Annual Report
2018
Becoming
a simpler,
better bank
We are building a simpler, more
focused bank, fully aligned to
meeting the needs of customers
in our core markets, underpinned
by stronger risk management
and a continuing commitment
to innovation and customer service.
We will advance our purpose to
improve the financial wellbeing
of our customers and communities.
In doing so, we will be guided
by our values:
• We do what is right
• We are accountable
• We are dedicated to service
• We pursue excellence
• We get things done
Commonwealth Bank of Australia
ACN 123 123 124
Inside this
report
This year we have taken steps to make our reporting
clearer and to provide information on all aspects of the
Bank’s performance. In addition to detailing our financial
performance and business strategy, this report outlines
what we’re doing to operate sustainably and responsibly.
Strategic report
2018 highlights
Chairman’s message
CEO’s message
Becoming a better bank
A summary of the year’s regulatory, legal and
industry reviews and of the Bank’s responses
Our strategy
Our strategy, the goals we’ve set
and progress made during 2018
Doing business sustainably
The programs and initiatives that support
better outcomes for our stakeholders
Business risks
How we’re responding to the key risks
to the Bank, including non-financial risks
Climate-related financial disclosures
Understanding and managing climate risk
and opportunities
2
2
4
7
10
12
28
43
48
Performance overview
Financial performance
An overview of Group and business unit financial
performance and strategic achievements
Non-financial performance metrics
Key environmental, customer, social and
governance metrics
Corporate governance
Roles and responsibilities and
governance priorities
Our Board
Our Executive Leadership Team
Our approach to governance
Directors’ report
The Directors’ overview of key
information for the financial year
Remuneration report
Our approach to remuneration and
outcomes for the Executive Leadership
Team and Board
Financial report
Financial statements
Notes to the financial statements
Risk management
Directors’ declaration
Independent auditor’s report
Other information
Includes shareholding information,
glossary of terms and contact information
61
62
75
81
82
84
86
91
96
122
125
132
195
264
265
276
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Performance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report
2018
highlights
Customers
Community
Customers served
16.1 million
Digital customers
6.5 million
Largest branch and ATM network
in Australia
1,267 branches Group total
4,253 ATMs Group total
Mobile banking app Net Promoter Score
37.8
More than 10 points above closest major bank peer
Tax paid
$4.0 billion
One of Australia’s largest taxpayers
Community investment
$290 million
21,900 volunteering and pro bono hours
CommBank Foundation
1,240+ grants
For youth, education and health organisations
Financial education
568,000+ students
Participating in Start Smart sessions
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Commonwealth Bank of AustraliaAnnual Report 2018Strategic report Strategic report
2018 highlights
Our people
Shareholders
Number of employees
49,125
Employed in 15 countries, 40,508 in Australia
Women in Manager roles and above
44.6%
Women in Executive Manager roles
and above 37.6%
Total hours of training
1,847,000+
Average hours of training per employee 34.1 hours
Employees working flexibly
73.7%
20% work part-time or job share
Net profit after tax
$9,233 million cash basis
$9,375 million statutory basis
Continuing operations
Dividend per share
$4.31
Full year, fully franked, cash basis
% of cash net profits returned
to shareholders
80.4%
$7.6bn in total, 79% of shareholders are Australian
Amount received by the average retail
shareholder in dividends
$3,853
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Performance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Chairman’s
message
“Your Board, management team
and our people are committed
to making CBA a better bank
and to achieving our purpose
of improving financial
wellbeing for our customers
and communities.”
Catherine Livingstone AO
Chairman
Dear Shareholders,
This has been a difficult year. Confidence in the Bank
has been severely tested due to a series of conduct and
compliance issues. As a result, trust in the Bank, and its
reputation and standing, have been damaged.
The Board and I regret, without reservation, the Bank’s
failings over recent years, and apologise to all of our
stakeholders for what has happened.
The Bank has, however, continued to deliver service
and market-leading innovation for our customers, and
has continued to contribute to our communities. Our
businesses have performed well this year, and we have
maintained our capital strength. This financial performance
has supported a strong dividend for shareholders and
enabled the Board to determine a final dividend of $2.31
per share, taking the full year dividend to $4.31 per share,
fully franked, up 2 cents on last year. It has also been a
year of renewal at the Bank, and we have taken action to
set the Bank up for future success.
Regulatory and compliance issues
We take full responsibility for the issues we have faced,
and are committed to addressing our failures. An outline
of the year’s main regulatory, legal and industry reviews
is provided on pages 10–11 of this report.
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Commonwealth Bank of AustraliaAnnual Report 2018Strategic report Strategic report
Chairman’s
message
The Board and I would like to provide context for our
approach to these issues and the rationale for the
decisions we have made. In coming to a settlement
with the Australian Transaction Reports and Analysis
Centre (AUSTRAC), we agreed to pay a civil penalty
of $700 million. This is a very large sum of money, and
understandably, a serious concern for shareholders.
Factors that contributed to the size of the penalty included
the Bank’s financial size and the significant role the Bank
plays in the Australian economy.
When considering how to resolve the issue in
shareholders’ best interests, the Board formed the view
that mediation and settlement with AUSTRAC would
deliver the best outcome overall. It enables us to focus
on improving our risk and compliance capabilities, and
to move forward and work constructively with AUSTRAC.
The Board also determined that it was in shareholders’
best interests to reach an agreement with the Australian
Securities and Investments Commission (ASIC) to settle
the legal proceedings in relation to claims of manipulation
of the Bank Bill Swap Rate. This brings to an end the
uncertainty around bills trading, acknowledges our past
mistakes and where we could have done better, and it
allows us to focus on productive engagement with ASIC.
We are participating transparently and fully in the Royal
Commission and we believe that through the process
of scrutiny and reflection we will become a better bank,
and that the Australian financial services sector will also
be strengthened.
APRA Prudential Inquiry into CBA
In August last year, the Australian Prudential Regulation
Authority (APRA) announced that it was establishing an
independent prudential inquiry into the Bank. The decision
to initiate the inquiry was prompted by the succession of
issues confronting the Bank, and concerns regarding its
governance, culture and accountability frameworks and
practices.
We welcomed the opportunity for independent parties
to take a fresh view, and co-operated fully with the inquiry.
We have since welcomed the final report, and the clear
roadmap that it provides for us.
A key finding was that more rigorous Board and
Executive level governance of non-financial risks,
particularly operational and compliance risk, is required.
The report emphasises the importance of accountability,
where everyone owns their actions, and where exacting
standards for risk and customer outcomes are reinforced
by remuneration practices.
The report is also clear on the need for cultural change.
We need to be less complacent and reactive and
instead be more reflective, open to challenge and
customer focused.
Following the report, we have entered into an Enforceable
Undertaking (EU) with APRA. Under the terms of the
EU we have provided APRA with a Remedial Action
Plan, which APRA has approved. The plan outlines the
actions we are now taking to ensure that our governance,
accountability and culture frameworks and practices
are significantly improved and meet the high standards
expected of us. We have also further improved our
performance review and remuneration policies and
practices to ensure greater accountability for risk and
customer outcomes.
We have reported to APRA on the extent to which the
findings of the report have been reflected in remuneration
consequences for current and past executives. These
outcomes are outlined in the Remuneration report on
page 98.
We understand the scale of change which is necessary,
and its seriousness, in order for us to become a better,
stronger bank for our customers, people, regulators
and shareholders.
Your Board and management team are working to ensure
this is achieved.
The way forward
The selection of a new Chief Executive Officer was a key
priority this year. The Board sought to appoint a candidate
who would maintain momentum in the business while
addressing the regulatory and reputational challenges and
responding to evolving community expectations. We also
sought a candidate who could transform the business to
meet the rapidly evolving competitive and technology-
centric environment.
In appointing Matt Comyn to the role of CEO, we are
confident that he has the mix of attributes and values
needed to lead the Bank. Matt has now appointed a very
capable leadership team with deep skills and experience.
The Bank’s purpose and strategy, outlined on pages
12–27, provides clear direction. It commits us to deliver
for our stakeholders in a balanced and sustainable
way. In emphasising trust and reputation, it recognises
the importance of having the community’s confidence
and support.
Our decision to prioritise our core businesses and
capabilities will allow us to become a more focused
bank. The proposed demerger of the Group’s wealth
management and mortgage broking businesses will
enable both companies to pursue growth and investment
decisions appropriate to each business.
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Performance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Chairman’s
message
Board renewal
The program of Board renewal continued this year,
with the objective of ensuring that the Board has the
appropriate mix of skills, expertise and experience to
address current and emerging opportunities and issues.
I would sincerely like to thank Andrew Mohl and Brian
Long who will both be retiring at our Annual General
Meeting on 7 November 2018. They are long-serving
Directors and have contributed specialist expertise to
the Board’s deliberations.
In September 2017, Rob Whitfield was appointed an
independent Non-Executive Director. He adds broad
risk management and public sector experience, as well
as extensive banking experience, to the Board’s skills
and expertise.
In March this year, Anne Templeman-Jones joined the
Board. Anne is an experienced listed company Non-
Executive Director and has a strong background in
risk, corporate banking, insurance, advice and wealth
management.
Commitment to be a better bank
While this has been a very difficult year for the Bank,
we now have the impetus for change and a blueprint
for strengthening the organisation.
Your Board, management team and our people are
committed to making this a better bank and to achieving
our purpose of improving financial wellbeing for our
customers and communities.
Thank you for your support.
Catherine Livingstone AO
Chairman
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Commonwealth Bank of AustraliaAnnual Report 2018Strategic report CEO’s
message
“The work we are doing to
become a simpler, better
bank will deliver balanced
and sustainable outcomes
for all our stakeholders,
and importantly, drive
long-term and sustainable
outperformance for you,
our shareholders.”
Matt Comyn
Chief Executive Officer
Dear Shareholders,
As you know, the Bank has faced significant challenges
this year. This happened because at times we let our
customers down, our operational risk and compliance
capabilities simply weren’t good enough, and we were
too slow to fix our mistakes. I am sorry for these failings,
and I am committed to doing what is necessary to put
things right.
The required changes are now underway, and we are
building on the Bank’s strong foundations. More than
16 million customers choose to do business with us.
We are the first choice for home loans, household
deposits and digital banking. We have more branches in
more places, we rank first for our technology, and we are
financially strong.
Our financial results for the year reflect these strengths.
Operating momentum was resilient, driven by our core
banking businesses which delivered good volume
margin management in home and business lending,
ongoing growth in transaction accounts and deposits,
and continued uptake of our market-leading digital
banking services.
Operating expenses were impacted by a number of one-
offs including the AUSTRAC civil penalty and regulatory
and compliance costs. Excluding these items, expense
growth was maintained at low levels due to productivity
initiatives. This supported growth in overall earnings,
excluding non-recurring items. Importantly, our balance
sheet continued to strengthen across funding and liquidity
metrics, and we remain one of the best capitalised
banks in the world. This performance has supported an
increased dividend for shareholders.
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Strategic reportPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Strategic report
CEO’s message
Earning trust
While it has been important to focus on maintaining
business momentum, I’ve also been determined to face
up to issues and fix them so that we can earn the trust of
our customers, regulators and the community, and restore
your confidence and pride in your company.
To earn our customers’ trust we have to deliver better
outcomes. That’s why my leadership team is prioritising
listening to customer complaints and fast-tracking the
resolution of longstanding issues. It’s also the reason
that we’re focused on improving our customers’ financial
wellbeing through the products and services we provide.
This includes investing in new CommBank app features
that help customers save more, spend less and stay in
control of their finances.
To understand our customers’ level of trust in us, we
are now measuring our Net Promoter Score (NPS). NPS
subtracts our detractors from our promoters and is a good
indicator of whether our customers would recommend us
to their family and friends.
To earn the trust of our regulators we are committed
to engaging in a way that is proactive, transparent and
resolution-focused. A key step forward was settling the
anti-money laundering proceedings with AUSTRAC.
Importantly, we are investing in our financial crimes
capabilities and have a comprehensive program in
place. We are pleased to be working constructively
with AUSTRAC to help protect the integrity of the
Australian financial system.
We also reached an agreement with ASIC to settle
the Bank Bill Swap Rate legal proceedings. We have
given ASIC an enforceable undertaking under which
an independent expert will confirm that the changes
that we have made, and will be making, to our controls,
policies, training and monitoring in connection with our
BBSW business are sufficiently robust.
As the Chairman noted, the APRA Prudential Inquiry into
CBA, and its final report, have been pivotal for us this year.
While the report made for confronting reading for me and
my team, we believe it is fair and balanced and that it
provides a clear roadmap for the organisational change
required. The Remedial Action Plan we’ve developed,
and which has been endorsed by APRA, contains our
commitments to fix the issues identified. Each of us
is now accountable for making these improvements.
We are also committed to earning the community’s
trust. The Royal Commission is bringing to light mistakes
we have made, the impact of those mistakes, and the
changes required to meet community expectations.
To measure our progress in earning the community’s
trust, we will track and disclose our reputation score
relative to a group of the largest ASX-listed consumer-
facing companies.
Most importantly, to ensure we don’t make mistakes that
undermine trust in the future, we are working hard to
achieve better risk outcomes across the Bank. We are
focused on strengthening our operational, compliance
and conduct risk capabilities, and building a risk culture
which emphasises that everyone is accountable for all
the risks in their business. This is being reinforced through
consequences for poor risk management, and rewards
for identifying and managing risk well.
Setting a clear direction
My second priority has been to set the Bank on the right
course for future success.
Key to this has been articulating a simple purpose for
the organisation. Our purpose is to improve the financial
wellbeing of our customers and communities. It provides
clear direction to our people and guides our strategy.
Our ability to deliver good customer outcomes depends
on having an energised and accountable team. To help our
people understand what we stand for, and to drive actions
and behaviours, our values have been updated. The
revised values are simple and action-oriented: we do what
is right; we are accountable; we are dedicated to service;
we pursue excellence; and we get things done.
I have renewed the Executive Leadership Team to drive
change and lead our people through the transition.
In appointing new executives, I focused on individuals’
values, attributes and behaviours to ensure the right fit
for each role, while creating a good balance of external
experience and knowledge of the Bank. I am confident
that your new management team has the skills and
experience required to lead the Bank into the future.
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Commonwealth Bank of AustraliaAnnual Report 2018 Strategic report
CEO’s message
Becoming a simpler, better bank
for our customers
Our strategy is to become a simpler, better bank,
supported by stronger capabilities, that delivers balanced
and sustainable outcomes for customers, the community,
our people and shareholders.
Our retail and commercial banking franchises will be at the
heart of what we do. We aim to continue to lead in digital
banking and to offer a range of options for customers to
interact with us, including through our branches, business
centres and Australia-based call centres.
For our retail customers, key priorities include maintaining
our market-leading online banking offering, and providing
the best proprietary home buying experience.
In our business bank, we will be focused on providing
products that best fit our customers’ needs, and on
improving our service delivery by better integrating
our relationship, product and analytics teams. In the
institutional banking business, we will concentrate on
market segments where we are well positioned, including
payments and deposits, and will lend prudently.
The strategy of ASB Bank, our retail and business bank
in New Zealand, will be closely aligned with our Australian
businesses, but it will continue to operate on a stand-alone
basis so that it can respond to local conditions.
Further digitisation of our processes and businesses is
also key to simplification and to providing customers with
the best digital experiences.
Demerging our wealth management
and mortgage broking businesses
The proposed demerger of our wealth management
and mortgage broking businesses is an important step
towards simplification. It will result in the creation of a new,
leading wealth management business (NewCo). It will
include Colonial First State, Colonial First State Global
Asset Management, Count Financial, Financial Wisdom,
Aussie Home Loans, and our minority shareholdings in
CountPlus and Mortgage Choice.
The demerger allows NewCo to pursue growth and
investment decisions appropriate for its business, and
enables shareholders to participate in this opportunity if
they decide to hold NewCo shares. CBA shareholders will
receive shares in NewCo proportional to their existing CBA
holding. This will enable CBA shareholders, who already
own these assets, to choose whether to continue owning
them or not.
Simplifying our portfolio
We have announced the sales of our life insurance
businesses – including Sovereign in New Zealand,
CommInsure Life in Australia and BoComm Life in China.
We have also announced the strategic review of PT
Commonwealth Life in Indonesia. This is based on our
view that we can best serve customers by partnering
with specialist insurance providers who have the scale
and capacity to invest in market-leading products
and innovation. This is also why we are undertaking
a strategic review of our general insurance business.
As part of our simplification agenda we are tightening
our international focus. We have also decided to exit
our TymeDigital business in South Africa.
Strengthening key capabilities
Looking to the year ahead, we will be working extremely
hard to execute our strategy. We will be investing in
operational risk and compliance to strengthen our
processes, systems and governance. We will build our
data and analytics capabilities to deliver productivity
for our business and better insights for our customers.
And we will be reshaping and reducing our cost base so
that we can continue to invest in innovation to meet the
challenges of disruption and to deliver great experiences
for our customers.
My team and I share the conviction that the work we
are doing to become a simpler, better bank will deliver
balanced and sustainable outcomes for our stakeholders,
and importantly, drive long-term and sustainable
outperformance for you, our shareholders.
I look forward to updating you on our progress.
Matt Comyn
Chief Executive Officer
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Performance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Becoming a
better bank
Regulatory,
legal and industry
review update
We have been involved in a number of
regulatory, legal and industry reviews
this year. We have been committed
to participating fully and openly, and
to providing transparency on the
processes and outcomes.
APRA Prudential Inquiry into CBA
On 28 August 2017, the Australian Prudential Regulation
Authority (APRA) announced the establishment of an
independent prudential inquiry into the Bank (Prudential
Inquiry). APRA appointed three panel members,
Dr John Laker AO, Professor Graeme Samuel AC
and Jillian Broadbent AO, to undertake the inquiry.
On 1 May 2018, APRA released the final report of the
Prudential Inquiry. It laid out shortcomings in governance,
culture and accountability at the Bank. The final report
is constructive and fair and we accept all of its 35
recommendations. We are committed to implementing
all of the recommendations and have entered into
an Enforceable Undertaking (EU) with APRA.
The final report’s recommendations outline five key areas
for improvement:
• Governance: more rigorous Board and Executive
Committee level governance of non-financial risks.
• Accountability: exacting accountability standards
reinforced by remuneration practices.
• Capability: a substantial upgrading of the authority
and capability of the operational risk management
and compliance functions.
• Customer: injection into CBA’s DNA of the “should we?”
question in relation to all dealings and decisions on
customers.
• Culture: cultural change that moves the dial from reactive
and complacent to empowered, challenging and striving
for best practice in risk identification and remediation.
APRA also applied a capital adjustment to our minimum
capital requirement by applying an add-on of $1 billion to our
operational risk capital requirement. We have undertaken only
to apply for removal of all or part of the capital adjustment
when we believe we can demonstrate compliance, to APRA’s
satisfaction, with the specific undertakings within the EU and
the commitments set out in our Remedial Action Plan (Plan).
We submitted our Plan to APRA in June. It contains clear
and measurable responses to each of the final report’s
recommendations, supported by a timeline and executive
accountabilities. The Plan has been endorsed by APRA and
is subject to a comprehensive assurance framework. The
Promontory Financial Group will act as independent reviewer
and will provide quarterly progress updates to APRA.
In addition, we have advised APRA how the findings of the
Prudential Inquiry will impact remuneration outcomes for
current and former executives. See the Remuneration report
on page 98 for more details.
Work to ensure delivery of the Plan is now underway, and is
being managed under a dedicated Better Risk Outcomes
Program (BROP).
A centralised BROP team, reporting directly to the CEO,
will govern implementation of the Plan. Business unit and
support unit leaders are accountable for execution of the
Plan. Work is already underway, for example an Executive
Leadership Team Non-financial Risk Committee, one of the
recommendations, has been established and held its first
meeting in June, and similar forums are being established
in each business unit and support unit.
BROP will also govern major risk uplift programs, and build
specific additional capabilities including system, data and
reporting foundations, to support delivery of the Plan.
AUSTRAC proceedings
On 4 June 2018, we announced that we had entered into
an agreement with Australian Transaction Reports and
Analysis Centre (AUSTRAC), the Australian Government’s
financial intelligence agency, to resolve the civil proceedings
commenced by AUSTRAC in the Federal Court of Australia
on 3 August 2017. AUSTRAC’s claim alleged past and
ongoing contraventions of four provisions of the Anti-Money
Laundering and Counter-Terrorism Financing Act 2006 (Cth).
The agreement with AUSTRAC has been approved by the
Federal Court.
As part of the agreement we have incurred a civil penalty
of $700 million, together with AUSTRAC’s legal costs.
Banks have a critical role to play in combating financial
crime and protecting the integrity of the financial system.
In reaching this position, we have also agreed with
AUSTRAC that we will work closely together in an open
and constructive way.
We are committed to build on the significant changes made
in recent years as part of a comprehensive program to
improve operational risk management and compliance at
the Bank. We continue to make significant investment in
10
Commonwealth Bank of AustraliaAnnual Report 2018Strategic report Becoming a
better bank
anti-money laundering (AML) and counter-terrorism financing
(CTF) compliance, including upgrading and enhancing our
AML/CTF technology, updating our process documentation,
investing in further resourcing, and strengthening training
of our personnel.
We have acted to strengthen financial crime capabilities,
and have invested significantly recognising the crucial
role that we play, including through our Program of
Action with coverage across all aspects of financial crime
(including AML/CTF, sanctions and anti-bribery and
corruption) and all business units. The Program of Action
is uplifting the Bank’s processes for monitoring, managing,
reporting and controlling financial crime across all of our
operations, including how we engage with and inform
AUSTRAC and other regulators, and the operating model of
the Bank which relates specifically to financial crime to ensure
increased confidence in managing this area of risk.
We have changed senior leadership in the key roles
overseeing financial crimes compliance supported by
significant resources and clear accountabilities.
Two class actions have been filed alleging that we failed
to disclose to the market, prior to 3 August 2017 when
we became aware of the AUSTRAC proceeding, material
information in relation to aspects of our AML/CTF controls.
We reject the assertion that we had any price sensitive
information in respect of our AML/CTF controls environment
or the risk of the AUSTRAC proceeding, and maintain that
at all times we have complied with our continuous disclosure
obligations. We intend to vigorously defend both claims.
For more information on the AUSTRAC proceedings,
including the Statement of Agreed Facts and Admissions see:
commbank.com.au/AUSTRAC
Royal Commission into Misconduct in the
Banking, Superannuation and Financial
Services Industry
On 30 November 2017, the Government announced the
establishment of the Royal Commission into Misconduct in
the Banking, Superannuation and Financial Services Industry.
The former High Court Judge, the Honourable Kenneth Hayne
AC QC, was appointed as the Commissioner.
The purpose of the Royal Commission is to inquire into
the conduct of banks, insurers, superannuation funds
and other financial services institutions, and to assess
the effectiveness of existing regulatory frameworks and
mechanisms for customer redress. A final report is due by
1 February 2019, with an interim report due by 30 September
2018. The Commissioner’s report is expected to outline his
findings and recommendations, which may form the basis
for regulatory changes.
The Royal Commission is conducting rounds of public
hearings, focusing on key elements of the financial services
industry, including consumer lending, financial advice, lending
to small and medium enterprises, superannuation, general
and life insurance, and experiences with financial services
entities in regional and remote communities.
The Royal Commission is playing an important role in
highlighting misconduct and conduct below community
standards and expectations, demonstrating that the industry
hasn’t always done the right thing by customers, and it will
continue to highlight cases where we have made mistakes.
We are engaging openly and transparently with the Royal
Commission and carefully considering the issues specific
to the Group and the broader issues the Royal Commission,
customers, regulators and other stakeholders are raising
around how the financial services industry operates.
Our Royal Commission project team leads our engagement
with the Royal Commission and manages the various
requirements, including finding and providing requested
documents, supporting our witnesses, attending hearings,
and preparing submissions.
As at 30 June 2018, we had responded to 106 notices to
produce documents from the Royal Commission, provided
47 witness statements and 10 submissions. In addition,
CBA executives had provided in-hearing evidence to the
Royal Commission on 12 occasions.
For more information on the Royal Commission see:
https://financialservices.royalcommission.gov.au
ASIC Bank Bill Swap Rate proceedings
In May 2018, we announced that we had reached an
agreement with the Australian Securities and Investments
Commission (ASIC) to settle the legal proceedings in relation
to claims of manipulation of the Bank Bill Swap Rate (BBSW).
The settlement was approved by the Federal Court in June.
As part of the settlement, we have acknowledged that,
in the course of trading on the BBSW market in Australia
on five occasions between February and June 2012, there
were attempts to engage in unconscionable conduct in
breach of the ASIC Act. We have also acknowledged that
we did not have adequate policies and systems in place
to monitor the trading and communications of our staff
in order to prevent that conduct from occurring.
The settlement also included a $5 million penalty, a payment
of $15 million to a financial consumer protection fund, and
a $5 million payment towards ASIC’s costs of the litigation
and its investigation. We have also entered into an enforceable
undertaking with ASIC, under which an independent expert
will be appointed to review controls, policies, training and
monitoring in relation to our BBSW business.
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Strategic reportPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Our
strategy
Strong foundations
The Australian banking industry has
performed well financially over the
past decade, supported by favourable
credit market conditions and a stable,
well-regulated domestic financial system.
Steady economic conditions and credit
growth have enabled the industry to invest
in customer experience and deliver good
shareholder returns in a competitive market.
During this period, CBA has been able to grow our
main financial institution (MFI) share, deepen customer
relationships, and invest in businesses, technologies
and capabilities.
There have, however, also been times when we have let our
customers down, which is unacceptable. We are committed
to being a better bank, earning community trust and doing
the right thing by our customers.
Our operating context is evolving. We are experiencing,
and are likely to continue to see, ongoing changes in
our economic, regulatory and competitive environment,
as outlined in our Business risks section on page 43.
We have the right foundations to thrive in this evolving context.
We have the strongest retail bank franchise in Australia
and very strong commercial banking franchises. We have
relationships with more than half of all Australians and more
business customers than any other bank, supported by the
broadest branch network in Australia and our relationship
managers for business and institutional clients.
This strength has enabled us to invest in market-leading
technology. We now have 6.5 million active digital users and
remain the only major Australian bank with a real time
banking system.
We also have a strong balance sheet and have been
strengthening our capital, liquidity and funding.
Our strategy builds on our strong foundations and reflects the
changes in operating context to strengthen our business for
the long term and deliver balanced and sustainable outcomes
for our stakeholders.
We take our role and responsibility in the community seriously
and are committed to making a broad, meaningful and
positive contribution to Australian society.
12
Commonwealth Bank of AustraliaAnnual Report 2018Strategic report Our strategy
Our purpose and strategy
We have a simple purpose: to improve the
financial wellbeing of our customers and
communities. Our purpose guides our strategy.
Our strategy is to become a simpler, better
bank that delivers balanced and sustainable
outcomes for our customers, community,
our people and shareholders.
A simpler, better bank for our customers
We will simplify our portfolio, operating model and processes.
We will focus on our core retail and commercial banking
businesses in Australia and New Zealand.
Within our retail and business franchises, our priorities are
to build deep, trusted relationships with our customers,
strengthen our business banking proposition, and deliver
better operational discipline.
We will grow from a simpler and more digital foundation.
We will accelerate our innovation agenda to give customers
the best digital experiences, and make it easier for our
people to better serve customers.
Stronger capabilities
To deliver on our strategy we need to achieve better customer,
efficiency, and risk outcomes. To do this, we will prioritise
strengthening four critical capabilities:
• operational risk and compliance
• cost reduction
• data and analytics
• innovation
Balanced and sustainable outcomes
We believe that delivering for each of our stakeholders creates
a virtuous cycle. We exist to serve customers. Engaged
employees with strong values will deliver excellent customer
service, better customer outcomes and make a positive
contribution to the community. This will, in turn, generate
strong, sustainable returns for shareholders.
We will focus on achieving better customer outcomes, earning
the community’s trust, renewing our culture and delivering
for shareholders. We must also operate in a way that helps
to ensure a resilient, efficient, fair and safe financial system.
To measure our progress, we will monitor a balanced
set of metrics. We have set ourselves the following goals:
• #1 Net Promoter Score for consumer and business
customers
• Top quartile reputation score
• Top 10% employee engagement score
• Top quartile total shareholder returns
Our strategy
Become a simpler, better
bank for our customers
To deliver balanced and
sustainable outcomes
Simplify our business
Lead in retail and commercial banking
Best in digital
Supported by stronger capabilities
Operational
risk and
compliance
Cost
reduction
Data and
analytics
Innovation
Customers
Better outcomes
People
Energised,
accountable
Shareholders
Long-term
sustainable
returns
Community
Trusted and
reputable
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Strategic reportPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Strategic report
Our strategy
Balanced and sustainable outcomes
Our customers: delivering better outcomes
Our focus on service and our
strong digital proposition have
led to high levels of customer
satisfaction, as evidenced by the
Bank leading in retail customer
satisfaction for 51 of the past
60 months.(1)
Despite this, we acknowledge that if we want customers to
be our supporters and advocates, we need to demonstrate
more clearly that we are on their side. This requires not only
continued leadership in service and digital innovation, but
also ensuring that we make a tangible, positive impact on
our customers’ financial wellbeing.
This is why we have changed our focus from customer
satisfaction to tracking both our promoters and detractors
through a Net Promoter Score (NPS).
NPS asks customers if they would recommend us to their
friends and family, which will provide a better measure of
overall customer sentiment.
Gaining NPS leadership requires us to shift beyond customer
service and product quality, to eliminate customer pain points.
It means being there when it counts, and making a real
difference in customers’ lives.
In addition to meeting multiple customer needs, we need to
help customers better understand and manage their spending
and saving, avoid fees, and make better financial decisions.
Our purpose of improving financial wellbeing requires us
to guide customers through key life events, such as buying
their first home or dealing with job loss, and to have the right
conversations with customers to help them build financial
security now and for the future.
We have made good progress but we have more to do
and will maintain a strong focus on these outcomes.
Customers served
16.1 million
Digital customers
6.5 million
Largest branch and ATM network in Australia
1,267 branches Group total
4,253 ATMs Group total
(1) Roy Morgan Research Retail Main Financial Institution Customer Satisfaction.
14
Commonwealth Bank of AustraliaAnnual Report 2018
Our aim is to be #1
in NPS for consumer
and business
customer segments
-2.7
Jun 18
-19.6
Jun 18
Our strategy
Focusing on Net Promoter Score (NPS)
NPS is now our primary measure of customer outcomes.
Our digital channels have performed well, and we have
consistently achieved #1 NPS scores for both our mobile
app and internet banking. Improving our consumer and
our business customer scores is a major focus for us.
Mobile app NPS (1)
Consumer NPS (3)
+35
+25
+15
+5
+37.8
Jul 17
CBA
Peers
Jun 18
10
8
6
4
2
0
-2
-4
-6
-8
-10
Jul 15
CBA
Peers
Internet banking NPS (2)
Business NPS (4)
0.0
-5.0
-10.0
-15.0
-20.0
-25.0
Jul 15
CBA
Peers
+31.3
+35
+25
+15
+5
Jul 17
CBA
Peers
Jun 18
Putting customers in control
of their finances
With almost half of all Australians spending more
than they’d like to, we are providing customers
with features that give them more visibility and
control of their finances.
We have launched a range of features through
the CommBank app to help customers better
track their spending and set savings goals. The
features include real time transaction notifications
and Spend Tracker which help improve everyday
spending habits. We are also piloting a Spend
Less Challenge for credit card customers.
Helping customers avoid fees
We are now providing alerts through the
CommBank app for insufficient funds, credit card
payment due dates, and high cost transactions
such as ATM withdrawals on credit.
Spend
Tracker
Spend Less
Challenge
High cost
transaction alerts
(1) Roy Morgan’s Single Source survey, Australian population 14+ (Internet banking services via mobile app). See page 293 of the glossary for details.
(2) Roy Morgan’s Single Source survey, Australian population 14+ (Internet banking services via website or mobile app). See page 293 of the glossary for details.
(3) DBM Consumer MFI Net Promoter Score, Australian population 14+ (from Aug 16; 18+ for data prior). See page 293 of the glossary for details.
(4) DBM Business Net Promoter Score. See page 293 of the glossary for details.
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Strategic reportPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report
Our strategy
Balanced and sustainable outcomes
Our community: earning trust
The Bank has an important
role to play in the community
as a responsible provider of
financial services.
Given our heritage, and our role in the economy
and the community, we must also be a responsible
corporate citizen.
We take these responsibilities seriously and are focused
on meeting the community’s expectations – both in
terms of the products and services we provide, and the
contribution we make to the community.
The Bank supports a range of community organisations
and initiatives. Information on the support we provide
is outlined on pages 34–37.
Trust is the cornerstone of banking, but the community’s
trust in us and our reputation have been damaged recently.
We have launched a comprehensive remediation program
(the Better Risk Outcomes Program) to fix weakness in
our risk management, strengthen our overall management
of risk, and ensure we exceed our regulatory and
compliance obligations.
To restore trust and reputation we will change the way
we engage with our community and stakeholders by:
• being more proactive and less reactive
• being honest and transparent when issues
or incidents occur
• showing genuine traction in addressing the root
causes of issues
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Commonwealth Bank of AustraliaAnnual Report 2018Strategic report Our strategy
Focusing on trust and reputation
Trust and reputation are critical drivers of the Bank’s long-
term ability to operate and create value for stakeholders.
We are now measuring our reputation performance with
the independent RepTrak® survey conducted by Reputation
Institute. Our RepTrak® Reputation score is monitored
quarterly and is also included in executive leaders’ long-term
variable remuneration assessments.
Reputation score versus peer companies
Our goal is to be
in the top quartile
of peer companies
for reputation
62.8
62.5
57.1
56.0
46.9
48.0
65.7
65.1
66.2
65.0
60.6
59.4
63.2
63.5
56.3
53.0
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Source: RepTrak 2018, Q2 Australia Report, June 2018, Reputation Institute.
Peer companies is the average of 16 of the largest consumer-facing companies listed on the ASX.
CBA
Average of peer companies
Delivering for our community
Helping fund affordable housing and
inclusive communities
On census night in 2016, more than 116,000 Australians
were homeless. In New South Wales, there are over
55,000 approved households waiting for public housing
and demand for affordable housing options is increasing.
SGCH (formerly St George Community Housing) was
founded more than 30 years ago as a not-for-profit with
the aim of providing sustainable, affordable and safe
homes for low income households in Sydney.
In April 2018, Commonwealth Bank provided a four-
year, $110 million debt facility to enable SGCH to build
285 new homes, adding to its existing portfolio of
4,700 social and affordable properties. The bank will
also refinance existing debt to support the delivery
of several other developments.
“ If we want a diverse and thriving local community
and economy, we need more affordable housing
options so that low income earners and key
workers, such as teachers, can live in the suburbs
where they work.” Scott Langford, CEO of SGCH
Left to right: Julie Stojanovska, contracts officer, Irene Malina,
tenant, and Scott Langford.
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Strategic report
Our strategy
Balanced and sustainable outcomes
Our people: maintaining an energised
and accountable team
Our people’s focus on customer
service, based on deep motivation to
serve customers well and a real pride
in our institution, has been a key
strength over the last decade.
Our values are:
• We do what is right
• We are accountable
• We are dedicated to service
• We pursue excellence
• We get things done
We have also supported our people and have been
recognised as an employer of choice in the Australian
workplace by:
• LinkedIn – #2 Top Companies 2017: Where Australia
wants to work now
• GradAustralia – #1 Top banking and financial services
graduate employer
• Australian Workplace Gender Equality Agency
Employer of Choice for Gender Equality 2017–2018
While there is much to preserve, we need to clarify the
expectations of how we live our values, and lead our
workforce through significant change.
Our values
Our objective is to build an energised and accountable team.
We have clarified our values as one step of many required to
renew our culture.
Our values provide a clear statement about what we stand
for and what drives our actions and behaviours. They apply
to everyone at the Bank and are a core component of our
performance reviews for all staff.
The importance of diversity and inclusion
Diversity and inclusion are an integral part of our culture,
values and the way we do business. There are tangible
benefits for our employees, customers, shareholders
and the communities we operate in.
For more information on the Bank’s initiatives in this area
see page 39.
Helping our people build skills for the future
The pace and extent of change in the workplace has
accelerated due to rapid adoption of new technologies, the
adoption of flexible working, greater responsiveness to our
customers, and an enhanced focus on risk and controls.
Automation and digitisation of the business also changes
the capabilities and skillsets we need.
We are preparing for this shift in a way that embraces
reskilling and provides choices for our people.
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Commonwealth Bank of AustraliaAnnual Report 2018 Our strategy
Focusing on employee engagement
Engaged and energised employees deliver
better customer outcomes and experiences,
and are more productive. It’s therefore
fundamental to our success that our people
care deeply about our customers, the
community and the Bank, and are committed
to our purpose, values and strategy.
As a sign of how important these outcomes are, employee
engagement has been incorporated as a long-term variable
remuneration performance measure for the CEO and Group
Executives. Employees participate in a survey called Your
Voice twice per year. The survey measures our progress on
embedding our values, and employee engagement, through
an Employee Engagement Index (EEI) score. The EEI score
is based on responses to questions relating to satisfaction,
commitment, advocacy and pride.
According to our most recent EEI score, overall employee
engagement has declined to 72%. This is a reduction of
1% from 73%, recorded in September 2017. Pride in the
organisation was one of the most affected areas. However,
in a clear sign that our people are eager to engage, the
participation rate in the survey was high at 89%. Employees
also provided their views on what we need to do better,
giving us a clear list of areas for improvement.
Creating an energised team
We have a 59 year difference between our youngest and
oldest employee, and our workforce is more culturally
diverse than the Australian population.
This provides us with a rich and diverse set of skills,
perspectives and experiences to draw on when serving
customers. It allows us to better understand their needs
as we share life experiences like securing a first job,
starting a family, getting a first mortgage, caring for
elderly parents or planning for retirement. Our diversity
helps us think more creatively and solve complex
problems. It also enriches the Bank’s culture when
people are valued for who they are, and are supported
in career and life transitions.
Our employee-run network, AdvantAge, champions age
and life-stage related topics. It’s made up of graduates,
working parents and older employees planning for
retirement. Key priorities include providing flexible work
options to help employees reach their potential at every
stage of life, breaking down stereotypes and promoting
age-inclusive behaviours. We also have employee
networks for gender, sexual orientation, accessibility
and disability, reconciliation and cultural diversity.
Our goal is to be in
the top 10% globally
for our employee
engagement score
Employee Engagement Index score
78% 73% 72%
82%
CBA
Mar 2017
CBA
Sep 2017
CBA
Mar 2018
Top 10%
globally
(threshold)
Source: IBM Kenexa.
“ I’m still learning. Most of
my colleagues are younger
than me, but it’s not about
age, it’s about capability.
The most important thing
for customers is our ability
to adapt according to
their needs. We earn their
respect by showing energy,
enthusiasm and empathy.”
Sam Bazzi, Branch Manager,
Campsie, NSW
“ At the Campsie branch
we speak 14 different
languages to cater
for our multicultural
community. We all have
something unique to
offer. Sam has such rich
life and professional
experiences, he
can always answer
customer queries.”
Aemu Wong, Lending
Specialist, Campsie, NSW
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Strategic reportPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Strategic report
Our strategy
Balanced and sustainable outcomes
Our shareholders: delivering long-term
sustainable returns
The Bank has historically delivered
consistently strong total shareholder
returns, and has outperformed the
Australian market and peer banks.
By focusing on both the financial and non-financial drivers
of shareholder value, we will deliver sustainable financial
performance into the future.
For detailed information on our approach to ESG see
both the Doing business sustainably and Corporate
governance sections at pages 28 and 81 respectively.
We know that stable dividends are valued by our shareholders
and that this income supports their financial wellbeing.
With millions of Australians owning nearly 80% of the Bank,
the dividends we pay also help support the Australian
economy.
We believe that becoming a simpler, better bank, combined
with the work being done to improve governance,
accountability and risk management, will underpin future
shareholder returns. We are also optimising our business
and capital settings and adapting to the changing operating
environment to drive financial performance and strength.
We recognise that investors are increasingly looking for long-
term returns that are supported by strong environmental,
social and governance (ESG) performance.
Net profit after tax
$9,233 million cash basis
$9,375 million statutory basis
Continuing operations
Dividend per share
$4.31
Full year, fully franked, cash basis
Amount received by the average retail
shareholder in dividends
$3,853
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Commonwealth Bank of AustraliaAnnual Report 2018 Our strategy
Focusing on shareholders
Our aim is to deliver sector-leading returns
and a stable dividend stream. We achieve this
by focusing on both operating performance
and capital generation.
Our goal is to deliver
top quartile TSR
outperformance
relative to peers
Dividend
Per share, fully franked, cash basis
Total shareholder return (TSR)
Percent
The Bank seeks to pay cash dividends at strong and
sustainable levels. This year 80% of profits are being
returned to shareholders as dividends (75% excluding
the impact of the AUSTRAC civil penalty).
The Bank aims for long-term, sustainable outperformance
on TSR, because TSR combines both share price
appreciation and dividends paid and shows the total return
to shareholders over time.
2018
2017
2016
$4.31
$4.29
$4.20
10 years
5 years
41%
1 year -7%
Source: Bloomberg
222%
Capital
Common Equity Tier 1 ratio (CET1, APRA)
Return on equity
Cash ROE, continuing operations
The CET1 ratio is an important measure of the Bank’s ability
to absorb unexpected losses. It compares a bank’s core
capital with its risk weighted assets. APRA requires the major
Australian banks to have a CET1 ratio of 10.5% or more by
1 January 2020. We are on track to meet this requirement.
Return on equity is an important measure of the Bank’s
profitability. It represents the net profit generated as a
percentage of the equity shareholders have invested. ROE
remains strong, though has declined in recent years due
primarily to regulatory requirements for higher levels of capital.
2018
2017
2016
10.1%
10.1%
10.6%
2018
2017
2016
14.1%
15.7%
16.1%
For more detail on the Bank’s financial and non-financial performance see the Performance overview section on page 61.
Aligning executive remuneration with shareholder experience
The Bank’s executive remuneration framework supports
the Banks’ strategy and shareholder interests. This year
action has been taken to further the alignment with
shareholders by imposing remuneration consequences
on all senior leaders in the Bank for the poor risk and
customer outcomes that have occurred.
Remuneration has been reduced by more than
$60 million for current and former senior leaders as
a result of adjustments to variable remuneration and
partial or full lapsing of outstanding deferred variable
remuneration awards. This includes the actions taken
by the Board in August 2017 to reduce Non-Executive
Director fees, and reduce to zero the short-term
variable remuneration for Group Executives in the
previous financial year.
For more information see the Remuneration report
on page 96.
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Strategic reportPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Strategic report
Our strategy
A simpler, better bank for our customers
We will simplify our portfolio and focus
on our core retail and commercial
banking franchise. In parallel, we will
accelerate our digitisation agenda.
Simplify our business
Demerging wealth management
and mortgage broking
To simplify our business and allow us to focus on our core
banking businesses, we have announced our intention
to demerge our wealth management and mortgage
broking businesses. This will create a new, leading wealth
management and mortgage broking company (NewCo),
which will be listed on the Australian Securities Exchange.
Shares in the new listed company will be allocated to our
shareholders in proportion to their ownership of CBA shares.
NewCo will be made up of Colonial First State, Colonial First
State Global Asset Management (CFSGAM), our third-party
distribution businesses – Count Financial, Financial Wisdom,
Aussie Home Loans – and our minority shareholdings in
CountPlus and Mortgage Choice.
The demerger will enable NewCo to pursue growth and
investment decisions appropriate for its business.
We expect to implement the demerger in 2019, subject
to shareholder and various regulatory approvals.
Reviewing our portfolio
We are making progress on divesting our life insurance
businesses, with Sovereign already divested and the
divestments of CommInsure Life and BoComm Life subject
to regulatory approvals. PT Commonwealth Life is under
strategic review.
Also under strategic review are our general insurance
business and our stake in Vietnam International Bank.
We have also decided to exit our TymeDigital business
in South Africa.
Lead in retail and
commercial banking
The Bank will benefit from greater focus on our core banking
businesses in Australia and New Zealand. These businesses
all have market-leading capabilities and together represent
over 90% of the Group’s net profit after tax in 2018.
In an era of increased scrutiny and disruption, it is important
that we direct our investment and management attention on
our core businesses to improve operational risk and best
position us for the future.
We will accelerate our innovation agenda around our core
businesses to create growth options for the future. Our
primary focus will be on strengthening our position in three
critical areas: mortgages, business banking, and payments.
NewCo
Colonial First
State
Investment,
superannuation
and retirement
products
CFS Global
Asset
Management
Global
investment
management
Aussie Home
Loans
Count Financial
Leading
mortgage
broker
Financial
advice
Financial
Wisdom
Financial
advice
CountPlus
Mortgage
Choice
Accounting
and advice
(minority stake)
Mortgage
broker
(minority stake)
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Commonwealth Bank of AustraliaAnnual Report 2018 Our strategy
Retail banking
Deepening customer relationships and
enhancing distribution through digital
We will continue to offer the best digital experiences
to increase customer loyalty, attract new customers
and improve retention. We will also maintain the broadest
and most efficient distribution network in Australia.
We will continue to provide market-leading products and
services to meet customer needs at every life stage, including
everyday banking, consumer finance, and home buying.
We will invest to maintain the best home buying experience.
Digital will play a larger role, but will be tightly integrated with
home lending specialists and mobile lenders who will continue
to be an important part of the customer experience.
Providing financial advice to our customers is consistent with
our purpose: to improve financial wellbeing. Commonwealth
Financial Planning will remain part of Commonwealth Bank
Group and will be integrated into our Retail Banking Services
business unit. We will continue to evolve our model for Advice
to ensure we consistently deliver good quality advice that
meets community expectations and regulatory obligations.
Bankwest, which provides banking services Australia-
wide but has most customers in Western Australia, will be
more closely integrated with our Retail Banking Services
business unit. This will allow us to leverage our shared
understanding of retail customers’ needs and expectations
across brands.
The strategic direction of ASB, our New Zealand bank,
will be broadly aligned to our Australian mass retail
customer proposition, but adapted to local conditions.
ASB will continue to operate on a stand-alone basis given
the separate regulatory jurisdictions and ASB’s strong
execution track record.
Our continued success in retail will be marked by improved
customer outcomes, loyalty and experience, and a #1
ranking relative to our peers in NPS. We will also aim to
continue managing volume and margins for strong and
sustainable outcomes.
Business and Private Banking
Investing and innovating for growth
Business banking remains a focus as we concentrate
our efforts on the domestic market.
We will grow in business banking by hiring more bankers
to serve customers, and by innovating to compete in
an increasingly competitive market. Our priorities are
to provide a better commercial lending experience and
deeper payments integration.
We have established a more complete end-to-end
accountability in our Business and Private Banking
(BPB) business unit by integrating our small business
team, core business products, and analytics teams
and capabilities into BPB.
This new model will enhance coordination between
our product and distribution functions, provide clearer
accountabilities for our people, and deliver improvements
to the business customer experience. The changes will
also ensure that we are able to make more efficient use
of our resources, so we can invest and innovate for growth.
We’re helping SMEs get Wiise
Business management for small and medium
enterprises (SMEs) is set to become easier with the
launch of a new cloud-based, end-to-end, business
management solution called Wiise.
Developed in collaboration with KPMG Australia and
Microsoft, Wiise empowers SMEs to take control of their
business by combining accounting, payroll and banking,
and operational functions, including HR, inventory
and manufacturing.
Wiise integrates with the Bank’s invoicing platform,
CommBank Simplify, as well as banking data feeds,
linking customers’ banking and accounting platforms
together. Users will also be able to enquire about and
in some cases apply for specialised business banking
products directly through the platform.
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Strategic reportPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Our strategy
A simpler, better bank for our customers
Institutional Banking and Markets
Simplifying and refocusing on the most
attractive segments
Our Institutional Banking and Markets (IB&M) business unit
makes an important contribution to its clients, Australia and
the markets in which it operates. It serves a large corporate,
government and institutional client base with funding, risk
management and working capital product offerings.
We will focus on the most attractive market segments where
we are well positioned. This means strengthening domestic
deposits, payments and lending and supporting client activity
with a close link to Australia or New Zealand.
We are optimising our portfolio mix and international
footprint for lower risk and better returns. We support
our clients’ needs through proven structuring capabilities
and by leveraging our data and analytics.
By supporting industry and economic development,
and through a commitment to financing the transition
to a zero-emissions economy, IB&M contributes to
building Australia and has a broader impact on the
financial wellbeing of the country and all Australians.
Adelaide Oval’s upgrade was delivered through the
Commonwealth Bank and CEFC Energy Efficient
Equipment Finance (EEEF) program, which helps
businesses fund energy efficient vehicles, equipment
and projects.
The EEEF program has provided approximately
$50 million in funding for energy efficient projects
in South Australia since launch.
Helping Adelaide Oval shine
Cricket fans got a world-class experience at Adelaide
Oval’s historic day-night Ashes Test in December thanks
to a new, energy efficient upgrade to its lighting and
sound equipment.
The upgrade, financed by Commonwealth Bank and
the Clean Energy Finance Council (CEFC) not only
makes for a better spectator experience, but has
reduced the stadium’s energy use by up to 35%.
More than 220 energy efficient LED lights were installed
throughout the grandstands, as well as atmospheric
feature LEDs, high-definition ribbon boards and audio
visual equipment upgrades.
It’s a winning combination for the Adelaide Oval
Stadium Management Authority, as innovation helps
attract international event promotors, cuts energy
costs and pleases fans who like to see their team
colours on display.
24
Commonwealth Bank of AustraliaAnnual Report 2018Strategic report
Our strategy
Best in digital
Our future will be increasingly digital. Our customers continue
to be more and more digitally active and are doing more
banking on their mobile phones.
Over a number of years we have invested to build market-
leading digital assets and innovative customer interfaces.
We now have 6.5 million active digital customers and our
CommBank app and NetBank website both rank #1 for Net
Promoter Score.
We intend to continue to lead the market with the digital
experiences and services that we provide. We will accelerate
towards a mobile-first, multi-channel experience for our
customers across all of our businesses.
Our strong franchise also means we have the broadest and
richest data assets of our peers. Over the past three years
we have built our Customer Engagement Engine to use the
data we have to create personalised experiences for our
customers. For instance, last year we thanked 4.6 million
customers for their loyalty.
We also invest in privacy and cyber security to make sure
customers’ information is safe.
Introducing Ceba – your
digital assistant
Ceba is Commonwealth Bank’s chatbot. Available
24/7 through NetBank and the CommBank app,
Ceba helps customers complete 282 banking
tasks and can understand 85,000 different ways
of asking these questions.
Ceba helps by guiding customers through an
action, pointing them to more information, or
smoothly transferring them to a human assistant.
Driven by artificial intelligence, Ceba will keep
learning how to best help with different enquiries.
All NetBank and CommBank app customers can
now chat to Ceba. Since launch, Ceba has had
over 580,000 conversations with our customers
and is currently handling around 10 chats
per minute.
282
banking tasks
through Ceba
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Our strategy
Stronger capabilities
To deliver on our strategy, we need
to achieve better customer, risk and
cost outcomes. To do this, we will
strengthen four critical capabilities:
operational risk and compliance,
cost reduction, data and analytics,
and innovation.
Operational risk and compliance
Our management of operational risk and compliance
obligations has not kept pace with increasing demands.
A good risk culture is one where risk management is
everyone’s job.
We will preserve the customer orientation of our culture,
but apply lessons from best-in-class organisations that
have built strong operational risk cultures.
We will do what it takes to fix the root causes of issues,
including governance, capability, culture and investment.
We’ll also simplify underlying operational processes,
policies and systems.
We have launched the Group-wide Better Risk Outcomes
Program (BROP), reporting directly to the CEO with
strong Board oversight and independent assurance on
implementation effectiveness. BROP will drive sound
execution of the changes we need to make throughout the
Bank, and will support greater focus on the individual risk
management accountabilities of our leaders and people.
Improved productivity and
greater flexibility through
automation
The introduction of Robotic Process Automation
and digital workflow has significantly improved
the way we process home loan settlements. More
than 90% of the financial transactions required for
settlement have been automated, and paper has
been removed from the process. This has created
productivity savings of approximately 100 hours
per day across the team.
26
Cost reduction
Effective cost reduction across the Group is a critical
area of focus, given the lower-growth outlook, margin
pressure, increasing competitive threats from lower-cost
business models, and the need for ongoing spend on
risk, remediation and compliance. We are optimising the
structure and composition of our expense base to provide
us with the operating agility to effectively respond to the
rapidly changing landscape.
Our new strategy helps us achieve these cost outcomes:
Simpler operating model – Focusing on our core business
allows us to create a leaner organisation by consolidating
overlapping and complementary activities and teams across
business units, and by streamlining processes and operations
in support functions. Having a simpler business also makes
it easier to prioritise and dedicate investment where it is
required. In this way, portfolio optimisation reduces cost
and complexity and improves risk-adjusted returns. We are
also reducing our IT costs by adopting a new operating
model and new procurement strategies, and through better
demand and cost management.
Innovation focusing on digitisation and automation –
We are evolving our distribution model in line with a growing
customer preference for digital channels and functionality.
The shift to digital allows us to redesign and automate manual
processes. In addition to the cost savings, freeing our people
up from time- and labour-intensive tasks allows them to
focus on service. This improves the customer experience and
provides more opportunities for growth.
Use of data and analytics – In addition to providing growth
and revenue opportunities, we are using data and analytics
as cost reduction tools. Increased ability to capture, analyse
and extrapolate findings from data allows us to completely
re-engineer key monitoring and trend identification activities,
such as financial crimes compliance, cyber security and
fraud. It’s also helping us to make informed decisions about
our distribution network, including where to locate branches
and how to resource all of our distribution channels to best
meet customers’ needs.
Commonwealth Bank of AustraliaAnnual Report 2018Strategic report Our strategy
Customer engagement engine
Our Customer Engagement Engine (CEE) decides the
next best conversation to have with customers 21 million
times every weekday across our digital channels,
contact centres and branches. The CEE looks at each
of those interactions, and in less than 300 milliseconds,
updates our understanding of the customer, so that
our next interaction with them is more meaningful
and personalised.
Machine learning enables the CEE to make these
interactions more and more relevant to our customers’
financial wellbeing over time.
Data and analytics
Innovation
Data and analytics are critical to our future success.
We invested early in analytics and we have great examples
where our scale, capabilities and unique data sets have
been a clear competitive advantage. We have even more
opportunity to further enhance our risk control environment,
further drive productivity and improve customer experience.
As customers demand greater personalisation and tailored
insights, and expect their personal information to be secure
and private, we will be investing in the data and analytics
capabilities that put us in the best position to meet their
needs.
Open Banking and Comprehensive Credit Reporting
accentuate the case for change. When fully implemented,
these regulatory reforms will enable financial data to
be shared between financial services companies, with
customers’ consent. Ahead of these changes, we are
focusing on our data security and privacy capabilities
to protect our customers. We are also working on using
these data sources to provide new services and products
that improve our customers’ financial wellbeing.
We have invested heavily to build market-leading digital
assets and have more than 6.5 million active digital users.
Our CommBank app is used by 5 million customers and
has a Net Promoter Score of +37.8, more than 10 points
higher than our closest major bank peer.
We have launched a range of market-leading innovations,
and our digital offering plays a critical role in our financial
wellbeing program by helping customers to manage
spending, avoid fees, save more, and use credit prudently.
Going forward, we will develop new propositions and adapt
our business to drive better customer and business outcomes
in the face of increasing regulatory, macroeconomic and
competitor headwinds.
We will also take a more active approach to managing
innovation as a portfolio, ensuring that we invest in a balanced
portfolio of nearer-term and longer-term innovation.
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Our corporate responsibility
programs and initiatives
support the Bank’s strategy
to deliver balanced and
sustainable outcomes for our
customers, community, people
and shareholders. Every year
we undertake a materiality
assessment to understand what
our stakeholders consider to be
important. This helps us to evolve
our strategy, supporting programs
and initiatives in response.
What is important
to our stakeholders
This year we asked our stakeholders to consider the current
operating environment, global megatrends and emerging
issues, including trust in business, technology as a disruptor,
the transitioning workforce and climate change.
The following table outlines the areas of most interest to our
stakeholders, and how we are responding.
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Identified stakeholder issues
Areas of focus
How we respond
Serve customers
responsibly
Trust and reputation
Accountable, diverse and
inclusive workforce
Long-term sustainability
Our purpose is to improve the financial wellbeing of our customers and communities.
We are committed to delivering better outcomes for our customers. We do this by
listening to our customers (page 31), providing a range of financial wellbeing initiatives
(page 15), through customer advocacy (page 32) and with financial education programs
(page 34).
Trust and reputation are critical to our ability to operate and to deliver for our
stakeholders. We are contributing to our communities through our CommBank
Foundation community grants and pro bono engagement with community groups
(page 34), recognition of great educators through the Commonwealth Bank Teaching
Awards (page 36), and role modelling reconciliation with career opportunities and
dedicated customer assistance for Indigenous people, and cultural capability training for
our employees (page 37).
We empower our people to deliver the best outcomes for our customers. Our people are
guided by the Bank’s updated values, which are explained in the Our strategy section
(page 18). We are promoting health and wellbeing for our people (page 38) and we
continue to create a diverse and inclusive workplace culture (page 39).
Conducting our business in a responsible way is critical to delivering balanced and
sustainable stakeholder outcomes. We minimise risks and seek opportunities through
responsible business lending (page 40) and investing (page 41) practices, by operating
our offices and branches efficiently (page 41), sourcing responsibly and by respecting
human rights (page 42). Climate change as a significant long-term driver for financial
and non-financial risks and opportunities, and our response to this is reported in line
with the recommendations of the Task Force on Climate-related Financial Disclosures
(from page 48).
Stakeholder engagement
We engage with a wide range of stakeholder groups on issues that impact our business. This is fundamental to the way we
operate, as stakeholder views provide us with valuable insights. Our approach to stakeholder engagement is guided by the
AA1000 AccountAbility Stakeholder Engagement Standard and our Stakeholder Engagement Approach.
Stakeholders
Customers
Employees
Shareholders
How we engage
Multi-channel engagement, customer feedback and complaint channels, customer
surveys and workshops, customer advocate, customer representatives and bodies,
and external dispute resolutions.
Group-wide and ad-hoc employee engagement surveys, digital and social platforms,
meetings, employee events and the SpeakUP Hotline.
Financial and non-financial reporting, briefings, surveys, meetings and the Annual
General Meeting.
Government and regulators
Meetings, submissions and proposals, commissions and inquiries, and financial
institution associations.
Suppliers
Media
Community organisations,
non-governmental organisations
and charities
Service providers
and academics
Supplier meetings, briefings and workshops, risk assessments, Supplier Code of Conduct
and the SpeakUP Hotline.
Phone calls, meetings and emails, briefings and media releases, digital and social
channels.
External advisory panels, industry memberships, meetings, phone calls, correspondence,
and support of events, summits and forums.
Meetings, phone calls and correspondence.
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Transparent about our progress
We measure what matters, and what we measure gets managed. We benchmark our progress
against a number of leading sustainability indices and surveys to drive better performance in
environmental, social and governance issues.
Recognition
Frameworks
In 2018, we were again
ranked as the top Australian
company and top bank in the
Global 100 Index of the most
sustainable corporations in
the world
Listed in the Dow Jones
Sustainability World Index
Our non-financial reporting is
presented in accordance with
the Global Reporting Initiative
(GRI) Standards – core option.
The GRI Index is available on
our website commbank.com.
au/about-us/investors.
The Group is a participant
in the United Nations
Global Compact (UNGC)
and we are committed to
implementing the UNGC
principles that cover human
rights, labour, environment
and anti-corruption matters.
Scored a B for taking
co-ordinated action on
climate change
Listed on this index for
demonstrating strong ESG
practices since 2009
Complied with project
finance reporting for the
Equator Principles
Reported in line with the
recommendations of the
Task Force on Climate-
related Financial Disclosures
Sustainable Development Goals
The Sustainable Development Goals (SDGs) have been adopted by 193 countries, including Australia and New Zealand, in
support of the UN’s Sustainable Development Agenda. These 17 interconnected goals are designed to trigger action to address
issues such as poverty, hunger, inequality and impacts to the environment.
With our material issues in mind, we have identified the SDGs that are most relevant to our business and stakeholders.
Our customers
We show our customers that we are on their
side through service excellence, supporting
financial wellbeing, good customer outcomes
and advocacy, and digital innovation.
Our community
Our people
We are rebuilding trust and our reputation
by engaging proactively and openly with
government and regulators, investing in
communities and education, and role-
modelling reconciliation.
We motivate our people through leadership
and engagement, by promoting health,
wellbeing, diversity and inclusion, and by
providing training and career development.
Our shareholders
We deliver sustainable financial performance
through strong conduct, culture, governance,
accountability, remuneration and responsible
business practices.
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Better customer outcomes
Improving the financial wellbeing
of our customers supports better
outcomes for our business.
In addition to the business focus
on customer service and financial
wellbeing, we are committed to
doing better for customers in need,
providing improved access to
banking services for marginalised
customers, and resolving issues
for customers who have had poor
experiences with the bank.
Listening to our customers
Our customers are the first to tell us when we haven’t met their
expectations. We take complaints seriously and all staff are
trained to work with our customers to address them quickly,
and in a fair and transparent way.
We record all complaints so we can learn from our mistakes
and fix underlying issues.
Group Customer Relations manages the most complex and
sensitive complaints escalated from our frontline staff, and
customers, as well as those lodged through external dispute
resolution processes. Our staff are trained to consider
whether each complaint they handle might be a systemic
issue and flag it for further investigation.
As per regulatory guidance from the Australian Securities
and Investments Commission (ASIC), we must apply our full
internal dispute resolution process to complaints or disputes
that are not resolved within five business days of receiving
the complaint. Based on this criteria, we handled more
than 62,000 customer complaints this year. This was a
15% increase on the previous year.
Improving support for customers in financial hardship
We have made significant improvements in how we support
customers who are experiencing financial hardship.
These efforts were recognised in the Financial Counselling
Australia Rank the Banks survey of financial counsellors.
We were the highest ranked bank for our financial hardship
policies and practices in the survey, which took place in
November and December 2017. This was a significant
turnaround for us, as two years ago we were ranked last
amongst our peers.
Advocating for customers
Ms E, 86, lives in a nursing home and has
dementia. Her representative disputed almost
$25,000 of transactions on her credit card.
As the personal identification number (PIN) had
been used for the transactions and the credit card
had not been declared lost or stolen, the claim was
not accepted.
Ms E’s representative took the claim to the
Customer Advocate, where a review found that due
to her dementia Ms E may have disclosed her PIN
to another person. The disputed transactions were
not in line with her usual spending habits.
The Customer Advocate determined that it was
likely that Ms E was not responsible for making
the transactions and the amount in dispute should
be written off on compassionate grounds.
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We will continue to improve further. This year we helped
more than 56,000 customers experiencing financial hardship.
Depending on individual circumstances, the solutions we
offer include reduced payments, loan term extensions, debt
refinancing or concessions for certain fees and charges.
We also continue to support financial counsellors to build their
skills in partnership with Financial Counselling Australia and
funding scholarships through the Jan Pentland Foundation.
Better customer outcomes through advocacy
We are committed to being open and transparent with our
customers and our community. We understand that we have
failed some of our customers and have not responded to, or
not resolved, issues quickly enough.
This is why we established the customer advocate function
to strengthen accountability for fair customer outcomes and
offer a more customer-oriented approach to our business.
The 40 people in our customer advocate team help improve
products, processes, systems and decision making in order
to deliver better and consistently fair customer outcomes. The
team amplifies the voice of the customer, particularly those
who are marginalised, disadvantaged, or find the financial
system daunting.
Since 2016, the team has undertaken important work to
help deliver fair customer outcomes by removing barriers
to banking, finding and fixing customer issues, and providing
a helping hand to those in need.
Removing barriers
Banking can be complex and, for some, intimidating.
Our customer advocate team is focused on reducing and
removing the barriers that stand in the way of financial inclusion.
We continually investigate areas of customer vulnerability to
help us identify where customers may be at risk of receiving
poor outcomes. Over the last 12 months we have conducted
investigations into areas such as financial vulnerability,
payment frequency, language barriers, elder abuse and
scams, Indigenous disadvantage, and challenges that arise
from poor mental health. The results of this work help the
Bank improve its products and services for vulnerable people.
A quarter of our customers live in regional Australia and many
face challenges that are unique to their areas. We have met
with customers and community leaders around Australia, from
Launceston, Mandurah and Mildura to Palm Island, Tamworth
and Wagga Wagga, to better understand how we can support
our regional customers.
We have continued to work closely with our Customer
Advocate Community Council, which brings together 25
thought leaders and senior representatives from community
and social policy organisations to ensure that we are informed
and responsive to community concerns.
This year we partnered with CommInsure to launch a program
that automatically directs customers to agents who speak
their language. Our Arabic and Mandarin pilot results are
promising and we continue to explore other languages.
The Customer Advocate also launched our Accessibility and
Inclusion Plan 2017–2020 to improve access to banking for
Australians with a disability. We also reviewed the Bank’s
processes to ensure we were ready to support customers
who wish to marry same-sex partners.
Percentage of older Australians
estimated to be affected by elder
abuse, with financial abuse the
most common form
10%
(Australian Institute of Family Studies, 2013)
Money lost to scams
and fraud each year
$3 billion
(Australian Bureau of Statistics 2015)
Percentage of those affected
by scam activity aged over 50
75%
(CBA internal data)
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Finding and fixing customer issues
In a business our size things will sometimes go wrong. The
customer advocate team is focused on identifying issues that
might have a negative impact on customers. The team aims
to proactively identify issues before customers are affected,
but if there is already a customer impact, the team looks to
identify everyone who is affected. This helps us resolve issues
quickly and fairly.
If a customer is unhappy about the outcome of a complaint
investigated by Group Customer Relations, he or she
can refer it to the customer advocate team for an independent
review. Decisions made are final and binding on the Bank,
but not on customers, who are still free to go to an external
dispute resolution body. The independent review can result
in compensation for financial or non-financial loss, amending
or voiding the terms of a contract, or another outcome.
The customer advocate team maintains its independence by
remaining separate from the Group’s business units and also
by having independent decision rights and delegations.
The team reviews complaints closed by the Bank in areas
such as mental health, small businesses and scams, to
assess how they are resolved, the time it takes to resolve
them, and what the outcomes were. These findings are
then used to make improvements and in turn create better
outcomes for our customers.
The customer advocacy team seeks
to resolve all disputes within 15 days.
Average number of days it took for the
team to resolve disputes during the year
11
Closed complaints reviewed by the
Customer Advocate as part of thematic
reviews
850
Open complaints referred to the Customer
Advocate directly by customers
592 reviewed
Customers who sought external
dispute resolution afterwards
19
Customer Advocate decisions that were
overturned by external dispute resolution
0
To help prevent problems occurring in the first place, the
Customer Advocate has recently taken on the role of managing
systemic issues that become apparent from the investigation
of complaints. This pre-emptive action allows us to identify
people who have not yet complained, and help them quickly.
If we identify a number of customers whose circumstances
require remediation, the customer advocate team works to
ensure that remediation is fair, timely and consistent.
The team also provides support throughout the Bank to
ensure customers receive appropriate products for their
circumstances. During the year the team has had an active
role in setting up and participating in project investment,
product forums, and review processes aimed at achieving
better results for customers.
Providing a helping hand
We are often well placed to reach out to customers who might
need a helping hand. Following the analysis of seven years’
worth of complaints data, we identified that our customers in
regional communities may be at higher risk of mental health
problems. As strong and prosperous communities benefit
everyone, we partnered with the regional and agribusiness
teams to hold a mental health summit in Tamworth. The
expert community representatives who attended will help
us develop a roadmap for how the Bank can play a greater
role in the community response to mental health.
To help multicultural communities we have delivered initiatives
that include an internship program to provide opportunities
for members of African communities to work in the Bank, a
Victoria University mentoring program, and a youth-focused
financial literacy program in partnership with the Islamic
Museum of Australia.
This year our customer advocate team launched Safe &
Savvy – a guide and awareness program to help protect older
people and their families from financial abuse, scams and
frauds. The threat posed to elderly people is increasing as
incidents of abuse have grown and scams have become more
sophisticated and targeted. Many cases go unreported. The
Safe & Savvy guide is available online and in our branches,
and gives an overview of the types of financial abuse to look
out for, tips to avoid scams and fraud, and practical steps to
help safeguard the interests of older people. To complement
this work, more than 9,000 retail employees have received
specialist training.
Outcomes from the Customer Advocate
review process
52% – Customer Advocate agreed
with the Bank’s decision
34% – Customer Advocate agreed
with the Bank’s decision but took
further action to deliver a fair and
reasonable resolution
14% – Customer Advocate
disagreed with the Bank’s decision
and substituted a new decision for
the customer
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Doing business
sustainably
Contributing to our
community
We work with communities in eleven
different countries. We engage
with community groups and the
broader community on a number
of projects and initiatives.
Supporting our community
The Bank and its people support community organisations
through donating money and time.
A century of giving through CommBank Foundation
This year, our charity, CommBank Foundation, celebrated
100 years of giving.
To recognise how much our people contribute to their local
communities, and to celebrate the centenary, we gave
employees the opportunity to donate more than $10 million
to local organisations. This initiative delivered 1,028 grants,
each valued at $10,000, to youth, education and health
organisations nominated by local employees.
This donation was made in addition to CommBank
Foundation’s ongoing Community Grants program. Last year
we changed the program to provide a three-year commitment
to our Community Grants recipients. More than $3 million was
awarded to 220 youth organisations throughout Australia.
Time is just as valuable
Community organisations often rely on donations to enable
them to continue the great work they do. Many of these
organisations benefit just as much from people donating
their time and skills.
Our pro bono services provide opportunities for our people
and community groups to connect and work together.
Pro bono engagements provide value to the community
and to us, where community groups benefit from our skills
and expertise, and our employees develop professionally
and personally.
One of our key partnerships is with Jawun, which facilitates
secondments between companies, government agencies
and Aboriginal and Torres Strait Islander organisations.
During the year, 20 of our employees spent time working with
community groups and businesses in the NSW Central Coast,
Inner Sydney, North East Arnhem Land and Ngaanyatjarra
Pitjantjatjara Yankunytjatjara Lands.
Teaching the value of money
Our financial education programs provide people with
much-needed skills to manage their money and prepare
them for the future of work.
Start Smart and ASB GetWise build financial know-how
Developing financial capability is a valuable future skill for
young people. Start Smart is a free financial education
program that is curriculum-aligned and available to all
students, irrespective of whether they bank with us.
This year we had more than 568,000 students participate in
Start Smart classes across primary, secondary and vocational
education and training (VET) education institutions.
Laughter helps to heal
The Humour Foundation’s Clown Doctors are our 2017-
2020 national community grant recipient, and we have
supported their fantastic work since 1999. Clown
Doctors are specially trained performers who use their
unique flair and humour to brighten a sick child’s
stay in hospital. In addition to the $400,000 National
Community Grant they receive each year for the next
three years from CommBank Foundation, we also raised
more than $180,000 for the Clown Doctors, with the
help of teams in communities like Shepparton, who ran
a range of fundraising Smile Day events.
$580,000+
raised for Clown Doctors this year
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We support
community
organisations
with donations
and time
Move against cancer
Through our annual fundraiser Can4Cancer, run
in partnership with Tour de Cure, our people raise
funds for cancer research and prevention, whilst
actively promoting employee health and wellbeing.
In 2017, more than 1,500 employees participated
in walks and bike rides in Sydney, Melbourne
and Brisbane. Their collective participation in
Can4Cancer means they travelled more than
92,500 kilometres to raise money for cancer
research and prevention. Further, many of our
people were encouraged to make lasting lifestyle
changes which translate into lower cancer risks
and improved wellbeing.
We raised more than $1.6 million through
these activities, well surpassing our target of
$1.25 million. We aim to raise more than $2 million
in 2018, with a national rollout of this initiative.
92,500km+
collective distance
travelled by more than
1,500 employees to
raise money for cancer
research and prevention
Community investment
$290 million
includes cash, volunteering, forgone
revenue and project costs
Recipients of CommBank
Foundation centenary grants
1,000+
community organisations
Volunteering and pro bono hours
21,900+
We are building on the success of Start Smart and
introducing entrepreneurial education programs. Working
with the Foundation for Young Australians we are sponsoring
and further developing the $20 Boss program, the largest
entrepreneurship program in Australia for secondary school
students. It provides a real-world experience that kids can
easily translate into their everyday lives. In addition, we are
working with the Business Educators Australasia to sponsor
the Plan Your Own Enterprise program which invites students
to devise a business idea and create a plan to turn their
concept into a financially viable enterprise.
In New Zealand, ASB GetWise is the country’s largest youth
financial education program, delivered free to primary and
intermediate students. It teaches basic money management
skills, including establishing good savings habits at an
early age.
This year, the program exceeded its school participation
target for schools in lower socio-economic communities.
Overall, it delivered 3,877 workshops to more than 460
schools, and reached more than 97,000 registered students.
Supporting Indonesia’s female entrepreneurs
More and more women are entering the world of business
and entrepreneurship in Indonesia. Our Women Investment
Series (WISE) program offers free financial workshops,
masterclasses and a financial literacy app to equip female
entrepreneurs in Indonesia with the core skills needed to
build successful businesses. In partnership with a number
of on-the-ground organisations, we have helped empower
more than 2,800 women. This benefits families and
local communities.
This year we updated the WISE app to include new features,
content and an enhanced user experience. We also launched
a joint research program with MasterCard to understand the
factors that help female entrepreneurs transition from the
informal to the formal economy.
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Investment in education programs
over the last three years
$50 million
Students participating in
Start Smart sessions
568,000+
School banking participants
299,000+
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Using data and analytics
to assist Northcott
As one of Australia’s largest not-for-profit disability
service organisations, Northcott works with customers
to realise their potential.
A group of 20 employees from our customer experience
team spent a day at Northcott to look at data and
analytical challenges in the organisation. Teams worked
on issues in reporting for the help desk, rostering, sales
and claims, and building on sales.
This effort helped Northcott to fix reports that had
not run for a year and update financial models. The
organisation identified potential savings of $300,000
a year from these improvements.
Commonwealth Bank Teaching Awards
In recognition that great educators help children reach
their full potential, each year we work in partnership with
Australian Schools Plus to award 12 Commonwealth Bank
Teaching Award Fellows. These awards help showcase
Australia’s great teachers, celebrate their achievements,
and show an appreciation for the important work they do.
The 12 Teaching Award Fellows for 2018 each received a
$45,000 Fellowship to implement school programs and
put towards their own professional development.
All previous recipients of the award say that they have
been able to use this recognition to influence the education
system, drive inter-school collaboration, and improve their
professional standing.
Evidence for Learning
In partnership with Social Ventures Australia we have
developed a social enterprise called Evidence for Learning,
which supports evidence-based teaching practices
in Australia.
Since 2015, Evidence for Learning has successfully
completed trials with more than 8,000 students in
160 schools. These trials, combined with the Australian
Teaching and Learning Toolkit and the creation of the
Teacher Practice Guide for Evidence, have delivered an
increase in the overall use of evidence-based learning.
Our support of Evidence for Learning allowed us to respond
to the Federal Government’s Review to Achieve Educational
Excellence in Australian Schools.
Commonwealth Bank of AustraliaAnnual Report 2018Strategic report Doing business
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Role modelling reconciliation
Skills for building relationships
We support the success of Aboriginal and Torres Strait
Islander customers, employees, businesses and communities.
Our Elevate Reconciliation Action Plan details the initiatives
and programs that we have embedded to generate
positive outcomes.
A career, not just a job
We are committed to providing more employment
opportunities for Aboriginal and Torres Strait Islander
Australians. It is important that the opportunities we provide
are meaningful. We are investing in a range of programs that
provide skill development in new areas such as information
technology and cyber security.
We are targeting an increase in the proportion of Aboriginal
and Torres Strait Islander employees in our domestic
workforce to 3% by the end of 2026. This will be equal to the
proportion of Indigenous people in the Australian population.
It is a challenging target. The current level of representation
is 1%, which is an improvement from last year. We have two
years to meet our interim target of 1.5%.
Our Indigenous Careers team has focused on key areas of
traineeships, internships and experienced recruits to deliver
career opportunities.
We provided school-based and full-time traineeships to
66 Indigenous trainees during the year, with 47% of trainees
securing employment with the Bank.
As a 10x10 partner of the CareerTrackers Indigenous
Internship Program, we exceeded our annual
commitment to provide at least 25 internships by providing
30 opportunities for Indigenous university students.
Since 2015, this partnership has provided a pathway for
17 graduates into our graduate program and with a further
seven graduates joining us next year.
We are making sure that our people have the skills to
build strong relationships with Aboriginal and Torres Strait
Islander peoples.
We continue to roll out our Cultural Capability Framework,
which was developed in conjunction with BlackCard. To-date
we have trained more than 300 employees through face-to-
face workshops.
Each year we send 40 employees on cultural immersion
programs at the Bawaka and Nyinyikay Aboriginal homelands
in North East Arnhem Land. The programs are operated by
Lirrwi Aboriginal Corporation, and provide our people with
unique cultural learning opportunities.
Stronger Indigenous businesses and customers
Our Indigenous Customer Assistance Line continues to
provide a valued banking service to customers in more than
150 remote communities in Australia. We received more than
180,000 calls to this service during the reporting period.
We have partnered with the Indigenous Customer Assistance
Network’s (ICAN) Indigenous Financial Counselling
Mentorship Program, and over the past three years we
have supported 34 Indigenous Australians to complete their
Diploma in Financial Counselling. This mentorship approach
is recognised within the financial counselling sector as a
best practice training model for people wishing to undertake
the diploma.
The success of this mentorship program has encouraged
ICAN to expand its offering of scholarships to its new
multicultural financial counselling mentorship program. We
are funding 10 student placements on this program this year.
Working with suppliers to
support Indigenous businesses
This year we launched a pilot initiative that commits
selected major suppliers to work with us on opportunities
for Indigenous businesses throughout our supply chain.
This collaboration will create subcontracting possibilities,
and other indirect opportunities, for Indigenous-owned
businesses to work with the bank.
This initiative complements our Responsible Procurement
program, which includes working directly with
Indigenous-owned businesses.
Commonwealth Bank and business attendees at the launch
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Empowering our people
When people are proud to represent
the company they work for, they
are energised to deliver the best
outcomes for our customers.
Diversity of ideas, engagement with
the workplace and access to the
right tools are all prerequisites for
ensuring our people thrive.
Listening to our people
It has been a difficult year for the Bank, and this has been
reflected in a decrease in the overall engagement of our
people. Our twice-yearly employee engagement survey,
Your Voice, shows the overall employee engagement score
has declined by 6%, to 72% for this year. Put simply, the pride
that our people have in representing the Bank has declined.
We had strong employee participation of 89% in the latest
survey which demonstrates a willingness to support the
Bank’s focus on values, accountability and service. The
responses have provided us with areas for improvement.
We need to balance performance and values when promoting
people, and focus more on managing risk effectively. The
survey also highlighted that our people feel our strengths lie
in our approach to diversity and inclusion, and collaboration.
Whistleblowing policy
The Bank’s whistleblowing policy outlines the processes
for investigating and resolving any misconduct issues that
have been reported through our SpeakUP hotline or to
senior management.
The SpeakUP hotline allows a whistleblower, including an
employee, contractor, consultant or supplier, to anonymously
raise a conduct issue. The policy outlines the actions we
take to protect a whistleblower from any retaliation, including
protection from termination of employment, harassment
and discrimination.
This year we had 143 misconduct cases recorded under the
SpeakUP program, of which 33 were whistleblower reports.
Promoting health and wellbeing
The health, safety and wellbeing of our people is crucial
for our success. Our strategy sets long-term objectives for
managing and enhancing the wellbeing of our people.
We work to continuously improve the management of safety risks,
and the effectiveness of controls, across key risk areas including
mental health, customer aggression and work-related driving
to provide a safe and healthy environment for all our people.
We have a personalised, mobile-enabled health and wellbeing
portal for our people called Thrive. It provides access
to support, resources and information for physical and
psychological health and wellbeing.
We have introduced health and wellbeing hubs in seven of
our office locations. In these hubs our people can speak to
health experts and undertake a health assessment to better
understand their own health.
Our Lost Time Injury Frequency Rate (LTIFR) improved, with
1.1 incidents per million hours worked.
Workplace response to domestic and family violence
To help any of our people who are impacted by domestic and
family violence, we provide leading workplace practices that
include ten days of special leave, training for employees and
managers, and a first-response guide for leaders to support
their team.
Over the course of the year, the UN Women National
Committee Australia collaborated with the Bank and other
corporate partners to deliver the Taking the first step:
Workplace responses to domestic and family violence report,
which recognises the work that Australian businesses and
unions are doing to address the impact of domestic violence.
Continuous learning
It is crucial that our people are supported to do their jobs
effectively. The Bank provides training and development
to help them deliver better outcomes for our customers,
manage risk (including anti-money laundering and Know
Your Customer), be accountable, and develop their skills
to suit new ways of working.
In addition to mandatory training modules, we also provide
personal development opportunities.
To help prepare our workforce for the future of work, we
actively work with universities and our people to create
opportunities for employees to re-skill and make the most
of new career opportunities. We also provide face-to-face
training and mentoring to help our people succeed.
During the year, we provided an average of 34.1 hours
of training for all employees.
Total hours of training
1,847,000+
Average hours of training
per employee
34.1
Lost Time Injury Frequency
Rate (LTIFR)
1.1
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Flexible work
delivers better
outcomes
Women in Manager roles and above(1)
44.6%
Women in Executive Manager
roles and above (1) 37.6%
Our people who identify with
having a disability(2)
11.9%
Our people who work flexibly(2)
73.7%
Creating a diverse, inclusive culture
A diverse workforce to serve a diverse community
We can best understand and respond to the needs of
our customers when our people and leaders reflect the
diversity of our customers, and when their diverse views
are encouraged and valued.
This year, as part of the next phase, we launched our 2018+
Global Diversity and Inclusion Strategy, which details how we
can achieve better outcomes for our customers, communities
and people by building a more inclusive and diverse culture.
One of our goals is that our leaders should reflect the diversity
of the community. So our strategy sets out targets for
increasing the representation of women in leadership. We want
to see women comprising 40% of Executive Manager and
above roles, and 45% of Manager roles and above by 2020.
The Bank complied with the Australian Workplace Gender
Equality Act 2012 by submitting annual compliance reports
for 2018.(3)
Our Cultural Diversity Index (CDI) measures how culturally
diverse we are as a business. This year’s result shows that
the Bank is more culturally diverse than the population of
Australia. The results demonstrate that we are well positioned
to understand and respond to the needs of our customers
and communities. Details on the CDI can be found on page
77, and the methodology can be found on page 298.
Our employee-led networks play an important role in building
an inclusive environment and developing relevant solutions for
our people and our customers. Our networks 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
(reconciliation actions within our Reconciliation Action Plan).
Flexible working delivers
better outcomes for all
Over the year, more than 3,500 people in Group
Operations (GO) increased their uptake of the
division’s flexible working initiative, GO Flex.
Not only has there been a marked improvement in
engagement and wellbeing – where participants
have noted higher job satisfaction due to more
time with family and friends – there has also been
positive knock-on effect on overall efficiencies.
GO Flex is saving people up to two or three hours
of travel time each day, reducing travel costs,
boosting productivity, and in turn, providing a
better service for our customers.
Towards pay equity
We have a minimal pay gap between what we pay men and
women in similar roles, as reported on page 77. Gender pay
equity took a slight step backwards with a wider pay gap
for Executive General Managers and General Managers.
We review pay equity throughout the year and as part of the
annual remuneration review process.
Getting the job done
We encourage our people to balance work with other important
responsibilities in their lives. Our iCAN Flex program supports
our people to adopt flexible working practices, allowing them
to adjust how, when and where they work, to deliver better
outcomes for themselves, our customers and the business.
(1) Excludes ASB, Sovereign and AHL.
(2) Results from Your Voice survey and excludes Bankwest, ASB, Sovereign, IFS, AHL and CFSGAM.
(3) Excludes Bankwest and AHL, which submit separate compliance reports. International businesses are excluded.
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Doing business responsibly
The Bank’s corporate responsibility
program plays a crucial part in its
overall ability to operate responsibly
and sustainably.
While the Bank has managed financial risks well, we have
not performed as well in relation to non-financial risks.
Non-financial risks cover culture, conduct, governance,
compliance, operational risk management and accountability.
This section details how we are addressing some of the non-
financial risks in our business. More detail is provided in the
Strategy, Governance and Remuneration chapters, and in the
Chairman and CEO statements.
Government and regulators
The Bank has had extensive engagement with government
departments, politicians and regulators during the 2018
financial year.
Royal Commission
Community expectations of banks have evolved over time,
and the Royal Commission into Misconduct in the Banking,
Superannuation and Financial Services Industry is playing
an important role in demonstrating that we, and our industry,
haven’t always met those expectations.
The Royal Commission has highlighted some cases where
we have made mistakes and our conduct has fallen below
the standards expected of us by our customers, our staff,
our regulators and the broader community. When mistakes
happen, the community rightly expects us to work closely with
affected customers, Government and regulators to address
the issues so they do not reoccur. We know that in the past
we have often been too slow to fix issues when they arise.
We welcome the work the Royal Commission is doing to
hold us to account, and we are engaging actively, openly and
transparently with them. When the Royal Commission asks
questions or makes findings, we are listening closely and
considering them seriously, and while this inquiry continues,
we are getting on with the job of being a better bank. More
information on the Royal Commission is outlined in the
Becoming a better bank section on pages 10–11.
Open participation in inquiries
We have participated in more than 50 inquiries into the
banking industry in recent years, and have implemented
many of the recommendations for reform. We have been
open, transparent and co-operative while also getting on with
fixing what we know needs to be fixed. Our responses to the
key inquiries and reports, and an overview of the work we
have underway, are outlined in the Becoming a better bank
section on pages 10–11.
Updating Australia’s banking code of conduct
We have been active participants in the development by
the Australian Banking Association (ABA) of a new Code of
Banking Practice, which has been updated to better meet
the needs of customers and expectations of the community.
We agree to implement the new Code within 12 months
of approval by the Australian Securities and Investments
Commission (ASIC).
The new Code will deliver important changes, including:
• plain English contracts
• ending unsolicited offers of credit card increases
• mandated ability for customers to cancel a credit card online
• improved transparency around fees
The Bank has established a governance structure and
executive oversight to ensure it meets the implementation
deadlines for the revised Code and that it is on track to meet
its commitment to implementing the new Code.
Banking Reform Program
The Australian banking industry is committed to an overall
reform program that will improve consumer outcomes,
increase transparency and accountability, and build trust.
As part of the Banking Reform Program, in April 2016
Commonwealth Bank began to design and implement a set of
initiatives to address issues including employee remuneration,
customer advocacy, industry background checks and
protection of whistleblowers. The implementation of many
initiatives is nearing completion, with some reforms (such as
the new Code of Banking Practice) still being put into action.
The banking industry appointed Ian McPhee AO as an
independent expert to oversee the implementation of the
overall reform program. Mr McPhee’s term as independent
expert has concluded, but Commonwealth Bank continues
to report on the progress of its initiatives through the ABA.
Political donations policy
Our policy explicitly precludes the Bank from making
political donations. However, we pay to attend some political
events attended by the business community. Payments
associated with these events must be approved by the Bank’s
Government and Industry Affairs team. In addition to Federal
and State Government requirements on political contribution
disclosure, it is also our policy to publicly disclose all such
political contributions.
Climate change
Climate change poses both a financial risk and
opportunity for our business. We manage this risk by
reducing our own environmental footprint, and by lending
and investing responsibly. We support the transition to a
low carbon economy through support of renewable energy
and other low carbon projects. Our progress is covered
in the Climate-related financial disclosures section
on page 48–60 of this Annual Report.
Considering ESG risks in lending
The Bank considers the credit risk of every lending
decision it makes. We believe we should also consider
the environmental, social and governance (ESG) risks and
opportunities of our lending decisions, as these can impact
the long-term viability of a customer or project.
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We are a signatory to the Equator Principles and use the
standards they set to assess, mitigate, manage and monitor
ESG risk for project finance loans. Other business loans
are assessed under our own ESG policies, systems
and processes.
We have a compulsory ESG risk assessment process for all
Institutional Bank loans, and for large loans in other business
units. The process includes an initial ESG risk assessment
based on country of operations and over 500 industry
sectors. The client’s capacity and strategy to manage risks
is also considered. Additional ESG due diligence is required
for transactions which have medium or high ESG risks
identified in the initial assessment.
Loans with high ESG risk are escalated to senior management
for further interrogation and decision. Outputs from ESG
assessments are used as a key input into the credit
decision process. Our client relationship, risk and product
teams undertake annual refresher training on ESG risks. This
year, more than 3,500 employees completed this training.
Transition to a low carbon economy
While climate change is acknowledged as a business risk,
it also provides opportunities for clients who develop low
carbon solutions for energy production and transport. Our
Climate Policy Position Statement includes our commitment
to increase funding to low carbon projects to $15 billion by
2025. This year we increased our lending to $3.7 billion,
including new solar farms in Queensland. During the year we
led more than $2 billion of green or sustainability notes.
Responsible investing
We provide wealth management services in Australia and
globally and integrate ESG risks and opportunities into our
investment processes. This is governed by our Responsible
Investing Framework, and is consistent with delivering long-
term investment outcomes for our customers and clients.
This year CommSec and CommPrivate developed new
approaches to measuring ESG risks in their Approved Product
Lists and Model Portfolios, and are now offering clients ethical
investment solutions upon request.
Colonial First State (CFS) continues to progress its ESG
integration, and reported to the Principles of Responsible
Investment (PRI) and the Responsible Investment Association
of Australasia (RIAA) for the first time. CFS also launched
a new Alliance Partnership with Affirmative Investment
Management – whose global green and impact bond fund
generates positive environmental impacts and social benefits
without compromising financial returns.
Lending to renewable energy projects
$3.7 billion
Training on responsible lending,
investment and procurement
3,500+ employees
We support Australian
solar power
Victoria’s first large-scale solar farm entered
commercial operation at Gannawarra in April 2018
just over one year after financing was provided.
With almost 210,000 solar panels, the solar farm
has capacity to supply power to more than 25,000
homes. The project is one of three solar farms that
renewable energy companies Edify Energy and
Wirsol Energy are developing across the country
through financing we committed in March 2017.
In August 2017, we extended our partnership
with Edify Energy through a syndicated debt
facility, to finance an additional two solar farms in
Queensland. Together, these five solar farms will
generate enough electricity to power approximately
160,000 homes.
For more than a decade the Bank’s funds management arm,
Colonial First State Global Asset Management (CFSGAM), has
progressively evolved its approach to responsible investment
and stewardship, and is now considered a global leader in the
area. CFSGAM maintains its strong responsible investment
through initiatives that include becoming a signatory to the
Climate Action 100+ initiative, which brings together investors
from around the world to encourage companies to reduce
emissions in line with the Paris Climate Change Agreement.
It has also launched a Sustainable Infrastructure Fund, which
targets investment in listed infrastructure companies that
are contributing to sustainable development.
Managing our operations efficiently
The Bank continues to build on its track record of reducing
energy use, and subsequent emissions, in its branches
and offices. Since 2009, we have reduced our direct emissions
by 52.5%. During that time our emissions intensity for domestic
operations has reduced from 5.0tCO2-e per FTE to 2.3tCO2-e
per FTE. We have set a target to reduce these emissions
to 2.0tCO2-e by 2020. We have also committed to sourcing
renewable energy for 25% of our power needs by 2020.
Certified branch and office design
We were the first Australian financial institution to achieve
5-Star Green Star certification for our retail design standards
and we have completed certification for 15 Commonwealth
Bank and Bankwest branches. More than 80% of our
commercial office space is currently rated by the National
Australian Built Environment Rating System (NABERS) for
its environmental performance, which considers energy
efficiency and water usage.
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Commonwealth Bank Square
Our commitment to delivering globally leading, sustainable
workplaces is evident in our new workplace Commonwealth Bank
Square, which is part of the wider Darling Harbour precinct. This
year we moved 3,000 Sydney employees into this workplace
which meets the highest sustainability ratings of 6-Star Green Star
for both the building and its interiors. We expect this building to
use 70% less energy than the average Australian office building,
thanks to initiatives in design, construction and operation.
During the design and construction phase, we diverted more
than 90% of construction waste from landfill, sourced timber
from certified sustainable forestry, installed rooftop solar power
generation, and maximised natural light and people connectivity
through a central atrium. We also use high levels of fresh air,
numerous plants and natural materials to improve indoor air
quality for our employees, harvest rainwater for internal use and
separate waste streams at the source.
Photo credit: Tyrone Branigan
This year, we were named the CitySwitch National Signatory
of the Year in recognition of our efforts to improve office
tenancy energy and waste efficiency. The CitySwitch program
is led by state governments to support office tenants to
improve efficiency.
A carbon positive road map
We are a Carbon Positive Partner with the Green Building
Council of Australia (GBCA). We supported the release of
A Carbon Positive Roadmap for the built environment, which
includes a proposal that new and existing Green Star-rated
buildings will have no greenhouse gas emissions by 2030.
It also promotes policies to retrofit existing buildings, improve
new buildings, increase the supply of renewable energy, and
phase out fossil fuel use.
Plugging into solar energy
We continue to invest in onsite renewable energy generation
across our branch network and currently have a capacity of
750 kilowatts (kW) installed at 47 Australian sites. Our real-
time public portal (cbasolarpower.com.au) tracks the energy
production across our network.
The effectiveness of our network is illustrated at our Margaret
River branch, where the combination of onsite solar energy
generation and in-branch energy efficiency has resulted in
an 80% reduction in energy use and emissions.
Sourcing responsibly
We spend more than $4.8 billion a year on products and
services from our suppliers.
Our supplier governance processes, supplier engagement,
and our supplier code of conduct all help us work with
suppliers to minimise ESG risks such as human rights and
climate change in our supply chain. This year we rolled out
our responsible procurement training for our procurement
staff to provide awareness of how these risks can be
managed and reduced. More than 50 procurement staff
have already completed this training.
Supplier diversity is a key element of our procurement
strategy and we continue to strengthen our partnership with
Supply Nation, an organisation which promotes and facilitates
procurement from Indigenous-owned businesses. More than
40 procurement employees received training by BlackCard
this year. BlackCard provides cultural awareness training to
people working with Aboriginal communities to help people
build and maintain respectful relationships with one another.
This work has led to supplier partnerships with 18 Indigenous-
owned businesses, with a total spend of $2.23 million.
We have commenced a program to engage with 25 of
our largest suppliers to explore opportunities for greater
participation by Indigenous businesses in our supply chains.
Respecting human rights
As stated in our Human Rights Position Statement, we are
committed to respecting human rights across all of our
operations, including: lending, investing, operations and
supply chains.
To date, we have published two Slavery and Human
Trafficking statements, in compliance with the United
Kingdom’s Modern Slavery Act 2015. We have participated
in government consultations on the development of an
Australian Modern Slavery Act, which we anticipate will
be passed as legislation over the next 12 months.
In light of the evolving legislation, we have updated
training on ESG risk fundamentals for lending and the new
responsible procurement training includes information on the
risk of modern slavery and how to mitigate that risk.
We have also looked to implement practical, on-the-ground
initiatives. As an example, our business units operating
in Hong Kong are partnering with the Mekong Club, a not-
for-profit that is working to engage, inspire and support
the private sector to lead the fight against slavery. The
Mekong Club has built our staff’s knowledge of the issue
of modern slavery.
Want to know more?
Our programs drive positive change through education,
communities and good business practices, and more
information is available at commbank.com.au/about-us/
opportunity-initiatives.
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risks
This section describes the key
drivers of risk that could impact
our ability to serve our customers
and/or deliver our strategy, and
the actions we are taking to mitigate
them. These are not listed in order
of materiality.
Risks can arise from our external
and internal operating environment.
Our strategy and business model
need to be robust and flexible to
allow us to appropriately respond to
these uncertainties and changes in
our environment.
Macroeconomic environment
The risk and its impact
Our business performance is closely linked to the performance
of the Australian economy, which in turn, is impacted by events
in the global economy. Headwinds such as rising interest rates,
inflation and stagnant wage growth could impact households’
disposable income and businesses’ profitability. A significant
or sustained economic downturn would have an impact on our
revenue, credit losses and our access to, and cost of, funds.
How we are responding
• We maintain a strong balance sheet which enables us to
continue to meet regulatory requirements and serve our
customers. We actively monitor and manage risks which
could impact our balance sheet resilience through the cycle.
• We are further aligning our strategy, risk and finance
processes to ensure we understand and rapidly respond to
changes in our environment. For example, we are enhancing
scenario planning to allow for more robust decision-making.
• We actively manage the credit quality of our portfolio by, for
example, reviewing our lending standards to ensure that we
can meet our customers’ financial needs now and in the future.
• We undertake regular stress tests to ensure that we
understand the dynamics of our business, how we would
expect it to perform under a range of severe scenarios,
and the balance sheet, funding and liquidity-related options
we could use to respond.
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We are proactively
and quickly working
to address issues and
concerns raised by key
stakeholders.
Regulatory and policy
environment
The risk and its impact
The industry is undergoing a period of intense regulatory
change. Participating constructively in policy debates and
adapting to regulatory changes are critical to our ability
to serve customers well, run our business effectively, and
contribute to economic prosperity.
How we are responding
• We are reducing the breadth and complexity of our
regulatory environment by simplifying our portfolio. We are
also strengthening our risk management and compliance
capabilities across the Group.
• We are digitising activities and standardising processes
to drive better customer experience and cost outcomes.
• We are proactively and quickly working to address issues
and concerns raised by our customers, regulators and
policy makers, including sales practices and incentives,
responsible lending, financial crimes, cyber security,
and privacy.
• We are also strengthening our relationships with regulators
and government bodies to engage constructively and
transparently on emerging policy issues, and are actively
preparing for anticipated regulatory change.
Competition and industry disruption
The risk and its impact
Delivering market-leading solutions is key to maintaining
a strong relationship with our customers and continuously
improving the way we run our business. As customer
preferences continue to evolve, existing and new competitors
are finding alternative ways to meet customer needs.
Emerging technologies also present opportunities for
new sources of competitive advantage. Failure to innovate
and effectively respond to these changes could erode
our relevance to customers and ability to compete in the
long term.
How we are responding
• We have extended our focus from average customer
satisfaction to the experience of all customers including
the least satisfied. To deepen our relationships with these
customers, and ensure that we can continue to meet their
needs in new and engaging ways, we are sharpening our
focus on our core strengths including digital propositions,
data and analytics, and innovation.
• We will continue to invest in technology and innovation
to reduce costs and risk in a lower growth and intensely
competitive environment. For example, we have
automated parts of our home lending processes.
• We have built mechanisms to understand, test and respond
to competition, such as stress testing based on potential
disruption from fintech companies.
• We are also exploring and forming partnerships to
strengthen our relationships with customers and improve
the way we operate. For example, we have recently
partnered with KPMG Australia and Microsoft to launch
Wiise, and have entered into a joint venture with Westpac
and NAB to create Beem It.
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We have plans in
place to address the
root causes of our
recent reputational
challenges, and are
taking steps to ensure
that they do not
happen again.
Reputation and trust
Pace and quality of execution
The risk and its impact
The risk and its impact
Our reputation and the trust of our stakeholders is crucial for
delivering sustainable business outcomes. Our reputation has
suffered as a result of mistakes we have made as a business
and an industry.
A sustained shift in any of our key stakeholders’ perceptions
of us could undermine our ability to serve customers,
deliver positive outcomes for the broader community, foster
an engaging culture for our people, and deliver long-term
sustainable returns for our shareholders.
How we are responding
• As outlined in Our strategy (on page 13), we are focused
on delivering balanced outcomes for all stakeholders.
We are committed to demonstrating meaningful change
and we will be monitoring our performance against
a balanced set of metrics.
• We have plans in place to address the root causes of our
recent reputational challenges, and are taking steps to
ensure that they do not happen again. We received APRA
approval of our Remedial Action Plan to address the
recommendations of the Prudential Inquiry, and we have
appointed an independent reviewer to track our progress
against this plan.
• We have been focused on resolving open issues that
impact our reputation. For example, we recently settled
the BBSW and AUSTRAC matters. We are working to
address the concerns raised in the Royal Commission into
Misconduct in the Banking, Superannuation and Financial
Services Industry.
• We are continuing to improve outcomes for customers
in a range of ways, from changing sales incentives and
practices, to actively listening to and acting on complaints,
increasing transparency around fees, and providing support
for vulnerable customers.
The breadth of change in our operating environment,
and the complexity of our business may affect our ability
to efficiently deliver our strategy. For example, if the pace
of execution is too fast for processes, people and systems
to work as they need to, or too slow to keep pace with our
changing environment, the success of our strategy could
be compromised.
How we are responding
• We have set clear priorities and milestones for each
Business and Support Unit to ensure alignment of
objectives and disciplined focus. We are clarifying
accountabilities to ensure that all of our leaders
understand what is expected of them.
• We regularly review and monitor our progress in execution
of our strategy, particularly in the context of a rapidly
evolving external environment.
• We have established a Better Risk Outcomes Program
(BROP) to ensure that we are delivering a comprehensive
transformational program to uplift our customer and risk
outcomes while also addressing all the recommendations
of APRA’s Prudential Inquiry. As part of BROP, we are
introducing a new execution approach in delivering on our
priorities which includes clear, realistic timelines, ownership
by senior leadership and appropriate consequence
management. This approach will be progressively deployed
by BROP to improve execution capability across the Group.
• We are continuing to invest in innovative and new ways to
serve our customers, as well as addressing operational risk
and compliance requirements.
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Data management,
security, and privacy
The risk and its impact
As Australia’s largest financial institution, we manage a large
volume of sensitive data which our stakeholders expect
to be managed and used appropriately. The regulatory
landscape is increasingly focused on privacy, cyber security
and obligations on banks to make data more available to
customers. At the same time, cyber threats are becoming
increasingly sophisticated.
A failure to ensure this information is kept safe and used
appropriately may impact our stakeholders and result in
financial and non-financial consequences.
How we are responding
• As described in Our strategy (page 27), data and analytics
will be critical to our future success. We are prioritising
investments that will allow us to better meet regulatory
obligations, better manage risk and cost, and deliver
market-leading propositions for customers.
• We are strengthening our data governance, including
by addressing the recommendations made by APRA’s
Prudential Inquiry. We have commenced a detailed
program of work to enhance our data, systems and
reporting processes, supported by operating model
changes to provide clear accountability for data
governance and management.
• We continue to invest to secure the confidentiality,
integrity and availability of our data. In the context of the
imminent Comprehensive Credit Reporting and Open
Banking regimes, we are developing solutions to ensure
our customers’ data remains protected whilst also being
able to deliver richer offers and experiences.
• We have also improved our Procurement Policies and
Standards and supplier governance to ensure, not only
continued alignment with regulatory requirements, but
enhancements to meet customer expectations.
People capability
The risk and its impact
Our people are critical to the success of our strategy. We
expect them to constantly find new and better ways to meet
customer needs and improve the way we run our business.
An inability to attract or retain top talent, whether it be through
a shortage of key skills in the market, or an erosion of our
brand, could prevent us from delivering our strategy.
How we are responding
• We are continuing to invest in our value proposition as
an employer. We offer flexible working models, including
mobility options, and competitive benefits, and foster a
diverse and inclusive workforce.
• We are focused on targeted training programs to develop
our people, including senior management, and are
reviewing our career paths and talent development model
to ensure that we attract and retain high-calibre people.
• We are piloting opportunities to re-skill and support our
people to be ready for the future of work. We are engaging
with educators, government and the community to prepare
the workforce that we need and are building these changes
into our long-term workforce plan and capability roadmaps.
• We are also strengthening our people and culture
frameworks to ensure our people are clear on our
expectations and their accountabilities, have end-to-end
visibility of the activities for which they are responsible,
are empowered to address issues and drive balanced
outcomes for our stakeholders, and are assessed
consistently based on the outcomes they achieve.
46
Commonwealth Bank of AustraliaAnnual Report 2018Strategic report Business risks
Climate change
The risk and its impact
Business resilience
The risk and its impact
Extreme weather events and the legal, market, policy,
technology and reputational impacts of transitioning to a
low-carbon economy have the potential to disrupt business
activities, damage property and otherwise affect the value of
assets, and affect our customers’ ability to repay loans.
Climate change is systemic in nature, and is a significant
long-term driver of both financial and non-financial risks.
As a lender to individuals and companies exposed to climate
change risks, we have an obligation to our shareholders to
continually assess those risks. A failure to respond to the
potential and expected impacts of climate change will affect
our long-term performance.
How we are responding
• We are focused on having the right policies in place,
understanding risk, developing and implementing strategic
responses, building internal and customer capability,
and contributing to economy-wide initiatives to build our
resilience to climate change.
• We have implemented strong policy frameworks for
considering environmental, social and governance (ESG)
issues, including climate change. These include our
Climate Policy Position Statement, Environment Policy,
ESG Lending Commitments, and our Responsible
Investing Framework.
• We are identifying climate-related risks and opportunities by
conducting comprehensive scenario analyses of transition
and physical risks. In the 2018 financial year we assessed the
primary climate-related risks to our business lending, retail
lending and insurance portfolios. We will expand our analysis
in the 2019 financial year.
• We are developing strategic responses to climate change,
informed by the results of the climate scenario analysis.
Our response includes strengthening our due diligence
processes, considering our range of products and services,
and expanding the coverage and depth of our analysis.
• We also continue to reduce our direct impact on the
environment by monitoring and reducing greenhouse
gas emissions and energy use through our Sustainable
Property Strategy.
• Our approach to climate governance, strategy, risk
management and metrics and targets, in line with the
recommendations of the Task Force on Climate-related
Financial Disclosures, is discussed in detail on page 49.
The continuity and resilience of our operations are crucial
for serving our customers, upholding community trust, and
maintaining our reputation. Events in the external environment
such as cyber-attacks, natural disasters, war, or critical
failures with third-party suppliers can significantly disrupt
our operations.
How we are responding
• We monitor the health of all systems and perform
contingency planning for disruptions to critical systems
and processes.
• We are investing in agile capability, automation and
systems resilience to enable multiple process and system
simplification projects. For example, our agile ways of
working ensure that we prioritise what matters most to
our customers for key risk programs, while our data centre
and network modernisation program is improving the
security and efficiency of our technology infrastructure.
• We are monitoring cyber security threats, and mitigating
their potential impact on our businesses and customers,
with continued investments in cyber security controls.
• We are also driving greater agility and alignment in our
supplier partnerships to ensure we effectively mitigate risks
across the supply chain. We are enhancing our policies
and standards on supplier governance, selection and
management to better identify and manage the risk of
third-party disruptions.
Further detail about our Risk Management
Framework is provided in the Notes to the
Financial Statements.
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Strategic reportPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Climate-related
financial
disclosures
Why is CBA
taking action on
climate change?
As a provider of financial services
including lending, insurance and
wealth management, climate change
presents both risks and opportunities
to our business. We are a supporter
of the Task Force on Climate-related
Financial Disclosures (TCFD) and
this is our first report in line with its
recommendations.
We are taking action
on climate change to:
• Better understand the impacts of
climate change on the Bank
•
Increase the resilience of the Bank
to climate risks
• Take advantage of opportunities
created by climate change
• Support our customers and people in
the transition to a low carbon economy
48
Commonwealth Bank of AustraliaAnnual Report 2018Strategic report Climate-related
financial disclosures
We are taking a phased approach to identifying and managing climate risk.
That means we are focusing on having the right policies in place, understanding
risk, developing and implementing strategic responses, building internal and
customer capability, and contributing to economy-wide initiatives.
Phase 1
Policy, due diligence, governance
Phase 2
Analysis of portfolio
risks and opportunities
Phase 3
Extending scenario analysis,
strategic responses,
capability building
Pre-FY18
FY18
FY19-20
Governance
• Climate Policy Position
Statement(1)
• Environment Policy(2)
• Equator Principles III
signatory(3)
• ESG Lending Commitments(4)
• Responsible Investing
Framework(5)
• The Board governs climate
risks and opportunities
through the Risk Management
Framework(7)
• Review our Climate Policy
Position Statement
• Update Responsible Investing
Framework
• Update investment-related
ESG risk management policies
Strategy
• Commitment to support
• Climate scenario analysis:
• Climate scenario analysis:
the objectives of the Paris
Agreement
1. Business lending –
transition risks
1. Business lending – physical
risks
2. FirstChoice Australian Share
Fund – transition risks
2. Retail (home lending) and
insurance – transition risks
3. Retail (home lending) and
insurance – physical risks
3. Investment portfolios –
transition and physical risks
• Portfolio-level strategic
• Further develop portfolio-level
responses
Risk
management
• Elevated climate as a strategic
risk and a long-term driver
of both financial and non-
financial risks (6)
• ESG risk assessment process
for business lending updated
• Updated Energy Value
Chain analysis
• ESG risk assessment
including climate risk,
introduced for business
lending
• Introduced training on ESG
risks, including climate, for
business lenders
• Established Energy Value
Chain analysis
strategic responses
• Client engagement
• Include physical risks in ESG
risk assessment process for
business lending
• Update client due diligence
to include transition heat maps
for climate sensitive sectors
• Update Energy Value
Chain analysis
Metrics
and targets
• Emissions reduction target
• Emissions reduction target
• Emissions reduction target
(scope 1 and 2)
(scope 1 and 2)
(scope 1 and 2)
• Assessed emissions in
business lending portfolio
• Assessed emissions in
business lending portfolio
• Assessed emissions in
business lending portfolio
• Set low carbon project funding
• Low carbon project funding
• Low carbon project funding
target of $15bn by 2025
target
target
(1), (2), (3), (4), (5) Available at: https://www.commbank.com.au/about-us/opportunity-initiatives/policies-and-practices.html
(6) Note 31 Risk Management, FY17 Commonwealth Bank Annual Report.
(7) The Group’s Risk Management Framework is detailed in Note 9.1 to the Financial Statements on page 195.
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Climate governance
The Board acknowledges that climate change is creating
risks and opportunities for our business, our customers
and our communities. Due to their significance, the Board
directly oversees the management of the Bank’s climate-
related risks and strategies, including through:
• Receiving reports on risks in business lending
and stranded asset risks
• Considering the results of climate scenario analysis
undertaken in the 2018 financial year for transition and
physical risks and opportunities
• Approving the Bank’s Climate Policy Position Statement,
which outlines our approach to climate-related risks
and opportunities
• Setting and monitoring performance against our
climate-related goals and targets (outlined on page 60)
• Reviewing and approving the climate-related
disclosures in our Annual Report
The Executive Leadership Team (ELT) is responsible for:
• Directing the development and implementation
of ESG policies, including climate
• Oversight of progress, performance and reporting
on climate
• Leading external engagement, advocacy and helping
customers on climate-related matters
Physical risk
Transition risk
Refers to financial
impacts as a result
of the policy, legal,
technology, reputation
and market changes
associated with the
transition to a low
carbon economy.
Arises from extreme
weather events
(e.g. storm, flood,
drought) or longer-
term shifts in climate
patterns (e.g. rising
temperatures). This can
result in financial costs
due to direct damage
to assets and indirect
impacts from disruption
to businesses and their
supply chain.
50
Scenario
analysis helps
us understand
potential impacts,
risks and
opportunities
for the Bank.
Climate strategy
To understand potential climate impacts, risks and
opportunities for the Bank, and to build the resilience
of our business, we have commenced company-wide
scenario analysis. We have prioritised analysis of areas
that are most material given the size of our portfolios.
Here we outline the scenarios we chose, the process
we went through, the results of the scenario analysis
and how the results have impacted our strategic decisions.
The results of our scenario analysis will help to inform
the evolution of our Climate Policy Position Statement.
It is important to note that scenario analysis considers the
outcomes of a range of possible future pathways, based
on assumptions, and is not a forecast or prediction.
Scenario analysis
Global Co-ordination – 2 degrees
This scenario reflects the impacts of supportive
national and international climate policy, which
results in a smooth transition to a low carbon
economy enabled by global emissions trading.
The Global Co-ordination scenario is based on investment
in large scale, low-emissions infrastructure such as
carbon capture and storage (CCS), biofuels production
and distribution. Such investment improves the long-term
viability of these technologies.
Disruptive Decarbonisation – 2 degrees
This scenario reflects the potential disruptive
impacts associated with decarbonisation.
It is achieved through a disorderly transition,
led by consumers and business rather than
policy. Under this scenario, there is an initial delay in
action to 2025 during which time emissions continue
to rise. There are challenges securing finance for large
scale renewable energy projects in the short term, due
to inconsistent climate policy. There is strong reliance
on bottom up action, including renewable electricity
(particularly small scale solar), electric vehicles and
energy efficiency.
Policy Inertia – 3 degrees
This scenario reflects the current national
and international policies. In this scenario,
the current Nationally Determined Contributions
are maintained, and no further international
frameworks and mechanisms are negotiated to encourage
additional global decarbonisation. A lack of certainty
around mechanisms to achieve abatement targets reduces
the capacity to invest in large scale abatement activity.
This results in a disorderly transition with a reliance on
bottom up, small-scale technologies.
Further information on scenario characteristics is available
on page 52 for the physical analysis and page 54 for the
transition analysis.
Commonwealth Bank of AustraliaAnnual Report 2018Strategic report Climate-related
financial disclosures
2018 financial year climate change scenario analysis program
FY18 Climate Change
Scenario Analysis program
I
S
O
R
A
N
E
C
S
Global
Co-ordination
Disruptive
Decarbonisation
Policy
Inertia
Physical
Transition
Flooding
Storms
Extreme heat
and drought
Bushfires
Sea level
rise
Market
Regulatory
Legal
Reputation
Technology
I
K
S
R
F
O
S
R
E
V
R
D
I
Insurance
Retail lending
Wealth
Business lending
Expected insurance
premium cost impacts
over time
Expected impacts on
damage and loss over time
Transition risk impacts
on domestic economy
at a sectoral level
Transition risk impacts
on domestic economy
at a sectoral level
S
I
S
Y
L
A
N
A
G
N
L
L
E
D
O
M
I
I
I
C
F
C
E
P
S
-
A
B
C
S
T
U
P
T
U
O
T
C
E
J
O
R
P
E
S
N
O
P
S
E
R
C
G
E
T
A
R
T
S
I
S
I
S
Y
L
A
N
A
D
E
I
L
P
P
A
Building
insurance policies
Home loan portfolio
FirstChoice
Australian Share Fund
Business lending portfolio
debt exposure
Potential impacts
on insurance claims and
affordability of insurance
Potential damage to properties
(at an aggregated level)
due to perils
Change to sector
value add contribution
Economic growth and
contraction by sector
Sector heat maps
Home loan portfolio
exposure concentrations
Exposure of fund to growth
and contraction sectors
Exposure of portfolio to growth
and contraction sectors
Consider business and
customer implications and
emerging insurance
product needs
Explore approaches
to risk mitigation
Consider customer awareness
and engagement options
Develop
management approach
of current and
future portfolio in
high risk areas
Consider customer awareness
and engagement options
Consider
asset allocations
Consider further
scenario analysis for
global portfolios
Update ESG risk
assessment tool
Explore and develop
low carbon products
and services
Client engagement and
capacity building
51
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Climate-related
financial disclosures
Physical risks and opportunities
Home lending makes up nearly half of the Group’s balance
sheet, making it a material portfolio with regard to our
exposure to climate risks and opportunities. Physical risks are
the most relevant to property and insurance, driving our focus
and coverage for this component of our scenario analysis.
We have considered the impact of five perils on our home
lending across Commonwealth Bank and Bankwest, and
building insurance policies in CommInsure. The perils we
have considered are:
• Inundation – including sea level rise and storm surge,
resulting in flooding
• Soil contraction – as a result of increased heat and
reduced average rainfall in some areas, which causes
damage to foundations in contracting clay soils
• Inland or riverine flooding
• Wind/cyclone
• Bushfire
We have undertaken detailed physical risk scenario analysis
using the model developed by the Climate Risk consultancy,
which combines asset, hazard and climate change
projection data to understand the estimated annual average
loss which is a combination of the annual probability of an
extreme weather event capable of damaging a property,
and the costs associated with such damage in a given year.
Most data is drawn from Australian Government agencies
such as Bureau of Meteorology, CSIRO, and Geosciences
Australia, as well as state government entities including
rural fire services, Valuer General and land data services.
We have also incorporated proprietary flood modelling
undertaken for the Commonwealth Bank.
We have modelled damage to the underlying properties
currently subject to loans from and/or insured with the
Bank. The results are on an aggregated basis, including
postcode-level.
Scenario characteristics – physical analysis
Low emissions
scenario
High emissions
scenario
Global Coordination
Policy Inertia
Disruptive
Decarbonisation
2 degrees
4 degrees
RCP(2) 4.5
RCP 8.5
CBA climate
scenario alignment
Temperature rise
by 2100
IPCC (1) climate
projections
Sea level rise
0.5m by 2100
1.1m by 2100
(1) Intergovernmental Panel on Climate Change.
(2) Representative Concentration Pathway.
Although the Group is committed to supporting the
achievement of a 2 degree scenario, we are cognisant that
the high emissions scenario (RCP 8.5) represents the greater
risk to the Bank, because a higher level of warming gives rise
to greater physical climate impacts.
The physical impacts we are likely to see up to 2050 are
primarily driven by historical levels of emissions, as there is
a delay between emissions and increased frequency and
severity of weather events. Therefore, the different trajectories
between our two 2 degree scenarios are of little consequence
to physical impacts over the timeframe of our analysis, but
would be significant in the longer term.
This project was undertaken with the support of Deloitte
and Climate Risk.
Physical risks and opportunities in our home lending
and insurance portfolios
What we found
This project has undertaken a forward-looking, portfolio-level
assessment based on current home lending and insurance
portfolios.
The analysis suggests the impact of physical climate change
risk will greatly vary across the geographic locations as
well as the vulnerability of each property. The diversity in
geographic and climate conditions determine the climate
risks experienced within a location, as well as the severity
of impact. The analysis indicates that whilst all locations in
which our residential property portfolio is situated will be
subject to impacts of climate change to varying degrees, only
a small proportion of properties in high risk locations and
with vulnerable characteristics are projected to experience a
significant increase in impacts over the scenario time period.
Locations affected by climate risk are expected to experience
an increase in maintenance and damage costs, leading to
higher insurance costs, due to flooding, storms, bushfire
and drought, with rising sea levels expected to have the
most significant increase. For the small proportion of current
properties that may be significantly affected, this may lead to
difficulties in customers servicing their loans.
Based on these results, if we were to continue to lend in these
areas, property demand and valuations in locations more
prone to physical climate risk may be adversely impacted.
To understand the potential credit implications of the physical
impact of climate change, we have analysed the annual
average loss associated with both extreme events and
incremental changes in climate. Through this project, we
have analysed where damage, and associated loss, is likely
to occur for customers currently in our portfolio and the rate
that it will increase. We have also analysed which perils, not
all of which are currently covered under mainstream insurance
policies, are likely to cause the problems, and their rate of
increase. The results for estimated annual average loss and
the high risk proportion of our portfolio are shown in more
detail on the following page.
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Estimated annual average losses to customers from physical risks
Impact
Customers facing increasing repair and
replacement costs for physical damage
to their properties.
Findings
Under the high emissions (RCP 8.5) scenario,
if we were to continue to lend in these areas,
the estimated annual average losses to
customers across our home lending portfolio
are expected to increase by 27% by 2060 –
this is less than 1% per annum. The largest
contributor to these losses currently arises
from soil contraction, but the modeling shows
that coastal inundation losses could increase
by 71% by 2060, primarily due to sea level
rises.
Estimated annual average loss by peril
Index (2018 = 100)
100
140
120
100
80
60
40
20
0
Low
High
Estimated annual average loss by
postcode in year 2060
127
2018
2020
2025
2030
2035
2040
2045
2050
2055
2060
Soil contraction
Flood
Bushfire
Wind
Inundation
High risk properties
To better understand our potential credit risk, we have
estimated the part of our current portfolio which may be
high risk, where this is located and how it could change
over time. We have considered high risk to be properties
where the increase in insurance costs from 2018 as a
result of climate change have the potential to create
financial strain for customers and their property values.
High risk properties make up only 0.01% of our portfolio
(by outstanding balance) in 2020 and rises to be around
1% in 2060 if there are no changes in the way we lend
in these areas. This assumes no change in the portfolio
over the period and no mitigating actions are taken.
Estimated % of portfolio (outstanding
balance) considered high risk
1.0
0.8
0.6
0.4
0.2
0
2020 2025 2030 2035 2040 2045 2050 2055 2060
Low
High
Low
High
Estimated average annual loss for high risk
properties by postcode (in year 2020)
Estimated average annual loss for high risk
properties by postcode (in year 2060)
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Climate-related
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How we are responding
It is important for the Bank to consider the impacts and risks
of physical climate changes on our customers as well as our
insurance and residential lending portfolios. We will continue
to develop our understanding of physical climate change and
the locations and types of properties most affected by climate
risk. Based on these learnings, we will build our capability to
effectively respond, develop and implement business rules
(such as maximum loan to valuation ratios or loan conditions)
to protect both our customers and the Bank from risks
associated with climate change.
The expected impact of climate change may compound the
existing issue of insurance affordability in areas with high
risk of severe weather events. To counter this threat, we will
consider the most effective approaches to mitigating against
physical climate change risks. This will include consideration
of our products and services through which there may be
opportunities to assist or incentivise customers to make home
resilience improvements, and advocating on their behalf for
governments to invest in mitigation measures to respond to
community level risks.
Minimising climate risk for property, both residential and
commercial, is an issue that goes beyond the banking and
insurance sectors. Appropriate planning regulation is essential
to building climate resilience in the sector going forward and
both a private and public response is needed. Where we don’t
have the ability to help our customers directly, we will engage
and advocate on their behalf across government, insurance
and banking to find solutions to these problems before they
become acute.
To this end, we have been actively involved in the
development of the National Risk Reduction Framework, as
a priority of the National Resilience Taskforce, which is being
led by the Department of Home Affairs. This is a collective
effort involving public, private and community sectors in the
development of a framework to identify, address and mitigate
disaster risk.
Transition risks and opportunities
We have undertaken scenario analysis to assess the transition
risks and opportunities in our business lending portfolio,
covering Commonwealth Bank, Bankwest and ASB. The
climate scenarios (outlined on page 50) were assessed to
identify the impacts for the Australian economy at a sectoral
level, and these were analysed in relation to the Bank’s debt
exposure and one of our domestic equity portfolios, to 2050.
The scenarios align to reference scenarios and industry-
specific research. There were a number of out-of-model
adjustments, based on industry-specific research, made in
order to ensure that the model reflected our view of different
climate futures. These adjustments were on:
• carbon pricing and offset markets
• international energy demand
• materials efficiency
• domestic energy use
• new business models
This project was supported by EY and ClimateWorks
Australia.
Transition risks and opportunities in our business
lending portfolio
What we found
Emissions fall under all three of our scenarios. However,
Australia only meets its existing international emissions
commitments under the Global Co-ordination and Disruptive
Decarbonisation scenarios.
The analysis provided economic growth, by sector, for the
Australian economy under the three scenarios through
to 2050.
The analysis found that the overall economy grows across
all scenarios and timeframes through to 2050. However, the
rate of growth, sectors impacted and degree of impact, vary
by scenario.
The variation is illustrated in the transition risk heatmap which
represents the growth and contraction at a sectoral level
across the three scenarios over the medium term (2035).
Scenario characteristics – transition analysis
Scenario characteristics
Global Coordination
Disruptive Decarbonisation
Policy Inertia
Reference scenarios
Deep Decarbonisation
Pathways Project
IEA 2DS
Deep Decarbonisation
Pathways Project
Deep Decarbonisation
Pathways Project
Review of disruptive technologies
and business models
IEA 4DS
Target
66% likelihood of limiting
global warming to 2oC
66% likelihood of limiting
global warming to 2oC
66% likelihood of limiting
global warming to 3oC
Proportion of renewables of
total generation in 2050 (from
baseline of 15% in 2017)
73%
94%
58%
Distributed generation increases
from 4% of total generation in
2017 to 39% in 2050
54
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Analysis of our business lending portfolio shows that 97%
of our business lending portfolio sits within sectors that
continue to grow under all scenarios. There is a small
portion of our portfolio – less than 2% – which sits in sectors
that contract under all scenarios. And the remainder of
our portfolio (1%) sits across sectors that grow under one
or two scenarios and decline under other scenarios.
How we are responding
To ensure transition risk is considered going forward, we will
incorporate the results of our scenario analysis into our client-
level due diligence process. Our initial focus will be on sectors
most likely to be impacted by climate change. We will use this
to help us understand risk exposure at a client and a portfolio
level, and inform our engagement with clients (where relevant)
and risk evaluation. We will incorporate relevant questions into
the process to allow us to further understand client exposure,
and their strategy to respond to climate risk. This will help
us to determine our clients’ resilience and inform our lending
actions and strategies.
Our support for the transition to a low carbon economy, from
an energy value chain perspective, is reflected in our declining
exposure to coal and our growing exposure to renewables,
and to gas as a transition fuel. The energy value chain
infographic (on page 59) shows our main concentrations of
credit exposure to carbon-related assets. The 2018 financial
year analysis shows the downward trend in our exposure to
the coal sector continued, across mining, infrastructure and
electricity generation.
Transition risks and opportunities in our
agribusiness portfolio
What we found
Undertaking transition analysis was the first step toward
analysing the strategic risks and opportunities for agriculture.
How we are responding
There is still considerable work that needs to be completed
to better understand the physical impacts of climate on
agricultural industries across the regions in which they
operate, and to understand the implications for our portfolio.
The physical risk analysis for agriculture will be undertaken in
the 2019 financial year. We will start training our agribusiness
teams to support customers by increasing their awareness
of the issue and consider how best to incorporate climate into
the agribusiness due diligence process. This will consider the
outcomes of the physical risk analysis and expert guidance
on observed best practices.
Transition risk heat map by industry
(2017–2035)
Global
Coord-
ination
Disruptive
decarbon-
isation
Policy
Inertia
Sector
Accommodation and hotels
Agricultural services and fishing
Air transport
Alumina
Aluminium
Business services
Cement
Coal mining
Communication services
Construction services
Dairy
Electricity – coal
Electricity – gas
Electricity – hydro
Electricity – non-hydro renewable
Electricity – oil products
Electricity supply
Financial services
Forestry and logging
Gas mining
Gas supply
Grains
Iron and steel
Iron ore mining
Meat products
Motor vehicle and parts
Non-ferrous metal ores
Non-metallic construction
materials (not cement)
Oil mining
Paper products
Petroleum refinery
Printing and publishing
Private transport services
Public services
Rail transport – freight
Rail transport – passenger
Road transport – freight
Road transport – passenger
Rubber and plastic products
Sheep and cattle
Textiles, clothing and footwear
Trade services
Water supply
Wood products
Contraction
Growth
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Transition risks and opportunities in our Wealth business
Next steps
We are continuing to roll out scenario analysis across the
Bank and we will next consider physical risks for business
lending and transition risks for retail lending and insurance.
We will also widen the breadth of our investment analysis
to cover transition and physical risks and opportunities for
our global portfolios.
Colonial First State Global Asset Management
(CFSGAM) has developed a summary of its approach
to managing climate change risks and opportunities.
In developing the statement CFSGAM has sought to
align its disclosure with the TCFD’s recommendations
and the Investor Group on Climate Change’s Guide
for Investor Disclosure.
The approach to climate change is available here:
http://ri.firststateinvestments.com/our-approach/
featured-content/climate-change/
What we found
As part of our transition risk analysis, we have measured the
carbon footprint of our equity investments, and are continuing
to work on the footprinting of our bonds.
CFS’s two MySuper offers – Commonwealth Essential
Super and FirstChoice Employer Super – currently have
carbon footprints higher than their asset allocation weighted
benchmarks. However, both footprints have reduced since
30 June 2016 (1).
As at 31 March 2018, the equities allocation of the
Commonwealth Essential Super range has a carbon footprint
of 435,500 tCO2e. Per $100,000 invested this equates to
16.01 tCO2e or four cars driven daily for a year(2). The equities
allocation of the FirstChoice Employer Super range has a
carbon footprint of 919,600 tCO2e. Per $100,000 invested this
equates to 34.17 tCO2e or seven cars driven daily for a year.
We have also undertaken scenario analysis of FirstChoice
Australian Share Fund, as a proxy for Wealth’s domestic
equity portfolios. The scenario analysis found a very low
proportion of FirstChoice Australian Share Fund’s assets
– 1.5 per cent – sit in sectors that contract under all three
scenarios. Two-thirds of the Fund’s assets are in sectors
that grow under all scenarios. The remainder of Fund assets
are in sectors that grow under our Policy Inertia and/or
Global Co-ordination scenarios, but not under Disruptive
Decarbonisation.
How we are responding
We are currently investigating approaches to undertake
further detailed scenario analysis of our investment portfolios,
expand the transition risk analysis to include other asset
classes, and explore physical risk analysis. We intend to
progress this analysis in the 2019 financial year.
CFS has updated its ESG Risk Management and Proxy
Voting Policy, and Investment Governance Framework;
Commonwealth Private has adopted the Responsible
Investing Framework and created an ESG Policy; and
CommSec is incorporating ESG and climate risk criteria
into its Investment Policy.
These policies ensure ESG and climate risk criteria are taken
into account in investment selection, and that, over time,
Wealth reduces the ESG and climate risks our clients are
exposed to through asset allocation, advocacy, engagement
and shareholder voting.
(1) Carbon emissions data is provided and calculated by MSCI Inc. MSCI collects reported Scope 1 and Scope 2 emissions from each company.
Only 60% of companies in the global equities universe report their greenhouse gas emissions, so MSCI estimates the remaining 40%.
(2) The equivalent number of cars data is sourced from the United States Environmental Protection Agency Greenhouse Gas Equivalencies Calculator
https://www.epa.gov/energy/greenhouse-gas-equivalencies-calculator.
56
Commonwealth Bank of AustraliaAnnual Report 2018Strategic report Climate-related
financial disclosures
There are
significant
opportunities
presented by
the transition
to a low carbon
economy.
Low carbon transition
opportunities
There are significant opportunities presented by the
transition to a low carbon economy.
Sustainable finance
This financial year our lending exposure to the renewable
energy sector grew to $3.7 billion, reflecting our
expertise in this market. For the year ended June 2018,
Commonwealth Bank ranked number one for Mandated
Lead Arranger financing roles of renewables projects
in Australia and ranked 18th globally.(1)
We have also set up a Sustainable Finance Committee
to focus on identifying other low carbon opportunities,
such as climate bonds. This year we led more than
$2 billion of green or sustainability notes.
We continue to support business investment in energy
efficiency improvements through our $300 million
partnership with the Clean Energy Finance Corporation
on the Energy Efficient Equipment Finance program.
In the 2017 financial year we set ourselves a Low Carbon
Target of $15 billion by 2025(2). Our progress to date
shows our exposure to low carbon projects as at 30 June
2018 is $7.3 billion. Eligible projects include renewable
energy, 6-star rated commercial green buildings, energy
efficiency and low carbon transport. We have aligned our
Low Carbon Target eligible projects with the green project
categories identified in the Green Loan principles(3).
Global environmental markets
We are aiming to be a market leader in environmental
markets, supporting our clients’ transition to a net zero
emissions economy. We target clients globally who
have a strategy in place to support their transition. We
support this transition by providing tailored financing
and risk management environmental market solutions
to meet client requirements. This includes facilitating
liquidity across global environmental markets.
Products and services
Across retail and business lending, investment and
insurance, we will continue to explore and develop
product and service options which meet emerging
customer needs, to help them reduce their exposure
and/or build resilience to climate change.
This year we added a new Alliance Partner – Affirmative
Investment Management – and the Affirmative Global
Bond Fund (the Fund) to the FirstChoice platform. The
Fund invests in global green bonds and utilises ESG
criteria and environmental impact screens; it is the first
of its kind available to retail investors in Australia.
$15bn
2025 low carbon target
2025
2018
$7.3bn
$15bn
(1) IJ Global, Renewables League tables, 2018 financial year, by transaction value.
(2) Our target is on the basis of total committed exposures as at 30 June 2025, and is not a cumulative financing target.
(3) The Green Loan Principles were launched in March 2018 by the Loan Market Association, in conjunction with the Asia Pacific Loan Market Association, and
supported by the International Capital Market Association. It is a high level framework for the wholesale green loan market. Indicative categories of eligibility for
Green Projects are included in Appendix 1 of the Green Loan Principles. They are based on the categories provided in the Green Bond Principles 2017.
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financial disclosures
Climate risk management
Climate is a strategic business risk which we identify, assess
and manage as part of our ESG risk framework.
Our approach to climate risk management is shown below,
cascading down from Group-level framework to sector/
portfolio controls, through to specific transaction and client-
level consideration of ESG risks.
Comprehensive policy frameworks
We have a comprehensive set of policy frameworks that
govern our approach to climate risk management. The Risk
Management Approach documents the Group’s key risk
management practices across all major risk classes.
Climate risk is largely a credit risk for the Bank. Extreme
weather events and the legal, market, policy, technology
and reputational impacts of transitioning to a low carbon
economy have the potential to disrupt business activities,
damage property and otherwise affect the value of assets
held and our customers’ ability to repay their loans on
property, businesses and projects. Additional credit risk
could arise from the occurrence of stranded assets, if this
is not sufficiently identified and managed through our risk
management framework.
Climate has both financial and non-financial implications and
is covered as a specific aspect of Strategic Risk in Note 9.1
(Risk Management).
Climate in our ESG risk assessment process
The Bank is a major global provider of lending services.
Assessing potential transactions for ESG risks – including
climate – is a key step in our approach to credit risk due
diligence for business lending.
Business lending is subject to ESG risk assessment. This
must take place before a loan can be priced. The process
includes an initial ESG risk assessment based on country
of operations and over 500 industry sectors. The overall
ESG risk levels are aligned with the Equator Principles’ risk
categories A, B and C.
Approach to climate risk management
Additional ESG due diligence is required for transactions
which have medium or high ESG risks identified in the initial
assessment.
Detail on our ESG risk assessment process is outlined on
page 40.
The Bank reports regularly to the Board on the key ESG
risks in the portfolio using the ESG variables collected
in the assessment process. For example, the number
of high, medium and low ESG risks across the business
lending portfolio.
Climate as part of ESG training
Our ESG training (ESG Fundamentals and the ESG Risk Tool)
includes climate risk – physical and transition – to help identify
the risks, as well as suggestions on the type of evidence
that clients should provide. This training is compulsory for all
Institutional Banking and Business Banking client facing roles,
plus the credit risk teams.
Reducing our carbon-related exposures
To understand the concentration of carbon-related exposures,
we measure the following:
• Energy value chain: Our 2018 financial year exposures
continue to show significant movement away from coal
towards renewables, and gas as a transition fuel.
• Assessed emissions in our business lending portfolio:
We continue to reduce the emissions intensity of our
business lending portfolio. In the 2016 financial year, the
emissions intensity of our business lending portfolio was
0.29 kgCO2/AUD of expenditure. In the 2017 financial year(1),
this declined to 0.28 kgCO2/AUD of expenditure.
This has been driven by a significant decline in the sector
classified as Electricity, Gas and Water Supply over the
period, in line with the transition of our power generation
exposures from coal to renewables, as was shown in the
2017 Energy Value Chain.
P
U
O
R
G
/
R
O
T
C
E
S
I
O
L
O
F
T
R
O
P
I
N
O
T
C
A
S
N
A
R
T
T
N
E
I
L
C
/
Risk Management Approach
ESG Lending
Commitments
Responsible Investing
Framework
Climate Policy
Position Statement
Environment
Policy
Investment ESG risk
management policies
ESG training
Reducing our carbon-
related exposures
Scenario analysis
Equator Principles III
ESG risk
assessment
Stranded asset
risk register
(1) Our financed emissions method relies on client-specific data which limits when we can undertake and release the analysis. 2018 financial year analysis will
be undertaken once 2018 client data is available.
58
Commonwealth Bank of AustraliaAnnual Report 2018Strategic report
Climate-related
financial disclosures
FY18 Energy Value Chain
CBA exposures(1) as at 30 June 2018
Key: (+%) (-%)
Change since FY17
Natural resources (2)
Infrastructure
Electricity generation
Network and retailers
LNG terminals
$3.2b
(-3%)
Coal terminals
$1.0b
(-30%)
Renewables
$3.7b
(+33%)
Gas
$0.6b
(-6%)
Coal
$0.2b
(-53%)
Nuclear
$0.0b
Gas
$1.7b
(+10%)
Coal
$0.27b
(-7%)
Uranium
$0.0b
Oil
$2.8b
(-15%)
Electricity
and gas
transmission,
distribution and
retailing
$6.2b
(-22%)
Oil distribution
and refining
$0.9b
(-56%)
(1) All figures are Total Committed Exposures (TCE) as of 30 June 2018. Figures represented have been specifically derived based on material client exposures.
(2) Diversified miners not included.
(3) Other energy-related exposures ($0.2b) includes smaller loans.
Compared to the previous year, our exposure to mining fell
(-16%) and emissions allocated to mining sector clients fell
(-18%). However, the expenditure allocated to mining sector
clients also fell (-37%). The net result of these changes is
that the weighted average emissions intensity of the sector
rose over the period.
• In the Wealth portfolio, the Group uses a variety of
tools such as MSCI ESG Manager and MSCI Barra
Portfolio Manager which identify, measure and track
ESG and carbon risk at the company, stock, bond,
asset and investment strategy level.
• Carbon footprint and carbon intensity metrics (CFS equity
investments): The footprints for both MySuper offers have
reduced since 30 June 2016.
For most of these metrics, we publicly report on our
performance and progress to hold ourselves accountable
and demonstrate our commitment to reducing our exposure
to carbon-related assets.
Scenario analysis
Our use of scenario analysis in the 2018 financial year,
for strategic management as well as a risk management tool,
is outlined in detail in the Climate strategy section on page 50.
Updating our Equator Principles III (EPIII) process
We are in the process of updating our EPIII due diligence
process to include an assessment of our clients’ approach
to climate transition and physical risks. The consideration
of transition risks is included as part of the EPIII alternatives
analysis for high carbon-intensive projects. We will include
physical risks in the Commonwealth Bank EPIII due diligence
as well as add it to the ESG risk assessment process in the
2019 financial year.
Stranded asset risk register
We focus on assessing our institutional lending exposures
against the risk of stranded assets. The risk of obsolescence
for all clients is managed through the origination and
annual review process. Exposures identified as potentially
being impacted by stranded asset risk, due to climate and
other factors, are subject to heightened consideration and
assessment in the credit process. We maintain a stranded
asset risk register, and currently there is considered to be no
material risk of loss due to climate-related stranded asset risk.
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Strategic reportPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Climate-related
financial disclosures
Metrics and targets
We report regularly on key metrics in order to measure our progress and hold ourselves accountable to our stakeholders with
regard to climate risks and opportunities.
Our Climate Policy Position Statement commits us to a number of targets. The table below shows our latest progress against
our climate-related targets.
Metric
Low carbon target
Target
$15 billion
by 2025
Sourcing renewable energy for our
power needs
25%
by 2020
Emissions per FTE (Australia)
Solar panels on branches
Assessed emissions in our business
lending portfolio
2.0 tCO2-e
by 2020
1,250 kW
by 2020
An average emissions intensity
decrease of our business lending
portfolio consistent with our
commitment to a net zero emissions
economy by 2050
FY18 progress
$7.3 billion
Committed exposure as at 30 June
2018
Tender and consumption modelling
completed. Currently undertaking
power purchase agreement contract
negotiations.
2.3 tCO2-e
750 kW
0.28 kgCO2-e/AUD of expenditure
(FY17)
For a full set of our environmental, social and governance metrics, see our 2018 Group non-financial performance metrics on
pages 75–78.
60
Commonwealth Bank of AustraliaAnnual Report 2018Strategic report Performance
overview
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Performance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Performance
overview
Financial
performance
Group performance overview(1)
The key performance indicators(2) used to assess shareholder return, profitability and balance sheet
strength are outlined below.
We report Group profit on a statutory and cash basis as outlined on page 63.
4.8%
Cash net profit after tax (NPAT)
($M)
9,233
6.2%
Earnings per share cash basis
(cents)
528.6
FY18
FY17
4.0%
Statutory NPAT
($M)
9,375
FY18
FY17
2.6%
9,233
9,696
FY18
FY17
528.6
563.4
2 cents
Dividend per share
(cents)
431
FY18
FY17
540bpts
431
429
9,375
9,766
Total operating income cash basis
($M)
25,907
Dividend payout ratio cash basis
(%)
80.4
FY18
FY17
9.2%
Operating expense cash basis
($M)
11,599
25,907
25,257
FY18
FY17
80.4
75.0
160bpts
Return on equity cash basis
(%)
14.1
FY18
FY17
3.8%
Tax expense cash basis
($M)
3,994
FY18
FY17
11,599
10,622
FY18
FY17
Flat bpts
Capital ratio CET1 (APRA)
(%)
10.1
3,994
3,847
FY18
FY17
14.1
15.7
10.1
10.1
(1) Information has been presented on a continuing operations basis. Discontinued operations are detailed on page 73.
(2) Detailed in glossary on page 292.
62
Commonwealth Bank of AustraliaAnnual Report 2018 Financial
performance
Group performance
Group profit
Group profit represents the operating income earned less operating expenses, impairment costs and tax paid. It is
also called net profit after tax (NPAT). We report NPAT on a statutory and cash basis. The statutory basis is prepared
and audited in accordance with the Corporations Act 2001 and Australian Accounting Standards which comply with
International Accounting Standards (IFRS). The cash basis is used by management to present a clear view of the
underlying operating result, excluding certain items that introduce volatility and/or one-off distortions of the Group’s
current period performance. The difference between each basis is set out on page 74.
Group profit included a number of one-off items:
• AUSTRAC civil penalty of $700m (non-tax deductible);
• one-off regulatory costs totalling $155 million associated
with the Royal Commission, AUSTRAC proceedings and
the APRA Prudential Inquiry; and
• the acquisition of Aussie Home Loans and eChoice
resulting in consolidation of $237 million of income and
$197 million of expenses.
4.8%
Cash NPAT
($M)
FY18
9,233
4.0%
Statutory NPAT
($M)
FY18
9,375
Dividends
Dividends are discretionary distributions of profits to shareholders.
The final dividend determined was $2.31 per share,
bringing the total dividend for the year ended 30 June
2018 to $4.31, an increase of two cents on the prior
year. The dividend payout ratio (cash basis) was 80.4%.
Excluding the AUSTRAC civil penalty, the dividend payout
ratio was 74.9%.
The dividend will be fully franked and will be paid on
28 September 2018 to owners of ordinary shares at the
close of business on 16 August 2018 (record date).
Shares will be quoted ex-dividend on 15 August 2018.
Dividend reinvestment plan (DRP)
The DRP will continue to be offered to shareholders,
and no discount will be applied to shares allocated
under the plan for the final dividend.
Dividend policy
The Bank will seek to:
• pay cash dividends at strong and sustainable levels
• target a full-year payout ratio of 70% to 80%
• maximise the use of its franking account by paying
fully franked dividends
Full-year dividend history
($)
1
0
.
4
8
1
.
2
%
1
.
5
7
3
8
.
1
4
1
Y
F
4
6
.
3
0
0
.
2
%
9
.
5
7
4
6
.
1
3
1
Y
F
0
2
.
4
2
2
.
2
%
2
.
5
7
8
9
.
1
5
1
Y
F
0
2
.
4
2
2
.
2
%
5
.
6
7
8
9
.
1
6
1
Y
F
9
2
.
4
0
3
.
2
%
0
.
5
7
9
9
.
1
7
1
Y
F
1
3
.
4
1
3
.
2
)
1
(
%
9
.
4
7
0
0
.
2
8
1
Y
F
0
2
.
3
8
8
.
1
%
2
.
3
7
2
3
.
1
1
1
Y
F
4
3
.
3
7
9
.
1
%
8
.
5
7
7
3
.
1
2
1
Y
F
Interim
Final
Payout ratio
(1) The FY18 full year payout ratio has been presented excluding the impact of
the AUSTRAC civil penalty. Including the AUSTRAC civil penalty the payout
ratio was 80.4%.
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Performance overviewPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report
Financial
performance
Total operating income
Total operating income is made up of net interest income, other banking income, funds management income
and insurance income.
Net interest margin (NIM) largely represents the percentage difference between the interest rates charged to borrowers
and the interest rates paid to depositors.
The underlying performance of the business remained
strong, with income growth of 2.6%.
• Net interest income increased as a result of repricing
interest-only and investor home loans in order to manage
regulatory requirements, selective growth in lending and
an increased proportion of low cost funding via transaction
deposits; partly offset by the impact of the major
bank levy.
• Other banking income decreased as a result of the
removal of ATM fees, the decrease in commission
income on credit and debit card transactions and
weaker trading performance.
2.6%
Total operating income cash basis
($M)
25,907
FY18
FY17
25,907
25,257
Full year ended (1)
Net interest income
Other banking income
Funds management income
Insurance income
Total operating income excluding one-off items cash basis
One-off items (2)
Total operating income cash basis
Net interest margin (%)
(1) Comparative information has been reclassified to conform to presentation in the current period.
(2) For explanation of one-off items refer to page 73.
30 Jun 18
$M
30 Jun 17
$M
Jun 18 vs Jun 17
%
18,336
4,950
2,091
293
25,670
237
25,907
2.15
17,543
5,140
1,913
223
24,819
438
25,257
2.10
4.5
(3.7)
9 .3
31.4
3 .4
(45.9)
2.6
5 bpts
Operating expenses
Operating expenses include the salaries and other benefits paid to staff, the cost of IT systems and property costs. The
remaining expenses have been included in other expenses, with further details provided in Note 2.4 of the Financial Statements.
Operating expenses to total operating income is an efficiency measure used to determine the cost to the bank of
earning income.
Operating expenses increased 9.2% due to the AUSTRAC
civil penalty and one-off regulatory costs. Excluding one-off
items outlined on page 73, operating expenses increased
3.1% during the year. The key drivers of the increase were:
• Staff expenses increased 0.5% driven by wage inflation,
partly offset by lower employee incentives.
9.2%
Operating expense cash basis
($M)
11,599
• Occupancy and equipment expenses increased,
primarily due to the relocation of a number of offices to
a single location, annual rental reviews and depreciation.
FY18
FY17
11,599
10,622
• Information technology services expenses increased
due to higher investment spend, particularly on risk and
compliance based projects, amortisation and the write-off
of software, and increased software licensing costs.
• Other expenses increased due to an elevated investment
in financial crime compliance, partly offset by lower Advice
Review program costs, lower non-lending losses and
lower discretionary spend.
64
Commonwealth Bank of AustraliaAnnual Report 2018Performance overview Financial
performance
Full year ended (1)
Staff expenses
Occupancy and equipment expenses
Information technology services expenses
Other expenses
Operating expenses excluding one-off items cash basis
One-off items (2)
Operating expenses cash basis
Operating expenses to total operating income (%)
Number of full-time equivalent staff (FTE)
30 Jun 18
$M
30 Jun 17
$M
Jun 18 vs Jun 17
%
5,895
1,165
1,787
1,700
10,547
1,052
11,599
44.8
43,771
5,865
1,110
1,578
1,676
10,229
393
10,622
42.1
43,620
0.5
5.0
13.2
1.4
3.1
large
9.2
270 bpts
0.3
(1) Comparative information has been reclassified to conform to presentation in the current period.
(2) For explanation of one-off items refer to page 73.
Loan impairment expense
Loan impairment expense represents an estimate of the losses incurred during the year due to bad debts, net of any
amounts recovered.
Loan impairment expense decreased 1.5% during the year.
Improvements in the performance of the Bankwest home
loan portfolio across mining and regional areas were partly
offset by an increase in collective provisions against business
loans and an increase in individual provisions against a
loan to a large corporate client within Institutional Banking
and Markets.
1.5%
Loan impairment expense cash basis
($M)
1,079
FY18
FY17
1,079
1,095
Impairment provisions and credit quality
Provisions for impairment represent the Bank’s estimate of the total amount of bad debts that could emerge within
the existing loan portfolio at balance date. Provisions include collectively assessed provisions that are applied against
portfolios of loans and individually assessed provisions applied against specific customer loans. The Group also applies
provision overlays to take into account changes in the wider economic and regulatory environment.
Impaired assets are loans that are not meeting their repayment obligations. They are made up of loans in default, loans
that have been restructured to non-commercial terms due to the financial difficulties of the borrower or unsecured
personal loans and credit cards whose minimum repayments are 90 days past due.
Full year ended
Total provisions for impairment losses
Gross impaired assets ($M)
30 Jun 18
$M
3,633
3,179
30 Jun 17
$M
Jun 18 vs Jun 17
%
3,727
3,187
(2.5)
(0.3)
Total provisions for impairment losses decreased 2.5% during the year and is shown graphically on page 66. Movements are
made up of:
• a 15% reduction in individually assessed provisions due to a small number of large write-offs and recoveries impacting
institutional and business customers; and
• a 4% reduction in corporate collective provisions due to reductions in exposures, improvements in the quality of the Bankwest
business portfolio, and improvements in the New Zealand business portfolio; partly offset by
• a 6% increase in management overlays, principally in Retail Banking Services, due to the anticipated adverse impact of
changing personal bankruptcy legislation.
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performance
Collective provisions
($M)
2,747
711
2,772
811
2,763
756
1,195
1,158
1,199
841
803
808
Overlay
Consumer
Corporate
Individual provisions
($M)
980
257
978
254
723
724
870
256
614
Jun 17
Dec 17
Jun 18
Jun 17
Dec 17
Jun 18
Consumer
Corporate
90 days arrears are loans where minimum repayments are
90 days late.
Domestic home loan arrears were elevated on the prior year
as some households experienced difficulties with rising
essential costs and limited income growth leading to some
pockets of stress.
90 days arrears
(%)
1.46%
0.99%
0.54%
2.0%
1.0%
0.0%
1.41%
1.03%
0.60%
1.44%
1.03%
0.70%
Jun 16
Dec 16
Jun 17
Dec 17
Jun 18
Personal Loans
Credit Cards
Home Loans
Taxation expense
Corporate tax expense represents income taxes paid to taxation authorities in operating jurisdictions.
Corporate tax expense for the year increased $147 million
or 3.8% on the prior year, a 30.2% effective tax rate.
The increase in the effective tax rate during the period is
primarily due to the $700 million civil penalty in the AUSTRAC
proceedings being non-deductible for tax purposes.
3.8%
Taxation expense cash basis
($M)
3,994
Adjusting for the AUSTRAC civil penalty the tax rate would
be 28.6%.
CBA was one of Australia’s largest tax payers in 2018.
FY18
FY17
3,994
3,847
66
Commonwealth Bank of AustraliaAnnual Report 2018Performance overview
Financial
performance
Divisional performance analysis(1)
Retail Banking Services
Business and Private Banking
Cash NPAT
$5,193m
Up 5.3% on 2017
Cash NPAT
$1,888m
Up 4.4% on 2017
Proportion of Group profit
56.2%
Proportion of Group profit
20.4%
Retail Banking Services is the Commonwealth Bank branded
retail banking division. It provides simple, convenient and
affordable banking products and services to more than
10 million personal and small business customers, helping
them manage their everyday banking needs, buy a home,
build and grow their business, or invest for the future.
Customers are supported through an extensive network of
close to 1,000 branches, more than 3,000 ATMs, Australia-
based customer call centres, leading online services and apps,
as well as mobile banking specialists and support teams.
Business and Private Banking serves the banking needs of
business, corporate and agribusiness customers across the
full range of financial services solutions, as well as providing
banking and advisory services for high net worth individuals.
We also provide equities trading and margin lending services
through our CommSec business.
Performance at a glance
Performance at a glance
8bpts
Net interest margin (NIM)
2.98%
FY18
FY17
2.98%
2.90%
7bpts
Net interest margin (NIM)
3.05%
FY18
FY17
3.05%
2.98%
NIM improved as a result of repricing interest-only and
investor home loans to manage regulatory requirements, as
well as growth in transaction deposits, partly offset by the
introduction of the major bank levy.
NIM improved as a result of repricing interest-only and
investor home loans to manage regulatory requirements, as
well as growth in transaction deposits, partly offset by the
introduction of the major bank levy and the run-off of higher
margin residential property development lending.
50bpts
120bpts
Operating expense to total banking income
30.5%
Operating expense to total banking income
36.1%
FY18
FY17
30.5%
31.0%
FY18
FY17
36.1%
37.3%
The ratio decreased (improved) due to growth in net interest
income linked to growing lending margins and balances and
transaction deposits, partly offset by increases in operating
expenses from continued investment in technology, risk and
compliance.
The ratio decreased (improved) due to higher total banking
income, partially offset by the increase in operating expenses
with higher spend on product development initiatives.
(1) Divisional metrics are reported on a cash basis for continuing operations. Refer page 73 for the Bank’s discontinued operations.
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performance
Institutional Banking and Markets
New Zealand
Cash NPAT
$1,121m
Down 14.5% on 2017
Cash NPAT
$975m/NZ$1,072m
Up 12.2% on 2017
Proportion of Group profit
12.1%
Proportion of Group profit
10.6%
Institutional Banking & Markets serves the commercial and
wholesale banking needs of large corporate, institutional
and government clients across a full range of financial
services solutions including access to debt capital markets,
transaction banking, working capital and risk management
through dedicated product and industry specialists.
New Zealand includes the banking, funds management and
insurance businesses operating in New Zealand under the
ASB and Sovereign brands.
ASB conducts its business through three business units:
Retail Banking provides services to individuals across multiple
channels including a branch network, digital platforms,
ATMs, mobile managers and contact centres. Business
Banking provides services to corporate, commercial, rural
and small business customers. Private Banking, Wealth and
Insurance provides securities, investment and insurance
services to customers, and banking services to high net
worth individuals.
Performance at a glance
Performance at a glance
6bpts
Net interest margin (NIM)
1.04%
FY18
FY17
1.04%
1.10%
7bpts
Net interest margin (NIM)
2.24%
FY18
FY17
2.24%
2.17%
The reduction in NIM was primarily driven by the major
bank levy.
NIM improved due to an increase in fixed rate home
loan margins.
500bpts
140bpts
Operating expense to total banking income
42.7%
Operating expense to total banking income
36.0%
FY18
FY17
42.7%
37.7%
FY18
FY17
36.0%
37.4%
The ratio increased (deteriorated) primarily due to lower
Markets revenue, the introduction of the major bank levy
and higher operating expenses due to higher regulatory
risk and compliance spend.
The ratio decreased (improved) due to increased interest,
fee and funds management income on growing lending
and funds balances.
68
Commonwealth Bank of AustraliaAnnual Report 2018Performance overview Financial
performance
Bankwest
Cash NPAT
$681m
Up 18.2% on 2017
Wealth Management
Cash NPAT
$563m
Up 33.4% on 2017
Proportion of Group profit
7.4%
Proportion of Group profit
6.1%
Bankwest provides simple and affordable banking products
to more than 1 million retail, business and rural customers
across Australia. Customers are assisted to manage their
everyday banking needs, buy a home, build and grow
businesses and invest for the future. We also support our
customers through a network of close to 100 branches and
over 300 ATMs, easy-to-use digital and mobile services and
an Australia-based 24/7 customer contact centre.
Wealth Management provides superannuation, investment,
retirement and insurance products, and services including
financial planning which help to improve the financial wellbeing
of more than 2.1 million customers. CFS Global Asset
Management manages investments on behalf of institutional
investors and pension funds, wholesale distributors and
platforms, financial advisers and their clients. During 2017 the
Bank announced the sale of its life insurance business, the
demerger of its wealth management business and strategic
review of its general insurance business.
Performance at a glance
Performance at a glance
3bpts
Net interest margin (NIM)
2.10%
570bpts
Operating expense to total operating income
66.6%
FY18
FY17
2.10%
2.07%
FY18
FY17
66.6%
72.3%
NIM increased as a result of repricing interest-only and
investor home loans to manage regulatory requirements and
increased transaction deposit balances.
The reduction was driven by increased funds management
income on growing funds balances, a rise in general
insurance income due to lower weather event claims and
a reduction in operating expenses due to the wind down in
advice remediation costs.
290bpts
5%
Operating expense to total banking income
42.1%
Assets Under Management – average (AUM)
$216b
FY18
FY17
42.1%
45.0%
FY18
FY17
$216b
$206b
The ratio decreased (improved) due to increased interest and
fee income and lower operating expenses due to one-off
Bankwest east coast business integration costs in financial
year 2017.
Growth in average AUM was driven by strong investment
markets offset by net outflows in the global equities and
fixed income funds.
69
Performance overviewPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Financial
performance
International Financial Services (IFS)
Cash NPAT
$178m
Up 32.8% on 2017
Proportion of Group profit
1.9%
International Financial Services (IFS) incorporates the Asian
retail and business banking operations, investments in China
and Vietnam and the life insurance operations in Indonesia.
Performance at a glance
large
Operating expense to total operating income
46.7%
FY18
FY17
46.7%
57.9%
The improvement was driven by reduced staff costs due
to business divestments and increasing income from
investments in China.
70
Commonwealth Bank of AustraliaAnnual Report 2018Performance overview Financial
performance
Assets and liabilities
Over 75% of the Group’s assets are loans to customers. The remaining assets primarily include investments, trading
securities and cash and liquid assets. Approximately 68% of the Group’s liabilities are deposits from customers.
The majority of the remaining liabilities include debt issues and subordinated debt issues referred to as loan capital.
All these liabilities are used to fund the Group’s assets and generate a return for the Group.
Total Group assets and liabilities
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) (4)
Assets held for sale (3)
Total assets
Interest bearing liabilities
Transaction deposits (5)
Savings deposits (5)
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)
Liabilities held for sale (3)
Total liabilities
(1) Gross of mortgage offset balances.
As at
30 Jun 18
$M
30 Jun 17
$M
Jun 18 vs Jun 17
%
501,665
23,317
222,367
747,349
150,306
897,655
61,856
15,654
975,165
109,181
187,587
216,852
58,057
571,677
172,673
54,124
798,474
48,831
45,100
14,900
485,857
23,577
226,484
735,918
163,665
899,583
76,735
–
976,318
98,884
191,245
220,530
70,313
580,972
168,034
57,531
806,537
44,032
62,089
–
907,305
912,658
3.3
(1.1)
(1.8)
1.6
(8.2)
(0.2)
(19.4)
n/a
(0.1)
10.4
(1.9)
(1.7)
(17.4)
(1.6)
2.8
(5.9)
(1.0)
10.9
(27.4)
n/a
(0.6)
(2) Loans, bills discounted and other receivables exclude provisions for impairment which are included in other assets.
(3) For 30 June 2018, assets and liabilities of businesses held for sale have been reclassified and separately disclosed in the balance sheet.
(4) Comparatives have been restated following a change in accounting policy to recognise deferred tax on brand names acquired by the Group. Further details on the
change are provided in Note 1.1 of the Financial Statements.
(5) Includes mortgage offset balances.
Total assets were $975 billion, which was flat relative to the prior year, reflecting lower liquid assets and institutional lending, offset
by increased home and business lending. Total liabilities were $907 billion, a decrease of 0.6% on the prior year, reflecting lower
other demand deposits and derivative liability balances, partly offset by increased transaction deposits and debt issues.
The Bank continued to satisfy a significant portion of lending growth from customer deposits. Customer deposits represented
68% of total funding (30 June 2017: 67%).
Explanations of key movements in balance sheet line items are set out below:
Home loans
Home loan balances were $502 billion, an increase of 3.3% on the prior year. The increase excluding foreign exchange was 4%,
driven by Retail Banking Services, Bankwest and New Zealand. Domestic loan growth of 4% was 2% below the overall banking
system, reflecting the Bank’s approach to complying with regulatory requirements on investor and interest-only home lending, and
increased competition, particularly from non-banks. Home loans in Australia amount to $451 billion (30 June 2017: $436 billion) of
which 65% are owner occupied loans, 32% are investment loans and 3% are lines of credit (30 June 2017: 63% owner occupied,
33% investment, and 4% were lines of credit).
71
Performance overviewPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Financial
performance
Business and corporate loans
Business and corporate loans were $222 billion, a 1.8% decrease on the prior year. The decrease was driven by a 6% decrease
in institutional lending balances, as a result of portfolio optimisation initiatives. This was partly offset by growth of 2% in Business
and Private Banking across various industries, including agribusiness, hospitality and health, and growth of 4% in Bankwest
driven by the property and corporate segments. Growth in New Zealand of 8% was above the overall New Zealand banking
system, reflecting the long-term strategic focus on the business and rural segment.
Total interest bearing deposits
Total interest bearing deposits were $572 billion, a 2% decrease on the prior year. The decrease excluding foreign exchange was
1%. This was driven by changes in the short to long term funding mix as the Bank replaced short-term wholesale deposit funding
with long-term debt issues to improve funding stability, and lower investment deposits in Institutional Banking and Markets driven
by increased competition from domestic and foreign banks. The decrease was partly offset by strong growth in transaction
deposits in Retail Banking Services, Business and Private Banking and Institutional Banking and Markets.
Debt issues
Debt issues on wholesale markets were $173 billion, a 3% increase on the prior year. The Bank actively replaced short-term
wholesale funding with long-term wholesale funding to reduce the annual funding requirement and to take advantage of
favourable global funding conditions.
Capital
The Bank is an Authorised Deposit-taking Institution (ADI) regulated by APRA. To ensure banks hold sufficient capital to
protect deposit holders against unexpected losses, APRA sets minimum capital requirements for ADIs based on the Basel
Committee on Banking Supervision guidelines. These requirements influence the Bank’s ability to pay dividends.
CET1 was maintained well in excess of the regulatory
minimum capital requirement at all times throughout
the year. CET1 remained unchanged during the year
and was impacted by the following:
• The benefit of profits generated in the ordinary course
of business.
• Dividends paid during the period to shareholders
which have the effect of reducing capital, however
this impact was partly offset via equity raised through
the Bank’s dividend reinvestment plan.
• On 1 May 2018, APRA released the findings of the
Prudential Inquiry into the Bank. APRA required the
Bank to increase Operational Risk regulatory capital
by $1 billion, equivalent to an additional 0.28% of CET1.
This adjustment was effective as at 30 April 2018.
Flat bpts
Capital ratio CET1 (APRA)
(%)
10.1%
FY18
FY17
10.1%
10.1%
72
Commonwealth Bank of AustraliaAnnual Report 2018Performance overview Financial
performance
Guidance on the impact of one-off items
The Bank’s financial results were impacted by a number of one-off items. In order to present a transparent view of business
performance, operating income and operating expense are shown both before and after the following one-off items below:
FY18 includes:
• the acquisition of Aussie Home Loans and eChoice resulting in consolidation of $237 million of income and $197 million of expenses
• a $700 million non-tax deductible expense provision for the AUSTRAC civil penalty
• one-off regulatory costs of $155 million relating to costs associated with the Royal Commission, AUSTRAC proceedings
and the APRA Prudential Inquiry
FY17 includes:
• a $397 million gain on sale of the Bank’s remaining equity stake in Visa Inc.
• $41 million share of profits from our 80% stake in AHL
• a $393 million one-off expense for acceleration of amortisation on certain software assets
Full year ended (1)
30 Jun 18
$M
30 Jun 17
$M
Jun 18 vs Jun 17
%
Operating income excluding one-off items cash basis
25,670
24,819
One-off items:
Sale of Visa shares
AHL and eChoice (2)
Total operating income cash basis
Operating expense excluding one-off items cash basis
One-off items:
Accelerated amortisation on certain software assets
AHL and eChoice
AUSTRAC civil penalty
One-off regulatory costs
–
237
25,907
(10,547)
–
(197)
(700)
(155)
397
41
25,257
(10,229)
(393)
–
–
–
Total operating expenses cash basis
(11,599)
(10,622)
3.4
large
large
2.6
3.1
large
n/a
n/a
n/a
9.2
(1) Information has been restated and presented on a continuing operations basis. Discontinued operations include the Bank’s life insurance business in Australia
and New Zealand, its 37.5% equity interest in BoComm Life Insurance Company Limited, and TymeDigital.
(2) The consolidation of AHL and eChoice in FY18 includes $5 million of interest income and $232 million of other banking income.
Net profit after tax from discontinued operations
Discontinued operations represent a major business or a division that the Bank plans to sell or close within the next
12 months, or that has already been sold or closed.
For reporting purposes profit is presented excluding discontinued operations to provide a clear view of the ongoing performance
of the business. The Bank also reports profit including discontinued operations to provide shareholders with a complete view of
the Bank’s performance.
The following businesses have been classified as discontinued operations during the year:
• Life insurance businesses, CommInsure Life and Sovereign
• Commonwealth Bank of South Africa (TymeDigital)
• BoComm Life Insurance Company Limited
Full year ended
Life insurance (CommInsure Life and Sovereign)
Commonwealth Bank South Africa
BoComm Life Insurance Company Limited
Net profit after tax from discontinued operations cash basis
Non-cash items (after tax) – discontinued operations
Net profit/(loss) after tax from discontinued operations
statutory basis
30 Jun 18
$M
30 Jun 17
$M
Jun 18 vs Jun 17
%
242
(82)
19
179
(225)
(46)
226
(57)
16
185
(19)
166
7.1
(43.9)
18.8
(3.2)
large
large
73
Performance overviewPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Financial
performance
Cash to statutory profit reconciliation
Non-cash items are excluded from net profit after tax (cash basis), which is management’s preferred measure of
the Bank’s financial performance, as they tend to be non-recurring in nature or are not considered representative
of the Bank’s ongoing financial performance. Non-cash items are treated consistently each period.
The reconciliations below provide a reconciliation between cash and statutory basis profit from continuing operations
and on a total operations basis including discontinued operations.
For further detail refer to the cash to statutory profit reconciliation on page 290.
The non-cash items excluded from cash profit for the period are:
(Loss)/gain on acquisition, disposal, closure and demerger of businesses
Gains and losses on these transactions are inclusive of foreign exchange impacts, impairments, restructuring, separation and
transaction costs and cover both controlled businesses and associates.
Hedging and IFRS volatility
Hedging and IFRS volatility represents timing differences between fair value movements on hedges and the underlying exposure.
They do not affect the Bank’s performance over the life of the hedge transaction. To qualify as an economic hedge the terms
and/or risk profile must match or be substantially the same as the underlying exposure.
Bankwest non-cash items
The acquisition of Bankwest resulted in the recognition of assets at fair value, some of which have been amortising over their
useful life. The transaction was considered one-off in nature. Bankwest customer lists are the only asset still being amortised.
Treasury shares valuation adjustment
These valuation adjustments represent the elimination of gains and losses on CBA shares held through funds in the Wealth
Management business.
Full year ended (1)
Net profit after tax from continuing operations cash basis
(Loss)/gain on acquisition, disposal, closure and demerger of businesses
Hedging and IFRS volatility
Bankwest non-cash items
30 Jun 18
$M
9,233
44
101
(3)
30 Jun 17
$M
9,696
–
73
(3)
Net profit after tax from continuing operations statutory basis
9,375
9,766
(1) Comparative information has been restated to conform to presentation in the current period.
Full year ended (1)
Net profit after tax cash basis including discontinued operations
(Loss)/gain on acquisition, disposal, closure and demerger of businesses
Hedging and IFRS volatility
Bankwest non-cash items
Treasury shares valuation adjustment discontinued operations
30 Jun 18
$M
9,412
(183)
101
(3)
2
30 Jun 17
$M
9,881
–
73
(3)
(23)
Net profit after tax including discontinued operations statutory basis
9,329
9,928
(1) Comparative information has been restated to conform to presentation in the current period.
Jun 18 vs
Jun 17 %
(4.8)
n/a
38.4
–
(4.0)
Jun 18 vs
Jun 17 %
(5)
n/a
38
–
large
(6)
74
Commonwealth Bank of AustraliaAnnual Report 2018Performance overview Non-financial
performance metrics
Environmental, customer, social and governance metrics(1)
The Group’s wholly owned and operated entities includes Commonwealth Bank of Australia (CBA), Bankwest, Sovereign, ASB,
PT Bank Commonwealth and others. All metrics capture data of the wholly owned and operated entities of the Commonwealth
Bank Group (the Group), excluding Aussie Home Loans (AHL), associates and joint ventures such as equigroup unless
otherwise stated.
PwC has provided limited assurance on the metrics below, excluding the low carbon transition, for the year ended 30 June 2018.
The PwC Limited Assurance Report is available on page 79.
Environmental metrics
Greenhouse Gas Emissions (Group)
tCO2-e
30 Jun 18
30 Jun 17
30 Jun 16
30 Jun 15
30 Jun 14
Total of Scope 1, 2 & 3 emissions
181,771
197,439 (2)
210,447(2)
222,631(2)
241,666 (2)
Scope 1 emissions
Scope 2 emissions
Scope 3 emissions
Greenhouse Gas Emissions per FTE
(Scope 1 & 2)
8,740
9,694
9,063
9,729
10,540
87,277
96,595
107,762
115,580
122,190
85,754
91,150 (2)
93,622(2)
97,322(2)
108,936 (2)
2.1
2.3
2.6
2.7
3.0
Greenhouse Gas Emissions (Australia)
tCO2-e
30 Jun 18
30 Jun 17
30 Jun 16
30 Jun 15
30 Jun 14
Total of Scope 1, 2 & 3 emissions
156,553
168,686 (2)
180,898 (2)
190,936 (2)
208,720 (2)
Scope 1 emissions
Scope 2 emissions
Scope 3 emissions
Greenhouse Gas Emissions per FTE
(Scope 1 & 2)
7,257
7,411
7,682
8,025
8,678
76,866
83,723
94,255
101,125
108,651
72,430
77,553(2)
78,961(2)
81,786 (2)
91,391(2)
2.3
2.6
2.9
3.0
3.4
Greenhouse Gas Emissions (New Zealand)
tCO2-e
30 Jun 18
30 Jun 17
30 Jun 16
30 Jun 15
30 Jun 14
Total of Scope 1, 2 & 3 emissions
Scope 1 emissions
Scope 2 emissions
Scope 3 emissions
9,030
733
2,462
5,834
7,822
1,348
2,661
3,813
8,599
436
3,213
4,950
8,640
10,184
632
3,393
4,615
698
4,197
5,289
Greenhouse Gas Emissions (Other overseas)
tCO2-e
30 Jun 18
30 Jun 17
30 Jun 16
30 Jun 15
30 Jun 14
Total of Scope 1, 2 & 3 emissions
16,189
20,930 (2)
20,950 (2)
23,055(2)
22,762(2)
Scope 1 emissions
Scope 2 emissions
Scope 3 emissions
Australia operations
750
7,949
7,490
935
945
1,072
10,211
10,294
11,062
1,164
9,342
9,784(2)
9,711(2)
10,921(2)
12,256 (2)
Scope 1 Greenhouse Gas Emissions (3)
tCO2-e
30 Jun 18
30 Jun 17
30 Jun 16
30 Jun 15
30 Jun 14
Stationary emissions
Transport emissions
389
6,868
541
6,870
663
7,019
1,167
6,858
1,459
7,219
Scope 2 Greenhouse Gas Emissions (3)
tCO2-e
30 Jun 18
30 Jun 17
30 Jun 16
30 Jun 15
30 Jun 14
Purchased electricity
76,866
83,723
94,255
101,125
108,651
Scope 3 Greenhouse Gas Emissions (3)
tCO2-e
30 Jun 18
30 Jun 17
30 Jun 16
30 Jun 15
30 Jun 14
Stationary emissions
Purchased electricity
Data centres
Waste to landfill
Transport emissions
79
116
133
238
10,021
10,503
12,453
13,989
344
18,147
39,647
44,052(2)
41,261(2)
38,247(2)
41,922(2)
1,334
21,349
1,306
21,576
1,663
23,451
1,130
28,182
1,259
29,719
75
Performance overviewPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Non-financial
performance metrics
Waste (Australia)
Total waste
Waste to landfill
Waste recycled
Water (Australia)
Total water
Data centre water
t
kL
30 Jun 18
30 Jun 17
30 Jun 16
30 Jun 15
30 Jun 14
1,892
1,088
804
1,270
1,407
1,855
680
590
755
652
960
895
2,057
1,129
928
30 Jun 18
30 Jun 17
30 Jun 16
30 Jun 15
172,134
171,477
114,608
90,784
33,438
41,124
41,071
38,984
Low carbon transition (4)
30 Jun 18
30 Jun 17
30 Jun 16
30 Jun 15
Renewable energy lending exposure
$M
Business lending emissions intensity(5)
Climate bond arrangement
(kgCO2-e/AUD)
$M
3,716
N/A(6)
2,014
2,800
0.28
1,018
2,200
1,400
0.29
50
0.28
–
Customer metrics
Customer Satisfaction
CBA – Retail Net Promoter Score (3)
Rank
CBA – Online Net Promoter Score (3)
Rank
CBA – Business Net Promoter Score (3)
Rank
#
#
#
Wealth Management – Colonial First State’s
platforms Customer Satisfaction
out of 10
Rank
Bankwest – Retail Banking Customer Advocacy
out of 10
Bankwest – Business Banking Customer
Advocacy
out of 10
Sovereign – Customer Experience Score
ASB – Retail Banking Customer Satisfaction
Rank
ASB – Business and Rural Banking Customer
Satisfaction
Rank
PT Bank Commonwealth – Banking Service
Excellence Performance
#
%
%
%
30 Jun 18
30 Jun 17
30 Jun 16
30 Jun 15
30 Jun 14
4.2
1st
31.3
1st
-19.6
4th
8.1
1st
7.4
7.5
84.9
76.3
3rd
74.0
1st
84.5
1.7
1st
–
–
-13.1
1st
8.0
1st
7.4
7.2
83.4
74.4
3rd
75.0
1st
70.0
1.8
1st
–
–
-13.0
3rd
8.1
1st
7.6
7.8
81.8
74.5
3rd
78.0
1st
68.3
3.9
2nd
–
–
0.2
2nd
7.8
2nd
7.4
7.2
79.1
73.0
3rd
76.0
1st
84.7
2.6
2nd
–
–
-2.8
2nd
7.9
1st
7.5
6.9
77.5
74.1
3rd
76.0
1st
77.4
Rank
Customer Complaints
1st
7th
8th
3rd
7th
30 Jun 18
30 Jun 17
30 Jun 16
CBA – Customer Complaints (3)
#
62,073
53,813
42,673
76
Commonwealth Bank of AustraliaAnnual Report 2018Performance overview Non-financial
performance metrics
Social metrics
Full-time equivalent employees
#
30 Jun 18
30 Jun 17
30 Jun 16
30 Jun 15
30 Jun 14
Total
Australia
New Zealand
Others
Employee engagement
Employee engagement index – CBA
Employee turnover (voluntary)
Gender diversity
Women in workforce
%
%
Women in Manager and above roles
Women in Executive Manager and above roles
Women in Senior Leadership (Group Executives)(3)
45,753
36,446
5,538
3,769
45,614
45,129
45,948
44,329
35,701
35,273
35,797
34,312
5,409
4,504
5,518
4,338
5,371
4,780
5,416
4,601
30 Jun 18
30 Jun 17
30 Jun 16
30 Jun 15
30 Jun 14
72
11.8
78
10.1
77
11.3
81
10.2
81
10.2
30 Jun 18
30 Jun 17
30 Jun 16
30 Jun 15
30 Jun 14
57.4
44.6
37.6
20.0
57.8
44.4
36.7
58.0
43.6
35.2
58.5
43.2
33.9
59.2
42.9
31.8
Gender pay equity – female to
male base salary comparison
Executive General Manager
General Manager
Executive Manager
Manager/Professional
Team Member
Age diversity
<25 years
25-34 years
35-44 years
45-54 years
55-64 years
65+ years
Ratio
30 Jun 18
30 Jun 17
30 Jun 16
0.94
0.99
1.00
0.98
1.00
0.95
1.03
1.00
0.98
1.00
0.96
0.99
1.00
0.99
0.99
%
30 Jun 18
30 Jun 17
30 Jun 16
30 Jun 15
30 Jun 14
7.3
33.2
31.0
19.5
8.0
0.8
8.1
34.8
29.7
18.9
7.6
0.6
8.3
35.9
29.5
18.5
7.2
0.6
8.9
36.9
29.1
17.8
6.8
0.5
9.4
36.9
28.8
17.7
6.8
0.4
Cultural diversity based
on ancestry – 30 Jun 18 (3)
CBA Overall
General Manager and above
Executive Manager and above
2016 Australia Census (ancestry)
Cultural Diversity
Index (CDI)
#
Australia,
New Zealand,
British, Irish
%
Europe
%
Asia
%
Africa,
Middle East
%
Americas
%
Indigenous,
Pacific
Islanders
%
0.77
0.60
0.64
0.59
51
68
65
69
15
17
17
12
26
6
11
14
3
5
3
4
1
4
2
1
2
1
1
1
Indigenous workforce
CBA Indigenous workforce (ancestry)(3)
Other diversity dimensions
%
%
Employees who identify as having a disability(3)
Employees who identify as LGBTI (3)
30 Jun 18
30 Jun 17
1.0
0.8
2016 Australia Census (Question 7 on
Aboriginal or Torres Strait Islander)
2.8
30 Jun 18
11.9
3.4
Flexibility
%
30 Jun 18
30 Jun 17
30 Jun 16
30 Jun 15
30 Jun 14
Employees working flexibly
Employees working part-time or job-sharing
Employees with caring responsibilities (3)
73.7
19.7
53.0
69.4
19.4
–
43.4
19.8
–
44.5
20.1
–
43.8
20.7
–
Human capital development
#
30 Jun 18
30 Jun 17
30 Jun 16
30 Jun 15
30 Jun 14
Number of graduates
188
149
119
114
131
77
Performance overviewPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report
Non-financial
performance metrics
Training hours
#
Female
Male
Total
Female
Male
Total
Executive Managers and above
70,019
69,373
139,392
74,051
83,676
157,727
Others
Total
983,633
724,364
1,707,997
1,103,412
795,122
1,898,534
1,053,652
793,737
1,847,389
1,177,463
878,798
2,056,261
30 Jun 18
30 Jun 17
Training hours per employee
Hours
Female
57.5
35.0
35.9
Male
34.6
31.6
31.8
Total
43.3
33.5
34.1
Female
70.7
40.4
41.6
Male
43.5
35.6
36.2
Total
53.1
38.3
39.1
#
3,577
2,768
1,786
30 Jun 18
30 Jun 17
30 Jun 16
Executive Managers and above
Others
Total
ESG training
Safety and wellbeing
Lost Time Injury Frequency Rate (LTIFR) Rate
Absenteeism
Community investment
Total community investment
Cash contributions
Time volunteering
Forgone revenue
Program implementation costs
Community investment as a
percentage of pre-tax profit
Financial literacy programs
School banking students (active)(9)
Start Smart students (booked)
Indigenous community support
Days
$M
%
#
Indigenous Customer Assistance Line
(calls received)
#
30 Jun 18
30 Jun 17
30 Jun 16
30 Jun 15
30 Jun 14
1.1
6.0
1.6 (7)
5.9
1.6 (7)
6.0
2.0
6.0
1.5
6.1
30 Jun 18
30 Jun 17
30 Jun 16
30 Jun 15
290.1
55.5
1.1
220.3
13.2
2.2
266.0
37.2
1.2
215.9 (8)
11.7
2.0
262.6
37.8
1.4
211.8
11.6
2.0
243.4
31.3
1.8
203.5
6.8
1.9
30 Jun 18
30 Jun 17
30 Jun 16
30 Jun 15
30 Jun 14
299,074
321,389
325,797
305,844
269,340
568,649
574,246
557,475
298,505
288,728
30 Jun 18
30 Jun 17
30 Jun 16
180,225
168,218
170,789
Australian Indigenous supplier spend
$’000
2,226
1,460
1,080
Governance metrics
Board diversity
Male
Female
Total
Female Directors on Board
Training related to code and conduct
Training completion rates on ‘Our Commitments’
Training completion rates on mandatory learning
Conduct and whistleblowing
Substantiated misconduct cases
SpeakUP Program cases
Whistleblower cases
(1) For definitions, please refer to pages 294 to 299.
#
%
%
#
30 Jun 18
30 Jun 17
30 Jun 16
30 Jun 15
30 Jun 14
8
4
12
33
8
3
11
27
7
3
10
30
6
4
10
40
6
4
10
40
30 Jun 18
30 Jun 17
99.4
94.4
97.6
96.9
30 Jun 18
30 Jun 17
1,259
143
33
1,022
171
44
(2) Prior period comparative results have been restated for consistency. FY17 Scope 3 results have been restated to remove upstream emissions on electricity
consumption in our Australian data centres not under our operational control. FY14 to FY16 results have been restated to include Scope 3 emissions relating
to the electricity and diesel consumption in our Australian data centres not under our operational control.
(3) Reported for the first time in 2018.
(4) Low carbon metrics on page 76 have not been covered by the PwC Limited Assurance Report.
(5) For methodology and further details, please refer to www.commbank.com.au/about-us/opportunity-initiatives/performance-reporting.
(6) Our methodology for estimating financed emissions relies on client-specific data, which limits the timing for conducting this assessment.
(7) Prior year data has been restated due to claims received after year-end reporting date as well as expanded scope to include New Zealand employees.
(8) Prior year data has been restated to remove duplication in certain accounts.
(9) Prior year data has been restated to remove duplication from student relocations.
78
Commonwealth Bank of AustraliaAnnual Report 2018Performance overview
Independent Limited
Assurance Report
on Non-financial
performance metrics
Independent Limited Assurance Report
To the Board of Directors of Commonwealth Bank of Australia
What we found
Based on the work described below, nothing has come to our attention that causes us to believe that the Non-Financial
Performance Metrics (Environmental, Customer, Social and Governance metrics), excluding the low carbon transition metrics
(the Metrics), for the year ended 30 June 2018 have not been prepared, in all material respects, in accordance with the definitions
established by management.
What we did
Commonwealth Bank of Australia engaged us to perform a limited assurance engagement on the preparation of the Metrics for
the year ended 30 June 2018.
Subject matter
The Metrics for the year ended 30 June 2018 are as presented in the Non-Financial Performance Metrics on pages 75 to 78
of the Commonwealth Bank of Australia 2018 Annual Report (the 2018 Annual Report).
Reporting criteria
The definitions for the Metrics are established by management and are as presented on pages 294 to 299 of the 2018 Annual
Report.
Our Independence and Quality Control
We have complied with relevant ethical requirements related to assurance engagements, which are founded on fundamental
principles of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour.
The firm applies Auditing Standard ASQC 1 Quality Control for Firms that Perform Audits and Reviews of Financial Reports and
Other Financial Information, Other Assurance Engagements and Related Services Engagements, and accordingly maintains
a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical
requirements, professional standards and applicable legal and regulatory requirements.
Inherent limitations
Inherent limitations exist in all assurance engagements due to the selective testing of the information being examined. Therefore
fraud, error or non-compliance may occur and not be detected. Additionally, non-financial data may be subject to more inherent
limitations than financial data, given both its nature and the methods used for determining, calculating and estimating such data.
Limited assurance
This engagement is aimed at obtaining limited assurance for our conclusions. As a limited assurance engagement is restricted
primarily to enquiries and analytical procedures and the work is substantially less detailed than that undertaken for a reasonable
assurance engagement, the level of assurance is lower than would be obtained in a reasonable assurance engagement.
Professional standards require us to use negative wording in the conclusion of a limited assurance report.
PricewaterhouseCoopers, ABN 52 780 433 757
One International Towers Sydney, Watermans Quay, Barangaroo NSW 2000, GPO Box 2650 Sydney NSW 2001
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Level 11, 1PSQ, 169 Macquarie Street, Parramatta NSW 2150, PO Box 1155 Parramatta NSW 2124
T: +61 2 9659 2476, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
79
Performance overviewPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Independent Limited
Assurance Report
on Non-financial
performance metrics
Independent Limited Assurance Report continued
Responsibilities
PwC
Our responsibility is to express a conclusion based on the work we performed.
Management of Commonwealth Bank of Australia
The management of Commonwealth Bank of Australia is responsible for the preparation and presentation of the subject matter
in accordance with the Reporting criteria.
Restriction on use
This report has been prepared for the purpose of providing limited assurance on preparation of the Metrics of Commonwealth
Bank of Australia and may not be suitable for any other purpose.
Our report is intended solely for the use and benefit of the Directors of Commonwealth Bank of Australia for the purpose
described above, and we disclaim all liability and responsibility for the consequences of any other party using or relying on it.
If any other party chooses to use or rely on it, they do so at their own risk.
What our work involved
We conducted our work in accordance with the Australian Standard on Assurance Engagements (ASAE) 3000 Assurance
Engagements Other than Audits or Reviews of Historical Financial Information. This Standard requires that we comply with
independence and ethical requirements and plan the engagement so that it will be performed effectively.
Main procedures performed
The procedures performed included:
• Enquiries of relevant staff responsible for preparing the Metrics;
• Enquiries about the design of the internal controls and systems used to collect and process the Metrics;
• Where applicable, enquiries of third parties responsible for the preparation of data included in the Metrics;
• Enquiries about the design of the systems used by third parties to collect and process the Metrics;
• Comparing the Metrics to relevant underlying sources on a sample basis; and
• Reading the Metrics presented in the Non-Financial Performance Metrics to determine whether they are in line with our overall
knowledge of, and experience with, the corporate responsibility performance.
We believe that the information we have obtained is sufficient and appropriate to provide a basis for our conclusion.
PricewaterhouseCoopers
Matthew Lunn
Partner
Sydney
7 August 2018
80
Commonwealth Bank of AustraliaAnnual Report 2018Performance overview
Corporate
governance
81
Performance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Our Board
Catherine has been a Director since March 2016 and was appointed Chairman on 1 January 2017.
She is a former Chairman of Telstra Corporation Ltd and of the CSIRO, and was Managing Director
and Chief Executive Officer of Cochlear Ltd. She has served on the boards of Macquarie Group Ltd,
Goodman Fielder Ltd and Rural Press Ltd, and has contributed to the work of the Innovation and
Productivity Council for the NSW Government. She is a former President of the Business Council
of Australia. In 2008, Catherine was awarded Officer of the Order of Australia.
Committees: Nominations Committee (Chairman), Risk Committee, Audit Committee and
Remuneration Committee.
Other Directorships and interests: WorleyParsons Limited, Saluda Medical Pty Ltd, University
of Technology Sydney (Chancellor) and The Australian Ballet.
Qualifications: BA (Accounting) (Hons), FCA, FTSE, FAICD, FAA.
Matt was appointed Managing Director and Chief Executive Officer on 9 April 2018. He has nearly
20 years’ experience across business, institutional and retail banking and in wealth management.
He joined the Bank in 1999 and has held a number of senior leadership roles. Between 2006 and
2010, Matt was Managing Director of CommSec. In 2010, he left the Bank for a short time to become
Chief Executive Officer of Morgan Stanley’s wealth business in Australia. Matt returned to the Bank to
lead local business banking and in 2012 he was appointed Group Executive, Retail Banking Services.
He is a former Non-Executive Director of AHL Holdings Pty Ltd (Aussie Home Loans).
Other Directorships and interests: Unicef Australia and MasterCard’s Global Advisory Board
(Member).
Qualifications: BAv (UNSW), MCom (UNSW), EMBA (USyd), GMP (HBS).
Shirish has been a Director since June 2014. He has more than 32 years’ financial services experience
having held various senior roles with Citi, 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.
Committees: Risk Committee (Chairman) and Audit Committee.
Other Directorships and interests: IHH Healthcare Bhd (including two of its subsidiaries),
Fullerton India Credit Company Limited, 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 Gatwick Airport Ltd,
which operates Gatwick Airport in the UK. Sir David is a senior adviser to Global Infrastructure
Partners in the US and to Lone Star Funds. He is the former Chairman of High Speed Two (HS2) Ltd.
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.
Committees: Remuneration Committee (Chairman) and Risk Committee.
Other Directorships and interests: Gatwick Airport Ltd (Chairman).
Qualifications: BE (Civil) (USyd), Diploma (Securities Institute of Australia).
Brian has been a Director since September 2010. He retired as a partner of Ernst & Young on
30 June 2010. Until that time he was Chairman of both the Ernst & Young Global Advisory Council
and the Oceania Area Advisory Council. Brian was one of the firm’s most experienced audit
partners, with over 30 years’ experience serving as audit signing partner for major Australian
public companies including those in the financial services, property, insurance and media sectors.
Brian will retire from the Board at the end of the 2018 annual general meeting.
Committees: Audit Committee (Chairman), Risk Committee and Nominations Committee.
Other Directorships and interests: Brambles Ltd, OneMarket Limited, Cantarella Bros Pty Ltd,
University of NSW (Council Member) and Centennial Park and Moore Park Trust (Trustee).
Qualifications: FCA.
Catherine Livingstone AO
Chairman
Resident of NSW. Age 62.
Matt Comyn
Managing Director and Chief
Executive Officer
Resident of NSW. Age 42.
Shirish Apte
Non-Executive Director
Resident of Singapore.
Age 65.
Sir David Higgins
Non-Executive Director
Resident of UK. Age 63.
Brian Long
Non-Executive Director
Resident of NSW. Age 72.
82
Commonwealth Bank of AustraliaAnnual Report 2018Corporate governance Andrew Mohl
Non-Executive Director
Resident of NSW. Age 62.
Mary Padbury
Non-Executive Director
Resident of Victoria. Age 59.
Our Board
Andrew has been a Director since July 2008. He has over 40 years’ financial services experience. He
was Managing Director and Chief Executive Officer of AMP Ltd 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 Australia and New Zealand Banking Group Ltd. Andrew commenced his career at the
Reserve Bank of Australia where his roles included Senior Economist and Deputy Head of Research.
Andrew will retire from the Board at the end of the 2018 annual general meeting.
Committees: Risk Committee and Remuneration Committee.
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 pre-eminent intellectual property lawyer with over
30 years’ experience. Mary retired as Partner of Ashurst at the end of April 2018 and from the role of
Vice Chairman of Ashurst at the end of 2017. She was 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.
Committees: Remuneration Committee and Nominations Committee.
Other Directorships and interests: Trans-Tasman IP Attorneys Board (Chairman), The Macfarlane
Burnet Institute for Medical Research and Public Health Ltd, Chief Executive Women (Member) and
Victorian Legal Admissions Committee (Member).
Qualifications: BA LLB (Hons) (Melb), GAICD.
Wendy has been a Director since March 2015. She was Senior Managing Director, Technology –
Asia Pacific for Accenture Ltd 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.
Committees: Audit Committee and Remuneration Committee.
Wendy Stops
Non-Executive Director
Other Directorships and interests: Altium Ltd, Fitted For Work Ltd, University of Melbourne
(Council Member) and Chief Executive Women (Member).
Resident of Victoria. Age 57.
Qualifications: BAppSc (Information Technology), GAICD.
Anne has been a Director since March 2018. She is an experienced listed company Non-Executive
Director, currently serving on the boards of GUD Holdings Ltd, The Citadel Group Ltd and
WorleyParsons Ltd. She is the former Chairman of the Commonwealth Bank’s financial advice
companies and is a former Director of Cuscal Ltd, HT&E Limited, Pioneer Credit Ltd, TAL
Superannuation Fund, and HBF’s private health and general insurance companies. Anne had a 30-year
executive career developing deep operational risk, governance and strategy experience. Early in her
career she held audit and accounting roles with Price Waterhouse working in Australia and overseas.
She gained experience in corporate banking with Bank of Singapore and then Westpac Banking
Corporation, and in private banking with Australia and New Zealand Banking Group Ltd. Anne returned
to Westpac in 2007 and went on to hold various senior management positions in private banking, risk
and strategy until 2013. She has served as a Chair or member of audit and risk committees on current
and past boards.
Committee: Audit Committee.
Other Directorships and interests: GUD Holdings Ltd, The Citadel Group Ltd and
WorleyParsons Ltd.
Qualifications: BCom (UWA), EMBA (AGSM), MRM (UNSW), CA, FAICD.
Rob has been a Director since September 2017. He has significant banking and finance and
senior management experience in the private and public sectors. He is a Director of NSW Treasury
Corporation and was previously its Chairman. He is a former Secretary of NSW Treasury and
NSW Industrial Relations. Prior to NSW Treasury, Rob had a 30-year career with Westpac Banking
Corporation and held various senior management positions there, including Chief Executive Officer of
the Institutional Bank, Chief Risk Officer, Group Treasurer and Chairman of the Asia Advisory Board.
At Westpac, Rob developed a deep knowledge of equity and capital markets and was instrumental in
developing Westpac’s risk management function and strategies. Rob is a former Deputy Chair of the
Australian Financial Markets Association.
Committees: Risk Committee and Nominations Committee.
Other Directorships and interests: NSW Treasury Corporation.
Qualifications: BCom (UNSW), Grad Dip Banking, Grad Dip Fin, AMP (HBS), SF Fin, FAICD.
Anne Templeman-Jones
Non-Executive Director
Resident of NSW. Age 57.
Rob Whitfield
Non-Executive Director
Resident of NSW. Age 53.
83
Corporate governancePerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Our Executive
Leadership Team
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.
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 David was General Counsel of AMP and a partner with Allens Arthur Robinson for
12 years.
George was appointed Acting Group Executive, Institutional Banking and Markets in May 2018.
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.
George joined the Commonwealth Bank in 1997 and has held a variety of senior leadership roles in
business and institutional banking, including Executive General Manager of Business & Corporate
Finance and Executive General Manager of Global Markets. George is an Associate Member of
the Chartered Accountants Australia and New Zealand and a Graduate of the Australian Institute
of Company Directors.
Alan was appointed Acting Group Executive, Financial Services and Chief Financial Officer in May
2018. He is responsible for the overall financial functions of the Group. Alan joined Commonwealth
Bank in 2003 and has held a variety of senior finance roles in Group Finance, Group Treasury and
Business and Private Banking before serving as Chief Financial Officer of the Institutional Banking
and Markets division.
Prior to joining the Group, Alan worked in PwC’s Financial Services practice in the United Kingdom,
and with Arthur Andersen and Ernst & Young in Australia. Alan is a Member of the Institute of
Chartered Accountants of Scotland.
Coen was appointed Group Executive, International Financial Services in July 2017. He is responsible
for the Group’s emerging markets retail, SME banking and life insurance businesses outside Australia
and New Zealand. Previously, Coen was the Executive General Manager responsible for the digital
banking strategy across South Africa, Indonesia, India, Vietnam, China and Hong Kong.
Prior to joining the Group, Coen was the co-founder and CEO of TYME (Take Your Money Everywhere)
– a South African fintech start-up that Commonwealth Bank acquired in 2015. He has served on the
Executive Committee of Nedcor Investment Bank, and as Director of Inclusive Banking at Standard
Bank South Africa. Coen has also acted as advisor to the Gates Foundation and lectured in Corporate
Governance & Ethics and Emerging Markets at the Gordon Institution of Business Science.
Adam Bennett
Group Executive,
Business and Private Banking
David Cohen (1)
Group Chief Risk Officer(2)
George Confos
Acting Group Executive,
Institutional Banking and Markets(3)
Alan Docherty
Acting Group Executive,
Financial Services and
Chief Financial Officer
Coenraad (Coen) Jonker
Group Executive, International
Financial Services
(1) On 5 November 2018, David Cohen will assume the role of Deputy Chief Executive Officer.
(2) On 5 November 2018, Nigel Williams will assume the role of Group Chief Risk Officer.
(3) On 1 August 2018, Andrew Hinchliff assumed the role of Group Executive, Institutional Banking and Markets.
84
Commonwealth Bank of AustraliaAnnual Report 2018Corporate governance Our Executive
Leadership Team
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.
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.
Paul is the Acting Group Executive, Enterprise Services and Chief Information Officer. Appointed to
this role in April 2018, he leads the Enterprise Services division which is responsible for all banking
operations and technology across the organisation.
Paul joined Commonwealth Bank in 2012 as Executive General Manager of Group Operations where
he was accountable for all banking operations across Commonwealth Bank. Paul has more than 30
years’ experience in banking and is an operations and technology professional, having held senior
executive roles at some of the most well-known banks in Australia.
Vittoria was appointed Chief Executive and Managing Director of ASB, the Group’s New Zealand
subsidiary in February 2018.
Vittoria joined the Commonwealth Bank in 2002 and gained experience in leadership roles across the
retail banking businesses of Commonwealth Bank and Bankwest, including customer-facing, operations
and strategy roles such as the Commonwealth Bank’s Chief Marketing Officer and Chief Executive
Retail Bankwest. In 2015, Vittoria was appointed Group Executive, Marketing and Strategy. In this role
Vittoria was responsible for the Group’s Corporate Strategy, Mergers and Acquisitions, Advanced
Analytics, Customer Advocacy and Marketing. Vittoria’s career initially began in New Zealand, working
in Corporate Finance and Mergers and Acquisitions with Deloitte and Carter Holt Harvey.
Angus was appointed Acting Group Executive, Retail Banking Services in April 2018. He is
responsible for the Group’s retail banking operations which serves a customer base of over 10
million customers. Angus joined Commonwealth Bank in 2012 as Executive General Manager of
Group Strategy. In 2013, Angus moved across to Retail Banking Services where he held a number
of senior roles including Executive General Manager of Credit Cards & Payments, Executive
General Manager of Retail Products and Executive General Manager of Retail Sales & Service with
responsibility for leading the Group’s branch network.
Prior to joining Commonwealth Bank, Angus was a Partner at McKinsey & Co. in New York,
specialising in retail and commercial banking, wealth management, payments and general insurance.
Michael was appointed Chief Operating Officer, Wealth Management in January 2018. He is
responsible for Colonial First State, Colonial First State Global Asset Management, Wealth
Management Advice and Commlnsure. He is also a Director of a number of Group subsidiaries,
including the CommInsure entities and a number of the Group’s international investments.
Michael joined the Group in 2004 and has held a number of positions including Chief Financial Officer
Wealth Management, Chief Financial Officer International Financial Services, and Group Deputy Chief
Financial Officer. He previously held positions at AMP and Nedcor Bank. Michael is a Member of
Chartered Accountants Australia & New Zealand.
Melanie Laing (1)
Group Executive,
Human Resources(2)
Anna Lenahan
Group General Counsel and
Group Executive, Group
Corporate Affairs
Paul Newham
Acting Group Executive,
Enterprise Services and
Chief Information Officer(3)
Vittoria Shortt
Chief Executive and
Managing Director, ASB
Angus Sullivan
Acting Group Executive,
Retail Banking Services(4)
Michael Venter
Chief Operating Officer,
Wealth Management
(1) On 31 July 2018, Melanie Laing retired.
(2) On 1 August 2018, Sian Lewis assumed the role of Group Executive, Human Resources.
(3) On 1 October 2018, Pascal Boillat will assume the role of Group Executive, Enterprise Services and Chief Information Officer.
(4) On 1 July 2018, Angus Sullivan assumed the role of Group Executive, Retail Banking Services.
85
Corporate governancePerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Governance overview
o li c i e s
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Corporate Governance Statement
Our Corporate Governance Statement describes
the key elements of our governance framework
and highlights key actions taken during the financial
year to enhance the framework. It can be viewed at
commbank.com.au/corporategovernance.
Our approach
to governance
Our approach
to governance
The Board acknowledges the
governance shortcomings identified
by the APRA Prudential Inquiry and
is committed to making the changes
needed for a more accountable
and customer-focused culture
and enhanced risk management.
During the year, the Board’s governance priorities were:
• undertaking board renewal, supported by a refreshed
board skills matrix
• overseeing succession of the Chief Executive Officer (CEO)
and renewal of the Executive Leadership Team
• clarifying the roles and responsibilities of the Board,
Board Committees and management
• continuing to review Board governance arrangements and
documents, and commencing simplification of our policy
framework
• reviewing the Bank’s strategy and evolution of purpose
and values
• working with our regulators, including supporting an
extensive APRA Prudential Inquiry into the governance,
culture and accountability of the Bank
• reviewing the findings of the APRA Prudential Inquiry and
overseeing the development of a Remedial Action Plan
to strengthen the Bank’s culture, governance and risk
management
• enhancing our senior executive remuneration and
governance framework
• demonstrating and reinforcing accountability through
remuneration consequences for the poor customer and
risk outcomes that have occurred
• overseeing improvements to IT systems resilience
• resolving the civil proceedings commenced by the
Australian Transaction Reports and Analysis Centre
(AUSTRAC) in August 2017 for alleged breaches of the
anti-money laundering and counter-terrorism financing
(AML/CTF) law.
A summary of how we are reshaping our culture,
strengthening risk management, engaging with stakeholders
and enhancing the Board’s effectiveness follows.
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Commonwealth Bank of AustraliaAnnual Report 2018Corporate governance
Areas of focus
Areas of focus
Culture
We are focused on shaping a more accountable culture
that not only supports achievement of our business
strategies, but also drives decisions that are lawful, ethical
and responsible, and that lead to better customer and
risk outcomes. We know that community confidence in
us depends on this.
The Board recognises that, together with management,
it has a critical role in setting the cultural tone of the Bank.
The Board seeks to guide the Bank’s culture through the
CEO and oversight of risk, remuneration and governance
frameworks, policies and processes.
Purpose and values
Recent leadership actions aimed at reshaping our
culture include:
Policies
Our policies play a central role in setting decision-making
rights and conduct expectations across the Bank and
its controlled entities (Group). We are strengthening the
governance of our policies, as well as making them simpler
and easier to understand. An evolved Group Code of Conduct
will be launched in the coming months and will outline
how we are to act, solve problems and make decisions.
Details on key policies imposing conduct standards
are set out in the Corporate Governance Statement,
which is available on our website commbank.com.au/
corporategovernance.
Risk management
We are committed to having robust and effective risk
management policies, processes and practices that support
a high standard of governance.
Framework
• evolving our corporate vision to a simple purpose statement
that makes it easier for our people to connect their daily
work with what we are trying to achieve as a bank
• more clearly setting out the values that are to guide us as
we strive to fulfil this purpose.
Our purpose and values are outlined in Our strategy section
on pages 13 and 18.
Our risk management framework (RMF) allows the Group
to manage risks within a Board-approved risk appetite.
The RMF incorporates the Group’s Risk Appetite Statement,
Risk Management Approach and Business Plan. It is overseen
by the Board with the assistance of the Risk and Audit
Committees. The RMF is regularly reviewed in light of the
evolving risk environment.
Accountability reinforced through
pay outcomes
The Board determined that there should be individual
and collective accountability for current and former
senior leaders for the findings of the APRA Prudential
Inquiry, and the poor customer and risk outcomes that
have occurred.
The impact of the operation of remuneration
frameworks and Board discretion over the 2017
and 2018 financial years has been a reduction in
remuneration outcomes across the Group of an
amount exceeding $100m, with the most senior
leaders within the organisation being held most
accountable. These remuneration outcomes include
the actions taken by the Board in August 2017 to
reduce Non-Executive Director fees by an amount
equal to 20% of their individual fees for the previous
financial year, and the reduction to zero of the 2017
financial year short-term variable remuneration for
Group Executives.
Details of the remuneration paid to the Board and
Group Executives during the year are set out on
pages 96 to 119.
Remedial Action Plan
The APRA Prudential Inquiry Report highlighted that additional
improvements are required to risk management, particularly in
relation to:
• issue identification and escalation
• operational risk and compliance risk management.
We have committed to implementing all of the Inquiry’s
recommendations. Addressing the findings of the report
is a key focus for the Board and management.
We have a Remedial Action Plan in place to address the
35 recommendations outlined in the report. The plan was
endorsed by APRA on 29 June 2018. We have already made
progress in executing against the plan, including by:
• establishing a new management committee for oversight
of non-financial risks
• elevating the stature of our compliance function by making
the Executive General Manager of Compliance a member
of management’s newly formed Non-Financial Risk
Committee, by making that executive’s appointment and
removal subject to approval by the Risk Committee, and
by ensuring they have direct access to the Board and Risk
Committee.
For more on our response to the APRA Prudential Inquiry
Report refer to page 10.
87
Corporate governancePerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Areas of focus
Stakeholders
We engage with stakeholders to:
• listen, understand and respond to their perspectives and
expectations, and ensure the broader business hears these
perspectives
• utilise insights from engaging with them to understand risks
and opportunities, and to inform operational and strategic
improvements.
Further detail on our stakeholder engagement is available on
pages 28 and 29.
Customers
We are working to fulfil our purpose to improve the financial
wellbeing of our customers. Key to this is engagement with
our customers. We do this in numerous ways, including
through customer feedback and complaint channels, surveys
and workshops, customer representative bodies, and external
dispute resolution bodies. Additionally, we have a Customer
Advocate to champion fairness for customers.
Community
We engage with community organisations and members
through direct and indirect channels, including external
advisory panels, industry memberships, meetings and
support of events and summits.
Our people
We are committed to:
• building a more inclusive and diverse culture
• supporting flexible work practices
• rewarding our people responsibly.
During the year we launched our 2018+ Global Diversity and
Inclusion Strategy. We are tracking well against our gender
and cultural diversity in leadership targets. For more on our
approach to diversity and inclusion refer to page 39.
For a summary of the governance arrangements, policies and
practices for director and senior executive remuneration refer
to pages 103 to 110.
Shareholders
We seek to provide shareholders with information that is
timely, of high quality and relevant to their investment, and
to listen and respond to shareholder feedback.
We have an investor relations program to facilitate two-way
communication with shareholders and to foster participation
at shareholder meetings.
Roles and responsibilities
The roles, responsibilities and accountabilities of the Board,
Board Committees and management were clarified during
the year through:
• updated Board and Board Committee charters
• accountability statements prepared for Director and senior
management roles in line with the requirements of the new
Banking Executive Accountability Regime (BEAR).(1)
A summary of these roles follows.
The Board
The Board is responsible for:
• appointing the CEO
• setting the strategic objectives of the Bank with input from
management
• overseeing the management, performance, remuneration
and governance frameworks of the Group.
Board Committees
The Board has four principal Committees that assist it in
carrying out its responsibilities. These are the:
• Audit Committee
• Nominations Committee
• Remuneration Committee
• Risk Committee
The roles and responsibilities of the Committees are
described in Board-approved charters, which are available on
our website commbank.com.au/corporategovernance. The
key responsibilities of the Board Committees are summarised
in our Corporate Governance Statement commbank.com.au/
corporategovernance.
The Board also convenes ad hoc Committees for special
purpose business from time to time to support the Board in
carrying out its responsibilities.
In August 2017, the Board established the Financial Crimes
Review Committee (FCRC). The members of the FCRC were
Mary Padbury (Chair), Shirish Apte, Catherine Livingstone AO
and Brian Long. The Committee’s responsibilities included
overseeing the response to the AUSTRAC proceedings, and
the Program of Action to uplift the Bank’s AML/CTF processes
and controls. It met 20 times during the year. Following the
resolution of the AUSTRAC proceedings, the FCRC was
dissolved and the Risk Committee assumed responsibility
for the continuing oversight of the Program of Action.
The CEO
The Board has delegated the management of the Bank to
the CEO, except for any specific powers reserved by the
Board, or delegated to its Committees or to an individual
Director. The CEO may make all decisions and take any action
necessary to manage the Bank.
We have a delegations framework through which the authority
and responsibility for decision-making conferred by the
Board on the CEO cascades to senior executives and then
throughout the Group.
The CEO is accountable to the Board for the exercise of
the delegated powers and management’s performance
as articulated in the Board charter.
(1) The BEAR was introduced by the Treasury Laws Amendment (Banking Executive Accountability and Related Measures) Act 2018 (Cth) and imposes accountability,
remuneration, key personnel and notification obligations on Authorised Deposit-taking Institutions and persons in director and senior executive roles.
88
Commonwealth Bank of AustraliaAnnual Report 2018Corporate governance Areas of focus
CEO succession
Appointing the CEO is one of the Board’s most
important functions. In January 2018, the Board
announced that Matt Comyn would replace Ian
Narev as CEO of the Bank effective 9 April. Ian had
announced his intention to retire in August 2017,
after more than six years in the role.
The Board undertook an extensive and thorough
recruitment process in selecting the CEO, including
a global and local candidate search. In assessing
candidates, the Board was focused on:
• maintaining the momentum in the business
• addressing the regulatory and reputational challenges
and recognising evolving community expectations
• transforming the Bank and adapting the organisational
capability and culture to suit the rapidly evolving
competitive and technology-centric environment.
Following the rigorous recruitment process, the Board
concluded that Matt Comyn had the best mix of
skills, attributes and values needed to lead the Bank
through our current challenges to become a simpler,
better bank.
Board skills matrix
Board effectiveness
The Board periodically reviews its governance arrangements
to reflect the Bank’s changing environment. This year,
the Board has been particularly focused on refining its
composition, policies and practices in light of the challenges
and opportunities highlighted in the recent regulatory, legal
and industry reviews.
Board composition
The Board’s approach to its composition and renewal
emphasises the need for:
• Skills, expertise and experience: The Board seeks to have
an appropriate mix of skills, expertise and experience to
enable it to deal with current and emerging opportunities
and issues, and to effectively review and challenge the
performance of management.
• Independence: The Board considers that all of its
Non-Executive Directors, including the Chairman,
were independent during the year and continue to be
independent.
• Diversity: The Board has a gender diversity objective
of 40% female representation by 2020. The Board first met
this objective in 2017 and continues to meet it.
• Tenure: The Board balances longer-serving Directors with
a deep knowledge of the Bank’s operations and history,
and newer Directors with fresh perspectives.
e
s
i
t
r
e
p
x
e
d
n
a
s
l
l
i
k
S
e
c
n
e
i
r
e
p
x
E
Financial acumen
Proficiency in financial accounting and reporting, capital
management and/or actuarial experience
9 out of 10
Legal expertise
Proven ability and understanding in the application of legal
principles
1 out of 10
Technology
Experience in technology strategies and innovation
5 out of 10
Strategy
Demonstrated experience in developing, implementing and
delivering strategic business objectives
Risk management
Proven ability in identifying, assessing and managing macro,
strategic, operational and financial risks
9 out of 10
10 out of 10
Financial services experience
Experience in banking, as relevant to CBA, and financial regulation
8 out of 10
Listed company experience
Experience as a non-executive director of at least two other listed
entities (Australia or overseas)
5 out of 10
Leadership
Held CEO or similar position in an organisation of significant size
Global perspective
Having a global perspective through exposure or responsibility
for international operations
Stakeholder engagement
Demonstrated ability to build and maintain key relationships with
industry, government or regulators
9 out of 10
9 out of 10
8 out of 10
89
Corporate governancePerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report
Areas of focus
Board composition
Independence
Gender
Tenure
1
9
Independent
CEO
6
4
Female
Male
1
2
3
4
0-1 year
1-4 years
4-10 years
10+ years
Board renewal
The Board has succession plans to facilitate the orderly
transition of Directors. During the year, the Board underwent
extensive renewal, with a focus on skills and expertise in
the areas of banking and risk management. Long-serving
Directors Launa Inman and Harrison Young retired in 2017,
and Andrew Mohl and Brian Long are due to retire at the
2018 Annual General Meeting (AGM). Rob Whitfield and
Anne Templeman-Jones were appointed to the Board
during the year.
To assist in succession planning, the Board uses a skills
matrix to assess its compositional needs. The Board’s skills
matrix was revised this year with strategy, risk management
and stakeholder engagement competencies added to the
matrix together with competency descriptions. The updated
skills matrix and the collective skills, expertise and experience
of the Directors on the Board as at 30 June 2018 are depicted
on the previous page.
Director induction and continuing development
Non-Executive Directors joining the Board participate in a
comprehensive induction program. The induction program
was refined during the year to reflect the Bank’s dynamic
environment.
The Board also has a continuing education program for
Directors to ensure their knowledge of the Bank’s business
operations and the financial services sector remains current.
Education sessions were held during the year, with Directors
gaining insights and deeper knowledge of the business
by participating in cyber security simulation exercises, an
interactive exercise in the trading room, and briefing sessions
on the operation of our platforms, new ways of working and
IFRS 9. Additionally, the Board visited our cyber security
centre, and operations in Singapore and Indonesia. The
Directors undertook regulatory and business engagements on
behalf of the Bank while in these countries.
Performance reviews
The Board annually evaluates its performance, and the
performance of each of its Committees and Directors.
Performance reviews are facilitated by an external consultant
every three years or as otherwise determined by the Board.
This year the Board undertook an internal evaluation
to consider, among other things:
• the respective roles and responsibilities of the Board and
its Committees
• whether matters raised in the APRA Prudential Inquiry
Report were being addressed
• the adequacy of the Board’s processes
• the sufficiency of management’s reporting to the Board
• the robustness of Director discussion and challenge
of management.
Board governance
During the year, key Board governance arrangements and
documents were reviewed and refreshed to ensure they
remain fit for purpose. Specifically, the review sought to:
• clarify the respective roles and responsibilities of the Board,
Board Committees and management, and ensure that
the division of functions between them continues to be
appropriate for the Bank
• make the governance documents simpler and more
enduring
• streamline processes and enhance reporting to the Board
• reflect the BEAR requirements and the governance
recommendations in APRA’s Prudential Inquiry Report
• incorporate developments in market practice.
The documents reviewed included:
• the charters of the Board and its Committees
• Board and Committee meeting paper templates
• the Board’s Corporate Governance Guidelines
• the Board Appointment, Renewal and Performance Policy
• the Appointment Policy for Subsidiary and Other Boards.
This year the Board also continued to strengthen its
oversight of key operating subsidiaries with additional
reporting obligations implemented.
90
Commonwealth Bank of AustraliaAnnual Report 2018Corporate governance
Directors’
report
91
Performance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report The Directors’ Report provides information to assist shareholders to make
an informed assessment of the Bank’s principal activities, financial position,
operations, business strategies and prospects.
The Directors of the Commonwealth Bank of Australia present their report, together with the financial report of the Commonwealth
Bank of Australia (Bank) and of the Group, being the Bank and its controlled entities, for the year ending 30 June 2018.
Principal activities
We are one of Australia’s leading providers of integrated financial services, providing 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 and New Zealand. 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.
In September 2017, we entered into an agreement to sell 100% of our life insurance business in Australia (CommInsure Life) and
New Zealand (Sovereign) to AIA Group Limited (AIA). The sale of Sovereign completed on 2 July 2018, resulting in a post tax gain
of $102 million (subject to purchase price adjustments to be finalised in September). This has also been reported as a subsequent
event. The CommInsure Life sale is expected to be completed in calendar year 2018. The sale agreement also includes a 20-year
partnership with AIA to distribute life insurance products to customers in Australia and New Zealand.
On 23 May 2018, CBA announced the sale of BoCommLife Insurance Company Limited (BoComm) to Mitsui Sumitomo Insurance
Co. Ltd. The sale requires approval by the China Banking and Insurance Regulatory Commission.
The CBA Board has approved the sale of Commonwealth Bank of South Africa (Holding Company) Limited (“TymeDigital”) to
the minority shareholder, African Rainbow Capital. The sale is subject to regulatory approval and potential sale price adjustments.
As a result, the financial effect of the sale currently cannot be reliably estimated, however, it is not expected to have a material
impact on the Group’s results.
On 25 June 2018, CBA announced the proposed demerger of its wealth management and mortgage broking businesses
(“NewCo”) and the intention to undertake a strategic review of its general insurance business, including a potential sale.
Due to the uncertain timing of the completion of the demerger, NewCo is included in continuing operations.
On 25 June 2018, when CBA announced the proposed demerger of its wealth management and mortgage broking businesses,
CBA’s use of the term “independent” in this announcement was intended to describe the proposed demerger of the businesses
and new listing of the demerged businesses on the ASX. These statements were not intended to be representations that any
services to be provided by the demerged businesses in the future will be independent from CBA. CBA anticipates that it will
continue to have an ongoing relationship with the demerged businesses into the future.
Consolidated profit
Statutory net profit after tax including discontinued operations for the year ended 30 June 2018 decreased 6% on the prior year
to $9,329 million. Statutory net profit after tax from continuing operations for the year ended 30 June 2018 decreased 4% on the
prior year to $9,375 million. Both were impacted by a number of one-off items including a $700 million non-tax deductible expense
provision for the AUSTRAC civil penalty.
Operating income growth was 3% primarily driven by a 5% increase in net interest income, with average interest earning assets
increasing 2% from growth in home loans and business loans. Net interest margin increased 5 basis points, largely from the
repricing of interest-only and investor home loans in order to manage regulatory benchmarks that limit growth in these products.
Operating expense growth was 9%, impacted by a number of one-off items including a $700 million non-tax deductible expense
provision for the AUSTRAC civil penalty and $155 million of regulatory costs associated with the Royal Commission, the AUSTRAC
proceedings and the APRA Prudential Inquiry. Operating expense growth was also impacted by higher risk and compliance costs,
relocation costs of a number of offices to a single location, and the impairment of certain capitalised software assets.
Loan losses reduced by $16 million over the year, reflecting the continued benign environment in both the retail and business
portfolios, due to low interest rates and low levels of unemployment.
Tax expense increased by 4% during the period due to the $700 million civil penalty in the AUSTRAC proceedings being
non-deductible for tax purposes.
Dividends
The Directors have determined a fully franked (at 30%) final dividend of $2.31 cents per share amounting to $4,053 million.
The dividend will be payable on 28 September 2018 to shareholders on the register at 5pm AEST on 16 August 2018.
Dividends paid in the year ended 30 June 2018 were as follows:
Dividend
Date paid
Fully franked
dividends per share
Total dividend
($million)
Total dividend
comprises ($ million)
Final Dividend for the year
ended 30 June 2017
Interim Dividend for the year
ended 30 June 2018
29 Sept 2017
230 cents
28 Mar 2018
200 cents
$3,979
$3,505
Cash: $2,406
DRP: $1,573
Cash: $2,969
DRP: $536
92
Commonwealth Bank of AustraliaAnnual Report 2018Directors’ report Review of operations
Business strategies and future development
An analysis of operations for the financial year is set out in
the Performance Overview section on pages 61 to 80.
Changes in state of affairs
We continue to make progress against each of the key
strategic priorities in pursuit of our purpose to improve the
financial wellbeing of our customers and communities.
Further to the changes in principal activities referred to above
there have been no significant changes in the state of affairs
during the financial year.
Events subsequent to balance sheet date
We expect the Dividend Reinvestment Plan (DRP) for the final
dividend for the year ended 30 June 2018 will be satisfied by
the issue of shares of approximately $622 million.
On 2 July 2018, we announced the sale of Sovereign, our
New Zealand life insurance business, to AIA. It resulted in
a total post gain of $102 million (inclusive of separation costs
and subject to final tax calculations and purchase price
adjustments).
The CBA Board has approved the sale of Commonwealth
Bank of South Africa (Holding Company) Limited
(“TymeDigital”) to the minority shareholder, African Rainbow
Capital. The sale is subject to regulatory approval and
potential sale price adjustments. As a result, the financial
effect of the sale currently cannot be reliably estimated,
however, it is not expected to have a material impact on the
Group’s results.
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.
The business strategy and prospects for future financial
years are included in the Strategy and Performance section
on pages 12 to 27. The material business risks are set out in
the Business Risks section on pages 43 to 47. These should
be read in conjunction with Notes 9.1 to 9.4 to the Financial
Statements on pages 195 to 224.
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 of 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 environment
reporting regulations under the law of the Commonwealth
or of a State or Territory of Australia. Our 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
• Matt Comyn (appointed as Managing Director and Chief
Executive Officer on 9 April 2018)
• Shirish Apte
• Sir David Higgins
• Brian Long
• Andrew Mohl
• Mary Padbury
• Wendy Stops
• Anne Templeman-Jones (appointed 5 March 2018)
• Rob Whitfield (appointed 4 September 2017)
• Ian Narev (retired as Managing Director and Chief Executive
Officer on 8 April 2018)
• Launa Inman (retired 16 November 2017)
• Harrison Young (retired 16 November 2017)
Details of current Directors, their experience, qualifications
and any special responsibilities, including Committee
memberships, are set out on pages 82, 83 and 88.
93
Directors’ reportPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Other directorships
The Directors held the following directorships in other Australian listed companies in the three years prior to the end of the 2018
financial year:
Director
Company
Appointment dates
Catherine Livingstone AO
WorleyParsons Limited
Telstra Corporation Ltd
Launa Inman
Bellamy’s Australia Limited
Brian Long
Super Retail Group Limited
Brambles Limited
OneMarket Limited
01/07/2007
17/11/2000
18/02/2015
21/10/2015
01/07/2014
07/06/2018
Retirement date
(if applicable)
27/04/2016
28/02/2017
Ten Network Holdings Limited
01/07/2010
25/07/2016
Wendy Stops
Altium Limited
Anne Templeman-Jones
WorleyParsons Limited
The Citadel Group Limited
G.U.D. Holdings Limited
Pioneer Credit Limited
HT&E Limited
01/02/2018
01/11/2017
08/09/2017
01/08/2015
23/09/2014
04/06/2013
Directors’ meetings
07/11/2016
14/05/2018
The number of Board and standing Board Committee meetings held during the financial year that each Director was eligible to
attend, and the number of meetings attended by each Director, were:
Director
Catherine Livingstone AO
Matt Comyn (4)
Shirish Apte
Sir David Higgins
Brian Long
Andrew Mohl
Mary Padbury
Wendy Stops (5)
Anne Templeman-Jones (6)
Rob Whitfield (7)
Ian Narev(8)
Launa Inman (10)
Harrison Young (11)
Board
Committees (1)
Scheduled
Meetings
Unscheduled
Meetings
Risk(2)
Audit (2)
Remuneration (2)
Nominations
Held (3) Attended Held (3) Attended Held (3) Attended Held (3) Attended Held (3) Attended Held (3)
Attended
10
2
10
10
10
10
10
10
3
8
8
5
5
10
2
10
10
10
10
10
10
3
8
8
5
5
17
7
17
17
17
17
17
17
8
15
10
2
2
17
7
15
17
16
17
17
16
7
15
3(9)
2
2
10
–
10
10
10
10
–
–
–
8
–
–
2
10
–
10
10
10
10
–
–
–
8
–
–
2
9
–
9
–
9
–
–
7
2
–
–
2
2
9
–
9
–
9
–
–
7
2
–
–
2
2
15
15
13
13
–
–
15
–
15
15
15
–
–
–
4
–
–
–
15
–
15
15
14
–
–
–
4
–
–
–
–
13
–
13
–
–
7
–
–
6
–
–
–
13
–
13
–
–
7
–
–
6
(1) The Board also establishes ad hoc Committees for special purpose business from time to time to support the Board in carrying out its responsibilities.
(2) A meeting of the Risk, Audit and Remuneration Committees held concurrently has been counted as an additional meeting of each Committee.
(3) The number of scheduled and unscheduled meetings held during the time the Director was a member of the Board or of the relevant Committee.
(4) Matt Comyn was appointed Managing Director and Chief Executive Officer effective 9 April 2018.
(5) Wendy Stops was appointed a member of the Audit Committee effective 1 November 2017.
(6) Anne Templeman-Jones was appointed a member of the Board effective 5 March 2018 and the Audit Committee effective 6 June 2018.
(7) Rob Whitfield was appointed a member of the Board effective 4 September 2017 and the Risk and Nominations Committees effective 1 November 2017.
(8) Ian Narev retired as Managing Director and Chief Executive Officer effective 8 April 2018.
(9) Ian Narev had a material personal interest in the substantive matters discussed during unscheduled meetings and was not present.
(10) Launa Inman retired from the Audit and Remuneration Committees effective 1 November 2017 and the Board effective 16 November 2017.
(11) Harrison Young retired from the Audit, Risk and Nominations Committees effective 1 November 2017 and the Board effective 16 November 2017.
94
Commonwealth Bank of AustraliaAnnual Report 2018Directors’ report Directors’ shareholdings and options
Insurance
Particulars of shares held by Directors including the Chief
Executive Officer (CEO), 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, including the CEO, during the period.
Options and share rights outstanding
As at the date of this report there are no employee options
and 1,946,793 share rights outstanding in relation to Bank
ordinary shares.
Directors’ and officers’ indemnity
and insurance
Constitution
The Directors, as named on page 93 of this report, and the
Company Secretaries of the Bank, referred to below, are
indemnified under the Constitution of the Commonwealth
Bank of Australia (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, is defined as an “Officer” for the purpose 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
Deeds of indemnity, which include indemnification in
substantially the same terms to that provided in the
Constitution, have been executed by the Bank in favour
of each Director of the Bank.
An Indemnity Deed Poll, which includes indemnification
in substantially the same terms to that provided in the
Constitution, has been executed by the Bank 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)
• 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 a 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.
The Bank has, during the financial year, paid an insurance
premium in respect of a Directors’ and Officers’ liability and
company reimbursement insurance policy for the benefit
of the Bank and persons defined in the insurance policy
who include Directors, Company Secretaries, Officers and
certain employees of the Bank and related bodies corporate.
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, follow.
Taryn Morton was appointed Group Company Secretary
of the Bank in October 2015. She has over 19 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 MinterEllison. She holds a Bachelor
of Laws (Hons), Bachelor of Commerce, Diploma of Modern
Languages (Mandarin) and Graduate Diploma in Applied
Corporate Governance.
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Directors’ reportPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Remuneration
report
Message from the Remuneration
Committee Chairman
The report has been
prepared and audited
against the disclosure
requirements of the
Corporations Act 2001 (Cth).
Reflecting consideration of individual and collective
accountability for the APRA Prudential Inquiry Report findings,
the Board exercised its discretion to:
• reduce 2018 financial year STVR payments of current and
former Group Executives by 20%;
• lapse a portion of the unvested deferred STVR awards for
approximately 400 current and former Executive General
Managers and General Managers; and
• forfeit the full amount of unvested LTVR awards of select
former Group Executives.
The Board applied further negative STVR adjustments to
current and former Group Executives relating to individual
risk matters, separate to the APRA Prudential Inquiry
Report findings.
The total impact for all employees of the operation of the
remuneration framework and exercise of Board discretion
over the 2017 and 2018 financial years has been a reduction
in remuneration outcomes exceeding $100m. This includes
the Board’s action in August 2017 to reduce Non-Executive
Director fees, and reduce to zero the STVR for Group
Executives for the 2017 financial year.
In making these decisions, the Committee and Board
were determined to address fully, past performance issues
identified for former and current Executives, and focus their
efforts on becoming a stronger, better bank.
Changing Executives
New appointments to the Executive Leadership Team provide
a balance between external experience and knowledge of
the Group. These appointments reflect the Board’s continual
scrutiny of our Executives’ ability to cope with complex
changes, and act on ensuring we have the leadership talent
and capability as strategy adapts to competitive pressure and
expectations of performance and behaviour.
In determining remuneration arrangements for the new
appointments, the Board considered the individual skills and
experience that each Executive brings, internal and external
market comparators, our emphasis on delivering customer
service and sustainable value, and community expectations.
Sir David Higgins
Remuneration Committee
Chairman
Dear Shareholder,
Thank you for your valued feedback on our remuneration
framework and practices. We continue to listen to all our
stakeholders and have taken material steps to further
strengthen Board governance and the operation of
remuneration frameworks. In the 2018 financial year, individual
executive remuneration has been reduced in accordance
with measurable performance and as a result of the Board
exercising discretion.
These remuneration outcomes have been facilitated by the
support of shareholders for the significant changes made
to our remuneration framework at the 2017 Annual General
Meeting. Those changes included enhancements to the risk
and reputation review process.
The most senior executives have been held accountable for
the Bank’s performance over the past year. This includes
former Executives.
Executive pay outcomes for our current and former
Executives have been directly impacted by the AUSTRAC
settlement and the findings of the Australian Prudential
Regulation Authority’s (APRA) Prudential Inquiry Report into
CBA. The Board has also exercised its discretion to adjust
downwards individual Executive remuneration outcomes,
having regard to other risk and reputation matters.
In March 2018, the current CEO of his own accord, offered to
forgo his 2018 financial year short-term variable remuneration
(STVR) award, which the Board accepted.
In addition, the Board and the former CEO agreed that he will
not receive his 2018 financial year STVR award or any of his
unvested long-term variable remuneration (LTVR) awards.
96
Commonwealth Bank of AustraliaAnnual Report 2018Remuneration reportDirectors’ report We are committed to improving our remuneration practices. We have made
and are continuing to make changes to our remuneration practices to
better align with and support our customers, our community, our people
and our shareholders.
Specifically, for the new Group Chief Risk Officer, the Board
has had regard for the comments of the APRA Prudential
Inquiry Report and ensured the remuneration mix supports
independence.
The Remuneration Committee is the governing
body for remuneration across the Group. During
the 2018 financial year, its key focus areas were:
Remuneration arrangements for the internal appointments
have been set at or below the level of previous incumbents.
• enhancing remuneration and risk governance
and frameworks
The Group’s remuneration framework has supported the
Board and the Committee’s judgements and decision-
making. The outcomes demonstrate a robust, quantitative
and rigorous approach which reinforces both individual and
collective accountability.
I invite you to review the full report, and thank you for
your interest.
Sir David Higgins
Remuneration Committee Chairman
• setting remuneration for newly appointed Executives
• determining termination arrangements for departing
Executives
• implementing remuneration changes to align with the
Banking Executive Accountability Regime (BEAR)
• developing the APRA Prudential Inquiry Report’s
remuneration-related remediation plan and agreeing
key milestones
• assessing remuneration outcomes reflecting all
elements of performance, assisted by the Audit
and Risk Committees.
We also made substantive changes to the way our
retail customer-facing roles and their leaders are
recognised and rewarded, effective 1 July 2018:
• limiting the weighting of any financial measures to
30% of a balanced scorecard
• removal of high-risk features such as accelerators
• rewarding tellers based on customer feedback and
leader observations
• introducing net promoter score (NPS) to support
customer centricity.
The Remuneration Committee’s priorities and
key actions for the 2019 financial year are:
• completing all of the APRA Prudential Inquiry
Report’s agreed 2019 financial year remuneration-
related milestones
• further enhancing frameworks and governance in
relation to remuneration consequences for risk,
reputation and conduct outcomes
• undertaking a comprehensive review of the Executive
remuneration strategy and framework.
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Remuneration reportDirectors’ reportPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Key remuneration outcomes
CEO target remuneration on appointment
$10.07M
17% reduction in total
target remuneration
$4.77M
$2.65M
$2.65M
$8.36M
$3.96M
$2.20M
$2.20M
l
e
b
a
i
r
a
v
%
4
7
n
o
i
t
a
r
e
n
u
m
e
r
Former CEO – Ian Narev
Current CEO – Matt Comyn
Fixed remuneration (FR) increases
For the 2018 financial year:
Matt Comyn’s fixed and total target remuneration is
approximately 17% lower than the former CEO’s fixed
and total target remuneration.
In setting the CEO’s remuneration we took into account the
remuneration of market peers, as well as broader stakeholder
and community expectations.
Fixed remuneration
Target STVR
Maximum face value LTVR
• Due to his change in role, Matt Comyn received an increase to his FR effective from the date of his appointment to CEO.
• Two Group Executives received FR increases:
• Adam Bennett (5%) due to a significant change in role and portfolio scope
• Melanie Laing (2%) to reflect consideration of market remuneration levels.
STVR outcomes
Overall, performance outcomes against scorecard measures
are lower than the prior year, largely due to Group financial
performance and Group customer NPS outcomes.
In addition, as a consequence of the APRA Prudential Inquiry
Report’s findings, the Board has resolved to apply a negative
adjustment of 20% to the 2018 financial year performance
scorecard outcomes for each individual Group Executive. This
is to reflect collective accountability for the APRA Prudential
Inquiry Report findings. Further negative adjustments to STVR
outcomes were also made to reflect individual accountability
for other risk and reputation matters separate from the APRA
Prudential Inquiry Report findings.
Read more page 106
LTVR outcomes
% of maximum STVR
2018
financial year
2017
financial year
CEO – Matt Comyn(1)
Former CEO – Ian Narev(2)
0%
0%
Group Executives (range)(1)
0% – 38%
0%
0%
0%
(1) In March 2018, Matt Comyn offered to forgo his 2018 financial year STVR
award in both his CEO and Group Executive, Retail Banking Services roles.
The Board accepted his offer and no STVR was awarded for the 2018
financial year.
(2) The Board and Ian Narev have agreed he will not receive his 2018 financial
year STVR award.
The 2015 financial year LTVR award reached the end of its four-year performance period on 30 June 2018 and 23.82% vested
as a result of performance against the LTVR hurdles.
Read more page 110
Remuneration consequences of the APRA Prudential Inquiry Report
2018 financial year remuneration outcomes incorporate consequences for the findings of the APRA Prudential Inquiry Report.
The Board determined that an approach that predominantly attributed accountability for the findings collectively was most
appropriate, with a number of senior executives also being held accountable individually. The remuneration consequences
determined by the Board that were applied are as follows:
• Current CEO and Group Executives: The CEO and Group Executives were assessed as Partially Met on risk outcomes with
the Board applying a negative risk adjustment of 20% to the 2018 financial year STVR outcomes for each individual. Separately,
in March 2018, Matt Comyn offered to forgo his 2018 financial year STVR award and the Board accepted his offer.
• Former CEO: The Board and former CEO believe that the CEO has the highest level of accountability of all the Group’s
Executives for the findings of the APRA Prudential Inquiry Report. Accordingly, the Board and Ian Narev have agreed that
he will not receive his 2018 financial year STVR award or any of his unvested LTVR awards.
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Commonwealth Bank of AustraliaAnnual Report 2018Remuneration reportDirectors’ report
• Former Group Executives: The Board forfeited all unvested LTVR awards for David Craig and Alden Toevs reflecting
collective and individual accountability for the APRA Prudential Inquiry Report findings.
The Board forfeited a portion of all unvested deferred STVR awards for current and former Group EGMs and GMs (including
Other Executives, defined on page 101).
The Board recognises that, as CBA’s most senior governing body, it too is collectively accountable for the trust and reputational
issues that prompted the need for the APRA Prudential Inquiry. It announced in August 2017 that Non-Executive Directors’ base and
committee fees for the 2018 financial year would be reduced by an amount equivalent to 20% of individual 2017 financial year fees.
Exit arrangements
The table below outlines the exit arrangements for Executives during the 2018 financial year. Further detail is provided in the
statutory remuneration table on page 111.
Executive (1)
Exit arrangement
Ian Narev
(ceased as KMP
8 Apr 18)
Kelly Bayer Rosmarin
(ceased as KMP
30 Apr 18)
Rob Jesudason
(ceased as KMP
13 May 18)
Annabel Spring
(ceased as KMP
31 Dec 17)
David Whiteing
(ceased as KMP
30 Apr 18)
• Employment formally ended after a period of gardening leave (9 Apr 18 to 30 Jun 18)
• Payment in lieu of balance of notice period (notice commenced 13 Aug 17 so payment in lieu of period from
1 Jul 18 to 12 Aug 18)
• Provision of other benefits required by law and agreed legal costs related to termination
• Employment formally ended after a period of gardening leave (1 May 18 to 30 Jun 18)
• Payment in lieu of balance of notice period (notice commenced 1 Apr 18 so payment in lieu of period from
1 Jul 18 to 30 Sept 18)
• Provision of other benefits required by law, severance payment for past services in accordance with her
employment agreement (six months FR) and agreed legal costs related to termination
• Employment formally ended after a period of gardening leave (14 May 18 to 8 Jun 18)
• Payment in lieu of balance of notice period (notice commenced 13 May 18 so payment in lieu of period from
9 Jun 18 to 13 Nov 18)
• Provision of other benefits required by law
• 50% of Rob’s relocation costs provided in the 2018 financial year were recovered
• Employment formally ended after a period of gardening leave (1 Jan 18 to 30 Jun 18)
• Provision of other benefits required by law (including 14 weeks’ statutory redundancy pay), severance payment
for past service in accordance with her employment agreement (six months FR) and agreed legal costs related
to termination
• Employment formally ended after a period of gardening leave (1 May 18 to 30 Jun 18)
• Payment in lieu of balance of notice period (notice commenced 1 Apr 18 so payment in lieu of period from
1 Jul 18 to 30 Sept 18)
• Provision of other benefits required by law, severance payment for past service in accordance with his
employment agreement (six months FR) and agreed legal costs related to termination
(1) Melanie Laing ceased as KMP on 31 Jul 18. Her exit arrangements will be disclosed in the 2019 financial year remuneration report.
During their gardening leave periods, each of the Executives were available to assist with handover, provide guidance on matters
within their respective scope of responsibility and remained available to perform other reasonable transitional duties as required
by the Bank.
Rob Jesudason was not entitled to a 2018 financial year STVR award and all of his unvested LTVR awards were forfeited upon
termination of employment.
For Kelly Bayer Rosmarin and David Whiteing, any variable remuneration awarded would be treated as follows:
• 2018 financial year STVR payment to be determined and paid in normal course of business, subject to performance and risk
and reputation review, with 50% paid in cash and remaining 50% deferred as cash in two equal tranches over two years.
• Unvested LTVR awards to continue unchanged with performance measured at the end of the performance period related
to each award. There is no accelerated or automatic vesting upon ceasing employment.
Ian Narev agreed he would not receive a 2018 financial year STVR and agreed he would forfeit all of his unvested LTVR awards.
Annabel Spring agreed she would not receive a 2018 financial year STVR. Her LTVR awards will continue unchanged with
performance measured at the end of the performance period related to each award.
Other awards
• No sign-on or retention awards were made to Executives during the 2018 financial year.
• While acting in Group Executive roles, George Confos, Alan Docherty and Paul Newham received an additional cash allowance.
Angus Sullivan did not receive an additional cash allowance while acting in the Group Executive, Retail Banking Services role.
Other Executives did not participate in the LTVR plan during the 2018 financial year.
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Remuneration reportDirectors’ reportPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Remuneration received by current Executives during the 2018 financial year
The remuneration outcomes table below provides a summary of the remuneration that was received by current Executives in their
KMP role during the 2018 financial year. We believe that presenting this information provides shareholders with greater clarity
and transparency about Executive remuneration. This differs from the statutory remuneration table on page 111, which presents
remuneration in accordance with accounting standards.
Remuneration received by current Executives during the financial year ended 30 June 2018:
Cash payments
a) FR: Base remuneration plus superannuation paid for the period as KMP. For Other Executives (defined on page 101), this includes
their acting cash allowance (where applicable).
b) Cash STVR: For the CEO and Group Executives the amount is 50% of the 2018 financial year STVR (relates to performance during
the 12 months to 30 June 2018). For Other Executives, this represents two-thirds of the 2018 financial year STVR for the relevant
period.
d) Deferred cash awards: The value of all deferred cash STVR awards that vested during their period as KMP plus any accrued interest.
e) Deferred equity awards: The value of all equity awards that vested during their period as KMP plus any dividends accrued during
the vesting period. The value shown is the face value (i.e. based on the volume-weighted average closing price (VWACP) of the
Group’s ordinary shares over the five trading days preceding the vesting date).
g) Previous years’ awards forfeited or lapsed: The value of all deferred cash and/or equity awards that were forfeited or lapsed
during the 2018 financial year.
Vesting of prior
year awards
Awards forfeited
or lapsed
Vesting of prior year awards
FR
Cash STVR (1)
Total cash
payments
Deferred
cash awards
Deferred
equity awards(2)
Total
remuneration
received
Previous
years' awards
forfeited or
lapsed
a
b
c = a + b
d
e
f = c + d + e
g
1,315,949
1,055,750
–
–
1,315,949
–
1,529,923
2,845,872
(653,185)
1,055,750
667,623
556,427
2,279,800
(1,892,800)
1,049,580
225,988
1,275,568
–
280,480
1,556,048
999,600
–
999,600
566,483
310,626
1,876,709
–
–
1,200,000
1,200,000
261,300
1,461,300
–
1,377,033
2,838,333
(587,842)
–
1,200,000
541,294
510,966
2,252,260
(1,738,351)
CEO
Matt Comyn (3)
30 Jun 18
30 Jun 17
Current Executives
Adam Bennett
30 Jun 18
30 Jun 17
David Cohen
30 Jun 18
30 Jun 17
George Confos
30 Jun 18 (effective 1 May 18)
137,210
103,417
240,627
Alan Docherty
30 Jun 18 (effective 14 May 18)
98,630
51,966
150,596
Coen Jonker (4)
30 Jun 18 (effective 1 Jul 17)
848,793
202,623
1,051,416
–
–
–
–
240,627
(99,349)
–
150,596
(41,820)
52,470
1,103,886
–
Melanie Laing
30 Jun 18
30 Jun 17
Anna Lenahan
30 Jun 18
30 Jun 17 (effective 26 Nov 16)
Paul Newham
861,900
845,000
865,000
509,521
249,120
1,114,120
–
509,521
30 Jun 18 (effective 1 May 18)
142,054
92,879
234,933
Angus Sullivan
30 Jun 18 (effective 9 Apr 18)
114,909
78,641
193,550
Michael Venter
30 Jun 18 (effective 1 Jan 18)
325,779
271,702
597,481
–
–
861,900
845,000
–
1,262,296
2,124,196
(538,855)
494,180
454,251
1,793,431
(1,545,176)
–
–
–
–
–
260,418
1,374,538
859,586
1,369,107
–
–
–
234,933
(78,330)
–
193,550
(67,857)
–
597,481
(82,258)
(1) 2017 financial year STVR awards: The STVR outcomes for the CEO and Group Executives were adjusted downwards to zero, reflecting collective accountability
for the overall reputation of the Group and risk matters.
(2) Deferred equity awards: For Matt Comyn, David Cohen and Melanie Laing this reflects the portion of the 2014 financial year LTVR award (performance period
ended 30 June 2017) that vested during the 2018 financial year. For Adam Bennett and Coen Jonker this reflects the 2014 financial year deferred STVR awarded
under Executive General Manager arrangements that vested in 2018 financial year. For Anna Lenahan, this reflects the portion of the sign-on award that vested in the
2018 financial year.
(3) Matt Comyn was appointed as CEO effective 9 April 2018. 2018 financial year remuneration reflects his time in both the Group Executive, Retail Banking Services
role (1 July 2017 to 8 April 2018) and CEO role (9 April 2018 to 30 June 2018). Prior year comparison reflects remuneration for his prior role, Group Executive, Retail
Banking Services. In March 2018, Matt Comyn offered to forgo his 2018 financial year STVR award. The Board accepted his offer and no STVR was awarded for
the 2018 financial year.
(4) Coen Jonker was appointed as KMP effective 1 July 2017, therefore no prior year comparison is shown. Remuneration was paid in Hong Kong dollars and was
impacted by movements in exchange rates.
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Commonwealth Bank of AustraliaAnnual Report 2018Remuneration reportDirectors’ report Contents
1. Key Management Personnel
2. Executive remuneration framework
3. Performance and remuneration outcomes
4. Remuneration governance
5. Executive statutory remuneration disclosures
6. Non-Executive Director arrangements
7. Loans and other transactions
102
103
104
110
111
116
118
Definitions
This remuneration report details the performance and remuneration of Key Management Personnel (KMP) for the 2018 financial
year. KMP is defined as 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 following terms are used throughout this report to describe different groups of KMP.
Term
CEO
Executives
Group Executives
Other Executives
Meaning
Managing Director and Chief Executive Officer
Collective term referring to the CEO, Group Executives and Other Executives
Includes all permanent Group Executives (for both business units and support functions)
Includes Michael Venter (Chief Operating Officer Wealth Management) and all Acting Group Executives
Non-Executive Directors
KMP who are not Executives
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Remuneration reportDirectors’ reportPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report 1. Key Management Personnel
The table below outlines the Group’s KMP in the financial year ended 30 June 2018.
Name
Chairman
Position
Term as KMP
Catherine Livingstone AO
Chairman
Current Non-Executive Directors
Shirish Apte
David Higgins
Brian Long (1)
Andrew Mohl (1)
Mary Padbury
Wendy Stops
Director
Director
Director
Director
Director
Director
Anne Templeman-Jones
Director (from 5 March 2018)
Robert Whitfield
Director (from 4 September 2017)
Former Non-Executive Directors
Launa Inman
Harrison Young
Director (ceased as KMP on 16 November 2017)
Director (ceased as KMP on 16 November 2017)
Managing Director and CEO
Matt Comyn (2)
Managing Director and CEO (from 9 April 2018)
Current Executives
Adam Bennett
David Cohen (3)
Group Executive, Business and Private Banking
Group Chief Risk Officer
George Confos (4)
Acting Group Executive, Institutional Banking and Markets (from 1 May 2018)
Alan Docherty
Coen Jonker
Melanie Laing (3)
Anna Lenahan
Paul Newham (4)
Angus Sullivan (4)
Michael Venter
Acting Group Executive, Financial Services and Chief Financial Officer (from 14 May 2018)
Group Executive, International Financial Services
Group Executive, Human Resources
Group General Counsel and Group Executive, Group Corporate Affairs
Acting Group Executive, Enterprise Services and Chief Information Officer
(from 1 May 2018)
Acting Group Executive, Retail Banking Services (from 9 April 2018)
Chief Operating Officer Wealth Management (from 1 January 2018)
Former Managing Director and CEO
Ian Narev
Managing Director and CEO (ceased as KMP on 8 April 2018)
Former Executives
Kelly Bayer Rosmarin
Group Executive, Institutional Banking and Markets (ceased as KMP on 30 April 2018)
Rob Jesudason
Vittoria Shortt
Annabel Spring
David Whiteing
Group Executive, Financial Services and Chief Financial Officer
(ceased as KMP on 13 May 2018)
Group Executive, Marketing and Strategy (ceased as KMP on 2 February 2018)
Group Executive, Wealth Management (ceased as KMP on 31 December 2017)
Group Executive, Enterprise Services and Chief Information Officer
(ceased as KMP on 30 April 2018)
Full year
Full year
Full year
Full year
Full year
Full year
Full year
Part year
Part year
Part year
Part year
Full year
Full year
Full year
Part year
Part year
Full year
Full year
Full year
Part year
Part year
Part year
Part year
Part year
Part year
Part year
Part year
Part year
(1) Brian Long and Andrew Mohl will cease their duties as Non-Executive Directors at the conclusion of the 2018 Annual General Meeting.
(2) Matt Comyn was the Group Executive, Retail Banking Services from 1 July 2017 to 8 April 2018 and Managing Director and CEO of the Group from 9 April 2018
to 30 June 2018.
(3) Post 30 June 2018, David Cohen has been appointed as Deputy Chief Executive Officer effective 5 November 2018 and Melanie Laing ceased as KMP on
31 July 2018. Nigel Williams has been appointed Group Chief Risk Officer effective 5 November 2018 and Sian Lewis has been appointed Group Executive,
Human Resources effective 1 August 2018.
(4) Post 30 June 2018, George Confos ceased as KMP on 31 July 2018. Paul Newham will cease as KMP on 30 September 2018. Andrew Hinchliff has been
appointed Group Executive, Institutional Banking and Markets effective 1 August 2018, Pascal Boillat has been appointed Group Executive, Enterprise Services
and Chief Information Officer effective 1 October 2018 and Angus Sullivan has been appointed Group Executive, Retail Banking Services effective 1 July 2018.
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Commonwealth Bank of AustraliaAnnual Report 2018Remuneration reportDirectors’ report 2. Executive remuneration framework
CEO and Group Executive summary
The following diagram illustrates the remuneration framework that applied to the CEO and
Group Executives during the 2018 financial year. The Remuneration Committee undertook a
comprehensive review with changes effective from 1 July 2017. The key changes included:
• increased weighting on financial and quantitative measures in STVR
• 50% of STVR deferred into equity (previously cash)
• a longer STVR deferral period over two years (previously STVR deferral was one year)
• introduction of new LTVR performance measures
• allocating LTVR reward rights on a face value basis (previously this was on a fair
value basis)
• enhanced risk and remuneration governance and frameworks.
Our remuneration principles
Alignment to the Banking
Executive Accountability
Regime (BEAR)
Our existing variable
remuneration deferral for the
CEO and Group Executives
complies with the BEAR.
All Accountable Person’s
variable remuneration for the
2019 financial year onwards
will be BEAR compliant.
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
Reflects the
Group’s strategy
and values
FR
STVR (at risk)
LTVR (at risk)
• Base remuneration and superannuation
(includes cash salary and any salary
sacrificed items).
• STVR outcomes range from 0% to 150%
of FR.
• Risk and reputation and values
• Maximum face value allocation of 180%
of FR, vesting is subject to performance
measures and risk and reputation review.
• Reviewed annually against peer group
assessment as modifier of outcomes.
• Performance measures comprise
remuneration disclosures.
• Balanced scorecard comprising financial
• Primary peer group is the other three
and non-financial measures.
major Australian banks.
financial (relative TSR – 75%); and non-
financial (trust and reputation – 12.5%;
and employee engagement – 12.5%).
50% is paid
as cash
25% is
deferred as
equity for
one year
25% is
deferred as
equity for
two years
• A positive TSR gateway applies to the
25% non-financial measures.
• Delivered as reward rights (no dividend
equivalent payments).
• Four-year performance period.
Attracts high quality talent and
reflects role size and scope.
Varies remuneration up or down
reflecting annual performance results.
Subject to Board risk and reputation review.
Varies remuneration up or down reflecting
performance over multiple years.
Subject to Board risk and reputation review.
CEO and Group Executive remuneration mix
The following diagrams illustrate the remuneration mix for the CEO and Group Executives at target and maximum. More than
three-quarters of maximum remuneration is variable and at risk.
Target STVR (100% of FR)
Maximum STVR (150% of FR)
26%
13%
13%
48%
23%
17.5%
17.5%
42%
FR
Cash STVR
Deferred equity STVR
Maximum face value LTVR
Variable remuneration (74%)
Variable remuneration (77%)
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Remuneration reportDirectors’ reportPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report
Other Executives
The STVR for Other Executives is calculated as a percentage of base remuneration
(before superannuation), not FR. Two-thirds of their STVR is paid in cash and the
remaining one-third is deferred into equity that vests in three equal tranches over three
years. George Confos’ arrangement does not specify an STVR target and/or maximum.
Note, Other Executives did not participate in the LTVR plan during the 2018 financial year.
George Confos, Alan Docherty and Paul Newham received an additional cash allowance
during their acting periods to recognise the additional accountability and responsibilities
of their respective roles. Angus Sullivan did not receive an additional cash allowance during
his acting period.
All variable remuneration
(STVR and LTVR) is subject
to Board risk and reputation
review prior to final outcome
or vesting (malus).
The Board has the discretion
to adjust STVR and LTVR
outcomes down to zero
where appropriate.
Risk and reputation review
We further strengthened our risk and reputation review processes in the 2018 financial year. Risk scorecards were introduced as
a key input to the overall risk assessment for Executives, providing the Board with robust information to determine the appropriate
consequences to be applied to Executive STVR and LTVR outcomes for risk and reputation matters. Executive risk scorecards
are independently reviewed and challenged by the Group Chief Risk Officer.
The Remuneration Committee also met with the Risk and Audit Committees to consider all relevant risk and audit matters in the
determination of Executive remuneration outcomes.
Mandatory shareholding
The CEO and Group Executives are required to accumulate CBA shares over a five-year period
from 1 July 2013 when the mandatory shareholding requirement was implemented or from the
date of their appointment to a Group Executive role, to the value shown in the diagram.
As at 30 June 2018, all Group Executives who have been in a Group Executive role for more than
five years meet these shareholding requirements. Individuals who have been in Group Executive
roles for less than five years are working towards, or have already satisfied these requirements.
More detail about the shareholdings for Executives as at 30 June 2018 is provided in section 5.
Proportion of FR:
3x
2x
Group CEO
Group Executives
3. Performance and remuneration outcomes
Remuneration varies with short-term and long-term performance outcomes.
Group financial performance
The table below shows the link between CEO and Group Executive remuneration and the Group’s financial performance over the
past five financial years (including the 2018 financial year).
STVR scorecard measure
LTVR relative TSR measure
Group Cash NPAT
($M) (1)
Group PACC
($M) (2)
Share price as at
30 Jun ($)
Dividends per share
($)
TSR – 4-year period
as at 30 Jun (%)
9
,
1
2
7
9
,
1
7
1
9
,
8
8
1
9
,
4
1
2
8
,
6
8
0
6
,
5
2
5
6
,
1
8
7
5
,
8
0
3
8
5
.
1
3
8
0
.
8
8
8
2
.
8
1
7
4
.
3
7
7
2
.
8
7
4
.
2
0
4
.
2
0
4
.
2
9
4
.
3
1
4
.
0
1
1
0
9
.
8
9
1
1
0
.
4
3
n
/
a
n
/
a
7
4
7
4
.
5
0
7
5
.
.
1
1
3
9
30 Jun 14
30 Jun 15
30 Jun 16
30 Jun 17
30 Jun 18
(1) Group Cash NPAT includes discontinued operations.
(2) Due to methodology changes, comparatives for Group Profit after Capital Charge (PACC) have only been provided for the 2016 and 2017 financial years.
Outcomes
30 Jun 14
30 Jun 15
30 Jun 16
30 Jun 17
30 Jun 18
STVR outcome (average % of maximum)
LTVR vesting outcome (% of maximum)
82%
97%
78%
86%
75%
20%
0%(1)
67%
19%(2)
24%
(1) The STVR outcomes for the CEO and Group Executives were adjusted downwards to zero, reflecting collective accountability for the overall reputation of the Group
and risk matters.
(2) As a consequence of the APRA Prudential Inquiry Report, the Board has applied a negative adjustment of 20% to the 2018 financial year performance scorecard
outcomes for each current Group Executive and assessed individual risk outcomes as Partially Met to reflect collective accountability for the APRA Prudential
Inquiry Report findings. Further negative risk adjustments to STVR outcomes were also made to reflect individual accountability relating to the individual for other
risk and reputation matters separate from the APRA Prudential Inquiry Report findings.
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Commonwealth Bank of AustraliaAnnual Report 2018Remuneration reportDirectors’ report
Short-term variable remuneration
2018 financial year STVR award – key features
The table below outlines key features of the 2018 financial year STVR award for the Executives. Refer to page 116 for treatment
of STVR on cessation of employment.
Features
Purpose
Approach
Reward annual performance, incorporating both risk and reputation and values outcomes.
Participants
All Executives
Opportunity
Executives
Target STVR
CEO and Group Executives
100% of FR
Other Executives
(excluding George Confos)(1)
n/a
Maximum STVR
150% of FR
130% – 170% of base remuneration
(1) George Confos’ arrangement does not specify an STVR target and/or maximum.
CEO and Group
Executive
performance
measures
and weightings
Individual STVR outcomes are determined on the basis of overall Group performance and an assessment of individual
performance through a balanced scorecard. The performance measures chosen support the delivery of the Group’s
strategy and reflect a mix of quantitative and qualitative outcomes to provide a balanced assessment of performance.
Scorecard weightings cover financial and non-financial measures linked to Group and business unit targets, and vary
by role.
Role
CEO
Group Executive managing business
units
Group Executive managing support
functions and the Group Executive,
International Financial Services
Group Chief Risk Officer
Financial/Shareholder
Non-financial (split between
customer, people and strategy)
60%
60%
40%
30%
40%
40%
60%
70%
(40% of the 70% is weighted towards
risk management-related measures)
Modifier(s)
In addition to performance against a balanced scorecard, Executives are assessed on how they demonstrate
exemplary leadership of:
Calculation
of awards
• values: the Board has the discretion to adjust Executive STVR outcomes upwards or downwards including to zero
where appropriate
• risk and reputation: the Board has the discretion to adjust Executive STVR outcomes downwards including
to zero where appropriate.
STVR awards for the CEO and Group Executives are calculated as follows:
Opportunity
FR
$
x
Target
STVR
opportunity
%
x
Unadjusted
outcome
Performance
scorecard
result(1)
%
Modifiers
Adjusted outcome
à
Values modifier
à Risk and reputation modifier
=
Value of adjusted
STVR award
$
(1) The Board retains discretion to adjust scorecard outcomes.
Deferral
• CEO and Group Executives: 50% of the STVR award is deferred and delivered in restricted shares that vest
equally over one and two years. Deferred STVR awards are subject to Board risk and reputation review prior
to vesting.
• Other Executives: One-third of the STVR award is deferred and delivered in restricted shares that vest equally
over one, two and three years. Deferred STVR awards are subject to Board risk and reputation review prior
to vesting.
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Remuneration reportDirectors’ reportPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report STVR performance outcomes in the financial year ended 30 June 2018 – CEO
The Board’s assessment of the CEO’s performance in the 2018 financial year is outlined below.
Key:
• = Actual result
Threshold
Target
50% – Board assesses CEO has met the threshold level of performance.
100% – Board assesses CEO has met the stated performance level in all aspects.
Above expectations
150% – Board assesses CEO has substantially exceeded the stated performance level.
Matt Comyn
The table below reflects an assessment of the CEO’s performance during the period 9 April 2018 to 30 June 2018. The STVR
disclosed in the table on page 107 comprises STVR outcomes as Group Executive, Retail Banking Services for the period 1 July
2017 to 8 April 2018 and as CEO for the period 9 April 2018 to 30 June 2018. In March 2018, Matt Comyn offered to forgo his
2018 financial year STVR award. The Board accepted his offer and no STVR was awarded for the 2018 financial year.
Ian Narev
Ian was rated as Partially Met for risk and reputation and Exceptionally Demonstrated for values. However, the Board and Ian
Narev believe that given his former position and in light of the APRA Prudential Inquiry Report findings, he must demonstrate the
highest level of accountability. As such, they have agreed that he will not receive his 2018 financial year STVR award.
Threshold
Target
Above
expectations
Measure
%
50%
100%
150%
% of STVR
target
(100%
of FR)
% of STVR
maximum
(150%
of FR)
Commentary
Performance scorecard
Financial/shareholder
Group cash NPAT
25%
Group underlying
PACC
25%
Group productivity
10%
10%
7%
• Below threshold in Group cash NPAT (including
discontinued operations) (Actual: $9,412M,
Target: $10,102M)
• Below threshold in Group underlying PACC
(Actual: $5,803M, Target: $6,523M)
• Progress on productivity targets
Customer
Blended average
of NPS outcomes
for retail and
business customers
(six-month rolling)
People
15%
0%
0%
• Actual result was -7.7 (decline of 2 points)
• Blended average NPS target was set at a level
of NPS increase of +5 percentage points relative
to June 2017 score (-5.7) (Target: -0.7)
Culture, talent,
diversity, safety
and wellbeing
15%
Strategy
Delivery of key
strategic initiatives
10%
15%
10%
Board discretion, having regard to:
• “Your Voice” outcomes for the Group
• Quality of talent development within the Group
• Improvement in gender and cultural diversity
metrics for Executive Manager and above
population within the Group
• Quality of safety outcomes and processes
7.5%
5%
• Better Risk Outcomes Program established
to drive Group response to APRA
recommendations and enforceable undertaking
• Good progress on M&A and divestment
strategies
Overall STVR CEO outcome
33%
22%
STVR modifier
Values
Exceptionally Demonstrated
No adjustment
• Developed partnerships for vulnerable customers
• Launched Welcome Change campaign
• Enhanced Better Customer Outcomes Program
Risk and reputation
Partially Met
-20% reduction
• Collective accountability for APRA Prudential
Inquiry Report findings
Overall adjusted STVR CEO outcome
Final STVR outcome (due to voluntary forfeiture)
26%
0%
17%
0%
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Commonwealth Bank of AustraliaAnnual Report 2018Remuneration reportDirectors’ report STVR performance outcomes in the financial year ended 30 June 2018 – Executives
The following table provides the 2018 financial year STVR outcomes for Executives. The minimum potential outcome is zero.
STVR target
Total
Cash
Deferred
STVR actual
STVR actual
as % of STVR
target
STVR actual
as % of STVR
maximum
$
CEO
Matt Comyn (1)
1,315,949
Current Executives
$
–
451,975
522,600
155,126
77,949
405,246
–
498,240
139,318
117,962
407,553
$
–
225,988
261,300
103,417
51,966
202,623
–
249,120
92,879
78,641
271,702
$
–
225,987
261,300
51,709
25,983
202,623
–
249,120
46,439
39,321
135,851
1,049,580
1,200,000
n/a
82,052
848,793
861,900
865,000
162,945
163,836
532,748
2,047,397
–
–
–
875,020
955,342
512,417
532,214
832,544
397,870
198,935
198,935
–
194,847
–
297,634
–
97,424
–
148,817
–
97,423
–
148,817
%
0%
43%
44%
n/a
n/a
48%
0%
58%
n/a
n/a
n/a
0%
45%
0%
38%
0%
36%
%
0%
29%
29%
n/a
95%
32%
0%
38%
85%
72%
77%
0%
30%
0%
25%
0%
24%
Adam Bennett
David Cohen
George Confos (2)(3)
Alan Docherty(2)(3)
Coen Jonker
Melanie Laing
Anna Lenahan
Paul Newham (2)(3)
Angus Sullivan (2)(3)
Michael Venter(2)(3)
Former CEO
Ian Narev(4)(5)
Former Executives
Kelly Bayer Rosmarin (4)
Rob Jesudason (4)
Vittoria Shortt(4)
Annabel Spring (4)(6)
David Whiteing (4)
(1) Matt Comyn was appointed to the CEO role effective 9 April 2018. His STVR target reflects his time in both the Group Executive, Retail Banking Services role
(1 July 2017 to 8 April 2018) and CEO role (9 April 2018 to 30 June 2018). In March 2018, Matt offered to forgo his 2018 financial year STVR award and the
Board accepted.
(2) Newly appointed Executives’ remuneration reflects their time in the role. George Confos (1 May 2018 to 30 June 2018), Alan Docherty (14 May 2018 to
30 June 2018), Paul Newham (1 May 2018 to 30 June 2018), Angus Sullivan (9 April 2018 to 30 June 2018) and Michael Venter (1 January 2018 to 30 June 2018).
(3) Other Executives’ STVR target shown above reflects their STVR maximum (excluding George Confos). Paul Newham’s and Michael Venter’s STVR maximum is
170% of base remuneration. Angus Sullivan’s STVR maximum is 150% of base remuneration. Alan Docherty’s STVR maximum is 130% of base remuneration.
George Confos’ arrangement does not specify an STVR target and/or maximum.
(4) Former Executives’ remuneration reflects their time in the role. Ian Narev (1 July 2017 to 8 April 2018), Kelly Bayer Rosmarin (1 July 2017 to 30 April 2018), Vittoria
Shortt (1 July 2017 to 2 February 2018), Annabel Spring (1 July 2017 to 31 December 2017) and David Whiteing (1 July 2017 to 30 April 2018). Rob Jesudason
ceased as KMP on 13 May 2018 and is not eligible for an STVR award for the 2018 financial year.
(5) The Board and Ian Narev believe that given his former position and in light of the APRA Prudential Inquiry Report findings, he must demonstrate the highest level
of accountability. They have agreed he will not receive his 2018 financial year STVR award.
(6) Annabel Spring agreed not to receive a 2018 financial year STVR award.
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LTVR award in the year ended 30 June 2018 – key features
The table below outlines key features of the 2018 financial year LTVR for the CEO and Group Executives. Refer to page 116 for
treatment of LTVR on cessation of employment.
Features
Purpose
Participants
Opportunity
Approach
To focus efforts on achieving superior performance for key stakeholder groups – being shareholders,
customers, our people and the community – creating sustainable long-term shareholder value.
CEO and Group Executives.
The maximum face value of LTVR that can be granted is 180% of FR. The minimum potential outcome
value is zero.
Performance period
Four years from 1 July 2017 to 30 June 2021.
Instrument
Reward rights – each reward right entitles the participant to receive one CBA share, subject to meeting
performance hurdles.
Allocation approach
Maximum face value allocation approach. Reward rights granted are calculated as follows:
FR
(at time of grant)
$
x
180%
÷
Share price
(no discount applied)
$
=
Number of
reward rights
Share price: The share price used was the VWACP of CBA’s ordinary shares over the five trading days up to and including
1 July 2017.
Dividend payments
No dividends or dividend equivalent payments are provided on reward rights.
Board discretion
The total LTVR award is subject to a risk and reputation review prior to vesting, and can be reduced to zero.
The Board has discretion to determine that some or all of the award will lapse in certain circumstances,
including where, in the opinion of the Board:
• the vesting of reward rights is not justified or supportable, having regard for the participant’s performance
and/or conduct, the performance of the business unit or function, or the overall Group performance
• the vesting of reward rights will impact on the financial soundness of the Group or a member of the Group
• a significant unexpected or unintended consequence or outcome has occurred.
Performance measures
75% TSR (relative)
Approach
Peer group
• TSR measures a company’s share price movement,
dividends paid and any return on capital over a specific
period.
• The peer group is made up of the 20 largest companies on the ASX
by market capitalisation at the beginning of the performance period,
excluding resources companies, and the Group (1).
• Relative TSR compares the ranking of Group TSR
over the performance period with the TSR of other
companies in a peer group.
• This cross-industry peer group has been chosen as it represents
the typical portfolio of companies in which the Group’s shareholders
invest, and so provides valid benchmarks for measuring against the
Group’s TSR.
Reason for selection: Provides a direct link between
Executive reward and shareholder returns, for
alignment with our shareholders’ interests.
Vesting framework
Peer group ranking
At the 75th percentile or higher
Between the median and 75th percentile
At the median
Below the median
Calculation of results
Vesting %
100%
Pro-rata vesting from
50% to 100%
50%
0%
Each company in the peer group will be given a percentile ranking based
on the growth in its TSR over the four-year performance period.
TSR outcomes are calculated by an independent provider, Orient Capital.
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Commonwealth Bank of AustraliaAnnual Report 2018Remuneration reportDirectors’ report Performance measures
12.5% Trust and reputation (relative)
• Measured against the independent RepTrak® pulse
score survey conducted by the Reputation Institute,
which uses a set of four equally weighted questions
to test the trust, respect and admiration a respondent
has for a particular company. Our score over the
performance period is compared with the performance
over the same period of a peer group.
• The RepTrak® pulse score survey is conducted quarterly.
Approach
Peer group
• The peer group of the 16 largest consumer-facing companies listed on
the ASX by market capitalisation at the beginning of the performance
period, excluding resource companies, companies that are not familiar
to the general public, companies that do not operate nationally, and the
Group (2).
• This cross-industry peer group has been chosen to ensure that the Group
focuses on delivering trust and reputation outcomes that are among
the best in class for all customer-focused industries, not just financial
services.
Reason for selection: The Board recognises the
critical importance for the Group and the industry
of rebuilding and improving the trust of customers
and the broader community. This is a key factor in
enhancing long-term financial performance and value
to shareholders.
Vesting framework
Peer group ranking
At the 75th percentile or higher
Between the median and 75th percentile
At the median
Below the median
Calculation of results
Vesting %
100%
Pro-rata vesting from
50% to 100%
50%
0%
The opening pulse score for each company will be based on the average of
the March, June and September 2017 surveys, while the closing pulse score
will be based on the November 2020, March and June 2021 surveys.
Each company in the peer group will be given a percentile ranking based
on the change in its pulse score over the four-year performance period.
12.5% Employee engagement (absolute)
Target setting
• Employees of the Group are invited to participate in an
externally conducted online survey.
• The Employee Engagement Index (EEI) is calculated
using particular questions from the survey.
• EEI is based on the proportion of employees responding
that they “strongly agree” or “agree” with the four
questions relating to satisfaction, commitment,
advocacy and pride (each of which is equally weighted).
Reason for selection: The Board considers that
an engaged workforce results in greater productivity
and a better customer experience, and that builds
overall value for the Group. It is important the Group’s
employees are its advocates, committed to our
purpose, values and strategy.
The target and stretch levels of performance have been set by the
Board having regard for the IBM Kenexa gap closure method and
global benchmark scores provided by IBM Kenexa.
Vesting framework
EEI score
82% or higher
Vesting %
100%
Between 80% and 82%
Pro-rata vesting from 50% to 100%
80%
Below 80%
Calculation of results
50%
0%
The surveys will be conducted by an independent provider who will facilitate
and collate the EEI results. The change in the EEI scores between the March
2017 EEI score of 78% and the March 2021 score will be used to determine
the level of vesting.
y
a
w
e
t
a
g
R
S
T
e
v
i
t
i
s
o
p
o
t
j
t
c
e
b
u
S
(1) The peer group at the beginning of the performance period for the TSR performance hurdle comprised: AGL
Limited, 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, Wesfarmers Limited, Westfield Corporation, Westpac
Banking Corporation and Woolworths Limited. The reserve bench comprised Aristocrat Leisure Limited,
Aurizon Holdings Limited, Cimic Group 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.
(2) The peer group at the beginning of the performance period for the trust and reputation performance hurdle
comprised: AGL Limited, AMP Limited, Australia & New Zealand Banking Group Limited, Crown Resorts
Limited, Insurance Australia Group Limited, Lendlease Group Limited, Macquarie Group Limited, National
Australia Bank Limited, Qantas Limited, QBE Insurance Group Limited, Stockland Corporation Limited,
Suncorp Group Limited, Telstra Corporation Limited, Wesfarmers Limited, Westpac Banking Corporation and
Woolworths Limited. The reserve bench comprised Bendigo and Adelaide Bank Limited, BlueScope Steel
Limited, Coca-Cola Amatil Limited and Medibank Private Limited.
A positive TSR gateway
is applied to the non-
financial performance
measures (trust and
reputation, employee
engagement), such that
no vesting on these
measures occurs unless
the change in shareholder
value is positive.
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Remuneration reportDirectors’ reportPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report
LTVR performance outcomes for the financial year ended 30 June 2018
The 2015 financial year LTVR award reached the end of its four-year performance period on 30 June 2018 and vested at 23.82%.
76.18% of the 2015 financial year LTVR lapsed.
Performance measure
Percentage of award
Performance outcome
Vesting outcome
Relative TSR
Relative customer
satisfaction (1)
73.97%
26.03%
35th percentile ranking relative to TSR peer group
Average result by business over performance period:
• retail main financial institution (MFI) customer satisfaction = 1.25
0%
91.5%
• wealth management customer satisfaction = 1.25
• business MFI customer satisfaction = 1.04
Total weighted average ranking = 1.17
(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). Relative customer satisfaction vests at 50% if the weighted average ranking is
2nd and 100% if the weighted average ranking is 1st, with straight line vesting in between.
4. Remuneration governance
Remuneration Committee
The Remuneration Committee is the governing body for developing, assessing and monitoring remuneration philosophy,
framework and policies across the Group for Board approval. The Remuneration Committee met formally 15 times during the
2018 financial year.
The Remuneration Committee works closely with the Board’s Risk and Audit Committees, the Group Chief Risk Officer and
Executive General Manager Internal Audit to consider risk and reputational matters when determining remuneration outcomes.
Information provided to the Board Committees to support their considerations include Executive risk scorecards, details of
material risk matters arising during the year and outcomes of internal audit reviews conducted during the year.
The following diagram illustrates our remuneration governance framework.
CBA Board
The Board reviews, challenges, applies judgement and, as appropriate, approves the Remuneration Committee’s recommendations.
It approves the remuneration of Executives and of Non-Executive Directors and the policies and processes governing both.
Risk Committee
Assists the Board in the
governance of the Group’s
risks.
Advises the Remuneration
Committee of material risk
matters which may impact
remuneration outcomes.
Risk and Remuneration
Review Committee
(RRRC)
Management committee
that advises the Group
Chief Risk Officer on
accountability for material
risk matters which may
impact remuneration
outcomes.
Remuneration Committee
Members (as at 30 June 2018)
David Higgins (Chairman)
Catherine Livingstone AO
Andrew Mohl
Mary Padbury
Wendy Stops
Role
Reviews, challenges, applies judgment and, as
appropriate, endorses the recommendations made
by management and submits for Board approval.
It oversees the Group’s remuneration framework and
assists the Board to ensure the Group’s remuneration
strategy and structure are appropriate.
Charter
The responsibilities of the Remuneration Committee
are outlined in its Charter and reviewed periodically:
www.commbank.com.au/content/dam/commbank/
about-us/shareholders/pdfs/corporate-profile/
remuneration-committee-charter.pdf
Board Audit
Committee
Assesses and advises the
Remuneration Committee,
of any matter relevant to
financial outcomes that
warrants consideration
when it considers variable
remuneration award
outcomes for Executives.
Independent
Remuneration
Consultant
During the 2018 financial
year, the Remuneration
Committee engaged
external advisors to provide
information to assist in
making remuneration
decisions.
It did not seek or receive
any remuneration
recommendations in the
2018 financial year.
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Commonwealth Bank of AustraliaAnnual Report 2018Remuneration reportDirectors’ report 5. Executive statutory remuneration disclosures
Executive statutory remuneration
The following statutory table details the statutory accounting expense of all remuneration-related items for the Group’s
Executives. This includes remuneration costs in relation to both the 2017 and 2018 financial years. The tables are different from
the remuneration outcomes table on page 100, which shows the remuneration received in the 2018 financial year rather than
the accrual accounting amounts determined in accordance with the Australian Accounting Standards. 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.
FR (1)
Other short-term benefits
Long-term
benefits
Share-based
payments
Base
remuneration(2)
$
Superan-
nuation
$
Non-
monetary(3)
$
Cash
STVR
(at risk) (4)
$
Deferred
STVR
(at risk) (5)
$
Other(6)
$
Long-
term (7)
$
Deferred
STVR
(at risk) (5)
$
Deferred
rights
(at risk) (8)
$
LTVR
reward
rights
(at risk) (9)
Termination
benefits
$
Total
statutory
remuneration
(10)
$
CEO
Matt Comyn (11)
30 Jun 18
30 Jun 17
Current Executives
Adam Bennett
30 Jun 18
30 Jun 17
David Cohen
30 Jun 18
30 Jun 17
George Confos (11)
1,292,075
23,874
15,726
1,030,750
25,000
14,599
–
–
1,024,580
25,000
16,911 225,988
974,600
25,000
15,909
–
1,175,000
25,000
16,911
261,300
1,175,000
25,000
15,909
–
30 Jun 18
133,031
4,178
2,858
103,417
Alan Docherty (11)
30 Jun 18
95,994
2,637
2,270
51,966
Coen Jonker (12) (13)
–
–
–
–
–
–
–
–
266,686
198,599
24,802
25,425
21,013
58,981
(36,560)
24,113
(40,808)
56,646
44,169
100,122
–
–
–
–
–
–
– 1,162,327
– 1,078,073
51,962
974,726
145,640
523,671
– 1,150,959
–
988,620
7,779
2,401
–
64,612
6,791
4,018
–
23,222
–
–
–
–
–
–
–
–
–
–
2,959,287
2,198,649
2,399,161
1,672,373
2,645,008
2,348,820
318,276
186,898
30 Jun 18
845,827
2,967
–
203,710
–
461,814
231,089
–
189,362
95,845
–
2,030,614
Melanie Laing
30 Jun 18
30 Jun 17
Anna Lenahan (11)
30 Jun 18
30 Jun 17
Paul Newham (11)
836,900
25,000
16,911
820,000
25,000
15,909
–
–
844,951
20,049
16,911
249,120
497,966
11,555
10,455
–
30 Jun 18
137,877
4,178
2,612
92,879
Angus Sullivan (11)
30 Jun 18
109,224
5,685
3,586
78,641
Michael Venter (11)
30 Jun 18
313,381
12,397
6,510
271,702
Former CEO
Ian Narev (11)(14)
30 Jun 18
30 Jun 17
2,028,082
19,315
12,986
2,625,000
25,000
15,909
–
–
–
–
–
–
–
–
–
–
–
54,274
14,817
2,409
22,217
–
–
–
–
938,990
878,734
49,351
6,993
–
533,239
440,478
18,571
3,292
– 1,158,780
118,307
3,033
1,516
–
50,603
8,480
2,168
–
61,180
73,009
(9,953)
–
179,691
–
–
–
–
–
–
–
–
–
–
1,886,892
1,764,269
2,161,092
1,818,926
292,698
268,964
846,737
(26,757)
63,019
(33,007)
113,341
–
–
– (3,316,726)
905,169
(314,912)
– 2,966,120
–
5,712,363
111
Remuneration reportDirectors’ reportPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report
FR (1)
Other short-term benefits
Long-term
benefits
Share-based
payments
Base
remuneration(2)
$
Superan-
nuation
$
Non-
monetary(3)
$
Cash
STVR
(at risk) (4)
$
Deferred
STVR
(at risk) (5)
$
Other(6)
$
Long-
term (7)
$
Deferred
STVR
(at risk) (5)
$
Deferred
rights
(at risk) (8)
$
LTVR
reward
rights
(at risk) (9)
Termination
benefits
$
Total
statutory
remuneration
(10)
$
Former Executives
Kelly Bayer
Rosmarin (11)(15)
30 Jun 18
30 Jun 17
Vittoria Shortt (11)
30 Jun 18
30 Jun 17
Annabel Spring (11)(15)
854,198
20,822
14,052 238,853
1,025,600
25,000
15,909
Rob Jesudason (11)(12)(14)
30 Jun 18
30 Jun 17
937,930
17,412
14,641
1,149,030
3,073
–
497,554
14,863
9,913
97,424
836,900
25,000
15,909
30 Jun 18
30 Jun 17
519,611
12,603
7,639
1,030,750
25,000
14,599
David Whiteing (11)(15)
30 Jun 18
30 Jun 17
815,845
16,698
12,710
148,817
979,984
19,616
14,599
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(547)
29,288
238,853
– 2,788,243
966,236
5,149,998
18,037
(52,237)
–
70,583
833,943
–
1,936,835
215,545
(105,165)
972,349
41,466
–
–
– (1,122,965)
538,770
496,168
–
987,414
–
3,153,332
(37,597)
(120,140)
97,424
33,852 2,113,398
40,010
(41,739)
–
129,441
374,761
–
–
2,706,691
1,380,282
9,769
(17,886)
13,905
34,003
–
–
– 2,117,192
1,376,076
4,025,004
– 1,078,073
–
2,196,330
63,524
(47,658)
148,817
– 2,632,434
914,666
4,705,853
(8,609)
19,620
–
52,634
585,192
–
1,663,036
(1) FR comprises base remuneration and superannuation (post-employment benefit). Superannuation contributions for Rob Jesudason in the 2017 financial year
and Coen Jonker in the 2018 financial year 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) For the CEO and Group Executives, 50% of the 2018 financial year STVR for performance during the 12 months to 30 June 2018 (payable in September 2018).
For the Other Executives, two-thirds of the 2018 financial year STVR for performance during the 12 months to 30 June 2018 (payable in September 2018).
(5) The 2017 financial year STVR outcome for the CEO and Group Executives was adjusted downwards to zero, reflecting accountability for the overall reputation
and risk matters of the Group. The deferred portion of the 2018 financial year STVR outcome for Kelly Bayer Rosmarin, Vittoria Shortt and David Whiteing is
deferred into cash over a two year period.
(6) Includes company-funded benefits (including associated fringe benefits tax where applicable) and the net change in accrued annual leave. For Rob Jesudason
in the 2017 financial year and Coen Jonker in the 2018 financial year, this includes costs in relation to Hong Kong assignments and relocation to Australia.
(7) 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.
(8) 2018 financial year expense for deferred STVR awarded under Executive General Manager arrangements, as well as 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. Deferred 2018 financial year STVR will be expensed over the vesting period commencing 1 July 2018.
(9) 2018 financial year expense for the 2015, 2016, 2017 and 2018 financial year LTVR awards.
(10) The percentage of 2018 financial year remuneration related to performance was: Matt Comyn 39%, Adam Bennett 52%, David Cohen 53%, George Confos 53%,
Alan Docherty 40%, Coen Jonker 24%, Melanie Laing 50%, Anna Lenahan 57%, Paul Newham 49%, Angus Sullivan 52%, Michael Venter 53%, Ian Narev 0%,
Kelly Bayer Rosmarin 63%, Rob Jesudason 0%, Vittoria Shortt 87%, Annabel Spring 53% and David Whiteing 62%.
(11) Remuneration reflects the individual’s time in their respective KMP role(s).
(12) For Rob Jesudason, FY17 remuneration and Coen Jonker, FY18 remuneration was paid in Hong Kong dollars and was impacted by movements in exchange
rates. For Rob Jesudason, the 2017 financial year values include costs in relation to his Hong Kong assignment and relocation to Australia. On his exit, 50%
of his relocation costs were recovered (as reflected in the 2018 financial year value).
(13) For Coen Jonker, his long-term benefit represents a portion of a deferred purchase price in connection with the Group’s acquisition of TymeDigital in the 2015
financial year calculated with reference to his continued employment with the Group and paid to a company in which a related party is a shareholder. Coen
also participates in a cash-based incentive scheme known as the ‘Excess Return Bonus Scheme’ (ERBS), a scheme in which certain other employees in the
TymeDigital business also participate. Coen has participated in the ERBS since the 2015 financial year, following CBA’s acquisition of TymeDigital. The value of the
award is determined by reference to Coen’s share in any excess returns generated above a benchmark rate from TymeDigital and certain other branchless digital
banking operations established by CBA over a period of up to approximately 20 years (with amounts payable on 30 September 2024 and 30 September 2034,
subject to achievement of relevant conditions). Coen’s entitlement to payments under the ERBS may be forfeited, reduced or accelerated in certain circumstances
(e.g. forfeiture in circumstances of termination for serious misconduct). It is not possible to reliably estimate Coen’s maximum potential award under the ERBS,
noting, that no amounts have been accrued or became payable to Coen since the 2015 financial year.
(14) For Ian Narev and Rob Jesudason, LTVR awards were forfeited and the associated expense recognised in prior years has been reversed.
(15) The LTVR reward rights value for Kelly Bayer Rosmarin, Annabel Spring and David Whiteing reflects the disclosable accruals for all previously granted LTVR awards
that remain unvested following cessation of employment up to the end of each performance period. This means that up to three years of each unvested LTVR
award expense has been brought forward and disclosed in total for the 2018 financial year, including those amounts which would otherwise have been included in
future year disclosures and that may not vest. These LTVR awards remain on foot and will only vest subject to the achievement of the pre-determined performance
conditions and risk and reputation review.
112
Commonwealth Bank of AustraliaAnnual Report 2018Remuneration reportDirectors’ report Fair value assumptions for equity awards granted in the 2018 financial year
In the 2018 financial year a face value allocation approach was used to determine the number of rights granted under the LTVR
(refer to page 108). The table below is provided in accordance with statutory requirements. The fair value has been calculated
using a Monte Carlo simulation method using the assumptions below. The exercise price is nil across all LTVR awards. The fair
value of rights under the trust and reputation and employee engagement performance measures is higher than for the relative
TSR performance measure. This is expected because the likelihood of achieving a positive TSR over the performance period
is greater than the likelihood of achieving a relative TSR ranking higher than the median.
Assumptions
Equity plan
Performance
measure
Grant date
Fair value
$
Performance
period
end
Expected life
(years)
Expected
volatility
%
Risk free rate
%
Dividend
yield
%
Relative TSR
17 Nov 17
36.94
30 Jun 21
3.62
FY18 LTVR
reward rights
Trust and reputation
(positive TSR gateway)
Employee engagement
(positive TSR gateway)
17 Nov 17
57.11
30 Jun 21
3.62
17 Nov 17
57.11
30 Jun 21
3.62
15
15
15
2.12
5.17
2.12
5.17
2.12
5.17
Equity awards received as remuneration
The table below details the value and number of all equity awards that were granted, vested, forfeited or lapsed to Executives
during their time in a KMP role in 2018 financial year. Due to the change in the LTVR allocation approach from fair to face value,
the table below provides the face value of LTVR reward rights granted during the 2018 financial year (previously was disclosed
as fair value). It also shows the number of previous years’ awards that vested during the 2018 financial year – some of which relate
to past non-KMP roles.
Granted during 2018
financial year (1)
Previous years’ awards vested
during 2018 financial year (2)
Forfeited or lapsed during
2018 financial year (3)
Class
Units
$
Units
$
Units
$
CEO
Matt Comyn
LTVR reward rights
22,961
1,900,252
16,441
1,529,923
(8,067)
(653,185)
Current Executives
Adam Bennett
LTVR reward rights
22,826
1,889,080
–
–
Deferred rights
–
–
3,464
280,480
–
–
–
–
David Cohen
LTVR reward rights
26,098
2,159,870
14,798
1,377,033
(7,260)
(587,842)
George Confos
Deferred rights
Alan Docherty
Deferred rights
–
–
–
–
Coen Jonker
LTVR reward rights
18,658
1,544,136
–
–
–
–
–
–
Deferred rights
2,896
220,762
634
52,470
(1,366)
(99,349)
(575)
(41,820)
–
–
–
–
Melanie Laing
LTVR reward rights
18,745
1,551,336
13,565
1,262,296
(6,655)
(538,855)
Anna Lenahan
LTVR reward rights
18,812
1,556,881
–
–
Deferred rights
Paul Newham
Deferred rights
Angus Sullivan
Deferred rights
Michael Venter
Deferred rights
Former CEO
Ian Narev
LTVR reward rights
Former Executives
–
–
–
–
–
–
–
–
–
–
3,463
260,418
–
–
–
–
–
–
–
–
–
–
(1,077)
(78,330)
(933)
(1,131)
(67,857)
(82,258)
42,334
3,983,713
(188,524)
(13,882,512)
Kelly Bayer Rosmarin
LTVR reward rights
22,849
1,890,983
Deferred rights
–
–
8,697
2,610
809,302
(4,266)
(345,418)
211,332
–
–
Rob Jesudason
LTVR reward rights
23,923
1,979,867
13,565
1,262,296
(96,316)
(7,059,900)
Vittoria Shortt
LTVR reward rights
18,745
1,551,336
–
–
Deferred rights
Annabel Spring
LTVR reward rights
–
–
–
–
2,681
217,081
16,441
1,529,923
(8,067)
(653,185)
–
–
–
–
David Whiteing
LTVR reward rights
21,739
1,799,120
–
–
Deferred rights
–
–
1,946
157,568
–
–
–
–
113
Remuneration reportDirectors’ reportPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report (1) Represents the maximum number of LTVR reward rights and deferred rights that may vest to each executive during their time as KMP. For LTVR reward rights the
value represents the face value at grant date being the VWACP of the Group’s ordinary shares over the five trading days up to and including 1 July 2017. 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 fair value at grant date. The fair value is the same as the face value. The minimum potential outcome for LTVR reward rights and deferred rights
is zero.
(2) Previous years’ awards that vested include the 2014 financial year LTVR award and other deferred equity awards that vested during time in KMP role. The value
of the awards vested is calculated using VWACP for the five days preceding the vesting date, and includes the value of dividends accrued over the vesting period.
(3) This includes the portion of the 2014 financial year LTVR award (32.92%) that did not meet the performance hurdle and lapsed. The value of the lapsed award is
calculated using the VWACP for the five days preceding the lapse date. Also includes portion of deferred rights and/or LTVR reward rights forfeited as a result of
individual or collective accountability in relation to the APRA Prudential Inquiry. David Craig’s unvested LTVR reward rights (87,358 units valued at $6,353,547) and
Alden Toev’s unvested LTVR reward rights (60,605 units valued at $4,407,802) were forfeited. The value of forfeited awards is calculated using the VWACP for the
five days preceding 30 June 2018.
Overview of unvested equity awards
Performance period
Equity plan
Grant date
Start date
End date
Performance measures
FY16 LTVR
CEO: 17 Nov 15
Executives: 10 Nov 15
1 Jul 15
30 Jun 19
Each award is split and tested:
• 75% TSR ranking relative to peer group
FY17 LTVR
22 Feb 17
1 Jul 16
30 Jun 20
• 25% customer satisfaction average ranking relative
to peer group
FY18 LTVR
17 Nov 17
1 Jul 17
30 Jun 21
Each award is split and tested:
• 75% TSR ranking relative to peer group
• 12.5% trust and reputation (relative to a peer group)
and 12.5% employee engagement (both measures
are subject to a positive TSR gateway)
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 relating to time in KMP role. For details of Executive equity plans refer to the Financial Statements Note 10.1
Share-based payments.
Class (1)
Balance 1 Jul 17
Acquired/
granted as
remuneration
Previous years’
awards vested
during the 2018
financial year(2)
Net change
other(3)
Balance
30 Jun 18
CEO
Matt Comyn
Ordinary
LTVR reward rights
Current Executives
Adam Bennett
Ordinary
LTVR reward rights
Deferred rights
David Cohen
Ordinary
LTVR reward rights
George Confos
Ordinary
Deferred rights
PERLS
Alan Docherty
Ordinary
Deferred rights
Coen Jonker
Ordinary
LTVR reward rights
Deferred rights
Melanie Laing
Ordinary
LTVR reward rights
33,562
90,776
16,361
50,937
5,520
38,796
85,309
n/a
n/a
n/a
n/a
n/a
–
–
1,902
31,980
73,713
–
–
22,961
(16,441)
–
22,826
–
–
–
–
(3,464)
–
26,098
(14,798)
–
–
–
–
–
–
18,658
2,896
–
–
–
–
–
–
–
–
(634)
–
16,441
(8,067)
3,464
–
–
–
(7,260)
1,685
12,332
330
2,192
5,209
–
–
–
–
18,745
(13,565)
(6,655)
50,003
89,229
19,825
73,763
2,056
38,796
89,349
1,685
12,332
330
2,192
5,209
–
18,658
4,164
31,980
72,238
114
Commonwealth Bank of AustraliaAnnual Report 2018Remuneration reportDirectors’ report Class (1)
Balance 1 Jul 17
Acquired/
granted as
remuneration
Previous years’
awards vested
during the 2018
financial year(2)
Anna Lenahan (4)
Ordinary
LTVR reward rights
Deferred rights
Paul Newham
Ordinary
Deferred rights
Angus Sullivan
Ordinary
Deferred rights
Michael Venter
Ordinary
Deferred rights
Former CEO
Ian Narev
Ordinary
LTVR reward rights
Former Executives
Kelly Bayer Rosmarin Ordinary
LTVR reward rights
Deferred rights
Rob Jesudason
Ordinary
LTVR reward rights
Vittoria Shortt
Ordinary
LTVR reward rights
Deferred rights
Annabel Spring
Ordinary
LTVR reward rights
David Whiteing
Ordinary
LTVR reward rights
Deferred rights
10,389
18,099
12,697
n/a
n/a
n/a
n/a
n/a
n/a
131,349
230,858
21,857
78,799
2,610
–
85,958
8,703
41,428
4,934
29,370
90,776
–
61,788
1,946
–
18,812
–
–
–
–
–
–
–
–
–
–
22,849
–
–
–
–
(3,463)
–
–
–
–
–
–
–
–
(8,697)
(2,610)
–
23,923
(13,565)
–
18,745
–
–
–
–
21,739
–
–
(2,681)
–
(16,441)
–
–
–
(1,946)
Net change
other(3)
3,463
–
–
4,932
9,729
4,316
8,412
–
Balance
30 Jun 18
13,852
36,911
9,234
4,932
9,729
4,316
8,412
–
10,191
10,191
32,065
8,904
(4,266)
–
30,265
(96,316)
2,681
–
–
16,441
(8,067)
1,946
–
–
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
(42,334)
(188,524)
(1) LTVR reward rights are subject to performance hurdles. Deferred rights represent the deferred STVR awarded under Executive General Manager arrangements,
sign-on and retention awards received as restricted rights. Both LTVR reward rights and deferred rights are unvested as at 30 June 2018. The maximum potential
outcome for LTVR reward rights and deferred rights is subject to CBA share price at time of vesting.
(2) LTVR reward rights and deferred rights become ordinary shares upon vesting.
(3) Net change other incorporates changes resulting from purchases, sales, forfeitures during the year and shares or rights held by an Executive prior to their
appointment as KMP. Includes portion of deferred rights and/or LTVR reward rights forfeited as a result of individual or collective accountability in relation to the
APRA Prudential Inquiry.
(4) Anna Lenahan holds 2,000 Capital Notes.
115
Remuneration reportDirectors’ reportPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Executive employment arrangements
The table below provides the employment arrangements for current Executives.
Contract term
Contract type (1)
Notice period
Severance
CEO
Permanent
12 months
n/a
Group Executives
Other Executives
Permanent
6 months
6 months (2)
Permanent
3 months
3 months (3)
STVR entitlements
on termination
LTVR entitlements
on termination
• Unless otherwise determined by the Board, Executives who resign or are dismissed are 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 any other reason (e.g., retrenchment,
retirement or death), the Executive may be entitled to an STVR payment with regard to actual
performance against performance measures (as determined by the Board following the end of the
performance period).
• Unless otherwise determined by the Board, where an Executive’s exit is related to any other reason
(e.g., retrenchment, retirement or death) unvested deferred STVR awards will remain on foot subject to
the original terms and conditions and will vest in the ordinary course, as though the Executive had not
ceased employment.
In general, unless otherwise determined by the Board:
• n/a – Not eligible for LTVR
• 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 any other reason (e.g.,
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 continue 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.
(3) Severance applies where the employee is terminated due to redundancy.
6. 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 2018.
Non-Executive Director base and committee fees for the 2018 financial year were reduced by an amount equal to 20% of their
individual 2017 financial year fees to reflect a shared accountability for the overall reputation of the Group and risk matters.
Fees are inclusive of base fees and statutory superannuation. The Chairman does not receive separate committee fees.
Board/Committee (1)
Board
Audit Committee
Risk Committee
Remuneration Committee
Nominations Committee
Chairman
$
870,000
65,000
65,000
60,000
11,600
Member
$
242,000
32,500
32,500
30,000
11,600
(1) The Board established the Financial Crimes Review Committee (FCRC) in August 2017 to oversee the response to AUSTRAC’s civil proceedings and the Program
of Action. The Chairman of the FCRC received a fee of $60,000 pa. The FCRC was dissolved in June 2018.
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 is reached.
116
Commonwealth Bank of AustraliaAnnual Report 2018Remuneration reportDirectors’ report Non-Executive Director statutory remuneration
The statutory table below details individual statutory remuneration for the Non-Executive Directors for both the 2018 and 2017
financial years.
Chairman
Catherine Livingstone AO (4)
30 Jun 18
30 Jun 17
Current Non-Executive Directors
Shirish Apte (5)(6)
30 Jun 18
30 Jun 17
David Higgins (6)
30 Jun 18
30 Jun 17
Brian Long
30 Jun 18
30 Jun 17
Andrew Mohl
30 Jun 18
30 Jun 17
Mary Padbury
30 Jun 18
30 Jun 17
Wendy Stops
30 Jun 18
30 Jun 17
Anne Templeman-Jones (7)
30 Jun 18
Robert Whitfield (8)
30 Jun 18
Former Non-Executive Directors
Launa Inman (6)(9)
30 Jun 18
30 Jun 17
Harrison Young (6)(9)
30 Jun 18
30 Jun 17
Short-term
benefits
Post-employment
benefits
Share-based
payments
Cash (1)
$
Superannuation (2)
$
Non-Executive
Directors’ Share
Plan (3)
$
Total statutory
remuneration
$
732,290
552,098
332,013
340,292
246,570
331,286
259,777
331,848
223,073
285,197
225,448
231,084
225,434
252,661
20,049
19,616
15,037
10,405
20,049
19,616
20,049
19,616
19,650
19,616
20,049
19,239
19,554
19,616
–
–
–
–
–
–
–
–
–
–
30,793
30,806
–
–
752,339
571,714
347,050
350,697
266,619
350,902
279,826
351,464
242,723
304,813
276,290
281,129
244,988
272,277
66,861
6,516
8,349
81,726
185,476
16,567
26,172
228,215
46,542
256,128
49,988
310,520
5,066
19,616
6,064
19,616
5,917
28,980
–
–
57,525
304,724
56,052
330,136
(1) Cash includes Board and committee fees received as cash, as well as the provision of additional benefits (including associated fringe benefits tax).
(2) Superannuation contributions are capped at the superannuation maximum contributions base as described under the Superannuation Guarantee legislation.
(3) The values shown in the tables represent the post-tax portion of fees received as shares under the Non-Executive Directors’ Share Plan.
(4) Catherine Livingstone AO was appointed as Chairman from 1 January 2017. Prior year comparison reflects remuneration in both the Non-Executive Director and
Chairman role.
(5) For Shirish Apte, 2018 financial year cash fees includes payments in relation to tax advice and health benefits and minor adjustments in relation to prior years.
(6) Shirish Apte, David Higgins, Launa Inman and Harrison Young’s 2017 financial year cash has been restated to include the provision of additional benefits
(including associated fringe benefits tax).
(7) Anne Templeman-Jones was appointed as a Non-Executive Director effective 5 March 2018 and her remuneration reflects time in the role.
(8) Robert Whitfield was appointed as a Non-Executive Director effective 4 September 2017 and his remuneration reflects time in the role.
(9) Launa Inman and Harrison Young retired from their Non-Executive Director roles effective 16 November 2017 and their remuneration reflects time in the role.
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Remuneration reportDirectors’ reportPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report 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 Jul 17
Acquired (1)
Net change
other (2)
Balance
30 Jun 18
Chairman
Catherine Livingstone AO
Ordinary
5,337
Current Non-Executive Directors
Shirish Apte
David Higgins
Brian Long
Andrew Mohl
Mary Padbury
Wendy Stops
Anne Templeman-Jones
Robert Whitfield
Former Non-Executive Directors
Launa Inman(3)
Harrison Young (3)
Ordinary
Ordinary
PERLS (4)
Ordinary
PERLS (4)
Ordinary
Ordinary
PERLS (4)
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
7,500
10,878
2,620
14,797
6,850
82,234
294
1,600
16,000
n/a
n/a
4,653
30,000
–
–
–
–
159
–
–
540
–
–
358
309
251
–
–
–
–
(2,470)
–
–
–
–
–
–
–
–
–
–
5,337
7,500
10,878
150
14,956
6,850
82,234
834
1,600
16,000
358
309
n/a
n/a
(1) Incorporates shares and other securities acquired during the year. Non-Executive Directors who hold fewer than 5,000 CBA 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 the 2018 financial year, under the Non-Executive Directors’ Share Plan, Mary Padbury received 478 shares, Anne Templeman-Jones
received 57 shares, Robert Whitfield received 282 shares and Launa Inman received 171 shares. Mary Padbury and Robert Whitfield also voluntarily sacrificed a
portion of their fees to purchase 62 shares and 27 shares respectively in the 2018 financial year. Launa Inman also received 80 shares in relation to the dividend
reinvestment plan.
(2) Net change other incorporates changes resulting from sales of securities.
(3) Launa Inman and Harrison Young retired from the Group on 16 November 2017 and their shareholding balance as at 30 June 2018 is not included.
(4) Includes cumulative holdings of all PERLS securities issued by the Group.
7. 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
including the term of the loan, security required and the interest rate (which may be fixed or variable). No loans were written down
during the period.
Total loans to KMP
Opening balance
Closing balance (1)
Interest charged
(1) The aggregate loan amount at the end of the reporting period includes loans issued to 20 KMP.
30 Jun 18
$
12,145,179
12,914,040
475,873
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Commonwealth Bank of AustraliaAnnual Report 2018Remuneration reportDirectors’ report Loans to KMP exceeding $100,000 in aggregate during the 2018 financial year
Balance
1 Jul 17
$
Interest
charged
$
Interest not
charged
$
Write-off
$
Kelly Bayer Rosmarin (2)
1,643,424
David Cohen
Matt Comyn
Alan Docherty(2)
Melanie Laing
Paul Newham (2)
Mary Padbury
Vittoria Shortt(2)
Angus Sullivan (2)
Michael Venter(2)
David Whiteing (2)
Total
487,134
2,360,099
n/a
929,178
n/a
676,992
3,417,879
n/a
n/a
2,502,057
12,016,763
37,024
20,719
30,743
6,691
11,818
76,545
1,539
14,002
60,788
21,933
192,867
474,669
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance
30 Jun 18
$
Highest balance
in period (1)
$
n/a
1,675,615
451,026
511,046
–
2,736,395
1,580,232
1,601,458
20,198
962,226
4,008,128
4,074,273
256
n/a
700,985
3,675,571
5,639,759
5,691,182
1,185,250
1,223,176
n/a
9,721,269
12,884,849
32,573,196
(1) Represents the sum of highest balances outstanding at any point during the 2018 financial year for each individual loan held by the KMP.
(2) The values disclosed relate to their period as KMP.
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.
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
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 was also employed by the Group, and was remunerated in a manner consistent with
normal employee arrangements.
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Remuneration reportDirectors’ reportPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Remuneration
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 12.4 to the Financial Statements are as follows:
Taxation services
Risk management, compliance and controls related work
Other
Total non-audit services (1)
Total audit and related services
2018
$’000
2,265
8,234
2,787
13,286
33,780
(1) An additional amount of $3,757,145 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 Strategic report (pages 2 to 60) including the Chairman and CEO statement, Performance overview
(pages 61 to 80), Corporate governance (pages 81 to 90) and Shareholding information (pages 277 to 282) sections of this
Annual Report.
Catherine Livingstone AO
Chairman
7 August 2018
Matt Comyn
Managing Director and Chief Executive Officer
7 August 2018
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Commonwealth Bank of AustraliaAnnual Report 2018Directors’ report Auditor’s Independence
Declaration
As lead auditor for the audit of Commonwealth Bank of Australia for the year ended 30 June 2018, 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.
Matthew Lunn
Partner
PricewaterhouseCoopers
Sydney
7 August 2018
PricewaterhouseCoopers, ABN 52 780 433 757
One International Towers Sydney, Watermans Quay, Barangaroo NSW 2000, GPO Box 2650 Sydney NSW 2001
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Level 11, 1PSQ, 169 Macquarie Street, Parramatta NSW 2150, PO Box 1155 Parramatta NSW 2124
T: +61 2 9659 2476, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
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report
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Commonwealth Bank of Australia
Annual Report 2018
Financial
report
Contents
Financial statements
Income Statements
Statements of Comprehensive Income
Balance Sheets
Statements of Changes in Equity
Statements of Cash Flows
125
126
127
128
130
Notes to the financial statements
1. Overview
1.1
General Information, Basis of Accounting,
Future Accounting Developments
2. Our Performance
2.1 Net Interest Income
2.2 Average Balances and Related Interest
2.3 Other Operating Income
2.4 Operating Expenses
2.5
Income Tax Expense
2.6 Earnings Per Share
2.7 Financial Reporting by Segments
3. Our Lending Activities
3.1
Loans, Bills Discounted and Other
Receivables
3.2 Provisions for Impairment
4. Our Deposits and Funding Activities
4.1 Deposits and Other Public Borrowings
4.2
Liabilities at Fair Value through Income
Statement
4.3 Debt Issues
4.4
Securitisation, Covered Bonds and
Transferred Assets
5. Investing, Trading and Other Banking Activities
5.1 Cash and Liquid Assets
5.2
5.3
Receivables Due from Other Financial
Institutions
Assets at Fair Value through Income
Statement
5.4
Derivative Financial Instruments
5.5
Available-for-Sale Investments
132
134
135
139
141
143
147
148
152
156
160
161
162
164
166
166
167
168
174
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Financial
report
Contents
11. Group Structure
11.1 Investments in Subsidiaries and Other Entities
11.2 Related Party Disclosures
11.3 Discontinued Operations and Operations
under Strategic Review
11.4 Acquisition of Controlled Entities
12. Other Information
12.1 Contingent Liabilities, Contingent Assets
and Commitments arising from the
banking business
12.2 Lease Commitments
12.3 Notes to the Statements of Cash Flows
12.4 Remuneration of Auditors
12.5 New accounting standards adopted
on 1 July 2018
12.6 Subsequent Events
Directors’ Declaration
243
249
249
251
252
253
254
255
256
263
264
6. Other Assets
6.1 Property, Plant and Equipment
6.2
Intangible Assets
6.3 Other Assets
7. Other Liabilities
7.1 Other Provisions
7.2 Bills Payable and Other Liabilities
8. Our Capital, Equity and Reserves
8.1 Capital Adequacy
8.2 Loan Capital
8.3 Shareholders’ Equity
8.4
Dividends
9. Risk Management
9.1 Risk Management
9.2 Credit Risk
9.3 Market Risk
9.4 Liquidity and Funding Risk
9.5 Disclosures about Fair Values
9.6 Collateral Arrangements
9.7
Offsetting Financial Assets and
Financial Liabilities
10. Employee Benefits
10.1 Share-Based Payments
10.2 Retirement Benefit Obligations
10.3 Key Management Personnel
175
178
180
181
185
186
187
189
193
195
200
219
221
225
231
232
236
238
241
Financial
report
Financial
Statements
Income Statements
For the year ended 30 June 2018
Interest income
Interest expense
Net interest income
Other banking income
Group (1)
Bank (2)
30 Jun 18
30 Jun 17
30 Jun 16
30 Jun 18
30 Jun 17
$M
$M
$M
$M
$M
34,543
33,301
33,819
33,418
33,534
(16,202)
(15,758)
(16,961)
(17,007)
(17,764)
Note
2.1
2.1
18,341
17,543
16,858
16,411
15,770
5,390
5,684
4,628
7,365
6,955
Net banking operating income
23,731
23,227
21,486
23,776
22,725
Net funds management operating income
2,099
1,928
1,916
Net insurance operating income
302
231
215
-
-
-
-
Total net operating income before impairment and
operating expenses
26,132
25,386
23,617
23,776
22,725
Loan impairment expense
Operating expenses
Net profit before tax
3.2
2.4
(1,079)
(1,095)
(1,256)
(963)
(1,040)
(11,633)
(10,626)
(9,996)
(10,510)
(9,560)
13,420
13,665
12,365
12,303
12,125
Corporate tax expense
2.5
(4,026)
(3,879)
(3,400)
(3,293)
(3,146)
Net profit after tax from continuing operations
9,394
9,786
8,965
9,010
8,979
Non-controlling interests in continuing operations
(19)
(20)
(20)
-
Net profit attributable to equity holders of the Bank
from continuing operations
Net (loss)/profit after tax from discontinued operations
Non-controlling interests in discontinued operations
9,375
9,766
8,945
9,010
8,979
(46)
-
166
(4)
278
(135)
-
-
-
-
-
Net profit attributable to equity holders of the Bank
9,329
9,928
9,223
8,875
8,979
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 from continuing operations:
Earnings per share:
Basic
Diluted
Basic
Diluted
plan.
(1)
Information has been restated and presented on a continuing operations basis. Discontinued operations include the Group’s life insurance businesses in Australia
and New Zealand, its 37.5% equity interest in BoComm Life and TymeDigital. For details on the Group’s discontinued operations refer to note 11.3.
(2) Comparative information has been restated to conform to presentation in the current year.
(3) Basic and diluted earnings per share for all periods presented have been adjusted retrospectively to incorporate the discount element of the dividend reinvestment
30 Jun 18
30 Jun 17
Cents per share
Group (3)
30 Jun 16
536. 9
520. 2
534. 3
517. 7
567. 9
549. 9
525. 6
513. 3
577. 3
558. 8
542. 0
529. 0
124
125
Commonwealth Bank of AustraliaAnnual Report 2018
Financial
report
Financial
statements
Financial
Statements
Income Statements
For the year ended 30 June 2018
Interest income
Interest expense
Net interest income
Other banking income
30 Jun 18
$M
30 Jun 17
$M
Group (1)
30 Jun 16
$M
30 Jun 18
$M
Bank (2)
30 Jun 17
$M
34,543
33,301
33,819
33,418
33,534
(16,202)
(15,758)
(16,961)
(17,007)
(17,764)
Note
2.1
2.1
18,341
17,543
16,858
16,411
15,770
5,390
5,684
4,628
7,365
6,955
Net banking operating income
23,731
23,227
21,486
23,776
22,725
Net funds management operating income
2,099
1,928
1,916
Net insurance operating income
302
231
215
-
-
-
-
Total net operating income before impairment and
operating expenses
26,132
25,386
23,617
23,776
22,725
Loan impairment expense
Operating expenses
Net profit before tax
3.2
2.4
(1,079)
(1,095)
(1,256)
(963)
(1,040)
(11,633)
(10,626)
(9,996)
(10,510)
(9,560)
13,420
13,665
12,365
12,303
12,125
Corporate tax expense
2.5
(4,026)
(3,879)
(3,400)
(3,293)
(3,146)
Net profit after tax from continuing operations
9,394
9,786
8,965
9,010
8,979
Non-controlling interests in continuing operations
(19)
(20)
(20)
-
-
Net profit attributable to equity holders of the Bank
from continuing operations
Net (loss)/profit after tax from discontinued operations
Non-controlling interests in discontinued operations
9,375
9,766
8,945
9,010
8,979
(46)
-
166
(4)
278
(135)
-
-
-
-
Net profit attributable to equity holders of the Bank
9,329
9,928
9,223
8,875
8,979
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 from continuing operations:
Basic
Diluted
Earnings per share:
Basic
Diluted
30 Jun 18
30 Jun 17
Cents per share
Group (3)
30 Jun 16
536. 9
520. 2
534. 3
517. 7
567. 9
549. 9
525. 6
513. 3
577. 3
558. 8
542. 0
529. 0
(1)
Information has been restated and presented on a continuing operations basis. Discontinued operations include the Group’s life insurance businesses in Australia
and New Zealand, its 37.5% equity interest in BoComm Life and TymeDigital. For details on the Group’s discontinued operations refer to note 11.3.
(2) Comparative information has been restated to conform to presentation in the current year.
(3) Basic and diluted earnings per share for all periods presented have been adjusted retrospectively to incorporate the discount element of the dividend reinvestment
plan.
125
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Financial reportPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report
Financial
report
Financial
statements
Financial
Statements
Statements of Comprehensive Income
For the year ended 30 June 2018
Net profit after income tax for the period from continuing
operations
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
30 Jun 18
$M
30 Jun 17
$M
Group (1)
30 Jun 16
$M
30 Jun 18
$M
Bank
30 Jun 17
$M
9,394
9,786
8,965
9,010
8,979
5
(256)
(53)
(577)
339
210
53
4
(11)
(666)
(77)
(52)
(316)
(34)
35
Total of items that may be reclassified
(125)
(885)
233
23
(642)
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
161
175
(2)
31
190
(3)
23
195
10
(1)
1
10
159
175
(2)
29
186
(3)
19
191
Other comprehensive income/(expense) net of income tax
65
(690)
243
209
(451)
Total comprehensive income for the period from
continuing operations
Net profit after income tax for the period from discontinued
operations
Other comprehensive income/(expense) for the period from
discontinued operations net of income tax
9,459
9,096
9,208
9,219
8,528
(46)
(14)
166
278
(135)
(29)
44
-
-
-
Total comprehensive income for the period
9,399
9,233
9,530
9,084
8,528
Total comprehensive income for the period is
attributable to:
Equity holders of the Bank
Non-controlling interests
9,380
9,209
9,510
9,084
8,528
19
24
20
-
-
Total comprehensive income net of income tax
9,399
9,233
9,530
9,084
8,528
(1)
Information has been restated and presented on a continuing operations basis.
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
Note
8.4
30 Jun 18
30 Jun 17
Cents per share
Group
30 Jun 16
431
-
429
-
420
7,994
126
126
Commonwealth Bank of Australia
Annual Report 2018
Commonwealth Bank of AustraliaAnnual Report 2018Financial report
Financial
statements
Financial
Statements
Financial
report
Balance Sheets
As at 30 June 2018
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 (2)
Other assets
Assets held for sale
Total assets
Liabilities
Deposits and other public borrowings
Payables due to other financial institutions
Liabilities at fair value through Income Statement
Derivative liabilities
Bank acceptances
Due to controlled entities
Current tax liabilities
Deferred tax liabilities
Other provisions
Insurance policy liabilities
Debt issues
Managed funds units on issue
Bills payable and other liabilities
Liabilities held for sale
Loan capital
Total liabilities
Net assets
Shareholders' Equity
Ordinary share capital
Reserves
Retained profits (2)
Shareholders' Equity attributable to Equity holders of the
Bank
Non-controlling interests
Total Shareholders' Equity
30 Jun 18
Group (1)
30 Jun 17
30 Jun 18
30 Jun 17
Bank
$M
36,417
9,222
$M
45,850
10,037
$M
33,581
8,376
$M
42,814
8,678
32,254
372
258
32,133
82,240
743,365
379
-
2,576
2,842
9,023
1,439
6,991
15,654
975,165
622,234
20,899
10,247
28,472
379
-
952
-
1,889
451
172,294
-
11,596
14,900
884,313
22,992
907,305
67,860
32,704
13,669
1,111
31,724
83,535
731,762
463
-
3,873
2,778
10,024
906
7,882
-
976,318
626,655
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
63,660
29,993
-
-
30,885
77,731
656,650
379
118,252
1,460
1,118
4,399
1,430
6,279
19
970,552
566,200
20,014
9,106
30,871
379
105,327
796
-
1,590
-
139,984
-
10,116
-
884,383
22,249
906,632
63,920
31,127
-
796
32,094
79,019
647,503
463
101,337
1,494
1,241
4,449
1,324
6,457
-
958,796
571,353
28,038
8,989
32,173
463
91,222
1,278
-
1,372
-
134,966
-
10,909
-
880,763
17,959
898,722
60,074
37,270
1,676
28,360
34,971
1,869
26,274
37,533
2,568
23,819
35,262
2,556
22,256
67,306
63,114
63,920
60,074
554
67,860
546
63,660
-
63,920
-
60,074
Note
5.1
5.2
5.3
5.3
5.3
5.4
5.5
3.1
11.2
6.1
11.1
6.2
2.5
6.3
11.3
4.1
4.2
5.4
2.5
7.1
4.3
7.2
11.3
8.2
8.3
8.3
8.3
11.1
(1) Current period balances have been impacted by the announced sale of the Group’s life Insurance businesses in Australia and New Zealand, the investment in
BoComm Life and TymeDigital.
(2) Comparatives have been restated following a change in accounting policy to recognise deferred tax on brand names acquired by the Group. Further details on the
change are provided in Note 1.1.
The above Balance Sheets should be read in conjunction with the accompanying notes.
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Financial
report
Financial
statements
Financial
Statements
Statements of Changes in Equity
For the year ended 30 June 2018
Ordinary
share
capital Reserves
$M
$M
Retained
profits
$M
Non-
Group
Total
controlling Shareholders'
Equity
$M
interests
$M
Total
$M
As at 30 June 2016
Change in accounting policy (1)
33,845
2,734
23,435
60,014
-
-
(56)
(56)
Restated opening balance
33,845
2,734
23,379
59,958
550
-
550
60,564
(56)
60,508
9,766
9,766
20
9,786
Net profit after income tax from continuing
operations
Net profit after income tax from discontinued
operations
Net other comprehensive income from
continuing operations
Net other comprehensive income from
discontinued operations
Total comprehensive income for the period
Transactions with Equity holders in their capacity
as Equity holders: (2)
Dividends paid on ordinary shares
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
Other changes
As at 30 June 2017
Net profit after income tax from continuing
operations
Net profit after income tax from discontinued
operations
Net other comprehensive income from
continuing operations
Net other comprehensive income from
discontinued operations
Total comprehensive income for the period
Transactions with Equity holders in their
capacity as Equity holders: (2)
Dividends paid on ordinary shares
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
Other changes
As at 30 June 2018
-
-
-
-
-
-
1,143
(6)
-
(92)
81
-
-
-
-
-
-
2,105
164
-
(95)
125
-
-
162
162
(862)
172
(690)
(29)
(891)
-
10,100
(29)
9,209
-
-
-
32
-
-
(7,237)
(7,237)
-
-
-
-
-
1,143
(6)
32
(92)
81
-
-
(94)
(14)
9,375
9,375
(46)
(46)
159
65
-
(14)
4
-
-
24
-
-
-
-
-
-
(28)
546
19
-
-
-
166
(690)
(29)
9,233
(7,237)
1,143
(6)
32
(92)
81
(2)
63,660
9,394
(46)
65
(14)
-
34,971
(6)
1,869
32
26,274
26
63,114
(108)
9,488
9,380
19
9,399
-
-
-
(19)
-
-
(7,484)
(7,484)
-
-
-
-
-
2,105
164
(19)
(95)
125
-
-
-
-
-
-
(7,484)
2,105
164
(19)
(95)
125
-
37,270
(66)
1,676
82
28,360
16
67,306
(11)
554
5
67,860
(1) Comparatives have been restated following a change in accounting policy to recognise deferred tax on brand names acquired by the Group. Further details on
the change are provided in Note 1.1.
(2) Current period and prior periods include discontinued operations.
The above Statements of Changes in Equity should be read in conjunction with the accompanying notes.
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Commonwealth Bank of Australia
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Commonwealth Bank of AustraliaAnnual Report 2018Financial report
Financial
report
Financial
statements
Financial
Statements
Statements of Changes in Equity (continued)
For the year ended 30 June 2018
Ordinary
share
capital
$M
Other
equity
instruments Reserves
$M
$M
Bank
Total
Retained Shareholders'
Equity
$M
profits
$M
34,125
406
3,115
20,430
58,076
-
-
-
(56)
34,125
406
3,115
20,374
As at 30 June 2016
Change in accounting policy (1)
Restated opening balance
Net profit after income tax from continuing operations
Net other comprehensive income from continuing
operations
Total comprehensive income for the period
Transactions with Equity holders in their capacity
as Equity holders:
Dividends paid on ordinary shares
-
-
-
-
Dividend reinvestment plan (net of issue costs)
1,143
Issue of shares (net of issue costs)
Share-based payments
Redemptions
Other changes
As at 30 June 2017
Net profit after income tax from continuing operations
Net profit after income tax from
discontinued operations
Net other comprehensive income from continuing
operations
Total comprehensive income for the
period
Transactions with Equity holders in their capacity
as Equity holders: (1)
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 2018
(6)
-
-
-
35,262
-
-
-
-
-
2,107
164
-
-
-
37,533
-
-
-
-
-
-
-
(406)
-
-
-
-
-
-
-
-
-
-
-
-
-
(7,237)
(7,237)
-
8,979
(623)
172
(623)
9,151
-
-
-
32
-
-
-
-
-
32
2,556
-
-
(32)
22,256
9,010
(135)
52
157
(56)
58,020
8,979
(451)
8,528
1,143
(6)
32
(406)
-
60,074
9,010
(135)
209
52
9,032
9,084
-
-
-
(25)
-
(7,484)
-
-
-
-
(15)
2,568
15
23,819
(7,484)
2,107
164
(25)
-
-
63,920
(1) Comparatives have been restated following a change in accounting policy to recognise deferred tax on brand names acquired by the Group. Further details on the
change are provided in Note 1.1.
The above Statements of Changes in Equity should be read in conjunction with the accompanying notes.
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report
Financial
statements
Financial
Statements
Statements of Cash Flows (1) (2)
For the year ended 30 June 2018
Cash flows from operating activities
Interest received
Interest paid
Note
30 Jun 18
$M
30 Jun 17
$M
Group
30 Jun 16
$M
30 Jun 18
$M
Bank
30 Jun 17
$M
35,801
33,536
34,047
34,679
33,807
(15,356)
(15,006)
(16,285)
(16,100)
(17,057)
Other operating income received
6,181
5,556
5,688
4,217
3,959
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:
(10,340)
(4,791)
(9,763)
(3,976)
(9,981)
(3,071)
(8,739)
(3,892)
(8,152)
(3,163)
5,270
4,220
(2,642)
7,185
2,742
Insurance:
Investment income
Premiums received (3)
Policy payments and commission expense (3)
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 in receivables due from other financial institutions
and regulatory authorities
Net decrease/(increase) 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 in other assets
Net (decrease)/increase in deposits and other public
borrowings
Net (decrease)/increase in payables due to other financial
institutions
Net (decrease)/increase in securities sold under agreements to
repurchase
Net (decrease)/increase in other liabilities
Changes in operating assets and liabilities
arising from cash flow movements
Net cash provided by/(used in) operating
activities
225
3,241
186
(362)
3,366
3,114
(3,453)
(3,854)
(3,301)
-
-
-
-
-
-
(208)
156
1,872
12
1,588
16,570
14,421
9,079
17,362
13,724
(51,783)
(54,608)
(50,233)
(50,501)
(53,883)
52,832
49,392
46,150
51,673
48,750
(16,105)
(38,744)
(52,825)
(10,420)
(31,708)
884
1,100
803
583
1,121
9,258
(13,993)
4,574
9,723
(13,381)
(1,594)
(1,789)
(2,020)
2,671
3,152
4,276
-
-
-
-
(11)
(174)
(108)
(35)
(152)
(876)
39,821
37,783
(4,984)
36,379
(8,279)
666
(6,323)
(8,451)
718
(1,574)
(853)
4,148
(1,695)
(804)
(884)
802
135
(1,664)
(1,947)
(15,461)
(15,228)
(13,640)
(15,771)
(14,907)
12.3 (a)
1,109
(807)
(4,561)
1,591
(1,183)
It should be noted that the Group does not use these accounting Statements of Cash Flows in the internal management of its liquidity positions.
Includes discontinued operations.
(1)
(2)
(3) Represents gross premiums and policy payments before splitting between policyholders and shareholders.
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Commonwealth Bank of Australia
Annual Report 2018
Commonwealth Bank of AustraliaAnnual Report 2018Financial report
Financial
statements
Financial
report
Statements of Cash Flows (1) (2) (continued)
For the year ended 30 June 2018
Financial
Statements
30 Jun 18
$M
30 Jun 17
$M
30 Jun 16 30 Jun 18
$M
$M
Note
Group
Bank
30 Jun 17
$M
Cash flows from investing activities
Cash inflows/(outflows) from acquisitions
11.4
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
Purchases of property, plant and equipment
Payments for acquisitions of investments in associates/joint
ventures
Net purchase of intangible assets
26
-
68
-
155
(477)
(271)
(503)
Net cash (used in)/provided by investing activities
(1,002)
Cash flows from financing activities
(31)
(857)
1
94
-
381
110
78
-
405
(602)
(1,259)
-
-
2,085
(2,993)
42
(321)
-
-
-
1,200
5,500
50
(320)
(15)
(409)
(25)
(495)
(677)
-
(509)
(405)
(2,032)
(1,592)
6,006
Dividends paid (excluding Dividend Reinvestment Plan)
(5,366)
(6,084)
(5,827)
(5,364)
(6,084)
Redemption of other equity instruments (net of costs)
-
-
(939)
-
(406)
Proceeds from issuance of debt securities
68,273
94,560
98,958
57,708
77,938
Redemption of issued debt securities
(67,809)
(81,758)
(97,740)
(56,692)
(71,345)
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 (used in)/provided by financing activities
Net (decrease)/increase in cash and cash equivalents
Effect of foreign exchange rates on cash and cash equivalents
(95)
55
4,445
(464)
-
27
(934)
(827)
715
(92)
34
(108)
50
-
-
-
-
3,757
3,949
4,436
3,379
-
(6)
61
(1,678)
5,022
(67)
10,472
1,620
8,988
(4,973)
(318)
150
(467)
-
36
(343)
(344)
746
3
(6)
30
3,509
8,332
(292)
Cash and cash equivalents at beginning of year
23,117
14,447
19,270
20,949
12,909
Cash and cash equivalents at end of year
12.3 (b)
23,005
23,117
14,447
21,351
20,949
(1) It should be noted that the Group does not use these accounting Statements of Cash Flows in the internal management of its liquidity positions.
(2) Includes discontinued operations.
(3) Amounts received from and paid to controlled entities are presented in line with how they are managed and settled.
The above Statements of Cash Flows should be read in conjunction with the accompanying notes.
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report
Notes to the
financial statements
Overview
1.1 General Information, Basis of Accounting, Future Accounting Developments
General Information
The Financial Report of the Commonwealth Bank of Australia (the
Bank) and the Bank and its subsidiaries (the Group) for the year
ended 30 June 2018, were approved and authorised for issue by
the Board of Directors on 7 August 2018. The Directors have the
power to amend and reissue the Financial Statements.
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 Financial Report includes the consolidated and standalone
financial statements of the Group and the Bank respectively.
Notes accompanying
the
Independent Auditor’s Report also form part of the Financial
Report.
the Financial Statements and
During the 2018 financial year, the Group announced the sale of
100% of its life insurance businesses in Australia (CommInsure
Life) and New Zealand (Sovereign) to AIA Group Limited (AIA) for
$3.8 billion.
The sale agreement includes a 20-year partnership with AIA for
the provision of life insurance products to customers in Australia
and New Zealand. The sale of Sovereign completed on 2 July
2018, resulting in a total post-tax gain of $102 million (inclusive of
separation costs and subject to final tax calculations and purchase
price adjustments). This has also been reported as a subsequent
event.
The sale of CommInsure Life remains subject to certain conditions
and regulatory approvals, and is expected to be completed later in
calendar year 2018.
On 23 May 2018 CBA announced the sale of its 37.5% equity
interest in BoComm Life Insurance Company Limited (BoComm
Life) to Mitsui Sumitomo Insurance Co. Ltd (MSI). Completion of
the sale is subject to regulatory approvals in China, and is a
condition precedent to completion of the CommInsure Life sale.
The CBA Board has approved the sale of Commonwealth Bank of
South Africa (Holding Company) Limited (“TymeDigital”) to the
minority shareholder, African Rainbow Capital. The sale is subject
to regulatory approval and potential sale price adjustments. As a
result, the financial effect of the sale currently cannot be reliably
estimated, however, it is not expected to have a material impact
on the Group’s results.
Each of these businesses have been treated as discontinued
operations for the 2018 financial year.
Discontinued operations are excluded from the results of the
continuing operations and are presented as a single line item “net
profit after tax from discontinued operations” in the Income
Statements.
Assets and Liabilities of discontinued operations subject to
disposal have been presented separately as held for sale on the
Balance Sheet as at 30 June 2018.
On 25 June 2018 CBA announced its intention to demerge its
wealth management and mortgage broking businesses
(“NewCo”), and undertake a strategic review of its general
insurance business, including a potential sale. Due to the
132
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Commonwealth Bank of Australia
Annual Report 2018
uncertainty of completion of the demerger (potentially greater than
12 months), NewCo is included in continuing operations.
There have been no other significant changes in the nature of the
principal activities of the Group during the year-end.
The Financial Statements have five primary statements for the
Group and the Bank, being:
1.
Income Statement;
2. Statement of Comprehensive Income;
3. Balance Sheet;
4. Statement of Changes in Equity; and
5. Statement of Cash Flows.
Associated notes as required by Australian Accounting Standards
(the standards) are in the proceeding sections of the Financial
Statements.
Disclosures have been grouped into the following categories in
order to assist users in their understanding of the Financial
Statements:
1. Overview – contains the principal accounting policies, the
basis of accounting, and future accounting developments.
2. Our Performance – includes information on how we generate
returns, as well as providing information on our operating
segments which is consistent with how information is
presented internally to key decision makers.
3. Our Lending Activities – provides information on our primary
business activity.
4. Our Investing, Trading and Other Banking Activities –
provides information on assets and activities that cover
investing, trading and balance sheet management.
5. Our Deposits and Funding Activities – includes information
on the diversified funding sources which support our key
activities.
6. Other assets – includes information on assets such as,
intangible assets and property, plant and equipment.
7. Other liabilities – includes disclosures on the nature of other
provisions, accruals and payables.
8. Our Capital, Equity and Reserves – provides information on
our capital position.
9. Risk Management – provides commentary on the exposure
to different risks through participation in the banking and
financial services industries, how we manage these risks and
the potential impact on our results and balance sheets.
10. Employee Benefits – information on cash and equity settled
retirement benefit obligations and key
share plans,
management personnel.
11. Group Structure – provides a summary of the Group’s
to
controlled entities and
transactions which impact the structure of the Group.
includes disclosures relating
12. Other – includes disclosures on commitments, contingencies,
subsequent events, the impact of new accounting standards
and auditors remuneration.
Where applicable for each note, disclosures are further organised
by:
i. Disclosures on balances as required by the Standards and the
Corporations Act 2001;
ii. The Accounting Policy for the transactions and balances,
which provides information to assist in the understanding of
how the numbers are measured, recognised and disclosed;
and
iii. Any critical accounting judgements and estimates applied by
the Group in determining the numbers.
Commonwealth Bank of AustraliaAnnual Report 2018Financial reportNotes to the financial statements
Financial
report
Notes to the
financial statements
Overview (continued)
1.1 General Information, Basis of Accounting, Future Accounting Developments
(continued)
Basis of Accounting
The Financial Report:
Deferred tax on indefinite useful life Brand Names
Change in Accounting Policies
interpretations adopted by
is a general purpose financial report;
has been prepared in accordance with the Standards, the
Australian Accounting
the
Australian Accounting Standards Board (AASB) and
International Financial Reporting Standard (IFRSs) as
issued by the International Accounting Standards Board;
has been prepared in accordance with the requirements of
the Corporations Act 2001;
is presented in Australian dollars, which is the Bank’s
functional and presentation currency, with all values
rounded to the nearest million dollars ($m) in accordance
with ASIC Corporations Instrument 2016/1991 unless
otherwise indicated;
includes foreign currency transactions that are translated
into the functional currency, using the exchange rates
prevailing at the date of each transaction;
has been prepared on a going concern basis using a
historical cost basis, except for certain assets and liabilities
(including derivative instruments) measured at fair value;
presents assets and liabilities on the face of the Balance
Sheets in decreasing order of liquidity;
where required, presents restated comparative information
for consistency with the current year’s presentation in the
Financial Report;
contains accounting policies that have been consistently
applied to all periods presented, unless otherwise stated.
Change in Comparatives
Discontinued Operations
Discontinued operations are excluded from the results of the
continuing operations and are presented as a single line item “net
profit after tax from discontinued operations” in the Consolidated
Income Statement for the current and prior periods.
Assets and Liabilities of discontinued operations subject to
disposal have been presented separately as held for sale on the
Balance Sheet as at 30 June 2018.
Re- segmentation
During the year, refinements have been made to the allocation of
customer balances and associated revenue and expenses
between business segments as detailed in Note 2.7.
Reclassification of IT expenses by nature
to more accurately reflect
During the year, staff expenses and IT expense have been
restated
the nature of each
underlying line item. The $142 million impact resulted in a
decrease in salaries and related costs and an increase in
Application maintenance and development expenses
for
June 2017 and $154 million for June 2016.
Other
No amendments to Australian Accounting Standards have been
adopted during the period that have a material impact on the
Group.
Previously, the Bank did not recognise deferred tax on the
Bankwest brand acquired through a business combination in 2008
(carrying value $186 million at 30 June 2017) due to the brand
having an indefinite useful life and its carrying value was expected
to be realised through sale.
In November 2016 the IFRS Interpretations Committee (“IFRIC”)
published an agenda decision concluding that an entity cannot
assume that the carrying value of an intangible asset with an
indefinite useful life will be recovered through sale.
As a result, the expected manner of recovery in relation to the
Bankwest brand has changed to being realised through use given
that there is no planned, expected or potential sale of Bankwest in
the near future.
Therefore, we have retrospectively changed the accounting policy
for the accounting of deferred tax on the Bankwest brand. The
impact of the change resulted in a decrease in opening retained
earnings of $56 million with a corresponding increase in deferred
tax liabilities. Deferred tax liabilities have been offset against
deferred tax assets. There was no impact on profit.
Where necessary, comparative information has been restated to
conform to presentation in the current period. All changes have
been footnoted throughout the financial statements.
Future Accounting Developments
Refer to Note 12.5 for information on the adoption of AASB 9
‘Financial Instruments’ and AASB 15 ‘Revenue from Contracts
with Customers’ adopted from 1 July 2018.
Other Accounting Developments
AASB 16 'Leases' amends the accounting for leases and will
replace AASB 117 'Leases'. Lessees will be required to bring both
operating and finance leases on Balance Sheet as a right of use
asset along with the associated lease liability. Interest expense will
be recognised in profit or loss using the effective interest rate
method, and the right of use asset will be depreciated. Lessor
accounting remains largely unchanged. AASB 16 is not mandatory
until 1 July 2019.
The potential financial impacts of the above have not yet been
determined.
Other amendments to existing standards that are not yet effective
are not expected to result in significant changes to accounting
policies.
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2) Our Performance
Overview
The Group earns its returns from providing a broad range of banking and insurance products and services to retail and wholesale
customers in Australia, New Zealand and other jurisdictions.
Lending and deposit taking are the Group’s primary business activities with net interest income being the main contributor to the
Group’s results. Net interest income is derived as the difference between interest earned on lending and investment assets and
interest incurred on customer deposits and wholesale debt raised to fund these assets.
The Group further generates income from lending fees and commissions, funds management services, insurance products and
trading activities. It also incurs costs associated with running the business such as staff, occupancy, technology and related
expenses.
The Performance section provides details of the main contributors to the Group’s returns and analysis of its financial performance
by business segments, geographical regions and on an earnings per share basis.
2.1 Net Interest Income
Interest Income
Loans and bills discounted
Other financial institutions
Cash and liquid assets
Assets at fair value through Income Statement
30 Jun 18
$M
30 Jun 17
$M
Group (1)
30 Jun 16
$M
30 Jun 18
$M
Bank
30 Jun 17
$M
31,714
30,734
30,969
28,283
27,214
140
459
501
149
321
490
136
291
576
121
427
465
133
291
467
Available-for-sale investments
1,729
1,607
1,847
1,639
1,510
Controlled entities
Total interest income
Interest Expense
Deposits
Other financial institutions
Liabilities at fair value through Income Statement
Debt issues
Loan capital
Bank levy
Controlled entities
Total interest expense
Net interest income
-
-
-
2,483
3,919
34,543
33,301
33,819
33,418
33,534
10,243
10,518
11,764
8,802
9,039
418
167
300
102
277
211
379
142
274
58
4,169
4,159
4,125
3,286
3,326
836
369
-
679
584
-
-
-
-
801
369
650
-
3,228
4,417
16,202
15,758
16,961
17,007
17,764
18,341
17,543
16,858
16,411
15,770
(1)
Information has been restated and presented on a continuing operations basis.
Interest recognised on financial instruments measures at amortised cost
Total interest income for financial assets that are not at fair value through profit or loss is $33,783 million (2017: $32,419 million,
2016: $32,657 million) for the Group and $32,694 million (2017: $32,675 million) for the Bank.
Total interest expense for financial liabilities that are not fair value through profit or loss is $16,035 million (2017: $15,656 million, 2016:
$16,750) for the Group and $16,865 million (2017: 17,706 million) for the Bank.
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Accounting Policies
Interest income and interest expense on financial assets and liabilities are measured using the effective interest rate method. The effective
interest rate method calculates the amortised cost of a financial instrument, such as a loan, deposit or issued debt instrument, and allocates
the interest income or interest expense over the expected life of the financial instrument.
Fees, transaction costs and issue costs integral to the financial assets and liabilities are capitalised and included in the interest recognised
over the expected life of the instrument.
Interest income on finance leases is recognised progressively over the life of the lease, consistent with the outstanding investment and
unearned income balance. Interest expense also includes payments made under a liquidity facility arrangement with the Reserve Bank of
Australia, the Major Bank Levy (Bank Levy) expense and other financing charges.
2.2 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).
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 and New Zealand, which is reflected in overseas, did not change during the financial year 2018 (2017: 25
basis points decrease for Australia, and 50 basis points decrease for New Zealand).
30 Jun 18
30 Jun 17
Average
Balance
$M
Interest
$M
Average Average
Rate Balance
$M
%
Interest
$M
Average Average
Rate Balance
$M
%
Interest
$M
Group
30 Jun 16
Average
Rate
%
Interest earning
assets (1)
Cash and liquid assets
Australia
Overseas
19,087
18,898
313
146
1. 6
0. 8
17,734
271
1. 5
11,536
19,626
47
0. 2
20,183
186
104
2,290
5,997
50
90
2. 2
1. 5
2,266
20
8,850
132
0. 9
1. 5
3,387
26
8,986
111
20,761
4,070
444
57
66,241
1,479
17,011
250
2. 1
1. 4
2. 2
1. 5
21,731
422
1. 9
19,354
500
3,895
68
1. 7
3,090
76
66,615
1,458
2. 2
66,543
1,662
13,870
149
1. 1
12,770
185
597,343
27,110
4. 5
581,093
26,266
4. 5
554,206
26,620
102,566
4,604
4. 5
99,061
4,468
4. 5
90,541
4,349
854,264
34,543
4. 0
834,741
33,301
4. 0
790,596
33,819
4. 3
1. 6
0. 5
0. 8
1. 2
2. 6
2. 5
2. 5
1. 4
4. 8
4. 8
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
Information has been restated and presented on a continuing operations basis.
(1)
(2) Loans, bills discounted and other receivables include bank acceptances.
(3) Net of average mortgage offset balances that are included in Non-interest earning assets. Gross Australian loan balance is $638,167 million (2017: $616,418 million,
2016: $581,067 million).
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2.2 Average Balances and Related Interest (continued)
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
Provisions for impairment
Australia
Overseas
Total non-interest earning assets
Assets held for sale (3)
Australia
Overseas
Total assets
30 Jun 18
Average
Balance
$M
30 Jun 17
Average
Balance
$M
Group
30 Jun 16
Average
Balance
$M
-
12,105
11,819
377
2,477
2,502
2,940
3,743
2,827
252
289
266
94,925
108,931
97,012
11,924
13,774
14,889
(3,203)
(3,303)
(3,272)
(466)
(424)
(375)
106,749
137,592
125,668
13,046
2,228
-
-
-
-
976,287
972,333
916,264
Percentage of total assets applicable to overseas operations (%)
16. 7
16. 6
16. 7
Includes average mortgage offset balances.
(1) Comparative information has been restated to conform to presentation in the current year.
(2)
(3) On 21 September 2017 CBA announced the sale of 100% of its life insurance businesses CommInsure Life and Sovereign to AIA Group Limited (AIA) and its 37.5%
equity stake in BoComm Life. For 30 June 2018, $79 million of Non-lending interest earning assets and $15,177 million of other assets have been reclassified to
Assets held for sale. Assets held for sale also includes $18 million of assets that reside outside the Group’s life insurance business as at 30 June 2018.
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2.2 Average Balances and Related Interest (continued)
137
Average
Balance
$M
Interest
$M
30 Jun 18
30 Jun 17
Average Average
Average Average
Rate Balance Interest
$M
$M
%
Rate Balance Interest
$M
$M
%
203,694
51,291
5,438
1,652
2. 7
3. 2
207,501
48,461
5,645
1,554
2. 7
3. 2
196,883
41,541
5,926
1,417
143,462
14,414
1,767
122
1. 2
0. 8
144,631
16,136
2,005
172
1. 4
1. 1
156,648
16,688
2,844
293
115,079
8,136
1,165
99
1. 0
1. 2
106,267
8,154
1,041
101
1. 0
1. 2
94,904
7,288
1,156
128
Group
30 Jun 16
Average
Rate
%
3. 0
3. 4
1. 8
1. 8
1. 2
1. 8
10,292
16,648
196
222
1. 9
1. 3
11,098
19,235
158
142
1. 4
0. 7
14,367
22,664
154
123
1. 1
0. 5
7,557
1,332
141
26
1. 9
2. 0
7,049
1,467
63
39
0. 9
2. 7
4,516
2,349
95
116
138,666
28,450
3,463
706
2. 5
2. 5
136,614
32,307
3,323
836
2. 4
2. 6
136,453
25,564
3,469
656
13,788
6,774
-
-
556
280
369
-
4. 0
4. 1
11,239
5,453
447
232
4. 0
4. 3
9,442
4,447
388
196
-
-
-
-
-
-
-
-
-
-
-
-
2. 1
4. 9
2. 5
2. 6
4. 1
4. 4
-
-
759,583
16,202
2. 1
755,612
15,758
2. 1
733,754
16,961
2. 3
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
Bank levy
Australia
Overseas
Total interest bearing
liabilities and interest
expense
Information has been restated and presented on a continuing operations basis.
(1)
(2) Net of average mortgage offset balances that are included in Non-interest bearing liabilities.
(3) Debt issues include bank acceptances.
Non-interest bearing liabilities
Deposits not bearing interest
Australia (1)
Overseas
Insurance policy liabilities
Australia
Overseas
Other liabilities
Australia
Overseas
Total non-interest bearing liabilities
Liabilities held for sale (2)
Australia
Overseas
Total liabilities
Shareholders' Equity (3)
Total liabilities and Shareholders' Equity
Total liabilities applicable to overseas operations (%)
30 Jun 18
Average
Balance
$M
30 Jun 17
Average
Balance
$M
83,949
4,193
-
466
37,250
10,255
136,113
13,413
1,308
910,417
65,870
976,287
15. 7
72,303
3,671
11,190
1,368
53,418
12,796
154,746
-
-
910,358
61,975
972,333
16. 4
Group
30 Jun 16
Average
Balance
$M
47,182
3,035
11,482
1,406
48,604
13,178
124,887
-
-
858,641
57,623
916,264
16. 1
Includes average mortgage offset balance.
(1)
(2) On 21 September 2018 CBA announced the sale of 100% of its life insurance businesses CommInsure Life and Sovereign to AIA Group Limited (AIA). For 30 June
2018, $867 million of Other demand deposits and $13,854 million of Other non-interest bearing liabilities have been reclassified to Liabilities held for sale.
(3) Comparative information has been restated to conform to presentation in the current year.
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2.2 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).
June 2018 vs June 2017
Volume
$M
Rate
$M
Total
$M
June 2017 vs June 2016
Volume
$M
Rate
$M
Total
$M
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
Bank levy
Australia
Overseas
Changes in interest expense
Changes in net interest income
21
(4)
-
(43)
(20)
3
(8)
40
736
158
784
21
103
30
1
42
(14)
29
61
108
(22)
458
(103)
91
(104)
7
(15)
(16)
(223)
(34)
88
-
(13)
(27)
7
(3)
51
(98)
102
55
-
-
84
415
36
(2)
51
107
71
(10)
89
(32)
7
(7)
369
-
360
383
85
(57)
(6)
21
(78)
(8)
(204)
(36)
(354)
119
(518)
(281)
137
(839)
(121)
(115)
(27)
4
19
(32)
(77)
42
99
30
(42)
22
(11)
21
101
97
(2)
(9)
(2)
54
17
2
14
(12)
(55)
3
23
(132)
(25)
(206)
(50)
844
136
1,242
1,253
397
1,825
(1,607)
(278)
(2,343)
(585)
(92)
(647)
(113)
(240)
(40)
45
41
(70)
(43)
(207)
98
(238)
(50)
124
(2)
38
80
78
(13)
140
(130)
109
48
369
-
444
798
304
229
(192)
(8)
125
13
(41)
(22)
38
(34)
4
174
73
44
-
-
481
935
(150)
6
(146)
180
(14)
(8)
59
36
-
-
(1,684)
(250)
-
-
(1,203)
685
(1)
Information has been restated and presented on a continuing operations basis.
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2.3 Other Operating Income
Other Operating Income
Lending fees
Commissions (3)
Trading income
30 Jun 18
30 Jun 17
Group (1)
30 Jun 16
30 Jun 18
Bank (2)
30 Jun 17
$M
$M
$M
$M
$M
1,109
1,078
1,010
1,032
1,002
2,670
2,561
2,289
2,363
2,092
1,025
1,149
1,087
916
1,043
Net gain/(loss) on non-trading financial instruments (4)
Net gain/(loss) on sale of property, plant and
equipment
Net hedging ineffectiveness
Dividends - Controlled entities
Dividends - Other
62
(17)
12
-
10
433
6
62
-
10
(27)
(21)
(72)
-
12
Net funds management operating income
2,099
1,928
1,916
Insurance contracts income
Share of profit from associates and joint ventures net of
impairment (5)
Other (3) (6)
302
323
196
231
273
112
215
270
80
71
(17)
-
453
(3)
30
2,029
1,105
56
-
-
(7)
95
-
-
(5)
922
1,143
Total other operating income
7,791
7,843
6,759
7,365
6,955
Information has been restated and presented on a continuing operations basis.
(1)
(2) Comparative information has been restated to conform to presentation in the current year.
(3) The year ended 30 June 2018 includes $228 million in income from the consolidation of AHL Holdings Pty Ltd (AHL) as the Group acquired the remaining 20% share
on 25th August 2017 and an increase of $4 million in commissions from the acquisition of eChoice.
(4) The prior year included a $397 million gain on sale of the Group’s remaining investment in VISA Inc.
(5) 2018 includes the gain recognised on acquisition of AHL ($58 million) and a loss due to the dilution of the Bank’s interest in Qilu Bank Co. Ltd ($4 million).
(6)
Includes depreciation of $74 million (2017: $88 million, 2016: $107 million) and impairment of nil (2017: $6 million, 2016: $69 million) in relation to assets held for
lease by the Group. Includes depreciation of $9 million (2017: $13 million) and impairment of nil (2017: $2 million) in relation to assets held for lease by the Bank.
Net hedging ineffectiveness comprises:
Gain/(loss) on fair value hedges:
Hedging instruments
Hedged items
Cash flow and net investment hedge ineffectiveness
30 Jun 18
$M
30 Jun 17
$M
Group
30 Jun 16
$M
30 Jun 18
$M
Bank
30 Jun 17
$M
(757)
841
(709)
(759)
1,862
765
(799)
4
20
642
(5)
763
(1,829)
(4)
(3)
Accounting Policies
Lending Fees and commission income include:
Facility fees earned for managing and administering credit and other facilities for customers, which are recognised over the service
period;
Commitment fees to originate a loan that is unlikely to be drawn down are recognised when the commitment is issued; and
Fee income earned for providing advisory or arrangement services, placement and underwriting services, which are recognised
when the related service is completed.
Trading income represents both realised and unrealised gains and losses from changes in the fair value of trading assets, liabilities and
derivatives, which are recognised in the period in which they arise.
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2.3 Other Operating Income (continued)
Accounting Policies (continued)
Net gain/(loss) on non-trading financial instruments includes realised gains and losses from non-trading financial assets and liabilities
(i.e. available-for-sale investments), as well as realised and unrealised gains and losses on non-trading derivatives that are held for risk
management purposes.
Net gain/(loss) on the sale of property, plant and equipment is the difference between proceeds received and its carrying value.
Net hedging ineffectiveness is measured on fair value, cash flow and net investment hedges.
Dividends received on non-trading equity investments (including controlled entities) are recognised either on the ex-dividend date or when
the right to receive payment is established.
Net funds management operating income includes fees earned where the Group acts as the Responsible Entity, Trustee or Manager
for a number of wholesale, superannuation, and investment funds or trusts. Management fees are recognised over the service period.
Performance fees are recognised when it is probable that the revenue will be received.
General insurance premiums received and receivable are recognised as revenue when they are earned, 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. Claims are recognised as an expense when the liability is established.
The Group recognises its share of the profits or losses from associate or joint venture investments, less any dividends received or
impairment recognised.
Other income includes rental income on operating leases which are recognised on a straight line basis over the lease term. This is offset
by depreciation and impairment expense on the associated operating lease assets held by the Group. For the Bank, this includes
management fee income for services provided to subsidiaries.
Other income also includes the impact of foreign currency revaluations for foreign currency monetary assets and liabilities. These assets
and liabilities are retranslated at the spot rate at balance 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.
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2.4 Operating Expenses
Staff Expenses
Salaries and related on-costs (3)
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 (3)
Data processing
Desktop
Communications
Amortisation of software assets (4)
Software write-offs
IT equipment depreciation
Total information technology services
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 (5)
Impairment on investments in subsidiaries
Other
Total other expenses
Total operating expenses (6)
Investment and Restructuring
Integration expenses
Merger related amortisation (7)
Total investment and restructuring
30 Jun 18
30 Jun 17
Group (1)
30 Jun 16
30 Jun 18
Bank (2)
30 Jun 17
$M
$M
$M
$M
$M
5,441
77
421
5,939
660
289
222
1,171
709
197
154
173
427
71
68
1,799
177
181
677
135
482
13
5,264
120
481
5,865
646
278
186
1,110
586
200
184
184
762
6
49
1,971
183
185
386
74
429
11
839
-
186
2,690
11,599
124
-
284
1,676
10,622
30
4
34
-
4
4
5,274
86
394
5,754
632
259
218
1,109
578
197
136
197
367
-
51
1,526
187
179
234
90
479
12
103
-
284
1,568
9,957
-
39
39
4,587
91
400
5,078
591
245
185
1,021
724
198
140
155
381
71
67
1,736
163
120
651
5
400
-
829
231
242
2,641
10,476
30
4
34
4,521
118
461
5,100
572
237
155
964
597
209
173
173
724
6
51
1,933
168
130
367
58
380
-
115
40
301
1,559
9,556
-
4
4
Total operating expenses
11,633
10,626
9,996
10,510
9,560
Information has been restated and presented on a continuing operations basis.
(1)
(2) Comparative information has been restated to conform to presentation in the current year.
(3) During the year, the group restated staff expenses and IT expenses to more accurately reflect the underlying nature of each line item. The impact was a decrease in salaries
and related on-costs and an increase in application maintenance and development expenses of $142 million for June 2017 and $154 million for June 2016.
(4) The year ended 30 June 2017 includes a $393 million one-off expense for acceleration of amortisation on certain software assets.
(5) The year ended 30 June 2018 includes $700 million for the AUSTRAC civil penalty. See Note 7.1 for further information.
(6) The year ended 30 June 2018 includes a $190 million expense following the consolidation of AHL Holdings Pty Ltd (trading as Aussie Home Loans) as the Group
acquired the remaining 20% share on 25 August 2017 and a $7 million expense following the acquisition of eChoice.
(7) Merger related amortisation relates to Bankwest core deposits and customer lists.
141
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Notes to the
financial statements
2.4 Operating Expenses (continued)
Accounting Policies
Salaries and related on-costs include annual leave, long service leave, employee incentives and relevant taxes. Staff expenses are
recognised over the period the employee renders the service. Long service leave is discounted to present value using assumptions relating
to staff departures, leave utilisation and future salary.
Share-based compensation includes both payments which may be cash or equity settled. Cash settled share-based remuneration is
recognised as a liability and re-measured to fair value until settled. The changes in fair value are recognised as staff expenses. Equity
settled remuneration is fair valued at the grant date and amortised to staff expenses over the vesting period, with a corresponding increase
in the employee compensation reserve.
Superannuation expense includes expenses relating to defined contribution and defined benefit superannuation plans. Defined
contribution expense is recognised in the period the service is provided, whilst the defined benefit expense, which measures current and
past service costs is determined by an actuarial calculation.
Occupancy and equipment expenses include depreciation which is calculated using the straight line method over the asset’s estimated
useful life and operating lease rentals which are recognised on a straight line basis over the lease term.
IT services expenses are recognised as incurred unless they qualify for capitalisation as computer software due to the expenditure
generating probable future economic benefits. If capitalised, the computer software is subsequently amortised over its estimated useful
life. 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.
Other expenses are recognised as the relevant service is rendered or once a liability is incurred.
Critical accounting judgements and estimates
Group’s Defined Benefit Superannuation Plans
Actuarial valuations of the plans’ obligations are dependent on a series of assumptions set out in Note 10.2 including inflation rates,
discount rates and salary growth rates. Changes in these assumptions impact the fair value of the plans’ obligations, assets,
superannuation expense and actuarial gains and losses recognised in Other Comprehensive Income.
142
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Commonwealth Bank of Australia
Annual Report 2018
Commonwealth Bank of AustraliaAnnual Report 2018Financial reportNotes to the financial statements
143
Financial
report
Notes to the
financial statements
2.5 Income Tax Expense
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 losses not previously brought to account
Offshore tax rate differential
Offshore banking unit
Effect of changes in tax rates
Income tax (over)/under provided in previous years
Non-deductible expense provision (2)
Other
30 Jun 18
$M
30 Jun 17
$M
Group (1)
30 Jun 16
$M
30 Jun 18
$M
Bank
30 Jun 17
$M
13,420
13,665
12,365
12,303
12,125
4,026
4,100
3,710
3,691
3,638
(7)
-
(66)
(39)
15
(79)
210
(34)
(11)
(56)
(75)
(42)
4
(65)
-
24
(4)
(5)
(76)
(33)
1
(177)
-
(16)
(612)
(369)
-
(9)
(38)
15
(69)
210
105
(56)
(15)
(40)
(1)
(53)
-
42
Total income tax expense
4,026
3,879
3,400
3,293
3,146
Effective tax rate (%)
30. 0
28. 4
27. 5
26. 8
26. 0
Information has been restated and presented on a continuing operations basis.
(1)
(2) Due to the $700 million expense relating to the AUSTRAC civil penalty, which is non-deductible for tax purposes.
Income tax expense attributable to profit from
ordinary activities
30 Jun 18
30 Jun 17
Group
30 Jun 16
30 Jun 18
30 Jun 17
Bank
$M
$M
$M
$M
$M
Australia
Current tax expense
3,956
3,737
2,827
3,370
3,453
Deferred tax expense/(benefit)
(416)
(292)
114
(157)
(341)
Total Australia
Overseas
Current tax expense
Deferred tax expense/(benefit)
Total overseas
Income Tax Expense attributable to profit from
ordinary activities
3,540
3,445
2,941
3,213
3,112
969
(483)
486
404
30
434
465
(6)
459
77
3
80
68
(34)
34
4,026
3,879
3,400
3,293
3,146
143
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Notes to the
financial statements
2.5 Income Tax Expense (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
30 Jun 18
30 Jun 17
Group (1)
30 Jun 16
30 Jun 18
Bank (1)
30 Jun 17
$M
$M
$M
$M
$M
452
991
221
(1)
339
267
297
493
501
1,032
1,051
201
1
320
228
224
216
56
310
101
126
391
913
154
(1)
339
267
274
387
946
129
-
320
228
165
Total amount recognised in the Income Statement
2,566
2,499
2,361
2,337
2,175
Amounts recognised directly in Other Comprehensive
Income:
Cash flow hedge reserve
Other reserves
Total amount recognised directly in Other
Comprehensive Income
114
22
136
123
12
135
161
16
177
11
28
39
13
17
30
Total deferred tax assets (before set off)
2,702
2,634
2,538
2,376
2,205
Set off to tax
Net deferred tax assets
(1,263)
(1,728)
(2,205)
(946)
(881)
1,439
906
333
1,430
1,324
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
200
56
30
-
131
83
500
81
18
48
498
118
763
235
64
179
485
122
246
282
205
196
510
95
233
1,331
1,521
76
8
70
445
130
74
26
416
376
132
729
1,024
Total deferred tax liabilities (before set off)
1,263
2,060
2,545
Set off to tax
Net deferred tax liabilities
(1,263)
(1,728)
(2,205)
-
332
340
(1) Comparative information has been restated to reflect the change in accounting policy detailed in Note 1.1.
144
144
Commonwealth Bank of Australia
Annual Report 2018
100
56
10
-
-
39
205
80
-
45
498
118
741
946
(946)
-
96
64
14
-
-
25
199
76
-
37
445
124
682
881
(881)
-
Commonwealth Bank of AustraliaAnnual Report 2018Financial reportNotes to the financial statements
Financial
report
Notes to the
financial statements
2.5 Income Tax Expense (continued)
30 Jun 18
Group (1) (2)
30 Jun 16
30 Jun 17
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
Deferred tax assets closing balance
$M
906
(41)
(41)
20
(1)
19
39
73
465
1,439
$M
333
(8)
(19)
(15)
(97)
10
127
98
477
906
$M
498
5
43
(67)
36
17
3
17
(219)
145
30 Jun 18
$M
1,324
4
(33)
25
8
19
39
109
(65)
Bank
30 Jun 17
$M
793
2
(15)
4
-
10
127
84
319
333
1,430
1,324
Deferred tax liabilities opening balance:
332
340
351
-
-
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
Deferred tax liabilities closing balance
(35)
53
(8)
(173)
(485)
9
(158)
465
-
(47)
69
(141)
(383)
(25)
27
15
477
332
(59)
11
82
(62)
85
17
134
(219)
340
4
53
(8)
(2)
-
-
18
(65)
-
(12)
69
(82)
(272)
-
-
(22)
319
-
(1) Comparative information has been restated to reflect the change in accounting policy detailed in Note 1.1.
(2) During the year deferred tax assets of $46 million, included in ‘Other’, and deferred tax liabilities of $809 million, included in financial instruments ($129 million),
insurance ($484 million) and Other ($196 million) were reclassified as held for sale. The above table includes the impact of these transfers.
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 that:
Expire under current legislation
Do not expire under current legislation
Total
Tax Consolidation
30 Jun 18
$M
30 Jun 17
$M
Group
30 Jun 16
$M
30 Jun 18
$M
Bank
30 Jun 17
$M
-
47
47
52
29
81
124
7
131
-
-
-
47
-
47
The Bank has recognised a tax consolidation contribution to the wholly-owned tax consolidated entity of $98 million (2017: $97 million).
The amount receivable by the Bank under the tax funding agreement was $283 million as at 30 June 2018 (2017: $302 million receivable).
This balance is included in ‘Other assets’ in the Bank’s separate Balance Sheet.
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Notes to the
financial statements
2.5 Income Tax Expense (continued)
Accounting Policies
Income tax on the profit or loss for the period comprises current and deferred 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.
Deferred tax is calculated using the Balance Sheet method where temporary differences are identified by comparing the carrying
amounts of assets and liabilities for financial reporting purposes to their tax bases.
The amount of deferred tax recognised 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.
The Bank and its wholly owned Australian Subsidiaries elected to be treated as a single entity “the tax consolidated group” under the
tax consolidation regime 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 and members.
Any current tax liabilities / assets and deferred tax assets from unused tax losses from subsidiaries in the tax consolidated group are
recognised by the Bank legal entity and funded in line with the tax funding arrangement.
The measurement and disclosure of deferred tax assets and liabilities have been performed on a modified stand-alone basis under UIG
1052 ‘Tax Consolidation Accounting’.
Critical accounting judgements and estimates
Provisions for taxation require significant judgement with respect to outcomes that are uncertain. For such uncertainties, the Group has
estimated the tax provisions based on the expected outcomes.
The accounting policy on measuring and recognising deferred tax on indefinite useful life brand names changed during the period to
reflect that the carrying value of the brand name will be recovered through use, resulting in the Bank recognising a deferred tax liability.
The financial impact of the change is outlined in Note 1.1.
146
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Annual Report 2018
Commonwealth Bank of AustraliaAnnual Report 2018Financial reportNotes to the financial statements
147
Financial
report
Notes to the
financial statements
2.6 Earnings per Share
Earnings per ordinary share (1) (2)
Earnings per share from continuing operations:
Basic
Diluted
Earnings per share:
Basic
Diluted
30 Jun 18
30 Jun 17
Cents per Share
Group (3)
30 Jun 16
536. 9
520. 2
567. 9
549. 9
525. 6
513. 3
534. 3
517. 7
577. 3
558. 8
542. 0
529. 0
(1) EPS calculations are based on actual amounts prior to rounding to the nearest million.
(2) The difference between earnings per share from continuing operations and earnings per share represents earnings per share from discontinued operations.
(3) Basic and diluted earnings per share for all periods presented have been adjusted retrospectively to incorporate the discount element of the dividend reinvestment
plan.
Reconciliation of earnings from continuing operations used in calculation of
earnings per share
Profit after income tax from continuing operations (1)
Less: Other equity instrument dividends
Less: Non-controlling interests
Continuing operations earnings used in calculation of basic earnings per share
Add: Profit impact of assumed conversions of loan capital
Continuing operations earnings used in calculation of fully diluted earnings per share
30 Jun 18
$M
30 Jun 17
$M
Group
30 Jun 16
$M
9,394
9,786
8,965
-
(19)
9,375
267
9,642
-
(20)
(50)
(20)
9,766
8,895
218
195
9,984
9,090
Reconciliation of earnings used in calculation of earnings per share
Continuing operations earnings used in calculation of basic earnings per share
9,375
9,766
8,895
Discontinued operations earnings used in calculation of basic earnings per share
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 impact of discontinued operations.
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
(46)
9,329
267
162
278
9,928
9,173
218
195
9,596
10,146
9,368
Number of Shares
30 Jun 18
30 Jun 17
30 Jun 16
M
M
M
1,746
1,720
1,692
106
96
79
1,852
1,816
1,771
Accounting Policies
Basic earnings per share (‘EPS’) 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 EPS is basic EPS adjusted for the impact of all securities on issue that can convert to CBA shares and would dilute basic EPS on
conversion. It is 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).
147
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Financial
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Notes to the
financial statements
(iii) Institutional Banking and Markets
Institutional Banking and Markets services the Group’s major
corporate,
institutional and government clients using a
relationship management model based on industry expertise
and insights. The client offering 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.
(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. The life
Insurance business has been presented as a discontinued
operation.
(v) New Zealand
New Zealand includes the Banking, Funds Management and
Insurance businesses operating in New Zealand (excluding
Institutional Banking and Markets). The Insurance business has
been presented as a discontinued operation.
(vi) Bankwest
Bankwest is active in all domestic retail market segments, with
lending diversified between housing and personal markets,
including a full range of deposit products. Bankwest also provide
business and rural relationship managed products and services
to Western Australia based customers.
(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, India and South Africa), associate investments in
China and Vietnam, the life insurance operations in
Indonesia. TymeDigital has been presented as a
discontinued operation. 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,
centrally raised provisions and other unallocated revenue
and expenses.
2.7 Financial Reporting by Segments
The principal activities of the Group are carried out in the
business segments below. These segments are based on the
distribution channels through which the customer relationship is
being managed.
During the year, the Group announced the sale of its life
Insurance businesses in Australia and New Zealand, the
investment in BoCommLife and that it is currently exploring
options for the most suitable long-term outcome for TymeDigital.
The Group’s business segment performance has been updated
and presented on a continuing operations basis to exclude
these businesses, which are disclosed as discontinued
operations. In addition, refinements have been made to the
allocation of customer balances and associated revenue and
expenses between business segments, including updated
transfer pricing allocations. These include the impact of the
announced migration of relationship managed customers
outside Western Australia from Bankwest to Business and
Private Banking. These changes have not impacted the Group’s
cash net profit, but have resulted in changes to the presentation
of the Income Statement and the Balance Sheet of the affected
segments.
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
intra-group
transfer pricing arrangements. All
transactions are eliminated on consolidation.
to
the basis
it provides
Business segments are managed on the basis of net profit after
income tax (“cash basis”). Management uses “cash basis” to
assess performance and
the
determination of the Bank’s dividends. The “cash basis”
presents the Group’s underlying operating results, excluding a
introduce volatility and/or one-off
number of
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.
items
that
for
(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.
(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.
148
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Commonwealth Bank of Australia
Annual Report 2018
Commonwealth Bank of AustraliaAnnual Report 2018Financial reportNotes to the financial statements
s
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Financial Notes to the report financial statements 149 2.7 Financial Reporting by Segments (continued) 30 Jun 18 (1) Retail Business Institutional Banking and Private Banking and Wealth New IFS and Services Banking Markets Management Zealand Bankwest Other Total $M $M $M $M $M $M $M $M Net interest income 9,791 3,392 1,444 - 1,760 1,561 393 18,341 Other banking income 2,086 1,033 1,229 - 373 215 246 5,182 Total banking income 11,877 4,425 2,673 - 2,133 1,776 639 23,523 Funds management income - - - 1,978 105 - 8 2,091 Insurance income - - - 183 - - 110 293 Total operating income 11,877 4,425 2,673 2,161 2,238 1,776 757 25,907 Investment experience (2) - - - 26 - - (9) 17 Total net operating income before impairment and operating expenses 11,877 4,425 2,673 2,187 2,238 1,776 748 25,924 Operating expenses (3,745) (1,596) (1,142) (1,440) (811) (748) (2,117) (11,599) Loan impairment expense (716) (129) (80) - (74) (54) (26) (1,079) Net profit before income tax 7,416 2,700 1,451 747 1,353 974 (1,395) 13,246 Corporate tax (expense)/benefit (2,223) (812) (330) (184) (378) (293) 226 (3,994) Non-controlling interests - - - - - - (19) (19) Net profit after tax from continuing operations - "cash basis" 5,193 1,888 1,121 563 975 681 (1,188) 9,233 Net profit after tax from discontinued operations - - - 160 96 - (77) 179 Net profit after tax - "cash basis" (3) 5,193 1,888 1,121 723 1,071 681 (1,265) 9,412 (Loss)/gain on disposal and acquisition of entities net of transaction costs 58 - - - - - (241) (183) Hedging and IFRS volatility - - - - 87 - 14 101 Other non-cash items - - - 2 - (3) - (1) Net profit after tax - "statutory basis" 5,251 1,888 1,121 725 1,158 678 (1,492) 9,329 Additional information Amortisation and depreciation (239) (113) (118) (29) (78) (26) (198) (801) Balance Sheet Total assets 368,272 117,785 162,716 20,466 89,696 80,819 135,411 975,165 Total liabilities 260,508 89,745 153,895 25,202 82,976 53,775 241,204 907,305 (1) Information has been presented on a continuing operations basis. (2) Investment experience is presented on a pre-tax basis. (3) This balance excludes non-cash items, including unrealised gains and losses relating to hedging and IFRS volatility ($101 million gain), transaction and separation costs associated with the disposal of CommInsure Life and Sovereign ($136 million), and impairment due to the reclassification of TymeDigital as a discontinued operation ($91 million), demerger costs for NewCo ($21 million), a gain recognised on acquisition of AHL ($58 million), a gain on sale of County Banks ($11 million), a loss due to the dilution of the Bank’s interest in Qilu Bank Co. Ltd ($4 million), Bankwest non-cash items ($3 million expense) and treasury shares valuation adjustment ($2 million gain). Performance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report
M
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150
Commonwealth Bank of AustraliaAnnual Report 2018
151
Financial
report
Notes to the
financial statements
2.7 Financial Reporting by Segments (continued)
Financial performance and position
Income
Australia
New Zealand
Other locations (2)
Total Income
Non-Current Assets
Australia
New Zealand
Other locations (2)
30 Jun 18
$M
30 Jun 17
$M
%
30 Jun 16
$M
%
%
Group (1)
Year Ended 30 June
22,161
84. 8
21,625
85. 2
19,796
83. 8
2,297
1,674
8. 8
6. 4
2,191
1,570
8. 6
6. 2
2,097
1,724
8. 9
7. 3
26,132
100. 0
25,386
100. 0
23,617
100. 0
13,473
93. 3
15,301
91. 8
15,687
91. 7
581
387
4. 0
2. 7
1,045
329
6. 2
2. 0
1,087
326
6. 4
1. 9
Total non-current assets (3)
14,441
100. 0
16,675
100. 0
17,100
100. 0
(1)
Information has been restated and presented on a continuing operations basis. Discontinued operations include the Group’s life insurance businesses in
Australia and New Zealand, the investment in BoCommLife and TymeDigital.
(2) Other locations include: United Kingdom, United States, Japan, Singapore, Malta, Hong Kong, Indonesia, China, Vietnam and South Africa.
(3) 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.
Accounting Policies
Operating segments are reported based on the Group’s organisational and management structures. Senior 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”.
151
151
Financial reportNotes to the financial statementsPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report
Financial
report
Notes to the
financial statements
3. Our Lending Activities
Overview
Lending is the Group’s primary business activity, generating most of its net interest income and lending fees. The Group satisfies
customers’ needs for borrowed funds by providing a broad range of lending products in Australia, New Zealand and other
jurisdictions.
This section provides details of the Group’s lending portfolio by type of product and geographical regions.
3.1 Loans, Bills Discounted and Other Receivables
Australia
Overdrafts
Home loans (1) (3)
Credit card outstandings
Lease financing
Bills discounted (2)
Note
30 Jun 18
$M
Group
30 Jun 17
$M
30 Jun 18
$M
Bank
30 Jun 17
$M
25,217
24,385
25,217
24,385
451,367
436,184
444,186
430,056
11,877
12,073
11,877
12,073
4,318
4,280
4,302
7,486
3,268
4,280
3,161
7,486
Term loans and other lending
147,028
149,506
147,009
149,294
Total Australia
Overseas
Overdrafts
Home loans (1)
Credit card outstandings
Lease financing
Term loans and other lending
Total overseas
644,087
633,936
635,837
626,455
1,657
1,545
50,298
49,673
993
25
960
36
281
397
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4
277
519
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9
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50,389
24,348
24,533
103,942
102,603
25,030
25,338
Gross loans, bills discounted and other receivables
748,029
736,539
660,867
651,793
Less
Provisions for Loan Impairment:
3.2
Collective provision
(2,735)
(2,722)
(2,482)
(2,457)
Individually assessed provisions
(870)
(971)
(779)
(888)
Unearned income:
Term loans
Lease financing
(692)
(367)
(681)
(403)
(692)
(264)
(680)
(265)
(4,664)
(4,777)
(4,217)
(4,290)
Net loans, bills discounted and other receivables
743,365
731,762
656,650
647,503
(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 4.4.
(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.
(3) These balances are presented gross of mortgage offset balances as required under accounting standards.
152
152
Commonwealth Bank of Australia
Annual Report 2018
Commonwealth Bank of AustraliaAnnual Report 2018Financial reportNotes to the financial statements
153
Financial
report
Notes to the
financial statements
3.1 Loans, Bills Discounted and Other Receivables (continued)
Based on behavioural terms and current market conditions, the amounts expected to be recovered within 12 months of the Balance
Sheet date are $175,826 million (2017: $177,267 million) for the Group, and $159,688 million (2017: $161,734 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
Finance Lease Unearned
Income
$M
Receivable
$M
30 Jun 18
Present Value
of Minimum
Lease Payment
Receivable
$M
Gross
Investment in
Finance Lease Unearned
Income
$M
Receivable
$M
1,706
2,455
182
4,343
(162)
(190)
(15)
(367)
1,544
2,265
167
3,976
1,439
2,651
248
(151)
(187)
(65)
4,338
(403)
Not later than one
year
One year to five years
Over five years
30 Jun 18
Present Value
Gross
Investment in
of Minimum
Finance Lease Unearned Lease Payment
Receivable
Income
$M
$M
Receivable
$M
Gross
Investment in
Finance Lease Unearned
Income
$M
Receivable
$M
1,248
1,864
160
3,272
(116)
(135)
(13)
(264)
1,132
1,729
147
3,008
1,166
(95)
1,797
(108)
207
(62)
3,170
(265)
Not later than one
year
One year to five years
Over five years
Group
30 Jun 17
Present Value
of Minimum
Lease Payment
Receivable
$M
1,288
2,464
183
3,935
Bank
30 Jun 17
Present Value
of Minimum
Lease Payment
Receivable
$M
1,071
1,689
145
2,905
Accounting Policy
Loans, bills discounted and other receivables are financial assets, with fixed and determinable payments that are not quoted in an active
market. Loans, bills discounted and other receivables include overdrafts, home loans, credit card and other personal lending, term loans,
discounted bills and finance leases.
Loans and receivables are recognised on settlement date, when funding is advanced to the borrowers. The loans and receivables are
initially recognised at their fair value plus directly attributable transaction costs such as broker fees. Subsequent to initial recognition,
loans and receivables are measured at amortised cost using the effective interest rate method and are presented net of provisions for
impairment. For the accounting policy on provisions for impairment, please refer to section 3.2. For information on the Group’s
management of credit risk during the year, refer to section 9.2.
Discounted bills are included in this category due to their financing nature, however they meet the definition of a trading asset. They
are measured at fair value through the Income Statement with directly attributable transaction costs expensed.
Finance leases, where the Group acts as lessor, are also included in Loans, Bills Discounted and Other Receivables. Finance leases
are those where substantially all the risks and rewards of the lease asset have been transferred to the lessee. Lease receivables are
recognised 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.
Critical accounting judgements and estimates
When applying this effective interest method the Group has estimated the behavioural term of each loan portfolio by reference to
historical prepayment rates and the contractual maturity.
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3.1 Loans, Bills Discounted and Other Receivables (continued)
Contractual Maturity Tables
Group
Maturity Period at 30 June 2018
Industry (1)
Australia
Sovereign
Agriculture
Bank and other financial
Home loans
Construction
Other personal
Asset financing
Maturing 1
Year
or Less
$M
Maturing
Between 1
and 5 Years
$M
Maturing
After
5 Years
$M
Total
$M
16,823
8,998
12,951
13,745
3,589
6,805
9,861
1,223
7,663
3,188
2,490
5,078
5,818
588
331
328
41,930
399,576
451,367
1,465
340
3,028
13,976
2,019
23,658
5,263
130
8,581
Other commercial and industrial
42,482
65,382
10,817
118,681
Total Australia
88,556
141,402
414,129
644,087
Overseas
Sovereign
Agriculture
Bank and other financial
Home loans
Construction
Other personal
Asset financing
1,023
2,533
3,684
3,202
273
1,190
23
466
5,371
3,206
657
148
333
173
82
2,026
185
1,571
9,930
7,075
46,439
50,298
217
321
261
638
1,844
457
Other commercial and industrial
7,954
17,153
7,022
32,129
Total overseas
19,882
27,507
56,553
103,942
Gross loans, bills discounted and other receivables
108,438
168,909
470,682
748,029
(1) The industry split has been prepared in line with industry exposures in Note 9.2
Interest rate
Australia
Overseas
Maturing 1
Year
or Less
$M
Maturing
Between 1
and 5 Years
$M
Maturing
After
5 Years
$M
Total
$M
73,612
122,146
328,864
524,622
18,035
22,730
13,235
54,000
Total variable interest rates
91,647
144,876
342,099
578,622
Australia
Overseas
14,944
19,256
85,265
119,465
1,847
4,777
43,318
49,942
Total fixed interest rates
16,791
24,033
128,583
169,407
Gross loans, bills discounted and other receivables
108,438
168,909
470,682
748,029
154
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Notes to the
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3.1 Loans, Bills Discounted and Other Receivables (continued)
Group
Maturity Period at 30 June 2017
155
Industry (1)
Australia
Sovereign
Agriculture
Bank and other financial
Home loans
Construction
Other personal
Asset financing
Maturing 1
Year
or Less
$M
Maturing
Between 1
and 5 Years
$M
Maturing
After
5 Years
$M
Total
$M
18,085
8,784
15,425
17,128
3,597
8,841
8,548
1,158
7,873
2,903
772
4,595
6,141
185
592
443
37,784
389,852
436,184
2,176
431
3,765
13,268
2,042
23,183
4,842
127
7,872
Other commercial and industrial
41,567
68,581
10,490
120,638
Total Australia
Overseas (2)
Sovereign
Agriculture
Bank and other financial
Home loans
Construction
Other personal
Asset financing
91,615
138,159
404,162
633,936
1,677
2,211
2,603
3,383
237
1,166
85
197
4,321
2,990
642
171
329
239
26
3,316
182
1,900
9,848
5,775
45,648
49,673
226
218
140
634
1,713
464
Other commercial and industrial
7,310
16,487
8,799
32,596
Total overseas
18,672
25,376
58,555
102,603
Gross loans, bills discounted and other receivables
110,287
163,535
462,717
736,539
Interest rate
Australia
Overseas (2)
Maturing 1
Year
or Less
$M
Maturing
Between 1
and 5 Years
$M
Maturing
After
5 Years
$M
Total
$M
73,530
120,749
338,035
532,314
16,283
20,036
14,485
50,804
Total variable interest rates
89,813
140,785
352,520
583,118
Australia
Overseas (2)
18,085
17,410
66,127
101,622
2,389
5,340
44,070
51,799
Total fixed interest rates
20,474
22,750
110,197
153,421
Gross loans, bills discounted and other receivables
110,287
163,535
462,717
736,539
(1) The industry split has been prepared in line with industry exposures in Note 9.2.
(2) Comparative information has been reclassified to conform to contractual presentation in the current year.
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3.2 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
30 Jun 18
$M
30 Jun 17
$M
Group
30 Jun 16
$M
30 Jun 18
$M
Bank
30 Jun 17
$M
2,747
2,818
2,762
2,482
2,545
716
(871)
201
(30)
617
(894)
210
(4)
664
(846)
225
13
646
(789)
182
(11)
621
(871)
186
1
2,763
2,747
2,818
2,510
2,482
980
625
(262)
(25)
(548)
100
870
944
670
(192)
(31)
(454)
43
980
887
788
(196)
(27)
(571)
63
944
897
559
(242)
(25)
(473)
63
779
864
585
(166)
(31)
(399)
44
897
Total provisions for impairment losses
3,633
3,727
3,762
3,289
3,379
Less: Provision for Off Balance Sheet exposures
(28)
(34)
(44)
(28)
(34)
Total provisions for loan impairment
3,605
3,693
3,718
3,261
3,345
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
30 Jun 18
%
30 Jun 17
%
Group
30 Jun 16
%
30 Jun 18
%
Bank
30 Jun 17
%
33. 60
36. 05
36. 17
37. 18
39. 51
0. 49
0. 51
0. 54
0. 50
0. 52
30 Jun 18
$M
30 Jun 17
$M
Group
30 Jun 16
$M
30 Jun 18
$M
Bank
30 Jun 17
$M
716
625
(262)
617
670
664
788
(192)
(196)
646
559
(242)
621
585
(166)
Total loan impairment expense
1,079
1,095
1,256
963
1,040
Accounting Policy
By providing loans to customers, the Group bears the risk that the future circumstances of customers might change, including their
ability to repay their loans in part or in full. While the Group’s credit and responsible lending policies aim to minimise this risk, there will
always be instances where the Group will not receive the full amount owed and hence a provision for impaired loans will be necessary.
Credit losses arise primarily from loans, but also from other credit instruments such as bank acceptances, contingent liabilities and other
financial instruments. 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.
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3.2 Provisions for Impairment (continued)
Accounting Policy (continued)
Loans and other receivables are presented net of provisions for loan impairment. Guarantees and other contingent liabilities are
accounted for as off Balance Sheet items. Provisioning for these exposures is calculated under AASB 137 ‘Provisions, Contingent
Liabilities and Contingent Assets’.
Loan assets under committed lending facilities are not recognised until the facilities are drawn upon. However, 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 Sheets.
Critical accounting judgements and estimates
Provisions for impairment of financial assets are raised to cover assessed credit related losses where there is objective evidence of
impairment (i.e. where the Group does not expect to receive all of the cash flows contractually due). Individually assessed provisions
against loans are subject to change as new information becomes available to reassess the level of impairment against a loan. 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. Estimates applied include the loss
history and the diversity of borrowers within a cohort or similar loan portfolio. Changes in these estimates could have a direct impact on
the level of provision determined. Increases or decreases in the provision amount are recognised in the Income Statement.
Individually assessed provisions by
industry classification
30 Jun 18
$M
30 Jun 17
$M
30 Jun 16
$M
30 Jun 15
$M
Group
30 Jun 14
$M
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
-
56
16
-
47
27
-
42
29
236
249
193
21
6
16
343
694
-
25
-
5
1
-
-
145
176
870
25
9
18
442
817
-
25
-
4
1
-
10
123
163
980
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
-
123
68
151
29
14
30
620
1,035
-
3
15
11
1
-
-
62
92
1,127
157
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3.2 Provisions for Impairment (continued)
Loans written off by industry classification
30 Jun 18
$M
30 Jun 17
$M
30 Jun 16
$M
30 Jun 15
$M
Group
30 Jun 14
$M
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
-
28
3
126
13
764
23
179
-
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
1,136
1,192
1,237
1,322
1,707
-
3
5
2
1
65
-
207
283
-
15
5
4
8
60
-
64
156
-
7
-
7
-
54
-
112
180
-
3
69
8
-
42
-
35
-
3
-
13
-
30
-
60
157
106
1,419
1,348
1,417
1,479
1,813
Less recovery of amounts previously written off:
Australia
Overseas
Total amounts recovered
Net loans written off
187
14
201
194
16
210
211
14
225
165
11
176
148
17
165
1,218
1,138
1,192
1,303
1,648
158
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3.2 Provisions for Impairment (continued)
Loans recovered by industry classification
30 Jun 18
$M
30 Jun 17
$M
30 Jun 16
$M
30 Jun 15
$M
Group
30 Jun 14
$M
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
-
-
1
2
-
165
5
14
187
-
-
-
1
1
10
-
2
14
201
-
-
1
3
1
-
1
27
3
1
-
-
9
3
-
-
-
6
4
-
170
154
125
106
7
12
4
21
4
24
5
27
194
211
165
148
-
-
-
1
1
11
-
3
16
210
-
-
1
1
-
10
-
2
14
225
-
-
-
1
-
10
-
-
11
176
-
3
3
1
-
8
-
2
17
165
159
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Notes to the
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4. Our Deposits and Funding Activities
Overview
Stable and well diversified funding sources are critical to the Group’s ability to fund its lending and investing activities to support
business growth. Our main sources of funding include customer deposits and term funds raised in domestic and offshore wholesale
markets. The Group also uses repurchase agreements as a source of short-term wholesale funding. Refer to Note 9.4 for the
Group’s management of liquidity and funding risk.
4.1 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
30 Jun 18
$M
Group
30 Jun 17
$M
30 Jun 18
$M
Bank
30 Jun 17
$M
31,405
39,854
33,496
41,856
149,924
158,453
150,086
158,691
300,607
293,579
300,768
292,819
46,082
14,696
41,787
16,175
46,058
14,806
41,764
16,406
542,714
549,848
545,214
551,536
8,509
43,896
22,640
4,475
-
12,496
36,308
24,012
3,896
95
6,069
10,021
13,707
1,154
56
-
8,047
1,605
49
95
79,520
76,807
20,986
19,817
Total external deposits and other public borrowings
622,234
626,655
566,200
571,353
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 2018
Maturing
Three
Months or
Less
$M
Maturing
Maturing
Between Between Six
and Twelve
Months
$M
Three and
Six Months
$M
Maturing
after
Twelve
Months
$M
Total
$M
15,321
83,431
98,752
3,425
22,758
26,183
9,286
25,576
34,862
2,441
10,033
12,474
2,351
32,222
34,573
2,601
7,901
10,502
4,447
8,695
31,405
149,924
13,142
181,329
42
3,204
3,246
8,509
43,896
52,405
124,935
47,336
45,075
16,388
233,734
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
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4.1 Deposits and Other Public Borrowings (continued)
Group
At 30 June 2017
Maturing
Three
Months or
Less
$M
Maturing
Maturing
Between Between Six
and Twelve
Months
$M
Three and
Six Months
$M
Maturing
after
Twelve
Months
$M
Total
$M
18,384
97,878
116,262
4,749
18,906
23,655
12,417
22,869
35,286
1,750
10,234
11,984
2,908
29,164
32,072
5,957
4,779
10,736
6,145
8,542
39,854
158,453
14,687
198,307
40
2,389
2,429
12,496
36,308
48,804
139,917
47,270
42,808
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.
Accounting Policy
Deposits from customers include certificates of deposit, term deposits, savings deposits, other demand deposits and debentures.
Deposits are initially recognised at their fair value less directly attributable transaction costs. Subsequent to initial recognition, they are
measured at amortised cost. Interest incurred is recognised within Net Interest Income using the effective interest method.
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 liability for the agreed repurchase amount from the counterparty is recognised within deposits and
other public borrowings.
4.2 Liabilities at Fair Value through Income Statement
Deposits and other borrowings (1)
Debt instruments (1)
Trading liabilities
30 Jun 18
$M
8,124
399
1,724
Group
30 Jun 17
$M
7,212
655
2,525
Total liabilities at fair value through Income Statement
10,247
10,392
(1) These liabilities have been initially designated at fair value through the Income Statement.
30 Jun 18
$M
Bank
30 Jun 17
$M
7,118
264
1,724
9,106
6,197
267
2,525
8,989
For the Group and Bank, the majority of liabilities at fair value through the Income Statement are expected to be settled within 12 months
of the Balance Sheet date.
The amount that would be contractually required to be paid at maturity to the holders of the financial liabilities designated at fair value
through Income Statement for the Group is $8,369 million (2017: $7,878 million) and for the Bank is $7,225 million (2017: $6,437 million).
Accounting Policy
The Group designates certain liabilities at fair value through the 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. Trading
liabilities are incurred principally for the purpose of repurchasing or settling in the near term.
Subsequent to initial recognition, these liabilities are measured at fair value. Changes in fair value (except those due to changes in credit
risk) are recognised in Other Banking Income. Changes in fair value relating to the Group’s own credit risk are recognised in Other
Comprehensive Income. Interest incurred is recognised within Net Interest Income using the effective interest method.
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4.3 Debt Issues
Medium-term notes
Commercial paper
Securitisation notes
Covered bonds
Total debt issues (1)
Short Term Debt Issues by currency
USD
AUD
GBP
Other currencies
Total short term debt issues
Long Term Debt Issues by currency (2)
USD
EUR
AUD
GBP
NZD
JPY
Other currencies
Offshore loans (all JPY)
Total long term debt issues
Maturity Distribution of Debt Issues (3)
Less than twelve months
Greater than twelve months
Total debt issues
Note
30 Jun 18
$M
Group
30 Jun 17
$M
30 Jun 18
$M
Bank
30 Jun 17
$M
99,579
96,016
87,474
83,637
26,868
28,800
23,922
26,685
4.4
4.4
13,089
13,771
-
-
32,758
28,984
28,588
24,644
172,294
167,571
139,984
134,966
27,008
29,856
24,061
27,314
1,009
2,949
335
1,858
5,687
769
1,009
2,949
335
1,858
5,687
769
31,301
38,170
28,354
35,628
51,472
45,343
48,017
44,120
33,057
28,109
26,842
22,241
35,066
32,405
20,875
16,883
4,701
3,954
3,505
9,175
63
6,059
5,129
3,790
8,158
408
3,614
1,028
3,390
7,801
63
4,075
1,079
3,680
6,852
408
140,993
129,401
111,630
99,338
59,980
57,640
50,994
47,976
112,314
109,931
88,990
86,990
172,294
167,571
139,984
134,966
(1) Debt issues include unrealised movements of $4,259 million in 2018 predominantly due to foreign exchange gains and losses.
(2) Long-term debt disclosed relates to debt issues which have a maturity at inception of greater than 12 months.
(3) Represents the remaining contractual maturity of the underlying instrument.
The Bank’s long-term debt issues include notes issued under the: USD70 billion Euro Medium Term Note Program; the USD50 billion
US Medium Term Note Program; the USD30 billion Covered Bond Program; Unlimited Domestic Debt Program; Unlimited 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. The Bank, from time to time, as
part of its balance sheet management, may consider opportunities to repurchase outstanding long-term debt pursuant to open-market
purchases or other means. Such repurchases help manage the Bank’s debt maturity profile, overall funding costs and assist in meeting
regulatory changes and requirements.
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4.3 Debt Issues (continued)
Short term borrowings by Commercial paper program (1)
Total
Outstanding at year-end (2)
Maximum amount outstanding at any month end
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
30 Jun 17
30 Jun 18
$M (except where indicated)
Group
30 Jun 16
26,868
28,800
29,033
32,336
33,779
41,453
30,007
29,226
37,368
26,792
28,393
27,117
32,127
31,460
38,528
29,887
27,593
35,208
1. 8%
2. 3%
1. 2%
1. 5%
0. 5%
0. 8%
76
219
120
407
1,916
2,789
2,925
1,633
2,160
1. 5%
2. 2%
1. 0%
1. 2%
0. 7%
0. 9%
(1) Short-term borrowings include callable medium term notes of $4,433 million (2017:$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 =
Currency
USD
EUR
GBP
As At
30 Jun 18
As At
30 Jun 17
0. 7387
0. 7684
0. 6350
0. 6720
0. 5635
0. 5903
NZD
1. 0909
1. 0493
JPY
81. 7215
86. 1110
(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.
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4.3 Debt Issues (continued)
Accounting Policy
Debt issues includes short and long-term debt issues of the Group and consists of commercial paper, securitisation notes, covered
bonds and medium term notes.
Debt issues are initially measured at fair value and subsequently measured at amortised cost.
Premiums, discounts and associated issue expenses are recognised in the Income Statement using the effective interest method from
the date of issue, to ensure the carrying value of securities equals their redemption value by maturity date. Interest is recognised in the
Income Statement using the effective interest method. Any profits or losses arising from redemption prior to maturity are taken to the
Income Statement in the period in which they are realised.
The Group hedges interest rate and foreign currency rate 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.
4.4 Securitisation, Covered Bonds and Transferred Assets
The Group enters into transactions in the normal course of business that transfers financial assets to counterparties or to Special
Purpose Vehicles (SPVs). Transferred financial assets that do not qualify for de-recognition are typically associated with repurchase
agreements and our covered bonds and securitisation programs. The underlying assets remain on the Group’s Balance Sheet.
At the Balance Sheet date, transferred financial assets that did not qualify for de-recognition and their associated liabilities are as follows:
Group
Repurchase
Agreements
Securitisation (1)
30 Jun 18 30 Jun 17 30 Jun 18 30 Jun 17 30 Jun 18 30 Jun 17
$M
Covered Bonds
$M
$M
$M
$M
$M
Carrying amount of transferred assets
14,696
16,270
37,012
31,796
14,661
15,108
Carrying amount of associated liabilities
14,696
16,270
32,758
28,984
13,089
13,771
For those liabilities that have recourse only to the
transferred assets:
Fair value of transferred assets
Fair value of associated liabilities
Net position
14,667
15,116
13,089
13,771
1,578
1,345
Bank
Repurchase
Agreements
Securitisation
30 Jun 18 30 Jun 17 30 Jun 18 30 Jun 17 30 Jun 18 30 Jun 17
$M
Covered Bonds
$M
$M
$M
$M
$M
Carrying amount of transferred assets
14,806
16,501
32,210
26,414
71,136
59,985
Carrying amount of associated liabilities (2)
14,806
16,501
28,588
24,644
70,484
59,985
For those liabilities that have recourse only to the
transferred assets:
Fair value of transferred assets
Fair value of associated liabilities
Net position
71,155
60,020
70,484
59,985
671
35
(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
due to controlled entities.
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4.4 Securitisation, Covered Bonds and Transferred Assets (continued)
Accounting Policy
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
The Group pools and equitably assigns residential mortgages as securities to investors through a series of wholly controlled
securitisation vehicles. Where the Bank and ASB retain substantially all of the risks and rewards associated with the mortgages, the
Bank and ASB continue to recognise the mortgages on their Balance Sheets. The Group is entitled to any residual income of the
securitisation programs after all payments due to investors have been met. The investors have recourse only to the pool of mortgages
in the SPV they have invested in.
Covered Bonds Programs
To complement 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 an SPV associated with covered bond programs to provide security on the
payments to investors. Similarly to securitisation programs, the Group is entitled to any residual income after all payments due to covered
bond investors have been met. As the Bank and ASB retain substantially all of the risks and rewards associated with the mortgages,
the Bank and ASB continue to recognise the mortgages on their Balance Sheets. The covered investors have dual recourse to the Bank
and the covered pool assets.
Critical accounting judgements and estimates
The Group exercises judgement at inception and periodically thereafter, to assess whether a structured entity should be consolidated
based on the Bank’s power over the relevant activities of the entity and the significance of its exposure to variable returns of the
structured entity. Such assessments are predominantly required for the Group’s securitisation programs, and structure transactions
such as covered bond programs.
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5. Our Investing, Trading and Other Banking activities
Overview
In addition to loans, the Group holds other assets to support its activities. Cash and liquid assets, receivables due from other financial
institutions, trading assets and available for sale securities are held for liquidity purposes, to generate returns and to meet customer
demand. The mix and nature of assets is driven by multiple factors including the Board’s Risk appetite, regulatory requirements,
customer demand and the generation of shareholder returns.
The Group also transacts derivatives to meet customer demand and to manage its financial risks (interest rate, foreign currency,
commodity and credit risks).
Refer to Note 9.1 for additional information relating to the Group’s approach to managing financial risks through the use of
derivatives.
5.1 Cash and Liquid Assets
Notes, coins and cash at banks (1)
Money at short call
30 Jun 18
$M
Group
30 Jun 17
$M
30 Jun 18
$M
Bank
30 Jun 17
$M
17,002
14,836
15,586
12,782
5,895
8,281
5,765
8,167
Securities purchased under agreements to resell
13,520
22,733
12,230
21,865
Total cash and liquid assets
36,417
45,850
33,581
42,814
(1) Comparatives have been restated to align to presentation in the current period.
Accounting Policy
Cash and liquid assets include cash at branches, cash at banks, nostro balances, money at call with an original maturity of three months
or less and securities held under reverse repurchase agreements. Cash and other assets are initially measured at fair value then
subsequently at amortised cost. Interest is recognised in the Income Statement using the effective interest method.
Securities, including bonds and equities, purchased under agreements to resell are not recognised in the Financial Statements where
substantially all the risks and rewards of ownership remain with the counterparty. An asset for the agreed resale amount by the
counterparty is recognised within cash and liquid assets.
5.2 Receivables Due from Other Financial Institutions
Placements with and loans to other financial institutions
9,012
9,815
8,302
8,641
Deposits with regulatory authorities (1)
210
222
74
37
Total receivables due from other financial institutions
9,222
10,037
8,376
8,678
30 Jun 18
$M
Group
30 Jun 17
$M
30 Jun 18
$M
Bank
30 Jun 17
$M
(1) Required by law for the Group to operate in certain regions.
The majority of the above amounts are expected to be recovered within 12 months of the Balance Sheet date.
Accounting Policy
Receivables due from other financial institutions includes loans, deposits with regulatory authorities and settlement account balances
due from other banks. Receivables are initially recognised at fair value, then subsequently measured at amortised cost.
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5.3 Assets at Fair Value through Income Statement
Assets at Fair Value through Income Statement
Trading
30 Jun 18
$M
Group
30 Jun 17
$M
30 Jun 18
$M
Bank
30 Jun 17
$M
Government bonds, notes and securities
18,078
20,370
16,923
19,879
Corporate/financial institution bonds, notes and securities
6,108
4,640
5,112
3,873
Shares and equity investments
Commodities
Total trading assets
Insurance (1)
Investments backing life risk contracts
Investments backing life investment contracts
Total life insurance investment assets
Other
Government securities
Receivables due from other corporate/financial institutions
Other lending
116
922
6
603
7,952
6,772
7,952
6,772
32,254
32,704
29,993
31,127
21
351
372
49
209
-
4,206
9,463
13,669
51
264
796
-
-
-
-
-
-
-
-
-
-
-
-
796
796
Total other assets at fair value through Income Statement
258
1,111
Total assets at fair value through Income Statement (2)
32,884
47,484
29,993
31,923
Maturity Distribution of assets at fair value through income
statement
Less than twelve months
More than twelve months
32,247
35,951
29,724
31,923
637
11,533
269
-
Total assets at fair value through Income Statement
32,884
47,484
29,993
31,923
(1) Certain life insurance assets have been reclassified to assets held for sale following the announced disposal of the Group’s life Insurance businesses.
(2)
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 3.1).
Accounting Policy
These assets are categorised as assets held for trading, insurance assets and other investments. Trading assets are those acquired
for the purpose of selling or repurchasing in the near term. Insurance assets are investments that back life insurance and life investment
contracts. Other assets are those that are designated at fair value through Income Statement at inception. Subsequent to initial
recognition, financial assets are measured at fair value with changes in fair value recognised in Other Banking Income.
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5.4 Derivative Financial Instruments
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.
Derivative financial instruments are contracts whose values are derived from one or more underlying prices, indexes or other variables.
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:
Forwards
Swaps
Options
Fair Value
Asset
$M
30 Jun 18
Fair Value
Liability
$M
Fair Value
Asset
$M
Group
30 Jun 17
Fair Value
Liability
$M
8,118
7,457
462
(7,961)
(8,505)
(415)
5,735
7,556
785
(6,058)
(8,473)
(832)
Total foreign exchange rate related contracts
16,037
(16,881)
14,076
(15,363)
Interest rate related contracts:
Swaps
Futures
Options
4,834
(3,458)
6,232
(4,654)
6
531
(57)
(736)
64
918
(192)
(1,048)
Total interest rate related contracts
5,371
(4,251)
7,214
(5,894)
Credit related swaps
Equity related contracts:
Swaps
Options
Total equity related contracts
Commodity related contracts:
Swaps
Options
Total commodity related contracts
46
(65)
42
(72)
12
1
13
397
146
543
(40)
(5)
(45)
(386)
(85)
(471)
18
2
20
452
16
468
(85)
(9)
(94)
(284)
(35)
(319)
Identified embedded derivatives
229
(58)
190
(131)
Total derivative assets/(liabilities) held for trading
22,239
(21,771)
22,010
(21,873)
Held for trading derivatives are expected to be recovered or due to be settled within 12 months of the Balance Sheet date.
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5.4 Derivative Financial Instruments (continued)
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
Equity related swaps
Total cash flow hedges
Net investment hedges
Foreign exchange rate related forwards
Total net investment hedges
Fair Value
Asset
$M
30 Jun 18
Fair Value
Liability
$M
Fair Value
Asset
$M
Group
30 Jun 17
Fair Value
Liability
$M
6,538
278
(3,783)
(1,672)
5,242
451
(4,184)
(2,096)
6,816
(5,455)
5,693
(6,280)
2,331
734
4
(679)
(493)
(65)
2,615
1,402
-
(1,371)
(794)
-
3,069
(1,237)
4,017
(2,165)
9
9
(9)
(9)
4
4
(12)
(12)
Total derivative assets/(liabilities) held for hedging
9,894
(6,701)
9,714
(8,457)
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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5.4 Derivative Financial Instruments (continued)
Derivatives assets and liabilities
Held for trading
Foreign exchange rate related contracts:
Forwards
Swaps
Options
Derivatives held with controlled entities
Fair Value
Asset
$M
30 Jun 18
Fair Value
Liability
$M
Fair Value
Asset
$M
Bank
30 Jun 17
Fair Value
Liability
$M
8,081
8,291
460
16
(7,937)
(9,197)
(413)
(1,734)
5,706
8,356
785
688
(6,014)
(9,181)
(830)
(1,998)
Total foreign exchange rate related contracts
16,848
(19,281)
15,535
(18,023)
Interest rate related contracts:
Swaps
Futures
Options
Derivatives held with controlled entities
4,610
(3,226)
5,963
(4,357)
6
531
73
(57)
(736)
(87)
55
917
110
(191)
(1,047)
(139)
Total interest rate related contracts
5,220
(4,106)
7,045
(5,734)
Credit related swaps
Equity related contracts:
Swaps
Options
Total equity related contracts
Commodity related contracts:
Swaps
Options
Total commodity related contracts
46
(65)
42
(72)
12
1
13
397
146
543
(40)
(5)
(45)
(386)
(85)
(471)
18
2
20
452
16
468
(85)
(9)
(94)
(285)
(34)
(319)
Identified embedded derivatives
229
(58)
190
(131)
Total derivative assets/(liabilities) held for trading
22,899
(24,026)
23,300
(24,373)
Held for trading derivatives are expected to be recovered or due to be settled within 12 months of the Balance Sheet date.
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5.4 Derivative Financial Instruments (continued)
Fair value hedges
Foreign exchange rate related contracts:
Swaps
Derivatives held with controlled entities
Fair Value
Asset
$M
30 Jun 18
Fair Value
Liability
$M
Fair Value
Asset
$M
Bank
30 Jun 17
Fair Value
Liability
$M
5,087
35
(3,052)
(1,365)
4,337
(3,504)
349
(789)
Total foreign exchange rate related contracts
5,122
(4,417)
4,686
(4,293)
Interest rate related contracts:
Swaps
Derivatives held with controlled entities
Total interest rate related contracts
213
13
226
(1,477)
(27)
(1,504)
364
(1,895)
2
(56)
366
(1,951)
Total fair value hedges
5,348
(5,921)
5,052
(6,244)
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
2,007
16
2,023
602
-
602
(521)
(30)
(551)
2,444
11
(948)
(81)
2,455
(1,029)
(299)
1,253
-
30
(299)
1,283
(511)
(4)
(515)
Equity related swaps
4
(65)
-
-
Total cash flow hedges
Net investment hedges
2,629
(915)
3,738
(1,544)
Foreign exchange rate related forward contracts
Total net investment hedges
9
9
(9)
(9)
4
4
(12)
(12)
Total derivative assets/(liabilities) held for hedging
7,986
(6,845)
8,794
(7,800)
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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5.4 Derivative Financial Instruments (continued)
The table below shows the deferred gains and losses, which are expected to be transferred to the Income Statement in the period which
the hedge forecast transaction takes place:
30 Jun 18
$M
(39)
29
16
(131)
(95)
(220)
Group
Total
30 Jun 17
$M
(72)
(26)
133
(168)
(45)
(178)
30 Jun 18
$M
(33)
38
68
(25)
57
105
Bank
Total
30 Jun 17
$M
3
15
131
(34)
(24)
91
Within 6 months
6 months - 1 year
1 - 2 years
2 - 5 years
After 5 years
Net deferred (losses)/gains
Accounting Policy
Derivatives Transacted for Hedging Purposes
Derivatives are initially measured at fair value. Subsequent to initial recognition, gains or losses on derivatives are recognised in the
Income Statement, unless they are entered into for hedging purposes and designated into a cash flow hedge.
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.
Changes in the value of fair value hedges are recognised in the Income Statement, together with changes in the fair value of the hedged
asset or liability that are attributable to the hedged risk. All gains and losses associated with the ineffective portion of fair value hedge
relationships are recognised immediately as ‘Other Banking Income’ in the Income Statement.
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 from the date of discontinuation over the period to
maturity of the previously designated hedge relationship using the effective interest method. If the hedged item is sold or repaid, the
unamortised fair value adjustment is recognised immediately in the Income Statement.
Cash Flow Hedges
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, financial liabilities or highly
probable forecast transactions. The Group principally uses interest rate swaps, cross currency swaps, futures and equity related swaps
to protect against such fluctuations.
Changes in fair value associated with the effective portion of a cash flow hedge are recognised through Other Comprehensive Income
in the Cash Flow Hedge Reserve within equity. Ineffective portions are recognised immediately in the Income Statement. Amounts
deferred in equity are transferred to the Income Statement in the period in which the hedged forecast transaction takes place.
When a hedging instrument expires or is sold, terminated or exercised, or when the hedge no longer meets the criteria for hedge
accounting, any cumulative gain or loss existing in equity at that time remains in equity and is reclassified to profit or loss in the period
in which the hedged item affects profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss
that was reported in equity is recycled immediately to the Income Statement. Where it is appropriate, non-derivative financial assets and
liabilities are also designated as hedging instruments in cash flow hedge relationships.
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5.4 Derivative Financial Instruments (continued)
Accounting Policy (continued)
Derivatives Transacted for Hedging Purposes
Net Investment Hedges
Gains and losses on derivative contracts relating to the effective portion of the net investment hedge are recognised in the foreign
currency translation reserve in equity. Ineffective portions are recognised immediately in the Income Statement. Gains and losses
accumulated in equity are included in the Income Statement when the foreign subsidiary or branch is disposed of.
Embedded Derivatives
In certain instances, a derivative may be embedded within a host contract. 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.
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5.5 Available-for-Sale Investments
30 Jun 18
$M
Group
30 Jun 17
$M
30 Jun 18
$M
Bank
30 Jun 17
$M
Government bonds, notes and securities
46,363
48,257
44,701
46,424
Corporate/financial institution bonds, notes and securities
21,372
22,129
20,356
21,199
Shares and equity investments
298
295
45
37
Covered bonds, mortgage backed securities and SSA (1)
14,207
12,854
12,629
11,359
Total available-for-sale investments
82,240
83,535
77,731
79,019
(1) Supranational, Sovereign and Agency Securities (SSA).
The amounts expected to be recovered within 12 months of the Balance Sheet date are $14,772 million (2017: $20,162 million) for the
Group and $13,478 million (2017: $19,009 million) for the Bank. Comparative amounts have been restated to conform to presentation
in the current period.
Maturity Distribution and Weighted Average Yield
Group
Maturity Period at 30 June 2018
0 to 1 Year
%
$M
1 to 5 Years
%
$M
5 to 10 Years
%
$M
10 or
Non-
more Years Maturing
$M
%
$M
Total
$M
Government bonds, notes
and securities
Corporate/financial institution
bonds, notes and securities
Shares and equity
investments
Covered bonds, mortgage
backed securities and SSA
Total available-for sale
investments
4,774
0. 85
15,424
2. 11
21,330
2. 59
4,835
2. 97
-
46,363
6,902
1. 81
14,442
2. 86
28
3. 96
-
-
-
-
-
-
-
-
-
-
-
21,372
298
298
1,099
3. 05
4,799
2. 47
1,542
3. 51
6,767
2. 98
-
14,207
12,775
-
34,665
-
22,900
-
11,602
-
298
82,240
The maturity table is based on contractual terms.
Accounting Policy
Available-for-sale (AFS) 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 portfolio.
Subsequent to initial recognition, AFS investments are 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 Banking Income.
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175
Financial Notes to the report financial statements 175 6) Other Assets Overview The Group’s other assets comprise assets not included in its lending, investing, trading and other banking activities. Other Assets include property, plant and equipment held for use and for lease through our asset finance businesses. Other assets also include software, brand names and goodwill. These assets support the Group’s business activities. 6.1 Property, Plant and Equipment Group Bank 30 Jun 18 30 Jun 17 30 Jun 18 30 Jun 17 $M $M $M $M Land and Buildings (1) At 30 June valuation 440 471 397 426 Total land and buildings 440 471 397 426 Leasehold Improvements At cost 1,580 1,589 1,357 1,339 Accumulated depreciation (1,043) (1,024) (913) (885) Closing balance 537 565 444 454 Equipment At cost 2,164 2,044 1,773 1,652 Accumulated depreciation (1,633) (1,496) (1,316) (1,188) Closing balance 531 548 457 464 Total property, plant and equipment held for own use 1,508 1,584 1,298 1,344 Assets Held for Lease At cost 1,360 1,437 193 212 Accumulated depreciation (292) (319) (31) (62) Closing balance 1,068 1,118 162 150 Other Property, Plant and Equipment (2) At cost - 1,189 - - Accumulated depreciation - (18) - - Closing balance - 1,171 - - Total property, plant and equipment 2,576 3,873 1,460 1,494 (1) Had land and buildings been measured using the cost model rather than fair value, the carrying value would have been $229 million (2017: $243 million) for Group and $217 million (2017: $231 million) for Bank. (2) Relates to property, plant and equipment held via a partly owned fund within the Group’s life insurance businesses. The investment in the fund is used to back life insurance policy liabilities. As a result of the sale of the life insurance businesses this amount has been transferred to Assets Held for Sale. See Note 11.3. The majority of the above items of Property, Plant and Equipment 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. Financial reportNotes to the financial statementsPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Financial
report
Notes to the
financial statements
6.1 Property, Plant and Equipment (continued)
Reconciliation of the carrying amounts of Property, Plant and Equipment is set out below:
30 Jun 18
$M
Group
30 Jun 17
$M
30 Jun 18
$M
Bank
30 Jun 17
$M
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
Reclassification to assets held for sale
Foreign currency translation adjustment
Carrying amount at the end of the year
Equipment
Carrying amount at the beginning of the year
Additions
Disposals
Depreciation
Reclassification to assets held for sale
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
Disposals
Depreciation
Reclassification to assets held for sale (1)
Foreign currency translation adjustment
Carrying amount at the end of the year
471
10
(40)
34
(34)
(1)
440
565
138
(18)
(133)
(13)
(2)
537
548
188
(11)
(190)
(1)
(3)
531
1,118
164
(140)
-
(74)
-
496
6
(31)
32
(32)
-
471
605
107
(9)
(135)
-
(3)
565
485
259
(22)
(174)
-
-
426
10
(40)
33
(32)
-
397
454
116
(14)
(113)
-
1
444
464
167
(10)
(164)
-
-
446
5
(22)
28
(31)
-
426
490
85
(6)
(113)
-
(2)
454
396
225
(13)
(144)
-
-
548
457
464
1,287
229
(304)
(6)
(88)
-
1,068
1,118
1,171
-
34
-
-
(1,211)
6
-
1,067
120
-
-
(18)
-
2
1,171
150
46
(24)
-
(10)
-
162
-
-
-
-
-
-
-
-
171
6
(12)
(2)
(13)
-
150
-
-
-
-
-
-
-
-
(1) Relates to property, plant and equipment held via a partly owned fund within the Group’s life insurance businesses. The investment in the fund is used to back life
insurance policy liabilities. As a result of the sale of the life insurance businesses this amount has been transferred to Assets Held for Sale. See Note 11.3.
176
176
Commonwealth Bank of Australia
Annual Report 2018
Commonwealth Bank of AustraliaAnnual Report 2018Financial reportNotes to the financial statements
177
Financial Notes to the report financial statements 177 6.1 Property, Plant and Equipment (continued) Accounting Policy The Group measures its 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 accumulated depreciation and impairment if required. 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. The useful lives of major depreciable asset categories are as follows: Land Indefinite- not depreciated Buildings Up to 30 years Equipment 3 – 8 years Leasehold improvements Lesser of unexpired lease term or lives as above Assets held for lease Aircraft 25 years Rail 35 – 40 years Ships 25 – 40 years Land and buildings are carried at fair value based on independent valuations performed during the year. These fair values fall under the Level 3 category of the fair value hierarchy as defined in Note 9.5. Critical accounting judgements and estimates 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 amount is greater than its recoverable amount, the carrying amount is written down immediately to its recoverable amount. Financial reportNotes to the financial statementsPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Financial
report
Notes to the
financial statements
6.2 Intangible Assets
Goodwill
Purchased goodwill at cost
Closing balance
Computer Software Costs
Cost
Accumulated amortisation
Closing balance
Brand Names (1)
Cost
Accumulated amortisation
Closing balance
Other Intangibles (2)
Cost
Accumulated amortisation
Closing balance
Total Intangible assets
30 Jun 18
$M
Group
30 Jun 17
$M
30 Jun 18
$M
Bank
30 Jun 17
$M
6,941
6,941
7,872
7,872
2,522
2,522
2,522
2,522
4,633
4,329
4,122
3,792
(2,814)
(2,395)
(2,440)
(2,057)
1,819
1,934
1,682
1,735
206
(1)
205
195
(137)
58
190
(1)
189
154
(125)
29
186
-
186
45
(36)
9
186
-
186
38
(32)
6
9,023
10,024
4,399
4,449
(1) 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 as there is no foreseeable limit to the period over which the brand name is expected to generate cash flows. This
balance also includes the Aussie brand name ($16 million) which has an indefinite useful life. They are not subject to amortisation, but require annual impairment
testing. No impairment was required this period. The Count Financial brand name ($4 million) is also included and amortised over the estimated useful life of
20 years.
(2) Other intangibles include the value of customer and credit card relationships acquired from Bankwest, Aussie and Count Financial 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 between 6 and 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 9.5.
Earnings multiples relating to the Group‘s Banking, Wealth Management and IFS 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 10.9 - 11.2 (2017: 12.4 – 12.8), for the IFS businesses 6.3 - 13.0 (2017: 5.9 – 14.5)
and for Wealth Management businesses were in the range of 11.0 - 19.0 (2017: 12.0 – 18.4).
Goodwill allocation to cash generating units
Retail Banking Services
Business and Private Banking
Wealth Management
New Zealand
IFS and Other
Total
178
178
Commonwealth Bank of Australia
Annual Report 2018
30 Jun 18
$M
Group
30 Jun 17
$M
4,596
297
1,770
258
20
4,149
297
2,678
697
51
6,941
7,872
Commonwealth Bank of AustraliaAnnual Report 2018Financial reportNotes to the financial statements
179
Financial Notes to the report financial statements 179 6.2 Intangible Assets (continued) Goodwill Allocation to Cash-Generating Units Reconciliation of the carrying amounts of Intangible Assets is set out below: Group Bank 30 Jun 18 30 Jun 17 30 Jun 18 30 Jun 17 $M $M $M $M Goodwill Opening balance 7,872 7,925 2,522 2,522 Additions 446 16 - - Transfers/disposals/other adjustments (1) (1,377) (69) - - Closing balance 6,941 7,872 2,522 2,522 Computer Software Costs Opening balance 1,934 2,228 1,735 2,061 Additions (1) (2) 438 491 399 404 Amortisation and write-offs (3) (553) (785) (452) (730) Closing balance 1,819 1,934 1,682 1,735 Brand Names Opening balance 189 189 186 186 Additions 16 - - - Closing balance 205 189 186 186 Other Intangibles Opening balance 29 42 6 9 Additions 46 2 7 - Amortisation (17) (15) (4) (3) Closing balance 58 29 9 6 (1) Includes reclassifications to assets held for sale and foreign currency revaluation. (2) Primarily relates to internal development costs. (3) Includes amounts associated with discontinued operations. Accounting Policy 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 arises on the acquisition of an entity and represents the excess of the consideration paid over the fair value of the net assets and liabilities acquired. Goodwill is tested for impairment annually through allocation to a group of Cash Generating Units (CGUs). The CGUs’ recoverable amount is then compared to the carrying amount of goodwill and an impairment is recognised for any excess carrying value. Computer Software Costs Certain internal and external costs directly incurred in acquiring and developing software, net of specific project related grants, are capitalised and amortised over the estimated useful life. The majority of software projects are amortised over two to five years. The Group’s core banking software is amortised over ten years. Software maintenance is expensed as incurred.Financial reportNotes to the financial statementsPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Financial
report
Notes to the
financial statements
6.2 Intangible Assets (continued)
Accounting Policy (continued)
Brand Names
Brand names acquired in a business combination include Aussie, Bankwest and Count Financial Limited and these are initially
recognised at fair value. The Aussie and Bankwest brand names are assessed as having an indefinite useful life as there is no
foreseeable limit to the period over which the brand names are expected to generate cash flows. The remaining brand names are
amortised over their useful life.
Other Intangibles
Other intangibles predominantly comprise customer relationships. Customer relationships acquired as part of a business combination
are initially measured at fair value. They are subsequently measured at cost less accumulated amortisation and any impairment
losses. Amortisation is calculated based on the timing of projected cash flows of the relationships over their estimated useful lives.
Critical accounting judgements and estimates
Goodwill is allocated to CGUs whose recoverable amount is calculated for the purpose of impairment testing. The recoverable amount
calculation relies primarily on publicly available earnings multiples, which are disclosed on page 178.
6.3 Other Assets
Accrued interest receivable
Accrued fees/reimbursements receivable
Securities sold not delivered
Intragroup current tax receivable
Current tax assets
Prepayments
Life insurance other assets
Defined benefit superannuation plan surplus
10.2
Other
Total other assets
Note
30 Jun 18
$M
Group
30 Jun 17
$M
30 Jun 18
$M
Bank
30 Jun 17
$M
2,377
1,255
1,823
-
24
320
11
581
600
2,326
1,348
2,352
-
23
257
524
426
626
3,114
3,097
205
137
1,398
1,833
283
3
210
-
581
485
302
-
182
-
426
480
6,991
7,882
6,279
6,457
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.
Accounting Policy
Other assets include interest and fee receivables, current tax assets, prepayments receivables on unsettled trades and the surplus
within defined benefit plans. Interest receivables are recognised on an accruals basis, fees and reimbursements receivable are
recognised once the service is provided and trade date accounted securities sold not delivered are recognised between trade
execution and final settlement. The remaining other assets are recognised on an accruals or service performed basis and amortised
over the period in which the economic benefits from these assets are received. Further defined benefit plan details are provided in
Note 10.2.
180
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Annual Report 2018
Commonwealth Bank of AustraliaAnnual Report 2018Financial reportNotes to the financial statements
181
Financial Notes to the report financial statements 181 7) Other Liabilities Overview Other liabilities primarily represent provisions recognised, interest payable, fees and bills payable and unsettled trades. Other provisions principally cover annual leave and long service leave employee entitlements as well as general insurance claims, potential penalties, committed compliance costs and certain costs related to litigation investigations and reviews. They do not relate to individually assessed provisions or collective provisions recognised on impaired financial assets of the Group (such as impaired home loans). Certain provisions involve significant judgement to determine the likely outcome of events as well as a reliable estimate of the outflow. Where future events are uncertain or where the outflow cannot be reliably determined, these are disclosed as contingent liabilities. Contingent liabilities are not recognised in the Group’s Balance Sheet but disclosed in Note 12.1. Commentary on certain provisions are given in Note 7.1. 7.1 Other Provisions Group Bank 30 Jun 18 30 Jun 17 30 Jun 18 30 Jun 17 Note $M $M $M $M Employee entitlements 815 847 774 757 General insurance claims 219 273 - - Self insurance and non-lending losses 192 232 164 224 Dividends 8.4 113 100 113 100 Compliance, programs and regulation 283 69 283 69 Restructuring costs 14 52 11 50 Other 253 207 245 172 Total other provisions 1,889 1,780 1,590 1,372 Maturity Distribution of Other Provisions Group Bank 30 Jun 18 30 Jun 17 30 Jun 18 30 Jun 17 $M $M $M $M Less than twelve months 1,635 1,441 1,381 1,089 More than twelve months 254 339 209 283 Total other provisions 1,889 1,780 1,590 1,372 Financial reportNotes to the financial statementsPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Financial
report
Notes to the
financial statements
7.1 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 (1)
Amounts utilised during the year
Closing balance
Restructuring:
Opening balance
Additional provisions
Amounts utilised during the year
Release of provision
Closing balance
Other:
Opening balance
Additional provisions
Amounts utilised during the year
Release of provision
Reclassification to liabilities held for sale
Closing balance
30 Jun 18
$M
Group
30 Jun 17
$M
30 Jun 18
$M
Bank
30 Jun 17
$M
273
530
(584)
219
232
162
(157)
(45)
192
69
389
(175)
283
52
15
(30)
(23)
14
207
217
(101)
(33)
(37)
253
260
548
(535)
273
196
73
(37)
-
232
78
79
(88)
69
28
28
(4)
-
52
181
127
(76)
(25)
-
207
-
-
-
-
224
135
(162)
(33)
164
69
389
(175)
283
50
11
(27)
(23)
11
172
179
(86)
(20)
-
245
-
-
-
-
162
73
(11)
-
224
78
78
(87)
69
27
27
(4)
-
50
162
93
(60)
(23)
-
172
(1) Compliance, programs and regulation include additional provisions for the year ended 30 June 2018 for Financial Crimes Compliance Program of Action, Royal
Commission, ASIC investigation, APRA review, AUSTRAC proceedings and class action.
Accounting Policy
Provisions are recognised for present obligations arising from past events where a payment to settle the obligation is probable and can
be reliably estimated. When payments to settle amounts are expected to be greater than one year in the future, they are then discounted
using a market observable rate.
General Insurance Claims
This provision is to cover future claims on general insurance contracts that have been incurred but not reported. The provision will be
realised upon settlement of claims whose maturities were uncertain at the reporting date.
Self Insurance and Non-Lending Losses
Self insurance provision relates to non-transferred insurance risks on lending products the Group originates. The self insurance provision
is reassessed annually in accordance with actuarial advice.
This provision covers certain non-lending losses, including customer remediation, and represents losses that have not arisen as a
consequence of an impaired credit decision.
182
182
Commonwealth Bank of Australia
Annual Report 2018
Commonwealth Bank of AustraliaAnnual Report 2018Financial reportNotes to the financial statements
183
Financial Notes to the report financial statements 183 7.1 Other Provisions (continued) Accounting Policy (continued) 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. Provisions for employee entitlements (such as long service leave, annual leave and other employee benefits) This provision is calculated based on expected payments. Where the payments are expected to be more than one year in the future, these factor in the expected period of service by employees, as well as salary increases. These future obligations are discounted using a market observable rate. Critical accounting judgements and estimates Provisions are held in respect of a range of future obligations, some of which involve significant judgement about the likely outcome of various events and estimated future cash flows. Litigation, investigations and reviews The Group is party to legal proceedings and the subject of investigations and reviews, these include the matters outlined below as at 30 June 2018. Provisions have been raised where indicated in line with the principles outlined in the accounting policy section of this note. Litigation AUSTRAC Civil Proceedings On 3 August 2017, the Australian Transaction Reports and Analysis Centre (AUSTRAC) commenced civil penalty proceedings in the Federal Court of Australia against CBA. The AUSTRAC statement of claim alleged past and ongoing contraventions of four provisions of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act). On 4 June 2018 CBA announced that it had entered into an agreement with AUSTRAC to resolve the civil proceedings. The agreement followed the Court-ordered mediation between CBA and AUSTRAC. As part of the agreement: CBA agreed to pay a civil penalty of $700 million together with AUSTRAC’s legal costs. AUSTRAC’s civil proceedings otherwise be dismissed. The proposed settlement was approved on 20 June 2018 by the Federal Court. Accordingly, CBA recognised a $700 million expense during the year. CBA is committed to build on the significant changes made in recent years as part of a comprehensive program to improve operational risk management and compliance at the bank. CBA continues to make significant investment in AML/CTF compliance, including upgrading and enhancing its AML/CTF technology, updating its process documentation, investing in further resourcing and strengthening training of its personnel. CBA has acted to strengthen financial crime capabilities, and has invested significantly recognising the crucial role that it plays, including through its Program of Action with coverage across all aspects of financial crime (including AML/CTF, sanctions and anti-bribery and corruption) and all business units. The Program of Action is uplifting the Bank’s processes for monitoring, managing, reporting and controlling financial crime across all of its operations, including how the Bank engages with and informs AUSTRAC and other regulators, and the operating model of the Bank which relates specifically to financial crime to ensure increased confidence in managing this area of risk. The Group has provided for certain costs of running the Program of Action. ASIC’s investigation On 11 August 2017, following the commencement of the civil proceedings against CBA by AUSTRAC, ASIC confirmed it would investigate the Group’s disclosure in respect of the allegations raised in connection with the AUSTRAC proceedings. ASIC is investigating, among other things, whether the officers and Directors at CBA complied with their continuous disclosure obligations under the Corporations Act 2001 (Cth). CBA continues to engage with ASIC in respect of the investigation and respond to requests made by ASIC. It is currently not possible to predict the ultimate outcome of this investigation, if any, on the Group. The Group has provided for the legal costs expected to be incurred in relation to this investigation. Shareholder Class Actions In October 2017 CBA was served with a shareholder class action proceeding filed in the Federal Court of Australia alleging breaches of CBA’s continuous disclosure obligations and misleading and deceptive conduct in relation to the subject matter of the AUSTRAC civil proceedings. It is alleged that CBA shareholders who acquired an interest in CBA shares between 1 July 2015 and 3 August 2017 suffered loss caused by the alleged conduct. In July 2018 a similar second shareholder class action in relation to the subject matter of the AUSTRAC civil proceedings was served on CBA on behalf of certain CBA shareholders who acquired an interest in CBA shares between 16 June 2014 and 3 August 2017. Financial reportNotes to the financial statementsPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Financial
report
Notes to the
financial statements
7.1 Other Provisions (continued)
Litigation, investigations and reviews
Litigation
Shareholder Class Actions (continued)
It is currently not possible to determine the ultimate impact of these claims, if any, on the Group. The Group denies the allegations and
intends to vigorously defend both claims. The Group has provided for legal costs expected to be incurred to defend these claims.
ASIC Bank Bill Swap Rate
On 30 January 2018, as part of the industry wide review into the trading activities of participants in the bank bill market, ASIC filed a
claim against CBA alleging that on six occasions between 31 January 2012 and 31 October 2012, CBA’s bills traders had engaged in
market manipulation and unconscionable conduct. On 9 May 2018, CBA and ASIC agreed to settle the proceedings. The terms of
settlement included an admission by CBA that its traders had attempted to engage in unconscionable conduct on 5 occasions in 2012
and that CBA’s systems, training, policies and controls were inadequate to prevent the conduct from occurring. CBA agreed to a civil
penalty of $5 million (which required the approval of the Federal Court) and to pay ASIC’s costs of the investigation and legal costs in a
combined amount of $5 million, and to make a community benefit payment of $15 million to Financial Literacy Australia. The agreed
settlement was approved on 21 June 2018 by the Federal Court. CBA has also entered into an Enforceable Undertaking with ASIC to
ensure that CBA’s systems, training, policies and controls are strengthened to prevent a recurrence of the conduct. The Group
recognised an expense during the year for the settlement.
Investigations and reviews
APRA’s Prudential Inquiry into CBA
On 28 August 2017, APRA announced it would establish an independent prudential inquiry (the “Inquiry”) into the Group with the goal
of identifying shortcomings in the governance, culture and accountability frameworks. The Inquiry considered, amongst other things,
whether the Group’s organisational structure, governance, financial objectives, remuneration and accountability frameworks conflicted
with sound risk management and compliance outcomes. A Panel was appointed on 8 September 2017 to conduct the Inquiry, comprising
of Dr John Laker AO, Jillian Broadbent AO and Professor Graeme Samuel AC (the “Panel”).
The Panel published a progress report on 1 February 2018 and its final report on 1 May 2018 (“Final Report”). The Final Report makes
a number of findings regarding the complex interplay of organisational and cultural factors within the Group and the need for enhanced
management of non-financial risks. In response to the Final Report, the Group has acknowledged that it will implement all of the
recommendations and has agreed to adjust its minimum operational risk capital requirements by an additional $1 billion (risk weighted
assets $12.5 billion) until such time as the recommendations are implemented to APRA’s satisfaction.
CBA has entered into an Enforceable Undertaking under which CBA’s remedial action in response to the Final Report would be agreed
and monitored regularly by APRA. On 29 June 2018 CBA announced that APRA had endorsed CBA’s Remedial Action Plan, which
details CBA’s response to the 35 recommendations of the Prudential Inquiry, released on 1 May 2018. The Remedial Action Plan
provides a detailed program of change outlining how CBA will improve the way it runs its business, manages risk, and works with
regulators. The Remedial Action Plan provides a comprehensive assurance framework, with Promontory Financial Group having been
appointed as the independent reviewer. The Group has provided for costs expected to be incurred in relation to the conduct of the
Inquiry.
The Royal Commission
On 30 November 2017, the Australian Government announced the establishment of the Royal Commission into Misconduct in the
Banking, Superannuation and Financial Services Industry. The former High Court Judge, the Honourable Kenneth Hayne AC QC was
appointed as the Commissioner.
The purpose of the Royal Commission is to inquire into the conduct of banks, insurers, superannuation funds and other financial services
institutions, and to assess the effectiveness of existing regulatory frameworks and mechanisms for customer redress. A final report is
due by 1 February 2019, with an interim report due by 30 September 2018. The Commissioner’s report is expected to outline his findings
and recommendations, which may form the basis of regulatory changes.
The Royal Commission is conducting rounds of public hearings, focusing on key elements of the financial services industry, including
consumer lending, financial advice, lending to small and medium enterprises, superannuation, general and life insurance, and
experiences with financial services entities in regional and remote communities.
The Royal Commission is playing an important role in highlighting misconduct and conduct below community standards and
expectations, demonstrating that the industry hasn’t always done the right thing by customers, and it will continue to highlight cases
where we have made mistakes.
The Group is engaging openly and transparently with the Royal Commission and carefully considering the issues specific to the Group
and the broader issues the Royal Commission, customers, regulators and other stakeholders are raising around how the financial
services industry operates.
The Group’s Royal Commission Project team leads our engagement with the Royal Commission and manages the various requirements,
including providing requested documents, supporting our witnesses, attending hearings, and preparing submissions. As at 30 June
2018, the Group had responded to 106 notices to produce documents from the Royal Commission, provided 47 witness statements and
10 submissions. In addition, Group executives had provided in-hearing evidence to the Royal Commission on 12 occasions. The Group
provided for costs expected to be incurred in relation to the conduct of the Royal Commission.
184
184
Commonwealth Bank of Australia
Annual Report 2018
Financial reportNotes to the financial statements
185
Financial Notes to the report financial statements 185 7.2 Bills Payable and Other Liabilities Group Bank 30 Jun 18 30 Jun 17 30 Jun 18 30 Jun 17 Note $M $M $M $M Bills payable 931 1,495 827 1,431 Accrued interest payable 2,745 2,633 2,163 1,920 Accrued fees, employee incentives and other items payable (1) 3,165 2,586 2,494 1,693 Defined benefit superannuation plan deficit 10.2 - 11 - 11 Securities purchased not delivered 2,456 2,771 1,942 2,297 Unearned income 1,389 1,430 968 1,007 Life insurance other liabilities and claims payable - 297 - - Other 910 709 1,722 2,550 Total bills payable and other liabilities 11,596 11,932 10,116 10,909 (1) Includes payable for AUSTRAC civil penalty of $700 million, 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. Accounting Policy Bills Payable and Other Liabilities include accrued interest payable, accrued incentives payable, accrued fees payable and unearned income. Bills Payable and Other Liabilities are measured at the contractual amount payable. As most payables are short-term in nature, the contractual amount payable approximates fair value. Financial reportNotes to the financial statementsPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Financial
report
Notes to the
financial statements
8) Our Capital, Equity and Reserves
Overview
The Group maintains a strong capital position in order to satisfy regulatory capital requirements, provide financial security to its
depositors and creditors and adequate return to its shareholders. The Group’s Shareholders’ Equity includes issued ordinary shares,
retained earnings and reserves.
This section provides analysis of the Group’s Shareholder’s Equity including changes during the period.
and provides for fully discretionary capital distributions. Tier 1
capital is the aggregate of CET1 and Additional Tier 1 capital.
Tier 2 Capital is hybrid and debt instruments that fall short of
necessary conditions to qualify as Additional Tier 1 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 risk based capital
ratios. The capital ratios reflect capital (CET1, Additional Tier 1,
Tier 2 and 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 Leadership Team and at
regular intervals throughout the year to the Board 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, 2017 and 2018
financial years were in compliance with both APRA minimum
the Board approved
capital adequacy requirements and
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.
8.1 Capital Adequacy
The Bank 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:
funds management operating
insurance and
The
subsidiaries; and
The entities through which securitisation of Group assets
are conducted.
Regulatory capital is divided into Common Equity Tier 1 (CET1),
Additional Tier 1 Capital and Tier 2 Capital. CET1 primarily
consists of Shareholders’ Equity, less goodwill and other
prescribed adjustments. Additional Tier 1 Capital is comprised of
high quality capital providing a permanent and unrestricted
commitment of funds, is freely available to absorb losses, ranks
behind the claims of depositors and other more senior creditors
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Financial Notes to the report financial statements 187 8.2 Loan Capital Group Bank Currency 30 Jun 18 30 Jun 17 30 Jun 18 30 Jun 17 Amount (M) Endnotes $M $M $M $M Tier 1 Loan Capital Undated FRN USD 100 (1) 135 130 135 130 Undated PERLS VI AUD 2,000 (2) 1,999 1,994 1,999 1,994 Undated PERLS VII AUD 3,000 (2) 2,978 2,979 2,978 2,979 Undated PERLS VIII AUD 1,450 (2) 1,436 1,435 1,436 1,435 Undated PERLS IX AUD 1,640 (2) 1,622 1,622 1,622 1,622 Undated PERLS X AUD 1,365 (2) 1,356 - 1,352 - Total Tier 1 Loan Capital 9,526 8,160 9,522 8,160 Tier 2 Loan Capital AUD denominated (3) 1,773 1,773 1,773 1,773 USD denominated (4) 4,380 3,047 4,380 3,047 JPY denominated (5) 896 850 896 850 GBP denominated (6) 266 254 266 254 NZD denominated (7) 729 755 - - EUR denominated (8) 5,107 3,338 5,107 3,338 Other currencies denominated (9) 309 293 309 293 Total Tier 2 Loan Capital 13,460 10,310 12,731 9,555 Fair value hedge adjustments 6 256 (4) 244 Total Loan Capital (1) 22,992 18,726 22,249 17,959 (1) Loan Capital includes unrealised movements of $776 million in 2018 predominantly due to foreign exchange gains and losses. As at the reporting date there are no securities of the Group and the Bank that are 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 for capital instruments as implemented by APRA. 2) PERLS VI, PERLS VII, PERLS VIII, PERLS IX and PERLS X On 17 October 2012, the Bank issued $2,000 million of Perpetual Exchangeable Resaleable Listed Securities (PERLS VI). On 1 October 2014, the Bank issued $3,000 million of CommBank PERLS VII Capital Notes. (PERLS VII). On 30 March 2016, the Bank issued $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). On 6 April 2018, the Bank issued $1,365 million of CommBank PERLS X Capital Notes (PERLS X). PERLS VI, PERLS VII, PERLS VIII, PERLS IX and PERLS X are subordinated, unsecured notes. PERLS VI, PERLS VII, PERLS VIII, PERLS IX and PERLS X 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 subordinated notes issued November 2014, due November 2024; and $750 million subordinated notes issued June 2016, due June 2026. Financial reportNotes to the financial statementsPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Financial
report
Notes to the
financial statements
8.2 Loan Capital (continued)
(4) USD denominated Tier 2 Loan Capital issuances
USD350 million subordinated fixed rate notes, issued
June 2003, and redeemed in June 2018;
USD1,250 million
December 2015, due December 2025;
subordinated notes
issued
USD750 million subordinated EMTN (Euro Medium
Term Notes) issued October 2016, due October 2026;
and
USD 1,250 million subordinated notes issued January
2018, due in January 2048;
(5) JPY denominated Tier 2 Loan Capital issuances
JPY20 billion perpetual subordinated EMTN, issued
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.
(6) GBP denominated Tier 2 Loan Capital issuances
GBP150 million
subordinated
June 2003, due December 2023.
EMTN,
issued
(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 Bank
issued NZD400 million
subordinated, unsecured notes (ASB Notes) with a
face value of NZD1 each; and
Limited)
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
August 2009, due August 2019;
subordinated
EUR1,250 million
April 2015, due April 2027; and
subordinated
notes,
issued
notes
issued
EUR 1,000 million subordinated EMTN,
October 2017, due October 2029.
issued
(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
instruments as
for
transitional arrangements
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.
capital
PERLS VI, PERLS VII, PERLS VIII, PERLS IX and PERLS X,
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, PERLS IX and PERLS X only) or a non-viability
trigger event (all securities) occurs. Any exchange will occur as
described
instrument
documentation.
the applicable
terms of
the
in
Accounting Policy
Loan capital are instruments issued by the Group, which qualify as regulatory capital under the Prudential Standards set by the
Australian Prudential Regulation Authority (APRA) and the Reserve Bank of New Zealand (RBNZ). Loan capital is initially measured at
fair value and subsequently measured at amortised cost using the effective interest rate method. Interest expense incurred is recognised
in net interest income.
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Financial Notes to the report financial statements 189 8.3 Shareholder’s Equity Group Bank 30 Jun 18 30 Jun 17 30 Jun 18 30 Jun 17 $M $M $M $M Ordinary Share Capital Shares on issue: Opening balance 35,266 34,129 35,262 34,125 Issue of shares (net of issue costs) (1) 164 (6) 164 (6) Dividend reinvestment plan (net of issue costs) (2) 2,105 1,143 2,107 1,143 37,535 35,266 37,533 35,262 Less treasury shares: Opening balance (295) (284) - - Purchase of treasury shares (3) (95) (92) - - Sale and vesting of treasury shares (3) 125 81 - - (265) (295) - - Closing balance 37,270 34,971 37,533 35,262 (1) During the year shares issued relate to the acquisition of the remaining 20% interest in AHL Holding Pty Limited. (2) The determined dividend includes an amount attributable to the dividend reinvestment plan of $536 million (interim 2017/2018), $1,573 million (final 2016/2017), $558 million (interim 2016/2017) and $586 million (final 2015/2016). The value of shares issued under plans rules net of issue costs for the respective periods was $533 million, $1,572 million, $557 million and $586 million. (3) The movement in treasury shares relate to amounts held within life Insurance Statutory Funds, and 1,132,108 shares acquired at an average price of $77.11 for 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 10.3, shares purchased were not on behalf of or initially allocated to a director. Group Bank 30 Jun 18 30 Jun 17 30 Jun 18 30 Jun 17 Number of shares on issue Shares Shares Shares Shares Opening balance (excluding treasury shares deduction) 1,729,868,161 1,715,142,177 1,729,868,161 1,715,142,177 Issue of shares (1) 2,087,604 - 2,087,604 - Dividend reinvestment plan issues: 2015/2016 Final dividend fully paid ordinary shares $72.95 - 8,036,332 - 8,036,332 2016/2017 Interim dividend fully paid ordinary shares $83.21 - 6,689,652 - 6,689,652 2016/2017 Final dividend fully paid ordinary shares $75.73 20,772,433 - 20,772,433 - 2017/2018 Interim dividend fully paid ordinary shares $75.38 7,114,732 - 7,114,732 - Closing balance (excluding treasury shares deduction) 1,759,842,930 1,729,868,161 1,759,842,930 1,729,868,161 Less: treasury shares (2) (3,225,310) (3,854,763) - - Closing balance 1,756,617,620 1,726,013,398 1,759,842,930 1,729,868,161 (1) During the period, the number of shares issued relates to the acquisition of the remaining 20% interest in AHL Holdings Pty Limited. (2) Relates to Treasury shares held within the life Insurance statutory funds and the employees share scheme trust. Ordinary shares have no par value and the Company does not have a limited amount of share capital. Ordinary shares entitle holders to receive dividends payable to ordinary shareholders and to participate in the proceeds available to ordinary shareholders on winding up of the Company in proportion to the number of fully paid ordinary shares held. On a show of hands every holder of fully paid ordinary shares present at a meeting in person or by proxy is entitled to one vote, and upon a poll one vote for each share held. Financial reportNotes to the financial statementsPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Financial
report
Notes to the
financial statements
8.3 Shareholder’s Equity (continued)
Retained Profits
Opening balance (1)
Group
Bank
30 Jun 18 30 Jun 17 30 Jun 18 30 Jun 17
$M
$M
$M
$M
26,274
23,379
22,256
20,374
Actuarial gains from defined benefit superannuation plans
161
175
159
175
Losses on liabilities at fair value due to changes in own credit risk
Realised gains and dividend income on treasury shares
(2)
16
(3)
26
(2)
-
(3)
-
Operating profit attributable to Equity holders of the Bank
9,329
9,928
8,875
8,979
Total available for appropriation
Transfers from/(to) general reserve
Transfers from asset revaluation reserve
Interim dividend - cash component
35,778
33,505
31,288
29,525
47
19
33
(27)
(4)
19
(2)
(30)
(2,969)
(2,871)
(2,969)
(2,871)
Interim dividend - Dividend Reinvestment Plan
(536)
(558)
(536)
(558)
Final dividend - cash component
(2,406)
(3,222)
(2,406)
(3,222)
Final dividend - Dividend Reinvestment Plan
(1,573)
(586)
(1,573)
(586)
Closing balance
28,360
26,274
23,819
22,256
(1) Comparative information has been restated to reflect the change in accounting policy to recognise deferred tax on brand names with indefinite useful lives acquired
by the Group detailed in Note 1.1.
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Financial Notes to the report financial statements 191 8.3 Shareholders’ Equity (continued) Group Bank 30 Jun 18 30 Jun 17 30 Jun 18 30 Jun 17 Reserves $M $M $M $M General Reserve Opening balance 906 939 580 578 Appropriation (to)/from retained profits (47) (33) 4 2 Closing balance 859 906 584 580 Capital Reserve Opening balance - - 1,254 1,254 Closing balance - - 1,254 1,254 Asset Revaluation Reserve Opening balance 223 173 196 147 Revaluation of properties 35 32 33 28 Transfer to retained profits (19) 27 (19) 30 Income tax effect (4) (9) (4) (9) Closing balance 235 223 206 196 Foreign Currency Translation Reserve Opening balance 457 739 35 46 Currency translation adjustments of foreign operations (9) (315) 39 (23) Currency translation on net investment hedge 15 14 14 12 Income tax effect (15) 19 - - Closing balance 448 457 88 35 Cash Flow Hedge Reserve Opening balance (107) 473 66 732 Gains and losses on cash flow hedging instruments: Recognised in other comprehensive income (260) (1,282) 6 (987) Transferred to Income Statement: Interest income (960) (1,241) (975) (1,226) Interest expense 1,160 1,684 985 1,258 Income tax effect 7 259 (12) 289 Closing balance (160) (107) 70 66 Employee Compensation Reserve Opening balance 164 132 164 132 Current period movement (19) 32 (25) 32 Closing balance 145 164 139 164 Available-for-Sale Investments Reserve Opening balance 226 278 261 226 Net gains and (losses) on revaluation of available-for-sale investments (185) 414 (135) 494 Net (gains) and losses on available-for-sale investments transferred to Income Statement on disposal 87 (464) 87 (447) Income tax effect 21 (2) 14 (12) Closing balance 149 226 227 261 Total Reserves 1,676 1,869 2,568 2,556 Financial reportNotes to the financial statementsPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Financial
report
Notes to the
financial statements
8.3 Shareholder’s Equity (continued)
Accounting Policy
Shareholder’s equity includes ordinary share capital, retained profits and reserves. Policies for each component are set out below:
Ordinary Share Capital:
Ordinary shares are recognised at the amount paid up per ordinary share, net of directly attributable issue costs. Where the Bank or
entities within 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.
Retained Profits:
Retained profits includes the accumulated profits for the Group including certain amounts recognised directly in retained profits less
dividends paid.
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 business.
Capital Reserve
The capital reserve held by the Bank relates to historic internal Group restructuring performed at fair value. The capital reserve is
eliminated on consolidation.
Asset Revaluation Reserve
The asset revaluation reserve is used to record revaluation adjustments on the Group’s property assets. Where an asset is sold or
disposed of any balance in the reserve in relation to the asset is transferred directly to retained profits.
Foreign Currency Translation Reserve
Exchange differences arising on translation of the Group’s foreign operations are accumulated in the foreign currency translation
reserve. Specifically assets and liabilities are translated at the prevailing exchange rate at Balance Sheet date; revenue and expenses
are translated at the transaction date; and all resulting exchange differences are recognised in the foreign currency translation reserve.
When a foreign operation is disposed of, exchange differences are recycled out of the reserve and recognised in the Income Statement.
Cash Flow Hedge Reserve
The cash flow hedge reserve is used to record fair value gains or losses associated with the effective portion of designated cash flow
hedging instruments. Amounts are reclassified to profit or loss when the hedged transaction impacts profit or loss.
Employee Compensation Reserve
The employee compensation reserve is used to recognise the fair value of shares and other equity instruments issued to employees
under the employee share plans and bonus schemes.
Available-for-Sale Investment Reserve
The available-for-sale investment reserve includes changes in the fair value of available-for-sale financial assets. These changes are
transferred to profit or loss when the asset is derecognised or impaired.
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Financial Notes to the report financial statements 193 8.4 Dividends Group Bank 30 Jun 18 30 Jun 17 30 Jun 16 30 Jun 18 30 Jun 17 Note $M $M $M $M $M Ordinary Shares Interim ordinary dividend (fully franked) (2018: 200 cents; 2017: 199 cents; 2016: 198 cents) Interim ordinary dividend paid - cash component only 2,969 2,871 2,829 2,969 2,871 Interim ordinary dividend paid - Dividend Reinvestment Plan 536 558 552 536 558 Total dividend paid 3,505 3,429 3,381 3,505 3,429 Other Equity Instruments Dividend paid - - 56 - - Total dividend provided for, reserved or paid 3,505 3,429 3,437 3,505 3,429 Other provision carried 113 100 90 113 100 Dividend proposed and not recognised as a liability (fully franked) (2018: 231 cents; 2017: 230 cents; 2016: 222 cents) (1) 4,065 3,979 3,808 4,065 3,979 Provision for dividends Opening balance 100 90 82 100 90 Provision made during the year 7,484 7,237 6,994 7,484 7,237 Provision used during the year (7,471) (7,227) (6,986) (7,471) (7,227) Closing balance 7.1 113 100 90 113 100 (1) The 2018 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 $622 million. The 2017 final dividend was satisfied by cash disbursements of $2,406 million and $1,573 million being reinvested by the participants through the DRP. The 2016 final dividend was satisfied by cash disbursements $3,222 million and $586 million being reinvested by the participants through the DRP. Final Dividend The Directors have declared a franked final dividend of 231 cents per share amounting to $4,065 million. The dividend will be payable on 28 September 2018 to shareholders on the register at 5pm AEST on 16 August 2018. The ex-dividend date is 15 August 2018. The Board determines the dividends based on the Group’s net profit after tax (“cash basis”) per share, having regard to a range of factors including: Current and expected rates of business growth and the mix of business; Capital needs to support economic, regulatory and credit ratings requirements; Investments and/or divestments to support business development; Competitors comparison and market expectations; and Earnings per share growth. 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 2018 to frank dividends for subsequent financial years, is $1,464 million (2017: $1,067 million). This figure is based on the franking accounts of the Bank at 30 June 2018, 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 2018. Financial reportNotes to the financial statementsPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Financial
report
Notes to the
financial statements
8.4 Dividends (continued)
Dividend History
Half year ended
31 December 2015
30 June 2016
Cents Per
Share
Payment Date
198
31/03/2016
222
29/09/2016
31 December 2016
199
04/04/2017
30 June 2017
230
29/09/2017
31 December 2017
200
28/03/2018
30 June 2018
231
28/09/2018
Half-year
Payout
Ratio (1)
%
Full Year
Payout
Ratio (1)
%
DRP
Price
$
DRP
Participation
Rate (2)
%
73. 6
83. 1
70. 1
79. 0
71. 4
91. 9
-
72. 68
78. 4
72. 95
-
83. 21
74. 6
75. 73
-
75. 38
81. 2
-
16. 3
15. 4
16. 3
39. 5
15. 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.
Accounting Policy
Dividends represent a distribution of profits that holders of ordinary shares receive from time to time. Dividends are not accrued as a
liability until a dividend declaration is made by the Board of the Bank. The liability is reduced when the dividend is paid. The Board takes
into consideration factors including the Group’s relative capital strength and the Group’s existing dividend payout ratio guidelines in
determining the amount of dividends to be paid.
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Financial Notes to the report financial statements 195 9) Risk Management Overview The Group is exposed to both financial and non-financial risks arising from its operations. The Group manages these risks through its Risk Management Framework (Framework) that evolves with emerging risks arising from the changing business environment, better practice approaches and regulatory and community expectations. The components of the Framework are illustrated below. Following the publication in April of the Prudential Inquiry Panel report to APRA, the Group has committed to implement all of its recommendations. A number of the resulting actions will strengthen the Framework, particularly for the Operational and Compliance risk types. The Action Plan to deliver these changes has been endorsed by APRA and the changes will be embedded into the framework on the basis agreed. Further details on each of the material risks, and how the Group manages them are outlined in this note. 9.1 Risk Management Framework The Group’s embedded Framework 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 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 Risk Management Approach (RMA) describes how the Group ensures the comprehensive management of risks across the Group in support of achieving its strategic goals. The Group Business Plan (Plan) summarises the Group’s approach to the implementation of its strategic objectives. The Plan has a rolling three year duration and reflects material risks arising from its implementation. The Framework is underpinned by key foundational components, in particular: Risk Culture and Conduct Risk 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. Culture is a key driver of conduct. The RAS requires business practices that are fair to the Group’s customers and protects the fair and efficient operation of the market. This defines the Group’s standard of good conduct. The Group’s risk culture emphasises doing what is right, accountability, service, excellence and getting things done. APRA requires the CBA 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. Financial reportNotes to the financial statementsPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Financial
report
Notes to the
financial statements
9.1 Risk Management Framework (continued)
Trust and Reputation
The reputation of the Group and trust of stakeholders are
significant assets. Damage to the Group’s reputation arises from
negative perception on the part of customers, counterparties,
investors, debt holders, market analysts,
shareholders,
regulators and other relevant stakeholders of the Group. The
Group’s purpose and values combined with the organisational
culture and our conduct as an organisation and as individuals
form the framework which protects this asset. Potential adverse
reputational impacts are managed as an outcome of the Group’s
material risks.
the Group has a corporate
responsibility plan focused on driving positive change through
education, innovation and good business practice.
In addition
The four key elements that operationalise the Framework are:
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:
Monitors the Group’s risk profile (including identification
of emerging risks);
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
leadership team and executive management) and
reports any significant issues to the Board; and
Forms a view on the independence of the risk function
by meeting with the Group Chief Risk Officer (CRO) at
the will of the Risk Committee or the CRO.
The Group is rolling out a new Three Lines of Accountability
(3LoA) model which places accountability for risk ownership with
Line 1 Business Units (BUs) while focussing the mandate of Line
2 Risk Teams on appetite and framework, oversight, assurance,
challenge and advice (and elevates Line 1 Profit and Loss
owners as accountable
management).
for decision making and
risk
Line 3 Audit provides independent assurance to the Board,
regulators and other stakeholders of the effectiveness of risk
management, internal controls and governance. This model
recognises that the business is best positioned to make optimal
long-term risk-reward decisions that consider the full end-to-end
value chain.
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;
Quantifying
the
financial operating
tolerances
for
material risks; and
Clearly stating the types of risk outcomes to which the
Group is intolerant.
Risk Reporting
Regular management information is produced which allows
financial and risk positions to be monitored against approved
Risk Appetite and policy limits. At Board level, the majority of
risk reporting is provided to the Board Risk Committee although
select matters (e.g. regulatory relationships, strategic risk and
reputational matters, capital, liquidity risk) are reported directly
to the Board. Controls reporting is provided to the Audit
Committee. The Chairs of the Board Risk and Audit Committees
report to the Board following each Committee meeting.
Risk Management Infrastructure
The Framework is supported by systems and processes that
together provide the infrastructure for the management of the
Group’s material risk types. The key risk management systems
and processes in place include:
A Management Information System to measure and
aggregate risks across the Group;
A Risk-Adjusted-Performance Measurement (RAPM)
process which is a means of assessing the performance
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.
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Financial Notes to the report financial statements 197 9.1 Risk Management (continued) Material Risks A description of the material 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 9.2) 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 Principles, Framework and Governance Group and Business Unit Credit Risk Policies Key Management Committee: Executive Risk Committee The following credit concentration frameworks set credit portfolio concentration limits: Large Credit Exposure Policy; Country Risk Exposure Policy; and Industry Sector Concentration Policy. Credit quality metrics with associated limits are set in the Group RAS for corporate and retail exposures and cascaded to BUs. Group and BU Credit Risk Policies cover the credit risk exposure cycle. The measurement of credit risk is primarily based on the APRA accredited Advanced Internal Ratings Based (AIRB) approach. Market Risk (including Equity Risk) (refer to Note 9.3) 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 operating leased assets at maturity (lease residual value risk). Governing Policies: The Group Market Risk Policy Key Management Committee: Asset and Liability Committee 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; Aggregate Residual Value Risk Weighted Exposure, Aggregate Residual Value Risk Margin; Aggregate Portfolio Limit; and Value at Risk. Liquidity and Funding Risk (refer to Note 9.4) 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 Key Management Committee: Asset and Liability Committee 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; The Net Stable Funding Ratio, which encourages stable funding of core assets; 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. Financial reportNotes to the financial statementsPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Financial
report
Notes to the
financial statements
9.1 Risk Management (continued)
Risk Type
Description
Governing Policies and Key
Management Committees
Key Limits, Standards and Measurement
Approaches
Governing Policies:
Operational Risk
Management Framework
(ORMF)
Group and Business Unit
Operational Risk Policies
Key Management Committee:
Executive Leadership Team
Non- Financial Risk Committee.
Governing Policies:
Group Compliance Risk
Management Framework
(CRMF)
Group and Business Unit
Compliance Policies
Key Management Committee:
Executive Leadership Team
Non- Financial Risk Committee.
Governing Policies:
Product Management
Policy
Underwriting Policy
Claims Management
Policy
Reinsurance Management
Policy
Key Management Committee:
Executive Committees of
insurance writing businesses
Losses;
Residual Risk;
Internal Control environment; and
Issues.
Group Risk Appetite Statement- Operational
Risk metric in respect of:
The measurement of operational risk capital
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 CRMF sets the standards on how the Group
identifies, assesses, manages, monitors and
reports on Compliance Risk.
The CRMF is supported by a number of key
policies which are set out in the Group Risk
Management Approach (RMA).
Compliance Risk Measures are included in the
Group RAS.
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.
Operational
Risk
Operational risk is the risk of loss
resulting from inadequate or failed
internal processes, people and systems
or from external events.
Compliance
Risk
Insurance
Risk
Compliance risk is the risk of sanctions,
financial loss, or reputational damage
we may suffer as a result of the Group’s
failure to comply with laws, regulations,
rules, statements of regulatory policy,
and codes of conduct applicable to its
business activities (not including
operational risk failures) and includes
societal expectations.
Financial crime represents a sub-
component of Compliance Risk and
covers risks including Anti Money
Laundering, Counter Terrorism
Financing, Anti-Bribery and Corruption,
and sanctions.
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.
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Financial Notes to the report financial statements 199 9.1 Risk Management (continued) Risk Type Description Governing Policies and Key Management Committees Key Limits, Standards and Measurement Approaches Strategic Risk Strategic Risk is the risk of material value destruction or less than planned value creation arising from changes in the business environment (caused by macro-economic conditions, competitive forces at work, technology, regulatory, political and social trends, customer preference and the environment or internal weaknesses, such as a poorly implemented or flawed strategy). Governing Policies: The management of Strategic Risks is intrinsically interconnected with business management and is driven by the Group’s Strategic Planning Cycle. Key Management Committee: Executive Leadership Team Strategic risks are overseen by the Board. The Group’s approach to managing Strategic Risks is to select a strategy that is expected to maximise long-term value for shareholders. While considering Group and BU strategic plans, the Board considers the most significant risks (current and emerging) arising from these plans. Strategic risk is assessed by using scenario analysis and stress testing to understand the potential impacts of changes in the external operating environment. The findings from these assessments are used to inform mitigating actions, including incorporating contingency (where appropriate) into the strategic and financial plans. Potential adverse climate change impacts are measured and managed as an outcome of all other material risks. In support of our commitment to limiting climate change in line with the Paris Agreement and the responsible global transition to net zero emissions by 2050 we: Develop scenario analyses to understand the impacts of both transition and physical climate-related risks in our business and the implications for strategic and tactical portfolio decisions; and Have developed strong policy frameworks which consider Environmental, Social and Governance (ESG) issues, including climate change impacts in assessing our relationships with customers and suppliers. In addition, Corporate Responsibility programs: Outline our objectives for safeguarding the environment, whilst supporting economic growth and development; and Provide guidelines in monitoring and reducing our own greenhouse gas emissions and energy use. Financial reportNotes to the financial statementsPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Financial
report
Notes to the
financial statements
9.2 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.
The Group’s credit policies and
include
concentration limits which are designed to achieve portfolio
outcomes that are consistent with the Group’s risk appetite
and risk/return expectations.
frameworks
for
The Credit Portfolio Assurance unit, part of Group Audit and
Assurance, reviews credit portfolios and business unit
compliance with credit policies, frameworks, 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-
decisioning requirements may be referred to a Personal Credit
Approval Authority (PCAA) for manual decisioning.
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. Loans past due are reviewed
by the relevant Risk Management/ Business Unit Arrears
Management or Financial Assistance Team.
judgement is used where the complexity of the transaction
and/or the counterparty is such that it is inappropriate to rely
completely on a statistical model. External ratings may be
used for benchmarking in the expert judgement assessment.
The CRR is designed to:
Aid in assessing changes to counterparty credit quality;
Influence decisions on approval, management and
pricing of individual credit facilities; and
Provide the basis for reporting details of the Group's
credit portfolio.
Credit risk-rated exposures are generally reviewed on an
individual basis, at least annually, 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
(maximising
facilitate
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
classified as impaired.
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 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 the Credit Rating Governance Committee.
(ii) Risk-Rated Segment
(i) Expected Loss
PD;
Expected Loss (EL) is the product of:
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.
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).
Either a PD Rating Tool or expert judgement is used to
determine the PD for customers in this segment. Expert
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Financial Notes to the report financial statements 201 9.2 Credit Risk (continued) Credit Risk Measurement (continued) EAD is the estimate of the amount of a facility that will be outstanding under a facility in the event of default. Estimates are based on a downturn in economic conditions. The estimate is based on the actual amount outstanding, plus the undrawn amount multiplied by a credit conversion factor (CCF). The CCF represents the potential rate of conversion from undrawn 12 months prior to default to drawn at default. For most committed facilities, the Group applies a CFF of 100% to the undrawn amount. 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 into homogeneous pools to calculate EAD. LGD expressed as a percentage, is the estimated proportion of a facility likely to be lost in the event of default. LGD is impacted by Type and level of any collateral held; Liquidity and volatility of collateral; Carrying costs (effectively the costs of providing a facility that is not generating an interest return); and Realisation costs. 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 held as 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 8.1 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. These include 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 liquid asset balance included $21,148 million (2017: $20,307 million) deposited with central banks and is considered to carry less credit risk. 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). 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. Derivative Assets The Group’s use of derivative contracts is outlined in Note 5.4. The Group is exposed to counterparty credit risk on derivative contracts. The counterparty credit risk is affected by the nature of the trades, the counterparty, netting, and collateral arrangements. Credit risk from derivatives is mitigated where possible (typically for financial institutions counterparties, but less frequently for corporate or government counterparties) through netting agreements, whereby derivative assets and liabilities with the same counterparty can be offset and cleared 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. The fair value of collateral held and the potential effect of offset obtained by applying master netting agreements are disclosed in Note 9.7. Financial reportNotes to the financial statementsPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Financial
report
Notes to the
financial statements
9.2 Credit Risk (continued)
Due from Controlled Entities
Mortgages over residential and commercial real estate;
Collateral is not generally taken on these intergroup balances.
and
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,
$100,110 million (2017: $100,078 million) are secured.
Loans, Bills Discounted and Other Receivables
The principal collateral types for loans and receivable
balances are:
Charges over business assets such as cash, shares,
inventory, fixed assets and accounts receivables.
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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Financial Notes to the report financial statements 203 9.2 Credit Risk (continued) Maximum Exposure to Credit Risk by Industry and Asset Class before Collateral Held or Other Credit Enhancements Group At 30 June 2018 Bank and Asset Other Agri- Other Home Constr- Other Financ- Comm and Sovereign culture Financial Loans uction Personal ing Indust. Other Total $M $M $M $M $M $M $M $M $M $M Australia Credit risk exposures relating to on Balance Sheet assets: Cash and liquid assets 4,461 - 10,974 - - - - - - 15,435 Receivables due from other financial institutions - - 2,644 - - - - - - 2,644 Assets at fair value through Income Statement: Trading 15,917 - 2,780 - - - - 10,223 - 28,920 Other 49 - 209 - - - - - - 258 Derivative assets 1,371 45 20,865 - 4 - - 1,736 - 24,021 Available-for-sale investments 39,906 - 26,525 - - - - 298 - 66,729 Loans, bills discounted and other receivables (1) 16,823 8,998 12,951 451,367 3,028 23,658 8,581 118,681 - 644,087 Bank acceptances - 2 - - 2 - - 35 - 39 Other assets (2) 1,030 4 4,272 - 1 7 - 237 15,100 20,651 Assets held for sale 1,521 - 4,585 - - - 4,172 3,136 13,414 Total on Balance Sheet Australia 81,078 9,049 85,805 451,367 3,035 23,665 8,581 135,382 18,236 816,198 Credit risk exposures relating to off Balance Sheet assets: Guarantees 44 18 991 6 307 - - 3,059 - 4,425 Loan commitments 907 1,750 7,837 66,483 2,439 21,783 - 34,995 - 136,194 Other commitments 54 22 736 1 1,357 - 10 3,021 - 5,201 Total Australia 82,083 10,839 95,369 517,857 7,138 45,448 8,591 176,457 18,236 962,018 Overseas Credit risk exposures relating to on Balance Sheet assets: Cash and liquid assets 16,688 - 4,294 - - - - - - 20,982 Receivables due from other financial institutions - - 6,578 - - - - - - 6,578 Assets at fair value through Income Statement: Trading 2,161 - 1,085 - - - - 88 - 3,334 Insurance 358 - 14 - - - - - - 372 Other - - - - - - - - - - Derivative assets 348 16 4,586 - - - - 3,162 - 8,112 Available-for-sale investments 12,515 - 2,995 - - - - 1 - 15,511 Loans, bills discounted and other receivables (1) 1,571 9,930 7,075 50,298 638 1,844 457 32,129 - 103,942 Bank acceptances - - - - - - - 340 - 340 Other assets (2) 30 - 798 2 - 3 10 43 1,334 2,220 Assets held for sale - - 1,788 - - - - - 452 2,240 Total on Balance Sheet overseas 33,671 9,946 29,213 50,300 638 1,847 467 35,763 1,786 163,631 Credit risk exposures relating to off Balance Sheet assets: Guarantees 1 9 1,486 - 40 - - 304 - 1,840 Loan commitments 349 1,007 4,266 7,268 230 1,977 - 10,799 - 25,896 Other commitments 9 5 607 - 1 - - 1,018 - 1,640 Total overseas 34,030 10,967 35,572 57,568 909 3,824 467 47,884 1,786 193,007 Total gross credit risk 116,113 21,806 130,941 575,425 8,047 49,272 9,058 224,341 20,022 1,155,025 (1) Loans, bills discounted and other receivables is presented gross of provisions for impairment and unearned income in line with Note 3.1. (2) For the purpose of reconciling to the Balance Sheet, “Other Assets” predominantly comprises assets which do not give rise to credit exposure, including Property, plant and equipment, Investment in Associates and Joint Ventures, Intangible Assets, Deferred tax assets and Other assets. Commonwealth Bank of AustraliaAnnual Report 2018Financial reportNotes to the financial statements
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Financial Notes to the report financial statements 203 9.2 Credit Risk (continued) Maximum Exposure to Credit Risk by Industry and Asset Class before Collateral Held or Other Credit Enhancements Group At 30 June 2018 Bank and Asset Other Agri- Other Home Constr- Other Financ- Comm and Sovereign culture Financial Loans uction Personal ing Indust. Other Total $M $M $M $M $M $M $M $M $M $M Australia Credit risk exposures relating to on Balance Sheet assets: Cash and liquid assets 4,461 - 10,974 - - - - - - 15,435 Receivables due from other financial institutions - - 2,644 - - - - - - 2,644 Assets at fair value through Income Statement: Trading 15,917 - 2,780 - - - - 10,223 - 28,920 Other 49 - 209 - - - - - - 258 Derivative assets 1,371 45 20,865 - 4 - - 1,736 - 24,021 Available-for-sale investments 39,906 - 26,525 - - - - 298 - 66,729 Loans, bills discounted and other receivables (1) 16,823 8,998 12,951 451,367 3,028 23,658 8,581 118,681 - 644,087 Bank acceptances - 2 - - 2 - - 35 - 39 Other assets (2) 1,030 4 4,272 - 1 7 - 237 15,100 20,651 Assets held for sale 1,521 - 4,585 - - - 4,172 3,136 13,414 Total on Balance Sheet Australia 81,078 9,049 85,805 451,367 3,035 23,665 8,581 135,382 18,236 816,198 Credit risk exposures relating to off Balance Sheet assets: Guarantees 44 18 991 6 307 - - 3,059 - 4,425 Loan commitments 907 1,750 7,837 66,483 2,439 21,783 - 34,995 - 136,194 Other commitments 54 22 736 1 1,357 - 10 3,021 - 5,201 Total Australia 82,083 10,839 95,369 517,857 7,138 45,448 8,591 176,457 18,236 962,018 Overseas Credit risk exposures relating to on Balance Sheet assets: Cash and liquid assets 16,688 - 4,294 - - - - - - 20,982 Receivables due from other financial institutions - - 6,578 - - - - - - 6,578 Assets at fair value through Income Statement: Trading 2,161 - 1,085 - - - - 88 - 3,334 Insurance 358 - 14 - - - - - - 372 Other - - - - - - - - - - Derivative assets 348 16 4,586 - - - - 3,162 - 8,112 Available-for-sale investments 12,515 - 2,995 - - - - 1 - 15,511 Loans, bills discounted and other receivables (1) 1,571 9,930 7,075 50,298 638 1,844 457 32,129 - 103,942 Bank acceptances - - - - - - - 340 - 340 Other assets (2) 30 - 798 2 - 3 10 43 1,334 2,220 Assets held for sale - - 1,788 - - - - - 452 2,240 Total on Balance Sheet overseas 33,671 9,946 29,213 50,300 638 1,847 467 35,763 1,786 163,631 Credit risk exposures relating to off Balance Sheet assets: Guarantees 1 9 1,486 - 40 - - 304 - 1,840 Loan commitments 349 1,007 4,266 7,268 230 1,977 - 10,799 - 25,896 Other commitments 9 5 607 - 1 - - 1,018 - 1,640 Total overseas 34,030 10,967 35,572 57,568 909 3,824 467 47,884 1,786 193,007 Total gross credit risk 116,113 21,806 130,941 575,425 8,047 49,272 9,058 224,341 20,022 1,155,025 (1) Loans, bills discounted and other receivables is presented gross of provisions for impairment and unearned income in line with Note 3.1. (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. Financial Notes to the report financial statements 203 9.2 Credit Risk (continued) Maximum Exposure to Credit Risk by Industry and Asset Class before Collateral Held or Other Credit Enhancements Group At 30 June 2018 Bank and Asset Other Agri- Other Home Constr- Other Financ- Comm and Sovereign culture Financial Loans uction Personal ing Indust. Other Total $M $M $M $M $M $M $M $M $M $M Australia Credit risk exposures relating to on Balance Sheet assets: Cash and liquid assets 4,461 - 10,974 - - - - - - 15,435 Receivables due from other financial institutions - - 2,644 - - - - - - 2,644 Assets at fair value through Income Statement: Trading 15,917 - 2,780 - - - - 10,223 - 28,920 Other 49 - 209 - - - - - - 258 Derivative assets 1,371 45 20,865 - 4 - - 1,736 - 24,021 Available-for-sale investments 39,906 - 26,525 - - - - 298 - 66,729 Loans, bills discounted and other receivables (1) 16,823 8,998 12,951 451,367 3,028 23,658 8,581 118,681 - 644,087 Bank acceptances - 2 - - 2 - - 35 - 39 Other assets (2) 1,030 4 4,272 - 1 7 - 237 15,100 20,651 Assets held for sale 1,521 - 4,585 - - - 4,172 3,136 13,414 Total on Balance Sheet Australia 81,078 9,049 85,805 451,367 3,035 23,665 8,581 135,382 18,236 816,198 Credit risk exposures relating to off Balance Sheet assets: Guarantees 44 18 991 6 307 - - 3,059 - 4,425 Loan commitments 907 1,750 7,837 66,483 2,439 21,783 - 34,995 - 136,194 Other commitments 54 22 736 1 1,357 - 10 3,021 - 5,201 Total Australia 82,083 10,839 95,369 517,857 7,138 45,448 8,591 176,457 18,236 962,018 Overseas Credit risk exposures relating to on Balance Sheet assets: Cash and liquid assets 16,688 - 4,294 - - - - - - 20,982 Receivables due from other financial institutions - - 6,578 - - - - - - 6,578 Assets at fair value through Income Statement: Trading 2,161 - 1,085 - - - - 88 - 3,334 Insurance 358 - 14 - - - - - - 372 Other - - - - - - - - - - Derivative assets 348 16 4,586 - - - - 3,162 - 8,112 Available-for-sale investments 12,515 - 2,995 - - - - 1 - 15,511 Loans, bills discounted and other receivables (1) 1,571 9,930 7,075 50,298 638 1,844 457 32,129 - 103,942 Bank acceptances - - - - - - - 340 - 340 Other assets (2) 30 - 798 2 - 3 10 43 1,334 2,220 Assets held for sale - - 1,788 - - - - - 452 2,240 Total on Balance Sheet overseas 33,671 9,946 29,213 50,300 638 1,847 467 35,763 1,786 163,631 Credit risk exposures relating to off Balance Sheet assets: Guarantees 1 9 1,486 - 40 - - 304 - 1,840 Loan commitments 349 1,007 4,266 7,268 230 1,977 - 10,799 - 25,896 Other commitments 9 5 607 - 1 - - 1,018 - 1,640 Total overseas 34,030 10,967 35,572 57,568 909 3,824 467 47,884 1,786 193,007 Total gross credit risk 116,113 21,806 130,941 575,425 8,047 49,272 9,058 224,341 20,022 1,155,025 (1) Loans, bills discounted and other receivables is presented gross of provisions for impairment and unearned income in line with Note 3.1. (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. Financial Notes to the report financial statements 203 9.2 Credit Risk (continued) Maximum Exposure to Credit Risk by Industry and Asset Class before Collateral Held or Other Credit Enhancements Group At 30 June 2018 Bank and Asset Other Agri- Other Home Constr- Other Financ- Comm and Sovereign culture Financial Loans uction Personal ing Indust. Other Total $M $M $M $M $M $M $M $M $M $M Australia Credit risk exposures relating to on Balance Sheet assets: Cash and liquid assets 4,461 - 10,974 - - - - - - 15,435 Receivables due from other financial institutions - - 2,644 - - - - - - 2,644 Assets at fair value through Income Statement: Trading 15,917 - 2,780 - - - - 10,223 - 28,920 Other 49 - 209 - - - - - - 258 Derivative assets 1,371 45 20,865 - 4 - - 1,736 - 24,021 Available-for-sale investments 39,906 - 26,525 - - - - 298 - 66,729 Loans, bills discounted and other receivables (1) 16,823 8,998 12,951 451,367 3,028 23,658 8,581 118,681 - 644,087 Bank acceptances - 2 - - 2 - - 35 - 39 Other assets (2) 1,030 4 4,272 - 1 7 - 237 15,100 20,651 Assets held for sale 1,521 - 4,585 - - - 4,172 3,136 13,414 Total on Balance Sheet Australia 81,078 9,049 85,805 451,367 3,035 23,665 8,581 135,382 18,236 816,198 Credit risk exposures relating to off Balance Sheet assets: Guarantees 44 18 991 6 307 - - 3,059 - 4,425 Loan commitments 907 1,750 7,837 66,483 2,439 21,783 - 34,995 - 136,194 Other commitments 54 22 736 1 1,357 - 10 3,021 - 5,201 Total Australia 82,083 10,839 95,369 517,857 7,138 45,448 8,591 176,457 18,236 962,018 Overseas Credit risk exposures relating to on Balance Sheet assets: Cash and liquid assets 16,688 - 4,294 - - - - - - 20,982 Receivables due from other financial institutions - - 6,578 - - - - - - 6,578 Assets at fair value through Income Statement: Trading 2,161 - 1,085 - - - - 88 - 3,334 Insurance 358 - 14 - - - - - - 372 Other - - - - - - - - - - Derivative assets 348 16 4,586 - - - - 3,162 - 8,112 Available-for-sale investments 12,515 - 2,995 - - - - 1 - 15,511 Loans, bills discounted and other receivables (1) 1,571 9,930 7,075 50,298 638 1,844 457 32,129 - 103,942 Bank acceptances - - - - - - - 340 - 340 Other assets (2) 30 - 798 2 - 3 10 43 1,334 2,220 Assets held for sale - - 1,788 - - - - - 452 2,240 Total on Balance Sheet overseas 33,671 9,946 29,213 50,300 638 1,847 467 35,763 1,786 163,631 Credit risk exposures relating to off Balance Sheet assets: Guarantees 1 9 1,486 - 40 - - 304 - 1,840 Loan commitments 349 1,007 4,266 7,268 230 1,977 - 10,799 - 25,896 Other commitments 9 5 607 - 1 - - 1,018 - 1,640 Total overseas 34,030 10,967 35,572 57,568 909 3,824 467 47,884 1,786 193,007 Total gross credit risk 116,113 21,806 130,941 575,425 8,047 49,272 9,058 224,341 20,022 1,155,025 (1) Loans, bills discounted and other receivables is presented gross of provisions for impairment and unearned income in line with Note 3.1. (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. Financial reportNotes to the financial statementsPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Notes to the
Notes to the
Notes to the
financial statements
financial statements
financial statements
Financial
Financial
Financial
report
report
report
9.2 Credit Risk (continued)
9.2 Credit Risk (continued)
9.2 Credit Risk (continued)
Maximum Exposure to Credit Risk by Industry and Asset Class before Collateral Held or Other Credit Enhancements
Maximum Exposure to Credit Risk by Industry and Asset Class before Collateral Held or Other Credit Enhancements
(continued)
(continued)
Maximum Exposure to Credit Risk by Industry and Asset Class before Collateral Held or Other Credit Enhancements
(continued)
Group (1)
Group (1)
At 30 June 2017
Group (1)
At 30 June 2017
At 30 June 2017
Agri-
Agri-
culture
Agri-
culture
$M
culture
$M
$M
Bank and
Bank and
Other
Bank and
Other
Financial
Other
Financial
$M
Financial
$M
$M
Home Constr-
Home Constr-
Loans
Loans
$M
$M
Home Constr-
Loans
$M
uction Personal
$M
uction Personal
$M
$M
uction Personal
$M
$M
Asset
Other Financ-
ing
$M
Asset
Asset
Other Financ-
Other Financ-
ing
ing
$M
$M
Other
Other
Comm and
Other
Comm and
Indust.
Comm and
Indust.
$M
Indust.
$M
$M
$M
Other
Other
$M
$M
Other
$M
Sovereign
Sovereign
$M
$M
Sovereign
$M
Australia
Australia
Australia
Credit risk exposures relating to on Balance Sheet assets:
Credit risk exposures relating to on Balance Sheet assets:
Credit risk exposures relating to on Balance Sheet assets:
Cash and liquid assets
Cash and liquid assets
Cash and liquid assets
Receivables due from other
Receivables due from other
Receivables due from other
financial institutions
financial institutions
financial institutions
Assets at fair value through
Assets at fair value through
Assets at fair value through
Income Statement:
Income Statement:
Income Statement:
4,711
4,711
4,711
-
-
-
-
-
-
-
-
-
21,929
21,929
21,929
2,565
2,565
2,565
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
53
53
-
-
-
53
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
8,811
8,811
8,811
3,535
3,535
3,535
453
453
4,668
453
4,668
4,668
294
294
294
-
-
-
-
-
-
-
-
-
56
56
-
-
-
56
1,545
1,545
1,545
5,806
5,806
5,806
607
607
607
20,037
20,037
20,037
27,126
27,126
27,126
Total
$M
Total
$M
Total
$M
26,640
26,640
26,640
2,565
2,565
2,565
28,463
28,463
11,472
28,463
11,472
1,111
11,472
1,111
25,995
1,111
25,995
25,995
68,743
68,743
68,743
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Trading
Trading
Trading
Insurance
Insurance
Insurance
Other
Other
Other
Derivative assets
Derivative assets
Derivative assets
Available-for-sale
Available-for-sale
Available-for-sale
investments
investments
investments
Loans, bills discounted
Loans, bills discounted
Loans, bills discounted
and other receivables (2)
and other receivables (2)
and other receivables (2)
Bank acceptances
Bank acceptances
Bank acceptances
Other assets (3)
Other assets (3)
Other assets (3)
Total on Balance Sheet
Total on Balance Sheet
Australia
Total on Balance Sheet
Australia
Australia
18,107
18,107
18,107
2,131
2,131
2,131
51
51
51
1,181
1,181
1,181
41,323
41,323
41,323
-
18,085
18,085
18,085
-
1,460
1,460
1,460
87,049
87,049
87,049
-
8,784
15,425
436,184
3,765
23,183
7,872
120,638
15,425
-
15,425
-
4,073
-
4,073
4,073
99,113
436,184
436,184
-
-
-
-
-
-
436,184
3,765
3,765
1
1
1
4
4
3,823
4
23,183
23,183
-
7,872
-
6
-
6
6
23,189
7,872
-
-
-
-
-
7,872
-
-
633,936
-
-
633,936
633,936
41
120,638
120,638
38
38
359
-
17,056
38
17,056
359
17,056
-
41
22,974
41
22,974
22,974
17,056
821,940
359
138,796
99,113
99,113
436,184
436,184
3,823
3,823
23,189
23,189
7,872
7,872
138,796
138,796
17,056
17,056
821,940
821,940
8,784
8,784
2
2
16
2
16
16
8,858
8,858
8,858
1,092
1,092
1,092
7,439
7,439
7,439
1,040
1,040
108,684
1,040
108,684
108,684
8
8
66,869
8
66,869
66,869
1
1
1
503,062
503,062
503,062
2,973
510
510
2,973
510
2,973
962
962
8,268
962
8,268
8,268
-
22,495
-
22,495
-
22,495
-
-
45,684
-
45,684
45,684
-
-
-
-
10
-
-
10
7,882
10
7,882
7,882
4,321
4,321
39,467
4,321
39,467
39,467
1,849
-
-
-
-
-
1,849
184,433
1,849
-
17,056
184,433
17,056
184,433
17,056
142,005
5,997
5,997
142,005
5,997
142,005
3,934
3,934
973,876
3,934
-
-
-
973,876
973,876
-
-
-
-
-
-
-
16
50
30
16
42
50
109
795
109
109
1,967
10,871
10,871
2,264
2,264
16
1,967
15,595
15,595
15,595
1,967
30
30
10,871
50
795
795
42
42
87,936
87,936
87,936
Credit risk exposures relating to off Balance Sheet assets:
Credit risk exposures relating to off Balance Sheet assets:
Credit risk exposures relating to off Balance Sheet assets:
Guarantees
Guarantees
Guarantees
Loan commitments
Loan commitments
Loan commitments
Other commitments
Other commitments
Other commitments
Total Australia
Total Australia
Total Australia
Overseas
Overseas
Overseas
Credit risk exposures relating to on Balance Sheet assets:
Credit risk exposures relating to on Balance Sheet assets:
Credit risk exposures relating to on Balance Sheet assets:
Cash and liquid assets
Cash and liquid assets
Cash and liquid assets
Receivables due from other
Receivables due from other
Receivables due from other
financial institutions
financial institutions
Assets at fair value through
financial institutions
Assets at fair value through
Income Statement:
Assets at fair value through
Income Statement:
Income Statement:
Trading
Trading
Insurance
Trading
Insurance
Other
Insurance
Other
Derivative assets
Other
Derivative assets
Available-for-sale
Derivative assets
Available-for-sale
investments
investments
Available-for-sale
Loans, bills discounted
investments
Loans, bills discounted
and other receivables (2)
and other receivables (2)
Loans, bills discounted
Bank acceptances
and other receivables (2)
Bank acceptances
Other assets (3)
Other assets (3)
Bank acceptances
Total on Balance Sheet
Other assets (3)
Total on Balance Sheet
overseas
overseas
Total on Balance Sheet
overseas
Credit risk exposures relating to off Balance Sheet assets:
Credit risk exposures relating to off Balance Sheet assets:
Guarantees
Guarantees
Credit risk exposures relating to off Balance Sheet assets:
Loan commitments
Loan commitments
Guarantees
Other commitments
Other commitments
Loan commitments
Total overseas
Total overseas
Other commitments
Total gross credit risk
Total gross credit risk
Total overseas
881
5
5
881
284
26
26
284
-
-
9,848
-
-
-
1,900
41
41
-
354
-
412
11,832
11,832
120,754
120,754
354
2,264
354
32,507
32,507
32,818
32,818
1,900
1,900
-
19
19
-
-
11,832
32,507
32,818
10,755
10,755
21,626
21,626
10,755
9,867
9,848
9,867
9,867
9,848
412
284
881
412
41
26
19
2
1
5
2
1
2
1
-
-
-
-
-
-
-
-
-
-
-
-
-
3,615
3,615
3,615
7,363
7,363
7,363
1,712
1,712
1,843
1,843
1,712
-
1,843
-
3,037
-
3,037
3,037
2,959
2,959
2,959
5,775
5,775
-
-
5,775
413
413
-
26,717
26,717
413
26,717
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
265
265
-
-
265
-
-
-
2,261
2,261
-
-
-
-
-
-
-
-
-
-
2,261
1
1
-
-
1
19,210
19,210
19,210
7,472
7,472
7,472
4,241
4,241
2,197
4,241
2,197
-
2,197
-
5,729
5,729
-
14,792
14,792
5,729
14,792
-
-
-
-
49,673
49,673
634
634
1,713
1,713
464
464
32,596
32,596
-
-
102,603
102,603
-
-
49,673
-
-
-
49,673
49,673
-
-
-
-
634
-
-
634
634
-
-
-
1,713
3
3
-
1,716
1,716
3
-
8
-
464
8
-
422
422
32,596
57
422
57
-
-
2,023
2,023
-
-
422
422
102,603
2,545
422
2,545
472
472
8
35,602
35,602
57
2,023
2,023
2,023
159,211
159,211
2,545
49,673
634
1,716
472
35,602
2,023
159,211
1,086
1,086
-
-
37
37
-
-
6,335
6,335
1,086
1
1
6,335
7,414
-
7,414
-
-
7,414
34,139
34,139
57,087
57,087
1
-
196
196
-
37
-
196
867
867
-
2,017
2,017
-
-
2,017
-
3,733
3,733
-
-
-
-
-
-
-
472
472
-
-
-
301
301
14,423
14,423
187
301
187
14,423
-
-
-
-
-
-
50,513
50,513
2,023
2,023
187
142,823
142,823
34,139
560,149
560,149
57,087
9,135
9,135
49,417
49,417
8,354
8,354
867
3,733
472
234,946
234,946
19,079
19,079
50,513
2,023
1,427
1,427
31,550
31,550
219
1,427
219
31,550
-
-
192,407
192,407
-
1,166,283
1,166,283
219
192,407
Total gross credit risk
120,754
21,626
142,823
560,149
9,135
49,417
8,354
234,946
19,079
1,166,283
plant and equipment, Investment in Associates and Joint Ventures, Intangible Assets, Deferred tax assets and Other assets.
plant and equipment, Investment in Associates and Joint Ventures, Intangible Assets, Deferred tax assets and Other assets.
(1) Comparative information has been reclassified to conform to presentation in the current year.
(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 in line with Note 3.1.
(2) Loans, bills discounted and other receivables is presented gross of provisions for impairment and unearned income in line with Note 3.1.
(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,
(1) Comparative information has been reclassified to conform to presentation in the current year.
(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,
(2) Loans, bills discounted and other receivables is presented gross of provisions for impairment and unearned income in line with Note 3.1.
(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,
Commonwealth Bank of Australia
Commonwealth Bank of Australia
Annual Report 2018
Annual Report 2018
Commonwealth Bank of Australia
Annual Report 2018
plant and equipment, Investment in Associates and Joint Ventures, Intangible Assets, Deferred tax assets and Other assets.
204
204
204
204
Commonwealth Bank of AustraliaAnnual Report 2018Financial reportNotes to the financial statements
205
Financial Notes to the report financial statements 205 9.2 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 CRR, the type of client, and facility tenor. All exposures outside the policy limits require approval by the Executive Risk Committee and are reported to the Board Risk Committee. The following table shows the 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): Group 30 Jun 18 30 Jun 17 Number Number 5% to less than 10% of the Group's capital resources - - 10% to less than 15% of the Group's capital resources - - The Group has a high quality, well diversified credit portfolio, with 60% 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. Financial reportNotes to the financial statementsPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Financial
report
Notes to the
financial statements
9.2 Credit Risk (continued)
Distribution of Financial Instruments by Credit Quality (continued)
Neither Past Past due
but not
Impaired
$M
Due nor
Impaired
$M
Impaired
Assets
$M
Total Provisions
for Impairment
Losses
$M
-
-
-
-
-
-
-
Group
30 Jun 18
Net
$M
36,417
9,222
32,254
372
258
32,133
82,240
Gross
$M
36,417
9,222
32,254
372
258
-
-
-
-
-
52
32,133
-
82,240
36,417
9,222
32,254
372
258
32,081
82,240
-
-
-
-
-
-
-
628,865
13,071
2,151
644,087
(3,178)
640,909
100,904
2,152
886
103,942
(427)
103,515
379
11,999
175,106
-
-
-
-
-
379
11,999
-
-
379
11,999
90
175,196
(28)
175,168
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
Assets held for sale
Credit related commitments
Total
1,110,097
15,223
3,179
1,128,499
(3,633)
1,124,866
Neither Past Past Due
but not
Impaired
$M
Due nor
Impaired
$M
Impaired
Assets
$M
45,850
10,037
32,704
13,669
1,111
31,717
83,535
-
-
-
-
-
-
-
-
-
-
-
-
7
-
Gross
$M
45,850
10,037
32,704
13,669
1,111
31,724
83,535
Total Provisions
for Impairment
Losses
$M
-
-
-
-
-
-
-
Group
30 Jun 17
Net
$M
45,850
10,037
32,704
13,669
1,111
31,724
83,535
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
619,072
12,543
2,321
633,936
(3,271)
630,665
99,245
2,634
724
102,603
(422)
102,181
Bank acceptances
Credit related commitments
463
184,997
-
-
-
463
-
463
135
185,132
(34)
185,098
Total
1,122,400
15,177
3,187
1,140,764
(3,727)
1,137,037
206
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207
Financial Notes to the report financial statements 207 9.2 Credit Risk (continued) Distribution of Financial Instruments by Credit Quality (continued) Bank 30 Jun 18 Neither Past Past Due Total Provisions Due nor but not Impaired for Impairment Impaired Impaired Assets Gross Losses Net $M $M $M $M $M $M Cash and liquid assets 33,581 - - 33,581 - 33,581 Receivables due from other financial institutions 8,376 - - 8,376 - 8,376 Assets at fair value through Income Statement: Trading 29,993 - - 29,993 - 29,993 Insurance - - - - - - Other - - - - - - Derivative assets 30,834 - 51 30,885 - 30,885 Available-for-sale investments 77,731 - - 77,731 - 77,731 Loans, bills discounted and other receivables: Australia 620,641 13,066 2,130 635,837 (3,171) 632,666 Overseas 24,681 23 326 25,030 (90) 24,940 Bank acceptances 379 - - 379 - 379 Shares in and loans to controlled entities 118,252 - - 118,252 - 118,252 Credit related commitments 159,521 - 85 159,606 (28) 159,578 Total 1,103,989 13,089 2,592 1,119,670 (3,289) 1,116,381 Bank 30 Jun 17 Neither Past Past Due Total Provisions Due nor but not Impaired for Impairment Impaired Impaired Assets Gross Losses Net $M $M $M $M $M $M Cash and liquid assets 42,814 - - 42,814 - 42,814 Receivables due from other financial institutions 8,678 - - 8,678 - 8,678 Assets at fair value through Income Statement: Trading 31,127 - - 31,127 - 31,127 Insurance - - - - - - Other 796 - - 796 - 796 Derivative assets 32,088 - 6 32,094 - 32,094 Available-for-sale investments 79,019 - - 79,019 - 79,019 Loans, bills discounted and other receivables: Australia 611,624 12,541 2,290 626,455 (3,262) 623,193 Overseas 25,056 40 242 25,338 (83) 25,255 Bank acceptances 463 - - 463 - 463 Shares in and loans to controlled entities 101,337 - - 101,337 - 101,337 Credit related commitments 169,418 - 130 169,548 (34) 169,514 Total 1,102,420 12,581 2,668 1,117,669 (3,379) 1,114,290 Financial reportNotes to the financial statementsPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Financial
report
Notes to the
financial statements
9.2 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
Home
Loans
$M
Other
Personal
$M
Asset
Financing
$M
Other
Commercial
and Industrial
$M
Group
30 Jun 18
Total
$M
307,993
4,608
643
71,525
384,769
124,371
13,863
7,435
83,185
228,854
7,567
4,045
243
3,387
15,242
439,931
22,516
8,321
158,097
628,865
15,471
-
32,327
1,544
888
-
48,686
1,544
9
424
-
433
23,837
39,317
26,078
60,373
326
1,214
50,241
100,904
Total loans which were neither past due nor
impaired
488,617
24,060
8,754
208,338
729,769
Credit grading
Australia
Investment
Pass
Weak
Total Australia
Overseas (1)
Investment
Pass
Weak
Total overseas
Home
Loans
$M
Other
Personal
$M
Asset
Financing
$M
Other
Commercial
and Industrial
$M
296,466
4,249
300
121,035
14,362
7,172
7,791
3,416
164
77,407
83,758
2,952
Group
30 Jun 17
Total
$M
378,422
226,327
14,323
425,292
22,027
7,636
164,117
619,072
15,200
-
31,530
1,356
934
-
47,664
1,356
10
438
-
448
23,696
25,363
718
49,777
38,906
58,687
1,652
99,245
Total loans which were neither past due nor
impaired
472,956
23,383
8,084
213,894
718,317
(1)
For New Zealand Housing Loans, PDs reflect Reserve Bank of New Zealand requirements resulting in higher PDs on average and lower grading.
208
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209
Financial Notes to the report financial statements 209 9.2 Credit Risk (continued) Credit Quality of Loans, Bills Discounted and Other Receivables which were Neither Past Due nor Impaired (continued) Bank 30 Jun 18 Other Home Other Asset Commercial Loans Personal Financing and Industrial Total Credit grading $M $M $M $M $M Australia Investment 307,974 4,603 641 70,727 383,945 Pass 117,245 13,847 7,386 83,066 221,544 Weak 7,539 4,039 243 3,331 15,152 Total Australia 432,758 22,489 8,270 157,124 620,641 Overseas Investment 65 - 1 18,711 18,777 Pass 295 2 - 5,544 5,841 Weak - - - 63 63 Total overseas 360 2 1 24,318 24,681 Total loans which were neither past due nor impaired 433,118 22,491 8,271 181,442 645,322 Bank 30 Jun 17 Other Home Other Asset Commercial Loans Personal Financing and Industrial Total Credit grading $M $M $M $M $M Australia Investment 296,403 4,240 285 76,598 377,526 Pass 114,974 14,331 7,114 83,380 219,799 Weak 7,793 3,408 163 2,935 14,299 Total Australia 419,170 21,979 7,562 162,913 611,624 Overseas Investment 87 - - 18,015 18,102 Pass 388 7 - 6,320 6,715 Weak - - - 239 239 Total overseas 475 7 - 24,574 25,056 Total loans which were neither past due nor impaired 419,645 21,986 7,562 187,487 636,680 Financial reportNotes to the financial statementsPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Financial
report
Notes to the
financial statements
9.2 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 2018 and
30 June 2017 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. Unsecured consumer loans are impaired at 90 days
past due and may be classified as impaired earlier if non-commercial repayment arrangements are agreed or a related loan is classified
as impaired.
Loans which were past due but not impaired
Home
Loans
$M
Other
Personal (1)
$M
Asset
Financing
$M
Other
Commercial
and Industrial
$M
Group
30 Jun 18
Total
$M
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
4,703
1,770
1,005
1,410
1,292
550
180
121
-
2
146
1,170
6,569
38
11
2
-
199
93
140
239
2,187
1,230
1,552
1,533
10,180
853
197
1,841
13,071
1,227
162
63
45
26
205
13
268
1,713
44
19
14
7
4
1
2
-
7
8
15
22
217
91
76
55
1,523
289
20
320
2,152
11,703
1,142
217
2,161
15,223
(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 all unsecured
portfolio managed facilities are classified as impaired.
210
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211
Financial Notes to the report financial statements 211 9.2 Credit Risk (continued) Age Analysis of Loans, Bills Discounted and Other Receivables that are Past Due but Not Impaired (continued) Group 30 Jun 17 Other Home Other Asset Commercial Loans Personal (1) Financing and Industrial Total Loans which were past due but not impaired $M $M $M $M $M Australia Past due 1 - 29 days 5,004 568 87 1,147 6,806 Past due 30 - 59 days 1,675 180 55 145 2,055 Past due 60 - 89 days 922 121 23 98 1,164 Past due 90 - 179 days 1,136 - - 132 1,268 Past due 180 days or more 1,048 4 - 198 1,250 Total Australia 9,785 873 165 1,720 12,543 Overseas Past due 1 - 29 days 1,623 263 - 255 2,141 Past due 30 - 59 days 185 45 6 15 251 Past due 60 - 89 days 53 15 2 21 91 Past due 90 - 179 days 41 16 2 24 83 Past due 180 days or more 18 5 - 45 68 Total overseas 1,920 344 10 360 2,634 Total loans which were past due but not impaired 11,705 1,217 175 2,080 15,177 Bank 30 Jun 18 Other Home Other Asset Commercial Loans Personal (1) Financing and Industrial Total Loans which were past due but not impaired $M $M $M $M $M Australia Past due 1 - 29 days 4,701 550 146 1,170 6,567 Past due 30 - 59 days 1,769 180 38 199 2,186 Past due 60 - 89 days 1,005 121 11 93 1,230 Past due 90 - 179 days 1,409 - 2 140 1,551 Past due 180 days or more 1,291 2 - 239 1,532 Total Australia 10,175 853 197 1,841 13,066 Overseas Past due 1 - 29 days 20 - - - 20 Past due 30 - 59 days 2 - - - 2 Past due 60 - 89 days - - - - - Past due 90 - 179 days - - - - - Past due 180 days or more - - - 1 1 Total overseas 22 - - 1 23 Total loans which were past due but not impaired 10,197 853 197 1,842 13,089 (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 all unsecured portfolio managed facilities are classified as impaired. Financial reportNotes to the financial statementsPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Financial
report
Notes to the
financial statements
9.2 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
Home
Loans
$M
Other
Personal (1)
$M
Asset
Financing
$M
Bank
30 Jun 17
Total
$M
Other
Commercial
and Industrial
$M
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
5,003
1,674
922
1,136
1,048
9,783
31
2
-
-
-
33
568
180
121
-
4
87
55
23
-
-
1,147
6,805
145
98
132
198
2,054
1,164
1,268
1,250
873
165
1,720
12,541
1
-
-
-
-
1
-
-
-
-
-
-
2
2
1
1
-
6
34
4
1
1
-
40
Total loans which were past due but not
impaired
9,816
874
165
1,726
12,581
(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 all unsecured
portfolio managed facilities 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.
Non-Performing Facilities;
Impaired assets are split into the following categories:
Unsecured retail products 90 days or more past due.
Restructured Facilities; and
Non-performing facilities are facilities against which an individually assessed provision for impairment has been raised and facilities
where loss of principal or interest is anticipated. Interest income on these facilities is reserved and taken to the Income Statement only
if paid in cash or if a recovery is made.
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.
212
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213
Financial Notes to the report financial statements 213 9.2 Credit Risk (continued) Impaired Assets by Classification (continued) Group 30 Jun 18 30 Jun 17 30 Jun 16 30 Jun 15 30 Jun 14 $M $M $M $M $M Australia Non-Performing assets: Gross balances 1,711 1,962 2,002 1,940 2,134 Less individual provisions for impairment (694) (817) (807) (775) (1,035) Net non-performing assets 1,017 1,145 1,195 1,165 1,099 Restructured assets: Gross balances 264 174 221 144 361 Less provisions for impairment (1) (4) - - - - Net restructured assets 260 174 221 144 361 Unsecured retail products 90 days or more past due: Gross balances 254 251 252 251 236 Less provisions for impairment (1) (161) (157) (169) (130) (131) Net unsecured retail products 90 days or more past due 93 94 83 121 105 Net Australia impaired assets 1,370 1,413 1,499 1,430 1,565 Overseas Non-Performing assets: Gross balances 695 686 560 454 377 Less individual provisions for impairment (176) (163) (138) (112) (92) Net non-performing assets 519 523 422 342 285 Restructured assets: Gross balances 242 101 67 54 248 Less provisions for impairment (1) (20) - - - - Net restructured assets 222 101 67 54 248 Unsecured retail products 90 days or more past due: Gross balances 13 13 14 12 11 Less provisions for impairment (1) (13) (12) (13) (9) (8) Net unsecured retail products 90 days or more past due - 1 1 3 3 Net overseas impaired assets 741 625 490 399 536 Total net impaired assets 2,111 2,038 1,989 1,829 2,101 (1) Collective provisions are held for these portfolios. Financial reportNotes to the financial statementsPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Financial
report
Notes to the
financial statements
9.2 Credit Risk (continued)
Impaired Assets by Size
Impaired assets by size
Less than $1 million
$1 million to $10 million
Greater than $10 million
Total
Movement in Impaired Assets
Movement in gross impaired assets
Australia Overseas
30 Jun 18
30 Jun 18
$M
$M
Total
30 Jun 18
$M
Australia
30 Jun 17
$M
Overseas
30 Jun 17
$M
1,418
569
242
2,229
139
197
614
950
1,557
1,338
766
856
666
383
3,179
2,387
114
260
426
800
Group
Total
30 Jun 17
$M
1,452
926
809
3,187
Group
30 Jun 18 30 Jun 17 30 Jun 16 30 Jun 15 30 Jun 14
$M
$M
$M
$M
$M
Gross impaired assets - opening balance
3,187
3,116
2,855
3,367
4,330
New and increased
Balances written off
2,136
2,164
2,370
2,095
2,393
(1,196)
(1,225)
(1,328)
(1,355)
(1,697)
Returned to performing or repaid
(1,666)
(1,637)
(1,460)
(1,903)
(2,303)
Portfolio managed - new/increased/return to performing/repaid
718
769
679
651
644
Gross impaired assets - closing balance
3,179
3,187
3,116
2,855
3,367
214
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Commonwealth Bank of Australia
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215
Financial Notes to the report financial statements 215 9.2 Credit Risk (continued) Impaired Assets by Industry and Status Group 30 Jun 18 Gross Total Provisions Net Total Impaired for Impaired Impaired Net (1) Balance Assets Assets Assets Write-offs (1) Recoveries (1) Write-offs Industry $M $M $M $M $M $M $M Loans - Australia Sovereign 16,823 - - - - - - Agriculture 8,998 94 (56) 38 28 - 28 Bank and other financial 12,951 7 (16) (9) 3 (1) 2 Home loans 451,367 1,256 (236) 1,020 126 (2) 124 Construction 3,028 16 (21) (5) 13 - 13 Other personal 23,658 289 (171) 118 764 (165) 599 Asset financing 8,581 63 (16) 47 23 (5) 18 Other commercial and industrial 118,681 426 (343) 83 179 (14) 165 Total loans - Australia 644,087 2,151 (859) 1,292 1,136 (187) 949 Loans - Overseas Sovereign 1,571 - - - - - - Agriculture 9,930 365 (25) 340 3 - 3 Bank and other financial 7,075 9 - 9 5 - 5 Home loans 50,298 89 (5) 84 2 (1) 1 Construction 638 1 (1) - 1 (1) - Other personal 1,844 11 (33) (22) 65 (10) 55 Asset financing 457 4 - 4 - - - Other commercial and industrial 32,129 407 (145) 262 207 (2) 205 Total loans - overseas 103,942 886 (209) 677 283 (14) 269 Total loans 748,029 3,037 (1,068) 1,969 1,419 (201) 1,218 Other balances - Australia Credit commitments 145,820 75 - 75 - - - Derivatives 24,021 3 - 3 - - - Total other balances - Australia 169,841 78 - 78 - - - Other balances - Overseas Credit commitments 29,376 15 - 15 - - - Derivatives 8,112 49 - 49 - - - Total other balances - overseas 37,488 64 - 64 - - - Total other balances 207,329 142 - 142 - - - Total 955,358 3,179 (1,068) 2,111 1,419 (201) 1,218 (1) Write off, 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.Financial reportNotes to the financial statementsPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Financial
report
Notes to the
financial statements
9.2 Credit Risk (continued)
Impaired Assets by Industry and Status (continued)
Group
30 Jun 17
Total
Balance
$M
Gross Total Provisions
for Impaired
Assets
$M
Impaired
Assets
$M
Net
Impaired
Net (1)
Assets Write-offs (1) Recoveries (1) Write-offs
$M
$M
$M
$M
Industry
Loans - Australia
Sovereign
Agriculture
18,085
8,784
-
87
24
Bank and other financial
15,425
Home loans
Construction
Other personal
Asset financing
Other commercial and
industrial
436,184
1,107
3,765
23,183
7,872
120,638
48
283
71
701
-
(47)
(27)
(249)
(25)
(166)
(18)
(442)
-
40
(3)
858
23
117
53
259
-
17
1
115
16
792
41
210
Total loans - Australia
633,936
2,321
(974)
1,347
1,192
Loans - Overseas
Sovereign
Agriculture
Bank and other financial
Home loans
Construction
Other personal
Asset financing
1,900
9,848
5,775
49,673
634
1,713
464
-
279
9
89
1
13
6
Other commercial and
industrial
32,596
327
Total loans - overseas
102,603
724
-
(25)
-
(4)
(1)
(12)
(10)
(114)
(166)
-
254
9
85
-
1
(4)
213
558
-
15
5
4
8
60
-
64
156
Total loans
736,539
3,045
(1,140)
1,905
1,348
Other balances - Australia
Credit commitments
151,936
Derivatives
Total other balances -
Australia
25,995
177,931
Other balances - Overseas
Credit commitments
Derivatives
Total other balances -
overseas
33,196
5,729
38,925
61
5
66
74
2
76
Total other balances
216,856
142
-
-
-
(9)
-
(9)
(9)
61
5
66
65
2
67
133
-
-
-
-
-
-
-
-
-
(1)
(3)
(1)
(170)
(7)
(12)
(194)
-
-
-
(1)
(1)
(11)
-
(3)
-
17
-
112
15
622
34
198
998
-
15
5
3
7
49
-
61
(16)
(210)
140
1,138
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
953,395
3,187
(1,149)
2,038
1,348
(210)
1,138
(1) Write-off, recoveries and net write-offs are not recognised against credit commitments or derivatives as these exposures are closed out and converted to loans and
receivables on impairment. Write-offs and recoveries take place subsequent to this conversion.
216
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217
Financial Notes to the report financial statements 217 9.2 Credit Risk (continued) Collateral held against Loans, Bills Discounted and Other Receivables Group 30 Jun 18 Other Home Other Asset Commercial Loans Personal Financing and Industrial Total Maximum exposure ($M) 501,665 25,502 9,038 211,824 748,029 Collateral classification: Secured (%) 99. 1 12. 4 99. 4 44. 7 81. 2 Partially secured (%) 0. 9 - 0. 6 15. 3 4. 9 Unsecured (%) - 87. 6 - 40. 0 13. 9 Group 30 Jun 17 Maximum exposure ($M) 485,857 24,896 8,336 217,450 736,539 Collateral classification: Secured (%) 99. 2 12. 7 99. 3 42. 0 79. 8 Partially secured (%) 0. 8 - 0. 7 15. 4 5. 0 Unsecured (%) - 87. 3 - 42. 6 15. 2 Bank 30 Jun 18 Maximum exposure ($M) 444,583 23,633 8,531 184,120 660,867 Collateral classification: Secured (%) 99. 1 13. 4 99. 2 40. 7 79. 6 Partially secured (%) 0. 9 - 0. 8 14. 7 4. 8 Unsecured (%) - 86. 6 - 44. 6 15. 6 Bank 30 Jun 17 Maximum exposure ($M) 430,575 23,143 7,801 190,274 651,793 Collateral classification: Secured (%) 99. 1 13. 4 99. 2 40. 5 79. 5 Partially secured (%) 0. 9 - 0. 8 14. 6 4. 8 Unsecured (%) - 86. 6 - 44. 9 15. 7 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 Home loans are generally 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 Ratio (LVR) of higher than 80% either a Low Deposit Premium or margin is levied, or Lenders Mortgage Insurance (LMI) is taken out to cover the difference between the principal plus interest owing and the net amount received from selling the collateral post default. Impaired home loans are classified as partially secured. Personal Lending Personal lending (such as credit cards and personal loans) are predominantly unsecured, whilst margin lending is secured. Financial reportNotes to the financial statementsPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Financial
report
Notes to the
financial statements
9.2 Credit Risk (continued)
Collateral held against Loans, Bills Discounted and Other Receivables (continued)
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 the 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; 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.
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Financial Notes to the report financial statements 219 9.3 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 and correlation between different markets. 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. VaR is driven by historical observations and is not an estimate of the maximum loss that the Group could experience from an extreme market event. As a result of this limitation, management also uses stress testing to measure the potential for economic loss at confidence levels significantly higher than 97.5%. Management then uses these results in decisions to manage the economic impact of market risk positions. Average As at Average As at Total Market Risk June June June June VaR (1-day 97.5% 2018 (1) 2018 2017 (1) 2017 confidence) $M $M $M $M Traded Market Risk 11. 1 13. 3 10. 6 11. 1 Non-Traded Interest Rate Risk (2) (3) 43. 1 37. 6 57. 7 53. 9 Non-Traded Equity Risk (2) 5. 3 4. 7 6. 6 5. 8 Non-Traded Insurance Market Risk (2) 5. 4 5. 6 5. 1 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. (3) The scope of the internal model for AUD Non-Traded Interest Rate Risk has been broadened to include a measurement of the risk of the change in spreads between swap rates and bond yields for Debt Securities held in the Banking Book. Prior periods have been restated to reflect this change in scope. NZD numbers remain unchanged. Traded Market Risk Traded market risk is generated through the Group’s participation in financial markets to service its customers. The Group trades and distributes interest rate, foreign exchange, debt, equity and commodity products, and provides treasury, capital markets and risk management services to its customers globally. The Group maintains access to markets by quoting bid and offer prices with other market makers and carries an inventory of treasury, capital market and risk management instruments, including a broad range of securities and derivatives. Average As at Average As at Traded Market Risk June June June June VaR (1-day 97.5% 2018 (1) 2018 2017 (1) 2017 confidence) $M $M $M $M Interest rate risk 8. 4 12. 5 8. 9 6. 7 Foreign exchange risk 2. 2 2. 7 1. 8 1. 1 Equities risk 0. 2 0. 1 0. 5 0. 1 Commodities risk 3. 2 3. 6 3. 0 3. 3 Credit spread risk 2. 0 1. 4 3. 3 2. 8 Diversification benefit (7. 7) (9. 4) (9. 3) (5. 1) Total general market risk 8. 3 10. 9 8. 2 8. 9 Undiversified risk 2. 5 2. 3 2. 2 2. 1 ASB Bank 0. 3 0. 1 0. 2 0. 1 Total 11. 1 13. 3 10. 6 11. 1 (1) Average VaR calculated for each 12 month period. Non-Traded Market Risk Interest Rate Risk in the Banking Book Interest rate risk is the current and prospective impact to the Group’s financial condition due to adverse changes in interest rates to which the Group’s Balance Sheet is exposed. The maturity transformation activities of the Group create mismatches in the repricing terms of assets and liabilities positions. These mismatches may have undesired earnings and value outcomes depending on the interest rate movements. The Group’s objective is to manage interest rate risk to achieve stable and sustainable net interest income in the long-term. The Group measures and manages the impact of interest rate risk in two ways: (a) Next 12 months’ earnings Interest rate risk from an earnings perspective is the impact based on changes to the net interest income over the next 12 months. The risk to net interest income over the next 12 months from changes in interest rates is measured on a monthly basis. Earnings risk is measured through sensitivity analysis, which applies an instantaneous 100 basis point parallel shock 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. Financial reportNotes to the financial statementsPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Financial
report
Notes to the
financial statements
9.3 Market Risk (continued)
Non-Traded Market Risk (continued)
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
been 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.
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.
Non-Traded Interest Rate VaR
(20 day 97.5% confidence) (2)
AUD Interest rate risk (3)
NZD Interest rate risk (4)
Average Average
June
2017 (1)
$M
June
2018 (1)
$M
192. 9
257. 9
3. 3
4. 5
(1) Average VaR calculated for each 12 month period.
(2) VaR is only for entities that have material risk exposure.
(3) The scope of the internal model for AUD Non-Traded Interest Rate Risk
has been broadened to include a measurement of the risk of the change in
spreads between swap rates and bond yields for Debt Securities held in
the Banking Book. Prior periods have been restated to reflect this change
in scope. NZD numbers remain unchanged.
(4) ASB data (expressed in NZD) is for the month-end date
Net Interest
Earnings at Risk
June
2018
$M
June
2017
$M
Non-Traded Equity Risk
The Group retains Non-Traded equity risk primarily through
business activities in Wealth Management.
Average monthly exposure
AUD
229. 2
284. 7
NZD (1)
23. 3
25. 4
High monthly exposure
AUD
311. 5
352. 3
NZD (1)
44. 3
33. 5
Low monthly exposure
AUD
120. 2
248. 9
NZD (1)
4. 3
17. 4
As at balance date
AUD
231. 4
304. 4
NZD (1)
10. 5
18. 5
(1) Net interest earnings at risk for NZD decreased during the period due to an
update to products classified as sensitive to interest rate changes.
(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.
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
2018
$M
21. 2
As at
June
2017
$M
26. 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
A portion of financial assets held within the Insurance business,
both within the Statutory Funds and in the Shareholder Funds of
the life insurance company represents shareholder (Group)
capital. Market risk also arises for the Group on the investment
of this capital. Shareholders’ funds in the Australian life insurance
businesses are invested 99% in income assets (cash and fixed
interest) and 1% in growth assets as at 30 June 2018.
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)
Average Average
June
2017 (1)
$M
June
2018 (1)
$M
1. 1
1. 3
Guarantees (to Policyholders) (3)
23. 6
22. 3
(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.
The Group announced the sale of its life insurances businesses
during the period.
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221
Financial Notes to the report financial statements 221 9.3 Market Risk (continued)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, Asian and US 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 10.2). 9.4 Liquidity and Funding Risk Overview The Group’s liquidity and funding policies are designed to ensure it will meet its obligations as and when they fall due by ensuring it is able to borrow funds on an unsecured basis, has sufficient liquid assets to borrow against on a secured basis, or sell to raise immediate funds without adversely affecting the Group’s net asset value. The Group’s liquidity policies are designed to ensure it maintains sufficient cash balances and liquid asset holdings to meet its obligations to customers, in both ordinary market conditions and during periods of extreme stress. These policies are intended to protect the value of the Group’s operations during periods of unfavourable market conditions. The Group’s funding policies are designed to achieve diversified sources of funding by product, term, maturity date, investor type, investor location, currency and concentration, on a cost effective basis. This objective applies to the Group’s wholesale and retail funding activities. Liquidity and Funding Risk Management Framework The 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 charter of which includes reviewing the management of assets and liabilities, reviewing liquidity and funding policies and strategies, as well as regularly monitoring compliance with those policies across the Group. Group Treasury manages the Group’s liquidity and funding positions in accordance with the Group’s liquidity policies and has ultimate authority to execute liquidity decisions should the Group Contingent Funding Plan be activated. Group Risk Management provides oversight of the Group’s liquidity and funding risks and compliance with Group policies and manages the Group’s relationship with prudential regulators. Subsidiaries within the Colonial Holding Company 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; A surplus of stable funding from various sources, as measured by APRA’s Net Stable Funding Ratio (NSFR), is maintained. The NSFR was introduced by APRA on 1 January 2018 and requires Australian ADIs to fund core assets with stable sources of funding. The NSFR is calculated by applying APRA prescribed factors to assets and liabilities to determine a ratio of required stable funding to available stable funding which must be greater than 100%; Additional internal funding and liquidity metrics are also calculated and stress tests additional to the LCR are run; Short and long-term wholesale funding limits are established, monitored and reviewed regularly; 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, Australian Residential Mortgage-backed Securities (RMBS) and securities that meet certain Reserve Bank of Australia (RBA) criteria for purchases under reverse repo. The final category is internal RMBS, being mortgages that have been securitised but retained by the Bank, that are repo-eligible with the RBA under stress; and Offshore branches and subsidiaries adhere to liquidity policies and hold appropriate foreign currency liquid assets to meet required obligations. All securities are central bank repo-eligible under normal market conditions.Financial reportNotes to the financial statementsPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Financial
report
Notes to the
financial statements
9.4 Liquidity and Funding Risk (continued)
Liquidity and Funding Policies and Management
(continued)
The Group’s key funding tools include:
Its consumer retail funding base, which includes a wide
range of retail transaction accounts, savings accounts
and term deposits for individual consumers;
Its small business customer and institutional deposit
base; and
international and domestic
funding
Its wholesale
programs which include its Australian dollar Negotiable
Certificates of Deposit; Australian dollar bank bills; Asian
Transferable Certificates of Deposit program; Australian,
U.S. and Euro Commercial Paper programs; US
Extendible Notes programs; Australian dollar Domestic
Debt Program; U.S.144a and 3a2 Medium-Term Note
Programs; Euro Medium-Term Note Program; multi
jurisdiction Covered Bond program; and its Medallion
securitisation program.
The Group’s key liquidity tools include:
A regulatory
liquidity management reporting system
delivering granular customer and product type information
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;
An additional liquidity management model 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;
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.
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223
Financial Notes to the report financial statements 223 9.4 Liquidity and Funding Risk (continued) Maturity Analysis of Monetary Liabilities Amounts shown in the tables below are based on contractual undiscounted cash flows for the remaining contractual maturities. Group Maturity Period as at 30 June 2018 0 to 3 3 to 12 1 to 5 Over 5 Not Months Months Years Years Specified Total $M $M $M $M $M $M Monetary liabilities Deposits and other public borrowings (1) 502,021 103,788 17,587 489 - 623,885 Payables due to other financial institutions 18,064 2,827 - 44 - 20,935 Liabilities at fair value through Income Statement 6,622 1,747 524 1,441 - 10,334 Derivative financial instruments: Held for trading 21,346 - - - - 21,346 Held for hedging purposes (net-settled) 19 145 1,256 942 - 2,362 Held for hedging purposes (gross-settled): Outflows 886 15,504 38,593 24,176 - 79,159 Inflows (804) (13,761) (36,432) (22,539) - (73,536) Bank acceptances 331 48 - - - 379 Insurance policy liabilities - - - - 451 451 Debt issues and loan capital 18,597 43,784 96,080 46,296 - 204,757 Managed funds units on issue - - - - - - Other monetary liabilities 6,582 874 96 23 - 7,575 Liabilities held for sale 182 572 274 143 12,886 14,057 Total monetary liabilities 573,846 155,528 117,978 51,015 13,337 911,704 Guarantees (2) 6,265 - - - - 6,265 Loan commitments (2) 162,090 - - - - 162,090 Other commitments (2) 6,841 - - - - 6,841 Total off Balance Sheet items 175,196 - - - - 175,196 Total monetary liabilities and off Balance Sheet items 749,042 155,528 117,978 51,015 13,337 1,086,900 Group Maturity Period as at 30 June 2017 0 to 3 3 to 12 1 to 5 Over 5 Not Months Months Years Years Specified Total $M $M $M $M $M $M Monetary liabilities Deposits and other public borrowings (1) 509,615 98,303 20,132 272 - 628,322 Payables due to other financial institutions 24,508 3,964 - - - 28,472 Liabilities at fair value through Income Statement 6,188 1,553 1,168 1,682 - 10,591 Derivative financial instruments: Held for trading 21,283 - - - - 21,283 Held for hedging purposes (net-settled) 77 204 1,595 1,201 - 3,077 Held for hedging purposes (gross-settled): Outflows 5,724 6,923 65,799 19,905 - 98,351 Inflows (5,018) (6,159) (62,248) (18,940) - (92,365) Bank acceptances 205 258 - - - 463 Insurance policy liabilities - - - - 12,018 12,018 Debt issues and loan capital 20,894 37,882 100,824 28,713 - 188,313 Managed funds units on issue - - - - 2,577 2,577 Other monetary liabilities 6,304 1,794 731 323 - 9,152 Total monetary liabilities 589,780 144,722 128,001 33,156 14,595 910,254 Guarantees (2) 7,424 - - - - 7,424 Loan commitments (2) 173,555 - - - - 173,555 Other commitments (2) 4,153 - - - - 4,153 Total off Balance Sheet items 185,132 - - - - 185,132 Total monetary liabilities and off Balance Sheet items 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. These accounts provide a stable source of long-term funding. (2) All of Balance Sheet items are included in the 0 to 3 months maturity band to reflect their earliest possible maturity Financial reportNotes to the financial statementsPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Financial
report
Notes to the
financial statements
9.4 Liquidity and Funding Risk (continued)
Maturity Analysis of Monetary Liabilities (continued)
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
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
Bank
Maturity Period as at 30 June 2018
0 to 3
Months
$M
3 to 12
Months
$M
1 to 5
Years
$M
Over 5
Not
Years Specified
$M
$M
464,588
17,197
88,005
2,808
14,496
-
468
44
5,480
1,747
524
1,441
21,175
5
644
(614)
331
15,333
6,174
6,274
536,587
5,835
147,098
6,673
159,606
-
52
-
1,022
-
932
17,441
(15,421)
48
37,730
6,070
750
139,230
45,661
(42,679)
-
78,067
24,411
65
121,567
32,583
(29,927)
-
39,379
68,672
10
113,602
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
$M
567,557
20,049
9,192
21,175
2,011
96,329
(88,641)
379
170,509
105,327
7,099
910,986
5,835
147,098
6,673
159,606
696,193
139,230
121,567
113,602
-
1,070,592
Bank
Maturity Period as at 30 June 2017
0 to 3
Months
$M
3 to 12
Months
$M
1 to 5
Years
$M
Not
Over 5
Years Specified
$M
$M
471,711
24,113
83,962
3,964
16,997
-
88
-
4,899
1,437
1,168
1,682
21,050
51
-
105
-
1,348
-
1,201
3,683
(3,042)
205
17,155
6,273
5,935
552,033
7,037
158,567
3,944
169,548
5,385
(4,629)
258
31,674
5,877
2,091
130,124
71,013
(65,902)
-
80,618
23,743
120
129,105
24,902
(22,973)
-
24,344
55,329
9
84,582
-
-
-
-
-
-
-
-
-
-
-
-
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.
(2) All off Balance Sheet items are included in the 0 to 3 months maturity band to reflect their earliest possible maturity.
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225
Financial Notes to the report financial statements 225 9.5 Disclosures about Fair Values 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. An explanation of how fair values are calculated and the levels in the fair value hierarchy are included in the accounting policy within this note. Group Fair Value as at 30 June 2018 Fair Value as at 30 June 2017 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 22,078 10,176 - 32,254 24,657 8,047 - 32,704 Insurance (1) - 372 - 372 3,519 8,620 1,530 13,669 Other 49 209 - 258 51 1,060 - 1,111 Derivative assets 42 31,998 93 32,133 63 31,594 67 31,724 Available-for-sale investments 74,234 7,941 65 82,240 75,050 8,346 139 83,535 Bills discounted 4,280 - - 4,280 7,486 - - 7,486 Assets held for sale (1) 2,012 8,061 1,818 11,891 - - - - Total financial assets measured at fair value 102,695 58,757 1,976 163,428 110,826 57,667 1,736 170,229 Financial liabilities measured at fair value on a recurring basis Liabilities at fair value through Income Statement 1,724 8,523 - 10,247 2,525 7,867 - 10,392 Derivative liabilities 57 28,075 340 28,472 192 30,036 102 30,330 Life investment contracts (1) - 337 - 337 - 7,374 565 7,939 Liabilities held for sale (1) 5 6,985 353 7,343 - - - - Total financial liabilities measured at fair value 1,786 43,920 693 46,399 2,717 45,277 667 48,661 (1) As at 30 June 2018 Assets and Liabilities of the Group’s life insurance businesses have been presented as held for sale. Bank Fair Value as at 30 June 2018 Fair Value as at 30 June 2017 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 20,813 9,180 - 29,993 23,866 7,261 - 31,127 Other - - - - - 796 - 796 Derivative assets 41 30,751 93 30,885 55 31,972 67 32,094 Available-for-sale investments 69,988 7,678 65 77,731 71,206 7,674 139 79,019 Bills Discounted 4,280 - - 4,280 7,486 - - 7,486 Total financial assets measured at fair value 95,122 47,609 158 142,889 102,613 47,703 206 150,522 Financial liabilities measured at fair value on a recurring basis Liabilities at fair value through Income Statement 1,724 7,382 - 9,106 2,525 6,464 - 8,989 Derivative liabilities 57 30,474 340 30,871 192 31,878 103 32,173 Total financial liabilities measured at fair value 1,781 37,856 340 39,977 2,717 38,342 103 41,162 Financial Notes to the report financial statements 225 9.5 Disclosures about Fair Values 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. An explanation of how fair values are calculated and the levels in the fair value hierarchy are included in the accounting policy within this note. Group Fair Value as at 30 June 2018 Fair Value as at 30 June 2017 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 22,078 10,176 - 32,254 24,657 8,047 - 32,704 Insurance (1) - 372 - 372 3,519 8,620 1,530 13,669 Other 49 209 - 258 51 1,060 - 1,111 Derivative assets 42 31,998 93 32,133 63 31,594 67 31,724 Available-for-sale investments 74,234 7,941 65 82,240 75,050 8,346 139 83,535 Bills discounted 4,280 - - 4,280 7,486 - - 7,486 Assets held for sale (1) 2,012 8,061 1,818 11,891 - - - - Total financial assets measured at fair value 102,695 58,757 1,976 163,428 110,826 57,667 1,736 170,229 Financial liabilities measured at fair value on a recurring basis Liabilities at fair value through Income Statement 1,724 8,523 - 10,247 2,525 7,867 - 10,392 Derivative liabilities 57 28,075 340 28,472 192 30,036 102 30,330 Life investment contracts (1) - 337 - 337 - 7,374 565 7,939 Liabilities held for sale (1) 5 6,985 353 7,343 - - - - Total financial liabilities measured at fair value 1,786 43,920 693 46,399 2,717 45,277 667 48,661 (1) As at 30 June 2018 Assets and Liabilities of the Group’s life insurance businesses have been presented as held for sale. Bank Fair Value as at 30 June 2018 Fair Value as at 30 June 2017 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 20,813 9,180 - 29,993 23,866 7,261 - 31,127 Other - - - - - 796 - 796 Derivative assets 41 30,751 93 30,885 55 31,972 67 32,094 Available-for-sale investments 69,988 7,678 65 77,731 71,206 7,674 139 79,019 Bills Discounted 4,280 - - 4,280 7,486 - - 7,486 Total financial assets measured at fair value 95,122 47,609 158 142,889 102,613 47,703 206 150,522 Financial liabilities measured at fair value on a recurring basis Liabilities at fair value through Income Statement 1,724 7,382 - 9,106 2,525 6,464 - 8,989 Derivative liabilities 57 30,474 340 30,871 192 31,878 103 32,173 Total financial liabilities measured at fair value 1,781 37,856 340 39,977 2,717 38,342 103 41,162 Financial reportNotes to the financial statementsPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Financial
report
Notes to the
financial statements
9.5 Disclosures about Fair Value (continued)
Analysis of Movements between Fair Value Hierarchy Levels
During the year ended 30 June 2018 there have been $1,722 million reclassifications of trading securities (30 June 2017: $20 million)
from Level 2 to Level 1, due to changes in the observability of inputs. There have been no reclassifications of available for sale
securities (30 June 2017: $752 million) from Level 2 to Level 1. There have been no reclassifications of insurance assets (30 June
2017: $488 million) from Level 1 to Level 2. 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 2018
Financial Assets
Financial Liabilities
Insurance Derivative
Assets
$M
Assets
$M
Available
for Sale
Investments
$M
Assets
held for
sale
$M
Derivative
Liabilities
$M
Life Liabilities
held for
Sale
$M
Investment
Contracts
$M
Group
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
1,530
-
60
3
-
(4)
-
8
-
301
-
(160)
-
(2)
-
-
As at 30 June 2017
1,530
67
139
-
-
-
-
-
-
-
-
(64)
-
29
6
-
(73)
-
-
-
-
-
-
(565)
-
(102)
(565)
Gains/(losses)
recognised in the
Income Statement for
financial instruments
held as at 30 June 2017
As at 1 July 2017
Purchases
Sales/ settlements (1)
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 2018
Gains/(losses)
recognised in the
Income Statement for
financial instruments
held as at 30 June 2018
-
(4)
-
-
6
-
1,530
618
(208)
67
-
(18)
(122)
(15)
-
-
(1,818)
-
-
59
-
93
139
-
(100)
-
-
-
-
-
-
-
(102)
-
14
(144)
-
26
1,818
(108)
(565)
-
212
-
-
-
-
-
-
353
65
1,818
(340)
-
(353)
(103)
(15)
-
-
(144)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(353)
-
(1) Sales/ settlements includes the impact of changing fund ownership percentage held via the Group’s life insurance operations.
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 or 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.
226
226
Commonwealth Bank of Australia
Annual Report 2018
Commonwealth Bank of AustraliaAnnual Report 2018Financial reportNotes to the financial statements
227
Financial Notes to the report financial statements 227 9.5 Disclosures about Fair Value (continued) Analysis of Movements between Fair Value Hierarchy Levels (continued) Level 3 Movement Analysis for the year ended 30 June 2018 (continued) Bank Financial Assets Financial Liabilities Available Derivative for Sale Derivative Assets Investments Liabilities $M $M $M As at 1 July 2016 60 301 (70) Purchases 3 - - Sales/settlements - (160) 32 Gains/(losses) in the period: Recognised in the Income Statement (4) - 8 Recognised in the Statement of Comprehensive Income - (2) - Transfers in 8 - (73) Transfers out - - - As at 30 June 2017 67 139 (103) Gains/(losses) recognised in the Income Statement for financial instruments held as at 30 June 2017 (4) - 8 As at 1 July 2017 67 139 (103) Purchases - - - Sales/settlements (18) (100) 15 Gains/(losses) in the period: Recognised in the Income Statement (15) - (144) Recognised in the Statement of Comprehensive Income - - - Transfers in 59 26 (108) Transfers out - - - As at 30 June 2018 93 65 (340) Gains/(losses) recognised in the Income Statement for financial instruments held as at 30 June 2018 (15) - (144) Financial reportNotes to the financial statementsPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Financial
report
Notes to the
financial statements
9.5 Disclosures about Fair Value (continued)
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 2018 are presented below:
Group
30 Jun 18
Carrying
value
Total
$M
Fair value
Level 1
$M
Level 2
$M
Level 3
$M
Total
$M
Financial assets not measured at fair value on a
recurring basis
Cash and liquid assets
36,417
22,896
13,521
Receivables due from other financial institutions
Loans and other receivables
Bank acceptances of customers
Other assets
Assets held for sale
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
Liabilities held for sale
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
Loan capital
Total financial liabilities
Financial guarantees, loan commitments and other off
Balance Sheet instruments
228
228
Commonwealth Bank of Australia
Annual Report 2018
9,222
739,085
379
5,455
192
-
-
379
1,823
107
9,222
-
-
3,630
85
-
-
36,417
9,222
739,545
739,545
-
2
-
379
5,455
192
790,750
25,205
26,458
739,547
791,210
622,234
20,899
-
-
622,327
20,899
379
379
-
172,294
-
9,271
22,992
2,621
-
-
2,459
9,566
13
173,895
-
6,812
14,131
-
-
-
-
-
-
-
622,327
20,899
379
173,895
-
9,271
23,697
2,621
923
1,685
850,690
12,417
838,987
1,685
853,089
170,586
-
-
170,586
170,586
Group
30 Jun 17
Fair value
Level 1
$M
Level 2
$M
Level 3
$M
Total
$M
23,117
-
-
463
2,371
25,951
-
-
463
-
1,547
2,795
8,278
22,733
10,037
-
-
3,655
36,425
626,924
28,432
-
167,752
1,030
6,690
10,428
13,083
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
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
Commonwealth Bank of AustraliaAnnual Report 2018Financial reportNotes to the financial statements
229
Financial Notes to the report financial statements 229 9.5 Disclosures about Fair Value (continued) Fair Value Information for Financial Instruments not measured at Fair Value (continued) Bank 30 Jun 18 Carrying value Fair value Total Level 1 Level 2 Level 3 Total $M $M $M $M $M Financial assets not measured at fair value on a recurring basis Cash and liquid assets 33,581 21,351 12,230 - 33,581 Receivables due from other financial institutions 8,376 - 8,376 - 8,376 Loans and other receivables 652,370 - - 652,794 652,794 Bank acceptances of customers 379 379 - - 379 Loans to controlled entities 106,431 - - 106,509 106,509 Other assets 4,717 1,398 3,317 2 4,717 Total financial assets 805,854 23,128 23,923 759,305 806,356 Financial liabilities not measured at fair value on a recurring basis Deposits and other public borrowings 566,200 - 566,200 - 566,200 Payables due to other financial institutions 20,014 - 20,014 - 20,014 Bank acceptances 379 379 - - 379 Due to controlled entities 105,327 - - 105,309 105,309 Debt issues 139,984 - 142,064 - 142,064 Bills payable and other liabilities 7,400 1,942 5,458 - 7,400 Loan capital 22,249 9,561 13,373 - 22,934 Total financial liabilities 861,553 11,882 747,109 105,309 864,300 Financial guarantees, loan commitments and other off Balance Sheet instruments 155,012 - - 155,012 155,012 Bank 30 Jun 17 Carrying value Fair value Total Level 1 Level 2 Level 3 Total $M $M $M $M $M Financial assets not measured at fair value on a recurring basis Cash and liquid assets 42,814 20,949 21,865 - 42,814 Receivables due from other financial institutions 8,678 - 8,678 - 8,678 Loans and other receivables 640,017 - - 640,114 640,114 Bank acceptances of customers 463 463 - - 463 Loans to controlled entities 90,765 - - 90,797 90,797 Other assets 5,067 1,833 3,234 - 5,067 Total financial assets 787,804 23,245 33,777 730,911 787,933 Financial liabilities not measured at fair value on a recurring basis Deposits and other public borrowings 571,353 - 571,505 - 571,505 Payables due to other financial institutions 28,038 - 28,038 - 28,038 Bank acceptances 463 463 - - 463 Due to controlled entities 91,222 - - 91,222 91,222 Debt issues 134,966 - 135,621 - 135,621 Bills payable and other liabilities 7,341 2,297 5,044 - 7,341 Loan capital 17,959 8,277 9,642 - 17,919 Total financial liabilities 851,342 11,037 749,850 91,222 852,109 Financial guarantees, loan commitments and other off Balance Sheet instruments 167,415 - - 167,415 167,415 Financial reportNotes to the financial statementsPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Financial
report
Notes to the
financial statements
9.5 Disclosures about Fair Value (continued)
Accounting Policy
Valuation
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. On initial recognition, the transaction price generally represents the fair value of the financial
instrument, unless there is observable information from an active market that provides a more appropriate fair value.
The fair value for financial instruments traded in active markets at the reporting date is based on their quoted market price or dealer
price quotations, without any deduction for transaction costs. Assets and long positions are measured at a quoted bid price; liabilities
and short positions are measured at a quoted asking price. Where the Group has positions with offsetting market risks, mid-market
prices are used to measure the offsetting risk positions and a quoted bid or asking price adjustment is applied only to the net open
position as appropriate.
Non-market quoted financial instruments are mostly valued using valuation techniques based on observable inputs except where
observable market data is unavailable. Where market data is unavailable 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 de-recognition of the instrument, as appropriate.
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.
Fair Value Hierarchy
The Group utilises various valuation techniques and applies a hierarchy for valuation inputs that maximise the use of observable market
data, if available.
Under AASB 13 ‘Fair Value Measurement’ all financial and non-financial assets and liabilities measured or disclosed at fair value are
categorised into one of the following three fair value hierarchy levels:
Quoted Prices in Active Markets – Level 1
This category includes assets and liabilities for which the valuation is determined by reference to unadjusted quoted prices for identical
assets or liabilities in active markets where the quoted price is readily available, and the price represents actual and regularly occurring
market transactions on an arm’s length basis.
An active market is one in which transactions occur with sufficient volume and frequency to provide pricing information on an ongoing
basis.
Financial instruments included in this category are liquid government bonds, financial institution and corporate bonds, certificates of
deposit, bank bills, listed equities and exchange traded derivatives.
Valuation Technique Using Observable Inputs – Level 2
This category includes assets and liabilities that have been valued using inputs other than quoted prices as described for Level 1, but
which are observable for the asset or liability, either directly or indirectly. The valuation techniques include the use of discounted cash
flow analysis, option pricing models and other market accepted valuation models.
Financial instruments included in this category are commercial papers, mortgage-backed securities and OTC derivatives including
interest rate swaps, cross currency swaps and FX options.
Valuation Technique Using Significant Unobservable Inputs – Level 3
This category includes assets and liabilities 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.
230
230
Commonwealth Bank of Australia
Annual Report 2018
Commonwealth Bank of AustraliaAnnual Report 2018Financial reportNotes to the financial statements
231
Financial Notes to the report financial statements 231 9.5 Disclosures about Fair Value (continued) Accounting Policy (continued) Critical accounting judgements and estimates (continued) Valuation techniques are used to estimate the fair value of securities. When using valuation techniques the Group 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 transaction in the same instruments (i.e. without modification or repackaging) and any other available observable market data. 9.6 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: Group Bank 30 Jun 18 30 Jun 17 30 Jun 18 30 Jun 17 $M $M $M $M Cash 6,884 7,280 6,155 7,042 Securities 13,520 22,733 12,230 21,865 Collateral held 20,404 30,013 18,385 28,907 Collateral held which is re-pledged or sold - - - - 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 were as follows: Group Bank 30 Jun 18 30 Jun 17 30 Jun 18 30 Jun 17 $M $M $M $M Cash 6,064 6,307 5,679 5,607 Securities (1) 15,495 16,360 15,604 16,591 Assets pledged 21,559 22,667 21,283 22,198 Asset pledged which can be re-pledged or re-sold by counterparty 15,495 16,360 15,604 16,591 (1) These balances include assets sold under repurchase agreements. The liabilities related to these repurchase agreements are disclosed in Note 4.1. The Group and the Bank have pledged collateral as part of entering repurchase and derivative agreements. These transactions are governed by standard industry agreements.Financial reportNotes to the financial statementsPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report d
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Financial Notes to the report financial statements 233 9.7 Offsetting Financial Assets and Financial Liabilities (continued) Group 30 Jun 17 Subject to Enforceable Master Netting or Similar Agreements Amounts offset on the Balance Sheet Amounts not offset on the Balance Sheet Gross Balance Amount Reported on the Financial Financial Collateral Not subject to Total Balance Sheet Amount offset Balance Sheet Instruments (1) (Received)/ Pledged (1) Net Amount Netting Agreements Sheet amount Financial Instruments $M $M $M $M $M $M $M $M Derivative assets 33,909 (5,501) 28,408 (18,147) (6,236) 4,025 3,316 31,724 Securities purchased under agreements to resell 22,733 - 22,733 (1,257) (21,289) 187 - 22,733 Equity securities sold not delivered 568 (213) 355 - - 355 - 355 Total financial assets 57,210 (5,714) 51,496 (19,404) (27,525) 4,567 3,316 54,812 Derivative liabilities (35,832) 8,383 (27,449) 18,147 5,448 (3,854) (2,881) (30,330) Securities sold under agreements to repurchase (16,270) - (16,270) 1,257 15,013 - - (16,270) Equity securities purchased not delivered (630) 213 (417) - - (417) - (417) Total financial liabilities (52,732) 8,596 (44,136) 19,404 20,461 (4,271) (2,881) (47,017) (1) For the purpose of this disclosure, the related amounts of financial instruments and financial collateral not set off on the Balance Sheet have been capped by relevant netting agreements so as not to exceed the net amounts of financial assets/(liabilities) reported on the Balance Sheet, i.e. over collateralisation, where it exists, is not reflected in the tables. As a result the above collateral balances will not correspond to the tables in Note 9.6. Performance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report
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235
Financial Notes to the report financial statements 235 9.7 Offsetting Financial Assets and Financial Liabilities (continued) Bank 30 Jun 17 Subject to Enforceable Master Netting or Similar Agreements Amounts offset on the Balance Sheet Amounts not offset on the Balance Sheet Gross Balance Amount Reported on the Financial Financial Collateral Not subject to Total Balance Sheet Amount offset Balance Sheet Instruments (1) (Received)/ Pledged (1) Net Amount Netting Agreements Sheet amount Financial Instruments $M $M $M $M $M $M $M $M Derivative assets 34,517 (5,501) 29,016 (18,936) (6,133) 3,947 3,078 32,094 Securities purchased under agreements to resell 21,865 - 21,865 (1,285) (20,420) 160 - 21,865 Total financial assets 56,382 (5,501) 50,881 (20,221) (26,553) 4,107 3,078 53,959 Derivative liabilities (37,450) 8,383 (29,067) 18,936 4,702 (5,429) (3,106) (32,173) Securities sold under agreements to repurchase (16,501) - (16,501) 1,285 15,216 - - (16,501) Total financial liabilities (53,951) 8,383 (45,568) 20,221 19,918 (5,429) (3,106) (48,674) (1) For the purpose of this disclosure, the related amounts of financial instruments and financial collateral not set off on the Balance Sheet have been capped by relevant netting agreements so as not to exceed the net amounts of financial assets/(liabilities) reported on the Balance Sheet, i.e. over collateralisation, where it exists, is not reflected in the tables. As a result the above collateral balances will not correspond to the tables in Note 9.6. 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. Accounting Policy 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. Performance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report
Financial
report
Notes to the
financial statements
10. Employee Benefits
Overview
The Group employs over 50,000 people across multiple jurisdiction and remunerates its employees through both fixed and variable
arrangements. This section outlines details of the share based payment and superannuation components of employee remuneration
and provides an overview of key management personnel arrangements.
10.1 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 (LTVR) plan for the CEO and Group Executives. The GLRP focuses efforts
on achieving superior performance for key stakeholders – being shareholders, customers, our people and the community–creating
sustainable long-term shareholder value.
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:
For awards up to and including the 2017 period:
25% of the award is assessed against Customer Satisfaction (CS) compared to ANZ, NAB, Westpac and other key competitors
for our wealth management business by reference to independent external surveys; and
75% of the award is assessed against Total Shareholder Return (TSR) compared the 20 largest companies listed on the ASX
(by market capitalisation) at the beginning of each respective performance period, excluding resource companies and CBA.
For awards made in the 2018 period:
75% of the award is assessed against TSR compared the 20 largest companies listed on the ASX (by market capitalisation) at
the beginning of each respective performance period, excluding resource companies and CBA.
12.5% of the award is assessed against a Relative Trust and Reputation measure; and
12.5% of the award is assessed against an Absolute Employee Engagement measure.
A positive TSR gateway applies to the Trust and Reputation and Employee Engagement measures. Refer to the Remuneration Report
for further details on the GLRP.
The following table provides details of outstanding Reward Rights granted under the GLRP.
Period
30 Jun 18
30 Jun 17
Outstanding
1 July
1,174,899
Granted
215,356
Vested
(174,139)
Forfeited
(537,315)
Outstanding
30 June
678,801
1,250,589
295,725
(75,442)
(295,973)
1,174,899
Expense
($'000)
4,329
15,658
The fair value at the grant date for TSR was $36.94 and $57.11 for both Trust and Reputation and Employee Engagement Reward
Rights issued during the year (2017: $65.76 for TSR and $83.71 for CS). The fair value of the Reward Rights granted during the period
has been independently calculated at grant date using a Monte Carlo pricing model based on market information and excluding the
impact of non-market performance conditions. The assumptions included in the valuation of the 2018 financial year award include a
risk-free interest rate of 2.12%, a 5.17% dividend yield on the Bank’s ordinary shares and a volatility in the Bank share price of 15%.
Group Rights Plan (GRP) and Employee Equity Plan (EEP)
The GRP and EEP facilitate mandatory short-term variable remuneration deferral, sign-on incentives and retention awards. Participants
are awarded rights or restricted shares that vest provided the participant remains in employment of the Group until vesting date. The
following table provides details of outstanding awards of rights and shares granted under the GRP and EEP.
Period
30 Jun 18
30 Jun 17
Outstanding
1 July
Granted
Vested
Forfeited
Outstanding
30 June
2,125,927
1,045,179
(849,508)
(75,394)
2,246,204
1,795,728
1,067,588
(673,224)
(64,165)
2,125,927
Expense
($'000)
67,725
70,455
The average fair value at grant date of the awards issued during the year was $75.67 (2017: $72.07).
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Financial Notes to the report financial statements 237 10.1 Share-Based Payments (continued) 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. 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 2017 resulting in shares being awarded to each eligible employee during the financial year ended 30 June 2018. The following table provides details of shares granted under the ESAP. Number of Shares Total Number of Total Period Allocation date Participants Allocated per Participant Shares Allocated Issue Price $ Fair Value $ 30 Jun 18 8 Sep 2017 31,780 12 381,360 79.11 30,169,390 30 Jun 17 9 Sep 2016 32,049 13 416,637 71.89 29,952,034 It is estimated that approximately $18.7 million of CBA shares will be purchased on market at the prevailing market price for the 2018 grant. Other Employee Awards A number of other plans are operated by the Group, including: The Employee Share (Performance Unit) Plan and Employee Equity Plan (EEP) Cash Settled Rights are cash-based versions of the GRP; and The International Employee Share Acquisition Plan which is the cash-based version of the ESAP. The following table provides a summary of the movement in awards during the year. Outstanding Outstanding Expense Period 1 July Granted Vested Forfeited 30 June ($'000) 30 Jun 18 458,764 251,284 (168,925) (31,196) 509,927 21,405 30 Jun 17 298,693 269,766 (77,300) (32,395) 458,764 17,913 The average fair value at grant date of the awards issued during the year was $75.70 (2017: $71.83). Salary Sacrifice Arrangements The Group facilitates the purchase of CBA shares via salary sacrifice as follows: Type Arrangements Salary Sacrifice Australian based employees and Non-Executive Directors can elect to sacrifice between $2,000 and $5,000 p.a. of their fixed remuneration and/or annual STVR or fees (in the case of Non-Executive Directors) 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. Non-Executive Directors 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 Employee Salary Sacrifice Share Plan (ESSSP). Number of Average purchase Total purchase Period Participants shares purchased price $ consideration $ 30 Jun 18 983 41,390 77.68 3,215,222 30 Jun 17 828 37,310 77.14 2,878,131 During the year four (2017: two) Non-Executive Directors applied $74,991 in fees (2017: $43,427) to purchase 988 shares (2017: 564 shares). Financial reportNotes to the financial statementsPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Financial
report
Notes to the
financial statements
10.2 Retirement Benefit Obligations
Name of Plan
Type
Form of Benefit
Date of Last Actuarial
Assessment of the Fund
Commonwealth Bank Group
Super
Defined Benefits
and Accumulation(1)
Commonwealth Bank of Australia
(UK) Staff Benefits Scheme
Defined Benefits
and Accumulation(1)
(CBA (UK) SBS)
Indexed pension and lump sum
30 June 2015 (2)
Indexed pension and lump sum
30 June 2016
(1) The defined benefit formulae are generally comprised of final salary, or final average salary, and service.
(2) The actuarial assessment of the Fund as at 30 June 2018 is due to be finalised by 31 December 2018.
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 2016 was completed in September 2017. It confirmed a funding deficit of
GBP26.2 million ($44.8 million). The Bank agreed to pay deficit reduction contributions of GBP5 million ($8.7 million) per annum, paid
monthly from 1 January 2018 to 31 December 2022. Deficit recovery contributions of GBP15 million ($26.6 million) per annum were
paid until 31 December 2017. The Group’s expected contributions to the Commonwealth Bank Group Super and the CBA (UK) SBS for
the year ended 30 June 2019 are $240 million and GBP7.6 million ($13.5 million) respectively.
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239
Financial Notes to the report financial statements 239 10.2 Retirement Benefit Obligations (continued) Defined Benefit Superannuation Plan Commonwealth Bank Group Super CBA(UK)SBS Total 30 Jun 18 30 Jun 17 30 Jun 18 30 Jun 17 30 Jun 18 30 Jun 17 Note $M $M $M $M $M $M Present value of funded obligations (2,826) (2,910) (645) (656) (3,471) (3,566) Fair value of plan assets 3,355 3,336 697 645 4,052 3,981 Net pension assets/(liabilities) as at 30 June 529 426 52 (11) 581 415 Amounts in the Balance Sheet: Assets 6.3 529 426 52 - 581 426 Liabilities 7.2 - - - (11) - (11) Net assets/(liabilities) 529 426 52 (11) 581 415 The amounts recognised in the Income Statement are as follows: Current service cost (36) (38) (6) (7) (42) (45) Net interest income/(expense) 13 6 - (1) 13 5 Employer financed benefits within accumulation division (1) (289) (275) - - (289) (275) Total included in superannuation plan expense (312) (307) (6) (8) (318) (315) Changes in the present value of the defined benefit obligation are as follows: Opening defined benefit obligation (2,910) (3,114) (656) (656) (3,566) (3,770) Current service cost (36) (38) (6) (7) (42) (45) Interest cost (122) (105) (17) (18) (139) (123) Member contributions (6) (7) - - (6) (7) Actuarial gains/(losses) from changes in demographic assumptions - - - 41 - 41 Actuarial gains/(losses) from changes in financial assumptions (25) 175 29 (84) 4 91 Actuarial gains/(losses) from changes in other assumptions 57 (9) - (4) 57 (13) Payments from the plan 216 188 35 32 251 220 Exchange differences on foreign plans - - (30) 40 (30) 40 Closing defined benefit obligation (2,826) (2,910) (645) (656) (3,471) (3,566) Changes in the fair value of plan assets are as follows: Opening fair value of plan assets 3,336 3,375 645 605 3,981 3,980 Interest income 135 111 17 17 152 128 Return on plan assets (excluding interest income) 143 66 17 63 160 129 Member contributions 6 7 - - 6 7 Employer contributions 240 240 22 29 262 269 Employer financed benefits within accumulation division (289) (275) - - (289) (275) Payments from the plan (216) (188) (35) (32) (251) (220) Exchange differences on foreign plans - - 31 (37) 31 (37) Closing fair value of plan assets 3,355 3,336 697 645 4,052 3,981 (1) Represents superannuation contributions required by the Bank to meet its obligations to members of the defined contribution division of Commonwealth Bank Group Super. Financial Notes to the report financial statements 239 10.2 Retirement Benefit Obligations (continued) Defined Benefit Superannuation Plan Commonwealth Bank Group Super CBA(UK)SBS Total 30 Jun 18 30 Jun 17 30 Jun 18 30 Jun 17 30 Jun 18 30 Jun 17 Note $M $M $M $M $M $M Present value of funded obligations (2,826) (2,910) (645) (656) (3,471) (3,566) Fair value of plan assets 3,355 3,336 697 645 4,052 3,981 Net pension assets/(liabilities) as at 30 June 529 426 52 (11) 581 415 Amounts in the Balance Sheet: Assets 6.3 529 426 52 - 581 426 Liabilities 7.2 - - - (11) - (11) Net assets/(liabilities) 529 426 52 (11) 581 415 The amounts recognised in the Income Statement are as follows: Current service cost (36) (38) (6) (7) (42) (45) Net interest income/(expense) 13 6 - (1) 13 5 Employer financed benefits within accumulation division (1) (289) (275) - - (289) (275) Total included in superannuation plan expense (312) (307) (6) (8) (318) (315) Changes in the present value of the defined benefit obligation are as follows: Opening defined benefit obligation (2,910) (3,114) (656) (656) (3,566) (3,770) Current service cost (36) (38) (6) (7) (42) (45) Interest cost (122) (105) (17) (18) (139) (123) Member contributions (6) (7) - - (6) (7) Actuarial gains/(losses) from changes in demographic assumptions - - - 41 - 41 Actuarial gains/(losses) from changes in financial assumptions (25) 175 29 (84) 4 91 Actuarial gains/(losses) from changes in other assumptions 57 (9) - (4) 57 (13) Payments from the plan 216 188 35 32 251 220 Exchange differences on foreign plans - - (30) 40 (30) 40 Closing defined benefit obligation (2,826) (2,910) (645) (656) (3,471) (3,566) Changes in the fair value of plan assets are as follows: Opening fair value of plan assets 3,336 3,375 645 605 3,981 3,980 Interest income 135 111 17 17 152 128 Return on plan assets (excluding interest income) 143 66 17 63 160 129 Member contributions 6 7 - - 6 7 Employer contributions 240 240 22 29 262 269 Employer financed benefits within accumulation division (289) (275) - - (289) (275) Payments from the plan (216) (188) (35) (32) (251) (220) Exchange differences on foreign plans - - 31 (37) 31 (37) Closing fair value of plan assets 3,355 3,336 697 645 4,052 3,981 (1) Represents superannuation contributions required by the Bank to meet its obligations to members of the defined contribution division of Commonwealth Bank Group Super. Financial reportNotes to the financial statementsPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Financial
report
Notes to the
financial statements
10.2 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
30 Jun 18
%
30 Jun 17 30 Jun 18
%
%
30 Jun 17
%
4. 20
2. 10
2. 90
4. 20
2. 00
3. 00
2. 70
3. 30
4. 30
2. 60
3. 50
4. 50
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
Commonwealth Bank
Group Super
30 Jun 17
Years
30 Jun 18
Years
30 Jun 18
Years
CBA(UK)SBS
30 Jun 17
Years
28. 8
23. 8
33. 1
28. 1
28. 7
23. 7
33. 0
28. 0
27. 6
23. 1
29. 8
25. 0
27. 8
23. 0
29. 7
24. 9
Sensitivity to Changes in Assumptions
The table below sets out the sensitivities of the present value of defined benefit obligations at 30 June to a change in the principal actuarial
assumptions:
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
30 Jun 18
30 Jun 18
%
%
3. 40
2. 70
0. 50
4. 50
4. 90
3. 30
0. 30
3. 70
Commonwealth Bank
Group Super CBA(UK)SBS
30 Jun 18
Years
30 Jun 18
Years
12
20
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.
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241
Financial Notes to the report financial statements 241 10.2 Retirement Benefit Obligations (continued) Risk Management (continued) The Commonwealth Bank Group Super’s investment strategy comprises 40% growth and 60% 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. The allocation of assets backing the defined benefit portion of the Commonwealth Bank Group Super is as follows: Commonwealth Bank Group Super 30 Jun 18 30 Jun 17 Fair value % of plan Fair value % of plan Asset allocations $M asset $M asset Cash 81 2. 4 144 4. 3 Equities - Australian (1) 253 7. 5 307 9. 2 Equities - Overseas (1) 570 17. 0 520 15. 6 Bonds - Commonwealth Government (1) 679 20. 2 648 19. 4 Bonds - Semi-Government (1) 1,179 35. 1 1,107 33. 2 Bonds - Corporate and other (1) 79 2. 4 62 1. 9 Real Estate (2) 334 10. 0 367 11. 0 Derivatives (2) (17) (0. 5) (18) (0. 6) Other (3) 197 5. 9 199 6. 0 Total fair value of plan assets 3,355 100. 0 3,336 100. 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 $15 million of Commonwealth Bank shares. The real estate fair value includes $1.5 million of property assets leased to the Bank. The bonds – corporate and other fair value includes $0.1 million of Commonwealth Bank debt securities. The other asset allocation includes $0.3 million of Commonwealth Bank shares and $0.1 million debt securities held in a multi- asset fund. 10.3 Key Management Personnel Detailed remuneration disclosures by Key Management Personnel (KMP) are provided in the Remuneration Report of the Directors’ Report on pages 96 to 118 and have been audited. Group Bank 30 Jun 18 30 Jun 17 (1) 30 Jun 18 30 Jun 17 (1) Key Management Personnel compensation $'000 $'000 $'000 $'000 Short-term benefits 23,089 18,205 23,089 18,205 Post-employment benefits 421 438 421 438 Long-term benefits 854 359 854 359 Share-based payments 11,234 15,966 11,234 15,966 Total 35,598 34,968 35,598 34,968 (1) Comparatives have been restated to include the provision of partner travel costs (including associated fringe benefits tax). Financial reportNotes to the financial statementsPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Financial
report
10.3 Key Management Personnel (continued)
Notes to the
financial statements
Security holdings
Details of the aggregate security holdings of KMP are set out below.
Non-Executive
Directors
Class (1)
Ordinary (5)
PERLS
Executives (6)
Ordinary
Acquired/
Granted as
Balance
1 July 17 Remuneration
171,693
11,070
505,701
1,617
-
-
Previous
Years
Awards
Vested (2)
-
-
Net
Change
Other (3)
(34,904)
(2,470)
-
(338,120)
LTVR - Reward Rights
1,029,620
215,356
(125,841)
(738,987)
Deferred Rights
29,609
2,896
(14,798)
38,816
PERLS
-
-
-
330
Balance
30 June 18 (4)
138,406
8,600
167,581
380,148
56,523
330
(1) LTVR reward rights 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 and appointment or departure of KMP during the year. It also includes a portion
of deferred rights and/or LTVR reward rights forfeited as a result of individual and collective accountability in relation to the APRA Prudential Inquiry.
(4) 30 June 18 balances represent aggregate shareholdings of all KMP 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) Anna Lenahan holds 2,000 Capital Notes.
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.
Details of aggregate loans to KMP are set out below:
Loans
Interest charged
Other transactions of KMP
30 Jun 18
$'000
12,914
476
30 Jun 17
$'000
12,145
406
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 and entities controlled or significantly influenced by them.
All such financial instrument transactions that have occurred between entities within the Group and their KMP 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 KMP and their related entities and other related parties are conducted on an arm’s length basis in the normal
course of business and on commercial terms and conditions. These transactions principally involve the provision of financial and
investment services by entities not controlled by the Group. A related party of an Executive who has also been employed by the Group,
and is remunerated in a manner consistent with normal employee relationships.
Services Agreements
The maximum contingent liability for termination benefits in respect of service agreements with the Chief Executive Officer and other
Group KMP at 30 June 2018 was $3,096,820 (2017: $5,614,191).
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243
Financial Notes to the report financial statements 243 11. Group Structure Overview The Group Structure includes the Bank legal entity and its interests in operating and special purpose subsidiaries, joint ventures and associates. These entities were either acquired or established and their classification is driven by the Bank’s level of control or influence. These entities operating activities include banking, advice, funds management, specialised customer financing and asset backed financing across multiple jurisdictions. 11.1 Investments in Subsidiaries and Other Entities Subsidiaries The key subsidiaries of the Bank are: Entity Name Entity Name Australia (a) Banking CBA Covered Bond Trust Medallion Trust Series 2015-1 Commonwealth Securities Limited Medallion Trust Series 2015-2 Medallion Trust Series 2008-1R Medallion Trust Series 2016-1 Medallion Trust Series 2011-1 Medallion Trust Series 2016-2 Medallion Trust Series 2013-1 Medallion Trust Series 2017-1 Medallion Trust Series 2013-2 Medallion Trust Series 2017-1P Medallion Trust Series 2014-1 Medallion Trust Series 2017-2 Medallion Trust Series 2014-2 Residential Mortgage Group Pty Ltd (b) Insurance and Funds Management Capital 121 Pty Limited Commonwealth Insurance Limited Colonial Holding Company Limited The Colonial Mutual Life Assurance Society Limited (1) Commonwealth Insurance Holdings Limited All the above subsidiaries are 100% owned and incorporated in Australia. Extent of Beneficial Entity Name Interest if not 100% Incorporated in New Zealand and Other Overseas (a) Banking ASB Bank Limited New Zealand ASB Covered Bond Trust New Zealand ASB Finance Limited New Zealand ASB Holdings Limited New Zealand ASB Term Fund New Zealand CommBank Europe Limited Malta Medallion NZ Series Trust 2009-1R New Zealand PT Bank Commonwealth 99% Indonesia (b) Insurance and Funds Management ASB Group (Life) Limited (1) New Zealand PT Commonwealth Life 80% Indonesia Sovereign Assurance Company Limited (1) New Zealand (1) These Subsidiaries are part of the Group’s discontinued operations and include the Group’s Life Insurance businesses in Australia and New Zealand. Financial reportNotes to the financial statementsPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Financial
report
Notes to the
financial statements
11.1 Investments in Subsidiaries and Other Entities (continued)
Subsidiaries (continued)
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, or where the Group is deemed
to control an entity despite holding less than 50% of the voting rights.
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
30 Jun 18
$M
554
554
Group
30 Jun 17
$M
546
546
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. These 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. These shares are non-redeemable and
carry limited voting rights. Dividends are payable quarterly on the New Zealand one year swap rate plus a margin of 1.0% and are non-
cumulative. The payments of dividends are subject to a number of conditions including the satisfaction of solvency tests and the ability
of the Board to cancel payments.
ASB Capital Limited and ASB Capital No.2 Limited have advanced proceeds from the above public issues to ASB Funding Limited, a
New Zealand subsidiary. ASB Funding Limited in turn invested the proceeds in PPS issued by ASB Limited (ASB PPS), also a New
Zealand subsidiary. In relation to ASB Capital No.2 Limited, if an APRA Event occurs, the loan to ASB Funding Limited will be repaid
and ASB Capital No.2 Limited will become the holder of the corresponding ASB PPS.
The PPS may be purchased by a Commonwealth Bank subsidiary exercising a buy-out right five years or more after issue, or on the
occurrence of regulatory or tax events.
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 2018 and
30 June 2017. 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.
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Financial Notes to the report financial statements 245 11.1 Investments in Subsidiaries and Other Entities (continued) The Group’s investments in associates and joint ventures are shown in the table below. Group 30 Jun 18 30 Jun 17 30 Jun 18 30 Jun 17 Ownership Ownership Principal Country of Balance $M $M Interest % Interest % Activities Incorporation Date AHL Holdings Pty Limited (1) - 288 - 80 Mortgage Broking Australia 30-Jun Bank of Hangzhou Co., Ltd 1,680 1,412 18 18 Commercial Banking China 31-Dec BoCommLife Insurance Company Limited (2) - 151 38 38 Insurance China 31-Dec First State European Diversified Infrastructure Fund FCP-SIF 121 116 3 3 Funds Management Luxembourg 31-Dec Qilu Bank Co., Ltd 638 445 18 20 Commercial Banking China 31-Dec Vietnam International Commercial Joint Stock Bank 210 186 20 20 Commercial Banking Vietnam 31-Dec Other 193 180 Various Various Various Various Various Carrying amount of investments in associates and joint ventures 2,842 2,778 (1) On 25 August 2017, the Group acquired the remaining 20% holding in AHL Holdings Pty Limited (trading as Aussie Home Loans) (AHL). Further information is set out in Note 11.4. In the prior period, the Group’s 80% interest in AHL (trading as Aussie Home Loans) was jointly controlled, as the key financial and operating decisions required the unanimous consent of all Directors. The Group’s maximum exposure to loss in relation to its investment was its carrying value, The total assets of Aussie Home Loans in 2017 were $292 million. (2) On 23 May 2018, the Group entered an agreement to dispose of its stake in BoCommLife. The investment of $401 million has been reclassified as held for sale subject to the completion of the sale. Group 30 Jun 18 30 Jun 17 Share of Associates' and Joint Ventures profits (1) $M $M Operating profits before income tax 321 354 Income tax expense (52) (81) Operating profits after income tax (2) 269 273 (1) Excludes information concerning associates and joint ventures classified as held for sale. (2) This amount is recognised within Note 2.3 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 $857 million (2017: $773 million). The Group has no contractual obligations to purchase assets from its securitisation structured entities. 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. Financial reportNotes to the financial statementsPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Financial
report
Notes to the
financial statements
11.1 Investments in Subsidiaries and Other Entities (continued)
Consolidated Structured Entities (continued)
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 2018, the Bank entered into a debt forgiveness arrangement with three wholly owned structured
entities for the total of $17 million (2017: $11 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 RMBS and ABS 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
Other
ABS Financing
$M
$M
Investment
Funds
$M
-
652
-
-
43
224
30 Jun 18
Total
$M
65
8,109
RMBS
$M
22
7,233
Loans, bills discounted and other receivables
3,056
1,576
2,892
8,089
15,613
Other assets
Assets held for sale
-
-
-
-
-
-
401
824
401
824
Total on Balance Sheet exposures
10,311
2,228
2,892
9,581
25,012
Total notional amounts of off Balance Sheet exposures (1)
2,027
674
454
4,302
7,457
Total maximum exposure to loss
12,338
2,902
3,346
13,883
32,469
Total assets of the entities (2)
52,230
9,869
12,032
332,443
406,574
(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
$9.7 billion.
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Financial Notes to the report financial statements 247 11.1 Investments in Subsidiaries and Other Entities (continued) Unconsolidated Structured Entities (continued) 30 Jun 17 Other Investment RMBS ABS Financing Funds Total Exposures to unconsolidated structured entities $M $M $M $M $M Assets at fair value through income statement - trading 10 - - 828 838 Available-for-sale investments 6,824 701 - 212 7,737 Loans, bills discounted and other receivables 2,573 1,589 2,589 7,410 14,161 Other assets (1) - - - 419 419 Total on Balance Sheet exposures 9,407 2,290 2,589 8,869 23,155 Total notional amounts of off Balance Sheet exposures (2) 1,348 1,658 668 5,837 9,511 Total maximum exposure to loss 10,755 3,948 3,257 14,706 32,666 Total assets of the entities (3) 62,805 19,017 9,736 325,941 417,499 (1) Comparative information has been restated to conform to presentation in the current period. (2) Relates to undrawn facilities (3) Size of the entities is generally the total assets of the entities, except for Real Estate Investment Trusts where the size is based on the Group’s credit exposure of $10.7 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. 30 Jun 18 Other Ranking and credit rating of exposures RMBS ABS Financing Total to unconsolidated structured entities $M $M $M $M Senior (1) 12,254 2,902 3,346 18,502 Mezzanine (2) 84 - - 84 Total maximum exposure to loss 12,338 2,902 3,346 18,586 (1) All ABS exposures, $12,240 million of RMBS exposures and $1,647 million of other financing exposures are rated investment grade. $14 million of RMBS and $1,699 million of other financing exposures are sub-investment grade. (2) All RMBS and ABS exposures are rated investment grade. 30 Jun 17 Other Ranking and credit rating of exposures RMBS ABS Financing Total to unconsolidated structured entities $M $M $M $M Senior (1) 10,727 3,936 3,257 17,920 Mezzanine (2) 13 12 - 25 Subordinated (3) 15 - - 15 Total maximum exposure to loss 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. Financial reportNotes to the financial statementsPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report 3Financial
report
Notes to the
financial statements
11.1 Investments in Subsidiaries and Other Entities (continued)
Unconsolidated Structured Entities (continued)
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.
As at 30 June 2018, the Group has not sponsored any unconsolidated structured entities.
Accounting Policy
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 an 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.
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 predominately required for the Group’s securitisation program, structured transactions and involvement with
investment funds.
Transactions between subsidiaries in the Group are eliminated. Non-controlling interests and the related share of profits in subsidiaries
are shown separately in the consolidated Income Statement, Statement of Comprehensive Income, Statement of Changes in Equity, and
Balance Sheet. 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.
Business Combinations
Business combinations are accounted for using the acquisition method. At the acquisition date, the cost of the business is the fair value
of the purchase consideration, measured as the aggregate of the fair values of assets transferred, equity instruments issued, or liabilities
incurred or assumed at the date of exchange.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured at fair value on the
acquisition date. Goodwill represents the excess of the fair value of the purchase consideration over the fair value of the Group’s share of
assets acquired and liabilities and contingent liabilities assumed on the date of acquisition. 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.
Investments 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 the consolidated
financial report, they are equity accounted. They are initially recorded at cost and adjusted for 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 5.5). 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 the 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.
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249
Financial Notes to the report financial statements 249 11.2 Related Party Disclosures 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 8.4 and 2.1. 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. Bank 30 Jun 18 30 Jun 17 $M $M Shares in controlled entities 11,821 10,572 Loans to controlled entities 106,431 90,765 Total shares in and loans to controlled entities 118,252 101,337 The Group also receives fees on an arm’s length basis of $118 million (2017: $53 million) from funds classified as associates. The Bank provides letters of comfort to other entities within the Group on standard terms. Guarantees include a $175 million (2017: $50 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 2.5. The amount receivable by the Bank under the tax funding agreement with the tax consolidated entities is $283 million as at 30 June 2018 (2017: $302 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. Accounting Policy 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. 11.3 Discontinued Operations and Operations under Strategic Review Discontinued Operations During the 2018 financial year the Group announced the sale of 100% of its life insurance businesses in Australia (CommInsure Life) and New Zealand (Sovereign) to AIA Group Limited (AIA) for $3.8 billion. The sale agreement includes a 20-year partnership with AIA for the provision of life insurance products to customers in Australia and New Zealand. The sale of Sovereign completed on 2 July 2018, resulting in a total post tax gain of $102 million (inclusive of separation costs and subject to final tax calculations and purchase price adjustments). This has also been reported as a subsequent event. The sale of CommInsure Life remains subject to certain conditions and regulatory approvals, and is expected to be completed later in calendar year 2018. On 23 May 2018 CBA announced the sale of its 37.5% equity interest in BoComm Life Insurance Company Limited (BoComm Life) to Mitsui Sumitomo Insurance Co. Ltd (MSI). Completion of the sale is subject to regulatory approvals in China, and is a condition precedent to completion of the CommInsure Life sale. The Group is currently exploring options for the most suitable long-term structure for TymeDigital with African Rainbow Capital, a minority shareholder in TymeDigital. CommInsure Life currently forms part of the Wealth Management segment, Sovereign forms part of the New Zealand segment while BoComm Life and TymeDigital form part of the IFS and Other segment. All are discontinued operations within each segment. The comparative Income Statement and Statement of Comprehensive Income of the Group have been restated to disclose discontinued operations separately from continuing operations. Financial reportNotes to the financial statementsPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report 3Financial
report
Notes to the
financial statements
11.3 Discontinued Operations and Operations under Strategic Review
Operations under Strategic Review
On 25 June 2018, CBA announced its intention to demerge its wealth management and mortgage broking businesses, and will undertake
a strategic review of its general insurance business, including a potential sale. The demerged business (NewCo) will include Colonial First
State, Colonial First State Global Asset Management (CFSGAM), Count Financial, Financial Wisdom and Aussie Home Loans (AHL) and
the Group’s minority interests in Mortgage Choice and Countplus. The implementation of the demerger is subject to final CBA Board,
shareholder and regulatory approvals under a scheme of arrangement. If approved, the demerger is expected to be implemented in
calendar year 2019. Due to the uncertain timing of the completion of the demerger, NewCo is included in continuing operations.
Financial Impact of Discontinued Operations on the Group
The performance and net cash flows of the Group’s interest in CommInsure Life, Sovereign, BoComm Life and TymeDigital are set out in
the tables below. The balance sheet of the Group’s interest in CommInsure Life, Sovereign and BoComm Life are set out in the table on
page 251. TymeDigital is a discontinued operation but has not been classified as held for sale.
Net interest income
Other banking income
Net banking operating income
Net funds management operating income
Net insurance operating income
Net operating income before operating expenses
Operating expenses (2)
Net profit before tax
Corporate tax expense
Policyholder tax
Net profit after tax and before transaction and separation costs
Transaction and separation costs
Non-controlling interests
Full Year Ended (1)
30 Jun 17
$M
30 Jun 18
$M
30 Jun 16
$M
1
15
16
109
676
801
(554)
247
(98)
(59)
90
(136)
-
(9)
17
8
123
604
735
(456)
279
(81)
(32)
166
-
(4)
(2)
13
11
145
805
961
(477)
484
(105)
(101)
278
-
-
Net profit after income tax from discontinued operations attributable to equity
holders of the Bank
(46)
162
278
(1) Comparative information has been restated to conform to presentation in the current period.
(2)
Includes impairment due to the reclassification of TymeDigital as a discontinued operation.
Net cash used in operating activities
Net cash from investing activities
Net cash used in financing activities
Net cash inflows/(outflows) from discontinued operations
(1) Comparative information has been restated to conform to presentation in the current period.
Full Year Ended (1)
30 Jun 18
$M
30 Jun 17
$M
30 Jun 16
$M
(801)
(1,132)
(759)
862
1,205
1,060
(82)
(21)
(6)
67
(287)
14
250
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Commonwealth Bank of Australia
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251
Financial Notes to the report financial statements 251 11.3 Discontinued Operations and Operations under Strategic Review (continued) Discontinued Operations As at (1) 30 June 18 Assets held for sale $M Cash and liquid assets 108 Insurance assets at fair value through Income Statement 11,867 Intangible assets 1,372 Property, plant and equipment 1,225 Investment in associates and joint ventures 401 Other assets 653 Total assets (2) 15,626 Liabilities held for sale Insurance policy liabilities 11,188 Deferred tax liabilities 763 Deposits and other public borrowings 871 Managed funds units on issue 1,698 Other liabilities 380 Total liabilities 14,900 (1) Intragroup balances have been eliminated; however will impact the final gain/loss on disposal of the discontinued operations. (2) Excludes businesses or assets that are held for sale, which do not form part of the Group’s discontinued operations. 11.4 Acquisition of Controlled Entities On 25 August 2017, the Group acquired the remaining 20% of the issued share capital of AHL Holdings Pty Limited (“AHL”) for $164 million purchase consideration in the form of CBA shares. Following acquisition of the remaining 20% issued share capital of AHL, the Group controls and consolidates AHL. AHL is the parent of the “Aussie” group of entities. Aussie predominantly operates as a mortgage broker and originator. On 23 February 2018, the Group completed the acquisition of eChoice’s operating assets and intellectual property for $5 million. The fair value of the identifiable assets acquired and liabilities assumed as at the acquisition date for both AHL and eChoice are as follows: Group 30 Jun 18 30 Jun 17 30 Jun 16 $M $M $M Net identifiable assets at fair value (1) 55 16 553 Add: Goodwill 446 16 304 Less: Fair value of previously held interests (2) (332) - - Purchase consideration 169 32 857 Less: Cash and cash equivalents acquired (31) (1) - Less: Non-cash consideration (164) - - Net cash (inflow)/outflow on acquisition for cash flow statement (3) (26) 31 857 (1) This balance includes $67 million of acquired intangible assets in the form of Aussie customer-broker relationships and the Aussie Brand name, $19 million of deferred tax liabilities relating to intangible assets, $4 million of software related to eChoice and $7 million of tangible assets related to Aussie. The Aussie Brand has an indefinite useful life. The carrying value of all acquired net tangible assets approximate their fair values. (2) As a result of remeasuring its equity interest in AHL to fair value, the Group recognised a gain of $58 million calculated as the difference between the carrying value of the 80% investment ($274 million) and the fair value ($332 million) of this previously held interest. (3) For the purpose of the statements of cash flow, presentation of cash inflows will be positive and outflows negative. Financial reportNotes to the financial statementsPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report 3Financial
report
Notes to the
financial statements
12. Other Information
Overview
This section includes other information about the Group’s operations that is disclosed to provide a more complete view of our
business. It includes customer related commitments and contingent liabilities that arise in the ordinary course of business through
certain lending arrangements. In addition, it covers the impact of adopting new accounting standards, notes to the statement of cash
flows, lease commitments and remuneration of auditors. Finally, details of events that have taken place subsequent to the balance
sheet date are provided.
12.1 Contingent Liabilities, Contingent Assets and Commitments arising from the
banking business
Details of contingent liabilities and off Balance Sheet instruments are presented below and in Note 7.1 Other Provisions-Litigations,
investigations and reviews. The face (contract) value represents the maximum potential amount that could be lost if the counterparty fails
to meet its financial obligations. The credit equivalent amounts are a measure of potential loss to the Group in the event of
non-performance by the counterparty. 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 should they be drawn upon by the customer.
Credit risk related instruments
Guarantees
Documentary letters of credit
Performance related contingents
Commitments to provide credit
Other commitments
Face
Value
30 Jun 17
$M
7,424
1,183
2,133
30 Jun 18
$M
5,185
753
2,531
30 Jun 18
$M
6,265
761
4,610
Group
Credit
Equivalent
30 Jun 17
$M
7,424
1,168
2,127
162,090
173,555
157,636
167,205
1,470
837
1,470
835
Total credit risk related instruments
175,196
185,132
167,575
178,759
Credit risk related instruments
Guarantees
Documentary letters of credit
Performance related contingents
Commitments to provide credit
Other commitments
Face
Value
30 Jun 17
$M
7,037
1,098
2,133
30 Jun 18
$M
4,754
715
2,514
30 Jun 18
$M
5,835
720
4,593
Bank
Credit
Equivalent
30 Jun 17
$M
7,037
1,086
2,127
147,098
158,567
144,102
153,638
1,360
713
1,360
711
Total credit risk related instruments
159,606
169,548
153,445
164,599
252
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253
Financial Notes to the report financial statements 253 12.1 Contingent Liabilities, Contingent Assets and Commitments arising from the banking business (continued) Accounting Policy Credit default financial guarantees are unconditional undertakings given to support the obligations of a customer to third parties. Other forms of financial guarantees include documentary letters of credit which are undertakings by the Group to pay or accept drafts drawn by a supplier of goods against presentation of documents in the event of payment default by a customer. Financial guarantees are recognised within other liabilities and initially measured at fair value, being the premium received. Subsequent to initial recognition, the Group’s liability under each guarantee is measured at the higher of the amount initially recognised less cumulative amortisation recognised in the Income Statement, and the best estimate of expenditure required to settle any financial obligation arising as a result of the guarantee. Any increase in the liability relating to financial guarantees is recorded in the Income Statement. The premium received is recognised in the Income Statement in other operating income on a straight line basis over the life of the guarantee. Performance related contingents are undertakings that oblige the Group to pay third parties should a customer fail to fulfil a contractual non-monetary obligation. Performance related contingents are performance guarantees and do not meet the definition of a financial guarantee, because they do not transfer credit risk. Performance guarantees are recognised when it is probable that an obligation has arisen. The amount of any provision is the best estimate of the amount required to fulfil the obligation. Commitments to provide credit include all obligations on the part of the Group to provide credit facilities (unutilised credit lines or undrawn portions of credit lines) against which clients can borrow money under defined terms and conditions. As facilities may expire without being drawn upon, the notional amounts do not necessarily reflect future cash requirements. Loan commitments that are cancellable by the Group are not recognised on the Balance Sheet. Upon a loan drawdown by the counterparty, the amount of the loan is accounted for in accordance with accounting policies for loans and receivables. Irrevocable loan commitments are not recorded in the Balance Sheet, but a provision is recognised if it is probable that a loss has been incurred and a reliable estimate of the amount can be made. Other commitments to provide credit include commitments with certain drawdowns, standby letters of credit and bill endorsements. 12.2 Lease Commitments Group Bank 30 Jun 18 30 Jun 17 30 Jun 18 30 Jun 17 $M $M $M $M Lease Commitments - Property, Plant and Equipment Due within one year 681 662 619 603 Due after one year but not later than five years 1,764 1,826 1,593 1,641 Due after five years 1,811 2,160 1,658 1,951 Total lease commitments - property, plant and equipment 4,256 4,648 3,870 4,195 Lease Arrangements Operating leases are entered into to meet the business needs of entities in the Group. Leases are primarily over commercial and retail premises and plant and equipment. Lease rentals are determined in accordance with market conditions when leases are entered into or on rental review dates. The total expected future sublease payments to be received are $88 million as at 30 June 2018 (2017: $99 million). Financial reportNotes to the financial statementsPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report 3Financial
report
Notes to the
financial statements
12.3 Notes to the Statements of Cash Flows
(a) Reconciliation of Net Profit after Income Tax to Net Cash provided by/ (used in) Operating Activities
Net profit after income tax
Increase in interest receivable
Increase/(decrease) in interest payable
Net decrease/(increase) in assets at fair value through
Income Statement (excluding life insurance)
Net loss/(gain) on sale of controlled entities and
associates
Net movement in derivative assets/liabilities
Net loss/(gain) on sale of property, plant and equipment
Equity accounting profit
Loan impairment expense
Depreciation and amortisation (including asset
write downs)
(Decrease)/increase in liabilities at fair value through
Income Statement (excluding life insurance)
Increase/(decrease) in other provisions
(Decrease)/increase in income taxes payable
Increase/(decrease) in deferred tax liabilities
(Increase)/decrease in deferred tax assets
Decrease/(increase) in accrued fees/reimbursements
receivable
Increase/(decrease) in accrued fees and other items
payable
Cash flow hedge ineffectiveness
(Gain)/loss on changes in fair value of hedged items
Dividend received - controlled entities
Changes in operating assets and liabilities arising from
cash flow movements
Other
Net cash provided by/(used in) operating activities
Group
Bank
30 Jun 18
$M
30 Jun 17
$M
30 Jun 16
$M
30 Jun 18
$M
30 Jun 17
$M
9,348
9,952
9,243
8,875
8,979
(62)
112
(14)
(26)
(148)
(312)
(17)
243
21
(5)
1,536
2,788
(8,538)
2,079
3,372
184
3,381
17
(287)
(2)
(492)
(6)
(292)
-
172
-
5,988
4,830
(3,509)
21
(289)
17
7
3
-
1,079
1,095
1,256
963
1,040
968
1,229
857
777
1,035
121
1,651
(41)
1,550
(258)
156
(461)
400
(538)
20
631
114
603
(14)
(573)
(238)
18
(4)
(765)
-
(20)
799
-
(78)
486
(162)
205
(484)
-
113
570
-
66
(106)
(587)
137
(150)
(991)
5
(68)
801
-
4
20
(62)
-
3
(642)
(763)
1,829
-
(2,085)
(1,200)
(15,461)
(15,228)
(13,640)
(15,771)
(14,907)
1,949
1,109
619
679
1,953
552
(807)
(4,561)
1,591
(1,183)
Decrease in life insurance contract policy liabilities
(836)
(1,240)
(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
30 Jun 18
$M
30 Jun 17
$M
Group
30 Jun 16
$M
30 Jun 18
$M
Bank
30 Jun 17
$M
17,110
14,836
12,103
15,586
12,782
5,895
8,281
2,344
5,765
8,167
Cash and cash equivalents at end of year
23,005
23,117
14,447
21,351
20,949
254
254
Commonwealth Bank of Australia
Annual Report 2018
Commonwealth Bank of AustraliaAnnual Report 2018Financial reportNotes to the financial statements
255
Financial Notes to the report financial statements 255 12.3 Notes to the Statements of Cash Flows (continued) (c) Non-cash Financing and Investing Activities Group 30 Jun 18 30 Jun 17 30 Jun 16 $M $M $M Shares issued under the Dividend Reinvestment Plan 2,105 1,143 1,209 12.4 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: Group Bank 30 Jun 18 30 Jun 17 30 Jun 18 30 Jun 17 $'000 $'000 $'000 $'000 a) Audit and audit related services Audit services PricewaterhouseCoopers Australian firm 21,292 16,643 14,040 10,758 Network firms of PricewaterhouseCoopers Australian firm 5,939 5,167 1,027 705 Total remuneration for audit services 27,231 21,810 15,067 11,463 Audit related services PricewaterhouseCoopers Australian firm 4,416 5,765 3,736 4,952 Network firms of PricewaterhouseCoopers Australian firm 2,133 981 145 178 Total remuneration for audit related services 6,549 6,746 3,881 5,130 Total remuneration for audit and audit related services 33,780 28,556 18,948 16,593 b) Non-audit services Taxation services PricewaterhouseCoopers Australian firm 757 617 561 197 Network firms of PricewaterhouseCoopers Australian firm 1,508 1,601 481 834 Total remuneration for tax related services 2,265 2,218 1,042 1,031 Other Services PricewaterhouseCoopers Australian firm 10,955 4,347 10,933 4,300 Network firms of PricewaterhouseCoopers Australian firm 66 534 - - Total remuneration for other services 11,021 4,881 10,933 4,300 Total remuneration for non-audit services 13,286 7,099 11,975 5,331 Total remuneration for audit and non-audit services (1) 47,066 35,655 30,923 21,924 (1) An additional amount of $11,850,256 (2017: $10,728,963) was paid to PricewaterhouseCoopers by way of fees for entities not consolidated into the Financial Statements. Of this amount, $8,093,111 (2017: $8,401,175) 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 relating to comfort levels over financing programmes, reviews of systems and processes as well as reviews of internal controls reports. Taxation services included the assistance with tax returns and submissions, and advice regarding Australian/foreign tax legislation. Other services include benchmarking and process reviews on the Bank’s response to APRA and the Royal Commission as well as IT security assessments. Financial reportNotes to the financial statementsPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report 3Financial
report
Notes to the
financial statements
12.5 New accounting standards adopted on 1 July 2018
AASB 9 ‘Financial Instruments’
In December 2014, the AASB issued the Australian Accounting
Standard AASB 9 ’Financial Instruments’ which has replaced
Instruments: Recognition and
AASB 139
'Financial
topics:
Measurement'. The standard covers
Impairment, Classification and Measurement and Hedging.
three broad
The Group adopted AASB 9 Classification and Measurement
and Impairment requirements on 1 July 2018. The Group has
currently elected an accounting policy choice in AASB 9 to
retain AASB 139 hedge accounting requirements. The Group
can commence applying IFRS 9 hedging at the beginning of any
reporting period in the future. This choice is available until the
amended standard resulting from IASB’s project on macro
hedging is effective at which point IFRS 9 hedging requirements
will become mandatory.
the carrying amounts of
AASB 9 Classification and Measurement and Impairment
requirements have been applied on a retrospective basis. The
financial
Group has adjusted
instruments resulting from adoption of AASB 9 through opening
retained earnings and reserves on 1 July 2018 as if it has always
applied the new requirements. As permitted by AASB 9, the
Group will not restate the prior period comparative financial
statements.
The key changes to the Group’s accounting policies and the
impacts resulting from the adoption of AASB 9 are described
below.
Impairment
AASB 9 introduced an expected credit loss (‘ECL’) impairment
model which differs significantly from the incurred loss approach
under AASB 139. The ECL model is forward looking and does
not require evidence of an actual loss event for impairment
provisions to be recognised.
The implementation of AASB 9 required management to make
a number of judgements and assumptions and has had a
significant impact on the Group’s impairment methodology. A
description of the key components of the Group’s AASB 9
impairment methodology is provided below.
Expected credit loss (‘ECL’) model
to ECL
The ECL model uses a
recognition. Financial assets migrate through these stages
based on changes in credit risk since origination:
Stage 1 – 12 months ECL – Performing loans
three-stage approach
On origination financial assets recognise an impairment
provision equivalent to 12 month’s ECL. 12 month’s ECL is
the credit losses expected to arise from defaults occurring
over the next 12 months.
Stage 2 – Lifetime ECL – Performing loans that have
experienced a significant increase in credit risk (‘SICR’)
Financial assets that have experienced a SICR since
origination are transferred to Stage 2 and recognise an
impairment provision equivalent to lifetime ECL. Lifetime
ECL is the credit losses expected to arise from defaults
occurring over the remaining life of financial assets. If credit
quality improves in a subsequent period such that the
increase in credit risk since origination is no longer
considered significant the exposure is reclassified to Stage
1 and the impairment provision reverts to 12 month’s ECL.
256
256
Commonwealth Bank of Australia
Annual Report 2018
Stage 3 – Lifetime ECL – Non-performing
Credit impaired financial assets recognise an impairment
provision equivalent to lifetime expected credit losses.
Financial assets in stage 1 and stage 2 are assessed for
impairment collectively, whilst those in stage 3 are subjected to
either collective or individual impairment assessment.
Interest revenue is recognised on gross carrying amounts for
financial assets in Stage 1 and Stage 2, and gross carrying
value net of impairment provisions for financial assets in Stage
3.
The ECL model applies to all financial assets measured at
amortised cost, debt securities measured at fair value through
OCI, lease receivables, loan commitments and financial
guarantee contracts not measured at fair value through Income
Statement.
Significant increase in credit risk (‘SICR’)
SICR is assessed by comparing the risk of default occurring
over the expected life of the financial asset at reporting date to
the corresponding risk of default at origination. The Group
considers all available qualitative and quantitative information
that is relevant to assessing SICR.
For non-retail portfolios, such as the corporate risk rated
portfolio and the asset finance portfolio, the risk of default is
defined using the existing Risk Rated Probability of Default (PD)
Masterscale. The PD Masterscale is used in internal credit risk
management and includes 23 risk grades that are assigned at
a customer level using rating tools reflecting customer specific
financial and non-financial
information and management
experienced credit judgement. Internal credit risk ratings are
updated regularly on the basis of the most recent financial and
non-financial information.
The Group has developed a Retail Masterscale for use in the
ECL measurement on personal loans, credit cards, home loan
and SME retail portfolios. The Retail Masterscale has 15 risk
grades that are assigned to retail accounts based on their credit
quality scores determined through a credit quality scorecard.
Risk grades for retail exposures are updated monthly as credit
the new
quality scorecards are recalculated based on
behavioural information.
For significant portfolios, the primary indicator of SICR is a
significant deterioration in an exposure’s internal credit rating
grade between origination and reporting date. Application of the
primary SICR indicator uses a sliding threshold such that an
exposure with a higher credit quality at origination would need
to experience a more significant downgrade compared to a
lower credit quality exposures before SICR is triggered. The
levels of downgrade required to trigger SICR for each
origination grade have been defined for each significant
portfolio.
The Group also uses the following secondary SICR indicators
as backstops in combination with the primary SICR indicator:
A non-retail exposure referral to Group Credit Structuring.
A retail exposure entering a financial hardship status;
30 days past due arrears information;
Commonwealth Bank of AustraliaAnnual Report 2018Financial reportNotes to the financial statements
257
Financial Notes to the report financial statements 257 12.5 New accounting standards adopted on 1 July 2018 (continued) AASB 9 ‘Financial Instruments’ (continued)Significant increase in credit risk (‘SICR’) (continued) For a number of small portfolios which are not considered significant individually or in combination the Group applies simplified provisioning approaches that differ from the description below. 30 days past due is used as a primary indicator of SICR on exposures in these portfolios. Definition of default, credit impaired assets and write-offs The definition of default used in measuring ECL is aligned to the definition used for internal credit risk management purposes across all portfolios. This definition is also in line with the regulatory definition of default. Default occurs when there are indicators that a debtor is unlikely to meet contractual credit obligations to the Group in full, or the exposure is 90 days past due. Financial assets, including those that are well secured, are considered credit impaired when they default. Loans are written-off when there is no realistic probability of recovery which is consistent with the Group’s write-off policy under AASB 139. ECL Measurement ECL is a probability weighted expected credit loss estimated by evaluating a range of possible outcomes and taking into account the time value of money, past events, current conditions and forecasts of future economic conditions. The Group uses the following AASB 9 collective provisioning models in calculating ECL: Retail lending: Personal Loans model, Credit Cards model, Home Loans model; Retail SME model. Non-retail lending: Corporate Risk rated model, Asset Finance model. For each significant portfolio ECL is calculated as a product of the following credit risk factors at a facility level: Probability of default (PD): The likelihood that a debtor will be unable to pay its obligations in full without having to take actions such as realising on security or that the debtor will become 90 days overdue on obligation or contractual commitment; Exposure at default (EAD): Expected balance sheet exposure at default. The Group generally calculates EAD as the higher of the drawn balance and total credit limit, except for the credit cards portfolio, for which EAD calculation also takes into account the probability of unused limits being drawn down; and Loss given default (LGD): The amount that is not expected to be recovered following default. Secured retail exposures with expected loss in excess of $20,000 and defaulted non-retail exposures that are not well secured are assessed for impairment through an Individually Assessed Provisions (‘IAP’) process. Impairment provisions on these exposures are calculated directly as the difference between the defaulted asset’s carrying value and the present value of expected future cash flows including cash flows from realisation of collateral, where applicable. Forward-looking information Credit risk factors of PD and LGD used in ECL calculation are point-in-time estimates based on current conditions and adjusted to include the impact of multiple probability-weighted future forecast economic scenarios. The Group uses the following four alternative macro-economic scenarios to reflect an unbiased probability-weighted range of possible future outcomes in estimating ECL: Central scenario: This scenario reflects the Group’s base case assumptions used in business planning and forecasting; Upside and Downside scenarios: These scenarios are set relative to the central scenario based on reasonably possible alternative macro-economic conditions. The upside and downside scenarios reflect macro-economic conditions that generate the lowest and highest impairment losses for a particular portfolio over an approximate 10 year economic cycle, respectively. Severe Downside scenario: This scenario has been included to account for a potentially severe impact of less likely extremely adverse economic conditions. It reflects macro-economic conditions that generate the highest impairment losses for a particular portfolio over a longer horizon such as a 30 year economic cycle. Forward looking PD and LGD factors are modelled for each significant portfolio based on macro-economic factors that are most closely correlated with credit losses in the relevant portfolios. Each of the four scenarios includes a forecast of relevant macro-economic variables which differ by portfolio: Retail portfolios: Cash rate, unemployment rate, GDP per capita and House price index. Non-retail lending: Unemployment rate, business investment index, ASX 200 and the AUD/ USD exchange rate. New Zealand equivalents of the above macro-economic variables are used for credit exposures originated in New Zealand. Financial reportNotes to the financial statementsPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report 3Financial
report
Notes to the
financial statements
12.5 New accounting standards adopted on 1 July 2018 (continued)
Governance
The Group’s Loan Loss Provisioning Committee (LLPC) is
responsible for approving forecast economic scenarios and their
associated probability weights. In addition, LLPC is responsible
for approving all model adjustments including those required to
account for situations where all relevant information has not
been considered in the modelling process.
The Group’s loan loss provisions, loan impairment expense and
any areas of judgement are reported to the Group’s Board Audit
Committee.
Classification and Measurement
Under AASB 9 the Group is required to differentiate between
financial asset debt instruments and financial asset equity
instruments, as follows:
Financial assets- debt instruments
There are three classification models for financial asset debt
instruments under AASB 9:
Amortised Cost: Financial assets with contractual cash
flows that comprise the payment of principal and interest
only and which are held in a business model whose
objective is to collect their cash flows are measured at
amortised cost;
Fair value through other comprehensive income (FVOCI):
Financial assets with contractual cash flows that comprise
the payment of principal and interest only and which are
held in a business model whose objective is to both collect
their cash flows and sell them are measured at FVOCI;
and
Fair value through profit or loss (FVTPL): Other financial
assets are measured at FVTPL.
Financial assets - equity instruments
Similar to AASB 139, AASB 9 requires equity instruments to be
measured at FVTPL but permits non-traded equity investments
to be designated at FVOCI on an instrument by instrument
basis. Unlike AASB 139, should this election be made under
AASB 9, gains or losses are not reclassified from other
comprehensive income to profit or loss on disposal of the
investment. However, the gains or losses may be reclassified
within equity.
Financial liabilities
The Group adopted the AASB 9 requirement to recognise
changes in the fair value of financial liabilities designated at fair
value through the Income Statement that are attributable to
changes in own credit risk in other comprehensive income on 1
January 2014. There were no other changes to the
classification and measurement of financial liabilities as a result
of adoption of AASB 9.
AASB 9 ‘Financial Instruments’ (continued)
Forward-looking information (continued)
The four scenarios are probability weighted according to
management’s best estimate of their relative likelihood based
on historical frequency, current trends and conditions. The
same future forecast scenarios and probability weights apply
across all portfolios.
The Group’s assessment of SICR also incorporates the impact
forecast economic
of multiple probability-weighted
scenarios on exposures’ internal risk grades using the same
four forecast macro-economic scenarios as described above.
future
In estimating impairment provisions on individually significant
defaulted exposures, the Group generally applies conservative
assumptions in estimating recovery cash flows. Incorporating
multiple forecast economic scenarios in estimates is not
expected
impairment
the
provisions on these credit exposures.
to significantly effect
level of
Lifetime of an exposure
For exposures in Stage 2 impairment provisions are determined
as a lifetime expected loss. The Group used a range of
approaches to estimate expected lives of financial instruments
subject to ECL requirements:
Non-revolving products in corporate portfolios: Expected
life is determined as a maximum contractual period over
which the Group is exposed to credit risk;
Non-revolving retail products: For fixed term products
such as personal loans and home loans, expected life is
determined using behavioural term analysis and does not
exceed the maximum contractual period; and
Revolving products in corporate and retail portfolios: For
revolving products that include both a loan and an
undrawn commitment such as, credit cards and
corporate lines of credit, the Group’s contractual ability
to cancel the undrawn limits and demand repayments
does not limit the exposure to credit losses to the
contractual notice period. For such products, ECL is
measured over the behavioural life.
Incorporation of experienced credit judgement
Management exercises credit judgement in assessing if an
exposure has experienced SICR and in determining the amount
of impairment provisions at each reporting date. Where
applicable, model adjustments are made
incorporate
reasonable and supportable information about known or
expected risks that have not been considered in the modelling
process. This includes but is not limited to information about
emerging risk at an industry, geographical location or a
particular portfolio segment level.
to
258
258
Commonwealth Bank of Australia
Annual Report 2018
Commonwealth Bank of AustraliaAnnual Report 2018Financial reportNotes to the financial statements
259
Financial Notes to the report financial statements 259 12.5 New accounting standards adopted on 1 July 2018 (continued) Hedging The Group has currently elected the accounting policy choice to continue applying hedge accounting under AASB 139. The Group can commence applying IFRS 9 hedging at the beginning of any reporting period in the future. AASB 9 Implementation Program In November 2015 the Group established AASB 9 Program (the “Program”) to ensure a high quality implementation of AASB 9. The Program is jointly owned by Finance and Risk with a steering committee comprising senior management to provide oversight. Progress on each of the areas during the financial year ended 30 June 2018 is set out below: Impairment The Group has developed and tested AASB 9 models to address all material portfolios. All the models have been independently validated and approved by the Group’s LLPC and the Group Board Audit Committee. Prior to adoption on 1 July 2018, the Group completed parallel runs of the models which included testing, calibration and analysis of models, processes and outputs. The Group is in the process of implementing changes required to finance systems and controls to ensure compliance with the disclosure requirements introduced by AASB 9. Classification and Measurement The Group has completed the accounting analysis of the Group’s financial assets and implemented changes to finance systems and controls required to ensure financial asset measurement and presentation is compliant with external reporting requirements. AASB 15 ‘Revenue from contracts with customers’ The Group has adopted AASB 15 ‘Revenue from Contracts with Customers’ from 1 July 2018, replacing the previous standard, AASB 118 ‘Revenue’. Under AASB 118 revenue is recognised when risks and rewards have transferred from the seller to the buyer. AASB 15 has introduced a single, principle-based five- step recognition and measurement model for revenue recognition. The five steps are: 1. Identify the contract with a customer; 2. Identify the separate performance obligations; 3. Determine the transaction price; 4. Allocate the transaction price to each performance obligation identified in Step 2; and 5. Recognise revenue when a performance obligation is satisfied. Where there is variable consideration in calculating a transaction price, revenue will only be recognised if it is highly probable that a significant revenue reversal will not subsequently occur. AASB 15 applies to contracts with customers except for revenue arising from items such as financial instruments, insurance contracts and leases. The Group has used the modified retrospective approach in adopting AASB 15 which recognises the cumulative effect of initial application through opening retained earnings as at 1 July 2018. The Group will not restate the comparative period financial statements. The modified retrospective approach applied to contracts not completed at 30 June 2018. The significant changes to the Group as a result of adopting AASB 15 are: Trail commissions: Certain trail commission income and expenses that were previously recognised over time by the Group, will be recognised at the start of a contract when the performance obligation has been provided. This will result in the Group recognising the net present value of expected future trail commission income and expenses. For investment referral services, the Group is unable to forecast the trail commission revenue in line with the highly probable test in AASB 15. Therefore trail commission revenue and expenses on investment referral balances will be recognised when received or paid; and Upfront fees: Certain fees in relation to lending, lease and guarantees arrangements are no longer recognised upfront but when the performance obligation to the customer is delivered, which is generally over the life of these contractual arrangements. Where the performance obligation is the Group providing a loan, lease arrangement or guarantee over a contractual period, these fees previously recognised upfront will be amortised over the expected life of the contracts. This will also result in a reclassification from other banking income to interest income. Impacts of adopting AASB 9 and AASB 15 The following table summarises the adjustments arising on adoption of the new accounting standards. The adjustments have been recognised against the Group’s opening retained profits and reserves as at 1 July 2018. Financial reportNotes to the financial statementsPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report p
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Commonwealth Bank of AustraliaAnnual Report 2018
261
Financial Notes to the report financial statements 261 12.5 New accounting standards adopted on 1 July 2018 (continued) AASB 9 Classification and Measurement High quality liquid assets (‘HQLA’): under AASB 139, $78,145 million of the Group’s HQLA were included in Available-for-Sale investments. $7,121 million of HQLA previously included in Available-for-Sale assets are held within the business model held to collect and have been reclassified to Investment securities at amortised cost under AASB 9. These financial assets have been restated to amortised cost and $4 million of unrealised gains (before tax) previously recognised in the Available-for-sale revaluation reserve have been reversed against the carrying value of the assets on 1 July 2018. This also led to a reversal of the deferred tax previously recognised in relation to unrealised gains on these securities through reserves. The Group’s deferred tax asset have increased by $1 million and the reserves have decreased by $3 million. $71,020 million of HQLA previously included in Available-for-Sale assets are held within the business model held to collect and sell and have been reclassified to Investment securities at fair value through Other Comprehensive Income under AASB 9. The reclassification did not have an impact on retained earnings or reserves. NZD liquid assets: under AASB 139, $3,797 million of the Group’s NZD liquid assets were included in Available-for-Sale investments with the remaining $2,148 million measured at fair value through the Income Statement. These financial assets are held within the business model held to collect and sell and have been reclassified to Investment securities at fair value through Other Comprehensive Income under AASB 9. The reclassification did not have a material impact on retained earnings or reserves. Non-traded equity instruments: the Group has $298 million of non-traded equity instruments included in Available-for-sale investment under AASB 139. One of the equity securities of $235 million was reclassified to Assets at Fair Value through Income Statement under AASB 9. The remaining $63 million of equity securities have been reclassified to Investment securities at fair value through Other Comprehensive Income under AASB 9. The reclassifications did not have a material impact on retained earnings or reserves. Loans with embedded derivatives: the Group issued loans with embedded derivative features. Under AASB 139, the embedded derivatives were bifurcated and accounted for as standalone derivatives at fair value through the Income Statement; the host loan contracts were measured at amortised cost and included in Loans, bills discounted and other receivables on the Balance sheet. The contractual cash flows on these instruments are not solely payments of principal and interest and they have been reclassified to Assets at Fair Value through Income Statement together with the related embedded derivative features. The reclassification did not have an impact on retained earnings. NZD Certificate of Deposits (CD): Under AASB 9, $1,141 million of NZD CDs have been reclassified from liabilities at fair value through income statement to liabilities at amortised cost, as the CDs are not held for trading. The reclassification did not have a material impact on retained earnings or reserves. AASB 15 ‘Revenue from contracts with customers’ Trail commission: Other assets and Bills payable and other liabilities have increased by $351 million and $214 million, respectively, to reflect the recognition of trail commission receivable and payable across various trail commission arrangements across the Group. This reflects the upfront recognition of certain future trail commission income and expenses when a performance obligation has been met, e.g. a new customer is introduced into a product. This change also led to a $72 million decrease in goodwill on the acquisition of Aussie Home Loans, a $64 million and $104 million increase in deferred tax assets and deferred tax liabilities, respectively. The impact of this change on retained earnings as at 1 July 2018 was an increase of $25 million. Upfront fees: Upfront fees in relation to lending lease and guarantee arrangements are no longer recognised upfront. Instead, income is recognised over the life of the contractual arrangements. Establishment fees on financing facilities will be deferred on the Group’s Balance Sheet in Loans, bills discounted and other receivables, and amortised to interest income over the expected life of the loan in accordance with AASB 9. From 1 July 2018, this will also result in a reclassification of income from other banking income to interest income. In addition, other annual fees will be deferred on Balance Sheet in Bills payable and other liabilities when received and recognised in other banking income on a straight-line basis throughout the year. The impact at 1 July 2018 includes a reduction in Loans, Bills Discounted and Other Receivables of $156 million, a reduction in Other assets of $3 million, and an increase in Bills payable and other liabilities of $123 million. The deferral of upfront fees from existing customer contracts resulted in a one-off increase in deferred tax assets of $72 million and a decrease in deferred tax liabilities of $1 million. The impact of this change on retained earnings as at 1 July 2018 was a reduction of $209 million. Financial reportNotes to the financial statementsPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report r
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Commonwealth Bank of AustraliaAnnual Report 2018
263
Financial Notes to the report financial statements 263 12.6 Subsequent Events The Bank expects the DRP for the final dividend for the year ended 30 June 2018 will be satisfied by the issue of shares of approximately $622 million. Completion of sale of New Zealand Life Insurance Business (Sovereign) During the 2018 financial year the Group announced the sale of 100% of its life insurance businesses in Australia (“CommInsure Life”) and New Zealand (“Sovereign”) to AIA Group Limited (“AIA”) for $3.8 billion. The sale agreement includes a 20-year partnership with AIA for the provision of life insurance products to customers in Australia and New Zealand. The sale of Sovereign completed on 2 July 2018, resulting in a total post tax gain of $102 million (inclusive of separation costs and subject to final tax calculations and purchase price adjustments). Sale of Commonwealth Bank of South Africa (Holding Company) Limited (“TymeDigital”) The CBA Board has approved the sale of Commonwealth Bank of South Africa (Holding Company) Limited (“TymeDigital”) to the minority shareholder, African Rainbow Capital. The sale is subject to regulatory approval and potential sale price adjustments. As a result, the financial effect of the sale currently cannot be reliably estimated, however, it is not expected to have a material impact on the Group’s results. 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. Financial reportNotes to the financial statementsPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Directors’
declaration
Directors
Declaration
The Directors of the Commonwealth Bank of Australia declare that in their opinion:
(a)
the consolidated financial statements and notes for the year ended on 30 June 2018, as set out on pages 125 to 263,
are in accordance with the Corporations Act 2001, including:
(i)
(ii)
complying with the Accounting Standards and any further requirements in the Corporations Regulations 2001;
and
giving a true and fair view of the Group’s financial position as at 30 June 2018 and its performance for the
year ended 30 June 2018;
(b)
there are reasonable grounds to believe that the Commonwealth Bank of Australia will be able to pay its debts as and
when they become due and payable.
Note 1.1 of the consolidated financial statements includes a statement of compliance with the International Financial
Reporting Standards.
The Directors have been given the declarations required by section 295A of the Corporations Act 2001.
This declaration is made in accordance with a resolution of the Directors.
Catherine Livingstone AO
Chairman
7 August 2018
Matt Comyn
Managing Director and Chief Executive Officer
7 August 2018
264
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Commonwealth Bank of AustraliaAnnual Report 2018
Independent auditor’s report
To the members of Commonwealth Bank of Australia
Report on the audit of the financial report
Our opinion
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:
a.
b.
giving a true and fair view of the Company's and Group's financial positions as at 30 June
2018 and of their financial performance for the year then ended
complying with Australian Accounting Standards and the Corporations Regulations 2001.
What we have audited
The Company and Group financial report comprises:
the Consolidated and Company balance sheets as at 30 June 2018;
the Consolidated and Company income statements and statements of comprehensive income for
the year then ended;
the Consolidated and Company statements of changes in equity for the year then ended;
the Consolidated and Company 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 Company and 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.
PricewaterhouseCoopers, ABN 52 780 433 757
One International Towers Sydney, Watermans Quay, Barangaroo NSW 2000, GPO BOX 2650 Sydney NSW 2001
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Level 11, 1PSQ, 169 Macquarie Street, Parramatta NSW 2150, PO Box 1155 Parramatta NSW 2124
T: +61 2 9659 2476, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
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Performance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report
Independent auditor's report (continued)
Our audit approach
Group audit scope
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
Company and Group, its accounting processes and controls and the industries in which it operates. We
also ensured that the audit team had the appropriate skills and competencies needed for the audit of a
complex financial services group. This included industry expertise in retail, business and institutional
banking, and insurance 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).
In designing our scope we considered the structure of the Group and identified those entities or business
activities (referred to as components) for which the Group prepares financial information for inclusion in the
financial report.
The nature, timing and extent of audit work performed for each component was determined by the
components’ risk characteristics and financial significance to the Group and consideration of whether
sufficient evidence had been obtained for our opinion on the financial report as a whole. This involved
either:
an audit of the complete financial information of a component (full scope),
an audit of one or more of the component’s account balances, classes of transactions or
disclosures (specified scope),
analytical procedures performed at the Group level, or
further audit procedures at a Group level, including over the consolidation of the Group’s reporting
units and the preparation of the financial report.
Set out on the next page is an overview of our Group audit approach highlighting key aspects of our audit.
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Commonwealth Bank of AustraliaAnnual Report 2018
b
Independent auditor's report (continued)
1Specified scope procedures are performed for the purposes of the Group audit. However, full scope audits are
performed for the purposes of standalone legal entity statutory financial statements as required.
Group materiality
The scope of our audit was influenced by our application of materiality. An audit is designed to
provide reasonable assurance about whether the financial report is free from material misstatement.
Items are considered material if individually or in aggregate, they could reasonably be expected to
influence the economic decisions of the users taken on the basis of the financial report.
Based on our professional judgement, we determined certain quantitative thresholds for materiality,
including the overall Group materiality for the financial report, which we have set out in the table
below:
Overall Group
materiality
How we
determined it
$615 million (2017: $606 million)
Approximately 5% of 2018 financial year profit before tax (PBT)
(2017: approximately 5% of 2017 financial year PBT) for the
Company.
We chose net profit before income 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.
Rationale for the
materiality
benchmark
applied
We performed our audit over both the Group and Company financial
information concurrently. We apply the lower of materiality
calculated based on Group and Company PBT in order to avoid
duplication of work. As the Company has a lower PBT, we have
calculated materiality based on the Company PBT.
We selected 5% based on our professional judgement noting that it
is also within the range of commonly acceptable quantitative
materiality measures.
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Independent auditor's report (continued)
Key Audit Matters
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 in the
table 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.
Further, any commentary on the outcomes of a particular audit procedure is made in that context.
We communicated the key audit matters, amongst other relevant topics, to the Audit Committee.
The key audit matters identified below relate to both the Company and Group audit with the
exception of the valuation of insurance policy holder liabilities which relates only to the Group.
Key audit matter
How our audit addressed the key audit matter
Loan impairment provisions (Relevant components: RBS, B&PB, IB&M, BW, NZ - ASB)
We considered this a key audit matter due to
the subjective judgements made by the
Group 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 the Group. 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
2018, the majority of the Group’s individually
assessed provisions for specific lending
assets related primarily to business and
corporate loans.
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
thresholds noted above, is collectively
assessed on a portfolio basis using models
developed by the Group. 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 the Group to take account of
emerging trends and where models may fail
to fully capture all risks in the loan portfolio.
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268
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 to the impairment
provisioning models; and
The Group’s assessment of the
integrity of these models.
·
·
For a selection of individually assessed
provisions for specific lending assets, we
performed the following audit procedures,
amongst others:
·
Examined the Group’s cashflow
forecasts supporting the impairment
calculation by assessing key
judgements (in particular the amount
and timing of recoveries) made by
the Group in the context of the
borrowers’ circumstances based on
the detailed loan and counterparty
information known by the Group;
and
· Compared key inputs in the Group’s
estimates (such as valuation of
collateral held) to external
information where available.
To test the collectively assessed
Commonwealth Bank of AustraliaAnnual Report 2018
b
Key audit matter
How our audit addressed the key audit matter
Loan impairment provisions (Relevant components: RBS, B&PB, IB&M, BW, NZ - ASB)
Independent auditor's report (continued)
An example of an overlay is one which
allows for the impact of the current
macroeconomic environment (such as
residential and consumer lending in mining
towns). These overlays require significant
judgement.
Relevant references in the financial
report
Refer notes 1.1 and 3.2 for further
information.
AASB 9 expected credit loss
AASB 9 Financial Instruments will be
adopted by the Group for the financial year
beginning 1 July 2018. In periods prior to
adoption of new accounting standards,
Australian Accounting Standards require
disclosure of known or reasonably estimable
information that the application of the new
standard will have on the Group’s financial
report.
AASB 9 introduces an expected credit loss
(‘ECL’) impairment model which takes into
account forward-looking information
reflecting potential future economic events.
This has resulted in the Group developing
new models which are reliant on large
volumes of data, as well as a number of
significant estimates at adoption including
provisions, we together with our
independent modelling experts, performed
the following audit procedures, amongst
others:
·
Tested the completeness and
accuracy of key data being
transferred between the Group’s
systems and its collective
provisioning models;
· Compared the Group’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 the following audit
procedures, amongst others:
· Considered the Group’s rationale for
·
the recognition of overlays by
considering the potential for
impairment to be affected by events
not captured by the Group’s models;
and
Assessed the Group’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.
To determine the appropriateness of the
AASB 9 framework implemented by the
Group, including the reasonableness of the
models developed for the purposes of
determining ECL, and the inputs and
assumptions used in the models, we along
with PwC modelling and economic experts,
performed the following audit procedures,
amongst others:
·
Assessed the methodology inherent
within the ECL models against the
requirements of the new accounting
standard.
· Considered management’s judgements
and the reasonableness of forward-
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Key audit matter
How our audit addressed the key audit matter
Loan impairment provisions (Relevant components: RBS, B&PB, IB&M, BW, NZ - ASB)
Independent auditor's report (continued)
the impact of multiple economic scenarios.
We considered this a key audit matter
because:
·
·
·
the models used to calculate ECLs
(ECL models) are inherently
complex and judgement is applied
in determining the correct construct
of model to be applied;
judgement is applied in determining
the most appropriate information
and datasets to be used as inputs
to the models; and,
there are a number of key
assumptions made by the Group
concerning the values of inputs to
the models (e.g. statistical
assumptions used to determine
forward looking loan probability of
default and discount rates) and how
inputs correlate with one another.
Relevant references in the financial
report
Refer notes 1.1 and 12.5 for further
information.
looking information incorporated into the
ECL models by assessing the forecasts,
assumptions and probability weightings
applied in the multiple economic
scenarios, and comparing on a sample
basis against supporting evidence
where applicable,.
· Considered the integrity of data used as
input into the models by tracing a
sample of inputs used in the models to
source systems and calculations.
· Considered the accuracy and
reasonableness of the modelled
calculations by re-performing the ECL
calculations, on a sample basis.
· Developed an understanding of the key
transition controls related to the
calculation, review and approval of the
estimated ECL calculation and
corresponding disclosures.
· Compared the estimated transitional
impact amount disclosed in the financial
report to the underlying calculations and
assessed the adequacy of the
disclosures against the requirements of
Australian Accounting Standards.
Key audit matter
How our audit addressed the key audit matter
Judgemental valuation of financial instruments (Group and Company level with additional
testing by relevant components: IB&M, NZ – ASB)
The Group holds financial instruments
measured at fair value representing 17% of
the total assets and 5% of the total liabilities
of the Group. The financial instruments held
at fair value include:
· Derivative assets and liabilities;
·
Available-for-sale investments;
·
Life insurance assets and liabilities;
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
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:
·
Valuation model governance control
framework;
· Completeness and accuracy of data
inputs; including sourcing
independent market data inputs;
· Methodology for the determination of
·
fair value adjustments; and
The Group’s assessment of its own
models used to measure fair value.
In relation to the fair value of financial
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b
Independent auditor's report (continued)
Key audit matter
How our audit addressed the key audit matter
Judgemental valuation of financial instruments (Group and Company level with additional
testing by relevant components: IB&M, NZ – ASB)
instruments as at 30 June 2018, together
with our valuation experts, we compared the
Group’s calculation of fair value to our own
independent calculation across a sample of
financial instruments. This involved 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 the Group’s calculation of fair
value.
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 is based on quoted
prices in the market) or ‘Level 2’ (i.e. where
key inputs to the valuation is 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 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 there is more
judgement involved in determining their
value.
Relevant references in the financial
report
Refer notes 1.1, 4.2, 5.3, 5.4, 5.5 and 9.5 for
further information.
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Key audit matter
How our audit addressed the key audit matter
Provision for conduct risk and regulator action (Group and Company level)
Independent auditor's report (continued)
We developed 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 the directors and management.
We obtained written representations from
the Group Chief Executive Office, Chief
Financial Officer and Group General
Counsel and obtained access to relevant
documents in order to develop our
understanding of the matters.
We considered the Group’s judgement as to
whether there is potential material financial
exposure for the Group, and if so, the
amount of any provision required. This
included inspecting the Group’s underlying
calculations and assumptions made against
available information and, for a sample of
legal settlements, agreed amounts booked
to payments made.
We have considered the Group’s
assessment of whether provisions should be
recognised in respect of AUSTRAC’s civil
proceedings and the ASIC Bank Bill Swap
Rate Enforceable Undertaking in addition to
the payables already recognised in the
financial report.
Where the Group determined that they were
unable to reliably estimate the possible
financial impact of a legal or regulatory
action, we assessed the appropriateness of
their conclusion.
We assessed the adequacy of related
disclosures against the requirements of
Australian Accounting Standards.
The Group has assessed the need to raise
provisions in relation to certain legal
proceedings, investigations and reviews
from its regulators including in relation to
AUSTRAC’s civil proceedings, the Royal
Commission into banking misconduct in the
banking, superannuation and financial
services industry and APRA’s Enforceable
Undertaking, amongst others.
We considered this a key audit matter due to
the subjective judgements required by the
Group in determining:
·
the probability of financial outcomes
based on available information, and
the estimate of the amounts which may
be paid under each of the proceedings,
investigation and reviews.
·
Relevant references in the financial
report
Refer notes 1.1 and 7.1 for further
information.
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Independent auditor's report (continued)
Key audit matter
How our audit addressed the key audit matter
Valuation of insurance policyholder liabilities (Relevant components: WM - CommInsure, NZ -
Sovereign)
We considered this a key audit matter
because the Group’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 the
Group’s experts include:
·
·
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 note 1.1 and 11.3 for further
information.
Both WM-CommInsure and NZ-Sovereign
business segments were classified as
discontinued operations as at 30 June 2018.
To assess the assumptions used to
determine the value of insurance
policyholder liabilities, we along with our
independent actuarial experts performed the
following audit procedures, amongst others:
· Compared the methodology and
models used by the Group to those
commonly applied in the industry
and recognised by regulatory
standards;
· Developed an understanding of and
evaluated the controls the Group
has in place over key processes
relating to the valuation. This
included the Group’s use of models,
the quality of oversight and controls
over key assumptions within those
models, and the Group’s preparation
of the manually calculated
components of the liability;
· Compared key inputs (for example
inflation rates) used by the Group 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 the Group's
valuation to source documentation
on a sample basis.
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Independent auditor's report (continued)
Key audit matter
How our audit addressed the key audit matter
Operation of financial reporting Information Technology (IT) systems and controls (Relevant
components: All)
We focused on this area because the
Group’s operations and financial reporting
processes are heavily dependent on IT
systems, including automated accounting
procedures, IT dependent manual controls
and controls preventing unauthorised access
to systems and data.
The Group’s controls over IT systems
include:
·
·
·
The framework of governance over
IT systems;
Program development and
changes;
Access to process, data and IT
operations; and
· Governance over generic and
privileged user accounts.
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.
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.
Other information
The directors are responsible for the other information. The other information comprises the information
included in the annual report for the year ended 30 June 2018, including Strategic report, Performance
overview, Corporate governance, Directors’ report and Other information, but does not include the financial
report and our auditor’s report thereon.
Our opinion on the financial report does not cover the other 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 other information
identified above and, in doing so, consider whether the other 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 other
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 Corporations Act 2001 and for such
internal controls 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 Company and
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 Company or
the Group or to cease operations, or have no realistic alternative but to do so.
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Independent auditor's report (continued)
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 96 to 119 of the directors’ report for the year
ended 30 June 2018.
In our opinion, the Remuneration Report of Commonwealth Bank of Australia for the year ended 30 June
2018 complies with section 300A of the Corporations Act 2001.
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
Matthew Lunn
Partner
Sydney
7 August 2018
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Other
information
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information
information
Top 20 Holders of Fully Paid Ordinary Shares as at 30 July 2018
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
Navigator Australia Limited
Argo Investments Limited
Milton Corporation Limited
Netwealth Investments Limited
Nulis Nominees (Australia) Limited
Mr. Barry Martin Lambert
Invia Custodian Pty Limited
IOOF Investment Management Limited
McCusker Holdings Pty Ltd
ANZ Executors & Trustee
RBC Dexia Investor Services Australia Nominees Pty Limited
Australian Executor Trustees Limited
Joy Wilma Lambert
370,746,865
228,386,048
98,454,740
57,172,719
51,468,942
14,656,952
7,900,000
3,670,568
3,203,731
3,119,505
2,956,624
2,142,125
1,643,613
1,592,260
1,499,545
1,470,000
1,328,789
1,243,309
1,228,937
1,068,250
21.07
12.98
5.59
3.25
2.92
0.83
0.45
0.21
0.18
0.18
0.17
0.12
0.09
0.09
0.09
0.08
0.08
0.07
0.07
0.06
The top 20 shareholders hold 854,953,522 shares which is equal to 48.58% 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 30 July 2018
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
591,209
190,162
19,815
8,433
186
809,805
15,346
73.01
23.48
2.45
1.04
0.02
100.00
1.90
Number of
Shares
186,153,941
395,673,395
134,818,887
158,583,477
884,613,230
1,759,842,930
45,921
Percentage of
Issued
Capital
10.58
22.48
7.66
9.01
50.27
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.
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
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information
Information
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 Resalable Listed Securities VI (“PERLS VI”) as at 30 July 2018
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
National Nominees Limited
Netwealth Investments Limited
BNP Paribas Nominees Pty Ltd
J P Morgan Nominees Australia Limited
Nulis Nominees (Australia) Limited
Citicorp Nominees Pty Limited
Navigator Australia Limited
Dimbulu Pty Limited
Eastcote Pty Limited
Australian Executor Trustees Limited
V S Access Pty Limited
Invia Custodian Pty Limited
Marento Pty Ltd
Mutual Trust Pty Limited
Edgelake Proprietary Limited
Kaptock Pty Limited
Junax Capital Pty Ltd
Number of
Securities
997,275
422,489
252,642
241,231
241,217
224,874
173,696
168,709
118,024
117,797
100,000
100,000
90,923
80,000
65,945
52,916
51,228
49,267
48,730
47,000
%
4.99
2.11
1.26
1.21
1.21
1.12
0.87
0.84
0.59
0.59
0.50
0.50
0.45
0.40
0.33
0.26
0.26
0.25
0.24
0.24
The top 20 PERLS VI security holders hold 3,643,963 securities which is equal to 18.22% 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 30 July 2018
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
25,239
2,723
194
100
11
28,267
9
89.29
9.63
0.69
0.35
0.04
100.00
0.03
Number of
Securities
8,263,689
5,517,381
1,441,572
2,308,079
2,469,279
20,000,000
22
Percentage of
Issued
Capital
41.31
27.59
7.21
11.54
12.35
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 277 and 278 for the Bank’s ordinary shares.
278
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Shareholding
information
information
Top 20 Holders of CommBank PERLS VII Capital Notes (“PERLS VII”) as at 30 July 2018
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
Netwealth Investments Limited
Bond Street Custodians Limited
J P Morgan Nominees Australia Limited
National Nominees Limited
IOOF Investment Management Limited
Citicorp Nominees Pty Limited
Nulis Nominees (Australia) Limited
Navigator Australia Limited
Australian Executor Trustees Limited
Dimbulu Pty Limited
Invia Custodian Pty Limited
Tandom Pty Limited
Randazzo C & G Developments Pty Limited
Tsco Pty Limited
Simply Brilliant Pty Limited
Mutual Trust Pty Limited
Seymour Group Pty Limited
Willimbury Pty Limited
Number of
Securities
2,403,303
965,593
507,694
371,713
313,843
300,007
282,085
252,287
202,216
185,200
130,665
100,000
96,444
90,000
84,286
80,000
75,000
74,362
73,700
70,673
%
8.01
3.22
1.69
1.24
1.05
1.00
0.94
0.84
0.67
0.62
0.44
0.33
0.32
0.30
0.28
0.27
0.25
0.25
0.25
0.24
The top 20 PERLS VII security holders hold 6,659,071 securities which is equal to 22.21% 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 30 July 2018
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
27,875
3,974
300
203
13
32,365
8
86.13
12.28
0.92
0.63
0.04
100.00
0.02
Number of
Securities
9,670,068
8,004,918
2,145,521
4,810,090
5,369,403
30,000,000
27
Percentage of
Issued
Capital
32.24
26.68
7.15
16.03
17.90
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 277 and 278 for the Bank’s ordinary shares.
279
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Information
Top 20 Holders of CommBank PERLS VIII Capital Notes (“PERLS VIII”) as at 30 July 2018
information
Rank
Name of Holder
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
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
Netwealth Investments Limited
National Nominees Limited
Snowside Pty Limited
Bond Street Custodians Limited
Nulis Nominees (Australia) Limited
Citicorp Nominees Pty Limited
V S Access Pty Limited
Navigator Australia Limited
Dimbulu Pty Limited
Mifare Pty Limited
Randazzo C & G Developments Pty Limited
Adirel Holdings Pty Limited
Resthaven Incorporated
Number of
Securities
3,178,248
943,954
208,870
127,344
108,573
100,000
93,000
90,418
79,158
79,083
71,560
70,476
65,420
62,482
57,610
50,000
50,000
50,000
47,000
45,500
%
21.92
6.51
1.44
0.88
0.75
0.69
0.64
0.62
0.55
0.55
0.49
0.49
0.45
0.43
0.40
0.34
0.34
0.34
0.32
0.31
The top 20 PERLS VIII security holders hold 5,578,696 securities which is equal to 38.46% 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 Securities (PERLS VIII) as at 30 July 2018
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
13,149
1,374
120
64
6
14,713
3
89.37
9.34
0.82
0.43
0.04
100.00
0.02
Number of
Shares
4,250,053
2,945,723
888,629
1,963,409
4,452,186
14,500,000
7
Percentage of
Issued
Capital
29.31
20.32
6.13
13.54
30.70
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 277 and 278 for the Bank’s ordinary shares.
280
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Shareholding
information
Top 20 Holders of CommBank PERLS IX Capital Notes (“PERLS IX”) as at 30 July 2018
information
Rank
Name of Holder
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
BNP Paribas Nominees Pty Ltd
HSBC Custody Nominees (Australia) Limited
Bond Street Custodians Limited
Navigator Australia Limited
Dimbulu Pty Limited
Citicorp Nominees Pty Limited
J P Morgan Nominees Australia Limited
Netwealth Investments Limited
Mutual Trust Pty Limited
G Harvey Investments Pty Limited
IOOF Investment Management Limited
Nulis Nominees (Australia) Limited
National Nominees Limited
Australian Executor Trustees Limited
Ranamok Pty Limited
Invia Custodian Pty Limited
Ernron Pty Ltd
J C Family Investments Pty Limited
Sir Moses Montefiore Jewish Home
Pendant Realty Pty Ltd
Number of
Securities
2,504,391
1,246,863
234,797
218,318
147,700
147,080
125,468
109,516
103,145
100,000
97,716
93,452
84,614
71,800
71,365
62,613
34,530
33,264
30,660
30,000
%
15.27
7.60
1.43
1.33
0.90
0.90
0.77
0.67
0.63
0.61
0.60
0.57
0.52
0.44
0.44
0.38
0.21
0.20
0.19
0.18
The top 20 PERLS IX security holders hold 5,526,649 securities which is equal to 33.67% 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 Securities (PERLS IX) as at 30 July 2018
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
18,090
1,737
129
66
9
20,031
3
90.31
8.67
0.64
0.33
0.05
100.00
0.01
Number of
Shares
5,723,191
3,619,443
969,294
1,733,427
4,354,645
16,400,000
4
Percentage of
Issued
Capital
34.90
22.07
5.91
10.57
26.55
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 277 and 278 for the Bank’s ordinary shares.
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Shareholding
Information
Top 20 Holders of CommBank PERLS X Capital Notes (“PERLS X”) as at 30 July 2018
information
Rank
Name of Holder
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
HSBC Custody Nominees (Australia) Limited
BNP Paribas Nominees Pty Ltd
Citicorp Nominees Pty Limited
J P Morgan Nominees Australia Limited
Bond Street Custodians Limited
Dimbulu Pty Limited
Tandom Pty Limited
Randazzo C & G Developments Pty Limited
Rakio Pty Limited
Ernron Pty Ltd
Nora Goodridge Investments Pty Limited
Netwealth Investments Limited
Hanson Tsai Pty Limited
Navigator Australia Limited
Eastcote Pty Limited
Federation University Australia
Harriette & Co Pty Limited
National Nominees Limited
Invia Custodian Pty Limited
Raffy Holdings Pty Limited
Number of
Securities
1,308,096
1,068,430
394,146
116,377
107,237
100,000
100,000
80,000
77,000
74,428
70,000
69,888
60,000
57,362
50,000
50,000
50,000
42,121
34,215
29,910
%
9.58
7.83
2.89
0.85
0.79
0.73
0.73
0.59
0.56
0.55
0.51
0.51
0.44
0.42
0.37
0.37
0.37
0.31
0.25
0.22
The top 20 PERLS X security holders hold 3,939,210 securities which is equal to 28.87% of the total securities on issue.
Stock Exchange Listing
PERLS X are subordinated unsecured notes issued by the Bank. They are listed on the Australian Securities Exchange under the trade
symbol CBAPG. Details of trading activity are published in some daily newspapers.
Range of Securities (PERLS X) as at 30 July 2018
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
13,340
1,513
130
74
5
15,062
2
88.57
10.05
0.86
0.49
0.03
100.00
0.01
Number of
Securities
4,585,925
3,303,894
1,009,841
1,956,444
2,793,896
13,650,000
9
Percentage of
Issued
Capital
33.60
24.20
7.40
14.33
20.47
100.00
0.00
PERLS X 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 277 and 278 for the Bank’s ordinary shares.
282
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Other
Information
Five year
Five year
financial summary
financial summary
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 from continuing operations ("cash
basis")
Net profit after tax from discontinued operations
Net profit after tax ("cash basis")
Treasury shares valuation adjustment
Hedging and IFRS volatility
(Loss)/gain on disposal of controlled entities/investments
Bankwest non-cash items
Bell Group litigation
30 Jun 18
$M
30 Jun 17 (1)
$M
30 Jun 16 (1) 30 Jun 15
$M
$M
30 Jun 14
$M
18,341
7,583
25,924
17,543
16,858
15,827
15,131
7,737
7,043
7,751
7,270
25,280
23,901
23,578
22,401
(11,599)
(10,622)
(9,957)
(10,003)
(9,499)
(1,079)
13,246
(3,994)
(19)
9,233
179
9,412
2
101
(183)
(3)
-
(1,095)
(1,256)
(988)
(953)
13,563
12,688
12,587
11,949
(3,847)
(3,497)
(3,439)
(3,250)
(20)
9,696
185
9,881
(23)
73
-
(3)
-
(20)
(21)
(19)
9,171
9,127
8,680
274
-
-
9,445
9,127
8,680
4
(28)
(199)
-
(27)
-
6
-
(52)
-
(41)
6
17
(56)
25
Net profit after income tax attributable to Equity holders
of the Bank "statutory basis"
9,329
9,928
9,223
9,053
8,631
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 from continuing operations ("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 (including discontinued operations)
Risk weighted assets - Basel III (APRA)
Average interest earning assets
Average interest bearing liabilities
Assets (on Balance Sheet) - Australia
Assets (on Balance Sheet) - New Zealand
Assets (on Balance Sheet) - Other
5,193
1,888
1,121
563
975
681
(1,188)
9,233
(10)
9,223
743,365
975,165
622,234
907,305
67,860
56,911
458,612
854,264
759,583
811,491
69,052
94,622
4,933
1,808
1,311
422
869
576
(223)
4,540
3,994
1,522
1,495
1,190
1,285
400
785
778
(44)
643
882
795
33
3,678
1,321
1,252
789
742
675
223
9,696
9,171
9,127
8,680
(18)
(24)
(150)
(197)
9,678
9,147
8,977
8,483
731,762
695,398
639,262
597,781
976,318
932,945
873,489
791,451
626,655
588,045
543,231
498,352
912,658
872,437
820,684
742,103
63,660
53,090
60,508
52,805
49,348
49,630
41,334
38,080
437,063
394,667
368,721
337,715
834,741
790,596
736,164
705,862
755,612
733,754
693,376
660,847
817,519
783,114
741,249
669,293
89,997
68,802
83,832
72,299
69,110
65,999
59,941
53,048
(1) Comparative information for 2017 and 2016 has been restated to reflect the change in accounting policy detailed in Note 1.1 and refinements to the allocation of
customer balances.
Includes investment experience.
(2)
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Other
Information
Five year
Five year
financial summary
financial summary
Shareholder summary from continuing operations
Earnings per share (cents) (1)
30 Jun 18
30 Jun 17
30 Jun 16
30 Jun 15
30 Jun 14
Basic
Statutory
Cash basis
Fully diluted
Statutory
Cash basis
Net tangible assets per share ($)
Shareholder summary including discontinued
operations
Earnings per share (cents) (1)
Basic
Statutory
Cash basis
Fully diluted
Statutory
Cash basis
Dividends per share - fully franked (cents)
Dividend cover - statutory (times)
Dividend cover - cash (times)
Dividend payout ratio (%)
Statutory
Cash basis
Net tangible assets per share ($) including
discontinued operations
Weighted average number of shares (statutory
basic) (M)
Weighted average number of shares (statutory fully
diluted) (M)
536. 9
528. 6
520. 2
512. 4
33. 1
534. 3
538. 8
517. 7
522. 0
431
1. 1
1. 2
81. 2
80. 4
32. 3
567. 9
525. 6
553. 1
530. 6
563. 4
538. 3
556. 9
532. 7
549. 9
513. 3
539. 1
518. 9
545. 6
525. 4
542. 7
521. 0
31. 5
29. 7
25. 4
23. 5
577. 3
542. 0
553. 1
530. 6
574. 1
554. 5
556. 9
532. 7
558. 8
529. 0
539. 1
518. 9
555. 8
540. 9
542. 7
521. 0
429
420
420
401
1. 3
1. 3
74. 6
75. 0
1. 3
1. 3
78. 4
76. 5
1. 3
1. 3
75. 8
75. 2
1. 3
1. 3
75. 5
75. 1
30. 7
28. 9
25. 4
23. 5
1,746
1,720
1,692
1,627
1,618
1,852
1,816
1,771
1,711
1,691
Weighted average number of shares (cash basic) (M)
1,747
1,721
1,694
1,630
1,621
Weighted average number of shares (cash fully
diluted) (M)
Number of shareholders
Share prices for the year ($)
Trading high
Trading low
End (closing price)
1,853
1,817
1,773
1,714
1,694
811,409
806,386
820,968
787,969
791,564
85. 12
67. 22
72. 87
87. 74
69. 22
82. 81
88. 88
69. 79
74. 37
96. 69
73. 57
85. 13
82. 68
67. 49
80. 88
(1)
Comparative information for 2017 and 2016 has been restated to reflect the change in accounting policy detailed in Note 1.1.
284
284
Commonwealth Bank of Australia
Annual Report 2018
Commonwealth Bank of AustraliaAnnual Report 2018Other information
Other
Five year
financial summary
Five year
Information
financial summary
Performance ratios (%) from continuing operations
Return on average Shareholders' Equity
Statutory
Cash basis
Return on average total assets
Statutory
Cash basis
Net interest margin (1)
Performance ratios (%) including discontinued
operations
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 (1)
Other information (numbers)
Full-time equivalent employees from continuing
operations (1)
Full-time equivalent employees including discontinued
operations
30 Jun 18
30 Jun 17
30 Jun 16
30 Jun 15
30 Jun 14
14. 4
14. 1
1. 0
0. 9
2. 15
14. 3
14. 4
1. 0
1. 0
10. 1
12. 3
2. 7
15. 0
5. 5
131. 5
2. 15
15. 9
15. 7
1. 0
1. 0
15. 8
16. 1
1. 0
1. 0
18. 2
18. 2
1. 1
1. 1
18. 7
18. 7
1. 1
1. 1
2. 10
2. 13
2. 15
2. 19
16. 2
16. 0
1. 0
1. 0
10. 1
12. 1
2. 1
14. 2
5. 1
16. 3
16. 6
1. 0
1. 0
10. 6
12. 3
2. 0
14. 3
5. 0
18. 2
18. 2
1. 1
1. 1
9. 1
11. 2
1. 5
12. 7
n/a
128. 6
120. 0
120. 0
18. 7
18. 7
1. 1
1. 1
9. 3
11. 1
0. 9
12. 0
n/a
n/a
2. 11
2. 14
2. 15
2. 19
43,771
43,620
43,178
45,948
44,329
45,753
45,614
45,129
45,948
44,329
Branches/services centres (Australia)
1,082
1,121
1,131
1,147
1,150
Agencies (Australia)
ATMs
3,589
3,664
3,654
3,670
3,717
4,253
4,398
4,381
4,440
4,340
EFTPOS terminals (active)
219,245
217,098
217,981
208,202
200,733
Productivity from continuing operations (2)
Total operating income per full-time (equivalent)
employee ($)
Employee expense/Total operating income (%)
Total operating expenses/Total operating income (%)
Productivity including discontinued operations (2)
Total operating income per full-time (equivalent)
employee ($)
Employee expense/Total operating income (%)
Total operating expenses/Total operating income (%)
591,876
579,023
552,805
508,578
500,034
22. 9
44. 8
23. 2
42. 1
24. 1
41. 7
24. 9
42. 8
25. 0
42. 9
580,859
568,685
545,237
508,578
500,034
23. 2
45. 4
23. 6
42. 7
24. 4
42. 4
24. 9
42. 8
25. 0
42. 9
(1) Comparative information has been restated for 2017 and 2016 to align to presentation in the current period.
(2)
The productivity metrics have been calculated on a cash basis.
285
285
Other informationPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report
Capital adequacy
and liquidity
286
Other Capital adequacy Information and liquidity 286 Commonwealth Bank of Australia Annual Report 2018 Capital The tables below show the APRA Basel III capital adequacy calculation at 30 June 2018 together with prior period comparatives. For a more detailed discussion on our capital position, refer to our Basel III Pillar 3 document. 30 Jun 18 30 Jun 17 Risk Weighted Capital Ratios % % Common Equity Tier 1 10. 1 10. 1 Tier 1 12. 3 12. 1 Tier 2 2. 7 2. 1 Total Capital 15. 0 14. 2 30 Jun 18 30 Jun 17 $M $M Ordinary Share Capital and Treasury Shares Ordinary Share Capital 37,270 34,971 Treasury Shares (1) 265 295 Ordinary Share Capital and Treasury Shares 37,535 35,266 Reserves Reserves 1,676 1,869 Reserves related to non-consolidated subsidiaries (2) (80) (81) Total Reserves 1,596 1,788 Retained Earnings and Current Period Profits Retained Earnings and Current Period Profits (3) 28,360 26,274 Retained earnings adjustment from non-consolidated subsidiaries (4) (342) (537) Net Retained Earnings 28,018 25,737 Non-controlling interests Non-controlling interests (5) 554 546 Less ASB perpetual preference shares (505) (505) Less other non-controlling interests not eligible for inclusion in regulatory capital (49) (41) Non-controlling interests - - Common Equity Tier 1 Capital before regulatory adjustments 67,149 62,791 (1) Represents shares held by the Group's life insurance businesses ($85 million) and employee share scheme trusts ($180 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 1.1 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 NZD 505 million issued by a New Zealand subsidiary entity. These are non-redeemable and carry limited voting rights. These are classified as additional Tier 1 Capital. Commonwealth Bank of AustraliaAnnual Report 2018Other information Capital adequacy
and liquidity
287
Other Capital adequacy information and liquidity 287 Capital (continued) 30 Jun 18 30 Jun 17 $M $M Common Equity Tier 1 regulatory adjustments Goodwill (1) (8,021) (7,620) Other intangibles (including software) (2) (2,057) (2,144) Capitalised costs and deferred fees (714) (707) Defined benefit superannuation plan surplus (3) (407) (298) General reserve for credit losses (4) (412) (412) Deferred tax asset (1,911) (1,627) Cash flow hedge reserve 160 107 Employee compensation reserve (145) (164) Equity investments (5) (2,967) (2,626) Equity investments in non-consolidated subsidiaries (6) (3,474) (2,673) Shortfall of provisions to expected losses (7) (212) (218) Gain due to changes in own credit risk on fair valued liabilities (116) (128) Other (336) (122) Common Equity Tier 1 regulatory adjustments (20,612) (18,632) Common Equity Tier 1 46,537 44,159 Additional Tier 1 Capital Basel III complying instruments (8) 9,455 8,090 Basel III non-complying instruments net of transitional amortisation (9) 640 635 Holding of Additional Tier 1 Capital (10) (200) (200) Additional Tier 1 Capital 9,895 8,525 Tier 1 Capital 56,432 52,684 Tier 2 Capital Basel III complying instruments (11) 11,262 7,744 Basel III non-complying instruments net of transitional amortisation (12) 1,166 1,495 Holding of Tier 2 Capital (25) (29) Prudential general reserve for credit losses (13) 176 182 Total Tier 2 Capital 12,579 9,392 Total Capital 69,011 62,076 (1) Goodwill excludes $243 million which is included in equity investments in non-consolidated subsidiaries. In addition, Goodwill also includes $1,323 million Goodwill from discontinued operations. (2) Other intangibles (including capitalised software costs), net of any associated deferred tax liability. Other intangibles also includes $49 million other intangibles from discontinued operations. (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 Group’s insurance and fund management companies held $1,161 million of capital in excess of minimum regulatory requirements at 30 June 2018. (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 2018 comprises, PERLS X $1,365 billion (April 2018), PERLS IX $1.64 million (March 2017), PERLS VIII $1.45 billion (March 2016), PERLS VII $3 billion (October 2014) and PERLS VI $2 billion (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 2018 financial year the Group issued USD 1.25 billion and EUR 1 billion subordinated notes that are Basel III compliant Tier 2. (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. Other informationPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Capital adequacy
and liquidity
288
Other Capital adequacy Information and liquidity 288 Commonwealth Bank of Australia Annual Report 2018 Capital (continued) 30 Jun 18 30 Jun 17 Risk Weighted Assets $M $M Credit Risk Subject to AIRB approach (1) Corporate (2) 68,479 74,663 SME corporate (2) 32,772 33,067 SME retail 4,709 4,838 SME retail secured by residential mortgage 2,458 2,766 Sovereign 2,509 2,154 Bank 11,097 12,598 Residential mortgage 139,203 134,969 Qualifying revolving retail 9,592 9,414 Other retail 15,750 15,101 Total RWA subject to AIRB approach 286,569 289,570 Specialised lending exposures subject to slotting criteria 55,893 58,752 Subject to Standardised approach Corporate 1,246 1,202 SME corporate 412 510 SME retail 5,856 6,172 Sovereign 222 271 Bank 79 136 Residential mortgage 5,627 5,017 Other retail 1,593 2,925 Other assets 5,241 5,291 Total RWA subject to Standardised approach 20,276 21,524 Securitisation 2,890 1,584 Credit valuation adjustment (3) 2,882 4,958 Central counterparties 1,018 871 Total RWA for Credit Risk Exposures 369,528 377,259 Traded market risk 8,255 4,650 Interest rate risk in the banking book 24,381 21,404 Operational risk 56,448 33,750 Total risk weighted assets 458,612 437,063 (1) Pursuant to APRA requirements, RWA amounts derived from AIRB risk weight functions have been multiplied by a scaling factor of 1.06. (2) Traded Market Risk RWA increase was driven by the conservative treatment, under the internal model approach, of some interest rate products, which is under review. (3) Operational Risk RWA increase mainly driven by: the $12.5 billon add-on required by APRA following the Prudential Inquiry findings; $2.9 billion arising from the inclusion of the Advice businesses in the Level 2 banking group for the first time; and regular assessment of the Group’s operational risk profile in the context of the evolving risk and regulatory environment. Commonwealth Bank of AustraliaAnnual Report 2018Other information Capital adequacy
and liquidity
289
Other Capital adequacy information and liquidity 289 Leverage Ratio As at Summary Group Leverage Ratio 30 Jun 18 30 Jun 17 Tier 1 Capital ($M) 56,432 52,684 Total Exposures ($M) (1) 1,018,622 1,027,958 Leverage Ratio (APRA) (%) 5. 5 5. 1 Leverage Ratio (Internationally Comparable) (%) (2) 6. 3 5. 8 (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 5.5% at 30 June 2018 on an APRA basis and 6.3% on an internationally comparable basis. The ratio increased across the June 2018 full year benefitting from an increase in capital levels driven by internally generated capital combined with the issuance of PERLS X. In December 2017, as part of the final calibration of the leverage ratio, the BCBS announced: Confirmation that the leverage ratio will have a minimum regulatory requirement of 3% effective from 1 January 2018 and; Changes in the definition of exposures related to derivatives and off balance sheet items, effective from 1 January 2022. In February 2018, APRA released additional refinements to the BCBS guidance including a minimum leverage requirement of 4% for IRB banks. These changes are subject to consultation and are proposed to apply from 1 July 2019. Liquidity As at 30 Jun 18 30 Jun 17 Level 2 $M $M Liquidity Coverage Ratio (LCR) Liquid Assets High Quality Liquid Assets (HQLA) (1) 83,589 93,402 Committed Liquidity Facility (CLF) 53,300 48,300 Total LCR liquid assets 136,889 141,702 Net Cash Outflows (NCO) Customer deposits 73,470 77,298 Wholesale funding 13,893 17,579 Other net cash outflows (2) 16,767 15,271 Total NCO 104,130 110,148 Liquidity Coverage Ratio (%) 131 129 LCR surplus 32,759 31,554 (1) Includes all repo-eligible securities with the Reserve Bank of New Zealand. The Exchange Settlement Account (ESA) cash balance is netted down by the Reserve Bank of Australia open-repo of internal Residential Mortgage-Backed Securities (RMBS). (2) Includes cash inflows. The Group holds high quality, well diversified liquid assets to meet Balance Sheet liquidity needs and internal and external regulatory requirements, such as APRA’s Liquidity Coverage Ratio (LCR). At 30 June 2018, the Group’s LCR was 131%, up from 129% as at 30 June 2017.Other Capital adequacy information and liquidity 289 Leverage Ratio As at Summary Group Leverage Ratio 30 Jun 18 30 Jun 17 Tier 1 Capital ($M) 56,432 52,684 Total Exposures ($M) (1) 1,018,622 1,027,958 Leverage Ratio (APRA) (%) 5. 5 5. 1 Leverage Ratio (Internationally Comparable) (%) (2) 6. 3 5. 8 (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 5.5% at 30 June 2018 on an APRA basis and 6.3% on an internationally comparable basis. The ratio increased across the June 2018 full year benefitting from an increase in capital levels driven by internally generated capital combined with the issuance of PERLS X. In December 2017, as part of the final calibration of the leverage ratio, the BCBS announced: Confirmation that the leverage ratio will have a minimum regulatory requirement of 3% effective from 1 January 2018 and; Changes in the definition of exposures related to derivatives and off balance sheet items, effective from 1 January 2022. In February 2018, APRA released additional refinements to the BCBS guidance including a minimum leverage requirement of 4% for IRB banks. These changes are subject to consultation and are proposed to apply from 1 July 2019. Liquidity As at 30 Jun 18 30 Jun 17 Level 2 $M $M Liquidity Coverage Ratio (LCR) Liquid Assets High Quality Liquid Assets (HQLA) (1) 83,589 93,402 Committed Liquidity Facility (CLF) 53,300 48,300 Total LCR liquid assets 136,889 141,702 Net Cash Outflows (NCO) Customer deposits 73,470 77,298 Wholesale funding 13,893 17,579 Other net cash outflows (2) 16,767 15,271 Total NCO 104,130 110,148 Liquidity Coverage Ratio (%) 131 129 LCR surplus 32,759 31,554 (1) 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). (2) 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 2018, the Group’s LCR was 131%, up from 129% as at 30 June 2017.Other informationPerformance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report M
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Performance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report
Glossary
of terms
Financial and
remuneration
related definitions
292
Glossary Financial and remuneration of terms related definitions 292 Commonwealth Bank of Australia Annual Report 2018 Term Description Assets Under Management Assets Under Management (AUM) represents the market value of assets for which the Group acts as appointed manager. Growth and volatility in this balance is a key performance indicator for the Wealth Management business. Board The Board of Directors of the Group. CET1 (Common Equity Tier 1 Captial) The highest quality of capital available to the Group reflecting the permanent and unrestricted commitment of funds that are freely available to absorb losses. It comprises ordinary share capital, retained earnings and reserves less prescribed deductions. Corporations Act Corporations Act 2001 (Cth) Customer satisfaction – Roy Morgan This represents satisfaction with Main Financial Institution (MFI) based on the relationship with the financial institution as measured by Roy Morgan Research. The figures are six months rolling averages and are based on respondents aged 14+. The measure is the percentage of customers who answered as being either “very satisfied” or “fairly satisfied” with their MFI. Net Promoter Score (NPS) is now the primary metric by which we assess customer satisfaction. Advocacy is measured on a scale of 1 to 10, with 1 being “Very Unlikely” and 10 bring “Very likely” to recommend. Measuring our customers’ satisfaction is important as satisfied customers usually return, they tell other people about their experiences, and they may well pay a premium for the privilege of doing business with an institution they trust. Our aim is to retain our customers by providing quality service to them. Deferred Rights Deferred Rights to ordinary shares in CBA are used for deferred STVR awarded under Executive General Manager arrangements, sign-on and retention awards. 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. Dividend payout ratio (“cash basis”) Dividends paid on ordinary shares divided by net profit after tax (“cash basis”). Dividend payout ratio (“statutory basis”) Dividends paid on ordinary shares divided by net profit after tax (“statutory basis”). DPS Dividends per share. DRP Dividend reinvestment plan (DRP) DRP participation The percentage of total issued capital participating in the dividend reinvestment plan. EPS (Earnings per share) (basic) Basic earnings per share is the net profit attributable to ordinary equity holders of the Bank, divided by the weighted average number of ordinary shares on issue during the period, per the requirements of relevant accounting standards. EPS (Earnings per share) (diluted) Diluted earnings per share adjusts the net profit attributable to ordinary equity holders of the Bank and the weighted average number of ordinary shares on issue used in the calculation of basic earnings per share, for the effects of dilutive potential ordinary shares. Expense to income ratio Represents operating expenses as a percentage of total operating income. The ratio is a key efficiency measure. Executives The CEO and Group Executives are collectively referenced as ‘Executives’. Full-time equivalent staff Includes all permanent full-time staff, part-time staff equivalents and external contractors employed through third-party agencies. Funds Under Administration Funds Under Administration (FUA) represents the market value of funds administered by the Group and excludes AUM. Growth and volatility in this balance is a key performance indicator for the Wealth Management business. Group Commonwealth Bank of Australia and its subsidiaries. Group Executive (GE) Key Management Personnel who are also members of the Executive Leadership Team (excludes the CEO). Interest Rate Risk in the Banking Book (IRRBB) Interest Rate Risk in the Banking Book is the risk that the Bank’s profit derived from Net Interest Income (interest earned less interest paid), in current and future periods, is adversely impacted from changes in interest rates. This is measured from two perspectives: firstly by quantifying the change in the net present value of the Balance Sheet’s future earnings potential, and secondly as the anticipated change to the Net Interest Income earned over 12 months. This calculation is driven by APRA regulations with further detail outlined in the Group’s Basel III Pillar 3 report. Jaws (%) The Group uses Jaws as a key measure of financial performance. It is calculated as the difference between Total operating income growth and Operating expenses growth compared to the prior comparative period. The Jaws ratio is an efficiency and profitability indicator for the Group Key Management Personnel (KMP) 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. Long-Term Variable Remuneration (LTVR) 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. The Company’s executive remuneration framework is designed to attract and retain high-calibre executives by rewarding them for achieving goals that are aligned to the Company’s strategy and shareholder interests. Commonwealth Bank of AustraliaAnnual Report 2018 Glossary
of terms
Financial and
remuneration
related definitions
293
Glossary Financial and remuneration of terms related definitions 293 Term Description Net profit after tax (“cash basis”) Represents net profit after tax and non-controlling interests before non- cash items including hedging and IFRS volatility. Bankwest non-cash items, treasury shares valuation adjustment, and losses or gains on disposal and acquisition of entities This is Management’s preferred measure of the Group’s financial performance. Net profit after tax (“statutory basis”) Represents net profit after tax and non-controlling interests, calculated in accordance with Australian Accounting Standards. Net Promoter Score Consumer DBM Consumer MFI Net Promoter Score. Australian Population 14+ (from Aug 16; 18+ for data prior). Refers to customers’ likelihood to recommend their MFI using a scale from 0-10 (where 0 being ‘Not at all likely’ and 10 being ‘Extremely likely’) and is calculated by subtracting the percentage of Total Detractors (0-6) from the percentage of Promoters (9-10). Note that percentage signs are not used to report NPS. 6 month rolling average. CBA excludes Bankwest, Westpac exclude St George. Net Promoter Score Business DBM Business Net Promoter Score measures the net likelihood of recommendation to others of the customer’s main financial institution. Net Promoter Score is a trademark of Bain & Co Inc., Satmetrix Systems, Inc., and Mr Frederick Reichheld. Using a scale of 0 to 10 (0 means ‘extremely unlikely’ and 10 means ‘extremely likely’), the 0-6 raters (detractors) are deducted from the 9-10 raters (promoters). A 6-month rolling data is used. Net Promoter Score Mobile App Net Promoter Score – Mobile App (via mobile app on a mobile phone or tablet): Roy Morgan Research. Australian population 14+ who used the internet banking services of their (self-nominated) main financial institution in the last 4 weeks, rolling average of the last 6 months of spot scores, as at June 2018. Rank based on comparison to ANZ, NAB and Westpac. Net Promoter Score Internet Banking Net Promoter Score –Internet Banking (via the website or mobile app): Roy Morgan Research. Australian population 14+ who used the internet banking services of their (self-nominated) main financial institution in the last 4 weeks, rolling average of the last 6 months of spot scores, as at June 2018. Rank based on comparison to ANZ, NAB and Westpac. Net tangible assets per share Net assets excluding intangible assets, non-controlling interests, and other equity instruments divided by ordinary shares on issue at the end of the period (excluding Treasury Shares deduction). Net Stable Funding Ratio (NSFR) The NSFR more closely aligns the behaviour terms of assets and liabilities. It is the ratio of the amount of available stable funding (ASF) to the amount of required stable funding (RSF). ASF is the portion of an ADI’s capital and liabilities expected to be a reliable source of funds over a one year time horizon. RSF is a function of the liquidity characteristics and residual maturities of an ADI’s assets and off-balance sheet activities Non-Executive Director Key Management Personnel who are not Executives. Profit after capital charge (PACC) The Group uses PACC, a risk-adjusted measure, as a key measure of financial performance. It takes into account the profit achieved, the risk to capital that was taken to achieve it, and other adjustments. Other Overseas Represents amounts booked in branches and controlled entities outside Australia and New Zealand. Return on equity – cash basis Based on cash net profit after tax and non-controlling interests less other equity instruments’ distributions applied to average shareholders’ equity, excluding non-controlling interests, other equity instruments and the treasury shares deduction. Return on equity is a performance metric that indicates shareholder return on investment for the period excluding capital growth. Return on equity – statutory basis Based on net profit after tax (“statutory basis”) less other equity instruments’ distributions applied to average shareholders’ equity, excluding non-controlling interests and other equity instruments. Reward Rights Rights to ordinary shares in CBA granted under the GLRP and subject to performance hurdles. The aim is to create and maintain a highly motivated employee force by providing an additional reward for their work. Short-Term Variable Remuneration (STVR) Variable remuneration paid subject to the achievement of predetermined performance hurdles over one financial year. The Company’s executive remuneration framework is designed to attract and retain high-calibre executives by rewarding them for achieving goals that are aligned to the Company’s strategy and shareholder interests. Total Committed Exposure (TCE) Total Committed Exposure is defined as the balance outstanding and undrawn components of committed facility limits. It is calculated before collateralisation and excludes gross settlement exposures on derivatives. Weighted average number of shares (“cash basis”) The calculation incorporates the bonus element of any rights issue, discount element of any DRP and excludes “Treasury Shares” related to investment in the Bank’s shares held by the employee share scheme trust. Weighted average number of shares (“statutory basis”) The calculation incorporates the bonus element of any rights issue, discount element of any DRP and excludes “Treasury Shares” related to investments in the Bank’s shares held by both the life insurance statutory funds and by the employee share scheme trust. Performance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Glossary
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Glossary Non-financial performance of terms metrics definitions 294 Commonwealth Bank of Australia Annual Report 2018 Metric Description ENVIRONMENT Total of Scope 1, 2 & 3 Greenhouse Gas Emissions (Group) Total of Scope 1, 2 & 3 Greenhouse Gas Emissions (Group) is the sum of Scope 1 Greenhouse Gas Emissions (Group), Scope 2 Greenhouse Gas Emissions (Group) and Scope 3 Greenhouse Gas Emissions (Group) defined below. Scope 1 Greenhouse Gas Emissions (Group) Comprises the sum of Scope 1 Greenhouse Gas Emissions for Australia, New Zealand and other overseas locations, as defined below. Scope 2 Greenhouse Gas Emissions (Group) Comprises the sum of Scope 2 Greenhouse Gas Emissions for Australia, New Zealand and other overseas locations, as defined below. Scope 3 Greenhouse Gas Emissions (Group) Comprises the sum of Scope 3 Greenhouse Gas Emissions for Australia, New Zealand and other overseas locations, as defined below. Greenhouse Gas Emissions per FTE – Scope (1 & 2) (Group) Greenhouse Gas Emissions relate to Scope 1 and 2 Greenhouse Gas Emissions for the Group as detailed above. FTE relates to the Group’s full-time equivalent employees. For consistency and comparability with peers, emissions per FTE relate to Scope 1 and 2 only. Total of Scope 1, 2 & 3 Greenhouse Gas Emissions (Australia) Total of Scope 1, 2 & 3 Greenhouse Gas Emissions (Australia) are the sum of Scope 1, Scope 2 and Scope 3 emissions (Australia) defined below. This comprises CBA, Bankwest and Aussie Home Loans (AHL). Scope 1 Greenhouse Gas Emissions (Australia) Scope 1 Greenhouse Gas Emissions (Australia) relate to the consumption of natural gas and stationary fuel used in retail, commercial and data centre properties under our operational control as defined under National Greenhouse and Energy Reporting (NGER). It also includes the business use of our tool-of-trade vehicle fleet. Source of emissions factors: National Greenhouse Accounts (NGA) Factors (2017). Scope 2 Greenhouse Gas Emissions (Australia) Scope 2 Greenhouse Gas Emissions (Australia) relate to the electricity used by ATMs, retail, commercial, residential and data centre properties under our operational control as defined under NGER. Source of emissions factors: NGA Factors (2017). Scope 3 Greenhouse Gas Emissions (Australia) Scope 3 Greenhouse Gas Emissions (Australia) relate to indirect emissions associated with Scope 1 and Scope 2 emission sources, rental car and taxi use, business use of private vehicles, dedicated bus service, business flights, waste to landfill and emissions associated with electricity consumption at data centres not under CBA’s operational control. FY14 to FY16 data has been restated to include data centres Scope 3 emissions relate to the electricity and diesel consumption in our Australian data centres not under our operational control. Source of emissions factors: NGA Factors (2017) and UK Department of Environment, Food and Rural Affairs (DEFRA) guidance (2017) for flights. Greenhouse Gas Emissions per FTE (Scope 1 & 2) (Australia) Greenhouse Gas Emissions relate to Scope 1 and 2 Greenhouse Gas Emissions for Australia as detailed above. FTE relates to domestic full-time equivalent employees in Australia. For consistency and comparability with peers, emissions per FTE relate to Scope 1 and 2 only. Total of Scope 1, 2 & 3 Greenhouse Gas Emissions (New Zealand) Total of Scope 1, 2 & 3 Greenhouse Gas Emissions (New Zealand) are the sum of Scope 1, Scope 2 and Scope 3 emissions (New Zealand) defined below. This comprises ASB and Sovereign. Scope 1 Greenhouse Gas Emissions (New Zealand) Scope 1 Greenhouse Gas Emissions (New Zealand) relate to the consumption of natural gas and stationary fuel used in commercial properties. It also includes the business use of our tool-of-trade vehicle fleet. Source of emissions factors: Guidance for Voluntary Corporate Greenhouse Gas Reporting (2016). Scope 2 Greenhouse Gas Emissions (New Zealand) Scope 2 Greenhouse Gas Emissions (New Zealand) relate to the electricity use by ATMs and retail and commercial properties. Source of emissions factors: Guidance for Voluntary Corporate Greenhouse Gas Reporting (2016). Scope 3 Greenhouse Gas Emissions (New Zealand) Scope 3 Greenhouse Gas Emissions (New Zealand) relate to indirect emissions associated with Scope 1 and Scope 2 emission sources, waste to landfill, business air travel, taxi use and hire cars, fuel consumed by operating lease fleet vehicles and personal vehicles used by staff for business purposes, postal and courier services and paper. Source of emissions factors: Guidance for Voluntary Corporate Greenhouse Gas Reporting (2016) and DEFRA (2017). Total of Scope 1, 2 & 3 Greenhouse Gas Emissions (Other overseas) Total of Scope 1, 2 & 3 Greenhouse Gas Emissions (Other overseas) are the sum of Scope 1, Scope 2 and Scope 3 emissions (Other overseas) defined below. This comprises Group’s offices in Asia, Africa, Europe and North America. Scope 1 Greenhouse Gas Emissions (Other overseas) Scope 1 Greenhouse Gas Emissions (Other overseas) is an estimate of multiplying the Scope 1 Emissions per FTE as at 30 June 2018 in Australia by the number of FTEs of all the Group’s other overseas offices. Scope 2 Greenhouse Gas Emissions (Other overseas) Scope 2 Greenhouse Gas Emissions (Other overseas) is an estimate of multiplying the Scope 2 Emissions per FTE as at 30 June 2018 in Australia by the number of FTEs of all the Group’s other overseas offices. The 2018 approach differs from prior year data, which included invoiced electricity consumption data for Asia locations. Scope 3 Greenhouse Gas Emissions (Other overseas) Scope 3 Greenhouse Gas Emissions (Other overseas) is an estimate of multiplying the Scope 3 Emissions per FTE in Australia by the number of FTEs as at 30 June 2018 of all the Group’s other overseas offices. Scope 1 Stationary Greenhouse Gas Emissions (Australia) Scope 1 Stationary Greenhouse Gas Emissions (Australia) relate to the consumption of diesel and natural gas used in retail, commercial and data centre properties in Australia under our operational control as defined under NGER. Source of emissions factors: NGA (2017). Commonwealth Bank of AustraliaAnnual Report 2018 Glossary
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Glossary Non-financial performance of terms metrics definitions 295 Metric Description Scope 1 Transport Greenhouse Gas Emissions (Australia) Scope 1 Transport Greenhouse Gas Emissions (Australia) relate to the consumption of diesel, ethanol E10 and petrol from our business use of our domestic tool-of-trade vehicle fleet in Australia. Source of emissions factors: NGA (2017). Scope 2 Purchased Electricity Greenhouse Gas Emissions (Australia) Scope 2 Purchased Electricity Greenhouse Gas Emissions (Australia) relate to the electricity used by ATMs, retail, commercial, residential and data centre properties under our operational control in Australia as defined under NGER. Source of emissions factors: NGA (2017). Scope 3 Stationary Greenhouse Gas Emissions (Australia) Scope 3 Stationary Greenhouse Gas Emissions (Australia) relate to indirect emissions associated with diesel and natural gas used in retail, commercial and data centre properties in Australia under our operational control as defined under NGER. Source of emissions factors: NGA (2017). Scope 3 Purchased Electricity Greenhouse Gas Emissions (Australia) Scope 3 Purchased Electricity Greenhouse Gas Emissions (Australia operations) relate to indirect emissions associated with the electricity used by ATMs, retail, commercial and residential properties under our operational control in Australia. Source of emissions factors: NGA (2017). Scope 3 Data Centres Greenhouse Gas Emissions (Australia operations) Scope 3 Data centres Greenhouse Gas Emissions (Australia operations) relate to the electricity and diesel consumption in our Australian data centres not under our operational control as defined under NGER. Source of emissions factors: NGA (2017). Scope 3 Waste to Landfill Greenhouse Gas Emissions (Australia operations) Scope 3 Waste to Landfill Greenhouse Gas Emissions (Australia operations) relate to emissions generated from our waste to landfill from our commercial properties under our operational control in Australia. Refer to Total waste to Landfill definition below for more details. Source of emissions factors: NGA (2017). Scope 3 Transport Greenhouse Gas Emissions (Australia) Scope 3 Transport Greenhouse Gas Emissions (Australia) relate to rental car and taxi use, business use of private vehicles, dedicated bus service, business flights, and indirect emissions from business use of our tool-of-trade vehicle fleet. Source of emissions factors: NGA (2017) and DEFRA (2017) for flights. Total Waste Total waste comprises the sum of waste to landfill and waste recycled as defined below. Total Waste to Landfill Tonnes of waste to landfill generated per annum from CBA, Bankwest and AHL’s commercial buildings under our operational control in Australia. Commercial buildings are buildings that are used for office space and are not retail branches. As a 30 June 2018, we occupied 50 commercial buildings across the states. As at 30 June 2018, 58% waste to landfill data is based on invoiced amounts, the remainder is estimated based on an average tonnes per m2 of net lettable area (NLA). Invoiced amounts are estimated by the total number of bin lifts using density conversion factors or actual weighed amounts where available. These commercial buildings represent the home office location for 72% of the Group’s total Australian FTE employees. For the first time in 2018, organic stream is diverted from waste to landfill to waste recycled for properties where data can be reported separately. In 2016-2017, the scope comprised nine major commercial buildings located in NSW and WA which includes 2, 4 and 10 Dawn Fraser Av, 1 and 11 Harbour St, Tower 1 201 Sussex St, 101 and 150 George St and Bankwest Place. 2013-2015 results did not include Bankwest Place. Total Waste Recycled Tonnes of recycled waste generated per annum from CBA, Bankwest and AHL’s commercial buildings under our operational control in Australia. Commercial buildings are buildings that are used for office space and are not retail branches. As a 30 June 2018, we occupied 50 commercial buildings across the states. 68% waste recycled data is based on invoiced amounts, the remainder is estimated based on an average tonnes per m2 of net lettable area (NLA). Invoiced amounts are estimated by the total number of bin lifts using density conversion factors or actual weighed amounts where available. For the first time in 2018, organic stream is diverted from waste to landfill to waste recycled for properties where data can be reported separately. In 2016-2017, the scope comprised nine major commercial buildings located in NSW and WA which includes 2, 4 and 10 Dawn Fraser Av, 1 and 11 Harbour St, Tower 1 201 Sussex St, 101 and 150 George St and Bankwest Place. 2013-2015 results did not include Bankwest Place. Total Water Water consumption (kilolitres) includes tenanted usage from CBA, Bankwest and AHL’s commercial buildings in Australia. Commercial buildings are buildings that are used for office space and are not retail branches. As at 30 June, we occupied 50 commercial buildings across the states. Consumption amounts are calculated as follows: Actual invoiced water quantities are used where available. Where a complete set of invoices is not available, CBA extrapolates the remaining months of data from a monthly average based on invoiced amounts. Where CBA occupies a portion of a building and invoices are only available for the whole building, CBA reports an apportioned amount, based on its occupied NLA of the building. Where CBA occupies a portion of a building and no invoiced data is available, CBA reports an estimated amount, based on an average kL per m2, which is calculated from CBA buildings where invoices are available. As at 30 June 2018, 46% water consumption is based on actual invoiced amounts. In 2016-2017, the scope comprised nine major commercial buildings located in NSW and WA which includes 2, 4 and 10 Dawn Fraser Av, 1 and 11 Harbour St, Tower 1 201 Sussex St, 101 and 150 George St and Bankwest Place. 2013-2015 results did not include Bankwest Place Data Centres Water CBA uses five data centres in Australia. CBA only has access to actual water consumption (kilolitres) from invoices for three data centres (Frame Court, Burwood and Norwest). As CBA has no access to water consumption data for the other two data centres, these have been excluded from the reported metric. Frame Court was under our operational control until February 2018, Burwood and Norwest are not under our operational control. Operational control is defined under NGER. Performance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Glossary
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Glossary Non-financial performance of terms metrics definitions 296 Commonwealth Bank of Australia Annual Report 2018 Metric Description CUSTOMER CBA – Retail Net Promoter Score (NPS) This metric measures the likelihood of individual retail customers who identified CBA as their main financial institution, recommending CBA to others. It is based on a scale of 1 to 10, with 1 being ‘very unlikely’ to recommend and 10 being ‘very likely’ to recommend. The Net Promoter Score (NPS) is calculated by subtracting the percentage of ‘detractors’ (score 1-6) from the percentage of ‘promoters’ (score 9-10). The metric is reported as a 6 month rolling average as at 30 June, based on the Australian population aged 14 and over, surveyed by Roy Morgan. The ranking refers to CBA’s position relative to the other main banks (ANZ, NAB and Westpac (excluding St. George)). ®Net Promoter Score (NPS) is a trademark of Bain and Company, Inc., Satmetrix Systems, Inc., and Mr Frederick Reichheld. CBA – Online Net Promoter Score (NPS) This metric measures the likelihood of individual customers who identified CBAs as their main financial institution, recommending CBA to others based on their experience using Internet Banking services via CBA Website or Mobile App. It is based on a scale of 1 to 10, with 1 being ‘very unlikely’ to recommend and 10 being ‘very likely’ to recommend. The Net Promoter Score (NPS) is calculated by subtracting the percentage of ‘detractors’ (score 1-6) from the percentage of ‘promoters’ (score 9-10). The metric is reported as a 6 month rolling average as at 30 June, based on the Australian population aged 14 and over, surveyed by Roy Morgan. The ranking refers to CBA’s position relative to the other main banks (ANZ, NAB and Westpac (excluding St. George)). ®Net Promoter Score (NPS) is a trademark of Bain and Company, Inc., Satmetrix Systems, Inc., and Mr Frederick Reichheld. CBA – Business Net Promoter Score (NPS) This metric measures the likelihood of institutions banking customers who identified CBA as their main business’s financial institution, recommending CBA to others. It is based on a scale of 0 to 10, with 1 being ‘very unlikely’ to recommend and 10 being ‘very likely’ to recommend. The Net Promoter Score (NPS) is calculated by subtracting the percentage of ‘detractors’ (score 1-6) from the percentage of ‘promoters’ (score 9-10). The metric is reported as a 6 month rolling average as at 30 June, based on survey by DBM Consultants. The ranking refers to CBA’s position relative to the other major banks: ANZ, NAB and Westpac. CBA excludes Bankwest and Westpac excludes St George. DBM interviews approximately 19,000 businesses annually, covering the whole market including Institutional Banking customers via its product 'Business Financial Services Monitor'. Participating businesses includes: All actively trading businesses, (Australian and foreign-owned registered in Australia); Commercially operating government organisations; or Community service organisations (not-for-profit). ®Net Promoter Score (NPS) is a trademark of Bain and Company, Inc., Satmetrix Systems, Inc., and Mr Frederick Reichheld. Wealth Management – Colonial First State’s platforms Customer Satisfaction The metric is calculated based on the weighted average (using Funds Under Administration (FUA) from the most recent Strategic Insight (formerly known as Plan for Life) FUA subscription database) of the overall satisfaction scores (out of 10, from the annual Wealth Insights Platform Service Level Survey) of FirstChoice and FirstWrap. The ranking is calculated by comparing the overall satisfaction score with the weighted average of other platform providers in the relevant peer set (using the same FUA weighted methodology as the CFS score). The relevant peer set includes platforms belonging to Westpac, NAB, ANZ, AMP and Macquarie Bank in the Wealth Insights survey. Bankwest – Retail Banking Customer Advocacy This metric represents the average score retail customers give on a scale of 1-10 surveyed by Roy Morgan, based on their likelihood of recommending Bankwest as their Main Financial Institution (MFI). MFI customers are defined as retail customers who consider Bankwest to be their main financial institution. The metric is reported as a 6 month rolling average as at 30 June, based on the Australian population aged 14 and over. Bankwest – Business Banking Customer Advocacy The metric represents the average score business customers give on a scale of 0-10, based on their likelihood to recommend Bankwest as their Main Financial Institution (MFI). MFI customers are defined as business customers who consider Bankwest to be their main financial institution. The metric is measured by DBM’s Business Financial Services Monitor as a 6 month rolling average as at 30 June. Commonwealth Bank of AustraliaAnnual Report 2018 Glossary
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Glossary Non-financial performance of terms metrics definitions 297 Metric Description Sovereign – Customer Experience Score The metric represents the average score of customer experience measured by the Customer Experience Survey conducted by Sovereign, which is sent to customers who have had a recent interaction with Sovereign. The score is based on averages from three customer groups – new customers, existing customers and customers who have made a claim. ASB – Retail Banking Customer Satisfaction The metric represents the proportion of retail customers surveyed by Camorra Research Retail Market Monitor (RMM) that rated either ‘Excellent’ or ‘Very good’ on a scale of 1 to 5, where 1 is ‘Poor’ and 5 is ‘Excellent’ on their satisfaction level with their main provider of financial services. The metric is reported as a 12 month rolling average as at 30 June, based on the New Zealand population aged 15 – 79. The ranking refers to ASB’s position relative to the other four main New Zealand banks (ANZ, BNZ, Kiwibank and Westpac). ASB – Business and Rural Banking Customer Satisfaction The metric represents the proportion of business and rural customers surveyed by Kantar TNS that rated ‘Excellent’ or ‘Very good’ on their overall satisfaction level with their main bank on a scale of 1 to 6 where 1 is ‘Excellent’ and 6 is ‘Very poor’. Main bank is defined as the main provider of financial services by the customer. The metric is reported as a four quarters rolling average to 30 June, based on the New Zealand business and rural populations. The ranking refers to ASB’s position relative to the other main New Zealand banks. The competitor set varies for different segments. For small businesses, they are ANZ, BNZ, Kiwibank and Westpac. For commercial and corporate, they are ANZ, BNZ and Westpac. For rural, they are ANZ, BNZ, Westpac and Rabobank. PT Bank Commonwealth – Banking Service Excellence Performance The metric represents the results of the Bank Service Excellence Monitor (BSEM) survey conducted by Marketing Research Indonesia (MRI) independently every year using mystery shopping methodology. In 2018, BSEM measured service excellence performance of the top 23 banks in Indonesia (private owned-banks, government banks and foreign banks). Customer Complaints The number of complaints resolved as at 30 June for the Group as recorded in the FirstPoint feedback system excluding Bankwest and ASB, as defined by the Australian Securities and Investments Commission Regulatory Guide 165. This includes complaints which has taken more than 5 business days to resolve to the customer’s complete satisfaction and any complaints relating to hardship, a declined insurance claim, or the value of an insurance claim. SOCIAL Full-time equivalent employees (FTE) This metric represents the full-time equivalent (FTE) employees of the Group by geographical work locations. FTE captures full-time, part-time, job-share employees, employees on extended leave and contractors. One full-time role is equal to 38 working hours per week. The FY16 and FY14 numbers are restated due to internal reconfigurations. Employee engagement index – CBA The index shows the proportion of employees replying with a score of 4 or 5 to four engagement questions in the Group’s annual People and Culture Survey. These questions relate to satisfaction, retention, advocacy and pride on a scale of 1-5 (where 1 is ‘Strongly Disagree’ and 5 is ‘Strongly Agree’). The result captures the responses of CBA employees only, excluding Bankwest, CFSGAM, AHL, ASB, Sovereign and IFS. Employee turnover (voluntary) Employee turnover refers to all voluntary exits of permanent employees as a percentage of the average, permanent headcount paid directly by the Group (full-time, part-time, job-share or on extended leave), excluding the employees of ASB and Sovereign. Voluntary exits are determined to be resignations and retirements. Women in workforce (headcount) The metric represents percentage of roles filled by women, in relation to the total headcount as at 30 June for the Group. Headcount captures permanent headcount (full-time, part-time, job-share, on extended leave), and contractors (fixed term arrangements) paid directly by the Group, excluding the employees of ASB and Sovereign. Women in Manager and above roles (headcount) The metric represents percentage of roles that are filled by women at the level of Manager and above (including Branch Managers), in relation to the total headcount at this level as at 30 June. Headcount captures permanent headcount (full-time, part-time, job share, on extended leave), and contractors (fixed term arrangements) paid directly by the Group, excluding the employees of ASB and Sovereign. Women in Executive Manager and above roles (headcount) The metric represents percentage of roles at the level of Executive Manager and above filled by women, in relation to the total headcount at these levels as at 30 June. Headcount captures permanent headcount (full-time, part-time, job share, on extended leave), and contractors (fixed term arrangements) paid directly by the Group, excluding the employees of ASB and Sovereign. Women in Senior Leadership (Group Executives) This metric represents the percentage of roles that are filled by women who are current executives as at 30 June. These roles are direct reports of the CEO with authority and responsibility for planning, directing and controlling CBA’s activities. This excludes ASB and Sovereign. For the list of current executives, please refer to the 2018 Annual Report page 84 to 85. Gender pay equity – female to male base salary comparison Gender pay equity is defined as the pay gap between the weighted average base salary of males and females for Australian-based employees of the Group. The data reflects roles in similar functions, role size and responsibilities. The data refers to permanent full time and part time employees, excluding contractors, and employees who have not defined a gender, as at 31 January 2018. Age diversity Age diversity is the breakdown of permanent employees (full-time, part-time, job share or on extended leave) and those contractors paid directly by the Group, by their age group as at 30 June of the reporting year. The population excludes the employees of ASB and Sovereign. Performance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Glossary
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Glossary Non-financial performance of terms metrics definitions 298 Commonwealth Bank of Australia Annual Report 2018 Metric Description Cultural diversity index Cultural Diversity Index (CDI) is the concentration mix of all cultures of the Group’s employees, resulting in an index between 0 and 1, where the higher the score, the more diverse the population. The index is calculated using anonymous, self-disclosed demographic information by employees from the Group’s annual People and Culture Survey and benchmarked against the ancestry question in the Australian 2016 Census. The result captures the responses of CBA employees only, excluding Bankwest, CFSGAM, AHL, ASB, Sovereign and IFS. Indigenous workforce The metric represents the ancestry of respondents who chose to nominate the ancestry they most strongly identify with in the Group’s annual People and Culture Survey conducted by CBA. Indigenous Workforce shows the proportions of employees who selected: 1) Australian Peoples – Australian Aboriginal 2) Australian Peoples – Torres Strait Islander; and 3) Australian Peoples – Both Australian & Torres Strait Islander. The surveyed population is the same as the ‘Employee Engagement Index – CBA’. 2016 Australia Census Indigenous question show that Aboriginal and Torres Strait Islander peoples represented 2.8 per cent of the population in Australia. Employees who identify as having a disability The metric represents the proportion of CBA employees that have selected any of the disability conditions in the last 12 months based on the survey responses in the Group’s annual People and Culture Survey. Answer options for disability condition include: • Physical condition • Intellectual condition • Chronic health • Mental illness • Vision impairment • Hearing impairment and • Other (not listed). The result captures the responses of CBA employees only, excluding Bankwest, CFSGAM, AHL, ASB, Sovereign and IFS. Employees who identify as LGBTI The metric represents the proportion of CBA employees who identify as LGBTI in the last 12 months based on the survey responses in the Group’s annual People and Culture Survey. Answer options for LGBTI include:• Heterosexual (also known as straight) • Gay • Bisexual • Transgender • Intersex. The result captures the responses of CBA employees only, excluding Bankwest, CFSGAM, AHL, ASB, Sovereign and IFS. Employees working flexibly The metric represents the proportion of CBA employees that have used flexible work options in the last 12 months based on the survey responses in the Group’s annual People and Culture Survey. The answer options are multi-select. Answer options for flexible working include: working from home, alternating my start/finish time; working from a different location; purchased extra annual leave; job-share; part time/reduced working hours; compressed work week; and other. Note this question was updated in FY17, the previous question was “My manager allows me the flexibility I need to meet my work goals and personal needs with”, employees responded with a score of 4 and 5. The result captures the responses of CBA employees only, excluding Bankwest, CFSGAM, AHL, ASB, Sovereign and IFS. Employees working part-time or job-sharing The number of employees at 30 June who are employed on a part-time or job share basis, as a percentage of permanent employees (full-time, part-time, job share or on extended leave) and contractors paid directly by the Group, excluding the employees of ASB and Sovereign. Employees with caring responsibilities The metric represents the proportion of CBA employees that have selected any of the following caring responsibilities in the last 12 months based on the survey responses in the Group’s annual People and Culture Survey. Answer options for caring responsibilities include: • Elderly • Children under the age of 18 • People with a disability • People with a chronic condition •Someone experiencing domestic, family violence and/or sexual assault • other family members. The result captures the responses of CBA employees only, excluding Bankwest, CFSGAM, AHL, ASB, Sovereign and IFS. Number of graduates The number of graduates who accepted and commenced in a graduate position with CBA or Bankwest under the Talent Acquisition programme during the year ended 30 June. Training hours This represents the total completed training hours recorded in CBA’s learning management system 'PeopleLink' as at 30 June. Training hours are allocated to each training item such as face-to-face or online training. Executive Managers, General Managers, Executive General Managers and the Chief Executive Officer are included in 'Executive Managers and above' and 'Others' includes team managers and team members. Training hours per employee This metric represents the average completed training hours per employee that is recorded in CBA’s learning management system ‘PeopleLink’ as at 30 June, measured by headcount. Environmental, Social and Governance (ESG) Training Number of employees who have completed ESG learning modules recorded in CBA’s learning management system 'PeopleLink' as at 30 June, measured by headcount. The ESG learning modules are ESG Risk Fundamentals, ESG Risk Tool and Responsible Investing and Equator Principles III eLearning. Lost Time Injury Frequency Rate (LTIFR) LTIFR is the reported number of occurrences of lost time arising from injury or disease that have resulted in an accepted workers compensation claim, for each million hours worked by Australia and New Zealand employees. The metric captures claims relating to permanent, casual, AHL’s employees as well as contractors paid directly by the Group. Data is presented using the information available as at 30 June for each financial year. Prior year results include Australia-based employees only. Absenteeism Absenteeism refers to the average number of sick leave days per Australia-based full-time equivalent (FTE) (and for CommSec employees, it includes carers leave days), excluding Bankwest. Commonwealth Bank of AustraliaAnnual Report 2018 Glossary
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Glossary Non-financial performance of terms metrics definitions 299 Metric Description Total community investments Total voluntary investments contributed to communities in the form of cash contributions, time volunteering, foregone revenue and program implementation costs as defined under each metric below. Cash contributions Total dollars contributed by the Group through charitable gifts, community partnerships and matched giving. Matched giving excludes staff contributions. Time volunteering Total estimated cost of volunteering hours contributed by CBA and Bankwest Australia-based employees through volunteering activities as captured in CBA’s volunteering database. Average hourly rates are calculated using Australia-based permanent employees' salaries as at 30 June excluding the salary of the executive leadership and management teams. Forgone revenue Forgone revenue consists of the aggregate value of fee-free or discounted CBA customers banking accounts (relating to Monthly Account Fee and Transaction Fees only, not including discounts in interest rates) for customers who have been assessed as low-income earners, underprivileged or not-for-profit organisations. Program implementation costs Total costs incurred by the Group to implement community investment programs, operating costs of managing the Indigenous Customer Assistance Line call centre, operating cost of managing the Group Corporate Affairs team and Women in Focus as well as other not-for-profit activities and school programs. These costs include salary and wages, occupancy, IT and other administration costs. Community investments as a percentage of pre-tax profit Total community investments as a percentage of the Group’s statutory pre-tax profit as at 30 June. School banking students (active) The number of active students who participated in the CBA School Banking program from the period 1 July to 30 June. Active students are those who banked at least once during the last 12-month period through a school which participated in the CBA School Banking program. Start Smart students (booked) The number of students booked to attend the CBA’s Start Smart programs from the period 1 July to 30 June. Start Smart sessions cover different topics and the same student may be booked to attend a number of sessions. Indigenous Customer Assistance Line (calls received) Number of calls received via the dedicated Indigenous Customer Assistance Line (ICAL) of CBA during the period from 1 July to 30 June. The metric does not take into account calls that were abandoned by customers. This assistance line is dedicated to assist the Australian indigenous community. Australian Indigenous supplier spend The Group’s total direct and indirect supplier diversity spend on Indigenous businesses in Australia. The spend includes supply of stationery, services and other products used by CBA. Indigenous businesses are those businesses who are registered or certified with Supply Nation. This metric excludes payments to the Australian Indigenous business that were given as grants. GOVERNANCE Female Directors on Board The metric represents percentage of female Directors in relation to the total Commonwealth Bank of Australia Board as at 30 June. Training completion rates on ‘Our Commitments’ The metric represents percentage of employees who have been assigned and completed ‘Our Commitments’ learning module recorded in CBA’s learning management system ‘PeopleLink’ as at 30 June. This metric excludes the training completion rates of the employees of Bankwest, ASB and Sovereign. Training completion rates on mandatory learning The metric represents the percentage of employees who have been assigned and completed the Group’s mandatory learning modules recorded in CBA’s learning management system ‘PeopleLink’ as at 30 June. The Group’s mandatory learning modules are Anti-Bribery and Corruption, Anti-Money Laundering & Counter-Terrorism Financing, Conflicts of Interest, Fraud, Security and Privacy, Resolving Customer Complaints, Workplace Conduct and Health and Safety. Substantiated misconduct cases This metric represents closed substantiated misconduct cases managed in Australia by the Workplace Relations team and Group Investigations team. The metric excludes incidents reported by local associates and joint ventures. There are various internal policies within the Group that govern staff conduct obligations, such as ‘Our Commitments’ which is the guiding framework at CBA. SpeakUP Program cases The metric represents the number of SpeakUP cases recorded in the Group’s SpeakUP Program records as at 30 June. The cases include disclosure types such as anonymous, confidential and whistleblower. Whistleblower cases The metric represents the number of whistleblower cases recorded in the Group’s Speak UP Program records as at 30 June. Performance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report International
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International representation 300 Commonwealth Bank of Australia Annual Report 2018 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 9 306 3000 Chief Executive Officer Vittoria Shortt CBA NZ Branch ASB North Wharf 12 Jellicoe Street Auckland Central Auckland 1010 Telephone: +64 9 337 4748 General Manager Andrew Woodward Africa South Africa TymeDigital, Commonwealth Bank of 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 30, 599 Lexington Avenue New York NY 10022 Telephone: +1 212 848 9200 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 Heather Brilliant Asia China CMG, Beijing Representative Office Unit 2908, Level 29 China World Tower 1, 1 Jianguomenwai Avenue, Beijing 100004 Telephone: +86 10 6505 5023 China Chief Representative James Gao CBA Beijing Branch Office Level 46, China World Tower, 1 Jianguomenwai Avenue, Beijing 100004 Telephone: +86 10 5680 3000 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 Branch Manager Shanghai Bosco Pun 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 2293 7888 Group Executive International Financial Services Coenraad Jonker First State Investments Level 25, One Exchange Square 8 Connaught Place, Central, Hong Kong Telephone: +852 2846 7566 Facsimile: +852 2868 4742 FSI Managing Director – Asia Michael Stapleton First State Investments 24th Floor, China Merchants Bank Building 7088, Shen Nan Road, Shenzhen China 518040 Telephone: +86 755 8317 2666 Managing Partner, First State Stewart Michael Stapleton Commonwealth Bank of AustraliaAnnual Report 2018 International
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International representation 301 Indonesia PT Bank Commonwealth World Trade Centre 6, 3A Floor Jl. Jenderal Sudirman Kay. 29-31, Jakarta 12920 Telephone: +62 21 5296 1222 President Director Lauren Sulistiawati PT Commonwealth Life World Trade Centre 6, 3A Floor Jl. Jenderal Sudirman Kay. 29-31, Jakarta 12920 Telephone: +62 21 570 5000 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 Managing Director Hazrina Dewi Japan CBA Branch Office 8th Floor, Toranomon Waiko Building 12-1 Toranomon 5-chome Minato-ku, Tokyo 105-0001 Telephone: +81 3 5400 7280 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 FSI Managing Director – Asia Michael Stapleton Singapore CBA Branch Office 38 Beach Road 06-11 South Beach Tower Singapore 189767 Telephone: +65 6349 7000 Managing Director, Singapore Scott Speedie First State Investments 38 Beach Road 06-11 South Beach Tower Singapore 189767 Telephone: +65 801 390 FSI Managing Director – Asia Michael Stapleton Vietnam CBA Representative Office Suite 603-604 Central Building 31 Hai Ba Trung, Hanoi Telephone: +84 4 3824 3213 Chief Representative and Director of Investment and Banking Hanh Nguyen CBA Digital Solutions Company Limited Levels 7-11, 4B Ton Duc Thang, Dist. 1 Ho Chi Minh City Telephone: +842838246276 General Director Christopher Bennett Europe France First State Investments 14, Avenue d’Eylau 75016 Paris Telephone: +33 1 7302 4674 Managing Director, EMEA Chris Turpin Germany First State Investments Westhafen Tower Westhafenplatz 1 60327 Frankfurt a.M. Telephone: +49 0 69 710456 - 302 Managing Director, EMEA Chris Turpin Malta CommBank Europe Limited Level 3 Strand Towers 36 The Strand Sliema SLM07 Telephone: +356 2132 0812 Chief Financial Officer Greg Williams United Kingdom England CBA Branch Office 1 New Ludgate 60 Ludgate Hill London EC4M 7AW Telephone: +44 20 7710 3999 Managing Director, Europe Paul Orchart First State Investments Finsbury Circus House 15 Finsbury Circus London EC2M 7EB Telephone: +44 0 20 7332 6500 Managing Director, EMEA Chris Turpin Scotland First State Investments 23 St Andrew Square Edinburgh EH2 1BB Telephone: +44 0 131 473 2201 Managing Director, EMEA Chris Turpin Performance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report Corporate
Directory
Corporate directory
132 221 General Enquiries
For your everyday banking including paying bills using BPAY® our
automated service is available 24 hours a day, 7 days a week.
132 221 Lost, Stolen or Damaged Cards
To report a lost or stolen card 24 hours a day, 7 days a week.
From overseas call +61 2 9999 3283. Operator assistance is
available 24 hours a day, 7 days a week.
® Registered to BPAY Pty Ltd ABN 69 079 137 518
132 224 Home Loans and Investment Home Loans
To apply for a new home loan or investment home loan or to
maintain an existing loan. Available from 8am to 8pm, 7 days a
week.
131 431 Personal Loan Sales
To apply for a new personal loan.
Available from 8am to 8pm, 7 days a week.
1800 805 605 Customer Relations
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.
131 709 CommSec Margin Loan
Enables you to expand your portfolio by borrowing against your
existing shares and managed funds. To find out more simply call
131 709 8am to 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.
If you would like to pay us a compliment or are dissatisfied with
any aspect of the service you have received.
Available 24 hours a day, 7 days a week or visit
www.commbank.com.au/lbb.
Internet Banking
1300 772 968 (1300 AGLINE) AgriLine
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.
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.
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.
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.
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.
Alternatively, visit www.colonialfirststate.com.au.
1300 362 081 Commonwealth Private
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.
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
time),
Monday to Friday or visit
www.commbank.com.au/commonwealthprivate
to 5:30pm (Sydney
132 015 Commonwealth Financial Services
For enquiries on retirement and superannuation products, or
managed investments. Available from 8.30am to 6pm (Sydney
Time), Monday to Friday.
Unit prices are available 24 hours a day, 7 days a week.
CommInsure
For all your general insurance needs call 132 423 8am to 8pm
(Sydney Time), 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.
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Commonwealth Bank of Australia
Annual Report
Commonwealth Bank of AustraliaAnnual Report 2018 Contact us
303
Contact us 303 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 Internet: www.linkmarketservices.com.au Email: cba@linkmarketservices.com.au Telephone numbers for overseas shareholders New Zealand 0800 442 845 United Kingdom 0345 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. Performance overviewCorporate governanceDirectors’ reportFinancial reportOther informationStrategic report CBA1421280918