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Annual
Report
2013
CommonweAlth BAnk oF AuStrAliA | ACn 123 123 124
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CBA1421 010912
CBA1421 190813
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Contents
Chairman’s Statement
Chief Executive Officer’s Statement
Highlights
Group Performance Analysis
Group Operations and Business Settings
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
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Annual Report 2013
1
Subject to Chairman’s Review
income ratio
revenues and productivity improvements; and
improved
to 45.0% reflecting higher
Loan impairment expense decreased 1% to $1,082
million, reflecting the gradual improvement in credit card
and home
loan arrears, with economic overlays
maintained at existing levels.
The Group’s assets increased by $35 billion over the prior
year, despite subdued underlying credit growth. This was
largely driven by an increase in home lending, business and
corporate lending balances and higher derivative asset
balances.
The Group’s funding requirements were mainly generated
from deposits, growing by 7% to $405 billion. Customer
deposits now make up 63% of total funding.
Dividends and Capital
The Group’s ability to deliver strong performance and to be
one of a handful of global banks which have maintained
double A credit ratings, has been underpinned by our
decision to retain conservative business settings, particularly
with respect to provisioning, liquidity, funding and capital.
As far as capital is concerned, global regulators, including our
domestic regulator, the Australian Prudential Regulation
Authority (APRA), have introduced significant reforms in
response to the problems faced by many financial institutions
as a result of the Global Financial Crisis.
Further capital reforms are expected over the next twelve
months and the coming years, including the introduction of
the Level 3 conglomerate
the
in 2014 and
implementation of the capital conservation buffer in 2016.
reforms
The Group adopted
III measurement and
the Basel
monitoring of regulatory capital effective from 1 January 2013,
and has taken a conservative and proactive approach to
capital management. This is reflected in the overall strength
of the Group’s capital position. The CET1 ratio (on an
internationally harmonised basis) has increased by nearly
60% since the Global Financial Crisis (June 2007). The
Group’s 30 June 2013 internationally harmonised CET1 ratio
of 11.0%, places it well above the average of its international
peers and comfortably above your Board’s approved target.
There has inevitably been a significant cost and investment of
management time in relation to implementing increasingly
complex regulatory reforms. The Group welcomes the recent
announcement by
the Basel Committee of Banking
Supervision of a review of the Basel capital framework in
order to balance risk sensitivity and ensure simplicity and
comparability.
Last year, I reported that your Board had reviewed the
Group’s dividend policy. This revised policy included a target
payout ratio of between 70% and 80% of cash earnings and a
more even distribution as between the interim and final
dividend. I also indicated that the Board would consider
minimising the dilutive impacts of the Dividend Reinvestment
Plan (“DRP”) through neutralisation initiatives.
Consistent with this revised policy the Group has, this year:
Increased the total dividend payment by 9% to $3.64,
which represents a payout ratio for the year of 75.4% of
cash earnings, compared with last year’s ratio of 75.0%;
Increased the interim dividend by 20% to $1.64 with the
final dividend up 2% on last year’s final to $2.00; and
In light of the Group’s strong capital position, neutralised
the dilutive impact of the DRP through an on market
share purchase for the interim dividend and intends
doing the same for the final dividend payable in October
2013.
The other major capital initiative for the year was the issue, in
October 2012, of $2 billion Perpetual Exchangeable
Resalable Listed Securities (PERLS VI), which is a Basel III
compliant, Additional Tier One Capital security. The proceeds
of this issue were used, to the extent necessary, to refinance
PERLS IV and otherwise to fund the Group’s business.
Existing holders of CBA ordinary shares and hybrid
instruments were given priority in subscribing for PERLS VI.
Chairman’s Statement
Introduction
Over the past twelve months, the global economy (outside
Australia) has gradually improved, which is better than our
view last year. In particular there has been some positive
momentum in the United States.
There has however not been similar momentum in Europe,
and the structural imbalances between North and South seem
as challenging as ever.
there appears
In China
from
infrastructure led growth to one driven by consumption with
resultant growth prospects settling at a slightly lower level
than seen in the past.
to have been a shift
This combination of conditions has not had a positive impact
on the Australian economy where notwithstanding some
recent softening, the Australian dollar remains high. The
outlook for continued investment in the resources sector has
done little to improve consumer and corporate confidence.
This in turn has meant that credit growth has remained
subdued.
On the positive side however, there have been signs of a
gradual improvement in demand for housing finance where
falling interest rates have encouraged buyers to return to the
market.
Despite the subdued environment, the Group has delivered
another good result, which is a tribute to our continued
execution of key strategic and operational initiatives both
within Australia and to a lesser extent in our businesses
overseas where our capability continues to grow.
the
In this low growth environment, value has been delivered by
recognising
financial
wellbeing of our customers, by continued investment in
technology and through a relentless focus on productivity and
process simplification.
importance of enhancing
the
In short, we have focused on quality, both in customer service
and business processes. This focus will remain a priority in
both the coming and future years.
The Group continues to be managed conservatively with
strong capital, high levels of liquidity and robust provisioning.
The Group remains well funded, which has enabled us to
continue supporting our customers, some of whom are finding
the current environment challenging.
Operating and Financial Results
The Group has delivered another good result despite
subdued underlying credit growth.
Net profit after tax on a cash basis increased 10% on the prior
year to $7,819 million. The Group delivered a strong Return
on Equity (ROE) performance of 18.4%, again on a cash
basis. Key elements of the result were:
Net interest income increased 6% to $13,944 million,
reflecting 4% growth in average interest earning assets
and a four basis point increase in net interest margin;
Other banking income increased by 7% to $4,221 million
driven by a rebound in Markets trading income and a
modest increase in lending fees;
increased 10%
Funds management
to
income
$2,146 million, driven by a combination of factors,
including a 13% increase in Funds Under Administration
as investment markets improved, strong net flows into
the FirstChoice and Customs Solutions Platforms and
higher performance fees received by CFSGAM;
Insurance income increased 8% to $1,034 million, driven
by 16% average inforce premium growth as strong
sales, and favourable claims experience in retail life was
partially offset by unfavourable claims experience in
wholesale life and increased lapse rates in retail life;
Operating expenses increased 4% to $9,605 million,
driven by inflation-related salary increases and higher
superannuation expenses, higher occupancy and
equipment expenses and an increase in information
technology costs driven by system enhancements and
increased software amortisation. The Group’s cost to
2
Commonwealth Bank of Australia
Corporate Governance and Board
Performance
The Board’s Non-Executive Directors meet at least annually
for an open discussion on the Board’s performance and to
identify where
in Board
processes. The review process includes a performance
assessment of the Board Committees and each Director.
improvements can be made
This year the Board again used an independent facilitator for
its performance review, which reported on progress against
last year’s findings in terms of both collective challenge and
individual contributions. It was a positive review, which also
endorsed the current Board and Committee processes. The
assessment has been considered by the Board and individual
Director assessments have been diarised with Directors by
the Chairman of the Board.
While there were no new Non-Executive Directors appointed
to the Board this year, the Board Performance and Renewal
Committee continues to look for Board candidates with the
capability to contribute to thought processes relating to the
business and
to challenge effectively and motivate
management to achieve sustained, outstanding performance
in all respects.
In appointing new Non-Executive Directors,
the Board
Performance and Renewal Committee assesses the skills,
experience and personal qualities of candidates. It also takes
into consideration other attributes including diversity to ensure
the
that any appointment decisions adequately reflect
aspirations of the Group and the environment in which it
operates.
The continuing education of Non-Executive Directors is a
priority, with the Board providing formal ongoing exposure to
a wide range of relevant issues. This program 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.
The Group also surveyed some of our individual shareholders
and had one-on-one critical presentations from senior fund
managers and sell-side analysts. This open and independent
exposure of the Board to its stakeholder groups is essential
for the Board’s understanding of the Bank’s owners.
I would like to thank all of my fellow directors for their hard
work and support over the last year.
Chairman’s Statement
Outlook
As I said earlier and looking back on last year’s letter, it would
be fair to say that the improvement in the international macro
environment has been slightly better than we had anticipated.
In particular, the United States economy seems to be on a
much sounder footing and looks to have good positive
momentum, although there are clearly still longer term
structural issues to be resolved. In Europe, volatility seems to
have reduced and the outlook is more positive than it was this
time last year. Having said that, I still believe it will take some
time before the Eurozone returns to a period of sustainable
economic growth.
In China the political concerns of last year appear to have
abated, although economic growth seems to be settling at a
slightly lower level than previously. I have no doubt that China
will continue to experience some volatility but medium to
longer term economic prospects remain positive.
So, turning to the prospects for the 2014 financial year, our
outlook for the global economy remains similar to six months
ago. Our primary areas of economic focus are the level of
confidence of Australian business and households, the impact
of economic conditions in China on the demand and price for
resources, the value of the Australian dollar and the resultant
impact on export-sensitive parts of the Australian economy
and the stability of funding markets. Indicators relating to all of
these factors have been mixed over the past six months, and
we expect that to remain the case in the near term. In
addition, competition will remain strong in all our businesses,
both from traditional financial services competitors and new
technology-enabled business models.
Overall we believe that the underlying conditions for our
business in the 2014 financial year will be similar to those we
have experienced in the recently completed year. However,
we are well positioned to meet the needs of our customers
should the economy rebound more quickly than anticipated.
We have a truly excellent management team leading the
Group and, in this challenging world, your Board is confident
that they will succeed.
I would like to thank our customers and shareholders for their
continuing support for the Commonwealth Bank of Australia.
Finally for all the staff of the Group on whom we depend for
our success, thank you.
David J Turner
Chairman
13 August 2013
Annual Report 2013
3
Chief Executive Officer’s Statement
As David Turner has noted in his Chairman’s Statement, the
economic environment during the 2013 financial year was
mixed. Whilst many indicators around the world economy
improved, others deteriorated. Market volatility was generally
lower than we had seen the previous year. But in Australia,
the lack of a clear global recovery, combined with doubts
about the shape of the economy following a reduction in
global resources receipts continued to supress confidence.
Against that backdrop, our continuing focus on our long term
strategy ensured that the Group performed well during the
2013 financial year. The strategy that we announced 18
months ago, which is very similar to the one the Group has
been following since 2006, has customer focus as its
overarching priority. The underlying belief is that satisfied
customers lead to satisfied shareholders.
During the 2013 financial year, our multi-year trend of
improving customer satisfaction continued. In 2006, CBA
lagged all major competitors in customer satisfaction. The
gap between CBA and the leading competitor was 12.5%.
The Group set a goal of not only reducing that gap, but
becoming the leading major bank in retail MFI customer
satisfaction as measured by the Roy Morgan survey. In
January this year, we achieved that goal. And we have held
that position since then. Moreover, the most recent result,
June 2013, was the highest in the Group’s history. When
combined with leading customer satisfaction positions in our
Business and Private Banking, Institutional Banking and
Wealth Management businesses, this provides a strong
foundation for on-going success.
Satisfied customers led to market share growth across many
different parts of our retail banking business during the year,
particularly in the second half. We also grew lending in our
business bank considerably faster than the market. And our
Wealth Management business benefited from better in-flows,
as well as improved equity markets, with Funds Under
Administration up $44 billion and cash NPAT up 9%. Although
some of these market share gains were offset to some extent
by continuing margin pressure in deposits, revenue growth
overall was a robust 7%.
Our strategy of customer focus is built around four key
capabilities: people, technology, productivity and strength.
the
I am extremely proud of
Of course customer satisfaction depends first and foremost
on people.
team at
Commonwealth Bank. This year I have had the pleasure of
visiting our teams in places as different as Albury and
Edinburgh. One of the strengths of the Group is that branch
managers in Albury and asset managers in Edinburgh share
a passion to do their best for the benefit of our customers,
and a desire to collaborate across the Group to that end. Our
people remain our most important asset and this year’s result
is a tribute to their commitment and hard work. All of our
internal measures confirm our impressions that our people
are highly engaged.
Another critical part of our customer focus over many years
has been our investment in technology. During the 2013
financial year, we completed our Core Banking Modernisation
upgrade. This project involved approximately 1,500 people
working full-time for six years. Their work has resulted in
industry-leading features for customers, centred around the
only true 24 hours a day, seven days a week core banking
system among the major banks in Australia (and one of the
few in the world for a bank of this scale). With the project now
completed, we are focused on continuous innovation for the
benefit of our customers. Examples of recent innovations
which are directly benefiting our customers include in-branch
video conferencing, Everyday Settlements, Commbiz Mobile,
Kaching and our new point of sale offerings of Pi, Albert and
Leo. We believe we are still only at the start of our long term
effort to apply world-leading technology for the benefit of our
customers.
focus
Our systems investment is also an important enabler of our
group-wide focus on productivity. Productivity will be a multi-
year
the initiatives we
embarked on during the year have seen us make significant
progress in embedding a productivity culture throughout the
Group. We believe that this strategy is not about short term
for the organisation and
4
Commonwealth Bank of Australia
cost cutting, but about sustainable change. We will apply the
same level of focus and discipline as we have on customer
satisfaction, since the two are closely linked. Our aspiration
remains making our business more customer friendly and
efficient
term
expenses to an appropriate level.
term, while managing short
in the
long
Through the successful execution of this program over
several years, the Group will avoid short term cost cutting
initiatives that damage morale and thereby undermine long
term value. We have not, and will not, set targets for
reduction in people numbers. Nor will we resort to offshoring
of Australian jobs.
the most significant benefits of
Though
focus on
productivity will likely be felt in the medium term, we already
saw early signs of progress in the past financial year. Our
cost to income ratio improved by 100 basis points to 45.0%.
And importantly, we were able to achieve this improvement
while still making $1.2 billion of investments for the long term,
and absorbing the significant costs of new regulation.
this
fourth capability, strength, also
Our
influenced our
performance in the past year. Given the continued uncertainty
in the global economy and our cautious view of the prospects
for growth in the domestic economy, we retained our
conservative mindset throughout the year. As at the end of
the financial year, our capital and liquidity positions are as
strong as they have ever been. We are well-funded with high
levels of
liquidity. And we have retained conservative
provisioning, alongside a very strong capital position relative
to both domestic and international peers. We have also
maintained our discipline in lending standards. Given the
strength of the Group we have ample capacity to support our
customers.
Our strategy is built around the application of these four
capabilities (people, technology, productivity and strength) to
growth opportunities. This starts with our domestic financial
services businesses, where we see an opportunity for
continued growth by deepening our relationships with our
customers. Our “One Commbank” initiative aims to make it
easy for our customers to get the products they need,
however they choose to do so. This initiative builds on our
industry-leading customer
reach, our customer-focused
technology systems, and above all, customer-focused and
collaborative people. One example of how these three areas
of advantage can work together is the roll-out of video
conferencing, which we now have in all our CBA branches.
This makes it easier for our customers to get expert advice
and access a much wider range of financial products. Again,
though it is a multi-year effort, we have already seen the
benefits in the 2013 financial year. We have again seen an
increase in products per customer, and have retained our
leadership position relative to our peers.
We also see an opportunity domestically to keep growing our
Business and
Institutional Banking businesses as we
leverage our technology to grow our Transaction Banking
business and look for new opportunities to provide our
customers with innovative products and ideas. We have also
continued to make small discrete investments, designed to
further strengthen our domestic portfolio. In the 2013 financial
year, we were pleased to have the opportunity to increase our
ownership stake in Aussie Home Loans to 80%.
Outside Australia, we have a continuing appetite to apply
these capabilities where we believe that we can create long
term value for our shareholders. This applies particularly in
the Asian region, where we continue to follow a consistent
strategy of long term growth. Our retail, institutional and asset
management businesses in the region generated cash NPAT
in excess of $300 million during the 2013 financial year. Of
particular note during the year was the opening of five new
County Banks, and the approval for a Beijing branch, in
China.
Given the Group’s relative strength, we are still frequently
asked about our intentions regarding inorganic growth outside
Australia. Our position remains exactly as stated during our
strategy update 18 months ago: we would only undertake an
acquisition where it creates value for shareholders that they
could not create for themselves through direct investment in
Chief Executive Officer’s Statement
the relevant entity. Opportunities to create such value are
hard to find.
We are committed to having a positive impact on the financial
wellbeing of communities. In addition to some of our higher
profile partnerships, most notably Cricket Australia and the
Australian of the Year Awards, we have a strong multi-year
commitment to the Australian youth. During the year we
delivered our financial literacy program to more than 280,000
students from primary schools through to TAFE colleges. This
is the world’s largest face-to-face financial literacy program of
its kind and represents a significant investment by the Group
in the future of young people. Our people also awarded over
$2 million in grants through our Staff Community Fund,
largest and longest running workplace-giving
Australia’s
program, to more than 240 organisations that are improving
the health and wellbeing of Australian youth.
The Chairman’s letter makes it clear that while our long term
economic view remains positive, lack of consumer and
business confidence may continue to weigh on the economy
in the near term. We will stick to our strategy. Management’s
focus over the next 12 months will be continuing our multi-
year investments in the capabilities that underpin customer
focus. We are setting ourselves a high bar for improving
these capabilities, because we believe that by doing so we
can create value for our customers and our shareholders. So
during the 2014 financial year, we expect to make significant
progress on our One Commbank and productivity initiatives
with particular emphasis on delivering simplified and
streamlined interactions with our customers, improving the
capabilities of our front line staff and continuing to simplify our
products and processes.
In doing so, we must ultimately be guided by our vision.
During the 2013 financial year, we refreshed our vision, which
is now “to secure and enhance the financial wellbeing of
people, businesses, and communities”. The vision is intended
to remind us all of the high level of responsibility we have to
more than 10 million personal and business customers,
800,000 households who own our shares directly in addition
to the millions more who own our shares through super funds,
and the communities in which we operate. Our goal is to
ensure that each of our 50,000 employees recognises that
responsibility and gives of his or her best, guided by our
values of integrity, accountability, service, excellence and
collaboration. The challenges of the economy, combined with
the high quality of our competitors, mean that we must always
strive for higher standards and improved performance if we
are to maintain the strong momentum that the Group has
developed over many years.
Ian M Narev
Chief Executive Officer
13 August 2013
Annual Report 2013
5
Highlights
Group Performance Highlights
Financial Performance
Capital
III regulatory capital
The Group further strengthened its capital position under the
new Basel
framework. As at 30
June 2013 the Basel III Common Equity Tier One (CET1)
ratio as measured on a fully internationally harmonised basis
was 11.0%.
This places the Group in a strong position, compares
favourably to our international and domestic peers, and is well
above the regulatory minimum levels.
Funding
The Group has maintained conservative balance sheet
settings, with the majority of the Group’s lending growth
funded by growth in customer deposits. Customer deposits
constitute 63% of the Group’s funding base at 30 June 2013
up from 62% in the prior year.
Wholesale funding levels remained broadly stable over the
past 12 months, and while the cost of issuing new long term
wholesale funding has decreased, domestic deposit costs
remain at elevated levels, maintaining pressure on Group
margins over the year.
Dividends
The final dividend declared was $2.00 per share, bringing the
total dividend for the year ended 30 June 2013 to $3.64 per
share, an increase of 9% on the prior year. This represents a
dividend payout ratio (“cash basis”) of 75.4%.
The final dividend payment will be fully franked and paid on
3 October 2013 to owners of ordinary shares at the close of
business on 23 August 2013 (record date). Shares will be
quoted ex–dividend on 19 August 2013.
Outlook
The outlook for the global economy remains similar to six
months ago. The Group’s primary areas of economic focus
are the level of confidence of Australian businesses and
households, the impact of economic conditions in China on
the demand and price for resources, the value of the
Australian dollar and the resultant impact on export-sensitive
parts of the domestic economy and stability of funding
markets. Indicators relating to all of these factors have been
mixed over the past six months, and it is expected that will
remain the case in the near term. In addition, competition will
remain strong across all of the Group’s businesses, both from
traditional financial services competitors and new technology-
enabled business models. Overall, the Group believes that
the underlying conditions for its business in the 2014 financial
year will be similar to those experienced in the recently
completed year. However, the Group is well positioned to
meet the needs of its customers should the economy rebound
more quickly than anticipated.
The Group’s net profit after tax (“statutory basis”) for the year
ended 30 June 2013 increased 8% on the prior year to
$7,677 million.
Return on equity (“statutory basis”) was 18.2% and Earnings
per share (“statutory basis”) was 477.9 cents, an increase of
6% on the prior year.
The Management Discussion and Analysis discloses the net
profit after tax on both a statutory and cash basis. The
statutory basis is prepared and reviewed 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
the Group’s
to present a clear view of
underlying operating results, excluding 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
list of items excluded from statutory profit is provided in the
reconciliation of the Net profit after tax (“cash basis”) on
page 7 and described in greater detail on page 17.
The Group has produced another positive financial result
amidst mixed economic conditions, including subdued credit
growth, higher deposit funding costs, low interest rates, lower
marginal costs of raising new wholesale
funding and
improved equity markets.
to
focus on securing
The Group continues
term
sustainable competitive advantage through engaged staff
collaborating to identify and meet more of our customers’
needs. This long term focus, combined with a diversified
business model and a strong risk management culture, has
again generated superior returns.
long
Operating income growth reflected strong momentum across
the Retail, Wealth and New Zealand businesses. Business
banking revenue remained subdued amid strong competition
for domestic deposits.
Operating expenses reflect a continued appetite to invest in
technology and other growth initiatives, together with the
impact of costly regulatory change and compliance initiatives,
partly offset by productivity initiatives.
Loan impairment expense decreased slightly due to improved
home loan and credit card arrears, partly offset by increased
commercial loan charges. Asset quality remains sound with
continued conservative levels of provisioning and unchanged
economic overlays.
Net profit after tax (“cash basis”) for the year ended
30 June 2013
to
$7,819 million. Cash earnings per share increased 8% to
485.8 cents per share.
increased by 10% on
the prior year
the year ended
Return on equity (“cash basis”)
30 June 2013 was 18.4%, a decrease of 20 basis points on
the prior year, reflecting strong organic capital generation
from higher retained earnings and shareholder reinvestment
of the final dividend of the 2012 financial year.
for
6
Commonwealth Bank of Australia
Jun 13 vsJun 13 vsJun 13 vs 30 Jun 13Jun 12 % 30 Jun 13 30 Jun 12Jun 12 % 30 Jun 13 31 Dec 12Dec 12 %Net profit after tax ($M)7,67787,8197,113104,0393,7807Return on equity (%)18.2(50)bpts18.418.6(20)bpts18.818.170 bptsEarnings per share - basic (cents)477.96485.8449.48250.3235.56Dividends per share (cents)3649364334920016422Full Year EndedFull Year EndedHalf Year Ended("statutory basis")("cash basis")("cash basis")
Highlights
(1) For purposes of presentation, policyholder tax expense components of corporate tax expense are shown on a net basis (30 June 2013: $112 million;
30 June 2012: $122 million; and for the half years ended 30 June 2013: $28 million and 31 December 2012: $84 million).
(2) Non-controlling interests include preference dividends paid to holders of preference shares in ASB Capital Limited and ASB Capital No.2 Limited.
(3) Refer to page 17 for details.
(4) Comparative information has been restated to reflect changes in the presentation of segment results in the current year. The changes include the
reallocation of revenue, expenses and associated customer balances between segments based on where the customer relationship is managed; the
allocation of residual earnings on capital across the business segments; and the impact of the Group relinquishing the banking licence held by Bankwest
during October 2012.
Group Return on Equity
Group Return on Assets (1)
(1) Comparative information has been restated to conform to presentation in the current year.
Annual Report 2013
7
Group Performance30 Jun 1330 Jun 12Jun 13 vs30 Jun 1331 Dec 12Jun 13 vs30 Jun 13Jun 13 vsSummary$M$MJun 12 %$M$MDec 12 %$MJun 12 %Net interest income 13,94413,15767,0826,862313,9346Other banking income 4,2213,92772,0862,135(2)4,2374Total banking income18,16517,08469,1688,997218,1716Funds management income2,1461,957101,1131,03382,16512Insurance income1,034960852950551,218(1)Total operating income21,34520,001710,81010,535321,5546Investment experience15414937084(17)n/an/aTotal income21,49920,150710,88010,619221,5546Operating expenses(9,605)(9,196)4(4,850)(4,755)2(9,680)4Loan impairment expense(1,082)(1,089)(1)(466)(616)(24)(1,146)5Net profit before tax10,8129,865105,5645,248610,7288Corporate tax expense (1)(2,977)(2,736)9(1,517)(1,460)4(3,035)6Non-controlling interests (2)(16)(16)-(8)(8)-(16)-Net profit after tax ("cash basis")7,8197,113104,0393,7807n/an/aHedging and IFRS volatility (3)27124(78)37(10)largen/an/aOther non-cash items (3)(169)(147)15(60)(109)(45)n/an/aNet profit after tax ("statutory basis")7,6777,09084,0163,661107,6778Represented by: (4)Retail Banking Services 3,0542,703131,5481,5063Business and Private Banking 1,4881,513(2)7537352Institutional Banking and Markets 1,2101,098106076031Wealth Management68762993533346New Zealand635541173263096Bankwest561527630325817IFS and Other1841028014935largeNet profit after tax ("cash basis")7,8197,113104,0393,7807Investment experience - after tax(105)(89)18(48)(57)(16)Net profit after tax ("underlying basis")7,7147,024103,9913,7237StatutoryFull Year EndedFull Year EndedHalf Year Ended21.7%20.4%15.8%18.7%19.5%18.6%18.4%2007200820092010201120122013RoE - Cash (%)440488620646668719 7544.54.74.46.16.87.17.81.1%1.1%0.0%0.2%0.4%0.6%0.8%1.0%1.2%02004006008002007200820092010201120122013Total Assets ($bn)Cash NPAT ($bn)RoA - Cash (%)
Highlights
(1) Comparative information has been reclassified to conform to presentation in the current year.
(2)
(3) Net operating income represents total operating income less volume related expenses.
Includes IFS Asia.
8
Commonwealth Bank of Australia
Jun 13 vsJun 13 vsKey Performance Indicators 30 Jun 13 30 Jun 12Jun 12 % 30 Jun 13 31 Dec 12Dec 12 %GroupStatutory net profit after tax ($M)7,6777,09084,0163,66110Cash net profit after tax ($M)7,8197,113104,0393,7807Net interest margin (%) 2. 132. 094 bpts2. 172. 107 bptsAverage interest earning assets ($M) 653,637629,6854657,951649,3941Average interest bearing liabilities ($M) 609,557590,6543613,779605,4081Funds management income to average FUA (%) (1)0. 940. 97(3)bpts0. 940. 95(1)bpt Funds Under Administration (FUA) - average ($M) (1)227,780200,79213239,948215,55411Insurance income to average inforce premiums (%) (1) (2)36. 539. 2(270)bpts36. 836. 620 bptsAverage inforce premiums ($M) (2)2,8342,450162,8982,7366Operating expenses to total operating income (%)45. 046. 0(100)bpts44. 945. 1(20)bptsEffective corporate tax rate (%) 27. 527. 7(20)bpts27. 327. 8(50)bptsRetail Banking ServicesCash net profit after tax ($M) (1)3,0542,703131,5481,5063Operating expenses to total banking income (%) (1)38. 540. 1(160)bpts38. 238. 9(70)bptsBusiness and Private BankingCash net profit after tax ($M) (1)1,4881,513(2)7537352Operating expenses to total banking income (%) (1)36. 135. 740 bpts36. 236. 110 bptsInstitutional Banking and MarketsCash net profit after tax ($M) (1)1,2101,098106076031Operating expenses to total banking income (%) (1)34. 235. 1(90)bpts35. 233. 3190 bptsWealth ManagementCash net profit after tax ($M) (1)68762993533346FUA - average ($M)219,296193,27713231,138207,43711Average inforce premiums ($M) 2,0681,806152,1182,0215Funds management income to average FUA (%)0. 950. 98(3)bpts0. 940. 95(1)bpt Insurance income to average inforce premiums (%)34. 638. 3(370)bpts33. 136. 1(300)bptsOperating expenses to net operating income (%) (3)65. 667. 1(150)bpts64. 766. 5(180)bptsNew ZealandCash net profit after tax ($M) (1)635541173263096FUA - average ($M) (1)8,4847,515138,8108,1179Average inforce premiums ($M)516470105264986Funds management income to average FUA (%) (1)0. 640. 595 bpts0. 660. 615 bptsInsurance income to average inforce premiums (%)47. 948. 3(40)bpts51. 445. 0largeOperating expenses to total operating income (%) (1)46. 548. 3(180)bpts47. 045. 9110 bptsBankwestCash net profit after tax ($M) (1)561527630325817Operating expenses to total banking income (%) (1)47. 251. 0(380)bpts46. 747. 8(110)bptsCapital (Basel III) Common Equity Tier One (Internationally Harmonised %)11. 09. 8120 bpts11. 010. 640 bptsCommon Equity Tier One (APRA %)8. 27. 570 bpts8. 28. 110 bptsFull Year EndedHalf Year Ended
(1) Fully diluted EPS and weighted average number of shares are disclosed in Note 7.
(1) Prior periods have been restated in line with market updates.
(2) As at 31 May 2013.
(3) Other household lending market share includes personal loans and margin loans.
(4)
(5) As at 31 March 2013.
In accordance with RBA guidelines, these measures include some products relating to both the retail and corporate segments.
Highlights
Annual Report 2013
9
Jun 13 vsJun 13 vsShareholder Summary 30 Jun 13 30 Jun 12Jun 12 %30 Jun 13 31 Dec 12Dec 12 %Dividends per share - fully franked (cents) 364334920016422Dividend cover - cash (times)1. 31. 3-1. 21. 4(14)Earnings per share (cents)Statutory basis - basic 477. 9448. 96249. 3228. 69Cash basis - basic485. 8449. 48250. 3235. 56Dividend payout ratio (%)Statutory basis76. 875. 2160 bpts80. 772. 5largeCash basis 75. 475. 040 bpts80. 270. 2largeWeighted average no. of shares ("statutory basis") - basic (M) (1)1,5981,57021,6031,5931Weighted average no. of shares ("cash basis") - basic (M) (1)1,6011,57321,6061,5961Return on equity ("statutory basis") (%)18. 218. 7(50)bpts18. 817. 6120 bptsReturn on equity ("cash basis") (%)18. 418. 6(20)bpts18. 818. 170 bptsFull Year EndedHalf Year Ended30 Jun 1331 Dec 1230 Jun 12Jun 13 vsJun 13 vsMarket Share (1)%%%Dec 12 %Jun 12 %Home loans 25. 325. 125. 220 bpts10 bptsCredit cards - RBA (2)24. 323. 923. 540 bpts80 bptsOther household lending (3)16. 916. 516. 440 bpts50 bptsHousehold deposits 28. 828. 828. 9-(10)bptsRetail deposits (4)25. 425. 325. 410 bpts-Business lending - APRA 19. 119. 319. 3(20)bpts(20)bptsBusiness lending - RBA 17. 917. 717. 720 bpts20 bptsBusiness deposits - APRA 21. 520. 620. 690 bpts90 bptsAsset Finance13. 313. 313. 6-(30)bptsEquities trading 5. 25. 45. 5(20)bpts(30)bptsAustralian Retail - administrator view (5)15. 515. 415. 510 bpts-FirstChoice Platform (5)11. 611. 611. 8-(20)bptsAustralia life insurance (total risk) (5)13. 113. 313. 6(20)bpts(50)bptsAustralia life insurance (individual risk) (5)13. 013. 213. 3(20)bpts(30)bptsNZ lending for housing22. 322. 121. 920 bpts40 bptsNZ retail deposits20. 120. 220. 6(10)bpts(50)bptsNZ lending to business 10. 19. 89. 030 bpts110 bptsNZ retail FUA17. 917. 718. 820 bpts(90)bptsNZ annual inforce premiums 29. 529. 730. 3(20)bpts(80)bptsAs atCredit RatingsLong-termShort-termOutlookFitch RatingsAA- F1+ Stable Moody's Investor ServicesAa2 P-1 Stable Standard & Poor'sAA- A-1+ Stable
Group Performance Analysis
Financial Performance and Business Review
Year Ended June 2013 versus June 2012
Half Year Ended June 2013 versus December 2012
The Group’s net profit after tax (“cash basis”) increased 10%
on the prior year to $7,819 million.
The Group’s net profit after tax (“cash basis”) increased 7%
on the prior half to $4,039 million.
Earnings per share (“cash basis”) increased 8% on the prior
year to 485.8 cents per share, whilst return on equity (“cash
basis”) decreased 20 basis points on the prior year to 18.4%.
Earnings per share (“cash basis”) increased 6% on the prior
half to 250.3 cents per share, whilst return on equity (“cash
basis”) improved 70 basis points to 18.8%.
It should be noted when comparing current half financial
performance to the prior half that there are three less
calendar days impacting revenue in the current half. Key
points of note in the result included the following:
Net interest income increased 3% to $7,082 million,
reflecting a seven basis point increase in net interest
margin and 1% growth in average interest earning
assets;
Other banking income decreased 2% to $2,086 million,
income
due to the impact of debt buybacks;
Funds management
to
$1,113 million, driven by an 11% increase in average
FUA;
Insurance income increased 5% to $529 million due to
6% average inforce premium growth, partly offset by
unfavourable claims experience in wholesale life;
increased 8%
Operating expenses increased 2% to $4,850 million,
driven by higher IT spend on regulatory reform programs
across the Group, additional system support costs and
increased software amortisation driven by the CBM
initiative; and
impairment expense decreased 24%
Loan
to
$466 million due to lower levels of new and increased
individual provisioning and increased writebacks on the
corporate and commercial portfolios. This was partly
offset by the impact of increasing arrears in the
unsecured portfolios in Retail Banking Services.
The key components of the Group result were:
Net interest income increased 6% to $13,944 million,
reflecting 4% growth in average interest earning assets
and a four basis point increase in net interest margin;
Other banking income increased 7% to $4,221 million,
due to higher Markets trading income, including a
favourable counterparty fair value adjustment;
to
income
Funds management
$2,146 million, due to a 13% increase in average Funds
Under Administration (FUA) from positive net flows and
improved markets;
increased 10%
Insurance income increased 8% to $1,034 million due
to 16% average inforce premium growth and lower
claims
in
wholesale life and higher lapses in retail life;
in retail, partly offset by higher claims
Operating expenses increased 4% to $9,605 million,
driven by higher staff costs from salary increases, higher
defined benefit superannuation expenses and higher IT
expenses. IT costs increased due to enhancement of
system capabilities and compliance with new regulatory
obligations impacting the Wealth business, together with
increased software amortisation driven by the Core
Banking Modernisation (CBM) initiative. This was partly
offset by
the continued realisation of operational
efficiencies from productivity initiatives; and
Loan
to
$1,082 million. Improvement in arrears in Retail Banking
Services, particularly in the credit card and home loan
portfolios, was partly offset by increased commercial
loan impairment expense.
impairment expense decreased 1%
10 Commonwealth Bank of Australia
Net Interest Income
Group Performance Analysis
Year Ended June 2013 versus June 2012
Net interest income increased by 6% on the prior year to
$13,944 million. The result was driven by growth in average
interest earning assets of 4% together with a four basis point
increase in net interest margin.
Average Interest Earning Assets
Average interest earning assets increased by $24 billion on
the prior year to $654 billion, reflecting a $21 billion increase
in average lending interest earning assets and a $3 billion
increase in average non-lending interest earning assets.
Home loan average balances increased by $15 billion or 4%
on the prior year to $360 billion. The growth in home loan
balances was
the domestic banking
businesses.
largely driven by
for business and corporate
Average balances
lending
increased by $6 billion on the prior year to $168 billion driven
by a combination of business banking and institutional
lending.
Average non-lending
increased
$3 billion on the prior year due to higher average levels of
liquid assets.
interest earning assets
Net Interest Margin
The Group’s net interest margin increased four basis points
on the prior year to 2.13%. The key drivers of the movement
were:
Asset pricing: Increased margin of 15 basis points, reflecting
the repricing of lending portfolios in response to the increase
in average funding costs associated with both wholesale and
domestic deposit funding.
Funding costs: Decreased margin of 21 basis points
reflecting higher wholesale funding costs of 10 basis points;
an 11 basis points increase in deposits costs from ongoing
strong competition and the impact of the falling cash rate
environment.
Basis risk: Basis risk arises from funding assets which are
priced relative to the cash rate with liabilities priced relative to
the bank bill swap rate. The margin increased by three basis
points as a result of a reduction in the spread between the
cash rate and the bank bill swap rate during the year.
Portfolio mix: Increased margin of one basis point from
strong growth
lending
portfolios; plus favourable funding mix of two basis points.
in higher margin New Zealand
Replicating portfolio: Increased margin of three basis points
as the replicating portfolio (a portfolio of financial instruments
which hedge against interest rate volatility) mitigated the
impact on Group earnings
falling cash rate
environment.
Other: Increased margin of one basis point, primarily driven
by higher Treasury earnings.
from
the
NIM movement since June 2012
Group NIM (Half Year Ended)
Annual Report 11
30 Jun 1330 Jun 12Jun 13 vs 30 Jun 1331 Dec 12Jun 13 vs $M$MJun 12 %$M$MDec 12 %Net interest income ("cash basis") 13,94413,15767,0826,8623Average interest earning assetsHome loans360,319345,5444365,040355,6743Personal loans21,39520,870321,76121,0363Business and corporate loans168,296162,4094167,859168,726(1)Total average lending interest earning assets550,010528,8234554,660545,4362Non-lending interest earning assets 103,627100,8623103,291103,958(1)Total average interest earning assets653,637629,6854657,951649,3941Net interest margin (%)2.132.094 bpts2.172.107 bptsFull Year EndedHalf Year Ended2.17%2.12%2.06%2.10%2.17%1.50%1.70%1.90%2.10%2.30%Jun 11Dec 11Jun 12Dec 12Jun 130.15%0.03%0.03%0.03%0.01%(0.21%)2.09%2.13%1.50%1.70%1.90%2.10%2.30%Jun 12AssetpricingFundingcostsBasisriskPortfoliomixReplicatingportfolio OtherJun 13
competition and
environment.
the
impact of
the
falling cash
rate
Basis risk: Margin increased by two basis points as a result
of a reduction in the spread between the cash rate and the
bank bill swap rate during the current half.
Portfolio mix: Increased margin of two basis points reflecting
in higher margin
favourable
unsecured lending and New Zealand lending; plus favourable
funding mix of one basis point.
from growth
lending mix
Replicating portfolio: Increased margin of one basis point
as the replicating portfolio mitigated the impact on Group
earnings from the falling cash rate environment.
NIM movement since December 2012
Group Performance Analysis
Net Interest Income (continued)
Half Year Ended June 2013 versus December 2012
Net interest income increased by 3% on the prior half driven
by growth in average interest earning assets of 1% together
with a seven basis point improvement in net interest margin to
2.17%.
Average Interest Earning Assets
Average interest earning assets increased by $9 billion on the
prior half to $658 billion, reflecting a $9 billion increase in
average lending interest earning assets, partly offset by less
than $1 billion decrease in average non-lending interest
earning assets.
Home loan average balances increased by $9 billion or 3%
on the prior half to $365 billion, primarily driven by growth in
the domestic banking businesses.
Average balances
lending
decreased by $1 billion on the prior half to $168 billion driven
by a decrease in domestic business banking.
for business and corporate
Average non-lending
interest earning assets decreased
$1 billion on the prior half. The decrease in available-for-sale
investments and liquid assets was partly offset by growth in
trading assets.
Net Interest Margin
The Group’s net interest margin increased seven basis points
on the prior half to 2.17%. The key drivers were:
Asset pricing: Increase in margin of three basis points due
to timing of the repricing of lending portfolios in response to
higher funding costs.
Funding costs: Decrease in margin of two basis points
reflecting the higher cost of deposits as a result of strong
_______________________________________________________________________________________________________
Other Banking Income
Year Ended June 2013 versus June 2012
Other banking income increased 7% on the prior year to
$4,221 million driven by the following revenue items:
Commissions were flat on the prior year at $1,990 million.
Growth in card volumes was offset by customers shifting
into low fee and fee free banking products;
increased 6% on
Lending fees
to
$1,053 million. This included growth in undrawn Institutional
Lending balances leading to higher commitment fees, and
volume growth in personal lending;
the prior year
Trading income increased 65% on the prior year to
$863 million. This was due to the Markets business
performance, which included the benefit of favourable
counterparty fair value adjustments due to narrowing credit
spreads and higher trading income; and
Other income decreased 23% on the prior year to
$315 million mainly due to timing of gains on asset sales
and the impact of debt buybacks in the current year.
12 Commonwealth Bank of Australia
0.03%0.02%0.03%0.01%(0.02%)2.10%2.17%1.50%1.70%1.90%2.10%2.30%Dec 12AssetpricingFundingcostsBasisriskPortfoliomixReplicatingportfolioJun 1330 Jun 1330 Jun 12Jun 13 vs 30 Jun 1331 Dec 12Jun 13 vs $M$MJun 12 %$M$MDec 12 %Commissions1,9901,997-997993-Lending fees1,05399765445097Trading income86352265420443(5)Other income315411(23)125190(34)Other banking income ("cash basis")4,2213,92772,0862,135(2)Full Year EndedHalf Year Ended
Other Banking Income (continued)
Half Year Ended June 2013 versus December 2012
Group Performance Analysis
Net Trading Income ($M)
fees
Other banking income decreased 2% on the prior half to
$2,086 million driven by the following revenue items:
Commissions were flat on the prior half at $997 million.
Growth in brokerage was offset by customers shifting into
low fee and fee free banking products;
Lending
to
increased 7% on
$544 million, driven by higher volume in the Institutional
Lending and Asset Leasing businesses;
Trading income decreased 5% on the prior half to
$420 million as a result of decreased trading volumes in the
Markets business; and
Other
the prior half
$125 million mainly due to the impact of debt buybacks.
income decreased 34% on
the prior half
to
_______________________________________________________________________________________________________
Funds Management Income
(1) Colonial First State incorporates the results of all financial planning businesses including Commonwealth Financial Planning.
Year Ended June 2013 versus June 2012
Half Year Ended June 2013 versus December 2012
Funds management income increased 10% on the prior year
to $2,146 million driven by:
Funds management income increased 8% on the prior half to
$1,113 million driven by:
A 13% increase in average FUA to $228 billion, driven
by strong investment performance and net flows in rising
equity markets benefiting CFSGAM and Colonial First
State;
Higher performance fees in CFSGAM, with the majority
of funds outperforming benchmark; partly offset by
A three basis point decrease in the ratio of funds
management income to average FUA, due to changes in
mix and the contraction of legacy closed investment
portfolios.
An 11% increase in average FUA, driven by market
momentum and strong net flows in CFSGAM and
Colonial First State and favourable foreign exchange
movements due to depreciation of the Australian dollar;
partly offset by
The ratio of funds management income to average FUA
decreased by one basis point to 0.94%, due to portfolio
mix shifts from retail to wholesale products and legacy
product outflows.
Annual Report 13
321251267289(43)12012487(37)(90)5244SalesTradingCVAJun 12Dec 12Dec 11Jun 1324128144342030 Jun 1330 Jun 12Jun 13 vs30 Jun 1331 Dec 12Jun 13 vs$M$MJun 12 %$M$MDec 12 %CFS Global Asset Management (CFSGAM)1,0108831452948110Colonial First State (1)91484584694455CommInsure153160(4)807310New Zealand544423292516Other1525(40)69(33)Funds management income ("cash basis")2,1461,957101,1131,0338Full Year EndedHalf Year Ended
Group Performance Analysis
Insurance Income
Year Ended June 2013 versus June 2012
Half Year Ended June 2013 versus December 2012
Insurance income increased by 8% on the prior year to
$1,034 million driven by:
Insurance income increased by 5% on the prior half to
$529 million driven by:
An increase in average inforce premiums of 16% to
$2,834 million driven by strong new business sales by
CommInsure, New Zealand and IFS Asia; and
Improved CommInsure claims experience in retail life
and general insurance, partly offset by unfavourable
claims experience in wholesale life and increased lapse
rates in retail life.
An increase in average inforce premiums of 6% to
$2,898 million driven by new business sales particularly
through Retail bank channels; and
Improved CommInsure lapse rates in retail life partly
offset by unfavourable claims experience in wholesale
life.
_______________________________________________________________________________________________________
Operating Expenses
Year Ended June 2013 versus June 2012
Half Year Ended June 2013 versus December 2012
Operating expenses increased 2% on the prior half to
$4,850 million.
Staff expenses increased by 1% to $2,584 million, with the
increase in superannuation contributions being offset by the
ongoing focus on productivity improvements;
Occupancy and equipment expenses increased by 2% to
$546 million due
to higher depreciation expenses on
operating lease assets;
Information technology services expenses increased by
7% to $672 million, primarily due to additional system support
costs and increased software amortisation driven by CBM
and other strategic initiatives;
Other expenses increased by 2% to $1,048 million, impacted
by higher spend on regulatory change programs and higher
volume related expenses; and
Group expense to income ratio improved 20 basis points on
the prior half to 44.9% reflecting higher revenues and
productivity initiatives. The banking expense to income ratio
improved 10 basis points on the prior half to 40.1%.
the
further
investment
Operating expenses increased 4% on the prior year to
$9,605 million with
realised benefit of productivity
initiatives being offset by inflation, higher technology costs,
variable operating costs and
in the
business.
Staff expenses increased by 4% to $5,148 million, driven by
inflation-related salary increases and higher superannuation
expenses;
Occupancy and equipment expenses increased by 2% to
$1,082 million, largely due to higher depreciation expenses
from growth in the Asset Leasing business;
Information technology services expenses increased by
12% to $1,299 million, primarily due to system enhancement
to drive new capability and satisfy regulatory obligations and
increased software amortisation driven by CBM and other
strategic initiatives;
Other expenses increased by 2% to $2,076 million, impacted
by higher spend on regulatory change programs, partly offset
by lower volume related expenses; and
Group expense to income ratio improved 100 basis points
on the prior year to 45.0% reflecting higher revenues and
productivity initiatives. The banking expense to income ratio
also improved 100 basis points on the prior year to 40.1%.
14 Commonwealth Bank of Australia
30 Jun 1330 Jun 12Jun 13 vs30 Jun 1331 Dec 12Jun 13 vs$M$MJun 12 %$M$MDec 12 %CommInsure 7166914348368(5)New Zealand247227913411319IFS Asia75671238373Other(4)(25)(84)9(13)largeInsurance income ("cash basis")1,03496085295055Full Year EndedHalf Year Ended30 Jun 1330 Jun 12Jun 13 vs30 Jun 1331 Dec 12Jun 13 vs$M$MJun 12 %$M$MDec 12 %Staff expenses5,1484,94742,5842,5641Occupancy and equipment expenses1,0821,05625465362Information technology services expenses1,2991,159126726277Other expenses2,0762,03421,0481,0282Operating expenses ("cash basis")9,6059,19644,8504,7552Operating expenses to total operating income (%)45. 046. 0(100)bpts44. 945. 1(20)bptsBanking expense to operating income (%)40. 141. 1(100)bpts40. 140. 2(10)bptsFull Year EndedHalf Year Ended
Group Performance Analysis
Operating Expenses (continued)
Investment Spend
(1)
Included within Operating Expense disclosure on page 14.
The Group continued to invest strongly in the business with
$1,237 million incurred in the full year to 30 June 2013, a
decrease of 4% on the prior year. Lower spend on the Core
Banking Modernisation (CBM) initiative was partly offset by
increased investment in Productivity and Growth initiatives. In
addition, spend on risk and compliance projects increased as
in satisfying new
systems are
regulatory obligations, including Stronger Super and Future of
Financial Advice (FOFA) reforms.
implemented
to assist
During the year, the Group invested $200 million in the CBM
initiative to deliver the final major scope items. Highlights for
the year included:
The successful delivery of the migration of the remaining
large and complex commercial deposit and transaction
accounts onto the new CBM platform; and
The successful migration of business lending accounts
to the new CBM platform, improving the business
lending experience for customers and staff.
_______________________________________________________________________________________________________
Loan Impairment Expense
Year Ended June 2013 versus June 2012
Loan impairment expense decreased 1% on the prior year to
$1,082 million. The decrease is driven by:
Reduced loan impairment expense in Retail Banking
Services following improvements in arrears rates in the
credit card and home loan portfolios; partly offset by
in
Increased expense
(Bankwest and Business and Private Banking).
the commercial portfolios
Annual Report 15
30 Jun 1330 Jun 12Jun 13 vs30 Jun 1331 Dec 12Jun 13 vs$M$MJun 12 %$M$MDec 12 %Expensed investment spend (1)5665021332424234Capitalised investment spend671784(14)331340(3)Investment spend1,2371,286(4)65558213Comprising:Productivity and growth6515861136628528Core Banking Modernisation (CBM)200368(46)63137(54)Risk and compliance2341882412610817Branch refurbishment and other15214461005292Investment spend 1,2371,286(4)65558213Full Year EndedHalf Year Ended30 Jun 1330 Jun 12Jun 13 vs 30 Jun 1331 Dec 12Jun 13 vs $M$MJun 12 %$M$MDec 12 %Retail Banking Services533583(9)28724617Business and Private Banking2802665130150(13)Institutional Banking and Markets154154-5797(41)New Zealand45372223225Bankwest11861933286(63)IFS and Other(48)(12)large (63)15largeLoan impairment expense ("cash basis")1,0821,089(1)466616(24)Full Year EndedHalf Year Ended
Group Performance Analysis
Loan Impairment Expense (continued)
Half Year Loan Impairment Expense (Annualised) as a
% of Average Gross Loans and Acceptances (bpts)
Half Year Ended June 2013 versus December 2012
Loan impairment expense decreased 24% on the prior half to
$466 million mainly driven by:
The run off of the pre-acquisition higher risk loan book in
Bankwest has resulted in reduced requirements for
provisions and associated overlays in the current half;
Decreased expense in Business and Private Banking
due to the non-recurrence of softening collateral values
in a small number of troublesome assets experienced in
the first half;
Decreased expense in Institutional Banking and Markets
following a
individual provisioning
in
requirements; partly offset by
reduction
Increased loan impairment expense in Retail Banking
Services following increased arrears in the unsecured
lending portfolios.
_______________________________________________________________________________________________________
Taxation Expense
Year Ended June 2013 versus June 2012
Half Year Ended June 2013 versus December 2012
Corporate tax expense for the year ended 30 June 2013
increased 9% on the prior year representing a 27.5% effective
tax rate.
Corporate tax expense for the half year ended 30 June 2013
increased 4% on the prior half representing a 27.3% effective
tax rate.
The effective tax rate is below the Australian company tax
rate of 30% primarily as a result of the profit earned by the
offshore banking unit and offshore jurisdictions that have
lower corporate tax rates.
The effective tax rate is below the Australian company tax
rate of 30% primarily as a result of the profit earned by the
offshore banking unit and offshore jurisdictions that have
lower corporate tax rates.
16 Commonwealth Bank of Australia
282422212022Jun 10Dec 10Jun 11Dec 11Jun 12Dec 12Jun 13402825Flood / earthquake related overlayReview of Bankwestpre-acquisition business book (non-cash items)Provision relating to Bell Group litigation (non-cash items)1730 Jun 1330 Jun 12Jun 13 vs30 Jun 1331 Dec 12Jun 13 vs$M$MJun 12 %$M$MDec 12 %Corporate tax expense ($M)2,9772,73691,5171,4604Effective tax rate (%)27. 527. 7(20)bpts27. 327. 8(50)bptsFull Year EndedHalf Year Ended
Non-Cash Items Included in Statutory Profit
Group Performance Analysis
Foreign exchange hedges relating
Zealand earnings.
to
future New
Bell Group litigation
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”) is
outlined below and treated consistently with prior year
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 interest rate swaps hedging foreign
currency denominated debt issues; and
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.
from cash profit since
Fair value gains or losses on all of these economic hedges
the asymmetric
are excluded
recognition of the gains or losses does not affect the Group’s
performance over the life of the hedge. A $27 million after tax
gain was recognised in statutory profit for the year ended
30 June 2013 (30 June 2012: $124 million).
Bankwest non-cash items
The acquisition of Bankwest resulted in the recognition of
assets at fair value, representing certain financial instruments,
core deposits and brand name totalling $463 million that are
being amortised over their useful lives. This resulted in
amortisation charges of $71 million after tax in the year ended
30 June 2013 (30 June 2012: $89 million after tax).
These items were not recognised in cash profit as they were
not representative of the Group’s expected ongoing financial
performance.
Count Financial Limited acquisition costs
During the prior year, the Group acquired 100% of the issued
share capital of Count Financial Limited (Count), an
independent, accountant-based financial advice business. As
part of the acquisition, the Group incurred retention, advisory
and other costs. There were no costs incurred in the year
ended 30 June 2013 (30 June 2012: $43 million after tax
loss).
Treasury shares valuation adjustment
in
life
funds and
the managed
Under IFRS, Commonwealth Bank of Australia shares held by
the Group
insurance
businesses are defined as treasury shares and are held at
cost. Distributions, realised and unrealised gains and losses
are recognised in cash profit representing the underlying
performance of the asset portfolio attributable to the wealth
and life insurance businesses. These distributions, gains and
losses are reversed as non-cash items for statutory reporting
purposes. A $53 million after tax loss was included in
statutory
30 June 2013
the
profit
(30 June 2012: $15 million).
ended
year
in
the consortium of banks
Proceedings were brought by the liquidators of the Bell Group
of companies against
that
restructured its facilities on 26 January 1990. The Supreme
Court of Western Australia Court of Appeal ruling on
17 August 2012 was adverse for the consortium of banks and
resulted in an additional provision being raised by the Group.
This is reported as a non-cash item due to its historic and
one-off nature.
Policyholder tax
Policyholder tax is included in the Wealth Management
business results for statutory reporting purposes. In the year
ended 30 June 2013,
tax expense of $112 million
(30 June 2012: $122 million tax expense), funds management
income of $77 million (30 June 2012: $9 million expense) and
insurance income of $35 million (30 June 2012: $131 million
income) was recognised. The gross up of these items are
excluded from cash profit as they do not reflect the underlying
performance of the business which is measured on a net of
policyholder tax basis.
Investment experience
Investment experience primarily includes the returns on
shareholder capital invested in the wealth management and
insurance businesses as well as the volatility generated
through the economically hedged guaranteed annuity portfolio
held by the Group’s Wealth Management division. This item is
classified separately within cash profit.
Annual Report 17
30 Jun 1330 Jun 12Jun 13 vs30 Jun 1331 Dec 12Jun 13 vs$M$MJun 12 %$M$MDec 12 %Hedging and IFRS volatility27124(78)37(10)largeBankwest non-cash items(71)(89)(20)(38)(33)15Count Financial Limited acquisition costs-(43)large---Treasury shares valuation adjustment(53)(15)large(22)(31)(29)Bell Group litigation(45)-large-(45)largeOther non-cash items(169)(147)15(60)(109)(45)Total non-cash items (after tax)(142)(23)large(23)(119)(81)Full Year EndedHalf Year Ended
Group Performance Analysis
Review of Group Assets and Liabilities
(1) The Group has realigned comparative product balances as part of changes in segment allocations to conform to presentation in the current year.
(2) Loans, bills discounted and other receivables exclude provisions for impairment which are included in Other assets.
(3) Comparative information has been restated to conform to presentation in the current year.
Year Ended June 2013 versus June 2012
Other assets
Asset growth of $35 billion or 5% on the prior year was due to
increased home lending, business and corporate lending and
higher derivative asset balances.
The Group continued to satisfy a significant portion of its
funding requirements from customer deposits. Customer
deposits
funding
(30 June 2012: 62%).
represent
63%
total
now
of
Home loans
Home loan balances increased $20 billion to $373 billion,
reflecting a 6% increase on the prior year. This outcome
reflected a return to growth above system in Retail Banking
Services. The Group continues to maintain its competitive
position through a strong focus on delivering excellent
customer service.
Other assets, including derivative assets, insurance assets
and intangibles, increased $6 billion to $81 billion, a 9%
increase on the prior year. This increase reflected higher
derivative asset balances driven by volatility in foreign
exchange and interest rate markets.
Interest bearing deposits
Interest bearing deposits increased $20 billion to $448 billion,
a 5% increase on the prior year.
Customer preference for lower risk investments together with
targeted campaigns in a highly competitive market resulted in
growth of $16 billion in savings deposits, a $7 billion increase
in transaction deposits and a $2 billion increase in investment
deposits. This was partly offset by a $4 billion decrease in
other demand deposits.
Personal loans
Debt issues
Personal loans, including credit cards and margin lending,
increased 5% on the prior year to $22 billion. Strong growth in
credit card and personal loan balances was driven by
successful campaigns and new product offerings. This was
partly offset by a decline in margin lending balances reflecting
conservative investor sentiment towards equity markets.
Debt issues increased $4 billion to $139 billion, a 3% increase
on the prior year. While deposits satisfied the majority of the
Group’s funding requirements, strong access was maintained
to both domestic and international wholesale debt markets.
Refer to page 28 for further information on debt programs and
issuance for the year ended 30 June 2013.
Business and corporate loans
Other interest bearing liabilities
interest bearing
Other
loan capital,
liabilities,
liabilities at fair value through the income statement and
amounts due
increased
$6 billion to $44 billion, a 14% increase on the prior year.
institutions,
to other
including
financial
Non-interest bearing liabilities
Non-interest bearing liabilities, including derivative liabilities
and
to
liabilities,
$77 billion, a 1% increase on the prior year.
increased $1 billion
insurance policy
increased $6 billion
Business and corporate
to
loans
$172 billion, a 4% increase on the prior year. This was driven
by improved momentum in institutional lending balances,
together with solid growth in Business and Private Banking.
This was partly offset by the continued reduction in higher risk
pre-acquisition exposures in Bankwest.
Non-lending interest earning assets
Non-lending interest earning assets increased $2 billion to
$106 billion, reflecting a 2% increase on the prior year. This
was driven by higher liquid asset balances held as a result of
balance sheet growth and prudent business settings.
18 Commonwealth Bank of Australia
30 Jun 1331 Dec 1230 Jun 12 Jun 13 vsJun 13 vsTotal Group Assets and Liabilities$M$M$MDec 12 %Jun 12 %Interest earning assetsHome loans (1)372,840359,058352,98146Personal loans22,01321,47021,05735Business and corporate loans (1)172,314166,957166,18834Loans, bills discounted and other receivables (2)567,167547,485540,22645Non-lending interest earning assets106,060103,747104,30422Total interest earning assets673,227651,232644,53034Other assets (1) (2) (3)80,64970,97274,329149Total assets753,876722,204718,85945Interest bearing liabilitiesTransaction deposits (1)87,67382,91381,10468Savings deposits (1)106,93599,58591,279717Investment deposits199,397192,302197,13841Other demand deposits 54,47263,17358,852(14)(7)Total interest bearing deposits448,477437,973428,37325Debt issues138,871127,439134,42993Other interest bearing liabilities 44,30640,50238,704914Total interest bearing liabilities631,654605,914601,50645Non-interest bearing liabilities (3)76,73072,99175,78151Total liabilities708,384678,905677,28745As at
Review of Group Assets and Liabilities (continued)
Half Year Ended June 2013 versus December 2012
Asset growth of $32 billion or 4% on the prior half was driven
by increased home lending, business and corporate lending
as well as higher derivative asset balances.
Continued strong deposits growth allowed the Group to
satisfy a significant portion of its funding requirements
through customer deposits. Customer deposits made up 63%
of total funding as at 30 June 2013 (31 December 2012:
63%).
Home loans
Home
loans experienced steady growth with balances
increasing by $14 billion to $373 billion, a 4% increase on the
prior half. This outcome reflected a return to growth above
system
in Retail Banking Services. The Group has
maintained its competitive position and continued profitable
growth through a strong focus on customer service.
Personal loans
Personal loans, including credit cards and margin lending,
increased 3% on the prior half to $22 billion. Personal loans
increased and credit card growth slowed due to deleveraging
trends in the broader market, while margin lending remained
stable.
Business and corporate loans
to
loans
Business and corporate
$172 billion. This was largely due to solid business lending
growth in both Australia and New Zealand.
increased $5 billion
Non-lending interest earning assets
Non-lending interest earning assets increased $2 billion to
$106 billion. This was primarily due to an increase in liquid
assets resulting from prudent business settings and balance
sheet growth.
Other assets
Other assets, including derivative assets, insurance assets
Group Performance Analysis
and intangibles increased 14% on the prior half to $81 billion.
This increase reflected higher derivative asset balances
driven by volatility in foreign exchange and interest rate
markets.
Interest bearing deposits
Interest bearing deposits increased $11 billion to $448 billion,
reflecting a 2% increase on the prior half.
Targeted campaigns in a highly competitive market and
customer preference for more stable investments resulted in
growth of $7 billion in savings deposits, a $7 billion increase
in investment deposits and a $5 billion increase in transaction
deposits. This was partly offset by a $9 billion decrease in
other demand deposits.
Debt issues
Debt issues increased $11 billion to $139 billion, reflecting a
9% increase on the prior half.
Refer to page 28 for further information on debt programs and
issuance for the half year ended 30 June 2013.
Other interest bearing liabilities
interest bearing
Other
loan capital,
liabilities,
liabilities at fair value through the income statement and
amounts due to other financial institutions, increased 9% on
the prior half to $44 billion.
including
Non-interest bearing liabilities
Non-interest bearing liabilities, including derivative liabilities
and insurance policy liabilities, increased 5% on the prior half
to $77 billion. This was driven predominantly by foreign
exchange volatility impacting derivative liabilities hedging
term debt.
Annual Report 19
Group Operations and Business Settings
Loan Impairment Provisions and Credit Quality
Provisions for Impairment
Year Ended June 2013 versus June 2012
Half Year Ended June 2013 versus December 2012
Total provisions for impairment losses decreased 7% on
the prior year to $4,486 million as at 30 June 2013. The
movement in the level of provisioning reflects:
Total provisions for impairment losses decreased 5% on
the prior half to $4,486 million as at 30 June 2013. The
movement in the level of provisioning reflects:
Reduced individually assessed provisions across all
portfolios as a result of the settlement and completion
of a number of impaired loans;
A reduction of Bankwest collective provisions as pre-
acquisition
to be
refinanced, run-off or move to impaired; and
loans continued
troublesome
Management overlays associated with the Bankwest
higher risk loans were used or reduced; partly offset
by
Increased collective provisioning across Institutional
Banking and Markets and Business and Private
Banking caused by the deterioration in a small number
of accounts, the softening of collateral values in a
small number of troublesome assets in the first half,
and the update of provisioning factors in the second
half; and
Economic overlays remain unchanged on the prior
year.
Reduced individually assessed provisions across all
portfolios as a result of the settlement and completion
of a number of impaired loans;
A reduction in management overlays associated with
Bankwest that were either used or reduced as they
were no longer required;
A reduction of Bankwest collective provisions as pre-
to be
acquisition
refinanced, run-off or move to impaired; partly offset
by
loans continued
troublesome
Increased consumer provisions as a
result of
increasing retail arrears and the modest use of prior
overlays; and
Increased commercial provisions as a result of the
annual review of provisioning models, which was
partly offset by a reduction in management overlays.
Collective Provisions ($M)
Individually Assessed Provisions ($M)
20 Commonwealth Bank of Australia
30 Jun 1331 Dec 1230 Jun 12 Jun 13 vsJun 13 vs$M$M$MDec 12 %Jun 12 %Provisions for impairment lossesCollective provision2,8582,8582,837-1Individually assessed provisions1,6281,8452,008(12)(19)Total provisions for impairment losses4,4864,7034,845(5)(7)Less: Off balance sheet provisions(31)(18)(18)7272Total provisions for loan impairment4,4554,6854,827(5)(8)As at619 643 707898 853 909473 470 419 847 892 823 Jun 12Dec 12Jun 13847 866 812 227 199 157 934 780 659 Jun 12Dec 12Jun 13OverlayBankwestConsumerCommercial2,8372,8582,0081,8452,8581,628
Group Operations and Business Settings
Loan Impairment Provisions and Credit Quality (continued)
Credit Quality
(1) Comparative information has been restated to conform to presentation in the current year.
Provision Ratios
Provision coverage ratios remain strong. The impaired asset
portfolio remains well provisioned with provision coverage of
40.62%.
Asset Quality
The asset quality ratios show the continued improvement in
the quality of the book with both the level of impaired assets
and 90 days past due loans which are not impaired continuing
to reduce. The credit quality of both the retail and corporate
portfolios remained sound.
Retail Portfolios – Arrears Rates (1)
Retail arrears for home loans and credit card products
reduced during the current year, in part driven by reducing
interest rates.
Home loan arrears reduced over the year, with 30+ day
arrears decreasing from 1.83% to 1.44% and 90+ day arrears
reducing from 0.90% to 0.62%. Credit card arrears also
improved over the year with credit card 30+ days arrears
falling from 2.63% to 2.56% and 90+ days arrears reducing
from 1.07% to 1.02%. Personal loan arrears increased over
the year as a result of some deterioration in the portfolio.
30+ day arrears
to 2.95% and
increased
90+ days arrears increased from 1.15% to 1.23%.
from 2.83%
90+ Days Arrears Ratios (%) (2)
(2)
Includes retail portfolios of Retail Banking Services, Bankwest and New
Zealand.
Troublesome and Impaired Assets
Commercial troublesome assets reduced 10% during the year
to $5.2 billion.
Gross impaired assets decreased 8% on the prior year to
$4,330 million. Gross impaired assets as a proportion of
gross loans and acceptances of 0.76% decreased 10 basis
points on the prior year, reflecting the improving quality of the
corporate portfolios.
30+ Days Arrears Ratios (%) (2)
Troublesome and Impaired Assets ($B) (1)
(1) Comparative information has been restated to conform to presentation
in the current year.
.
Annual Report 21
Jun 13 vsJun 13 vsCredit Quality Metrics30 Jun 1330 Jun 12Jun 12 %30 Jun 1331 Dec 12Dec 12 %Gross loans and acceptances (GLAA) ($M)568,821542,0975568,821549,2164Risk weighted assets (RWA) - Basel III ($M)329,158n/an/a329,158n/an/aRisk weighted assets (RWA) - Basel 2.5 ($M)n/a302,787n/an/a301,611n/aCredit risk weighted assets - Basel III ($M)279,674n/an/a279,674n/an/aCredit risk weighted assets - Basel 2.5 ($M)n/a261,429n/an/a258,467n/aGross impaired assets ($M) (1)4,3304,687(8)4,3304,480(3)Net impaired assets ($M) (1)2,5712,55612,5712,5222Provision RatiosCollective provision as a % of credit risk weighted assets - Basel III1. 02n/an/a1. 02n/an/aTotal provision as a % of credit risk weighted assets - Basel III1. 60n/an/a1. 60n/an/aCollective provision as a % of credit risk weighted assets - Basel 2.5n/a1. 09n/an/a1. 11n/aTotal provision as a % of credit risk weighted assets - Basel 2.5n/a1. 85n/an/a1. 82n/aTotal provisions for impaired assets as a % of gross impaired assets (1)40. 6245. 47(485)bpts40. 6243. 71(309)bptsTotal provisions for impairment losses as a % of GLAA's0. 790. 89(10)bpts0. 790. 86(7)bptsAsset quality ratiosGross impaired assets as a % of GLAA's (1)0. 760. 86(10)bpts0. 760. 82(6)bptsLoans 90+ days past due but not impaired as a % of GLAA's (1)0. 410. 53(12)bpts0. 410. 48(7)bptsLoan impairment expense ("cash basis") annualised as a % of average GLAA's0. 200. 21(1)bpt 0. 170. 22(5)bptsFull Year EndedHalf Year Ended1.0%2.0%3.0%4.0%Jun 11Dec 11Jun 12Dec 12Jun 13Personal LoansHome LoansCreditCards0.4%0.9%1.4%Jun 11Dec 11Jun 12Dec 12Jun 13Home LoansPersonal LoansCreditCards8.5 7.7 6.8 6.2 5.8 5.6 5.2 5.4 5.4 5.5 4.9 4.7 4.5 4.3 Jun 10Dec 10Jun 11Dec 11Jun 12Dec 12Jun 13Commercial TroublesomeGroup Impaired10.110.511.112.313.99.513.1
Group Operations and Business Settings
The Group’s 30 June 2013 internationally harmonised CET1
ratio of 11.0%, places it well above the average of its
international peers (approximately 9.6%).
Source: Morgan Stanley - Based on last reported CET1 ratios up to
8 August 2013 assuming Basel III capital reforms fully implemented.
Peer group comprises listed commercial banks with total assets in excess of
A$400 billion and who have disclosed fully implemented Basel III ratios or
provided sufficient disclosure for a Morgan Stanley Equity Research
estimate.
(1) Domestic peer figures as at March 2013.
APRA Capital Requirements
As at 30 June 2013 the Group has a CET1 ratio of 8.2%
under APRA’s prudential standard version of Basel III, well
above the minimum ratio of 4.5%.
The differences in the Basel III APRA and the Basel III
internationally harmonised CET1 ratios include:
Deductions
investments
APRA requires a full deduction to be taken against CET1
for equity
in
insurance and
funds management operations) and
deferred tax assets. On an internationally harmonised
basis, such items are concessionally risk weighted if
they fall below prescribed thresholds.
investments
(including
Risk Weighted Assets
APRA requires capital to be held for Interest Rate Risk in
the Banking Book (IRRBB). There
is no similar
requirement on an internationally harmonised basis; and
APRA requires a minimum Loss Given Default (LGD)
floor of 20% to be applied to residential mortgages,
which is higher than regulatory requirements elsewhere.
Capital
Basel Regulatory Framework
Background
The Group adopted
III measurement and
the Basel
monitoring of regulatory capital effective from 1 January 2013.
In December 2010,
the Basel Committee on Banking
Supervision (BCBS) published a discussion paper on banking
reforms to address issues which led to the Global Financial
Crisis and to position banks for future crises. The objectives
of the capital reforms are to increase the quality, consistency
and transparency of capital, to enhance the risk coverage
framework, and to reduce systemic and pro-cyclical risk. The
major reforms are to be phased in between 1 January 2013 to
1 January 2019.
In September 2012, the Australian Prudential Regulation
Authority (APRA) published final standards relating to the
implementation of the Basel III capital reforms in Australia.
APRA has adopted a more conservative approach than the
minimum standards published by the BCBS and a more
accelerated timetable for implementation.
The APRA prudential standards require a minimum CET1
ratio of 4.5% effective from 1 January 2013. An additional
CET1 capital conservation buffer of 2.5% will be implemented
on 1 January 2016, bringing the minimum CET1 requirement
to 7%. The BCBS advocates
the same minimum
requirements, but implementation is to be phased in over an
extended timeframe up to 1 January 2019.
Internationally Harmonised Capital Position
The Board has set a target of holding greater than 9% of
CET1, as defined under the internationally harmonised BCBS
rules.
The Group’s internationally harmonised CET1 ratios are
calculated based on full adoption of the Basel III capital
reforms, which will not come into effect until 2019 for most
banks.
target based on
Adoption of a CET1
internationally
harmonised principles enables a more meaningful
comparison of the Group’s capital levels relative to its
international peers. The Group is in a strong capital position
with CET1 as measured on an internationally harmonised
basis of 11.0% as at 30 June 2013. This is well in excess of
both the prescribed minimum of 4.5% and the Board
approved target.
The Group has adopted a conservative and proactive
approach to capital management and this is reflected in the
overall strength of its capital position. The CET1 ratio (on an
internationally harmonised basis) has increased by nearly
60% since the Global Financial Crisis (June 2007).
22 Commonwealth Bank of Australia
6.9%11.0%Jun 07Jun 13Board(>9%)7.7 8.0 8.1 8.2 8.4 8.4 8.5 8.5 8.5 8.6 8.7 9.3 9.3 9.3 9.4 9.4 9.6 9.6 9.7 10.0 10.0 10.0 10.1 10.2 10.3 10.4 10.6 10.6 11.0 11.1 11.2 11.4 12.1 13.2 MizuhoSantanderBarclaysBBVACommerzbankScotiabankRBCToronto DominionWells FargoSumitomo MitsuiRBSCIBCCredit SuisseJP MorganBank of MontrealSocGenBank of AmericaLloydsUniCreditCitiDeutscheNABHSBCINGANZBNP ParibasIntesa SanpaoloStandard CharteredCBAMitsubishi UFJUBSWestpacDNB ASANordea1Peer bank average CET1 ratio (ex. Australian banks) 9.6%11
Group Operations and Business Settings
Capital Position
The Group maintained a strong capital position with the
capital ratios well in excess of regulatory minimum capital
adequacy requirements and the Board Approved minimum
levels at all times throughout the year ended 30 June 2013.
full by
participation rate for the DRP was 22.7%; and
the on market purchase of shares. The
In October 2012, the Group issued $2 billion Perpetual
Exchangeable Resaleable Listed Securities (PERLS VI),
Basel III compliant, Additional Tier One security. The
proceeds of
the extent
necessary, to refinance the maturing PERLS IV and
otherwise to fund the Group’s business.
issue were used,
this
to
(1) Represents proforma Basel III capital ratios. Basel III was formally
implemented on 1 January 2013.
the
The Group’s CET1 (internationally harmonised) ratio at
30 June 2013 was 11.0%, representing a 40 basis points
increase since
III on
1 January 2013. This was primarily driven by capital
generated from earnings and the benefit from favourable
market movements. This was partially offset by the impact of
the December 2012 interim dividend payment in which the
dilutive impact of the DRP was neutralised.
implementation of Basel
During the financial year, the Basel III CET1 (internationally
harmonised) increased by 120 basis points. The increase
reflected the sustained organic capital generation across the
full year combined with the benefit delivered from the
Bankwest portfolio moving
in
December 2012.
to advanced
status
Under APRA’s Basel III methodology, the Group’s CET1 ratio
at 30 June 2013 was 8.2% representing a 9% increase since
June 2012.
Capital Initiatives
The following significant initiatives were undertaken during
the year to actively manage the Group’s capital:
The Dividend Reinvestment Plan (DRP) in respect of the
final dividend for the 2011/2012 financial year was
satisfied by the allocation of approximately $929 million
of ordinary shares. The participation rate for the DRP
was 29.6%;
The DRP for the 2013 interim dividend was satisfied in
Bankwest
relinquished
(ADI)
its Authorised Deposit-taking
Bankwest
(1 October 2012) and APRA
Institution
extended
Internal Rating based
accreditation to include Bankwest’s non retail loans and
residential mortgages from 31 December 2012.
licence
the Group’s Advanced
Pillar 3 Disclosures
Full details on the market disclosures required under Pillar 3,
per prudential standard APS 330 “Public Disclosure”, are
provided on the Group’s website.
Other Regulatory Changes
General and Life Insurers
In October 2012, APRA completed its review of the Life and
General Insurance Capital (LAGIC) regulatory standards and
released the final version of all life insurance and general
insurance prudential standards.
the
majority of the reforms occurred on 1 January 2013.
Implementation of
Superannuation Funds Management
In November 2012, APRA released final prudential standards
that introduce new financial requirements for registered
requirements were
superannuation
implemented on 1 July 2013.
trustees. The new
In November 2011, the Australian Securities and Investments
Commission (ASIC) released new financial requirements that
apply to Responsible Entities. These new requirements
became effective on 1 November 2012.
Conglomerate Groups
is extending
In May 2013 APRA released a discussion paper and draft
prudential standards titled “Supervision of Conglomerate
Groups” focusing on the requirements of risk management
its current
and capital adequacy. APRA
prudential supervision framework 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 proposals 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. APRA is expected to
implement these new requirements from 1 January 2014.
Annual Report 23
7.5%8.1%8.2%Jun 12Basel IIIDec 12Basel IIIJun 13Basel IIICET1 Ratio (APRA)CET1 Ratio (Internationally harmonised)9.8%(1)10.6%11.0%
Group Operations and Business Settings
Capital (continued)
The APRA Basel III capital standards came into effect on 1 January 2013. The tables below show the APRA Basel III capital
adequacy calculation at 30 June 2013 together with a proforma calculation at 1 January 2013. The 30 June 2012 and
31 December 2012 capital calculations reflect the APRA Basel 2.5 capital adequacy calculations in place at that time. A number
of items in the prior periods disclosures have been reclassified to allow better comparability to the new APRA Basel III
methodology.
(1) Represents shares held by the Group's life insurance operations ($130 million) and employee share scheme trusts ($167 million).
(2) Asset Revaluation Reserve eligible for inclusion in CET1 under APRA Basel III methodology.
(3) Available for Sale Reserve eligible for inclusion in CET1 under APRA Basel III methodology.
(4) Reserve balances associated with the Insurance and Funds Management entities and those entities through which securitisation of the Group's assets are
conducted. These entities are classified as non-consolidated subsidiaries by APRA and are excluded from the Level 2 Regulatory Consolidated Banking
Group.
(5) Dividends are only deducted from CET1 when declared under APRA Basel III methodology. Basel II required expected dividends to be deducted from
capital.
(6) The Dividend Reinvestment Plan (DRP) in respect of the 31 December 2012 interim dividend was satisfied in full by an on market purchase of shares. The
DRP in respect of the June 2012 final dividend was satisfied in full by the issue of shares.
(7) Cumulative current year profit and retained earnings adjustments for subsidiaries not consolidated for regulatory purposes.
(8) Primarily relates to unrealised equity accounted earnings required to be excluded under APRA Basel II methodology. Under APRA Basel III methodology
these items are excluded from CET1 through the adjustment for equity investments.
(9) Non-controlling interests predominantly comprise ASB Perpetual Preference Shares of NZD550 million issued by a New Zealand subsidiary entity. These
are non-redeemable and carry limited voting rights. These are classified as Additional Tier One Capital.
24 Commonwealth Bank of Australia
APRA APRA APRA APRA Basel IIIBasel IIIBasel 2.5Basel 2.530 Jun 131 Jan 1331 Dec 1230 Jun 12Risk Weighted Capital Ratios%%%%Common Equity Tier One 8. 28. 18. 37. 8Tier One10. 210. 210. 510. 0Tier Two1. 01. 00. 71. 0Total Capital11. 211. 211. 211. 0APRA APRA APRA APRA Basel IIIBasel IIIBasel 2.5Basel 2.530 Jun 131 Jan 1331 Dec 1230 Jun 12$M$M$M$MOrdinary Share Capital and Treasury SharesOrdinary Share Capital26,32326,12626,12625,175Treasury Shares (1)297301301323Ordinary Share Capital and Treasury Shares26,62026,42726,42725,498ReservesReserves1,3331,2621,2621,571Asset revaluation reserve (2)--(193)(195)Available for sale reserve (3)--(138)-Reserves related to non consolidated subsidiaries (4)56164164171Total Reserves1,3891,4261,0951,547Retained Earnings and Current Period ProfitsRetained earnings and current period profits16,36014,44014,44013,356Expected dividends (APRA Basel II only) (5)--(2,639)(3,137)Dividend reinvestment plan (APRA Basel II only) (6)---784Retained earnings adjustment from non consolidated subsidiaries (7)(345)(239)(239)(126)Equity accounted profits (APRA Basel II only) (8)--(406)(347)Other--(13)(1)Net Retained Earnings16,01514,20111,14310,529Non controlling interestNon controlling interest (9)537532532531ASB perpetual preference shares(505)(505)(505)(505)less other non controlling interests not eligible under Basel III(32)(27)--Minority Interest--2726Common Equity Tier One Capital before regulatory adjustments44,02442,05438,69237,600
Group Operations and Business Settings
Capital (continued)
(1) Other intangibles (excluding capitalised software costs). Under APRA Basel III methodology the adjustment is net of any associated deferred tax liability.
(2) Adjustment to ensure the Group has sufficient provisions and capital to cover credit losses estimated to arise over the full life of individual facilities, as
required by APRA Prudential Standard APS 220.
(3) Deferred tax assets net of deferred tax liabilities. Under Basel III this is inclusive of deferred tax asset on collective provisions.
(4) Cash flow Hedge Reserve and Employee Compensation Reserve balances are ineligible for inclusion in CET1.
(5) Represents the Group's non-controlling interest in other entities treated as 100% CET1 deduction under Basel III (Basel II 50% Tier One and Two
deduction net of prescribed threshold limits and any unrealised equity accounted profit).
(6) Represents the net tangible assets within the non-consolidated subsidiaries (primarily the insurance and funds management businesses operating within
the Colonial Group). The adjustment is net of $1,117 million in non-recourse debt (31 December 2012: $1,158 million, 30 June 2012: $1,214 million) and
$1,000 million in Colonial Group Subordinated Notes (31 December 2012: $1,000 million, 30 June 2012: $1,000 million). The Group's insurance and funds
management companies held $1,344 million of capital in excess of minimum regulatory capital requirements at 30 June 2013.
(7) Regulatory Expected Loss (pre-tax) using stressed loss given default assumptions associated with the loan portfolio in excess of eligible credit provisions
(pre-tax). Under APRA Basel II the eligible credit provision was based on the after tax balance for collective provisions and general reserve for credit
losses and the pre-tax balance for individually assessed provisions.
(8) Comprises PERLS VI $2 billion issued in October 2012 (issued costs reclassified to capitalised costs).
(9) Represents APRA Basel III non-compliant Additional Tier One Capital Instruments (PERLS III, PERLS V, Trust Preferred Securities (TPS) 03, TPS 06,
ASB Perpetual Preference Shares, and Perpetual Exchangeable Floating Rate Note). These instruments are eligible for Basel III transitional relief.
(10) Under APRA Basel II, represents the excess of Innovative Capital above the prescribed limit of 15% of Tier One Capital transferred to Tier Two Capital.
There is no equivalent limit under APRA Basel III.
(11) Includes both perpetual and term instruments subordinated to depositors and general creditors, having an original maturity of at least five years. APRA
require these to be included as if they were unhedged. Term instruments are amortised 20% of the original amount during each of the last five years to
maturity. These instruments are eligible for Basel III transitional relief.
(12) Represents the collective provision and general reserve for credit losses for exposures in the Group which are measured for capital purposes under the
Standardised approach to credit risk.
(13) Eligible for inclusion in CET1 under APRA Basel III methodology (Basel II 45% of balance eligible for inclusion in Tier Two Capital).
Annual Report 25
APRA APRA APRA APRA Basel IIIBasel IIIBasel 2.5Basel 2.530 Jun 131 Jan 1331 Dec 1230 Jun 12$M$M$M$MCommon Equity Tier One regulatory adjustmentsGoodwill(7,723)(7,707)(7,707)(7,705)Other intangibles (excluding software) (1)(682)(705)(828)(876)Capitalised costs (272)(275)(224)(263)Capitalised software(1,923)(1,831)(1,831)(1,700)General reserve for credit losses (2)(208)(197)(197)(209)Deferred tax asset (3)(1,400)(1,234)(393)(548)Cash flow hedge reserve (4)(368)(485)(485)(644)Employee compensation reserve (4)(132)(90)(90)(136)Deferred fee income59122122149Gain due to changes in own credit risk on fair valued liabilities(11)(11)(11)(20)(12,660)(12,413)(11,644)(11,952)Deductions previously applied at 50% of Tier One under Basel IIEquity investments (5)(2,738)(2,363)(614)(612)Equity investments in non consolidated subsidiaries (6)(1,196)(1,264)(632)(629)Shortfall of provisions to expected losses (7)(271)(176)(512)(630)Other(174)(293)(241)(113)(4,379)(4,096)(1,999)(1,984)Common Equity Tier One regulatory adjustments(17,039)(16,509)(13,643)(13,936)Common Equity Tier One26,98525,54525,04923,664Additional Tier One CapitalBasel III Complying Instruments (8)2,0002,0001,977-Basel III non complying instruments net of transitional amortisation (9)4,7204,7205,1806,635Excess /cap applicable under Basel II (10)--(426)-Additional Tier One Capital6,7206,7206,7316,635Tier One Capital33,70532,26531,78030,299Tier Two CapitalBasel III non complying instruments net of transitional amortisation (11)2,9012,9013,2244,084Holding of own Tier Two Capital (15)--(20)Prudential general reserve for credit losses (12)202177124595Excess /cap applicable under Basel II (10)--426-Asset revaluation reserve (13)--8788Other--204176Tier Two Deductions (50% Tier One and Two) - Basel II only --(1,999)(1,984)Total Tier Two Capital3,0883,0782,0662,939Total Capital36,79335,34333,84633,238
Group Operations and Business Settings
Capital (continued)
(1) Basel III effective 1 January 2013 RWA including additional requirements for counterparty credit risk and changes in methodology for securitisation and
equity exposures. Additional requirements for counterparty credit risk include an Asset Value Correlation (AVC) multiplier for large financial institutions and
a Credit Valuation Adjustment (CVA) to address the credit worthiness of counterparties involved in mark-to-market transactions.
(2) APRA requires RWA amounts that are derived from IRB risk weight functions to be multiplied by a factor of 1.06.
26 Commonwealth Bank of Australia
Basel IIIBasel IIIBasel 2.5Basel 2.530 Jun 13 1 Jan 13 (1)31 Dec 1230 Jun 12Risk Weighted Assets $M$M$M$MCredit RiskSubject to Advanced IRB approachCorporate53,46852,84751,85149,331SME Corporate30,83531,12730,83322,319SME Retail4,2034,2224,2224,071Sovereign3,6843,6923,6923,003Bank10,32811,1428,3227,619Residential mortgage66,74163,63763,63754,545Qualifying revolving retail6,6836,4606,4606,703Other retail11,0938,9838,9838,462Impact of the regulatory scaling factor (2)11,22210,92710,6809,363Total risk weighted assets subject to Advanced IRB approach198,257193,037188,680165,416Specialised lending exposures subject to slotting criteria50,39248,37348,39836,141Subject to Standardised approachCorporate3,6843,8943,89410,430SME Corporate5253173176,580SME Retail4,5724,7284,7284,836Sovereign249203203107Bank1761381381,243Residential mortgage2,4322,2572,25725,705Other retail2,2242,2122,2122,559Other assets4,3954,1244,1243,240Total risk weighted assets subject to standardised approach18,25717,87317,87354,700Securitisation5,3735,2901,1192,833Equity exposures--2,3972,339Credit valuation adjustment7,3957,225--Total risk weighted assets for credit risk exposures279,674271,798258,467261,429Traded market risk5,1514,5174,5174,842Interest rate risk in the banking book 16,28910,99610,9969,765Operational risk28,04427,63127,63126,751Total risk weighted assets 329,158314,942301,611302,787Risk Weighted Assets
Group Operations and Business Settings
Dividends
Final Dividend for the Year Ended 30 June 2013
The final dividend declared was $2.00 per share, bringing the
total dividend for the year ended 30 June 2013 to $3.64 per
share. This represents a dividend payout ratio (“cash basis”)
of 75.4% and is 9% above the prior full year dividend.
The final dividend will be fully franked and will be paid on
3 October 2013 to owners of ordinary shares at the close of
business on 23 August 2013 (record date). Shares will be
quoted ex-dividend on 19 August 2013.
Full Year Dividend History (cents per share)
Dividend Reinvestment Plan (DRP)
The DRP will continue to operate but no discount will be
applied to shares allocated under the plan for the final
dividend. The DRP for the 2013 final dividend is anticipated to
be satisfied in full by an on market purchase of shares.
Dividend Policy
The Group will seek to:
Pay cash dividends at strong and sustainable levels;
Target a full-year payout ratio of 70% to 80%; and
Maximise the use of its franking account by paying fully
franked dividends.
_______________________________________________________________________________________________________
Liquidity
(1) Liquids are reported net of applicable regulatory haircuts.
Year Ended June 2013 versus June 2012
Half Year Ended June 2013 versus December 2012
The Group holds a high quality, well diversified liquid asset
portfolio to prudently meet Balance Sheet liquidity needs and
regulatory requirements.
The Group holds a high quality, well diversified liquid asset
portfolio to prudently meet Balance Sheet liquidity needs and
regulatory requirements.
Liquid assets increased $2 billion to $137 billion, a 2%
increase on the prior year. The increase was driven by the
growth in deposits which increased the regulatory minimum
requirement.
Liquid assets increased $8 billion to $137 billion, a 7%
increase on the prior half. The increase was mainly driven by
the growth
the regulatory
minimum requirement.
in deposits which
increased
Excluding internal Residential Mortgage Backed Securities
(RMBS), the Group maintained $79 billion of liquid assets,
well above the regulatory minimum requirement of $62 billion.
Excluding internal RMBS assets, the Group maintained
$79 billion of liquid assets, well above the regulatory minimum
requirement of $62 billion.
Annual Report 27
25626622829032033436474.2%75.0%78.2%73.9%73.2%75.0%75.4%0%20%40%60%80%100%120%140%-50050100150200250300350400Jun 07Jun 08Jun 09Jun 10Jun 11Jun 12Jun 13DPSPayout Ratio ("cash basis")80%70%Target Range30 Jun 1331 Dec 1230 Jun 12Jun 13 vsJun 13 vs$M$M$MDec 12 %Jun 12 %Internal RMBS57,85257,36257,7301-Bank, NCD, Bills, RMBS, Supra, Covered Bonds29,54031,10932,429(5)(9)Cash, Government and Semi-Government Bonds49,32439,83344,4182411Liquid Assets (1)136,716128,304134,57772As at
Group Operations and Business Settings
Funding
(1) Shareholders’ equity is excluded from this view of funding sources, other than the USD Trust Preferred Securities, which are classified as other equity
instruments in the statutory Balance Sheet.
(2) Residual maturity of long term wholesale funding included in Debt issues, Loan capital and Share capital – other equity instruments, is the earlier of the
next call date or final maturity.
Year Ended June 2013 versus June 2012
Half Year Ended June 2013 versus December 2012
Customer Deposits
Customer Deposits
Customer deposits accounted for 63% of total funding at
30 June 2013, compared to 62% in the prior year. Strong
deposit growth has seen the Group satisfy a significant
proportion of its funding requirements from retail, business
and institutional customer deposits. The remaining 37% of
total funding comprised various wholesale debt issuances.
Customer deposits accounted for 63% of total funding at
30 June 2013, consistent with the prior half. Strong deposit
growth has seen the Group satisfy a significant proportion of
its funding requirements from retail, business and institutional
customer deposits. The remaining 37% of total funding
comprised various wholesale debt issuances.
Short Term Wholesale Funding
Short Term Wholesale Funding
Short term wholesale funding includes debt with an original
maturity or call date of less than 12 months, and consists of
Certificates of Deposit and Bank Acceptances, as well as
debt issued under domestic, Euro and US Commercial paper
programs by Commonwealth Bank of Australia and ASB.
Short term wholesale funding accounted for 46% of total
wholesale funding at 30 June 2013, down from 47% in the
prior year.
Short term wholesale funding includes debt with an original
maturity or call date of less than 12 months, and consists of
Certificates of Deposit and Bank Acceptances, as well as
debt issued under domestic, Euro and US Commercial paper
programs by Commonwealth Bank of Australia and ASB.
Short term wholesale funding accounted for 46% of total
wholesale funding at 30 June 2013, compared to 47% in the
prior half.
Long Term Wholesale Funding
Long Term Wholesale Funding
Long term wholesale debt (including adjustment for IFRS
MTM and derivative FX revaluations) accounted for 54% of
total wholesale funding at 30 June 2013, compared to 53% in
the prior half.
the year,
Long term wholesale funding includes debt with an original
maturity or call date of greater than 12 months. Long term
wholesale funding conditions
improved during the year
compared to the prior year as northern hemisphere central
banks provided further support to their economies and
banking systems. During
issued
$25 billion of long term wholesale debt transactions in
multiple currencies including AUD, USD, EUR, and GBP.
Given improved funding conditions, most issuances were in
senior unsecured format, although the Group also used its
covered bond program
tenor and
diversification benefits. The weighted average maturity
(WAM) of new long term wholesale debt issued in the
June 2013 year was 4.8 years. The WAM of outstanding long
term wholesale debt was 3.8 years at 30 June 2013.
to provide cost,
the Group
Long term wholesale debt (including adjustment for IFRS
MTM and derivative FX revaluations) accounted for 54% of
total wholesale funding at 30 June 2013, compared to 53% in
the prior year.
For further information on Liquidity and Funding risk, please refer to Note 40.
28 Commonwealth Bank of Australia
30 Jun 1331 Dec 1230 Jun 12Jun 13 vsJun 13 vsGroup Funding (1)$M$M$MDec 12 %Jun 12 %Customer deposits405,377385,879379,29957Short term wholesale funding110,595108,075108,49122Long term wholesale funding - less than one year residual maturity29,12924,57125,7151913Long term wholesale funding - more than one year residual maturity (2)96,611103,031103,638(6)(7)IFRS MTM and derivative FX revaluations1,837(4,267)(5,417)largelargeTotal wholesale funding 238,172231,410232,42732Total funding643,549617,289611,72645As at
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Annual Report 2013
29
Sustainability
Introduction
For the Group, sustainability means building a successful
business today, while creating enduring value for the Group’s
customers, people, shareholders and the broader community.
Examples of the value created for the Group’s stakeholders
during the current financial year include the following:
The Group provided finance to more than 2 million home
owners, and paid interest to more than 11 million retail
savings and transaction account-holders.
With more than 51,000 people, the Group’s annual
payroll expenditure was more than $5 billion.
The Group returned 75% of its profits to more than
800,000 Australians who hold CBA shares directly, and
millions more who hold them through superannuation
funds.
The Group paid more than $2.9 billion in taxes, making it
Australia’s fourth largest taxpayer.
Building on a long and proud history of supporting local
communities, the Group directly helped more than 200
grassroots community organisations make a positive
impact on the health and wellbeing of Australian youth.
The Group delivered financial literacy programs to more
than 280,000 students. In addition, more than 230,000
students participated in School Banking.
The Group’s corporate strategy reflects the importance of
Environmental, Social and Governance (ESG) considerations
in a rapidly changing operating environment.
In May 2013, the Group announced its new vision built
around a simple objective: to excel at securing and enhancing
the
financial wellbeing of people, businesses and
communities.
The Board-endorsed Sustainability Strategic Framework, with
its five focus areas, supports this vision. The framework
addresses the Group’s key issues and allows it to effectively
manage ESG risks and opportunities.
The Group’s key initiatives under the Sustainability Strategic
Framework include:
1. Sustainable Business Practices
Disciplined financial management and a focus on productivity,
transparency and accountability help to ensure the long term
sustainability of the Group’s business.
A Strong Balance Sheet
The Group continues to take a disciplined approach to its
balance sheet settings across capital, funding and liquidity, so
as to deliver sustainable total shareholder returns over the
long term.
The Group’s ability to maintain a strong balance sheet
provides shareholders and other stakeholders with
the
confidence that the Group can deliver the full range of
financial services through the highs and lows of the economic
cycle.
Focussing on Productivity
With a backdrop of increased competition and global financial
uncertainty, productivity is critical to the Group’s long term
success. During the current financial year, the Group rolled
out a number of productivity programs and initiatives that are
already having a positive impact on the culture of the
organisation
staff
engagement and ultimately delivering better outcomes for the
Group’s customers.
in driving efficiencies,
increasing
Transparent Reporting
to
The Group is committed to transparent and comprehensive
reporting, catering
the needs of a wide range of
stakeholders. This year, following feedback from a number of
internal and external stakeholders, the Group is releasing an
online sustainability report at the same time as the Annual
Report (available at commbank.com.au/sustainability2013).
This will provide stakeholders with a comprehensive view of
the financial and non-financial performance of the Group.
30 Commonwealth Bank of Australia
2. Responsible Financial Services
The Group
to providing
takes a responsible approach
financial services and products, and remains committed to
customer satisfaction.
Achieving Number 1 in Customer Satisfaction
The Group’s unwavering focus on customer service has
helped the Group reach its goal of becoming the number one
bank for customer satisfaction across all business areas,
while delivering superior shareholder returns.
In January 2013, CBA was ranked first amongst the major
banks on Retail MFI Customer Satisfaction for the first time
since setting its goal in 2006 to be number one. Similarly, the
Group has ranked equal or outright first for customer
satisfaction among business clients in all four key business
segments since November 2011. Colonial First State has also
ranked first among platform providers since 2008, with a
combined weighted average satisfaction score of 8.32 (out of
10) for FirstChoice and FirstWrap. More information can be
found on page 33.
Focussing on Technology Innovation
Achieving and maintaining a leadership position in technology
and innovation is a strategic and operational priority for the
Group.
This financial year saw the completion of the Core Banking
Modernisation program,
in 2008. This major
launched
technological overhaul has created a foundation platform for
the Group to realise its customer-centric vision and deliver
innovative solutions quickly and cost-effectively.
The Group was the first major Australian bank to offer its
customers real-time settlement and real-time banking — and
during the current financial year, the Group has continued to
transform the way Australians manage their money. Recent
innovations include:
CommBank Kaching for Facebook, Australia’s first social
media banking application, giving users a fast and
secure payment option integrated into the platform.
Smartsign, a service allowing customers to execute loan
documents electronically anytime, from anywhere in the
world, using the Group’s secure online portal.
MyWealth, an online platform allowing self-directed
investors to research and invest in a range of financial
products using one log in, with investment and banking
services in the same convenient online destination.
Meanwhile, the Branch of the Future program has continued
to improve its front-line customer interface. State-of-the-art
features implemented include video conferencing facilities in
branches, allowing customers
rapidly connect with
specialists, even if they are located in rural and remote areas.
to
Taking a Responsible Approach to Lending
The Group’s Risk Appetite Statement continues to govern its
approach to risk. In October 2012 the Group rolled out a
policy to improve the assessment of the ESG risks for
financing in the natural resources sectors of Energy and
Utilities, Oil and Gas and Metals and Mining.
Supporting Customers in Need
Each year the Group supports a number of customer
segments with a wide range of fee-free and discounted
financial services. In the current financial year, the Group has
forgone more than $173 million in revenue to support low
income earners and the not-for-profit sector. The Group has
more than 100 dedicated staff who work on a one-on-one
basis with customers who find themselves in financial
difficulty following an unexpected event such as an illness or
injury, a change in employment or a natural disaster.
The Group also looks to cater to specific customer segments
with tailored programs. For example, the Group supports
Indigenous Australians building strong and economically
sustainable communities through its Community Business
Finance Program. This program supports eligible Indigenous
Australians who either own existing businesses or seek to
start new businesses, and who need extra money to expand
Sustainability
or invest in new equipment. The program helps them to build
a repayment history, making it easier to secure mainstream
finance in the future.
The Group’s Community Business Finance Program aims to
drive deeper engagement with the Group’s customers in
under-serviced communities and provide affordable banking
solutions to help their local businesses grow.
This year saw a number of natural disasters impacting
customers, branch staff and the community. Over the course
of the financial year, the Group donated more than $600,000
to support the Tasmanian Bushfires and Queensland Flood
Appeals. In addition, the Group proactively contacted all
affected customers to offer a range of options to assist with
their banking, insurance and general financial needs during
these difficult times.
Providing Leading Banking Solutions to Not-for-Profits
The Group has a dedicated Not-for-Profit Sector Banking
team focused on listening to the sector and collaborating with
it to create financial tools, resources and solutions that
increase the strength and sustainability of not-for-profits. The
Group was the first bank in Australia to provide an account
specifically for not-for-profit organisations and today the
Group has more branches in more communities than any
other bank. The Group’s long term commitment to its
communities means that today we have more not-for-profit
customers than any other bank.
Adaptable Work Practices and Training
The Group continues to invest in Human Resource systems
and tools to support its People strategy, with a focus on
facilitating more flexible ways of working. The new My HR
Anywhere portal provides the Group’s people with access to
useful tools and information that help them manage their
career, from any location, at any time. A secure, simple and
easy HR tool, My HR Anywhere is available to everyone
across the Group. In the Group’s annual people and culture
survey, 44.5% said that they work flexibly.
During the year, the Group also launched CAN Coaching to
equip the Group’s leaders with coaching skills to empower
their teams and embed a positive and consistent coaching
culture across
is currently
available for Executive General Managers and General
Managers. CAN Coaching
for Executive Managers will
commence in late 2013, and will become available more
broadly over the next few years.
the Group. CAN Coaching
4. Community Contribution and Action
The Group has a proud history of supporting the communities
where we live and work. By offering financial literacy
programs, partnering with community organisations and
supporting the Group’s people in their endeavours, the Group
continues to strengthen and extend its involvement, forging
lasting relationships with community organisations and those
they serve.
3. Engaged and Talented People
Building Financial Literacy Skills
The Group supports its people by continuing to invest in their
development and in programs designed to create a diverse,
safe and rewarding workplace. In the current financial year
the Group’s people remained highly engaged, as shown by
the Group’s recent Employee Engagement score of 80%.
In late 2009, the Group announced a commitment to improve
the financial literacy of one million children by 2015. Since
then, the Commonwealth Bank Foundation’s StartSmart
workshop program has had 754,242 students booked to
attend a primary or secondary session.
Building a Diverse and Inclusive Workplace
The Group is committed to providing a workplace, which
reflects the diversity and richness of the communities it
serves.
In October 2012, the Executive Leadership Team endorsed
the 2013–14 Diversity and Inclusion Strategy, structured
around three pillars:
Inclusion and respect;
Diversity in leadership; and
Adaptable work practices.
Cultural diversity and ethnicity, Lesbian, Gay, Bisexual,
Transgender and Intersex (LGBTI) are now part of the
inclusion and respect pillar, which also continues to focus on
disability. Employee networks have been established to bring
these agendas closer to the Group’s people and their
communities.
Members of the Executive Leadership team sponsor each of
the diversity and inclusion focus areas, taking proactive and
visible steps to build cultural change in the organisation.
Spotlight on Gender Diversity
The Group views gender equality as an indicator of broader
diversity. The Group continues to progress towards its gender
diversity target: increasing the representation of women in
Executive Manager roles and above to 35% by December
2014. As with any ambitious target, it becomes more
challenging over time and the Group is continuing its focus on
developing the Group’s internal female talent pipeline to
promote from within. Sustained leadership commitment and
engagement through initiatives such as Male Champions of
Change and Executive Sponsorship, are helping the Group
progress towards its aspirations.
As at 30 June 2013, 30.3% of Executive Managers and above
positions were filled by women, along with 25% of Executive
Committee roles and 33% of Board positions. Across the
Group there are now 59.8% women employees. In May 2013,
the Group lodged its Workplace Profile report with the
Workplace Gender Equality Agency. A copy of this report can
be found at commbank.com.au/diversity.
The Foundation’s latest offering, StartSmart Pathways, brings
money management to life for students enrolled in TAFE,
Group Training Organisations and other vocational education
institutions. Since it was launched in February 2012, 3,819
sessions have been delivered across Australia.
Collaborating with Indigenous Australians to Achieve
Social, Economic and Financial Inclusion
In April 2013, the Group launched its fourth Reconciliation
Action Plan (RAP). The 2013 and 2014 RAP highlights the
Bank’s achievements over the past two years and looks
ahead to the future as the Group continues to collaborate with
Indigenous Australians to promote social, economic and
financial inclusion. Building on the Group’s recent successes
and the lessons learned from past programs, the 2013 and
2014 RAP has four key areas of focus:
Delivering outstanding and accessible customer service
to the Group’s Indigenous customers, regardless of
location.
Providing greater employment opportunities and career
development for Indigenous people.
Indigenous culture across
Promoting
the broader
community, while also delivering opportunities for Group
employees to engage with local communities.
Providing greater access to educational opportunities for
Indigenous youth and adults, particularly in financial
literacy.
Find out more about the Group’s progress and commitment to
Indigenous communities at commbank.com.au/indigenous.
Empowering Support of the Community
The Group’s Staff Community Fund is Australia’s largest and
longest
running workplace-giving program. The Group
matches its people contributions dollar-for-dollar. In 2013, the
Fund will award $2 million to more than 200 grassroots
programs focused on improving the health and wellbeing of
Australian youth. In addition, the Group’s branch network
rallied during April and collected more than $300,000 in
donations from its customers and staff to support one of the
Group’s key charity partners, the Clown Doctors.
The Group encourages volunteering with a range of
Annual Report 2013
31
Sustainability
partnerships that enable its people to participate through
mentoring, team activities and skilled volunteering. In 2013,
the Group continued to grow its skilled volunteering programs
with new secondments in North East Arnhem Land and on
the NSW Central Coast through the Jawun secondment
program, as well as long term secondments with other
partners, such as Reconciliation Australia. Through these
programs, we continue to support the long term sustainable
growth of Indigenous enterprises.
Supporting Sports, the Arts and Health in Australia
The Group is Cricket Australia’s longest standing partner,
having supported it for 26 years. After seven years as the
naming rights sponsor of the One Day Internationals, the
Group announced in May that it would be stepping up its
support to become the new naming rights sponsor of the
Australian Test Team and Test Series, starting with the
Commonwealth Bank Ashes Series in November 2013. As
well as Australia’s cricketing elite, the Group supports the
growth of community cricket through its Grants for Grassroots
Cricket™ program, providing annual grants of cash and
equipment to clubs across Australia. Over four years, this
program has contributed $1.53 million to local cricket clubs.
Meanwhile, through the Group’s longstanding support of
Opera Australia, the Australian Chamber Orchestra and
Bangarra Dance Theatre, the Group is making art more
accessible
the Group’s
partnership with Kaldor Public Art Projects supports ground-
breaking exhibitions such as 13 Rooms shown in April 2013,
showcasing the Group’s commitment to innovation through
art.
to all Australians.
In addition,
The Group also continues to support men’s and women’s
health through its ongoing partnerships with the Breast
Cancer Institute of Australia (BCIA) and the Prostate Cancer
Foundation of Australia (PCFA). The Group has supported
BCIA for more than 15 years, raising more than $3 million
during this time. In September 2012 the Group organised 296
barbeque events for PCFA across the Group’s banking
network and raised more than $117,000 in the process.
In addition, the Group has been the major sponsor of the
Australian of the Year Awards for more than 30 years,
celebrating outstanding Australians and their commitment to
the nation and their local communities.
5. Environmental Stewardship
As one of Australia’s largest organisations, the Group
recognises that its operations have direct and indirect impacts
on the environment. We strive to actively manage those
impacts to ensure the long term sustainability of the Group’s
business and environment.
Achieving the Carbon Reduction Target
In May 2009, the Group set the goal of reducing its carbon
emissions by 20% from 2008–09 emission levels by June
2013 (refer to the Sustainability Scorecard on page 33 for a
definition of scope). The goal represented a reduction of
34,550 tonnes of carbon dioxide equivalent (CO2-e). The
Group reached its target five months ahead of schedule in
January 2013. By 30 June 2013, the Group had reduced its
emissions by an additional 10,658 tonnes of CO2-e. Over the
past four years, emissions for each full time employee have
also steadily declined.
A number of initiatives played a key role in achieving this
target. These include:
inefficient
The Green Refresh Program,
lighting throughout the Group’s branch network and
upgrading the heating, ventilation and air conditioning
(HVAC) systems in the retail and commercial buildings.
replacing
32 Commonwealth Bank of Australia
One of Australia’s most ambitious corporate property
consolidations, which relocated the Group’s people from
19 buildings across Sydney to three purpose-built and
sustainable campuses,
the award-winning
Commonwealth Bank Place in Sydney’s Darling Quarter.
including
Supporting the Group’s Clients in their Transition to a
Low Carbon Economy
The Carbon Solutions Team was formed as a direct response
to the effects of climate change on both the Group and its
clients. The team is responsible for the development and
execution of the Group’s carbon markets strategy to ensure a
leading position in Australia’s transformation to a low carbon
economy. The team specialises in areas including:
The Government’s Carbon Pricing Mechanism;
Renewable energy projects such as solar photovoltaic
systems, wind power, waste to energy systems and
biomass energy;
Energy efficiency; and
Carbon farming solutions.
The Carbon Solution Team’s strategy leverages the Group’s
core trading, financing and distribution capabilities to provide
a range of tailored financing and risk management solutions
to assist clients in the management of their carbon and
renewable energy risks and opportunities.
In addition, the Group has been a major player in the
renewable energy sector, with significant investments since
2004. The Group remains committed to the continued
development of the renewable energy and carbon markets in
the future.
The Group also trades directly in the free carbon permit
market with large emission-intensive trade exposed entities,
providing financing and pricing certainty for the Group’s
clients.
Committing for the Long Term and Changing the Way we
Work
In 2012, Commonwealth Bank Place (CBP) and the Darling
Quarter Precinct won a number of awards, including the
prestigious Banksia Sustainability Award
the Built
Environment. This award showcased CBP’s world-leading
environmental performance ratings, including six stars from
the Green Star Office Design system and five stars from the
National Australian Built Environmental Rating System
(NABERS). In June 2013, CBP also received the United
Nations Association of Australia Green Building Award.
for
CBP is the largest and most innovative commercial office
development in the Sydney CBD. Integrating the commercial
and public domains, CBP is a vibrant flagship campus for
more than 6,000 of the Group’s employees.
CBP features world class environmental design, including
blackwater treatment and tri-generation technologies, as well
as the world’s largest Activity Based Working (ABW) space.
Bankwest has since adopted the ABW concept in its new
head office, Bankwest Tower in Perth, housing nearly 3,000
employees. Meanwhile, the Group’s New Zealand subsidiary,
Auckland Saving Bank (ASB), has embraced ABW in its new
North Wharf head office development.
Further Information
Visit the microsite, commbank.com.au/sustainability2013, for
more information on the Group’s approach to sustainability,
insights on the Group’s key initiatives and achievements, and
independently reviewed metrics for the 2013 financial year.
The microsite covers the activities of companies wholly
owned by the Group within Australia for the financial year
ending 30 June 2013.
Sustainability Scorecard (1)
Customer Satisfaction
Units
2013
2012
2011
Sustainability
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
Engagement
Employee Engagement Index (5)
Employee Turnover (Voluntary) (6)
Diversity
Women in Executive Manager and above roles (7)
Safety and Well-being
Lost Time Injury Frequency Rate (LTIFR) (8)
Absenteeism (9)
Environment
Greenhouse Gas Emissions
Scope 1 emissions (10)
Scope 2 emissions (11)
Scope 3 emissions (12)
Financial Literacy Programs
School Banking Students (active) (13)
StartSmart Students Booked (14)
83.0
1st
79.0
2nd
75.2
4th
7.4
Equal 1st
7.3
Equal 1st
7.1
Equal 2nd
8.32
1st
7.86
1st
7.74
1st
%
%
%
Rate
Rate
80
10.60
80
12.90
n/a
12.65
30.3
30.9
28.2
1.7
6.2
2.7
6.2
2.5
6.0
tCO2-e
tCO2-e
tCO2-e
8,780
100,997
17,767
8,941
118,047
20,137
9,835
137,948
22,885
233,217
284,834
191,416
235,735
140,280
200,081
(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
6 month rolling average to June, based on the Australian population aged 14 and over. The ranking refers to CBA’s position relative to the other three main
Australian banks (Westpac, NAB and ANZ). The competitor set changed in 2011 to exclude St George. 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 relationship with that institution on a scale from 0 to 10 (0 is ‘Extremely Dissatisfied’, 10 is ‘Extremely Satisfied’). This is reported as a 6 month
rolling average as at 30 June. The ranking refers to CBA’s position relative to the other three major Australian banks (Westpac, NAB, and ANZ).
(4) The Colonial First State (the platform provider) score is calculated based on the weighted average (using the FUA as at December 2012 from the plan for
Life FUA subscription database) of the overall satisfaction scores of FirstChoice and FirstWrap. The ranking is calculated by comparing the score with the
weighted average of other platform providers in the relevant peer set. The relevant peer set includes platforms belonging to Westpac, NAB, ANZ, AMP and
Macquarie in the Wealth Insights survey. In the previous year, the satisfaction score was calculated on a straight average of FirstChoice and FirstWrap.
Due to the change in calculation of the satisfaction score this year, historical results have been restated. As a result, the score and ranking for 2012 has
changed from 7.69 (2nd) to 7.86 (1st). For 2011 the ranking remains unchanged, but the satisfaction result changed from 7.79 to 7.74. Prior to 2011, the
results remain unchanged.
(5) The index shows the proportion of employees replying 4 or 5 to questions relating to satisfaction, retention, advocacy and pride on a scale of 1-5 (5 is
‘Strongly Agree’, 1 is ‘Strongly Disagree’). The result captures the responses of Group employees excluding Bankwest, ASB Bank and Sovereign entities.
There is no data available prior to 2012, as in 2012 the Group moved the people and culture survey administration to a new provider.
(6) Employee turnover refers to all voluntary exits of domestic, permanent employees as a percentage of the average domestic, permanent headcount paid
directly by the Group (full-time, part-time, job share or on extended leave).
(7) Percentage of roles at the level of Executive Manager and above filled by women, in relation to the total domestic headcount at this level as at 30 June.
Headcount captures permanent headcount (full-time, part-time, job share, on extended leave), and contractors (fixed term arrangements) paid directly by
the Group.
(8) 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 the average number of domestic employees over the year. This relates to domestic employees only (permanent, casual and
contractors paid directly by the Group). Data is complete as at 30 June for each financial year. Prior year data is updated due to late reporting incidents
that occurred during the year, or the subsequent acceptance or rejection of claims made in the year. As a result, 2012 has changed from 2.1 to 2.7.
(9) 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 domestic full-time equivalent (FTE).
(10) Scope 1 carbon emissions relate to the consumption of gas and fuel (gasoline and diesel) by domestic retail and commercial properties, business use of
domestic tool-of-trade vehicle fleet, dedicated bus services, business use of private vehicles, and business use of hire cars.
(11) Scope 2 carbon emissions relate to the electricity use by domestic retail and commercial properties and domestic ATMs and certain residential properties.
Due to the electricity billing cycle, 15% of 2013 electricity data was estimated to meet publication deadlines. Data was collected in line with NGER
legislation requirements. Assets under the operational control of CFSGAM have been excluded.
(12) Scope 3 carbon emissions relate to the upstream emissions related to Scope 1 and 2 emission sources.
(13) The number of active school banking students as part of the Group's financial literacy programs. Active students are those who banked at least once
during a 12 month period through a school banking school.
(14) The number of students booked to attend Commonwealth Bank Foundation's StartSmart programs. StartSmart sessions cover different topics and the
same student may be booked to attend a number of sessions.
Annual Report 2013
33
Corporate Governance
Introduction
This statement outlines the key aspects of the Group’s
corporate governance framework. The Board has consistently
placed great importance on good corporate governance
practices of the Group, which it believes is vital to the Group’s
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 practices of the Group comply
with the revised “Corporate Governance Principles and
Recommendations”, dated 30 June 2010, released by the
ASX Corporate Governance Council.
Charter
The Board’s role and responsibilities are set out in the Board
Charter. The responsibilities include:
The Group’s corporate governance,
establishment of Committees;
including
the
Oversight of business and affairs by:
–
–
Establishing with management and approving the
strategies and financial objectives;
Approving major corporate and capital initiatives,
capital expenditure acquisitions and divestments in
excess of limits delegated to management;
– Overseeing the establishment of appropriate risk
management systems
the
Group’s risk appetite and establishing appropriate
financial policies such as target capital and liquidity
ratios;
including defining
– Monitoring the performance of management and
the environment in which the Group operates;
Approving documents (including reports and statements
to shareholders) required by the Bank’s Constitution and
relevant regulation;
Approval of
the Group’s major HR policies and
overseeing the development strategies for senior and
high performing executives; and
Employment of the Chief Executive Officer (CEO).
A copy of the Board Charter is available on the Group’s
website.
The Board carries out the legal duties of its role in
accordance with the Group’s values of integrity, collaboration,
excellence, accountability and service. 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 responsibility to achieve
the Group’s objective of creating long term value for its
shareholders in part through excelling at securing and
enhancing the financial wellbeing of people, businesses and
communities.
The CEO is responsible for the day to day management of
the business 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 and 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
Board Performance
and Renewal
Risk
Remuneration
34 Commonwealth Bank of Australia
CEO
Management
<
<
delegation
Provides advice to the CEO on
>
>
key decisions made under
management delegation
Corporate Governance
Composition
There are currently nine Directors of the Bank and details of their period of office, experience, qualifications, special
responsibilities and attendance at meetings are set out on pages 40 to 44 of the Directors’ Report.
Membership of the Board and Committees is set out below:
Board Membership Position Title
Committee Membership
Board Performance
and Renewal
Remuneration Audit
Risk
Chairman
Chairman
Member
Ian M Narev
Executive
Chief Executive Officer
-
Director
David J Turner
Non-Executive,
Independent
John A Anderson
Non-Executive,
Independent
Jane S Hemstritch Non-Executive,
Launa K Inman
S Carolyn H Kay
Brian J Long
Andrew M Mohl
Harrison H Young
Independent
Non-Executive,
Independent
Non-Executive,
Independent
Non-Executive,
Independent
Non-Executive,
Independent
Non-Executive,
Independent
Colin R Galbraith (1) Non-Executive,
Fergus D Ryan (1)
Independent
Non-Executive,
Independent
-
-
-
-
-
-
-
-
-
-
-
-
-
Member
Member
Member
Member
-
-
Chairman
-
Member Member
Member
Member Member
-
Chairman Member
Member
-
Member
Member
-
-
-
-
-
Member
-
-
-
-
-
Member Chairman
-
-
-
-
(1) Colin Galbraith and Fergus Ryan retired from the Board following the Annual General Meeting held on 30 October 2012.
Constitution
The Constitution of the Bank specifies that:
The CEO and any other Executive Directors are not
eligible to stand for election as Chairman of the Bank;
The number of Directors will 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
decided that there will be nine Directors; and
At each Annual General Meeting (AGM) one third of
Directors (other than the CEO) will retire from office and
may stand for re-election.
The policy of the Board is that Non-Executive Directors are
normally expected to serve a term of six years from the date
of first election by shareholders, subject to re-election by
shareholders as required under the Constitution and the ASX
Listing Rules. That term may be extended to nine years
where, at the end of the initial six year period, the Board
determines that such an extension would be a benefit to the
Bank and the Director is agreeable. On an exceptional basis,
the Board may annually exercise its discretion to further
extend the term of a Director should circumstances deem it
appropriate, subject to the total term of appointment not
exceeding twelve years. The Chairman would normally be
expected to serve a term of at least five years in that capacity.
Independence
The Group’s Non-Executive Directors are required 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. The Board
regularly assess each Director’s independence to ensure
ongoing compliance with this requirement.
Directors are required to conduct themselves in accordance
with the ethical policies of the Group and 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 must also strictly adhere to the participation and
voting constraints in relation to matters in which they may
have an interest in. Each Director may from time to time have
personal dealings with the Group or be involved with other
companies or professional firms which may have dealings
with the Group. Details of offices held by Directors with other
organisations are disclosed 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 independent Directors. In reaching that
determination, the Board has taken into account (in addition
to the matters set out above):
The specific disclosures made by each Director;
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 the accounting
standards;
That no Non-Executive Director personally carries on
any role for the Group otherwise than as a Director of
the Bank; and
That no Non-Executive Director has a material
contractual relationship with the Group other than as a
Director of the Bank.
Annual Report 2013
35
Corporate Governance
Education and Review
in an
Directors participate
induction program upon
appointment and in ongoing education sessions on a regular
basis. This program 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.
Board Performance and Renewal Committee
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 CEO’s
absence.
the composition and effectiveness of
The Board Performance and Renewal Committee annually
review the Group’s corporate governance procedures. It
considers
the
Commonwealth Bank of Australia Board and also the boards
of the major wholly owned subsidiaries. It also considers the
effectiveness of the Board and ensures that the Board
annually reviews its own performance, policies and practices.
These reviews seek to identify where improvements can be
made in Board processes. They also assess the quality and
effectiveness of information made available to Directors. The
review process includes a performance assessment of the
Board Committees and each Director. Every two years, this
process is also facilitated by an external consultant.
The Board used an independent facilitator in this year’s
performance review. The review endorsed the current Board
and Committee processes. The assessment has been
considered by the Board and individual Director assessments
have been diarised with Directors by the Chairman of the
Board.
After considering the results of the performance assessment,
the Board will determine its endorsement of the Directors to
stand for re-election at the next AGM.
Performance evaluations in accordance with 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, on
pages 47 to 64.
In accordance with the Board’s policies, the Committee
consists solely of independent Non-Executive Directors, with
the CEO attending the meeting by invitation.
A copy of the Board Performance and Renewal Committee
Charter is available on the Group’s website.
Selection of Directors
of
The Board Performance and Renewal Committee’s set of
criteria for Director appointments are reviewed annually and
adopted by the Board. These are aimed at creating a Board
capable
and motivating
management to achieve sustained, outstanding performance
in all respects. The Group’s aim is to ensure that any new
appointee is able to contribute to the Board constituting a
competitive advantage for the Group. Based on these criteria,
each Director should:
challenging,
stretching
Provide important and significant insights, input and
questions to management from their experience and
skill.
Professional intermediaries are engaged to identify a diverse
range of potential candidates for appointment as Directors
based on the identified criteria.
The Board Performance and Renewal Committee will assess
the skills, experience and personal qualities of
these
candidates. It will also take into consideration other attributes
including diversity to ensure that any appointment decisions
adequately reflect the environment in which the Group
operates. Information on the Group’s diversity strategy more
generally can also be found in the Sustainability section of
this report on pages 30 to 33.
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.
include
The Chairman will provide a letter to all new Directors setting
out the terms of appointment and relevant Board policies.
time commitment, code of ethics and
These
continuing education. All current Directors have been
provided with a
their
appointment. A copy of the form of the appointment letter is
available on the Group’s website.
letter confirming
terms of
the
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, 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
meeting agendas 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 regular Board
meeting agendas. In addition, ongoing strategy is the
major focus of at least one Board meeting annually;
An agreed policy on the basis that Directors are entitled
to obtain access to Group documents and information,
and to meet with management; and
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.
Be capable of operating as part of an exceptional team;
Ethical Standards
Vigorously debate and challenge management in a
constructive manner;
Contribute outstanding performance and exhibit
impeccable values;
Be capable of inputting strongly to risk management,
strategy and policy;
Provide a mix of skills and experience required to
challenge and contribute to the future strategy of the
Group;
Be excellently prepared and receive all necessary
education; and
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 vote on or be present when
the matter is being considered. If the material personal
interest is disclosed or identified before a Board or Committee
meeting takes place those Directors will also not receive a
copy of any paper dealing with the matter.
36 Commonwealth Bank of Australia
Share Trading
The Board has adopted a Group Securities Trading policy
which prohibits Directors, employees and contractors of the
Group from:
in
the Group’s securities
Dealing
in
possession of unpublished price-sensitive information;
and
they are
if
Communicating unpublished price-sensitive information
to other people.
Directors are also only permitted to deal with the Group’s
securities within certain periods, as long as they are not in the
possession of unpublished price-sensitive information. These
periods include the 30 days after the half yearly and final
results announcements, and 14 days after quarterly trading
update releases.
The Policy also requires 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.
A copy of the policy is available on the Group’s website.
Corporate Governance
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 is available on the
Group’s website.
Auditor
PricewaterhouseCoopers
the
external auditor of the Bank at the 2007 AGM, effective from
the beginning of the 2008 financial year.
(PwC) was appointed as
The PwC partner managing the Group’s external audit will
attend the 2013 AGM and be available to respond to
shareholder questions relating to the external audit.
In line with current legislation, the Group requires that the
partner be changed within five years of being appointed. The
lead partner was changed with effect from 1 July 2012.
The Group and its external auditor must continue to comply
with US Auditor independence requirements. U.S. Securities
and Exchange Commission (SEC) rules still apply to various
activities that the Group undertakes in the United States,
even though the Bank is not registered under the Exchange
Act.
Remuneration Arrangements
Non-Audit Services
Details of the governance arrangements and policies relevant
to remuneration are set out in the Remuneration Report on
pages 47 to 64.
Audit Arrangements
Audit Committee
The Audit Committee assists 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
the Group, as well as obtaining an
environment of
understanding of the Group’s tax and accounting risks. The
Audit Committee is responsible for overseeing accounting
policies, professional accounting requirements, internal audit
(GAA), external audit, APRA statutory and
regulatory
external auditor’s
reporting
appointment.
The Charter of the Audit Committee incorporates a number of
policies and practices to ensure that the Committee is
independent and effective.
requirements, and
the
These include:
The Audit Committee will comprise at least three
members. All members must be Non-Executive,
Independent Directors and be financially literate. At least
one member should be a financial expert with relevant
qualifications and experience as referred to in the
technical expertise guidance of the ASX Corporate
Governance Principles and Recommendations;
The Chairman of the Audit Committee cannot 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,
The External Auditor Services Policy requires the Audit
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 external
auditor’s independence.
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
themselves and the Group;
interest between
Require an
themselves;
indemnification
from
the Group
to
Seek contingency fees; nor
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 will not provide certain
services including the following services:
Bookkeeping or other services relating to accounting
records or Financial Statements of the Group;
Financial
implementation;
information
systems
design
and
Appraisal or valuation services (other than certain tax
fairness opinions or
only valuation services) and
contribution-in-kind reports;
Actuarial services unless approved in accordance with
independence guidelines;
Internal audit outsourcing services;
Management functions, including acting as an employee
and secondment arrangements;
Human resources;
Broker-dealer, investment adviser or investment banking
services;
Annual Report 2013
37
Corporate Governance
Non-Audit Services (continued)
that is consistent with the approved risk appetite.
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:
Audit services to the Group or an affiliate;
Related services connected with the 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 Group and
Business Unit risk appetite statements, policies, delegated
authorities and committee structures. 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:
is
for
responsible
The Board
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
“overseeing
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”.
The CEO and the Chief Financial Officer have given the
Board their declaration in accordance with section 295A of
the Corporations Act 2001. The CEO and Chief Financial
Officer have confirmed that the declarations are 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.
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
and funding, operational, insurance, compliance (including
regulatory), and reputational risks assumed by the Group in
the course of carrying on its business. It reviews regular
reports from management on the measurement of risk and
risk
the adequacy and effectiveness of
management and internal controls systems.
the Group’s
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
38 Commonwealth Bank of Australia
This framework, which is designed to achieve portfolio
risk-return
outcomes
expectations, includes:
consistent with
the Group’s
The Group Risk Appetite Statement;
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 management framework (including high-level
policies and limits). It also makes recommendations to the
Board on the key policies relating to capital (that underpin the
Internal Capital Adequacy Assessment Process), liquidity and
funding and other material risks. 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 Remuneration Committee to
assist in the alignment of executive remuneration with
appropriate risk behaviours.
The Committee reviews significant correspondence with
regulators, receives reports from management on 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
the
Committee or the CRO. The Chairman of the Risk Committee
provides a report to the Board following each Committee
meeting.
least annually or as decided by
A copy of the Risk Committee charter appears on the Group’s
website.
Risk Management 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.
A description of the functions of the framework and the nature
of the risks is set out in Notes 37 to 40 to the Financial
Statements (pages 144 to 167).
Continuous Disclosure
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. This is achieved via established
reporting lines or as 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 disclosing 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 the market to have an understanding of the
business operations and performance, the Group aims to
provide shareholders with access to quality information 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;
The Group’s website at www.commbank.com.au; and
The investor relations app, refer to page 195.
including
communication
The Group employs a wide range of communication
approaches,
with
direct
shareholders, publication of all relevant Group information on
the shareholder centre section of the website and webcasting
for shareholders. Upcoming
of most market briefings
webcasts are announced
the market via ASX
to
announcements and publicised on the website to enable
interested parties to participate. 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. The Group has
taken these actions to encourage shareholder participation at
general meetings.
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.
Ethical Policies
the Group are
The values of
integrity, collaboration,
excellence, accountability and service. 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’s code of ethics, known as a Statement of
Professional Practice, 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 programs;
Website
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 the Group’s
people. The Group has also established the Group Securities
Trading policy to ensure that unpublished price-sensitive
information is not used in an illegal manner for personal
Corporate Governance
advantage.
Our People
The Group has implemented various policies and systems to
enable its people to carry out their duties in accordance with
the Group’s values. 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
Supporting Professional Development.
Information on the Group’s diversity strategy can be found in
the Sustainability section of this report on pages 30 to 33.
Behaviour Policy
to complying with
The Group is strongly committed to maintaining an ethical
workplace and
legal and ethical
responsibilities. The Group’s Behaviour policy requires its
people to report fraud, corrupt conduct, mal-administration or
serious and substantial waste by others. A system has been
established which allows people to remain anonymous, if they
wish, for reporting of these matters.
The policy includes 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 Security Officer reports any
such matters to the Audit Committee, noting the status of
resolution and actions to be taken.
Code of Conduct
The Board will operate in a manner reflecting the Group’s
its agreed corporate
values and
the
governance guidelines,
Corporations Act and all other applicable regulations.
the Bank’s Constitution,
in accordance with
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, and addressing both performance
and compliance.
The Board’s policies and codes include detailed provisions
dealing with:
The interaction 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 interest situations can be 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 its values of integrity,
collaboration, excellence, accountability and service.
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.
Annual Report 2013
39
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 2013.
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
Other Directorships: Ashurst Australia, O’Connell Street
Associates Pty Ltd, and Great Barrier Reef Foundation.
Qualifications: Fellow of the Institute of Company Directors,
Fellow of the Institute of Chartered Accountants in England and
Wales.
Mr Turner is a resident of New South Wales. Age 68.
Mr Turner has been a member of
the Board since
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
Remuneration Committee.
Mr Turner has extensive experience in finance, international
business and governance.
He was Chairman of Cobham plc from May 2008 until May
2010. He has held a number of Directorships including
Whitbread plc and the Iron Trades Insurance Group and has
been a member of the Quotations Committee of the London
Stock Exchange.
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.
Ian M Narev, Managing Director and Chief Executive Officer
Mr Narev commenced as Managing Director and Chief
Executive Officer on 1 December 2011.
Other Directorships: Commonwealth Bank Foundation
(Chairman), and Financial Markets Foundation for Children.
Qualifications: BA LLB (Hons) (Auckland), LLM (Cantab), LLM
(NYU).
Mr Narev is a resident of New South Wales. Age 46.
Mr Narev joined the Group in May 2007. From then until
January 2009, he was Group Head of Strategy, with
responsibility for corporate strategy development, mergers
and acquisitions and major cross business strategic
initiatives. He is a member of the Risk Committee.
From January 2009 until September 2011, Mr Narev was
Group Executive, Business and Private Banking, one of the
Group’s six operating divisions.
Prior to joining CBA, Mr Narev was a partner of McKinsey’s
New York, Sydney and Auckland offices from 1998 to 2007.
He became a global partner in 2003, and from 2005 until his
departure in 2007 was head of McKinsey’s New Zealand
office. Prior to joining McKinsey, Mr Narev was a lawyer
specialising in mergers and acquisitions.
Sir John A Anderson, KBE
Other Directorships: PGG Wrightson Limited (Chairman),
National Property Trust Limited (Chairman), Steel & Tube
Holdings Ltd (Chairman from October 2012), Turners &
Growers Limited (Deputy Chairman from December 2012), and
New Zealand Venture Investment Fund (Chairman) (ceased
June 2013).
the New Zealand
Qualifications: Fellow of
Institute of
Chartered Accountants, Fellow of the Institute of Financial
Professionals New Zealand, Fellow of the Institute of Directors,
and Life Member of the Australian Institute of Banking and
Finance.
Sir John is a resident of Wellington, New Zealand. Age 67.
Sir John has been a member of the Board since 12 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 Contributions to New Zealand”. In 2012 Sir John
was awarded an Honorary Doctorate of Commerce by
Victoria University, Wellington.
inaugural Blake Medal
the
for
40 Commonwealth Bank of Australia
Jane S Hemstritch
Directors’ Report
Other directorships: Lend Lease Corporation Limited, Santos
Ltd, Tabcorp Holdings Ltd, and Victorian Opera Company Ltd
(Chairman from February 2013).
Qualifications: Fellow of
Institute of Chartered
Accountants in England and Wales, Fellow of the Institute of
Chartered Accountants
in Australia, BSc (Hons) London
University, and Fellow of the Australian Institute of Company
Directors.
the
Ms Hemstritch is a resident of Victoria. Age 59.
Ms Hemstritch has been a member of the Board since
9 October 2006, and is the Chairman of the Remuneration
Committee and a member of the Risk Committee.
In
Ms Hemstritch was Managing Director Asia Pacific for
Accenture Limited from 2004 until her retirement in February
2007.
this role, Ms Hemstritch was a member of
Accenture’s global executive leadership team and oversaw
the management of Accenture’s business portfolio in Asia
Pacific. Ms Hemstritch had a 24 year career with Accenture,
preceded by seven years in the accounting profession.
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.
Launa K Inman
Inman has been a member of
Ms
the Board since
16 March 2011, and is a member of the Audit Committee and
the Risk Committee.
Ms Inman was Managing Director and Chief Executive Officer
of Billabong International Limited from 14 May 2012 until
2 August 2013. Prior to this, she was Managing Director of
Target Australia Pty Limited from 2005 to November 2011,
and Managing Director of Officeworks from 2004 to 2005.
S Carolyn H Kay
Other directorships: Managing Director and CEO of Billabong
International Limited (ceased August 2013).
Qualifications: MCom, University of South Africa (UNISA),
BCom (Hons) (UNISA), BCom (Economics and Accounting)
Institute of Company Directors
(UNISA), and Australian
(Member).
Ms Inman is a resident of Victoria. Age 57.
Ms Kay has been a member of the Board since 2003 and is
also a member of the Audit Committee, Remuneration
Committee and Risk Committee. She 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.
Other directorships: Allens, Brambles Limited, Infrastructure
NSW (Chairman of Audit and Risk Committee from April 2013),
and Sydney Institute.
Qualifications: BA (Melb), LLB (Melb), GDM (AGSM), and
Fellow of the Australian Institute of Company Directors.
Ms Kay is a resident of New South Wales. Age 52.
Brian J Long
Mr Long has been a member of
1 September 2010. He
the Chairman of
Committee and a member of the Risk Committee.
the Board since
the Audit
is
Mr Long retired as a partner of Ernst & Young on
30 June 2010. Until that time he was the Chairman of both the
Ernst & Young 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 directorships: Cantarella Bros. Pty Ltd, and Ten
Network Holdings Limited (Deputy Chairman).
Qualifications: Fellow of
Accountants in Australia.
the
Institute of Chartered
Mr Long is a resident of New South Wales. Age 67.
Annual Report 2013
41
Directors’ Report
Andrew M Mohl
Other directorships: Federal Government Export Finance and
Insurance Corporation (EFIC) (Chairman) and AMP Foundation
(retired September 2012).
Qualifications: BEc (Hons), Monash.
Mr Mohl is a resident of New South Wales. Age 57.
is a member of
Mr Mohl has been a member of the Board since 1 July 2008
and
the
Remuneration Committee. He has over 35 years of financial
services experience. Mr Mohl was Managing Director and
Chief Executive Officer of AMP Limited from October 2002
until December 2007.
the Risk Committee and
Mr Mohl’s previous roles at AMP included Managing
Director, AMP Financial Services and Managing Director
and Chief Investment Officer, AMP Asset Management.
Mr Mohl was a former Group Chief Economist, Chief
Manager, Retail Banking and Managing Director, ANZ
Funds Management at ANZ Banking Group. Mr Mohl
commenced his career at the Reserve Bank of Australia
where his roles included Senior Economist and Deputy
Head of Research.
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 and Board Performance and
Renewal Committee.
From 2003 to 2007, Mr Young was Chairman of Morgan
Stanley Australia, and from 1998 to 2003 Vice Chairman of
Morgan Stanley Asia.
Prior to that, Mr Young 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.
Colin R Galbraith, AM (Retired 30 October 2012)
Other directorships: NBN Co Limited (Chairman) (ceased
March 2013), Better Place (Australia) Pty (Chairman) (ceased
February 2013), Humanities 21 Inc (ceased December 2012),
Bank of England (ceased May 2012), and Financial Services
Volunteer Corps (ceased December 2012).
Qualifications: AB, cum laude, Harvard, LLD, honoris causa,
Monash.
Mr Young is a resident of Victoria. Age 68.
Mr Galbraith was a member of the Board from June 2000
until October 2012. He was a member of the Risk
Committee, Audit Committee and Board Performance and
Renewal Committee.
Mr Galbraith has extensive experience in commercial law,
mergers and acquisitions, corporate governance and risk
management. He was a senior partner of Allens and its
predecessor firms until his retirement in 2006 after 32 years
with that firm; during 20 years of which he was also
Honorary Secretary to the Council of Legal Education in
Victoria. Mr Galbraith is currently a special advisor for
Gresham Partners Limited.
Other directorships: CARE Australia, Colonial Foundation
Limited (from May 2013), BHP Billiton Community Trust
(Chairman), BHP Billiton Community Limited (Chairman),
Arrium Limited (previously OneSteel Limited), and Australian
Institute of Company Directors (ceased November 2012).
Qualifications: LLB (Hons) LLM (University of Melbourne)
Supreme Courts of Victoria, New South Wales, Queensland
and Western Australia, Barrister and Solicitor.
Mr Galbraith is a resident of Victoria. Age 65
Fergus D Ryan, AO (Retired 30 October 2012)
Other directorships: Australian Foundation
Investment
Company Limited (AFIC).
Qualifications: Fellow of
Accountants in Australia.
the
Institute of Chartered
Mr Ryan is a resident of Victoria. Age 70.
Mr Ryan was a member of the Board from March 2000 until
October 2012. He was a member of the Audit Committee
and 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.
42 Commonwealth Bank of Australia
Other Directorships
The Directors held directorships on listed companies within the last three years as follows:
Director
David Turner
John Anderson
Company
Cobham plc
PGG Wrightson Ltd (NZ)
National Property Trust NPT Limited (NZ)
Steel & Tube Holdings Ltd (NZ)
Turners & Growers Ltd (NZ)
Jane Hemstritch
Tabcorp Holdings Limited
Santos Limited
Lend Lease Corporation Limited
Billabong International Limited
Brambles Limited
Ten Network Holdings Limited
Arrium Limited
Australian Foundation Investments Company Limited
Launa Inman
Carolyn Kay
Brian Long
Colin Galbraith
Fergus Ryan
Directors’ Meetings
Directors’ Report
Date Appointed
Date of Ceasing
(if applicable)
01/12/2007
06/05/2010
01/04/2010
01/04/2011
10/11/2011
03/04/2012
13/11/2008
16/02/2010
01/09/2011
14/05/2012
02/08/2013
21/08/2006
01/07/2010
25/10/2000
08/08/2001
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:
Director
David Turner
Ian Narev
John Anderson
Jane Hemstritch
Launa Inman
Carolyn Kay
Brian Long
Andrew Mohl
Harrison Young
Colin Galbraith (2)
Fergus Ryan (2)
No. of Meetings
Held (1)
No. of Meetings
Attended
10
10
10
10
10
10
10
10
10
3
3
10
10
10
10
10
10
10
10
10
3
3
(1) The number of meetings held during the time the Director was a member of the Board and was eligible to attend.
(2) Colin Galbraith and Fergus Ryan retired effective 30 October 2012.
Annual Report 2013
43
Directors’ Report
Committee Meetings
Director
David Turner
Ian Narev
John Anderson
Jane Hemstritch
Launa Inman
Carolyn Kay
Brian Long
Andrew Mohl
Harrison Young
Colin Galbraith (2)
Fergus Ryan (2)
Director
David Turner
John Anderson
Harrison Young
Colin Galbraith (2)
Risk Committee
Audit Committee
Remuneration Committee
No. of Meetings
Held (1)
No. of Meetings
Attended
No. of Meetings
Held (1)
No. of Meetings
Attended
No. of Meetings
Held (1)
No. of Meetings
Attended
9
9
9
9
9
9
9
9
9
3
3
9
9
8
9
9
9
9
9
8
3
3
-
-
-
-
6
9
9
-
9
3
3
-
-
-
-
6
9
9
-
9
3
3
8
-
-
8
-
8
-
8
-
-
-
8
-
-
8
-
8
-
8
-
-
-
Board Performance and Renewal
Committee
No. of Meetings
Held (1)
No. of Meetings
Attended
7
7
5
2
7
6
5
2
(1) The number of meetings held during the time the Director was a member of the relevant committee.
(2) Colin Galbraith and Fergus Ryan retired effective 30 October 2012.
Principal Activities
The principal activities of the Group during the financial year ended 30 June 2013 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.
44 Commonwealth Bank of Australia
Consolidated Profit
The Group’s net profit after income tax and non-controlling
interests for the year ended 30 June 2013 was $7,677 million
(2012: $7,090 million).
The Group has produced another positive financial result
amidst mixed economic conditions, including subdued credit
growth, higher deposit funding costs, low interest rates, lower
marginal costs of raising new wholesale
funding and
improved equity markets.
to
focus on securing
The Group continues
term
sustainable competitive advantage through engaged staff
collaborating to identify and meet more of our customers’
needs. This long term focus, combined with a diversified
business model and a strong risk management culture, has
again generated superior returns.
long
Operating income growth reflected strong momentum across
the Retail, Wealth and New Zealand businesses. Business
banking revenue remained subdued amid strong competition
for domestic deposits.
Operating expenses reflect a continued appetite to invest in
technology and other growth initiatives, together with the
impact of costly regulatory change and compliance initiatives,
partly offset by productivity initiatives.
Loan impairment expense decreased slightly due to improved
home loan and credit card arrears, partly offset by increased
commercial loan charges. Asset quality remains sound with
continued conservative levels of provisioning and unchanged
economic overlays.
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 200 cents per share amounting to $3,224 million.
The dividend will be payable on 3 October 2013
to
shareholders on the register at 5pm EST on 23 August 2013.
Dividends paid in the year ended 30 June 2013 were as
follows:
In respect of the year to 30 June 2012, a fully franked
final dividend of 197 cents per share amounting to
$3,137 million was paid on 5 October 2012. The
payment comprised direct cash disbursements of $2,207
million with $930 million being reinvested by participants
through the DRP; and
In respect of the year to 30 June 2013, a fully franked
interim dividend of 164 cents per share amounting to
$2,639 million was paid on 5 April 2013. The payment
fully comprised direct cash disbursements. The DRP in
respect of the interim dividend was satisfied in full by the
on market purchase of shares.
Review of Operations
An analysis of operations for the financial year is set out in
the Highlights and Group Performance Analysis sections.
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.
Highlights included:
Becoming the number one retail bank for customer
satisfaction across all business areas, while delivering
superior shareholder returns;
“Bank of the Year” in the 2013 Money Magazine Awards;
Completion of the Core Banking Modernisation Program,
which involved the migration of 12+ million customers,
offering real-time settlement and banking, and enabling
industry leading functionality and innovation; and
Continued investment in technological innovations, such
as CommBank Kaching
for Facebook, SmartSign,
MyWealth and Branch of the Future to remain Australia’s
leading technology bank.
There have been no significant changes in the state of affairs
Directors’ Report
of the Group during the financial year.
Events Subsequent to Balance Sheet Date
The Bank expects the DRP for the final dividend for the year
ended 30 June 2013 will be satisfied in full by an on market
purchase and transfer of shares of approximately $806
million.
to
proposal
On 24 July 2013 the Bank submitted an indicative, non-
the Commonwealth Managed
binding
Investments Limited
the
(CMIL) Board
management of Commonwealth Property Office Fund (CPA)
and CFS Retail Property Trust Group (CFX). The proposal in
incorporates CFX acquiring
relation
the
wholesale property
funds management business and
integrated retail property management and development
business owned by CBA.
to CFX also
internalise
to
The Bank also submitted an indicative, non-binding proposal
to the Kiwi Income Properties Limited (KIPL) Board to
internalise the management of the Kiwi Income Property Trust
(KIP). As at the date of this report, the financial effect of any
transaction cannot be estimated.
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
Following
the successful completion of Activity Based
Working (ABW) at Commonwealth Bank Place in Sydney last
year, the Group has now completed the implementation of
ABW at Bankwest Place in Perth and at North Wharf in
Auckland, New Zealand.
to
two buildings
The consolidation of the Group’s Melbourne Commercial
portfolio
the Melbourne CBD has
in
progressed with a move earlier this year to a substantially
refurbished building at 357 Collins Street. The Melbourne
consolidation will be complete when the workplace at 727
Collins Street near Docklands opens in the coming months.
The Group is progressively looking to accommodate its
refurbished
in either new or substantially
employees
buildings. This strategy allows the Group to provide improved
working environments
its
employees, use space more efficiently and sustainably as
well as support more collaborative working.
that are more productive
for
Business Strategies
Business strategies, prospects and future developments
which may affect the operations of the Group in subsequent
years are referred
in the Chief Executive Officer’s
Statement.
to
In the opinion of the Directors, disclosure of any further
information on
likely strategic developments would be
unreasonably prejudicial to the interests of the Group.
Environmental Reporting
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 has recently updated its energy and
emissions data management and reporting systems
to
comply with the legislation.
is also subject
the Energy Efficiency
The Group
Opportunities Act 2006 (EEO Act), which encourages large
energy-using businesses to improve their energy efficiency.
to
As required by the EEO Act, the Group lodged its second five
year energy efficiency assessment plan with the Federal
Government in December 2012. The Group will continue to
Annual Report 2013
45
Directors’ Report
report to the Federal Government every three years as well
as release a public report annually, covering all preceding
years’ assessment outcomes.
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); and
person who, at the request of a related body corporate of
the Bank, acts as a member of
the compliance
committee of a registered scheme for which the related
body corporate of the Bank is the responsible entity.
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 policy. The insurance is appropriate pursuant to
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.
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 both the volatility of equity markets on
shareholder funds and the mark to market revaluations on the
Guaranteed Annuity portfolio for a measure of core operating
performance.
regulation
The Group is not subject to any other particular or significant
environmental
the
Commonwealth or of a State or Territory, but can incur
environmental liabilities as a lender. The Group has a number
of policies
is managed
to ensure
appropriately.
in place
the risk
under
any
law
of
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 Financial Statements that
accompany this report.
Directors’ Shareholdings and Options (continued)
No options have previously been granted to the Directors or
Chief Executive Officer.
Options Outstanding
As at the date of this report there are no options outstanding
in relation to Commonwealth Bank ordinary shares.
Directors’ Interests in Contracts
A number of Directors have given written notices, stating that
they hold office in specified companies and accordingly are to
be regarded as having an interest in any contract or proposed
contract that may be made between the Bank and any of
those companies.
Directors’ and Officers’ Indemnity
The Directors, as named on pages 40 to 42 of this report, and
the Secretaries of the Bank, being named on page 65 of this
report, 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 and to the extent permitted by
law, in favour of each:
secretary and senior manager of the Bank;
director, secretary and senior manager of a related body
corporate of the Bank;
person who, at the prior formal request of the Bank, acts
as director, secretary or senior manager of a body
46 Commonwealth Bank of Australia
Directors’ Report – Remuneration Report
Message from the Remuneration Committee Chairman
Dear Shareholder,
The Group has continued to remain competitive in the 2013
financial
customers,
shareholders, employees and the community. Both financial
and non-financial performance were positive.
year, delivering
to our
value
The Group has continued to demonstrate its commitment to
building a vibrant customer focused culture and in 2013
achieved its goal of becoming the number one major bank for
customer satisfaction across all main business areas. The
Group has also made noteworthy progress against its goals in
other priority areas of technology, strength, productivity and
people, alongside above target financial performance. The
delivery of this good performance has been the result of the
hard work and dedication of the Group’s people.
There were no increases to Non-Executive Directors’ fees in
2013. However, changes were made to the Non-Executive
Director
legislated
to
superannuation increases whilst supporting more effective
management of fee costs.
accommodate
structure
fee
The Group’s remuneration frameworks are designed to attract
and retain key executive talent, recognise the individual
contributions of the Group’s people, and motivate them to
achieve strong performance aligned to our business strategy,
whilst discouraging excessive risk taking.
this
The Committee completed a comprehensive review of the
Group’s executive remuneration framework in the 2013
financial year. Following
review, a mandatory
shareholding policy will be introduced from the 2014 financial
year for the Chief Executive Officer and Group Executives.
No other changes were made as the review confirmed that
the Group’s current remuneration framework is well aligned
with its business strategy and achieves good alignment
between the remuneration interests of the Group’s employees
and the interests of its shareholders.
I hope you find the information we have provided in this report
useful.
Jane Hemstritch
Committee Chairman
13 August 2013
Annual Report 2013
47
Directors’ Report – Remuneration Report
2013 Remuneration and Performance Highlights
Completed a
comprehensive review of
executive remuneration
framework
O
f
Following this review a mandatory shareholding policy will be introduced from the 2014
financial year that requires the CEO and Group Executives to accumulate CBA shares over a
five year period to the value of 300% of fixed remuneration for the CEO and 200% of fixed
remuneration for Group Executives.
Short term incentives
reflect positive 2013
performance
Long term incentive
performance hurdles met
Fixed fee model for Non-
Executive Directors
No other changes were made to the current executive remuneration structure as the review
confirmed it is well aligned with the Group’s strategy.
2013 financial and non-financial performance were positive.
Against this background, the average short term incentive payment for the CEO and Group
Executives was 121% of their short term incentive targets.
The vesting outcome of the long term incentive awarded in the 2010 financial year reflected
TSR performance over four years at the 100th percentile of the peer group, and improvement in
customer satisfaction to rank first against the major banks and close behind St.George.
This performance resulted in 87.5% of the award vesting to those executives who participated
in the plan.
The Non-Executive Directors fee structure changed from base fees plus superannuation to a
fixed fee model (inclusive of superannuation).
This change was made to accommodate legislated superannuation increases whilst supporting
more effective management of fee costs.
48 Commonwealth Bank of Australia
Directors’ Report – Remuneration Report
2013 Remuneration Report
This Remuneration Report details the approach to remuneration frameworks, outcomes and performance, for the Commonwealth
Bank of Australia (CBA) and its Key Management Personnel (KMP) for the year ended 30 June 2013.
In the 2013 financial year, KMP included the Non-Executive Directors, CEO and Group Executives listed in the table below. The
table also includes movements during 2013. The key changes to the Executive team included:
Robert Jesudason was appointed to the role of Group Executive, Group Strategic Development effective 1 July 2012;
Ross McEwan resigned from the role of Group Executive, Retail Banking Services effective 13 July 2012; and
Matthew Comyn was appointed to the role of Group Executive, Retail Banking Services from 10 August 2012.
The report has been prepared and audited against the disclosure requirements of the Corporations Act 2001.
Annual Report 2013
49
NamePositionTerm as KMPNon-Executive DirectorsDavid TurnerChairman Full YearJohn AndersonDirectorFull YearJane HemstritchDirectorFull YearLauna InmanDirectorFull YearCarolyn KayDirectorFull YearBrian LongDirectorFull YearAndrew MohlDirectorFull YearHarrison YoungDirectorFull YearFormer Non-Executive DirectorsColin Galbraith Director (retired on 30 October 2012)Part YearFergus RyanDirector (retired on 30 October 2012)Part YearManaging Director and CEOIan Narev Managing Director and CEOFull YearGroup ExecutivesSimon BlairGroup Executive, International Financial ServicesFull YearDavid CohenGroup General Counsel and Group Executive, Group Corporate AffairsFull YearMatthew ComynGroup Executive, Retail Banking Services (from 10 August 2012)Part YearDavid CraigGroup Executive, Financial Services and Chief Financial OfficerFull YearMichael HarteGroup Executive, Enterprise Services and Chief Information OfficerFull YearRobert JesudasonGroup Executive, Group Strategic DevelopmentFull YearMelanie LaingGroup Executive, Human ResourcesFull YearGrahame PetersenGroup Executive, Business and Private BankingFull YearIan SainesGroup Executive, Institutional Banking and MarketsFull YearAnnabel Spring Group Executive, Wealth Management Full YearAlden ToevsGroup Chief Risk OfficerFull YearFormer ExecutiveRoss McEwanGroup Executive, Retail Banking Services (resigned on 13 July 2012)Part Year
Directors’ Report – Remuneration Report
Continued monitoring of regulatory and
legislative
changes, both locally and offshore, ensuring our policies
and practices remain compliant; and
focus on embedding a
Continued
is appropriate
framework
that
businesses with
transparency
governance and risk oversight.
remuneration
for our different
in design, strong
Our Independent Remuneration Consultant
The Committee obtains executive remuneration information
directly from its external independent remuneration consultant
Ernst & Young (EY).
Throughout 2013, the main information received from the
Committee’s remuneration consultant related to:
Regulatory reforms;
Current market practices; and
Material to support the Committee’s complete review of
existing remuneration arrangements of the CEO and
Group Executives.
EY provides information to assist the Committee in making
remuneration decisions. EY has not made any remuneration
decisions or recommendations during the 2013 financial year.
The Committee is solely responsible for making decisions
within the terms of its Charter.
1.2 Our Remuneration Philosophy
the backbone of our
Our remuneration philosophy
remuneration
In
summary, our remuneration philosophy for our CEO and
Group Executives is to:
framework, policies and processes.
is
Provide target remuneration which is market competitive,
without putting upward pressure on the market;
Align rewards with shareholder
business strategy;
interests and our
Articulate clearly
individual and Group performance, and
reward;
to Executives
the
link between
individual
Reward superior performance, while managing risks
associated with delivering and measuring
that
performance;
Provide flexibility to meet changing needs and emerging
market practice; and
Provide appropriate benefits on termination that do not
deliver any windfall payments not
to
performance.
related
1.3 Remuneration and Risk Management
The Committee has a robust framework for the systematic
review of risk and compliance issues impacting remuneration.
The Committee:
Takes note of any material risk
impacting
remuneration, with issues raised by the Committee
provided to the Board’s Risk Committee for noting;
issues
Considers issues and recommendations raised by the
Risk and Remuneration Review Committee, a
management committee that monitors material risk and
compliance issues throughout the year;
May impose adjustments to remuneration outcomes of
Executives before or after awards are made, subject to
Board approval; and
Works closely with the Board’s Risk Committee to
ensure that any risks associated with remuneration
arrangements are managed within the Group’s risk
management framework.
1. Remuneration Governance
1.1 Remuneration Committee
The Remuneration Committee (the Committee) is the main
governing body for setting remuneration policy across the
Group. The Committee develops
remuneration
philosophy, framework and policies, for Board approval.
the
The Committee is made up of independent Non-Executive
Directors and currently consists of the following members:
Jane Hemstritch (Chairman);
Carolyn Kay;
Andrew Mohl; and
David Turner.
The responsibilities of the Committee are outlined in their
Charter, which is reviewed annually by the Board. The
Charter
the Group’s website at
is available on
www.commbank.com.au/shareholder.
In summary, the Committee is responsible for recommending
to the Board for approval:
Remuneration for senior executive appointments, and
appointments where the remuneration target of the
individual exceeds
their
that of
business/support unit;
the head of
Remuneration arrangements and all reward outcomes
for the CEO, senior direct reports to the CEO and other
individuals whose
financial
soundness of the Group;
roles may affect
the
Remuneration arrangements
internal control employees;
for
finance,
risk and
Remuneration arrangements for employees who have a
significant portion of their total remuneration based on
performance; and
Significant changes in remuneration policy and structure,
including superannuation, employee equity plans and
benefits.
This year, the Committee’s key areas of focus were:
Changes to the Committee’s Charter, so that people-
related matters are now part of the Board’s direct
accountabilities. The Committee now
focuses on
Remuneration matters only;
The appointment of Matthew Comyn in the role of Group
Executive, Retail Banking Services
the
resignation of Ross McEwan in July 2012;
following
Ongoing communications with APRA emphasising the
strong risk management embedded in remuneration
frameworks;
the existing executive
A comprehensive review of
remuneration
is market
competitive and aligns with the Group’s remuneration
principles and philosophy;
to ensure
framework
it
The implementation of a mandatory Shareholding Policy
for the CEO and Group Executives (effective from 2014);
The annual review of our Group Remuneration Policy in
December 2012, and a subsequent review in May 2013
to incorporate APRA’s governance requirements for all
regulated subsidiaries of the Group;
Changing the Non-Executive Directors’ fee structure
from base fees plus superannuation to a fixed fee model
(inclusive of
to accommodate
legislated superannuation increases whilst supporting
more effective management of fee costs;
superannuation),
50 Commonwealth Bank of Australia
Directors’ Report – Remuneration Report
The following diagram illustrates the Group’s remuneration and risk governance framework:
1.4 Non-Executive Directors Remuneration
Non-Executive Directors receive fees to recognise their
contribution to the work of the Board and the associated
committees that they serve. Non-Executive Directors do not
receive any performance-related remuneration.
The Board Performance and Renewal Committee reviews the
Non-Executive Directors fee schedule annually and examines
fee levels against the market. No fee increases were awarded
during the 2013 financial year.
Following the retirement of Colin Galbraith and Fergus Ryan
on 30 October 2012, the following changes to Committee
composition were made:
Launa Inman was appointed as a member of the Audit
Committee, effective 30 October 2012; and
Harrison Young was appointed as a member of the
Board Performance and Renewal Committee, effective
30 October 2012.
For the period from 1 July 2012 to 31 December 2012, Non-
Executive Directors received base
fees plus statutory
superannuation contributions of 9% of their fees, capped at
the maximum superannuation contributions base as
prescribed under Superannuation Guarantee legislation.
From 1 January 2013, the Non-Executive Directors fee
structure changed from base fees plus superannuation to a
fixed fee model (inclusive of superannuation). The change in
the Non-Executive Directors fee structure was made to
accommodate legislated superannuation increases whilst
supporting more effective management of fee costs.
The following table outlines the Non-Executive Directors fees
for the main Board and the Committees as at 30 June 2013:
Non-Executive Directors are required to hold 5,000 or more
CBA shares. For those Non-Executive Directors who have
holdings below this threshold, 20% of their after-tax base fees
is used to purchase CBA shares until a holding of 5,000
shares has been reached.
The total amount of Non-Executive Directors fees is capped
at a maximum pool that is approved by shareholders. The
current fee pool remains at $4 million, which was approved by
shareholders at the Annual General Meeting (AGM) on 13
November 2008.
The Directors’ Retirement Allowance Scheme, approved by
shareholders at the 1997 AGM, was discontinued in 2002,
which froze entitlements for participants at that time and was
closed to new participants. Retiring allowances of $159,092
and $168,263 were paid to Colin Galbraith and Fergus Ryan
respectively, following their retirement from the Board on
30 October 2012. There are no longer any Non-Executive
Directors with a retiring allowance.
The statutory table on page 60 provides the individual
remuneration expense for each Non-Executive Director in
relation to the 2013 performance year.
(1) Fees are inclusive of base fees and superannuation. The Chairman
does not receive separate Committee fees.
Annual Report 2013
51
Remuneration CommitteeRisk & Remuneration Review CommitteeMonitoring and reporting of Group risk & compliance issuesIndependent RemunerationConsultantCBA BoardRisk CommitteePositionFees (1)($)BoardChairman849,800Non-Executive Director 236,400Audit CommitteeChairman56,300Member28,100Risk CommitteeChairman56,300Member28,100RemunerationChairman56,300CommitteeMember28,100Board Performance & Chairman11,300Renewal CommitteeMember11,300
Directors’ Report – Remuneration Report
2. Remuneration Framework
The remuneration arrangements of our CEO and Group
Executives are made up of both
risk
remuneration. This is composed of the following three
elements:
fixed and at
Fixed remuneration is reviewed annually, following the
end of the 30 June performance year. For the 2013
financial year
remuneration
increases for Executives.
there were no
fixed
Fixed remuneration;
Short Term Incentive (STI) at Risk; and
Long Term Incentive (LTI) at Risk.
The at risk components are based on performance against
key financial and non-financial measures. More detail on
executive remuneration and the link to performance is
included in section 3 of this report.
2.1 Total Target Remuneration
The following diagram illustrates the total target mix of the
three remuneration elements:
The three remuneration elements are broken down into equal
portions of total target remuneration.
When setting target remuneration levels, our key objective is
to remain competitive by attracting and retaining highly
talented Executives. We do this by considering the size and
responsibilities of each role, using any relevant executive
remuneration market surveys and disclosed data. Target
remuneration is generally set around the market median for
similar roles at peer organisations.
Importantly, for our most senior roles, we aim to avoid adding
upward reward pressure to market remuneration levels.
Each component of remuneration has a direct link to our
business strategy as detailed below.
2.2 Fixed Remuneration
Fixed remuneration is made up of base remuneration
and superannuation. Base remuneration includes cash
salary and any salary sacrifice items;
Superannuation contributions are capped at the relevant
concessional contribution limit;
The Board determines an appropriate level of fixed
remuneration for the CEO and Group Executives, with
recommendations from the Committee; and
2.3 Short Term Incentive
The CEO and Group Executives have an STI target that
is equal to 100% of their fixed remuneration. Executives
will only receive the full amount if they meet all of their
performance goals;
The CEO and Group Executives have a maximum STI
potential of 150% of their STI target. No STI awards will
be made if the relevant performance goals are not met;
Executives receive 50% of their STI payment as cash
following the Group’s year-end results. The remaining
50% of the STI payment is deferred for one year and
earns interest at the CBA one year term deposit rate;
The CEO and Group Executives will forfeit the deferred
portion of their STI if they resign or are dismissed from
the Group before the end of the deferral period;
The deferral assists in managing the risk of losing key
Executive talent. It also allows the Board to reduce or
cancel the deferred component of the STI where
business outcomes are materially lower than expected;
and
STI payments are made within a funding cap which is
determined by
the Board after consideration of
performance in the year. 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.
See section 3.1 for more detail on STI outcomes and the link
to performance.
2.4 Long Term Incentive
The CEO and each Group Executive has an LTI target
that is equal to 100% of their fixed remuneration;
The LTI award has a four year performance period and
is measured against relative Total Shareholder Return
(TSR) and relative Customer Satisfaction performance
hurdles;
The performance hurdles are aligned
to our key
business priorities of Customer Focus and shareholder
interests;
Executives only receive value if performance hurdles are
met at the end of the four years, subject to final Board
review; and
No dividends are paid while LTI awards are unvested.
See section 3.2 for more detail on how the LTI award
operates and its direct link to performance outcomes.
52 Commonwealth Bank of Australia
1/31/31/350% STI Deferred for 12 months50% STI Cash paidFixedRemuneration100% LTI Deferred for 4 years
Directors’ Report – Remuneration Report
3. Linking Remuneration to Performance
The remuneration framework is designed to attract and retain high calibre Executives by rewarding them for achieving goals that
are aligned to the Group’s business strategy. All our incentives are directly linked to both short term and long term performance
goals.
3.1 2013 Short Term Performance
The table below provides an overview of performance for the year ended 30 June 2013 against key financial and non-financial
performance measures. These measures are used to determine the individual STI outcomes of Executives, and are managed
through a balanced scorecard approach. Financial objectives have a substantial weighting, and non-financial objectives vary by
role. Executives managing business units typically have a 50% weighting on financial outcomes, while Executives managing
support functions have a typical weighting of 30%.
Performance
2013 Key Achievements
Customer Focus Continue to build a vibrant customer focused culture.
Strength
Productivity
Technology
The Group’s continued commitment to its customer focused culture resulted in the Group becoming the
number one major bank for customer satisfaction across all business areas. Specifically:
For Retail Banking, in January 2013 the Bank achieved its number one rank among the major banks in
Retail Main Financial Institution (MFI) Customer Satisfaction(1) for the first time since setting its goal to be
number one in 2006. Since then CBA has continued to lead the major banks and achieved several
record high scores.
In Business Banking, CBA has maintained outright or equal first position in customer satisfaction (1) in all
four business segments among the four major banks for the entire financial year. CBA continues to hold
first position in the DBM Business Financial Services Monitor (BFSM, June 2013).
Wealth Management’s platforms achieved a combined rating of first for adviser satisfaction among the
four major banks and other key competitors.
In Institutional Banking, CBA continues to perform strongly. The DBM Business Financial Services
Monitor has ranked CBA outright or equal first in Institutional Banking MFI customer satisfaction(1) for the
past 12 months.
Maintain a strong, flexible Balance Sheet.
The Group maintained a strong capital position with capital ratios well in excess of regulatory minimum
capital requirements and the Board approved minimum levels at all times throughout the year ended
30 June 2013.
The group preserved its well-diversified funding base including:
– Customer deposits accounting for 63% of total funding at 30 June 2013 (2012: 62%); and
–
Short term wholesale funding accounted for 46% of total wholesale funding at 30 June 2013, down
from 47% in the prior year.
The Group continues to hold a high quality, well diversified liquid asset portfolio of $137 billion at
30 June 2013 (2012: $135 billion), to prudently meet Balance Sheet liquidity needs and regulatory
requirements.
The Group continues to manage growth by assessing opportunities that will generate sustainable returns
for the long term, demonstrated in the current financial year by:
–
The acquisition of an additional 47% stake in Aussie Home Loans Pty Limited; and
– Growth in existing loan portfolios, while maintaining conservative provisioning coverage ratios.
Continuous and ongoing focus on eliminating waste, whilst making things simpler and easier for the
Group’s customers and staff.
To build capability to drive gains in long term productivity, the Group has completed training for a
significant proportion of staff, commenced embedding a set of productivity habits across the Group,
launched a program to develop internal productivity practitioners and employed global expertise.
Productivity outcomes and behaviours have been embedded in reward and recognition systems together
with the Group’s leadership capability framework.
Projects have been executed across most business units delivering financial and customer benefits, and
the transfer of productivity capability.
Technology programs designed to enhance the customer experience through more innovative
systems and processes, and improve efficiency levels.
This financial year, the Group reached a significant milestone with the completion of its market-leading
Core Banking Modernisation program, with more than 12 million customers now experiencing the
benefits of a real-time banking platform.
The Group continued evolving digital banking experiences, by developing applications that leverage
real-time capability and streamline customer interfaces. Recent innovations include:
– CommBank Kaching for Facebook, Australia’s first social media banking application, giving users a
fast and secure payment option integrated into the platform;
–
Smartsign allows customers to execute loan documents electronically anytime, from anywhere in
the world, using the Group’s secure online portal; and
– MyWealth, an online platform that allows self-directed investors to research and invest in a range of
financial products using one login, with investment and banking services in the same convenient
online destination.
In addition, the Branch of the Future program has continued to improve customer experience within the
branch network. State-of-the-art features implemented include video conferencing facilities in branches,
Annual Report 2013
53
Directors’ Report – Remuneration Report
People
allowing customers to rapidly connect with specialists, even if they are located in rural and remote areas.
Develop a long term people focus.
In the current financial year the Group’s people remained highly engaged, as shown by the Group’s
recent employee engagement score of 80%.
In October 2012, the Group launched a new approach to inclusion focussing on “you can be you”.
Cultural diversity and ethnicity, Lesbian, Gay, Bisexual, Transgender and Intersex (LGBTI), and disability
are now part of the Group’s diversity and inclusion strategy.
Gender diversity is a key Group objective. The Group set a public target to increase the representation
of women in leadership roles from 26.6% in December 2009 to 35% by December 2014. Progress is
ongoing with 30.3% of women in executive roles as at 30 June 2013.
The Group also continued to invest in its leadership development, talent and succession programs.
The Group remains committed to not offshoring jobs.
(1) Customer satisfaction is measured by three separate surveys. For the Retail bank, this is measured by Roy Morgan Research. Roy Morgan Research
Main Financial Institution (MFI) Retail Customer Satisfaction measures percentage of the Australian population 14+, % “Very Satisfied” or “Fairly Satisfied”
with their relationship with that MFI, based on a 6-month rolling average to June 2013. CBA excludes Bankwest. For business banking, this is measured by
DBM Consultants Main Financial Institution (MFI) Business Customer Satisfaction. Satisfaction average with relationship with that MFI, 6-month rolling
average to June 2013. For Wealth Management, customer satisfaction is measured by the Wealth Insights 2013 Service Level Report, Platforms. This
survey measures satisfaction with the service of master trusts/wraps in Australia, by financial advisers. It includes Colonial First State’s FirstChoice and
FirstWrap platforms. For Institutional Banking, customer satisfaction is measured by DBM Business Financial Services Monitor (June 2013) six month
rolling average of MFI satisfaction ratings of Australian businesses. Institutional banking includes businesses with turnover of $100 million and above.
Risk is also a key factor in accounting for short term performance. Firstly, we use PACC, a risk-adjusted measure, as one of our
primary measures of financial performance. It takes into account not just the profit achieved, but also considers the risk to capital
that was taken to achieve it. Secondly, Executives are required to comply with the relevant Group or Business Unit Risk Appetite
Statement. STI awards are adjusted downwards where material risk issues occur. Thirdly, risk is also managed through the
compulsory 50% deferral of the CEO and Group Executives’ STI outcomes for a period of 12 months and delivery of one-third of
their total target remuneration after a 4 year period.
Under the Group’s Remuneration Policy, the Board has discretion to make adjustments to deferred remuneration in various
circumstances. Adjustments can include partial reductions or complete forfeiture of deferred STI awards.
3.2 Long Term Performance
The executive remuneration structure also focuses on driving performance and creating shareholder alignment in the longer term,
by providing Executives with LTI awards in the form of Reward Rights with a four year vesting period. Vesting is subject to
performance against relative Total Shareholder Return (TSR) and relative Customer Satisfaction hurdles. The table below
provides an overview of the CEO and Group Executives’ current LTI awards which have not yet vested.
Overview of Unvested Long Term Incentive Awards at the end of the 2013 Financial Year
Performance
Period Ends
30 June 2014
30 June 2015
30 June 2016
Equity Plan
Performance Hurdles
Group
Leadership
Reward Plan
(GLRP)
Each reward is split and tested:
75% TSR relative to peer group
25% Customer Satisfaction ranking relative to peer group
GLRP Award vested during 2013 Financial Year
The GLRP award granted during the 2010 financial year reached the end of its four year performance period on 30 June 2013.
The GLRP 2010 award was weighted against two performance hurdles, Customer Satisfaction (50% of the award) and TSR (50%
of the award). At the end of the performance period, the results against these measures were solid and included:
100% vesting against the TSR hurdle.
75% vesting against the Customer Satisfaction hurdle, which compared CBA’s performance to the three other major banks
and St.George.
In line with the plan rules for this award, 87.5% of the total award vested.
The Board reviewed the measurement outcomes of this award and concluded that the above vesting appropriately reflects
performance over the four year performance period. No discretion was exercised.
54 Commonwealth Bank of Australia
Directors’ Report – Remuneration Report
2013 GLRP Award granted in the 2013 Financial Year
The CEO and Group Executives currently receive LTI awards under the GLRP. The awards granted may deliver value to
Executives at the end of the four year performance period, subject to meeting performance hurdles as set out in the diagram
below:
The following table provides the key features of the 2013 GLRP award:
Feature
Description
Instrument
Reward Rights. Each Reward Right entitles the Executive to receive one CBA share in the future, subject to
meeting the performance hurdles set out below. The number of rights that vest will not be known until the end of
the performance period.
Determining the
number of
Reward Rights
The number of Reward Rights allocated depends on each Executive’s LTI Target (see diagram on page 52 for
explanation of target remuneration). The number of Reward Rights allocated is calculated taking into account
the expected number of shares to vest at the end of the performance period.
Performance
Period
The performance period commences at the beginning of the financial year in which the award is granted. For
the GLRP award granted in the 2013 financial year, the performance period started on 1 July 2012 and ends
after four years on 30 June 2016. Any vesting will result in participants receiving shares during the first available
trading window following the end of the performance period.
Performance
Hurdles
Vesting
Framework
75% of each award is subject to a performance hurdle, which measures the Group’s TSR performance
relative to a set peer group(1). This is made up of the 20 largest companies on the Australian Securities
Exchange (ASX) by market capitalisation at the beginning of the performance period, excluding resources
companies and Commonwealth Bank of Australia; and
25% of each award is subject to a performance hurdle that measures the Group’s Customer Satisfaction
outcomes relative to a peer group of Australia & New Zealand Banking Group Limited (ANZ), National
Australia Bank Limited (NAB), Westpac Banking Corporation (WBC), and other key competitors for the
wealth business.
TSR (75% of the award)
100% vesting is achieved if the Group’s TSR is ranked in the top quarter of the peer group, (i.e. 75th
percentile or higher);
If the Group is ranked at the median, 50% of the Reward Rights will vest;
Vesting occurs on a sliding scale if the Group is ranked between the median and the 75th percentile; and
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.
Customer Satisfaction (25% of the award)
Calculation of
the
Performance
Results
100% vesting applies if the weighted average ranking for the Group over the performance period is 1st;
50% will vest if the Group’s weighted average ranking is 2nd; and
Vesting of between 50% and 100% will occur on a pro-rata straight line basis if the Group’s weighted
average ranking is between 2nd and 1st.
No Reward Rights in this part of the award will vest if the Group’s weighted average ranking is less than
2nd.
TSR is calculated independently by an external provider.
Customer Satisfaction is measured with reference to the three independent surveys below:
– Roy Morgan Research (measuring customer satisfaction across Retail Banking);
– DBM, Business Financial Services Monitor (measuring customer satisfaction across Business
Banking); and
– Wealth Insights Service Level Report, Platforms (measuring customer satisfaction across Wealth
Management).
Annual Report 2013
55
Reward Rightsgranted4 year performance periodCustomer Satisfaction hurdle = 25%Total Shareholder Return hurdle = 75%
Directors’ Report – Remuneration Report
Board
Discretion
The Board also retains sole discretion to determine the amount and form of any award that may vest (if any) to
prevent any unintended outcomes, or in the event of a corporate restructuring or capital event.
Expiry
At the end of the applicable performance period, any Reward Rights that have not vested will expire.
(1) The peer group (at the beginning of the performance period) for the TSR performance hurdle (at the time of grant) comprised AGL Energy Limited, Amcor
Limited, AMP Limited, Australia and New Zealand Banking Group Limited, Brambles Industries Limited, CSL Limited, Insurance Australia Group Limited,
Macquarie Group Limited, National Australia Bank Limited, QBE Insurance Group Limited, Orica Limited, Stockland, Suncorp Group Limited, Telstra
Corporation Limited, Transurban Group NPV, Wesfarmers Limited, Westfield Group Limited, Westfield Retail Trust, Westpac Banking Corporation and
Woolworths Limited.
Hedging of Unvested Equity Awards
Employees are prohibited from hedging in relation to all of their unvested CBA equity awards, including shares or rights.
Prohibited activity includes Executives controlling their exposure to risk in relation to their unvested awards. The CEO’s direct
reports are also prohibited from using instruments or arrangements for margin borrowing, short selling or stock lending of any
Bank securities or the securities of any other member of the Group. All hedging restrictions are included in the Group’s Securities
Trading Policy.
Long Term Performance against Key Measures
As detailed above, long term incentive arrangements are designed to align Executives with the Group’s long term strategy and
shareholder interests. The remainder of this section illustrates performance against key related metrics over time.
Financial Performance
The following graphs show the Group’s cash Net Profit after Tax (cash NPAT), cash Earnings per Share (cash EPS), share price
movement and full-year dividend results over the past five financial years (including 2013). The solid performance has delivered
sound returns to shareholders.
Cash Net Profit after Tax (Cash NPAT)
Cash EPS (Basic)
Share Price
Dividends per Share
56 Commonwealth Bank of Australia
4,4156,1016,8357,1137,81901,0002,0003,0004,0005,0006,0007,0008,0009,000Jun 09Jun 10Jun 11Jun 12Jun 13$ Million305.6395.5438.7449.4485.80.0100.0200.0300.0400.0500.0600.0Jun 09Jun 10Jun 11Jun 12Jun 13Cents$0$10$20$30$40$50$60$70Jun 09Jun 10Jun 11Jun 12Jun 13Share Price2.282.903.203.343.64$0.00$0.50$1.00$1.50$2.00$2.50$3.00$3.50$4.00Jun 09Jun 10Jun 11Jun 12Jun 13
Directors’ Report – Remuneration Report
Relative TSR Performance against the Group’s Peers
The graph below represents CBA’s TSR performance against the comparator peer group for the period 1 July 2009 to 30 June
2013. The Group was ranked first relative to the peer group at the end of the period. TSR is calculated by an independent
external supplier.
(1) The peer group (at the end of the performance period) for the TSR performance hurdle (at the time of grant) comprised AGL Energy Limited, AMP Limited,
Australia and New Zealand Banking Group Limited, ASX Limited, Brambles Industries Limited, Coca-Cola Amatil Limited, CSL Limited, Insurance Australia
Group Limited, Macquarie Group Limited, National Australia Bank Limited, Qantas Airways Limited, QBE Insurance Group Limited, Stockland, Suncorp-
Metway Limited, Telstra Corporation Limited, Transurban Group, Wesfarmers Group Limited, Westfield Group Limited, Westpac Banking Corporation and
Woolworths Limited.
Performance against Customer Satisfaction
The following graphs show CBA’s customer satisfaction performance across Retail and Business areas. During the 2013 financial
year, CBA achieved its number one rank amongst the major banks in retail MFI customer satisfaction(1) in January 2013 for the
first time since setting its goal to be number one in 2006. Since January 2013, CBA continues to lead the major banks and
achieved several record high scores. The Wealth Management results ranked the Group first for advisor satisfaction for the year
ended 30 June 2013. Overall, positive improvements have been made against this measure.
Retail Main Financial Institution Customer Satisfaction - Competitive Context
(1) Roy Morgan Research Main Financial Institution (MFI) Retail Customer Satisfaction. Australian population 14+, % “Very Satisfied” or “Fairly Satisfied” with
relationship with that MFI. 6 month rolling average to June 2013. CBA excludes Bankwest.
Annual Report 2013
57
-40%-20%0%20%40%60%80%100%120%140%Total Shareholder Return 2013 (4 years)Comparator Peer Group 60%65%70%75%80%85%90%Jan-06Mar-06Jun-06Sep-06Dec-06Mar-07Jun-07Sep-07Dec-07Mar-08Jun-08Sep-08Dec-08Mar-09Jun-09Sep-09Dec-09Mar-10Jun-10Sep-10Dec-10Mar-11Jun-11Sep-11Dec-11Mar-12Jun-12Sep-12Dec-12Mar-13Jun-13% Satisfied ('Very Satisfied' or 'Fairly Satisfied')Major Bank 1Major Bank 2Major Bank 3Regional Bank 1CBADiff to No.1 -12.3%Source: Roy Morgan Research6 month rolling average
Directors’ Report – Remuneration Report
Business Main Financial Institution Customer Satisfaction - Competitive Context
(1) DBM Business Financial Services Monitor (June 2013), average satisfaction rating of each financial institution’s MFI business customers across all
Australian businesses, 6 month rolling average.
3.3 Performance Timeline of At Risk Remuneration Outcomes
The Performance Management framework supports decisions in awarding appropriate annual STI outcomes for Executives. The
STI performance objectives are communicated to Executives at the beginning of the performance year. Executives’ annual
performance evaluations are conducted following the end of the financial year. For 2013, the evaluations were conducted in July
2013.
The following diagram outlines the timing of the STI and LTI awards made to the Executives over the relevant performance
periods. All awards are subject to risk and compliance reviews.
3.4 CEO and Group Executive Remuneration Received in the year ended 30 June 2013
The incentives awarded to the CEO and Group Executives are directly linked to the Group’s positive financial performance.
Total statutory remuneration recognised for the CEO and Group Executives for the 2013 performance year was $43.8 million and
is the total of the values for each executive shown in the statutory remuneration tables on pages 60 and 61. Statutory
remuneration disclosures are prepared in accordance with the Corporations Act and Australian Accounting Standards. Total cash
remuneration received by the CEO and Group Executives in relation to the 2013 performance year was $22.6 million. The total
cash remuneration received is used by management to present a clear view of the Group’s remuneration payments made to the
CEO and Group Executives during the performance year.
58 Commonwealth Bank of Australia
678 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13Satisfaction -AverageMajor Bank 1Major Bank 2Major Bank 3Regional Bank 1CBASource: DBM, Business Financial Services Monitor6 month rolling averageSTI Annual Performance ReviewSTI outcomes determined & approved by Board50 % of STI outcome paid as cashJun2014LTI LTI awards approved by BoardGroup Executives grant of LTI awardCEO grant of LTI awardJuly 201230 Jun 2013Jul 2013Aug 2013Sep 2013November201330 June 2017Vests subject to Risk Review and meeting set Performance HurdlesBoard Sets StrategySTI Targets are set Subject to Risk & Compliance ReviewVesting subject to Risk ReviewPerformance Measurement PeriodFollowing Shareholder Approval50% STI deferredfor 1 year LTI Award deferred for 4 years
Directors’ Report – Remuneration Report
Table (a) below shows cash remuneration received in relation to the 2013 performance year. The total cash payments received
are made up of base remuneration and superannuation (fixed remuneration), and the non-deferred portion of the 2013 STI award.
This table also includes the value of previous years’ deferred STI and LTI awards which vested during 2013.
(a) Cash Remuneration in relation to the 2013 Financial Year
(1) Base Remuneration and Superannuation make up an Executive's fixed remuneration.
(2) This is the 50% of the 2013 STI for performance during the 12 months to 30 June 2013 (payable September 2013). The remaining 50% is deferred until
1 July 2014.
(3) The value of all deferred cash and/or equity awards that vested during 2013 financial year. This includes the value of the award that vested, plus any
interest and/or dividends accrued during the vesting period.
(4) The value of any deferred cash and/or equity awards that were forfeited/lapsed during the 2013 financial year.
(5) Group Executives as at 30 June 2013.
(6) Matthew Comyn commenced in the KMP role effective 10 August 2012. His remuneration has been prorated accordingly.
(b) CEO Reconciliation Table of Cash Payments from Table (a) and Statutory Remuneration Table on Page 60
Annual Report 2013
59
Base Remuneration &2013 STI forPerformance toTotal Cash Payments in relation Deferred CashDeferred Equity Superannuation (1)30 June 2013 (2)to the 2013 yearAwardsAwardsLTI Awards$$$$$$Managing Director and CEOIan Narev2,500,000 1,562,500 4,062,500 1,033,289 1,690,549 (171,721) Current Executives (5)Simon Blair830,000 506,300 1,336,300 453,679 - - David Cohen900,000 562,500 1,462,500 558,929 1,765,215 (166,654) Matthew Comyn (6)872,603 567,192 1,439,795 -- - David Craig1,380,000 862,500 2,242,500 804,240 2,121,914 (212,145) Michael Harte1,075,000 634,250 1,709,250 592,041 1,963,381 (191,933) Robert Jesudason800,000 504,000 1,304,000 -- - Melanie Laing800,000 480,000 1,280,000 165,230 - - Grahame Petersen1,175,000 628,625 1,803,625 578,232 2,124,981 (222,224) Ian Saines 1,330,000 744,800 2,074,800 686,592 2,518,246 (262,648) Annabel Spring980,000 627,200 1,607,200 386,231 95,280 - Alden Toevs1,430,000 850,850 2,280,850 739,139 2,152,481 (282,860) Previous Years' Awards that Vested during 2013 (3)Previous Years' Awards Forfeited/Lapsed during 2013 (4)2013$Financial Year Award VestsCash remuneration received in relation to 2013 - refer to table (a) above4,062,500 n/a2013 STI deferred for 12 months at risk1,562,500 2014Annual leave and long service leave accruals285,301 n/aOther Payments47,973 n/aShare based payments: accounting expense for 2013 for LTI awards made over the past 4 years 2010 GLRP:Expense for one award that may vest subject to customer satisfaction performance187,850 2014 2010 GLRP:Expense for one award that may vest subject to relative TSR performance166,206 2014 2011 GLRP:Expense for one award that may vest subject to customer satisfaction performance70,189 2015 2011 GLRP:Expense for one award that may vest subject to relative TSR performance185,843 2015 2012 GLRP:Expense for one award that may vest subject to customer satisfaction performance230,347 2016 2012 GLRP:Expense for one award that may vest subject to relative TSR performance533,272 2016 2013 GLRP:Expense for one award that may vest subject to customer satisfaction performance142,525 2017 2013 GLRP:Expense for one award that may vest subject to relative TSR performance330,388 2017Total Statutory Remuneration as per page 617,804,894
Directors’ Report – Remuneration Report
4. Key Management Personnel (KMP) Disclosure Tables
4.1 Non-Executive Directors Statutory Remuneration
The statutory table below details individual statutory remuneration for the Non-Executive Directors for the year ended
30 June 2013.
(1) Cash includes Board and Committee base fees received as cash including minor adjustments in relation to previous years.
(2) Retiring allowances were paid to Colin Galbraith and Fergus Ryan when they retired from the Group on 30 October 2012. There are no longer any Non-
Executive Directors with a retiring allowance.
(3) The values shown in the table are the pre-tax portion of fees received as shares.
(4) Comparative remuneration payments have been restated to reallocate between Cash and Non-Executive Directors Share Plan in the prior period. This
reallocation did not impact the Total Statutory Remuneration disclosed.
4.2 Executive Statutory Remuneration
The following statutory tables detail the statutory accounting expense of all remuneration related items for the CEO and all Group
Executives. This includes remuneration costs in relation to both the previous and current performance year. The tables are
different to the cash table on page 59, which shows the remuneration received in 2013 rather than the accrual amounts on the
statutory accounting basis, as outlined in these statutory tables.
The tables have been developed and audited against the relevant accounting standards. Refer to the footnotes below each table
for more detail on each remuneration component.
60 Commonwealth Bank of Australia
Short Term BenefitsShare Based paymentsRetiring Non-ExecutiveTotalSuper-AllowanceDirectors'StatutoryCash (1)annuationPaid (2)Share Plan (3)Remuneration$$$$$Chairman (4)David Turner2013839,538 16,470 - - 856,008 2012781,619 50,000 - - 831,619 Non-Executive Directors (4)John Anderson2013261,281 16,470 - - 277,751 2012251,779 18,128 - - 269,907 Jane Hemstritch2013306,614 16,470 - - 323,084 2012292,886 21,088 - - 313,974 Launa Inman2013213,402 16,470 - 53,351 283,223 2012193,202 17,388 - 48,301 258,891 Carolyn Kay2013306,565 16,470 - - 323,035 2012292,886 21,088 - - 313,974 Brian Long 2013306,468 16,470 - - 322,938 2012283,982 20,447 - - 304,429 Andrew Mohl2013278,244 16,470 - - 294,714 2012251,195 35,238 - - 286,433 Harrison Young2013314,130 16,470 - - 330,600 2012292,886 21,088 - - 313,974 Former Non-Executive Directors (4)Colin Galbraith201398,305 8,269 159,092 - 265,666 2012277,471 19,978 - - 297,449 Fergus Ryan201398,424 8,269 168,263 - 274,956 2012246,099 46,204 - - 292,303 Post Employment Benefits
Directors’ Report – Remuneration Report
(1) Base Remuneration comprises short term benefits, being the Cash Fixed component and post-employment benefit being Superannuation Fixed.
(2) Cash Fixed remuneration is the total cost of salary including any salary sacrificed benefits. For most Executives, differences from 2012 relate to changes in
Superannuation Fixed following a reduction in the concessional contributions cap.
(3) Non-monetary Fixed represents the cost of car parking (including associated fringe benefits tax).
(4) This is 50% of the 2013 STI for performance during the 12 months to 30 June 2013 (payable September 2013).
(5) STI Deferred includes the compulsory deferral of 50% of total STI payments in recognition of performance for the year ended 30 June 2013.
(6) Other short term benefits relate to company funded benefits (including associated fringe benefits tax where applicable). This item also includes interest
accrued in relation to the 2012 STI deferred award, which vested on 1 July 2013 and net annual leave accruals. The 2012 comparative for Melanie Laing
includes a cash payment of $380,000 relating to her sign-on arrangements when joining the Group on 15 February 2012.
Includes long service entitlements accrued during the year. The long service leave valuation has been determined using assumptions consistent with
AASB119. For Matthew Comyn, Robert Jesudason, Melanie Laing and Annabel Spring this also includes amounts relating to equity sign-on awards and/or
deferred STI payments awarded under Executive General Manager arrangements. These equity awards are subject to forfeiture if the Executive ceases to
be employed by the Group due to his or her resignation in any circumstances. The 2012 comparative for Ross McEwan includes amounts relating to other
special arrangements. This equity award was forfeited in 2013 following Ross’ resignation.
(7)
(8) This includes the 2013 expense for Reward Shares/Rights awarded during the 2010, 2011, 2012 and 2013 financial years under the GLRP.
(9) The percentage of 2013 remuneration related to performance was: Ian Narev 64%, Simon Blair 67%, David Cohen 68%, Matthew Comyn 54%, David
Craig 67%, Michael Harte 66%, Robert Jesudason 38%, Melanie Laing 54%, Grahame Petersen 67%, Ian Saines 67%, Annabel Spring 56%, and Alden
Toevs 66%. The percentage of 2013 performance related remuneration that was forfeited by Ross McEwan was 79%.
(10) Matthew Comyn was appointed to the Group Executive Retail Banking Services role on 10 August 2013 and his remuneration has been prorated
accordingly. For the 2012 comparative, Annabel Spring was appointed to the Group Executive Wealth Management role on 1 October 2011, Ian Narev
was appointed to the CEO role effective 1 December 2011, and Melanie Laing commenced with the Group on 15 February 2012. The remuneration for
these executives was prorated accordingly.
(11) Ross McEwan resigned from the Group on 13 July 2012. The Other Short Term amount is negative as Ross McEwan’s negative annual leave accrual was
greater than the other short term remuneration paid during the year ended 30 June 2013. Upon resignation, Ross forfeited his Reward Shares/Rights
awarded during the 2010, 2011, 2012 and 2013 financial years under the GLRP, consistent with the plan rules.
Annual Report 2013
61
Long Term BenefitsShare Based PaymentsShort Term Cash Fixed (2)$Superannuation Fixed$Non Monetary Fixed (3)$Cash STI Payment At Risk (4)$STI Deferred At Risk (5)$Other (6)$Long Term (7)$LTI Reward Shares/Rights (at risk) (8)$Total Statutory Remuneration (9)$Managing Director and CEOIan Narev (10) 20132,475,00025,00014,2281,562,5001,562,500223,97995,0671,846,6207,804,89420121,820,77925,0005,763999,544999,544171,491133,3531,520,5725,676,046Group ExecutivesSimon Blair 2013805,00025,00014,228506,300506,30085,05218,540901,6542,862,0742012780,00050,00013,787438,863438,863124,17123,081786,0212,654,786David Cohen 2013875,00025,00014,228562,500562,50090,66622,7511,013,1103,165,7552012850,00050,00013,787540,675540,67586,30927,1651,210,4603,319,071Matthew Comyn (10)2013850,34322,26011,766567,192567,19258,636207,144199,9182,484,451David Craig 20131,355,00025,00014,228862,500862,500133,98929,9821,469,0354,752,23420121,330,00050,00013,787777,975777,975145,22138,8621,670,4984,804,318Michael Harte20131,050,00025,00013,191634,250634,250153,08614,1621,200,1203,724,05920121,050,00025,00014,953572,706572,706124,00660,8521,420,1283,840,351Robert Jesudason2013775,00025,00014,228504,000504,00070,281995,507163,2053,051,221Melanie Laing (10) 2013775,00025,00014,228480,000480,00063,219265,203406,9732,509,6232012261,74837,7061,152159,834159,834402,556274,63991,2671,388,736Grahame Petersen20131,150,00025,00014,228628,625628,625108,674(5,662)1,338,0753,887,56520121,125,00050,00016,558559,348559,348107,73758,8221,607,2504,084,063Ian Saines 20131,305,00025,00014,228744,800744,800122,57412,1891,545,4744,514,06520121,280,00050,00013,787664,169664,169129,21246,7281,876,8624,724,927Annabel Spring (10)2013955,00025,00013,191627,200627,20080,059278,718474,4363,080,8042012714,94518,71610,142373,617373,61785,87511,463171,7251,760,100Alden Toevs 20131,405,00025,00014,228850,850850,850148,24730,4541,493,6614,818,29020121,380,00050,00013,787715,000715,000186,66538,7751,399,0994,498,326Former ExecutiveRoss McEwan (11) 201344,7864,118---(2,894)(653,662)(2,223,162)(2,830,814)20121,250,00050,00013,627607,750607,75058,575997,8241,755,9355,341,461Other Short Term BenefitsBase Remuneration (1)
Directors’ Report – Remuneration Report
4.3 Executive STI Allocations for 2013
Includes 50% of the annual STI award payable as cash in recognition of performance for the year ended 30 June 2013.
(1) The maximum STI is represented as a percentage of fixed remuneration. The minimum STI potential is zero.
(2)
(3) This represents 50% of the STI award that is deferred until 1 July 2014. The deferred awards are subject to Board review at the time of payment.
(4) Matthew Comyn commenced in the KMP role on 10 August 2012. His STI target has been prorated accordingly.
4.4 Equity Awards Received as Remuneration
The table below details the value and number of equity awards that were granted or forfeited/lapsed during 2013. It also shows
the number of previous year’s awards that vested during the 2013 performance year.
(1) This represents the maximum number of reward rights that may vest to each Executive. The value represents the fair value at grant date. The minimum
LTI potential is zero.
(2) Previous years' awards that vested include LTI and other deferred equity awards.
(3) This includes the portion of the LTI award that reached the end of its performance period on 30 June 2013 that did not meet the performance hurdle and
was forfeited. For Ross McEwan, this includes the Reward Shares/Rights awarded during the 2010, 2011, 2012 and 2013 financial years under the GLRP
that were forfeited as a result of his resignation from the Group on 13 July 2012. All values are based on the fair value at grant of each award.
62 Commonwealth Bank of Australia
STI Target Maximum STI Potential (1) $ %%$%$Managing Director and CEOIan Narev 2,500,000 150%50% 1,562,500 50% 1,562,500 Group ExecutivesSimon Blair 830,000 150%50% 506,300 50% 506,300 David Cohen 900,000 150%50% 562,500 50% 562,500 Matthew Comyn (4) 872,603 150%50% 567,192 50% 567,192 David Craig 1,380,000 150%50% 862,500 50% 862,500 Michael Harte 1,075,000 150%50% 634,250 50% 634,250 Robert Jesudason 800,000 150%50% 504,000 50% 504,000 Melanie Laing 800,000 150%50% 480,000 50% 480,000 Grahame Petersen 1,175,000 150%50% 628,625 50% 628,625 Ian Saines 1,330,000 150%50% 744,800 50% 744,800 Annabel Spring 980,000 150%50% 627,200 50% 627,200 Alden Toevs 1,430,000 150%50% 850,850 50% 850,850 STI Paid (2)STI Portion Deferred (3)Previous Years'Awards Vestedduring 2013 (2)NameClassUnits$UnitsUnits$Managing Director and CEOIan NarevReward Shares/Rights78,6812,987,31422,067(3,152)(171,721)Deferred Shares--5,698--Group ExecutivesSimon BlairReward Shares/Rights26,122956,396---Deferred Shares-----David Cohen Reward Shares/Rights28,3261,037,08621,418(3,059)(166,654)Deferred Shares--7,597--Matthew ComynReward Shares/Rights30,8431,129,235---Deferred Shares6,119333,3339,800--David Craig Reward Shares/Rights43,4321,590,15527,259(3,894)(212,145)Deferred Shares--7,597--Michael Harte Reward Shares/Rights33,8331,238,71924,663(3,523)(191,933)Deferred Shares--7,597--Robert JesudasonReward Shares/Rights25,179921,870---Deferred Shares4,295233,95323,625--Melanie LaingReward Shares/Rights25,179921,870---Deferred Shares--7,015--Grahame PetersenReward Shares/Rights36,9801,353,93428,557(4,079)(222,224)Deferred Shares--6,331--Ian SainesReward Shares/Rights41,8581,532,53133,749(4,821)(262,648)Deferred Shares--7,597--Annabel SpringReward Shares/Rights30,8431,129,235---Deferred Shares--1,583--Alden Toevs Reward Shares/Rights45,0051,647,74725,263(5,192)(282,860)Deferred Shares--10,130--Former ExecutiveRoss McEwan Reward Shares/Rights--31,153(125,294)(5,178,504)Deferred Shares--8,863(50,886)(2,500,029)Forfeited orGrantedLapsedduring 2013 (1)during 2013 (3)
Directors’ Report – Remuneration Report
4.5 Fair Value Assumptions for Unvested Equity Awards
For the Customer Satisfaction component of all LTI awards, the fair value is the closing market price of a CBA share as at the
grant date. For the Total Shareholder Return component of the LTI awards, the fair value has been calculated using a Monte-
Carlo simulation method using the following assumptions:
(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.
4.6 Termination Arrangements
The table below provides the termination arrangements included in all Executive contracts for our current KMP.
(1) Permanent contracts are ongoing until notice is given by either party.
(2) Severance applies where the termination is initiated by the Group, other than for misconduct or unsatisfactory performance.
The termination entitlements are appropriate and do not deliver windfall payments on termination that are not related to
performance. As part of these arrangements, Executives who resign or are dismissed will forfeit all their deferred awards
(including cash and equity awards), and will generally not be entitled to a STI payment for that year. At the Board’s discretion,
where an Executive’s exit is related to retrenchment, retirement or death, the Executive may be entitled to an STI payment and
any outstanding LTI awards continue unchanged with performance measured at the end of the performance period related to
each award. The Board has ultimate discretion over the amount of awards that may vest.
Ross McEwan was the only KMP who left the Group during the 2013 financial year.
Annual Report 2013
63
FairExercisePerformanceExpectedExpectedExpectedRisk FreeGrantValuePricePeriodLifeDividend YieldVolatilityRateAward TypeDate$$End(Years)%%%GLRP - Reward Rights (1)05/11/201257.40Nil30/06/2016n/an/an/an/aGLRP - Reward Rights (2)05/11/201231.49Nil30/06/20163.7Nil203.2GLRP - Reward Rights (1)04/10/201256.55Nil30/06/2016n/an/an/an/aGLRP - Reward Rights (2)04/10/201230.76Nil30/06/20163.7Nil203.0GLRP - Reward Rights (1)15/02/201250.23Nil30/06/2015n/an/an/an/aGLRP - Reward Rights (2)15/02/201231.87Nil30/06/20153.4Nil304.4GLRP - Reward Rights (1)15/11/201149.15Nil30/06/2015n/an/an/an/aGLRP - Reward Rights (2)15/11/201131.60Nil30/06/20153.6Nil304.2GLRP - Reward Rights (1)29/08/201147.96Nil30/06/2015n/an/an/an/aGLRP - Reward Rights (2)29/08/201132.23Nil30/06/20153.8Nil304.7GLRP - Reward Rights (1)10/03/201151.30Nil30/06/2014n/an/an/an/aGLRP - Reward Rights (2)10/03/201136.51Nil30/06/20143.3Nil305.5GLRP - Reward Rights (1)27/09/201052.86Nil30/06/2014n/an/an/an/aGLRP - Reward Rights (2)27/09/201037.61Nil30/06/20143.8Nil305.5GLRP - Reward Shares (1)25/09/200951.30Nil30/06/2013n/an/an/an/aGLRP - Reward Shares (2)25/09/200937.24Nil30/06/20133.8Nil305.4AssumptionsNameContract Type (1)NoticeSeverance (2)Managing Director & CEOIan NarevPermanent12 monthsn/aGroup ExecutivesSimon BlairPermanent6 months6 monthsDavid CohenPermanent6 months6 monthsMatthew ComynPermanent6 months6 monthsDavid CraigPermanent6 months6 monthsMichael HartePermanent6 months6 monthsRobert JesudasonPermanent6 months6 monthsMelanie LaingPermanent6 months6 monthsGrahame PetersenPermanent6 months6 monthsIan SainesPermanent6 months6 monthsAnnabel SpringPermanent6 months6 monthsAlden ToevsPermanent6 monthsn/a
Directors’ Report – Remuneration Report
Glossary of Key Terms
To assist readers, key terms and abbreviations used in the remuneration report as they apply to the Group are set out below.
Term
Definition
Base Remuneration
Cash and non-cash remuneration paid regularly with no performance conditions.
Board
Deferred Shares
The Board of Directors of the Group.
Shares subject to forfeiture on resignation. Used for sign-on awards and deferred STI below
Group Executive level.
Executives
The CEO and Group Executives are collectively referenced as ‘Executives’.
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
The Group’s long term incentive plan from 1 July 2009 for the CEO and Group Executives.
Plan (GLRP)
Key Management Personnel
(KMP)
Long Term Incentive (LTI)
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 plan is the GLRP.
NPAT
Net profit after tax.
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
Profit after capital charge.
Remuneration Received
Reward Shares
Reward Rights
Salary Sacrifice
Represents all forms of consideration paid by the Group or on behalf of the Group during the
current performance year ending 30 June 2013, in exchange for services previously rendered
to the Group.
Shares in CBA granted under the GLRP during the 2010 financial year and subject to
performance hurdles.
Rights to ordinary shares in CBA granted under the GLRP from the 2011 financial year and
subject to performance hurdles.
An arrangement where an employee agrees to forgo part of his or her cash component of
Base Remuneration in return for non-cash benefits of a similar value.
Short Term Incentive (STI)
Remuneration paid with direct reference to the Group’s and the individual’s performance over
one financial year.
Statutory Remuneration
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.
Total Shareholder Return
(TSR)
TSR measures a company’s share price movement, dividend yield and any return of capital
over a specific period.
64 Commonwealth Bank of Australia
Company Secretaries
Auditor’s Independence Declaration
Details of the Bank’s Company Secretaries, including their
experience and qualifications, are set out below.
We have obtained an independence declaration from our
external auditor as presented on the following page.
Directors’ Report
Auditor Independence
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 general standard of independence imposed by the
Corporations Act 2001.
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
service 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 and Chief Executive
Officer’s Statements (pages 2 to 5), Highlights (pages 6 to 9),
Group Performance Analysis (pages 10 to 19), Note 37
(pages 144 to 145) and Shareholding Information (pages 188
to 191) sections of this Annual Report.
Margaret Taylor was appointed Company Secretary of the
Commonwealth Bank of Australia effective 6 August 2013.
Before joining the Bank, she held the position of Group
General Counsel and Company Secretary of Boral Limited.
Prior to that, she was Regional Counsel Australia/Asia with
BHP Billiton, and prior to that a partner with law firm Minter
Ellison, specialising in corporate and securities laws. She
holds law and arts degrees from the University of Queensland
and is a Fellow of Chartered Secretaries Australia.
Carla Collingwood was appointed a Company Secretary of
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.
John Hatton was Company Secretary of the Bank from 1994
until he retired on 5 July 2013. From 1985 until 1994, he was
a solicitor with the Bank’s Legal Department. He has a
Bachelor of Laws degree from the University of Sydney 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.
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 33 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 related services
2013
$’000
945
3,088
576
157
4,766
21,782
(1) An additional amount of $480,672 was paid to PwC for non-audit
services provided to entities not consolidated into the Financial
Statements.
Signed in accordance with a resolution of the Directors.
D J Turner
Chairman
13 August 2013
I M Narev
Managing Director and Chief Executive Officer
13 August 2013
Annual Report 2013
65
Auditor’s Independence Declaration
As lead auditor for the audit of the Commonwealth Bank of Australia for the year ended 30 June 2013, 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 Commonwealth Bank of Australia and the entities it controlled during the year.
Marcus Laithwaite
Partner
PricewaterhouseCoopers
Sydney
13 August 2013
PricewaterhouseCoopers, ABN 52 780 433 757
Darling Park Tower 2, 201 Sussex Street, GPO BOX 2650, SYDNEY NSW 1171
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
66 Commonwealth Bank of Australia
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Annual Report 2013
67
Five Year Financial Summary
Includes investment experience.
(1)
(2) Due to the change in expectations on the size and impact of defined benefit superannuation plan expense, from 1 July 2009 this amount has been
included as part of total expenses (“cash basis”) and is recorded in the Other segment.
(3) Comparative information for 2012 only has been restated to reflect changes in the presentation of segment results in the current period. The changes
include the reallocation of revenue, expenses and associated customer balances between segments based on where the customer relationship is
managed; the allocation of residual earnings on capital across the business segments; and the impact of the Group relinquishing the banking licence held
by Bankwest during October 2012.
(4) Comparatives have been restated to conform to presentation in the current year.
68 Commonwealth Bank of Australia
20132012201120102009$M$M$M$M$MNet interest income13,94413,15712,64512,00810,184Other operating income (1)7,5556,9937,0147,0516,634Total operating income21,49920,15019,65919,05916,818Operating expenses(9,605)(9,196)(8,891)(8,601)(7,765)Impairment expense(1,082)(1,089)(1,280)(2,075)(3,048)Net profit before tax10,8129,8659,4888,3836,005Corporate tax expense(2,977)(2,736)(2,637)(2,266)(1,560)Non-controlling interests(16)(16)(16)(16)(30)Net profit after tax ("cash basis")7,8197,1136,8356,1014,415Defined benefit superannuation plan expense (2)----(10)Treasury shares valuation adjustment(53)(15)(22)(44)(28)Hedging and IFRS volatility27124(265)17(245)One-off expenses----(23)Tax on NZ structured finance transactions---(171)-Loss on disposal of controlled entities/investments--(7)(23)-Bankwest non-cash items(71)(89)(147)(216)614Count Financial acquisition costs-(43)---Bell Group litigation(45)----Net profit after income tax attributable to Equity holders of the Bank ("statutory basis")7,6777,0906,3945,6644,723Contributions to profit (after tax) (3)Retail Banking Services3,0542,7032,8542,4612,107Business and Private Banking1,4881,5131,030898736Institutional Banking and Markets1,2101,0981,0041,173166Wealth Management577492581592514New Zealand630557469387438Bankwest561527463(45)113IFS and Other194134353457537Net profit after tax ("underlying basis")7,7147,0246,7545,9234,611Investment experience after tax1058981178(196)Net profit after tax ("cash basis")7,8197,1136,8356,1014,415Balance SheetLoans, bills discounted and other receivables556,648525,682500,057493,459466,631Total assets (4)753,876718,859667,899646,330620,372Deposits and other public borrowings459,429437,655401,147374,663368,721Total liabilities (4)708,384677,287630,612610,760588,930Shareholders' equity45,49241,57237,28735,57031,442Net tangible assets33,59329,82126,21724,68820,738Risk weighted assets - Basel III (APRA)329,158n/an/an/an/aRisk weighted assets - Basel II (APRA)n/a302,787281,711290,821288,836Average interest earning assets653,637629,685597,406577,261510,510Average interest bearing liabilities609,557590,654559,095543,824483,283Assets (on Balance Sheet) - Australia (4)644,062621,985581,695561,618528,354Assets (on Balance Sheet) - New Zealand61,57855,49954,99356,94859,606Assets (on Balance Sheet) - Other48,23641,37531,21127,76432,412
Five Year Financial Summary
(1) The productivity metrics have been calculated on a “cash basis”.
Annual Report 2013
69
20132012201120102009Shareholder summaryDividends per share - fully franked (cents)364334320290228Dividend cover - statutory (times)1.31.31.31.31.3Dividend cover - cash (times)1.31.31.41.41.3Earnings per share (cents)BasicStatutory477.9448.9411.2367.9328.5Cash basis485.8449.4438.7395.5305.6Fully dilutedStatutory464.5432.9395.1354.2313.4Cash basis472.0433.4420.6379.8292.4Dividend payout ratio (%)Statutory76.875.278.379.773.1Cash basis75.475.073.273.978.2Net tangible assets per share ($)20.818.716.815.913.7Weighted average number of shares (statutory basic) (M)1,5981,5701,5451,5271,420Weighted average number of shares (statutory fully diluted) (M)1,6861,6741,6681,6401,548Weighted average number of shares (cash basic) (M)1,6011,5731,5481,5311,426Weighted average number of shares (cash fully diluted) (M)1,6891,6771,6711,6441,554Number of shareholders786,437792,906792,765784,382776,283Share prices for the year ($)Trading high74.1853.8055.7760.0046.69Trading low53.1842.3047.0536.2024.03End (closing price)69.1853.1052.3048.6439.00Performance ratios (%)Return on average Shareholders' equityStatutory18.218.718.417.516.8Cash basis18.418.619.518.715.8Return on average total assetsStatutory1.01.01.00.90.9Cash basis1.11.01.01.00.8Capital adequacy - Common Equity Tier One - Basel III (APRA)8.2n/an/an/an/aCapital adequacy - Tier One - Basel III (APRA)10.2n/an/an/an/aCapital adequacy - Tier Two - Basel III (APRA)1.0n/an/an/an/aCapital adequacy - Total - Basel III (APRA)11.2n/an/an/an/aCapital adequacy - Tier One - Basel IIn/a10.010.09.28.1Capital adequacy - Tier Two - Basel IIn/a1.01.72.32.3Capital adequacy - Total - Basel IIn/a11.011.711.510.4Net interest margin2.132.092.122.081.99Other information (numbers)Full-time equivalent employees44,96944,84446,06045,02544,218Branches/services centres (Australia)1,1661,1671,1601,1471,142Agencies (Australia)3,7643,8183,7953,8843,859ATM's (proprietary)4,3044,2134,1734,1494,075EFTPOS terminals181,227175,436170,855165,621167,025Productivity (1)Total income per full-time (equivalent) employee ($)474,660446,013424,186418,057386,381Employee expense/Total income (%)24.124.724.524.123.3Total operating expenses/Total income (%)45.046.045.545.745.4
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
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
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
Insurance Businesses
Remuneration of Auditors
Lease Commitments
Contingent Liabilities, Contingent Assets and Commitments
Fiduciary Activities
Risk Management
Credit Risk
Market Risk
Liquidity and Funding Risk
Retirement Benefit Obligations
Investments in Associates and Joint Ventures
Key Management Personnel
Related Party Disclosures
Notes to the Statements of Cash Flows
Disclosures about Fair Values of Financial Instruments
Securitisation, Covered Bonds and Transferred Assets
Controlled Entities
Subsequent Events
70 Commonwealth Bank of Australia
71
72
73
74
76
78
88
90
91
96
99
100
100
100
101
102
107
108
111
113
115
117
117
117
118
119
119
121
123
124
126
128
129
133
134
135
138
140
141
141
143
144
145
162
164
167
170
171
174
174
176
181
182
184
Income Statements
For the year ended 30 June 2013
Financial Statements
The above Income Statements should be read in conjunction with the accompanying notes.
Annual Report 2013
71
GroupBank20132012201120132012Note$M$M$M$M$MInterest income 234,73938,25837,47735,70734,761Interest expense 2(20,805)(25,136)(24,883)(23,541)(24,510)Net interest income13,93413,12212,59412,16610,251Other banking income 4,2374,0893,6435,6275,466Net banking operating income18,17117,21116,23717,79315,717Funds management income2,1471,9591,996--Investment revenue942226854--Claims and policyholder liability expense(924)(245)(808)--Net funds management operating income22,1651,9402,042--Premiums from insurance contracts2,3532,1141,884--Investment revenue449547547--Claims and policyholder liability expense from insurance contracts(1,584)(1,428)(1,313)--Net insurance operating income21,2181,2331,118--Total net operating income before impairment and operating expenses221,55420,38419,39717,79315,717Loan impairment expense2,14(1,146)(1,089)(1,280)(1,042)(988)Operating expenses2(9,680)(9,331)(9,060)(7,236)(6,338)Net profit before income tax210,7289,9649,0579,5158,391Corporate tax expense5(2,923)(2,736)(2,481)(2,223)(1,930)Policyholder tax expense5(112)(122)(166)--Net profit after income tax7,6937,1066,4107,2926,461Non-controlling interests(16)(16)(16)--Net profit attributable to Equity holders of the Bank7,6777,0906,3947,2926,461Group 201320122011NoteEarnings per share: Basic7477. 9448. 9411. 2 Fully diluted7464. 5432. 9395. 1Cents per share
Financial Statements
Statements of Comprehensive Income
For the year ended 30 June 2013
The above Statements of Comprehensive Income should be read in conjunction with the accompanying notes.
72 Commonwealth Bank of Australia
20132012201120132012$M$M$M$M$MNet profit after income tax for the financial year7,6937,1066,4107,2926,461Other comprehensive income/(expense):Items that may be reclassified subsequently to profit/(loss):Gains and losses on cash flow hedging instruments:Recognised in equity(575)730(754)(619)847Transferred to Income Statement226758769229542Gains and losses on available-for-sale investments:Recognised in equity553(349)124365(315)Transferred to Income Statement on disposal(31)(81)(24)(31)(86)Foreign currency translation reserve476202(546)8280Income tax on items transferred directly to/from equity:Cash flow hedge reserve73(442)-122(415)Available-for-sale investments revaluation reserve(158)122(28)(101)119Foreign currency translation reserve(10)(12)16-(10)Total of items that may be reclassified554928(443)47762Items that will not be reclassified to profit or loss:Actuarial gains and losses from defined benefit superannuation plans net of tax311(223)(89)311(223)Revaluation of properties432695Income tax on revaluation of properties(1)(5)-(1)-Total of Items that will not be reclassified314(196)(83)319(218)Other comprehensive income/(expense) net of income tax868732(526)366544Total comprehensive income for the financial year8,5617,8385,8847,6587,005Total comprehensive income for the financial year is attributable to:Equity holders of the Bank8,5457,8225,8687,6587,005Non-controlling interests161616--Comprehensive income net of income tax8,5617,8385,8847,6587,005Group Bank
Balance Sheets
As at 30 June 2013
Financial Statements
(1) Comparatives have been restated to conform to presentation in the current year.
The above Balance Sheets should be read in conjunction with the accompanying notes.
Annual Report 2013
73
Group Bank 2013201220132012Note$M $M $M $M AssetsCash and liquid assets820,63419,66618,03017,952Receivables due from other financial institutions97,74410,8866,99810,482Assets at fair value through Income Statement:10Trading19,61713,81618,39812,071Insurance14,35914,525--Other907980718980Derivative assets (1)1145,34039,56745,20339,691Available-for-sale investments (1)1259,60160,827125,941116,567Loans, bills discounted and other receivables13556,648525,682502,349407,122Bank acceptances of customers6,0639,7176,0599,715Shares in and loans to controlled entities (1)44--63,01775,006Property, plant and equipment152,7182,5031,5581,376Investment in associates and joint ventures422,2811,8981,6071,401Intangible assets1610,42310,2814,7134,123Deferred tax assets59359801,063899Other assets176,5987,5175,0915,872753,868718,845800,745703,257Assets held for sale18814814Total assets753,876718,859800,753703,271LiabilitiesDeposits and other public borrowings19459,429437,655425,276362,813Payables due to other financial institutions25,92222,12625,16621,457Liabilities at fair value through Income Statement208,7016,5553,3323,181Derivative liabilities (1)1138,58039,85140,22939,856Bank acceptances6,0639,7176,0599,715Due to controlled entities--113,868101,053Current tax liabilities211,5291,5371,4401,523Deferred tax liabilities21471338--Other provisions221,2491,224992902Insurance policy liabilities3213,00412,994--Debt issues23132,808124,712115,291102,312Managed funds units on issue891995--Bills payable and other liabilities2410,0509,56113,6799,377698,697667,265745,332652,189Loan capital259,68710,02210,43710,223Total liabilities708,384677,287755,769662,412Net assets45,49241,57244,98440,859Shareholders' EquityShare capital:Ordinary share capital2726,32325,17526,61925,498Other equity instruments279399391,8951,895Reserves261,3331,5712,6412,732Retained profits2616,36013,35613,82910,734Shareholders' equity attributable to Equity holders of the Bank44,95541,04144,98440,859Non-controlling interests29537531--Total Shareholders' equity45,49241,57244,98440,859
Financial Statements
Statements of Changes in Equity
For the year ended 30 June 2013
The above Statements of Changes in Equity should be read in conjunction with the accompanying notes.
74 Commonwealth Bank of Australia
GroupShareholders'equityattributableOrdinaryOtherto EquityNon-Total shareequityRetainedholderscontrollingShareholders'capitalinstrumentsReservesprofitsof the Bank interests equity$M$M$M$M$M$M$MAs at 30 June 201123,60293939211,82636,75952837,287Net profit after income tax---7,0907,090167,106Net other comprehensive income--955(223)732-732Total comprehensive income for the financial year--9556,8677,822167,838Transactions with equity holders in their capacity as equity holders:Dividends paid on ordinary shares---(5,096)(5,096)-(5,096)Dividends paid on other equity instruments---(30)(30)-(30)Dividend reinvestment plan (net of issue costs)1,363---1,363-1,363Other equity movements:Share based payments2-1-3-3Issue of shares (net of issue costs)237---237-237Purchase of treasury shares(96)---(96)-(96)Sale and vesting of treasury shares67---67-67Other changes--223(211)12(13)(1)As at 30 June 201225,1759391,57113,35641,04153141,572Net profit after income tax---7,6777,677167,693Net other comprehensive income--557311868-868Total comprehensive income for the financial year--5577,9888,545168,561Transactions with equity holders in their capacity as equity holders:Dividends paid on ordinary shares---(5,776)(5,776)-(5,776)Dividends paid on other equity instruments---(28)(28)-(28)Dividend reinvestment plan (net of issue costs)929---929-929Other equity movements:Share based payments--(4)-(4)-(4)Issue of shares (net of issue costs)193---193-193Purchase of treasury shares(664)---(664)-(664)Sale and vesting of treasury shares690---690-690Other changes--(791)82029(10)19As at 30 June 201326,3239391,33316,36044,95553745,492
Statements of Changes in Equity (continued)
For the year ended 30 June 2013
Financial Statements
The above Statements of Changes in Equity should be read in conjunction with the accompanying notes.
Annual Report 2013
75
BankShareholders'equityattributableOrdinaryOtherto Equity shareequityRetainedholderscapitalinstrumentsReservesprofitsof the Bank$M$M$M$M$MAs at 30 June 201123,8961,8951,9649,59337,348Net profit after income tax---6,4616,461Net other comprehensive income--767(223)544Total comprehensive income for the financial year--7676,2387,005Transactions with equity holders in their capacity as equity holders:Dividends paid on ordinary shares---(5,096)(5,096)Dividend reinvestment plan (net of issue costs)1,363---1,363Other equity movements:Share based payments2-1-3Issue of shares (net of issue costs)237---237Other changes---(1)(1)As at 30 June 201225,4981,8952,73210,73440,859Net profit after income tax---7,2927,292Net other comprehensive income--55311366Total comprehensive income for the financial year--557,6037,658Additions through merger of banking licences--2079191,126Transactions with equity holders in their capacity as equity holders:Dividends paid on ordinary shares---(5,776)(5,776)Dividend reinvestment plan (net of issue costs)928---928Other equity movements:Share based payments--(4)-(4)Issue of shares (net of issue costs)193---193Other changes--(349)349-As at 30 June 201326,6191,8952,64113,82944,984Group 201320122011NoteDividends per share attributable to shareholders of the Bank:Ordinary shares6364334320Trust preferred securities5,7675,9896,020Cents per share
Financial Statements
Statements of Cash Flows (1)
For the year ended 30 June 2013
It should be noted that the Group does not use these accounting Statements of Cash Flows in the internal management of its liquidity positions.
(1)
(2) Represents gross premiums and policy payments before splitting between policyholders and shareholders.
(3) Cash and cash equivalents has been redefined to no longer include at call deposits with other financial institutions and settlement account balances with
other banks. Comparatives have been restated to conform to presentation in the current year.
(4) Amounts received from and paid to controlled entities are presented in line with how they are managed and settled.
76 Commonwealth Bank of Australia
GroupBank20132012201120132012Note$M$M$M$M$MCash flows from operating activitiesInterest received 34,86838,33737,13436,06534,443Interest paid (21,056)(25,456)(24,464)(23,903)(24,750)Other operating income received 5,0475,1335,2403,3853,232Expenses paid(8,432)(8,537)(8,474)(6,269)(5,847)Income taxes paid(2,940)(2,372)(2,370)(2,679)(1,525)Net cash (outflows)/inflows from assets at fair value through Income Statement (excluding life insurance)(756)2,3284,452(368)3,059Net cash inflows/(outflows) from liabilities at fair value through Income Statement:Life insurance:Investment income2,551791552--Premiums received (2)2,1062,1382,200--Policy payments (2)(3,903)(3,032)(3,374)--Other liabilities at fair value through Income Statement1,503(3,603)(4,317)81(1,424)Cash flows from operating activities beforechanges in operating assets and liabilities8,9885,7276,5796,3127,188Changes in operating assets and liabilities arising from cash flow movementsMovement in available-for-sale investments:Purchases(45,429)(76,408)(62,733)(46,730)(101,037)Proceeds47,09062,86549,85737,57958,743Net change in deposits with regulatory authorities(2)(15)(72)(5)1Net increase in loans, bills discounted and other receivables(28,035)(25,754)(11,489)(29,042)(19,804)Net decrease/(increase) in receivables due from other financial institutions (3)3,54049(1,134)6,491(304)Net increase in securities purchased underagreements to resell(699)(498)(2,834)(62)(1,060)Life insurance business:Purchase of insurance assets at fair value through Income Statement(2,591)(2,189)(4,101)--Proceeds from sale/maturity of insurance assets at fair value through Income Statement3,8323,2915,914--Net (increase)/decrease in other assets(265)(61)201(368)(79)Net increase in deposits and other public borrowings17,24335,75031,89317,66429,227Net increase in payables due to other financial institutions (3)2,1234,7524,6372,3484,378Net increase/(decrease) in securities sold underagreements to repurchase3271,183(1,698)2811,458Net increase/(decrease) in other liabilities455155(575)3,847982Changes in operating assets and liabilities arising from cash flow movements(2,411)3,1207,866(7,997)(27,495)Net cash provided by/(used in) operating activities45(a)6,5778,84714,445(1,685)(20,307)Cash flows from investing activitiesPayments for acquisition of controlled entities45(e)-(125)---Net proceeds from disposal of controlled entities45(c)--19--Net proceeds from disposal of entities and businesses (net of cash disposals)-2115--Dividends received8252261,5071,563Net amounts received from controlled entities (4)---4224,767Proceeds from sale of property, plant and equipment3025272315Purchases of property, plant and equipment(642)(584)(443)(229)(218)Payments for acquistions of investments in associates/joint ventures(264)(85)(164)(206)(53)Purchase of intangible assets(464)(585)(533)(412)(547)Sale of assets held for sale 2-1225Additions through merger of banking licences---557-Net cash (used in)/provided by investing activities(1,256)(1,281)(1,041)1,28425,532
Statements of Cash Flows (1) (continued)
For the year ended 30 June 2013
Financial Statements
It should be noted that the Group does not use these accounting Statements of Cash Flows in the internal management of its liquidity positions.
(1)
(2) Cash and cash equivalents has been redefined to no longer include at call deposits with other financial institutions and settlement account balances with
other banks. Comparatives have been restated to conform to presentation in the current year.
The above Statements of Cash Flows should be read in conjunction with the accompanying notes.
Annual Report 2013
77
GroupBank20132012201120132012Note$M$M$M$M$MCash flows from financing activitiesProceeds from issue of shares (net of issue costs)193261932Dividends paid (excluding Dividend Reinvestment Plan)(4,860)(3,748)(4,188)(4,833)(3,718)Proceeds from issuance of debt securities92,250162,430115,48086,296132,538Redemption of issued debt securities(93,691)(158,918)(123,801)(82,310)(127,003)Purchase of treasury shares(664)(96)(69)--Sale of treasury shares6341973--Issue of loan capital1,977--1,965-Redemption of loan capital(2,215)(1,775)(1,064)(1,909)(1,771)Other (2)218132(261)73352Net cash (used in)/provided by financing activities(6,158)(1,954)(13,824)(525)400Net (decrease)/increase in cash and cash equivalents(837)5,612(420)(926)5,625Effect of foreign exchange rates on cash and cash equivalents (2)852266707728241Cash and cash equivalents at beginning of year (2)12,6036,7256,43810,9465,080Cash and cash equivalents at end of year45(b)12,61812,6036,72510,74810,946
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 2013, were approved and
authorised for issue by the Board of Directors on 13 August
2013. The Directors have the power to amend and reissue
the Financial Statements.
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.
is one of Australia’s
The Group
leading providers of
integrated financial services, including retail, business and
institutional banking, funds management, superannuation, life
insurance, general insurance, broking services and finance
company activities.
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.
Basis of Preparation
(a) Basis of Accounting
This General Purpose Financial Report for the year ended
30 June 2013 has been prepared
in accordance with
Australian Accounting Standards (the standards), which
include Australian Interpretations by virtue of AASB 1048
the
‘Interpretation and Application of Standards’, and
requirements of the Corporations Act 2001. The Bank is a for-
profit entity for the purposes of preparing this report.
The Financial Statements also comply with the International
Financial Reporting Standards (IFRS) as issued by the
(IASB) and
International Accounting Standards Board
Interpretations as
Interpretations
Committee (IFRIC).
issued by
IFRS
the
(b) Historical Cost Convention
This financial report has been prepared under the historical
cost convention, except for certain assets and liabilities
(including derivative instruments) measured at fair value. A
more detailed discussion on measurement basis is outlined
within this note.
(c) Use of Estimates and Assumptions
It also
The preparation of the financial report requires the use of
certain critical accounting estimates.
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 Critical Judgements and Estimates
section.
(d) Rounding of Amounts
The amounts in this financial report have been rounded in
accordance with ASIC Class Order 98/0100 to the nearest
million dollars, unless otherwise indicated.
The financial report is presented in Australian dollars.
(e) Segment Reporting
Operating segments are reported based on the Group’s
structures. Senior
organisational
management review the Group’s internal reporting based
around these segments, in order to assess performance and
allocate resources.
and management
All transactions between segments are conducted on an
arm’s length basis, with inter-segment revenue and costs
78 Commonwealth Bank of Australia
being eliminated in “Other”.
(f) Changes in Accounting Policies
The accounting policies adopted are consistent with those of
the previous financial year, except for the adoption of:
AASB 2011-9 ‘Amendments to Australian Accounting
of Other
Standards – Presentation
Comprehensive Income’ resulting in the separation of
items in the Statements of Comprehensive Income into
two groups based on whether or not they may be
reclassified to profit or loss in the future; and
Items
of
AASB 2013-2 ‘Amendments to AASB 1038 – Regulatory
Capital’ resulting in the disclosure of the regulatory
capital position of each life insurer in the Group.
Comparatives
Where necessary, comparative information has been restated
to conform to changes in presentation in the current year. No
significant changes have been made and all changes have
been footnoted throughout the financial statements.
(g) Principles of Consolidation
Subsidiaries
The consolidated financial report comprises the financial
report of the Bank and its subsidiaries. Subsidiaries are
entities (including special purpose entities) over which the
Bank has control of the financial and operating policies so as
to gain benefit from the activities or returns, or in the case of
special purpose entities, where the Bank holds the majority of
the residual ownership risks in order to obtain benefits from
its activities. The effects of all transactions between entities
in the Group are eliminated in full. Non-controlling interests in
the results and equity of subsidiaries are shown separately in
the consolidated Income Statement, Statement of Changes in
Equity, and Balance Sheet.
Subsidiaries are fully consolidated from the date on which
control is transferred to the Group. They are de-consolidated
from the date that control ceases.
Business Combinations
Business combinations are accounted
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.
for using
Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured
at fair value on the acquisition date. Goodwill is recorded as
the excess of the total consideration transferred, the carrying
amount of any non-controlling interest in the acquiree and the
acquisition date fair value of any previous equity interest in
the acquiree over the net identifiable assets acquired. If there
is a deficit instead, this discount on acquisition is recognised
directly in the consolidated Income Statement, but only after a
reassessment of the identification and measurement of the
net assets acquired.
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 other comprehensive income ‘OCI’.
Associates and joint ventures are accounted for at cost less
accumulated impairments at the Bank level.
(h) Foreign Currency Translation
Functional and Presentation Currency
The consolidated financial statements are presented in
Australian dollars, which
functional and
is
presentation currency. The Group’s
foreign operations
joint
(including subsidiaries, branches, associates, and
ventures) will have different functional currencies based on
the Bank’s
Notes to the Financial Statements
Note 1 Accounting Policies (continued)
the currency of the main economy to which each operation is
exposed.
Foreign Currency Transactions
the
Foreign currency
functional currency, using the exchange rates prevailing at
the date of each transaction.
transactions are
translated
into
Monetary assets and liabilities resulting from foreign currency
transactions are subsequently translated at the spot rate at
reporting date. Exchange differences arising upon settling or
translating monetary items at different rates to those at which
they were initially recognised or previously reported, are
recognised in the Income Statement.
Foreign Operations
The results and financial position of all Group entities that
the Group’s
have a
presentation currency are
the Group’s
presentation currency as follows:
functional currency different
translated
from
into
Assets and liabilities of each foreign operation are
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.
foreign operation
is disposed of, exchange
When a
differences are recognised in the Income Statement as part of
the gain or loss on sale. No Group entities have a functional
currency of a hyperinflationary economy.
(i) Offsetting
Income
the
Income and expenses are only offset
Statement
relevant accounting
if permitted under
standard. Examples of offsetting include gains and losses
from foreign exchange exposures and trading operations.
the
in
Financial assets and liabilities are offset and the net amount
is presented in the Balance Sheet if, and only if, there is a
currently enforceable legal right to offset the recognised
amounts, and there is an intention to settle on a net basis, or
to realise the asset and settle the liability simultaneously.
(j) Fair Value Measurement
Fair value is the amount for which an asset could be
exchanged, or a liability settled, between knowledgeable,
willing parties in an arm’s length transaction. Financial assets
and
income statement,
available-for-sale investments and all derivative instruments
are initially recognised and subsequently measured at fair
value.
liabilities at
fair value
through
The fair value for financial instruments traded in active
markets at the reporting date is based on their quoted market
price or dealer price quotations, without any deduction for
transaction costs. Assets and long positions are measured at
a quoted bid price; liabilities and short positions are measured
at a quoted asking price. Where the Group has positions with
offsetting market risks, mid-market prices are used
to
measure the offsetting risk positions and a quoted bid or
asking price adjustment is applied only to the net open
position as appropriate.
Non-market quoted financial instruments are mostly valued
using valuation techniques based on observable inputs,
except for a limited number of instances where observable
market data is unavailable. In this instance, the financial
instrument is initially recognised at the transaction price,
which is generally the best indicator of fair value. This may
differ from the value obtained from the valuation model. The
timing of the recognition in the Income Statement of this initial
difference in fair value depends on the individual facts and
circumstances of each transaction, but is never later than
when the market data becomes observable. The difference
may be either amortised over the life of the transaction,
recognised when the inputs become observable or on
derecognition of the instrument, as appropriate.
Income Statement
Revenue is measured at the fair value of the consideration
received or receivable. Revenue is recognised for each major
revenue stream as follows:
(k) 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
income
balance.
investment and unearned
the outstanding
(l) Fee and Commission Income
Fees and commissions that relate to the execution of a
(for example, advisory or arrangement
significant act
services, placement
fees) are
recognised when the significant act has been completed.
Fees charged for providing ongoing services (for example,
maintaining, managing and administering existing facilities
and funds) are recognised as income over the period the
service is provided.
fees and underwriting
Fees and commissions, which include commitment fees to
originate a loan that is unlikely to be drawn down, are
recognised as fee income as the facility is provided.
(m) Other Income
Trading income represents both realised and unrealised gains
and losses from changes in the fair value of trading assets,
liabilities and derivatives.
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.
Insurance income recognition is outlined in Note 1(ff).
(n) Interest Expense
Interest expense on financial liabilities measured at amortised
cost is recognised in the Income Statement using the
effective interest rate method.
includes
issue costs that are
Interest expense
initially
recognised as part of the carrying value of the liability and
amortised over the expected life using the effective interest
rate method. These include fees and commissions payable to
advisers and other expenses such as external legal costs,
provided these are direct and incremental costs related to the
issue of a financial asset.
(o) Operating Expenses
Operating expenses are recognised as the relevant service is
rendered or once a liability is incurred.
Staff expenses are recognised over the period the employee
renders the service to receive the benefit.
Staff expenses include share based remuneration which 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
the employee compensation
corresponding
increase
in
Annual Report 2013
79
Notes to the Financial Statements
Note 1 Accounting Policies (continued)
reserve. Market vesting conditions, such as share price
performance conditions, are
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 equity instruments included in the
measurement of the expense.
taken
Cash settled share based remuneration is recognised as a
liability and remeasured to fair value until settled, with
changes in the fair value recognised as an expense.
Occupancy and equipment expenses include the depreciation
and lease rentals that are outlined in Note 1(y) property, plant
and equipment and Note 1(v) lease receivables respectively.
IT expenses are recognised as incurred unless they qualify
for capitalisation as an asset due to the related service
generating probable future economic benefits. If capitalised
the asset is subsequently amortised per Note 1(z) intangible
assets.
Taxation
(p) Income Tax Expense
Income tax is recognised in the Income Statement, except to
the extent that it relates to items recognised directly in OCI, in
which case
the Statement of
Comprehensive Income. Income tax on the profit or loss for
the period comprises current and deferred tax.
recognised
in
is
it
(q) Current Tax
Current tax is the expected tax payable on the taxable income
for the year, using tax rates enacted at the Balance Sheet
date, and any adjustment to tax payable in respect of
previous years.
(r) Deferred Tax
Deferred tax is calculated using the Balance Sheet method
where temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and
their tax base are recognised.
The amount of deferred tax provided is based on the
expected manner of realisation or settlement of the carrying
amount of assets and liabilities (i.e. through use or through
sale), using tax rates 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 when it is probable
that future taxable profits will be available for it to be used
against. Deferred tax assets are reduced to the extent that it
is no longer probable that the related tax benefit will be
realised.
Deferred tax assets and liabilities are only offset when there
is both a legal right to set-off and an intention to settle on a
net basis with the same taxation authority.
(s) The Tax Consolidated Group
The Commonwealth Bank of Australia Tax Consolidated
Group elected to be taxed as a single entity under the tax
consolidation regime 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
the
principles in AASB 112 ‘Income Taxes’, and on a modified
‘Tax Consolidation
standalone basis under UIG 1052
Accounting’.
in accordance with
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.
from unused
Any current tax liabilities/assets and deferred tax assets
arising
from subsidiaries are
recognised in conjunction with any tax funding arrangement
amounts by the Bank legal entity (as the head of the tax
consolidated group).
losses
tax
80 Commonwealth Bank of Australia
Assets
(t) 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 the outstanding balance. Interest
is recognised in the Income Statement using the effective
interest method.
For the purposes of the Statements of Cash Flows, cash and
cash equivalents include cash and money at short call.
(u) Financial Assets
The Group classifies its financial assets in the following
categories:
fair value
through
Income
the
financial assets at
Statement;
derivative assets;
loans and receivables; and
available-for-sale investments.
The classification of financial instruments at initial recognition
depends on
their purpose and characteristics and
management’s intention when acquiring them.
Financial instruments, except for loans and receivables, are
initially recognised by the Group on the trade date, i.e. the
date that the Group becomes a party to the contractual
provisions of
trades
transacted in a regular way, i.e. purchases or sales of
financial assets that require delivery of assets within the time
frame generally established by regulation or convention in the
market place. Loans and receivables are recognised on
settlement date, when funding is advanced to the borrowers.
instruments. This applies
the
to
All financial assets are measured initially at their fair value
plus directly attributable transaction costs, except in the case
of financial assets recorded at fair value through the Income
Statement. Directly attributable transaction costs on these
assets are expensed on subsequent fair value measurement.
The Group has not classified any of its financial assets as
held to maturity investments.
Financial Assets at Fair Value through the Income
Statement
Assets classified at fair value through the Income Statement
are further classified into three sub-categories: trading,
insurance and other.
Trading assets are those acquired or incurred principally for
the purpose of selling or repurchasing in the near term, or if
they are a part of a portfolio of identified financial instruments
that are managed together and for which there is evidence of
a recent actual pattern of short term profit-taking. Discounted
bills that the Group intends to sell into the market immediately
or in the near term also meet the definition of assets held for
trading. Due to their nature, such assets are included in
loans, bills discounted and other receivables in the Balance
Sheet, while being measured at fair value.
Insurance assets are investments that back life insurance
contracts and life investment contracts. These are outlined in
Note 1 (hh).
Other investments include financial assets which the Group
has designated at fair value through Income Statement at
inception to: eliminate an accounting mismatch; reflect they
are managed on a fair value basis; or where the asset is a
contract which contains an embedded derivative.
to
initial
Subsequent
financial assets are
recognition,
measured at fair value with changes in fair value recognised
in other operating income. Dividends earned are recorded in
other operating income. Interest earned is recorded within net
interest income using the effective interest method.
Derivative Financial Instruments
Derivative financial instruments are contracts whose value is
derived from one or more underlying price, index or other
variable. They include forward rate agreements, futures,
Notes to the Financial Statements
Note 1 Accounting Policies (continued)
options and interest rate, currency, equity and credit swaps.
Derivatives are entered into for trading purposes or for
hedging purposes.
to
initial recognition, gains or
Subsequent
losses on
derivatives are recognised in the Income Statement, unless
they are entered into for hedging purposes and designated
into a cash flow hedge.
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 one of three hedge accounting models; 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.
(i) 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. The changes in the fair value of the hedged asset or
liability shall be adjusted against their carrying value.
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.
(ii) Cash Flow Hedges
Changes in fair value associated with the effective portion of
a derivative designated as a cash flow hedge are recognised
through other comprehensive income in the Cash Flow
Hedge Reserve within 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.
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 reclassified to
profit or loss 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.
the
(iii) Net Investment Hedges
Gains and losses on derivative contracts relating to the
effective portion of the net investment hedge are recognised
in
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.
foreign currency
translation
reserve
(iv) 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.
Available-for-Sale Investments
(AFS)
Available-for-sale
investments are non-derivative
financial assets that are not classified at fair value through
Income Statement or as loans and receivables. They primarily
include public debt securities held as part of the Group’s
liquidity holdings.
to
Subsequent
investments are
initial recognition, AFS
measured at fair value with unrealised gains and losses
arising from changes in fair value recognised in the AFS
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 the Income Statement when
earned. Foreign exchange gains and losses on AFS equity
instruments are recognised directly in equity.
The Group assesses at each Balance Sheet date, whether
there is any objective evidence of impairment. 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 AFS
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 AFS equity securities are not
reversed.
Upon disposal, the accumulated change in fair value within
the AFS investments reserve is transferred to the Income
Statement and reported within other operating income.
Loans, Bills Discounted and Other Receivables
Loans, bills discounted and other receivables are non-
derivative
fixed and determinable
payments that are not quoted in an active market.
financial assets, with
receivables
include
Loans, bills discounted and other
overdrafts, home loans, credit card and other personal
lending, term loans, bill financing, redeemable preference
shares, securities, finance leases, and receivables due from
other financial institutions (including loans, deposits with
regulatory authorities and settlement account balances due
from other banks). Subsequent to initial recognition, loans
and receivables are measured at amortised cost using the
effective interest method and are presented net of provisions
for impairment.
Discounted bills included in this category due to their nature
meet the definition of trading assets and are therefore
measured at fair value through Income Statement in line with
the accounting policy for assets held for trading. As a result
discounted bills are not subject to impairment assessment.
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 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 estimated 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.
Loans and other receivables are presented net of provisions
for loan impairment. The Group has 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.
Individual provisions for impairment are recognised to reduce
the carrying amount of non-performing facilities to the present
value of
Individually
significant provisions are calculated based on discounted
cash flows.
their expected
future cash
flows.
The unwinding of the discount, from initial recognition of
impairment through to recovery of the written down amount, is
In subsequent periods,
recognised as
income.
interest
is
recognised in the Income Statement using the original
effective interest rate.
in arrears/due on non-performing
facilities
interest
All loans and other receivables 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
Annual Report 2013
81
Notes to the Financial Statements
Note 1 Accounting Policies (continued)
advances to the present value of their expected future cash
flows 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.
Derecognition of Financial Assets and Financial
Liabilities
The Group derecognises financial assets when the rights to
receive cash flows from the asset have expired or when the
Group transfers its rights to receive cash flows from the asset
together with substantially all the risks and rewards of the
asset. The Group enters into certain transactions where it
transfers financial assets recognised on its Balance Sheet but
retains either all or a majority of the risks and rewards of the
transferred financial assets. If all or substantially all risks and
rewards are retained, the transferred financial assets are not
derecognised from the Balance Sheet. Transactions where
transfers of financial assets result in the Group retaining all or
substantially all risks and rewards include reverse repurchase
transactions, and some of the Group’s securitisation and
covered bonds programs.
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 the Income
Statement.
Repurchase and Reverse Repurchase Agreements
Securities sold under repurchase agreements are retained in
the financial statements where substantially all the risks and
rewards of ownership remain with the Group. A counterparty
liability is recognised within deposits and public borrowings.
The difference between the sale price and the repurchase
price is accrued over the life of the repurchase agreement
and charged to interest expense in the income statement.
Securities purchased under agreements to resell, where the
Group does not acquire the risks and rewards of ownership,
are recorded as receivables in cash and liquid assets. The
security is not included in the Balance Sheet as the Group is
not exposed to substantially all its risks and rewards. Interest
income is accrued on the underlying receivable amount.
Provision for 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’.
Loan assets under committed lending facilities are not
recognised until the facilities are drawn upon. Generally
therefore, it will not be appropriate to provide for these assets
under an incurred loss model.
The Group however, has determined that it is appropriate to
establish provisions in relation to such facilities where a
customer has been downgraded. These provisions are
disclosed as other liabilities in the Balance Sheet.
As a lessor, the assets the Group has leased out under
finance leases are recognised as lease receivables on the
Balance Sheet at an amount equal to the net investment in
the lease. Finance lease income reflects a constant periodic
return on this net investment and is recognised within interest
income in the Income Statement.
The assets the Group has leased out under operating leases
continue to be recognised on the Balance Sheet as property,
plant and equipment and are depreciated accordingly.
Operating
Income
Statement on a straight line basis over the lease term.
lease revenue
is recognised
the
in
As a lessee, the Group engages only in operating leases.
Rental expense is recognised on a straight line basis over the
lease term.
(w) 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. Loans
to controlled entities are subsequently
recorded at amortised cost less impairment.
(x) 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 require that they be measured in line with
another accounting standard.
Assets classified as held for sale are neither amortised nor
depreciated.
(y) Property, Plant and Equipment
The Group measures its property assets (land and buildings)
at fair value, based on annual independent market valuations.
Revaluation adjustments are 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. Upon sale or disposal, realised amounts
in the asset revaluation reserve are transferred to retained
profits.
Other property, plant and equipment assets are stated at
cost, which includes direct and incremental acquisition costs
less accumulated depreciation and any
if
required. Subsequent costs are capitalised if these result in
an enhancement to the asset.
impairment
Depreciation is calculated using the straight line method over
the asset’s estimated useful economic life. The useful lives of
major depreciable asset categories are as follows:
Freehold land
Buildings
Fixtures and fittings
Leasehold improvements
Indefinite (not
depreciated)
Up to 30 years
10 – 20 years
Lesser of unexpired
lease term or lives as
above
Furniture and equipment
3 – 8 years
(z) Intangible Assets
Intangible assets are identifiable non-monetary assets without
physical substance. They are recognised only if it is probable
the asset will generate future benefits for the Group. They are
measured at cost. Those assets with an indefinite useful life
are tested for impairment annually. All intangible assets must
be tested for impairment when there is an indication that its
carrying amount may be greater than its recoverable amount.
(v) Lease Receivables
Goodwill
Leases are classified as either a finance lease or an
operating lease. Under a finance lease, substantially all the
risks and
legal ownership are
transferred to the lessee. Under an operating lease, these
risks remain with the lessor.
incidental
rewards
to
Goodwill has an indefinite useful life. It represents the excess
of the cost of an acquisition over the fair value of the net
identifiable assets acquired as at the date of acquisition. The
cost of an acquisition is made up of the consideration
82 Commonwealth Bank of Australia
Notes to the Financial Statements
Note 1 Accounting Policies (continued)
transferred, the amount of non-controlling interests and the
fair value of any previously held equity interest in the
acquiree.
Goodwill arising from business combinations is included in
intangible assets on the Balance Sheet. Goodwill is tested for
impairment annually through allocation to a group of cost
generating units (CGUs). The CGU’s recoverable amount is
then compared to its carrying amount and an impairment is
recognised for any excess carrying value. The CGUs and
how their recoverable amount is calculated are listed in Note
16.
Computer Software Costs
Certain internal and external costs directly
in
acquiring and developing software are capitalised and
amortised over the estimated useful life. The majority of
software projects are amortised over three to five years. The
Core Banking Modernisation software project is amortised
over ten years.
incurred
Costs incurred on software maintenance are expensed as
incurred.
Core Deposits
Core deposits were initially recognised at fair value following
the acquisition of Bankwest and represent the value of the
deposit base acquired in the business combination. Core
deposits are amortised over their estimated useful life of
seven years.
Brand Names
Brand names are recognised when acquired in a business
combination. Initially recognised at fair value, in general they
are considered to have a similar useful life to the period of the
brand names existence at the time of purchase or an
indefinite useful life. An indefinite useful life is considered
appropriate when there is no foreseeable limit to the period
over which the brand name is expected to generate cash
flows.
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 intangibles predominantly comprise customer lists.
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
Liabilities
(aa) 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 (refer to
previous discussion on derivative financial instruments in
Note 1(u)).
Financial liabilities are initially recognised at fair value less
directly attributable transaction costs, except in the case of
financial liabilities recorded at fair value through Income
Statement. Directly attributable transaction costs on these
liabilities are expensed on
value
measurement.
subsequent
fair
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, where the liabilities eliminate
an accounting mismatch, or where they contain embedded
derivatives.
Subsequent to initial recognition these liabilities are measured
at fair value with changes in fair value recognised in other
operating income. Interest incurred is recorded within net
interest income using the effective interest method.
Liabilities at Amortised Cost
(i) Deposits From Customers
Deposits from customers include certificates of deposit, term
deposits, savings deposits, other demand deposits and
debentures. Subsequent
they are
measured at amortised cost. Interest and yield related fees
are recognised on an effective interest basis.
initial recognition
to
(ii) Payables Due to Other Financial Institutions
Payables due to other financial institutions include deposits,
vostro balances and settlement account balances due to
other banks. Subsequent to initial recognition they are
measured at amortised cost. Interest and yield related fees
are recognised using the effective interest method.
(iii) 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
taken to the Income
redemption prior
Statement in the period in which they are realised.
to maturity are
Where the Group has designated debt instruments at fair
value through Income Statement, the changes in fair value
are recognised in the Income Statement.
The Group hedges interest rate and foreign currency risk on
certain debt issues. When fair value 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.
(iv) 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
thereafter at
amortised cost using the effective interest method.
transaction costs and
(v) Bank Acceptances of Customers - Liability
These are bills of exchange initially accepted and discounted
by the Group and subsequently sold into the market. They are
recognised at amortised cost. The market exposure is
is
recognised as a
recognised to reflect the offsetting claim against the drawer of
the bill. Bank acceptances generate interest and fee income
that is recognised in the Income Statement when earned.
liability. An asset of equal value
(vi) Financial Guarantees and Credit Commitments
In the ordinary course of business, the Group gives financial
guarantees consisting of letters of credit, guarantees and
acceptances. Financial guarantees are recognised within
other liabilities in the financial statements initially at fair value,
being the premium received. Subsequent to initial recognition,
the Group’s liability under each guarantee is measured at the
higher of the amount initially recognised less cumulative
amortisation recognised in the Income Statement, and the
best estimate of expenditure required to settle any financial
obligation arising as a result of the guarantee. Any increase in
the liability relating to financial guarantees is recorded in the
Income Statement. The premium received is recognised in
the Income Statement in other operating income on a straight
line basis over the life of the guarantee.
Loan commitments are defined amounts (unutilised credit
lines or undrawn portions of credit lines) against which clients
can borrow money under defined terms and conditions. Loan
Annual Report 2013
83
Notes to the Financial Statements
Note 1 Accounting Policies (continued)
commitments that are cancellable by the Group are not
recognised on the Balance Sheet. Upon a loan drawdown by
the counterparty, the amount of the loan is accounted for in
accordance with accounting policies
loans and
receivables. Irrevocable loan commitments are not recorded
in the Balance Sheet, but a provision is recognised if it is
probable that a loss has been incurred and a reliable estimate
of the amount can be made.
for
(bb) Employee Benefits
Annual Leave
The provision
outstanding
liability
entitlements at Balance Sheet date.
for annual
to employees
leave represents
for annual
the current
leave
Long Service Leave
The provision for long service leave is discounted to the
present value and is set based on actuarial assumptions. The
assumptions and provision balance are subject to tri-annual
internal actuarial review.
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.
Defined Benefit Superannuation Plans
The Group currently sponsors
superannuation plans for its employees.
two defined benefit
The net defined benefit liability or asset recognised in the
Balance Sheet is the present value of the defined benefit
obligation as at the Balance Sheet date less the fair value of
plan assets. The defined benefit obligation is calculated by
independent fund actuaries.
In each reporting period, the movement in the net defined
benefit liability or asset is treated as follows:
The net movement relating to the current period service
cost, interest cost, expected return on plan assets, past
service and other costs (such as the effects of any
curtailments and settlements) is recognised as an
employee expense in the Income Statement;
Movements relating to actuarial gains and losses are
recognised directly in retained profits through OCI; and
Contributions made by the Group are recognised directly
against the net defined benefit liability or asset.
Defined Contribution Superannuation Plans
The Group sponsors a number of defined contribution
superannuation plans. 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.
(cc) Provisions
Provisions are recognised when a probable obligation has
arisen as a result of a past event that can be reliably
measured. The following are examples of provisions raised.
Provision for Dividends
A provision
for dividend payable
dividends are determined or declared by the Directors.
is recognised when
Provisions for Restructuring
Provisions for restructuring are recognised where there is a
detailed formal plan for restructure and a demonstrated
commitment to that plan.
Provision for Self-Insurance
The provision for self-insurance covers certain non-lending
losses and non-transferred
lending
products the Group originates. The provision is reassessed
annually in consultation with actuarial advice.
insurance risks on
84 Commonwealth Bank of Australia
Equity
(dd) 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.
(ee) Reserves
General Reserve
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.
Capital Reserve
The capital reserve held by the Bank relates to historic
internal Group restructuring performed at fair value. The
capital reserve is eliminated on consolidation.
Asset Revaluation Reserve
The asset revaluation reserve is used to record revaluation
adjustments on the Group’s property assets. In the event the
asset is sold or disposed of, any balance in the reserve in
relation to the asset is transferred directly to retained profits.
Foreign Currency Translation Reserve
Exchange differences arising on translation of the Group’s
foreign operations are accumulated in the foreign currency
translation reserve. The cumulative amount is reclassified to
profit or loss when the foreign investment is disposed of or
wound up.
Cash Flow Hedge Reserve
The cash flow hedge reserve is used to record fair value
gains or losses associated with the effective portion of
designated cash flow hedging instruments. Amounts are
reclassified to profit or loss when the hedged transaction
impacts profit or loss.
Employee Compensation Reserve
The employee compensation reserve is used to recognise the
fair value of shares and other equity instruments issued to
employees under the employee share plans and bonus
schemes.
Available-for-sale Investment Reserve
The available-for-sale investment reserve includes changes in
the fair value of available-for-sale financial assets. These
changes are transferred to profit or loss when the asset is
derecognised or impaired.
Life and General Insurance Business
The Group’s consolidated financial statements include the
assets, liabilities, income and expenses of the life and general
insurance businesses conducted by various subsidiaries of
the Bank.
Insurance contracts involve the acceptance of significant
insurance risk from another party (the policyholder) by
agreeing to compensate the policyholder if a specified
uncertain future event adversely affects the policyholder. The
insured benefit is either not linked or only partly linked to the
market value of the investments held, and the financial risks
are substantially borne by the insurer.
General insurance contracts are insurance contracts that are
not life insurance contracts.
Life investment contracts involve the origination of one or
more financial instruments and may involve the provision of
management services. Life investment contracts do not meet
the definition of insurance contracts as they do not involve an
acceptance of significant insurance risk by the Group’s life
Notes to the Financial Statements
Note 1 Accounting Policies (continued)
insurers. The financial risks are substantially borne by the
policyholder.
(ff) Revenue
Life insurance 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.
Life investment premiums received include the management
fee portion recognised as revenue over the period the 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.
General insurance premium 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
actuarial assessment of the likely pattern in which risk will
emerge. The portion not yet earned based on the pattern
assessment is recognised as unearned premium liability.
Returns on all investments controlled by life and general
insurance businesses are recognised as revenue.
(gg) Expenses
Life and general insurance contract claims are recognised as
an expense when a liability has been established.
Acquisition costs (which include commission costs) are the
costs associated with obtaining and recording insurance
contracts. Acquisition costs are deferred or capitalised when
they relate to the acquisition of new business or the renewal
of existing business. These costs are amortised on the same
basis as the earning pattern of the premium, over the life of
the contract. The amount deferred is limited to the extent that
they are deemed recoverable from the expected future profits.
(hh) Investment Assets
Assets backing insurance liabilities are carried at fair value
through Income Statement.
Investments held in the life insurance funds are subject to the
restrictions imposed under the Life Act. Shareholders can
only receive a distribution when
the capital adequacy
requirements of the Life Act are met.
(ii) Policy Liabilities
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 340 ‘Valuation of Policy
Liabilities’ issued by APRA.
Life investment contract liabilities are measured at fair value
in accordance with AASB 139. The balance is no less than
the contract surrender value.
General insurance policy liabilities are made up of two
components: unearned premium liability and outstanding
claims liability.
The unearned premium liability is subject to a liability
adequacy test. Any deficiency will be recognised as an
expense in the Income Statement by first writing down any
related deferred acquisition costs, with any excess being
recorded on the Balance Sheet as an unexpired risk liability.
The provision for outstanding claims is measured as the
central estimate of the present value of expected future
claims payments plus a risk margin. The expected future
payments include those in relation to claims reported but not
yet paid; claims incurred but not reported; claims incurred but
not enough reported; and estimated claims handling costs.
Other
(jj) Managed Funds Units on Issue – Held by Non-
controlling Unit-Holders
life
insurance and other
The
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.
funds
When a controlled unit trust is consolidated, the amounts due
to external unit-holders remain as managed funds units on
issue liabilities in the Group’s consolidated balance sheet.
In the Income Statement, the net profit or loss of the
controlled entities relating to non-controlling interests is
excluded from the Group’s net profit or loss.
(kk) Asset Securitisation
The Group conducts an asset securitisation program through
which it packages and sells asset backed securities to
investors.
The Group is entitled to any residual income of the program
after all payments due to investors and costs of the program
have been met. Therefore the Group is considered to hold the
majority of the residual risks and benefits within the entities
through which asset securitisation is conducted and so it
consolidates these entities.
Liabilities associated with asset securitisation entities and
related issue costs are accounted for on an amortised cost
basis using the effective interest method. Interest rate swaps
and liquidity facilities are provided at arm’s length to the
program by the Group in accordance with APRA Prudential
Guidelines.
Derivatives return the risks and rewards of ownership of the
securitised assets to the Group and consequently the Group
cannot derecognise these assets. An imputed borrowing is
recognised by the Bank inclusive of the derivative and any
related fees.
(ll) 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.
(mm) 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, excluding the number of ordinary shares
purchased and held as treasury shares.
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 convertible non-
cumulative redeemable loan capital instruments.
Critical Judgements 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.
(nn) Provisions for Impairment of Financial Assets
Provisions for impairment of financial assets are raised where
there is objective evidence of impairment at an individual or
collective basis, at an amount adequate to cover assessed
credit related losses.
Annual Report 2013
85
Notes to the Financial Statements
Note 1 Accounting Policies (continued)
Credit losses arise primarily from loans, but also from other
credit instruments such as bank acceptances, contingent
liabilities, guarantees and other financial instruments.
Individually Assessed Provisions
Individually assessed provisions are raised where there is
objective evidence of impairment (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
borrowers 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.
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.
(oo) 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
calculated based on actuarial models and subject to annual
review based on changes in underlying assumptions. Some
of the provisions involve significant judgement about the likely
outcome of various events and estimated future cash flows.
The measurement of these obligations involves 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. The carrying value of these provisions is included
in Note 22.
(pp) Life Insurance Policyholder Liabilities
The determination of life insurance policyholder liabilities
involves the following key actuarial assumptions:
Business assumptions including amount, timing and
duration of claims/policy payments, policy lapse rates
and acquisition and 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.
86 Commonwealth Bank of Australia
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.
Further detail on the financial position on performance of the
Group’s Life Insurance operations is set out in Note 32.
(qq) 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 program
and structured transactions.
(rr) 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.
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
financial
accepted economic methodologies
instruments. Data inputs that the Group relies upon when
valuing financial instruments relate to counterparty credit risk,
volatility, correlation and extrapolation.
for pricing
Periodically, the Group calibrates its valuation techniques and
tests them for validity using prices from any observable
current market transactions in the same instrument (i.e.
without modification or repackaging) and any other available
observable market data. Details of the extent non-observable
inputs are used to fair value financial instruments are included
in Note 46.
(ss) 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) whose
recoverable amount
the purpose of
is calculated
impairment testing. The recoverable amount calculation relies
primarily on publicly available earnings multiples. Details of
the inputs used in recoverable amount calculations are
outlined further in Note 16.
for
(tt) Taxation
Provisions for taxation require significant judgement with
respect
that are uncertain. For such
uncertainties, the Group has estimated its tax provisions
based on its expected outcomes.
to outcomes
(uu) Superannuation Obligations
The Group currently sponsors two defined benefit plans as
described in Note 41. For each of these plans, actuarial
valuations of the plan’s obligations and the fair value
Notes to the Financial Statements
Note 1 Accounting Policies (continued)
measurements of the plan’s assets are performed semi-
annually in accordance with the requirements of AASB 119.
The actuarial valuation of plan obligations is dependent upon
a series of assumptions, the key ones being price inflation,
discount rates, 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 Statement.
Future Accounting Developments
The following amendments to existing standards have been
published and are mandatory
for accounting periods
beginning on or after 1 January 2013 or later periods, but
have not been adopted. They are not expected to result in
significant changes to the Group’s accounting policies.
AASB 2010-7 ‘Amendments to Australian Accounting
Standards arising from AASB 9 (December 2010);
AASB 2011-4 ‘Amendments to Australian Accounting
Individual Key Management
to Remove
Standards
Personnel Disclosure Requirements’;
AASB 2011-7 ‘Amendments to Australian Accounting
Standards arising from the Consolidation and Joint
Arrangements Standards’;
AASB 2011-8 ‘Amendments to Australian Accounting
Standards arising from AASB 13’;
AASB 2011-10 ‘Amendments to Australian Accounting
Standards arising from AASB 119 (September 2011)’;
AASB 2012-2 ‘Amendments to Australian Accounting
Standards – Disclosures – Offsetting Financial Assets
and Financial Liabilities’;
AASB 2012-3 ‘Amendments to Australian Accounting
Standards – Offsetting Financial Assets and Financial
Liabilities’;
AASB 2012-5 ‘Amendments to Australian Accounting
Standards arising from Annual Improvements 2009-2011
Cycle;
AASB 2012-9 ‘Amendment to AASB 1048 arising from
the Withdrawal of Australian Interpretation 1039’; and
AASB 2012-10 ‘Amendments to Australian Accounting
Standards
and Other
Amendments’.
– Transition Guidance
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
financial statements and
replaces SIC-12 ‘Consolidation – Special Purpose Entities’ in
its entirety.
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.
The implementation of AASB 10 will result in the Group
consolidating some entities which were previously not
consolidated and deconsolidating some entities that were
previously consolidated. The financial impact to the Group is
not expected to be significant, subject to further possible
changes which are still under consideration by the AASB.
Concurrent with
standards were also issued:
the
issue of AASB 10,
the
following
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 will become effective for the Group
from 1 July 2013. Application of these standards by the Group
will not affect any of the amounts recognised in the financial
statements, but will impact the type of information disclosed in
relation to the Group’s investments.
AASB 13 ‘Fair Value’ explains how to measure fair value and
aims to enhance fair value disclosures. It will become
effective for the Group from 1 July 2013. Initial application is
not expected to result in any material impact to the Group.
The amended AASB 119 ‘Employee Benefits’ will become
effective for the Group from 1 July 2013. It will result in
changes to the recognition and measurement of the Group’s
defined benefit superannuation expense and termination
benefits, as well as enhanced disclosures of the risks and
characteristics of the Group’s defined benefit superannuation
plans. The significant changes include:
Annual defined benefit superannuation expense will
include net interest expense or income, calculated by
applying the relevant discount rate to the net defined
benefit asset or liability. This will replace the current
finance charge and expected return on plan assets.
Applying this change to the year ended 30 June 2013
would have increased the total defined benefit plan
expense by $84 million; and
The discount rate used in calculating the defined benefit
liability relating to active members can no longer include
a 15% investment tax adjustment. This will result in a
one-off decrease of $64 million in defined benefit liability
as at 1 July 2013 which will be recognised through
retained earnings.
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.
AASB 132 ‘Financial Instruments: Presentation’, has been
amended to clarify the conditions for offsetting financial
assets and
the Balance Sheet. These
amendments are effective from 1 July 2013 for the Group but
will not impact the Group’s current accounting practice for
offsetting arrangements.
liabilities
in
AASB 9 ‘Financial Instruments’ contains new accounting
requirements for financial assets and liabilities, replacing the
‘Financial
corresponding
Instruments: Recognition and Measurement’. Exposure Drafts
have been
for
impairment and hedge accounting along with limited changes
to classification and measurements.
released proposing new
in AASB 139
requirements
requirements
The key changes include:
Financial assets: realised gains and losses on non
traded equity investments classified as fair value through
other comprehensive income will not be recycled to the
Income Statement; 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.
Impairment: a prescribed amount of expected losses will
be reflected in impairment allowances for loans and
advances; and
Hedge accounting: hedge accounting will be more
principle based, allowing closer alignment with financial
risk management.
Adoption is not mandatory until annual periods beginning on
or after 1 January 2015, with early adoption permitted. The
potential financial impacts to the Group is not yet possible to
determine, however
to
the standard
significantly change the way the Group accounts for financial
instruments.
is not expected
Annual Report 2013
87
Notes to the Financial Statements
Note 2 Profit
Profit before income tax has been determined as follows:
(1) Comparative interest income on internal securitisation has been reclassified from Other financial institutions and Available-for-sale investments to
Controlled entities for the Bank to conform to presentation in the current year.
(2) Total interest income for financial assets that are not at fair value through profit or loss is $34,289 million (2012: $37,637 million, 2011: $36,626 million) for
the Group and $35,293 million (2012: $34,204 million) for the Bank.
(3) Comparative interest expense on internal securitisation and covered bond programs has been reclassified from Deposits to Controlled entities to conform
to presentation in the current year.
(4) Total interest expense for financial liabilities that are not at fair value through profit or loss is $20,607 million (2012: $24,816 million, 2011: $24,373 million)
for the Group and $23,444 million (2012: $24,308 million) for the Bank.
(5) The net gain on financial assets and liabilities designated at fair value was $3 million for the Group (2012: $4 million loss, 2011: $102 million gain) and $nil
gain or loss for the Bank (2012: $3 million loss).
(6) Non-trading derivatives are held for risk management purposes.
(7) The Group result in 2013 had $nil gains or losses on disposal of controlled entities (2012: $nil, 2011: $10 million loss). Refer to Note 45 for further details.
88 Commonwealth Bank of Australia
GroupBank20132012201120132012$M$M$M$M$MInterest IncomeLoans and bills discounted 32,02034,70934,37328,06526,957Other financial institutions (1)641021134551Cash and liquid assets 187330270145275Assets at fair value through Income Statement 450621851414557Available-for-sale investments (1)2,0182,4961,8704,8614,750Controlled entities (1)---2,1772,171Total interest income (2)34,73938,25837,47735,70734,761Interest ExpenseDeposits (3)15,07017,63316,95713,48114,298Other financial institutions233185222207190Liabilities at fair value through Income Statement 19832051097202Debt issues 4,8696,4926,6224,1185,202Controlled entities (3)---5,2094,125Loan capital435506572429493Total interest expense (4)20,80525,13624,88323,54124,510Net interest income13,93413,12212,59412,16610,251Other Operating IncomeLending fees 1,053997982960880Commissions1,9901,9971,9461,6211,532Trading income863522717797447Net gain on disposal of available-for-sale investments 3181243186Net gain/(loss) on other non-fair valued financial instruments(41)2(4)(41)(8)Net hedging ineffectiveness(25)394(29)33Net gain/(loss) on sale of property, plant and equipment(14)39(6)(13)40Net gain/(loss) on other fair valued financial instruments:Fair value through Income Statement (5)(1)48(2)-18Non-trading derivatives (6)2885(301)(30)82Dividends - Controlled entities---1,4641,540Dividends - Other9654834Funds management and investment contract income:Fees receivable on trust and other fiduciary activities1,6421,5171,662--Other523423380--Insurance contracts income1,2181,2331,118--Share of profit of associates and joint ventures16595109--Other (7)179178169819782Total other operating income7,6207,2626,8035,6275,466Total net operating income before impairment and operating expense21,55420,38419,39717,79315,717Impairment ExpenseLoan impairment expense 1,1461,0891,2801,042988Total impairment expense (Note 14)1,1461,0891,2801,042988
Notes to the Financial Statements
Note 2 Profit (continued)
(1) Certain comparative information has been reclassified to conform to presentation in the current year.
(2) Comprises expenses related to the Count Financial Limited acquisition and expenses related to the Bankwest integration.
(3) Merger related amortisation relates to Bankwest core deposits and customer lists.
Annual Report 2013
89
GroupBank20132012201120132012$M$M$M$M$MStaff ExpensesSalaries and wages 4,2504,1364,0153,1652,769Share-based compensation19218515695103Superannuation - defined contribution plans584248(16)(48)Superannuation - defined benefit plan204168137204168Provisions for employee entitlements 961011207562Payroll tax223213213177150Fringe benefits tax3535382626Other staff expenses 9067605039Total staff expenses5,1484,9474,7873,7763,269Occupancy and Equipment ExpensesOperating lease rentals580585532493443Depreciation of property, plant and equipment298270262205178Repairs and maintenance9290877463Other 1121111128268Total occupancy and equipment expenses1,0821,056993854752Information Technology ServicesApplication, maintenance and development 439322324394244Data processing236241267236238Desktop1001051208790Communications202226221180194Amortisation of software assets245183183216150IT equipment depreciation7782787370Total information technology services1,2991,1591,1931,186986Other ExpensesPostage11411211210189Stationery8585846870Fees and commissions:Fees payable on trust and other fiduciary activities539563537--Professional fees (1)230188204206182Other (1)129122114297315Advertising, marketing and loyalty463459457364324Amortisation of intangible assets (excluding software and merger related amortisation)201816--Non-lending losses6781836064Other429406311268233Total other expenses2,0762,0341,9181,3641,277Total expenses9,6059,1968,8917,1806,284Investment and RestructuringIntegration expenses (2)-6094-54Merger related amortisation (3)75757556-Total investment and restructuring751351695654Total operating expenses9,6809,3319,0607,2366,338Profit before income tax10,7289,9649,0579,5158,391Net hedging ineffectiveness comprises:Gain/(loss) on fair value hedges:Hedging instruments(614)(337)(417)(424)(724)Hedged items617318427421702Cash flow hedge ineffectiveness(28)58(6)(26)55Net hedging ineffectiveness(25)394(29)33
Notes to the Financial Statements
Note 3 Income from Ordinary Activities
90 Commonwealth Bank of Australia
GroupBank20132012201120132012$M$M$M$M$MBankingInterest income34,73938,25837,47735,70734,761Fees and commissions 3,0432,9942,9282,5812,412Trading income863522717797447Net gain on disposal of available-for-sale investments recognised in Income Statement3181243186Net (loss)/gain on other non-fair valued financial instruments(41)2(4)(41)(8)Net hedging ineffectiveness(25)394(29)33Net (loss)/gain on other fair valued financial instruments:Fair value through Income Statement(1)48(2)-18Non-trading derivatives2885(301)(30)82Dividends9651,5121,574Net (loss)/gain on sale of property, plant and equipment (14)39(6)(13)40Share of profit of associates and joint ventures16595109--Other17917816981978238,97642,34741,12041,33440,227Funds Management, Investment Contract and Insurance Contract RevenueFunds management and investment contract income including premiums2,1471,9591,996--Insurance contract premiums and related income2,3532,1141,884--Investment income1,3917731,401--5,8914,8465,281--Total income44,86747,19346,40141,33440,227
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 (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 decreased by 75 basis points during the year while rates in New Zealand
were unchanged.
(1) Certain comparative information has been restated to conform to presentation in the current year.
(2) Loans, bills discounted and other receivables include bank acceptances.
(3) Excludes amortisation of acquisition related fair value adjustments made to fixed interest financial instruments.
(4) Used for calculating net interest margin.
Annual Report 2013
91
Group201320122011AverageInterestAverageAverageInterestAverageAverageInterestAverageInterest earning BalanceRateBalanceRateBalanceRateassets (1)$M$M%$M$M%$M$M%Cash and liquid assetsAustralia5,4591162. 16,5812333. 54,5831944. 2Overseas12,787710. 612,456970. 87,522761. 0Receivables due from other financial institutionsAustralia3,405351. 03,676691. 96,324500. 8Overseas5,888290. 55,321330. 68,113630. 8Assets at fair value through Income Statement - Trading & OtherAustralia10,5513623. 411,3664764. 215,0287114. 7Overseas6,035881. 56,1521452. 46,6281402. 1Available-for-sale investmentsAustralia52,6801,9333. 748,0732,3845. 033,3621,7765. 3Overseas6,822851. 27,2371201. 75,601941. 7Loans, bills discounted and other receivables (2)Australia (3)491,16028,8555. 9475,06631,7206. 7458,02531,2956. 8Overseas58,8503,1805. 453,7573,0245. 652,2203,1045. 9Intragroup assetsAustralia1,357261. 92,138341. 62,506220. 9Overseas---------Total interest earning assets and interest income including intragroup654,99434,7805. 3631,82338,3356. 1599,91237,5256. 3Intragroup eliminations(1,357)(26)1. 9(2,138)(34)1. 6(2,506)(22)0. 9Total interest earning assets and interest income (4)653,63734,7545. 3629,68538,3016. 1597,40637,5036. 3Group 201320122011Average Average Average Balance Balance Balance Non-interest earning assets$M $M $M Assets at fair value through Income Statement - InsuranceAustralia12,46413,22013,656Overseas2,1772,0462,069Property, plant and equipmentAustralia2,3801,9671,854Overseas210194181Other assetsAustralia52,03655,70641,661Overseas9,9868,9928,782Provisions for impairmentAustralia(4,516)(4,801)(5,205)Overseas(234)(263)(299)Total non-interest earning assets74,50377,06162,699Total assets728,140706,746660,105Percentage of total assets applicable to overseas operations (%)14.113.613.8
Notes to the Financial Statements
Note 4 Average Balances and Related Interest (continued)
(1) Certain comparative information has been restated to conform to presentation in the current year.
(2) Excludes amortisation of acquisition related fair value adjustments made to fixed interest financial instruments.
(3) Debt issues include bank acceptances.
92 Commonwealth Bank of Australia
Group 201320122011Average Interest Average Average Interest Average Average Interest Average Interest bearingBalance Rate Balance Rate Balance Rate liabilities (1)$M $M % $M $M % $M $M % Time depositsAustralia (2)210,2939,6474. 6200,71311,1315. 5185,24310,5875. 7Overseas35,6029542. 735,3781,1253. 232,7081,1273. 4Savings depositsAustralia (2)94,7142,3552. 586,1452,7343. 278,9582,5643. 2Overseas8,7402743. 17,4452723. 76,7722423. 6Other demand depositsAustralia (2) 89,6121,7662. 084,5072,3082. 779,7262,3953. 0Overseas3,988721. 83,534631. 82,462421. 7Payables due to other financialinstitutionsAustralia7,5181171. 64,602982. 13,9121213. 1Overseas13,7681160. 814,140870. 610,7631010. 9Liabilities at fair value throughIncome StatementAustralia2,433974. 04,3812004. 64,5262495. 5Overseas4,3991012. 35,1231202. 38,7292613. 0Debt issues (3)Australia 118,2954,6663. 9126,4776,4505. 1127,3886,5705. 2Overseas10,2572032. 07,096420. 65,534200. 4Loan capitalAustralia5,8462905. 05,7843205. 57,1303955. 5Overseas4,0921523. 75,3291943. 65,2441843. 5Intragroup borrowingsAustralia---------Overseas1,357261. 92,138341. 62,506220. 9Interest bearing liabilities and interest expense including intragroup 610,91420,8363. 4592,79225,1784. 2561,60124,8804. 4Intragroup eliminations(1,357)(26)1. 9(2,138)(34)1. 6(2,506)(22)0. 9Total interest bearing liabilities and interest expense609,55720,8103. 4590,65425,1444. 3559,09524,8584. 4Group 201320122011Average Average Average Balance Balance Balance Non-interest bearing liabilities$M $M $M Deposits not bearing interestAustralia7,8957,3126,989Overseas1,9031,6941,535Insurance policy liabilitiesAustralia11,79912,29813,114Overseas1,2551,2681,361Other liabilitiesAustralia42,94545,89733,517Overseas9,3328,3748,425Total non-interest bearing liabilities75,12976,84364,941Total liabilities684,686667,497624,036Shareholders' equity43,45439,24936,069Total liabilities and Shareholders' equity728,140706,746660,105Total liabilities applicable to overseas operations (%)13.613.413.4
Notes to the Financial Statements
Note 4 Average Balances and Related Interest (continued)
Overseas intra-group borrowings have been adjusted into the interest spread and margin calculations to more appropriately
reflect the overseas cost of funds.
Changes in Net Interest Income: Volume and Rate Analysis
The following tables show the movement in interest income and expense due to changes in volume and interest rates. Volume
variances reflect the change in interest from the prior year due to movement in the average balance. Rate variance reflects the
change in interest from the prior year due to changes in interest rates.
Volume and rate variance for total interest earning assets and interest bearing liabilities have been calculated separately (rather
than being the sum of the individual categories).
Annual Report 2013
93
Group Avg BalInterestYieldAvg BalInterestYieldNet interest margin$M$M%$M$M%Total interest earning assets653,63734,7545. 32629,68538,3016. 08Total interest bearing liabilities609,55720,8103. 41590,65425,1444. 26Net interest income and interest spread13,9441. 9113,1571. 82Benefit of free funds0. 220. 27Net interest margin2. 132. 0920132012Group Avg Bal Interest Yield Avg Bal Interest Yield Geographical analysis of key categories$M $M % $M $M % Loans, bills discounted and other receivablesAustralia491,16028,8555. 87475,06631,7206. 68Overseas58,8503,1805. 4053,7573,0245. 63Total550,01032,0355. 82528,82334,7446. 57Other interest earning assetsAustralia72,0952,4463. 3969,6963,1624. 54Overseas31,5322730. 8731,1663951. 27Total103,6272,7192. 62100,8623,5573. 53Total interest bearing depositsAustralia394,61913,7683. 49371,36516,1734. 36Overseas 48,3301,3002. 6946,3571,4603. 15Total442,94915,0683. 40417,72217,6334. 22Other interest bearing liabilitiesAustralia 134,0925,1703. 86141,2447,0685. 00Overseas 32,5165721. 7631,6884431. 40Total166,6085,7423. 45172,9327,5114. 3420132012GroupJune 2013 June 2012 vs June 2012vs June 2011Change in net interest income$M$MDue to changes in average volume of interest earning assets506679Due to changes in interest margin281(167)Change in net interest income787512
Notes to the Financial Statements
Note 4 Average Balances and Related Interest (continued)
(1) Certain comparative information has been restated to conform to presentation in the current year.
94 Commonwealth Bank of Australia
June 2013 vs June 2012June 2012 vs June 2011Changes in net interest income:VolumeRateTotalVolumeRateTotalVolume and rate analysis$M$M$M$M$M$MInterest Earning Assets (1)Cash and liquid assetsAustralia(32)(85)(117)78(39)39Overseas2(28)(26)44(23)21Receivables due from other financial institutionsAustralia(4)(30)(34)(36)5519Overseas3(7)(4)(19)(11)(30)Assets at fair value through Income Statement - Trading & OtherAustralia(31)(83)(114)(163)(72)(235)Overseas(2)(55)(57)(11)165Available-for-sale investmentsAustralia199(650)(451)756(148)608Overseas(6)(29)(35)29(3)26Loans, bills discounted and other receivablesAustralia 1,010(3,875)(2,865)1,151(726)425Overseas 281(125)15689(169)(80)Intragroup loansAustralia(14)6(8)(4)1612Overseas------Changes in interest income including intragroup1,318(4,873)(3,555)1,968(1,158)810Intragroup eliminations14(6)84(16)(12)Changes in interest income1,365(4,912)(3,547)1,995(1,197)798Interest Bearing Liabilities and Loan Capital (1)Time depositsAustralia485(1,969)(1,484)871(327)544Overseas7(178)(171)88(90)(2)Savings depositsAustralia243(622)(379)230(60)170Overseas44(42)224630Other demand depositsAustralia120(662)(542)137(224)(87)Overseas81919221Payables due to other financial institutionsAustralia54(35)1918(41)(23)Overseas(3)322926(40)(14)Liabilities at fair value through Income StatementAustralia(83)(20)(103)(7)(42)(49)Overseas(17)(2)(19)(97)(44)(141)Debt issuesAustralia (370)(1,414)(1,784)(47)(73)(120)Overseas 4112016181422Loan capitalAustralia 3(33)(30)(74)(1)(75)Overseas(45)3(42)3710Intragroup borrowingsAustralia------Overseas(14)6(8)(4)1612Changes in interest expense including intragroup694(5,036)(4,342)1,354(1,056)298Intragroup eliminations14(6)84(16)(12)Changes in interest expense725(5,059)(4,334)1,373(1,087)286Changes in net interest income506281787679(167)512
Notes to the Financial Statements
Note 4 Average Balances and Related Interest (continued)
(1) Difference between the average interest rate earned and the average interest rate paid on funds.
(2) A portion of the Group’s interest earning assets is funded by net interest free liabilities and Shareholders’ equity. The benefit to the Group of these interest
free funds is the amount it would cost to replace them at the average cost of funds.
(3) Net interest income divided by average interest earning assets for the year.
Annual Report 2013
95
Group 201320122011Geographical analysis of key categories% % % AustraliaInterest spread (1)1. 921. 851. 86Benefit of interest-free liabilities, provisions and equity (2)0. 230. 280. 30Net interest margin (3)2. 152. 132. 16OverseasInterest spread (1)1. 561. 541. 52Benefit of interest-free liabilities, provisions and equity (2)0. 250. 250. 25Net interest margin (3)1. 811. 791. 77GroupInterest spread (1)1. 911. 821. 83Benefit of interest-free liabilities, provisions and equity (2)0. 220. 270. 29Net interest margin (3)2. 132. 092. 12
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:
(1) The New Zealand corporate tax rate was reduced from 30% to 28% for tax years starting on or after 1 April 2011. This change is effective for the Group
from 1 July 2011.
(2) Comparative information has been restated to conform to presentation in the current year.
96 Commonwealth Bank of Australia
GroupBank20132012201120132012$M$M$M$M$MProfit before Income Tax10,7289,9649,0579,5158,391Prima facie income tax at 30%3,2182,9892,7172,8552,517Effect of amounts which are non-deductible/(assessable) in calculating taxable income:Taxation offsets and other dividend adjustments(3)(3)(7)(442)(462)Tax adjustment referable to policyholder income7986116--Tax losses not previously brought to account(18)(28)(6)(13)(23)Tax losses assumed by the Bank under UIG 1052----(12)Offshore tax rate differential(89)(83)(55)(12)(3)Offshore banking unit(33)(36)(17)(33)(36)Investment allowance--(2)--Effect of changes in tax rates (1)--3--Income tax (over)/under provided in previous years(50)22(71)(71)12Other(69)(89)(31)(61)(63)Total income tax expense3,0352,8582,6472,2231,930Corporate tax expense2,9232,7362,4812,2231,930Policyholder tax expense112122166--Total income tax expense3,0352,8582,6472,2231,930Group Bank Income tax expense attributable to 20132012201120132012profit from ordinary activities$M $M $M $M $M AustraliaCurrent tax expense2,3922,4872,2462,2961,919Deferred tax (benefit)/expense216(30)59(135)(36)Total Australia2,6082,4572,3052,1611,883OverseasCurrent tax expense4253193366826Deferred tax expense/(benefit)2826(6)21Total overseas4274013426247Total income tax expense3,0352,8582,6472,2231,930Group Bank 20132012201120132012Effective Tax Rate% % % % % Total – corporate 27. 527. 827. 923. 423. 0Retail Banking Services – corporate (2)29. 829. 629. 7n/an/aBusiness and Private Banking – corporate (2)29. 730. 128. 6n/an/aInstitutional Banking and Markets – corporate (2)23. 121. 323. 7n/an/aWealth Management – corporate (2)27. 727. 628. 1n/an/aNew Zealand – corporate (1) (2)24. 625. 724. 0n/an/aBankwest – corporate (2)29. 833. 034. 7n/an/a
Notes to the Financial Statements
Note 5 Income Tax (continued)
(1) The following amounts are expected to be recovered within twelve months of the Balance Sheet date: for the Group $1,165 million (2012: $1,255 million);
for the Bank $1,074 million (2012: $843 million).
(2) 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.
(3) The following amounts are expected to be settled within twelve months of the Balance Sheet date: for the Group $329 million (2012: $427 million); for the
Bank $194 million (2012: $260 million).
Annual Report 2013
97
GroupBank20132012201120132012$M$M$M$M$MDeferred tax asset balances comprise temporary differences attributable to:Amounts recognised in the Income Statement:Provision for employee benefits414381375347326Provisions for impairment on loans, bills discounted and other receivables1,1771,2641,3871,121804Other provisions not tax deductible until expense incurred17519220214592Recognised value of tax losses carried forward-11--Financial instruments9101534Other231212183216139Total amount recognised in the Income Statement2,0062,0602,1631,8321,365Amounts recognised directly in Other Comprehensive Income:Asset revaluation reserve22-22Foreign currency translation reserve33---Cash flow hedge reserve7772224425Employee compensation reserve1-111-Available-for-sale investments reserve-364578Total amount recognised directly in Other Comprehensive Income831132396435Total deferred tax assets (before set off) (1)2,0892,1732,4021,8961,400Set off of tax (2)(1,154)(1,193)(1,102)(833)(501)Net deferred tax assets9359801,3001,063899Deferred tax liability balances comprise temporary differences attributable to:Amounts recognised in the Income Statement:Impact of TOFA adoption11930119Lease financing370365370182181Defined benefit superannuation plan deficit(199)(141)(93)(199)(141)Intangible assets7312713462-Financial instruments142168772736Other58756457216171Total amount recognised in the Income Statement9841,0921,090244156Amounts recognised directly in Other Comprehensive Income:Revaluation of properties8279708261Foreign currency translation reserve--14--Cash flow hedge reserve25930221200245Defined benefit superannuation plan surplus1613411616134Available-for-sale investments reserve13924921465Total amount recognised directly in Other Comprehensive Income641439313589345Total deferred tax liabilities (before set off) (3)1,6251,5311,403833501Set off of tax (2)(1,154)(1,193)(1,102)(833)(501)Net deferred tax liabilities (Note 21)471338301--Deferred tax assets opening balance:9801,3001,2708991,112Movement in temporary differences during the year:Additions through merger of banking licences---469-Provisions for employee benefits33611214Provisions for impairment on loans, bills discounted and other receivables(87)(123)(89)(69)(19)Other provisions not tax deductible until expense incurred(17)(10)925Recognised value of tax losses carried forward(1)-(2)-(1)Financial instruments(32)(121)(234)28(193)Asset revaluation reserve-2--2Other2017(109)45(2)Set off of tax (2)39(91)444(332)(9)Deferred tax assets closing balance9359801,3001,063899
Notes to the Financial Statements
Note 5 Income Tax (continued)
(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.
Deferred tax assets have not been recognised in respect of the following items:
Potential deferred tax assets of the Group arose from:
Tax losses and temporary differences in offshore centres.
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 $89 million (2012:
$87 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(s). The amount
receivable by the Bank under the tax funding agreement was $207 million as at 30 June 2013 (2012: $261 million receivable).
This balance is included in ‘Other assets’ in the Bank’s separate Balance Sheet.
Taxation of Financial Arrangements (TOFA)
The new tax regime for financial instruments TOFA began to apply to the Tax Consolidated Group from 1 July 2010. The regime
allows a closer alignment of the tax and accounting recognition and measurement of financial arrangements and their related
flows. Following adoption, deferred tax balances from financial arrangements progressively reverse over a four year period.
98 Commonwealth Bank of Australia
Group Bank 20132012201120132012$M $M $M $M $M Deferred tax liabilities opening balance:338301221--Movement in temporary differences during the year:Additions through merger of banking licences---292-Impact of TOFA adoption2(21)302(21)Property asset revaluations39(3)36Lease financing5(5)23114Defined benefit superannuation plan surplus/(deficit)68(130)(61)68(130)Intangible assets(54)(7)(11)(26)-Financial instruments46290(543)6154Other24(8)201(14)(14)Set off of tax (1)39(91)444(332)(9)Deferred tax liabilities closing balance (Note 21)471338301--Group Bank 20132012201120132012Deferred tax assets not taken to account$M $M $M $M $M Tax losses and other temporary differences on revenue account94711016657Tax losses on capital account--40--Total94711416657Group Bank Expiration of deferred tax assets not taken20132012201120132012 to account$M $M $M $M $M At Balance Sheet date carry-forward losses expired as follows:From one to two years146---From two to four years320181512After four years6645835145Losses that do not expire under current tax legislation11-40--Total94711416657
Notes to the Financial Statements
Note 6 Dividends
(1) The 2013 final dividend will be satisfied in full by cash disbursements with the Dividend Reinvestment Plan (DRP) anticipated to be satisfied in full by an on
market purchase of shares. The 2012 final dividend was satisfied by cash disbursements of $2,207 and $930 million being reinvested by participants
through the DRP. The 2011 final dividend was satisfied by cash disbursements of $2,099 million and $831 million being reinvested by participants 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
2013 to frank dividends for subsequent financial years, is $742 million (2012: $390 million). This figure is based on the franking
accounts of the Bank at 30 June 2013, adjusted for franking credits that will arise from the payment of income tax payable on
profits for the year, franking debits that will arise from the payment of dividends proposed, and franking credits that the Bank may
be prevented from distributing in subsequent financial periods.
The Bank expects that future tax payments will generate sufficient franking credits for the Bank to be able to continue to fully frank
future dividend payments. These calculations have been based on the taxation law as at 30 June 2013.
Dividend History
(1) Dividend Payout Ratio: dividends divided by statutory earnings (earnings are net of dividends on other equity instruments).
(2) DRP Participation Rate: the percentage of total issued share capital participating in the DRP.
(3) Dividend expected to be paid on 3 October 2013.
Annual Report 2013
99
Group Bank 20132012201120132012$M $M $M $M $M Ordinary SharesInterim ordinary dividend (fully franked) (2013: 164 cents; 2012: 137 cents; 2011: 132 cents)Interim ordinary dividend paid - cash component only2,6391,6351,5322,6391,635Interim ordinary dividend paid - dividend reinvestment plan-531513-531Total dividend paid2,6392,1662,0452,6392,166Other Equity InstrumentsDividend paid404242--Total dividend provided for, reserved or paid2,6792,2082,0872,6392,166Other provision carried6552376552Dividend proposed and not recognised as a liability (fully franked) (2013: 200 cents; 2012: 197 cents, 2011: 188 cents) (1)3,2243,1372,9303,2243,137Provision for dividendsOpening balance5237295237Provision made during the year5,8315,1134,6785,8315,113Provision used during the year(5,818)(5,098)(4,670)(5,818)(5,098)Closing balance (Note 22)6552376552Half-yearFull YearDRPPayoutPayoutDRPParticipationCents Per Ratio (1) Ratio (1)Price Rate (2)Half year endedShareDate Paid% % $ % 31 December 2010132 01/04/201167.5-52.9225.130 June 2011188 06/10/201188.278.347.4828.431 December 2011137 05/04/201260.1-48.8124.530 June 201219705/10/201291.175.254.5429.631 December 201216405/04/201372.5-68.7622.730 June 2013 (3)20003/10/201380.776.8--
Notes to the Financial Statements
Note 7 Earnings Per Share
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).
Note 8 Cash and Liquid Assets
Note 9 Receivables Due from Other Financial Institutions
(1) Required by law for the Group to operate in certain regions.
The majority of the above amounts are expected to be recovered within twelve months of the Balance Sheet date.
100 Commonwealth Bank of Australia
Group 201320122011Earnings per ordinary shareBasic 477.9448.9411.2Fully diluted464.5432.9395.1Cents per ShareGroup 201320122011Reconciliation of earnings used in calculation of earnings per share$M $M $M Profit after income tax7,6937,1066,410Less: Other equity instrument dividends(40)(42)(42)Less: Non-controlling interests(16)(16)(16)Earnings used in calculation of basic earnings per share7,6377,0486,352Add: Profit impact of assumed conversions of loan capital193199235Earnings used in calculation of fully diluted earnings per share7,8307,2476,587Number of Shares 201320122011M M M Weighted average number of ordinary shares used in the calculationof basic earnings per share1,5981,5701,545Effect of dilutive securities - executive share plans and convertible loan capital instruments88104123Weighted average number of ordinary shares used in the calculation of fully diluted earnings per share1,6861,6741,668Group Bank 2013201220132012$M $M $M $M Notes, coins and cash at banks7,6538,5086,1837,161Money at short call4,3673,6963,9763,603Securities purchased under agreements to resell8,0167,0637,2827,006Bills received and remittances in transit598399589182Total cash and liquid assets20,63419,66618,03017,952GroupBank2013201220132012$M$M$M$MPlacements with and loans to other financial institutions7,61210,7556,97810,467Deposits with regulatory authorities (1)1321312015Total receivables due from other financial institutions7,74410,8866,99810,482
Notes to the Financial Statements
Note 10 Assets at Fair Value through Income Statement
(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).
The above amounts are expected to be recovered within twelve months of the Balance Sheet date.
Of the above amounts, $1,794 million is expected to be recovered within twelve months of the Balance Sheet date (2012: $1,717
million).
Direct investments refer to positions held directly in the issuer of the investment. Indirect investments refer to investments that are
held through unit trusts or similar investment vehicles.
Investments held in the Australian statutory funds may only be used within the restrictions imposed under the Life Insurance Act
1995. Refer to Note 1(hh) for further details.
(1) Designated at Fair Value through Income Statement at inception as they are managed by the Group on a fair value basis or to eliminate an accounting
mismatch.
Annual Report 2013
101
GroupBank2013201220132012$M $M $M $M Trading19,61713,81618,39812,071Insurance 14,35914,525--Other financial assets designated at fair value907980718980Total assets at fair value through Income Statement (1)34,88329,32119,11613,051GroupBank2013201220132012Trading$M $M $M $M Government bonds, notes and securities13,8668,49113,7808,146Corporate/financial institution bonds, notes and securities4,6724,6773,5503,298Shares and equity investments949502949502Other bonds, notes and securities130146119125Total trading assets19,61713,81618,39812,071Investments Investments Investments Investments Backing Life Backing Life Backing Life Backing Life Risk Investment Risk Investment Contracts Contracts Total Contracts Contracts Total 201320132013201220122012Insurance $M $M $M $M $M $M Equity Security Investments:Direct3899531,3424627201,182Indirect5423,1153,6575962,9103,506Total equity security investments9314,0684,9991,0583,6304,688Debt Security Investments:Direct8302351,0657536111,364Indirect2,1973,6995,8962,1924,2256,417Total debt security investments3,0273,9346,9612,9454,8367,781Property Investments:Direct22420342733195228Indirect221365586276472748Total property investments4455681,013309667976Other Assets2491,1371,3861888921,080Total life insurance investment assets4,6529,70714,3594,50010,02514,525Group Bank 2013201220132012Other (1)$M $M $M $M Government securities632980588980Receivables due from other financial institutions275-130-Total other assets at fair value through Income Statement907980718980
Notes to the Financial Statements
Note 10 Assets at Fair Value through Income Statement (continued)
Of the amounts in the preceding table, $862 million is expected to be recovered within twelve months of the Balance Sheet date
by the Group (2012: $882 million). All amounts are expected to be recovered within twelve months of the Balance Sheet date by
the Bank.
Note 11 Derivative Financial Instruments
Derivative Contracts
Derivatives are classified as “Held for Trading” or “Held for Hedging”. Held for Trading derivatives are contracts entered into in
order to meet customers’ needs, to undertake market making and positioning activities, or for risk management purposes that do
not qualify for hedge accounting. Held for Hedging derivatives are instruments held for risk management purposes, which meet
the criteria for hedge accounting.
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 (u).
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 $3 million net gain for the Group (2012: $19 million net loss), and $3 million net loss for the Bank (2012: $22 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 $28 million loss for the Group (2012: $58 million gain), and $26 million loss for the Bank
(2012: $55 million gain).
Amounts accumulated in Other Comprehensive Income in respect of cash flow hedges are recycled to the Income Statement
when the forecast transaction occurs. Underlying cash flows from cash flow hedges are discounted to calculate deferred gains
and losses which are expected to occur in the following periods:
(1) Comparatives have been restated to conform to presentation in the current year.
102 Commonwealth Bank of Australia
Exchange RateInterest RateGroupRelated ContractsRelated ContractsTotal20132012 (1)20132012 (1)20132012 (1)$M$M$M$M$M$MWithin 6 months(3)(23)552152(2)6 months - 1 year(15)5(52)(67)(67)(62)1 - 2 years(27)(14)212(2)185(16)2 - 5 years(173)(91)8311,3386581,247After 5 years(153)(20)(96)(221)(249)(241)Net deferred (losses)/gains(371)(143)9501,069579926Exchange Rate Interest Rate Bank Related Contracts Related Contracts Total 201320122013201220132012$M$M$M$M$M$MWithin 6 months(1)1481747186 months - 1 year(17)6(42)(77)(59)(71)1 - 2 years(25)(3)167(18)142(21)2 - 5 years(120)(102)8861,2477661,145After 5 years(94)(54)(74)(171)(168)(225)Net deferred (losses)/gains(257)(152)985998728846
Notes to the Financial Statements
Note 11 Derivative Financial Instruments (continued)
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.
The fair value of derivative financial instruments is set out in the following tables:
(1) Comparatives have been restated to conform to presentation in the current year, due to derivatives that were netted off in the prior year which are now
presented gross in line with accounting requirements (impact: $630 million as at 30 June 2012).
(2) Comparatives have been reclassified to conform to presentation in the current year.
(1) Comparatives have been reclassified to conform to presentation in the current year.
(2) Comparatives have been restated to conform to presentation in the current year.
Derivative assets and liabilities held for trading are expected to be recovered or due to be settled within twelve months of the
Balance Sheet date.
Annual Report 2013
103
Group20132012Fair ValueFair ValueFair ValueFair ValueAssetLiabilityAssetLiabilityDerivative assets and liabilities$M$M$M$MHeld for trading (1) (2)36,531(30,571)31,954(29,113)Held for hedging (1)8,809(8,009)7,613(10,738)Total derivative assets/(liabilities)45,340(38,580)39,567(39,851)Group20132012Fair ValueFair ValueFair ValueFair ValueAssetLiabilityAssetLiabilityDerivatives held for trading$M$M$M$MExchange rate related contracts:Forward contracts (1)7,529(6,896)3,709(4,181)Swaps (1) (2)14,570(9,819)9,817(7,378)Futures6-1-Options purchased and sold392(405)390(453)Total exchange rate related contracts22,497(17,120)13,917(12,012)Interest rate related contracts:Forward contracts (1)6(6)12(11)Swaps (1) (2)13,091(12,641)16,895(16,264)Futures---(1)Options purchased and sold (1)754(670)899(636)Total interest rate related contracts13,851(13,317)17,806(16,912)Credit related contracts:Swaps24(27)58(56)Total credit related contracts24(27)58(56)Equity related contracts:Swaps4(8)--Options purchased and sold78(25)60(44)Total equity related contracts82(33)60(44)Commodity related contracts:Swaps54(51)85(72)Options purchased and sold10(7)13(11)Total commodity related contracts64(58)98(83)Identified embedded derivatives (1)13(16)15(6)Total derivative assets/(liabilities) held for trading36,531(30,571)31,954(29,113)
Notes to the Financial Statements
Note 11 Derivative Financial Instruments (continued)
(1) Comparatives have been restated to conform to presentation in the current year.
The majority of derivative assets and liabilities held for hedging are expected to be recovered or due to be settled more than
twelve months after the Balance Sheet date.
104 Commonwealth Bank of Australia
Group20132012Fair ValueFair ValueFair ValueFair ValueAssetLiabilityAssetLiabilityDerivatives held for hedging$M$M$M$MFair value hedgesExchange rate related contracts:Forward contracts1-2-Swaps (1)3,534(2,626)1,973(4,440)Total exchange rate related contracts3,535(2,626)1,975(4,440)Interest rate related contracts:Swaps (1)1,374(2,760)1,744(2,370)Options purchased and sold--3-Total interest rate related contracts1,374(2,760)1,747(2,370)Equity related contracts:Swaps33(1)58(4)Total equity related contracts33(1)58(4)Total fair value hedges4,942(5,387)3,780(6,814)Cash flow hedgesExchange rate related contracts:Swaps (1)1,103(1,242)669(2,093)Total exchange rate related contracts1,103(1,242)669(2,093)Interest rate related contracts:Swaps (1)2,764(1,378)3,164(1,827)Total interest rate related contracts2,764(1,378)3,164(1,827)Total cash flow hedges3,867(2,620)3,833(3,920)Net investment hedgesExchange rate related contracts:Forward contracts-(2)-(4)Total exchange rate related contracts-(2)-(4)Total net investment hedges-(2)-(4)Total derivative assets/(liabilities) held for hedging8,809(8,009)7,613(10,738)
Notes to the Financial Statements
Note 11 Derivative Financial Instruments (continued)
(1) Comparatives have been restated to conform to presentation in the current year, due to derivatives that were netted off in the prior year, which are now
presented gross in line with accounting standards (impact: $630 million as at 30 June 2012).
(2) Comparatives have been reclassified to conform to presentation in the current year.
(1) Comparatives have been restated to conform to presentation in the current year.
(2) Comparatives have been reclassified to conform to presentation in the current year.
Derivative assets and liabilities held for trading are expected to be recovered or due to be settled within twelve months of the
Balance Sheet date.
Annual Report 2013
105
Bank20132012Fair ValueFair ValueFair ValueFair ValueAssetLiabilityAssetLiabilityDerivative assets and liabilities$M$M$M$MHeld for trading (1) (2)36,826(32,007)32,683(29,386)Held for hedging (1)8,377(8,222)7,008(10,470)Total derivative assets/(liabilities)45,203(40,229)39,691(39,856)Bank20132012Fair ValueFair ValueFair ValueFair ValueAssetLiabilityAssetLiabilityDerivatives held for trading$M$M$M$MExchange rate related contracts:Forward contracts7,424(6,863)3,670(4,153)Swaps (1)14,605(9,725)9,910(7,194)Futures6-1-Options purchased and sold390(404)389(451)Derivatives held with controlled entities744(1,857)998(706)Total exchange rate related contracts23,169(18,849)14,968(12,504)Interest rate related contracts:Forward contracts6(6)10(11)Swaps (1) (2)12,613(12,036)16,149(15,320)Futures---(1)Options purchased and sold (2)752(667)898(630)Derivatives held with controlled entities (2)117(315)439(732)Total interest rate related contracts13,488(13,024)17,496(16,694)Credit related contracts:Swaps24(27)58(56)Total credit related contracts24(27)58(56)Equity related contracts:Swaps4(8)--Options purchased and sold78(25)60(44)Total equity related contracts82(33)60(44)Commodity related contracts:Swaps54(51)85(72)Options purchased and sold8(7)13(11)Derivatives held with controlled entities1-1-Total commodity related contracts63(58)99(83)Identified embedded derivatives (2)-(16)2(5)Total derivative assets/(liabilities) held for trading36,826(32,007)32,683(29,386)
Notes to the Financial Statements
Note 11 Derivative Financial Instruments (continued)
(1) Comparatives have been restated to conform to presentation in the current year.
The majority of derivative assets and liabilities held for hedging are expected to be recovered or due to be settled more than
twelve months after the Balance Sheet date.
106 Commonwealth Bank of Australia
Bank20132012Fair ValueFair ValueFair ValueFair ValueAssetLiabilityAssetLiabilityDerivatives held for hedging$M$M$M$MFair value hedgesExchange rate related contracts:Forward contracts1-2-Swaps (1)3,432(2,591)1,786(4,434)Derivatives held with controlled entities-(255)3-Total exchange rate related contracts3,433(2,846)1,791(4,434)Interest rate related contracts:Swaps (1)1,244(2,683)1,416(2,266)Derivatives held with controlled entities70(119)92(113)Total interest rate related contracts1,314(2,802)1,508(2,379)Equity related contracts:Swaps33(1)58(4)Total equity related contracts33(1)58(4)Total fair value hedges4,780(5,649)3,357(6,817)Cash flow hedgesExchange rate related contracts:Swaps (1)1,022(1,202)662(2,003)Derivatives held with controlled entities-(78)90(7)Total exchange rate related contracts1,022(1,280)752(2,010)Interest rate related contracts:Swaps (1)2,548(1,293)2,857(1,643)Derivatives held with controlled entities27-42-Total interest rate related contracts2,575(1,293)2,899(1,643)Total cash flow hedges3,597(2,573)3,651(3,653)Total derivative assets/(liabilities) held for hedging8,377(8,222)7,008(10,470)
Notes to the Financial Statements
Note 12 Available-for-Sale Investments
(1) Supranational, Sovereign and Agency Securities (SSA).
(2) Comparatives have been restated to conform to presentation in the current year.
The following amounts are expected to be recovered within twelve months of the Balance Sheet date: for Group $12,920 million
(2012: $19,160 million); for Bank $12,319 million (2012: $12,009 million).
Revaluation of Available-for-sale investments resulted in a gain of $553 million for the Group (2012: $349 million loss) and a gain
of $365 million for the Bank (2012: $315 million loss) recognised directly in other comprehensive income. 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: $31 million net gain (2012: $81 million net gain), Bank: $31 million net gain
(2012: $86 million net gain).
Proceeds received from settlement at or close to maturity of Available-for-sale investments for the Group were $44,645 million
(2012: $50,490 million) and for the Bank were $35,135 million (2012: $46,417 million).
Proceeds from the sale of Available-for-sale investments for the Group were $2,445 million (2012: $12,375 million) and for the
Bank were $2,444 million (2012: $12,326 million).
Maturity Distribution and Weighted Average Yield
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107
GroupBank2013201220132012$M$M$M$MGovernment bonds, notes and securities29,50627,77028,45923,284Corporate/financial institution bonds, notes and securities19,80922,87520,00017,701Shares and equity investments647471527368Covered bonds, mortgage backed securities & SSA (1) (2)9,6089,70376,92575,207Other securities318307Total available-for-sale investments59,60160,827125,941116,567GroupMaturity Period at 30 June 20133 to10 orNon-0 to 3 Months12 Months1 to 5 Years5 to 10 Yearsmore YearsMaturingTotal$M%$M%$M%$M%$M%$M$MGovernment bonds, notes and securities8890.722,0860.9310,5194.8311,7535.004,2595.03-29,506Corporate/financial institution bonds, notes and securities7,1492.792,2232.9810,4323.3954.65---19,809Shares and equity investments4---------643647Covered bonds, mortgage backed securities & SSA--5674.644,3885.065474.724,1063.69-9,608Other securities----254.18----631Total available-for-sale investments8,042-4,876-25,364-12,305-8,365-64959,601GroupMaturity Period at 30 June 20123 to10 orNon-0 to 3 Months12 Months1 to 5 Years5 to 10 Yearsmore YearsMaturingTotal$M%$M%$M%$M%$M%$M$MGovernment bonds, notes and securities4,5731.553,1242.864,6065.199,8335.385,6345.29-27,770Corporate/financial institution bonds, notes and securities6,7113.974,7984.4811,3664.92-----22,875Shares and equity investments--40.0160.01----461471Covered bonds, mortgage backed securities & SSA----4,4784.911,2484.983,9775.10-9,703Other securities----------88Total available-for-sale investments11,284-7,926-20,456-11,081-9,611-46960,827
Notes to the Financial Statements
Note 13 Loans, Bills Discounted and Other Receivables
(1) Home loans balance includes residential mortgages that have been assigned to securitisation vehicles and covered bond trusts. Further detail on these
residential mortgages is disclosed in Note 47.
(2) Comparative information has been reclassified to conform to presentation in the current year.
(3) 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 $184,807 million (2012: $181,465 million), and for Bank $167,238 million
(2012: $127,327 million). The maturity tables below are based on contractual terms.
Finance Lease Receivables
The Group and the Bank provide finance leases to a broad range of clients to support financing needs in acquiring movable
assets such as trains, aircraft, ships and major production and manufacturing equipment.
Finance lease receivables are included within loans, bills discounted and other receivables to customers.
108 Commonwealth Bank of Australia
GroupBank2013201220132012$M$M$M$MAustraliaOverdrafts20,03921,49720,03920,494Home loans (1) (2)338,023322,918336,927271,258Credit card outstandings11,45711,14911,4579,873Lease financing4,3284,2502,9442,883Bills discounted (2) (3)22,01716,77722,01716,777Term loans101,14199,902100,81479,447Other lending271625270209Other securities77--Total Australia497,283477,125494,468400,941OverseasOverdrafts1,098891187154Home loans (1)34,81730,063457409Credit card outstandings676603--Lease financing39247862141Term loans28,49223,22012,6789,885Total overseas65,47555,25513,38410,589Gross loans, bills discounted and other receivables562,758532,380507,852411,530LessProvisions for Loan Impairment (Note 14):Collective provision(2,827)(2,819)(2,628)(1,971)Individually assessed provisions (1,628)(2,008)(1,585)(1,011)Unearned income:Term loans(900)(1,032)(891)(1,001)Lease financing(755)(839)(399)(425)(6,110)(6,698)(5,503)(4,408)Net loans, bills discounted and other receivables556,648525,682502,349407,122Group 20132012GrossPresent Value GrossPresent Value Investment inof Minimum Investment inof Minimum Finance LeaseUnearnedLease Payment Finance LeaseUnearnedLease Payment ReceivableIncomeReceivable ReceivableIncomeReceivable $M$M$M $M$M$M Not later than one year1,390(221)1,1691,235(225)1,010One year to five years2,735(388)2,3472,592(412)2,180Over five years595(146)449901(202)6994,720(755)3,9654,728(839)3,889
Note 13 Loans, Bills Discounted and Other Receivables (continued)
Notes to the Financial Statements
(1) The industry split above has been prepared on an industry exposure basis.
The maturity tables are based on contractual terms.
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109
Bank 20132012Gross Present Value Gross Present Value Investment in of Minimum Investment in of Minimum Finance Lease Unearned Lease Payment Finance Lease UnearnedLease Payment Receivable Income Receivable Receivable Income Receivable $M $M $M $M $M $M Not later than one year1,028(125)903829(119)710One year to five years1,749(169)1,5801,877(173)1,704Over five years229(105)124318(133)1853,006(399)2,6073,024(425)2,599GroupMaturity Period at 30 June 2013Maturing 1MaturingMaturingYearBetweenAfteror Less1 & 5 Years5 YearsTotalIndustry (1)$M$M$M$MAustraliaSovereign1,6272121321,971Agriculture2,6372,2141,1205,971Bank and other financial3,3014,2603687,929Home loans7,98524,529305,509338,023Construction1,7195523632,634Other Personal7,33812,3202,13821,796Asset financing2,9955,3091108,414Other commercial and industrial47,59449,52213,429110,545Total Australia75,19698,918323,169497,283OverseasSovereign4,6493,7611,2609,670Agriculture1,3431,8623,2756,480Bank and other financial2,0792,1102,8407,029Home loans6,3153,74324,75934,817Construction10211287301Other Personal831284863Asset financing18123133274Other commercial and industrial2,6432,8085906,041Total overseas17,98014,54732,94865,475Gross loans, bills discounted and other receivables93,176113,465356,117562,758Maturing 1MaturingMaturingYearBetweenAfteror Less1 & 5 Years5 Years TotalInterest rate$M$M$M$MAustralia63,40583,039265,866412,310Overseas13,13210,42619,76343,321Total variable interest rates76,53793,465285,629455,631Australia11,79115,87957,30384,973Overseas4,8484,12113,18522,154Total fixed interest rates16,63920,00070,488107,127Gross loans, bills discounted and other receivables93,176113,465356,117562,758
Notes to the Financial Statements
Note 13 Loans, Bills Discounted and Other Receivables (continued)
(1) The industry split above has been prepared on an industry exposure basis.
(2) Comparatives have been reclassified to conform to presentation in the current year
(3) Comparatives have been restated to conform to presentation in the current year.
The maturity tables are based on contractual terms.
110 Commonwealth Bank of Australia
GroupMaturity Period at 30 June 2012Maturing 1MaturingMaturingYearBetweenAfteror Less1 & 5 Years5 YearsTotalIndustry (1)$M$M$M$MAustraliaSovereign (2)8495771931,619Agriculture (2)1,4182,2361,5975,251Bank and other financial (2)5,7303,3601,13510,225Home loans (3)7,28121,162294,475322,918Construction (2)1,2828726422,796Other Personal7,88311,7152,17421,772Asset financing2,9005,1631518,214Other commercial and industrial (2)(3)46,89645,05712,377104,330Total Australia74,23990,142312,744477,125OverseasSovereign3,6214,8901,72410,235Agriculture1,1511,7182,3295,198Bank and other financial9709141,2723,156Home loans7,0843,74919,23030,063Construction12112797345Other Personal634139656Asset financing111138219468Other commercial and industrial1,8462,1261,1625,134Total overseas15,53813,67526,04255,255Gross loans, bills discounted and other receivables89,777103,817338,786532,380Maturing 1MaturingMaturingYearBetweenAfteror Less1 & 5 Years5 YearsTotalInterest rate $M$M$M$MAustralia64,92275,873277,700418,495Overseas12,04810,80818,20941,065Total variable interest rates76,97086,681295,909459,560Australia9,31714,26935,04458,630Overseas3,4902,8677,83314,190Total fixed interest rates12,80717,13642,87772,820Gross loans, bills discounted and other receivables89,777103,817338,786532,380
Notes to the Financial Statements
Note 14 Provisions for Impairment
(1) Basel 2.5 and Basel III 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 30.
(2) Comparative information has been restated to conform to presentation in the current year.
Annual Report 2013
111
GroupBank20132012201120132012Provisions for impairment losses$M$M$M$M$MCollective provisionOpening balance2,8373,0433,4611,9891,926Additions through merger of banking licences---664-Net collective provision funding55931245522519Impairment losses written off(695)(740)(646)(649)(626)Impairment losses recovered154228206132171Other3(6)(23)1(1)Closing balance2,8582,8373,0432,6591,989Individually assessed provisionsOpening balance2,0082,1251,9921,0111,081Additions through merger of banking licences---894-Net new and increased individual provisioning9371,2021,602805700Write-back of provisions no longer required(350)(425)(367)(285)(231)Discount unwind to interest income(90)(122)(147)(77)(65)Other317365374256151Impairment losses written off(1,194)(1,137)(1,329)(1,019)(625)Closing balance1,6282,0082,1251,5851,011Total provisions for impairment losses4,4864,8455,1684,2443,000Less: Off balance sheet provisions(31)(18)(21)(31)(18)Total provisions for loan impairment4,4554,8275,1474,2132,982GroupBank20132012201120132012Provision ratios%%%%%Collective provision as a % of credit risk weighted assets - Basel III1. 02n/a n/a n/a (1)n/a (1)Total provision as a % of credit risk weighted assets - Basel III1. 60n/a n/a n/a (1)n/a (1)Collective provision as a % of credit risk weighted assets - Basel 2.5n/a 1. 091. 23n/a (1)n/a (1) Total provision as a % of credit risk weighted assets - Basel 2.5n/a 1. 852. 09n/a (1) n/a (1) Total provisions for impaired assets as a % of gross impaired assets (2)40. 6245. 4740. 6643. 5342. 82Total provisions for impairment losses as a % of gross loans and acceptances0. 790. 891. 000. 830. 71Group Bank 20132012201120132012Loan impairment expense$M $M $M $M $M Net collective provision funding55931245522519Net new and increased individual provisioning9371,2021,602805700Write-back of individually assessed provisions(350)(425)(367)(285)(231)Total loan impairment expense1,1461,0891,2801,042988
Notes to the Financial Statements
Note 14 Provisions for Impairment (continued)
112 Commonwealth Bank of Australia
Group Individually assessed provisions by20132012201120102009industry classification$M $M $M $M $M AustraliaSovereign-----Agriculture16889877577Bank and other financial217235254254483Home loans18225620215082Construction89152133132104Other personal1411112123Asset financing2314371531Other commercial and industrial8711,1631,3071,268760Total Australia1,5641,9202,0311,9151,560OverseasSovereign-----Agriculture16711159Bank and other financial561168Home loans1728251210Construction-----Other personal-----Asset financing-----Other commercial and industrial2647574982Total overseas64889477169Total individually assessed provisions1,6282,0082,1251,9921,729Group 20132012201120102009Loans written off by industry classification$M $M $M $M $M AustraliaSovereign-----Agriculture303210102Bank and other financial7951107383110Home loans21788849536Construction1394589724Other personal622657567651496Asset financing2538267258Other commercial and industrial686884989604255Total Australia1,7981,7951,8721,887961OverseasSovereign-----Agriculture45177-Bank and other financial10115086Home loans2124262518Construction--1-4Other personal2519221814Asset financing-----Other commercial and industrial3133368660Total overseas9182103186182Gross loans written off1,8891,8771,9752,0731,143Recovery of amounts previously written offAustralia1442161997070Overseas1012773Total amounts recovered1542282067773Net loans written off1,7351,6491,7691,9961,070
Notes to the Financial Statements
Note 14 Provisions for Impairment (continued)
Note 15 Property, Plant and Equipment
The majority of the above amounts have expected useful lives longer than twelve months after the Balance Sheet date.
There are no significant items of property, plant and equipment that are currently under construction.
Land and buildings are carried at fair value based on independent valuations performed during the year; refer to Note 1(y).
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113
Group20132012201120102009Loans recovered by industry classification$M $M $M $M $M AustraliaSovereign-----Agriculture----1Bank and other financial8173-1Home loans454331Construction-----Other personal1131471345952Asset financing617235Other commercial and industrial133017510Total Australia1442161997070OverseasSovereign-----Agriculture-----Bank and other financial1----Home loans1----Construction-----Other personal88763Asset financing-----Other commercial and industrial-4-1-Total overseas1012773Total loans recovered1542282067773GroupBank2013201220132012$M$M$M$MLandAt 30 June valuation217222197145Closing balance217222197145BuildingsAt 30 June valuation316351279255Closing balance316351279255Total land and buildings 533573476400Leasehold ImprovementsAt cost1,4161,3501,2001,020Provision for depreciation(772)(730)(661)(570)Closing balance644620539450EquipmentAt cost1,5171,5191,1711,018Provision for depreciation(1,174)(1,164)(910)(787)Closing balance343355261231Assets Under LeaseAt cost1,3661,144350353Provision for depreciation(168)(189)(68)(58)Closing balance1,198955282295Total property, plant and equipment2,7182,5031,5581,376
Notes to the Financial Statements
Note 15 Property, Plant and Equipment (continued)
Reconciliation of the carrying amounts of Property, Plant and Equipment is set out below:
114 Commonwealth Bank of Australia
Group Bank 2013201220132012Carrying value at cost$M $M $M $M Land1021039759Buildings143164135123Total land and buildings at cost245267232182GroupBank2013201220132012$M$M$M$MLandCarrying amount at the beginning of the year222269145191Additions through merger of banking licences--52-Transfers to assets held for sale(3)(1)(3)(1)Disposals(3)(48)(3)(44)Net revaluations(1)25(1)Foreign currency translation adjustment2-1-Carrying amount at the end of the year217222197145BuildingsCarrying amount at the beginning of the year351388255309Additions through merger of banking licences--57-Additions834826Transfers to assets held for sale(3)(1)(2)(1)Disposals(3)(58)(3)(57)Transfers--(3)-Net revaluations42546Depreciation(43)(37)(37)(28)Foreign currency translation adjustment2---Carrying amount at the end of the year316351279255Leasehold ImprovementsCarrying amount at the beginning of the year620614450501Additions through merger of banking licences--97-Additions14612410042Disposals(15)(10)(10)(8)Net revaluations2(1)--Depreciation(116)(107)(99)(85)Foreign currency translation adjustment7-1-Carrying amount at the end of the year644620539450EquipmentCarrying amount at the beginning of the year355357231244Additions through merger of banking licences--57-Additions143158102108Disposals(12)(5)(8)(2)Transfers--3-Net revaluations32--Depreciation(151)(158)(124)(119)Foreign currency translation adjustment51--Carrying amount at the end of the year343355261231Assets Under LeaseCarrying amount at the beginning of the year955738295281Additions3582661941Disposals(70)(11)(14)(11)Net revaluations-1--Depreciation(65)(50)(18)(16)Foreign currency translation adjustment2011--Carrying amount at the end of the year1,198955282295
Notes to the Financial Statements
Note 16 Intangible Assets
(1) Core deposits represent 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 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 predominantly 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. The Count Financial Limited
brand name ($4 million) is amortised over the estimated useful life of 20 years.
(4) Other intangibles include the value of credit card relationships acquired from Bankwest and Count franchise relationships. This value represents future net
income generated from the relationships that existed at Balance Sheet date. The assets have a useful life of 10 years based on the attrition rates of
customers.
Impairment Tests for Goodwill and Intangible Assets with Indefinite Lives
To assess whether goodwill and other assets with indefinite useful lives are impaired, the carrying amount of a cash-generating
unit is compared to the recoverable amount. The recoverable amount is 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.
Earnings multiples relating to the Group‘s Banking (Retail Banking Services, Business and Private Banking, Bankwest and New
Zealand) and Wealth Management cash-generating units are sourced from publicly available data associated with businesses
displaying similar characteristics to those cash-generating units, and are applied to current earnings. The key assumption is the
Price-Earnings (P/E) multiple observed for these businesses, which for the Banking businesses were in the range of 12.0–15.1
(2012: 10.0–11.8), and for Wealth Management businesses were in the range of 11.0–23.0 (2012: 11.6–23.1). The P/E multiples
are sourced for similar companies operating in Australia and New Zealand.
Carrying amounts of cash-generating units are determined with reference to the Group’s target equity for that business, which
takes into account economic and regulatory capital levels and goodwill associated with that business.
Goodwill Allocation to the following Cash-Generating Units
(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 acquisitions of Colonial and Count Financial Limited.
Annual Report 2013
115
GroupBank2013201220132012$M$M$M$MGoodwillPurchased goodwill at cost7,7237,7052,5222,522Closing balance 7,7237,7052,5222,522Computer Software CostsCost2,7702,4622,5032,108Accumulated amortisation(847)(762)(696)(507)Closing balance 1,9231,7001,8071,601Core Deposits (1)Cost495495495-Accumulated amortisation(318)(248)(318)-Closing balance 177247177-Management Fee Rights (2)Cost316316--Closing balance 316316--Brand Names (3)Cost190190186-Closing balance 190190186-Other Intangibles (4)Cost25525538-Accumulated amortisation(161)(132)(17)-Closing balance 9412321-Total intangible assets10,42310,2814,7134,123Group 20132012$M $M Retail Banking Services (1)4,1494,149Business and Private Banking297297Wealth Management (2)2,5872,587New Zealand690672Total7,7237,705
Notes to the Financial Statements
Note 16 Intangible Assets (continued)
Reconciliation of the carrying amounts of Intangible Assets is set out below:
(1) Due primarily to the Core Banking Modernisation initiative.
116 Commonwealth Bank of Australia
GroupBank2013201220132012$M$M$M$MGoodwill Opening balance7,7057,3992,5222,522Additions-232--Transfers-(5)--Foreign currency translation adjustments1879--Total goodwill 7,7237,7052,5222,522Computer Software CostsOpening balance1,7001,2971,6011,204Additions:Through merger of banking licences--10-From purchases142467From internal development (1)454562406540Amortisation(245)(183)(216)(150)Total computer software costs1,9231,7001,8071,601Core DepositsOpening balance247317--Additions through merger of banking licences--230-Amortisation(70)(70)(53)-Total core deposits177247177-Management Fee RightsOpening balance316311--Transfers-5--Total management fee rights316316--Brand NamesOpening balance190186--Additions through merger of banking licences--186-Additions-4--Total brand names190190186-Other IntangiblesOpening balance12393--Additions through merger of banking licences--24-Additions152--Disposals(5)---Amortisation(25)(22)(3)-Total other intangibles9412321-
Notes to the Financial Statements
Note 17 Other Assets
The above amounts are expected to be recovered within twelve months of the Balance Sheet date.
Note 18 Assets Held for Sale
Note 19 Deposits and Other Public Borrowings
The majority of the amounts are due to be settled within twelve months of the Balance Sheet date as shown in the maturity
analysis table on the next page.
Annual Report 2013
117
Group Bank 2013201220132012$M $M $M $M Accrued interest receivable2,1452,2752,7052,713Accrued fees/reimbursements receivable1,155883154212Securities sold not delivered1,4142,8929551,798Intragroup current tax receivable--207261Current tax assets4152--Prepayments453375370289Life insurance other assets42530941-Other965731659599Total other assets6,5987,5175,0915,872Group Bank 2013201220132012$M $M $M $M Available-for-sale investments312312Land and Buildings5252Total assets held for sale814814Group Bank 2013201220132012$M $M $M $M AustraliaCertificates of deposit42,34645,83943,31646,997Term deposits157,959152,543158,322127,640On demand and short term deposits195,017176,866195,199157,328Deposits not bearing interest 8,8917,5308,8917,528Securities sold under agreements to repurchase5,5025,2455,5395,258Total Australia409,715388,023411,267344,751OverseasCertificates of deposit6,2387,2566,1577,003Term deposits26,88128,9767,53610,853On demand and short term deposits14,46411,648233115Deposits not bearing interest2,0611,7528391Securities sold under agreements to repurchase70---Total overseas49,71449,63214,00918,062Total deposits and other public borrowings459,429437,655425,276362,813
Notes to the Financial Statements
Note 19 Deposits and Other Public Borrowings (continued)
Maturity Distribution of Certificates of Deposit and Term Deposits
(1) All certificates of deposit issued by the Group are for amounts greater than $100,000.
(2) Comparatives have been restated to conform to presentation in the current year.
Note 20 Liabilities at Fair Value through Income Statement
(1) These liabilities have been 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 expected to be settled within twelve months of the Balance Sheet date for the Group
and the Bank. For the Group, the majority of the other amounts are expected to be settled within twelve months of the Balance
Sheet date. For the Bank, debt instruments are expected to be settled more than twelve months after the Balance Sheet date.
The change in fair value for those liabilities designated at fair value through Income Statement due to credit risk for the Group is
an $11 million loss (2012: $26 million loss) and for the Bank is a $10 million loss (2012: $26 million loss), 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 an $11 million gain (2012: $20 million gain) and for the Bank is a
$10 million gain (2012: $20 million gain).
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 $8,641 million (2012: $6,505 million) and for the Bank is $3,278 million (2012:
$3,141 million).
118 Commonwealth Bank of Australia
GroupAt 30 June 2013MaturingMaturingMaturingMaturingThreeBetweenBetweenafterMonths or Three & Six & Twelve Twelve LessSix MonthsMonthsMonthsTotal$M$M$M$M$MAustraliaCertificates of deposit (1)20,6357,49556313,65342,346Term deposits103,85319,56027,3847,162157,959Total Australia124,48827,05527,94720,815200,305OverseasCertificates of deposit (1)2,7972,835539676,238Term deposits15,3445,3264,2601,95126,881Total overseas18,1418,1614,7992,01833,119Total certificates of deposits and term deposits142,62935,21632,74622,833233,424GroupAt 30 June 2012MaturingMaturingMaturingMaturingThreeBetweenBetweenafterMonths orThree &Six & Twelve TwelveLessSix MonthsMonthsMonthsTotal$M$M$M$M$MAustraliaCertificates of deposit (1) (2)18,7635,5962,41019,07045,839Term deposits99,02620,04527,9155,557152,543Total Australia117,78925,64130,32524,627198,382OverseasCertificates of deposit (1)5,4535646635767,256Term deposits20,1184,8932,5361,42928,976Total overseas25,5715,4573,1992,00536,232Total certificates of deposits and term deposits143,36031,09833,52426,632234,614Group Bank 2013201220132012$M$M$M$MDeposits and other borrowings (1)1,4541,298--Debt instruments (1)4,3002,775400699Trading liabilities2,9472,4822,9322,482Total liabilities at fair value through Income Statement8,7016,5553,3323,181
Notes to the Financial Statements
Note 21 Tax Liabilities
Note 22 Other Provisions
Maturity Distribution for Other Provisions
Annual Report 2013
119
GroupBank2013201220132012Note$M$M$M$MAustraliaCurrent tax liability1,4731,5181,4391,520Total Australia1,4731,5181,4391,520OverseasCurrent tax liability561913Deferred tax liability5471338--Total overseas52735713Total tax liabilities2,0001,8751,4401,523Group Bank 2013201220132012Note$M $M $M $M Long service leave445416412385Annual leave223231180193Other employee entitlements61715968Restructuring costs41744138General insurance claims159184--Self insurance/non-lending losses52534949Dividends665526552Other203143186117Total other provisions1,2491,224992902Group20132012Due to beDue to beDue to beDue to beSettled WithinSettled MoreSettled WithinSettled More12 Monthsthan 12 MonthsTotal12 Monthsthan 12 MonthsTotal$M$M$M$M$M$MLong service leave299146445282134416Annual leave22122232292231Other employee entitlements2596146771Restructuring costs34741581674General insurance claims1411815916024184Self insurance/non-lending losses133952143953Dividends65-6552-52Other1564720312221143Total9313181,2499213031,224
Notes to the Financial Statements
Note 22 Other Provisions (continued)
Provision Commentary
Restructuring Costs
Provisions are recognised for restructuring activities when a detailed plan has been developed and a valid expectation that the
plan will be carried out is held by those affected by it. The majority of the provision is expected to be used within 12 months of the
Balance Sheet date.
General Insurance Claims
This provision is to cover future claims on general insurance contracts that have been incurred but not reported. The provision will
be realised upon settlement of claims whose maturities were uncertain at the reporting date.
Self Insurance and Non-Lending Losses
This provision covers certain non-transferred insurance risk and non-lending losses. The self insurance provision is reassessed
annually in consultation with actuarial advice.
120 Commonwealth Bank of Australia
Bank20132012Due to beDue to beDue to beDue to beSettled WithinSettled MoreSettled WithinSettled More12 Monthsthan 12 MonthsTotal12 Monthsthan 12 MonthsTotal$M$M$M$M$M$MLong service leave289123412275110385Annual leave180-180193-193Other employee entitlements-5959-6868Restructuring costs3474138-38General insurance claims------Self insurance/non-lending losses10394994049Dividends65-6552-52Other141451869918117Total719273992666236902GroupBank2013201220132012Reconciliation$M$M$M$MRestructuring costs:Opening balance741213856Additions through merger of banking licences--24-Additional provisions7272Amounts utilised during the year(40)(49)(28)(20)Closing balance41744138General insurance claims:Opening balance184193--Additional provisions54140--Amounts utilised during the year(79)(149)--Closing balance159184--Self insurance/non-lending losses:Opening balance53494945Additions through merger of banking licences--4-Additional provisions1112711Amounts utilised during the year(5)(1)(4)-Release of provision(7)(7)(7)(7)Closing balance52534949Other:Opening balance143161117183Additions through merger of banking licences--16-Additional provisions941806376Amounts utilised during the year(26)(173)(4)(63)Release of provision(8)(25)(6)(79)Closing balance203143186117
Notes to the Financial Statements
Note 23 Debt Issues
(1) Represents the contractual maturity of the underlying instrument.
The Bank’s long term debt issues include notes issued under the: USD70 billion Euro Medium Term Note Program; the
USD50 billion US Medium Term Note Program; the USD30 billion Covered Bond Program; the USD25 billion CBA New York
Branch Medium Term Note Program; and other applicable debt documentation. Notes issued under debt programs are both fixed
and variable rate. Interest rate risk associated with the notes is incorporated within the Bank’s interest rate risk framework.
For certain debt issues booked in an offshore branch or subsidiary, the amounts have first been converted into the functional
currency of the branch at a branch defined exchange rate, before being converted into the AUD equivalent.
Where proceeds have been employed in currencies other than that of the ultimate repayment liability, swaps or other risk
management arrangements have been entered into.
Annual Report 2013
121
GroupBank2013201220132012Note$M$M$M$MMedium term notes71,03969,92364,81364,574Commercial paper34,60234,14233,73826,315Securitisation notes 478,9297,858--Covered bonds4718,23812,78916,74011,423Total debt issues132,808124,712115,291102,312Short Term Debt Issues by currencyUSD34,23028,43733,36626,143EUR999999-AUD9118191103GBP1825,30518230Other currencies-120-39Long term debt issues with less than one year to maturity20,11615,98315,70713,454Total short term debt issues54,71850,12549,44539,769Long Term Debt Issues by currencyUSD30,58131,01729,80029,814EUR17,07712,49215,98411,280AUD12,74213,0355,4376,464GBP3,6952,0713,1731,729NZD2,3972,715730472JPY4,9117,0184,8566,956Other currencies6,6486,1955,8275,784Offshore loans (all JPY)39443944Total long term debt issues78,09074,58765,84662,543Maturity Distribution of Debt Issues (1)Less than three months16,47224,58614,80517,910Between three and twelve months38,24625,53934,64021,859Between one and five years56,97054,86347,44345,739Greater than five years21,12019,72418,40316,804Total debt issues132,808124,712115,291102,312
Notes to the Financial Statements
Note 23 Debt Issues (continued)
(1) Comparatives have been restated to conform to presentation in the current year, which is now presenting short term borrowings by program, previously
they were presented by issue currency.
(2) The amount outstanding at period end is measured at amortised cost.
(3) 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.
(1) End of day, Sydney time.
122 Commonwealth Bank of Australia
Group201320122011TotalOutstanding at year end (2)34,60234,14236,121Maximum amount outstanding at any month end (3)34,60239,24236,121Average amount outstanding (3)28,17836,72127,941US Commercial Paper ProgramOutstanding at year end (2)33,49226,47126,810Maximum amount outstanding at any month end (3)33,49230,99826,810Average amount outstanding (3)25,51528,29220,520Weighted average interest rate on:Average amount outstanding0.3%0.4%0.4%Outstanding at year end0.3%0.4%0.3%Euro Commercial Paper ProgramOutstanding at year end (2)1,1107,6719,311Maximum amount outstanding at any month end (3)6,6429,4729,311Average amount outstanding (3)2,6638,4157,377Weighted average interest rate on:Average amount outstanding0.6%0.8%1.3%Outstanding at year end0.5%0.7%1.0%Domestic Commercial Paper ProgramOutstanding at year end (2)---Maximum amount outstanding at any month end (3)-15080Average amount outstanding (3)11444Weighted average interest rate on:Average amount outstanding--5.1%Outstanding at year end--- $M (except where indicated)Short Term Borrowings by Program (1)As AtAs At30 June 30 June Currency20132012AUD 1.00 =USD0.92681.0181EUR0.70980.8079GBP0.60760.6509NZD1.18601.2756JPY91.564780.9160Exchange rates utilised (1)
Notes to the Financial Statements
Note 23 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 programs 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.
The text of the Guarantee Scheme documents can be found at 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.
Existing guaranteed debt issued by the Bank remains guaranteed until maturity, unless redeemed earlier.
The Financial Claims Scheme (also known as the Australian Government Deposit Guarantee), which is administered by the
Australian Prudential Regulation Authority, guarantees deposits denominated in Australian dollars held in a specified range of
deposit accounts with the Bank for balances per account-holder totalling up to $250,000. Deposits and Other Public Borrowings
are set out in Note 19.
Guarantee under the Commonwealth Bank Sale Act
Historically, the due payment of all monies payable by the Bank was guaranteed by the Commonwealth of Australia under
section 117 of the Commonwealth Banks Act 1959 (as amended) at 30 June 1996. With the sale of the Commonwealth’s
shareholding in the Bank this guarantee has been progressively phased out under transitional arrangements found in the
Commonwealth Bank Sale Act 1995.
Demand deposits are no longer guaranteed by the Commonwealth under this guarantee. However, debt issues payable by the
Bank under a contract entered into prior to 19 July 1996 and outstanding at 19 July 1999 remain guaranteed until maturity.
Note 24 Bills Payable and Other Liabilities
Other than the defined benefit superannuation plan deficit, the above amounts are expected to be settled within twelve months of
the Balance Sheet date.
Annual Report 2013
123
Group Bank 2013201220132012Note$M $M $M $M Bills payable861773823696Accrued interest payable3,2523,4112,5592,677Accrued fees and other items payable2,1861,8721,4641,200Defined benefit superannuation plan deficit41202464202464Securities purchased not delivered1,2751,175802694Amortised receipts820745485428Life insurance other liabilities and claims payable2983246240Other1,1567977,2823,178Total bills payable and other liabilities10,0509,56113,6799,377
Notes to the Financial Statements
Note 25 Loan Capital
As at the reporting date, there are no securities of the Group or the Bank that are contractually due for redemption in the next
twelve months (note the Group has the right to call some securities earlier than the contractual maturity date).
(1) USD100 million Floating Rate Notes
On 15 October 1986, the State Bank of Victoria issued
USD100 million of floating rate notes. The floating rate notes
are perpetual but were able to be redeemed from October
1991. They were assigned to the Bank on 1 January 1991.
The Bank entered into an agreement with the Commonwealth
of Australia on 31 December 1991 which provides that, if
certain events occur, the Bank may either issue CBA ordinary
shares to the Commonwealth of Australia, or (with the
consent of the Commonwealth of Australia) conduct a
renounceable rights issue for CBA ordinary shares to all
shareholders. The capital raised must be used to pay any
amounts due and payable on the floating rate notes.
The floating rate notes were issued into the international
markets and are subject to English law. They qualify as
Additional Tier One Capital of the Bank under the Basel III
transitional arrangements
instruments as
implemented by APRA.
for capital
(2) TPS 2003
On 6 August 2003, a wholly owned entity of the Bank (CBA
Capital Trust) issued USD550 million of Trust Preferred
Securities (TPS 2003). TPS 2003 may be redeemed for cash
on 30 June 2015 and, if not redeemed, CBA Capital Trust will
be required to exchange TPS 2003 for CBA ordinary shares.
TPS 2003 were issued into the US capital markets and are
subject to Delaware law. They qualify as Additional Tier One
Capital of
transitional
arrangements for capital instruments as implemented by
APRA.
the Bank under
the Basel
III
(3) PERLS III
On 6 April 2006, a wholly owned entity of the Bank (Preferred
Capital Limited or “PCL”) issued $1,166 million of Perpetual
Exchangeable Repurchaseable Listed Shares (PERLS III).
PERLS III are preference shares which may be exchanged
for CBA ordinary shares or $200 cash each (or a combination
of both) on 6 April 2016. If PCL does not elect to exchange
PERLS III, the margin on the distributions payable on
124 Commonwealth Bank of Australia
PERLS III will increase by 1.00% per annum. PERLS III will
automatically be exchanged for CBA preference shares no
later than 10 Business Days prior to 6 April 2046.
PERLS III are listed on the ASX and are subject to New
South Wales law. They qualify as Additional Tier One Capital
of the Bank under the Basel III transitional arrangements for
capital instruments as implemented by APRA.
(4) PERLS IV
On 12 July 2007, the Bank issued $1,465 million of Perpetual
Exchangeable Resaleable Listed Securities (PERLS IV).
PERLS IV were stapled securities comprising an unsecured
subordinated note issued by the Bank’s New York branch and
a preference share issued by the Bank.
All PERLS IV were bought back by the Bank during the year
and subsequently cancelled.
(5) PERLS V
On 14 October 2009, the Bank issued $2,000 million of
Perpetual Exchangeable Resaleable Listed Securities
(PERLS V). PERLS V are stapled securities comprising an
unsecured subordinated note issued by the Bank’s New
Zealand branch and a preference share issued by the Bank.
PERLS V may be resold to a third party or repurchased for
$200 cash each on 31 October 2014 and, if not resold or
repurchased, the Bank will be required to convert PERLS V
into CBA ordinary shares.
PERLS V are listed on the ASX and are subject to New South
Wales law. They qualify as Additional Tier One Capital of the
Bank under the Basel III transitional arrangements for capital
instruments as implemented by APRA.
(6) PERLS VI
On 17 October 2012, the Bank issued $2,000 million of
Perpetual Exchangeable Resaleable Listed Securities
(PERLS VI). PERLS VI are unsecured subordinated notes.
PERLS VI may be redeemed or resold to a third party for
$100 cash each on 15 December 2018 and, if not redeemed
or resold, the Bank will be required to exchange PERLS VI for
CBA ordinary shares on 15 December 2020.
Group BankCurrency 2013201220132012Amount (M)Footnotes$M $M $M $M Tier One Loan CapitalUndatedFRN USD 100 (1)1089810898UndatedTPS USD 550 (2)593540593540UndatedPERLS III AUD 1,166 (3)1,1601,1581,1601,158UndatedPERLS IV AUD 1,465 (4)-1,463-1,463UndatedPERLS V AUD 2,000 (5)1,9911,9851,9881,980UndatedPERLS VI AUD 2,000 (6)1,979-1,979-UndatedTPS USD 700 (7)--755684Total Tier One Loan Capital5,8315,2446,5835,923Tier Two Loan CapitalAUD denominated(8)799800799800USD denominated(9)377344377344JPY denominated(10)648927648801GBP denominated(11)246229246229NZD denominated(12)-559-274EUR denominated(12)1,4041,2331,4041,233CAD denominated(12)-288-288Total Tier Two Loan Capital3,4744,3803,4743,969Fair value hedge adjustments382398380331Total Loan Capital9,68710,02210,43710,223
Notes to the Financial Statements
Note 25 Loan Capital (continued)
PERLS VI are listed on the ASX and are subject to New
South Wales law. They qualify as Additional Tier One Capital
of the Bank under Basel III as implemented by APRA.
(7) TPS 2006
On 15 March 2006, a wholly owned entity of the Bank (CBA
Capital Trust II) issued USD700 million of Trust Preferred
Securities (TPS 2006) which may be redeemed for cash, CBA
Tier One Capital securities or CBA preference shares on
15 March 2016. If CBA Capital Trust II does not elect to
redeem TPS 2006, the fixed distribution rate payable on TPS
2006 will change to a floating distribution rate. TPS 2006 will
automatically be exchanged for CBA preference shares on
15 March 2056.
TPS 2006 were issued into the US capital markets and are
subject to Delaware law. They qualify as Additional Tier One
Capital under the Basel III transitional arrangements for
capital instruments as implemented by APRA.
(8) AUD denominated Tier Two Loan Capital issuances
floating rate notes,
$275 million extendible
December 1989, due December 2014;
issued
$25 million subordinated floating rate notes, issued April
1999, due April 2029; and
$500 million subordinated floating rate notes, issued
September 2008, due September 2018.
Medium Term Notes), issued February 1999;
JPY30 billion subordinated EMTN, issued October 1995,
due October 2015; and
JPY9 billion perpetual subordinated notes, issued May
1996.
(11) GBP denominated Tier Two Loan Capital issuances
GBP150 million subordinated EMTN, issued June 2003,
due December 2023.
(12) Other currencies Tier Two Loan Capital issuances
NZD350 million redeemable preference shares, issued
May 2005, due April 2015.
On 18 May 2005, a wholly owned entity of the Bank
(CBA Capital Australia Limited) issued NZD350 million
redeemable
redeemable preference shares. The
preference shares are to be redeemed or repurchased
by CBA Capital Australia Limited on 15 April 2015.
The redeemable preference shares are listed on the
New Zealand Stock Exchange and are subject to New
South Wales law. They qualified as Tier Two Capital of
the Bank until 15 April 2013.
EUR1,000 million
subordinated
August 2009, due August 2019; and
notes,
issued
CAD300 million subordinated notes, issued October
2007, redeemed October 2012.
(9) USD denominated Tier Two Loan Capital issuances
USD350 million subordinated fixed rate notes, issued
June 2003, due June 2018.
(10) JPY denominated Tier Two Loan Capital issuances
JPY20 billion perpetual subordinated EMTN (Euro
All Tier Two Capital securities (other than the NZD and CAD
securities) qualify as Tier Two Capital under the Basel III
transitional arrangements
instruments as
implemented by APRA.
for capital
Annual Report 2013
125
Notes to the Financial Statements
Note 26 Shareholders’ Equity
(1) Refer to Note 27.
(2) During the year the number of shares issued included the acquisition of an additional 47% interest in Aussie Home Loans Pty Limited. During the prior
year the Group acquired 100% of the issued share capital of Count Financial Limited partly funded by the issue of ordinary shares.
(3) The determined dividend includes an amount attributable to Dividend Reinvestment Plan (DRP) of $930 million (final 2011/2012) with $929 million ordinary
shares being issued under plan rules which include the carry forward of DRP balance from previous dividends.
(4) Relates to the on market purchase of shares to satisfy the interim DRP and the movement in treasury shares held within Life Insurance Statutory Funds
and the employee share scheme trust.
(5) Dividends relating to equity instruments on issue other than ordinary shares.
The balances disclosed above include a share of associates and joint ventures’ other comprehensive income of $1 million for the
year ended 30 June 2013 (2012: $7 million).
126 Commonwealth Bank of Australia
GroupBank2013201220132012Note$M$M$M$MOrdinary Share Capital (1)Opening balance25,17523,60225,49823,896Issue of shares (2)193237193237Dividend reinvestment plan (net of issue costs) (3)9291,3639281,363Exercise of executive options under employee share ownership schemes-2-2Purchase of treasury shares (4)(664)(96)--Sale and vesting of treasury shares (4)69067--Closing balance2726,32325,17526,61925,498Other Equity Instruments (1)Opening balance9399391,8951,895Closing balance279399391,8951,895Retained ProfitsOpening balance13,35611,82610,7349,593Additions through merger of banking licences--919-Actuarial gains and losses from defined benefit superannuation plans311(223)311(223)Realised gains and dividend income on treasury shares (1)2913--Operating profit attributable to Equity holders of the Bank7,6777,0907,2926,461Total available for appropriation21,37318,70619,25615,831Transfers from/(to) general reserve436(223)(3)-Transfers from capital reserve355-352-Transfers from employee compensation reserve-(1)-(1)Interim dividend - cash component(2,639)(1,635)(2,639)(1,635)Interim dividend - dividend reinvestment plan-(531)-(531)Final dividend - cash component(2,207)(2,099)(2,207)(2,099)Final dividend - dividend reinvestment plan (3)(930)(831)(930)(831)Other dividends (5)(28)(30)--Closing balance16,36013,35613,82910,734
Notes to the Financial Statements
Note 26 Shareholders’ Equity (continued)
Annual Report 2013
127
Group Bank 2013201220132012Reserves$M$M$M$MGeneral ReserveOpening balance1,201978570570Appropriation (to)/from retained profits(436)2233-Closing balance7651,201573570Capital ReserveOpening balance3513281,5941,576Additions through merger of banking licences--8-Revaluation surplus on sale of property423418Transfer to retained profits(355)-(352)-Closing balance-3511,2541,594Asset Revaluation ReserveOpening balance195191150163Additions through merger of banking licences--10-Revaluation of properties43295Transfers on sale of properties(4)(23)(4)(18)Tax on revaluation of properties(1)(5)(1)-Closing balance194195164150Foreign Currency Translation ReserveOpening balance(893)(1,083)(260)(330)Currency translation adjustments of foreign operations4891999376Currency translation on net investment hedge(13)3(11)4Tax on translation adjustments(10)(12)-(10)Closing balance(427)(893)(178)(260)Cash Flow Hedge ReserveOpening balance644(402)587(387)Additions through merger of banking licences--189-Gains and losses on cash flow hedging instruments:Recognised in other comprehensive income(575)730(619)847Transferred to Income Statement:Interest income(1,046)(354)(862)(254)Interest expense1,2721,1121,091796Tax on cash flow hedging instruments73(442)122(415)Closing balance368644508587Employee Compensation ReserveOpening balance136135136135Current period movement(4)1(4)1Closing balance132136132136Available-for-Sale Investments ReserveOpening balance(63)245(45)237Net gains and losses on revaluation of available-for-sale investments553(349)365(315)Net gains and losses on available-for-sale investments transferred toIncome Statement on disposal(31)(81)(31)(86)Tax on available-for-sale investments(158)122(101)119Closing balance301(63)188(45)Total Reserves1,3331,5712,6412,732Shareholders' Equity attributable to Equity holders of the Bank44,95541,04144,98440,859Shareholders' Equity attributable to Non-controlling interests537531--Total Shareholders' Equity45,49241,57244,98440,859
Notes to the Financial Statements
Note 27 Share Capital
Ordinary Share Capital
(1) During the year the number of shares issued included the acquisition of an additional 47% interest in Aussie Home Loans Pty Limited. During the prior
year the Group acquired 100% of the issued share capital of Count Financial Limited partly funded by the issue of ordinary shares.
(2) The determined dividend includes an amount attributable to DRP of $930 million (final 2011/2012) and $831 million (final 2010/2011) with $929 million and
$832 million ordinary shares being issued under plan rules, which include the carry forward of DRP balance from previous dividends.
(3) The DRP in respect of 2012/2013 interim dividend was satisfied in full through the on market purchase and transfer of $596 million of shares to
participating shareholders.
(4) The gross dividend entitlement in respect of DRP for the 2011/2012 interim dividend was $531 million, with $531 million ordinary shares issued under plan
rules.
(5) Relates to treasury shares held within Life Insurance Statutory Funds and the employee share scheme trust.
(1) During the year the number of shares issued included the acquisition of an additional 47% interest in Aussie Home Loans Pty Limited. During the prior
year the Group acquired 100% of the issued share capital of Count Financial Limited partly funded by the issue of ordinary shares.
(2) The DRP in respect of the 2012/2013 interim dividend was satisfied in full through the on market purchase and transfer of 8,662,389 shares to participating
shareholders.
(3) Relates to treasury shares held within the Life Insurance Statutory Funds and the employees share scheme trust.
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
Trust Preferred Securities 2006
On 15 March 2006, a wholly owned entity of the Bank (CBA Capital Trust II) issued USD700 million of Trust Preferred Securities
(TPS 2006) into the US capital markets. They qualify as Additional Tier One Capital under the Basel III transitional arrangements
for capital instruments as implemented by APRA.
A related instrument was issued by the Bank to a subsidiary for $956 million and eliminates on consolidation.
128 Commonwealth Bank of Australia
Group Bank 2013201220132012Issued and paid up ordinary capital$M $M $M $M Ordinary Share CapitalOpening balance (excluding treasury shares deduction)25,49823,89625,49823,896Issue of shares (1)193237193237Dividend reinvestment plan: Final dividend prior year (2)929832928832Dividend reinvestment plan: Interim dividend (3) (4)-531-531Exercise of executive options under employee share ownership schemes-2-2Closing balance (excluding treasury shares deduction)26,62025,49826,61925,498Less: treasury shares (5)(297)(323)--Closing balance26,32325,17526,61925,498Group Bank 2013201220132012Number of shares on issueShares Shares Shares Shares Opening balance (excluding treasury shares deduction)1,592,154,7801,558,637,2441,592,154,7801,558,637,244Issue of shares (1)2,747,9955,042,9492,747,9955,042,949Dividend reinvestment plan issues:2010/2011 Final dividend fully paid ordinary shares $47.48-17,524,300-17,524,3002011/2012 Interim dividend fully paid ordinary shares $48.81-10,874,187-10,874,1872011/2012 Final dividend fully paid ordinary shares $54.5417,026,061-17,026,061-2012/2013 Interim dividend fully paid ordinary shares $68.76 (2)----Exercise of executive options under employee share ownership schemes-76,100-76,100Closing balance (excluding treasury shares deduction)1,611,928,8361,592,154,7801,611,928,8361,592,154,780Less: Treasury Shares (3)(6,076,006)(6,874,405)--Closing balance1,605,852,8301,585,280,3751,611,928,8361,592,154,780Group Bank 2013201220132012Other equity instruments$M $M $M $M Issued and paid up9399391,8951,895Shares Shares Shares Shares Number of shares700,000700,0001,400,0001,400,000
Notes to the Financial Statements
Note 27 Share Capital (continued)
Dividends
The Directors have declared a fully franked final dividend of 200 cents per share amounting to $3,224 million. The dividend will be
payable on 3 October 2013 to shareholders on the register at 5pm EST on 23 August 2013.
The Board determines the dividends based on the Group’s 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 197 cents per share amounting to $3,137 million was paid on 5 October 2012. The payment
comprised cash disbursements of $2,207 million with $930 million being reinvested by participants through the DRP; and
A fully franked interim dividend of 164 cents per share amounting to $2,639 million was paid on 5 April 2013. The payment
fully comprised cash disbursements of $2,041 million. The DRP was satisfied in full by the on market purchase of shares.
Dividend Reinvestment Plan
The Bank expects the DRP for the final dividend for the year ended 30 June 2013 will be satisfied in full by an on market
purchase of shares of approximately $806 million.
Record Date
The register closes for determination of dividend entitlement and for participation in the DRP at 5pm EST on 23 August 2013 at
Link Market Services Limited, Locked Bag A14, Sydney South, 1235.
Ex-dividend Date
The ex-dividend date is 19 August 2013.
Note 28 Share Based Payments
The Group operates a number of cash and equity settled share plans as detailed below.
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 the Group’s
net profit after tax (“cash basis”) of greater than 5%. If the hurdle is not met, the Board has discretion to determine whether a full
award, a partial award or no award is made.
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. While the Group did not achieve the performance target for the 2012 financial year, the
Board exercised its discretion and approved a partial grant of $800 worth of shares to each eligible employee in recognition of
their contribution to the Group’s results in a difficult economic environment.
The following table provides details of shares granted under the ESAP during the current and previous financial years ended 30
June.
It is estimated that approximately $34.0 million of ordinary shares will be purchased on market at the prevailing market price for
the 2013 grant.
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 the same as that which applies to ESAP. 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.
A total of $0.5 million has been expensed during the year (2012: $1.1 million) in respect of this plan.
Annual Report 2013
129
Number of sharesTotal numberTotalPeriodAllocation dateParticipants allocated by participant of shares allocatedIssue price $fair value $201314 Sep 201229,92114418,89454.7922,951,20220129 Sep 201127,46521576,76546.9127,056,046
Notes to the Financial Statements
Note 28 Share Based Payments (continued)
Employee Share Plan
The Employee Share Plan (ESP) facilitates mandatory short term incentive (STI) deferral, sign-on incentives and retention
awards.
Under the ESP, shares awarded generally vest when 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 granted under the ESP.
The weighted average fair value at grant date of shares awarded during the year was $54.82 (2012: $48.32). A total of
$41.5 million has been expensed during the year (2012: $35.7 million) 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 facilitates mandatory STI deferral, sign-on incentives and retention awards. Under the ESPUP
participants receive grants of performance units, which are monetary units with a value linked to the Bank’s share price.
Performance units generally vest when 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.
The weighted average fair value at grant date of performance units issued during the year was $54.63 (2012: $46.45). A total of
$7.4 million has been expensed during the year (2012: $6.9 million) in respect of this plan.
Group Employee Rights Plan
The Group Employee Rights Plan (GERP) facilitates the mandatory STI deferral, sign-on incentives and retention awards for
executives of selected subsidiary companies. Under the GERP, participants receive a right to a share which is subject to vesting
conditions. Rights awarded generally vest when the participant remains in employment of the Group until the vesting date. The
following table provides details of outstanding awards of rights granted under GERP.
The weighted average fair value at grant date of rights issued during the year was $54.74 (2012: $48.08). A total of $1.5 million
has been expensed during the year (2012: $1.0 million) in respect of this plan.
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. 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.
130 Commonwealth Bank of Australia
OutstandingOutstandingPeriod1 JulyGrantedVestedForfeited30 JuneJuly 2010 - June 2011612,699-(104,199)(6,063)502,437July 2011 - June 20121,022,190-(167,615)(71,633)782,942July 2012 - June 2013-827,482(35,956)(14,961)776,565Total 20131,634,889827,482(307,770)(92,657)2,061,944Total 2012772,2681,108,959(179,273)(67,065)1,634,889OutstandingOutstandingPeriod1 JulyGrantedVestedForfeited30 JuneJuly 2010 - June 201163,943-(22,787)(1,869)39,287July 2011 - June 201295,347-(33,914)(4,827)56,606July 2012 - June 2013-79,634(26,271)(3,042)50,321Total 2013159,29079,634(82,972)(9,738)146,214Total 201295,643138,982(74,427)(908)159,290OutstandingOutstandingAllocation period1 JulyGrantedVestedForfeited30 JuneJuly 2009 - June 20106,587-(6,587)--July 2010 - June 201117,860-(979)(1,047)15,834July 2011 - June 201235,496-(3,949)(1,603)29,944July 2012 - June 2013-34,400(2,962)(2,081)29,357Total 201359,94334,400(14,477)(4,731)75,135Total 201231,08939,134(4,482)(5,798)59,943
Notes to the Financial Statements
Note 28 Share Based Payments (continued)
The following table provides details of shares granted under the ESSSP.
Equity Participation Plan
The Equity Participation Plan (EPP) facilitated the partial deferral of executives STI payments, together with sign-on and retention
awards. Shares generally vest to participants when 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 EPP was closed to new offers in the 2010 financial year.
The following table provides details of outstanding awards of shares granted under the mandatory component of EPP.
(1) No awards were allocated from July 2005 to June 2007.
A total of $0.04 million has been expensed during the year (2012: $11.0 million).
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 closed to new offers in the 2010 financial year.
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 generally vest when 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 EPPUP.
Due to the vesting price of performance units being lower than the grant price, a $0.1 million gain (2012: $1.0 million loss) has
been recognised 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 focuses on driving performance and shareholder alignment in the longer term.
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:
50% of the award assessed against Customer Satisfaction compared to a set peer group; and
50% of the award assessed against Total Shareholder Return (TSR) compared to a set peer group.
For awards made from the 2011 financial year onwards:
25% of the award assessed against Customer Satisfaction compared to a set peer group; and
75% of the award assessed against TSR compared to a set peer group.
The Customer Satisfaction peer group consists of the ANZ, NAB, St George (FY10 award only), Westpac and other key
competitors.
Annual Report 2013
131
PeriodParticipantsNumber of shares purchasedAverage share price $Total purchase consideration $201347717,96559.861,075,390201222714,31449.33706,109OutstandingVested andOutstandingAllocation period1 JulyGrantedReleasedForfeited30 JuneJuly 2002 - June 200323,315-(23,315)--July 2003 - June 200427,678-(4,216)-23,462July 2004 - June 2005 (1)23,796-(5,707)-18,089July 2007 - June 200827,150-(4,279)-22,871July 2008 - June 200948,344-(28,244)-20,100July 2009 - June 2010536,117-(519,365)-16,752Total 2013686,400-(585,126)-101,274Total 20121,446,306-(735,345)(24,561)686,400OutstandingOutstandingAllocation period1 JulyGrantedVestedForfeited30 JuneJuly 2009 - June 201043,383-(43,383)--Total 201343,383-(43,383)--Total 201258,973-(15,590)-43,383
Notes to the Financial Statements
Note 28 Share Based Payments (continued)
Group Leadership Reward Plan (continued)
The TSR peer group for all awards comprises the 20 largest companies listed on the ASX (by market capitalisation) at the
beginning of each respective performance period, excluding resource 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 2010 financial year 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 at the end of the performance period, with no
vesting below this level.
For the 2011 and 2012 financial year awards, the portion of the awards 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 at the end of the performance period. 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 the
overall performance is worse at the end of the performance period than at the beginning, none of this portion will vest.
For the 2013 financial year award, the portion of the award assessed against Customer Satisfaction that will vest is: 100%
where the weighted average ranking for CBA over the performance period is 1st (i.e. 1.00), 50% where CBA’s weighted
average ranking is 2nd and vesting on a sliding scale between 100% and 50% on a pro-rata straight line basis if CBA’s
weighted average ranking is between 1st and 2nd (i.e. between 1.00 and 2.00). No Reward Rights in this part of the award will
vest if CBA’s weighted average ranking is lower than 2nd (i.e. above 2.00).
For the portion of the 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 was subject to the same performance hurdles as the four year award. The transitional award reached the end
of its performance period on 30 June 2012 and in line with the plan rules 87.50% of the awarded rights vested.
The following table provides details of outstanding awards of performance rights granted under the GLRP.
The weighted average fair value at the grant date of all Reward Rights issued during the year was $53.86 per right (2012:
$36.13). 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 2013 financial year award includes a risk
free interest rate ranging from 3.04% to 3.22%, a nil dividend yield on the Bank’s ordinary shares and a volatility in the Bank
share price of 20.0%. 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 $12.9 million has been expensed in the current year (2012: $18.8 million) for GLRP.
Equity Reward Plan
The Equity Reward Plan (ERP) was the Group’s long term incentive plan for executives until the final grants were made in 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 granted under the ERP.
No amount has been expensed in the current or prior year.
132 Commonwealth Bank of Australia
PerformancePerformanceOutstandingOutstandingperiod start datetest date1 JulyGrantedVestedForfeited30 June 1 July 200930 June 2012370,297-(312,931)(57,366)- 1 July 200930 June 2013523,919--(47,471)476,448 1 July 201030 June 2014388,412--(34,446)353,966 1 July 201130 June 2015416,986--(38,927)378,059 1 July 201230 June 2016-446,281--446,281Total 20131,699,614446,281(312,931)(178,210)1,654,754Total 20121,282,628416,986--1,699,614OutstandingOutstandingAllocation period1 JulyGrantedReleasedForfeited30 JuneJuly 2002 - June 20031,650-(1,650)--July 2003 - June 200415,500-(3,000)-12,500July 2004 - June 200513,500-(3,000)-10,500July 2005 - June 200632,780-(2,000)-30,780July 2006 - June 200738,900-(3,900)-35,000Total 2013102,330-(13,550)-88,780Total 2012209,590-(107,260)-102,330
Notes to the Financial Statements
Note 28 Share Based Payments (continued)
Non-Executive Directors Share Plan
The Non-Executive Directors Share Plan (NEDSP) facilitates the following arrangements for Non-Executive Directors’ (NEDs):
Acquisition of shares using 20% of their post-tax fees. NEDs are required to defer 20% of their post-tax fees until they reach
a minimum shareholding requirement of 5,000 shares; 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 $0.03 million (2012: $0.2 million) was expensed reflecting shares purchased and allocated under the
NEDSP.
Note 29 Non-Controlling Interests
The share capital above comprises predominantly New Zealand Perpetual Preference Shares (PPS) of AUD505 million. On
10 December 2002, ASB Capital Limited, a New Zealand subsidiary, issued NZD200 million (AUD182 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 payments 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 Limited, a New Zealand subsidiary, issued NZD350 million (AUD323 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 payments 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 PPS issued by ASB Limited (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.
Annual Report 2013
133
Total fees appliedNumber of sharesAverage purchase pricePeriod$Participants purchased$201334,049153863.292012175,449103,67347.77Group 20132012$M $M Shareholders' equity537531Total non-controlling interests537531
Notes to the Financial Statements
Note 30 Capital Adequacy
Capital Management
The Bank is an Authorised Deposit-taking Institution (ADI)
and is subject to regulation by APRA under the authority of
the Banking Act 1959. APRA has set minimum regulatory
capital requirements for banks based on the Basel Committee
on Banking Supervision (BCBS) guidelines.
The Basel III measurement and monitoring of capital has
been effective from 1 January 2013. APRA has adopted a
more conservative approach than the minimum standards
published by the BCBS and a more accelerated timetable.
The 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
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 Common Equity Tier One
(CET1), Tier One and Tier Two Capital. CET1 primarily
consists of Shareholders’ Equity, less goodwill and other
prescribed adjustments. Tier One Capital is comprised of
CET1 plus other capital instruments acceptable to APRA. Tier
Two Capital is comprised primarily of hybrid and debt
the
instruments acceptable
aggregate of Tier One and Tier Two Capital. A detailed
to APRA. Total Capital
is
breakdown of the components of capital is detailed on pages
24 to 25.
The tangible component of the investment in the insurance
and funds management operations are deducted 100% from
CET1.
Capital adequacy is measured by means of a risk based
capital ratio. The capital ratios reflect capital (CET1, 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 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 both the Executive Committee
and the Asset and Liability Committee (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 2012 and 2013
financial years were in compliance with both APRA minimum
capital adequacy requirements and the Board Approved
minimums. 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.
134 Commonwealth Bank of Australia
Notes to the Financial Statements
Note 31 Financial Reporting by Segments
The principal activities of the Group are carried out in the
below business segments. These segments are based on the
distribution channels through which the customer relationship
is being managed.
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 Other Divisions).
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 it provides the basis for the
determination of the Bank’s dividends. The “cash basis”
presents 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.
(i) Retail Banking Services
Retail Banking Services provides home loan, consumer
finance and retail deposit products and servicing to all Retail
bank customers. In addition, commission is received for the
distribution of 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.
(iii) Institutional Banking and Markets
Institutional Banking and Markets services the Group’s major
corporate,
institutional and government clients using a
relationship management model based on industry expertise
and local insights. The Total Capital Solutions offering
financial and
includes debt and equity capital raising,
commodities price
transactional
risk management and
banking capabilities. Institutional Banking and Markets has
international operations in London, Malta, New York, New
Zealand, Singapore, Hong Kong, Japan and Shanghai.
(iv) Wealth Management
Wealth Management includes the Global Asset Management
(including operations
in Asia and Europe), 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
Institutional Banking and
Markets).
international business of
(vi) Bankwest
Bankwest is active in all domestic market segments, with
lending diversified between the business, rural, housing and
personal markets, including a full range of deposit products.
(vii) Other Divisions
The following parts of the business are included in Other
Divisions:
International Financial Services Asia incorporates the
Asian retail and SME banking operations (Indonesia,
China, Vietnam and India), investments in Chinese and
life
Vietnamese banks,
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;
joint venture Chinese
the
Corporate Centre includes the results of unallocated
Group support functions such as Investor Relations,
Group Strategy, Secretariat and Treasury; and
Group wide Eliminations/Unallocated
intra-
group elimination entries arising on consolidation,
centrally
raised provisions and other unallocated
revenue and expenses.
includes
During the year, the Group made a number of segment
reporting improvements effective from 1 July 2012. Results
and balances for the comparative period in this note have
been restated due to the following:
Customer Reporting –
revenue, expenses and
associated customer balances were reallocated between
segments based on where the customer relationship is
being managed, rather than the business from which the
product originated. This change primarily affects the
presentation of
the Retail Banking Services and
Business and Private Banking segments.
Capital Allocation – the Group allocated higher capital
the
to business segments
requirements
introduction of the Basel III regulatory capital framework.
Earnings on equity were reallocated from the Corporate
Centre (where residual capital was previously held) to
each segment, with no change to total Group capital
levels.
following
Single ADI –
treasury-related revenues, operating
expenses and balance sheet items were transferred
from the Bankwest segment to the Corporate Centre
following the relinquishment of the Bankwest banking
licence.
Annual Report 2013
135
Notes to the Financial Statements
Note 31 Financial Reporting by Segments (continued)
(1)
Investment experience is presented on a pre-tax basis.
(2) Operating expenses include volume related expenses.
(3) 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 items for the period are Bell Group litigation ($45 million expense), treasury shares valuation adjustment ($53 million expense), unrealised gains and losses related to hedging and IFRS volatility ($27 million gain), and
Bankwest non-cash items ($71 million expense).
136 Commonwealth Bank of Australia
RetailBusiness andInstitutionalBankingPrivateBanking andWealthNewServices Banking Markets Management Zealand Bankwest Other Total $M$M$M$M$M$M$M$MNet interest income6,4272,9421,344-1,1091,53758513,944Other banking income1,5208101,289-2402101524,221Total banking income7,9473,7522,633-1,3491,74773718,165Funds management income---2,07554-172,146Insurance income---716247-711,034Total operating income7,9473,7522,6332,7911,6501,74782521,345Investment experience (1)---1576-(9)154Total net operating income before impairment and operating expense7,9473,7522,6332,9481,6561,74781621,499Operating expenses (2)(3,063)(1,355)(901)(2,008)(767)(825)(686)(9,605)Loan impairment expense(533)(280)(154)-(45)(118)48(1,082)Net profit before income tax4,3512,1171,57894084480417810,812Corporate tax expense(1,297)(629)(368)(253)(209)(243)22(2,977)Non-controlling interests------(16)(16)Net profit after tax ("cash basis") (3)3,0541,4881,2106876355611847,819Hedging and IFRS volatility----(24)-5127Other non-cash items--(45)(53)-(71)-(169)Net profit after tax ("statutory basis")3,0541,4881,1656346114902357,677Additional informationIntangible asset amortisation(31)(43)(24)(14)(27)(75)(126)(340)Depreciation(7)(15)(66)(3)(29)(37)(218)(375)Balance SheetTotal assets264,713103,605144,81320,50858,06073,88288,295753,876Acquisition of property plant and equipment, intangibles and other non-current assets11135936940187670Investment in associates and joint ventures257309892--1,0932,281Total liabilities181,12271,667143,13922,88252,79342,007194,774708,3842013
Note 31 Financial Reporting by Segments (continued)
Notes to the Financial Statements
(1) Comparatives have been restated to align to improvements made in segment reporting. For details of the changes made refer to Note 31 page 135.
(2)
Investment experience is presented on a pre-tax basis.
(3) Operating expenses include volume related expenses.
(4) 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 items for the period are Count Financial acquisition costs ($43 million expense), treasury shares valuation adjustment ($15 million expense), unrealised gains and losses related to hedging and IFRS volatility ($124 million
gain), and Bankwest non-cash items ($89 million expense).
(5) Comparatives have been restated to conform to presentation in the current year.
Annual Report 2013
137
RetailBusiness andInstitutionalBankingPrivateBanking andWealthNewServicesBankingMarketsManagementZealandBankwestOtherTotal$M$M$M$M$M$M$M$MNet interest income5,9392,9211,489-1,0131,46233313,157Other banking income1,451860901-2142013003,927Total banking income7,3903,7812,390-1,2271,66363317,084Funds management income---1,88844-251,957Insurance income---691227-42960Total operating income7,3903,7812,3902,5791,4981,66370020,001Investment experience (2)---194(11)-(34)149Total net operating income before impairment and operating expense7,3903,7812,3902,7731,4871,66366620,150Operating expenses (3)(2,965)(1,350)(840)(1,909)(724)(848)(560)(9,196)Loan impairment expense(583)(266)(154)-(37)(61)12(1,089)Net profit before income tax3,8422,1651,3968647267541189,865Corporate tax expense(1,139)(652)(298)(235)(185)(227)-(2,736)Non-controlling interests------(16)(16)Net profit after tax ("cash basis") (4)2,7031,5131,0986295415271027,113Hedging and IFRS volatility----28-96124Other non-cash items---(58)-(89)-(147)Net profit after tax ("statutory basis")2,7031,5131,0985715694381987,090Additional informationIntangible asset amortisation(36)(45)(9)(8)(24)(84)(70)(276)Depreciation(8)(16)(52)(4)(26)(31)(215)(352)Balance SheetTotal assets (5)250,16699,786143,15520,64351,45673,96379,690718,859Acquisition of property plant and equipment, intangibles and other non-current assets682542874893198894Investment in associates71286822--9711,898Total liabilities (5)167,01870,531137,51621,08147,22646,833187,082677,2872012 (1)
Notes to the Financial Statements
Note 31 Financial Reporting by Segments (continued)
Products and Services Information
Revenue from external customers by product or service is disclosed in Notes 2 and 3. No single customer amounted to greater
than 10% of the Group’s revenue.
Geographical Information
(1) Other locations include: United Kingdom, United States, Japan, Singapore, Malta, Hong Kong, Indonesia, China, India and Vietnam.
(2) Non-current assets include Property, plant and equipment, Investments in associates and joint ventures and Intangibles.
The geographical segment represents the location in which the transaction was recognised.
Note 32 Insurance Businesses
Life Insurance
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. Refer to Note 1(ff) – (ii). The insurance segment result is prepared on a business segment basis.
138 Commonwealth Bank of Australia
GroupYear Ended 30 June201320122011Financial Performance & Position$M%$M%$M%IncomeAustralia39,18487. 341,80988. 640,98688. 4New Zealand3,8908. 73,7087. 93,8198. 2Other locations (1)1,7934. 01,6763. 51,5963. 4Total income44,867100. 047,193100. 046,401100. 0Non-Current Assets (2)Australia14,21192. 213,59492. 612,70692. 9New Zealand1,0236. 69176. 28526. 2Other locations (1)1881. 21711. 21230. 9Total non-current assets15,422100. 014,682100. 013,681100. 0Life InsuranceLife InvestmentContractsContractsGroup201320122013201220132012Summarised income statement$M$M$M$M$M$MPremium income and related revenue2,0421,8903052412,3472,131Outward reinsurance premiums expense(302)(249)--(302)(249)Claims expense(1,187)(1,103)(51)(35)(1,238)(1,138)Reinsurance recoveries233228--233228Investment revenue (excluding investments in subsidiaries):Equity securities1646757(92)921(86)Debt securities84368242494326862Property4022613210154Other39113146(68)18545Increase in contract liabilities(157)(202)(1,097)(314)(1,254)(516)Operating income9561,0733632581,3191,331Acquisition expenses(256)(254)(33)(30)(289)(284)Maintenance expenses(368)(329)(81)(78)(449)(407)Management expenses(14)(14)(25)(25)(39)(39)Net profit before income tax318476224125542601Income tax expense attributable to operating profit(125)(214)(121)(29)(246)(243)Net profit after income tax19326210396296358
Note 32 Insurance Businesses (continued)
Notes to the Financial Statements
The disclosure of the components of net profit after income tax is 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.
Prescribed Capital of Controlled Insurance Companies
Australian Life Insurers and General Insurers
Under the Life Insurance Act 1995, life insurers are required to hold reserves in excess of the amount of policy liabilities. These
additional reserves are necessary to support the life insurer's capital requirements under its business plan and to provide a
cushion against adverse experience in managing long term risks. APRA has issued Life Prudential Standard (LPS) 110 'Capital
Adequacy' for determining the level of capital reserves. LPS110 prescribes the minimum capital requirement for each statutory
fund and the minimum level of assets required to be held in each statutory fund.
Under APRA General Prudential Standard (GPS) 110 ‘Capital Adequacy’, general insurers are required to maintain a capital base
in excess of its minimum capital requirement as defined under the Prudential Standard. The Group has been operating with a
Board approved Capital Management Policy during the course of the year. The Group’s Capital Management Policy takes into
account the need to hold additional capital as a prudential safeguard against inadvertent breach of the regulatory requirements.
Overseas Life Insurers
The overseas life insurers are required to hold reserves in excess of the amount of policy liabilities. The summarised information
provided has been prepared in accordance with local solvency requirements, as prescribed by local Acts and prevailing local
prudential rules.
Annual Report 2013
139
Life Insurance Life Investment Contracts Contracts Group 201320122013201220132012Sources of life insurance net profit$M $M $M $M $M $M The net profit after income tax is represented by:Emergence of planned profit margins2222328395305327Difference between actual and planned experience(95)(57)19(1)(76)(58)Effects of changes to underlying assumptions8(20)--8(20)Reversal of previously recognised losses or loss recognition on groups of related products(4)2--(4)2Investment earnings on assets in excess of policyholder liabilities621081263110Other movements-(3)---(3)Net profit after income tax19326210396296358Life insurance premiums received and receivable2,0461,9025416782,5872,580Life insurance claims paid and payable1,2471,1681,6331,5762,8802,744Life InsuranceLife InvestmentContractsContractsGroupReconciliation of movements in201320122013201220132012policy liabilities$M$M$M$M$M$MContract policy liabilitiesGross policy liabilities opening balance3,2663,1379,72810,51512,99413,652Movement in policy liabilities reflected in the Income Statement2452111,0973141,342525Contract contributions recognised in policy liabilities69237439243448Contract withdrawals recognised in policy liabilities(61)(65)(1,582)(1,541)(1,643)(1,606)Non-cash movements(60)(26)41-(19)(26)FX translation adjustment19-681871Gross policy liabilities closing balance3,4153,2669,5899,72813,00412,994Liabilities ceded under reinsuranceOpening balance(172)(164)--(172)(164)Increase in reinsurance assets(89)(8)--(89)(8)Closing balance(261)(172)--(261)(172)Net policy liabilitiesExpected to be realised within 12 months5795641,7281,5832,3072,147Expected to be realised in more than 12 months2,5752,5307,8618,14510,43610,675Total net insurance policy liabilities3,1543,0949,5899,72812,74312,822
Notes to the Financial Statements
Note 32 Insurance Businesses (continued)
Prescribed Capital Amount (PCA)
The figures in the table below show the number of times coverage for each insurance subsidiary representing the assets available
for capital over the capital reserve.
(1) 2013 PCA coverage was determined using the new Life and General Insurance Capital (LAGIC) Standard effective 1 January 2013.
Note 33 Remuneration of Auditors
During the financial year, the following fees were paid or payable for services provided by the auditor of the Group and the Bank,
and its network firms:
(1) An additional amount of $8,812,600 (2012: $9,231,613) was paid to PricewaterhouseCoopers by way of fees for entities not consolidated into the Financial
Statements. Of this amount, $8,331,928 (2012: $8,411,965) relates to audit and audit-related services.
The Audit Committee has considered the non-audit services provided by PricewaterhouseCoopers and is satisfied that the
services and the level of fees are compatible with maintaining auditors’ independence. All such services were approved by the
Audit Committee in accordance with pre-approved policies and procedures.
Audit related services principally includes assurance and attestation reviews of the Group’s foreign disclosures for overseas
investors, services in relation to regulatory requirements, acquisition accounting advice as well as reviews of internal control
systems and financial or regulatory information.
Taxation services included assistance and training in relation to tax legislation and developments and other services primarily
consisted of project assurance and risk compliance support.
Other services include project assurance particularly relating to information technology projects, and reviews of compliance with
legal and regulatory frameworks.
140 Commonwealth Bank of Australia
20132012PCA CoverageTimesTimesThe Colonial Mutual Life Assurance Society Limited, Australia (1)1. 652. 19Sovereign Assurance Company Limited, New Zealand1. 291. 19PT Commonwealth Life, Indonesia7. 514. 82Commonwealth Insurance Limited, Australia (1)1. 921. 83GroupBank2013201220132012$'000$'000$'000$'000a) Audit and audit related servicesAudit servicesPricewaterhouseCoopers Australian firm14,62714,03010,0779,106Network firms of PricewaterhouseCoopers Australian firm3,9153,815517476Total remuneration for audit services18,54217,84510,5949,582Audit related servicesPricewaterhouseCoopers Australian firm2,7024,6202,1573,270Network firms of PricewaterhouseCoopers Australian firm53838921895Total remuneration for audit related services3,2405,0092,3753,365Total remuneration for audit and audit related services21,78222,85412,96912,947b) Non-audit servicesTaxation servicesPricewaterhouseCoopers Australian firm1,8811,5301,5131,432Network firms of PricewaterhouseCoopers Australian firm1,2071,347116360Total remuneration for tax related services3,0882,8771,6291,792Other ServicesPricewaterhouseCoopers Australian firm1,6782,5991,2872,599Network firms of PricewaterhouseCoopers Australian firm-41--Total remuneration for other services1,6782,6401,2872,599Total remuneration for non-audit services 4,7665,5172,9164,391Total remuneration for audit and non-audit services (1)26,54828,37115,88517,338
Notes to the Financial Statements
Note 34 Lease Commitments
(1) Comparatives have been restated to conform to presentation in the current year.
Lease Arrangements
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.
The total expected future sublease payments to be received are $149 million as at 30 June 2013 (2012: $77 million).
Note 35 Contingent Liabilities, Contingent Assets and Commitments
Details of contingent liabilities and off balance sheet business are presented below. The face (contract) value represents the
maximum potential amount that could be lost if the counterparty fails to meet its financial obligations.
(1) Guarantees are unconditional undertakings given to support the obligations of a customer to third parties.
(2) Standby letters of credit are undertakings to pay, against presentation of documents, an obligation in the event of a default by a customer.
(3) Bills of exchange endorsed by the Group and Bank which represent liabilities in the event of default by the acceptor and the drawer of the bill.
(4) Documentary letters of credit are undertakings by the Group and Bank to pay or accept drafts drawn by a supplier of goods against presentation of
documents in the event of payment default by a customer.
(5) Performance related contingents are undertakings that oblige the Group and Bank to pay third parties should a customer fail to fulfil a contractual non-
monetary obligation.
(6) Commitments to provide credit include all obligations on the part of the Group and Bank to provide credit facilities. As facilities may expire without being
drawn upon, the notional amounts do not necessarily reflect future cash requirements.
(7) Other commitments include underwriting facilities and commitments with certain drawdowns.
Annual Report 2013
141
Group Bank 2013201220132012$M $M $M $M Lease Commitments - Property, Plant and Equipment (1)Due within one year 565544515404Due after one year but not later than five years 1,4271,4031,2841,053Due after five years 1,0731,044839639Total lease commitments - property, plant and equipment3,0652,9912,6382,096Group Face Value Credit Equivalent 2013201220132012Credit risk related instruments$M $M $M $M Guarantees (1)5,6965,3585,6965,357Standby letters of credit (2)134201134201Bill endorsements (3)19231923Documentary letters of credit (4)3,6531,7633,6211,759Performance related contingents (5)1,5421,6771,5101,605Commitments to provide credit (6)139,964127,833132,451113,503Other commitments (7)1,8682,0931,5101,468Total credit risk related instruments152,876138,948144,941123,916Bank Face Value Credit Equivalent 2013201220132012Credit risk related instruments$M $M $M $M Guarantees (1)5,3454,7185,3454,718Standby letters of credit (2)362362Bill endorsements (3)19231923Documentary letters of credit (4) 3,6011,7443,5751,744Performance related contingents (5)1,5421,5761,5101,554Commitments to provide credit (6)130,753109,648123,235105,045Other commitments (7)939934924924Total credit risk related instruments142,235118,645134,644114,010
Notes to the Financial Statements
Note 35 Contingent Liabilities, Contingent Assets and Commitments (continued)
Contingent Credit Liabilities
(ASIC) commenced legal proceedings against the Bank in
relation to Storm Financial, a Queensland-based financial
planning firm that collapsed and went into receivership in
March 2009. These proceedings were settled in September
2012 with CBA agreeing, without admission of liability, to pay
affected investors up to approximately $136 million (in
addition to payments under CBA’s resolution scheme).
In addition, class action proceedings have been commenced
against the Group in relation to Storm Financial. At this stage
only the damages sought on behalf of the four lead applicants
have been quantified on a number of alternate bases, thus
quantification of the claims of all group members is not
possible. The hearing of the proceedings commenced in
March 2013 and is scheduled to conclude in September
2013.
The Group believes that appropriate provisions are held to
cover any exposures arising from the class action referred to
above.
Exception Fee Class Action
In May 2011, Maurice Blackburn announced that it intended
to sue 12 Australian banks, including Commonwealth Bank of
Australia and Bankwest, with respect to exception fees. On
16 December 2011 proceedings were
issued against
Commonwealth Bank of Australia, and on 18 April 2012
against Bankwest. Both
proceedings were
proceedings are stayed until March 2014 pending the hearing
of similar proceedings against another bank. The financial
impact cannot be reliably measured at this stage; however, it
is not anticipated to have a material impact on the Group.
issued
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.
Interbank Deposit Agreement
The Bank is a participant to the Interbank Deposit Agreement
along with the other three major Australian banks. This
agreement has been certified as a liquidity support facility by
APRA. Under the agreement, should one of the participants
experience liquidity issues, it can request deposits from the
other three participating banks, each of which are required to
deposit up to $2 billion for a period of 30 days. At the end of
30 days the deposit holder has the option to repay the deposit
in cash or by way of assignment of mortgages to the value of
the deposit.
Capital Commitments
The Group is committed for capital expenditure on property,
plant and equipment and computer software under contract of
$17 million as at 30 June 2013 (2012: $54 million). The Bank
is committed for $12 million (2012: $14 million). These
commitments are expected to be extinguished within 12
months.
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 2013 was $5 million (2012: $4.7 million).
The Group and Bank 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
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.
include guarantees,
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 and Bank’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
the
irrevocable because
discretion of the Group or Bank without the risk of incurring
significant penalty or expense. In addition, commitments to
purchase or sell loans are included in other commitments.
they cannot be withdrawn at
These transactions are categorised and credit equivalents
risk-based
calculated under APRA guidelines
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
Under the Basel III 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 than 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 and Bank 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 141 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. For all
litigation exposure where some loss is probable and can be
reliably estimated an appropriate provision has been made.
Litigation related contingent liabilities at 30 June 2013:
Storm Financial
The Australian Securities and
Investments Commission
142 Commonwealth Bank of Australia
Notes to the Financial Statements
Note 35 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 creditworthiness 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, re-pledge, or
otherwise use some of the collateral received. At Balance Sheet date the carrying value of cash accepted as collateral (and
recognised on the Group’s and the Bank’s Balance Sheets) and the fair value of securities accepted as collateral (but not
recognised on the Group’s or the Bank’s Balance Sheets) were as follows:
Assets Pledged
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:
(1) These balances include assets sold under repurchase agreements. The liabilities related to these repurchase agreements are disclosed in Note 19.
The Group and the Bank have pledged collateral as part of entering repurchase and derivative agreements. These transactions
are governed by standard industry agreements.
Note 36 Fiduciary Activities
The Group conducts investment management and other fiduciary activities as responsible entity, trustee, custodian, adviser or
manager for investment funds and trusts, including superannuation and approved deposit funds, wholesale and retail trusts.
These funds and trusts are not consolidated as the Group does not have direct or indirect control. Where the Group incurs
liabilities in respect of these activities, and the primary obligation is incurred in an agency capacity, for the fund or trust rather than
on its own account, 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, administered or managed, but not reported in the Group’s Balance Sheet are as
follows:
(1) Comparatives have been restated to conform to presentation in the current year.
Annual Report 2013
143
GroupBank2013201220132012$M$M$M$MCash6,9633,2886,6893,208Securities8,0167,0187,2827,006Collateral held14,97910,30613,97110,214Collateral held which is re-pledged or sold15---GroupBank2013201220132012$M$M$M$MCash2,8533,5072,8233,414Assets at fair value through Income Statement (1)5,8776,2225,8446,237Assets pledged8,7309,7298,6679,651Asset pledged which can be re-pledged or re-sold by counterparty5,5725,2455,5395,258Group 20132012$M $M Funds under administration (1)217,692177,508Assets under management (1)169,328140,400
Notes to the Financial Statements
Note 37 Risk Management
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
the
instruments are
Group’s business. Managing financial risks, especially credit
risk, is a fundamental part of the Group’s business activities.
fundamental
to
Governance
A description of the Group’s risk governance is set out in the
Corporate Governance Section of the Annual Report (pages
34 to 39).
Risk Management Framework
The Group has in place an integrated risk management
framework to identify, assess, manage and report risks and
risk-adjusted returns on a consistent and reliable basis.
This framework requires each business to manage the
outcome of its risk-taking activities and allows it to benefit
from the resulting risk adjusted returns.
Accountability for risk management is structured by a “Three
Lines of Defence” model as follows:
the place
Line 1 – Business Management – risk is best managed
at
it occurs. Business Managers are
responsible for managing the risks for their business.
This includes implementing approaches to proactively
manage their risk within risk appetite levels, and using
risk management outcomes (“the costs of risk”) and
considerations as part of their day-to-day business
making processes.
integrated
Line 2 – Risk Management – Group and Business Unit
Risk Management teams provide risk management
expertise and oversight for Business Management risk-
taking activities. Risk Management develop and maintain
aligned and
frameworks, policies and
procedures for risk management and ensure they are
embedded and
the day-to-day
in use as part of
management of the business. Risk Management also
measures risk exposures to support risk decisions by
business owners and also to make certain market and
credit risk decisions under approved delegations of
authority; in particular it undertakes quantitative and
qualitative analysis of the credit exposures originated by
the business as part of its responsibility for credit rating
and decisioning.
Line 3 – Group Audit and Assurance – provide
independent assurance 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, including credit origination and credit quality of
the portfolio.
Material Business Risks
There are a number of material business risks that could
adversely affect the achievement of the Group’s financial
performance objectives. The main financial risks affecting the
Group are discussed in Notes 32 (Insurance Businesses), 38
(Credit Risk), 39 (Market Risk), and 40 (Liquidity and Funding
Risk). Insurance Risk, Operational Risk, Compliance Risk,
Strategic Business Risk and Reputational Risk are discussed
below.
Insurance Risk
Insurance risk is the risk of loss due to increases in policy
benefit payments 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) related claims being greater than expected. For the
general insurance business, variability arises mainly through
weather related incidents and similar events, as well as
144 Commonwealth Bank of Australia
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 that the level of risk
associated with an individual contract can be accurately
assessed, charged for through premium rates, and
reserved for;
Claims management, where an assessment is made
such that only genuinely insured claims are admitted and
paid; and
Transferring a portion of the risk carried to reinsurers.
Further information on the Life Insurance Business is included
in Note 32 to the Financial Statements.
Operational Risk
inadequate or
Operational risk is defined as the risk of economic loss arising
internal processes, people,
from
systems, or from external events. It includes legal, regulatory,
fraud, business continuity and technology risks.
failed
The Group’s Operational Risk Management Framework
(ORMF) 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, including a
consistent approach to operational risk management
across the Group;
Transparency, escalation and resolution of risk and
control incidents and issues; and
Making decisions based upon an informed risk-return
analysis and appropriate standards of professional
practice.
The Group measures operational risk using an APRA
approved Advanced Measurement Approach capital model
which is integrated into the ORMF. The inputs include
scenario analysis, loss data and risk indicators.
Compliance Risk
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.
is consistent with
The Group’s Compliance Risk Management Framework
(CRMF)
the Australian Standard on
Compliance Programs. 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
Licences. The CRMF incorporates a number of components,
including Group policies, a Compliance Obligations Register
and a Compliance Review program 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,
testing of
implementation of controls, monitoring and
framework effectiveness and the escalation, remediation and
reporting of compliance incidents and control weaknesses.
Strategic Business Risk
Strategic business risk is defined as the risk of economic loss
resulting from changes in the business environment caused
Notes to the Financial Statements
Note 37 Risk Management (continued)
by the following factors:
Macroeconomic conditions;
Competitive forces at work; or
Social trends.
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.
it exists
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.
the organisation and
throughout
Furthermore,
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
on Group-related
responds
respects, adverse
transactions.
reputational risk outcomes flow from the failure to manage
other types of risk.
In many but not all
influences
external
to
Note 38 Credit Risk
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), commitments to lend,
investments
financial market
transactions, providers of credit enhancements (e.g. credit
default swaps, lenders mortgage insurance), securitisations
and other associated activities. In the insurance business,
credit risk arises from investment in bonds and notes, loans,
and from reliance on reinsurance.
in bonds and notes,
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 appetite and 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
capacity, acceptable
loan
documentation tests.
terms and security and
The Group uses a Risk Committee approved diversified
the management of credit risk
portfolio approach
concentrations comprised of the following:
for
A large credit exposures policy, which sets limits for
aggregate exposures to individual, commercial, bank
and government client groups;
An industry concentrations policy that defines a system
of limits for concentrations 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 by 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 and personal loan facilities, some leasing products
and most secured commercial lending up to $1 million.
Auto-decisioning is used to approve credit applications for
eligible business and consumer customers. Auto-decisioning
uses a scorecard approach based on the Group’s historical
experience on similar applications, information from a credit
reference bureau and/or from the Group’s existing knowledge
of a customer’s behaviour.
that do not meet scorecard Auto-
Loan applications
decisioning
to a Risk
Management Officer with a Personal Credit Approval
Authority (PCAA) for manual decisioning.
requirements may be
referred
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 Risk Management or Business Credit Support Unit.
Commercial lending up to $1 million is reviewed as part of the
Group’s quality assurance process and oversight is provided
by the independent Credit Portfolio Assurance unit. Facilities
in
for remedial
management by centralised units based on delinquency
band.
the Retail segment become classified
(ii) Credit Risk-Rated
This segment comprises commercial exposures, including
bank and government exposures. Each exposure 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 either a PD Rating Tool or Expert
Judgement is used to determine the PD.
Expert Judgement is used where the complexity of the
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 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 APRA.
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. 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. These credit facilities are not eligible for new or
Annual Report 2013
145
Notes to the Financial Statements
Note 38 Credit Risk (continued)
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 are classified as restructured where their original
contractual arrangements have been modified to provide for
concessions of interest or principal, for reasons that relate to
the customer’s financial difficulties, rendering the facility non-
commercial
that have been
the Group. Facilities
restructured are considered impaired.
to
Default is usually consistent with one or more of the following
criteria:
The customer is 90 days or more overdue on a
scheduled credit obligation repayment; or
The customer is unlikely to repay their credit obligation
to the Bank in full, without taking actions such as
realising on available security.
The Credit Portfolio Assurance unit, part of Group Audit and
Assurance, reviews credit portfolios and business unit
compliance with policies, portfolio standards, application of
credit risk ratings and other key practices 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 that
reviews and endorses the use of the tools prior to their
implementation to ensure they are sufficiently predictive of
risk.
(i) Expected Loss
Expected Loss (EL) is the product of:
Probability of default (PD);
Exposure at default (EAD); and
Loss given default (LGD).
For credit risk-rated facilities, EL is allocated within CRR
bands. All credit risk-rated exposures are required to be
reviewed at least annually although small transactions may
be managed on a behavioural basis post origination.
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 except
where prudential standards permit differentiation.
EAD, expressed as a percentage of the facility limit, is the
proportion of a facility that may be outstanding in the event of
default. The EAD treatment is as follows for different facility
types:
Drawn committed facilities (such as fully drawn loans
and advances), EAD will generally be the higher of the
limit or outstanding balance;
Committed facilities with uncertain future drawdown
(such as credit cards and overdrafts), EAD is based on
the Group’s historical experience of additional drawings
prior to customer default; and
Uncommitted
outstanding balance only.
facilities, EAD will generally be
the
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;
146 Commonwealth Bank of Australia
Carrying costs (effectively the costs of providing a facility
that is not generating an interest return); and
Realisation costs (costs of internal workout specialists).
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 EL, a more stressed loss amount is calculated.
This unexpected loss estimate directly affects the calculation
of regulatory and internal economic capital requirements,
refer to the Group Operations and Business Settings section
and Note 30, for information relating to regulatory and
economic capital.
In addition to the credit risk management processes used to
manage exposures to credit risk in the credit portfolio, the
internal
in
assessing impairment and provisioning of financial assets,
refer to Note 14.
ratings process also assists management
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 and amount 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 100% collateralised by highly liquid debt
securities, collateral is usually not sought on these balances
as exposures are generally considered low risk. The collateral
related to agreements to resell has been legally transferred to
the Group subject to an agreement to return them for a fixed
price.
The Group’s cash and
liquid asset balance as of
30 June 2013 was $20,634 million (2012: $19,666 million).
Included
(2012:
$9,599 million) that is deposited with central banks and
considered to carry less credit risk.
is $9,250 million
this balance
in
Receivables Due from Other Financial Institutions
Collateral is usually not sought on these balances as
exposures are generally considered to be of low risk. The
exposures are mainly to relatively low risk banks (Rated A+,
AA- or better). As of 30 June 2013, the Group had
$7,744 million (2012: $10,886 million) receivable from other
financial institutions.
Trading Assets at Fair Value through Income Statement
These assets are carried at fair value which accounts for the
credit risk. Collateral is not generally sought from the issuer or
counterparty. Credit derivatives have been used to a limited
extent
to credit risk. As of
30 June 2013, the Group held $19,617 million (2012: $13,816
million) trading assets at fair value.
the exposure
to mitigate
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.
As at 30 June 2013, the Group has $9,707 million (2013:
$10,025 million) of life investment contracts, the credit risk on
which is borne by policyholders.
Other Financial Assets Designated at Fair Value through
Income Statement
These assets are carried at fair value which accounts for the
credit risk. Credit derivatives used to mitigate the exposure to
credit risk are not significant.
Notes to the Financial Statements
Note 38 Credit Risk (continued)
Derivative Assets
The Group’s use of derivative contracts is outlined in Note 11.
The Group is exposed to credit risk on derivative contracts,
which arises as a result of counterparty credit risk. The
Group’s exposure to counterparty risk is affected by the
nature of the trades, the creditworthiness of the counterparty,
netting, and collateral arrangements.
for
financial markets counterparties, but
Credit risk from derivatives is mitigated where possible
(typically
less
for corporate or government counterparties)
frequently
through netting agreements, whereby derivative assets and
liabilities with the same counterparty can be offset. Group
policy requires all netting arrangements
legally
documented. The
International Swaps and Derivatives
Association (ISDA) Master Agreement (or other derivative
contracts) are used by the Group as an agreement for
documenting over the counter (OTC) derivatives. It provides
the contractual framework within which dealing activities
across a range of OTC products are conducted, and
contractually binds both parties to apply close-out netting
across all outstanding transactions covered by an agreement
if either party defaults or other predetermined events occur.
to be
Collateral is obtained against derivative assets, depending on
the creditworthiness of the counterparty and/or nature of the
transaction.
As at 30 June 2013, the Group held positive derivative asset
OTC contracts with a value of $45,340 million (2012:
$39,567 million) and collateral received of $6,963 million
(2012: $3,288 million) covering some of these contracts. The
credit risk is further reduced where the Group has master
netting agreements. The offsets obtained by applying master
netting agreements reduced the credit risk of the Group by
approximately $19.5 billion as at 30 June 2013 (2012:
$18.6 billion).
Available-for-Sale (AFS) Securities
As of 30 June 2013, the Group held $59,601 million (2012:
$60,827 million) of AFS securities. Included in this holding are
$523 million (2012: $1,317 million) of securities issued by
Australian banks, which are subject
to an Australian
Government guarantee.
Due from Controlled Entities
Collateral is not generally taken on these intergroup balances.
Credit Commitments and Contingent Liabilities
The Group applies fundamentally the same risk management
policies for off balance sheet risks as it does for its on
balance sheet risks. In the case of credit commitments,
customers and counterparties will be subject to the same
credit management policies as for loans and advances.
Collateral may be sought depending on the strength of the
counterparty and the nature of the transaction.
As at 30 June 2013, the Group had $152,876 million (2012:
$138,948 million) of off balance sheet exposures
(commitments and guarantees). Of these $82,199 million
(2012: $70,041 million) are secured.
Loans, Bills Discounted and Other Receivables
The principal collateral types for
balances are:
loans and receivable
Mortgages over residential and commercial real estate;
Charges over business assets such as premises,
inventory and accounts receivables; and
Guarantees received from third parties.
Specifically, the collateral mitigating credit risk of the key
lending portfolios is addressed in the notes and tables below.
(i) Home Loans
All home loans are secured by fixed charges over borrowers’
residential properties, other properties (including commercial
and broad acre), or cash (usually in the form of a charge over
a deposit). Further, Lenders Mortgage Insurance (LMI) is
taken out for most loans with a Loan to Value Ratio (LVR)
higher than 80% at origination to cover 100% of the original
principal plus interest.
(ii) Personal Lending
Personal lending (such as credit cards), is predominantly
unsecured.
(iii) Asset Finance
The Group leases assets to corporate and retail clients. When
the title to the underlying fixed assets is held by the Group as
collateral, the balance is deemed fully secured. In other
instances, a client’s facilities may be secured by collateral
valued at less than the carrying amount of credit exposure.
These facilities are deemed partially secured or unsecured.
(iv) Other Commercial and Industrial Lending
The Group’s main collateral types for other commercial and
industrial lending consists of secured rights over specified
assets of the borrower in the form of: commercial property;
land rights; 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 other instances, a client’s facilities may
be secured by collateral with value less than the carrying
amount of the credit exposure. These facilities are deemed
partially secured or unsecured.
A facility is determined to be secured where the ratio of the
exposure to that facility to the estimated value of the collateral
is less than or equal to 100%. A facility is deemed to be
partially secured when this ratio exceeds 100% but not more
than 250%, and unsecured when either no security is held,
(e.g. can include credit cards, personal loans, and exposures
to highly rated corporate entities), or where the secured loan
to estimated value of collateral exceeds 250%.
Annual Report 2013
147
Notes to the Financial Statements
Note 38 Credit Risk (continued)
(1) Comparatives have been restated to conform to presentation in the current year.
148 Commonwealth Bank of Australia
Group2013OtherHomeOtherAssetCommercialLoansPersonalFinancingand IndustrialTotalMaximum exposure ($M)372,84022,6598,688158,571562,758Collateral classification:Secured (%)99. 115. 099. 344. 680. 4Partially secured (%)0. 9-0. 714. 54. 7Unsecured (%)-85. 0-40. 914. 9Group2012OtherHomeOtherAssetCommercialLoansPersonalFinancingand IndustrialTotalMaximum exposure ($M) (1)352,98122,4288,682148,289532,380Collateral classification:Secured (%)98. 716. 299. 436. 677. 7Partially secured (%)1. 3-0. 613. 64. 7Unsecured (%)-83. 8-49. 817. 6Bank2013OtherHomeOtherAssetCommercialLoansPersonalFinancingand IndustrialTotal Maximum exposure ($M)337,38421,8088,227140,433507,852Collateral classification:Secured (%)99. 115. 499. 244. 580. 5Partially secured (%)0. 9-0. 813. 74. 4Unsecured (%)-84. 6-41. 815. 1Bank2012OtherHomeOtherAssetCommercialLoansPersonalFinancingand IndustrialTotal Maximum exposure ($M) (1)271,66720,0677,822111,974411,530Collateral classification:Secured (%)98. 919. 099. 539. 478. 5Partially secured (%)1. 1-0. 511. 03. 8Unsecured (%)-81. 0-49. 617. 7
Notes to the Financial Statements
Note 38 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.
(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) For the purpose of reconciling to the Balance Sheet, “Other assets” predominantly comprises assets which do not give rise to credit exposure, including
Intangible assets, Property, plant and equipment and Other assets.
Annual Report 2013
149
GroupAt 30 June 2013BankAssetOtherAgri-& OtherHomeConstr-OtherFinanc-Comm &SovereigncultureFinancialLoansuctionPersonalingIndust.OtherTotal $M $M $M $M $M $M $M $M $M $MCash and liquid assets--5,857------5,857Receivables due from otherfinancial institutions--3,808------3,808Assets at fair value throughIncome Statement:Trading9,726-1,078----2,406-13,210Insurance (1)945-8,013----3,487-12,445Other44-145------189Derivative assets4223335,189-42--4,539-40,225Available-for-sale investments28,587-23,311----859-52,757Loans, bills discountedand other receivables (2)1,9715,9717,929338,0232,63421,7968,414110,545-497,283Bank acceptances32,770190-554--2,537-6,054Other assets (3)98221,8217707491246917,60720,855Total on balance sheet Australia41,7968,79687,341338,7933,23721,8458,426124,84217,607652,683Credit risk exposures relating to off balance sheet assets:Guarantees1,43046192-726--2,935-5,329Loan commitments9191,4701,90560,5841,61518,625-37,686-122,804Other commitments123223,477-538--1,903-6,063Total Australia44,26810,33492,915399,3776,11640,4708,426167,36617,607786,879OverseasCredit risk exposures relating to on balance sheet assets:Cash and liquid assets--14,777------14,777Receivables due from otherfinancial institutions--3,936------3,936Assets at fair value throughIncome Statement:Trading493-798----5,116-6,407Insurance (1)--1,914------1,914Other587-131------718Derivative assets474153,481----1,145-5,115Available-for-sale investments5,460-1,359----25-6,844Loans, bills discountedand other receivables (2)9,6706,4807,02934,8173018632746,041-65,475Bank acceptances-------9-9Other assets (3)24142611-2361,6172,108Total on balance sheet overseas16,7086,49633,85134,81830286327612,3721,617107,303Credit risk exposures relating to off balance sheet assets:Guarantees7243-45--270-367Loan commitments3884471324,0667291,383-10,015-17,160Other commitments765191-10-75796-1,153Total overseas17,1796,95034,21738,8841,0862,24635123,4531,617125,983Total gross credit risk61,44717,284127,132438,2617,20242,7168,777190,81919,224912,862AustraliaCredit risk exposures relating to on balance sheet assets:
Notes to the Financial Statements
Note 38 Credit Risk (continued)
Maximum Exposure to Credit Risk by Industry and Asset Class before Collateral Held or Other Credit Enhancements
(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) Comparatives have been restated to conform to presentation in the current year.
(3) Loans, bills discounted and other receivables is presented gross of provisions for impairment and unearned income on lease receivables in line with Note
13.
(4) For the purpose of reconciling to the Balance Sheet, “Other assets” predominantly comprises assets which do not give rise to credit exposure, including
Intangible assets, Property, plant and equipment and Other assets.
150 Commonwealth Bank of Australia
GroupAt 30 June 2012BankAssetOtherAgri-& OtherHomeConstr-OtherFinanc-Comm &SovereigncultureFinancialLoansuctionPersonalingIndust.OtherTotal $M $M $M $M $M $M $M $M $M $MAustraliaCredit risk exposures relating to on balance sheet assets:Cash and liquid assets--7,519------7,519Receivables due from otherfinancial institutions--6,135------6,135Assets at fair value throughIncome Statement:Trading5,560-975----2,416-8,951Insurance (1)929-8,476----3,413-12,818Other--6------6Derivative assets (2)3116630,138-31--4,846-35,392Available-for-sale investments25,639-26,604----479-52,722Loans, bills discountedand other receivables (3)1,6195,25110,225322,9182,79621,7728,214104,330-477,125Bank acceptances32,886191-603--6,032-9,715Other assets (4)37611841,16511321748014,02316,010Total on balance sheet Australia34,0988,26490,453324,0833,44121,8048,231121,99614,023626,393Credit risk exposures relating to off balance sheet assets:Guarantees1,2413425814903--2,766-5,216Loan commitments1,1178142,08257,1581,90318,923-32,674-114,671Other commitments 96131,7704725--2,042-4,650Total Australia36,5529,12594,563381,2596,97240,7278,231159,47814,023750,930OverseasCredit risk exposures relating to on balance sheet assets:Cash and liquid assets--12,147------12,147Receivables due from otherfinancial institutions--4,751------4,751Assets at fair value throughIncome Statement:Trading407-859----3,599-4,865Insurance (1)--1,707------1,707Other967-7------974Derivative assets (2)22513,157----792-4,175Available-for-sale investments6,948-1,156----1-8,105Loans, bills discountedand other receivables (3)10,2355,1983,15630,0633456564685,134-55,255Bank acceptances-------2-2Other assets (4)1915,3781--1371,7467,183Total on balance sheet overseas18,8015,20032,31830,0643456564699,5651,74699,164Credit risk exposures relating to off balance sheet assets:Guarantees-12-12--127-142Loan commitments3923751973,8491681,172-7,009-13,162Other commitments711--3--1,032-1,107Total overseas19,2645,57732,51733,9135281,82846917,7331,746113,575Total gross credit risk55,81614,702127,080415,1727,50042,5558,700177,21115,769864,505
Notes to the Financial Statements
Note 38 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, the type of client and the
security cover. All exposures outside the policy limits 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):
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 12% 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 $19.5 billion as at 30 June 2013 (2012:
$18.6 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 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 $16.7 billion as at
30 June 2013 (2012: $18.0 billion).
Distribution of Financial Assets by Credit Classification
When doubt arises as to the collectability of a credit facility, the financial instrument is classified and reported as impaired.
Provisions for impairment are raised where there is objective evidence of impairment and for an amount adequate to cover
assessed credit related losses. The Group regularly reviews its financial assets and monitors adherence to contractual terms.
Credit risk-rated portfolios are assessed, at least at each Balance Sheet date, to determine whether the financial asset or portfolio
of assets is impaired.
The distribution of performing assets, past due assets, impaired assets and provisions for impairment by type of financial
instrument at 30 June 2013 was:
Distribution of Financial Instruments by Credit Quality
Annual Report 2013
151
Group20132012NumberNumber5% to less than 10% of the Group's capital resources-110% to less than 15% of the Group's capital resources--Group2013Neither PastPast dueTotal Provisions Due norbut notImpairedfor ImpairmentImpaired ImpairedAssetsGrossLossesNet$M$M$M$M$M$MCash and liquid assets20,634--20,634-20,634Receivables due from other financial institutions7,744--7,744-7,744Assets at fair value through Income Statement:Trading19,617--19,617-19,617Insurance14,359--14,359-14,359Other907--907-907Derivative assets45,337-345,340-45,340Available-for-sale investments59,601--59,601-59,601Loans, bills discounted and other receivables:Australia480,45313,2913,539497,283(4,198)493,085Overseas63,0102,01844765,475(257)65,218Bank acceptances6,063--6,063-6,063Credit related commitments151,406-341151,747(31)151,716869,13115,3094,330888,770(4,486)884,284
Notes to the Financial Statements
Note 38 Credit Risk (continued)
Distribution of Financial Instruments by Credit Quality (continued)
(1) Comparatives have been restated to conform to presentation in the current year.
(1) On 1 October 2012 the Commonwealth Bank of Australia Limited and Bank of Western Australia Limited (Bankwest) commenced operating as a single
Authorised Deposit-taking Institution (ADI). This resulted in all Bankwest assets and liabilities becoming the assets and liabilities of the Commonwealth
Bank of Australia Limited.
152 Commonwealth Bank of Australia
Group 2012Neither PastPast DueTotal Provisions Due nor but notImpairedfor Impairment Impaired ImpairedAssetsGrossLossesNet$M$M$M$M$M $MCash and liquid assets19,666--19,666-19,666Receivables due from other financial institutions10,886--10,886-10,886Assets at fair value through Income Statement:Trading13,816--13,816-13,816Insurance14,525--14,525-14,525Other980--980-980Derivative assets (1)39,559-839,567-39,567Available-for-sale investments (1)60,827--60,827-60,827Loans, bills discounted and other receivables: (1)Australia459,73313,2414,151477,125(4,596)472,529Overseas52,8412,00341155,255(231)55,024Bank acceptances9,717--9,717-9,717Credit related commitments (1)138,831-117138,948(18)138,930821,38115,2444,687841,312(4,845)836,467Bank (1)2013Neither PastPast DueTotal ProvisionsDue nor but notImpairedfor ImpairmentImpairedImpairedAssetsGrossLossesNet$M$M$M$M$M$MCash and liquid assets18,030--18,030-18,030Receivables due from other financial institutions6,998--6,998-6,998Assets at fair value through Income Statement:Trading18,398--18,398-18,398Insurance------Other718--718-718Derivative assets45,200-345,203-45,203Available-for-sale investments125,941--125,941-125,941Loans, bills discounted and other receivables:Australia477,70113,2723,495494,468(4,168)490,300Overseas13,27799813,384(45)13,339Bank acceptances6,059--6,059-6,059Shares in and loans to controlled entities63,017--63,017-63,017Credit related commitments140,767-339141,106(31)141,075916,10613,2813,935933,322(4,244)929,078
Notes to the Financial Statements
Note 38 Credit Risk (continued)
Distribution of Financial Instruments by Credit Quality (continued)
(1) Comparatives have been restated to conform to presentation in the current year.
Financial Assets Assessed as Impaired
(1) This includes individually assessed provisions, as well as collective provisions held for these portfolios.
(2) Comparatives have been restated to conform to presentation in the current year.
Annual Report 2013
153
Bank2012Neither PastPast DueTotal ProvisionsDue nor but notImpairedfor ImpairmentImpairedImpairedAssetsGrossLossesNet$M$M$M$M$M$MCash and liquid assets17,952--17,952-17,952Receivables due from other financial institutions10,482--10,482-10,482Assets at fair value through Income Statement:Trading12,071--12,071-12,071Insurance------Other980--980-980Derivative assets (1)39,684-739,691-39,691Available-for-sale investments116,567--116,567-116,567Loans, bills discounted and other receivables: (1)Australia387,27011,2752,396400,941(2,949)397,992Overseas10,4401413510,589(33)10,556Bank acceptances9,715--9,715-9,715Shares in and loans to controlled entities75,006--75,006-75,006Credit related commitments (1)118,584-61118,645(18)118,627798,75111,2892,599812,639(3,000)809,639Group 20132012GrossTotal ProvisionsNet GrossTotal ProvisionsNet Impairedfor ImpairedImpaired Impairedfor ImpairedImpaired AssetsAssets (1)Assets AssetsAssets (1)Assets $M$M$M $M$M$M AustraliaHome loans946(182)764919(256)663Other personal (2)255(142)113212(131)81Asset financing58(23)3553(14)39Other commercial and industrial2,620(1,345)1,2753,079(1,639)1,440Financial assets assessed as impaired - Australia3,879(1,692)2,1874,263(2,040)2,223OverseasHome loans171(17)154163(28)135Other personal (2)9(3)610(3)7Asset financing4-47-7Other commercial and industrial267(47)220244(60)184Financial assets assessed as impaired - overseas451(67)384424(91)333Total financial assets assessed as impaired4,330(1,759)2,5714,687(2,131)2,556
Notes to the Financial Statements
Note 38 Credit Risk (continued)
Financial Assets Assessed as Impaired (continued)
(1) On 1 October 2012 the Commonwealth Bank of Australia Limited and Bank of Western Australia Limited (Bankwest) commenced operating as a single
Authorised Deposit-taking Institution (ADI). This resulted in all Bankwest assets and liabilities becoming the assets and liabilities of the Commonwealth
Bank of Australia Limited.
(2) This includes individually assessed provisions, as well as collective provisions held for these portfolios.
(3) Comparatives have been restated to conform to presentation in the current year.
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.
(1) On 1 October 2012 the Commonwealth Bank of Australia Limited and Bank of Western Australia Limited (Bankwest) commenced operating as a single
Authorised Deposit-taking Institution (ADI). This resulted in all Bankwest assets and liabilities becoming the assets and liabilities of the Commonwealth
Bank of Australia Limited.
(2) Comparatives have been restated to conform to presentation in the current year.
154 Commonwealth Bank of Australia
Bank 2013 (1)2012Gross Total ProvisionsNet Gross Total ProvisionsNet Impaired for ImpairedImpaired Impaired for ImpairedImpaired Assets Assets (2)Assets Assets Assets (2)Assets $M $M $M $M $M $M AustraliaHome loans945(182)763767(209)558Other personal (3)255(142)113183(111)72Asset financing56(22)3442(14)28Other commercial and industrial2,578(1,345)1,2331,463(754)709Financial assets assessed as impaired - Australia3,834(1,691)2,1432,455(1,088)1,367OverseasHome loans------Other personal------Asset financing1-13-3Other commercial and industrial100(22)78141(25)116Financial assets assessed as impaired - overseas101(22)79144(25)119Total financial assets assessed as impaired3,935(1,713)2,2222,599(1,113)1,486Group Bank 201320122013 (1)2012Distribution of loans by credit quality$M $M $M$M Gross loans AustraliaNeither past due nor impaired (2)480,453459,733477,701387,270Past due but not impaired (2)13,29113,24113,27211,275Impaired (2)3,5394,1513,4952,396Total Australia497,283477,125494,468400,941OverseasNeither past due nor impaired63,01052,84113,27710,440Past due but not impaired (2)2,0182,003914Impaired (2)44741198135Total overseas65,47555,25513,38410,589Total gross loans 562,758532,380507,852411,530
Notes to the Financial Statements
Note 38 Credit Risk (continued)
Credit Quality of Loans, Bills Discounted and Other Financial Assets which were 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.
Segmentation of financial assets other than loans is based on external credit ratings of the counterparties and issuers of financial
instruments held by the Group and the Bank.
Loans which were Neither Past Due nor Impaired
(1) Comparatives have been restated to conform to presentation in the current year.
(2) For New Zealand Housing Loans, PDs reflect Reserve Bank of New Zealand requirements resulting in higher PDs on average and lower grading.
Annual Report 2013
155
Group2013OtherHomeOtherAssetCommercialLoansPersonalFinancingand IndustrialTotalCredit grading$M$M$M$M$MAustraliaInvestment224,5313,58271281,617310,442Pass93,67113,4907,44741,058155,666Weak8,4533,547982,24714,345Total Australia326,65520,6198,257124,922480,453Overseas (2)Investment8,129-1019,68227,821Pass24,3656442408,98234,231Weak590--368958Total overseas33,08464425029,03263,010Total loans which were neither past due nor impaired359,73921,2638,507153,954543,463Group2012OtherHomeOtherAssetCommercialLoansPersonalFinancingand IndustrialTotalCredit grading $M $M$M$M$MAustralia (1)Investment201,8394,00652577,634284,004Pass100,02313,0427,42438,865159,354Weak9,3733,600773,32516,375Total Australia311,23520,6488,026119,824459,733Overseas (2)Investment5,07068116,80021,939Pass22,3683754056,46129,609Weak8605-4281,293Total overseas28,29844840623,68952,841Total loans which were neither past due nor impaired 339,53321,0968,432143,513512,574
Notes to the Financial Statements
Note 38 Credit Risk (continued)
Loans which were Neither Past Due nor Impaired (continued)
(1) On 1 October 2012 the Commonwealth Bank of Australia Limited and Bank of Western Australia Limited (Bankwest) commenced operating as a single
Authorised Deposit-taking Institution (ADI). This resulted in all Bankwest assets and liabilities becoming the assets and liabilities of the Commonwealth
Bank of Australia Limited.
(2) Comparatives have been restated to conform to presentation in the current year.
Other Financial Assets which were Neither Past Due nor Impaired
The majority of all other financial assets of the Group and the Bank that were neither past due nor impaired as of 30 June 2013
and 30 June 2012 were of investment grade.
156 Commonwealth Bank of Australia
Bank (1) 2013OtherHomeOtherAssetCommercialLoansPersonalFinancingand IndustrialTotal Credit grading$M$M$M$M$M AustraliaInvestment224,2443,58165980,679309,163Pass92,88813,4907,32440,603154,305Weak8,4413,547942,15114,233Total Australia325,57320,6188,077123,433477,701OverseasInvestment188-111,46911,658Pass2541311,2721,540Weak6--7379Total overseas44813212,81413,277Total loans which were neither past due nor impaired326,02120,6318,079136,247490,978Bank 2012Other Home OtherAsset Commercial Loans PersonalFinancingand IndustrialTotal Credit grading $M $M $M $M $M AustraliaInvestment (2)166,9513,51244374,480245,386Pass (2)86,98512,1667,13723,812130,100Weak (2)6,9273,368631,42611,784Total Australia260,86319,0467,64399,718387,270OverseasInvestment231-19,1579,389Pass17118188431,050Weak1---1Total overseas403181910,00010,440Total loans which were neither past due nor impaired261,26619,0647,662109,718397,710
Notes to the Financial Statements
Note 38 Credit Risk (continued)
Age Analysis of Loans, Bills Discounted and Other Receivables that are Past Due but Not Impaired
For the purposes of this analysis an asset is considered to be past due when any payment under the contractual terms has been
missed.
Past due loans are not classified as impaired if no loss to the Group is expected or if the loans are unsecured consumer loans
and less than 180 days past due.
It has not been practicable to determine the fair value of collateral held against these assets.
(1) Collateral held against past due Home Loans receivables comprises residential and other real estate with an estimated fair value of at least the amounts
shown. Personal receivables are generally unsecured. It has not been practicable to determine the fair value of collateral held against past due Asset
Financing and Other Commercial and Industrial receivables.
(2) Personal loans, credit cards and other personal financing balances are generally unsecured and written off at 180 days past due unless agreements have
been made with the debtor.
(3) Comparatives have been restated to conform to presentation in the current year.
Annual Report 2013
157
Group 2013OtherHomeOtherAssetCommercialLoansPersonal (2)Financingand IndustrialTotal Loans which were past due but not impaired (1)$M$M$M$M$M AustraliaPast due 1 - 29 days5,999620629487,629Past due 30 - 59 days1,758178262292,191Past due 60 - 89 days902109102471,268Past due 90 - 179 days913-11511,065Past due 180 days or more87015-2531,138Total Australia10,442922991,82813,291OverseasPast due 1 - 29 days1,195149151931,552Past due 30 - 59 days2133836260Past due 60 - 89 days65111683Past due 90 - 179 days5852368Past due 180 days or more305-2055Total overseas1,561208212282,018Total loans which were past due but not impaired 12,0031,1301202,05615,309Group 2012Other Home OtherAsset Commercial Loans (2) (3)Personal (2) (3)Financing and Industrial Total Loans which were past due but not impaired (1)$M $M $M $M $M AustraliaPast due 1 - 29 days5,572631688807,151Past due 30 - 59 days1,806166451492,166Past due 60 - 89 days1,01110113971,222Past due 90 - 179 days1,183-11331,317Past due 180 days or more1,2011481621,385Total Australia10,7739121351,42113,241OverseasPast due 1 - 29 days1,129144421271,442Past due 30 - 59 days2322875272Past due 60 - 89 days971124114Past due 90 - 179 days91734105Past due 180 days or more5481770Total overseas1,603198551472,003Total loans which were past due but not impaired 12,3761,1101901,56815,244
Notes to the Financial Statements
Note 38 Credit Risk (continued)
Age Analysis of Loans, Bills Discounted and Other Receivables that are Past Due but Not Impaired (continued)
(1) On 1 October 2012 the Commonwealth Bank of Australia Limited and Bank of Western Australia Limited (Bankwest) commenced operating as a single
Authorised Deposit-taking Institution (ADI). This resulted in all Bankwest assets and liabilities becoming the assets and liabilities of the Commonwealth
Bank of Australia Limited.
(2) Collateral held against past due Home Loans receivables comprises residential and other real estate with an estimated fair value of at least the amounts
shown. Personal receivables are generally unsecured. It has not been practicable to determine the fair value of collateral held against past due Asset
Financing and Other Commercial and Industrial receivables.
(3) Personal loans, credit cards and other personal financing balances are generally unsecured and written off at 180 days past due unless agreements have
been made with the debtor.
(4) Comparatives have been restated to conform to presentation in the current year.
158 Commonwealth Bank of Australia
Bank (1)2013OtherHomeOtherAssetCommercialLoansPersonal (3)Financingand IndustrialTotal Loans which were past due but not impaired (2)$M$M$M$M$M AustraliaPast due 1 - 29 days5,992620599487,619Past due 30 - 59 days1,757178252292,189Past due 60 - 89 days90110972471,264Past due 90 - 179 days912--1511,063Past due 180 days or more86915-2531,137Total Australia10,431922911,82813,272OverseasPast due 1 - 29 days4---4Past due 30 - 59 days2---2Past due 60 - 89 days-----Past due 90 - 179 days3---3Past due 180 days or more-----Total overseas9---9Total loans which were past due but not impaired 10,440922911,82813,281Bank 2012OtherHomeOtherAssetCommercialLoansPersonal (3)Financingand IndustrialTotal Loans which were past due but not impaired (2)$M$M$M$M$M AustraliaPast due 1 - 29 days (4)5,522566524466,586Past due 30 - 59 days1,32114839931,601Past due 60 - 89 days772911246921Past due 90 - 179 days (4)977-10571,044Past due 180 days or more1,049132591,123Total Australia9,64181811570111,275OverseasPast due 1 - 29 days12---12Past due 30 - 59 days1---1Past due 60 - 89 days-----Past due 90 - 179 days1---1Past due 180 days or more-----Total overseas14---14Total loans which were past due but not impaired 9,65581811570111,289
Notes to the Financial Statements
Note 38 Credit Risk (continued)
Impaired Assets by Classification
Assets in credit risk rated portfolios and home loan portfolios are assessed for objective evidence that the financial asset is
impaired. Impaired assets in the unsecured retail segment are those facilities that are past due 90 days or more.
Impaired assets are split into the following categories:
Non-Performing Facilities;
Restructured Facilities; and
Unsecured retail products 90 days or more past due.
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.
Restructured facilities are facilities where the original contractual terms have been modified to non-commercial terms 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.
Unsecured retail products 90 days or more past due are credit cards, personal loans and other unsecured retail products which
are 90 days or more past due. These loans are collectively provided for.
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.
(1) Comparatives from 2010 onwards have been restated to conform to presentation in the current year.
(2) Collective provisions are held for these portfolios.
Annual Report 2013
159
Group 20132012201120102009$M $M $M $M $M AustraliaNon-Performing assets:Gross balances (1)3,3163,9664,5924,6333,514Less individual provisions for impairment(1,564)(1,920)(2,031)(1,915)(1,560)Net non-performing assets1,7522,0462,5612,7181,954Restructured assets:Gross balances346933878119Less individual provisions for impairment-----Net restructured assets346933878119Unsecured retail products 90 days or more past due:Gross balances217204202205-Less provisions for impairment (2)(128)(120)(109)(107)-Unsecured retail products 90 days or more past due89849398-Net Australia impaired assets2,1872,2232,6922,8942,073OverseasNon-Performing assets:Gross balances (1)356344467317407Less individual provisions for impairment(64)(88)(94)(77)(169)Net non-performing assets292256373240238Restructured assets:Gross balances8770189169170Less individual provisions for impairment-----Net restructured assets8770189169170Unsecured retail products 90 days or more past due:Gross balances8101417-Less provisions for impairment (2)(3)(3)(3)(3)-Unsecured retail products 90 days or more past due571114-Net overseas impaired assets384333573423408Total net impaired assets2,5712,5563,2653,3172,481
Notes to the Financial Statements
Note 38 Credit Risk (continued)
Impaired Assets by Classification (continued)
(1) Comparatives have been restated to conform to presentation in the current year.
(1) Comparatives from 2010 onwards have been restated to conform to presentation in the current year.
(2) Comparatives have been reclassified to conform to presentation in the current year.
(3) 2010 represents the balance of unsecured retail products 90 days or more past due.
Impaired Loans by Industry and Status
160 Commonwealth Bank of Australia
Group Australia Overseas Total Australia Overseas Total 201320132013201220122012Impaired assets by size $M $M $M $M $M $M Less than $1 million (1)1,3591851,5441,1081861,294$1 million to $10 million1,1591461,3051,3591101,469Greater than $10 million1,3611201,4811,7961281,924Total3,8794514,3304,2634244,687Group20132012201120102009$M $M $M $M $M Gross impaired assets - opening balance (1)4,6875,5025,4194,210683Acquisitions----770New and increased (1)3,0163,3894,1565,4554,374Balances written-off(1,774)(1,687)(1,798)(1,904)(1,056)Returned to performing or repaid (2)(2,165)(3,040)(2,740)(2,545)(561)Portfolio managed - new/increased/return to performing/repaid (2) (3)566523465203-Gross impaired assets - closing balance4,3304,6875,5025,4194,210Movement in gross impaired assetsGroup 2013GrossTotal ProvisionsNetImpairedfor ImpairedImpairedNet LoansLoansAssetsLoansWrite-offsRecoveriesWrite-offs Industry $M$M$M$M$M$M$M AustraliaSovereign1,971------Agriculture5,971398(168)23030-30Bank and other financial7,929300(217)8379(8)71Home loans338,023924(182)742217(4)213Construction2,634110(89)21139-139Other Personal21,796255(142)113622(113)509Asset Financing8,41458(23)3525(6)19Other commercial and industrial110,5451,494(871)623686(13)673Total Australia497,2833,539(1,692)1,8471,798(144)1,654OverseasSovereign9,670------Agriculture6,480142(16)1264-4Bank and other financial7,02936(5)3110(1)9Home loans34,817171(17)15421(1)20Construction3014-4---Other Personal8639(3)625(8)17Asset Financing2744-4---Other commercial and industrial6,04181(26)5531-31Total overseas 65,475447(67)38091(10)81Gross balances 562,7583,986(1,759)2,2271,889(154)1,735
Notes to the Financial Statements
Note 38 Credit Risk (continued)
Impaired Loans by Industry and Status (continued)
(1) Comparatives have been restated to conform to presentation in the current year.
Annual Report 2013
161
Group 2012GrossTotal ProvisionsNetImpairedfor ImpairedImpairedNet LoansLoansAssetsLoansWrite-offsRecoveriesWrite-offs Industry $M$M$M$M$M$M$M AustraliaSovereign1,619------Agriculture5,251224(89)13532-32Bank and other financial10,225341(235)10651(17)34Home Loans322,918910(256)65488(5)83Construction2,796218(152)6645-45Other Personal (1)21,772212(131)81657(147)510Asset Financing8,21453(14)3938(17)21Other commercial and industrial 104,3302,193(1,163)1,030884(30)854Total Australia477,1254,151(2,040)2,1111,795(216)1,579OverseasSovereign10,235------Agriculture5,19856(7)495-5Bank and other financial3,15679(6)731-1Home Loans30,063162(28)13424-24Construction345------Other Personal (1)65610(3)719(8)11Asset Financing4687-7---Other commercial and industrial5,13497(47)5033(4)29Total overseas 55,255411(91)32082(12)70Gross balances 532,3804,562(2,131)2,4311,877(228)1,649
Notes to the Financial Statements
Note 39 Market Risk
Market Risk
Market risk is the potential of an adverse impact on the
Group’s earnings from changes in interest rates, foreign
exchange rates, commodity and equity prices, credit spreads,
and the resale value of assets underlying operating leases at
maturity (lease residual value risk).
The Group makes a distinction between Traded and Non-
traded market risks for the purposes of risk management,
measurement and reporting. Traded market risks principally
arise from the Group’s trading book activities within the
Institutional Banking and Markets business and ASB.
The predominant Non-traded market risk is interest rate risk
that arises from banking book activities. Other Non-traded
market risks are non-traded equity risk, market risk arising
from the insurance business, structural foreign exchange risk
and lease residual value risk.
The Group’s assessment of regulatory capital required under
the Basel II and Basel III framework is discussed in Note 30.
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 movements in
market rates. The VaR measure for Non-traded Banking Book
market risk uses six years of daily movement in market rates.
VaR is modelled at a 97.5% confidence level over a 1 day
holding period for trading book positions. A 20 day holding
period is used for interest rate risk in the banking book
(IRRBB), insurance business market risk and Non-traded
equity risk.
Stressed VaR is calculated for Traded market risk using the
same methodology as the regular Traded market risk VaR
except that the historical data is taken from a one year
observation period of significant market volatility as seen
during the Global Financial Crisis (GFC).
that
loss
the maximum
VaR is driven by actual historical observations and is not an
estimate of
the Group could
experience from an extreme market event. As a result of this
limitation, management also uses stress testing to measure
the potential
levels
significantly higher than 97.5%. Management then uses the
results in its decisions to manage the economic impact of
market risk positions.
loss at confidence
for economic
The stress events considered for 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’s Asset and Liability Committee (ALCO) on a
regular basis. Stress tests also include a range of forward
looking macro scenario stresses.
The following table provides a summary of VaR, across the
Group, for those market risk types where it is appropriate to
use this measure.
(1) The risk of these exposures has been represented in this table using a
one day holding period. In practice however, these ‘non-traded’
exposures are managed to a longer holding period.
(2) Average VaR calculated for each twelve month period.
162 Commonwealth Bank of Australia
Traded Market Risk
The Group trades and distributes financial markets products
and provides risk management services to customers on a
global basis.
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 market making within a controlled
framework, to assist in the provision of products and
services to customers.
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.
The Group is a participant in all major markets across foreign
exchange and interest rate products, debt, equity and
commodities products as required to provide treasury, capital
institutional,
markets and risk management services to
corporate, middle market and retail customers.
Income is earned from spreads achieved through market
making and from warehousing market risk. Trading positions
are valued at fair value and taken to profit and loss on a mark
is controlled by
to market basis. Market
concentrating trading activity in highly liquid markets.
liquidity risk
Trading assets at fair value through the Income Statement
are shown in Note 10 Trading liabilities at fair value through
the Income Statement are shown in Note 20. Note 3 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 (MRM) function.
Credit Valuation Adjustment (CVA) is comparable to Traded
market risk and is managed using a VaR and stress-testing
framework. The Board Risk Committee and ALCO regularly
monitor CVA exposures with daily oversight by
the
independent risk function. The Basel III framework has
required a CVA regulatory capital charge since 1 January
2013.
The following table provides a summary of VaR for the trading
book of the Group. The VaR for ASB is shown separately; all
other data relates to the Group and is split by risk type.
(1) Average VaR calculated for each twelve month period.
Non-Traded Market Risk
Non-traded market risk activities are governed by the Group
market
the Board Risk
Committee. The Group market risk framework governs all the
framework approved by
risk
Average (2)As atAverage (2)As atTotal Market RiskJuneJuneJuneJuneVaR (1 day 97.5% 2013201320122012confidence)$M$M$M$MTraded Market Risk 9. 111. 611. 68. 7Non-Traded Interest Rate Risk (1)15. 39. 027. 718. 9Non-Traded Equity Risk (1)22. 425. 021. 521. 0Non-Traded Insurance Market Risk (1)7. 56. 98. 88. 0Average (1)As atAverage (1)As atTraded Market RiskJuneJuneJuneJuneVaR (1 day 97.5% 2013201320122012confidence)$M$M$M$MInterest rate risk5. 96. 15. 25. 9Foreign exchange risk 1. 01. 01. 00. 7Equities risk 2. 10. 42. 21. 7Commodities risk 1. 00. 91. 30. 8Credit spread risk2. 41. 72. 82. 3Diversification benefit (7. 4)(5. 4)(6. 6)(6. 2)Total general market risk 5. 04. 75. 95. 2Undiversified risk 3. 96. 73. 52. 5ASB Bank 0. 20. 22. 21. 0Total 9. 111. 611. 68. 7
Notes to the Financial Statements
is
the
responsibility of
Note 39 Market Risk (continued)
activities performed in relation to Non-traded market risk.
Implementation of the policy, procedures and limits for the
Group
the Group Executive
undertaking activities with Non-traded market risk. The
Group’s Risk division performs risk measurement and
monitoring activities of Non-traded market risk. Ownership
and management responsibility for the Bank’s 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
rate
the propensity,
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.
timing and quantum of
interest
The Group measures and manages the impact of interest rate
risk in two ways:
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
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.
impact of customer prepayments on
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.
(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.
(a) Next 12 months’ earnings
Non-Traded Equity Risk
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.
The prospective change to the net interest income is
measured by using an Asset and 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 Group 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).
(b) Economic Value
Interest rate risk from the economic value perspective is
The Group retains Non-traded equity risk through business
development activities
Institutional
in divisions
Banking and Markets, and Wealth Management. This activity
is subject to governance arrangements approved by the Risk
Committee of the Board, and is monitored on a decentralised
basis within the Risk Management function. An indicative VaR
measure is as follows:
including
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
investment of
(ii) market
Shareholders’ capital.
risk arising
from
the
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 assets under management and reduce the fee income
collected for this class of business.
Guarantees (to Policyholders)
All financial assets within the Life Insurance Statutory Funds
directly support either the Group's life insurance or life
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
Annual Report 2013
163
JuneJuneNet Interest20132012Earnings at Risk$M$MAverage monthly exposureAUD105. 1152. 2NZD9. 520. 7High monthly exposureAUD128. 6284. 3NZD16. 232. 5Low monthly exposureAUD59. 340. 7NZD4. 311. 5As at balance dateAUD59. 381. 1NZD12. 113. 7Average (1)Average (1)JuneJuneNon-Traded Interest Rate VaR20132012(20 day 97.5% confidence) (2)$M$MAUD Interest rate risk68. 5123. 7NZD Interest rate risk (3)3. 01. 4As atAs atJuneJuneNon-Traded Equity VaR 20132012(20 day 97.5% confidence)$M$MVaR 112. 094. 0
Notes to the Financial Statements
Note 39 Market Risk (continued)
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 85%
in income assets (cash and fixed interest) and 15% in growth
assets (shares and property) as at 30 June 2013.
A 20 day 97.5% VaR measure is used to capture the Non-
traded market risk exposures.
(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 guaranteed
liability to policyholders.
Further information on the Insurance Businesses can be
found in Note 32.
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 Group 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.
Commonwealth Bank Group Super Fund
for
fund
The Commonwealth Bank Group Super Fund (the Fund) was
previously called the Officers Superannuation Fund and is the
staff superannuation
the Group’s Australian
employees and former employees. Wealth Risk Management
and Human Resources manage the risks of the Fund on
behalf of the Group. Regular reporting is provided to senior
management via the Group’s ALCO and the Board Risk
Committee on the status of the surplus, risk sensitivities and
risk management options. For further information on the
Fund, refer to Note 41.
Note 40 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
164 Commonwealth Bank of Australia
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 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, New Zealand, Bankwest, and overseas
businesses, during periods of unfavourable market
conditions.
The Group’s
to achieve
funding policies are designed
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.
Liquidity and Funding Risk Management Framework
The Group’s liquidity and funding policies are approved by the
Board and agreed with APRA. The Group has an Asset and
Liability Committee (ALCO) 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.
Group Treasury manages the Group’s liquidity and funding
positions in accordance with the Group’s liquidity policies and
has ultimate authority to execute liquidity decisions should the
Group Contingent Liquidity Plan be evoked. Group Risk
Management provides oversight of the Group’s liquidity and
funding risks, compliance with Group policies and manages
the Group’s relationship with prudential regulators.
Subsidiaries within the Colonial Group apply their own
liquidity and funding strategies to address their specific
needs. The Group’s New Zealand banking subsidiary, ASB
Bank, 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
Reserve Bank of New Zealand. The Group also has a
relatively small banking subsidiary in Indonesia that manages
its own liquidity and funding on a similar basis.
Liquidity and Funding Policies and Management
The Group’s liquidity and funding policies provide that:
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 long term wholesale funding limits are
established, reviewed regularly and monitored to ensure
that they are met. The Group’s market capacity is
regularly assessed and used as a factor in funding
strategies;
At least a prescribed minimum level of assets are
retained in highly liquid form;
This 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 held to
provide for the risk of the Group’s committed but
undrawn lending obligations;
Liquid assets are held in Australian dollar and foreign
currency denominated securities in accordance with
expected requirements;
The Group has three categories of liquid assets within its
domestic liquid assets portfolio. The first includes cash,
government and Australian semi-government bonds.
The second includes negotiable certificates of deposit,
bank bills, bank term securities, supranational bonds and
Australia Residential Mortgage-Backed Securities
(RMBS) securities that meet certain Reserve Bank of
Australia (RBA) requirements. The final is internal
RMBS, being mortgages that have been securitised but
Average (1)Average (1)Non-Traded VaR in Australian JuneJuneLife Insurance Business 20132012(20 day 97.5% confidence)$M$MShareholder funds (2)21. 323. 2Guarantees (to Policyholders) (3)20. 030. 7
Notes to the Financial Statements
Note 40 Liquidity and Funding Risk (continued)
retained by the Bank, are held for their repo-eligibility
with the RBA under a stress scenario and included
within Group liquids; and
Offshore branches and subsidiaries adhere to liquidity
policies and hold appropriate foreign currency liquid
assets as required. All securities are central bank repo-
eligible under normal market conditions.
The Group’s key funding tools include:
Its consumer retail funding base, which includes a wide
range of retail transaction accounts, savings accounts
and term deposits for individual consumers;
Its small business customer and institutional deposit
base; and
international and domestic
funding
Its wholesale
programs which include its Australian dollar Negotiable
Certificates of Deposit; Australian dollar bank bills; Asian
Transferable Certificates of Deposit program; Australian,
U.S. and Euro Commercial Paper programs; U.S.
Extendible Notes programs; Australian dollar Domestic
Debt Program; U.S.144a and 3a2 Medium Term Note
Programs; Euro Medium Term Note Program, multi
jurisdiction Covered Bond program, and its Medallion
securitisation program.
The Group’s key liquidity tools include:
A liquidity management model similar to a “maturity
ladder” or “liquidity gap analysis”, that allows forecasting
of liquidity needs on a daily basis;
liquidity management model
An additional
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
Maturity Analysis of Monetary Liabilities
sufficient liquid assets available to ensure it meets all of
its obligations as and when they fall due;
Central bank repurchase agreement facilities provide the
Group with the ability to borrow funds on a secured
funding markets are
basis, even when normal
unavailable; and
A robust Contingent Liquidity Plan is in place and
regularly tested so that it can be evoked in case of need
due to a liquidity event.
Recent Market Environment
in Australia. APRAs confirmed
In May 2013, APRA released a discussion paper and draft
prudential standards for implementing Basel III liquidity
reforms
its intention to
introduce the Liquidity Coverage Ratio (LCR) and Net Stable
Funding Ratio (NSFR) requirements from 1 January 2015 and
1 January 2018 respectively. APRA will issue final prudential
standards in the second half of 2013. The Group will update
its liquidity and funding policies as appropriate to comply with
the new standards.
to
lower credit spreads
The Group’s wholesale funding costs generally improved over
the course of the financial year as high levels of global
liquidity and a generally improved economic global outlook
combined
in domestic and
international debt capital markets. The Group has managed
its debt portfolio to avoid concentrations such as dependence
on single sources of funding, by type or by investor, and
continues
funding base and
significant funding capacity in the domestic and global
unsecured and secured debt markets.
to maintain a diversified
Details of the Group’s regulatory capital position and capital
management activities are disclosed in Note 30.
Amounts shown in the tables below are based on contractual undiscounted cash flows for the remaining contractual maturities.
(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) All off balance sheet items are included in the 0 to 3 month maturity band to reflect their earliest possible maturity.
Annual Report 2013
165
GroupMaturity Period as at 30 June 20130 to 33 to 121 to 5Over 5NotAt CallMonthsMonthsYearsYearsSpecifiedTotal$M$M$M$M$M$M$MMonetary liabilitiesDeposits and other public borrowings (1)222,387147,93969,45323,748432-463,959Payables due to other financial institutions9,30413,7472,489437--25,977Liabilities at fair value through Income Statement-3,6132,5241,8081,356-9,301Derivative financial instruments:Held for trading -30,138----30,138Held for hedging purposes (net-settled) -1021861,6532,142-4,083Held for hedging purposes (gross-settled): Outflows-30110,84625,70913,958-50,814Inflows-(277)(9,467)(24,016)(13,323)-(47,083)Bank acceptances-6,0612---6,063Insurance policy liabilities-----13,00413,004Debt issues and loan capital-17,37541,06367,39733,777-159,612Managed funds units on issue-----891891Other monetary liabilities8684,0791,944309-1017,301Total monetary liabilities232,559223,078119,04097,04538,34213,996724,060Guarantees (2)-5,696----5,696Loan commitments (2)-139,964----139,964Other commitments (2)-7,216----7,216Total off balance sheet items-152,876----152,876Total monetary liabilities and off balance sheet items232,559375,954119,04097,04538,34213,996876,936
Notes to the Financial Statements
Note 40 Liquidity and Funding Risk (continued)
(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) Comparatives have been restated to conform to presentation in the current year.
(3) All off balance sheet items are included in the 0 to 3 month maturity band to reflect their earliest possible maturity.
166 Commonwealth Bank of Australia
Group Maturity Period as at 30 June 20120 to 33 to 121 to 5Over 5NotAt CallMonthsMonthsYearsYearsSpecifiedTotal$M$M$M$M$M$M$MMonetary liabilitiesDeposits and other public borrowings (1) (2)199,783148,53566,23227,681526-442,757Payables due to other financial institutions4,07517,072673366--22,186Liabilities at fair value through Income Statement-2,6381,3581,974621-6,591Derivative financial instruments:Held for trading (2)-28,223----28,223Held for hedging purposes (net-settled) (2)-1502841,5352,263-4,232Held for hedging purposes (gross-settled): (2)Outflows-1,07210,00036,47415,297-62,843Inflows-(1,027)(8,772)(31,948)(14,171)-(55,918)Bank acceptances-9,7161---9,717Insurance policy liabilities-----12,99412,994Debt issues and loan capital-25,93530,49566,13333,527-156,090Managed funds units on issue-----995995Other monetary liabilities9802,8832,047442-1516,503Total monetary liabilities204,838235,197102,318102,65738,06314,140697,213Guarantees (3)-5,358----5,358Loan commitments (3)-127,833----127,833Other commitments (3)-5,757----5,757Total off balance sheet items-138,948----138,948Total monetary liabilities and off balance sheet items204,838374,145102,318102,65738,06314,140836,161BankMaturity Period as at 30 June 20130 to 33 to 121 to 5Over 5NotAt CallMonthsMonthsYearsYearsSpecifiedTotal$M$M$M$M$M$M$MMonetary liabilitiesDeposits and other public borrowings (1)206,390140,24460,07322,271487-429,465Payables due to other financial institutions9,00813,6522,46056--25,176Liabilities at fair value through Income Statement-3943711,7921,345-3,902Derivative financial instruments:Held for trading-29,704----29,704Held for hedging purposes (net-settled)-482161,9262,165-4,355Held for hedging purposes (gross-settled):Outflows--10,11336,42823,105-69,646Inflows--(8,779)(33,692)(21,800)-(64,271)Bank acceptances-6,059----6,059Debt issues and loan capital-15,56836,98956,05131,181-139,789Due to controlled entities4,0594,5406,19522,43176,643-113,868Other monetary liabilities8263,7677,169103-3211,897Total monetary liabilities220,283213,976114,807107,366113,12632769,590Guarantees (3)-5,345----5,345Loan commitments (3)-130,753----130,753Other commitments (3)-6,137----6,137Total off balance sheet items-142,235----142,235Total monetary liabilities and off balance sheet items220,283356,211114,807107,366113,12632911,825
Notes to the Financial Statements
Note 40 Liquidity and Funding Risk (continued)
(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) Comparatives have been restated to conform to presentation in the current year.
(3) All off balance sheet items are included in the 0 to 3 month maturity band to reflect their earliest possible maturity.
Note 41 Retirement Benefit Obligations
Name of Plan
Type
Form of Benefit
Date of Last Actuarial
Assessment of the Fund
Commonwealth Bank Group
Super
Defined Benefits (1) and
Accumulation
Commonwealth Bank of
Australia (UK) Staff Benefits
Scheme (CBA (UK) SBS)
Defined Benefits (1) and
Accumulation
Indexed pension and lump sum
30 June 2012
Indexed pension and lump sum
30 June 2010 (2)
(1) The defined benefit formulae are generally comprised of final superannuation salary, or final average superannuation salary, and service.
(2) An actuarial assessment of the Fund at 30 June 2013 is currently in progress.
Contributions
Entities of the Group contribute to the plans listed in the above table in accordance with the Trust Deeds following the receipt of
actuarial advice.
With the exception of contributions corresponding to salary sacrifice benefits, the Bank ceased contributions to Commonwealth
Bank Group Super from 8 July 1994. Further, the Bank ceased contributions to the Commonwealth Bank Group Super relating to
salary sacrifice benefits from 1 July 1997.
The Bank will continue to monitor the need to make contributions to Commonwealth Bank Group Super including the advice
provided in the actuarial assessment of the Commonwealth Bank Group Super as at 30 June 2012.
An actuarial assessment of the CBA (UK) SBS, as at 30 June 2010, confirmed a deficit of GBP68 million (AUD112 million at the
30 June 2013 exchange rate). Following 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 AUD4 million per
annum (at the 30 June 2013 exchange rate) and additional contributions of GBP15 million per annum (AUD25 million per annum
at the 30 June 2013 exchange rate) payable over five years to finance the fund deficit.
Annual Report 2013
167
BankMaturity Period as at 30 June 20120 to 33 to 121 to 5Over 5NotAt CallMonthsMonthsYearsYearsSpecifiedTotal$M$M$M$M$M$M$MMonetary liabilitiesDeposits and other public borrowings (1) (2)166,386119,54554,49526,356526-367,308Payables due to other financial institutions3,79717,0206511--21,469Liabilities at fair value through Income Statement-3961481,867894-3,305Derivative financial instruments:Held for trading (2) -27,356----27,356Held for hedging purposes (net-settled) (2)-1062282,0192,277-4,630Held for hedging purposes (gross-settled): (2)Outflows--9,32641,40817,984-68,718Inflows--(8,154)(36,629)(16,762)-(61,545)Bank acceptances-9,715----9,715Debt issues and loan capital-19,05925,94554,79330,230-130,027Due to controlled entities3,2743,8564,32014,48175,122-101,053Other monetary liabilities8291,9134,56279-67,389Total monetary liabilities174,286198,96691,521104,375110,2716679,425Guarantees (3)-4,718----4,718Loan commitments (3)-109,648----109,648Other commitments (3)-4,279----4,279Total off balance sheet items-118,645----118,645Total monetary liabilities and off balance sheet items174,286317,61191,521104,375110,2716798,070
Notes to the Financial Statements
Note 41 Retirement Benefit Obligations (continued)
Defined Benefit Superannuation Plans
The amounts reported in the Balance Sheet are reconciled as follows:
168 Commonwealth Bank of Australia
CBA(UK)SBSTotal201320122013201220132012$M$M$M$M$M$MPresent value of funded obligations(3,333)(3,716)(472)(420)(3,805)(4,136)Fair value of plan assets3,2043,3603993123,6033,672Total pension liabilities as at 30 June(129)(356)(73)(108)(202)(464)Amounts in the Balance Sheet:Liabilities (Note 24)(129)(356)(73)(108)(202)(464)Net liabilities(129)(356)(73)(108)(202)(464)The amounts recognised in the Income Statement are as follows:Current service cost(66)(61)(4)(5)(70)(66)Interest cost(135)(167)(20)(19)(155)(186)Expected return on plan assets1922591516207275Employer financed benefits within accumulation division(186)(191)--(186)(191)Total included in defined benefit superannuation plan expense(195)(160)(9)(8)(204)(168)Actual return on plan assets2492005220301220Changes in the present value of the defined benefit obligation are as follows:Opening defined benefit obligation(3,716)(3,493)(420)(356)(4,136)(3,849)Current service cost(60)(55)(4)(5)(64)(60)Interest cost(135)(167)(20)(19)(155)(186)Member contributions(9)(9)--(9)(9)Actuarial gains/(losses)365(213)(15)(45)350(258)Benefits paid2222211714239235Exchange differences on foreign plans--(30)(9)(30)(9)Closing defined benefits obligation(3,333)(3,716)(472)(420)(3,805)(4,136)Changes in the fair value of plan assets are as follows:Opening fair value of plan assets3,3603,5693122733,6723,842Expected return1922591516207275Experience gains/(losses)57(59)37494(55)Total contributions9929263835Exchange differences on foreign plans--237237Benefits and expenses paid(228)(227)(17)(14)(245)(241)Employer financed benefits within accumulation division(186)(191)--(186)(191)Closing fair value of plan assets3,2043,3603993123,6033,672Commonwealth Bank Group Super 20132012201120102009$M $M $M $M $M Present value of funded obligations(3,333)(3,716)(3,493)(3,332)(3,118)Fair value of plan assets3,2043,3603,5693,6483,613Total net (liabilities)/assets(129)(356)76316495Experience adjustments on plan liabilities303(6)77(120)Experience adjustments on plan assets57(59)76115(829)Gains/(losses) from changes in actuarial assumptions335(216)(171)(276)(84)Total net actuarial gains/(losses)422(272)(101)(84)(1,033)Commonwealth Bank Group Super
Notes to the Financial Statements
Note 41 Retirement Benefit Obligations (continued)
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 commencement of International Financial
Reporting Standards (1 July 2005) to 30 June 2013 were $186 million (2012: $630 million).
(1) This represents the expected rate of return for the coming year, i.e. 6.10% in 2012 represents the expected return to be earned during the financial year
ended 30 June 2013. Under changes to AASB 119, this assumption is not required for financial years ending 30 June 2014 onwards.
(2) For Commonwealth Bank Group Super, the salary increase assumption is a combined promotional and general increase assumption.
The return on asset assumption is determined as the weighted average of the long term expected returns of each asset class
where the weighting is the benchmark asset allocations of the assets backing the defined benefit risks. The long term expected
returns of each asset class are determined following receipt of actuarial advice.
The discount rate (gross of tax) assumption for Commonwealth Bank Group Super was based on the blend of yields on long
dated Commonwealth and State government securities. In addition to financial assumptions, the mortality assumptions for
pensioners can materially impact the defined benefit obligations. These assumptions are age related and allowances are made
for future improvement in mortality. The expected life expectancies for pensioners are set out below:
Annual Report 2013
169
20132012201120102009$M $M $M $M $M Present value of funded obligations(472)(420)(356)(377)(394)Fair value of plan assets399312273295308Total net liabilities(73)(108)(83)(82)(86)Experience adjustments on plan liabilities1(2)(14)192Experience adjustments on plan assets3741318(26)Losses from changes in actuarial assumptions(16)(43)(17)(44)-Total net actuarial gains/(losses)22(41)(18)(7)(24)CBA(UK)SBS 20132012201120102009$M $M $M $M $M Present value of funded obligations(3,805)(4,136)(3,849)(3,709)(3,512)Fair value of plan assets3,6033,6723,8423,9433,921Total net (liabilities)/assets(202)(464)(7)234409Experience adjustments on plan liabilities311(20)96(118)Experience adjustments on plan assets94(55)89133(855)Gains/(losses) from changes in actuarial assumptions319(259)(188)(320)(84)Total net actuarial gains/(losses)444(313)(119)(91)(1,057)Total 2013201220132012Economic assumptions% % % % The above calculations were based on the following assumptions:Discount rate at 30 June (gross of tax)4.604.004.504.40Expected return on plan assets at 30 June (1)n/a6.10n/a4.40Expected rate salary increases at 30 June (per annum) (2)3.753.504.604.10Commonwealth Bank Group SuperCBA(UK)SBS 2013201220132012Expected life expectancies for pensionersYears Years Years Years Male pensioners currently aged 6029.329.229.229.1Male pensioners currently aged 6524.524.324.324.2Female pensioners currently aged 6034.434.331.831.6Female pensioners currently aged 6529.329.226.726.6Commonwealth Bank Group SuperCBA(UK)SBS
Notes to the Financial Statements
Note 41 Retirement Benefit Obligations (continued)
Further, the proportion of the retiring members of the main Commonwealth Bank Group Super defined benefit division electing to
take pensions instead of lump sums may materially impact the defined benefit obligations. Of these retiring members, 36% 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.
During the year ended 30 June 2013, the trustee reviewed and implemented a new investment strategy of 50% growth/50%
defensive assets (previously 70% growth/30% defensive) for the assets backing the defined benefit portion of Commonwealth
Bank Group Super. The actual asset allocations for the assets backing the defined benefit portion of Commonwealth Bank Group
Super are as follows:
(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 Commonwealth Bank Group Super’s equity holding in the Group as at 30 June 2013 was $130 million (2012:
$113 million). Amounts on deposit with the Bank at 30 June 2013 totalled $15 million (2012: $21 million). Other financial
instruments with the Group at 30 June 2013 totalled $nil (2012: $46 million).
Note 42 Investments in Associates and Joint Ventures
(1) The Group’s 80% interest in Aussie Home Loans Pty Limited is jointly controlled as the key financial and operating decisions require the unanimous
consent of all directors.
(2) These are joint ventures of the Group.
(3) The value for CFS Retail Property Trust based on published quoted prices was $441 million as at 30 June 2013 (2012: $427 million).
(4) The value for Commonwealth Property Office Fund based on published quoted prices was $165 million as at 30 June 2013 (2012: $152 million).
(5) The consolidated entity has significant influence due to its relationship as Responsible Entity. These holdings exclude assets held in statutory funds
backing policyholder liabilities, which are disclosed as Assets at fair value through Income Statement.
(6) The value for Countplus Limited based on published quoted prices was $74 million as at 30 June 2013 (2012: $52 million). This investment was purchased
during the 2012 financial year.
(7) The investments included in “Other” are mostly joint ventures. For these investments, the Group is committed to equity injections of $36 million (2012: $nil)
within 12 months and $5 million (2012: $41 million) greater than 12 months.
170 Commonwealth Bank of Australia
20132012Asset allocations%%Australian equities12.6 21.3 Overseas equities14.5 10.9 Real estate9.2 14.2 Fixed interest securities43.6 34.8 Cash5.8 4.3 Other (1)14.3 14.5 Actual AllocationGroup2013201220132012OwnershipOwnershipPrincipalCountry ofBalance$M$MInterest %Interest % ActivitiesIncorporationDateAussie Home Loans Pty Limited (1) (2)258718033Mortgage Broking Australia 30-JunBank of Hangzhou Co., Limited6485382020Commercial Banking China 31-DecBoCommLife Insurance Company Limited (2)80243838Life Insurance China 31-DecCFS Retail Property Trust (3) (5)43943988Funds Management Australia 30-JunCommonwealth Property Office Fund (4) (5)14714766Funds Management Australia 30-JunCountplus Limited (6)55563737Financial Advice Australia 30-JunFirst State European Diversified Investment Fund1511392030Funds Management Luxembourg 31-DecQilu Bank Co., Limited2232132020Commercial Banking China 31-DecVietnam International Commercial Joint Stock Bank2192172020Financial Services Vietnam 31-DecOther (7)6154Various Various Various Various VariousCarrying amount of investments in associates and joint ventures2,2811,898
Notes to the Financial Statements
Note 42 Investments in Associates and Joint Ventures (continued)
Note 43 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 47 to 64 and have been
audited.
Equity Holdings of Key Management Personnel
Shareholdings
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 28.
Shares Held by Directors
All shares were acquired by Directors on normal terms and conditions or through the Non-Executive Director’s Share Plan.
(1) Non-Executive Directors who hold less than 5,000 Commonwealth Bank shares are required to receive 20% of their total post-tax 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) PERLS: As at 30 June 2013 David Turner held 380 PERLS VI units (2012: nil), Colin Galbraith held 700 PERLS VI units (2012: nil), Brian Long held 400
PERLS V units (2012: 400 units), Fergus Ryan held 3,875 PERLS V units and 5,700 PERLS VI units (2012: 3,875 PERLS V units), and Jane Hemstritch
held 2,500 PERLS III units, 500 PERLS V units and 6,300 PERLS VI units (2012: 2,500 PERLS III units, 1,150 PERLS IV units, and 500 PERLS V units).
(4) Other securities: As at 30 June 2013 Jane Hemstritch held 5,000 CNGHA notes (2012: 5,000 CNGHA notes), and David Turner held 67,647 CPA units
(2012: 67,647 CPA units).
Annual Report 2013
171
Group20132012Share of Associates' and Joint Ventures profits$M $M Operating profits before income tax254164Income tax expense(44)(24)Operating profits after income tax210140Group20132012Financial information of Associates and Joint Ventures$M$MAssets90,24176,844Liabilities75,11963,481Revenue3,7413,976Operating profits after income tax1,4241,326GroupBank2013201220132012Key management personnel compensation$'000$'000$'000$'000Short term benefits35,40632,68335,40632,683Post-employment benefits777748777748Share-based payments9,88220,5169,88220,516Long term benefits1,3101,2411,3101,241Total47,37555,18847,37555,188BalanceSharesNet ChangeBalanceDirectorsClass1 July 2012Acquired (1)Other (2)30 June 2013Non-Executive DirectorsDavid TurnerOrdinary11,840--11,840PERLS (3)--380380Other securities (4)67,647--67,647John AndersonOrdinary17,672--17,672Jane HemstritchOrdinary25,775--25,775PERLS (3)4,150-5,1509,300Other securities (4)5,000--5,000Launa InmanOrdinary1,698538-2,236Carolyn KayOrdinary12,388--12,388Brian LongOrdinary11,109-5011,159PERLS (3)400--400Andrew MohlOrdinary52,640-7,20059,840Harrison Young Ordinary26,764--26,764Former Non-Executive DirectorsColin GalbraithOrdinary16,736--16,736PERLS (3)--700700Fergus RyanOrdinary18,863--18,863PERLS (3)3,875-5,7009,575
Notes to the Financial Statements
Note 43 Key Management Personnel (continued)
Shares held by the CEO and Group Executives
(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, sign-on and special retention awards received as restricted shares.
(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. For Alden Toevs this figure includes a reduction
in vested Reward Shares to offset his 2009 sign-on payment.
(4) Restated to recognise actual balance at 30 June 2012.
172 Commonwealth Bank of Australia
Reward/Acquired/DeferredBalanceGranted asSharesNet ChangeBalanceClass (1)1 July 2012RemunerationVested (2)Other (3)30 June 2013Managing Director and CEOIan NarevOrdinary 21,276--27,76549,041Reward Shares/Rights 165,26578,681(22,067)(3,152)218,727Deferred Shares 5,698-(5,698)--Group ExecutivesSimon BlairOrdinary -----Reward Shares/Rights 77,09026,122--103,212Deferred Shares - ---- David Cohen Ordinary 49,737-29,01578,752Reward Shares/Rights 107,90028,326(21,418)(3,059)111,749Deferred Shares 7,597-(7,597)--Matthew ComynOrdinary18,145--(1,748)16,397Reward Shares/Rights-30,843--30,843Deferred Shares23,7926,119(9,800)-20,111David Craig Ordinary 87,780--10,45698,236Reward Shares/Rights 151,21443,432(27,259)(3,894)163,493Deferred Shares 7,597-(7,597)--Michael Harte Ordinary 60,632--32,26092,892Reward Shares/Rights 126,89233,833(24,663)(3,523)132,539Deferred Shares 7,597-(7,597)--Robert JesudasonOrdinary---625625Reward Shares/Rights-25,179--25,179Deferred Shares46,3234,295(23,625)-26,993Melanie LaingOrdinary (4)975--7,0157,990Reward Shares/Rights 23,95425,179--49,133Deferred Shares 10,961-(7,015)-3,946Grahame PetersenOrdinary 80,126-23,426103,552Reward Shares/Rights 143,02536,980(28,557)(4,079)147,369Deferred Shares 6,331-(6,331)--Ian Saines Ordinary 23,659--44,05267,711Reward Shares/Rights 166,47141,858(33,749)(4,821)169,759Deferred Shares 7,597-(7,597)--Annabel SpringOrdinary 1,024--1,5832,607Reward Shares/Rights 29,34230,843--60,185Deferred Shares 18,182-(1,583)-16,599Alden Toevs Ordinary 46,784--10,39357,177Reward Shares/Rights 178,31845,005(25,263)(16,274)181,786Deferred Shares 10,130-(10,130)--Former ExecutiveRoss McEwan Ordinary ---40,01640,016Reward Shares/Rights 156,447-(31,153)(125,294)-Deferred Shares 59,749-(8,863)(50,886)-
Notes to the Financial Statements
Note 43 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).
Total Loans to Key Management Personnel
Loans to Key Management Personnel Exceeding $100,000 in Aggregate
(1) Some loans for Ross McEwan are held in New Zealand Dollars and converted to Australian Dollars for the purpose of this disclosure. The exchange rate
as at 30 June 2012 has been used for opening balances, and the exchange rate at 30 June 2013 has been used for closing balances. The average
exchange rate over the 2013 financial year has been used for calculating interest. The spot exchange rate was used for calculating the highest balance in
the period.
(2) Represents the highest balance per individual of loans outstanding at any period during the year ended 30 June 2013.
Other Transactions of Key Management Personnel
Financial Instrument Transactions
Financial instrument transactions (other than loans and shares disclosed within this report) of Key Management Personnel occur
in the ordinary course of business on an arm’s length basis.
Disclosure of financial instrument transactions regularly made as part of normal banking operations is limited to disclosure of such
transactions with Key Management Personnel and entities controlled or significantly influenced by them.
All such financial instrument transactions that have occurred between entities within the Group and their Key Management
Personnel have been trivial or domestic in nature and were in the nature of normal personal banking and deposit transactions.
Transactions other than Financial Instrument Transactions of Banks
All other transactions with Key Management Personnel and their related entities and other related parties are conducted on an
arm’s length basis in the normal course of business and on commercial terms and conditions. These transactions principally
involve the provision of financial and investment services by entities not controlled by the Group.
Annual Report 2013
173
OpeningInterestClosingBalanceChargedBalanceNumber in$'000$'000$'000GroupDirectors 201396 5 96 2 20125 6 96 2 CEO & Group Executives 20137,137 479 9,486 1220127,153 456 7,137 12Total 20137,233 484 9,582 14 20127,158 462 7,233 14HighestBalanceInterestInterest NotBalanceBalance1 July 2012ChargedChargedWrite-off30 June 2013in Period$'000$'000$'000$'000$'000$'000 (2)Group ExecutivesSimon Blair4003--1414David Cohen58534--569601Matthew Comyn2,31851--1,2382,429Michael Harte4,375173--3,5674,683Robert Jesudason3,672183--3,1583,914Melanie Laing32527--661674Ross McEwan (1)1,4249--2891,478Total 13,099480--9,48314,193
Notes to the Financial Statements
Note 44 Related Party Disclosures
The Group is controlled by the Commonwealth Bank of Australia, the ultimate parent, which is incorporated in Australia.
Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the
other party in making financial or operational decisions, or one other party controls both. The definition includes subsidiaries,
associates, joint ventures, pension plans as well as other persons.
A number of banking transactions are entered into with related parties in the normal course of business on an arm’s length basis.
These include loans, deposits and foreign currency transactions, upon which some fees and commissions may be earned. Details
of amounts paid or received from related parties, in the form of dividends or interest, are set out in Note 2.
The Bank’s aggregate investments in, and loans to controlled entities are disclosed in the table below. Amounts due to controlled
entities are disclosed in the Balance Sheet of the Bank.
The Group also receives fees on an arm’s length basis of $81 million (2012: $74 million) from funds classified as associates.
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(s). The amount
receivable by the Bank under the tax funding agreement with the tax consolidated entities is $207 million as at 30 June 2013
(2012: $261 million receivable). This balance is included in ‘Other assets’ in the Bank’s separate balance sheet.
All transactions between Group entities are eliminated on consolidation.
Note 45 Notes to the Statements of Cash Flows
(a) Reconciliation of Net Profit after Income Tax to Net Cash provided by/(used in) Operating Activities
(1) Cash and cash equivalents has been redefined to no longer include at call deposits with other financial institutions and settlement account balances with
other banks. Comparatives have been restated to conform to presentation in the current year.
174 Commonwealth Bank of Australia
Bank 20132012$M $M Shares in controlled entities16,16720,025Loans to controlled entities46,85054,981Total shares in and loans to controlled entities63,01775,006GroupBank20132012201120132012$M $M $M $M $M Net profit after income tax7,6937,1066,4107,2926,461Decrease/(increase) in interest receivable13079(224)358(318)(Decrease)/increase in interest payable(251)(320)476(362)(240)Net (increase)/decrease in assets at fair value through Income Statement (excluding life insurance)(3,472)3,3912,697(4,535)2,943Net (gain)/loss on sale of controlled entities and associates(7)(21)(7)-10Net gain on sale of investments-(1)(1)-(1)Net movement in derivative assets/liabilities 2,372(663)(79)3,781394Net loss/(gain) on sale of property, plant and equipment 14(39)613(40)Equity accounting profit(210)(120)(141)--Loan impairment expense1,1461,0891,2801,042994Depreciation and amortisation (including asset write downs)716628613549398Increase/(decrease) in liabilities at fair value through Income Statement (excluding life insurance)1,569(4,321)(4,851)126(1,424)Increase/(decrease) in other provisions 19(69)8040(71)Increase/(decrease) in income taxes payable4537105(341)167Increase/(decrease) in deferred tax liabilities13315280(292)116(Increase)/decrease in deferred tax assets (26)349(30)234173(Increase)/decrease in accrued fees/reimbursements receivable(272)18(1)3238Increase/(decrease) in accrued fees and other items payable31564(99)179(6)(Decrease)/increase in life insurance contract policy liabilities(1,401)(1,157)835--Increase/(decrease) in cash flow hedge reserve27(58)1526(55)Gain on changes in fair value of hedged items(617)(318)(427)(421)(702)Dividend received---(1,512)(1,573)Changes in operating assets and liabilities arising from cash flow movements (1)(2,411)3,1207,866(7,997)(27,495)Other1,065(99)(158)103(76)Net cash provided by/(used in) operating activities6,5778,84714,445(1,685)(20,307)
Notes to the Financial Statements
Note 45 Notes to the Statements of Cash Flows (continued)
(b) Reconciliation of Cash
For the purposes of the Statements of Cash Flows, cash includes cash and money at short call.
(1) Cash and cash equivalents has been redefined to no longer include at call deposits with other financial institutions and settlement account balances with
other banks. These are now considered part of cash flows from operating activities to enhance industry comparability. Comparatives have been restated
to conform to presentation in the current year, (impact: $10,528 million as at 30 June 2012).
(c) Disposal of Controlled Entities – Fair Value of Asset Disposal
The Group disposed of certain St Andrew’s operations effective 1 July 2010.
(d) Non-cash Financing and Investing Activities
(1) The dividend reinvestment plan in respect of the interim dividend for 2012/13 was satisfied in full through an on market purchase and transfer of
$596 million of shares to participating shareholders.
(e) Acquisition of Controlled Entities
The Group gained control of Count Financial Limited (Count Financial) on 29 November 2011. The Group subsequently acquired
100% of the issued share capital on 9 December 2011. Count Financial is an independent, accountant-based financial advice
business. This acquisition will support the Group in growing its distribution capabilities through the expansion of its adviser
network.
The fair value of the identifiable assets acquired and liabilities assumed at the acquisition date are as follows:
Annual Report 2013
175
GroupBank 20132012201120132012$M $M $M $M $M Notes, coins and cash at banks7,6538,5085,4246,1837,161Other short term liquid assets4,9654,0951,3014,5653,785Cash and cash equivalents at end of year (1)12,61812,6036,72510,74810,946Group201320122011$M$M$MNet assets--60Loss on sale (excluding realised foreign exchange losses and other related costs)--(10)Cash consideration received--50Less cash and cash equivalents disposed--(31)Net cash inflow on disposal--19Group201320122011$M$M$MShares issued under the Dividend Reinvestment Plan (1)9291,363511Group201320122011$M$M$MNet identifiable assets at fair value-140-Add: Goodwill-232-Purchase consideration transferred-372-Less: Cash and cash equivalents acquired-(10)--362-Less: Non-cash consideration-(237)-Net cash outflow on acquisition-125-
Notes to the Financial Statements
Note 46 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. AASB 7
‘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’s 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.
(1) Comparatives have been restated to conform to presentation in the current year.
176 Commonwealth Bank of Australia
Group 20132012CarryingFair CarryingFair ValueValue ValueValue $M$M $M$M AssetsCash and liquid assets20,63420,63419,66619,666Receivables due from other financial institutions7,7447,74410,88610,886Assets at fair value through Income Statement: Trading19,61719,61713,81613,816 Insurance14,35914,35914,52514,525 Other907907980980Derivative assets (1)45,34045,34039,56739,567Available-for-sale investments59,60159,60160,82760,827Loans, bills discounted and other receivables556,648557,356525,682526,039Bank acceptances of customers6,0636,0639,7179,717Other assets6,9986,9987,9627,962LiabilitiesDeposits and other public borrowings459,429460,251437,655439,418Payables due to other financial institutions25,92225,92222,12622,126Liabilities at fair value through Income Statement8,7018,7016,5556,555Derivative liabilities (1)38,58038,58039,85139,851Bank acceptances6,0636,0639,7179,717Insurance policy liabilities13,00413,00412,99412,994Debt issues132,808136,638124,712125,818Managed funds units on issue891891995995Bills payable and other liabilities7,5747,5747,2317,231Loan capital9,6879,98910,02210,387
Notes to the Financial Statements
Note 46 Disclosures about Fair Values of Financial Instruments (continued)
(1) Comparatives have been restated to conform to presentation in the current year.
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 creditworthiness 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 creditworthiness. 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 creditworthiness of the customer.
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.
Annual Report 2013
177
Bank 20132012CarryingFair CarryingFair ValueValue ValueValue $M$M $M$M AssetsCash and liquid assets18,03018,03017,95217,952Receivables due from other financial institutions6,9986,99810,48210,482Assets at fair value through Income Statement: Trading18,39818,39812,07112,071 Other718718980980Derivative assets (1)45,20345,20339,69139,691Available-for-sale investments125,941125,941116,567116,567Loans, bills discounted and other receivables502,349502,978407,122407,418Bank acceptances of customers6,0596,0599,7159,715Loans to controlled entities46,85046,85254,98155,080Other assets5,4235,4236,1386,138LiabilitiesDeposits and other public borrowings425,276426,048362,813364,002Payables due to other financial institutions25,16625,16621,45721,457Liabilities at fair value through Income Statement3,3323,3323,1813,181Derivative liabilities (1)40,22940,22939,85639,856Bank acceptances6,0596,0599,7159,715Due to controlled entities113,868113,868101,053101,053Debt issues115,291119,032102,312103,513Bills payable and other liabilities5,6485,6485,2675,267Loan capital10,43710,44510,22310,435
Notes to the Financial Statements
Note 46 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.
Financial instruments included in this category are liquid government and financial institution bonds, listed equities and exchange
traded derivatives.
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.
Financial instruments included in this category are corporate bonds, certificates of deposit, commercial paper, mortgaged backed
securities and Over-the-Counter (OTC) derivatives including interest rate swaps, cross currency swaps and FX options.
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.
Financial instruments included in this category for the Group and Bank are certain exotic OTC derivatives and internally issued
residential mortgage backed securities for the Bank only.
(1) Comparatives have been restated to conform to presentation in the current year.
178 Commonwealth Bank of Australia
GroupLevel 1Level 2Level 3TotalLevel 1Level 2Level 3Total$M$M$M$M$M$M$M$MAssetsAssets at fair value through Income Statement:Trading16,0743,543-19,6179,9843,832-13,816Insurance4,5809,779-14,3594,6029,923-14,525Other632275-90796713-980Derivative assets (1)845,2636945,3401539,5262639,567Available-for-sale investments48,04111,556459,60149,03311,793160,827Total assets carried at fair value69,33570,41673139,82464,60165,08727129,715LiabilitiesLiabilities at fair value through Income Statement2,7525,949-8,7012,4494,106-6,555Derivative liabilities (1)-38,5661438,580539,8291739,851Life investment contracts-9,589-9,589-9,728-9,728Total liabilities carried at fair value2,75254,1041456,8702,45453,6631756,134Fair Value as at 30 June 2013Fair Value as at 30 June 2012
Notes to the Financial Statements
Note 46 Disclosures about Fair Values of Financial Instruments (continued)
(b) Valuation Methodology (continued)
(1) Comparatives have been restated to conform to presentation in the current year.
(2)
Included within available-for-sale investments of the Bank are $67,853 million (2012: $66,458 million) of residential mortgage backed securities issued by
Bank originated securitisation vehicles for potential repurchase by the Reserve Bank of Australia.
Level 3 Movement Analysis for the year ended 30 June 2013
Annual Report 2013
179
BankLevel 1Level 2Level 3TotalLevel 1Level 2Level 3Total$M$M$M$M$M$M$M$MAssetsAssets at fair value through Income Statement:Trading16,0512,347-18,3989,7112,360-12,071Other588130-71896713-980Derivative assets (1)1245,1296245,203939,6701239,691Available-for-sale investments (2)46,96610,36568,610125,94139,09811,01066,459116,567Total assets carried at fair value63,61757,97168,672190,26049,78553,05366,471169,309LiabilitiesLiabilities at fair value through Income Statement2,737595-3,3322,448733-3,181Derivative liabilities (1)2340,1921440,229539,8341739,856Total liabilities carried at fair value2,76040,7871443,5612,45340,5671743,037Fair Value as at 30 June 2013Fair Value as at 30 June 2012GroupAssets at Fair Value through Income Available Statement Derivative for SaleDerivative Trading AssetsInvestments LiabilitiesTotal$M$M$M$M$MAs at 1 July 201163411(8)97Purchases-11--11Sales/Settlements(7)(3)-1(9)Gains/(losses) in the period:Recognised in the Income Statement1(24)-(10)(33)Recognised in the Statement of Comprehensive Income-----Transfers in-1-(2)(1)Transfers out(57)--2(55)As at 30 June 2012-261(17)10Gains/(losses) recognised in the Income Statement for financial instruments held as at 30 June 2012-1-(14)(13)As at 1 July 2012-261(17)10Purchases-441(5)40Sales/Settlements---1010Gains/(losses) in the period:Recognised in the Income Statement-7-(2)5Recognised in the Statement of Comprehensive Income-----Transfers in--2-2Transfers out-(8)--(8)As at 30 June 2013-694(14)59Gains/(losses) recognised in the Income Statement for financial instruments held as at 30 June 2013-6-(5)1
Notes to the Financial Statements
Note 46 Disclosures about Fair Values of Financial Instruments (continued)
Transfers in and out of Level 3 are due to changes in the observability of the inputs.
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 results. The Bank’s exposure to financial
instruments measured at fair value based in full or part on non-market observable inputs consists almost entirely of Bank
originated and internally issued RMBS. These securities have been originated for potential repurchase by the RBA.
180 Commonwealth Bank of Australia
BankAssets at Fair Value through Income Available Statement Derivative for SaleDerivative Trading AssetsInvestments LiabilitiesTotal$M$M$M$M$MAs at 1 July 201162937,445(8)37,472Purchases-1129,051-29,062Sales/Settlements(6)(3)-1(8)Gains/(losses) in the period:Recognised in the Income Statement-(25)-(10)(35)Recognised in the Statement of Comprehensive Income--(37)-(37)Transfers in---(2)(2)Transfers out---22As at 30 June 2012-1266,459(17)66,454Gains/(losses) recognised in the Income Statement for financial instruments held as at 30 June 2012---1515As at 1 July 2012-1266,459(17)66,454Purchases-49-(5)44Sales/Settlements-(2)(1,150)10(1,142)Gains/(losses) in the period:Recognised in the Income Statement-10-(2)8Recognised in the Statement of Comprehensive Income--(136)-(136)Transfers in--688-688Transfers out-(7)--(7)Additions through merger of banking licence--2,749-2,749As at 30 June 2013-6268,610(14)68,658Gains/(losses) recognised in the Income Statement for financial instruments held as at 30 June 2013-8-(6)2
Notes to the Financial Statements
Note 47 Securitisation, Covered Bonds and Transferred Assets
Transfer of Financial Assets
In the normal course of business the Group enters into transactions by which it transfers financial assets to counterparties or
directly to Special Purpose Entities (SPE’s). These transfers do not give rise to derecognition of those financial assets for the
Group.
Repurchase Agreements
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.
Securitisation Programs
Residential mortgages securitised under the Group’s securitisation programs are equitably assigned to bankruptcy remote special
purpose entities (SPEs). The Group is entitled to any residual income of the securitisation program after all payments due to
investors have been met. In addition, where derivatives are transacted between the SPE and the Bank, such that the Bank retains
exposure to the variability in cash flows from the transferred residential mortgages, the mortgages will continue to be recognised
on the Bank’s balance sheet. The investors have full recourse only to the residential mortgages segregated into an SPE.
Covered Bonds Programs
To complement the existing wholesale funding sources, the Group has established two global covered bond programs for the
Bank and ASB respectively. Certain residential mortgages have been assigned to a bankruptcy remote SPE associated with
covered bond programs to provide security for the obligations payable on the covered bonds issued by the Group. Similarly to
securitisation programs, the Group is entitled to any residual income after all payments due to covered bonds investors have
been met. As the Bank retains substantially all of the risks and rewards associated with the mortgages through derivatives
transacted with the SPE, the Bank continues to recognise the mortgages on its Balance Sheet. The covered bond holders have
dual recourse to the Bank and the covered pool assets.
At the Balance Sheet date, transferred financial assets that did not qualify for derecognition and their associated liabilities are as
follows:
(1) Securitisation liabilities of the Group include RMBS notes issued by securitisation SPEs and held by external investors.
(2) Securitisation liabilities of the Bank include borrowings from securitisation SPEs, including the SPEs that issue only internally held notes for repurchase
with central banks, recognised on transfer of residential mortgages by the Bank.
Annual Report 2013
181
Group201320122013201220132012$M$M$M$M$M$MCarrying amount of transferred assets5,5725,24533,63422,35810,1699,279Carrying amount of associated liabilities (1)5,5725,24518,23812,7898,9297,858For those liabilities that have recourse only to the transferred assets--Fair value of transferred assets10,1839,291Fair value of associated liabilities8,9277,743Net position1,2561,548Agreements Covered Bonds Securitisation RepurchaseBank201320122013201220132012$M$M$M$M$M$MCarrying amount of transferred assets5,5395,25829,48719,89377,15075,113Carrying amount of associated liabilities (2)5,5395,25816,74011,42377,15075,095For those liabilities that have recourse only to the transferred assets--Fair value of transferred assets77,23475,214Fair value of associated liabilities77,15074,888Net position84326Agreements Covered Bonds SecuritisationRepurchase
Notes to the Financial Statements
Note 48 Controlled Entities
(a) Material Subsidiaries
A subsidiary is considered material based on its contribution to the consolidated entity’s profit, size of investment or nature of
activity. The criteria applied are largely consistent with the definition of a “large proprietary company” following the Corporations
Act 2001, i.e. if the subsidiary satisfies at least two of the following:
The consolidated revenue for the financial year of the subsidiary and the entities it controls (if any) is $25 million or more;
The value of the consolidated gross assets at the end of the financial year of the subsidiary and the entities it controls (if any)
is $12.5 million or more;
The subsidiary and the entities it controls (if any) have 50 or more employees at the end of the financial year.
The material subsidiaries of the Bank including but not limited to those meeting the “large proprietaries company” definition are:
All the above subsidiaries are 100% owned and incorporated in Australia.
182 Commonwealth Bank of Australia
Entity Name Entity Name Australia(a) BankingAustralian Investment Exchange LimitedMedallion Trust Series 2007-1GBWA Group Services Pty LimitedMedallion Trust Series 2008-1RCBA AIR Pty LimitedMedallion Trust Series 2011-1CBA Covered Bond TrustMedallion Trust Series 2012-1CBA Equities LimitedMedallion Trust Series 2013-1CBA International Finance Pty LimitedMIS Funding No.1 Pty LimitedCBFC Leasing Pty LimitedPreferred Capital LimitedCBFC LimitedSAFE No2 Pty LimitedCommonwealth Securities LimitedSecuritisation Advisory Services Pty LimitedGT Funding No. 6 Limited PartnershipSeries 2006-1E SWAN TrustGT Operating No. 5 Limited PartnershipSeries 2007-1E SWAN TrustHomepath Pty LimitedSeries 2008-1D SWAN TrustIWL Broking Solutions LimitedSeries 2010-1 SWAN TrustIWL LimitedSeries 2010-2 SWAN TrustMedallion Trust Series 2005-1GSeries 2011-1 SWAN TrustMedallion Trust Series 2005-2GSecurity Holding Investment Entity Linking Deals LimitedMedallion Trust Series 2006-1GWallaby Warehouse Trust No.1(b) Insurance and Funds ManagementAvanteos Investments LimitedColonial Holding Company LimitedAvanteos Pty LtdCommonwealth Financial Planning LimitedCapital 121 Pty LimitedCommonwealth Insurance Holdings LimitedColonial Finance LimitedCommonwealth Insurance LimitedColonial First State Asset Management (Australia) LimitedCommonwealth Managed Investments LimitedColonial First State Group LimitedCount Financial LimitedColonial First State Investments LimitedFinancial Wisdom LimitedColonial First State Property LimitedFirst State Investment Managers (Asia) LimitedCFS Property Management TrustJacques Martin Administration and Consulting Pty LtdColonial First State Property Retail TrustThe Colonial Mutual Life Assurance Society Limited
Notes to the Financial Statements
Note 48 Controlled Entities (continued)
(a) Material Subsidiaries (continued)
The Group also consolidates a number of unit trusts as part of the ongoing investment activities of the life insurance and wealth
businesses. These investment vehicles are excluded from the above list.
(b) Disposal of Controlled Entities
There have been no controlled entities disposed of during the year. The Group disposed of certain St Andrew’s operations
effective 1 July 2010. For further details refer to Note 45(c).
Annual Report 2013
183
Extent of BeneficialEntity Name Interest if not 100%Incorporated inNew Zealand(a) BankingAegis LimitedNew Zealand ASB Bank LimitedNew Zealand ASB Covered Bond Trustee LtdNew Zealand ASB Finance LimitedNew Zealand ASB Funding LimitedNew Zealand ASB Group Investments LimitedNew Zealand ASB Holdings LimitedNew Zealand CBA Asset Holdings (NZ) LimitedNew Zealand CBA Funding (NZ) LimitedNew Zealand CBA USD Funding LimitedNew Zealand Medallion NZ Series Trust 2009-1RNew Zealand (b) Insurance and Funds ManagementASB Group (Life) LimitedNew Zealand Kiwi Property Management LimitedNew Zealand Sovereign Assurance Company LimitedNew Zealand Other Overseas(a) Banking CBA (Europe) Finance LimitedUnited Kingdom CBA Capital Trust IDelaware USA CBA Capital Trust IIDelaware USA CBA Funding Trust IDelaware USA CommBank Europe LimitedMalta CommCapital S.a.r.lLuxembourg CommInternational LimitedMalta CTB Australia LimitedHong Kong Newport LimitedMalta PT Bank Commonwealth97%Indonesia (b) Insurance and Funds ManagementFirst State Investment Management (UK) LimitedUnited Kingdom First State Investment Services (UK) LimitedUnited Kingdom First State Investments (Bermuda) LimitedBermuda First State Investments (Hong Kong) LimitedHong Kong First State Investments (Singapore)Singapore First State Investments (UK Holdings) LimitedUnited Kingdom First State Investments (UK) LimitedUnited Kingdom First State Investments Holdings (Singapore) LimitedSingapore First State Investments International LimitedUnited Kingdom PT Commonwealth Life80%Indonesia SI Holdings LimitedUnited Kingdom
Notes to the Financial Statements
Note 48 Controlled Entities (continued)
(c) Transition to a Single Authorised Deposit-taking Institution with Bank of Western Australia Limited (Bankwest)
On 1 October 2012 the Commonwealth Bank of Australia Limited and Bank of Western Australia Limited (Bankwest) commenced
operating as a single Authorised Deposit-taking Institution (ADI). In conjunction with that process, the legal entity Bank of Western
Australia Limited was deregistered and the Commonwealth Bank of Australia Limited became its successor in law. This resulted
in all of Bankwest’s assets and liabilities (including all deposits, contracts and debt securities previously issued by Bankwest)
becoming the Commonwealth Bank of Australia Limited’s assets and liabilities. All Bankwest directly owned subsidiaries became
directly owned by the Commonwealth Bank of Australia Limited.
Details of the impact of transferring the assets and liabilities of Bankwest to the Bank and the derecognition of the Bank’s
investment in Bankwest are set out below:
Note 49 Subsequent Events
The Bank expects the DRP for the final dividend for the year ended 30 June 2013 will be satisfied in full by an on market
purchase and transfer of shares of approximately $806 million.
On 24 July 2013 the Bank submitted an indicative, non-binding proposal to the Commonwealth Managed Investments Limited
(CMIL) Board to internalise the management of Commonwealth Property Office Fund (CPA) and CFS Retail Property Trust Group
(CFX). The proposal in relation to CFX also incorporates CFX acquiring the wholesale property funds management business and
integrated retail property management and development business owned by CBA.
The Bank also submitted an indicative, non-binding proposal to the Kiwi Income Properties Limited (KIPL) Board to internalise the
management of the Kiwi Income Property Trust (KIP). As at the date of this report, the financial effect of any transaction cannot
be estimated.
The Directors are not aware of any other matter or circumstance that has occurred since the end of the financial year that has
significantly affected or may significantly affect the operations of the Group, the results of those operations or the state of affairs
of the Group in subsequent financial years.
184 Commonwealth Bank of Australia
1 October 2012$MAssetsCash and liquid assets557Receivables due from other financial institutions2,749Derivative assets(104)Available-for-sale investments2Loans, bills discounted and other receivables66,563Shares in and loans to controlled entities(32,472)Property, plant and equipment262Intangible assets449Deferred tax assets469Other assets151Total assets38,626LiabilitiesDeposits and other public borrowings43,567Payables due to other financial institutions80Liabilities at fair value through Income Statement1Derivative liabilities(363)Due to controlled entities(7,656)Other provisions43Debt issues665Deferred tax liabilities292Bills payable and other liabilities75037,379Loan capital121Total liabilities37,500Net assets1,126Shareholders' EquityShare capital:Ordinary share capital-Other equity instruments-Reserves207Retained profits919Total Shareholders' equity1,126
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 2013 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 2013.
Signed in accordance with a resolution of the Directors.
D J Turner
Chairman
13 August 2013
I M Narev
Managing Director and Chief Executive Officer
13 August 2013
Annual Report 2013
185
Independent auditor’s report to the members of Commonwealth Bank of Australia
Report on the financial report
We have audited the accompanying financial report of Commonwealth Bank of Australia, which comprises the
balance sheets as at 30 June 2013, and the income statements, the statements of comprehensive income,
statements of changes in equity and statements 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 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 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 of Commonwealth
Bank of Australia 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
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
186 Commonwealth Bank of Australia
Independent auditor’s report to the members of Commonwealth Bank of Australia
(continued)
Auditor’s opinion
In our opinion:
(a)
the financial report of Commonwealth Bank of Australia is in accordance with the Corporations Act 2001,
including:
(i) giving a true and fair view of Commonwealth Bank of Australia’s and the consolidated entity’s financial
position as at 30 June 2013 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.
(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 47 to 64 of the directors’ report for the year ended 30
June 2013. The directors of 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 Commonwealth Bank of Australia for the year ended 30 June 2013,
complies with section 300A of the Corporations Act 2001.
Matters relating to the electronic presentation of the audited financial report
This auditor’s report relates to the financial report and remuneration report of Commonwealth Bank of Australia for
the year ended 30 June 2013 included on Commonwealth Bank of Australia’s website. Commonwealth Bank of
Australia’s directors are responsible for the integrity of Commonwealth Bank of Australia’s website. We have not
been engaged to report on the integrity of this website. The auditor’s report refers only to the financial report and
remuneration report named above. It does not provide an opinion on any other information which may have been
hyperlinked to/from the financial report or the remuneration report. If users of this report are concerned with the
inherent risks arising from electronic data communications they are advised to refer to the hard copy of the audited
financial report and remuneration report to confirm the information included in the audited financial report and
remuneration report presented on this website.
PricewaterhouseCoopers
Marcus Laithwaite
Partner
Sydney
13 August 2013
Annual Report 2013
187
Shareholding Information
Top 20 Holders of Fully Paid Ordinary Shares as at 2 August 2013
Rank
Name of Holder
Number of Shares
%
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
19
19
20
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
National Nominees Limited
Citicorp Nominees Pty Limited
Cogent Nominees Pty Limited
RBC Dexia Investor Services Australia Nominees Pty Limited
Bond Street Custodians Limited
AMP Life Limited
Australian Foundation Investment
UBS Wealth Management Australia
Milton Corporation Limited
BNP Paribas Nominees Pty Limited
Dawnraptor Pty.Limited
Navigator Australia Limited
Argo Investments Limited
Invia Custodian Pty Limited
UBS Nominees Pty Limited
Nulis Nominees (Australian) Limited
Questor Financial Services
Mr Barry Martin Lambert
238,623,271
186,493,456
137,009,826
71,997,100
31,956,078
16,977,575
15,689,114
14,023,354
8,482,900
6,087,323
3,029,225
2,988,966
2,747,995
2,625,492
2,577,895
2,429,464
2,208,536
2,182,498
2,132,891
1,643,613
14.80
11.57
8.50
4.47
1.98
1.05
0.97
0.87
0.53
0.38
0.19
0.19
0.17
0.16
0.16
0.15
0.14
0.14
0.13
0.10
The top 20 shareholders hold 751,906,572 shares which is equal to 46.65% of the total shares on issue.
Stock Exchange Listing
The shares of the Commonwealth Bank of Australia (Bank) 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 is not currently in the market conducting an on market buy-back of its shares.
Range of Shares (Fully Paid Ordinary Shares and Employee Shares): 2 August 2013
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
Percentage of
Shareholders
Number of
Shares
579,301
181,489
17,618
7,484
208
786,100
12,118
73.69
23.09
2.24
0.95
0.03
100.00
1.54
189,740,277
377,105,938
120,556,249
141,257,631
783,268,741
1,611,928,836
37,758
Percentage of
Issued
Capital
11.77
23.40
7.48
8.76
48.59
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.
188 Commonwealth Bank of Australia
Top 20 Holders of Perpetual Exchangeable Repurchaseable Listed Shares III (“PERLS III”) as at 2 August 2013
Rank
Name of Holder
Number of Shares
%
Shareholding Information
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
19
19
20
UBS Wealth Management Australia
AMP Life Limited
National Nominees Limited
Citicorp Nominees Pty Limited
J P Morgan Nominees Australia Limited
Navigator Australia Limited
Mr Walter Lawton and Mrs Jan Rynette Lawton
Nulis Nominees (Australia) Limited
The Australian National University
RBC Dexia Investor Services
HSBC Custody Nominees Australia Limited
Catholic Education Office Diocese of Parramatta
ANZ Executors & Trustee Company Limited
Truckmate (Australia) Pty Limited
Kerlon Pty Limited
BNP Paribas Noms Pty Limited
Mutual Trust Pty Limited
Mifare Pty Limited
UCA Cash Management Fund Limited
Fleischmann Holdings Pty Limited
226,048
135,309
113,824
111,842
90,994
74,728
70,000
57,793
56,282
56,021
54,063
49,750
38,232
35,000
30,000
29,781
29,386
25,000
25,000
22,500
3.88
2.32
1.95
1.92
1.56
1.28
1.20
0.99
0.97
0.96
0.93
0.85
0.66
0.60
0.51
0.51
0.50
0.43
0.43
0.39
The top 20 PERLS III shareholders hold 1,331,553 shares which is equal to 22.84% of the total shares on issue.
Stock Exchange Listing
PERLS III are preference shares issued by Preferred Capital Limited (a wholly-owned entity of the Bank). They are listed on the
Australian Securities Exchange under the trade symbol PCAPA. Details of trading activity are published in most daily
newspapers.
Range of Shares (PERLS III): 2 August 2013
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
17,698
525
33
34
3
18,293
21
Percentage of
Shareholders
96.74
2.87
0.18
0.19
0.02
100.00
0.11
Number of
Shares
3,056,363
1,014,203
249,696
1,036,838
475,181
5,832,281
40
Percentage of
Issued
Capital
52.40
17.39
4.28
17.78
8.15
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 188 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.
Annual Report 2013
189
Shareholding Information
Top 20 Holders of Perpetual Exchangeable Resaleable Listed Securities V (“PERLS V”) as at 2 August 2013
Rank
Name of Holder
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
19
19
20
Bond Street Custodians Limited
UBS Wealth Management Australia
Questor Financial Services
Navigator Australia Limited
HSBC Custody Nominees (Australia) Limited
Nulis Nominees (Australia) Limited
Australian Executor Trustees Limited
RBC Dexia Investor Services Australia Nominees Pty Limited
J P Morgan Nominees Australia Limited
Netwealth Investments Limited
National Nominees Limited
Dimbulu Pty Limited
Invia Custodian Pty Limited
Citicorp Nominees Pty Limited
Avanteos Investments Limited
Pershing Australia Nominees Pty Limited
JMB Pty Ltd
Peters (Meat) Export Pty Limited
Gyor Investments Pty Limited
MR Terrence Elmore Peabody and MRS Mary Genevive Peabody
Number of
Securities
%
348,746
272,500
204,310
127,381
119,074
99,262
90,321
90,288
88,183
64,111
51,057
50,000
48,564
37,099
35,833
35,422
33,925
28,455
25,000
25,000
3.49
2.73
2.04
1.27
1.19
0.99
0.90
0.90
0.88
0.64
0.51
0.50
0.49
0.37
0.36
0.35
0.34
0.28
0.25
0.25
The top 20 PERLS V security holders hold 1,874,531 securities which is equal to 18.73% of the total securities on issue.
Stock Exchange Listing
PERLS V are stapled securities comprising an unsecured subordinated note issued by the Bank’s New Zealand branch and a
preference share issued by the Bank. They are listed on the Australian Securities Exchange under the trade symbol CBAPA.
Details of trading activity are published in most daily newspapers.
Range of Shares (PERLS V): 2 August 2013
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
Security holders
32,402
1,013
65
42
4
33,526
4
Percentage of
Security holders
96.65
3.02
0.19
0.13
0.01
100.00
0.00
Number of
Securities
5,636,796
1,993,508
489,890
1,194,686
685,120
10,000,000
5
Percentage of
Issued
Capital
56.37
19.94
4.90
11.95
6.84
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
During the winding-up of the Bank.
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 188.
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.
190 Commonwealth Bank of Australia
Top 20 Holders of Perpetual Exchangeable Resaleable Listed Securities VI (“PERLS VI”) as at 2 August 2013
Shareholding Information
Rank
Name of Holder
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
19
19
20
UBS Wealth Management Australia
Bond Street Custodians Limited
J P Morgan Nominees Australia Limited
Questor Financial Services
HSBC Custody Nominees (Australia) Limited
Cogent Nominees Pty Limited
National Nominees Limited
Snowside Pty Limited
UCA Cash Management Fund Limited
Citicorp Nominees Pty Limited
Dimbulu Pty Limited
Eastcote Pty Limited
Australian Executor Trustees Limited
Invia Custodian Pty Limited
Netwealth Investments Limited
Nulis Nominees (Australia) Limited
V S Access Pty Limited
Wenthor Pty Limited
RBC Dexia Investor Services Australia Nominees Pty Limited
Marento Pty Limited
Number of
Securities
1,147,762
558,150
364,337
289,589
221,586
178,570
166,647
156,818
135,000
102,260
100,000
100,000
92,110
89,313
88,844
85,092
80,000
80,000
73,787
52,916
%
5.74
2.79
1.82
1.45
1.11
0.89
0.83
0.78
0.68
0.51
0.50
0.50
0.46
0.45
0.44
0.43
0.40
0.40
0.37
0.26
The top 20 PERLS VI security holders hold 4,162,781 securities which is equal to 20.81% of the total securities on issue.
Stock Exchange Listing
PERLS VI are unsecured subordinated notes issued by the Bank. They are listed on the Australian Securities Exchange under
the trade symbol CBAPC. Details of trading activity are published in most daily newspapers.
Range of Shares (PERLS VI): 2 August 2013
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
Security holders
25,054
2,524
205
95
8
27,886
-
Percentage of
Security holders
89.84
9.05
0.74
0.34
0.03
100.00
0.00
Number of
Securities
7,984,496
5,356,843
1,558,659
2,557,116
2,542,886
20,000,000
-
Percentage of
Issued
Capital
39.92
26.78
7.79
12.79
12.72
100.00
0.00
PERLS VI do not confer any voting rights in the Bank but if they are exchanged for 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 188 for the Bank’s ordinary shares.
Trust Preferred Securities
550,000 Trust Preferred Securities were issued on 6 August 2003. Cede & Co is registered as the sole holder of these securities.
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 converted 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 188 for the Bank’s ordinary shares and page 189 for the preference
shares.
Annual Report 2013
191
International Representation
First State Investments
Level 17, 599 Lexington Avenue
New York NY 10022
Telephone: +1 212 848 9200
Facsimile: +1 212 336 7758
Managing Director, Americas
James Twiss
China
CBA, Beijing Representative Office
Unit 03C, 4-6,7B, Level 46
China World Tower, No. 1 Jian Guo Men
Wai Avenue
Beijing
Telephone: +86 10 5680 3188
Facsimile: +86 10 5961 1916
China Chief Representative
Tony Zhang
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 (Designate)
Karen Chen
CBA (Jiyuan) County Bank Co., Ltd.
No.66, East Jishui Street, Jiyuan
Henan Province 459000
Telephone: +86 391 556 5625
Facsimile: +86 391 556 5625
Managing Director
Guo Wei
CBA (Dengfeng) County Bank Co., Ltd.
No. 1, Fu Lane 1, Songshan Road
Dengfeng City, Henan Province 452470
Telephone: +86 371 6905 1006
Facsimile: +86 371 6905 1015
Managing Director
Allen Li
CBA (Lankao) County Bank Co., Ltd.
East, Kaocheng Road, Lankao City
Henan Province 475300
Telephone: +86 378 631 7888
Facsimile: +86 378 696 6997
Managing Director
Allen Li
CBA (Yichuan) County Bank Co., Ltd.
No.132
East Side of North Wenhua Road
Yichuan, Luoyang
Henan Province 471300
Telephone: +86 379 6833 7161
Facsimile: +86 379 6833 7185
Managing Director
Liqun Wei
CBA (Mianchi) County Bank Co., Ltd.
Store 2#-04&-05, Xinhua International
Quarter
Mianchi, Henan 472400
Telephone: +86 398 483 3908
Facsimile: +86 398 483 3906
Managing Director
Liqun Wei
CBA (Xinji) County Bank Co., Ltd.
No. 1 Anding Avenue, Xinji, Hebei
Province 052360
Telephone: +86 311 8349 7655
Facsimile: +86 311 8349 7655
Managing Director
Chunsheng Li
CBA (Yongnian) County Bank Co., Ltd.
Jindi Ganden, Yingbin Street, Yongnian
Hebei Province 057150
Telephone: +86 310 666 7300
Facsimile: +86 310 666 9566
Managing Director
Chunsheng Li
CBA (Cixian) County Bank Co., Ltd.
No. 1 West Building, North Youyi Road
Cixian, Hebei Province 056599
Telephone: +86 310 233 8015
Facsimile: +86 310 233 7999
Managing Director
Chunsheng Li
CBA (Wenxian) County Bank Co., Ltd.
Level 1-2, AB#, Building 9. East
TianciHuafu District, Wenquan town
Wenxian, Henan Province, 454850
Telephone: +86 391 618 5007
Facsimile: +86 391 618 5060
Managing Director
Fushan Wang
CBA (Yongcheng) County Bank Co., Ltd.
Shop 1#2#3#, Eurasian Sunshine Garden,
Ouya road, Dongcheng District,
Yongcheng, Henan Province, 476600
Telephone: +86 370 501 7916
Facsimile: +86 370 501 7910
Managing Director
Fushan Wang
CommBank Management Consulting
(Shanghai) Co. Ltd
11F Azia Centre
1233 Lujiazui Ring Road, Pudong
Shanghai 200120
Telephone: +86 21 6058 0100
Facsimile: +86 21 6168 3298
Executive General Manager China
Karen Chen
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
ASB North Wharf
12 Jellicoe Street
Auckland Central
Auckland 1010
Telephone: +64 9 377 8930
Chief Executive Officer
Barbara Chapman
Sovereign Assurance Company Limited
Level 4, Sovereign House
74 Taharoto Road,
Takapuna, Auckland 0622
Telephone: + 64 9 487 9000
Managing Director
Symon Brewis-Weston
Colonial First State Global Asset
Management
Kiwi Income Property Trust
Level 14, DLA Phillips Fox Tower
National Bank Centre
205-209 Queen Street
Auckland 1010
Telephone: +64 9 359 4000
Facsimile: +64 9 359 3997
Chief Executive Officer
Chris Gudgeon
First State Investments
Level 3, 33-45 Hurstmere Road
Takapuna
Auckland 0622
Telephone: +64 9 448 4922
Facsimile: +64 9 486 7131
Managing Director, Asia Pacific
Michael Stapleton
Americas
United States
CBA Branch Office
Level 17, 599 Lexington Avenue
New York NY 10022
Telephone: +1 212 848 9200
Facsimile: +1 212 336 7758
Executive Vice President and
General Manager, Americas
Fiamma Morton
192 Commonwealth Bank of Australia
International Representation
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
Managing Director, Asia Pacific
Michael Stapleton
Hong Kong
CBA Branch Office
1501-5, Charter House
8 Connaught Road,
Central
Hong Kong
Telephone: +852 2844 7500
Facsimile: +852 2845 9194
Executive General Manager Corporate
and Institutional Banking Asia
James Rickward
First State Investments
6th Floor, Three Exchange Square
8 Connaught Place, Central
Hong Kong
Telephone: +852 2846 7555
Facsimile: +852 2868 4742
Managing Director, Asia Pacific
Michael Stapleton
India
CBA Mumbai Branch
Level 2, Hoechst House
Nariman Point
Mumbai 400021
Telephone: +91 22 6139 0100
Facsimile: +91 22 6139 0200
Chief Executive Officer
Ravindra Parakushan
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
First State Investments
29th Floor, Gedung Artha Graha
Sudirman Central Business District
Jl. Jend. Sudirman Kav. 52-53
Jakarta 12190
Telephone: +62 21 2935 3300
Facsimile: +62 21 2935 3388
Managing Director, Asia Pacific
Michael Stapleton
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
First State Investments
8th Floor, Toranomon Waiko Building
12-1 Toranomon 5-chome
Minato-ku, Tokyo 105-0001
Telephone: +81 3 5402 4831
Facsimile: +81 3 5402 4839
Managing Director, Asia Pacific
Michael Stapleton
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
One Temasek Avenue
#17-01 Millenia Tower
Singapore 039192
Telephone: +65 6538 0008
Facsimile: +65 6538 0800
Managing Director, Asia Pacific
Michael Stapleton
Vietnam
CBA Representative Office
Suite 202-203A
Central Building
31 Hai Ba Trung, Hanoi
Telephone: +84 4 3824 3213
Facsimile: +84 4 3824 3961
Chief Representative and Director of
Investment and Banking
Hanh Nguyen
CBA HCMC Branch office
Ground Floor
Han Nam Office
65 Nguyen Du St., Dist. 1
Ho Chi Minh City
Telephone: +84 8 5445 2939
Facsimile: +84 8 5445 2942
General Director
Ross Munn
Europe
United Kingdom
CBA Branch Office
Senator House
85 Queen Victoria Street
London EC4V 4HA
Telephone: +44 20 7710 3999
Facsimile: +44 20 7710 3939
Regional General Manager Europe
Paul Orchart
First State Investments
3rd Floor, 30 Cannon Street
London EC4M 6YQ
Telephone: +44 0 20 7332 6500
Facsimile: +44 0 20 7332 6501
Managing Director, EMEA
Chris Turpin
Scotland
First State Investments
23 St Andrew Square
Edinburgh EH2 1BB
Telephone: +44 0 131 473 2200
Facsimile: +44 0 131 473 2222
Managing Director, EMEA
Chris Turpin
Germany
First State Investments
Westhafen Tower
Westhafenplatz 1
60327 Frankfurt a.M.
Telephone: +49 0 69 710456 - 302
Managing Director, EMEA
Chris Turpin
Malta
CommBank Europe Limited
Level 3 Strand Towers
36 The Strand
Sliema SLM1022
Telephone: +356 2132 0812
Facsimile: +356 2132 0811
Director/Chief Financial Officer
John Kiddier
France
First State Investments
15, Avenue d’Eylau
75016 Paris
Telephone: +33 1 7302 4674
Managing Director, EMEA
Chris Turpin
Annual Report 2013
193
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.
1300 245 463 (1300 AGLINE) AgriLine
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),
visit
or
Monday
www.commbank.com.au/commonwealthprivate
Friday
to
132 015 Commonwealth Financial Services
For enquiries on retirement and superannuation products, or
managed
to 6pm
investments. Available
(Sydney Time), Monday to Friday.
from 8.30am
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.
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 or investment home loan or to
maintain an existing loan. Available from 8am to 8pm, 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
If you would like to pay us a compliment or are dissatisfied
with any aspect of the service you have received.
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
Service CommBiz at www.commbank.com.au/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.
194 Commonwealth Bank of Australia
Registered Office
Ground Floor, Tower 1
201 Sussex Street
Sydney NSW 2000
Telephone +61 2 9378 2000
Facsimile +61 2 9118 7192
Company Secretary
Margaret Taylor
Shareholder Information
www.commbank.com.au/shareholder
Share Registrar
Link Market Services Limited
Level 12
680 George Street
SYDNEY NSW 2000
Telephone: 1800 022 440
Facsimile: +61 2 9287 0303
Internet: www.linkmarketservices.com.au
Email: cba@linkmarketservices.com.au
Telephone numbers for overseas shareholders
New Zealand
0800 442 845
United Kingdom
0845 640 6130
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.
Corporate Directory
Annual Report 2013
195
CBA1421 010912
CBA1421 190813