Annual Report 2017
Commonwealth Bank of Australia | ACN 123 123 124
Contents
Our business
Who we are
2017 highlights
Where our income and profits go
Chairman and CEO statement
Our strategy
Business risks
Performance overview
Corporate responsibility
Corporate governance
Our board
Our senior management team
Our governance
Directors’ report
Financial report
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4
6
12
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25
39
49
50
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55
59
84
Other information
202
1
Our vision is to excel at
securing and enhancing
the financial wellbeing of
people, businesses and
communities.
Commonwealth Bank of AustraliaAnnual Report 2017Financial report6 Our businessPerformance overview 21Corporate responsibility3 Corporate governance4Directors’ report5Other information7 2
Who we are
Commonwealth Bank
is a leading provider
of integrated financial
services. We provide retail,
business and institutional
banking and wealth
management products
and services.
1 in 3 Australians call
us their main financial
institution.
CBA Group
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Our vision
Our vision is to excel at securing and enhancing
the financial wellbeing of people, businesses
and communities.
Our values
We are guided by our values in every interaction
with our customers, colleagues and the broader
community.
• Integrity
• Accountability
• Collaboration
• Excellence
• Service
Our strategy
Customer focus is the overarching priority of
our strategy.
To support our customers we invest in four
capabilities:
People
Vibrant customer-focused culture
and people
Technology
Application of world-leading
technology to financial services
Productivity
Productivity and efficiency for
better customer service
Financial
strength
Strength and flexibility of our
balance sheet
This strategy enables us to create long-term value
for customers, shareholders, our people and the
broader community.
2017 highlights
3
Customers, shareholders, our people and the
community all benefit from our performance.
Our customers
16.6m
customers
6.2m customers
using digital channels
1
#1
customer
satisfaction
Retail, internet
Equal #1 in business
Our shareholders
800,000+
shareholders
plus millions more hold
CBA shares through their
superannuation funds
Our people
51,800
employees
across 11 countries
Our community
$3.9bn
in taxes
Australia’s largest
taxpayer
$9,881m
net profit
after tax (cash), up 5%
10.1% Common Equity
Tier 1 capital ratio
(APRA basis)
44%
management
roles held by
women
40% of Board Directors
are women
$272m
total community
investment
574,246 students
enrolled in Start Smart
326,146 School
Banking students
Launched Teaching
Awards
330,000
new home loans
30,000 loans for
Australian first
home buyers
$4.29
dividend
per share, fully franked
16.0% return on equity
69%
staff working
flexibly
39.1 hours of training
per employee
$2.8bn
lending to
renewable energy
projects
48.5% reduction in direct
emissions since 2009
Committed to playing our
part in limiting climate
change to well below
2o Celsius
Commonwealth Bank of AustraliaAnnual Report 2017Financial report6 Our businessPerformance overview 21Corporate responsibility3 Corporate governance4Directors’ report5Other information7 4
4
Where our income and profits go
In 2017, Commonwealth Bank earned income of $26bn
$16.1bn
was spent on:
$6.3bn
Salaries
• we employ 51,800 people in 11 countries
• 41,600 are employed in Australia
• we employ 1 in every 10 people working
in the Australian financial services sector
$4.8bn
Expenses
• includes payments to
more than 5,000 SME
partners and suppliers
• 90% of our suppliers are
Australian businesses
• 1,350 branches
$3.9bn
Tax
• we are Australia’s largest taxpayer
• our Australian tax expense in FY17 represents
around 5% of Australia’s total company tax
• we have signed the Voluntary Tax Transparency Code
$1.1bn
Loan impairment
• the cost of lending across the economy
24%
18%
15%
4%
In 2017, Commonwealth Bank earned income of $26bn
5
From profit of
$9.9bn
three quarters goes to shareholders
and the rest is reinvested:
$7.4bn
Dividends
• 75% of profits returned to shareholders
• the average retail shareholder will receive
approximately $3,820 in dividends this year
• almost 800,000 retail shareholders hold
CBA shares directly, millions more hold CBA
shares through their superannuation funds
29%
10%
$2.5bn
Reinvested
• we invest profit back into the business
to make it better for our customers
Commonwealth Bank of AustraliaAnnual Report 2017Financial report6 Our businessPerformance overview 21Corporate responsibility3 Corporate governance4Directors’ report5Other information7 6
6
Chairman and CEO
statement
Commonwealth Bank has again delivered strong
financial performance, guided by our vision to
excel at securing and enhancing the financial
wellbeing of customers, shareholders, our people,
and the broader community.
7
Ownership of
Commonwealth Bank is
first and foremost with
the people of Australia,
so when we do well as
a company, millions of
Australians also prosper.
For the 2017 financial year, cash net
profit was $9,881 million, up 5% on the
prior year. Your Board determined a
final dividend of $2.30 per share, taking
the total dividend to $4.29 per share, up
9 cents on 2016. In total, $7.4bn of your
company’s profits is being returned to
shareholders as dividends. Return on
equity for the year was 16%.
Operating income increased by 4%,
excluding the sale of our remaining
investment in Visa Inc. This was driven
by 4% higher net interest income from
our lending activities and 5% higher
other banking income which includes
commissions, lending fees and trading.
Funds management and insurance
income was flat.
Costs were kept under control, with
expenses increasing by 2%, excluding
the accelerated amortisation taken as a
one-off expense this year. The Group’s
cost-to-income ratio on an underlying
basis was reduced by a further 60 basis
points, to 41.8%.
The credit quality of our loan portfolio
was sound and loan impairment
expense remained low, with the ratio
of loan impairment expense to average
gross loans and acceptances at 15
basis points.
In 2017, your bank served
16.6 million customers, returned
75% of cash profits to our
shareholders, employed 51,800
people, and paid $3.9 billion in tax.
We provided $197 billion in new
lending to businesses and individual
customers to help them grow their
businesses and buy a home, insured
more than 6 million customers, and
helped 1.8 million customers invest
for the future. We sourced goods and
services worth $4.8 billion, including
from more than 5,000 SME partners
and suppliers. Remaining profits were
invested back into the business, to fund
innovation and growth.
Commonwealth Bank
also continued to play its
role in helping secure a
strong economy – as an
enabler of employment,
business opportunity,
financial security,
innovation and growth.
Delivering for our
shareholders
This year we have especially
appreciated the ongoing support
of our shareholders: the almost
800,000 retail shareholders
who own CBA shares directly,
and the millions more who
own CBA shares through their
superannuation funds.
We understand that many shareholders
depend on the income they receive
from their investment in Commonwealth
Bank, so our aim is to deliver sector-
leading earnings growth and returns,
and a stable dividend stream.
Capital and funding
In 2017 we maintained our
commitment to financial strength
across all capital, funding and
liquidity metrics.
From 1 July 2016, the Australian
Prudential Regulation Authority (APRA)
requirement to hold additional capital for
Australian residential mortgages came
into effect. This regulatory change was
the driver of our capital raising during the
2016 financial year. The mortgage risk
weight change ultimately had a 114 basis
point negative impact on our Common
Equity Tier 1 (CET1) ratio in 2017.
We continued to strengthen our capital
position during the year through organic
capital growth, resulting in a CET1
ratio of 10.1% on an APRA basis as at
30 June 2017.
Our CET1 ratio on
an internationally
comparable basis was
15.6%, so we have
maintained our position
in the top quartile of
international peer bank
capital rankings.
After the financial year end, in July 2017,
APRA provided clarity on the additional
capital required for the Australian
banking sector to have capital ratios that
are considered ‘unquestionably strong’.
APRA’s expectation is that the major
Australian banks will operate with a
CET1 ratio average benchmark of 10.5%
or more by 1 January 2020.
Our strong organic capital generation
and commitment to financial strength
give us confidence that we will meet
APRA’s benchmark.
As at year end, the Group’s Liquidity
Coverage Ratio was 129%, our Net
Stable Funding Ratio was 107%,
customer deposits provided 67% of
funding, and the tenor of our long-term
wholesale funding was 4.1 years.
Commonwealth Bank of AustraliaAnnual Report 2017Financial report6 Our businessPerformance overview 21Corporate responsibility3 Corporate governance4Directors’ report5Other information7 8
Chairman and CEO statement
continued
Our performance at a glance
Total shareholder return
Source: Bloomberg
5 years
104.8%
3 years 20.3%
1 year 17.4%
Dividends
Fully franked, per share
Earnings
Cash basic earnings per share
2017
2%
$4.29
2016 $4.20
2015 $4.20
2014 $4.01
Efficiency ratio
Cost-to-income
2017*
41.8%
2016 42.4%
2015 42.8%
2014 42.9%
*underlying basis
2017
4%
574.4C
2016 554.8c
2015 556.9c
2014 532.7c
Margins
Net interest margin
2017
2.11%
2016 2.14%
2015 2.15%
2014 2.19%
Capital ratio
Common Equity Tier 1 (APRA)
Returns
Cash return on equity
2017
10.1%
2016 10.6%
2015 9.1%
2014 9.3%
2017
16.0%
2016* 16.5%
2015 18.2%
2014 18.7%
*Impacted by $5.1bn capital raising
Further detail on financial performance at a Group and business
unit level can be found in the Performance Overview section.
Delivering for our
customers
These sound financial outcomes
are the result of continued
execution of our long-term
strategy. The overarching priority
of our strategy is customer focus,
so we are pleased that we ranked
number one for retail customer
satisfaction and equal first for
business customer satisfaction
as at 30 June 2017.1
Customer satisfaction is achieved by
providing customers with the best
possible products and services. We
believe this is underpinned by four
capabilities – technology, people,
productivity and strength. Through
consistent focus and investment we
have built these capabilities over many
years, making them our sources of
competitive advantage, as we deploy
them to drive growth over the long-term.
Our industry-leading technology
position is a critical competitive
advantage. This lead was further
strengthened in 2017 with the release
of innovative digital products and
services for our retail customers, and
the application of data and analytics for
our business customers.
6.2 million customers are now active
users of NetBank, our online banking
service, and CommBank, our mobile
banking app. We have won Canstar’s
Bank of the Year-Online Banking award
for eight years in a row.
Our online channels also provide us
with new opportunities to secure and
enhance our customers’ financial
wellbeing.
Research undertaken by the retail bank
shows that one in three Australian
households would struggle to access
$500 in an emergency, and more than
a third of Australians are spending more
than they earn each month.
While we help millions of Australians
to save, spend and invest, there are
millions more who feel uncertain and
anxious about their financial future.
We have been working to use our
resources to improve community
financial wellbeing more broadly.
(1) Roy Morgan Research Main Financial Institution
Customer Satisfaction Survey, DBM Business
Financial Services Monitor.
Retail bank customer satisfaction
9
Satisfied customers
Dissatisfied customers
82.7%
9.8%
70.5%
Jun 07
Jun 09
Jun 11
Jun 13
Jun 15
Jun 17
Jun 07
Jun 09
Jun 11
Jun 13
Jun 15
Jun 17
3.8%
Source: Roy Morgan Research Retail Main Financial Institution Customer Satisfaction. Excludes neutral responses, “can’t say” and “n/a”.
This has led to the launch of new
digital tools including Savings Jar,
Savings Challenge, Spend Tracker
and Transactions Notifications which
encourage good financial habits and
help people manage their everyday
finances. The new tools have already
been used by over 1 million customers
and we are now sending out more
than 420,000 transaction notifications
each day.
To help our younger customers develop
good saving and spending habits at an
early age, we have launched a Youth
app. The app teaches children the
value of money in an increasingly digital
and cashless society, and has been
downloaded more than 22,000 times
since it was launched earlier this year.
Business and Private Banking (BPB) is
also using our technology advantage
to help our business customers. Earlier
this year BPB launched an update
to Daily IQ, an insights and analytics
dashboard that helps our customers
manage and grow their businesses by
providing them with insights into their
cash flow, performance and customers.
230,000 clients have access to Daily IQ.
We have used our scale to give small
businesses access to insights that used
to be available only to big businesses.
Our commitment to our customers
Despite our commitment to always
do our best for every customer, there
have been times when we have let our
customers down, and we have not met
the community’s expectations.
During the past year we have continued
our focus on learning from these cases.
We have listened to the experiences of
our customers, thoroughly investigated
what happened in each instance, put
things right when mistakes were made
and changed our policies, processes
and practices to make sure such
mistakes are not made again.
Following media allegations of
misconduct at CommInsure in
2016, CommInsure commissioned
independent experts, Deloitte, DLA
Piper and EY, to investigate the
concerns. Having regard to all of the
work that was completed, including
the independent expert reviews, the
CommInsure Board concluded there is
no evidence to support the concerns of
wilful or widespread misconduct.
These reviews and reports were
provided to APRA and ASIC. APRA
said the investigations were robust,
complete and independent. In March,
ASIC released the findings of its
investigations into CommInsure.
ASIC also found no evidence of wilful
or widespread misconduct relating to
key allegations, and no breaches of
the law in respect of claims handling.
Nevertheless, at CommInsure’s
request, Deloitte analysed and identified
opportunities to improve elements
of the claims process to improve the
customer experience, and we are now
implementing the recommendations.
We have updated and backdated our
heart attack definitions and established
a Claims Review Panel that includes
independent members to review
complex claims.
In June 2017, the seventh and final
report on the Open Advice Review
program was released. The report
confirmed that the program to assess
advice provided to customers of
Commonwealth Financial Planning and
Financial Wisdom between 2003 and
2012 is nearly complete. Around 8,600
advice assessments were issued to
customers and more than 90 per cent
have been finalised; and approximately
$31 million (including interest) has been
offered or paid to customers to date.
The program has provided reassurance
to the large majority of customers who
received appropriate advice and we
have since made improvements to the
way we run our advice businesses,
including raising the skills and
qualification requirements for advisers
and their managers.
In June 2017, we also completed our
review of customers potentially entitled
to a refund in connection with ongoing
service packages. The vast majority of
reviews sought to identify customers of
Commonwealth Financial Planning and
BW Financial Advice who may not have
received an annual review as part of
their ongoing service package with their
adviser. All assessments have now been
completed and all affected customers
have now been contacted to provide
full refunds with interest. Measures
have also been taken to improve our
processes to prevent similar issues from
occurring in the future.
On 3 August 2017, the Australian
Transaction Reports and Analysis
Centre (AUSTRAC) brought civil
proceedings against the bank. The
proceedings focus on the use of the
bank’s Intelligent Deposit Machines.
We have been in discussions with
AUSTRAC for an extended period
and have cooperated fully with their
requests. We have invested more
than $230 million in our anti-money
laundering compliance and reporting
processes and systems, and all of
our people are required to complete
mandatory training on the Anti-Money
Laundering and Counter-Terrorism
Financing Act. We take our regulatory
obligations extremely seriously. We
remain committed to continuously
improve our compliance with the AML/
CTF Act and will continue to keep
AUSTRAC abreast of those efforts.
We are also committed to ensuring
that industry standards are raised, to
restore community trust in the banking
sector generally. To this end, we
strongly support the Australian Bankers’
Association Better Banking initiatives
and have committed to implementing
all 21 recommendations from the ABA
initiated Sedgwick Review into retail
bank staff remuneration.
Furthermore, we have both signed the
Banking and Finance Oath as a mark
of our personal commitment to doing
everything we can to ensure that the
banking profession earns and preserves
society’s trust and confidence.
Commonwealth Bank of AustraliaAnnual Report 2017Financial report6 Our businessPerformance overview 21Corporate responsibility3 Corporate governance4Directors’ report5Other information7 10
Chairman and CEO statement
continued
Delivering for our people
Ultimately, our people are the key
driver of customer satisfaction, and
of your company’s performance.
Our people’s dedication
to our customers and
to our vision and values
gives us tremendous
confidence in the
Group’s future.
To ensure that our people remain
engaged and realise their potential we
supported ongoing skills development
and training throughout the year.
We also continued to emphasise the
importance of a customer-centric
culture, including through the launch
of Our Commitments in 2017. Our
Commitments summarises our values
and the behaviours we expect of our
people, simply and clearly. This will
enable us to strengthen trust with
customers, shareholders, regulators,
suppliers, colleagues and the
communities in which we operate.
In 2017 we also continued to enhance
the diversity of our workforce, having
regard to gender, culture, age, sexual
orientation and disability. We believe
that a workforce that mirrors the
communities we serve will improve the
quality of our decisions, and improve
our engagement with customers.
Board and key executive
changes
Your Board and Group
Executive team have
a common goal –
achieving sustainable
performance for all of
our stakeholders.
In December 2016, we farewelled
David Turner who retired after six years
in the role of Chairman and 10 years’
service as a Director. We would like
to thank him for his tremendous
contribution over this time. His tenure
was marked by decisive leadership,
but also compassion and humility. His
commitment to long-term investment
and passion for driving diversity
continues to stand us in good stead.
Sir John Anderson KBE retired from
the Board in November 2016 after
serving over nine years as a Director,
during which time he brought expansive
business knowledge and sound
judgement to Board deliberations.
At the end of June 2017, our long-
serving Group Executive, Financial
Services and Chief Financial Officer,
David Craig, retired after 11 years of
unswerving dedication to the best
interests of Commonwealth Bank.
Rob Jesudason, who previously ran the
Group’s International Financial Services
(IFS) and Strategy divisions, assumed
the role of Chief Executive, Financial
Services and CFO on 1 July 2017.
Coen Jonker, the co-founder and CEO
of TYME, and most recently responsible
for IFS’ digital transformation, has
been appointed to the role of Group
Executive, IFS.
Further details of the Board and Group
Executive team’s skills and experience
are provided on pages 50-56.
Changes to executive remuneration
At our 2016 Annual General Meeting
the resolution to adopt the Group’s
FY16 Remuneration Report was not
passed by shareholders. Your Board
has listened intently to and discussed
at length the concerns raised by
shareholders which contributed to this
“first strike”.
In response, your Board has
undertaken a comprehensive review
of the Group’s Executive remuneration
strategy, framework and governance,
with the objective of providing more
transparency, greater accountability,
and better clarity of alignment with
shareholder goals and value creation,
and business strategy.
For more information on the new
proposed remuneration framework,
please see the Remuneration report
on page 70.
Environmental
stewardship
We actively consider the
environmental impacts of our
activities, and are committed to
operating sustainably and making
a positive contribution beyond
our core business.
We recognise that climate change is
both a risk and opportunity for our
business, for our customers and for
the community.
This month we released our Climate
Policy Position Statement. It outlines
our commitment to playing our part in
limiting climate change to well below
two degrees in line with the Paris
Agreement, and how we will support
the responsible global transition to net
zero emissions by 2050.
In addition to having the necessary
policies, we have embedded climate
considerations firmly into our lending,
investing, and property decision-
making.
Mandatory environmental, social and
governance (ESG) risk assessments
are applied to all Institutional Banking
lending as well as larger loans across
the Group, and there is compulsory
ESG lending training for all relevant
business bankers and risk executives.
Additional sustainable and ethical
investment options have been added
to our product range. We also have
a Sustainable Property Strategy with
targets for energy use and carbon
emission reductions.
11
At Commonwealth Bank we are
determined to drive better customer
outcomes, and so have built reputation
into the Group’s new remuneration
structure. If passed at our 2017
AGM, reputation will be an important
benchmark against which we judge
our performance.
Your Board and management team are
committed to evolving your company
to ensure it is future-fit and can
continue to deliver outperformance for
customers, shareholders, our people
and the community. We are also
committed to doing all that we can to
secure a strong and stable banking
system for Australia.
We thank you for your ongoing support.
Catherine Livingstone AO
Chairman
8 August 2017
Ian Narev
Chief Executive Officer
8 August 2017
As at June 2017, our total lending
exposure to the renewable energy
sector was $2.8 billion. This year we
have arranged $1.02 billion of climate
bonds. In March we issued the largest
Australian dollar climate bond from an
Australian bank, raising $650 million.
The bond is backed by Australian
renewable and low-carbon assets.
We also recognise
the importance
of transparency
and disclosure on
climate risk.
We currently measure and disclose
the emissions intensity of our entire
business lending portfolio, and in
the coming year will be undertaking
scenario analysis to more fully
understand the implications of climate
change for our business.
Importantly, the Board has oversight of
climate change driven risks as part of
the Risk Management Framework.
An overview of our new Climate
Policy Position Statement and related
activities are provided in the Corporate
responsibility section on pages 39-48.
Looking ahead
This year, after 26 years of
economic growth without
recession, Australia became the
economy with the longest-running
economic expansion on record.
This is the result of many factors,
including our natural and human
resources and our proximity to
centres of global growth. It has also
been supported by sound public
policies, designed to encourage free
enterprise and to promote innovation
and employment. Companies like
Commonwealth Bank have also played
our part in helping secure Australia’s
stability, growth and prosperity.
Australia remains a country rich in
potential, with strong foundations, and
the economy shows continued flexibility
in adapting to new circumstances.
We believe Commonwealth Bank
is similarly positioned. We have a
consistent strategy based on customer
focus, we are evolving our capabilities
in anticipation of changes in customer
preferences, competition and the
external environment, and we are
creating new growth opportunities
through technology and innovation.
What the Australian economy and
Commonwealth Bank also have in
common, especially given the nation’s
dependence on foreign capital, is the
need for a policy environment that
provides certainty to investors and
that reduces sovereign risk.
Australia’s economy is heavily reliant on
the strength of the banks, because the
capital and credit that enables growth is
mostly extended through the domestic
banking system. Our relatively small
population and the capital intensity of
many of our industries also mean that
the demand for investment exceeds
local savings, so we need overseas
capital. The banks are the most critical
intermediaries of this capital.
We have therefore been disappointed
by the introduction of government
policy which creates uncertainty and
which singles out Australia’s largest
banks for discriminatory tax treatment
through a bank levy.
To fulfil our role in the economy,
Commonwealth Bank must be a
healthy and profitable organisation,
with the necessary certainty to source
funding and capacity to invest. We also
need to operate as part of a strong and
stable banking system.
Ultimately, our reputation and our
customers’ and the community’s trust
are our greatest assets. We, and the
broader banking industry, recognise
that we need to rebuild trust, and this is
now a critical focus.
Commonwealth Bank of AustraliaAnnual Report 2017Financial report6 Our businessPerformance overview 21Corporate responsibility3 Corporate governance4Directors’ report5Other information7 12
Our strategy focuses on creating
long-term value for our customers,
shareholders and people.
Our strategy
13
Our strategy focuses on creating long-term value for our customers,
shareholders and people. It is firmly anchored to our vision to
‘excel at securing and enhancing the financial wellbeing of people,
businesses and communities’.
Customer
focus
Putting our customers first is our strategic priority, serving and
satisfying them so that they continue to turn to us as their bank
of choice.
To support our focus on the customer, we invest in four key capabilities:
people, technology, productivity, and financial strength.
People
Our people are central to our success. They are engaged, customer-focused and
operate in a culture that emphasises integrity. It is our people who set us apart from
our peers.
• Our 1,350 branches are evolving to serve the changing needs of our 16.6 million customers;
• Thanks to the commitments of our diverse workforce of 51,800 people, we have maintained
our position as:
− First in retail customer satisfaction;
− Equal first in business customer satisfaction;
− First in wealth for platform satisfaction; and
• We are an employer of choice for gender equality, with women in 44% of management roles.
Technology
We apply world-class technologies to meet the ever-evolving needs of our customers
and our people.
• Our real-time core banking system makes us one of the first banks in the world – and the first
bank in Australia – to go real-time;
• We have the #1 free financial app in Australia, with 30 million logons a week;
• We have 6.2 million active online customers;
• Our customers can open a new savings or transaction account online in less than 3 minutes;
• We use our extensive data and analytics capabilities to enhance the customer experience; and
• We have made significant investments in cyber security to protect our customers’ financial
interests.
Productivity
We continuously simplify and standardise the way we do things, to achieve better
outcomes for our customers and our people and to give us the ability to invest in the
future.
• Our cost-to-income ratio was 41.8% on an underlying basis, reflecting our focus on cost
management and efficiency;
• We consistently invest in productivity and growth initiatives, with $681 million invested in the
financial year; and
• We are improving customer convenience and reducing our cost to serve by providing more
self-service options.
Financial
strength
Our strength lies in our consistent performance, deep expertise in financial and risk
management, and long-term operational stability. That’s why people, businesses and
communities trust us to look after their financial wellbeing.
• We are Australia’s largest company by market capitalisation, with total assets of $976 billion;
• We have over 800,000 shareholders, and have paid out on average 76% of annual profits
as dividends since 2001;
• Common Equity Tier 1 ratio 10.1% APRA basis, 15.6% international basis;
• 67% deposit funded; and
• Solid credit ratings: AA- / Aa3 / AA- (S&P, Moody’s and Fitch).
Commonwealth Bank of AustraliaAnnual Report 2017Financial report6 Our businessPerformance overview 21Corporate responsibility3 Corporate governance4Directors’ report5Other information7 14
Our strategy
continued
Customer focus
Our ongoing commitment to enhance financial
wellbeing, provide exceptional service, and deliver iconic
experiences remains the heart of our strategy. We strive
to meet our customers’ needs by providing solutions
they value and trust.
Making banking simple
With the consistent application of
simple and innovative technology
and services, we are making
banking fast, easy, and secure,
no matter how customers choose
to bank with us.
Delivering unique digital
experiences
• The CommBank app and NetBank
are continuing to evolve, with
customers experiencing many first-
to-market innovations that make
banking with us easier. From opening
accounts on the go, and getting
instant receipts when they make
a payment, we are delivering an
engaging and simple experience for
customers wherever, and however
they choose to bank;
• Bankwest launched real-time
mortgage application tracking, which
allows customers to track home loan
applications from lodgement through
to the first repayment. This includes
proactive customer notifications
about changes to the status of loan
applications; and
• ASB launched a new mobile-first
digital banking experience, making
use of real-time information and
advanced personalisation capabilities
for our customers in New Zealand.
Making share trading more
accessible
Our leading online broking service,
CommSec, has made it easier and
more affordable to trade shares,
with the cost of trades under $1,000
now halved to $10. We also provide
free tutorials, teaching the basics of
selecting and managing investments,
and the benefits of investment quality
and diversification.
Enabling Agribusinesses to grow
Our agribusiness customers trust us to continually support
them as their businesses go through change. Our Agribusiness
Relationship Executives are valued for the industry expertise
and ideas they provide, helping customers simplify operations,
boost productivity, and grow their businesses.
15
Making retirement easy
We made understanding retirement
easier for our customers, with the
launch of new superannuation
statements that offer more personalised
and action-oriented content. We also
refreshed FirstNet, our secure online
and mobile service, to ensure our
customers can access investment
information and statements when
they need it.
Providing new self-service options
for businesses
We launched the BetterBusiness Loan
online redraw facility, enabling our
business customers to redraw funds
whenever, and wherever they choose.
Our customers have embraced the
capability, with more than 85% of
redraws now being completed online.
We also launched online facilities for
the Market Rate Loan product, allowing
business customers to manage their
finances digitally, and transact with
convenience.
Offering self-service banking in
emerging markets
With our South African fintech company,
TYME, and our new self-service
kiosks, we are addressing the needs
of communities in emerging markets
by creating low-cost access to basic
financial services. Customers can now
securely open an account and begin
transferring money within four minutes.
Providing personalised
guidance
Every day, our dedicated specialists
help guide our customers to make
the right decisions to enhance their
financial futures. The improvements
we have implemented are making
each conversation more meaningful
and personalised.
Revising our approach to quality
conversations
We seek a deeper understanding of
our customers’ goals through Financial
Health Checks (FHCs) that help us
better identify and meet their needs.
We provided over 1.7 million free FHCs
to customers during the year, and our
enhanced conversation tools provide us
with information to help more customers
achieve their financial goals.
We provided over
1.7 million free Financial
Health Checks to
customers during
the year.
Having more relevant interactions
Our new customer data analysis system
(the Customer Engagement Engine)
helps us understand our customers,
supporting us to have over 10 million
meaningful and relevant interactions.
The more we understand our
customers, the better we can help them
meet their financial goals.
Giving Australian businesses access
to analytics to enhance their success
In April 2017 we released Daily IQ 2.0, a
world-leading business insights toolkit,
which provides business clients with
customised insights to enhance their
success. Daily IQ enables our clients
to identify opportunities to optimise
their cash flow, compare their key
performance metrics to their industry,
identify business risks and discover
more about their customers, including
demographics, customer loyalty and
spending patterns.
Designing new toolkits for financial
advisors
In 2017 we made the shift to objectives
based financial planning, which focuses
on our customer’s lifestyle aspirations.
We help our customers achieve their
personal objectives, with goals that can
be tracked and adjusted over time.
Innovating for our agribusiness
customers
In partnership with software developer
Figured, we are bringing farmers,
accountants, advisors and our bankers
together for a more collaborative
approach to agricultural financial
management. Our pilot with agribusiness
clients is trialling the use of industry-
specific, cloud-based accounting
software. With richer and more up-to-
date data that is shared by all parties,
we are helping farmers plan ahead in the
face of uncertainty, to respond quickly
when conditions change.
The home buying
experience
We deliver home buying
experiences that help
Australians achieve their
property dream. Customers value
us for the expertise, support and
personalised guidance we offer
them through every step of their
home buying journey.
Delivering service
excellence
We strive to make our customers
the centre of everything that we
do, by delivering excellent service,
and making them feel recognised,
respected and valued with each
interaction.
Our customers trust us to do the right
thing by them, ensuring their money,
personal information and privacy are
always safe.
Protecting customer information
We are constantly upgrading our
customer-facing and back-end
technology platforms to ensure our
customers’ information remains safe.
During the year we officially launched
the Cyber Security Centre, a global, next
generation cyber defence capability,
to defend the Group through the
detection, prevention and management
of sophisticated cyber threats.
Commonwealth Bank of AustraliaAnnual Report 2017Financial report6 Our businessPerformance overview 21Corporate responsibility3 Corporate governance4Directors’ report5Other information7 16
Our strategy
continued
Recognition of our efforts in
delivering exceptional service
Our efforts to deliver exceptional
customer service were consistently
recognised over the financial year:
• We ranked first or equal first among
the major banks for retail customer
satisfaction, a position we’ve held for
11 out of the past 12 months;
• We were also number one for internet
banking, and maintained first or equal
first position for business customer
satisfaction in most key segments;
• We were first in wealth for overall
adviser satisfaction. Commonwealth
Financial Planning was also
recognised for exceptional service,
receiving the CoreData/Professional
Planner Institutionally Branded
Licensee Award for 2017;
We make
tracking and
paying bills
easy
New features in the
CommBank App and
NetBank mean our
customers can easily
capture bills and automate
payments, giving them greater
visibility, flexibility, and control.
Great customer experiences
with the power of Albert
Utilising Albert across their 72-strong fleet of commuter and
leisure vessels, SeaLink can now do everything with the one
device – ticket selection, printing and payments. SeaLink
customers receive a better, more flexible experience, leading
to greater customer satisfaction.
• Our prioritised and continued
Strengthening our accountability
focus on clients led our Institutional
Banking & Markets division to
achieve leading positions for overall
satisfaction, industry analysis, and
creative ideas and solutions, in a
survey by Peter Lee Associates; and
• In the KangaNews Fixed-Income
Research Poll 2017, institutional
investors confirmed we provide the
best overall fixed-income research,
and ranked first in nine out of eleven
categories overall, highlighting the
value our unique insights and depth of
expertise brings to our clients.
• Colonial First State Global Asset
Management achieved A+ ratings
in five of eight categories in the
Responsible Investment Association
Australasia’s 2016 benchmark of
investment managers. We were
also awarded the ‘Best Responsible
Investor, Asset Manager’ at the 2016
Asia Asset Management Best of the
Best Awards; and
• Our Indonesian subsidiary, PT Bank
Commonwealth, was recognized as
the ‘The Best Reputation’ bank and
‘The Most Reliable’ bank for joint
venture category at the Indonesia
Best Banking Brand Award 2016,
held by Warta Ekonomi Magazine.
In August 2016 we established an
independent Customer Advocate
function, to champion fairness for all
customers and provide independent
complaint reviews. Specialising in
helping those who are disadvantaged
or face challenging circumstances,
the Advocate’s work to date includes:
i) research and analysis to improve
outcomes for customers in vulnerable
situations, ii) community engagement,
and iii) improving product design
and distribution, and remediation
processes.
1
2
3
We ranked first or equal first
among the major banks for retail
customer satisfaction for 11 out
of the past 12 months.
1
We also ranked first or equal first
for business customer
satisfaction in all key segments,
and FirstChoice was ranked number
one for overall satisfaction
by financial advisers.
17
People
Our people are an
important asset to
us and are essential
to secure the trust of
our stakeholders at all
times. We strive to be an
employer of choice, and
are fully committed to
improving the diversity
and safety of our people.
Our vision recognises the important
role that we have in the economies
and communities in which we
operate. To achieve our vision we
must earn and retain the trust of our
stakeholders, which relies on our
honesty, capabilities and genuine
concern for their financial wellbeing.
Our values, and the common
principles set out in ‘Our
Commitments’, form the framework
that guides our people’s conduct,
decisions and actions. Embracing
these standards enables all of our
people to enhance our stakeholder’s
trust, and live up to our vision.
Commitment to our people
initiatives
We continue to make progress on
initiatives that will positively impact
our people, and the customers,
businesses and communities that we
serve. Our focus in these areas has
meant that:
40% of our people come from
a cultural background other than
Australian
44% of management roles are
held by women
39.1 hours of training on average
per employee
Our People Capabilities
Our People Capabilities are the skills that support our people in their
development, to help them reach their full potential.
Customer focus
Creating value in each
customer interaction
and focusing on
the total customer
experience.
Team and culture
Inspiring others to
demonstrate the
Group’s values and
working together to
create a passionate,
high performing culture.
Continuous
improvement
Continuously improving
and innovating what we do
to make things simple and
easy for our customers
and each other.
Effective
communication
Communicating clearly
and with impact to
ensure understanding,
engagement and
commitment to action.
Judgement
Making sound
decisions based
on understanding
business, analysing
data and applying
common sense.
Drive results
Initiating action
and committing to
achieving business
outcomes by taking
accountability for
goals.
Recognised as an employer
of choice
Providing greater workplace
flexibility
To support our people’s need for
greater flexibility, our iCAN Flex
approach ensures we are able to
accommodate the diverse needs of
employees, so they can be mobile,
agile and accessible, whilst focusing
on what is important to them. In the
financial year, 69% of our workforce
worked flexibly.
Creating indigenous opportunities
We provide career opportunities for
Aboriginal and Torres Strait Islander
people, including school-based
traineeships, university student
internships and partnerships with
community groups. During the year we
recruited 54 Aboriginal or Torres Strait
Islander people into direct employment
placements, taking Indigenous
employment to 0.8% of our workforce.
We have implemented a range of
policies and programs that have laid the
foundations for an inclusive workplace,
making significant progress by ensuring
diversity and inclusion is part of our
approach to talent practices, and by
encouraging our people to develop and
lead diversity and inclusion initiatives. As
a result, we received the 2016 Employer
of Choice for Gender Equality citation by
the Workplace Gender Equality Agency.
Commonwealth Bank and Bankwest
were also named Gold employers in
the Australian Workplace Equality Index
Awards, recognising our efforts to
include employees identifying as LGBTI.
ASB also received the ‘MBIE Diversity
Leadership Award’ for its efforts by
Deloitte in December 2016.
Enhancing our performance review
process
Our performance review process
has been enhanced to recognise our
employees delivering on our vision.
We have incorporated an assessment
of how we demonstrate our values,
manage risk in our roles and measure
achievement using a balanced
performance scorecard. We provide
our people with guidance and clear
expectations on what living our values
means, and encourage regular coaching
conversations throughout the year to
support their achievements, behaviours,
development and career aspirations.
Commonwealth Bank of AustraliaAnnual Report 2017Financial report6 Our businessPerformance overview 21Corporate responsibility3 Corporate governance4Directors’ report5Other information7 18
Our strategy
continued
Through the financial year, we invested
in our technology to create new ways
for our customers to interact with us,
generate efficiencies, and protect
ourselves and stakeholders from risk.
Investing in the next generation
of banking
In partnership with 40 global banks,
we have continued our investment
in R3, a US-based technology
company leading the world’s largest
financial institutions in research and
development into distributed ledger
technology. It promises to help cut
costs, keep things secure, and improve
the customer experience, while
supporting a robust, safe and trusted
financial services system.
Technology
We continue to focus on
the use of technology
for the benefit of our
customers, communities
and our people, delivering
what matters to provide
the best value.
Bringing innovation to life
Our Innovation Labs have been working alongside clients,
technology companies and universities to turn ideas into
innovative solutions and providing industry thought leadership.
We were awarded ‘Best Innovation Centre by Financial Institutions in
Australia’ under The Asian Banker Annual Technology Innovation Awards
Program 2017.
Building sophisticated analytics
for tomorrow
We have built a sophisticated analytics
and big data capability, to deliver more
customer value and support better risk
management. We also appointed a
Chief Analytics Officer to oversee the
development of our information and
analytics capability.
Supporting the development
of leading-edge technologies
We have investigated over 39 use
cases for blockchain technology with
our partners since 2016. In the financial
year we launched a cyber security
engineering lab, and created new PhD
scholarships in partnership with the
University of New South Wales, to uplift
the number of cyber security graduates
and professionals in Australia.
We have also collaborated with leading
universities on a number of research
initiatives, to develop:
• The world’s first silicon-based
quantum computer with the
University of New South Wales;
• Predictive machine learning to
understand and predict customer
behaviour, with the University of
Technology, Sydney; and
• New ways to enhance our
customers’ financial wellbeing with
Harvard University’s STAR Lab.
Leading with world-class data
management
We invested in our data management
technology to ensure that our customer
information is secure, that services
such as NetBank are continuously
available, and that we continue to
meet our customers’ future needs and
expectations. Our recent data centre
modernisation has led to greater levels
of security, efficiency and a reduced
environmental footprint.
19
Innovation in digital banking
services
A number of standout features were
delivered across our digital ecosystem
through the financial year:
• Camera Pay, Photo-a-bill, Instant
Receipts, and Spend Tracker
were all made available on the
CommBank app;
• Youth app – helping children under
14 learn how to earn, save and
spend money responsibly, with
simple controls for parents in the
CommBank app;
• Skype a Lender – an Australian first,
customers can chat face to face with
expert lenders from a smartphone,
computer or tablet; and
• Clever Kash, ASB’s digital moneybox
for children, won the Canstar
‘Innovation Excellence Award’
in 2017.
Expanding our innovation network
Facilitating new trade flows
We extended our Innovation Labs
outside of our existing network of
Sydney and Hong Kong, and opened
our doors in London. The Labs provide
a home for collaboration with our
business customers, partners, and
researchers, leveraging our innovation
assets to rapidly explore ideas, solve
problems, and develop innovative
products and services.
Building Australia’s technology
ecosystem
We invested in Australia’s Internet of
Things (IoT) ecosystem. In October,
we were the main sponsor for the
Everything IoT Global Leadership
Summit, a conference that hosted 500
industry, government, universities and
entrepreneurial attendees.
Promoting national cyber resilience
We continue to support efforts to make
the Australian digital economy safer
and more resilient. During the year we
participated in the Prime Minister’s
cyber security roundtable and continue
to be an active advisor to government.
We were also a founding participant
and steering committee member of the
Government’s inaugural Joint Cyber
Security Centre, launched in Brisbane
in 2017.
We partnered with Wells Fargo and
Brighann Cotton to successfully
complete the first trade smart contract
between two independent banks,
combining the emerging technologies
of blockchain, smart contracts and
Internet of Things.
Partnering with leading technology
providers
We recently partnered with Alipay,
the world’s largest mobile and online
payment platform, to deliver payment
solutions that benefit Australian and
Chinese consumers and retailers.
This will give inbound Chinese travellers
frictionless payment experiences.
We have also piloted a new way for
our customers to securely verify their
identity and enhance their digital
reputation on AirTasker, adding a
‘CommBank Identified’ badge to user’s
profiles once their details have been
authenticated.
Hosting technology hackathons
During the year we ran hackathons with
Australian universities, our partners,
and local communities to test and
learn Quantum Computing simulator
technologies, and to design innovative
customer solutions for real agribusiness
challenges. Participants from across
industries and the community were
mentored by our experts, and received
innovation masterclasses to design,
validate, prototype and pitch their ideas.
Australia’s leading technology bank
#1
#1
#1
#1
#1
Online banking,
8 years in a row
Mobile banking,
2 years in a row
Internet banking
(NetBank)
6.2 million of our customers
use digital channels to bank with us
54% of all transactions by value
occur digitally
29,000 video conferencing and
‘Skype a Lender’ discussions
Business banking
platform (CommBiz)
85,000 Albert devices have
been rolled out
Best feature packed
broker (CommSec),
10 years in a row
150,000 pension customers are
able to view their new statements
online with enhanced security
Source: Canstar, Finder Innovation, Peter Lee Associates, Money Magazine
Commonwealth Bank of AustraliaAnnual Report 2017Financial report6 Our businessPerformance overview 21Corporate responsibility3 Corporate governance4Directors’ report5Other information7
20
Our strategy
continued
Financial
strength
Our expertise in financial
and risk management
ensures we continue
to support individuals,
businesses, our
shareholders, and the
communities in which
we operate.
We strive to build and defend a strong
and dependable franchise, and closely
manage the business for superior
financial and operational outcomes.
As at 30 June 2017 we are the largest
company on the Australian Securities
Exchange (ASX), and are listed on the
MSCI ACWI Index.
Our financial strength
We aim to provide shareholders with
stable returns, which are achieved
through a resilient balance sheet
and rigorous management of capital,
funding and liquidity levels. As one
of Australia’s largest employers and
corporate taxpayers, and with more
than 800,000 shareholders who directly
own Commonwealth Bank shares,
and the millions more who own shares
through superannuation funds, we are
proud of the contribution we make to
the Australian economy.
Productivity
Productivity remains
critical to our long-term
success. We constantly
analyse our businesses,
to unlock efficiencies,
and find new ways to
reduce turnaround times,
minimise errors, and
lower unit costs.
Delivering end-to-end digital
property settlement experiences
We were the first bank to integrate
with the Property Exchange Australia
(PEXA) settlement platform, giving our
customers the certainty of completing
property settlements digitally, and
removing the need for bank cheques.
Commonwealth Bank and Bankwest
now process over 25% of settlements
through PEXA, with over $15 billion of
property transactions completed on
the platform to date.
Innovating with efficiency
We have developed a more cost
efficient way to innovate through
the CommBank Labs app. The app
is a place where our people’s ideas
can come to life, where customers
can try new features and share their
experiences with us. Having our
customers collaborate with us in an
efficient and engaging way means
we can shape the future of
banking together.
Embedding agile ways of working
In striving to deliver products and
services that matter most for our
customers, we are increasing the
adoption of agile ways of working
across our businesses. During the year
we introduced a new agile delivery
framework, which is enabling our
teams to drive greater business speed
and innovation.
Recognition for productivity
excellence
• We accepted the CEO of the Year
Award at the 12th annual Process
Excellence Week conference, by the
International Quality and Productivity
Centre in July 2016. This is the
second time in 12 years the award
has been presented to a bank;
• We were awarded the ‘Platinum
Award of Excellence in Facilities
Management’ by Global Facilities
Management; and
• Our efforts to improve efficiency in
our Indonesian subsidiary PT Bank
Commonwealth, were rewarded
when we were named ‘The Most
Efficient Bank’ for the category
of banks in BUKU 2, at the Bisnis
Indonesia Banking Award 2016 in
October 2016.
2%
underlying expense growth
in FY17
41.8%
cost-to-income ratio
down 60 bps on an underlying
basis, through a focus on
efficiency and cost management
53%
of our investment spend
was on productivity and growth
initiatives
21
Our competitive advantages are
complementary to sustaining this
performance, and include:
• One in every two retail trades are
completed through CommSec
(non-advised); and
Our franchise
We have a strong franchise that
supports the largest customer base in
the Australian financial services sector,
with leading market share in many
segments. We:
• Support 13.8 million customers in
Australia;
• Are the Main Financial Institution for
one in three Australians;
• Have the largest market share of
earlier stage segments in Australia,
including youth, young adults and
migrants, and the largest share of the
Australian home loan market; and
• Meet an average of over three retail
product needs per customer, a
leading position amongst our peer
group.
Our brands
With some of Australia’s most
recognised and valued brands, we
are consistently the organisation that
customers and communities turn to as
their bank of choice. Our collection of
brands have helped identify us for over
100 years, reinforcing our position in
ensuring individuals and businesses
can meet their goals, now and into
the future.
• The Commonwealth Bank is
Australia’s most valuable banking
brand, according to the BrandZ Top
100 Most Valuable Global Brands
2017 rankings. Globally, we ranked
60th most valuable across all
industries;
• Bankwest was named ‘Bank of the
Year’ in Money Magazine’s annual
Consumer Finance Awards;
• Colonial First State is trusted with
over $100bn of Australia’s savings
and investments, and FirstChoice
was recognised as Australia’s most
popular investment platform;
• One in every four new
Commonwealth Bank home loan
customers are insured through
CommInsure.
Our distribution capabilities
We operate the largest financial
services distribution network in
Australia, supporting millions of
customers whenever, wherever and
however they wish to interact with us.
With award-winning digital offerings,
we also have the largest physical
distribution network in Australia.
• We have 1,121 branches, and 4,398
ATMs in Australia. We also operate
123 branches and 427 ATMs in
New Zealand (through ASB), and
106 branches and 166 ATMs
elsewhere in the world;
• We support Australian businesses
and institutions across Australia,
leveraging our relationship excellence
and leading products and services;
and
• Our shift to the digital revolution has
meant NetBank and the CommBank
App now handles 54% of total
transactions by value.
Our information and analytical
capabilities
Our unique position enables us to
employ a wide range of information
management and data analytics
capabilities to develop insights that
empower our customers.
• Our real-time information capability,
developed under the Core Banking
Modernisation program, continues
to deliver tangible benefits for our
customers;
• As Australia’s largest financial
services provider, in order to make
sense of our extensive data assets,
we employ dedicated data engineers
and scientists who continuously help
improve customer experiences and
business performance;
We operate
Australia’s largest
financial services
distribution network.
• The Customer Engagement Engine
looks at over 15 million customer
interactions a day across channels,
ensuring we remain highly responsive
to our customers’ needs, and each
week, we generate over 100,000
unique insights; and
• Over 230,000 NetBank and
CommBiz users have 24/7 access to
insights about their business through
Daily IQ.
Our risk management
We constantly monitor our environment
to assess the risks in our businesses,
and use our expertise to manage these
risks and prepare for the potential
impacts on our stakeholders.
Our approach to risk management
seeks to balance risk, returns and
growth for the benefit of our customers
and stakeholders, by:
• Establishing frameworks to
manage material risk types, which
are consistent with our business
objectives and responsibilities to
customers and stakeholders;
• Optimising risk and return outcomes
within our risk appetite, as approved
by the Board;
• Assessing the impact of proposed
changes to laws, regulations and
industry codes; and
• Reporting risks to the Board, Risk
and Audit Committees, the Executive
Committee and within each of our
business areas.
Commonwealth Bank of AustraliaAnnual Report 2017Financial report6 Our businessPerformance overview 21Corporate responsibility3 Corporate governance4Directors’ report5Other information7 22
Business risks
This section describes the risks that could materially impact our
ability to serve our customers and/or deliver our strategy, and
the actions we are taking to mitigate these risks. These risks are
not listed in order of materiality and the section should be read
in conjunction with the Notes to the Financial Statements relevant
to Risk Management.
Competition
and industry
disruption
Business
resilience
The risk and its impact
Meeting customer needs with
innovative solutions and superior
experiences is critical to maintaining
high-quality relationships with our
customers.
As customer expectations
continue to evolve, competitors are
finding alternative ways to deliver
financial services, and emerging
technologies present new sources
of competitive advantage. A failure
to recognise and adapt to changing
competitive forces in a timely
manner could erode our earnings
and our market position over the
long term.
The risk and its impact
The resilience and continuity of our
operations is critical to providing
our customers with the products,
services and experiences that
they expect.
Events driven by our external
environment, including cyber-
attacks, extreme weather
conditions, natural disasters, war,
political instability, pandemics or
critical failures with our third-party
suppliers can significantly disrupt
the systems and processes that
enable us to serve and protect our
customers. Such disruptions can
affect our trusted relationships with
customers, our reputation, and our
operating costs.
How we are responding
• We actively monitor changes in customer preferences, products,
technologies and distribution channels and continuously improve
customer experiences with market leading innovation.
• We invest in people and key areas of technology capability that
are critical to our value proposition to customers, including
cyber-security, digital channels, data and analytics.
• We are investing in emerging technologies such as Quantum
Computing, Blockchain, and Artificial Intelligence to ensure
that the way we operate and the solutions we provide to our
customers are industry leading.
• We invest in productivity to optimise our cost base and continue
to remain competitive for our customers.
How we are responding
• We monitor the health of all systems and perform contingency
planning for disruptions to critical systems and processes.
• We are implementing a number of process and system
simplification initiatives through investments in agile capability,
automation and systems resilience.
• We are investing in our technology, processes and people
capabilities to mitigate the impact of cyber-security risks on
our businesses and customers.
• Group policies and standards on supplier governance, selection
and management and on outsourcing/offshoring are applied to
mitigate the risk and impact of third-party disruptions.
• We are improving partnership arrangements to drive greater
alignment between our business and technology partners to
ensure we remain agile in the face of change.
23
Data
management
10101010010101
00010101010100
People
capability
Housing
market
The risk and its impact
As Australia’s largest financial
institution, we manage a significant
volume of sensitive customer data
and value the trusted relationship
we have with our customers.
As technology continues to evolve,
the threat of cyber-attacks is
becoming more sophisticated and
greater numbers of third-parties
seek to access our customers’ data
and remove it from the safety of our
systems and firewalls. A failure to
ensure this information is kept safe
and used in a way that regulators
and customers expect, may
significantly impact relationships
with these stakeholders and the
broader community.
The risk and its impact
Our people are critical to
the success of our strategy
and ensuring we are able to
continuously find better ways to
operate and meet customer needs.
A shortage of key skills, a failure
to help our people continuously
update their capabilities, the
emergence of new technologies,
and/or a fall in our attractiveness
relative to other leading employers,
could impact our ability to deliver
on our strategy and vision.
The risk and its impact
The domestic mortgage market is
a key focus area for our business,
and we continue to maintain a high-
quality portfolio.
As the largest home loan provider
in Australia we are exposed to
changes in the home lending
market and in house prices. A
significant or sustained downturn
in the housing market could result
in a material increase in mortgage
defaults.
How we are responding
• We have, and continue to invest significantly in our data, analytics
and cyber-security capabilities to better meet evolving customer
needs and expectations, and to reduce the potential for data
breaches.
• We actively engage with regulators to ensure that there is
appropriate governance in place and that evolution in regulation
appropriately balances the value of giving customers control
of their data, with our duty to protect customers’ privacy and
security.
• We continuously invest in IT system security and identity and
access management controls to secure the confidentiality,
integrity and availability of our data.
• Our people undergo mandatory training modules to ensure they
understand the importance of data security and their obligations
in relation to the data they have access to.
How we are responding
• We are investing in our value proposition as an employer, through
new ways of working (including flexibility and mobility), competitive
benefits and a focus on culture and diversity.
• We focus on developing and retaining our people, including
senior management, through targeted training programs and skill
upgrading.
• We are creating flexible and innovative workspaces to enable
stronger collaboration and foster an innovative culture.
• We are building partnerships with leading universities to further
develop top talent and are investing in community awareness of
potential future skills shortages such as mathematics.
• We are assessing how new technologies will impact the future
workforce for the Australian economy and our businesses. We are
building these changes into our long-term people development
and capability roadmaps.
How we are responding
• Our trusted brand and balance sheet strength provide a buffer in
times of economic stress and uncertainty. We are strong in the
measures of capital, funding and liquidity which enables us to
continue to lend to our customers.
• We closely manage the credit quality of our home loan portfolio
at origination and on an ongoing basis. As a responsible lender,
loan serviceability is important and we apply strong criteria
when providing home loans. We constantly review and monitor
our lending standards to ensure we maintain prudent lending
practices and continue to meet our customers’ financial needs
now and in the future.
• We invest in our risk management capabilities and closely monitor
market conditions and competitive dynamics.
• We undertake regular stress tests to ensure that we understand
the dynamics of the retail home loan portfolio and how we would
expect it to perform under a range of scenarios.
• Our growth in other lines of business are sources of diversification
to earnings and risk exposures from our retail home loan portfolio.
Commonwealth Bank of AustraliaAnnual Report 2017Financial report6 Our businessPerformance overview 21Corporate responsibility3 Corporate governance4Directors’ report5Other information7 24
Business risks
continued
Regulatory
and policy
environment
Climate
change
Reputation
The risk and its impact
Regulatory compliance and
involvement in evolving policy
discussions are critical to how we
continue to run our business, and
interact with customers.
The banking industry remains
subject to ongoing regulatory and
policy changes.
If we are unable to foresee,
advocate for, plan for, and adapt
to regulatory change, this could
negatively impact our ability to
serve customers, and/or our
earnings.
The risk and its impact
We actively consider the
environmental impacts of our
activities and are committed to
operating sustainably and making
a positive contribution beyond our
core businesses.
We consider climate change to
be a significant long term driver
of both financial and non-financial
risks. Addressing that risk is core
to our business strategy as climate
change has the potential to impact
our relationships with customers
as they adjust their preferences
and behaviours, our systems and
processes, our costs, and the value
of our loans to affected industries.
How we are responding
• We allocate a material proportion of our investment budget to
regulatory compliance and risk prevention initiatives, and engage
with policy makers and communities to advocate for appropriate
regulatory reform.
• We maintain constructive and proactive relationships with
key regulators.
How we are responding
• Under our Corporate Responsibility programs and initiatives,
we take a long term view to ensure that we do business in a
sustainable and efficient way, and appropriately use our influence
to enhance environmental outcomes.
• We have implemented frameworks for considering Environmental,
Social and Governance (ESG) issues in assessing our
relationships with customers and suppliers. We continue to track
our progress against a range of ESG commitments.
• Our Group Environment Policy outlines our objectives of
safeguarding the environment, whilst supporting economic growth
and development.
• Our Climate Policy Position Statement outlines our commitment
to playing our part in limiting climate change to well below two
degrees in line with the Paris Agreement and how we will support
the responsible global transition to net zero emissions by 2050.
We are undertaking a scenario analysis to inform our long term
climate strategy across our lending, investing, insuring and
procuring activities.
• We are reducing our own direct impact by monitoring and
reducing greenhouse gas emissions and energy use through our
Sustainable Property Strategy.
The risk and its impact
Our reputation is of critical
importance to us and is directly
related to how we run our
businesses, make decisions,
and communicate with customers
and the communities in which
we operate.
A negative shift in any stakeholder’s
perception of the Group may
materially undermine our ability to
advocate for positive outcomes
that align to our vision and values,
and our ability to drive long-term
performance. It may also affect
the cost and availability of funding
necessary for the sustainable
management of our business.
How we are responding
• We actively focus on improving the transparency of our business
decisions and engage with our customers, employees and the
communities in which we operate to understand their concerns
and balance their needs.
• We have embedded the ‘Our Commitments’ framework, which
communicates what we expect of our people in applying our
vision and values as a guide for business management and
decision-making.
• We continue to drive deeper engagement with customers,
government and industry groups to ensure we deliver better and
consistently fair outcomes, and remediate issues when we are
made aware of them.
• We engage with external rating agencies to assist them in forming
an opinion on our general creditworthiness, with mechanisms to
adjust business settings as appropriate.
Performance overview
25
25
Our businessPerformance overview Corporate responsibility Corporate governanceDirectors’ reportOther informationCommonwealth Bank of AustraliaAnnual Report 2017Financial report6213457 26
Performance overview
Group Financial Performance
Statutory net profit after tax for the
year ended 30 June 2017 increased
8% on the prior year to $9,928 million.
Statutory return on equity was 16.1%
and statutory earnings per share was
577.6 cents, an increase of 7% on the
prior year.
We report our results on a statutory
and cash basis. The statutory basis is
prepared and audited in accordance
with the Corporation Act 2001 and
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
certain items listed on page 34 that
introduce volatility and/or one-off
distortions of the Group’s current
period performance.
Cash net profit after tax (“cash basis”)
increased 5% on the prior year to
$9,881 million.
The key components of our result were:
• Net interest income increased
4% to $17,600 million, reflecting 6%
growth in average interest earning
assets, partly offset by a three
basis point decrease in net interest
margin. Net interest margin excluding
Treasury and Markets decreased four
basis points to 2.09%;
• Other banking income increased
14% to $5,520 million, including
a $397 million gain on sale of the
Group’s remaining investment
in Visa Inc. Underlying income
increased 5% driven by strong
growth in fees and commissions;
• Loan impairment expense
decreased 13% to $1,095 million,
due to lower provisioning primarily
in Institutional Banking and Markets
and Business and Private Banking
partly offset by an increase
in Bankwest.
• Funds management income
increased 1% to $2,034 million,
including a 3% unfavourable impact
from the higher Australian dollar.
This reflects a 6% increase in
average Funds Under Administration
(FUA) and 4% increase in average
Assets Under Management (AUM),
partly offset by lower FUA and
AUM margins;
• Insurance income decreased 1%
to $786 million with higher claims
resulting in loss recognition of
$143 million, $78 million higher than
the prior year, partly offset by 1%
growth in average inforce premiums;
• Operating expenses increased
6% to $11,078 million, including a
$393 million one-off expense for
acceleration of amortisation on
certain software assets. Underlying
expense growth of 2% was driven
by staff, technology and investment
spend, partly offset by the continued
realisation of incremental benefits
from productivity initiatives; and
Dividends
This performance has allowed us to
declare a final dividend of $2.30 per
share, bringing the total dividend
for the year ended 30 June 2017 to
$4.29 per share, an increase of 9 cents
or 2% on the prior year. This represents
a dividend payout ratio (cash basis)
of 75%.
The final dividend payment will be
fully franked and will be paid on
29 September 2017 to owners of
ordinary shares at the close of business
on 17 August 2017 (record date).
Shares will be quoted ex-dividend
on 16 August 2017.
The dividend reinvestment plan will
continue to be offered to shareholders
and this period a 1.5% discount will be
applied to shares allocated under the
plan for the final dividend.
Group Net Profit after Tax
NPAT – Cash ($M)
8,680
7,760
6,835
7,039
9,127
9,445
9,881
Full Year Dividend History (cents per share)
DPS (cents)
Payout Ratio (“cash basis”)
401
364
320
334
420
420
429
73.2% 75.8% 75.9% 75.1% 75.2% 76.5% 75.0%
80%
Target
Range
70%
2011
2012
2013
2014
2015(1)
2016(1)
2017
2011
2012
2013
2014
2015(1)
2016(1)
2017
(1)
Comparative information has been restated to reflect the change in accounting policy detailed in Note 1 of the Financial Statements.
27
27
Full Year Ended (1)
FY17
$M
FY16
$M
Change
%
17,600
16,935
5,520
4,860
23,120
21,795
2,034
786
2,016
795
25,940
24,606
65
26,005
(11,078)
(1,095)
141
24,747
(10,434)
(1,256)
13,832
13,057
(3,927)
(3,592)
(24)
(20)
9,881
9,445
73
(26)
(199)
(23)
9,928
9,223
4
14
6
1
(1)
5
(54)
5
6
(13)
6
9
20
5
large
13
8
16.0
574.4
429
16.5
(50)bpts
554.8
420
4
2
Group Financial Performance
Net interest income
Other banking income (2)
Total banking income
Funds management income
Insurance income
Total operating income
Investment experience
Total income
Operating expenses (3)
Loan impairment expense
Net profit before tax
Corporate tax expense (4)
Non-controlling interests (5)
Net profit after tax (“cash basis”)
Hedging and IFRS volatility (6)
Other non-cash items (6)
Net profit after tax (“statutory basis”)
Return on equity (%) (7)
Earnings per share – basic (cents) (7)
Dividends per share (cents) (7)
(1)
Comparative information has been restated to reflect the change in accounting policy detailed in Note 1 of the Financial Statements.
(2) FY17 includes a $397 million gain on sale of the Group’s remaining investment in Visa Inc.
(3) FY17 includes a $393 million one-off expense for acceleration of amortisation on certain software assets.
(4)
For the purposes of presentation of Net profit after tax (“cash basis”), policyholder tax benefit/(expense) components of corporate tax expense are shown
on a net basis (30 June 2017: $32 million expense and 30 June 2016: $101 million expense).
(5) Non-controlling interests include preference dividends paid to holders of preference shares in ASB Capital Limited and ASB Capital No.2 Limited.
(6) Refer to page 34 for details.
(7) Ratios prepared on a cash basis.
Group Return on Equity
RoE – Cash (%)
19.5%
18.4% 18.2% 18.7% 18.2%
Earnings Per Share (cents per share)
EPS – Cash (cents)
16.5%
16.0%
438.7
444.7
556.9
554.8
574.4
532.7
482.1
2011
2012
2013
2014
2015(1)
2016(1)
2017
2011
2012
2013
2014
2015(1)
2016(1)
2017
(1)
Comparative information has been restated to reflect the change in accounting policy detailed in Note 1 of the Financial Statements.
Our businessPerformance overview Corporate responsibility Corporate governanceDirectors’ reportOther informationCommonwealth Bank of AustraliaAnnual Report 2017Financial report6213457
28
Performance overview
continued
Divisional Performance Summary
Full Year Ended (1) (“cash basis”)
Retail Banking Services
Business and Private Banking
Institutional Banking and Markets
Wealth Management
New Zealand
Bankwest
IFS and Other
Net profit after tax (“cash basis”)
Investment experience after tax
Net profit after tax (“underlying basis”)
FY17
$M
4,964
1,639
1,306
553
973
702
(256)
FY16
$M
4,540
1,522
1,190
612
881
778
(78)
9,881
9,445
(44)
(100)
9,837
9,345
Change
%
9
8
10
(10)
10
(10)
large
5
(56)
5
(1)
Comparative information has been restated to reflect refinements to the allocation of customer balances, revenue and expense methodology including
updated transfer pricing allocations, and changes in accounting policy detailed in Note 1 of the Financial Statements.
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.
Cash net profit after tax was
$4,964 million, an increase of 9%
on the prior year. This was driven by
strong growth in total banking income,
partly offset by higher expenses and
increased loan impairment expense.
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 our online
brokerage service, CommSec.
Cash net profit after tax was
$1,639 million, an increase of 8%
on the prior year. This was driven by
growth in total banking income and
lower loan impairment expense, partly
offset by higher expenses.
Institutional Banking and Markets
manages our global relationships with
corporate, government and institutional
clients, and provides financial services
solutions across financial and capital
markets, transaction banking, working
capital and risk management.
Cash net profit after tax was
$1,306 million, an increase of 10%
on the prior year. This was driven by
strong growth in deposit volumes,
active management of the lending
portfolio, lower losses from derivative
valuation adjustments, and lower loan
impairment expense.
Divisional Contribution to Group NPAT
Jun-17 Divisional NPAT – Cash ($M)
50%
Wealth Management encompasses
the Group’s funds management,
superannuation, insurance and financial
planning businesses, operating
under the brands of Colonial First
State, Colonial First State Global
Asset Management, CommInsure,
Commonwealth Financial Planning,
Financial Wisdom and Count. Colonial
First State administers more than
$146bn of FUA, Colonial First State
Global Asset Management manages
more than $219bn of AUM and
CommInsure manages more than
$2.3bn of inforce premiums.
Cash net profit after tax was
$553 million, a decrease of 10% on
the prior year. This was driven by lower
insurance income and lower investment
experience, partly offset by lower
operating expenses. Insurance income
declined 13%, with growth in general
insurance offset by a lower income
protection result in life insurance.
17%
13%
10%
7%
6%
RBS
BPB
IB&M Wealth
NZ
Bankwest
-3%
IFS &
Other
29
29
Divisional Performance
Summary (continued)
New Zealand includes the banking,
funds management and insurance
businesses operating in New Zealand
under the ASB and Sovereign brands.
Cash net profit after tax was
NZD1,069 million, an increase of 9%
on the prior year, driven by a strong
performance from ASB, partly offset
by lower profit in Sovereign.
Bankwest operates in the domestic
market, providing lending to retail,
business and rural customers as well as
a full range of deposit products. More
than half of Bankwest’s customers are
based in Western Australia.
Cash net profit after tax was
$702 million, a decrease of 10% on
the prior year. This result was driven
by a higher loan impairment expense
and a one-off cost for the integration
of Bankwest’s east coast business
banking operation into Business and
Private Banking, partly offset by higher
total banking income. Excluding the
one-off integration costs, underlying
cash net profit after tax decreased 7%.
IFS oversees our retail and business
banking operations in Indonesia, China,
Vietnam and India, as well as associate
investments in China and Vietnam,
life insurance operations in Indonesia
and a financial services technology
business in South Africa.
Cash net profit after tax was
$93 million, an increase of 79% on the
prior year, including a 35% decrease
from the higher Australian dollar. The
result was driven by lower operating
expenses and a one off tax benefit,
partly offset by lower operating income.
Other divisions includes the results
of Group support functions such as
Group Strategy, Marketing, Group
Corporate Affairs and Treasury, as well
as intra-group elimination entries arising
on consolidation.
Other divisions cash net profit after
tax reduced $219 million on the prior
year to a loss of $349 million. This was
primarily driven by a one-off expense
for acceleration of amortisation
on certain software assets, higher
corporate technology costs, an
increase in the centrally held loan
impairment provisions, and the timing
of recognition of unallocated revenue
items and eliminations, partly offset by
a gain on sale of the Group’s remaining
investment in Visa Inc.
Net Interest Income
Net interest income – “cash basis”
Average interest earning assets
Home loans (2)
Consumer Finance
Business and corporate loans
Total average lending interest earning assets
Non-lending interest earning assets
Total average interest earning assets
Net interest margin (%)
Net interest margin excluding Treasury and Markets (%)
Full Year Ended (1)
FY17
$M
FY16
$M
Change
%
17,600
16,935
435,448
409,669
23,518
23,722
221,188
211,356
680,154
644,747
154,587
145,849
834,741
790,596
4
6
(1)
5
5
6
6
2.11
2.09
2.14
2.13
(3)bpts
(4)bpts
(1)
(2)
Comparative information has been reclassified to conform to presentation in the current period.
Net of average mortgage offset balances. Gross average home loan balance, excluding mortgage offset account is $470,773 million (30 June 2016:
$436,530 million).
Net interest income increased 4% on
the prior year to $17,600 million. This
was driven by growth in average interest
earning assets of 6%, partly offset by
a three basis point decrease in net
interest margin.
Average Interest Earning Assets
Average interest earning assets
increased $44 billion on the prior year
to $835 billion, driven by:
• Home loan average balances
increased $26 billion or 6% on the
prior year to $435 billion. The growth
in home loan balances was largely
driven by domestic banking growth;
• Average balances for business
and corporate loans increased
$10 billion or 5% on the prior year
to $221 billion, driven by growth in
business banking lending balances;
and
• Average non-lending interest earning
assets increased $8 billion or 6% on
the prior year to $155 billion due to
higher liquid assets as a result of a
reduction in the Committed Liquidity
Facility (CLF).
Our businessPerformance overview Corporate responsibility Corporate governanceDirectors’ reportOther informationCommonwealth Bank of AustraliaAnnual Report 2017Financial report6213457
30
Performance overview
continued
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
impact on margin was flat as a result of
minimal change in the spread between
the cash rate and the bank bill swap
rate during the year.
Capital and Other: Decreased margin
of five basis points driven by the impact
of the falling cash rate environment on
free equity funding and a two basis
point reduction in the contribution
from New Zealand, partly offset by the
positive impact from higher capital.
Treasury and Markets: Increased
margin of one basis point driven by a
higher contribution from Treasury and
Markets, partly offset by increased
holdings of liquid assets.
Net Interest Income
(continued)
Net Interest Margin
Net interest margin decreased three
basis points on the prior year to 2.11%.
The key drivers of the movement were:
Asset pricing: Increased margin of
five basis points with the benefit from
home loan repricing, partly offset by
the impact of competition on home
and business lending.
Funding costs: Decreased margin
of four basis points reflecting an
increase in wholesale funding costs
due to lengthening the mix and tenor of
wholesale funding to assist the Group
in preparing for the Net Stable Funding
Ratio which applies from 1 January
2018. Deposit costs were flat with the
negative impact from the lower cash
rate, offset by repricing.
Portfolio mix: Flat with a
favourable change in funding mix
from proportionally higher levels
of transaction deposits, offset by
unfavourable change in lending mix.
NIM movement since June 2016 (1)
Group NIM (1)
Group NIM
Group NIM excluding Treasury and Markets
Group NIM
Group NIM excluding Treasury and Markets
2.14%
0.05% (0.04%)
–
–
(0.05%)
0.01%
2.11%
2.15%
2.14%
2.11%
2.13%
Group NIM excluding Treasury and Markets
decreased four basis points
2.09%
2.12%
2.13%
2.09%
Jun16
Asset
pricing
Funding
costs
Portfolio
mix
Basis
risk
Capital
and
Other
Treasury
and
Markets
Jun17
Jun 15
Jun 16
Jun 17
(1)
Comparative information has been reclassified to conform to presentation in the current period.
31
31
Other Banking Income
Commissions
Lending fees
Trading income
Other income (1)
Other banking income – “cash basis” (1)
(1)
FY17 includes a $397 million gain on sale of Group’s remaining investment in Visa Inc.
Full Year Ended
FY16
$M
2,215
1,010
1,087
548
4,860
Change
%
12
7
6
48
14
FY17
$M
2,482
1,078
1,149
811
5,520
Other banking income increased 14%
on the prior year to $5,520 million.
Excluding the one-off impact of a
gain on sale of the Group’s remaining
investment in Visa Inc., other banking
income increased 5%. The key
drivers were:
Commissions increased 12% on
the prior year to $2,482 million due to
higher consumer finance income driven
by higher purchases and lower loyalty
costs, and volume driven deposit
fee income;
Lending fees increased 7% on the prior
year to $1,078 million with volume driven
growth, partly offset by lower Institutional
fees due to competitive pressures;
Net Trading Income ($M)
Sales
Trading
Derivative valuation adjustment
Trading income increased 6% on
the prior year to $1,149 million driven
by favourable derivative valuation
adjustments, partly offset by lower
Markets sales; and
Other income increased 48% on the
prior year to $811 million, driven by a
gain on sale of the Group’s remaining
investment in Visa Inc., partly offset by
a higher realised loss on the hedge of
New Zealand earnings.
1,087
378
1,149
11
404
1,039
424
654
783
734
(39)
Jun 15
(74)
Jun 16
Jun 17
Funds Management Income
Full Year Ended
Colonial First State (CFS) (1)
CFS Global Asset Management (CFSGAM)
CommInsure
New Zealand
Other
FY17
$M
928
837
121
92
56
FY16
$M
929
842
120
80
45
Funds management income – “cash basis”
2,034
2,016
(1)
Colonial First State incorporates the results of all Wealth Management Financial Planning businesses.
Change
%
–
(1)
1
15
24
1
Funds management income increased
1% on the prior year to $2,034 million,
driven by:
• A 6% increase in average FUA
reflecting strong investment markets
across the Australian and New
Zealand businesses and positive net
flows in Australia; and
• A 4% increase in average AUM as a
result of positive net flows and strong
investment markets in the Australian
and New Zealand businesses; partly
offset by
• A 3% unfavourable impact from the
higher Australian dollar;
• A decline in FUA margins as a result
of increased customer remediation
costs in CFS Advice; and
• A decline in AUM margins as a result
of a change in investment mix in the
Australian business.
Our businessPerformance overview Corporate responsibility Corporate governanceDirectors’ reportOther informationCommonwealth Bank of AustraliaAnnual Report 2017Financial report6213457
32
Performance overview
continued
Insurance Income
CommInsure
New Zealand
IFS
Other
Insurance income – “cash basis”
Full Year Ended
FY16
$M
502
242
46
5
795
Change
%
(13)
15
9
large
(1)
FY17
$M
438
278
50
20
786
Insurance income decreased 1% on the
prior year to $786 million, driven by:
• Higher premiums in New Zealand
and IFS;
• A decline in CommInsure Retail life
income due to higher claims resulting
in loss recognition of $143 million in
income protection during the year, an
increase of $78 million on the prior
year; partly offset by
• Lower claims in IFS and CommInsure
Wholesale life; and
• A 1% increase in average inforce
premiums.
Operating Expenses
Staff expenses (1)
Occupancy and equipment expenses
Information technology services expenses (2)
Other expenses
Full Year Ended
FY17
$M
6,268
1,139
1,941
1,730
FY16
$M
6,169
1,134
1,485
1,646
Operating expenses – “cash basis” (2)
11,078
10,434
Change
%
2
–
31
5
6
Operating expenses to total operating income (%) (1) (3)
Banking expenses to total banking income (%) (3)
42.7
39.4
42.4
38.2
30 bpts
120 bpts
(1)
(2)
(3)
Comparative information has been restated to reflect the change in accounting policy detailed in Note 1 of the Financial Statements.
The current year includes a $393 million one-off expense for acceleration of amortisation on certain software assets.
Excluding a $397 million gain on sale of the Group’s remaining investment in Visa Inc. and a $393 million one-off expense for acceleration of amortisation on
certain software assets, operating expenses to total operating income is 41.8% for the current year and banking expenses to total banking income is 38.4%
for the current year.
Operating expenses increased 6%
on the prior year to $11,078 million.
Excluding the one-off impact of
accelerated software amortisation,
operating expenses increased 2%.
The key drivers were:
Staff expenses increased 2%
to $6,268 million driven by salary
increases and employee entitlements,
partly offset by productivity initiatives;
Occupancy and equipment
expenses were flat at $1,139 million,
due to increased rental reviews and
depreciation, offset by lower relocation
feasibility costs;
Information technology services
expenses increased 31% to
$1,941 million, primarily driven by
a $393 million one-off expense for
acceleration of amortisation on
certain software assets. Underlying
expenses increased 4% due to higher
licensing expenses, lease costs, and
investment spend;
Other expenses increased 5%
to $1,730 million, due to higher
professional fees, partly offset by
reduced marketing costs;
Group expense to income ratio
increased 30 basis points on the
prior year to 42.7%, primarily driven
by a gain on sale of the Group’s
remaining investment in Visa Inc. and
the one-off expense for acceleration
of amortisation on certain software
assets. The underlying ratio was 41.8%,
a reduction of 60 basis points.
33
33
Operating expenses – Investment Spend
Full Year Ended
Expensed investment spend (1)
Capitalised investment spend
Investment spend
Comprising:
Productivity and growth
Risk and compliance
Branch refurbishment and other
Investment spend
(1)
Included within the Operating Expenses disclosure on page 32.
FY17
$M
650
629
FY16
$M
604
769
1,279
1,373
681
470
128
701
505
167
1,279
1,373
Change
%
8
(18)
(7)
(3)
(7)
(23)
(7)
We continued to invest to deliver on the
strategic priorities of the business with
$1,279 million incurred in the full year to
30 June 2017, a decrease of 7% on the
prior year.
The decrease is due to the timing and
completion of key phases of risk and
compliance projects in the prior year
(including Future of Financial Advice
(FOFA)), significant progress made with
branch transformation, and the roll-out
of refreshed ATMs in the prior year, and
the timing of spend on productivity and
growth initiatives.
Spend on productivity and growth
continued to focus on delivering
further enhancements to the Group’s
sales management capabilities, digital
channels and customer data insights.
Significant spend on risk and
compliance projects has continued as
systems are implemented to assist in
satisfying new regulatory obligations,
including Stronger Super and Common
Reporting Standard requirements. In
addition, the Group continues to invest
in safeguarding information security
to mitigate risks and provide greater
stability for customers.
Loan Impairment Expense
Retail Banking Services
Business and Private Banking
Institutional Banking and Markets
New Zealand
Bankwest
IFS and Other
Loan impairment expense – “cash basis”
Full Year Ended (1)
FY16
$M
663
176
252
120
(10)
55
1,256
Change
%
5
(58)
(75)
(46)
large
89
(13)
FY17
$M
699
74
64
65
89
104
1,095
(1)
Comparative information has been restated to conform to presentation in the current period.
Impairment Expense (Annualised)
as a % of Average GLAAs (bpts)
19
16
16
15
Jun 14(1)
Jun 15
Jun 16
Jun 17
(1)
16 basis points, including the Bell group
write-back (non-cash item).
Loan impairment expense decreased
13% on the prior year to $1,095 million.
Loan impairment expense annualised
as a percentage of Average Gross
Loans and Acceptances (GLAAs)
decreased 4 basis points to 15 basis
points. The decrease was driven by:
• Reduced individual provisions
and lower collective provisions
in Business and Private Banking;
• Lower collective provisions and
fewer large individual provisions in
Institutional Banking and Markets;
and
• Lower collective provisioning in the
New Zealand dairy sector; partly
offset by
• An increase in Retail Banking
Services as a result of higher arrears
and losses for home loans and
consumer finance, predominantly in
Western Australia and Queensland;
and
• An increase in Bankwest due
to slower run-off of the business
troublesome book and higher
home loan losses, predominantly
in Western Australia.
Our businessPerformance overview Corporate responsibility Corporate governanceDirectors’ reportOther informationCommonwealth Bank of AustraliaAnnual Report 2017Financial report6213457
34
Performance overview
continued
Taxation Expense
Corporate tax expense ($M)
Effective tax rate – “cash basis” (%)
Full Year Ended
FY17
$M
3,927
28.4
FY16
$M
3,592
Change
%
9
27.5
90 bpts
Corporate tax expense for the year
ended 30 June 2017 increased 9%
on the prior year representing a 28.4%
effective tax rate. This increase is
primarily as a result of a change in
business mix, including the run-off
of specialised financing transactions.
The effective tax rate is below the
Australian company tax rate of 30%
primarily as a result of the profit earned
by the offshore banking unit and
offshore jurisdictions that have lower
corporate tax rates.
Non-Cash Items Included in Statutory Profit
Full Year Ended (1)
Hedging and IFRS volatility
Bankwest non-cash items
Treasury shares valuation adjustment
Other non-cash items
Total non-cash items (after tax)
FY17
$M
73
(3)
(23)
(26)
47
FY16
$M
(199)
(27)
4
(23)
(222)
Change
%
large
(89)
large
13
large
(1)
Comparative information has been restated to conform to presentation in the current year.
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 the
prior financial year. Refer to the Other
Information page 213 to 214 for the
detailed profit reconciliation.
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;
• Cross currency interest rate
swaps hedging foreign currency
denominated debt issues;
• Foreign exchange hedges relating
to future New Zealand earnings; and
• The ineffective portion of economic
Policyholder tax
hedges that qualify for hedge
accounting under IFRS.
This amount is excluded from cash
profit as it does not affect the Group’s
performance over the life of the
hedge. A $73 million after tax gain was
recognised in statutory profit for the
year ended 30 June 2017 (30 June
2016: $199 million after tax loss).
Treasury shares valuation
adjustment
Under IFRS, Commonwealth Bank of
Australia shares held by the Group
in the life insurance businesses are
defined as treasury shares and are
required to be held at cost. These
shares are fair valued in cash profit with
the difference between cost and fair
value reversed as a non-cash item. A
$23 million after tax loss was included
in statutory profit in the year ended 30
June 2017 (30 June 2016: $4 million
after tax gain).
Policyholder tax is disclosed separately
in the Wealth Management and New
Zealand business results for statutory
reporting purposes. The gross up is
excluded from cash profit, as it does
not reflect the underlying performance
of the business, which is measured on
a net of policyholder tax basis.
Investment experience
Investment experience includes returns
on shareholder capital invested and
revaluations in the wealth management
businesses. It also includes changes in
economic assumptions impacting the
insurance businesses and investment
profits on the annuity portfolio. This
item is classified separately within
cash profit.
35
35
Review of Group Assets and Liabilities
FY17
$M
As at
FY16
$M
Change
%
Interest earning assets
Home loans (1)
Consumer finance
Business and corporate loans
Loans, bills discounted and other receivables (2)
Non-lending interest earning assets
Total interest earning assets
Other assets (2) (3)
Total assets
Interest bearing liabilities
Transaction deposits (4)
Savings deposits (4)
Investment deposits
Other demand deposits
Total interest bearing deposits
Debt issues
Other interest bearing liabilities
Total interest bearing liabilities
Non-interest bearing transaction deposits
Other non-interest bearing liabilities (3)
Total liabilities
(1)
Gross of mortgage offset balances.
485,857
456,074
23,577
23,862
226,484
220,611
735,918
700,547
163,665
137,838
899,583
838,385
76,791
94,616
976,374
933,001
98,884
89,780
191,245
191,313
220,530
197,085
70,313
71,293
580,972
549,471
168,034
162,716
57,531
54,101
806,537
766,288
44,032
37,000
62,089
69,149
912,658
872,437
7
(1)
3
5
19
7
(19)
5
10
–
12
(1)
6
3
6
5
19
(10)
5
(2) Loans, bills discounted and other receivables exclude provisions for impairment which are included in Other assets.
(3)
(4)
Comparative information has been restated to reflect the change in accounting policy detailed in Note 1 of the Financial Statements.
Includes mortgage offset balances.
Asset growth of $43 billion or 5% on
the prior year was driven by increased
home lending, business and corporate
lending, and higher liquid asset
balances.
The Group continued to satisfy a
significant portion of lending growth
from customer deposits. Customer
deposits represent 67% of total funding
(30 June 2016: 66%).
Home loans
Home loan balances increased
$30 billion to $486 billion, reflecting a
7% increase on the prior year, driven
by strong growth in Retail Banking
Services, New Zealand and Bankwest.
Consumer finance
Consumer finance, which includes
personal loans, credit cards and
margin lending decreased 1% on the
prior year to $24 billion, broadly in line
with system.
Business and corporate loans
Business and corporate loans
increased $6 billion to $226 billion,
a 3% increase on the prior year.
This was driven by strong growth
in business lending in Business and
Private Banking and New Zealand,
partly offset by institutional lending
due to active portfolio management.
Non-lending interest earning
assets
Non-lending interest earning assets
increased $26 billion to $164 billion,
reflecting a 19% increase on the prior
year. The increase was driven by
higher liquid asset balances held as
a result of Balance Sheet growth and
a reduction in Committed Liquidity
Facility (CLF) effective 1 January 2017.
Other assets
Other assets, including derivative
assets, insurance assets and
intangibles, decreased $18 billion
to $77 billion, a 19% decrease on the
prior year, reflecting lower derivative
asset balances impacted by the higher
Australian dollar.
Our businessPerformance overview Corporate responsibility Corporate governanceDirectors’ reportOther informationCommonwealth Bank of AustraliaAnnual Report 2017Financial report6213457
36
Performance overview
continued
Non-interest bearing transaction
deposits
Non-interest bearing transaction
deposits, including business and
personal transaction accounts,
increased $7 billion to $44 billion,
driven by strong growth in Retail
Banking Services.
Other non-interest bearing
liabilities
Other non-interest bearing liabilities,
including derivative liabilities and
insurance policy liabilities, decreased
$7 billion to $62 billion, a 10% decrease
on the prior year, reflecting lower
derivative liability balances impacted
by the higher Australian dollar.
FY17
$M
2,747
980
3,727
(34)
As at
FY16
$M
2,818
944
3,762
(44)
3,693
3,718
Change
%
(3)
4
(1)
(23)
(1)
• An increase in consumer collective
provisions in home loans and credit
cards in Retail Banking Services;
• Higher consumer individually
assessed provisions predominantly
due to home loan impairments in
Western Australia; and
• Economic overlays remain
unchanged.
Review of Group Assets
and Liabilities (continued)
requirements, strong access was
maintained to both domestic and
international wholesale debt markets.
Interest bearing deposits
Interest bearing deposits increased
$32 billion to $581 billion, a 6%
increase on the prior year. This was
driven by strong growth of $23 billion
in investment deposits and an $9 billion
increase in transaction deposits.
Debt issues
Debt issues increased $5 billion to
$168 billion, a 3% increase on the
prior year. While deposits satisfied
the majority of the Group’s funding
Refer to page 131 for further information
on debt programs and issuance for the
year ended 30 June 2017.
Other interest bearing liabilities
Other interest bearing liabilities,
including loan capital, liabilities at
fair value through income statement
and amounts due to other financial
institutions, increased $3 billion to
$58 billion, a 6% increase on the
prior year.
Loan Impairment Provisions and Credit Quality
Provisions for impairment losses
Collective provision
Individually assessed provisions
Total provisions for impairment losses
Less: Provision for Off Balance Sheet exposures
Total provisions for loan impairment
Provisions for Impairment
• Lower commercial collective
Total provisions for impairment losses
decreased 1% on the prior year to
$3,727 million. The movement in the
level of provisioning reflects:
provisions, mainly in Institutional
Banking and Markets; and
• A reduction in Bankwest individually
assessed provisions; partly offset by
Collective Provisions ($M)
Individually Assessed Provisions ($M)
2,818
695
187
2,747
711
184
1,077
1,112
Overlay
Bankwest
Consumer
Commercial
Bankwest
Consumer
Commercial
944
209
169
980
198
211
859
740
566
571
Jun 16
Jun 17
Jun 16
Jun 17
37
37
Full Year Ended
FY17
$M
FY16
$M
Change
%
737,002
701,730
437,063
394,667
377,259
344,030
3,116
1,989
5
11
10
2
2
3,187
2,038
0.73
0.99
36.05
0.51
0.43
0.36
0.15
0.82
1.09
(9)bpts
(10)bpts
36.17
(12)bpts
0.54
(3)bpts
0.44
0.33
0.19
(1)bpt
3 bpts
(4)bpts
Credit Quality Metrics
Gross loans and acceptances (GLAA) ($M)
Risk weighted assets (RWA) ($M) – Basel III
Credit RWA ($M) – Basel III
Gross impaired assets ($M)
Net impaired assets ($M)
Provision Ratios
Collective provision as a % of credit RWA – Basel III
Total provisions as a % of credit RWA – Basel III
Total provisions for impaired assets as a % of gross impaired assets
Total provisions for impairment losses as a % of GLAAs
Asset Quality Ratios
Gross impaired assets as a % of GLAAs
Loans 90+ days past due but not impaired as a % of GLAAs
Loan impairment expense (“cash basis”) as a % of average GLAAs
Credit Quality
Provision Ratios
Provision coverage ratios remain
prudent. The impaired asset portfolio
remains well provisioned with provision
coverage of 36.05%.
Asset Quality
The asset quality ratios show
improvement in the quality of the
book with the level of commercial
troublesome and impaired assets
reducing over the year. The arrears
for the home loan and credit card
portfolios remain relatively low, however
personal loan arrears continues to be
elevated, primarily in Western Australia.
Retail Portfolios – Arrears Rates
Home loan arrears increased over the
year, with 30+ day arrears increasing
from 1.21% to 1.22%, and 90+ day
arrears increasing from 0.54% to
0.60%. Personal loan arrears improved
over the year with 30+ day arrears
falling from 3.46% to 3.35%, and 90+
day arrears reducing from 1.46% to
1.41%. Credit card arrears deteriorated
with 30+ day arrears increasing from
2.41% to 2.52%, and 90+ day arrears
increasing from 0.99% to 1.03%.
30+ Days Arrears Ratios (%) (1)
90+ Days Arrears Ratios (%) (1)
4.0%
3.0%
2.0%
1.0%
Personal Loans
2.0%
1.0%
0.0%
Personal Loans
Jun 15
Dec 15
Jun 16
Dec 16
Jun 17
Jun 15
Dec 15
Jun 16
Dec 16
Jun 17
(1)
Includes retail portfolios of Retail Banking Services, Bankwest and New Zealand.
Our businessPerformance overview Corporate responsibility Corporate governanceDirectors’ reportOther informationCommonwealth Bank of AustraliaAnnual Report 2017Financial report6213457Credit CardsHome LoansCredit CardsHome Loans
38
Performance overview
continued
Credit Quality Metrics
(continued)
Troublesome and Impaired Assets
Commercial troublesome assets
decreased 5% during the year to
$3,313 million.
Gross impaired assets increased
2% on the prior year to $3,187 million.
Gross impaired assets as a proportion
of GLAAs of 0.43% decreased one
basis point on the prior year.
Capital
After allowing for the APRA
requirement to hold additional capital
with respect to Australian residential
mortgages, the Group continued to
strengthen its capital position during
the year.
The Group’s CET1 ratio as measured
on an APRA basis was 10.1% at
30 June 2017 and 10.6% at 30 June
2016. The capital ratios were
maintained well in excess of regulatory
minimum requirements at all times
throughout the year.
Internationally Comparable
Capital Position
The Group’s CET1 ratio as measured
on an internationally comparable
basis was 15.6% as at 30 June 2017,
placing it amongst the top quartile of
international peer banks.
Troublesome and Impaired Assets ($B)
Gross Impaired
Commercial Troublesome
6.6
3.1
6.5
3.2
3.5
3.3
6.0
2.9
3.1
FY 15
FY 16
FY 17
Capital Ratios
CET1 Ratio (APRA)
CET1 Ratio (Internationally Comparable)
15.6%
10.6%
10.1%
9.1%
Jun 15
Basel III
Jun 16
Basel III
Jun 17
Basel III
Jun 17(1)
Basel III
(1)
Analysis aligns with the APRA study titled “International
capital comparison study” (13 July 2015).
Corporate responsibility
39
Commonwealth Bank of AustraliaAnnual Report 2017Financial report6Performance overview 2 Corporate governance4Directors’ report5Other information7 Our business1Corporate responsibility3 40
Corporate responsibility
Our Approach
With our corporate responsibility
programs and initiatives we
assist our customers, support our
communities, engage our people
and minimise our environmental
impact all founded on a principle of
good business practice.
We play an important role in enabling
economic and social development,
supporting jobs, driving innovation and
creating opportunities. We actively look
for ways to use our unique capabilities
and resources to make a positive
contribution beyond our core activities.
We do this as part of our everyday
business as well as through Opportunity
Initiatives which is our corporate
responsibility plan to drive positive,
long term value and change for all our
stakeholders. Opportunity Initiatives
is focused on three pillars: education,
innovation and good business
practice. Full details of our progress
and performance are available in the
2017 Corporate Responsibility Report,
available on our website.
Improving our customers’
experience
Increasing emphasis is being
placed on the banking sector’s
social licence to operate and
we are fully committed to
implementing the Australian
Bankers’ Association’s Better
Banking Program to protect
customer interests and build trust
and confidence in the industry.
We are making good progress
and will continue to implement
more reforms that deliver real and
practical benefits to our customers.
Customer Advocacy
In August 2016 we appointed an
independent Customer Advocate
and established the Group Customer
Advocacy team. The team is focused
on making processes faster, simpler
and fairer for customers. There is a
particular focus on helping customers
who are disadvantaged, experiencing
hardship, have language difficulties or
face other special circumstances.
Helping customers secure their financial wellbeing
Research has shown that almost half of all Australians
spend more than they would like to; one in five report having
zero savings; and almost half feel as though they are not
progressing towards their financial goals. We are responding
by collaborating with community organisations, leading academics,
regulators and social service agencies to help tackle the most
pressing financial wellbeing challenges in Australia.
training on reponsible
lending...
indigenous suppliers
savings challenge
spend tracker
savings jar
suppliers
transaction notifications
waste
water
transport
food
culture
green star rated
health
We have a unique ability to use our technology and innovation capabilities
to directly support good financial habits, and better financial decisions.
For example, new CommBank app features are giving people more
visibility and insight into their spending so they can take more control:
General Management Exposure to
International Operations
Non-Executive Director of at
least 2 listed Companies
emissions
emissions
• Transaction Notifications – real time credit card transaction
notifications that give customers immediate awareness and insights
into their daily spend so they can better manage their finances and
improve their savings.
Disclosing and managing
conflicts of interest
Maintaining confidentiality
Honesty
Upholding the guiding frame-
work of our vision and values
• Spend Tracker – a month-to-date summary of credit card activity that
automatically categorises transactions and shows customers where
their money is going so they can make better decisions on where to
spend.
Understanding and fulfilling all
aspects of their role
Operating in a safe and inclu-
sive manner
Maintaining personal
standards
Using technology and com-
munications
In an Australian first, Commonwealth Bank credit card customers are now
able to close their credit card account online in real time giving them even
greater control over their financial wellbeing. The fully digital experience
enables customers to close their credit card using the CommBank app or
online without the need to go into branch or speak to our contact centre.
competition+industry
distribution
data management
housing market
climate change
reputation
corporate responsibility
In April 2017, a Customer Advocate
Community Council was established,
comprised of 20 representatives
covering social policy, community
welfare, and issues advocacy. The
Council is a forum to listen and respond
to concerns from the community,
demonstrating our commitment to
addressing the needs of vulnerable
and disadvantaged customers and
supporting community relationships.
Innovation
We continue to prioritise investment
in technology and innovation as a
way to better support and empower
businesses to operate more efficiently,
keep things secure and improve the
customer experience. This will help to
transform industries and aspects of the
broader community.
We are actively experimenting with
blockchain and this year, together with
Wells Fargo and Brighann Cotton,
we completed the first physical trade
transaction between two banks
using the emerging technologies of
blockchain, smart contracts and the
internet of things. The transaction
involved a shipment of cotton from
Texas, USA to Qingdao, China.
We also became the first non-university
institution in Asia-Pacific to develop a
quantum computer simulator which will
allow quantum ready applications to be
developed in parallel to the hardware.
Enhancing innovation in business
can drive value through revenue and
productivity gains. Our inaugural
CommBank Business Insights Report
‘Unlocking Everyday Innovation’
measures the innovation performance
of Australian businesses across a range
of categories. The report quantifies the
value that businesses generate from
innovation and outlines the pathways to
enhance innovation. Our national report
has been followed by the rollout of a
regional versus metro report as well as
location and industry-specific reports.
41
Empowering and
supporting our
communities
Education
As a leading Australian employer, we
are committed to helping improve
education outcomes, including financial
education, and investing in the skills of
the workforce of the future.
574,246 students
Our award-winning Start Smart
classes have reached more than half
a million students. Start Smart is our
free financial education program for
primary, secondary and Vocational
Education and Training students.
229 youth-focused
organisations
Received Community Grants of up
to $10,000 to support programs on
education, health and social inclusion.
branches
We are investing $50 million dollars
in education over three years (2015-
2018). This goes to funding a range of
education programs including Start
Smart, the Commonwealth Bank
Teaching Awards and Evidence for
Learning.
business banking specialist
ATMs
eftpos
online customers
self-service
digital
deposit machines
StartSmart
Employees/Indigenous emploees
operations
net revenue
renewable energy project
emissions
female executives
community investments
volunteering
customers/indige-
nous customers
reconciliation
tax transparency
school students
education investment
research projects
customer experience
survey
fund academic project
MathsPASS
Credit limit slider
Camera pay
CommBank youth app
click to call
storm warning
supermatch
product
organisation
process
Teaching real-life money skills to under 14s.
ESG lending
slavery
teachers
loan impairment
To support the financial wellbeing
of children and youth we provide
schools with both a financial education
program, Start Smart, and School
Banking. Our award-winning financial
education program Start Smart
reached 574,246 students nationwide
– that’s an average of 2,000 students
receiving financial education every
school day, making Start Smart the
largest program of its kind anywhere
in the world. We have also refreshed
our program with gender equality
and unconscious bias principles. Our
School Banking program started in
1931 and currently has 326,146 active
students participating. The program is
designed to provide young children with
a basic understanding of core financial
values and money management skills,
to help them take their first steps
towards good money management and
regular savings behaviour.
mobile international
money transfer
thrive portal
marketing
drone
teaching award
training employees
cyber security curriculum
Youth Bank App
JumpStart App
Black Card Training
Pay Equality
Staff Flexibility
This year we have released the CommBank Youth app which gives under
14s hands-on money management experience that’s fun and secure.
It’s an innovative app that will help young customers develop their skills
in an increasingly cashless and digital society.
financial counsellors
customer advocacy
SACE
spent on training
hosted the
experince
This year our efforts to support the
financial education of Australia’s youth
were recognised with multiple awards,
including the Child and Youth Friendly
Banking Award in the 2017 Global
Inclusion Awards and the Canstar
Youth Banking Award for the seventh
time. It is the second year in a row
that we have won the Canstar Junior
Banking Award.
High-quality teaching is the greatest
in-school influence on student
engagement and outcomes. To
acknowledge this we have created the
Commonwealth Bank Teaching Awards
in partnership with Australian Schools
Plus to recognise and reward excellent
teaching and school leadership.
In March 2017, the new Commonwealth
Bank Teaching Awards rewarded 12
Australian teachers with a Teaching
Fellowship, valued at $45,000 each.
Evidence for Learning continues to
support improved practice by teachers,
school leaders and education systems
across two offerings:
• The Australian Teaching & Learning
Toolkit is an online educator resource
and has had more than 10,000
regular users visit the website.
• The Learning Impact Fund has
distributed $571,000 across three
different research trials to support the
development of education evidence.
Volunteering and giving
Our people are more involved in our
communities than ever, through a
wide range of volunteering programs
and our Staff Community Fund, which
celebrates its 100th anniversary in 2017.
With more than $1.2 million in-kind
volunteering provided to community
organisations this year, we provide a
focused and relevant benefit for the
community while offering personal
development opportunities for our
people and a link to their community.
Our Staff Community Fund distributed
more than $2 million in Community
Grants to 229 community organisations
nationally to support the wellbeing of
kids and youth.
Commonwealth Bank of AustraliaAnnual Report 2017Financial report6Performance overview 2 Corporate governance4Directors’ report5Other information7 Our business1Corporate responsibility3 42
Corporate responsibility
continued
Financial inclusion
As one of Australia’s largest companies
and employers, we are committed to the
financial wellbeing of our customers and
staff. We launched our first ever Financial
Inclusion Action Plan (FIAP) which
includes a range of initiatives aimed at
helping customers experiencing financial
difficulty and building the economic
security of women.
A key FIAP action we have delivered
this year is new Domestic and Family
Violence Awareness training to
help employees better understand
and respond to those who may be
experiencing domestic or family
violence.
We are also supporting Financial
Counselling Australia through a
commitment of $400,000 to train
financial counsellors across Australia
to assist people affected by domestic
and family violence and $500,000 to
the Jan Pentland Foundation to fund
10 scholarships annually for the next
10 years for people to study financial
counselling.
We have also been raising awareness
of our financial hardship program,
Financial Assist, which offers
customers assistance if they are having
difficulty making a repayment. This
might include offering flexibility with
instalments due, a review of financial
commitments, or more detailed
financial rehabilitation support.
International financial inclusion
Since its launch in Pick n’ Pay stores in
South Africa, delivering a cost effective
money remittance solution nationally,
Money Transfer has grown to include
self-service kiosks that have allowed
more than 150,000 customers to be
registered, performing more than
350,000 transactions. The digital kiosk
has now evolved to create a customer
on-boarding solution for our business
in Indonesia. We are able to on-board
a new customer via the Money Transfer
kiosk and they are able to open an
account, obtain a debit card, and use it
at an ATM in around 10 minutes.
$900,000
Committed to financial counselling
scholarships and training on domestic
and family violence.
0.8%
Of our workforce that identifies as
Aboriginal or Torres Strait Islander.
We are working towards a target
of 1.5% by 2020.
Clown doctors
We have been proud
supporters of Clown
Doctors since 1999.
This year they provided
support to one of our
employees and Staff
Community Fund member,
Alison Graham, and her son
Jack who was diagnosed with
acute lymphoblastic leukaemia
and had to undergo intensive
chemotherapy.
Clown Doctors are specially
trained performers who visit
Australian children’s hospitals
and wards and help to lift the
spirits of sick children and their
families, including Alison and
her son Jack.
Money Transfer
In South Africa, more
than 150,000 customers
have registered with our
Money Transfer kiosks,
savings challenge
spend tracker
savings jar
transaction notifications
training on reponsible
lending...
performing more than 350,000
transactions. We are delivering
a scalable digital bank that
increases access to financial
services for our customers.
transport
waste
water
food
culture
emissions
Non-Executive Director of at
least 2 listed Companies
General Management Exposure to
International Operations
The South African Reserve
Bank has formally granted the
Commonwealth Bank a full Bank
Licence in South Africa. This
is a critical milestone, not only
towards launching our digital
bank in South Africa but as part
of our overall strategy to deliver
financial inclusion across the
emerging markets we serve.
Operating in a safe and inclu-
sive manner
Honesty
Using technology and com-
munications
Upholding the guiding frame-
work of our vision and values
Maintaining personal
standards
Maintaining confidentiality
suppliers
indigenous suppliers
green star rated
health
emissions
Disclosing and managing
conflicts of interest
Understanding and fulfilling all
aspects of their role
Following on from their success
in South Africa, we have
introduced Money Transfer
kiosks in Indonesia. Indonesia’s
Financial Services Authority has
formally approved the rollout of
Money Transfer kiosks in both
Commonwealth Bank branches
and key retail locations.
competition+industry
distribution
data management
housing market
climate change
In Indonesia we continue to
grow and develop our WISE
(Women Investment Series)
initiative. WISE was refreshed
to build on the success of the
existing program with some new
additions including broadening
our target audience to include
women entrepreneurs.
reputation
corporate responsibility
43
Diversity in leadership
40%
Female directors
on Board
37%
women in Executive
Manager and above
roles
44%
women in Manager
and above roles
We have put in place a number of
targeted solutions to achieve gender
pay equity, including:
• Reporting pay equity metrics to both
the Board and Executive Committee;
• Education in removing unconscious
bias in pay and other management
decisions;
• Mandatory pay reviews for
employees on parental leave; and
• Use of data and metrics to inform
objective decisions and actions for
managers who make pay decisions.
Reconciliation
We aim to increase employment of
Aboriginal and Torres Strait Islander
peoples to be at parity with the
Australian population (3%) by 2026 with
a midpoint target of 1.5% by 2020. The
percentage of our domestic workforce
who identify as Aboriginal or Torres
Strait Islander has increased from 0.3%
to 0.8% in the last 12 months.
To help grow the Indigenous business
sector, we launched JumpStart in
partnership with Supply Nation.
JumpStart is an app which connects
Indigenous businesses with skilled
volunteers from Supply Nation’s
corporate, government and not for
profit members. To date, 90 Indigenous
businesses are in the process of
signing up.
Support for cricket
We are passionate about the game
of cricket – it is the country’s national
summer sport and a game that every
Australian can enjoy in their own way.
• In October 2016 we announced the
next phase of our partnership with
Cricket Australia, which focuses
on strengthening the foundations
of cricket for women, Indigenous
players, players with disabilities and
the local clubs around the country
that are the lifeblood of the game.
This is the largest investment in
Australian women’s cricket and
diversity initiatives, with more than
$5 million per year over three years.
• Through our club sponsorship
program, we are providing 65
clubs with two-year sponsorships
including financial assistance of
$2,000 per year (over two years)
for much needed cricket gear and
merchandise to use on game days.
A healthy and engaged
workforce
The Group employs 51,800
dedicated people across 1,350
branches and offices. This diverse
group of people serve 16.6 million
customers and is integral to
achieving our vision.
A diverse and inclusive team
Creating an inclusive workplace
that reflects the communities where
Commonwealth Bank operates is
essential to listening and responding
to the needs of customers in order to
deliver on our vision to excel at securing
and enhancing the financial wellbeing of
people, businesses and communities.
The aim of our Diversity and Inclusion
strategy is to leverage diversity and
foster inclusion in order that all our
people feel valued and respected. It has
five focus areas – Building an Inclusive
Culture (overarching goal); Diversity in
Leadership; You Can Be You; Flexibility;
and Reputation and Engagement.
Inclusive culture
We continue to build a diverse and
inclusive workforce that at all levels,
mirrors the communities where
we operate.
Diversity in Leadership
Gender diversity – Women represent
58% of our workforce. We are tracking
well towards our diversity in leadership
gender goal as measured by our targets
– 40% of Executive Manager and
above roles and 45% of Manager and
above roles to be occupied by women
by 2020. Currently, representation
of women in Executive Manager and
above roles is 37% and Manager and
above roles is 44%. Women represent
40% of the Commonwealth Bank Board
and the Chairman is a woman.
Gender pay equity – In the most recent
Workplace Gender Equality Agency
Report there has been a closing of the
gender pay gap (Group-wide) with a
1.1% decrease for base remuneration
and 3% for total remuneration. Similar
to the previous year, this gap is
comparable with the Group’s direct
peer group of Australian banking
organisations with 5,000+ employees,
and slightly higher than the average
gender pay gap for the Finance and
Insurance Industry.
Commonwealth Bank of AustraliaAnnual Report 2017Financial report6Performance overview 2 Corporate governance4Directors’ report5Other information7 Our business1Corporate responsibility3 44
Corporate responsibility
continued
Whistleblowing
We encourage all staff to speak
up about issues or conduct that
concerns them. The SpeakUP Program
comprises the SpeakUP Hotline and
the Group Whistleblower Policy.
As part of the Better Banking Program,
we have worked with the ABA to
develop industry guiding principles
for whistleblowers. This has led to an
update of our Whistleblower Policy
to align with the guidelines. Under
the Policy, we have a designated
Whistleblower Protection Officer at
an Executive General Manager level
with direct access to the CEO, as
well as a Misconduct Governance
Committee, including four of the CEO’s
direct reports who are also ‘Executive
Champions’ and oversee the Program’s
effectiveness.
We have had 171 cases reported under
the SpeakUP Program, of which 44
were whistleblower reports.
The training completion rate on
mandatory learning, including fraud,
workplace conduct, conflicts of interest,
and security and privacy, is 97%.
Environmental
stewardship
The Group recognises climate
change as one of the greatest
challenges posed to our
environment, our economy and
our society and considers climate
change to be a significant long
term driver of both financial and
non-financial risks.
We will continue to measure and
reduce our own environmental impact,
as well as help our customers transition
to a net zero emissions economy. Our
influence extends to the businesses
that we lend to, invest in and buy from
and we endeavour to make a socially
and environmentally positive impact
through our decision making.
Employees who work flexibly
69%
43%
FY16
FY17
Cultural diversity – In 2015, the
Executive Committee endorsed a
target to match the cultural diversity
of our senior leaders to the cultural
diversity of the Australian population
by 2020. A Cultural Diversity Index
(CDI) was developed to measure the
cultural diversity of its leadership using
a modified Herfindahl-Hirschman Index
methodology.
Due to the late release of the Australian
Census, our progress against the
CDI will be published in next year’s
reporting.
This year, 50% of our workforce
identified as Australian, 40% identified
as non-Australian and 10% chose not
to respond.
You Can Be You – Our six employee
networks continue to drive awareness,
engagement and behavioural change
across the Group. They include:
Women CAN – gender; Unity - sexual
orientation and gender identity;
Enable – accessibility and disability;
Advantage – age and life stage; Mosaic
– cultural diversity and Yana Budjari –
lead reconciliation actions within our
Reconciliation Action Plan.
Flexibility – 69% of our people work
flexibly, an increase from 43% in
FY16(1). In the past 12 months, we have
implemented several actions including
our enhanced parental leave for both
primary and secondary carers to help
parents share the responsibilities of
childcare.
(1)
Note the question in FY16 varied slightly:
‘My manager allows me the flexibility I need
to meet my work goals and personal needs’.
Reputation and engagement –
Commonwealth Bank and Bankwest
are compliant with the Workplace
Gender Equality Act 2012, following the
submission of the annual compliance
report for 2017. We have also received
the 2016 Employer of Choice for
Gender Equality citation by the
Workplace Gender Equality Agency.
Commonwealth Bank and Bankwest
were proudly named Gold employers in
the Australian Workplace Equality Index
Awards, and Unity was named network
of the year for a second consecutive
year. Supporting this achievement was
recognition of Commonwealth Bank as
a Gold Standard employer in the Hong
Kong LGBT+ Workplace Inclusion Index.
Employee wellbeing
The health and wellbeing of our people
is paramount to the success of our
organisation. The Thrive portal was
launched to employees, providing
a source of mental and physical
health and wellbeing information and
resources. The portal aims to assist
our staff to better understand their
mental and physical health, encourage
appropriate conversations and help
support others.
The portal also provides access to
information on physical wellbeing,
nutrition, work/life balance and has easy
access to confidential counselling advice
through our Employee Assist Chat.
Conduct and culture
In January 2017, we released ‘Our
Commitments’ which includes a
personal commitment to our vision and
values emphasising, among other things,
the importance of honesty, maintaining
confidentiality and operating in a safe
and inclusive manner. Our Commitments
exist to ensure everyone is clear on
what is expected of them. The launch of
Our Commitments has been supported
by an e-learning module. The training
completion rate for Our Commitments is
98%. In light of our offshore operations,
Our Commitments are also available
in Chinese, Vietnamese and Bahasa
Indonesia. We treat any deviation from,
or breach of, Our Commitments as
misconduct. This year we have closed
1,022 substantiated misconduct cases.
Outcomes from these misconduct cases
ranged from verbal warning to dismissal.
45
Responsible lending
We are committed to our nine ESG
Lending Commitments which embed
ESG considerations into our business-
lending decisions. We continually look
for ways to make a positive societal
impact and help to support the
transition to a low carbon economy.
This year we grew our renewables
lending portfolio to $2.8 billion. This
reflects our continued commitment
to find new ways to support a rapidly
changing renewables sector.
Renewables projects we lent to include
three new solar farms in Queensland
and Victoria, and Australia’s largest
solar project in South Australia,
Bungala solar project, where we were
a mandated lead arranger. Bungala
will provide power for approximately
100,000 households. The Bungala solar
project was the largest equity and debt
finance arrangement for a new solar
project in Australia to date, as well as
the first major Australian renewable
project delivered without government
funding assistance.
We continue our industry-leading
disclosure on the emissions intensity
of our business lending, and have
just completed our third report which
shows our business lending portfolio’s
emissions intensity is 0.29 kgCO2-e/
AUD expenditure in FY16, up from 0.28
kgCO2-e/AUD expenditure in FY15.
This increase is driven by changes in the
Electricity, Gas and Water Supply sector
which includes significant new lending to
a recently privatised Australian electricity
transmission network. The full results
are on our website.
We have continued to embed our ESG
lending commitments with risk and
frontline staff undergoing refresher
training and a number of enhancements
to our processes and systems including
annual review process, hindsight
review checks, update of the industry
ESG assessments, sector specific
workshops and ESG portfolio reporting
to Board.
As a major provider of lending
services globally, assessing potential
transactions for ESG risks is a key step
in our due diligence process. Project
finance transactions that qualify under
the Equator Principles III follow its
detailed process to assess, mitigate,
manage and monitor ESG risk.
48.5%
reduction in our direct emissions in
Australia since 2009
Renewable energy
Our lending exposure to renewable
electricity generation continues to
increase.
$2.8bn
$2.2bn
$1.4bn
FY15
FY16
FY17
Other loans are assessed under our
ESG policies, systems and processes.
Loans are escalated for senior
assessment depending on the level of
ESG risk.
Our pricing platform for all Institutional
Banking, Business Banking and ASB
loans includes a compulsory ESG risk
assessment process for all Institutional
Bank loans, and for larger loans in
the other business units. The process
includes an initial ESG risk assessment
based on country of operations and
over 500 industry sectors. Additional
ESG due diligence is required for
transactions which have medium or
high ESG risks identified in the initial
assessment. Teams are required to:
• Describe any ESG risks for each of
the seven focus areas of biodiversity,
water, carbon and energy, pollution,
health and safety, labour and human
rights, and anti-corruption and
governance;
• Detail any client mitigation strategies
for each risk identified;
• Assess the likelihood and
consequence of these risks; and
• Assess the client capability and
motivation to mitigate these risks.
Further information on the ESG risk
assessment process is available in the
2017 Corporate Responsibility Report.
Solar panels on
branches
We are the first
Australian bank to
rollout an onsite
renewable program
for our retail branch
network.
We now have solar panels on 34
locations across Australia, with
more than 500kW of capacity.
To date, solar panels have
saved more than 450 tonnes
CO2-e, which is the equivalent
of planting 11,600 trees. Our
employees, customers and the
wider community can view the
performance of this network
through our real-time public
portal cbasolarpower.com.au.
Sustainable Property Strategy
We continue to implement our
Sustainable Property Strategy through
to 2020, with key targets to reduce our
own energy use and carbon emissions,
waste generation and water use.
Our long term target of reducing our
direct emissions to 2.0 tCO2-e per
FTE continues to be on track, having
reduced these emissions from 2.9
tCO2-e per FTE last year to 2.6 tCO2-e
per FTE this year which is a reduction
of 10% over the past 12 months.
Climate Policy Position Statement
We have developed a Climate Policy
Position Statement which outlines
our role in limiting climate change to
well below two degrees and the way
in which we will support the transition
to a net zero emissions economy by
2050. This includes undertaking a
climate scenario analysis and setting
a $15 billion target for financing low
carbon projects by 2025.
The full Climate Policy Position
Statement is available on our website.
Commonwealth Bank of AustraliaAnnual Report 2017Financial report6Performance overview 2 Corporate governance4Directors’ report5Other information7 Our business1Corporate responsibility3 46
Corporate responsibility
continued
Climate bond sector exposures
Responsible investing
Guided by our Responsible Investing
Framework, we are integrating ESG
considerations into investment
processes, consistent with the pursuit
of sustainable long-term investment
outcomes for our customers. We have
expanded the FirstChoice, FirstWrap
investment menus and Commonwealth
Financial Planning Approved Product
List to include five new sustainable,
ethical and responsible investment
options. This year, Colonial First State
joined Colonial First State Global
Asset Management (CFSGAM) and
CommInsure as signatories to the
United Nations-supported Principles
for Responsible Investment.
digital
self-service
CFSGAM released their tenth
annual Responsible Investment and
Stewardship Report. CFSGAM believe
that their approach to responsible
investment has contributed to over
75% of funds outperforming their
respective benchmarks.
deposit machines
renewable energy project
net revenue
Building a strong and
responsible business
ESG training
volunteering
community investments
customers/indige-
nous customers
school students
research projects
education investment
To support our employees’
understanding of environmental, social
and governance (ESG) considerations
and enhance the outcomes of our
lending, investing and procurement due
diligence and decision making, we have
a number of tailored training modules.
2,768 employees undertook training
via these modules covering: ESG
Fundamentals, ESG Tool, Responsible
Investing, Responsible Procurement
Fundamentals and Equator Principles III.
Credit limit slider
Camera pay
MathsPASS
Responsible procurement
supermatch
product
organisation
process
Pay Equality
Staff Flexibility
The Group spent $4.8 billion with
more than 5,000 suppliers putting
us in a position to make a positive
impact by supporting suppliers that
reflect diversity and a wide range of
perspectives and capabilities. We
spent approximately $1.5 million with
17 unique Indigenous suppliers. Our
Supplier Code of Conduct sets our
minimum standards for human rights,
labour conditions, health and safety,
diversity and the environment. The
Supplier Code of Conduct has been
embedded into the procurement
process for establishing new suppliers.
financial counsellors
customer advocacy
Low carbon buildings
Energy – wind power
Low carbon transport
branches
ATMs
eftpos
online customers
$1.02 billion of climate
bonds arranged
business banking specialist
StartSmart
Employees/Indigenous emploees
operations
ESG lending
This year we have
arranged $1.02 billion of
climate bonds. In March
2017, we issued the
largest Australian dollar climate
bond from an Australian bank
at $650 million, demonstrating
active leadership and best
practice in the climate and
green bond market.
female executives
tax transparency
reconciliation
emissions
slavery
loan impairment
fund academic project
teachers
teaching award
customer experience
survey
The bond is backed by Australian
renewable and low-carbon assets
including wind power generation,
green buildings and low carbon
transport projects. We have
become a partner of the Climate
Bonds Initiative and will continue
to work towards increasing large-
scale investment in climate
bonds to deliver a global
low-carbon economy.
cyber security curriculum
storm warning
click to call
mobile international
money transfer
marketing
drone
Youth Bank App
JumpStart App
thrive portal
training employees
spent on training
SACE
Black Card Training
hosted the
experince
In May 2017, we signed up to the
Australian Supplier Payment Code, a
voluntary, industry-led initiative that
enshrines the importance of prompt
and on-time payment for small business
suppliers through compliance with a set
of best-practice standards.
Human rights
We issued our first Slavery and Human
Trafficking Statement, in compliance
with the UK Modern Slavery Act,
highlighting the development of our
Human Rights Position Statement.
Our second statement is now published
and is available on our website.
We updated our Supplier Code of
Conduct to improve recognition of
human rights and supplier compliance
with international human rights laws.
We also ran an education session for
key procurement staff on supporting
human rights and the abolition of
modern slavery and have developed
responsible procurement training.
Tax transparency
The Commonwealth Bank is Australia’s
largest taxpayer(1) and this contribution
continues to grow in line with profits.
Our global tax expense was more
than $3.9 billion, which contributes
to government investment in the
community in many forms including
schools, hospitals, roads and social
welfare payments. We are committed to
being a responsible corporate taxpayer
and to acting with the highest integrity
in complying with all prevailing tax laws.
As a signatory to the Voluntary Tax
Transparency Code, we will continue to
provide transparency on our approach
to tax risk, governance and tax paid in
Australia. A copy of the most recent
Tax Transparency Code can be found
on our website.
(1) Source: Bloomberg
47
ESG performance data (1)
ENVIRONMENT
Energy (2)
Units
2017
2016
2015
Renewable energy lending exposure
$M
2,800
2,200
1,400
Business lending emissions intensity (3)
Climate bond arrangement
Greenhouse Gas Emissions – Group(5)
Total greenhouse gas emissions
Scope 1 emissions
Scope 2 emissions
Scope 3 emissions
Emissions per FTE (Scope 1 & 2)
SOCIAL
Employees
Employee Engagement Index – CBA
Employee Turnover (voluntary)
Diversity
Women in Manager and above roles
Women in Executive Manager and above roles
Gender pay equity
Executive General Manager
General Manager
Executive Manager
Manager / Professional
Team Member
Training
Employees participating in ESG Training
Training hours per employee (5)
Safety and Wellbeing
Lost Time Injury Frequency Rate (LTIFR) (7)
Absenteeism
Community Investment
Total Community Investment
– Cash contributions
– Time volunteering
– Foregone revenue
– Program implementation costs
– % of pre-tax profit
(kgCO2-e/AUD)
$M
Dependent on
client FY17 data (4)
1,018
0.29
50
0.28
–
tCO2-e
tCO2-e
tCO2-e
tCO2-e
tCO2-e
%
%
%
%
Ratio
Ratio
Ratio
Ratio
Ratio
#
Hours
Rate
Rate
$M
$M
$M
$M
$M
%
204,317 (6)
164,111
179,276
9,694
9,063
9,729
96,595
107,762
115,580
98,028 (6)
47,286
53,967
2.3
2.6
2.7
78
10.1
44.4
36.7
0.95
1.03
1.00
0.98
1.00
77
11.3
43.6
35.2
0.96
0.99
1.00
0.99
0.99
2,768
39.1
1,786
34.3
1.1
5.9
272
37.2
1.2
222
11.7
2.0
1.5
6.0
262
37.8
1.4
212
11.6
2.0
81
10.2
43.2
33.9
–
–
–
–
–
–
31.1
2.0
6.0
243
31.3
1.8
204
6.8
1.9
For definitions and notes, please refer to the Corporate Responsibility Performance data table at www.commbank.com.au/investors/corporate-responsibility.html.
For methodology and further details, please refer to www.commbank.com.au/about-us/opportunity-initiatives/performance-reporting.html.
(1)
(2) Energy metrics are not audited by PwC.
(3)
(4) Our financed emissions method relies on client-specific data which limits the timing we can undertake and release the analysis.
(5) Comparative information has been changed to align to presentation in the current year.
(6)
In 2017 for the first time we have included data centres outside of our operational control. If they were not included, our scope 3 emissions would otherwise
have reduced.
Prior year data is updated due to late reporting of incidents that occurred during the year, or the subsequent acceptance or rejection of claims made in the year.
(7)
Commonwealth Bank of AustraliaAnnual Report 2017Financial report6Performance overview 2 Corporate governance4Directors’ report5Other information7 Our business1Corporate responsibility3 48
Corporate responsibility
continued
ESG performance data (1) continued
SOCIAL continued
Financial Literacy Programs
School Banking Students (active)
Start Smart Students (booked)
Customer Satisfaction
CBA – Roy Morgan Research Main Financial Institution (rank)
CBA – DBM Business Financial Services Monitor
(score out of 10) (rank)
Wealth Insights Platform Service Level Survey
(score out of 10) (rank)
CBA – Roy Morgan Research Online Customer Satisfaction
(rank)
GOVERNANCE
Female directors on Board
Training completion rates on ‘Our Commitments’
SpeakUP Program cases
– Whistleblower cases (2)
Units
2017
2016
2015
#
#
%
#
#
%
%
%
#
#
326,146
330,874
310,474
574,246
557,475
298,505
82.7 (1st)
82.8 (1st)
84.2 (1st)
7.2 (=1st)
7.2 (=1st)
7.5 (=1st)
8.0 (1st)
8.1 (1st)
7.8 (2nd)
94.0 (1st)
93.3 (1st)
93.7 (1st)
40
97.6
171
44
33
–
–
–
27
–
–
–
(1)
(2)
For definitions and notes, please refer to the Corporate Responsibility Performance data table at www.commbank.com.au/investors/corporate-responsibility.html.
Whistleblower cases are a subset of SpeakUP Program cases.
Corporate governance
49
Commonwealth Bank of AustraliaAnnual Report 2017Financial report6Performance overview 2Corporate responsibility3 Corporate governance4Directors’ report5Other information7 Our business1 50
Our board
Catherine Livingstone AO
Chairman
Ms Livingstone is a
resident of New
South Wales.
Age 61.
Ian Narev
Managing Director
and Chief Executive
Officer
Mr Narev is a
resident of New
South Wales.
Age 50.
Shirish Apte
Non-Executive
Director
Mr Apte is a resident
of Singapore.
Age 64.
Sir David Higgins
Non-Executive
Director
Sir David is a
resident of London,
United Kingdom.
Age 62.
Launa Inman
Non-Executive
Director
Ms Inman is a
resident of Victoria.
Age 60.
Catherine has been a Director since March 2016 and was appointed Chairman on
1 January 2017. Catherine is Chairman of the Nominations Committee, a member of
the Risk Committee, the Audit Committee and the Remuneration Committee. She is a
former Chairman of Telstra and of the CSIRO, and was Managing Director and Chief
Executive Officer of Cochlear Limited. She has served on the Boards of Macquarie
Group Limited, Goodman Fielder Limited and Rural Press Limited and has contributed
to the work of the Innovation and Productivity Council for the New South Wales
Government. She is a former President of the Business Council of Australia. In 2008,
Catherine was awarded Officer of the Order of Australia.
Other Directorships and Interests: WorleyParsons Ltd, The George Institute for
Global Health, Saluda Medical Pty Ltd, University of Technology Sydney (Chancellor)
and Australian Museum Trust (President).
Qualifications: BA (Accounting) (Hons), FCA, FTSE, FAICD, FAA.
Ian has been a Director since December 2011 and was appointed Managing Director
and Chief Executive Officer on 1 December 2011. He joined the Bank in May 2007 as
Group Head of Strategy, responsible for corporate strategy development, mergers and
acquisitions and major cross business strategic initiatives. In January 2009 he was
appointed as Group Executive, Business and Private Banking. Prior to joining the Bank,
Ian was a partner of McKinsey’s New York, Sydney and Auckland offices. 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, Ian was a lawyer specialising
in mergers and acquisitions.
Other Directorships and Interests: Sydney Theatre Company Ltd (Chairman),
Business Council of Australia, The Financial Markets Foundation for Children and
Institute of International Finance.
Qualifications: BA LLB (Hons) (Auck), LLM (Cantab), LLM (NYU).
Shirish has been a Director since June 2014. He is Chairman of the Risk Committee and
a member of the Audit Committee. Shirish has more than 32 years’ experience with Citi
having held various senior roles, including Co-Chairman of Citi Asia Pacific Banking,
Chief Executive Officer of Citi Asia Pacific, Chief Executive Officer of Central & Eastern
Europe, Middle East & Africa and Country Manager and Deputy President of Citi
Handlowy, where he is now Vice Chairman of the Supervisory Board. Shirish is a former
Director of Crompton Greaves Ltd.
Other Directorships and Interests: IHH Healthcare Bhd (including two of its
subsidiaries), AIG Asia Pacific Pte Ltd, Clifford Capital Pte Ltd, Pierfront Capital
Mezzanine Fund Pte Ltd (Chairman) and Supervisory Board of Citi Handlowy
(Vice Chairman).
Qualifications: CA, BCom (Calc), MBA (LondBus).
Sir David has been a Director since September 2014. He is Chairman of the
Remuneration Committee and a member of the Risk Committee. Sir David is Chairman
of Gatwick Airport Ltd, which operates Gatwick Airport in the UK and Chairman of
High Speed Two (HS2) Ltd, the company responsible for developing and promoting the
UK’s new high speed rail network. Sir David is a senior advisor to Global Infrastructure
Partners in the US and to Lone Star Funds. Previously he was Chief Executive Officer of
Network Rail Infrastructure Ltd, Chief Executive Officer of the Olympic Delivery Authority
for the London 2012 Olympic Games, Chief Executive Officer of English Partnerships
and Managing Director and Chief Executive Officer of Lend Lease.
Other Directorships and Interests: Gatwick Airport Ltd (Chairman) and High Speed
Two (HS2) Ltd (Chairman).
Qualifications: BE (Civil) (USyd), Diploma (Securities Institute of Australia).
Launa has been a Director since March 2011. She is a member of the Audit Committee
and the Remuneration Committee. She was Managing Director and Chief Executive
Officer of Billabong International Limited from May 2012 until August 2013. Prior to
this, she was Managing Director of Target Australia Pty Limited and Managing Director
of Officeworks Ltd. She has significant international and Australian experience in
retailing, wholesale, property and logistics, as well as extensive marketing experience
in traditional, digital and social media channels. Launa is a former Director of Bellamy’s
Australia Ltd.
Other Directorships and Interests: Super Retail Group Ltd, Precinct Properties
New Zealand Ltd, Melbourne Fashion Festival Ltd and The Alannah and Madeline
Foundation Ltd.
Qualifications: MCom (UNISA), BCom (Hons) (UNISA), BCom (Economics and
Accounting) (UNISA), MAICD.
51
Brian has been a Director since September 2010. He is Chairman of the Audit
Committee, a member of the Risk Committee and the Nominations 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.
Other Directorships and Interests: Brambles Limited, Cantarella Bros Pty Ltd,
University of New South Wales (Council Member) and Centennial Park and Moore Park
Trust (Trustee).
Qualifications: FCA.
Andrew has been a Director since July 2008. He is a member of the Risk Committee
and the Remuneration Committee. Andrew has over 40 years’ financial services
experience. He was Managing Director and Chief Executive Officer of AMP Limited
from October 2002 until December 2007. Andrew’s previous roles at AMP included
Managing Director, AMP Financial Services and Managing Director and Chief
Investment Officer, AMP Asset Management. Previously, he was the Group Chief
Economist, Chief Manager, Retail Banking and Managing Director, ANZ Funds
Management at ANZ Banking Group. Andrew commenced his career at the Reserve
Bank of Australia where his roles included Senior Economist and Deputy Head of
Research.
Other Directorships and Interests: ASIC External Advisory Panel (Member)
and CEDA Board of Governors (Member).
Qualifications: BEc (Hons) (Monash).
Mary has been a Director since June 2016. She is a member of the Remuneration
Committee and the Nominations Committee. Mary is a pre-eminent intellectual property
lawyer with over 30 years’ experience. She is a Partner and the Vice Chairman of Ashurst,
having been the Chairman of Ashurst Australia for eight years prior to the firm’s full merger
with Ashurst LLP in 2013. Mary spent a number of years in the UK with boutique firm,
Bristows, and as resident partner of Ashurst Australia. She has undertaken intellectual
property work for Australian and multinational corporations in a range of technology areas
and has extensive international, legal and governance experience.
Other Directorships and Interests: Ashurst (Vice Chairman), Trans-Tasman IP
Attorneys Board (Chairman), The Macfarlane Burnet Institute for Medical Research and
Public Health Ltd, Chief Executive Women (Member), Melbourne University Law School
Foundation (Member) and Victorian Legal Admissions Board (Member).
Qualifications: BA LLB (Hons) (Melb), GAICD.
Wendy has been a Director since March 2015. She is a member of the Remuneration
Committee. Wendy was Senior Managing Director, Technology – Asia Pacific for
Accenture Limited from 2012 until June 2014. Her career at Accenture spanned some
32 years in which she held various senior positions, including Global Managing Director,
Technology Quality & Risk Management, Global Managing Director, Outsourcing Quality
& Risk Management and Director of Operations, Asia Pacific. She also served on
Accenture’s Global Leadership Council from 2008 until her retirement.
Other Directorships and Interests: Fitted For Work Ltd, University of Melbourne
(Council Member) and Chief Executive Women (Member), serving on the Scholarships
and Marketing & Communications Committees.
Qualifications: BAppSc (Information Technology), GAICD.
Harrison has been a Director since February 2007. He is a member of the Risk
Committee, the Audit Committee and the Nominations 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, Chairman
of Morgan Stanley Australia and Vice Chairman of Morgan Stanley Asia. Harrison also
spent two years in Beijing as Chief Executive Officer of China International Capital
Corporation and from 1991 until 1994, he was a senior officer of the Federal Deposit
Insurance Corporation in Washington.
Other Directorships and Interests: The Conversation Media Group Ltd (Chairman).
Qualifications: A.B. (Cum Laude) (Harvard), LLD (Honoris Causa) (Monash).
Brian Long
Non-Executive
Director
Mr Long is a
resident of New
South Wales.
Age 71.
Andrew Mohl
Non-Executive
Director
Mr Mohl is a
resident of New
South Wales.
Age 61.
Mary Padbury
Non-Executive
Director
Ms Padbury
is a resident
of Victoria.
Age 58.
Wendy Stops
Non-Executive
Director
Ms Stops is a
resident of Victoria.
Age 56.
Harrison Young
Non-Executive
Director
Mr Young is a
resident of
Victoria.
Age 72.
Commonwealth Bank of AustraliaAnnual Report 2017Financial report6Performance overview 2Corporate responsibility3 Corporate governance4Directors’ report5Other information7 Our business1 52
Our senior management team
Kelly was appointed Group Executive for Institutional Banking and Markets in
December 2013 and has been with the Group since 2004. The Institutional Banking
and Markets division is responsible for global relationships with corporate, government
and institutional clients, and provides a full range of financial services solutions across
financial and capital markets, transaction banking, working capital and risk management.
Previously Kelly held a variety of senior roles across the Group’s Institutional and
Business Banking divisions, was a management consultant with the Boston Consulting
Group, and spent time in Silicon Valley in both start-up and established software
companies. Kelly is a board member of the Football Federation of Australia and serves
on the Australian Government’s FinTech Advisory Group and NSW Government Digital
Advisory Panel. She is also a member of Chief Executive Women.
Adam was appointed Group Executive, Business and Private Banking in January
2015. He has responsibility for Business Banking, Private Banking, CommSec and
Bankwest. He joined the Group in 2004 and was the Chief Information Officer for the
Retail Banking and Business Banking divisions during the Core Banking Modernisation
project. He joined the Business and Private Banking Leadership Team in 2009, serving
as Executive General Manager of Local Business Banking from 2012 to 2014.
Prior to joining the Group, Adam was Principal at strategic consulting practice A.T.
Kearney, working across industries in Australia, New Zealand, Asia, and Europe. He
also previously worked as a consultant at Ernst & Young.
Kelly Bayer
Rosmarin
Group Executive,
Institutional Banking
and Markets
Adam Bennett
Group Executive,
Business and Private
Banking
Barbara Chapman
Chief Executive and
Managing Director,
ASB
Barbara was appointed Chief Executive and Managing Director of the Group’s New
Zealand subsidiary ASB in April 2011.
Barbara started her career with the Group in 1994 as Chief Manager Marketing at
ASB. In 2001, she assumed the role of Head of Retail Banking and Marketing for ASB.
In 2004 she moved into the role of Managing Director and Chief Executive Officer of
Sovereign Assurance. She joined Commonwealth Bank in 2006 as Group Executive,
Human Resources and Group Services.
David Cohen
Group Chief Risk
Officer
David commenced as Group Chief Risk Officer in July 2016. In this role he provides
leadership to ensure effective risk management and risk governance across the Group.
David joined the Group in June 2008 as Group General Counsel and took on the role of
leading Group Corporate Affairs in early 2012 with responsibility for advising the CEO
and Board on legal matters and leading the Group’s legal team, and 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.
53
Matt Comyn
Group Executive,
Retail Banking
Services
David Craig
Group
Executive,
Financial
Services and
Chief Financial
Officer
Rob Jesudason
Group Executive,
International
Financial Services
Melanie Laing
Group Executive,
Human Resources
Matt was appointed Group Executive, Retail Banking Services in August 2012. He is
responsible for the Group’s retail banking operations which serves a customer base of
over 10 million Australians.
Matt joined Commonwealth Bank in 1999 and has held a variety of senior leadership
roles in business and institutional banking, including Managing Director of CommSec.
He is a non-executive Director and the shareholder representative of Aussie Home
Loans. He is also a Director of Unicef Australia and a member of MasterCard’s Global
Advisory Board.
David commenced as Group Executive, Financial Services and Chief Financial Officer in
September 2006. He retired from his position on 30 June 2017. He was responsible for
the overall financial functions of the Group. He has over 40 years’ experience in finance,
accounting, audit, risk management, strategy and mergers and acquisitions.
Prior to joining the Group, David was CFO for Australand, Global CFO of PwC
Consulting, COO for PricewaterhouseCoopers Australasia and a Director of the
Australian Gas Light Company. David currently serves as a Director of Lendlease
Corporation Ltd and the Victor Chang Cardiac Research Institute, and as President of
the Financial Executives Institute.
Rob was appointed Group Executive, International Financial Services (IFS) in November
2014. From 1 July 2017 he has assumed the role of Group Executive, Financial Services
and Chief Financial Officer of the Group. While leading IFS he was responsible for
managing the Group’s offshore growth in retail and commercial banking, digital banking
and life insurance in China, India, Indonesia, Vietnam and South Africa.
Rob joined the Group in December 2011 as Group Executive, Group Strategic
Development. Previously he held positions at Credit Suisse, JP Morgan, Barclays PLC,
GE Capital and McKinsey & Company.
Melanie joined Commonwealth Bank in February 2012 as Group Executive, Human
Resources with responsibility for all of the Group’s HR functions. She has a strong and
diverse background leading HR functions for large companies, and has headed global
and regional HR functions for several multinational and ASX listed organisations.
Prior to joining the Group, Melanie was Executive General Manager, People & Culture at
Origin Energy and held executive HR leadership roles with Unisys Asia Pacific, Vodafone
Asia Pacific and the General Re Corporation. She is a Fellow of the Australian Institute
of Company Directors and the Australian Human Resources Institute, and a member of
Chief Executive Women.
Commonwealth Bank of AustraliaAnnual Report 2017Financial report6Performance overview 2Corporate responsibility3 Corporate governance4Directors’ report5Other information7 Our business1 54
Our senior management team
continued
Anna Lenahan
Group General
Counsel and Group
Executive, Group
Corporate Affairs
Vittoria Shortt
Group Executive,
Marketing and
Strategy
Annabel Spring
Group Executive,
Wealth Management
David Whiteing
Group Executive,
Enterprise
Services and
Chief Information
Officer
Anna joined Commonwealth Bank in November 2016 as Group General Counsel and
Group Executive, Group Corporate Affairs. She leads the Group’s Legal, Secretariat
and Corporate Affairs teams. She advises the CEO and the Board on legal matters and
is also responsible for delivering an integrated and consistent approach to the Group’s
external and internal affairs, communications, sustainability and corporate governance.
Prior to joining the Group, Anna was the Chief Risk and Legal Officer at Suncorp Group,
having joined Suncorp in 2011 as Group General Counsel and Company Secretary.
Previously she was a Corporate Partner at Allens Arthur Robinson (now Allens
Linklaters) and a crown prosecutor with the Department of Public Prosecutions in Perth.
Anna is a member of the GC100 (Australia) and Chief Executive Women.
Vittoria was appointed Group Executive, Marketing and Strategy in March 2015. She is
responsible for Corporate Strategy, Mergers and Acquisitions, cross-business strategic
initiatives and Marketing. She is also a Director of ASB Bank Limited in New Zealand.
Prior to her appointment as Group Executive, Vittoria was Commonwealth Bank’s
Chief Marketing Officer. She joined the Group in 2002 and has held a number of roles
in the retail banking businesses of both Commonwealth Bank and Bankwest, including
customer-facing, operations and strategy leadership roles. Previously she worked in
Corporate Finance and Mergers and Acquisitions with Deloitte and Carter Holt Harvey
in New Zealand. Vittoria is also a member of Chief Executive Women.
Annabel was appointed Group Executive, Wealth Management in October 2011. She
is responsible for Colonial First State, Colonial First State Global Asset Management,
Wealth Management Advice and Commlnsure. She is also a Director of The Colonial
Mutual Life Assurance Society Limited.
Annabel joined the Group in 2009 as Group Head of Strategy where she was
responsible for strategy, mergers and acquisitions and government relations. Previously
she was Managing Director and Global Head of Firm Strategy and Execution at Morgan
Stanley in New York. Annabel currently serves as Deputy Co-Chair of the Financial
Services Council and as a Director of the Victor Chang Cardiac Research Institute. She
is also a member of Chief Executive Women.
David was appointed Group Executive, Enterprise Services and Chief Information
Officer in July 2014. In this role he leads the technology and operations teams of
the Group and is responsible for delivering the Group’s strategic pillar of the ‘world-
leading application of operations and technology.’ Previously he was Executive General
Manager Architecture and Planning for Enterprise Services. He is a highly experienced
business and IT executive with a track record of delivering technology transformation in
many industries both in Australia and overseas.
Prior to joining the Group in 2013 David was Vice President of Enterprise Systems at BP
in the UK. He is a former Accenture partner with extensive SAP experience.
Our governance
55
Introduction
We are committed to high
standards of corporate governance
and have a corporate governance
framework which supports our
long-term performance and
sustainability and protects and
enhances shareholder and other
stakeholder interests.
We regularly review our corporate
governance arrangements and
practices to ensure they reflect
developments in regulation, market
practice and stakeholder expectations.
Our Corporate Governance Statement
can be viewed at commbank.com.au/
corporategovernance.
Shareholder engagement
We recognise our shareholders as our
owners and value our communication
with them. As a result, we seek to
provide shareholders with information
that is timely, of high quality and
relevant to their investment, and to
listen and respond to their feedback.
We have an investor relations program
to facilitate two-way communication
with shareholders and to foster
participation at shareholder meetings.
The program incorporates a number of
ways in which shareholders can access
information and provide feedback.
Communications and periodic
and continuous disclosure:
Key shareholder communications
include our Annual Report, Corporate
Responsibility Report, full-year and
half-year financial results and quarterly
trading updates.
In addition, we release all material
information to the Australian Securities
Exchange (ASX) in compliance with our
continuous disclosure obligations under
the Australian Corporations Act 2001
and the ASX Listing Rules.
We also have a written policy for
complying with those obligations.
It is summarised in our “Guidelines
for Communications between
Commonwealth Bank of Australia and
Shareholders”.
In addition, we post all material
information released to the ASX on
our website and regularly webcast
important market briefings via our
website.
Annual General Meetings: We
encourage shareholders to attend
and participate in our Annual General
Meetings (AGMs) and rotate the
location of our AGMs between
capital cities to facilitate shareholder
attendance.
We also encourage questions from
shareholders ahead of our AGMs.
Approximately 600 shareholder
questions in advance were received for
our 2016 AGM, providing us with useful
insights into shareholder concerns
and enabling us to provide relevant
feedback.
In addition, our AGM proceedings are
webcast for shareholders unable to
attend and those shareholders may
cast a direct vote or appoint a proxy to
attend and vote on their behalf.
Electronic communications: With
the increasing use of technology, we
encourage shareholders to provide
their email addresses so that we may
communicate with them electronically
about relevant matters, including our
AGMs, Annual Reports and dividend
payments. Shareholders may also send
communications electronically to our
share registry.
Board composition, performance
and committees
Our Board seeks to ensure that it is
independent and has an appropriate
mix of skills, experience and diversity
to effectively discharge its role and
responsibilities.
It also plans and reviews its Board
program, has established a number of
board standing committees and seeks
to enhance its performance.
Independence: As at the date of this
report, our Board comprised nine non-
executive directors, all of whom were
considered to be independent, and the
CEO.
Skills matrix: Our directors possess a
range of skills, experience and diversity
which, as a group, ensures our Board
is able to discharge its responsibilities,
including by determining our strategic
objectives and operational framework.
Our Board has a board skills
matrix which, together with the
Board’s director appointment
criteria, documents the requisite
skills, experience, expertise and
diversity it needs to ensure: a good
understanding of our business and
operating environment; effective
challenge of management; and
insightful contribution to strategic
debate. Our Board uses this matrix to
ensure an ongoing appropriate mix of
skills, expertise and experience as it
implements its ongoing
renewal process.
Commonwealth Bank of AustraliaAnnual Report 2017Financial report6Performance overview 2Corporate responsibility3 Corporate governance4Directors’ report5Other information7 Our business1 56
Our governance
continued
The graph below identifies the Board’s current skills, expertise and experience.
Board Skills Matrix
Financial Regulation / Legal Expertise
Held CEO or Similar Position
General management Exposure to International Operations
New Media / Technology
Experience as a Non-Executive Director of at least two other Listed Entities
Financial Acumen
Retail & Corporate Banking / Investment Banking / Financial Institutions
0
1
2
3
4
5
6
7
8
9 10
Number of Directors as at 30 June 2017
Board program: During FY17, our
Board focused on planning its forward
Board program to ensure adequate
allocation of time was made for
strategic and operational priorities.
The Board Committees generally
operate in a review capacity, except
in cases where our Board specifically
delegates one of its powers to the
committee.
The broad areas of focus were on
our corporate strategy, performance
against business plans, material risk
review and prioritisation, technology
resilience and remuneration
governance.
Performance review: Our Board
reviews its performance and that of
the Board Committees and individual
directors annually. Every third year,
the review is facilitated by an external
consultant.
Our Board reviews its program on an
ongoing basis and adjusts it to reflect
our strategic and operational needs.
Board Committees: From time to
time, our Board establishes standing
committees. Those committees focus
on specific issues and areas of our
operations, thereby strengthening our
Board’s oversight.
As at the date of this report, our
Board has four substantive standing
committees (Board Committees):
• the Nominations Committee;
• the Audit Committee;
• the Risk Committee; and
• the Remuneration Committee.
In FY17, the review was facilitated by an
external consultant. The outcome of the
review was that the Board will increase
its strategic focus, given the challenges
ahead, including in competition,
technology and regulation.
Risk management
We recognise that risk is inherent
in business and that effective risk
management is essential in delivering
on our business objectives and is a
key component of sound corporate
governance.
Our Risk Management function is
responsible for developing our Risk
Management Framework (RMF) to allow
us to manage risks within our Board-
approved risk appetite.
Our RMF covers all our systems,
structures, policies, processes and
people that or who identify, measure,
evaluate, monitor, report and control
or mitigate both internal and external
sources of material risk.
Our RMF is founded on three key
components:
• our Risk Appetite Statement;
• our Business Plan; and
• our Risk Management Strategy.
Our Risk Appetite Statement articulates
the type and degree of risk our Board is
prepared to accept and the maximum
level of risk within which we must
operate for each risk type.
Our Business Plan summarises our
approach to implementing our strategic
objectives. The Plan has a rolling
three year duration and takes into
consideration material risks arising from
its implementation.
Our Risk Management Strategy
describes each material risk, our
approach to managing those risks and
how risk management is embedded
through our governance, policies and
procedures.
57
During FY17, our Board undertook
its annual review of our RMF.
As in previous years, our Board
discussed key areas of focus for RMF
improvement.
There are a number of material risks,
including economic, environmental
and social sustainability risks, that
could adversely affect us and the
achievement of our objectives. Those
risks and how we seek to manage them
are described in Notes 31 to 34 to the
Financial Statements on pages 148 to
171 of this report.
In addition, our environmental, social
and governance performance data is
set out in the Corporate Responsibility
section appearing on pages 47 to 48 of
this report.
Our RMF is accompanied by internal
and external audit processes, which
also assist in managing risk.
Acting ethically and responsibly
Our commitments: The “Our
Commitments” document is our
foundational code of conduct policy
and sets our expectations of our
people, including our directors, senior
executives and employees, when
engaging with, and balancing the
interests of, our stakeholders.
The policy is critical in achieving our
vision of excelling at securing and
enhancing the financial wellbeing of
people, businesses and communities
and living our values of integrity,
accountability, collaboration, excellence
and service.
It contains eight commitments to be
made by all of our people:
• “I commit to upholding the guiding
framework of our vision and values”;
• “I commit to honesty”;
• “I commit to maintaining
confidentiality”;
• “I commit to disclosing and managing
conflicts of interest”;
• “I commit to appropriate use of
technology and communications”;
• “I commit to operating in a safe and
inclusive manner”;
• “I commit to maintaining personal
standards that support our vision and
values”; and
• “I commit to understanding and
fulfilling all aspects of my role”.
In addition, the document includes
“Values Guidelines” to assist our
people to understand, practice and
demonstrate our vision and values.
Conflicts of interest: Our Conflicts
of Interest Framework comprises a
number of components, including our
Conflicts of Interest Policy, our Gifts
and Entertainment Policy and various
supporting business unit level policies
and procedures. Those procedures
include conflicts of interest registers
and gifts and entertainment registers.
The framework seeks to ensure that all
actual, perceived or potential conflicts
of interest are identified and recorded,
and then avoided or managed, as
appropriate.
Anti-bribery and corruption: We are
committed to embedding a policy of
zero tolerance for bribery, corruption
and facilitation payments across our
business.
We have an Anti-Bribery and Corruption
Policy under which all parts of our
business are required:
• to consider, identify and understand
the bribery and corruption risks
arising within their operations;
• to apply risk controls to those risks
and to monitor key risk indicators;
and
• to implement an assurance program
to test the control environment’s
ongoing effectiveness under the Anti-
Bribery and Corruption Policy.
Securities trading: Under our
Securities Trading Policy, our people
are prohibited from dealing in securities
when they possess inside information.
They are also prohibited from hedging,
or otherwise limiting their economic
risk, in relation to unvested rights or
shares acquired under any of our
employee incentive plans. Further, our
directors and our CEO’s direct reports
are prohibited from hedging their
existing holdings of securities issued by
us or any of our subsidiaries.
In addition, the policy prohibits our
directors, senior executives and certain
specified employees and contractors
from dealing in securities issued by
us or any of our subsidiaries, except
during limited “trading windows”.
Whistleblower protection: We place
great importance on fostering a culture
that encourages our people to speak
up about issues and conduct that
cause them concern.
Our Whistleblower Policy is designed
to encourage and support individuals
in reporting such matters, knowing
that it is safe to do so, they will receive
support and they will not be subject to
retaliation or victimisation in response.
The policy is aligned with the Australian
Bankers’ Association’s “Guiding
Principles – Improving Protections for
Whistleblowers”.
Commonwealth Bank of AustraliaAnnual Report 2017Financial report6Performance overview 2Corporate responsibility3 Corporate governance4Directors’ report5Other information7 Our business1 58
Our governance
continued
Under the policy, we have a
Whistleblower Protection Officer, whose
role includes overseeing the protection
of whistleblowers. We also have a
Misconduct Governance Committee,
which includes four of the CEO’s
direct reports, who are also “Executive
Champions” under the policy, and
oversee the whistleblower program’s
effectiveness.
Further, our SpeakUP Hotline offers
a trusted avenue for our people and
external partners to report issues and
concerns. In addition, our people are
free to make disclosures directly to a
regulator at any time.
Slavery and Human Trafficking:
During FY17 we published a Slavery
and Human Trafficking Statement,
in compliance with the UK Modern
Slavery Act, and updated our Supplier
Code of Conduct to improve our
recognition of human rights and
supplier compliance with international
human rights laws. Further information
on these matters is set out in the
Corporate Responsibility section
on page 46 of this report and in our
Corporate Responsibility Report.
Diversity and Inclusion
Creating an inclusive workplace that
reflects the communities in which we
operate is essential to listening and
responding to stakeholder needs and
thereby enabling us to deliver on our
vision.
Our Diversity and Inclusion Strategy
aims to leverage diversity and foster
inclusion so that all our people feel
valued and respected.
Women represent 58% of our
workforce(1) and 50% of our Executive
Committee, our most senior
management committee. Additionally,
40% of our Board and 44% of our
non-executive directors are women.
We are progressing towards achieving
our measureable objectives for
gender diversity at management levels
and have achieved our measurable
objective at Board level.
Further details of our policy on
diversity and inclusion are set out in
the Corporate Responsibility section
of this report and in our Corporate
Responsibility Report.
(1)
Based on total head count (permanent employees and fixed term contractors) as at 30 June 2017, but excluding employees of the Bank’s New Zealand bank,
ASB or the Bank’s New Zealand insurer, Sovereign.
Directors’ report
59
Our businessPerformance overview Corporate responsibility Corporate governanceDirectors’ reportOther informationCommonwealth Bank of AustraliaAnnual Report 2017Financial report6213457 60
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 2017.
Principal Activities
We are 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.
Our operations are conducted primarily in Australia, New Zealand
and the Asia Pacific region. In addition, we also operate in a
number of other countries including the United Kingdom, the
United States, China, Japan, Singapore, Hong Kong, Indonesia
and South Africa.
There have been no significant changes in the nature of the
principal activities during the financial year.
Consolidated Profit
Our net profit after income tax and non-controlling interests for the
year ended 30 June 2017 was $9,928 million (2016: $9,223 million).
Our 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, relative to the prior year.
Excluding a $397 million gain on sale of the Group’s remaining
investment in Visa Inc., underlying operating income increased
due to solid growth in banking income.
Operating expenses increased, including a $393 million one-off
expense for acceleration of amortisation on certain software
assets. Underlying expenses increased due to higher staff and
technology costs, and increased investment spend partly offset by
the incremental benefit generated from productivity initiatives.
Loan impairment expense decreased primarily due to lower
provisioning levels in Institutional Banking and Markets and
Business and Private Banking, partly offset by an increase in
Bankwest. Provisioning levels remain prudent and there has been
no change to the economic overlay.
Dividends
The Directors have determined a fully franked (at 30%) final
dividend of 230 cents per share amounting to $3,979 million.
The dividend will be payable on 29 September 2017 to
shareholders on the register at 5pm AEST on 17 August 2017.
Dividends paid in the year ended 30 June 2017 were as follows:
• In respect of the year to 30 June 2016, a fully franked final
dividend of 222 cents per share amounting to $3,808 million
was paid on 29 September 2016. The payment comprised
direct cash disbursements of $3,222 million with $586 million
being reinvested by participants through the Dividend
Reinvestment Plan (DRP); and
• In respect of the year to 30 June 2017, a fully franked interim
dividend of 199 cents per share amounting to $3,429 million
was paid on 4 April 2017. The payment comprised direct
cash disbursements of $2,871 million with $558 million being
reinvested by participants through the DRP.
Review of Operations
An analysis of operations for the financial year is set out in the
Performance Overview sections.
Changes in State of Affairs
We continue 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
during the financial year.
Events Subsequent to Balance Sheet Date
We expect the DRP for the final dividend for the year ended
30 June 2017 will be satisfied by the issue of shares of
approximately $1.4 billion.
AUSTRAC Civil Proceedings
On 3 August 2017, Australian Transaction Reports and Analysis
Centre (AUSTRAC) commenced civil penalty proceedings against
CBA. CBA takes the allegations made by AUSTRAC very seriously
and will file a defence in relation to this matter, which will take
significant time to prepare. The actual outcome in this matter
will be determined by a Court in accordance with established
legal principles.
The AUSTRAC statement of claims relates to alleged past and
ongoing contraventions of four provisions of the Anti-Money
Laundering and Counter-Terrorism Financing Act 2006 (Cth). To the
extent that contraventions may be established, a Court will ordinarily
take into account a range of factors in setting penalties. One factor
is the extent to which any contraventions arise from a single course
of conduct. For example, AUSTRAC alleges that approximately
53,000 threshold transaction reports were lodged late. Late
lodgement carries a penalty of up to $18 million. However, these
alleged contraventions could be considered to arise from a single
course of conduct to the extent that they emanated from the same
systems error. Ultimately, a Court will seek to ensure that, overall,
any civil penalties are just and appropriate and do not exceed what
is proper having regard to the totality of established contraventions.
Under the Act, the only mechanism available to AUSTRAC to
secure a pecuniary penalty from CBA is by taking court action.
What we can say about these proceedings is limited until they
have run their course. CBA is reviewing the allegations in the
580 page statement of claim and at this time it is not possible to
reliably estimate the possible financial effect on the Group. It is not
appropriate to disclose any detailed information about the subject
matter of the claims as court proceedings are on foot and such
information would be highly likely to be prejudicial to our position.
Aussie Home Loan Acquisition
On 4 August 2017, John Symond exercised his put option, which
will require the Group to acquire a 20% interest in AHL. The
purchase price for the remaining 20% interest will be determined
in accordance with the terms agreed in 2012. The purchase
consideration will be paid in the issue of CBA shares. The Group
will consolidate AHL from completion of the acquisition which is
currently expected to be in late August 2017.
Strategic Corporate Actions
We are committed to securing and enhancing the financial
wellbeing of people, businesses and communities, and the
provision of insurance products to our customers remains core
to that vision. CommInsure and Sovereign are strong businesses
with scale, expertise, competitive products and access to
attractive distribution channels. We are in discussions with third
parties in relation to their potential interest in our life insurance
businesses in Australia and New Zealand. The outcome of those
discussions is uncertain. While the discussions may lead to the
divestment of those businesses, we will also consider a full range
of alternatives, including retaining the businesses, reinsurance
arrangements or other strategic options.
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 business strategy and future developments are included in
the strategy and performance section on pages 12 to 21. The
material business risks are set out in the Business Risks section
on pages 22 to 24. These should be read in conjunction with
Notes 31 to 34 to the Financial Statements on pages 148 to 171.
Environmental Reporting
We are 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. The Group
has a long history in voluntary environmental reporting, including
Corporate Responsibility Reporting and CDP (formerly the Carbon
Disclosure Project). As a result, the Group is well placed to meet
the NGER requirements.
We are not subject to any other significant environmental
reporting regulation under any law of the Commonwealth or of a
State or Territory. The Environment Policy is updated to ensure
risks are managed appropriately.
Directors
The names of the Directors holding office at any time during or
since the end of the financial year are:
• Catherine Livingstone AO (appointed Chairman 1 January 2017)
• Ian Narev
• Shirish Apte
• Sir David Higgins
• Launa Inman
• Brian Long
• Andrew Mohl
• Mary Padbury
• Wendy Stops
• Harrison Young
• Sir John Anderson KBE (retired 9 November 2016)
• David Turner (retired 31 December 2016)
Details of current Directors, their experience, qualifications, and
any special responsibilities, including Committee memberships
are set out on pages 50 and 51.
61
Other Directorships
The Directors held the following directorships in other listed companies in the three years prior to the end of the 2017 financial year.
Director
Company
Catherine Livingstone
WorleyParsons Limited
Telstra Corporation Limited
Sir John Anderson
APN News & Media Limited
Launa Inman
Bellamy’s Australia Limited
Super Retail Group Limited
Brian Long
Ten Network Holdings Limited
Brambles Limited
Date Appointed
Date of Ceasing
(if applicable)
01/07/2007
17/11/2000
26/03/2015
18/02/2015
21/10/2015
01/07/2010
01/07/2014
27/04/2016
30/06/2017
28/02/2017
25/07/2016
Directors’ Meetings
The number of Directors’ meetings (including meetings of standing committees of Directors) and the number of meetings attended
by each of the Directors during the financial year were:
Director
Catherine Livingstone (2)
Ian Narev
Sir John Anderson (3)
Shirish Apte
Sir David Higgins
Launa Inman
Brian Long
Andrew Mohl
Mary Padbury
Wendy Stops
David Turner (4)
Harrison Young
No. of Meetings Held (1) No. of Meetings Attended
11
11
5
11
11
11
11
11
11
11
6
11
11
11
3
11
11
11
10
11
11
11
6
11
(1) The number of scheduled and unscheduled meetings held during the time the Director was a member of the Board and was eligible to attend.
(2) Catherine Livingstone was appointed Chairman of the Board effective 1 January 2017.
(3) Sir John Anderson retired effective 9 November 2016.
(4) David Turner retired effective 31 December 2016.
Committee Meetings
Director
Catherine Livingstone (3)
Ian Narev (4)
Sir John Anderson (5)
Shirish Apte (6)
Sir David Higgins
Launa Inman
Brian Long
Andrew Mohl
Mary Padbury (7)
Wendy Stops
David Turner (8)
Harrison Young (9)
Risk Committee
Audit Committee
Remuneration Committee Nominations Committee (1)
No. of
Meetings
Held (2)
No. of
Meetings
Attended
No. of
Meetings
Held (2)
No. of
Meetings
Attended
No. of
Meetings
Held (2)
No. of
Meetings
Attended
No. of
Meetings
Held (2)
No. of
Meetings
Attended
1
–
3
8
8
–
8
8
–
–
4
8
1
–
2
8
8
–
8
8
–
–
4
8
8
–
3
8
–
8
8
–
–
–
–
8
8
–
2
8
–
8
8
–
–
–
–
8
1
–
–
–
10
10
–
10
10
10
5
–
1
–
–
–
10
10
–
10
10
10
5
–
3
–
3
–
–
–
7
–
5
–
4
7
3
–
2
–
–
–
7
–
5
–
4
7
(1) Formerly named the Board Performance & Renewal Committee.
(2) The number of scheduled and unscheduled meetings held during the time the Director was a member of the relevant committee.
(3)
Catherine Livingstone was appointed Chairman of the Nominations Committee effective 1 January 2017 and appointed as a member of the Remuneration
Committee effective 4 June 2017.
Ian Narev attends committee meetings in an ex-officio capacity.
(4)
(5) Sir John Anderson retired effective 9 November 2016.
(6) Shirish Apte was appointed Chairman of the Risk Committee effective 30 September 2016.
(7) Mary Padbury was appointed as a member of the Nominations Committee effective 8 September 2016.
(8) David Turner retired effective 31 December 2016.
(9) Harrison Young ceased as Chairman of the Risk Committee effective 30 September 2016 and remains as a member of the Risk Committee.
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Directors’ report
continued
Directors’ Shareholdings and Options
Particulars of shares held by Directors and the Chief Executive
Officer in the 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 and Share Rights Outstanding
As at the date of this report there are no employee options
and 3,300,826 share rights outstanding in relation to 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 page 60 of this report, and the
Company Secretaries of the Bank, referred to below, are
indemnified under the Constitution of Commonwealth Bank of
Australia (the Constitution), as are all senior managers of the Bank.
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 Company 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 the Constitution which also includes
indemnification in substantially the same terms to that provided
in the Constitution, in favour of each:
• company 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
• 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, company secretary or senior manager of that entity is
a nominee of an entity 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, company secretaries, officers and certain employees
of the Bank and related bodies corporate as defined in the
insurance policy. The insurance is appropriate pursuant to
section 199B of the Corporations Act 2001. In accordance with
commercial practice, the insurance policy prohibits disclosure of
the terms of the policy, including the nature of the liability insured
against and the amount of the premium.
Proceedings on behalf of the Bank
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.
Rounding and Presentation of Amounts
Unless otherwise indicated, the Bank has rounded off amounts
in this Directors’ Report and the accompanying financial
statements to the nearest million dollars in accordance with
ASIC Corporations Instrument 2016/191.
The financial information included in this Annual Report has
been prepared and presented in accordance with Australian
Accounting Standards, unless otherwise indicated. This ensures
compliance with International Financial Reporting Standards.
The Group manages its business performance using a “cash
basis” profit measure. The key items that are excluded from
statutory profit for this purpose are non-recurring or not
considered representative of the Group’s ongoing financial
performance. Profit on an “underlying basis” is used primarily in
the Wealth Management businesses. It provides a profit measure
that excludes both the volatility of equity markets on shareholder
funds and the mark to market revaluations on the Guaranteed
Annuity portfolio for a measure of core operating performance.
Company Secretaries
Details of the Bank’s Company Secretaries, including their
experience and qualifications, are set out below.
Taryn Morton was appointed Group Company Secretary of
the Bank in October 2015. She has over 18 years of combined
corporate governance, company secretarial and legal
experience. Prior to the Bank, she was with Insurance Australia
Group and before that held the role of Company Secretary
of Qantas Airways, where she was also a director of Qantas
subsidiaries. Her earlier governance roles were at Babcock &
Brown, Ten Network Holdings and Ashurst. She holds Bachelor
degrees in Arts and Law and is a Fellow of the Governance
Institute of Australia.
Clare McManus was appointed a Company Secretary of
the Bank in February 2017. She was previously the Deputy
Company Secretary and Corporate Counsel at WorleyParsons
and prior to that an Associate Director of Macquarie Group
and a Senior Associate at Minter Ellison. She holds a Bachelor
of Laws (Hons), Bachelor of Commerce, Diploma of Modern
Languages (Mandarin) and Graduate Diploma in Applied
Corporate Governance.
Carla Collingwood was a Company Secretary of the Bank from
July 2005 until January 2017. From 1994 until 2005, she was a
solicitor with the Bank’s Legal Services, before being appointed
to the position of General Manager, Secretariat. She holds a
Bachelor of Laws degree (Hons) and a Graduate Diploma in
Applied Corporate Governance from the Governance Institute
of Australia. She is a Graduate of the Australian Institute of
Company Directors.
63
Message from the Remuneration Committee
Chairman
Dear Shareholder,
On behalf of the Remuneration Committee, I present the CBA
Remuneration Report for the 2017 financial year (FY17).
You will note from the Remuneration Report the Board’s
heightened focus on risk and reputation matters. This is an
area of paramount importance to the Board and we take these
matters very seriously. During FY17 an enhanced framework
was developed to support the ongoing consideration of risk
and reputation matters in the determination of CEO and Group
Executive accountability and remuneration outcomes.
Although the Group has delivered strong results for shareholders
in FY17, the Board recognises the significant damage caused
to the Group’s trust and reputation as a result of risk matters,
most notably the recent civil penalty proceedings initiated by the
Australian Transaction Reports and Analysis Centre (AUSTRAC)
on 3 August 2017.
In determining Executive remuneration outcomes for FY17, the
overriding consideration has been to the collective accountability
of the Executives for the overall reputation of the Group and risk
matters. Accordingly, the Short-Term Variable Remuneration
(STVR) outcomes for the CEO and Group Executives were
adjusted downwards to zero for FY17. For the CEO this STVR
reduction results in an FY17 remuneration outcome $2.73 million
below what the Group’s FY17 performance would have otherwise
delivered. You will also note that the Realised Remuneration for
Executives in FY17 is significantly lower in comparison to the
previous year (55% lower for the CEO and 45% lower on average
for Group Executives).
In assessing risk and reputation matters, the Board considered the
timing of relevant matters to determine the appropriate element
of remuneration to adjust, including deferred remuneration. For a
number of former Group Executives, deferred remuneration vesting
outcomes were also significantly reduced including 100% forfeiture
of deferred STVR and Long-Term Variable Remuneration (LTVR)
vesting reductions of approximately 40% – 70%. The Board will
continue to review these matters and consider any further impacts
on Executive remuneration outcomes.
The Board has also recognised that we have a shared
accountability for the overall reputation of the Group and risk
matters and therefore has decided to reduce Non-Executive
Director base and committee fees for the 2018 financial year
(FY18) by an amount equivalent to 20% of our individual FY17 fees.
Looking ahead, we have made significant changes to our
Executive remuneration approach. We have done this as a direct
response to the vote against the Remuneration Report at the
2016 Annual General Meeting (AGM). Prior to the 2016 AGM, the
Board withdrew the proposed resolution relating to the CEO’s
FY17 LTVR award. We then consulted widely with stakeholders
and identified the following key concerns:
Opaque application of board discretion:
Executive remuneration outcomes were perceived as being
out of line with CBA’s performance and our shareholders’
experience. STVR was of particular concern due to the perceived
lack of variability among Executives and not adequately reflecting
Executive accountability through consequence for risk and
reputation matters.
The People and Community hurdle for the originally proposed
FY17 LTVR was seen to lack transparency and to be overly reliant
on Board discretion to determine vesting outcomes.
Excessive use of non-financial measures:
Non-financial measures were considered too highly weighted
in the remuneration framework, with insufficient clarity of how
objective and stretching performance hurdles would be set. The
duplication of measures across the STVR and LTVR plans was
also of concern.
Use of fair value allocation approach:
There were concerns that the discounted fair-value methodology
used to determine the number of Reward Rights granted under
the LTVR could be seen to understate the potential award value.
Lack of transparency in the Remuneration Report:
The Remuneration Report for the 2016 financial year (FY16) was
viewed as complex and lacking transparency, making it difficult
to navigate and understand details of the Group’s remuneration
framework and the basis for Executive remuneration outcomes.
The Board has undertaken a comprehensive review of our
Executive remuneration strategy, framework and governance,
which has responded to these concerns in full. We have
substantially revised this year’s Remuneration Report to
specifically address the key concerns and improve the
transparency of our decisions.
We have clarified our core remuneration beliefs. Executive
remuneration outcomes must reflect a strong linkage to
performance outcomes, with financial performance being a core
component of this. However, we also continue to support the use
of a range of non-financial measures to reinforce the importance
of balancing the needs of our shareholders and customers and
also the expectations of the broader community. It is through this
balanced approach that sustainable outperformance and long-
term shareholder value creation can be achieved.
Subject to shareholder support, for FY18 we will adopt a new
Executive remuneration approach that delivers:
• Increased weighting of financial measures in STVR and use
of quantitative performance targets that are measurable and
disclosed each year;
• Non-financial measures in the LTVR relating to the areas of
Trust and Reputation and Employee Engagement, which are
strategic imperatives for the Group and strongly aligned to
long-term value creation for our shareholders, limited to 25%
of the total LTVR;
• Transparency of LTVR awards through the use of a face value
methodology;
• No duplication of performance measures across the STVR
and LTVR plans; and
• Enhanced consideration of risk in remuneration structures,
with STVR deferral periods increased to two years and
deferred into equity.
These and other changes relating to FY17 and FY18 are detailed
in the table on the following page.
During FY17 CBA committed to implementing all of the
recommendations from Stephen Sedgwick’s independent review
of product sales commissions and product based payments
in FY18. With the Board’s oversight we have already made
significant progress on this important reform agenda and will
continue to update you on our progress.
Although the past year has seen significant focus and change
across the sector, CBA remains steadfastly committed to
delivering the right outcomes for customers and increasing the
level of trust and engagement from our shareholders, our people
and the community.
We appreciate the feedback provided during the year and your
involvement as owners of CBA. I invite you to review the full
report, and thank you for your interest.
Sir David Higgins
Committee Chairman
8 August 2017
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Remuneration report
Board response to concerns raised in relation to the FY16 Remuneration Report
In direct response to the concerns raised in relation to the FY16 Remuneration Report, we have undertaken a comprehensive review
of our Executive remuneration strategy, framework and governance and have made changes to support our business strategy and
ensure shareholder alignment.
The FY17 Remuneration Report has been substantially revised to enhance transparency and clarity regarding Key Management
Personnel (KMP) remuneration outcomes. Changes in STVR arrangements for FY18 will enable further disclosure of performance
measures and outcomes in the FY18 Remuneration Report.
Issue
STVR
Opaque Application of
Board Discretion
Excessive Use of
Non-Financial Measures
Changes we have made
FY17 STVR outcomes demonstrate clear remuneration and
performance linkage
• FY17 STVR outcomes clearly demonstrate accountability for risk and
reputation matters, with Executive performance assessments also reflecting
improved rigour in the process.
• The FY17 STVR outcomes for the CEO and all Group Executives were
adjusted downwards to zero, reflecting collective accountability of Executives
for the overall reputation of the Group and risk matters.
When it is
effective
FY17
Increased weighting of financial and quantitative measures in STVR
• Financial measures in Executive STVR performance scorecards will remain
FY18
unchanged, however there will be an increased weighting on these measures.
The CEO financial measures will increase from 40% to 60%.
• The Group Chief Risk Officer STVR performance scorecard will have a
stronger weighting towards risk management related measures and less
emphasis on financial measures compared to other Executives.
Improved rigour of non-financial measures
• Increased quantitative measurement of non-financial measures and the
introduction of Net Promoter Score (NPS) customer targets.
Improved depth of disclosure for STVR measures and basis
for outcomes
• Disclosure of the CEO’s FY18 STVR performance scorecard (including
weightings and performance outcomes) will be included in the FY18
Remuneration Report.
STVR deferred into equity together with a longer deferral period
• The deferred component of the STVR will be delivered into equity, rather than
cash, and the vesting period will be increased from one year to two years,
with 50% vesting after one year and the remaining 50% vesting after two
years. This change further strengthens the link between STVR outcomes
and performance over the medium term. This also provides the Board with
greater opportunity to adjust deferred STVR outcomes, if required, by taking
into consideration any relevant matters that occur over the vesting period.
Withdrawal of proposed People and Community measure for FY17
LTVR
• The FY17 LTVR measures proposed in the FY16 Remuneration Report were
FY17
withdrawn prior to the AGM. The Board made the decision to grant the
FY17 LTVR award under the measures that were previously approved at the
2015 AGM (75% Relative Total Shareholder Return (TSR) and 25% Relative
Customer Satisfaction).
Comprehensive review of LTVR measures
• A comprehensive review of LTVR performance measures was undertaken
FY18
during the year.
• The performance measures for the FY18 LTVR grant are: 75% Relative TSR,
12.5% Trust and Reputation and 12.5% Employee Engagement. Both Trust
and Reputation and Employee Engagement will be quantitative measures.
• A positive TSR gateway will be applied to the 25% non-financial LTVR
component to ensure that no vesting on these measures occurs unless the
change in shareholder value over the period is positive.
LTVR
Excessive Use of
Non-Financial Measures
65
Issue
LTVR
Use of Fair Value Allocation
Approach
When it is
effective
FY18
Changes we have made
Change from fair value to face value allocation methodology for LTVR
• Face value rather than fair value will be used to determine the number of
Reward Rights granted under the FY18 LTVR. Details of the FY18 LTVR will
be disclosed in the 2017 Notice of Meeting and FY18 Remuneration Report.
• The maximum face value of FY18 LTVR awards is set at 180% of Fixed
Remuneration (FR) with no dividend equivalent payment. The overall
maximum value has decreased as previously the total face value of LTVR
awards was approximately 200% of FR, inclusive of dividend equivalent
payments (three-year average).
• A face value approach provides greater simplicity and transparency for
shareholders.
STVR and LTVR
Excessive Use of
Non-Financial Measures
No duplication of performance measures between STVR and LTVR
• The customer measure will no longer be duplicated in the STVR and LTVR
FY18
plans.
• Customer measures will only be included in the STVR with Customer NPS
being adopted.
Remuneration
Governance
Opaque Application
of Board Discretion
Enhanced risk and remuneration governance
• The Board has reviewed and strengthened its remuneration governance
FY17
procedures, including developing an enhanced framework for the
consideration of risk and reputational matters in the determination of
Executive variable remuneration outcomes.
• The framework will provide the Board with increased transparency, rigour and
consistency when applying its discretion in assessing Executive outcomes.
This Remuneration Report details the performance and remuneration frameworks and outcomes for CBA and its KMP for FY17.
The report has been prepared and audited against the disclosure requirements of the Corporations Act 2001 (Cth) (‘Corporations Act’).
Contents
1. FY17 KMP
2. FY17 Summary
3. Executive Remuneration Framework
4. Linking Remuneration to Performance
5. Remuneration Governance
6. Executive Remuneration in Detail
7. Non-Executive Director Arrangements
8. Loans and Other Transactions
9. Key Terms
66
67
69
71
73
73
78
80
81
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66
Remuneration report
continued
1. FY17 KMP
KMP are 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. The table below outlines CBA’s KMP for FY17.
Name
Chairman
Position
Term as KMP
Catherine Livingstone AO (1)
Chairman
Current Non-Executive Directors
Shirish Apte
David Higgins
Launa Inman
Brian Long
Andrew Mohl
Mary Padbury
Wendy Stops
Harrison Young
Former Non-Executive Directors
David Turner(2)
John Anderson(3)
Director
Director
Director
Director
Director
Director
Director
Director
Chairman
Director
Managing Director and Chief Executive Officer
Ian Narev
Group Executives
Managing Director and CEO
Kelly Bayer Rosmarin
Group Executive, Institutional Banking and Markets
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Part Year
Part Year
Full Year
Full Year
Full Year
Full Year
Full Year
Adam Bennett
David Cohen
Matt Comyn
David Craig(4)
Rob Jesudason(5)
Melanie Laing
Anna Lenahan(6)
Vittoria Shortt
Annabel Spring
David Whiteing
Group Executive, Business and Private Banking
Group Chief Risk Officer
Group Executive, Retail Banking Services
Group Executive, Financial Services and Chief Financial Officer
Full Year
Group Executive, International Financial Services
Group Executive, Human Resources
Group General Counsel and Group Executive, Group
Corporate Affairs
Group Executive, Marketing and Strategy
Group Executive, Wealth Management
Group Executive, Enterprise Services and Chief
Information Officer
Full Year
Full Year
Part Year
Full Year
Full Year
Full Year
(1) Catherine Livingstone AO was a Non-Executive Director from 1 July 2016 to 31 December 2016 and appointed as Chairman from 1 January 2017 to 30 June 2017.
(2) David Turner retired from his role as Chairman on 31 December 2016.
(3) Sir John Anderson retired from his role as a Non-Executive Director on 9 November 2016.
(4) David Craig retired from the Group Executive, Financial Services and Chief Financial Officer role on 30 June 2017.
(5) Rob Jesudason was appointed as the Group Executive, Financial Services and Chief Financial Officer on 1 July 2017.
(6) Anna Lenahan was appointed to the Group General Counsel and Group Executive, Group Corporate Affairs role on 28 November 2016.
67
2. FY17 Summary
FY17 Fixed
Remuneration
(FR)
FR is reviewed annually, following the end of the 30 June performance year. For FY17:
• The CEO did not receive a FR increase.
• The average FR increase for the Executives who did not change roles during the year was 0.7%.
• Due to a change in role, David Cohen received an increase to his FR effective from the date of his
appointment to the position of Group Chief Risk Officer on 1 July 2016.
FY17
Remuneration
Adjustments
The Board considered risk and reputation matters in the determination of variable remuneration outcomes,
with adjustments made as follows:
• The CEO and all Group Executives were assessed as Not Met on risk, reflecting collective accountability
for the overall reputation of the Group and risk matters. Accordingly, the FY17 STVR outcomes for
the CEO and all Group Executives were adjusted downwards to zero. Executive performance against
financial and non-financial measures was strong for FY17, however, remuneration outcomes demonstrate
overriding consideration of the significant damage caused to the Group’s trust and reputation as a result
of risk matters, most notably the recent civil penalty proceedings initiated by AUSTRAC.
• For former Group Executives, reductions were applied to the vesting outcome of their deferred variable
remuneration to reflect risk and reputation matters identified after they ceased as a Group Executive. The
Board considered the timing of these matters to determine the appropriate element of deferred variable
remuneration for adjustment. Downward adjustments to former Group Executive variable remuneration
outcomes include 100% forfeiture of deferred STVR and LTVR vesting reductions of approximately
40% – 70%. The Board will continue to review these matters and consider further impacts on Executive
remuneration outcomes.
STVR outcomes for FY17 reflect CBA’s overall performance and risk-related adjustments:
FY17 STVR Outcomes
FY16 STVR Outcomes
% of Target
% of Maximum
% of Target
% of Maximum
CEO
Group Executives
0%
0%
0%
0%
108%
72%
95% – 124%
63% – 82%
FY17 STVR
Outcomes
FY14 LTVR Award
Outcomes
The FY14 LTVR Award, which reached the end of its four-year performance period on 30 June 2017,
vested at 67.08%, reflecting sustained delivery of returns to shareholders and customer satisfaction.
Performance
Period: 1 July
2013 to 30 June
2017)
Performance Measure
Performance Outcome
Vesting Outcome
Relative TSR
(75% of award)
Relative Customer
Satisfaction(1)
(25% of award)
55th percentile ranking relative to peer group
60.0%
Average result over performance period
• Retail Main Financial Institution (MFI)
Customer Satisfaction = 1.25
• Wealth Management Customer
Satisfaction = 1.25
• Business MFI Customer Satisfaction =1.04
Total weighted average ranking = 1.16
92.0%
(1)
Vesting outcome for Relative Customer Satisfaction is calculated based on the weighted average ranking across the three
independent surveys (weighted by the business area’s contribution to Net Profit after Tax (NPAT) at the beginning of the
performance period).
FY17 LTVR Grant
(Performance
Period:
1 July 2016 to
30 June 2020)
For the FY17 LTVR grant:
• The measures originally proposed in the FY16 Remuneration Report (50% Relative TSR, 25% Relative
Customer Satisfaction, 25% People and Community) were withdrawn prior to the 2016 AGM.
• The Board determined to grant the award under the measures that were previously approved by
shareholders at the 2015 AGM (75% Relative TSR and 25% Relative Customer Satisfaction).
• The actual number of rights and total FY17 LTVR value granted to Executives in FY17 was approximately
11% lower than the LTVR target fair value.
FY17 Realised
Remuneration
The Realised Remuneration for Executives in FY17 is significantly lower in comparison to FY16.
• The CEO’s FY17 Realised Remuneration was $5.5 million compared to $12.3 million in FY16.
• On average, FY17 Realised Remuneration for Group Executives was $2.0 million (average FY16 Realised
Remuneration was $3.6 million).
FY17 Sign-on and
Retention Awards
• Anna Lenahan, Group General Counsel and Group Executive, Group Corporate Affairs, was granted a
sign-on award of $1.8 million, when appointed in November 2016, to compensate for unvested awards
that were forfeited due to the termination of her previous employment. The sign-on award was issued
as rights (equity) which vest progressively over the period until October 2018, subject to service and risk
review, which mirrors the vesting schedule of her forfeited awards.
• No retention awards were made to Executives during FY17.
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Remuneration report
continued
Termination
Arrangements
for Ceased
Executive KMP
• Following David Craig’s retirement from the role of Group Executive, Financial Services and Chief
Financial Officer effective 30 June 2017, he received standard contractual termination payments only,
and the total termination payment was in compliance with the Corporations Act.
• The LTVR Reward Rights statutory value for David Craig reflects the disclosable accruals for all
previously granted LTVR awards that remained unvested at the time of his retirement on 30 June 2017.
• This means that all future amounts relating to each unvested LTVR award have been disclosed in FY17,
including those amounts which would otherwise have been included in future year disclosures.
• These LTVR awards remain ‘on foot’ and will only vest subject to the achievement of the pre-determined
performance conditions and risk review.
FY17 Non-
Executive
Director Fees
• There was no change to Non-Executive Director fees or the fee pool in FY17. The pool was last
approved by shareholders on 17 November 2015.
• Effective from February 2017, the Remuneration Committee became responsible for oversight of the
Non-Executive Director fees. The Nominations Committee was previously responsible.
FY17 Realised Remuneration for Executives
The table below shows remuneration actually received by Executives in relation to FY17. The total cash payments received are made
up of FR, and the portion of the FY17 STVR award which is not deferred. These amounts are consistent with those disclosed in the
Executive Statutory Remuneration table on page 74 for the same items. This table also includes the value of previous years’ deferred
STVR and LTVR awards which vested during FY17. This differs to the Executive Statutory Remuneration table which presents the
accounting expense for both vested and unvested awards in accordance with accounting standards.
Previous
years’
deferred cash
awards vested
during FY17(3)
$
Previous
years’
deferred
equity awards
vested during
FY17(4)
$
Total
remuneration
realised
during FY17
$
Previous
years’ awards
forfeited or
lapsed during
FY17 (5)
$
Total cash
in relation to
FY17
$
FR (1)
$
Cash STVR(2)
$
CEO
Ian Narev
2,650,000
Group Executives (6)
Kelly Bayer Rosmarin
1,050,600
Adam Bennett
999,600
David Cohen
Matt Comyn
David Craig
1,200,000
1,055,750
1,380,000
Rob Jesudason(7)
1,152,103
Melanie Laing
Anna Lenahan(8)
Vittoria Shortt
845,000
509,521
861,900
Annabel Spring
1,055,750
David Whiteing
999,600
0
0
0
0
0
0
0
0
0
0
0
0
2,650,000
1,462,613
1,393,966
5,506,579
(4,828,549)
1,050,600
599,186
485,214
2,135,000
999,600
566,483
310,626
1,876,709
–
–
1,200,000
541,294
510,966
2,252,260
(1,738,351)
1,055,750
667,623
556,427
2,279,800
(1,892,800)
1,380,000
829,983
783,464
2,993,447
(2,665,426)
1,152,103
702,706
454,251
2,309,060
(1,545,176)
845,000
494,180
454,251
1,793,431
(1,545,176)
509,521
–
859,586
1,369,107
861,900
512,533
186,335
1,560,768
–
–
1,055,750
512,560
556,427
2,124,737
(1,892,800)
999,600
521,797
–
1,521,397
–
(1) FR includes base remuneration and superannuation.
(2)
The FY17 STVR outcome for all Executives was adjusted downwards to zero, reflecting collective accountability for the overall reputation of the Group and
risk matters.
(3) The value of all deferred cash awards that vested during FY17 plus any interest accrued during the vesting period.
(4)
The value of deferred equity awards that vested during FY17 plus any dividends accrued during the vesting period based on the volume weighted average
closing price of the Group’s ordinary shares over the five trading days preceding the vesting date. For Ian Narev, David Cohen, Matt Comyn, David Craig, Rob
Jesudason, Melanie Laing and Annabel Spring this reflects the portion of the FY13 LTVR award (performance period ended 30 June 2016) that vested during
FY17. For Kelly Bayer Rosmarin, Adam Bennett and Vittoria Shortt this amount reflects the FY13 deferred STVR awarded prior to their appointment as Group
Executive under Executive General Manager arrangements that vested during FY17. For Anna Lenahan, this amount reflects the portion of the sign-on award
that vested during FY17. 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 in the financial year.
(5) The value of any deferred cash and/or equity awards that were forfeited/lapsed during FY17.
(6) Group Executives as at 30 June 2017.
(7) For Rob Jesudason, remuneration was paid in Hong Kong dollars and was impacted by movements in exchange rates.
(8)
Anna Lenahan was appointed to the Group General Counsel and Group Executive, Group Corporate Affairs role effective 28 November 2016 and her
remuneration reflects time in role.
69
3. Executive Remuneration Framework
The Executive remuneration framework is designed to attract and retain high-calibre Executives by rewarding them for achieving
goals that are aligned to the Group’s strategy and shareholder interests.
FY17 Executive Remuneration Framework
Remuneration Principles
• Aligned with shareholder value creation
• Market competitive to attract and retain high-calibre talent
• Rewards sustainable outperformance and discourages poor performance
• Recognises the role of non-financial drivers in longer-term value creation
• Simple and transparent remuneration approach that is fit for purpose, reflecting CBA’s strategy and values
FR
STVR (at risk) – Target
LTVR (at risk) – Target
• Base remuneration and
• Target = 100% of FR
• Target = 100% of FR
superannuation (includes cash
salary and any salary sacrificed
items)
• Reviewed annually against
disclosed remuneration data
• Primary peer group is the other
three major Australian banks
• Balanced scorecard comprising
• Four year performance period
financial and non-financial measures
• Risk and values assessment
• STVR outcomes may range from 0%
• Measured against Relative TSR
(75%) and Relative Customer
Satisfaction (25%) measures
to 150% of target STVR
• Delivered as Reward Rights
• Fair value allocation approach
50% is paid as
cash
50% is deferred
as cash for
one year
Year 1
Year 2
Year 4
75% of variable remuneration is deferred, with 50%
of variable remuneration deferred over four years
Risk Review
• All variable remuneration is subject to Board risk review prior to payment or
vesting
• The Board has discretion to adjust STVR and LTVR outcomes down to zero
where appropriate
• Unvested STVR and LTVR is forfeited if Executives resign or are dismissed
before the end of the vesting/deferral period, unless the Board determines
otherwise
Executive Mandatory Shareholding
Executives are required to accumulate CBA shares over a five year period from 1 July 2013 when the Executive Mandatory
Shareholding requirement was implemented or from the date of their appointment to an Executive role, to the value of 300%
of FR for the CEO and 200% of FR for Group Executives.
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Remuneration report
continued
FY18 Executive Remuneration Framework effective from 1 July 2017
During FY17, the Remuneration Committee undertook a detailed review of all elements of the Executive remuneration framework.
The table below provides a summary of changes to the FY17 framework, which are effective from 1 July 2017.
Feature
STVR
Performance
measures and
weighting
FY17
FY18 (Changes Effective 1 July 2017)
• Weighting on financial measures:
• Increased weighting on financial measures:
• CEO – 40%
• Group Executives managing
business units – typically 45%
• CEO – 60%
• Group Executives managing business units – typically 60%
• Group Executives managing support functions – typically 40%
• Group Executives managing
• The remainder of the STVR performance scorecard will
support functions – typically 25%
continue to focus on key non-financial measures in relation
to customer, people and strategic initiatives, supported by a
strong risk management framework
• More quantitative measures for all Executives
Deferral vehicle
• 50% of STVR award deferred as cash
• 50% of STVR award deferred as equity
Deferral period
• One year
• Two years: 50% of deferred STVR award vests after one year
and remaining 50% vests after two years
LTVR
Allocation
approach
• Fair value allocation approach
• With dividend equivalent payments
• Total face value is approximately
200% of FR, inclusive of dividend
equivalent payments (three-year
average)
• Adopt a face value allocation approach
• No dividend equivalent payments
• Total face value is 180% of FR
Performance
measures
• 75% Relative TSR and 25% Relative
• 75% Relative TSR, 12.5% Trust and Reputation and 12.5%
Customer Satisfaction
Employee Engagement
• A positive TSR gateway is applied to the 25% non-financial
measures to ensure that no vesting occurs unless shareholder
value over the period is positive
FY18 LTVR – Non-financial Measures
As summarised above, there will be a number of changes to the LTVR award effective 1 July 2017.
Relative TSR continues to be the measure against which the majority, 75%, of the FY18 LTVR award is tested. The methodology for
this measure has not changed for FY18. The Relative TSR hurdle has been chosen because it provides a direct link between Executive
remuneration and shareholder returns, relative to CBA’s ASX peers.
The remaining 25% of the award continues to be tested against non-financial measures. There are two new measures selected for the
FY18 LTVR award each of which will be applied to 12.5% of the total award. In selecting the measures the Board has listened to and
acknowledged concerns that:
• The People and Community hurdle for the originally proposed FY17 LTVR award was seen to lack transparency and to be overly
reliant on Board discretion to determine vesting outcomes;
• The use of non-financial measures was excessive, as the proposed introduction of the People and Community measure would
have reduced the weighting on Relative TSR to 50%; and
• The adoption of customer measures for the FY17 LTVR award created a duplication of performance measures between the short-
term and long-term components of the variable reward framework.
The proposed FY18 LTVR measures are intended to drive a strong focus and improvement in CBA’s Trust and Reputation, and
Employee Engagement, both of which are considered by the Board to be critical drivers of sustainable long-term value creation
for shareholders, and are closely linked to the strategic imperatives of CBA. In today’s challenging and increasingly competitive
environment we need to focus not only on direct financial returns, but also the way we do business, how we support our people
and our role in society. In particular:
• The Board recognises the critical importance for CBA and the industry of rebuilding and improving the trust of customers and the
broader community. This is a key factor in ensuring CBA maintains its social licence to operate, as well as enhancing long-term
financial performance and value to shareholders. Accordingly, this is a fundamental focus area for the Executive team and one for
which they are accountable.
• The Board views that an engaged workforce results in greater productivity and better customer outcomes and experience. It is
therefore fundamental for the continued success of CBA that its employees are proud advocates of CBA and committed to its
vision, values and strategy.
A positive TSR gateway will be applied to the non-financial performance measures, such that no vesting on these measures occurs
unless the change in shareholder value over the period is positive.
In addition, the total FY18 LTVR award will be subject to a risk and compliance review undertaken by the Board before any vesting can
occur.
71
4. Linking Remuneration to Performance
Variable remuneration is directly linked to both short-term and long-term performance goals.
Financial Performance
The below table illustrates CBA’s financial performance over the past five financial years (including FY17) and the link to Executive
remuneration.
Financial Performance Measure
Link to Executive Remuneration
FY17
FY16
Group Cash NPAT ($M) (1)
STVR scorecard measure
Group PACC ($M) (2)
STVR scorecard measure
Share Price as at 30 June ($)
LTVR Relative TSR measure
Dividends per Share ($)
LTVR Relative TSR measure
TSR (four-year period) as at 30 June (%)
LTVR Relative TSR measure
9,881
6,525
82.81
4.29
50.75
9,445
6,187
74.37
4.20
FY15
9,127
n/a
85.13
4.20
FY14
8,680
n/a
80.88
4.01
FY13
7,760
n/a
69.18
3.64
74.74
110.43
109.89
122.57
(1) Comparative information has been restated to reflect the change in accounting policy detailed in Note 1 to the Financial Statements.
(2) Due to methodology changes comparatives for Group Profit after Capital Charge (PACC) have only been provided for FY16.
FY17 STVR Performance Outcomes
Overall Group performance, together with an assessment of individual Executive performance through a balanced scorecard
approach, determines the individual STVR outcomes of Executives. All Executives scorecards contain the same performance
categories, with financial and non-financial measures aligned with business unit specific targets where appropriate. Weighting of
financial and non-financial measures varies by role.
• The CEO had a 40% weighting on financial measures.
• Group Executives managing business units typically had a 45% weighting on financial measures.
• Group Executives managing support functions typically had a 25% weighting on financial measures.
Risk is an important factor in accounting for short-term performance. The Group uses PACC, a risk-adjusted measure, as a key
measure of financial performance. PACC takes into account the profit achieved, and also reflects the risk to capital that was taken to
achieve it. Moreover, in managing risk, Executives are required to comply with the Group and relevant Business Unit Risk Appetite
Statements and provide exemplary leadership of a strong risk culture.
The following table provides the Board’s assessment of the CEO’s performance for FY17.
Performance Category
Measures
% of STVR Target % of STVR Maximum
Sound Risk Management
Gate opener/STVR adjustment
Exemplary leadership of risk culture
The CEO was assessed as Not
Met on risk reflecting consideration
of risk and reputation matters.
FY17 CEO Outcome
Shareholder
(40%)
Customer
(15%)
Strategy
(15%)
People and Community
(30%)
• Group Cash NPAT
• Group Underlying PACC
• Productivity
132%
• Roy Morgan (6 month rolling average,
100%
four major banks)
• DBM Institutional: in the +$300m
category or +$500m category
• DBM (whole of market)
• Strategy development and execution
• Reputation
• Culture
• Engagement
• Safety
Overall STVR Outcome
Risk-Adjusted STVR Outcome
100%
67%
103%
0%
88%
67%
67%
44%
69%
0%
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Remuneration report
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Group Performance and STVR Outcomes
The below chart shows Cash NPAT over the past five years and STVR outcomes for Executives as a percentage of STVR maximum.
Current and historical STVR outcomes reflect consideration of financial and non-financial factors in the determination of remuneration,
including risk and reputation matters.
9,127
9,445
9,881
8,680
Cash NPAT (1)
CEO STVR (% of maximum)
Average GE STVR (% of maximum)
7,760
100%
80%
60%
40%
20%
0%
FY13
FY14
FY15
FY16
FY17
(1) Comparative information has been restated to reflect the change in accounting policy detailed in Note 1 to the Financial Statements.
FY17 STVR Outcomes
The average STVR payment for Executives was 0% of their STVR maximum. The following table provides the FY17 STVR outcomes
for Executives.
STVR Target (1)
($)
Total
($)
STVR Actual
Cash(2)
Deferred(3)
STVR Actual
as % of STVR
Target
STVR Actual
as % of STVR
Maximum
($)
($)
(%)
(%)
CEO
Ian Narev
Group Executives
Kelly Bayer Rosmarin
Adam Bennett
David Cohen
Matt Comyn
David Craig
Rob Jesudason
Melanie Laing
Anna Lenahan (4)
Vittoria Shortt
Annabel Spring
David Whiteing
2,650,000
1,050,600
999,600
1,200,000
1,055,750
1,380,000
1,152,103
845,000
509,521
861,900
1,055,750
999,600
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
(1) STVR target is equal to 100% of FR. The maximum STVR is 150% of target STVR.
(2)
50% of the STVR award payable as cash in recognition of performance for FY17 (payable September 2017). The FY17 STVR outcome for all Executives was
adjusted downwards to zero, reflecting collective accountability for the overall reputation of the Group and risk matters.
50% of the STVR award that is deferred until 1 July 2018. Deferred STVR awards are subject to Board risk review at the time of payment. The FY17 STVR
outcome for all Executives was adjusted downwards to zero, reflecting collective accountability for the overall reputation of the Group and risk matters.
Anna Lenahan was appointed to the Group General Counsel and Group Executive, Group Corporate Affairs role effective 28 November 2016. STVR target
reflects her time in role.
(3)
(4)
FY14 LTVR Award Outcomes
The FY14 LTVR Award, which reached the end of its four-year performance period on 30 June 2017, vested at 67.08% reflecting
sustained delivery of returns to shareholders and customer satisfaction.
Performance Measure
Performance Outcome
Vesting Outcome
Relative TSR
(75% of award)
Relative Customer Satisfaction (1)
(25% of award)
55th percentile ranking relative to peer group
Average result over performance period
• Retail MFI Customer Satisfaction = 1.25
• Wealth Management Customer Satisfaction = 1.25
• Business MFI Customer Satisfaction =1.04
Total weighted average ranking = 1.16
60.0%
92.0%
(1)
Vesting outcome for Relative Customer Satisfaction is calculated based on the weighted average ranking across the three independent surveys (weighted by
the business area’s contribution to NPAT at the beginning of the performance period).
73
5. Remuneration Governance
Remuneration Committee
The Remuneration Committee is the main governing body for remuneration across the Group. The Remuneration Committee
develops the remuneration philosophy, framework and policies for Board approval.
The Remuneration Committee has a robust framework for the systematic review of risk and compliance issues impacting
remuneration and works closely with the Board’s Risk Committee and management’s Risk and Remuneration Review Committee
(RRRC) to consider risk and reputational matters in the determination of variable remuneration outcomes.
The following diagram illustrates the Group’s remuneration governance framework.
CBA Board
Risk Committee
Remuneration Committee
Assists the Board in the
governance of the Group’s risks.
Members
Advises the Remuneration
Committee of material risk
issues which may impact
remuneration outcomes.
RRRC
Management committee that
advises the Group Chief Risk
Officer on material risk issues
which may impact remuneration
outcomes.
David Higgins (Chairman)
Launa Inman
Catherine Livingstone AO
Andrew Mohl
Mary Padbury
Wendy Stops
Roles and responsibilities
The responsibilities of the Remuneration Committee
are outlined in its Charter and reviewed periodically:
www.commbank.com.au/corporategovernance
Independent
remuneration
consultant (EY)
EY provides information
to assist the Committee
in making remuneration
decisions. EY did not
make any remuneration
recommendations in FY17.
Remuneration Committee Focus Areas for FY17
During FY17, the Remuneration Committee continued to focus on embedding a remuneration framework that is appropriate for
the Group’s different businesses with transparency in design, strong governance and risk oversight. This year the Remuneration
Committee’s key areas of focus were:
• Comprehensive review of the Executive remuneration strategy and framework following the significant vote against the
FY16 Remuneration Report at the 2016 AGM;
• A review of Executive remuneration governance with a particular focus on risk. An enhanced framework has been developed for
the consideration of risk and reputational matters in the determination of variable remuneration outcomes;
• Ongoing review and monitoring of variable remuneration practices, with a particular focus on the Group’s retail customer facing
roles, in line with the Group’s commitment to adopt in full, in FY18, the recommendations from Stephen Sedgwick’s independent
review of product sales commissions and product based payments;
• The annual review of the Group Remuneration Policy (GRP) ensuring that the GRP remains fit for purpose and continues to
effectively deliver on intent;
• Ongoing monitoring of regulatory and legislative changes, both locally and offshore, ensuring that the Group’s policies and
practices remain compliant with all regulatory requirements;
• The retirement of David Craig from the Group Executive, Financial Services and Chief Financial Officer role, effective 30 June 2017;
• The appointment of Rob Jesudason to the role of Group Executive, Financial Services and Chief Financial Officer, effective 1 July
2017; and
• The appointment of Coenraad Jonker to the role of Group Executive, International Financial Services, effective 1 July 2017.
6. Executive Remuneration in Detail
Executive Statutory Remuneration
The following statutory tables detail the statutory accounting expense of all remuneration related items for the Executives. This
includes remuneration costs in relation to both FY16 and FY17. The tables are different to the Realised Remuneration table on
page 68, which shows the remuneration realised in FY17 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 Australian Accounting
Standards. Refer to the footnotes below each table for more detail on each remuneration component.
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Remuneration report
continued
FR (1)
Other Short-Term Benefits
Long-Term
Benefits
Share-Based
Payments
Base
Remuneration
(2)
$
Super-
annuation
$
Non
Monetary(3)
$
Cash STVR
(at risk)(4)
$
Deferred
STVR
(at risk) (5)
$
Other (6)
$
Long-
Term (7)
$
Deferred
Rights
(at risk)(8)
LTVR
Reward
Rights
(at risk)(9)
Total Statutory
Remuneration
(10)
$
2,625,000
25,000
15,909
0
0
(33,007)
113,341
– 2,966,120
5,712,363
2,625,000
25,000
15,052
1,431,000 1,431,000
35,870
137,211
– 3,068,219
8,768,352
1,025,600
25,000
1,025,600
25,000
15,909
15,052
0
0
18,037 (52,237)
70,583
833,943
1,936,835
586,235
586,235
3,760
68,876
210,317
555,203
3,076,278
974,600
25,000
955,000
25,000
15,909
15,052
0
0 (36,560)
24,113
145,640
523,671
1,672,373
554,239
554,239
9,385
51,361
183,108
283,329
2,630,713
1,175,000
25,000
875,000
25,000
15,909
15,052
0
0
44,169
100,122
529,594
529,594
60,308
35,088
–
–
988,620
964,254
2,348,820
3,033,890
1,030,750
25,000
1,030,750
25,000
14,599
13,846
0
0
24,802
25,425
– 1,078,073
2,198,649
653,193
653,193
6,656
36,150
–
982,736
3,401,524
1,360,384
1,355,000
19,616
25,000
15,909
15,052
0
0
812,044
812,044
51,519
57,916
69,661
60,057
– 3,935,949
5,453,038
– 1,478,428
4,615,541
1,149,030
1,190,237
3,073
3,184
–
–
0
0
972,349
712,174
712,174
627,302
41,466
24,014
820,000
25,000
820,000
25,000
15,909
15,052
0
0
2,409
22,217
483,499
483,499
(4,412)
17,412
–
–
–
–
987,414
853,286
3,153,332
4,122,371
878,734
885,233
1,764,269
2,725,283
497,966
11,555
10,455
836,900
25,000
820,000
25,000
15,909
15,052
0
0
0
0
18,571
3,292 1,158,780
118,307
1,818,926
40,010
(41,739)
129,441
374,761
1,380,282
501,455
501,455
(19,300)
25,425
126,107
185,175
2,180,369
1,030,750
25,000
1,030,750
25,000
14,599
13,846
0
0
13,905
501,481
501,481
16,215
34,003
43,865
– 1,078,073
2,196,330
– 1,080,090
3,212,728
979,984
960,692
19,616
19,308
14,599
13,846
0
0
(8,609)
19,620
52,634
585,192
1,663,036
510,519
510,519
8,810
14,547
52,563
346,102
2,436,906
CEO
Ian Narev
FY17
FY16
Group Executives
Kelly Bayer Rosmarin
FY17
FY16
Adam Bennett
FY17
FY16
David Cohen (11)
FY17
FY16
Matt Comyn
FY17
FY16
David Craig (12)
FY17
FY16
Rob Jesudason (13)
FY17
FY16
Melanie Laing
FY17
FY16
Anna Lenahan (14)
FY17
Vittoria Shortt
FY17
FY16
Annabel Spring
FY17
FY16
David Whiteing
FY17
FY16
(1)
FR comprises Base Remuneration and Superannuation (post-employment benefit). Superannuation contributions for Rob Jesudason are made in line with
Hong Kong Mandatory Provident Fund regulations.
(2) Total cost of salary including cash salary, short-term compensated absences and any salary sacrificed benefits.
(3) Cost of car parking (including associated fringe benefits tax).
(4)
50% of the FY17 STVR for performance during the 12 months to 30 June 2017 (payable September 2017). The FY17 STVR outcome for all Executives was
adjusted downwards to zero, reflecting collective accountability for the overall reputation of the Group and risk matters.
50% of the FY17 STVR award that is deferred until 1 July 2018. Deferred STVR awards are subject to Board review at the time of payment. The FY17 STVR
outcome for all Executives was adjusted downwards to zero, reflecting collective accountability for the overall reputation of the Group and risk matters.
Includes company funded benefits (including associated fringe benefits tax where applicable), interest accrued in relation to the FY16 STVR deferred award,
which vested on 1 July 2017, and the net change in accrued annual leave. For Rob Jesudason, this includes costs in relation to his Hong Kong assignment
and relocation to Australia.
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. The FY16 comparative has been restated to reflect a disclosure methodology change where Deferred Rights are
included in share-based payments instead of long-term benefits.
FY17 expense for deferred STVR awarded under Executive General Manager arrangements, and sign-on and retention awards received as Deferred Rights.
These equity awards are subject to forfeiture if the Executive ceases to be employed by the Group prior to the vesting date as a result of resignation. The
FY16 comparative has been restated to reflect a disclosure methodology change where Deferred Rights are included in share-based payments instead of
long-term benefits.
FY17 expense for the FY14, FY15, FY16 and FY17 LTVR awards (including true up for the Customer Satisfaction performance hurdle portion of the FY13 LTVR
award).
(5)
(6)
(7)
(8)
(9)
(10) The percentage of FY17 remuneration related to performance was: Ian Narev 52%, Kelly Bayer Rosmarin 47%, Adam Bennett 40%, David Cohen 42%, Matt Comyn
49%, David Craig 72%, Rob Jesudason 31%, Melanie Laing 50%, Anna Lenahan 70%, Vittoria Shortt 37%, Annabel Spring 49%, and David Whiteing 38%.
(11) David Cohen commenced in the Group Chief Risk Officer role from 1 July 2016. Prior year comparison reflects statutory remuneration for his prior role, Group
General Counsel and Group Executive, Group Corporate Affairs.
(12) The LTVR Reward Rights value for David Craig reflects the disclosable accruals for all previously granted LTVR awards that remain unvested following his
retirement on 30 June 2017 up to the end of each performance period. This means that up to three years of each unvested LTVR award has been disclosed
in FY17, including those amounts which would otherwise have been included in future year disclosures. These LTVR awards remain ‘on foot’ and will only vest
subject to the achievement of the pre-determined performance conditions and risk review.
(13) For Rob Jesudason, remuneration was paid in Hong Kong dollars and was impacted by movements in exchange rates.
(14) Anna Lenahan was appointed to the Group General Counsel and Group Executive, Group Corporate Affairs role effective 28 November 2016 and her
remuneration reflects time in role.
75
FY17 LTVR Award
Executives were granted LTVR awards in FY17 for the performance period from 1 July 2016 to 30 June 2020. The following table
provides the key features of the FY17 LTVR award:
Relative TSR
Relative Customer Satisfaction
Performance
Measures
75% of each award is subject to the Group’s TSR
performance relative to a set peer group (1).
The peer group 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 CBA.
The next five largest companies listed on the ASX
by market capitalisation will form a reserve bench
of companies.
25% of each award is subject to 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.
Vesting
Framework
Peer Group Ranking
Vesting %
Weighted Average Ranking
Vesting %
75th percentile or higher
Median
Below the median
100%
50%
1st
2nd
0%
Lower than 2nd
100%
50%
0%
Vesting occurs on a straight line basis if the
Group is ranked between the median and the
75th percentile.
Calculated independently by Orient Capital.
Calculation of
the Performance
Results
Vesting occurs on a straight line basis if the
weighted average ranking is between 2nd and 1st.
Measured with reference to the three independent
surveys below (weighted by the business area’s
contribution to NPAT at the beginning of the
performance period):
• Roy Morgan Research (Retail Banking);
• DBM, Business Financial Services Monitor
(Business Banking); and
• Wealth Insights Service Level Report, Platforms
(Wealth Management).
Instrument
Determining
the number of
Reward Rights
Performance
Period
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.
The number of Reward Rights allocated depends on each Executive’s LTVR Target (see diagram on
page 69 for explanation of target remuneration), using a fair value allocation approach. The number
of Reward Rights allocated aligns the Executive’s LTVR Target to the expected value at the end of the
performance period, in today’s dollars.
The performance period commences at the beginning of the financial year in which the award is granted.
For the LTVR award granted in FY17, the performance period started on 1 July 2016 and ends after four
years on 30 June 2020.
Board Discretion
The award is subject to a risk and compliance review. 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 lapse.
(1)
The peer group at the beginning of the performance period for the Relative TSR performance hurdle comprised Amcor Limited, AMP Limited, Australia &
New Zealand Banking Group Limited, Brambles Limited, CSL Limited, Insurance Australia Group Limited, Macquarie Group Limited, National Australia Bank
Limited, QBE Insurance Group Limited, Ramsay Health Care Limited, Scentre Group, Suncorp Group Limited, Sydney Airport, Telstra Corporation Limited,
Transurban Group, Vicinity Centres, Wesfarmers Limited, Westfield Corporation, Westpac Banking Corporation and Woolworths Limited. The reserve bench
comprised AGL Energy Limited, APA Group, Aurizon Holdings Limited, Goodman Group and Stockland. 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.
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Fair Value Assumptions for Equity Awards Granted in FY17
For the Relative TSR component of the LTVR awards, the fair value has been calculated using a Monte Carlo simulation method using
the assumptions below. For the Relative Customer Satisfaction component of all LTVR awards, the fair value is the closing market
price of a CBA share as at the grant date. The exercise price is nil across all LTVR awards.
Equity Plan
FY17 LTVR Reward Rights –
Relative TSR
FY17 LTVR Reward Rights –
Relative Customer Satisfaction
Anna Lenahan – Sign-on Award (2)
Grant
Date
Fair
Value
$
Performance
Period
End
Expected
Life
(Years)
Expected
Volatility
%
Assumptions(1)
22 February 2017
65.76
30 June 2020
3.35
22 February 2017
83.71
30 June 2020
28 November 2016
77.97
1 October 2018
n/a
n/a
15
n/a
n/a
Risk Free
Rate
%
2.27
n/a
n/a
(1)
(2)
For the Relative TSR component of the LTVR awards, a zero dividend yield has been assumed given that dividends are incorporated into the fair value of the
rights.
Anna Lenahan was granted a sign-on award on 28 November 2016 vesting in three tranches. One tranche has already vested on 28 May 2017 and the
remaining two tranches will vest on 1 October 2017 and 1 October 2018 respectively, subject to a Board risk review. Fair value is the closing market price
of a CBA share as at the grant date.
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 FY17. It also shows the number of previous year’s awards that vested during FY17 (some of which relate to past
non-KMP roles).
Granted during FY17(1)(2)(3)
Previous years’
awards vested
during FY17(4)
Forfeited or lapsed during
FY17(5)
Class
(Units)
($)
(Units)
(Units)
($)
LTVR Reward Rights
55,443
3,882,315
16,017
(62,839)
(4,828,549)
LTVR Reward Rights
Deferred Rights
LTVR Reward Rights
Deferred Rights
LTVR Reward Rights
LTVR Reward Rights
LTVR Reward Rights
LTVR Reward Rights
LTVR Reward Rights
LTVR Reward Rights
Deferred Rights
LTVR Reward Rights
Deferred Rights
LTVR Reward Rights
LTVR Reward Rights
21,981
–
20,914
–
25,107
22,089
28,873
24,503
17,680
18,099
23,086
18,033
–
22,089
20,914
1,539,188
–
1,464,480
–
1,758,072
1,546,756
2,021,790
1,715,786
1,238,009
1,267,357
1,800,015
1,262,730
–
1,546,756
1,464,480
–
5,742
–
3,676
5,766
6,279
8,841
5,126
5,126
–
10,389
–
2,205
6,279
–
–
–
–
–
(22,623)
(24,633)
(34,688)
(20,109)
(20,109)
–
–
–
–
(24,633)
–
–
–
–
–
(1,738,351)
(1,892,800)
(2,665,426)
(1,545,176)
(1,545,176)
–
–
–
–
(1,892,800)
–
CEO
Ian Narev
Group Executives
Kelly Bayer Rosmarin
Adam Bennett
David Cohen
Matt Comyn
David Craig
Rob Jesudason
Melanie Laing
Anna Lenahan
Vittoria Shortt
Annabel Spring
David Whiteing
(1)
(2)
(3)
(4)
(5)
Represents the maximum number of LTVR Reward Rights and Deferred Rights that may vest to each Executive. For LTVR Reward Rights the value represents
the fair value at grant date. Deferred Rights represent the deferred STVR awarded under Executive General Manager arrangements, sign-on and retention
awards received as rights. For Deferred Rights the value reflects the face value at grant date. The minimum potential outcome for LTVR Reward Rights and
Deferred Rights is zero.
As at 1 July 2016, the maximum value of LTVR Reward Rights granted during FY17 based on the volume weighted average price of the Group’s ordinary
shares over the five trading days up to and including 1 July 2016 was: Ian Narev $4,064,526, Kelly Bayer Rosmarin $1,611,427, Adam Bennett $1,533,205,
David Cohen $1,840,594, Matt Comyn $1,619,345, David Craig $2,116,680, Rob Jesudason $1,796,315, Melanie Laing $1,296,121, Anna Lenahan
$1,326,838, Vittoria Shortt $1,321,999, Annabel Spring $1,619,345 and David Whiteing $1,533,205.
The FY17 LTVR grant value was capped based on the fair value that would have applied to the withdrawn 25% People and Community hurdle had it not
been replaced by the Relative TSR measure. The actual number of rights and total LTVR fair value granted was approximately 11% less in FY17 than the
LTVR target.
Previous years’ awards that vested include the FY13 LTVR Award and other deferred equity awards. 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 in the financial year.
This is the portion of the FY13 LTVR Award (79.69%) that did not meet the performance hurdle and lapsed. The value of the lapsed award is calculated using
the volume weighted average closing price for the five days preceding the lapse date.
77
Overview of Unvested Equity Awards
Equity Plan
FY15 LTVR (1)
FY16 LTVR (2)
FY17 LTVR (3)
Performance Period –
Start Date
Performance Period –
End Date
Performance Hurdles
1 July 2014
1 July 2015
1 July 2016
30 June 2018
30 June 2019
Each award is split and tested:
• 75% TSR ranking relative to peer group
30 June 2020
• 25% Customer Satisfaction average ranking
relative to peer group
(1)
For Ian Narev, the grant date was 13 November 2014. For Adam Bennett the grant date was 12 February 2015. For Vittoria Shortt the grant date was 7 May
2015. For all other Executives the grant date was 18 September 2014.
(2) For Ian Narev, the grant date was 17 November 2015. For all other Executives the grant date was 10 November 2015.
(3) The grant date was 22 February 2017.
Shares and Other Securities held by Executives
Details of the shareholdings and other securities held by Executives (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 Executive equity plans refer to the Financial Statements Note 24 Share-Based Payments.
Executives are required to accumulate CBA shares over a five year period from 1 July 2013 when the Executive Mandatory
Shareholding requirement was implemented or from the date of their appointment to an Executive role, to the value of 300%
of FR for the CEO and 200% of FR for Group Executives.
CEO
Ian Narev (4)
Class (1)
Ordinary
LTVR Reward Rights
Group Executives
Kelly Bayer Rosmarin Ordinary
Adam Bennett
David Cohen
Matt Comyn (4)
David Craig (5)
Rob Jesudason (4)
Melanie Laing
Anna Lenahan (6)
Vittoria Shortt
Annabel Spring
David Whiteing
LTVR Reward Rights
Deferred Rights
Ordinary
LTVR Reward Rights
Deferred Rights
Ordinary
LTVR Reward Rights
Ordinary
LTVR Reward Rights
Ordinary
LTVR Reward Rights
Ordinary
LTVR Reward Rights
Ordinary
LTVR Reward Rights
Ordinary
LTVR Reward Rights
Deferred Rights
Ordinary
LTVR Reward Rights
Deferred Rights
Ordinary
LTVR Reward Rights
Ordinary
LTVR Reward Rights
Deferred Rights
Balance
1 July 2016
Acquired/
Granted as
Remuneration
Previous Years’
Awards Vested
during FY17 (2)
Net Change
Other (3)
Balance
30 June 2017
127,990
254,271
15,242
56,818
8,352
12,685
30,023
9,196
51,130
88,591
30,783
99,599
170,800
135,835
–
86,690
33,467
81,268
–
–
–
6,498
23,395
7,139
27,891
99,599
–
40,874
1,946
–
55,443
–
21,981
–
–
20,914
–
–
25,107
–
22,089
–
28,873
–
24,503
–
17,680
–
18,099
23,086
–
18,033
–
–
22,089
–
20,914
–
–
(16,017)
–
–
(5,742)
–
–
(3,676)
–
(5,766)
–
(6,279)
–
(8,841)
–
(5,126)
–
(5,126)
–
–
(10,389)
–
–
(2,205)
–
(6,279)
–
–
–
3,359
(62,839)
6,615
–
–
3,676
–
–
(12,334)
(22,623)
2,779
(24,633)
12,534
(34,688)
–
(20,109)
(1,487)
(20,109)
10,389
–
–
2,205
–
–
1,479
(24,633)
–
–
–
131,349
230,858
21,857
78,799
2,610
16,361
50,937
5,520
38,796
85,309
33,562
90,776
183,334
121,179
–
85,958
31,980
73,713
10,389
18,099
12,697
8,703
41,428
4,934
29,370
90,776
–
61,788
1,946
(1)
(2)
LTVR Reward Rights represent rights granted under the Group Leadership Reward Plan (GLRP) that are subject to performance hurdles. Deferred Rights
represent the deferred STVR awarded under Executive General Manager arrangements, sign-on and retention awards received as rights. The minimum
potential outcome for LTVR Reward Rights and Deferred Rights is zero. The maximum potential outcome for LTVR Reward Rights and Deferred Rights is
subject to the CBA share price at the time of vesting.
LTVR Reward Rights and Deferred 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 in the financial year.
(3) Net Change Other incorporates changes resulting from purchases, sales, forfeitures and appointment or departure of Executives during the year.
(4)
Opening balance has been restated to include a correction to CBA ordinary shares. The opening balance for ordinary shareholdings for Ian Narev has been
restated from 129,969 to 127,990, the opening balance for ordinary shareholdings for Matt Comyn has been restated from 30,516 to 30,783 and the opening
balance for ordinary shareholdings for Rob Jesudason has been restated from 27,618 to zero.
(5) David Craig holds 28,150 PERLS.
(6)
Anna Lenahan was appointed to the Group General Counsel and Group Executive, Group Corporate Affairs role effective 28 November 2016. Her
shareholdings have not been included in the opening balance as at 1 July 2016. Anna Lenahan holds 2,000 Capital Notes.
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Executive Employment Arrangements
The table below provides the employment arrangements for current Executives.
Contract Term
Contract type (1)
Notice period
Severance (2)
STVR entitlements
on termination
CEO
Permanent
12 months
n/a
Group Executives
Permanent
6 months
6 months
• Unless otherwise determined by the Board, Executives who resign or are dismissed are
generally not entitled to an STVR payment and will forfeit the unvested deferred portion of their
STVR.
• At the Board’s discretion, where an Executive’s exit is related to retrenchment, retirement or
death, the Executive may be entitled to an STVR payment.
LTVR entitlements
on termination
Unless otherwise determined by the Board:
• Executives who resign or are dismissed before the end of the performance period will forfeit all
unvested LTVR awards; and
• Where an Executive’s exit is related to retrenchment, retirement or death, any unvested LTVR
awards continue unchanged with performance measured at the end of the performance period
related to each award.
(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.
7. Non-Executive Director Arrangements
Non-Executive Director Fees
Non-Executive Directors receive fees to recognise their contribution to the work of the Board and the associated committees on
which they serve. Non-Executive Directors do not receive any performance-related remuneration.
The total amount of Non-Executive Directors fees is capped at a maximum fee pool that is approved by shareholders. The current fee
pool is $4.75 million, which was approved by shareholders at the AGM on 17 November 2015.
The following table outlines the Non-Executive Directors fees for the Board and the Committees as at 30 June 2017.
Board/Committee
Board
Audit Committee
Risk Committee
Remuneration Committee
Nominations Committee
Chairman(1)
($)
870,000
65,000
65,000
60,000
11,600
Member(1)
($)
242,000
32,500
32,500
30,000
11,600
(1)
Fees are inclusive of base fees and statutory superannuation. The Chairman does not receive separate Committee fees.
FY18 Non-Executive Director base and committee fees will be reduced by an amount equivalent to 20% of their individual FY17 fees
to reflect a shared accountability for the overall reputation of the Group and risk matters.
Mandatory Shareholding
Under the Non-Executive Directors’ Share Plan, 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.
79
Non-Executive Director Statutory Remuneration
The statutory table below details individual statutory remuneration for the Non-Executive Directors for FY17 and the previous financial
year.
Short-Term Benefits
Post-Employment
Benefits
Cash(1)
$
Superannuation(2)
$
Share-Based
payments
Non-Executive
Directors’ Share
Plan(3)
$
Total Statutory
Remuneration
$
Chairman
Catherine Livingstone AO (4)
FY17
FY16
Non-Executive Directors
Shirish Apte
FY17
FY16
David Higgins
FY17
FY16
Launa Inman
FY17
FY16
Brian Long
FY17
FY16
Andrew Mohl
FY17
FY16
Mary Padbury
FY17
FY16
Wendy Stops
FY17
FY16
Harrison Young
FY17
FY16
Former Non-Executive Directors
David Turner (5)
FY17
FY16
John Anderson (6)
FY17
FY16
552,098
84,890
321,356
299,140
315,229
294,078
256,105
257,222
331,848
332,094
285,197
286,599
231,084
12,386
252,661
253,938
307,539
333,428
427,289
854,887
107,798
300,768
19,616
6,436
10,405
7,860
19,616
19,308
19,616
19,308
19,616
19,308
19,616
19,308
19,239
1,177
19,616
19,308
19,616
19,308
10,232
19,308
7,449
19,308
–
–
–
–
–
–
28,980
29,233
–
–
–
30,806
–
–
–
–
–
–
–
–
–
571,714
91,326
331,761
307,000
334,845
313,386
304,701
305,763
351,464
351,402
304,813
305,907
281,129
13,563
272,277
273,246
327,155
352,736
437,521
874,195
115,247
320,076
(1) Cash includes Board and Committee fees received as cash.
(2)
Superannuation contributions are capped at the superannuation maximum contributions base as prescribed under the Superannuation Guarantee legislation.
The FY17 superannuation value for Mary Padbury has been trued up for prior year disclosure.
(3) The values shown in the table represent the post-tax portion of fees received as shares under the Non-Executive Directors’ Share Plan.
(4)
Catherine Livingstone AO was a Non-Executive Director from 1 July 2016 to 31 December 2016 and appointed as Chairman from 1 January 2017 to
30 June 2017. Her remuneration has been prorated accordingly to reflect both roles.
(5) David Turner retired from his role as Chairman on 31 December 2016 and his remuneration reflects time in role.
(6) Sir John Anderson retired from his role as a Non-Executive Director on 9 November 2016 and his remuneration reflects time in role.
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Shares and Other Securities held by Non-Executive Directors
All shares were acquired by Non-Executive Directors on normal terms and conditions or through the Non-Executive Directors’ Share
Plan. Other securities acquired by Non-Executive Directors were on normal terms and conditions.
Class
Balance
1 July 2016
Acquired(1)
Net Change
Other(2)
Balance
30 June 2017
Ordinary
5,204
133
Chairman
Catherine Livingstone AO (3)
Non-Executive Directors
Shirish Apte
David Higgins (3)
Launa Inman
Brian Long
Andrew Mohl
Mary Padbury
Wendy Stops
Harrison Young
Former Non-Executive Directors
David Turner (4)
John Anderson (5)
Ordinary
Ordinary
PERLS (6)
Ordinary
Ordinary
PERLS (6)
Ordinary
Ordinary
PERLS (6)
Ordinary
Ordinary
Ordinary
PERLS (6)
Ordinary
7,500
10,878
–
4,221
14,654
6,850
82,234
–
1,600
15,218
30,000
12,268
1,380
18,978
–
–
3,094
432
143
–
–
294
–
782
–
–
–
–
–
–
–
(474)
–
–
–
–
–
–
–
–
–
(380)
–
5,337
7,500
10,878
2,620
4,653
14,797
6,850
82,234
294
1,600
16,000
30,000
n/a
n/a
n/a
(1)
Incorporates shares and other securities acquired during the year. Non-Executive Directors who hold fewer than 5,000 Commonwealth Bank shares are
required to receive 20% of their total after-tax base fees as CBA shares. These shares are subject to a 10-year trading restriction (the shares will be released
earlier if the Non-Executive Director leaves the Board). In FY17, under the Non-Executive Directors’ Share Plan, Launa Inman received 307 shares and Mary
Padbury received 257 shares. Mary Padbury also voluntarily salary sacrificed a portion of her fees to purchase 37 shares during FY17.
(2) Net Change Other incorporates changes resulting from sales of securities.
(3)
Opening balance has been restated to include a correction to CBA ordinary shares. The opening balance for ordinary shareholdings for Catherine Livingstone
has been restated from 5,146 to 5,204 and the opening balance for ordinary shareholdings for David Higgins has been restated from 10,346 to 10,878.
(4) David Turner retired from the Group on 31 December 2016 and his shareholdings are not included in the balance as at 30 June 2017.
(5) Sir John Anderson retired from the Group on 9 November 2016 and his shareholdings are not included in the balance as at 30 June 2017.
(6)
Includes cumulative holdings of all PERLS securities issued by the Group.
8. Loans and Other Transactions
Loans to KMP
All loans to KMP (including close family members or entities controlled, jointly controlled, or significantly influenced by them, or any
entity over which any of those family members or entities held significant voting power) have been made in the ordinary course of
business on normal commercial terms and conditions no more favourable than those given to other employees and customers,
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.
Total Loans to KMP
Opening Balance (1)
Closing Balance (2)
Interest Charged
(1) The opening balance has been restated from $11,354,745.
(2) The aggregate loan amount at the end of the reporting period includes loans issued to 16 KMP.
FY17
($)
11,330,450
12,145,179
406,211
81
Loans to KMP Exceeding $100,000 in Aggregate
Kelly Bayer Rosmarin (2)
David Cohen
Matt Comyn
Melanie Laing
Mary Padbury
Vittoria Shortt (2)
David Whiteing
Total
Balance
1 July 2016
$
2,209,545
509,980
2,324,854
279,955
786,881
3,658,888
1,425,731
11,195,834
Interest
Charged
$
72,693
21,794
93,374
6,560
25,282
126,915
59,565
406,183
Interest Not
Charged
$
Write-off
$
Balance
30 June 2017
$
Highest Balance
in Period(1)
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,643,424
487,134
2,360,099
929,178
676,992
3,417,879
2,502,057
12,016,763
2,273,301
542,387
2,553,059
1,228,395
809,709
3,807,271
2,525,617
13,739,739
(1) Represents the sum of highest balances outstanding at any point during FY17 for each individual loan held by the KMP.
(2) Opening balance has been restated to reflect actual drawn balance.
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 normal commercial terms and conditions no more favourable than those given to other employees and customers.
Disclosure of financial instrument transactions regularly made as part of normal banking operations is limited to disclosure of such
transactions with KMP, their close family members and entities controlled or significantly influenced by them.
All such financial instrument transactions that have occurred between entities within the Group and 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, their close family members, related entities and other related parties are conducted in the ordinary course
of business on normal commercial terms and conditions no more favourable than those given to other employees and customers. These
transactions principally involve the provision of financial and investment services by entities not controlled by the Group. A related
party of an Executive is also employed by the Group, and is remunerated in a manner consistent with normal employee relationships.
9. 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
Board
Deferred Rights
Definition
The Board of Directors of the Group.
Rights to ordinary shares in CBA granted under the Group Rights Plan subject to forfeiture on
resignation. These are used for deferred STVR awarded under Executive General Manager
arrangements, deferred STVR awarded under Executive arrangements from 1 July 2017,
sign-on and retention awards.
Executives
The CEO and Group Executives are collectively referenced as ‘Executives’.
Fixed Remuneration (FR)
Consists of cash and non-cash remuneration, including any salary sacrifice items, paid
regularly with no performance conditions (base remuneration) plus employer contributions to
superannuation.
Group
Commonwealth Bank of Australia and its subsidiaries.
Group Executive (GE)
Key Management Personnel who are also members of the Group’s Executive Committee
(excludes the CEO).
Group Leadership Reward
Plan (GLRP)
Key Management Personnel
(KMP)
Long-Term Variable
Remuneration (LTVR)
The Group’s long-term variable remuneration plan for Executives.
Persons having authority and responsibility for planning, directing and controlling the activities
of an entity, directly or indirectly, including any Director (whether Executive or otherwise) of
that entity.
A variable remuneration arrangement which grants instruments to participating Executives
that may vest over a period of four years if, and to the extent that, performance hurdles are
met. The Group’s LTVR plan for Executives is the GLRP.
Non-Executive Director
Key Management Personnel who are not Executives.
Realised Remuneration
The dollar value of remuneration actually received by Executives during the financial year.
This is the sum of FR, plus the cash portion of the current year STVR plus any deferred STVR
awards, LTVR awards or sign-on awards that vested during the financial year.
Reward Rights
Rights to ordinary shares in CBA granted under the GLRP and subject to performance hurdles.
Short-Term Variable
Remuneration (STVR)
Variable remuneration paid subject to the achievement of predetermined performance
hurdles over one financial year.
Total Shareholder Return
(TSR)
TSR measures a company’s share price movement, dividend yield and any return of capital
over a specific period.
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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
2017
$’000
87
2,218
4,029
765
7,099
28,556
(1)
An additional amount of $2,327,788 million was paid to PwC for non-audit services provided to entities not consolidated into the Financial Statements.
Auditor’s Independence Declaration
We have obtained an independence declaration from our external auditor as presented on the following page.
Auditor Independence
The Bank has in place an Independent Auditor Services Policy, details of which are set out in the Corporate Governance Statement
that can be viewed at www.commbank.com.au/about-us/shareholders/corporate-profile/corporate-governance to assist in ensuring
the independence of the Group’s external auditor.
The Audit Committee has considered the provision, during the year, of non-audit services by PwC and has concluded that the
provision of those services did not compromise the auditor independence requirements of the Corporations Act 2001.
The Audit Committee advised the Board accordingly and, after considering the Committee’s advice, the Board of Directors agreed
that it was satisfied that the provision of the non-audit services by PwC during the year was compatible with the general standard
of independence imposed by the Corporations Act 2001.
The Directors are satisfied that the provision of the non-audit services during the year did not compromise the auditor independence
requirements of the Corporations Act 2001. The reasons for this are as follows:
• The operation of the Independent Auditor Services Policy during the year to restrict the nature of non-audit service engagements,
to prohibit certain services and to require Audit Committee pre-approval for all such engagements; and
• The relative quantum of fees paid for non-audit services compared to the quantum for audit and audit related services.
The above Directors’ statements are in accordance with the advice received from the Audit Committee.
Incorporation of Additional Material
This Report incorporates the Our business section (pages 2 to 24) including the Chairman and CEO statement, Performance
overview (pages 25 to 38), Corporate governance (pages 49 to 58) and Shareholding information (pages 202 to 206) sections of this
Annual Report.
Catherine Livingstone AO
Chairman
8 August 2017
Ian Narev
Managing Director and Chief Executive Officer
8 August 2017
Auditor’s independence declaration
83
As lead auditor for the audit of Commonwealth Bank of Australia for the year ended 30 June 2017, 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 period.
Marcus Laithwaite
Partner
PricewaterhouseCoopers
Sydney
8 August 2017
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Financial report
Financial statements
85
85
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
Life Insurance
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
86
87
88
89
91
93
104
106
109
112
113
113
113
114
114
118
119
122
124
126
128
128
129
129
131
132
133
134
137
139
140
143
145
145
146
148
152
166
168
171
174
179
180
181
182
188
189
190
192
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86
Financial statements
Income Statements
For the year ended 30 June 2017
Interest income
Interest expense
Net interest income
Other banking income
Net banking operating income
Funds management income
Investment revenue
Claims, policyholder liability and commission expense
Net funds management operating income
Premiums from insurance contracts
Investment revenue
Claims, policyholder liability and commission expense
from insurance contracts
Net insurance operating income
Total net operating income before impairment
and operating expenses
Loan impairment expense
Operating expenses
Net profit before income tax
Corporate income tax expense
Policyholder tax expense
Net profit after income tax
Non-controlling interests
Net profit attributable to Equity holders of the
Bank
Note
2
2
2
2
2
2,13
2
2
4
4
2017
$M
33,293
(15,693)
17,600
5,626
23,226
2,343
514
(806)
2,051
2,949
224
(2,329)
844
2016
$M
33,817
(16,882)
16,935
4,576
21,511
2,315
283
(537)
2,061
2,921
467
(2,382)
1,006
Group (1)
2015
$M
34,145
(18,322)
15,823
4,828
20,651
2,396
618
(1,011)
2,003
2,797
543
(2,326)
1,014
2017
$M
33,534
(17,764)
15,770
6,579
22,349
Bank
2016
$M
34,660
(19,545)
15,115
6,035
21,150
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
26,121
24,578
23,668
22,349
21,150
(1,095)
(11,082)
13,944
(3,960)
(32)
9,952
(24)
(1,256)
(10,473)
12,849
(3,505)
(101)
9,243
(20)
(988)
(10,078)
12,602
(3,429)
(99)
9,074
(21)
9,928
9,223
9,053
(1,040)
(9,184)
12,125
(1,153)
(8,538)
11,459
(3,146)
(2,820)
-
8,979
-
8,979
-
8,639
-
8,639
The above Income Statements should be read in conjunction with the accompanying notes.
Earnings Per Share for profit attributable to equity holders of the parent entity during the year:
Earnings per share:
Basic
Fully diluted
2017
2016
Note
Cents per share
Group (1)
2015
6
6
577. 6
559. 1
542. 3
529. 2
553. 1
539. 1
(1) Comparative information has been restated to reflect the change in accounting policy detailed in Note 1.
Financial statements
87
87
Statements of Comprehensive Income
For the year ended 30 June 2017
Net profit after income tax for the financial year (1)
Other comprehensive income/(expense):
Items that may be reclassified subsequently to profit/(loss):
Foreign currency translation reserve net of tax
Gains and (losses) on cash flow hedging instruments net of tax
Gains and (losses) on available-for-sale investments net of tax
Total of items that may be reclassified
Items that will not be reclassified to profit/(loss):
Actuarial gains from defined benefit superannuation plans net of tax
Losses on liabilities at fair value due to changes in own credit risk net of tax
Revaluation of properties net of tax
Total of items that will not be reclassified
Other comprehensive income/(expense) net of income tax
Total comprehensive income for the financial year
Total comprehensive income for the financial year is attributable
to:
Equity holders of the Bank
Non-controlling interests
Total comprehensive income net of income tax
2017
$M
9,952
(282)
(580)
(52)
(914)
175
(3)
23
195
(719)
9,233
9,209
24
9,233
2016
$M
9,243
383
210
(316)
277
10
(1)
1
10
287
9,530
9,510
20
9,530
Group
2015
$M
9,074
398
39
(45)
392
311
(3)
15
323
715
2017
$M
8,979
(11)
(666)
35
(642)
175
(3)
19
191
(451)
Bank
2016
$M
8,639
53
202
(331)
(76)
10
(1)
1
10
(66)
9,789
8,528
8,573
9,768
21
9,789
8,528
-
8,528
8,573
-
8,573
(1) Comparative information has been restated to reflect the change in accounting policy detailed in Note 1.
The above Statements of Comprehensive Income should be read in conjunction with the accompanying notes.
Dividends per share attributable to shareholders of the Bank:
Ordinary shares
Trust preferred securities
2017
2016
Note
Cents per share
Group
2015
5
429
-
420
7,994
420
7,387
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88
Financial statements
Balance Sheets
As at 30 June 2017
Assets
Cash and liquid assets
Receivables due from other financial institutions
Assets at fair value through Income Statement:
Trading
Insurance
Other
Derivative assets
Available-for-sale investments
Loans, bills discounted and other receivables
Bank acceptances of customers
Shares in and loans to controlled entities
Property, plant and equipment
Investment in associates and joint ventures
Intangible assets
Deferred tax assets (1)
Other assets (1)
Total assets
Liabilities
Deposits and other public borrowings
Payables due to other financial institutions
Liabilities at fair value through Income Statement
Derivative liabilities
Bank acceptances
Due to controlled entities
Current tax liabilities
Deferred tax liabilities
Other provisions
Insurance policy liabilities
Debt issues
Managed funds units on issue
Bills payable and other liabilities (1)
Loan capital
Total liabilities
Net assets
Shareholders' Equity
Share capital:
Ordinary share capital
Other equity instruments
Reserves
Retained profits (1)
Shareholders' Equity attributable to Equity holders of the Bank
Non-controlling interests
Total Shareholders' Equity
Note
2017
$M
Group
2016
$M
23,372
11,591
34,067
13,547
1,480
46,567
80,898
695,398
1,431
-
3,940
2,776
10,384
389
7,161
2017
$M
42,814
8,678
31,127
-
796
32,094
79,019
647,503
463
101,337
1,494
1,241
4,449
1,380
6,457
Bank
2016
$M
21,582
10,182
32,985
-
1,187
46,525
76,361
617,919
1,413
145,953
1,503
1,231
4,778
793
5,997
45,850
10,037
32,704
13,669
1,111
31,724
83,535
731,762
463
-
3,873
2,778
10,024
962
7,882
976,374
933,001
958,852
968,409
626,655
588,045
571,353
536,086
28,432
10,392
30,330
463
-
1,450
332
1,780
12,018
167,571
2,577
11,932
893,932
18,726
912,658
63,716
34,971
-
1,869
26,330
63,170
546
63,716
28,771
10,292
39,921
1,431
-
1,022
340
1,656
12,636
161,284
1,606
9,889
856,893
15,544
872,437
60,564
33,845
-
2,734
23,435
60,014
550
60,564
28,038
8,989
32,173
463
91,222
1,278
-
1,372
-
28,328
7,441
43,884
1,413
130,046
892
-
1,249
-
134,966
134,214
-
10,909
880,763
17,959
898,722
60,130
35,262
-
2,556
22,312
60,130
-
60,130
-
11,642
895,195
15,138
910,333
58,076
34,125
406
3,115
20,430
58,076
-
58,076
7
8
9
10
11
12
38
14
36
15
4
16
17
18
10
4
19
27
20
21
22
23
23
23
23
36
(1) Comparative information has been restated to reflect the change in accounting policy detailed in Note 1.
The above Balance Sheets should be read in conjunction with the accompanying notes.
Financial statements
89
89
Statements of Changes in Equity
For the year ended 30 June 2017
Group
Shareholders'
Equity
attributable
Ordinary
share
Other
equity
to Equity
Non-
Total
Retained
holders controlling Shareholders'
capital
instruments
Reserves
profits of the Bank
interests
Equity
$M
27,619
$M
939
As at 30 June 2015 (1)
Net profit after income tax (1)
Net other comprehensive income
Total comprehensive income for the
financial year
Transactions with Equity holders in
their capacity as Equity holders:
Dividends paid on ordinary shares
Dividends paid on other equity
instruments
Dividend reinvestment plan (net of
issue costs)
Issue of shares (net of issue costs)
Share-based payments
Purchase of treasury shares
Sale and vesting of treasury shares
Redemptions
Other changes
As at 30 June 2016 (1)
Net profit after income tax
Net other comprehensive income
Total comprehensive income for the
financial year
Transactions with Equity holders in
their capacity as Equity holders:
Dividends paid on ordinary shares
Dividends paid on other equity
instruments
Dividend reinvestment plan (net of
issue costs)
Issue of shares (net of issue costs)
Share-based payments
Purchase of treasury shares
Sale and vesting of treasury shares
Redemptions
Other changes
-
-
-
-
-
1,209
5,022
-
(108)
103
-
-
33,845
-
-
-
-
-
1,143
(6)
-
(92)
81
-
-
$M
2,345
-
278
278
-
-
-
-
10
-
-
-
101
2,734
-
(891)
(891)
-
-
-
-
32
-
-
-
(6)
$M
21,340
9,223
9
9,232
$M
52,243
9,223
287
9,510
(6,994)
(6,994)
(50)
(50)
-
-
-
-
-
-
(93)
23,435
9,928
172
10,100
1,209
5,022
10
(108)
103
(939)
8
60,014
9,928
(719)
9,209
(7,237)
(7,237)
-
-
-
-
-
-
-
32
-
1,143
(6)
32
(92)
81
-
26
1,869
26,330
63,170
$M
562
20
-
20
-
-
-
-
-
-
-
-
(32)
550
24
-
24
-
-
-
-
-
-
-
-
(28)
546
$M
52,805
9,243
287
9,530
(6,994)
(50)
1,209
5,022
10
(108)
103
(939)
(24)
60,564
9,952
(719)
9,233
(7,237)
-
1,143
(6)
32
(92)
81
-
(2)
63,716
-
-
-
-
-
-
-
-
-
-
(939)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
As at 30 June 2017
34,971
(1) Comparative information has been restated to reflect the change in accounting policy detailed in Note 1.
The above Statements of Changes in Equity should be read in conjunction with the accompanying notes.
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90
Financial statements
Statements of Changes in Equity (continued)
For the year ended 30 June 2017
Ordinary
share
Other
equity
Bank
Shareholders'
Equity
attributable
to Equity
Retained
holders
capital
instruments
Reserves
profits of the Bank
$M
27,894
$M
1,895
-
-
-
-
1,209
5,022
-
-
-
34,125
-
-
-
-
1,143
(6)
-
-
-
35,262
-
-
-
-
-
-
-
(1,489)
-
406
-
-
-
-
-
-
-
(406)
-
-
$M
3,195
-
(75)
(75)
-
-
-
10
-
(15)
3,115
-
(623)
(623)
-
-
-
32
-
32
$M
18,763
8,639
9
8,648
(6,994)
-
-
-
-
13
20,430
8,979
172
9,151
(7,237)
-
-
-
-
(32)
$M
51,747
8,639
(66)
8,573
(6,994)
1,209
5,022
10
(1,489)
(2)
58,076
8,979
(451)
8,528
(7,237)
1,143
(6)
32
(406)
-
2,556
22,312
60,130
As at 30 June 2015
Net profit after income tax
Net other comprehensive income
Total comprehensive income for the financial year
Transactions with Equity holders in their capacity as Equity holders:
Dividends paid on ordinary shares
Dividend reinvestment plan (net of issue costs)
Issue of shares (net of issue costs)
Share-based payments
Redemptions
Other changes
As at 30 June 2016
Net profit after income tax
Net other comprehensive income
Total comprehensive income for the financial year
Transactions with Equity holders in their capacity as Equity holders:
Dividends paid on ordinary shares
Dividend reinvestment plan (net of issue costs)
Issue of shares (net of issue costs)
Share-based payments
Redemptions
Other changes
As at 30 June 2017
The above Statements of Changes in Equity should be read in conjunction with the accompanying notes.
Financial statements
91
91
Note
2017
$M
2016
$M
33,536
(15,006)
5,556
(9,763)
(3,976)
4,220
34,047
(16,285)
5,688
(9,981)
(3,071)
(2,642)
Group
2015
$M
34,112
(17,442)
5,439
(8,740)
(3,444)
1,457
2017
$M
33,807
(17,057)
3,959
(8,152)
(3,163)
2,742
186
3,366
(3,854)
156
(362)
3,114
(3,301)
1,872
118
2,910
(3,307)
738
-
-
-
1,588
14,421
9,079
11,841
13,724
Bank
2016
$M
34,908
(18,935)
3,674
(7,961)
(2,661)
(3,367)
-
-
-
246
5,904
(54,608)
49,392
(38,744)
(50,233)
46,150
(52,825)
(60,967)
53,569
(41,768)
(53,883)
48,750
(31,708)
(48,759)
46,541
(45,917)
1,100
803
(3,799)
1,121
238
(13,993)
4,574
(6,174)
(13,381)
4,467
(6,323)
8,598
718
(5,511)
(1,789)
(2,020)
(2,741)
3,152
(174)
39,821
666
(853)
802
(15,228)
(807)
4,276
(108)
37,783
4,789
39
41,229
4,148
135
(13,640)
(4,561)
3,015
(448)
(4,658)
7,183
(31)
(857)
(29)
1
94
-
381
(602)
(25)
(495)
(677)
110
78
-
405
(1,259)
-
(509)
(2,032)
72
71
-
69
(578)
(270)
(550)
(1,215)
-
-
-
-
(152)
36,379
(157)
35,054
(804)
(1,947)
(14,907)
(1,183)
-
-
1,200
5,500
50
(320)
(15)
(409)
6,006
4,257
(1,580)
(11,367)
(5,463)
-
110
1,462
1,307
122
(426)
-
(450)
2,125
Statements of Cash Flows (1)
For the year ended 30 June 2017
Cash flows from operating activities
Interest received
Interest paid
Other operating income received
Expenses paid
Income taxes paid
Net inflows/(outflows) from assets at fair value through
Income Statement (excluding life insurance)
Net inflows/(outflows) from liabilities at fair value through
Income Statement:
Insurance:
Investment income
Premiums received (2)
Policy payments and commission expense (2)
Other liabilities at fair value through Income Statement
Cash flows from operating activities before
changes in operating assets and liabilities
Changes in operating assets and liabilities
arising from cash flow movements
Movement in available-for-sale investments:
Purchases
Proceeds
Net increase in loans, bills discounted and other receivables
Net decrease/(increase) in receivables due from other
financial institutions and regulatory authorities
Net (increase)/decrease in securities purchased under
agreements to resell
Insurance business:
Purchase of insurance assets at fair value through
Income Statement
Proceeds from sale/maturity of insurance assets at fair
value through Income Statement
Net (increase)/decrease in other assets
Net increase in deposits and other public borrowings
Net increase/(decrease) in payables due to other financial
institutions
Net (increase)/decrease in securities sold under
agreements to repurchase
Net increase/(decrease) in other liabilities
Changes in operating assets and liabilities
arising from cash flow movements
Net cash (used in)/provided by operating activities 39 (a)
Cash flows from investing activities
Payments for acquisition of controlled entities
Net proceeds from disposal of entities and businesses
(net of cash disposals)
Dividends received
Net amounts received from controlled entities (3)
Proceeds from sale of property, plant and equipment
39 (d)
Purchases of property, plant and equipment
Payments for acquisitions of investments in
associates/joint ventures
Net purchase of intangible assets
Net cash (used in)/provided by investing activities
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.
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92
Financial statements
Statements of Cash Flows (1) (continued)
For the year ended 30 June 2017
Note
2017
$M
2016
$M
Cash flows from financing activities
Dividends paid (excluding Dividend Reinvestment Plan)
Redemption of other equity instruments (net of costs)
Proceeds from issuance of debt securities
Redemption of issued debt securities
Purchase of treasury shares
Sale of treasury shares
Issue of loan capital
Redemption of loan capital
Proceeds from issuance of shares (net of issue costs)
Other
Net cash provided by/(used in) financing activities
Net increase/(decrease) in cash and cash equivalents
Effect of foreign exchange rates on cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
39 (b)
(6,084)
-
94,560
(81,758)
(92)
34
3,757
-
(6)
61
10,472
8,988
(318)
14,447
23,117
(5,827)
(939)
98,958
(97,740)
(108)
50
3,949
(1,678)
5,022
(67)
1,620
(4,973)
150
19,270
14,447
Group
2015
$M
(6,200)
-
68,655
(73,377)
(790)
744
6,184
(2,971)
-
(120)
(7,875)
(1,907)
2,049
19,128
19,270
2017
$M
(6,084)
(406)
77,938
(71,345)
-
-
3,379
3
(6)
30
3,509
8,332
(292)
12,909
20,949
Bank
2016
$M
(5,777)
(1,483)
88,920
(90,149)
-
-
3,943
(2,645)
5,022
179
(1,990)
(5,328)
72
18,165
12,909
(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.
Financial statements
93
93
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 2017, were approved and
authorised
the Board of Directors on
8 August 2017. The Directors have the power to amend and
reissue the Financial Statements.
issue by
for
The Bank is a for-profit entity incorporated and domiciled in
Australia. It is a company limited by shares that are publicly
traded on the Australian Securities Exchange. The registered
office is Ground Floor, Tower 1, 201 Sussex Street, Sydney,
NSW 2000, Australia.
The principal accounting policies adopted in the preparation
of this financial report are set out below. These policies have
been consistently applied to all the periods presented, unless
otherwise stated. The
in
Australian dollars. The assets and liabilities are presented in
order of liquidity on the Balance Sheet.
financial report
is presented
Basis of Preparation
(a) Basis of Accounting
This General Purpose Financial Report has been prepared in
accordance with Australian Accounting Standards
(the
standards), Australian Interpretations, and the Corporations
Act 2001.
The Financial Statements comply with International Financial
Reporting Standards (IFRS) and Interpretations as issued by
the International Accounting Standards Board (IASB) and
IFRS Interpretations Committee (IFRIC) respectively.
(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.
(c) Rounding of Amounts
The amounts in this financial report have been rounded in
accordance with ASIC Corporations Instrument 2016/191 to
the nearest million dollars, unless otherwise indicated.
During the year, the Group changed its accounting policy in
relation to the recognition of Global Asset Management long-
term incentives provided to certain employees in Wealth
Management. The new accounting policy expenses the long-
term incentives when granted rather than over the vesting
period per the previous accounting policy. The new policy
more closely aligns
the economic
substance of the arrangements. The change has been
applied retrospectively and results in a reduction in net profit
after tax of $4 million (30 June 2015: $10 million), a reduction
of $192 million
(30 June 2015:
$188 million), a decrease of $77 million in total assets
(30 June 2015: $43 million increase) and an increase in total
liabilities of $115 million (30 June 2015: $231 million).
the accounting with
retained earnings
in
(f) 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 Group are
Transactions between subsidiaries
eliminated. Non-controlling interests in the results and equity
of subsidiaries are shown separately in the consolidated
Income Statement, Statement of Comprehensive Income,
Statement of Changes in Equity, and Balance Sheet.
in
Subsidiaries are consolidated from the date on which control
is transferred to the Group and de-consolidated when control
ceases.
Subsidiaries are accounted for at cost less accumulated
impairments at the Bank level.
(d) Segment Reporting
Business Combinations
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”.
(e) Changes in Accounting Policies
The accounting policies adopted are consistent with those of
the previous financial year other than the changes outlined
below.
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. Other
the
presentation of segment information, as disclosed in Note 26,
the restatements are not considered to have a material
impact on the Financial Statements.
than changes
to
Business combinations are accounted
the
acquisition method. Cost is measured as the aggregate of the
fair values of assets given, equity instruments issued, or
liabilities incurred or assumed at the date of exchange.
for using
Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured
at fair value on the acquisition date. Goodwill is recorded as
the excess of the total consideration transferred, the carrying
amount of any non-controlling interest in the acquiree and the
acquisition date fair value of any previous equity interest in
the acquiree over the net identifiable assets acquired. If there
is a deficit instead, this discount on acquisition is recognised
directly in the consolidated Income Statement, but only after a
reassessment of the identification and measurement of the
net assets acquired.
Investment in Associates and Joint Ventures
Associates and joint ventures are entities over which the
Group has significant influence or joint control, but not control.
In
they are equity
accounted. They are initially recorded at cost and adjusted for
the consolidated
financial
report,
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94
Notes to the financial statements
Note 1 Accounting Policies (continued)
the Group’s share of the associates’ and joint ventures’ post-
acquisition profits or losses and other comprehensive income
(OCI), less any dividends received. At the Bank level, they
are accounted for at cost less accumulated impairments.
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(t)). If there is an indication that
an investment 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 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.
(g) Foreign Currency Translation
Functional and Presentation Currency
The consolidated are presented in Australian dollars,
which is the Bank’s functional and presentation currency. The
foreign operations
functional currency of
(including subsidiaries, branches, associates, and
joint
ventures) will vary based on the currency of the main
economy to which it is exposed.
the Group’s
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.
Foreign Operations
Where the Group’s foreign operations do not have an
Australian dollar functional currency:
assets and liabilities are translated at the prevailing
exchange rate at Balance Sheet date;
revenue and expenses are translated at the average
exchange rate for the period (or the prevailing rate at the
transaction date where the average is not a reasonable
approximation); and
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 disposal. No Group entities have a
functional currency of a hyperinflationary economy.
(h) Offsetting
the
Income
Income and expenses are only offset
relevant accounting
if permitted under
Statement
standard. Examples of offsetting include gains and losses
from foreign exchange exposures and trading operations.
the
in
Financial assets and liabilities are offset and the net amount
is presented in the Balance Sheet if, and only if, there is a
currently enforceable legal right to offset the recognised
amounts, and there is an intention to settle on a net basis, or
to realise the asset and settle the liability simultaneously.
(i) 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
recognised and subsequently
instruments are
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
to
offsetting market risks, mid-market prices are used
measure the offsetting risk positions and a quoted bid or
asking price adjustment is applied only to the net open
position as appropriate.
Non-market quoted financial instruments are mostly valued
using valuation techniques based on observable inputs,
except for a limited number of instances where observable
market data is unavailable. In this instance, the financial
instrument is initially recognised at the transaction price,
which is generally the best indicator of fair value. This may
differ from the value obtained from the valuation model. The
timing of the recognition in the Income Statement of this initial
difference in fair value depends on the individual facts and
circumstances of each transaction, but is never later than
when the market data becomes observable. The difference
may be either amortised over the life of the transaction,
recognised when the inputs become observable or on
derecognition of the instrument, as appropriate.
Income Statement
(j) 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
(k) 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
Notes to the financial statements
95
95
Note 1 Accounting Policies (continued)
Fees charged for providing ongoing services (for example,
managing and administering existing facilities and funds) are
recognised as income over the service period. 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.
(l) 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
classified as available-for-sale
financial assets, are
recognised in equity through OCI.
Insurance income recognition is outlined in Note 1 (dd).
(m) Interest Expense
Interest expense on financial liabilities measured at amortised
cost is recognised in the Income Statement using the
effective interest method.
includes
that are
issue costs
initially
Interest expense
recognised as part of the carrying value of the liability and
amortised over the expected life using the effective interest
method. These include fees and commissions payable to
advisers and other expenses such as external legal costs,
provided these are incremental costs that are directly related
to the issue of a financial liability. It also includes payments
made under a liquidity facility arrangement with the Reserve
Bank of Australia and other financing charges.
(n) 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.
increase
Staff expenses include share based payments which may be
cash or equity settled. The fair value of equity settled
remuneration is calculated at grant date and amortised to the
the vesting period, with a
Income Statement over
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 equity instruments included in the
measurement of the expense.
taken
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(w) and Note 1(u)
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(x).
Taxation
(o) 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
(p) 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.
(q) 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 only recognised to the extent that it is
probable that future taxable profits will be available for it to be
used against. Deferred tax assets and liabilities are offset
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.
(r) The Tax Consolidated Group
legislation allows Australian
resident
Tax consolidation
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.
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’.
(s) 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.
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96
Notes to the financial statements
Note 1 Accounting Policies (continued)
For the purposes of the Statements of Cash Flows, cash and
cash equivalents include cash and money at short call.
(t) Financial Assets
The Group classifies its financial assets in the following
categories:
fair value
through
Income
the
financial assets at
Statement;
derivative assets;
loans and receivables; and
available-for-sale investments.
The classification of financial instruments at initial recognition
depends on their purpose, characteristics and management’s
intention when acquiring them.
Financial instruments, except for loans and receivables, are
initially recognised by the Group on the trade date, i.e. the
date that the Group becomes a party to the contractual
provisions of the instruments.
This applies to trades transacted in a regular way, i.e.
purchases or sales of financial assets that require delivery of
assets within
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.
time
the
Financial assets are initially recognised at their fair value plus
directly attributable transaction costs, except in the case of
financial assets recorded at fair value through 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. Refer to Note 1 (ff).
Other investments include financial assets, which the Group
has designated at fair value through Income Statement at
inception to: eliminate an accounting mismatch; reflect they
are managed on a fair value basis; or where the asset is a
contract which contains an embedded derivative.
to
initial
Subsequent
financial assets are
recognition,
measured at fair value with changes in fair value recognised
in other operating income. Dividends earned are recorded in
other operating income. Interest earned is recorded within net
interest income using the effective interest method.
Derivative Financial Instruments
Derivative financial instruments are contracts whose value is
derived from one or more underlying price, index or other
variable. They include forward rate agreements, futures,
options and interest rate, currency, equity and credit swaps.
Derivatives are entered into for trading or hedging purposes.
to
initial
recognition, gains or
losses on
Subsequent
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, commodity and credit risks, including
exposures arising from forecast transactions.
Where derivatives are held for risk management purposes
and when transactions meet the required criteria, the Group
applies one of three hedge accounting models; fair value
hedge accounting, cash flow hedge accounting, or hedging of
a net investment in a foreign operation as appropriate to the
risks being hedged.
(i) Fair Value Hedges
Changes in fair value of derivatives that qualify and are
designated as fair value hedges are recorded in the Income
Statement, together with changes in the fair value of the
hedged asset or liability that are attributable to the hedged
risk. The changes in the fair value of the hedged asset or
liability shall be adjusted against their carrying value.
If the hedge relationship no longer meets the criteria for
hedge accounting, it is discontinued. For fair value hedges of
interest rate risk, the fair value adjustment to the hedged item
is amortised to the Income Statement over the period to
maturity of the previously designated hedge relationship using
the effective interest method. If the hedged item is sold or
repaid, the unamortised fair value adjustment is recognised
immediately in the Income Statement.
(ii) Cash Flow Hedges
Changes in fair value associated with the effective portion of
a derivative designated as a cash flow hedge are recognised
through OCI 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
Notes to the financial statements
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Note 1 Accounting Policies (continued)
included in the Income Statement when the foreign subsidiary
or branch is disposed of.
measured at fair value through Income Statement in line with
the accounting policy for assets held for trading.
(iv) Embedded Derivatives
In certain instances, a derivative may be embedded within a
host contract. It is accounted for separately as a stand-alone
derivative at fair value, where:
the host contract is not carried at fair value through the
Income Statement; and
the economic characteristics and risks of the embedded
derivative are not closely related to the host contract.
Available-for-Sale Investments
(AFS)
Available-for-sale
investments are non-derivative
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
investment 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 as a result of
one or more events which have an impact on the estimated
future cash flows of the AFS investments 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 AFS investments, cumulative
losses are removed from equity and recognised in the Income
Statement. If, in a subsequent period, the fair value of an AFS
debt security increases and the increase can be linked
objectively to an event occurring after the impairment event,
the impairment is reversed through the Income Statement.
Impairment losses on AFS equity securities are not reversed.
Upon disposal, the accumulated change in fair value within
the AFS investments reserve is transferred to the Income
Statement and reported within other operating income.
Loans, Bills Discounted and Other Receivables
Loans, bills discounted and other receivables are non-
derivative
fixed and determinable
payments that are not quoted in an active market.
financial assets, with
receivables
include
Loans, bills discounted and other
overdrafts, home loans, credit card and other personal
lending, term loans, bill financing, redeemable preference
shares, securities, finance leases, and receivables due from
other financial institutions (including loans, deposits with
regulatory authorities and settlement account balances due
from other banks). Subsequent to initial recognition, loans
and receivables are measured at amortised cost using the
effective interest method and are presented net of provisions
for impairment. Discounted bills included in this category due
to their nature meet the definition of trading asset. They are
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.
loan
impairment. The Group has
Loans and other receivables are presented net of provisions
individually and
for
Individually assessed
collectively assessed provisions.
that are
provisions are made against
individually significant, or which have been
individually
assessed as impaired.
financial assets
Individual provisions for impairment are recognised to reduce
the carrying amount of non-performing facilities to the present
Individually
value of
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.
In subsequent periods, interest in arrears/due on non-
performing facilities is recognised in the Income Statement
using the original effective interest rate.
loans and other receivables
All
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.
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Notes to the financial statements
Note 1 Accounting Policies (continued)
A financial liability is derecognised when the obligation under
the liability is discharged, cancelled or expires. Where an
existing financial liability is replaced by another from the same
lender on substantially different terms, or the terms of an
existing liability are substantially modified, such an exchange
or modification is treated as a derecognition of the original
liability and the recognition of a new liability. The difference in
the respective carrying amounts is recognised in the Income
Statement.
Repurchase and Reverse Repurchase Agreements
Securities sold under repurchase agreements are retained in
the Financial Statements where substantially all the risks and
rewards of ownership remain with the Group.
A counterparty liability is recognised within deposits and
public borrowings. The difference between the sale price and
the
the repurchase price
repurchase agreement and charged to interest expense in the
Income Statement.
is accrued over
life of
the
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
‘Provisions, Contingent
is calculated under AASB 137
Liabilities and Contingent Assets’.
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.
(u) Lease Receivables
Leases are classified as either finance or operating leases.
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.
Income
Operating
Statement on a straight line basis over the lease term.
As a lessee, rental expense is recognised on a straight line
basis over the lease term.
lease revenue
is recognised
the
in
(v) 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.
(w) 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 disposal, realised amounts in the
asset revaluation reserve are transferred to retained profits.
Other property, plant and equipment assets are stated at
cost, including direct and incremental acquisition costs less
required.
accumulated depreciation and
Subsequent costs are capitalised where it enhances the
asset. Depreciation is calculated using the straight line
method over the asset’s estimated useful economic life.
impairment
if
The useful lives of major depreciable asset categories are as
follows:
Land
Buildings
Equipment
Leasehold improvements
Aircraft
Assets under lease
Ships
Rail
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
Other property, plant and equipment
Infrastructure assets
50 – 100 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.
(x) 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. 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.
Notes to the financial statements
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Note 1 Accounting Policies (continued)
Computer Software Costs
internal and external costs directly
in
Certain
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
five years. The Core Banking
amortised over
Modernisation software project is amortised over ten years.
incurred
two
to
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
Software maintenance is expensed as incurred.
(ii) Payables Due to Other Financial Institutions
Core Deposits
Core deposits were initially recognised at fair value following
the acquisition of Bankwest and represent the value of the
deposit base acquired. Core deposits are amortised over their
estimated useful life of seven years. The core deposits were
fully amortised in the year ended 30 June 2016.
Brand Names
Brand names are initially recognised at fair value when
acquired in a business combination. Brand names are
amortised over their useful life, which is considered to be
similar to the period of the brand name’s existence at the time
of purchase. Where the brand name is assessed to have an
indefinite useful life, it is carried at cost less accumulated
impairment. An indefinite useful life is considered appropriate
when there is no foreseeable limit to the period over which
the brand name is expected to generate cash flows.
Other Intangibles
Other intangibles predominantly comprise customer lists.
Customer relationships acquired as part of a business
combination are initially measured at fair value. They are
subsequently measured
accumulated
at
amortisation and any impairment losses. Amortisation is
calculated based on the timing of projected cash flows of the
relationships over their estimated useful lives.
cost
less
Liabilities
(y) Financial Liabilities
The Group classifies its financial liabilities in the following
categories:
liabilities at fair value through Income Statement;
derivative liabilities (refer to Note 1(t)).
liabilities at amortised cost; and
Financial liabilities are initially recognised at their 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.
to
initial
these
Subsequent
liabilities are
recognition,
measured at fair value. Changes in fair value relating to the
in other
Group’s own credit
risk are
comprehensive
fair value
movement recognised in other operating income. Interest
incurred is recorded within net interest income using the
effective interest method.
recognised
remaining
income, with
the
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. Commercial paper, floating, fixed and structured
debt issues are recorded at amortised cost using the effective
interest method.
Premiums, discounts and associated issue expenses are
recognised in the Income Statement using the effective
interest method from the date of issue, to ensure that
securities attain their redemption values by maturity date.
Interest is recognised in the Income Statement using the
effective interest method. Any profits or losses arising from
redemption prior
Income
Statement in the period in which they are realised.
to maturity are
taken
the
to
The Group hedges interest rate and foreign currency risk on
certain debt issues. When fair value hedge accounting is
applied to fixed rate debt issues, the carrying values are
adjusted for changes in fair value related to the hedged risks,
rather than carried at amortised cost.
(iv) Loan Capital
Loan capital is debt issued by the Group with terms and
conditions that qualify for inclusion as capital, under APRA
Prudential Standards. It is initially recorded at fair value, plus
directly attributable
thereafter at
amortised cost using the effective interest method.
transaction costs and
(v) Bank Acceptances of Customers - Liability
These are bills of exchange initially accepted and discounted
by the Group and subsequently sold into the market. They are
recognised at amortised cost. The market exposure is
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 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
less cumulative amortisation
recognised in the Income Statement, and the best estimate of
expenditure required to settle any financial obligation arising
initially recognised
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Notes to the financial statements
Note 1 Accounting Policies (continued)
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
loans and
accordance with accounting policies
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
(z) Employee Benefits
Annual Leave
for annual
The provision
liability
outstanding
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 present
value and is set based on actuarial assumptions. The
assumptions and provision balance are subject to periodic
review.
Other Employee Benefits
to a
Other employee entitlements comprises
registered health fund for subsidies with respect to retired and
current employees, and employee incentives under employee
share plans and bonus schemes.
liabilities
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.
(aa) 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
(bb) 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.
(cc) 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.
Defined Benefit Superannuation Plans
Asset Revaluation Reserve
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 recognised 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.
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.
Notes to the financial statements
101
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Note 1 Accounting Policies (continued)
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.
the extent that they are deemed recoverable from the
expected future profits.
(ff) 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.
(gg) 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.
General insurance contracts are insurance contracts that are
not life insurance contracts.
Life investment contract liabilities are measured at fair value.
The balance is no less than the contract surrender value.
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
when the capital adequacy requirements of the Life Insurance
Act 1995 (Life Act) are met.
(dd) 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 comprise a management fee,
which is recognised as revenue over the service period, and a
deposit portion that increases 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.
(ee) 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 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
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
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
(hh) Managed Funds Units on Issue
When a controlled unit trust is consolidated, any 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 external unit-holders is excluded from the
Group’s net profit or loss.
(ii) 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
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Notes to the financial statements
Note 1 Accounting Policies (continued)
recognition by the Group. An imputed borrowing is recognised
by the Bank inclusive of the derivative and any related fees.
Changes in these estimates could have a direct impact on the
level of provision determined.
(jj) 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. The
estimates and associated assumptions are based on
historical experience and other factors that are considered to
be relevant, and are reviewed on an ongoing basis. Actual
results may differ from these estimates, which could impact
the Group’s net assets and profit.
(kk) Provisions for Impairment of Financial Assets
Provisions for impairment of financial assets are raised where
there is objective evidence of impairment (where the Group
does not expect to receive all of the cashflows contractually
due) at an amount adequate to cover assessed credit related
losses. Financial assets are either individually or collectively
assessed.
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 made against financial
assets that are individually significant, or which have been
individually assessed as
impaired. 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 Provisions
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.
Management also considers overall indicators of portfolio
performance, quality and economic conditions.
(ll) Provisions (Other than Loan Impairment)
Provisions are held in respect of a range of future obligations
as outlined in Note 19. 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.
(mm) 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
Determining whether the projection or accumulation
method is appropriate. The selection of the method is
generally governed by the product type.
The determination of assumptions
relies on making
judgements on variances from long-term assumptions. Where
experience differs from long-term assumptions:
There may be a commencement of a new paradigm
requiring a change in long-term assumptions.
Recent results may be a statistical aberration; or
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.
(nn) Consolidation of Structured Entities
The Group exercises judgement at inception and periodically
thereafter, to assess whether that 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
involvement with
investment funds.
transactions and
(oo) 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.
Notes to the financial statements
103
103
Note 1 Accounting Policies (continued)
Valuation techniques include using recent arm’s length
market transactions between knowledgeable willing parties (if
available), reference to the current fair value of substantially
similar instruments’ 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
reliable
technique has been demonstrated
estimates of prices obtained in actual market transactions, the
Group uses that technique.
to provide
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 the Group believes
market participants would consider in setting a price and is
consistent with accepted economic methodologies for pricing
financial instruments. Data inputs that the Group relies upon
when valuing financial instruments relate to counterparty
credit risk, volatility, correlation and extrapolation.
Periodically, the Group calibrates its valuation techniques and
tests them for validity using prices from any observable
current market transactions in the same instrument (i.e.
without modification or repackaging) and any other available
observable market data. Note 40 includes details of non-
observable inputs used to fair value financial instruments.
(pp) 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
(qq) 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
(rr) Superannuation Obligations
The Group’s defined benefit plans are described in Note 35.
Actuarial valuations of the plan’s obligations and 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 difference between plan assets and obligations, and
the superannuation cost charged.
Future Accounting Developments
AASB 9 ‘Financial Instruments’ introduces an ‘expected credit
loss’ model,
revised classification and measurement
requirements and modified hedge accounting rules. AASB 9
is not mandatorily effective until 1 July 2018 and the Group
does not intend to early adopt the standard.
Impairment
AASB 9 expected credit loss model replaces the existing
incurred loss model requirement to recognise impairment
when there is objective evidence of default. It requires entities
to recognise expected credit losses based on unbiased
forward looking information. The key changes under AASB 9
are as follows:
AASB 9 requires more timely recognition of expected credit
losses using a three stage approach. For financial assets
where there has been no significant increase in credit risk
to 12 months
since origination, a provision equivalent
expected credit losses is recognised. For financial assets
where there has been a significant increase in credit risk or
where the asset is credit impaired, a provision equivalent to
full lifetime expected loss is required.
Expected credit losses are probability weighted amounts
determined by evaluating a range of possible outcomes and
taking into account the time value of money, past events,
current conditions and
future economic
conditions.
forecasts of
Classification and measurement
AASB 9 replaces
the classification and measurement
requirements in AASB 139 with the approach that classifies
financial assets based on a business model for managing
financial assets and whether the contractual cash flows
represent solely payments of principal and interest. Financial
assets can be classified as financial assets at amortised cost,
financial assets at fair value through profit or loss or financial
assets at
through OCI. Non-traded equity
instruments can be measured at fair value through OCI.
fair value
Hedging
AASB 9 will change hedge accounting by introducing more
principal based approach to hedge effectiveness testing and
by increasing eligibility of both hedge instruments and hedged
items. Adoption of the new hedge accounting model is
optional and current hedge accounting under AASB 139 can
continue to apply until the IASB completes its accounting for
dynamic risk management project. The Group will apply the
new hedge accounting requirements from 1 July 2018.
A Group-wide program has been in progress to implement
AASB 9 requirements. It is not practical to disclose a financial
impact until the implementation program is further advanced
and reliable estimates of the impact are available.
‘Revenue
AASB 15
from Contracts with Customers’
introduces a single model for the recognition of revenue
based on when control of goods and services transfers to a
customer. It does not apply to financial instruments. AASB 15
is not mandatory until 1 July 2018 for the Group.
the accounting
‘Leases’ amends
AASB 16
leases.
Lessees will be required to bring all leases on Balance Sheet
as the distinction between operating and finance leases has
been eliminated. Lessor accounting
largely
unchanged. AASB 16 is not mandatory until 1 July 2019 for
the Group.
remains
for
introduces
for accounting
‘Insurance Contracts’
three new
AASB 17
measurement approaches
insurance
contracts. These include the Building Block Approach for long
term contracts; the Premium Allocation Approach for short
term contracts and a Variable Fee Approach for direct
participating contracts. In addition, the level of contract
aggregration is likely to be lower than under current practices.
AASB 17 is not mandatory until 1 July 2021 for the Group.
for
The potential financial impacts of the above to the Group
have not yet been determined. The Group does not intend to
early adopt these standards.
Other amendments to existing standards that are not yet
effective are not expected to result in significant changes to
the Group’s accounting policies.
Our businessPerformance overview Corporate responsibility Corporate governanceDirectors’ reportOther informationCommonwealth Bank of AustraliaAnnual Report 2017Financial report6213457
104
104
Notes to the financial statements
Note 2 Profit
Profit before income tax has been determined as follows:
Interest Income
Loans and bills discounted
Other financial institutions
Cash and liquid assets
Assets at fair value through Income Statement
Available-for-sale investments
Controlled entities
Total interest income (1)
Interest Expense
Deposits
Other financial institutions
Liabilities at fair value through Income Statement
Debt issues
Loan capital
Controlled entities
Total interest expense (2)
Net interest income
Other Operating Income
Lending fees
Commissions
Trading income
Net gain/(loss) on non-trading financial instruments (3) (4)
Net gain/(loss) on sale of property, plant and equipment
Net hedging ineffectiveness
Dividends - Controlled entities
Dividends - Other
Net funds management operating income (5)
Insurance contracts income
Share of profit from associates and joint ventures net of impairment
Other (6)
Total other operating income
Total net operating income before impairment and
operating expenses
Impairment Expense
Loan impairment expense
Total impairment expense (Note 13)
2017
$M
2016
$M
Group
2015
$M
2017
$M
Bank
2016
$M
30,723
30,966
31,476
27,214
27,576
152
321
490
1,607
-
33,293
137
291
576
1,847
-
33,817
73
268
518
1,810
-
34,145
10,453
11,685
12,936
300
102
4,159
679
-
15,693
17,600
1,078
2,482
1,149
433
6
62
-
10
2,051
844
292
114
8,521
277
211
4,125
584
-
16,882
16,935
1,010
2,215
1,087
(27)
(21)
(72)
-
12
2,061
1,006
289
83
7,643
220
222
4,372
572
-
18,322
15,823
1,005
2,209
1,039
251
(8)
(95)
-
16
2,003
1,014
285
126
7,845
133
291
467
1,510
3,919
33,534
9,039
274
58
3,326
650
4,417
17,764
15,770
1,002
2,092
1,043
413
(3)
30
122
246
553
1,740
4,423
34,660
10,176
246
110
3,361
563
5,089
19,545
15,115
927
1,838
975
(90)
(15)
(35)
1,105
1,407
95
-
-
(5)
807
6,579
55
-
-
21
952
6,035
26,121
24,578
23,668
22,349
21,150
1,095
1,095
1,256
1,256
988
988
1,040
1,040
1,153
1,153
(1) Total interest income for financial assets that are not at fair value through profit or loss is $32,652 million (2016: $33,002 million, 2015: $33,208 million) for
the Group and $32,917 million (2016: $33,868 million) for the Bank.
(2) Total interest expense for financial liabilities that are not at fair value through profit or loss is $15,591 million (2016: $16,713 million, 2015: $18,100 million)
for the Group and $17,706 million (2016: $19,435 million) for the Bank.
Includes non-trading derivatives that are held for risk management purposes.
(3)
(4) The current year includes a $397 million gain on sale of the Group’s remaining investment in Visa Inc.
(5)
(6)
Includes net profit of $25 million from First Gas Limited (2016: $nil; 2015 $nil).
Includes depreciation of $88 million (2016: $107 million, 2015: $80 million) and impairment of $6 million (2016: $69 million, 2015: $nil) in relation to assets
held for lease by the Group. Includes depreciation of $13 million (2016: $26 million) and impairment of $2 million (2016: $nil) in relation to assets held for
lease by the Bank.
Notes to the financial statements
105
105
Note 2 Profit (continued)
Staff Expenses
Salaries and related on-costs (1)
Share-based compensation
Superannuation
Total staff expenses
Occupancy and Equipment Expenses
Operating lease rentals
Depreciation of property, plant and equipment
Other occupancy expenses
Total occupancy and equipment expenses
Information Technology Services
Application maintenance and development
Data processing
Desktop
Communications
Amortisation of software assets (2)
Software write-offs
IT equipment depreciation
2017
$M
5,652
122
494
6,268
661
288
190
1,139
512
210
188
193
779
6
53
2016
$M
5,657
102
410
6,169
650
266
218
Group
2015
$M
5,331
96
399
5,826
620
253
213
1,134
1,086
511
197
143
203
379
1
51
430
183
110
190
308
11
60
2017
$M
4,112
118
388
4,618
572
237
155
964
455
209
173
173
724
6
51
Bank
2016
$M
4,128
99
316
4,543
564
221
171
956
450
197
132
180
333
-
47
Total information technology services
1,941
1,485
1,292
1,791
1,339
Other Expenses
Postage and stationery
Transaction processing and market data
Fees and commissions:
Professional fees
Other
Advertising, marketing and loyalty
Amortisation of intangible assets (excluding software and merger
related amortisation)
Non-lending losses
Other
Total other expenses
Total expenses
Investment and Restructuring
Merger related amortisation (3)
Total investment and restructuring
Total operating expenses
Profit before income tax
Net hedging ineffectiveness comprises:
Gain/(loss) on fair value hedges:
Hedging instruments
Hedged items
Cash flow and net investment hedge ineffectiveness
Net hedging ineffectiveness
187
186
404
76
437
11
125
304
1,730
11,078
4
4
11,082
13,944
192
179
247
93
491
14
103
327
1,646
10,434
39
39
10,473
12,849
195
153
390
97
522
16
118
308
1,799
10,003
75
75
10,078
12,602
841
(799)
20
62
(709)
642
(5)
(72)
(568)
493
(20)
(95)
168
130
367
346
380
-
115
301
1,807
9,180
4
4
9,184
12,125
1,862
(1,829)
(3)
30
171
129
209
353
392
-
74
333
1,661
8,499
39
39
8,538
11,459
(1,409)
1,369
5
(35)
(1) Comparative information has been restated to reflect the change in accounting policy detailed in Note 1.
(2) The current year includes a $393 million one-off expense for acceleration of amortisation on certain software assets.
(3) Merger related amortisation relates to Bankwest core deposits and customer lists.
Our businessPerformance overview Corporate responsibility Corporate governanceDirectors’ reportOther informationCommonwealth Bank of AustraliaAnnual Report 2017Financial report6213457
106
106
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 25 basis points (2016: 25 basis points), while rates in New
Zealand decreased 50 basis points (2016: 100 basis points) during the year which is reflected in Overseas.
Interest earning
assets (1)
Cash and liquid assets
Australia
Overseas
Receivables due from other
financial institutions
Australia
Overseas
Assets at fair value through
Income Statement - Trading and
Other
Australia
Overseas
Available-for-sale investments
Australia
Overseas
Loans, bills discounted and other
receivables (2)
Australia (3)
Overseas
Total interest earning assets
and interest income
Average
Average
Average
Average Average
2017
2016
Group
2015
Average
Balance
Interest
Rate
Balance
Interest
Rate Balance
Interest
Rate
$M
$M
%
$M
$M
%
$M
$M
%
17,734
19,626
2,266
8,850
21,731
3,895
66,615
13,870
271
50
20
132
422
68
1,458
149
581,093
99,061
26,266
4,457
834,741
33,293
1. 5
0. 3
0. 9
1. 5
1. 9
1. 7
2. 2
1. 1
4. 5
4. 5
4. 0
11,536
20,183
3,387
8,986
19,354
3,090
66,543
12,770
186
105
26
111
500
76
1,662
185
1. 6
0. 5
0. 8
1. 2
2. 6
2. 5
2. 5
1. 4
8,951
21,500
3,418
7,262
17,367
4,618
58,338
10,094
174
94
20
53
396
122
1,656
154
554,206
90,541
26,620
4,346
4. 8
4. 8
522,430
82,186
27,117
4,359
790,596
33,817
4. 3
736,164
34,145
1. 9
0. 4
0. 6
0. 7
2. 3
2. 6
2. 8
1. 5
5. 0
5. 3
4. 6
(1) Comparative information has been restated to conform to presentation in the current year.
(2) Loans, bills discounted and other receivables includes bank acceptances.
(3) Net of average mortgage offset balances that were reclassified as Non-interest earning assets. Gross Australian loan balance is $616,418 million (2016:
$581,067 million, 2015: $542,138 million).
Non-interest earning assets
Assets at fair value through Income Statement - Insurance
Australia
Overseas
Property, plant and equipment
Australia
Overseas
Other assets
Australia (1) (2)
Overseas (1)
Provisions for impairment
Australia
Overseas
Total non-interest earning assets
Total assets
Percentage of total assets applicable to overseas operations (%)
(1) Comparative information has been restated to conform to presentation in the current year.
(2)
Includes average mortgage offset balances.
Group
2017
2016
2015
Average
Average
Average
Balance
Balance
Balance
$M
$M
$M
12,105
2,477
3,743
289
108,987
13,774
(3,303)
(424)
137,648
972,389
16. 6
11,819
2,502
2,827
266
97,068
14,889
(3,272)
(375)
125,724
916,320
16. 7
12,531
2,574
2,531
249
81,563
11,623
(3,524)
(288)
107,259
843,423
16. 6
Notes to the financial statements
107
107
Note 3 Average Balances and Related Interest (continued)
Interest bearing
liabilities (1)
Time deposits
Australia (2)
Overseas
Savings deposits
Australia (2)
Overseas
Other demand deposits
Australia
Overseas
Payables due to other financial
institutions
Australia
Overseas
Liabilities at fair value through
Income Statement
Australia
Overseas
Debt issues (3)
Australia
Overseas
Loan capital
Australia
Overseas
Average
Average Average
Average Average
2017
2016
Group
2015
Average
Balance
Interest
Rate Balance
Interest
Rate Balance
Interest
Rate
$M
$M
%
$M
$M
%
$M
$M
%
207,501
48,461
144,631
16,136
106,267
8,154
11,098
19,235
7,049
1,467
136,614
32,307
11,239
5,453
5,579
1,555
2,005
172
1,041
101
158
142
63
39
3,322
837
447
232
2. 7
3. 2
1. 4
1. 1
1. 0
1. 2
1. 4
0. 7
0. 9
2. 7
2. 4
2. 6
4. 0
4. 3
2. 1
196,883
41,541
156,648
16,688
94,904
7,288
14,367
22,664
4,516
2,349
136,453
25,564
9,442
4,447
5,847
1,417
2,844
293
1,156
128
154
123
95
116
3,469
656
388
196
3. 0
3. 4
1. 8
1. 8
1. 2
1. 8
1. 1
0. 5
2. 1
4. 9
2. 5
2. 6
4. 1
4. 4
207,120
38,706
141,224
14,821
81,534
5,916
11,661
20,030
4,398
2,696
132,766
21,023
6,715
4,766
7,063
1,097
3,076
439
1,123
138
139
81
108
114
3,823
549
301
271
733,754
16,882
2. 3
693,376
18,322
3. 4
2. 8
2. 2
3. 0
1. 4
2. 3
1. 2
0. 4
2. 5
4. 2
2. 9
2. 6
4. 5
5. 7
2. 6
Total interest bearing liabilities
and interest expense
755,612
15,693
(1) Certain comparative information has been restated to conform to presentation in the current year.
(2) Net of average mortgage offset balances that were reclassified to Non-interest bearing liabilities.
(3) Debt issues includes bank acceptances.
Non-interest bearing liabilities
Deposits not bearing interest
Australia (1) (2)
Overseas
Insurance policy liabilities
Australia
Overseas
Other liabilities
Australia
Overseas (1)
Total non-interest bearing liabilities
Total liabilities
Shareholders' Equity (1)
Total liabilities and Shareholders' Equity
Total liabilities applicable to overseas operations (%)
(1) Comparative information has been restated to conform to presentation in the current year.
(2)
Includes average mortgage offset balances.
2017
Average
2016
Average
Group
2015
Average
Balance
Balance
Balance
$M
$M
$M
72,303
3,671
11,190
1,368
53,418
12,796
154,746
910,358
62,031
972,389
16. 4
47,182
3,035
11,482
1,406
48,604
13,178
124,887
858,641
57,679
916,320
16. 1
30,956
2,589
11,811
1,471
40,077
12,160
99,064
792,440
50,983
843,423
15. 7
Our businessPerformance overview Corporate responsibility Corporate governanceDirectors’ reportOther informationCommonwealth Bank of AustraliaAnnual Report 2017Financial report6213457
108
108
Notes to the financial statements
Note 3 Average Balances and Related Interest (continued)
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 variances reflect the
change in interest from the prior year due to changes in interest rates.
Volume and rate variance for total interest earning assets and interest bearing liabilities have been calculated separately (rather
than being the sum of the individual categories).
Changes in net interest income:
Volume and rate analysis (1)
Interest Earning Assets
Cash and liquid assets
Australia
Overseas
Receivables due from other financial institutions
Australia
Overseas
Assets at fair value through Income Statement - Trading and
Other
Australia
Overseas
Available-for-sale investments
Australia
Overseas
Loans, bills discounted and other receivables
Australia
Overseas
Changes in interest income
Interest Bearing Liabilities and Loan Capital
Time deposits
Australia
Overseas
Savings deposits
Australia
Overseas
Other demand deposits
Australia
Overseas
Payables due to other financial institutions
Australia
Overseas
Liabilities at fair value through Income Statement
Australia
Overseas
Debt issues
Australia
Overseas
Loan capital
Australia
Overseas
Changes in interest expense
Changes in net interest income
June 2017 vs June 2016
June 2016 vs June 2015
Volume
$M
Rate
$M
Total
Volume
$M
$M
Rate
$M
Total
$M
97
(2)
(9)
(2)
54
17
2
14
(12)
(53)
3
23
(132)
(25)
(206)
(50)
1,253
396
1,824
(1,607)
(285)
(2,348)
300
229
(192)
(8)
125
13
(41)
(22)
38
(34)
4
174
73
44
478
938
(568)
(91)
(647)
(113)
(240)
(40)
45
41
(70)
(43)
(151)
7
(14)
(8)
(1,667)
(273)
85
(55)
(6)
21
(78)
(8)
(204)
(36)
(354)
111
(524)
(268)
138
(839)
(121)
(115)
(27)
4
19
(32)
(77)
(147)
181
59
36
(1,189)
665
46
(6)
-
17
48
(39)
219
40
1,588
422
2,426
(327)
89
308
44
174
28
31
12
3
(16)
100
118
117
(16)
998
1,168
(34)
17
6
41
56
(7)
(213)
(9)
(2,085)
(435)
(2,754)
(889)
231
(540)
(190)
(141)
(38)
(16)
30
(16)
18
(454)
(11)
(30)
(59)
(2,438)
(56)
12
11
6
58
104
(46)
6
31
(497)
(13)
(328)
(1,216)
320
(232)
(146)
33
(10)
15
42
(13)
2
(354)
107
87
(75)
(1,440)
1,112
(1) Comparative information has been restated to conform to presentation in the current year.
Notes to the financial statements
109
109
Note 4 Income Tax
The income tax expense for the year is determined from the profit before income tax as follows:
Profit before Income Tax
Prima facie income tax at 30%
Effect of amounts which are non-deductible/(assessable)
in calculating taxable income:
Taxation offsets and other dividend adjustments
Tax adjustment referable to policyholder income
Tax losses not previously brought to account
Offshore tax rate differential
Offshore banking unit
Effect of changes in tax rates
Income tax (over) provided in previous years
Other
Total income tax expense
Corporate tax expense
Policyholder tax expense
Total income tax expense
Effective tax rate (%) (2)
2017
$M
13,944
4,183
2016
$M
12,849
3,855
(11)
22
(56)
(76)
(42)
4
(66)
34
3,992
3,960
32
3,992
28. 5
(4)
71
(5)
(79)
(33)
1
(177)
(23)
3,606
3,505
101
3,606
27. 5
Group (1)
2015
$M
12,602
3,781
(6)
69
(9)
(116)
(39)
2
(163)
9
2017
$M
12,125
3,638
(369)
-
(56)
(15)
(40)
(1)
(53)
42
3,528
3,146
3,429
99
3,528
27. 4
3,146
-
3,146
26. 0
Bank
2016
$M
11,459
3,438
(426)
-
(5)
(32)
(27)
1
(171)
42
2,820
2,820
-
2,820
24. 6
(1) Comparative information has been restated to reflect the change in accounting policy detailed in Note 1.
(2) 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.
Income tax expense attributable to
profit from ordinary activities
Australia
Current tax expense
Deferred tax expense
Total Australia
Overseas
Current tax expense
Deferred tax expense/(benefit)
Total overseas
Income Tax Expense attributable to profit from ordinary
activities
2017
$M
3,884
(336)
3,548
435
9
444
2016
$M
2,971
84
3,055
507
44
551
Group (1)
2015
$M
2,865
124
2,989
547
(8)
539
2017
$M
3,453
(341)
3,112
68
(34)
34
Bank
2016
$M
2,708
28
2,736
103
(19)
84
3,992
3,606
3,528
3,146
2,820
(1) Comparative information has been restated to reflect the change in accounting policy detailed in Note 1.
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110
110
Notes to the financial statements
Note 4 Income Tax (continued)
Deferred tax asset balances comprise temporary differences
attributable to:
Amounts recognised in the Income Statement:
Provision for employee benefits
Provisions for impairment on loans, bills discounted and other receivables
Other provisions not tax deductible until expense incurred
Financial instruments
Defined benefit superannuation plan
Unearned Income
Other
2017
$M
2016
$M
Group (1)
2015
$M
2017
$M
Bank
2016
$M
493
1,032
201
1
320
228
224
501
1,051
216
56
310
101
126
496
1,008
283
36
293
98
109
387
946
129
-
320
228
165
385
961
125
10
310
101
81
Total amount recognised in the Income Statement
2,499
2,361
2,323
2,175
1,973
Amounts recognised directly in Other Comprehensive Income:
Cash flow hedge reserve
Other reserves
Total amount recognised directly in Other Comprehensive Income
Total deferred tax assets (before set off)
Set off to tax pursuant to set-off provisions in Note 1(q)
Net deferred tax assets
Deferred tax liability balances comprise temporary differences
attributable to:
Amounts recognised in the Income Statement:
Lease financing
Intangible assets
Financial instruments
Insurance
Investments in associates
Other
Total amount recognised in the Income Statement
Amounts recognised directly in Other Comprehensive Income:
Revaluation of properties
Foreign currency translation reserve
Cash flow hedge reserve
Defined benefit superannuation plan
Available-for-sale investments reserve
Total amount recognised directly in Other Comprehensive Income
Total deferred tax liabilities (before set off)
Set off to tax pursuant to set-off provisions in Note 1(q)
Net deferred tax liabilities
Deferred tax assets opening balance:
Movement in temporary differences during the year:
Provisions for employee benefits
Provisions for impairment on loans, bills discounted and other receivables
Other provisions not tax deductible until expense incurred
Financial instruments
Defined benefit superannuation plan
Unearned Income
Other
Set off to tax pursuant to set-off provisions in Note 1(q)
Deferred tax assets closing balance
123
12
135
2,634
(1,672)
962
161
16
177
2,538
(2,149)
389
155
6
161
2,484
(1,986)
498
13
17
30
2,205
(825)
1,380
9
11
20
1,993
(1,200)
793
235
8
179
485
122
246
282
149
196
510
95
233
341
123
235
425
78
97
1,275
1,465
1,299
76
8
70
445
130
729
2,004
(1,672)
332
389
(8)
(19)
(15)
(97)
10
127
98
477
962
74
26
416
376
132
1,024
2,489
76
40
293
365
264
1,038
2,337
(2,149)
(1,986)
340
498
5
43
(67)
36
17
3
17
(163)
389
351
629
16
(36)
123
87
28
10
(36)
(323)
498
96
8
14
-
-
25
143
76
-
37
445
124
682
825
(825)
-
793
2
(15)
4
-
10
127
84
375
108
146
13
-
-
49
316
74
-
329
376
105
884
1,200
(1,200)
-
771
16
17
(109)
19
17
3
(5)
64
1,380
793
(1) Comparative information has been restated to reflect the change in accounting policy detailed in Note 1.
Notes to the financial statements
111
111
Note 4 Income Tax (continued)
Deferred tax liabilities opening balance:
Movement in temporary differences during the year:
Lease financing
Defined benefit superannuation plan
Intangible assets
Financial instruments
Insurance
Investments in associates
Other
Set off to tax pursuant to set-off provisions in Note 1(q)
Deferred tax liabilities closing balance
2017
$M
340
(47)
69
(141)
(383)
(25)
27
15
477
332
2016
$M
351
(59)
11
26
(62)
85
17
134
(163)
340
Group
2015
$M
366
(40)
136
78
167
19
16
(68)
(323)
351
2017
$M
-
(12)
69
(138)
(272)
-
-
(22)
375
-
Bank
2016
$M
-
(62)
11
28
(27)
-
-
(14)
64
-
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:
Deferred tax assets not taken to account
Tax losses and other temporary differences on revenue account:
Expire under current legislation
Do not expire under current legislation
Total
Tax Consolidation
2017
$M
52
29
81
2016
$M
124
7
131
Group
2015
$M
83
-
83
2017
$M
47
-
47
Bank
2016
$M
117
-
117
The Bank has recognised a tax consolidation contribution to the wholly-owned tax consolidated entity of $97 million
(2016: $99 million).
The amount receivable by the Bank under the tax funding agreement was $302 million as at 30 June 2017 (2016: $213 million
receivable). This balance is included in ‘Other assets’ in the Bank’s separate Balance Sheet.
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112
112
Notes to the financial statements
Note 5 Dividends
Ordinary Shares
Interim ordinary dividend (fully franked) (2017: 199 cents;
2016: 198 cents; 2015: 198 cents)
Interim ordinary dividend paid - cash component only
Interim ordinary dividend paid - Dividend Reinvestment Plan
Total dividend paid
Other Equity Instruments
Dividend paid
Total dividend provided for, reserved or paid
Other provision carried
Dividend proposed and not recognised as a liability (fully franked)
(2017: 230 cents; 2016: 222 cents; 2015: 222 cents) (1)
Provision for dividends
Opening balance
Provision made during the year
Provision used during the year
Closing balance (Note 19)
2017
$M
2016
$M
Group
2015
$M
2,871
558
3,429
-
3,429
100
3,979
90
7,237
(7,227)
100
2,829
552
3,381
56
3,437
90
3,808
82
6,994
(6,986)
90
2,636
574
3,210
52
3,262
82
3,613
73
6,744
(6,735)
82
2017
$M
2,871
558
3,429
-
3,429
100
3,979
90
7,237
(7,227)
100
Bank
2016
$M
2,829
552
3,381
-
3,381
90
3,808
82
6,994
(6,986)
90
(1) The 2017 final dividend will be satisfied by cash disbursements with the Dividend Reinvestment Plan (DRP) anticipated to be satisfied by the issue of
shares of approximately $1.4 billion. The 2016 final dividend was satisfied by cash disbursements of $3,222 million and $586 million being reinvested by
the participants through the DRP. The 2015 final dividend was satisfied by cash disbursements $2,958 million and $655 million being reinvested by the
participants through the DRP.
Final Dividend
The Directors have declared a franked final dividend of 230 cents per share amounting to $3,979 million. The dividend will be
payable on 29 September 2017 to shareholders on the register at 5pm AEST on 17 August 2017. The ex-dividend date is
16 August 2017.
Current and expected rates of business growth and the mix of business;
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:
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.
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 2017 to frank dividends for subsequent financial years, is $1,067 million (2016: $532 million). This figure is based on the
franking accounts of the Bank at 30 June 2017, 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 2017.
Dividend History
Half year ended
31 December 2014
30 June 2015
31 December 2015
30 June 2016
31 December 2016
30 June 2017
Cents Per
Share Payment Date
198 02/04/2015
222 01/10/2015
198 31/03/2016
222 29/09/2016
199 04/04/2017
230 29/09/2017
Half-year
Full Year
Payout
Ratio (1)
Payout
Ratio (1)
DRP
DRP
Price
Participation
Rate (2)
%
71. 2
80. 4
73. 6
83. 1
70. 1
79. 0
%
-
75. 8
-
78. 4
-
74. 6
$
91. 26
74. 75
72. 68
72. 95
83. 21
-
%
17. 9
18. 1
16. 3
15. 4
16. 3
-
(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.
Notes to the financial statements
113
113
Note 6 Earnings Per Share
Earnings per ordinary share (1)
Basic
Fully diluted
2017
2016
Cents per Share
Group (2)
2015
577. 6
559. 1
542. 3
529. 2
553. 1
539. 1
(1) EPS calculations are based on actual amounts prior to rounding to the nearest million.
(2) Comparative information has been restated to reflect the change in accounting policy detailed in Note 1.
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, adjusted for any bonus element included in
ordinary shares issued and excluding treasury shares held.
Diluted earnings per share amounts are calculated by dividing net profit attributable to ordinary equity holders of the Bank (after
adding back interest on the convertible redeemable loan capital instruments) by the weighted average number of ordinary shares
issued during the year (as calculated under basic earnings per share adjusted for the effects of dilutive convertible non-
cumulative redeemable loan capital instruments and shares issuable under executive share plans).
Reconciliation of earnings used in calculation of earnings per share
Profit after income tax (1)
Less: Other equity instrument dividends
Less: Non-controlling interests
Earnings used in calculation of basic earnings per share
Add: Profit impact of assumed conversions of loan capital
Earnings used in calculation of fully diluted earnings per share
(1) Comparative information has been restated to reflect the change in accounting policy detailed in Note 1.
Weighted average number of ordinary shares used in the calculation of
basic earnings per share
Effect of dilutive securities - executive share plans and convertible loan capital instruments
Weighted average number of ordinary shares used in the calculation of
fully diluted earnings per share
Note 7 Cash and Liquid Assets
Notes, coins and cash at banks
Money at short call
Securities purchased under agreements to resell
Bills received and remittances in transit
Total cash and liquid assets
2017
$M
14,635
8,281
22,733
201
45,850
Note 8 Receivables Due from Other Financial Institutions
Placements with and loans to other financial institutions
Deposits with regulatory authorities (1)
Total receivables due from other financial institutions
(1) Required by law for the Group to operate in certain regions.
2017
$M
9,815
222
10,037
2017
$M
9,952
-
(24)
9,928
218
10,146
2017
M
1,719
96
1,815
Group
2016
$M
12,103
2,201
8,925
143
23,372
Group
2016
$M
11,384
207
11,591
2016
$M
9,243
(50)
(20)
9,173
195
9,368
Group
2015
$M
9,074
(52)
(21)
9,001
225
9,226
Number of Shares
2016
M
1,692
79
1,771
2017
$M
12,707
8,167
21,865
75
42,814
2017
$M
8,641
37
8,678
2015
M
1,627
84
1,711
Bank
2016
$M
10,809
2,073
8,673
27
21,582
Bank
2016
$M
10,140
42
10,182
The majority of the above amounts are expected to be recovered within 12 months of the Balance Sheet date.
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114
Notes to the financial statements
Note 9 Assets at Fair Value through Income Statement
Assets at Fair Value through Income Statement
Trading
Government bonds, notes and securities
Corporate/financial institution bonds, notes and securities
Shares and equity investments
Commodities
Total trading assets
(2) (3)
Insurance
Investments backing life risk contracts
Equity security investments
Debt security investments
Property investments
Other assets
Investments backing life investment contracts
Equity security investments
Debt security investments
Property investments
Other assets
2017
$M
20,370
4,640
922
6,772
32,704
397
3,055
86
668
5,072
2,473
109
1,809
Group (1)
2016
$M
17,653
5,353
2,484
8,577
34,067
510
3,563
82
703
4,383
2,417
123
1,766
Total life insurance investment assets
13,669
13,547
2017
$M
19,879
3,873
603
6,772
31,127
Bank (1)
2016
$M
17,440
4,808
2,160
8,577
32,985
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
796
796
1,187
1,187
(4)
Other
Government securities
Receivables due from other corporate/financial institutions
Other lending
Total other assets at fair value through Income Statement
Total assets at fair value through Income Statement (5)
Maturity Distribution of assets at fair value through income statement
Less than twelve months
More than twelve months
Total assets at fair value through Income Statement
51
264
796
1,111
47,484
35,951
11,533
47,484
43
250
1,187
1,480
49,094
31,923
34,172
36,065
13,029
49,094
31,923
-
31,923
34,172
-
34,172
(1) Comparative information has been reclassified to conform to presentation in the current year.
(2)
(3)
Investments held in the Australian statutory funds may only be used within the restrictions imposed under the Life Insurance Act 1995.
Insurance assets include investment assets of controlled and consolidated trusts that are not wholly owned by the Group. Such assets relate to insurance
contracts issued by the Group and managed fund units held by external unit holders.
(4) 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
(5)
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(t).
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 variability in future cash flows, which could affect profit or loss
and may result from fluctuations in interest and exchange rates or in commodity prices on financial assets, liabilities or highly
probable forecast transactions. The Group principally uses derivative instruments to protect against such fluctuations.
Notes to the financial statements
115
115
Note 10 Derivative Financial Instruments (continued)
Where it is appropriate, non-derivative financial assets and liabilities are also designated as hedging instruments in cash flow
hedge relationships.
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:
Within 6 months
6 months - 1 year
1 - 2 years
2 - 5 years
After 5 years
Net deferred gains/(losses)
Net Investment Hedges
Group
Total
2016
$M
(46)
8
108
846
(237)
679
2017
$M
(72)
(26)
133
(168)
(45)
(178)
2017
$M
3
15
131
(34)
(24)
91
Bank
Total
2016
$M
(9)
80
153
969
(148)
1,045
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:
Derivatives assets and liabilities
Held for trading
Foreign exchange rate related contracts:
Forward contracts
Swaps
Futures
Options purchased and sold
Total foreign exchange rate related contracts
Interest rate related contracts:
Swaps
Futures
Options purchased and sold
Total interest rate related contracts
Credit related swaps
Equity related contracts:
Swaps
Options purchased and sold
Total equity related contracts
Commodity related contracts:
Swaps
Options purchased and sold
Total commodity related contracts
Identified embedded derivatives
2017
Group
2016
Fair Value
Fair Value
Fair Value
Fair Value
Asset
Liability
Asset
Liability
$M
$M
$M
$M
5,735
7,556
-
785
(6,058)
(8,473)
-
(832)
9,055
6,646
1
874
(8,656)
(9,762)
-
(897)
14,076
(15,363)
16,576
(19,315)
6,232
64
918
7,214
42
18
2
20
452
16
468
190
(4,654)
(192)
(1,048)
(5,894)
(72)
(85)
(9)
(94)
(284)
(35)
(319)
(131)
10,590
15
1,120
11,725
38
38
14
52
593
40
633
338
(7,266)
(42)
(1,261)
(8,569)
(50)
(86)
(27)
(113)
(510)
(43)
(553)
(125)
Total derivative assets/(liabilities) held for trading
22,010
(21,873)
29,362
(28,725)
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116
Notes to the financial statements
Note 10 Derivative Financial Instruments (continued)
2017
Group
2016
Fair Value
Fair Value
Fair Value
Fair Value
Asset
Liability
Asset
Liability
$M
$M
$M
$M
Fair value hedges
Foreign exchange rate related swaps
Interest rate related swaps
Total fair value hedges
Cash flow hedges
Foreign exchange rate related swaps
Interest rate related swaps
Total cash flow hedges
Net investment hedges
Foreign exchange rate related forward contracts
Total net investment hedges
5,242
451
5,693
2,615
1,402
4,017
4
4
(4,184)
(2,096)
(6,280)
(1,371)
(794)
(2,165)
(12)
(12)
8,631
881
9,512
5,002
2,691
7,693
-
-
Total derivative assets/(liabilities) held for hedging
9,714
(8,457)
17,205
(4,612)
(2,930)
(7,542)
(2,150)
(1,495)
(3,645)
(9)
(9)
(11,196)
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.
Derivatives assets and liabilities
Held for trading
Foreign exchange rate related contracts:
Forward contracts
Swaps
Futures
Options purchased and sold
Derivatives held with controlled entities
Total foreign exchange rate related contracts
Interest rate related contracts:
Swaps
Futures
Options purchased and sold
Derivatives held with controlled entities
Total interest rate related contracts
Credit related swaps
Equity related contracts:
Swaps
Options purchased and sold
Total equity related contracts
Commodity related contracts:
Swaps
Options purchased and sold
Total commodity related contracts
Identified embedded derivatives
2017
Bank
2016
Fair Value
Fair Value
Fair Value
Fair Value
Asset
Liability
Asset
Liability
$M
$M
$M
$M
5,706
8,356
-
785
688
15,535
5,963
55
917
110
7,045
42
18
2
20
452
16
468
190
(6,014)
(9,181)
-
(830)
(1,998)
(18,023)
(4,357)
(191)
(1,047)
(139)
(5,734)
(72)
(85)
(9)
(94)
(285)
(34)
(319)
(131)
9,010
8,366
1
873
915
19,165
10,166
15
1,119
216
11,516
38
38
14
52
593
40
633
338
(8,554)
(10,691)
-
(894)
(3,083)
(23,222)
(6,868)
(37)
(1,255)
(261)
(8,421)
(50)
(86)
(27)
(113)
(510)
(43)
(553)
(125)
Total derivative assets/(liabilities) held for trading
23,300
(24,373)
31,742
(32,484)
Notes to the financial statements
117
117
Note 10 Derivative Financial Instruments (continued)
Fair value hedges
Foreign exchange rate related contracts:
Swaps
Derivatives held with controlled entities
Total foreign exchange rate related contracts
Interest rate related contracts:
Swaps
Derivatives held with controlled entities
Total interest rate related contracts
Total fair value hedges
Cash flow hedges
Foreign exchange rate related contracts:
Swaps
Derivatives held with controlled entities
Total foreign exchange rate related contracts
Interest rate related contracts:
Swaps
Derivatives held with controlled entities
Total interest rate related contracts
Total cash flow hedges
Net investment hedges
Foreign exchange rate related forward contracts
Total net investment hedges
2017
Bank
2016
Fair Value
Fair Value
Fair Value
Fair Value
Asset
Liability
Asset
Liability
$M
$M
$M
$M
4,337
349
4,686
364
2
366
5,052
2,444
11
2,455
1,253
30
1,283
3,738
4
4
(3,504)
(789)
(4,293)
(1,895)
(56)
(1,951)
(6,244)
(948)
(81)
(1,029)
(511)
(4)
(515)
(1,544)
(12)
(12)
6,856
52
6,908
738
-
738
7,646
4,688
13
4,701
2,433
3
2,436
7,137
-
-
(3,815)
(1,934)
(5,749)
(2,673)
(194)
(2,867)
(8,616)
(1,613)
(188)
(1,801)
(969)
(5)
(974)
(2,775)
(9)
(9)
Total derivative assets/(liabilities) held for hedging
8,794
(7,800)
14,783
(11,400)
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.
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118
118
Notes to the financial statements
Note 11 Available-for-Sale Investments
Government bonds, notes and securities
Corporate/financial institution bonds, notes and securities
Shares and equity investments
Covered bonds, mortgage backed securities and SSA (1)
Total available-for-sale investments
(1) Supranational, Sovereign and Agency Securities (SSA).
2017
$M
48,257
22,129
295
12,854
83,535
Group
2016
$M
47,190
18,740
959
14,009
80,898
2017
$M
46,424
21,199
37
11,359
79,019
Bank
2016
$M
45,754
17,724
486
12,397
76,361
The amounts expected to be recovered within 12 months of the Balance Sheet date are $18,052 million (2016: $16,324 million)
for the Group and $16,900 million (2016: $15,660 million) for the Bank.
Maturity Distribution and Weighted Average Yield
Group
Maturity Period at 30 June 2017
10 or
Non-
Government bonds, notes and securities
Corporate/financial institution bonds, notes
and securities
Shares and equity investments
Covered bonds, mortgage backed securities
and SSA
0 to 1 Year
1 to 5 Years
5 to 10 Years
more Years Maturing
Total
$M
%
$M
%
$M
%
$M
%
$M
$M
9,514
0. 55
15,379
1. 96
17,641
2. 57
5,723
3. 10
7,117
1. 84
14,565
2. 69
447
2. 88
-
-
-
-
-
-
-
-
-
-
-
-
48,257
22,129
295
295
1,364
2. 81
3,999
2. 76
624
2. 68
6,867
2. 69
-
12,854
Total available-for-sale investments
17,995
-
33,943
-
18,712
-
12,590
-
295
83,535
The maturity table is based on contractual terms.
.
Notes to the financial statements
119
119
Note 12 Loans, Bills Discounted and Other Receivables
Australia
Overdrafts
Home loans (1)
Credit card outstandings
Lease financing
Bills discounted (2)
Term loans and other lending
Total Australia
Overseas
Overdrafts
Home loans (1)
Credit card outstandings
Lease financing
Term loans and other lending
Total overseas
Gross loans, bills discounted and other receivables
Less
Provisions for Loan Impairment (Note 13):
Collective provision
Individually assessed provisions
Unearned income:
Term loans
Lease financing
Net loans, bills discounted and other receivables
2017
$M
24,385
436,184
12,073
4,302
7,486
149,506
633,936
1,545
49,673
960
36
50,389
102,603
736,539
(2,722)
(971)
(681)
(403)
(4,777)
731,762
Group
2016
$M
26,857
409,452
12,122
4,412
10,507
140,784
604,134
1,592
46,622
912
72
46,967
96,165
700,299
(2,783)
(935)
(701)
(482)
(4,901)
695,398
2017
$M
24,385
430,056
12,073
3,161
7,486
149,294
626,455
277
519
-
9
24,533
25,338
651,793
(2,457)
(888)
(680)
(265)
(4,290)
647,503
Bank
2016
$M
26,857
404,352
12,122
3,073
10,507
140,700
597,611
318
550
-
28
23,754
24,650
622,261
(2,510)
(855)
(699)
(278)
(4,342)
617,919
(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.
Based on behavioural terms and current market conditions, the amounts expected to be recovered within 12 months of the
Balance Sheet date are $177,267 million (2016: $206,157 million) for the Group, and $161,734 million (2016: $191,962 million)
for the Bank. 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.
Gross
Investment in
2017
Present Value
Gross
of Minimum
Investment in
Group
2016
Present Value
of Minimum
Finance Lease
Unearned
Lease Payment
Finance Lease
Unearned
Lease Payment
Receivable
Income
Receivable
Receivable
Income
Receivable
$M
1,439
2,651
248
4,338
$M
(151)
(187)
(65)
(403)
$M
1,288
2,464
183
3,935
$M
1,247
2,906
331
4,484
$M
(161)
(287)
(34)
(482)
$M
1,086
2,619
297
4,002
Not later than one year
One year to five years
Over five years
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120
Notes to the financial statements
Note 12 Loans, Bills Discounted and Other Receivables (continued)
Gross
Investment in
2017
Present Value
Gross
of Minimum
Investment in
Bank
2016
Present Value
of Minimum
Not later than one year
One year to five years
Over five years
Finance Lease
Unearned
Lease Payment Finance Lease
Unearned
Lease Payment
Receivable
Income
Receivable
Receivable
Income
Receivable
$M
1,166
1,797
207
3,170
$M
(95)
(108)
(62)
(265)
$M
1,071
1,689
145
2,905
$M
1,008
1,856
237
3,101
$M
(94)
(155)
(29)
(278)
$M
914
1,701
208
2,823
Contractual Maturity Tables
Industry (1)
Australia
Sovereign
Agriculture
Bank and other financial
Home loans
Construction
Other personal
Asset financing
Other commercial and industrial
Total Australia
Overseas
Sovereign
Agriculture
Bank and other financial
Home loans
Construction
Other personal
Asset financing
Other commercial and industrial
Total overseas
Gross loans, bills discounted and other receivables
(1) The industry split has been prepared on an industry exposure basis.
Maturity Period at 30 June 2017
Group
Maturing 1
Maturing
Maturing
Year
Between 1
After
or Less
and 5 Years
5 Years
389,852
436,184
$M
$M
17,128
3,597
8,841
8,548
1,158
7,873
2,903
41,567
91,615
1,180
2,170
2,837
7,562
284
1,687
17
10,539
26,276
117,891
772
4,595
6,141
37,784
2,176
13,268
4,842
68,581
138,159
600
5,270
2,292
5,838
152
25
170
15,162
29,509
167,668
$M
185
592
443
431
2,042
127
10,490
404,162
120
2,408
646
36,273
198
1
277
6,895
46,818
450,980
Total
$M
18,085
8,784
15,425
3,765
23,183
7,872
120,638
633,936
1,900
9,848
5,775
49,673
634
1,713
464
32,596
102,603
736,539
Total
$M
532,314
50,804
583,118
101,622
51,799
153,421
736,539
Interest rate
Australia
Overseas
Total variable interest rates
Australia
Overseas
Total fixed interest rates
Gross loans, bills discounted and other receivables
Maturing 1
Maturing
Maturing
Year
Between 1
After
or Less
and 5 Years
5 Years
$M
73,530
12,920
86,450
18,085
13,356
31,441
$M
120,749
17,750
138,499
17,410
11,759
29,169
$M
338,035
20,134
358,169
66,127
26,684
92,811
117,891
167,668
450,980
Notes to the financial statements
121
121
Note 12 Loans, Bills Discounted and Other Receivables (continued)
Maturity Period at 30 June 2016
Group
Maturing 1
Maturing
Maturing
Year
Between 1
After
or Less
and 5 Years
5 Years
Industry (1) (2)
Australia
Sovereign
Agriculture
Bank and other financial
Home loans
Construction
Other personal
Asset financing
Other commercial and industrial
Total Australia
Overseas
Sovereign
Agriculture
Bank and other financial
Home loans
Construction
Other personal
Asset financing
Other commercial and industrial
Total overseas
Gross loans, bills discounted and other receivables
$M
$M
17,249
3,054
8,916
14,808
1,806
8,975
2,822
36,945
94,575
186
1,741
1,440
6,635
160
1,676
8
16,032
27,878
122,453
1,219
4,269
6,470
40,454
1,273
13,741
4,707
70,490
142,623
930
3,401
1,048
4,701
89
42
54
14,050
24,315
166,938
(1) The industry split has been prepared on an industry exposure basis.
(2) Comparative information has been reclassified to conform to presentation in the current period.
$M
811
678
343
725
808
148
9,233
366,936
317
3,602
983
35,286
103
1
164
3,516
43,972
410,908
354,190
409,452
Interest rate
Australia
Overseas
Total variable interest rates
Australia
Overseas
Total fixed interest rates
Gross loans, bills discounted and other receivables
Maturing 1
Maturing
Maturing
Year
Between 1
After
or Less
and 5 Years
5 Years
$M
72,158
17,832
89,990
22,417
10,046
32,463
$M
113,467
14,576
128,043
29,156
9,739
38,895
$M
313,702
20,005
333,707
53,234
23,967
77,201
122,453
166,938
410,908
Total
$M
19,279
8,001
15,729
3,804
23,524
7,677
116,668
604,134
1,433
8,744
3,471
46,622
352
1,719
226
33,598
96,165
700,299
Total
$M
499,327
52,413
551,740
104,807
43,752
148,559
700,299
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122
122
Notes to the financial statements
Note 13 Provisions for Impairment
Provisions for impairment losses
Collective provision
Opening balance
Net collective provision funding
Impairment losses written off
Impairment losses recovered
Other
Closing balance
Individually assessed provisions
Opening balance
Net new and increased individual provisioning
Write-back of provisions no longer required
Discount unwind to interest income
Impairment losses written off
Other
Closing balance
Total provisions for impairment losses
Less: Provision for Off Balance Sheet exposures
Total provisions for loan impairment
Provision ratios
Total provisions for impaired assets as a % of gross impaired
assets
Total provisions for impairment losses as a % of gross loans and
acceptances
Loan impairment expense
Net collective provision funding
Net new and increased individual provisioning
Write-back of individually assessed provisions
Total loan impairment expense
2017
$M
2,818
617
(894)
210
(4)
2,747
944
670
(192)
(31)
(454)
43
980
3,727
(34)
3,693
2017
%
36. 05
0. 51
2016
$M
Group
2015
$M
2,762
2,779
664
(846)
225
13
589
(770)
176
(12)
2,818
2,762
887
788
(196)
(27)
(571)
63
944
3,762
(44)
3,718
2016
%
1,127
659
(260)
(38)
(709)
108
887
3,649
(31)
3,618
Group
2015
%
36. 17
35. 94
0. 54
0. 56
2017
2016
$M
617
670
(192)
1,095
$M
664
788
(196)
1,256
Group
2015
$M
589
659
(260)
988
2017
$M
2,545
621
(871)
186
1
2,482
864
585
(166)
(31)
(399)
44
897
3,379
(34)
3,345
2017
%
39. 51
0. 52
2017
$M
621
585
(166)
1,040
Bank
2016
$M
2,553
566
(782)
207
1
2,545
832
760
(173)
(27)
(590)
62
864
3,409
(44)
3,365
Bank
2016
%
39. 59
0. 55
Bank
2016
$M
566
760
(173)
1,153
Notes to the financial statements
123
123
Note 13 Provisions for Impairment (continued)
Individually assessed provisions by
industry classification
Australia
Sovereign
Agriculture
Bank and other financial
Home loans
Construction
Other personal
Asset financing
Other commercial and industrial
Total Australia
Overseas
Sovereign
Agriculture
Bank and other financial
Home loans
Construction
Other personal
Asset financing
Other commercial and industrial
Total overseas
Total individually assessed provisions
Loans written off by industry classification
Australia
Sovereign
Agriculture
Bank and other financial
Home loans
Construction
Other personal
Asset financing
Other commercial and industrial
Total Australia
Overseas
Sovereign
Agriculture
Bank and other financial
Home loans
Construction
Other personal
Asset financing
Other commercial and industrial
Total overseas
Gross loans written off
Recovery of amounts previously written off
Australia
Overseas
Total amounts recovered
Net loans written off
2017
$M
2016
$M
2015
$M
-
47
27
249
25
9
18
442
817
-
25
-
4
1
-
10
123
163
980
-
42
29
193
25
7
28
483
807
-
23
4
6
8
1
10
85
137
944
-
133
36
148
20
10
28
400
775
-
14
-
10
1
-
10
77
112
887
2014
$M
-
123
68
151
29
14
30
620
1,035
-
3
15
11
1
-
-
62
92
Group
2013
$M
-
168
217
182
89
14
23
871
1,564
-
16
5
17
-
-
-
26
64
1,127
1,628
2017
$M
2016
$M
2015
$M
2014
$M
-
17
1
115
16
792
41
210
-
84
10
82
11
747
54
249
-
65
36
72
14
686
45
404
-
138
122
113
52
677
37
568
Group
2013
$M
-
30
79
217
139
622
25
686
1,192
1,237
1,322
1,707
1,798
-
15
5
4
8
60
-
64
156
1,348
194
16
210
1,138
-
7
-
7
-
54
-
112
180
1,417
211
14
225
-
3
69
8
-
42
-
35
157
1,479
165
11
176
-
3
-
13
-
30
-
60
106
1,813
148
17
165
-
4
10
21
-
25
-
31
91
1,889
144
10
154
1,192
1,303
1,648
1,735
Our businessPerformance overview Corporate responsibility Corporate governanceDirectors’ reportOther informationCommonwealth Bank of AustraliaAnnual Report 2017Financial report6213457
124
124
Notes to the financial statements
Note 13 Provisions for Impairment (continued)
Loans recovered by industry classification
Australia
Sovereign
Agriculture
Bank and other financial
Home loans
Construction
Other personal
Asset financing
Other commercial and industrial
Total Australia
Overseas
Sovereign
Agriculture
Bank and other financial
Home loans
Construction
Other personal
Asset financing
Other commercial and industrial
Total overseas
Total loans recovered
Note 14 Property, Plant and Equipment
Land and Buildings (1)
At 30 June valuation
Total land and buildings
Leasehold Improvements
At cost
Accumulated depreciation
Closing balance
Equipment
At cost
Accumulated depreciation
Closing balance
Total property, plant and equipment held for own use
Assets Held for Lease
At cost
Accumulated depreciation
Closing balance
Other Property, Plant and Equipment (2)
At cost
Accumulated depreciation
Closing balance
Total property, plant and equipment
2017
$M
2016
$M
2015
$M
2014
$M
Group
2013
$M
-
-
8
4
-
113
6
13
144
-
-
1
1
-
8
-
-
-
-
6
4
-
106
5
27
148
-
3
3
1
-
8
-
2
17
165
10
154
2017
$M
426
426
1,339
(885)
454
1,652
(1,188)
464
1,344
212
(62)
150
-
-
-
Bank
2016
$M
446
446
1,307
(817)
490
1,502
(1,106)
396
1,332
247
(76)
171
-
-
-
1,494
1,503
-
-
1
3
1
170
7
12
194
-
-
-
1
1
11
-
3
16
210
-
1
27
3
1
154
4
21
211
-
-
1
1
-
10
-
2
14
225
2017
$M
471
471
1,589
(1,024)
565
2,044
(1,496)
548
1,584
1,437
(319)
1,118
1,189
(18)
1,171
3,873
-
-
9
3
-
125
4
24
165
-
-
-
1
-
10
-
-
11
176
Group
2016
$M
496
496
1,557
(952)
605
1,891
(1,406)
485
1,586
1,558
(271)
1,287
1,067
-
1,067
3,940
(1) Had land and buildings been measured using the cost model rather than fair value, the carrying value would have been $243 million (2016: $270 million)
for Group and $231 million (2016: $249 million) for Bank.
(2) Relates to property, plant and equipment held via a partly owned fund within the Group’s life insurance business. The investment in the fund is used to
back life insurance policy liabilities. As a result the underlying property, plant and equipment is not considered to be held for the use of the 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.
Notes to the financial statements
125
125
Note 14 Property, Plant and Equipment (continued)
Land and buildings are carried at fair value based on independent valuations performed during the year; refer to Note 1(w).
These fair values fall under the Level 3 category of the fair value hierarchy as defined in Note 40.
Reconciliation of the carrying amounts of Property, Plant and Equipment is set out below:
Land and Buildings
Carrying amount at the beginning of the year
Additions
Disposals
Net revaluations
Depreciation
Foreign currency translation adjustment
Carrying amount at the end of the year
Leasehold Improvements
Carrying amount at the beginning of the year
Additions
Disposals
Depreciation
Foreign currency translation adjustment
Carrying amount at the end of the year
Equipment
Carrying amount at the beginning of the year
Additions
Disposals
Depreciation
Foreign currency translation adjustment
Carrying amount at the end of the year
Assets Held for Lease
Carrying amount at the beginning of the year
Additions
Disposals
Impairment losses
Depreciation
Foreign currency translation adjustment
Carrying amount at the end of the year
Other Property, Plant and Equipment
Carrying amount at the beginning of the year
Acquisitions attributed to business combinations
Additions
Depreciation
Foreign currency translation adjustment
Carrying amount at the end of the year
2017
$M
Group
2016
$M
2017
$M
Bank
2016
$M
496
6
(31)
32
(32)
-
471
605
107
(9)
(135)
(3)
565
485
259
(22)
(174)
-
548
1,287
229
(304)
(6)
(88)
-
463
73
(14)
2
(31)
3
496
609
148
(18)
(137)
3
605
378
260
(8)
(149)
4
485
1,383
448
(385)
(69)
(107)
17
1,118
1,287
1,067
120
-
(18)
2
-
693
330
-
44
1,171
1,067
446
5
(22)
28
(31)
-
426
490
85
(6)
(113)
(2)
454
396
225
(13)
(144)
-
464
171
6
(12)
(2)
(13)
-
150
-
-
-
-
-
-
416
70
(11)
1
(30)
-
446
496
130
(16)
(118)
(2)
490
304
218
(6)
(120)
-
396
293
8
(104)
-
(26)
-
171
-
-
-
-
-
-
Our businessPerformance overview Corporate responsibility Corporate governanceDirectors’ reportOther informationCommonwealth Bank of AustraliaAnnual Report 2017Financial report6213457
126
126
Notes to the financial statements
Note 15 Intangible Assets
Goodwill
Purchased goodwill at cost
Closing balance
Computer Software Costs
Cost
Accumulated amortisation
Closing balance
Core Deposits (1)
Cost
Accumulated amortisation
Closing balance
Brand Names (2)
Cost
Accumulated amortisation
Closing balance
Other Intangibles (3)
Cost
Accumulated amortisation
Closing balance
Total Intangible assets
2017
$M
7,872
7,872
4,329
(2,395)
1,934
495
(495)
-
190
(1)
189
154
(125)
29
Group
2016
$M
7,925
7,925
3,823
(1,595)
2,228
495
(495)
-
190
(1)
189
156
(114)
42
2017
$M
2,522
2,522
3,792
(2,057)
1,735
495
(495)
-
186
-
186
38
(32)
6
10,024
10,384
4,449
Bank
2016
$M
2,522
2,522
3,361
(1,300)
2,061
495
(495)
-
186
-
186
38
(29)
9
4,778
(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 rate of the
Bankwest deposit portfolio. It was fully amortised during the 2016 financial year.
(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 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.
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) were in the range of 12.4 – 12.8 (2016: 10.4 – 12.4), for the IFS businesses 5.9 – 14.5 (2016:
6.2 – 16.4) and for Wealth Management businesses were in the range of 12.0 – 18.4 (2016: 11.6 – 15.1).
Notes to the financial statements
127
127
Note 15 Intangible Assets (continued)
Goodwill Allocation to Cash-Generating Units
Retail Banking Services
Business and Private Banking
Wealth Management
New Zealand
IFS and Other
Total
Reconciliation of the carrying amounts of Intangible Assets is set out below:
Goodwill
Opening balance
Additions
Transfers/disposals/other adjustments (1)
Closing balance
Computer Software Costs
Opening balance
Additions (2)
Amortisation and write-offs
Closing balance
Core Deposits
Opening balance
Amortisation
Closing balance
Brand Names
Opening balance
Amortisation
Closing balance
Other Intangibles
Opening balance
Additions
Disposals
Amortisation
Closing balance
Includes foreign currency revaluation.
(1)
(2) Primarily relates to internal development costs.
2017
$M
4,149
297
2,678
697
51
7,872
Group
2016
$M
4,149
297
2,732
698
49
7,925
2017
$M
Bank
2016
$M
2,522
2,522
-
-
-
-
2,522
2,522
2,061
404
(730)
1,735
1,944
450
(333)
2,061
-
-
-
186
-
186
9
-
-
(3)
6
34
(34)
-
186
-
186
14
-
-
(5)
9
2017
$M
7,925
16
(69)
7,872
2,228
491
(785)
1,934
-
-
-
189
-
189
42
2
-
(15)
29
Group
2016
$M
7,599
304
22
7,925
2,089
519
(380)
2,228
34
(34)
-
189
-
189
59
2
-
(19)
42
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128
Notes to the financial statements
Note 16 Other Assets
Accrued interest receivable
Accrued fees/reimbursements receivable
Securities sold not delivered
Intragroup current tax receivable
Current tax assets
Prepayments (1)
Life insurance other assets
Defined benefit superannuation plan surplus
Other
Total other assets
2017
$M
2,326
1,348
2,352
-
23
257
524
426
626
Group
2016
$M
2,312
1,110
2,177
-
17
260
537
261
487
2017
$M
3,097
137
1,833
302
-
182
-
426
480
Bank
2016
$M
3,118
157
1,726
213
-
200
39
261
283
7,882
7,161
6,457
5,997
(1) Comparative information has been restated to reflect the change in accounting policy detailed in Note 1.
Except for the defined benefits superannuation plan surplus, the majority of the above amounts are expected to be recovered
within 12 months of the Balance Sheet date.
Note 17 Deposits and Other Public Borrowings
Australia
Certificates of deposit
Term deposits
On-demand and short-term deposits
Deposits not bearing interest
Securities sold under agreements to repurchase
Total Australia
Overseas
Certificates of deposit
Term deposits
On-demand and short term deposits
Deposits not bearing interest
Securities sold under agreements to repurchase
Total overseas
Total external deposits and other public borrowings
2017
$M
39,854
158,453
293,579
41,787
16,175
549,848
12,496
36,308
24,012
3,896
95
76,807
626,655
Group
2016
$M
43,762
138,443
281,648
35,164
17,124
516,141
9,098
32,069
27,327
3,410
-
71,904
588,045
2017
$M
41,856
158,691
292,819
41,764
16,406
551,536
10,021
8,047
1,605
49
95
19,817
571,353
Bank
2016
$M
45,639
138,664
281,059
35,145
17,305
517,812
6,254
9,359
2,597
64
-
18,274
536,086
The majority of the amounts are due to be settled within 12 months of the Balance Sheet date.
The contractual maturity profile of Certificates of deposit and Term deposits are shown in the table below:
Group
At 30 June 2017
Maturing
Maturing
Maturing
Maturing
Three
Between
Between Six
Months or
Three and
and Twelve
Less
Six Months
Months
$M
$M
$M
18,384
97,878
116,262
4,749
18,906
23,655
139,917
12,417
22,869
35,286
1,750
10,234
11,984
47,270
2,908
29,164
32,072
5,957
4,779
10,736
42,808
after
Twelve
Months
$M
6,145
8,542
14,687
40
2,389
2,429
Total
$M
39,854
158,453
198,307
12,496
36,308
48,804
17,116
247,111
Australia
Certificates of deposit (1)
Term deposits
Total Australia
Overseas
Certificates of deposit (1)
Term deposits
Total overseas
Total certificates of deposits and term deposits
(1) All certificates of deposit issued by the Group are for amounts greater than $100,000.
Notes to the financial statements
129
129
Note 17 Deposits and Other Public Borrowings (continued)
Maturing
Maturing
Maturing
Maturing
Group
At 30 June 2016
Three
Between
Between Six
Months or
Three and
and Twelve
Less
Six Months
Months
$M
$M
$M
Australia
Certificates of deposit (1)
Term deposits
Total Australia
Overseas
Certificates of deposit (1)
Term deposits
Total overseas
Total certificates of deposits and term deposits
21,571
84,848
106,419
6,906
16,534
23,440
129,859
11,370
20,852
32,222
1,452
7,815
9,267
41,489
(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
Deposits and other borrowings (1)
Debt instruments (1)
Trading liabilities
2017
$M
7,212
655
2,525
653
26,012
26,665
532
4,851
5,383
32,048
Group
2016
$M
5,695
1,848
2,749
Total liabilities at fair value through Income Statement
10,392
10,292
(1) These liabilities have been initially designated at fair value through the Income Statement.
after
Twelve
Months
$M
10,168
6,731
16,899
208
2,869
3,077
Total
$M
43,762
138,443
182,205
9,098
32,069
41,167
19,976
223,372
2017
$M
6,197
267
2,525
8,989
Bank
2016
$M
4,416
276
2,749
7,441
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 $7,878 million (2016: $7,345 million) and for the Bank is $6,437 million
(2016: $4,501 million).
Note 19 Other Provisions
Employee entitlements
General insurance claims
Self insurance and non-lending losses
Dividends
Compliance, programs and regulation
Restructuring costs
Other
Total other provisions
Maturity Distribution of Other Provisions
Less than twelve months
More than twelve months
Total other provisions
Note
5
2017
$M
847
273
232
100
69
52
207
1,780
2017
$M
1,441
339
1,780
Group
2016
$M
823
260
196
90
78
28
181
1,656
Group
2016
$M
1,320
336
1,656
2017
$M
757
-
224
100
69
50
172
1,372
2017
$M
1,089
283
1,372
Bank
2016
$M
730
-
162
90
78
27
162
1,249
Bank
2016
$M
968
281
1,249
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130
Notes to the financial statements
Note 19 Other Provisions (continued)
Reconciliation
General insurance claims:
Opening balance
Additional provisions
Amounts utilised during the year
Closing balance
Self insurance and non-lending losses:
Opening balance
Additional provisions
Amounts utilised during the year
Release of provision
Closing balance
Compliance, programs and regulation:
Opening balance
Additional provisions
Amounts utilised during the year
Closing balance
Restructuring:
Opening balance
Additional provisions
Amounts utilised during the year
Closing balance
Other:
Opening balance
Additional provisions
Amounts utilised during the year
Release of provision
Closing balance
Provision Commentary
General Insurance Claims
2017
$M
260
548
(535)
273
196
73
(37)
-
232
78
79
(88)
69
28
28
(4)
52
181
127
(76)
(25)
207
Group
2016
$M
2017
$M
314
502
(556)
260
198
15
(17)
-
196
193
-
(115)
78
43
-
(15)
28
146
60
(11)
(14)
181
-
-
-
-
162
73
(11)
-
224
78
78
(87)
69
27
27
(4)
50
162
93
(60)
(23)
172
Bank
2016
$M
-
-
-
-
181
15
(17)
(17)
162
193
-
(115)
78
41
-
(14)
27
97
85
(6)
(14)
162
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.
Advice Review Programs
Certain remediation programs are being undertaken in the Group’s advice business and the current status as at the date of this
report is as follows:
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. Registrations for the program
closed in July 2015. Customer file assessments are complete and remediation is ongoing. The program’s independent
expert, Promontory Financial Group, released its final report in June 2017, noting progress towards completion and
compliance with the program’s documented processes and objectives.
Notes to the financial statements
131
131
Note 19 Other Provisions (continued)
Advice Review Programs (continued)
Variations to CFPL's and FWL's licence conditions were agreed with ASIC in August 2014. The licensees are continuing to
work with ASIC and the compliance expert to complete further reviews of customer files for 17 advisers identified by the
compliance expert. The reviews will assess if the advice provided was appropriate, and where required, customers will be
remediated.
A review of service delivery against past adviser service package offerings from 1 July 2007 to 30 June 2015. In instances
where the Group's records do not show that customers who paid for the service package during this period received an
annual review, customers are being refunded with interest. Affected customers have been advised and payments are
nearing completion.
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 scope. 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
Medium-term notes
Commercial paper
Securitisation notes
Covered bonds
Total debt issues
Short Term Debt Issues by currency
USD
AUD
GBP
Other currencies
Total short term debt issues
Long Term Debt Issues by currency (1)
USD
EUR
AUD
GBP
NZD
JPY
Other currencies
Offshore loans (all JPY)
Total long term debt issues
Maturity Distribution of Debt Issues (2)
Less than twelve months
Greater than twelve months
Total debt issues
Note
41
41
2017
$M
96,016
28,800
13,771
28,984
Group
2016
$M
88,343
29,033
12,106
31,802
167,571
161,284
29,856
1,858
5,687
769
38,170
45,343
28,109
32,405
6,059
5,129
3,790
8,158
408
29,008
214
6,741
312
36,275
43,479
28,329
27,223
5,604
4,839
6,547
8,464
524
2017
$M
83,637
26,685
-
24,644
134,966
27,314
1,858
5,687
769
35,628
44,120
22,241
16,883
4,075
1,079
3,680
6,852
408
Bank
2016
$M
79,246
27,105
-
27,863
134,214
27,080
214
6,741
312
34,347
43,013
24,210
13,164
4,283
1,119
6,453
7,101
524
129,401
125,009
99,338
99,867
57,640
109,931
167,571
64,459
96,825
161,284
47,976
86,990
134,966
57,901
76,313
134,214
(1) Long-term debt disclosed relates to debt issues which have a maturity at inception of greater than 12 months.
(2) 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; ASB Domestic Medium Term Note
Program; the USD25 billion CBA New York Branch Medium Term Note Program; EUR7 billion ASB Covered Bond 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.
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132
132
Notes to the financial statements
Note 20 Debt Issues (continued)
Short term borrowings by Commercial paper program
Total
Outstanding at year-end (2)
Maximum amount outstanding at any month end
(1)
Average amount outstanding
US Commercial Paper Program
Outstanding at year-end (2)
Maximum amount outstanding at any month end
Average amount outstanding
Weighted average interest rate on:
Average amount outstanding
Outstanding at year end
Euro Commercial Paper Program
Outstanding at year-end (2)
Maximum amount outstanding at any month end
Average amount outstanding
Weighted average interest rate on:
Average amount outstanding
Outstanding at year end
2017
2016
Group
2015
$M (except where indicated)
28,800
33,779
29,226
28,393
31,460
27,593
1. 2%
1. 5%
407
2,789
1,633
1. 0%
1. 2%
29,033
41,453
37,368
27,117
38,528
35,208
0. 5%
0. 8%
1,916
2,925
2,160
0. 7%
0. 9%
37,032
39,774
35,621
35,754
38,147
34,018
0. 3%
0. 3%
1,278
2,327
1,603
0. 7%
0. 9%
(1) Short term borrowings include callable medium term notes of $9,370 million which have been excluded from the table above.
(2) The amount outstanding at year end is measured at amortised cost.
Exchange rates utilised (1)
AUD 1.00 =
As At
As At
30 June
30 June
2017
0. 7684
0. 6720
0. 5903
1. 0493
2016
0. 7431
0. 6689
0. 5534
1. 0470
86. 1110
76. 2441
Currency
USD
EUR
GBP
NZD
JPY
(1) End of day, Sydney time.
Guarantee Arrangement
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 remain guaranteed until maturity.
Note 21 Bills Payable and Other Liabilities
Bills payable
Accrued interest payable
Accrued fees and other items payable (1)
Defined benefit superannuation plan deficit
Securities purchased not delivered
Unearned income
Life insurance other liabilities and claims payable
Other
Total bills payable and other liabilities
Note
35
2017
$M
1,495
2,633
2,586
11
2,771
1,430
297
709
11,932
Group
2016
$M
948
2,659
2,568
51
1,438
1,018
214
993
9,889
2017
$M
1,431
1,920
1,693
11
2,297
1,007
-
2,550
10,909
Bank
2016
$M
891
1,925
1,755
51
964
599
81
5,376
11,642
(1) Comparative information has been restated to reflect the change in accounting policy detailed in Note 1.
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.
Notes to the financial statements
133
133
Note 22 Loan Capital
Currency
Amount (M) Footnotes
Tier 1 Loan Capital
Undated
Undated
Undated
Undated
Undated
Total Tier 1 Loan Capital
Tier 2 Loan Capital
AUD denominated
USD denominated
JPY denominated
GBP denominated
NZD denominated
EUR denominated
Other currencies denominated
Total Tier 2 Loan Capital
Fair value hedge adjustments
Total Loan Capital
FRN
USD 100
PERLS VI
AUD 2,000
PERLS VII
AUD 3,000
PERLS VIII
AUD 1,450
PERLS IX
AUD 1,640
(1)
(2)
(2)
(2)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
2017
$M
130
1,994
2,979
1,435
1,622
8,160
1,773
3,047
850
254
755
3,338
293
10,310
256
18,726
Group
2016
$M
135
1,990
2,978
1,437
-
6,540
1,772
2,145
262
270
378
3,351
202
8,380
2017
$M
130
1,994
2,979
1,435
1,622
8,160
1,773
3,047
850
254
-
3,338
293
9,555
Bank
2016
$M
135
1,990
2,978
1,437
-
6,540
1,772
2,145
262
270
-
3,351
202
8,002
624
15,544
244
17,959
596
15,138
As at the reporting date, the majority of securities of the Group and the Bank are not 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).
(1) USD100 million Floating Rate Notes
On 15 October 1986, the State Bank of Victoria issued
USD125 million of floating rate notes, the current outstanding
balance is 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) PERLS VI, PERLS VII, PERLS VIII and PERLS IX
the Bank
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.
issued
(PERLS VII). On 30 March 2016,
$1,450 million of CommBank PERLS VIII Capital Notes
(PERLS VIII). On 31 March 2017, the Bank issued $1,640
million of CommBank PERLS IX Capital Notes (PERLS IX).
PERLS VI, PERLS VII, PERLS VIII and PERLS IX are
subordinated, unsecured notes.
the Bank
PERLS VI, PERLS VII, PERLS VIII and PERLS IX 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.
(3) AUD denominated Tier 2 Loan Capital issuances
$25 million subordinated floating rate notes, issued
April 1999, due April 2029;
$1,000 million
November 2014, due November 2024; and
subordinated
notes
issued
$750 million subordinated notes issued June 2016, due
June 2026.
(4) USD denominated Tier 2 Loan Capital issuances
USD350 million subordinated fixed rate notes, issued
June 2003, due June 2018; and
USD1,250 million subordinated notes issued December
2015, due December 2025; and
USD750 million subordinated EMTN (Euro Medium
Term Notes) issued October 2016, due October 2026.
(5) JPY denominated Tier 2 Loan Capital issuances
JPY20 billion perpetual subordinated EMTN,
February 1999;
JPY40 billion subordinated EMTNs issued December
2016 (three tranches JPY20 billion, JPY10 billion and
JPY10 billion), due December 2026; and
JPY13.3 billion subordinated EMTN issued March 2017,
due March 2027.
issued
(6) GBP denominated Tier 2 Loan Capital issuances
GBP150 million subordinated EMTN, issued June 2003,
due December 2023.
(7) NZD denominated Tier 2 Loan Capital issuances
NZD400 million subordinated, unsecured notes, issued
April 2014, due June 2024:
On 17 April 2014, a wholly owned entity of the Bank
(ASB
NZD400 million
subordinated, unsecured notes (ASB Notes) with a face
value of NZD1 each; and
Limited)
issued
Bank
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134
134
Notes to the financial statements
Note 22 Loan Capital (continued)
NZD400 million subordinated, unsecured notes, issued
November 2016, due December 2026:
On 30 November 2016, ASB Bank Limited issued
NZD400 million subordinated, unsecured notes (ASB
Notes 2) with a face value of NZD1 each.
ASB Notes and ASB Notes 2 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.
(8) EUR denominated Tier 2 Loan Capital Issuances
EUR1,000 million
subordinated
August 2009, due August 2019; and
notes,
issued
EUR1,250 million subordinated notes issued April 2015,
due April 2027.
(9) Other foreign currency denominated Tier 2 Loan
Capital Issuances
CNY1,000 million
subordinated
March 2015, due March 2025; and
notes
issued
HKD608 million subordinated EMTN issued March 2017,
due March 2027.
All Tier 2 Capital securities issued prior to 1 January 2013
qualify as Tier 2 Capital of the Bank under the Basel III
transitional arrangements
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.
for capital
PERLS VI, PERLS VII, PERLS VIII, PERLS IX, and all Tier 2
Capital securities issued after 1 January 2013, are subject to
Basel III, under which these securities must be exchanged for
a variable number of CBA ordinary shares or written down if a
capital trigger event (PERLS VI, PERLS VII, PERLS VIII, and
PERLS IX only) or a non-viability trigger event (all securities)
occurs. Any exchange will occur as described in the terms of
the applicable instrument documentation.
Note 23 Shareholders’ Equity
Ordinary Share Capital
Ordinary Share Capital
Shares on issue:
Opening balance
Issue of shares (net of issue costs)
Dividend reinvestment plan (net of issue costs) (1)
Less treasury shares:
Opening balance
Purchase of treasury shares (2)
Sale and vesting of treasury shares (2)
2017
$M
34,129
(6)
1,143
35,266
(284)
(92)
81
(295)
Group
2016
$M
27,898
5,022
1,209
34,129
(279)
(108)
103
(284)
2017
$M
34,125
(6)
1,143
35,262
-
-
-
-
Closing balance
34,971
33,845
35,262
Bank
2016
$M
27,894
5,022
1,209
34,125
-
-
-
-
34,125
(1) The determined dividend includes an amount attributable to Dividend Reinvestment Plan (DRP) of $558 million (interim 2016/2017), $586 million (final
2015/2016), $552 million (interim 2015/2016) and $655 million (final 2014/2015) with $557 million, $586 million, $552 million and $657 million ordinary
shares being issued under plan rules respectively which include the carry forward of DRP balance from previous dividends.
(2) The movement in treasury shares held within Life Insurance Statutory Funds, and 2,658,100 shares acquired at an average price of $79.65 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.
Number of shares on issue
Opening balance (excluding treasury shares deduction)
Issue of shares
Dividend reinvestment plan issues:
2014/2015 Final dividend fully paid ordinary shares $74.75
2015/2016 Interim dividend fully paid ordinary shares $72.68
2015/2016 Final dividend fully paid ordinary shares $72.95
2016/2017 Interim dividend fully paid ordinary shares $83.21
Closing balance (excluding treasury shares deduction)
Less: treasury shares (1)
Closing balance
2017
Shares
Group
2016
Shares
2017
Shares
Bank
2016
Shares
1,715,142,177
1,627,592,713
1,715,142,177
1,627,592,713
-
-
-
71,161,207
8,790,794
7,597,463
-
-
-
8,036,332
6,689,652
-
-
8,036,332
6,689,652
71,161,207
8,790,794
7,597,463
-
-
1,729,868,161
1,715,142,177
1,729,868,161
1,715,142,177
(3,854,763)
(4,080,435)
-
-
1,726,013,398
1,711,061,742
1,729,868,161
1,715,142,177
(1) Relates to Treasury shares held within the Life Insurance statutory funds and the employees share scheme trust.
Notes to the financial statements
135
135
Note 23 Shareholders’ Equity (continued)
Ordinary Share Capital (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
Other equity instruments
Issued and paid up
Number of shares
2017
$M
Shares
-
-
Group
2016
$M
Shares
-
-
2017
$M
Shares
-
-
Bank
2016
$M
406
Shares
300,000
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. All TPS 2006 were redeemed for cash on 15 March 2016. Shares issued by the Bank
were partially redeemed on 15 March 2016 and the remaining shares were fully redeemed on 5 October 2016.
Retained Profits and Reserves
Retained Profits
Opening balance (1)
Actuarial gains from defined benefit superannuation plans
Losses on liabilities at fair value due to changes in own credit risk
Realised gains and dividend income on treasury shares
Operating profit attributable to Equity holders of the Bank
Total available for appropriation
Net loss on sale/redemption of other equity (2)
Transfers from/(to) general reserve
Transfers from asset revaluation reserve
Transfers to employee compensation reserve
Interim dividend - cash component
Interim dividend - Dividend Reinvestment Plan
Final dividend - cash component
Final dividend - Dividend Reinvestment Plan
Other dividends
Closing balance
2017
$M
23,435
175
(3)
26
Group
2016
$M
21,340
10
(1)
20
2017
$M
20,430
175
(3)
-
Bank
2016
$M
18,763
10
(1)
-
9,928
9,223
8,979
8,639
33,561
30,592
29,581
27,411
-
33
(27)
-
(2,871)
(558)
(3,222)
(586)
-
26,330
(10)
(120)
19
(2)
(2,829)
(552)
(2,958)
(655)
(50)
23,435
-
(2)
(30)
-
(2,871)
(558)
(3,222)
(586)
-
-
(4)
19
(2)
(2,829)
(552)
(2,958)
(655)
-
22,312
20,430
(1) Comparative information has been restated to reflect the change in accounting policy detailed in Note 1.
(2)
Includes other equity instruments and non-controlling interests.
Our businessPerformance overview Corporate responsibility Corporate governanceDirectors’ reportOther informationCommonwealth Bank of AustraliaAnnual Report 2017Financial report6213457 136
136
Notes to the financial statements
Note 23 Shareholders’ Equity (continued)
Retained Profits and Reserves (continued)
Reserves
General Reserve
Opening balance
Appropriation (to)/from retained profits
Closing balance
Capital Reserve
Opening balance
Closing balance
Asset Revaluation Reserve
Opening balance
Revaluation of properties
Transfer to retained profits
Tax on revaluation of properties
Closing balance
Foreign Currency Translation Reserve
Opening balance
Currency translation adjustments of foreign operations
Currency translation on net investment hedge
Tax on translation adjustments
Closing balance
Cash Flow Hedge Reserve
Opening balance
Gains and losses on cash flow hedging instruments:
Recognised in other comprehensive income
Transferred to Income Statement:
Interest income
Interest expense
Tax on cash flow hedging instruments
Closing balance
Employee Compensation Reserve
Opening balance
Current period movement
Closing balance
Available-for-Sale Investments Reserve
Opening balance
Net gains and (losses) on revaluation of available-for-sale investments
Net (gains) and losses on available-for-sale investments transferred to
Income Statement on disposal
Tax on available-for-sale investments
Closing balance
Total Reserves
2017
$M
939
(33)
906
-
-
173
32
27
(9)
223
739
(315)
14
19
457
473
(1,282)
(1,241)
1,684
259
(107)
132
32
164
278
414
(464)
(2)
226
1,869
Group
2016
$M
819
120
939
-
-
191
2
(19)
(1)
173
356
389
(12)
6
739
263
250
(968)
1,018
(90)
473
122
10
132
594
(236)
(222)
142
278
2,734
2017
$M
578
2
580
1,254
1,254
147
28
30
(9)
196
46
(23)
12
-
35
732
(987)
(1,226)
1,258
289
66
132
32
164
226
494
(447)
(12)
261
2,556
Bank
2016
$M
574
4
578
1,254
1,254
165
1
(19)
-
147
(7)
62
(9)
-
46
530
479
(916)
725
(86)
732
122
10
132
557
(248)
(222)
139
226
3,115
Notes to the financial statements
137
137
137
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 variable remuneration 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
Customer
satisfaction
Scale
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.
TSR
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 2013 financial year award reached the end of its performance period on 30 June 2016 and in line with the plan rules 20.31%
of the awarded rights vested.
The following table provides details of outstanding awards of performance rights granted under the GLRP.
Period
2017
2016
Outstanding
1 July
1,250,589
1,265,446
Granted
295,725
291,188
Vested
(75,442)
(263,969)
Forfeited
(295,973)
(42,076)
Outstanding
30 June
1,174,899
1,250,589
Expense
($'000)
15,658
12,930
The average fair value at the grant date for TSR and Customer Satisfaction Reward Rights issued during the year was $65.76
and $83.71 respectively per right (2016: $32.96 and $75.21 respectively). The fair value of TSR hurdled Reward Rights granted
during the period has been independently calculated at grant date using a Monte-Carlo pricing model. The assumptions included
in the valuation of the 2017 financial year award includes a risk-free interest rate of 2.27%, a nil dividend yield on the Bank’s
ordinary shares and a volatility in the Bank share price of 15%. The fair value for customer satisfaction hurdled Reward Rights
granted during the period is the closing price of CBA shares on the grant date.
Group Rights Plan (GRP)
The GRP facilitates mandatory short-term variable remuneration deferral, sign-on incentives and retention awards. Participants
are awarded rights to shares, that vest on a 1-for-1 basis, provided the participant remains in employment of the Group until
vesting date. The Board has discretion to apply a cash equivalent.
The following table provides details of outstanding awards of shares granted under the GRP.
Period
2017
2016
Outstanding
1 July
1,795,728
1,238,974
Granted
1,067,588
825,705
Vested
(673,224)
(181,138)
Forfeited
(64,165)
(87,813)
Outstanding
30 June
2,125,927
1,795,728
Expense
($'000)
70,455
53,097
The weighted average fair value at grant date of the awards issued during the year was $72.07 (2016: $74.11).
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”). If the hurdle is not met, the Board has
discretion to determine whether a full award, a partial award or no award is made.
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138
138 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 2016 resulting in shares being awarded to each eligible employee during the
financial year ended 30 June 2017. The following table provides details of shares granted under the ESAP.
Period
Allocation date
Participants
Allocated by Participant
of Shares Allocated
Issue Price $
Fair Value $
2017
2016
9 Sep 2016
17 Sep 2015
32,049
32,336
13
13
416,637
420,368
71.89
74.88
29,952,034
31,477,156
Number of Shares
Total Number
Total
It is estimated that approximately $34 million of CBA shares will be purchased on market at the prevailing market price for the
2017 grant.
Other Employee Awards
A number of other plans are operated by the Group, including:
The Employee Share (Performance Unit) Plan, which is the cash-based version of the GRP; and
The International Employee Share Acquisition Plan, which is the cash-based version of the ESAP.
The following table provides a summary of the movement in awards during the year.
Period
2017
2016
Outstanding
1 July
298,693
677,708
Granted
269,766
209,170
Vested
(77,300)
(573,959)
Forfeited
(32,395)
(14,226)
Outstanding
30 June
458,764
298,693
Expense
($'000)
17,913
10,447
The average fair value at grant date of the awards issued during the year was $71.83 (2016: $74.86).
Salary Sacrifice Arrangements
The Group facilitates the purchase of CBA shares via salary sacrifice as follows:
Type
Australian-based
employees
(ESSSP)
Non-Executive
Directors
Arrangements
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 when the Non-Executive Director retires from the Board if earlier.
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.
Period
2017
2016
Number of
Average purchase
Participants
shares purchased
828
775
37,310
36,264
price $
77.14
75.66
Total purchase
consideration $
2,878,131
2,743,646
During the year, two (2016: one) Non-Executive Directors applied $43,427 in fees (2016: 28,994) to purchase 564 shares
(2016: 382 shares).
Notes to the financial statements
139
139
Note 25 Capital Adequacy
Capital Management
The Group is an Authorised Deposit-taking Institution (ADI)
regulated by APRA under the authority of the Banking Act
1959. APRA has set minimum
regulatory capital
requirements for banks based on the Basel Committee on
Banking Supervision (BCBS) guidelines.
The Basel III measurement and monitoring of capital has
been effective from 1 January 2013. APRA has adopted a
more conservative approach than the minimum standards
published by the BCBS and also adopted an accelerated
timetable for implementation. 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 Licenced Entity Group (known as “Level 1”,
comprising the Bank and APRA approved subsidiaries) and
for the Bank and all of its banking subsidiaries, which
includes ASB Bank (known as “Level 2” or the “Group”).
All entities which are consolidated for accounting purposes
are included within the Group capital adequacy calculations
except for:
The insurance and funds management operating
subsidiaries; and
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. These include share
issues and buybacks, dividend and DRP policies, hybrid
capital raising and dated and undated subordinated loan
capital issues. All major capital related initiatives require
approval of the Board.
The Group’s capital position is monitored on a continuous
basis and reported monthly to the Executive Committee
and at regular intervals throughout the year to the Risk
Committee. Three-year capital forecasts are conducted on
a quarterly basis with a detailed capital and strategic plan
presented to the Board annually.
The Group’s capital ratios throughout the 2016 and 2017
financial years were
in compliance with both APRA
minimum capital adequacy requirements and the Board
Approved minimums. The Group 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.
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140
140 Notes to the financial statements
(iv) Wealth Management
Wealth Management includes Global Asset Management
(including operations
in Asia and Europe), Platform
Administration and Financial Advice 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
Institutional Banking and Markets).
(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 IFS and
Other Divisions:
International Financial Services incorporates the Asian
retail and business banking operations (Indonesia,
China, Vietnam and India), associate investments in
China and Vietnam, the life insurance operations in
Indonesia and a financial services technology business
in South Africa. 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, Marketing, Secretariat and Treasury;
and
Group wide elimination entries arising on consolidation,
raised provisions and other unallocated
centrally
revenue and expenses.
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, refinements have been made to the
allocation of customer balances and associated revenue and
expenses between business segments, including updated
transfer pricing allocations. These changes have not
impacted the Group’s net profit, but have resulted in changes
to the presentation of the Income Statement and Balance
Sheet of the affected segments. There have also been
changes to the recognition of Global Asset Management long-
term incentives in Wealth Management, as set out in Note 1
Accounting Policies, which have had a minor impact on the
Group’s cash net profit. Comparative information has been
restated to reflect these changes.
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
insights. The client offering
Institutional Banking and Markets services the Group’s major
corporate,
institutional and government clients using a
relationship management model based on industry expertise
and
includes debt raising,
financial and commodities price risk management and
transactional banking capabilities. Institutional Banking and
Markets has international operations in London, New York,
Houston, Japan, Singapore, Malta, Hong Kong, New Zealand,
Beijing and Shanghai.
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Notes to the financial statements
143
143
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
Financial performance and position
Income
Australia
New Zealand
Other locations (1)
Total Income
Non-Current Assets
Australia
New Zealand
Other locations (1)
Total non-current assets
(2)
2017
$M
37,304
5,099
2,546
44,949
15,301
1,045
329
16,675
%
83. 0
11. 3
5. 7
100. 0
91. 8
6. 2
2. 0
100. 0
2016
$M
36,721
5,015
2,643
44,379
15,687
1,087
326
17,100
Group
Year Ended 30 June
%
82. 7
11. 3
6. 0
100. 0
91. 7
6. 4
1. 9
2015
$M
37,656
5,215
2,456
45,327
14,149
994
297
%
83. 1
11. 5
5. 4
100. 0
91. 7
6. 4
1. 9
100. 0
15,440
100. 0
(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 Life Insurance
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(dd) – (gg). The insurance segment result is prepared on a business segment basis.
Summarised Income Statement
Net premium income and related revenue
Outward reinsurance premiums expense
Claims expense
Reinsurance recoveries
Investment revenue (excluding investments in
subsidiaries)
Increase in contract liabilities
Operating income
Acquisition expenses
Maintenance expenses
Management expenses
Net profit before income tax
Corporate tax expense
Policyholder tax expense
Net profit after income tax
Life Insurance
Life Investment
Contracts
2016
$M
2,077
(291)
(1,437)
244
494
(316)
771
(95)
(239)
(11)
426
(72)
(99)
255
2017
$M
2,045
(273)
(1,592)
260
153
(58)
535
(97)
(226)
(11)
201
(39)
3
165
Contracts
2016
$M
235
-
(82)
-
338
(297)
194
(3)
(54)
(13)
124
(32)
(2)
90
2017
$M
240
-
(106)
-
671
(570)
235
(5)
(53)
(12)
165
(32)
(35)
98
2017
$M
2,285
(273)
(1,698)
260
824
(628)
770
(102)
(279)
(23)
366
(71)
(32)
263
Group
2016
$M
2,312
(291)
(1,519)
244
832
(613)
965
(98)
(293)
(24)
550
(104)
(101)
345
Our businessPerformance overview Corporate responsibility Corporate governanceDirectors’ reportOther informationCommonwealth Bank of AustraliaAnnual Report 2017Financial report6213457 144
144
3
Notes to the financial statements
Note 27 Life Insurance (continued)
Sources of life insurance net profit
Net profit after income tax is represented by:
Emergence of planned profit margins
Difference between actual and planned experience
Effects of changes to underlying assumptions
Reversal of previously recognised losses or loss recognition on
groups of related products
Investment earnings on assets in excess of policyholder
liabilities
Other movements
Net profit after income tax
Life insurance premiums received and receivable
Life insurance claims paid and payable
Life Insurance
Life Investment
Contracts
Contracts
2017
$M
247
(7)
(3)
(100)
28
-
165
2,433
1,620
2016
$M
269
(43)
(2)
(60)
70
21
255
2017
$M
101
2
-
(6)
1
-
98
2016
$M
94
(3)
-
(2)
1
-
90
2,460
1,480
726
1,745
501
1,243
2017
$M
348
(5)
(3)
(106)
29
-
263
3,159
3,365
Group
2016
$M
363
(46)
(2)
(62)
71
21
345
2,961
2,723
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.
Reconciliation of movements in
policy liabilities
Contract policy liabilities
Gross policy liabilities opening balance
Movement in policy liabilities reflected in the Income Statement
Contract contributions recognised in policy liabilities
Contract withdrawals recognised in policy liabilities
Non-cash movements
FX translation adjustment
Life Insurance
Life Investment
Contracts
Contracts
2017
2016
2017
2016
$M
$M
$M
$M
4,054
96
3
(47)
(19)
(8)
3,752
344
7
(50)
(17)
18
8,582
570
442
9,159
297
216
(1,637)
(1,163)
-
(18)
-
73
2017
$M
12,636
666
445
(1,684)
(19)
(26)
Group
2016
$M
12,911
641
223
(1,213)
(17)
91
Gross policy liabilities closing balance
4,079
4,054
7,939
8,582
12,018
12,636
Liabilities ceded under reinsurance
Opening balance
Increase in reinsurance assets
Closing balance
Net policy liabilities
Expected to be realised within 12 months
Expected to be realised in more than 12 months
Total net insurance policy liabilities
(385)
(38)
(423)
459
3,197
3,656
(357)
(28)
(385)
479
3,190
3,669
-
-
-
1,475
6,464
7,939
-
-
-
(385)
(38)
(423)
(357)
(28)
(385)
1,872
6,710
8,582
1,934
9,661
11,595
2,351
9,900
12,251
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 buffer
to absorb unanticipated losses from its activities and, in the event of such losses, enable the life company to continue to meet its
insurance obligations. APRA has issued Life Prudential Standard LPS 110 to LPS 118 'Capital Adequacy' for determining the
level of capital reserves. These prudential standards prescribe the methodology for determining both the minimum capital
requirements for each of its funds and the composition of assets available to meet these capital requirements.
The table below shows the Capital Adequacy Multiple representing the ratio or assets available for capital over the capital
reserve.
Capital Adequacy Multiple
The Colonial Mutual Life Assurance Society Limited, Australia
2017
Times
1. 58
2016
Times
1. 44
Notes to the financial statements
145
145
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:
a) Audit and audit related services
Audit services
PricewaterhouseCoopers Australian firm
Network firms of PricewaterhouseCoopers Australian firm
Total remuneration for audit services
Audit related services
PricewaterhouseCoopers Australian firm
Network firms of PricewaterhouseCoopers Australian firm
Total remuneration for audit related services
Total remuneration for audit and audit related services
b) Non-audit services
Taxation services
PricewaterhouseCoopers Australian firm
Network firms of PricewaterhouseCoopers Australian firm
Total remuneration for tax related services
Other Services
PricewaterhouseCoopers Australian firm
Network firms of PricewaterhouseCoopers Australian firm
Total remuneration for other services
Total remuneration for non-audit services
Total remuneration for audit and non-audit services (1)
2017
$'000
16,643
5,167
21,810
5,765
981
6,746
28,556
617
1,601
2,218
4,347
534
4,881
7,099
Group
2016
$'000
15,779
4,886
20,665
3,433
1,083
4,516
25,181
1,215
1,465
2,680
4,741
123
4,864
7,544
35,655
32,725
2017
$'000
10,758
705
11,463
4,952
178
5,130
16,593
197
834
1,031
4,300
-
4,300
5,331
21,924
Bank
2016
$'000
11,271
703
11,974
2,564
374
2,938
14,912
1,161
598
1,759
4,394
-
4,394
6,153
21,065
(1) An additional amount of $10,728,963 (2016: $9,429,368) was paid to PricewaterhouseCoopers by way of fees for entities not consolidated into the
Financial Statements. Of this amount, $8,401,175 (2016: $7,279,197) 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 Commitments - Property, Plant and Equipment
Due within one year
Due after one year but not later than five years
Due after five years
Total lease commitments - property, plant and equipment
Lease Arrangements
2017
$M
662
1,826
2,160
4,648
Group
2016
$M
606
1,847
2,436
4,889
2017
$M
603
1,641
1,951
4,195
Bank
2016
$M
550
1,672
2,212
4,434
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 $99 million as at 30 June 2017 (2016: $110 million).
Our businessPerformance overview Corporate responsibility Corporate governanceDirectors’ reportOther informationCommonwealth Bank of AustraliaAnnual Report 2017Financial report6213457 146
146
3
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.
Credit risk related instruments
Guarantees (1)
Documentary letters of credit (2)
Performance related contingents (3)
Commitments to provide credit (4)
Other commitments (5)
Total credit risk related instruments
Credit risk related instruments
Guarantees (1)
Documentary letters of credit (2)
Performance related contingents (3)
Commitments to provide credit (4)
Other commitments (5)
Total credit risk related instruments
Face Value
Credit Equivalent
Group
2016
$M
6,216
1,308
2,568
170,742
1,636
182,470
2017
$M
7,424
1,168
2,127
167,205
835
178,759
2016
$M
6,216
1,153
2,560
162,967
1,359
174,255
Bank
Face Value
Credit Equivalent
2016
$M
5,873
1,227
2,568
155,446
1,073
166,187
2017
$M
7,037
1,086
2,127
153,638
711
164,599
2016
$M
5,873
1,075
2,560
149,272
1,036
159,816
2017
$M
7,424
1,183
2,133
173,555
837
185,132
2017
$M
7,037
1,098
2,133
158,567
713
169,548
(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 the
Bank’s 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.
Notes to the financial statements
147
147
Note 30 Contingent Liabilities, Contingent Assets and Commitments (continued)
Contingent Credit Liabilities (continued)
Other Contingent Liabilities
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 2017 was $5,614,191 (2016: $5,041,791).
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 Network Limited: The Australian Paper Clearing
System, The Bulk Electronic Clearing System, The Issuers
and Acquirers Community 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
On 3 August 2017, Australian Transaction Reports and
Analysis Centre
(AUSTRAC) commenced civil penalty
proceedings against CBA. Full details of which are included in
Note 44 Subsequent Events.
The Group is not engaged in any other 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.
Our businessPerformance overview Corporate responsibility Corporate governanceDirectors’ reportOther informationCommonwealth Bank of AustraliaAnnual Report 2017Financial report6213457 148
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3
Notes to the financial statements
Note 31 Risk Management
Risk Management Framework
The Group has an embedded Risk Management Framework
(Framework) that enables the appropriate development and
implementation of strategies, policies and procedures to
manage its risks.
The Framework incorporates the requirements of APRA’s
prudential standard for risk management (CPS 220), and is
supported by the three key documentary components:
The Group’s Risk Appetite Statement (RAS) articulates
the type and degree of risk the Board is prepared to
accept (Risk Appetite) and the maximum level of risk
that the institution must operate within (Risk Tolerances).
The Group’s Business Plan (Plan) summarises the
Group’s approach to the implementation of its strategic
objectives. The Plan has a rolling three year duration
and
its
implementation.
reflects material
arising
risks
from
The Group’s Risk Management Strategy
(RMS)
describes each material risk, the approach taken to
managing these risks and how this is operationalised
through governance, policies and procedures.
This framework requires each business to plan and manage
the outcome of its risk-taking activities including proactively
managing its risk profile within risk appetite levels; using risk-
adjusted outcomes and considerations as part of its day-to-
day business decision-making processes; and establishing
and maintaining appropriate risk controls.
These documents, together with the key operational elements
described below, offer the Board the opportunity to direct
management in its risk taking activities and facilitate dialogue
between Board and management about risk management
practices.
Risk Governance
The Group is committed to ensuring that its risk management
practices reflect a high standard of governance. This enables
Management to undertake, in an effective manner, prudent
risk-taking activities.
The Board operates as the highest level of the Group’s risk
governance as specified in its Charter. In addition, an annual
declaration is made by the chairs of the Board and Risk
Committee to APRA on Risk Management as set out in the
prudential standard (CPS220).
The Risk Committee oversees the Framework and helps
formulate the Group’s risk appetite for consideration by the
Board. In particular it:
Reviews regular reports from Management on the
measurement of
the adequacy and
effectiveness of the Group’s risk management and
internal controls systems;
risk and
Monitors the health of the Group’s risk culture (via both
formal reports and through its dialogues with the risk
team and executive management) and
leadership
the Board; and
reports any significant
issues
to
Forms a view on the independence of the risk function
by meeting with the Group Chief Risk Officer (CRO) at
the will of the Committee or the CRO.
The Group risk management structure is a Three Lines of
Defence (3LoD) model which supports the Framework by:
Reinforcing that risk is best owned and managed where
it occurs – so the business (Line 1) is responsible for the
management of risk;
Having a separate group of experienced staff with
specific risk management skills (Line 2) to facilitate the
development of, and monitor / measure the effectiveness
of the risk management process and systems used by
Line 1; and
Having an independent third group (Line 3) provide
assurance
regulators and other
stakeholders on the appropriateness and effectiveness
of the activities of Lines 1 and 2.
the Board,
to
Risk Culture
Risk Culture is the collection of values, ideas, skills and habits
that equip Group employees and directors to see and talk
about risks, and make sound judgments in the absence of
definitive rules, regulations or market signals.
The Group regards risk culture as an aspect of overall culture.
As such, the Group’s risk culture flourishes within an
organisational context that emphasises and rewards integrity,
accountability, collaboration, service and excellence. This
encourages employees at all levels to “speak up” if they
believe the Group as a whole, their part of the organisation or
specific colleagues are conspicuously failing to uphold those
values, damaging risk culture or taking ill-considered risks.
APRA requires the Group Board to form a view regarding the
effectiveness of the institution’s risk culture in keeping risk-
taking within appetite, and to take any corrective action that
may be appropriate. The Board discusses culture and values
on a continuous basis, and takes action whenever necessary.
Risk Policies & Procedures
Risk Policies and Procedures provide guidance to the
business on the management of each material risk. They
support the Framework by:
Summarising the principles and practices to be used by
the Group in identifying and assessing its material risks;
Outlining a process for monitoring, communicating and
reporting risk issues, including escalation procedures for
the reporting of material risks; and
Quantifying the limits (risk tolerances) for major risks and
stating risk actions to which the Group is intolerant.
Notes to the financial statements
149
149
Note 31 Risk Management (continued)
Risk Management Infrastructure
The Framework is supported by the following Group-wide
processes:
A Management Information System to measure and
aggregate material risks across the Group;
A Risk-Adjusted-Performance Measurement (RAPM)
process which is a means of assessing the performance
Material Risks
of a business after adjustment for its risks and is used as
a basis for executive incentives; and
in combination with other
An Internal Capital Adequacy Assessment Process
(ICAAP) used,
risk
management practices (including Stress testing), to
understand, manage and quantify the Group’s risks; the
outcomes of which are used to inform risk decisions, set
capital buffers and assist strategic planning.
A description of the major risk classes and the Group’s approach to managing them is summarised in the following table:
Risk Type
Description
Governing Policies and Key
Management Committees
Key Limits, Standards and Measurement
Approaches
Credit Risk
(refer to Note 32)
Credit risk is the potential for loss
arising from the failure of a counterparty
to meet their contractual obligations to
the Group. At a portfolio level, credit
risk includes concentration risk arising
from interdependencies between
customers, and concentrations of
exposures to geographical regions and
industry sectors.
Governing Policies:
Group Credit Risk
Management Framework
Group Level Credit Risk
Policies
Key Management Committee:
Executive Risk Committee
Market Risk
(including Equity
Risk)
(refer to Note 33)
Market risk is the risk that market rates
and prices will change and that this
may have an adverse effect on the
profitability and/or net worth of the
Group. This includes changes in
interest rates, foreign exchange rates,
equity and commodity prices, credit
spreads, and the resale value of assets
underlying operating leases at maturity
(lease residual value risk).
Governing Policies:
The Group Market Risk
Manual
The Group Market Risk Policy
Trading Book Policy
Statement
Key Management Committee:
Asset and Liability Committee
Liquidity and
Funding Risk
(refer to Note 34)
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).
Governing Policies:
Group Liquidity Risk
Management Policy and
Strategy
Key Management Committee:
Asset and Liability Committee
The following key credit risk policies set
credit portfolio concentration limits and
standards:
Large Credit Exposure Policy;
Country Risk Exposure Policy;
Industry Sector Concentration Policy;
and
Exposure to consumer credit products
are managed within limits and standards
set in the Group Level RAS, Business
Unit (BU) Level RAS and Credit Portfolio
& Product Standards.
The measurement of credit risk is primarily
based on an APRA accredited Advanced
Internal Ratings Based (AIRB) approach.
The Group Market Risk Policy sets limits
and standards with respect to the following:
Traded Market Risk;
Interest Rates Risk in the Banking Book
(IRRBB);
Residual Value Risk;
Non-traded Equity Risk; and
Market Risk in Insurance Businesses.
The respective measurement approaches
for these risks include:
Value at Risk, Stress Testing;
Market Value Sensitivity, Net Interest
Earnings at Risk;
Profit & Loss Adjustment Account
Balance, Aggregate Residual Value
Risk Weighted Exposure, Aggregate
Residual Value Risk Margin;
Aggregate Portfolio Limit; and
Value at Risk
The Group Liquidity Risk Management Policy
and Strategy sets limits and standards with
respect to the following:
The Liquidity Coverage Ratio, 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.
The measurement of liquidity risk uses
scenario analysis, covering both adverse and
ordinary operating circumstances.
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3
Notes to the financial statements
Note 31 Risk Management (continued)
Material Risks (continued)
Description
Risk Type
Governing Policies and Key
Management Committees
Key Limits, Standards and Measurement
Approaches
Operational
Risk
Operational risk is the risk of economic
loss arising from inadequate or failed
internal processes, people, systems or
external events.
Governing Policies:
Group Operational Risk
Management Framework
Key Management Committee:
Executive Committee
Compliance
Risk
Compliance risk is the risk of legal or
regulatory sanctions, material financial
loss, or loss of reputation that the
Group may incur as a result of its failure
to comply with its Compliance
Obligations.
Governing Policies:
Group Operational Risk
Management Framework
Compliance Risk Management
Framework
Compliance Incident
Management Group Policy
Insurance
Risk
Key Management Committee:
Executive Committee
Governing Policies:
Product Management Policy
Underwriting Policy
Claims Management Policy
Reinsurance Management
Policy
Key Management Committee:
Executive Committees of
insurance writing businesses
Compliance Obligations are formal
requirements that may arise from
various sources including but not
limited to; laws; regulations; legislation;
industry standards; rules; codes or
guidelines.
Insurance risk is the risk of loss due to
increases in policy benefits 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.
Insurance risk also covers inadequacy
in product design, pricing, underwriting,
claims management and reinsurance
management as well as variations in
policy lapses, servicing expenses, and
option take up rates.
The Group Operational Risk Management
Framework sets limits and standards with
respect to the following:
Investigation and reporting of loss, compliance
and near miss incidents;
Comprehensive Risk and Control Self-
Assessment, control assurance and issues
management processes; and
Comprehensive Scenario Analysis
assessment process (also called Quantitative
Risk Assessments).
The measurement of operational risk is based
on an APRA accredited Advanced
Measurement Approach. The approach
combines internal and external loss experience
and business judgements captured through
Scenario Analysis.
The key limits with respect to compliance risk
are set via the Group Operational Risk
Management Framework. The Group
Compliance Risk Management Framework sets
standards with respect to the understanding of
obligations, establishing policies and
procedures, managing non-compliance,
monitoring and reporting.
The measurement of compliance risk is
undertaken within the operational risk
approach.
The key limits and standards with respect to
insurance risk are set via the end-to-end
policies of insurance writing businesses. The
major methods include:
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;
Regular review of insurance experience, so
that product design, policy liabilities and
pricing remains sound;
Claims management to ensure that claims
are paid within the agreed policy terms and
that 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.
Insurance risk is measured using actuarial
techniques which are used to establish the
likelihood and severity of possible insurance
claims. Insurance risk is further monitored with
key financial and performance metrics, such as
loss ratios, new business volumes and lapse
rates.
Notes to the financial statements
151
151
Note 31 Risk Management (continued)
Material Risks (continued)
Risk Type
Description
Strategic
Business Risk
Strategic Risk is the risk of economic
loss arising from changes in the
business environment (caused by
macroeconomic conditions,
competitive forces at work,
technology, regulatory or social
trends) or internal weaknesses, such
as a poorly implemented or flawed
strategy.
Governing Policies and Key
Management Committees
Key Limits, Standards and Measurement
Approaches
Governing Policies:
Group Risk Management
Strategy (RMS)
Climate Policy Position
Statement
The key limits and standards with respect to
strategic risk are set via the Board’s
consideration of Group and BU strategic plans
and the most significant risks (current and
emerging) arising from these.
Key Management
Committee:
Executive Committee
Strategic risk is measured using a combination
of judgemental assessments captured through
Scenario Analysis and an internal profit
simulation model.
Potential adverse Climate Change impacts are
measured and managed as an outcome of all
other material risks. In addition,
Corporate Responsibility programs and
initiatives:
Commit us to playing our part in limiting
climate change to well below two degrees
in line with the Paris Agreement;
Support the responsible global transition to
net zero emissions by 2050;
Outline our objectives for safeguarding the
environment, whilst supporting economic
growth and development;
Consider Environmental, Social and
Governance (ESG) issues, including
climate change impacts in assessing our
relationships with customers and suppliers;
and
Provide guidelines in monitoring and
reducing our own greenhouse gas
emissions and energy use.
Potential adverse Reputational impacts are
managed as an outcome of all other material
risks. In addition, the Group:
Sets a range of conduct codes to ensure
we provide a high level of service to our
customers (as set out in Statement of
Professional Practices); and
Has a corporate responsibility plan focused
on driving positive change through
education, innovation and good business
practice.
Reputational
Risk
Reputational risk arises from negative
perception on the part of customers,
counterparties, shareholders,
investors, debt holders, market
analysts, regulators and other relevant
stakeholders of the Group.
Governing Policies:
Group RMS
Group Environment Policy
Climate Policy Position
Statement
Human Rights Position
Statement
Key Management
Committee:
Executive Committee
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3
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. Credit policies 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 counterparties to meet
their contracted
repayment,
financial obligations
acceptable forms of collateral and security and the frequency
of credit reviews.
for
The credit policies and frameworks include concentration
limits which 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 credit policies, 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 counterparties in this segment. Auto-decisioning uses
a scorecard approach based on the Group’s historical
experience on similar applications, information from a credit
reference bureau and the Group’s existing knowledge of a
counterparties behaviour and updated information provided
by the counterparty.
Loan applications
that do not meet scorecard Auto-
to a Risk
decisioning
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 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 Unit Credit Support
Team.
(ii) Risk-Rated Segment
This segment comprises commercial exposures, including
bank and sovereign 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:
Credit risk-rated exposures are generally reviewed on an
individual basis, at least annually, and fall within the following
categories:
“Pass” – these credit facilities qualify for approval of new
or increased exposure on normal commercial terms; and
or
recovery
prospects)
“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
facilitate
(maximising
rehabilitation to “pass grade”. Where a counterparty is in
default but the facility is well secured, the facility may be
classed as troublesome but not impaired. Where a
counterparty’s facility is not well secured and a loss is
expected,
impaired.
Restructured facilities, where the original contractual
arrangements have been modified
to provide
concessions for the customer’s financial difficulties, are
rendered non-commercial to the Group.
is classed as
facility
the
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.
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.
The estimate is based on the actual amount outstanding, plus
the undrawn amount multiplied by a credit conversion factor
which represents the potential rate of conversion from
undrawn 12 months prior to default to drawn at default. For
most committed
the Group applies a credit
conversion factor of 100% to the undrawn amount.
facilities,
For uncommitted facilities the EAD will generally be the drawn
balance only. For defaulted facilities it is the actual amount
outstanding at default.
For retail exposures, a modelling approach can be used
based on factors including limit usage, arrears and loan type
to segment accounts
the
calculation.
into homogeneous pools
for
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
Aid in assessing changes to counterparty credit quality;
Type and level of any collateral held;
Influence decisions on approval, management and
pricing of individual credit facilities; and
Provide the basis for reporting details of the Group's
credit portfolio.
Notes to the financial statements
153
153
Note 32 Credit Risk (continued)
Credit Risk Measurement (continued)
Liquidity and volatility of collateral;
Carrying costs (effectively the costs of providing a facility
that is not generating an interest return); and
Realisation costs.
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 or security.
(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 Performance Overview 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 of collateral that may be taken, and the
balances held, are summarised below by financial asset
classes.
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 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.
The Group’s cash and
included
$20,307 million (2016: $11,629 million) deposited with central
banks and is 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 short term and to investment grade
banks.
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 however collateral may be implicit in the terms of
the instrument (e.g asset-backed security). 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.
Derivative Assets
The Group’s use of derivative contracts is outlined in Note 10.
The Group is exposed to credit risk on derivative contracts.
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
less
(typically
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). The
International Swaps and Derivatives Association (ISDA)
Master Agreement (or other derivative agreements) are used
by the Group as an agreement for documenting Over-the-
Counter (OTC) derivatives.
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 42.
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,
$100,078 million (2016: $96,111 million) are secured.
Loans, Bills Discounted and Other Receivables
The principal collateral
balances are:
types
for
loans and receivable
Mortgages over residential and commercial real estate;
Charges over business assets such as cash, shares,
inventory, fixed assets and accounts receivables; and
Guarantees received from third parties.
Collateral security, 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, are generally
secured against real estate, while short term revolving
consumer credit is generally not secured by formal collateral.
The collateral mitigating credit risk of the key lending
portfolios is addressed in the table ‘Collateral held against
Loans, Bills Discounted and Other Receivables’ within this
note.
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3
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.
Group
At 30 June 2017
Bank
Asset
Other
Agri- and Other
Home Constr-
Other
Financ- Comm and
Sovereign
culture Financial
Loans
uction Personal
$M
$M
$M
$M
$M
$M
ing
$M
Indust.
Other
$M
$M
Total
$M
Australia
Credit risk exposures relating to on Balance Sheet assets:
Cash and liquid assets
21,929
4,711
-
Receivables due from other
financial institutions
-
Assets at fair value through
Income Statement:
Trading
Insurance
Other
Derivative assets
18,107
2,131
51
1,181
Available-for-sale investments
41,323
-
-
-
-
56
-
2,565
1,545
5,806
607
20,037
27,126
-
-
-
-
-
-
-
-
-
-
-
-
53
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
8,811
3,535
453
4,668
294
18,085
8,784
15,425
436,184
3,765
23,183
7,872
120,638
-
1,460
2
16
-
4,073
-
-
1
4
-
6
-
-
38
359
Loans, bills discounted
and other receivables (1)
Bank acceptances
Other assets (2)
Total on Balance Sheet
Australia
87,049
8,858
99,113
436,184
3,823
23,189
7,872
138,796
17,056
821,940
Credit risk exposures relating to off Balance Sheet assets:
Guarantees
1,092
16
50
8
510
-
Loan commitments
Other commitments
Total Australia
795
42
1,967
30
7,439
1,040
66,869
2,973
22,495
1
962
-
-
-
10
4,321
39,467
1,849
-
-
-
5,997
142,005
3,934
87,936
10,871
108,684
503,062
8,268
45,684
7,882
184,433
17,056
973,876
Overseas
Credit risk exposures relating to on Balance Sheet assets:
Cash and liquid assets
15,595
3,615
-
Receivables due from other
financial institutions
109
Assets at fair value through
Income Statement:
Trading
Insurance
Other
Derivative assets
2,264
354
-
412
Available-for-sale investments
11,832
-
-
-
-
19
-
7,363
1,712
1,843
-
3,037
2,959
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
265
-
-
2,261
1
1,900
9,848
5,775
49,673
634
1,713
464
32,596
-
41
-
-
-
413
-
-
-
-
-
3
-
8
422
57
Loans, bills discounted
and other receivables (1)
Bank acceptances
Other assets (2)
Total on Balance Sheet
overseas
32,507
9,867
26,717
49,673
634
1,716
472
35,602
2,023
159,211
Credit risk exposures relating to off Balance Sheet assets:
Guarantees
1,086
1
2
-
Loan commitments
Other commitments
Total overseas
Total gross credit risk
284
26
881
5
32,818
120,754
10,755
21,626
6,335
7,414
1
-
34,139
57,087
37
196
-
867
-
2,017
-
3,733
-
-
-
301
14,423
187
-
-
-
1,427
31,550
219
472
8,354
50,513
2,023
192,407
234,946
19,079
1,166,283
142,823
560,149
9,135
49,417
(1) Loans, bills discounted and other receivables is presented gross of provisions for impairment and unearned income 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.
-
-
-
-
-
-
-
-
-
26,640
2,565
28,463
11,472
1,111
25,995
68,743
633,936
41
17,056
22,974
-
-
-
-
-
-
-
-
-
2,023
19,210
7,472
4,241
2,197
-
5,729
14,792
102,603
422
2,545
Notes to the financial statements
Notes to the financial statements
155
155
155
Note 32 Credit Risk (continued)
Note 32 Credit Risk (continued)
Maximum Exposure to Credit Risk by Industry and Asset Class before Collateral Held or Other Credit Enhancements
(continued)
Maximum Exposure to Credit Risk by Industry and Asset Class before Collateral Held or Other Credit Enhancements
(continued)
Group (1)
At 30 June 2016
Group (1)
At 30 June 2016
Bank
Bank
Asset
Asset
Other
Other
Agri- and Other
Agri- and Other
Home Constr-
Home Constr-
Other
Other
Financ- Comm and
Financ- Comm and
Sovereign
Sovereign
culture Financial
culture Financial
Loans
Loans
uction Personal
uction Personal
ing
ing
Indust.
Indust.
Other
Other
Total
Total
$M
$M
$M
$M
$M
$M
$M
$M
$M
$M
$M
$M
$M
$M
$M
$M
$M
$M
$M
$M
Australia
Credit risk exposures relating to on Balance Sheet assets:
Cash and liquid assets
7,786
Australia
Credit risk exposures relating to on Balance Sheet assets:
Cash and liquid assets
7,786
3,185
3,185
-
-
Receivables due from other
Receivables due from other
financial institutions
financial institutions
-
-
-
-
2,930
2,930
Assets at fair value through
Assets at fair value through
Income Statement:
Income Statement:
Trading
Trading
Insurance
Insurance
Other
Other
16,763
16,763
1,402
1,402
43
43
-
-
-
-
-
-
1,552
1,552
5,963
5,963
532
532
Derivative assets
Derivative assets
1,630
1,630
115
115
30,209
30,209
Available-for-sale investments
Available-for-sale investments
43,400
43,400
-
-
23,856
23,856
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
133
133
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
12,900
12,900
3,781
3,781
905
905
2,305
2,305
821
821
Loans, bills discounted
Loans, bills discounted
and other receivables (2)
and other receivables (2)
Bank acceptances
Bank acceptances
Other assets (3)
Other assets (3)
Total on Balance Sheet
Total on Balance Sheet
Australia
Australia
19,279
19,279
8,001
8,001
15,729
15,729
409,452
409,452
3,804
3,804
23,524
23,524
7,677
7,677
116,668
116,668
2
2
707
707
68
68
-
-
338
338
1,531
1,531
4
4
3,845
3,845
708
708
3
3
-
8
-
8
-
-
-
-
44
44
363
363
15,703
15,703
22,165
22,165
87,235
87,235
8,827
8,827
92,470
92,470
410,160
410,160
4,278
4,278
23,532
23,532
7,677
7,677
137,787
137,787
15,703
15,703
787,669
787,669
Credit risk exposures relating to off Balance Sheet assets:
Guarantees
839
Credit risk exposures relating to off Balance Sheet assets:
Guarantees
839
18
63
18
63
58
58
542
542
6
6
Loan commitments
Loan commitments
Other commitments
Other commitments
Total Australia
Total Australia
848
848
1,406
1,406
7,436
7,436
68,577
68,577
2,227
2,227
22,957
22,957
55
55
24
24
1,876
1,876
59
59
986
986
1
1
14
14
1,801
1,801
-
-
-
-
4,321
4,321
37,667
37,667
-
-
-
-
-
-
5,847
5,847
141,118
141,118
4,816
4,816
88,201
88,201
10,275
10,275
102,621
102,621
478,854
478,854
8,033
8,033
46,496
46,496
7,691
7,691
181,576
181,576
15,703
15,703
939,450
939,450
Overseas
Credit risk exposures relating to on Balance Sheet assets:
Cash and liquid assets
Overseas
Credit risk exposures relating to on Balance Sheet assets:
Cash and liquid assets
3,918
3,918
8,483
8,483
-
-
Receivables due from other
Receivables due from other
financial institutions
financial institutions
148
148
-
-
8,513
8,513
Assets at fair value through
Assets at fair value through
Income Statement:
Income Statement:
Trading
Trading
Insurance
Insurance
Other
Other
890
890
-
-
-
-
-
-
-
-
-
-
1,559
1,559
2,401
2,401
-
-
Derivative assets
Derivative assets
916
916
31
31
5,120
5,120
Available-for-sale investments
Available-for-sale investments
9,507
9,507
-
-
3,166
3,166
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
403
403
-
-
-
-
6,108
6,108
148
148
Loans, bills discounted
Loans, bills discounted
and other receivables (2)
and other receivables (2)
Bank acceptances
Bank acceptances
Other assets (3)
Other assets (3)
Total on Balance Sheet
Total on Balance Sheet
overseas
overseas
1,433
1,433
8,744
8,744
3,471
3,471
46,622
46,622
352
352
1,719
1,719
226
226
33,598
33,598
-
-
17
17
-
-
-
-
-
-
247
247
-
-
70
70
-
-
-
-
-
6
-
6
-
5
-
5
272
272
30
30
2,110
2,110
2,485
2,485
21,394
21,394
8,775
8,775
28,395
28,395
46,692
46,692
352
352
1,725
1,725
231
231
40,559
40,559
2,110
2,110
150,233
150,233
Credit risk exposures relating to off Balance Sheet assets:
Guarantees
60
Credit risk exposures relating to off Balance Sheet assets:
Guarantees
60
4
1
4
1
-
-
53
53
-
-
Loan commitments
Loan commitments
Other commitments
Other commitments
Total overseas
Total gross credit risk
Total overseas
Total gross credit risk
313
313
827
827
4,018
4,018
7,309
7,309
194
194
1,940
1,940
43
43
-
-
-
-
-
-
1
1
-
-
-
5
-
-
5
-
251
251
15,018
15,018
652
652
-
-
-
-
-
-
369
369
29,624
29,624
696
696
21,751
21,751
9,606
9,606
32,473
32,473
54,001
54,001
600
600
3,665
3,665
236
236
56,480
56,480
2,110
2,110
180,922
180,922
109,952
109,952
19,881
19,881
135,094
135,094
532,855
532,855
8,633
8,633
50,161
50,161
7,927
7,927
238,056
238,056
17,813
17,813
1,120,372
1,120,372
(1) Comparative information has been reclassified to conform to presentation in the current year.
(2) Loans, bills discounted and other receivables is presented gross of provisions for impairment and unearned income on lease receivables in line with
(1) Comparative information has been reclassified to conform to presentation in the current year.
(2) Loans, bills discounted and other receivables is presented gross of provisions for impairment and unearned income on lease receivables in line with
Note 12.
Note 12.
(3) For the purpose of reconciling to the Balance Sheet, “Other assets” predominantly comprises assets which do not give rise to credit exposure, including
(3) 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.
Property, plant and equipment, Investment in Associates and Joint Ventures, Intangible assets, Deferred tax assets and Other assets.
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10,971
10,971
2,930
2,930
31,215
31,215
11,146
11,146
1,480
1,480
34,392
34,392
68,077
68,077
604,134
604,134
1,159
1,159
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
12,401
12,401
8,661
8,661
2,852
2,852
2,401
2,401
-
-
12,175
12,175
12,821
12,821
96,165
96,165
272
272
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156
3
Notes to the financial statements
Note 32 Credit Risk (continued)
Large Exposures
Concentrations of exposure to any counterparty 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,
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 aggregated 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):
5% to less than 10% of the Group's capital resources
10% to less than 15% of the Group's capital resources
2017
Group
2016
Number
Number
-
-
-
-
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 7% in overseas mortgage loans, primarily in New Zealand. Overseas loans account for 14% 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 a contracted amount, including principal or interest, has not been met when due or it is
otherwise outside contracted arrangements. Excluding some retail portfolios, the amount included as past due is the entire
contractual balance, rather than the overdue portion.
Cash and liquid assets
Receivables due from other financial institutions
Assets at fair value through Income Statement:
Trading
Insurance
Other
Derivative assets
Available-for-sale investments
Loans, bills discounted and other receivables:
Australia
Overseas
Bank acceptances
Credit related commitments
Total
$M
45,850
10,037
32,704
13,669
1,111
31,717
83,535
619,072
99,245
463
184,997
1,122,400
Neither Past
Past due
Due nor
but not
Impaired
Impaired
Impaired
Assets
Total Provisions
for Impairment
Losses
$M
-
-
-
-
-
-
-
Gross
$M
45,850
10,037
32,704
13,669
1,111
31,724
83,535
Group
2017
Net
$M
45,850
10,037
32,704
13,669
1,111
31,724
83,535
$M
$M
-
-
-
-
-
-
-
-
-
-
-
-
7
-
12,543
2,634
-
-
15,177
2,321
724
-
135
3,187
633,936
102,603
463
185,132
1,140,764
(3,271)
(422)
-
630,665
102,181
463
(34)
185,098
(3,727)
1,137,037
Notes to the financial statements
157
157
Note 32 Credit Risk (continued)
Neither Past
Past Due
Due nor
but not
Impaired
Impaired
Impaired
Assets
Cash and liquid assets
Receivables due from other financial institutions
Assets at fair value through Income Statement:
Trading
Insurance
Other
Derivative assets
Available-for-sale investments
Loans, bills discounted and other receivables:
Australia
Overseas
Bank acceptances
Credit related commitments
Total
$M
23,372
11,591
34,067
13,547
1,480
46,547
80,898
588,634
93,245
1,431
182,353
1,077,165
Total Provisions
for Impairment
Losses
$M
-
-
-
-
-
-
-
Gross
$M
23,372
11,591
34,067
13,547
1,480
46,567
80,898
Group
2016
Net
$M
23,372
11,591
34,067
13,547
1,480
46,567
80,898
$M
$M
-
-
-
-
-
-
-
-
-
-
-
-
20
-
13,104
2,337
-
-
15,441
2,396
583
-
117
3,116
604,134
96,165
1,431
182,470
1,095,722
(3,318)
600,816
(400)
-
95,765
1,431
(44)
182,426
(3,762)
1,091,960
Neither Past
Past Due
Due nor
but not
Impaired
Impaired
Impaired
Assets
$M
$M
Cash and liquid assets
Receivables due from other financial institutions
Assets at fair value through Income Statement:
Trading
Insurance
Other
Derivative assets
Available-for-sale investments
Loans, bills discounted and other receivables:
Australia
Overseas
Bank acceptances
Shares in and loans to controlled entities
Credit related commitments
$M
42,814
8,678
31,127
-
796
32,088
79,019
611,624
25,056
463
101,337
169,418
Total
1,102,420
12,581
Neither Past
Past Due
Due nor
but not
Impaired
Impaired
Impaired
Assets
$M
$M
Cash and liquid assets
Receivables due from other financial institutions
Assets at fair value through Income Statement:
Trading
Insurance
Other
Derivative assets
Available-for-sale investments
Loans, bills discounted and other receivables:
Australia
Overseas
Bank acceptances
Shares in and loans to controlled entities
Credit related commitments
$M
21,582
10,182
32,985
-
1,187
46,505
76,361
582,155
24,512
1,413
145,953
166,075
Total
1,108,910
13,117
-
-
-
-
-
-
-
12,541
40
-
-
-
-
-
-
-
-
-
-
13,098
19
-
-
-
Total Provisions
for Impairment
Losses
$M
-
-
-
-
-
-
-
Bank
2017
Net
$M
42,814
8,678
31,127
-
796
32,094
79,019
(3,262)
623,193
(83)
25,255
-
-
(34)
463
101,337
169,514
Gross
$M
42,814
8,678
31,127
-
796
32,094
79,019
626,455
25,338
463
101,337
169,548
1,117,669
(3,379)
1,114,290
Total Provisions
for Impairment
Losses
$M
-
-
-
-
-
-
-
Bank
2016
Net
$M
21,582
10,182
32,985
-
1,187
46,525
76,361
(3,309)
594,302
(56)
-
-
(44)
24,594
1,413
145,953
166,143
Gross
$M
21,582
10,182
32,985
-
1,187
46,525
76,361
597,611
24,650
1,413
145,953
166,187
1,124,636
(3,409)
1,121,227
-
-
-
-
-
6
-
2,290
242
-
-
130
2,668
-
-
-
-
-
20
-
2,358
119
-
-
112
2,609
Our businessPerformance overview Corporate responsibility Corporate governanceDirectors’ reportOther informationCommonwealth Bank of AustraliaAnnual Report 2017Financial report6213457 158
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3
Notes to the financial statements
Note 32 Credit Risk (continued)
Credit Quality of Loans, Bills Discounted and Other Receivables 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 counterparty’s
internally assessed PD to S&P Global ratings, reflecting a counterparty’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.
Credit grading
Australia
Investment
Pass
Weak
Total Australia
Overseas (1)
Investment
Pass
Weak
Total overseas
Total loans which were neither past due nor impaired
Credit grading
Australia
Investment
Pass
Weak
Total Australia
Overseas (1)
Investment
Pass
Weak
Total overseas
Total loans which were neither past due nor impaired
Home
Other
Asset
Commercial
Loans
Personal
Financing and Industrial
$M
$M
$M
$M
Other
296,466
121,035
7,791
425,292
15,200
31,530
934
47,664
472,956
4,249
14,362
3,416
22,027
-
1,356
-
1,356
23,383
300
7,172
164
7,636
10
438
-
448
8,084
77,407
83,758
2,952
164,117
23,696
25,363
718
49,777
213,894
Other
Group
2017
Total
$M
378,422
226,327
14,323
619,072
38,906
58,687
1,652
99,245
718,317
Group
2016 (2)
Home
Other
Asset
Commercial
Loans
Personal
Financing and Industrial
Total
$M
$M
$M
$M
$M
275,186
112,840
9,861
397,887
15,218
29,340
328
44,886
442,773
4,454
14,237
3,669
22,360
-
1,391
-
1,391
23,751
299
6,940
198
7,437
8
188
-
196
7,633
77,918
80,769
2,263
160,950
22,592
23,181
999
46,772
207,722
357,857
214,786
15,991
588,634
37,818
54,100
1,327
93,245
681,879
(1) For New Zealand Housing Loans, PDs reflect Reserve Bank of New Zealand requirements resulting in higher PDs on average and lower grading.
(2) Following enhancements to methodology in the current period, there was a change to the categorisation of credit exposures by credit grade for loans which
were neither past due nor impaired. Comparative information was restated to conform to presentation in the current period.
Notes to the financial statements
159
159
Note 32 Credit Risk (continued)
Credit Quality of Loans, Bills Discounted and Other Financial Assets which were Neither Past Due nor Impaired
(continued)
Credit grading
Australia
Investment
Pass
Weak
Total Australia
Overseas
Investment
Pass
Weak
Total overseas
Total loans which were neither past due nor impaired
Credit grading
Australia
Investment
Pass
Weak
Total Australia
Overseas
Investment
Pass
Weak
Total overseas
Total loans which were neither past due nor impaired
Bank
2017
Other
Home
Other
Asset
Commercial
Loans
Personal
Financing and Industrial
Total
$M
$M
$M
$M
$M
296,403
114,974
7,793
419,170
4,240
14,331
3,408
21,979
87
388
-
475
-
7
-
7
285
7,114
163
7,562
-
-
-
-
419,645
21,986
7,562
76,598
83,380
2,935
162,913
18,015
6,320
239
24,574
187,487
Other
377,526
219,799
14,299
611,624
18,102
6,715
239
25,056
636,680
Bank
2016 (1)
Home
Other
Asset
Commercial
Loans
Personal
Financing and Industrial
Total
$M
$M
$M
$M
$M
275,033
107,899
9,858
392,790
4,461
14,191
3,655
22,307
115
417
-
532
-
16
-
16
291
6,895
198
7,384
-
-
3
3
393,322
22,323
7,387
77,107
80,359
2,208
159,674
18,252
5,253
456
23,961
183,635
356,892
209,344
15,919
582,155
18,367
5,686
459
24,512
606,667
(1) Following enhancements to methodology in the current period, there was a change to the categorisation of credit exposures by credit grade for loans
which were neither past due nor impaired. Comparative information was restated to conform to presentation in the current period.
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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 2017
and 30 June 2016 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.
Loans which were past due but not impaired
Australia
Past due 1 - 29 days
Past due 30 - 59 days
Past due 60 - 89 days
Past due 90 - 179 days
Past due 180 days or more
Total Australia
Overseas
Past due 1 - 29 days
Past due 30 - 59 days
Past due 60 - 89 days
Past due 90 - 179 days
Past due 180 days or more
Total overseas
Total loans which were past due but not impaired
Loans which were past due but not impaired
Australia
Past due 1 - 29 days
Past due 30 - 59 days
Past due 60 - 89 days
Past due 90 - 179 days
Past due 180 days or more
Total Australia
Overseas
Past due 1 - 29 days
Past due 30 - 59 days
Past due 60 - 89 days
Past due 90 - 179 days
Past due 180 days or more
Total overseas
Total loans which were past due but not impaired
Group
2017
Home
Other
Loans Personal (1)
Other
Asset
Commercial
Financing and Industrial
Total
$M
$M
$M
$M
$M
5,004
1,675
922
1,136
1,048
9,785
1,623
185
53
41
18
1,920
11,705
568
180
121
-
4
873
263
45
15
16
5
344
1,217
87
55
23
-
-
165
-
6
2
2
-
10
175
1,147
145
98
132
198
6,806
2,055
1,164
1,268
1,250
1,720
12,543
255
15
21
24
45
360
2,080
2,141
251
91
83
68
2,634
15,177
Group
2016
Other
Home
Loans Personal (1)
Other
Asset
Commercial
Financing and Industrial
Total
$M
6,166
1,755
877
1,027
819
10,644
1,328
187
69
38
15
1,637
12,281
$M
592
188
124
-
5
909
238
41
15
16
6
316
1,225
$M
85
45
23
-
2
155
8
2
1
1
-
12
167
$M
767
154
102
177
196
$M
7,610
2,142
1,126
1,204
1,022
1,396
13,104
277
40
14
6
35
372
1,768
1,851
270
99
61
56
2,337
15,441
(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.
Notes to the financial statements
161
161
Note 32 Credit Risk (continued)
Age Analysis of Loans, Bills Discounted and Other Receivables that are Past Due but Not Impaired (continued)
Loans which were past due but not impaired
Australia
Past due 1 - 29 days
Past due 30 - 59 days
Past due 60 - 89 days
Past due 90 - 179 days
Past due 180 days or more
Total Australia
Overseas
Past due 1 - 29 days
Past due 30 - 59 days
Past due 60 - 89 days
Past due 90 - 179 days
Past due 180 days or more
Total overseas
Total loans which were past due but not impaired
Loans which were past due but not impaired
Australia
Past due 1 - 29 days
Past due 30 - 59 days
Past due 60 - 89 days
Past due 90 - 179 days
Past due 180 days or more
Total Australia
Overseas
Past due 1 - 29 days
Past due 30 - 59 days
Past due 60 - 89 days
Past due 90 - 179 days
Past due 180 days or more
Total overseas
Total loans which were past due but not impaired
Bank
2017
Home
Other
Loans Personal (1)
Other
Asset
Commercial
Financing and Industrial
Total
$M
$M
$M
$M
$M
5,003
1,674
922
1,136
1,048
9,783
31
2
-
-
-
33
9,816
568
180
121
-
4
873
1
-
-
-
-
1
87
55
23
-
-
165
-
-
-
-
-
-
1,147
145
98
132
198
6,805
2,054
1,164
1,268
1,250
1,720
12,541
2
2
1
1
-
6
34
4
1
1
-
40
874
165
1,726
12,581
Bank
2016
Other
Home
Loans Personal (1)
Other
Asset
Commercial
Financing and Industrial
Total
$M
$M
$M
$M
$M
6,162
1,754
877
1,026
819
10,638
9
-
-
-
1
10
592
188
124
-
5
909
1
-
-
-
-
1
85
45
23
-
2
155
-
-
-
-
-
-
767
154
102
177
196
7,606
2,141
1,126
1,203
1,022
1,396
13,098
3
2
1
2
-
8
13
2
1
2
1
19
10,648
910
155
1,404
13,117
(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.
Our businessPerformance overview Corporate responsibility Corporate governanceDirectors’ reportOther informationCommonwealth Bank of AustraliaAnnual Report 2017Financial report6213457 162
162
3
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.
Australia
Non-Performing assets:
Gross balances
Less individual provisions for impairment
Net non-performing assets
Restructured assets:
Gross balances
Less individual provisions for impairment
Net restructured assets
Unsecured retail products 90 days or more past due:
Gross balances
Less provisions for impairment (1)
Net unsecured retail products 90 days or more past due
Net Australia impaired assets
Overseas
Non-Performing assets:
Gross balances
Less individual provisions for impairment
Net non-performing assets
Restructured assets:
Gross balances
Less individual provisions for impairment
Net restructured assets
Unsecured retail products 90 days or more past due:
Gross balances
Less provisions for impairment (1)
Net unsecured retail products 90 days or more past due
Net overseas impaired assets
Total net impaired assets
(1) Collective provisions are held for these portfolios.
Impaired Assets by Size
2017
$M
2016
$M
2015
$M
2014
$M
Group
2013
$M
1,962
(817)
1,145
174
-
174
251
(157)
94
1,413
686
(163)
523
101
-
101
13
(12)
1
625
2,002
(807)
1,195
221
-
221
252
(169)
83
1,499
560
(138)
422
67
-
67
14
(13)
1
490
2,038
1,989
1,940
(775)
1,165
144
-
144
251
(130)
121
1,430
454
(112)
342
54
-
54
12
(9)
3
2,134
3,316
(1,035)
(1,564)
1,099
1,752
361
-
361
236
(131)
105
346
-
346
217
(128)
89
1,565
2,187
377
(92)
285
248
-
248
11
(8)
3
356
(64)
292
87
-
87
8
(3)
5
399
1,829
536
2,101
384
2,571
Impaired assets by size
Less than $1 million
$1 million to $10 million
Greater than $10 million
Total
Australia
Overseas
2017
$M
1,338
666
383
2,387
2017
$M
114
260
426
800
Total
2017
$M
1,452
926
809
3,187
Australia
Overseas
2016
$M
1,170
661
644
2,475
2016
$M
123
215
303
641
Group
Total
2016
$M
1,293
876
947
3,116
Notes to the financial statements
163
163
Note 32 Credit Risk (continued)
Movement in Impaired Assets
Movement in gross impaired assets
Gross impaired assets - opening balance
New and increased
Balances written off
Returned to performing or repaid
Portfolio managed - new/increased/return to performing/repaid
Gross impaired assets - closing balance
Impaired Assets by Industry and Status
2017
$M
3,116
2,164
(1,225)
(1,637)
769
3,187
2016
$M
2,855
2,370
(1,328)
(1,460)
679
3,116
2015
$M
3,367
2,095
(1,355)
(1,903)
651
2,855
2014
$M
4,330
2,393
(1,697)
(2,303)
644
3,367
Group
2013
$M
4,687
3,016
(1,774)
(2,165)
566
4,330
Group
2017
Gross Total Provisions
Net
Total
Impaired
for Impaired
Balance
Assets
$M
$M
Assets
$M
Impaired
Net (1)
Assets Write-offs (1) Recoveries (1) Write-offs
Industry
Loans - Australia
Sovereign
Agriculture
Bank and other financial
Home loans
Construction
Other personal
Asset financing
Other commercial and industrial
Total loans - Australia
Loans - Overseas
Sovereign
Agriculture
Bank and other financial
Home loans
Construction
Other personal
Asset financing
Other commercial and industrial
Total loans - overseas
Total loans
Other balances - Australia
Credit commitments
Derivatives
Total other balances -
Australia
Other balances - Overseas
Credit commitments
Derivatives
Total other balances -
overseas
Total other balances
18,085
8,784
15,425
436,184
3,765
23,183
7,872
120,638
633,936
1,900
9,848
5,775
49,673
634
1,713
464
32,596
102,603
736,539
151,936
25,995
177,931
33,196
5,729
38,925
216,856
-
87
24
1,107
48
283
71
701
2,321
-
279
9
89
1
13
6
327
724
3,045
61
5
66
74
2
76
142
$M
-
40
(3)
858
23
117
53
259
$M
-
17
1
115
16
792
41
210
1,347
1,192
-
(47)
(27)
(249)
(25)
(166)
(18)
(442)
(974)
-
(25)
-
(4)
(1)
(12)
(10)
(114)
(166)
-
254
9
85
-
1
(4)
213
558
(1,140)
1,905
-
-
-
(9)
-
(9)
(9)
61
5
66
65
2
67
133
-
15
5
4
8
60
-
64
156
1,348
-
-
-
-
-
-
-
$M
$M
-
-
(1)
(3)
(1)
(170)
(7)
(12)
(194)
-
-
-
(1)
(1)
(11)
-
(3)
(16)
(210)
-
-
-
-
-
-
-
-
17
-
112
15
622
34
198
998
-
15
5
3
7
49
-
61
140
1,138
-
-
-
-
-
-
-
Total
953,395
3,187
(1,149)
2,038
1,348
(210)
1,138
(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.
Our businessPerformance overview Corporate responsibility Corporate governanceDirectors’ reportOther informationCommonwealth Bank of AustraliaAnnual Report 2017Financial report6213457 164
164
3
Notes to the financial statements
Note 32 Credit Risk (continued)
Impaired Assets by Industry and Status (continued)
Gross Total Provisions
Net
Group (1)
2016
Total
Impaired
for Impaired
Impaired
Net (2)
Assets Write-offs (2) Recoveries (2) Write-offs
Balance
Assets
Industry
Loans - Australia
Sovereign
Agriculture
Bank and other financial
Home loans
Construction
Other personal
Asset financing
Other commercial and industrial
Total loans - Australia
Loans - Overseas
Sovereign
Agriculture
Bank and other financial
Home loans
Construction
Other personal
Asset financing
Other commercial and industrial
Total loans - overseas
Total loans
Other balances - Australia
Credit commitments
Derivatives
Total other balances -
Australia
Other balances - Overseas
Credit commitments
Derivatives
Total other balances -
overseas
Total other balances
$M
19,279
8,001
15,729
409,452
3,804
23,524
7,677
116,668
604,134
1,433
8,744
3,471
46,622
352
1,719
226
33,598
96,165
700,299
151,781
34,392
186,173
30,689
12,175
42,864
229,037
$M
-
136
18
921
28
255
85
953
2,396
-
277
10
99
14
12
18
153
583
2,979
59
20
79
58
-
58
137
Assets
$M
-
(42)
(29)
(193)
(25)
(176)
(28)
(483)
(976)
-
(23)
(4)
(6)
(8)
(15)
(10)
(76)
$M
-
94
(11)
728
3
79
57
470
1,420
-
254
6
93
6
(3)
8
77
(142)
(1,118)
441
1,861
-
-
-
(9)
-
(9)
(9)
59
20
79
49
-
49
128
$M
$M
$M
-
84
10
82
11
747
54
249
1,237
-
7
-
7
-
54
-
112
180
1,417
-
-
-
-
-
-
-
-
(1)
(27)
(3)
(1)
(154)
(4)
(21)
(211)
-
-
(1)
(1)
-
(10)
-
(2)
(14)
(225)
-
-
-
-
-
-
-
-
83
(17)
79
10
593
50
228
1,026
-
7
(1)
6
-
44
-
110
166
1,192
-
-
-
-
-
-
-
Total
929,336
3,116
(1,127)
1,989
1,417
(225)
1,192
(1) Comparative information has been restated to conform to presentation in the current year.
(2) Write-offs, recoveries and net write-offs are not recognised against credit commitments or derivatives as these exposures are closed out and converted to
loans and receivables on impairment. Write-offs and recoveries take place subsequent to this conversion.
Collateral held against Loans, Bills Discounted and Other Receivables
Maximum exposure ($M)
Collateral classification:
Secured (%)
Partially secured (%)
Unsecured (%)
Group
2017
Other
Home
Loans
Other
Asset
Commercial
Personal
Financing
and Industrial
Total
485,857
24,896
8,336
217,450
736,539
99. 2
0. 8
-
12. 7
-
87. 3
99. 3
0. 7
-
42. 0
15. 4
42. 6
79. 8
5. 0
15. 2
Notes to the financial statements
165
165
Note 32 Credit Risk (continued)
Collateral held against Loans, Bills Discounted and Other Receivables (continued)
Maximum exposure ($M)
Collateral classification:
Secured (%)
Partially secured (%)
Unsecured (%)
Maximum exposure ($M)
Collateral classification:
Secured (%)
Partially secured (%)
Unsecured (%)
Maximum exposure ($M)
Collateral classification:
Secured (%)
Partially secured (%)
Unsecured (%)
Group (1)
2016
Other
Home
Loans
Other
Asset
Commercial
Personal
Financing
and Industrial
Total
456,074
25,243
7,903
211,079
700,299
99. 3
0. 7
-
13. 6
-
86. 4
98. 7
1. 3
-
41. 8
15. 4
42. 8
Other
78. 9
5. 1
16. 0
Bank
2017
Home
Loans
Other
Asset
Commercial
Personal
Financing
and Industrial
Total
430,575
23,143
7,801
190,274
651,793
99. 1
0. 9
-
13. 4
-
86. 6
99. 2
0. 8
-
40. 5
14. 6
44. 9
Other
79. 5
4. 8
15. 7
Bank (1)
2016
Home
Loans
Other
Asset
Commercial
Personal
Financing
and Industrial
Total
404,902
23,467
7,639
186,253
622,261
99. 2
0. 8
-
14. 3
-
85. 7
98. 8
1. 2
-
40. 7
14. 6
44. 7
78. 5
4. 9
16. 6
(1) Comparative information has been restated to conform to presentation in the current year.
A facility is determined to be secured where its ratio of exposure to the estimated value of 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, small business 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 or margin 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), and personal loans are 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, inventory and work in
progress); or a charge over shares. 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.
Our businessPerformance overview Corporate responsibility Corporate governanceDirectors’ reportOther informationCommonwealth Bank of AustraliaAnnual Report 2017Financial report6213457 166
166
3
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 measures
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.
that
loss
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 stress testing to measure
levels
the potential
significantly higher than 97.5%. Management then uses these
results in decisions to manage the economic impact of market
risk positions.
loss at confidence
for economic
Total Market Risk
VaR (1-day 97.5%
confidence)
Traded Market Risk
Non-Traded Interest Rate
Risk (2)
Non-Traded Equity Risk (2)
Non-Traded Insurance
Market Risk (2)
June
Average As at Average As at
June
2016 (1) 2016
$M
June
2017 (1) 2017
$M
June
$M
$M
10. 6
11. 1
10. 1
16. 9
21. 5
19. 5
6. 6
5. 8
14. 7
10. 2
17. 2
7. 5
5. 1
5. 0
4. 5
5. 0
(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
through
Traded market risk
the Group’s
is generated
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 treasury, capital market and risk management instruments,
range of securities and derivatives.
including a broad
Traded Market Risk
VaR (1-day 97.5%
confidence)
Interest rate risk
Foreign exchange risk
Equities risk
Commodities risk
Credit spread risk
Average As at Average As at
June
2017 (1)
$M
8. 9
1. 8
0. 5
3. 0
3. 3
June
2017
$M
6. 7
1. 1
0. 1
3. 3
2. 8
June
2016 (1)
$M
7. 9
2. 4
0. 4
2. 2
3. 0
June
2016
$M
16. 7
1. 7
1. 1
2. 3
3. 2
Diversification benefit
(9. 3)
(5. 1)
(8. 3)
(10. 4)
Total general market risk
Undiversified risk
ASB Bank
Total
8. 2
2. 2
0. 2
8. 9
2. 1
0. 1
7. 6
2. 3
0. 2
14. 6
2. 1
0. 2
10. 6
11. 1
10. 1
16. 9
(1) Average VaR calculated for each 12 month period.
Non-Traded Market Risk
Interest Rate Risk in the Banking Book
transformation activities of
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. The
maturity
the Group create
mismatches in the repricing terms of assets and liabilities
positions. These mismatches may have undesired earnings
and value outcomes depending on
rate
movements. The Group’s objective is to manage interest rate
risk to achieve stable and sustainable net interest income in
the long-term.
interest
the
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
simulation model which
incorporates both existing and
anticipated new business in its assessment. The change in
the Balance Sheet product mix, growth, funding and pricing
strategies is incorporated.
Assets and liabilities that reprice directly from observable
market rates are measured based on the full extent of the rate
shock that is applied.
Products that are priced based on Group administered or
discretionary interest rates and that are impacted by customer
behaviour are measured by taking into consideration the
historic repricing strategy of
the Group and repricing
behaviours of customers. In addition to considering how the
products have repriced in the past the expected change in
price based on both the current and anticipated competitive
market forces are also considered in the sensitivity analysis.
Notes to the financial statements
167
167
Note 33 Market Risk (continued)
Non-Traded Market Risk (continued)
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.
Net Interest
Earnings at Risk
Average monthly exposure
High monthly exposure
Low monthly exposure
As at balance date
June
2017
$M
284. 7
25. 4
352. 3
33. 5
248. 9
17. 4
304. 4
18. 5
June
2016
$M
316. 1
30. 2
408. 7
38. 9
227. 1
16. 5
308. 9
27. 6
AUD
NZD
AUD
NZD
AUD
NZD
AUD
NZD
(b) Economic Value
Interest rate risk from the economic value perspective is
based on a 20-day 97.5% VaR measure.
Measuring the change in the economic value of equity is an
assessment of the long-term impact to the earnings potential
of the Group present valued to the current date. The Group
assesses the potential change in its economic value of equity
through the application of the VaR methodology.
A 20-day 97.5% VaR measure is used to capture the net
economic value impact over the long-term or total life of all
Balance Sheet assets and liabilities to adverse changes in
interest rates.
The impact of customer prepayments on the contractual cash
flows for fixed rate products is included in the calculation.
Cash flows for discretionary priced products are behaviourally
adjusted and repriced at the resultant profile.
The figures in the following table represent the net present
value of the expected change in the Group’s future earnings
in all future periods for the remaining term of all existing
assets and liabilities.
Non-Traded Interest Rate VaR
(20 day 97.5% confidence) (2)
AUD Interest rate risk
NZD Interest rate risk (3)
Average Average
June
2016 (1)
$M
June
2017 (1)
$M
96. 1
4. 5
65. 5
3. 6
(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 primarily through
business activities in IB&M and Wealth Management.
A 20-day, 97.5% confidence VaR is used to measure the
economic impact of adverse changes in value.
Non-Traded Equity VaR
(20 day 97.5% confidence)
VaR
As at
June
2017
$M
26. 0
As at
June
2016
$M
34. 0
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
the Statutory Funds and
A portion of financial assets held within the Insurance
business, both within
the
Shareholder Funds of the Life Insurance company represents
shareholder (Group) capital. Market risk also arises for the
Group on the investment of this capital. Shareholders’ funds
in the Australian Life Insurance businesses are invested 99%
in income assets (cash and fixed interest) and 1% in growth
assets as at 30 June 2017.
in
A 20-day 97.5% VaR measure is used to capture the Non-
traded market risk exposures.
Non-Traded VaR in Australian
Life Insurance Business
(20 day 97.5% confidence)
Shareholder funds (2)
Guarantees (to Policyholders) (3)
Average Average
June
2016 (1)
$M
June
2017 (1)
$M
1. 3
22. 3
3. 9
19. 4
(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 prices of
these assets
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).
Our businessPerformance overview Corporate responsibility Corporate governanceDirectors’ reportOther informationCommonwealth Bank of AustraliaAnnual Report 2017Financial report6213457 168
168
3
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
to achieve
funding policies are designed
diversified sources of funding by product, term, maturity date,
investor type, investor location, currency and concentration,
on a cost effective basis. This objective applies to the Group’s
wholesale and retail funding activities.
Liquidity and Funding Risk Management Framework
includes
the charter of which
The CBA Board is ultimately responsible for the sound and
prudent management of liquidity risk across the Group. 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)
the
management of assets and liabilities, reviewing liquidity and
regularly
funding policies and strategies, as well as
monitoring compliance with those policies across the Group.
Group Treasury manages the Group’s liquidity and funding
positions in accordance with the Group’s liquidity policies and
has ultimate authority to execute liquidity decisions should the
Group Contingent 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.
reviewing
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.
Liquidity and Funding Policies and Management
The Group’s liquidity and funding policies provide that:
An excess of liquid assets over the minimum prescribed
under APRA’s Liquidity Coverage Ratio
(LCR)
requirement is maintained. Australian ADIs are required
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;
Additional internal funding and liquidity metrics are also
calculated and stress tests additional to the LCR are run;
long-term wholesale
Short and
established, monitored and reviewed regularly.
funding
limits are
The Group’s wholesale funding market capacity is
regularly assessed and used as a factor in funding
strategies;
Balance Sheet assets that cannot be liquidated quickly
are funded with stable 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 certain Reserve Bank of
Australia (RBA) criteria for purchases under reverse
internal RMBS, being
repo. The
mortgages that have been securitised but retained by
the Bank, that are repo-eligible with the RBA under
stress; and
final category
is
Offshore branches and subsidiaries adhere to liquidity
policies and hold appropriate foreign currency liquid
assets as required. All securities are central bank repo-
eligible under normal market conditions.
The Group’s key funding tools include:
Its consumer retail funding base, which includes a wide
range of retail transaction accounts, savings accounts
and term deposits for individual consumers;
Its small business customer and institutional deposit
base; and
international and domestic
Its wholesale
funding
programs which include its Australian dollar Negotiable
Certificates of Deposit; Australian dollar bank bills; Asian
Transferable Certificates of Deposit program; Australian,
U.S. and Euro Commercial Paper programs; U.S.
Extendible Notes programs; Australian dollar Domestic
Debt Program; U.S.144a and 3a2 Medium-Term Note
Programs; Euro Medium-Term Note Program; multi
jurisdiction Covered Bond program; and its Medallion
securitisation program.
The Group’s key liquidity tools include:
A regulatory liquidity management reporting system
type
delivering granular customer and product
information to inform business decision making, product
development and resulting in a greater awareness of the
liquidity risk adjusted value of banking products;
A liquidity management model similar to a “maturity
ladder” or “liquidity gap analysis”, that allows forecasting
of liquidity needs on a daily basis;
liquidity management model
An additional
that
implements the agreed prudential liquidity policies. This
model is calibrated with a series of “stress” liquidity crisis
scenarios, incorporating both systemic and idiosyncratic
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
169
169
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.
International wholesale funding conditions were generally
positive with credit spreads tracking tighter over the course
of the financial year. Geopolitical events such as elections
in the US, France and the United Kingdom had a smaller
impact on debt markets than some had anticipated. The
to avoid
Group has managed
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.
its debt portfolio
Details of the Group’s regulatory capital management
activities and processes 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.
Maturity Period as at 30 June 2017
Group
Monetary liabilities
Deposits and other public borrowings (1)
Payables due to other financial institutions
Liabilities at fair value through Income Statement
Derivative financial instruments:
Held for trading
Held for hedging purposes (net-settled)
Held for hedging purposes (gross-settled):
Outflows
Inflows
Bank acceptances
Insurance policy liabilities
Debt issues and loan capital
Managed funds units on issue
Other monetary liabilities
Total monetary liabilities
Guarantees (2)
Loan commitments (2)
Other commitments (2)
Total off Balance Sheet items
Total monetary liabilities and off Balance Sheet
items
0 to 3
Months
$M
509,615
24,508
6,188
21,283
77
5,724
(5,018)
205
-
3 to 12
Months
$M
98,303
3,964
1,553
-
204
6,923
(6,159)
258
-
-
6,304
589,780
7,424
173,555
4,153
185,132
-
1,794
144,722
-
-
-
-
Over 5
Not
Years
Specified
$M
$M
1 to 5
Years
$M
20,132
-
1,168
-
1,595
272
-
1,682
-
1,201
65,799
(62,248)
19,905
(18,940)
-
-
-
-
-
731
-
323
Total
$M
628,322
28,472
10,591
21,283
3,077
98,351
(92,365)
463
12,018
188,313
2,577
9,152
-
-
-
-
-
-
-
-
12,018
-
2,577
-
128,001
33,156
14,595
910,254
-
-
-
-
-
-
-
-
-
-
-
-
7,424
173,555
4,153
185,132
20,894
37,882
100,824
28,713
774,912
144,722
128,001
33,156
14,595
1,095,386
(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 months maturity band to reflect their earliest possible maturity.
Our businessPerformance overview Corporate responsibility Corporate governanceDirectors’ reportOther informationCommonwealth Bank of AustraliaAnnual Report 2017Financial report6213457 170
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3
Notes to the financial statements
Note 34 Liquidity and Funding Risk (continued)
Maturity Analysis of Monetary Liabilities (continued)
Maturity Period as at 30 June 2016
Group
Monetary liabilities
Deposits and other public borrowings (1)
Payables due to other financial institutions
Liabilities at fair value through Income Statement
Derivative financial instruments:
Held for trading
Held for hedging purposes (net-settled)
Held for hedging purposes (gross-settled):
Outflows
Inflows
Bank acceptances
Insurance policy liabilities
Debt issues and loan capital
Managed funds units on issue
Other monetary liabilities
Total monetary liabilities
Guarantees (2)
Loan commitments (2)
Other commitments (2)
Total off Balance Sheet items
Total monetary liabilities and off Balance Sheet
items
Monetary liabilities
Deposits and other public borrowings (1)
Payables due to other financial institutions
Liabilities at fair value through Income Statement
Derivative financial instruments:
Held for trading
Held for hedging purposes (net-settled)
Held for hedging purposes (gross-settled):
Outflows
Inflows
Bank acceptances
Debt issues and loan capital
Due to controlled entities
Other monetary liabilities
Total monetary liabilities
Guarantees (2)
Loan commitments (2)
Other commitments (2)
Total off Balance Sheet items
Total monetary liabilities and off Balance Sheet
items
Over 5
Not
Years
Specified
$M
$M
1 to 5
Years
$M
20,773
3
1,247
-
1,889
561
-
1,209
-
2,729
35,336
(32,938)
22,289
(20,982)
-
-
-
-
Total
$M
589,408
28,795
10,308
27,959
4,622
83,507
(77,263)
1,431
12,636
-
-
-
-
-
-
-
-
12,636
0 to 3
Months
$M
492,838
27,247
6,128
27,959
(510)
3,431
(3,271)
1,378
-
19,059
-
4,657
3 to 12
Months
$M
75,236
1,545
1,724
-
514
22,451
(20,072)
53
-
46,358
-
1,445
82,969
32,358
-
180,744
-
88
-
4
1,606
13
1,606
6,207
578,916
129,254
109,367
38,168
14,255
869,960
6,216
170,742
5,512
182,470
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
6,216
170,742
5,512
182,470
761,386
129,254
109,367
38,168
14,255
1,052,430
Maturity Period as at 30 June 2017
Bank
Over 5
Not
Years
Specified
$M
$M
0 to 3
Months
$M
471,711
24,113
4,899
21,050
51
3,683
(3,042)
205
17,155
6,273
5,935
3 to 12
Months
$M
83,962
3,964
1,437
-
105
5,385
(4,629)
258
31,674
5,877
2,091
1 to 5
Years
$M
16,997
-
1,168
-
1,348
71,013
(65,902)
-
80,618
23,743
120
88
-
1,682
-
1,201
24,902
(22,973)
-
24,344
55,329
9
552,033
130,124
129,105
84,582
7,037
158,567
3,944
169,548
-
-
-
-
-
-
-
-
-
-
-
-
721,581
130,124
129,105
84,582
Total
$M
572,758
28,077
9,186
21,050
2,705
104,983
(96,546)
463
153,791
91,222
8,155
895,844
7,037
158,567
3,944
169,548
1,065,392
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(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 and Bank.
(2) All off Balance Sheet items are included in the 0 to 3 months maturity band to reflect their earliest possible maturity.
Notes to the financial statements
171
171
Note 34 Liquidity and Funding Risk (continued)
Maturity Analysis of Monetary Liabilities (continued)
Maturity Period as at 30 June 2016
Bank
Monetary liabilities
Deposits and other public borrowings (1)
Payables due to other financial institutions
Liabilities at fair value through Income Statement
Derivative financial instruments:
Held for trading
Held for hedging purposes (net-settled)
Held for hedging purposes (gross-settled):
Outflows
Inflows
Bank acceptances
Debt issues and loan capital
Due to controlled entities
Other monetary liabilities
Total monetary liabilities
Guarantees (2)
Loan commitments (2)
Other commitments (2)
Total off Balance Sheet items
Total monetary liabilities and off Balance Sheet
items
Over 5
Not
Years
Specified
$M
$M
0 to 3
Months
$M
456,306
26,804
3,844
27,672
(604)
3,143
(2,906)
1,359
16,495
6,681
4,442
3 to 12
Months
$M
63,101
1,545
1,151
-
327
26,209
(22,059)
54
41,229
6,365
4,688
1 to 5
Years
$M
17,641
3
1,247
-
1,620
40,622
(36,762)
-
65,816
24,266
56
180
-
1,210
-
2,813
35,132
(31,333)
-
27,965
92,735
2
543,236
122,610
114,509
128,704
5,873
155,446
4,868
166,187
-
-
-
-
-
-
-
-
-
-
-
-
709,423
122,610
114,509
128,704
Total
$M
537,228
28,352
7,452
27,672
4,156
105,106
(93,060)
1,413
151,505
130,047
9,193
909,064
5,873
155,446
4,868
166,187
1,075,251
-
-
-
-
-
-
-
-
-
-
5
5
-
-
-
-
5
(1)
Includes deposits that are contractually at call, customer savings and cheque accounts. Historical experience is that such accounts provide a stable source
of long-term funding for the Bank.
(2) All off Balance Sheet items are included in the 0 to 3 months maturity band to reflect their earliest possible maturity.
Note 35 Retirement Benefit Obligations
Name of Plan
Type
Form of Benefit
Date of Last Actuarial
Assessment of the Fund
Commonwealth Bank Group
Super
Defined Benefits (1)
and Accumulation
Indexed pension and lump sum
30 June 2015
Commonwealth Bank of
Australia (UK) Staff Benefits
Scheme (CBA (UK) SBS)
Defined Benefits (1)
Indexed pension and lump sum
30 June 2013 (2)
and Accumulation
(1) The defined benefit formulae are generally comprised of final salary, or final average salary, and service.
(2) The actuarial assessment of the Fund at 30 June 2016 is due to be finalised by September 2017. Demographic assumptions approved for the 30 June
2016 actuarial assessment have been applied in the 30 June 2017 valuation.
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 2015 showed Commonwealth Bank Group Super remained in funding surplus. The Bank
agreed to continue contributions of $20 million per month to the plan. 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 ($105 million).
The Bank agreed to continue the deficit recovery contributions of GBP15 million per annum ($25 million) until 31 December 2017
to CBA (UK) SBS in addition to the regular GBP3 million per annum ($5 million) contributions for future defined benefit accruals.
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172
172
3
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 2018 are $240 million and GBP10 million ($17 million) respectively.
Defined Benefit Superannuation Plans
The amounts reported in the Balance Sheet are reconciled as follows:
Commonwealth Bank
Group Super
CBA(UK)SBS
2017
$M
(656)
645
(11)
-
(11)
(11)
(7)
(1)
-
(8)
(656)
(7)
(18)
-
41
(84)
(4)
32
40
2016
$M
(656)
605
(51)
-
(51)
(51)
(6)
(2)
-
(8)
(672)
(6)
(24)
-
-
(57)
(9)
27
85
2017
$M
(3,566)
3,981
415
426
(11)
415
(45)
5
(275)
(315)
Total
2016
$M
(3,770)
3,980
210
261
(51)
210
(40)
7
(266)
(299)
(3,770)
(3,856)
(45)
(123)
(7)
41
91
(13)
220
40
(40)
(168)
(7)
321
(325)
(17)
237
85
Present value of funded obligations
Fair value of plan assets
Net pension assets/(liabilities) as at 30 June
Amounts in the Balance Sheet:
Assets (Note 16)
Liabilities (Note 21)
Net assets/(liabilities)
The amounts recognised in the Income Statement are
as follows:
Current service cost
Net interest income/(expense)
Employer financed benefits within accumulation
division (1)
Total included in superannuation plan
expense
Changes in the present value of the defined benefit
obligation are as follows:
2017
$M
(2,910)
3,336
426
426
-
426
(38)
6
(275)
(307)
2016
$M
(3,114)
3,375
261
261
-
261
(34)
9
(266)
(291)
Opening defined benefit obligation
(3,114)
(3,184)
(38)
(105)
(7)
-
175
(9)
188
-
(34)
(144)
(7)
321
(268)
(8)
210
-
Current service cost
Interest cost
Member contributions
Actuarial gains/(losses) from changes in demographic
assumptions
Actuarial gains/(losses) from changes in financial
assumptions
Actuarial gains/(losses) from changes in other
assumptions
Payments from the plan
Exchange differences on foreign plans
Closing defined benefit obligation
Changes in the fair value of plan assets are as follows:
Opening fair value of plan assets
Interest income
Return on plan assets (excluding interest income)
Member contributions
Employer contributions
Employer financed benefits within accumulation
division
Payments from the plan
Exchange differences on foreign plans
Closing fair value of plan assets
(2,910)
(3,114)
(656)
(656)
(3,566)
(3,770)
3,375
111
66
7
240
(275)
(188)
-
3,336
3,460
153
(9)
7
240
(266)
(210)
-
3,375
605
17
63
-
29
-
(32)
(37)
645
615
3,980
23
37
-
36
-
(27)
(79)
605
128
129
7
269
(275)
(220)
(37)
3,981
4,075
176
28
7
276
(266)
(237)
(79)
3,980
(1) Represents superannuation contributions required by the Bank to meet its obligations to members of the defined contribution division of Commonwealth
Bank Group Super.
Notes to the financial statements
173
173
Note 35 Retirement Benefit Obligations (continued)
Economic Assumptions
Economic assumptions
The above calculations were based on the following assumptions:
Discount rate
Inflation rate
Rate of increases in salary
Commonwealth Bank
Group Super
CBA(UK)SBS
2017
%
4. 20
2. 00
3. 00
2016
%
3. 40
1. 60
2. 60
2017
%
2. 60
3. 50
4. 50
2016
%
3. 00
3. 10
4. 10
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:
Expected life expectancies for pensioners
Male pensioners currently aged 60
Male pensioners currently aged 65
Female pensioners currently aged 60
Female pensioners currently aged 65
Sensitivity to Changes in Assumptions
Commonwealth Bank
Group Super
CBA(UK)SBS
2017
2016
2017
2016
Years
Years
Years
Years
28. 7
23. 7
33. 0
28. 0
28. 6
23. 6
33. 0
27. 9
27. 8
23. 0
29. 7
24. 9
28. 7
23. 8
31. 2
26. 2
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:
Impact of change in assumptions on liabilities
0.25% decrease in discount rate
0.25% increase in inflation rate
0.25% increase to the rate of increases in salary
Longevity increase of 1 year
Average Duration
The average duration of defined benefit obligation at 30 June is as follows:
Average duration at balance date
Risk Management
Commonwealth Bank
Group Super CBA(UK)SBS
2017
2017
%
3. 30
2. 60
0. 50
4. 40
%
5. 10
3. 50
0. 50
3. 90
Commonwealth Bank
Group Super CBA(UK)SBS
2017
Years
12
2017
Years
19
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 42% growth and 58% 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 rate swaps.
Our businessPerformance overview Corporate responsibility Corporate governanceDirectors’ reportOther informationCommonwealth Bank of AustraliaAnnual Report 2017Financial report6213457 174
174
3
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:
Asset allocations
Cash
Equities - Australian (1)
Equities - Overseas (1)
Bonds - Commonwealth Government (1)
Bonds - Semi-Government (1)
Bonds - Corporate and other (1)
Real Estate (2)
Derivatives (2)
Other (3)
Total fair value of plan assets
2017
2016
Fair value
% of plan
Fair value
% of plan
Commonwealth Bank Group Super
($M)
asset
144
307
520
648
1,107
62
367
(18)
199
3,336
4. 3
9. 2
15. 6
19. 4
33. 2
1. 9
11. 0
(0. 6)
6. 0
100. 0
($M)
108
311
431
670
1,150
122
214
(14)
383
3,375
asset
3. 2
9. 2
12. 8
19. 9
34. 1
3. 6
6. 3
(0. 4)
11. 3
100. 0
(1) Values based on prices or yields quoted in an active market.
(2) Values based on non-quoted information.
(3) These are alternative investments which are not included in the traditional asset classes of equities, fixed interest securities, real estate and cash. They
include multi-asset investments, liquid alternative investments and hedge funds.
The Australian equities fair value includes $20 million of Commonwealth Bank shares. The real estate fair value includes
$2 million of property assets leased to the Bank. The bonds – corporate and other fair value includes $1 million of Commonwealth
Bank debt securities.
Note 36 Investments in Subsidiaries and Other Entities
Subsidiaries
The key subsidiaries of the Bank are:
Entity Name
Australia
(a) Banking
CBA Covered Bond Trust
Commonwealth Securities Limited
Medallion Trust Series 2008-1R
Medallion Trust Series 2011-1
Medallion Trust Series 2013-1
Medallion Trust Series 2013-2
Medallion Trust Series 2014-1
Medallion Trust Series 2014-2
(b) Insurance and Funds Management
Capital 121 Pty Limited
Colonial Holding Company Limited
Commonwealth Insurance Holdings Limited
Entity Name
Medallion Trust Series 2015-1
Medallion Trust Series 2015-2
Medallion Trust Series 2016-1
Medallion Trust Series 2016-2
Medallion Trust Series 2017-1
Medallion Trust Series 2017-1P
Residential Mortgage Group Pty Ltd
Series 2008-1D SWAN Trust
Commonwealth Insurance Limited
The Colonial Mutual Life Assurance Society Limited
All the above subsidiaries are 100% owned and incorporated in Australia.
Notes to the financial statements
175
175
Note 36 Investments in Subsidiaries and Other Entities (continued)
Subsidiaries (continued)
Entity Name
New Zealand and Other Overseas
(a) Banking
ASB Bank Limited
ASB Covered Bond Trust
ASB Finance Limited
ASB Holdings Limited
ASB Term Fund
CommBank Europe Limited
Medallion NZ Series Trust 2009-1R
PT Bank Commonwealth
(b) Insurance and Funds Management
ASB Group (Life) Limited
PT Commonwealth Life
Sovereign Assurance Company Limited
Extent of Beneficial
Interest if not 100%
Incorporated in
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
Malta
New Zealand
Indonesia
New Zealand
Indonesia
New Zealand
99%
80%
The Group also consolidates a number of unit trusts and other companies 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
Shareholders' Equity
Total non-controlling interests
2017
$M
546
546
Group
2016
$M
550
550
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.
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3
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
There were no individually significant investments in associates or joint ventures held by the Group as at 30 June 2017 and
30 June 2016. 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.
AHL Holdings Pty Limited (1)
Bank of Hangzhou Co., Ltd
BoCommLife Insurance Company Limited
First State European Diversified Infrastructure
Fund FCP-SIF
Qilu Bank Co., Ltd
Vietnam International Commercial Joint Stock
Bank
Other
Carrying amount of investments in
associates and joint ventures
Group
2017
2016
2017
2016
$M
288
1,412
151
116
445
186
180
Ownership Ownership
Principal
Country of Balance
$M Interest % Interest %
Activities Incorporation
Date
272
1,405
174
110
444
192
179
80
18
38
3
20
20
80
Mortgage Broking
Australia
20 Commercial Banking
Insurance
38
China
China
30-Jun
31-Dec
31-Dec
4
Funds Management
Luxembourg
31-Dec
20 Commercial Banking
China
31-Dec
20
Financial Services
Vietnam
31-Dec
Various
Various
Various
Various
Various
2,778
2,776
(1) The Group’s 80% interest in AHL Holdings Pty Limited (trading as Aussie Home Loans) is jointly controlled as the key financial and operating decisions
require the unanimous consent of all directors. AHL Holdings 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 $292 million (2016: $280 million).
Share of Associates' and Joint Ventures profits
Operating profits before income tax
Income tax expense
Operating profits after income tax (1)
2017
$M
373
(81)
292
Group
2016
$M
367
(78)
289
(1) This amount is recognised within Note 2 in the share of profits of associates and joint ventures net of impairment.
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, Medallion NZ and Swan structured entities. The liquidity 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 facilities
limit is $773 million (2016: $1,118 million).
The Group has no contractual obligations to purchase assets from its securitisation structured entities.
Notes to the financial statements
177
177
Note 36 Investments in Subsidiaries and Other Entities (continued)
Consolidated Structured Entities (continued)
Covered Bonds Trust
The Group provides funding and support facilities to CBA Covered Bond Trust and ASB Covered Bond Trust (the ‘Trusts’). The
Trusts are bankruptcy remote SPVs that guarantee any debt obligations owing under the US$30 billion CBA Covered Bond
Programme and the EUR7 billion ASB Covered Bond Programme, respectively. The funding facilities allow the Trusts to hold
sufficient residential mortgage loans to support the guarantees provided to the Covered Bonds. The Group also provides various
swaps to the Trusts to hedge any interest rate and currency mismatches. The Group, either directly or via its wholly owned
subsidiaries, Securitisation Advisory Services Pty Limited and Securitisation Management Services Limited, provides various
services to the Trusts 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.
During the year ended 30 June 2017, the Bank entered into a debt forgiveness arrangement with two wholly owned structured
entities for the total of $11 million (2016: $69 million). The financial impact of the debt forgiveness was fully eliminated on
consolidation.
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
Group’s 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.
Exposures to unconsolidated
structured entities
Assets at fair value through income statement - trading
Available-for-sale investments
Loans, bills discounted and other receivables
Other assets
Total on Balance Sheet exposures
Total notional amounts of off Balance Sheet exposures (1)
Total maximum exposure to loss
Total assets of the entities (2)
Other
Investment
2017
RMBS
ABS
Financing
Funds
Total
$M
10
6,824
2,573
-
9,407
1,348
10,755
62,805
$M
-
701
1,589
-
2,290
1,658
3,948
19,017
$M
-
-
2,589
-
2,589
668
3,257
9,736
$M
828
212
7,410
133
8,583
5,837
14,420
325,941
$M
838
7,737
14,161
133
22,869
9,511
32,380
417,499
(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 $10.7 billion.
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178
3
Notes to the financial statements
Note 36 Investments in Subsidiaries and Other Entities (continued)
Unconsolidated Structured Entities (continued)
Exposures to unconsolidated
structured entities
Assets at fair value through income statement - trading
Available-for-sale investments
Loans, bills discounted and other receivables
Other assets
Total on Balance Sheet exposures
Total notional amounts of off Balance Sheet exposures (1)
Total maximum exposure to loss
Total assets of the entities (2)
RMBS
ABS
Financing
Funds
Other
Investment
$M
5
7,123
2,432
-
9,560
1,338
10,898
47,626
$M
-
872
1,606
-
2,478
543
3,021
15,066
$M
-
-
2,627
-
2,627
501
3,128
9,967
$M
1,078
205
9,861
123
11,267
3,915
15,182
290,261
362,920
2016
Total
$M
1,083
8,200
16,526
123
25,932
6,297
32,229
(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 $11.2 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.
Ranking and credit rating of exposures
to unconsolidated structured entities
Senior (1)
Mezzanine (2)
Subordinated (3)
Total maximum exposure to loss
RMBS
$M
10,727
13
15
Other
Financing
$M
3,257
-
-
ABS
$M
3,936
12
-
2017
Total
$M
17,920
25
15
10,755
3,948
3,257
17,960
(1) All RMBS and ABS exposures, and $1,776 million of other financing exposures are rated investment grade, $1,481 million of other financing exposures are
sub-investment grade.
(2) All RMBS and ABS exposures are rated investment grade.
(3) All exposures are rated sub-investment grade.
Ranking and credit rating of exposures
to unconsolidated structured entities
Senior (1)
Mezzanine (2)
Subordinated (3)
Total maximum exposure to loss
RMBS
$M
10,853
18
27
Other
Financing
$M
3,128
-
-
ABS
$M
3,008
13
-
2016
Total
$M
16,989
31
27
10,898
3,021
3,128
17,047
(1)
$10,853 million of RMBS exposures, $3,008 million of ABS exposures and $1,522 million of other financing exposures are rated investment grade, the
remaining $1,606 million exposures are rated sub-investment grade.
(2) All RMBS and ABS exposures are rated 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 2017, the Group 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), was the manager of SHIELD and SHIELD was the trustee of SHIELD Trust
No. 2. The Group deregistered SHIELD and wound up SHIELD Trust No. 2 during the year ended 30 June 2017.
There was no significant income earned or expense incurred directly from these entities during the year ended 30 June 2017.
There were no assets transferred by all parties to the sponsored entities during the year ended 30 June 2017.
Notes to the financial statements
179
179
Note 37 Key Management Personnel
Detailed remuneration disclosures by Key Management Personnel are provided in the Remuneration Report of the Directors’
Report on pages 63 to 81 and have been audited.
Key management personnel compensation
Short-term benefits
Post-employment benefits
Long-term benefits (1)
Share-based payments (1)
Total
2017
$'000
18,167
438
359
15,966
34,930
Group
2016
$'000
34,707
457
562
12,815
48,541
2017
$'000
18,167
438
359
15,966
34,930
Bank
2016
$'000
34,707
457
562
12,815
48,541
(1) 2016 comparatives have been restated to reflect a disclosure methodology change where Deferred Rights are included in share-based payments instead
of long-term benefits.
Shareholdings
Details of the aggregate shareholdings of Key Management Personnel are set out below.
Previous
Acquired/
Years
Net
Non-Executive Directors
Executives (7)
Class (1)
Ordinary (5) (6)
PERLS
Ordinary (6)
LTVR - Reward Rights
Deferred Rights
Balance
Granted as
1 July 2016 Remuneration
Awards
Vested (2)
Change
Other (3) 30 June 2017
Balance
(4)
201,155
9,830
601,430
1,137,718
26,633
1,784
3,094
-
295,725
23,086
-
-
-
(53,434)
(22,012)
(31,246)
(1,854)
(95,729)
(350,389)
-
171,693
11,070
505,701
1,029,620
27,707
(1) LTVR Reward Rights represent rights granted under the GLRP which are subject to performance hurdles. Deferred Rights represent the deferred STVR
awarded under Executive General Manager arrangements, sign-on and retention awards received as rights. PERLS include cumulative holdings of all
PERLS securities issued by the Group.
(2) LTVR Reward Rights and Deferred 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 in the financial year.
(3) Net Change Other incorporates changes resulting from purchases, sales, forfeitures, appointments and retirement of Non-Executive Directors and
Executives during the financial year.
(4) 30 June 2017 balances represent aggregate shareholdings of all Key Management Personnel at balance date.
(5) Non-Executive Directors who hold fewer than 5,000 Commonwealth Bank shares are required to receive 20% of their total after-tax base fees as CBA
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 balance has been restated to include a correction to CBA ordinary shares.
(7) David Craig holds 28,150 PERLS. Anna Lenahan holds 2,000 Capital Notes.
Loans to Key Management Personnel
All loans to Key Management Personnel (including close family members or entities controlled, jointly controlled, or significantly
influenced by them, or any entity over which any of those family members or entities held significant voting power) have been
made in the ordinary course of business on normal commercial terms and conditions no more favourable than those given to
other employees and customers, 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.
Details of aggregate loans to Key Management Personnel are set out below:
Loans
Interest Charged
(1) Comparatives have been restated to align to actual balances.
Other transactions of Key Management Personnel
2017
$'000
12,145
406
2016
(1)
$'000
11,330
460
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 normal commercial terms and conditions no more favourable than those given to other
employees and customers.
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.
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180
180
3
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.
Shares in controlled entities
Loans to controlled entities
Total shares in and loans to controlled entities
2017
$M
10,572
90,765
101,337
Bank
2016
$M
11,720
134,233
145,953
The Group also receives fees on an arm’s length basis of $53 million (2016: $49 million) from funds classified as associates.
The Bank provides letters of comfort to other entities within the Group on standard terms. Guarantees include a $50 million
(2016: $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(r). The amount
receivable by the Bank under the tax funding agreement with the tax consolidated entities is $302 million as at 30 June 2017
(2016: $213 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.
Notes to the financial statements
181
181
Note 39 Notes to the Statements of Cash Flows
(a) Reconciliation of Net Profit after Income Tax to Net Cash (used in)/provided by Operating Activities
Net profit after income tax (1)
(Increase)/decrease in interest receivable
(Decrease)/increase in interest payable
Net decrease/(increase) in assets at fair value through Income
Statement (excluding life insurance)
Net gain on sale of controlled entities and associates
Net gain on sale of investments
Net movement in derivative assets/liabilities
Net (gain)/loss on sale of property, plant and equipment
Equity accounting profit
Loan impairment expense
Depreciation and amortisation (including asset write downs)
Increase in liabilities at fair value through Income Statement
(excluding life insurance)
Increase/(decrease) in other provisions
Increase/(decrease) in income taxes payable
Decrease in deferred tax liabilities
(Increase)/decrease in deferred tax assets (1)
(Increase)/decrease in accrued fees/reimbursements receivable
Increase/(decrease) in accrued fees and other items payable (1)
Decrease in life insurance contract policy liabilities
Cash flow hedge ineffectiveness
Loss/(gain) on changes in fair value of hedged items
Dividend received - controlled entities
Changes in operating assets and liabilities arising from cash flow
movements
Other (1)
Net cash (used in)/provided by operating activities
2017
$M
9,952
(14)
(26)
2016
$M
9,243
(148)
(312)
Group
2015
$M
9,074
3
14
2017
$M
8,979
21
(5)
Bank
2016
$M
8,639
(130)
(295)
2,788
(8,538)
(5,490)
3,372
(8,787)
-
-
(21)
-
(3,509)
6,288
(2)
-
(492)
(6)
(292)
1,095
1,229
121
114
603
(14)
(573)
(238)
18
(1,240)
(20)
799
-
(15,228)
619
(807)
-
-
5,988
21
(289)
1,256
857
1,651
(78)
486
(162)
66
137
(150)
(991)
5
(642)
-
(13,640)
679
(4,561)
(13)
-
6,180
8
(268)
988
803
975
354
(32)
(15)
131
66
349
(1,133)
20
(493)
-
(4,658)
320
7,183
3
-
1,040
1,035
1,550
113
570
-
(587)
20
(62)
-
3
1,829
(1,200)
(14,907)
552
(1,183)
(1) Comparative information has been restated to reflect the change in accounting policy detailed in Note 1.
(b) Reconciliation of Cash
For the purposes of the Statements of Cash Flows, cash includes cash and money at short call.
Notes, coins and cash at banks
Other short-term liquid assets
Cash and cash equivalents at end of year
(c) Non-cash Financing and Investing Activities
2017
$M
14,635
8,482
23,117
2016
$M
12,103
2,344
14,447
Group
2015
$M
15,683
3,587
19,270
2017
$M
12,707
8,242
20,949
Shares issued under the Dividend Reinvestment Plan (1)
2017
$M
1,143
2016
$M
1,209
(1) No part of the Dividend Reinvestment Plan paid out in the 2017 financial year was satisfied through the on-market purchase and transfer of shares to
participating shareholders (2016: nil and 2015: $704 million)
(d) Acquisition of Controlled Entities
On 2 December 2016, 100% of the contributed equity of Water Utilities Australia Limited was purchased for $32 million. On 20
April 2016, 100% of the contributed equity of Vector Gas Limited was purchased for NZ$952.5 million and renamed to First Gas
Limited (FGL). The acquisitions occurred via the Global Diversified Infrastructure Fund (GDIF), which is partly owned by the
Group’s life insurance business.
The investment in GDIF is used to back life insurance policy liabilities, the majority of which are investment-linked contracts where
the returns to policyholders are linked to GDIF’s overall returns. Notwithstanding this, GDIF and consequently FGL, have been
consolidated due to the overall equity ownership in GDIF.
15
-
1,153
666
123
(13)
181
-
(22)
(10)
(67)
-
(5)
(1,369)
(1,462)
(11,367)
1,020
(5,463)
Bank
2016
$M
10,809
2,100
12,909
Group
2015
$M
571
Our businessPerformance overview Corporate responsibility Corporate governanceDirectors’ reportOther informationCommonwealth Bank of AustraliaAnnual Report 2017Financial report6213457 182
182
3
Notes to the financial statements
Note 39 Notes to the Statements of Cash Flows (continued)
FGL is the owner and operator of gas transmission and distribution networks within New Zealand.
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:
Net identifiable assets at fair value
Add: Goodwill
Purchase consideration transferred
Less: Cash and cash equivalents acquired
Less: Contingent consideration
Net cash outflow on acquisition
2017
$M (1)
16
16
32
(1)
31
-
31
2016
$M (2)
553
304
857
-
857
-
857
Group
2015
$M
(2)
43
41
-
41
(12)
29
(1) As the purchase price allocation is ongoing, the provisional fair value of net identifiable assets has been disclosed in accordance with Australian
(2)
Accounting Standards.
In the current financial year, upon completion of purchase price allocation, net identifiable assets at fair value for FGL has been revised to $605 million
and goodwill to $252 million, from provisional amounts disclosed in the prior year.
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. Fair value of uncollateralised derivative assets and uncollateralised
derivative liabilities incorporate funding valuation adjustments (FVA) to reflect funding costs and benefits to the Group. 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.
Notes to the financial statements
183
183
Note 40 Disclosures about Fair Values (continued)
Valuation Technique Using Significant Unobservable Inputs – Level 3
This category includes assets and liabilities where the valuation 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 assets backing insurance liabilities held through
infrastructure funds, certain exotic OTC derivatives and certain asset-backed securities valued using unobservable inputs.
(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 tables below:
Fair Value as at 30 June 2017
Fair Value as at 30 June 2016
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
$M
$M
$M
$M
$M
$M
$M
$M
Group
Financial assets measured at fair value on a
recurring basis
Assets at fair value through Income Statement:
Trading
Insurance
Other
Derivative assets
Available-for-sale investments
Bills Discounted
24,657
3,519
51
63
75,050
7,486
8,047
8,620
1,060
31,594
8,346
-
-
1,530
-
67
139
-
32,704
13,669
1,111
31,724
83,535
7,486
23,180
10,887
4,014
43
16
71,244
10,507
9,533
1,437
46,491
9,353
-
-
-
-
60
301
-
34,067
13,547
1,480
46,567
80,898
10,507
Total financial assets measured at fair value
110,826
57,667
1,736
170,229
109,004
77,701
361
187,066
Financial liabilities measured at fair value
on a recurring basis
Liabilities at fair value through Income Statement
Derivative liabilities
Life investment contracts
Total financial liabilities measured at fair
value
2,525
192
-
7,867
30,036
7,374
2,717
45,277
-
102
565
667
10,392
30,330
7,939
2,749
38
-
7,543
39,819
8,582
48,661
2,787
55,944
-
64
-
64
10,292
39,921
8,582
58,795
Bank
Fair Value as at 30 June 2017
Fair Value as at 30 June 2016
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
$M
$M
$M
$M
$M
$M
$M
$M
Financial assets measured at fair value on a
recurring basis
Assets at fair value through Income Statement:
Trading
Other
Derivative assets
Available-for-sale investments
Bills Discounted
23,866
-
55
71,206
7,486
7,261
796
31,972
7,674
-
-
-
67
139
-
31,127
796
32,094
79,019
7,486
22,731
10,254
-
16
68,190
10,507
1,187
46,449
7,870
-
-
-
60
301
-
32,985
1,187
46,525
76,361
10,507
Total financial assets measured at fair value
102,613
47,703
206
150,522
101,444
65,760
361
167,565
Financial liabilities measured at fair value
on a recurring basis
Liabilities at fair value through Income Statement
Derivative liabilities
Total financial liabilities measured at fair
value
2,525
192
6,464
31,878
2,717
38,342
-
103
103
8,989
32,173
2,749
4,692
33
43,781
41,162
2,782
48,473
-
70
70
7,441
43,884
51,325
Our businessPerformance overview Corporate responsibility Corporate governanceDirectors’ reportOther informationCommonwealth Bank of AustraliaAnnual Report 2017Financial report6213457 184
184
3
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 2017, the Group reclassified $752 million of available-for-sale securities (30 June 2016:
$547 million) from Level 2 to Level 1. The Group also had insurance assets reclassifications of $488 million (30 June 2016:
$628 million) from Level 1 to Level 2. There were $20 million trading security reclassifications (30 June 2016: nil) from Level 2 to
Level 1, due to changes in the observability of inputs. The tables below summarise movements in Level 3 balance during the
year. Transfers have been reflected as if they had taken place at the end of the reporting periods. Transfers in and out of level 3
were due to changes in the observability of inputs.
Level 3 Movement Analysis for the year ended 30 June 2017
As at 1 July 2015
Purchases
Sales/Settlements
Gains/(losses) in the period:
Recognised in the Income Statement
Recognised in the Statement of Comprehensive Income
Transfers in
Transfers out
As at 30 June 2016
Gains/(losses) recognised in the Income Statement for
financial instruments held as at 30 June 2016
As at 1 July 2016
Purchases
Sales/Settlements
Gains/(losses) in the period:
Recognised in the Income Statement
Recognised in the Statement of Comprehensive Income
Transfers in
Transfers out
As at 30 June 2017
Gains/(losses) recognised in the Income Statement for
financial instruments held as at 30 June 2017
Financial Assets
Financial Liabilities
Available
Life
Insurance
Derivative
for Sale
Derivative Investment
Assets
Assets Investments
Liabilities
Contracts
Group
$M
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,530
-
1,530
-
$M
80
13
-
(33)
-
-
-
60
-
60
3
-
(4)
-
8
-
67
(4)
$M
115
4
(104)
(2)
-
305
(17)
301
1
301
-
(160)
-
(2)
-
-
139
-
$M
(23)
-
(46)
5
-
-
-
(64)
-
(64)
-
29
6
-
(73)
-
(102)
$M
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(565)
-
(565)
6
-
The valuation of insurance assets directly impacts the life investment contracts they are backing. The Group’s exposure to other
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,
changes in fair value assumptions on all these instruments due to size or backing by policy holder funds generally have minimal
impact on the Group’s Income Statement and Shareholders’ Equity.
Notes to the financial statements
185
Note 40 Disclosures about Fair Values (continued)
Level 3 Movement Analysis for the year ended 30 June 2017 (continued)
Gains/(losses) in the period:
Recognised in the Income Statement
Recognised in the Statement of Comprehensive Income
As at 1 July 2015
Purchases
Sales/Settlements
Transfers in
Transfers out
As at 30 June 2016
As at 1 July 2016
Purchases
Sales/Settlements
Transfers in
Transfers out
As at 30 June 2017
Gains/(losses) recognised in the Income Statement for financial
instruments held as at 30 June 2016
Gains/(losses) in the period:
Recognised in the Income Statement
Recognised in the Statement of Comprehensive Income
Gains/(losses) recognised in the Income Statement for financial
instruments held as at 30 June 2017
Bank
Financial
Liabilities
Financial Assets
Available
Derivative
for Sale
Derivative
Assets
Investments
Liabilities
$M
80
14
(34)
60
60
-
-
-
-
-
3
-
-
8
-
(4)
67
(4)
$M
115
4
(104)
(2)
-
305
(17)
301
1
301
(160)
(2)
139
-
-
-
-
-
$M
(25)
(46)
(70)
(70)
32
-
1
-
-
-
-
-
8
-
-
8
(73)
(103)
Notes to the financial statements
Notes to the financial statements
185
185
185
Note 40 Disclosures about Fair Values (continued)
Note 40 Disclosures about Fair Values (continued)
Level 3 Movement Analysis for the year ended 30 June 2017 (continued)
Level 3 Movement Analysis for the year ended 30 June 2017 (continued)
As at 1 July 2015
Purchases
As at 1 July 2015
Purchases
Sales/Settlements
Sales/Settlements
Gains/(losses) in the period:
Gains/(losses) in the period:
Recognised in the Income Statement
Recognised in the Income Statement
Recognised in the Statement of Comprehensive Income
Recognised in the Statement of Comprehensive Income
Transfers in
Transfers in
Transfers out
Transfers out
As at 30 June 2016
As at 30 June 2016
Gains/(losses) recognised in the Income Statement for financial
instruments held as at 30 June 2016
Gains/(losses) recognised in the Income Statement for financial
instruments held as at 30 June 2016
As at 1 July 2016
Purchases
As at 1 July 2016
Purchases
Sales/Settlements
Sales/Settlements
Gains/(losses) in the period:
Gains/(losses) in the period:
Recognised in the Income Statement
Recognised in the Income Statement
Recognised in the Statement of Comprehensive Income
Recognised in the Statement of Comprehensive Income
Transfers in
Transfers in
Transfers out
Transfers out
As at 30 June 2017
As at 30 June 2017
Gains/(losses) recognised in the Income Statement for financial
instruments held as at 30 June 2017
Gains/(losses) recognised in the Income Statement for financial
instruments held as at 30 June 2017
Financial Assets
Financial Assets
Available
Available
Bank
Bank
Financial
Financial
Liabilities
Liabilities
Derivative
Derivative
for Sale
for Sale
Derivative
Derivative
Assets
Assets
Investments
Investments
Liabilities
Liabilities
$M
$M
80
80
14
14
-
-
(34)
(34)
-
-
-
-
-
-
60
60
-
-
60
60
3
3
-
-
(4)
(4)
-
-
8
8
-
-
67
67
(4)
(4)
$M
$M
115
115
4
4
(104)
(104)
(2)
(2)
-
-
305
305
(17)
(17)
301
301
1
1
301
301
-
-
(160)
(160)
-
-
(2)
(2)
-
-
-
-
139
139
$M
$M
(25)
(25)
-
-
(46)
(46)
1
1
-
-
-
-
-
-
(70)
(70)
-
-
(70)
(70)
-
-
32
32
8
8
-
-
(73)
(73)
-
-
(103)
(103)
-
-
8
8
Our businessPerformance overview Corporate responsibility Corporate governanceDirectors’ reportOther informationCommonwealth Bank of AustraliaAnnual Report 2017Financial report6213457 186
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3
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 2017 are presented below:
Financial assets not measured at fair value on a
recurring basis
Cash and liquid assets
Receivables due from other financial institutions
Loans and other receivables
Bank acceptances of customers
Other assets
Total financial assets
Financial liabilities not measured at fair value on a
recurring basis
Deposits and other public borrowings
Payables due to other financial institutions
Bank acceptances
Debt issues
Managed funds units on issue
Bills payable and other liabilities
Loan capital
Total financial liabilities
Financial guarantees, loan commitments
and other off Balance Sheet instruments
Financial assets not measured at fair value on a
recurring basis
Cash and liquid assets
Receivables due from other financial institutions
Loans and other receivables
Bank acceptances of customers
Other assets
Total financial assets
Financial liabilities not measured at fair value on a
recurring basis
Deposits and other public borrowings
Payables due to other financial institutions
Bank acceptances
Debt issues
Managed funds units on issue
Bills payable and other liabilities (1)
Loan capital
Total financial liabilities
Financial guarantees, loan commitments
and other off Balance Sheet instruments
Group
30 June 2017
Fair value
Level 1
Level 2
Level 3
$M
$M
$M
Total
$M
23,117
-
-
463
2,371
25,951
-
-
463
-
1,547
2,795
8,278
13,083
22,733
10,037
-
-
3,655
36,425
626,924
28,432
-
167,752
1,030
6,690
10,428
841,256
-
-
724,271
-
-
45,850
10,037
724,271
463
6,026
724,271
786,647
-
-
-
-
-
-
-
-
626,924
28,432
463
167,752
2,577
9,485
18,706
854,339
-
-
182,999
182,999
Group
30 June 2016
Fair value
Level 1
Level 2
Level 3
$M
$M
$M
Total
$M
14,447
-
-
1,431
2,177
18,055
-
-
1,431
-
1,400
1,414
6,151
8,925
11,591
-
-
3,422
23,938
588,405
28,771
-
161,049
206
6,199
8,950
10,396
793,580
-
-
685,341
-
-
23,372
11,591
685,341
1,431
5,599
685,341
727,334
-
-
-
-
-
-
-
-
588,405
28,771
1,431
161,049
1,606
7,613
15,101
803,976
-
-
179,902
179,902
Carrying
value
Total
$M
45,850
10,037
724,276
463
6,026
786,652
626,655
28,432
463
167,571
2,577
9,485
18,726
853,909
182,999
Carrying
value
Total
$M
23,372
11,591
684,891
1,431
5,599
726,884
588,045
28,771
1,431
161,284
1,606
7,613
15,544
804,294
179,902
(1) Comparative information has been restated to reflect the change in accounting policy detailed in Note 1.
Notes to the financial statements
187
187
Note 40 Disclosures about Fair Values (continued)
(d) Fair Value Information for Financial Instruments not measured at Fair Value (continued)
Financial assets not measured at fair value on a
recurring basis
Cash and liquid assets
Receivables due from other financial institutions
Loans and other receivables
Bank acceptances of customers
Loans to controlled entities
Other assets
Total financial assets
Financial liabilities not measured at fair value on a
recurring basis
Deposits and other public borrowings
Payables due to other financial institutions
Bank acceptances
Due to controlled entities
Debt issues
Bills payable and other liabilities
Loan capital
Total financial liabilities
Financial guarantees, loan commitments
and other off Balance Sheet instruments
Financial assets not measured at fair value on a
recurring basis
Cash and liquid assets
Receivables due from other financial institutions
Loans and other receivables
Bank acceptances of customers
Loans to controlled entities
Other assets
Total financial assets
Financial liabilities not measured at fair value on a
recurring basis
Deposits and other public borrowings
Payables due to other financial institutions
Bank acceptances
Due to controlled entities
Debt issues
Bills payable and other liabilities
Loan capital
Total financial liabilities
Financial guarantees, loan commitments
and other off Balance Sheet instruments
Bank
30 June 2017
Fair value
Level 1
Level 2
Level 3
$M
$M
$M
Total
$M
20,949
-
-
463
-
1,833
23,245
-
-
463
-
-
2,297
8,277
11,037
21,865
8,678
-
-
-
3,234
33,777
571,505
28,038
-
-
135,621
5,044
9,642
-
-
640,114
-
90,797
-
730,911
-
-
-
91,222
-
-
-
749,850
91,222
42,814
8,678
640,114
463
90,797
5,067
787,933
571,505
28,038
463
91,222
135,621
7,341
17,919
852,109
-
-
167,415
167,415
Bank
30 June 2016
Fair value
Level 1
Level 2
Level 3
$M
$M
$M
Total
$M
12,909
-
-
1,413
-
1,727
16,049
-
-
1,413
-
-
964
6,155
8,532
-
8,673
10,182
-
-
-
3,274
22,129
536,331
28,328
-
-
134,968
4,571
8,543
-
-
607,899
-
133,567
-
741,466
-
-
-
130,046
-
-
-
712,741
130,046
21,582
10,182
607,899
1,413
133,567
5,001
779,644
536,331
28,328
1,413
130,046
134,968
5,535
14,698
851,319
-
163,619
163,619
Carrying
value
Total
$M
42,814
8,678
640,017
463
90,765
5,067
787,804
571,353
28,038
463
91,222
134,966
7,341
17,959
851,342
167,415
Carrying
value
Total
$M
21,582
10,182
607,412
1,413
134,233
5,001
779,823
536,086
28,328
1,413
130,046
134,214
5,535
15,138
850,760
163,619
Our businessPerformance overview Corporate responsibility Corporate governanceDirectors’ reportOther informationCommonwealth Bank of AustraliaAnnual Report 2017Financial report6213457 188
188
3
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. The Bank’s access to residential mortgages transferred to the SPV are subject to the conditions set out in the transaction
documents.
Covered Bonds Programs
To complement the existing wholesale funding sources, the Group has established two global covered bond programs for the
Bank and ASB. 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 and ASB continue to recognise the mortgages on its Balance Sheet. The covered bond holders have dual recourse to
the Bank and the covered pool assets. The Bank may repurchase loans from the SPV, subject to the conditions set out in the
transaction documents.
Notes to the financial statements
189
189
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:
Carrying amount of transferred assets
Carrying amount of associated liabilities (1)
For those liabilities that have recourse only to the
transferred assets:
Fair value of transferred assets
Fair value of associated liabilities
Net position
Carrying amount of transferred assets
Carrying amount of associated liabilities (2)
For those liabilities that have recourse only to the
transferred assets:
Fair value of transferred assets
Fair value of associated liabilities
Net position
Repurchase
Agreements
2017
$M
16,270
16,270
2016
$M
17,180
17,180
Group
Covered Bonds
Securitisation
2017
$M
31,796
28,984
2016
$M
36,770
31,802
2017
$M
15,108
13,771
15,116
13,771
1,345
2016
$M
13,863
12,106
13,874
12,106
1,768
Bank
Repurchase
Agreements
Covered Bonds
Securitisation
2017
$M
16,501
16,501
2016
$M
17,361
17,361
2017
$M
26,414
24,644
2016
$M
30,907
27,863
2017
$M
59,985
59,985
60,020
59,985
35
2016
$M
94,369
94,369
94,433
94,369
64
(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. The carrying amount of associated liabilities from securitisation SPVs is
recorded under loans of controlled entities in Note 38.
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:
Cash
Securities
Collateral held
Collateral held which is re-pledged or sold
2017
$M
7,280
22,733
30,013
-
Group
2016
$M
12,172
8,925
21,097
-
2017
$M
7,042
21,865
28,907
-
Bank
2016
$M
11,856
8,673
20,529
-
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:
Cash
Securities (1)
Assets pledged
Asset pledged which can be re-pledged or re-sold by counterparty
2017
$M
6,307
16,360
22,667
16,360
Group
2016
$M
7,865
17,228
25,093
17,228
2017
$M
5,607
16,591
22,198
16,591
Bank
2016
$M
7,016
17,411
24,427
17,411
(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.
Our businessPerformance overview Corporate responsibility Corporate governanceDirectors’ reportOther informationCommonwealth Bank of AustraliaAnnual Report 2017Financial report6213457 p
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Our businessPerformance overview Corporate responsibility Corporate governanceDirectors’ reportOther informationCommonwealth Bank of AustraliaAnnual Report 2017Financial report6213457
192
192
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 Bank expects the DRP for the final dividend for the year ended 30 June 2017 will be satisfied by the issue of shares of
approximately $1.4 billion.
AUSTRAC Civil Proceedings
On 3 August 2017, Australian Transaction Reports and Analysis Centre (AUSTRAC) commenced civil penalty proceedings
against CBA. CBA takes the allegations made by AUSTRAC very seriously and will file a defence in relation to this matter, which
will take significant time to prepare. The actual outcome in this matter will be determined by a Court in accordance with
established legal principles.
The AUSTRAC statement of claim relates to alleged past and ongoing contraventions of four provisions of the Anti-Money
Laundering and Counter-Terrorism Financing Act 2006 (Cth). To the extent that contraventions may be established, a Court will
ordinarily take into account a range of factors in setting penalties. One factor is the extent to which any contraventions arise from
a single course of conduct. For example, AUSTRAC alleges that approximately 53,000 threshold transaction reports were lodged
late. Late lodgement carries a penalty of up to $18 million. However, these alleged contraventions could be considered to arise
from a single course of conduct to the extent that they emanated from the same systems error. Ultimately, a Court will seek to
ensure that, overall, any civil penalties are just and appropriate and do not exceed what is proper having regard to the totality of
established contraventions. Under the Act, the only mechanism available to AUSTRAC to secure a pecuniary penalty from CBA is
by taking court action.
What we can say about these proceedings is limited until they have run their course. CBA is reviewing the allegations in the 580
page statement of claim and at this time it is not possible to reliably estimate the possible financial effect on the Group. It is not
appropriate to disclose any detailed information about the subject matter of the claims as court proceedings are on foot and such
information would be highly likely to be prejudicial to our position.
Aussie Home Loan Acquisition
On 4 August 2017, John Symond exercised his put option, which will require the Group to acquire a 20% interest in AHL. The
purchase price for the remaining 20% interest will be determined in accordance with the terms agreed in 2012. The purchase
consideration will be paid in the issue of CBA shares. The Group will consolidate AHL from completion of the acquisition which is
currently expected to be in late August 2017.
Strategic Corporate Actions
We are committed to securing and enhancing the financial wellbeing of people, businesses and communities, and the provision of
insurance products to our customers remains core to that vision. CommInsure and Sovereign are strong businesses with scale,
expertise, competitive products and access to attractive distribution channels. We are in discussions with third parties in relation
to their potential interest in our life insurance businesses in Australia and New Zealand. The outcome of those discussions is
uncertain. While the discussions may lead to the divestment of those businesses, we will also consider a full range of alternatives,
including retaining the businesses, reinsurance arrangements or other strategic options.
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.
Directors’ declaration
193
193
193
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 2017 in relation to the Bank and
the consolidated entity (Group) are in accordance with the Corporations Act 2001, including:
(i)
(ii)
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
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)); and
(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.
The Directors have been given the declarations required by s 295A in respect of the financial year ended 30 June 2017.
Signed in accordance with a resolution of the Directors.
Catherine Livingstone AO
Ian Narev
Chairman
8 August 2017
Managing Director and Chief Executive Officer
8 August 2017
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Independent auditor’s report to the members of Commonwealth
Bank of Australia
Report on the audit of the financial report
Our opinion on the financial report
In our opinion the accompanying financial report of Commonwealth Bank of Australia (the ‘Company’) and its
controlled entities (together ‘the Group’) is in accordance with the Corporations Act 2001, including:
giving a true and fair view of the Company and the Group’s financial positions as at 30 June 2017 and of
their financial performance for the year then ended; and
complying with Australian Accounting Standards and the Corporations Regulations 2001.
What we have audited
The Company and Group financial report comprises:
the Company and the Group’s balance sheets as at 30 June 2017;
the Company and the Group’s income statements for the year then ended;
the Company and the Group’s statements of comprehensive income for the year then ended;
the Company and the Group’s statements of changes in equity for the year then ended;
the Company and the Group’s statements of cash flows for the year then ended;
the notes to the financial statements, which include a summary of significant accounting policies; and
the directors’ declaration.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those
standards are further described in the Auditor’s responsibilities for the audit of the financial report section of our
report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Group in accordance with the auditor independence requirements of the Corporations
Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110
Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in
Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.
Our audit approach
An audit is designed to provide reasonable assurance about whether the financial report is free from material
misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of
the financial report.
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the
financial report as a whole, taking into account the geographic and management structure of the Group, its
accounting processes and controls, and the financial services industry and the broader economies in which the
Group operates. We also ensured that the audit team had the appropriate skills and competencies needed for the
audit of a complex banking group. This included industry expertise in retail, business and institutional banking
and wealth management services, as well as specialists and experts in IT, actuarial, tax, treasury and valuation.
The Group is structured into 7 business segments being Retail Banking Services (RBS), Business and Private
Banking (B&PB), Institutional Banking and Markets (IB&M), Wealth Management (WM), New Zealand (NZ),
Bankwest (BW), International Financial Services and Other (IFS and Other).
PricewaterhouseCoopers, ABN 52 780 433 757
One International Towers Sydney, Watermans Quay, Barangaroo, GPO Box 2650, Sydney, NSW 2001
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
195
195
Our Group audit scope is summarised below. It was designed based on the qualitative factors described above
and with reference to our determined Group materiality threshold. Below are the key audit matters we considered
during our audit of the financial report for the year ended 30 June 2017.
Materiality
Key audit
matters
Audit scope
Group materiality
For the purposes of our audit we determined overall Group materiality to be $606 million, which
represents approximately 5% of profit before tax of the Company.
We applied this threshold, together with qualitative considerations, to determine the scope of our audit
and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements
on the financial report as a whole.
We chose profit before tax because, in our view, it is the metric against which the performance of the
Group is most commonly measured and is a generally accepted benchmark in the banking industry.
We selected 5% based on our professional judgement noting that it is also within the range of
commonly accepted profit related thresholds in the banking industry.
Group audit scope
Our audit focused on where the Group made subjective judgements; for example, significant accounting
estimates involving assumptions and inherently uncertain future events.
We performed audit procedures over the financial information of the Group’s most financially significant
operations being the RBS, B&PB and IB&M business segments, the Group’s Treasury (GT) function
(reported within the IFS and Other segment) and several legal entities of the Group within other
business segments, such as ASB Bank (reported within the NZ business segment) or Colonial First
State and CommInsure (reported within the WM segment).
Further audit procedures were performed over the remaining balances and the consolidation process,
including substantive and analytical procedures.
The majority of our audit work was performed in Australia given the structure of the Group’s operations
including the location of support functions.
Key audit matters
Amongst other relevant topics, we communicated the following key audit matters to the Board Audit Committee
(the ‘Audit Committee’). Key audit matters are those matters that, in our professional judgement, were of most
significance in our audit of the financial report for the current period. We describe each key audit matter and
include a summary of the principal audit procedures we performed to address those matters below.
The key audit matters were addressed in the context of our audit of the financial report as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters. The key audit matters identified
below relate to both the Company and Group audit.
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Key audit matter
How our audit addressed the key audit matter
Provision
lending assets
impairment of
(Relevant business segments: RBS, B&PB, IB&M, NZ)
for
We considered this a key audit matter due to the
subjective judgements made by management in
determining when to recognise impairment provisions
against lending assets and in estimating the size of
such provisions.
Provisions for impairment of loans that exceed specific
thresholds are individually assessed by management.
These provisions are established based on the
expected future cash repayments and estimated
proceeds from the value of the collateral held by the
Group in respect of those loans. During the financial
year ended 30 June 2017, the majority of the Group’s
individually assessed provisions for specific lending
assets related primarily to business and corporate
loans.
thresholds noted above,
If an individually assessed loan is not impaired, it is
then included in a group of loans with similar risk
characteristics and, along with those loans below the
specific
is collectively
assessed on a portfolio basis using models developed
by management. These models use assumptions in
their calculations which are based on the Group’s
historical loss experience including both the frequency
of defaults and the losses incurred where loans have
defaulted.
Adjustments or overlays to the provisions are applied
by management to take account of emerging trends
and where models may fail to fully capture all risks in
the loan portfolio. An example of an overlay is one
which allows
the current
macroeconomic environment (such as residential and
consumer lending in mining towns). These overlays
require significant judgement.
impact of
the
for
Relevant
financial
Refer notes 1 and 13 for further information.
references
the
in
report
We developed an understanding of the controls
relevant to our audit over the following areas and
assessed whether they were appropriately designed
and were operating effectively throughout the year:
·
·
·
·
Identification of impaired loans;
Reliability and integrity of credit information
maintained in the Group’s systems;
Transfer of data from the underlying source
systems
impairment provisioning
to
models; and
Management’s assessment of the integrity of
these models.
the
For a selection of individually assessed provisions
for specific lending assets, we performed amongst
others the following audit procedures:
·
·
the
Examined management’s cashflow forecasts
impairment calculation by
supporting
assessing key judgements (in particular the
amount and timing of recoveries) made by
management in the context of the borrowers’
circumstances based on the detailed loan and
counterparty information known by the Group;
and
Compared key
in management’s
inputs
estimates (such as valuation of collateral held)
information where available.
to external
To test the collectively assessed provisions, we
independent actuarial experts
together with our
following audit
performed amongst others
procedures:
the
·
·
·
Tested the completeness and accuracy of key
data being transferred between the Group’s
collective
and management’s
systems
provisioning models;
Compared management’s key assumptions to
supporting evidence and market practices;
and
Compared the modelled calculations to our
own calculated expectations on a sample
basis.
To assess the overlays to the provisions, we
performed amongst others
following audit
procedures:
the
·
Considered management’s rationale for the
recognition of overlays by considering the
potential for impairment to be affected by
197
197
Key audit matter
How our audit addressed the key audit matter
·
events not captured by management’s
models; and
Assessed management’s estimate of ranges
on key drivers of credit loss using sensitivity
analysis. As part of this work, we considered
local and global external data to provide
objective support.
Determination of
instruments
(Relevant business segments: IB&M, GT, NZ)
fair value
for
financial
The Group holds financial instruments representing
17% of the total assets and 5% of the total liabilities of
the Group. The financial instruments held at fair value
include:
We developed an understanding of the controls
relevant to our financial statement audit over the
following areas and assessed whether they were
appropriately designed and were operating effectively
throughout the year:
·
·
·
·
control
governance
Valuation model
framework;
Completeness and accuracy of data inputs;
including sourcing independent market data
inputs;
Methodology for the determination of fair value
adjustments; and
Management’s assessment of
models used to measure fair value.
their own
In relation to the fair value of financial instruments as
at 30 June 2017, together with our valuation experts,
we compared the Group’s calculation of fair value to
our own independent calculation across a sample of
financial
sourcing
independent inputs from market data providers and
using our own valuation models. We considered the
results to assess whether there was evidence of
systemic bias or error in management’s calculation of
fair value.
instruments. This
involved
·
·
·
·
Derivative assets and liabilities;
Available for sale securities;
Life investment contracts; and
Bills discounted and other assets and liabilities
designated at fair value
The majority of the Group’s financial instruments are
considered to be non-complex in nature as fair value
is based on prices and rates that can be easily
observed in the relevant markets. On this basis the
majority of the Group’s financial instruments are
classified under Australian Accounting Standards as
either ‘Level 1’ (i.e. where key inputs to the valuation
are based on quoted prices in the market) or ‘Level 2’
(i.e. where key inputs to the valuation are based on
observable prices in the market). We considered these
Level 1 and Level 2 financial instruments to be a key
audit matter due to their financial significance to the
Group.
The Group also holds a limited number of financial
instruments considered to be ‘Level 3’ under Australian
Accounting Standards in nature (i.e. where key inputs
to
the valuation require additional management
judgement as observable inputs are not available in
the market due to market illiquidity or complexity of the
product) primarily in respect to complex derivatives,
certain asset-backed securities and infrastructure
funds. While the Group’s holdings of such instruments
is limited relative to total financial instrument holdings,
we considered their valuation to be a key audit matter
because
in
determining their value.
judgement
is more
involved
there
Relevant
Refer notes 1, 9, 10, 11, 18 and 40 for information.
references
financial
the
in
report
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Key audit matter
How our audit addressed the key audit matter
Provisions relating to conduct risk, litigation and
regulatory action, including related disclosures
(Relevant business segments: All)
We considered this a key audit matter as the Group is
exposed to conduct risk related matters, legal cases
and regulatory actions and investigations in various
jurisdictions, which could give rise to significant
liabilities of the Group.
required
In assessing and measuring such potential liabilities,
management are
to make significant
judgements based on available information in respect
to the probability and estimation of potential financial
outcomes. These outcomes may be dependent on
legal and regulatory processes. Therefore provisions
recognised and contingent liabilities disclosed are
subject to inherent uncertainty.
In particular, management has had to assess the
impact of civil penalty proceedings brought by the
Australian Transactions Reports and Analysis Centre
(AUSTRAC) on 3 August 2017 in respect to alleged
contraventions of the Anti-Money Laundering and
Counter-Terrorism Financing Act 2006 (Cth) as
disclosed in Note 44 Subsequent Events in the
financial report.
Relevant
in
Refer notes 1, 19, 30 and 44 for further information.
references
financial
the
report
Valuation of
(Relevant business segments: WM, NZ)
insurance policyholder
liabilities
We considered this a key audit matter because
management’s valuation of the provisions for the
settlement of future insurance claims involves complex
and subjective judgements about future events, both
internal and external to the business, for which small
changes in assumptions can result in a material impact
to the valuation of these liabilities. The Group’s
insurance policyholder liabilities relate to the life
insurance businesses.
In determining the valuation of the liabilities, the key
actuarial assumptions made by management’s experts
include:
Our procedures included amongst others developing
an understanding of the Group’s processes for
identifying and assessing the impact of conduct risk,
legal and regulatory matters.
We read the minutes of the Group’s key governance
meetings (i.e. Audit Committee, Risk Committee and
Board of Directors), attended the Group’s Audit and
Risk Committee meetings and considered key
correspondence with relevant regulatory bodies.
We discussed ongoing legal and regulatory matters
with management and sought and obtained written
representations and access to relevant documents in
order to develop our understanding of the matters. In
relation to such matters we considered management’s
judgement as to whether there is potential material
financial exposure for the Group, and if so the amount
of any provision required.
regulatory action, we assessed
Where management determined that they were unable
to reliably estimate the possible financial impact of a
legal or
the
appropriateness of their conclusion. Our procedures
included specific consideration of management’s
treatment in the financial report of the civil penalty
proceedings commenced by AUSTRAC.
In relation to all matters identified, we assessed the
adequacy of related disclosures.
To assess the assumptions used to determine the
value of insurance policyholder liabilities, we along
with our independent actuarial experts performed
amongst others the following audit procedures:
·
·
Compared the methodology and models used
by management to those commonly applied in
the industry and recognised by regulatory
standards;
Developed an understanding of and evaluated
the controls management has in place over
key processes relating to the valuation. This
included management’s use of models, the
quality of oversight and controls over key
those models, and
assumptions within
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Key audit matter
How our audit addressed the key audit matter
·
·
Expected amount, timing and duration of
claims and/or policy payments, likely lapse
rates of policies by policyholders, mortality and
morbidity rates, acquisition and maintenance
expenses; and
Long term economic assumptions including
inflation rates.
Relevant references in the financial report
Refer notes 1 and 27 for further information.
·
·
·
management’s preparation of the manually
calculated components of the liability;
Compared key inputs (for example inflation
rates) used by management in the calculation
to relevant supporting evidence, such as
external market data;
Considered the impact of key changes in
assumptions and methodologies over the year
and compared these to industry practice; and
Compared the underlying supporting data
relating to policyholder information used in
management's
source
to
valuation
documentation on a sample basis.
Valuation of
(Relevant business segment: All)
retirement benefit obligations
We considered this a key audit matter because the
Group operates defined benefit plans
that are
financially significant to the Group’s financial report.
The Group sponsors two defined benefit plans for
employees, one in Australia and the other in the UK.
Management apply actuarial assumptions in their
models used in determining the valuation of the
retirement benefit obligation, including:
·
·
·
·
Discount rates;
Salary inflation;
Life expectancy of members; and
Investment returns under the plans’ assets
Relevant references in the financial report
Refer notes 1 and 35 for further information.
To assess the appropriateness of the assumptions
used to determine the valuation of retirement benefit
obligations, we along with our independent actuarial
experts performed amongst others the following audit
procedures:
·
·
·
reasonableness of
Tested the underlying data (e.g. fair value of
plan assets) used by management in their
calculation against source documentation on
a sample basis;
Assessed
the
the
assumptions used within management’s
calculation with reference to external market
data; and
Developed our own expectations for the
obligations based on a range of possible
alternative outcomes and compared these to
management’s calculations.
Operation of
Technology
systems
(Relevant business segments: All)
financial
(IT)
reporting
Information
controls
and
We focused on this area because the Group’s
operations and financial reporting processes are
heavily dependent on IT systems, including automated
accounting procedures and IT dependent manual
controls.
The Group’s controls over IT systems include:
·
·
framework of governance over
The
systems;
Program development and changes;
IT
Our procedures included evaluating and testing the
design and operating effectiveness of certain controls
over the continued integrity of the IT systems that are
relevant to financial reporting.
We also carried out direct tests, on a sample basis, of
system functionality that was key to our audit testing in
order to assess the accuracy of certain system
calculations, the generation of certain reports and the
operation of certain system enforced access controls.
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Key audit matter
How our audit addressed the key audit matter
·
·
Access to process, data and IT operations;
and
Governance over generic and privileged user
accounts.
Where we noted design or operating effectiveness
matters relating to IT systems and applications
controls relevant to our audit, we performed alternative
or additional audit procedures.
Additional Information
The directors and management are responsible for the Additional Information. The Additional Information
comprises Our business, Performance overview, Corporate responsibility, Corporate governance, Directors’
report and Other information included in the Group’s annual report for the year ended 30 June 2017 but does not
include the financial report and our auditor’s report thereon.
Our opinion on the financial report does not cover the Additional Information and accordingly we do not express
any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the Additional Information identified
above and, in doing so, consider whether the Additional Information is materially inconsistent with the financial
report or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this Additional
Information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the directors 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 gives a true
and fair view and is free from material misstatement, whether due to fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as
a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic
alternative but to do so.
Auditor’s responsibilities for the audit of the financial report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance
with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of the financial report.
A further description of our responsibilities for the audit of the financial report is located at the Auditing and
Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This
description forms part of our auditor’s report.
Report on the Remuneration Report
Our opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 63 to 81 of the Directors’ report for the year ended
30 June 2017.
In our opinion, the Remuneration Report of Commonwealth Bank of Australia, for the year ended 30 June 2017
complies with section 300A of the Corporations Act 2001.
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201
Responsibilities
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.
PricewaterhouseCoopers
Marcus Laithwaite
Partner
Sydney
8 August 2017
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202
Shareholding information
Top 20 Holders of Fully Paid Ordinary Shares as at 2 August 2017
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
Citicorp Nominees Pty Limited
National Nominees Limited
BNP Paribas Noms Pty Limited
Bond Street Custodians Limited
Australian Foundation Investment Company limited
Pacific Custodians Pty Limited
Navigator Australia Limited
Argo Investments Limited
Milton Corporation Limited
RBC Dexia Investor Services Australia Nominees Pty Limited
Netwealth Investments Limited
UBS Nominees Pty Ltd
Nulis Nominees (Australia) Limited
Invia Custodian Pty Limited
IOOF Investment Management Limited
Mr. Barry Martin Lambert
ANZ Executors & Trustee
McCusker Holdings Pty Ltd
376,380,123
186,821,486
101,043,275
59,912,985
56,776,266
16,812,646
7,900,000
4,812,429
3,723,861
3,203,731
3,111,148
3,032,654
2,364,986
2,339,250
2,191,295
1,787,477
1,678,128
1,643,613
1,472,555
1,430,000
%
21.75
10.79
5.84
3.46
3.28
0.97
0.46
0.28
0.22
0.19
0.18
0.18
0.14
0.13
0.13
0.10
0.10
0.10
0.09
0.08
The top 20 shareholders hold 838,437,908 shares which is equal to 48.47% of the total shares on issue.
Substantial Shareholding
The following organisation has disclosed a substantial shareholding notice to ASX.
Name
BlackRock Group (1)
(1) Substantial shareholder notice dated 16 May 2017.
Stock Exchange Listing
Number of
Shares
86,557,665
Percentage of
Voting Power
5.00
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 2 August 2017
Range
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Total
Less than marketable parcel of $500
Voting Rights
Number of
Shareholders
Percentage of
Shareholders
588,814
189,065
19,393
8,206
186
805,664
13,400
73.08
23.47
2.41
1.02
0.02
100.00
1.66
Number of
Shares
186,897,021
392,559,830
131,675,877
154,412,567
864,322,866
1,729,868,161
34,134
Percentage of
Issued
Capital
10.80
22.69
7.61
8.93
49.97
100.00
0.00
Under the Bank’s Constitution, each person who is a voting Equity holder and who is present at a general meeting of the Bank in
person or by proxy, attorney or official representative is entitled:
On a show of hands – to one vote; and
On a poll – to one vote for each share held or represented. Every voting Equity holder who casts a vote by direct vote, shall
also have 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.
Shareholding information
203
203
203
203
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
each proxy may exercise one half of the Equity holder’s votes;
Neither proxy shall be entitled to vote on a show of hands; and
On a poll each proxy may only exercise votes in respect of those shares or voting rights the proxy represents.
Top 20 Holders of Perpetual Exchangeable Resaleable Listed Securities VI (“PERLS VI”) as at 2 August 2017
Rank
Name of Holder
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
Bond Street Custodians Limited
IOOF Investment Management Limited
Netwealth Investments Limited
Australian Executor Trustees Limited
J P Morgan Nominees Australia Limited
National Nominees Limited
Nulis Nominees (Australia) Limited
BNP Paribas Noms Pty Limited
Navigator Australia Limited
Dimbulu Pty Ltd
Eastcote Pty Limited
V S Access Pty Ltd
Citicorp Nominees Pty Limited
BNP Paribas Nominees Pty Limited
RBC Dexia Investor Services Australia Nominees Pty
Invia Custodian Pty Limited
Marento Pty Ltd
Edgelake Proprietary Limited
Kaptock Pty Ltd
Number of
Securities
846,439
487,052
278,256
218,645
194,645
166,650
154,009
149,481
113,760
110,281
100,000
100,000
80,000
71,432
70,391
66,700
55,391
52,916
49,267
48,730
%
4.23
2.44
1.39
1.09
0.97
0.83
0.77
0.75
0.58
0.55
0.50
0.50
0.40
0.36
0.35
0.33
0.28
0.26
0.25
0.24
The top 20 PERLS VI security holders hold 3,414,045 securities which is equal to 17.07% 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 some daily newspapers.
Range of Securities (PERLS VI) as at 2 August 2017
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
Percentage of
Security Holders
26,342
2,738
192
94
10
29,376
6
89.68
9.32
0.65
0.32
0.03
100.00
0.02
Number of
Securities
8,572,996
5,577,574
1,431,990
2,269,373
2,148,067
20,000,000
12
Percentage of
Issued
Capital
42.86
27.89
7.16
11.35
10.74
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 pages 202 and 203 for the Bank’s
ordinary shares.
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204
Shareholding information
Top 20 Holders of CommBank PERLS VII Capital Notes (“PERLS VII”) as at 2 August 2017
Rank
Name of Holder
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
BNP Paribas Noms Pty Limited
Bond Street Custodians Limited
Netwealth Investments Limited
J P Morgan Nominees Australia Limited
Citicorp Nominees Pty Limited
IOOF Investment Management
National Nominees Limited
Nulis Nominees (Australia) Limited
Navigator Australia Limited
RBC Dexia Investor Services Australia Nominees Pty Limited
BNP Paribas Nominees Pty Limited
Australian Executor Trustees Limited
Invia Custodian Pty Limited
Dimbulu Pty Ltd
Simply Brilliant Pty Ltd
Tandom Pty Ltd
Randazzo C & G Developments Pty Ltd
Tsco Pty Ltd
Seymour Group Pty Ltd
Number of
Securities
2,013,376
485,515
441,566
409,794
398,684
343,101
314,916
257,670
201,521
177,753
149,609
147,613
138,064
100,946
100,000
90,500
90,000
84,286
80,000
73,700
%
6.71
1.62
1.47
1.37
1.33
1.14
1.05
0.86
0.67
0.59
0.50
0.49
0.46
0.34
0.33
0.30
0.30
0.28
0.27
0.25
The top 20 PERLS VII security holders hold 6,098,614 securities which is equal to 20.33% 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 some daily newspapers.
Range of Securities (PERLS VII) as at 2 August 2017
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
Percentage of
Security holders
28,576
4,021
316
201
14
33,128
8
86.26
12.14
0.95
0.61
0.04
100.00
0.02
Number of
Securities
9,984,481
8,235,732
2,278,253
4,679,481
4,822,053
30,000,000
30
Percentage of
Issued
Capital
33.28
27.45
7.60
15.60
16.07
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 pages 202 and 203 for the Bank’s
ordinary shares.
Shareholding information
205
205
205
205
Top 20 Holders of CommBank PERLS VIII Capital Notes (“PERLS VIII”) as at 2 August 2017
Rank
Name of Holder
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
BNP Paribas Noms Pty Limited
HSBC Custody Nominees (Australia) Limited
Goodridge Nominees Pty Ltd
J P Morgan Nominees Australia Limited
Mr. Walter Lawton & Mr. Brett Lawton
G Harvey Nominees Pty Ltd
Piek Holdings Pty Ltd
National Nominees Limited
Snowside Pty Ltd
Bond Street Custodians Limited
Netwealth Investments Limited
Nulis Nominees (Australia) Limited
V S Access Pty Ltd
Navigator Australia Limited
Citicorp Nominees Pty Limited
Dimbulu Pty Ltd
Mifare Pty Ltd
Randazzo C & G Developments Pty Ltd
Skyport Pty Ltd
Adirel Holdings Pty Ltd
Number of
Securities
3,010,649
857,711
208,870
175,337
108,573
100,000
93,000
83,224
79,083
78,974
68,997
63,293
62,482
61,466
52,182
50,000
50,000
50,000
50,000
47,000
%
20.76
5.92
1.45
1.21
0.76
0.69
0.64
0.57
0.55
0.54
0.48
0.44
0.43
0.42
0.36
0.34
0.34
0.34
0.34
0.32
The top 20 PERLS VIII security holders hold 5,350,841 securities which is equal to 36.90% of the total securities on issue.
Stock Exchange Listing
PERLS VIII are subordinated unsecured notes issued by the Bank. They are listed on the Australian Securities Exchange under
the trade symbol CBAPE. Details of trading activity are published in some daily newspapers.
Range of Shares (PERLS VIII) as at 2 August 2017
Range
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Total
Less than marketable parcel of $500
Voting Rights
Number of
Shareholders
Percentage of
Shareholders
13,107
1,353
118
74
5
14,657
3
89.43
9.23
0.81
0.50
0.03
100.00
0.02
Number of
Shares
4,258,111
2,944,163
894,881
2,177,037
4,225,808
14,500,000
6
Percentage of
Issued
Capital
29.37
20.31
6.17
15.01
29.14
100.00
0.00
PERLS VIII 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 pages 202 and 203 for the Bank’s
ordinary shares.
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206
Shareholding information
Top 20 Holders of CommBank PERLS IX Capital Notes (“PERLS IX”) as at 2 August 2017
Rank
Name of Holder
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
BNP Paribas Noms Pty Limited
HSBC Custody Nominees (Australia) Limited
Bond Street Custodians Limited
Navigator Australia
J P Morgan Nominees Australia Limited
Citicorp Nominees Pty Limited
Mutual Trust Pty Ltd
G Harvey Nominees Pty Ltd
IOOF Investment Management
Netwealth Investments Limited
BNP Paribas Nominees Pty Limited
Nulis Nominees (Australia)
Invia Custodian Pty Limited
National Nominees Limited
Catholic Church Insurances Ltd
Dimbulu Pty Ltd
Sandhurst Trustees Limited
Pacmin Holdings Pty Limited
Navigator Australia Limited
Ernron Pty Ltd
Number of
Securities
2,281,919
1,079,186
221,263
166,520
149,818
106,031
101,741
100,000
89,239
77,342
76,524
73,084
58,838
54,395
50,000
50,000
41,910
41,206
38,563
34,530
%
13.91
6.58
1.35
1.02
0.91
0.65
0.62
0.61
0.54
0.47
0.47
0.45
0.36
0.33
0.30
0.30
0.26
0.25
0.24
0.21
The top 20 PERLS IX security holders hold 4,892,109 securities which is equal to 29.83% of the total securities on issue.
Stock Exchange Listing
PERLS IX are subordinated unsecured notes issued by the Bank. They are listed on the Australian Securities Exchange under
the trade symbol CBAPF. Details of trading activity are published in some daily newspapers.
Range of Shares (PERLS IX) as at 2 August 2017
Range
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Total
Less than marketable parcel of $500
Voting Rights
Number of
Shareholders
Percentage of
Shareholders
18,454
1,818
139
77
7
20,495
0
90.04
8.87
0.68
0.38
0.03
100.00
0.00
Number of
Shares
5,846,385
3,791,684
1,055,826
1,927,521
3,778,584
16,400,000
0
Percentage of
Issued
Capital
35.65
23.12
6.44
11.75
23.04
100.00
0.00
PERLS IX 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 pages 202 and 203 for the Bank’s
ordinary shares.
Five year financial summary
207
207
207
207
Net interest income
Other operating income (2)
Total operating income
Operating expenses
Impairment expense
Net profit before tax
Corporate tax expense
Non-controlling interests
Net profit after tax "cash basis"
Treasury shares valuation adjustment
Hedging and IFRS volatility
Gain/(loss) on disposal of controlled entities/investments
Bankwest non-cash items
Bell Group litigation
2017
$M
17,600
8,405
26,005
2016 (1)
$M
16,935
7,812
24,747
2015 (1)
$M
15,827
7,751
23,578
(11,078)
(10,434)
(10,003)
(1,095)
13,832
(3,927)
(24)
9,881
(23)
73
-
(3)
-
(1,256)
13,057
(3,592)
(20)
9,445
4
(199)
-
(27)
-
(988)
12,587
(3,439)
(21)
9,127
(28)
6
-
(52)
-
2014
$M
15,131
7,270
22,401
(9,499)
(953)
11,949
(3,250)
(19)
8,680
(41)
6
17
(56)
25
2013
$M
13,944
6,877
20,821
(9,010)
(1,082)
10,729
(2,953)
(16)
7,760
(53)
27
-
(71)
(45)
Net profit after income tax attributable to Equity holders of the
Bank "statutory basis"
9,928
9,223
9,053
8,631
7,618
Contributions to profit (after tax)
Retail Banking Services
Business and Private Banking
Institutional Banking and Markets
Wealth Management
New Zealand
Bankwest
IFS and Other
Net profit after tax "cash basis"
Investment experience after tax
Net profit after tax "underlying basis"
Balance Sheet
Loans, bills discounted and other receivables
Total assets
Deposits and other public borrowings
Total liabilities
Shareholders' Equity
Net tangible assets
Risk weighted assets - Basel III (APRA)
Average interest earning assets (3)
Average interest bearing liabilities (3)
Assets (on Balance Sheet) - Australia
Assets (on Balance Sheet) - New Zealand
Assets (on Balance Sheet) - Other
4,964
1,639
1,306
553
973
702
(256)
9,881
(44)
9,837
731,762
976,374
626,655
912,658
63,716
53,146
437,063
834,741
755,612
817,575
89,997
68,802
4,540
1,522
1,190
612
881
778
(78)
9,445
(100)
9,345
695,398
933,001
588,045
872,437
60,564
49,630
394,667
790,596
733,754
783,170
83,832
65,999
3,994
1,495
1,285
643
882
795
33
9,127
(150)
8,977
639,262
873,489
543,231
820,684
52,805
41,334
368,721
736,164
693,376
741,249
72,299
59,941
3,678
1,321
1,252
789
742
675
223
8,680
(197)
8,483
597,781
791,451
498,352
742,103
49,348
38,080
337,715
705,862
660,847
669,293
69,110
53,048
3,089
1,474
1,195
679
621
561
141
7,760
(105)
7,655
556,648
753,857
459,429
708,320
45,537
33,638
329,158
653,637
609,557
644,043
61,578
48,236
(1) Comparative information for 2016 and 2015 has been restated to reflect the change in accounting policy detailed in Note 1 and refinements to the
allocation of customer balances.
Includes investment experience.
(2)
(3) Comparative information for 2016 has been restated to disclose average interest earning assets and average interest bearing liabilities net of average
mortgage offset balances that were reclassified as Non-interest earning/bearing.
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208
Five year financial summary
Shareholder summary
Dividends per share - fully franked (cents)
Dividend cover - statutory (times)
Dividend cover - cash (times)
Earnings per share (cents) (1)
Basic
Statutory
Cash basis
Fully diluted
Statutory
Cash basis
Dividend payout ratio (%) (1)
Statutory
Cash basis
Net tangible assets per share ($) (1)
Weighted average number of shares (statutory basic) (M)
Weighted average number of shares (statutory fully diluted) (M)
Weighted average number of shares (cash basic) (M)
Weighted average number of shares (cash fully diluted) (M)
Number of shareholders
Share prices for the year ($)
Trading high
Trading low
End (closing price)
Performance ratios (%)
Return on average Shareholders' Equity
Statutory
Cash basis
Return on average total assets
Statutory
Cash basis
Capital adequacy - Common Equity Tier 1 - Basel III (APRA)
Capital adequacy - Tier 1 - Basel III (APRA)
Capital adequacy - Tier 2 - Basel III (APRA)
Capital adequacy - Total - Basel III (APRA)
Leverage Ratio Basel III (APRA) (%)
Liquidity Coverage Ratio (%)
Net interest margin (2)
Other information (numbers)
Full-time equivalent employees
Branches/services centres (Australia)
Agencies (Australia)
ATMs
EFTPOS terminals (active)
Productivity (3)
Total operating income per full-time (equivalent) employee ($)
Employee expense/Total operating income (%)
Total operating expenses/Total operating income (%)
2017
2016
2015
2014
2013
429
1. 3
1. 3
577. 6
574. 4
559. 1
556. 1
74. 6
75. 0
30. 7
1,719
1,815
1,720
1,816
420
1. 3
1. 3
542. 3
554. 8
529. 2
541. 2
78. 4
76. 5
28. 9
1,692
1,771
1,693
1,772
420
1. 3
1. 3
553. 1
556. 9
539. 1
542. 7
75. 8
75. 2
25. 4
1,627
1,711
1,630
1,714
401
1. 3
1. 3
530. 6
532. 7
518. 9
521. 0
75. 5
75. 1
23. 5
1,618
1,691
1,621
1,694
364
1. 3
1. 3
474. 2
482. 1
461. 0
468. 6
77. 4
75. 9
20. 9
1,598
1,686
1,601
1,689
806,386
820,968
787,969
791,564
786,437
87. 74
69. 22
82. 81
16. 1
16. 0
1. 0
1. 0
10. 1
12. 1
2. 1
14. 2
5. 1
128. 6
2. 11
45,614
1,121
3,664
4,398
217,098
568,685
24. 2
42. 7
88. 88
69. 79
74. 37
16. 2
16. 5
1. 0
1. 0
10. 6
12. 3
2. 0
14. 3
5. 0
120. 0
2. 14
45,129
1,131
3,654
4,381
96. 69
73. 57
85. 13
18. 2
18. 2
1. 1
1. 1
9. 1
11. 2
1. 5
12. 7
n/a
120. 0
2. 15
45,948
1,147
3,670
4,440
82. 68
67. 49
80. 88
74. 18
53. 18
69. 18
18. 7
18. 7
1. 1
1. 1
9. 3
11. 1
0. 9
12. 0
n/a
n/a
2. 19
18. 0
18. 2
1. 0
1. 1
8. 2
10. 3
0. 9
11. 2
n/a
n/a
2. 13
44,329
1,150
3,717
4,340
44,969
1,166
3,764
4,304
217,981
208,202
200,733
181,227
545,237
508,578
500,034
459,583
25. 1
42. 4
24. 9
42. 8
25. 0
42. 9
25. 3
43. 6
(1) Comparative information for 2016 and 2015 has been restated to reflect the change in accounting policy detailed in Note 1.
(2) Comparative information has been restated for 2016, 2015 and 2014 to align to presentation in the current period.
(3)
The productivity metrics have been calculated on a cash basis.
Capital adequacy and liquidity
209
209
209
209
Capital
The tables below show the APRA Basel III capital adequacy calculation at 30 June 2017 together with prior period comparatives.
For a more detailed discussion on our capital position refer to our Basel III Pillar 3 document.
FY17
FY16
Risk Weighted Capital Ratios
Common Equity Tier 1
Tier 1
Tier 2
Total Capital
Ordinary Share Capital and Treasury Shares
Ordinary Share Capital
Treasury Shares (1)
Ordinary Share Capital and Treasury Shares
Reserves
Reserves
Reserves related to non-consolidated subsidiaries (2)
Total Reserves
Retained Earnings and Current Period Profits (3)
Retained earnings and current period profits
Retained earnings adjustment from non-consolidated subsidiaries (4)
Net Retained Earnings
Non-controlling interests
Non-controlling interests (5)
Less ASB perpetual preference shares
Less other non-controlling interests not eligible for inclusion in regulatory capital
Non-controlling interests
%
10. 1
12. 1
2. 1
14. 2
FY17
$M
34,971
295
35,266
1,869
(81)
1,788
26,330
(537)
25,793
546
(505)
(41)
-
%
10. 6
12. 3
2. 0
14. 3
FY16
$M
33,845
284
34,129
2,734
(143)
2,591
23,435
(259)
23,176
550
(505)
(45)
-
Common Equity Tier 1 Capital before regulatory adjustments
62,847
59,896
(1) Represents shares held by the Group's life insurance operations ($96 million) and employee share scheme trusts ($199 million).
(2) Represents equity 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) Comparative information has been restated to reflect the change in accounting policy detailed in Note 1 to the Financial Statements.
(4) Cumulative current period profit and retained earnings adjustments for subsidiaries not consolidated for regulatory purposes.
(5) 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.
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210 Capital adequacy and liquidity
Common Equity Tier 1 regulatory adjustments
Goodwill (1)
Other intangibles (including software) (2)
Capitalised costs and deferred fees
Defined benefit superannuation plan surplus (3)
General reserve for credit losses (4)
Deferred tax asset
Cash flow hedge reserve
Employee compensation reserve
Equity investments (5)
Equity investments in non-consolidated subsidiaries (1) (6)
Shortfall of provisions to expected losses (7)
Gain due to changes in own credit risk on fair valued liabilities
Other
Common Equity Tier 1 regulatory adjustments
Common Equity Tier 1
Additional Tier 1 Capital
Basel III complying instruments (8)
Basel III non-complying instruments net of transitional amortisation (9)
Holding of Additional Tier 1 Capital (10)
Additional Tier 1 Capital
Tier 1 Capital
Tier 2 Capital
Basel III complying instruments (11)
Basel III non-complying instruments net of transitional amortisation (12)
Holding of Tier 2 Capital
Prudential general reserve for credit losses (13)
Total Tier 2 Capital
Total Capital
FY17
$M
(7,620)
(2,144)
(707)
(298)
(412)
(1,683)
107
(164)
(2,626)
(2,673)
(218)
(128)
(122)
FY16
$M
(7,603)
(2,313)
(535)
(183)
(386)
(1,443)
(473)
(132)
(3,120)
(1,458)
(314)
(161)
(112)
(18,688)
(18,233)
44,159
41,663
8,090
635
(200)
8,525
6,450
640
(200)
6,890
52,684
48,553
7,744
1,495
(29)
182
9,392
62,076
5,834
1,934
(25)
181
7,924
56,477
(1) Goodwill excludes $252 million which is included in equity investments in non-consolidated subsidiaries.
(2) Other intangibles (including capitalised software costs), net of any associated deferred tax liability.
(3)
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.
(4) 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.
(5) Represents the Group’s non-controlling interests in other entities.
(6) Non-consolidated subsidiaries primarily represent the insurance and funds management companies operating within the Colonial Group. The adjustment
at 30 June 2017 is net of $665 million of Colonial non-recourse debt and subordinated notes that are subject to APRA approved transitional relief for
regulatory purposes. Effective 31 December 2016 a number of intermediate holding companies within the Colonial Group were consolidated into the Level
2 Banking Group. The Group’s insurance and fund management companies held $1,322 million of capital in excess of minimum regulatory requirements at
30 June 2017.
(7) Regulatory Expected Loss (pre-tax) using stressed loss given default assumptions associated with the loan portfolio in excess of eligible credit provisions
(pre-tax).
(8) As at 30 June 2017, comprises PERLS IX $1,640 million issued in March 2017, PERLS VIII $1,450 million issued March 2016, PERLS VII $3,000 million
issued in October 2014 and PERLS VI $2,000 million issued in October 2012.
(9) Represents APRA Basel III non-compliant Additional Tier 1 Capital Instruments that are eligible for Basel III transitional relief.
(10) Represents holdings of Additional Tier 1 capital instruments issued by the Colonial Mutual Life Assurance Society Limited.
(11) During the 2017 financial year the Group issued the following instruments: USD750million, NZD400 million (issued through ASB, the group’s New Zealand
subsidiary), HKD608 million and four separate JPY notes totalling JPY53.3 billion.
(12) Includes both perpetual and term instruments subordinated to depositors and general creditors, having an original maturity of at least five years. APRA
requires these to be included as if they were unhedged. Term instruments are amortised at 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.
Capital adequacy and liquidity
211
211
211
211
Risk Weighted Assets
Credit Risk
Subject to AIRB approach (1)
Corporate (2)
SME corporate (2)
SME retail
SME retail secured by residential mortgage
Sovereign
Bank
Residential mortgage (3)
Qualifying revolving retail
Other retail
Total RWA subject to AIRB approach
Specialised lending exposures subject to slotting criteria (2)
Subject to Standardised approach
Corporate (2)
SME corporate (2)
SME retail
Sovereign
Bank
Residential mortgage (2)
Other retail
Other assets
Total RWA subject to Standardised approach
Securitisation
Credit valuation adjustment
Central counterparties
Total RWA for Credit Risk Exposures
Traded market risk
Interest rate risk in the banking book
Operational risk
Total risk weighted assets
FY17
$M
FY16
$M
74,663
33,067
4,838
2,766
2,154
12,598
134,969
9,414
15,101
289,570
58,752
1,202
510
6,172
271
136
5,017
2,925
5,291
21,524
1,584
4,958
871
377,259
4,650
21,404
33,750
437,063
71,682
29,957
4,953
2,813
6,622
13,098
83,758
9,897
15,102
237,882
56,795
10,982
4,133
6,122
268
224
7,428
2,750
5,360
37,267
1,511
8,273
2,302
344,030
9,439
7,448
33,750
394,667
(1) Persuant to APRA requirements, RWA amounts derived from AIRB risk weight functions have been multiplied by a scaling factor of 1.06. Comparatives
have been restated to conform to presentation in the current period.
(2) APRA re-accredited the use of the AIRB approach for the Bankwest non-retail portfolio, effective 30 September 2016.
(3)
.
Includes APRA requirements to increase average risk weight applied to Australian residential mortgages using the AIRB approach (FY17: $47billion).
Our businessPerformance overview Corporate responsibility Corporate governanceDirectors’ reportOther informationCommonwealth Bank of AustraliaAnnual Report 2017Financial report6213457 212
212 Capital adequacy and liquidity
Leverage Ratio
Summary Group Leverage Ratio
Tier 1 Capital ($M)
Total Exposures ($M) (1)
Leverage Ratio (APRA) (%)
Leverage Ratio (Internationally Comparable) (%) (2)
As at
FY17
FY16
52,684
1,027,958
5. 1
5. 8
48,553
980,846
5. 0
5. 6
(1) Total exposures is the sum of on Balance Sheet exposures, derivatives, Securities Financing Transactions (SFTs), and off Balance Sheet exposures, net
of any Tier 1 regulatory deductions, as outlined in APS 110 “Capital Adequacy”.
(2) The Tier 1 Capital included in the calculation of the internationally comparable leverage ratio aligns with the 13 July 2015 APRA study titled “International
capital comparison study”, and includes Basel III non-compliant Tier 1 instruments that are currently subject to transitional rules.
The Group’s leverage ratio, defined as Tier 1 Capital as a percentage of total exposure, was 5.1% at 30 June 2017 on an APRA
basis and 5.8% on an internationally comparable basis.
The BCBS has advised that the leverage ratio will migrate to a Pillar 1 minimum capital requirement of 3% from 1 January 2018.
The BCBS will confirm the final calibration in 2017.
Liquidity
Level 2
Liquidity Coverage Ratio (LCR) Liquid Assets
High Quality Liquid Assets (HQLA) (1)
Committed Liquidity Facility (CLF)
Total LCR liquid assets
Net Cash Outflows (NCO)
Customer deposits
Wholesale funding
Other net cash outflows (2)
Total NCO
Liquidity Coverage Ratio (%)
LCR surplus
As at
FY17
$M
93,402
48,300
141,702
77,298
17,579
15,271
110,148
129
31,554
FY16
$M
75,147
58,500
133,647
70,139
19,406
21,854
111,399
120
22,248
(1)
(2)
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 Residential Mortgage-Backed Securities (RMBS).
Includes cash inflows.
The Group holds high quality, well diversified liquid assets to meet Balance Sheet liquidity needs and internal and external
regulatory requirements, such as APRA’s Liquidity Coverage Ratio (LCR). At 30 June 2017, the Group’s LCR was 129%, up from
120% as at 30 June 2016.
213
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International representation
215
215 215
215
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 Investments
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
CBA Hong Kong Branch,
Level 13, One Exchange Square,
8 Connaught Place,
Central, Hong Kong
Telephone: +852 2844 7500
Managing Director, Hong Kong
Maaike Steinebach
CBA International Financial Services
Limited
Level 14, One Exchange Square
8 Connaught Place,
Central, Hong Kong
Telephone: +852 2844 7500
Facsimile: +852 2845 9194
Group Executive International Financial
Services
Coenraad Jonker
First State Investments
Level 25, One Exchange Square
8 Connaught Place,
Central, Hong Kong
Telephone: +852 2846 7555
Facsimile: +852 2868 4742
Regional Managing Director, Asia
Joe Fernandes
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
CBA NZ Branch
ASB North Wharf
12 Jellicoe Street
Auckland Central
Auckland 1010
Telephone: +64 9 337 4748
General Manager
Andrew Woodward
Sovereign Assurance Company Limited
Level 4, Sovereign House
74 Taharoto Road,
Takapuna, Auckland 0622
Telephone: + 64 9 487 9000
Chief Executive Officer
Nicholas Stanhope
First State Investments
ASB North Wharf
12 Jellicoe Street
Auckland Central
Auckland 1010
Telephone: +64 2 195 1520
Head of Business Development,
Australia & New Zealand
Harry Moore
Africa
South Africa
CBA South Africa,
2nd Floor, 30 Jellicoe Avenue, Rosebank
Johannesburg 2196
Telephone: + 27 87 2868833
Executive General Manager,
South Africa
Sandile Shabalala
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
Leon Allen
First State Investments
10 East 53rd Street, Floor 21
New York NY 10022
Telephone: +1 212 497 9980
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
Tony Zhang
CBA Shanghai Branch Office
Level 11 Azia Centre
1233 Lujiazui Ring Road
Pudong
Shanghai 200120
Telephone: +86 21 6123 8900
Facsimile: +86 21 6165 0285
Branch Manager Shanghai
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
Our businessPerformance overview Corporate responsibility Corporate governanceDirectors’ reportOther informationCommonwealth Bank of AustraliaAnnual Report 2017Financial report6213457 Malta
CommBank Europe Limited
Level 3 Strand Towers
36 The Strand
Sliema SLM07
Telephone: +356 2132 0812
Facsimile: +356 2132 0811
Chief Financial Officer
Greg Williams
United Kingdom
England
CBA Branch Office
1 New Ludgate
60 Ludgate Hill
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
216
216
International representation
Indonesia
PT Bank Commonwealth
World Trade Centre 6, 3A Floor
Jl. Jendral Sudirman Kav. 29-31
Jakarta 12920
Telephone: +62 21 5296 1222
Facsimile: +62 21 5296 2293
President Director
Lauren Sulistiawati
PT Commonwealth Life
World Trade Centre 6, 8th Floor,
JI. Jendral Sudirman Kav. 29-31
Jakarta 12920
Telephone: +62 21 570 5000
Facsimile: +62 21 520 5353
President Director
Elvis Liongosari
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
Regional Managing Director, Asia
Hario Soeprobo
Japan
CBA Branch Office
8th Floor, Toranomon Waiko Building
12-1 Toranomon 5-chome
Minato-ku, Tokyo 105-0001
Telephone: +81 3 5400 7280
Facsimile: +81 3 5400 7288
Branch Head Tokyo
Martin Spann
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
Regional Managing Director, Asia
Joe Fernandes
Singapore
CBA Branch Office
38 Beach Road
06-11 South Beach Tower
Singapore 189767
Telephone: +65 6349 7000
Facsimile: +65 6224 5812
Managing Director, Singapore
Scott Speedie
First State Investments
38 Beach Road
06-11 South Beach Tower
Singapore 189767
Telephone: +65 6538 0008
Facsimile: +65 6538 0800
Regional Managing Director, Asia
Joe Fernandes
UAE
First State Investments
Level 14, The Gate Building
P.O Box 74777, Dubai
Telephone: +971 14 4019340
Managing Director, EMEA
Chris Turpin
Vietnam
CBA Representative Office
Suite 603-604
Central Building
31 Hai Ba Trung, Hanoi
Telephone: +84 4 3824 3213
Facsimile: +84 4 3824 3961
Chief Representative and Director of
Investment and Banking
Hanh Nguyen
CBA Ho Chi Minh City Branch
Hoa Lam Building
4B Ton Duc Thang, Dist. 1
Ho Chi Minh City
Telephone: +84 8 3824 1525
Facsimile: +84 8 3824 2703
General Director
Shane O’Connor
CBA Digital Solutions Company Limited
Levels 7-11, 4B Ton Duc Thang, Dist. 1
Ho Chi Minh City
Telephone: +842838246276
General Director
Hanh Nguyen
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
Corporate directory
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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.
Available from 8am to 7pm (Sydney Time), Monday to Friday,
for share trading and stock market enquiries, and 8am to 7pm
7 days a week for Commsec Cash Management. A 24 hour
lost and stolen card line is available 24 hours, 7 days a week.
132 221 Lost, Stolen or Damaged Cards
131 709 CommSec Margin Loan
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.
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 6pm (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 772 968 (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 24 hours a day, 7 days a
week.
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), Monday to Friday and 8am to 5pm
(Sydney Time) on Saturday.
For all your life insurance needs call 131 056 8am to 8pm
(Sydney Time), Monday to Friday.
Alternatively, visit www.comminsure.com.au.
Our businessPerformance overview Corporate responsibility Corporate governanceDirectors’ reportOther informationCommonwealth Bank of AustraliaAnnual Report 2017Financial report6213457 218
218
Contact us
Registered Office
Ground Floor, Tower 1
201 Sussex Street
Sydney NSW 2000
Telephone +61 2 9378 2000
Facsimile +61 2 9118 7192
Company Secretary
Taryn Morton
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/investors.