The purpose of the Audit Committee is to assist the Board in
fulfilling its statutory and fiduciary responsibilities. It provides an
objective and independent review of the effectiveness of the
external reporting of financial information and the internal control
environment of the Group, as well as obtaining an understanding
of the tax and accounting risks which face the Group. The Audit
Committee is responsible for the oversight of accounting
policies, professional accounting requirements, internal audit
(GAA), external audit, APRA statutory and regulatory reporting
requirements, and the appointment of the external auditor.
The Charter of the Audit Committee incorporates a number of
policies and practices
is
to ensure
independent and effective.
the Committee
that
These include:
•
least
The Audit Committee shall comprise at
three
members. All members must be Non-Executive,
Independent Directors and be financially literate. At least
one member should have relevant qualifications and
experience as
the ASX Corporate
to
Governance Principles and Recommendations;
referred
in
62
Commonwealth Bank of Australia Annual Report 2011
The chairman of the Audit Committee may not be the
Chairman of the Board. The term of each member will be
determined by the Board through annual review. The Risk
Committee chairman will be a member of the Audit
Committee and vice-versa to ensure the flow of relevant
information between the two committees;
• Meetings will be at least quarterly and as required. The
external auditor will be invited to all meetings.
•
• Meetings will be held from time to time with GAA and the
external auditor without management or others being
present;
The Committee has the power to call attendees as
required, including open access to management, GAA,
external audit and the right to seek explanations and
additional information;
Senior management and the internal and external auditor
have free and unfettered access to the Audit Committee
with the Group Auditor having a direct reporting line, whilst
maintaining a management reporting line to the Chief
Financial Officer; and
•
•
It has the option, with the concurrence of the Chairman of
the Board, to retain independent legal, accounting or other
advisors to the extent the Committee considers necessary
at the Group’s expense.
A copy of the Audit Committee Charter appears on the Group’s
website.
Auditor
PricewaterhouseCoopers (PwC) was appointed as the external
auditor of the Bank at the 2007 AGM, effective from the
beginning of the 2008 financial year.
The PwC audit partner will attend the 2011 AGM and be
available to respond to shareholder questions relating to the
external audit.
The Group requires that the partner managing the external audit
be changed after a period of no longer than five years, in line
with current regulations.
The Group and its external auditor must continue to comply with
U.S Auditor independence requirements. U.S. Securities and
Exchange Commission (SEC) rules still apply to various
activities that the Group continues to undertake in the United
States, notwithstanding the Bank’s de-registration under the
Exchange Act.
Non-Audit Services
the Audit
The External Auditor Services Policy requires
Committee (or its delegate) to approve all audit and non-audit
services before engaging the external auditors to perform the
work. The policy also prohibits the external auditors from
providing certain services to the Group or its affiliates. The
objective of this policy is to avoid prejudicing the independence
of the external auditors.
The policy is designed to ensure that the external auditors do
not:
•
•
•
•
•
•
Assume the role of management or act as an employee;
Become an advocate for the Group;
Audit their own work;
Create a mutual or conflicting interest between themselves
and the Group;
Require an indemnification from the Group to themselves;
Seek contingency fees; nor
Corporate Governance
•
Have a direct financial or business interest or a material
indirect financial or business interest in the Group or any of
its affiliates, or an employment relationship with the Group
or any of its affiliates.
Under the policy, the external auditor shall not provide certain
services including the following services:
The CEO and the Chief Financial Officer have given the Board
their declaration in accordance with section 295A of the
Corporations Act 2001 and confirmation that the declaration is
founded on a sound system of risk management and internal
control and also that the system is operating effectively in all
material respects in relation to financial risks.
•
•
•
•
Bookkeeping or other services relating to accounting
records or Financial Statements of the Group;
Financial information systems design and implementation;
Appraisal or valuation services (other than certain tax only
valuation services) and fairness opinions or contribution-in-
kind reports;
Actuarial services unless approved in accordance with
independence guidelines;
Internal audit outsourcing services;
•
• Management functions, including acting as an employee
Risk Committee
The Risk Committee oversees the Group’s risk management
framework. This includes credit, market (including traded interest
rate risk in the banking book, lease residual values, non-traded
equity and structural foreign exchange), liquidity, funding,
operational,
risks
assumed by the Group in the course of carrying on its business.
the
It
measurement of risk and the adequacy and effectiveness of the
Group’s risk management and internal controls systems.
insurance, compliance and
from management on
regulatory
reviews
regular
reports
•
•
•
•
•
•
•
and secondment arrangements;
Human resources;
Broker-dealer, investment adviser or investment banking
services;
Legal services;
Expert services for the purpose of advocating the interests
of the Group;
Services relating to marketing, planning or opining in favour
of the tax treatment of certain transactions;
Tax services in connection with certain types of tax
transactions;
Tax services to individuals, and any immediate family
members of any individuals, in a Financial Reporting
Oversight Role; and
Certain corporate recovery and similar services.
•
In general terms, the permitted services are:
•
•
•
•
the
Audit services to the Group or an affiliate;
Related services connected with
lodgement of
statements or documents with the ASX, ASIC, APRA or
other regulatory or supervisory bodies;
Services reasonably related to the performance of the audit
services;
Agreed-upon procedures or comfort letters provided by the
external auditor to third parties in connection with the
Group’s financing or related activities; and
• Other services pre-approved by the Audit Committee.
Risk Management
Risk Management governance originates at Board level, and
cascades through to the CEO and businesses, via policies and
delegated authorities. This ensures Board level oversight and a
clear segregation of duties between those who originate and
those who approve risk exposures. Independent review of the
risk management framework is carried out through GAA.
The Board and its Risk Committee operate under the direction of
their respective charters. The Board Charter stipulates, amongst
other things that:
•
•
The Board is responsible for “overseeing the establishment
of systems of risk management by approving accounting
policies, financial statements and reports, credit policies
and standards, risk management policies and procedures
and operational risk policies and systems of internal
controls”; and
The CEO is responsible for “implementing a system,
including a system of internal controls and audits, to
identify and manage risks that are material to the business
of the Group”.
Strategic risks are governed by the Board, with input from the
various Board sub-committees. Tax and accounting risks are
governed by the Audit Committee.
A key purpose is to help formulate the Group’s risk appetite for
consideration by the Board, and agreeing and recommending a
risk management framework to the Board that is consistent with
the approved risk appetite.
This framework, which is designed to achieve portfolio outcomes
consistent with the Group’s risk-return expectations, includes:
•
•
High-level risk management policies for each of the risk
areas it is responsible for overseeing; and
A set of risk limits to manage exposures and risk
concentrations.
The Committee monitors management’s compliance with the
Group risk framework (high-level policies and limits). It also
makes recommendations on the key policies relating to capital
(that underpin the Internal Capital Adequacy Assessment
Process), liquidity and funding. These are overseen and
reviewed by the Board on at least an annual basis.
The Committee also monitors the health of the Group’s risk
culture, and reports any significant issues to the Board.
As part of the remuneration policy, the Risk Committee provides
written input to the People & Remuneration Committee to assist
in the alignment of executive remuneration with appropriate risk
behaviours.
The Committee reviews significant correspondence between the
Group and its regulators, receives reports from management on
the Group’s regulatory relations and reports any significant
regulatory issues to the Board.
Levels of insurance cover on insurance policies maintained by
the Group to mitigate some operational risks are disclosed to the
Risk Committee for comment.
The Risk Committee charter states that the Committee will meet
at least quarterly, and as required. In practice this is at least six
times a year. To allow it to form a view on the independence of
the function, the Risk Committee meets with the Group Chief
Risk Officer (CRO) in the absence of other management at least
annually or at the will of the Committee or the CRO. The
chairman of the Risk Committee provides a report to the Board
following each Committee meeting.
A copy of the Risk Committee charter appears on the Group’s
website.
Framework
The Group has an integrated risk management framework in
place to identify, assess, manage and report risks and risk
adjusted returns on a consistent and reliable basis.
Commonwealth Bank of Australia Annual Report 2011
63
Corporate Governance
A description of the functions of the framework and the nature of
the risks is set out in the Risk Management section of the
Annual Report and in Notes 38 to 41 to the Financial
Statements.
Continuous Disclosure
Market matters which could be expected to have a material
effect on the price or value of the Company’s securities must be
disclosed under the Corporations Act 2001 and the ASX Listing
Rules. The Group’s “Guidelines for Communication between the
Bank and Shareholders” is available on the Group’s website.
These set 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.
Continuous Disclosure policy and processes are in place
throughout the Group to ensure that all material matters which
may potentially require disclosure are promptly reported to the
CEO, 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 ASX Listing
Rules, advised to the market. A Disclosure Committee has also
been formed to provide advice on 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.
Shareholder Communication
The Group believes it is very important for its shareholders to
make informed decisions about their investment in the Group. In
order for shareholders to have an understanding of the business
operations and performance, the Group seeks to provide
shareholders with access to quality information in a timely
fashion. This will be communicated in the form of:
Interim and final results;
Annual Reports;
Shareholder newsletters;
AGM;
•
•
•
•
• Quarterly trading updates and Business Unit briefings
•
where considered appropriate;
All other price sensitive information will be released to the
ASX in a timely manner; and
The Group’s website at www.commbank.com.au.
•
range of communication
The Group employs a wide
approaches. These
include direct communication with
shareholders, publication of all relevant Group information on the
shareholder centre section of the website and webcasting of
most market briefings for shareholders. Upcoming webcasts are
announced
the market via ASX announcements and
publicised on the website to enable interested parties to
participate. In order to make its general meetings more
accessible to shareholders, the Group moves the location
between Australian capital cities each year and live webcasts
are available for viewing online. These actions are aimed at
encouraging shareholder participation at general meetings.
to
A summary record of issues discussed at one-on-one or group
meetings with investors and analysts, including a record of those
present, time and venue of the meeting, are kept for internal
reference only.
The Group is committed to maintaining a level of disclosure that
meets the highest of standards and provides all investors with
timely and equal access to information.
64
Commonwealth Bank of Australia Annual Report 2011
Ethical Policies
The values of the Group are trust, honesty and integrity. The
Board carries out its legal duties in accordance with these values
and having appropriate regard to the interests of the Group’s
customers, shareholders, people and the broader community in
which the Group operates.
Policies and codes of conduct have been established by the
Board and the Group Executive team to support the Group’s
objectives, vision and values.
Statement of Professional Practice
The Group has adopted a code of ethics, known as a Statement
of Professional Practice. This sets standards of behaviour
required of all employees and directors including:
•
•
•
•
To act properly and efficiently in pursuing the objectives of
the Group;
To avoid situations which may give rise to a conflict of
interest;
To know and adhere to the Group’s Equal Employment
Opportunity policy and programmes;
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 our people. The
Group has also established insider trading guidelines for our
people to ensure that unpublished price-sensitive information
about the Group or any other company is not used in an illegal
manner or so that inside information could be used for personal
advantage.
Our People
There are various policies and systems in place to enable our
people to carry out their duties in accordance with the values of
the Group. These include:
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
•
Information on the Group’s diversity strategy can be found in the
Sustainability section of this report.
Supporting Professional Development.
Behaviour Policy
to complying with
The Group is strongly committed to maintaining an ethical
workplace and
legal and ethical
responsibilities. Policy requires our people to report fraud,
corrupt conduct, mal-administration or serious and substantial
waste by others. A system has been established which allows
our people to remain anonymous, if they wish, for reporting of
these matters.
The policy has been extended to include reporting of auditing
and accounting issues. These are reported to the Chief
Compliance Officer by
the Chief Security Officer, who
administers the reporting and investigation system. The Chief
the Audit
Security Officer reports any such matters
Committee, noting the status of resolution and actions to be
taken.
to
Corporate Governance
Code of Conduct
The Board will operate in a manner reflecting the Group’s values
and in accordance with its agreed corporate governance
guidelines, the Bank’s Constitution, the Corporations Act and all
other applicable regulations.
The Board employs and requires at all levels, impeccable
values, honesty and openness. Through its processes, it
achieves transparent, open governance and communications
under all circumstances, with both performance and
conformance addressed.
The Board’s policies and codes include detailed provisions
dealing with:
•
•
•
The interface between the Board and management to
ensure there is effective communication of the Board’s
views and decisions, resulting in motivation and focus
towards long term shareholder value behaviours and
outcomes;
Disclosure of relevant personal interests so that potential
conflict of
identified and
appropriate action undertaken to avoid compromising the
independence of the Board; and
Securities dealings in compliance with the Group’s strict
guidelines and in accordance with the values of honesty
and integrity.
interest situations can be
Website
The Group’s Corporate Governance statement can be viewed at
www.commbank.com.au > About us > Shareholders >
Corporate Profile.
The current charters and summary of policies and guidelines
referred to in this statement are also published on this section of
this website.
Commonwealth Bank of Australia Annual Report 2011
65
Directors’ Report
The Directors of the Commonwealth Bank of Australia submit their report, together with the financial report of the Commonwealth Bank
of Australia (the Bank) and of the Group, being the Bank and its controlled entities, for the year ended 30 June 2011.
The names of the Directors holding office during the financial year are set out below, together with details of Directors’ experience,
qualifications, special responsibilities and organisations in which each of the Directors have declared an interest.
David J Turner, Chairman
Mr Turner was appointed to the Board in August 2006 and has
been Chairman since February 2010. He is Chairman of the
Board Performance and Renewal Committee and a member of
the Risk Committee and the People & Remuneration Committee.
Director: Great Barrier Reef Foundation and O’Connell Street
Associates.
Other Interests: Institute of Chartered Accountants in England
and Wales (Fellow).
Mr Turner is a resident of New South Wales. Age 66.
Mr Turner has extensive experience in finance, international
business and governance. He was Chairman of Cobham plc
from May 2008 until May 2010. He was CEO of Brambles
Limited from October 2003 until his retirement in June 2007 and
formerly CFO from 2001 to 2003. He was also Finance Director
of GKN plc, Finance Director of Booker plc and spent six years
with Mobil Oil.
Mr Turner has also been a Non Executive Director of Whitbread
plc, Director of the Iron Trades Insurance Group and Member of
the Quotations Committee of the London Stock Exchange.
Ralph J Norris, KNZM, Managing Director and Chief Executive Officer
Mr Norris was appointed as Managing Director and Chief
Executive Officer effective September 2005. From 2002, Mr
Norris was Chief Executive Officer and Managing Director of Air
New Zealand having been a Director of that Company since
1998. He retired from that Board in 2005 to take up his position
with the Group. He is a member of the Risk Committee.
Mr Norris has 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.
Sir John A Anderson, KBE
Sir John joined the Board in March 2007. He is a member of the
Risk Committee and Board Performance and Renewal
Committee. Sir John is a highly respected business and
community leader, having held many senior positions in the New
Zealand finance industry including Chief Executive Officer 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
“Outstanding Leadership
inaugural Blake Medal
the
Contributions to New Zealand”.
for
Chairman: Australian Bankers’ Association and Comm-
Foundation Pty Limited.
Director: Business Council of Australia and Financial Markets
Foundation for Children.
Interests: New Zealand
Other
(Fellow) and New Zealand Computer Society (Fellow).
Institute of Management
Mr Norris is a resident of New South Wales. Age 62.
Chairman: Television New Zealand Limited, New Zealand
Venture Investment Fund, National Property Trust Limited and
PGG Wrightson Limited.
Other Interests: Institute of Financial Professionals New
Zealand (Fellow), Institute of Directors (Fellow), New Zealand
Institute of Chartered Accountants (Fellow), Australian Institute
of Banking and Finance (Life Member).
Sir John is a resident of Wellington, New Zealand. Age 66.
Colin R Galbraith, AM
Mr Galbraith has been a member of the Board since June 2000
and is a member of the Risk Committee, Audit Committee and
Board Performance and 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.
Interests: CARE Australia
Other
Melbourne Hospital Neuroscience Foundation (Trustee).
(Director) and Royal
Mr Galbraith is a resident of Victoria. Age 63.
66
Commonwealth Bank of Australia Annual Report 2011
Directors’ Report
Director: The Global Foundation, Victorian Opera Company
Limited, Tabcorp Ltd and Santos Ltd.
Other Interests: Institute of Chartered Accountants in Australia
(Fellow), Institute of Chartered Accountants in England and
Wales (Fellow), Australian Institute of Company Directors
(Fellow), Chief Executive Women Inc. (Member), Walter and
Eliza Hall Institute Financial Sustainability Committee (Member),
Council of Governing Members of The Smith Family and
CEDA’s Policy and Research Committee (Member) and Council
of the National Library of Australia (Member).
Ms Hemstritch is a resident of Victoria. Age 57.
Director: Allens Arthur Robinson, Brambles Industries Limited,
Infrastructure NSW and Sydney Institute.
Other Interests: Australian Institute of Company Directors
(Fellow) and Chief Executive Women’s Inc (Member).
Ms Kay is a resident of New South Wales. Age 50.
Jane S Hemstritch
Ms Hemstritch was appointed to the Board effective October
2006. She
the People & Remuneration
Committee and a member of the Risk Committee.
is Chairman of
Ms Hemstritch was Managing Director - Asia Pacific for
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 Asia Pacific business portfolio. 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.
Carolyn H Kay
Ms Kay has been a member of the Board since March 2003 and
is also a member of the Audit, People & Remuneration and Risk
Committees.
Ms Kay holds Bachelor Degrees in Law and Arts and a
Graduate Diploma in Management. She has over 25 years of
experience in Finance, particularly in International Finance,
including working as both a banker and a lawyer at Morgan
Stanley, JP Morgan and Linklaters & Paines in London, New
York and Australia.
Brian J Long
Mr Long was appointed to the Board effective September 2010.
Director: Cantarella Bros, Pty Ltd
He is a member of the Audit and Risk Committees.
Chairman: Ten Network Holdings Limited
Mr Long retired as a partner of Ernst & Young in June 2010.
Until that time he was the Chairman of both the Global Advisory
Council and of the Oceania Area Advisory Council. He was one
of the firm’s most experienced audit partners with over 30 years
experience in serving as audit signing partner on major
Australian public companies including those in the financial
services, property, insurance and media sectors.
Other Interests: Institute of Chartered Accountants in Australia
(Fellow), Chairman of United Way Australia, Member of Council
and Chairman of Audit Committee for each of the National
Library of Australia and the University of NSW.
Mr Long is a resident of New South Wales. Age 65.
Andrew M Mohl
Mr Mohl was appointed to the Board effective July 2008 and is a
member of the Risk and People & Remuneration Committees.
Chairman: Federal Government Export Finance and Insurance
Corporation.
He has over 30 years of financial services experience. Mr Mohl
was Managing Director and Chief Executive Officer of AMP
Limited from October 2002 until December 2007.
Mr Mohl’s previous roles at AMP included Managing Director of
AMP Financial Services and Managing Director and Chief
Investment Officer of AMP Asset Management.
Mr Mohl was a former Group Chief Economist, Chief Manager,
Retail Banking and Managing Director of ANZ Funds
Management at ANZ Banking Group. He began his career at the
Reserve Bank of Australia where his roles included Senior
Economist and Deputy Head of Research.
Director: AMP Foundation.
Interests: Coaching services
Other
to Chief executives,
Member of the Board of Governors for the Committee of
Economic Development of Australia, the Advisory Council of the
Australian School of Business at the University of New South
Wales and the Corporate Council of the European Australian
Business Council.
Mr Mohl is a resident of New South Wales. Age 55.
Commonwealth Bank of Australia Annual Report 2011
67
Directors’ Report
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.
Harrison H Young
Mr Young has been a member of the Board since February
2007. He is Chairman of the Risk Committee and a member of
the Audit Committee.
From 2003 to 2007, Mr Young was Chairman of Morgan Stanley
Australia, and from 1997 to 2003 Vice Chairman of Morgan
Stanley Asia. Prior to that, he spent two years in Beijing as Chief
Executive Officer of China International Capital Corporation.
From 1991 to 1994 he was a senior officer of the Federal
Deposit Insurance Corporation in Washington.
Launa K Inman
Ms Inman was appointed to the Board effective March 2011. She
is a member of the Risk Committee.
Ms Inman has been Managing Director of Target Australia Pty
Limited since 2005. Prior to that appointment, Ms Inman was
Managing Director of Officeworks.
Ms Inman won the 2003 Telstra Australian Business Woman of
the Year and was winner of the Commonwealth Government
Private and Corporate Sector Award.
Director: Australian Foundation Investment Company Limited,
and Centre for Social Impact.
Other Interests: Chairman of the Advisory Council of the
Global Foundation, Committee for Melbourne (Counsellor) and
Pacific Institute (Patron).
Mr Ryan is a resident of Victoria. Age 68.
Chairman: NBN Co Limited and Better Place (Australia) Pty
Limited.
Director: Bank of England and Financial Services Volunteer
Corps.
Mr Young is a resident of Victoria. Age 66.
Other Interests: Australian Institute of Company Directors
(Member), Chief Executive Women Inc. (Member), Australian
Institute of Management (Member) and World Retail Congress
Advisory Board (Member).
Ms Inman is a resident of Victoria. Age 55
Other Directorships
The Directors held directorships on listed companies within the last three years as follows:
Director
D J Turner
J A Anderson
Company
Cobham plc
PGG Wrightson Ltd (NZ)
National Property Trust (NZ)
C R Galbraith
OneSteel Limited
J S Hemstritch
Tabcorp Holdings Limited
Santos Limited
S C H Kay
Brambles Industries Limited
B J Long
F D Ryan
Ten Network Holdings Limited
Australian Foundation Investments Company Limited
08/08/2001
Date Appointed
01/12/2007
Date of Ceasing
(if applicable)
06/05/2010
01/04/2010
01/04/2011
25/10/2000
13/11/2008
16/02/2010
01/06/2006
01/07/2010
-
-
-
-
-
-
-
-
68
Commonwealth Bank of Australia Annual Report 2011
Directors’ Meetings
The number of Directors’ meetings (including meetings of committees of Directors) and number of meetings attended by each of the
Directors during the financial year were:
Directors’ Report
Director
D J Turner
R J Norris
J A Anderson
C R Galbraith
J S Hemstritch
S C H Kay
B J Long (2)
A M Mohl
F D Ryan
H H Young
L K Inman(3)
No. of Meetings
Held (1)
11
11
11
11
11
11
9
11
11
11
3
No. of Meetings
Attended
11
11
10
11
11
11
9
11
11
10
3
(1) The number of meetings held during the time the Director was a member of the Board and was eligible to attend.
(2) Mr Long was appointed effective 1 September 2010.
(3) Ms Inman was appointed effective 16 March 2011.
Committee Meetings
Risk Committee
Audit Committee
People & Remuneration
Committee
No. of Meetings
Held (1)
6
6
6
6
6
6
5
6
6
6
1
No. of Meetings
Attended
6
6
5
6
6
5
5
6
5
6
1
No. of Meetings
Held (1)
-
-
-
6
-
6
5
-
6
6
-
No. of Meetings
Attended
-
-
-
6
-
6
5
-
6
6
-
No. of Meetings
Held (1)
9
-
-
-
9
9
-
9
-
-
-
No. of Meetings
Attended
9
-
-
-
9
8
-
9
-
-
-
Board Performance and Renewal
Committee
No. of Meetings
Held (1)
7
7
7
No. of Meetings
Attended
7
7
7
Director
D J Turner
R J Norris
J A Anderson
C R Galbraith
J S Hemstritch
S C H Kay
B J Long
A M Mohl
F D Ryan
H H Young
L K Inman
Director
D J Turner
J A Anderson
C R Galbraith
(1) The number of meetings held during the time the Director was a member of the relevant committee.
Principal Activities
The principal activities of the Group during the financial year were the provision of a broad range of banking and financial products and
services to retail, small business, corporate and institutional clients.
The Group conducts its operations primarily in Australia, New Zealand and the Asia Pacific region. It also operates in a number of other
countries including the United Kingdom and the United States.
There have been no significant changes in the nature of the principal activities of the Group during the financial year.
Commonwealth Bank of Australia Annual Report 2011
69
Directors’ Report
Consolidated Profit
Highlights included:
•
•
•
•
•
“Bank of the Year” in the 2011 Money Magazine Awards,
for the second year in a row;
Awarded the “Australian Financial Institution of the Year –
Major Banks” at the 2011 Australian Banking and Finance
Awards;
Continued investment spend, including the Core Banking
Modernisation
these customers now
enjoying the benefits of real time banking;
initiative with
The Group achieved a major milestone when its first
teams began working out of new state-of-the-art buildings
in Sydney’s Darling Harbour. This facility will be home to
over 6,000 staff by early next year; and
Bankwest was awarded the AFR Smart Investor 2010
“Bank of the Year award”.
There were no other significant changes in the state of affairs of
the Group during the financial year.
Events Subsequent to Balance Sheet date
On 22 July 2011, the Board announced the appointment of Ian
Narev to the role of Chief Executive Officer of the Bank upon
the retirement of Ralph Norris at the end of November 2011.
The Bank expects to issue approximately $733 million of
ordinary shares in respect of the DRP for the final dividend for
the year ended 30 June 2011.
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
The Group continues to implement its property strategy to
consolidate the Sydney metropolitan teams across three main
precincts: Sydney Central Business District, Sydney Olympic
Park and Parramatta. The first teams took occupancy in
Commonwealth Bank Place in June 2011 and more than 6,000
of the Group’s people will be located there by early 2012.
The buildings
in which employees are now being
accommodated are either newly constructed or substantially
refurbished, providing improved working environments, more
efficient use of space and greater open plan and collaborative
work spaces.
These changes have not had a material financial impact on the
Group’s results and it is not anticipated that the future relocation
will have a material impact on the Group’s results.
Business Strategies
Business strategies, prospects and future developments which
may affect the operations of the Group in subsequent years are
referred to in the Chief Executive Officer’s Statement.
In the opinion of the Directors, disclosure of any further
likely strategic developments would be
information on
unreasonably prejudicial to the interests of the Group.
The Group’s net profit after income tax and non controlling
interests for the year ended 30 June 2011 was $6,394 million
(2010: $5,664 million).
This result was achieved in a challenging environment where the
impacts of the GFC continue to linger. Credit growth remains at
historic lows, business and consumer confidence is fragile and
there is significant uncertainty in global markets.
Despite these difficult conditions, the Group, with its well
managed, diversified business model and strong and stable
financial platform, has delivered another solid result. This has
been supported by a continued disciplined approach to the
execution of the Group’s five strategic priorities and prudent
management in uncertain times.
Operating income growth was impacted by a low credit growth
environment, strong competition, particularly in the home lending
and deposit markets, together with difficult trading conditions for
the Markets and Wealth businesses.
Operating expenses were managed tightly, laying the platform
for continued investment in the business, including the effective
execution of the Core Banking Modernisation initiative which is
now past the half way stage, having achieved significant
milestones during the year.
Impairment expense continued to decrease as credit quality
gradually improved however some of the Group’s customers are
finding business conditions challenging. The Group has
maintained a conservative approach to provisioning.
There have been no significant changes in the nature of the
principal activities of the Group during the financial year.
Dividends
The Directors have declared a fully franked (at 30%) final
dividend of 188 cents per share amounting to $2,930 million.
The dividend will be payable on 6 October 2011 to shareholders
on the register at 5pm EST on 19 August 2011.
Dividends paid in the year ended 30 June 2011 were as follows:
•
•
In respect of the year to 30 June 2010, a fully franked final
dividend of 170 cents per share amounting to $2,633
million was paid on 1 October 2010. The payment was fully
comprised of cash disbursements of $2,633 million. This
included $679 million in respect of the DRP which was
satisfied in full by an on market purchase and transfer of
shares; and
In respect of the year to 30 June 2011, a fully franked
interim dividend of 132 cents per share amounting to
$2,045 million was paid on 1 April 2011. The payment
comprised direct cash disbursements of $1,532 million,
with $513 million being reinvested by participants through
the DRP.
Review of Operations
An analysis of operations for the financial year is set out in the
Highlights section and in the sections for Retail Banking
Services, Business and Private Banking, Institutional Banking
and Markets, Wealth Management, New Zealand, Bankwest
and Other Divisions.
Changes in State of Affairs
During the year, the Group continued to make significant
progress in implementing a number of initiatives designed to
ensure a better service outcome for the Group’s customers.
70
Commonwealth Bank of Australia Annual Report 2011
Environmental Reporting
Directors’ and Officers’ Indemnity
Directors’ Report
The Group is subject to the Federal Government’s National
Greenhouse and Energy Reporting (NGER) scheme. The
scheme makes it mandatory for controlling corporations to report
annually on greenhouse gas emissions, energy production and
energy consumption, if they exceed certain threshold levels. As
a result of a long history in voluntary environmental reporting,
the Group is well placed to meet the NGER requirements, and
its energy and emissions data
has
the
management and reporting systems
legislation.
recently updated
to comply with
The Group is also subject to the Energy Efficiency Opportunities
Act 2006 (EEO Act), which encourages large energy-using
businesses to improve their energy efficiency.
The Group, including several Colonial First State managed
funds, is required to comply with the EEO Act due to exceeding
certain energy consumption thresholds.
As required by the EEO Act, the Group lodged a five year
energy efficiency assessment plan and reported to Federal
Government on 31 December 2008. The Group is subsequently
required to report to the Federal Government every three years
and to release a public report annually, covering all preceding
years’ assessment outcomes.
The Group is not subject to any other particular or significant
environmental regulation under any law of the Commonwealth
or of a State or Territory, but can incur environmental liabilities
as a lender. The Group has developed policies to ensure this is
managed appropriately.
Directors’ Shareholdings and Options
Particulars of shares held by Directors and the Chief Executive
Officer in the Commonwealth Bank or in a related body
corporate are set out in the Remuneration Report within this
report.
No options have previously been granted to the Directors or
Chief Executive Officer. Refer to the Remuneration Report within
this report for further details.
Options outstanding
As at the date of this report there are 36,100 options outstanding
in relation to Commonwealth Bank ordinary shares. The expiry
date of the share options is 3 September 2011 and the exercise
price is $30.12.
There were 50,000 Commonwealth Bank ordinary shares issued
since the end of the financial year as a result of options being
exercised.
Persons holding outstanding options and rights in relation to
Commonwealth Bank ordinary shares are not entitled to
participate in any share issue or interest of the Commonwealth
Bank or any other body corporate as a result of those options or
share rights.
The names of all persons who currently hold options and share
rights are entered in the register kept by the Bank pursuant to
section 170 of the Corporations Act 2001. This register may be
inspected free of charge.
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.
The Directors, as named on pages 66 to 68 of this report, and
the Secretaries of the Bank, being J D Hatton and C F
Collingwood, are indemnified pursuant to the Constitution of
Commonwealth Bank of Australia (the Constitution), as are all
senior managers of the Bank.
Deeds of Indemnity have been executed by the Bank, consistent
with the Constitution, in favour of each Director of the Bank.
An Indemnity Deed Poll has been executed by the Bank,
consistent with the Constitution, in favour of each:
•
•
•
secretary and senior manager of the Bank;
director, secretary and senior manager of a related body
corporate of the Bank; and
person who, at the prior formal request of the Bank, acts as
director, secretary or senior manager of a body corporate
which is not a related body corporate of the Bank (in which
case the indemnity operates only excess of protection
provided by that body corporate).
In the case of a partly-owned subsidiary of the Bank, where a
director, secretary or senior manager of that entity is a nominee
of a third party body corporate which is not a related body
corporate of the Bank the Indemnity Deed Poll will not apply to
that person unless the Bank's CEO has certified that the
indemnity shall apply to that person.
Directors’ and Officers’ Insurance
The Bank has, during the financial year, paid an insurance
premium in respect of an insurance policy for the benefit of the
Bank and those named and referred to above including the
directors, secretaries, officers and certain employees of the
Bank and related bodies corporate as defined in the insurance
liabilities
policy. The
permitted to be indemnified by the Bank and the Group 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.
indemnity against
insurance grants
Rounding and presentation of amounts
The Bank is of the kind of entity referred to in ASIC Class Order
98/100 (as amended) pursuant to section 341(1) of the
Corporations Act 2001.
As a result, amounts in this Directors’ Report and the
accompanying financial statements have been rounded to the
nearest million dollars except where otherwise indicated.
The financial information included in this Annual Report, unless
otherwise indicated, has been prepared and presented in
accordance with Australian Accounting Standards. This ensures
compliance with International Financial Reporting Standards.
The Group manages its’ business performance using a “cash
basis” profit measure. The key items that are excluded from
statutory profit for this purpose are non-recurring or not
considered representative of the Group’s ongoing financial
performance. Profit on an “underlying basis” is used primarily in
the Wealth Management businesses. It provides a profit
measure that excludes the volatility of equity markets on
shareholder funds for a measure of core operating performance.
Commonwealth Bank of Australia Annual Report 2011
71
Directors’ Report – 2011 Remuneration Report
Message from the People & Remuneration Committee Chairman
Dear Shareholder
The People & Remuneration Committee has conducted
reviews of various aspects of remuneration in 2011, as a
cornerstone of our governance of CBA Group’s remuneration
arrangements.
This year we have also closely monitored the evolving
regulatory environment and emerging remuneration market
practices, both in Australia and other jurisdictions in which we
operate.
The Committee reviewed the Remuneration Framework for
the CEO and the Group Executives. We also considered
potential alternative frameworks.
in
that,
remuneration
this evolving environment, our
We concluded
executive
framework still provides an
appropriate balance of short term and long term remuneration,
and focuses executives on achieving our business strategy
and strategic priorities.
We met with representatives from the Australian Prudential
Regulation Authority (APRA) twice during the year to discuss
the Group’s remuneration arrangements and the Committee’s
role in managing risk within these arrangements.
During the year we also conducted detailed reviews of the
remuneration principles and policies that apply throughout the
Commonwealth Bank, as well as the governance of the
employee equity plans under which many of our deferred
awards are delivered.
At the same time we reviewed our Committee Charter, and
recommended only minor adjustments to the Board for
approval. Our Charter sets out the Committee’s role and
responsibilities.
We have introduced improvements to our remuneration
framework and practices to provide for the systematic review
of performance, risk and compliance across the Group.
Further, we have strengthened the Board’s existing broad
scope to manage individual performance, risk management
and compliance
remuneration outcomes and
adjustments.
through
During the year we also conducted a detailed review of our
funding policy for our corporate superannuation fund, the
OSF. Our revised policy best ensures our superannuation
obligations will continue to be properly funded, to the benefit of
all employees who choose
to be members. This
superannuation benefit continues to be an important part of
our overall employee value proposition for our employees in
Australia.
Throughout the year, the Committee dealt directly with its
independent remuneration consultant for input on the various
reviews we have undertaken, as well as in relation to the CEO
and Group Executives’ remuneration plans and outcomes.
While the Committee’s remuneration consultant provides
insight into market practice, remuneration levels and the very
complex components of
the Committee
ultimately formulates its own decisions, independent of its
consultant and also independent of management.
remuneration,
The Committee’s focus continues to be on achieving the most
effective remuneration framework for our varied businesses,
with transparency in design, strong governance and risk
oversight.
We do this to ensure the Group continues to earn the respect
of the community and our customers, while paying our people
to drive sustainable value for our shareholders.
Jane Hemstritch
Committee Chairman
72
Commonwealth Bank of Australia Annual Report 2011
Directors’ Report – 2011 Remuneration Report
The Information Provided in this Report
This report details the Group’s remuneration frameworks and 2011 outcomes for Key Management Personnel and Other Executives.
The information is set out in four sections:
Section
Information
2011 Remuneration in
Review
Provides an update of how our remuneration and governance frameworks are meeting the
challenges of the changing economic and regulatory environments.
Remuneration
Arrangements
Details the Group’s remuneration arrangements for Key Management Personnel and Other
Executives required for disclosure.
Statutory Remuneration
Disclosures
Discloses the 2011 remuneration for Key Management Personnel and Other Executives.
Glossary of Key terms
Provides a reference of key terms used in this report
Page
73
76
86
91
This report has been prepared and audited in accordance with the requirements of the Corporations Act 2001.
2011 Remuneration in Review
Our remuneration and governance frameworks are designed
to deliver on the Board’s remuneration philosophies for:
Non-Executive Directors;
CEO and Group Executives; and
•
•
• Other executives, including those disclosed in this
remuneration report.
This section provides shareholders with an update of how
those frameworks are meeting the continuing challenges of
the economic environment and regulatory change.
We explain how our remuneration frameworks have focused
executives’ efforts to deliver tangible results to our customers
and shareholders, results that are strong relative to our peers,
both
terms of our business strategy, and creating
sustainable shareholder value.
in
Non-Executive Directors
Key developments for 2011:
•
•
•
Brian Long was appointed to the Board effective
1 September 2010, and joined both the Audit and Risk
Committees;
Launa Inman was appointed to the Board effective 16
March 2011, and joined the Risk Committee; and
AON Hewitt continued as Independent Remuneration
Consultant to the People & Remuneration Committee.
Non-Executive Director Remuneration
to
We continue
line-up of skilled,
retain a strong
knowledgeable and experienced Directors. Non-Executive
Directors are remunerated in their role of providing strategic
leadership to the Group. They receive fees which are market
competitive compared to other large complex organisations,
and managed within a cap approved by shareholders.
Fees also reflect the scope of Directors’ roles, and the
responsibilities that come with those roles. As is appropriate
for such a role, Non-Executive Directors do not receive
incentive awards based on performance.
However, Non-Executive Directors continue to align their
remuneration to the performance of our share price and
dividend yield. They do this by receiving at least 20% of their
annual fees as Commonwealth Bank shares.
CEO and Group Executives
Key developments for 2011:
•
•
The Committee reviewed the remuneration framework
for the CEO and Group Executives; and
Barbara Chapman was appointed as Chief Executive
and Managing Director of the Group’s New Zealand
subsidiary ASB Bank Limited, with effect
from
26 April 2011.
Key achievements for 2011:
• Our 2011 financial performance was solid;
• We have delivered profitable growth through innovative
new product offerings, disciplined margin and cost
management, and continued selective expansion into
Asia;
• We are progressing towards our customer satisfaction
goals;
• We have achieved key milestones in our technology and
operations excellence strategy; and
• Our employees are engaged and committed to our
business strategy.
The achievements listed above are directly related to our
executive remuneration framework. The framework is based
on the strategic direction set by the Board, and articulated
through its executive remuneration philosophy.
Executive Remuneration Philosophy
1. We provide target remuneration which is market
competitive, without putting upward pressure on the
market.
The executive
components:
remuneration
framework has
three
•
Fixed Remuneration (including base remuneration and
employer superannuation);
Short term incentives; and
•
•
Together, these components make up an executive’s total
target remuneration.
Long term incentives.
When setting our target remuneration levels, we consider the
size of the role and its responsibilities. We also consider the
market for similar roles. To support this, we participate in a
range of executive remuneration surveys.
Our goal is always to remain competitive, and we generally
set target remuneration at the market median for similar roles
at peer organisations so that we can attract and retain high
calibre people.
Commonwealth Bank of Australia Annual Report 2011
73
Directors’ Report – 2011 Remuneration Report
We also aim to avoid adding pressure to the market. This is
particularly important for our most senior roles, given the small
size of the market for these types of roles in Australia and
New Zealand in particular.
2. We clearly articulate the link between individual and
Group performance and individual reward.
We clearly articulate to each executive the performance
objectives for each component of their performance-based
remuneration.
•
Short Term Incentives Drive Performance Over the
Financial Year.
Short term incentive performance objectives are managed
through a balanced scorecard approach. We select financial
and non-financial performance objectives and weight them in
support of our overall business strategy.
These performance objectives are then communicated to
each executive at the beginning of the performance year. This
effectively focuses each executive on our key performance
objectives because the short term incentive that they will
ultimately receive will depend on Group and individual
achievements against those objectives.
Executives’ performance evaluations are conducted following
the end of each financial year. Performance evaluations for
the 2011 financial year were conducted in July 2011. Similarly,
performance evaluations for the 2010 financial year were
conducted in July 2010.
•
Long Term Incentives Drive Performance Over Four
Years.
Long term incentives focus the CEO and Group Executives on
Group performance over the longer term. Performance
hurdles for our long term incentive plan have been specifically
chosen to support our business strategy, and to drive the long
term creation of shareholder value.
Performance hurdles must be achieved before an executive
can receive any value from this portion of their total target
remuneration.
Performance is measured over a four year period. For the
long term incentive award made during the 2011 financial
year:
• One quarter of the award measures our customer
satisfaction results relative to the peers with which we
compete for customers. Our research demonstrates a
direct relationship between high levels of customer
satisfaction and high levels of shareholder returns; and
•
The other
three quarters measures our Total
Shareholder Return relative to a set of peer companies
with which we compete for capital. Shareholder return is
a cornerstone of our remuneration philosophy.
This mix has a greater weighting on shareholder return than
the previous year’s award. This recognises the considerable
achievements already made in Customer Satisfaction by
1 July 2010 (the beginning of the performance period), and
sets meaningful goals to focus executives’ performance for
the four years to 30 June 2014.
3. We actively manage risks associated with delivering
and measuring short term performance.
All our activities are carefully managed within our risk appetite,
and individual incentive outcomes are reviewed and may be
reduced or even eliminated in light of any risk management
issues. Risk management is also built into our remuneration
74
Commonwealth Bank of Australia Annual Report 2011
that drives short
the
framework. Profit After Capital Charge (PACC)
performance measure
incentive
outcomes. This is important, as PACC is a risk-adjusted
measure. That is, it takes into account not just the profit
achieved, but also considers the risk to capital that was taken
to achieve it.
term
is
Risk is also managed by deferring half of the short term
incentive of the CEO and each Group Executive for one year.
This deferral serves two key purposes. Firstly, it is an
important retention mechanism which helps us manage the
risk of losing key executive talent. Secondly, it provides a
mechanism for the Board to reduce or cancel the deferred
component of a short
incentive where eventual
term
performance outcomes are materially lower than expected.
4. We align rewards with shareholder interests and our
business strategy.
We explained above how the performance objectives and
hurdles we have selected for our short term and long term
incentives align our executives’ rewards with:
•
shareholder interests, through shareholder returns and
other financial performance measures; and
our business strategy, through customer satisfaction.
•
Our results for 2011 are strong. Our one year Total
Shareholder Return is ranked in the top 25% of our peers.
The peer group
financial services
companies we compete with for customers and capital. We
continue to make progress in Customer Satisfaction across all
segments of our business compared with the position of a few
years ago.
includes
large
the
5. We provide flexibility to meet changing needs and
emerging market practice.
The framework also provides flexibility to make additional
payments to new executives and key executives at risk of
being enticed
to other organisations. An appropriate
governance framework exists to review and approve (or
reject) any such proposed awards.
The framework provides flexibility to tailor remuneration
arrangements in specialised parts of our business. This
includes the Other Executives disclosed in this report, whose
performance related remuneration arrangements recognise
the unique market practice of that business segment.
6. We provide appropriate entitlements on termination
that do not deliver any windfall payment.
Employment arrangements for the CEO, Group Executives
and the Other Executives disclosed in this report are set out in
individual employment agreements. These agreements
include the terms that will apply when an executive leaves the
Group.
Termination entitlements are set out on page 90 of this report.
They are appropriate and do not deliver windfall payments on
termination. As part of these arrangements, executives who
resign or are dismissed forfeit their long term incentive
awards.
Where an executive is retrenched or retires, the performance
periods of any outstanding long term incentive awards
continue unchanged, and the Board retains discretion to pro-
rate where appropriate. Performance is measured at the end
of the performance period in the normal way, and the Board
determines the portion of the remaining award that may vest.
Directors’ Report – 2011 Remuneration Report
2011 Executive Remuneration Outcomes Summary
CEO & Group Executives
The CEO and Group Executives receive a mix of remuneration,
with a portion paid during the year, and a portion received up to
four years later, depending on service and performance. This
can make it difficult for shareholders to get a clear picture of the
actual amount of remuneration an executive received in the
financial year in review.
To assist shareholders, table (a) below provides a clear report of
the remuneration the CEO and Group Executives actually
received in relation to the 2011 financial year. The table sets out
base remuneration, employer superannuation, the portion of the
2011 short term incentive that is not required to be deferred, and
the value of previous years’ deferred short term incentive and
long term incentive awards that vested during the 2011 financial
year.
The information provided in table (a) is different to the
information provided in the statutory remuneration table on
page 87, which has been prepared in accordance with the
accounting requirements and shows the accounting expense
incurred for the 2011 financial year of each component of
remuneration.
Table (b) provides a reconciliation in relation to the CEO of the
remuneration details set out in table (a) with the remuneration
information provided in the statutory remuneration table on
page 87.
(a) Remuneration in relation to the 2011 financial year
2011 STI for
Base Remuneration
(1)
& Superannuation
Performance to
(2)
30 June 2011
Previous years' awards that
vested during 2011
(3)
Total cash
2010 Deferred
payments
STI Awards
LTI Awards
$
$
$
$
$
3,120,000
1,638,000
4,758,000
1,944,465
5,780,000
800,000
865,000
1,350,000
1,050,000
1,250,000
900,000
1,150,000
1,330,000
1,400,000
508,667
523,542
827,213
548,888
647,657
488,250
488,750
613,463
798,350
1,308,667
1,388,542
2,177,213
1,598,888
1,897,657
1,388,250
1,638,750
1,943,463
2,198,350
487,510
527,692
671,608
607,646
767,552
543,683
703,589
831,515
895,477
-
1,190,000
1,360,000
1,190,000
1,700,000
357,410
1,530,000
684,162
2,067,546
Managing Director and CEO
Ralph Norris
Current Executives
Simon Blair
David Cohen
David Craig
Michael Harte
Ross McEwan
Ian Narev
Grahame Petersen
Ian Saines
Alden Toevs
(1) Base Remuneration and Superannuation make up an executive's Fixed Remuneration.
(2) This is the 50% of the 2011 short term incentive (STI) for performance during the 12 months to 30 June 2011, payable following year-end. The remaining 50% is
deferred until 1 July 2012.
(3) The value of deferred and/or long term incentive awards that vested during the 2011 financial year. This is calculated as the value of the award that vested, plus any
dividends (for equity awards) or interest (for cash awards) accrued during the vesting period.
(b) Cash payments from table (a) and non-cash remuneration expenses for the CEO
Cash remuneration received in relation to 2011 - refer to table (a) above
2011 STI deferred for 12 months at risk
Annual leave and long service leave accruals
Other Payments
Share based payments: accounting expense for 2011 for LTI awards made over the past 4 years
2009 GLSP:
Expense reflecting the final vesting level for the award (see page 85)
2010 GLRP:
Expense for 2 awards that may vest subject to improved customer satisfaction performance
2010 GLRP:
Expense for 2 awards that may vest subject to improved relative TSR performance
2011 GLRP:
Expense for 1 award that may vest subject to improved relative TSR performance
2011 GLRP:
Total Accounting Expense as per page 87
Expense for 1 award that may vest subject to improved customer satisfaction performance
Financial
2011
award
$
4,758,000
1,638,000
330,579
91,965
vests
n/a
2013
n/a
n/a
(963,268)
2012
1,009,764
2013 & 2014
1,157,657
2013 & 2014
489,404
126,071
8,638,172
2015
2015
Commonwealth Bank of Australia Annual Report 2011
75
Directors’ Report – 2011 Remuneration Report
Remuneration Arrangements
This section details the Group’s remuneration arrangements for Key Management Personnel (KMP) and Other Executives during the
year ended 30 June 2011.
Name
Position
1. Key Management Personel
Non-Executive Directors
David Turner
John Anderson
Colin Galbraith
Jane Hemstritch
Launa Inman
Carolyn Kay
Brian Long
Andrew Mohl
Fergus Ryan
Harrison Young
Chairman
Director
Director
Director
Director (from 16 March 2011)
Director
Director (from 1 September 2010)
Director
Director
Director
Managing Director and CEO
Ralph Norris
Managing Director and CEO
Group Executives
Simon Blair
Barbara Chapman
David Cohen
David Craig
Michael Harte
Ross McEwan
Ian Narev
Group Executive, International Financial Services
Group Executive, Human Resources and Group Services (until 26 April 2011)
Group General Counsel
Acting Group Executive Human Resources (from 26 April 2011)
Group Executive, Financial Services and Chief Financial Officer
Group Executive, Enterprise Services and Chief Information Officer
Group Executive, Retail Banking Services
Group Executive, Business and Private Banking
Grahame Petersen
Group Executive, Wealth Management
Ian Saines
Alden Toevs
2. Other Executives
Martin Lau
Mark Lazberger
Stuart Paul
Alistair Thompson
Group Executive, Institutional Banking and Markets
Group Chief Risk Officer
Director, Greater China Equities, First State Investments (FSI)
CEO, Colonial First State Global Asset Management (CFSGAM)
Joint Managing Director Global Emerging Markets Asia Pacific (FSI)
Deputy Head of Asia Pacific (FSI)
Term
Full Year
Full Year
Full Year
Full Year
Part Year
Full Year
Part Year
Full Year
Full Year
Full Year
Full Year
Full Year
Part Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Governance & Risk Management
People & Remuneration Committee
The Group adheres
to high standards of corporate
governance. The People & Remuneration Committee (the
Committee)
the Group’s
remuneration philosophy, framework and policies for approval
by the Board.
for developing
is responsible
The Committee is made up of independent Non-Executive
Directors and meets at least four times per year. The CEO
attends meetings by invitation, but is absent when matters
affect him personally.
The role and responsibilities of the Committee are set out in
their Charter, which is reviewed by the Board each year. The
Charter
the Group’s website at
is available on
www.commbank.com.au/shareholder.
the
Committee is responsible for recommending to the Board for
approval:
general,
In
•
senior executive appointments, and appointments where
the remuneration target of the individual exceeds that of
the head of their business/service unit;
76
Commonwealth Bank of Australia Annual Report 2011
•
•
•
•
roles may affect
remuneration arrangements and all reward outcomes for
the CEO, senior direct reports to the CEO and other
financial
individuals whose
soundness of the Group;
remuneration arrangements for finance, risk & internal
control personnel;
remuneration arrangements for employees who have a
significant portion of their total remuneration based on
performance; and
the
significant changes in remuneration policy and structure,
including superannuation, employee equity plans and
benefits.
is also responsible
for reviewing and
The Committee
approving Group
to
that apply
subsidiaries of the Group that do not have their own
remuneration committees.
remuneration policies
Membership
During 2011 the Committee consisted of:
•
•
•
•
Jane Hemstritch (Chairman);
Carolyn Kay;
Andrew Mohl; and
David Turner.
Directors’ Report – 2011 Remuneration Report
Independent Remuneration Consultants
Throughout the year, the People & Remuneration Committee
retained AON Hewitt as
independent remuneration
their
consultant.
Board
AON Hewitt is engaged directly by the Committee and any input
is provided directly to the Committee Chairman who has the
discretion to share this with Management.
Audit Committee
Risk Committee
During the 2011 financial year the Committee received input
directly from AON Hewitt on matters including regulatory
developments, emerging and current market practice, alternative
short and long term incentive schemes and benchmarking in
relation to the remuneration review of the CEO and Group
Executives.
While the Committee takes note of the input from AON Hewitt,
the Committee itself is responsible for making decisions within
the terms of its Charter, including making recommendations in
relation to the CEO and Group Executives’ remuneration for
approval ultimately by the Board.
Risk Management
The Committee has free and unfettered access to all risk, legal
and financial control personnel as required. This is documented
within the Committee Charter.
full review of
The Committee conducts a
the Group’s
Remuneration Policy and practices in December of each year.
The Risk Committee is involved in this process to ensure that
any risks associated with remuneration arrangements are
managed within the Group’s risk management framework.
Position
Chairman
Non-Executive Director
Chairman
Member
Chairman
Member
Fees ($)
695,000
210,000
50,000
25,000
50,000
25,000
50,000
25,000
10,000
10,000
People & Remuneration
Chairman
Committee
Board Performance &
Renewal Committee
Member
Chairman
Member
The Board Performance and Renewal Committee reviews the
Non-Executive Directors’ fee schedule annually and assesses
fee levels in comparison to market trends.
Superannuation
Non-Executive Directors also receive statutory superannuation
contributions of 9% of their superannuation salary, up to the
superannuation concessional contribution cap that applies to
them. In general, superannuation salary is 80% of their total
fees.
Shareholder Alignment
Non-Executive Directors receive 20% of their after-tax annual
fees as Commonwealth Bank Shares. These shares cannot be
traded until the earlier of a director’s retirement from the Board
or 10 years from the date the shares are granted.
Remuneration Arrangements in Detail
Service Agreements
Non-Executive Directors’ Remuneration
Non-Executive remuneration is fixed and Directors do not
receive incentive based pay. Rather they receive fees for service
on the Board and Committees.
The total amount of all fees for Non-Executive Directors is
capped by a pool approved by shareholders. The current Non-
Executive Director fee pool is $4 million, and was approved by
shareholders at
the Annual General Meeting held on
13 November 2008.
Fee Structure
The Bank’s Non-Executive Directors’ receive a base fee for
service on the Board and fees for serving on Committees.
Different Committees have different fees, according to workload,
and there are separate fees for chairing and membership of a
Committee. The following table sets out the fee structure for
Non-Executive Directors at 30 June 2011, which did not change
during the financial year.
Each Non-Executive Director enters into a service agreement
with the Bank when they are appointed to the Board. This
service agreement is set out in a letter of appointment, and
includes the terms of their engagement and their responsibilities.
A copy of the pro-forma letter of appointment is provided on the
Group's website.
Retirement Benefits
During the year, two Non-Executive Directors held entitlements
under the Directors’ Retirement Allowance Scheme. This
scheme was approved by shareholders at the 1997 Annual
General Meeting. However, the Board discontinued the scheme
in 2002 and froze entitlements for participating directors at that
time. The scheme was also closed to new participants at that
time. Frozen entitlements for directors under this scheme are set
out in the remuneration disclosures on page 86.
Commonwealth Bank of Australia Annual Report 2011
77
Directors’ Report – 2011 Remuneration Report
Executive Remuneration
Remuneration Framework and Pay Mix
The CEO and Group Executives receive an appropriate mix of
fixed remuneration and incentive-based remuneration. Incentive-
based remuneration includes short term incentives and long term
incentives. Performance conditions for these incentives are
aligned to the Group’s short term and long term business
strategies and reflect the Group’s strategic priorities.
Financial and non-financial performance measures are set at the
beginning of the performance period. Performance against these
measures drives the value each individual ultimately receives
from their incentive-based remuneration.
incentive programmes are designed
Our
to discourage
excessive risk taking. The Committee has discretion to reduce
deferred incentive awards where performance outcomes are
materially lower than expected.
Remuneration for the Other Executives disclosed in this report is
explained in the following section.
CEO and Group Executives
The following table sets out the mix of each component of the CEO and Group Executives’ remuneration, and demonstrates how each
component links to our business strategy.
Target Mix Component
Link to Business Strategy
1/3
1/3
1/3
Fixed Remuneration, comprising:
•
•
Base remuneration
Employer Superannuation
Short Term Incentive:
•
•
50% paid after final results
50% deferred for 12 months
Long term incentive:
•
•
4 year performance period
Split performance hurdle:
-
-
Customer satisfaction
Total Shareholder Return
Fixed remuneration targets the median of the market for similar roles in the
same country, primarily in large financial services companies.
Short term incentives reward financial and non-financial performance over
the 12 months to 30 June.
We pay the deferred portion after 12 months provided the executive has
remained with the Group. The Board retains discretion to reduce the
deferred portion if warranted on the basis of realised performance.
Long term incentive awards are subject to performance hurdles over a
period of four years. Executives only receive value from this component if
performance hurdles are met at the end of the four year period.
Performance hurdles are aligned to:
•
•
our business strategy, through the Customer Satisfaction performance
hurdle; and
shareholders’ interests, through the relative Total Shareholder Return
performance hurdle.
CEO and Group Executives’ Remuneration in Detail
Setting Performance Objectives
Fixed Remuneration
The Board sets fixed remuneration for the CEO and Group
Executives considering recommendations from the Committee.
The Board considers the size and responsibility of each role as
well as external benchmarks when setting fixed remuneration
levels, in order to maintain market competitiveness.
Fixed remuneration includes cash salary, any salary sacrifice
items and employer superannuation contributions. The Group
provides employer superannuation contributions of 9% of each
executive’s superannuation salary, up to the superannuation
concessional contribution cap that applies to them
Fixed remuneration is reviewed annually in July. This review
takes into account changes in the size or responsibilities of each
role. Changes to our remuneration philosophy, and market
competitiveness are also taken into account.
Short Term Incentives
Short term incentives reward performance over the financial
year to 30 June, within a funding cap set by the Board. Both
financial and non financial performance is measured against
performance objectives set at the beginning of the year.
Financial performance objectives include PACC, which is a risk-
adjusted financial measure, and NPAT. Performance objectives
are aligned with our business strategy, and are chosen as
drivers of long term shareholder value.
78
Commonwealth Bank of Australia Annual Report 2011
At the beginning of each financial year, each executive’s
performance objectives are set. The performance objectives are
linked to our strategic priorities. The Committee reviews the
performance objectives and measures and recommends them
to the Board for approval. For 2011, short term incentive
performance measures included:
•
•
Financial objectives:
− Cash Net Profit After Tax (Cash NPAT);
− Profit After Capital Charge (PACC); and
− Profitable Growth.
Increasing customer satisfaction and our reputation;
Non financial objectives:
−
− Excellence in technology and operations; and
− Employee engagement, teamwork and effective talent
management.
Financial objectives have a substantial weighting, and non-
financial objectives vary by role. Executives managing business
units typically have a 50% weighting on direct financial
outcomes, while for executives managing support functions the
typical weighting is 30%.
Measuring Performance and Determining Short Term
Incentive Outcomes
At the end of the financial year, the Board and the Committee
review performance against each performance objective. They
also receive advice from the Risk Committee on appropriate risk
matters to be considered when assessing the performance.
The review by the Board and Committee determines the short
term incentive outcome for each executive, within an overall cap.
Directors’ Report – 2011 Remuneration Report
Depending on performance outcomes, executives may receive
0% to 150% of their 2011 short term incentive target.
The Board recognises that the business environment changes
over time and it is not always possible to anticipate these
changes. Given this, the Board retains discretion to adjust
remuneration outcomes up or down to ensure consistency with
the Group’s remuneration philosophy, and to prevent any
inappropriate reward outcomes.
Payment and Mandatory Deferral
Half the CEO and Group Executives’ short term incentive is paid
in cash following the annual results announcement, usually in
September each year. The other half is deferred for one year.
The 2011 deferred component will be paid as cash, and will
attract interest at the same rate as a Commonwealth Bank one
year term deposit.
The CEO and Group Executives will forfeit the deferred portion if
they resign or are dismissed from the Group before the
applicable deferral period has passed.
The Board retains discretion to vest deferred amounts, for
example in cases of retirement with Board approval. The Board
reserves the right to reduce the deferred portion, or reduce future
short term incentive outcomes, and receives advice from the
Risk Committee each year in this regard.
Other Executives’ Remuneration Arrangements
receive
remuneration
The Other Executives each
(including superannuation/pension benefits), a short
term
incentive and a long term incentive. Their remuneration is set
considering the size and responsibility of their role as well as
external benchmarks, and is reviewed annually.
fixed
Mark Lazberger’s short term incentive is determined against a
balanced scorecard of financial and non-financial performance
measures aligned
the business objectives. Financial
measures receive the highest individual weightings, and include
Cash NPAT and PACC. Non-financial measures
include
customer satisfaction, employee engagement and teamwork,
talent management, and technology and operations.
to
One third of Mark Lazberger’s short term incentive is received as
Commonwealth Bank Shares restricted for three years and
subject to service conditions. He also receives a long term
incentive, which is described on page 84.
Short term incentives for Martin Lau, Stuart Paul and Alistair
Thompson are determined predominantly by one to five year
performance against investment benchmarks relevant to the
business they operate in. Qualitative factors and behaviours are
also considered when determining the amount of their short term
incentives.
Commonwealth Bank of Australia Annual Report 2011
79
Directors’ Report – 2011 Remuneration Report
2011 Performance Outcomes
The following table provides a summary of performance for the year ended 30 June 2011 against the financial and non-financial
performance objectives.
Performance
Objective
Cash NPAT and
PACC
2011 Achievements
Our 2011 financial performance was solid
Each year the Board sets challenging financial targets for the CEO and Group Executives, with reference
to profit based measures of PACC and Cash NPAT.
PACC is an internal measure of profit that takes into account the risk to capital taken to achieve that profit
and the Board determined that 2011 performance against this measure was strong.
Cash NPAT is $6,835 million, also representing solid 2011 performance. The following graph demonstrates
our Cash NPAT performance for 2011 and each of the past four years.
6,835
6,101
4,527
4,733
4,415
n
o
i
l
l
i
M
$
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
Profitable Growth
We have delivered profitable growth through innovative new product offerings, disciplined
margin and cost management, and continued selective expansion into Asia
Jun 07
Jun 08
Jun 09
Jun 10
Jun 11
Customer
Satisfaction and
Reputation
Profitable growth is growth which will provide our shareholders with increased returns on their investment
by broadening our base in growth markets where the Group can leverage its assets and capabilities,
including selected Asian markets, selected business banking segments, and other core domestic sectors.
In our retail and business banking areas, we increased volumes in a number of core products and
launched innovative new offerings, which supported 16% profit growth in those business units.
We have incrementally expanded our capabilities and introduced new products in our corporate and
institutional offerings, strengthened our business banking offerings including CommBiz enhancements, and
built up our Private Bank financial advisory services.
In Asia we progressed our long-term growth strategy, including acquiring a 15% shareholding in Vietnam
International Bank and opening three County Banks in China.
We are progressing towards our customer satisfaction goals
The Group vision is “to be Australia’s finest financial services organisation through excelling in customer
service”. The more satisfied a customer is, the more likely they are to do more business with us.
The 2011 customer satisfaction performance targets were based on the Board’s assessment of Group
performance in customer satisfaction across key segments of our business.
•
•
•
Customer satisfaction in retail banking is measured by Roy Morgan Research(1). During the 2011
financial year the Bank attained the highest score in customer satisfaction for customers who use us
as their main financial institution since the inception of the survey, although overall customer
satisfaction declined in the second half of the year;
Customer satisfaction in our wealth management business is measured by the Wealth Insights 2011
Service Level Report, Platforms. This survey measures wealth management service performance of
master trusts/wraps in Australia. Under this survey our FirstChoice and FirstWrap platforms are now
consistently ranked at or near the top for service amongst financial advisors;
In Institutional Banking, we consistently top the East and Partners survey, ranking number one in the
two most important service measures for institutional clients: loyalty to the relationship; and our
understanding of each customer’s business; and
80
Commonwealth Bank of Australia Annual Report 2011
Directors’ Report – 2011 Remuneration Report
Performance
Objective
2011 Achievements
Technology &
Operational
Excellence
Trust & Team
Spirit
•
In Business Banking, customer satisfaction is measured by DBM’s Business Financial Services
Monitor(2) (BFSM). CBA has maintained outright or equal first position in customer satisfaction in both
the medium and large segments among the four major banks for 10 out of the past 12 months.
At the same time as achieving improvements in customer satisfaction, the average number of products(3)
held by each of our Retail customers has also grown. We now have the highest number of products-per-
customer of any major bank in Australia at 2.64, ahead of the average of our peers.
We have also been recognised with awards including 2011 Money Magazine’s Bank of the Year (for the
third time in four years), and Australian Banking and Finance’s Australian Financial Institution of the Year.
We achieved key milestones in our Technology & Operations Excellence strategy
The Group’s Technology and Operational Excellence initiatives are designed to improve efficiency and
productivity levels, while at the same time enhancing the service proposition to customers through more
innovative and responsive systems, processes and procedures.
The Core Banking Modernisation programme, a four year programme on schedule for completion by the
end of 2012, is a key feature of this strategy. The programme will transition our Australian banking
business to a completely new customer-centric core operating platform, replacing the myriad of obsolete
systems previously operating across the various divisions of the Bank.
We made significant progress in this area during 2011, including:
• Migrating ten million existing retail bank accounts to the new core banking platform;
•
Integrating NetBank with our Core Banking systems to provide real-time transactions for personal
accounts; and
•
Starting to integrate the frontline customer interface with core banking to provide better customer
service.
Our employees are engaged and committed to our business strategy
Our continuing success is due to the hard work, enthusiasm and commitment of our people, and their
commitment to our priorities. We continue to embed a collaborative and customer service culture across
the Group. The Board assesses the Group’s achievements in this area, with reference to the Group’s
results in the Gallup worldwide benchmark.
The 2011 People & Culture Survey indicates we have maintained strong levels of people engagement. Our
people describe our culture as customer focused, collaborative and caring supported by strong positive
views of our senior leaders.
Gender diversity is a commercial imperative to tap into the entire potential workforce. It is also increasingly
seen as an asset to organisations and linked to better economic performance. We believe that women in
leadership is a lead indicator of broader diversity in leadership. Our goal, announced in June 2010, is to
increase the representation of women in Executive Management and above to 35 per cent by December
2014. Since announcing this goal the Group has lifted the proportion of women in Executive Management
by 2%.
(1) Roy Morgan Research, Australians 14+ that have an account relationship with CBA, “Very” or “Fairly” satisfied with their relationship with that financial institution, six
months to October 2011.
(2) DBM Business Financial Services Monitor (June 2011), average satisfaction rating of each financial institution’s MFI business customers across all Australian
businesses, 6 month rolling average. Rank is among four major banks. Medium segment includes businesses with annual turnover from $5m to less than $50m.
Large segment includes businesses with annual turnover $50m and above.
(3) Roy Morgan Research, Australians 14+, Banking and Finance products per Banking and Finance customers, six months rolling average to June 2011.
Commonwealth Bank of Australia Annual Report 2011
81
Directors’ Report – 2011 Remuneration Report
Long Term Incentives
Long term incentives reward sustained performance over the longer term, and are subject to performance hurdles designed to build
shareholder value and achieve the Group’s long term business objectives. An overview of the CEO and Group Executives’ long term
incentive awards in progress during the 2011 financial year is set out in the following table. Further information is provided in the table
below regarding the equity plans under which each award has been made.
Overview of long term incentive awards outstanding during the 2011 Financial Year
Performance
Period Ends
Equity
Plan
1 July 2011
Group Leadership
Share Plan
(GLSP)
Performance Hurdles
Progress
• Growth in PACC
•
•
NPAT growth relative to peer group
Customer Satisfaction ranking relative to peer
group
Based on performance against
the respective hurdles, 25% of
the award vested on 1 July
2011
Each award is split and tested:
30 June 2012
Group Leadership
Reward Plan
(GLRP)
•
•
50% Total Shareholder Return relative to peer
group
In progress
50% Customer Satisfaction ranking relative to peer
group
Each award is split and tested:
30 June 2013
Group Leadership
Reward Plan
(GLRP)
•
•
50% Total Shareholder Return relative to peer
group
In progress
50% Customer Satisfaction ranking relative to peer
group
Each award is split and tested:
30 June 2014
Group Leadership
Reward Plan
(GLRP)
•
•
25% Customer Satisfaction ranking relative to peer
group
In progress
75% Total Shareholder Return relative to peer
group
2011 Financial Year GLRP Award
CEO and Group Executives received long term incentive awards under the GLRP during the 2011 financial year. These GLRP awards
may deliver value to executives after a four year performance period, subject to meeting performance hurdles. The timing and
performance hurdle mix for the GLRP award made during the 2011 financial year are set out in the following diagram.
Award
Granted
4 year performance period
Customer Satisfaction
hurdle = 25%
Total Shareholder
Return
hurdle = 75%
The key features of the GLRP awards during the 2011 financial year are set out in the following table.
Feature
Description
Instrument
Reward Rights. Each Reward Right entitles the executive to receive one Commonwealth Bank ordinary share
in the future, subject to meeting performance hurdles set out below.
Determining the
number of Reward
Rights
Performance
Period
The number of Reward Rights each executive receives depends on their long term incentive target. The
number of Reward Rights received is calculated taking into account the expected number of shares to vest at
the end of the performance period.
The performance period for awards made in 2011 is four years, starting at the beginning of the financial year in
which the award is made.
82
Commonwealth Bank of Australia Annual Report 2011
Directors’ Report – 2011 Remuneration Report
Feature
Description
Performance
Hurdles
One quarter of each award is subject to a performance hurdle which measures the Group’s Customer
Satisfaction achievements relative to a peer group. The remaining three quarters is subject to a performance
hurdle which measures the Group’s Total Shareholder Return relative to a separate peer group.
Vesting
Framework
Peer Groups for the long term incentive awarded during the 2011 financial year
•
•
The peer group for the Customer Satisfaction performance hurdle includes Australia & New Zealand
Banking Group Limited (ANZ), National Australia Bank Limited (NAB), and Westpac Banking Corporation
(WBC) and other key competitors for our wealth business such as AMP Limited and Macquarie Group
Limited.
The peer group for the Total Shareholder Return performance hurdle is made up of the 20 largest
companies listed on the Australian Securities Exchange at the beginning of the performance period, after
excluding resources companies and CBA. The peer group at the time of grant for the most recent award
included:
AGL Energy Limited, AMP Limited, Australia and New Zealand Banking Group Limited, AXA Asia Pacific
Holdings Limited, Brambles Industries Limited, Coca Cola Amatil Limited, CSL Limited, Foster’s Group
Limited, Insurance Australia Group Limited, Leighton Holdings Limited, Macquarie Group Limited,
National Australia Bank Limited, QBE Insurance Group Limited, Stockland, Suncorp-Metway Limited,
Telstra Corporation Limited, Wesfarmers Limited, Westfield Group, Westpac Banking Corporation and
Woolworths Limited.
Vesting Framework for the long term incentive awarded during the 2011 financial year
(i) Customer Satisfaction hurdle (25% of the award)
•
For this part of the GLRP awarded during 2011:
-
-
-
-
-
Full vesting applies if the Group is ranked first relative to our peers in each of the three surveys;
75% will vest if the Group is ranked first across two of the three surveys;
50% will vest if the Group is ranked at least second across the three surveys;
The Board will exercise discretion to determine the portion to vest where our ranking has improved,
but in a different variation than those described above; and
None of the Reward Rights in this portion of the award will vest where the Board determines that
our overall Customer Satisfaction at the end of the performance period is worse than it was at the
beginning.
(ii) Total Shareholder Return hurdle (75% of the award)
•
•
•
•
Full vesting is achieved if the Group’s Total Shareholder Return is ranked in the top quarter of the peer
group (i.e. 75th percentile or higher);
If the Group is ranked at the median, half the Reward Rights will vest;
Vesting increases on a sliding scale if the Group is ranked between the median and below the 75th
percentile; and
No Reward Rights in this part of the award will vest if the Group’s Total Shareholder Return is ranked
below the median of the peer group.
The Board retains discretion to take into account unforeseen changes or events, and to prevent any
unintended outcomes.
Who calculates
the performance
results
Customer satisfaction is measured with reference to three separate independent surveys provided by:
Roy Morgan Research, which measures customer satisfaction across the retail bank base;
•
•
DBM, Business Financial Services Monitor, which measures business banking customer satisfaction; and
• Wealth Insights 2011 Service Level Report, Platforms, which measures wealth management service
performance of master trusts/wraps in Australia.
Total Shareholder Return is calculated independently by Standard & Poors.
Board discretion Where an executive leaves prior to the end of the performance period, they will generally forfeit that award
unless the Board determines otherwise, in which case the terms of any portion that is not forfeited will continue
unchanged, including any performance conditions. Any portion of the award that vests may be satisfied by
cash rather than shares.
The Board also retains sole discretion to determine the amount of any award that may vest (if any) to prevent
any unintended outcomes, or in the event of a corporate restructuring or event, e.g. a takeover.
Expiry
At the end of the applicable performance period, any Reward Rights that have not vested will expire.
Commonwealth Bank of Australia Annual Report 2011
83
Directors’ Report – 2011 Remuneration Report
The Board retains discretion to take into account unforeseen
changes, and prevent any unintended outcomes.
Long Term Incentive Plans for Other Executives
In line with our philosophy of providing flexible and effective
reward structures linked to our business strategy, the Group
provides tailored long term incentive arrangements for the
Other Executives in this report.
Mark Lazberger participates in the Colonial First State Global
term
Asset Management
incentive plan. Under this plan participants share in the growth
of CFSGAM profit over a three year period.
(CFSGAM) cash-settled
long
The purpose of this plan is retention and motivation of key
employees with specific and unique skill sets highly valued in
the market, and alignment of their reward with the success of
the business.
The decision of investors to grant an investment mandate to
CFSGAM is dependent on their confidence in the investment
capability, experience and long term tenure of individual fund
managers.
Awards made under this plan during 2011 have a three year
vesting period and are not subject to further performance
hurdles once awarded.
Martin Lau, Stuart Paul and Alistair Thompson participate in a
profit share arrangement in the Global Emerging Markets Asia
Pacific (GEM AP) business in CFSGAM.
The purpose of the profit share arrangement is to reward and
retain key talent in that business. Each year allocations are
made from a pool that reflects a percentage of profit
generated by this part of the CFSGAM business. Allocations
to participants are co-invested in GEM AP funds and
allocations may vest after three years.
Hedging
All employees are prohibited from hedging, or otherwise
limiting, their exposure to risk in relation to unvested shares,
options or rights issued or acquired under the Group’s
employee equity arrangements. The Board has discretion
under respective employee equity plan rules to enforce this
policy.
Executives who report to the CEO are also prohibited from
using instruments or arrangements for margin borrowing,
short selling or stock lending in relation to any securities of the
Bank or of any other member of the Group. These restrictions
are set out in the Group’s Securities Trading Policy.
Previous and Other Long Term Incentive Plans
The Group regularly reviews remuneration arrangements to
ensure they continue to align with and support our strategic
objectives. The Group introduced the GLRP for long term
incentive awards to the CEO and Group Executives during the
2010 financial year. Prior years’ long term incentive awards
were made under the Group Leadership Share Plan (GLSP).
The GLSP is now closed to new offers, and the final award
completed its performance period on 1 July 2011.
Group Leadership Share Plan (GLSP)
During the 2008 and 2009 financial years, long term incentive
awards were made under the GLSP. Details of the GLSP
were provided to shareholders in the Remuneration Reports
for those years, and a summary of the key features is
provided below.
Under the GLSP, executives were awarded rights to receive
Commonwealth Bank ordinary shares in the future, subject to
meeting set performance hurdles over a three year period.
•
•
The GLSP award made during the 2008 financial year
reached the end of its performance period during the
2011 financial year. Performance and vesting results are
set out on page 85; and
The GLSP award made during the 2009 financial year
reached the end of its performance period on 1 July
2011 (i.e. during the 2012 financial year).
The number of shares each executive ultimately receives
under the GLSP is determined in three steps:
•
•
•
in PACC
The Group’s growth
is measured and
determines the size of the rights pool. The rights pool
was subject to a cap of $34.0 million for the 2008
financial year award, and for the 2009 financial year
award the cap is $36.1 million;
The Group’s cash NPAT growth is measured. The rate
of growth must be greater than the average of the peer
group (ANZ, WBC, NAB and St. George) or nothing will
vest; and
Provided the relative NPAT growth hurdle is met, the
Group’s customer satisfaction ranking relative to the
peer group drives the portion of the rights pool that will
vest, according to the following scale:
Percentage of rights pool to vest (1)
Customer
Satisfaction
ranking
2008 financial
year award
2009 financial
year award
1
2
3
4
5
100%
75%
50%
30%
Nil
100%
75%
50%
Nil
Nil
(1) The vesting scale for each award is different, because it is determined
with reference to the Group’s position relative to the peer group at the
time of each invitation.
The number of shares an executive ultimately receives is
calculated by dividing their individual portion of the GLSP
rights pool by the market value of Commonwealth Bank
ordinary shares at the end of the performance period.
84
Commonwealth Bank of Australia Annual Report 2011
Directors’ Report – 2011 Remuneration Report
Group Performance Relating to Long Term Incentives
Group Leadership Reward Plan (GLRP)
Group Leadership Share Plan (GLSP)
Executives only receive value from their long term incentive
awards when performance hurdles are met.
During the 2011 financial year, the long term incentive award
made under the GLSP during the 2008 financial year reached
its performance test date. The performance hurdles relating to
this award are described in the previous section.
Performance outcomes relating to the 2008 financial year
GLSP award
•
•
•
The Group achieved PACC growth over
the
performance period of $2.4 billion. Based on this
performance, the maximum rights pool was achieved in
relation to the 2008 financial year GLSP award;
The Group’s NPAT growth over the performance period
was greater than the average of the peer group, which
was a requirement before any vesting could occur; and
The Board determined that the Group’s overall Customer
Satisfaction ranking was third against the peer group.
The Board reviewed the performance outcomes following the
end of the performance period relating to the 2008 financial
year GLSP award. They also considered whether there were
any issues that may warrant the Board exercising discretion in
relation to vesting outcomes. Based on this review, no
discretion was exercised, and 50% of the available rights pool
vested. This resulted in a total distribution of $14.8 million
during the 2011 financial year.
Performance relating to the 2009 financial year GLSP award
The GLSP award granted during the 2009 financial year
reached the end of its three-year performance period on 1
July 2011.
•
•
•
The Group achieved strong PACC growth over the
performance period of $2.2 billion. Based on this
performance, the maximum rights pool was achieved in
relation to the 2009 financial year GLSP award;
The Group’s NPAT growth over the performance period
was greater than the average of the peer group, which
was a requirement before any vesting could occur; and
The Group’s customer satisfaction ranking for Wealth
customers was first out of the peer group, while the
satisfaction ranking for business customers was equal
second in the peer group and for retail customers, fifth in
the peer group. The Board determined that the Group’s
overall Customer Satisfaction ranking was fourth against
the peer group.
Since the year end, the Board has reviewed this performance
against the financial and customer satisfaction hurdles. In
considering overall performance the Board also noted that:
•
•
•
The Group’s Total Shareholder Return for the three
years exceeded its peers’;
The Group’s return on equity has been amongst the
highest of any major international bank; and
Retail customer satisfaction improved from 70% to 75%
over the period.
After consideration, the Board has exercised its discretion to
determine that 25% of the available pool will vest. This will
result in a total distribution of $8.5 million during the 2012
financial year.
The GLRP is the Group’s current LTI plan for the CEO and
Group Executives. Awards under the GLRP are subject to
performance hurdles of relative Customer Satisfaction and
Total Shareholder Return.
We continue to make progress in Customer Satisfaction
across all segments of our business.
Total Shareholder Return measures a company’s share price
movement, dividends and any return of capital over a specific
period. The Commonwealth Bank’s share price movement
and dividends per share for the five year period to June 2011
are shown in the following graphs.
Share Price
$70
$60
$50
$40
$30
$20
$10
$0
Jun 06
Jun 07
Jun 08
Jun 09
Jun 10
Jun 11
Share Price
CBA Dividends Per Share
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
$0.00
2.56
2.66
2.28
3.20
2.90
Jun 07
Jun 08
Jun 09
Jun 10
Jun 11
Commonwealth Bank of Australia Annual Report 2011
85
Directors’ Report – 2011 Remuneration Report
Statutory Remuneration Disclosures
Remuneration of Non-Executive Directors
Individual remuneration details for Non-Executive Directors for the year ended 30 June 2011.
Short Term
Benefits
Post employment Benefits
Share-based
payments
(1)
Cash
$
Super-
annuation (2)
$
Retiring
Non-executive
Allowance
Paid
$
Directors'
(3)
Share Plan
$
Total
Accounting
(4)
Expense
$
608,360
353,933
196,000
180,232
216,000
205,111
228,000
205,618
54,071
228,000
214,692
168,175
192,000
179,700
228,000
216,506
228,000
216,506
50,000
47,854
17,640
16,221
19,440
18,460
20,520
18,506
4,866
20,520
19,322
15,136
34,720
33,613
20,520
19,486
20,520
19,486
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
151,000
88,483
49,000
45,058
54,000
51,278
57,000
51,404
13,518
57,000
53,673
809,360
490,270
262,640
241,511
289,440
274,849
305,520
275,528
72,455
305,520
287,687
42,044
225,355
52,000
48,925
57,000
54,127
57,000
54,127
278,720
262,238
305,520
290,119
305,520
290,119
Chairman
David Turner (5)
2011
2010
Non-Executive Directors
John Anderson
2011
2010
Colin Galbraith (6)
2011
2010
Jane Hemstritch
2011
2010
Launa Inman
2011
Carolyn Kay
2011
2010
Brian Long
2011
Andrew Mohl
2011
2010
Fergus Ryan (6)
2011
2010
Harrison Young
2011
2010
(1) Cash includes base fees and committee fees paid as cash.
(2) Superannuation arrangements include statutory superannuation contributions and any allocations made by way of salary sacrifice.
(3) Non-Executive Directors receive 20% of their total annual fees as Commonwealth Bank shares under the Non-Executive Directors' Share Plan. The amount shown in the table is the
pre-tax portion of fees received as shares. However, the number of shares each Non-Executive Director receives is calculated on a post-tax basis.
(4) Former Directors’ 2010 comparative remuneration expense included John Schubert (former Chairman) $1,085,980, and Reg Clairs $401,126.
(5) David Turner was appointed Chairman on 10 February 2010, and his 2010 fees represent only a part-year as Chairman.
(6)These Directors are entitled to a retirement allowance, which was frozen in 2002. The entitlements are Colin Galbraith ($159,092) and Fergus Ryan ($168,263).
86
Commonwealth Bank of Australia Annual Report 2011
Directors’ Report – 2011 Remuneration Report
Remuneration of Executives
The following table sets out remuneration disclosures for the CEO, Group Executives (who are KMP), and the Other Executives for the year ended 30 June
2011. The table has been prepared in accordance with the accounting requirements and does not represent the remuneration each individual executive
actually received during the year. Details of the remuneration the CEO and Group Executives received in relation to the 2011 performance year are set out in
the tables on page 75.
In the table below, where a component of remuneration (such as an equity award) vests over a number of years and some of the vesting period fell during
2011, we are required to show the portion of the expense relating to the 2011 year. In some cases, where performance differs from expectations we may be
required to recognise a greater or lesser final expense. This has occurred during the 2010 and 2011 financial years in relation to vesting of the GLSP awards
that were awarded during the 2008 and 2009 financial years. The 2010 year figure under ‘LTI Performance Rights at Risk’ shows the impact of a higher than
expected financial performance for the 2008 award, while the 2011 year figure in the same column shows a partial reversal in the 2011 year of amounts
previously recognised for the 2009 award due to lower than expected customer satisfaction performance.
Short Term
Benefits
Post
Long-
employme
term
nt
benefits
Share-based
payments
LTI
LTI
LTI
Non
Cash STI
STI
Superannu
Performance
Reward
Performance
Total
Monetary
(2)
Fixed
Payment
(3)
At Risk
($)
($)
Deferred
At Risk (4)
($)
Other
(5)
ation
(6)
fixed
Other
(7)
($)
($)
($)
Rights
At Risk (8)
($)
Shares/Rights
(9)
At Risk
($)
Units
At Risk (10)
($)
Accounting
(11)
Expense
($)
Cash
Fixed (1)
($)
Managing Director and CEO
Ralph Norris
2011
2010 (12)
Group Executives
Simon Blair
2011
2010
Barbara Chapman (13)
2011
2010
David Cohen
2011
2010
David Craig
2011
2010
Michael Harte
2011
2010
Ross McEwan
2011
2010
Ian Narev
2011
2010
Grahame Petersen
2011
2010
Ian Saines
2011
2010
Alden Toevs
2011
2010
Other Executives (14)
Martin Lau
2011
Mark Lazberger
2011
2010
Stuart Paul
2011
Alistair Thompson
2011
3,316,557
3,128,875
-
-
1,638,000
1,638,000
91,965
1,852,500
1,852,500
441
50,000
50,000
84,022
85,891
(963,268)
6,415,735
2,782,896
2,771,804
807,534
746,742
13,398
14,078
508,667
464,453
508,667
464,453
23,057
-
50,000
49,338
21,483
17,219
-
-
734,524
865,094
13,398
13,231
431,420
517,969
431,420
517,969
38,297
20,744
41,096
6,346
25,000
151,926
(166,344)
1,334,602
877,521
811,941
13,398
25,237
523,542
502,734
523,542
24,958
502,734
-
50,000
50,000
22,152
15,811
(203,063)
1,334,602
437,060
228,441
652,789
630,874
775,585
493,756
1,411,998
1,047,974
13,398
13,231
827,213
639,844
827,213
31,764
639,844
-
50,000
50,000
65,468
27,859
(225,625)
1,506,616
1,035,096
791,291
1,103,630
970,037
16,835
14,341
548,888
578,906
548,888
578,906
51,653
24,475
25,000
25,000
28,200
15,540
(203,063)
1,334,602
903,749
671,174
1,292,055
1,205,475
13,398
13,045
647,657
731,250
647,657
731,250
45,257
12,815
50,000
50,000
59,553
30,344
(258,717)
1,815,846
1,126,515
718,201
943,236
845,414
13,515
13,182
488,250
517,969
488,250
517,969
34,944
10,505
25,000
43,182
17,179
11,743
(129,358)
374,100
800,825
516,871
1,185,050
1,100,413
15,929
14,666
488,750
670,313
488,750
33,277
670,313
-
50,000
50,000
76,738
53,602
(258,717)
1,709,081
1,033,458
914,029
1,347,899
1,274,982
13,398
11,832
613,463
792,188
613,463
39,327
792,188
-
87,313
85,101
44,610
73,266
(129,358)
374,100
1,215,626
832,237
1,445,329
1,415,581
14,047
14,341
798,350
853,125
798,350
98,862
50,000
36,948
(187,618)
1,302,760
853,125 1,011,765
50,000
536,909
506,339
837,902
-
-
-
-
-
-
-
-
-
-
-
-
-
8,638,172
16,157,746
2,369,866
1,984,724
2,182,946
4,077,409
2,607,635
3,736,815
4,036,525
4,716,659
3,023,780
4,212,981
3,623,375
121,487
5,429,713
-
-
-
-
-
-
-
-
2,681,841
2,850,935
3,113,235
5,182,417
3,845,741
4,235,894
4,357,028
6,079,087
290,887
-
290,887
-
797,177
791,835
15,929
12,038
816,015
807,934
408,007
403,967
422,754
537,824
-
-
422,754
537,824
-
-
-
-
-
-
-
58,177
-
25,000
681,773
25,000 1,261,296
78,327
177,482
-
-
-
-
-
-
-
-
6,997,852
7,637,803
-
-
2,750,000
2,500,000
5,493,901
5,802,070
-
-
7,284,428
8,208,263
4,635,522
5,888,652
(1) Cash Fixed remuneration is the total cost of salary, including annual leave accruals and any salary sacrificed benefits. For Ralph Norris annual leave accrual was $246,557.
(2) Non Monetary Fixed represents the cost of car parking (including associated fringe benefits tax).
Commonwealth Bank of Australia Annual Report 2011
87
Directors’ Report – 2011 Remuneration Report
(3) 2011 Cash STI payment includes, for the CEO and Group Executives 50%, Mark Lazberger 66.6%, and the remaining Other Executives all of their STI award in recognition of
performance for the year ended 30 June 2011.
(4) STI Deferred includes the compulsory 12 month deferral of 50% (2010: 50%) of the CEO and Group Executives’ STI payments, and for Mark Lazberger the compulsory three
year deferral of 33.4% (2010: 33.4%) of his STI payment, in each case for performance for the year ended 30 June 2011.
(5) Other Short Term Benefits relate to company funded benefits (including associated fringe benefits tax where applicable). These benefits include preparation of Australian
taxation returns for expatriates, club memberships, and relocation costs. This item also includes interest accrued in relation to the CEO and Group Executives’ 2010 STI
deferred award which vested on 1 July 2011.
(6) Superannuation arrangements include superannuation or pension contributions, including any voluntary contributions.
(7) Includes long service entitlements accrued during the year. For Mark Lazberger this also includes amounts relating to his sign-on arrangements. For Alden Toevs, the 2010
comparative figure includes amounts relating to retention arrangements.
(8) This includes the 2011 expense for Performance Rights awarded under the GLSP during the 2009 financial year (now closed to new offers).
(9) This includes the 2011 expense for Reward Shares/Rights awarded during the 2010 and 2011 financial years under the GLRP.
(10) For Ross McEwan the 2010 figure includes the 2010 expense for a cash-based long term incentive award received during the 2007 financial year. For Mark Lazberger, this
represents awards made under the CFSGAM long term incentive plan. For Martin Lau, Stuart Paul and Alistair Thompson, this represents awards made under the GEM AP
profit share scheme.
(11) The percentage of 2011 remuneration related to performance was: Ralph Norris 59%, Simon Blair 61%, Barbara Chapman 62%, David Cohen 62%, David Craig 61%,
Michael Harte 59%, Martin Lau 95%, Mark Lazberger 72%, Ross McEwan 60%, Ian Narev 61%, Stuart Paul 94%, Grahame Petersen 56%, Ian Saines 60%, Alistair
Thompson 88% and Alden Toevs 62%. None of the remuneration was received as options.
(12) CEO and Group Executive Cash Fixed for 2010 reflects voluntary pay-cuts of 10% and 5% respectively from 1 July 2009 to 31 December 2009 during the worst of the global
financial crisis.
(13) The remuneration disclosed for Barbara Chapman relates to the period she was a KMP of the Group, prior to her appointment to the role of Chief Executive and Managing
Director of the Group’s New Zealand subsidiary ASB Bank Limited.
(14) The five executives who received the highest remuneration for the year ended 30 June 2011 as defined in the Section 300A of the Corporations Act 2001, include Martin Lau,
Mark Lazberger, Stuart Paul, Alistair Thompson and Ralph Norris.
STI Allocations to Executives for the Year Ended 30 June 2011
Managing Director and CEO
Ralph Norris
Group Executives
Simon Blair
Barbara Chapman
David Cohen
David Craig
Michael Harte
Ross McEwan
Ian Narev
Grahame Petersen
Ian Saines
Alden Toevs
Other Executives
Mark Lazberger
Martin Lau
Stuart Paul
Alistair Thompson
STI Target
Maximum STI
Potential
(1)
STI Paid
(2)
STI Portion
(3)
Deferred
($)
(%)
(%)
($)
(%)
($)
3,120,000
150%
50%
1,638,000
50% 1,638,000
800,000
880,000
865,000
1,350,000
1,050,000
1,250,000
900,000
1,150,000
1,330,000
1,400,000
n/a
n/a
n/a
n/a
150%
150%
150%
150%
150%
150%
150%
150%
150%
150%
n/a
n/a
n/a
n/a
50%
50%
50%
50%
50%
50%
50%
50%
50%
50%
67%
100%
100%
100%
508,667
431,420
523,542
827,213
548,888
647,657
488,250
488,750
613,463
798,350
50% 508,667
50% 431,420
50% 523,542
50% 827,213
50% 548,888
50% 647,657
50% 488,250
50% 488,750
50% 613,463
50% 798,350
816,015
33% 408,007
290,887
- -
422,754
- -
537,824
- -
(1) The maximum STI is represented as a percentage of Fixed Remuneration. The minimum STI potential is $nil.
(2) Includes the annual cash award immediately payable in recognition of performance for the year ended 30 June 2011.
(3) This represents the portion of STI that is deferred. The Executive will need to be an employee of the Group at the end of the respective deferral period to receive this payment.
88
Commonwealth Bank of Australia Annual Report 2011
Directors’ Report – 2011 Remuneration Report
Equity Awards Received as Remuneration
The following table sets out the number and value of equity awards that were granted, exercised, or forfeited/lapsed during 2011. It also
shows the number of awards made in previous years that vested during 2011. Further information about equity holdings of KMP are
provided in Note 44 to the financial statements.
Previous
years'
awards
that vested
during 2011
(1)
Forfeited or
lapsed
during 2011
Granted
during 2011
(Units)
($)
(Units)
(Units)
($)
85,976
3,561,986
-
-
-
-
-
-
-
-
-
117,056
-
-
Name
Managing Director and CEO
Ralph Norris
Class
Reward Shares/Rights
Deferred Shares
Ordinary Shares
Group Executives
Simon Blair
Reward Shares/Rights
22,046
913,358
-
-
-
Deferred Shares
Ordinary Shares
-
-
-
-
-
-
-
-
-
-
Barbara Chapman
Reward Shares/Rights
24,250
1,004,670
-
-
-
Deferred Shares
Ordinary Shares
-
-
-
-
-
-
24,100
-
-
David Cohen
Reward Shares/Rights
23,837
987,563
-
-
-
Deferred Shares
Ordinary Shares
-
-
-
-
-
-
24,100
-
-
David Craig
Reward Shares/Rights
37,202
1,534,533
-
-
-
Deferred Shares
Ordinary Shares
-
-
-
-
-
-
27,543
-
-
Michael Harte
Reward Shares/Rights
28,935
1,198,781
-
-
-
Deferred Shares
Ordinary Shares
-
-
-
-
-
-
24,100
-
-
Ross McEwan
Reward Shares/Rights
34,446
1,427,090
-
-
-
Deferred Shares
Ordinary Shares
-
-
-
-
-
-
34,429
-
-
Ian Narev
Reward Shares/Rights
24,801
1,027,502
-
-
-
Deferred Shares
Ordinary Shares
-
6,610
-
-
-
-
-
-
-
Grahame Petersen
Reward Shares/Rights
31,690
1,312,909
-
-
-
Deferred Shares
Ordinary Shares
-
-
-
-
-
-
30,986
-
-
Ian Saines
Reward Shares/Rights
36,650
1,518,402
-
-
-
Deferred Shares
Ordinary Shares
-
12,653
-
-
-
-
-
-
-
Alden Toevs
Reward Shares/Rights
38,579
1,598,332
-
-
-
Other Executive (2)
Mark Lazberger
Deferred Shares
Ordinary Shares
Reward Shares
Deferred Shares
Ordinary Shares
-
37,784
-
-
-
-
-
-
-
-
-
23,463
-
-
8,180
404,010
-
-
-
-
-
-
-
-
(1) Previous year’s awards that vested include long term incentive and other deferred awards. There are no instruments on issue for the executives shown that would
require the exercise of a right to receive an ordinary share.
(2) Martin Lau, Stuart Paul and Alistair Thompson have no equity holdings under any CBA Employee Share Plans.
Commonwealth Bank of Australia Annual Report 2011
89
Directors’ Report – 2011 Remuneration Report
Equity Awards Outstanding during 2011 – Fair Value Assumptions
The fair value of LTI awards granted has been calculated using a Monte-Carlo simulation method incorporating the assumptions below:
Assumptions
Expected
Fair
Exercise
Performance
Expected
Dividend
Expected
Risk free
Grant
Value
Price
Period
Life
Yield
Volatility
Award type
GLRP - Reward Rights (1)
GLRP - Reward Rights (2)
GLRP - Reward Rights (1)
GLRP - Reward Rights (2)
GLRP - Reward Shares (1)
GLRP - Reward Shares (2)
GLRP - Reward Shares (1)
GLRP - Reward Shares (2)
GLSP - Performance Rights
Date
10/03/2011
10/03/2011
27/09/2010
27/09/2010
25/09/2009
25/09/2009
25/09/2009
25/09/2009
3/12/2008
($)
$51.30
$36.51
$52.86
$37.62
$51.30
$36.52
$51.30
$37.24
$26.20
($)
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
End
30/06/2014
30/06/2014
30/06/2014
30/06/2014
30/06/2012
30/06/2012
30/06/2013
30/06/2013
1/07/2011
(years)
3.3
3.3
3.8
3.8
2.8
2.8
3.8
3.8
2.6
(%)
(%)
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
6.75
30
30
30
30
30
30
30
30
30
rate
(%)
5.5
5.5
5.5
5.5
5.1
5.1
5.4
5.4
4.7
(1) The performance hurdle for this portion of the GLRP award is Customer Satisfaction relative to our peers.
(2) The performance hurdle for this portion of the GLRP award is Total Shareholder Return relative to our peers.
Termination Arrangements
The Group’s executive contracts provide for the following termination arrangements for current KMP and the Other Executives
Name
Managing Director & CEO
Ralph Norris (3)
Group Executives
Simon Blair
Barbara Chapman (4)
David Cohen
David Craig
Michael Harte
Ross McEwan
Ian Narev
Grahame Petersen
Ian Saines
Alden Toevs
Other Executive
Mark Lazberger
Martin Lau
Stuart Paul
Alistair Thompson
Contract
(1)
Type
Permanent
Permanent
Permanent
Permanent
Permanent
Permanent
Permanent
Permanent
Permanent
Permanent
Permanent
Permanent
Permanent
Permanent
Permanent
Notice
6 months
6 months
6 months
6 months
6 months
6 months
6 months
6 months
6 months
6 months
6 months
3 months
9 months
6 months
9 months
Severance
(2)
n/a
6 months
6 months
6 months
6 months
6 months
6 months
6 months
6 months
6 months
n/a
3 months
9 months
6 months
9 months
(1) Permanent contracts are ongoing until notice is given by either party.
(2) Severance applies where termination is initiated by the Group, other than for misconduct or unsatisfactory performance.
(3) Termination benefits for Ralph Norris when he retires on 30 November 2011 will be consistent with the Group’s remuneration policy as outlined in this report.
(4) Termination arrangements for Barbara Chapman relate to her period as a KMP in her role as Group Executive Human Resources and Group Services until 26 April
2011.
Executives receive their statutory entitlements of accrued annual leave, long service leave and superannuation benefits when they leave
the Group. Those executives who cease employment with the Group during a performance year (i.e. 1 July to 30 June) will generally not
receive a short term incentive payment for that year except if they leave due to retrenchment, retirement or death.
Loans to KMP
Information on loans to KMP, including loan amounts, interest charged, and loan balances outstanding are set out in Note 44 to the
financial statements.
90
Commonwealth Bank of Australia Annual Report 2011
Directors’ Report – 2011 Remuneration Report
Glossary of Key Terms
To assist readers, key terms and abbreviations used in the remuneration report are set out below.
Term
Definition
Base Remuneration
Cash and non-cash remuneration paid regularly with no performance conditions.
Board
The Board of Directors of the Group.
Fixed Remuneration
Consists of Base Remuneration plus employer contributions to superannuation.
Group
Commonwealth Bank of Australia and its subsidiaries.
Group Executive
Key Management Personnel who are also members of the Group’s Executive Committee.
Group Leadership
Reward Plan (GLRP)
Group Leadership
Share Plan (GLSP)
Key Management
Personnel (KMP)
Long Term Incentive
(LTI)
The Group’s long term incentive plan from 1 July 2009 for the CEO and Group Executives.
The Group's previous long term incentive plan applying to grants made in the 2008 and 2009 financial
years for the CEO and Group Executives.
Persons having authority and responsibility for planning, directing and controlling the activities of an
entity, directly or indirectly, including any Director (whether executive or otherwise) of that entity.
A remuneration arrangement which grants benefits to participating executives that may vest if, and to the
extent that, performance hurdles are met over a period of three or more years. The Group’s long term
incentive plans include the GLRP, and the closed GLSP and ERP.
NPAT
Net profit after tax.
Other Executives
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.
Performance Rights
Rights to acquire a Commonwealth Bank of Australia ordinary share with no payment by the recipient if
relevant performance hurdles are met.
PACC
Remuneration
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 relative weighting of each component of remuneration (Fixed Remuneration, STI and LTI).
Reward Shares
Reward Rights
Salary Sacrifice
Short Term Incentive
(STI)
Total Shareholder
Return (TSR)
Shares in the Bank granted under the GLRP during the 2010 financial year and subject to performance
hurdles.
Rights to ordinary shares in the Bank granted under the GLRP during the 2011 financial year and subject
to performance hurdles.
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.
Remuneration paid with direct reference to the Group’s and the individual’s performance over one
financial year.
TSR measures a company’s share price movement, dividend yield and any return of capital over a
specific period.
Commonwealth Bank of Australia Annual Report 2011
91
Directors’ Report
Company Secretaries
Auditor Independence
The details of the Bank’s Company Secretaries, including their
experience and qualifications are set out below.
John Hatton has been Company Secretary of
the
Commonwealth Bank of Australia since 1994. From 1985 until
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
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. She is a Graduate of the
Australian Institute of Company Directors.
Non-Audit Services
Amounts paid or payable to PricewaterhouseCoopers (PwC) for
audit and non-audit services provided during the year, as set out
in Note 34 to the Financial Statements are as follows:
Project assurance services
Taxation services
Controls review and related work
Other
Total non-audit services (1)
Total audit and audit related services
2011
$’000
2,780
3,051
135
693
6,659
22,442
(1) An additional amount of $1,713,328 was paid to PwC for non audit services
provided to entities not consolidated into the Financial Statements.
Auditor’s Declaration of Independence
We have obtained an independence declaration from our
external auditor as presented on the following page.
Signed in accordance with a resolution of the Directors.
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 PwC and has concluded that the
provision of those services did not compromise the auditor
independence requirements of the Corporations Act 2001.
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 PwC during the year was compatible with the
the
general standard of
Corporations Act 2001.
independence
imposed by
The Directors are satisfied that the provision of the non-audit
services during the year did not compromise the auditor
independence requirements of the Corporations Act 2001. The
reasons for this are as follows:
•
•
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 for audit and audit related
services.
The above Directors’ statements are in accordance with the
advice received from the Audit Committee.
Incorporation of Additional Material
This report incorporates the Chairman’s Statement (pages 2 to
4), Highlights (pages 11 to 14), Analysis sections for Retail
Banking Services (pages 22 to 23), Business and Private
Banking (pages 24 to 25), Institutional Banking and Markets
(pages 26 to 27), Wealth Management (pages 28 to 31), New
Zealand (pages 32 to 34), Bankwest (pages 36 to 37) Other
Divisions (pages 38 to 39) and Shareholding Information
(pages 233 to 236) sections of this Annual report.
D J Turner
Chairman
10 August 2011
R J Norris
Managing Director and Chief Executive Officer
10 August 2011
92
Commonwealth Bank of Australia Annual Report 2011
Auditor’s Independence Declaration
As lead auditor for the audit of the Commonwealth Bank of Australia for the year ended 30 June 2011, I declare that to
the best of my knowledge and belief, there have been:
(a)
no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the
audit; and
(b)
no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of the Commonwealth Bank of Australia and the entities it controlled during the period.
Rahoul Chowdry
Partner
PricewaterhouseCoopers
Sydney
10 August 2011
PricewaterhouseCoopers, ABN 52 780 433 757
Darling Park Tower 2, 201 Sussex Street, GPO BOX 2650, SYDNEY NSW 1171
DX 77 Sydney, Australia
www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
Commonwealth Bank of Australia Annual Report 2011
93
Five Year Financial Summary
Net interest income
Other operating income (1)
Total operating income
Operating expenses
Impairment expense
Operating profit before goodwill and income tax expense
Corporate tax expense
Non-controlling interests
Net profit after tax ("cash basis")
Defined benefit superannuation plan income/(expense) (2)
Treasury shares valuation adjustment
Hedging and IFRS volatility
Visa Initial Public Offering gain after tax
Investment and restructuring
One-off expenses
Tax on NZ Structured finance transactions
Loss on disposal of controlled entities/investments
Bankwest non cash items
Net profit after income tax attributable to Equity holders of the Bank
Contributions to profit (after tax)
Retail Banking Services
Business and Private Banking
Institutional Banking and Markets
Premium Business Services
Wealth Management
New Zealand
Bankwest
International Financial Services
Other (2)
Net profit after tax ("underlying basis")
Investment experience after tax
Net profit after tax ("cash basis")
Defined benefit superannuation plan income/(expense) (2)
Treasury shares valuation adjustment
Hedging and IFRS volatility
Visa Initial Public Offering gain after tax
Investment and restructuring
One-off expenses
Tax on NZ Structured finance transactions
Loss on disposal of controlled entities/investments
Bankwest non cash items
Net profit after tax ("statutory basis")
Balance Sheet
Loans, bills discounted 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 earning liabilities
Assets (on Balance Sheet) - Australia
Assets (on Balance Sheet) - New Zealand
Assets (on Balance Sheet) - Other
(1) Includes investment experience.
2,107
1,911
2011
2010
2009
$M
$M
$M
12,658
7,001
19,659
(8,891)
(1,280)
9,488
(2,637)
(16)
6,835
-
(22)
(265)
-
-
-
-
(7)
(147)
6,394
2,845
1,039
1,004
n/a
581
469
463
n/a
353
6,754
81
6,835
-
(22)
(265)
-
-
-
-
(7)
(147)
6,394
11,868
7,191
19,059
(8,601)
(2,075)
8,383
(2,266)
(16)
6,101
-
(44)
17
-
-
-
(171)
(23)
(216)
5,664
2,461
898
1,173
n/a
592
387
(45)
n/a
457
5,923
178
6,101
-
(44)
17
-
-
-
(171)
(23)
(216)
5,664
10,186
6,632
16,818
(7,765)
(3,048)
6,005
(1,560)
(30)
4,415
(10)
(28)
(245)
-
-
(23)
-
-
614
4,723
736
166
n/a
514
438
113
n/a
537
4,611
(196)
4,415
(10)
(28)
(245)
-
-
(23)
-
-
614
4,723
500,057
667,899
401,147
630,612
37,287
26,217
281,711
576,369
538,843
581,695
54,993
31,211
493,459
646,330
374,663
610,760
35,570
24,688
290,821
553,735
521,338
561,618
56,948
27,764
466,631
620,372
368,721
588,930
31,442
20,738
288,836
481,248
454,258
528,354
59,606
32,412
2008
$M
7,907
6,434
14,341
(7,021)
(930)
6,390
(1,626)
(31)
4,733
9
60
(42)
295
(264)
-
-
-
-
2007
$M
7,036
6,161
13,197
(6,427)
(434)
6,336
(1,782)
(27)
4,527
5
(75)
13
-
-
-
-
-
-
4,791
4,470
721
771
n/a
789
n/a
n/a
555
(1)
4,746
(13)
4,733
9
60
(42)
295
(264)
-
-
-
-
1,766
n/a
n/a
1,445
548
n/a
n/a
461
211
4,431
96
4,527
5
(75)
13
-
-
-
-
-
-
4,791
4,470
361,282
487,572
263,706
461,435
26,137
16,422
205,501
385,667
363,049
410,225
54,312
23,035
315,465
440,157
219,068
415,713
24,444
15,158
245,347
332,492
311,236
360,188
55,160
24,809
(2) Due to the change in expectations on the size and impact of defined benefit superannuation plan (income)/expense, from 1 July 2009 this amount has been included
as part of total expenses (“cash basis”) and is recorded in the Other segment.
94
Commonwealth Bank of Australia Annual Report 2011
Shareholder summary
Dividends per share - fully franked (cents)
Dividends cover - statutory (times)
Dividends cover - cash (times)
Earnings per share (cents)
Basic
Statutory
Cash basis
Fully diluted
Statutory
Cash basis
Dividend payout ratio (%)
Statutory
Cash basis
Net tangible assets per share ($)
Weighted average number of shares (statutory basic) (M)
Weighted average number of shares (statutory fully diluted) (M)
Weighted average number of shares (cash basic) (M)
Weighted average number of shares (cash fully diluted) (M)
Number of shareholders
Share prices for the year ($)
Trading high
Trading low
End (closing price)
Performance ratios (%)
Return on average Shareholders' equity
Statutory
Cash basis
Return on average total assets
Statutory
Cash basis
Capital adequacy - Tier One
Capital adequacy - Tier Two
Capital adequacy - Deductions
Capital adequacy - Total
Net interest margin
Other information (numbers)
Full-time equivalent employees
Branches/services centres (Australia)
Agencies (Australia)
ATM's (proprietary)
EFTPOS terminals
Productivity
Total income per full-time (equivalent) employee ($)
Employee expense/Total income (%)
Total operating expenses/Total income (%)
Five Year Financial Summary
2011
2010
2009
2008
2007
320
1.3
1.4
411.2
438.7
395.1
420.6
78.3
73.2
16.8
1,545
1,668
1,548
1,671
290
1.3
1.4
367.9
395.5
354.2
379.8
79.7
73.9
15.9
1,527
1,640
1,531
1,644
228
1.3
1.3
328.5
305.6
313.4
292.4
73.1
78.2
13.7
1,420
1,548
1,426
1,554
266
1.3
1.3
363.0
356.9
348.7
343.1
74.1
75.0
12.4
1,307
1,424
1,313
1,430
256
1.3
1.3
344.7
347.1
339.7
342.1
75.2
74.2
11.7
1,281
1,344
1,289
1,351
792,765
784,382
776,283
741,072
696,118
55.77
47.05
52.30
18.4
19.5
1.0
1.0
10.01
1.69
-
11.70
2.19
46,060
1,160
3,795
4,173
60.00
36.20
48.64
17.5
18.7
0.9
1.0
9.15
2.34
-
11.49
2.13
45,025
1,147
3,884
4,149
46.69
24.03
39.00
16.8
15.8
0.9
0.8
8.07
2.35
-
10.42
2.10
44,218
1,142
3,859
4,075
62.16
37.02
40.17
19.8
20.4
1.0
1.0
8.17
3.41
-
11.58
2.02
39,621
1,009
3,814
3,301
56.16
42.98
55.25
20.7
21.7
1.1
1.1
7.14
3.41
(0.79)
9.76
2.08
37,873
1,010
3,833
3,242
170,855
165,621
167,025
187,377
171,138
424,186
418,057
386,381
362,384
344,520
24.9
45.5
24.3
45.7
23.3
45.4
25.5
48.9
24.7
49.3
Commonwealth Bank of Australia Annual Report 2011
95
Financial Statements
Income Statements
Statements of Comprehensive Income
Balance Sheets
Statements of Changes in Equity
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 from Ordinary Activities
Average Balances and Related Interest
Income Tax
Dividends
Earnings per Share
Cash and Liquid Assets
Receivables due from Other Financial Institutions
Assets at Fair Value through Income Statement
Derivative Financial Instruments
Available-for-Sale Investments
Loans, Bills Discounted and Other Receivables
Provisions for Impairment
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
Tax Liabilities
Other Provisions
Debt Issues
Bills Payable and Other Liabilities
Loan Capital
Shareholders’ Equity
Share Capital
Share Based Payments
Non-Controlling Interests
Capital Adequacy
Financial Reporting by Segments
Life Insurance Business
Remuneration of Auditors
Lease Commitments
Contingent Liabilities, Contingent Assets and Commitments
Fiduciary Activities
Financial Risk Management
Credit Risk
Market Risk
Liquidity and Funding Risk
Retirement Benefit Obligations
Investments in Associated Entities and Joint Ventures
Key Management Personnel
Related Party Disclosures
Notes to the Statements of Cash Flows
Disclosures about Fair Value of Financial Instruments
Securitisation
Controlled Entities
Subsequent Events
96
Commonwealth Bank of Australia Annual Report 2011
97
98
99
100
102
104
118
120
121
127
130
131
131
132
132
134
139
142
146
149
151
153
153
153
154
154
155
155
156
158
159
166
168
169
175
176
177
180
182
182
183
185
186
186
203
206
210
214
215
218
220
222
226
226
229
Income Statements
For the year ended 30 June 2011
Interest income
Interest expense
Net interest income
Other banking income
Net banking operating income
Funds management income
Investment revenue/(expense)
Claims and policyholder liability (expense)/revenue
Net funds management operating income
Premiums from insurance contracts
Investment revenue/(expense)
Claims and policyholder liability expense from
insurance contracts
Net insurance operating income
Total net operating income
Gain on acquisition of controlled entities
Impairment expense
Operating expenses
Net profit before income tax
Corporate tax expense
Policyholder tax (expense)/benefit
Net profit after income tax
Non-controlling interests
Net profit attributable to Equity holders of the Bank
Note
2
2
2
2
2
2,14
2
2
5
5
Financial Statements
2011
$M
37,304
(24,697)
12,607
3,630
16,237
1,996
854
(808)
2,042
1,884
547
2010
$M
32,215
(20,293)
11,922
4,208
16,130
1,906
975
(953)
1,928
1,794
687
(1,313)
1,118
(1,251)
1,230
Group
2009
$M
31,519
(21,218)
10,301
3,914
14,215
1,618
(859)
731
1,490
1,651
(232)
(650)
769
2011
$M
32,945
(23,163)
9,782
5,617
15,399
Bank
2010
$M
27,754
(18,603)
9,151
5,260
14,411
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
19,397
19,288
16,474
15,399
14,411
-
(1,280)
(9,060)
9,057
(2,481)
(166)
6,410
(16)
6,394
-
(2,379)
(8,716)
8,193
(2,383)
(130)
5,680
(16)
5,664
983
(3,048)
(7,960)
6,449
(1,860)
164
4,753
(30)
4,723
-
(1,080)
(6,113)
8,206
(1,726)
-
6,480
-
6,480
-
(1,193)
(5,917)
7,301
(1,686)
-
5,615
-
5,615
Group
2009
The above Income Statements should be read in conjunction with the accompanying notes.
2011
2010
Note
Cents per share
Earnings per share:
Basic
Fully diluted
7
7
411. 2
395. 1
367. 9
354. 2
328. 5
313. 4
Commonwealth Bank of Australia Annual Report 2011
97
Financial Statements
Statements of Comprehensive Income
For the year ended 30 June 2011
Profit from ordinary activities after income tax for the financial
year
Other comprehensive income/(expense):
Actuarial gains and losses from defined benefit superannuation plans
Gains and losses on cash flow hedging instruments:
Recognised in equity
Transferred to Income Statement
Gains and losses on available-for-sale investments:
Recognised in equity
Transferred to Income Statement on disposal
Transferred to Income Statement on impairment
Revaluation of properties
Foreign currency translation reserve
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
Other comprehensive income/(expense) net of income tax
Total comprehensive income for the financial year
Total comprehensive income for the financial year is attributable to:
Equity holders of the Bank
Non-controlling interests
Total comprehensive income for the financial year
2011
$M
2010
$M
Group
2009
$M
2011
$M
Bank
2010
$M
6,410
5,680
4,753
6,480
5,615
(89)
(64)
(739)
(89)
(64)
(754)
769
124
(24)
-
6
(546)
16
(28)
-
-
(526)
5,884
5,868
16
5,884
(239)
828
(1,630)
(21)
327
(24)
2
50
(19)
(1)
(77)
(9)
(193)
581
6,261
6,245
16
6,261
10
(24)
37
(25)
168
94
(37)
9
497
(1,661)
3,092
3,062
30
3,092
(748)
650
264
(24)
-
9
(204)
10
(73)
-
23
(182)
6,298
6,298
-
6,298
11
208
160
(16)
-
39
(67)
1
(33)
(7)
(71)
161
5,776
5,776
-
5,776
The above Statements of Comprehensive Income should be read in conjunction with the accompanying notes.
98
Commonwealth Bank of Australia Annual Report 2011
Balance Sheets
As at 30 June 2011
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, bills discounted and other receivables
Bank acceptances of customers
Shares in and loans to controlled entities
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
Non-controlling interests
Total Shareholders' equity
Note
2011
$M
Financial Statements
Group
2010
$M
10,119
10,072
22,851
15,940
654
27,689
32,915
493,459
11,569
-
2,351
1,490
9,420
1,270
6,482
2011
$M
10,979
10,123
Bank
2010
$M
8,711
9,766
17,765
18,775
-
300
30,731
75,699
387,888
10,734
47,357
1,526
1,343
3,726
1,112
4,917
-
-
27,363
65,779
377,195
11,569
49,809
1,506
1,194
3,382
1,242
4,706
13,241
10,393
20,469
14,998
824
30,317
45,171
500,057
10,734
-
2,366
1,712
9,603
1,300
6,681
667,866
646,281
604,200
580,997
33
49
33
49
667,899
646,330
604,233
581,046
401,147
374,663
332,964
307,844
15,899
10,491
33,976
10,734
-
1,222
301
1,277
13,652
118,652
1,048
10,652
619,051
11,561
630,612
37,287
23,602
939
392
11,826
36,759
528
37,287
12,608
15,342
24,884
11,569
-
1,056
221
1,197
14,592
130,210
880
10,025
597,247
13,513
610,760
35,570
23,081
939
1,089
9,938
35,047
523
35,570
15,686
4,700
32,817
10,734
52,353
1,133
-
957
-
12,422
4,613
23,689
11,569
52,411
1,016
-
934
-
94,385
107,039
-
9,348
555,077
11,808
566,885
37,348
23,896
1,895
1,964
9,593
-
10,733
532,270
13,575
545,845
35,201
23,379
1,895
2,047
7,880
37,348
35,201
-
-
37,348
35,201
8
9
10
11
12
13
49
15
43
16
5
17
18
19
20
21
11
22
22
23
33
24
25
26
28
28
27
27
30
The above Balance Sheets should be read in conjunction with the accompanying notes.
Commonwealth Bank of Australia Annual Report 2011
99
Financial Statements
Statements of Changes in Equity
For the year ended 30 June 2011
Group
Shareholders'
equity
attributable
Ordinary
share
Other
equity
to Equity
Non-
Total
Retained
holders controlling Shareholders'
capital
instruments
Reserves
profits of the Bank
interests
equity
$M
520
16
-
-
-
-
(13)
523
16
-
-
-
-
(11)
528
$M
31,442
6,261
(3,621)
1,457
127
(20)
(76)
35,570
5,884
(4,707)
511
16
4
9
37,287
As at 30 June 2009
Total comprehensive income for the
financial year
Transactions with equity holders in
their capacity as equity holders:
Dividends paid
Dividend reinvestment plan (net of
issue costs)
Other equity movements:
Share based payments
(Purchase)/sale and vesting of
treasury shares
Other changes
As at 30 June 2010
Total comprehensive income for the
financial year
Transactions with equity holders in
their capacity as equity holders:
Dividends paid
Dividend reinvestment plan (net of
issue costs)
Other equity movements:
Share based payments
(Purchase)/sale and vesting of
treasury shares
Other changes
As at 30 June 2011
$M
21,642
$M
939
-
-
1,457
2
(20)
-
-
-
-
-
-
-
23,081
939
-
-
511
6
4
-
-
-
-
-
-
-
23,602
939
$M
516
645
-
-
125
-
(197)
1,089
(437)
-
-
10
-
$M
7,825
5,600
$M
30,922
6,245
(3,621)
(3,621)
-
-
-
134
9,938
6,305
1,457
127
(20)
(63)
35,047
5,868
(4,707)
(4,707)
-
-
-
511
16
4
20
36,759
(270)
392
290
11,826
The above Statements of Changes in Equity should be read in conjunction with the accompanying notes.
100
Commonwealth Bank of Australia Annual Report 2011
Statements of Changes in Equity (continued)
For the year ended 30 June 2011
As at 30 June 2009
Total comprehensive income for the financial year
Transactions with equity holders in their capacity as equity holders:
Dividends paid
Dividend reinvestment plan (net of issue costs)
Other equity movements:
Share based payments
Sale/(purchase) and vesting of treasury shares
Other changes
As at 30 June 2010
Total comprehensive income for the financial year
Transactions with equity holders in their capacity as equity holders:
Dividends paid
Dividend reinvestment plan (net of issue costs)
Other equity movements:
Share based payments
Sale/(purchase) and vesting of treasury shares
Other changes
As at 30 June 2011
Financial Statements
Ordinary
share
Other
equity
Bank
Shareholders'
equity
attributable
to Equity
Retained
holders
capital
instruments
Reserves
profits of the Bank
$M
21,825
$M
1,895
-
-
1,457
2
95
-
23,379
-
-
511
6
-
-
-
-
-
-
-
-
1,895
-
-
-
-
-
-
$M
1,697
225
-
-
125
-
-
2,047
(93)
-
-
10
-
-
$M
6,009
5,551
(3,587)
-
-
-
(93)
7,880
6,391
(4,678)
-
-
-
-
$M
31,426
5,776
(3,587)
1,457
127
95
(93)
35,201
6,298
(4,678)
511
16
-
-
23,896
1,895
1,964
9,593
37,348
The above Statements of Changes in Equity should be read in conjunction with the accompanying notes.
Dividends per share attributable to shareholders of the Bank:
Ordinary shares
Trust preferred securities
2011
2010
Note
Cents per share
Group
2009
6
320
6,020
290
6,715
228
8,142
Commonwealth Bank of Australia Annual Report 2011
101
Financial Statements
Statements of Cash Flows (1)
For the year ended 30 June 2011
Cash flows from operating activities
Interest received
Interest paid
Other operating income received
Expenses paid
Income taxes paid
Net decrease/(increase)in assets at fair value through
Income Statement (excluding life insurance)
Net increase/(decrease) in liabilities at fair value through
Income Statement:
Life insurance:
Investment income
Premiums received (2)
Policy payments (2)
Other liabilities at fair value through Income Statement
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 available-for-sale investments:
Purchases
Proceeds from sale
Proceeds at or close to maturity
Net change in deposits with regulatory authorities
Net increase in loans, bills discounted and other receivables
Net decrease/(increase) 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 decrease/(increase) in other assets
Net increase in deposits and other public borrowings
Net increase/(decrease) in payables due to other financial
institutions not at call
Net (decrease)/increase in securities sold under
agreements to repurchase
Net decrease/(increase) in other liabilities
Changes in operating assets and liabilities arising
from cash flow movements
Net cash provided by/(used in) operating activities 46(a)
Cash flows from investing activities
Payments for acquisition of controlled entities
Net proceeds from disposal of controlled entities
Net proceeds from disposal of entities and businesses (net
of cash disposals)
Dividends received
46(c)
Net amounts received from/(paid to) controlled entities
Proceeds from sale of property, plant and equipment
Purchases of property, plant and equipment
Payments for acquistions of investments in associates/joint
ventures
Purchase of intangible assets
Sale/(purchase) of assets held for sale
Net cash (used in)/provided by investing activities
Note
2011
$M
36,961
(24,278)
5,725
(8,474)
(2,370)
2010
$M
31,663
(19,387)
5,573
(7,766)
(2,022)
Group
2009
$M
31,745
(20,986)
5,551
(7,334)
(2,043)
2011
$M
32,542
(22,814)
3,558
(5,837)
(2,087)
Bank
2010
$M
27,197
(17,625)
3,181
(4,988)
(1,628)
4,452
(2,466)
4,864
1,531
(3,962)
552
2,200
(3,374)
(4,317)
335
2,094
(3,901)
(1,200)
275
2,063
(3,144)
287
-
-
-
13
7,077
2,923
11,278
6,906
-
-
-
1,260
3,435
(62,733)
(60,021)
(37,200)
(49,182)
(36,325)
4,440
45,417
(72)
4,107
44,201
-
4,996
22,189
25
3,919
34,718
(14)
4,095
26,635
2
(11,489)
(28,999)
(52,878)
(11,842)
(25,159)
1,115
2,725
(5,575)
1,134
2,641
(2,834)
776
(507)
(2,194)
751
(4,101)
(5,660)
(11,950)
5,914
201
31,893
8,384
254
8,852
14,478
(77)
47,394
-
-
41
29,066
-
-
193
5,321
5,112
(1,157)
(8,012)
4,532
(1,112)
(1,698)
(575)
10,590
17,667
-
19
15
26
-
27
(443)
(164)
(533)
12
(1,041)
(2,814)
(240)
(29,592)
(26,669)
-
(11)
(22)
71
-
70
(293)
(414)
(454)
542
(511)
6,985
344
(19,788)
(8,510)
(1,741)
-
-
76
-
9
(987)
(144)
(405)
(22)
(1,963)
(618)
7,597
14,503
-
-
-
2,210
394
7
(277)
(148)
(487)
12
(2,650)
1,309
(24,299)
(20,864)
-
44
-
1,648
(23,823)
61
(230)
(396)
(427)
346
(3,214)
1,711
(22,777)
(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.
The above Statements of Cash Flows should be read in conjunction with the accompanying notes.
102
Commonwealth Bank of Australia Annual Report 2011
Financial Statements
Statements of Cash Flows (continued) (1)
For the year ended 30 June 2011
Note
Cash flows from financing activities
Proceeds from issue of shares (net of issue costs)
Dividends paid (excluding Dividend Reinvestment Plan)
Net proceeds from issuance of debt securities
Net sale/(purchase) of treasury shares
Issue of loan capital
Redemption of loan capital
Other
Net cash (used in)/provided by financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
46(b)
2011
$M
6
(4,188)
(8,321)
4
-
(1,064)
(52)
(13,615)
3,011
4,917
7,928
2010
$M
2
(2,149)
30,128
(20)
3,707
(1,760)
3
29,911
2,731
2,186
4,917
Group
2009
$M
4,830
(2,620)
10,253
(14)
500
(1,250)
(54)
11,645
(79)
2,265
2,186
2011
$M
5
(4,157)
(8,092)
-
-
(911)
(214)
(13,369)
2,845
3,046
5,891
Bank
2010
$M
2
(2,119)
43,042
95
3,707
(1,760)
284
43,251
(390)
3,436
3,046
(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.
The above Statements of Cash Flows should be read in conjunction with the accompanying notes.
Commonwealth Bank of Australia Annual Report 2011
103
Notes to the Financial Statements
Note 1 Accounting Policies
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 2011, were approved and
authorised for issue by the Board of Directors on 10 August
2011.
The Bank is incorporated and domiciled in Australia. It is a
company limited by shares that are publicly traded on the
Australian Securities Exchange. The address of its registered
office is Ground Floor, Tower 1, 201 Sussex Street, Sydney,
NSW 2000, 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.
(a) Bases of Accounting
This General Purpose Financial Report for the year ended 30
June 2011 has been prepared in accordance with Australian
Accounting Standards (the standards), which include Australian
Interpretations by virtue of AASB 1048 ‘Interpretation and
the
Application of Standards’, and
Corporations Act 2001.
the requirements of
The basis of the standards is the International Financial
Reporting Standards (IFRS) as issued by the International
Accounting Standards Board (IASB). As a result of complying
with the standards, the Group Financial Statements comply with
IFRS, and interpretations as issued by the International Financial
Reporting Interpretations Committee (IFRIC).
(b) Basis of Preparation
The principal accounting policies adopted in the preparation of
this financial report and that of the previous financial year are set
out below. These policies have been consistently applied to all
the periods presented, unless otherwise stated. The assets and
liabilities are presented in order of liquidity on the Balance Sheet.
Historical Cost Convention
This financial report has been prepared under the historical cost
convention, as modified by the revaluation of investment
securities available for sale and certain other assets and
liabilities (including derivative instruments) at fair value.
Use of Estimates and Assumptions
The preparation of the financial report requires the use of certain
critical accounting estimates. It also requires management to
exercise its judgement in the process of applying the Group’s
accounting policies. The estimates and associated assumptions
are based on historical experience and other factors that are
considered to be relevant. Actual results may differ from these
estimates. The estimates and underlying assumptions are
reviewed on an ongoing basis. Areas involving a higher degree
of judgement or complexity, or areas where assumptions and
estimates are significant are discussed in Note 1 (jj).
Comparatives
Where necessary, comparative information has been restated to
conform with changes in presentation in the current year.
104
Commonwealth Bank of Australia Annual Report 2011
Rounding of Amounts
The Bank is of a kind referred to in ASIC Class Order 98/0100
(as amended), relating to the rounding off of amounts in the
Financial Report. Amounts in the Financial Report have been
rounded off in accordance with that Class Order to the nearest
million dollars unless otherwise indicated.
The Financial Report is presented in Australian dollars.
Segment Reporting
Operating segments are reported based on the Group’s
organisational and management structures. Senior management
review the Group’s internal reporting based around these
to assess performance and allocate
segments,
resources.
in order
All transactions between segments are conducted on an arm’s
length basis, with inter-segment revenue and costs being
eliminated in “Other”.
Changes in Accounting Policies
The Group has continued to apply the accounting policies used
for the 2010 Annual Report and has adopted the following
amendments to the standards, which are of a technical or
clarifying nature and do not have a material impact on the Bank
or the Group:
•
•
•
•
•
AASB 2009-5
Accounting Standards
Improvements Project’;
‘Further Amendments
from
arising
to Australian
the Annual
AASB 2009-8 ‘Amendments to Australian Accounting
Standards - Group Cash-settled Share-based Payment
Transactions’;
AASB 2009-10 ‘Amendments to Australian Accounting
Standards – Classification of Rights Issues’;
AASB Interpretation 19 ‘Extinguishing Financial Liabilities
with Equity Instruments’ and AASB 2009-13 ‘Amendments
from
to Australian Accounting Standards arising
Interpretation 19’; and
AASB 2010-3 ‘Amendments to Australian Accounting
Standards arising from the Annual Improvements Project’.
Future Accounting Developments
The following amendments to existing standards have been
published and are mandatory for accounting periods beginning
on or after 1 January 2011 or later periods, but have not been
adopted. They are not expected to result in significant changes
to the Group’s accounting policies.
•
•
•
•
•
•
•
•
•
to Australian
the Annual
‘Further Amendments
from
arising
AASB 124 ‘Related Party Disclosures’ and AASB 2009-12
‘Amendments to Australian Accounting Standards’;
AASB 2010-4
Accounting Standards
Improvements Project’;
AASB 2010-5 ‘Amendments to Australian Accounting
Standards’;
AASB 2010-6 ‘Amendments to Australian Accounting
Standards – Disclosures on Transfers of Financial Assets’;
AASB 2010-8 ‘Amendments to Australian Accounting
Standards – Deferred Tax: Recovery of Underlying Assets’;
AASB 2011-1 ‘Amendments to Australian Accounting
Standards arising from the Trans-Tasman Convergence
Project’;
AASB 11 ‘Joint Arrangements’;
AASB 13 ‘Fair Value Measurement’; and
AASB 1054 ‘Australian Additional Disclosures’.
Notes to the Financial Statements
Note 1 Accounting Policies (continued)
AASB 9 ‘Financial Instruments’ contains new requirements for
classification, measurement and de-recognition of financial
assets and liabilities, replacing the corresponding requirements
Instruments: Recognition and
in AASB 139
Measurement’. It will introduce significant changes in the way
that the Group accounts for financial instruments.
‘Financial
Adoption of the standard is not mandatory until accounting
periods beginning on or after 1 January 2013 however early
adoption is permitted. The key changes include:
•
•
Financial assets: financial assets will be classified as either
amortised cost or fair value through Income Statement,
except for certain non-trading equity investments which
through Other
may be classified as
Comprehensive Income (OCI); and
Financial liabilities: gains and losses on own credit arising
from financial liabilities designated at fair value through
profit or loss will be excluded from the Income Statement
and instead taken to OCI.
fair value
By June 2012, it is expected that IFRS 9 ‘Financial Instruments’
will include new requirements for impairment, offsetting and
hedge accounting. It will introduce significant changes in the way
that the Group accounts for financial instruments. The key
changes proposed relate to:
•
•
Impairment: both expected losses and incurred losses will
be reflected in impairment allowances for loans and
advances;
Hedge accounting: hedge accounting will be more closely
aligned with financial risk management; and
• Offsetting: the conditions for offsetting financial assets and
financial liabilities in the Balance Sheet will be clarified.
AASB 10 ‘Consolidated Financial Statements’ introduces control
as the single basis for consolidation for all entities, regardless of
the nature of the investee. AASB 10 replaces those parts of
AASB 127 ‘Consolidated and Separate Financial Statements’
that address when and how an investor should prepare
consolidated
replaces SIC-12
‘Consolidation – Special Purpose Entities’ in its entirety.
financial statements and
This approach comprises a series of indicators of control,
requiring an analysis of all facts and circumstances and the
application of judgement in making the control assessment.
Concurrent with the issue of AASB 10, the following standards
were also issued:
•
•
•
•
AASB 11 ‘Joint Arrangements’;
AASB 12 ‘Disclosure of Interests in Other Entities’;
AASB 127 ‘Separate Financial Statements’, amended for
the issuance of AASB 10; and
AASB 128 ‘Investments in Associates’, amended for
conforming changes based on the issuance of AASB 10
and AASB 11.
Each of these standards has an effective date for annual periods
beginning on or after 1 January 2013, with early adoption
permitted so long as each of the standards in this package is
also applied early.
The key changes include:
•
•
Using control as
for consolidation,
the single basis
irrespective of the nature of the investee, eliminating the
risks and rewards approach included in SIC-12;
The definition of control includes three elements: power
over an investee, exposure or rights to variable returns of
the investee, and the ability to use power over the investee
to affect the investor’s returns; and
•
An investor would reassess whether it controls an investee
if there is a change in facts and circumstances.
AASB 12 ‘Disclosure of Interests in Other Entities’ applies to
entities that have an interest in subsidiaries, joint arrangements,
associates or unconsolidated structured entities. It serves to
integrate the disclosure requirements of interests in other
entities, currently included in several standards, and also adds
additional requirements in a number of areas. The disclosure
requirements are extensive and significant effort will be required
to accumulate the necessary information.
AASB 119 ‘Employee Benefits’ has been amended, which will
result in changes to the recognition and measurement of defined
benefit pension expense and termination benefits, and to the
disclosures for all employee benefits. These changes could
affect a number of performance indicators, and significantly
increase the volume of disclosures. The key changes include:
•
•
Annual expense for a funded benefit plan will include net
interest expense or income, calculated by applying the
discount rate to the net defined benefit asset or liability.
This will replace the finance charge and expected return on
plan assets, and may increase the benefit expense; and
Benefit cost will be split between (i) the cost of benefits
accrued in the current period (service cost) and benefit
changes (past-service cost, settlements and curtailments);
and (ii) finance expense or income.
The amendment is effective for periods beginning on or after 1
January 2013, with early adoption being permitted.
AASB 101 ‘Presentation of Financial Statements’ has been
amended. The amendment changes the disclosure of items
presented in OCI in the Statement of Comprehensive Income.
The key changes include:
•
Items are presented separately, in two groups in OCI,
based on whether or not they may be recycled to profit or
loss in the future; and
• Where OCI items have been presented before tax, the
amount of tax related to the two groups will need to be
shown.
The amendment is effective for annual periods beginning on or
after 1 July 2012, with early adoption permitted.
In addition to the above, the IASB plans to issue new standards
on Leases, Insurance Contracts and Revenue Recognition. The
Group will consider the financial impacts of these new standards
as they are finalised.
(c) Principles of Consolidation
Subsidiaries
The consolidated Financial Report comprises the financial report
of the Bank and its subsidiaries. Subsidiaries are all those
entities (including special purpose entities) over which the Bank
has the power to govern directly or indirectly the decision-
making in relation to financial and operating policies, so as to
require those entities to conform with the Bank’s objectives. The
effects of all transactions between entities in the Group are
eliminated in full. Non-controlling interests in the results and
equity of subsidiaries, where the parent owns less than 100 per
cent of the issued capital, are shown separately in the
consolidated Income Statement and consolidated Balance
Sheet, respectively.
Where control of an entity was obtained during the financial
year, its results have been included in the consolidated Income
Statement from the date on which control commenced.
Commonwealth Bank of Australia Annual Report 2011
105
Notes to the Financial Statements
Note 1 Accounting Policies (continued)
Where control of an entity ceased during the financial year, its
results are included for that part of the financial year during
which control existed.
Impairment of Subsidiaries
Investments in subsidiaries are tested annually for impairment or
more frequently if events or changes in circumstances indicate
that the carrying amount may not be recoverable. An impairment
loss is recognised for the amount by which the investments’
carrying amount exceeds its recoverable amount (which is the
higher of fair value less costs to sell and value in use). At each
Balance Sheet date, the investments in subsidiaries that have
been impaired are reviewed for possible reversal of the
impairment.
Interests in Associates and Joint Ventures Accounted for
Using the Equity Method
Associates and joint ventures are entities over which the Group
has significant influence or joint control, but not control, and are
accounted for under the equity method. The equity method of
accounting is applied in the consolidated Financial Report and
involves the recognition of the Group’s share of its associates’
and joint ventures’ post-acquisition profits or losses in the
Income Statement, and its share of post acquisition movements
in OCI.
(d) Revenue Recognition
Revenue is measured at the fair value of the consideration
received or receivable. Revenue is recognised for each major
revenue stream as follows:
Interest Income
Interest income is brought to account using the effective interest
method. The effective interest method calculates the amortised
cost of a financial instrument and allocates the interest income
or interest expense over the relevant period. The effective
interest rate is the rate that discounts estimated future cash
payments or receipts through the expected life of the financial
instrument or, when appropriate, a shorter period, to the net
carrying amount of the financial asset or liability. Fees and
transaction costs associated with loans, are capitalised and
included in the effective interest rate and recognised in the
Income Statement, over the expected life of the instrument.
Interest income on finance leases is brought to account
progressively over the life of the lease, consistent with the
outstanding investment balance.
Fee and Commission Income
Fee and commission income and expense that are integral to
the effective interest rate on a financial asset or liability are
capitalised and included in the effective interest rate and
recognised in the Income Statement over the expected life of the
instrument.
Commitment fees to originate a loan, which is unlikely to be
drawn down, are recognised as fee income as the service is
provided.
Fees and commissions that relate to the execution of a
significant act (for example, advisory or arrangement services,
placement fees and underwriting fees) are recognised when the
significant act has been completed. Fees charged for providing
ongoing services (for example, maintaining and administering
existing facilities) are recognised as income over the period the
service is provided.
106
Commonwealth Bank of Australia Annual Report 2011
Other Income
Trading income is recognised when earned based on changes
in fair value of financial instruments and is recorded from trade
date.
(e) Foreign Currency Translation
Functional and Presentation Currency
Items included in the financial statements of each of the Group’s
entities are measured using the currency of the primary
economic environment
the entity operates (the
functional currency). The consolidated financial statements are
presented in Australian dollars, which is the Bank’s functional
and presentation currency.
in which
Foreign Currency Transactions
Foreign currency transactions are translated into the functional
currency, using the exchange rates prevailing at the dates of the
transactions.
Monetary assets and liabilities resulting from foreign currency
transactions are subsequently translated at the spot rate at
reporting date.
Exchange differences arising on the settlement of monetary
items, or on translating monetary items at rates different to those
at which they were initially recognised or included in a previous
financial report, are recognised in the Income Statement in the
period in which they arise.
Translation differences on non-monetary
items, such as
derivatives measured at fair value through Income Statement,
are reported as part of the fair value gain or loss on these items.
Translation differences on non-monetary items measured at fair
value through equity, such as equities classified as available-for-
sale financial assets, are recognised in equity through OCI.
Foreign Operations
The results and financial position of all Group entities (none of
which has the currency of a hyperinflationary economy), that
the Group’s
have a
presentation currency, are
the Group’s
presentation currency as follows:
functional currency different
translated
from
into
•
•
liabilities of each
foreign operation are
Assets and
translated at the rates of exchange at Balance Sheet date;
Revenue and expenses of each foreign operation are
translated at the average exchange rate for the period,
unless this average is not a reasonable approximation of
the rate prevailing on transaction date, in which case
revenue and expenses are translated at the exchange rate
at transaction date; and
•
All resulting exchange differences are recognised in the
foreign currency translation reserve.
When a foreign operation is disposed of, exchange differences
are recognised in the Income Statement as part of the gain or
loss on sale.
(f) Cash and Liquid Assets
Cash and liquid assets include 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
is
recognised in the Income Statement using the effective interest
method.
the outstanding balance.
Interest
Note 1 Accounting Policies (continued)
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.
(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
amortised cost using the effective interest rate method.
(h) Financial Instruments
Financial Assets
The accounting policy for each class of financial instrument is
detailed below.
The Group classifies its financial assets in the following
categories: financial assets at fair value through Income
loans and receivables, and
Statement, derivative assets,
available-for-sale investments. Management determines the
classification of its financial assets at initial recognition.
Purchases and sales of financial assets at fair value through
Income Statement, and available-for-sale are recognised on
trade date, the date on which the Group commits to purchase or
sell the asset. Loans are recognised when cash is advanced to
the borrowers. Financial assets at fair value through Income
Statement are recognised initially at fair value.
All other financial assets are recognised initially at fair value, as
well as directly attributable transaction costs. Financial assets
are derecognised, when the rights to receive cash flows from the
financial assets have expired, or where
the Group has
transferred substantially all the risks and rewards of ownership.
The Group has not classified any of its financial assets as held
to maturity investments.
Financial Liabilities
The Group classifies its financial liabilities in the following
categories: liabilities at fair value through Income Statement,
liabilities at amortised cost and derivative liabilities.
Financial liabilities are initially recognised at fair value less
transaction costs, except where they are designated at fair
value, in which case, transaction costs are expensed as
incurred. They are subsequently measured at amortised cost,
except for derivatives and liabilities at fair value, which are held
at fair value through Income Statement. Financial liabilities are
recognised when an obligation arises and derecognised when it
is discharged.
A financial liability is derecognised when the obligation under the
liability is discharged, cancelled or expires. Where an existing
financial liability is replaced by another from the same lender on
substantially different terms, or the terms of an existing liability
are substantially modified, such an exchange or modification is
treated as a derecognition of the original liability and the
recognition of a new liability; The difference in the respective
carrying amounts is recognised in Income Statement.
Offsetting
Financial assets and liabilities are offset 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.
Notes to the Financial Statements
Recognition of Deferred Day One Profit or Loss
The best evidence of fair value at initial recognition is the
transaction price, unless the fair value of that instrument is
evidenced by comparison with other observable current market
transactions in the same instrument, or based on a valuation
technique whose variables include only data from observable
markets.
into
fair value
transactions where
is
The Group enters
determined using valuation models, for which not all inputs are
market observable prices or rates. Such a financial instrument is
initially recognised at the transaction price, which is the best
indicator of fair value, although the value obtained from the
relevant valuation model may differ. The difference between the
transaction price and the model value, commonly referred to as
‘day one profit or loss’, is not recognised immediately in the
Income Statement.
The timing of recognition of deferred day one profit or loss is
determined individually. It is either amortised over the life of the
transaction, deferred until the instrument’s fair value can be
determined using market observable inputs, or realised through
settlement. The financial instrument is subsequently measured
at fair value, adjusted for the deferred day one profit or loss.
Subsequent changes in fair value are recognised immediately in
the Income Statement, without reversal of deferred day one
profits or losses.
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
the Group derecognises
assets., or when control is retained the assets are recognised to
the extent of the Group’s continuing involvement.
transferred,
(i) Assets at Fair Value Through Income Statement
Assets classified 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. 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.
financial assets are managed and
These assets are recognised on trade date at fair value, with
transaction costs including brokerage, commissions and fees
expensed through the Income Statement. Subsequent to initial
recognition, where an active market exists, fair value is
measured using quoted market bid prices. In a trading portfolio
with offsetting risk positions, quoted mid prices, where available,
are used to measure fair value.
Non-market quoted assets are valued using valuation
techniques based on market observable inputs. In a limited
number of instances, valuation techniques are based on non-
market observable inputs.
Subsequent to initial recognition, 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.
Commonwealth Bank of Australia Annual Report 2011
107
Notes to the Financial Statements
Note 1 Accounting Policies (continued)
In addition, the Group measures bills discounted intended to be
sold into the market at fair value, which are classified within
loans, bills discounted and other receivables.
Assets classified at fair value through Income Statement are
further classified into three sub-categories: trading, insurance
and other.
Trading
Trading assets are debt and equity securities, that are actively
traded.
Insurance
Insurance assets are investments that back life insurance
contracts and life investment contracts.
Other
Other investments include financial assets, which the Group has
designated at fair value through Income Statement at inception,
to either eliminate an accounting mismatch or as they are
managed on a fair value basis.
(j) Available-for-Sale Investments
Available-for-sale investments are public and other debt and
equity securities that are not classified at fair value through
Income Statement or as loans and receivables.
including
transaction costs. Subsequent
Available-for-sale investments are initially recognised at fair
value
initial
recognition, where an active market exists, fair value is
measured using quoted market bid prices. Quoted mid prices,
where available, are used to measure fair value in a portfolio
with offsetting risk positions.
to
Non-market quoted instruments are valued using valuation
techniques, based on observable inputs. In a limited number of
instances, valuation techniques are not based on observable
market data.
Equity investments classified as available for sale, whose fair
value cannot be reliably measured, are valued at cost. Gains
and losses arising from changes in fair value, are recognised in
the available-for-sale investments’ reserve within equity, net of
applicable income taxes until such investments are sold,
collected, otherwise disposed of, or become impaired. Interest,
premiums and dividends are recognised in income when
earned.
Available-for-sale investments are tested for impairment in line
with Note 1 (n).
Upon disposal or impairment, the accumulated change in fair
value within the available-for-sale investments’ reserve is
transferred to the Income Statement and reported within other
operating income.
(k) Repurchase Agreements
Securities sold under agreements to repurchase, are recognised
within the available-for-sale investments or assets at fair value
for
through
accordingly.
Income Statement categories and accounted
A liability is recognised within deposits in respect of the
obligation
reverse
repurchase agreements are recorded within cash and liquid
assets.
repurchase. Securities held under
to
108
Commonwealth Bank of Australia Annual Report 2011
(l) Loans, Bills Discounted and Other Receivables
Loans, bills discounted and other receivables are non-derivative
financial assets, with fixed and determinable payments that are
not quoted in an active market. They are measured at amortised
cost, with the exception of bills discounted, which are measured
at fair value.
Loans, bills discounted and other receivables include overdrafts,
home loans, credit card and other personal lending, term loans,
bill financing, redeemable preference shares, securities and
finance leases. Initially recognised at fair value, including direct
and incremental transaction costs, loans and receivables are
subsequently measured at amortised cost using the effective
interest method and are presented net of provisions for
impairment. Bills discounted (bank acceptances) intended to be
sold into the market are measured at fair value until sold.
Non-Performing Facilities
Individual provisions for impairment are recognised to reduce
the carrying amount of loans, bills discounted and other
receivables 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 the
Income Statement using the original effective interest rate.
Restructured Facilities
When the original contractual terms of facilities (primarily loans)
are modified, they become classified as restructured.
These facilities 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 facility 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 or
Other Assets Acquired Through Security Enforcement in the
Balance Sheet.
Impairment of Loans, Bills Discounted and Other
Receivables
The Group has individually assessed and collective provisions
for impairment as explained in Note 1 (n).
(m) Leases
When the Group is a lessor, leases are classified as either
finance leases or operating leases. Under a finance lease,
substantially all the risks and rewards incidental to legal
ownership, are transferred to the lessee. In contrast, an
operating lease exists where the leased assets are allocated to
the lessor.
In its capacity as a lessor, the Group recognises the assets held
under finance leases in the Balance Sheet, as loans at an
amount equal to the net investment in the lease.
Note 1 Accounting Policies (continued)
The recognition of finance income is based on a pattern
reflecting a constant periodic return on the Group’s net
investment in the finance leases. Finance lease income is
included within interest income in the Income Statement.
In its capacity as a lessor, the Group recognises the assets held
under operating leases in the Balance Sheet as property, plant
and equipment and depreciates the assets accordingly.
Operating lease revenue is recognised in the Income Statement
on a straight line basis over the lease term.
When the Group is a lessee, it engages in operating leases for
which rental expense is recognised on a straight line basis over
the lease term.
(n) Provisions for Impairment
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. This can arise 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, Bills Discounted and Other Receivables
The Group assesses at each Balance Sheet date whether there
is any objective evidence of impairment. If there is objective
evidence that an impairment loss on loans, bills discounted 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.
impairment. The Group has
Loans and bills discounted are presented net of provisions for
loan
individually assessed
provisions and collectively assessed provisions. Individually
assessed provisions are made against financial assets that are
individually significant, or which have been individually assessed
as impaired.
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 credit risk characteristics, are estimated on the basis of
historical loss experience. Loss experience is adjusted on the
basis of current observable data to reflect the effects of current
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 Income Statement.
Notes to the Financial Statements
Available-for-Sale Investments
The Group assesses at each Balance Sheet date, whether there
is any objective evidence of impairment. For available-for-sale
debt securities, the Group uses the same indicators as loans,
bills discounted and other receivables. For available-for-sale
equity securities, a significant or prolonged decline in the fair
value below the cost is considered in determining whether the
asset is impaired. If any such evidence exists for available-for-
sale securities, cumulative losses are removed from equity and
recognised in the Income Statement. If, in a subsequent period,
the fair value of an available-for-sale debt security increases and
the increase can be linked objectively to an event occurring after
the impairment event, the impairment is reversed through the
Income Statement. However, impairment losses on available-
for-sale equity securities are not reversed through the Income
Statement.
Goodwill, Intangibles and Other Non-Financial Assets
Goodwill and intangible assets that have an indefinite useful life,
are not subject to amortisation and are tested annually for
impairment, or more
in
circumstances indicate that the carrying amount may not be
recoverable.
if events or changes
frequently
All definite useful life intangibles, are tested for impairment,
should an event or change in circumstance indicate that the
carrying amount may not be recoverable.
If any such indications exist, the asset’s carrying amount is
written down to the asset’s estimated recoverable amount and
the loss is recognised in the Income Statement 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.
An impairment loss is recognised whenever the carrying amount
of an asset or its Cash Generating Unit (CGU) exceeds its
recoverable amount. Impairment losses are recognised in the
Income Statement. The recoverable amount of an asset or CGU
is the greater of the fair value less cost to sell, or value in use.
For the purpose of assessing impairment, assets are grouped at
the lowest levels for which there are separately identifiable cash
inflows, which are largely independent of the cash inflows from
other assets or groups of assets. Assets (other than goodwill)
that have previously been impaired, are reviewed for possible
reversal of the impairment at each reporting date. A previously
recognised impairment loss 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
Guarantees and other contingent liabilities are accounted for as
off balance sheet items. Provisioning for these exposures is
calculated under AASB 137 ‘Provisions, Contingent Liabilities
and Contingent Assets’.
Commonwealth Bank of Australia Annual Report 2011
109
Notes to the Financial Statements
Note 1 Accounting Policies (continued)
The receivable for an off balance sheet item, only crystallises
when the facility is drawn upon. Generally. therefore, it will not
be appropriate to provision for these assets under an incurred
loss model.
The Group however, has determined that it is appropriate to
include these assets in an impairment calculation where a
customer has been downgraded. A risk rated model is used to
calculate these provisions (e.g. Collective Provision = Probability
of Default (PD) x Loss Given Default x Exposure At Default).
The PD is based on the remaining life of the exposure, capped
at five years.
These provisions are disclosed as other liabilities as there are no
on balance sheet assets to offset these provisions against.
(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 recognised to reflect the offsetting claim against
the drawer of the bill. Bank acceptances generate fee income
that is recognised in the Income Statement when earned.
(p) Shares in and Loans to Controlled Entities
Investments in controlled entities are initially recorded at cost
and subsequently held at the lower of cost and recoverable
amount.
(q) Assets Classified as Held for Sale
Assets are classified as held for sale, when their carrying
amounts are expected to be recovered principally through sale
within twelve months. They are measured at the lower of
carrying amount and fair value less costs to sell, unless the
nature of the assets requires they be measured in line with
another accounting standard.
Assets classified as held for sale are neither amortised nor
depreciated.
(r) Property, Plant and Equipment
The Group measures its property assets (land and buildings) at
fair value, based on 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
the Income Statement. Gains or losses on disposals, are
determined as
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.
the difference between
Equipment is measured at cost less accumulated depreciation
and provision for impairment. Depreciation is calculated using
the straight line method to allocate the cost of assets less any
residual value over the estimated useful economic life.
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
Fixtures and fittings
Leasehold improvements
Up to 30 years
10 – 20 years
Lesser of unexpired lease
term or lives as above
Furniture and equipment
3 - 8 years
110
Commonwealth Bank of Australia Annual Report 2011
Depreciation rates and methods are reviewed on a timely basis
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 an indication of
impairment exists and the carrying amount of an asset is greater
than its estimated recoverable amount, it is written down
immediately through the Income Statement to its recoverable
amount.
(s) Business Combinations
Business combinations are accounted for using the acquisition
method. Cost is measured as the aggregate of the fair values of
assets given, equity instruments issued, or liabilities incurred or
assumed at the date of exchange.
transaction-by-transaction basis,
Identifiable assets acquired and
liabilities and contingent
liabilities assumed in a business combination are measured at
the fair value on the acquisition date. The acquirer can elect, on
a
to measure any non-
controlling interest either at fair value, or at the non-controlling
interest’s proportionate share of the fair value of the identifiable
assets and liabilities. The excess of the cost of acquisition over
the fair value of the acquirer’s share of the identifiable net assets
acquired, is recorded as goodwill. If the cost of acquisition is less
than the acquirer’s share of the fair value of the identifiable net
assets of the business acquired, the difference is recognised
directly in the consolidated Income Statement, but only after a
reassessment of the identification and measurement of the net
assets acquired.
(t) Intangibles
Goodwill
Goodwill represents the excess of the cost of an acquisition over
the fair value of the consolidated entity’s share of the net
identifiable assets of the acquired entity at the date of
acquisition. Goodwill arising from business combinations is
included in intangible assets on the Balance Sheet. Goodwill
arising from acquisitions of associates is included in the carrying
amount of investments in associates.
Computer Software Costs
Certain internal and external costs directly incurred in acquiring
and developing software, are capitalised and amortised over the
estimated useful life, a period of three to twelve years.
Costs incurred on software maintenance are expensed as
incurred.
Core Deposits
Core deposits have been recognised following the acquisition of
Bankwest and represent the value of the deposit base acquired
in the business combination. Initially recognised at fair value,
they are subsequently amortised over the estimated useful life of
seven years.
Brand Names
Initially
Brand names are recognised when acquired in a business
combination.
they are
recognised at
considered to have an indefinite useful life as there is no
foreseeable limit to the period over which the brand name is
expected to generate cash flows.
fair value,
Note 1 Accounting Policies (continued)
Management Fee Rights
Management fee rights are recognised when acquired as part of
a business combination and are considered to have an indefinite
useful life under the contractual terms of the management
agreements.
Other Intangibles
Other
lists.
intangibles predominantly comprise customer
Customer relationships acquired as part of a business
combination, are initially measured at fair value at the date of
less
acquisition and subsequently measured at cost
accumulated amortisation and any
losses.
Amortisation is calculated based on the timing of projected cash
flows of the relationships over their estimated useful lives.
impairment
(u) Deposits From Customers
Deposits and other public borrowings include certificates of
term deposits, savings deposits, other demand
deposits,
deposits and debentures. 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.
(v) Payables to Other Financial Institutions
Payables to other financial institutions include deposits, vostro
balances and settlement account balances due to other banks.
Initially they are recognised at fair value, including directly
attributable transaction costs. They are subsequently recognised
at amortised cost. Interest and yield related fees are recognised
using the effective interest method.
(w) Liabilities at Fair Value Through Income Statement
The Group designates certain liabilities at fair value through
Income Statement on origination, where those liabilities are
managed on a fair value basis, or where the liabilities eliminate
an accounting mismatch. Initially they are recognised on trade
date at fair value, with transaction costs being taken directly to
the Income Statement. Subsequently, they are measured at fair
value using quoted market offer prices, where an active market
exists. Quoted mid prices, where available, are used to measure
liabilities with offsetting risk positions in a portfolio at fair value.
Non-market quoted instruments are valued using valuation
techniques based on observable inputs existing at Balance
Sheet date. In a limited number of instances, valuation
techniques are based on non-market data.
(x) Income Taxes
Income tax on the profit and loss for the period, comprises
current and deferred tax.
Income tax is recognised in the Income Statement, except to the
extent that it relates to items recognised directly in OCI, in which
case it is recognised in the Statement of Comprehensive
Income.
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 method,
the carrying
temporary differences between
providing
amounts of assets and liabilities for financial reporting purposes
and the amounts used for taxation purposes.
for
Notes to the Financial Statements
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 Tax Consolidated Group
elected to be taxed as a single entity under the tax consolidation
system with effect from 1 July 2002.
The Group has formally notified the Australian Taxation Office of
its adoption of the tax consolidation regime. In addition, the
measurement and disclosure of deferred tax assets and
liabilities has been performed in accordance with the principles
in AASB 112 ‘Income Taxes’, and on a modified standalone
basis under UIG 1052 ‘Tax Consolidation Accounting’.
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.
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.
(y) 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 a subsidy to a registered health fund with respect to
retired and current employees, and employee incentives under
employee share plans and bonus schemes.
Commonwealth Bank of Australia Annual Report 2011
111
Notes to the Financial Statements
Note 1 Accounting Policies (continued)
The Group engages in share based remuneration in respect of
services received from certain employees. The share based
remuneration may be cash settled or equity settled. The fair
value of equity settled remuneration is calculated at grant date
and amortised to the Income Statement over the vesting period,
with a corresponding increase in the employee compensation
reserve. For these awards, market vesting conditions, such as
share price performance conditions, are taken into account
when estimating the fair value. Non–market vesting conditions,
such as service conditions, are taken into account by adjusting
the number of
the
the equity
measurement of the expense.
instruments
included
in
Cash settled remuneration is recognised as a liability and
remeasured to fair value until settled, with changes in the fair
value recognised as an expense.
Defined Benefit Superannuation Plans
currently
two defined benefit
sponsors
The Group
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.
Actuarial gains and
to defined benefit
superannuation plans, are directly recorded in retained profits
through OCI.
related
losses
The net surpluses or deficits that arise within defined benefit
superannuation plans, are recognised and disclosed separately
in other assets or bills payable and other liabilities.
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 Income Statement. Any contributions
unpaid at the Balance Sheet date are included as a liability.
(z) Provisions
Provision for Dividends
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.
112
Commonwealth Bank of Australia Annual Report 2011
(aa) Debt Issues
Debt issues are short and long term debt issues of the Group,
including commercial paper, notes, term loans and medium term
notes issued by the Group. 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 in the Income Statement, using the effective interest
method, from the date of issue, to ensure that securities attain
their redemption values by maturity date.
Interest is recognised in the Income Statement using the
effective interest method. Any profits or losses arising from
redemption prior to maturity are taken to the Income Statement
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 the Income Statement.
Embedded derivatives with economic characteristics and risks
that are not closely related to the economic characteristics and
risks 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.
(bb) Loan Capital
Loan capital is debt issued by the Group with terms and
conditions that qualify for inclusion as capital, under APRA
Prudential Standards. It is initially recorded at fair value, plus
directly attributable transaction costs and thereafter at amortised
cost using the effective interest method.
(cc) Shareholders’ Equity
Ordinary shares are recognised at the amount paid up per
ordinary share, net of directly attributable issue costs.
Where the Bank or other members of the Group, purchase
shares in the Bank, the consideration paid, is deducted from
total shareholders’ equity and the shares are treated as treasury
shares until they are subsequently sold, reissued or cancelled.
Where such shares are sold or reissued, any consideration
received, is included in 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 and is available
for dividend payments.
(dd) Derivative Financial Instruments
Derivative financial instruments are contracts whose value is
derived from one or more underlying price, index or other
variables. They include foreign exchange contracts, forward rate
agreements, futures, options and interest rate, currency, equity
and credit swaps. Derivatives are entered into for trading
purposes or for hedging purposes. Derivatives entered into as
economic hedges that do not qualify for hedge accounting are
classified as other derivatives.
Note 1 Accounting Policies (continued)
Derivative financial instruments are recognised initially at the fair
value of consideration given or received. Subsequent gains or
losses are recognised
Income Statement, unless
the
designated within a cash flow hedging relationship.
in
Where an active market exists, fair value is measured based on
quoted market prices. Non-market quoted instruments are
valued using valuation techniques. Included in the determination
of the fair value of derivatives is a credit valuation adjustment to
reflect the credit worthiness of the counterparty.
Derivatives are recognised as assets when their fair value is
positive and as liabilities when their fair value is negative.
Swaps
Interest rate swap receipts and payments are recognised within
net interest income, 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.
Revaluation gains and losses are recognised within other
operating income.
Similarly with cross currency swaps, interest rate receipts and
payments are recognised on the same basis as for interest rate
swaps. In addition, the initial principal flows are revalued to fair
value at the current market exchange rate with revaluation gains
and losses recognised in the Income Statement against
revaluation losses and gains of the underlying hedged item or
class of items.
Derivative Financial Instruments Utilised for Hedging
Relationships
The Group uses derivatives to manage exposures to interest
rate, foreign currency and credit risks, including exposures
arising from forecast transactions.
Where derivatives are held for risk management purposes and
when transactions meet the required criteria, the Group applies
fair value hedge accounting, cash flow hedge accounting, or
hedging of a net investment in a foreign operation as appropriate
to the risks being hedged.
Fair Value Hedges
Changes in fair value of derivatives that qualify and are
designated as fair value hedges are recorded in the Income
Statement, together with changes in the fair value of the hedged
asset or liability that are attributable to the hedged risk.
If the hedge relationship no longer meets the criteria for hedge
accounting, it is discontinued. For fair value hedges of interest
rate risk, the fair value adjustment to the hedged item is
amortised to the Income Statement over the period to maturity of
the previously designated hedge relationship using the effective
interest method. If the hedged item is sold or repaid, the
unamortised fair value adjustment is recognised immediately in
the Income Statement.
Cash Flow Hedges
Changes in fair value associated with the effective portion of a
derivative designated as a cash flow hedge, are recognised in
the Cash Flow Hedge Reserve, in equity. Ineffective portions are
recognised immediately in the Income Statement. Amounts
deferred in equity are transferred to the Income Statement in the
period in which the hedged forecast transaction takes place.
Notes to the Financial Statements
When a hedging instrument expires or is sold, terminated or
exercised, or when the hedge no longer meets the criteria for
hedge accounting, any cumulative gain or loss existing in equity
at that time remains in equity and is recognised in the period in
which the hedged item affects profit or loss. When a forecast
transaction is no longer expected to occur, the cumulative gain
or loss that was reported in equity is recycled immediately to the
Income Statement.
Net Investment Hedges
Gains and losses on derivative contracts relating to the effective
portion of the net investment hedge are recognised in the foreign
currency translation reserve in equity. Ineffective portions are
recognised immediately in the Income Statement. Gains and
losses accumulated in equity are included in the Income
Statement when the foreign subsidiary or branch is disposed of.
Embedded Derivatives
In certain instances, a derivative may be embedded within a
host contract. If the host contract is not carried at fair value
through Income Statement and the economic characteristics and
risks of the embedded derivative are not closely related to those
of the host contract, the embedded derivative is separated from
the host contract. It is then accounted for as a stand-alone
derivative instrument at fair value.
(ee) Commitments to Extend Credit, Letters of Credit,
Guarantees, Warranties and Indemnities Issued
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 in the Income Statement. Any liability remaining, is
recognised in the Income Statement when the guarantee is
discharged, cancelled or expires.
(ff) Life and General Insurance Business
Life Insurance Business
The life insurance business is comprised of insurance contracts
and investment contracts as defined in AASB 4 ‘Insurance
Contracts’. The following are key accounting policies in relation
to the life insurance business.
Commonwealth Bank of Australia Annual Report 2011
113
Notes to the Financial Statements
Note 1 Accounting Policies (continued)
Disclosure
Premiums and Claims
The consolidated financial statements include the assets,
liabilities, income and expenses of the life insurance business
conducted by a subsidiary of the Bank in accordance with AASB
139 ‘Financial Instruments: Recognition and Measurement’ and
AASB 1038 ‘Life Insurance Contracts’ respectively. These
amounts represent the total life insurance business of the
subsidiary, including underlying amounts that relate to both
policyholders and shareholders of the life insurance business.
Investment Assets
Investment assets are carried at fair value through Income
Statement. Fair values of quoted investments in active markets
are based on current bid prices. If the relevant market is not
considered active (and for unlisted securities), fair value is
established by using valuation techniques, including recent
arm’s length transactions, discounted cash flow analysis, option
pricing models and other valuation techniques commonly used
by market participants. Changes in fair values are recognised in
the Income Statement in the financial period in which the
changes occur.
Restriction on Assets
Investments held in the Life Funds can only be used within the
restrictions imposed under the Life Insurance Act 1995. The
main restrictions are that the assets in a fund can only be used
to meet the liabilities and expenses of the fund, acquire
investments to further the business of the fund or pay
distributions when solvency and capital adequacy requirements
allow. Shareholders can only receive a distribution when the
capital adequacy requirements of the Life Insurance Act 1995
are met.
Policy Liabilities
Life insurance liabilities are measured as the accumulated
benefits to policyholders in accordance with AASB 139 and
AASB 1038, which apply to investment contracts and insurance
liabilities, respectively. 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
linked to the asset performance), and are calculated in
accordance with the principles of Margin on Services (MoS)
profit reporting as set out in Prudential Standard LPS 1.04
‘Valuation of Policy Liabilities’ (LPS 1.04) issued by APRA.
Life investment contract liabilities are measured at fair value in
accordance with AASB 139 as liabilities at fair value.
Returns on all investments controlled by life insurance entities
within the Group are recognised as revenue. Investments in the
Group’s own equity instruments held within the life insurance
statutory funds and other funds are treated as Treasury Shares.
Initial entry fee income on investment contracts issued by life
insurance entities is recognised upfront, 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,
other
from unvested policyholder benefits
transfers
liabilities, are recognised as expenses.
than
Reinsurance contracts entered into are recognised on a gross
basis.
114
Commonwealth Bank of Australia Annual Report 2011
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) Life 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
represent
withdrawals of investment deposits and are recognised as a
reduction in investment contract liabilities.
investment contracts
Life Insurance Liabilities and Profit
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 policy owners 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.
liabilities attributable
to
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 MOS 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 Sheet 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.
Notes to the Financial Statements
Note 1 Accounting Policies (continued)
Life Investment Contract Acquisition Costs
Claims Expense
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 ‘Revenue’ to the extent that only incremental
transaction costs (for example commissions and volume
bonuses) are deferred. The
liability
calculated in accordance with AASB 139 is no less than the
contract surrender value.
investment contract
Managed Funds Units on Issue – Held by Non-controlling
Unit-Holders
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 Group’s
consolidated Financial Statements.
When a controlled unit trust is consolidated, the share of the
unit-holder liability attributable to the Group is eliminated but
amounts due to external unit-holders remain as liabilities in the
Group’s consolidated balance sheet. The share of the net assets
of controlled companies attributable to non-controlling unit-
holders is disclosed separately on the Balance Sheet.
In the Income Statement, the net profit or loss of the controlled
entities relating to non-controlling interests is eliminated before
arriving at the net profit or loss attributable to Equity holders of
the Bank.
General Insurance Business
Premium Revenue
Premium revenue comprises amounts charged to policyholders,
including fire service levies, but excludes taxes collected on
behalf of third parties. The earned portion of premiums received
and receivable is recognised as revenue. Premium revenue is
earned from the date of attachment of risk and over the term of
the policies written, based on assessment of the likely pattern in
which risk will emerge. The portion not earned as determined by
the above methods is recognised as unearned premium liability.
Unearned Premium Liability
The adequacy of the unearned premium liability is assessed by
considering current estimates of all expected future cash flows
relating to future claims covered by current insurance contracts.
Claims expense and a liability for outstanding claims are
recognised in respect of all business. The liability covers claims
reported but not yet paid, incurred but not reported claims
(IBNR) and the anticipated direct and indirect costs of settling
those claims. The liability for outstanding claims is determined
having regard to an independent actuarial assessment. The
liability is measured as the estimate of the present value of the
expected future payments against claims incurred at the
Balance Sheet date, with an additional risk margin to allow for
the inherent uncertainty in the estimate. These payments are
estimated on the basis of the ultimate cost of settling claims,
which is affected by factors arising during the period to
settlement, such as inflation. The expected future payments are
discounted to present value at the Balance Sheet date using
market-determined, risk-adjusted discount rates.
A risk margin is applied to the outstanding claims liability,
sufficient to ensure the probability of adequacy of the liabilities to
a 75% confidence level.
Acquisition Costs
Acquisition costs include brokerage and other selling and
underwriting costs incurred in obtaining general insurance
premiums. A portion of acquisition costs relating to unearned
premium revenue
is recognised as an asset. Deferred
acquisition costs are amortised over the financial years expected
to benefit from the expenditure and are stated at the lower of
cost and recoverable value.
(gg) Asset Securitisation
The Group conducts an asset securitisation programme through
which it packages and sells assets as securities to investors.
The Group is entitled to any residual income of the programme
after all payments due to investors and costs of the programme
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 programme by the
Group in accordance with APRA Prudential Guidelines.
If the present value of the expected future cash flows relating to
future claims, plus the additional risk margin to reflect the
inherent uncertainty in the estimate, exceeds the unearned
premium liability less related deferred acquisition costs, then the
unearned premium liability is deemed deficient. Any deficiency is
Income Statement as an
the
recognised
expense, both gross and net of reinsurance. The deficiency is
recognised by writing down any related deferred acquisition
costs, with any excess being recorded on the Balance Sheet as
an unexpired risk liability.
immediately
in
Reinsurance
Premium ceded to reinsurers is recognised as an expense from
the attachment date over the period of indemnity of the
reinsurance contract,
the pattern of
reinsurance service received. Accordingly, a portion of outwards
reinsurance premium is treated at the Balance Sheet date as
deferred reinsurance.
in accordance with
Derivatives return the risks and rewards of ownership of the
securitised assets to the Group and consequently the Group
cannot derecognise
is
these assets. An
recognised inclusive of the derivative and any related fees.
imputed
liability
For further details on the treatment of consolidated securitised
entities, refer to Note 1 (c).
(hh) Fiduciary Activities
Certain controlled entities within the Group, 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.
Commonwealth Bank of Australia Annual Report 2011
115
Notes to the Financial Statements
(ii) Earnings Per Share
Basic earnings per share is calculated by dividing the Group’s
profit attributable to ordinary equity holders, by the weighted
average number of ordinary shares outstanding during the
financial year.
Diluted earnings per share is calculated by dividing the Group’s
profit attributable to ordinary equity holders, after deducting
interest on the convertible redeemable loan capital instruments,
by the weighted average number of ordinary shares adjusted for
the effect of dilutive options and dilutive convertible non-
cumulative redeemable loan capital instruments.
(jj) Critical Accounting Policies and Estimates
The application of the Group’s accounting policies requires the
use of judgement, estimates and assumptions. If different
assumptions or estimates were applied, the resulting values
would change, impacting the net assets and income of the
Group.
Management discusses the accounting policies, which are
sensitive to the use of judgement, estimates and assumptions
with the Board Audit Committee.
Provisions for Impairment of Financial Assets
Provisions for impairment of financial assets are raised where
there is objective evidence of impairment and at an amount
adequate to cover assessed credit related losses. In addition,
provisions are raised where no objective evidence of impairment
exists for an individually assessed financial asset, but for which
a loss event has occurred which is likely to result in a loss within
a group of financial assets.
Credit losses arise primarily from loans, but also from other
credit instruments such as bank acceptances, contingent
liabilities, guarantees and other financial instruments and
AATSE.
Individually Assessed Provisions
Individually assessed provisions are raised where there is
objective evidence of impairment, that is where the Group does
not expect to receive all of the cash flows contractually due.
Individually assessed provisions are made against individual risk
rated credit facilities where a loss of $20,000 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.
Collective Provision
All other loans and receivables 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 receivables to their
estimated recoverable amounts at the Balance Sheet date.
The evaluation process is subject to a series of estimates and
judgements. In the 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 statistically managed (retail) segment, the history of
defaults and losses, and the size, structure and diversity of
portfolios are considered.
116
Commonwealth Bank of Australia Annual Report 2011
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 the Income Statement as set out in
Note 14.
Life Insurance Policyholder Liabilities
Life insurance policyholder liabilities are accounted for under
AASB 1038 ‘Life Insurance Contracts’. 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:
-
timing and duration of claims/policy
Amount,
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 (ff).
Consolidation of Special Purpose Entities
The Group assesses, at inception and periodically, 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 predominantly required in the
context of the Group’s securitisation programme and structured
transactions.
Financial Instruments at Fair Value
A significant portion of financial instruments are carried on the
Balance Sheet at fair value.
The best evidence of fair value is quoted prices in an active
market. If the market for a financial instrument is not active, the
Group establishes fair value by using a valuation technique. The
objective of using a valuation technique is to establish what the
transaction price would have been on the measurement date in
an arm’s length exchange motivated by normal business
considerations.
Notes to the Financial Statements
Superannuation Obligations
The Group currently sponsors two defined benefit plans as
described in Note 1(y) and Note 42. For each of these plans,
actuarial valuations of the plan’s obligations and the fair value
measurements of the plan’s assets are performed semi-annually
in accordance with the requirements of AASB 119 ‘Employee
Benefits’.
The actuarial valuation of plan obligations is dependent upon a
series of assumptions, the key ones being price inflation,
earnings growth, mortality, morbidity and investment returns
assumptions. Different assumptions could significantly alter the
amount of the difference between plan assets and obligations,
and the superannuation cost charged to the Income
Note 1 Accounting Policies (continued)
Valuation techniques include using recent arm’s length market
transactions between knowledgeable, willing parties, if available,
reference to the current fair value of another instrument that is
substantially the same, discounted cash flow analysis and option
pricing models. If there is a valuation technique commonly used
by market participants to price the instrument and that technique
has been demonstrated to provide reliable estimates of prices
obtained in actual market transactions, the Group uses that
technique.
The chosen valuation technique makes maximum use of market
inputs and relies as little as possible on entity specific inputs. It
incorporates all factors that market participants would consider
in setting a price and is consistent with accepted economic
methodologies for pricing financial instruments. Data inputs that
the Group relies upon when valuing financial instruments relate
to counterparty credit
risk, volatility, correlation and
extrapolation.
Periodically, the Group calibrates the valuation technique and
tests it for validity using prices from any observable current
market
instrument (i.e. without
the same
modification or repackaging) or based on any available
observable market data.
transactions
in
Goodwill
The carrying value of goodwill is reviewed annually and is written
down, to the extent that it is no longer supported by probable
future benefits.
Goodwill is allocated to cash-generating units (CGUs) for the
purpose of impairment testing, which is undertaken at the lowest
level at which goodwill is monitored for internal management
reporting purposes.
Impairment testing of purchased goodwill is performed annually,
or more frequently when there is an indication that the goodwill
may be impaired, by comparing the recoverable amount of the
CGU with the current carrying amount of its net assets, including
goodwill. Where the current carrying value is greater than
recoverable amount, a charge for impairment of goodwill will be
recorded in the Income Statement.
Additional information on goodwill impairment testing is included
in Note 16.
Provisions (Other than Loan Impairment)
Provisions are held in respect of a range of future obligations
such as employee entitlements, restructuring costs and non-
lending losses. Provisions carried for long service leave are
supported by an independent actuarial report. Some of the
provisions involve significant judgement about the likely outcome
of various events and estimated future cash flows.
involves
these benefits
The deferral of
the exercise of
management judgements about the ultimate outcomes of the
transactions. Payments which are expected to be incurred later
than one year are discounted at a rate which reflects both
current interest rates and the risks specific to that provision.
Taxation
Provisions for taxation require significant judgement with respect
to outcomes that are uncertain. For such uncertainties, the
Group has estimated its tax provisions based on its expected
outcomes.
Commonwealth Bank of Australia Annual Report 2011
117
Notes to the Financial Statements
Note 2 Profit
Profit before income tax has been determined as follows:
Interest Income
Loans and bills discounted
Other financial institutions
Cash and liquid assets
Assets at fair value through Income Statement
Available-for-sale investments
Controlled entities
Total interest income (1)
Interest Expense
Deposits (3)
Other financial institutions
Liabilities at fair value through Income Statement (3)
Debt issues
Controlled entities
Loan capital
Total interest expense (2)
Net interest income
Other Operating Income
Lending fees
Commissions
Trading income
Net gain/(loss) on disposal of available-for-sale investments
Net loss on other non-fair valued financial instruments
Net hedging ineffectiveness
Net (loss)/gain on other fair valued financial instruments:
Fair value through Income Statement (4)
Reclassification of net interest on swaps (5)
Non-trading derivatives (6)
Dividends - Controlled entities
Dividends - Other
Net loss on sale of property, plant and equipment
Funds management and investment contract income:
Fees receivable on trust and other fiduciary activities
Other
Insurance contracts income
Other (7)
Total other operating income
Total net operating income
Gain on acquisition of controlled entities
Impairment expense
Loan impairment expense
Available-for-sale debt securities impairment expense
Total impairment expense (Note 14)
2011
$M
2010
$M
Group
2009
$M
2011
$M
Bank
2010
$M
34,192
29,849
28,438
26,319
22,382
92
291
877
1,852
-
37,304
141
192
793
1,240
-
32,215
434
510
1,236
901
-
31,519
87
235
749
3,987
1,568
32,945
115
150
616
3,102
1,389
27,754
17,347
13,830
14,216
16,914
13,329
222
590
5,891
-
647
24,697
12,607
1,467
1,946
717
24
(4)
4
(2)
(498)
(301)
-
5
(6)
1,662
380
1,118
278
6,790
164
764
4,920
-
615
20,293
11,922
1,435
2,006
597
27
(52)
(62)
8
(259)
217
-
5
(4)
1,493
435
1,230
290
7,366
19,397
19,288
-
-
1,280
-
1,280
2,379
-
2,379
509
1,021
4,767
-
705
21,218
10,301
1,396
2,027
741
(12)
(9)
(18)
(66)
(275)
(187)
-
14
(11)
1,291
199
769
314
6,173
16,474
983
2,683
365
3,048
184
218
4,920
263
664
23,163
9,782
1,333
1,426
639
24
(11)
14
2
(382)
(348)
2,155
36
(6)
-
-
-
735
5,617
15,399
-
1,080
-
1,080
145
130
4,002
360
637
18,603
9,151
1,250
1,413
588
14
(15)
(60)
(13)
(148)
147
1,641
7
(4)
-
-
-
440
5,260
14,411
-
1,193
-
1,193
(1) Total interest income for financial assets that are not at fair value through profit or loss is $36,427 million (2010: $31,422 million, 2009: $30,283 million) for the Group
and $32,196 million (2010: $27,138 million) for the Bank.
(2) Total interest expense for financial liabilities that are not at fair value through profit or loss is $24,107 million (2010: $19,669 million, 2009: $20,197 million) for the
Group and $22,945 million (2010 $18,473 million) for the Bank.
(3) Certain comparative information has been restated to conform to presentation in the current period.
(4) The net gain on financial assets and liabilities designated at fair value was $102 million (2010: $140 million) for the Group and $77 million (2010: $31 million) for the
Bank.
(5) Relates to certain economic hedges which do not qualify for IFRS hedge accounting.
(6) Non-trading derivatives are held for risk management purposes.
(7) The Group result in 2011 includes $10 million loss on disposal of controlled entities, refer to note 46 for further details.
118
Commonwealth Bank of Australia Annual Report 2011
Notes to the Financial Statements
Note 2 Profit (continued)
Staff Expenses
Salaries and wages
Share-based compensation
Superannuation - defined contribution plans
Superannuation - defined benefit plan
Provisions for employee entitlements
Payroll tax
Fringe benefits tax
Other staff expenses
Total staff expenses
Occupancy and Equipment Expenses
Operating lease rentals
Depreciation:
Buildings
Leasehold improvements
Equipment
Operating lease assets
Repairs and maintenance
Other
Total occupancy and equipment expenses
Information Technology Services
Application, maintenance and development
Data processing
Desktop
Communications
Amortisation of software assets
IT equipment depreciation
Total information technology services
Other Expenses
Postage
Stationery
Fees and commissions:
Fees payable on trust and other fiduciary activities
Other
Advertising, marketing and loyalty
Amortisation of intangible assets (excluding software and merger
related amortisation)
Non-lending losses
Other
Total other expenses
Total expenses
Investment and restructuring
Integration expenses
Merger related amortisation (1)
One-off expenses
Total investment and restructuring
Total operating expenses
Profit before income tax
Net hedging ineffectiveness comprises:
Gain/(Loss) on fair value hedges:
Hedging instruments
Hedged items
Cash flow hedge ineffectiveness
Net hedging ineffectiveness
(1) Merger related amortisation relates to Bankwest core deposits and customer lists.
2011
$M
2010
$M
4,081
3,845
156
48
137
88
213
38
110
130
48
103
58
202
40
157
Group
2009
$M
3,405
125
44
14
88
188
36
94
2011
$M
Bank
2010
$M
2,761
2,536
96
(33)
137
54
153
30
77
82
(27)
103
39
140
31
106
4,871
4,583
3,994
3,275
3,010
532
35
103
82
42
87
112
993
235
267
120
221
183
78
527
30
98
90
45
84
103
977
209
227
141
199
178
75
1,104
1,029
112
84
537
318
457
15
83
317
1,923
8,891
94
75
-
169
9,060
9,057
(417)
427
(6)
4
115
97
497
367
398
27
103
408
2,012
8,601
40
75
-
115
8,716
8,193
771
(838)
5
(62)
488
29
85
89
37
80
102
910
167
202
141
179
122
62
873
121
100
453
359
475
17
86
391
2,002
7,779
112
37
32
181
7,960
6,449
543
(569)
8
(18)
406
392
27
81
54
19
65
71
723
151
266
114
188
143
63
925
89
62
-
490
320
-
65
149
1,175
6,098
15
-
-
15
6,113
8,206
(391)
410
(5)
14
26
75
57
24
67
63
704
135
225
131
160
134
57
842
88
74
-
584
285
-
78
237
1,346
5,902
15
-
-
15
5,917
7,301
738
(810)
12
(60)
Commonwealth Bank of Australia Annual Report 2011
119
Notes to the Financial Statements
Note 3 Income from Ordinary Activities
Banking
Interest income
Fees and commissions
Trading income
Net gain/(loss) on disposal of available-for-sale investments
recognised in Income Statement
Net loss on other non-fair valued financial instruments
Net hedging ineffectiveness
Net (loss)/gain on other fair valued financial instruments:
Fair value through Income Statement
Reclassification of net interest on swaps (1)
Non-trading derivatives
Dividends
Net loss on sale of property, plant and equipment
Other
Funds Management, Investment Contract and Insurance
Contract Revenue
Funds management and investment contract income including
premiums
Insurance contract premiums and related income
Funds management claims and policyholder liability revenue
Investment income
Total income
2011
$M
37,304
3,413
717
24
(4)
4
(2)
(498)
(301)
5
(6)
2010
$M
32,215
3,441
597
27
(52)
(62)
8
(259)
217
5
(4)
278
40,934
290
36,423
Group
2009
$M
31,519
3,423
741
(12)
(9)
(18)
(66)
(275)
(187)
14
(11)
314
2011
$M
32,945
2,759
639
24
(11)
14
2
(382)
(348)
2,191
(6)
735
Bank
2010
$M
27,754
2,663
588
14
(15)
(60)
(13)
(148)
147
1,648
(4)
440
35,433
38,562
33,014
1,996
1,884
-
1,401
5,281
46,215
1,906
1,794
-
1,662
5,362
41,785
1,618
1,651
731
-
4,000
39,433
-
-
-
-
-
-
-
-
-
-
38,562
33,014
(1) Relates to certain economic hedges which do not qualify for IFRS hedge accounting.
120
Commonwealth Bank of Australia Annual Report 2011
Notes to the Financial Statements
Note 4 Average Balances and Related Interest
The following tables list 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. Averages used were predominantly daily averages. Interest is
accounted for based on product yield. Trading gains and losses are disclosed as Trading income within Other operating 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 are included in interest earning assets under Loans, bills discounted and other receivables.
The official cash rate in Australia increased by 25 basis points during the year while rates in New Zealand decreased by 25 basis points.
2011
2010
Group
2009
Average
Interest Average Average
Interest Average Average
Interest Average
Balance
Rate Balance
Rate Balance
$M
$M
%
$M
$M
%
$M
$M
Rate
%
Interest earning assets
Cash and liquid assets
Australia
Overseas
Receivables due from other
financial institutions
Australia
Overseas
Assets at fair value through
Income Statement - Trading
Australia
Overseas
Assets at fair value through
Income Statement - Other
Australia
Overseas
Available-for-sale investments
Australia
Overseas
Loans, bills discounted and other
receivables
Australia (1) (3)
Overseas (3)
Intragroup assets
Australia
Overseas
Total interest earning assets and
interest income including
intragroup
4,583
7,522
6,324
8,113
15,028
5,186
-
1,442
33,362
5,601
194
97
50
42
711
138
-
28
1,776
76
436,988
52,220
30,493
3,151
2,506
-
22
-
578,875
36,778
4. 2
1. 3
0. 8
0. 5
4. 7
2. 7
-
1. 9
5. 3
1. 4
7. 0
6. 0
0. 9
-
6. 4
0. 9
3,674
7,644
7,253
6,645
15,587
5,944
117
1,157
23,360
5,485
146
46
63
78
585
175
12
21
1,166
74
419,667
57,202
25,872
3,470
-
12,343
-
20
566,078
31,728
(12,343)
(20)
4. 0
0. 6
0. 9
1. 2
3. 8
2. 9
8,353
6,683
9,205
7,238
17,614
4,378
10. 3
1. 8
799
2,507
10,553
7,831
324
186
227
207
922
231
3
80
628
273
5. 0
1. 3
6. 2
6. 1
-
0. 2
5. 6
0. 2
344,534
61,553
23,098
4,584
-
12,023
-
158
493,271
30,921
(12,023)
(158)
Intragroup eliminations
(2,506)
(22)
Total interest earning assets
and interest income (2)
Securitisation home loan
assets
576,369
36,756
6. 4
553,735
31,708
5. 7
481,248
30,763
9,705
574
5. 9
10,967
534
4. 9
12,279
742
(1) Excludes amortisation of acquisition related fair value adjustments made to fixed interest financial instruments.
(2) Used for calculating net interest margin.
(3) Certain comparative information has been restated to conform to presentation in the current period.
3. 9
2. 8
2. 5
2. 9
5. 2
5. 3
0. 4
3. 2
6. 0
3. 5
6. 7
7. 4
-
1. 3
6. 3
1. 3
6. 4
6. 0
Commonwealth Bank of Australia Annual Report 2011
121
Notes to the Financial Statements
Note 4 Average Balances and Related Interest (continued)
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 non-interest earning assets
Total assets
Percentage of total assets applicable to overseas operations (%)
2011
2010
Group
2009
Average
Average
Average
Balance
Balance
Balance
$M
$M
$M
11,332
12,559
16,983
-
-
-
13,656
2,069
1,854
181
41,661
8,782
(5,205)
(299)
74,031
660,105
13.8
15,512
2,166
1,933
191
42,444
6,152
(4,904)
(338)
75,715
640,417
14.4
17,370
2,316
1,744
199
48,487
9,393
(2,492)
(299)
93,701
587,228
17.3
122
Commonwealth Bank of Australia Annual Report 2011
Notes to the Financial Statements
Note 4 Average Balances and Related Interest (continued)
Interest bearing liabilities
$M
$M
%
$M
$M
%
$M
$M
Balance
Rate Balance
Rate Balance
Rate
%
Average
Interest Average Average
Interest Average Average
Interest Average
2011
2010
Group
2009
Time deposits
Australia (1) (2)
Overseas (2)
Savings deposits
Australia (1) (2)
Overseas (2)
Other demand deposits
Australia (1) (2)
Overseas (2)
Payables due to other financial
institutions
Australia
Overseas
Liabilities at fair value through
Income Statement
Australia (2)
Overseas (2)
Debt issues
Australia
Overseas
Loan capital
Australia
Overseas
Intragroup borrowings
Australia
Overseas
185,243
32,708
10,984
1,121
76,644
6,772
82,040
2,462
3,912
10,763
4,526
8,729
2,482
205
2,477
79
136
86
215
375
107,136
5,534
5,316
25
7,130
5,244
-
2,506
382
272
-
22
Interest bearing liabilities and interest
expense including intragroup
541,349
24,177
Intragroup eliminations
(2,506)
(22)
Total interest bearing liabilities
and interest expense
538,843
24,155
Securitisation debt issues
8,920
517
5. 9
3. 4
3. 2
3. 0
3. 0
3. 2
3. 5
0. 8
4. 8
4. 3
5. 0
0. 5
5. 4
5. 2
-
0. 9
4. 5
0. 9
4. 5
5. 8
168,832
32,455
72,396
7,215
82,867
2,799
5,296
9,448
3,580
12,494
91,223
18,678
9,370
4,685
12,343
-
8,673
1,255
1,797
204
1,953
87
110
54
150
614
4,291
105
367
255
20
-
533,681
19,935
(12,343)
(20)
521,338
19,915
9,927
459
5. 1
3. 9
2. 5
2. 8
2. 4
3. 1
2. 1
0. 6
4. 2
4. 9
4. 7
0. 6
3. 9
5. 4
0. 2
-
3. 7
0. 2
3. 8
4. 6
133,580
30,160
69,758
7,117
74,952
3,451
4,974
13,871
3,831
13,595
65,109
20,763
9,455
3,642
12,023
-
8,398
1,625
1,574
342
2,256
160
160
349
159
862
3,624
417
507
202
158
-
466,281
20,793
(12,023)
(158)
454,258
20,635
12,042
684
6. 3
5. 4
2. 3
4. 8
3. 0
4. 6
3. 2
2. 5
4. 2
6. 3
5. 6
2. 0
5. 4
5. 5
1. 3
-
4. 5
1. 3
4. 6
5. 7
(1) Excludes amortisation of acquisition related fair value adjustments made to fixed interest financial instruments.
(2) Certain comparative information has been restated to conform to presentation in the current period.
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 non-interest bearing liabilities
Total liabilities
Shareholders' equity
Total liabilities and Shareholders' equity
Total liabilities applicable to overseas operations (%)
2011
2010
Group
2009
Average
Average
Average
Balance
Balance
Balance
$M
$M
$M
6,989
1,535
6,638
1,458
5,940
1,438
11,332
12,559
16,983
-
-
-
13,114
1,361
33,517
8,425
76,273
624,036
36,069
660,105
13.4
14,432
1,548
32,914
6,069
75,618
606,883
33,534
640,417
16.0
16,510
1,766
42,939
6,163
91,739
558,039
29,189
587,228
18.3
Commonwealth Bank of Australia Annual Report 2011
123
Notes to the Financial Statements
Note 4 Average Balances and Related Interest (continued)
Avg Bal
Interest
Yield
Avg Bal
Interest
2011
Net interest margin
Total interest earning assets excluding securitisation
Total interest bearing liabilities excluding securitisation
Net interest income and interest spread (excluding
securitisation)
Benefit of free funds
Net interest margin
$M
576,369
538,843
$M
36,756
24,155
12,601
$M
553,735
521,338
$M
31,708
19,915
11,793
%
6. 38
4. 48
1. 90
0. 29
2. 19
2011
Geographical analysis of key categories
Loans, bills discounted and other receivables
Australia (1)
Overseas (1)
Total
Other interest earning assets
Australia
Overseas
Total
Total interest bearing deposits
Australia (1)
Overseas (1)
Total
Other interest bearing liabilities
Australia (1)
Overseas (1)
Total
Avg Bal
Interest
Yield
Avg Bal
Interest
$M
$M
%
$M
$M
436,988
52,220
489,208
59,297
27,864
87,161
343,927
41,942
385,869
122,704
30,270
152,974
30,493
3,151
33,644
2,731
381
3,112
15,943
1,405
17,348
6,049
758
6,807
6. 98
6. 03
6. 88
4. 61
1. 37
3. 57
4. 64
3. 35
4. 50
4. 93
2. 50
4. 45
419,667
57,202
476,869
49,991
26,875
76,866
324,095
42,469
366,564
109,469
45,305
154,774
25,872
3,470
29,342
1,972
394
2,366
12,423
1,546
13,969
4,918
1,028
5,946
Group
2010
Yield
%
5. 73
3. 82
1. 91
0. 22
2. 13
Group
2010
Yield
%
6. 16
6. 07
6. 15
3. 94
1. 47
3. 08
3. 83
3. 64
3. 81
4. 49
2. 27
3. 84
(1) Certain comparative information has been restated to conform to presentation in the current period.
Overseas intra-group borrowings have been adjusted into the interest spread and margin calculations to more appropriately reflect the
overseas cost of funds.
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.
Changes in Net Interest Income: Volume and Rate Analysis
The following tables show the movement in interest income and expense due to changes in volume and 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 interest bearing liabilities have been calculated separately (rather than
being the sum of the individual categories).
Change in net interest income
Due to changes in average volume of interest earning assets
Due to changes in interest margin
Change in net interest income
June 2011
vs June 2010
$M
488
320
808
Group
June 2010
vs June 2009
$M
1,535
130
1,665
124
Commonwealth Bank of Australia Annual Report 2011
Notes to the Financial Statements
Note 4 Average Balances and Related Interest (continued)
Changes in net interest income:
Volume and rate analysis
Interest Earning Assets
Cash and liquid assets
Australia
Overseas
Receivables due from other financial institutions
Australia
Overseas
Assets at fair value through Income Statement - Trading
Australia
Overseas
Assets at fair value through Income Statement - Other
Australia
Overseas
Available-for-sale investments
Australia
Overseas
Loans, bills discounted and other receivables
Australia (1)
Overseas (1)
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 (1)
Overseas (1)
Savings deposits
Australia (1)
Overseas (1)
Other demand deposits
Australia (1)
Overseas (1)
Payables due to other financial institutions
Australia
Overseas
Liabilities at fair value through Income Statement
Australia (1)
Overseas (1)
Debt issues
Australia
Overseas
Loan capital
Australia
Overseas
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 2011 vs June 2010
June 2010 vs June 2009
Volume
Rate
Total
Volume
Rate
Total
$M
$M
$M
$M
$M
$M
37
(1)
(8)
12
(24)
(21)
(6)
5
516
2
1,138
(301)
11
(10)
765
(1)
1,370
(69)
908
9
121
(13)
(22)
(11)
(38)
9
42
(173)
769
(67)
(104)
30
(10)
11
314
(1)
727
488
(54)
11
52
(5)
(48)
150
(16)
(6)
2
94
-
3,483
(18)
11
(10)
4,285
(1)
3,678
109
48
51
(13)
(36)
126
(37)
(12)
7
610
2
4,621
(319)
22
(20)
5,050
(2)
5,048
40
(183)
16
(33)
(12)
(92)
64
(37)
(34)
701
(57)
4,834
(294)
-
3
4,323
(3)
4,392
(72)
5
(156)
(131)
(117)
(245)
(120)
46
(25)
(163)
(142)
(2,060)
(820)
-
(141)
(3,516)
141
(3,447)
(136)
1,403
(143)
2,311
(134)
2,014
106
(1,739)
(476)
564
14
546
3
64
23
23
(66)
256
(13)
119
(13)
(10)
11
3,928
(1)
3,513
320
112
685
1
524
(8)
26
32
65
(239)
1,025
(80)
15
17
(20)
22
4,242
(2)
4,240
808
58
63
4
212
(25)
8
(68)
(4)
(68)
1,341
(27)
(4)
57
3
-
2,762
(3)
2,804
1,535
(109)
160
(142)
(515)
(48)
(58)
(227)
(5)
(180)
(674)
(285)
(136)
(4)
(141)
-
(3,620)
141
(3,524)
130
(116)
(178)
(140)
(164)
(129)
(337)
(56)
9
(59)
538
(199)
2,774
(1,114)
-
(138)
807
138
945
(208)
275
(370)
223
(138)
(303)
(73)
(50)
(295)
(9)
(248)
667
(312)
(140)
53
(138)
-
(858)
138
(720)
1,665
(225)
(1) Certain comparative information has been restated to conform to presentation in the current period.
Commonwealth Bank of Australia Annual Report 2011
125
Notes to the Financial Statements
Note 4 Average Balances and Related Interest (continued)
Geographical analysis of key categories
Australia
Interest spread (1)
Benefit of interest-free liabilities, provisions and equity (2)
Net interest margin (3)
Overseas
Interest spread (1)
Benefit of interest-free liabilities, provisions and equity (2)
Net interest margin (3)
Group
Interest spread (1)
Benefit of interest-free liabilities, provisions and equity (2)
Net interest margin (3)
2011
%
2010
%
1. 95
0. 30
2. 25
1. 50
0. 25
1. 75
1. 90
0. 29
2. 19
2. 04
0. 19
2. 23
1. 09
0. 27
1. 36
1. 91
0. 22
2. 13
Group
2009
%
1. 93
0. 21
2. 14
1. 32
0. 40
1. 72
1. 84
0. 26
2. 10
(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 are 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.
126
Commonwealth Bank of Australia Annual Report 2011
Notes to the Financial Statements
Note 5 Income Tax
The income tax expense for the year is determined from the profit before income tax as follows:
Profit before Income Tax
Prima facie income tax at 30%
Effect of amounts which are non-deductible/
(assessable) in calculating taxable income:
Taxation offsets and other dividend adjustments
Tax adjustment on policyholder income
Bankwest - Gain on acquisition
Tax losses not previously brought to account
Tax losses assumed by the Bank under UIG 1052
Offshore tax rate differential
Offshore banking unit
Investment allowance
Effect of changes in tax rates (1)
Income tax under/(over) provided in previous years (2)
Other
Total income tax expense
Corporate tax expense
Policyholder tax expense/(benefit)
Total income tax expense
Income tax expense attributable to
profit from ordinary activities
Australia
Current tax expense
Deferred tax expense/(benefit)
Total Australia
Overseas
Current tax expense
Deferred tax expense/(benefit)
Total overseas
Total income tax expense
Effective Tax Rate
Total – corporate (2)
Retail Banking Services – corporate (4)
Business and Private Banking – corporate (4)
Institutional Banking and Markets – corporate (4)
Wealth Management – corporate
New Zealand – corporate (1) (2)
Bankwest – corporate (3)
2011
$M
9,057
2,717
(7)
116
-
(6)
-
(55)
(17)
(2)
3
(71)
(31)
2,647
2,481
166
2,647
2011
$M
2,246
59
2,305
336
6
342
2010
$M
8,193
2,458
(18)
91
-
(4)
-
(66)
(32)
(57)
(12)
164
(11)
2,513
2,383
130
2,513
2010
$M
1,903
150
2,053
435
25
460
Group
2009
$M
6,449
1,935
(59)
(115)
76
-
-
(55)
(56)
(28)
-
5
(7)
1,696
1,860
(164)
1,696
Group
2009
$M
2,265
(886)
1,379
201
116
317
2011
$M
8,206
2,462
Bank
2010
$M
7,301
2,190
(646)
(493)
-
-
(2)
(29)
(6)
(17)
-
1
(47)
10
1,726
1,726
-
1,726
2011
$M
1,684
5
1,689
40
(3)
37
-
-
-
(31)
(11)
(32)
(31)
-
(22)
116
1,686
1,686
-
1,686
Bank
2010
$M
1,363
275
1,638
34
14
48
2,647
2,513
1,696
1,726
1,686
2011
%
27. 9
29. 7
28. 6
23. 7
28. 1
24. 0
34. 7
2010
%
29. 6
30. 1
28. 8
22. 4
28. 0
56. 9
22. 5
Group
2009
%
28. 1
29. 7
28. 1
large
30. 1
23. 8
35. 4
2011
%
21. 0
n/a
n/a
n/a
n/a
n/a
n/a
Bank
2010
%
23. 1
n/a
n/a
n/a
n/a
n/a
n/a
(1) The New Zealand corporate tax rate was reduced from 30% to 28% for tax years starting on or after 1 April 2011. This charge is effective for the Group from 1 July
2011.
(2) The year ended 30 June 2010 includes the impact of the tax on New Zealand structured finance transactions of $171 million.
(3) Comparative effective tax rates have been adjusted for the allocation of capital charges from the Corporate Centre to Bankwest.
(4) Comparative effective tax rates have been adjusted for the impact of business resegmentation.
Commonwealth Bank of Australia Annual Report 2011
127
Notes to the Financial Statements
Note 5 Income Tax (continued)
Deferred tax asset balances comprise temporary differences
attributable to:
Amounts recognised in the Income Statement:
Provision for employee benefits
Provisions for impairment on loans, bills discounted and other receivables
Other provisions not tax deductible until expense incurred
Recognised value of tax losses carried forward
Financial instruments
Other
Total amount recognised in the Income Statement
Amounts recognised directly in equity:
Foreign currency translation reserve
Cash flow hedge reserve
Employee compensation reserve
Avaliable-for-sale investments reserve
Total amount recognised directly in equity
Total deferred tax assets (before set off)
Set off of tax (1)
Net deferred tax assets
Deferred tax liability balances comprise temporary differences
attributable to:
Amounts recognised in the Income Statement:
Impact of TOFA adoption
Lease financing
Defined benefit superannuation plan surplus
Intangible assets
Financial instruments
Other
2011
$M
2010
$M
Group
2009
$M
375
1,387
202
1
15
183
2,163
-
224
11
4
239
2,402
(1,102)
1,300
30
370
(93)
134
77
572
364
1,476
193
3
259
291
338
1,336
243
6
424
422
2,586
2,769
3
212
12
3
230
2,816
(1,546)
1,270
-
347
(51)
145
639
371
3
255
3
9
270
3,039
(1,386)
1,653
-
299
(33)
176
567
273
Total amount recognised in the Income Statement
Amounts recognised directly in equity:
1,090
1,451
1,282
Revaluation of properties
Foreign currency translation reserve
Cash flow hedge reserve
Defined benefit superannuation plan surplus
Avaliable-for-sale investments reserve
Total amount recognised directly in equity
Total deferred tax liabilities (before set off)
Set off of tax (1)
Net deferred tax liabilities (Note 22)
Deferred tax assets opening balance:
Movement in temporary differences during the year:
Provisions for employee benefits
Provisions for impairment on loans, bills discounted 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 (1)
Deferred tax assets closing balance
Deferred tax liabilities opening balance:
Movement in temporary differences during the year:
Impact of TOFA adoption
Property asset revaluations
Lease financing
Defined benefit superannuation plan surplus
Intangible assets
Financial instruments
Other
Set off of tax (1)
Deferred tax liabilities closing balance (Note 22)
70
14
21
116
92
313
73
-
55
135
53
316
1,403
(1,102)
301
1,767
(1,546)
221
1,270
1,653
11
(89)
9
(2)
(234)
(109)
444
26
140
(50)
(3)
(214)
(122)
(160)
1,300
1,270
63
-
36
171
2
272
1,554
(1,386)
168
76
44
813
51
-
529
254
(114)
1,653
221
168
266
30
(3)
23
(61)
(11)
(543)
201
444
301
-
10
48
(54)
(31)
142
98
(160)
221
-
4
12
(323)
152
168
3
(114)
168
2011
$M
322
823
87
1
12
130
1,375
-
216
11
2
229
1,604
(492)
1,112
30
167
(93)
-
15
85
204
55
-
6
116
111
288
492
(492)
-
Bank
2010
$M
313
813
109
3
202
195
1,635
-
186
12
29
227
1,862
(620)
1,242
-
144
(51)
-
238
50
381
57
-
7
135
40
239
620
(620)
-
1,242
1,628
9
10
(22)
(2)
(187)
(66)
128
1,112
-
30
(2)
23
(61)
-
(153)
35
128
-
18
(76)
(30)
(2)
(71)
12
(237)
1,242
40
-
6
32
(54)
-
203
10
(237)
-
(1) Deferred tax assets and liabilities are set off where they relate to income tax levied by the same taxation authority on either the same taxable entity or different taxable
entities within the same taxable group.
128
Commonwealth Bank of Australia Annual Report 2011
Notes to the Financial Statements
Note 5 Income Tax (continued)
Unrecognised deferred tax assets
Deferred tax assets have not been recognised in respect of the following items:
Deferred tax assets not taken to account
Tax losses and other temporary differences on revenue account
Tax losses on capital account
Total
Expiration of deferred tax assets not taken
to account
At Balance Sheet date carry-forward losses expired as follows:
From one to two years
From two to four years
After four years
Losses that do not expire under current tax legislation
Total
Potential deferred tax assets of the Group arose from:
2011
2010
$M
101
40
141
$M
110
14
124
Group
2009
$M
100
-
100
Group
2011
$M
85
17
102
2011
2010
2009
2011
$M
$M
$M
$M
-
18
83
40
141
-
2
108
14
124
-
1
99
-
100
-
2
83
17
102
Bank
2010
$M
99
-
99
Bank
2010
$M
-
2
97
-
99
Tax losses and temporary differences in offshore centres.
Capital losses arising under the tax consolidation system; and
•
•
These deferred assets have not been recognised because it is not considered probable that future taxable profit will be available against
which they can be realised.
These potential tax benefits will only be obtained if:
•
•
•
Future capital gains and assessable income of a nature and of an amount sufficient to enable the benefit from the losses to be
realised is derived;
Compliance with the conditions for claiming capital losses and deductions imposed by tax legislation is continued; and
No changes in tax legislation adversely affect the Group in realising the benefit from deductions for the losses.
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 elected to be taxed as a single entity with effect from 1 July
2002.
The Bank has recognised a tax consolidation contribution to the wholly-owned tax consolidated entity of $84 million (2010: $84 million).
The Bank is the head entity of the tax consolidated group and has entered into tax funding and tax sharing agreements with its eligible
Australian resident subsidiaries. The terms and conditions of these agreements are set out in note 1(x). The amount receivable by the
Bank under the tax funding agreement was $280 million as at 30 June 2011 (2010: $439 million receivable). This balance is included in
‘Other assets’ in the Bank’s separate Balance Sheet.
Taxation of Financial Arrangements (TOFA)
The new tax regime for financial instruments TOFA began to apply to the Tax Consolidated Group from 1 July 2010. The regime allows
a closer alignment of the tax and accounting recognition and measurement of financial arrangements and their related flows. Following
adoption, deferred tax balances from financial arrangements progressively reverse over a four year period.
Commonwealth Bank of Australia Annual Report 2011
129
Notes to the Financial Statements
Note 6 Dividends
Ordinary Shares
Interim ordinary dividend (fully franked) (2011: 132 cents; 2010: 120
cents, 2009: 113 cents)
Interim ordinary dividend paid - cash component only
Interim ordinary dividend paid - dividend reinvestment plan
Total dividend paid
Other Equity Instruments
Dividend paid
Total dividend provided for, reserved or paid
Other provision carried
Dividend proposed and not recognised as a liability (fully franked)
(2011: 188 cents, 2010: 170 cents, 2009: 115 cents) (1)
Provision for dividends
Opening balance
Provision made during the year
Provision used during the year
Closing balance (Note 23)
2011
$M
2010
$M
1,532
513
2,045
42
2,087
37
2,930
29
4,678
(4,670)
37
1,067
774
1,841
47
1,888
29
2,633
18
3,588
(3,577)
29
Group
2009
$M
1,257
405
1,662
57
1,719
18
1,747
5
3,691
(3,678)
18
2011
$M
1,532
513
2,045
-
2,045
37
2,930
29
4,678
(4,670)
37
Bank
2010
$M
1,067
774
1,841
-
1,841
29
2,633
18
3,588
(3,577)
29
(1) The 2011 final dividend will be satisfied by cash disbursements and the issue of ordinary shares through the Dividend Reinvestment Plan (DRP). The 2010 final
dividend was satisfied by cash disbursements of $2,633 million including the on market purchase and transfer of $679 million of shares to participating shareholders
under the DRP. The 2009 final dividend was satisfied by cash disbursements of $1,058 million and the issue of $685 million of ordinary shares through the DRP.
Dividend Franking Account
After fully franking the final dividend to be paid for the year, the amount of credits available, at the 30% tax rate as at 30 June 2011 to
frank dividends for subsequent financial years, is $510 million (2010: $446 million). This figure is based on the franking accounts of the
Bank at 30 June 2011, adjusted for franking credits that will arise from the payment of income tax payable on profits for the year,
franking debits that will arise from the payment of dividends proposed, and franking credits that the Bank may be prevented from
distributing in subsequent financial periods.
The Bank expects that future tax payments will generate sufficient franking credits for the Bank to be able to continue to fully frank future
dividend payments. These calculations have been based on the taxation law as at 30 June 2011.
Dividend History
Half year ended
31 December 2008
30 June 2009
31 December 2009
30 June 2010
31 December 2010
30 June 2011 (3)
Cents Per
Share
Date Paid
113 23/03/2009
115 01/10/2009
120 01/04/2010
170 01/10/2010
132 01/04/2011
188 -
Half-year
Full Year
Payout
Ratio (1)
%
65.3
82.4
63.7
96.6
67.5
88.2
Payout
Ratio (1)
%
-
73.1
-
79.7
-
78.3
DRP
Participation
Rate (2)
%
24.4
39.4
42.0
25.8
25.1
-
DRP
Price
$
28.45
44.48
53.56
51.75
52.92
-
(1) Dividend Payout Ratio: dividends divided by statutory earnings.
(2) DRP Participation Rate: the percentage of total issued share capital participating in the DRP.
(3) Dividend expected to be paid on 6 October 2011.
130
Commonwealth Bank of Australia Annual Report 2011
Note 7 Earnings Per Share
Earnings per ordinary share
Basic
Fully diluted
Notes to the Financial Statements
2011
2010
Cents per share
411.2
395.1
367.9
354.2
Group
2009
328.5
313.4
Basic earnings per share amounts are calculated by dividing the net profit for the year attributable to ordinary equity holders of the Bank
by the weighted average number of ordinary shares on issue during the year, excluding the number of ordinary shares purchased and
held as treasury shares.
Diluted earnings per share amounts are calculated by dividing net profit attributable to ordinary equity holders of the Bank (after
deducting interest on the convertible redeemable loan capital instruments) by the weighted average number of ordinary shares issued
during the year (adjusted for the effects of dilutive options and dilutive convertible non-cumulative redeemable loan capital instruments).
Reconciliation of earnings used in calculation of earnings per share
Profit after income tax
Less: Other equity instrument dividends
Less: Non-controlling interests
Earnings used in calculation of basic earnings per share
Add: Profit impact of assumed conversions of loan capital
Earnings used in calculation of fully diluted earnings per share
Weighted average number of ordinary shares used in the calculation
of basic earnings per share
Effect of dilutive securities - executive share plans and convertible loan capital instruments
2011
$M
6,410
(42)
(16)
6,352
235
6,587
2011
M
1,545
123
2010
$M
5,680
(47)
(16)
5,617
190
5,807
Group
2009
$M
4,753
(57)
(30)
4,666
187
4,853
Number of Shares
2010
M
1,527
113
2009
M
1,420
128
Weighted average number of ordinary shares used in the calculation of fully diluted earnings per
share
1,668
1,640
1,548
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
Money at short call
Securities purchased under agreements to resell
Bills received and remittances in transit
Total overseas
Total cash and liquid assets
2011
$M
1,894
-
4,116
183
6,193
3,530
1,105
2,400
13
7,048
13,241
Group
2010
$M
3,090
1
3,141
111
6,343
2,195
1,019
540
22
3,776
10,119
2011
$M
1,604
-
4,117
10
5,731
2,499
967
1,782
-
5,248
10,979
Bank
2010
$M
2,737
-
3,175
74
5,986
1,290
905
530
-
2,725
8,711
Commonwealth Bank of Australia Annual Report 2011
131
Notes to the Financial Statements
Note 9 Receivables Due from Other Financial Institutions
Australia
Placements with and loans to other financial institutions
Total Australia
Overseas
Deposits with regulatory authorities (1)
Other placements with and loans to other financial institutions
Total overseas
Total receivables from other financial institutions
(1) Required by law for the Group to operate in certain regions.
2011
$M
5,203
5,203
116
5,074
5,190
10,393
Group
2010
$M
5,355
5,355
44
4,673
4,717
10,072
2011
$M
5,204
5,204
16
4,903
4,919
10,123
Bank
2010
$M
5,337
5,337
3
4,426
4,429
9,766
The majority of the above amounts are expected to be recovered within twelve months of the Balance Sheet date.
Note 10 Assets at Fair Value through Income Statement
Trading
Insurance
Other financial assets designated at fair value
Total assets at fair value through Income Statement (1)
2011
$M
20,469
14,998
824
36,291
Group
2010
$M
22,851
15,940
654
39,445
2011
$M
17,765
-
300
Bank
2010
$M
18,775
-
-
18,065
18,775
(1) In addition to the assets above, the Group also measures bills discounted that are intended to be sold into the market at fair value. These are classified within Loans,
bills discounted and other receivables (refer to Note 13).
Trading
Australia
Market quoted:
Australian public securities
Commonwealth and State Government
Local and semi-government
Bills of exchange
Certificates of deposit
Medium term notes
Equity investments and other securities
Non-market quoted:
Commercial paper
Other securities
Total Australia
Overseas
Market quoted:
Government securities
Eurobonds
Certificates of deposit
Floating rate notes
Commercial paper
Other securities
Non-market quoted:
Government securities
Corporate bonds
Floating rate notes
Commercial paper
Other securities
Total overseas
Total trading assets
2011
$M
8,160
3,264
521
149
1,955
1,100
-
80
Group
2010
$M
6,078
2,990
579
4,352
1,273
422
321
45
2011
$M
8,160
3,264
521
149
1,955
1,095
-
79
Bank
2010
$M
6,078
2,990
579
4,352
1,273
418
321
44
15,229
16,060
15,223
16,055
2,424
352
1,201
532
127
4
73
406
31
84
6
3,354
247
1,473
339
335
4
66
910
43
12
8
1,475
352
-
532
127
-
-
-
-
50
6
1,792
247
-
339
335
-
-
-
-
-
7
5,240
20,469
6,791
22,851
2,542
17,765
2,720
18,775
The above amounts are expected to be recovered within twelve months of the Balance Sheet date.
132
Commonwealth Bank of Australia Annual Report 2011
Notes to the Financial Statements
Note 10 Assets at Fair Value through Income Statement (continued)
Investments Investments
Investments Investments
Backing Life Backing Life
Backing Life Backing Life
Risk
Investment
Risk
Investment
Contracts
Contracts
Total
Contracts
Contracts
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
2011
$M
405
629
1,034
688
2,011
2,699
16
293
309
138
2011
$M
781
3,403
4,184
630
4,496
5,126
88
536
624
884
4,180
10,818
2011
$M
1,186
4,032
5,218
1,318
6,507
7,825
104
829
933
1,022
14,998
2010
$M
315
618
933
824
1,979
2,803
15
366
381
175
2010
$M
660
3,508
4,168
571
5,100
5,671
60
868
928
881
Total
2010
$M
975
4,126
5,101
1,395
7,079
8,474
75
1,234
1,309
1,056
4,292
11,648
15,940
Of the above amounts, $1,876 million is expected to be recovered within twelve months of the Balance Sheet date (2010: $2,102
million).
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.
Investments held in the Australian statutory funds may only be used within the restrictions imposed under the Life Insurance Act 1995.
Refer to note 1(ff) for further details.
Other (1)
Government securities
Fair value structured transactions
Receivables due from financial institutions
Term loans
Total other assets at fair value through Income Statement
2011
$M
300
-
465
59
824
Group
2010
$M
-
100
447
107
654
2011
$M
300
-
-
-
300
Bank
2010
$M
-
-
-
-
-
(1) Designated at Fair Value through Income Statement at inception as they are managed by the Group on a fair value basis or to eliminate an accounting mismatch.
Of the above amounts $524 million is expected to be recovered within twelve months of the Balance Sheet date by the Group (2010:
$654 million). All amounts are expected to be recovered after twelve months of the Balance Sheet date by the Bank.
The change in fair value of loans and receivables designated at Fair Value through Income Statement due to changes in credit risk for
the Group resulted in a gain of $1 million for the year (2010: $4 million), and was insignificant for the Bank for the year ending 30 June
2011. The cumulative net loss attributable to changes in credit risk for loans and receivables designated at fair value since initial
recognition for the Group is $nil (2010: $1 million), and was insignificant for the Bank for the year ending 30 June 2011. These values
have been calculated by determining the changes in credit spread implicit in the fair value of the instrument.
The maximum exposure to credit risk of loans and receivables designated at Fair Value through Income Statement is equal to the
carrying value.
Commonwealth Bank of Australia Annual Report 2011
133
Notes to the Financial Statements
Note 11 Derivative Financial Instruments
Derivative Contracts
Derivatives are classified as “Held for Trading”, “Held for Hedging”, or “Other”. Held for Trading derivatives are contracts entered into in
order to meet customers’ needs, or to undertake market making and positioning activities. Held for Hedging derivatives are instruments
held for risk management purposes which meet the criteria for hedge accounting. Derivatives entered into as economic hedges that do
not qualify for hedge accounting are classified as Other.
Derivatives Transacted for Hedging Purposes
There are three types of allowable hedging relationships: fair value hedges, cash flow hedges and hedges of a net investment in a
foreign operation. For details on the accounting treatment of each type of hedging relationship refer to Note 1 (dd).
Fair Value Hedges
Fair value hedges are used by the Group to manage exposure to changes in the fair value of an asset, liability or unrecognised firm
commitment. Changes in fair values can arise from fluctuations in interest or foreign exchange rates. The Group principally uses interest
rate swaps, cross currency swaps and futures to protect against such fluctuations.
All gains and losses associated with the ineffective portion of fair value hedge relationships are recognised immediately as ‘Other
operating income’ in the Income Statement. Ineffectiveness recognised in the Income Statement in the current year amounted to a $10
million net gain for the Group (2010: $67 million net loss) and $19 million net gain for the Bank (2010: $72 million net loss).
Cash Flow Hedges
Cash flow hedges are used by the Group to manage exposure to volatility in future cash flows which may result from fluctuations in
interest or exchange rates on financial assets, liabilities or highly probable forecast transactions. The Group principally uses interest rate
and cross currency swaps to protect against such fluctuations. Ineffectiveness recognised in the Income Statement in the current year
amounted to a $6 million loss for the Group (2010: $5 million gain) and $5 million loss for the Bank (2010: $12 million gain).
Amounts accumulated in Other Comprehensive Income in respect of cash flow hedges are recycled to the Income Statement when the
forecast transaction occurs. Underlying cash flows from cash flow hedges are expected to occur in the following periods:
Exchange Rate
Interest Rate
Related Contracts
Related Contracts
2011
2010
2011
2010
2011
$M
(13)
(6)
(12)
(156)
(229)
(416)
$M
(43)
-
-
9
8
(26)
$M
(13)
(92)
(189)
191
(43)
(146)
$M
(85)
(65)
(198)
(158)
(44)
(550)
$M
(26)
(98)
(201)
35
(272)
(562)
Exchange Rate
Interest Rate
Related Contracts
Related Contracts
2011
$M
-
(6)
(12)
(154)
(238)
(410)
2010
$M
-
-
-
9
(1)
8
2011
2010
2011
$M
(1)
(36)
(139)
127
(84)
(133)
$M
(105)
(19)
(85)
(163)
(87)
(459)
$M
(1)
(42)
(151)
(27)
(322)
(543)
Group
Total
2010
$M
(128)
(65)
(198)
(149)
(36)
(576)
Bank
Total
2010
$M
(105)
(19)
(85)
(154)
(88)
(451)
6 months
6 months - 1 year
1 - 2 years
2 - 5 years
After 5 years
Net deferred (losses)/gains
6 months
6 months - 1 year
1 - 2 years
2 - 5 years
After 5 years
Net deferred (losses)/gains
Net Investment Hedges
The Group uses foreign exchange forward transactions to minimise its exposure to the currency translation risk of certain net
investments in foreign operations.
In the current and prior year, there have been no material gains or losses as a result of ineffective net investment hedges.
134
Commonwealth Bank of Australia Annual Report 2011
Notes to the Financial Statements
Note 11 Derivative Financial Instruments (continued)
The notional (face) and fair value of derivative financial instruments are set out in the following tables:
2011
Group
2010
Face Value
Fair Value
Fair Value
Face Value
Fair Value
Fair Value
Asset
Liability
Asset
Liability
Derivative assets and liabilities
Held for trading
Held for hedging
Other derivatives
Total derivative assets/(liabilities)
$M
2,491,015
379,464
13,841
2,884,320
$M
27,315
2,858
144
30,317
$M
$M
(25,337)
2,319,176
(8,194)
(445)
294,529
29,997
(33,976)
2,643,702
$M
23,091
4,260
338
27,689
2011
$M
(20,695)
(3,865)
(324)
(24,884)
Group
2010
Derivatives held for trading
Exchange rate related contracts:
Forward contracts
Swaps
Futures
Options purchased and sold
Face Value
Fair Value
Fair Value
Face Value
Fair Value
Fair Value
Asset
Liability
Asset
Liability
$M
$M
$M
$M
$M
$M
898,879
435,868
4,310
33,308
5,178
12,818
1
684
(6,423)
1,076,395
(10,386)
377,637
-
(966)
1,282
4,215
5,611
6,882
1
509
(4,471)
(6,344)
-
(513)
Total exchange rate related contracts
1,372,365
18,681
(17,775)
1,459,529
13,003
(11,328)
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
Options purchased and sold
Total equity related contracts
Commodity related contracts:
Swaps
Futures
Options purchased and sold
Total commodity related contracts
67,367
876,728
99,877
58,742
1,102,714
8,176
8,176
274
914
1,188
4,224
1,018
1,330
6,572
7
7,985
2
350
8,344
47
47
-
15
15
200
1
27
228
(6)
(7,051)
(2)
(301)
60,710
709,749
51,394
24,302
(7,360)
846,155
(49)
(49)
-
(55)
(55)
(74)
-
(24)
(98)
10,317
10,317
83
244
327
1,649
-
1,199
2,848
7
9,377
1
416
9,801
110
110
-
7
7
167
-
3
170
(8)
(8,823)
(2)
(284)
(9,117)
(99)
(99)
-
(49)
(49)
(99)
-
(3)
(102)
Total derivative assets/(liabilities) held for
trading
2,491,015
27,315
(25,337)
2,319,176
23,091
(20,695)
Derivative assets and liabilities held for trading are expected to be recovered or due to be settled within twelve months of the Balance
Sheet date.
Commonwealth Bank of Australia Annual Report 2011
135
Notes to the Financial Statements
Note 11 Derivative Financial Instruments (continued)
Derivatives held for hedging
Fair value hedges
Exchange rate related contracts:
Forward contracts
Swaps
Total exchange rate related contracts
Interest rate related contracts:
Swaps
Futures
Total interest rate related contracts
Equity related contracts:
Swaps
Total equity related contracts
Total fair value hedges
Cash flow hedges
Exchange rate related contracts:
Swaps
Total exchange rate related contracts
Interest rate related contracts:
Swaps
Total interest rate related contracts
Total cash flow hedges
Net investment hedges
Exchange rate related contracts:
Forward contracts
Total exchange rate related contracts
Total net investment hedges
2011
Group
2010
Face Value
Fair Value
Fair Value Face Value
Fair Value
Fair Value
Asset
Liability
Asset
Liability
$M
$M
$M
$M
$M
$M
19
36,765
36,784
28,624
1,784
30,408
457
457
1
1,338
1,339
458
-
458
53
53
-
(3,874)
(3,874)
(552)
(5)
(557)
(8)
(8)
19
30,493
30,512
33,933
2,600
36,533
635
635
-
2,013
2,013
1,041
-
1,041
32
32
(1)
(1,605)
(1,606)
(456)
(21)
(477)
(32)
(32)
67,649
1,850
(4,439)
67,680
3,086
(2,115)
24,986
24,986
286,801
286,801
311,787
28
28
28
116
116
892
892
(2,691)
(2,691)
19,267
19,267
(1,060)
(1,060)
207,553
207,553
1,008
(3,751)
226,820
-
-
-
(4)
(4)
(4)
29
29
29
70
70
1,104
1,104
1,174
-
-
-
(180)
(180)
(1,567)
(1,567)
(1,747)
(3)
(3)
(3)
Total derivative assets/(liabilities) held for
hedging
379,464
2,858
(8,194)
294,529
4,260
(3,865)
The majority of derivative assets and liabilities held for hedging are expected to be recovered or due to be settled after twelve months of
the Balance Sheet date.
Other derivatives
Exchange rate related contracts:
Forward contracts
Swaps
Total exchange rate related contracts
Interest rate related contracts:
Forward contracts
Swaps
Futures
Options purchased and sold
Total interest rate related contracts
Identified embedded derivatives
Total other derivatives
2011
Group
2010
Face Value
Fair Value
Fair Value Face Value
Fair Value
Fair Value
Asset
Liability
Asset
Liability
$M
$M
$M
$M
$M
$M
644
4,559
5,203
77
8,201
-
5
8,283
355
13,841
5
63
68
-
59
-
-
59
17
144
(45)
(317)
(362)
-
(71)
-
(5)
(76)
(7)
(445)
5,707
3,337
9,044
4,222
15,195
1,108
6
20,531
422
29,997
84
130
214
-
108
-
1
109
15
338
(63)
(74)
(137)
-
(159)
(3)
(5)
(167)
(20)
(324)
The majority of other derivative assets and liabilities are expected to be recovered or due to be settled after twelve months of the
Balance Sheet date.
136
Commonwealth Bank of Australia Annual Report 2011
Notes to the Financial Statements
Note 11 Derivative Financial Instruments (continued)
Derivative assets and liabilities
Held for trading
Held for hedging
Other derivatives
Total derivative assets/(liabilities)
2011
Bank
2010
Face Value
Fair Value
Fair Value
Face Value
Fair Value
Fair Value
Asset
Liability
Asset
Liability
$M
2,671,461
350,377
442
$M
28,036
2,687
8
$M
$M
(24,928)
2,499,704
(7,864)
(25)
278,367
493
$M
23,300
4,054
9
$M
(20,195)
(3,456)
(38)
3,022,280
30,731
(32,817)
2,778,564
27,363
(23,689)
Derivatives held for trading
Exchange rate related contracts:
Forward contracts
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
2011
Bank
2010
Face Value
Fair Value
Fair Value
Face Value
Fair Value
Fair Value
Asset
Liability
Asset
Liability
$M
$M
$M
$M
$M
$M
896,291
434,185
4,310
33,257
137,187
1,505,230
66,634
856,631
98,861
58,419
69,672
5,154
12,756
1
684
1,405
20,000
6
7,181
1
349
210
(6,402)
1,073,995
(10,135)
375,656
-
(966)
(482)
1,282
4,184
169,602
5,596
6,836
1
508
895
(4,448)
(6,178)
-
(512)
(389)
(17,985)
1,624,719
13,836
(11,527)
(6)
(6,194)
-
(298)
(244)
60,345
664,946
46,932
24,084
65,030
7
8,472
-
414
284
(8)
(7,826)
-
(283)
(301)
Total interest rate related contracts
1,150,217
7,747
(6,742)
861,337
9,177
(8,418)
Credit related contracts:
Swaps
Total credit related contracts
Equity related contracts:
Swaps
Options purchased and sold
Total equity related contracts
Commodity related contracts:
Swaps
Futures
Options purchased and sold
Derivatives held with controlled entities
Total commodity related contracts
Total derivative assets/(liabilities) held for
trading
8,121
8,121
274
914
1,188
4,224
1,018
1,324
139
6,705
46
46
-
15
15
200
1
27
-
228
(49)
(49)
-
(55)
(55)
(74)
-
(22)
(1)
(97)
10,317
10,317
83
244
327
1,649
-
1,189
166
3,004
110
110
-
7
7
167
-
3
-
170
(99)
(99)
-
(49)
(49)
(99)
-
(3)
-
(102)
2,671,461
28,036
(24,928)
2,499,704
23,300
(20,195)
Derivative assets and liabilities held for trading are expected to be recovered or due to be settled within twelve months of the Balance
Sheet date.
Commonwealth Bank of Australia Annual Report 2011
137
Notes to the Financial Statements
Note 11 Derivative Financial Instruments (continued)
Derivatives held for hedging
Fair value hedges
Exchange rate related contracts:
Forward contracts
Swaps
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
2011
Bank
2010
Face Value
Fair Value
Fair Value
Face Value
Fair Value
Fair Value
Asset
Liability
Asset
Liability
$M
$M
$M
$M
$M
$M
19
36,765
36,784
23,378
1,784
280
25,442
457
457
1
1,338
1,339
246
-
71
317
53
53
-
(3,874)
(3,874)
(486)
(5)
-
(491)
(8)
(8)
19
30,493
30,512
30,061
2,600
667
33,328
635
635
-
2,013
2,013
828
-
93
921
32
32
(1)
(1,605)
(1,606)
(405)
(21)
-
(426)
(32)
(32)
Total fair value hedges
62,683
1,709
(4,373)
64,475
2,966
(2,064)
Cash flow hedges
Exchange rate related contracts:
Swaps
Derivatives held with controlled entities
Total exchange rate related contracts
Interest rate related contracts:
Swaps
Derivatives held with controlled entities
Total interest rate related contracts
Total cash flow hedges
Total derivative assets/(liabilities) held
for hedging
24,327
2,512
26,839
259,864
991
260,855
287,694
105
123
228
739
11
750
978
(2,680)
(9)
(2,689)
(802)
-
(802)
18,835
2,638
21,473
190,558
1,861
192,419
70
22
92
979
17
996
(3,491)
213,892
1,088
(160)
(7)
(167)
(1,224)
(1)
(1,225)
(1,392)
350,377
2,687
(7,864)
278,367
4,054
(3,456)
The majority of derivative assets and liabilities held for hedging are expected to be recovered or due to be settled after twelve months of
the Balance Sheet date.
Other derivatives
Interest rate related contracts:
Swaps
Options purchased and sold
Derivatives held with controlled entities
Total interest rate related contracts
Identified embedded derivatives
Total other derivatives
2011
Bank
2010
Face Value
Fair Value
Fair Value
Face Value
Fair Value
Fair Value
Asset
Liability
Asset
Liability
$M
$M
94
5
2
101
341
442
1
-
2
3
5
8
$M
(13)
(5)
-
(18)
(7)
(25)
$M
$M
72
6
6
84
409
493
-
1
4
5
4
9
$M
(11)
(5)
(2)
(18)
(20)
(38)
The majority of other derivative assets and liabilities are expected to be recovered or due to be settled after twelve months of the
Balance Sheet date.
138
Commonwealth Bank of Australia Annual Report 2011
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
Certificates of deposit
Eurobonds
Medium term notes
Floating rate notes
Other securities
Non-market quoted:
Australian public securities:
Local and semi-government
Medium term notes
Shares and equity investments
Mortgage backed securities (1)
Other securities
Total Australia
Overseas
Market quoted:
Government securities
Shares and equity investments
Certificates of deposit
Eurobonds
Medium term notes
Floating rate notes
Other securities
Non-market quoted:
Government securities
Corporate bonds
Other securities
Total overseas
Total available-for-sale investments
2011
$M
Group
2010
$M
2011
$M
Bank
2010
$M
14,768
418
4,640
1,707
10,029
4,535
207
83
132
15
2,139
3
38,676
5,288
23
692
16
1
-
120
19
208
128
12,503
283
2,595
1,843
8,228
1,235
205
84
54
166
1,066
2
28,264
1,259
26
879
2,368
-
85
34
-
-
-
6,495
45,171
4,651
32,915
13,376
354
4,466
601
10,029
-
4
-
784
5
12,153
222
-
-
8,228
-
4
-
872
156
41,318
39,973
-
-
70,937
61,608
4,005
-
690
16
1
-
-
-
-
50
4,762
75,699
863
-
875
2,369
-
64
-
-
-
-
4,171
65,779
(1) Included within Mortgage backed securities of the Bank are $37,105 million (2010: $37,105 million) of residential mortgage backed securities held within securitisation
vehicles for potential repurchase by the Reserve Bank of Australia.
The following amounts are expected to be recovered within twelve months of the Balance Sheet date: for Group $12,499 million (2010:
$10,317 million); for Bank $9,132 million (2010: $5,408 million).
Revaluation of Available-for-sale investments resulted in a gain of $124 million (2010: $327 million) for the Group and a gain of $264
million (2010: $160 million) for the Bank recognised directly in equity. As a result of sale, derecognition or impairment during the year of
Available-for-sale investments the following amounts were removed from equity and reported in Income Statement for the year; Group:
$24 million net gain (2010: $22 million), Bank $24 million net gain (2010: $16 million).
Proceeds received from settlement at or close to maturity of Available-for-sale investments for the Group were $45,417 million (2010:
$44,201 million) and for the Bank were $34,718 million (2010: $26,635 million).
Proceeds from sale of Available-for-sale investments for the Group were $4,440 million (2010: $4,107 million) and for the Bank were
$3,919 million (2010: $4,095 million).
Commonwealth Bank of Australia Annual Report 2011
139
Notes to the Financial Statements
Note 12 Available-for-Sale Investments (continued)
Australia
Australian Public Securities:
Local and semi-government
Certificates of deposit
Eurobonds
Medium term notes
Floating rate notes
Mortgage backed securities
Other securities and equity investments
Total Australia
Overseas
Government securities
Certificates of deposit
Corporate bonds
Floating rate notes
Other securities and equity investments
Total overseas
Total available-for-sale investments
Group
As at 30 June 2011
Gross
Gross
Amortised
Unrealised
Unrealised
Cost
$M
Gains
$M
Losses
$M
14,582
4,640
1,695
10,126
4,511
2,148
546
38,248
5,301
692
222
77
181
6,473
44,721
286
-
15
62
55
1
103
522
24
-
2
1
13
40
562
(17)
-
(3)
(27)
(29)
(10)
(8)
(94)
(18)
-
-
-
-
(18)
(112)
Fair
Value
$M
14,851
4,640
1,707
10,161
4,537
2,139
641
38,676
5,307
692
224
78
194
6,495
45,171
Maturity Distribution and Weighted Average Yield
0 to 3 months 3 to 12 months
1 to 5 years
5 to 10 years 10 or more years Maturing
Total
$M
%
$M
%
$M
%
$M
%
$M
%
$M
$M
Maturity Period at 30 June 2011
Group
Non-
Australia
Australian Public Securities:
Local and semi-government
Certificates of deposit
Eurobonds
Medium term notes
Floating rate notes
Mortgage backed securities
Other securities and equity
investments
Total Australia
Overseas
Government securities
Certificates of deposit
Corporate bonds
Floating rate notes
Other securities and equity
investments
Total overseas
Total available-for-
sale investments
7,294
5.62
6,123
6.05
1,232
6.07
-
-
-
-
205
7.47
-
2,746
120
80
363
-
-
5.03
5.33
5.56
5.06
-
199
4.78
202
1,894
248
839
1,181
-
-
3,508
-
4,364
5.05
5.09
5.36
5.46
5.44
-
-
-
2,188
520
0.59
0.30
1,664
172
1.56
0.30
-
-
-
-
-
-
-
-
-
1,339
9,037
2,993
-
-
5.93
5.54
5.35
-
10
0.01
-
224
78
-
6.39
3.95
20,673
-
6,328
968
2.67
487
4.36
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,139
5.33
-
3,371
-
-
-
-
-
-
3,371
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
60
4.13
25
0.06
86
0.12
2,768
6,276
-
-
1,861
6,225
-
-
1,356
22,029
-
-
487
6,815
-
-
-
-
-
-
432
432
-
-
-
-
23
23
14,851
4,640
1,707
10,161
4,537
2,139
641
38,676
5,307
692
224
78
194
6,495
455
45,171
140
Commonwealth Bank of Australia Annual Report 2011
Notes to the Financial Statements
Note 12 Available-for-Sale Investments (continued)
Australia
Australian Public Securities:
Local and semi-government
Certificates of deposit
Eurobonds
Medium term notes
Floating rate notes
Mortgage backed securities
Other securities and equity investments
Total Australia
Overseas
Government securities
Certificates of deposit
Eurobonds
Floating rate notes
Other securities and equity investments
Total overseas
Total available-for-sale investments
Group
As at 30 June 2010
Gross
Gross
Amortised Unrealised Unrealised
Cost
$M
Gains
Losses
$M
$M
Fair
Value
$M
12,363
2,596
1,826
8,261
1,218
1,081
542
27,887
1,258
879
2,355
86
52
4,630
32,517
245
-
17
61
17
4
114
458
1
-
17
-
8
26
484
(21)
(1)
-
(40)
-
(19)
-
(81)
-
-
(4)
(1)
-
(5)
(86)
12,587
2,595
1,843
8,282
1,235
1,066
656
28,264
1,259
879
2,368
85
60
4,651
32,915
Maturity Distribution and Weighted Average Yield
0 to 3 months 3 to 12 months
1 to 5 years
5 to 10 years 10 or more years Maturing
Total
$M
%
$M
%
$M
%
$M
%
$M
%
$M
$M
Maturity Period at 30 June 2010
Group
Non-
Australia
Australian Public Securities:
Local and semi-government
Certificates of deposit
Eurobonds
Medium term notes
Floating rate notes
Mortgage backed securities
Other securities and equity
investments
Total Australia
Overseas
Government securities
Certificates of deposit
Eurobonds
Floating rate notes
Other securities and equity
investments
Total overseas
Total available-for-
sale investments
6,155
5. 64
4,975
6. 03
1,092
5. 84
4. 55
4. 73
4. 79
5. 47
-
-
215
354
952
1,212
275
-
5. 82
4. 94
5. 04
4. 86
3. 95
-
-
530
6,389
960
-
-
5. 73
5. 27
4. 05
-
150
2,241
361
379
-
-
2
3. 27
197
4. 91
8
0. 01
3,133
-
3,205
-
14,042
-
5,277
452
785
136
-
-
1,373
4,506
1. 97
0. 40
3. 63
-
-
-
-
683
94
1,762
64
-
2,603
5,808
1. 64
0. 67
0. 41
2. 10
-
-
-
124
5. 07
-
23
21
36
204
14,246
-
5. 50
1. 16
4. 68
-
-
-
-
-
-
302
6. 95
-
-
-
-
-
-
-
-
-
-
-
447
4. 00
-
-
447
5,724
-
-
-
-
-
-
-
-
-
-
-
-
1,066
5. 21
-
2,158
-
-
-
-
-
-
2,158
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
449
449
-
-
-
-
24
24
12,587
2,595
1,843
8,282
1,235
1,066
656
28,264
1,259
879
2,368
85
60
4,651
473
32,915
Commonwealth Bank of Australia Annual Report 2011
141
Notes to the Financial Statements
Note 13 Loans, Bills Discounted and Other Receivables
Australia
Overdrafts
Home loans (1)
Credit card outstandings
Lease financing
Bills discounted (2)
Term loans
Other lending
Other securities
Total Australia
Overseas
Overdrafts
Home loans
Credit card outstandings
Lease financing
Term loans
Other lending
Total overseas
Gross loans, bills discounted and other receivables
Less
Provisions for Loan Impairment (Note 14):
Collective provision
Individually assessed provisions
Unearned income:
Term loans
Lease financing
2011
$M
21,930
306,250
10,798
4,404
14,820
96,097
1,310
4
Group
2010
$M
19,924
292,140
10,200
4,657
14,379
101,794
1,288
564
2011
$M
20,892
259,685
9,495
2,633
14,820
75,509
777
-
Bank
2010
$M
18,767
249,134
8,881
2,194
14,379
77,105
748
562
455,613
444,946
383,811
371,770
629
29,591
572
468
20,468
-
51,728
507,341
(3,022)
(2,125)
(1,153)
(984)
(7,284)
652
31,433
589
570
23,052
27
56,323
501,269
(3,436)
(1,992)
(1,213)
(1,169)
(7,810)
-
374
-
100
8,119
-
8,593
392,404
(1,905)
(1,081)
(1,088)
(442)
(4,516)
-
392
-
68
9,383
25
9,868
381,638
(1,964)
(978)
(1,106)
(395)
(4,443)
Net loans, bills discounted and other receivables
500,057
493,459
387,888
377,195
(1) The Group has entered into securitisation transactions on residential mortgage loans that do not qualify for derecognition. The Group is entitled to any residual income
of the securitisation programme after all payments due to investors and costs of the programme have been met, to this extent the Group retains credit and liquidity
risk. In addition, derivatives return the interest rate and foreign currency risk to the Group. The carrying value of assets that did not qualify for derecognition for the
Group were $11,296 million (2010: $9,696 million) and for the Bank were $7,691 million (2010: $5,963 million). The carrying value of liabilities associated with non-
derecognised assets for the Group were $10,231 million (2010: $8,772 million) and for the Bank were $7,507 million (2010: $6,117 million).
(2) The Group measures bills discounted intended to be sold into the market at fair value and includes these within loans, bills discounted and other receivables to reflect
the nature of the lending arrangement.
The following amounts, based on behavioural terms and current market conditions, are expected to be recovered within twelve months
of the Balance Sheet date for Group $180,038 million (2010: $173,459 million) and for Bank $128,375 million (2010: $118,520 million).
142
Commonwealth Bank of Australia Annual Report 2011
Notes to the Financial Statements
Note 13 Loans, Bills Discounted and Other Receivables (continued)
Finance Lease Receivables
The Group and the Bank provide finance leases to a broad range of clients to support financing needs in acquiring movable assets such
as trains, aircraft, ships and major production and manufacturing equipment.
Finance lease receivables are included within loans, bills discounted and other receivables to customers.
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
Total finance leases
2011
$M
1,389
2,516
967
4,872
Group
2010
$M
1,360
2,803
1,064
5,227
Gross
investment in
2011
Present value
Gross
of minimum
investment in
2011
$M
830
1,574
329
2,733
Bank
2010
$M
637
1,357
268
2,262
Group
2010
Present value
of minimum
finance lease
Unearned
lease payment
finance lease
Unearned
lease payment
receivable
income
receivable
receivable
income
receivable
Not later than one year
One year to five years
Over five years
$M
1,389
2,516
967
4,872
$M
(259)
(541)
(184)
(984)
$M
1,130
1,975
783
3,888
2011
$M
1,360
2,803
1,064
5,227
$M
(298)
(688)
(183)
(1,169)
$M
1,062
2,115
881
4,058
Bank
2010
Gross
investment in
Present value
Gross
of minimum
investment in
Present value
of minimum
finance lease
Unearned
lease payment
finance lease
Unearned
lease payment
receivable
income
receivable
receivable
income
receivable
$M
830
1,574
329
2,733
$M
(120)
(244)
(78)
(442)
$M
710
1,330
251
2,291
$M
637
1,357
268
2,262
$M
(104)
(247)
(44)
(395)
$M
533
1,110
224
1,867
Not later than one year
One year to five years
Over five years
Commonwealth Bank of Australia Annual Report 2011
143
Notes to the Financial Statements
Note 13 Loans, Bills Discounted and Other Receivables (continued)
Maturity Period at 30 June 2011
Group
Maturing 1
Maturing
Maturing
Year
Between
After
or Less
1 & 5 Years
5 Years
$M
$M
$M
2,015
3,009
7,870
6,057
1,547
4,332
3,004
62,815
90,649
2,636
1,944
2,619
7,630
166
540
258
1,261
17,054
107,703
76,178
12,426
88,604
14,471
4,628
19,099
107,703
80
1,087
1,142
17,490
722
10,955
5,134
28,692
65,302
1,470
1,255
1,790
4,283
72
13
659
1,978
11,520
76,822
48,445
8,576
57,021
16,857
2,944
19,801
76,822
Total
$M
2,212
5,278
9,986
117
1,182
974
282,703
306,250
608
2,122
190
11,766
299,662
497
1,721
2,579
17,678
84
6
339
250
23,154
322,816
262,556
14,585
277,141
37,106
8,569
45,675
2,877
17,409
8,328
103,273
455,613
4,603
4,920
6,988
29,591
322
559
1,256
3,489
51,728
507,341
387,179
35,587
422,766
68,434
16,141
84,575
322,816
507,341
Industry
Australia
Sovereign
Agriculture
Bank and other financial
Home loans
Construction
Personal
Asset financing
Other commercial and industrial
Total Australia
Overseas
Sovereign
Agriculture
Bank and other financial
Home loans
Construction
Personal
Asset financing
Other commercial and industrial
Total overseas
Gross loans, bills discounted and other receivables
Interest rate
Australia
Overseas
Total variable interest rates
Australia
Overseas
Total fixed interest rates
Gross loans, bills discounted and other receivables
144
Commonwealth Bank of Australia Annual Report 2011
Notes to the Financial Statements
Note 13 Loans, Bills Discounted and Other Receivables (continued)
Maturity Period at 30 June 2010
Group
Industry
Australia
Sovereign
Agriculture
Bank and other financial
Home loans
Construction
Personal
Asset financing
Other commercial and industrial
Total Australia
Overseas
Sovereign
Agriculture
Bank and other financial
Home loans
Construction
Personal
Asset financing
Other commercial and industrial
Total overseas
Gross loans, bills discounted and other receivables
Interest rate
Australia
Overseas
Total variable interest rates
Australia
Overseas
Total fixed interest rates
Gross loans, bills discounted and other receivables
Maturing 1
Year
Maturing
Between
Maturing
After
or Less
1 & 5 Years
5 Years
$M
$M
$M
96
2,564
6,796
7,522
1,591
3,750
3,057
58,699
84,075
822
2,194
1,997
6,621
226
688
205
3,320
16,073
100,148
68,950
9,121
78,071
15,125
6,952
22,077
100,148
557
1,225
1,635
18,291
1,204
10,161
5,315
35,493
73,881
240
1,444
2,027
4,695
121
127
384
5,049
14,087
87,968
49,268
9,051
58,319
24,613
5,036
29,649
87,968
Total
$M
1,571
5,158
9,221
918
1,369
790
266,327
292,140
643
2,068
249
14,626
286,990
151
1,812
2,320
20,117
125
7
179
1,452
26,163
313,153
244,487
10,831
255,318
42,503
15,332
57,835
313,153
3,438
15,979
8,621
108,818
444,946
1,213
5,450
6,344
31,433
472
822
768
9,821
56,323
501,269
362,705
29,003
391,708
82,241
27,320
109,561
501,269
Commonwealth Bank of Australia Annual Report 2011
145
Notes to the Financial Statements
Note 14 Provisions for Impairment
Provisions for impairment losses
Collective provision
Opening balance
Acquisitions
Net collective provision funding
Impairment losses written off
Impairment losses recovered
Fair value and other
Closing balance
Individually assessed provisions
Opening balance
Acquisitions
Net new and increased individual provisioning
Write-back of provisions no longer required
Discount unwind to interest income
Fair value and other
Impairment losses written off
Closing balance
Total provisions for impairment losses
Less: Off balance sheet provisions
Total provisions for loan impairment
Provision ratios
Collective provision as a % of gross loans and acceptances
Collective provision as a % of risk weighted assets - Basel II
Total provision as a % of credit risk weighted assets - Basel II
Individually assessed provisions for impairment as a % of gross
impaired assets
Total provisions for impairment losses as a % of gross loans and
acceptances
2011
$M
2010
$M
3,461
3,225
-
45
(646)
206
(23)
3,043
1,992
-
1,602
(367)
(147)
374
(1,329)
2,125
5,168
(21)
5,147
-
901
(734)
77
(8)
3,461
1,729
-
1,862
(384)
(169)
293
(1,339)
1,992
5,453
(25)
5,428
2011
2010
%
0. 59
1. 08
2. 09
%
0. 67
1. 19
2. 12
Group
2009
$M
2011
$M
Bank
2010
$M
1,466
250
1,176
(472)
73
732
3,225
279
380
1,686
(179)
(45)
279
(671)
1,729
4,954
(30)
4,924
Group
2009
%
0. 66
1. 12
1. 92
1,989
2,090
-
305
(529)
176
(15)
-
460
(617)
58
(2)
1,926
1,989
978
-
996
(221)
(72)
153
(753)
1,081
3,007
(21)
2,986
2011
%
0. 48
n/a (1)
n/a (1)
1,020
-
1,003
(270)
(86)
161
(850)
978
2,967
(25)
2,942
Bank
2010
%
0. 51
n/a (1)
n/a (1)
40. 12
38. 19
41. 07
35. 89
36. 04
1. 00
1. 06
1. 01
0. 75
0. 75
(1) Basel II ratios are not calculated for the Bank legal entity as this is not a regulated structure for capital reporting purposes. For further details refer to Note 31.
146
Commonwealth Bank of Australia Annual Report 2011
Notes to the Financial Statements
Note 14 Provisions for Impairment (continued)
Loan impairment expense
Net collective provision funding
Net new and increased individual provisioning
Write-back of individually assessed provisions
Total loan impairment expense
Available-for-sale debt securities impairment expense
Total impairment expense
Individually assessed provisions by
industry classification
Australia
Sovereign
Agriculture
Bank and other financial
Home loans
Construction
Personal
Asset financing
Other commercial and industrial
Total Australia
Overseas
Sovereign
Agriculture
Bank and other financial
Home loans
Construction
Personal
Asset financing
Other commercial and industrial
Total overseas
Total individually assessed provisions
2011
$M
45
1,602
(367)
1,280
-
1,280
2010
$M
901
1,862
(384)
2,379
-
2,379
Group
2009
$M
1,176
1,686
(179)
2,683
365
3,048
2011
$M
305
996
(221)
1,080
-
1,080
2011
$M
2010
$M
2009
$M
2008
$M
-
87
254
202
133
11
37
1,307
2,031
-
11
1
25
-
-
-
57
94
-
75
254
150
132
21
15
1,268
1,915
-
15
1
12
-
-
-
49
77
2,125
1,992
-
77
483
82
104
23
31
760
1,560
-
9
68
10
-
-
-
82
169
1,729
-
4
27
34
1
9
12
161
248
-
-
4
7
8
2
2
8
Bank
2010
$M
460
1,003
(270)
1,193
-
1,193
Group
2007
$M
-
3
2
23
1
5
13
39
86
-
-
1
4
-
1
1
7
31
279
14
100
Commonwealth Bank of Australia Annual Report 2011
147
Notes to the Financial Statements
Note 14 Provisions for Impairment (continued)
Loans written off by industry classification
Australia
Sovereign
Agriculture
Bank and other financial
Home loans
Construction
Personal
Asset financing
Other commercial and industrial
Total Australia
Overseas
Sovereign
Agriculture
Bank and other financial
Home loans
Construction
Personal
Asset financing
Other commercial and industrial
Total overseas
Gross loans written off
Recovery of amounts previously written off
Australia
Overseas
Total amounts recovered
Net loans written off
Loans recovered by industry classification
Australia
Sovereign
Agriculture
Bank and other financial
Home loans
Construction
Personal
Asset financing
Other commercial and industrial
Total Australia
Overseas
Sovereign
Agriculture
Bank and other financial
Home loans
Construction
Personal
Asset financing
Other commercial and industrial
Total overseas
Total loans recovered
148
Commonwealth Bank of Australia Annual Report 2011
2011
$M
2010
$M
2009
$M
2008
$M
Group
2007
$M
-
2
110
36
4
496
58
255
961
-
-
86
18
4
14
-
60
-
10
107
84
89
567
26
989
-
10
383
95
72
651
72
604
1,872
1,887
-
17
1
26
1
22
-
36
103
1,975
199
7
206
1,769
-
7
50
25
-
18
-
86
186
2,073
182
1,143
70
7
77
70
3
73
1,996
1,070
-
3
5
23
1
364
49
34
479
-
-
4
1
1
13
-
5
24
503
73
4
77
426
-
1
-
20
1
408
49
30
509
-
-
-
-
-
7
-
3
10
519
99
4
103
416
2011
$M
2010
$M
2009
$M
2008
$M
Group
2007
$M
-
-
3
43
-
134
2
17
199
-
-
-
-
-
7
-
-
7
-
-
-
3
-
59
3
5
70
-
-
-
-
-
6
-
1
7
-
1
1
1
-
52
5
10
70
-
-
-
-
-
3
-
-
3
-
-
-
1
1
61
5
5
73
-
-
-
-
-
3
-
1
4
-
1
1
1
1
77
10
8
99
-
-
-
-
-
4
-
-
4
206
77
73
77
103
Notes to the Financial Statements
Note 15 Property, Plant and Equipment
Land
At 30 June 2011 valuation
At 30 June 2010 valuation
Closing balance
Buildings
At 30 June 2011 valuation
At 30 June 2010 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
Total property, plant and equipment
2011
$M
Group
2010
$M
269
-
269
388
-
388
657
1,276
(662)
614
1,385
(1,028)
357
884
(146)
738
2,366
-
275
275
-
429
429
704
1,167
(600)
567
1,380
(990)
390
817
(127)
690
2,351
2011
$M
191
-
191
309
-
309
500
1,019
(518)
501
911
(667)
244
332
(51)
281
Bank
2010
$M
-
193
193
-
336
336
529
948
(483)
465
839
(574)
265
297
(50)
247
1,526
1,506
The majority of the above amounts have expected useful lives longer than twelve months after the Balance Sheet date.
There are no significant items of property, plant and equipment that are currently under construction.
Land and buildings are carried at fair value based on independent valuations performed during the year, refer Note 1(r).
Carrying value at cost
Land
Buildings
Total land and buildings at cost
2011
$M
128
325
453
Group
2010
$M
134
332
466
2011
$M
67
253
320
Bank
2010
$M
69
253
322
Commonwealth Bank of Australia Annual Report 2011
149
Notes to the Financial Statements
Note 15 Property, Plant and Equipment (continued)
Reconciliation of the carrying amounts of Property, Plant and Equipment is set out below:
2011
$M
Group
2010
$M
2011
$M
Bank
2010
$M
275
(4)
(3)
3
(2)
269
429
1
(1)
(5)
2
(35)
(3)
388
567
138
21
(3)
(103)
(6)
614
390
161
(30)
(160)
(4)
357
690
143
-
(42)
(53)
738
277
(8)
(4)
9
1
275
395
45
(24)
(5)
47
(30)
1
429
596
78
(8)
(2)
(98)
1
567
427
147
(19)
(165)
-
390
777
22
(51)
(45)
(13)
690
193
(4)
(1)
3
-
191
336
1
(1)
(4)
4
(27)
-
309
465
125
(7)
-
(81)
(1)
501
265
98
(2)
(117)
-
244
247
53
-
(19)
-
281
198
(8)
(1)
4
-
193
318
34
(24)
(3)
37
(26)
-
336
485
57
(2)
-
(75)
-
465
271
115
(7)
(114)
-
265
300
22
(51)
(24)
-
247
Land
Carrying amount at the beginning of the year
Transfers to assets held for sale
Net disposals / transfers
Net revaluations
Foreign currency translation adjustment
Carrying amount at the end of the year
Buildings
Carrying amount at the beginning of the year
Additions
Transfers to assets held for sale
Net disposals / transfers
Net revaluations
Depreciation
Foreign currency translation adjustment
Carrying amount at the end of the year
Leasehold Improvements
Carrying amount at the beginning of the year
Additions
Net disposals / transfers
Net revaluations
Depreciation
Foreign currency translation adjustment
Carrying amount at the end of the year
Equipment
Carrying amount at the beginning of the year
Additions
Net disposals / transfers
Depreciation
Foreign currency translation adjustment
Carrying amount at the end of the year
Assets Under Lease
Carrying amount at the beginning of the year
Additions
Net disposals / transfers
Depreciation
Foreign currency translation adjustment
Carrying amount at the end of the year
150
Commonwealth Bank of Australia Annual Report 2011
Note 16 Intangible Assets
Intangible Assets
Goodwill
Computer software costs
Core deposits (1)
Management fee rights (2)
Brand name (3)
Other (4)
Total intangible assets
Goodwill
Purchased goodwill
Total goodwill
Computer Software Costs
Cost
Accumulated amortisation
Accumulated impairment
Total computer software costs
Core Deposits (1)
Cost
Accumulated amortisation
Total core deposits
Management Fee Rights (2)
Cost
Total management fee rights
Brand Name (3)
Cost
Total brand name
Other (4)
Cost
Accumulated amortisation
Total other
Goodwill
Opening balance
Foreign currency translation adjustments
Total goodwill
Computer Software Costs
Opening balance
Additions:
From acquisitions
From internal development (5)
Amortisation
Total computer software costs
Notes to the Financial Statements
2011
$M
7,399
1,297
317
311
186
93
Group
2010
$M
7,473
950
388
311
186
112
2011
$M
2,522
1,204
-
-
-
-
Bank
2010
$M
2,522
860
-
-
-
-
9,603
9,420
3,726
3,382
7,399
7,399
1,895
(598)
-
1,297
495
(178)
317
311
311
186
186
203
(110)
93
7,473
(74)
7,399
950
48
482
(183)
1,297
7,473
7,473
1,551
(562)
(39)
950
495
(107)
388
311
311
186
186
203
(91)
112
7,473
-
7,473
673
28
427
(178)
950
2,522
2,522
1,563
(359)
-
1,204
2,522
2,522
1,241
(342)
(39)
860
-
-
-
-
-
-
-
-
-
-
2,522
-
2,522
860
26
461
(143)
1,204
-
-
-
-
-
-
-
-
-
-
2,522
-
2,522
579
3
412
(134)
860
(1) Core deposits represents the value of the Bankwest deposit base compared to the avoided cost of alternative funding sources such as securitisation and wholesale
funding. This asset was acquired on 19 December 2008 with a useful life of seven years based on the weighted average attrition rates of the Bankwest deposit
portfolio.
(2) Management fee rights associated with the Wealth Management CGU 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.
(3) Brand names represent the value of royalty costs foregone by the Group through acquiring the Bankwest brand name. The royalty costs that would have been
incurred by an entity using the Bankwest brand name are based on an annual percentage of income generated by Bankwest. This asset has an indefinite useful life,
as there is no foreseeable limit to the period over which the brand name is expected to generate cash flows. The asset is not subject to amortisation, but is subjected
to annual impairment testing. No impairment was required as a result of this test.
(4) Other includes the value of credit card relationships acquired from Bankwest. This value represents future net income generated from the relationships that existed at
Balance Sheet date. The assets have a useful life of ten years based on the attrition rates of the Bankwest credit cardholders.
(5) Due primarily to the Core Banking Modernisation project.
Commonwealth Bank of Australia Annual Report 2011
151
Notes to the Financial Statements
Note 16 Intangible Assets (continued)
Core Deposits
Opening balance
Amortisation
Total core deposits
Other
Opening balance
Amortisation
Total other
Goodwill allocation to the following cash generating units:
Retail Banking Services (1)
Business and Private Banking
Wealth Management (2)
New Zealand
Total
2011
$M
388
(71)
317
112
(19)
93
Group
2010
$M
2011
$M
Bank
2010
$M
460
(72)
388
142
(30)
112
-
-
-
-
-
-
2011
$M
4,149
297
2,287
666
7,399
-
-
-
-
-
-
Group
2010
$M
4,149
297
2,358
669
7,473
(1) The allocation to Retail Banking Services includes goodwill related to the acquisitions of Colonial and State Bank of Victoria.
(2) The allocation to Wealth Management principally relates to the goodwill on acquisition of Colonial.
Impairment Tests for Goodwill and Intangible Assets with Indefinite Lives
To assess whether goodwill is impaired, the carrying amount of a cash generating unit is compared to the recoverable amount,
determined based on fair value less cost to sell, using an earnings multiple applicable to that type of business, or actuarial assessments
that were consistent with externally sourced information.
Key Assumptions Used in Fair Value Less Cost to Sell Calculations
Earnings multiples relating to the Group’s Banking (Retail Banking Services, Business and Private Banking and New Zealand) and
Wealth 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 New Zealand Life Insurance component of the New Zealand cash-generating unit is valued via an actuarial assessment.
The key assumptions used when completing the actuarial assessment include 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.
152
Commonwealth Bank of Australia Annual Report 2011
Note 17 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
Prepayments
Other
Total other assets
Notes to the Financial Statements
Note
42
2011
$M
2,354
76
900
2,063
-
105
344
839
6,681
Group
2010
$M
2,130
316
899
1,682
-
64
356
1,035
6,482
2011
$M
2,395
76
250
1,266
281
-
277
372
Bank
2010
$M
2,109
316
287
863
439
-
285
407
4,917
4,706
Other than the defined benefit superannuation plan surplus, the above amounts are expected to be recovered within twelve months of
the Balance Sheet date.
Note 18 Assets Held for Sale
Available-for-sale investments (1)
Land and Buildings
Total assets held for sale (2)
2011
$M
29
4
33
Group
2010
$M
40
9
49
2011
$M
29
4
33
Bank
2010
$M
40
9
49
(1) The remaining balance relates to FS Media Works Fund I, LP.
(2) Impairments were recognised on Assets held for sale of $10 million during the year ended 30 June 2011 (30 June 2010: $11 million). These impairments are included
in Funds management and investment contract income - other for the Group and net gain/(loss) on other non-fair valued financial instruments for the Bank.
Note 19 Deposits and Other Public Borrowings
Australia
Certificates of deposit
Term deposits
On demand and short term deposits
Deposits not bearing interest
Securities sold under agreements to repurchase
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
2011
$M
45,544
137,192
169,190
7,630
3,696
Group
2010
$M
40,891
122,712
158,874
7,236
5,440
2011
$M
46,522
113,124
151,317
7,628
3,696
Bank
2010
$M
41,695
97,750
143,402
6,848
5,528
363,252
335,153
322,287
295,223
4,700
22,304
8,866
1,658
367
37,895
401,147
7,849
20,119
9,664
1,558
320
39,510
374,663
4,345
6,020
115
92
105
7,442
4,299
640
5
235
10,677
332,964
12,621
307,844
The majority of the amounts are due to be settled within twelve months of the Balance Sheet date.
Commonwealth Bank of Australia Annual Report 2011
153
Notes to the Financial Statements
Note 19 Deposits and Other Public Borrowings (continued)
Maturity Distribution of Certificates of Deposit and Term Deposits
Group
At 30 June 2011
Maturing
Maturing
Maturing
Maturing
Three
Between
Between
Months or
Three & Six & Twelve
Less
Six Months
Months
$M
$M
$M
after
Twelve
Months
$M
Australia
Certificates of deposit (1)
Term deposits
Total Australia
Overseas
Certificates of deposit (1)
Term deposits
Total overseas
Total certificates of deposits and term deposits
30,153
77,771
107,924
3,349
13,967
17,316
125,240
5,329
22,190
27,519
1,072
4,001
5,073
32,592
1,423
31,598
33,021
223
2,692
2,915
35,936
(1) All certificates of deposit issued by the Group are for amounts greater than $100,000.
Note 20 Payables due to Other Financial Institutions
Total
$M
45,544
137,192
182,736
4,700
22,304
27,004
8,639
5,633
14,272
56
1,644
1,700
15,972
209,740
Australia
Overseas
Total payables due to other financial institutions
2011
$M
5,967
9,932
15,899
Group
2010
$M
4,285
8,323
12,608
2011
$M
5,868
9,818
Bank
2010
$M
4,265
8,157
15,686
12,422
The majority of the above amounts are due to be settled within twelve months of the Balance Sheet date.
Note 21 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
2011
$M
3,028
3,232
4,231
10,491
Group
2010
$M
3,551
7,838
3,953
15,342
2011
$M
-
469
4,231
4,700
Bank
2010
$M
-
660
3,953
4,613
(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.
Of the above amounts, trading liabilities are due to be settled within twelve months of the Balance Sheet date for the Group and the
Bank. The majority of the other amounts are due to be settled within twelve months of the Balance Sheet date for the Group and after
twelve months of the Balance Sheet date for the Bank.
The change in fair value for those liabilities designated as fair value through Income Statement due to credit risk for the Group is a $6
million loss (2010: $27 million gain) and for the Bank is a $5 million loss (2010: $29 million gain), which has been calculated by
determining the changes in credit spreads implicit in the fair value of the instruments issued. The cumulative change in fair value due to
changes in credit risk for the Group is a $16 million gain (2010: $18 million) and for the Bank is a $15 million gain (2010: $15 million).
The amount that would be contractually required to be paid at maturity to the holders of the financial liabilities designated at fair value
through Income Statement for the Group is $10,463 million (2010: $15,293 million) and for the Bank is $4,678 million (2010: $4,595
million).
154
Commonwealth Bank of Australia Annual Report 2011
Note 22 Tax Liabilities
Australia
Current tax liability
Total Australia
Overseas
Current tax liability
Deferred tax liability (Note 5)
Total overseas
Total tax liabilities
Note 23 Other Provisions
Long service leave
Annual leave
Other employee entitlements
Restructuring costs
General insurance claims
Self insurance/non-lending losses
Dividends
Other
Total other provisions
Notes to the Financial Statements
2011
$M
1,108
1,108
114
301
415
Group
2010
$M
1,004
1,004
52
221
273
2011
$M
1,118
1,118
15
-
15
Bank
2010
$M
1,000
1,000
16
-
16
1,523
1,277
1,133
1,016
Note
6
2011
$M
396
255
65
121
193
49
37
161
1,277
Group
2010
$M
355
241
68
96
191
57
29
160
1,197
2011
Bank
2010
$M
362
209
65
56
-
45
37
183
957
$M
318
200
67
73
-
53
29
194
934
Provisions due to be settled within twelve months of the Balance Sheet date for the Group were $989 million (2010: $908 million) and for
the Bank were $685 million (2010: $660 million).
Reconciliation
Restructuring costs:
Opening balance
Additional provisions
Amounts utilised during the year
Release of provision
Closing balance
General insurance claims:
Opening balance
Additional provisions
Amounts utilised during the year
Transfer of provision
Closing balance
Self insurance/non-lending losses:
Opening balance
Additional provisions
Amounts utilised during the year
Release of provision
Closing balance
Other:
Opening balance
Additional provisions
Acquisitions
Amounts utilised during the year
Release of provision
Closing balance
2011
$M
Group
2010
$M
96
61
(36)
-
121
191
96
(94)
-
193
57
11
(10)
(9)
49
160
134
-
(120)
(13)
161
182
10
(94)
(2)
96
185
114
(109)
1
191
56
11
(5)
(5)
57
149
176
1
(116)
(50)
160
2011
$M
73
6
(23)
-
56
-
-
-
-
-
53
11
(10)
(9)
45
194
48
-
(39)
(20)
183
Bank
2010
$M
148
1
(75)
(1)
73
-
-
-
-
-
54
9
(5)
(5)
53
112
145
1
(16)
(48)
194
Commonwealth Bank of Australia Annual Report 2011
155
Notes to the Financial Statements
Note 23 Other Provisions (continued)
Provision Commentary
Restructuring Costs
Provisions are recognised for restructuring activities when a detailed plan has been developed and a valid expectation that the plan will
be carried out is held by those affected by it. The majority of the provision is expected to be used within 12 months of the Balance Sheet
date.
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-transferred insurance risk and non-lending losses. The self insurance provision is reassessed annually
in consultation with actuarial advice.
Note 24 Debt Issues
Short term debt issues
Long term debt issues
Total debt issues
Short Term Debt Issues
AUD commercial paper
USD commercial paper
EUR commercial paper
GBP commercial paper
Other currency commercial paper
Long term debt issues with less than one year to maturity
Total short term debt issues
Long Term Debt Issues
USD medium term notes
AUD medium term notes
NZD medium term notes
JPY medium term notes
GBP medium term notes
EUR medium term notes
Other currencies medium term notes
Offshore loans (all JPY)
Total long term debt issues
Maturity Distribution of Debt Issues (1)
Less than three months
Between three and twelve months
Between one and five years
Greater than five years
Total debt issues
(1) Represents the contractual maturity of the underlying instrument.
2011
$M
51,463
67,189
118,652
123
28,937
2,005
4,913
143
15,342
51,463
Group
2010
$M
49,757
80,453
130,210
494
20,423
1,981
4,980
88
21,791
49,757
2011
$M
39,246
55,139
94,385
52
25,925
1,077
882
99
11,211
39,246
Bank
2010
$M
39,644
67,395
107,039
312
19,839
36
139
23
19,295
39,644
31,389
41,074
29,727
38,577
9,507
2,384
8,265
1,707
7,973
5,922
42
67,189
27,721
23,742
48,259
18,930
9,796
1,112
8,808
1,558
11,044
6,971
90
80,453
27,939
21,818
61,741
18,712
118,652
130,210
2,678
542
8,207
1,362
7,009
5,572
42
2,820
320
8,550
1,152
9,077
6,809
90
55,139
67,395
20,993
18,253
38,991
16,148
94,385
19,840
19,804
49,831
17,564
107,039
The Bank’s debt issues include a Euro Medium Term Note programme under which it may issue notes up to an aggregate amount
outstanding of USD 70 billion. The Bank also has a U.S. Medium Term Note programme under which it may issue notes up to an
aggregate amount outstanding of USD 50 billion. Notes issued under debt programmes are both fixed and variable rate. Interest rate
risk associated with the notes is incorporated within the Bank’s interest rate risk framework.
Where any debt 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.
156
Commonwealth Bank of Australia Annual Report 2011
Note 24 Debt Issues (continued)
Short term borrowings
USD Commercial Paper
Outstanding at period end (1)
Maximum amount outstanding at any month end (2)
Average amount outstanding (2)
Weighted average interest rate on:
Average amount outstanding
Outstanding at period end
EUR Commercial Paper
Outstanding at period end (1)
Maximum amount outstanding at any month end (2)
Average amount outstanding (2)
Weighted average interest rate on:
Average amount outstanding
Outstanding at period end
AUD Commercial Paper
Outstanding at period end (1)
Maximum amount outstanding at any month end (2)
Average amount outstanding (2)
Weighted average interest rate on:
Average amount outstanding
Outstanding at period end
GBP Commercial Paper
Outstanding at period end (1)
Maximum amount outstanding at any month end (2)
Average amount outstanding (2)
Weighted average interest rate on:
Average amount outstanding
Outstanding at period end
Other Currency Commercial Paper
Outstanding at period end (1)
Maximum amount outstanding at any month end (2)
Average amount outstanding (2)
Weighted average interest rate on:
Average amount outstanding
Outstanding at period end
Notes to the Financial Statements
2011
2010
Group
2009
$M (except where indicated)
28,937
29,023
22,362
20,423
23,319
20,707
20,419
23,428
15,995
0.4%
0.3%
2,005
3,001
1,498
0.8%
1.2%
123
424
178
4.9%
5.6%
4,913
5,588
3,776
0.8%
0.9%
143
247
91
0.3%
0.8%
0.3%
0.5%
1,981
2,930
1,751
0.5%
0.4%
494
658
446
4.0%
4.7%
4,980
5,208
3,110
0.6%
0.7%
88
253
136
0.6%
1.3%
1.6%
0.4%
566
692
536
0.7%
0.6%
258
1,059
395
6.7%
3.2%
609
1,257
907
0.8%
0.7%
-
-
-
-
-
(1) The amount outstanding at period end is measured at amortised cost.
(2) The maximum and average amounts over the period are reported on a face value basis because the carrying values of these amounts are not available. Any
differences between face value and carrying value would not be material given the short term nature of the borrowings.
Exchange rates utilised (End of day, Sydney time)
AUD 1.00 =
As At
As At
30 June
30 June
Currency
USD
EUR
GBP
JPY
NZD
2011
1.0740
0.7410
0.6677
86.3984
1.2944
2010
0.8559
0.6996
0.5686
75.9067
1.2318
Commonwealth Bank of Australia Annual Report 2011
157
Notes to the Financial Statements
Note 24 Debt Issues (continued)
Guarantee Arrangements
Commonwealth Bank of Australia
Australian Government Guarantee Scheme for Large Deposits and Wholesale Funding (Guarantee Scheme)
The Bank issued debt under its programmes which has the benefit of a guarantee by the Australian Government announced on 12
October 2008 and formally commenced on 28 November 2008. On 7 February 2010 it was announced that the Guarantee Scheme
would close to new liabilities from 31 March 2010.
The arrangements were provided in a Deed of Guarantee dated 20 November 2008, Scheme Rules and in additional documentation for
offers to residents of the United States and other jurisdictions.
text of
the Guarantee Scheme documents can be
The
the Australian Government Guarantee website at
www.guaranteescheme.gov.au. Fees are payable in relation to the Guarantee Scheme, calculated by reference to the term and amount
of the liabilities guaranteed and the Bank’s credit rating.
found at
Existing guaranteed debt issued by the Bank remains guaranteed until maturity.
Separate arrangements apply for accounts with the Bank for deposit balances per depositor totalling up to and including $1 million (until
12 October 2011) under the Financial Claim Scheme (FCS). Such deposits are guaranteed without charge. The Australian Government
is in the process of reviewing the FCS, issuing a consultation paper in May 2011 detailing potential changes to the FCS which include
lowering the $1 million cap. The operation of the current FCS is expected to be reviewed during the next financial year.
Guarantee under the Commonwealth Bank Sale Act
Historically, 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. With the sale of the Commonwealth’s shareholding in the Bank
this guarantee has been progressively phased out under transitional arrangements found in the Commonwealth Bank Sale Act 1995.
Demand deposits are no longer guaranteed by the Commonwealth under this guarantee. However, term deposits outstanding at 19 July
1999 and debt issues payable by the Bank under a contract entered into prior to 19 July 1996 and outstanding at 19 July 1999 remain
guaranteed until maturity.
State Bank of NSW (also known as Colonial State Bank)
New South Wales legislation provides, in general terms, for a guarantee by the NSW Government of all funding liabilities and off-
balance sheet products (other than demand deposits) incurred or issued prior to 31 December 1997 by the State Bank of New South
Wales (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 the Commonwealth Bank of Australia became
the successor in law to SBNSW pursuant to the Financial Sector (Transfers of Business) Act 1999. The NSW Government guarantee of
the liabilities and products as described above continues unchanged by the succession.
Note 25 Bills Payable and Other Liabilities
Bills payable
Accrued interest payable
Accrued fees and other items payable
Defined benefit superannuation plan deficit
Securities purchased not delivered
Other
Total bills payable and other liabilities
Note
42
2011
$M
867
3,709
1,807
83
2,600
1,586
Group
2010
$M
805
3,233
1,906
82
1,754
2,245
10,652
10,025
2011
$M
733
2,917
1,172
83
1,813
2,630
9,348
Bank
2010
$M
691
2,452
1,301
82
918
5,289
10,733
Other than the defined benefit superannuation plan deficit, the above amounts are expected to be settled within twelve months of the
Balance Sheet date.
158
Commonwealth Bank of Australia Annual Report 2011
Notes to the Financial Statements
Currency
Amount (M) Footnotes
2011
$M
FRN
FRN
FRN
TPS
USD 38
USD 64
USD 100
USD 550
PERLS III
AUD 1,166
PERLS IV
AUD 1,465
PERLS V
AUD 2,000
TPS
USD 700
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(13)
(13)
35
-
93
512
1,156
1,458
1,978
-
5,232
1,499
1,396
843
224
556
1,343
288
6,149
180
Group
2010
$M
44
75
117
642
1,154
1,456
1,963
-
5,451
1,799
1,819
1,103
262
747
1,422
666
7,818
244
2011
$M
35
-
93
512
1,156
1,458
1,971
647
5,872
1,499
1,396
750
224
270
1,343
288
5,770
166
Bank
2010
$M
44
75
117
642
1,154
1,456
1,953
813
6,254
1,799
1,819
985
262
284
1,422
666
7,237
84
Note 26 Loan Capital
Tier One Loan Capital
Exchangeable
Exchangeable
Undated
Undated
Undated
Undated
Undated
Undated
Total Tier One loan capital
Tier Two Loan Capital
AUD demoninated
USD demoninated
JPY denominated
GBP denominated
NZD denominated
EUR denominated
CAD denominated
Total Tier Two loan capital
Fair value hedge adjustments
Total loan capital
(1) USD 300 million undated Floating Rate Notes (FRNs) issued
11 July 1988 exchangeable into dated FRNs.
Outstanding notes at 30 June 2011 were undated USD 38
million.
(2) USD 400 million undated FRNs issued 22 February 1989
exchangeable into dated FRNs.
All of the outstanding notes (USD 64 million) were redeemed in
February 2011.
(3) USD 100 million undated capital notes issued on 15 October
1986.
the above
to each of
The Bank has entered into agreements with the Commonwealth
of Australia relating
issues (the
“Agreements”) which provide that, if certain events occur, the
Bank may issue either fully paid ordinary shares to the
Commonwealth of Australia or (with the consent of the
Commonwealth of Australia) a renounceable rights issue for fully
paid ordinary shares to all shareholders, at the prevailing market
price for the Bank’s shares, up to an amount equal to the
outstanding principal value of the relevant note issue or issues
plus any accrued interest which is declared due and payable.
The capital so raised must be used to pay the amounts due and
payable.
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 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); or
The Bank does not declare a dividend in respect of its
ordinary shares
11,561
13,513
11,808
13,575
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.
(4) TPS 2003
On 6 August 2003 a wholly owned entity of the Bank (CBA
Capital Trust) issued USD 550 million of perpetual trust
preferred securities which can be redeemed after the first 12
years. The securities were issued into the US capital markets
and are subject to Delaware and New York law.
Each trust preferred security represents a beneficial ownership
interest in the assets of CBA Capital Trust, a statutory trust
established under Delaware law. 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. The securities qualify as innovative residual Tier
One capital of the Bank.
CBA Funding Trust applied all of the proceeds from the sale of
the funding preferred securities to purchase convertible notes
from the Bank’s New Zealand branch.
the
The trust preferred securities provide for a semi-annual cash
distribution in arrears at the annual rate of 5.805%. The
distributions on
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.
Commonwealth Bank of Australia Annual Report 2011
159
Notes to the Financial Statements
Note 26 Loan Capital (continued)
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 the Bank. 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 the trust preferred securities for American
Depository Shares (ADS). Automatic conversion into CBA
preference shares will also occur on the occurrence of certain
other events, including a number of events specified by APRA.
No later than 35 business days prior to 30 June 2015, holders
may deliver a notice to the Bank requiring it to exchange each
trust preferred security for ordinary shares. The Bank may
satisfy the obligation to deliver ordinary shares 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 30 June 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
U.S. $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 U.S. 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.
The Bank’s New Zealand branch may redeem the convertible
notes for cash: (a) 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 U.S. 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 (b)
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.
The Bank guarantees:
•
funding preferred
Semi-annual distributions on
securities by CBA Funding Trust to CBA Capital Trust to
the extent CBA Funding Trust has funds available for
distribution;
the
160
Commonwealth Bank of Australia Annual Report 2011
•
•
•
•
•
•
•
•
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 ADS to CBA Capital Trust by CBA Funding
Trust if CBA Funding Trust is obligated to redeem the
funding preferred securities for ADS and to the extent that
CBA Funding Trust has ADS available for that redemption;
The delivery of ADS by CBA Capital Trust if CBA Capital
Trust is obligated to redeem the trust preferred securities
for ADS and to the extent that CBA Capital Trust has ADS
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 Bank’s 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 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 ADS
representing preference shares to CBA Funding Trust in
accordance with the terms of the convertible notes;
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 III
On 6 April 2006 a wholly owned entity of the Bank (Preferred
Capital Limited “PCL”) 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. PERLS III were issued into the Australian
capital markets and are subject to Australian law. They qualify
as innovative residual Tier One capital of the Bank.
Note 26 Loan Capital (continued)
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 (1 – 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.
PERLS III will automatically exchange for Bank PERLS III
Preference Shares:
10 Business Days before the Conversion Date.
• On a failure by PCL to pay a Dividend;
•
At any time at the Bank’s discretion; or
•
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:
A Change of Control Event occurs.
An APRA Event occurs;
A Default Event occurs; or
•
•
•
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.
(6) PERLS IV
On 12 July 2007 the Bank issued $1,465 million of Perpetual
Exchangeable Resalable Listed Securities (PERLS IV). PERLS
IV are stapled securities comprising an unsecured subordinated
note issued by the Bank’s New York branch and a convertible
preference share issued by the Bank. These securities are
perpetual in nature, offer a non-cumulative floating distribution
rate payable quarterly. PERLS IV were issued into the Australian
capital markets and are subject to Australian law. They qualify
as non-innovative residual Tier One capital of the Bank.
Notes to the Financial Statements
The payment of interest on the underlying convertible notes and
dividends on PERLS IV are not guaranteed and are subject to a
number of conditions including the availability of profits and the
ability of the Board to stop payments.
The distribution rate is a floating rate calculated for each
distribution period as the sum of the Bank Bill Swap Rate plus
1.05% per annum, multiplied by (1 – Tax Rate).
Distributions paid to holders will be interest on notes until an
Assignment Event, and dividends on preference shares after the
Assignment Event. Upon an Assignment Event, the notes are
de-stapled from the preference shares and are assigned to the
Bank and investors continue to hold preference shares.
If distributions on PERLS IV are not paid in full within 20
business days of the payment date, an Assignment Event will
occur and the Bank is prevented from paying any interest,
dividends or distributions in relation to any securities of the Bank
that rank equally with or junior to the preference shares. This
“dividend stopper” applies until:
•
•
•
A Special Resolution of Holders authorising the payment,
capital return, buy-back, redemption or repurchase is
approved, and APRA does not otherwise object;
An Optional Dividend of an amount in aggregate equal to
the unpaid amount for the preceding four consecutive
Distribution Periods has been paid to Holders;
Four consecutive Dividends scheduled to be payable on
PERLS IV thereafter have been paid in full; or
All PERLS IV have been exchanged.
•
PERLS IV are expected to be exchanged for cash or converted
into ordinary shares of the Bank on 31 October 2012. However,
exchange may not occur if certain conditions are not met. On 31
October 2012;
•
•
•
•
The Bank may arrange a resale by requiring all Holders to
sell their PERLS IV to a third party for $200 (the face
value);
If the Bank does not arrange a resale, an Assignment
Event will occur and PERLS IV will convert into a variable
number of ordinary shares of the Bank subject to some
conditions relating to the ordinary share price at the time;
If these conversion conditions are not satisfied on that date,
then the conversion date moves to the next distribution
payment date on which they are satisfied; and
In certain circumstances, where the conversion conditions
are not satisfied, the Bank may (subject to APRA’s prior
approval) elect to repurchase all PERLS IV for $200 each.
The Bank may, subject to APRA’s prior approval, elect to
exchange all PERLS IV for cash and/or ordinary shares if any of
the following occurs:
Non-Operating Holding Company (NOHC) Event.
Tax Event;
Regulatory Event; and
•
•
•
The Bank’s ability to convert PERLS IV on the occurrence of any
of these events is subject to the same conversion conditions as
mentioned above.
If a change of control event occurs, Holders will receive cash for
all of their PERLS IV (subject to APRA’s approval).
Holders are not entitled to request exchange or redemption of
PERLS IV.
Commonwealth Bank of Australia Annual Report 2011
161
Notes to the Financial Statements
Note 26 Loan Capital (continued)
Holders of PERLS IV have no right to vote at any meeting of the
Bank except in the following specific circumstances:
•
•
•
•
•
•
during a period during which a Dividend (or part of a
Dividend) in respect of the Preference Shares is in arrears;
on a proposal 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.
•
(7) PERLS V
On 14 October 2009 the Bank issued $2,000 million of Perpetual
Exchangeable Resalable Listed Securities (PERLS V). PERLS
V are stapled securities comprising an unsecured subordinated
note issued by the Bank’s New Zealand branch and a
convertible preference share issued by the Bank. These
securities are perpetual in nature, offer a non-cumulative floating
distribution rate payable quarterly. PERLS V were issued into
the Australian capital markets and are subject to Australian law.
They qualify as non-innovative residual Tier One capital of the
Bank.
The payment of interest on the underlying convertible notes and
dividends on PERLS V are not guaranteed and are subject to a
number of conditions including the availability of profits and the
ability of the Board to stop payments.
The distribution rate is a floating rate calculated for each
distribution period as the sum of the Bank Bill Swap Rate plus
3.40% per annum, multiplied by (1 – Tax Rate).
Distributions paid to holders will be interest on notes until an
Assignment Event, and dividends on preference shares after the
Assignment Event. Upon an Assignment Event, the notes are
de-stapled from the preference shares and are assigned to the
Bank and investors continue to hold preference shares.
If distributions on PERLS V are not paid in full within 20 business
days of the payment date, an Assignment Event will occur and
the Bank is prevented from paying any interest, dividends or
distributions in relation to any securities of the Bank that rank
equally with or junior to the preference shares. This “dividend
stopper” applies until:
•
•
•
A Special Resolution of Holders authorising the payment,
capital return, buy-back, redemption or repurchase is
approved, and APRA does not otherwise object;
An Optional Dividend of an amount in aggregate equal to
the unpaid amount for the preceding four consecutive
Distribution Periods has been paid to Holders;
Four consecutive Dividends scheduled to be payable on
PERLS V thereafter have been paid in full; or
All PERLS V have been exchanged.
•
PERLS V are expected to be exchanged for cash or converted
into ordinary shares of the Bank on 31 October 2014. However,
exchange may not occur if certain conditions are not met. On 31
October 2014:
•
•
The Bank may arrange a resale by requiring all Holders to
sell their PERLS V to a third party for $200 (the face value);
If the Bank does not arrange a resale, an Assignment
Event will occur and PERLS V will convert into a variable
number of ordinary shares of the Bank subject to some
conditions relating to the ordinary share price at the time;
162
Commonwealth Bank of Australia Annual Report 2011
•
•
In certain circumstances, where the conversion conditions
are not satisfied, the Bank may (subject to APRA’s prior
approval) elect to repurchase all PERLS V for $200 each;
or
If PERLS V are not exchanged on this date, the same
possible outcomes will apply
to each subsequent
distribution payment date until exchange occurs.
The Bank may, subject to APRA’s prior approval, elect to
exchange all PERLS V for cash and/or ordinary shares if any of
the following occurs:
Non-Operating Holding Company (NOHC) Event.
Tax Event;
Regulatory Event; and
•
•
•
The Bank’s ability to convert PERLS V on the occurrence of any
of these events is subject to the same conversion conditions as
mentioned above.
If an Acquisition Event occurs, Holders will receive cash or
ordinary shares for all of their PERLS V (subject to APRA’s
approval).
Holders are not entitled to request exchange or redemption of
PERLS V.
Holders of PERLS V have no right to vote at any meeting of the
Bank except in the following specific circumstances:
•
•
•
•
•
•
during a period during which a Dividend (or part of a
Dividend) in respect of the Preference Shares is in arrears;
on a proposal 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.
•
(8) TPS 2006
On 15 March 2006 a wholly owned entity of the Bank (CBA
Capital Trust II) issued USD 700 million ($942 million) of
perpetual trust preferred securities which can be redeemed after
the first 10 years. The securities were issued into the US capital
markets and are subject to Delaware and New York law.
Each trust preferred security represents a preferred beneficial
ownership interest in the assets of CBA Capital Trust II, a
statutory trust established under Delaware law. The sole assets
of the CBA Capital Trust II are USD subordinated notes issued
by a New Zealand subsidiary of the Bank, preference shares
issued by the Bank, and a limited guarantee by the Bank’s New
Zealand branch. Each subordinated note held by CBA Capital
Trust II forms a unit with a Bank preference share held by CBA
Capital Trust II. The trust preferred securities form part of the
Bank’s innovative residual Tier One capital.
The Bank’s New Zealand subsidiary applied the proceeds of its
subordinated note issue to CBA Capital Trust II to purchase
USD notes from the Bank’s New Zealand branch.
Cash distributions on the trust preferred securities are at the
fixed rate of 6.024% are payable semi-annually to 15 March
2016. After that date, cash distributions on the trust preferred
securities will accrue at the rate of LIBOR plus 1.740% per
annum payable quarterly in arrears.
Note 26 Loan Capital (continued)
Cash distributions on the trust preferred securities will be limited
to the interest the Bank’s New Zealand subsidiary pays on the
subordinated notes, payments in respect of interest on the
subordinated notes by the Bank’s New Zealand branch as
guarantor under the subordinated notes guarantee and, after 15
March 2016, the dividends the Bank pays on the Bank
preference shares. Payments in respect of cash distributions will
be guaranteed on a subordinated basis by the Bank, as
guarantor, but only to the extent CBA Capital Trust II has funds
sufficient for the payment.
There are restrictions on the Bank’s New Zealand subsidiary’s
ability to make payments on the subordinated notes, the Bank’s
New Zealand branch’s ability to make payments on the Bank’s
New Zealand branch notes and
the subordinated notes
guarantee and the Bank’s ability to make payments on the Bank
preference shares. Distributions on the trust preferred securities
are not cumulative.
Failure to pay in full a distribution within 21 business days will
result in the distribution to holders of one Bank 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
USD 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 Bank preference shares if the
Bank redeems or varies the terms of the Bank preference
shares. The trust preferred securities are also subject to
redemption if any other Assignment Event occurs.
If the Bank preference shares are redeemed for qualifying Tier
One securities or the terms thereof are varied, holders will
receive one Bank preference share or USD 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 Bank preference
shares.
Trust preferred securities holders have the right to bring a direct
action against:
•
•
•
The Bank’s New Zealand subsidiary if the Bank’s New
Zealand subsidiary does not pay when due, interest on the
subordinated notes or certain other amounts payable under
the subordinated notes
in
accordance with their terms;
The Bank if it does not perform its obligations under the
trust guarantee; and
to CBA Capital Trust
II
The Bank’s New Zealand branch or the Bank if the Bank’s
New Zealand branch does not perform its obligations under
the subordinated notes guarantee or under the Bank’s New
Zealand branch notes.
Notes to the Financial Statements
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 Bank 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 Bank 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.
trust guarantee does not cover
The
to pay
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 Bank’s
preference shares that are part of those units and
automatically be transferred to CBA;
If the Assignment Event is the cash redemption of the Bank
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 Bank
preference shares and the accrued and unpaid interest on
the subordinated notes that were part of the units with
those Bank preference shares; and
If the Assignment Event is not the cash redemption of Bank
preference shares, CBA Capital Trust II will deliver to all
holders of trust preferred securities in redemption thereof
one Bank preference share for each USD 1,000 liquidation
preference of trust preferred securities to be redeemed or,
if qualifying Tier One securities are delivered, USD 1,000
liquidation amount or similar amount of qualifying Tier One
securities for each USD 1,000 liquidation amount of trust
preferred securities to be redeemed, and the Bank
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 15 March 2016
and at the rate of LIBOR plus 1.740% per annum
thereafter.
If the Bank is liquidated, holders of Bank preference shares will
be entitled to receive an amount equal to a liquidation
preference out of surplus assets of USD 1,000 per Bank
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.
Commonwealth Bank of Australia Annual Report 2011
163
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 Bank preference shares, then the Bank may not
pay any interest; declare or pay any dividends or distributions
from the income or capital of the Bank, or return any capital or
undertake any buy-backs, redemptions or repurchases of
existing capital securities or any securities, or instruments of the
Bank that by their terms rank or are expressed to rank equally
with or junior to the Bank’s New Zealand branch notes or the
Bank preference shares for payment of interest, dividends or
similar amounts unless and until:
•
•
•
•
to
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 the Bank, 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 Bank
preference shares on any dividend payment date, the Bank
has paid (a) that dividend in full on or within 21 business
days after that dividend payment date, (b) an optional
dividend equal
the unpaid amount of scheduled
dividends for the 12 consecutive calendar months prior to
the payment of such dividend or (c) dividends on the Bank
preference shares in full on each dividend payment date
during a 12 consecutive month period;
In the case of any non-payment of interest on the
subordinated notes on any interest payment date, (a) on or
within 21 business days after any interest payment date, (i)
the Bank’s New Zealand subsidiary or the Bank’s New
Zealand 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, the Bank 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) the Bank has paid dividends on the Bank
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 Bank 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.
Notes to the Financial Statements
Note 26 Loan Capital (continued)
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 Bank preference
shares if the Bank’s New Zealand subsidiary or the Bank’s New
Zealand 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 Bank preference shares on any interest
payment date and/or dividend payment date.
On or after 15 March 2016, the Bank may redeem the Bank
preference shares for cash, in whole or in part, on any date
selected by the Bank at a redemption price equal to USD 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 Bank
preference shares for cash, vary the terms of the preference
shares or redeem the preference shares for qualifying Tier One
securities, in whole but not in part, on any date selected by the
Bank:
•
•
If the Bank 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 Bank 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.
Holders of Bank preference shares will be entitled to vote
together with the holders of CBA ordinary shares on the basis of
one vote for each Bank preference share:
•
During a period in which a dividend (or part of a dividend)
in respect of the Bank preference shares is in arrears;
• On a proposal to reduce share capital;
• On a proposal that affects rights attached to the Bank
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 Bank 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 Bank
preference shares.
The Bank’s New Zealand subsidiary may not make payments on
the subordinated notes, the Bank’s New Zealand branch may
not make payments on the subordinated notes guarantee or the
Bank’s New Zealand branch notes, and the Bank may not make
payments on the Bank preference shares if an APRA condition
exists; if the Bank’s stopper resolution has been passed and not
been rescinded or if the Bank’s New Zealand subsidiary, the
Bank’s New Zealand branch or the Bank, as the case may be, is
prohibited from making such a payment by instruments or other
obligations of the Bank.
164
Commonwealth Bank of Australia Annual Report 2011
Notes to the Financial Statements
Note 26 Loan Capital (continued)
(9) AUD denominated Tier Two Loan Capital issuances
(13) Other currencies Tier Two Loan Capital issuances
•
$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 provides that, if certain events occur, the
Bank may issue either fully paid ordinary shares to the
Commonwealth of Australia or (with the consent of the
Commonwealth of Australia) a renounceable rights issue for fully
paid ordinary shares to all shareholders, at the prevailing market
price for the Bank’s shares, up to an amount equal to the
outstanding principal value of the note issue plus any accrued
interest declared due and payable. The capital so raised must
be used to pay the amounts due and payable. Events that will
trigger the issue of shares include a failure to pay interest due
within 7 business days of the due date.
Other outstanding notes at 30 June 2011 were:
•
•
•
•
$25 million subordinated FRN, issued April 1999, due April
2029;
$200 million subordinated floating rate notes, issued
September 2006, due September 2016;
$500 million subordinated notes, issued May 2007, due
May 2017; split into $150 million fixed rate notes and $350
million floating rate notes; and
$500 million subordinated floating rate notes, issued
September 2008, due September 2018.
(10) USD denominated Tier Two Loan Capital issuances
•
•
•
•
USD 350 million subordinated fixed rate note, issued June
2003, due June 2018;
USD 200 million subordinated notes, issued June 2006,
due July 2016;
USD 300 million subordinated floating rate notes, issued
September 2006, due September 2016; and
USD 650 million subordinated floating rate notes, issued
December 2006, due December 2016.
(11) JPY denominated Tier Two Loan Capital issuances
•
•
•
•
•
JPY 20 billion perpetual subordinated EMTN, issued
February 1999;
JPY 30 billion subordinated EMTN, issued October 1995
due October 2015;
JPY 10 billion subordinated notes, issued November 2005,
due November 2035;
JPY 5 billion subordinated loan, issued March 2006, due
March 2018; and
JPY 9 billion perpetual subordinated notes, issued May
1996.
(12) GBP denominated Tier Two Loan Capital issuances
GBP 150 million subordinated EMTN, issued June 2003, due
December 2023.
•
•
•
EUR 1,000 million subordinated notes, issued August
2009, due August 2019;
CAD 300 million subordinated notes, issued October 2007,
due October 2017;
NZD 350 million subordinated notes, issued May 2005, due
April 2015.
• On 18 May 2005 a wholly owned entity of the Bank (CBA
issued NZD 350 million
Capital Australia Limited)
redeemable preference shares. Each
redeemable
preference share is a fixed term obligation of CBA Capital
Australia Limited paying quarterly cumulative dividends
until maturity. The redeemable preference shares:
•
•
•
are not guaranteed by the Bank;
were issued into the New Zealand capital markets;
are subject to New Zealand and New South Wales
law; and
form part of the Bank’s Lower Tier Two capital.
•
•
•
•
CBA Capital Australia applied all of the proceeds from the
sale of the redeemable preference shares to invest in
redeemable preference shares issued by CBA Capital
Australia (No 2) Pty Ltd, which in turn invested the
proceeds in NZD subordinated notes issued by the Bank’s
New Zealand branch.
The Dividend Rate is calculated for each Dividend Period
as the sum of the Margin per annum plus the Market Rate
per annum multiplied by (1 – Tax Rate). The Margin is
0.75% per annum. The Market Rate is the New Zealand 1
year swap rate. CBA Capital Australia’s ability to pay
dividends is ultimately dependent upon the ability of the
Bank’s New Zealand branch to make payments on the
NZD subordinated notes, and subject to the directors
discretion not to pay or to defer the payment.
The redeemable preference shares are to be redeemed or
repurchased by CBA Capital Australia on 15 April 2015.
Subject to APRA approval and the requisite notice, CBA
Capital Australia is also entitled to redeem or repurchase
the redeemable preference shares earlier on each 15 April
until maturity, or if a regulatory or tax event occurs.
•
NZD 370 million subordinated notes, issued November
2007, due November 2017.
Commonwealth Bank of Australia Annual Report 2011
165
Notes to the Financial Statements
Note 27 Shareholders’ Equity
Ordinary Share Capital (1)
Opening balance
Dividend reinvestment plan (net of issue costs) (3)
Exercise of executive options under employee share ownership schemes
Sale/(purchase) and vesting of treasury shares(2)
Closing balance
Other Equity Instruments (1)
Opening balance
Closing balance
Retained Profits
Opening balance
Actuarial losses from defined benefit superannuation plans
Realised gains and dividend income on treasury shares (1)
Operating profit attributable to Equity holders of the Bank
Total available for appropriation
Transfers from/(to) general reserve
Transfers from employee compensation reserve
Interim dividend - cash component
Interim dividend - dividend reinvestment plan (3)
Final dividend - cash component
Final dividend - dividend reinvestment plan (4)
Other dividends
Closing balance
(1) Refer Note 28.
2011
$M
23,081
511
6
4
Group
2010
$M
21,642
1,457
2
(20)
2011
$M
23,379
511
6
-
Bank
2010
$M
21,825
1,457
2
95
23,602
23,081
23,896
23,379
939
939
939
939
1,895
1,895
1,895
1,895
9,938
7,825
7,880
6,009
(89)
20
(64)
30
(89)
-
(64)
-
6,394
5,664
6,480
5,615
16,263
13,455
14,271
11,560
270
-
(1,532)
(513)
(2,633)
-
(29)
11,826
197
(93)
(1,067)
(774)
(1,058)
(688)
(34)
9,938
-
-
(1,532)
(513)
(2,633)
-
-
9,593
-
(93)
(1,067)
(774)
(1,058)
(688)
-
7,880
(2) Relates to movement in treasury shares held within life insurance statutory funds and the employee share scheme trust.
(3) The declared dividend includes an amount attributable to the DRP of $513 million (Interim 2010/2011), with $511 million issued in ordinary shares due to rounding
under the plan rules. The rounding amount will be included in the next DRP allocations.
(4) The DRP in respect of the 2010 final dividend was satisfied in full by an on market purchase and transfer of shares to participating shareholders.
166
Commonwealth Bank of Australia Annual Report 2011
Notes to the Financial Statements
Note 27 Shareholders’ Equity (continued)
Reserves
General Reserve
Opening balance
Appropriation (to)/from retained profits
Closing balance
Capital Reserve
Opening balance
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
Currency translation on net investment hedge
Transfer to Income Statement on disposal of foreign operations
Tax on translation adjustments
Tax on net investment hedge movement
Closing balance
Cash Flow Hedge Reserve
Opening balance
Gains and losses on cash flow hedging instruments:
Recognised in equity
Transferred to Income Statement
Interest income
Interest expense
Tax on cash flow hedging instruments
Closing balance
Employee Compensation Reserve
Opening balance
Current period movement
Closing balance
Available-for-Sale Investments Reserve
Opening balance
Net gains and losses on revaluation of available-for-sale investments
Net gains and losses on available-for-sale investments transferred to
Income Statement on disposal
Net gains and losses on available-for-sale investments transferred to
Income Statement for impairment
Tax on available-for-sale investments
Closing balance
Total reserves
Shareholders' equity attributable to Equity holders of the Bank
Shareholders' equity attributable to non-controlling interests
Total shareholders' equity
2011
$M
1,248
(270)
978
319
9
328
194
6
(9)
-
191
(553)
(559)
13
-
16
-
(1,083)
(417)
(754)
(41)
810
-
(402)
125
10
135
173
124
(24)
-
(28)
245
392
36,759
528
37,287
Group
2010
$M
1,445
(197)
1,248
299
20
319
173
50
(20)
(9)
194
(533)
(41)
(4)
26
(2)
1
(553)
(813)
(239)
(864)
1,692
(193)
(417)
-
125
125
(55)
327
(24)
2
(77)
173
1,089
35,047
523
35,570
2011
$M
570
-
570
1,567
9
1,576
163
9
(9)
-
163
(136)
(216)
12
-
10
-
(330)
(312)
(748)
24
626
23
(387)
125
10
135
70
264
(24)
-
(73)
237
Bank
2010
$M
570
-
570
1,550
17
1,567
148
39
(17)
(7)
163
(70)
(63)
(4)
-
-
1
(136)
(460)
11
(683)
891
(71)
(312)
-
125
125
(41)
160
(16)
-
(33)
70
1,964
2,047
37,348
35,201
-
-
37,348
35,201
Commonwealth Bank of Australia Annual Report 2011
167
Notes to the Financial Statements
Note 28 Share Capital
Issued and paid up ordinary capital
Ordinary Share Capital
Opening balance (excluding Treasury Shares deduction)
Dividend reinvestment plan: Final dividend prior year (1)
Dividend reinvestment plan: Interim dividend (2)
Exercise of executive options under employee share ownership
Closing balance (excluding Treasury Shares deduction)
Less: Treasury Shares (3)
Closing balance
2011
$M
Group
2010
$M
2011
$M
Bank
2010
$M
23,379
21,920
23,379
21,920
-
511
6
23,896
(294)
23,602
685
772
2
23,379
(298)
23,081
-
511
6
23,896
-
23,896
685
772
2
23,379
-
23,379
(1) The DRP in respect of the 2010 final dividend was satisfied in full by an on market purchase and transfer of shares to participating shareholders.
(2) The declared dividend includes an amount attributable to the DRP of $513 million (interim 2010/2011), with $511 million issued in ordinary shares due to rounding
under the plan rules. The rounding amounts will be included in the next DRP allocations.
(3) Relates to treasury shares held within life insurance statutory funds and the employee share scheme trust.
Number of shares on issue
2011
Shares
Group
2010
Shares
2011
Shares
Bank
2010
Shares
Opening balance (excluding Treasury Shares deduction)
1,548,737,374
1,518,801,069
1,548,737,374
1,518,801,069
Dividend reinvestment plan issues:
2008/2009 Final dividend fully paid ordinary shares $44.48
2009/2010 Interim dividend fully paid ordinary shares $53.56
2009/2010 Final dividend fully paid ordinary shares $51.75 (1)
2010/2011 Interim dividend fully paid ordinary shares $52.92
Exercise of executive options under employee share ownership
schemes
Closing balance (excluding Treasury Shares deduction)
Less: Treasury Shares
Closing balance
-
-
-
9,682,670
15,412,513
14,421,452
-
-
-
-
-
9,682,670
15,412,513
14,421,452
-
-
217,200
102,340
217,200
102,340
1,558,637,244
1,548,737,374
1,558,637,244
1,548,737,374
(6,363,549)
(6,647,087)
-
-
1,552,273,695
1,542,090,287
1,558,637,244
1,548,737,374
(1) The DRP in respect of the 2010 final dividend was satisfied in full by an on market purchase and transfer of shares to participating shareholders.
Ordinary Share Capital
Ordinary shares have no par value and the company does not have a limited amount of share capital.
Ordinary shares entitle holders to receive dividends payable to ordinary shareholders and to participate in the proceeds available to
ordinary shareholders on winding up of the Company in proportion to the number of fully paid ordinary shares held.
On a show of hands every holder of fully paid ordinary shares present at a meeting in person or by proxy is entitled to one vote, and
upon a poll one vote for each share held.
Other equity instruments
Issued and paid up
Number of shares
Trust Preferred Securities 2006
2011
$M
939
Shares
700,000
Group
2010
$M
939
Shares
700,000
2011
$M
1,895
Bank
2010
$M
1,895
Shares
1,400,000
Shares
1,400,000
On 15 March 2006 the Bank issued USD 700 million ($947 million) of trust preferred securities into the U.S. 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.
168
Commonwealth Bank of Australia Annual Report 2011
Notes to the Financial Statements
Note 28 Share Capital (continued)
Dividends
The Directors have declared a fully franked final dividend of 188 cents per share amounting to $2,930 million. The dividend will be
payable on 6 October 2011 to shareholders on the register at 5pm EST on 19 August 2011.
The Board determines the dividends 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;
Investments and/or divestments to support business development;
Competitors comparison and market expectation; and
Earnings per share growth.
Dividends paid since the end of the previous financial year
•
•
A fully franked final dividend of 170 cent per share amounting to $2,633 million was paid on 1 October 2010. This was satisfied by
cash disbursements of $2,633 million including the on market purchase and transfer of $679 million of shares to participating
shareholders under the DRP; and
A fully franked interim dividend of 132 cents per share amounting to $2,045 million was paid on 1 April 2011. The payment
comprised cash disbursements of $1,532 million with $513 million being reinvested by participants through the DRP.
Dividend Reinvestment Plan
The Bank expects to issue around $733 million of shares in respect of the DRP for the final dividend for the year ended 30 June 2011.
Record date
The register closes for determination of dividend entitlement and for participation in the DRP at 5pm EST on 19 August 2011 at Link
Market Services Limited, Locked Bag A14, Sydney South, 1235.
Ex-dividend Date
The ex-dividend date is 15 August 2011.
Note 29 Share Based Payments
The Group operates a number of cash and equity settled share plans as detailed below.
Overview of changes for 2011
The Group introduced two new plans during the year:
•
The Employee Share Plan (ESP), used for the mandatory deferral of a portion of senior employees’ short term incentives (STI),
sign-on incentive and retention awards; and
The Employee Salary Sacrifice Share Plan (ESSSP), used for voluntary employee equity participation.
•
These replaced similar previous plans which have been closed to new offers and grandfathered. Awards were made for the first time
under the ESP and ESSSP during the 2011 financial year.
Employee Share Acquisition Plan
Under the Employee Share Acquisition Plan (ESAP), eligible employees have the opportunity to receive up to $1,000 worth of shares
each year (at no cost to them) if the Group meets the required performance hurdles.
To be eligible for an award each employee must achieve a minimum level of performance and service. The value of the shares an
individual receives is determined by the Group’s performance against a hurdle. The performance hurdle is growth in annual profit of the
greater of 5% or the consumer price index (CPI) change plus 2%, and is subject to Board discretion.
The number of shares a participant receives is calculated by dividing the award amount by the average price paid for Bank shares
purchased during the purchase period preceding the grant date. Shares granted are restricted from sale until the earlier of three years or
until such time as the participant ceases employment with the Group. Participants receive full dividend entitlements and voting rights
attached to those shares. The Group achieved the performance target for 2010 resulting in $1,000 worth of shares being awarded to
each eligible employee.
The September 2009 award represents a partial grant of approximately $600 worth of shares to each employee.
The following table provides details of shares granted under the ESAP during the current and previous financial years ended 30 June.
Period
Allocation date
Participants
allocated by participant
of shares allocated Issue price $
fair value $
2011
2010
21 Sep 2010
11 Sep 2009
26,023
24,559
19
13
494,437
319,267
51.75
46.79
25,587,115
14,938,502
Number of shares
Total number
Total
It is estimated that approximately $26.0 million of ordinary shares will be purchased on-market at the prevailing market price for the 2011
grant.
Commonwealth Bank of Australia Annual Report 2011
169
Notes to the Financial Statements
Note 29 Share Based Payments (continued)
International Employee Share Acquisition Plan
A limited number of employees receive cash-based versions of ESAP under the International Employee Share Acquisition Plan
(IESAP). Like the ESAP, eligible employees can receive an award up to $1,000 determined by the Group’s performance against a
hurdle. The performance hurdle is growth in annual profit of the greater of 5% or the CPI change plus 2%, and is subject to Board
discretion. To be eligible for an award each employee must achieve a minimum level of performance and service. Under IESAP
participants receive grants of performance units, which are monetary units with a value linked to the Bank’s share price. IESAP
performance units vest if the participant remains employed by the Group until the vesting date.
On meeting the vesting conditions, a cash payment is made to the participant, the value of which is determined based on the Bank’s
share price upon vesting.
A total of $0.1 million has been expensed during the year (2010: $0.1 million) in respect of this plan
Employee Share Plan
The Employee Share Plan (ESP) replaced the Equity Participation Plan (EPP) for awards made from 1 July 2010 and facilitates
mandatory short term incentive (STI) deferral, sign-on incentives and retention awards.
Under the ESP, shares awarded generally vest if the participant remains in employment of the Group until the vesting date. The Group
purchases fully paid ordinary shares and holds these in trust until such time as the vesting conditions are met. ESP shares receive full
dividend and voting rights. Participants may direct the Trustee on how the voting rights are to be exercised during the vesting period.
Dividends accrue in the trust and are paid to participants upon vesting of the shares. Where a participant does not satisfy the vesting
conditions, shares and dividend rights are forfeited.
The following table provides details of outstanding awards of shares under the ESP.
Period
2011
Outstanding
1 July
-
Granted
803,400
Vested
(17,679)
Forfeited
(13,453)
Outstanding
30 June
772,268
The weighted average fair value at grant date of shares awarded during the year was $52.64 (2010: $nil). A total of $16.2 million has
been expensed during the year (2010: $nil) in respect of this plan.
Employee Share (Performance Unit) Plan
A limited number of employees receive awards under a cash-based version of ESP through the Employee Share (Performance Unit)
Plan (ESPUP). The ESPUP replaced the Equity Participation (Performance Unit) Plan for awards made from 1 July 2010 and facilitates
mandatory STI deferral, sign-on incentives and retention awards. Under ESPUP participants receive grants of performance units, which
are monetary units with a value linked to the Bank’s share price. Performance units vest if the participant remains employed by the
Group until the vesting date.
On meeting the vesting conditions, a cash payment is made to the participant, the value of which is determined based on the Bank’s
share price upon vesting plus an accrued dividend value.
The following table provides details of outstanding awards of performance units granted under the ESPUP.
Period
2011
Outstanding
1 July
-
Granted
101,548
Vested
(4,116)
Forfeited
(1,789)
Outstanding
30 June
95,643
The weighted average fair value at grant date of performance units issued during the year was $51.72 (2010: $nil). A total of $1.0 million
has been expensed during the year (2010: $nil) in respect of this plan.
Group Employee Rights Plan
The Group Employee Rights Plan (GERP) facilitates the mandatory deferral of STI payments for executives of selected subsidiary
companies. Under the GERP, participants receive a right to a share which is subject to vesting conditions. The following table provides
details of rights granted under GERP during the current and previous financial years ended 30 June.
Allocation period
July 2009 - June 2010
July 2010 - June 2011
2011
2010
Outstanding
1 July
11,542
-
11,542
-
Granted
-
21,946
21,946
12,112
Vested
(1,521)
(878)
(2,399)
(570)
Forfeited
-
-
-
-
Outstanding
30 June
10,021
21,068
31,089
11,542
The weighted average fair value at grant date of rights issued during the year was $52.62 (2010: $52.38). A total of $0.6 million has
been expensed during the year (2010: $0.2 million) in respect of this plan.
170
Commonwealth Bank of Australia Annual Report 2011
Notes to the Financial Statements
Note 29 Share Based Payments (continued)
Employee Salary Sacrifice Share Plan
Under the Employee Salary Sacrifice Share Plan (ESSSP) Australian-based employees can elect to receive between $2,000 and
$5,000 of their fixed remuneration and/or annual STI as Bank shares. The ESSSP replaced the voluntary component of the Equity
Participation Plan (EPP) from 1 July 2010. Shares are purchased on-market at the current market price and are restricted from sale for a
minimum of two years and a maximum of seven years or earlier, if the employee ceases employment with the Group. Shares receive full
dividend entitlements and voting rights.
The following table provides details of shares granted under the ESSSP.
Period
2011
Participants
Number of shares purchased
Average share price $ Total purchase consideration $
132
8,114
51.98
421,766
Equity Participation Plan
The Equity Participation Plan (EPP), which comprised a voluntary and a mandatory component, was replaced in 2010 by two new
plans, the Employee Share Plan and Employee Salary Sacrifice Share Plan. The EPP is now closed to new offers.
The voluntary component allowed for the voluntary sacrifice of both fixed remuneration and annual STI. Under this plan shares were
purchased on-market at the current market price and restricted for sale for two years or until such time as the employee ceases
employment with the Group.
No new awards were made under the voluntary component of the EPP in 2011. The following table provides details of shares granted
under the voluntary component of the EPP in the prior year.
Period
2010
Participants
Number of shares purchased
Average share price $ Total purchase consideration $
93
8,267
49.49
409,134
The mandatory component comprises the partial deferral of executives STI payments, together with sign-on and retention awards.
Under the mandatory component, shares only vest to participants if they remain in employment of the Group until the vesting date. The
Group purchased fully paid ordinary shares and holds these in trust until such time as the vesting conditions are met. Shares receive full
dividend and voting rights. Participants may direct the Trustee on how the voting rights are to be exercised during the vesting period.
Dividends accrue in the trust and are paid to participants upon vesting of the shares. Where a participant does not satisfy the vesting
conditions, shares and dividend rights are forfeited.
The following table provides details of outstanding awards of shares under the mandatory component of EPP.
Allocation period
July 2001- June 2002
July 2002- June 2003
July 2003- June 2004
July 2004- June 2005 (1)
July 2007- June 2008
July 2008- June 2009
July 2009- June 2010
Total 2011
Total 2010
Outstanding
1 July
30,471
37,659
46,388
41,745
417,368
756,440
799,541
2,129,612
1,621,283
Granted
-
-
-
-
-
-
-
-
842,885
Vested &
Released
(4,797)
(10,658)
(11,036)
(11,831)
(383,568)
(143,610)
(73,714)
(639,214)
(246,859)
Outstanding
Forfeited
30 June
-
-
-
-
(421)
(14,961)
(28,710)
(44,092)
(87,697)
25,674
27,001
35,352
29,914
33,379
597,869
697,117
1,446,306
2,129,612
(1) No awards were allocated from July 2005 to June 2007
The weighted average fair value at grant date of shares awarded during 2010 was $52.63. A total of $23.6 million has been expensed
during the year (2010: $35.7 million).
Commonwealth Bank of Australia Annual Report 2011
171
Notes to the Financial Statements
Note 29 Share Based Payments (continued)
Equity Participation (Performance Unit) Plan
A limited number of employees received cash-based versions of EPP through the Equity Participation (Performance Unit) Plan
(EPPUP). The EPPUP was replaced by the ESPUP in 2010. The EPPUP is now closed to new offers.
Under the EPPUP, participants received grants of performance units, which are monetary units with a value linked to the Bank’s share
price. The EPPUP performance units vest if the participant remains employed by the Group until the vesting date. On meeting the
vesting conditions, a cash payment is made to the participant, the value of which is determined based on the Bank’s share price upon
vesting plus an accrued dividend value.
The following table provides details of outstanding awards of performance units under the EPPUP:
Allocation period
July 2007- June 2008
July 2008- June 2009
July 2009 - June 2010
Total 2011
Total 2010
Outstanding
1 July
20,684
28,191
56,875
105,750
52,127
Granted
-
-
-
-
57,276
Vested
(19,249)
(8,530)
(10,782)
(38,561)
(3,653)
Outstanding
Forfeited
30 June
(1,435)
(4,071)
(2,710)
(8,216)
-
-
15,590
43,383
58,973
105,750
The average fair value at grant date of performance units issued during 2010 was $52.38. A total of $1.2 million (2010: $1.5 million) has
been expensed during the year.
Group Leadership Reward Plan
The Group Leadership Reward Plan (GLRP) is the Group’s long term incentive plan for the CEO and Group Executives. The GLRP
aims to motivate the efforts of participants to support customer satisfaction and shareholder returns in order to improve long term value
and achieve the Group’s vision.
Under the GLRP, participants are awarded a maximum number of Reward Rights that may vest at the end of a performance period of
up to four years subject to the satisfaction of performance hurdles. Each Reward Right that vests entitles the participant to receive one
ordinary Bank share. The Board has discretion to apply a cash equivalent.
Vesting is subject to the satisfaction of certain performance hurdles as follows.
For the award made during the 2010 financial year (FY10 award):
50% of the award assessed against Customer Satisfaction compared to a set peer group; and
•
•
For the award made during the 2011 financial year (FY11 award):
50% of the award assessed against Total Shareholder Return (TSR) compared to a set peer group.
75% of the award assessed against TSR compared to a set peer group.
25% of the award assessed against Customer Satisfaction compared to a set peer group; and
•
•
The Customer Satisfaction peer group consists of the ANZ, NAB, St.George (FY10 award only) and Westpac (for the Group’s retail and
business banking lines) and other key competitors.
The TSR peer group for both the FY10 and FY11 awards comprises the 20 largest companies listed on the ASX (by market
capitalisation) at the beginning of each respective performance period, excluding resources companies and CBA.
Customer satisfaction is determined by the Board with reference to independent external surveys, and TSR is measured independently.
The Board applies a scale when determining the portion of each award to vest at the end of the performance period as follows:
•
•
For the FY10 award, the portion of the award assessed against Customer Satisfaction that will vest is: 100% if CBA is ranked 1st,
75% if CBA is ranked 2nd, and 50% if CBA is ranked 3rd, with no vesting below this level.
For the FY11 award, the portion of the award assessed against Customer Satisfaction that will vest is: 100% if CBA is ranked 1st
across three surveys, 75% if CBA is ranked 1st across two surveys, and 50% if CBA is ranked 2nd across the three surveys. The
Board will exercise discretion where CBA’s Customer Satisfaction has improved over the performance period, but in a different
combination. Where the Board determines that our overall performance is worse at the end of the performance period than at the
beginning, none of this portion will vest.
For the portion of the FY10 and FY11 awards assessed against TSR performance, full vesting applies where CBA is ranked in the top
quartile of the peer group at the end of the performance period, 50% will vest if CBA is ranked at the median, with vesting on a sliding
scale between the median and 75th percentile. No Reward Rights in this part of the award will vest if the Group’s TSR is ranked below
the median of the peer group. The total number of Reward Rights that vest will be the aggregate of rights that vest against the Customer
Satisfaction and the TSR hurdles at the end of the performance period.
For the introductory year (2009), the awards under the GLRP were split into two tranches, with 50% allocated as a transitional three
year performance period and 50% allocated with a four year performance period. This transitional award reflects the move from the
Group’s previous long term incentives arrangements that measured performance over a three year period. The transitional award is
subject to the same performance hurdles as the four year award.
172
Commonwealth Bank of Australia Annual Report 2011
Notes to the Financial Statements
Note 29 Share Based Payments (continued)
The following table provides details of outstanding awards of performance rights under the GLRP.
Performance
Performance
Outstanding
period start date
1 July 2009
1 July 2009
1 July 2010
Total 2011
Total 2010
test date
30 June 2012
30 June 2013
30 June 2014
1 July
370,297
523,919
-
894,216
-
Granted
-
-
388,412
388,412
894,216
Vested
-
Forfeited
-
-
-
-
-
-
-
-
-
Outstanding
30 June
370,297
523,919
388,412
1,282,628
894,216
The weighted average fair value at the grant date of all Reward Rights issued during the year was $41.41 per right (2010: $44.12). The
fair value of TSR hurdled Reward Rights granted during the period has been independently calculated at grant date using a Monte-
Carlo pricing model. The assumptions included in the valuation of the FY11 award includes a risk free interest rate of 5.45%, a nil
dividend yield on the Bank’s ordinary shares and a volatility in the Bank share price of 30.0%. The fair value for customer satisfaction
hurdled Reward Rights granted during the period is the closing price of Bank shares on the grant date.
A total of $11.9 million has been expensed in the current year (2010: $8.0 million) for GLRP.
Group Leadership Share Plan
The Group Leadership Share Plan (GLSP) was the Group’s previous long term incentive plan for the CEO and Group Executives for
2008 and 2009, after which it was replaced by the GLRP. Under the GLSP, participants share a pool that vests at the end of a three
year performance period subject to satisfaction of performance conditions. The pool for the 2008 financial year award (FY08 award) was
2.2% of the growth in the Group’s Profit after Capital Charge (PACC), capped at a maximum pool of $34 million. The pool for 2009
financial year award (FY09 award) was 3.5% of the growth in the Group’s PACC, capped at a maximum pool of $36.1 million.
Vesting for each award was subject to the following performance hurdles:
Customer satisfaction ranking relative to ANZ, NAB, St George and Westpac.
NPAT growth over the three year performance period being above the average NPAT growth of ANZ, NAB, and Westpac; and
•
•
Independent external surveys are used to determine the Group’s level of achievement against the customer satisfaction performance
hurdle. A ranking is determined by the Board and a vesting scale applied.
The FY08 award reached the end of its performance period on 1 July 2010 and the Board determined that 50% of the FY08 award
maximum pool would vest.
Bank shares were provided to participants in relation to the vested awards. The number of shares is determined by the value of the pool
that vests at the end of the performance period and the share price at the end of the relevant performance period.
A total of $6.6 million has been expensed in the current year (2010: $13.2 million) for GLSP.
Equity Reward Plan
The Equity Reward Plan (ERP) was the Group’s long term incentive plan for executives until it was closed to new offers in July 2006.
Under the ERP executives could receive awards of shares or options.
The final ERP award reached the end of its performance period during the 2010 financial year. Vested awards may remain in the ERP
for up to 10 years from the date they are granted, and are subject to holding locks during that period.
The following table provides details of outstanding awards of shares under the ERP.
Allocation period
July 2001 - June 2002
July 2002 - June 2003
July 2003 - June 2004
July 2004 - June 2005
July 2005 - June 2006
July 2006 - June 2007
Total 2011
Total 2010
Outstanding
Outstanding
1 July
5,500
1,650
16,750
15,700
145,858
142,210
327,668
935,290
Granted
Released
Forfeited
30 June
-
-
-
-
-
-
-
-
-
-
-
(2,200)
(113,078)
(2,800)
(118,078)
(607,622)
-
-
-
-
-
-
-
-
5,500
1,650
16,750
13,500
32,780
139,410
209,590
327,668
No amount has been expensed in the current year (2010: $6.8 million) for ERP.
Commonwealth Bank of Australia Annual Report 2011
173
Notes to the Financial Statements
Note 29 Share Based Payments (continued)
Details of movements in ERP options are as follows:
Year of grant
exercise date
price $
1 July
Granted Exercised Lapsed
exercisable 30 June
Latest
Exercise
Outstanding
Outstanding and
13 Sep 2010
3 Sep 2011
26.97
30.12
2000
2001
Total 2011
Weighted average exercise price ($)
Total 2010
Weighted average exercise price ($)
65,000
224,100
289,100
29.41
381,600
29.42
-
-
-
-
-
-
(65,000)
(138,000)
(203,000)
29.11
(92,500)
29.44
-
-
-
-
-
-
-
86,100
86,100
30.12
289,100
29.41
The weighted average remaining contractual life of outstanding options at 30 June 2011 was 64 days (2010: 349 days).
Non-Executive Directors Share Plan
The Non-Executive Directors Share Plan (NEDSP) facilitates the Non-Executive Directors’:
acquisition of shares using 20% of their post-tax fees, and
further voluntary fee sacrifice of between $2,000 and $5,000 p.a. on a pre-tax basis.
•
•
Shares acquired using after tax fees are restricted for sale for ten years or until such time as the Non-Executive Director retires from the
Board if earlier. Shares acquired voluntarily are restricted from sale for a minimum of two years and a maximum of seven years, or
earlier if the Non-Executive Director retires from the Board.
Shares are purchased on-market at the prevailing market price at that time, and rank equally for dividends with other Bank ordinary
shares.
For the current year, $0.3 million (2010: $0.3 million) was expensed reflecting shares purchased and allocated under the NEDSP.
Period
2011
2010
Total fees applied
Number of shares
Average purchase price
$
289,606
290,326
Participants
purchased
9
10
5,404
5,982
$
53.59
48.53
Executive Option Plan
This plan was discontinued in 2001 with the last grant being made in September 2000.
Under the Executive Option Plan (EOP), the Group granted options to purchase fully paid ordinary shares to key executives. The
options granted were a right to acquire a share in the future provided all conditions were met, with an exercise price based on the
weighted average share price during a one week period prior to grant date. Options vested only if the performance hurdles were met.
The performance hurdles for the September 2000 grant were met in 2004.
The participant could exercise their entitlement in whole or part to receive fully paid up ordinary shares. The exercise price is payable at
the time. Options lapse if not exercised prior to the end of their term. The remaining vested options under the EOP were exercised in
August 2010.
Details of movements in EOP options during the period were as follows:
Year of grant
2000
Total 2011
Weighted average exercise price ($)
Total 2010
Weighted average exercise price ($)
Latest Exercise
Outstanding
Outstanding and
exercise date
price $
1 July
Granted Exercised Lapsed
exercisable 30 June
13 Sep 2010
26.97
14,200
14,200
26.97
24,400
26.97
-
-
-
-
-
(14,200)
(14,200)
26.97
(10,200)
26.97
-
-
-
-
-
-
-
-
14,200
26.97
The weighted average remaining contractual life of outstanding options at 30 June 2011 was nil (2010: 74 days).
174
Commonwealth Bank of Australia Annual Report 2011
Notes to the Financial Statements
Note 30 Non-Controlling Interests
Share capital
Total non-controlling interests
2011
$M
528
528
Group
2010
$M
523
523
The share capital above comprises predominantly New Zealand Perpetual Preference Shares (PPS) - $505 million. On 10 December
2002, ASB Capital Limited, a New Zealand subsidiary, issued NZD 200 million ($182 million) of PPS. The PPS were issued into the
New Zealand capital markets and are subject to New Zealand law. Such shares are non-redeemable and carry limited voting rights.
Dividends are payable quarterly based on the New Zealand one year swap rate plus a margin of 1.3% and are non-cumulative. The
payment of dividends are subject to a number of conditions including the satisfaction of solvency tests and the ability of the Board to
cancel payments.
On 22 December 2004, ASB Capital No.2 Ltd, a New Zealand subsidiary, issued NZD 350 million ($323 million) of PPS. The PPS were
issued into the New Zealand capital markets and are subject to New Zealand law. Such shares are non-redeemable and carry limited
voting rights. Dividends are payable quarterly on the New Zealand one year swap rate plus a margin of 1.0% and are non-cumulative.
The payment of dividends are subject to a number of conditions including the satisfaction of solvency tests and the ability of the Board to
cancel payments.
ASB Capital Limited and ASB Capital No. 2 Limited have advanced proceeds from the above public issues to ASB Funding Limited, a
New Zealand subsidiary. ASB Funding Limited in turn invested the proceeds in perpetual preference shares issued by ASB (ASB PPS),
also a New Zealand subsidiary. In relation to ASB Capital No.2 Limited, if an APRA Event occurs, the loan to ASB Funding Limited will
be repaid and ASB Capital No. 2 Limited will become the holder of the corresponding ASB PPS.
The PPS may be purchased by a Commonwealth Bank subsidiary exercising a buy-out right five years or more after issue, or on the
occurrence of regulatory or tax events.
Commonwealth Bank of Australia Annual Report 2011
175
Notes to the Financial Statements
Note 31 Capital Adequacy
Capital Management
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 International Convergence of
Capital Measurement and Capital Standards: A Revised
Framework (Basel II) issued by the Basel Committee on
is
Banking Supervision. These requirements define what
acceptable as capital and provide methods of measuring the
risks incurred by the Bank.
The regulatory capital requirements are measured for the
Extended Licence Entity Group (known as “Level One”,
comprising the Bank and APRA approved subsidiaries) and for
the Bank and all of its banking subsidiaries (known as “Level
Two” or the “Group”), which includes both Bankwest and ASB
Bank (known as “Level Two” or the “Group”).
All entities which are consolidated for accounting purposes are
included within the Group capital adequacy calculations except
for:
•
•
The insurance and funds management operations; and
The entities through which securitisation of Group assets
are conducted.
Regulatory capital is divided into Tier One and Tier Two Capital.
Tier One Capital primarily consists of Shareholders’ Equity plus
other capital instruments acceptable to APRA, less goodwill and
other prescribed deductions. Tier Two Capital is comprised
primarily of hybrid and debt instruments acceptable to APRA
less any prescribed deductions. Total Capital is the aggregate of
Tier One and Tier Two Capital. A detailed breakdown of the
components of capital is detailed on pages 45 to 51.
The tangible component of the investment in the insurance and
funds management operations are deducted from capital, 50%
from Tier One and 50% from Tier Two.
Capital adequacy is measured by means of a risk based capital
ratio. The capital ratios reflect capital (Tier One, Tier Two or
Total Capital) as a percentage of total Risk Weighted Assets
(RWA). RWA represents an allocation of risks associated with
the Group’s assets and other related exposures.
The Bank is required to inform APRA immediately of any breach
or potential breach of its minimum prudential capital adequacy
requirements, including details of remedial action taken or
planned to be taken.
Economic Capital
Economic Capital provides an estimate of capital required to
cover the financial impact of unlikely events. The methodology
used to calculate Economic Capital is consistent across all
material risk types and businesses within the Group and
involves:
• Measurement of potential financial impacts over a time
period reflecting elimination of the risk under assumed
adverse conditions;
Use of a confidence level aligned with the Group’s target
debt rating and risk appetite; and
•
•
Aggregation of Economic Capital by individual risk type
allowing for diversification benefits.
Economic Capital provides a tool for evaluating which of the
Group’s products and businesses provide the best return relative
to the credit, market, operational, strategic business, insurance
and other risks taken in achieving that return.
The Group uses Economic Capital
to drive delivery of
“shareholder-value-added” (SVA) results. SVA is maximised
through the use of two measures of risk-adjusted performance –
known as Profit After Capital Charge (PACC) and Return on
Target Equity (ROTE) – which are used internally to measure
business performance. These measures of profit and return
reflect the amount of Economic Capital used in achieving
outcomes, and facilitate:
•
•
Pricing of products based on appropriate charges for use of
capital; and
Internal measurement of performance on a risk adjusted
basis.
Business Unit segments are required to achieve minimum
returns on their allocated Economic Capital equal to a uniform
“Cost of Capital” which is set from time to time based on market
conditions.
its capital
the
The Group actively manages
requirements of various stakeholders
rating
agencies and shareholders). This is achieved by optimising the
mix of capital, while maintaining adequate capital ratios
throughout the financial year.
to balance
(regulators,
The Group has a range of instruments and methodologies
available to effectively manage capital including share issues
and buybacks, dividend and dividend reinvestment plan policies,
hybrid capital raising and dated and undated subordinated debt
issues. All major capital related initiatives require approval of the
Board.
The Group’s capital position is monitored on a continuous basis
and reported monthly to the ALCO. Three year capital forecasts
are conducted on a quarterly basis and a detailed capital and
strategy plan is presented to the Board annually.
The Group’s capital ratios throughout the 2010 and 2011
financial years were in compliance with both APRA minimum
capital adequacy requirements and
the Board Approved
minimums.
176
Commonwealth Bank of Australia Annual Report 2011
Note 32 Financial Reporting by Segments
The principal activities of the Group are carried out in the below
business segments. These segments are based on the types of
products and services provided to customers.
The primary sources of revenue are interest and fee income
(Retail Banking Services, Institutional Banking and Markets,
Business and Private Banking, Bankwest, New Zealand and
Other Divisions) and
funds
management income (Wealth Management, New Zealand and
Asia).
insurance premium and
Revenues and expenses occurring between segments are
subject to transfer pricing arrangements. All intra-group profits
are eliminated on consolidation.
Business segments are managed on the basis of net profit after
income tax (“cash basis”). Management use “cash basis” to
assess performance and
the
determination of the Bank’s dividends.
it provides
the basis
for
(i) Retail Banking Services
Retail Banking Services includes both the origination of home
loan, consumer finance and retail deposit products and the sales
and servicing of all Retail bank customers.
In addition,
commission is received for the distribution of business and
wealth management products through the retail distribution
network.
(ii) Business and Private Banking
Business and Private Banking provides specialised banking
services to relationship managed business and Agribusiness
customers, private banking to high net worth individuals and
margin lending and trading through CommSec. In addition,
commission is received for the distribution of retail banking
products through the Business and Private Banking network.
(iii) Institutional Banking and Markets
Institutional Banking and Markets services the Group’s major
institutional and government clients, creating
corporate,
customised solutions based on specific needs, industry trends
and market conditions. The Total Capital Solutions offering
raising,
includes debt and equity capital
financial and
commodities risk management and
transactional banking
capabilities. This segment also has wholesale banking
operations
in London, Malta, New York, New Zealand,
Singapore, Hong Kong, Japan and has regulatory approval for a
banking licence in Shanghai.
(iv) Wealth Management
Wealth Management includes the Global Asset Management
(including operations in Asia), Platform Administration and Life
and General Insurance businesses of the Australian operations.
(v) New Zealand
New Zealand includes the Banking, Funds Management and
Insurance businesses operating in New Zealand (excluding the
international business of Institutional Banking and Markets).
(vi) Bankwest
Bankwest is a full service bank active in all domestic market
segments, with lending diversified between the business, rural,
housing and personal markets, including a full range of deposit
in
products. Bankwest also provides specialist services
international banking and project finance.
Notes to the Financial Statements
(vii) Other
The following parts of the business are included in Other:
•
•
International Financial Services Asia incorporates the
Asian retail and SME banking operations (Indonesia,
China, Vietnam and India), investments in Chinese and
Vietnamese retail banks, the joint venture Chinese life
insurance business and the life insurance operations in
Indonesia. It does not include the Business and Private
Banking, Institutional Banking and Markets and Colonial
First State Global Asset Management business in Asia.
Corporate Centre includes the results of unallocated Group
support functions such as Investor Relations, Group
Strategy, Secretariat and Treasury; and
• Group wide eliminations/unallocated includes intra-group
elimination entries arising on consolidation, centrally raised
provisions and other unallocated revenue and expenses.
Commonwealth Bank of Australia Annual Report 2011
177
1
1
0
2
M
$
l
a
t
o
T
8
5
6
,
2
1
3
8
9
,
3
1
4
6
,
6
1
6
5
8
1
4
0
,
2
8
3
5
,
9
1
1
2
1
9
5
6
,
9
1
)
1
9
8
,
8
(
)
0
8
2
,
1
(
8
8
4
,
9
)
7
3
6
,
2
(
)
6
1
(
5
3
8
,
6
)
5
6
2
(
)
7
4
1
(
)
9
2
(
4
9
3
,
6
)
3
7
2
(
)
0
4
3
(
M
$
9
0
2
,
1
)
1
6
3
(
8
4
8
)
1
(
r
e
h
t
O
6
2
0
2
4
9
8
7
3
1
3
9
)
1
5
4
(
6
2
6
0
5
)
8
1
1
(
)
6
1
(
2
7
3
)
0
1
(
)
6
1
2
(
5
1
5
1
)
8
5
(
)
0
0
2
(
M
$
0
2
4
,
1
0
2
2
0
4
6
,
1
-
-
0
4
6
,
1
-
0
4
6
,
1
)
9
6
8
(
)
9
0
1
(
2
6
6
)
9
9
1
(
-
)
3
3
(
3
6
4
)
7
3
1
(
-
3
9
2
)
8
8
(
)
6
3
(
M
$
0
4
8
6
8
2
6
2
1
,
1
0
4
1
1
2
7
7
3
,
1
1
8
7
3
,
1
)
4
0
7
(
)
4
5
(
0
2
6
)
0
5
1
(
-
0
7
4
)
6
1
(
-
-
4
5
4
)
6
2
(
)
4
2
(
9
9
8
,
7
6
6
9
6
0
,
5
6
8
2
8
,
6
7
1
9
4
,
0
5
1
9
4
2
1
7
,
1
2
1
6
,
0
3
6
6
3
2
1
3
8
-
5
4
-
6
4
6
0
3
,
7
4
1
5
5
5
,
1
7
3
9
4
,
6
4
t
s
e
w
k
n
a
B
w
e
N
d
n
a
l
a
e
Z
t
n
e
m
e
g
a
n
a
M
s
t
e
k
r
a
M
h
t
l
a
e
W
d
n
a
g
n
k
n
a
B
i
e
t
a
v
i
r
P
i
g
n
k
n
a
B
i
g
n
k
n
a
B
s
e
c
i
v
r
e
S
l
a
n
o
i
t
u
t
i
t
s
n
I
d
n
a
s
s
e
n
i
s
u
B
l
i
a
t
e
R
)
d
e
u
n
i
t
n
o
c
(
s
t
n
e
m
g
e
S
y
b
g
n
i
t
r
o
p
e
R
l
i
i
a
c
n
a
n
F
2
3
e
t
o
N
s
t
n
e
m
e
t
a
t
S
l
i
i
a
c
n
a
n
F
e
h
t
o
t
s
e
t
o
N
-
-
-
M
$
5
2
6
5
7
9
,
1
0
0
6
,
2
3
8
3
8
6
,
2
)
1
0
8
,
1
(
-
2
8
8
)
0
4
2
(
-
2
4
6
-
-
)
4
3
(
8
0
6
)
3
(
)
4
(
2
7
6
,
0
2
4
5
6
7
1
2
9
,
9
1
-
-
M
$
3
9
2
,
1
4
7
1
,
1
7
6
4
,
2
-
7
6
4
,
2
7
6
4
,
2
)
8
2
8
(
)
4
2
3
(
)
1
1
3
(
5
1
3
,
1
-
4
0
0
,
1
-
-
-
-
-
M
$
7
8
6
,
1
5
6
3
,
1
2
5
0
,
3
-
2
5
0
,
3
2
5
0
,
3
)
5
3
3
,
1
(
)
1
6
2
(
)
7
1
4
(
6
5
4
,
1
-
9
3
0
,
1
-
-
-
-
-
M
$
9
0
2
,
6
9
9
2
,
1
8
0
5
,
7
-
8
0
5
,
7
8
0
5
,
7
)
3
0
9
,
2
(
)
8
5
5
(
7
4
0
,
4
)
2
0
2
,
1
(
-
5
4
8
,
2
-
-
-
4
0
0
,
1
9
3
0
,
1
5
4
8
,
2
)
1
1
(
)
3
4
(
8
3
1
,
7
9
8
3
1
2
1
1
3
6
,
3
6
)
8
5
(
)
3
2
(
)
9
2
(
)
0
1
(
8
2
9
,
2
8
3
7
7
,
4
7
2
5
1
3
3
7
1
7
8
8
2
,
3
1
1
8
1
4
,
8
6
1
t
n
e
r
r
u
c
-
n
o
n
r
e
h
o
t
)
4
(
)
"
s
i
s
a
b
h
s
a
c
"
(
x
a
t
r
e
t
f
a
t
i
f
o
r
p
t
e
N
x
a
t
e
m
o
c
n
i
e
r
o
f
e
b
t
i
f
o
r
p
t
e
N
s
t
s
e
r
e
t
n
i
g
n
i
l
l
o
r
t
n
o
c
-
n
o
N
e
s
n
e
p
x
e
x
a
t
e
t
a
r
o
p
r
o
C
e
m
o
c
n
i
t
n
e
m
e
g
a
n
a
m
s
d
n
u
F
e
m
o
c
n
i
i
g
n
k
n
a
b
l
a
t
o
T
e
m
o
c
n
i
g
n
i
t
a
r
e
p
o
l
a
t
o
T
)
2
(
e
c
n
e
i
r
e
p
x
e
t
n
e
m
t
s
e
v
n
I
e
s
n
e
p
x
e
t
n
e
m
r
i
a
p
m
i
n
a
o
L
)
3
(
s
e
s
n
e
p
x
e
g
n
i
t
a
r
e
p
O
e
m
o
c
n
i
l
a
t
o
T
e
m
o
c
n
i
e
c
n
a
r
u
s
n
I
e
m
o
c
n
i
i
g
n
k
n
a
b
r
e
h
O
t
e
m
o
c
n
i
t
s
e
r
e
t
n
i
t
e
N
l
y
t
i
l
i
t
a
o
v
S
R
F
I
d
n
a
g
n
g
d
e
H
i
)
"
s
i
s
a
b
y
r
o
t
u
t
a
t
s
"
(
x
a
t
r
e
t
f
a
t
i
f
o
r
p
t
e
N
n
o
i
t
a
m
r
o
f
n
i
l
a
n
o
i
t
i
d
d
A
s
m
e
t
i
h
s
a
c
-
n
o
n
t
s
e
w
k
n
a
B
s
m
e
t
i
h
s
a
c
-
n
o
n
r
e
h
O
t
n
o
i
t
a
s
i
t
r
o
m
a
t
e
s
s
a
e
b
g
n
a
n
t
l
i
I
l
d
n
a
s
e
b
g
n
a
n
t
i
i
,
t
i
n
e
m
p
u
q
e
d
n
a
t
l
n
a
p
y
t
r
e
p
o
r
p
f
o
n
o
i
t
i
s
u
q
c
A
i
s
t
e
s
s
a
i
s
e
t
a
c
o
s
s
a
n
i
t
n
e
m
t
s
e
v
n
I
t
e
e
h
S
e
c
n
a
l
a
B
i
n
o
i
t
a
c
e
r
p
e
D
s
t
e
s
s
a
l
a
t
o
T
s
e
i
t
i
l
i
b
a
i
l
l
t
a
o
T
.
n
o
i
l
l
i
m
8
9
4
$
f
o
g
n
i
t
n
u
o
c
c
a
e
g
d
e
h
r
o
f
y
f
i
l
i
i
a
u
q
t
o
n
o
d
h
c
h
w
s
e
g
d
e
h
c
m
o
n
o
c
e
n
a
t
r
e
c
o
t
d
e
t
a
e
r
e
m
o
c
n
i
l
i
t
s
e
r
e
t
n
i
t
e
n
n
h
t
i
i
w
s
t
s
o
c
p
a
w
s
t
e
n
f
o
n
o
i
t
a
c
i
f
i
s
s
a
c
e
r
l
f
o
t
c
a
p
m
i
e
h
t
s
e
d
u
c
n
I
l
)
1
(
i
.
s
s
a
b
x
a
t
-
e
r
p
n
o
d
e
t
n
e
s
e
r
p
s
i
e
c
n
e
i
r
e
p
x
e
t
n
e
m
t
s
e
v
n
I
)
2
(
l
.
s
e
s
n
e
p
x
e
d
e
t
a
e
r
e
m
u
o
v
e
d
u
c
n
l
l
i
s
e
s
n
e
p
x
e
g
n
i
t
a
r
e
p
O
)
3
(
’
s
k
n
a
B
e
h
t
f
o
n
o
i
t
i
a
n
m
r
e
e
d
t
e
h
t
r
o
f
i
s
s
a
b
e
h
t
i
s
e
d
v
o
r
p
t
i
d
n
a
e
c
n
a
m
r
o
f
r
e
p
s
s
e
s
s
a
o
t
i
”
s
s
a
b
h
s
a
c
“
e
s
u
t
n
e
m
e
g
a
n
a
M
.
y
t
i
l
i
t
a
o
v
l
S
R
F
I
d
n
a
i
g
n
g
d
e
h
o
t
d
e
t
a
e
r
l
s
e
s
s
o
l
d
n
a
i
s
n
a
g
d
e
s
i
l
a
e
r
n
u
d
n
a
t
n
e
m
t
s
u
d
a
j
n
o
i
t
a
u
a
v
l
s
e
r
a
h
s
y
r
u
s
a
e
r
t
,
s
t
n
e
m
t
s
e
v
n
i
/
s
e
i
t
i
t
n
e
d
e
l
l
o
r
t
n
o
c
f
o
l
a
s
o
p
s
d
i
n
o
s
s
o
l
/
i
n
a
g
e
h
t
,
s
n
o
i
t
c
a
s
n
a
r
t
e
c
n
a
n
i
f
l
d
e
r
u
t
c
u
r
t
s
d
n
a
a
e
Z
w
e
N
n
o
x
a
t
e
h
t
,
s
m
e
t
i
t
n
a
c
i
f
i
n
g
s
i
t
s
e
w
k
n
a
B
e
r
o
e
b
s
t
s
e
r
e
t
n
f
i
g
n
i
l
l
o
r
t
n
o
c
-
n
o
n
d
n
a
x
a
t
r
e
t
f
a
t
i
f
o
r
p
t
e
n
s
a
t
n
e
m
e
g
a
n
a
m
y
b
d
e
n
i
f
e
d
s
i
i
h
c
h
w
i
)
”
s
s
a
b
h
s
a
c
“
(
x
a
t
e
m
o
c
n
i
r
e
t
f
a
t
i
f
o
r
p
t
e
n
a
n
o
d
e
r
u
s
a
e
m
e
r
a
s
t
n
e
m
g
e
s
s
s
e
n
s
u
B
i
)
4
(
a
i
l
a
r
t
s
u
A
f
o
k
n
a
B
h
t
l
a
e
w
n
o
m
m
o
C
8
7
1
.
s
d
n
e
d
v
d
i
i
s
t
n
e
m
e
t
a
t
S
l
i
i
a
c
n
a
n
F
e
h
t
o
t
s
e
t
o
N
)
d
e
u
n
i
t
n
o
c
(
s
t
n
e
m
g
e
S
y
b
g
n
i
t
r
o
p
e
R
l
i
i
a
c
n
a
n
F
2
3
e
t
o
N
0
1
0
2
M
$
l
a
t
o
T
2
1
1
,
4
8
6
8
,
1
1
0
8
9
,
5
1
5
4
9
8
9
8
,
1
3
2
8
,
8
1
6
3
2
9
5
0
,
9
1
)
1
0
6
,
8
(
)
5
7
0
,
2
(
3
8
3
,
8
)
6
6
2
,
2
(
)
6
1
(
1
0
1
,
6
7
1
)
6
1
2
(
)
1
7
1
(
)
7
6
(
4
6
6
,
5
)
0
8
2
(
)
8
3
3
(
M
$
3
4
1
,
1
)
7
3
2
(
6
0
9
8
2
8
4
2
5
2
8
9
)
4
4
4
(
4
3
0
,
1
0
9
0
8
6
)
6
1
(
)
6
5
1
(
8
0
5
9
0
1
)
3
1
(
-
)
0
3
(
4
7
5
)
1
5
(
)
1
9
1
(
-
-
M
$
3
3
2
6
3
3
,
1
9
6
5
,
1
9
6
5
,
1
-
9
6
5
,
1
)
0
8
8
(
)
4
5
7
(
)
5
6
(
-
0
2
)
5
4
(
)
6
6
(
)
3
0
2
(
-
-
)
4
1
3
(
)
1
9
(
)
4
3
(
M
$
6
1
7
8
7
2
4
9
9
6
4
3
1
2
3
5
2
,
1
1
4
5
2
,
1
)
7
6
6
(
)
0
0
1
(
)
9
9
(
7
8
4
-
)
6
2
(
8
8
3
-
)
1
7
1
(
7
8
9
1
)
7
2
(
)
9
2
(
-
-
-
M
$
4
8
6
4
2
8
,
1
8
0
5
,
2
3
8
1
1
9
6
,
2
)
6
0
7
,
1
(
-
5
8
9
)
7
6
2
(
-
8
1
7
-
-
-
)
4
4
(
4
7
6
)
5
(
)
4
(
-
-
M
$
4
3
3
,
1
7
5
2
,
1
1
9
5
,
2
-
1
9
5
,
2
1
9
5
,
2
)
0
3
8
(
)
9
4
2
(
)
9
3
3
(
2
1
5
,
1
-
3
7
1
,
1
-
-
-
-
)
0
1
(
)
6
4
(
3
7
1
,
1
-
-
M
$
3
4
6
,
1
9
3
2
,
1
2
8
8
,
2
-
2
8
8
,
2
2
8
8
,
2
)
5
9
2
,
1
(
)
6
2
3
(
1
6
2
,
1
)
3
6
3
(
-
8
9
8
-
-
-
-
8
9
8
)
1
7
(
)
4
2
(
-
-
M
$
6
9
6
,
5
2
4
3
,
1
8
3
0
,
7
-
8
3
0
,
7
8
3
0
,
7
)
9
7
7
,
2
(
)
6
3
7
(
3
2
5
,
3
)
2
6
0
,
1
(
-
1
6
4
,
2
-
-
-
-
)
5
2
(
)
0
1
(
1
6
4
,
2
)
3
(
)
2
(
)
1
(
r
e
h
t
O
)
2
(
t
s
e
w
k
n
a
B
w
e
N
l
d
n
a
a
e
Z
h
t
l
a
e
W
d
n
a
g
n
k
n
a
B
i
e
t
a
v
i
r
P
t
n
e
m
e
g
a
n
a
M
)
1
(
s
t
e
k
r
a
M
)
1
(
i
g
n
k
n
a
B
g
n
i
k
n
a
B
)
1
(
s
e
c
i
v
r
e
S
l
a
n
o
i
t
u
t
i
t
s
n
I
d
n
a
s
s
e
n
i
s
u
B
l
i
a
t
e
R
0
3
3
,
6
4
6
9
8
5
,
9
5
4
8
6
,
4
7
3
3
4
,
3
5
9
8
6
,
1
2
5
9
4
,
4
9
1
0
8
,
8
7
9
3
6
,
3
6
2
0
2
3
0
9
4
,
1
0
6
7
,
0
1
6
2
8
1
3
0
6
-
3
4
-
2
2
4
3
8
7
9
3
2
4
1
6
2
6
1
6
7
2
2
4
,
4
5
1
8
6
8
,
9
6
1
9
5
,
9
4
9
4
3
,
9
1
8
9
8
,
8
5
8
9
2
,
3
0
1
4
3
3
,
5
5
1
t
n
e
r
r
u
c
-
n
o
n
r
e
h
t
o
d
n
a
s
e
b
g
n
a
t
n
l
i
)
6
(
)
"
s
i
s
a
b
h
s
a
c
"
(
x
a
t
r
e
t
f
a
t
i
f
o
r
p
t
e
N
x
a
t
e
m
o
c
n
i
e
r
o
f
e
b
t
i
f
o
r
p
t
e
N
s
t
s
e
r
e
t
n
i
g
n
i
l
l
o
r
t
n
o
c
-
n
o
N
e
s
n
e
p
x
e
x
a
t
e
t
a
r
o
p
r
o
C
e
m
o
c
n
i
t
n
e
m
e
g
a
n
a
m
s
d
n
u
F
e
m
o
c
n
i
g
n
i
k
n
a
b
l
a
t
o
T
e
m
o
c
n
i
g
n
i
t
a
r
e
p
o
l
a
t
o
T
)
4
(
e
c
n
e
i
r
e
p
x
e
t
n
e
m
t
s
e
v
n
I
e
s
n
e
p
x
e
t
n
e
m
r
i
a
p
m
i
n
a
o
L
)
5
(
s
e
s
n
e
p
x
e
g
n
i
t
a
r
e
p
O
e
m
o
c
n
i
l
a
t
o
T
e
m
o
c
n
i
e
c
n
a
r
u
s
n
I
e
m
o
c
n
i
i
g
n
k
n
a
b
r
e
h
O
t
e
m
o
c
n
i
t
s
e
r
e
t
n
i
t
e
N
l
y
t
i
l
i
t
a
o
v
S
R
F
I
d
n
a
g
n
g
d
e
H
i
s
n
o
i
t
c
a
s
n
a
r
t
e
c
n
a
n
i
f
d
e
r
u
t
c
u
r
t
s
Z
N
n
o
x
a
T
s
m
e
t
i
h
s
a
c
-
n
o
n
t
s
e
w
k
n
a
B
s
m
e
t
i
h
s
a
c
-
n
o
n
r
e
h
O
t
)
"
s
i
s
a
b
y
r
o
t
u
t
a
t
s
"
(
x
a
t
r
e
t
f
a
t
i
f
o
r
p
t
e
N
n
o
i
t
a
m
r
o
f
n
i
l
a
n
o
i
t
i
d
d
A
n
o
i
t
a
s
i
t
r
o
m
a
t
e
s
s
a
e
b
g
n
a
t
n
I
l
i
i
i
l
,
t
n
e
m
p
u
q
e
d
n
a
t
n
a
p
y
t
r
e
p
o
r
p
f
o
n
o
i
t
i
s
u
q
c
A
i
t
e
e
h
S
e
c
n
a
l
a
B
i
n
o
i
t
a
c
e
r
p
e
D
s
t
e
s
s
a
l
a
t
o
T
.
n
o
i
t
a
t
n
e
m
g
e
s
e
r
s
s
e
n
s
u
b
f
o
t
c
a
p
m
i
i
e
h
t
r
o
f
d
e
t
a
t
s
e
r
n
e
e
b
e
v
a
h
s
t
l
u
s
e
R
)
1
(
i
s
e
t
a
c
o
s
s
a
n
i
t
n
e
m
t
s
e
v
n
I
s
e
i
t
i
l
i
b
a
i
l
l
a
t
o
T
s
t
e
s
s
a
.
r
e
h
t
O
n
i
y
l
l
l
l
a
r
t
n
e
c
d
e
h
y
s
u
o
v
e
r
p
e
r
a
h
c
h
w
i
i
t
s
e
w
k
n
a
B
o
t
s
t
s
o
c
l
a
t
i
p
a
c
f
o
n
o
i
t
a
c
o
l
l
a
e
h
t
g
n
w
o
i
l
l
o
f
d
e
t
a
t
s
e
r
n
e
e
b
s
a
h
e
m
o
c
n
i
t
s
e
r
e
t
n
i
t
e
N
)
2
(
n
o
s
s
o
l
/
i
n
a
g
e
h
t
,
s
n
o
i
t
c
a
s
n
a
r
t
e
c
n
a
n
i
f
l
d
e
r
u
t
c
u
r
t
s
d
n
a
a
e
Z
w
e
N
n
o
x
a
t
e
h
t
,
s
m
e
t
i
t
n
a
c
i
f
i
n
g
s
i
t
s
e
w
k
n
a
B
e
r
o
e
b
s
t
s
e
r
e
t
n
f
i
g
n
i
l
l
o
r
t
n
o
c
-
n
o
n
d
n
a
x
a
t
r
e
t
f
a
t
i
f
o
r
p
t
e
n
s
a
t
n
e
m
e
g
a
n
a
m
y
b
d
e
n
i
f
e
d
s
i
i
h
c
h
w
i
)
”
s
s
a
b
h
s
a
c
“
(
x
a
t
e
m
o
c
n
i
r
e
t
f
a
t
i
f
o
r
p
t
e
n
a
n
o
d
e
r
u
s
a
e
m
e
r
a
s
t
n
e
m
g
e
s
s
s
e
n
s
u
B
i
)
6
(
.
n
o
i
l
l
i
m
9
5
2
$
f
o
g
n
i
t
n
u
o
c
c
a
e
g
d
e
h
r
o
f
y
f
i
l
i
i
a
u
q
t
o
n
o
d
h
c
h
w
s
e
g
d
e
h
c
m
o
n
o
c
e
n
a
t
r
e
c
o
t
d
e
t
a
e
r
e
m
o
c
n
l
i
i
t
s
e
r
e
t
n
i
t
e
n
n
h
t
i
i
w
s
t
s
o
c
p
a
w
s
t
e
n
f
o
n
o
i
t
a
c
i
f
i
s
s
a
c
e
r
l
f
o
t
c
a
p
m
i
e
h
t
s
e
d
u
c
n
l
I
)
3
(
i
.
s
s
a
b
x
a
t
-
e
r
p
a
n
o
d
e
t
n
e
s
e
r
p
s
i
e
c
n
e
i
r
e
p
x
e
t
n
e
m
t
s
e
v
n
I
)
4
(
l
.
s
e
s
n
e
p
x
e
d
e
t
a
e
r
e
m
u
o
v
e
d
u
c
n
l
l
i
s
e
s
n
e
p
x
e
g
n
i
t
a
r
e
p
O
)
5
(
9
7
1
1
1
0
2
t
r
o
p
e
R
l
a
u
n
n
A
a
i
l
a
r
t
s
u
A
f
o
k
n
a
B
h
t
l
a
e
w
n
o
m
m
o
C
’
s
k
n
a
B
e
h
t
f
o
n
o
i
t
i
a
n
m
r
e
e
d
t
e
h
t
r
o
f
i
s
s
a
b
e
h
t
i
s
e
d
v
o
r
p
t
i
d
n
a
e
c
n
a
m
r
o
f
r
e
p
s
s
e
s
s
a
o
t
i
”
s
s
a
b
h
s
a
c
“
e
s
u
t
n
e
m
e
g
a
n
a
M
.
y
t
i
l
i
t
a
o
v
l
S
R
F
I
d
n
a
i
g
n
g
d
e
h
o
t
d
e
t
a
e
r
l
s
e
s
s
o
l
d
n
a
i
s
n
a
g
d
e
s
i
l
a
e
r
n
u
d
n
a
t
n
e
m
t
s
u
d
a
j
n
o
i
t
a
u
a
v
l
s
e
r
a
h
s
y
r
u
s
a
e
r
t
,
s
t
n
e
m
t
s
e
v
n
i
/
s
e
i
t
i
t
n
e
d
e
l
l
o
r
t
n
o
c
f
o
l
a
s
o
p
s
d
i
.
s
d
n
e
d
v
d
i
i
Notes to the Financial Statements
Note 32 Financial Reporting by Segments (continued)
Geographical Information
Financial Performance & Position
Revenue
Australia
New Zealand
Other locations (1)
Total revenue
Non-Current Assets
Australia
New Zealand
Other locations (1)
Total non-current assets
Group
Year Ended 30 June
2011
$M
40,733
3,832
1,650
46,215
12,706
852
123
%
88. 1
8. 3
3. 6
100. 0
92. 9
6. 2
0. 9
13,681
100. 0
2010
$M
35,906
4,208
1,671
41,785
12,654
1,009
315
13,978
2009
$M
%
85. 9
10. 1
4. 0
100. 0
90. 5
7. 2
2. 3
100. 0
32,498
4,904
2,031
39,433
11,909
1,005
343
13,257
%
82. 4
12. 4
5. 2
100. 0
89. 8
7. 6
2. 6
100. 0
(1) Other locations include: United Kingdom, United States, Japan, Singapore, Malta, Hong Kong, Indonesia, China and Vietnam.
The geographical segment represents the location in which the transaction was recognised.
Note 33 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 (ff). The insurance segment result is prepared on a business segment basis.
Summarised income statement
Premium income 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 expense attributable to operating profit
Net profit after income tax
Life Insurance
Life Investment
Contracts
Contracts
2011
$M
1,669
(221)
(1,086)
222
126
202
53
45
3
2010
$M
1,622
(256)
(1,118)
243
118
233
46
101
54
1,013
1,043
(246)
(295)
(19)
-
453
(158)
295
(215)
(269)
(9)
(28)
522
(151)
371
2011
2010
$M
263
-
(37)
-
494
383
133
69
(980)
325
(10)
(82)
(22)
-
211
(114)
97
$M
313
(3)
(214)
-
594
530
106
30
(939)
417
(9)
(88)
(22)
(32)
266
(118)
148
2011
$M
1,932
(221)
(1,123)
222
620
585
186
114
(977)
1,338
(256)
(377)
(41)
-
664
(272)
392
Group
2010
$M
1,935
(259)
(1,332)
243
712
763
152
131
(885)
1,460
(224)
(357)
(31)
(60)
788
(269)
519
180
Commonwealth Bank of Australia Annual Report 2011
Note 33 Life Insurance Business (continued)
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
Net profit after income tax
Notes to the Financial Statements
Life Insurance
Life Investment
Contracts
Contracts
2011
2010
2011
2010
2011
Group
2010
$M
$M
$M
$M
$M
$M
227
(18)
2
(1)
84
1
295
209
26
13
(3)
103
23
371
73
21
-
-
3
-
97
697
2,128
84
60
-
-
5
(1)
148
961
2,950
300
3
2
(1)
87
1
392
293
86
13
(3)
108
22
519
2,630
3,597
2,585
4,147
Life insurance premiums received and receivable
Life insurance claims paid and payable
1,933
1,469
1,624
1,197
The disclosure of the components of Net profit after income tax 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.
Reconciliation of movements in
policy liabilities
Contract policy liabilities
Gross policy liabilities opening balance
Movement in policy liabilities reflected in the Income
Statement
Contract contributions recognised in policy liabilities
Contract withdrawals recognised in policy liabilities
Non-cash movements
FX translation adjustment
Life Insurance
Life Investment
Contracts
Contracts
2011
$M
2010
$M
2011
$M
2010
$M
2011
$M
Group
2010
$M
3,181
3,728
11,411
12,328
14,592
16,056
(23)
262
(242)
(18)
(23)
(86)
2
(281)
(181)
(1)
980
436
939
656
957
698
853
658
(2,231)
(2,536)
(2,473)
(2,817)
-
(81)
(1)
25
(18)
(104)
(182)
24
Gross policy liabilities closing balance
3,137
3,181
10,515
11,411
13,652
14,592
Liabilities ceded under reinsurance
Opening balance
Acquisition of controlled entities
Increase in reinsurance assets
Closing balance
Net policy liabilities
Expected to be realised within 12 months
Expected to be realised in more than 12 months
Total net insurance policy liabilities
(189)
(219)
3
22
-
30
(164)
(189)
-
-
-
-
-
-
-
-
(189)
(219)
3
22
-
30
(164)
(189)
511
2,462
2,973
408
2,584
2,992
1,768
8,747
10,515
1,696
9,715
11,411
2,279
11,209
13,488
2,104
12,299
14,403
Commonwealth Bank of Australia Annual Report 2011
181
Notes to the Financial Statements
Note 34 Remuneration of Auditors
During the financial year, the auditor of the Group and the Bank, PricewaterhouseCoopers, and its related practices earned the following
remuneration excluding goods and service tax:
a) Audit and audit related services
Audit services
PricewaterhouseCoopers Australian firm
Related practices of PricewaterhouseCoopers Australian firm
Total remuneration for audit services
Audit related services
PricewaterhouseCoopers Australian firm
Related practices of PricewaterhouseCoopers Australian firm
Total remuneration for audit related services
Total remuneration for audit and audit related services
b) Non-audit services
Taxation services
PricewaterhouseCoopers Australian firm
Related practices of PricewaterhouseCoopers Australian firm
Total remuneration for tax related services
Other Services
PricewaterhouseCoopers Australian firm
Related practices of PricewaterhouseCoopers Australian firm
Total remuneration for other services
Total remuneration for non-audit services (1)
Total remuneration for audit and non-audit services (2)
2011
$'000
14,444
3,405
17,849
4,346
247
4,593
22,442
1,420
1,631
3,051
3,602
6
3,608
6,659
29,101
Group
2010
$'000
13,807
3,847
17,654
4,019
248
4,267
21,921
1,535
807
2,342
1,645
21
1,666
4,008
25,929
2011
$'000
9,182
526
9,708
3,968
100
4,068
13,776
1,270
588
1,858
3,517
2
3,519
5,377
19,153
Bank
2010
$'000
8,160
605
8,765
3,439
59
3,498
12,263
1,520
276
1,796
1,524
7
1,531
3,327
15,590
(1) The comparative total remuneration for non-audit services has been restated to remove audit related services.
(2) An additional amount of $9,738,612 (2010: $7,867,223) was paid to PricewaterhouseCoopers by way of fees for entities not consolidated into the Financial
Statements. Of this amount $8,025,284 (2010: $6,794,440) relates to audit and audit-related services.
The Audit Committee has considered the non-audit services provided by PricewaterhouseCoopers 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 services principally includes assurance and attestation reviews of the Group’s foreign disclosures for overseas investors,
services in relation to regulatory requirements, acquisition accounting advice as well as reviews of internal control systems and financial
or regulatory information.
Taxation services included assistance and training in relation to tax legislation and developments and other services primarily consisted
of project assistance and risk compliance support.
Note 35 Lease Commitments
Lease Commitments - Property, Plant and Equipment
Due within one year
Due after one year but not later than five years
Due after five years
Total lease commitments - property, plant and equipment
Lease Arrangements
2011
$M
485
1,356
1,288
3,129
Group
2010
$M
478
1,295
1,003
2,776
2011
$M
405
1,116
791
2,312
Bank
2010
$M
359
924
494
1,777
Operating leases are entered into to meet the business needs of entities in the Group. Leases are primarily over commercial and retail
premises and plant and equipment.
Lease rentals are determined in accordance with market conditions when leases are entered into or on rental review dates. Further
details on the Groups significant operating leases are included in Note 36.
The total expected future sublease payments to be received is $38 million as at 30 June 2011.
182
Commonwealth Bank of Australia Annual Report 2011
Notes to the Financial Statements
Note 36 Contingent Liabilities, Contingent Assets and Commitments
Details of contingent liabilities and off-balance sheet business are given below. The face (contract) value represents the maximum
potential amount that could be lost if the counterparty fails to meet its financial obligations.
Credit risk related instruments
Guarantees (1)
Standby letters of credit (2)
Bill endorsements (3)
Documentary letters of credit (4)
Performance related contingents (5)
Commitments to provide credit (6)
Other commitments (7)
Total credit risk related instruments
Credit risk related instruments
Guarantees (1)
Standby letters of credit (2)
Bill endorsements (3)
Documentary letters of credit (4)
Performance related contingents (5)
Commitments to provide credit (6)
Other commitments (7)
Total credit risk related instruments
Face Value
Credit Equivalent
Group
2011
$M
4,462
931
28
50
1,996
128,007
660
2010
$M
3,658
817
57
71
1,240
109,420
478
2011
$M
4,462
931
28
46
1,910
112,689
465
136,134
115,741
120,531
2010
$M
3,364
809
57
70
1,208
89,920
266
95,694
Bank
Face Value
Credit Equivalent
2011
$M
3,719
766
28
26
1,893
111,682
80
118,194
2010
$M
2,874
637
57
46
1,233
93,881
39
98,767
2011
$M
3,719
766
28
26
1,859
105,391
80
111,869
2010
$M
2,581
630
57
46
1,204
83,272
39
87,829
(1) Guarantees are unconditional undertakings given to support the obligations of a customer to third parties.
(2) Standby letters of credit are undertakings to pay, against presentation of documents, an obligation in the event of a default by a customer.
(3) Bills of exchange endorsed by the Group and Bank which represent liabilities in the event of default by the acceptor and the drawer of the bill.
(4) Documentary letters of credit are undertakings by the Group and Bank to pay or accept drafts drawn by an overseas supplier of goods against presentation of
documents in the event of payment default by a customer.
(5) Performance related contingents are undertakings that oblige the Group and Bank to pay third parties should a customer fail to fulfil a contractual non-monetary
obligation.
(6) Commitments to provide credit include all obligations on the part of the Group and Bank to provide credit facilities. As facilities may expire without being drawn upon,
the notional amounts do not necessarily reflect future cash requirements.
(7) Other commitments include underwriting facilities and commitments with certain drawdowns.
Contingent Credit Liabilities
The Group is party to a range of financial instruments that give
rise to contingent and/or future liabilities. These transactions are
a consequence of the Group’s normal course of business to
meet the financing needs of its customers and in managing its
own risk. These financial instruments include guarantees, letters
of credit, bill endorsements and other commitments to provide
credit. The face (contract) value represents the maximum
potential amount that could be lost if the counterparty fails to
meet its financial obligations.
As the Group and Bank will only be required to meet these
obligations in the event of default, the cash requirements of
these instruments are expected to be considerably less than
their face values.
These transactions combine varying levels of credit, interest
rate, foreign exchange and liquidity risk. In accordance with
Bank policy, exposures to any of these transactions (net of
collateral) are not carried at a level that would have a material
adverse effect on the financial condition of the Bank and its
controlled entities.
Commitments to provide credit include both fixed and variable
facilities. Fixed rate or fixed spread commitments extended to
customers that allow net settlement of the change in the value
of the commitment are written options and are recorded at fair
value. Other commitments include the Group’s obligations
under sale and repurchase agreements, outright forward
purchases, forward deposits and underwriting facilities. Other
commitments also include obligations not otherwise disclosed
above to extend credit, which 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.
These transactions are categorised and credit equivalents
calculated under APRA guidelines
risk-based
measurement of capital adequacy. The credit equivalent
amounts are a measure of potential loss to the Group in the
event of non-performance by the counterparty.
the
for
Commonwealth Bank of Australia Annual Report 2011
183
Notes to the Financial Statements
Note 36 Contingent Liabilities, Contingent Assets and Commitments (continued)
Under the Basel II advanced internal ratings based approach for
credit risk, the credit equivalent amount is the face value of the
transaction, on the basis that at default the exposure is the
amount fully advanced. Only when approved by APRA may an
exposure less that fully-advanced amount be used as the credit
equivalent exposure amount.
As the potential loss depends on counterparty performance, the
Group utilises the same credit policies in making commitments
and conditional obligations as it does for on-balance sheet
instruments. The Group takes collateral where it is considered
necessary to support off-balance sheet financial instruments
with credit risk. If an event has occurred that gives rise to a
present obligation and it is probable a loss will eventuate, then
provisions are raised.
Contingent Assets
The credit commitments shown in the table on page 183 also
constitute contingent assets. These commitments would be
classified as loans and other assets in the balance sheet on the
occurrence of the contingent event.
Litigation
The Group is not 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 Group. Where some loss is
probable and can be reliably estimated an appropriate provision
In December 2010 ASIC commenced
has been made.
proceedings against the Bank in relation to Storm Financial, a
Queensland-based financial planning firm that collapsed, and
went into liquidation in March 2009. Currently, ASIC is not
seeking that the Bank pay compensation to any person as part
of these proceedings. Class action proceedings against the
Bank in relation to Storm Financial also continued. At present
the size of the class action remains undefined and damages
sought have not been quantified. The Group has established a
resolution scheme for clients of Storm Financial who borrowed
money from the Group. The resolution scheme has substantially
completed the process of considering individual claims on a
case by case basis. The Group believes that appropriate
provisions are held to cover the outcomes and costs of the
scheme. The Bank is also currently working through recovering
losses associated with Storm Financial, and recognises these
recoveries once they meet the recognition criteria.
In November 2007, the Bank signed a lease agreement with a
term of 12 years with DPT Operator Pty Ltd and DPPT
Operator Pty Ltd for accommodating approximately 5,000 of the
Group’s employees at Darling Park Tower 1 at 201 Sussex
Street in the Sydney CBD.
In July 2006, the Bank entered into a lease agreement with
Colonial First State Property Limited as trustee for both Site 6
and Site 7 Homebush Bay Trust, relating to the provision of
accommodation. The development is a campus style multi-
building facility at Sydney Olympic Park to accommodate
around 3,500 employees. The average lease term is 12 years.
In April 2009, the Group entered into an Agreement to Lease for
12 years (with options to extend) on completion of Raine
Square, a new 21 level office tower in Perth that will provide
almost 40,000m2 of office accommodation above three levels of
retail space. Once complete, it will accommodate over 3,500 of
the Group’s Perth based employees. Bankwest has also
exercised an extension option on existing premises from
November 2009.
In April 2008, the Bank signed agreements with SAP Australia
Pty Limited and Accenture Australia Limited for its Core
Banking Modernisation programme.
Failure to Settle Risk
The Group 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, The Bulk Electronic Clearing System, The
Consumer Electronic Clearing System and the High Value
Clearing System (only if operating in “fallback mode”). This
credit risk exposure is unquantifiable in advance, but is well
understood, and is extinguished upon settlement at 9am each
business day.
Capital Commitments
The Group is committed for capital expenditure, under contract
of $13 million as at 30 June 2011 (2010: $19 million). The Bank
is committed for $13 million (2010: $17 million). These
commitments are expected to be extinguished within 12
months.
Long Term Contracts
Services 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 2011
was $4.2 million (2010: $6.5 million).
On 26 September 1997, the Bank entered the Information
Technology and Telecommunications Services Agreement with
EDS (Australia) Pty Ltd (now HP Enterprise Services Australia
Pty Ltd). This agreement covers the provision of enterprise
processing services and end user computing services until 30
June 2012 and for card services until 1 May 2017.
In 2009, the Bank entered into an Agreement for Lease with
Lend Lease Development and Australian Prime Property Fund
for Commonwealth Bank Place, a new building in the Sydney
CBD comprising over 50,000m2 of commercial accommodation
located above a retail podium. It will accommodate over 6,000 of
the Group’s employees by early 2012.
In December 2007, the Bank entered into separate agreements
with each of Tata Consultancy Services Ltd, HCL Technologies
Ltd and IBM Australia Ltd for the provision of application
software related services. The term of the agreements expire in
December 2012.
184
Commonwealth Bank of Australia Annual Report 2011
Notes to the Financial Statements
Note 36 Contingent Liabilities, Contingent Assets and Commitments (continued)
Collateral accepted as security for assets
The Group takes collateral where it is considered necessary to support both on and off-balance sheet financial instruments. The Group
evaluates each customer’s credit-worthiness on a case-by-case basis. The amount of collateral taken, if deemed necessary, is based on
management’s credit evaluation of the counterparty. The Group has the right to sell, repledge, or otherwise use collateral received. No
collateral has been repledged or sold. At Balance Sheet date, the carrying value of collateral accepted is as follows:
Cash
Assets at fair value through Income Statement
Available-for-sale investments
Collateral held
Assets pledged
2011
$M
1,491
4,114
2,400
8,005
Group
2010
$M
2,411
2,913
540
5,864
2011
$M
1,463
4,115
1,781
7,359
Bank
2010
$M
2,388
2,913
530
5,831
As part of standard terms of transactions with other banks, the Group has provided collateral to secure liabilities. At Balance Sheet date,
the carrying value of assets pledged as collateral to secure liabilities is as follows:
Cash
Assets at fair value through Income Statement (1)
Available-for-sale investments (1) (2)
Assets pledged
Of which can be repledged or resold by counterparty
2011
$M
4,024
8,270
-
Group
2010
$M
2,433
7,891
235
12,294
10,559
4,063
5,182
2011
$M
3,762
4,857
-
8,619
3,801
Bank
2010
$M
2,085
5,117
235
7,437
5,100
(1) These balances include assets sold under repurchase agreements. The liabilities related to these repurchase agreements are disclosed in Note 19.
(2) This line includes retail mortgage backed securities issued by consolidated special purpose entities and purchased by the Bank for repurchase with the RBA. Further
details are included in Note 12.
Assets Sold Under Repurchase Agreement
Securities sold under agreement to repurchase are retained on the balance sheet when substantially all the risks and rewards of
ownership remain with the Group, and the counterparty liability is included separately on the balance sheet when cash consideration is
received. At Balance Sheet date, the carrying amounts of such securities and their related liabilities are as follows:
Group
Bank
Carrying Amount
Related Liability
Carrying Amount
Related Liability
2011
2010
2011
2010
2011
2010
2011
2010
$M
$M
$M
$M
$M
$M
$M
$M
Assets at fair value through Income
Statement
Available-for-sale investments
Total
4,063
-
4,063
4,947
235
5,182
4,063
-
4,063
4,899
235
5,134
3,801
-
3,801
4,865
235
5,100
3,801
-
3,801
4,815
235
5,050
Note 37 Fiduciary Activities
Certain controlled entities within the Group conduct investment management and other fiduciary activities as responsible entity, trustee,
custodian or manager for investment funds and trusts, including superannuation and approved deposit funds, wholesale and retail
trusts. Where the Group incurs liabilities in respect of these activities, a right of indemnity exists against the assets of the applicable fund
or trust. As these assets are sufficient to cover the liabilities and it is therefore not probable that the Group will be required to settle the
liabilities, the liabilities are not included in the financial statements.
The aggregate value of funds as at 30 June, managed for each fiduciary activity but not reported in the Group’s Balance Sheet are as
follows:
Funds under administration
Funds under management
2011
$M
183,128
151,788
Group
2010
$M
172,784
144,298
Commonwealth Bank of Australia Annual Report 2011
185
Notes to the Financial Statements
Note 38 Financial Risk Management
Note 39 Credit Risk
Risk Management
The Group is a major financial services provider engaged in retail
and commercial banking, credit cards, investment banking, wealth
management and investment management services. Financial
instruments are fundamental to the Group’s business and
managing financial risks, especially credit risk, is a fundamental
part of its business activity.
Governance
Risk governance originates at Board level, and cascades through
to the CEO and businesses via Group policies, delegated
authorities and regular reviews of outcomes. This ensures Board
level oversight and is based on a clear segregation of duties
between those who originate and those who approve risk
exposures.
risk management
review of
framework is carried out by Group Audit and Assurance.
Independent
the
The Risk Committee of the Board oversees credit, market
(including traded, interest rate risk in the banking book (IRRBB),
lease residual values, non-traded equity and structural foreign
exchange risks), liquidity and funding, operational, regulatory and
compliance, insurance and reputational risks assumed by the
Group in the course of carrying on its business. Strategic risks are
governed by the full Board with input from the various Board sub-
committees. Tax and accounting risks are governed by the Audit
Committee.
The main financial risks affecting the Group are discussed in
Notes 39 (Credit Risk), 40 (Market Risk), and 41 (Liquidity and
Funding Risk).
Risk Management Framework
integrated risk management
The Group has
framework to identify, assess, manage and report risks and risk-
adjusted returns on a consistent and reliable basis.
in place an
Accountability for risk management is structured by a “Three Lines
of Defence” model as follows:
•
•
•
Line 1 – Business Management – Risk is best managed at
the place it occurs, therefore business managers are
responsible for managing the risks for their business. This
includes implementing approaches to proactively manage
levels, and using risk
their risk within risk appetite
management outcomes
risk”) and
considerations as part of their day-to-day business making
processes;
(“the costs of
Line 2 – Risk Management – Group, Business Unit and
Divisional Risk Management units provide risk management
expertise and oversight for Business Management risk-
taking activities. Risk Management develop specialist
policies and procedures for risk management and ensure
they are embedded and in use as part of the day-to-day
management of the business. Risk Management also
establishes and maintains aligned and integrated risk
management frameworks and monitors compliance with the
frameworks, policies and procedures; and
independent assurance
Line 3 – Group Audit and Assurance – Group Audit and
Assurance provide
to key
stakeholders regarding the adequacy and effectiveness of
the Group’s system of internal controls, risk management
procedures and governance processes. It is responsible for
reviewing risk management frameworks and Business Unit
practices for risk management and internal controls.
This framework requires each business to manage the outcome of
its risk-taking activities and benefit from the resulting risk adjusted
returns.
186
Commonwealth Bank of Australia Annual Report 2011
Credit risk is the potential for loss arising from failure of a debtor
or counterparty to meet their contractual obligations. It arises
primarily from lending activities, the provision of guarantees
including letters of credit and commitments to lend, investments
in bonds and notes,
transactions,
securitisations and other associated activities. In the insurance
business, credit risk arises from investment in bonds and notes,
loans, and from reliance on reinsurance.
financial markets
Credit Risk Management Principles and Portfolio
Standards
The Risk Committee of the Board operates under a Charter by
which it oversees the Group’s credit risk management policies
and portfolio standards. These are designed to achieve portfolio
outcomes that are consistent with the Group’s risk/return
expectations. The Committee meets at least quarterly, and
more often if required.
The Group has clearly defined credit policies for the approval
and management of credit risk. Formal credit standards apply to
all credit risks, with specific portfolio standards applying to all
major lending areas. These incorporate income/repayment
loan
terms and
capacity, acceptable
documentation tests.
security and
The Group uses a Risk Committee approved diversified
portfolio approach
risk
concentrations comprised of the following:
the management of credit
for
•
•
•
A large credit exposures policy, which sets limits for
aggregate exposures
individual, commercial and
industrial client groups;
to
An industry concentrations policy that defines a system of
limits for exposures by industry; and
A system of country limits for managing geographic
exposures.
The Group assesses the integrity and ability of debtors or
counterparties to meet their contracted financial obligations for
repayment. Collateral security, in the form of real estate or a
charge over income or assets, is generally taken for business
credit except for major government, bank and corporate
counterparties that are externally risk-rated and of strong
financial standing. Longer term consumer finance (e.g. housing
loans) is generally secured against real estate while short term
revolving consumer credit is generally not secured by formal
collateral.
While the Group applies policies, standards and procedures in
governing the credit process, the management of credit risk
also relies on the application of judgement and the exercise of
good faith and due care of relevant people within their
delegated authority.
A centralised exposure management system is used to record
all significant credit risks borne by the Group. The credit risk
portfolio has two major segments:
(i) Retail Managed
This segment has sub-segments covering housing loan, credit
card, personal loan facilities, some leasing products and most
secured commercial lending up to $1 million.
Auto-decisioning for the approval of credit risk exposures is
used for eligible business and consumer applications. Auto-
decisioning uses a scorecard approach whereby
the
performance of historical applications is supplemented by
information from a credit reference bureau and/or from the
Group’s existing knowledge of a customer’s behaviour.
Note 39 Credit Risk (continued)
Where the loan application does not meet scorecard Auto-
decisioning requirements then these may be referred to manual
decisioning.
After loan origination, these portfolios are managed using
behavioural scoring systems and on a delinquency band
approach (e.g. actions taken when loan payments are greater
than 30 days past due differ from actions when payments are
greater than 60 days past due) and are reviewed by the relevant
business credit support unit. Commercial lending up to $1 million
is reviewed as part of the Group’s quality assurance process
and overview is provided by the independent Credit Portfolio
Assurance unit. Facilities in the Retail segment become
classified for remedial management by centralised units based
on delinquency band.
(ii) Credit Risk-Rated
This segment comprises commercial exposures, including bank
and government exposures. Each exposure with commercial
content exceeding $50,000 is assigned an internal Credit Risk
Rating (CRR). The CRR is normally assessed by reference to a
matrix where the probability of default (PD) and the amount of
loss given default (LGD) combine to determine a CRR grade
commensurate with expected loss (EL).
For credit risk exposures greater than $1 million or decisioned
outside of the scorecard approach, either a PD calculator or
expert judgement is used.
judgement
is used where
the
Expert
transaction and/or the debtor is such that it is inappropriate to
rely completely on a statistical model. Ratings by Moody’s or
Standard and Poor’s may be used as inputs into the expert
judgement assessment.
the complexity of
The CRR is designed to:
•
•
•
Aid in assessing changes to the client quality of the
Group's credit portfolio;
Influence decisions on approval, management and pricing
of individual credit facilities; and
Provide the basis for reporting details of the Group's credit
portfolio to the Australian Prudential Regulatory Authority.
Credit risk-rated exposures are generally reviewed on an
individual basis, at least annually, although small transactions
may be managed on a behavioural basis after their initial rating
at origination.
Credit risk-rated exposures fall within the following categories:
•
•
“Pass” – Internal CRR of 1-6, or if not individually credit
risk-rated, less than 30 days past due. These credit
facilities qualify for approval of new or increased exposure
on normal commercial terms; and
“Troublesome or Impaired Assets (TIAs)” - Internal CRR of
7-9 or, if not individually credit risk-rated, 30 days or more
past due. These credit facilities are not eligible for new or
increased exposure unless it will protect or improve the
Group’s position by maximising recovery prospects or to
facilitate rehabilitation. Where a client is in default but the
facility is well secured then the facility may be classed as
troublesome but not impaired. Where a client’s facility is not
well secured and a loss is expected, then a facility is
impaired. Facilities that have been restructured are also
classified as a sub-set of impaired.
Notes to the Financial Statements
Default is usually consistent with one or more of the following
criteria:
•
•
•
•
•
A contractual payment is overdue by 90 days or more;
An approved overdraft limit has been exceeded for 90 days
or more;
A credit officer becomes aware that the client will not be
able to meet future repayments or service alternative
acceptable repayment arrangements e.g. the client has
been declared bankrupt;
A credit officer has determined that full recovery of both
principal and interest is unlikely without recourse by the
Bank to actions such as realising available security. This
may be the case even if all the terms of the client's credit
facilities are currently being met; and
A credit obligation is sold at a material credit related
economic loss.
The Credit Portfolio Assurance unit, part of Group Audit and
Assurance, reviews credit portfolios and receives reports
covering business unit compliance with policies, portfolio
standards, application of credit risk ratings and other key
practices and policies on a regular basis. The Credit Portfolio
Assurance unit reports its findings to the Board Audit and Risk
Committees as appropriate.
Credit Risk Measurement
The measurement of credit risk uses analytical tools to calculate
both (i) expected and (ii) unexpected loss probabilities for the
credit portfolio. The use of analytical tools is governed by a
Credit Rating Governance Committee
reviews and
endorses the use of the tools prior to their implementation to
ensure they are sufficiently predictive of risk.
that
(i) Expected Loss
Expected loss is the product of:
Loss given default (LGD).
Probability of default (PD);
Exposure at default (EAD); and
•
•
•
For credit risk-rated facilities, EL is allocated within CRR bands.
All ratings are reviewed at least annually or as specified by the
Group Chief Risk Officer.
The PD, expressed as a percentage, is the estimate of the
probability that a client will default within the next twelve months.
It reflects a client's ability to generate sufficient cash flows into
the future to meet the terms of all its credit obligations with the
Group. When assessing a client's PD, all relevant and material
information is considered. The same PD is applied to all credit
facilities provided to a client.
EAD, expressed as a percentage of the facility limit, is the
proportion of a facility that may be outstanding in the event of
default. For committed facilities such as fully drawn loans and
advances this will generally be the higher of the limit or
outstanding balance. For uncommitted facilities this will generally
be the outstanding balance only.
LGD, expressed as a percentage, is the estimated proportion of
a facility likely to be lost in the event of default. LGD is impacted
by:
•
•
•
•
Type and level of any collateral held;
Liquidity and volatility of collateral;
Carrying costs (effectively the costs of providing a facility
that is not generating an interest return); and
Realisation costs (costs of internal workout specialists).
Commonwealth Bank of Australia Annual Report 2011
187
Notes to the Financial Statements
Loans for consumer purposes
The Group’s main collateral types may include: residential
mortgages, mortgages over other properties
(including
commercial and broad acre), or cash (usually in the form of a
charge over a deposit). In some instances (for example, credit
cards), a client’s facilities may not be secured by formal
collateral.
Loans for business purposes
The Group’s main collateral types may include: residential
mortgages, mortgages over other properties
(including
commercial and broad acre), cash (usually in the form of a
charge over a deposit), guarantees by company directors
supporting commercial lending, a charge over a company’s
assets (including debtors, stock and work in progress), or a
charge over stock or scrip. In some instances a client’s facilities
may not be secured by formal collateral.
Life insurance assets
These assets are carried at fair value which accounts for the
credit risk. Collateral is not generally sought or provided on
these types of assets other than a fixed charge over properties
backing Australian mortgage investments.
Due from subsidiaries
Collateral is not generally taken on these balances.
Note 39 Credit Risk (continued)
Various factors are considered when calculating PD, EAD and
LGD. Considerations include the potential for default by a
borrower due to economic, management, industry and other
risks and the mitigating benefits of any collateral.
(ii) Unexpected Loss
In addition to expected loss, a more stressed loss amount is
calculated. This unexpected loss estimate directly affects the
internal economic capital
calculation of
requirements (refer to Capital Management section and Note 31,
for information relating to regulatory and economic capital).
regulatory and
In addition to the credit risk management processes used to
manage exposures to credit risk in the credit portfolio, the
internal ratings process also assists management in assessing
impairment and provisioning of financial assets (refer to Note
14).
Credit Risk Mitigation, Collateral and Other Credit
Enhancements
Where it is considered appropriate, the Group has policies and
procedures in place setting out the circumstances where
acceptable and appropriate collateral is to be taken to mitigate
credit risk, including valuation parameters, review frequency and
independence of valuation.
The general nature of collateral that may be taken by financial
asset classes are summarised below.
Cash and Liquid Assets
With the exception of securities purchased under agreements to
resell which are approximately 100% collateralised by highly
liquid debt securities, collateral is usually not sought on these
balances as exposures are generally considered low risk.
Due from other financial institutions
Collateral is usually not sought on these balances as exposures
are generally considered to be of low risk.
Derivative financial assets
for
the
derivative
financial
Collateralisation
arrangements
instruments are governed by
International Swaps &
Derivatives Association (ISDA) Master Agreement and Credit
Support Annex and the Global Master Repurchase Agreement.
The ISDA Master Agreement is a close out netting agreement.
Other collateral may be sought where prudent, depending on
transaction characteristics and credit-worthiness of
the
counterparty.
Trading assets
These assets are carried at fair value which accounts for the
credit risk. Collateral is not generally sought from the issuer or
counterparty.
Other financial assets designated at fair value
These assets are carried at fair value which accounts for the
credit risk. Credit derivatives have not been used to mitigate the
exposure to credit risk. Collateral may be taken on loans and
advances and debt securities may include collateralisation
terms.
Available for sale securities
Collateral is not generally sought on these securities. However,
collateralisation may be implicit in the asset structure.
188
Commonwealth Bank of Australia Annual Report 2011
Notes to the Financial Statements
Note 39 Credit Risk (continued)
Maximum Exposure to Credit Risk by Industry and Asset Class before Collateral Held or Other Credit Enhancements
The below tables detail the concentration of credit exposure assets by significant geographical locations and counterparty types. Disclosures
do not take into account collateral held and other credit enhancements.
Bank
Other
Agri- & Other
Home
Constr-
Asset Comm &
Sovereign
culture Financial
Loans
uction Personal Financing
Indust.
Other
Total
$M
$M
$M
$M
$M
$M
$M
$M
$M
$M
Group
2011
Australia
Credit risk exposures relating to on balance sheet assets:
Cash and liquid assets
Receivables due from other
financial institutions
Assets at fair value through
Income Statement:
Trading
Insurance (1)
Other
Derivative assets
-
-
11,129
844
-
143
Available-for-sale investments
14,851
Loans, bills discounted
and other receivables (2)
Bank acceptances
Other assets (3)
Total on balance sheet
Australia
2,212
4
83
-
-
-
-
-
33
-
5,278
3,071
43
6,193
5,203
670
8,802
-
23,055
6,779
-
-
-
1,069
-
-
-
-
-
-
109
-
43
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,430
2,559
-
3,669
17,046
9,986
306,250
2,877
17,409
8,328
103,273
213
5,171
-
945
528
46
-
7
-
18
6,918
371
13,443
-
-
-
-
-
-
-
-
-
6,193
5,203
15,229
13,383
-
26,943
38,676
455,613
10,734
20,127
29,266
8,425
66,072
308,264
3,603
17,416
8,346
137,266
13,443
592,101
Credit risk exposures relating to off balance sheet assets:
Guarantees
Loan commitments
Other commitments
Total Australia
90
3,259
41
29
967
20
166
3,489
116
14
54,015
259
32,656
9,441
69,843
362,552
550
2,897
909
7,959
-
17,907
-
-
-
-
3,478
30,139
2,018
-
-
-
4,327
112,673
3,363
35,323
8,346
172,901
13,443
712,464
Overseas
Credit risk exposures relating to on balance sheet assets:
Cash and liquid assets
Receivables due from other
financial institutions
Assets at fair value through
Income Statement:
Trading
Insurance (1)
Other
Derivative assets
-
-
1,961
-
299
222
Available-for-sale investments
4,793
-
-
-
-
5
-
-
7,048
5,190
1,201
1,615
496
2,502
692
-
-
-
-
-
-
-
Loans, bills discounted
and other receivables (2)
Bank acceptances
Other assets (3)
Total on balance sheet
overseas
4,603
4,920
6,988
29,591
-
23
-
-
-
247
-
1
11,901
4,925
25,979
29,592
Credit risk exposures relating to off balance sheet assets:
Guarantees
Loan commitments
Other commitments
Total overseas
Total gross credit risk
-
4,341
31
16,273
48,929
-
367
1
3
289
-
-
3,370
-
5,293
14,734
26,271
96,114
32,962
395,514
-
-
-
-
-
-
-
322
-
1
323
13
154
2
492
8,451
-
-
-
-
3
-
-
-
-
-
-
-
-
-
-
-
2,078
-
21
650
1,010
559
1,256
3,489
-
-
-
-
-
62
-
-
-
-
-
-
-
-
-
7,048
5,190
5,240
1,615
824
3,374
6,495
51,728
-
1,234
1,568
562
1,256
7,310
1,234
83,082
-
1,164
-
1,726
37,049
-
-
-
119
5,649
268
-
-
-
135
15,334
302
1,256
9,602
13,346
1,234
98,853
186,247
14,677
811,317
(1) In most cases the credit risk of insurance assets is borne by policyholders. However, on certain insurance contracts the Group retains exposure to credit risk.
(2) Loans, bills discounted and other receivables is presented gross of provisions for impairment and unearned income on lease receivables in line with Note 13.
(3) Other assets predominantly comprises assets which do not give rise to credit exposure, including intangible assets, property, plant and equipment, and defined benefit
superannuation plan surplus, which are shown in “Other” for the purpose of reconciling to the Balance Sheet.
Commonwealth Bank of Australia Annual Report 2011
189
Notes to the Financial Statements
Note 39 Credit Risk (continued)
Maximum Exposure to Credit Risk by Industry and Asset Class before Collateral Held or Other Credit Enhancements
Bank
Other
Agri- & Other
Home
Constr-
Asset Comm &
Sovereign
culture Financial
Loans
uction Personal Financing
Indust.
Other
Total
$M
$M
$M
$M
$M
$M
$M
$M
$M
$M
Group
At 30 June 2010
-
-
-
-
-
-
-
-
-
6,343
5,355
16,060
14,277
-
22,679
28,264
444,946
11,569
19,565
Australia
Credit risk exposures relating to on balance sheet assets:
Cash and liquid assets
Receivables due from other
financial institutions
Assets at fair value through
Income Statement:
Trading
Insurance (1)
Other
Derivative assets
-
-
8,618
1,478
-
163
Available-for-sale investments
12,588
-
-
-
-
-
35
-
6,343
5,355
4,931
9,148
-
19,269
3,661
-
-
-
1,393
-
-
-
-
-
-
101
-
24
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,511
2,157
-
3,188
12,015
1,571
Loans, bills discounted
and other receivables (2)
Bank acceptances
Other assets (3)
Total on balance sheet
63,633
Australia
Credit risk exposures relating to off balance sheet assets:
24,428
3,090
5,158
8,322
9,221
5,442
263
39
5
5
292,140
3,438
15,979
8,621
108,818
-
4
529
40
-
14
-
13
7,682
378
13,630
293,537
4,132
15,993
8,634
136,749
13,630
569,058
Guarantees
Loan commitments
Other commitments
Total Australia
73
1,187
25
16
992
26
236
3,575
168
24
51,995
11
25,713
9,356
67,612
345,567
370
1,441
357
6,300
-
17,206
-
-
-
-
2,791
22,008
1,713
-
-
-
3,510
98,404
2,300
33,199
8,634
163,261
13,630
673,272
Overseas
Credit risk exposures relating to on balance sheet assets:
Cash and liquid assets
Receivables due from other
financial institutions
Assets at fair value through
Income Statement:
Trading
Insurance (1)
Other
Derivative assets
Available-for-sale investments
-
-
2,900
-
-
388
674
-
-
-
-
6
-
-
3,776
4,717
1,473
1,663
584
3,814
879
1,213
Loans, bills discounted
and other receivables (2)
Bank acceptances
Other assets (3)
Total on balance sheet
23,345
overseas
Credit risk exposures relating to off balance sheet assets:
5,456
5,450
5,187
6,344
12
95
-
-
-
-
Guarantees
Loan commitments
Other commitments
Total overseas
Total gross credit risk
15
247
45
-
469
-
2
233
-
5,494
31,207
5,925
15,281
23,580
91,192
34,964
380,531
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3
-
-
-
-
-
-
-
-
-
-
-
2,418
-
61
808
3,098
31,433
472
822
768
9,821
-
-
-
-
-
67
-
-
-
-
-
-
-
-
-
3,776
4,717
6,791
1,663
654
5,010
4,651
56,323
-
1,322
1,497
-
1
31,434
-
3,366
164
-
-
472
38
116
1
627
6,927
825
768
16,273
1,322
85,082
-
1,109
-
1,934
35,133
-
-
-
93
5,476
153
-
-
-
148
11,016
363
768
21,995
1,322
96,609
9,402
185,256
14,952
769,881
(1) In most cases the credit risk of insurance assets is borne by policyholders. However, on certain insurance contracts the Group retains exposure to credit risk.
(2) Loans, bills discounted and other receivables is presented gross of provisions for impairment and unearned income on lease receivables in line with Note 13.
(3) Other assets predominantly comprises assets which do not give rise to credit risk exposure, including intangible assets, property, plant and equipment, and defined benefit
superannuation plan surplus, which are shown in "Other" for the purpose of reconciling to the Balance Sheet.
190
Commonwealth Bank of Australia Annual Report 2011
Notes to the Financial Statements
Note 39 Credit Risk (continued)
Large Exposures
Concentrations of exposure to any debtor or counterparty group are controlled by a large credit exposure policy, which defines a
graduated limit framework that restricts credit limits based on the internally assessed risk of the client. All exposures outside the policy
require approval by the Executive Risk Committee and are reported to the Board Risk Committee.
The following table shows the aggregated number of the Group’s Corporate and Industrial counterparty exposures (including direct and
contingent exposures) which individually were greater than 5% of the Group’s capital resources (Tier One and Tier Two capital):
5% to less than 10% of the Group's capital resources
10% to less than 15% of the Group's capital resources
2011
Number
-
-
Group
2010
Number
-
-
The Group has a good quality and well diversified credit portfolio, with 60% of the gross loans and other receivables in domestic
mortgage loans and a further 6% in overseas mortgage loans primarily in New Zealand. Overseas loans account for 10% of loans and
advances.
The Group 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 are primarily used to manage the risk of derivative
transactions and off-balance sheet exposures. Balance Sheet assets and liabilities are usually settled on a gross basis.
The credit risk associated with favourable contracts 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. The offsets obtained by applying master netting
arrangements reduced the credit risk of the Group by approximately $10.2 billion as at 30 June 2011 (2010: $9.9 billion).
Derivative financial instruments expose the Group to credit risk where there is a positive current fair value. In the case of credit
derivatives, the Group is also exposed to or protected from the risk of default of the underlying entity referenced by the derivative. For
further information regarding derivatives see Note 11.
The Group also nets its credit exposure through the operation of certain consumer and corporate facilities that allow on balance sheet
netting for credit management purposes. On balance sheet netting reduced the credit risk of the Group by approximately $19 billion as
at 30 June 2011 (2010: $16 billion).
Commonwealth Bank of Australia Annual Report 2011
191
Notes to the Financial Statements
Note 39 Credit Risk (continued)
Distribution of Financial Assets by Credit Classification
When doubt arises as to the collectability of a credit facility, the financial instrument is classified and reported as individually impaired.
Provisions for impairment are raised where there is objective evidence of impairment and for an amount adequate to cover assessed
credit related losses. The Group regularly reviews its financial assets and monitors adherence to contractual terms. Credit risk-rated
portfolios are assessed, at least at each Balance Sheet date, to determine whether the financial asset or portfolio of assets is impaired.
The distribution of performing assets, past due assets, impaired assets and individually assessed provisions for impairment by type of
financial instrument at 30 June was:
Distribution of Financial Instruments by Credit Quality
Neither past
Past due
Impaired
due nor
but not
non-
Individually
assessed
impaired
impaired performing Restructured
Gross
provisions
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, bills discounted and other
receivables:
Australia
Overseas
Bank acceptances
Credit related commitments
$M
13,241
10,393
20,469
14,998
824
30,248
45,171
439,056
48,808
10,734
136,056
769,998
$M
$M
$M
-
-
-
-
-
-
-
-
-
-
-
-
69
-
12,060
2,267
-
-
4,459
464
-
78
14,327
5,070
-
-
-
-
-
-
-
38
189
-
-
227
$M
13,241
10,393
20,469
14,998
824
30,317
45,171
455,613
51,728
10,734
136,134
789,622
Group
2011
Net
$M
13,241
10,393
20,469
14,998
824
30,317
45,171
$M
-
-
-
-
-
-
-
(2,031)
(94)
-
-
(2,125)
453,582
51,634
10,734
136,134
787,497
Neither past
Past due
Impaired
due nor
but not
non-
Individually
assessed
impaired
impaired performing Restructured
Gross
provisions
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, bills discounted and other
receivables:
Australia
Overseas
Bank acceptances
Shares in and loans to controlled
entities
Credit related commitments
$M
10,979
10,123
17,765
-
300
30,663
75,699
371,573
8,410
10,734
47,357
118,143
701,746
$M
$M
$M
-
-
-
-
-
-
-
9,519
9
-
-
-
9,528
-
-
-
-
-
68
-
2,681
171
-
-
51
2,971
-
-
-
-
-
-
-
38
3
-
-
-
41
$M
10,979
10,123
17,765
-
300
30,731
75,699
383,811
8,593
10,734
47,357
118,194
714,286
$M
-
-
-
-
-
-
-
(1,050)
(31)
-
-
-
(1,081)
Bank
2011
Net
$M
10,979
10,123
17,765
-
300
30,731
75,699
382,761
8,562
10,734
47,357
118,194
713,205
192
Commonwealth Bank of Australia Annual Report 2011
Notes to the Financial Statements
Note 39 Credit Risk (continued)
Distribution of Financial Instruments by Credit Quality
Neither past
Past due
Impaired
due nor
but not
non-
Individually
assessed
impaired
impaired performing Restructured
Gross
provisions
$M
$M
$M
-
-
-
-
-
-
-
-
-
-
-
-
86
1
-
-
-
-
-
-
-
$M
10,119
10,072
22,851
15,940
654
27,689
32,915
$M
-
-
-
-
-
-
-
Group
2010
Net
$M
10,119
10,072
22,851
15,940
654
27,689
32,915
11,861
2,513
-
-
4,543
321
-
18
14,374
4,969
78
169
-
-
247
444,946
56,323
11,569
115,741
748,819
(1,915)
(77)
-
-
(1,992)
443,031
56,246
11,569
115,741
746,827
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, bills discounted and other
receivables:
Australia
Overseas
Bank acceptances
Credit related commitments
$M
10,119
10,072
22,851
15,940
654
27,603
32,914
428,464
53,320
11,569
115,723
729,229
Neither past
Past due
Impaired
due nor
but not
non-
Individually
assessed
impaired
impaired performing Restructured
Gross provisions
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, bills discounted and other
receivables:
Australia
Overseas
Bank acceptances
Shares in and loans to controlled
entities
Credit related commitments
$M
8,711
9,766
18,775
-
-
27,278
65,778
359,891
9,786
11,569
49,809
98,749
$M
$M
$M
-
-
-
-
-
-
-
9,346
5
-
-
-
-
-
-
-
-
85
1
2,455
39
-
-
18
-
-
-
-
-
-
-
78
38
-
-
-
$M
8,711
9,766
18,775
-
-
27,363
65,779
371,770
9,868
11,569
49,809
98,767
$M
-
-
-
-
-
-
-
(950)
(28)
-
-
-
Bank
2010
Net
$M
8,711
9,766
18,775
-
-
27,363
65,779
370,820
9,840
11,569
49,809
98,767
660,112
9,351
2,598
116
672,177
(978)
671,199
Commonwealth Bank of Australia Annual Report 2011
193
Notes to the Financial Statements
Note 39 Credit Risk (continued)
Financial Assets Individually Assessed as Impaired
Gross
Individually
2011
Net
Gross
Individually
Group
2010
Net
Impaired
Assessed
Impaired
Impaired
Assessed
Impaired
Assets
Provisions
Assets
Assets
Provisions
Assets
$M
$M
734
10
85
3,811
4,640
177
1
-
479
657
(202)
(11)
(37)
(1,781)
(2,031)
(25)
-
-
(69)
(94)
$M
532
(1)
48
2,030
2,609
152
1
-
410
563
$M
$M
671
15
81
3,959
4,726
165
4
-
321
490
(150)
(21)
(15)
(1,729)
(1,915)
(12)
-
-
(65)
(77)
$M
521
(6)
66
2,230
2,811
153
4
-
256
413
5,297
(2,125)
3,172
5,216
(1,992)
3,224
Gross
Individually
2011
Net
Gross
Individually
Bank
2010
Net
Impaired
Assessed
Impaired
Impaired
Assessed
Impaired
Assets
Provisions
Assets
Assets
Provisions
Assets
$M
639
7
54
2,135
2,835
-
-
-
177
177
$M
(157)
(9)
(34)
(850)
(1,050)
-
-
-
(31)
(31)
$M
482
(2)
20
1,285
1,785
-
-
-
146
146
$M
559
11
47
2,020
2,637
14
-
-
63
77
$M
(107)
(18)
(6)
(819)
(950)
-
-
-
(28)
(28)
$M
452
(7)
41
1,201
1,687
14
-
-
35
49
3,012
(1,081)
1,931
2,714
(978)
1,736
Australia
Home loans
Other personal
Asset financing
Other commercial and industrial
Financial assets individually assessed as
impaired - Australia
Overseas
Home loans
Personal
Asset financing
Other commercial and industrial
Financial assets individually assessed as
impaired - overseas
Total financial assets individually
assessed as impaired
Australia
Home loans
Other personal
Asset financing
Other commercial and industrial
Financial assets individually assessed as
impaired - Australia
Overseas
Home loans
Personal
Asset financing
Other commercial and industrial
Financial assets individually assessed as
impaired - overseas
Total financial assets individually
assessed as impaired
194
Commonwealth Bank of Australia Annual Report 2011
Notes to the Financial Statements
Note 39 Credit Risk (continued)
Distribution of Loans, Bills Discounted and Other Receivables by Impairment Status
The table below segregates the loans, bills discounted and other receivables into neither past due nor impaired, past due but not
impaired and impaired. An asset is considered to be past due when any payment under the contractual terms has been missed. The
amount included as past due is the entire contractual balance, rather than the overdue portion.
The split in the tables below does not reflect the basis by which the Group manages credit risk.
Distribution of loans by credit quality
Gross loans
Australia
Neither past due nor impaired
Past due but not impaired
Impaired
Total Australia
Overseas
Neither past due nor impaired
Past due but not impaired
Impaired
Total overseas
Total gross loans
2011
$M
Group
2010
$M
2011
$M
Bank
2010
$M
439,056
12,060
4,497
455,613
48,808
2,267
653
51,728
507,341
428,464
11,861
4,621
444,946
53,320
2,513
490
56,323
501,269
371,573
359,891
9,519
2,719
9,346
2,533
383,811
371,770
8,410
9
174
8,593
392,404
9,786
5
77
9,868
381,638
Commonwealth Bank of Australia Annual Report 2011
195
Notes to the Financial Statements
Note 39 Credit Risk (continued)
Credit Quality of Loans, Bills Discounted and Other Receivables Neither Past Due nor Impaired
For the analysis below, financial assets that are neither past due nor impaired have been segmented into investment, pass and weak
classifications. This segmentation of loans in retail and risk-rated portfolios is based on the mapping of a customer’s internally assessed
PD to Standard and Poor’s ratings, reflecting a client’s ability to meet their credit obligations. In particular, retail PD pools have been
aligned to the Group’s PD grades which are consistent with rating agency views of credit quality segmentation.
Investment grade is representative of lower assessed default probabilities with other classifications reflecting progressively higher
default risk. No consideration is given to LGD, the impact of any recoveries or the potential benefit of mortgage insurance.
Loans which were neither past due nor impaired
Credit grading
Australia
Investment
Pass
Weak
Total Australia
Overseas (1)
Investment
Pass
Weak
Total overseas
Total loans which were neither past due nor impaired
Credit grading
Australia
Investment
Pass
Weak
Total Australia
Overseas (1)
Investment
Pass
Weak
Total overseas
Total loans which were neither past due nor impaired
Group
2011
Other
Home
Asset
Commercial
Loans
Personal Financing and Industrial
Total
$M
$M
$M
$M
$M
193,991
90,989
11,730
296,710
3,266
23,914
428
27,608
324,318
2,991
11,539
1,798
16,328
63
268
11
342
16,670
499
7,462
155
8,116
282
911
15
1,208
9,324
70,012
42,826
5,064
117,902
13,546
5,728
376
19,650
137,552
Other
Home
Asset
Commercial
Loans
Personal Financing and Industrial
$M
$M
$M
$M
179,505
96,543
7,312
283,360
23,194
4,821
1,272
29,287
312,647
2,211
10,081
2,440
14,732
86
488
-
574
592
7,541
241
8,374
386
345
-
731
15,306
9,105
63,390
51,279
7,329
121,998
12,692
8,847
1,189
22,728
144,726
267,493
152,816
18,747
439,056
17,157
30,821
830
48,808
487,864
Group
2010
Total
$M
245,698
165,444
17,322
428,464
36,358
14,501
2,461
53,320
481,784
(1) For New Zealand Housing Loans, PDs reflect Reserve Bank of New Zealand requirements resulting in higher PDs on average and lower grading.
196
Commonwealth Bank of Australia Annual Report 2011
Note 39 Credit Risk (continued)
Loans which were neither past due nor impaired
Credit grading
Australia
Investment
Pass
Weak
Total Australia
Overseas
Investment
Pass
Weak
Total overseas
Total loans which were neither past due nor impaired
Credit grading
Australia
Investment
Pass
Weak
Total Australia
Overseas
Investment
Pass
Weak
Total overseas
Total loans which were neither past due nor impaired
Notes to the Financial Statements
Home
Asset
Commercial
Loans
Personal Financing and Industrial
$M
$M
$M
$M
Other
160,399
80,944
10,272
251,615
2,611
10,608
1,479
14,698
-
365
-
365
-
19
-
19
251,980
14,717
385
6,811
143
7,339
282
62
2
346
7,685
67,222
28,536
2,163
97,921
7,008
672
-
7,680
105,601
Other
Home
Asset
Commercial
Loans
Personal Financing and Industrial
$M
$M
$M
$M
151,753
83,687
5,994
1,967
9,098
2,092
241,434
13,157
-
348
25
373
-
141
-
141
241,807
13,298
407
6,377
201
6,985
372
34
-
406
7,391
60,975
35,162
2,178
98,315
7,280
1,514
72
8,866
Bank
2011
Total
$M
230,617
126,899
14,057
371,573
7,290
1,118
2
8,410
379,983
Bank
2010
Total
$M
215,102
134,324
10,465
359,891
7,652
2,037
97
9,786
107,181
369,677
Commonwealth Bank of Australia Annual Report 2011
197
Notes to the Financial Statements
Note 39 Credit Risk (continued)
Age Analysis of Loans, Bills Discounted and Other Receivables That Are Past Due But Not Impaired
For the purposes of this analysis an asset is considered to be past due when any payment under the contractual terms has been
missed.
Loans may be classed as Performing (that is, not impaired) even though contractual payments are past due where: (i) the Group has not
ascertained a doubt as to whether full amounts due will be received in a timely manner; (ii) if facilities are well secured; or (iii) where
matured facilities are in the process of renegotiation and remain otherwise performing.
It has not been practicable to determine the fair value of collateral held against these assets.
Loans which were past due but not impaired (1)
Australia
Past due 1 - 29 days
Past due 30 - 59 days
Past due 60 - 89 days
Past due 90 - 179 days
Past due 180 days or more
Total Australia
Overseas
Past due 1 - 29 days
Past due 30 - 59 days
Past due 60 - 89 days
Past due 90 - 179 days
Past due 180 days or more
Total overseas
Total loans which were past due but not impaired
Loans which were past due but not impaired (1)
Australia
Past due 1 - 29 days
Past due 30 - 59 days
Past due 60 - 89 days
Past due 90 - 179 days
Past due 180 days or more
Total Australia
Overseas
Past due 1 - 29 days
Past due 30 - 59 days
Past due 60 - 89 days
Past due 90 - 179 days
Past due 180 days or more
Total overseas
Total loans which were past due but not impaired
Group
2011
Other
Asset
Commercial
Personal
(2)
Financing and Industrial
Total
$M
$M
$M
$M
586
171
110
191
23
1,081
163
22
11
13
5
214
1,295
50
21
16
23
17
127
37
8
2
2
-
49
176
1,276
218
152
177
215
5,221
2,118
1,229
1,764
1,728
2,038
12,060
143
8
3
16
29
199
2,237
1,609
282
110
152
114
2,267
14,327
Group
2010
Other
Asset
Commercial
Personal
(2)
Financing and Industrial
Total
$M
$M
$M
$M
708
188
111
189
33
1,229
187
26
10
13
10
246
1,475
94
36
18
12
12
172
24
7
2
3
1
37
209
1,404
232
172
206
169
5,660
2,090
1,073
1,559
1,479
2,183
11,861
169
17
29
20
15
250
2,433
1,740
297
164
168
144
2,513
14,374
Home
Loans
$M
3,309
1,708
951
1,373
1,473
8,814
1,266
244
94
121
80
1,805
10,619
Home
Loans
$M
3,454
1,634
772
1,152
1,265
8,277
1,360
247
123
132
118
1,980
10,257
(1) Collateral held against past due Home Loans receivables comprises residential and other real estate with an estimated fair value of at least the amounts shown.
Personal receivables are generally unsecured. It has not been practicable to determine the fair value of collateral held against past due Asset Financing and Other
Commercial and Industrial receivables.
(2) Personal loans, credit cards and other personal financing balances are generally unsecured and written off at 180 days past due unless agreements have been made
with the debtor.
198
Commonwealth Bank of Australia Annual Report 2011
Note 39 Credit Risk (continued)
Loans which were past due but not impaired (1)
Australia
Past due 1 - 29 days
Past due 30 - 59 days
Past due 60 - 89 days
Past due 90 - 179 days
Past due 180 days or more
Total Australia
Overseas
Past due 1 - 29 days
Past due 30 - 59 days
Past due 60 - 89 days
Past due 90 - 179 days
Past due 180 days or more
Total overseas
Total loans which were past due but not impaired
Loans which were past due but not impaired (1)
Australia
Past due 1 - 29 days
Past due 30 - 59 days
Past due 60 - 89 days
Past due 90 - 179 days
Past due 180 days or more
Total Australia
Overseas
Past due 1 - 29 days
Past due 30 - 59 days
Past due 60 - 89 days
Past due 90 - 179 days
Past due 180 days or more
Total overseas
Total loans which were past due but not impaired
Notes to the Financial Statements
Bank
2011
Other
Home
Asset
Commercial
Loans Personal
(2)
Financing and Industrial
Total
$M
$M
$M
$M
$M
2,668
1,449
796
1,195
1,324
7,432
7
1
-
1
-
9
510
149
99
172
23
953
-
-
-
-
-
-
36
16
13
19
16
100
-
-
-
-
-
-
621
132
84
93
104
1,034
-
-
-
-
-
-
3,835
1,746
992
1,479
1,467
9,519
7
1
-
1
-
9
7,441
953
100
1,034
9,528
Bank
2010
Other
Home
Asset
Commercial
Loans Personal
(2)
Financing and Industrial
Total
$M
$M
$M
$M
$M
2,945
1,433
648
978
1,141
7,145
4
1
-
-
-
5
623
166
99
172
33
1,093
-
-
-
-
-
-
51
20
12
3
10
96
-
-
-
-
-
-
597
154
70
118
73
1,012
-
-
-
-
-
-
4,216
1,773
829
1,271
1,257
9,346
4
1
-
-
-
5
7,150
1,093
96
1,012
9,351
(1) Collateral held against past due Housing Loans receivables comprises residential and other real estate with an estimated fair value of at least the amounts shown.
Other personal receivables are generally unsecured. It has not been practicable to determine the fair value of collateral held against past due Asset Financing and
Other Commercial/ Industrial receivables.
(2) Personal loans, credit cards and other personal financing balances are generally unsecured and written off at 180 days past due unless agreements have been made
with the debtor.
Commonwealth Bank of Australia Annual Report 2011
199
Notes to the Financial Statements
Note 39 Credit Risk (continued)
Impaired Assets by Classification
Assets in credit risk-rated portfolios are assessed for objective evidence that the financial asset or portfolio of assets is impaired.
Impaired assets in the retail segment are those facilities that are not well secured and are past due 180 days or more.
Impaired assets are split into the following categories according to APRA’s prudential standards:
Non-Performing Facilities;
Restructured Facilities; and
•
•
•
Non-performing facilities are facilities against which an individually assessed provision for impairment has been raised and facilities
where loss of principal or interest is anticipated.
Assets Acquired Through Security Enforcement.
Restructured facilities are facilities where the original contractual terms have been modified due to financial difficulties of the borrower.
Interest on these facilities is taken to the Income Statement. Failure to comply fully with the modified terms will result in immediate
reclassification to non-performing.
Assets acquired through security enforcement include:
• Other Real Estate Owned, comprising real estate where the Group assumed ownership or foreclosed in settlement of a debt; and
• Other Assets Acquired Through Securities Enforcement, comprising assets other than real estate where the Group assumed
ownership or foreclosed in settlement of a debt.
Assets acquired through security enforcement are sold through the Group’s existing disposal processes. These are generally expected
to take no longer than six months.
The Group does not manage credit risk based solely on arrears categorisation, but also uses credit risk rating principles as described
earlier in this note.
2011
$M
2010
$M
2009
$M
Group
2008
2007
$M
$M
4,602
(2,031)
2,571
4,648
(1,915)
2,733
3,514
(1,560)
1,954
620
(248)
372
398
(86)
312
38
-
38
-
-
-
78
-
78
-
-
-
119
-
119
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,609
2,811
2,073
372
312
468
(94)
374
189
-
189
-
-
-
563
3,172
321
(77)
244
169
-
169
-
-
-
413
3,224
407
(169)
238
170
-
170
-
-
-
408
2,481
63
(31)
32
23
(14)
9
-
-
-
-
-
-
-
-
-
-
-
-
32
404
9
321
Australia
Non-Performing assets:
Gross balances
Less provisions for impairment
Net non-performing assets
Restructured assets:
Gross balances
Less provisions for impairment
Net restructured assets
Assets Acquired Through Security Enforcement:
Gross balances
Less provisions for impairment
Net assets acquired through security enforcement
Net Australia impaired assets
Overseas
Non-Performing assets:
Gross balances
Less provisions for impairment
Net non-performing assets
Restructured assets:
Gross balances
Less provisions for impairment
Net restructured assets
Assets Acquired Through Security Enforcement:
Gross balances
Less provisions for impairment
Net assets acquired through security enforcement
Net overseas impaired assets
Total net impaired assets
200
Commonwealth Bank of Australia Annual Report 2011
Notes to the Financial Statements
Note 39 Credit Risk (continued)
Australia
Overseas
Total
Australia
Overseas
2011
2011
2011
2010
2010
Impaired assets by size
Less than $1 million
$1 million to $10 million
Greater than $10 million
Total
$M
747
1,415
2,478
4,640
Movement in gross impaired assets
Gross impaired assets - opening balance
Acquisitions
New and increased
Balances written off
Returned to performing or repaid
Gross impaired assets - closing balance
$M
41
129
487
657
2011
$M
5,216
-
4,619
(1,798)
(2,740)
5,297
$M
788
1,544
2,965
5,297
2010
$M
4,210
-
5,455
(1,904)
(2,545)
5,216
$M
692
1,425
2,609
4,726
$M
40
148
302
490
2009
2008
$M
683
770
4,374
(1,056)
(561)
4,210
$M
421
-
1,104
(470)
(372)
683
Group
Total
2010
$M
732
1,573
2,911
5,216
Group
2007
$M
326
-
928
(482)
(351)
421
Commonwealth Bank of Australia Annual Report 2011
201
Notes to the Financial Statements
Note 39 Credit Risk (continued)
Impaired Loans by Industry and Status
Gross
Individually
Net
Impaired
Assessed
Impaired
Group
2011
Net
Loans
Loans
Provisions
Loans Write-offs Recoveries Write-offs
$M
$M
$M
2,212
5,278
9,986
306,250
2,877
17,409
8,328
103,273
455,613
4,603
4,920
6,988
29,591
322
559
1,256
3,489
51,728
507,341
-
191
387
734
233
10
85
2,857
4,497
-
123
59
177
-
1
-
293
653
5,150
-
(87)
(254)
(202)
(133)
(11)
(37)
(1,307)
(2,031)
-
(11)
(1)
(25)
-
-
-
(57)
(94)
(2,125)
$M
-
104
133
532
100
(1)
48
1,550
2,466
-
112
58
152
-
1
-
236
559
3,025
Gross
Individually
Net
Impaired
Assessed
Impaired
$M
$M
$M
-
10
107
84
89
567
26
989
1,872
-
17
1
26
1
22
-
36
103
1,975
-
-
(3)
(43)
-
(134)
(2)
(17)
(199)
-
-
-
-
-
(7)
-
-
(7)
(206)
-
10
104
41
89
433
24
972
1,673
-
17
1
26
1
15
-
36
96
1,769
Group
2010
Net
Loans
Loans
Provisions
Loans Write-offs Recoveries Write-offs
$M
$M
$M
1,571
5,158
9,221
292,140
3,438
15,979
8,621
108,818
444,946
1,213
5,450
6,344
31,433
472
822
768
9,821
56,323
501,269
-
222
414
671
271
15
81
2,947
4,621
-
193
4
165
-
4
-
124
490
5,111
-
(75)
(254)
(150)
(132)
(21)
(15)
(1,268)
(1,915)
-
(15)
(1)
(12)
-
-
-
(49)
(77)
(1,992)
$M
-
147
160
521
139
(6)
66
1,679
2,706
-
178
3
153
-
4
-
75
413
3,119
$M
$M
$M
-
10
383
95
72
651
72
604
1,887
-
7
50
25
-
18
-
86
186
2,073
-
-
-
(3)
-
(59)
(3)
(5)
(70)
-
-
-
-
-
(6)
-
(1)
(7)
(77)
-
10
383
92
72
592
69
599
1,817
-
7
50
25
-
12
-
85
179
1,996
Industry
Australia
Sovereign
Agriculture
Bank and other financial
Home loans
Construction
Personal
Asset Financing
Other commercial and industrial
Total Australia
Overseas
Sovereign
Agriculture
Bank and other financial
Home loans
Construction
Personal
Asset Financing
Other commercial and industrial
Total overseas
Gross balances
Industry
Australia
Sovereign
Agriculture
Bank and other financial
Home Loans
Construction
Personal
Asset Financing
Other commercial and industrial
Total Australia
Overseas
Sovereign
Agriculture
Bank and other financial
Home Loans
Construction
Personal
Asset Financing
Other commercial and industrial
Total overseas
Gross balances
202
Commonwealth Bank of Australia Annual Report 2011
Notes to the Financial Statements
Note 40 Market Risk
Market Risk
Market risk is the potential of loss arising from adverse changes
in interest rates, foreign exchange rates, commodity and equity
prices, credit spreads, lease residual values, and implied
volatility levels. Market risk also includes risks associated with
funding and liquidity management.
For the purposes of market risk management, the Group makes
a distinction between Traded and Non-Traded Market Risks.
Traded Market Risks principally arise from the Group’s trading
book activities within the Institutional Banking and Markets
business, ASB and Bankwest.
The predominant Non-Traded Market Risk is Interest Rate Risk
in the Banking Book (IRRBB). Other Non-Traded Market Risks
are liquidity risk, funding risk, structural foreign exchange risk
arising from capital investments in offshore operations, Non-
Traded Equity Risk, market risk arising from the insurance
business and lease residual value risk.
Total Market Risk
VaR (1 day 97.5%
confidence)
Traded Market Risk
Non-Traded Interest
Rate Risk (1)
Non-Traded Equity
Risk (1)
Non-Traded Insurance
Market Risk (1)
Average
(2)
June
2011
$M
As at Average
June
June
(2)
2011
$M
12.0
10.2
2010
$M
12.2
As at
June
2010
$M
13.7
28.3
32.6
22.0
40.8
23.0
15.0
34.8
31.5
10.3
9.6
7.1
8.5
(1) The risk on these exposures has been represented in this table using a 1 day
holding period. In practice however, these ‘non-traded’ exposures are
managed to a longer expected holding period.
(2) Average VaR calculated for each twelve month period.
Traded Market Risk
The Group’s assessment of regulatory capital required under the
new Basel II framework is discussed in Note 31. Liquidity and
funding risks are discussed in Note 41.
The Group trades and distributes financial markets products and
provides risk management services to customers on a global
basis.
Market Risk Measurement
The Group uses Value-at-Risk (VaR) as one of the measures of
Traded and Non-Traded Market Risk. VaR measures potential
loss using historically observed market volatility and correlation
between different markets. The VaR measured for Traded
Market Risk uses two years of daily market movements. The
VaR measure for Non-Traded Banking Book Market Risk is
based on six years of daily market movement history.
VaR is modelled at a 97.5% confidence level over a 1 day
holding period for trading book positions and over a 20 day
holding period for IRRBB, insurance business market risk and
Non-Traded Equity Risk.
The stress events considered for Traded Market Risk are
extreme but plausible market movements, and have been back-
tested against moves seen during 2008 and 2009 at the height
of the GFC. The results are reported to the Risk Committee and
the Group ALCO on a regular basis. Stress tests also include a
range of forward looking macro scenario stresses.
It should be noted that because VaR is driven by actual historical
observations, it is not an estimate of the maximum loss that the
Group could experience from an extreme market event. As a
result of this limitation, management also uses stress testing to
measure the potential for economic loss at significantly higher
confidence levels than 97.5%. Management then uses the
results in decisions made to manage the economic impact of
market risk positions.
The following table provides a summary of VaR, across the
Group, for those market risk types where it is appropriate to use
this measure.
The objectives of the Group’s financial markets activities are to:
•
•
•
Provide risk management capital market products and
services to 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, capital market and risk management instruments,
including a broad range of securities and derivatives.
interest
The Group is a participant in all major markets across foreign
exchange and
rate products, debt, equity and
commodities products as required to provide treasury, capital
markets and
institutional,
risk management services
corporate, middle market and retail customers.
to
Income is earned from spreads achieved through market making
and from taking market risk. Trading positions are valued at fair
value and taken to profit and loss on a mark-to-market basis.
Market liquidity risk is controlled by concentrating trading activity
in highly liquid markets.
Trading assets at fair value through the Income Statement are in
Note 10. Trading liabilities at fair value through the Income
Statement are in Note 21. Note 2 details the income contribution
of trading activities to the income of the Group.
The Group measures and manages Traded Market Risk through
a combination of VaR and stress test limits, together with other
key controls including permitted instruments, sensitivity limits
and term restrictions. Thus Traded Market Risk is managed
under a clearly defined risk appetite within the market risk policy
and limit structure approved by the Risk Committee of the
Board. Risk is monitored by an independent Market Risk
Management function.
Commonwealth Bank of Australia Annual Report 2011
203
Notes to the Financial Statements
Note 40 Market Risk (continued)
The following table provides a summary of VaR for the trading
book of the Group. The VaR for ASB and Bankwest is shown
separately; all other data relates to the Group and is split by risk
type.
Traded Market Risk
Average
(1)
June
As at Average
June
June June
(1) As at
VaR (1 day 97.5%
2011
2011
2010
2010
confidence)
Interest rate risk
Exchange rate risk
Implied volatility risk
Equities risk
Commodities risk
Credit spread risk
$M
$M
$M
$M
5.5
1.9
2.0
1.3
1.2
3.3
2.8
1.7
1.0
1.9
1.3
2.8
4.3
1.6
1.5
1.6
0.8
4.3
5.6
3.1
1.9
1.5
0.7
3.6
Diversification benefit
(8.1)
(6.9)
(7.3)
(8.3)
Total general market risk
Undiversified risk
ASB Bank
Bankwest
Total
7.1
3.3
1.5
0.1
4.6
4.3
1.2
0.1
6.8
3.6
1.6
0.2
8.1
3.6
1.9
0.1
12.0
10.2
12.2
13.7
(1) Average VaR calculated for each twelve month period.
Non-Traded Market Risk
Non-traded market risk activities are governed by the Group
market risk framework approved by the Risk Committee. The
Group market risk framework governs all the activities performed
in relation to Non-Traded Market Risk. Implementation of the
policy, procedures and limits for the Group is the responsibility of
the Group Executive undertaking activities with Non-Traded
risk
Market Risk. The Group’s Risk division performs
measurement and monitoring activities of Non-Traded Market
Risk. Ownership and management responsibility for CBA
domestic operations are assumed by Group Treasury.
Management actions conventionally include hedging activities
using a range of policy approved derivative instruments.
Independent management of the Non-Traded Market Risk
activities of offshore banking subsidiaries is delegated to the
CEO of each entity, with oversight by the local ALCO. Senior
management oversight is provided by the Group’s ALCO.
Interest Rate Risk in the Banking Book
Interest rate risk is the current and prospective impact to the
Group’s financial condition due to adverse changes in interest
rates to which the Group’s Balance Sheet is exposed. Maturity
transformation activities of the Group result in mismatched
assets and liabilities positions which direct that the propensity,
timing and quantum of interest rate movements have undesired
outcomes over both the short term and long term. The Group’s
objective is to manage interest rate risk to achieve stable and
sustainable net interest income in the long term.
The Group measures and manages the impact of interest rate
risk in two ways:
(a) Next 12 months’ earnings
Interest rate risk from an earnings perspective is the impact
based on changes to the net interest income over the next 12
months.
The risk to net interest income over the next 12 months from
changes in interest rates is measured on a monthly basis.
Earnings risk is measured through sensitivity analysis, which
applies an
instantaneous 100 basis point parallel shock
(increase) in interest rates across the yield curve.
204
Commonwealth Bank of Australia Annual Report 2011
The prospective change to the net interest income is measured
by using an Asset/Liability Management simulation model which
incorporates both existing and anticipated new business in its
assessment. The change in the balance sheet product mix,
growth, funding and pricing strategies is incorporated. Assets
and liabilities that reprice directly from observable market rates
are measured based on the full extent of the rate shock that is
applied.
Products that are priced based on Group administered or
discretionary interest rates and that are impacted by customer
behaviour are measured by taking into consideration the historic
repricing strategy of the Bank and repricing behaviours of
customers. In addition to considering how the products have
repriced in the past the expected change in price based on both
the current and anticipated competitive market forces are also
considered in the sensitivity analyses.
The figures in the following table represent the potential
unfavourable change to the Group’s net interest earnings during
the year based on a 100 basis point parallel rate shock
(decrease).
Net Interest
Earnings at Risk
Average monthly exposure
High monthly exposure
Low monthly exposure
As at balance date
June
2011
$M
162.9
9.3
241.2
26.1
74.3
1.1
175.6
26.1
June
2010
$M
186.6
5.6
299.9
12.6
72.1
1.5
162.9
12.6
AUD
NZD
AUD
NZD
AUD
NZD
AUD
NZD
(b) Economic Value
Interest rate risk from the economic value perspective is based
on a 20 day 97.5% VaR measure.
Measuring the change in the economic value of equity is an
assessment of the long term impact to the earnings potential of
the Group present valued to the current date. The Group
assesses the potential change in its economic value of equity
through the application of the VaR methodology. A 20 day
97.5% VaR measure is used to capture the net economic value
impact over the long term or total life of all balance sheet assets
and liabilities to adverse changes in interest rates. The impact of
customer prepayments on the contractual cash flows for fixed
rate products is included in the calculation. Cash flows for
discretionary priced products are behaviourally adjusted and
repriced at the resultant profile.
The figures in the following table represent the net present value
of the expected change in the Group’s future earnings in all
future periods for the remaining term of all existing assets and
liabilities.
Non-Traded Interest Rate VaR
(20 day 97.5% confidence)
AUD Interest rate risk
NZD Interest rate risk (3)
(2)
Average
(1)
Average
(1)
June
2011
$M
126.7
1.7
June
2010
$M
74.4
2.5
(1) Average VaR calculated for each twelve month period.
(2) VaR is only for entities that have material risk exposure.
(3) ASB data (expressed in NZD) is for the month-end date.
Note 40 Market Risk (continued)
Non-Traded Equity Risk
The Group retains Non-Traded Equity Risk through strategic
investments and business development activities in divisions
including IB&M, and Wealth Management. This activity is subject
to governance arrangements approved by the Risk Committee
of the Board, and is monitored on a centralised basis within the
Market Risk Management (MRM) function. An indicative VaR
measure is as follows:
Non-Traded Equity VaR
(20 day 97.5% confidence)
VaR
As at
June
2011
$M
67.0
As at
June
2010
$M
140.0
Market Risk in Insurance Businesses
Modest in the broader Group context, a significant component of
Non-Traded Market Risk activities result from the holding of
assets related to the Life Insurance businesses. There are two
main sources of market risk in these businesses: (i) market risk
arising from guarantees made to policyholders; and (ii) market
risk arising from the investment of Shareholders’ capital.
A second order market risk also arises for the Group from assets
held for investment linked policies. On this type of contract the
policyholder takes the risk of falls in the market value of the
assets. However, falls in market value also impact funds under
management and reduce the fee income collected for this class
of business.
Guarantees (to Policyholders)
life
insurance or
All financial assets within the Life Insurance Statutory Funds
directly support either
life
the Group's
investment contracts. Market risk arises for the Group on
contracts where the liabilities to policyholders are guaranteed by
the Group. The Group manages this risk by the monthly
monitoring and rebalancing of assets to contract liabilities.
However, for some contracts the ability to match asset
characteristics with policy obligations is constrained by a number
of factors including regulatory requirements or the lack of
investments that substantially align cash flows with the cash
payments to be made to policyholders.
Shareholders’ Capital
A portion of financial assets held within the Insurance business,
both within the Statutory Funds and in the Shareholder Funds of
the Life Insurance company represents shareholder (Group)
capital. Market risk also arises for the Group on the investment
of this capital. Shareholders’ funds in the Australian Life
Insurance businesses are invested 81% in income assets (cash
and fixed interest) and 19% in growth assets (shares and
property) as at 30 June 2011.
Notes to the Financial Statements
A 20 day 97.5% VaR measure is used to capture the Non-
Traded Market Risk exposures.
Non-Traded VaR in Australian
Life Insurance Business
(20 day 97.5% confidence)
Shareholder funds (2)
Guarantees (to Policyholders) (3)
Average
(1)
Average
(1)
June
2011
$M
27.3
43.7
June
2010
$M
25.3
23.6
(1) Average VaR calculated for each twelve month period.
(2) VaR in relation to the investment of shareholder funds.
(3) VaR in relation to product portfolios where the Group has a guaranteed
liability to policyholders.
Further information on the Life Insurance Business can be found
in Note 33.
Structural Foreign Exchange Risk
Structural Foreign Exchange Risk is the risk that movements in
foreign exchange rates may have an adverse effect on the
Group’s Australian dollar earnings and economic value when the
Group’s foreign currency denominated earnings and capital are
translated into Australian dollars. The Group’s only material
exposure to this risk arises from its New Zealand banking and
insurance subsidiaries. This risk is managed in accordance with
the following Risk Committee of the Board approved principles:
•
•
Permanently deployed capital in a foreign jurisdiction is not
hedged; and
Forecast earnings from the Group’s New Zealand banking
and insurance subsidiaries are hedged.
The management of structural foreign exchange risk is regularly
reported to the Group’s ALCO.
Lease Residual Value Risk
The Group takes Lease Residual Value Risk on assets such as
industrial, mining, rail, aircraft, marine technology, healthcare
and other equipment. A lease residual value guarantee exposes
the business to the movement in second-hand asset prices. The
Lease Residual Value Risk within the Group is controlled
through a risk management framework approved by the Risk
Committee of the Board. Supporting this framework is an
internal Market Risk Standard document which has a risk limit
framework which includes asset, geographic and maturity
concentration limits and stress testing which is performed by the
MRM function.
Officer Superannuation Fund
is
(OSF)
The Officers Superannuation Fund
the staff
superannuation fund for the Group’s Australian employees and
former employees. Wealth Risk Management and Human
Resources manage the risks of the OSF on behalf of the Group.
Regular reporting is provided to senior management via the
CBA Asset and Liability Committee and the Board Risk
Committee on the status of the surplus, risk sensitivities and risk
management options. For further information on the OSF, refer
to Note 42.
Commonwealth Bank of Australia Annual Report 2011
205
Notes to the Financial Statements
Liquidity and Funding Policies and Management
The Group’s liquidity and funding policies provide that:
•
•
•
•
•
•
long
funding
term wholesale
Balance sheet assets that cannot be liquidated quickly are
funded with deposits or term borrowings that meet
minimum maturity requirements with appropriate liquidity
buffers;
Short and
limits are
established and reviewed regularly based on surveys and
analysis of market capacity;
A minimum level of assets are retained in highly liquid form;
The level of liquid assets: complies with crisis scenario
assumptions related to “worst case” wholesale and retail
market conditions; is adequate to meet known funding
obligations over certain timeframes; and are allocated
across Australian dollar and foreign currency denominated
securities in accordance with specific calculations;
Certain levels of liquid assets are held to provide for the
risk of the Group’s committed but undrawn lending
obligations being drawn by customers, as calculated based
on draw down estimates and forecasts;
levels of
The Group maintains certain
liquid asset
categories within its liquid assets portfolio. The first
category includes negotiable certificates of deposit of
Australian banks, bank bills, Commonwealth of Australia
Government and Australian state and semi-government
bonds and supra-national bonds eligible for repurchase by
the RBA at any time. The second category is AAA and A-
1+ rated Australian residential mortgage backed securities
that meet certain minimum requirements; and
• Offshore branches and subsidiaries adhere to liquidity
policies and hold appropriate foreign currency liquid assets
as required. All securities are eligible for repurchase by the
relevant local central bank at any time.
The Group’s key liquidity tools include:
•
•
•
•
A liquidity management model similar to a “cash flow
ladder” or “maturity gap analysis”, that allows forecasting of
liquidity needs on a daily basis;
An additional liquidity management model that implements
the agreed prudential liquidity policies. This model is
calibrated with a series of “worst case” liquidity crisis
scenarios, incorporating both systemic and “name” crisis
assumptions, such that the Group will have sufficient liquid
assets available to ensure it meets all of its obligations as
and when they fall due;
The RBA’s repurchase agreement facilities provide the
Group with the ability to borrow funds on a secured basis,
even when normal funding markets are unavailable; and
The Group’s various short term funding programmes are
supplemented by
Interbank Deposit Agreement
between the four major Australian banks. This agreement
is similar to a standby liquidity facility that allows the Group
to access funding in various crisis circumstances.
the
Note 41 Liquidity and Funding Risk
Overview
The Group’s liquidity and funding policies are designed to
ensure it will meet its obligations as and when they fall due, by
ensuring it is able to borrow funds on an unsecured basis, or has
sufficient quality assets to borrow against on a secured basis, or
has sufficient quality liquid assets to sell to raise immediate
funds without adversely affecting the Group’s net asset value.
The Group’s funding policies and risk management framework
are designed to complement the Group’s liquidity policies by
providing for an optimal liability structure to finance the Group’s
businesses. The long-term stability and security of the Group’s
funding is also designed to protect its liquidity position in the
event of a crisis specific to the Group.
The Group’s liquidity policies are designed to ensure it maintains
sufficient cash balances and liquid asset holdings to meet its
obligations to customers, in both ordinary market conditions and
during periods of extreme stress. These policies are intended to
protect the value of the Group’s operations across its Retail
Banking Services, Business and Private Banking, Institutional
Banking and Markets, Wealth Management, Bankwest, and
Asian businesses, during periods of unfavourable market
conditions.
The Group’s funding policies are designed to achieve diversified
sources of funding by product, term, maturity date, investor type,
investor location, jurisdiction, currency and concentration, on a
cost effective basis. This objective applies to the Group’s
wholesale and retail funding activities.
The Risk Management Framework for Liquidity and
Funding
The Group’s liquidity and funding policies are approved by the
Board and agreed with APRA. The Group has an Asset and
Liability Committee whose charter includes reviewing the
management of assets and liabilities, reviewing liquidity and
funding policies and strategies, as well as regularly monitoring
compliance with those policies across the Group. The Group
Treasury division manages the Group’s liquidity and funding
positions in accordance with the Group’s liquidity policy,
including monitoring and satisfying the liquidity needs of the
Group and its subsidiaries.
Larger domestic subsidiaries, such as Bankwest and
subsidiaries within the Colonial Group, also apply their own
liquidity and funding methods to address their specific needs.
The Group’s New Zealand banking subsidiary ASB, manages its
own domestic liquidity and funding needs in accordance with its
own liquidity policies and the policies of the Group. ASB’s
liquidity policy is also overseen by the RBNZ. The Group also
has a relatively small banking subsidiary in Indonesia that
manages its own liquidity and funding on a similar basis.
The Group’s Financial Services and Risk Management divisions
provide prudential oversight of the Group’s liquidity and funding
risk and manage the Group’s relationship with prudential
regulators.
206
Commonwealth Bank of Australia Annual Report 2011
Notes to the Financial Statements
Note 41 Liquidity and Funding Risk (continued)
The Group’s key funding tools include:
•
•
•
Its consumer retail funding base includes a wide range of
retail transaction accounts, investment accounts, term
deposits and retirement style accounts for individual
consumers;
Its customer small business and institutional deposit base;
and
international and domestic
funding
Its wholesale
programmes which include it’s Australian dollar Negotiable
Certificates of Deposit; Australian dollar bank bills; Asian
Transferable Certificates
programme;
Australian, U.S. and Euro Commercial Paper programmes;
Bankwest Euro Commercial Paper programme; U.S.
Extendible Notes programmes; Australian dollar Domestic
Debt Programme; U.S. Medium Term Note Programme;
Euro Medium Term Note Programme; and its Medallion
and Swan securitisation programmes.
of Deposit
At 30 June 2011 virtually all of the Group’s Australian dollar
liquid assets qualified for repurchase by the RBA at any time.
Recent Market Environment
The incremental cost of wholesale funding has been generally
stable over the last financial year but remains high. The Group
has managed its debt portfolio to avoid concentrations such as
dependence on single sources of funding, by type or by investor,
and has continued to maintain a diversified funding base and
the domestic and global
in
significant
unsecured and secured debt markets.
funding capacity
The final impact of new liquidity and funding regulations on the
Group is still uncertain though it is likely that they will require
increased long term debt issuance and higher holdings of liquid
assets. The Group continues to monitor developments in this
area and will update its liquidity and funding policies as
appropriate.
Details of the Group’s regulatory capital position and capital
management activities are disclosed in Note 31.
Commonwealth Bank of Australia Annual Report 2011
207
Notes to the Financial Statements
Note 41 Liquidity and Funding Risk (continued)
Maturity Analysis of Monetary Liabilities
Amounts shown in the tables below are based on contractual undiscounted cash flows for the remaining contractual maturities.
Maturity Period as at 30 June 2011
Group
0 to 3
3 to 12
At Call months months
$M
$M
$M
1 to 5
years
$M
Over 5
Not
years Specified
Total
$M
$M
$M
Monetary liabilities
Deposits and other public borrowings (1)
Payables due to other financial institutions
Liabilities at fair value through Income Statement
Derivative liabilities (2) (3)
Bank acceptances
Insurance policy liabilities
Debt issues and loan capital
Managed funds units on issue
Other monetary liabilities
Total monetary liabilities
Guarantees (4)
Loan commitments (4)
Other commitments (4)
Total off balance sheet items
Total monetary liabilities and off balance sheet
items
2,650
-
-
-
-
-
-
190,378
128,159
70,577
16,821
13,038
5,498
34,984
10,632
-
241
1,032
5,014
102
-
1
3,044
11,030
-
-
525
-
1,023
1,549
-
-
-
-
-
-
-
13,652
406,460
15,930
10,597
52,577
10,734
13,652
28,841
27,688
63,446
35,695
-
155,670
-
-
95
4,617
1,997
-
371
-
-
1,048
284
1,048
7,364
193,123
225,769
106,651
94,713
38,792
14,984
674,032
-
-
-
-
4,462
128,007
3,665
136,134
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4,462
128,007
3,665
136,134
193,123
361,903
106,651
94,713
38,792
14,984
810,166
(1) Includes deposits that are contractually at call customer savings and cheque accounts. Historical experience is that such accounts provide a stable source of long
term funding for the Group.
(2) Gross payable amounts on cross currency swaps have been reported in derivative liabilities. The Group has corresponding receivables on these cross currency
swaps that have not been reported, in accordance with the requirements of AASB 7 ‘Financial Instruments: Disclosures’. The terms of the cross currency swap
agreements entered into by the Group allow for net settlement in the event of certain specific circumstances including default of the counterparties.
(3) All trading derivatives are included in the 0 to 3 months maturity band.
(4) All off balance sheet items are included in the 0 to 3 month maturity band to reflect their earliest possible maturity.
Maturity Period as at 30 June 2010
Group
0 to 3
3 to 12
At Call months months
$M
$M
$M
1 to 5
years
$M
Over 5
Not
years Specified
Total
$M
$M
$M
Monetary liabilities
Deposits and other public borrowings (1)
Payables due to other financial institutions
Liabilities at fair value through Income Statement
Derivative liabilities (2) (3)
Bank acceptances
Insurance policy liabilities
Debt issues and loan capital
Managed funds units on issue
Other monetary liabilities
Total monetary liabilities
Guarantees (4)
Loan commitments (4)
Other commitments (4)
Total off balance sheet items
Total monetary liabilities and off balance sheet
items
180,302
123,073
58,414
17,420
3,618
-
-
-
-
-
-
7,571
6,528
25,906
11,360
-
1,376
4,671
536
209
-
68
3,212
2,426
-
-
29,071
25,561
75,895
36,089
-
345
-
-
384
-
1,644
3,733
-
-
-
-
-
-
-
14,592
-
880
405
379,593
12,633
16,055
32,601
11,569
14,592
166,616
880
7,074
-
157
3,938
184,077
207,447
-
-
-
-
3,658
109,420
2,663
115,741
-
2,229
92,996
-
-
-
-
99,366
41,850
15,877
641,613
-
-
-
-
-
-
-
-
-
-
-
-
3,658
109,420
2,663
115,741
184,077
323,188
92,996
99,366
41,850
15,877
757,354
(1) Includes deposits that are contractually at call customer savings and cheque accounts. Historical experience is that such accounts provide a stable source of long
term funding for the Group.
(2) Gross payable amounts on cross currency swaps have been reported in derivative liabilities. The Group has corresponding receivables on these cross currency
swaps that have not been reported, in accordance with the requirements of AASB 7 Financial Instruments Disclosures. The terms of the cross currency swap
agreements entered into by the Group allow for net settlement in the event of certain specific circumstances including default of the counterparties.
(3) All trading derivatives are included in the 0 to 3 months maturity band.
(4) All off balance sheet items are included in the 0 to 3 month maturity band to reflect their earliest possible maturity.
208
Commonwealth Bank of Australia Annual Report 2011
Notes to the Financial Statements
Note 41 Liquidity and Funding Risk (continued)
Amounts shown in the tables below are based on contractual undiscounted cash flows for the remaining contractual maturities.
Maturity Period as at 30 June 2011
Bank
0 to 3
3 to 12
At Call months months
$M
$M
$M
1 to 5
years
$M
Over 5
Not
years Specified
Total
$M
$M
$M
Monetary liabilities
Deposits and other public borrowings (1)
Payables due to other financial institutions
Liabilities at fair value through Income Statement
Derivative liabilities (2) (3)
Bank acceptances
Debt issues and loan capital
Due to controlled entities
Other monetary liabilities
Total monetary liabilities
Guarantees (4)
Loan commitments (4)
Other commitments (4)
Total off balance sheet items
Total monetary liabilities and off balance sheet
items
161,863
103,335
56,774
15,042
2,453
13,021
-
-
-
-
2,938
62
280
32,822
10,632
21,890
2,834
3,531
241
353
2,174
102
21,517
2,034
3,401
1
2,922
10,331
-
51,364
6,156
71
543
-
1,416
1,388
-
32,350
38,392
-
167,316
188,345
86,596
85,887
74,089
-
-
-
-
3,719
111,682
2,793
118,194
-
-
-
-
-
-
-
-
-
-
-
-
167,316
306,539
86,596
85,887
74,089
-
-
-
-
-
-
-
2
2
-
-
-
-
2
337,557
15,716
4,971
46,715
10,734
127,121
52,354
7,067
602,235
3,719
111,682
2,793
118,194
720,429
(1) Includes deposits that are contractually at call customer savings and cheque accounts. Historical experience is that such accounts provide a stable source of long
term funding for the Bank.
(2) Gross payable amounts on cross currency swaps have been reported in derivative liabilities. The Bank has corresponding receivables on these cross currency
swaps that have not been reported, in accordance with the requirements of AASB 7 Financial Instruments Disclosures. The terms of the cross currency swap
agreements entered into by the Bank allow for net settlement in the event of certain specific circumstances including default of the counterparties.
(3) All trading derivatives are included in the 0 to 3 months maturity band.
(4) All off balance sheet items are included in the 0 to 3 month maturity band to reflect their earliest possible maturity.
Maturity Period as at 30 June 2010
Bank
Monetary liabilities
Deposits and other public borrowings (1)
Payables due to other financial institutions
Liabilities at fair value through Income Statement
Derivative liabilities (2) (3)
Bank acceptances
Debt issues and loan capital
Due to controlled entities
Other monetary liabilities
Total monetary liabilities
Guarantees (4)
Loan commitments (4)
Other commitments (4)
Total off balance sheet items
Total monetary liabilities and off balance sheet
items
1 to 5
years
$M
16,074
68
2,808
544
-
0 to 3
3 to 12
At Call months months
$M
$M
$M
Over 5
Not
years Specified
Total
$M
$M
$M
45,622
1,376
732
297
209
153,635
3,448
-
-
-
-
3,558
-
96,454
7,555
163
23,689
11,360
20,655
4,979
2,497
22,736
61,535
1,624
3,923
5,205
2,180
376
-
1,797
3,733
-
34,947
37,045
-
160,641
167,352
76,519
88,414
77,898
-
-
-
-
2,874
93,881
2,012
98,767
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
227
227
-
-
-
-
312,161
12,447
5,500
28,263
11,569
139,873
52,411
8,827
571,051
2,874
93,881
2,012
98,767
160,641
266,119
76,519
88,414
77,898
227
669,818
(1) Includes deposits that are contractually at call customer savings and cheque accounts. Historical experience is that such accounts provide a stable source of long
term funding for the Bank.
(2) Gross payable amounts on cross currency swaps have been reported in derivative liabilities. The Bank has corresponding receivables on these cross currency swaps
that have not been reported, in accordance with the requirements of AASB 7 ‘Financial Instruments Disclosures’. The terms of the cross currency swap agreements
entered into by the Bank allow for net settlement in the event of certain specific circumstances including default of the counterparties.
(3) All trading derivatives are included in the 0 to 3 months maturity band.
(4) All off balance sheet items are included in the 0 to 3 month maturity band to reflect their earliest possible maturity.
Commonwealth Bank of Australia Annual Report 2011
209
Notes to the Financial Statements
Note 42 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 2009
30 June 2010
(1) The defined benefit formulae are generally comprised of final superannuation salary, or final average superannuation salary, and service.
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 2009, was completed during the year ended 30 June 2010. The Bank will continue
to monitor the need to make contributions to the OSF including the advice provided in the next actuarial assessment of the OSF as at 30
June 2012.
An actuarial assessment of the CBA(UK)SBS, as at 30 June 2010 confirmed a deficit of GBP 68 million ($102 million at the 30 June
2011 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 estimated at $3 million per annum (at the 30 June
2011 exchange rate) and additional contributions of GBP 15 million per annum ($22 million per annum at the 30 June 2011 exchange
rate) payable over 5 years to finance the fund deficit.
210
Commonwealth Bank of Australia Annual Report 2011
Notes to the Financial Statements
Note 42 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
Amounts in the Balance Sheet:
Liabilities (Note 25)
Assets (Note 17)
Net assets/(liabilities)
The amounts recognised in the Income Statement are
as follows:
Current service cost
Interest cost
Expected return on plan assets
Employer financed benefits within accumulation
division
Total included in defined benefit
superannuation plan expense
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 (losses)/gains
Benefits paid
Exchange differences on foreign plans
Closing defined benefits obligation
Changes in the fair value of plan assets are as follows:
Opening fair value of plan assets
Expected return
Experience gains
Total contributions
Exchange differences on foreign plans
Benefits and expenses paid
Employer financed benefits within accumulation
division
Closing fair value of plan assets
2011
$M
(3,493)
3,569
76
-
76
76
(53)
(158)
262
(190)
(139)
338
OSF
2010
$M
(3,332)
3,648
316
-
316
316
(43)
(160)
276
(168)
(95)
391
CBA(UK)SBS
2011
2010
$M
(356)
273
(83)
(83)
-
(83)
(2)
(13)
17
-
2
30
$M
(377)
295
(82)
(82)
-
(82)
(3)
(20)
15
-
(8)
33
2011
$M
(3,849)
3,842
(7)
(83)
76
(7)
(55)
(171)
279
(190)
(137)
368
Total
2010
$M
(3,709)
3,943
234
(82)
316
234
(46)
(180)
291
(168)
(103)
424
(3,332)
(3,118)
(377)
(394)
(3,709)
(3,512)
(46)
(158)
(10)
(177)
230
-
(36)
(160)
(10)
(199)
191
-
(2)
(13)
-
(31)
12
55
(3)
(20)
-
(25)
13
52
(48)
(171)
(10)
(208)
242
55
(39)
(180)
(10)
(224)
204
52
(3,493)
(3,332)
(356)
(377)
(3,849)
(3,709)
3,648
262
76
10
-
(237)
(190)
3,569
3,613
276
115
10
-
(198)
(168)
3,648
295
17
13
7
(47)
(12)
-
273
308
15
18
9
(42)
(13)
-
295
3,943
279
89
17
(47)
(249)
(190)
3,842
3,921
291
133
19
(42)
(211)
(168)
3,943
Commonwealth Bank of Australia Annual Report 2011
211
Notes to the Financial Statements
Note 42 Retirement Benefit Obligations (continued)
Present value of funded obligations
Fair value of plan assets
Total assets
Experience adjustments on plan liabilities
Experience adjustments on plan assets
(Losses)/gains from changes in actuarial assumptions
Total net actuarial (losses)/gains
Present value of funded obligations
Fair value of plan assets
Total liabilities
Experience adjustments on plan liabilities
Experience adjustments on plan assets
(Losses)/Gains from changes in actuarial assumptions
Total net actuarial (losses)/gains
Present value of funded obligations
Fair value of plan assets
Total (liabilities)/assets
Experience adjustments on plan liabilities
Experience adjustments on plan assets
(Losses)/gains from changes in actuarial assumptions
Total net actuarial (losses)/gains
2011
$M
(3,493)
3,569
76
(6)
76
(171)
(101)
2010
$M
(3,332)
3,648
316
77
115
(276)
(84)
OSF
2009
$M
(3,118)
3,613
495
(120)
(829)
(84)
(1,033)
2008
$M
(2,892)
4,428
1,536
134
(520)
92
(294)
2007
$M
(3,094)
4,907
1,813
31
282
259
572
2011
2010
2009
2008
2007
CBA(UK)SBS
$M
(356)
273
(83)
(14)
13
(17)
(18)
2011
$M
(3,849)
3,842
(7)
(20)
89
(188)
(119)
$M
(377)
295
(82)
19
18
(44)
(7)
2010
$M
(3,709)
3,943
234
96
133
(320)
(91)
$M
(394)
308
(86)
2
(26)
-
(24)
Total
2009
$M
(3,512)
3,921
409
(118)
(855)
(84)
(1,057)
$M
(386)
321
(65)
6
(21)
(32)
(47)
2008
$M
(3,278)
4,749
1,471
140
(541)
60
(341)
$M
(401)
372
(29)
(3)
(2)
25
20
2007
$M
(3,495)
5,279
1,784
28
280
284
592
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 losses recognised in equity from the date of adoption of IFRS to 30 June 2011 were $317
million.
Economic assumptions
The above calculations were based on the following 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) (1)
2011
%
5.20
7.70
4.40
OSF
2010
%
5.10
7.60
4.10
CBA(UK)SBS
2011
2010
%
%
5.40
5.60
4.80
5.30
5.70
4.40
(1) For the OSF, additional age related allowances were made for the expected salary increases from future promotions. At 30 June 2010 and 30 June 2011, 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.
212
Commonwealth Bank of Australia Annual Report 2011
Notes to the Financial Statements
Note 42 Retirement Benefit Obligations (continued)
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 of 10 year Australian Commonwealth Government securities.
In addition to financial assumptions, the mortality assumptions for pensioners can materially impact 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:
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
2011
OSF
2010
CBA(UK)SBS
2011
2010
Years
Years
Years
Years
29.0
24.2
34.2
29.0
28.9
24.1
34.0
28.9
28.9
24.1
31.5
26.5
27.9
23.1
30.6
25.6
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.
Of these retiring members 34% were assumed to take pension benefits, increasing to 50% by 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 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 2011, the 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)
Actual Allocation
%
25.1
12.0
13.0
30.7
7.0
12.2
(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 was $102 million as at 30 June 2011 (2010: $96 million). Amounts on deposit with
the Bank were $30 million as at 30 June 2011 (2010: $23 million). Other financial instruments with the Group were $63 million as at 30
June 2011 (2010: $73 million).
Commonwealth Bank of Australia Annual Report 2011
213
Notes to the Financial Statements
Note 43 Investments in Associated Entities and Joint Ventures
2011
2010
2011
2010
Ownership Ownership
Principal
Country of Balance
$M
$M Interest % Interest %
Activities Incorporation
Date
Group
Acadian Asset Management (Australia) Limited
Aegis Correctional Partnership Trust
AMTD Group Company Limited
Aspire Schools (Qld) Holdings Limited
Aussie Home Loans Pty Limited
Bank of Hangzhou Co. Ltd.
BoCommLife Insurance Company Limited
Cardlink Services Limited
CFS Retail Property Trust (1) (3)
Commonwealth Property Office Fund (2) (3)
Equigroup Pty Limited
First State Cinda Fund Management Company
Limited
2
1
-
6
71
458
27
20
439
139
15
15
2
-
1
2
76
398
28
11
439
139
16
15
First State European Diversified Investment Fund
139
145
International Private Equity Real Estate Fund
Pinnacle Education SA Holding Company Pty Ltd (4)
Qilu Bank Co., Ltd.
Vietnam International Bank
452 Capital Pty Limited
Total
3
6
213
158
-
3
-
204
-
11
1,712
1,490
50
50
-
50
33
20
38
25
8
6
50
46
30
33
50
20
15
30
50
50
30
50
33
20
38
44
9
7
50
46
39
33
50
20
-
Investment Management
Investment Vehicle
Australia
Australia
30-Jun
30-Jun
Financial Services
Virgin Islands
31-Dec
Investment Vehicle
Mortgage Broking
Commercial Banking
Life Insurance
Transaction Services
Funds Management
Funds Management
Leasing
Australia
Australia
China
China
Australia
Australia
Australia
Australia
30-Jun
30-Jun
31-Dec
31-Dec
30-Jun
30-Jun
30-Jun
30-Jun
Funds Management
China
31-Dec
Funds Management
Luxembourg
Funds Management
Investment Vehicle
Commercial Banking
Financial Services
30
Investment Management
Australia
Australia
China
Vietnam
Australia
30-Jun
30-Jun
30-Jun
31-Dec
31-Dec
30-Jun
(1) The value for CFS Retail Property Trust based on published quoted prices was $400 million as at 30 June 2011 (2010: $416 million).
(2) The value for Commonwealth Property Office Fund based on published quoted prices was $133 million as at 30 June 2011 (2010: $132 million).
(3) The consolidated entity has significant influence due to its relationship as Responsible Entity.
(4) Formerly known as CIPL SA Schools Pty Limited
Share of Associates' and Joint Ventures profits/(losses)
Operating profits/(losses) before income tax
Income tax expense
Operating profits/(losses) after income tax
2011
$M
164
(23)
141
Group
2010
$M
141
(7)
134
Carrying amount of investments in associated entities and joint ventures
1,712
1,490
Group's share of lease commitments of Associates and of Joint Ventures 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
Financial information of Associates and Joint Ventures
Current assets
Non-current assets
Current Liabilities
Non-current Liabilities
Revenues
Expenses
2011
$M
6
13
11
30
2011
$M
30,466
36,420
46,086
8,213
3,722
1,936
Group
2010
$M
5
11
7
23
Group
2010
$M
23,581
35,744
38,796
5,229
2,228
1,199
214
Commonwealth Bank of Australia Annual Report 2011
Notes to the Financial Statements
Note 44 Key Management Personnel
The company has applied the exemption under AASB 124 Related Party Disclosures which exempts listed companies from providing
remuneration disclosures in relation to their key management personnel in their Financial Statements. These remuneration disclosures
are provided in the Remuneration Report of the Directors’ Report on pages 72 to 91 and have been audited.
Key management personnel compensation
Short term benefits
Post-employment benefits
Share-based payments
Long term benefits
Total
Equity Holdings of Key Management Personnel
Shareholdings
2011
$'000
32,494
752
9,931
463
43,640
Group
2010
$'000
33,173
1,584
26,787
1,020
62,564
2011
$'000
32,494
752
9,931
463
43,640
Bank
2010
$'000
33,173
1,584
26,787
1,020
62,564
Details of the 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 set out below. For
details of Director and Executive equity plans refer to Note 29.
Shares held by directors
All shares were acquired by Directors on normal terms and conditions or through the Non-Executive Director’s Share Plan.
Directors
David Turner
John Anderson
Colin Galbraith
Jane Hemstritch
Launa Inman (3)
Carolyn Kay
Brian Long (3)
Andrew Mohl
Fergus Ryan
Harrison Young
Class
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Balance
1 July 2010
9,600
15,238
15,895
21,888
1,298
11,501
10,544
9,818
17,976
25,876
Shares
(1)
Acquired
1,398
497
540
570
-
570
157
532
570
570
Net Change
Other
Balance
(2) 30 June 2011
-
10,998
738
-
3,000
-
-
-
-
-
-
16,473
16,435
25,458
1,298
12,071
10,701
10,350
18,546
26,446
(1) Non-Executive Directors receive 20% of their total annual fees as Commonwealth Bank shares. These shares are subject to a 10 year trading restriction (the shares
will be released earlier if the director leaves the Board).
(2) "Net Change Other" incorporates changes resulting from purchases and sales during the year.
(3) Launa Inman joined the Group on 16 March 2011. Brian Long commenced with the Group on 1 September 2010.
Commonwealth Bank of Australia Annual Report 2011
215
Notes to the Financial Statements
Note 44 Key Management Personnel (continued)
Shares held by the CEO and Group Executives
Acquired/
On
Deferred
Reward/
Balance
Granted as Exercise of
Shares Net Change
1 July 2010 Remuneration
Options
Vested
(2)
other
Balance
(3) 30 June 2011
Class
Managing Director and CEO
Ralph Norris
Ordinary
(1)
Reward Shares/Rights
Deferred Shares
Group Executives
Simon Blair
Ordinary
201,623
204,626
39,167
-
-
85,976
-
-
Reward Shares/Rights
30,190
22,046
Barbara Chapman
Ordinary
Deferred Shares
Reward Shares/Rights
Deferred Shares
David Cohen
Ordinary
Reward Shares/Rights
Deferred Shares
David Craig
Ordinary
Reward Shares/Rights
Deferred Shares
Michael Harte
Ordinary
Reward Shares/Rights
Deferred Shares
Ross McEwan
Ordinary
Ian Narev
Reward Shares/Rights
Deferred Shares
Ordinary
Reward Shares/Rights
Deferred Shares
Grahame Petersen
Ordinary
Reward Shares/Rights
Deferred Shares
Ian Saines
Ordinary
Reward Shares/Rights
Deferred Shares
Alden Toevs
Ordinary
Reward Shares/Rights
Deferred Shares
-
-
58,844
13,666
13,781
57,113
7,597
35,113
72,690
19,548
14,318
65,767
17,955
-
83,074
20,814
1,137
58,844
18,284
48,271
76,151
15,096
14,919
89,997
34,193
9,000
96,920
47,914
-
-
24,250
-
-
23,837
-
-
37,202
-
-
28,935
-
-
34,446
-
-
24,801
-
-
31,690
-
-
36,650
-
-
38,579
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(6,610)
-
-
-
-
-
(12,653)
-
-
(37,784)
42,056
-
-
-
-
-
-
-
-
24,100
-
-
27,543
-
-
24,100
-
-
9,429
-
-
6,610
-
-
2,829
-
-
(13,991)
-
-
37,784
-
-
243,679
290,602
39,167
-
52,236
-
-
83,094
13,666
37,881
80,950
7,597
62,656
109,892
19,548
38,418
94,702
17,955
9,429
117,520
20,814
7,747
83,645
11,674
51,100
107,841
15,096
928
126,647
21,540
46,784
135,499
10,130
(1) Reward Shares/Rights represent shares granted under the Group Leadership Reward Plan (GLRP) which are subject to performance hurdles. Deferred Shares
represent the deferred portion of STI received as shares restricted for three years.
(2) Reward shares/rights and Deferred shares become ordinary shares upon vesting.
(3) "Net Change Other" incorporates changes resulting from purchases, sales and forfeitures during the year.
216
Commonwealth Bank of Australia Annual Report 2011
Notes to the Financial Statements
Note 44 Key Management Personnel (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 held 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).
Opening
Interest
Closing
Balance
Charged
Balance
Number in
$000s
$000s
$000s
Group
Directors
CEO & Group Executives
Total
2011
2010
2011
2010
2011
2010
5
-
9,324
9,999
9,329
9,999
-
-
538
579
538
579
5
-
7,153
9,324
7,158
9,324
Loans to Key Management Personnel Exceeding $100,000 in Aggregate
Balance
1 July 2010
$000s
Interest
Charged
$000s
Interest Not
Balance
Charged
Write-off 30 June 2011
$000s
$000s
$000s
1
-
11
11
12
11
Highest
Balance
in Period
(2)
$000s
Managing Director & CEO
Ralph Norris (1)
Group Executives
Simon Blair (1)
Barbara Chapman (1)
David Cohen
Michael Harte
Ross McEwan (1)
Ian Narev (1)
Ian Saines
Total
1,839
1,082
1,869
602
2,989
220
381
310
9,292
36
58
102
38
209
33
17
45
538
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
28
1,830
668
1,493
596
3,302
573
181
310
7,151
1,082
2,192
604
3,519
1,797
385
2,990
14,399
(1) Some loans for Mr Norris, Mr Blair, Ms Chapman, Mr McEwan and Mr Narev are held in New Zealand Dollars and converted to Australian Dollars for the purpose of
this disclosure. The exchange rate at 30 June 2010 has been used for the opening balances, and the exchange rate at 30 June 2011 has been used for calculating
interest charged, closing balances and highest balance in period. The highest balance in period for Mr Norris is lower than the opening balance due to the fluctuation
in exchange rates during the year.
(2) Represents the highest balance of loans outstanding at any period during the year ended 30 June 2011.
Other Transactions of Key Management Personnel
Financial Instrument Transactions
Financial instrument transactions (other than loans and shares disclosed within this report) of Key Management Personnel 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 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
have been trivial or domestic in nature and were in the nature of normal personal banking and deposit transactions.
Other Transactions
All other transactions with Key Management Personnel 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.
Commonwealth Bank of Australia Annual Report 2011
217
Notes to the Financial Statements
Note 45 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 on an arms length basis.
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.
Interest and dividend income
Interest expense
Fee and commission income for services provided (1)
Fee and commission expense for services received
Loans, bills discounted and equity contributions
Derivative assets
Other assets
Deposits
Derivative liabilities
Other liabilities
Interest and dividend income
Interest expense
Fee and commission income for services provided (1)
Fee and commission expense for services received
Loans, bills discounted and equity contributions
Derivative assets
Other assets
Deposits
Derivative liabilities
Other liabilities
For the Year Ended and as at 30 June 2011
Group
Joint
Associates
Ventures
$000s
$000s
92,022
1,756
76,555
32,088
1,259,031
65,577
39,400
18,623
6,338
1,609
-
-
31
63
-
-
179
-
-
-
Total
$000s
92,022
1,756
76,586
32,151
1,259,031
65,577
39,579
18,623
6,338
1,609
Group
For the Year Ended and as at 30 June 2010
Associates
Ventures
Joint
$000s
58,169
333
57,121
104,508
424,621
12,400
39,367
18,709
25,818
22,698
$000s
1,000
2,037
2,884
10,118
12,620
6,684
8,383
-
-
-
Total
$000s
59,169
2,370
60,005
114,626
437,241
19,084
47,750
18,709
25,818
22,698
(1) Not included above are management services provided for nil consideration to associated Group and Bank companies to the value of $4,352,000 (2010: $7,520,000).
218
Commonwealth Bank of Australia Annual Report 2011
Notes to the Financial Statements
Note 45 Related Party Disclosures (continued)
Interest and dividend income
Interest expense
Fee and commission income for services provided (1)
Fee and commission expense for services received
Available-for-sale securities
Loans, bills discounted and equity contributions
Derivative assets
Other assets
Deposits
Derivative liabilities
Debt issues and loan capital
Other liabilities
Interest and dividend income
Interest expense
Fee and commission income for services provided (1)
Fee and commission expense for services received
Available-for-sale securities
Loans, bills discounted and equity contributions
Derivative assets
Other assets
Deposits
Derivative liabilities
Debt issues and loan capital
Other liabilities
For the Year Ended and as at 30 June 2011
Bank
Subsidiaries
Associates
Ventures
Joint
$000s
6,313,371
3,365,381
686,572
333,983
39,757,623
47,550,178
297,665
962,751
53,860,369
434,337
2,595,843
1,763,744
$000s
87,767
1,756
2,199
32,193
-
1,223,218
65,577
-
18,623
6,338
-
54
$000s
-
-
31
63
-
-
-
179
-
-
-
-
Total
$000s
6,401,138
3,367,137
688,802
366,239
39,757,623
48,773,396
363,242
962,930
53,878,992
440,675
2,595,843
1,763,798
Bank
For the Year Ended and as at 30 June 2010
Joint
Subsidiaries
Associates
Ventures
$000s
5,165,042
2,916,015
599,921
601,000
39,821,783
49,901,264
193,959
1,075,058
53,873,671
408,512
2,916,825
3,838,430
$000s
55,678
-
2,650
94,230
-
412,000
12,400
-
8,900
25,818
-
22,698
$000s
-
-
119
218
-
-
-
-
-
-
-
-
Total
$000s
5,220,720
2,916,015
602,690
695,448
39,821,783
50,313,264
206,359
1,075,058
53,882,571
434,330
2,916,825
3,861,128
(1) Not included above are management services provided for nil consideration to associated Group and Bank companies to the value of $4,352,000 (2010: $7,520,000).
The Bank’s aggregate investments in, and loans to controlled entities are disclosed in Note 49. Amounts due to controlled entities are
disclosed in the Balance Sheet of the Bank.
The Bank provides letters of comfort to other entities within the Group on standard terms. Guarantees include a $5 million bank
guarantee provided to Colonial First State Investments Limited and a $25 million guarantee to AFS license holders in respect of excess
insurance claims.
The Bank is the head entity of the tax consolidated group and has entered into tax funding and tax sharing agreements with its eligible
Australian resident subsidiaries. The terms and conditions of these agreements are set out in note 1(x). The amount receivable by the
Bank under the tax funding agreement with the tax consolidated entities is $281 million as at 30 June 2011 (2010: $439 million
receivable). This balance is included in ‘Other assets’ in the Bank’s separate balance sheet.
All transactions between Group entities are eliminated on consolidation.
Commonwealth Bank of Australia Annual Report 2011
219
Notes to the Financial Statements
Note 46 Notes to the Statements of Cash Flows
(a) Reconciliation of Net Profit after Income Tax to Net Cash provided by/(used in) Operating Activities
Net profit after income tax
(Increase)/decrease in interest receivable
Increase/(decrease) in interest payable
Net decrease in assets at fair value through Income Statement
(excluding life insurance)
Net (gain)/loss on sale of controlled entities and associates
Net gain on sale of investments
Net increase in derivative assets
Net loss on sale of property, plant and equipment
Equity accounting profit
Gain on acquisition of controlled entities
Impairment expense
Depreciation and amortisation (including asset write downs)
(Decrease)/increase in liabilities at fair value through Income
Statement (excluding life insurance)
Increase/(decrease) in derivative liabilities
Increase in other provisions
Increase/(decrease)in income taxes payable
Increase/(decrease) in deferred tax liabilities
(Increase)/decrease in deferred tax assets
(Increase)/decrease in accrued fees/reimbursements receivable
(Decrease)/Increase in accrued fees and other items payable
Increase/(decrease) in life insurance contract policy liabilities
Increase/(decrease) in cash flow hedge reserve
(Decrease)/Increase in fair value on hedged items
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
(b) Reconciliation of Cash
2011
$M
6,410
(224)
476
2010
$M
5,680
(551)
889
2,697
3,301
(7)
(1)
32
(4)
Group
2009
$M
4,753
301
(54)
690
-
(1)
2011
$M
6,480
(287)
465
Bank
2010
$M
5,615
(559)
878
1,202
2,383
(6)
(1)
(2)
(4)
(4,224)
(1,331)
(8,358)
(4,735)
(1,827)
6
(141)
-
1,280
613
(4,851)
4,643
80
105
80
(30)
(1)
(99)
835
15
(427)
-
10,590
(158)
17,667
4
(116)
-
2,379
618
(1,254)
(9,804)
46
(150)
53
383
44
302
853
589
838
-
11
(141)
(983)
3,048
519
661
13,361
60
521
(355)
(967)
41
178
(1,025)
(1,651)
569
-
6
-
-
1,080
387
87
4,733
23
117
(1)
131
37
(128)
-
(98)
(410)
4
-
-
1,193
373
1,128
(6,126)
104
80
7
1
(73)
524
-
219
810
(2,210)
(1,648)
(29,592)
(19,788)
122
(26,669)
100
(8,510)
7,597
34
14,503
(24,299)
355
(20,864)
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
2011
$M
5,424
1,301
7,261
(6,058)
7,928
2010
$M
5,285
1,153
5,012
(6,533)
4,917
Group
2009
$M
3,755
3,128
1,889
(6,586)
2,186
Year Ended 30 June
2011
$M
4,103
977
6,664
(5,853)
5,891
Bank
2010
$M
4,027
979
4,386
(6,346)
3,046
(1) At call includes certain receivables and payables due from and to financial institutions within three months.
220
Commonwealth Bank of Australia Annual Report 2011
Notes to the Financial Statements
Note 46 Notes to the Statements of Cash Flows (continued)
(c) Disposal of Controlled Entities – Fair Value of asset disposal
The Group disposed of certain St Andrew operations effective 1 July 2010. During the year ended 30 June 2010, the Group disposed of
its banking and insurance operations in Fiji.
Net Assets
(Loss)/gain on sale (excluding realised foreign exchange losses and other related costs)
Cash consideration received
Less cash and cash equivalents disposed
Net cash inflow/(outflow) on disposal
(d) Non-cash Financing and Investing Activities
Shares issued under the Dividend Reinvestment Plan (1)
2011
$M
60
(10)
50
(31)
19
2010
$M
77
1
78
(89)
(11)
2011
$M
511
2010
$M
1,457
Group
2009
$M
-
-
-
-
-
Group
2009
$M
1,099
(1) The dividend reinvestment plan in respect of the final dividend for 2009/10 was satisfied in full by an on market purchase and transfer of $679 million of shares to
participating shareholders.
Commonwealth Bank of Australia Annual Report 2011
221
Notes to the Financial Statements
Note 47 Disclosures about Fair Values of Financial Instruments
Financial assets and financial liabilities are measured on an ongoing basis either at fair value or amortised cost. AASB7 ‘Financial
Instruments: Disclosures’ requires the disclosure of the fair value of those financial instruments not already carried at fair value in the
balance sheet.
The fair value of a financial instrument is the amount for which an asset could be exchanged, or a liability settled, between
knowledgeable, willing parties in an arm's length transaction.
(a) Comparison of Fair Values and Carrying Values
The following tables summarise the carrying and fair values of financial assets and liabilities presented on the Group and the Bank’s
balance sheets. The disclosure does not cover assets or liabilities that are not considered to be financial instruments from an accounting
perspective.
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, bills discounted 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 funds units on issue
Bills payable and other liabilities
Loan capital
2011
Carrying
Fair
Carrying
Value
$M
13,241
10,393
20,469
14,998
824
30,317
45,171
500,057
10,734
7,059
Value
$M
13,241
10,393
20,469
14,998
824
30,317
45,171
500,544
10,734
7,059
Value
$M
10,119
10,072
22,851
15,940
654
27,689
32,915
493,459
11,569
6,240
Group
2010
Fair
Value
$M
10,119
10,072
22,851
15,940
654
27,689
32,915
492,951
11,569
6,240
401,147
401,979
374,663
374,508
15,899
10,491
33,976
10,734
13,652
15,899
10,491
33,976
10,734
13,652
12,608
15,342
24,884
11,569
14,592
12,608
15,342
24,884
11,569
14,592
118,652
120,752
130,210
127,874
1,048
8,983
11,561
1,048
8,983
12,105
880
7,698
13,513
880
7,698
13,036
222
Commonwealth Bank of Australia Annual Report 2011
Notes to the Financial Statements
Note 47 Disclosures about Fair Values of Financial Instruments (continued)
2011
Carrying
Fair
Carrying
Assets
Cash and liquid assets
Receivables due from other financial institutions
Assets at fair value through Income Statement:
Trading
Other
Derivative assets
Available-for-sale investments
Loans, bills discounted and other receivables
Bank acceptances of customers
Loans to controlled entities
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
Due to controlled entities
Debt issues
Bills payable and other liabilities
Loan capital
Bank
2010
Fair
Value
$M
8,711
9,766
Value
$M
8,711
9,766
18,775
18,775
-
27,363
65,779
377,195
11,569
31,055
4,492
-
27,363
65,779
376,679
11,569
30,892
4,492
Value
$M
Value
$M
10,979
10,123
17,765
300
30,731
75,699
10,979
10,123
17,765
300
30,731
75,699
387,888
388,187
10,734
28,454
5,283
10,734
28,988
5,283
332,964
333,465
307,844
307,511
15,686
4,700
32,817
10,734
52,353
94,385
6,635
11,808
15,686
4,700
32,817
10,734
52,353
97,080
6,635
12,007
12,422
4,613
23,689
11,569
52,411
107,039
5,362
13,575
12,422
4,613
23,689
11,569
52,411
104,352
5,362
13,044
The fair values disclosed above represent estimates at which these instruments could be exchanged in a current transaction between
willing parties. However, many of the instruments lack an available trading market and it is the intention to hold to maturity. Thus it is
possible that realised amounts may differ to amounts disclosed above.
Due to the wide range of valuation techniques and the numerous estimates that must be made, it may be difficult to make a reasonable
comparison of the fair value information disclosed here, against that disclosed by other financial institutions.
For financial instruments not carried at fair value, an estimate of fair value has been derived as follows:
Loans, Bills Discounted and Other Receivables
The carrying value of loans, bills discounted and other receivables is net of accumulated collective and individually assessed provisions
for impairment. Customer credit worthiness is regularly reviewed in line with the Group's credit policies and where necessary, pricing is
adjusted in accordance with individual credit contracts.
For the majority of variable rate loans, excluding impaired loans, the carrying amount is considered a reasonable estimate of fair value.
For Institutional variable rate loans the fair value is calculated using discounted cash flow models with a discount rate reflecting market
rates offered on similar loans to customers with similar credit worthiness. The fair value of impaired loans is calculated by discounting
estimated future cash flows using the loan's original effective interest rate.
The fair value of fixed rate loans is calculated using discounted cash flow models using a discount rate reflecting market rates offered for
loans of similar remaining maturities and credit worthiness of the borrower.
Deposits and Other Public Borrowings
Fair value of non-interest bearing, call and variable rate deposits, and fixed rate deposits repricing within six months, approximate their
carrying value as they are short term in nature or payable on demand.
Fair value of term deposits are estimated using discounted cash flows, applying market rates offered for deposits of similar remaining
maturities.
Debt Issues and Loan Capital
The fair values are calculated using quoted market prices, where available. Where quoted market prices are not available, discounted
cash flow and option pricing models are used. The discount rate applied reflects the terms of the instrument, the timing of the cash flows
and is adjusted for any change in the Group's applicable credit rating.
Other Financial Assets and Liabilities
For all other financial assets and liabilities fair value approximates carrying value due to their short term nature, frequent repricing or high
credit rating.
Commonwealth Bank of Australia Annual Report 2011
223
Notes to the Financial Statements
Note 47 Disclosures about Fair Values of Financial Instruments (continued)
(b) Valuation Methodology
A significant number of financial instruments are carried on balance sheet at fair value.
The best evidence of fair value is a quoted market price in an active market. Therefore, where possible, fair value is based on quoted
market prices. Where no quoted market price for an instrument is available, the fair value is based on present value estimates or other
valuation techniques based on current market conditions. 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.
The tables below categorise financial assets and liabilities that are recognised and measured at fair value, and the valuation
methodology according to the following hierarchy.
Valuation Inputs
Quoted Prices in Active Markets – Level 1
Financial instruments, the valuation of which are determined by reference to unadjusted quoted prices for identical assets or liabilities in
active markets where the quoted price is readily available, and the price represents actual and regularly occurring market transactions
on an arm’s length basis.
An active market is one in which transactions occur with sufficient volume and frequency to provide pricing information on an ongoing
basis.
Valuation Technique Using Observable Inputs – Level 2
Financial instruments that have been valued using inputs other than quoted prices as described for level 1 but which are observable for
the asset or liability, either directly or indirectly. The valuation techniques include the use of discounted cash flow analysis, option pricing
models and other market accepted valuation models.
Valuation Technique Using Significant Unobservable Inputs – Level 3
Financial instruments, the valuation of which incorporates a significant input for the asset or liability that is not based on observable
market data (unobservable input). Unobservable inputs are those not readily available in an active market due to market illiquidity or
complexity of the product. These inputs are generally derived and extrapolated from observable inputs to match the risk profile of the
financial instrument, and are calibrated against current market assumptions, historic transactions and economic models, where
available. These inputs may include the timing and amount of future cash flows, rates of estimated credit losses, discount rates and
volatility.
Assets
Assets at fair value through Income Statement:
Trading
Insurance
Other
Derivative assets
Available-for-sale investments (1)
Total assets carried at fair value
Liabilities
Liabilities at fair value through Income Statement
Derivative liabilities
Life investment contracts
Total liabilities carried at fair value
Fair Value as at 30 June 2011
Fair Value as at 30 June 2010
Level 1
Level 2 Level 3
Total
Level 1 Level 2 Level 3
Total
$M
$M
$M
$M
$M
$M
$M
$M
Group
15,720
5,008
299
36
37,131
58,194
4,096
4
-
4,100
4,686
9,990
525
30,240
8,039
53,480
6,395
33,964
10,515
50,874
63
-
-
41
1
20,469
14,998
824
30,317
45,171
105
111,779
17,995
4,775
4,526
11,414
-
654
137
27,538
28,008
50,666
4,752
49,133
-
8
-
8
10,491
33,976
10,515
54,982
3,821
69
-
3,890
11,521
24,808
11,411
47,740
81
-
-
14
1
96
-
7
-
7
22,851
15,940
654
27,689
32,761
99,895
15,342
24,884
11,411
51,637
(1) The Group holds investments in unlisted equity instruments with a carrying value of $nil as at 30 June 2011 (2010: $154 million).
224
Commonwealth Bank of Australia Annual Report 2011
Notes to the Financial Statements
Note 47 Disclosures about Fair Values of Financial Instruments (continued)
(b) Valuation Methodology (continued)
Assets
Assets at fair value through Income Statement:
Trading
Other
Derivative assets
Available-for-sale investments (1)
Total assets carried at fair value
Liabilities
Liabilities at fair value through Income Statement
Derivative liabilities
Total liabilities carried at fair value
Fair Value as at 30 June 2011
Fair Value as at 30 June 2010
Level 1
Level 2 Level 3
Total
Level 1 Level 2 Level 3
Total
$M
$M
$M
$M
$M
$M
$M
$M
Bank
14,763
2,996
299
42
29,457
44,561
4,116
3
4,119
1
30,660
46,241
79,898
584
32,806
33,390
6
-
29
1
36
-
8
8
17,765
16,423
2,344
300
30,731
75,699
124,495
4,700
32,817
37,517
-
239
19,780
36,442
3,821
69
3,890
-
27,123
45,849
75,316
792
23,613
24,405
8
-
1
1
18,775
-
27,363
65,630
10
111,768
-
7
7
4,613
23,689
28,302
(1) The Bank no longer holds unlisted equity investments (2010: $149 million).
Level 3 movement analysis for the year ended 30 June 2011
There have been transfers between Level 1 and Level 2 of the hierarchy due to the increased or decreased observability of the
valuation inputs used to price the instruments and the liquidity of the market.
There were no transfers into and out of Level 3. The Group’s exposure to financial instruments measured at fair value based in full or
in part on non-market observable inputs is restricted to a small number of financial instruments which comprise an insignificant
component of the portfolios to which they belong. As such the purchases, sales, as well as 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 of the Group’s or the
Bank’s results. The movement in Level 3 financial instruments recognised in the Group Income Statement was $11 million for the
year ended 30 June 2011 (2010: $3 million) and for the Bank was $13 million (2010: $2 million).
Commonwealth Bank of Australia Annual Report 2011
225
Notes to the Financial Statements
Note 48 Securitisation
The Group enters into transactions in the normal course of business by which it transfers financial assets directly to third parties or to
special purpose entities (SPEs). These transfers may give rise to the full or partial derecognition of those financial assets:
•
•
Full derecognition occurs when the contractual right to receive cash flows from the financial assets is transferred, or the right is
retained but an obligation is assumed to pass on the cash flows from the asset, which transfers substantially all the risks and
rewards of ownership; and
Partial derecognition occurs when financial assets are sold or transferred in such a way that some but not substantially all of the
risks and rewards of ownership are transferred but control is retained. These financial assets are recognised on the balance sheet
to the extent of continuing involvement.
The table below provides a breakdown of the assets held by securitisation vehicles and exposures the Bank has to securitisation
vehicles that the Group has established.
Assets held within Group SPEs
Residential mortgages - Group originated mortgages backing securities held for potential repurchase with central
banks
Residential mortgages - Group originated
Other
Total securitisation assets of SPEs
Exposure to securitisation SPEs
Residential mortgage backed securities held for
potential repurchase with central banks
Other residential mortgage backed securities
Other derivatives (1)
Liquidity support facilities
Other facilities
Total
2011
$M
43,662
2,125
1,478
163
898
Funded
2010
$M
45,169
3,567
1,011
916
98
48,326
50,761
Unfunded
(2)
2010
$M
2011
$M
-
-
-
809
63
872
-
-
37
787
62
886
2011
$M
44,349
11,296
204
55,849
2011
$M
43,662
2,125
1,478
972
961
Group
2010
$M
45,673
9,696
175
55,544
Group
Total
2010
$M
45,169
3,567
1,048
1,703
160
49,198
51,647
(1) Derivatives are measured on the basis of Potential Credit Exposure (PCE), a credit risk measurement of maximum risk over the term of the transaction, or current fair
value where PCE is not accessible.
(2) Unfunded amounts apply to financial arrangements the Group holds with securitisation SPE’s that the SPE is yet to fully draw down upon.
Note 49 Controlled Entities
(a) Shares in and Loans to controlled entities
Shares in controlled entities
Loans to controlled entities
Total shares in and loans to controlled entities
2011
$M
18,903
28,454
47,357
Bank
2010
$M
18,754
31,055
49,809
The above amounts are not expected to be recovered within twelve months of the Balance Sheet date.
226
Commonwealth Bank of Australia Annual Report 2011
Notes to the Financial Statements
Note 49 Controlled Entities (continued)
(b) Principal subsidiaries
The material subsidiaries of the Bank, based on contribution to the consolidated entity’s profit, size of investment or nature of activity are:
Entity name
Australia
(a) Banking
Commonwealth Bank of Australia
Bank of Western Australia Limited
BWA Group Services Pty Limited
Swan Trust Series 2007-1E
Swan Trust Series 2006-1E
Swan Trust Series 2008-1D
Swan Trust Series 2010 -1P
Swan Trust Series 2010 -2P
Medallion Trust Series 2003-1G
Medallion Trust Series 2004-1G
Medallion Trust Series 2005-1G
Medallion Trust Series 2005-2G
Medallion Trust Series 2006-1G
Medallion Trust Series 2007-1G
Medallion Trust Series 2008-1R
Medallion Trust Series 2011-1
SHIELD Series 50
MIS Funding No.1 Pty Limited
Christmas Break Pty Limited
CBA USD Investments Partnership
GT Operating No.5 Limited Partnership
GT Funding No.6 Limited Partnership
PERLS III Trust
Commonwealth Investments Pty Limited
Commonwealth Securities Limited
(b) Insurance and Funds Management
Colonial Holding Company Limited
Commonwealth Insurance Holdings Limited
Commonwealth Insurance Limited
Jacques Martin Pty Limited
Entity name
IWL Limited
IWL Broking Solutions Limited
JDV Limited
Australian Investment Exchange Limited
Collateral Leasing Pty Limited
CBFC Leasing Pty Limited
CBFC Limited
CBCL Australia Limited
Securitisation Advisory Services Pty Limited
Homepath Pty Limited
Tankstream Rail (BY-3) Pty Limited
Tankstream Rail (BY-4) Pty Limited
CBA International Finance Pty Limited
GT Operating No.2 Pty Limited
GT Operating No.4 Pty Limited
Colonial Finance Limited
VH-VZH Pty Limited
VH-VZG Pty Limited
VH-VZF Pty Limited
SAFE No1 Pty Limited
CBA AIR Pty Limited
Reliance Achiever Partnership
Tankstream Rail (SW-3) Pty Limited
Tankstream Rail (SW-4) Pty Limited
Tankstream Rail (BY-2) Pty Limited
Colonial First State Capital Management Pty Limited
First State Investment Managers (Asia) Limited
Capital 121 Pty Limited
Commonwealth Financial Planning Limited
Jacques Martin Administration and Consulting Pty Limited
Financial Wisdom Limited
Colonial First State Group Limited
CFS Managed Property Limited
Whittaker Macnaught Pty Limited
Avanteos Pty Limited
Colonial First State Asset Management (Australia) Limited
Avanteos Investments Limited
Commonwealth Managed Investments Limited
Colonial First State Investments Limited
Colonial First State Property Limited
Colonial First State Property Retail Trust
St Andrew's Australia Pty Limited
Commwealth International Holdings Pty Limited
Colonial First State Property Management Limited
The Colonial Mutual Life Assurance Society Limited
All the above subsidiaries are 100% owned and incorporated in Australia.
Commonwealth Bank of Australia Annual Report 2011
227
Notes to the Financial Statements
Note 49 Controlled Entities (continued)
(b) Principal Subsidiaries (continued)
Entity name
New Zealand
(a) Banking
ASB Holdings Limited
ASB Bank Limited
ASB Funding Limited
CBA Funding (NZ) Limited
ASB Capital Limited
ASB Capital No.2 Limited
CBA NZ Holding Limited
CBA USD Funding Limited
Medallion NZ Series Trust 2009-1R
CBA Real Estate Funding (NZ) Limited
ASB Group Investments Limited
ASB Securities Limited
AEGIS 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
CommBank Management Consulting (Asia) Co Limited
CBA Funding Trust I
CBA Capital Trust I
CBA Capital Trust II
PT. Bank Commonwealth
CBA (Europe) Finance Limited
Burdekin Investments Limited
CTB Australia Limited
CBA Asia Limited
Newport Limited
CommBank Europe Limited
CommTrading Limited
CommInternational Limited
CommCapital S.a.r.l
(b) Insurance and Funds Management
First State Investments (Bermuda) Limited
First State (Hong Kong) LLC
First State Investment Holdings (Singapore) Limited
First State Investments (UK Holdings) Limited
PT Commonwealth Life
Extent of Beneficial
Interest if not 100%
Incorporated in
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
Hong Kong
Delaware USA
Delaware USA
Delaware USA
97%
Indonesia
United Kingdom
Cayman Islands
Hong Kong
Singapore
Malta
Malta
Malta
Malta
Luxembourg
Bermuda
United States
Singapore
United Kingdom
Indonesia
80%
Non-operating and minor operating controlled entities and investment vehicles holding policyholder assets are excluded from the above
list.
(c) Disposal of Controlled Entities
During the year, the Group disposed of certain St Andrew’s operations effective 1 July 2010. For further details refer to Note 46 (c).
(d) Acquisition of Controlled Entities
There were no acquisitions of controlled entities during the current year.
228
Commonwealth Bank of Australia Annual Report 2011
Notes to the Financial Statements
Note 50 Subsequent Events
On 22 July 2011, the Board announced the appointment of Ian Narev to the role of Chief Executive Officer of the Bank upon the
retirement of Ralph Norris at the end of November 2011.
The Bank expects to issue approximately $733 million of ordinary shares in respect of the DRP for the final dividend for the year ended
30 June 2011.
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.
Commonwealth Bank of Australia Annual Report 2011
229
Directors’ Declaration
In accordance with a resolution of the Directors of the Commonwealth Bank of Australia (Bank), the Directors declare that:
(a) the financial statements for the financial year ended 30 June 2011 in relation to the Bank and the consolidated entity (Group)
(together the Financial Statements), and the notes to the Financial Statements, are in accordance with the Corporations Act 2001,
including:
(i) s 296 (which requires the financial report, including the Financial Statements and the notes to the Financial Statements, to
comply with the accounting standards); and
(ii) s 297 (which requires the Financial Statements, and the notes to the Financial Statements, to give a true and fair view of
the financial position and performance of the Group and the Bank);
(b) in compliance with the accounting standards, the notes to the Financial Statements include an explicit and unreserved statement of
compliance with international financial reporting standards (see Note 1(a));
(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 by s 295A in respect of the financial year ended 30 June 2011.
Signed in accordance with a resolution of the Directors.
DJ Turner
Chairman
10 August 2011
RJ Norris
Managing Director and Chief Executive Officer
10 August 2011
230
Commonwealth Bank of Australia Annual Report 2011
Independent auditor’s report to the members of the Commonwealth Bank of Australia
Report on the financial report
We have audited the accompanying financial report of the Commonwealth Bank of Australia, which comprises the balance sheet as at
30 June 2011, the income statement, the statement of comprehensive income, statement of changes in equity and the statement of
cash flows for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’
declaration for both the Commonwealth Bank of Australia and the Group (the consolidated entity). The consolidated entity comprises
the Commonwealth Bank of Australia and the entities it controlled at the year’s end or from time to time during the financial year.
Directors’ responsibility for the financial report
The directors of the Commonwealth Bank of Australia are responsible for the preparation of the financial report that gives a true and fair
view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors
determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or
error. In Note 1(a), the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements,
that the financial statements comply with International Financial Reporting Standards.
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.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The
procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial
report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control 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 control. 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.
Our procedures include reading the other information in the Annual Report to determine whether it contains any material
inconsistencies with the financial report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.
Independence
In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.
PricewaterhouseCoopers, ABN 52 780 433 757
Darling Park Tower 2, 201 Sussex Street, GPO BOX 2650, SYDNEY NSW 1171
DX 77 Sydney, Australia
T +61 2 8266 0000, F +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
Commonwealth Bank of Australia Annual Report 2011
231
Independent auditor’s report to the members of the Commonwealth Bank of Australia (continued)
Auditor’s opinion
In our opinion:
(a)
the financial report of the Commonwealth Bank of Australia is in accordance with the Corporations Act 2001, including:
(i)
giving a true and fair view of the Commonwealth Bank of Australia and consolidated entity’s financial position as at 30
June 2011 and of their performance for the year ended on that date; and
(ii)
complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the
Corporations Regulations 2001; and
(b)
the financial report also complies with International Financial Reporting Standards as disclosed in Note 1(a).
Report on the Remuneration Report
We have audited the remuneration report included in pages 72 to 91 of the directors’ report for the year ended 30 June 2011. The
directors of the Commonwealth Bank of Australia are responsible for the preparation and presentation of the remuneration report in
accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report,
based on our audit conducted in accordance with Australian Auditing Standards.
Auditor’s opinion
In our opinion, the remuneration report of the Commonwealth Bank of Australia for the year ended 30 June 2011 complies with section
300A of the Corporations Act 2001.
PricewaterhouseCoopers
Rahoul Chowdry
Partner
Sydney
10 August 2011
232
Commonwealth Bank of Australia Annual Report 2011
Shareholding Information
Top 20 Holders of Fully Paid Ordinary Shares as at 5 August 2011
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 Limited
Citicorp Nominees Pty Limited
RBC Dexia Investor Services Australia Nominees Pty Limited
Cogent Nominees Pty Limited
AMP Life Limited
Australian Foundation Investment Company Limited
UBS Wealth Management Australia Nominees Pty Limited
Queensland Investment Corporation
Bond Street Custodians Limited
Australian Reward Investment Alliance
Milton Corporation Limited
Argo Investments Limited
Invia Custodian Pty Limited
Perpetual Trustee Co Ltd (Hunter)
UBS Nominees Pty Ltd
Questor Financial Services Limited
Suncorp Custodian Services Pty Ltd
ANZ Executors & Trustee Company Limited
Number of Shares
199,701,465
166,016,623
131,816,588
67,836,352
29,371,985
26,269,181
12,899,928
8,507,900
7,839,679
5,846,258
4,555,964
3,619,024
3,013,225
2,707,895
2,664,692
2,453,418
2,368,939
2,027,444
1,969,648
1,413,823
%
12.81
10.65
8.46
4.35
1.88
1.69
0.83
0.55
0.50
0.38
0.29
0.23
0.19
0.17
0.17
0.16
0.15
0.13
0.13
0.09
The top 20 shareholders hold 682,900,031 shares which is equal to 43.81% of the total shares on issue.
Stock Exchange Listing
The shares of the Commonwealth Bank of Australia are listed on the Australian Securities Exchange under the trade symbol CBA, with
Sydney being the home exchange.
Details of trading activity are published in most daily newspapers, generally under the abbreviation of CBA or C’wealth Bank. The Bank
does not have a current on-market buy-back of its shares.
Range of Shares (Fully Paid Ordinary Shares and Employee Shares): 5 August 2011
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
Number of
Shareholders
587,741
182,880
17,337
7,372
231
795,561
15,873
Percentage of
Shareholders
73.88
22.99
2.18
0.92
0.03
100.00
2.00
Number of
Shares
196,677,335
378,342,371
118,918,682
139,589,651
725,139,205
1,558,667,244
75,042
Percentage of
Issued Capital
12.62
24.27
7.63
8.96
46.52
100.00
0.00
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
•
• On a poll only one official representative may exercise the Equity holders 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 holders 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.
Commonwealth Bank of Australia Annual Report 2011
233
Shareholding Information
Top 20 Holders of Perpetual Exchangeable Repurchaseable Listed Shares III (“PERLS III”) as at 5 August 2011
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Name of Holder
RBC Dexia Investor Services Australia Nominees Pty Limited
J P Morgan Nominees Australia Limited
AMP Life Limited
UBS Wealth Management Australia Nominees Pty Ltd
Mr Walter Lawton and Mrs Jan Rynette Lawton
National Nominees Limited
Citicorp Nominees Pty Limited
Perpetual Trustee Company Limited
ANZ Executors & Trustee Company Limited
The Australian National University Investment Section
Mr John Stuart Walker + Mr Ralph Lane
Catholic Education Office Diocese of Parramatta
Truckmate (Australia) Pty Limited
M F Custodians Ltd
Questor Financial Services Limited
Kerlon Pty Ltd
UCA Cash Management Fund Limited
Cogent Nominees Pty Limited
Mifare Pty Limited
HSBC Custody Nominees (Australia) Limited
Number of Shares
181,173
172,801
155,309
138,662
70,000
64,621
63,694
61,803
53,075
51,282
50,000
49,750
35,000
34,726
30,414
30,000
25,996
25,354
25,000
24,394
%
3.11
2.96
2.66
2.38
1.20
1.11
1.09
1.06
0.91
0.88
0.86
0.85
0.60
0.60
0.52
0.51
0.45
0.43
0.43
0.42
The top 20 PERLS III shareholders hold 1,343,054 shares which is equal to 23.03% 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 Securities 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): 5 August 2011
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
Number of
Shareholders
17,916
531
39
31
4
18,521
21
Percentage of
Shareholders
96.73
2.87
0.21
0.17
0.02
100.00
0.11
Number of
Shares
3,022,072
1,037,917
301,098
875,360
595,834
5,832,281
40
Percentage of
Issued Capital
51.81
17.80
5.16
15.01
10.22
100.00
0.00
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 page 233 for the Bank’s ordinary shares.
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;
•
•
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.
234
Commonwealth Bank of Australia Annual Report 2011
Top 20 Holders of Perpetual Exchangeable Resaleable Listed Securities IV (“PERLS IV”) as at 5 August 2011
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
AMP Life Limited
UBS Wealth Management Australia Nominees Pty Limited
RBC Dexia Investor Services Australia Nominees Pty Limited
Citicorp Nominees Pty Limited
Questor Financial Services Limited
HSBC Custody Nominees (Australia) Limited
Avanteos Investments Limited
UCA Cash Management Fund Limited
Invia Custodian Pty Limited
National Nominees Limited
Eastcote Pty Ltd
Cogent Nominees Pty Limited
The Australian National University Investment Section
Australian Executor Trustees Limited
Perpetual Trustee Co Ltd (Hunter)
Bond Street Custodians Limited
Catholic Education Office Diocese of Parramatta
Bournda Downs Pty Limited
Mutual Trust Pty Ltd
Number of Shares
303,841
236,578
154,502
153,024
149,498
120,144
82,435
75,229
71,567
66,686
54,250
50,000
35,268
31,082
29,496
28,584
26,416
25,000
24,500
18,891
%
4.15
3.23
2.11
2.09
2.04
1.64
1.13
1.03
0.98
0.91
0.74
0.68
0.48
0.42
0.40
0.39
0.36
0.34
0.33
0.26
The top 20 PERLS IV shareholders hold 1,736,991 shares which is equal to 23.71% 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): 5 August 2011
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
Number of
Shareholders
16,579
759
49
38
5
17,430
1
Percentage of
Shareholders
95.12
4.35
0.28
0.22
0.03
100.00
0.01
Number of
Shares
3,553,657
1,568,561
377,961
941,313
883,508
7,325,000
2
Percentage of
Issued Capital
48.52
21.41
5.16
12.85
12.06
100.00
0.00
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
•
Furthermore if PERLS IV convert into ordinary shares of the Bank in accordance with their terms of issue, the voting rights of the
ordinary shares will be as set out on page 233.
During the winding-up of the Bank.
At a general meeting of the Bank, holders of PERLS IV are entitled:
• On a show of hands, to exercise one vote when entitled to vote on the matters listed above; and
• On a poll, to exercise one vote for each preference share.
The holders will be entitled to the same rights as the holders of the Bank’s ordinary shares in relation to receiving notices, reports and
financial statements and attending and being heard at all general meetings of the Bank.
Commonwealth Bank of Australia Annual Report 2011
235
Shareholding Information
Top 20 Holders of Perpetual Exchangeable Resaleable Listed Securities V (“PERLS V”) as at 5 August 2011
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Name of Holder
RBC Dexia Investor Services Australia Nominees Pty Limited
UBS Wealth Management Australia
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
Questor Financial Services Limited
Invia Custodian Pty Limited
Australian Executor Trustees Limited
Netwealth Investments Limited
Avanteos Investments Limited
National Nominees Limited
Dimbulu Pty Ltd
Scenic Tours Pty Ltd
Perpetual Trustee Co Ltd (Hunter)
ABN AMRO Clearing Sydney Nominees Pty Ltd
Bond Street Custodians Limited
UBS Nominees Pty Ltd
W Mitchell Investments Pty Ltd
JMB Pty Ltd
Citicorp Nominees Pty Limited
Peters (Meat) Export Pty Ltd
Number of Shares
283,507
217,922
172,942
142,864
120,237
59,054
58,599
55,705
53,670
50,113
50,000
46,540
46,082
44,753
39,965
38,836
37,500
33,925
32,624
29,050
%
2.84
2.18
1.73
1.43
1.20
0.59
0.59
0.56
0.54
0.50
0.50
0.47
0.46
0.45
0.40
0.39
0.38
0.34
0.33
0.29
The top 20 PERLS V shareholders hold 1,613,888 shares which is equal to 16.14% of the total shares on issue.
Stock Exchange Listing
PERLS V are stapled securities issued by The Commonwealth Bank of Australia and are listed on the Australian Securities Exchange
under the trade symbol CBAPA, with Sydney being the home exchange. Details of trading activity are published in most daily
newspapers.
Range of Shares (PERLS V): 5 August 2011
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
Number of
Shareholders
31,992
1,038
59
50
5
33,144
3
Percentage of
Shareholders
96.52
3.13
0.18
0.15
0.02
100.00
0.01
Number of
Shares
5,466,586
2,067,412
452,441
1,218,386
795,175
10,000,000
3
Percentage of
Issued Capital
54.67
20.67
4.53
12.18
7.95
100.00
0.00
PERLS V 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
•
Furthermore if PERLS V convert into ordinary shares of the Bank in accordance with their terms of issue, the voting rights of the ordinary
shares will be as set out on page 233.
During the winding-up of the Bank.
At a general meeting of the Bank, holders of PERLS V are entitled:
• On a show of hands, to exercise one vote when entitled to vote on the matters listed above; and
• On a poll, to exercise one vote for each preference share.
The holders will be entitled to the same rights as the holders of the Bank’s ordinary shares in relation to receiving notices, reports and
financial statements and attending and being heard at all general meetings of the Bank.
Trust Preferred Securities
550,000 Trust Preferred Securities were issued on 6 August 2003. Cede & Co is registered as the sole holder of these securities.
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 page 233 for the Bank’s ordinary shares and page 234 for the preference shares.
236
Commonwealth Bank of Australia Annual Report 2011
Australia
Head Office
Commonwealth Bank of Australia
Ground Floor, Tower 1
201 Sussex Street
Sydney NSW 2000
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
Barbara Chapman
Sovereign Group Limited
Sovereign House, 74 Taharato Road
Takapuna, Auckland
Telephone: (64 9) 487 9000
Facsimile: (64 9) 486 1913
Managing Director
Charles Anderson
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
China Chief Representative
Tony Zhang
CommBank Management Consulting
(Shanghai) Co., Ltd
11F Azia Centre
1233 Lujiazui Ring Road, Pudong
Shanghai 200120
Telephone: (86 21) 6058 0100
Facsimile: (8621) 6168 3298
Executive General Manager China
Karen Chen
CBA Shanghai Branch Office
Level 11 Azia Centre
1233 Lujiazui Ring Road
Pudong
Shanghai 200120
Telephone: (86 21) 6123 8900
Facsimile: (86 21) 6165 0285
Branch Manager Shanghai
Stanley Lo
First State Cinda Fund Management Co.
Ltd.
24th Floor, China Merchants Bank Building
7088, Shen Nan Road, Shenzhen
China 518040
Telephone: (86 755) 8317 2666
Facsimile: (86 755) 8319 6151
Regional Managing Director,
Asia and Japan
Michael Stapleton
International Representation
Hong Kong
CBA Branch Office
1501-5, Chater House
8 Connaught Road,
Central
Hong Kong
Telephone: (852) 2844 7500
Facsimile: (852) 2845 9194
Regional General Manager Asia
Stephen Poon
First State Investments (Hong Kong) Limited
6th Floor, Three Exchange Square
8 Connaught Place, Central
Hong Kong
Telephone: (852) 2846 7555
Facsimile: (852) 2868 4742
Regional Managing Director,
Regional Head Asia
Michael Stapleton
India
CBA Mumbai Branch
Level 2, Hoechst House
Nariman Point
Mumbai 400021
Telephone: (91 22) 6139 0100
Fascimile: (91 22) 6139 0200
Chief Executive Officer
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
Tony Costa
PT Commonwealth Life
Level 8, Wisma Metropolitan II
JI. Jendral Sudirman Kav. 29-31
Jakarta 12920
Telephone: (62 21) 570 5000
Facsimile: (62 21) 520 5353
President Director
Simon Bennett
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
CEO
Hario Soeprobo
Japan
CBA Branch Office
8th Floor, Toranomon Waiko Building
12-1 Toranomon 5-chome
Minato-ku, Tokyo 105-0001
Telephone: (81 3) 5400 7280
Facsimile: (81 3) 5400 7288
Branch Head Tokyo
Martin Spann
Malta
CommBank Europe Limited
Level 3 Strand Towers
36 The Strand
Sliema SLM07
Telephone: (356) 2132 0812
Facsimile: (356) 2132 0811
Director/Chief Financial Officer
John Kiddier
Singapore
CBA Branch Office
One Temasek Avenue
#17-01 Millenia Tower
Singapore 039192
Telephone: (65) 6349 7000
Facsimile: (65) 6224 5812
Country Head
Gregory Williams
First State Investments (Singapore)
One Temasek Avenue
#17-01 Millenia Tower
Singapore 039192
Singapore
Telephone: (65) 6538 0008
Facsimile: (65) 6538 0800
Regional Head Asia
Michael Stapleton
Vietnam
CBA Representative Office
Suite 202-203A
The Central Building
31 Hai Ba Trung, Hanoi
Telephone: (84 4) 3824 3213
Facsimile: (84 4) 3824 3961
Director of Investment and Banking
Hahn Nuygen
CBA HCMC Branch office
Ground Floor
Han Nam Office
65 Nguyen Du St., Dist. 1
Ho Chi Minh City
Telephone: (84 8) 3824 1525
Facsimile: (84 8) 3824 2703
General Director
Ross Munn
Americas
United States
CBA Branch Office
Level 17, 599 Lexington Avenue
New York NY 10022
Telephone: (1 212) 848 9391
Facsimile: (1 212) 336 7772
General Manager, Americas
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) 7329 6611
Regional General Manager Europe
Paul Orchart
First State Investments (UK) Limited
3rd Floor, 30 Cannon Street
London EC4M 6YQ
Telephone: (44 0 20) 7332 6500
Facsimile: (44 0 20) 7332 6501
Chief Executive Officer
Gary Withers
Edinburgh
23 St Andrew Square
Edinburgh EH2 1BB
Telephone: (44 0 131) 473 2200
Facsimile: (44 0 131) 473 2222
Managing Partners
Stuart Paul and Angus Tulloch
Commonwealth Bank of Australia Annual Report 2011
237
Contact Us
132 221 General Enquiries
For your everyday banking including paying bills using BPAY®
our automated service is available 24 hours a day, 7 days a
week.
Lost or Stolen Cards
To report a lost or stolen card 24 hours a day, 7 days a week.
From overseas call +61 132 221. Operator assistance is
available 24 hours a day, 7 days a week.
® Registered to BPAY Pty Ltd ABN 69 079 137 518
132 224 Home Loans & Investment Home Loans
To apply for a new home loan/investment home loan or to
maintain an existing loan. Available from 8am to 10pm, 7 days a
week.
131 431 Personal Loan Sales
To apply for a new personal loan.
Available from 8am to 8pm, 7 days a week.
1800 805 605 Customer Relations
Available from 8am to 8pm (Sydney Time), Monday to Friday,
for share trading and stock market enquiries, and 8am to 8pm 7
days a week for Commsec Cash Management. A 24 hour lost
and stolen card line is available 24 hours, 7 days a week.
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
131 709 8am to 8pm (Sydney Time) Monday to Friday or visit
www.commsec.com.au.
1800 019 910 Corporate Financial Services
For a full range of financial solutions for medium-size and larger
companies.
Available from 8am to 6pm (Sydney Time), Monday to Friday.
131 998 Local Business Banking
A dedicated team of Business Banking Specialists, supporting a
network of branch business bankers, will help you with your
financial needs.
Available 24 hours a day, 7 days a week or visit
www.commbank.com.au/lbb
If you would like to pay us a compliment or are dissatisfied with
any aspect of the service you have received.
1300 245 463 (1300 AGLINE) AgriLine
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, 7
days a week.
Do your everyday banking on our internet banking service
NetBank at www.commbank.com.au/netbank available 24 hours
a day, 7 days a week.
To apply for access to NetBank, call 132 828.
Available 24 hours a day, 7 days a week.
Do your business banking on our Business Internet Banking
at www.commbank.com.au/CommBiz
Service CommBiz
available 24 hours a day, 7 days a week.
To apply for access to CommBiz, call 132 339.
Available 24 hours a day, 7 days a week.
Special Telephony Services
Customers who are hearing or speech impaired can contact us
via the National Relay Service (www.relayservice.com.au) (24
hours a day, 7 days a week).
• Telephone Typewriter (TTY) service users can be connected
to any of our telephone numbers via 133 677.
• Speak and Listen (speech-to-speech relay) users can also
connect to any of our telephone numbers by calling
1300 555 727.
•
Internet relay users can be connected to our telephone
numbers via National Relay Service.
131 519 CommSec (Commonwealth Securities)
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
238
Commonwealth Bank of Australia Annual Report 2011
A dedicated team of Agribusiness Specialists will help you with
your financial needs. With our Business Banking team living in
regional and rural Australia, they understand the challenges you
face. Available from 8am to 6pm, Monday to Friday (Sydney
time).
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
1300 362 081 Commonwealth Private
Commonwealth Private offers clients with significant financial
resources a comprehensive range of services, advice and
opportunities to meet their specific needs. For a confidential
discussion about how Commonwealth Private can help you, call
1300 362 081 between 8am to 5:30pm (Sydney time), Monday
to Friday or visit www.commonwealthprivate.com.au
132 015 Commonwealth Financial Services
For enquiries on retirement and superannuation products, or
managed investments. Available from 8.30am to 6pm (Sydney
Time), Monday to Friday.
Unit prices are available 24 hours a day, 7 days a week.
CommInsure
For all your general insurance needs call 132 423 8am to 8pm
(Sydney Time), 7 days a week.
For all your life insurance needs call 131 056 8am to 8pm
(Sydney Time), Monday to Friday.
Alternatively, visit www.comminsure.com.au
Corporate Directory
Registered Office
Ground Floor, Tower 1
201 Sussex Street
Sydney NSW 2000
Telephone (61 2) 9378 2000
Facsimile (61 2) 9118 7192
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: (61 2) 8280 7199
Facsimile: (61 2) 9287 0303
Freecall: 1800 022 440
Internet: www.linkmarketservices.com.au
Email: cba@linkmarketservices.com.au
Telephone numbers for overseas shareholders
New Zealand
0800 442 845
United Kingdom
0845 769 7502
Fiji
008 002 054
Other International
(61 2) 8280 7199
Australian Securities Exchange Listing
CBA
Annual Report
To request a copy of the Annual Report, please call Link
Market Services Limited on 1800 022 440 or by email at
cba@linkmarketservices.com.au
Electronic versions of Commonwealth Bank’s past and
current Annual Reports are available on
www.commbank.com.au/shareholder/annualreports
Commonwealth Bank of Australia Annual Report 2011
239
This page has been intentionally left blank
240
Commonwealth Bank of Australia Annual Report 2011