Commonwealth Bank of Australia
Annual Report 2015

Plain-text annual report

ANNUAL REPORT 2015 COMMONWEALTH BANK OF AUSTRALIA | ACN 123 123 124  Contents Chairman’s Statement Chief Executive Officer’s Statement Highlights Group Performance Analysis Group Operations and Business Settings Corporate Responsibility 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 2 6 9 13 23 32 36 68 70 71 72 73 74 76 78 179 180 182 186 188 189 Commonwealth Bank of Australia – Annual Report 2015 1 Chairman’s Statement Introduction We are very aware that at the Commonwealth Bank we have an important role to play in protecting and enhancing the financial wellbeing of all our stakeholders, be they shareholders, customers or the wider population. We employ over 52,000 people, have a customer base of 15 million and have nearly 800,000 Australians who directly own our shares. We know we must perform well in all respects. We are also aware that in order to do this, we need to maintain conservative business settings, set strong capital levels, have high levels of liquidity and solid provisioning. The regulatory environment both in Australia and elsewhere continues to evolve and places increasing responsibilities on the management team and the Board. Additionally, the Financial System Inquiry, to which I made reference last year, recommended, for purposes of increased competition, an increased capital requirement in Australia. This recommendation was adopted by the Bank and was the principal reason for our decision to raise $5 billion by way of an entitlement offer for all shareholders in August. the major banks for Turning to our operations, the environment in which we operate continues to be volatile. We saw this play out during the year in the Eurozone with the crisis in Greece, and while resolved for the time being, this element of volatility seems likely to be a recurring theme. In this context, whilst the Group has no exposure to Greek Sovereign Debt nor direct exposure to Greek banks, it is a situation we monitor very closely, and in particular how it might impact the availability of funding should the crisis spread. There has also been a marked slowdown in the rate of growth in the Chinese economy and a consequent slowdown in the import of minerals from Australia. Whether or not related, there has also been considerable volatility on the Chinese stock market in recent months. Whilst this again does not directly impact the Group, there is no denying its effect on the Australian economy, particularly in activities associated with the mining industry. Within the Group and directly associated with our objective to perform well, we are very focused on strengthening our values-based culture built around integrity, collaboration, excellence, accountability and service. Over the last 12 months, the Group undertook an extensive review of our culture, assisted by external advisers, The Ethics Centre, KPMG and Gilbert & Tobin. While integrity, collaboration, transparency and trust are all clear ingredients of “ethics”, the task of ensuring that behaviour mirrors excellence in all of these characteristics will be an ongoing task. It has management’s full attention and is central to the conduct of the Group’s business. Operating and Financial results Commentary on the details of the operating and financial results are included in the CEO’s report and in the financial documents released for the 2015 result. For the period, the Board declared a final dividend of $2.22 per share bringing the total dividend for the year to $4.20 an increase of 5% on last year. The Group delivered a net profit after tax on a cash basis of $9,137 million, up 5% on last year. Earnings per share on a cash basis increased 5% on the prior year to 560.8 cents per share and return on equity, also on a cash basis, decreased 50 basis points on the prior year to 18.2%. There is without doubt, more challenge in our industry and 2 Commonwealth Bank of Australia – Annual Report 2015 these results reflect a very solid performance for the financial year. Capital and Dividends Capital: I referred earlier to increased regulation and our $5 billion entitlement offer as a result of APRA’s adoption of the recommendation of the Financial System Inquiry to increase mortgage risk weights for the major banks. The Group’s ability to deliver a strong performance and to be one of a very small number of global banks that have maintained ratings in the AA band, in part results from our conservative management. In addition, global regulators, including our domestic regulator, the Australian Prudential Regulation Authority (APRA), have introduced significant reforms which result in a greater requirement for strength. The Group also adopted the Basel III measurement and monitoring of regulatory capital effective from 1 January 2013. The APRA prudential standards require a minimum CET1 ratio of 4.5% effective from 1 January 2013. An additional CET1 capital conservation buffer of 3.5% (which includes a Domestic Systemically Important Bank (DSIB) requirement of 1%) will be implemented on 1 January 2016, bringing the CET1 requirement for the Group to 8%. As at 30 June 2015, under this measure, the Group had a CET1 ratio of 9.1%. APRA has undertaken a study on an internationally comparable capital ratio which when taking account of the impact of our $5 billion entitlement offer, would place the Group well within the top quartile of global peer banks. Dividends: The Group’s dividend policy seeks to deliver:    Cash dividends at strong and sustainable levels; A full-year payout ratio of 70% to 80%; and The maximum use of franking by paying fully franked dividends. In-line with this policy, the final dividend declared was $2.22 per share, representing a dividend payout ratio on a cash basis of 80.5%. This brings the total dividend for the year ended 30 June 2015 to $4.20 per share, an overall dividend payout ratio of 75.1%. Shares taken up as a result of the entitlement offer in August do not rank for these dividends. Commonwealth Financial Planning In last year’s Annual Report, I described in some detail the Open Advice Review program, a far-reaching and expansive program of review and remediation to redress past problems in parts of our financial planning business. received and aims The program demonstrates our commitment to customers who have concerns regarding the financial planning advice instances of to they inappropriate advice. The program was open for registrations for one year from 3 July 2014 to any Commonwealth Financial Planning or Financial Wisdom customer who had received advice between 1 September 2003 and 1 July 2012. rectify any The program received more than 22,000 expressions of interest from customers, with around 7,000 customers so far requesting a formal review of the financial advice they received. We have a large and fully resourced specialist team working on the program. The sole focus of the program is to complete the reviews properly and with the right degree of thoroughness and consistency. It will take time to complete the reviews and some people will receive the result before others, which is normal for a program of this size and complexity. As we are concerned is disadvantaged by being later in the queue, we will pay interest on any compensation we offer. Due to the complexity of the issues and the overriding need to get to the right answer for our customers, we expect the program to take about two years to complete. that no one Added to this, we have introduced new education standards for our financial advisers and we participated in the Senate Inquiry which is looking into the inner workings of this sector. We also advocated for the introduction of an adviser register to improve transparency for consumers and access to information to make more information choices about financial advisers. Environmental, Social and Governance risks and opportunities Clearly as a financial institution, we understand that the decisions we make have an impact on the broader community and that we are in a position to use our capabilities and resources to make a positive contribution to the economy generally and to the environment. In this context, we fully understand our role in addressing the challenge of climate change. We have robust, responsible lending practices in place, helping organisations transition to a low carbon economy, which the world is seeking, investing in the renewable energy sector and measuring and reducing our own environmental footprint. Our Environmental Policy clearly states the following:    The Group believes climate change will have a major environmental, economic and social impact. Climate change presents both risks and opportunities and the Group will continue to take an active role as a financial intermediary in addressing climate change. The Group is committed to developing a framework for setting environmental objectives and targets as well as measuring, reducing and reporting its own greenhouse emissions. the Group seeks its In addition, customers, the community and other stakeholders to promote a broader understanding, and more effective management, of climate change issues. to engage with We take a responsible approach to the way we provide financial products and services. Part of that approach has implementation of our been the development and Environmental, Social & Governance (ESG) Lending Commitments. Our ESG Lending Commitments set out how we approach the assessment and management of ESG risks and opportunities associated with client activities, such as carbon intensity, human rights and corruption. For example, we have extended many loan facilities throughout our client base from energy companies installing more effective carbon filters to reduce emissions and to commercial property companies looking to install more efficient lighting in office buildings. The Bank has commenced reporting publicly on the progress of the implementation of these Lending Commitments (for details to this www.commbank.com.au/ESGLendingReporting). reporting refer of We believe that the approach we are taking to the disclosure of carbon emissions will deliver a meaningful long-term Chairman’s Statement disclosure regime and a better outcome for the community and our shareholders. We also believe that categorising the ESG risks on a loan by loan basis is leading practice among commercial banks. On the other side of the equation, we are very active in supporting alternative energy sources, both locally and internationally. Over the past five years our exposure to the renewable energy sector has increased significantly, while our exposure to coal-based energy has remained static. We now have exposure to more than 180 projects in the wind power, solar power, hydro power and landfill gas generation sectors. With regard to our own environmental performance, our efforts to reduce carbon emissions and mitigate the risks of climate change have been recognised by CDP, (the Carbon Disclosure Project) the world’s largest voluntary system for collecting climate change related data. CDP focuses on the climate change approach of the ASX 200 and NZX 50 listed leadership companies and ranks indices. The Bank, for the second year in a row, was awarded the highest ranking Australian bank listed in the CDP Global Index, achieving an overall disclosure score of 100% and an ‘A band’ for climate performance. The Bank is the only company in Australia and New Zealand to achieve these two milestones. their performance on Corporate Governance and Board Appointments its Committee’s and I have mentioned in the past that the Board assesses its performance annually. Every second year the assessment of the Board, is facilitated by an external party. This year was such a year. The process of assessment is robust and provides valuable insights that enable the Board to implement actions to enhance its overall performance. Directors and Senior Management participate actively and constructively. I provide individual feedback to each Director. individual Directors As individuals, Directors contribute a diverse range of skills and well-rounded experience which, when combined, enable the Board to challenge management effectively and provide guidance on the Bank’s strategic direction. This breadth and diversity allows the Board to exercise its judgement and to appropriately fulfil its role for shareholders. The Board has continued its program of education this year which helps us to better understand some of the more challenging issues facing the Group, as well as providing exposure to a wide range of our stakeholders, including our shareholders. In addition, I have continued to have regular meetings with our investors and I value the open and honest exchanges I have had with them. findings were presented In addition to our regular investor perception studies, this year to conduct an the Board engaged Makinson Cowell institutional independent study of some of our major investors. The the Board, to providing investor views on our performance, strategy, businesses and engagement. This study helps the Board ensure the foundation of our decision making and that we are aware of those views. I am glad to say that the study’s observations were both satisfactory and complimentary of our management team. that shareholders’ views continue form to There were some changes to your Board this year. Carolyn Kay retired from the Board in March 2015, having served as a Board member since 2003. Carolyn distinguished herself through her diligence, her willingness to undertake some of Commonwealth Bank of Australia – Annual Report 2015 3 Chairman’s Statement the more onerous Board tasks, and her contribution to our branch network through her genuine care for our people and her enthusiasm. for her exceptional thank Carolyn contribution over the last 12 years. I 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 that any appointments adequately reflect the environment in which the Group operates as well as our aspirations. Following a rigorous process, your Board announced in March the appointment of Wendy Stops. Wendy is an experienced senior management executive who enjoyed a career spanning some 32 years at Accenture. At the time of her retirement in 2014 she held the position of Senior Managing Director, Technology – Asia Pacific. The appointment of Wendy enhances the Boards skill and insights in the key area of technology and international management. Further information about Wendy may be found on page 39 of this report. I would also like to acknowledge the formal appointment of Sir David Higgins to the Board in September 2014. As I highlighted last year, Sir David brings a vast array of high- level business, infrastructure and major project experience. The Board’s Non-Executive Directors meet without the Chief Executive Officer several times a year to discuss general items that may be on the minds of Directors that relate to the Group’s business. I have an open dialogue with the Chief Executive Officer on any matters that may have been raised in these forums. As well, sufficient time is allowed during board meetings for the Board as a whole to raise matters with the Chief Executive Officer in the absence of any other management. Outlook Looking ahead, we remain positive about the long-term performance of the Australian economy although there are inevitably short-term economic challenges. Whilst there are signs the transformation from the mining boom to non-mining led growth is occurring, we are yet to see the full transition. As the country moves to a more balanced economy, we believe there are opportunities that Australia can harness given our close proximity to Asia. To support the transition, we will need to focus on consistent policies, support for long-term investment and encouragement for business. In terms of our own Group, we will remain conservative and we will stay focused on our key long-term strategic priorities – people, productivity, technology and strength. We will strive to continue to our customers, long-term value shareholders, people and the broader community in which we operate. to deliver I would like to take this opportunity to thank my fellow directors for their dedication and commitment over the past twelve months, and also to all the people within our Bank without whose efforts we would not be successful. A sincere thank you to everybody. David J Turner Chairman 11 August 2015 4 Commonwealth Bank of Australia – Annual Report 2015 This page has been intentionally left blank Commonwealth Bank of Australia – Annual Report 2015 5 Chief Executive Officer’s Statement We continue to support our people by constantly emphasising the importance of values and culture, and by investing in their development and in initiatives that foster a vibrant, safe and supportive work environment. We are also committed to building an inclusive culture, where our people mirror our customer base and society more broadly, and where everyone feels empowered and supported to give of her or his best. Most importantly, we want everyone to feel valued and respected, regardless of their gender, ethnicity, religion, sexual orientation or age, or of any disability. Diversity must be about much more than “tolerance”. Rather, we aspire to embrace and celebrate it. Our ongoing commitment to our culture has translated into high levels of engagement among our people, as shown by the Group’s employee engagement score of 81%. Technology The strength of our business has enabled us to continue to innovate through investment in technology. We continue to focus on the use of technology for the benefit of our customers. One of the keystones of our technology has been the CommBank app. This year we have continued to innovate on the app. In October, we launched a ‘temporary lock’ feature to help our credit card customers avoid cancelling misplaced cards. At the same time we provided customers with the ability to instantly cancel and replace a lost, stolen or damaged card. We also introduced the CommBank app for smart watches, allowing our customers to view balances, find an ATM and withdraw money using our ’Cardless Cash’ offering. For our business customers we launched ‘Albert’, a global first-to-market EFTPOS tablet. The device allows businesses to create a tailored experience for their customers. Among Albert’s unique features are the ability to e-mail receipts and invoices, split bills up to nine ways, record and track payments, and collect real-time analytics and business insights. In October, we unveiled the Group’s Innovation Lab at Commonwealth Bank Place in Sydney. The Lab provides a creative space for our people and customers to innovate together to deliver market-leading solutions and services to our customers. During the year we also acquired TYME – Take Your Money Everywhere. TYME is a South African based global leader in designing and building digital banking technology. TYME gives us new opportunities in our emerging markets businesses, as well as providing capability to enhance innovation in our core markets. We will continue to innovate to ensure we differentiate ourselves from emerging competitors and to meet the evolving needs of our customers. We also continue to see the benefits of our investment in our Core Banking Modernisation upgrade, which was completed in 2013. This provides our customers with industry-leading features through the only genuine 24 hours a day, seven days a week core banking system among the major banks in Australia. The extra convenience for customers arising from this new technology was a major driver behind our above- market growth in deposits and transaction accounts this year. This provides us with a competitive advantage that clearly benefits our customers. Our vision - to excel at securing and enhancing the financial wellbeing of people, businesses and communities - and our values, define our purpose and how we operate. Guided by our vision and values, we focused again this year on execution of our customer-focused strategy and our long-term strategic priorities. This focus again delivered good returns for nearly 800,000 Australian households who directly own our shares and millions more who own our shares through their superannuation funds. Net Profit after Tax (cash basis) was $9,137 million, up 5%. Earnings per share increased by 5% to 560.8 cents per share. Return on equity was 18.2%. This year to you, our we paid over $6.8 billion shareholders. The value of your the in Commonwealth Bank grew by $9 billion. in dividends investment Customer Focus Our 15 million customers inside and outside Australia are at the centre of our strategy, and of everything we do. Our ongoing focus on their financial wellbeing has resulted in high levels of customer satisfaction again during this financial year. In June, we regained the outright number one position in the Roy Morgan Retail MFI Customer Satisfaction survey results based on a six month rolling average. In addition, in the DBM Business Financial Services Monitor, we maintained equal first position across all business banking segments and overall. In our wealth business, Colonial First State performed strongly in the 2015 Wealth Insights Platform Benchmarking Survey, ranking highest of the major banks for adviser satisfaction and second overall. And in Indonesia, PT Bank Commonwealth in retained Synovate’s external customer service survey. its number one position Part of our commitment to customer focus is also reflected in our determination to put things right where we have let our customers down. An example of this commitment is our Open Advice Review program, which the Chairman has addressed in his statement. We have designed the program to empower and give confidence to our customers. We have embedded several layers of independence, and adopted a fair and consistent approach to advice reviews. We are well progressed in implementing this industry-leading program, so as to give all our financial advice customers comfort in the quality of the advice they received, and compensate them if they received poor advice. Focused on our long-term strategic priorities This year we have again remained focused on executing against our four strategic priorities: people, technology, productivity and strength. Our long-term strategy has continued to serve us well, even as market conditions continue to change. People Our results reflect the ongoing dedication of our people. Regardless of role, our people work together to achieve our vision. We are proud of their commitment to serve the needs of our customers and continuously improve our customers’ experience. 6 Commonwealth Bank of Australia – Annual Report 2015 Chief Executive Officer’s Statement Productivity We are in the third year of continuing to focus on productivity initiatives. This is becoming a new way of life for our people, for the benefit of our customers. Productivity is not about initiatives, redundancy plans or short-term cost cutting offshoring Australian jobs. It requires a cultural focus on simplicity and continuous improvement. At the heart of our approach that customer is satisfaction and efficiency for shareholders are mutually reinforcing outcomes. Our results thus far show that by focusing on simplicity, we can reduce turnaround times, error rates and costs simultaneously. to productivity the belief Strength Financial strength, including a strong capital position, is the fourth pillar of CBA’s strategy. The Group maintained a strong balance sheet throughout the year, including high levels of capital, with all ratios well in excess of regulatory minimum capital adequacy requirements. This was against a backdrop of uncertainty in the domestic economy and volatility on global markets. the year, The Group continued to work closely with our regulator to ensure we remain well-placed to act on future capital reforms. During the Australian Prudential Regulation Authority (APRA) acted on two recommendations from the recent Financial System Inquiry. The first set an expectation for Australian banks to be “unquestionably strong” relative to global peers. The second required large banks to hold more capital against home loans, with the goal of stimulating greater competition. As a result of those developments, the Board decided to undertake a $5 billion entitlement offer. On a pro forma basis this action is expected to boost the Group’s Common Equity Tier 1 (CET1) capital ratio to 14.3% on an internationally comparable basis, or 10.4% on an APRA basis. This positions us comfortably within the top quartile of international peers in relation to capital levels. Key financial highlights Underlying the 2015 result were contributions from all business divisions.  Solid growth in net interest income and other banking income contributed to Retail Banking Services cash earnings growth of 5%. Deposit balances grew particularly strongly at 8%, underpinned by strong growth in savings and transaction accounts;  Wealth Management’s income increased 9% (excluding Property1 ), driven by a 13% increase in average Funds Under Administration; funds management  Business and Private Banking performed well, buoyed by strong growth in deposit and business lending income, reflecting growth across key product lines, continuing benefit of our core banking platform and a focus on transaction banking; 1During the 2014 financial year the Group successfully completed the internalisation of the management of CFS Retail Property Group (CFX) and Kiwi Income Property Trust (KIP), and the Group has ceased to manage the Commonwealth Property Office Fund (CPA). The Group also sold its entire proprietary unit holding in CPA and KIP, and part of its proprietary unit holding in CFX. As such, these Property transactions and businesses have been excluded from the calculation of certain financial metrics and comparative information.    Institutional Banking and Markets achieved positive client sales and Markets revenues as well as strong growth in lending and asset leasing. The result was partly impacted by the initial implementation of a new derivative valuation methodology, Funding Valuation Adjustment (FVA), which had a negative one-off impact of $81 million; Cash earnings grew in New Zealand (including ASB Bank and Sovereign) by 17%. The ASB Bank result was highlighted by strong lending growth and good margin management; Bankwest experienced solid growth transaction deposit volumes, however, growth was impacted by lower margins. Expenses were well contained with the cost to income ratio declining 190 bpts to 43.3%; and in  Our International Financial Services business continued its disciplined growth in selected Asian markets, with the total number of direct customers growing by 12%. Investment in our community the year we continued Throughout the communities around us, as they form an important part of our vision. to support As the largest financial institution in Australia, we have an important role to play in the financial education of young Australians. In 2009, we made a commitment to improve the financial literacy of one million children by 2015. We have exceeded that goal with 1.23 million children booked in one of our free Start Smart workshops through their school. We also believe that even better schools will make a better country. So, we announced that we will invest an additional $50 million in our education programs over the next three years, starting with an ambitious plan to double the reach of financial literacy training by 2016. In addition, our support for teachers through a partnership with Social Ventures Australia to create the Australian Teaching and Learning Toolkit, as well as recognising outstanding teachers through our annual Teaching Awards. is growing As a proud Australian company, we have also been involved in the “We’re for the Bush” drought appeal, we have continued to invest in our indigenous customer assistance line and we are proud to be supporting the Spirit of ANZAC Centenary Experience which will start its two year program of travel across Australia this September. As the major sponsor for 35 years, the Year Awards of the Australian of the is proud Commonwealth Bank extraordinary individuals that make such a difference to our country. We have extended that program of recognition of the unsung community heroes with our Australian of the Day program. to help celebrate Outlook The Australian economy has some good foundations. The RBA’s monetary policy settings have stimulated residential the economy’s construction activity, which has aided transition from its dependence on mining investment. The Federal Budget's small business measures have had a discernible impact. Business credit quality is generally very good, while in the household sector savings rates are solid. Household credit quality remains high, though the banking sector and our regulators are conscious of the potential impacts of a sustained period of low interest rates, and are therefore taking measured action. Commonwealth Bank of Australia – Annual Report 2015 7 Chief Executive Officer’s Statement Risks remain in the near-term resulting from some ongoing volatility in parts of the global economy. One important factor to watch over the next year will be whether the lower dollar stimulates investment by export- sensitive industries, to create jobs and stimulate consumer demand. In the longer term, we have a positive view of the Australian economy. In growing markets in our region, there is a high demand from people who want to buy Australian goods and in in Australia, educate services, Australia, visit Australia and in some cases move to Australia. Australia's exceptional natural and human resources position us well. But we must ensure that our policy environment positions our economy to benefit from its strengths. their children invest Businesses and all sides of politics must work together towards a goal of a more diverse and productive economy. We need particular focus on a more efficient and fair tax system, building of high-quality and well-prioritised infrastructure, and trade and foreign investment settings.At CBA we will continue our significant investment in our long- term strategic priorities. Our ongoing goal is to have highly motivated people putting the customer at the centre of everything we do, and leading technology to simplify our customers' dealings with us, and to continuously make the organisation more productive. focusing on deploying Ian M Narev Chief Executive Officer 11 August 2015 8 Commonwealth Bank of Australia – Annual Report 2015 Group Performance Highlights Highlights Financial Performance Capital The Group’s net profit after tax (“statutory basis”) for the year ended 30 June 2015 increased 5% on the prior year to $9,063 million. Return on equity (“statutory basis”) was 18.2% and Earnings per share (“statutory basis”) was 557.0 cents, an increase of 4% 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 to present a clear view of the Group’s 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 with the prior year and prior half disclosures 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 10 and described in greater detail on page 20. The Group’s vision is to excel at securing and enhancing the financial well-being of people, businesses and communities. The long-term strategies that the Group has pursued to achieve this vision have continued to deliver high levels of customer satisfaction across all businesses and another solid financial result. Operating income growth was solid across all businesses, relative to the prior year. Operating expenses increased due to underlying inflationary pressures, the impact of foreign exchange and the cost of growing regulatory, compliance and remediation programs, partly offset by the incremental benefit generated from productivity initiatives. in a Loan impairment expense increased in line with portfolio relatively stable economic environment. growth Provisioning levels remain prudent and overlays remain largely unchanged on the prior year. Net profit after tax (“cash basis”) for the year ended to 30 June 2015 $9,137 million. Cash earnings per share increased 5% to 560.8 cents per share. increased 5% on the prior year Return on equity (“cash basis”) the year ended 30 June 2015 was 18.2%, a decrease of 50 basis points on the prior year. for The Group continued to maintain its strong capital position under the Basel III regulatory capital framework. As at 30 June 2015, the Basel III Common Equity Tier 1 (CET1) ratio was 12.7% on an internationally comparable basis and 9.1% on an APRA basis. The internationally comparable basis aligns with the 13 July 2015 APRA study titled “International capital comparison study”. This continues to place the Group in a strong position relative to our peers, and is well above the regulatory minimum levels. Funding The Group continued to maintain conservative Balance Sheet settings, with a considerable portion of the Group’s lending growth in customer deposits, which increased to $478 billion as at 30 June 2015, up $39 billion on the prior year. funded by growth Dividends The final dividend declared was $2.22 per share, bringing the total dividend for the year ended 30 June 2015 to $4.20 per share, an increase of 5% on the prior year. This represents a dividend payout ratio (“cash basis”) of 75%. The final dividend payment will be fully franked and paid on 1 October 2015 to owners of ordinary shares at the close of business on 20 August 2015 (record date). Shares will be quoted ex–dividend on 18 August 2015. Outlook The Australian economy has some good foundations. Risks remain in the near-term resulting from some ongoing volatility in parts of the global economy. One important factor to watch over the next year will be whether the lower dollar stimulates investment by export-sensitive industries, to create jobs and stimulate consumer demand. In the longer term, we have a positive view of the Australian economy. Australia's exceptional natural and human resources position us well. But we must ensure that our policy environment positions our economy to benefit from its strengths. Businesses and all sides of politics must work together towards a goal of a more diverse and productive economy. We need particular focus on a more efficient and fair tax system, building of high-quality and well-prioritised infrastructure, and trade and foreign investment settings. At CBA we will continue our significant investment in our long- term strategic priorities. Our ongoing goal is to have highly motivated people putting the customer at the centre of leading everything we do, and technology to simplify our customers' dealings with us, and to the organisation more productive. continuously make focusing on deploying Commonwealth Bank of Australia – Annual Report 2015 9 Jun 15 vsJun 15 vsJun 15 vs 30 Jun 15Jun 14 % 30 Jun 1530 Jun 14 Jun 14 % 30 Jun 15 31 Dec 14Dec 14 %Net profit after tax ($M)9,06359,1378,68054,5144,623(2)Return on equity (%)18.2(50)bpts18.218.7(50)bpts17.818.6(80)bptsEarnings per share - basic (cents)557.04560.8535.95276.7284.1(3)Dividends per share (cents)4205420401522219812("statutory basis")("cash basis")("cash basis")Full Year EndedFull Year EndedHalf Year Ended Highlights (1) For the purposes of presentation, policyholder tax expense components of corporate tax expense are shown on a net basis (30 June 2015: $99 million and 30 June 2014: $126 million, and for the half years ended 30 June 2015: $38 million and 31 December 2014: $61 million). (2) Non-controlling interests include preference dividends paid to holders of preference shares in ASB Capital Limited and ASB Capital No.2 Limited. (3) Refer to page 20 for details. (4) During the prior half, comparative information was restated to reflect the creation of a Small Business customer channel within Retail Banking Services, (5) and minor refinements to the allocation of customer balances and associated revenue and expenses between business segments. In the prior year, the Property transactions were completed and the businesses were exited. Excluding this contribution, cash net profit after tax decreased 6% on the prior year. Group Return on Equity Group Return on Assets 10 Commonwealth Bank of Australia – Annual Report 2015 Group Performance30 Jun 1530 Jun 14Jun 15 vs30 Jun 1531 Dec 14Jun 15 vs30 Jun 15Jun 15 vsSummary$M$MJun 14 %$M$MDec 14 %$MJun 14 %Net interest income 15,79915,09157,9087,891-15,7955Other banking income 4,8394,323122,4692,37044,85612Total banking income20,63819,414610,37710,261120,6516Funds management income1,9381,933-968970-2,003(2)Insurance income792819(3)376416(10)1,014(2)Total operating income23,36822,166511,72111,647123,6685Investment experience210235(11)1308063n/an/aTotal income23,57822,401511,85111,727123,6685Operating expenses(9,993)(9,499)5(5,079)(4,914)3(10,068)5Loan impairment expense(988)(953)4(548)(440)25(988)8Net profit before tax12,59711,94956,2246,373(2)12,6125Corporate tax expense (1)(3,439)(3,250)6(1,699)(1,740)(2)(3,528)5Non-controlling interests (2)(21)(19)11(11)(10)10(21)11Net profit after tax ("cash basis")9,1378,68054,5144,623(2)n/an/aHedging and IFRS volatility (3)66-48(42)largen/an/aOther non-cash items (3)(80)(55)45(34)(46)(26)n/an/aNet profit after tax ("statutory basis")9,0638,63154,5284,535-9,0635Represented by: (4)Retail Banking Services 3,8673,67851,8751,992(6)Business and Private Banking 1,4591,32110716743(4)Institutional Banking and Markets 1,2681,2521615653(6)Wealth Management (5)650789(18)303347(13)New Zealand86574217430435(1)Bankwest75267511374378(1)IFS and Other2762232420175largeNet profit after tax ("cash basis")9,1378,68054,5144,623(2)Investment experience - after tax(150)(197)(24)(93)(57)63Net profit after tax ("underlying basis")8,9878,48364,4214,566(3)Full Year EndedHalf Year EndedFull Year Ended("statutory basis")("cash basis")("cash basis")15.8%18.7%19.5%18.4%18.2%18.7%18.2%2009201020112012201320142015RoE - Cash (%)620 646 668 719 754 791 873 4.46.16.87.07.88.79.10.8%1.1%0.0%0.2%0.4%0.6%0.8%1.0%1.2%02004006008001,0002009201020112012201320142015Total Assets ($bn)Cash NPAT ($bn)RoA - Cash (%) Highlights (1) During the prior half, comparative information has been restated to reflect the creation of a Small Business customer channel within Retail Banking (2) Services, and minor refinements to the allocation of customer balances and associated revenue and expenses between business segments. In the prior year, the Property transactions were completed and the businesses were exited. Excluding this contribution, cash net profit after tax decreased 6% on the prior year. (3) Key financial metrics are calculated in New Zealand dollar terms. (4) Analysis aligns with the 13 July 2015 APRA study titled “International capital comparison study”. Commonwealth Bank of Australia – Annual Report 2015 11 Jun 15 vsJun 15 vsKey Performance Indicators (1) 30 Jun 15 30 Jun 14Jun 14 % 30 Jun 15 31 Dec 14Dec 14 %GroupStatutory net profit after tax ($M)9,0638,63154,5284,535-Cash net profit after tax ($M)9,1378,68054,5144,623(2)Net interest margin (%) 2. 092. 14(5)bpts2. 072. 12(5)bptsNet interest margin excluding Treasury and Markets (%) 2. 032. 04(1)bpt2. 012. 04(3)bptsAverage interest earning assets ($M) 754,872705,3717771,364738,6484Average interest bearing liabilities ($M) 714,159661,7338733,232695,4005Funds Under Administration (FUA) - average ($M)287,136263,8609298,882274,9239Average inforce premiums ($M) 3,2593,06863,3323,2343Funds management income to average FUA (%)0. 670. 73(6)bpts0. 650. 70(5)bptsInsurance income to average inforce premiums (%) 24. 326. 7(240)bpts22. 825. 5(270)bptsOperating expenses to total operating income (%)42. 842. 9(10)bpts43. 342. 2110 bptsEffective corporate tax rate ("cash basis") (%) 27. 327. 210 bpts27. 327. 3-Retail Banking ServicesCash net profit after tax ($M)3,8673,67851,8751,992(6)Operating expenses to total banking income (%)34. 935. 2(30)bpts35. 334. 580 bptsBusiness and Private BankingCash net profit after tax ($M)1,4591,32110716743(4)Operating expenses to total banking income (%)38. 438. 7(30)bpts38. 638. 240 bptsInstitutional Banking and MarketsCash net profit after tax ($M)1,2681,2521615653(6)Operating expenses to total banking income (%)35. 935. 450 bpts38. 833. 1largeWealth Management (2)Cash net profit after tax ($M)650789(18)303347(13)FUA - average ($M) (2)273,800241,40513284,686262,4098Average inforce premiums ($M) 2,3882,23772,4242,3453Funds management income to average FUA (%) (2)0. 670. 70(3)bpts0. 660. 69(3)bptsInsurance income to average inforce premiums (%)21. 125. 7(460)bpts19. 123. 2(410)bptsOperating expenses to total operating income (%) (2)73. 566. 9large81. 465. 7largeNew ZealandCash net profit after tax ($M)86574217430435(1)FUA - average ($M)13,33610,8772314,19612,51413Average inforce premiums ($M)6385908658656-Funds management income to average FUA (%) (3)0. 530. 55(2)bpts0. 520. 55(3)bptsInsurance income to average inforce premiums (%) (3)35. 533. 2230 bpts37. 033. 8320 bptsOperating expenses to total operating income (%) (3)40. 642. 0(140)bpts40. 840. 440 bptsBankwestCash net profit after tax ($M)75267511374378(1)Operating expenses to total banking income (%)43. 345. 2(190)bpts43. 243. 5(30)bptsCapital (Basel III) Common Equity Tier 1 (Internationally Comparable) (%) (4)12. 7n/an/a12. 7n/an/aCommon Equity Tier 1 (APRA) (%)9. 19. 3(20)bpts9. 19. 2(10)bptsFull Year EndedHalf Year Ended Highlights (1) Diluted EPS and weighted average number of shares are disclosed in Note 6. (1) Prior periods have been restated in line with market updates. (2) As at 31 May 2015. (3) Other household lending market share includes personal loans, margin loans and other forms of lending to individuals. (4) Comparatives have not been restated to include the impact of new market entrants in the current period. (5) As at 31 March 2015. 12 Commonwealth Bank of Australia – Annual Report 2015 Jun 15 vsJun 15 vsShareholder Summary 30 Jun 15 30 Jun 14Jun 14 %30 Jun 15 31 Dec 14Dec 14 %Dividends per share - fully franked (cents) 420401522219812Dividend cover - cash (times)1. 31. 3-1. 21. 4(0. 2)Earnings Per Share (EPS) (cents)Statutory basis - basic 557. 0533. 84277. 9279. 1-Cash basis - basic560. 8535. 95276. 7284. 1(2)Dividend payout ratio (%)Statutory basis75. 775. 520 bpts80. 371. 2largeCash basis 75. 175. 1-80. 569. 8largeWeighted average no. of shares ("statutory basis") - basic (M) (1)1,6181,60811,6201,616-Weighted average no. of shares ("cash basis") - basic (M) (1)1,6201,61111,6221,619-Return on equity ("statutory basis") (%)18. 218. 7(50)bpts18. 018. 4(40)bptsReturn on equity ("cash basis") (%)18. 218. 7(50)bpts17. 818. 6(80)bptsFull Year EndedHalf Year Ended30 Jun 1531 Dec 1430 Jun 14Jun 15 vsJun 15 vsMarket Share (1)%%%Dec 14 %Jun 14 %Home loans 25. 125. 125. 3-(20)bptsCredit cards - RBA (2)24. 525. 124. 7(60)bpts(20)bptsOther household lending (3)19. 820. 220. 3(40)bpts(50)bptsHousehold deposits (4)29. 529. 129. 040 bpts50 bptsBusiness lending - RBA 17. 217. 117. 710 bpts(50)bptsBusiness lending - APRA 18. 918. 618. 830 bpts10 bptsBusiness deposits - APRA 20. 320. 421. 1(10)bpts(80)bptsAsset Finance13. 213. 413. 2(20)bpts-Equities trading 6. 05. 85. 220 bpts80 bptsAustralian Retail - administrator view (5)16. 016. 116. 0(10)bpts-FirstChoice Platform (5)11. 411. 411. 5-(10)bptsAustralia life insurance (total risk) (5)12. 312. 112. 420 bpts(10)bptsAustralia life insurance (individual risk) (5)11. 711. 912. 3(20)bpts(60)bptsNZ home loans21. 721. 721. 9-(20)bptsNZ retail deposits21. 420. 620. 680 bpts80 bptsNZ business lending11. 611. 511. 010 bpts60 bptsNZ retail FUA16. 216. 516. 1(30)bpts10 bptsNZ annual inforce premiums (5)28. 829. 029. 1(20)bpts(30)bptsAs atCredit RatingsLong-termShort-termOutlookFitch RatingsAA- F1+ Stable Moody's Investors ServiceAa2 P-1 Stable Standard & Poor'sAA- A-1+ Stable Group Performance Analysis Financial Performance and Business Review Year Ended June 2015 versus June 2014 Half Year Ended June 2015 versus December 2014 The Group’s net profit after tax (“cash basis”) increased 5% on the prior year to $9,137 million. The Group’s net profit after tax (“cash basis”) decreased 2% on the prior half to $4,514 million. Earnings per share (“cash basis”) increased 5% on the prior year to 560.8 cents per share and return on equity (“cash basis”) decreased 50 basis points on the prior year to 18.2%. Earnings per share (“cash basis”) decreased 3% on the prior half to 276.7 cents per share, whilst return on equity (“cash basis”) decreased 80 basis points to 17.8%. The key components of the Group result were:  Net interest income increased 5% to $15,799 million. This reflects 7% growth in average interest earning assets, partly offset by a five basis point decrease in net interest margin. Net interest margin excluding Treasury and Markets decreased one basis point to 2.03%;  Other 12% income banking increased to $4,839 million, including a 1% benefit from the lower Australian dollar. This reflects volume driven growth in commissions, higher trading income driven by a strong Markets sales and trading performance, a favourable counterparty valuation adjustment of $42 million, and the impact of the impairment of the investment in Vietnam International Bank (VIB) in the prior year. This was partly offset by lower lending fees, and the implementation of a fair value of funding valuation adjustment derivatives, which initial cost of $81 million; to in an resulted the   from comparative Funds management income was flat at $1,938 million. Excluding the impact of the Property transactions and businesses Funds management income increased 8%, driven by a 14% increase in average Funds Under Administration (FUA) from positive net flows, a strong investment performance and a 3% benefit from the lower Australian dollar. The increase was partly offset by provisioning for customer remediation; results, Insurance income decreased 3% to $792 million, due to deterioration in claims experience, partly offset by average inforce premium growth of 6% as a result of improved pricing and lapse rates. This increase includes a 1% benefit from the lower Australian dollar; It should be noted when comparing current half financial performance to the prior half that there are three fewer calendar days, impacting revenue in the current half. Key points of note in the result included the following:  Net interest income was flat at $7,908 million, reflecting 4% growth in average interest earning assets, partly offset by a five basis point decrease in net interest margin. Net interest margin excluding Treasury and Markets decreased three basis points to 2.01%;  Other banking income increased 4% to $2,469 million, due to increased share of profits from associates, and a 1% benefit from the lower Australian dollar. This was partly offset by the initial cost of implementing a funding valuation adjustment to the fair value of derivatives of $81 million, a less favourable counterparty valuation adjustment lower commissions and lending fees; the half of $12 million, and in   Funds management income was flat at $968 million, including a 6% benefit from the lower Australian dollar. This reflects a 9% increase in average FUA, partly offset by for customer remediation; lower margins and provisioning Insurance income decreased 10% to $376 million due to a deterioration in claims experience, partly offset by average inforce premium growth of 3% as a result of improved pricing and lapse rates;  Operating expenses increased 3% to $5,079 million, including a 1% impact from the lower Australian dollar and the cost of growing regulatory, compliance and remediation programs. This was partly offset by the continued from realisation of productivity initiatives; and incremental benefits  Operating expenses increased 5% to $9,993 million, including a 1% impact from the lower Australian dollar. This reflects higher staff costs from inflation-related salary increases, and the cost of growing regulatory, compliance and remediation programs. This was partly offset by the continued realisation of operational efficiencies from productivity initiatives; and   increased 4% impairment expense Loan to $988 million, due to higher arrears in the unsecured portfolio in Retail Banking Services, and an increase in a small number of large individual provisions and lending volume growth in Institutional Banking and Markets. impairment expense Loan to $548 million due to higher provisioning in Retail Banking Services, New Zealand and Business and Private Banking. increased 25% Commonwealth Bank of Australia – Annual Report 2015 13 Group Performance Analysis Net Interest Income Year Ended June 2015 versus June 2014 Net interest income increased 5% on the prior year to $15,799 million. The result was driven by growth in average interest earning assets of 7%, partly offset by a five basis point decrease in net interest margin. Average Interest Earning Assets Average interest earning assets increased $50 billion on the prior year to $755 billion, reflecting:    Home loan average balances increased $24 billion or 6% on the prior year to $410 billion. The growth in home loan balances was largely driven by domestic banking growth. Average balances for business and corporate lending increased $13 billion on the prior year to $191 billion driven by growth in institutional and business banking lending balances. Average non-lending interest earning assets increased $11 billion on the prior year due to higher cash and liquid assets and trading assets. Net Interest Margin The Group’s net interest margin decreased five basis points on the prior year to 2.09%. The key drivers of the movement were: Asset pricing: Decreased margin of eight basis points reflecting competitive pricing. Funding costs: Increased margin of six basis points reflecting lower wholesale funding costs of five basis points and a one basis point decrease in deposit costs. 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 decreased one basis point as a result of an increase in the spread between the cash rate and the bank bill swap rate during the year. Portfolio mix: Increased margin of four basis points from strong growth in higher margin portfolios and favourable funding mix. Other: Decreased margin of two basis points, primarily driven by the impact of the falling cash rate environment on free equity funding. 14 Commonwealth Bank of Australia – Annual Report 2015 Treasury and Markets: Decreased margin of four basis points, primarily driven by increased holdings of liquid assets. NIM movement since June 2014 Group NIM Group NIM excluding Treasury and Markets Group NIM (Half Year Ended) Group NIM Group NIM excluding Treasury and Markets 30 Jun 1530 Jun 14Jun 15 vs 30 Jun 1531 Dec 14Jun 15 vs $M$MJun 14 %$M$MDec 14 %Net interest income - "cash basis"15,79915,09157,9087,891-Average interest earning assetsHome loans410,306386,1606416,761403,9563Personal loans23,48122,499423,72223,2442Business and corporate loans190,537177,2497195,518185,6375Total average lending interest earning assets624,324585,9087636,001612,8374Non-lending interest earning assets 130,548119,4639135,363125,8118Total average interest earning assets754,872705,3717771,364738,6484Net interest margin (%)2.092.14(5)bpts2.072.12(5)bptsNet interest margin excluding Treasury and Markets (%)2.032.04(1)bpt 2.012.04(3)bptsFull Year EndedHalf Year Ended0.06%0.04%(0.08%)(0.01%)(0.02%)(0.04%)1.00%1.20%1.40%1.60%1.80%2.00%2.20%Jun 14AssetpricingFundingcostsBasisriskPortfoliomixOtherTreasuryandMarketsJun 152.03%2.09%Group NIM excluding Treasury and Markets decreased one basis point2.04%2.14%1.00%1.20%1.40%1.60%1.80%2.00%2.20%Jun 13HalfDec 13HalfJun 14HalfDec 14HalfJun 15Half2.12%2.07%2.14%2.14%2.17%2.04%2.01%2.04%2.04%2.06% Net Interest Income (continued) Half Year Ended June 2015 versus December 2014 Net interest income was flat on the prior half driven by growth in average interest earning assets of 4%, partly offset by a five basis point decrease in net interest margin to 2.07%. Average Interest Earning Assets Average interest earning assets increased $33 billion on the prior half to $771 billion, reflecting:    Home loan average balances increased $13 billion or 3% on the prior half to $417 billion, primarily driven by growth in the domestic banking businesses. Average balances for business and corporate lending increased $10 billion on the prior half to $196 billion driven by growth in institutional and business banking lending balances. Average non-lending interest earning assets increased $10 billion on the prior half from higher cash and liquid assets and trading assets. Net Interest Margin The Group’s net interest margin decreased five basis points on the prior half to 2.07%. The key drivers were: Asset pricing: Decreased margin of one basis point, reflecting competitive pricing. Basis risk: Basis risk arises from funding assets which are priced relative to the cash rate with liabilities priced relative to Other Banking Income Year Ended June 2015 versus June 2014 Other banking income increased 12% on the prior year to $4,839 million, driven by the following revenue items: increased 5% on Commissions to $2,226 million, driven by higher card interchange income, increased home loan fee income from higher volumes, and higher equities trading volumes; the prior year Group Performance Analysis the bank bill swap rate. The margin decreased by one basis point as a result of an increase 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 favourable funding mix. Other: Decreased margin of two basis points, primarily driven by the impact of the falling cash rate environment on free equity funding. Treasury and Markets: Decreased margin of two basis points, primarily driven by increased holdings of liquid assets. NIM movement since December 2014 Group NIM Group NIM excluding Treasury and Markets income the prior year Trading to increased 9% on $1,005 million. This was primarily driven by a strong Markets sales and trading performance, and favourable counterparty valuation adjustments of $42 million, partly offset by the initial cost of implementing a funding valuation adjustment to the fair value of derivatives of $81 million; and fees decreased 3% on Lending to $1,050 million due to lower line fees, reflecting competitive pressures; the prior year Other income increased on the prior year to $558 million, due to a reduced loss on the hedge of New Zealand earnings, higher structured asset finance income, gain on sale of investments, as well as the impairment of the investment in Vietnam International Bank in the prior year. Commonwealth Bank of Australia – Annual Report 2015 15 0.01%(0.01%)(0.01%)(0.02%)(0.02%)1.00%1.20%1.40%1.60%1.80%2.00%2.20%Dec 14AssetpricingBasisriskPortfoliomixOtherTreasuryandMarketsJun 152.12%2.07%Group NIM excludingTreasury and Markets decreased three basis points2.04%2.01%30 Jun 1530 Jun 14Jun 15 vs 30 Jun 1531 Dec 14Jun 15 vs $M$MJun 14 %$M$MDec 14 %Commissions2,2262,13051,0991,127(2)Lending fees1,0501,083(3)522528(1)Trading income1,0059229492513(4)Other income558188large35620276Other banking income - "cash basis"4,8394,323122,4692,3704Full Year EndedHalf Year Ended Group Performance Analysis Other Banking Income (continued) Net Trading Income ($M) Half Year Ended June 2015 versus December 2014 Other banking income increased 4% on the prior half to $2,469 million, driven by the following revenue items: Commissions decreased 2% on to $1,099 million due to seasonally higher home loan sales in the prior half, and a decrease in consumer finance fees, reflecting seasonally lower purchases and an increase in loyalty points issued in the half; the prior half Lending fees decreased 1% on the prior half to $522 million, driven by lower commitment fees, reflecting competitive pressure; the prior half income decreased 4% on Trading to $492 million, with a solid sales and trading performance more than offset by the initial cost of implementing a funding valuation adjustment to the fair value of derivatives of $81 million, and a less favourable counterparty valuation adjustment in the half of $12 million; and Other income increased on the prior half to $356 million, due to a higher contribution of profits from associates and gain on sale of investments. Funds Management Income (1) Comparative information has been reclassified to conform to presentation in the current year. (2) The Property transactions were completed and the businesses exited during the 30 June 2014 financial year. Year Ended June 2015 versus June 2014 Half Year Ended June 2015 versus December 2014 Funds management income was flat on the prior year at $1,938 million. Excluding the contribution from the Property businesses exited in the prior year, Funds management income increased 8% on the prior year, driven by:    A 14% increase in average FUA reflecting favourable equity markets and investment performance, with strong growth in the ASB Aegis fund and KiwiSaver scheme; and Positive net flows and the benefit of the lower Australian dollar; partly offset by A four basis points decline in Funds management margin as a result of lower Advice revenue, continued run-off investment business, and provisioning for customer remediation. legacy the in Funds management income was flat on the prior half at $968 million driven by:    A 9% increase in average FUA from growth in equity markets and ongoing investment outperformance in Australia and continued strong growth in New Zealand funds; and The benefit from foreign sourced income as a result of the lower Australian dollar; offset by A five basis point decline in Funds management margin as a result of the continued run-off in the legacy investment business, and provisioning for customer remediation. 16 Commonwealth Bank of Australia – Annual Report 2015 29328032033418915816322726(24)30(69)SalesTradingCVA/FVADec 13 Jun14Dec 14 Jun 1550841451349230 Jun 1530 Jun 14Jun 15 vs30 Jun 1531 Dec 14Jun 15 vs$M$MJun 14 %$M$MDec 14 %Colonial First State8668285415451(8)CFS Global Asset Management8477391544540211CommInsure133132169648New Zealand71601837349Other2137(43)219(89)Funds management income (excluding Property)1,9381,7968968970-Property (2)-137large---Funds management income (including Property)1,9381,933-968970-Half Year EndedFull Year Ended (1) Insurance Income Group Performance Analysis Year Ended June 2015 versus June 2014 Half Year Ended June 2015 versus December 2014 Insurance income decreased 3% on the prior year to $792 million impacted by: Insurance income decreased 10% on the prior half to $376 million impacted by:     A deterioration in claims experience from a number of severe weather events across New South Wales and Queensland during the year; partly offset by An increase in average inforce premiums of 6% to $3,259 million, across CommInsure and New Zealand;    Significant weather events; partly offset by Improved CommInsure Wholesale Life insurance income from repricing; and Continued lower lapse rates across New Zealand and CommInsure. Reduced improved pricing in CommInsure Wholesale Life; and reserve strengthening the year and in An improvement in lapse rates in CommInsure, as well as favourable claims and lapse experience in New Zealand. Operating Expenses Year Ended June 2015 versus June 2014 Half Year Ended June 2015 versus December 2014 Operating expenses increased 5% on the prior year to $9,993 million. The key drivers were: Operating expenses increased 3% on the prior half to $5,079 million. The key drivers were: Staff expenses increased 5% to $5,816 million, including a 1% impact from the lower Australian dollar, inflation-related salary increases; Staff expenses were flat at $2,910 million, driven by 1% timing of impact provisions for employee entitlements; the Australian dollar, offset by from Occupancy and equipment expenses increased 3% to $1,086 million, primarily due to rental reviews; Occupancy and equipment expenses increased 1% to $547 million, primarily due to rental reviews; Information technology services expenses decreased by 3% to $1,292 million, driven by lower amortisation expenses and software write-offs; Information technology services expenses increased 6% to $664 million, driven by higher amortisation expenses, maintenance costs and data processing volumes; Other expenses increased 15% to $1,799 million, driven by increased credit card loyalty redemption, and the cost of growing regulatory, compliance and remediation programs; and Group expense to income ratio improved ten basis points on the prior year to 42.8%, reflecting higher revenues and productivity initiatives. The banking expense to income ratio improved 60 basis points on the prior year to 39.1%. Other expenses increased 14% to $958 million, driven by increased credit card loyalty redemption, and the cost of growing regulatory, compliance and remediation programs; and Group expense to income ratio increased 110 basis points on the prior half to 43.3% reflecting lower relative income growth, partly offset by productivity initiatives. The banking expense to income ratio improved 30 basis points on the prior half to 39.0%. Commonwealth Bank of Australia – Annual Report 2015 17 30 Jun 1530 Jun 14Jun 15 vs30 Jun 1531 Dec 14Jun 15 vs$M$MJun 14 %$M$MDec 14 %CommInsure 503575(13)229274(16)New Zealand2322021512310913IFS4236172121-Other156large312(75)Insurance income - "cash basis"792819(3)376416(10)Full Year EndedHalf Year Ended30 Jun 1530 Jun 14Jun 15 vs30 Jun 1531 Dec 14Jun 15 vs$M$MJun 14 %$M$MDec 14 %Staff expenses5,8165,54252,9102,906-Occupancy and equipment expenses1,0861,05335475391Information technology services expenses1,2921,337(3)6646286Other expenses1,7991,5671595884114Operating expenses - "cash basis"9,9939,49955,0794,9143Operating expenses to total operating income (%)42. 842. 9(10)bpts43. 342. 2110 bptsBanking expense to operating income (%)39. 139. 7(60)bpts39. 039. 3(30)bptsFull Year EndedHalf Year Ended Group Performance Analysis Operating Expenses (continued) Investment Spend (1) Included within Operating Expenses disclosure on page 17. The Group has continued to invest strongly to deliver on the strategic priorities of the business with $1,246 million incurred in the full year to 30 June 2015, an increase of 5% on the prior year. The increase is largely due to increased spend on risk and compliance initiatives, branch refurbishment, and other projects, partly offset by reduced spend on productivity and growth initiatives. Significant spend on risk and compliance projects has continued as systems are implemented to assist in satisfying new regulatory obligations, including Stronger Super, Future of Financial Advice (FOFA) reforms, and the Foreign Account Tax Compliance Act (FATCA). In addition, the Group further invested in safeguarding the Group’s information security to mitigate risks and provide greater stability for customers. Loan Impairment Expense Spend on branch refurbishment and other costs increased from prior year, largely driven by increased spend on the refreshment of branches and ATMs. further enhancements Spend on productivity and growth continued to focus on delivering the Group’s sales management capabilities, product systems across retail, business and institutional segments, digital channels and customer data insights. to Several initiatives are ongoing to deliver on the Group’s One focused on better understanding Commbank strategy, customer customer needs and developing deeper relationships. (1) Comparative information has been reclassified to conform to presentation in the current period. Year Ended June 2015 versus June 2014 Loan impairment expense increased 4% on the prior year to $988 million. The increase is driven by:   An increase in Retail Banking Services as a result of higher arrears in the unsecured portfolios and some portfolio growth; An increase in Institutional Banking and Markets due to a small number of large individual provisions and growth in client exposures; and    An increase in New Zealand due to higher rural lending and unsecured retail provisions; partly offset by Fewer individual provisions in Business and Private Banking; and Reduced levels of individual provisions in Bankwest. 18 Commonwealth Bank of Australia – Annual Report 2015 30 Jun 1530 Jun 14Jun 15 vs30 Jun 1531 Dec 14Jun 15 vs$M$MJun 14 %$M$MDec 14 %Expensed investment spend (1)539598(10)28425511Capitalised investment spend707584213673408Investment spend1,2461,18256515959Comprising:Productivity and growth728774(6)3703583Risk and compliance3782803521116726Branch refurbishment and other14012897070-Investment spend 1,2461,18256515959Full Year EndedHalf Year Ended30 Jun 1530 Jun 14Jun 15 vs 30 Jun 1531 Dec 14Jun 15 vs $M$MJun 14 %$M$MDec 14 %Retail Banking Services626582835826834Business and Private Banking152237(36)896341Institutional Banking and Markets16761large7097(28)New Zealand835163493444Bankwest(50)11large(24)(26)(8)IFS and Other1011(9)6450Loan impairment expense "cash basis"988953454844025Full Year Ended (1) Half Year Ended Loan Impairment Expense (continued) Half Year Ended June 2015 versus December 2014 Group Performance Analysis Half Year Loan Impairment Expense (Annualised) as a % of Average Gross Loans and Acceptances (bpts) Loan impairment expense increased 25% on the prior half to $548 million mainly driven by:     Higher arrears predominantly in the unsecured portfolio in Retail Banking Services; Increased credit exposures, partly offset by individual provisions in Business and Private Banking; lower An increase in the New Zealand rural lending portfolio; partly offset by A lower collective provision requirement and increased write-backs in Institutional Banking and Markets. Provision relating to Bell Group litigation (non-cash items) (1) 16 basis points, including the Bell Group write-back (non-cash item). Taxation Expense Year Ended June 2015 versus June 2014 Half Year Ended June 2015 versus December 2014 Corporate tax expense for the year ended 30 June 2015 increased 6% on the prior year representing a 27.3% effective tax rate. The effective tax rate is below the Australian company tax rate of 30% primarily as a result of the profit earned by the offshore banking unit and offshore jurisdictions that have lower corporate tax rates. Corporate tax expense for the half year ended 30 June 2015 decreased 2% on the prior half representing a 27.3% effective tax rate. The effective tax rate is below the Australian company tax rate of 30% primarily as a result of the profit earned by the offshore banking unit and offshore jurisdictions that have lower corporate tax rates. Commonwealth Bank of Australia – Annual Report 2015 19 20221716171417Jun 12Dec 12Jun 13Dec 13Jun 14Dec 14Jun 152530 Jun 1530 Jun 14Jun 15 vs30 Jun 1531 Dec 14Jun 15 vs$M$MJun 14 %$M$MDec 14 %Corporate tax expense ($M)3,4393,25061,6991,740(2)Effective tax rate (%)27. 327. 210 bpts27. 327. 3-Full Year EndedHalf Year Ended Group Performance Analysis Non-Cash Items Included in Statutory Profit Non-cash items are excluded from net profit after tax (“cash basis”), which is management’s preferred measure of the Group’s financial performance, as they tend to be non- recurring in nature or are 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 comparative period and prior half 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 Foreign exchange hedges relating Zealand earnings. to future New Hedging and IFRS volatility also includes unrealised fair value gains or losses on the ineffective portion of economic hedges that qualify for hedge accounting under IFRS. Fair value gains or losses on all of these economic hedges were excluded from cash profit, since the asymmetric recognition of the gains or losses does not affect the Group’s performance over the life of the hedge. A $6 million after tax gain was recognised in statutory profit for the year ended 30 June 2015 (30 June 2014: $6 million after tax gain). 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 $52 million after tax in the year ended 30 June 2015 (30 June 2014: $56 million). These items were not recognised in cash profit as they were not representative of the Group’s expected ongoing financial performance. Treasury shares valuation adjustment in 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 were recognised in cash profit representing the underlying funds and life 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 $28 million after tax loss was included in statutory 30 June 2015 in (30 June 2014: $41 million after tax loss). ended profit year the Bell Group litigation 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. Settlement was reached during the prior year, resulting in a partial write-off and release of the remaining provision. This was reported as a non-cash item due to its historic and one- off nature. Gain on sale of management rights During the prior year, the Group successfully completed the internalisation of the management of CFS Retail Property Trust (CFX) and Kiwi Income Property Trust (KIP), which resulted in a gain (net of transaction costs and indemnities) of $17 million for the year ended 30 June 2014. Policyholder tax of tax expense 30 June 2015, Policyholder tax is included in the Wealth Management business results for statutory reporting purposes. In the year ended $99 million (30 June 2014: $126 million), funds management income of $21 million (30 June 2014: $59 million) and insurance income of $78 million (30 June 2014: $67 million) was recognised. The gross up of these items are excluded from cash profit, as they do not reflect the underlying performance of the business, which is measured on a net of policyholder tax basis. Investment experience Investment experience primarily included the returns on shareholder capital invested in the wealth management and insurance businesses, as well as the volatility generated through the economically hedged guaranteed annuity portfolio held by the Group’s Wealth Management division. This item is classified separately within cash profit. 20 Commonwealth Bank of Australia – Annual Report 2015 30 Jun 1530 Jun 14Jun 15 vs30 Jun 1531 Dec 14Jun 15 vs$M$MJun 14 %$M$MDec 14 %Hedging and IFRS volatility66-48(42)largeBankwest non-cash items(52)(56)(7)(26)(26)-Treasury shares valuation adjustment(28)(41)(32)(8)(20)(60)Bell Group litigation-25large---Gain on sale of management rights-17large---Other non-cash items(80)(55)45(34)(46)(26)Total non-cash items (after tax)(74)(49)5114(88)largeFull Year EndedHalf Year Ended Review of Group Assets and Liabilities Group Performance Analysis (1) Loans, bills discounted and other receivables exclude provisions for impairment which are included in Other assets. (2) Comparative information has been restated to conform to presentation in the current year. Year Ended June 2015 versus June 2014 Asset growth of $82 billion or 10% on the prior year was due to increased home lending, business and corporate lending, and higher cash and liquid asset balances and derivative assets. The Group continued to satisfy a significant portion of lending growth from customer deposits. Customer deposits now represent 63% of total funding (30 June 2014: 64%). Home loans Home loan balances increased $23 billion to $423 billion, reflecting a 6% increase on the prior year. Growth in Retail Banking Services and Bankwest was slightly below system growth, within a competitive market environment. Consumer finance Personal loans, including credit cards and margin lending increased 2% on the prior year to $23 billion with solid growth in personal lending and credit cards in Retail Banking Services, Business and Private Banking and New Zealand. Business and corporate loans increased $15 billion Business and corporate to loans $198 billion, an 8% increase on the prior year, including a 1% benefit from the lower Australian dollar. This was driven by strong growth lending balances, higher leasing balances, and above system growth in New Zealand. This was partly offset by the continued reduction in Bankwest. risk pre-acquisition exposures in commercial and institutional in higher including a 3% benefit from the lower Australian dollar. This was driven by higher liquid asset balances held as a result of Balance Sheet growth and regulatory requirements. Other assets Other assets, including derivative assets, insurance assets and intangibles, increased $27 billion to $92 billion, a 41% increase on the prior year. This increase reflected higher derivative asset balances due to foreign exchange volatility. Interest bearing deposits Interest bearing deposits increased $43 billion to $529 billion, a 9% increase on the prior year. This was driven by growth of $21 billion in savings deposits, a $14 billion increase in transaction deposits, a $6 billion increase in other demand deposits, and a $2 billion increase in investment deposits. Debt issues Debt issues increased $9 billion to $156 billion, a 6% increase on the prior year. Refer to page 25 for further information on debt programs and issuance for the year ended 30 June 2015. Other interest bearing liabilities interest bearing Other loan capital, liabilities, liabilities at fair value through the income statement and amounts due increased $15 billion to $57 billion, a 37% increase on the prior year. institutions, to other including financial Non-interest bearing liabilities Non-lending interest earning assets Non-lending interest earning assets increased $17 billion to $137 billion reflecting a 14% increase on the prior year, Non-interest bearing liabilities, including derivative liabilities and to $77 billion, a 16% increase on the prior year. increased $10 billion insurance policy liabilities, Commonwealth Bank of Australia – Annual Report 2015 21 30 Jun 1531 Dec 1430 Jun 14 Jun 15 vsJun 15 vsTotal Group Assets and Liabilities$M$M$MDec 14 %Jun 14 %Interest earning assetsHome loans422,851411,305399,68536Consumer finance23,49723,70623,058(1)2Business and corporate loans198,476191,203183,93048Loans, bills discounted and other receivables (1)644,824626,214606,67336Non-lending interest earning assets136,643127,312119,699714Total interest earning assets781,467753,526726,37248Other assets (1)91,97997,18865,079(5)41Total assets873,446850,714791,451310Interest bearing liabilitiesTransaction deposits (2)90,58981,86676,9471118Savings deposits (2)176,497163,477155,142814Investment deposits (2)195,065197,569192,956(1)1Other demand deposits 67,07465,86760,832210Total interest bearing deposits529,225508,779485,87749Debt issues156,372155,275147,24616Other interest bearing liabilities 57,52352,63842,079937Total interest bearing liabilities743,120716,692675,202410Non-interest bearing liabilities77,33382,99166,901(7)16Total liabilities820,453799,683742,103311As at Group Performance Analysis Review of Group Assets and Liabilities (continued) Other assets Other assets, including derivative assets, insurance assets and intangibles decreased 5% on the prior half to $92 billion. This decrease reflected lower derivative asset balances. Interest bearing deposits Interest bearing deposits increased $20 billion to $529 billion, reflecting a 4% increase on the prior half. This was driven by growth of $13 billion in savings deposits, a $9 billion increase in transaction deposits, and a $1 billion increase in other demand deposits. This was partly offset by a $3 billion decrease in investment deposits. Debt issues Debt issues increased $1 billion to $156 billion reflecting a 1% increase on the prior half. Refer to page 25 for further information on debt programs and issuance for the half year ended 30 June 2015. Other interest bearing liabilities interest bearing loan capital, liabilities, Other liabilities at fair value through the income statement and amounts due to other financial institutions, increased 9% on the prior half to $58 billion. including Non-interest bearing liabilities insurance policy Non-interest bearing liabilities, including derivative liabilities and to $77 billion. This decrease reflected lower derivative liability balances. liabilities, decreased $6 billion Half Year Ended June 2015 versus December 2014 Asset growth of $23 billion or 3% on the prior half was driven by increased home lending, business and corporate lending and liquid asset balances. Continued deposits growth allowed the Group to satisfy a significant portion of through customer deposits. Customer deposits made up 63% of total funding as at 30 June 2015, consistent with the prior half. lending growth Home loans Home loan balances increased $12 billion to $423 billion, a 3% increase on the prior half. Excluding the impact of the Australian dollar, home loan balances increased 4%. Growth in Retail Banking Services and New Zealand was broadly in line with system growth within a competitive market environment. Consumer finance Personal loans, including credit cards and margin lending decreased 1% on the prior half to $23 billion due to seasonality and increased competition. Business and corporate loans Business and corporate to loans $198 billion. This was largely due to solid business lending growth in both Australia and New Zealand. increased $7 billion Non-lending interest earning assets Non-lending interest earning assets increased $9 billion to $137 billion, a 7% increase on the prior half, including a 1% benefit from the lower Australian dollar. This was driven by higher liquid asset balances held as a result of Balance Sheet growth and regulatory requirements. 22 Commonwealth Bank of Australia – Annual Report 2015 Group Operations and Business Settings Loan Impairment Provisions and Credit Quality Provisions for Impairment Year Ended June 2015 versus June 2014 Half Year Ended June 2015 versus December 2014 Total provisions for impairment losses decreased 7% on the prior year to $3,649 million. The movement in the level of provisioning reflects:     A reduction in individually assessed provisions, as the level of impaired assets continued to reduce; A reduction of Bankwest collective provisions as troublesome loans continued to be refinanced or repaid; partly offset by An increase in collective provisioning in the Consumer portfolios, reflecting higher volume of loans and higher arrears; An increase in collective provisioning in the Commercial review of portfolios, provisioning factors; and the annual resulting from Total provisions for impairment losses decreased 6% on the prior half. The movement in the level of provisioning reflects:      A reduction in individually assessed provisions as the level of impaired assets continued to reduce; A reduction in Bankwest collective provisions as troublesome loans continued to be refinanced or repaid; Utilisation of management overlays set aside for factor changes; partly offset by An increase in collective provisions in the Commercial portfolios, as a result of the annual review of provisioning factors; An increase in collective provisions in the Consumer portfolio, reflecting higher volume of loans and higher arrears; and  Overlays remain largely unchanged on the prior year.  An increase in economic overlay. Collective Provisions ($M) Individually Assessed Provisions ($M) Commonwealth Bank of Australia – Annual Report 2015 23 30 Jun 1531 Dec 1430 Jun 14 Jun 15 vsJun 15 vs$M$M$MDec 14 %Jun 14 %Provisions for impairment lossesCollective provision2,7622,7632,779-(1)Individually assessed provisions8871,1161,127(21)(21)Total provisions for impairment losses3,6493,8793,906(6)(7)Less: Provision for Off Balance Sheet exposures(31)(19)(40)63(23)Total provisions for loan impairment3,6183,8603,866(6)(6)As at729725 762 941942 981 347306 264 762790 755 Jun 14Dec 14Jun 152,7632,762610631 492 128128 128 389357 267 Jun 14Dec 14Jun 151,116887 OverlayBankwestConsumerCommercial2,7791,127 Group Operations and Business Settings Loan Impairment Provisions and Credit Quality (continued) Credit Quality Provision Ratios 90+ Days Arrears Ratios (%) (1) Provision coverage ratios remain prudent with collective provisions to Credit Risk Weighted Assets at 0.87% and Total Provisions to Credit Risk Weighted Assets at 1.14%. Asset Quality The low interest rate environment means that troublesome and impaired assets have continued to reduce, and while arrears for the retail portfolios have increased marginally, they remain relatively low. Retail Portfolios – Arrears Rates Retail arrears across all products increased marginally above seasonal expectations. from 0.50% flat at 1.25% and 90+ day arrears Home loan arrears were mixed over the year, with 30+ day arrears increasing marginally to 0.52%. Credit card arrears deteriorated with 30+ day arrears increasing from 2.46% to 2.66%, and 90+ day arrears increasing marginally from 1.01% to 1.05%. Personal loan arrears increased, with 30+ day arrears increasing from 3.03% to 3.28%, and 90+ day arrears increasing from 1.20% to 1.34%. Troublesome and Impaired Assets Commercial troublesome assets reduced 15% during the year to $3,059 million. Gross impaired assets decreased 15% on the prior year to $2,855 million. Gross impaired assets as a proportion of gross loans and acceptances of 0.44% decreased 11 basis points on the prior year, reflecting the improving quality of the corporate portfolios. 30+ Days Arrears Ratios (%) (1) Troublesome and Impaired Assets ($B) (1) Includes retail portfolios of Retail Banking Services, Bankwest and New Zealand. 24 Commonwealth Bank of Australia – Annual Report 2015 Jun 15 vsJun 15 vsCredit Quality Metrics30 Jun 1530 Jun 14Jun 14 %30 Jun 1531 Dec 14Dec 14 %Gross loans and acceptances (GLAA) ($M)646,172608,1276646,172627,6983Risk weighted assets (RWA) ($M) - Basel III 368,721337,7159368,721353,0484Credit RWA ($M) - Basel III 319,174289,13810319,174311,5242Gross impaired assets ($M) 2,8553,367(15)2,8553,360(15)Net impaired assets ($M) 1,8292,101(13)1,8292,116(14)Provision RatiosCollective provision as a % of credit RWA - Basel III0. 870. 96(9)bpts0. 870. 89(2)bptsTotal provision as a % of credit RWA - Basel III1. 141. 35(21)bpts1. 141. 25(11)bptsTotal provisions for impaired assets as a % of gross impaired assets35. 9437. 60(166)bpts35. 9437. 02(108)bptsTotal provisions for impairment losses as a % of GLAA's0. 560. 64(8)bpts0. 560. 62(6)bptsAsset Quality RatiosGross impaired assets as a % of GLAA's 0. 440. 55(11)bpts0. 440. 54(10)bptsLoans 90+ days past due but not impaired as a % of GLAA's 0. 360. 39(3)bpts0. 360. 342 bptsLoan impairment expense ("cash basis") annualised as a % of average GLAA's0. 160. 16-0. 170. 143 bptsFull Year EndedHalf Year Ended1.0%2.0%3.0%4.0%Jun 13Dec 13Jun 14Dec 14Jun 15Personal LoansHome LoansCreditCards0.4%0.9%1.4%Jun 13Dec 13Jun 14Dec 14Jun 15Home LoansPersonal LoansCreditCards5.85.65.2 4.33.63.13.14.7 4.5 4.3 3.93.43.42.9Jun 12Dec 12Jun 13Dec 13Jun 14Dec 14Jun 15Commercial TroublesomeGross Impaired7.010.510.19.58.26.56.0 Group Operations and Business Settings Capital Basel Regulatory Framework Background As a result of the issues which led to the Global Financial Crisis, the Basel Committee on Banking Supervision (BCBS) has implemented a set of capital, liquidity and funding reforms known as “Basel III”. 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 being implemented on a phased approach to 1 January 2019. The Basel III capital reforms were implemented in Australia on 1 January 2013. APRA has adopted a more conservative approach the minimum standards than published by the BCBS and also adopted an 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 3.5%, inclusive of a Domestic Systemically Important Bank (DSIB) requirement of 1%, will be implemented on 1 January 2016, bringing the CET1 requirement for the Group to 8%. Financial System Inquiry In December 2014, the Government released the final report of the Financial System Inquiry (FSI). The key recommendations from the report included:   Setting capital standards such Authorised Deposit-taking ratios are unquestionably strong; that Australian Institution (ADI) capital Raising the average Internal Ratings-Based (IRB) mortgage risk weight for ADIs using IRB risk-weight models;    framework for minimum Implementing a loss absorbing and recapitalisation capacity in line with emerging international practice, sufficient to facilitate the orderly resolution of ADIs and minimise taxpayer support; Introducing a leverage ratio, in line with the Basel Committee, that acts as a backstop to the capital position of ADIs; and Developing a reporting transparency and comparability of capital ratios. template improve to the In July 2015, in connection with the FSI recommendations, APRA released the following:   (APRA study), which endorsed Information paper; “International capital comparison study” the FSI recommendation that the capital of Australian ADIs should be unquestionably strong. However, APRA did not confirm the definition of “unquestionably strong”. Nevertheless, the report confirmed that the major banks are well-capitalised and compared the major banks’ capital ratios against a set of international peers; and An announcement in relation to increases in the capital requirements under the IRB approach for Australian residential mortgages, which will increase the average risk weighting for a mortgage portfolio to approximately 25%, effective from 1 July 2016. Internationally Comparable Capital Position The Group maintained a strong capital position with CET1 as measured on an internationally comparable basis of 12.7% as at 30 June 2015. This analysis aligns with the APRA study. This compares with a CET1 ratio of 9.1% under APRA’s prudential standards and places the Group amongst the top quartile of international peer banks. International Peer Basel III CET1 (1) 2 2 2 3 2 2 2 2 2 2 2 2 Source: Morgan Stanley and CBA. Based on last reported CET1 ratios up to 5 August 2015 assuming Basel III capital reforms fully implemented. Peer group comprises listed commercial banks with total assets in excess of $700 billion and which have disclosed fully implemented Basel III ratios or provided sufficient disclosure for a Morgan Stanley estimate. (1) Figure 2 per the APRA Information paper “International capital comparison study”. (2) (3) Includes deduction for accrued expected future dividends. Interim profit not included in CET1 capital, has been added back. Commonwealth Bank of Australia – Annual Report 2015 25 14.413.713.513.012.712.312.212.112.011.711.711.711.611.411.311.211.010.910.810.610.610.610.610.510.410.410.410.310.210.110.09.99.89.4NordeaUBSIntesa SanpaoloLloydsINGCBARBSICBCChina Construct. BankSumitomo MitsuiHSBCMitsubishi UFJDeutscheStandard CharteredCitiBarclaysBank of CommJP MorganBank of ChinaBNP ParibasSocGenScotiabankCommerzbankChina Merchants BankWells FargoUniCreditBank of AmericaBBVACredit SuisseCredit Agricole SAMizuhoRBCToronto DominionSantanderAgri. Bank of China16.0 APRA top quartile 12.4% Group Operations and Business Settings Capital (continued) Capital Position The Group maintained a strong capital position with capital ratios well in excess of regulatory minimum capital adequacy the year ended requirements at all 30 June 2015. throughout times (1) Other Regulatory Changes Basel Committee on Banking Supervision During the second half of the 2014 calendar year, the BCBS issued a number of consultation documents including:     “Capital Floors: The Design of a Framework based on Standardised Approaches”; “Revisions to the Standardised Approach for Credit Risk”; “Fundamental Review of the Trading Book: Outstanding Issues”; and “Revisions to the Simpler Approaches” – Operational Risk. Finalisation of all of the above proposals is expected by the end of 2015. In June 2015, the BCBS issued a consultation document “Interest Rate Risk in the Banking Book”, which is open for consultation until September 2015. (1) Analysis aligns with the 13 July 2015 APRA study titled “International capital comparison study”. Composition of Level 2 ADI Groups In May 2014, APRA provided more clarity on the definition of the Level 2 Banking Group. Subsidiary intermediate holding companies are considered part of the Level 2 Group, regardless of the nature of any activity undertaken by their operating subsidiaries. As a result, capital benefits arising from the debt issued by the Colonial Group will be phased out. APRA granted transition arrangements on these changes, in line with the maturity profile of the debt. Leverage Ratio The leverage ratio is defined as Tier 1 Capital as a percentage of exposures. Public disclosure of the leverage ratio by Australian ADIs is to commence from 1 July 2015. The BCBS has advised that any adjustments to the definition and calibration of the ratio will be made by 2017 with migration requirement) expected from 1 January 2018. (minimum capital to a Pillar 1 Conglomerate Groups to Conglomerate Groups APRA has proposed extending its prudential supervision framework that have material operations in more than one APRA regulated industry and/or have one or more material unregulated entities. APRA released revised conglomerate standards in August 2014. However, a decision on the implementation date has yet to be provided. APRA has confirmed that a minimum transition period of 12 months will apply before the implementation date. The Group’s CET1 ratio as measured on an APRA basis was at 9.1% 31 December 2014 and 9.3% at 30 June 2014. compared with 30 June 2015, 9.2% at The decrease in capital across the June 2015 half and full year reflects capital generated from earnings, more than offset by the impact of dividend payments, higher Risk Weighted Assets (RWA) and the first reduction in the capital benefits arising from the debt issued by the Colonial Group. Capital Initiatives following significant CET1 capital The undertaken during the year: initiatives were   The Dividend Reinvestment Plan (DRP) in respect of the 2014 final dividend was satisfied in full by the on-market purchase of shares. The participation rate for the DRP was 19.9%; and The DRP in respect of the 2015 interim dividend was satisfied by the allocation of approximately $571 million of ordinary shares. The participation rate for the DRP was 17.9%. Pillar 3 Disclosures Details on the market disclosures required under Pillar 3, per prudential standard APS 330 “Public Disclosure”, are provided on the Group’s website at: www.commbank.com.au/about-us/shareholders. 26 Commonwealth Bank of Australia – Annual Report 2015 9.3%9.2%9.1%12.7%Jun 14Basel IIIDec 14Basel IIIJun 15Basel IIIJun 15Basel IIICET1 Ratio (Internationally Comparable)CET1 Ratio (APRA) Group Operations and Business Settings Capital (continued) The tables below show the APRA Basel III capital adequacy calculation at 30 June 2015 together with prior period comparatives. (1) Represents shares held by the Group's life insurance operations ($107 million) and employee share scheme trusts ($172 million). (2) Represents foreign currency reserve and available-for-sale reserve balances associated with the insurance and funds management entities and those entities through which securitisation of the Group's assets are conducted. These entities are classified as non-consolidated subsidiaries by APRA and are excluded from the Level 2 Regulatory Consolidated Banking Group. (3) Cumulative current year profit and retained earnings adjustments for subsidiaries not consolidated for regulatory purposes. (4) Non-controlling interests predominantly comprise ASB Perpetual Preference Shares of NZD550 million issued by a New Zealand subsidiary entity. These are non-redeemable and carry limited voting rights. These are classified as additional Tier 1 Capital. Commonwealth Bank of Australia – Annual Report 2015 27 30 Jun 1531 Dec 1430 Jun 14Risk Weighted Capital Ratios%%%Common Equity Tier 19. 19. 29. 3Tier 111. 211. 611. 1Tier 21. 51. 10. 9Total Capital12. 712. 712. 030 Jun 1531 Dec 1430 Jun 14$M$M$MOrdinary Share Capital and Treasury SharesOrdinary Share Capital27,61927,03927,036Treasury Shares (1)279287291Ordinary Share Capital and Treasury Shares27,89827,32627,327ReservesReserves2,3452,6742,009Reserves related to non-consolidated subsidiaries (2)(93)(126)(47)Total Reserves2,2522,5481,962Retained Earnings and Current Period ProfitsRetained earnings and current period profits21,52819,82318,827Retained earnings adjustment from non-consolidated subsidiaries (3)(529)(377)(368)Net Retained Earnings20,99919,44618,459Non-controlling interestNon-controlling interest (4)562556537Less ASB perpetual preference shares(505)(505)(505)Less other non-controlling interests not eligible for inclusion in regulatory capital(57)(51)(32)Minority Interest---Common Equity Tier 1 Capital before regulatory adjustments51,14949,32047,748 Group Operations and Business Settings Capital (continued) (1) Other intangibles (excluding capitalised software costs), net of any associated deferred tax liability. (2) In accordance with APRA regulations, the surplus in the Group’s defined benefit superannuation fund, net of any deferred tax liability, must be deducted from Common Equity Tier 1. (3) 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. (4) Deferred tax assets net of deferred tax liabilities. (5) Cash flow Hedge Reserve and Employee Compensation Reserve balances are ineligible for inclusion in CET1. (6) Represents the Group’s non-controlling interest in other entities. (7) Represents the net tangible assets within the non-consolidated subsidiaries (primarily the insurance and funds management companies operating within the Colonial Group). The adjustment is net of $900 million in non-recourse debt (31 December 2014: $1,250 million, 30 June 2014: $1,250 million) and $1,000 million in Colonial Group Subordinated Notes (31 December 2014: $1,000 million, 30 June 2014: $1,000 million). In April 2015, the first tranche of the non-recourse debt matured ($350 million), and was replaced with an equivalent amount of an ordinary share capital injection from the Group’s parent. The Group’s insurance and fund management companies held $1,579 million of capital in excess of minimum regulatory capital requirements at 30 June 2015. (8) Regulatory Expected Loss (pre-tax) using stressed loss given default assumptions associated with the loan portfolio in excess of eligible credit provisions (pre-tax). (9) As at 30 June 2015, comprises PERLS VI $2,000 million issued in October 2012 and PERLS VII $3,000 million issued in October 2014. (10) As at 30 June 2015, represents APRA Basel III non-compliant Additional Tier 1 Capital Instruments (PERLS III, Trust Preferred Securities (TPS) 06, ASB Perpetual Preference Shares, and Perpetual Exchangeable Floating Rate Note). These instruments are eligible for Basel III transitional relief. In June 2015, the Group redeemed USD550 million in TPS 03. In October 2014 the Group bought back and cancelled AUD2,000 million of PERLS V. (11) As at 30 June 2015, comprises the following subordinated notes: Chinese Renminbi 1,000 million issued in March 2015, EUR1,250 million issued in April 2015, AUD1,000 million issued in November 2014 and NZD400 million issued in April 2014. The NZD400 million notes were issued through ASB, the Group’s New Zealand subsidiary. The ASB notes are Basel III compliant Tier 2 securities and fully contribute towards ASB capital ratios. The amount of the ASB notes that contributes to ASB capital in excess of its minimum regulatory requirements is not eligible for inclusion in the Group’s capital (30 June 2015 ineligible amount, AUD114 million, 31 December 2014 ineligible amount, AUD129 million, 30 June 2014 ineligible amount, AUD138 million). (12) Includes both perpetual and term instruments subordinated to depositors and general creditors, having an original maturity of at least five years. APRA require these to be included as if they were unhedged. Term instruments are amortised 20% of the original amount during each of the last five years to maturity. These instruments are eligible for Basel III transitional relief. (13) Represents the collective provision and general reserve for credit losses for exposures in the Group which are measured for capital purposes under the Standardised approach to credit risk. 28 Commonwealth Bank of Australia – Annual Report 2015 30 Jun 1531 Dec 1430 Jun 14$M$M$MCommon Equity Tier 1 regulatory adjustmentsGoodwill(7,599)(7,576)(7,566)Other intangibles (excluding software) (1)(164)(225)(295)Capitalised costs (337)(341)(285)Capitalised software(2,089)(1,979)(1,854)Defined benefit superannuation plan surplus (2)(193)--General reserve for credit losses (3)(242)(225)(214)Deferred tax asset (4)(1,164)(1,024)(1,164)Cash flow hedge reserve (5)(263)(459)(224)Employee compensation reserve (5)(122)(79)(125)Equity investments (6)(3,179)(2,990)(2,589)Equity investments in non-consolidated subsidiaries (7)(1,705)(1,307)(1,219)Shortfall of provisions to expected losses (8)(134)(102)(502)Deferred fees(222)(145)(103)Gain due to changes in own credit risk on fair valued liabilities(144)(113)(48)Other(194)(170)(148)Common Equity Tier 1 regulatory adjustments(17,751)(16,735)(16,336)Common Equity Tier 133,39832,58531,412Additional Tier 1 CapitalBasel III complying instruments (9)5,0005,0002,000Basel III non-complying instruments net of transitional amortisation (10)2,7493,4134,196Additional Tier 1 Capital7,7498,4136,196Tier 1 Capital41,14740,99837,608Tier 2 CapitalBasel III complying instruments (11)3,2681,254234Basel III non-complying instruments net of transitional amortisation (12)2,2572,4932,530Holding of Tier 2 Capital (20)(30)-Prudential general reserve for credit losses (13)156186171Total Tier 2 Capital5,6613,9032,935Total Capital46,80844,90140,543 Group Operations and Business Settings Capital (continued) (1) A change in the application of the Retail Best Estimate of Expected Loss (BEEL) resulted in an increase RWA of $6.4 billion which was largely offset by a drop in the regulatory Expected Loss deduction for CET1 capital. (2) APRA requires RWA amounts that are derived from IRB risk weight functions to be multiplied by a factor of 1.06. Commonwealth Bank of Australia – Annual Report 2015 29 30 Jun 1531 Dec 1430 Jun 14Risk Weighted Assets$M$M$MCredit RiskSubject to Advanced IRB approachCorporate60,87956,61249,067SME Corporate25,28923,91322,478SME Retail5,0684,9635,280SME Retail secured by residential mortgage2,9493,2853,543Sovereign5,1635,4325,330Bank12,02410,98310,131Residential mortgage (1)74,38272,27865,986Qualifying revolving retail (1)8,8618,5338,215Other retail (1)13,94213,62012,757Impact of the regulatory scaling factor (2)12,51311,97710,967Total Risk Weighted Assets subject to Advanced IRB approach221,070211,596193,754Specialised lending exposures subject to slotting criteria51,08148,77448,935Subject to Standardised approachCorporate10,35711,35810,850SME Corporate5,9215,4704,924SME Retail5,8435,5715,207Sovereign209169124Bank244204220Residential mortgage6,7286,4166,040Other retail2,6792,9462,648Other assets4,9824,9244,214Total Risk Weighted Assets subject to Standardised approach36,96337,05834,227Securitisation1,6535,0165,010Credit valuation adjustment7,7128,1266,636Central counterparties695954576Total Risk Weighted Assets for Credit Risk Exposures319,174311,524289,138Traded market risk6,3356,4665,284Interest rate risk in the banking book 10,8474,84614,762Operational risk32,36530,21228,531Total Risk Weighted Assets 368,721353,048337,715 Group Operations and Business Settings Dividends Final Dividend for the Year Ended 30 June 2015 The final dividend declared was $2.22 per share, bringing the total dividend for the year ended 30 June 2015 to $4.20 per share. This represents a dividend payout ratio (“cash basis”) of 75% and is 5% above the prior full year dividend. The final dividend will be fully franked and will be paid on 1 October 2015 to owners of ordinary shares at the close of business on 20 August 2015 (record date). Shares will be quoted ex-dividend on 18 August 2015. Dividend Reinvestment Plan (DRP) The DRP will continue to be offered to shareholders but no discount will be applied to shares allocated under the plan for the final dividend. 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 Full Year Dividend History (cents per share) franked dividends. Liquidity (1) (2) (3) Includes all repo-eligible securities with the Reserve Bank of New Zealand. The Exchange Settlement Account (ESA) cash balance is netted down by the Reserve Bank of Australia open-repo of internal RMBS. Includes all interbank deposits that are included as short-term wholesale funding on page 31. Includes cash inflows. Year Ended June 2015 versus June 2014 liquidity needs and The Group holds high quality, well diversified liquid assets to meet Balance Sheet regulatory requirements. From 1 January 2015, the Group is subject to APRA’s LCR, which requires LCR liquid assets to exceed net cash outflows projected under a prescribed 30 day stress scenario. As at 30 June 2015, the LCR was 120% with LCR liquid assets of $132 billion, including a $66 billion CLF from the Reserve Bank of Australia. In the six months to June 2015, the LCR increased from 116% to 120%, with a $7 billion decrease in net cash outflows, more than offsetting a $4 billion decrease in LCR liquid assets, due to a $4 billion reduction in the CLF to $66 billion from 1 April 2015. The introduction of a 31 day notice period for early withdrawals of term deposits and other liquidity management measures taken contributed to the reduction in net cash outflows. For further information on the Group’s liquidity management please see Note 34 of the Financial Statements. 30 Commonwealth Bank of Australia – Annual Report 2015 22829032033436440142078.2%73.9%73.2%75.8%75.9%75.1%75.1%0%20%40%60%80%100%120%140%-50050100150200250300350400450Jun 09Jun 10Jun 11Jun 12Jun 13Jun 14Jun 15DPSPayout Ratio ("cash basis")80%Target Range70%30 Jun 1531 Dec 14Jun 15 vsLevel 2$M$MDec 14 %Liquidity Coverage Ratio (LCR)High Quality Liquid Assets (HQLA) (1)65,94065,818 -Committed Liquidity Facility (CLF)66,00070,000(6)Total LCR liquid assets131,940135,818(3)Net Cash OutflowsCustomer deposits65,83278,901(17)Wholesale funding (2)30,75324,63525Other net cash outflows (3)13,81913,903(1)Total net cash outflows110,404117,439(6)Liquidity Coverage Ratio (%)120116 400 bptsLCR surplus 21,53618,37917As 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 Half Year Ended June 2015 versus December 2014 Customer Deposits Customer deposits accounted for 63% of total funding at 30 June 2015, consistent with the prior half. Deposit growth has seen the Group satisfy a significant proportion of lending growth from customer deposits. The remaining 37% of total funding comprised various wholesale debt issuances. 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 funding (including short sales) accounted for 49% of total wholesale funding at 30 June 2015, compared to 47% in the prior half. Long-Term Wholesale Funding Long-term funding (including adjustment for IFRS MTM and derivative FX revaluations) accounted for 51% of total wholesale funding at 30 June 2015, compared to 53% in the prior half. next call date or final maturity. Year Ended June 2015 versus June 2014 Customer Deposits Customer deposits accounted for 63% of total funding at 30 June 2015, compared to 64% in the prior year. Deposit growth has seen the Group satisfy a significant proportion of lending growth from customer deposits. The remaining 37% of total funding comprised various wholesale debt issuances. 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 the Commonwealth Bank of Australia and ASB. Short-term funding (including short sales) accounted for 49% of total wholesale funding at 30 June 2015, up from 45% in the prior year, largely driven by the impact of the lower Australian dollar. Long-Term Wholesale Funding transactions long-term wholesale debt Long-term wholesale funding includes debt with an original maturity or call date of greater than 12 months. Long-term wholesale funding conditions remained stable over the year compared to the previous 12 months with continued central bank stimulus. During the year, the Group issued $31 billion of in multiple currencies including AUD, USD, EUR, and GBP. Given steady funding conditions, most issuances were in senior unsecured format, although the Group also used Residential Mortgage-Backed Securities (RMBS) and its covered bond program to provide cost, tenor and diversification benefits. The Weighted Average Maturity (WAM) of new long-term wholesale debt issued in the year was 4.2 years. The WAM of outstanding long-term wholesale debt was 3.8 years at 30 June 2015. Long-term wholesale funding (including adjustment for IFRS revaluations) Mark-to-market funding at accounted 30 June 2015, compared to 55% in the prior year. (MTM) and derivative FX total wholesale for 51% of For further information on the Group’s funding risk, please refer to Note 34 of the Financial Statements. Commonwealth Bank of Australia – Annual Report 2015 31 30 Jun 1531 Dec 1430 Jun 14Jun 15 vsJun 15 vsGroup Funding (1)$M$M$MDec 14 %Jun 14 %Customer deposits477,811458,428438,89049Short-term wholesale funding131,837124,945109,318621Short sales4,4373,5844,103248Long-term wholesale funding - less than one year residual maturity27,47928,30230,892(3)(11)Long-term wholesale funding - more than one year residual maturity (2)105,055105,888102,163(1)3IFRS MTM and derivative FX revaluations11,65710,4033,25112largeTotal wholesale funding 280,465273,122249,727312Total funding758,276731,550688,617410As at Corporate Responsibility Introduction For the Group, corporate responsibility means continually looking to deliver value to our customers, shareholders, people and the broader community through the way we do business and our role in society. Guided by the Group’s vision we actively consider the environmental, social and economic impacts and influences of our activities and look for ways to make a positive contribution beyond our core business. Examples of the value created for the Group’s stakeholders during the 2015 financial year include:  With more than 52,000 people, the Group’s annual payroll expenditure was more than $5.8 billion;     The Group returned more than 75 per cent of its profits to more than 780,000 Australians who hold CBA shares directly, and millions more who hold them through superannuation funds; The Group’s tax expense was more than $3 billion. It is Australia’s second largest taxpayer; The Group directly helped 228 grassroots community organisations make a positive impact on the health and wellbeing of Australian youth; and The Group made voluntary community contributions totalling more than $243 million in the form of cash, time, foregone revenue and program implementation costs. Evolving our Approach to Corporate Responsibility In light of the fourth iteration of the Global Reporting Initiative framework (GRI G4), the Group undertook a thorough review of its Corporate Responsibility approach. The result is the Group’s Corporate Responsibility 2016 - 2018 Strategy, endorsed by the Executive Committee. The strategy has two pillars: The Way We Do Business and Our Role in Society, with key priorities under each pillar. The Corporate Responsibility Strategy addresses the Group’s material Environmental, Social and Governance (ESG) issues. It guides our approach to the effective management of those issues and associated risks and opportunities and complies with the ASX Corporate Governance Principles and Recommendations. The Group benchmarks its progress against a number of leading global sustainability indices and surveys including:  Global 100 Index (G100). In 2015, the Group ranked 21st in the world, making it the number one Australian company and number two bank in the world in the G100.    Dow Jones Sustainability Index (DJSI). In 2015, the Group was named the industry mover on the DJSI World Index and received a bronze class distinction for excellent sustainability performance. CDP (formerly the Carbon Disclosure Project). In 2014 and for the second consecutive year, the Group was the highest-ranking Australian bank listed on CDP’s climate leadership indices with an overall disclosure score of 100/100 and an ‘A band’ for climate performance. The Group is listed on the FTSE4Good Index that has been designed the performance of companies demonstrating strong ESG practices. to measure The Way We Do Business Make Transparent and Balanced Decisions During the 2015 financial year, the Group saw a significant increase in engagement with ESG issues. The Group is 32 Commonwealth Bank of Australia – Annual Report 2015 committed to maintaining an honest and transparent dialogue with including Non-governmental organisations (NGOs). stakeholders all Support and Embed a Culture of ‘Doing the Right Thing’ Aligned to the Group’s Values Integrity is one of the Group’s core values and the Group has a range of policies, frameworks, compliance measures and education programs to ensure our people maintain the highest professional standards. The Group is also committed to making things right for customers who may have received inappropriate advice. For example in 2014 we introduced the Open Advice Review program. Strengthen the Management of ESG Impacts in our Lending and Investing Practices The Group strengthened the management of ESG in our lending and investing practices by:    Becoming a signatory to the third iteration of the Equator Principles (EPIII) in May 2014; Publishing nine ESG Lending Commitments during the 2015 financial year (and commencing reporting of our performance on these commitments); and Rolling out a number of ESG training materials and tools in early 2015. As part of building a balanced portfolio, the Group continues to strongly support the growth of the renewable energy sector whilst recognising the importance of the resources sector to the Australian economy and way of life. Evolve our Approach to Reporting In February 2015, as part of the Group’s commitment to regular, robust and long-term disclosure, the Group released its initial Financed Emissions Report, one of the first reports of its kind across the financial services industry in Australia. The report provides an assessment of carbon emissions arising from the Group’s energy portfolio. The Group is also working with local and international peers, as well as the United Nations Environment Programme for Finance Initiative (UNEPFI) to establish consistent measures and methodologies across the industry. Use Our Influence to Enhance Environmental, Social and Economic Outcomes in our Supply Chain In the 2015 financial year, the Group refreshed the Supplier Code of Conduct to clarify and reinforce the social, ethical and environmental criteria the Group expects its primary and secondary suppliers to meet. The Group continues to manage its Supplier Corporate Responsibility compliance via Governance Framework, which includes risk assessments prior to supplier engagement and ongoing supplier compliance activities throughout the contract lifecycle. Treat all People with Respect and Fairness The Group has a range of strategies and programs to ensure that employees, other stakeholders and the wider community are treated with respect and fairness in their dealings with the Group. Implement 2015 – 2017 Diversity and Inclusion Strategy The 2015-2017 Diversity and Inclusion Strategy provides a roadmap for the Group to enhance our culture where all our people feel included, connected and have a sense of belonging. The strategy covers inclusive leadership, flexibility, gender, disability, Lesbian, Gay, Bisexual, Transgender and Intersex (LGBTI), life stage and culture. The Group was named the fourth most inclusive employer for the second year running in the 2015 Australian Workplace Treat all People with Respect and Fairness (continued) Our Role in Society Corporate Responsibility Equality Index Awards, which recognises workplace support for LGBTI people. Women make up almost 60 per cent of the Group’s workforce. 43 per cent are in management roles, with 35 per cent in executive manager or above roles. In the 2015 financial year, the Group became a signatory to the United Nations Women’s Empowerment Principles. In accordance with the requirements of the Workplace Gender Equality Act 2012, in May 2015 the Group’s annual Workplace Gender Equality Compliance report was lodged with the Workplace Gender Equality at www.commbank.com.au/diversitycommitment. Agency viewed and can be Implement Accessibility and Inclusion Programs In the 2015 financial year, the Group carried out a number of initiatives to deliver more accessible services and better employment access for people with a disability, including:    Conducted accessibility assessments of some web- based platforms; Introduced a new IT helpdesk function for employees with a disability; and Improved graduate and intern placement processes to attract and support candidates with a disability, including disability awareness training for recruiters. Develop 2016 – 2018 Indigenous Affairs Strategy The Group has committed to a Reconciliation Action Plan (RAP) since 2008. In 2014, the Group strengthened the governance structure of the RAP, creating an advisory council comprising internal leaders and external Aboriginal and Torres Strait Islander leaders to guide and oversee progress towards the Group’s RAP commitments. The Group’s RAP progress during the financial year includes:   Supported Indigenous customers in remote communities taking more than 100,000 calls through the toll-free Indigenous Customer Assistance Line; and to students Provided scholarships for 16 Aboriginal and Torres Strait Islander Indigenous Financial the Counselling Mentorship program, in partnership with the Indigenous Consumer Assistance Network, to raise the financial counsellors across number of Australia. Indigenous for Aboriginal and Torres Strait Since 2009, the Group has created more than 600 career opportunities Islander Peoples. Since 2011, 68 of the Group’s people have participated in the six-week Jawun Indigenous Secondment Program to Indigenous communities. Continue Disaster Relief Programs In the 2015 financial year, the Group supported a number of communities including those affected by Cyclone Marcia in Queensland, Cyclone Pam in Vanuatu, the NSW storms, the NSW and QLD droughts, and the SA bush fires through various grants and recovery programs. Improve the Environmental Efficiency of our Operations The Group has a longstanding commitment to reducing its environmental impact and is in the process of developing and implementing a three year Property Sustainability Strategy. During the 2015 financial year, CBA and Bankwest reduced their combined domestic Scope 1 and 2 carbon emissions by 8,178 tCo2-e. Since 2009, CBA and Bankwest have reduced scope 1 and scope 2 carbon emissions by 38 per cent. Develop Innovative Products and Services to Support our Customers in the Economy of the Future For the Group, innovation is about providing customers with technologies and services that fundamentally change the way they access and manage their finances for the better. Drive Digital Innovation for Improved Products and Services During the 2015 financial year, the Group delivered the following innovations:     CommBank app for smart watches, offering everyday banking services including balance checks on the go; and the new CommSec app for the Apple watch, allowing customers to monitor the market and their portfolio. Albert, the global first-to-market EFTPOS tablet that allows business customers to improve and tailor their customer experience and provides unique business insights through a portable, user-friendly, secure and customisable point-of-sale device. Lock, Block and Limit, a security innovation allowing credit card users to place a temporary lock on their cards. The Innovation Lab, launched in October 2014 and based in Sydney, providing a space for customers, partners, start-ups and industry experts to collaborate on cutting-edge products and services. Develop Products and Services for Lending and Investing that Consider Economic, Environmental and Social Issues Internationally, the Group is investing in innovation to support emerging markets and provide under-served communities with banking services. the Group announced the acquisition of TYME (Take Your Money Everywhere), a South-African that designs, builds and operates digital ecosystems that allow customers to open and manage regulated bank accounts using just a mobile phone. technology company In February 2015, Within Australia, the Group provides specialised banking services to the not-for-profit sector, with reduced fees and tailored products. The Group has the only bankers in Australia qualified Institute of Community Directors’ Diploma of Business Governance, providing them with a deeper understanding of the governance and finance issues faced by not-for-profit organisations. through the The Group’s Women in Focus online community continues to support women-led businesses, while our Community Business Finance offers affordable banking solutions to groups such as Indigenous Australians, disadvantaged and migrant women. Invest in Skills for the Workforce of the Future As the Australian economy transitions to more knowledge based industries, the Group is refocusing its community investments to support skills needed for a new economy. The World’s Largest Financial Literacy Program of its Kind In 2009, the Group committed to improving the financial literacy of one million kids by 2015. We have exceeded that goal, with more than 1.2 million students booked to participate in one of our Start Smart workshops through their school, as at June 2015. Commonwealth Bank of Australia - Annual Report 2015 33 Advocate for Public Policies that Secure and Enhance the Financial Wellbeing of People, Businesses and Communities As one of Australia’s largest organisations with 15 million customers and more than 52,000 employees, the Group has a responsibility to speak up on matters of importance to the nation, our people and our customers. Adding the Group’s economic and policy knowledge to the national public policy debate increases the likelihood of good policy outcomes, helping to secure and enhance the financial wellbeing of people, businesses and communities. The Group continues to engage with Government in a constructive dialogue on financial services industry and economic and social issues generally. the In opportunity to work with the Financial Services Inquiry (FSI) to address the opportunities and challenges faced by the financial system. The Group also welcomed the opportunity to contribute to the debate on the Future of Financial Advice (FoFA), as well as support a number of government and industry initiatives to enhance confidence in financial advice including improved education standards, a public register of advisers and the FoFA reforms. the Group welcomed issues covering financial year, the 2015 the Further Information including Visit www.commbank.com.au/sustainability2015 microsite for more information on the Group’s approach to corporate responsibility initiatives, achievements and independently assured metrics for the 2015 financial year. The microsite covers the activities of companies wholly owned by the Group within Australia for the financial year ending 30 June 2015. insights key on Corporate Responsibility Invest in Skills for the Workforce of the Future (continued) To build further on this investment in education, the Group will invest $50 million in financial education over three years from 2015, starting with doubling the reach of Start Smart by the 2016 financial year allowing 500,000 student bookings for the free financial literacy workshops every year. The Group continues to demonstrate its commitment to education and supporting Australian primary schools through the School Banking Program, with over 300,000 students from almost 4,000 schools actively participating in 2015. Supporting teaching excellence In June 2015, in partnership with Social Ventures Australia, the Group launched the Australian Teaching and Learning Toolkit, a free resource providing teachers access to the best global education research. In addition, the Group continues to recognise the annual Commonwealth Bank Teaching Awards, with 45 teachers now recognised for excellence in financial education. teaching excellence through Create Opportunities for our People to Contribute to their Communities Facilitate Employee Participation in Volunteering Activities to registered The Group encourages its employees to give their time and expertise not-for-profit organisations. During the 2015 financial year, more than 5,000 employees volunteered in 114 community organisations across Australia, representing more than 40,000 volunteer hours. charities and Support Local Communities with Targeted Activities it Australia’s The Staff Community Fund has been running since 1917, longest-running workplace giving making program. The Group matches staff contributions dollar for dollar and covers all administrative costs to ensure 100 per cent of the money raised is distributed directly to not- for-profit organisations. The Group has the highest participation rate of employees for an organisation its size, with more than 13,000 members at June 2015, an increase from approximately 11,500 at July 2014, following a membership drive which also saw 700 members increase the size of their regular donation. A total of $2 million was awarded in 2015 to 228 grassroots programs focused on improving the health and wellbeing of Australian youth. ANZAC Centenary Between 2014 and 2018, Australia will commemorate the ANZAC Centenary marking 100 years since our nation’s involvement in the First World War. The Group is partnering with the Australian Government and Telstra to deliver the Spirit of ANZAC Centenary Experience, a travelling exhibition bringing a piece of ANZAC history to communities all over Australia from September 2015. The Group will make a $10 million total contribution over five years, including a $2 million donation made to the ANZAC Centenary Public Fund. 34 Commonwealth Bank of Australia – Annual Report 2015 Sustainability Scorecard (1) Customer Satisfaction Roy Morgan Research Main Financial Institution (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 Manager and above roles (7) 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 CBA Scope 1 emissions (10) Scope 2 emissions (11) Scope 3 emissions (12) Emissions per FTE (13) Financial Literacy Programs School Banking Students (active) (14) Start Smart Students Booked (15) Corporate Responsibility Units % % % % % Rate Rate tCO2-e tCO2-e tCO2-e tCO2-e 2015 84.2 1st 2014 83.2 1st 2013 83.0 1st 7.5 Equal 1st 7.4 Equal 1st 7.4 Equal 1st 7.75 2nd 81 10.0 43.2 35.0 1.5 6.0 7.94 1st 81 10.2 42.9 32.8 1.5 6.1 8.32 1st 80 10.2 42.0 30.3 1.9 6.2 7,249 86,264 39,361 2.9 7,936 91,275 44,826 3.1 8,064 100,997 47,438 3.5 310,474 298,505 273,034 288,728 233,217 284,834 (1) All metrics capture data from Australian domestic operations only (excluding Bankwest), unless otherwise stated. (2) The proportion of each financial institution’s Retail MFl customers surveyed by Roy Morgan Research that are either ‘Very Satisfied’ or ‘Fairly Satisfied’ with their overall relationship (defined as those holding at least a Deposit/Transaction account) 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). (3) The average satisfaction of CBA’s Main Financial Institution (MFI) business customers as measured by DBM’s Business Financial Services Monitor. Respondents rate their overall satisfaction using an 11-point scale (where 0 is ‘Extremely Dissatisfied’ and 10 is ‘Extremely Satisfied’). Results are reported as a 6 month rolling average as at 30 June. The rank 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 Funds Under Administration (FUA) as at December 2014 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. (5) The index shows the proportion of CBA employees replying with a score of 4 or 5 to four engagement questions relating to satisfaction, retention, advocacy and pride on a scale of 1-5 (5 is ‘Strongly Agree’, 1 is ‘Strongly Disagree’). (6) Employee turnover refers to all voluntary exits of permanent employees as a percentage of the average permanent headcount paid directly by the Group (full-time, part-time, job share or on extended leave), including Bankwest and offshore, but excluding ASB. 2013 and 2014 figures have been restated. (7) Percentage of roles at the level of both Manager and 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. The percentage of roles at Executive Manager and above excludes Customs Solutions, Colonial First State Property Management and Bankwest. 2013 figure updated to reflect change of reporting entity. (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 employees over the year. This relates to CBA and Bankwest employees (permanent, casual and contractors paid directly by the Group). Data is presented using the information available as at 30 June for each financial year. Prior year data is updated to reflect change of reporting entity, late reporting and subsequent acceptance or rejection of claims made during the year. As a result, 2014 figure has been restated. (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). 2013 and 2014 figures have been restated to include Bankwest. (10) Scope 1 carbon emissions relate to the consumption of gas and fuel by retail, commercial properties and the business use of our tool-of-trade vehicle fleet. Source of emissions factors: NGA Factors (2014). (11) Scope 2 carbon emissions relate to the electricity use by retail and commercial properties and ATMs and certain residential properties. Due to the electricity billing cycle, 13% of 2015 electricity data was estimated to meet publication deadlines. Source of emissions factors: NGA Factors (2014). (12) Scope 3 carbon emissions relate to indirect emissions (tool-of-trade vehicles, natural gas and electricity), rental car and taxi use, business use of private vehicles, dedicated bus service, business flights, office paper and waste to landfill. Source of emissions factors: NGA Factors (2014) and DEFRA (2014) for flights. FY13 and FY14 Scope 3 emissions have been restated downwards. This has been to correct a calculation error identified in prior year’s waste recycling data. (13) Emissions relate to Scopes 1 and 2 emissions sources as detailed above. FTE relates to domestic full-time equivalent employees. For consistency and comparability with peers, emissions per FTE relates to Scopes 1 and 2 only. (14) The number of active students who participated in the Commonwealth Bank School Banking program. Active students are those who banked at least once during a 12 month period through a School Banking school. (15) The number of students booked to attend the Commonwealth Bank’s Start Smart programs. Start Smart sessions cover different topics and the same student may be booked to attend a number of sessions. Commonwealth Bank of Australia - Annual Report 2015 35 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 2015. The names of the Directors holding office during the financial year are set out below, together with details of Directors’ experience, qualifications and special responsibilities. David Turner, Chairman Director of the Bank since August 2006. Other directorships: Ashurst, O’Connell Street Associates Pty Ltd and Great Barrier Reef Foundation. Qualifications: Fellow of the Australian 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 70. David Turner was appointed Chairman of the Bank in 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 until 2003. He was also Finance Director of GKN plc and Finance Director of Booker plc, and spent six years with Mobil Oil. Ian Narev, Managing Director and Chief Executive Officer 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 48. Director of the Bank since December 2011. Ian Narev was appointed Managing Director and Chief Executive Officer on 1 December 2011. He was a member of the Risk Committee during the 2015 financial year (ceased August 2014). 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. 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 the Group, Mr. Narev was a partner of McKinsey’s New York, Sydney and Auckland offices (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 Anderson, KBE Director of the Bank since March 2007. Sir John Anderson is a member of the Risk Committee and the Board Performance and Renewal Committee. He is also a member of the Audit Committee (from August 2014). industry, He has held many senior positions in the New Zealand finance including Chief Executive Officer and Director of ANZ National Bank Limited from 2003 until 2005 and the National Bank of New Zealand Limited from 1989 until 2003. In 1994, he 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, he was awarded an Honorary Doctorate of Commerce by Victoria University, Wellington. inaugural Blake Medal the for 36 Commonwealth Bank of Australia – Annual Report 2015 Other directorships: APN News & Media Limited (since March 2015), PGG Wrightson Limited (Chairman; ceased (Chairman), Steel & Tube October 2013), NPT Limited Holdings Ltd (Chairman from October 2012) and T&G Global Limited (Deputy Chairman from December 2012). Qualifications: Fellow of Chartered Accountants Australia and New Zealand, 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 70. Directors’ Report Shirish Apte Director of the Bank since June 2014. Shirish Apte is a member of the Risk Committee and the Audit Committee. Other directorships: IHH Healthcare Bhd.,Crompton Greaves Ltd, Citibank Japan and member of the Supervisory Board of Citibank Handlowy, Poland. He was Co-Chairman of Citi Asia Pacific Banking from January 2012 until January 2014. Previously he was Chief Executive Officer of Citi Asia Pacific (2009 to 2011), with responsibility including Australia, New Zealand, India and ASEAN countries. for South Asia, He has more than 32 years’ experience with Citi, including as CEO of Central & Eastern Europe, Middle East & Africa (CEEMEA) and, before that, as Country Manager and Deputy President of Citibank Handlowy, Poland. Qualifications: Chartered Accountant, Institute of Chartered Accountants in England and Wales; Bachelor of Commerce (Calcutta), MBA (London Business School). Mr. Apte is a resident of Singapore. Age 62. Jane Hemstritch Director of the Bank since October 2006. Jane Hemstritch is Chairman of the Remuneration Committee and a member of the Risk Committee. She was Managing Director Asia Pacific for Accenture Limited from 2004 until her retirement in February 2007. In this role, she was a member of Accenture’s global executive leadership team and oversaw the management of Accenture’s business portfolio in Asia Pacific. Ms Hemstritch had a 24 year career with Accenture, preceded by seven years in the accounting profession. Other directorships: Herbert Smith Freehills (member of Global Council), Lend Lease Corporation Limited, Santos Ltd, Tabcorp Holdings Ltd, and Victorian Opera Company Ltd (Chairman from February 2013). the Qualifications: Fellow of Institute of Chartered Accountants in England and Wales, Fellow of the Institute of in Australia, BSc (Hons) London Chartered Accountants University, Fellow of the Australian Institute of Company Directors. Ms Hemstritch is a resident of Victoria. Age 61. 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. Sir David Higgins (Appointed 1 September 2014) Director of the Bank since September 2014. Other directorships: High Speed Two (HS2) Ltd (Chairman). Qualifications: Bachelor of Engineering Diploma, Securities Institute of Australia. (Civil), USyd, Sir David is a resident of United Kingdom. Age 60. Sir David Higgins is a member of the Audit Committee (from March 2015) and the Remuneration Committee (from October 2014). He is the Chairman of High Speed Two (HS2) Ltd, the company responsible for developing and promoting the UK’s new high speed rail network. Prior to that, he was Chief Executive of Network Rail Infrastructure Ltd which is involved in the maintenance and development of railway infrastructure throughout the UK. From 2006 until 2011, he was Chief Executive of the Olympic Delivery Authority where he oversaw the creation of the London 2012 Olympic Games venues, the Olympic Village and transport projects. For the three years prior to 2005, he was Chief Executive of English Partnerships, the UK Government’s national housing and regeneration agency. In 1985, he joined Lend Lease, and was Managing Director and Chief Executive Officer of Lend Lease from 1995 until 2002. Commonwealth Bank of Australia - Annual Report 2015 37 Directors’ Report Launa Inman Director of the Bank since March 2011. Launa Inman is a member of the Audit Committee and the Remuneration Committee (from August 2014). She was a member of the Risk Committee during the 2015 financial year (ceased August 2014). International Limited She was Managing Director and Chief Executive Officer of Billabong from May 2012 until August 2013. Prior to this, she was Managing Director of Target Australia Pty Limited (2005 to 2011), and Managing Director of Officeworks (2004 to 2005). She has significant international and Australian experience in logistics, as well as retailing, wholesale, property and extensive marketing experience in traditional, digital and social media channels. Brian Long Other directorships: Bellamy’s Australia Limited (since February 2015), Virgin Australia Melbourne Fashion Festival, The Alannah and Madeline Foundation and Billabong International Limited (Managing Director; ceased August 2013). Qualifications: MCom, University of South Africa (UNISA), BCom (Hons) (UNISA), BCom (Economics and Accounting) (UNISA), Australian Institute of Company Directors (Member). Ms Inman is a resident of Victoria. Age 59. Director of the Bank since September 2010. Other directorships: Brambles Limited, Ten Network Holdings Brian Long is Chairman of the Audit Committee and a member of the Risk Committee. He 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 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. Limited (Deputy Chairman) and Cantarella Bros Pty Ltd. Qualifications: Fellow of Chartered Accountants Australia and New Zealand. Mr. Long is a resident of New South Wales. Age 69. Andrew Mohl Director of the Bank since July 2008. Andrew Mohl is a member of the Risk Committee and the Remuneration Committee. Insurance December 2014). Other directorships: Federal Government Export Finance and ceased Corporation (Chairman; (Efic) Qualifications: BEc (Hons), Monash. Mr. Mohl is a resident of New South Wales. Age 59. He has over 35 years’ financial services experience. He was Managing Director and Chief Executive Officer of AMP Limited from October 2002 until December 2007. His previous roles at AMP included Managing Director, AMP Financial Services and Managing Director and Chief Investment Officer, AMP Asset Management. He 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. 38 Commonwealth Bank of Australia – Annual Report 2015 Wendy Stops (Appointed 9 March 2015) Director of the Bank since March 2015. Other directorships: Nil. Directors’ Report Qualifications: Bachelor of Applied Science (Information Technology) Ms. Stops is a resident of Victoria. Age 54. Wendy Stops is a member of the Remuneration Committee. She was Senior Managing Director, Technology – Asia Pacific for Accenture Limited from 2012 until her retirement in June 2014. In this role she had responsibility for over 11,000 professional personnel spanning all industry groups and technology disciplines across 13 countries in Asia Pacific. Other recent senior leadership positions held prior to this time included Global Managing Director, Technology Quality & Risk Management (2009 to 2012), Global Managing Director, Outsourcing Quality & Risk Management (2008 to 2009) and Director of Operations, Asia Pacific (2006 to 2008). She also served on Accenture’s Global Leadership Council from 2008 until her retirement. Ms. Stops career at Accenture spanned 32 years. Harrison Young Director of the Bank since February 2007. Other directorships: Nil. Qualifications: A.B (Cum Laude) Harvard, LLD (Honoris Causa), Monash. Mr. Young is a resident of Victoria. Age 70. Harrison Young is Chairman of the Risk Committee and a member of the Audit Committee and the Board Performance and Renewal Committee. He was Chairman of NBN Co Limited from March 2010 until March 2013. Previously he was a Director and Member of the Financial Stability Committee of the Bank of England (2009 to 2012), Chairman of Morgan Stanley Australia (2003 to 2007), and Vice Chairman of Morgan Stanley Asia (1998 to 2003). Prior to that, Mr. Young spent two years in Beijing as Chief Executive Officer of China International Capital Corporation. From 1991 until 1994, he was a senior officer of the Federal Deposit Insurance Corporation in Washington. Carolyn Kay (Retired 31 March 2015) Director of the Bank from March 2003 until March 2015. Carolyn Kay was a member of the Audit Committee and the Remuneration Committee. She was a member of the Risk Committee during (ceased August 2014). financial year the 2015 She has over 30 years’ experience in finance, particularly in International finance, including working as a banker and as a lawyer at Morgan Stanley, JP Morgan and Linklaters & Paines in London, New York and Australia. Through her executive and non-executive career, she has had experience across a broad range of sectors including mining, healthcare, logistics, infrastructure, banking and finance, funds management, packaging, beverages and government. Other directorships: Allens Linklaters, Brambles Limited, John Swire & Sons Pty Limited, Sydney Institute, The Future Fund (from April 2015) and General Sir John Monash Foundation. 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 54. Commonwealth Bank of Australia - Annual Report 2015 39 Directors’ Report Other Directorships The Directors held the following directorships in other listed companies in the three years prior to the end of the 2015 financial year: Director Company Jane Hemstritch Tabcorp Holdings Limited Santos Limited Lend Lease Corporation Limited Date of Ceasing Date Appointed (if applicable) 13/11/2008 16/02/2010 01/09/2011 Launa Inman Billabong International Limited 14/05/2012 02/08/2013 Carolyn Kay Brian Long Bellamy’s Australia Limited Brambles Limited Ten Network Holdings Limited Brambles Limited Sir John Anderson APN News & Media Limited Directors’ Meetings 18/02/2015 21/08/2006 01/07/2010 01/07/2014 26/03/2015 The number of Directors’ meetings (including meetings of committees of Directors) and the number of meetings attended by each of the Directors during the financial year were: Director David Turner Ian Narev John Anderson Shirish Apte Jane Hemstritch David Higgins (2) Launa Inman Carolyn Kay (3) Brian Long Andrew Mohl Wendy Stops (4) Harrison Young No. of Meetings Held (1) No. of Meetings Attended 12 12 12 12 12 8 12 10 12 12 3 12 12 12 10 12 12 8 12 10 11 12 3 12 (1) The number of meetings held during the time the Director was a member of the Board and was eligible to attend. (2) David Higgins commenced effective 1 September 2014. (3) Carolyn Kay retired effective 31 March 2015. (4) Wendy Stops commenced effective 9 March 2015. 40 Commonwealth Bank of Australia – Annual Report 2015 Committee Meetings Directors’ Report Director David Turner Ian Narev John Anderson Shirish Apte Jane Hemstritch David Higgins (2) Launa Inman Carolyn Kay (3) Brian Long Andrew Mohl Wendy Stops (4) Harrison Young Director David Turner John Anderson Harrison Young 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 7 1 7 7 7 - 1 1 7 7 - 7 7 1 7 7 7 - 1 1 7 7 - 7 - - 7 7 - 2 7 6 7 - - 7 - - 7 7 - 2 7 6 7 - - 7 7 - - - 7 4 5 6 - 7 1 - 7 - - - 7 4 5 6 - 7 1 - Board Performance and Renewal Committee No. of Meetings Held (1) No. of Meetings Attended 8 8 8 8 8 8 (1) The number of meetings held during the time the Director was a member of the relevant committee. (2) David Higgins commenced effective 1 September 2014. (3) Carolyn Kay retired effective 31 March 2015. (4) Wendy Stops commenced effective 9 March 2015. Principal Activities The Group is one of Australia’s 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 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. Consolidated Profit The Group’s net profit after income tax and non-controlling interests the year ended 30 June 2015 was $9,063 million (2014: $8,631 million). for The Group’s vision is to excel at securing and enhancing the financial wellbeing of people, businesses and communities. The long-term strategies that the Group has pursued to achieve this vision have continued to deliver high levels of customer satisfaction across all businesses and another solid financial result. Operating income growth was solid across all businesses, relative to the prior year. increased due Operating expenses to underlying inflationary pressures, the impact of foreign exchange and the cost of growing regulatory, compliance and remediation programs, partly offset by incremental benefit generated from productivity initiatives. the Loan impairment expense increased in line with portfolio in a relatively stable economic environment. growth Provisioning levels remain prudent and overlays remain largely unchanged on the prior year. Dividends The Directors have determined a fully franked (at 30%) final dividend of 222 cents per to $3,613 million. The dividend will be payable on 1 October 2015 to shareholders on the register at 5pm EST on 20 August 2015. share amounting Dividends paid in the year ended 30 June 2015 were as follows:   In respect of the year to 30 June 2014, a fully franked final dividend of 218 cents per share amounting to $3,534 million was paid on 2 October 2014. The payment comprised direct cash disbursements. The Dividend Reinvestment Plan (DRP) in respect of the final dividend was satisfied in full by the on market purchase of shares; and In respect of the year to 30 June 2015, a fully franked interim dividend of 198 cents per share amounting to $3,210 million was paid on 2 April 2015. The payment comprised direct cash disbursements of $2,636 million with $574 million being reinvested by participants through the DRP. Commonwealth Bank of Australia - Annual Report 2015 41 Directors’ Report 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 The Group continues to make progress against each of the key strategic priorities in pursuit of our vision to secure and enhance the financial wellbeing of people, businesses and communities. There have been no significant changes in the state of affairs 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 2015 will be satisfied by the issue of shares of approximately $700 million. 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 The Group’s Strategy Anchored firmly to the Group’s vision to ‘excel at securing and enhancing the financial wellbeing of people, businesses and communities’, the Group’s strategy is focussed on creating long-term value for its customers, shareholders and people. The Group’s overarching priority is customer focus supported by four market-leading capabilities: people, productivity, technology and strength. Since 2012, the Group has sustained strong performance across key metrics, including customer satisfaction, total shareholder returns, productivity and people engagement. With an ongoing is appropriate to deliver future growth for the Group and will continue to underpin the Group’s performance. focus on execution, the strategy The strategy is split into three elements:    An overarching objective of Customer Focus to drive consistency in business unit strategy and execution. The Group is steadfast in its commitment to achieving its vision through continually improving its customer focus. Customers remain the Group’s foremost priority with the goal to be number one in customer satisfaction across all segments; that the Group in and Four capabilities leverages, to reinforce and enhance its competitive advantage, namely People, Productivity, Technology and Strength; and invests that define the Group the most Three growth opportunities significant opportunities to create for shareholder value, namely One CommBank where the Group aims to meet more of its customers’ financial needs; continued growth in business and institutional banking; and disciplined capability-led growth outside Australia. 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 42 Commonwealth Bank of Australia – Annual Report 2015 environmental reporting, the Group is well placed to meet the NGER requirements. 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 Remuneration Report that forms part of this report. No options have been granted to the Directors or Chief Executive Officer during the period. Options Outstanding As at the date of this Report there are no employee 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 36 to 39 of this report, and the Secretaries of the Bank, being named on page 43 of this Report, are the Constitution of Commonwealth Bank of Australia (the Constitution), as are all senior managers of the Bank. indemnified under The indemnity extends to such other officers, employees, former officers or former employees of the Bank, or of its related bodies corporate, as the Directors in each case determine (each, including the Directors and Secretaries, defined as an ‘Officer’ for the purposes of this section). The Officers are indemnified on a full indemnity basis and to the full extent permitted by law against all losses, liabilities, costs, charges and expenses incurred by the Officer as an Officer of the Bank or of a related body corporate. Deeds of Indemnity have been executed by the Bank, consistent with the Constitution, in favour of each Director of the Bank which includes indemnification in substantially the same terms to that provided in the Constitution. An Indemnity Deed Poll has been executed by the Bank, consistent with includes indemnification in substantially the same terms to that provided in the Constitution, in favour of each: the Constitution which also    secretary and senior manager of the Bank; director, secretary or senior manager of a related body corporate of the Bank; person who, at the prior formal request of the Bank or a related body corporate, acts as director, secretary or senior manager of a body corporate which is not a related body corporate of the Bank (in which case the indemnity operates only in excess of protection provided by that body corporate); and Directors’ Report  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 will 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 (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. Proceedings on behalf of the Bank The following table summarises the key skills and experience of the Directors: Skills and Experience No. of Directors Retail and Corporate Banking/ Financial Institutions Financial Acumen New Media and Technology Experience as a non-executive director of at least two other listed entities General management exposure to international operations Held CEO or similar position in non-financial organisation Expert experience in financial regulation 5 11 4 7 11 6 5 The Board currently comprises 11 Directors: 10 Non- Executive Directors and 1 Executive Director, being the CEO. Throughout the 2015 financial year, the Bank’s governance arrangements were the Corporate Governance Principles and Recommendations (3rd edition) published by the ASX Corporate Governance Council. consistent with No application has been made under section 237 of the Corporations Act 2001 in respect of the Bank, and there are no proceedings that a person has brought or intervened in on behalf of the Bank under that section. The Group’s Corporate Governance Statement can be viewed at: www.commbank.com.au/about-us/shareholders/corporate- profile/corporate-governance. Rounding and Presentation of Amounts Company Secretaries Unless otherwise indicated, the Bank has rounded off amounts in this Directors’ Report and the accompanying in financial statements accordance with ASIC Class Order 98/100. the nearest million dollars to The financial information included in this Annual Report has been prepared and presented in accordance with Australian indicated. This Accounting Standards, unless otherwise 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. Corporate Governance Statement The Bank is committed to ensuring that its policies and practices reflect a high standard of corporate governance. The Board has adopted a comprehensive framework of Corporate Governance Guidelines, designed to balance performance and conformance. The Directors possess a range of skills which, as a group, enable the Board to discharge its obligations effectively, challenge management and contribute to the Bank’s strategic debate. Every Director has had considerable exposure to current corporate governance practices and all Directors possess significant financial acumen, with five of the Directors being qualified accountants. Details of the Bank’s Company Secretaries, including their experience and qualifications, are set out below. David Cohen was appointed as Company Secretary of the Bank in February 2015. David commenced as Group General Counsel in June 2008 and took on the role of leading Group Corporate Affairs in early 2012. He advises the CEO and the Board on legal matters and is also responsible for the Group’s external and internal affairs, communications, sustainability and corporate governance. Previously he was General Counsel of AMP and a partner with Allens Arthur Robinson for 12 years. Carla Collingwood was appointed as 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 the Governance Institute of Australia. She is a Graduate of the Australian Institute of Company Directors. Margaret Taylor was Company Secretary of the Bank from August 2013 until February 2015. 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 Bachelor Degrees in Law (Hons) and Arts from the University of Queensland. She is a Fellow of the Governance Institute of Australia and a Graduate of the Australian Institute of Company Directors. Commonwealth Bank of Australia - Annual Report 2015 43 Directors’ Report – Remuneration Report Message from the Remuneration Committee Chairman Dear Shareholder, I am pleased to present the CBA Group’s 2015 Remuneration Report. in 2015, The Group delivered a strong performance maintaining its number one ranking for customer satisfaction amongst retail and business customers, including equalling the highest score ever recorded by a major bank. We advanced our technology strategy through the TYME (Take Your Money Everywhere) acquisition, opening of the Innovation Lab, and delivery of market leading products like Albert and BizLoan. The Group continued to deliver on our diversity and inclusion goals while our culture remained strong, with the 2015 People & Culture Survey showing that our people are highly engaged in line with global best in class benchmark organisations. We expanded our role in the community in areas such as education, expanding Start Smart, our school financial skills program, to reach more than 500,000 students each year, and committing $50 million over the next three years to help strengthen Australian schools. Overall we delivered sound growth, solid profits and dividends, and created long-term value for our customers, shareholders, people and community. The year’s strong performance and progress on longer term strategic initiatives resulted in executives, in aggregate, receiving above target short-term incentive awards. The Long-Term Incentive (LTI) grant awarded in the 2012 financial year vested at 86.25% of the maximum level, reflecting a Total Shareholder Return (TSR) outcome over the last four years which was at the 70th percentile and strong customer satisfaction, with CBA ranked first in two of three surveys (retail and business banking). During 2015, the CEO and some Group Executives received modest fixed remuneration increases, with others receiving no increases. There were three new Group Executive appointments during the period, each receiving remuneration levels at or below previous incumbents. All appointments were internal which reflects the Group’s strong focus on talent development and strength of our internal capability. A review of Board and Committee fees, the first since 2012, resulted in a market-aligned increase for Non-Executive Director and Chairman fees, effective 1 January 2015. During 2015, the Committee continued to review its approach to Executive remuneration. Our strategy has served us well in aligning rewards to our executive team for achieving sound profitable growth and delivering value for shareholders. In a rapidly changing market, we need to ensure it continues to do so. Although no changes are being proposed for the 2016 financial year, our review is ongoing so final outcomes of the review will be considered in relation to the 2017 financial year. Effective governance is important, so in preparing this year’s Remuneration Report, we have focused on providing greater clarity on CBA’s policy and principles, including the linkage between performance and remuneration outcomes. I invite you to review the full report, and thank you for your interest. Jane Hemstritch Committee Chairman 11 August 2015 44 Commonwealth Bank of Australia – Annual Report 2015 Directors’ Report – Remuneration Report 2015 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 2015. In the 2015 financial year, KMP included the Non-Executive Directors, CEO and Group Executives listed in the table below. The table also includes movements during the 2015 financial year. The key changes to the Executive team included:  Michael Harte resigned from the role of Group Executive, Enterprise Services and Chief Information Officer effective 11 July 2014;    David Whiteing was appointed to the role of Group Executive, Enterprise Services and Chief Information Officer from 14 July 2014; Simon Blair ceased as a KMP effective 31 October 2014; Robert Jesudason was appointed to the role of Group Executive, International Financial Services from 1 November 2014;  Grahame Petersen ceased as a KMP effective 11 January 2015 and retired from the Group effective 6 February 2015;   Adam Bennett was appointed to the role of Group Executive, Business and Private Banking from 12 January 2015; and Vittoria Shortt was appointed to the role of Group Executive, Marketing and Strategy from 2 March 2015. The report has been prepared and audited against the disclosure requirements of the Corporations Act 2001. Commonwealth Bank of Australia - Annual Report 2015 45 NamePositionTerm as KMPNon-Executive DirectorsDavid TurnerChairman Full YearJohn AndersonDirectorFull YearShirish ApteDirectorFull YearDavid HigginsDirector (from 1 September 2014)Part YearJane HemstritchDirectorFull YearLauna InmanDirectorFull YearBrian LongDirectorFull YearAndrew MohlDirectorFull YearWendy StopsDirector (from 9 March 2015)Part YearHarrison YoungDirectorFull YearFormer Non-Executive DirectorCarolyn KayDirector (until 31 March 2015)Part YearManaging Director and CEOIan Narev Managing Director and CEOFull YearGroup ExecutivesKelly Bayer RosmarinGroup Executive, Institutional Banking and MarketsFull YearAdam BennettGroup Executive, Business and Private Banking (from 12 January 2015)Part YearDavid CohenGroup General Counsel and Group Executive, Group Corporate AffairsFull YearMatthew ComynGroup Executive, Retail Banking Services Full YearDavid CraigGroup Executive, Financial Services and Chief Financial OfficerFull YearRobert JesudasonGroup Executive, Group Strategic Development (until 31 October 2014)Full YearGroup Executive, International Financial Services (from 1 November 2014)Melanie LaingGroup Executive, Human ResourcesFull YearVittoria ShorttGroup Executive, Marketing and Strategy (from 2 March 2015)Part YearAnnabel SpringGroup Executive, Wealth ManagementFull YearAlden ToevsGroup Chief Risk OfficerFull YearDavid WhiteingGroup Executive, Enterprise Services and Chief Information Officer (from 14 July 2014) Part YearFormer ExecutivesSimon BlairGroup Executive, International Financial Services (ceased as KMP on 31 October 2014) Part YearMichael HarteGroup Executive, Enterprise Services and Chief Information Officer (resigned 11 July 2014)Part YearGrahame PetersenGroup Executive, Business and Private Banking (ceased as KMP 11 January 2015)Part Year Directors’ Report – Remuneration Report 1. Remuneration Governance 1.1 Remuneration Committee The Remuneration Committee (the Committee) is the main governing body for setting remuneration policy across the remuneration Group. The Committee develops philosophy, framework and policies, for Board approval. the As at 30 June 2015, the Committee is made up of independent Non-Executive Directors and consists of the following members:  Jane Hemstritch (Chairman);    David Higgins; Launa Inman; Andrew Mohl;  Wendy Stops; 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/about-us.html. summary, In recommending to the Board for approval: the Committee is responsible for     Remuneration arrangements and all reward outcomes for the CEO, senior direct reports to the CEO and other individuals whose roles may affect the financial soundness of the Group; Remuneration arrangements for finance, risk and internal control employees; Remuneration arrangements for employees who have a significant portion of their total remuneration based on performance; and Significant changes remuneration policy and structure, including superannuation and employee equity plans. in This year, the Committee’s key areas of focus were:        The appointment and relocation arrangements for Robert Jesudason in the role of Group Executive, International effective 1 November 2014; Services, Financial The appointment of Adam Bennett to the role of Group Executive, Business and Private Banking, effective 12 January 2015, following the retirement of Grahame Petersen; The appointment of Vittoria Shortt to the role of Group effective Executive, Marketing 2 March 2015, Jesudason’s appointment role of Group Executive, to International Financial Services; and Strategy, Robert following the A review of incentive arrangements for financial advisors within Wealth Management to independently confirm compliance with regulatory requirements; The annual review of the Group Remuneration Policy in December 2014, and a subsequent review in June 2015; A review of the existing Executive remuneration framework to ensure it continues to deliver long-term value to shareholders and a strong risk culture, while reflecting dynamic business strategies and a changing external landscape; A comprehensive review of the Group’s reward strategy to ensure it enables talent, culture and 46 Commonwealth Bank of Australia – Annual Report 2015 business objectives, and can flexibly respond to future needs;  Ongoing monitoring of regulatory and legislative changes, both locally and offshore, ensuring our policies and practices remain compliant; and  focus on embedding a remuneration Continued framework for our different that in design, strong businesses with governance and risk oversight. is appropriate transparency Our Independent Remuneration Consultant The Committee obtains executive remuneration information remuneration from directly consultant EY. its external independent Throughout the 2015 financial year, the main information received from the Committee’s remuneration consultant related to:    Regulatory reforms; Current market practices; and Information to support the Committee’s 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 2015 financial year. The Committee is solely responsible for making decisions within the terms of its Charter. 1.2 Our Remuneration Philosophy Our remuneration philosophy is the backbone of our In remuneration summary, our remuneration philosophy for our CEO and Group Executives is to: framework, policies and processes.       target Provide is market competitive, without putting upward pressure on the market; remuneration which Align remuneration with shareholder interests and our business strategy; Articulate clearly to Executives the link between individual and Group performance, and individual remuneration; Reward superior performance, while managing risks associated with delivering and measuring that performance; Provide emerging market practice; and flexibility to meet changing needs and Provide appropriate benefits on termination that do not to deliver any windfall payments not performance. related 1.3 Remuneration and Risk Management The Committee has a robust framework for the systematic impacting review of remuneration. The Committee: risk and compliance issues   Takes note of any material risk issues impacting remuneration, with issues raised by the Committee provided to the Board’s Risk Committee for noting; 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; Directors’ Report – Remuneration Report The following table outlines the Non-Executive Directors fees for the main Board and the Committees as at 30 June 2015: 1.3 Remuneration and Risk Management (continued)  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. The following diagram illustrates the Group’s remuneration and risk governance framework: (1) Fees are inclusive of base fees and superannuation. The Chairman does not receive separate Committee fees. 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. 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 are used to purchase CBA shares until a holding of 5,000 shares has been reached. The statutory table on page 57 provides the individual remuneration expense for each Non-Executive Director in relation to the 2015 financial year. 2. Remuneration Framework The remuneration arrangements for the CEO and Group Executives are made up of both fixed and at risk remuneration. This is composed of the following three elements:    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. In setting target remuneration levels we aim to remain competitive by attracting and retaining highly talented Executives. We do this by considering the experience of Commonwealth Bank of Australia - Annual Report 2015 47 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 regularly and examines fee levels against the market. To assist in keeping Non-Executive Directors remuneration arrangements market a comprehensive review, the Board approved the following fee increases, effective from 1 January 2015: competitive, following     Board Chairman fee increased from $849,800 to $870,000 per annum; Board Non-Executive Directors fees increased from $236,400 to $242,000 per annum; For both the Audit Committee and Risk Management Committee, the Committee Chairman fee increased from $56,300 to $65,000 per annum and Committee member fees increased from $28,100 to $32,500 per annum; For the Remuneration Committee, the Committee Chairman fee increased from $56,300 to $60,000 per annum and Committee member fees increased from $28,100 to $30,000 per annum; and for the Board both Performance Committee Chairman and member fees increased from $11,300 to $11,600 per annum. and Renewal Committee, Non-Executive statutory superannuation contributions and were last increased in 2012. Directors include fees Remuneration CommitteeRisk & Remuneration Review CommitteeMonitoring and reporting of Group risk & compliance issuesIndependent RemunerationConsultantCBA BoardRisk CommitteePositionFees (1)($)BoardChairman870,000Non-Executive Director 242,000Audit CommitteeChairman65,000Member32,500Risk CommitteeChairman65,000Member32,500RemunerationChairman60,000CommitteeMember30,000Board Performance & Chairman11,600Renewal CommitteeMember11,6001/31/31/350% STI Deferred for 12 months50% STI Cash paidFixedRemuneration100% LTI Deferred for 4 years Directors’ Report – Remuneration Report 2.1 Total Target Remuneration (continued) 2.4 Long-Term Incentive       The CEO and each Group Executive has an LTI target that is equal to 100% of their fixed remuneration, based on the expected values at the end of the performance period, in today’s dollars; The LTI award has a four year vesting 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 long-term shareholder value creation; Executives only receive value if performance hurdles are met at the end of the four years, subject to final Board review; Executives equivalent) for each right that vests; and receive one CBA share (or cash 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. 2.5 Mandatory Shareholding Policy The CEO and each Group Executive are required 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. 2.6 Sign-on and Retention Awards    Sign-on awards may be offered to new Executives to compensate for existing incentive arrangements that they will forgo due to the termination of their non-CBA employment before the end of the vesting period. Retention awards are pre-determined future payments that may be awarded to Executives at a defined future date to encourage retention. No sign-on or retention awards were made to David Whiteing, Adam Bennett or Vittoria Shortt following their appointment to Executive roles, or to any other Executives during the 2015 performance year. the Executive, the size and scope of role responsibilities, and level of market competitive remuneration sourced from remuneration market surveys and disclosed data. Each component of remuneration has a specific purpose and 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; recommendations The Board, with the Committee, determines an appropriate level of fixed remuneration for the CEO and Group Executives with role and market incumbent, consideration of factors; and from Fixed remuneration is reviewed annually, following the end of the 30 June performance year. For the 2015 financial year the average fixed remuneration increase for Executives who did not change roles was 1.4%. 2.3 Short-Term Incentive       The CEO and Group Executives have an STI target equal to 100% of their fixed remuneration. STI outcomes reflect the Executive’s performance against a balanced scorecard and CBA’s overall performance; STI outcomes for the CEO and Group Executives may be awarded between zero and 150% of their STI target depending on performance; 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 the Board determines deferral period, unless otherwise; 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 or with consideration of other circumstances; and STI payments are made within a funding cap which is determined by the Board after consideration of Group 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. 48 Commonwealth Bank of Australia – Annual Report 2015 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 and shareholder interests. All our incentives are directly linked to both short-term and long-term performance goals. 3.1 Short-Term Performance 2015 The table below provides the Board’s assessment of the Group’s overall performance for the year ended 30 June 2015 and highlights key financial and non-financial performance outcomes. Performance categories have been assessed as above, on, or below target. Overall Group performance, together with an assessment of individual Executive performance through a balanced scorecard approach, determines the individual STI outcomes of Executives. Financial and non-financial objectives and weightings vary by role. The CEO has a 40% weighting on financial outcomes, Executives managing business units typically have a 45% weighting on financial outcomes and Executives managing support functions have a typical weighting of 25% on financial outcomes. Risk is also an important factor in accounting for short-term performance. We use Profit After Capital Charge, a risk-adjusted measure, as one of our key 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. Executives are also required to comply with the relevant Group or Business Unit Risk Appetite Statement and provide leadership of strong risk culture. STI awards are adjusted downwards where material risk issues occur. Risk is also managed through the compulsory 50% deferral of the CEO and Group Executives’ STI awards. 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. Performance 2015 Key Achievements Customer Focus Continuing to build a vibrant customer focused culture – Above-Target The Group’s continued commitment to its customer focused culture resulted in the Group maintaining the number one major bank ranking for customer satisfaction among retail and business customers. Specifically:    For Retail Banking, CBA finished the financial year ranked number one in Main Financial Institution (MFI) customer satisfaction(1). During this time, CBA equalled the highest score ever recorded by a major bank at 84.2%; In Business Banking, CBA ended the financial year in equal first position in MFI customer satisfaction(1) among the major banks in all of its key business segments; In Institutional Banking, CBA continues to perform strongly and has ranked either in outright or equal first position in MFI customer satisfaction(1) for the past 12 months; and  Wealth Management’s platforms were ranked second for adviser satisfaction among the four major Strength Maintain a strong, flexible Balance Sheet – On-Target banks and other key competitors.  The Group maintained a strong capital position with capital ratios well in excess of regulatory minimum capital requirements and Board approved minimum levels at all times throughout the year ended 30 June 2015;  The group preserved its well-diversified funding base including: – Customer deposits accounting for 63% of total funding at 30 June 2015 (2014: 64%); and – Short-term wholesale funding accounted for 49% of total wholesale funding at 30 June 2015, up from 45% in the prior year.   The Group continues to hold a high quality, well diversified liquid asset portfolio of $132 billion at 30 June 2015, to prudently meet Balance Sheet liquidity needs and regulatory requirements introduced from 1 January 2015; and The Group continues to manage growth by assessing opportunities that will generate sustainable returns for the long-term, demonstrated in the 2015 financial year by a 5% increase in profit after tax including: – – A 5% increase in net interest income; and Low levels of lending losses for the period. Productivity Group-wide commitment to continually improving and streamlining processes with a focus on simplicity and an enhanced experience for the Group’s customers and employees - On-Target   Having built substantial productivity capability and scale over the past three years, central team resources are now transferred and embedded into business and support units to ensure productivity efforts directly contribute to business and support unit expense goals. Business and support unit initiatives and improvement projects are part of a rolling two year Productivity Plan that includes minimum expense benefit targets set by the Group and embedded in overall business plans; Productivity capability has grown through the acceleration of leadership-focused courses to assist managers in the full utilisation of embedded resources and expert capability, as well as continually refreshed Productivity training for new and existing employees; Commonwealth Bank of Australia - Annual Report 2015 49 Directors’ Report – Remuneration Report Productivity (continued)   Four Productivity Habits are established as a foundation across the Group, supported by an accreditation process to encourage continued evolution and capability of business and support units in making things simpler and easier for the Group’s customers and employees; and Projects continue to be executed across all business and support units delivering financial and customer benefit, as well as an increased focus on simplifying and standardising processes to support the Group’s process centricity and digitisation efforts. Technology Technology programs designed to enhance the customer experience through more innovative systems and processes, and improve efficiency levels – Above-Target Commonwealth Bank continued to provide new and innovative technology services to our customers both in Australia as well as overseas. For consumers we provided:       The ability to cancel and replace cards via the CommBank app or NetBank; International Money Transfer to an existing payee or transfer to a new payee in the CommBank app; The ability for Android customers to use their device and the CommBank app to Tap & Pay; Touch-ID for Apple iPhone customers to login to CommBank app; Smartwatch applications for the CommBank and CommSec apps; and The ability to conduct a full property settlement on the new PEXA platform, the first bank in Australia to provide this. For our business clients we:   Launched our new Albert EFTPOS payments terminal; and Launched the ability to access and manage trade finance, foreign exchange and cash management positions through our leading CommBiz online platform. Internationally in Indonesia we introduced:   Cashflow app that helps entrepreneurs manage their customers, suppliers and cash; BizLoan app to simplify borrowing for entrepreneurs;  Workflow app (in Indonesia and Vietnam) that helps entrepreneurs manage employees, track employee loans and simplify payroll; and  We also completed the two-year build of the Indonesian banking technology platform, covering mobile banking, internet banking, branch teller and core banking platforms, as well as a new data warehouse. In addition to these, we opened our new Innovation Lab in Sydney allowing our people to work on new products and services for our customers. We acquired TYME (Take Your Money Everywhere), a South African company that provides access to regulated bank accounts using the latest technology to under- serviced customers. People Continuing to build an effective workforce, aligned to business need, performing at its best – Above- Target  Our people continued to be highly engaged during the 2015 financial year, with the Group employee engagement score remaining at 81%;     The Group remains committed to gender diversity and as at 30 June 2015, the Group achieved its target of 35% of women in leadership roles. To continue the Group’s focus on increasing the percentage of women in executive roles, a new gender diversity target will be set; In January 2015, the 2015-2017 Diversity and Inclusion Strategy was launched. The strategy has been cascaded to each business unit. We are strengthening our approach to deliver the strategy through a combination of self-determination by the respective employee communities whilst embedding diversity into everyday business with a focus on enhancing a culture of inclusion; To support our culture, the Group has continued to invest in leadership development at every level of the organisation, embedding its long-term customer-centric culture and adding stronger productivity and risk lenses; A number of technology initiatives were implemented during 2015 making people processes simple and easy for our employees. These include Sidekick, a global mobile app enabling real-time access to HR data, dashboards and services, and HR Now, a digital solution for people-related transactions providing easy access anytime anywhere; and  The Group remains committed to not offshoring jobs. (1) Customer satisfaction is measured by three separate surveys. For the Retail Bank, it is measured by Roy Morgan Research. Roy Morgan Research MFI Retail Customer Satisfaction measures the 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 2015. CBA excludes Bankwest. Rank refers to CBA’s position relative to NAB, ANZ and Westpac. For Business Banking and Institutional Banking, MFI customer satisfaction is measured by DBM Business Financial Services Monitor which takes the average satisfaction rating of business customers’ MFI, using an 11 point scale where 0 is Extremely Dissatisfied and 10 is Extremely Satisfied based on a 6 month rolling average to June 2015. Institutional Banking includes businesses with turnover of $100 million and above. For Wealth Management, customer satisfaction is measured by the Wealth Insights 2015 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. 50 Commonwealth Bank of Australia – Annual Report 2015 Directors’ Report – Remuneration Report 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. CEO and Group Executives’ current LTI awards are issued under the Group Leadership Reward Plan (GLRP). Vesting is subject to performance against relative TSR and relative Customer Satisfaction hurdles. 2012 GLRP Award The GLRP award granted during the 2012 financial year reached the end of its four year performance period on 30 June 2015. The 2012 GLRP award was weighted against two performance hurdles, relative TSR (75% of the award) and relative Customer Satisfaction (25% of the award). At the end of the performance period, the results against these measures were strong and included:     90% vesting against the TSR hurdle; 75% vesting against the Customer Satisfaction hurdle; In line with the plan rules for this award, 86.25% of the total award vested; and The Board reviewed the measurement outcomes of this award and concluded that the above vesting appropriately reflects performance over the four year performance period. Overview of Unvested LTI Awards Equity Plan Performance Period Ends Performance Hurdles 2013 GLRP 2014 GLRP 2015 GLRP 2015 GLRP Award 30 June 2016 30 June 2017 30 June 2018 Each reward is split and tested:  75% TSR ranking relative to peer group  25% Customer Satisfaction average ranking relative to peer group The CEO and Group Executives were granted LTI awards during the 2015 financial year under the 2015 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 2015 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 47 for explanation of target remuneration). The number of Reward Rights allocated aligns the Executive’s LTI Target to the expected value at the end of the performance period, in today’s dollars. 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 2015 financial year, the performance period started on 1 July 2014 and ends after four years on 30 June 2018. Any vesting will result in participants receiving shares during the first available trading window following the end of the performance period. Performance Hurdles  75% of each award is subject to a performance hurdle, that 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. The next five largest companies listed on the ASX by market capitalisation will form a reserve bench of companies. A reserve bench company will be substituted (in order of market capitalisation as at the beginning of the performance period) into the peer group when a peer group Company ceases to be listed on the ASX as a result of an acquisition, merger or other relevant corporate action or delisting; 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. Commonwealth Bank of Australia - Annual Report 2015 51 Reward Rightsgranted4 year performance periodCustomer Satisfaction weighting = 25%Total Shareholder Return weighting = 75% Directors’ Report – Remuneration Report Vesting TSR (75% of the award) Framework     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) (1); 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)  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;      Calculation of the Performance Results 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; and 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 Orient Capital. 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). 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 Amcor Limited, AMP Limited, Australia and New Zealand Banking Group Limited, Brambles Limited, Crown Limited, CSL Limited, Insurance Australia Group Limited, Macquarie Group Limited, National Australia Bank Limited, QBE Insurance Group Limited, Ramsey Health Care Limited, Scentre Group, Suncorp Group Limited, Sydney Airport, Telstra Corporation Limited, Transurban Group, Wesfarmers Limited, Westfield Corporation, Westpac Banking Corporation and Woolworths Limited. The reserve bench comprised AGL Energy Limited, Goodman Group, Lend Lease Group, Orica Limited and Stockland. Hedging of Unvested Equity Awards Employees are prohibited from hedging their unvested CBA equity awards, including shares or rights. Executives controlling their exposure to risk in relation to their unvested awards is prohibited. Executives 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. 52 Commonwealth Bank of Australia – Annual Report 2015 Directors’ Report – Remuneration Report 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 2015). The solid performance has delivered sound returns to shareholders. Cash Net Profit after Tax (Cash NPAT) Cash EPS Share Price Dividends per Share Commonwealth Bank of Australia - Annual Report 2015 53 6,8357,0397,7608,6809,13701,0002,0003,0004,0005,0006,0007,0008,0009,00010,000Jun 11Jun 12Jun 13Jun 14Jun 15$ Million438.7444.7482.1535.9560.80100200300400500600Jun 11Jun 12Jun 13Jun 14Jun 15Cents$0$10$20$30$40$50$60$70$80$90$100Jun 10Jun 11Jun 12Jun 13Jun 14Jun 153.203.343.644.014.20$0.00$0.50$1.00$1.50$2.00$2.50$3.00$3.50$4.00$4.50Jun 11Jun 12Jun 13Jun 14Jun 15 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 2011 to 30 June 2015. The Group was ranked at the 70th percentile of the peer group(1) at the end of the period. TSR is calculated by Orient Capital. (1) For the 2012 GLRP, the peer group (at the end of the performance period) for the TSR performance hurdle comprised Amcor Limited, AMP Limited, Australia and New Zealand Banking Group Limited, Brambles Limited, CIMIC Group Limited, Coca-Cola Amatil Limited, Crown Limited, CSL Limited, Insurance Australia Group Limited, Macquarie Group Limited, National Australia Bank Limited, Orica Limited, QBE Insurance Group Limited, Stockland, Suncorp Group Limited, Telstra Corporation Limited, Transurban Group, Wesfarmers Limited, Westpac Banking Corporation and Woolworths Limited. Performance against Customer Satisfaction The following graphs show CBA’s customer satisfaction performance across Retail, Business and Wealth Management. As at 30 June 2015, CBA maintained the number one ranking among the major banks in MFI customer satisfaction and ended the financial year in equal first position in MFI customer satisfaction among the major banks in all of its key business segments. The Wealth Management results ranked the Group second for adviser satisfaction among the four major banks and other key competitors. (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 2015. CBA excludes Bankwest. Rank refers to CBA’s position relative to NAB, ANZ and Westpac. 54 Commonwealth Bank of Australia – Annual Report 2015 -30%0%30%60%90%120%150%180%210%240%Total Shareholder Return 2015 (4 Years)Comparator Peer GroupCBA60%65%70%75%80%85%90%Jun-11Aug-11Oct-11Dec-11Feb-12Apr-12Jun-12Aug-12Oct-12Dec-12Feb-13Apr-13Jun-13Aug-13Oct-13Dec-13Feb-14Apr-14Jun-14Aug-14Oct-14Dec-14Feb-15Apr-15Jun-15% Satisfied ('Very Satisfied' or 'Fairly Satisfied')Major Bank 1Major Bank 2Major Bank 3CBARetail Main Financial Institution Customer Satisfaction -Competitive ContextSource: Roy Morgan Research6 month rolling average(1) Directors’ Report – Remuneration Report Business Main Financial Institution Customer Satisfaction - Competitive Context (1) (1) CBA and Major Bank 1 are ranked equal 1st (DBM Business Financial Services Monitor, June 2015) as the difference in average satisfaction rating is not considered to be statistically significant. (2) DBM Business Financial Services Monitor (June 2015), average satisfaction rating of each financial institution’s MFI business customers across all Australian businesses, 6 month rolling average. Wealth Management Customer Satisfaction (1) In the 2012 year, the satisfaction score was calculated on a straight average of FirstChoice and FirstWrap. Due to the change in calculation of the satisfaction score in 2013, 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 remuneration purposes the ranking of 2nd has been applied. (2) For 2011 the ranking remains unchanged but average satisfaction result changed from 7.79 to 7.74. Prior to 2011, results remain unchanged despite change in calculation methodology. (3) For Wealth Management, customer satisfaction is measured by the Wealth Insights 2015 Service Level Report, Platforms. 3.3 Performance Timeline of At Risk Remuneration Outcomes The Performance Management framework supports decisions in awarding appropriate annual STI outcomes for Executives. The balanced scorecard performance objectives are communicated to Executives at the beginning of the financial year. Executive annual performance evaluations are conducted following the end of the financial year. For 2015, the evaluations were conducted in July 2015. 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. Commonwealth Bank of Australia - Annual Report 2015 55 678 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15Satisfaction -AverageMajor Bank 1Major Bank 2Major Bank 3CBASource: DBM, Business Financial Services Monitor6 month rolling average(2)30-Jun-1530-Jun-1430-Jun-1330-Jun-12 (1)30-Jun-11 (2)Score (3)7.757.948.327.867.74CBA Rank2nd1st1st1st1stSTI Annual Performance ReviewSTI outcomes determined & approved by Board50 % of STI outcome paid as cashJune2016LTI LTI awards approved by BoardGroup Executives grant of LTI awardCEO grant of LTI awardJuly 201430 June 2015July2015August2015September2015November201530 June 2019Vests 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 3.4 CEO and Group Executive Remuneration Received in the year ended 30 June 2015 The incentives awarded to the CEO and Group Executives are linked to the Group’s and individual financial and non-financial performance. Total statutory remuneration recognised for the CEO and Group Executives for the 2015 financial year was $41.3 million and is the total of the values for each executive shown in the statutory remuneration table on page 58. Statutory remuneration disclosures are prepared in accordance with the Corporations Act 2001 and Australian Accounting Standards. Total cash remuneration received by the CEO and Group Executives in relation to the 2015 performance year was $20.7 million. The total cash remuneration received is used to present a clear view of the Group’s remuneration payments made to the CEO and Group Executives during the performance year. Table (a) below shows remuneration received in relation to the 2015 financial year. The total cash payments received are made up of base remuneration and superannuation (fixed remuneration), and the portion of the 2015 STI award which is not deferred. This table also includes the value of previous years’ deferred STI and LTI awards which vested during 2015. (a) Remuneration in relation to the 2015 Financial Year (1) Fixed remuneration includes base remuneration and superannuation. (2) This is the 50% of the 2015 STI for performance during the 12 months to 30 June 2015 (payable September 2015). The remaining 50% is deferred until 1 July 2016. Deferred STI awards are subject to Board review at the time of payment. (3) The value of all deferred cash and/or equity awards that vested during 2015 financial year. This includes the value of the award that vested, plus any interest and/or dividends accrued during the vesting period. A portion of Ian Narev’s deferred equity award was delivered in the form of cash, which was paid to registered charities pursuant to an option that the Board made available. (4) The value of any deferred cash and/or equity awards that were forfeited/lapsed during the 2015 financial year. (5) Group Executives as at 30 June 2015. (6) David Whiteing commenced in the KMP role on 14 July 2014, Adam Bennett commenced in the KMP role on 12 January 2015 and Vittoria Shortt commenced in the KMP role on 2 March 2015. Remuneration reflects time in the KMP role. (7) Robert Jesudason was in the Group Executive, Group Strategic Development role from 1 July 2014 to 31 October 2014 and was appointed to the Group Executive, International Financial Services role from 1 November 2014. Robert’s 2015 remuneration reflects an increase received on changing roles. (b) CEO Reconciliation Table of Cash Payments from Table (a) and Statutory Remuneration Table on Page 58 56 Commonwealth Bank of Australia – Annual Report 2015 Fixed Remuneration (1)Cash STI (2)Total cash in relation to 2015Previous years' deferred cash awards vested during 2015 (3)Previous years' deferred equity awards vested during 2015 (3)Total remuneration received during 2015Previous years' awards forfeited or lapsed during 2015 (4)$$$$$$$Managing Director and CEOIan Narev 2,650,000 1,590,000 4,240,000 1,525,681 2,200,502 7,966,183 (62,860) Current Executives (5)Kelly Bayer Rosmarin1,020,000 612,957 1,632,957 340,642 476,834 2,450,433 -Adam Bennett (6)456,438 253,580 710,018 --710,018 -David Cohen900,000 582,750 1,482,750 476,445 2,115,050 4,074,245 (60,346) Matthew Comyn1,030,000 618,966 1,648,966 695,798 612,083 2,956,847 -David Craig1,380,000 852,150 2,232,150 917,186 3,300,844 6,450,180 (94,250) Robert Jesudason (7)947,767 575,295 1,523,062 592,948 -2,116,010 -Melanie Laing845,000 495,382 1,340,382 521,752 -1,862,134 -Vittoria Shortt (6)280,123 166,674 446,797 --446,797 -Annabel Spring1,030,000 662,084 1,692,084 640,734 662,922 2,995,741 -Alden Toevs1,430,000 845,488 2,275,488 961,469 3,423,023 6,659,980 (97,738) David Whiteing (6)916,164 531,375 1,447,539 --1,447,539 -2015$Financial Year Award VestsCash remuneration received in relation to 2015 - refer to table (a) above4,240,000 n/a2015 STI deferred for 12 months at risk1,590,000 FY2016Annual leave and long service leave accruals137,005 n/aOther Payments59,812 n/aShare based payments: accounting expense for 2015 for LTI awards made over the past 4 years 2012 GLRP:Expense for 1 award that may vest subject to customer satisfaction performance(169,330) FY2016 2012 GLRP:Expense for 1 award that may vest subject to relative TSR performance533,272FY2016 2013 GLRP:Expense for 1 award that may vest subject to customer satisfaction performance179,791FY2017 2013 GLRP:Expense for 1 award that may vest subject to relative TSR performance509,212FY2017 2014 GLRP:Expense for 1 award that may vest subject to customer satisfaction performance150,360FY2018 2014 GLRP:Expense for 1 award that may vest subject to relative TSR performance643,999FY2018 2015 GLRP:Expense for 1 award that may vest subject to customer satisfaction performance110,912FY2019 2015 GLRP:Expense for 1 award that may vest subject to relative TSR performance333,255FY2019Total Statutory Remuneration as per page 588,318,288 Directors’ Report – Remuneration Report 4. 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 2015 and the previous financial year. (1) Cash includes Board and Committee fees received as cash. For Shirish Apte this also includes payments in relation to tax advice and includes minor adjustments made in relation to the prior year. (2) Superannuation contributions are capped at the superannuation maximum contributions base as prescribed under the Superannuation Guarantee legislation. For Shirish Apte, superannuation is paid on the Australian portion of his fees and includes minor adjustments made in relation to the prior year. (3) The values shown in the table represent the post-tax portion of fees received as shares. (4) David Higgins was appointed as a Non-Executive Director on 1 September 2014 and Wendy Stops was appointed as a Non-Executive Director on 9 March 2015. Their remuneration has been prorated accordingly. To comply with the Non-Executive Director shareholding requirement, shares for both David Higgins and Wendy Stops were purchased during the 2015 financial year. (5) Carolyn Kay retired from the Group on 31 March 2015 and her remuneration has been prorated accordingly. 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 2014 and 2015 performance years. The tables are different to the cash table on page 56, which shows the remuneration received in 2015 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. Commonwealth Bank of Australia - Annual Report 2015 57 Short-Term BenefitsPost Employment BenefitsShare Based paymentsNon-ExecutiveTotalSuper-Directors'StatutoryCash (1)annuation (2)Share Plan (3)Remuneration$$$$ChairmanDavid Turner2015841,034 18,783 - 859,817 2014832,025 17,775 - 849,800 Non-Executive DirectorsJohn Anderson2015289,173 18,783 - 307,956 2014258,025 17,775 - 275,800 Shirish Apte2015296,395 4,753 - 301,148 201413,704 886 - 14,590 Jane Hemstritch2015308,810 18,783 - 327,593 2014303,025 17,775 - 320,800 David Higgins (4)2015217,848 15,593 - 233,441 Launa Inman2015251,185 18,783 28,533 298,501 2014245,419 17,775 29,406 292,600 Brian Long2015311,290 18,783 - 330,073 2014303,025 17,775 - 320,800 Andrew Mohl2015279,718 18,783 - 298,501 2014274,825 17,775 - 292,600 Wendy Stops (4)201579,087 5,867 - 84,954 Harrison Young2015322,739 18,783 - 341,522 2014314,325 17,775 - 332,100 Former Non-Executive DirectorCarolyn Kay (5)2015211,718 14,100 - 225,818 2014302,925 17,775 - 320,700 Directors’ Report – Remuneration Report 4.2 Executive Statutory Remuneration (continued) (1) Fixed Remuneration comprises Base Remuneration and Superannuation (post-employment benefit). From 23 February 2015, superannuation contributions for Robert Jesudason are made in line with Hong Kong Mandatory Provident Fund regulations. (2) Base Remuneration is the total cost of salary including cash salary, short-term compensated absences and any salary sacrificed benefits. (3) Non-Monetary represents the cost of car parking (including associated fringe benefits tax). (4) This is 50% of the 2015 STI for performance during the 12 months to 30 June 2015 (payable September 2015). (5) Deferred STI represents 50% of the 2015 STI award that is deferred until 1 July 2016. Deferred STI awards are subject to Board review at the time of payment. For Michael Harte, this reflects partial forfeiture of the 2014 deferred STI award following his resignation. (7) (6) Other short-term benefits relate to company funded benefits (including associated fringe benefits tax where applicable). This item also includes interest accrued and adjustments in relation to the 2014 STI deferred award, which vested on 1 July 2015, and the net change in accrued annual leave over the year. For Robert Jesudason, costs in relation to his relocation to Hong Kong in February 2015 are also included. Includes long service entitlements accrued during the year as well as the impact of changes to long service leave valuation assumptions, which are determined in line with Australian Accounting Standards. For Kelly Bayer Rosmarin, Adam Bennett, Matthew Comyn, Robert Jesudason, Vittoria Shortt and David Whiteing this also includes amounts relating to deferred STI payments awarded under Executive General Manager arrangements and/or equity sign-on awards. 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. 58 Commonwealth Bank of Australia – Annual Report 2015 Long-Term BenefitsShare Based PaymentsBase Remuner-ation (2)Superan-nuationNonMonetary (3)Cash STI (at risk) (4)Deferred STI (at risk) (5)Other (6)Long- Term (7) Reward Rights (at risk) (8)Total Statutory Remuneration (9)$$$$$$$$$Managing Director and CEOIan Narev 20152,625,00025,00014,7561,590,0001,590,00059,021123,0402,291,4718,318,28820142,550,00025,00014,6001,480,6251,480,625(21,633) 18,1402,375,2947,922,651Group ExecutivesKelly Bayer Rosmarin2015995,00025,00014,756612,957612,9575,228354,416329,3712,949,6852014515,43813,4947,880330,582330,582(1,150) 226,91363,5101,487,249Adam Bennett (10)2015444,79411,6447,041253,580253,58033,624250,64756,5491,311,459David Cohen2015875,00025,00014,756582,750582,75032,07234,785737,0412,884,1542014875,00025,00014,600462,375462,37539,387(19,559) 987,3952,846,573Matthew Comyn20151,005,00025,00013,652 618,966618,96648,121132,653703,7763,166,1342014975,00025,00013,486675,250675,25038,336247,359508,6643,158,345David Craig20151,355,00025,00014,756852,150852,15086,44655,6861,129,7954,370,98320141,355,00025,00014,600890,100890,10035,173(30,865) 1,517,0524,696,160Robert Jesudason (11)2015930,55217,2156,050575,295575,295230,592164,243594,8213,094,0632014800,00025,00014,600575,437575,4372,080365,520417,2652,775,339Melanie Laing2015820,00025,00014,756495,382495,38250,87516,155705,3092,622,8592014800,00025,00014,600506,344506,344(5,800) 27,648671,4522,545,588Vittoria Shortt (10)2015271,8358,2885,025166,674166,6748,272108,77210,885746,425Annabel Spring20151,005,00025,00013,652662,084662,08438,16428,352838,7303,273,0662014975,00025,00013,486621,812621,81238,859153,511795,9323,245,412Alden Toevs20151,405,00025,00014,756845,488845,488(7,527)60,9891,170,6404,359,83420141,405,00025,00014,600933,075933,07547,396(39,018) 1,577,9424,897,070David Whiteing (10)2015898,04918,11513,167531,375531,37516,21161,424158,1312,227,847Former ExecutivesSimon Blair2015278,0148,4254,864133,767133,76739,17637,392184,331819,7362014825,00025,00014,600527,425527,4257,264(23,146) 915,9472,819,515Michael Harte201531,644753-n/a(194,094)4,313(167,924)(1,612,313)(1,937,621)20141,050,00025,00013,486665,694665,694105,10617,7941,183,8073,726,581Grahame Petersen (12)2015614,38413,3567,813326,896326,89617,66539,0361,762,4543,108,50020141,150,00025,00014,600644,928644,928(27,955) 34,2901,295,5983,781,389Fixed Remuneration (1)Other Short-Term Benefits Directors’ Report – Remuneration Report 4.2 Executive Statutory Remuneration (continued) (8) This includes the 2015 expense for Reward Rights awarded during the 2012, 2013, 2014 and 2015 financial years under the GLRP. For Michael Harte, this value reflects forfeitures of awards upon resignation. (9) The percentage of 2015 remuneration related to performance was: Ian Narev 66%, Kelly Bayer Rosmarin 53%, Adam Bennett 43%, David Cohen 66%, Matthew Comyn 61%, David Craig 65%, Robert Jesudason 56%, Melanie Laing 65%, Vittoria Shortt 46%, Annabel Spring 66%, Alden Toevs 66%, David Whiteing 55%, Simon Blair 55%, Michael Harte 0% and Grahame Petersen 78%. (10) David Whiteing commenced in the KMP role on 14 July 2014, Adam Bennett commenced in the KMP role on 12 January 2015 and Vittoria Shortt commenced in the KMP role on 2 March 2015. Remuneration reflects time in the KMP role. (11) Robert Jesudason was in the Group Executive, Group Strategic Development role from 1 July 2014 to 31 October 2014 and was appointed to the Group Executive, International Financial Services role from 1 November 2014. Robert’s 2015 remuneration reflects an increase received on changing roles. (12) Grahame Petersen ceased as a KMP on 11 January 2015 and his remuneration has been prorated accordingly. The LTI Reward Rights value reflects the disclosable accruals for all previously granted LTI awards that remain unvested following Grahame Petersen’s retirement on 6 February 2015 up to the end of each performance period. This means that up to three years of each unvested LTI award has been disclosed in the 2015 financial year, including those amounts which would otherwise have been included in future year disclosures. These LTI awards may or may not vest and still remain subject to the relevant performance hurdles. No new LTI grants have been or will be made to Grahame Petersen following his retirement from the Group. 4.3 Executive STI Allocations for 2015 Includes 50% of the annual STI award payable as cash in recognition of performance for the year ended 30 June 2015. (1) The maximum STI is represented as a percentage of fixed remuneration. The minimum STI is zero. (2) (3) This represents 50% of the STI award that is deferred until 1 July 2016. The deferred awards are subject to Board review at the time of payment. (4) David Whiteing commenced in the KMP role on 14 July 2014, Adam Bennett commenced in the KMP role on 12 January 2015 and Vittoria Shortt commenced in the KMP role on 2 March 2015. STI allocations reflect time in the KMP role. (5) The STI target for Robert Jesudason has been prorated to reflect the respective STI targets of both the Group Executive, Group Strategic Development and the Group Executive, International Financial Services roles held during the 2015 performance year. (6) Simon Blair ceased as a KMP on 31 October 2014 and Grahame Petersen ceased as a KMP from the Group on 11 January 2015. The STI award for these former executives is in recognition of the portion of the 2015 performance year served in the KMP role. Michael Harte ceased as KMP on 11 July 2014 and is not eligible for an STI award for the 2015 performance year. Commonwealth Bank of Australia - Annual Report 2015 59 STI Target (1)Maximum STI (1)$ %%$%$Managing Director and CEOIan Narev 2,650,000 150%50% 1,590,000 50% 1,590,000 Group ExecutivesKelly Bayer Rosmarin 1,020,000 150%50% 612,957 50% 612,957 Adam Bennett (4) 456,438 150%50% 253,580 50% 253,580 David Cohen 900,000 150%50% 582,750 50% 582,750 Matthew Comyn 1,030,000 150%50% 618,966 50% 618,966 David Craig 1,380,000 150%50% 852,150 50% 852,150 Robert Jesudason (5) 947,767 150%50% 575,295 50% 575,295 Melanie Laing 845,000 150%50% 495,382 50% 495,382 Vittoria Shortt (4) 280,123 150%50% 166,674 50% 166,674 Annabel Spring 1,030,000 150%50% 662,084 50% 662,084 Alden Toevs 1,430,000 150%50% 845,488 50% 845,488 David Whiteing (4) 916,164 150%50% 531,375 50% 531,375 Former Executives (6)Simon Blair 286,439 150%50% 133,767 50% 133,767 Grahame Petersen 627,740 150%50% 326,896 50% 326,896 Cash STI (2)Deferred STI (3) Directors’ Report – Remuneration Report 4.4 Equity Awards Received as Remuneration The table below details the value and number of all equity awards that were granted or forfeited/lapsed to Executives during their time in a KMP role in 2015. It also shows the number of previous year’s awards that vested during the 2015 performance year (some of which relate to past non-KMP roles). (1) This represents the maximum number of Reward Rights that may vest to each Executive. The value represents the fair value at grant date. For Ian Narev, the grant date for his Reward Rights was 13 November 2014. For Adam Bennett the grant date for his Reward Rights was 12 February 2015 and for Vittoria Shortt the grant date for her Reward Rights was 7 May 2015. For all other Executives the grant date for Reward Rights was 18 September 2014. The minimum potential LTI outcome is zero. (2) As at 1 July 2014 (reflecting the beginning of the performance period), the maximum value of Reward Rights granted during 2015, based on the volume weighted average price of the Group’s ordinary shares over the five trading days up to and including 1 July 2014 was: Ian Narev $4,713,843, David Craig $2,454,756, Kelly Bayer Rosmarin $1,814,470, Robert Jesudason $1,686,023, Melanie Laing $1,503,165, Vittoria Shortt $498,379, Annabel Spring $1,832,229, Alden Toevs $2,543,712 and David Whiteing $1,689,916. David Cohen $1,601,041, Matthew Comyn $1,832,229, Adam Bennett $811,954, (3) Previous years' awards that vested include LTI and other deferred equity awards. (4) This includes the portion of the LTI award that vested during 2015 that did not meet the performance hurdle and was forfeited. For Michael Harte, this also includes 92,311 Reward Rights that were forfeited as a result of his resignation from the Group in July 2014. The value of the lapsed award is calculated using the Volume Weighted Average Closing Price (VWACP) for the five days preceding the transaction date. (5) David Whiteing commenced in the KMP role on 14 July 2014, Adam Bennett commenced in the KMP role on 12 January 2015 and Vittoria Shortt commenced in the KMP role on 2 March 2015. The number of Reward Rights granted to David Whiteing reflects annual LTI target. The number of Reward Rights granted to Adam Bennett and Vittoria Shortt reflects time in the KMP role. 60 Commonwealth Bank of Australia – Annual Report 2015 Previous Years'Awards Vested during 2015 (3)NameClassUnits$UnitsUnits$Managing Director and CEOIan NarevReward Rights 58,131 3,150,900 24,026 (775) (62,860)Group ExecutivesKelly Bayer RosmarinReward Rights 22,376 1,037,270 - - - Deferred Shares/Rights 2,604 210,976 5,440 - - Adam Bennett (5)Reward Rights 10,013 616,409 - - - David Cohen Reward Rights 19,744 915,262 23,093 (744) (60,346)Matthew ComynReward Rights 22,595 1,047,422 - - - Deferred Shares/Rights - - 6,983 - - David Craig Reward Rights 30,272 1,403,293 36,040 (1,162) (94,250)Robert JesudasonReward Rights 20,792 981,549 - - - Deferred Shares/Rights - - 9,728 - - Melanie LaingReward Rights 18,537 859,317 - - - Vittoria Shortt (5)Reward Rights 6,146 291,631 - - - Annabel SpringReward Rights 22,595 1,047,422 - - - Deferred Shares/Rights - - 7,563 - - Alden Toevs Reward Rights 31,369 1,454,124 37,374 (1,205) (97,738)David Whiteing (5)Reward Rights 20,840 966,058 - - - Deferred Shares/Rights 1,941 157,260 - - - Former ExecutivesSimon BlairReward Rights - - 21,358 (688) (55,804)Michael Harte Reward Rights - - 28,031 (93,215) (7,567,130)Grahame PetersenReward Rights - - 30,700 (990) (80,299) Forfeited or Granted Lapsed during 2015 (1) (2) during 2015 (4) 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 TSR component of the LTI awards, the fair value has been calculated using a Monte Carlo simulation method using the following assumptions: (1) For the TSR component of the GLRP awards, a zero dividend yield has been assumed given that dividends are incorporated into the fair value of the rights. (2) The performance hurdle for this portion of the GLRP award is Customer Satisfaction relative to the Group’s peers. (3) The performance hurdle for this portion of the GLRP award is TSR relative to the Group’s 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 unvested deferred awards (including cash and equity awards), unless the Board determines otherwise, 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. Commonwealth Bank of Australia - Annual Report 2015 61 FairExercisePerformanceExpectedExpectedExpectedRisk FreeGrantValuePricePeriodLifeDividend Yield (1)VolatilityRateEquity PlanDate$$End(Years)%%%2015 GLRP (2)07/05/201583.11Nil30/06/2018n/an/an/an/a2015 GLRP (3)07/05/201534.90Nil30/06/20183.2Nil152.42015 GLRP (2)12/02/201591.18Nil30/06/2018n/an/an/an/a2015 GLRP (3)12/02/201551.14Nil30/06/20183.4Nil152.32015 GLRP (2)13/11/201481.27Nil30/06/2018n/an/an/an/a2015 GLRP (3)13/11/201444.68Nil30/06/20183.6Nil153.02015 GLRP (2)18/09/201477.58Nil30/06/2018n/an/an/an/a2015 GLRP (3)18/09/201435.37Nil30/06/20183.8Nil153.32014 GLRP (2)13/02/201475.75Nil30/06/2017n/an/an/an/a2014 GLRP (3)13/02/201441.63Nil30/06/20173.4Nil203.32014 GLRP (2)11/11/201378.35Nil30/06/2017n/an/an/an/a2014 GLRP (3)11/11/201347.79Nil30/06/20173.6Nil203.62014 GLRP (2)23/09/201373.51Nil30/06/2017n/an/an/an/a2014 GLRP (3)23/09/201344.42Nil30/06/20173.8Nil203.52013 GLRP (2)05/11/201257.40Nil30/06/2016n/an/an/an/a2013 GLRP (3)05/11/201231.49Nil30/06/20163.7Nil203.22013 GLRP (2)04/10/201256.55Nil30/06/2016n/an/an/an/a2013 GLRP (3)04/10/201230.76Nil30/06/20163.7Nil203.02012 GLRP (2)15/02/201250.23Nil30/06/2015n/an/an/an/a2012 GLRP (3)15/02/201231.87Nil30/06/20153.4Nil304.42012 GLRP (2)15/11/201149.15Nil30/06/2015n/an/an/an/a2012 GLRP (3)15/11/201131.60Nil30/06/20153.6Nil304.22012 GLRP (2)29/08/201147.96Nil30/06/2015n/an/an/an/a2012 GLRP (3)29/08/201132.23Nil30/06/20153.8Nil304.7AssumptionsContract Type (1)NoticeSeverance (2)Managing Director & CEOIan NarevPermanent12 monthsn/aGroup ExecutivesKelly Bayer RosmarinPermanent6 months6 monthsAdam BennettPermanent6 months6 monthsDavid CohenPermanent6 months6 monthsMatthew ComynPermanent6 months6 monthsDavid CraigPermanent6 months6 monthsRobert JesudasonPermanent6 months6 monthsMelanie LaingPermanent6 months6 monthsVittoria ShorttPermanent6 months6 monthsAnnabel SpringPermanent6 months6 monthsAlden ToevsPermanent6 monthsn/aDavid WhiteingPermanent6 months6 months Directors’ Report – Remuneration Report 4.6 Termination Arrangements (continued) KMP that left the Group during the 2015 financial year were Michael Harte and Grahame Petersen. 4.7 Equity Holdings of KMP Shareholdings Details of the shareholdings of KMP (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 the Financial Statements Note 24 Share Based Payments. (a) 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) Shares Acquired incorporates shares purchased during the year. 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 sales of securities and appointment of Non-Executive Directors during the year. (3) David Higgins was appointed as a Non-Executive Director on 1 September 2014 and Wendy Stops was appointed as a Non-Executive Director on 9 March 2015. Their shareholdings have not been included in the opening balance as at 1 July 2014. (4) Opening balance has been restated to include a correction to CBA ordinary shares. (5) Carolyn Kay retired from the Group on 31 March 2015 and her shareholdings are not included in the balance as at 30 June 2015. (6) PERLS: Include cumulative holdings of all PERLS securities issued by the Group. (7) Other securities: As at 30 June 2015 Jane Hemstritch held CNGHA notes (2014: CNGHA notes). 62 Commonwealth Bank of Australia – Annual Report 2015 BalanceSharesNet ChangeBalanceDirectorsClass1 July 2014Acquired (1)Other (2)30 June 2015Non-Executive DirectorsDavid TurnerOrdinary11,840--11,840PERLS (6)380--380John AndersonOrdinary18,186--18,186Shirish ApteOrdinary-7,500-7,500Jane HemstritchOrdinary25,775--25,775PERLS (6)9,3003,000(500)11,800Other securities (7)5,000--5,000David Higgins (3)Ordinaryn/a5,023-5,023Launa Inman (4)Ordinary2,646934-3,580Brian LongOrdinary12,42545-12,470PERLS (6)400800(400)800Andrew MohlOrdinary59,8407,390-67,230Wendy Stops (3)Ordinaryn/a-13,00013,000Harrison Young Ordinary26,764--26,764Former Non-Executive DirectorCarolyn Kay (5)Ordinary12,388--n/aPERLS (6)-2,800-n/a Directors’ Report – Remuneration Report (b) Shares held by the CEO and Group Executives (1) Reward Rights represent rights granted under the GLRP which are subject to performance hurdles. Deferred Shares/Rights represent the deferred STI awarded under Executive General Manager arrangements, sign-on and retention awards received as restricted shares/rights. (2) Reward Rights and Deferred Shares/Rights become ordinary shares upon vesting. A portion of Ian Narev’s vested equity award was delivered in the form of cash, which was paid to registered charities pursuant to an option that the Board made available. (3) Net Change Other incorporates changes resulting from purchases, sales, forfeitures and appointment or departure of Executives during the year. (4) David Whiteing commenced in the KMP role on 14 July 2014, Adam Bennett commenced in the KMP role on 12 January 2015 and Vittoria Shortt commenced in the KMP role on 2 March 2015. The number of Reward Rights granted to David Whiteing reflects annual LTI target. The number of Reward Rights granted to Adam Bennett and Vittoria Shortt reflects time in the KMP role. (5) Michael Harte ceased as a KMP on 11 July 2014, Simon Blair ceased as a KMP on 31 October 2014 and Grahame Petersen ceased as a KMP on 11 January 2015. Shareholdings for former executives are not included in the balance as at 30 June 2015. Commonwealth Bank of Australia - Annual Report 2015 63 Acquired/Previous Years'BalanceGranted asAwards VestedNet ChangeBalanceClass (1)1 July 2014Remunerationduring 2015 (2)Other (3)30 June 2015Managing Director and CEOIan NarevOrdinary74,969--18,75293,721Reward Rights248,06858,131(24,026)(775)281,398Group ExecutivesKelly Bayer RosmarinOrdinary12,457--1,56114,018Reward Rights12,93522,376--35,311Deferred Shares/Rights16,3702,604(5,440)-13,534Adam Bennett (4)Ordinaryn/a--8,3038,303Reward Rightsn/a10,013--10,013Deferred Shares/Rightsn/a3,456(4,808)12,85711,505David Cohen Ordinary45,752--(19,615)26,137Reward Rights101,12219,744(23,093)(744)97,029Matthew ComynOrdinary16,397--6,98323,380Reward Rights55,29722,595--77,892Deferred Shares/Rights13,102-(6,983)-6,119David Craig Ordinary134,581--40134,621Reward Rights155,70230,272(36,040)(1,162)148,772Robert JesudasonOrdinary13,595--9,72823,323Reward Rights45,35420,792--66,146Deferred Shares/Rights14,023-(9,728)-4,295Melanie LaingOrdinary11,936---11,936Reward Rights69,30818,537--87,845Vittoria Shortt (4)Ordinaryn/a--3,5613,561Reward Rightsn/a6,146--6,146Deferred Shares/Rightsn/a2,675(3,561)8,6987,812Annabel SpringOrdinary11,643--3,86315,506Reward Rights84,63922,595--107,234Deferred Shares/Rights7,563-(7,563)--Alden Toevs Ordinary75,638--12,37488,012Reward Rights161,37131,369(37,374)(1,205)154,161David Whiteing (4)Ordinaryn/a----Reward Rightsn/a20,840--20,840Deferred Shares/Rightsn/a1,941--1,941Former Executives (5)Simon BlairOrdinary26,417--21,358n/aReward Rights93,808-(21,358)(688)n/aMichael Harte Ordinary---28,031n/aReward Rights121,246-(28,031)(93,215)n/aGrahame PetersenOrdinary60,385---n/aReward Rights132,587-(30,700)(990)n/a Directors’ Report – Remuneration Report 4.8 Loans to KMP All loans to KMP (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). There has been no write down of loans during the period. 4.9 Total Loans to KMP (1) The opening balance has been restated from $14,187,609. 4.10 Loans to KMP Exceeding $100,000 in Aggregate (1) Represents the highest balance per individual of loans outstanding at any point during the year ended 30 June 2015. (2) Opening balance has been restated to reflect actual drawn balance. (3) David Whiteing commenced in the KMP role on 14 July 2014 and Vittoria Shortt commenced in the KMP role on 2 March 2015. The loan values disclosed relate to the period from KMP commencement date to 30 June 2015. Michael Harte resigned from the Group effective 11 July 2014 and his loan balance has not been included in the balance as at 30 June 2015. 4.11 Other Transactions of KMP Financial Instrument Transactions Financial instrument transactions (other than loans and shares disclosed within this report) of KMP occur in the ordinary course of business on an arm’s length basis. Disclosure of financial instrument transactions regularly made as part of normal banking operations is limited to disclosure of such transactions with KMP and entities controlled or significantly influenced by them. All such financial instrument transactions that have occurred between entities within the Group and their KMP were in the nature of normal personal banking and deposit transactions. Transactions other than Financial Instrument Transactions of Banks All other transactions with KMP and their related entities and other related parties are conducted on an arm’s length basis in the normal course of business and on commercial terms and conditions. These transactions principally involve the provision of financial and investment services by entities not controlled by the Group. A related party of an executive has also been employed by the Group, and is remunerated in a manner consistent with normal employee relationships. 64 Commonwealth Bank of Australia – Annual Report 2015 2015$Opening Balance (1)14,878,088Closing Balance10,130,233Interest Charged501,271 HighestBalanceInterestInterest NotBalanceBalance1 July 2014ChargedChargedWrite-off30 June 2015in Period (1)$$$$$$Kelly Bayer Rosmarin (2)4,020,338128,522--2,744,7844,034,034David Cohen556,02527,146--522,505570,528Matthew Comyn (2)2,610,45772,329--2,131,2123,730,020Michael Harte (2) (3)2,914,19611,741--n/a2,970,923Robert Jesudason4,075,680120,033--954,111,223Melanie Laing (2)577,75023,335--429,061597,820Vittoria Shortt (3)n/a32,006--2,261,1782,269,177David Whiteing (3)n/a85,591--1,917,9594,233,371Total 14,754,446500,703--10,006,79422,517,096 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, including any salary sacrifice items, paid regularly with no performance conditions. Board The Board of Directors of the Group. Deferred Shares/Rights Shares/rights subject to forfeiture on resignation. These are used for deferred STI awarded under Executive General Manager arrangements, sign-on and retention awards. 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 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 over a period of three or more years if, and to the extent that, performance hurdles are met . The Group’s long-term incentive plan is the GLRP. NPAT Net profit after tax. Remuneration Received 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 2015, in exchange for services previously rendered to the Group. Rights to ordinary shares in CBA granted under the GLRP 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. Commonwealth Bank of Australia - Annual Report 2015 65 Directors’ Report 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 28 to the Financial Statements are as follows: Project assurance services Taxation services Risk management, compliance and controls related work Other Total non-audit services (1) Total audit and related services 2015 $’000 1,354 3,171 3,601 1,578 9,704 34,405 (1) An additional amount of $1,958,469 was paid to PwC for non-audit services provided to entities not consolidated into the Financial Statements. Auditor’s Independence Declaration 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 for all such require Audit Committee pre-approval engagements; and The relative quantum of fees paid for non-audit services compared to the quantum for audit and audit related services. We have obtained an independence declaration from our external auditor as presented on the following page. The above Directors’ statements are in accordance with the advice received from the Audit Committee. Auditor Independence Incorporation of Additional Material The Bank has in place an Independent Auditor Services Policy, details of which are set out in the Corporate Governance Statement at that www.commbank.com.au/about-us/shareholders/corporate- profile/corporate-governance, independence of the Group’s external auditor. in ensuring to assist viewed can the be This Report incorporates the Chairman’s and Chief Executive Officer’s Statements (pages 2 to 8), Highlights (pages 9 to 12), Group Performance Analysis (pages 13 to 22), Group Operations and Business Settings (pages 23 to 31) and Shareholding Information (pages 182 to 185) sections of this Annual Report. 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. Signed in accordance with a resolution of the Directors. D J Turner Chairman 11 August 2015 I M Narev Managing Director and Chief Executive Officer 11 August 2015 66 Commonwealth Bank of Australia – Annual Report 2015 Auditor’s Independence Declaration As lead auditor for the audit of Commonwealth Bank of Australia for the year ended 30 June 2015, 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 Pricewaterhouse Coopers Sydney 11 August 2015 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. Commonwealth Bank of Australia - Annual Report 2015 67 Five Year Financial Summary (1) Comparative information has been restated to reflect the creation of a Small Business customer channel within Retail Banking Services, and minor refinements to the allocation of customer balances and associated revenue and expenses between business segments. Includes investment experience. (2) 68 Commonwealth Bank of Australia – Annual Report 2015 20152014 (1)2013 (1)20122011$M$M$M$M$MNet interest income15,79915,09113,94413,15712,645Other operating income (2)7,7797,3106,8776,3197,014Total operating income23,57822,40120,82119,47619,659Operating expenses(9,993)(9,499)(9,010)(8,627)(8,891)Impairment expense(988)(953)(1,082)(1,089)(1,280)Net profit before tax12,59711,94910,7299,7609,488Corporate tax expense(3,439)(3,250)(2,953)(2,705)(2,637)Non-controlling interests(21)(19)(16)(16)(16)Net profit after tax "cash basis"9,1378,6807,7607,0396,835Treasury shares valuation adjustment(28)(41)(53)(15)(22)Hedging and IFRS volatility6627124(265)Gain/(loss) on disposal of controlled entities/investments-17--(7)Bankwest non-cash items(52)(56)(71)(89)(147)Count Financial acquisition costs---(43)-Bell Group litigation-25(45)--Net profit after income tax attributable to Equity holders of the Bank "statutory basis"9,0638,6317,6187,0166,394Contributions to profit (after tax)Retail Banking Services3,8673,6783,0892,7032,854Business and Private Banking1,4591,3211,4741,5131,030Institutional Banking and Markets1,2681,2521,1951,0981,004Wealth Management650789679629642New Zealand865742621541470Bankwest752675561527463IFS and Other27622314128372Net profit after tax "cash basis"9,1378,6807,7607,0396,835Investment experience after tax(150)(197)(105)(89)(81)Net profit after tax "underlying basis"8,9878,4837,6556,9506,754Balance SheetLoans, bills discounted and other receivables639,262597,781556,648525,682500,057Total assets873,446791,451753,857718,839667,899Deposits and other public borrowings543,231498,352459,429437,655401,147Total liabilities 820,453742,103708,320677,219630,612Shareholders' Equity52,99349,34845,53741,62037,287Net tangible assets41,52238,08033,63829,86926,217Risk weighted assets - Basel III (APRA)368,721337,715329,158n/an/aRisk weighted assets - Basel II (APRA)n/an/an/a302,787281,711Average interest earning assets754,872705,371653,637629,685597,406Average interest bearing liabilities714,159661,733609,557590,654559,095Assets (on Balance Sheet) - Australia741,249669,293644,043621,965581,695Assets (on Balance Sheet) - New Zealand72,29969,11061,57855,49954,993Assets (on Balance Sheet) - Other59,89853,04848,23641,37531,211 Five Year Financial Summary (1) The productivity metrics have been calculated on a “cash basis”. Commonwealth Bank of Australia - Annual Report 2015 69 20152014 201320122011Shareholder summaryDividends per share - fully franked (cents)420401364334320Dividend cover - statutory (times)1. 31. 31. 31. 31. 3Dividend cover - cash (times)1. 31. 31. 31. 31. 4Earnings per share (cents)BasicStatutory557.0533.8474.2444.2411.2Cash basis560.8535.9482.1444.7438.7Fully dilutedStatutory542.7521.9461.0428.5395.1Cash basis546.3524.0468.6429.0420.6Dividend payout ratio (%)Statutory75.775.577.476.078.3Cash basis75.175.175.975.873.2Net tangible assets per share ($)25. 523. 520. 918. 816. 8Weighted average number of shares (statutory basic) (M)1,6181,6081,5981,5701,545Weighted average number of shares (statutory fully diluted) (M)1,7021,6811,6861,6741,668Weighted average number of shares (cash basic) (M)1,6201,6111,6011,5731,548Weighted average number of shares (cash fully diluted) (M)1,7041,6841,6891,6771,671Number of shareholders787,969791,564786,437792,906792,765Share prices for the year ($)Trading high96.6982.6874.1853.8055.77Trading low73.5767.4953.1842.3047.05End (closing price)85.1380.8869.1853.1052.30Performance ratios (%)Return on average Shareholders' equityStatutory18.218.718.018.518.4Cash basis18.218.718.218.419.5Return on average total assetsStatutory1.11.11.01.01.0Cash basis1.11.11.11.01.0Capital adequacy - Common Equity Tier 1 - Basel III (APRA)9. 19. 38.2n/an/aCapital adequacy - Tier 1 - Basel III (APRA)11. 211. 110.3n/an/aCapital adequacy - Tier 2 - Basel III (APRA)1. 50. 90.9n/an/aCapital adequacy - Total - Basel III (APRA)12. 712. 011.2n/an/aCapital adequacy - Tier One - Basel IIn/an/an/a10. 010. 0Capital adequacy - Tier Two - Basel IIn/an/an/a1. 01. 7Capital adequacy - Total - Basel IIn/an/an/a11. 011. 7Net interest margin2. 092. 142. 132. 092. 12Other information (numbers)Full-time equivalent employees45,94844,32944,96944,84446,060Branches/services centres (Australia)1,1471,1501,1661,1671,160Agencies (Australia)3,6703,7173,7643,8183,795ATM's4,4404,3404,3044,2134,173EFTPOS terminals (active)208,202200,733181,227175,436170,855Productivity (1)Total income per full-time (equivalent) employee ($)508,578500,034459,583430,983424,186Employee expense/Total income (%)24. 925. 025. 326. 124. 5Total operating expenses/Total income (%)42. 842. 943. 644. 645. 5 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 Accounting Policies Profit 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 Deposits and Other Public Borrowings Liabilities at Fair Value through Income Statement Other Provisions Debt Issues Bills Payable and Other Liabilities Loan Capital Shareholders’ Equity Share Based Payments Capital Adequacy Financial Reporting by Segments Insurance Businesses Remuneration of Auditors Lease Commitments Contingent Liabilities, Contingent Assets and Commitments Risk Management Credit Risk Market Risk Liquidity and Funding Risk Retirement Benefit Obligations Investments in Subsidiaries and Other Entities Key Management Personnel Related Party Disclosures Notes to the Statements of Cash Flows Disclosures about Fair Values Securitisation, Covered Bonds and Transferred Assets Collateral Arrangements Offsetting Financial Assets and Financial Liabilities Subsequent Events 70 Commonwealth Bank of Australia – Annual Report 2015 71 72 73 74 76 78 89 91 94 97 98 98 98 99 99 103 104 107 109 111 113 113 114 114 116 118 118 120 123 125 126 129 131 131 132 134 138 152 154 157 160 165 166 167 168 174 175 176 178 Income Statements For the year ended 30 June 2015 Financial Statements The above Income Statements should be read in conjunction with the accompanying notes. Commonwealth Bank of Australia – Annual Report 2015 71 GroupBank20152014 2013 20152014 Note$M$M$M$M$MInterest income 234,10033,64534,73934,93734,860Interest expense 2(18,305)(18,544)(20,805)(21,006)(21,494)Net interest income15,79515,10113,93413,93113,366Other banking income 4,8564,3204,1726,8476,378Net banking operating income20,65119,42118,10620,77819,744Funds management income2,3962,3562,147--Investment revenue618840942--Claims, policyholder liability and commission expense(1,011)(1,162)(1,242)--Net funds management operating income22,0032,0341,847--Premiums from insurance contracts2,7972,6042,353--Investment revenue543547449--Claims, policyholder liability and commission expense from insurance contracts(2,326)(2,118)(1,879)--Net insurance operating income21,0141,033923--Total net operating income before impairment and operating expenses223,66822,48820,87620,77819,744Loan impairment expense2,13(988)(918)(1,146)(837)(871)Operating expenses2(10,068)(9,573)(9,085)(8,271)(7,866)Net profit before income tax212,61211,99710,64511,67011,007Corporate tax expense4(3,429)(3,221)(2,899)(2,694)(2,565)Policyholder tax expense4(99)(126)(112)--Net profit after income tax9,0848,6507,6348,9768,442Non-controlling interests(21)(19)(16)--Net profit attributable to Equity holders of the Bank9,0638,6317,6188,9768,442Group 20152014 2013 NoteEarnings per share: Basic6557.0533.8474.2 Fully diluted 6542.7521.9461.0Cents per share Financial Statements Statements of Comprehensive Income For the year ended 30 June 2015 The above Statements of Comprehensive Income should be read in conjunction with the accompanying notes. 72 Commonwealth Bank of Australia – Annual Report 2015 Group Bank 20152014201320152014$M$M$M$M$MNet profit after income tax for the financial year9,0848,6507,6348,9768,442Other comprehensive income:Items that may be reclassified subsequently to profit/(loss):Foreign currency translation reserve net of tax398385466171-Gains and (losses) on cash flow hedging instruments net of tax39(144)(276)106(84)Gains and (losses) on available-for-sale investments net of tax(45)338364(84)453Total of items that may be reclassified392579554193369Items that will not be reclassified to profit or loss:Actuarial gains and losses from defined benefit superannuation plans net of tax3114236731142Gains and losses on liabilities at fair value due to changes in own credit risk net of tax(3)6-(3)6Revaluation of properties net of tax152631124Total of Items that will not be reclassified3237437031972Other comprehensive income net of income tax715653924512441Total comprehensive income for the financial year9,7999,3038,5589,4888,883Total comprehensive income for the financial year is attributable to:Equity holders of the Bank9,7789,2848,5429,4888,883Non-controlling interests211916--Total comprehensive income net of income tax9,7999,3038,5589,4888,883Group 201520142013NoteDividends per share attributable to shareholders of the Bank:Ordinary shares5420401364Trust preferred securities7,3876,4985,767Cents per share Balance Sheets As at 30 June 2015 Financial Statements (1) Comparative information has been reclassified to conform to presentation in the current year. The above Balance Sheets should be read in conjunction with the accompanying notes. Commonwealth Bank of Australia – Annual Report 2015 73 Group Bank 2015201420152014Note$M $M $M $M AssetsCash and liquid assets733,11626,40931,68324,108Receivables due from other financial institutions811,5408,0659,7207,457Assets at fair value through Income Statement:9Trading26,42421,45925,13520,572Insurance14,08815,142--Other1,278760989561Derivative assets1046,15429,24745,60729,615Available-for-sale investments1174,68466,13772,304131,577Loans, bills discounted and other receivables12639,262597,781573,435535,247Bank acceptances of customers1,9445,0271,9084,984Shares in and loans to controlled entities38--143,75664,086Property, plant and equipment142,8332,8161,5091,467Investment in associates and joint ventures362,6371,8441,2451,029Intangible assets159,9709,7924,7004,555Deferred tax assets 4455586771796Other assets169,0616,3867,4054,823Total assets873,446791,451920,167830,877LiabilitiesDeposits and other public borrowings17543,231498,352497,625457,571Payables due to other financial institutions36,41624,97835,51624,599Liabilities at fair value through Income Statement188,4937,5087,3235,152Derivative liabilities 1035,21327,25939,63629,341Bank acceptances1,9445,0271,9084,984Due to controlled entities--126,496118,920Current tax liabilities661688578612Deferred tax liabilities4351366--Other provisions (1)191,7261,3631,2541,084Insurance policy liabilities2712,91113,166--Debt issues20154,429142,219130,359119,548Managed funds units on issue1,1491,214--Bills payable and other liabilities (1)2111,10510,36914,36110,662807,629732,509855,056772,473Loan capital2212,8249,59413,3649,969Total liabilities820,453742,103868,420782,442Net assets52,99349,34851,74748,435Shareholders' EquityShare capital:Ordinary share capital2327,61927,03627,89427,323Other equity instruments239399391,8951,895Reserves232,3452,0093,1953,011Retained profits2321,52818,82718,76316,206Shareholders' Equity attributable to Equity holders of the Bank52,43148,81151,74748,435Non-controlling interests36562537--Total Shareholders' Equity52,99349,34851,74748,435 Financial Statements Statements of Changes in Equity For the year ended 30 June 2015 The above Statements of Changes in Equity should be read in conjunction with the accompanying notes. 74 Commonwealth Bank of Australia – Annual Report 2015 GroupShareholders'EquityattributableOrdinaryOtherto EquityNon-Total shareequityRetainedholderscontrollingShareholders'capitalinstrumentsReservesprofitsof the Bank interests Equity$M$M$M$M$M$M$MAs at 30 June 2013 26,3239391,33316,40545,00053745,537Net profit after income tax ---8,6318,631198,650Net other comprehensive income--60548653-653Total comprehensive income for the financial year--6058,6799,284199,303Transactions with Equity holders in their capacity as Equity holders:Dividends paid on ordinary shares---(6,174)(6,174)-(6,174)Dividends paid on other equity instruments---(32)(32)-(32)Dividend reinvestment plan (net of issue costs)707---707-707Other equity movements:Share based payments--(7)-(7)-(7)Purchase of treasury shares(813)---(813)-(813)Sale and vesting of treasury shares819---819-819Other changes--78(51)27(19)8As at 30 June 201427,0369392,00918,82748,81153749,348Net profit after income tax---9,0639,063219,084Net other comprehensive income--407308715-715Total comprehensive income for the financial year--4079,3719,778219,799Transactions with Equity holders in their capacity as Equity holders:Dividends paid on ordinary shares---(6,744)(6,744)-(6,744)Dividends paid on other equity instruments---(36)(36)-(36)Dividend reinvestment plan (net of issue costs)571---571-571Other equity movements:Share based payments--(3)-(3)-(3)Purchase of treasury shares(790)---(790)-(790)Sale and vesting of treasury shares802---802-802Other changes--(68)11042446As at 30 June 201527,6199392,34521,52852,43156252,993 Statements of Changes in Equity (continued) For the year ended 30 June 2015 Financial Statements The above Statements of Changes in Equity should be read in conjunction with the accompanying notes. Commonwealth Bank of Australia – Annual Report 2015 75 BankShareholders'EquityattributableOrdinaryOtherto Equity shareequityRetainedholderscapitalinstrumentsReservesprofitsof the Bank$M$M$M$M$MAs at 30 June 2013 26,6191,8952,64113,87445,029Net profit after income tax---8,4428,442Net other comprehensive income --39348441Total comprehensive income for the financial year--3938,4908,883Transactions with equity holders in their capacity as equity holders:Dividends paid on ordinary shares---(6,174)(6,174)Dividend reinvestment plan (net of issue costs)704---704Other equity movements:Share based payments--(7)-(7)Other changes--(16)16-As at 30 June 201427,3231,8953,01116,20648,435Net profit after income tax---8,9768,976Net other comprehensive income--204308512Total comprehensive income for the financial year--2049,2849,488Transactions with Equity holders in their capacity as Equity holders:Dividends paid on ordinary shares---(6,744)(6,744)Dividend reinvestment plan (net of issue costs)571---571Other equity movements:Share based payments--(3)-(3)Other changes--(17)17-As at 30 June 201527,8941,8953,19518,76351,747 Financial Statements Statements of Cash Flows (1) For the year ended 30 June 2015 It should be noted that the Group does not use these accounting Statements of Cash Flows in the internal management of its liquidity positions. (1) (2) Represents gross premiums and policy payments before splitting between policyholders and shareholders. (3) Amounts received from and paid to controlled entities are presented in line with how they are managed and settled. 76 Commonwealth Bank of Australia – Annual Report 2015 GroupBank20152014201320152014Note$M$M$M$M$MCash flows from operating activitiesInterest received 34,06733,62334,86834,66834,827Interest paid (17,425)(18,160)(21,056)(20,215)(21,085)Other operating income received5,4675,1385,0473,7153,630Expenses paid (8,740)(8,377)(7,819)(7,368)(6,852)Income taxes paid(3,444)(3,763)(2,940)(3,093)(3,467)Net inflows/(outflows) from assets at fair value through Income Statement (excluding life insurance)1,4575,188(756)4,4944,871Net inflows/(outflows) from liabilities at fair value through Income Statement:Insurance:Investment income1183942,551--Premiums received (2)2,9102,8992,106--Policy payments and commission expense (2)(3,307)(3,080)(4,516)--Other liabilities at fair value through Income Statement738(1,619)1,5031,9691,815Cash flows from operating activities beforechanges in operating assets and liabilities11,84112,2438,98814,17013,739Changes in operating assets and liabilities arising from cash flow movementsMovement in available-for-sale investments:Purchases(60,967)(49,468)(45,429)(67,619)(48,489)Proceeds53,56944,13047,09053,05244,027Net increase in loans, bills discounted and other receivables(41,768)(36,795)(28,035)(35,870)(33,355)Net (increase)/decrease in receivables due from other financial institutions and regulatory authorities(2,676)(245)3,538(1,572)(368)Net (increase)/decrease in securities purchased under agreements to resell(6,174)1,119(699)(6,483)970Insurance business:Purchase of insurance assets at fair value through Income Statement(2,741)(3,156)(2,591)--Proceeds from sale/maturity of insurance assets at fair value through Income Statement4,7893,8043,832--Net (increase)/decrease in other assets(1,084)298(265)(1,077)325Net increase in deposits and other public borrowings41,22929,41917,24334,25826,114Net increase/(decrease) in payables due to other financial institutions8,598(1,812)2,1238,147(1,246)Net increase in securities sold underagreements to repurchase3,0154,3893273,0904,419Net (decrease)/increase in other liabilities(448)374553,108(3,278)Changes in operating assets and liabilities arising from cash flow movements(4,658)(8,280)(2,411)(10,966)(10,881)Net cash provided by operating activities39 (a)7,1833,9636,5773,2042,858Cash flows from investing activitiesNet proceeds from disposal of controlled entities39 (d)-531--569Payments for acquisition of controlled entities39 (e)(29)--(29)-Net proceeds from disposal of entities and businesses (net of cash disposals)72481--414Dividends received7170821,9721,944Net amounts received from controlled entities (3)---2,5643,362Proceeds from sale of property, plant and equipment and assets held for sale6968326754Purchases of property, plant and equipment(578)(513)(642)(380)(212)Payments for acquisitions of investments in associates/joint ventures(270)(36)(264)(220)-Net purchase of intangible assets(550)(400)(464)(494)(346)Net cash (used in)/provided by investing activities(1,215)201(1,256)3,4805,785 Statements of Cash Flows (1) (continued) For the year ended 30 June 2015 Financial Statements (1) It should be noted that the Group does not use these accounting Statements of Cash Flows in the internal management of its liquidity positions. The above Statements of Cash Flows should be read in conjunction with the accompanying notes. Commonwealth Bank of Australia – Annual Report 2015 77 GroupBank20152014201320152014Note$M$M$M$M$MCash flows from financing activitiesProceeds from issue of shares (net of issue costs)--193--Dividends paid (excluding Dividend Reinvestment Plan)(6,200)(5,491)(4,860)(6,164)(5,458)Proceeds from issuance of debt securities68,65587,55492,25061,14276,482Redemption of issued debt securities(73,377)(79,776)(93,691)(66,424)(72,677)Purchase of treasury shares(790)(813)(664)--Sale of treasury shares744760634--Issue of loan capital6,1843581,9776,164-Redemption of loan capital(2,971)(500)(2,215)(2,899)(500)Other(120)(157)218176(58)Net cash (used in)/provided by financing activities(7,875)1,935(6,158)(8,005)(2,211)Net (decrease)/increase in cash and cash equivalents(1,907)6,099(837)(1,321)6,432Effect of foreign exchange rates on cash and cash equivalents 2,0494118522,008298Cash and cash equivalents at beginning of year19,12812,61812,60317,47810,748Cash and cash equivalents at end of year39 (b)19,27019,12812,61818,16517,478 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 2015, were approved and the Board of Directors on authorised 11 August 2015. The Directors have the power to amend and reissue the Financial Statements. issue by for The Bank is incorporated and domiciled in Australia. It is a company limited by shares that are publicly traded on the Australian Securities Exchange. The address of its registered office is Ground Floor, Tower 1, 201 Sussex Street, Sydney, NSW 2000, Australia. The Group is one of Australia’s leading providers of integrated financial services, including retail, business and institutional banking, 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 2015 has been prepared in accordance with Australian Accounting Standards (the standards), which include Australian Interpretations by virtue of AASB 1048 ‘Interpretation and Application of Standards’, and the 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 further 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. 78 Commonwealth Bank of Australia – Annual Report 2015 The financial report is presented in Australian dollars. (e) Segment Reporting and management 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. All transactions between segments are conducted on an arm’s length basis, with inter-segment revenue and costs 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 132 Offsetting The Group has adopted the amended AASB 132 ‘Financial Instruments: Presentation’. It clarified the conditions for offsetting financial assets and financial liabilities in the Balance Sheet, including:   what constitutes a current legally enforceable right of set-off; and the circumstances in which gross settlement systems may be considered equivalent to net settlement. The amendments were applied retrospectively and did not impact the comparative financial statements of the Group. Comparatives Where necessary, comparative information has been restated to conform to changes in presentation in the current year. All comparative changes made 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 structured entities) over which the Bank has control. The Bank controls another entity when it has:    power over the relevant activities of the entity, for example through voting or other rights; exposure to, or rights to, variable returns from the Bank’s involvement with the entity; and the ability to use its power over the entity to affect the Bank’s returns from the entity. The effects of all transactions between subsidiaries in the Group are eliminated in full. Non-controlling interests in the results and equity of subsidiaries are shown separately in the of consolidated Comprehensive Income, Statement of Changes in Equity, and Balance Sheet. Statement, Statement Income 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. Subsidiaries are accounted for at cost less accumulated impairments at the Bank level. 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 Notes to the Financial Statements Note 1 Accounting Policies (continued) 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. The Group assesses, at each Balance Sheet date, whether there is any objective evidence of impairment. The main indicators of impairment are as for equity securities classified as available for sale (Note 1(u)). If there is an indication that an investment in an associate or joint venture may be impaired, then the entire carrying amount of the investment in associate or joint venture is tested for impairment by comparing the recoverable amount (higher of value in use and fair value less disposal costs) with its carrying amount. Impairment losses recognised in the Income Statement for investments in associates and joint ventures are subsequently reversed through the Income Statement if there has been a change in the estimates used to determine recoverable amount since the impairment loss was recognised. (h) Foreign Currency Translation Functional and Presentation Currency the Bank’s The consolidated financial statements are presented in functional and Australian dollars, which is foreign operations presentation currency. The Group’s joint (including subsidiaries, branches, associates, and ventures) will have different functional currencies based on the currency of the main economy to which each operation is exposed. Foreign Currency Transactions Foreign currency the 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. presentation currency are exchange rate at Balance Sheet date. translated at the prevailing 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. All resulting exchange differences are recognised in the foreign currency translation reserve. foreign operation When a is disposed of, exchange 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 and expenses are only offset in the Income Statement if permitted under relevant accounting standard. Examples of offsetting include gains and losses from foreign exchange exposures and trading operations. the 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 that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets and liabilities at fair value through Income Statement, available-for-sale investments and all derivative instruments are recognised and subsequently measured at fair value. initially 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. Foreign Operations Income Statement Assets and liabilities of the Group’s foreign operations that the Group’s have a functional currency different from Revenue is measured at the fair value of the consideration received or receivable. Revenue is recognised for each major revenue stream as follows: Commonwealth Bank of Australia – Annual Report 2015 79 Notes to the Financial Statements Note 1 Accounting Policies (continued) (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 and underwriting 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 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 the 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 financial assets, are classified as available-for-sale 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 that are issue costs 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. It also includes payments made under a liquidity facility arrangement with the Reserve Bank of Australia and other financing charges. (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. 80 Commonwealth Bank of Australia – Annual Report 2015 increase 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 corresponding the employee compensation 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 measurement of the expense. the equity instruments included taken in in 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) and Note 1(v) 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). (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 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. (s) The Tax Consolidated Group Tax consolidation legislation allows Australian resident entities to elect to consolidate and be treated as a single entity for Australian tax purposes. The Bank, as the head of the tax consolidated group, and its wholly-owned Australian subsidiaries, elected to be taxed as a single entity under this regime with effect from 1 July 2002. Notes to the Financial Statements Note 1 Accounting Policies (continued) The members of the tax consolidated group have entered into tax funding and tax sharing agreements, which set 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 The measurement and disclosure of deferred tax assets and liabilities have been performed in accordance with the principles in AASB 112 ‘Income Taxes’, and on a modified ‘Tax Consolidation standalone basis under UIG 1052 Accounting’. 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:     financial assets at Statement; derivative assets; fair value through the Income loans and receivables; and available-for-sale investments. The classification of financial instruments at initial recognition depends on their purpose, characteristics and management’s intention when acquiring them. the 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 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 financial assets are recognition, Subsequent 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, 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 Commonwealth Bank of Australia – Annual Report 2015 81 Notes to the Financial Statements Note 1 Accounting Policies (continued) 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. (iii) Net Investment Hedges Gains and losses on derivative contracts relating to the effective portion of the net investment hedge are recognised in the foreign currency translation reserve in equity. Ineffective portions are recognised immediately in the Income Statement. Gains and losses accumulated in equity are included in the Income Statement when the foreign subsidiary or branch is disposed of. (iv) Embedded Derivatives the In certain instances, a derivative may be embedded within a host contract. If the host contract is not carried at fair value through the economic Income Statement and 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) investments are non-derivative Available-for-sale financial assets that are not classified at fair value through the 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. Impairment exists if there is objective evidence of impairment as a result of one or more events which have an impact on the estimated future cash flows of the available-for-sale securities that can be reliably estimated. For equity securities classified as an AFS investment, the main indicators of impairment are significant changes in the market, economic or legal environment and a significant or prolonged decline in fair value below cost. 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 82 Commonwealth Bank of Australia – Annual Report 2015 linked objectively value of an AFS debt security increases and the increase can be the impairment event, the impairment is reversed through the Income Statement. However, impairment losses on AFS equity securities are not reversed. to an event occurring after 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. Financial assets initially designated as AFS investments, that would have otherwise met the definition of loans and other receivables, can be reclassified if the Group has the intention and ability to hold these financial assets for the foreseeable future or until maturity at the date of reclassification. Reclassifications are made at fair value as at the date of reclassification. Fair value becomes the new amortised cost and no reversals of fair value gains or losses recorded before reclassification date are subsequently made. Reclassifications during the year are outlined in Note 11 Available-for-Sale Investments. 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 Loans, bills discounted and other include 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. 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 recognised as interest income. Notes to the Financial Statements Note 1 Accounting Policies (continued) In subsequent periods, interest in arrears/due on non- performing facilities is recognised in the Income Statement using the original effective interest rate. 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 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 treated as a derecognition of the original liability and the recognition of a new the respective carrying amounts is recognised in the Income Statement. liability. The difference in is 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 Liabilities and Contingent Assets’. ‘Provisions, Contingent Loan assets under committed lending facilities are not recognised until the facilities are drawn upon. The Group 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. (v) Lease Receivables Leases are classified as either a finance lease or an operating lease. Under a finance lease, substantially all the risks and rewards incidental to legal ownership are transferred to the lessee. Under an operating lease, these risks remain with the lessor. 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 12 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 impairment if required. Subsequent costs are capitalised if these result in an enhancement to the asset. Depreciation is calculated using the straight line method over the asset’s estimated useful economic life. Commonwealth Bank of Australia – Annual Report 2015 83 Notes to the Financial Statements Note 1 Accounting Policies (continued) The useful lives of major depreciable asset categories are as follows: over which the brand name is expected to generate cash flows. Land Buildings Equipment Leasehold improvements Assets under lease    Aircraft Rail Ships Indefinite (not depreciated) Up to 30 years 3 – 8 years Lesser of unexpired lease term or lives as above 25 years 35 – 40 years 25 – 40 years The Group assesses at each Balance Sheet date useful lives and residual values and whether there is any objective evidence of impairment. If an asset’s carrying value is greater than its recoverable amount, the carrying amount is written down immediately to its recoverable amount. (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. Goodwill Goodwill arising from business combinations is included in intangible assets on the Balance Sheet and has an indefinite useful life. Goodwill is tested for impairment annually through allocation to a group of Cash Generating Units (CGUs). The CGUs’ 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 15. Computer Software Costs Certain internal and external costs directly in acquiring and developing software, net of specific project related grants, are capitalised and amortised over the estimated useful life. The majority of software projects are amortised over five years. The Core Banking Modernisation software project is amortised over ten years. incurred two to Software maintenance is 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 84 Commonwealth Bank of Australia – Annual Report 2015 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 acquisition and subsequently measured at cost less losses. accumulated amortisation and any 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. Notes to the Financial Statements Note 1 Accounting Policies (continued) Interest is recognised in the Income Statement using the effective interest method. Any profits or losses arising from redemption prior taken to the Income 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 thereafter at directly attributable 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 recognised as a is recognised to reflect the offsetting claim against the drawer of the bill. liability. An asset of equal value Bank acceptances generate interest and fee income that is recognised in the Income Statement when earned. (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 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 for annual The provision outstanding liability entitlements at Balance Sheet date. to employees leave represents the current leave for annual 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 semi-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, net interest cost (income), past service and other costs (such as the effects of any curtailments and settlements) is recognised as an employee expense in the Income Statement; Remeasurements relating to actuarial gains and losses and the difference between interest income and the return on plan assets are recognised directly in retained profits through OCI; Contributions made by the Group are recognised directly against the net defined benefit liability or asset; and Net interest cost (income) is determined by multiplying the rate of high quality corporate bonds by the net defined benefit obligation (asset) at the beginning of the reporting period and adjusted for changes in the net defined benefit liability (asset) due to contributions and benefit payments. 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. Note 19 Other Provisions contains a description of provisions held. 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. Commonwealth Bank of Australia – Annual Report 2015 85 Notes to the Financial Statements Note 1 Accounting Policies (continued) (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. Where an 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 insurers. The financial risks are substantially borne by the policyholder. Shareholders can only receive a distribution 86 Commonwealth Bank of Australia – Annual Report 2015 when the capital adequacy requirements of the Life Insurance Act 1995 are met. (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. 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. (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 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 comprise 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 Notes to the Financial Statements Note 1 Accounting Policies (continued) 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 include controlling The interests in trusts and companies which 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 packages and sells asset backed securities to investors through an asset securitisation program. The Group is entitled to any residual income of the program after all payments due to investors and costs of the program have been met. The Group also directs any decisions over relevant activities of the program and therefore controls 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, resulting in their continued recognition by the Group. 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. 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 Group’s net assets and income. (mm) 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. 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 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 13. (nn) Provisions (Other than Loan Impairment) Provisions are held in respect of a range of future obligations as outlined in Note 19. Provisions carried for long service leave are calculated based on actuarial models and subject to in underlying review based on changes semi-annual 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. Commonwealth Bank of Australia – Annual Report 2015 87 Notes to the Financial Statements Note 1 Accounting Policies (continued) (oo) 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, interest, inflation 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. relies on making The determination of assumptions 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 27. (pp) Consolidation of Special Purpose Entities The Group exercises judgement at inception and periodically, to assess whether a structured entity should be consolidated based on the Bank’s power over the relevant activities of the entity and the significance of its exposure to variable returns of the structured entity. Such assessments are predominantly required for the Group’s securitisation program, structured transactions, and involvement with investment funds. (qq) Financial Instruments at Fair Value A significant portion of financial instruments are carried at fair value on the Balance Sheet. 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 accepted economic methodologies financial 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. 88 Commonwealth Bank of Australia – Annual Report 2015 without modification or repackaging) and any other available observable market data. Note 40 includes details of non- observable inputs used to fair value financial instruments. (rr) Goodwill for the purpose of Goodwill is allocated to CGUs whose recoverable amount is calculated testing. The recoverable amount calculation relies primarily on publicly available earnings multiples. Note 15 includes the details of the inputs used in recoverable amount calculations. impairment (ss) Taxation Provisions for taxation require significant judgement with that are uncertain. For such respect uncertainties, the Group has estimated its tax provisions based on its expected outcomes. to outcomes (tt) Superannuation Obligations The Group’s defined benefit plans are described in Note 35. Actuarial valuations of the plan’s obligations and the fair value of the plan’s assets are performed semi-annually. The actuarial valuation of plan obligations is dependent upon a series of assumptions, including price inflation, discount rates, salary 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. Future Accounting Developments AASB 9 ‘Financial Instruments’ amends the classification, measurement and impairment of financial instruments and general hedge accounting requirements. AASB 9 is not mandatory until 1 July 2018 for the Group. Other than the own credit requirements, which were early adopted from 1 January 2014, the Group does not intend to early adopt the standard. for AASB 15 ‘Revenue from Contracts with Customers’ contains the recognition of revenue and new requirements additional disclosures. AASB 15 is not mandatory until 1 July 2017, however the IASB has deferred adoption to 1 July 2018. The AASB is also expected to make a similar amendment. The potential financial impact of the above to the Group is not yet possible to determine. The following amendments to existing standards are not yet mandatory and they are not expected to result in significant changes to the Group’s accounting policies:      ‘Amendments 2014-9 Standards – Equity Method Statements’; to Australian Accounting in Separate Financial ‘Amendments 2014-10 to Australian Accounting Standards – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture’; ‘Amendments 2015-1 Standards – Annual Accounting Standards 2012–2014 Cycle’; Improvements to Australian Accounting to Australian ‘Amendments 2015-2 to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 101’; and ‘Amendments 2015-5 Standards – Consolidation Exception’. Investment Entities: Applying to Australian Accounting the Notes to the Financial Statements Note 2 Profit Profit before income tax has been determined as follows: (1) Total interest income for financial assets that are not at fair value through profit or loss is $33,163 million (2014: $33,081 million, 2013: $34,289 million) for the Group and $34,050 million (2014: $34,334 million) for the Bank. (2) Total interest expense for financial liabilities that are not at fair value through profit or loss is $18,117 million (2014: $18,338 million, 2013: $20,607 million) (3) (4) for the Group and $20,893 million (2014: $21,387 million) for the Bank. Inclusive of non-trading derivatives that are held for risk management purposes. Includes depreciation in relation to operating leases where the Group is the lessor of $80 million (30 June 2014: $77 million, 30 June 2013: $65 million) and $18 million (30 June 2014: $17 million) where the Bank is the lessor. Commonwealth Bank of Australia – Annual Report 2015 89 GroupBank20152014201320152014$M$M$M$M$MInterest IncomeLoans and bills discounted 31,43131,15432,02027,66727,805Other financial institutions 7369646060Cash and liquid assets 268251187206201Assets at fair value through Income Statement 518447450468409Available-for-sale investments 1,8101,7242,0181,6944,221Controlled entities---4,8422,164Total interest income (1)34,10033,64534,73934,93734,860Interest ExpenseDeposits12,95313,33815,07011,41512,053Other financial institutions220228233186205Liabilities at fair value through Income Statement 188206198113107Debt issues 4,3724,3434,8693,4583,571Loan capital572429435547421Controlled entities---5,2875,137Total interest expense (2)18,30518,54420,80521,00621,494Net interest income15,79515,10113,93413,93113,366Other Operating IncomeLending fees 1,0501,0831,0539731,015Commissions2,2262,1301,9901,8601,783Trading income1,005922863940850Net gain/(loss) on non-trading financial instruments (3)251(49)17254(83)Net gain/(loss) on sale of property, plant and equipment(8)(12)(14)(4)(9)Net hedging ineffectiveness(95)(21)(25)(67)(25)Dividends - Controlled entities---1,9191,894Dividends - Other161295350Net funds management operating income2,0032,0341,847--Insurance contracts income 1,0141,033923--Share of profit of associates and joint ventures net of impairment285150165--Other (4)126105114919903Total other operating income7,8737,3876,9426,8476,378Total net operating income before impairment and operating expense23,66822,48820,87620,77819,744Impairment ExpenseLoan impairment expense 9889181,146837871Total impairment expense (Note 13)9889181,146837871 Notes to the Financial Statements Note 2 Profit (continued) (1) Comparative information has been reclassified to conform with presentation in the current year. (2) Merger related amortisation relates to Bankwest core deposits and customer lists. 90 Commonwealth Bank of Australia – Annual Report 2015 GroupBank20152014201320152014$M$M$M$M$MStaff ExpensesSalaries and related on-costs (1)5,3215,0894,7863,9183,732Share-based compensation (1)969910092107Superannuation399354346311279Total staff expenses5,8165,5425,2324,3214,118Occupancy and Equipment ExpensesOperating lease rentals620607580535526Depreciation of property, plant and equipment 253244234208197Other occupancy expenses (1)213202204172155Total occupancy and equipment expenses1,0861,0531,018915878Information Technology ServicesApplication, maintenance and development 430412439390375Data processing (1)183175196182174Desktop1101011009689Communications190189202169169Amortisation of software assets308328245264290Software write-offs1170-1068IT equipment depreciation6062775659Total information technology services1,2921,3371,2591,1671,224Other ExpensesPostage and stationery195188199170165Transaction processing and market data (1)153156134116136Fees and commissions:Professional fees 390257230358232Other (1)9799120360316Advertising, marketing and loyalty522477463407391Amortisation of intangible assets (excluding software and merger related amortisation)161920--Non-lending losses118976710892Other (1)308274268274240Total other expenses1,7991,5671,5011,7931,572Total expenses9,9939,4999,0108,1967,792Investment and RestructuringMerger related amortisation (2)7574757574Total investment and restructuring7574757574Total operating expenses10,0689,5739,0858,2717,866Profit before income tax12,61211,99710,64511,67011,007Net hedging ineffectiveness comprises:Gain/(loss) on fair value hedges:Hedging instruments(568)59(614)(731)(315)Hedged items493(71)617660305Cash flow hedge ineffectiveness(20)(9)(28)4(15)Net hedging ineffectiveness(95)(21)(25)(67)(25) Notes to the Financial Statements Note 3 Average Balances and Related Interest The following tables have been produced using Statutory Balance Sheet and Income Statement categories. The 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. 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 50 basis points, while rates in New Zealand remained unchanged during the year. (1) Loans, bills discounted and other receivables include bank acceptances. (2) Excludes amortisation of acquisition related fair value adjustments made to fixed interest financial instruments. Commonwealth Bank of Australia – Annual Report 2015 91 Group201520142013AverageAverageAverageAverageAverageAverageInterest earning BalanceInterestRateBalanceInterestRateBalanceInterestRateassets$M$M%$M$M%$M$M%Cash and liquid assetsAustralia8,9511741. 98,1791692. 15,4591162. 1Overseas21,500940. 417,840820. 512,787710. 6Receivables due from other financial institutionsAustralia3,418200. 65,070290. 63,405351. 0Overseas6,262530. 84,334400. 95,888290. 5Assets at fair value through Income Statement - Trading and OtherAustralia17,3673962. 316,2593522. 210,5513623. 4Overseas4,6181222. 66,053951. 66,035881. 5Available-for-sale investmentsAustralia58,3381,6562. 854,0261,6353. 052,6801,9333. 7Overseas10,0941541. 57,702891. 26,822851. 2Loans, bills discounted and other receivables (1)Australia (2)542,13827,0785. 0512,89427,3715. 3491,16028,8405. 9Overseas82,1864,3535. 373,0143,7835. 258,8503,1805. 4Total interest earning assets and interest income754,87234,1004. 5705,37133,6454. 8653,63734,7395. 3Group201520142013AverageAverageAverageBalanceBalanceBalanceNon-interest earning assets$M$M$MAssets at fair value through Income Statement - InsuranceAustralia12,53112,14112,464Overseas2,5742,4132,177Property, plant and equipmentAustralia2,5312,5062,380Overseas249237210Other assetsAustralia61,85551,44852,036Overseas12,58010,8249,986Provisions for impairmentAustralia(3,524)(4,027)(4,516)Overseas(288)(269)(234)Total non-interest earning assets88,50875,27374,503Total assets843,380780,644728,140Percentage of total assets applicable to overseas operations (%)16.615.614.1 Notes to the Financial Statements Note 3 Average Balances and Related Interest (continued) (1) Certain comparative information has been restated to conform to presentation in the current year. (2) Debt issues include bank acceptances. 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. 92 Commonwealth Bank of Australia – Annual Report 2015 Group201520142013Average AverageAverage AverageAverage AverageInterest bearing Balance Interest RateBalance Interest RateBalance InterestRateliabilities (1)$M $M % $M $M % $M $M%Time depositsAustralia209,8207,0803. 4211,5718,0323. 8211,0649,6804. 6Overseas38,7061,0972. 836,5169312. 535,6029542. 7Savings depositsAustralia158,2323,0761. 9135,2762,9052. 1118,8963,1302. 6Overseas14,8214393. 012,8973953. 18,7402743. 1Other demand depositsAustralia82,6091,1231. 471,9029801. 464,6599601. 5Overseas5,9161382. 35,024951. 93,988721. 8Payables due to other financialinstitutionsAustralia11,6611391. 29,5201161. 27,5181171. 6Overseas20,030810. 416,8291120. 713,7681160. 8Liabilities at fair value throughIncome StatementAustralia4,3981082. 54,3061022. 42,433974. 0Overseas2,696803. 04,1051042. 54,3991012. 3Debt issues (2)Australia 132,7663,8232. 9129,1014,0003. 1118,2954,6663. 9Overseas21,0235492. 615,1833432. 310,2572032. 0Loan capitalAustralia6,7153014. 55,9592594. 35,8462834. 8Overseas4,7662715. 73,5441704. 84,0921523. 7Total interest bearing liabilities and interest expense714,15918,3052. 6661,73318,5442. 8609,55720,8053. 4Group201520142013AverageAverageAverageBalanceBalanceBalanceNon-interest bearing liabilities$M$M$MDeposits not bearing interestAustralia10,1738,8787,895Overseas2,5892,3281,903Insurance policy liabilitiesAustralia11,81111,64811,799Overseas1,4711,3891,255Other liabilitiesAustralia40,07737,38642,945Overseas11,9299,9759,332Total non-interest bearing liabilities78,05071,60475,129Total liabilities792,209733,337684,686Shareholders' Equity51,17147,30743,454Total liabilities and Shareholders' Equity843,380780,644728,140Total liabilities applicable to overseas operations (%)15.614.713.6 Notes to the Financial Statements Note 3 Average Balances and Related Interest (continued) 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). (1) Certain comparative information has been restated to conform to presentation in the current year. Commonwealth Bank of Australia – Annual Report 2015 93 Changes in net interest income:VolumeRateTotalVolumeRateTotalVolume and rate analysis$M$M$M$M$M$MInterest Earning AssetsCash and liquid assetsAustralia15(10)557(4)53Overseas16(4)1226(15)11Receivables due from other financial institutionsAustralia(10)1(9)13(19)(6)Overseas17(4)13(11)2211Assets at fair value through Income Statement - Trading and OtherAustralia251944160(170)(10)Overseas(30)5727-77Available-for-sale investmentsAustralia126(105)2145(343)(298)Overseas32336511(7)4Loans, bills discounted and other receivablesAustralia 1,511(1,804)(293)1,218(2,687)(1,469)Overseas 48189570750(147)603Changes in interest income2,299(1,844)4552,609(3,703)(1,094)Interest Bearing Liabilities and Loan Capital (1)Time depositsAustralia(63)(889)(952)21(1,669)(1,648)Overseas5910716624(47)(23)Savings depositsAustralia470(299)171391(616)(225)Overseas58(14)44129(8)121Other demand depositsAustralia146(3)143103(83)20Overseas19244319423Payables due to other financial institutionsAustralia26(3)2328(29)(1)Overseas17(48)(31)23(27)(4)Liabilities at fair value through Income StatementAustralia24660(55)5Overseas(39)15(24)(7)103Debt issuesAustralia 110(287)(177)381(1,047)(666)Overseas 1426420610436140Loan capitalAustralia 339425(29)(24)Overseas6437101(23)4118Changes in interest expense1,406(1,645)(239)1,621(3,882)(2,261)Changes in net interest income1,048(354)6941,105621,167June 2015 vs June 2014June 2014 vs June 2013 Notes to the Financial Statements Note 4 Income Tax The income tax expense for the year is determined from the profit before income tax as follows: (1) Policyholder tax is excluded from both profit before income tax and tax expense for the purpose of calculating the Group’s effective tax rate as it is not incurred directly by the Group. 94 Commonwealth Bank of Australia – Annual Report 2015 GroupBank20152014201320152014$M$M$M$M$MProfit before Income Tax 12,61211,99710,64511,67011,007Prima facie income tax at 30% 3,7843,5993,1933,5013,302Effect of amounts which are non-deductible/ (assessable) in calculating taxable income:Taxation offsets and other dividend adjustments(6)(6)(3)(582)(574)Tax adjustment referable to policyholder income698979--Tax losses not previously brought to account(9)(21)(18)(6)(15)Offshore tax rate differential(116)(99)(89)(35)(21)Offshore banking unit(39)(30)(33)(39)(30)Effect of changes in tax rates23-13Income tax (over) provided in previous years (163)(121)(50)(151)(77)Other6(67)(68)5(23)Total income tax expense3,5283,3473,0112,6942,565Corporate tax expense3,4293,2212,8992,6942,565Policyholder tax expense99126112--Total income tax expense3,5283,3473,0112,6942,565Effective tax rate (%) (1)27.427.127.523.123.3Group Bank Income tax expense attributable to 20152014201320152014profit from ordinary activities$M $M $M $M $M AustraliaCurrent tax expense2,8652,4332,3922,5912,214Deferred tax expense 1243891929247Total Australia2,9892,8222,5842,6002,461OverseasCurrent tax expense5476704257884Deferred tax expense/(benefit)(8)(145)21620Total overseas53952542794104Total income tax expense3,5283,3473,0112,6942,565 Notes to the Financial Statements Note 4 Income Tax (continued) (1) Comparatives have been aggregated to conform to presentation in the current year. (2) The following amounts are expected to be recovered within 12 months of the Balance Sheet date for the Group $1,220 million (2014: $1,151 million) and for the Bank $1,083 million (2014: $1,031 million). (3) The following amounts are expected to be settled within 12 months of the Balance Sheet date for the Group $552 million (2014: $366 million) and for the Bank $139 million (2014: $189 million). Commonwealth Bank of Australia – Annual Report 2015 95 GroupBank20152014201320152014$M$M$M$M$MDeferred tax asset balances comprise temporary differences attributable to:Amounts recognised in the Income Statement:Provision for employee benefits453437414369360Provisions for impairment on loans, bills discounted and other receivables1,0081,0441,177944986Other provisions not tax deductible until expense incurred283160175234134Financial instruments369912Defined benefit superannuation plan 293265199293265Other (1)207233231184206Total amount recognised in the Income Statement2,2802,1482,2052,0251,953Amounts recognised directly in Other Comprehensive Income:Cash flow hedge reserve155997776Other reserves (1)62633Total amount recognised directly in Other Comprehensive Income16110183109Total deferred tax assets (before set off) (2)2,4412,2492,2882,0351,962Set off to tax pursuant to set-off provisions in Note 1(r)(1,986)(1,663)(1,372)(1,264)(1,166)Net deferred tax assets455586916771796Deferred tax liability balances comprise temporary differences attributable to:Amounts recognised in the Income Statement:Impact of TOFA adoption--11--Lease financing341381370170187Intangible assets123457311837Financial instruments2351841421115Other60062458761151Total amount recognised in the Income Statement1,2991,2341,183360390Amounts recognised directly in Other Comprehensive Income:Revaluation of properties7685827684Foreign currency translation reserve40----Cash flow hedge reserve293193259223179Defined benefit superannuation plan 365229180365229Available-for-sale investments reserve264288139240284Total amount recognised directly in Other Comprehensive Income1,038795660904776Total deferred tax liabilities (before set off) (3)2,3372,0291,8431,2641,166Set off to tax pursuant to set-off provisions in Note 1(r)(1,986)(1,663)(1,372)(1,264)(1,166)Net deferred tax liabilities351366471--Deferred tax assets opening balance: 5869169607961,044Movement in temporary differences during the year:Provisions for employee benefits162333913Provisions for impairment on loans, bills discounted and other receivables(36)(133)(87)(42)(135)Other provisions not tax deductible until expense incurred123(15)(17)100(11)Financial instruments8719(32)(1)(55)Defined benefit superannuation plan 2866582866Other (1)(26)119(21)(11)Set off to tax pursuant to set-off provisions in Note 1(r)(323)(291)(18)(98)(115)Deferred tax assets closing balance455586916771796 Notes to the Financial Statements Note 4 Income Tax (continued) (1) Comparatives have been aggregated to conform to presentation in the current year. Deferred tax assets have not been recognised in respect of the following items because it is not considered probable that future taxable profit will be available against which they can be realised: Tax Consolidation The Bank has recognised a tax consolidation contribution to the wholly-owned tax consolidated entity of $98 million (2014: $97 million). The amount receivable by the Bank under the tax funding agreement was $200 million as at 30 June 2015 (2014: $252 million receivable). This balance is included in ‘Other assets’ in the Bank’s separate Balance Sheet. Taxation of Financial Arrangements (TOFA) The new tax regime for financial instruments TOFA began to apply to the Tax Consolidated Group from 1 July 2010. The regime allows a closer alignment of the tax and accounting recognition and measurement of financial arrangements and their related flows. Following adoption, deferred tax balances from financial arrangements progressively reverse over a four year period. 96 Commonwealth Bank of Australia – Annual Report 2015 Group Bank 20152014201320152014$M $M $M $M $M Deferred tax liabilities opening balance:366471338--Movement in temporary differences during the year:Impact of TOFA adoption-(11)2-(11)Lease financing(40)115(17)5Defined benefit superannuation plan 1364912613649Intangible assets78(28)(54)81(25)Financial instruments16712546(4)105Other (1)(33)4026(98)(8)Set off to tax pursuant to set-off provisions in Note 1(r)(323)(291)(18)(98)(115)Deferred tax liabilities closing balance351366471--Group Bank 20152014201320152014Deferred tax assets not taken to account$M $M $M $M $M Tax losses and other temporary differences on revenue account:Expire under current legislation 8350836239Do not expire under current legislation-1211--Total8362946239 Notes to the Financial Statements Note 5 Dividends (1) The 2015 final dividend will be satisfied in full by cash disbursements with the Dividend Reinvestment Plan (DRP) anticipated will be satisfied by the issue of shares of approximately $700 million. The 2014 final dividend was satisfied by cash disbursements of $3,534 million with the DRP satisfied in full by an on market purchase of shares. The 2013 final dividend was satisfied by cash disbursements of $3,224 million with the DRP satisfied in full by an on market purchase of shares. Final Dividend The Directors have declared a franked final dividend of 222 cents per share amounting to $3,613 million. The dividend will be payable on 1 October 2015 to shareholders on the register at 5pm AEST on 20 August 2015. The ex-dividend date is 18 August 2015. 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 expectations; and Earnings per share growth. The Bank expects the DRP for the final dividend for the year 30 June 2015 will be satisfied by the issue of shares of approximately $700 million. 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 2015 to frank dividends for subsequent financial years, is $569 million (2014: $533 million). This figure is based on the franking accounts of the Bank at 30 June 2015, adjusted for franking credits that will arise from the payment of income tax payable on profits for the year, franking debits that will arise from the payment of dividends proposed, and franking credits that the Bank may be prevented from distributing in subsequent financial periods. The Bank expects that future tax payments will generate sufficient franking credits for the Bank to be able to continue to fully frank future dividend payments. These calculations have been based on the taxation law as at 30 June 2015. Dividend History (1) Dividend Payout Ratio: dividends divided by statutory earnings (earnings are net of dividends on other equity instruments). (2) DRP Participation Rate: the percentage of total issued share capital participating in the DRP. Commonwealth Bank of Australia – Annual Report 2015 97 Group Bank 20152014201320152014$M $M $M $M $M Ordinary SharesInterim ordinary dividend (fully franked) (2015: 198 cents; 2014: 183 cents; 2013: 164 cents)Interim ordinary dividend paid - cash component only2,6362,2432,6392,6362,243Interim ordinary dividend paid - Dividend Reinvestment Plan574707-574707Total dividend paid3,2102,9502,6393,2102,950Other Equity InstrumentsDividend paid524540--Total dividend provided for, reserved or paid3,2622,9952,6793,2102,950Other provision carried8273658273Dividend proposed and not recognised as a liability (fully franked) (2015: 222 cents; 2014: 218 cents; 2013: 200 cents) (1)3,6133,5343,2243,6133,534Provision for dividendsOpening balance7365527365Provision made during the year6,7446,1745,8316,7446,174Provision used during the year(6,735)(6,166)(5,818)(6,735)(6,166)Closing balance (Note 19)8273658273Half-yearFull YearDRPPayoutPayoutDRPParticipationCents Per Ratio (1) Ratio (1)Price Rate (2)Half year endedSharePayment Date% % $ % 31 December 2012164 05/04/201373. 1-68. 7622. 730 June 2013200 03/10/201381. 377. 473. 4222. 431 December 2013183 03/04/201470. 5-75. 2624. 030 June 2014218 02/10/201480. 375. 580. 3919. 931 December 2014198 02/04/201571. 2-91. 2617. 930 June 2015222 01/10/201580. 375. 7-- Notes to the Financial Statements Note 6 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 7 Cash and Liquid Assets Note 8 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 12 months of the Balance Sheet date. 98 Commonwealth Bank of Australia – Annual Report 2015 Group 20152014 2013 Earnings per ordinary shareCents per ShareBasic 557. 0533. 8474. 2Fully diluted542. 7521. 9461. 0Group 20152014 2013Reconciliation of earnings used in calculation of earnings per share$M $M $M Profit after income tax9,0848,6507,634Less: Other equity instrument dividends(52)(45)(40)Less: Non-controlling interests(21)(19)(16)Earnings used in calculation of basic earnings per share9,0118,5867,578Add: Profit impact of assumed conversions of loan capital225190193Earnings used in calculation of fully diluted earnings per share9,2368,7767,771Number of Shares 201520142013M M M Weighted average number of ordinary shares used in the calculationof basic earnings per share1,6181,6081,598Effect of dilutive securities - executive share plans and convertible loan capital instruments847388Weighted average number of ordinary shares used in the calculation of fully diluted earnings per share1,7021,6811,686Group Bank 2015201420152014$M $M $M $M Notes, coins and cash at banks15,68312,49014,82111,089Money at short call3,4786,4823,2866,302Securities purchased under agreements to resell13,8467,28113,5186,630Bills received and remittances in transit1091565887Total cash and liquid assets33,11626,40931,68324,108GroupBank2015201420152014$M$M$M$MPlacements with and loans to other financial institutions11,3287,8859,6877,429Deposits with regulatory authorities (1)2121803328Total receivables due from other financial institutions11,5408,0659,7207,457 Notes to the Financial Statements Note 9 Assets at Fair Value through Income Statement Investments held in the Australian statutory funds may only be used within the restrictions imposed under the Life Insurance Act 1995. (1) (2) 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 (3) mismatch. 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 12). Note 10 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. 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. Commonwealth Bank of Australia – Annual Report 2015 99 GroupBank2015201420152014Assets at Fair Value through Income Statement$M $M $M $M TradingGovernment bonds, notes and securities11,48610,45311,04210,311Corporate/financial institution bonds, notes and securities6,4447,2166,0266,477Shares and equity investments2,6231,7912,1961,791Commodities5,8711,9995,8711,993Total trading assets26,42421,45925,13520,572Insurance (1)Investments backing life risk contractsEquity security investments844925--Debt security investments3,1353,440--Property investments136282--Other assets555409-Investments backing life investment contractsEquity security investments4,6704,822--Debt security investments3,1823,450--Property investments297665--Other assets1,2691,149--Total life insurance investment assets14,08815,142--Other (2)Government securities95192-137Receivables due from other financial institutions1,183568989424Total other assets at fair value through Income Statement1,278760989561Total assets at fair value through Income Statement (3)41,79037,36126,12421,133Maturity Distribution of assets at fair value through income statementLess than twelve months27,57723,57626,12421,133More than twelve months14,21313,785--Total assets at fair value through Income Statement41,79037,36126,12421,133 Notes to the Financial Statements Note 10 Derivative Financial Instruments (continued) 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: 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: 100 Commonwealth Bank of Australia – Annual Report 2015 GroupBankTotalTotal2015201420152014$M$M$M$MWithin 6 months(39)98(8)376 months - 1 year(5)3428(9)1 - 2 years972691742782 - 5 years591313690521After 5 years(267)(395)(128)(222)Net deferred gains/(losses)377319756605Group20152014Fair ValueFair ValueFair ValueFair ValueAssetLiabilityAssetLiabilityDerivatives assets and liabilities$M$M$M$MHeld for tradingExchange rate related contracts:Forward contracts7,019(6,472)3,666(3,784)Swaps7,299(7,808)4,200(4,536)Futures7-15-Options purchased and sold736(773)391(373)Total exchange rate related contracts15,061(15,053)8,272(8,693)Interest rate related contracts:Forward contracts1(1)--Swaps9,120(7,226)11,103(10,163)Futures5(2)7(4)Options purchased and sold824(844)620(580)Total interest rate related contracts9,950(8,073)11,730(10,747)Credit related swaps28(33)33(38)Equity related contracts:Swaps165(9)65(9)Options purchased and sold66(62)34(53)Total equity related contracts231(71)99(62)Commodity related contracts:Swaps291(359)136(205)Options purchased and sold59(55)14(14)Total commodity related contracts350(414)150(219)Identified embedded derivatives193(258)6(82)Total derivative assets/(liabilities) held for trading25,813(23,902)20,290(19,841) Notes to the Financial Statements Note 10 Derivative Financial Instruments (continued) Held for trading derivatives are expected to be recovered or due to be settled within 12 months of the Balance Sheet date. The majority of hedging derivatives are expected to be recovered or due to be settled more than 12 months after the Balance Sheet date. Commonwealth Bank of Australia – Annual Report 2015 101 Group20152014Fair ValueFair ValueFair ValueFair ValueAssetLiabilityAssetLiability$M$M$M$MFair value hedgesExchange rate related contracts:Forward contracts--2-Swaps12,238(5,393)4,481(2,516)Total exchange rate related contracts12,238(5,393)4,483(2,516)Interest rate related swaps932(3,182)938(3,101)Equity related swaps--33(1)Total fair value hedges13,170(8,575)5,454(5,618)Cash flow hedgesExchange rate related swaps4,329(1,080)983(640)Interest rate related swaps2,831(1,656)2,518(1,160)Total cash flow hedges7,160(2,736)3,501(1,800)Net investment hedgesExchange rate related forward contracts11-2-Total net investment hedges11-2-Total derivative assets/(liabilities) held for hedging20,341(11,311)8,957(7,418)Bank20152014Fair ValueFair ValueFair ValueFair ValueAssetLiabilityAssetLiabilityDerivatives assets and liabilities$M$M$M$MHeld for tradingExchange rate related contracts:Forward contracts6,900(6,430)3,642(3,733)Swaps7,484(7,800)4,272(4,469)Futures7-15-Options purchased and sold730(772)391(372)Derivatives held with controlled entities850(3,647)744(2,081)Total exchange rate related contracts15,971(18,649)9,064(10,655)Interest rate related contracts:Forward contracts1(1)--Swaps8,898(6,896)10,890(9,828)Futures-(1)3(4)Options purchased and sold823(842)619(578)Derivatives held with controlled entities132(241)98(251)Total interest rate related contracts9,854(7,981)11,610(10,661)Credit related swaps28(33)33(38)Equity related contracts:Swaps165(9)64(9)Options purchased and sold66(62)34(53)Total equity related contracts231(71)98(62)Commodity related contracts:Swaps291(359)136(205)Options purchased and sold59(55)14(14)Total commodity related contracts350(414)150(219)Identified embedded derivatives193(258)6(82)Total derivative assets/(liabilities) held for trading26,627(27,406)20,961(21,717) Notes to the Financial Statements Note 10 Derivative Financial Instruments (continued) Held for trading derivatives are expected to be recovered or due to be settled within 12 months of the Balance Sheet date. The majority of hedging derivatives are expected to be recovered or due to be settled more than 12 months after the Balance Sheet date. 102 Commonwealth Bank of Australia – Annual Report 2015 Bank20152014Fair ValueFair ValueFair ValueFair ValueAssetLiabilityAssetLiability$M$M$M$MFair value hedgesExchange rate related contracts:Forward contracts--2-Swaps11,717(5,210)4,313(2,351)Derivatives held with controlled entities47(1,367)162(271)Total exchange rate related contracts11,764(6,577)4,477(2,622)Interest rate related contracts:Swaps823(3,002)826(3,027)Derivatives held with controlled entities-(177)27(139)Total interest rate related contracts823(3,179)853(3,166)Equity related swaps--33(1)Total fair value hedges12,587(9,756)5,363(5,789)Cash flow hedgesExchange rate related contracts:Swaps3,808(1,059)946(475)Derivatives held with controlled entities1(90)30(290)Total exchange rate related contracts3,809(1,149)976(765)Interest rate related contracts:Swaps2,583(1,320)2,305(1,066)Derivatives held with controlled entities1(5)10(4)Total interest rate related contracts2,584(1,325)2,315(1,070)Total cash flow hedges6,393(2,474)3,291(1,835)Total derivative assets/(liabilities) held for hedging18,980(12,230)8,654(7,624) Notes to the Financial Statements Note 11 Available-for-Sale Investments (1) Supranational, Sovereign and Agency Securities (SSA). (2) On 31 March 2015 internal residential mortgage backed securities (internal RMBS) issued to the Bank by controlled entities of $75,041 million were reclassified to Loans to controlled entities. They were reclassified prospectively at their fair value of $75,041 million. As at the date of reclassification the available for sale reserve was nil. The fair value of the internal RMBS as at 30 June 2015 was $74,959 million, as disclosed in Note 40. The following amounts are expected to be recovered within 12 months of the Balance Sheet date for the Group $20,350 million (2014: $17,928 million) and for Bank $20,812 million (2014: $17,373 million). Proceeds received from settlement at or close to maturity of Available-for-sale investments for the Group were $47,752 million (2014: $41,527 million) and for the Bank were $47,235 million (2014: $41,424 million). Proceeds from the sale of available-for-sale investments for the Group were $5,817 million (2014: $2,603 million) and for the Bank were $5,817 million (2014: $2,603 million). Maturity Distribution and Weighted Average Yield The maturity tables are based on contractual terms. Commonwealth Bank of Australia – Annual Report 2015 103 GroupBank2015201420152014$M$M$M$MGovernment bonds, notes and securities36,10032,72735,70832,017Corporate/financial institution bonds, notes and securities22,27222,09822,02721,894Shares and equity investments1,155948726805Covered bonds, mortgage backed securities and SSA (1) (2)15,15710,36413,84376,861Total available-for-sale investments74,68466,13772,304131,577GroupMaturity Period at 30 June 201510 orNon-0 to 1 Year1 to 5 Years5 to 10 Yearsmore YearsMaturingTotal$M%$M%$M%$M%$M$MGovernment bonds, notes and securities6,2541.0911,8302.3315,3902.932,6263.52-36,10012,3672.179,8723.25334.73---22,272Shares and equity investments--------1,1551,1551,5852.555,6182.978442.967,1102.96-15,157Total available-for-sale investments20,206-27,320-16,267-9,736-1,15574,684Covered bonds, mortgage backed securities and SSACorporate/financial institution bonds, notes and securitiesGroupMaturity Period at 30 June 201410 orNon-0 to 1 Year1 to 5 Years5 to 10 Yearsmore YearsMaturingTotal$M%$M%$M%$M%$M$MGovernment bonds, notes and securities4,4032.0211,4243.8112,1894.924,7114.81-32,72712,5342.659,5593.4854.65---22,098Shares and equity investments--------9489488514.704,4694.405184.814,5263.43-10,364Total available-for-sale investments17,788-25,452-12,712-9,237-94866,137Corporate/financial institution bonds, notes and securitiesCovered bonds, mortgage backed securities and SSA Notes to the Financial Statements Note 12 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 41. (2) The Group measures bills discounted intended to be sold into the market at fair value and includes these within loans, bills discounted and other receivables to reflect the nature of the lending arrangement. The following amounts, based on behavioural terms and current market conditions, are expected to be recovered within 12 months of the Balance Sheet date for Group $187,536 million (2014: $172,321 million), and for Bank $159,429 million (2014: $141,976 million). The maturity tables below are based on contractual terms. Finance Lease Receivables The Group and the Bank provide finance leases to a broad range of clients to support financing needs in acquiring transportation assets such as trains, aircraft, ships and major production and manufacturing equipment. Finance lease receivables are included within loans, bills discounted and other receivables to customers. 104 Commonwealth Bank of Australia – Annual Report 2015 GroupBank2015201420152014$M$M$M$MAustraliaOverdrafts22,35323,35022,35323,350Home loans (1)383,174360,218379,500358,343Credit card outstandings11,88711,73611,88711,736Lease financing4,4854,1623,0533,024Bills discounted (2)14,84719,24414,84719,244Term loans123,489107,380123,363107,140Other lending823348823347Total Australia561,058526,438555,826523,184OverseasOverdrafts1,3731,230139222Home loans (1)39,67739,467522481Credit card outstandings816803--Lease financing3353394959Term loans40,96934,82321,32516,114Total overseas83,17076,66222,03516,876Gross loans, bills discounted and other receivables644,228603,100577,861540,060LessProvisions for Loan Impairment (Note 13):Collective provision(2,739)(2,739)(2,530)(2,547)Individually assessed provisions (879)(1,127)(824)(1,087)Unearned income:Term loans(756)(802)(753)(798)Lease financing(592)(651)(319)(381)(4,966)(5,319)(4,426)(4,813)Net loans, bills discounted and other receivables639,262597,781573,435535,247Group 20152014GrossPresent 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 year1,051(147)9041,050(142)908One year to five years3,138(353)2,7852,824(365)2,459Over five years631(92)539627(144)4834,820(592)4,2284,501(651)3,850 Notes to the Financial Statements Note 12 Loans, Bills Discounted and Other Receivables (continued) (1) The industry split has been prepared on an industry exposure basis. The maturity tables are based on contractual terms. Commonwealth Bank of Australia – Annual Report 2015 105 Bank 20152014Gross 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 $M Not later than one year759(65)694789(66)723One year to five years1,948(182)1,7661,898(197)1,701Over five years395(72)323396(118)2783,102(319)2,7833,083(381)2,702GroupMaturity Period at 30 June 2015Maturing 1MaturingMaturingYearBetween 1Afteror Lessand 5 Years5 YearsTotalIndustry (1)$M$M$M$MAustraliaSovereign4,8154382685,521Agriculture2,2123,2248226,258Bank and other financial8,4776,31236815,157Home loans18,07036,111328,993383,174Construction1,1861,1164202,722Other personal7,73913,5251,04922,313Asset financing2,7815,4261498,356Other commercial and industrial40,56566,28110,711117,557Total Australia85,845132,433342,780561,058OverseasSovereign5,4966,51292112,929Agriculture1,4112,5983,9817,990Bank and other financial2,7292,6902,1537,572Home loans6,3824,13429,16139,677Construction174113120407Other personal1,0943311,128Asset financing1179468558Other commercial and industrial5,4474,3963,06612,909Total overseas22,74420,55539,87183,170Gross loans, bills discounted and other receivables108,589152,988382,651644,228Maturing 1MaturingMaturingYearBetween 1Afteror Lessand 5 Years5 Years TotalInterest rate$M$M$M$MAustralia76,053112,989293,596482,638Overseas15,08213,27717,64946,008Total variable interest rates91,135126,266311,245528,646Australia9,79219,44449,18478,420Overseas7,6627,27822,22237,162Total fixed interest rates17,45426,72271,406115,582Gross loans, bills discounted and other receivables108,589152,988382,651644,228 Notes to the Financial Statements Note 12 Loans, Bills Discounted and Other Receivables (continued) (1) The industry split has been prepared on an industry exposure basis. The maturity tables are based on contractual terms. 106 Commonwealth Bank of Australia – Annual Report 2015 GroupMaturity Period at 30 June 2014Maturing 1MaturingMaturingYearBetween 1Afteror Lessand 5 Years5 YearsTotalIndustry (1)$M$M$M$MAustraliaSovereign5,0745472995,920Agriculture2,3362,4701,0585,864Bank and other financial4,9704,81739210,179Home loans8,57427,679323,965360,218Construction1,2869754182,679Other personal7,60813,1382,30123,047Asset financing2,4525,3912358,078Other commercial and industrial43,49655,47611,481110,453Total Australia75,796110,493340,149526,438OverseasSovereign6,2064,6791,42412,309Agriculture1,3442,0743,9717,389Bank and other financial2,0891,5951,8025,486Home loans6,7484,09428,62539,467Construction166104108378Other personal1,0443921,085Asset financing1682229327Other commercial and industrial4,1863,7772,25810,221Total overseas21,79916,44438,41976,662Gross loans, bills discounted and other receivables97,595126,937378,568603,100Maturing 1MaturingMaturingYearBetween 1Afteror Lessand 5 Years5 YearsTotalInterest rate $M$M$M$MAustralia65,75592,588273,965432,308Overseas14,52510,24518,60243,372Total variable interest rates80,280102,833292,567475,680Australia10,04117,90566,18494,130Overseas7,2746,19919,81733,290Total fixed interest rates17,31524,10486,001127,420Gross loans, bills discounted and other receivables97,595126,937378,568603,100 Notes to the Financial Statements Note 13 Provisions for Impairment Commonwealth Bank of Australia – Annual Report 2015 107 GroupBank20152014201320152014Provisions for impairment losses$M$M$M$M$MCollective provisionOpening balance2,7792,8582,8372,5872,659Net collective provision funding589497559528495Impairment losses written off(770)(753)(695)(718)(717)Impairment losses recovered176165154155148Other(12)12312Closing balance2,7622,7792,8582,5532,587Individually assessed provisionsOpening balance1,1271,6282,0081,0871,585Net new and increased individual provisioning659726937550630Write-back of provisions no longer required(260)(305)(350)(241)(254)Discount unwind to interest income(38)(51)(90)(38)(51)Impairment losses written off(709)(1,060)(1,194)(639)(1,010)Other108189317113187Closing balance8871,1271,6288321,087Total provisions for impairment losses3,6493,9064,4863,3853,674Less: Provision for Off Balance Sheet exposures(31)(40)(31)(31)(40)Total provisions for loan impairment3,6183,8664,4553,3543,634GroupBank20152014201320152014Provision ratios%%%%%Total provisions for impaired assets as a % of gross impaired assets35. 9437. 6040. 6238. 8540. 61Total provisions for impairment losses as a % of gross loans and acceptances0. 560. 640. 790. 580. 67Group Bank 20152014201320152014Loan impairment expense$M $M $M $M $M Net collective provision funding589497559528495Net new and increased individual provisioning659726937550630Write-back of individually assessed provisions(260)(305)(350)(241)(254)Total loan impairment expense9889181,146837871 Notes to the Financial Statements Note 13 Provisions for Impairment (continued) 108 Commonwealth Bank of Australia – Annual Report 2015 Group Individually assessed provisions by20152014201320122011industry classification$M $M $M $M $M AustraliaSovereign-----Agriculture1331231688987Bank and other financial3668217235254Home loans148151182256202Construction202989152133Other personal1014141111Asset financing2830231437Other commercial and industrial4006208711,1631,307Total Australia7751,0351,5641,9202,031OverseasSovereign-----Agriculture14316711Bank and other financial-15561Home loans1011172825Construction11---Other personal-----Asset financing10----Other commercial and industrial7762264757Total overseas11292648894Total individually assessed provisions8871,1271,6282,0082,125Group 20152014201320122011Loans written off by industry classification$M $M $M $M $M AustraliaSovereign-----Agriculture65138303210Bank and other financial361227951107Home loans721132178884Construction14521394589Other personal686677622657567Asset financing4537253826Other commercial and industrial404568686884989Total Australia1,3221,7071,7981,7951,872OverseasSovereign-----Agriculture334517Bank and other financial69-1011Home loans813212426Construction----1Other personal4230251922Asset financing-----Other commercial and industrial3560313336Total overseas1571069182103Gross loans written off1,4791,8131,8891,8771,975Recovery of amounts previously written offAustralia165148144216199Overseas111710127Total amounts recovered176165154228206Net loans written off1,3031,6481,7351,6491,769 Notes to the Financial Statements Note 13 Provisions for Impairment (continued) Note 14 Property, Plant and Equipment (1) Had land and buildings been measured using the cost model rather than fair value, the carrying value would have been $210 million (2014: $224 million) for Group and $190 million (2014: $203 million) for Bank. The majority of the above amounts have expected useful lives longer than 12 months after the Balance Sheet date. There are no significant items of property, plant and equipment that are currently under construction. Land and buildings are carried at fair value based on independent valuations performed during the year; refer to Note 1(y). These fair values fall under the Level 3 category of the fair value hierarchy as defined in Note 40. Commonwealth Bank of Australia – Annual Report 2015 109 Group20152014201320122011Loans recovered by industry classification$M $M $M $M $M AustraliaSovereign-----Agriculture-----Bank and other financial968173Home loans344543Construction-----Other personal125106113147134Asset financing456172Other commercial and industrial2427133017Total Australia165148144216199OverseasSovereign-----Agriculture-3---Bank and other financial-31--Home loans111--Construction-----Other personal108887Asset financing-----Other commercial and industrial-2-4-Total overseas111710127Total loans recovered176165154228206GroupBank2015201420152014$M$M$M$MLand and Buildings (1)At 30 June valuation463499416448Total land and buildings 463499416448Leasehold ImprovementsAt cost1,5131,3921,2821,180Accumulated depreciation(904)(803)(786)(693)Closing balance609589496487EquipmentAt cost1,6911,6211,3361,268Accumulated depreciation(1,313)(1,266)(1,032)(995)Closing balance378355304273Assets Under LeaseAt cost1,6621,603373331Accumulated depreciation(279)(230)(80)(72)Closing balance1,3831,373293259Total property, plant and equipment2,8332,8161,5091,467 Notes to the Financial Statements Note 14 Property, Plant and Equipment (continued) Reconciliation of the carrying amounts of Property, Plant and Equipment is set out below: 110 Commonwealth Bank of Australia – Annual Report 2015 GroupBank2015201420152014$M$M$M$MLand and BuildingsCarrying amount at the beginning of the year499533448476Additions137137Disposals(35)(41)(30)(34)Net revaluations19271626Depreciation(32)(29)(31)(27)Foreign currency translation adjustment(1)2--Carrying amount at the end of the year463499416448Leasehold ImprovementsCarrying amount at the beginning of the year589644487539Additions1688613974Disposals(6)(16)(6)(14)Net revaluations-(2)--Depreciation(142)(130)(124)(112)Foreign currency translation adjustment-7--Carrying amount at the end of the year609589496487EquipmentCarrying amount at the beginning of the year355343273261Additions174161149131Disposals(11)(8)(9)(2)Depreciation(139)(147)(109)(117)Foreign currency translation adjustment(1)6--Carrying amount at the end of the year378355304273Assets Under LeaseCarrying amount at the beginning of the year1,3731,198259282Additions22326080-Disposals(179)(5)(28)(6)Depreciation(80)(77)(18)(17)Foreign currency translation adjustment46(3)--Carrying amount at the end of the year1,3831,373293259 Notes to the Financial Statements Note 15 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) 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. The Bankwest brand name has an indefinite useful life. It is not subject to amortisation, but is subject to annual impairment testing. No impairment was required as a result of this test. The balance also includes the Count Financial Limited brand name ($4 million) that is amortised over the estimated useful life of 20 years. (3) Other intangibles include the value of credit card relationships acquired from Bankwest and Count franchise relationships. This value represents future net income generated from the relationships that existed at Balance Sheet date. The assets have a useful life of 10 years based on the attrition rates of customers. Management rights were disposed of as part of the internalisation of the management of CFS Retail Property Trust Group (CFX) during the 2014 financial year. Impairment Tests for Goodwill and Intangible Assets with Indefinite Lives To assess whether goodwill and other assets with indefinite useful lives are impaired, the carrying amount of a cash-generating unit or a group of cash-generating units are compared to the recoverable amount. The recoverable amount is determined based on fair value less cost to sell, using an earnings multiple applicable to that type of business. The category of this fair value is Level 3 as defined in Note 40. Earnings multiples relating to the Group‘s Banking and Wealth Management cash-generating units are sourced from publicly available data associated with Australian businesses displaying similar characteristics to those cash-generating units, and are applied to current earnings. The key assumption is the Price-Earnings (P/E) multiple observed for these businesses, which for the Banking businesses (excluding IFS in the current year) were in the range of 12.1 – 13.0 (2014: 12.4 – 14.2), for the IFS businesses 7.4 – 17.2 and for Wealth Management businesses were in the range of 12.7 – 17.1 (2014: 11.4 – 19.1). Commonwealth Bank of Australia – Annual Report 2015 111 GroupBank2015201420152014$M$M$M$MGoodwill Purchased goodwill at cost7,5997,5662,5222,522Closing balance 7,5997,5662,5222,522Computer Software CostsCost3,3592,9132,9822,580Accumulated amortisation(1,270)(1,059)(1,038)(856)Closing balance 2,0891,8541,9441,724Core Deposits (1)Cost495495495495Accumulated amortisation (461)(390)(461)(389)Closing balance 3410534106Brand Names (2)Cost190190186186Accumulated amortisation(1)(1)--Closing balance 189189186186Other Intangibles (3)Cost1622563838Accumulated amortisation(103)(178)(24)(21)Closing balance 59781417Total intangible assets9,9709,7924,7004,555 Notes to the Financial Statements Note 15 Intangible Assets (continued) Goodwill Allocation to the following Cash-Generating Units Reconciliation of the carrying amounts of Intangible Assets is set out below: 112 Commonwealth Bank of Australia – Annual Report 2015 Group 20152014$M $M Retail Banking Services 4,1494,149Business and Private Banking297297Wealth Management2,4102,410New Zealand679691IFS and Other6419Total7,5997,566GroupBank2015201420152014$M$M$M$MGoodwill Opening balance7,5667,7232,5222,522Additions43---Transfers/disposals-(171)--Foreign currency translation adjustments(10)14--Closing balance 7,5997,5662,5222,522Computer Software CostsOpening balance1,8541,9231,7241,807Additions:From purchases717-12From internal development547312494263Amortisation and write-offs(319)(398)(274)(358)Closing balance 2,0891,8541,9441,724Core DepositsOpening balance105177106177Amortisation(71)(72)(72)(71)Closing balance 3410534106Management Fee RightsOpening balance-316--Transfers/disposals-(316)--Closing balance ----Brand NamesOpening balance189190186186Amortisation-(1)--Closing balance 189189186186Other IntangiblesOpening balance78941721Additions27--Disposals(1)---Amortisation(20)(23)(3)(4)Closing balance 59781417 Notes to the Financial Statements Note 16 Other Assets Except for the defined benefits superannuation plan surplus, the above amounts are expected to be recovered within 12 months of the Balance Sheet date. Note 17 Deposits and Other Public Borrowings The majority of the amounts are due to be settled within 12 months of the Balance Sheet date as shown in the maturity analysis table below. (1) All certificates of deposit issued by the Group are for amounts greater than $100,000. Commonwealth Bank of Australia – Annual Report 2015 113 Group Bank 2015201420152014$M $M $M $M Accrued interest receivable2,1642,1672,9882,737Accrued fees/reimbursements receivable1,2471,313147155Securities sold not delivered2,4831,2641,874908Intragroup current tax receivable--200252Current tax assets157--Prepayments1,7296061,648519Life insurance other assets4974553740Defined benefit superannuation plan surplus276-276-Other650574235212Total other assets9,0616,3867,4054,823Group Bank 2015201420152014$M $M $M $M AustraliaCertificates of deposit46,08343,91247,80244,900Term deposits143,285150,406143,481150,712On-demand and short-term deposits266,849227,555267,027227,739Deposits not bearing interest 11,3399,97111,3219,971Securities sold under agreements to repurchase12,9649,92513,0369,958Total Australia480,520441,769482,667443,280OverseasCertificates of deposit7,0606,2864,9806,016Term deposits30,81228,7038,5088,000On-demand and short term deposits22,15919,0541,382198Deposits not bearing interest2,6682,5047677Securities sold under agreements to repurchase123612-Total overseas62,71156,58314,95814,291Total deposits and other public borrowings543,231498,352497,625457,571GroupAt 30 June 2015MaturingMaturingMaturingMaturingThreeBetweenBetween SixafterMonths orThree andand TwelveTwelveLessSix MonthsMonthsMonthsTotal$M$M$M$M$MAustraliaCertificates of deposit (1)22,79711,920-11,36646,083Term deposits64,92031,18338,9038,279143,285Total Australia87,71743,10338,90319,645189,368OverseasCertificates of deposit (1)4,4946881,6791997,060Term deposits16,8296,6504,4732,86030,812Total overseas21,3237,3386,1523,05937,872Total certificates of deposits and term deposits109,04050,44145,05522,704227,240 Notes to the Financial Statements Note 17 Deposits and Other Public Borrowings (continued) (1) All certificates of deposit issued by the Group are for amounts greater than $100,000. Note 18 Liabilities at Fair Value through Income Statement (1) These liabilities have been initially designated at fair value through the Income Statement. Refer to note 1(aa). Of the above amounts, trading liabilities are expected to be settled within 12 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 12 months of the Balance Sheet date. For the Bank, the majority of debt instruments are expected to be settled more than 12 months after the Balance Sheet date. 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 $8,448 million (2014: $7,450 million) and for the Bank is $7,279 million (2014: $5,100 million). Note 19 Other Provisions Maturity Distribution of Other Provisions (1) Comparatives have been reclassified to conform to presentation in the current year and the nature of provisions outlined below. 114 Commonwealth Bank of Australia – Annual Report 2015 GroupAt 30 June 2014MaturingMaturingMaturingMaturingThreeBetweenBetween SixafterMonths orThree andand TwelveTwelveLessSix MonthsMonthsMonthsTotal$M$M$M$M$MAustraliaCertificates of deposit (1)22,9426,3052,59812,06743,912Term deposits86,35026,93828,5158,603150,406Total Australia109,29233,24331,11320,670194,318OverseasCertificates of deposit (1)2,3591,2452,622606,286Term deposits15,4376,3624,5012,40328,703Total overseas17,7967,6077,1232,46334,989Total certificates of deposits and term deposits127,08840,85038,23623,133229,307Group Bank 2015201420152014$M$M$M$MDeposits and other borrowings (1)2,7891,3332,639203Debt instruments (1)1,2661,563256343Trading liabilities4,4384,6124,4284,606Total liabilities at fair value through Income Statement8,4937,5087,3235,152Group (1)Bank (1)2015201420152014Note$M $M $M $M Employee entitlements750725660642General insurance claims314161--Self insurance and non-lending losses198112181109Dividends582738273Compliance, programs and regulation1934919349Restructuring costs43604157Other14618397154Total other provisions1,7261,3631,2541,084Group (1)Bank (1)2015201420152014$M $M $M $M Less than twelve months 1,159971711721More than twelve months567392543363Total other provisions1,7261,3631,2541,084 Notes to the Financial Statements Note 19 Other Provisions (continued) (1) Comparatives have been restated to conform to presentation in the current period. (2) Comparatives have been reclassified to conform to presentation in the current year and the nature of provisions outlined below. Provision Commentary 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 Self insurance provision relates to non-transferred insurance risks on lending products the Group originates. The self insurance provision is reassessed annually in accordance with actuarial advice. This provision covers certain non-lending losses, including customer remediation, and represents losses that have not arisen as a consequence of an impaired credit decision. Compliance, Programs and Regulation This provision relates to project and other administrative costs associated with certain compliance and regulatory programs of the Group. Restructuring 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. Open Advice Review Program and Licence Conditions The Group is currently undertaking the Open Advice Review program for customers of Commonwealth Financial Planning Limited (CFPL) and Financial Wisdom Limited (FWL), who received advice between 1 September 2003 and 1 July 2012. Expressions of interest for the program closed on 3 July 2015. Customers who lodged an expression of interest before this date have 12 months to formally register for the program. Since its announcement, the Group has established an Independent Review Panel and appointed Independent Customer Advocates. The Group also appointed Promontory Financial Group (‘Promontory’) as an Independent Expert to oversee the Open Commonwealth Bank of Australia – Annual Report 2015 115 GroupBank2015201420152014Reconciliation$M$M$M$MGeneral insurance claims:Opening balance161159--Additional provisions (1)615397--Amounts utilised during the year (1)(462)(395)--Closing balance314161--Self insurance and non-lending losses: (2)Opening balance1125210949Additional provisions90807680Amounts utilised during the year(4)(16)(4)(16)Release of provision-(4)-(4)Closing balance198112181109Compliance, programs and regulation: (2)Opening balance49-49-Additional provisions2184921849Amounts utilised during the year(74)-(74)-Release of provision----Closing balance1934919349Restructuring:Opening balance60415741Additional provisions337334Amounts utilised during the year(20)(18)(19)(18)Closing balance43604157Other: (2)Opening balance183203154186Additional provisions22523Amounts utilised during the year(21)(11)(21)(22)Release of provision(38)(14)(38)(13)Closing balance14618397154 Notes to the Financial Statements Note 19 Other Provisions (continued) Advice Review program. Promontory has delivered two public reports in December 2014 and May 2015. Customer file assessments and remediation have commenced and are ongoing. On 8 August 2014, variations to CFPL’s and FWL’s Australian Financial Services Licences (AFSL) were finalised. ASIC subsequently appointed KordaMentha Forensic as the compliance expert under the varied AFSL conditions to produce three reports. The first report was issued in April 2015. The report compares the process steps undertaken in previous remediation programs. Following receipt of the first report, the Group issued 4,329 letters to financial planning customers and offered to pay up to $5,000 to have their advice assessment reviewed independently, to send customers copies of their files and for the Group to do a further review of the advice the customer received. The Group has provided for the cost of running these programs, together with anticipated remediation costs. Key assumptions in determining the remediation and program cost provisions include customer registrations and responses, remediation rates and amounts, case complexity and program design. These have been developed considering historical evidence, current information available and the exercise of judgement. As the nature of these estimates and assumptions are uncertain, the provisions may change. The Group considers that provisions held are adequate and represent our best estimate of the anticipated future costs. The Group will re-evaluate the assumptions underpinning the provisions at each reporting date as more information becomes available. Note 20 Debt Issues (1) Comparatives have been reclassified to conform to this presentation in the current period. (2) Long-term debt disclosed relates to debt issues which have a maturity at inception of 12 months or greater. (3) Represents the remaining contractual maturity of the underlying instrument. The Bank’s long-term debt issues include notes issued under the: USD70 billion Euro Medium Term Note Program; the USD50 billion US Medium Term Note Program; the USD30 billion Covered Bond Program; the USD25 billion CBA New York Branch Medium Term Note Program; and other applicable debt documentation. Notes issued under debt programs are both fixed and variable rate. Interest rate risk associated with the notes is incorporated within the Bank’s interest rate risk framework. 116 Commonwealth Bank of Australia – Annual Report 2015 GroupBank2015201420152014Note$M$M$M$MMedium-term notes76,03972,60868,32965,635Commercial paper37,03232,90536,02531,181Securitisation notes 4112,60311,426--Covered bonds4128,75525,28026,00522,732Total debt issues154,429142,219130,359119,548Short Term Debt Issues by currencyUSD36,54332,15535,53630,430EUR-178-178AUD267164267164GBP169333169333Other currencies53755376Total short term debt issues (1)37,03232,90536,02531,181Long Term Debt Issues by currency (1) (2)USD43,04939,99642,89739,313EUR26,24723,16623,79520,985AUD21,16719,7286,8276,913GBP9,1957,3147,2956,075NZD3,6704,0191,0081,280JPY6,4486,3536,3956,301Other currencies7,1698,2925,6657,054Offshore loans (all JPY)452446452446Total long term debt issues117,397109,31494,33488,367Maturity Distribution of Debt Issues (3)Less than twelve months59,53253,28054,64447,322Greater than twelve months94,89788,93975,71572,226Total debt issues154,429142,219130,359119,548 Notes to the Financial Statements Note 20 Debt Issues (continued) (1) The amount outstanding at year end is measured at amortised cost. (2) The maximum and average amounts over the year 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 significant given the short-term nature of the borrowings. (1) End of day, Sydney time. Guarantee Arrangement Commonwealth Bank of Australia 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. Commonwealth Bank of Australia – Annual Report 2015 117 Group201520142013Short term borrowings by programTotalOutstanding at year-end (1)37,03232,90534,602Maximum amount outstanding at any month end (2)39,77433,17434,602Average amount outstanding (2)35,62131,09628,178US Commercial Paper ProgramOutstanding at year-end (1)35,75431,15833,492Maximum amount outstanding at any month end (2)38,14732,40533,492Average amount outstanding (2)34,01829,66725,515Weighted average interest rate on:Average amount outstanding0.3%0.2%0.3%Outstanding at year end0.3%0.2%0.3%Euro Commercial Paper ProgramOutstanding at year-end (1)1,2781,7471,110Maximum amount outstanding at any month end (2)2,3271,9836,642Average amount outstanding (2)1,6031,4292,663Weighted average interest rate on:Average amount outstanding0.7%0.4%0.6%Outstanding at year end0.9%0.4%0.5% $M (except where indicated)As AtAs At30 June30 JuneCurrency20152014AUD 1.00 =USD0.76810.9405EUR0.68800.6892GBP0.48930.5525NZD1.12831.0762JPY94.057895.4517Exchange rates utilised (1) Notes to the Financial Statements Note 21 Bills Payable and Other Liabilities (1) Comparative information has been reclassified to conform to presentation in the current year. Other than the defined benefit superannuation plan deficit, the majority of the amounts are expected to be settled within 12 months of the Balance Sheet date. Note 22 Loan Capital As at the reporting date, there is one security of the Group and the Bank (the JPY30 billion (AUD equivalent $319 million) subordinated EMTN due October 2015) that is contractually due for redemption in the next 12 months (note the Group has the right to call some securities earlier than the contractual maturity date). The Group has a right to redeem PERLS III in the next 12 months subject to APRA’s approval; the Bank has a right to redeem TPS 2006 in the next 12 months subject to APRA’s approval. (1) USD100 million Floating Rate Notes On 15 October 1986, the State Bank of Victoria issued USD125 million of floating rate notes current outstanding balance of USD100 million. The floating rate notes are perpetual but were able to be redeemed from October 1991. They were assigned to the Bank on 1 January 1991. The Bank entered into an agreement with the Commonwealth of Australia on 31 December 1991 which provides that, if certain events occur, the Bank may either issue CBA ordinary shares to the Commonwealth of Australia, or (with the consent of the Commonwealth of Australia) conduct a renounceable rights issue for CBA ordinary shares to all shareholders. The capital raised must be used to pay any amounts due and payable on the floating rate notes. The floating rate notes were issued into the international markets and are subject to English law. They qualify as Additional Tier 1 Capital of the Bank under the Basel III transitional arrangements instruments as implemented by APRA. for capital (2) TPS 2003 On 6 August 2003, a wholly owned entity of the Bank (CBA Capital Trust) issued USD550 million of Trust Preferred Securities (TPS 2003). All TPS 2003 were redeemed for cash on 30 June 2015. 118 Commonwealth Bank of Australia – Annual Report 2015 Group Bank 2015201420152014Note$M $M $M $M Bills payable917912870862Accrued interest payable2,9712,9572,2202,290Accrued fees and other items payable (1)2,7182,3691,8221,592Defined benefit superannuation plan deficit355719157191Securities purchased not delivered2,3571,5521,7071,197Unearned income913870531505Life insurance other liabilities and claims payable2363152448Other9361,2037,1303,977Total bills payable and other liabilities11,10510,36914,36110,662 Group BankCurrency 2015201420152014Amount (M)Footnotes$M $M $M $M Tier 1 Loan CapitalUndatedFRN USD 100 (1)130106130106UndatedTPS USD 550 (2)-585-584UndatedPERLS III AUD 1,166 (3)1,1641,1621,1631,162UndatedPERLS V AUD 2,000 (4)-1,997-1,997UndatedPERLS VI AUD 2,000 (5)1,9861,9821,9861,982UndatedPERLS VII AUD 3,000 (5)2,961-2,961-UndatedTPS USD 700 (6)--908741Total Tier 1 Loan Capital6,2415,8327,1486,572Tier 2 Loan CapitalAUD denominated(7)1,0243001,024300USD denominated(8)455372455372JPY denominated(9)627618627618GBP denominated(10)306270306270NZD denominated(11)349362--EUR denominated(12)3,2561,4463,2561,446Other currencies denominated(13)209-209-Total Tier 2 Loan Capital6,2263,3685,8773,006Fair value hedge adjustments357394339391Total Loan Capital12,8249,59413,3649,969 Notes to the Financial Statements Note 22 Loan Capital (continued) (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. PCL is not required to make a to decision on exchange until 22 business days prior 6 April 2016 and the decision to exchange will be subject to market conditions at that time as well as APRA approval. If PCL does not elect to exchange PERLS III, the margin on the distributions payable on 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 1 Capital of the Bank under the Basel III transitional arrangements for capital instruments as implemented by APRA. (4) 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. All PERLS V were bought back by the Bank during the year and subsequently cancelled. (5) PERLS VI and PERLS VII On 17 October 2012, the Bank issued $2,000 million of Perpetual Exchangeable Resaleable Listed Securities (PERLS VI). On 1 October 2014, issued $3,000 million of CommBank PERLS VII Capital Notes (PERLS VII). PERLS VI and PERLS VII are subordinated, unsecured notes. the Bank PERLS VI and PERLS VII may be redeemed or resold to a third party for $100 cash each on 15 December 2018 and 15 December 2022 respectively. If not redeemed or resold, the Bank will be required to exchange PERLS VI and/or PERLS VII for CBA ordinary shares on 15 December 2020 and 15 December 2024 respectively. PERLS VI and PERLS VII are listed on the ASX and are subject to New South Wales law. They qualify as Additional Tier 1 Capital of the Bank under Basel III as implemented by APRA. (6) 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 1 Capital securities or CBA preference shares on 15 March 2016. CBA Capital Trust II is not required to make a decision on redemption until 30 days prior to 15 March 2016 and the decision to redeem will be subject to market conditions at that time as well as APRA approval. 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 1 transitional Capital of the Bank under the Basel III arrangements for capital instruments as implemented by APRA. (7) AUD denominated Tier 2 Loan Capital issuances  floating rate notes, $275 million extendible December 1989 and redeemed in December 2014; issued   $25 million subordinated floating rate notes, issued April 1999, due April 2029; and $1,000 million November 2014. subordinated notes issued As at 30 June 2015, all $1,000 million subordinated notes remain outstanding and the Groups’s liability remains at $1,000 million. The subordinated notes may be redeemed on if not redeemed, are due on 5 November 2019, and 5 November 2024. The subordinated notes may be exchanged for CBA ordinary shares (subject to a maximum number of 64,465,471 CBA ordinary shares) if the Bank is deemed to be non-viable by APRA. No payment will be made by the Bank in respect of the exchange. (8) USD denominated Tier 2 Loan Capital issuances  USD350 million subordinated fixed rate notes, issued June 2003, due June 2018. (9) JPY denominated Tier 2 Loan Capital issuances  JPY20 billion perpetual subordinated EMTN Medium Term Notes), issued February 1999; (Euro   JPY30 billion subordinated EMTN, issued October 1995, due October 2015; and JPY9 billion perpetual subordinated notes, May 1996. issued (10) GBP denominated Tier 2 Loan Capital issuances  GBP150 million subordinated EMTN, issued June 2003, due December 2023. (11) NZD denominated Tier 2 Loan Capital issuances Bank issued Limited)  On 17 April 2014, a wholly owned entity of the Bank NZD400 million (ASB subordinated, unsecured notes (ASB Notes) with a face value of NZD1 each. As at 30 June 2015, all 400 million ASB Notes remain outstanding and ASB’s liability remains at NZD400 million. ASB Notes may be redeemed on 15 June 2019, and, if not redeemed, are due on 15 June 2024. ASB Notes may be exchanged for CBA ordinary shares (subject to a maximum number of 24,278,502 CBA ordinary shares) if either ASB is deemed non-viable by the Reserve Bank of New Zealand (RBNZ) (including if ASB is made subject to statutory management) or the Bank is deemed to be non-viable by APRA. No payment will be made by either ASB or the Bank in respect of the exchange. ASB Notes are listed on the New Zealand Stock Exchange (NZX) debt market and are subject to New South Wales and New Zealand law. They qualify as Tier 2 Capital of the Bank and ASB under Basel III as implemented by APRA and the RBNZ. Commonwealth Bank of Australia – Annual Report 2015 119 Notes to the Financial Statements Note 22 Loan Capital (continued) (12) EUR denominated Tier 2 Loan Capital Issuances  EUR1,000 million subordinated August 2009, due August 2019; and notes, issued  EUR1,250 million subordinated notes issed April 2015. As at 30 June 2015, all EUR1,250 million subordinated notes remain outstanding and the Group’s liability remains at EUR1,250 million. The subordinated notes may be redeemed if not redeemed, are due on on 22 April 2022, and 22 April 2027. The subordinated notes may be exchanged for CBA ordinary shares (subject to a maximum number of 93,130,812 CBA ordinary shares) if the Bank is deemed to be non-viable by APRA. No payment will be made by the Bank in respect of the exchange. (13) Other foreign currency denominated Tier 2 Loan Capital Issuances  CNY1,000 million March 2015. subordinated notes issued Note 23 Shareholders’ Equity As at 30 June 2015, all CNY1,000 million subordinated notes remain outstanding and the Group’s liability remains at CNY1,000 million. The subordinated notes may be redeemed if not redeemed, are due on on 11 March 2020, and 11 March 2025. The subordinated notes may be exchanged for CBA ordinary shares (subject to a maximum number of 11,241,075 CBA ordinary shares) if the Bank is deemed to be non-viable by APRA. No payment will be made by the Bank in respect of the exchange. All Tier 2 Capital securities issued prior to 1 January 2013 (other than the $275 million extendible floating rate notes which have been redeemed) qualify as Tier 2 Capital of the Bank under the Basel III transitional arrangements for capital instruments as implemented by APRA. All Tier 2 Capital securities issued after 1 January 2013 qualify as Tier 2 Capital of the Bank under Basel III as implemented by APRA. (1) The determined dividend includes an amount attributable to Dividend Reinvestment Plan (DRP) of $574 million (interim 2014/2015) and $707 million (interim 2013/2014) with $571 million and $707 million ordinary shares being issued under plan rules respectively which include the carry forward of DRP balance from previous dividends. (2) The DRP in respect of 2012/2013 and 2013/2014 final dividends were satisfied in full through the on-market purchase and transfer of 9,829,242 and 8,749,607 shares to participating shareholders. (3) The movement in treasury shares held within Life Insurance Statutory Funds, and 1,127,468 shares acquired at an average price of $80.81 for the purpose of satisfying the Company’s obligations under various equity settled share plans. Other than shares purchased as part of the Non-Executive Director fee sacrifice arrangements disclosed in Note 24, shares purchased were not on behalf of or initially allocated to a director. (1) The DRP in respect of 2012/2013 and 2013/2014 final dividends were satisfied in full through the on market purchase and transfer of 9,829,242 and 8,749,607 shares to participating shareholders. (2) Relates to Treasury shares held within the life insurance statutory funds and the employees’ share scheme trust. 120 Commonwealth Bank of Australia – Annual Report 2015 Group Bank 2015201420152014$M $M $M $M Ordinary Share CapitalShares on issue:Opening balance27,32726,62027,32326,619Issue of shares----Dividend reinvestment plan (net of issue costs)(1) (2)57170757170427,89827,32727,89427,323Less treasury shares: Opening balance(291)(297)--Purchase of treasury shares (3)(790)(813)--Sale and vesting of treasury shares (3)802819--(279)(291)--Closing balance27,61927,03627,89427,323Group Bank 2015201420152014Number of shares on issueShares Shares Shares Shares Opening balance (excluding treasury shares deduction)1,621,319,1941,611,928,8361,621,319,1941,611,928,836Issue of shares----Dividend reinvestment plan issues:2012/2013 Final dividend fully paid ordinary shares $73.42 (1)----2013/2014 Interim dividend fully paid ordinary shares $75.26 -9,390,358-9,390,3582013/2014 Final dividend fully paid ordinary shares $80.39 (1)----2014/2015 Interim dividend fully paid ordinary shares $91.266,273,519-6,273,519-Closing balance (excluding treasury shares deduction)1,627,592,7131,621,319,1941,627,592,7131,621,319,194Less: treasury shares (2)(4,654,277)(5,516,035)--Closing balance1,622,938,4361,615,803,1591,627,592,7131,621,319,194 Notes to the Financial Statements Note 23 Shareholders’ Equity (continued) 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 1 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 $956 million and eliminates on consolidation. Retained Profits and Reserves (1) Dividends relating to equity instruments on issue other than ordinary shares. Commonwealth Bank of Australia – Annual Report 2015 121 Group Bank 2015201420152014Other equity instruments$M $M $M $M Issued and paid up9399391,8951,895Shares Shares Shares Shares Number of shares700,000700,0001,400,0001,400,000GroupBank2015201420152014Retained ProfitsNote$M$M$M$MOpening balance18,82716,40516,20613,874Actuarial gains and losses from defined benefit superannuation plans3114231142Gains and losses on liabilities at fair value due to changes in own credit risk(3)6(3)6Realised gains and dividend income on treasury shares4227--Operating profit attributable to Equity holders of the Bank9,0638,6318,9768,442Total available for appropriation28,24025,11125,49022,364Transfers (to)/from general reserve47(101)(1)-Transfers from capital reserve----Transfers from asset revaluation reserve21231816Transfers from employee compensation reserve----Interim dividend - cash component(2,636)(2,243)(2,636)(2,243)Interim dividend - Dividend Reinvestment Plan(574)(707)(574)(707)Final dividend - cash component(3,534)(3,224)(3,534)(3,224)Final dividend - Dividend Reinvestment Plan----Other dividends (1)(36)(32)--Closing balance21,52818,82718,76316,206 Notes to the Financial Statements Note 23 Shareholders’ Equity (continued) Retained Profits and Reserves (continued) 122 Commonwealth Bank of Australia – Annual Report 2015 Group Bank 2015201420152014Reserves$M$M$M$MGeneral ReserveOpening balance866765573573Appropriation from/(to) retained profits(47)1011-Closing balance819866574573Capital ReserveOpening balance--1,2541,254Revaluation surplus on sale of property----Transfer to retained profits----Closing balance--1,2541,254Asset Revaluation ReserveOpening balance197194172164Revaluation of properties19281627Transfers on sale of properties----Transfer to retained profits(21)(23)(18)(16)Tax on revaluation of properties(4)(2)(5)(3)Closing balance191197165172Foreign Currency Translation ReserveOpening balance(42)(427)(178)(178)Currency translation adjustments of foreign operations4394051763Currency translation on net investment hedge(3)(6)(5)(3)Tax on translation adjustments(38)(14)--Closing balance356(42)(7)(178)Cash Flow Hedge ReserveOpening balance224368424508Gains and losses on cash flow hedging instruments:Recognised in other comprehensive income706338802492Transferred to Income Statement:Interest income(1,135)(1,294)(1,125)(1,249)Interest expense488698475635Tax on cash flow hedging instruments(20)114(46)38Closing balance263224530424Employee Compensation ReserveOpening balance125132125132Current period movement(3)(7)(3)(7)Closing balance122125122125Available-for-Sale Investments ReserveOpening balance639301641188Net gains and losses on revaluation of available-for-sale investments14050982671Net gains and losses on available-for-sale investments transferred toIncome Statement on disposal(223)(12)(218)(12)Tax on available-for-sale investments38(159)52(206)Closing balance594639557641Total Reserves2,3452,0093,1953,011 Notes to the Financial Statements Note 24 Share Based Payments The Group operates a number of cash and equity settled share plans as detailed below. Group Leadership Reward Plan (GLRP) The 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. Participants are awarded a maximum number of Reward Rights, which may convert into CBA shares on a 1-for-1 basis. The Board has discretion to apply a cash equivalent. The Reward Rights may vest at the end of a performance period of up to four years subject to the satisfaction of performance hurdles as follows:   25% of the award is assessed against Customer Satisfaction compared to ANZ, NAB, Westpac and other key competitors for the Group’s wealth management business by reference to independent external surveys; and 75% of the award is assessed against TSR compared to the 20 largest companies listed on the ASX (by market capitalisation) at the beginning of each respective performance period, excluding resource companies and CBA. Each performance hurdle is independent, such that 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. A scale is applied to each performance hurdle, to determine the portion of each award that vests as follows: Hurdle Scale Customer satisfaction    TSR For the 2012 financial year award: 100% vests 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. From the 2013 financial year onwards: 100% vests 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 (i.e. 2.00). If CBA’s weighted average ranking is between 1st and 2nd (i.e. between 1.00 and 2.00), vesting occurs on a sliding scale between 100% and 50% on a pro-rata straight line basis. If CBA’s weighted average ranking is lower than 2nd (i.e. greater than 2.00), none of this portion will vest. 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. If the Group’s TSR is ranked below the median of the peer group, none of this portion will vest. The 2011 financial year award reached the end of its performance period on 30 June 2014 and in line with the plan rules 96.88% 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 $75.25 per right (2014: $74.52). 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 2015 financial year award includes a risk-free interest rate ranging from 2.27% to 3.25%, a nil dividend yield on the Bank’s ordinary shares and a volatility in the Bank share price of 15.0%. The fair value for customer satisfaction hurdled Reward Rights granted during the period is the closing price of CBA shares on the grant date. Group Rights Plan (GRP) The GRP facilitates mandatory short-term incentive deferral, sign-on incentives and retention awards. Participants are awarded rights to shares, that vest on a 1-for-1 basis, provided the participant remains in employment of the Group until vesting date. The Board has discretion to apply a cash equivalent. The following table provides details of outstanding awards of shares granted under the GRP. The weighted average fair value at grant date of the awards issued during the year was $81.44 (2014: $73.00). Employee Share Acquisition Plan (ESAP) Under the ESAP eligible employees have the opportunity to receive up to $1,000 worth of shares each year if the Group meets the required performance hurdle of growth in the Group’s net profit after tax (“cash basis”) of greater than 5%. If the hurdle is not met, the Board has discretion to determine whether a full award, a partial award or no award is made. Commonwealth Bank of Australia – Annual Report 2015 123 OutstandingOutstandingExpensePeriod1 JulyGrantedVestedForfeited30 June($M)20151,423,773283,410(338,512)(103,225)1,265,4461020141,654,754331,689(416,896)(145,774)1,423,77312OutstandingOutstandingExpensePeriod1 JulyGrantedVestedForfeited30 June($M)2015654,116708,577(80,271)(43,448)1,238,974402014-675,469(3,624)(17,729)654,11620 Notes to the Financial Statements Note 24 Share Based Payments (continued) The number of shares a participant receives is calculated by dividing the award amount by the average price paid for CBA shares purchased during the purchase period preceding the grant date. Shares granted are restricted from sale until the earlier of three years or until such time as the participant ceases employment with the Group. Participants receive full dividend entitlements and voting rights attached to those shares. The Group achieved the performance target for 2014 resulting in shares being awarded to each eligible employee during the financial year ended 30 June 2015. The following table provides details of shares granted under the ESAP. It is estimated that approximately $34 million of CBA shares will be purchased on market at the prevailing market price for the 2015 grant. Other Employee Awards A number of other plans are operated by the Group, including:    The Employee Share (Performance Unit) Plan, which is the cash-based version of the GRP; The International Employee Share Acquisition Plan, which is the cash-based version of the ESAP; and The Employee Share Plan and Group Employee Rights Plan, which are predecessors to the GRP, and closed to new awards. The following table provides a summary of the movement in awards during the year. The weighted average fair value at grant date of the awards issued during the year was $81.46 (2014: $70.00). Salary Sacrifice Arrangements The Group facilitates the purchase of CBA shares via salary sacrifice as follows: Type Arrangements Australian-based employees (ESSSP) Non-executive directors     Can elect to sacrifice between $2,000 and $5,000 p.a. of their fixed remuneration and/or annual STI 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. Required to defer 20% of post-tax fees until a minimum shareholding requirement of 5,000 shares is reached. Restricted from sale for ten 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 receive full dividend entitlements and voting rights. The following table provides details of shares granted under the ESSSP. During the year, one (2014: one) Non-Executive Director applied $28,502 in fees (2014: $32,067) to purchase 341 shares (2014: 419 shares). 124 Commonwealth Bank of Australia – Annual Report 2014 Number of SharesTotal NumberTotalPeriodAllocation dateParticipants Allocated by Participant of Shares AllocatedIssue Price $Fair Value $201519 Sep 201432,09212385,10480.3930,958,511201423 Sep 201332,74913425,73773.4231,257,610OutstandingOutstandingExpensePeriod1 JulyGrantedVestedForfeited30 June($M)20151,423,891105,323(811,721)(39,785)677,7081820142,283,293149,263(967,725)(40,940)1,423,89136Number ofAverage purchaseTotal purchasePeriodParticipantsshares purchasedprice $consideration $201555722,05984.531,864,604201439517,61075.621,331,652 Notes to the Financial Statements Note 25 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 the Basel Committee on Banking Supervision (BCBS) guidelines. for banks based on 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:   insurance The operations; and and funds management The entities through which securitisation of Group assets are conducted. Regulatory capital is divided into Common Equity Tier 1 (CET1), Tier 1 and Tier 2 Capital. CET1 primarily consists of Shareholders’ Equity, less goodwill and other prescribed adjustments. Tier 1 Capital is comprised of CET1 plus other capital instruments acceptable to APRA. Tier 2 Capital is comprised primarily of hybrid and debt instruments acceptable to APRA. Total Capital is the aggregate of Tier 1 and Tier 2 Capital. 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 1, Tier 2 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 loan capital issues. All major capital related initiatives require approval of the Board. reported monthly The Group’s capital position is monitored on a continuous basis and the Executive Committee and the Asset and Liability Committee (ALCO). Three-year capital forecasts are conducted on a quarterly basis with a detailed capital and strategic plan presented to the Board annually. to both The Group’s capital ratios throughout the 2014 and 2015 in compliance with both APRA financial years were 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. Commonwealth Bank of Australia – Annual Report 2015 125 Notes to the Financial Statements (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) IFS and Other Divisions The following parts of the business are included in the IFS and Other Divisions:  the investments joint venture Chinese International Financial Services incorporates the Asian retail and SME banking operations (Indonesia, China, in Chinese and India and Vietnam), Vietnamese banks, life insurance business, the life insurance operations in Indonesia and investment in a South African based financial services technology company. It does not include the Business and Private Banking, Institutional Banking and Markets and Colonial First State Global Asset Management businesses in Asia;  Corporate Centre includes the results of unallocated Group support functions such as Investor Relations, Group Strategy, Secretariat and Treasury; and  Group wide Eliminations/Unallocated intra- group elimination entries arising on consolidation, raised provisions and other unallocated centrally revenue and expenses. includes Note 26 Financial Reporting by Segments The principal activities of the Group are carried out in the business segments below. These segments are based on the distribution channels through which the customer relationship is being managed. During the year, the Group transferred all non-relationship managed business clients from the Business and Private Banking segment to a new Small Business customer channel within Retail Banking Services. Comparative information has been restated to reflect this change. The primary sources of revenue are interest and fee income (Retail Banking Services, Institutional Banking and Markets, Business and Private Banking, Bankwest, New Zealand, IFS and Other Divisions) and insurance premium and funds management income (Wealth Management, New Zealand, IFS and Other Divisions). 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 uses “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 and non-relationship managed small business 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 client offering includes debt and equity capital risk capabilities. management and Institutional Banking and Markets has international operations in London, New York, Houston, Japan, Singapore, Malta, Hong Kong, New Zealand, Beijing and Shanghai. financial and commodities price transactional banking raising, 126 Commonwealth Bank of Australia – Annual Report 2015 Note 26 Financial Reporting by Segments (continued) Notes to the Financial Statements Investment experience is presented on a pre-tax basis. (1) (2) This balance excludes non-cash items, including unrealised gains and losses relating to hedging and IFRS volatility ($6 million gain), Bankwest non-cash items ($52 million expense) and treasury shares valuation adjustment ($28 million expense). Commonwealth Bank of Australia – Annual Report 2015 127 2015RetailBusiness andInstitutionalBankingPrivateBanking andWealthNewIFS andServicesBankingMarketsManagementZealandBankwestOtherTotal$M$M$M$M$M$M$M$MNet interest income7,6912,8271,452-1,5361,59469915,799Other banking income1,7468091,367-2532174474,839Total banking income9,4373,6362,819-1,7891,8111,14620,638Funds management income---1,84671-211,938Insurance income---503232-57792Total operating income9,4373,6362,8192,3492,0921,8111,22423,368Investment experience (1)---22612-(28)210Total net operating income before impairment and operating expense9,4373,6362,8192,5752,1041,8111,19623,578Operating expenses(3,293)(1,397)(1,013)(1,726)(861)(785)(918)(9,993)Loan impairment expense(626)(152)(167)-(83)50(10)(988)Net profit before income tax5,5182,0871,6398491,1601,07626812,597Corporate tax expense(1,651)(628)(371)(199)(295)(324)29(3,439)Non-controlling interests------(21)(21)Net profit after tax "cash basis" (2)3,8671,4591,2686508657522769,137Hedging and IFRS volatility----43-(37)6Other non-cash items---(28)-(52)-(80)Net profit after tax "statutory basis"3,8671,4591,2686229087002399,063Additional informationAmortisation and depreciation(20)(22)(57)(26)(78)(89)(420)(712)Balance SheetTotal assets310,31398,392181,91920,79269,60879,141113,281873,446Total liabilities221,01871,138162,05424,65262,48849,499229,604820,453 Notes to the Financial Statements Note 26 Financial Reporting by Segments (continued) (1) Comparative information has been restated to conform to presentation in the current period. This re-segmentation primarily relates to the transfer of non-relationship managed business clients from Business and Private Banking into the newly created small business customer channel in Retail Banking Services. Investment experience is presented on a pre-tax basis. (2) (3) This balance excludes non-cash items, including unrealised gains and losses relating to hedging and IFRS volatility ($6 million gain), Bankwest non-cash items ($56 million expense), treasury shares valuation adjustment ($41 million expense), Bell Group litigation ($25 million gain) and the gain on sale of management rights ($17 million gain). 128 Commonwealth Bank of Australia – Annual Report 2015 2014 (1)RetailBusiness andInstitutionalBankingPrivateBanking andWealthNewIFS andServicesBankingMarketsManagementZealandBankwestOtherTotal$M$M$M$M$M$M$M$MNet interest income7,3072,6951,404-1,3781,57773015,091Other banking income1,6957641,262-1922062044,323Total banking income9,0023,4592,666-1,5701,78393419,414Funds management income---1,83660-371,933Insurance income---575202-42819Total operating income9,0023,4592,6662,4111,8321,7831,01322,166Investment experience (2)---2025-28235Total net operating income before impairment and operating expense9,0023,4592,6662,6131,8371,7831,04122,401Operating expenses(3,173)(1,338)(943)(1,593)(805)(806)(841)(9,499)Loan impairment expense(582)(237)(61)-(51)(11)(11)(953)Net profit before income tax5,2471,8841,6621,02098196618911,949Corporate tax expense(1,569)(563)(410)(231)(239)(291)53(3,250)Non-controlling interests------(19)(19)Net profit after tax "cash basis" (3)3,6781,3211,2527897426752238,680Hedging and IFRS volatility----10-(4)6Other non-cash items--25(24)-(56)-(55)Net profit after tax "statutory basis"3,6781,3211,2777657526192198,631Additional informationAmortisation and depreciation(31)(35)(61)(22)(74)(106)(398)(727)Balance SheetTotal assets290,77394,455149,50020,75965,73676,79593,433791,451Total liabilities203,38462,135146,48224,13358,14945,671202,149742,103 Notes to the Financial Statements Note 26 Financial Reporting by Segments (continued) Products and Services Information Revenue from external customers by product or service is disclosed in Note 2. 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, Vietnam and South Africa. (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 27 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. Commonwealth Bank of Australia – Annual Report 2015 129 GroupYear Ended 30 June201520142013Financial performance and position$M%$M%$M%IncomeAustralia37,67383. 237,60384. 839,11987. 3New Zealand5,18111. 44,63310. 53,8908. 7Other locations (1)2,4565. 42,0764. 71,7934. 0Total income45,310100. 044,312100. 044,802100. 0Non-Current Assets (2)Australia14,14991. 713,19991. 314,21192. 2New Zealand9946. 41,0577. 31,0236. 6Other locations (1)2971. 91961. 41881. 2Total non-current assets15,440100. 014,452100. 015,422100. 0Life InsuranceLife InvestmentContractsContractsGroup201520142015201420152014Summarised Income Statement$M$M$M$M$M$MNet premium income and related revenue1,9671,8432432162,2102,059Outward reinsurance premiums expense(296)(289)--(296)(289)Claims expense(1,421)(1,277)(73)(40)(1,494)(1,317)Reinsurance recoveries256223--256223Investment revenue (excluding investments in subsidiaries)4884557771,0621,2651,517Increase in contract liabilities(151)(242)(718)(946)(869)(1,188)Operating income8437132292921,0721,005Acquisition expenses(95)(96)(1)(2)(96)(98)Maintenance expenses(204)(192)(57)(56)(261)(248)Management expenses(10)(8)(11)(10)(21)(18)Net profit before income tax534417160224694641Corporate tax expense(103)(72)(36)(40)(139)(112)Policy holder tax expense(83)(53)(16)(73)(99)(126)Net profit after income tax348292108111456403 Notes to the Financial Statements Note 27 Insurance Businesses (continued) 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. Capital Adequacy of The Group’s Life Insurance Company 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. The table below shows the Capital Adequacy Multiple representing the ratio or assets available for capital over the capital reserve. 130 Commonwealth Bank of Australia – Annual Report 2015 Life Insurance Life Investment Contracts Contracts Group 201520142015201420152014Sources of life insurance net profit$M $M $M $M $M $M The net profit after income tax is represented by:Emergence of planned profit margins25721910894365313Difference between actual and planned experience(20)(38)-16(20)(22)Effects of changes to underlying assumptions16--16Reversal of previously recognised losses or loss recognition on groups of related products14(1)--4Investment earnings on assets in excess of policyholder liabilities10710111108102Other movements2---2-Net profit after income tax348292108111456403Life insurance premiums received and receivable2,3772,2384336022,8102,840Life insurance claims paid and payable1,4781,3481,2961,3862,7742,734Life InsuranceLife InvestmentContractsContractsGroupReconciliation of movements in201520142015201420152014policy liabilities$M$M$M$M$M$MContract policy liabilitiesGross policy liabilities opening balance3,6313,4159,5359,58913,16613,004Movement in policy liabilities reflected in the Income Statement1833057189469011,251Contract contributions recognised in policy liabilities77140328147335Contract withdrawals recognised in policy liabilities(55)(68)(1,224)(1,349)(1,279)(1,417)Non-cash movements(19)(18)--(19)(18)FX translation adjustment5(10)(10)21(5)11Gross policy liabilities closing balance3,7523,6319,1599,53512,91113,166Liabilities ceded under reinsuranceOpening balance(325)(261)--(325)(261)Increase in reinsurance assets(32)(64)--(32)(64)Closing balance(357)(325)--(357)(325)Net policy liabilitiesExpected to be realised within 12 months5745121,5381,6682,1122,180Expected to be realised in more than 12 months2,8212,7947,6217,86710,44210,661Total net insurance policy liabilities3,3953,3069,1599,53512,55412,84120152014Capital Adequacy MultipleTimesTimesThe Colonial Mutual Life Assurance Society Limited, Australia1. 681. 88 Notes to the Financial Statements Note 28 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 $8,254,111 (2014: $9,106,912) was paid to PricewaterhouseCoopers by way of fees for entities not consolidated into the Financial Statements. Of this amount, $6,295,642 (2014: $8,249,653) 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. Other services include project assurance, reviews of compliance with legal and regulatory frameworks, review of governance, risk and control frameworks as well as benchmarking reviews. Note 29 Lease Commitments 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 $114 million as at 30 June 2015 (2014: $127 million). Commonwealth Bank of Australia – Annual Report 2015 131 GroupBank2015201420152014$'000$'000$'000$'000a) Audit and audit related servicesAudit servicesPricewaterhouseCoopers Australian firm15,57514,71911,46910,438Network firms of PricewaterhouseCoopers Australian firm5,1543,997637577Total remuneration for audit services20,72918,71612,10611,015Audit related servicesPricewaterhouseCoopers Australian firm3,4033,2322,2992,700Network firms of PricewaterhouseCoopers Australian firm5697889093Total remuneration for audit related services3,9724,0202,3892,793Total remuneration for audit and audit related services24,70122,73614,49513,808b) Non-audit servicesTaxation servicesPricewaterhouseCoopers Australian firm1,8081,6651,7211,487Network firms of PricewaterhouseCoopers Australian firm1,3631,522732677Total remuneration for tax related services3,1713,1872,4532,164Other ServicesPricewaterhouseCoopers Australian firm6,4433,3705,5082,766Network firms of PricewaterhouseCoopers Australian firm9021--Total remuneration for other services6,5333,3915,5082,766Total remuneration for non-audit services 9,7046,5787,9614,930Total remuneration for audit and non-audit services (1)34,40529,31422,45618,738Group Bank 2015201420152014$M $M $M $M Lease Commitments - Property, Plant and EquipmentDue within one year 573561521509Due after one year but not later than five years 1,5701,4531,3981,300Due after five years 881994659753Total lease commitments - property, plant and equipment3,0243,0082,5782,562 Notes to the Financial Statements Note 30 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. The credit commitments shown in the table below 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. (1) Guarantees are unconditional undertakings given to support the obligations of a customer to third parties. (2) 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. (3) 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. (4) 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. (5) Other commitments include underwriting facilities, commitments with certain drawdowns, standby letters of credit and bill endorsements. Contingent Credit Liabilities 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 include guarantees, letters of credit, bill endorsements and other commitments to provide credit. 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 irrevocable because they cannot be withdrawn at the 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. These transactions are categorised and credit equivalents calculated under APRA guidelines for the risk-based measurement of capital adequacy. The credit equivalent amounts are a measure of potential loss to the Group in the event of non-performance by the counterparty. 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. 132 Commonwealth Bank of Australia – Annual Report 2015 Group Face Value Credit Equivalent 2015201420152014Credit risk related instruments$M $M $M $M Guarantees (1)6,1816,1216,1816,121Documentary letters of credit (2)1,7644,7291,6214,546Performance related contingents (3)2,0071,5851,8811,409Commitments to provide credit (4)165,511151,135157,387143,270Other commitments (5)2,1132,3621,8521,901Total credit risk related instruments177,576165,932168,922157,247Bank Face Value Credit Equivalent 2015201420152014Credit risk related instruments$M $M $M $M Guarantees (1)5,7785,7245,7785,724Documentary letters of credit (2) 1,7044,6371,5734,499Performance related contingents (3)2,0071,5851,8811,409Commitments to provide credit (4)152,772140,209145,935133,469Other commitments (5)1,4681,2281,4381,189Total credit risk related instruments163,729153,383156,605146,290 Notes to the Financial Statements Note 30 Contingent Liabilities, Contingent Assets and Commitments (continued) Contingent Credit Liabilities Exception Fee Class Actions In May 2011, Maurice Blackburn announced that it intended to sue various Australian banks with respect to exception fees. Proceedings were issued against Commonwealth Bank of Australia in December 2011 and against Bankwest in April 2012. Neither claim has been progressed and both have been stayed since issue, and currently until December 2015, pending the outcome of similar proceedings against another bank where an appeal process to the High Court has been commenced. The Group denies the claims and the financial impact, if any, is not anticipated to have a material impact on the Group. Other Contingent Liabilities 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. 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 2015 was $4.9 million (2014: $4.9 million). 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. 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 following each exchange during the business day or at 9am next business day. Litigation related Contingent Liabilities 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 liabilities at 30 June 2015 included: related contingent Storm Financial Class action proceedings were commenced in the Federal Court against the Group in relation to Storm Financial on 1 July 2010. The hearing of the proceedings concluded in November 2013 and judgement was reserved. The parties exchanged a Deed of Settlement in an attempt to resolve the class action on 27 February 2015, and the the proposed settlement on Federal Court approved 7 July 2015. Any appeals of the Court’s decision must be filed by 18 August 2015. Pursuant to the Deed of Settlement, the Group has committed to make an amount of approximately $34 million (inclusive of compensation and legal costs) available under the settlement. The Group holds adequate provisions to cover this. Commonwealth Bank of Australia – Annual Report 2015 133 Notes to the Financial Statements The Risk Committee oversees the Group’s Risk Management Framework and helps formulate the Group’s risk appetite for consideration by the Board. It reviews regular reports from management on the measurement of risk and the adequacy and effectiveness of the Group’s risk management and internal controls systems. The Risk Committee also monitors the health of the Group’s risk culture, and reports any significant issues to the Board. Tax and accounting risks are governed by Committee. the Audit Risk Infrastructure incorporates people, infrastructure Risk management processes and systems. A fundamental aspect of this is the internal approach for risk management accountability which is structured according to a “Three Lines of Defence” model:    Line 1 – Business Management managing the risks for its business. is responsible for Line 2 – Risk Management teams provide independent expertise and oversight for Business Management risk- taking activities. and Assurance provides Line 3 – Group Audit independent assurance regarding the adequacy and effectiveness of the Group’s system of internal controls, risk management governance procedures processes. and Note 31 Risk Management Risk Management Framework Managing financial risks, especially credit risk, and non- financial risks is a fundamental part of the Group’s business activities. The Group has an integrated Risk Management Framework in place to manage risks (including identifying, measuring, assessing, reporting and mitigating risks) and risk-adjusted returns on a consistent and reliable basis. The Framework incorporates the requirements of APRA’s prudential standard for risk management (CPS 220), and is structured around the interaction and integration of its key documentary components:    The Group’s Risk Appetite Statement (RAS) articulates the type and degree of risk the Board is prepared to tolerate. The Group’s business plan summarises the Group’s strategy, including the strategic growth opportunities and capabilities supporting their achievement, and the risks to the strategy. Consideration of risk is an integral part of the Group’s strategic planning process both at a Group level and in supporting Business Unit (BU) and Line of Business (LoB) strategic plans. The Group’s Risk Management Strategy (RMS) is guided by the business plan and RAS, and documents the Group’s approach to risk management for each of its material risks and the way that this is operationalised through governance, policy, reporting and infrastructure. This framework requires each business to plan and manage the outcome of its risk-taking activities. This is supported by an internal risk-adjusted-performance measurement approach that allows for “the costs of risk” and on which results are assessed and incentives are based. The framework requires that each business:    proactively manages its risk profile within risk appetite levels; uses risk-adjusted outcomes and considerations as part of day-to-day business decision-making processes; and establishes and maintains appropriate risk controls. Risk Governance through Risk Management governance originates at Board level, and cascades the Group via policies, delegated authorities and committee structures. The Board and its Risk Committee operate under the direction of their respective charters. The Board sets the foundation for risk management via its articulated RAS. It is also responsible for overseeing the establishment of systems of risk management by approving management’s RMS document and the key frameworks and policy components. 134 Commonwealth Bank of Australia – Annual Report 2015 Notes to the Financial Statements Note 31 Risk Management (continued) Material Risks There are a number of material risk types that could adversely affect the achievement of the Group’s strategic or financial performance objectives: Risk Type Description Credit Risk (refer to Note 32) Credit risk is the potential of 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 in bonds and notes, financial market transactions, providers of credit enhancements (such as credit default swaps and lenders mortgage insurance), securitisations and other associated activities. In the insurance business, credit risk arises from investment in bonds and notes, loans, and reliance on reinsurance. At a portfolio level, credit risk includes concentration risk arising from interdependencies among counterparties and concentration of exposure to countries, geographical regions, industry sectors and products. Market risk is the potential of an adverse impact on the Group’s earnings or capital from changes in interest rates, foreign exchange rates, equity and commodity prices, credit spreads, the resale value of assets underlying operating leases at maturity and economic drivers of the Commonwealth Bank Group Super Fund. The Group distinguishes between two main types of market risk:  Traded market risk principally arises from the Group’s trading book activities within the Institutional Banking and Markets business and its subsidiary financial institutions.  Non-traded market risk includes interest rate risk arising from the banking book (IRRBB), non- traded equity risk, market risk arising from the insurance business, structural foreign exchange risk and lease residual value risk. Liquidity risk is the combined risks of not being able to meet financial obligations as they fall due (funding liquidity risk), and that liquidity in financial markets, such as the market for debt securities, may reduce significantly (market liquidity risk). Market Risk (including Equity Risk) (refer to Note 33) Liquidity and Funding Risk (refer to Note 34) Governing Policies and Key Management Forums  The Group Credit Risk Framework and Policies, (including: Aggregation Policy, Portfolio Standards, Product Standards, Large Credit Exposure Policy; Country Risk Exposure Policy; and Industry Sector Concentration Policy)  Key Forum: Executive Risk Committee Key Limits and Approaches     Exposures to a single or groups of related counterparties (differentiated by counterparty type including individual, commercial, bank and government client groups; Probability of Default (PD) rating; security cover; and facility maturity); Industry limits in terms of exposure and risk adjusted concentration; Country exposure limits to control transfer/cross-border and sovereign default risks; and Exposures to consumer credit products managed within credit quality boundaries in BU RAS. The measurement of credit risk is based on an internal credit risk-rating system, which uses judgements on individuals or management, supported by analytical tools (including scorecards) to estimate expected and unexpected loss within the credit portfolio.  The Group Market Risk Framework (including the Group Market Risk Policy and Trading Book Policy Statement)  Key Forum: Asset and Liability Committee   Group Liquidity Risk Management Policy and Strategy Key Forum: Asset and Liability Committee          Traded market risk (VaR and stress testing limits); IRRBB (Market Value Sensitivity and Net Interest Earnings at Risk limits); Lease residual value risk limits; Market risk in insurance business (VaR limits); Non-traded equity limits; and Super fund surplus and risk management reviews. The Liquidity Coverage Ratio (LCR), which requires liquid assets exceed modelled 30 day stress outflows; Additional market and idiosyncratic stress test scenarios; and Limits that set tolerances for the sources and tenor of funding. Commonwealth Bank of Australia – Annual Report 2015 135 Notes to the Financial Statements Note 31 Risk Management (continued) Material Risks (continued) Risk Type Description Operational Risk Operational risk is risk of economic loss arising from inadequate or failed internal processes, people, systems or from external events. Governing Policies and Key Management Forums  Operational Risk Management Framework (ORMF)  Key Forum: Executive Committee Key Limits and Approaches           Investigation and reporting of loss and near miss incidents; Comprehensive risk assessment and control assurance processes; Quantitative Risk Assessment Framework, ORMF and Capital modelling; Support from skilled risk professionals embedded across the Group; and Single integrated operational risk and compliance system (RiskinSite) in use to enable consistent application of the ORMF/CRMF across the Group, transparency and reporting of risk management activities for business management and monitoring, and review activities. A structured hierarchy of committees and forums across the Group, each with specified accountabilities, primarily undertaken at the BU level; Maintaining pro-active relationships with our regulators at all times; Establishing appropriate policies, processes and procedures; Undertaking robust and well-informed advocacy and lobbying activities including participation in ‘quantitative impact studies’ for regulators; and Employing appropriate management, monitoring and reporting of compliance activities. Compliance Risk Management Framework (CRMF) Key Forum: Executive Committee Risk Management Frameworks (including RMS and RAS, and underwriting and claims standards) of insurance writing businesses Key Forum: Executive Committees of insurance writing businesses The management of insurance risk is an integral part of the operation of the Group’s insurance businesses. It is applied 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 customers understand the extent of their cover and that premiums are sufficient to cover the risk involved;    Underwriting new customers to ensure that the cover provided and the premium rates quoted are appropriate for the level of risk accepted; Regular review of insurance experience, so that product design, policy liabilities and pricing remain sound; Claims management to ensure that claims are paid within the agreed policy terms and that these genuine claims are paid as soon as possible after documentation is received and reasonable investigations are undertaken; and  Transferring a proportion of insurance risk to reinsurers to keep within risk appetite. 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 requirements of relevant laws, regulatory bodies, industry standards and codes. Insurance Risk Insurance risk is the risk of loss due to increases in claim payments arising from variations in the incidence or severity of insured events. In the life insurance business this arises primarily through mortality (death) or morbidity (illness or injury) claims being greater than expected. In the general insurance business, variability arises mainly through weather-related incidents and similar events, as well as general variability in home, motor and travel insurance claim amounts.     136 Commonwealth Bank of Australia – Annual Report 2015 Notes to the Financial Statements Note 31 Risk Management (continued) Material Risks (continued) Risk Type Description Strategic Business Risk Strategic business risk is defined as the risk of economic loss resulting from changes in the business environment caused by macroeconomic conditions, competitive forces at work, technology, regulatory or social trends. Governing Policies and Key Management Forums  Group RMS  Key Forum: Executive Committee Reputational Risk Reputational risk arises from negative perception on the part of customers, counterparties, shareholders, investors, debt holders, market analysts, regulators and other relevant parties of the Group. In many, but not all respects, adverse reputational risk outcomes flow from the failure to manage other types of risk.    Cultural Framework and Statement of Professional Practice Sustainability Framework Key Forum: Executive Committee Key Limits and Approaches Elements of other risk type policies and processes in addition to management controls including strategic planning and implementation, and financial management. The Board accepts or amends the Group’s overall strategy and each key BU’s strategic plans. They do so as they simultaneously consider:  Development and consideration by the Board of the most significant risks (current and emerging); and     BU’s RASs, which include references to key risk limits, and changes to the risk profile arising from adopting the strategy. Risk culture and behavioural standards are set out in the Group’s RAS and various other codes of conduct and related standards; Reinforcing Group-wide requirements on leadership values that support the Group’s vision to excel at securing and enhancing the financial wellbeing of people, businesses and communities; and Elements of other risk type policies and processes in addition to: – – – Crisis management testing of leadership team; Support from skilled risk professionals embedded across the Group; Sustainability framework which supports the Group in managing its Environmental, Social and Governance (ESG) risks. Commonwealth Bank of Australia – Annual Report 2015 137 Notes to the Financial Statements Note 32 Credit Risk Credit Risk Management Principles and Portfolio Standards 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 set the minimum requirements in assessing the integrity and ability of debtors and/or counterparties to meet their contracted financial obligations for repayment, acceptable forms of collateral and security and the frequency of credit reviews. The principles and portfolio standards are designed to achieve portfolio outcomes that are consistent with the Group’s risk appetite and risk/return expectations. 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 risk portfolio has two major segments: (i) Retail Managed Segment This segment has sub-segments covering housing loans, credit cards, personal loans, some leasing products, some unsecured commercial lending and most secured commercial lending up to $1 million. Auto-decisioning is used to approve credit applications for eligible customers in this segment. Auto-decisioning uses a the Group’s historical scorecard approach based on 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. (ii) Risk-Rated Segment This segment comprises commercial exposures, including bank and government exposures. Each exposure is assigned an internal Credit Risk-Rating (CRR) based on Probability of Default (PD) and Loss Given Default (LGD). For credit risk rated 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. External ratings 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. 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 138 Commonwealth Bank of Australia – Annual Report 2015 rating at origination. Credit risk-rated exposures fall within the following categories:   “Pass” – these credit facilities qualify for approval of new or increased exposure on normal commercial terms; and to “Troublesome or Impaired Assets (TIAs)” – these credit facilities are not eligible for new or increased exposure, unless it will protect or improve the Group’s position by maximising facilitate recovery prospects or rehabilitation. Where a client is in default but the facility facility may be classed as is well secured, troublesome but not impaired. Where a client’s facility is not well secured and a loss is expected, the facility is classed as impaired. Restructured facilities, where the original contractual arrangements have been modified to provide concessions financial difficulties, are rendered non-commercial to the Group and considered impaired. the customer’s the for Default is usually consistent with one or more of the following:   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 Group in full without taking action, such as realising on available security. 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. (i) Expected Loss Expected Loss (EL) is the product of:    PD; Exposure at Default (EAD); and LGD. The PD, expressed as a percentage, is the estimate of the probability that a client will default within the next 12 months. It reflects a client's ability to generate sufficient cash flows into the future to meet the terms of all their credit obligations with the Group. The dollar amount of EAD is the estimate of the amount of a facility that will be outstanding in the event of default. Estimates are based on downturn economic conditions. EAD for committed facilities is measured as a dollar amount based on the drawn and undrawn components 12 months prior to default. It comprises the drawn balance plus an undrawn amount that is expected to convert to drawn in the period leading up to default. For most committed facilities, the Group applies a credit conversion factor of 100% to the undrawn amount. For uncommitted facilities the EAD will generally be the drawn balance only. For retail exposures, a modelling approach based on limit usage, arrears and loan type is used to segment accounts into homogeneous pools for the calculation. LGD expressed as a percentage, is the estimated proportion of a facility likely to be lost in the event of default. LGD is impacted by:     Type and level of any collateral held; Liquidity and volatility of collateral; Carrying costs (effectively the costs of providing a facility that is not generating an interest return); and Realisation costs. Notes to the Financial Statements Note 32 Credit Risk (continued) Credit Risk Measurement (continued) Derivative Assets 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 25 for information relating to regulatory capital. Credit Risk Mitigation, Collateral and Other Credit Enhancements 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 Collateral is not usually sought on the majority of Cash and liquid asset balances as these types of exposures are generally considered low risk. However, securities purchased under agreement to resell are 100% collateralised by highly liquid debt securities. 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. included The Group’s cash and $16,028 million (2014: $15,815 million) deposited with central banks and considered to carry less credit risk. liquid asset balance 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). Trading Assets at Fair Value through Income Statement and Available-for-Sale (AFS) Investments 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 mitigate the exposure to credit risk. 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. 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. Other Assets 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. The Group’s use of derivative contracts is outlined in Note 10. 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 credit 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 frequently for corporate or government counterparties) through netting agreements, whereby derivative assets and liabilities with the same counterparty can be offset and clearing of trades with Central Counterparties (CCPs). 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. to be Collateral is obtained against derivative assets, depending on the creditworthiness of the counterparty and/or nature of the transaction. The fair value of collateral held and the potential effect of offset obtained by applying master netting agreements are disclosed in Note 43. 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. Collateral may be sought depending on the strength of the counterparty and the nature of the transaction. Of the Group’s off Balance Sheet exposures, $93,047 million (2014: $85,613 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 cash, scrips, inventory, fixed assets and accounts receivables; and  Guarantees received from third parties. Collateral security, in the form of real estate or a charge over income or assets, is generally taken except for government, bank and corporate counterparties that are often externally risk-rated and of strong financial standing. Longer term consumer finance, such as housing loans, is generally secured against real estate, while short term revolving consumer credit is generally not secured by formal collateral. Specifically, the collateral mitigating credit risk of the key lending portfolios is addressed in the table notes in the collateral held against Loans, bills discounted and other receivables section of this note. Commonwealth Bank of Australia – Annual Report 2015 139 Notes to the Financial Statements Note 32 Credit Risk (continued) Maximum Exposure to Credit Risk by Industry and Asset Class before Collateral Held or Other Credit Enhancements The tables below 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) Loans, bills discounted and other receivables is presented gross of provisions for impairment and unearned income on lease receivables in line with Note 12. (2) For the purpose of reconciling to the Balance Sheet, “Other assets” predominantly comprises assets which do not give rise to credit exposure, including Property, plant and equipment, Investment in Associates and Joint Ventures, Intangible assets, Deferred tax assets and Other assets. 140 Commonwealth Bank of Australia – Annual Report 2015 GroupAt 30 June 2015BankAssetOtherAgri-and OtherHomeConstr-OtherFinanc-Comm andSovereigncultureFinancialLoansuctionPersonalingIndust.OtherTotal $M $M $M $M $M $M $M $M $M $MAustraliaCredit risk exposures relating to on Balance Sheet assets:Cash and liquid assets--15,939------15,939Receivables due from otherfinancial institutions--3,284------3,284Assets at fair value throughIncome Statement:Trading10,477-2,087----10,267-22,831Insurance 696-7,269----3,885-11,850Other95-470----615-1,180Derivative assets1,28211529,319-48--6,898-37,662Available-for-sale investments34,795-28,510----1,040-64,345Loans, bills discountedand other receivables (1)5,5216,25815,157383,1742,72222,3138,356117,557-561,058Bank acceptances21,29961-353----1,715Other assets (2)786376,3126087051495912,83821,665Total on Balance Sheet Australia53,6547,709108,408383,7823,19322,3648,360141,22112,838741,529Credit risk exposures relating to off Balance Sheet assets:Guarantees10914149456797-4,759-5,762Loan commitments5771,5953,84566,4373,25322,605-40,482-138,794Other commitments50131,7272487421642,263-5,117Total Australia54,3909,331114,129450,2887,99944,9788,524188,72512,838891,202OverseasCredit risk exposures relating to on Balance Sheet assets:Cash and liquid assets--17,177------17,177Receivables due from otherfinancial institutions--8,256------8,256Assets at fair value throughIncome Statement:Trading1,010-1,358----1,225-3,593Insurance --2,238------2,238Other--98------98Derivative assets710245,848----1,910-8,492Available-for-sale investments7,092-3,133----114-10,339Loans, bills discountedand other receivables (1)12,9297,9907,57239,6774071,12855812,909-83,170Bank acceptances-------229-229Other assets (2)45-1,409111954771,6853,291Total on Balance Sheet overseas21,7868,01447,08939,6784081,14761216,4641,685136,883Credit risk exposures relating to off Balance Sheet assets:Guarantees1360-69--286-419Loan commitments5129891,4015,8871541,711316,060-26,717Other commitments71---5--691-767Total overseas22,3709,00648,55045,5656362,85861533,5011,685164,786Total gross credit risk76,76018,337162,679495,8538,63547,8369,139222,22614,5231,055,988 Notes to the Financial Statements Note 32 Credit Risk (continued) Maximum Exposure to Credit Risk by Industry and Asset Class before Collateral Held or Other Credit Enhancements (continued) (1) Loans, bills discounted and other receivables is presented gross of provisions for impairment and unearned income on lease receivables in line with Note 12. (2) For the purpose of reconciling to the Balance Sheet, “Other assets” predominantly comprises assets which do not give rise to credit exposure, including Property, plant and equipment, Investment in Associates and Joint Ventures, Intangible assets, Deferred tax assets and Other assets. Commonwealth Bank of Australia – Annual Report 2015 141 GroupAt 30 June 2014BankAssetOtherAgri-& 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--8,249------8,249Receivables due from otherfinancial institutions--3,707------3,707Assets at fair value throughIncome Statement:Trading9,026-1,517----7,049-17,592Insurance767-7,425----4,816-13,008Other54-372------426Derivative assets4144821,989-19--3,268-25,738Available-for-sale investments32,097-24,795----947-57,839Loans, bills discountedand other receivables (1)5,9205,86410,179360,2182,67923,0478,078110,453-526,438Bank acceptances22,226128-536--2,092-4,984Other assets (2)77164,794642776939312,86818,882Total on Balance Sheet Australia48,3578,15483,155360,8603,24123,1238,087129,01812,868676,863Credit risk exposures relating to off Balance Sheet assets:Guarantees10326214-806--4,555-5,704Loan commitments8081,7012,57764,9041,83221,551736,316-129,696Other commitments 57204,634-490-1472,056-7,404Total Australia49,3259,90190,580425,7646,36944,6748,241171,94512,868819,667OverseasCredit risk exposures relating to on Balance Sheet assets:Cash and liquid assets--18,160------18,160Receivables due from otherfinancial institutions--4,358------4,358Assets at fair value throughIncome Statement:Trading1,426-571----1,870-3,867Insurance--2,134------2,134Other138-196------334Derivative assets181102,589----729-3,509Available-for-sale investments5,703-2,594----1-8,298Loans, bills discountedand other receivables (1)12,3097,3895,48639,4673781,08532710,221-76,662Bank acceptances-11-----32-43Other assets (2)35-76111449431,6482,542Total on Balance Sheet overseas19,7927,41036,84939,4683791,08937612,8961,648119,907Credit risk exposures relating to off Balance Sheet assets:Guarantees1350-82--281-417Loan commitments4915477225,5985431,689-11,849-21,439Other commitments73---6--1,193-1,272Total overseas20,3577,96037,62145,0661,0102,77837626,2191,648143,035Total gross credit risk69,68217,861128,201470,8307,37947,4528,617198,16414,516962,702 Notes to the Financial Statements Note 32 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 and facility tenor. All exposures outside the policy limits require approval by the Executive Risk Committee and are reported to the 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 1 and Tier 2 capital): The Group has a high quality, well diversified credit portfolio, with 59% 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 13% of loans and advances. 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. Distribution of Financial Instruments by Credit Quality The table below segregates financial instruments 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. 142 Commonwealth Bank of Australia – Annual Report 2015 Group20152014NumberNumber5% to less than 10% of the Group's capital resources2210% to less than 15% of the Group's capital resources--Group2015Neither PastPast dueTotal Provisions Due norbut notImpairedfor ImpairmentImpaired ImpairedAssetsGrossLossesNet$M$M$M$M$M$MCash and liquid assets33,116--33,116-33,116Receivables due from other financial institutions11,540--11,540-11,540Assets at fair value through Income Statement:Trading26,424--26,424-26,424Insurance14,088--14,088-14,088Other1,278--1,278-1,278Derivative assets46,154--46,154-46,154Available-for-sale investments74,684--74,684-74,684Loans, bills discounted and other receivables:Australia545,44813,4022,208561,058(3,322)557,736Overseas80,2902,39648483,170(296)82,874Bank acceptances1,944--1,944-1,944Credit related commitments177,413-163177,576(31)177,545Total1,012,37915,7982,8551,031,032(3,649)1,027,383 Notes to the Financial Statements Note 32 Credit Risk (continued) Distribution of Financial Instruments by Credit Quality (continued) Commonwealth Bank of Australia – Annual Report 2015 143 Group 2014Neither PastPast DueTotal ProvisionsDue norbut notImpairedfor ImpairmentImpairedImpairedAssetsGrossLossesNet$M$M$M$M$M $MCash and liquid assets26,409--26,409-26,409Receivables due from other financial institutions8,065--8,065-8,065Assets at fair value through Income Statement:Trading21,459--21,459-21,459Insurance15,142--15,142-15,142Other760--760-760Derivative assets29,213-3429,247-29,247Available-for-sale investments66,137--66,137-66,137Loans, bills discounted and other receivables:Australia511,15412,6652,619526,438(3,599)522,839Overseas73,1882,92355176,662(267)76,395Bank acceptances5,027--5,027-5,027Credit related commitments165,769-163165,932(40)165,892Total922,32315,5883,367941,278(3,906)937,372Bank2015Neither PastPast DueTotal ProvisionsDue nor but notImpairedfor ImpairmentImpairedImpairedAssetsGrossLossesNet$M$M$M$M$M$MCash and liquid assets31,683--31,683-31,683Receivables due from other financial institutions9,720--9,720-9,720Assets at fair value through Income Statement:Trading25,135--25,135-25,135Insurance------Other989--989-989Derivative assets45,607--45,607-45,607Available-for-sale investments72,304--72,304-72,304Loans, bills discounted and other receivables:Australia540,26413,3922,170555,826(3,298)552,528Overseas21,8761114822,035(56)21,979Bank acceptances1,908--1,908-1,908Shares in and loans to controlled entities143,756--143,756-143,756Credit related commitments163,571-158163,729(31)163,698Total1,056,81313,4032,4761,072,692(3,385)1,069,307Bank2014Neither PastPast DueTotal ProvisionsDue norbut notImpairedfor ImpairmentImpairedImpairedAssetsGrossLossesNet$M$M$M$M$M$MCash and liquid assets24,108--24,108-24,108Receivables due from other financial institutions7,457--7,457-7,457Assets at fair value through Income Statement:Trading20,572--20,572-20,572Insurance------Other561--561-561Derivative assets29,582-3329,615-29,615Available-for-sale investments131,577--131,577-131,577Loans, bills discounted and other receivables:Australia507,95012,6582,576523,184(3,563)519,621Overseas16,6222123316,876(71)16,805Bank acceptances4,984--4,984-4,984Shares in and loans to controlled entities64,086--64,086-64,086Credit related commitments153,226-157153,383(40)153,343Total960,72512,6792,999976,403(3,674)972,729 Notes to the Financial Statements Note 32 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. (1) For New Zealand Housing Loans, PDs reflect Reserve Bank of New Zealand requirements resulting in higher PDs on average and lower grading. 144 Commonwealth Bank of Australia – Annual Report 2015 Group2015OtherHomeOtherAssetCommercialLoansPersonalFinancingand IndustrialTotalCredit grading$M$M$M$M$MAustraliaInvestment254,7044,24767493,362352,987Pass107,52013,0467,26050,068177,894Weak9,6253,7222011,01914,567Total Australia371,84921,0158,135144,449545,448Overseas (1)Investment9,501-27328,32738,101Pass28,01183624312,64341,733Weak337--119456Total overseas37,84983651641,08980,290Total loans which were neither past due nor impaired409,69821,8518,651185,538625,738Group2014OtherHomeOtherAssetCommercialLoansPersonalFinancingand IndustrialTotalCredit grading$M $M$M$M$MAustraliaInvestment236,4874,36759786,674328,125Pass104,14413,6477,06043,557168,408Weak9,1103,8452181,44814,621Total Australia349,74121,8597,875131,679511,154Overseas (1)Investment11,819-1223,80235,633Pass24,97973830011,14637,163Weak264-1127392Total overseas37,06273831335,07573,188Total loans which were neither past due nor impaired 386,80322,5978,188166,754584,342 Notes to the Financial Statements Note 32 Credit Risk (continued) Credit Quality of Loans, Bills Discounted and Other Financial Assets which were Neither Past Due nor Impaired (continued) Commonwealth Bank of Australia – Annual Report 2015 145 Bank2015OtherHomeOtherAssetCommercialLoansPersonalFinancingand IndustrialTotal Credit grading$M$M$M$M$M AustraliaInvestment256,7844,44363889,964351,829Pass101,79413,7177,21050,890173,611Weak9,6063,9422011,07514,824Total Australia368,18422,1028,049141,929540,264OverseasInvestment128-25818,65919,045Pass37819-2,4162,813Weak6--1218Total overseas5121925821,08721,876Total loans which were neither past due nor impaired368,69622,1218,307163,016562,140Bank2014Other HomeOtherAssetCommercialLoansPersonalFinancingand IndustrialTotal Credit grading$M$M$M$M$M AustraliaInvestment236,2764,36654985,772326,963Pass102,49513,6477,01043,277166,429Weak9,1033,8452171,39314,558Total Australia347,87421,8587,776130,442507,950OverseasInvestment158-114,64514,804Pass3051331,4971,818Weak-----Total overseas46313416,14216,622Total loans which were neither past due nor impaired348,33721,8717,780146,584524,572 Notes to the Financial Statements Note 32 Credit Risk (continued) 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 2015 and 30 June 2014 were of investment grade. 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 90 days past due. (1) Included in these balances are credit card facilities and other unsecured portfolio managed facilities up to 90 days past due. At 90 days past due, the loans are classified as impaired. 146 Commonwealth Bank of Australia – Annual Report 2015 Group 2015OtherHomeOtherAssetCommercialLoansPersonal (1)Financingand IndustrialTotal Loans which were past due but not impaired$M$M$M$M$M AustraliaPast due 1 - 29 days6,131691598787,759Past due 30 - 59 days1,835204432042,286Past due 60 - 89 days839129271561,151Past due 90 - 179 days956-12181,175Past due 180 days or more7298-2941,031Total Australia10,4901,0321301,75013,402OverseasPast due 1 - 29 days1,41021883241,960Past due 30 - 59 days17732312224Past due 60 - 89 days711211195Past due 90 - 179 days491212183Past due 180 days or more195-1034Total overseas1,726279133782,396Total loans which were past due but not impaired 12,2161,3111432,12815,798Group 2014Other HomeOtherAsset Commercial LoansPersonal (1)Financing and Industrial Total Loans which were past due but not impaired$M $M $M $M $M AustraliaPast due 1 - 29 days5,639622667977,124Past due 30 - 59 days1,731185392552,210Past due 60 - 89 days830111111471,099Past due 90 - 179 days860--2741,134Past due 180 days or more67610-4121,098Total Australia9,7369281161,88512,665OverseasPast due 1 - 29 days1,82925392852,376Past due 30 - 59 days25439210305Past due 60 - 89 days952213121Past due 90 - 179 days57151578Past due 180 days or more277-943Total overseas2,262336133122,923Total loans which were past due but not impaired 11,9981,2641292,19715,588 Notes to the Financial Statements Note 32 Credit Risk (continued) Age Analysis of Loans, Bills Discounted and Other Receivables that are Past Due but Not Impaired (continued) (1) Included in these balances are credit card facilities and other unsecured portfolio managed facilities up to 90 days past due. At 90 days past due, the loans are classified as impaired. Impaired Assets by Classification Assets in credit risk rated portfolios and retail managed portfolios are assessed for objective evidence that the financial asset is impaired. Impaired assets are split into the following categories:    Non-Performing Facilities; Restructured Facilities; and Unsecured retail products 90 days or more past due. Non-performing facilities are facilities against which an individually assessed provision for impairment has been raised and facilities where loss of principal or interest is anticipated. Commonwealth Bank of Australia – Annual Report 2015 147 Bank2015OtherHomeOtherAssetCommercialLoansPersonal (1)Financingand IndustrialTotal Loans which were past due but not impaired$M$M$M$M$M AustraliaPast due 1 - 29 days6,126691598787,754Past due 30 - 59 days1,834204432042,285Past due 60 - 89 days838129261561,149Past due 90 - 179 days955-12181,174Past due 180 days or more7288-2941,030Total Australia10,4811,0321291,75013,392OverseasPast due 1 - 29 days7--18Past due 30 - 59 days-----Past due 60 - 89 days-----Past due 90 - 179 days1--12Past due 180 days or more---11Total overseas8--311Total loans which were past due but not impaired 10,4891,0321291,75313,403Bank 2014OtherHome OtherAssetCommercialLoansPersonal (1)Financingand IndustrialTotal Loans which were past due but not impaired $M$M$M$M$M AustraliaPast due 1 - 29 days5,635622667977,120Past due 30 - 59 days1,729185392552,208Past due 60 - 89 days829111101471,097Past due 90 - 179 days860--2741,134Past due 180 days or more67610-4131,099Total Australia9,7299281151,88612,658OverseasPast due 1 - 29 days15--318Past due 30 - 59 days1---1Past due 60 - 89 days-----Past due 90 - 179 days1---1Past due 180 days or more1---1Total overseas18--321Total loans which were past due but not impaired 9,7479281151,88912,679 Notes to the Financial Statements Note 32 Credit Risk (continued) Impaired Assets by Classification (continued) Restructured facilities are facilities where the original contractual terms have been modified to non-commercial terms due to financial difficulties of the borrower. Interest on these facilities is taken to the Income Statement. Failure to comply fully with the modified terms will result in immediate reclassification to non-performing. Unsecured retail products 90 days or more past due are credit cards, personal loans and other unsecured retail products which are 90 days or more past due. These loans are collectively provided for. The Group does not manage credit risk based solely on arrears categorisation, but also uses credit risk rating principles as described earlier in this note. (1) Collective provisions are held for these portfolios. Impaired Assets by Size 148 Commonwealth Bank of Australia – Annual Report 2015 Group20152014201320122011$M $M $M $M $M AustraliaNon-Performing assets:Gross balances1,9402,1343,3163,9664,592Less individual provisions for impairment(775)(1,035)(1,564)(1,920)(2,031)Net non-performing assets1,1651,0991,7522,0462,561Restructured assets:Gross balances1443613469338Less individual provisions for impairment-----Net restructured assets1443613469338Unsecured retail products 90 days or more past due:Gross balances251236217204202Less provisions for impairment (1)(130)(131)(128)(120)(109)Unsecured retail products 90 days or more past due121105898493Net Australia impaired assets1,4301,5652,1872,2232,692OverseasNon-Performing assets:Gross balances454377356344467Less individual provisions for impairment(112)(92)(64)(88)(94)Net non-performing assets342285292256373Restructured assets:Gross balances542488770189Less individual provisions for impairment-----Net restructured assets542488770189Unsecured retail products 90 days or more past due:Gross balances121181014Less provisions for impairment (1)(9)(8)(3)(3)(3)Unsecured retail products 90 days or more past due335711Net overseas impaired assets399536384333573Total net impaired assets1,8292,1012,5712,5563,265GroupAustraliaOverseasTotalAustraliaOverseasTotal201520152015201420142014Impaired assets by size $M$M$M$M$M$MLess than $1 million1,2151181,3331,2031601,363$1 million to $10 million7171268439021251,027Greater than $10 million403276679626351977Total2,3355202,8552,7316363,367 Notes to the Financial Statements Note 32 Credit Risk (continued) Movement in Impaired Assets Impaired Assets by Industry and Status (1) Write-offs, recoveries and net write-offs are not recognised against credit commitments or derivatives as these exposures are closed out and converted to loans and receivables on impairment. Write-offs and recoveries take place subsequent to this conversion. Commonwealth Bank of Australia – Annual Report 2015 149 Group20152014201320122011Movement in gross impaired assets$M $M $M $M $M Gross impaired assets - opening balance3,3674,3304,6875,5025,419New and increased2,0952,3933,0163,3894,156Balances written off(1,355)(1,697)(1,774)(1,687)(1,798)Returned to performing or repaid(1,903)(2,303)(2,165)(3,040)(2,740)Portfolio managed - new/increased/return to performing/repaid651644566523465Gross impaired assets - closing balance2,8553,3674,3304,6875,502Group2015GrossTotal ProvisionsNetTotalImpairedfor ImpairedImpairedNet (1)BalanceAssetsAssetsAssetsWrite-offs (1)Recoveries (1)Write-offs Industry $M$M$M$M$M$M$M Loans - AustraliaSovereign5,521------Agriculture6,258347(133)21465-65Bank and other financial15,15724(36)(12)36(9)27Home loans383,174835(148)68772(3)69Construction2,72230(20)1014-14Other personal22,313266(140)126686(125)561Asset financing8,35691(28)6345(4)41Other commercial and industrial117,557615(400)215404(24)380Total loans - Australia561,0582,208(905)1,3031,322(165)1,157Loans - OverseasSovereign12,929------Agriculture7,990146(14)1323-3Bank and other financial7,57210-1069-69Home loans39,677102(10)928(1)7Construction4075(1)4---Other personal1,12813(9)442(10)32Asset financing55829(10)19---Other commercial and industrial12,909179(69)11035-35Total loans - overseas 83,170484(113)371157(11)146Total loans644,2282,692(1,018)1,6741,479(176)1,303Other balances - AustraliaCredit commitments149,673127-127---Derivatives37,662------Total other balances - Australia187,335127-127---Other balances - OverseasCredit commitments27,90336(8)28---Derivatives8,492------Total other balances - overseas36,39536(8)28---Total other balances223,730163(8)155---Total867,9582,855(1,026)1,8291,479(176)1,303 Notes to the Financial Statements Note 32 Credit Risk (continued) Impaired Assets by Industry and Status (continued) (1) Write-offs, recoveries and net write-offs are not recognised against credit commitments or derivatives as these exposures are closed out and converted to loans and receivables on impairment. Write-offs and recoveries take place subsequent to this conversion. Collateral held against Loans, Bills Discounted and Other Receivables 150 Commonwealth Bank of Australia – Annual Report 2015 Group2014GrossTotal ProvisionsNetTotalImpairedfor ImpairedImpairedNet (1)BalanceAssetsAssetsAssetsWrite-offs (1)Recoveries (1)Write-offs Industry $M$M$M$M$M$M$M Loans - AustraliaSovereign5,920------Agriculture5,864326(123)203138-138Bank and other financial10,17973(68)5122(6)116Home loans360,218743(151)592113(4)109Construction2,67942(29)1352-52Other personal23,047260(145)115677(106)571Asset financing8,07885(30)5537(5)32Other commercial and industrial110,4531,090(620)470568(27)541Total loans - Australia526,4382,619(1,166)1,4531,707(148)1,559Loans - OverseasSovereign12,309------Agriculture7,38972(3)693(3)-Bank and other financial5,48630(15)15-(3)(3)Home loans39,467143(11)13213(1)12Construction3785(1)4---Other personal1,08511(8)330(8)22Asset financing3272-2---Other commercial and industrial10,221288(62)22660(2)58Total loans - overseas 76,662551(100)451106(17)89Total loans603,1003,170(1,266)1,9041,813(165)1,648Other balances - AustraliaCredit commitments142,804110-110---Derivatives25,7382-2---Total other balances - Australia168,542112-112---Other balances - OverseasCredit commitments23,12853-53---Derivatives3,50932-32---Total other balances - overseas26,63785-85---Total other balances195,179197-197---Total798,2793,367(1,266)2,1011,813(165)1,648Group2015OtherHomeOtherAssetCommercialLoansPersonalFinancingand IndustrialTotalMaximum exposure ($M)422,85123,4418,914189,022644,228Collateral classification:Secured (%)99. 314. 098. 740. 278. 7Partially secured (%)0. 7-1. 313. 74. 5Unsecured (%)-86. 0-46. 116. 8 Notes to the Financial Statements Note 32 Credit Risk (continued) Collateral held against Loans, Bills Discounted and Other Receivables (continued) A facility is determined to be secured where the ratio of the exposure to that facility to the estimated value of the collateral (adjusted for lending margins) is less than or equal to 100%. A facility is deemed to be partly 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%. 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, with the exception of some relatively small portfolios, for loans with a Loan to Valuation (LVR) of higher than 80% either a Low Deposit Premium is levied, or Lenders Mortgage Insurance (LMI) is taken out to cover 100% of the principal amount at default plus interest. Personal Lending Personal lending (such as credit cards), is predominantly unsecured. Asset Finance The Group leases assets to corporate and retail clients. When the title to the underlying 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 partly secured or unsecured. 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 partly secured or unsecured. Commonwealth Bank of Australia – Annual Report 2015 151 Group2014OtherHomeOtherAssetCommercialLoansPersonalFinancingand IndustrialTotalMaximum exposure ($M)399,68524,1328,405170,878603,100Collateral classification:Secured (%)99. 314. 399. 043. 280. 0Partially secured (%)0. 7-1. 013. 54. 3Unsecured (%)-85. 7-43. 315. 7Bank2015OtherHomeOtherAssetCommercialLoansPersonalFinancingand IndustrialTotal Maximum exposure ($M)380,02223,4198,307166,113577,861Collateral classification:Secured (%)99. 214. 598. 439. 378. 7Partially secured (%)0. 8-1. 613. 14. 3Unsecured (%)-85. 5-47. 617. 0Bank2014OtherHomeOtherAssetCommercialLoansPersonalFinancingand IndustrialTotal Maximum exposure ($M)358,82423,0607,979150,197540,060Collateral classification:Secured (%)99. 214. 898. 942. 179. 8Partially secured (%)0. 8-1. 112. 84. 1Unsecured (%)-85. 2-45. 116. 1 Notes to the Financial Statements Note 33 Market Risk Market Risk Measurement The Group uses Value-at-Risk (VaR) as one of the measures of Traded and Non-traded market risk. VaR is a statistical measure of potential loss using historically observed market movements. VaR is modelled at a 97.5% confidence level. This means that there is a 97.5% probability that the loss will not exceed the VaR estimate on any given day. The VaR measured for Traded market risk uses two years of daily movement in market rates. The VaR measure for Non- traded Banking Book market risk uses six years of daily movement in market rates. A 1-day holding period is used for trading book positions. A 20-day holding period is used for Interest Rate Risk in the Banking Book, insurance business market risk and Non- traded equity risk. the maximum VaR is driven by 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 additional controls to measure and manage market risk including stress testing, risk sensitivity and position limits. loss that (1) Average VaR calculated for each 12 month period. Non-Traded Market Risk Interest Rate Risk in the Banking Book Interest rate risk is the current and prospective impact to the Group’s financial condition due to adverse changes in interest rates to which the Group’s Balance Sheet is exposed. Maturity transformation activities of the Group result in mismatched assets and liabilities positions which direct that the propensity, rate movements have undesired outcomes over both the short- term and long-term. The Group’s objective is to manage interest rate risk to achieve stable and sustainable net interest income in the long-term. timing and quantum of interest The Group measures and manages the impact of interest rate risk in two ways: (a) Next 12 months’ earnings Interest rate risk from an earnings perspective is the impact based on changes to the net interest income over the next 12 months. The risk to net interest income over the next 12 months from changes in interest rates is measured on a monthly basis. Earnings risk is measured through sensitivity analysis, which applies an instantaneous 100 basis point parallel shock in interest rates across the yield curve. The prospective change to the net interest income is measured by using an Asset and Liability Management incorporates both existing and simulation model which 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 the Group and repricing historic repricing strategy of 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. (1) Average VaR calculated for each 12 month period. (2) 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. Traded Market Risk Traded Market Risk is generated through the Group’s participation in financial markets to service its customers. The Group trades and distributes interest rate, foreign exchange, debt, equity and commodity products, and provides treasury, capital markets and risk management services its customers globally. to The Group maintains access to markets by quoting bid and offer prices with other market makers and carries an inventory of financial instruments, including a broad range of securities and derivatives. 152 Commonwealth Bank of Australia – Annual Report 2015 Average (1)As atAverage (1)As atTotal Market RiskJuneJuneJuneJuneVaR (1-day 97.5% 2015201520142014confidence)$M$M$M$MTraded Market Risk 8. 98. 911. 07. 8Non-Traded Interest Rate Risk (2)15. 116. 711. 919. 0Non-Traded Equity Risk (2)14. 312. 920. 315. 6Non-Traded Insurance Market Risk (2)5. 03. 75. 84. 7Average (1)As atAverage (1)As atTraded Market RiskJuneJuneJuneJuneVaR (1-day 97.5% 2015201520142014confidence)$M$M$M$MInterest rate risk5. 85. 25. 44. 4Foreign exchange risk 2. 01. 91. 40. 8Equities risk 0. 60. 31. 20. 3Commodities risk 1. 52. 32. 30. 7Credit spread risk2. 73. 21. 82. 2Diversification benefit (7. 3)(7. 8)(6. 2)(4. 7)Total general market risk 5. 35. 15. 93. 7Undiversified risk 3. 43. 74. 93. 9ASB Bank 0. 20. 10. 20. 2Total 8. 98. 911. 07. 8 Notes to the Financial Statements Note 33 Market Risk (continued) Non-Traded Market Risk (continued) (b) Economic Value Interest rate risk from the economic value perspective is based on a 20-day 97.5% VaR measure. Measuring the change in the economic value of equity is an assessment of the long-term impact to the earnings potential of the Group present valued to the current date. The Group assesses the potential change in its economic value of equity through the application of the VaR methodology. A 20-day 97.5% VaR measure is used to capture the net economic value impact over the long-term or total life of all Balance Sheet assets and liabilities to adverse changes in interest rates. The 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 12 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. Non-Traded Equity Risk The Group retains Non-traded equity risk through business activities in divisions including Institutional Banking and Markets, and Wealth Management. A 20-day, 97.5% confidence VaR is used to measure the economic impact of adverse changes in value. Market Risk in Insurance Businesses There are two main sources of market risk in the Life Insurance businesses: (i) market risk arising from guarantees made to policyholders; and (ii) market risk arising from the investment of Shareholders’ capital. 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 having an asset and liability management framework which includes the use of hedging instruments. The Group also monitors the risk on a monthly basis. Shareholders’ Capital A portion of financial assets held within the Insurance in the business, both within the Statutory Funds and 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 100% in income assets (cash and fixed interest) as at 30 June 2015. A 20-day 97.5% VaR measure is used to capture the Non- traded market risk exposures. (1) Average VaR calculated for each 12 month period. (2) VaR in relation to the investment of shareholder funds. (3) VaR in relation to product portfolios where the Group has guaranteed liabilities to policyholders. 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 and Asian operations. 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. Commonwealth Bank Group Super Fund The Commonwealth Bank Group Super Fund (the Fund) has a defined benefit portion that creates market risk for the Group. Wealth Risk Management and Human Resources provide oversight of the market risks of the Fund held and managed on behalf of the employees receiving defined benefit pension funds on behalf of the Group (refer to Note 35). Commonwealth Bank of Australia – Annual Report 2015 153 JuneJuneNet Interest20152014Earnings at Risk$M$MAverage monthly exposureAUD244. 490. 2NZD26. 221. 0High monthly exposureAUD360. 5134. 0NZD35. 729. 6Low monthly exposureAUD168. 943. 6NZD19. 412. 3As at balance dateAUD168. 9117. 4NZD35. 728. 4Average (1)Average (1)JuneJuneNon-Traded Interest Rate VaR20152014(20 day 97.5% confidence) (2)$M$MAUD Interest rate risk67. 353. 1NZD Interest rate risk (3)3. 22. 0As atAs atJuneJuneNon-Traded Equity VaR 20152014(20 day 97.5% confidence)$M$MVaR 58. 070. 0Average (1)Average (1)Non-Traded VaR in Australian JuneJuneLife Insurance Business 20152014(20 day 97.5% confidence)$M$MShareholder funds (2)13. 118. 9Guarantees (to Policyholders) (3)15. 115. 2 Notes to the Financial Statements Note 34 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, has sufficient liquid assets to borrow against on a secured basis, or 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 during periods of unfavourable market conditions. The Group’s funding policies are designed to achieve diversified sources of funding by product, term, maturity date, investor type, investor location, jurisdiction, currency and concentration, on a cost effective basis. This objective applies funding activities. the Group’s wholesale and retail to Liquidity and Funding Risk Management Framework The Group’s liquidity and funding policies, structured under a formal Group Liquidity and Funding Risk Management Framework, 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 funding Treasury manages positions in accordance with the Group’s liquidity policies and has ultimate authority to execute liquidity decisions should the Group Contingent Funding Plan be activated. 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. liquidity and the Group’s 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 small banking subsidiary in Indonesia that manages its own liquidity and funding on a similar basis. The Group’s Board is ultimately responsible for the sound and prudent management of liquidity risk across the Group. Liquidity and Funding Policies and Management The Group’s liquidity and funding policies provide that:  An excess of liquid assets over the level prescribed (LCR) under APRA’s Liquidity Coverage Ratio requirement is maintained. Australian ADIs are required from 1 January 2015 to meet a 100% LCR, calculated as the ratio of high quality liquid assets to 30 day net cash outflows projected under a prescribed stress scenario;  Group ‘going concern’ funding and liquidity metrics are also calculated and stress tests additional to the LCR are run; 154 Commonwealth Bank of Australia – Annual Report 2015     Short and long-term wholesale funding limits are established, monitored and reviewed regularly. The Group’s market capacity is regularly assessed and used as a factor in funding strategies; Balance Sheet assets that cannot be liquidated quickly are funded with deposits or term borrowings that meet minimum maturity requirements with appropriate liquidity buffers; 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 securities. The second includes negotiable certificates of deposit, bank bills, bank term securities, supranational bonds and Australian Residential Mortgage-backed Securities (RMBS), securities that meet Reserve Bank of Australia (RBA) criteria for purchases under reverse repo. The final category is internal RMBS, being mortgages that have been securitised but retained by the Bank, that are repo- eligible with the RBA under stress; 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 include international and domestic funding Its wholesale programs which 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 regulatory liquidity management reporting system delivering granular customer and product type information inform business decision making, in a greater product development and resulting awareness of the liquidity risk adjusted value of banking products; to A liquidity management model similar to a “maturity that allows “liquidity gap analysis”, ladder” or 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 “stress” liquidity crisis scenarios, incorporating both systemic and “name” crisis assumptions, such that the Group will have sufficient liquid assets available to ensure it meets all of its obligations as and when they fall due; Notes to the Financial Statements Note 34 Liquidity and Funding Risk (continued) Liquidity and Funding Policies and Management (continued)   Central bank repurchase agreement facilities including the RBA’s open-ended Committed Liquidity Facility that provide the Group with the ability to borrow funds on a secured basis, even when normal funding markets are unavailable; and A robust Contingent Funding Plan that is regularly tested so that it can be activated in case of need due to a liquidity event. funding costs experienced The Group’s wholesale generally little change over the course of the financial year as high levels of global liquidity and a generally flat economic global outlook combined to keep credit spreads in domestic and international debt capital markets steady. 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 to maintain a diversified funding base and significant funding capacity in the domestic and global unsecured and secured debt markets. Details of the Group’s regulatory capital position and capital management activities are disclosed in Note 25. Maturity Analysis of Monetary Liabilities 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. Commonwealth Bank of Australia – Annual Report 2015 155 GroupMaturity Period as at 30 June 20150 to 33 to 121 to 5Over 5NotMonthsMonthsYearsYearsSpecifiedTotal$M$M$M$M$M$MMonetary liabilitiesDeposits and other public borrowings (1)441,29482,06823,334139-546,835Payables due to other financial institutions33,1423,297---36,439Liabilities at fair value through Income Statement3,0161,4042,1831,950-8,553Derivative financial instruments:Held for trading 22,765----22,765Held for hedging purposes (net-settled) 664102,4181,978-4,872Held for hedging purposes (gross-settled): Outflows2087,38230,76311,537-49,890Inflows(206)(5,962)(25,434)(10,025)-(41,627)Bank acceptances1,87074---1,944Insurance policy liabilities----12,91112,911Debt issues and loan capital22,21742,42179,05938,707-182,404Managed funds units on issue----1,1491,149Other monetary liabilities6,1761,320329-547,879Total monetary liabilities530,548132,414112,65244,28614,114834,014Guarantees (2)6,181----6,181Loan commitments (2)165,511----165,511Other commitments (2)5,884----5,884Total off Balance Sheet items177,576----177,576Total monetary liabilities and off Balance Sheet items708,124132,414112,65244,28614,1141,011,590 Notes to the Financial Statements Note 34 Liquidity and Funding Risk (continued) Maturity Analysis of Monetary Liabilities (continued) (1) Includes deposits that are contractually at call, customer savings and cheque accounts. Historical experience is that such accounts provide a stable source of long-term funding for the Group. (2) All off Balance Sheet items are included in the 0 to 3 month maturity band to reflect their earliest possible maturity. 156 Commonwealth Bank of Australia – Annual Report 2015 Group Maturity Period as at 30 June 20140 to 33 to 121 to 5Over 5NotMonthsMonthsYearsYearsSpecifiedTotal$M$M$M$M$M$MMonetary liabilitiesDeposits and other public borrowings (1)397,53880,47323,912584-502,507Payables due to other financial institutions23,3041,358345--25,007Liabilities at fair value through Income Statement3,1714102,9712,243-8,795Derivative financial instruments:Held for trading19,605----19,605Held for hedging purposes (net-settled)1301861,5122,461-4,289Held for hedging purposes (gross-settled):Outflows4478,55236,5029,872-55,373Inflows(333)(8,130)(34,180)(9,300)-(51,943)Bank acceptances5,01710---5,027Insurance policy liabilities----13,16613,166Debt issues and loan capital15,52744,51974,14635,154-169,346Managed funds units on issue----1,2141,214Other monetary liabilities5,5051,248370-427,165Total monetary liabilities469,911128,626105,57841,01414,422759,551Guarantees (2)6,121----6,121Loan commitments (2)151,135----151,135Other commitments (2)8,676----8,676Total off Balance Sheet items165,932----165,932Total monetary liabilities and off Balance Sheet items635,843128,626105,57841,01414,422925,483BankMaturity Period as at 30 June 20150 to 33 to 121 to 5Over 5NotMonthsMonthsYearsYearsSpecifiedTotal$M$M$M$M$M$MMonetary liabilitiesDeposits and other public borrowings (1)409,89270,02420,589139-500,644Payables due to other financial institutions32,3053,233---35,538Liabilities at fair value through Income Statement2,0151,2292,1701,950-7,364Derivative financial instruments:Held for trading22,527----22,527Held for hedging purposes (net-settled)272612,3392,036-4,663Held for hedging purposes (gross-settled):Outflows-6,72241,27220,695-68,689Inflows-(5,342)(33,776)(17,576)-(56,694)Bank acceptances1,84563---1,908Debt issues and loan capital20,10937,77762,33235,837-156,055Due to controlled entities6,5015,67823,36590,964-126,508Other monetary liabilities5,5356,58970-2112,215Total monetary liabilities500,756126,234118,361134,04521879,417Guarantees (2)5,778----5,778Loan commitments (2)152,772----152,772Other commitments (2)5,179----5,179Total off Balance Sheet items163,729----163,729Total monetary liabilities and off Balance Sheet items664,485126,234118,361134,045211,043,146 Notes to the Financial Statements Note 34 Liquidity and Funding Risk (continued) Maturity Analysis of Monetary Liabilities (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) All off Balance Sheet items are included in the 0 to 3 month maturity band to reflect their earliest possible maturity. Note 35 Retirement Benefit Obligations Name of Plan Type Form of Benefit Assessment of the Fund Date of Last Actuarial 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 2013 (1) The defined benefit formulae are generally comprised of final salary, or final average salary, and service. Regulatory Framework Both plans operate under trust law with the assets of the plans held separately in trust. The Trustee of Commonwealth Bank Group Super is Commonwealth Bank Officers Superannuation Corporation Pty Limited. The Trustee of CBA (UK) SBS is Commonwealth Bank of Australia (UK) Staff Benefits Scheme Trustee Company Limited. Both Trustees are wholly owned subsidiaries of the Group. The Trustees do not conduct any business other than trusteeship of the plans. The plans are managed and administered on behalf of the members in accordance with the terms of each trust deed and relevant legislation. The funding of the plans complies with regulations in Australia and the UK respectively. Funding and Contributions An actuarial assessment as at 30 June 2012 showed the plan remained in funding surplus at that time, however due to accounting deficit and forecast funding deficit the actuary recommended that the Bank consider recommencing contributions from 1 July 2013. The Bank commenced contributions of $20 million per month in January 2014 to Commonwealth Bank Group Super. Employer contributions paid to the plan are subject to tax at the rate of 15% in the plan. An actuarial assessment of the CBA (UK) SBS as at 30 June 2013 confirmed a funding deficit of GBP62 million ($127 million at the 30 June 2015 exchange rate). The Bank agreed to continue the deficit recovery contributions of GBP15 million per annum ($31 million at the 30 June 2015 exchange rate) until 31 December 2017 to CBA (UK) SBS in addition to the regular GBP3 million per annum ($6 million at the 30 June 2015 exchange rate) contributions for future defined benefit accruals. Commonwealth Bank of Australia – Annual Report 2015 157 BankMaturity Period as at 30 June 20140 to 33 to 121 to 5Over 5NotMonthsMonthsYearsYearsSpecifiedTotal$M$M$M$M$M$MMonetary liabilitiesDeposits and other public borrowings (1)368,63570,08421,972593-461,284Payables due to other financial institutions22,9991,291336--24,626Liabilities at fair value through Income Statement8523712,9542,241-6,418Derivative financial instruments:Held for trading19,246----19,246Held for hedging purposes (net-settled)442491,6402,493-4,426Held for hedging purposes (gross-settled):Outflows-6,69641,42221,793-69,911Inflows-(6,476)(38,756)(20,392)-(65,624)Bank acceptances4,9768---4,984Debt issues and loan capital13,66339,15058,45033,076-144,339Due to controlled entities7,7716,45523,20681,490-118,922Other monetary liabilities4,9353,396106-178,454Total monetary liabilities443,121121,224111,330121,29417796,986Guarantees (2)5,724----5,724Loan commitments (2)140,209----140,209Other commitments (2)7,450----7,450Total off Balance Sheet items153,383----153,383Total monetary liabilities and off Balance Sheet items596,504121,224111,330121,29417950,369 Notes to the Financial Statements Note 35 Retirement Benefit Obligations (continued) Funding and Contributions (continued) The Group’s expected contribution to the Commonwealth Bank Group Super and the CBA (UK) SBS for the year ended 30 June 2016 are $240 million and GBP18 million ($37 million at the 30 June 2015 exchange rate) respectively. Defined Benefit Superannuation Plans The amounts reported in the Balance Sheet are reconciled as follows: (1) Represents superannuation contributions required by the Bank to meet its obligations to members of the defined contribution division of Commonwealth Bank Group Super. 158 Commonwealth Bank of Australia – Annual Report 2015 CBA(UK)SBSTotal20152014 2015201420152014$M$M$M$M$M$MPresent value of funded obligations(3,184)(3,510)(672)(544)(3,856)(4,054)Fair value of plan assets3,4603,3886154754,0753,863Net pension assets/(liabilities) as at 30 June276(122)(57)(69)219(191)Amounts in the Balance Sheet:Assets (Note 16)276---276-Liabilities (Note 21)-(122)(57)(69)(57)(191)Net assets/(liabilities)276(122)(57)(69)219(191)The amounts recognised in the Income Statement are as follows:Current service cost(37)(38)(4)(4)(41)(42)Net interest expense(6)(8)(3)(3)(9)(11)Employer financed benefits within accumulation division (1)(251)(231)--(251)(231)Total included in superannuation plan expense(294)(277)(7)(7)(301)(284)Changes in the present value of the defined benefit obligation are as follows:Opening defined benefit obligation(3,510)(3,269)(544)(472)(4,054)(3,741)Current service cost(37)(38)(4)(4)(41)(42)Interest cost (140)(145)(24)(23)(164)(168)Member contributions(8)(8)--(8)(8)Actuarial gains/(losses) from changes in demographic assumptions---16-16Actuarial gains/(losses) from changes in financial assumptions232(234)(47)(30)185(264)Actuarial gains/(losses) from changes in other assumptions56(14)3(3)59(17)Payments from the plan2231982019243217Exchange differences on foreign plans--(76)(47)(76)(47)Closing defined benefit obligation(3,184)(3,510)(672)(544)(3,856)(4,054)Changes in the fair value of plan assets are as follows:Opening fair value of plan assets3,3883,2044753993,8633,603Interest income1341372120155157Return on plan assets (excluding interest income)164328364200332Member contributions88--88Employer contributions2401403431274171Employer financed benefits within accumulation division(251)(231)--(251)(231)Payments from the plan(223)(198)(20)(19)(243)(217)Exchange differences on foreign plans--69406940Closing fair value of plan assets3,4603,3886154754,0753,863Commonwealth Bank Group Super Notes to the Financial Statements Note 35 Retirement Benefit Obligations (continued) Economic Assumptions During the year, the discount rate assumption applied to Commonwealth Bank Group Super changed from a blend of yields on long dated Commonwealth and State government securities with durations exceeding 10 years, to the yield on high quality long dated corporate bonds. The impact of the change was a reduction in the defined benefit obligation of $496 million, which was recorded through other comprehensive income. 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 (longevity) for pensioners are set out below: Sensitivity to Changes in Assumptions The table below sets out the sensitivities of the present value of defined benefit obligations at 30 June to a change in the principal actuarial assumptions: Average Duration The average duration of defined benefit obligation at 30 June is as follows: Risk Management The pension plans expose the Group to longevity risk, currency risk, interest rate risk, inflation risk and market risk. The Trustees perform Asset-Liability Matching (ALM) exercises to ensure the plan assets are well matched to the nature and maturities of the defined benefit obligations. The Commonwealth Bank Group Super’s investment strategy comprises 45% growth and 55% defensive assets. Inflation and interest rate risks are partly mitigated by investing in long dated fixed interest securities which better match the average duration of liabilities and entering into inflation and interest swaps. Commonwealth Bank of Australia – Annual Report 2015 159 Commonwealth BankGroup SuperCBA(UK)SBS 2015201420152014Economic assumptions% % % % The above calculations were based on the following assumptions:Discount rate4. 604. 103. 704. 20Inflation rate2. 252. 253. 503. 60Rate of increases in salary3. 503. 754. 504. 60Commonwealth BankGroup SuperCBA(UK)SBS 2015201420152014Expected life expectancies for pensionersYears Years Years Years Male pensioners currently aged 6029. 629. 528. 528. 4Male pensioners currently aged 6524. 724. 623. 723. 4Female pensioners currently aged 6034. 734. 531. 130. 9Female pensioners currently aged 6529. 529. 426. 125. 9Commonwealth BankGroup SuperCBA(UK)SBS 20152015Impact of change in assumptions on liabilities% % 0.25% decrease in discount rate3. 234. 700.25% increase in inflation rate2. 643. 000.25% increase to the rate of increases in salary0. 350. 30Longevity increase of 1 year3. 453. 10Commonwealth BankGroup SuperCBA(UK)SBS 20152015YearsYearsAverage duration at balance date1219 Notes to the Financial Statements Note 35 Retirement Benefit Obligations (continued) Risk Management (continued) The allocation of assets backing the defined benefit portion of Commonwealth Bank Group Super is as follows: (1) Values based on prices or yields quoted in an active market. (2) Values based on non-quoted information. (3) 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 Australian equities fair value includes $134 million of Commonwealth Bank shares. The real estate fair value includes $41 million of property assets leased to the Bank. Note 36 Investments in Subsidiaries and Other Entities Subsidiaries A subsidiary is considered material if the value of the consolidated gross assets at the end of the financial year of the subsidiary and the entities it controls (if any) is more than 0.1% of the total assets of the Group. The key subsidiaries of the Bank including but not limited to those meeting the criteria above are: All the above subsidiaries are 100% owned and incorporated in Australia. 160 Commonwealth Bank of Australia – Annual Report 2015 Commonwealth Bank Group Super20152014Fair value% of planFair value% of planAsset allocations($M)asset($M)assetCash1594. 62246. 6Equities - Australian (1)2898. 43299. 7Equities - Overseas (1)60817. 653115. 7Bonds - Commonwealth Government (1)59517. 244313. 1Bonds - Semi-Government (1)1,07131. 01,05331. 1Bonds - Corporate and other (1)782. 2722. 1Real Estate (2)2055. 92256. 6Derivatives (2)80. 2140. 4Other (3)44712. 949714. 7Total fair value of plan assets3,4601003,388100Entity Name Entity Name Australia(a) BankingCBA Covered Bond TrustMedallion Trust Series 2013-2CBA International Finance Pty LimitedMedallion Trust Series 2014-1GT USD Funding Pty LimitedMedallion Trust Series 2014-2Medallion Trust Series 2007-1GMedallion Trust Series 2015-1Medallion Trust Series 2008-1RPreferred Capital LimitedMedallion Trust Series 2011-1Residential Mortgage Group Pty LtdMedallion Trust Series 2013-1Series 2008-1D SWAN TrustSecurity Holding Investment Entity Linking Deals Limited Series 50(b) Insurance and Funds ManagementCapital 121 Pty LimitedCommonwealth Insurance LimitedColonial Holding Company LimitedThe Colonial Mutal Life Assurance Society LimitedCommonwealth Insurance Holdings Limited Notes to the Financial Statements Note 36 Investments in Subsidiaries and Other Entities (continued) 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. Significant Judgements and Assumptions Control and Voting Rights Holding more than 50% of an entity’s voting rights typically indicates that the Group has control over the entity. Significant judgement is involved where the Group either holds more than 50% of the voting rights but does not control an entity, which occurs in the case of AHL Holdings Pty Limited (AHL) as outlined below or where the Group is deemed to control an entity despite holding less than 50% of the voting rights. AHL Holdings Pty Limited (AHL) Management have determined that the Group does not control AHL despite owning 80% of the issued share capital of this entity. According to the Shareholders Deed agreed between the shareholders of AHL, unanimous consent is required from all parties to the Deed for all key decisions. This results in joint control and hence the Group accounts for its investment in AHL as a joint venture using the equity method. Agent or principal The Group is deemed to have power over an investment fund when it holds either the responsible entity (RE) and/or the manager function of that fund. Whether that power translates to control depends on whether the Group is deemed to act as an agent or a principal of that fund. Management have determined that the Group acts as a principal and controls a fund when it cannot be easily removed as a manager or RE by investors and when its economic interest in that fund is substantial compared to the economic interest of other investors. In all other cases the Group acts as agent and does not control the fund. 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. Commonwealth Bank of Australia – Annual Report 2015 161 Extent of BeneficialEntity Name Interest if not 100%Incorporated inNew Zealand(a) BankingASB Bank LimitedNew Zealand ASB Covered Bond Trustee LimitedNew Zealand ASB Finance LimitedNew Zealand ASB Holdings LimitedNew Zealand ASB Term FundNew 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 Other Overseas(a) Banking CBA Capital Trust IIUSA CommBank Europe LimitedMalta Newport LimitedMalta PT Bank Commonwealth99%Indonesia Group 20152014$M $M Shareholders' Equity562537Total non-controlling interests562537 Notes to the Financial Statements Note 36 Investments in Subsidiaries and Other Entities (continued) 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. Significant Restrictions There were no significant restrictions on the ability to transfer cash or other assets, pay dividends or other capital distributions, provide or repay loans and advances between the entities within the Group. There were also no significant restrictions on the Group's ability to access or use the assets and settle the liabilities of the Group resulting from protective rights of non-controlling interests. Associates and Joint Ventures An associate or joint venture is considered material if the Group’s share of the net assets at the end of the financial year of that associate or joint venture is more than 0.5% of the total assets of the Group. There were no individually significant investments in associates or joint ventures held by the Group as at 30 June 2015 and 30 June 2014. In addition, there were no significant restrictions on the ability of associates or joint ventures to transfer funds to the Bank or its subsidiaries in the form of cash dividends or to repay loans or advances made. The Group’s investments in associates and joint ventures are shown in the table below. (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. Aussie Home Loans Pty Limited is considered a structured entity. The Group’s maximum exposure to loss in relation to its investment is its carrying value and the total assets of Aussie Home Loans equals $329 million (2014: $374 million). (2) $96 million of this investment is carried as Held for Sale, as the carrying amount is expected to be recovered through sale within 12 months, and is therefore measured at the lower of carrying amount and fair value less costs to sell. (3) An impairment of $50 million was recognised at 30 June 2014. (1) This amount is recognised within Note 2 in the share of profits of associates and joint ventures, $268 million for the year ended 30 June 2015 (2014: $150 million) and net funds management operating income, nil for the year ended 30 June 2015 (2014: $42 million) line items. Structured Entities A structured entity is an entity in which voting or similar rights are not the dominant factor in deciding control. Structured entities are generally created to achieve a narrow and well defined objective with restrictions around their ongoing activities. Depending on the Group’s power over the activities of the entity and its exposure to and ability to influence its own returns, it may consolidate the entity. In other cases it may sponsor or have exposure to such an entity but not consolidate it. Consolidated Structured Entities The Group has the following contractual arrangements which require it to provide financial support to its structured entities. Securitisation Structured Entities The Group provides liquidity facilities to Medallion, Swan and SHIELD 50 Structured Entities. These facilities can only be drawn to cover cash flow shortages relating to mismatches in timing of cash inflows due from securitised asset pools and cash outflows due to note holders. These ‘timing mismatch’ facilities rank pari passu with other senior secured creditors. The facility limit is $1,970 million. The Group has no contractual obligations to purchase assets from its Securitisation Structured Entities. 162 Commonwealth Bank of Australia – Annual Report 2015 Group2015201420152014OwnershipOwnershipPrincipalCountry ofBalance$M$MInterest %Interest % ActivitiesIncorporationDateAussie Home Loans Pty Limited (1)2672668080Mortgage Broking Australia 30-JunBank of Hangzhou Co. Limited1,2827722020Commercial Banking China 31-DecFirst State European Diversified Investment Fund (2)198161911Funds Management Luxembourg 31-DecQilu Bank Co. Limited4202542020Commercial Banking China 31-DecVietnam International Commercial Joint Stock Bank (3)1971642020Financial Services Vietnam 31-DecOther 273227Various Various Various Various VariousCarrying amount of investments in associates and joint ventures2,6371,844Group20152014Share of Associates' and Joint Ventures profits$M $M Operating profits before income tax336254Income tax expense(68)(62)Operating profits after income tax (1)268192 Notes to the Financial Statements Note 36 Investments in Subsidiaries and Other Entities (continued) Consolidated Structured Entities (continued) Covered Bonds Trust The Bank provides funding and support facilities to the CBA Covered Bond Trust, a bankruptcy remote SPV that guarantees any debt obligations owing under the US$30 billion CBA Covered Bond Programme. The funding facilities allow the Covered Bond Trust to hold sufficient residential mortgage loans to support the guarantee provided to the Covered Bonds. The Bank also provides various swaps to the Covered Bond Trust to hedge any interest rate and currency mismatches. The Bank, either directly or via its wholly owned subsidiary, Securitisation Advisory Services Pty Limited, provides various services to the Covered Bond Trust including servicing and monitoring of the residential mortgages. Structured Asset Finance Structured Entities The Group has no contractual obligation to provide financial support to any of its Structured Asset Finance Structured Entities. Unconsolidated Structured Entities The Group has exposure to various securitisation vehicles via Residential Mortgage-backed Securities (RMBS) and Asset-backed Securities (ABS). The Group may also provide derivatives and other commitments to these vehicles. The Group also has exposure to Investment Funds and other financing vehicles. Securitisations Securitisations involve transferring assets into an entity that sells beneficial interests to investors through the issue of debt and equity notes with varying levels of subordination. The notes are collateralised by the assets transferred to these vehicles and pay a return based on the returns of those assets, with residual returns paid to the most subordinated investor. The Group may trade or invest in Residential Mortgage-backed Securities and Asset-backed Securities which are backed by Commercial Properties, Consumer Receivables, Equipment and Auto Finance. The Group may also provide lending, derivatives, liquidity and commitments to these Securitisation entities. Other Financing Asset-backed entities are used to provide tailored lending for the purchase or lease of assets transferred by the Group or its clients. The assets are normally pledged as collateral to the lenders. The Group engages in raising finance for assets such as aircraft, trains, vessels and other infrastructure. The Group may also provide lending, derivatives, liquidity and commitments to these entities. Investment Funds The Group conducts investment management and other fiduciary activities as responsible entity, trustee, custodian, advisor or manager for investment funds and trusts, including superannuation and approved deposit funds, wholesale and retail trusts. The Groups exposure to Investment Funds includes holding units in the investment funds and trusts, providing lending facilities, derivatives and receiving fees for services. The nature and extent of the Group’s interests in these entities are summarised below. Interests do not include plain vanilla derivatives (e.g. interest rate swaps and currency swaps) and positions where the Group creates rather than absorbs variability of the Structured Entity, for example deposits. These have been excluded from the below table. (1) Relates to undrawn facilities. (2) Size of the entities is generally the total assets of the entities, except for Real Estate Investment Trusts where the size is based on the Group’s credit exposure of $13.7 billion and newly established securitisation vehicles that have no assets where the Group’s exposure is represented by undrawn credit facilities of $1,240 million. Commonwealth Bank of Australia – Annual Report 2015 163 2015OtherInvestmentExposures to unconsolidated RMBSABSFinancingFundsTotalstructured entities$M$M$M$M$MAssets at fair value through income statement - trading28--1,3741,402Available-for-sale investments7,6741,002-1868,862Loans, bills and discounted and other receivables1,8093912,55510,49915,254Other assets---210210Total on Balance Sheet exposures9,5111,3932,55512,26925,728Total notional amounts of off Balance Sheet exposures (1)1,5711,0271576,1188,873Total maximum exposure to loss11,0822,4202,71218,38734,601Total assets of the entities (2)52,9797,37310,102293,509363,963 Notes to the Financial Statements Note 36 Investments in Subsidiaries and Other Entities (continued) Unconsolidated Structured Entities (continued) (1) Comparatives have been restated to align to presentation in the current period. (2) Relates to undrawn facilities. (3) Size of the entities is generally the total assets of the entities, except for Real Estate Investment Trusts where the size is based on the Group’s credit exposure of $12.9 billion. The Group’s exposure to loss depends on the level of subordination of the interest which indicates the extent to which other parties are obliged to absorb credit losses before the Group. An overview of the Group’s interests, relative ranking and external credit rating, for vehicles that have credit subordination in place, is summarised in the table below, and include securitisation vehicles and other financing. (1) $11,025 million of RMBS exposures, $2,406 million of ABS exposures and $1,506 million of other financing exposures are rated investment grade, the remaining $1,173 million exposures are rated sub-investment grade. (2) All RMBS and ABS exposures are rated investment grade, all other financing exposures are rated sub investment grade. (3) All exposures are rated sub investment grade. (1) $7,548 million of RMBS exposures, $1,503 million of ABS exposures and $818 million of other financing exposures are rated investment grade, the remaining $1,333 million exposures are rated sub-investment grade. (2) All RMBS and ABS exposures are rated investment grade, all other financing exposures are rated sub investment grade. (3) All exposures are rated sub investment grade. Sponsored Unconsolidated Structured Entities For the purposes of this disclosure, the Group sponsors an entity when it manages or advises the entity’s program, places securities into the market on behalf of the entity, provides liquidity and/or credit enhancements to the entity, or the Group’s name appears in the Structured Entity. During the year ended 30 June 2015, the Group has sponsored two unconsolidated structured entities being Security Holding Investment Entity Linking Deals Limited (SHIELD) and SHIELD Trust No. 2. A wholly owned subsidiary of the Group, Securitisation Advisory Services Pty Limited (SAS), is the manager of SHIELD and SHIELD is the trustee of SHIELD Trust No. 2. The Group continues to hold an interest in these structured entities. There has been no income earned or expense incurred directly from these entities during the year ended 30 June 2015. There also have been no assets transferred by all parties to the sponsored entities during the year ended 30 June 2015. 164 Commonwealth Bank of Australia – Annual Report 2015 2014 (1)OtherInvestmentExposures to unconsolidated RMBSABSFinancingFundsTotalstructured entities$M$M$M$M$MAssets at fair value through income statement - trading82--1,3121,394Available-for-sale investments4,887678-1575,722Loans, bills and discounted and other receivables2,1525411,5929,99014,275Other assets---176176Total on Balance Sheet exposures7,1211,2191,59211,63521,567Total notional amounts of off Balance Sheet exposures (2)7763312624,8896,258Total maximum exposure to loss7,8971,5501,85416,52427,825Total assets of the entities (3)46,3634,36411,003265,471327,2012015OtherRanking and credit rating of exposuresRMBSABS FinancingTotalto unconsolidated structured entities$M$M$M$MSenior (1)11,0252,4062,67916,110Mezzanine (2)28143375Subordinated (3)29--29Total maximum exposure to loss11,0822,4202,71216,2142014OtherRanking and credit rating of exposuresRMBSABS FinancingTotalto unconsolidated structured entities$M$M$M$MSenior (1)7,8441,5371,82111,202Mezzanine (2)26133372Subordinated (3)27--27Total maximum exposure to loss7,8971,5501,85411,301 Notes to the Financial Statements Note 37 Key Management Personnel Detailed remuneration disclosures by Key Management Personnel are provided in the Remuneration Report of the Directors’ Report on pages 56 to 64 and have been audited. Shareholdings Details of the aggregate shareholdings of Key Management Personnel are set out below. (1) Reward Rights represent rights granted under the GLRP which are subject to performance hurdles. Deferred Shares/Rights represent the deferred STI awarded under Executive General Manager arrangements, sign-on and retention awards received as restricted shares/rights. PERLS include cumulative holdings of all PERLS securities issued by the Group. (2) Reward Rights and Deferred Shares/Rights become ordinary shares upon vesting. A portion of Ian Narev’s vested equity award was delivered in the form of cash, which was paid to registered charities pursuant to an option that the Board made available. (3) Net Change Other incorporates changes resulting from purchases, sales, forfeitures and appointment of Executives during the financial year. (4) 30 June 2015 balances represent aggregate shareholdings of all KMP at balance date. The table is not a complete movement reconciliation as it does not include the impact of KMP departures. (5) 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). (6) Opening balances have been restated. (7) Other securities: As at 30 June 2015 Jane Hemstritch held CNGHA notes (2014: CNGHA notes). 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). Details of aggregate loans to Key Management Personnel are set out below: 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. A related party of an executive has also been employed by the Group, and is remunerated in a manner consistent with normal employee relationships. Commonwealth Bank of Australia – Annual Report 2015 165 GroupBank2015201420152014Key management personnel compensation$'000$'000$'000$'000Short-term benefits34,08634,05134,08634,051Post-employment benefits450443450443Share-based payments9,09011,6549,09011,654Long-term benefits1,3007081,300708Total44,92646,85644,92646,856Reward/Acquired/DeferredNetEquity Holdings of Key BalanceGranted asShares ChangeBalance(cid:10)Management PersonnelClass1 July 2014RemunerationVested (1)(2)Other (3)30 June 2015 (4)Non-Executive DirectorsOrdinary (5)(6)169,86420,892-13,000191,368PERLS 10,0806,600-(900)12,980Other securities (7)5,000---5,000ExecutivesOrdinary 483,770--94,939442,518Reward Shares/Rights1,281,437283,410(200,622)(98,779)1,092,787Deferred Shares51,05810,676(38,083)21,55545,20620152014KMP's$'000$'000Loans10,13014,188Interest Charged501522 Notes to the Financial Statements Note 38 Related Party Disclosures Commonwealth Bank of Australia, which is incorporated in Australia, is the ultimate parent of the Group. 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 a separate 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. (1) On 31 March 2015 internal RMBS issued to the Bank by controlled entities of $75,041 million were reclassified to Loans to controlled entities. Refer to Note 11 for further detail. The Group also receives fees on an arm’s length basis of $24 million (2014: $66 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 (2014: $5 million) bank guarantee provided to Colonial First State Investments Limited and a $40 million (2014: $40 million) guarantee to AFS license holders in respect of excess compensation 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 $200 million as at 30 June 2015 (2014: $252 million receivable). This balance is included in ‘Other assets’ in the Bank’s separate Balance Sheet. All transactions between Group entities are eliminated on consolidation. 166 Commonwealth Bank of Australia – Annual Report 2015 Bank20152014$M$MShares in controlled entities13,02714,234Loans to controlled entities (1)130,72949,852Total shares in and loans to controlled entities143,75664,086 Notes to the Financial Statements Note 39 Notes to the Statements of Cash Flows (a) Reconciliation of Net Profit after Income Tax to Net Cash provided by Operating Activities (b) Reconciliation of Cash For the purposes of the Statements of Cash Flows, cash includes cash and money at short call. (c) Non-cash Financing and Investing Activities (1) Part of the Dividend Reinvestment Plan paid out in the 2015 financial year was satisfied through the on-market purchase and transfer of $704 million of shares to participating shareholders (2014: $722 million). (d) Disposal of Controlled Entities - Fair Value of Asset Disposal The Group disposed of certain CFS GAM operations including Colonial First State Property Management Pty Limited, Commonwealth Management Investments Limited and Colonial First State Management Pty Limited during the 2014 financial year. Commonwealth Bank of Australia – Annual Report 2015 167 GroupBank20152014201320152014$M$M$M$M$MNet profit after income tax9,0848,6507,6348,9768,442Decrease/(increase) in interest receivable3(22)130(251)(33)Increase/(decrease) in interest payable14(295)(251)(70)(269)Net increase in assets at fair value through Income Statement (excluding life insurance)(5,490)(1,016)(3,472)(4,997)(1,433)Net (gain)/loss on sale of controlled entities and associates(13)(60)(7)-29Net gain on sale of investments-(2)--(2)Net movement in derivative assets/liabilities 6,1805,3752,3729,0585,887Net loss on sale of property, plant and equipment 8121449Equity accounting profit(268)(192)(210)--Loan impairment expense9889181,146837871Depreciation and amortisation (including asset write downs)803874716631705Increase/(decrease) in liabilities at fair value through Income Statement (excluding life insurance)975(1,674)1,5692,1051,788Increase/(decrease) in other provisions 354719161(14)(Decrease)/increase in income taxes payable(32)(617)45(423)(1,124)(Decrease)/increase in deferred tax liabilities(15)(104)133--Decrease/(increase) in deferred tax assets 131363(26)25281Decrease/(increase)in accrued fees/reimbursements receivable66(158)(272)8(1)Increase in accrued fees and other items payable3499431523040Decrease in life insurance contract policy liabilities(1,133)(1,082)(1,401)--Increase/(decrease) in cash flow hedge reserve20927(4)15(Gain)/loss on changes in fair value of hedged items(493)71(617)(660)(305)Dividend received - controlled entities---(1,972)(1,944)Changes in operating assets and liabilities arising from cash flow movements(4,658)(8,280)(2,411)(10,966)(10,881)Other3101,0921,124512797Net cash provided by operating activities7,1833,9636,5773,2042,858GroupBank20152014201320152014$M$M$M$M$MNotes, coins and cash at banks15,68312,4907,65314,82111,089Other short-term liquid assets3,5876,6384,9653,3446,389Cash and cash equivalents at end of year19,27019,12812,61818,16517,478Group201520142013$M$M$MShares issued under the Dividend Reinvestment Plan (1)571707929Group201520142013$M$M$MNet assets-440-Cash consideration received-569-Cash and cash equivalents held in disposed entities-38- Notes to the Financial Statements Note 39 Notes to the Statements of Cash Flows (continued) (e) Acquisition of Controlled Entities The Group acquired 100% of the issued share capital of the TYME Group and gained control on 26 January 2015. TYME is a South African based global leader in designing, building and operating digital banking systems. This acquisition will support the Group in growing into emerging markets, as well as provide capability to enhance innovation in our core markets. The fair value of the identifiable assets acquired and liabilities assumed at the acquisition date are as follows: Note 40 Disclosures about Fair Values (a) Valuation 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. Determination of the fair value of Over-the-Counter (OTC) derivatives includes credit valuation adjustments (CVA) for derivative assets to reflect the credit worthiness of the counterparty, and debit valuation adjustment (DVA) for derivative liabilities and other liabilities at fair value to reflect the Group’s own credit risk. During the year, the Group revised the valuation methodology for derivatives to incorporate funding valuation adjustments (FVA) into its fair value measurements. This resulted in an initial cost of $74 million when the change was adopted ($81 million year to date). FVA reflect the costs and benefits of funding associated with uncollateralised derivative assets and uncollateralised derivative liabilities. FVA was implemented prospectively as a change in accounting estimate. These adjustments are applied after considering any relevant collateral or master netting arrangements. The Group utilises various valuation techniques and applies a hierarchy for valuation inputs that maximise the use of observable market data, if available. Under AASB 13 ‘Fair Value Measurement’ all financial and non-financial assets and liabilities measured or disclosed at fair value are categorised into one of the following three fair value hierarchy levels: Quoted Prices in Active Markets – Level 1 This category includes assets and liabilities for which the valuation is 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 bonds, financial institution and corporate bonds, certificates of deposit, bank bills, listed equities and exchange traded derivatives. Valuation Technique Using Observable Inputs – Level 2 This category includes assets and liabilities 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 commercial papers, mortgage-backed securities and OTC derivatives including interest rate swaps, cross currency swaps and FX options. Valuation Technique Using Significant Unobservable Inputs – Level 3 This category includes assets and liabilities the valuation of which incorporates significant inputs that are not based on observable market data (unobservable inputs). 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 certain asset- backed securities valued using unobservable inputs. 168 Commonwealth Bank of Australia – Annual Report 2015 Group201520142013$M$M$MNet identifiable assets at fair value(2)--Add: Goodwill43--Purchase consideration transferred41--Less: Cash and cash equivalents acquired---41--Less: Contingent consideration(12)--Net cash outflow on acquisition29-- Notes to the Financial Statements Note 40 Disclosures about Fair Values (continued) (b) Fair Value Hierarchy for Financial Assets and Liabilities Measured at Fair Value The classification in the fair value hierarchy of the Group’s and the Bank’s financial assets and liabilities measured at fair value is presented in the table below: (1) At 30 June 2014, level 3 Available-for-sale investments for the Bank included $67,457 million of internal RMBS issues. These were reclassified in the current period to Loans to controlled entities. Refer to Note 11 for further detail. Commonwealth Bank of Australia – Annual Report 2015 169 GroupFair Value as at 30 June 2015Fair Value as at 30 June 2014Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total$M$M$M$M$M$M$M$MFinancial assets measured at fair value on a recurring basisAssets at fair value through Income Statement:Trading 18,6237,801-26,42415,7855,674-21,459Insurance5,3958,693-14,0885,4519,691-15,142Other951,183-1,278192568-760Derivative assets1246,0628046,1541929,09313529,247Available-for-sale investments64,34110,22811574,68458,0338,0079766,137Bills Discounted14,847--14,84719,244--19,244Total financial assets measured at fair value103,31373,967195177,47598,72453,033232151,989Financial liabilities measured at fair value on a recurring basisLiabilities at fair value through Income Statement4,4374,056-8,4934,6122,896-7,508Derivative liabilities-35,1902335,213-27,2451427,259Life investment contracts-9,159-9,159-9,536-9,536Total financial liabilities measured at fair value4,43748,4052352,8654,61239,6771444,303BankFair Value as at 30 June 2015Fair Value as at 30 June 2014Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total$M$M$M$M$M$M$M$MFinancial assets measured at fair value on a recurring basisAssets at fair value through Income Statement:Trading18,2116,924-25,13515,7644,808-20,572Other-989-989137424-561Derivative assets745,5208045,6071829,35024729,615Available-for-sale investments (1)62,4359,75411572,30457,2216,06268,294131,577Bills Discounted 14,847--14,84719,244--19,244Total financial assets measured at fair value95,50063,187195158,88292,38440,64468,541201,569Financial liabilities measured at fair value on a recurring basisLiabilities at fair value through Income Statement4,4282,895-7,3234,606546-5,152Derivative liabilities-39,6112539,636-29,22511629,341Total financial liabilities measured at fair value4,42842,5062546,9594,60629,77111634,493 Notes to the Financial Statements Note 40 Disclosures about Fair Values (continued) (c) Analysis of Movements between Fair Value Hierarchy Levels During the year ended 30 June 2015 the Group and the Bank reclassified $1,379 million of available-for-sale securities and $525 million of trading securities from Level 2 to Level 1 due to changes in the observability of inputs (2014: $172 million of available-for-sale securities and $722 million of trading securities). The table below summarises movements in Level 3 balance during the year. Transfers have been reflected as if they had taken place at the end of the reporting period. Level 3 Movement Analysis for the year ended 30 June 2015 170 Commonwealth Bank of Australia – Annual Report 2015 GroupAvailableDerivativefor SaleDerivative AssetsInvestments LiabilitiesTotal$M$M$M$MAs at 1 July 2013694(14)59Purchases1750-751Sales/Settlements(18)(155)2(171)Gains/(losses) in the period:Recognised in the Income Statement(3)311Recognised in the Statement of Comprehensive Income-(1)-(1)Transfers in8696(3)179Transfers out-(600)-(600)As at 30 June 201413597(14)218Gains/(losses) recognised in the Income Statement for financial instruments held as at 30 June 20149-110As at 1 July 201413597(14)218Purchases-8-8Sales/Settlements(122)(28)8(142)Gains/(losses) in the period:Recognised in the Income Statement703(13)60Recognised in the Statement of Comprehensive Income-1-1Transfers in934(7)36Transfers out(12)-3(9)As at 30 June 201580115(23)172Gains/(losses) recognised in the Income Statement for financial instruments held as at 30 June 201570-(14)56 Notes to the Financial Statements Note 40 Disclosures about Fair Values (continued) Level 3 Movement Analysis for the year ended 30 June 2015 (continued) In the current period, Available-for-sale investments of $75,041 million were reclassified to Loans to controlled entities. Refer to Note 11 for further detail. All other transfers in and out of Level 3 were due to changes in the observability of the inputs. The Group’s exposure to financial instruments measured at fair value based in full or in part on non-market observable inputs is restricted to a small number of financial instruments, which comprise an insignificant component of the portfolios to which they belong. As such, the purchases, sales, as well as any change in the assumptions used to value the instruments to a reasonably possible alternative do not have a material effect on the portfolio balance of the Group’s results. Commonwealth Bank of Australia – Annual Report 2015 171 BankAvailableDerivativefor SaleDerivative AssetsInvestments LiabilitiesTotal$M$M$M$MAs at 1 July 20136268,610(14)68,658Purchases1750-751Sales/Settlements(23)(738)2(759)Gains/(losses) in the period:Recognised in the Income Statement9-110Recognised in the Statement of Comprehensive Income-176-176Transfers in19896(105)189Transfers out-(600)-(600)As at 30 June 201424768,294(116)68,425Gains/(losses) recognised in the Income Statement for financial instruments held as at 30 June 20149-211As at 1 July 201424768,294(116)68,425Purchases-7,967-7,967Sales/Settlements(235)(337)110(462)Gains/(losses) in the period:Recognised in the Income Statement713(15)59Recognised in the Statement of Comprehensive Income-106-106Transfers in934(7)36Transfers out(12)(75,952)3(75,961)As at 30 June 201580115(25)170Gains/(losses) recognised in the Income Statement for financial instruments held as at 30 June 201571-(16)55 Notes to the Financial Statements Note 40 Disclosures about Fair Values (continued) (d) Fair Value Information for Financial Instruments not measured at Fair Value The estimated fair values and fair value hierarchy of the Group’s and the Bank’s financial instruments not measured at fair value as at 30 June 2015 are presented below: 172 Commonwealth Bank of Australia – Annual Report 2015 GroupCarryingvalueFair valueTotalLevel 1Level 2Level 3Total$M$M $M$M$M Financial assets not measured at fair value on a recurring basisCash and liquid assets33,11619,27013,846-33,116Receivables due from other financial institutions11,540-11,540-11,540Loans and other receivables624,415--625,265625,265Bank acceptances of customers1,944--1,9441,944Other assets5,8944995,395-5,894Total financial assets 676,90919,76930,781627,209677,759Financial liabilities not measured at fair value on a recurring basisDeposits and other public borrowings543,231-529,73814,819544,557Payables due to other financial institutions36,416-36,416-36,416Bank acceptances1,9441,944--1,944Debt issues154,4291,010154,278-155,288Managed funds units on issue1,1491,149--1,149Bills payable and other liabilities8,963-8,963-8,963Loan capital12,8242,8529,454-12,306Total financial liabilities 758,9566,955738,84914,819760,623Financial guarantees, loan commitmentsand other off Balance Sheet instruments175,569--175,569175,56930 June 2015GroupCarryingvalueFair valueTotalLevel 1Level 2Level 3Total$M$M $M$M$M Financial assets not measured at fair value on a recurring basisCash and liquid assets26,40919,1287,281-26,409Receivables due from other financial institutions8,065-8,065-8,065Loans and other receivables578,537--579,070579,070Bank acceptances of customers5,027--5,0275,027Other assets4,7455094,236-4,745Total financial assets 622,78319,63719,582584,097623,316Financial liabilities not measured at fair value on a recurring basisDeposits and other public borrowings498,352-483,66015,903499,563Payables due to other financial institutions24,978-24,978-24,978Bank acceptances5,0275,027--5,027Debt issues142,2191,032142,208135143,375Managed funds units on issue1,214-1,214-1,214Bills payable and other liabilities7,888-7,888-7,888Loan capital9,5943,2596,565-9,824Total financial liabilities 689,2729,318666,51316,038691,869Financial guarantees, loan commitmentsand other off Balance Sheet instruments164,347--164,347164,34730 June 2014 Notes to the Financial Statements Note 40 Disclosures about Fair Values (continued) (d) Fair Value Information for Financial Instruments not measured at Fair Value (continued) Commonwealth Bank of Australia – Annual Report 2015 173 BankCarryingvalueFair valueTotalLevel 1Level 2Level 3Total$M$M $M$M$M Financial assets not measured at fair value on a recurring basisCash and liquid assets31,68318,16613,517-31,683Receivables due from other financial institutions9,720-9,720-9,720Loans and other receivables558,588--559,366559,366Bank acceptances of customers1,908--1,9081,908Loans to controlled entities130,729--130,441130,441Other assets5,0094884,521-5,009Total financial assets 737,63718,65427,758691,715738,127Financial liabilities not measured at fair value on a recurring basisDeposits and other public borrowings497,625-484,78113,660498,441Payables due to other financial institutions35,516-35,516-35,516Bank acceptances1,9081,908--1,908Due to controlled entities126,496-2,483124,013126,496Debt issues130,359-131,741-131,741Bills payable and other liabilities6,619-6,619-6,619Loan capital13,3641,70311,104-12,807Total financial liabilities 811,8873,611672,244137,673813,528Financial guarantees, loan commitmentsand other off Balance Sheet instruments161,722--161,722161,72230 June 2015BankCarryingvalueFair valueTotalLevel 1Level 2Level 3Total$M$M $M$M$M Financial assets not measured at fair value on a recurring basisCash and liquid assets24,10817,4776,631-24,108Receivables due from other financial institutions7,457-7,457-7,457Loans and other receivables516,003--516,553516,553Bank acceptances of customers4,984--4,9844,984Loans to controlled entities49,852--49,73249,732Other assets3,8004963,304-3,800Total financial assets 606,20417,97317,392571,269606,634Financial liabilities not measured at fair value on a recurring basisDeposits and other public borrowings457,571-443,96914,178458,147Payables due to other financial institutions24,599-24,599-24,599Bank acceptances4,9844,984--4,984Due to controlled entities118,920-3,498115,422118,920Debt issues119,548-120,817135120,952Bills payable and other liabilities6,039-6,039-6,039Loan capital9,9692,1198,061-10,180Total financial liabilities 741,6307,103606,983129,735743,821Financial guarantees, loan commitmentsand other off Balance Sheet instruments151,798--151,798151,79830 June 2014 Notes to the Financial Statements Note 40 Disclosures about Fair Values (continued) (d) Fair Value Information for Financial Instruments not measured at Fair Value (continued) The fair values disclosed above represent estimates of prices at which these instruments could be sold or transferred in an orderly transaction between market participants. 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. The fair value estimates disclosed above have been derived as follows: Loans and Other Receivables The carrying value of loans 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 market interest rate. The fair value of fixed rate loans is calculated using discounted cash flow models where the discount rate reflects market rates offered for loans of similar remaining maturities and creditworthiness as 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. Note 41 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 Vehicles (SPVs). 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 Vehicles (SPVs). 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 SPV 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 SPV. 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 SPV 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 SPV, 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. 174 Commonwealth Bank of Australia – Annual Report 2015 Notes to the Financial Statements Note 41 Securitisation, Covered Bonds and Transferred Assets (continued) 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 SPVs and held by external investors. (2) Securitisation liabilities of the Bank include borrowings from securitisation SPVs, including the SPVs that issue only internally held notes for repurchase with central banks, recognised on transfer of residential mortgages by the Bank. Note 42 Collateral Arrangements 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 17. The Group and the Bank have pledged collateral as part of entering repurchase and derivative agreements. These transactions are governed by standard industry agreements. Commonwealth Bank of Australia – Annual Report 2015 175 GroupRepurchaseAgreementsCovered BondsSecuritisation201520142015201420152014$M$M$M$M$M$MCarrying amount of transferred assets12,9769,96132,31634,14714,26412,982Carrying amount of associated liabilities (1)12,9769,96128,75525,28012,60311,426For those liabilities that have recourse only to the transferred assets:Fair value of transferred assets14,27312,992Fair value of associated liabilities12,60311,471Net position1,6701,521BankRepurchaseAgreementsCovered BondsSecuritisation201520142015201420152014$M$M$M$M$M$MCarrying amount of transferred assets13,0489,95829,01829,21693,19884,214Carrying amount of associated liabilities (2)13,0489,95826,00522,73293,19884,214For those liabilities that have recourse only to the transferred assets:Fair value of transferred assets93,25784,262Fair value of associated liabilities93,19884,214Net position5948GroupBank2015201420152014$M$M$M$MCash14,2494,64813,5434,518Securities13,8467,28213,5186,631Collateral held28,09511,93027,06111,149Collateral held which is re-pledged or sold9---GroupBank2015201420152014$M$M$M$MCash6,6873,7456,3673,477Securities (1)13,11310,30813,18610,306Assets pledged19,80014,05319,55313,783Asset pledged which can be re-pledged or re-sold by counterparty12,9769,96113,0489,958 Notes to the Financial Statements Note 43 Offsetting Financial Assets and Financial Liabilities The table below identifies amounts that have been currently offset on the Balance Sheet and amounts that are covered by enforceable netting arrangements or similar agreements that do not qualify for set off. Cash settled derivatives that trade on an exchange are deemed to be economically settled and therefore outside the scope of these disclosures, if the change in fair value of the derivative is economically settled on a daily basis through the cash payment or receipt of variation margins. Includes amounts both subject and not subject to netting agreements. (1) (2) For the purpose of this disclosure, the related amounts of financial instruments and financial collateral not set off on the Balance Sheet have been capped by relevant netting agreements so as not to exceed the net amounts of financial assets/ (liabilities) reported on the Balance Sheet, i.e. over-collateralisation, where it exists, is not reflected in the tables. As a result the above collateral balances will not correspond to the tables on page 175. 176 Commonwealth Bank of Australia – Annual Report 2015 Group30 June 2015Subject to Enforceable Master Netting or Similar AgreementsAmounts offset on the Balance SheetAmounts not offset on the Balance SheetGross BalanceReported on theFinancialFinancial CollateralNot subject toTotal BalanceSheet AmountAmount offset Balance Sheet (1)Instruments (2)(Received)/ Pledged (2)Net Amount Netting AgreementsSheet amountFinancial Instruments$M$M$M$M$M$M$M$MDerivative assets49,323(3,169)46,154(20,799)(14,016)5,1236,12646,154Securities purchased under agreements to resell13,846-13,846(264)(13,525)58-13,846Securities sold not delivered 1,969(710)1,259----1,259Total financial assets65,138(3,879)61,259(21,063)(27,541)5,1816,12661,259Derivative liabilities(40,045)4,832(35,213)20,7996,292(3,856)(4,114)(35,213)Securities sold under agreements to repurchase(12,976)-(12,976)26412,712--(12,976)Securities purchased not delivered (1,201)710(491)----(491)Total financial liabilities(54,222)5,542(48,680)21,06319,004(3,856)(4,114)(48,680)Group30 June 2014Subject to Enforceable Master Netting or Similar AgreementsAmounts offset on the Balance SheetAmounts not offset on the Balance SheetGross BalanceReported on theFinancialFinancial CollateralNot subject toTotal BalanceSheet AmountAmount offset Balance Sheet (1)Instruments (2)(Received)/ Pledged (2)Net Amount Netting AgreementsSheet amountFinancial Instruments$M$M$M$M$M$M$M$MDerivative assets29,247-29,247(18,009)(4,367)1,8734,99829,247Securities purchased under agreements to resell7,281-7,281(180)(7,062)39-7,281Securities sold not delivered 928(516)412----412Total financial assets37,456(516)36,940(18,189)(11,429)1,9124,99836,940Derivative liabilities(27,259)-(27,259)18,0093,128(2,156)(3,966)(27,259)Securities sold under agreements to repurchase(9,964)-(9,964)1809,782(2)-(9,964)Securities purchased not delivered (1,035)515(520)----(520)Total financial liabilities(38,258)515(37,743)18,18912,910(2,158)(3,966)(37,743) Note 43 Offsetting Financial Assets and Financial Liabilities (continued) Notes to the Financial Statements Includes amounts both subject and not subject to netting agreements. (1) (2) For the purpose of this disclosure, the related amounts of financial instruments and financial collateral not set off on the Balance Sheet have been capped by relevant netting agreements so as not to exceed the net amounts of financial assets/ (liabilities) reported on the Balance Sheet, i.e. over-collateralisation, where it exists, is not reflected in the tables. As a result the above collateral balances will not correspond to the tables on page 175. Commonwealth Bank of Australia – Annual Report 2015 177 Bank30 June 2015Subject to Enforceable Master Netting or Similar AgreementsAmounts offset on the Balance SheetAmounts not offset on the Balance SheetGross BalanceReported on theFinancialFinancial CollateralNot subject toTotal BalanceSheet AmountAmount offset Balance Sheet (1)Instruments (2)(Received)/ Pledged (2)Net Amount Netting AgreementsSheet amountFinancial Instruments$M$M$M$M$M$M$M$MDerivative assets48,776(3,169)45,607(21,107)(13,316)4,9026,17945,607Securities purchased under agreements to resell13,518-13,518(264)(13,196)58-13,518Total financial assets62,294(3,169)59,125(21,371)(26,512)4,9606,17959,125Derivative liabilities(44,468)4,832(39,636)21,1075,979(8,235)(4,160)(39,636)Securities sold under agreements to repurchase(13,048)-(13,048)26412,784--(13,048)Total financial liabilities(57,516)4,832(52,684)21,37118,763(8,235)(4,160)(52,684)Bank30 June 2014Subject to Enforceable Master Netting or Similar AgreementsAmounts offset on the Balance SheetAmounts not offset on the Balance SheetGross BalanceReported on theFinancialFinancial CollateralNot subject toTotal BalanceSheet AmountAmount offset Balance Sheet (1)Instruments (2)(Received)/ Pledged (2)Net Amount Netting AgreementsSheet amountFinancial Instruments$M$M$M$M$M$MDerivative assets29,615-29,615(17,618)(4,246)1,8395,91229,615Securities purchased under agreements to resell6,630-6,630(145)(6,446)39-6,630Total financial assets36,245-36,245(17,763)(10,692)1,8785,91236,245Derivative liabilities(29,341)-(29,341)17,6183,128(1,745)(6,850)(29,341)Securities sold under agreements to repurchase(9,961)-(9,961)1459,814(2)-(9,961)Total financial liabilities(39,302)-(39,302)17,76312,942(1,747)(6,850)(39,302) Notes to the Financial Statements Note 43 Offsetting Financial Assets and Financial Liabilities including Collateral Arrangements (continued) Related Amounts not Set Off on the Balance Sheet Derivative Assets and Liabilities The “Financial Instruments” column identifies financial assets and liabilities that are subject to set off under netting agreements, such as the ISDA Master Agreement. All outstanding transactions with the same counterparty can be offset and close-out netting applied if an event of default or other predetermined events occur. Financial collateral refers to cash and non-cash collateral obtained to cover the net exposure between counterparties by enabling the collateral to be realised in an event of default or if other predetermined events occur. Repurchase and Reverse Repurchase Agreements and Security Lending Agreements The “Financial Instruments” column identifies financial assets and liabilities that are subject to set off under netting agreements, such as global master repurchase agreements and global master securities lending agreements. Under these netting agreements, all outstanding transactions with the same counterparty can be offset and close-out netting applied if an event of default or other predetermined events occur. Financial collateral typically comprises highly liquid securities which are legally transferred and can be liquidated in the event of counterparty default. Note 44 Subsequent Events The Board of Directors approved a pro-rata renounceable entitlement offer of new ordinary shares to eligible existing shareholders after close of the ASX on 11 August 2015. This will comprise an accelerated institutional entitlements offer and a retail entitlements offer with retail entitlements trading. This is expected to raise approximately $5 billion and will result in approximately 71 million new ordinary shares representing 4.3% of shares on issue. The capital raised will allow the Bank to meet future requirements including the new APRA capital requirements in relation to residential mortgages being implemented on 1 July 2016. The Bank expects the DRP for the final dividend for the year ended 30 June 2015 will be satisfied by the issue of shares of approximately $700 million. 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. 178 Commonwealth Bank of Australia – Annual Report 2015 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 and the accompanying notes for the financial year ended 30 June 2015 in relation to the Bank and the consolidated entity (Group) 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 2015. Signed in accordance with a resolution of the Directors. D J Turner Chairman 11 August 2015 I M Narev Managing Director and Chief Executive Officer 11 August 2015 Commonwealth Bank of Australia – Annual Report 2015 179 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 (the Company), which comprises the balance sheets as at 30 June 2015, 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 Commonwealth Bank of Australia and the Consolidated Entity. The Consolidated Entity comprises the Company and the entities it controlled at the year-end or from time to time during the financial year. Directors’ responsibility for the financial report The directors of the Company 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 the Company 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. Those 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. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 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. 180 Commonwealth Bank of Australia – Annual Report 2015 Independent auditor’s report to the members of Commonwealth Bank of Australia (continued) Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Auditor’s opinion (a) the financial report of Commonwealth Bank of Australia is in accordance with the Corporations Act 2001, including: (i) (ii) giving a true and fair view of the Company’s and the Consolidated Entity's financial position as at 30 June 2015 and of their performance for the year ended on that date; and 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 44 to 65 of the directors’ report for the year ended 30 June 2015. The directors of the Company 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 2015, complies with section 300A of the Corporations Act 2001. PricewaterhouseCoopers Marcus Laithwaite Partner Sydney 11 August 2015 Commonwealth Bank of Australia – Annual Report 2015 181 Shareholding Information Top 20 Holders of Fully Paid Ordinary Shares as at 7 August 2015 Rank Name of Holder Number of Shares % 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 HSBC Custody Nominees (Australia) Limited J P Morgan Nominees Australia Limited National Nominees Limited Citicorp Nominees Pty Limited BNP Paribas Noms Pty Ltd Bond Street Custodians Limited RBC Dexia Investor Services Australia Nominees Pty Limited Australian Foundation Investment Company Limited UBS Wealth Management Australia Nominees Pty Ltd Navigator Australia Ltd Milton Corporation Limited Argo Investments Limited Dawnraptor Pty Limited Pacific Custodians Pty Limited UBS Nominees Pty Ltd Nulis Nominees (Australia) Limited Invia Custodian Pty Limited Questor Financial Services Limited Mr. Barry Martin Lambert McCusker Holdings Pty Ltd 270,757,648 168,399,464 127,377,721 86,227,061 36,846,518 23,666,301 14,324,684 8,482,900 5,354,366 3,661,180 3,034,225 2,952,895 2,747,995 2,356,942 2,221,306 2,213,025 2,152,627 2,027,086 1,643,613 1,435,000 16.64 10.35 7.83 5.30 2.26 1.45 0.88 0.52 0.33 0.22 0.19 0.18 0.17 0.14 0.14 0.14 0.13 0.12 0.10 0.09 The top 20 shareholders hold 767,882,557 shares which is equal to 47.18% 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) as at 7 August 2015 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 582,440 181,143 18,000 7,633 199 789,415 12,795 Percentage of Shareholders 73.77 22.95 2.28 0.97 0.03 100.00 1.62 Number of Shares 189,855,444 378,040,880 123,072,869 143,953,570 792,669,950 1,627,592,713 33,832 Percentage of Issued Capital 11.67 23.23 7.56 8.84 48.70 100.00 0.02 Under the Bank’s Constitution, each person who is a voting Shareholder 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 holder’s voting rights and the vote of each attorney shall be of no effect unless each is appointed to represent a specified proportion of the Equity holder’s voting rights, not exceeding in aggregate 100%. If an Equity holder appoints two proxies and both are present at the meeting:   If the appointment does not specify the proportion or number of the Equity holder’s votes each proxy may exercise, then on a poll each proxy may exercise one half of the Equity holder’s votes; Neither proxy shall be entitled to vote on a show of hands; and  On a poll each proxy may only exercise votes in respect of those shares or voting rights the proxy represents. 182 Commonwealth Bank of Australia – Annual Report 2015 Shareholding Information Top 20 Holders of Perpetual Exchangeable Repurchaseable Listed Shares III (“PERLS III”) as at 7 August 2015 Rank Name of Holder Number of Shares 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 UBS Wealth Management Australia National Nominees Limited AMP Life Limited J P Morgan Nominees Australia Citicorp Nominees Pty Limited HSBC Custody Nominees Navigator Australia Ltd Nulis Nominees (Australia) The Australian National Catholic Education Office Australian Executor Trustees Limited Mutual Trust Pty Ltd RBC Dexia Investor Services Mr Walter Lawton Truckmate (Australia) Pty Ltd BNP Paribas Noms Pty Ltd Netwealth Investments Limited Mifare Pty Ltd Fleischmann Holdings Pty Ltd UBS Nominees Pty Ltd 218,283 153,517 135,309 125,628 115,228 72,400 69,261 55,758 51,614 49,750 41,206 39,338 37,597 35,799 35,000 31,793 27,928 25,000 22,500 22,477 % 3.74 2.63 2.32 2.15 1.98 1.24 1.19 0.96 0.88 0.85 0.71 0.67 0.64 0.61 0.60 0.55 0.48 0.43 0.39 0.39 The top 20 PERLS III shareholders hold 1,365,386 shares which is equal to 23.41% 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) as at 7 August 2015 Range 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total Less than marketable parcel of $500 Voting Rights Number of Shareholders 16,857 554 38 28 5 17,482 19 Percentage of Shareholders Number of Shares 96.42 2,975,547 3.17 1,065,895 0.22 274,466 0.16 779,324 0.03 737,049 100.00 5,832,281 34 0.11 Percentage of Issued Capital 51.02 18.28 4.71 13.36 12.64 100.00 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, then the voting rights of the ordinary shares will be as set out on page 182 and the voting rights of the preferences shares will be as set out in the PERLS III prospectus. Commonwealth Bank of Australia – Annual Report 2015 183 Shareholding Information Top 20 Holders of Perpetual Exchangeable Resaleable Listed Securities VI (“PERLS VI”) as at 7 August 2015 Rank Name of Holder 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 UBS Wealth Management Australia Bond Street Custodians Limited J P Morgan Nominees Australia Limited Questor Financial Services HSBC Custody Nominees (Australia) Limited National Nominees Limited Australian Executor Trustees Limited Snowside Pty Ltd Netwealth Investments Limited Nulis Nominees (Australia) BNP Paribas Noms Pty Ltd Citicorp Nominees Pty Limited Dimbulu Pty Ltd Eastcote Pty Limited RBC Dexia Investor Services Australia Nominees Pty Limited Navigator Australia V S Access Pty Ltd Invia Custodian Pty Limited Marento Pty Ltd Junax Capital Pty Ltd Number of Securities 631,001 500,756 396,781 284,337 278,822 257,747 184,319 136,318 132,983 130,908 130,077 104,986 100,000 100,000 89,377 84,032 80,000 58,282 52,916 50,000 % 3.16 2.50 1.98 1.42 1.39 1.29 0.92 0.68 0.66 0.65 0.65 0.52 0.50 0.50 0.45 0.42 0.40 0.29 0.26 0.25 The top 20 PERLS VI security holders hold 3,783,642 securities which is equal to 18.92% of the total securities on issue. Stock Exchange Listing PERLS VI are subordinated unsecured 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 Securities (PERLS VI) as at 7 August 2015 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 26,551 2,575 205 89 9 29,429 7 Percentage of Security Holders 90.21 8.75 0.70 0.30 0.04 Number of Securities 8,506,888 5,364,480 1,547,527 2,273,662 2,307,443 100.00 20,000,000 15 0.02 Percentage of Issued Capital 42.53 26.82 7.74 11.37 11.54 100.00 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, then the voting rights of the ordinary shares will be as set out on page 182 for the Bank’s ordinary shares. 184 Commonwealth Bank of Australia – Annual Report 2015 Top 20 Holders of CommBank PERLS VII Capital Notes (“PERLS VII”) as at 7 August 2015 Shareholding Information Rank Name of Holder 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 UBS Wealth Management Australia Bond Street Custodians Limited HSBC Custody Nominees National Nominees Limited Questor Financial Services J P Morgan Nominees Australia Limited Citicorp Nominees Pty Limited Netwealth Investments Limited Australian Executor Trustees Limited Navigator Australia Nulis Nominees (Australia) Avanteos Investments Limited Invia Custodian Pty Limited Trend Equities Pty Ltd Dimbulu Pty Ltd RBC Dexia Investor Services Australia Nominees Pty Limited Randazzo C & G Developments BNP Paribas Noms Pty Ltd Tsco Pty Ltd JMB Pty Ltd Number of Securities 1,802,742 734,347 690,665 484,614 396,931 254,392 241,559 209,736 198,149 188,196 186,105 139,807 115,109 102,934 100,000 89,789 84,286 80,227 80,000 67,850 % 6.01 2.45 2.3 1.62 1.32 0.85 0.81 0.70 0.66 0.63 0.62 0.47 0.38 0.34 0.33 0.30 0.28 0.27 0.27 0.23 The top 20 PERLS VII security holders hold 6,247,438 securities which is equal to 20.82% of the total securities on issue. Stock Exchange Listing PERLS VII are subordinated unsecured notes issued by the Bank. They are listed on the Australian Securities Exchange under the trade symbol CBAPD. Details of trading activity are published in most daily newspapers. Range of Securities (PERLS VII) as at 7 August 2015 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 29,388 3,807 299 197 14 33,705 7 Percentage of Security holders 87.19 11.30 0.89 0.58 0.04 100.00 0.02 Number of Securities 10,114,556 8,198,179 2,255,952 4,666,503 4,764,810 30,000,000 29 Percentage of Issued Capital 33.72 27.33 7.52 15.56 15.88 100.00 0.00 PERLS VII 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, then the voting rights of the ordinary shares will be as set out on page 182 for the Bank’s ordinary shares. Trust Preferred 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, then the voting rights of the ordinary shares will be as set out on page 182 and the voting rights of the preference shares will be as set out in the Trust Preferred Securities information memorandums. Commonwealth Bank of Australia – Annual Report 2015 185 International Representation 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 Chief Executive Officer Symon Brewis-Weston First State Investments ASB North Wharf 12 Jellicoe Street Auckland Central Auckland 1010 Telephone: +64 9 448 4922 Facsimile: +64 9 486 7131 Managing Partner, First State Stewart Harry Moore Africa South Africa TYME Group, Level 4, Global House, 28 Sturdee Avenue, Rosebank Johannesburg 2196 Telephone: + 27 10 241 1326 Managing Director, South Africa Rolf Eichweber 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 Managing Director, Americas Fiamma Morton 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 Asia China CMG, Beijing Representative Office Unit 2908, Level 29 China World Tower 1, 1 Jianguomenwai Avenue, Beijing 100004 Telephone: +86 10 6505 5023 Facsimile: +86 10 6505 5004 China Chief Representative James Gao CBA Beijing Branch Office Room 4606 China World Tower, 1 Jianguomenwai Avenue, Beijing 100004 Telephone: +86 10 5680 3000 Facsimile: +86 10 5961 1916 Branch Manager Beijing Liang Zhang Additional Chinese representation The Group has established 15 County Banks in China in Henan Province (County: Jiyuan, Dengfeng, Lankao, Mianchi, Yichuan, Yongcheng, Wenxian) and Hebei Province (County: Xinji, Yongnian, Cixian, Luancheng, Cheng’an, Weixian, Shexian, Handan). Telephone: +86 216058 0100 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 Partner, First State Stewart Michael Stapleton Hong Kong CommBank Management Consulting 14F One Exchange Square 8 Connaught Road, Central Hong Kong Telephone: +852 2844 7500 Facsimile: +852 2845 9194 Group Executive International Financial Services Robert Jesudason First State Investments 6th Floor, Three Exchange Square 8 Connaught Place, Central Hong Kong Telephone: +852 2846 7555 Facsimile: +852 2868 4036 Managing Partner, First State Stewart Michael Stapleton 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) Vivienne Yu 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 Vivienne Yu 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 Ravi Kushan Indonesia PT Bank Commonwealth Level 3A, Wisma Metropolitan II Jl. Jendral Sudirman Kav. 29-31 Jakarta 12920 Telephone: +62 21 5296 1222 Facsimile: +62 21 5296 2293 President Director Tony Costa 186 Commonwealth Bank of Australia – Annual Report 2015 International Representation 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 United Kingdom England CBA Branch Office Senator House 85 Queen Victoria Street London EC4V 4HA Telephone: +44 20 7710 3999 Facsimile: +44 20 7710 3939 Managing Director, Europe Paul Orchart First State Investments Finsbury Circus House 15 Finsbury Circus London EC2M 7EB 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 CBA Ho Chi Minh City Branch Han Nam Building 65 Nguyen Du St., Dist. 1 Ho Chi Minh City Telephone: +84 8 3824 1525 Facsimile: +84 8 3824 2703 General Director Ross Munn Europe France First State Investments 14, Avenue d’Eylau 75016 Paris Telephone: +33 1 7302 4674 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 Chief Financial Officer Brett Smith PT Commonwealth Life WTC 6, 8th Floor, 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 21 515 0088 Facsimile: +62 21 515 0033 Managing Partner, First State Stewart 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 Partner, First State Stewart Michael Stapleton Singapore CBA Branch Office One Temasek Avenue 17-01 Millenia Tower Singapore 039192 Telephone: +65 6349 7000 Facsimile: +65 6224 5812 Managing Director, Singapore Gregory Williams First State Investments One Temasek Avenue 17-01 Millenia Tower Singapore 039192 Telephone: +65 6538 0008 Facsimile: +65 6538 0800 Managing Partner, First State Stewart Michael Stapleton Commonwealth Bank of Australia – Annual Report 2015 187 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. 132 221 Lost or Stolen Cards To report a lost or stolen card 24 hours a day, 7 days a week. From overseas call +61 2 9999 3283. 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 and 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 132 221. 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) available 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) For enquiries about CommSec products and services visit www.commsec.com.au. 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), Monday to Friday or visit www.commbank.com.au/commonwealthprivate 132 015 Commonwealth Financial Services For enquiries on retirement and superannuation products, or to 6pm investments. Available managed (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. 188 Commonwealth Bank of Australia – Annual Report 2015 Corporate Directory Registered Office Ground Floor, Tower 1 201 Sussex Street Sydney NSW 2000 Telephone +61 2 9378 2000 Facsimile +61 2 9118 7192 Company Secretary David Cohen 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. Commonwealth Bank of Australia – Annual Report 2015 189 CBA1421 011015 

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