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
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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
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Commonwealth Bank of Australia – Annual Report 2015
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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