More annual reports from Commonwealth Bank of Australia:
2023 Report2019
Annual
Report
Inside this report
We have integrated our financial and non-financial reporting to provide information
on all aspects of our performance.
Strategic report
Our business
What we delivered in FY19
Chairman’s message
CEO’s message
Operating context
Our strategy
2
2
3
4
6
8
9
Delivering balanced and sustainable outcomes
20
Financial performance
Group performance
Divisional performance
Risk management
Risk report
Our approach to addressing climate change
40
4 1
48
50
50
55
Corporate governance
Our commitment to corporate governance
Board of Directors
Executive Leadership Team
Directors’ report
Remuneration report
Financial report
Financial statements
Notes to financial statements
Directors’ declaration
Independent auditor’s report
Other information
Shareholder information
Five year financial summary
Profit reconciliation
Environmental, customer, social
and governance metrics
Glossary of terms
Contact information
64
65
66
7 4
7 6
8 2
109
1 1 2
1 1 9
272
273
285
286
292
295
297
307
319
We aim to bring together
the best service and leading
technology to deliver the best
outcomes for our customers.
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Commonwealth Bank of Australia
ACN 123 123 124
1
Strategic
report
Our business
Financial
performance
Risk
management
Corporate
governance
Directors’
report
Financial
report
Other
information
Our business
Our purpose
Our purpose is to improve the financial wellbeing
of our customers and communities.
Our values
We are guided by our values:
• We do what is right
• We are accountable
• We are dedicated to service
• We pursue excellence
• We get things done
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.
Our execution priorities are:
• Simplify our business
• Lead in retail and commercial banking
• Best in digital
Our business areas
Institutional Banking and Markets
• Retail Banking Services
• Business and Private Banking
•
• Wealth Management
• ASB New Zealand
•
International Financial Services
Our brands
Our brands include some of the best known names
in financial services in Australia and New Zealand.
Our strengths1
Market leadership
• Main financial institution for 1 in 3 Australians
•
Leading market share in home lending, household
deposits and credit cards
• Leading payments provider with largest merchant base
Customer reach
•
•
•
17.4 million customers, including the highest share of
youth and new migrant segments
Largest branch network in Australia and Australia-based
call centres
7.0 million active digital customers, #1 for online and
mobile banking (Canstar)
Talent
•
•
•
48,238 employees
Gender diverse leadership – 50% of Board Directors
are female
Workforce is more culturally diverse than the
Australian population
Innovation
• Real-time core banking platform
•
• Leading data and analytics capabilities
#1 mobile banking app in Australia (Forrester)
Financial strength
•
•
•
830,000+ shareholders
Deposit funding 69%
Common Equity Tier 1 capital ratio of 10.7% (APRA),
16.2% (International)
Sustainability
•
•
•
Committed to sustainable and responsible business
practices
Report in line with the recommendations of the
Task Force on Climate-related Financial Disclosures
Listed on DJSI Asia Pacific
What we delivered in FY19
Stakeholder outcomes
Customers
Better outcomes
Community
Trusted
and reputable
Our people
Energised,
accountable
Shareholders
Long-term
sustainable
returns
$92bn
of new lending for
Australian home buyers
$36bn
of new lending for
Australian businesses1
1.2m
new personal transaction
accounts opened for customers
$275m
changes to fees and charges
benefiting customers
For more information, see pages 22-25
427,500+
students provided with
financial education (Start Smart)
236
CommBank Foundation
community grants
$5.1bn
low carbon
financing
18,000+
employee pro bono and
volunteering hours
For more information, see pages 26-29
$5.9bn
paid to our people in salaries
and superannuation
25.2hrs
average hours of training
per employee
39.1%
women in
leadership roles
73.9%
of our people
working flexibly
For more information, see pages 30-33
$7.6bn
returned to shareholders
as dividends
$3,702
dividend amount received by
average retail shareholder
12.5%
return on equity
(cash basis)
21%
total shareholder return
(1 year)
For more information, see pages 34-35
1 For source information see the Glossary on page 309.
The financials are presented on a continuing operations basis except statutory profit, dividend per share and the Common Equity Tier 1 capital ratio which
include discontinued operations. Discontinued operations are outlined on page 45.
2
3
Commonwealth Bank of Australia Annual Report 2019 Strategic
report
Chairman’s
message
Financial
performance
Risk
management
Corporate
governance
Directors’
report
Financial
report
Other
information
Chairman’s
message
removing and reducing fees, and
by introducing smart alerts to help
customers avoid fees.
We have elevated our approach to how
we listen and respond to customers,
and have developed a more robust
complaints handling process. These
functions now report directly to the Deputy
Chief Executive Officer, David Cohen.
A large team is also working on remediation
and we have expensed approximately
$1 billion this year to cover refunds, interest
and program costs – due primarily to issues
in our financial advice businesses – to
ensure that customers are appropriately
and efficiently remediated.
Leadership
There has been significant renewal of the
Executive Leadership Team (ELT), following
Matt Comyn’s appointment as CEO in April
last year. Matt has subsequently made
seven new appointments to his leadership
team, through both internal and external
recruitment processes. The new team has
significant experience in financial services,
risk management and technology. Together,
they are now leading the necessary cultural
change and making progress on becoming
a simpler, better bank.
Culture, accountability and remuneration
To achieve lasting cultural change we have
clarified what we expect of our people
through our updated purpose and values,
and a new Code of Conduct. The Code links
our purpose and values with the guiding
principle our people must apply – the
‘Should We?’ test – to ensure they make
the right decisions and do the right thing
by our customers and the community.
The Bank’s remuneration framework
has also further evolved to support
cultural change and reinforce greater
accountability. Changes have been made
to better align the Bank’s remuneration
framework with prudent risk management.
For senior leaders, including the CEO and
Group Executives, a significant proportion
of their performance is now also tied to
the successful delivery of our Remedial
Dear Shareholder
It has been a very important year for
the Bank, in terms of progressing our
strategy to be a simpler, better bank,
and addressing key governance,
accountability, risk and remediation
issues.
All the while, the business has been
focused on maintaining operational
and capital performance in a more
challenging economic environment.
Strategy: becoming a simpler, better
bank
Becoming a simpler bank
This year, substantial progress has been
made to simplify the Bank. Our focus has
been on remediation in, and rationalisation
of, our Wealth Management division.
In July 2018, we sold our New Zealand
life insurance business, Sovereign, for
$1.3 billion, and we are making progress
on the divestment of our Australian life
insurance business, CommInsure Life.
Recently, on 2 August, we completed
the sale of our global asset management
business, Colonial First State Global
Asset Management, for $4.2 billion.
We have also announced the exit of our
aligned financial advice businesses,
namely the sale of Count Financial, the
cessation of CFP-Pathways and the
assisted closure of Financial Wisdom.
We remain committed to the orderly exit
of our remaining wealth management and
mortgage broking businesses, comprising
Colonial First State, Aussie Home Loans
and our stake in Mortgage Choice.
Delivering better customer outcomes
Another critical area of focus this year
has been delivering better outcomes
for our customers.
We have been making changes to our
policies, products and processes to ensure
that we deliver better customer outcomes.
This includes our commitment to improve
the financial wellbeing of our customers by
Action Plan (RAP) which responds to
the recommendations of the Australian
Prudential Regulation Authority (APRA)
Inquiry into CBA. The RAP milestones
include the necessary changes to policies,
processes and systems that underpin
the Bank’s culture. Importantly, we have
continued to strengthen the Board’s
oversight and challenge of remuneration
across the Group.
The Board has also determined
appropriate remuneration consequences
to reflect risk, customer and reputational
matters. This year, of the 15 Executives
eligible for short-term variable
remuneration, 14 received in-year
reductions to their remuneration in relation
to risk matters. This is in addition to the
reduction in remuneration outcomes for
Directors, Executives, senior leaders and
employees of more than $100 million
across the 2017 and 2018 financial years.
Strengthening governance of
non-financial risk
In the 2019 financial year we have built
on the previous two years of work in
strengthening governance practices at
the Bank, to ensure we meet the high
standards expected of us.
The focus this year has been on the
governance of non-financial risk, including
operational risk and compliance. We
have increased Board visibility of non-
financial risk and improved Board
oversight, processes and coordination.
This work has been further guided by
the recommendations of last year’s
APRA Inquiry.
The CEO has also established a Non-
Financial Risk Committee (NFRC) at
Executive level, with reporting through
to the Board Risk Committee, to improve
the identification, prioritisation and
management of non-financial risks.
The NFRC also focuses on risks such
as climate change and cyber risk that
can ultimately have financial impacts.
Regulatory and compliance progress
Australian Transaction Reports
and Analysis Centre (AUSTRAC)
We have continued to invest heavily in our
financial crimes capabilities and continue
to work constructively with AUSTRAC.
Australian Prudential Regulation
Authority (APRA)
In April 2018, we committed to implement
all 35 recommendations contained in
APRA’s Prudential Inquiry Final Report and
entered into an Enforceable Undertaking
(EU) with APRA. An independent reviewer,
Promontory Australasia (Sydney) Pty Ltd,
provides an assessment of our progress
to APRA on a quarterly basis. Their latest
report states that we are on track to deliver
on our RAP. The full report is available at:
commbank.com.au/apra.
Financial Services Royal Commission
In February of this year, the Final Report of
the Royal Commission into Misconduct in
the Banking, Superannuation and Financial
Services Industry (Financial Services
Royal Commission) was delivered. We are
committed to working with government
and our regulators to implement the
recommendations of the Final Report.
Of the 76 recommendations in the Final
Report, we are currently taking action on
23. We are participating in consultation
processes and preparing to implement
an additional 27. For the remaining 26, the
action is with government or regulators or
the Bank does not operate in that business.
Australian Securities and Investments
Commission (ASIC)
In April 2018, Commonwealth Financial
Planning (CFPL) entered into an EU with
ASIC that required it to attest that it had
identified and remediated customers who
had not received an annual review, and that
its ongoing service systems, processes
and controls were reasonably adequate.
In June 2019, ASIC confirmed that CFPL
had complied with the EU, save for some
refunds to be made by 30 September.
Sustainable business practice
To embed our commitment to operating
sustainably and responsibly into our
business, we have integrated our
environmental and social commitments
into a new Group Environmental and Social
Policy. This policy includes our commitment
to supporting the responsible global
transition to net zero emissions – including
by reducing our exposures to thermal coal
mining and coal fired power generation,
with a view to exiting the sectors by 2030,
subject to Australia having a secure energy
platform. It also includes our human rights
and biodiversity commitments, as well
as our approach to lending to customers
in the agriculture, fisheries, forestry and
defence sectors. The policy is outlined at:
commbank.com.au/policies.
Business performance and dividends
Notwithstanding the actions taken on
remediation this year, the business
has continued to perform well, despite
economic headwinds and uncertainties.
Through capital discipline and prudent
balance sheet management we have
also maintained our funding, liquidity
and capital strengths.
This has 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, flat on last year.
Board renewal
Board renewal has continued and
in January, we welcomed Professor
Genevieve Bell and Paul O’Malley to
the Board.
Genevieve’s experience as a global
technology executive and her
understanding of technology and culture
in business and society, brings a unique
and strategic perspective to the Board.
Paul, with his extensive operational,
accounting and business experience,
including as a CEO and CFO in industries
undergoing change, adds significant
value to Board discussions.
On 31 December, Sir David Higgins will
retire from the Board and we thank
David for more than five years of service,
commitment and contribution.
Building trust
This year, your Board and management
team have made significant progress
against key governance, accountability,
risk and strategic priorities.
Building trust however, takes time.
We are committed to taking a long-term
view, and to making decisions and acting
in the best interests of all stakeholders.
We believe this will deliver consistently
better outcomes for our customers,
people, communities, regulators and
shareholders, and result in long-term
and sustainable performance.
Thank you for your support.
Catherine Livingstone AO
Chairman
4
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Commonwealth Bank of Australia Annual Report 2019 Strategic
report
CEO’s
message
Financial
performance
Risk
management
Corporate
governance
Directors’
report
Financial
report
Other
information
CEO’s message
Progress on becoming a better bank
We are focused on becoming a better bank
for our customers. To demonstrate our
commitment, each week since February
we’ve announced at least one customer
or community benefit. Initiatives under our
‘Better for you’ campaign have included:
removing a number of banking fees for our
business customers; providing smart alerts
and notifications to help customers avoid
fees and better manage their finances; as
well as introducing measures to support
farmers and regional communities.
This year we have also made deliberate
decisions to stop selling some products
and services and have changed how and
what we charge for others, to ensure that
we are delivering better outcomes and
value for our customers. While this has
impacted revenue, the decisions saved our
customers $275 million in fees and charges
this year, and provide a more sustainable
and competitive base for our business
going forward.
The actions we’re taking to respond to the
recommendations of the APRA Prudential
Inquiry and the Financial Services Royal
Commission, and to implement the new
Banking Code of Practice, are also critical to
restoring trust in the Bank and the broader
financial services industry, and will result in
better customer and community outcomes.
While becoming a better bank will require
consistent effort over time, we were
heartened to see that more Australians
than ever now call the Commonwealth
Bank their main financial institution
(35.6% in June 2019, compared with
34.4% in June 2018). Our consumer and
business Net Promoter Scores have also
improved slightly but are still negative, so we
continue to work hard to identify and fix the
causes of customer dissatisfaction.
Dear Shareholder
For more than a century, the Bank
has changed with the times to fulfil
our purpose – improving the financial
wellbeing of our customers and
communities. Our purpose goes back
to the Bank’s earliest days when it was
created to be a bank for all Australians,
to help people and businesses prosper
and the economy flourish.
Over the past year, we have been taking
action to deliver a simpler, better bank to
ensure that we uphold the Bank’s legacy
and achieve our purpose.
The benefits of becoming a
simpler bank
Becoming a simpler bank – by
reducing our portfolio of businesses
and simplifying the way we operate
– is allowing us to focus on our core
banking businesses.
These businesses deliver approximately
95% of the Bank’s profit and are where our
strengths lie.
Reducing the complexity of our business
and our processes is helping to improve
customer and risk outcomes. It also
makes it easier for our people to serve
our customers.
Another benefit of simplification is that
it allows us to reduce costs. We are
committed to lowering our cost base to
create the capacity to invest in market-
leading technology and service, in order
to deliver the best offering for our
customers and performance for the Bank.
This will help us meet the challenges of
increased competition. While this year’s
costs have been significantly higher due
to remediation and risk and compliance
expenses, we are seeing the early benefits
of business simplification.
6
Key metrics in 20191
Statutory NPAT
$8,571m
Cash NPAT
$8,492m
Cost-to-income ratio
46.2%
Return on equity
12.5% cash basis
CET1 capital ratio (APRA)
10.7%
Dividend per share
$4.31 fully franked
Total shareholder return
21% 1 year
Net Promoter Score
37.2 Mobile App
30.9 Internet banking
1
Statutory net profit after tax (NPAT),
CET1 and dividend per share include
discontinued operations.
Delivering for our customers through
service and technology
By combining the best service and
technology we can deliver exceptional
banking experiences for our customers,
and better operational performance for
the Bank.
We are committed to providing exceptional
service across all the channels that our
customers use to do their banking, including
maintaining the largest branch network
in Australia and our Australia-based
call centres.
A key pillar of our strategy, and of our
customer offering, is being the best in digital.
Our mobile banking app was recently rated
#1 in Australia for the third year in a row by
Forrester, and we have been rated the best
online bank for 10 years in a row by Canstar.
This is not what we use to benchmark
our performance though, because our
7 million active digital customers – including
5.6 million CommBank app customers –
now compare their banking experience to
the best digital experience they have with
any service provider.
We believe that personalisation is key to
success in digital banking, so we’ve been
building our data and analytics capabilities
and the platforms and channels that
enable us to deliver more personalised
experiences. This includes our now-
customisable CommBank app, and the
Customer Engagement Engine which uses
artificial intelligence to analyse data and
serve customers with the information and
services that are most relevant to them.
We plan to invest over $5 billion over the
next five years with much of that going
into technology to keep improving our
systems and services, and to maintain
our leadership position.
Delivering for our community
Improving the financial wellbeing of the
community is also at the heart of our
purpose. We have been a long-standing
advocate of financial education through
school banking and our Start Smart financial
literacy program which trains hundreds of
thousands of students each year.
We are also taking steps to be there
for customers and members of the
community who are vulnerable. Our
Customer Advocate team, in partnership
with community and academic experts,
has developed the ‘Safe and Savvy’ guide
to help older people avoid abuse, scams
and fraud. Over the past five years we’ve
also been providing assistance to women
and men experiencing domestic and family
violence, and financial abuse; and are now
partnering with community organisations
to help those affected achieve long-term
financial independence.
Our new green mortgage initiative which
rewards the adoption of solar energy
and energy saving measures is a further
example of how we are helping to
achieve broader community objectives
– in this case, more affordable and
sustainable energy.
Maintaining financial performance
Our financial results this year reflect the
actions we’ve been taking to build a
simpler, better bank – including the costs
of simplifying our business, remediating
customers to fix past issues, and investing
in better customer and risk outcomes.
Importantly, our results also show the
continued strength and momentum in our
business. Despite the challenges of lower
credit growth and low interest rates, we
were able to deliver above system growth
in home lending and strong transaction
account growth.
The strength of our balance sheet
– across funding, liquidity and capital
metrics – was another positive feature
this financial year. With our Common
Equity Tier 1 capital ratio at 10.7% we are
above APRA’s ‘unquestionably strong’
benchmark of 10.5%.
Together, this operational and capital
performance has delivered dividends for
shareholders. Our simplification-related
divestments will further strengthen our
capital position and support long-term
sustainable returns for shareholders.
Looking ahead
We are making progress on our strategy
to be simpler and better, and are very clear
on what we need to do to deliver continued
performance in the current economic,
regulatory and competitive environment.
The enduring strength of the Bank’s
franchise, the commitment of the leadership
team, and the continued dedication of
our people to our purpose and to our
customers, give me great confidence
that we can deliver a bank of which you,
as our owners, can be proud.
Yours sincerely
Matt Comyn
Chief Executive Officer
7
Commonwealth Bank of Australia Annual Report 2019 Strategic
report
Operating
context
Financial
performance
Risk
management
Corporate
governance
Directors’
report
Financial
report
Other
information
Operating
context
We are responding to changes in our operating environment.
Trend
Our response
Macroeconomic environment
In Australia, credit growth has slowed and
interest rates are at historic lows, however
the economy remains resilient. Globally,
trade uncertainty persists.
We have the backing of a strong balance sheet that is managed prudently and
conservatively to provide resilience and to support customers in times of economic
uncertainty. We also undertake regular stress tests to understand how our business
performs and what actions to take in a variety of scenarios.
We are simplifying the Bank to focus on our key sources of competitive advantage
including our customer relationships, distribution strengths and technology leadership.
See the Strategic report and Financial performance sections for details.
Decline in trust and reputation
There has been a loss of confidence and trust
in institutions and large businesses in general.
In particular, Australian financial institutions have
experienced a decline in trust and reputation.
We are focused on demonstrating, through actions not words, that we are trustworthy
by being capable and reliable, doing the right thing and improving stakeholder
outcomes.
Trust and reputation is a focus of our strategy and a performance measure in Group
Executive long-term variable remuneration.
See the Delivering balanced and sustainable outcomes section for details.
Regulation driving change
The industry is undergoing a period of
heightened regulatory change, with a focus
on non-financial risk, including conduct and
culture.
By simplifying our portfolio we are reducing the scope and complexity of our business.
We are also strengthening our risk management and compliance capabilities, including
through our APRA Remedial Action Plan.
We are engaging with regulators proactively and in an open and transparent way.
Refer to the Risk management section for more information.
Increased competition
Existing and new competitors are using
emerging technologies and will leverage
data – through Open Banking and
Comprehensive Credit Reporting – to
meet evolving customer preferences.
We are investing in customer-focused innovation that brings together technology and
service to exceed customer expectations. To remain ‘best in digital’ we are leveraging
our unrivalled digital and data assets to deliver personalised and value-add services.
By simplifying our business we are also creating the capacity to invest for the future.
For more information, see the Strategic report section.
Importance of cybersecurity
and data protection
Cybersecurity and data privacy are increasingly
important due to the digitisation of information,
processes and transactions, and the
increasing sophistication of cyber threats.
We continue to invest in cybersecurity and data management, and view these
capabilities as a strategic differentiator.
We collaborate with a range of government, community and industry bodies to strengthen
system-level resilience and to reduce the impact of fraud and scams on the community.
See the Strategic report section for more information.
Workforce requirements are
changing
Automation and digitisation are changing the
capabilities and skillsets required. Competition
for specialised talent is increasing.
We are focused on re-skilling and supporting our people to be ready for the future of work.
To retain and attract top talent we are continuing to invest in our value proposition as
an employer. We offer flexible work arrangements, competitive benefits, and foster
a diverse and inclusive workforce.
For more information, see the Delivering balanced and sustainable outcomes section.
Climate action is growing in
importance
Climate change presents both risks and
opportunities for our customers and our
business, and is of concern to many in
the community.
We are undertaking detailed analysis to understand the risks and opportunities of
climate change, implementing strategic responses, and building internal and customer
capabilities to support the economy’s transition to net zero emissions by 2050.
We are committed to reducing our exposure to thermal coal mining and coal fired
power generation and to sourcing 100% of our electricity consumption from
renewable sources.
See the Our approach to addressing climate change section for more information.
Our
strategy
Become a simpler, better bank for our customers
To deliver balanced
and sustainable outcomes
Execution priorities
Simplify our business
Lead in retail and commercial banking
Best in digital
Supported by stronger capabilities
Operational risk
and compliance
Data and analytics
Cost reduction
Innovation
Our purpose
Our strategy
Customers
Better
outcomes
Our people
Energised,
accountable
Shareholders
Long-term
sustainable
returns
Community
Trusted and
reputable
Our strategy is to become a simpler, better bank that delivers balanced and
sustainable outcomes for our customers, community, our people and shareholders.
We are becoming a simpler bank by focusing on our core banking businesses and
simplifying our organisation to reduce costs and create the capacity to invest, while also
reducing risk and making it easier for our customers and our people to get things done.
Becoming a better bank is about being more capable and reliable, acting transparently and
doing the right thing, and consistently delivering better outcomes for our stakeholders.
We have set three execution priorities: simplify our business; lead in retail and commercial
banking; and best in digital. We believe these priorities best leverage our competitive
advantages and position the Bank for success.
To deliver on our strategy we are investing in four critical capabilities: operational risk
and compliance; cost reduction; data and analytics; and innovation. These capabilities
address our operating context and best support performance into the future.
Most importantly, the goal of our strategy is to deliver balanced and sustainable outcomes
for our stakeholders. It means that we are taking a balanced and long-term approach in all
our decision making.
When the Commonwealth Bank of
Australia was established in 1911, it was
to be a bank for all Australians and all
businesses, a bank that would help the
economy flourish and people prosper.
It was to be a bank of which the nation
could be proud.
This has always been our purpose:
to improve the financial wellbeing of
our customers and communities. Our
purpose provides clear direction to
our people and guides our strategy.
Our values
Our values state what we stand for,
and set expectations for our actions
and behaviours:
We do what is right
We are accountable
We are dedicated to service
We pursue excellence
We get things done
8
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Commonwealth Bank of Australia Annual Report 2019 Strategic
report
Execution
priorities
Financial
performance
Risk
management
Corporate
governance
Directors’
report
Financial
report
Other
information
Simplify our
business
We are becoming a simpler,
more focused bank, fully aligned
to meeting the needs of
customers in our core markets.
Portfolio simplification
Completed
Sovereign
TymeDigital
Colonial First State
Global Asset Management
Announced
BoCommLife
CommInsure Life
PT Commonwealth Life
Count Financial
CFP-Pathways
Financial Wisdom
Under strategic review
General Insurance
Vietnam International Bank
Intention to exit
Colonial First State
Aussie Home Loans
Mortgage Choice
CountPlus
For more information, see page 260.
A simpler way of doing business
Reducing risk
As we simplify our portfolio and product
suite and eliminate process variation, we
reduce the spectrum and variety of risks
we need to manage.
By simplifying and modernising our
technology we reduce the risk of cyber
attack and data loss. It also makes our
systems more resilient and addresses
system risk.
Simplification of our operating model also
improves our ability to quickly identify
and respond to risks and opportunities
as they emerge.
Creating capacity to invest
By reducing complexity and cost we
create the capacity to invest in better
risk and compliance capabilities and in
better technology and digital experiences
for customers.
We are making new investments that will
help strengthen our position in our core
banking businesses including home buying,
business banking and payments. We plan
to invest more than $5 billion over the next
five years, with much of that to maintain our
leadership in technology.
We are simplifying our policies,
processes and products to make it
easier for customers to bank with us
and for our people to get things done.
Making it easier for customers
We are listening to our customers and
acting on their feedback to deliver simpler,
better banking. This includes simplifying
our product offering to make it easier for
customers to choose the product that best
suits their needs. For example, we have
simplified our home loan product range
from 10 products to five core products.
We are also responding to customers who
want to do more of their banking digitally.
Customers can now manage home loan
repayments and provide instructions for
maturing term deposits directly in the
CommBank app. Through the app we also
prompt customers to verify their address
before their cards expire and we let them
know when their new cards are on the way.
Making it easier for our people
We are making it easier for our people
to serve customers. We are redesigning
processes to remove duplication and are
automating manual work. For example,
we have automated part of the new
lending process for commercial loans so
that our people can focus on spending
time with customers and on understanding
their businesses.
We are also simplifying our technology
by moving to a more modular and cloud-
based architecture which will enable us to
increase the pace of innovation.
A simpler portfolio of businesses
Simplifying our portfolio of businesses
removes complexity and reduces our
cost base.
In the 2019 financial year, we completed
the sales of Sovereign, our life insurance
business in New Zealand, and of
TymeDigital in South Africa. On 2 August
2019, we completed the sale of Colonial
First State Global Asset Management.
We are progressing the announced
divestments of our other life insurance
businesses – CommInsure Life in Australia
and our interests in BoCommLife in China
and PT Commonwealth Life in Indonesia.
We have also announced the exit of our
aligned financial advice businesses,
including the sale of Count Financial,
the cessation of CFP-Pathways and the
assisted closure of Financial Wisdom.
Following the completion of the sale of
Count Financial to CountPlus we intend,
subject to market conditions, to sell our
stake in CountPlus.
We remain committed to the orderly exit
of Colonial First State, Aussie Home Loans
and our stake in Mortgage Choice.
The end result will be a more focused
portfolio that delivers better customer,
risk, cost, return and capital outcomes.
Simpler, faster loans with BizExpressTM
Business opportunities can arise unexpectedly and we understand that our
customers want to act quickly when they do. That’s why we’ve re-engineered
our loan approval process.
Eligible existing customers can now get same day lending decisions for unsecured
loans up to $250,000 and secured loans up to $1 million. Over the next 12 months,
we plan to progressively increase the secured lending limit, expand the product set
and offer BizExpressTM to new customers.
By leveraging our leading data assets and automation capabilities to make better,
faster credit decisions, the new loan approval process also reduces risk and costs
for the Bank.
10
11
Commonwealth Bank of Australia Annual Report 2019 Strategic
report
Execution
priorities
Financial
performance
Risk
management
Corporate
governance
Directors’
report
Financial
report
Other
information
Lead in retail
and commercial
banking
We will continue to invest in our
market-leading retail bank and strengthen
our commercial banking business.
CBA and the World Bank issue the
world’s first blockchain bond
As part of our leading Innovation Lab and
Markets collaboration, we have partnered
with the World Bank to create, allocate,
transfer and manage a bond, called
‘bondi-i’ via distributed ledger. Recently, we
achieved another world first by launching
secondary trading of bond-i on blockchain.
Retail Banking
Services
Business and
Private Banking
Institutional Banking
and Markets
Our retail customers have diverse
needs and choose to do their banking
across multiple channels.
We know that our customers value
being able to walk into a local branch for
face-to-face service, especially when
making large deposits and when buying
a home. That’s why we are committed
to keeping the largest branch network in
Australia and why we have invested in our
proprietary home buying experience. ASB,
our New Zealand bank, has also invested
in its home lending service and has been
awarded 2019 Bank of the Year – Home
Loans by Canstar.
Our customers tell us they like talking
with call centre staff who understand
their needs and can quickly answer their
queries. For that reason, we are committed
to maintaining our call centres in Australia
and to keeping wait times short.
They also say they love the convenience
of banking digitally, which is why we
continue to innovate and invest in our
market-leading online (NetBank) and
mobile (CommBank) banking channels.
Importantly, we know that our customers
want their banking to be seamless.
That’s why our technology systems are
customer-centred rather than product-
centred, and why we have invested in
our Customer Engagement Engine which
gathers the interactions each customer
has with us across all channels. This
helps us better understand and serve
our customers’ needs and improve their
financial wellbeing.
We are focused on helping businesses
grow and prosper.
We support our customers to start, run
and grow their businesses by providing
market-leading solutions and services.
Our strengths include transaction banking
which leverages our real-time banking
capabilities, and our leading payments
solutions for merchants. We continue to
tailor our solutions to meet our customers’
needs across their industries and at
different stages of their business lifecycle.
We are committed to providing simpler
and more convenient banking for our
customers through digital innovation.
We have introduced a new online
customer on-boarding tool for our
business customers, and we now offer
same day decisions for simple business
lending through BizExpressTM. We have
made Apple Pay and Alipay available
to make payments easier and more
convenient. Business customers can also
enable smart alerts for their business
transaction accounts.
Our business customers tell us they value
receiving financial insights and expertise
to help them run their businesses. To better
support our customers, we have hired
more business bankers and will continue to
invest in our distribution network to provide
customers with access to our bankers in
branch, over the phone and digitally.
We are building better banking
partnerships with governments,
institutions and communities to help
the Australian economy flourish.
To help our clients navigate the
increasingly complex business
environment, we have structured our
teams around industry themes and
product expertise. By re-orientating our
business model around the key trends
impacting Australia and the global
economy, our people are better able
to help clients realise new opportunities
for their businesses.
We are also evolving our products
and services to help clients meet
their broader objectives. Recently we
provided a sustainability-linked loan to
Queensland Airports Limited (QAL) that
supports their goal of reducing carbon
emissions. QAL will receive a lower
interest rate on the loan if it meets its
carbon reduction targets. The financing
is the first in Australia to be directly
linked to a reduction in a borrower’s
carbon emissions.
We are also bringing together clients and
partners to explore new opportunities
and to achieve positive community
outcomes. Our recent collaboration with
the NSW Government, Cubic Transport
Systems and MasterCard has meant that
commuters on rail, light rail or Sydney
ferries can now pay using a credit or
debit card instead of using New South
Wales’ dedicated travel smart card, Opal.
Our commitment is to provide the best service across all channels
Physical network
1,172
branches (Group total)
1,014 in Australia
3,963
ATMs – the largest
network in Australia
12
Digital channels
Personal service
#1 online bank
10 years running
(Canstar)
#1 mobile bank
4 years running
(Canstar)
2,300+
business bankers and specialists
(Business and Private Banking)
2,000
Australia-based
call centre staff
Introducing simpler health payments and claiming
We have partnered with Australian medical technology
provider Whitecoat, to develop CommBank Health Claim
– an integrated payments and claiming solution, currently
in pilot on our Albert EFTPOS terminal.
Through CommBank Health Claim, healthcare providers will
have the ability to engage directly with patients. Patients can
use the companion app, MyWhitecoat, to search for providers,
request bookings and instantly approve payments and private
health insurance claims.
13
Commonwealth Bank of Australia Annual Report 2019 Strategic
report
Execution
priorities
Financial
performance
Risk
management
Corporate
governance
Directors’
report
Financial
report
Other
information
Best in digital
We aim to provide the best digital banking
experiences globally by making banking
simple, smart and secure.
Simple
Smart
Secure
Ceba
Hi Amy, I’m Ceba the
CommBank Assistant
I’m a bot. Ask me a
question, I’m here to help
you.
If you need human help
I’ll point you in the right
direction.
Ask a question
Making banking simple
Our customers want banking to be simple,
and compare their digital banking to the
best digital experiences they have with
other product and service providers. We
are evolving our offering to meet and beat
customers’ expectations by providing easy-
to-use functionality that integrates service
and technology to deliver convenient and
value-add digital banking services.
Focus on the customer
Ceba – your virtual helper
We recently relaunched the CommBank
app to make it more intuitive and user-
friendly. Customers can now customise
their home screen and select the features
and notifications they use and value the
most. For example, this could include
month-to-month spending comparisons
and reminders about upcoming credit
card payments.
Active digital customers
Seamless service
7.0 million
Logons per day
7.4 million
Mobile banking app in Australia
(Forrester)
#1
Our customers can access mobile and
online banking 24/7, but we’re also working
to make sure that our digital banking
connects seamlessly to other services.
Through improved functionality in the
CommBank app menu, customers
can now connect directly with the best
equipped member of staff to meet their
needs. This allows calls to be fast tracked
and answered more quickly.
Appointments to see a home loan specialist
can now be made online, allowing our
customers to choose when and where to
meet with our home lenders.
Bankwest has also launched a new in-app
messaging service allowing customers to
continue a conversation across multiple
devices. If an issue hasn’t been immediately
resolved, the customer can later resume
the discussion with another member of
staff who will have the full chat history.
Ceba, our virtual banking assistant, can
answer a wide range of day-to-day
banking questions and uses artificial
intelligence to help customers complete
380 banking tasks. Where human help is
needed, Ceba can connect customers to
speak with the right person over the phone
or via live webchat.
More digital ways to pay
This year we added more payment
functionality to existing features like PayID
and Tap and Pay for Android. In response to
customer demand, we now provide Apple
Pay for retail and business customers.
More than 2 . 1 million of our cards have
been added to mobile wallets.
We were the first major bank to accept
Alipay for in-store payments on our Albert
terminal, enabling merchants to connect
with over 1.3 million Australian Alipay
customers.
Simplifying and digitising banking tasks
We are increasingly digitising banking
tasks to deliver faster and more convenient
processes. Personal loan applications can
now be submitted digitally using a smart
phone camera to upload the relevant
documents. We are also focused on
streamlining our application processes
so that they are as efficient as possible.
Through our new digital on-boarding
capabilities business customers can
securely complete the necessary know
your customer (KYC) forms online, for both
their business and related parties.
We have built our market leading digital assets over more than two decades
1997
NetBank
Full functionality 24 hour online
banking service
#1 online bank 10 years in a row
since 2010 (Canstar)
2005
CommSee
Proprietary customer
relationship system
Provides a single view
of customers across
all channels
2009
Core banking
Real-time banking and settlement
Standardisation and system simplification
Greater reliability
Enables real-time digital functionality
2013
CommBank app
#1 mobile bank four years in
a row since 2016 (Canstar)
Currently #1 mobile banking
app in Australia (Forrester)
2014
Customer Engagement Engine
Over 200 machine built adaptive models
Learns from over 600 million customer interactions
In FY19, delivered 3.6 billion personalised messages in
digital and served 3.5 million customers with Financial
Wellbeing Next Best Conversations
2018
Ceba
AI-powered chatbot to assist
with 380 banking tasks
Innovation award winner
(Gartner)
2019
Relaunched CommBank app
Personalised look and feel
Customisable home screen and notifications
14
15
Commonwealth Bank of Australia Annual Report 2019 Strategic
report
Execution
priorities
Financial
performance
Risk
management
Corporate
governance
Directors’
report
Financial
report
Other
information
Best in digital (continued)
Simple
Smart
Secure
Simple
Smart
Secure
Making banking smart
We have made substantial long-term
investments in our technology platforms,
digital assets and channels to provide
customers with a smart digital banking
experience.
Providing real-time functionality
Our core banking system provides
real-time functionality and supports
instant transactions and features in the
CommBank app and on NetBank. As a
result, customers can place locks, blocks
and limits on their accounts and cards
with instant effect; and can obtain cash
on demand from an ATM using their
mobile phone and the Cardless Cash
feature in the CommBank app.
Bankwest customers are able to use
a digital version of their new debit or
credit card which is generated within
the Bankwest app, prior to the arrival
of their physical card in the post.
Data-driven insights
We have invested in our Customer
Engagement Engine to drive personalised
and relevant banking services for our
customers. The engine gathers data
from more than 600 million customer
interactions across all channels, including
digital, branch and call centres. It analyses
over 150 billion data points in real time
and applies continuous machine learning
to better understand the needs of each
customer. Using these insights, it delivers
prompts to our frontline staff to ensure
that each interaction with our customers
is meaningful and relevant to their unique
circumstances.
Personalised digital experiences
Better money management
We believe that personalisation is the
future of digital banking. With the relaunch
of the CommBank app, we will deliver
a personalised banking app to 5.6 million
mobile banking customers. We are also
delivering personalised banking services
thanks to the Customer Engagement
Engine. In the last 12 months, it has
delivered 60 million real-time and relevant
notifications to customers to help them
better manage their finances. This includes
over 20 million smart alerts which have
helped customers avoid unnecessary fees
by alerting them to overdrawn accounts
and missed credit card payments.
Connecting customers with unclaimed
benefits
We have rolled out a range of smart
financial tools and alerts through the
CommBank app to empower our
customers to make sound financial
decisions. To help customers stay in
control of their finances, Cash Flow View
provides a financial picture of earnings
and spending, including month-to-month
trends. The recently launched Goal
Tracker allows customers to plan, track
and visualise their financial goals in the
CommBank app, encouraging them
to save regularly and maximise their
savings potential.
Log off
Hi Alex
Using our data analytics capabilities we
are also able to alert our customers to
unclaimed benefits and rebates. We have
developed Benefits finder to connect
customers with over 250 entitlements and
rebates offered by government agencies
or third parties. For example, using
payments data we were able to identify
customers in New South Wales who
had paid Compulsory Third Party Green
Slip insurance and alerted them to their
potential eligibility for a refund. Through
Benefits finder, we’re aiming to connect
our customers with $150 million of benefits
annually.
Credit card X1234 is
overdue
Diamond Awards
Available
Pay now to avoice a $20 late fee
$3,240.00
Balance: $3,240.00
Transfers
Pay someone
BPAY
Accounts
Cards
Products
& others
Monthly cash flow
$2,000
-$1,300
$700
Mar
Apr
May
Jun
Income
$2,000
Spending
-$1,300
Savings
$700
Making banking more secure
We are the main financial institution for one
in three Australians and see almost 40% of
payment transactions in Australia. We
therefore play a crucial role in safeguarding
customer data and protecting Australians
from scams and fraud.
Reported losses to Australians
from scams in 20181
$489 million
Reported losses to Australian
businesses from email compromise
scams in 20181
$60 million
Keeping customers’ data safe
100% online security guarantee
Our priority is to keep our customers’
accounts, data and privacy secure. Our
systems monitor customer accounts 24/7
and advanced analytics help identify and
detect abnormal transactions or spending
patterns that could indicate unauthorised
transactions. We also use biometrics
such as Touch ID and Face ID to prevent
unauthorised access to customer
accounts and information.
In the event that our customers do
experience a monetary loss due to fraud,
we offer a 100% security guarantee for
unauthorised transactions. This guarantee
is available to both personal and business
customers who have protected their
devices, PINs and passwords and have
immediately notified us of the loss, theft
or misuse of their password and of any
suspicious activity on their account.
Strengthening fraud detection
Educating the community
For customers who have chosen to
share their location when logged into the
CommBank app, we have enhanced fraud
detection through real-time tracking that
helps us identify any suspicious activity.
Customers have full control over the level
of online security provided and can opt in
or out of this feature.
We are also working to ensure our
customers and communities know about
the risks of online fraud and scams and
what can be done to avoid harm. This year
we have rolled out a nationwide program
of initiatives – including e-learning modules
for businesses and in-branch seminars –
to educate and inform customers about
staying safe online.
24/7 fraud monitoring
To protect customers’ accounts, our fraud detection
specialists work around the clock to identify and prevent
suspicious transactions.
Our 24/7 Digital Fraud Detection team watch for red flags
raised by our monitoring system. Transactions can be
flagged due to a number of fraud indicators, for example,
that a payment is completed using an international
IP address.
A specialist fraud analyst then reviews the customer’s
account to identify any inconsistencies – such as locations
of other recent credit card spend, and travel notes listed
on the customer’s profile. When the transaction is deemed
suspicious, the analyst contacts the customer and can
take action to prevent or recall fraudulent payments.
16
17
1
Australian Competition and Consumer Commission (May 2019) Targeting scams: report of the ACCC on scam activity 2018.
Available at accc.gov.au/publications (Accessed: 24 July 2019).
Commonwealth Bank of Australia Annual Report 2019 Strategic
report
Capabilities
Financial
performance
Risk
management
Corporate
governance
Directors’
report
Financial
report
Other
information
Supported by stronger
capabilities
To support the implementation of our strategy we are investing in four critical
capabilities: operational risk and compliance, cost reduction, data and analytics,
and innovation.
Operational risk and compliance
Data and analytics
To keep pace with greater business and
regulatory demands, and to fix the root
causes of past issues, we are investing
in our operational risk and compliance
capabilities.
This year, almost two thirds of the Bank’s
investment spend was dedicated to risk
and compliance enhancements – nearly
$900 million.
Substantial programs of work are currently
underway in the areas of financial crime
compliance, data privacy, cyber security
and supplier management.
We are also progressing our Group-wide
Better Risk Outcomes Program (BROP).
A centralised BROP team, reporting
directly to the CEO, is overseeing the
implementation of our APRA Remedial
Action Plan (RAP). The RAP outlines
156 milestones which respond to all
35 recommendations of last year’s
APRA Prudential Inquiry into CBA.
Under the RAP significant work is being
undertaken throughout the Bank to
strengthen governance, culture and
accountability; and to improve the
identification, oversight and management
of non-financial risk.
An independent reviewer, Promontory
Australasia (Sydney) Pty Ltd, provides
an assessment of our progress to APRA
on a quarterly basis. Promontory’s most
recent report notes that we are on track
to deliver against our RAP.
The ultimate goal of this work and the risk
and compliance improvements underway
is to improve customer and risk outcomes
at the Bank.
See the Risk report on page 50 for
more details.
Our early investments in analytics,
combined with our scale and unique data
assets, position us well at a time when
these capabilities are essential to delivering
market-leading banking services. We
are using our strengths in these areas to
power innovation, provide personalised
customer experiences, drive productivity
and enhance our risk controls.
When Open Banking and Comprehensive
Credit Reporting are fully implemented,
there will be increased financial data
sharing opportunities between financial
services companies, with customer
consent. We have met the implementation
milestones for both to date, and are
preparing to use these opportunities
to provide new experiences for our
customers in the future. We are also very
focused on ensuring data security and
privacy for our customers.
To allow our business customers to
harness the Bank’s data and analytics
capabilities, we developed the Daily IQ
insights tool. Available through online
banking, Daily IQ helps our business
customers, big and small, optimise their
cash flow and compare their performance
against others in their industry. By
leveraging our payments data, Daily IQ
can also help our customers grow their
businesses by providing information
on their customer base and spending
patterns in a particular area. Recently,
we added the Local Economic Impact
tool to Daily IQ so that businesses can
learn about the economic performance
of a particular area and understand the
impact of local events like festivals on
consumer spending.
Helping customers make
data-driven decisions
Harris Farm Markets aims to
reconnect Australians with the joy of
food by bringing the best produce to
customers every day. Since opening
in 1971, Harris Farm has grown its
footprint to 26 stores across Sydney
and regional New South Wales.
Opening a new store is a big
investment decision that needs
to be based on solid information.
Harris Farm management used our
Daily IQ tool to help them identify
the best location for their new store.
They looked at where existing
loyal customers lived, and potential
catchment areas for new customers.
Once the new store was opened,
Harris Farm used Daily IQ to track the
impact on its existing stores and to
monitor overall store performance.
Innovation
We are investing to stay at the leading edge
of innovation, so that we can continue to
offer compelling customer experiences and
meet increasing competitive and regulatory
demands. This involves innovating in both
customer facing applications and back
office operations. We are also investing
in technology to keep our systems safe,
sound and secure, and to add real value
and deliver better outcomes for customers.
We also promote innovation focused
collaboration with our clients through our
Innovation Labs. This year, we partnered
with the CSIRO’s Data61 to develop a
world-leading ‘Making Money Smart’ app
using blockchain technology. The use
case was a trial for the National Disability
Insurance Scheme (NDIS). The aim is to
provide NDIS participants with ‘smart
money’ that knows what it can be spent
on, who it can be spent by and when it
can be spent.
To promote an entrepreneurial, continuous
improvement mindset within the Bank,
we have created an open innovation
platform called “Unleashing Innovation”.
Employees are encouraged to raise ideas
focused on improving products, processes,
systems and services.
Cost reduction
To become a better bank, we need to
become more efficient, get smarter about
how we allocate resources and reduce
our costs. This creates the capacity to
invest in our core business and to deliver
competitive customer service and strong
risk and compliance outcomes.
The divestments we have announced will
remove complexity and cost, and are part of
our simplification agenda. We are focused
on ensuring that stranded head office costs
are removed as part of this process.
We are also committed to delivering a
simpler core business, having a lower
absolute cost base and achieving a cost-to-
income ratio below 40%. We are reducing
costs where it makes sense and looking
for opportunities to be more efficient. In the
2019 financial year, we achieved business
simplification savings of $190 million.
As part of good business discipline,
each business unit regularly reviews
its structure, strategy, operating model
and priorities.
This year, more than 23,700 of our people
visited the platform. Of the 11,928 ideas
submitted, 14.5% have been prioritised and
successfully implemented across the Bank.
Winner
of 2018
Gartner Eye
on Innovation
award1
DBM
Australian
Financial
Awards – Most
Innovative
Major Bank2
CommSec Pocket – a new way to invest
Investing in shares for the first time can be
complex, confusing and have high costs of
entry. We created CommSec Pocket – a simple
investment app aimed at helping our customers
enter the share market.
CommSec Pocket allows investing with as
little as $50, with very low brokerage fees
from $2 per trade. The app is an educational
first-step experience to share investing, offering
bite-sized, relevant insights to investors.
The app also simplifies investment decision-
making by providing seven different investment
themes to choose from. Investors can diversify
their portfolio across: Australian Top 200,
Global 100, Emerging Markets, Tech Savvy,
Eco Friendly, Health Wise and Australian
Dividends. Each theme is simply explained and
represented by an Exchange Traded Fund.
This means prioritising some activities, and
stopping others. Our International Financial
Services business unit has been reducing its
offshore footprint and changes are being
made to the Institutional Bank’s activities
and international presence as a result of
its recent restructure and streamlined
operating model.
We are also optimising our domestic
distribution. This year we closed
29 Bankwest branches on the East Coast
of Australia, to prioritise investment in
digital and in broker and third-party
offerings to meet changing customer
needs. We are rationalising our points of
presence generally to respond to evolving
customer preferences including, for
example, reduced demand for ATMs
and for cash transactions in branches.
By digitising and automating processes we
reduce risk and costs and make it easier for
our people to get things done.
For example, we have improved pre-
release system testing from 18 manual
hours to 1 hour of automated testing.
This means that the CommBank app
and NetBank spend less time offline
and our people are freed up to do more
value-adding work.
Increased automation and digitisation also
helps our customers. For example, we
now pre-populate customer information
for small business customers who apply
for Asset Financing online. As customers
move to lower cost digital distribution
channels and service delivery, this
generates cost benefits for the Bank.
Another area of focus is technology
change and run costs which we are
working to reduce by rationalising our
technology architecture and the number
of IT systems we use, increasing cloud
capabilities, consolidating applications
and decommissioning those we no
longer require.
18
19
1 Asia Pacific, awarded October 2018 for Ceba.
2 DBM Australian Financial Awards – presented February 2019. Award based on DBM’s Consumer Atlas data January to December 2018.
Commonwealth Bank of Australia Annual Report 2019 Customers
Better outcomes
Community
Trusted and reputable
Our people
Energised, accountable
Shareholders
Long-term sustainable returns
Strategic
report
Balanced
outcomes
Financial
performance
Risk
management
Corporate
governance
Directors’
report
Financial
report
Other
information
Delivering
balanced and
sustainable
outcomes
The objective of our strategy is to deliver
balanced and sustainable outcomes for
our customers, community, our people
and shareholders.
We exist to serve our customers and to improve their, and the
community’s, financial wellbeing. When we deliver for our customers
they choose to do more business with us. Engaged and energised
employees with strong values deliver excellent customer service.
When we act in the best interests of our stakeholders, do business
in a way that is fair and sustainable, work constructively with our
regulators, and play our part in ensuring a resilient, efficient and safe
financial system, we earn the community’s trust.
In combination these actions support long-term, sustainable returns
for shareholders.
OUR GOAL
#1
consumer and
business
NPS
22
Focusing on Net Promoter Score
23
Serving customers’ needs
24
Improving customers’
financial wellbeing
25 Listening to our customers
OUR GOAL
Top
quartile
among peer
companies for
reputation
improvement
OUR GOAL
Top 10%
globally for our
employee
engagement
score
OUR GOAL
Top
quartile
TSR
outperformance
relative to
peers
26
Focusing on reputation
and trust
30
Focusing on employee
engagement
34
Focusing on total
shareholder returns
27 Earning trust
31 Restoring pride
35
Delivering for shareholders
27
28
29
Making a positive
contribution to society
Supporting financial
education
Financial wellbeing
for the community
31
Strengthening our culture
35
32
32
33
Building a diverse,
inclusive culture
Promoting employee
wellbeing
Skilling our workforce
for the future
Income for shareholders
and the economy
35
Sustaining performance
21
For detailed information on our Environmental, customer, social and governance performance metrics, see page 297.
20
Supported by
36
Good business practice
35
Open and transparent engagement
35
Taking a responsible approach
Commonwealth Bank of Australia Annual Report 2019 Strategic
report
Balanced
outcomes
Financial
performance
Risk
management
Corporate
governance
Directors’
report
Financial
report
Other
information
Customers
Better outcomes
Serving customers’ needs
We serve our customers’ needs
by providing simple, convenient
and affordable banking products,
and by investing in service and
digital innovation to deliver the
best customer experiences.
New lending for Australian home buyers
$92 billion
New lending for Australian businesses
$36 billion
New personal transaction accounts
opened for customers
1.2 million
This year we have focused on listening to
our customers and putting their needs first.
Under our ‘Better for you’ initiative, since
February we have announced, on a weekly
basis, the actions we are taking to provide
the banking experiences our customers
want and deserve.
For retail customers, our Retail Banking
Services business has introduced a
new service promise: ‘Simple and easy
every day, brilliant when it matters’. This
means getting the basics right every time
a customer interacts with us; and in the
critical moments, going above and beyond
to exceed their expectations.
Our Business and Private Banking
business has launched the ‘Every 1 Matters’
program to ensure the best outcome for
every customer, at every touchpoint.
‘Better for you’ has driven a range of
customer initiatives, including the launch
of Apple Pay and our commitment to
maintain passbooks which are used by
more than 400,000 loyal customers. It has
also included business customer focused
improvements. For more details see:
commbank.com.au/betterforyou.
Better for business
To simplify and improve our business
customers’ banking experience:
we removed 10 business banking
fees
we established a new team of
specialists to help small business
customers in financial difficulty
get their businesses back on track
(the team has reviewed 353 cases
to date)
we now provide real-time smart
alerts when balances are low or
high, or when there is an incoming
payment
we launched BizExpressTM,
enabling same day decisions
on simple business loans.
Focusing on Net Promoter Score (NPS)
Our goal is to rank number 1 among
major banks for both consumer and
business NPS.
NPS measures if we are meeting
customers’ needs and expectations by
asking them if they would recommend us
to their friends and family. As it tracks both
our Promoters and Detractors it provides
a more accurate measure of overall
sentiment than customer satisfaction.
We have consistently ranked number
1 in NPS for our mobile app and overall
internet banking. We are now working
hard to achieve improvements in our
consumer and business customer scores.
Mobile App NPS
Internet banking NPS
Consumer NPS
Business NPS
+37.2
OUR GOAL
#1
consumer NPS
#1
+35
+25
+15
+5
+35
+25
+15
+5
+30.9
+20
+15
+10
+5
0
-5
-10
-15
-20
0
-5
-10
-15
-20
-25
-30
-10.0
-22.4
business NPS
Jul 17
Jun 19
Jul 17
Jun 19
Jul 17
Jun 19
Jul 17
Jun 19
For NPS source information see the Glossary on page 310.
CBA
Peers
CBA
Peers
CBA
Peers
CBA
Peers
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Customers (continued)
Improving customers’ financial wellbeing
Financial wellbeing is important to
our customers and underpins the
Bank’s purpose.
In simple terms, it means staying on top of
every day, rainy day and one day finances.
To help customers understand their level
of financial wellbeing we have partnered
with the Melbourne Institute of Applied
Economic & Social Research. Our two-year
collaboration has culminated in a world-first
– Financial Wellbeing Scales that combine
how customers feel about their financial
wellbeing with objective banking data.
According to the observed data, there has
been a modest decline in financial wellbeing
over the past 12 months. More than one in
three customers are struggling with money
management and two in five are unable to
handle a major unexpected expense.
Working towards better financial health
We are using this research and our
partnership with Harvard’s Sustainability,
Transparency and Accountability Research
Lab (STAR Lab), to apply behavioural
science towards finding better ways to
serve our customers and to develop tools
that improve their financial wellbeing.
To help our customers better manage their
finances and make more informed financial
decisions, we have launched a range of
features in the CommBank app that enable
customers to monitor cash flows, track
spending, avoid fees and set savings goals.
This year alone, we have sent over 20 million
smart alerts and have helped customers
save $275 million in fees and charges.
Through our new tool, Benefits finder, we
are connecting customers with rebates and
benefits offered by government agencies or
third parties. We aim to help our customers
access $150 million entitlements annually.
We are also evolving our products and
how they are sold to ensure that customers
make informed choices, for example by
highlighting both negative and positive
features of a credit card before they
choose to apply.
For more information on the
CBA-Melbourne Institute research
visit commbank.com.au/fwb.
Smart alerts sent to customers
each week
500,000+
Changes to fees and charges
benefiting customers
$275 million
How the CommBank app
helps customers control
their finances
Every day finances
Manage day-to-day expenses and bills
Transaction
notifications
Spend tracker
Cash flow view
Receive a notification
when you spend or
have been paid
See where your
money is going by
category of spend
Get a complete view of
income, spending and
savings habits, including
trends over time
Credit card
reminders
Be notified when
your credit card
payment is due
Account details
Transactions
Goal
Saving for something?
Let’s set a goal to help you stay on track
Rainy day finances
Handle unexpected financial emergencies
Overdrawn alerts
High cost transaction alerts Emergency savings
Receive a real-time alert
when your account
becomes overdrawn,
and avoid a fee if settled
by midnight
Be notified of extra costs
involved in cash advances
on credit cards
Create an emergency fund
to prepare for unexpected
expenses
Set a goal
One day finances
Create savings goals and put money away for the future
Portfolio view
Goal tracker
Retirement calculator
See all your assets and
liabilities in one place
Set and track goals to
encourage saving
Estimate how much money
you may have when you retire
Outcomes from the Customer Advocate
review process
14 %
51 %
35 %
Customer Advocate agreed with the
Bank’s decision
Customer Advocate agreed with the
Bank’s decision but took further action to
deliver a fair and reasonable resolution
Customer Advocate disagreed with the
Bank’s decision and substituted a new
decision for the customer
Cases referred to the
Customer Advocate
1,022
Average days to resolve complaints
11.6
Listening to our customers
Addressing customer complaints
Advocating for customers
Taking complaints seriously and dealing
with them quickly, and in a fair and
transparent way, is critical to earning
our customers’ trust.
All staff are trained to work with customers
to resolve their complaints. The most
sensitive and complex complaints are
escalated to Group Customer Relations
(GCR).
If a complaint is not resolved within five
business days of receipt, a full internal
dispute resolution process is applied to
the matter, in accordance with ASIC’s
guidance. Using this criteria we handled
69,503 complaints this year, an increase
of 12% on 2018.
During the Financial Services Royal
Commission the Bank saw an increase in
the number of complaints. In November
2018, the Australian Financial Complaints
Authority was established further raising
awareness of the complaints process to
customers and the avenues available to
them. We are responding to the increase
in complaint volumes by adding more
resources in GCR and improving training
for frontline staff to help them better handle
customer complaints.
Customers who are unhappy about the
outcome of a complaint investigated by
CBA or Bankwest can refer it to the Bank’s
Customer Advocate for an independent
review. The Customer Advocate’s decisions
are final and binding on the Bank, but not
on customers who are still free to go to an
external dispute resolution body.
We are also doing more to identify and
fix the root causes of complaints so they
don’t recur.
Helping customers in hardship
Customers experiencing financial hardship
are supported by our Financial Assistance
Solutions team which works with the
customer to assess their situation and to
offer solutions tailored to their needs.
Solutions can include a period of reduced
payments, extension of the term of a loan
or debt restructuring.
This year we helped approximately 64,000
customers experiencing financial hardship.
The independent Customer Advocate
team champions fairness for customers
across the Bank – particularly for those
who are marginalised, disadvantaged,
or find the financial system difficult
to navigate.
The team works to remove barriers to
banking and improve products, processes,
systems and decision making. Using a
data-driven approach to review customer
complaints and identify poor customer
outcomes, the team is able to investigate
and fix problems before they become
systemic issues.
This extends to working with industry
bodies and specialist services to make
sure that new technology, products and
services developed by the Bank consider
the needs of all customers, while also
improving existing services to address
accessibility issues.
The team also engages more broadly
with the community to understand and
consider community needs. As part
of this work, the Customer Advocate
team developed a ‘Safe & Savvy’ guide
to help protect older people and their
families from financial abuse, scams and
frauds. The guide was distributed across
all branches in Australia and given to
community organisations. The program
has been widely supported by aged care
and community sector partners.
This year the team held a range of
community events, regional visits and
workshops focused on improving financial
inclusion, and covering issues such as
cognitive decline and improving access
for customers with a disability.
The team’s visits to regional areas
strengthen relationships between
community organisations and local Bank
staff, and allow the team to meet with
individual customers who have long-
standing concerns. These visits also help
to increase the Bank’s awareness and
understanding of important local issues.
The Customer Advocate team has
translated key resources – such as
the Banking in Australia Guide and the
Addressing Financial Abuse Guide
– into multiple languages. It has also
been helping to identify ways to improve
refugees’ understanding of the Australian
financial system.
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Community
Trusted and reputable
Focusing on reputation
and trust
Our goal is to be in the top quartile
among peer companies for
reputation improvement.
We measure our performance using
the independent RepTrak survey
conducted by Reputation Institute.
To underscore the importance of
rebuilding our reputation and trust,
executive leaders’ long-term variable
remuneration is in part linked to
relative improvements in our RepTrak
score (see page 95 for more details).
Reputation score versus peer companies
62.8
62.5
65.7
65.1
66.2
65.0
62.8
60.6
57.1
56.0
46.9
48.0
OUR GOAL
Top
quartile
among peer
companies
for reputation
improvement
63.2
65.2
60.6
59.4
56.3
54.6
53.0
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
CBA
Average of peer companies
Source: RepTrak Australia, Q2 June 2019, Reputation Institute. Peer companies is the average of 16 of the largest
consumer-facing companies listed on the ASX.
Community investment
Earning trust
$281 million
Includes cash, volunteering,
forgone revenue and project costs
CommBank Foundation
community grants
236
Employee pro bono and
volunteering hours
18,000+
Recently, we have failed to meet
community expectations and this has
damaged our reputation and undermined
the community’s trust in us. Trust is
the cornerstone of our business as it
underpins our ability to operate and
create value for our stakeholders.
To earn trust we need to show that we
are trustworthy. We know that this will
take time and will require us to consistently
demonstrate our actions. We are
focused on:
being capable and reliable
doing the right thing
improving stakeholder outcomes.
Making a positive
contribution to society
Given our heritage, and the role we play
in the economy and the community, we
must make a positive and meaningful
contribution to society.
CommBank Foundation
The CommBank Foundation, our people’s
charity, has been supporting the wellbeing
of the Australian community for more than
100 years. Under our current Community
Grants program, we have made a three-
year commitment to award more than
$9 million to 236 community organisations.
This year we celebrated 20 years of
supporting the Humour Foundation’s
Clown Doctors, with more than $5.5 million
donated during this time. Clown Doctors
use humour to improve the quality of life of
children and their families in every major
children’s hospital in Australia.
Investing time in the community
Our people continue to share their time
and expertise with the community. In 2019,
more than 2,100 students worked with
a Commonwealth Bank mentor through
the Australian Business and Community
Network (ABCN). For 12 years running, CBA
employees have supported students across
Australia through programs on leadership,
career planning and entrepreneurship.
ABCN research shows that 93% of students
who participate in a flagship ABCN program
complete year 12, or equivalent; compared
with the national average of 74%, or 61% for
disadvantaged students.
Through our pro bono services, employees
apply the skills they use at work to help
community organisations achieve their
strategic objectives. This year our flagship
partner, Jawun, reached the milestone of
placing 3,000 secondees with Aboriginal
and Torres Strait Islander organisations.
We have been proud participants in
this program since 2011 with 138 of our
employees having worked with indigenous
community groups and businesses.
Little Wings for children in need
Voted as the CommBank Foundation New South Wales
grant recipient from 2017 to 2019, Little Wings transports
sick children from rural areas to hospital for treatment.
This year, our people’s generosity enabled Little Wings to
purchase a brand new twin engine aircraft to ensure they
can continue to fly safely across the state.
In recognition of the Foundation’s support, Little Wings
invited Commonwealth Bank staff to name the new plane.
The name Caladrius was selected. Caladrius takes its name
from a Roman mythical bird that can take away sickness
and provide healing.
57.1
46.9
2008
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Community (continued)
Supporting financial education
Financial wellbeing for the community
Start Smart
Start Smart is a free financial education
program that has assisted more than
3 million students in learning important
money management skills. This year,
we had more than 427,500 primary and
secondary students participate in Start
Smart classes. It is the world’s largest
in-school financial education program
of its kind.
ASB GetWise
ASB GetWise is New Zealand’s largest
youth financial education program that
teaches basic financial literacy skills,
including identifying needs and wants,
establishing good savings habits, and
learning to budget. This year, it delivered
3,369 workshops to 334 schools,
and reached more than 84,600
registered students.
Commonwealth Bank Teaching Awards
Now in their third year, the Commonwealth
Bank Teaching Awards were created
through a partnership between the
Commonwealth Bank and Australian
Schools Plus. The awards recognise
educators using exceptional leadership
skills to positively influence student
outcomes in challenging and socially-
diverse communities.
This year 12 recipients were awarded a
$45,000 Teaching Fellowship to fund
a strategic project in their school as
well as further their own professional
development.
We believe that financial education is
key to the long-term health and personal
success of younger generations.
Building on our 85-year commitment to
financial education, we continue to help
young Australians learn the skills they need
to successfully manage their finances.
Investment in education programs
$13.1 million
Students provided with financial
education
427,500+
CBA Start Smart
84,600+
ASB GetWise
CBA school banking participants
244,600+
Recognising great teachers
Yasodai Selvakumaran is a Humanities Teacher who specialises in
History and Society & Culture at Rooty Hill High School. Yasodai’s
outstanding classroom practice and leadership, collaboration with
other educators, and advocacy for the teaching profession led to a
2018 Commonwealth Bank Teaching Award.
The Award has enabled Yasodai to create a project looking at how
teachers can develop more innovative approaches to learning and
assessment. Yasodai has also used the funds to pursue post-graduate
studies in Education Research at Deakin University and to participate in
the International Congress for School Effectiveness and Improvement
in Stavanger, Norway, in January 2019.
Yasodai was shortlisted as a Top 10 Finalist for the Global Teacher
Prize 2019.
Our purpose includes improving the
financial wellbeing of the communities we
serve. We understand that communities
can be impacted by events that are out
of their control, and we try to find ways
to help them.
Improving financial wellbeing by
addressing financial abuse
We have an important role to play for
customers, employees and members
of our community who are impacted by
domestic and family abuse.
Over three years, our Domestic and
Family Violence Assistance Program has
supported more than 6,000 customers
and their families experiencing domestic
or family violence. The program provides
vital access to trauma counselling
services to anyone who calls the service,
and appropriate referral support for our
customers, including for help with their
financial wellbeing.
Through this work, and in close
collaboration with experts in the sector,
we’ve seen the impact on those directly
affected, and on their wider communities.
We’ve also seen the harm caused by
financial abuse, when an abuser uses
money and assets as a means to gain
power and control over their partner
or relative.
The Bank has committed $25 million to
support customers impacted by domestic
violence. We have pledged a further
$5 million to support those impacted
by financial abuse through domestic
and family violence. In partnership with
leading community organisations, we
are making these investments to support
those affected achieve long-term
financial independence.
Support for drought affected
communities
This year we provided tailored assistance
for agribusiness and commercial business
customers in drought affected areas to
give them peace of mind, as well as the
flexibility to make arrangements to get
their businesses back on track.
Through the collective efforts of our
people, customers and the Australian
Red Cross we raised more than $7 million
to help farmers and communities in
affected regions. Almost $4 million was
raised through CANGive, the fundraising
tool on the CommBank app.
Funds committed to domestic violence
and financial abuse assistance
$30 million
Donations raised for drought affected
communities
$7+ million
Helping our farmers
Farmers across Australia understand
the effects of drought.
Moree Branch Manager, Marla
Hosegood, saw first-hand how
her customers were suffering and
wondered what more could be done.
Backed by her colleagues across
New South Wales and the Australian
Capital Territory, Marla helped raise
funds for the Burrumbuttock Hay
Runners, a group that takes donated
hay to drought affected farmers.
Nationally, Commonwealth Bank
branches raised more than $462,000
for the Burrumbuttock Hay Runners.
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Our people
Energised,
accountable
OUR GOAL
Top 10%
globally for
our employee
engagement
score
Focusing on employee
engagement
To deliver our strategy we must
have an energised and accountable
team that cares deeply about our
customers and is committed to
our purpose and values.
Our purpose of improving financial
wellbeing for our customers and
communities provides clarity to our
people, and helps them connect the
work they do with what we are aiming
to achieve as a bank.
Our values state what we stand for,
and set expectations for our actions
and behaviours:
We do what is right
We are accountable
We are dedicated to service
We pursue excellence
We get things done
To measure how engaged our people
are, and to assess progress on
embedding our strategy, purpose and
values, we conduct the ‘Your Voice’
survey twice a year. An Employee
Engagement Index score is calculated
based on responses to questions
relating to satisfaction, commitment,
advocacy and pride.
Employee Engagement Index score (%)
72%
67%
68%
83%
CBA
Mar 2018
CBA
Oct 2018
CBA
Apr 2019
Global
Top 10%
threshold
Number of employees
Restoring pride
48,238
Salaries and superannuation paid
to our people
$5.9 billion
Our recent employee engagement scores
show the impact of the public scrutiny of
the Bank and the financial services industry
over the past year. The lowest score of
67% was recorded during the Financial
Services Royal Commission hearings last
August and September. These events had
a negative impact on our people, especially
on their pride in the organisation.
There is much work ahead to restore pride
and to achieve our ambitious target of
being in the top 10% globally for employee
engagement. The small improvement
of 1% in the most recent survey is at
least a step in the right direction. The
strong participation rate of 88% was
also encouraging, as was the 92% score
for each of: connection to our purpose;
holding ourselves and others to high
standards; and understanding of our
customers and their needs.
Strengthening our culture
The Bank’s culture is set by our leadership
so during the year we held a series of
leadership development forums designed
to equip our leaders with the mindset
and behaviours required to lead cultural
and behavioural change throughout the
organisation. These leadership forums were
also designed to support the objectives of
our APRA Remedial Action Plan.
To make tangible and lasting changes
to our culture, and to deliver a simpler,
better bank, we are helping our people
develop five key skills: self-reflection;
trust; constructive challenge; giving and
receiving feedback; and the ‘Should We?’
test. These skills are being discussed,
developed and embedded through team
workshops and ongoing check-ins
and reviews.
In addition to ensuring our people
understand what is expected of them,
we also need to encourage and support
them to speak up when they feel our
values have been compromised.
The Bank’s whistleblowing policy outlines
the processes for investigating and
resolving any misconduct and related
issues that have been reported through
our SpeakUP hotline or to senior leaders.
The SpeakUP hotline allows an individual,
including a current or former employee,
contractor, consultant or supplier, to
anonymously raise a conduct issue.
The whistleblowing policy prohibits any
form of retaliation or victimisation, and
includes protection from termination
of employment, harassment and
discrimination. This year we had 311
misconduct cases recorded under the
SpeakUP program, of which 30 were
whistleblower reports.
Helping our people pursue their passions
CBA has teamed up with Cricket Australia to make cricket
more inclusive and accessible for all. In addition to our
ongoing support – from grassroots to elite female cricket
– our sponsorship funding extends to Indigenous and
all-abilities cricket initiatives.
“I was born profoundly deaf and 10 years ago I founded the
deaf cricket club. We struggled for funding for years but since
CommBank came on board, cricket is the first non-Paralympic
sport to have its national disability teams fully funded.
“We were about to compete in the 2018 Deaf T20 World
Cup in India and visited a local deaf school in New Delhi.
I just remember being swarmed by hundreds of kids,
all trying to get photos. It was a surreal moment.”
Andrew, Commonwealth Bank Group Operations
Instagram page @commbank
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Our people (continued)
Building a diverse, inclusive culture
Average hours of training per employee
Skilling our workforce for the future
There is a strong correlation between
a diverse and inclusive workforce and
positive outcomes for our customers,
shareholders and the community.
Our Global Diversity and Inclusion Strategy
seeks to build an inclusive culture that
embraces the diversity of our people
and creates a sense of connection and
belonging. This strategy is built on the
experiences of our people and customers.
It aims to build understanding and to
ensure fair and inclusive decision making.
Our employee-led networks foster
inclusion and inform solutions for our
people and our customers. They include:
WeCAN (gender equality), Advantage (life-
stage and age), Yana Budjari (Aboriginal
and Torres Strait Islander peoples and
cultures), Unity (sexual orientation and
gender identity), Mosaic (cultural diversity),
and Enable (accessibility and inclusion for
people with a disability).
Our key workforce diversity metrics are
reported on pages 301 and 302. This
includes our Cultural Diversity Index,
which shows that overall the Bank is more
culturally diverse than the Australian
population (based on the Australian
census). We also have a commitment to
role model reconciliation and believe our
Australian workforce should have the
same proportion of Aboriginal and Torres
Strait Islander peoples as the broader
community, so we have set a target to
reach this level by 2026.
We continue to make progress towards
achieving our women in leadership targets
through regular reporting of gender
metrics, inspecting decisions to ensure
they are fair and equitable, and listening
to our people’s experiences.
We continue to be committed to gender
pay equity, reviewing it throughout the year
and as part of our annual remuneration
review process. Detailed information on
gender pay equity is provided on page 301.
We also believe that flexible working
practices, when used as a strategic tool to
improve business outcomes and employee
wellbeing, can strengthen a performance
culture. Through our iCANFlex program
we provide tools that enable our people to
work in a way that makes sense for them.
We know that the sharing of caring
responsibilities for children promotes
workforce participation. With this in mind
we have been working to ensure that
our approach to parental leave is gender
inclusive, particularly to improve men’s
access to parental leave. Across our
Australia-based employees, we continued
to see more men access parental leave.
Promoting employee
wellbeing
The health, safety and wellbeing of
our people is of paramount importance.
We work to continuously improve the
safety of the workplace, including in key
areas such as customer aggression,
mental health and work-related driving.
We also implement an employee wellbeing
program. We maintain seven permanent
health and wellbeing hubs in our offices,
and have introduced two mobile hubs to
service workplaces outside city centres.
The hubs include new health technology
to test overall wellbeing, hearing, eye
health and stress. We have recorded
78,000 employee health interactions in
the last 12 months.
We provide a confidential telephone-
based service, called My Coach, which
provides our people and their immediate
family members with access to a
team of professional coaches who are
trained to assist with a wide range of
issues including family and relationship
problems, challenges at work, dealing
with grief, managing stress and guidance
on parenting. Our online wellness portal,
Thrive, also offers personalised support,
resources and information for physical
and psychological health and wellbeing,
including financial wellbeing.
CBA was a proud recipient of the ‘Best
Health and Wellbeing Program’ at the 2018
Australian Human Resources Awards.
Stories from our people
Our people bring a multitude of
backgrounds and perspectives to
work where they share their ideas,
talent and energy. We celebrate their
unique stories on our ‘Humans of CBA’.
Instagram page @commbank
“ What I’ve learned
from working at
CommBank, is that it’s
not about how much
you know, it’s about
how much you’re
willing to learn.”
Jeffery, Commonwealth Bank
Risk Associate
25.2 hours
% employees working flexibly
73.9%
% of employees taking parental leave
who are men
38.3%
Women in leadership
Executive Manager
and above roles
39.1%
Manager and
above roles
45.0%
40%
2020 target
45%
2020 target
We support our people by helping them
to build the capability and skills to do
their jobs well, adapt to new ways of
working, and deliver the best outcomes
for our customers.
The Group provides an average of
25.2 hours of training per employee, which
includes mandatory learning to ensure
risk and development opportunities are
managed effectively.
The way we work and the work we do are
changing rapidly. Some work will go and
some will change and new skills will be
required, so it is our responsibility to make
sure we support and reskill our people.
Current initiatives and pilots include the
reskilling of some of our people as cyber
security analysts, which helps address
an industry-wide gap in cyber security.
We also provide rolling rotations and 1-5
day shadowing opportunities to help our
people expand their network, learn new
skills and gain broader career experiences.
Indigenous career opportunities
Our Indigenous Careers team has
partnered with Indigenous and
community organisations to deliver career
opportunities. 69 Indigenous trainees were
provided with school-based and full-time
traineeships. 48% of the trainees secured
employment with the Bank on completion
of their traineeships.
As a 10x10 partner of the CareerTrackers
Indigenous Internship Program, we provide
25 internship opportunities each year for
Indigenous university students. Since 2015,
this partnership has provided a pathway
for 25 graduates into our Graduate
Program with a further six graduates
joining us next year.
Our Enterprise Services Indigenous
Employment Program creates alternative
pathways into IT careers at CBA, and
supports our goal of building Indigenous
representation in our domestic workforce.
This program was a finalist in the 2018
Australian Human Resources Institute Stan
Grant Indigenous Employment Award.
Closing the gap in Indigenous employment in tech
When Jake was growing up on the Central Coast of New South Wales, he never
expected he would end up working in the tech industry.
Jake applied for various roles but did not get any feedback on his job applications.
He says, “It seemed like I just wasn’t being given a chance to prove myself.”
Then Jake learned about an opportunity to explore a career in tech through CBA’s
Enterprise Services Indigenous Trainee Program.
The 12 month program offers on-the-job training and certified skills to give trainees
industry-recognised qualifications once they finish. Almost 30 trainees have
passed through the training program, with many continuing their careers in areas
as diverse as robotics and cyber security.
Jake has recently accepted a role as an Associate Analyst at CBA and says,
“ If it wasn’t for this opportunity, I wouldn’t be working in this area at all. Since joining,
I’ve never looked back.”
32
33
Commonwealth Bank of Australia Annual Report 2019 Strategic
report
Balanced
outcomes
Financial
performance
Risk
management
Corporate
governance
Directors’
report
Financial
report
Other
information
Shareholders
Long-term
sustainable
returns
OUR GOAL
Top
quartile
TSR
outperformance
relative to
peers
Focusing on total
shareholder returns
Our aim is to deliver sector-leading
returns and a sustainable dividend
stream.
We achieve this by focusing on both
operating performance and capital
generation.
Total shareholder return
Dividend per share
Fully franked, cash basis
35%
31%
429
431
431
21%
75%
80%
88%
Returned to shareholders as dividends
Delivering for shareholders
$7.6 billion
Australian ownership of CBA
78%
Direct ownership by retail shareholders
51%
Dividend amount received by the
average retail shareholder
$3,702
The quality of the Bank’s franchise,
including our customer, distribution and
technology strengths, has supported
strong and consistent operating
performance over time. In particular, the
strength of our performance in deposits
means that we have reliable access to
lower cost funding. This enables us to
continue to support our customers in
different economic environments.
We also manage our balance sheet
prudently to remove earnings volatility, and
focus on risk-adjusted returns to efficiently
allocate capital across our businesses.
The combination of performance,
resiliency, capital discipline and credit
quality management helps us to deliver
returns and dividends for our shareholders.
As a result of these strengths CBA has
had sector-leading return on equity and
premium valuation and trading metrics.
Income for shareholders
and the economy
This year our full year dividend was
$4.31 per share, returning $7.6 billion
to shareholders. With more than 830,000
shareholders holding CBA shares directly,
and with millions more invested through
their superannuation, we understand the
importance to shareholders of the income
they receive via their dividends.
That is why our dividend policy seeks to:
pay dividends at strong and sustainable
levels; target a full-year payout ratio of
70-80%; and maximise the benefits to
shareholders by paying fully franked
dividends.
With Australians owning 78% of the Bank,
the dividends we pay also directly support
the Australian economy.
We are also one of Australia’s largest
taxpayers and had a tax expense of
$3.4 billion in FY19.
Sustaining performance
Our strategy to become simpler and better
helps position the Bank to continue to
deliver strong and sustainable returns in
the current economic environment of lower
credit growth and lower interest rates.
By divesting non-core businesses we
are removing complexity and costs. This
allows us to concentrate on our key areas
of competitive advantage in retail and
commercial banking, and to invest in our
market-leading digital banking offering.
Our work to deliver better risk and
customer outcomes is focused on
earning the trust of our customers and
the community.
Combined with our long-term balance
sheet settings and strong capital position,
we are positioned to continue supporting
customers and to performing for all
stakeholders, including shareholders.
Return on equity
Cash, continuing operations
15.3%
13.6%
12.5%
Capital
Common Equity Tier 1 capital ratio
(APRA)
10.1%
10.1%
10.7%
Earnings per share
Cash, continuing operations
545.4
510.3
480.8
1 year
3 years
5 years
2017
2018
2019
2017
2018
2019
2017
2018
2019
2017
2018
2019
Cash NPAT1 payout ratio
Total shareholder return (TSR) combines
both share price appreciation and
dividends paid. It shows the total
return to shareholders over time.
The Bank seeks to pay cash dividends at strong
and sustainable levels. This year 88% of cash net
profit after tax is being returned to shareholders
as dividends.
1
Cash NPAT inclusive of discontinued
operations.
Return on equity (ROE) measures the Bank’s
profitability. It represents the net profit
generated as a percentage of the equity
shareholders have invested.
Our Common Equity Tier 1 (CET1) capital
ratio measures the Bank’s ability to absorb
unexpected losses. It compares the Bank’s
core capital with its risk weighted assets. Our
CET1 ratio is above APRA’s ‘unquestionably
strong’ benchmark of 10.5%.
Earnings per share (EPS) measures the
Bank’s earnings growth. It is calculated by
dividing net profit after tax by the number
of shares on issue.
34
35
Commonwealth Bank of Australia Annual Report 2019
Strategic
report
Balanced
outcomes
Financial
performance
Risk
management
Corporate
governance
Directors’
report
Financial
report
Other
information
Good business
practice
Open and transparent engagement
Regulators
We have adopted a more proactive
and transparent approach to engaging
with regulators.
Our new Regulatory Engagement
Standard aims to strengthen our
relationship with regulators by outlining
a clear process and responsibilities for
handling requests, managing interactions
and escalating issues.
We also have a substantial program of
change underway in response to the
Financial Services Royal Commission
Final Report, and as part of our APRA
Remedial Action Plan. The Bank has
participated in more than 60 government
inquiries in recent years which have led
to changes in legislation, regulation and
industry practice.
We are focused on responsible,
balanced and transparent policies
and decisions.
Our new Code of Conduct brings together
the policies and standards of behaviour
that help us deliver better outcomes for all
stakeholders. The Code guides how we
act, solve problems and make decisions.
In the same way, the Australian Banking
Association Code of Banking Practice
outlines how a bank should conduct itself
in meeting the needs of customers. We
were active participants in developing
the new code which came into effect on
1 July 2019. It brings important changes
including plain English contracts, more
inclusive and accessible services, and
improved transparency around fees.
We engage with our stakeholders to
understand and respond to the issues
they consider material. We have continued
to consult with our stakeholders to solicit
feedback on our approach and to ensure
there are appropriate channels for issues
and opportunities to be raised, discussed
and incorporated into our processes.
Political donations
Our Group Government Relations Policy
explicitly precludes the Bank from making
political donations. However, we pay
to attend some political events aimed
at the business community. To attend
these events in the 2019 financial year
we contributed $73,000 to the Australian
Labor Party, $75,720 to the Liberal Party of
Australia and $13,750 to the National Party
of Australia. These payments are disclosed
in line with the requirements of Federal and
State governments.
Industry associations
The Bank is a member of a number of
industry associations and we participate
both through those associations and
directly with policy makers in the
development and advocacy of public
policy positions. Industry associations
usually represent a range of members with
diverse interests, so the policy positions
adopted by an industry association should
not be assumed to represent the views of
the Bank.
We are committed to doing
business in a way that is fair,
responsible and sustainable.
We are guided by global
frameworks and standards.
The United Nations
Sustainable Development
Goals are 17 goals that
provide a framework to
address issues such as
poverty, hunger, inequality
and environmental
degradation. We identify
and map the SDGs that
are most relevant to our
strategy and stakeholders.
We are a signatory
to the United Nations
Global Compact which
encourages businesses
to adopt sustainable
and socially responsible
policies. We are committed
to implementing the
UNGC’s principles covering
human rights, labour,
the environment and
anti-corruption.
Our non-financial reporting
is presented in accordance
with the Global Reporting
Initiative Standards (Core
option) which provides
global standards for
sustainability reporting.
Our GRI content index is
available at: commbank.
com.au/investors.
We have adopted the
Equator Principles III, a set
of standards to assess,
mitigate, manage and
monitor Environmental,
Social and Governance
(ESG) risks in project-
related financing. Our EPIII
reporting is available at:
commbank.com.au/EPIII.
We are a supporter of
and report in line with
the recommendations
of the Financial Stability
Board’s Task Force on
Climate-related Financial
Disclosures (TCFD).
The TCFD contains
recommendations for
voluntary and consistent
climate-related financial
risk disclosures. See the
Our approach to addressing
climate change section
on page 55 for more
information.
Listed on the Dow Jones
Sustainability Index (DJSI)
Asia-Pacific.
Listed on the FTSE4Good
index since 2009 for
demonstrating strong
ESG practices.
We participate in the CDP
Climate Change survey,
and in 2018 scored ‘B’ for
taking co-ordinated action
on climate change.
36
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Commonwealth Bank of Australia Annual Report 2019 Strategic
report
Balanced
outcomes
Financial
performance
Risk
management
Corporate
governance
Directors’
report
Financial
report
Other
information
Good business practice (continued)
Greenhouse gas emissions per FTE
(Scope 1 & 2), Australia
Taking a responsible approach
2.1
Low carbon financing
$5.1 billion
As a major financial institution, our
influence extends beyond our direct
operations to our customers and suppliers.
We continue to strengthen our responsible
lending, investing and procurement
practices and use our influence to improve
environmental, social and economic
outcomes.
This year the Bank developed a new Group
Environmental and Social Policy.
It consolidates existing external positions
and outlines our commitments to managing
the environmental and social impacts of our
business. More information on the policy is
available at commbank.com.au/policies.
Responsible lending
Assessing potential transactions for
Environmental, Social and Governance
(ESG) risks is a key step in our due diligence
process. All Institutional Bank loans, as well
as large loans in other business units, are
evaluated through the Bank’s compulsory
ESG risk assessment process which
completes an initial assessment based on
country of operations and over 500 industry
sectors. The system relies on escalation
and good judgement with additional due
diligence required for transactions with a
medium or high ESG risk profile. The industry
sector risk ratings that form the basis of the
ESG risk assessment process are reviewed
annually.
Our client relationship, risk and product team
members complete refresher training on
ESG risks each year. We update this training
annually to capture new developments in
ESG risks.
Project finance loans follow the Equator
Principles’ comprehensive environmental
and social risk management process.
Sustainable Development Goals
The Sustainable Development Goals (SDGs) were adopted by 193 countries,
including Australia and New Zealand in 2015, in support of the UN’s Sustainable
Development Agenda. We have identified the SDGs that are most relevant to
our business and stakeholders.
Customers
Community
Our people
We show our customers that we are on
their side through service excellence,
supporting financial wellbeing, good
customer outcomes and advocacy,
and digital innovation.
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.
Shareholders We deliver sustainable financial
performance through sound conduct,
culture, governance, accountability,
remuneration and responsible
business practices.
38
Responsible investing
Within our wealth management
businesses, we continue to take into
account ESG factors when making
investment decisions to ensure we
deliver sustainable long-term investment
outcomes.
Commonwealth Private developed two
new ESG-focused investment solutions –
an Ethical Model Portfolio and an Ethical
Australian Shares Separately Managed
Account.
Colonial First State (CFS) announced
that it will no longer invest in companies
associated with the production of tobacco
and controversial weapons, and expects
to be divested from these securities by the
end of 2019.
Building on our commitment to the
Principles of Responsible Investment (PRI),
CFS took part in two global collaborative
initiatives supported by the UN. We
became a founding signatory to the United
Nations Environment Program – Finance
Initiative (UNEP FI) Tobacco Free Finance
Pledge, and were one of the first Australian
signatories to an open letter calling for
the removal of controversial weapons
manufacturers from global investment
indices.
Number of employees trained on
responsible lending, investment
and procurement in FY19
1,055
Percentage of electricity sourced
from renewable energy
65%
Human rights and modern slavery
We are committed to maintaining and
improving processes to avoid any human
rights violations related to our operations,
supply chain, and our products and
services. In compliance with the United
Kingdom’s Modern Slavery Act 2015,
we publicly report on our actions in our
modern Slavery and Human Trafficking
Statements which are available at
commbank.com.au/policies.
With the passing of new modern
slavery legislation in Australia, we are
strengthening our supply chain due
diligence processes and are working
to better understand our impacts.
We continue to be an active member of
the Mekong Club, a not-for-profit
association that engages, inspires and
supports the private sector to lead the fight
against slavery in Asia. As a member of
the working group, we have also delivered
awareness sessions on the issue of
modern slavery to our people in Sydney
and Hong Kong, and have provided in-kind
support to the association.
Responsible procurement and supplier
diversity
We partner with more than 5,000 suppliers
to procure over $4.3 billion of products and
services in the countries we operate in.
Our supplier governance processes,
supplier engagement, and supplier code
of conduct help us to minimise ESG risks
in our supply chain.
In preparation for the Australian modern
slavery legislation, we have commenced a
program of work to embed the legislated
requirements into procurement policies,
processes and capabilities. We have also
launched a pilot program with a cross-
section of 30 suppliers to survey the risk
of modern slavery in our supply chain.
We are continuing our Indigenous Business
Second Tier program, a partnership
between the Bank and more than 25 key
suppliers that explores opportunities for
Indigenous businesses across the Group’s
supply chain. In addition to this program,
key initiatives include collaborating with
industry partners to set best practice
standards, delivering cultural capability
training for procurement managers,
and launching a new supplier diversity
website that provides direct access to
the procurement team.
Green mortgage initiative
We are launching an innovative green
mortgage initiative that rewards CBA
mortgage customers by providing
cashbacks to those who have certified
solar panels installed and meet the
eligibility criteria.
We are also encouraging and
supporting customers who want to
install small scale renewables and
make their homes more energy
efficient.
Residential properties make up a
substantial portion of the property
sector and contribute to greenhouse
gas emissions.
As Australia’s leading mortgage
provider, we are in a strong position
to innovate to build awareness of
and support the transition to a low
carbon economy.
Our supplier diversity program continues
to grow with $6 million spent annually with
27 Indigenous businesses. This spend
includes $3 million directly with suppliers
and a further $3 million second tier spend.
Climate change
We play an important role in supporting
Australia’s transition to a low-carbon
economy and are committed to reducing
our environmental footprint. Our climate-
related disclosures on page 55 outline
our commitments to reduce our carbon
emissions. They include continuing to
expand our branch solar panel network
and our participation in RE100 – whereby
we have undertaken to source 100% of our
electricity needs from renewable energy
sources by 2030.
39
Commonwealth Bank of Australia Annual Report 2019 Strategic
report
Financial
performance
Risk
management
Corporate
governance
Directors’
report
Financial
report
Other
information
Financial
performance
Group performance
Divisional performance
41
48
Group performance1
Group profit
Group profit, also known as Net Profit after Tax (NPAT), is a key measure of our financial performance. Our profitability directly impacts our ability
to pay dividends at strong and sustainable levels. NPAT represents total operating income earned less the operating expenses, loan impairment
expense and tax expense incurred during the year. We report NPAT on a statutory and cash basis. The statutory NPAT complies with the
requirements of the Corporations Act 2001, Australian Accounting Standards and International Financial Reporting Standards (IFRS). The cash
NPAT is management’s preferred measure of the Group’s financial performance. It excludes items that tend to be non-recurring in nature and
are not considered representative of the Group’s ongoing financial performance (non-cash items). We use the cash NPAT to present a clear and
consistent view of our financial performance from period to period. The reconciliation between the statutory NPAT and cash NPAT is provided
on page 45.
Cash NPAT decreased 5% reflecting
a continued challenging operating
environment, though business
fundamentals remained strong. The
decrease was driven by a 2% reduction
in total operating income, a 2% increase
in operating expenses and an 11% increase
in loan impairment expense.
risk and compliance program costs
of $358 million. This includes costs
associated with implementing the Royal
Commission and APRA Prudential
Inquiry recommendations and continued
enhancement of our financial crime
compliance capabilities
insurance recoveries of $145 million
Group profit for the year includes a number
of notable items:
in relation to the AUSTRAC civil penalty
incurred in FY18
provisions of $918 million for remediation
of historical aligned advice issues,
wealth and banking customer refunds
and associated program costs as we
continued to address the full range of
issues impacting our customers
the acquisition of Aussie Home Loans
and eChoice in the prior year resulting
in the consolidation of $275 million of
operating income and $269 million of
operating expenses for the year.
Notable items are outlined in detail on
pages 42-43.
Cash NPAT ($m)
5%
$8,492m
FY19
FY18
8,492
8,915
Statutory NPAT ($m)
8%
$8,360m
FY19
FY18
8,360
9,057
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 2019 to
$4.31 per share, in line with the prior year
full year dividend. The full year dividend
payout ratio (cash basis) was 88%.
The final dividend will be fully franked
and will be paid on 26 September 2019 to
owners of ordinary shares at the close of
business on 15 August 2019 (Record Date).
Shares will be quoted ex-dividend
on 14 August 2019.
The Group continues to offer a dividend
reinvestment plan (DRP) under which
shareholders can reinvest all or part of any
dividend paid on their shares in additional
shares instead of receiving the dividend
in cash. No discount will be applied to
shares allocated under the plan for the final
dividend. The deadline for notifying change
to participation in the DRP is 16 August
2019. The DRP for the 2019 final dividend
is anticipated to be satisfied in full by an
on-market purchase and transfer of
shares.
The Board’s determinations on dividends
are guided by the Group’s dividend policy
which provides that the Group will seek to:
target a full-year payout ratio of 70%
to 80%
maximise the use of its franking account
pay cash dividends at strong and
by paying fully franked dividends.
sustainable levels
Full-year dividend ($ per share)
1
0
4
.
8
1
.
2
%
5
7
3
8
.
1
4
1
Y
F
4
6
3
.
0
0
2
.
%
6
7
4
6
.
1
3
1
Y
F
0
2
4
.
2
2
2
.
%
5
7
8
9
.
1
5
1
Y
F
0
2
4
.
2
2
2
.
%
7
7
8
9
.
1
6
1
Y
F
9
2
4
.
0
3
2
.
%
5
7
9
9
.
1
7
1
Y
F
1
3
4
.
1
3
2
.
2
%
0
8
0
0
2
.
8
1
Y
F
1
3
4
.
1
3
2
.
2
%
8
8
0
0
2
.
9
1
Y
F
0
2
3
.
8
8
.
1
%
3
7
2
3
.
1
1
1
Y
F
4
3
3
.
7
9
.
1
%
6
7
7
3
.
1
2
1
Y
F
Final
Interim
Payout ratio (%)
For further details on dividends, refer to Note 8.4 on page 199 in the Financial report.
1
2
Unless otherwise stated, all information in the Group performance section is presented on a continuing operations basis.
Details of the Group’s discontinued operations are provided on page 45 and Note 11.3 on page 260 in the Financial report.
Payout ratios include the impact of notable items. Excluding the impact of notable items, payout ratios would be 80% in FY19 and 73% in FY18
(comparative restated).
40
41
Commonwealth Bank of Australia Annual Report 2019 Group performance (continued)
Operating income
Operating expenses
Operating income includes net interest income and non-interest income, such as, other banking income including lending fees and commissions,
funds management income and insurance income. Net interest income is the key contributor to the Group’s results as lending and deposit taking
are the Group’s primary business activities. Net interest margin or NIM is an important measure of our financial performance representing the
return on our interest earning assets (e.g. home loans) after accounting for the costs of funding these assets (e.g. deposits).
Operating expenses include salaries and other benefits paid to staff, the cost of our IT systems and infrastructure, property and other costs.
Managing costs with a focus on simplifying our processes and business is one of the key priorities for management. We use the ratio of operating
expenses to total operating income to assess and manage the efficiency of our business.
Excluding notable items, net interest
income decreased 1%. The key drivers
were:
continued growth in home loans
and deposits offset by a decrease in
business and corporate loans as a result
of portfolio optimisation initiatives and
continued focus on risk-adjusted returns
customers switching from interest-only
and investor home loans to principal
and interest, and owner-occupier home
loans with lower interest rates
elevated short-term funding costs
during the period.
Excluding notable items, non-interest
income decreased 5%. The key drivers
were:
the reduction and removal of certain
fees and charges and the introduction
of pre-emptive alerts on overdrawn
accounts as we continued focusing on
improving customer outcomes
lower volumes of initial financial advice
fees and removal of ongoing service
fees in relation to our financial planning
business from February 2019
higher insurance claims as a result
of significant weather events during
the year.
Operating income for the financial year
ended 30 June 2019 included $275 million
of operating income (30 June 2018:
$228 million) relating to the consolidation
of Aussie Home Loans and eChoice. This
has been included in notable items.
Total operating income ($m) cash basis
2%
$24,407m
FY19
FY18
24,407
24,914
Net interest income
Other banking income
Funds management income
Insurance income
Total operating income excluding
notable items cash basis
Notable items
Total operating income cash basis
FY19
18,125
4,788
1,072
147
FY18
18,347
4,982
1,119
238
24,132
24,686
275
24,407
228
24,914
% change
1%
4%
4%
38%
2%
21%
2%
Net interest margin (%)
5 bpts
2.10%
FY19
FY18
2.10
2.15
For further details on operating income, refer to Note 2.1 on page 130, Note 2.2 on page 132 and Note 2.3 on page 137 in the Financial report.
42
Including notable items, operating
expenses increased 2% as we continued
to remediate customers for past issues,
respond to regulatory findings and
enhance our financial crimes compliance
capabilities. The costs associated with
addressing these issues are included
within the notable items discussed below.
Excluding notable items, operating
expenses increased 2% driven by:
Staff expenses increased 3% as a result
of wage inflation and a 1% increase in full
time equivalent staff (FTE), predominately
in risk and compliance.
Occupancy and equipment expenses
decreased 4% due to lower rental and
depreciation expenses as a result of
branch network optimisation and lower
development costs for new corporate
offices, partly offset by annual rental
reviews.
Information technology services
increased 8% due to higher investment
spend particularly on risk and compliance
initiatives.
Other expenses decreased 1% due
to lower marketing costs and lower
discretionary spend.
Total operating expense ($m) cash basis
2%
$11,269m
FY19
FY18
11,269
10,995
Staff costs
Occupancy and equipment
Information technology
Other expenses
Total operating expense excluding
notable items cash basis
Notable items
Total operating expense cash basis
FY19
5,524
1,079
1,904
1,362
9,869
1,400
11,269
FY18
5,369
1,128
1,766
1,379
9,642
1,353
10,995
% change
3%
4%
8%
1%
2%
3%
2%
The increase in operating expenses
and the reduction in operating income
led to a higher operating expenses to
total operating income ratio of 46.2%
for the full year ended 30 June 2019
(30 June 2018: 44.1%).
For further details on operating expenses, refer
to Note 2.4 on page 139 in the Financial report.
Full-time equivalent staff (FTE) 1%
42,921
FY19
FY18
42,921
42,462
Notable items
The Group’s financial results have been impacted by a number of notable items. In order to present a transparent view of our business
performance, operating expense is presented both before and after notable items, described below.
Customer remediation (incl. aligned advice)
Customer refunds and program costs in
relation to remediation issues impacting
customers of our wealth management
and banking businesses. This includes
provisions for historical aligned advice
remediation and associated program costs.
Risk and compliance programs
Risk and compliance programs including
the cost of implementing the Royal
Commission and APRA Prudential
Inquiry recommendations, and continued
enhancement of our financial crime
compliance capabilities.
Mortgage broking consolidation
Impact of consolidating Aussie Home
Loans and eChoice.
Notable items ($m) cash basis
Customer remediation (incl. aligned advice)
Risk and compliance programs
Mortgage broking consolidation
Insurance recoveries
Prior period one-offs
Total notable items
FY19
FY18
% change
918
358
269
(145)
–
1,400
52
247
199
–
855
1,353
large
45%
35%
n/a
large
3%
Insurance recoveries
$145 million insurance recoveries in
relation to the $700 million AUSTRAC
civil penalty incurred in the prior year.
Prior period one-offs
Regulatory costs of $155 million relating
to the Group,s response to the Royal
Commission, AUSTRAC proceedings,
the APRA Prudential Inquiry and the
$700 million AUSTRAC civil penalty.
43
Commonwealth Bank of Australia Annual Report 2019Strategic report Financial performanceGroup performanceRisk management Corporate governanceDirectors’ reportFinancial reportOther information Group performance (continued)
Loan impairment expense, impairment provisions and credit quality
Cash to statutory profit reconciliation
Credit risk is one of the largest risks we are exposed to as a result of our lending activities. The Group sets aside impairment provisions for losses that
are expected to emerge within our lending portfolio due to bad debts, when customers are unable to repay their loans. Loan impairment expense
reflects changes in our estimates of impairment provisions, as well as bad debts incurred during the year net of any recoveries. We use the ratio of
total provisions to gross loans and acceptances to assess how adequately we are provided for against expected credit losses. Impaired assets are
loans that are not meeting their repayment obligations. They include loans in default, loans that have been restructured to non-commercial terms due
to the financial difficulties of the borrower or unsecured personal loans and credit cards whose minimum repayments are 90 days past due.
The analysis below provides a reconciliation between cash and statutory basis profits on a continuing operations and on a total basis including
discontinued operations. Non-cash items are treated consistently from period to period.
Loan impairment expense ($m) 11%
Consumer arrears 90 days (%)
Cash to statutory profit reconciliation ($m)
On 1 July 2018, we implemented a new
approach to calculating impairment
provisions as required by the new
accounting standard, AASB 9 ‘Financial
Instruments’ (AASB 9). The new approach
requires us to hold additional impairment
provisions to account for the potential
impact of adverse future forecast
economic conditions on the credit quality
of our portfolio.
Loan impairment expense increased 11%
driven by:
an improvement in the credit quality of
the corporate lending portfolio driven
by portfolio optimisation initiatives and
continued focus on risk-adjusted returns
during the year; offset by
consumer arrears trending higher as
a result of subdued wage growth and
cost of living pressures, particularly in
Western Sydney and Melbourne; and
an increase in troublesome and impaired
assets due to emerging weaknesses
in sectors impacted by discretionary
spending. There was a small number
of individual corporate impairments,
and impaired assets continued to be
influenced by home loan customers
experiencing hardship.
The credit quality of the Group’s portfolio
remains sound. The Group continued to
maintain a very prudent level of credit
provisioning with the total provisions for
impairment losses to gross loans and
acceptances ratio increasing to 0.63%
(30 June 2018: 0.49%).
Tax expense
$1,201m
FY19
FY18
1,201
1,079
Troublesome and
impaired assets ($m)
$7,799m
1.5
1.41
1.03
1.0
0.60
0.5
1.44
1.03
0.70
1.56
1.02
0.68
Jun 17
Dec 17
Jun 18
Dec 18
Jun 19
Personal loans
Home loans
Credit cards
19%
Total impairment provisions 32%
($m)
(including
AASB 9)
FY19
FY18
7,799
6,541
$4,799m
FY19
FY18
4,799
3,633
The increase in total impairment
provisions to $4,799 million was primarily
driven by the additional $1,058 million of
impairment provisions taken as the Group
implemented AASB 9.
For further details on impairment provisions
and credit quality refer to Note 3.2 on
page 153 and Note 9.2 on page 205 in
the Financial report.
Tax expense is income tax payable to tax authorities in jurisdictions where the Group operates. The effective tax rate is how much tax we pay
per dollar of profit.
Income tax expense for the year
decreased 12% and the effective tax
rate for the year decreased from 30.5%
to 28.8%. This was primarily due to the
non-recurrence of the $700 million
AUSTRAC civil penalty incurred in the
prior year that was non-deductible for
tax purposes.
This rate is below the Australian company
tax rate of 30% primarily as a result of the
profits earned by the offshore banking
unit and in offshore jurisdictions that have
lower corporate tax rates.
44
CBA is one of Australia’s largest tax payers.
Our Tax Transparency Code provides
further information on our approach to
tax risk management and tax information
commbank.com.au/policies
Total tax expense ($m) cash basis 12%
$3,437m
FY19
FY18
3,437
3,920
For further details on tax expense refer to
Note 2.5 on page 141 in the Financial report.
Continuing operations
Total including
discontinuing operations
FY19
8,492
(52)
(79)
(1)
–
FY18
8,915
44
101
(3)
–
FY19
8,706
(61)
(79)
(1)
6
FY18
9,412
(183)
101
(3)
2
8,360
9,057
8,571
9,329
Hedging and IFRS volatility
Bankwest non-cash items
Hedging and IFRS volatility represents
timing differences between fair value
movements on qualifying economic
hedges and the underlying exposure.
To qualify as an economic hedge the
terms and/or risk profile must match
or be substantially the same as the
underlying exposure.
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.
For further details refer to the cash to
statutory profit reconciliation on page 295
and 296 in the Financial report.
Net profit after tax cash basis
(Loss)/gain on acquisition, disposal, closure
and demerger of businesses
Hedging and IFRS volatility
Bankwest non-cash items
Treasury shares valuation adjustment
Net profit after tax statutory basis
Non-cash items
Gain/(loss) 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.
Treasury shares
Valuation adjustments represent the
elimination of gains and losses on CBA
shares held through funds in the Wealth
Management business.
Net profit from discontinued operations
Discontinued operations refers to a major business or a subsidiary that the Group has sold during the financial year or plans to sell within the
next 12 months. For reporting purposes, the Group’s NPAT is presented excluding discontinued operations to provide a clear view of the ongoing
performance of the business. The Group also reports NPAT including discontinued operations to provide shareholders with a complete view of
the Group’s performance.
During the financial year 2019 the Group
completed the sale of Sovereign and
TymeDigital SA. On 2 August 2019, the
Group completed the sale of CFSGAM.
The Group also previously announced the
sales of CommInsure Life, BoCommLife
and PT Commonwealth Life.
These businesses have been classified
as discontinued operations during the
financial year.
Cash NPAT from discontinued operations
for the financial year 2019 was $214 million,
a decrease of 57% compared to the
prior year.
For further details on discontinued
operations refer to Note 11.3 on page 260
in the Financial report.
45
Commonwealth Bank of Australia Annual Report 2019Strategic report Financial performanceGroup performanceRisk management Corporate governanceDirectors’ reportFinancial reportOther information Group performance (continued)
Balance sheet strength
Balance sheet strength is critical to our ability to serve our customers, drive core business outcomes and deliver strong and sustainable returns
for our shareholders. The Group manages the balance sheet in a sustainable and conservative manner to ensure a strong capital, funding and
liquidity position.
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.
dividends paid during the period to
shareholders which have the effect of
reducing capital, however this impact
was partly offset via new shares
issued to satisfy the Group’s dividend
reinvestment plan in respect of the 2018
final dividend.
Capital ratio CET1 (APRA) 60 bpts
(%)
10.7%
As at 30 June 2019
10.7
As at 30 June 2018
10.1
The Common Equity Tier 1 (CET1) capital
ratio as at 30 June 2019 was 10.7%,
above APRA’s ‘unquestionably strong’
benchmark ratio of 10.5%.
CET1 increased during the year due to
the following:
the benefit of risk-adjusted profits
generated in the ordinary course of
business (organic capital);
the benefit from the sale of the
New Zealand life insurance operations;
partly offset by
Liquidity and funding
Deposit funding ratio
Liquidity coverage ratio
Net stable funding ratio
69%
As at 30 June 2018: 68%
132%
Average for the quarter ended
30 June 2018: 133%
112%
As at 30 June 2018: 112%
The deposit funding ratio represents
the proportion of home loans and other
income-producing assets that are funded
by customer deposits. Customer deposits
are considered the most stable source
of funding.
The Group continued to satisfy a
significant portion of its lending from
customer deposits, accounting for 69%
of total funding (up from 68% at 30 June
2018). This was due to growth in existing
customers’ transaction account balances
and mortgage offset accounts.
The Liquidity Coverage Ratio (LCR)
represents the level of high quality liquid
assets available to meet short term
obligations in a liquidity stress scenario.
The Group’s average LCR for the quarter
ended 30 June 2019 was 132% which
is well above the minimum regulatory
requirement of 100%.
The Net Stable Funding Ratio (NSFR)
shows to what extent our long-term assets
are covered by stable sources of funding.
The Group’s NSFR was 112% at 30 June
2019, flat on the prior year, and well above
the regulatory minimum of 100%. The ratio
was maintained through growth in retail
deposit volumes to support the required
funding for our long-term assets such as
home loans.
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. 70% 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 ($m)
Home loans
Consumer finance
Business and corporate loans
Total Group lending
Other assets (including held for sale)
Total assets
Deposits
Debt issues
Other liabilities (including held for sale)
Total liabilities
As at
30 June 2019
30 June 2018
% change
522,942
21,993
214,953
759,888
216,614
976,502
501,665
23,317
222,367
747,349
227,816
975,165
635,300
620,508
164,022
107,531
906,853
172,673
114,124
907,305
4%
6%
3%
2%
5%
–
2%
5%
6%
–
Home loans
Home loan balances increased 4%
driven by lending growth in the Retail
Banking Services and New Zealand
business divisions partly offset by a
decrease in Business and Private Banking.
Deposits
Deposits increased 2% driven by strong
transaction deposit growth. This was
partly offset by a reduction in investment
deposits in Institutional Banking and
Markets due to lower demand for funding.
Debt funding
Debt issues decreased 5% compared
to the prior year. Excluding the impact of
foreign exchange, debt issues decreased
6% due to lower wholesale funding needs
as deposit growth remained strong.
Domestic home loans increased 4%,
above banking system growth of 3%,
notwithstanding increased competition
from non-bank lenders and a challenging
operating environment.
Domestic household deposits grew 4%,
which was below the banking system
growth rate of 5%, reflecting increased
competition from non-major banks. The
Group continues to maintain the highest
share of stable household deposits in
Australia.
46
47
Commonwealth Bank of Australia Annual Report 2019Strategic report Financial performanceGroup performanceRisk management Corporate governanceDirectors’ reportFinancial reportOther information Strategic
report
Financial
performance
Divisional
performance
Risk
management
Corporate
governance
Directors’
report
Financial
report
Other
information
Divisional performance1
Retail Banking
Services
Business and
Private Banking
Institutional
Banking and Markets
Wealth
Management
New Zealand
Retail Banking Services provides home
loan, consumer finance and retail deposit
products and servicing to all retail bank
customers. The retail banking division also
includes the Group’s general insurance
and mortgage broking businesses
in Australia and Commonwealth
Financial Planning.
Business and Private Banking provides
specialised banking services to
relationship managed business and
agribusiness customers, private banking
to high net worth individuals, margin
lending and trading through CommSec,
and retail banking products and servicing
to non-relationship managed small
business customers.
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.
Wealth Management provides
superannuation, investment, retirement
and insurance products, and services
including financial planning.
New Zealand includes banking
and funds management businesses
operating in New Zealand under the
ASB brand.
International
Financial Services
International Financial Services
incorporates the Indonesian retail
and business banking operations,
and associate investments in China
and Vietnam.
Change in NPAT
Change in NPAT
Change in NPAT
Change in NPAT
Change in NPAT
Change in NPAT
RBS Cash NPAT ($m)
12%
BPB Cash NPAT ($m)
7%
IB&M Cash NPAT ($m)
8%
WM Cash NPAT ($m)
37%
NZ Cash NPAT (A$m)
8%
IFS Cash NPAT ($m)
49%
$4,267m
$2,658m
FY19
FY18
4,267
4,823
FY19
FY18
2,658
2,845
$1,071m
FY19
FY18
1,071
1,170
$160m
FY19
160
FY18
255
$1,050m
FY19
FY18
1,050
975
$227m
FY19
227
FY18
152
Contribution to Group profit2
Contribution to Group profit2
Contribution to Group profit2
Contribution to Group profit2
Contribution to Group profit2
Contribution to Group profit2
50%
31%
13%
2%
12%
3%
Performance overview
Retail Banking Services cash net profit
after tax for the full year ended 30 June
2019 was $4,267 million, a decrease of
$556 million or 12% on the prior year.
The result was driven by lower net
interest margin as a result of higher
short term funding costs and increased
competition, lower other banking income
from simplification and the removal of
certain customer fees and charges and
the introduction of pre-emptive alerts
on overdrawn customer accounts. The
decrease in cash net profit after tax was
also driven by higher operating expenses
due to wage inflation and higher risk and
compliance spend, as well as higher loan
impairment expense.
Performance overview
Business and Private Banking cash net
profit after tax for the full year ended
30 June 2019 was $2,658 million, a
decrease of $187 million or 7% on the
prior year.
The result was driven by higher operating
expenses due to an increase in customer
remediation costs and regulatory and
compliance costs. The decrease in cash
net profit after tax was also driven by higher
loan impairment expense, partly offset by
higher fee income and improved net interest
margin, reflecting growth in transaction
deposits and repricing of business lending.
Performance overview
Institutional Banking and Markets cash
net profit after tax for the full year ended
30 June 2019 was $1,071 million, a
decrease of $99 million or 8% on the
prior year.
The result was driven by lower lending
volumes and fees, partly offset by
improved net interest margin, lower
operating expenses and lower loan
impairment expense.
1
2
Unless otherwise stated, all information in the Divisional performance section is presented on a continuing operations basis.
Details of the Group’s discontinued operations are provided on page 45 and Note 11.3 on page 260 in the Financial report.
The Group’s cash NPAT includes a cash net loss after tax from the Corporate Centre on a continuing operations basis of $941 million (30 June 2018:
$1,305 million which is not included in the above discussion. Corporate centre includes the results of unallocated support functions such as Treasury,
Investor relations, Group strategy, Legal and Corporate affairs.
Performance overview
Wealth Management cash net profit after
tax for the full year 30 June 2019 was
$160 million, a decrease of $95 million
or 37% on the prior year.
Performance overview
New Zealand cash net profit after tax for
the full year ended 30 June 2019 was
$1,050 million, an increase of $75 million
or 8% on the prior year.
The result was driven by higher operating
expenses due to customer remediation
and higher regulatory and compliance
costs. This was party offset by an increase
in funds management income.
The result was driven by growth in home
loans and business and rural lending
balances, and higher other banking
income. This was partly offset by lower net
interest margin, higher operating expenses
driven by increased risk and compliance
staff, salary increases, and higher loan
impairment expense.
Performance overview
International Financial Services cash net
profit after tax for the full year ended
30 June 2019 was $227 million, an increase
of $75 million or 49% on the prior year.
The result was driven by lower operating
expenses due to lower staff costs
and non-core divestments, lower loan
impairment expense and growth in lending
volumes. This was partly offset by lower
other banking income, reflecting lower net
profits from investments in associates.
48
49
Commonwealth Bank of Australia Annual Report 2019 Strategic
report
Financial
performance
Risk
management
Corporate
governance
Directors’
report
Financial
report
Other
information
Risk report
Risk
report
As Australia’s largest financial institution,
the Board and management of the
Bank understand that effective risk
management is important to the
financial wellbeing of our customers
and the broader economy.
Risk management is about understanding
the uncertainties facing our organisation,
and developing strategies to benefit
from them, or minimise their impact
on the achievement of our purpose
and strategy. With factors such as
the advancement of new emerging
technologies, shifting societal
expectations, elevated regulatory
oversight, uncertain macroeconomic
conditions, changing environment
and competitive landscape, banks
are increasingly exposed to greater
levels of uncertainty and therefore
require innovative and robust risk
management practices.
The financial risks of the Group have
traditionally been well managed. We
proactively manage the credit quality
of our portfolios and maintain a strong
liquidity and capital position to deliver
strong and sustainable returns for our
shareholders.
However, in recent years a succession
of conduct and compliance issues,
followed by the findings of the APRA
Prudential Inquiry in 2018, exposed
a lack of maturity in the Group’s
non-financial risk management
practices. The Financial Services Royal
Commission further highlighted the
impact of these weaknesses on the
lives of individual Australians. As a
result, the Board and management
have committed to:
enhancing our governance over
non-financial risk and investing in
new capabilities to strengthen our
management of operational risk
and compliance
a change in the mindsets and behaviours
of staff at all levels to earn the trust of our
stakeholders
a sustained improvement in our risk
management practices.
To achieve these objectives we have
identified and made good progress during
the year on the following priority areas:
Enhancing our risk
governance
Over the past year, the Board has been
setting clearer expectations of the
business so that it receives better quality
information on risks to enable it to act
quickly and decisively on that information.
Management has taken steps to improve
the rigour of governance over non-financial
risks by establishing a Non-Financial Risk
Committee (NFRC) which is elevating
the importance of non-financial risk and
making it a top priority for the Executive
Leadership Team. Our focus on identifying
and understanding emerging risks, trends
and issues across all of the Group’s
material risk types is also providing better
insights to inform decision making.
Overview of our Risk Management
Framework
The diagram on page 51 outlines the key
components of the Risk Management
Framework for managing the Group’s
Material Risk types; including the
governance that enables Executive
and Board oversight of these risks. This
framework incorporates the requirements
of the APRA prudential standard for risk
management (CPS 220). Integral to our
approach to managing risk is:
the Group Risk Appetite Statement
which articulates the type and degree
of risk the Board is prepared to accept
and the maximum level of risk that the
institution must operate within; and
the Group Strategy which articulates the
Group’s approach to the implementation
of its strategic objectives.
The framework is delivered by governance
and reporting processes, risk policies and
procedures, and our risk infrastructure
(people, systems and processes).
The Operating context on page 8 outlines
the material trends in our current external
operating context which, together with their
associated impacts on the Group’s material
risks, are receiving focus by the Executive
and Board.
Our current internal operating context is
characterised by the significant program
of change across the Group to deliver on
our strategic imperative of making the
Bank simpler and better. The Group is
managing this strategic program of change
through strong governance structures
over significant transformational initiatives,
setting clear priorities for business areas and
regularly monitoring the progress against
our strategy. Failure to effectively manage
this program of change could impact
delivery of our strategy and result in
increased regulatory oversight.
“ As Australia’s
largest financial
institution,
the Board and
management of the
Bank understand
that effective risk
management is
important to the
financial wellbeing
of our customers
and the broader
economy.”
Risk Management Framework
Our Risk Principles
Trust and Reputation
Risk Culture and Conduct Risk
Group Strategy
Group Risk Appetite Statement
CBA Group Board
Board Risk Committee
Executive
Leadership
Team (ELT)
Executive Risk
Committee
(ERC)
Insurance
subsidiary
boards
Asset and Liability
Committee
(ALCO)
Non-Financial Risk
Committee
(NFRC)
BU Leadership
Teams
Business Unit (BU) Leadership
Teams
BU NFRC Committees
Strategic
Risk
Value destruction
or less than planned
value creation
due to changes in
the external and
internal operating
environments
Credit
Risk
Insurance
Risk
Market
Risk
Liquidity
Risk
Operational
Risk
Losses from failure
of counterparties
to pay their debts
to CBA
Unplanned losses
from events that
we provide
insurance for
Losses from
unexpected
changes in market
rates and prices
Not being able
to meet financial
obligations as they
fall due
Losses from
failure of internal
processes, systems
or people
Compliance
Fines or
sanctions from
non-compliance
with laws and
regulations
Financial Risks
Non-Financial Risks
Business Risks
(may include impacts across one or more financial or non-financial risk types)
Macroeconomic
Competition
Technology
Regulatory
Political
Customer
preferences
Climate and
environment
Societal
Refer to Note 9 in the Financial report on page 201 for further detail on the current risk exposures and the approach the Group takes to the management
of its material risk types.
50
51
Commonwealth Bank of Australia Annual Report 2019 Strategic
report
Financial
performance
Risk
management
Corporate
governance
Directors’
report
Financial
report
Other
information
Risk report
Risk report (continued)
Driving risk culture
change across the Group
The Board and the Executive Leadership
Team recognise their crucial role in
setting the cultural tone of the Group. This
includes leading a strong risk culture which
the Group defines as being those beliefs,
values and practices within the organisation
that determine how our people identify,
measure, govern and act upon risks.
A key priority of the Board and
management is to ensure our risk culture
is one of accountability, empowerment,
constructive challenge, reflection and
striving for best practice risk management.
This will drive decisions that are lawful,
ethical and lead to better customer and
risk outcomes. We know that community
confidence in us depends on this.
Over the last year the Board and the
Executive Leadership Team have taken
the time to better understand the drivers
of our risk culture and have developed a
methodology to formally and consistently
assess this across the Group. This
has allowed us to identify areas of
development and establish a number
of priority initiatives aimed at cascading
the right tone from the top, connecting
better with our customers and reinforcing
our purpose and values. Supporting
initiatives have also been targeted at
lifting leadership capability, elevating
risk experience and inspiring our people
around the change required.
Reinforcing business
ownership of risk
outcomes
The Group believes that every employee
needs to be a risk manager, and that the
front line business is accountable for
understanding and managing the risks
of their business, to ensure conscious
risk versus return decisions. To support
business owners in taking greater
accountability for the risks that they
originate we have increased our risk
resourcing and capability and focused on
clarifying the differing risk accountabilities
of business owners and risk specialists.
We are also improving the processes
used to manage risk across the Group.
This includes improving risk controls and
building capability to analyse the root
causes of issues and incidents that have
a negative impact on customers.
52
“ We are investing in risk systems and
innovation to allow better risk identification,
reporting and analytics capability to more
deeply understand issues and complaints.”
Strengthening our
Conduct Risk framework
As part of our commitment to better
customer and risk outcomes, we have
developed a Code of Conduct to ensure
all staff have a clear understanding of what
acceptable conduct means. A core principle
contained in our new Code of Conduct
is to ensure we do the right thing by our
customers by asking ‘Should We?’ when
making decisions. This Code has become
mandatory training for all CBA staff and the
‘Should We?’ test is being embedded in
key processes across the Group, such as
product development and review processes.
This will make conduct an essential and
embedded part of the disciplined control
environment supporting our business
decisions. Other focus areas have been
improving the way customer complaints are
reported, identifying systemic issues and
fixing them and delivering consequences
to employees whose actions lead to poor
outcomes for customers.
We are confident that the continued
focus on these priority areas over the
next two years will result in a sustained
improvement in the maturity of the Group’s
risk management practices and lead to
better customer and risk outcomes.
Elevating the status
of the Risk Management
function within the
organisation
A strong and independent Risk function is
a key enabler of robust business decisions.
In support of this, a recent change agreed
by the Board and Executive Leadership
Team is that the Risk function will have a
shared accountability with the business
for risk decisions. In practice this is being
achieved by extending Risk’s mandate
from ‘reviewing and challenging’ to
‘approving’ that decisions made by the
business have consciously and robustly
assessed the risks. This change in
mandate strengthens the ‘voice of risk’,
an issue that was highlighted in the APRA
Prudential Inquiry report, and is currently
being embedded into risk frameworks
Group-wide. In addition, the following key
initiatives are in progress to increase both
the capabilities of the Risk function and
those of the business owners:
Investing in risk systems and innovation
to allow better risk identification,
reporting and analytics capability to
more deeply understand issues and
complaints.
Implementing a number of data quality
initiatives to improve the structure and
quality of data to support reporting and
risk decision making.
Enhancing risk skills and capabilities to
correct areas of under-investment in the
management of non-financial risk.
Simplifying risk policies, processes and
tools and developing a common risk
management language.
Our material risks
We continuously develop and improve the Group’s Risk Management Framework to ensure that it is robust and fit-for-purpose given
the nature of the Group’s business and that it supports our strategy of delivering balanced and sustainable outcomes for stakeholders.
This means responding to evolving better risk management practices and the Group’s operating context, including heightened global
regulatory change and additional scrutiny which are trends that are likely to continue into the foreseeable future. The key actions we are
taking for each of the Group’s material risk types are described below.
Note 9 in the Financial report on page 201 provides a detailed definition of each material risk type, the applicable governing policies
and key management committees, and the key limits, standard and measurement approaches for each risk type.
Risk type
Context
Key actions we are taking
Strategic Risk
The external operating environment is changing
at a rate and in ways not previously experienced
(see the Operating context on page 8). In particular,
the unprecedented changes in the competitor
landscape, emerging technologies, societal
expectations and required workforce capabilities
expose the Group to Strategic Risk.
Credit Risk
and
Insurance Risk
Liquidity Risk
and
Market Risk
It is therefore increasingly important that, when
developing and monitoring execution of strategic
plans, we appropriately and consistently assess
the aggregate impacts of the changing operating
context across all of our material risk types.
Macroeconomic uncertainty is leading to slow credit
growth and low consumer confidence, which in turn
is impacting discretionary spending. These factors,
combined with historically low interest rates, elevates
the need for robust credit policies, procedures
and tools to support credit decisions in this new
environment.
Economic factors impacting the housing market are
particularly important given the Group’s proportion
of earnings from home lending.
As climate-related events, external policy decisions
and community expectations around climate action
become heightened, the potential long-term impacts
of climate change on the credit and insurance
portfolios needs to be factored into current
origination and portfolio management decisions.
The Group is divesting its life insurance businesses
and therefore will only retain general insurance risk
into the future.
The Group has well designed and embedded
frameworks in place to manage its liquidity and
market risks. However, we recognise the need
for ongoing vigilance to ensure the Bank is well
positioned in the event of stressed liquidity or
market conditions.
Macroeconomic uncertainties which could cause
volatility in global markets, are heightened by the
current environment of:
– global trade disputes leading to geo-political
instability and lower business confidence
– interest rates remaining at historically low levels,
with further falls expected.
We have formalised the existing strategic risk
practices through a Board approved strategic risk
policy and associated procedures for identifying,
monitoring, managing and reporting on strategic risk.
We have developed a more structured approach
to the identification, management and oversight
of emerging risks through the Non-Financial Risk
Committee.
These stronger disciplines are being embedded
into strategic and business planning and monitoring
processes.
The Group regularly reviews and adjusts credit
limits and settings in response to changing economic
conditions to ensure alignment with Group risk
appetite.
Significant investment is underway to enhance
the systems and data necessary for aggregation
of exposures and for reporting and portfolio
management, particularly in the non-retail parts
of our business.
We are progressively performing climate change
scenario analyses on our credit and insurance
portfolios to understand potential impacts and
how these can be factored into business decisions.
The Bank performs regular stress tests and scenario
analyses covering adverse and severe operating
conditions. This allows a better understanding of
our liquidity and market risks to enable proactive
risk based decisions.
In addition, the Bank maintains a diverse yet stable
pool of potential funding sources across different
currencies, geographies, entities and products.
We limit the amount of short-term wholesale funding
sourced from offshore and the Bank maintains
sufficient liquidity buffers and short-term funding
capacity to withstand periods of disruption in
long-term wholesale funding markets.
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Risk report
Risk report (continued)
Risk type
Context
Key actions we are taking
Operational Risk
Compliance
The 2018 APRA Prudential Inquiry exposed a
lack of maturity in the Group’s non-financial risk
management practices. A comprehensive three-year
Remedial Action Plan is in progress to strengthen the
Group’s operational risk framework.
Information security risks for the Group have
increased in recent years due to: the evolution and
development of new technologies; the Group’s
increasing use of digital channels; and the increased
sophistication and broadened activities of cyber
criminals.
The Group has a significant program of change to
deliver a simpler, better bank. The complexity of
current operations creates the risk of poor or slow
execution which could impact the ability to execute
our strategy effectively.
There is an increased risk of regulatory action
(including enforcement action) or policy change
which may negatively impact the Group’s financial
position or reputation.
Significant regulatory reforms are under
development, across a number of jurisdictions that
will strengthen the industry and improve customer
outcomes. These could impact the Group’s
operations and financial performance. Examples
include:
– Open Banking to give consumers access to and
control over their data
– APRA and RBNZ’s proposals to revise the capital
framework for banks
– conduct-related reforms such as product
design and distribution obligations and greater
prescription on responsible lending requirements
– regulation arising from the Financial Services Royal
Commission’s recommendations.
Good progress has been made on enhancing our
risk governance, driving risk culture change across
the Group, reinforcing business ownership of risk
outcomes and elevating the status of the Risk
Management function within the organisation.
This progress will continue over the next two years
to ensure a sustained improvement in the maturity
of the Group’s risk management practices.
We continue to invest in our operational risk
capabilities (in particular cybersecurity, data
management and supplier management) to ensure
they evolve in response to the Group’s changing
operating environment. We have a program in place
to identify the Group’s most critical data elements
in order to drive appropriate quality and lineage,
using our Data Management framework.
The significant program of change to deliver a
simpler, better bank is being managed through
strong governance and oversight over these
transformational initiatives.
Progress continues through the Remedial Action
Plan to strengthen the Compliance Management
Framework, including resources and policies and
procedures, and to ensure they are well embedded
within business units.
A Code of Conduct has been developed and is being
embedded across the Group. Conduct controls
are also being strengthened across the business
to address the increased expectations.
We have developed a new Regulatory Engagement
Standard that drives engagement with regulators in
an open and transparent way.
A financial crime compliance program is improving
the quality of customer data and embedding
financial crime policies and procedures into
business practices.
Our approach
to addressing
climate change
As a provider of financial
services – including
lending, insurance and
wealth management
– the physical and
transition impacts
of climate change are
strategically important
to our business. We are
taking a phased approach
to identifying and
managing both the risks
and the opportunities.
We aim to disclose our progress,
performance and plans in line with the
recommendations of the Task Force on
Climate-related Financial Disclosures
(TCFD).
We are focusing on having the right
policies in place, undertaking detailed
analysis to better understand the risks
and opportunities, developing and
implementing strategic responses, building
internal understanding and customer
capabilities, and contributing to economy-
wide initiatives.
54
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Addressing
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Addressing climate change (continued)
Phase 1-2
Phase 3
Phase 4
Policy, due diligence,
governance, analysis of
portfolio risks and opportunities
Extending scenario analysis,
strategic responses,
capability building
Embedding climate considerations
into strategy, business and risk
management processes
Pre-FY19
FY19
FY20-21
Governance
Climate Policy Position Statement1
Group Environment Policy1
Equator Principles III Report1
ESG Lending Commitments1
Responsible Investing
Framework1
The Board governs climate risks
and opportunities through the
Risk Management Framework2
Developed a Group Environmental
and Social Policy with updated
climate commitments, including:
– continuing to reduce our exposures
to thermal coal mining and coal fired
power generation, with a view to
exiting the sectors by 2030, subject
to Australia having a secure energy
platform
– supporting the development of
existing and emerging technologies
that enable an accelerated
transition to a low carbon future
Review the Group Environmental
and Social Policy to ensure alignment
with the rapidly evolving nature of
environmental and social issues
Review the Group Risk Appetite
Statement
Review of climate-related roles and
responsibilities
Strategy
Commitment to support the
Climate scenario analysis:
Climate scenario analysis:
Risk
management
Metrics and
targets
objectives of the Paris Agreement
Climate scenario analysis:
– Business lending: transition risks
– FirstChoice Australian Share
Fund: transition risks
– Retail (home lending) and
insurance: physical risks
Portfolio-level strategic
responses
– Agribusiness lending: physical risks
– Business lending: physical risks
Portfolio-level strategic responses
Client engagement
for other key portfolios
– Retail (home lending) and insurance:
transition risks
– Investment portfolios: transition
and physical risks
Further develop strategic responses
Client and customer engagement
Elevated climate as a strategic
Physical climate risk added to the
Continue to update the
risk and a long-term driver of both
financial and non-financial risks
ESG Risk Assessment Tool process
for business lending
Introduced an ESG Risk
Assessment Tool, including
climate and energy
considerations, for business
lending
Training on ESG risks, including
climate, for business lenders
Established Energy Value Chain
analysis
Reviewed clients within carbon
sensitive sectors, based on
FY18 scenario analysis, to better
understand their management of
climate risk
Updated Energy Value Chain Analysis
ESG Risk Assessment Tool
and build capabilities as
stakeholder expectations and
global developments evolve
Work with clients as they progress
their transition strategies
Emissions reduction target
Joined the global RE100 initiative
Continue to make progress on our
(Scope 1 and 2)
Assessed emissions in business
lending portfolio
Low carbon project funding
target of $15 billion by 2025
and committed to sourcing 100% of
our electricity needs from renewable
energy by 2030
Assessed emissions in business
lending portfolio3
Progress on low carbon project
funding target
RE100 commitment
Science-based emissions reduction
target (Scope 1 and 2)
Assess emissions in business
and retail lending and investment
portfolios
Emissions reduction target (Scope 3)
Progress on low carbon project
funding target
All policies are found at commbank.com.au/policies.
1
2 Further information on the Group’s Risk Management Framework is provided on page 201.
3 Our assessed emissions reporting is available at commbank.com.au/CRreporting.
56
Climate governance
The Board directly oversees the
management of the Bank’s climate-related
risks, opportunities and strategies.
Specifically, in the 2019 financial year
the Board:
reviewed and endorsed the Group’s
Environmental and Social Policy (E&S
Policy), which outlines our approach to
climate-related risks and opportunities
monitored performance against our
climate-related goals and targets
reviewed and approved our climate-
related strategy and disclosures.
The Executive Leadership Team (ELT)
continues to be responsible for:
directing the development and
implementation of ESG policies,
including climate
overseeing progress, performance
and reporting on climate
leading external engagement and
advocacy and helping customers
and clients on climate-related matters.
Under our E&S Policy, business and
support units across the Group are
responsible for addressing specific
climate-related impacts, risks and
opportunities. Internal procedure
documents provide clear guardrails
and guidance on issue management
and client activity.
An example of how this works in practice
is our commitment to reducing our
exposures to thermal coal mining and
coal fired power generation. This applies
to our Institutional Banking & Markets
(IB&M) business which has accountability
for adherence to, and implementation of,
this part of the E&S Policy.
Climate strategy
To better understand potential climate change impacts, risks and opportunities for the Bank, and to build the resilience of our business
and our customers, we are taking a phased approach to scenario analysis. We prioritise analysis of areas that are material to the Bank
and to our customers. The results of our scenario analysis help inform our business and strategy planning.
The scenario analysis we undertook in 2018 has helped inform our strategic responses as follows:
FY18
focus
Risks
Progress
during
FY19
Physical risk
Transition risk
Building insurance
policies
Home loan
portfolio
Business lending
portfolio
FirstChoice Australian
Share Fund
Flooding, storms, extreme heat and
drought, bushfires, sea level rise
Market, regulatory, legal,
reputation, technology
We continue to focus on
supporting sector-wide
initiatives that enhance
climate resilience and
reduce disaster risk,
including through our
membership of the Climate
Change Action Committee
within the Insurance
Council of Australia.
We are developing a green
mortgage initiative that
rewards and encourages
energy efficiency, by giving
cashbacks to customers
who use solar panels and
make their homes more
energy efficient.
We are building our
capabilities to develop
and implement business
solutions that protect
customers and the Bank
from climate risk.
We are investigating tools
to display carbon risk
within portfolios for use
as an asset allocation tool.
We are working with
an external specialist
vendor to utilise its latest
climate scenario model
and receive reporting on
climate-related risks within
our portfolios.
We have incorporated
physical climate risk into
our ESG Risk Assessment
Tool and ESG risk
e-learning.
We have made a
commitment to reducing
our exposure to thermal
coal mining and coal
fired power generation,
with a view to exiting the
sectors by 2030, subject to
Australia having a secure
energy platform.
We are conducting deeper
analysis on our lending to
carbon sensitive sectors
to understand how clients
manage their carbon risk.
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Addressing climate change (continued)
FY19 climate scenario analysis – risks and opportunities
in Australian agriculture
This year we conducted scenario analysis
on the physical risks of climate change
on our agribusiness lending portfolio.
This reflects the important role Australia’s
farmers play in the nation’s economy and
for our business, and the sensitivity of the
sector to changes in climate.
Farming under challenging climate
conditions is not new to Australian farmers.
Climate change however has the potential
to increase the frequency of acute climate
events such as floods and droughts, and to
alter longer-term climate conditions which
can impact farm productivity.
As a major lender to Australia’s farmers2
we have undertaken detailed scenario
analysis to understand how climate
change affects agriculture through acute
and chronic shifts in temperature, humidity
and rainfall. Our analysis enables us to
understand the risks, identify ways to
support our customers into the future,
and contribute to building resilience in
the sector.
What we did
We undertook a forward-looking
assessment of climate-related
factors that could impact the grains3,
livestock4 and dairy5 sectors which
represent approximately 65% of our
Australian agribusiness portfolio across
Commonwealth Bank and Bankwest.
We worked with climate consultancy
Energetics to simulate agricultural
productivity against a range of potential
climate conditions up to 2060, using
models derived from peer reviewed
scientific literature and industry research.
Impacts were assessed on both a ‘do
nothing’ and ‘adapt’ basis to understand
the extent to which the impacts of climate
change could be mitigated. The analysis
also incorporated economical viability,
recognising that adaptation requires both
investment and a willingness to change
established practice.
A detailed outline of the methodology is
provided on page 60. It remains 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.
Wealth management focus
on climate
We continue to build capabilities
across our wealth management
businesses to manage climate and
broader ESG risks on our customers’
behalf, and to offer new investment
solutions:
Colonial First State (CFS)
Investments measures and reports
carbon emissions intensity (see
page 61 for details).
CommSec Pocket now enables
investment in ETHI, an Exchange
Traded Fund that invests in
100 large global stocks that are
climate change leaders.
Colonial First State Global Asset
Management and Commonwealth
Bank Group Super both report their
climate governance, strategy, risk
management and metrics in line
with the TCFD1.
What we found
Grains
Current grain growing regions face the risk
of potential farmer profitability declines by
2060, due to falls in productivity in many
areas of up to 50% below the 2018 baseline
levels, primarily due to changes in predicted
rainfall (Figure 01). Adaptive measures can
preserve current productivity levels in most
regions, and even improve profitability up
to 65% above the baseline in some regions
(Figure 02). However, the trend of declining
rainfall could result in some regions
becoming significantly less viable for crop
production in the long term.
Adaptive measures including breeding for
improved tolerance to drought and heat could
improve crop yields by up to 20% by 2060
for certain crops. Genetic modification can
markedly increase crops’ climate resilience,
with the potential to improve the yield of some
crops by up to 40% over the next 40 years.
However, the use of genetically modified
organisms (GMOs) is a controversial solution
and is currently banned in parts of Australia.
Further developments in crop monitoring
and management technology to maximise
water efficiency and optimise activities are
expected to boost productivity. Farmers can
also shift the sowing window to optimise the
growing season, and there is potential for
further improvements.
Livestock
Livestock regions face significant farmer
profitability declines by 2060, with falls of
up to 40% due to a deterioration in pasture
growth and quality (Figure 03). However,
adaptive measures can significantly
improve livestock production, with most
regions able to convert an absolute
decline in profitability to an improvement
above the baseline by 2060. There is a
cost to these adaptive measures, which
may outweigh the benefits for some
regions (Figure 04).
Potential adaptive measures include
breeding for increased tolerance to
heat and humidity, improving pasture
quality in harsher conditions and cooling
livestock by providing shade and water
sprays. Developments in monitoring and
management technology can maximise
resource efficiency. An example is
rotational grazing using virtual fencing
technology. This maintains soil and pasture
quality by reducing overgrazing. Genetic
modification of pasture species has most
potential in the south where pastures are
typically not native.
Dairy
Dairy regions also face the risk of farmer
profitability declines by 2060, with falls in
most regions of up to 40% from baseline
levels (Figure 05). A key risk for declining
dairy profitability is the incidence of
consecutive days of significant heat stress,
measured using the Temperature Humidity
Index (THI). After five such days in a row
dairy cows can stop lactating, ceasing
production.
Adaptive measures can significantly
improve the situation for dairy production,
with most regions projected to at least
maintain baseline levels of profitability. As
Figure 06 shows, in some regions a farmer
profitability decline could be converted
to an improvement of up to 40% above
the baseline.
Breeding in Bos indicus genetics could
increase tolerance to heat and humidity
but may also lower milk yield, so uptake
of this measure is likely to be delayed.
Improved monitoring technology has the
potential to maximise output, by optimising
supplemental feed and the cooling of cows
using shade and water sprays. Genetic
modification of pasture or supplemental
feed species can also potentially
increase yield.
Climate simulation: impact on farm profitability by 2060
Grains
Worst case without adaptation
Figure 01
Livestock
Worst case without adaptation
Figure 03
Dairy
Worst case without adaptation
Figure 05
Worst case with adaptation (ex GMOs)
Figure 02
Worst case with adaptation (ex GMOs)
Figure 04
Worst case with adaptation (ex GMOs)
Figure 06
1
2
Available at cfsgam.com.au and oursuperfund.com.au/annual-reports.
We conducted our analysis on the most recent client insights available. Group agriculture exposure was $22.4 billion at 31 December 2018
of which $11.2 billion was loans to Australian farmers.
3 Grains include cereals (e.g. wheat and sorghum), oilseeds (e.g. canola) and pulses (e.g. lupins and chickpeas).
4 Livestock includes beef cattle and sheep for wool and lamb.
5 Dairy includes dairy cattle only.
58
% change in farm profitability
-50%
+110%
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Addressing climate change (continued)
How we are responding
We have estimated the impacts of the
above potential changes on the credit
quality of our portfolio. We found that while
many customers are likely to be impacted
by potential productivity falls due to climate
change, in aggregate the impacts are not
significant for our portfolio. Through our
credit assessment, we have observed that
our farmers are largely able to manage
climate events within their financials, due
to the buffers present in their current and
future interest coverage ratios. With the
right adaptive measures, and the right
timing of their uptake, these impacts can
be successfully mitigated by adaptation
improving yields for farmers.
As a Group, we are using the findings
of our analysis to inform the future
management of our agriculture portfolio,
including building better tools to manage
and monitor our risks. We will focus on
supporting our customers operating in
those areas of Australia that, according
to our modelling, will be significantly
impacted by climate change. We are also
engaging and upskilling our agribusiness
teams through training, policies and
toolkits, so that they are able to incorporate
considerations of climate resilience and
adaptation into conversations with our
farming customers.
Methodology for agriculture
portfolio physical risk scenario
analysis
Climate change scenarios
Climate change impacts to each agriculture
sector were assessed in response to
multiple emissions pathways, climate
scenarios and adaptation responses to
capture a wide range of potential impacts.
The Intergovernmental Panel on Climate
Change’s (IPCC) low (Representative
Concentration Pathway 4.5) and high
(RCP 8.5) global emissions pathways were
considered as well as two climate models
to provide a range of potential outcomes.
Outcomes were then considered with
and without the uptake of cost-effective
adaptive measures. Altogether, 12 scenarios
were considered, book-ended by a best
case (low emissions pathway, climate
model showing least change, full adaptation
uptake, inclusive of GMO developments)
and worst case (high emissions pathway,
climate model showing most change and
no adaptation uptake).
Impact models
Climate impact models were sourced for
grains, dairy cattle and livestock based on
a survey of Australian literature. The impact
models are:
Grains: a statistical relationship between
productivity, seasonal rainfall and
seasonal temperature was applied to
historical and future climate data on a
five kilometre grid.
Livestock: a statistical relationship
between productivity, seasonal rainfall
and seasonal temperature was applied
to historical and future climate data on a
five kilometre grid.
Dairy: a statistical relationship between
productivity and seasonal rainfall,
temperature and the Temperature-
Humidity Index modelled at three sites by
Dairy Australia was applied to the other
five dairy regions.
Climate variables
The climate variables are:
seasonal rainfall and temperature
daily average temperature and humidity.
Additional climate variables and related
environmental stressors are known to
affect production but were assessed
more broadly due to data and evidence
limitations. These parameters include fire,
cyclones, sea level rise, pests and diseases.
As a result, our modelling of physical climate
risk may understate the potential impact of
climate change.
Outputs
Bounds were placed on the results of the
statistical models to ensure that outputs
were plausible. Results were filtered,
using Australian Bureau of Agricultural
and Resource Economics and Sciences
(ABARES) land use data, to remove unused
land such as deserts and waterways.
The effects of climate change were
expressed as percentage changes in
productivity from a 2018 adjusted baseline
to ensure relevance to the current day.
Commodity prices were assumed to
remain steady. In adaptation scenarios
the change in profitability is the change
in output post adaptation less the cost of
adaptive measures.
Adaptation
Potential adaptive measures were
researched for each agricultural sector.
These include measures already taken
up by some farmers but with potential for
increased uptake, as well as measures
not yet implemented but well researched.
Additionally, an allowance was included
for future technology not yet developed,
projected to be available from around 2035.
Adaptation uptake curves were developed
for each representative commodity type
based on the selected measures, their
expected crop yield improvements, and
costs to implement and uptake rates.
Credit risk
Using the profitability and productivity
impacts, we were able to estimate how
climate change could effect the credit
risk metrics of our existing agribusiness
customers. Using a driver based approach
and our existing credit risk models we
were able to assess the impact on the
portfolio’s probability of default. A number
of simplifying assumptions were made for
example, land values and commodity prices
were held constant. As a consequence, the
actual impacts may be greater or less than
those calculated.
Data sources
Farm location information was obtained
from the Australian Bureau of Statistics
(ABS) Agricultural Census 2015-16. Other
geographical information was obtained
from the ABS, ABARES and other Australian
Government agencies. Climate impact
models were drawn from research by
CSIRO, ABARES and Dairy Australia.
Limitations and uncertainties
This analysis is based on best available
information. However, it is unable to
overcome some important limitations and
uncertainties. For example, climate change
simulations currently have minimal ability to
model extreme weather events. Similarly,
agricultural impact models need to be
further developed to test the bounds at
which statistical relationships change.
Climate risk management
Climate-related, and wider environmental risk, is an important element of strategic risk which we identify, assess and manage
via our risk management framework and ESG business practices.
Policy and processes
Our approach to climate risk management
cascades down from our Group level
policies via the frameworks for each
material risk type, which are documented
in the Group’s Risk Management
Framework (see page 201).
The requirements of these policies and
frameworks are translated into sector/
portfolio controls and specific transaction
and client level processes that support
appropriate consideration of ESG risks
in business decisions.
In particular, climate change is included
as an area of special focus in our Group
Environmental and Social Policy, which
is underpinned by comprehensive
procedure documents that govern and
guide implementation across the Group.
Climate risk has the potential to create
both financial and non-financial impacts
for the Group, as its physical and transition
impacts have the potential to affect
our customers’ ability to service and
repay their loans, as well as the value
of collateral the Bank holds to secure
loans. These impacts include long-term
changes in climatic conditions, extreme
weather events, and the action taken
by government, regulators or society
more generally to transition to a low
carbon economy. For more please refer
to Climate-related risk in Note 9.2 of the
Financial report on page 206.
Climate in our ESG risk
assessment process
The Bank is a major provider of business
loans. A key step in our credit risk due
diligence for business lending is the
assessment of potential transactions for
ESG risks, including climate risk, through
our ESG Risk Assessment Tool.
All Institutional Bank loans and large
loans in other business units are subject
to a compulsory 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 more than 500 industry
sectors. The overall ESG risk levels are
aligned with the Equator Principles’ risk
categories A, B and C. Additional ESG due
diligence is required for transactions which
have medium or high ESG risks identified in
the initial assessment.
Along with climate and energy as focus
areas, we now include physical climate risk
in our ESG risk assessment process. This
means loans are reviewed to understand
how clients are managing their carbon
impacts and climate resilience.
There is compulsory training on ESG
Fundamentals and the ESG Risk
Assessment Tool for all our Institutional
Banking and Business Banking client
facing roles, plus the credit risk teams.
Assessing the emissions
in our investments and
business lending
To understand the concentration of our
carbon-related exposures we measure the
carbon intensity of equity investments, our
exposure to companies in the energy value
chain, and the overall emissions we finance
through our business lending portfolio.
Carbon emissions of equity
investments in FirstChoice investment
options
In line with our commitment to reduce our
own emissions we measure the climate
– related risks of our investments. For
our equity investments in the MySuper
products1, from June 2016, we see a
continued downward trend in carbon
emissions per $100,000 invested.
In the largest cohort of our FirstChoice
Employer Super offer, (FirstChoice
Employer 1970-74), emissions have gone
from 32.2 tCO2-e at 30 June 2018 to
30.6 tCO2-e at 30 June 20192. This is
equivalent to a reduction from 6.8 cars
driven daily for a year to 6.5 cars3.
For our multi manager equity portfolios,
our FirstChoice Australian Share emissions
stood at 18.9 tCO2-e per $100,000
invested and FirstChoice Global Share was
a lower 14.2 tCO2-e (4 cars compared to
3 cars) at 30 June 2019.
Another measure of carbon is carbon
intensity. This measures carbon emissions
normalised by sales revenue to allow
for comparison between companies of
different sizes. From June 2018 to June 2019
the carbon intensity of First Choice Employer
1970-74 has changed from 360.4 tCO2-e/$
revenue to 325.7 tCO2-e/$ revenue.
At June 2018, FirstChoice Australian Share
had a carbon intensity of 326.5 tCO2-e/$
revenue compared to 230.4 tCO2-e/$
revenue at June 2019. FirstChoice Global
Share also reduced its carbon intensity,
from 209.0 tCO2-e/$ revenue in June 2018
to 148.4 tCO2-e/$ revenue in June 2019.
1
On 16 March 2019 we updated the Commonwealth Essential Super age based investment option, known as the ‘Lifestage option’, to be more
tailored to the member’s age. This means the asset allocation is in line with that of the Lifestage option in FirstChoice Employer Super. Both
MySuper products will therefore have the same emissions per $100,000 going forward and will not be reported separately.
The equivalent number of cars data is sourced from the United States Environmental Protection Agency Greenhouse Gas Equivalencies Calculator.
2
3 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%.
60
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Addressing climate change (continued)
Energy value chain
For increased transparency, we have disclosed our exposure to thermal and metallurgical coal mining separately and we have detailed
our exposure to thermal and metallurgical coal within diversified miners.
As part of our review of the diversified miners, we have classified exposures to coal subsidiaries of diversified miners to thermal and
metallurgical coal directly.
Our exposure to metallurgical coal mining is $7 million and our exposure to diversified miners allocated to metallurgical coal mining is
$82 million (not included below).
Assessed emissions in our business lending portfolio
As a major provider of lending services, we
play a crucial role in supporting economic
and social development. We also recognise
the role we play in addressing the challenge
of climate change and in supporting the
transition to a low carbon economy. As a
result, we continue to assess the emissions
arising from our business lending across
Commonwealth Bank, ASB and Bankwest.
The emissions intensity of our overall
business lending portfolio has continued
to trend downwards, and has decreased
in FY18 by 7.4% to 0.26 kgCO2-e/$ of
expenditure. Most sectors have shown a
decrease in emissions intensity in FY18.
The Agriculture, Forestry and Fishing sectors
represent the most emissions intensive
part of our business lending portfolio.
Exposures as at 30 June 20191
2.0
The Electricity, Gas and Water Supply
sectors show a general downward trend.
The discontinuation of a number of high
emissions intensive exposures contributed
to this result in FY18. Our exposure to
renewables increased 33% to $3.7 billion
in FY18. A portion of the exposure included
projects under construction which are
typically initially more emissions intensive
than operational renewable electricity assets.
Natural resources
Infrastructure
Electricity generation
Network and retailers
CBA Group business lending
% of emissions by sector
Emissions intensity of expenditure (kgCO2-e/$): key sectors
1.5
Oil distribution
and refining
$0.8bn
(-17%)
Electricity
and gas
transmission,
distribution
and retailing
$5.0bn
(-18%)
LNG terminals
$2.8bn
(-14%)
Coal terminals
$0.9bn
(-9%)
Renewables
$3.6bn
(-2%)
Gas
$0.8bn
(+24%)
Coal
$0.005bn
(-97%)
Nuclear
$0.0bn
Oil
$2.3bn
(-18%)
Gas
$1.2bn
(-29%)
Thermal coal
$0.37bn
(-29%)
Thermal
coal within
diversified
miners2
$0.21bn
(-25%)
Uranium
$0.0bn
Key: (+%) (-%)
Change since FY18
1
2
All figures are Total Committed Exposures (TCE) as at 30 June 2019. Figures represented have been specifically derived based on material
client exposures. Not included are ‘Other energy-related’ exposures ($0.8 billion) which comprise smaller loans and exposure to energy
trading entities.
Thermal coal exposure within each diversified miner is calculated as the Group’s exposure to the miner, excluding exposure to coal subsidiaries,
multiplied by the percentage EBITDA contribution of thermal coal in its latest annual financial statements. Exposure to coal subsidiaries of diversified
miners are allocated to thermal coal.
62
7%
3%
6%
7%
9%
7%
3%
39%
6%
13%
7%
9%
17%
39%
13%
17%
Agriculture, forestry
and fishing
Electricity, gas
and water supply
Transport and storage
Manufacturing
Mining
Property and business
services
Construction
Other
2.0
1.5
1.0
1.0
0.5
0.0
0.5
0.0
FY18
FY17
FY16
FY15
FY14
Agriculture,
forestry and
fishing
Electricity,
gas and water
supply
Transport
and
storage
Mining
Manufacturing Construction
Property and
business
services
The full assessed emissions analysis including the detailed methodology is available at commbank.com.au/CRreporting
Climate metrics and targets
We report regularly on key metrics to measure our progress and to provide transparency to our stakeholders.
During the year we signed up, as the first Australian corporate, to RE100. This commits us to source 100% of our electricity consumption
from renewable sources by 2030. As a first step in that process, as of June 2019 we are sourcing 65% of our national needs from the
Sapphire Wind Farm in New South Wales. The table below shows the latest progress against our climate-related targets.
Metric
Target
FY19 progress
Low carbon target
$15 billion by 2025
Sourcing renewable energy
for our power needs
100% by 2030
Emissions per FTE (Australia)
2.0 tCO2-e by 2020
Solar panels on branches1
1,250 kW by 2020
$5.1 billion committed exposure
as at 30 June 20192
65%
2.1 tCO2-e
1,105 kW
Assessed emissions in our
business lending portfolio
An average emissions intensity decrease of our
business lending portfolio consistent with our
commitment to a net zero emissions economy by 2050
0.26 kgCO2-e/$ of expenditure
(2018 financial year)
For a full set of our Environmental, customer, social and governance metrics (including PwC’s external assurance statement) see page 297.
1
2
A real time portal which displays data on how our network of solar equipped branches is performing can be accessed at cbasolarpower.com.au.
Reported exposure in the FY18 Annual Report (page 57) was $7.3 billion. A review found this was overstated and the correct FY18 figure for low
carbon project funding was $4.6 billion.
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Commonwealth Bank of Australia Annual Report 2019 Strategic
report
Financial
results
Risk
management
Corporate
governance
Directors’
report
Financial
report
Other
information
Corporate
governance
Our commitment to corporate governance
Corporate Governance Framework
Board of Directors
Board renewal and composition
Stakeholder engagement
Board Committees – Areas of focus
Assessing Board effectiveness
Governance in practice
Executive Leadership Team
65
65
66
68
70
71
72
72
74
Our commitment to corporate governance
During the year, the Board continued
to strengthen corporate governance at
the Bank to support better stakeholder
outcomes.
The Board has set clearer expectations
of management, and has increased its
oversight and scrutiny of the risks facing
the Bank.
The Board has been focused on
implementing the recommendations of
last year’s Australian Prudential Regulation
Authority (APRA) Prudential Inquiry Report
into CBA (Inquiry Report), and are on track
to deliver against the milestones detailed
in our Remedial Action Plan.
The Board is accountable for implementing
recommendations 1 to 5 of the Inquiry
Report relating to Board governance
(see page 73 for more details).
The Board continues to review and
further enhance the Bank’s Corporate
Governance Framework and supporting
documents in light of new laws, evolving
stakeholder expectations and the dynamic
operating environment.
The Executive Leadership Team
established a Non-Financial Risk
Committee in June 2018.
Its role is to assist and advise the Bank’s
Managing Director and Chief Executive
Officer (CEO) on the governance and
effective management of the Group’s
non-financial risks. This includes
operational, compliance (including
conduct), financial crime and cyber risks,
in accordance with the Group’s Risk
Appetite Statement and Group Risk
Management Approach as approved
by the Board.
Corporate Governance Framework
The diagram below shows the Bank’s
current Corporate Governance Framework,
including its Board Committees.
The Board is responsible for setting the
strategic objectives and risk appetite
for the Bank, and for leading the culture,
values and behaviours of our people.
The Board appoints the Bank’s CEO. It also
oversees the management, performance
and governance frameworks of the Bank.
In addition to matters required by law
to be approved by the Board, the Board
has reserved certain powers for itself as
described in the Board Charter and the
Board’s Reserved Powers and Standing
Delegations document.
The Board delegates certain powers
to its Board Committees. At its discretion,
the Board may form other committees
to undertake specific duties.
The Board confers on the CEO the powers
of the Board exercisable in management
of the business of the Bank.
The CEO, in turn, may delegate some of
these powers to Group Executives and
other officers. Despite any delegations
by the CEO, the CEO is accountable to
the Board for the exercise of the delegated
powers and management’s performance.
The Bank’s Corporate Governance
Statement describes the key elements
of our Corporate Governance Framework
and the actions taken during the financial
year to enhance it. It can be viewed at
commbank.com.au/corporategovernance.
Corporate Governance Framework
Stakeholders
Board
Independent Non-Executive Directors and CEO
Audit Committee
Nominations Committee
Risk Committee
Remuneration
Committee1
Delegation
Accountability
Strategy
and risk
management
Independent
assurance and
advice
internal audit
external audit
other ad-hoc
independent
assurance and
advice
Executive
Leadership Team
Non-Financial Risk
Committee
Purpose,
values and
culture
Company Secretary
CEO
Executive
Leadership Team
Our people
Policies, systems and processes
1 Committee name changed to People & Remuneration Committee effective 1 July 2019.
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Board of
Directors
Board of Directors
Left to right: Shirish Apte, Anne Templeman-Jones, Wendy Stops, Sir David Higgins, Matt Comyn (CEO), Paul O’Malley, Catherine Livingstone AO
(Chairman), Professor Genevieve Bell, Robert Whitfield, Mary Padbury.
Catherine Livingstone AO
Chairman
Catherine has been a Non-Executive 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. She
is a former President of the Business Council
of Australia and the Australian Museum. In
2008, Catherine was awarded Officer of the
Order of Australia.
Nominations Committee (Chairman),
Risk Committee, Audit Committee and
People & Remuneration Committee.
WorleyParsons Limited, University of
Technology Sydney (Chancellor), The
Australian Ballet and CSIRO Australia
Telescope National Facility Steering
Committee.
BA Hons (Accounting), FCA, PED,
FTSE, FAICD, FAA.
Matt Comyn
Managing Director and Chief Executive
Officer
Matt was appointed Managing Director and
Chief Executive Officer on 9 April 2018. He
has 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.
UNICEF Australia, Australian Bankers
Association and Financial Markets
Foundation for Children.
BAv, MCom, EMBA, GMP.
Shirish Apte
Independent Non-Executive Director
Shirish has been a Non-Executive 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,
Co-Chief Executive Officer of Europe, Middle
East and Africa, and Country Manager and
Deputy President of Citi Handlowy, where he
is now a member of the Supervisory Board.
Shirish is a former Director of Crompton
Greaves Ltd.
Risk Committee (Chairman) and
Audit Committee.
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), Citi Handlowy (Supervisory
Board), Accion International, Virtusa
Corporation (Advisor), Acibadem Hospital
Group (Turkey) and Fortis Healthcare.
CA, BCom, MBA.
Professor Genevieve Bell
Independent Non-Executive Director
Genevieve became a Non-Executive Director
on 1 January 2019. Genevieve is a cultural
anthropologist, technologist and futurist.
Genevieve is a Distinguished Professor at
the College of Engineering and Computer
Science at the Australian National University
(ANU) and is the inaugural Florence Violet
McKenzie Chair at the University. Genevieve
is a Senior Fellow of Intel Corporation and
is the Vice President of Intel’s Product
Assurance and Security Group.
Nil.
Florence Violet McKenzie (Chairman),
Autonomy, Agency & Assurance
Innovation Institute (3A), National
Science and Technology Council
(Member) and Editorial Board of the
Australian Army Journal (Member).
PhD, MA, MPhil, BA.
Sir David Higgins
Independent Non-Executive Director
Sir David has been a Non-Executive 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.
People & Remuneration Committee
(Chairman) and Risk Committee.
Gatwick Airport Ltd (Chairman), United
Utilities Group PLC (Board Member),
United Utilities Water Ltd (Board
Member) and Senior Advisor of Marshall
Industries and BAI Communications.
BE (Civil), Diploma (Securities Institute
of Australia).
Paul O’Malley
Independent Non-Executive Director
Paul became a Non-Executive Director on
1 January 2019. Paul was Managing Director
and Chief Executive Officer of BlueScope
Steel Limited from 2007 to 2017, after joining
the company as Chief Financial Officer
18 months prior. He was formerly the Chief
Executive Officer of TXU Energy, a subsidiary
of TXU Corp based in Dallas, Texas, and has
held other senior financial management roles
within TXU. Paul had previously worked in
investment banking and consulting.
Paul is a former Director of the Worldsteel
Association, Chair of its Nominating
Committee and Trustee of the Melbourne
Cricket Ground Trust.
People & Remuneration Committee1
and Nominations Committee.
Australian Catholic Redress Limited
(Chairman).
BCom, M. App Finance, ACA.
Mary Padbury
Independent Non-Executive Director
Mary has been a Non-Executive Director
since June 2016. She is a pre-eminent
intellectual property lawyer with over
35 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.
People & Remuneration Committee
and Nominations Committee.
Trans-Tasman IP Attorneys Board
(Chairman), The Macfarlane Burnet
Institute for Medical Research and
Public Health Ltd (Chairman), Clinical
Genomics Technologies Holdings
Limited (Director), Chief Executive
Women (Member) and Victorian Legal
Admissions Committee (Member).
BA LLB (Hons), GAICD.
Wendy Stops
Independent Non-Executive Director
Wendy has been a Non-Executive 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.
Audit Committee and People &
Remuneration Committee.
Altium Ltd, Coles Group, Fitted For Work
Ltd, University of Melbourne (Council
Member), Chief Executive Women
(Member), Australian Institute of Company
Directors Technology Governance &
Innovation Panel and Chairman of the
Melbourne Business School’s Centre for
Business Analytics Advisory Board.
BAppSc (Information Technology), GAICD.
Anne Templeman-Jones
Independent Non-Executive Director
Anne has been a Non-Executive 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, risk and remuneration
committees on current and past boards.
Audit Committee (Chairman) and
Risk Committee.
GUD Holdings Ltd, The Citadel Group
Ltd, WorleyParsons Ltd, Cyber Security
Research Centre Ltd (Director) and
Cyber Security Research Committee
(Member).
BCom, EMBA, MRM, CA, FAICD.
Robert Whitfield
Independent Non-Executive Director
Rob has been a Non-Executive 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.
Risk Committee and Nominations
Committee.
NSW Treasury Corporation.
BCom, Grad Dip Banking, Grad Dip Fin,
AMP, SF Fin, FAICD.
Key:
Committees
Other Directorships and interests
Qualifications
Andrew Mohl retired 7 November 2018.
Brian Long retired 31 December 2018.
1 Paul O’Malley will become chair of the People & Remuneration Committee effective 1 January 2020.
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Commonwealth Bank of Australia Annual Report 2019
67
Strategic
report
Financial
results
Risk
management
Corporate
governance
Directors’
report
Financial
report
Other
information
Board renewal
and composition
The Board adopted a target of 40%
female Board members by the end
of 2020. The Board first met this
target in 2017 and now exceeds it.
Female Directors
50%
as at 30 June 2019
40%
2020 target
2020 target
Tenure as at 30 June 2019
0-1
YEARS
2 Directors
1-3
YEARS
3 Directors
3-6
YEARS
5 Directors
Board renewal and composition
Andrew Mohl retired at the conclusion
of the 2018 Annual General Meeting, and
Brian Long retired on 31 December 2018.
In anticipation of Brian Long’s retirement,
Anne Templeman-Jones was appointed
Chairman of the Audit Committee and
a member of the Risk Committee on
1 October 2018.
As a result of this year’s review, ‘Enhanced
customer outcomes’ was added to the
Matrix. This competency is considered
important for Directors to oversee the
Bank’s efforts to improve the experience
and outcomes of our customers through:
increasing the voice of the customer in
Board deliberations
Professor Genevieve Bell and Paul O’Malley
were both appointed Non-Executive
Directors on 1 January 2019. Genevieve’s
knowledge and understanding of
technology in society and business has
brought a unique and valuable perspective
to the Board. Paul’s broad operational
and finance experience, as well as his
experience in business leadership,
has brought a strategic perspective
to the Board.
Paul O’Malley was appointed a member
of the Remuneration Committee and the
Nominations Committee effective 1 June
2019. Paul will commence as Chairman
of the renamed People & Remuneration
Committee from 1 January 2020
following Sir David Higgins’ retirement
on 31 December 2019.
The Board uses a Skills Matrix (Matrix) which
sets out the desired skills and experience
important for the effectiveness of the Board.
It is reviewed annually to ensure it reflects
the appropriate mix of skills, expertise and
experience required to address existing and
emerging business and governance issues,
and to enable Directors to effectively review
the performance of management.
ensuring regular reporting of customer
complaints, insights and management’s
actions in response
overseeing CBA conduct risk in relation
to customer outcomes
ensuring speed of customer remediation
where failures have occurred.
This year, each Director completed
a questionnaire rating their skills,
expertise and experience from 0 to 3 for
each competency (0 = no experience,
1 = awareness, 2 = practised/direct
experience and 3 = high competency,
knowledge and experience). The self-
assessment ratings were subsequently
calibrated with these results reviewed by
the Nominations Committee and approved
by the Board.
Individual matrices have also been
developed for the Audit Committee,
Remuneration Committee and Risk
Committee.
The Board considers that all of its
Non-Executive Directors, including the
Chairman, were independent during the
year and continue to be independent.
Board skills matrix
Practised skill/direct experience (number of Directors)
High competency, knowledge and experience (number of Directors)
Enhanced customer outcomes
Demonstrated ability to understand the needs of customers and
enhance their experience and outcomes
Financial acumen
Proficiency in financial accounting and reporting, capital management
and/or actuarial experience
Financial services experience
Experience in banking, as relevant to CBA, and financial regulation
Global perspective
Having a global perspective through exposure or responsibility
for international operations
Leadership
Held CEO or similar position in an organisation of significant size
Legal acumen
Proven ability and understanding in the application of legal principles
Listed company experience
Experience as a non-executive director of at least two other listed entities
(Australia or overseas)
Risk management
Proven ability in identifying, assessing and managing macro, strategic,
operational and financial risks
Stakeholder engagement
Demonstrated ability to build and maintain key relationships with industry,
government or regulators
Strategy
Demonstrated experience in developing, implementing and delivering
strategic business objectives
Technology
Experience in technology strategies and innovation
10
6
4
2
2
3
3
6
2
4
6
7
1
4
5
6
5
2
3
6
4
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Other
information
Stakeholder
engagement
The Bank is committed to providing
better outcomes for customers,
earning the trust of the communities
we serve, ensuring our people are
energised and accountable, and
delivering sustainable, long-term
returns for our shareholders.
Key stakeholders
In addition, the Bank regularly convenes
external advisory forums to discuss
specific matters – these include the CEO
Advisory Panel, the Customer Advocate
Community Council and the Indigenous
Advisory Council.
Through the CommBank Foundation
we offer our people the opportunity to
participate in one of Australia’s largest
workplace giving programs. During
the 2019 financial year, the CommBank
Foundation provided over $3.7 million to
eligible community organisations, and
raised over $2 million for cancer research.
Customers
We regularly engage with our customers
through customer feedback, surveys and
workshops, customer representative
bodies, complaint channels and external
dispute resolution bodies.
Our Customer Advocate function
strengthens accountability for fair
customer outcomes and offers a more
customer-oriented approach. The function
helps improve our products, processes,
systems and decision making in order
to deliver better and consistently fair
customer outcomes.
Community
We engage with members of the
community and community organisations
through a variety of channels. For example,
we participate in community events
and forums, are members of industry
associations, and meet with Non-
Government Organisations. The insights
we gain in the process of our engagement
help us continuously improve our
products and services in light of evolving
community expectations.
Our people
We engage with our people formally, twice
a year, through an engagement survey,
Your Voice. The survey informs the Board
about how engaged our people are with
our purpose, our values and the team they
are working with. We also seek feedback
on diversity and inclusion. The responses
provide the Board and Executive
Leadership Team with key opportunities
for improvement for matters that affect
our people.
We use a range of digital and social
platforms to communicate with our people.
During the year we established ‘AskMe’,
an online platform designed to capture
our people’s feedback about new ideas
or initiatives that could help us become
a simpler, better bank.
We encourage our people to report any
misconduct issues and provide them
the ability to do so through our SpeakUP
hotline. The Group Whistleblowing Policy
outlines the processes for investigating
and resolving any misconduct issues that
have been reported.
Shareholders
We aim to provide our shareholders
with timely information relevant to their
investment. There are multiple avenues
for shareholders to access information
and provide feedback. Detailed company
information can be found on our Investor
Centre at commbank.com.au/investors.
We communicate regularly with
shareholders through the Group’s Annual
Report, full-year and half-year financial
results announcements, quarterly trading
updates and ASX announcements. Our
shareholders also receive an update from
the Chairman and CEO with their interim
dividend statements.
All material information is released to
the ASX in compliance with the Bank’s
continuous disclosure obligations under
the Corporations Act 2001 (Cth) and
the ASX Listing Rules. Our Continuous
Disclosure Policy was reviewed and
updated in March 2019 and is available at
commbank.com.au/corporategovernance.
We recognise the importance of
shareholder participation at our Annual
General Meeting (AGM) and shareholders
are encouraged to attend and participate.
The Bank’s AGM is held in different
locations to facilitate shareholder
attendance. Our AGM is webcast live
to allow shareholders who are unable to
attend in person, to view the AGM online.
We encourage shareholders to submit
their questions ahead of the AGM, as they
provide useful insights into shareholder
concerns, enabling the Bank to provide
relevant feedback on consistent themes
raised.
Our Investor Relations team is responsible
for communication and engagement with
investors and provides the Board with
regular updates on Investor Relations
matters. The Chairman, CEO, CFO and
Group Executives meet with domestic and
offshore institutional investors throughout
the year.
Board Committees – Areas of focus
Nominations Committee Chairman’s message
The Nominations Committee is responsible for Board and Board Committee composition,
succession planning, Director induction and appointment, election and re-election of
Non-Executive Directors. During the year, the Nominations Committee focused on the
membership and skills mix of the Board and Board Committees, and the Governance
Framework covering key operating subsidiaries.
Audit Committee Chairman’s message
The Audit Committee is responsible for external reporting of financial information for the
Group, the internal control framework and environment, the internal auditor and internal
audit function and external auditors, and the Group’s Risk Management Framework in
conjunction with the Risk Committee. During the year, the Audit Committee focused on
the implementation of IFRS 9 ‘Financial Instruments’, and improvements to the issues
identification and management process and the Group Audit and Assurance end to
end process.
Risk Committee Chairman’s message
The Risk Committee is responsible for the Group’s Risk Management Framework,
Risk Culture and the Risk Management Function. During the year the Risk Committee
focused on non-financial risks areas of cybersecurity, financial crimes compliance,
suppliers and data management, ensuring a more efficient flow of non-financial
risk information.
People & Remuneration Committee Chairman’s message
The Remuneration Committee is responsible for remuneration strategy and policy,
remuneration arrangements and outcomes, and the performance management
framework. During the year it also focused on more formal processes for ensuring that
risk-related behaviours and outcomes are reflected in variable remuneration outcomes
together with the Group’s implementation of the recommendations of the Sedgwick
Report on Payments in Retail Banking.
Catherine Livingstone AO
Nominations Committee Chairman
Anne Templeman-Jones
Audit Committee Chairman
Shirish Apte
Risk Committee Chairman
Sir David Higgins
People & Remuneration Committee Chairman
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Commonwealth Bank of Australia Annual Report 2019 Strategic
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in practice
Directors’
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Financial
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Other
information
Assessing Board effectiveness
Governance in practice
APRA Prudential Inquiry Report: Board governance recommendations
Group policy framework
Policies play a key role in guiding decision
making and conduct across the Group.
To ensure that our policies are fit for
purpose, we have enhanced the Group’s
policy framework and embarked on a
comprehensive review of policies and
supporting procedures.
Enhancements to the policy framework
have:
streamlined and standardised policy
governance and management across
the Group
clarified roles, responsibilities and
accountabilities
introduced a systematic approach for
determining whether policies should be
developed, consolidated or revoked.
The comprehensive policy review currently
underway is streamlining our policies and
procedures and ensuring that they:
are clear, consistent and easy to
understand
articulate minimum standards for
compliance and operational risk
management
promote cultural change
support our purpose of improving the
financial wellbeing of our customers
and communities.
The Board recognises the importance
of continuously monitoring and
improving its performance and the
performance of its Committees.
Performance evaluations are externally
facilitated every three years, or as
otherwise determined by the Board. In the
intervening years, an internal evaluation is
conducted. The next external evaluation
is scheduled for 2020.
Evaluation cycle
Year 1
Externally
facilitated
Year 3
Internal
review
(we are here)
Year 2
Internal
review
2019 evaluation of the
Board’s performance
The Board has been evaluating its
performance throughout the year having
regard to the focus areas identified as a
result of the 2018 performance evaluation,
the implementation of the Banking Executive
Accountability Regime and the governance
recommendations in the Inquiry Report.
The Board commenced an internal
evaluation in May to formally assess its
performance, and the performance of
each Board Committee. The process was
led by the Chairman of the Board with the
support of the Group Company Secretary.
The internal evaluation process was
expanded this year, to include a series of
questions designed to assess whether
the Board:
continues to have heightened visibility
of conduct, culture and reputation
within the Bank
has promoted a clear tone from
the top in both clear and consistent
messaging and actions
has an effective working relationship
with, and engages in regular
constructive discussions with
management
effectively inducts, and provides
sufficient professional development
opportunities to Directors to ensure
it has the rights balance of skills and
expertise
is receiving adequate reporting for
effective decision making
demonstrates rigour and urgency in
respect of key issues and closure of
control weaknesses.
Feedback was also sought from the
Executive Leadership Team.
The Chairman held individual meetings
with each Director to discuss their
evaluation responses, as well as their
individual performance throughout the
year. The Chairman was assessed by a
Non-Executive Director. The outcomes
of the internal performance evaluation
were provided to the Board in June and
the findings discussed in August.
The evaluation concluded that the
performance of the Board and its Board
Committees was effective for the year
under review.
The Board agreed to the following four
areas of focus for the 2020 financial year:
the working relationship between the
Board and management
culture including customer outcomes,
conduct, compliance and reputation
longer-term strategy including the
impact of emerging technology and
innovation
enhanced Board reporting and
processes.
The Bank has developed a Remedial Action
Plan to address the recommendations
outlined in the Inquiry Report.
Recommendations 1-5 relate specifically
to Board governance. The Board continues
to make progress from designing to
implementing actions to address each
recommendation. To provide clarity on
objectives, the Board has developed
target states.
The Board’s external performance
evaluation, scheduled for 2020, is expected
to include an independent assessment
of the progress towards these target
state objectives.
#1 Board visibility
Target state:
The Board continues to have a
positive influence on the behaviours
within the Group, and is engaged and
visible with senior management.
The CEO and the Group Company
Secretary report key matters arising
from Board and Board Committee
meetings to the Executive Leadership
Team (ELT). This includes sharing
feedback from the meeting review
process to ensure alignment on actions
and agenda items for the next meeting.
The annual Board evaluation process
includes engagement with the ELT
on Board and Board Committee
performance. The evaluation focuses
on whether the Board continues to have
heightened visibility and promotes a
clear tone at the top.
#2 Board better practice
#4 Audit Committee
Target state:
Target state:
The Board, and its Audit and Risk
Committees, are operating at a level
consistent with global better practice.
A review of risk management processes
and practices of the Board, Risk
Committee and Audit Committee was
conducted. The findings of the review
were tabled and discussed by the Board.
The Board Corporate Governance
Guidelines were amended to include
periodic reviews of the processes
and practices of the Board and Board
Committees to consider if they are
appropriately aligned with global better
practice for risk management.
Owners of material issues are
held accountable for the resolution
and effective closure of issues within
their remit.
The Bank has reviewed and updated
its end to end internal audit practices
with a specific focus on assisting the
Audit Committee to drive greater
accountability for resolution of
issues, including the way in which the
remediation of issues associated with
red rated audit reports and associated
issues are monitored and reported.
#5 Board reporting
#3 Board coordination
Target state:
Target state:
There will be clear accountabilities
between Board Committees, timely
and effective information flows
between the Board Committees
and oversight and resolution of
relevant issues.
In June 2018, the Board reviewed
and approved appropriate referral of
matters between its Board Committees.
Concurrent meetings of the Board
Committees are held periodically
to consider material financial and
non-financial risks relevant to executive
performance and remuneration, and
share information about key matters
where appropriate.
The Board is able to understand,
examine and identify the issues
arising across the categories of
non-financial risk, including new
and emerging risks. The Board will
receive granular information with
respect to the Bank’s position against
its risk appetite in order to drive
discussion and actions to manage
non-financial risk.
Non-financial risk reporting, and the
process in which it is escalated to the
Board, Risk or other Committee, has
been enhanced. Regular reporting
is received by the Board on key
areas of focus discussed at the ELT
Non-Financial Risk Committee.
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Executive
Leadership Team
Executive
Leadership Team
Left to right: Adam Bennett, Pascal Boillat, Sian Lewis, Nigel Williams, David Cohen, Angus Sullivan, Matt Comyn (CEO), Andrew Hinchliff,
Vittoria Shortt, Alan Docherty, Anna Lenahan.
Adam Bennett
Pascal Boillat
David Cohen
Group Executive, Business and Private
Banking
Group Executive, Enterprise Services and
Chief Information Officer
Adam was appointed Group Executive,
Business and Private Banking (B&PB) in
January 2015. He has responsibility for
Business Banking, Private Banking and
CommSec. He joined the Bank in 2004
and was the Chief Information Officer for
Retail and Business Banking. He joined the
B&PB Leadership Team in 2009, serving
as Executive General Manager of Local
Business Banking from 2012 to 2014.
Adam’s key priorities include: strengthening
the customer proposition across everyday
banking, merchants and payments,
and commercial lending; improving the
end-to-end customer experience through
investment in digital, analytics, and frontline
bankers; and enhancing risk management.
Previously, Adam was Principal at strategic
consulting practice A.T. Kearney, working
across industries in Australia, New Zealand,
Asia and Europe. He also worked as a
consultant at Ernst & Young.
Pascal joined the Bank as Group
Executive, Enterprise Services and Chief
Information Officer, in October 2018. He has
responsibility for information technology,
cyber security, technology infrastructure
and digital delivery across the Group. He
also leads operations and procurement.
Pascal’s priorities focus on strengthening
the safe, sound and secure provision of
technology and operations services; agility
to enable the delivery of new products
and services for customers at pace;
and improving performance to ensure
Enterprise Services produces the right
outcomes for the Bank.
Previously, Pascal held a number of
senior executive roles at Deutsche Bank,
Fannie Mae, Citibank and Credit Suisse.
He has more than 30 years’ international
experience in the financial services sector.
Deputy Chief Executive Officer
David was appointed Deputy Chief
Executive Officer in November 2018. In
this role he is responsible for the Group’s
Customer and Community Advocacy
team, as well as the Group’s Mergers and
Acquisitions team and the International
Financial Services business. David also
oversees Colonial First State, and until
its sale is complete, CommInsure Life.
On 1 July 2019, he assumed interim
responsibility for Group General Counsel.
David joined Commonwealth Bank in 2008
and has held a number of roles including
Group General Counsel, Group Executive
Group Corporate Affairs and Chief
Risk Officer.
In addition to his business responsibilities,
David’s key priority is supporting the
Chief Executive Officer on Group-wide
initiatives to build a simpler and better
bank for the future, with a focus on building
and enhancing the Bank’s engagement
with government, regulators, industry
and community groups, and chairing the
Bank’s Royal Commission Implementation
Taskforce.
Previously, David was General Counsel
of AMP and a partner with Allens Arthur
Robinson for 12 years.
Alan Docherty
Group Executive, Financial Services
and Chief Financial Officer
Alan was appointed Group Executive,
Financial Services and Chief Financial
Officer in October 2018 after acting in the
role from May 2018. He has responsibility
for the Group’s finance function. Alan joined
the Bank in 2003 and has held a variety of
senior finance leadership positions, before
serving as Chief Financial Officer of the
Institutional Banking and Markets division.
Alan’s priorities are to ensure that the finance
function supports the execution of the
Bank’s purpose and strategy through a long
term focus on fostering a highly engaged
and talented team who: build trust with all
stakeholders and help them make informed
decisions; ensure the Bank remains resilient
through prudent management of our
key financial risks; and deliver strong and
sustainable capital generation for the benefit
of our shareholders.
Alan’s career began in the UK, working in
PwC’s Financial Services practice before
joining Arthur Andersen in Australia. Alan
is a Member of the Institute of Chartered
Accountants of Scotland.
Andrew Hinchliff
Group Executive, Institutional Banking
and Markets
Andrew was appointed Group Executive,
Institutional Banking and Markets (IB&M) in
August 2018. He has responsibility for serving
the financial needs of large institutions and
governments across Australia and New
Zealand, and in select international markets.
Andrew joined the Bank in 2015 as Executive
General Manager, Global Markets.
Andrew is focused on IB&M being the
bank of choice for Australian corporations
and governments, as well as corporations
looking to do business in Australia. Andrew
is committed to ensuring IB&M brings a
new perspective to its clients and utilises
its global network to help its clients build
a better Australia.
Andrew’s career in institutional banking and
markets spans more than 15 years, having
held a variety of leadership positions with
Goldman Sachs and Credit Suisse First
Boston across Fixed Income, Currencies,
Commodities Sales and Trading teams.
Anna Lenahan
Group General Counsel and Group
Executive, Group Corporate Affairs
Anna joined the Bank as Group General
Counsel and Group Executive, Group
Corporate Affairs in November 2016. She
advised the CEO and the Board on legal
matters and was also responsible for
delivering an integrated and consistent
approach to the Group’s external
and internal affairs, communications,
sustainability and corporate governance.
Anna’s priorities have been to ensure
the effective and efficient resolution of
the Group’s legal matters; support the
effectiveness of the Board; provide timely,
meaningful information on the Group’s
activities to our stakeholders; and meet
the Group’s commitment to invest in
the community.
Prior to joining the Bank, Anna was the
Chief Risk and Legal Officer at Suncorp
Group. Previously she was a Corporate
Partner at Allens Arthur Robinson and a
crown prosecutor with the Department
of Public Prosecutions in Perth.
Anna retired on 30 June 2019.
Sian Lewis
Group Executive, Human Resources
Sian was appointed Group Executive,
Human Resources (HR) in August 2018.
Sian joined the Bank in 2014 as General
Manager, Distribution Transformation and
more recently led 2,500 people across the
retail bank’s customer contact centres.
Sian’s priorities are to help the Bank
maintain an energised and accountable
workforce that is committed to delivering
the Bank’s purpose; integrate the Bank’s
values to guide the right actions and
behaviours; strengthen and support a
diverse and inclusive workforce; promote
employee wellbeing; skill the Bank’s
workforce for the future; and simplify
HR processes for our people.
Previously, Sian spent nine years at
Westpac, working across retail and
business banking and two years working
with the Australian banking regulator,
APRA. Originally from the UK, Sian spent
10 years in senior HR consulting roles at
Atos Consulting and KPMG as change
and program management director.
Vittoria Shortt
Chief Executive and Managing Director,
ASB
Vittoria was appointed Chief Executive
and Managing Director of ASB in February
2018. She has responsibility for leading the
Group’s New Zealand subsidiary. Vittoria
joined Commonwealth Bank in 2002 and
has held a number of leadership roles
across the retail banking businesses of
Commonwealth Bank and Bankwest,
including as Group Executive, Marketing
and Strategy.
Vittoria’s priorities are to provide leading
customer experiences that deliver
good customer outcomes; harness new
technology to provide innovative solutions;
and support community programs that
have a significant positive impact.
Vittoria’s career began in New Zealand,
working in Corporate Finance and Mergers
and Acquisitions with Deloitte and Carter
Holt Harvey.
Angus Sullivan
Group Executive, Retail Banking Services
Angus was appointed Group Executive,
Retail Banking Services, in July 2018 after
acting in the role from April 2018. He is
responsible for Retail Banking Services,
which serves over 10 million customers,
and Bankwest. Angus joined the Bank
in 2012 as Executive General Manager,
Group Strategy. In 2013, he moved to
Retail Banking Services where he held a
number of senior positions across products,
payments and the retail branch network.
Angus’ priorities are to deliver exceptional
customer service and outcomes, with
leading technology and innovation in
products and services. He is also committed
to continuing the Retail Bank’s legacy of
supporting Australian communities.
Previously, Angus was a Partner at McKinsey
& Co. in New York, specialising in retail and
commercial banking, wealth management,
payments and general insurance.
Nigel Williams
Group Chief Risk Officer
Nigel joined the Bank as Group Chief
Risk Officer in November 2018. He
is responsible for the effective risk
management of all risk types across the
Group – including credit risk, operational
risk, compliance, liquidity, financial crime
compliance and insurance.
Nigel is focused on achieving better
customer and risk outcomes by driving
more conscious risk/return decisions and
better compliance across the Group.
Nigel was the Chief Risk Officer at Australia
and New Zealand Banking Group and
previously Managing Director for ANZ’s
Institutional Bank in Australia. Nigel has
35 years of banking experience across
Australia, New Zealand and abroad.
George Confos ceased as Acting Group
Executive, Institutional Banking and Markets
on 31 July 2018.
Melanie Laing ceased as Group Executive,
Human Resources and retired on 31 July 2018.
Paul Newham ceased as Acting Group
Executive, Enterprise Services and Chief
Information Officer on 30 September 2018.
Michael Venter Chief Operating Officer Wealth
Management, ceased as Key Management
Personnel on 2 December 2018.
Coenraad (Coen) Jonker ceased as Group
Executive, International Financial Services
on 31 December 2018.
Priscilla Sims Brown assumed the role of Group
Executive, Marketing and Corporate Affairs on
1 August 2019.
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Directors’ report
The Directors of the Commonwealth Bank of
Australia present their report, together with
the Financial report of the Commonwealth
Bank of Australia (the Bank) and of the
Group, being the Bank and its controlled
entities, for the year ending 30 June 2019.
Principal activities
We are one of Australia’s leading providers
of financial services. We serve the needs
of more than 17.4 million customers with a
focus on retail and commercial banking.
Our products and services are provided
through the following divisions:
Retail Banking Services provides
home loans, consumer finance and
other banking products and services
to personal and business customers.
Customers are supported through a
network of branches, ATMs, Australia-
based customer call centres, online
services and apps, as well as mobile
banking specialists and support teams.
Retail Banking Services includes
Bankwest, the Group’s general
insurance business in Australia (which
is under strategic review), the Group's
mortgage broking operations and
Commonwealth Financial Planning.
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. Business and Private
Banking also provides margin lending
and online equities trading through our
CommSec business.
Institutional Banking and 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,
transactional banking, working capital
and risk management capabilities.
ASB New Zealand includes banking
and funds management businesses
operating in New Zealand.
Wealth Management provides
superannuation, investment, retirement
and insurance products and services
including financial planning.
International Financial Services includes
the Indonesian retail and business
banking operations and associate
investments in China and Vietnam.
We operate in Australia, New Zealand,
United Kingdom, the United States, China,
Japan, Europe, Singapore, Hong Kong
and Indonesia.
On 21 September 2017, the Group entered
into an agreement to sell 100% of its
life insurance businesses in Australia
(CommInsure Life) and New Zealand
(Sovereign) to AIA Group Limited (AIA).
The sale of Sovereign completed on 2 July
2018. The sale of CommInsure Life remains
subject to completion of the transfer of the
Group’s stake in BoCommLife Insurance
Company Limited (BoCommLife) out
of CommInsure Life and its associated
Chinese regulatory approvals.
The Group and AIA remain fully committed
to completing the CommInsure Life
transaction. The Group and AIA are also well
progressed in exploring an alternative path to
complete the CommInsure Life transaction
prior to the transfer of the Group’s stake
in BoCommLife. The alternative path is
expected to be subject only to Australian
regulatory approvals and would result in
overall financial outcomes for the Group
that are not expected to be materially
different to those previously announced.
The Group expects to be able to provide
further details of this alternative path by the
end of the first quarter of the financial year
2020, if the sale of BoCommLife has not
substantially progressed in that timeframe.
On 23 May 2018, the Group announced
the sale of its 37.5% equity interest
in BoCommLife to Mitsui Sumitomo
Insurance Co. Ltd (MSI). The sale of
BoCommLife is subject to Chinese
regulatory approvals and is the final
condition precedent for the sale of
CommInsure Life. The sale of BoCommLife
is expected to be completed in the second
half of the calendar year 2019.
On 25 June 2018, the Group announced its
intention to demerge its wealth management
and mortgage broking businesses, and
undertake a strategic review of its general
insurance business, including a potential sale.
On 23 October 2018, the Group
announced the sale of its 80% interest
in its Indonesian life insurance business,
PT Commonwealth Life, to FWD
Group (FWD). As part of the sale, CBA’s
Indonesian banking subsidiary, PT
Bank Commonwealth (PTBC), will enter
into a 15 year life insurance distribution
partnership with FWD. The sale is subject
to regulatory approvals in Indonesia and is
now expected to complete in the second
half of calendar year 2019.
On 31 October 2018, the Group announced
the sale of Colonial First State Global Asset
Management (CFSGAM) to Mitsubishi UFJ
Trust and Banking Corporation (MUTB).
The sale completed on 2 August 2019.
On 1 November 2018, the Group completed
the sale of Commonwealth Bank of
South Africa (Holding Company) Limited
(TymeDigital SA) to the minority shareholder,
African Rainbow Capital (ARC).
On 14 March 2019, the Group announced
suspension of its preparation for the
demerger of its remaining wealth
management and mortgage broking
businesses in order to focus on the
implementation of the Royal Commission
recommendations, refunding customers
and remediating past issues.
On 13 June 2019, the Group announced
the sale of its 100% interest in Count
Financial Limited (Count Financial) to
CountPlus Limited (CountPlus). Completion
is expected to occur in October 2019.
CommInsure Life, Sovereign, BoCommLife,
CFSGAM, PTCL and TymeDigital SA have
been classified as discontinued operations
in the Group’s financial statements for the
year ended 30 June 2019. The assets and
liabilities of Count Financial are classified
as held for sale as at 30 June 2019.
Operating and financial review
Financial performance summary
The Group’s statutory net profit after
tax including discontinued operations
for the year ended 30 June 2019
decreased 8% on the prior year to
$8,571 million. Statutory net profit after
tax from continuing operations for the
year ended 30 June 2019 decreased 8%
on the prior year to $8,360 million. The
result reflected a continued challenging
operating environment, though business
fundamentals remained strong.
Total operating income decreased by
3% primarily driven by a 1% decrease in
net interest income, with average interest
earning assets increasing 1% on the prior
year due to continued growth in home
loans. Net interest margin on a continuing
operations basis decreased 5 basis points
largely driven by customer switching,
competition, and elevated short term
wholesale funding costs.
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Commonwealth Bank of Australia Annual Report 2019 Other banking income decreased by
8% primarily due to lower credit card
income, lower transaction fees due to
the simplification of fee waivers and lower
overdrawn account fees following the
introduction of pre-emptive customer
alerts. Insurance income decreased
38% driven by weather events, primarily
the New South Wales (NSW) hail storm,
Queensland floods and other weather
events in NSW, Victoria and Queensland.
Funds management income decreased
5% due to lower volume of initial advice
fees and the cessation of ongoing service
fees partly offset by growth in Funds
Under Administration and higher Assets
Under Management.
Operating expenses increased 3%, as a
result of higher risk and compliance FTE,
wage inflation, an increase in technology
infrastructure costs and an increase in
risk and compliance investment spend,
partly offset by decreased occupancy
and equipment costs as a result of branch
network optimisation and the closure of
offshore offices.
Loan impairment expense increased
by 11%, driven by higher individual
provisions due to a small number of
large single name exposures in the
business portfolio and higher collective
provisions reflecting higher arrears in the
consumer finance portfolio and softening
economic conditions.
Tax expense decreased by 14% during
the period primarily due to lower net profit
before tax and the non-recurrence of
the $700 million AUSTRAC civil penalty
incurred in the prior year that was
non-deductible for tax purposes.
Further information and analysis of the
financial performance including a review
of operations for the financial year is set
out in the Financial performance section
on pages 40 – 49.
Material risks
The Group recognises that risk is inherent
in business and that effective risk
management is a key component of sound
corporate governance and is essential in
delivering our business objectives.
The Group seeks to adopt a comprehensive
approach to risk management through
its Risk Management Framework. This
framework covers the Group’s systems,
policies, processes and people who
monitor, mitigate and report risk.
The Group’s material risk types and its
approach to managing them are described
in Our material risks on pages 53 – 54
and in Note 9 of the Financial report on
pages 201 – 231. A description of the
material trends in our current external
operating context, and the way that the risk
framework is being developed to support
better customer and risk outcomes, is
provided in the Operating context on
page 8 and in the Risk management
section on pages 50 – 63.
In addition, commentary on the Group’s
ongoing litigations, investigations and
reviews for full year ended 30 June 2019
is included in Note 7.1 of the Financial report
on pages 185 – 190.
Outlook
We expect our operating context to remain
challenging as we adapt to heightened
regulatory change, increasing competition,
evolving customer preferences, and the
need to invest in risk and compliance and
in technology and innovation.
The Bank is however well positioned to
navigate this changing landscape with the
backing of a resilient balance sheet, strong
customer base and leading distribution
and digital assets. We are focused on
continuing to serve our customers’ needs
and are making the necessary changes to
become a simpler, better bank.
More information on our business
strategies and prospects for future
financial years including our material
risks and how we are managing them
can be found in the Strategic report on
pages 2 – 39, the Operating context on
page 8 and the Risk management section
on pages 50 – 63.
Dividends
The Directors have determined a fully franked (at 30%) final dividend of 231 cents per share amounting to $4,089 million.
The dividend will be payable on 26 September 2019 to shareholders on the register at 5.00pm AEST on 15 August 2019.
Dividends paid in the year ended 30 June 2019 were as follows:
Dividend
Date Paid
Fully Franked
Dividend Per Share
Total Dividend
($ million)
Total Dividend
Comprises ($ million)
Final Dividend for the year ended
30 June 2018
Interim Dividend for year ended
30 June 2019
28 Sep 2018
231 cents
$4,065
28 Mar 2019
200 cents
$3,540
Cash: $3,316
DRP: $749
Cash: $2,948
DRP: $592
Events subsequent to balance
sheet date
The Dividend Reinvestment Plan for
the final dividend for the year ended
30 June 2019 will be satisfied in full by
an on-market purchase and transfer of
shares of approximately $683 million.
The sale of CFSGAM completed on
2 August 2019, resulting in final sale
proceeds of $4.2 billion and a total post tax
gain of $1.5 billion (inclusive of separation
costs and subject to final tax calculations
and completion adjustments).
The Group has decided to cease providing
licensee services through Financial
Wisdom and will proceed with an assisted
closure. The Group has also decided to
allow Commonwealth Financial Planning
Limited-Pathways (CFP-Pathways)
advisers to transition to self-licensing
arrangements or move to another licensee.
The Group has committed an investment
of US$100 million into Klarna Holding AB
(Klarna), as part of their US$460 million
capital raise. The Group will become
Klarna’s exclusive partner in Australia and
New Zealand and intends to further invest
at the parent and local level to support
this partnership.
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 result
of those operations or the state of affairs of
the Group in subsequent financial years.
For further information on subsequent
events refer to Note 12.7 in the Financial
report on page 271.
Change 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.
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 to
the CDP (the former 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 environmental
policies are updated to manage risks
appropriately.
For more information on the Group's
voluntary environmental reporting, see
the Our approach to addressing climate
change section on pages 55 – 63 and our
environmental metrics on pages 297 – 302.
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
Shirish Apte
Professor Genevieve Bell
(appointed 1 January 2019)
Sir David Higgins
Paul O’Malley (appointed 1 January 2019)
Mary Padbury
Wendy Stops
Anne Templeman-Jones
Robert Whitfield
Andrew Mohl (retired 7 November 2018)
Brian Long (retired 31 December 2018)
Details of current Directors, their experience,
qualifications and any special responsibilities,
including Committee memberships, are set
out on pages 66 and 67.
Other directorships
These Directors held the following directorships in other Australian listed companies in the three years prior to the end of the 2019 financial year:
Director
Company
Appointment Date
Retirement date (if applicable)
Catherine Livingstone AO
WorleyParsons Limited
Wendy Stops
Coles Group Limited
Altium Limited
Paul O’Malley
Bluescope Steel Limited
Anne Templeman-Jones
G.U.D Holdings Limited
The Citadel Group Limited
WorleyParsons Limited
Pioneer Credit Limited
HT&E Limited
Brambles Limited
OneMarket Limited
Brian Long
01/07/2007
19/11/2018
01/02/2018
06/08/2007
01/08/2015
08/09/2017
01/11/2017
23/09/2014
04/06/2013
01/07/2014
07/06/2018
31/12/2017
07/11/2016
14/05/2018
Ten Network Holdings Pty Limited1
01/07/2010
25/07/2016
1 Formerly Ten Network Holdings Limited, converted to a proprietary limited company on 10 January 2018.
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Financial
report
Other
information
Directors’ meetings
The number of Board and 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:
Board
Committees1
Scheduled
Meetings
Unscheduled
Meetings
Risk2
Audit2
Remuneration2,8
Nominations2
Held3 Attended Held3 Attended Held3 Attended Held3 Attended Held3 Attended Held3 Attended
Director
Catherine Livingstone AO
Matt Comyn
Shirish Apte
Professor Genevieve Bell4
Sir David Higgins
Brian Long5
Andrew Mohl6
Paul O’Malley7
Mary Padbury
Wendy Stops
Anne Templeman-Jones
Robert Whitfield
10
10
10
5
10
5
4
5
10
10
10
10
10
10
10
5
10
4
4
5
10
10
10
10
1
1
1
–
1
1
1
–
1
1
1
1
1
1
1
–
1
1
1
–
1
1
1
1
10
–
10
–
10
4
3
–
–
–
9
10
–
10
–
10
3
3
–
–
–
9
10
10
11
–
11
–
–
5
–
–
–
11
11
–
11
–
11
–
–
4
–
–
–
11
11
–
12
12
–
–
–
12
–
5
2
12
12
–
–
–
–
–
12
–
5
2
12
12
–
–
11
–
–
–
–
5
–
2
11
–
–
11
11
–
–
–
–
4
–
2
11
–
–
11
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 Two concurrent meetings of the Risk, Audit, Nomination and Remuneration Committees have been counted as additional meetings 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 Professor Genevieve Bell was appointed a member of the Board effective 1 January 2019.
5 Brian Long retired from the Audit Committee, Risk Committee, Nominations Committee and the Board effective 31 December 2018.
6 Andrew Mohl retired from the Risk Committee, Remuneration Committee and the Board effective 7 November 2018.
7 Paul O’Malley was appointed a member of the Board effective 1 January 2019 and the Remuneration and Nominations Committees effective 1 June 2019.
8 Committee name changed to People & Remuneration Committee effective 1 July 2019.
Directors’ shareholdings, share rights and options
Particulars of shares and share rights 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. No rights or options have been granted to the Directors since the end of the financial year.
Options and share rights outstanding
There are no options over Bank shares on issue as at the date of this report. As at the date of this report there are 1,377,132 share rights
outstanding in relation to Bank ordinary shares and no employee options.
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.
Insurance
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 (Cth). 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
returns and revaluations on shareholder
capital invested in the wealth management
businesses and changes in economic
assumptions impacting the insurance
businesses and investment profits on the
annuity portfolio for a measure of core
operating performance.
Company secretaries
Details of the Bank’s Company
Secretaries, including their experience
and qualifications, follow.
Kara Nicholls was appointed Group
Company Secretary of the Bank on
8 January 2019. Kara has extensive listed
company expertise with over 20 years’
of global equity markets, commercial and
corporate governance experience. She
was previously Company Secretary of
Caltex Australia Limited and prior to that
was Company Secretary of Woolworths
Limited, Arrium Limited and Global Head
of Company Secretariat for Macquarie
Capital Funds. Prior to those roles Kara
spent almost six years at the ASX. Kara
is the Chair of Gidget Foundation Australia.
She is a Fellow of the Governance Institute
of Australia (GIA), and a member of the
Australia Institute of Company Directors
and the GIA Legislative Review Committee.
FGIA, MAICD, B.Bus, MLS, JP.
Kristy Huxtable was appointed Company
Secretary of the Bank on 20 March
2019. Kristy brings extensive corporate
governance and secretariat experience
in financial services, having previously
worked with Suncorp, ING, MLC, KeyInvest
and the ASX. Kristy is a Fellow of the GIA,
and a Member of the Australian Institute of
Company Directors and the GIA Legislative
Review Committee.
FGIA, MAICD, MBA, Grad.Dip.Corp.
Gov, Grad.Dip.HR.
Directors’ and officers’ indemnity
and insurance
Constitution
The Directors, as named on page 79 of
this report, and the Company Secretaries
of the Bank, referred to below, are
indemnified under the Constitution of the
Commonwealth Bank of Australia (the
Constitution), as are all senior managers
of the Bank.
The indemnity extends to such other
officers, employees, former officers or
former employees of the Bank, or of its
related bodies corporate, as the Directors
in each case determine (each, including
the Directors and Company Secretaries,
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 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.
Key:
Qualifications
80
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Remuneration
report
Fully implemented the recommendations
of the Sedgwick Retail Banking
Remuneration Review within CBA
to drive a focus on better customer
outcomes across customer-facing
employees and their leaders. Financial
measures now represent a maximum
of 30% of balanced scorecards. Variable
remuneration is capped at 40% of base
remuneration, with the exception of
select home lending specialists.
Introduced a new STVR approach for
CBA, incorporating a formal assessment
of financial and non-financial risk
measures for pool funding to reinforce
collective accountability.
Adopted clear criteria to assess
the overall effectiveness of our
remuneration policy and practices, with
reviews conducted every two years.
Implemented the Banking Executive
Accountability Regime’s (BEAR)
remuneration requirements in full.
Renewal of Executive Team
During the 2019 financial year we
welcomed seven new appointments,
bringing a strong mix of local and global
experience across banking, risk, digital
transformation, and leadership of cultural
change.
Securing the best executive talent and
capability is critical to the execution of the
Group’s strategy. The Board determined
that in order to secure the best talent it
was necessary and appropriate to provide
competitive remuneration packages,
based on a careful assessment of local
and global competitor practices.
Risk and Remuneration Consequences
The Board recognises the important role
that remuneration can play in effectively
managing risk, including emphasising
positive risk culture and supporting
the Group’s approach to consequence
management. The Board reinforces
accountability for poor customer and
risk outcomes through remuneration
consequences.
During the 2019 financial year, we
introduced material enhancements to
increase the rigour and challenge in the
Group’s approach to risk and remuneration,
including improved information to support
the Board’s determination of remuneration
consequences in relation to risk and
reputational matters. Consequences
applied to both current and former
Executives during the 2019 financial
year were:
Of the 15 Executives eligible for an STVR
award, 14 received in-year reductions in
relation to risk and reputational matters,
including the CEO.
The Board exercised discretion to
forfeit all unvested deferred awards
for a former Group Executive, having
regard to the performance outcomes of
their business unit that have resulted in
significant adverse financial, customer,
and reputational impacts.
Strengthening our Remuneration
Approach
In the 2019 financial year we:
Increased the weighting of non-financial
measures in the CEO and Group
Executive performance scorecards,
to provide a more balanced focus
on customer, people, strategic and
shareholder outcomes. As required by
the Enforceable Undertaking agreed
with Australian Prudential Regulation
Authority (APRA), scorecards also
included a significant weighting for
the delivery of the Remedial Action
Plan (RAP).
Message from the
Remuneration
Committee Chairman
Dear Shareholder
Our strategy is to become a simpler,
better bank to fulfil our purpose of
improving the financial wellbeing of our
customers and the community. We are
well on our way, but there is more to do.
Our remuneration policy, frameworks
and governance have and will continue
to evolve, building on the transformation
commenced in 2017.
The 2019 financial year has been
challenging for the Bank. The Royal
Commission highlighted a number of risk
and reputational issues, and the Group’s
performance overall was significantly
impacted by in-year provisions to
address customer remediation issues.
Remuneration outcomes for the Chief
Executive Officer (CEO) and Group
Executives directly reflect this context,
with Short-Term Variable Remuneration
(STVR) outcomes below target and
variability reduced as a result of not
achieving shareholder and customer
advocacy results.
Priorities for the 2020 Financial Year
We will monitor and adjust our
remuneration policy and frameworks for
all employees so they continue to meet
both the spirit and the requirements of
revised regulatory standards, and reflect
evolving community expectations. We will
continue on our path of reinforcing better
risk and customer outcomes through
remuneration that appropriately balances
financial and non-financial performance
measures, enables risk and consequence
management frameworks, and provides
greater transparency to support cultural
change. Further, the introduction of
regular policy effectiveness reviews will
strengthen Board oversight and help to
inform our future remuneration approach.
I will be retiring from the Board at the
end of the year. It has been a privilege to
serve as Chairman of the Remuneration
Committee during a time of considerable
challenge for the Bank. I am pleased that
the Committee, with the full support of the
Board, has made significant progress in
addressing the challenges faced.
While I am retiring, we recognise that
there is still much to do. In that regard,
I am pleased to hand over to Paul O’Malley,
who will be commencing as Chairman of
the People & Remuneration Committee
from 1 January 2020.
Thank you for your continued interest,
support and feedback as we continue
to build a simpler, better bank.
I invite you to review the full remuneration
report.
Sir David Higgins
Remuneration Committee Chairman
Remuneration at a glance
CEO remuneration
For the 2019 financial year, the CEO:
Did not receive an increase to Fixed
Remuneration (FR).
Received an STVR outcome of 68%
of target value and 45% of maximum
value. This outcome of less than half
of the maximum opportunity reflects
assessed performance and an
overall reduction applied to the STVR
outcome as a consequence of his risk
assessment being Partially Met.
Received partial vesting of the 2016
financial year Long-Term Variable
Remuneration (LTVR) award, which
reached the end of its four-year
performance period on 30 June 2019.
The award vested at 24.31% overall, as
a result of 0% vesting against the relative
Total Shareholder Return (TSR) measure
and 98.5% vesting against relative
customer satisfaction measures.
Received total remuneration of $3.4m
for his first full year in the role.
Had a maximum variable remuneration
opportunity weighted at 55% for
financial measures and 45% for
non-financial measures.
Group Executives and CEO ASB
For the 2019 financial year:
There were no FR increases for Group
Executives who did not change roles.
David Cohen did not receive a FR
increase upon appointment to the
Deputy CEO role.
FR for the newly appointed Group
Executives and the CEO ASB (Pascal
Boillat, Alan Docherty, Andrew Hinchliff,
Sian Lewis, Angus Sullivan, Vittoria
Shortt and Nigel Williams) are shown
on page 86.
Overall there was reduced opportunity
for variability in Group Executive STVR
outcomes, with zero outcomes where
financial/shareholder and customer
advocacy measures did not meet
threshold levels.
The average STVR outcome for Group
Executives and the CEO ASB (as a % of
maximum) was 44%.
% of maximum STVR
2019
financial
year
2018
financial
year
CEO
45%
0%
Group
Executives
(range)
31% – 52%
0% – 38%
CEO ASB
52%
N/A
Read more on page 93
LTVR outcomes
The 2016 financial year LTVR award
reached the end of its four-year
performance period on 30 June 2019, with
24.31% of the award vesting as a result of
performance against the LTVR measures.
Read more on page 96
82
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report
Risk and remuneration consequences
Appointment arrangements of externally hired Group Executives
The 2018 APRA Prudential Inquiry Report highlighted shortcomings in the way CBA applied remuneration consequences when risk
expectations were not fully met, both individually and collectively.
The Board has been working with management to improve procedures to identify employees who have not fully met the Board’s
expectations of risk behaviours and outcomes, and those employees who exceptionally manage risk.
Over 300 employees were recognised for the way they have positively influenced the risk culture of CBA.
The Code of Conduct is the framework that applies to the management of employee conduct. In the 2019 financial year, there were
1,869 instances of unacceptable conduct, including 18 senior leaders (General Managers and Executive General Managers), with
187 resulting in termination.
As a result of the improvements made to risk assessment processes to support the annual performance reviews for the 2018 financial
year, 2,462 employees participating in the STVR plan were identified as not having fully met risk expectations and accountabilities
(compared to 1,316 in the prior year). This included 73 senior leaders.
Broadly, STVR outcomes were reduced by a minimum of 10%, ranging to 100%, with 2,331 employees assessed as only partially meeting risk
expectations and 131 employees rated as failing to meet risk standards. Malus adjustments to deferred variable remuneration were also applied.
This is in addition to the remuneration consequences previously applied to reflect individual and/or collective accountability for the
findings of the APRA Prudential Inquiry Report. The total remuneration consequences applied across CBA for the 2017 and 2018
financial years exceeded $100 million.
Key features of CBA’s performance and remuneration framework are detailed below, including the enhancements made in the 2019
financial year. ASB is also reviewing its remuneration framework, in light of New Zealand regulatory expectations.
Element
Details
Risk culture
Improvements made in the 2019 financial year included:
Launching the new Code of Conduct in September 2018 that specifies the Board’s expectations for how our
people act, solve problems and make decisions. Compliance with the Code is now a part of the values and risk
assessment for all employees.
Introducing a new “Exceptionally Managed” category to the risk assessment rating scale. This provides balance
to the risk assessment so that it is not only punitive, but also promotes and recognises exceptional risk behaviours
and outcomes, and supports positive cultural change.
Updating our values expectations and values assessment process which ensures that STVR outcomes are based
on both what was achieved (key performance indicators) and how it was achieved (values and risk assessment).
Alignment of
remuneration
with prudent
risk-taking
Risk scorecards provided the Board with robust and timely information to determine if an appropriate
consequence should be applied to Group Executive remuneration outcomes for risk and reputation matters. Risk
scorecards are independently reviewed and challenged by the Group Chief Risk Officer (CRO). The Group CRO’s
risk scorecard is independently reviewed and challenged by the Risk Committee Chair.
Risk scorecards were extended to General Managers and now apply to all senior leaders of the organisation
from the 2019 financial year.
A new Bank-wide approach to funding of the STVR pool was introduced, incorporating an assessment
of financial and non-financial risks in addition to risk-adjusted financial measures (this ensures that all relevant
risks are considered in determining the available STVR pool, as well as reinforcing collective accountability).
To support the role’s independence, the remuneration mix and weightings of performance measures in the
balanced scorecard for the Group CRO were revised and differ from the other Group Executives, with any
linkages to Group financial outcomes removed.
Risk
assessment
process
Executive risk assessments were discussed at the concurrent meetings of the Remuneration, Risk, Audit and
Nominations Committees as part of the interim and annual performance assessment processes for Executives
(excluding the CEO ASB).
In the 2019 financial year, the Bank sought to improve the rigour and governance of the risk assessment process.
Enhancements included Board approval of:
– Risk scorecard guidance and processes that included the following elements: compliance with audit review
timeframes, the new Code of Conduct, the BEAR accountabilities and assessment of Financial Crime
Compliance behaviours.
– Enhanced guidance to all employees on how to assess risk behaviours and outcomes (including for
Exceptionally Managed outcomes) and the remuneration consequences of not fully meeting risk expectations.
– Transparent communication to all employees of both good and poor risk assessments for the 2018 financial
year and subsequent remuneration outcomes.
– Formal guidance on the application of malus to deferred variable remuneration as a result of a material risk or
misconduct matters.
Malus is the ability to reduce (including to zero) and withhold variable remuneration awards that have been awarded,
but not vested. CBA has had the ability to apply malus adjustments to unvested deferred variable remuneration
outcomes since 2013. In the 2019 financial year, formal guidance on the application of malus was introduced.
The Board exercised discretion to forfeit all unvested deferred awards for a former Group Executive, having regard
to the performance outcomes of their business unit that have resulted in significant adverse financial, customer,
and reputational impacts.
Clawback will be explored as part of the CEO and Group Executive remuneration strategy and framework review
during the 2020 financial year.
Malus/
Clawback
84
The Board recognises that it is vital to secure the best executive talent, including in the areas of risk, digital, cyber security and audit.
In the 2019 financial year, Pascal Boillat, Group Executive, Enterprise Services and Chief Information Officer, and Nigel Williams, Group
CRO, were appointed to the Executive Team. These roles are critical to delivering the Group’s strategy of becoming a simpler, better
bank, and both Group Executives are highly experienced in their relevant fields, and bring global perspectives to the Group.
Pascal leads the technology and operations division of the Group, and is responsible for information technology, cyber security,
technology infrastructure and digital delivery for all divisions across CBA. Pascal brings significant experience from working with
large global organisations, having previously been the Chief Information Officer for Deutsche Bank.
Nigel brings extensive banking experience, both local and global, including his previous role as CRO of ANZ Banking Group Limited.
As Group CRO, Nigel’s role is crucial to developing and embedding risk frameworks and re-building trust with relevant regulatory
authorities.
To secure these Group Executives, the Board determined that it was necessary and appropriate to provide:
Competitive remuneration packages, with consideration of internal peers and external market comparators.
Awards to compensate for unvested awards granted by their former employers and forfeited upon termination of their previous
employment. The quantum and vesting schedule of these were determined based on:
– Forfeited unvested award value, with specific consideration given to any performance conditions. A discount was applied
considering the vesting likelihood of any performance-based awards where applicable; and
– Vesting schedule broadly aligning to the forfeited awards’ schedule.
Relocation benefits to support their relocations to Sydney. Further detail is provided on pages 97 and 98.
The table below outlines the awards offered:
Executive
Grant date
Grant details
Vesting schedule
Vesting conditions
Pascal Boillat
1 October 2018
Nigel Williams
5 November 2018
82,660 deferred shares
(indicative value of $5.86m).
Eligible for dividends paid
on deferred shares during
the vesting period.
43,112 deferred shares
(indicative value of $2.95m).
Eligible for dividends paid
on deferred shares during
the vesting period.
Vesting in six tranches
between April 2019 and
March 2023.
Vesting in four tranches
between January 2019
and November 2021.
Subject to:
Continued employment;
Board risk and reputation
review; and
Malus provisions.
Exit arrangements
The table below outlines the exit arrangements for Group Executives during the 2019 financial year. Further detail is provided on
pages 97 and 98:
Executives
Exit arrangements
Coen Jonker
(ceased on 31 Dec 18)
Melanie Laing
(ceased on 31 Jul 18)
Anna Lenahan
(ceased on 30 Jun 19)
Payment in lieu of balance of notice period.
Provision of benefits required by law, mobility and repatriation benefits on ceasing employment and
severance pay for past services in accordance with his employment agreement (six months FR).
Eligible for pro-rated 2019 financial year STVR award1. Not eligible for 2019 financial year LTVR award.
Unvested deferred STVR and LTVR awards remain on-foot2.
Payment in lieu of balance of notice period.
Provision of benefits required by law, additional long service leave accrued based on past service and
agreed legal costs (capped) related to termination.
Not eligible for 2019 financial year STVR or LTVR award. Unvested LTVR awards remain on-foot2.
Provision of benefits required by law.
Eligible for 2019 financial year STVR1. Unvested deferred STVR and LTVR (including 2019 financial year
LTVR awarded in November 2018) remain on-foot2.
1
2
In line with the BEAR, for any payment determined and paid in ordinary course (subject to performance and Board risk and reputation review),
60% of any award will be paid in cash and remaining 40% deferred as cash vesting four years after the decision is made to make the relevant grant.
No accelerated or automatic vesting upon ceasing employment. The on-foot awards will have performance measured in the ordinary course at the
end of the performance period related to each award. Final outcomes will be subject to performance, and Board risk and reputation review.
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report
Remuneration received by current Executives during the 2019 financial year
The remuneration outcomes table below provides a summary of the remuneration that was received by current Executives in
their Key Management Personnel (KMP) roles during the 2019 financial year. We believe that presenting this information provides
shareholders with greater clarity and transparency of Executive remuneration. This table differs from the statutory remuneration table
on page 97, which presents remuneration in accordance with accounting standards (i.e. on an accruals basis).
Remuneration received by current Executives during the financial year ended 30 June 2019:
Cash
payments
a) FR: Base remuneration plus superannuation (for Vittoria Shortt, contributions are made in line with the KiwiSaver employer contribution
requirements) paid for the period as KMP. For Alan Docherty, this includes the cash allowance paid to him during his acting period.
b) Cash STVR: 50% (60% for the CEO ASB) of the 2019 financial year STVR (relates to performance during the 12 months to 30 June 2019).
Vesting
of prior
year awards
d) Deferred equity awards: The value of all equity awards (STVR, LTVR or sign-on awards) that vested during their period as KMP plus
any dividends accrued during the deferral 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).
Awards
forfeited
or lapsed
f) Previous years’ awards forfeited or lapsed: The value of all unvested deferred equity awards that were forfeited or lapsed
during the 2019 financial year as the performance, risk and reputation or service conditions were not met.
All remuneration presented in this report is in Australian Dollars.
Cash STVR
Total cash
payments
Deferred equity
awards1
Total remuneration
received
Previous years’
awards forfeited
or lapsed
b
c = a + b
d
e = c + d
f
FR
a
Definitions
This remuneration report details the performance and remuneration of KMP for the 2019 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 Board has determined that the CEO ASB role should be considered a KMP role from 1 July 2018, given ASB’s key part in delivering
the Group’s strategy and important contribution to the Group more broadly.
The following terms are used throughout this report to describe different groups of KMP.
Term
Executives
Meaning
Collective term referring to the individuals in the following executive groups: CEO, Group Executives,
CEO ASB and Other Executives
CEO
Managing Director and Chief Executive Officer
Group Executives
All permanent Executives, excluding the CEO, CEO ASB and Other Executives (as defined below)
CEO ASB
Chief Executive Officer of ASB Bank Ltd
Other Executives
Includes Michael Venter (Chief Operating Officer Wealth Management) and all Acting Group Executives
Non-Executive Directors
KMP who are not Executives
Excludes the CEO, Group Executives and CEO ASB
2,200,000
1,315,949
747,450
–
2,947,450
1,315,949
464,108
1,529,923
3,411,558
2,845,872
(1,270,151)
(653,185)
1. Key Management Personnel
The table below outlines the Group’s KMP in the financial year ended 30 June 2019.
CEO
Matt Comyn
30 Jun 19
30 Jun 18
Current Executives
Adam Bennett
30 Jun 19
30 Jun 18
Pascal Boillat2
30 Jun 19 (effective 1 Oct 18)
David Cohen3
30 Jun 19
30 Jun 18
Alan Docherty4
30 Jun 19
30 Jun 18 (effective 14 May 18)
Andrew Hinchliff5
30 Jun 19 (effective 1 Aug 18)
Anna Lenahan
30 Jun 19
30 Jun 18
Sian Lewis6
30 Jun 19 (effective 1 Aug 18)
Vittoria Shortt7
30 Jun 19 (effective 1 Jul 18)
Angus Sullivan8
30 Jun 19
30 Jun 18 (effective 9 Apr 18)
Nigel Williams9
30 Jun 19 (effective 5 Nov 18)
1,049,580
1,049,580
244,684
225,988
1,294,264
1,275,568
372,984
280,480
1,667,248
1,556,048
(562,884)
–
1,121,918
353,825
1,475,743
1,052,765
2,528,508
–
1,200,000
1,200,000
945,277
98,630
348,218
261,300
291,296
51,966
1,548,218
1,461,300
1,236,573
150,596
405,514
1,377,033
233,096
–
1,953,732
2,838,333
(1,109,864)
(587,842)
1,469,669
150,596
–
(41,820)
915,068
302,888
1,217,956
378,283
1,596,239
865,000
865,000
332,809
249,120
1,197,809
1,114,120
719,170
260,418
1,916,979
1,374,538
754,932
260,829
1,015,761
223,942
1,239,703
–
–
–
–
965,550
940,777
1,906,327
309,688
2,216,015
(345,461)
1,050,000
114,909
374,500
78,641
1,424,500
193,550
409,280
–
1,833,780
193,550
–
(67,857)
945,479
276,819
1,222,298
1,294,553
2,516,851
–
1
2
3
4
Deferred equity awards: This reflects the portions of the 2015 financial year LTVR award (performance period ended 30 June 2018), and the 2015, 2016 and
2017 financial year deferred STVR awarded under Executive General Manager arrangements that vested in 2019 financial year. For Pascal Boillat, Anna Lenahan
and Nigel Williams, this reflects the portion of their sign-on awards that vested in the 2019 financial year.
Pascal Boillat was appointed as KMP effective 1 October 2018, therefore no prior year comparison is shown.
David Cohen was appointed as Deputy CEO effective 5 November 2018. 2019 financial year remuneration reflects his time in both the Group CRO role (1 July 2018
to 4 November 2018) and Deputy CEO role (5 November 2018 to 30 June 2019). Prior year comparison reflects remuneration for his prior role as Group CRO.
Alan Docherty was appointed as Group Executive, Financial Services and Chief Financial Officer effective 15 October 2018. 2019 financial year remuneration
reflects his time in both the Acting Group Executive, Financial Services and Chief Financial Officer role (1 July 2018 to 14 October 2018) and Group Executive,
Financial Services and Chief Financial Officer role (15 October 2018 to 30 June 2019). Prior year comparison reflects remuneration for his prior part year KMP
role, Acting Group Executive, Financial Services and Chief Financial Officer.
Andrew Hinchliff was appointed as KMP effective 1 August 2018, therefore no prior year comparison is shown.
5
6 Sian Lewis was appointed as KMP effective 1 August 2018, therefore no prior year comparison is shown.
7
Vittoria Shortt was determined as KMP in the CEO ASB role effective 1 July 2018. No prior year comparison is shown as she ceased as KMP in her previous role
of Group Executive, Marketing and Strategy on 2 February 2018. In addition to the $28,123 KiwiSaver that forms part of Vittoria Shortt's FR, an additional payment
of $28,223 is payable on her cash STVR component.
Angus Sullivan was appointed as Group Executive, Retail Banking Services effective 1 July 2018. Prior year comparison reflects remuneration for his prior part
year KMP role, Acting Group Executive, Retail Banking Services (from 9 April 2018 to 30 June 2018).
8
9 Nigel Williams was appointed as KMP effective 5 November 2018, therefore no prior year comparison is shown.
86
Name
Chairman
Catherine Livingstone AO
Position
Chairman
Current Non-Executive Directors
Shirish Apte
Genevieve Bell
David Higgins
Paul O’Malley
Mary Padbury
Wendy Stops
Anne Templeman-Jones
Robert Whitfield
Former Non-Executive Directors
Brian Long
Andrew Mohl
Managing Director and CEO
Matt Comyn
Director
Director (from 1 January 2019)
Director
Director (from 1 January 2019)
Director
Director
Director
Director
Director (ceased as KMP on 31 December 2018)
Director (ceased as KMP on 7 November 2018)
Managing Director and Chief Executive Officer
Current Executives
Adam Bennett
Pascal Boillat
David Cohen1
Alan Docherty2
Andrew Hinchliff
Anna Lenahan3
Sian Lewis
Vittoria Shortt4
Angus Sullivan
Nigel Williams
Former Executives
George Confos
Coen Jonker
Melanie Laing
Paul Newham
Michael Venter
Group Executive, Business and Private Banking
Group Executive, Enterprise Services and Chief Information Officer (from 1 October 2018)
Deputy Chief Executive Officer (from 5 November 2018)
Group Executive, Financial Services and Chief Financial Officer (from 15 October 2018)
Group Executive, Institutional Banking and Markets (from 1 August 2018)
Group General Counsel and Group Executive, Group Corporate Affairs
Group Executive, Human Resources (from 1 August 2018)
Chief Executive Officer, ASB
Group Executive, Retail Banking Services
Group Chief Risk Officer (from 5 November 2018)
Acting Group Executive, Institutional Banking and Markets (ceased as KMP on 31 July 2018)
Group Executive, International Financial Services (ceased as KMP on 31 December 2018)
Group Executive, Human Resources (ceased as KMP on 31 July 2018)
Acting Group Executive, Enterprise Services and Chief Information Officer (ceased as
KMP on 30 September 2018)
Chief Operating Officer Wealth Management (ceased as KMP on 2 December 2018)
1
2
3
4
David Cohen was the Group CRO from 1 July 2018 to 4 November 2018 and the Deputy CEO from 5 November 2018 to 30 June 2019.
Alan Docherty was acting in the Group Executive, Financial Services and Chief Financial Officer role from 1 July 2018 to 14 October 2018.
Anna Lenahan retired from the Group on 30 June 2019.
The CEO ASB role has been determined to be KMP as of 1 July 2018.
Term as KMP
Full year
Full year
Part year
Full year
Part year
Full year
Full year
Full year
Full year
Part year
Part year
Full year
Full year
Part year
Full year
Full year
Part year
Full year
Part year
Full year
Full year
Part year
Part year
Part year
Part year
Part year
Part year
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2. Executive remuneration framework
CEO and Group Executives
The below diagram illustrates the remuneration framework that applied to the CEO and
Group Executives during the 2019 financial year. The Remuneration Committee undertook
a comprehensive review of the CEO and Group Executive remuneration framework during
the 2019 financial year and determined to not make any material changes to the existing
framework effective for the 2020 financial year.
A further review of the CEO and Group Executive remuneration framework will be undertaken
during the 2020 financial year incorporating new guidance set by our regulators. The review
aims to ensure that our remuneration framework continues to support our remuneration
principles outlined below.
BEAR
Our remuneration
framework, including
variable remuneration
deferral for all Executives
meets the BEAR
requirements.
CEO and Group Executive target remuneration mix
The following diagrams illustrate the target remuneration mix for the CEO and Group Executives. For the CEO and Group Executives
(excluding the Group CRO), approximately three-quarters of target remuneration is variable and at risk. The Group CRO’s remuneration
mix has a greater emphasis on FR than variable remuneration compared to other Group Executives to support the role’s independence
from the Group’s business activities.
CEO and Group Executive target remuneration mix
(excluding Group CRO)
Group CRO target remuneration mix
26%
13%
13%
48%
31%
11.5%
11.5%
46%
Variable remuneration (74%)
Variable remuneration (69%)
OUR REMUNERATION PRINCIPLES
FR
Cash STVR
Deferred equity STVR
Maximum face value LTVR
Aligned with
shareholder value
creation
Market competitive
to attract and retain
high-calibre talent
Reward
sustainable
outperformance
and discourage
poor performance
Recognise the role
of non-financial
drivers in longer-
term value creation
Simple and
transparent
Reflect the Group’s
strategy and values
OUR REMUNERATION FRAMEWORK AND OUTCOMES REFLECT OUR VALUES
We do what is right
We are accountable
We are dedicated
to service
We pursue excellence
We get things done
FR
STVR (at risk)
LTVR (at risk)
Rationale
Provides market
competitive remuneration
to attract and retain
high quality talent whilst
reflecting role size and
accountabilities.
Rewards annual performance, providing
specific focus on strategic priorities.
The values and risk and reputation
outcome modifiers reward for the way the
Group achieves performance outcomes.
Focuses efforts on achieving longer-term superior
performance for key stakeholder groups – customers,
the community, our people and shareholders.
Rewards participants for the creation of sustainable
long-term shareholder value and driving positive
culture and engagement across the Group, and
re-building trust with our customers and the
community.
Structure
Base remuneration and
superannuation.
50%
paid as
cash
25%
deferred into
equity for
one year
25%
deferred into
equity for
two years
Rights to shares with no dividend equivalent
payments, vesting subject to performance over
a four-year period.
Approach
Reviewed annually
against peer group
remuneration
disclosures.
Primary peer group is
the other three major
Australian banks.
Quantum:
– Target opportunity of 100% of FR
(75% of FR for Group CRO).
– Maximum opportunity of 150% of
FR (112.5% of FR for Group CRO).
Performance measures: Financial
(30%; 10% for Group CRO) and
non-financial measures (70%; 90% for
Group CRO), being customer, people
and strategic measures, including
delivery of the RAP.
Modifiers: Performance outcomes
subject to Board assessment
of demonstration of values, risk
and reputation.
Quantum: Maximum face value allocation of
180% of FR (150% for Group CRO), vesting is
subject to performance measures and Board
risk and reputation review.
Performance measures:
– Relative TSR (75%); trust and reputation (12.5%);
and employee engagement (12.5%).
– A positive TSR gateway applies to the trust
and reputation and employee engagement
measures.
– Relative TSR is measured against a peer
group made up of the 20 largest companies
on the ASX by market capitalisation, excluding
resources companies, and CBA.
All variable remuneration is subject to Board risk and reputation review and malus consideration.
Mandatory shareholding requirement: Group Executives must accumulate CBA shares equal to 200% of FR
(300% of FR for the CEO) over a five-year period from the date of their appointment to the respective roles.
More detail on Executive shareholding is provided in on page 90.
CEO ASB
As required by New Zealand legislation, the CEO ASB is employed by ASB. The Appointments and Remuneration Committee (ARC)
of the ASB Board advises and makes recommendations to the ASB Board regarding the CEO ASB’s performance and remuneration
arrangements, including structure, targets and outcomes.
For the 2019 financial year the following arrangements apply to the CEO ASB:
Total remuneration consists of FR (includes base remuneration and KiwiSaver) and STVR (not eligible for LTVR). KiwiSaver is payable
on all STVR cash components. Total remuneration is intended to be market competitive when compared against New Zealand major
banking peers.
STVR scorecard performance measures broadly align with Group Executives and are determined by the ASB Board at the beginning
of the financial year. At year end, the ASB Board determine a performance rating (Needs Improvement; Inconsistent Performance;
Valued Contribution; Higher Impact or Exceptional Achievement) based on quantitative and qualitative inputs. A values and
behaviours assessment, and risk assessment (based on an Executive Risk Scorecard) are modifiers used to determine outcomes,
consistent with the process for Group Executives.
The process for determining the CEO ASB’s STVR outcome differs from Group Executives and is specific to the ASB business.
ASB operates its own discretionary annual variable remuneration plan. Outcomes under that discretionary plan are determined using
a combination of company and individual performance outcomes as illustrated below:
CEO ASB STVR
reference value
STVR pool/ASB
performance multiplier1
Individual performance
multiplier
Distribution factor2
120% of base salary
x
75% at threshold
125% at target
150% at maximum
Based on NPAT and PACC
x
100% at target
180% at maximum
x
85% – 100%
1
2
The ASB ARC has the discretion to adjust pool funding outcomes based on non-financial factors (including customer and risk) together with peer relative
financial performance.
The ‘distribution factor’ applied depends on individual performance outcomes across all ASB employees who participate in the STVR plan, to ensure payments
can be funded within the available pool.
From 1 July 2019, the ASB Board has determined that the CEO ASB’s remuneration structure will more closely align to the Group
Executives, including the incorporation of an LTVR component and reduction in STVR opportunity. For the 2020 financial year the
following arrangements apply to the CEO ASB:
No change to FR which will continue to be comprised of base remuneration and KiwiSaver on base remuneration. STVR of 100%
of FR at target and 150% at maximum. KiwiSaver is payable on all cash components of STVR. STVR is based on ASB performance
measures. 50% of any STVR will be deferred in restricted shares and vest equally over two years, and 50% payable in cash. LTVR of
180% of fixed remuneration. LTVR will be based 50% on Group relative TSR, 25% relative ASB trust and reputation and 25% absolute
employee engagement.
The CEO ASB is subject to the Group’s mandatory shareholding requirement, whereby CBA shares equal to 200% of FR must be
accumulated over a five year period from 1 July 2018.
Other Executives
While acting in Group Executive roles during the 2019 financial year, George Confos (1 July 2018 to 31 July 2018), Alan Docherty (1 July 2018
to 14 October 2018) and Paul Newham (1 July 2018 to 30 September 2018) each received a cash allowance to recognise the additional
accountability and responsibilities of their respective roles. This cash allowance ceased at the conclusion of their acting role appointments.
The STVR for Other Executives is calculated as a percentage of base remuneration (before superannuation). 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.
For the period they were Accountable Persons, deferred remuneration requirements under the BEAR were met. 60% paid in cash and
40% deferred into equity for four years (unless the de minimis threshold of $50,000 applies).
Other Executives did not participate in the LTVR plan during the 2019 financial year.
88
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3. CEO, Group Executives and CEO ASB mandatory shareholding requirement
Short term variable remuneration
The following table presents the position of the CEO, Group Executives and CEO ASB against the mandatory shareholding requirement
as at 30 June 2019:
2019 financial year STVR award – key features
The table below outlines key features of the 2019 financial year STVR award for the Executives. Refer to page 103 for treatment of STVR
on cessation of employment.
Current shareholding
(% of FR)1
Shareholding requirement
(% of FR)
Position against
requirement and deadline
Features
Approach
Executive
Matt Comyn
Adam Bennett
Pascal Boillat
David Cohen
Alan Docherty
Andrew Hinchliff
Anna Lenahan
Sian Lewis
Vittoria Shortt
Angus Sullivan
Nigel Williams
183%
190%
329%
359%
72%
114%
185%
70%
113%
105%
217%
300%
200%
200%
200%
200%
200%
200%
200%
200%
200%
200%
Below – 9 Apr 2023
Below – 12 Jan 2020
Meets
Meets
Below – 15 Oct 2023
Below – 1 Aug 2023
Below – 28 Nov 2021
Below – 1 Aug 2023
Below – 1 Jul 2023
Below – 1 Jul 2023
Meets
1
Represents percentage of full-year contractual FR (based on CBA closing share price on 30 June 2018 of $72.87). Shareholdings include fully paid ordinary
CBA shares and unvested equity awards with service based hurdles held by the Executive and/or certain related parties.
4. Performance and remuneration outcomes
Remuneration varies with short and long-term performance outcomes
Group financial performance
The graph and table below shows the link between CEO and Group Executive remuneration outcomes and the Group’s financial
performance over the past five financial years (including the 2019 financial year).
STVR scorecard measure
LTVR relative TSR measure
Group Cash NPAT
($M)1
Group PACC
($M)2
Share price as at
30 Jun ($)3
Dividends per share
($)
TSR: 4-year period
to 30 Jun (%)
5
4
4
9
,
1
8
8
9
,
2
1
4
9
,
7
2
1
,
9
6
0
7
8
,
5
2
5
6
,
7
8
1
,
6
3
8
7
5
,
3
3
3
4
,
3
1
.
5
8
.
1
8
2
8
.
7
3
4
7
7
8
2
7
.
.
8
7
2
8
0
2
4
.
0
2
4
.
9
2
4
.
1
3
4
.
1
3
4
.
a
/
n
.
3
4
0
1
1
4
7
4
7
.
.
5
7
0
5
.
1
5
0
2
9
3
.
1
1
30 Jun 15
30 Jun 16
30 Jun 17
30 Jun 18
30 Jun 19
1
2
3
Group Cash NPAT includes discontinued operations.
Due to methodology changes, comparatives for Group Profit after Capital Charge (PACC) have only been provided for the 2016, 2017, 2018 and 2019 financial years.
CBA opening share price on 1 July 2014 was $80.65.
Remuneration outcomes
30 Jun 15
30 Jun 16
30 Jun 17
30 Jun 18
30 Jun 19
STVR outcome (average % of maximum)
LTVR vesting outcome (% of maximum)
78%
86%
75%
20%
0%1
67%
19%2
24%
44%
24%
1
2
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 and reputation matters.
As a consequence of the APRA Prudential Inquiry Report, the Board 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.
Purpose
Reward annual performance, with balanced focus on customer, people, strategic and shareholder outcomes, incorporating both
risk and reputation and values assessments. Recognises both the “how” and the “what” of performance.
Participants
All Executives
Opportunity
Executives
CEO and Group Executives (excluding Group CRO)
Group CRO
CEO ASB
Other Executives2
1
2
Assumes ASB STVR pool is at target.
Where STVR maximum % is specified.
Target STVR
100% of FR
75% of FR
Maximum STVR
150% of FR
112.5% of FR
150% of base remuneration1
324% of base remuneration
n/a
130% – 170% of base remuneration
CEO and
Executive
performance
measures and
weightings
Individual STVR outcomes are determined on the basis of Group (or ASB for the CEO ASB) performance and individual
performance through a balanced scorecard. The performance measures chosen support the delivery of the Group’s strategy
and reflect a mix of financial and non-financial outcomes to provide a balanced assessment of performance.
Weighting of the financial/shareholder measure was reduced for the CEO and Group Executives to 30% to support a more
balanced performance focus. Scorecard weightings cover financial/shareholder and non-financial measures linked to Group
and business unit targets, and vary by role.
Role1
Financial/
Shareholder
Non-Financial
(split between customer, people and strategy)
CEO and Group Executives (excluding Group CRO)
30%
70%
Group CRO
CEO ASB
10%
40%
90% (40% is weighted towards delivering future
fit risk management)
60%
1
For the Other Executives, weightings vary by individual with consideration to their business unit and/or support function priorities.
Modifier(s)
Once the balanced scorecard has been assessed and performance outcomes have been determined, that outcome is subject to
the following modifiers:
Values: the Board1 has the discretion to adjust Executive STVR outcomes upwards or downwards including to zero where appropriate.
Risk and reputation: the Board1 has the discretion to adjust Executive STVR outcomes downwards including to zero where
appropriate.
1
‘Board’ is to be read as ASB Board in respect of discretion for the CEO ASB’s STVR outcomes.
STVR awards for the CEO and Executives1 (excluding the CEO ASB) are calculated as follows:
Calculation
of awards
Opportunity
Unadjusted outcome
Modifiers
Adjusted outcome
FR $
x
Target
STVR
opportunity %1
x
Performance
scorecard result %2
→
→
Values
Risk and reputation
=
Value of adjusted
STVR award $
1
2
Maximum STVR opportunity for Other Executives (where there is a specified maximum %).
The Board retains discretion to adjust scorecard outcomes.
Deferral
CEO and Group Executives1: 50% of the STVR award is deferred and delivered in deferred shares that vest in equal tranches
over one and two years.
CEO ASB: 40% of the STVR award is deferred and delivered in deferred shares that vest after four years.
Other Executives: One-third of the STVR award is deferred and delivered in deferred shares that vest in equal tranches over
one, two and three years1.
All deferred STVR awards are subject to applicable Board (or ASB Board for CEO ASB) risk and reputation review prior to vesting.
Please see page 103 for an overview of the treatment of deferred STVR awards on termination.
1
For the period they were Accountable Persons, deferred remuneration requirements under the BEAR were met for former Executives.
90
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STVR performance outcomes in the financial year ended 30 June 2019 – CEO
The Board’s assessment of the CEO’s performance in the 2019 financial year is outlined below.
STVR performance outcomes in the financial year ended 30 June 2019 – Executives
The following table provides the 2019 financial year STVR outcomes for Executives for the period they were KMP. The minimum
potential outcome is zero.
Key:
= Actual result
Threshold
Target
Above expectations
Measure
Weighting %
Performance scorecard
Financial/Shareholder
15%
15%
5%
5%
Group cash
NPAT
Group underlying
PACC
Customer
NPS outcomes
for consumer
and business
customers
(six-month rolling)
Complaints
remediation
People
Group people
measure results
(culture, talent,
diversity, safety
and wellbeing)
10%
Strategy
Progress on
and quality of
implementation
of the APRA RAP
30%
Progress on
the delivery of
Group Strategic
Priorities
(including
shared priority
dashboard)
50% – Board assesses CEO has met the threshold level of performance.
100% – Board assesses CEO has met the expected performance level in all aspects.
150% – Board assesses CEO has substantially exceeded the expected performance level.
Threshold
Target
Above
Expectations
50%
100%
150%
% of STVR
target
(100%
of FR)
% of STVR
maximum
(150%
of FR)
Commentary
0%
0%
0%
0%
Below threshold in Group cash NPAT (including discontinued operations)
(Target:$10,134m, Actual: $8,706m).
Below threshold in Group underlying PACC (Target: $6,348m,
Actual: $4,333m).
0%
0%
Consumer and Business NPS results were below target (Consumer
Target +2, Actual -10, Business Target -15, Actual -22.4).
5%
3%
Personal leadership and focus on complaints management across the
Group.
Strong progress on open aged complaints and external dispute
resolution complaints.
13%
8%
30%
20%
Strong personal leadership and visibility in the organisation has contributed
to restoring employee confidence and greater risk awareness.
Employee engagement levels stabilised in April 2019 survey in a
challenging environment, and strong increase in employee connection
with the Group’s purpose was evidenced.
Executive Team refresh, including key talent in senior leader population
(particularly Risk, Digital, and Information Security roles).
Zero non-conformance recorded in 2019 external Health and Safety self
insurance audit.
Developed and implemented Better Risk Outcomes Program (BROP)
to address APRA Prudential Inquiry Report recommendations and
deliver on the RAP.
Independent reviewer, Promontory, assessed the RAP delivery
“on track”, with strong leadership support. As at 30 June 2019,
48% of milestones have been delivered in line with the schedule.
Focused organic capital generation through performance and capital
discipline.
Sale of Colonial First State Global Asset Management to MUFG Bank Ltd
delivering significant value to the Group.
Better for You initiatives improved CBA brand sentiment.
Continued execution on complex divestment of Wealth business,
STVR actual
STVR target
$
Total
$
Cash
$
Deferred
$
STVR actual
as a % of
STVR target
STVR
actual as a
% of STVR
maximum
%
%
2,200,000
1,494,900
747,450
747,450
68%
1,049,580
1,121,918
1,200,000
908,527
915,068
865,000
754,932
1,406,141
1,050,000
709,110
n/a
462,861
245,753
456,221
489,368
707,650
696,436
582,592
605,776
554,681
521,658
1,567,962
749,000
553,638
70,951
299,008
188,002
222,636
244,684
353,825
348,218
291,296
302,888
332,809
260,829
940,777
374,500
276,819
47,301
179,405
112,801
133,582
244,684
353,825
348,218
291,296
302,888
221,872
260,829
627,185
374,500
276,819
23,650
119,603
75,201
89,054
47%
63%
58%
64%
66%
64%
69%
112%
71%
78%
n/a
65%
n/a
n/a
45%
31%
42%
39%
46%
44%
43%
46%
52%
48%
52%
n/a
43%
77%
49%
CEO
Matt Comyn
Current Executives
Adam Bennett
Pascal Boillat1
David Cohen2
Alan Docherty3
Andrew Hinchliff1
Anna Lenahan
Sian Lewis1
Vittoria Shortt4
Angus Sullivan
Nigel Williams1
Former Executives
George Confos5,6
Coen Jonker6
Paul Newham5,6
Michael Venter5,6
1
2
3
4
5
Newly appointed Executives’ STVR awards reflects their time in the role. Pascal Boillat (1 October 2018 to 30 June 2019), Andrew Hinchliff (1 August 2018
to 30 June 2019), Sian Lewis (1 August 2018 to 30 June 2019) and Nigel Williams (5 November 2018 to 30 June 2019).
David Cohen was appointed to the Deputy CEO role effective 5 November 2018. His STVR target reflects his time in both the Group CRO role (1 July 2018
to 4 November 2018) and Deputy CEO role (5 November 2018 to 30 June 2019).
Alan Docherty was acting in the Group Executive, Financial Services and Chief Financial Officer role before being appointed to the role permanently effective
15 October 2018. The values in the table above reflects his time in both acting (1 July 2018 to 14 October 2018) and permanent (15 October 2018 to 30 June 2019)
appointments. Note, while acting in the role, Alan’s STVR maximum was 130% of base remuneration.
As detailed on page 89, for the 2019 financial year Vittoria Shortt only participated in the STVR plan and was not eligible for LTVR. STVR target represents the
reference value of 120% of base salary multiplied by ASB STVR pool multiplier at target (125%). From 1 July 2019, the CEO ASB’s remuneration structure will
more closely align to the Group Executives (including incorporation of a LTVR and reduction in STVR opportunity).
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. George Confos’ arrangement does not specify an STVR target and/or maximum.
6 Former Executives’ remuneration reflects their time in the KMP role. George Confos (1 July 2018 to 31 July 2018), Coen Jonker (1 July 2018 to 31 December 2018),
Paul Newham (1 July 2018 to 30 September 2018) and Michael Venter (1 July 2018 to 2 December 2018).
20%
28%
19%
including Colonial Mutual Life Assurance Society Limited.
New Group Regulatory Engagement Standard embedded, requiring
more open and transparent approach to engaging with regulators.
Group-wide Simplification Program established to drive cost reduction
and create capacity to invest in our core.
Industry-leading digital customer experience and security, with banking
app rated best in the Australia and third best globally.
Overall STVR CEO outcome
76% 50%
STVR modifiers
Values
Exceptionally Demonstrated
Risk and reputation
Partially Met
Extensive and positive engagement across a range of stakeholders
No
adjustment
(political, regulatory, customer and investor).
Led the establishment and embedding of new Purpose, Values,
Code of Conduct and ‘Should We’.
-10%
reduction
Reputational impacts arising from Royal Commission.
Substantial improvement in identification, management and governance
of non-financial risk.
Strong progress on risk culture maturity, including through launch of
Better Bank Leadership Program, however remains an ongoing focus.
Overall adjusted STVR CEO outcome
68% 45%
92
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Long term variable remuneration
2019 financial year LTVR award – key features
The table below outlines key features of the 2019 financial year LTVR for the CEO and Group Executives. Refer to page 103 for treatment
of LTVR on cessation of employment.
Features
Purpose
Approach
To align participants with achievement of superior performance for key stakeholder groups – being customers, the
community, our people and shareholders. The LTVR aims to support creation of sustainable long-term shareholder
value, drive positive culture and engagement in the Group, and re-build trust with our customers and the community.
Participants
CEO and Group Executives.
Opportunity
The maximum face value of LTVR that can be granted for the CEO and Group Executives, excluding the Group CRO,
is 180% of FR. The maximum face value of LTVR that can be granted for the Group CRO is 150% of FR.
The minimum potential outcome value is zero.
Performance period
Four years from 1 July 2018 to 30 June 2022.
Instrument
Rights – each right entitles the participant to receive one CBA share, subject to meeting performance measures.
Allocation approach
Maximum face value allocation approach. The number of rights granted are calculated as follows for the CEO and Group
Executives:
FR (at time of grant)
$
x
180%1
÷
Share price
(no discount applied)
$
=
Number of rights
Share price: The share price used was the Volume Weighted Average Price of CBA’s ordinary shares over the five trading
days up to 1 July 2018.
1 150% for the Group CRO
Dividend payments
No dividends or dividend equivalent payments are provided on rights.
Board discretion
The total LTVR award is subject to Board 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 (malus), including
where, in the opinion of the Board:
the vesting of rights is not justified or supportable, having regard to the participant’s performance and/or conduct,
the performance of the business unit or function (as relevant having regard to the participant’s accountability or role),
or the overall Group performance
the vesting of 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, including where original expected
performance outcomes have not been realised.
Performance measures
Approach
75% TSR (relative)
TSR measures a company’s share price
movement, dividends paid and any return
on capital over a specific period.
Relative TSR compares the ranking of CBA
TSR over the performance period with the
TSR of other companies in a peer group.
Reason for selection: Provides a direct link
between Executive reward and shareholder
returns, for alignment with our shareholders.
Peer group
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 CBA1.
This cross-industry peer group has been chosen as it represents the typical portfolio
of companies in which CBA’s shareholders invest, and so provides valid benchmarks
for measuring against the CBA’s TSR.
Vesting framework
Peer group ranking
At the 75th percentile or higher
Vesting %
100%
Between the median and 75th percentile
Pro-rata vesting from 50% to 100%
At the median
Below the median
Calculation of results
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.
Performance measures
Approach
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.
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.
12.5% Employee engagement (absolute)
Employees of CBA 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.
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 CBA2.
This cross-industry peer group has been chosen to ensure that the CBA focuses
on delivering trust and reputation outcomes that are among the best in class for all
customer-focused industries, not just financial services.
Vesting framework
Peer group ranking
At the 75th percentile or higher
Vesting %
100%
Between the median and 75th percentile
Pro-rata vesting from 50% to 100%
At the median
Below the median
Calculation of results
50%
0%
The opening pulse score for each company will be based on the average of the March, June
and September 2018 surveys, while the closing pulse score will be based on the November
2021, March and June 2022 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.
Target setting
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,
and CBA’s EEI baseline relevant to the award. Executives will only be rewarded for achieving
improvements in employee engagement.
Vesting framework
EEI score
80% or higher
Vesting %
100%
Between 75% and 80%
Pro-rata vesting from 50% to 100%
75%
Below 75%
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 2018 EEI score of 72% and the
March 2022 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
2
The peer group at the beginning of the performance period for the TSR performance hurdle comprised: AGL
Limited, Amcor Limited, Aristocrat Leisure Limited, Australia & New Zealand Banking Group Limited, Brambles
Limited, Cimic Group Limited, CSL Limited, Goodman Group, Insurance Australia Group Limited, Macquarie Group
Limited, National Australia Bank Limited, ResMed Inc, Scentre Group, Suncorp Group Limited, Sydney Airport, Telstra
Corporation Limited, Transurban Group, Wesfarmers Limited, Westpac Banking Corporation and Woolworths Limited.
The reserve bench comprised QBE Insurance Group Limited, Treasury Wine Estates Limited, ASX Limited, REA
Group Ltd and APA Group. 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.
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 Medibank Private Limited, Coca-Cola Amatil Limited, Flight Centre Travel Group
Limited and Bendigo and Adelaide Bank Limited. 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.
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.
94
95
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Other
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LTVR performance outcomes for the financial year ended 30 June 2019
The 2016 financial year LTVR award reached the end of its four-year performance period on 30 June 2019 and vested at 24.31%, with
75.69% of the LTVR award lapsing.
Performance measure
Relative TSR
Relative customer
satisfaction1
Percentage
of award
75.32%
24.68%
Performance outcome
Vesting outcome
35th percentile ranking relative to TSR peer group
Average result by business over performance period:
retail main financial institution (MFI) customer satisfaction = 1.02
wealth management customer satisfaction = 1.17
business MFI customer satisfaction = 1.00
Total weighted average ranking = 1.03
0%
98.50%
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.
5. Remuneration governance
The Remuneration Committee is the governing body for developing, monitoring and assessing remuneration strategy, policies and
practices across CBA on behalf of the Board. The Remuneration Committee met formally 10 times during the 2019 financial year.
As part of the performance and risk review, to support the determination of remuneration outcomes for the CEO and Executives
(excluding the CEO ASB), the Remuneration Committee met with the Risk and Audit Committees in February 2019 and June 2019. These
meetings provided an opportunity for the Committees to review and discuss relevant risk and audit matters, including appropriate
variable remuneration consequences for the matters raised, and provide direct input into the determination of variable remuneration
outcomes and any in-year or malus adjustments for the CEO and Executives (excluding CEO ASB) in the 2019 financial year.
Information provided to the Board Committees to support their determinations included risk scorecards, details of material risk and reputation
matters, including outcomes of internal audit reviews conducted during the year and consideration of on the quality of financial results.
The following diagram illustrates CBA’s remuneration governance framework.
The Board reviews, challenges, applies judgement and, as appropriate, approves the Remuneration Committee’s recommendations.
It approves the remuneration of the CEO and Executives (excluding the CEO ASB) and of Non-Executive Directors and
the policies and processes governing both.
CBA Board
Risk Committee
Assists the Board in the
governance of the Group’s
risks.
Advises the Remuneration
Committee of material
risk and reputation
matters which may impact
remuneration outcomes.
Risk and Remuneration
Review Committee
(RRRC)
Management committee
that advises the Group
CRO on accountability
for material risk and
reputation matters which
may impact remuneration
outcomes.
Remuneration Committee
Members (as at 30 June 2019)
David Higgins (Chairman)
Catherine Livingstone AO
Paul O’Malley
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 annually:
https://www.commbank.com.au/content/dam/
commbank-assets/about-us/docs/people-
remuneration-committee-charter.pdf
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 2019 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
2019 financial year.
The Committees meet when appropriate to consider relevant risk and audit matters in the determination of Executive remuneration outcomes
Concurrent Remuneration, Risk, Audit and Nominations Committee meetings
96
6. 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 2018 and 2019 financial years. The tables are different from the remuneration
outcomes table on page 86, which shows the remuneration received in the 2019 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.
FR1
Other short-term benefits
Long-term benefits
Share-based payments
Base
remuneration2
$
Superan-
nuation
$
Non-
monetary3
$
Cash
STVR
(at risk)4
$
Other5
$
Long-
term6
$
Deferred
STVR
(at risk)7
$
Deferred
equity
(at risk)8
$
LTVR
equity
(at risk)9
$
Termination
benefits
$
Total statutory
remuneration10
$
CEO
Matt Comyn
30 Jun 19
2,179,469
20,531
16,928
747,450
91,672
98,034
30 Jun 18
1,292,075
23,874
15,726
–
266,686
198,599
Current Executives
Adam Bennett
30 Jun 19
1,024,580
25,000
16,928 244,684
7,644
34,629
30 Jun 18
1,024,580
25,000
16,911
225,988
5,293
58,981
Pascal Boillat
–
–
–
–
– 1,204,552
–
1,162,327
141,240 1,018,078
51,962
974,726
30 Jun 19
1,106,561
15,356
11,583 353,825 322,213
6,612
– 2,357,718
183,916
David Cohen
30 Jun 19
1,177,914
22,086
16,928 348,218
26,087
38,147
30 Jun 18
1,175,000
25,000
16,911
261,300
(40,808)
56,646
Alan Docherty
30 Jun 19
924,746
20,531
16,928 291,296
11,393
237,972
30 Jun 18
95,994
2,637
2,270
51,966
6,791
4,018
Andrew Hinchliff11
30 Jun 19
896,281
18,788
15,520 302,888
84,714
33,247
Anna Lenahan12
–
–
–
–
–
163,350 1,133,049
–
1,150,959
167,426
125,676
23,222
–
331,132
122,606
30 Jun 19
844,469
20,531
16,928 332,809
12,743
(10,285) 221,872
357,116 1,846,755
30 Jun 18
844,951
20,049
16,911
249,120
49,351
6,993
Sian Lewis11
30 Jun 19
736,144
18,788
15,520 260,829
14,566
35,812
Vittoria Shortt11,13
30 Jun 19
937,427
56,346
9,926 940,777
24,021
28,732
–
–
–
533,239
440,478
151,824
101,156
310,192
529
30 Jun 18
497,554
14,863
9,913
97,424
(37,597)
(120,140)
97,424
33,852
2,113,398
Angus Sullivan
30 Jun 19
1,029,469
20,531
15,379 374,500
47,688
97,018
30 Jun 18
109,224
5,685
3,586
78,641
8,480
2,168
–
–
183,493
128,740
61,180
–
Nigel Williams
30 Jun 19
932,092
13,388
11,162
276,819 178,338
5,604
– 2,117,055
148,148
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4,358,636
2,959,287
2,512,783
2,383,441
4,357,784
2,925,779
2,645,008
1,795,968
186,898
1,805,176
3,642,938
2,161,092
1,334,639
2,307,950
2,706,691
1,896,818
268,964
3,682,606
151,198
318,276
Former Executives
George Confos11
30 Jun 19
30 Jun 18
67,606
133,031
Coen Jonker11,12,13
30 Jun 19
30 Jun 18
461,243
845,827
Melanie Laing11,12
2,123
4,178
1,618
2,967
30 Jun 19
71,079
2,123
–
–
–
203,710
461,814
231,089
–
–
7,036
(88,069)
54,274
14,817
30 Jun 18
836,900
25,000
16,911
Paul Newham11
30 Jun 19
207,945
30 Jun 18
137,877
6,301
4,178
3,796
112,801
12,205
2,612
92,879
3,033
582
1,516
Michael Venter11
30 Jun 19
268,365
10,616
6,396 133,582
22,121
3,336
30 Jun 18
313,381
12,397
6,510
271,702
73,009
(9,953)
1,407
2,858
47,301
103,417
6,505
7,779
1,588
2,401
–
–
24,668
64,612
–
–
179,405 149,469
–
119,603
330,150 464,383
807,820
2,513,691
–
–
–
–
–
–
–
189,362
95,845
–
2,030,614
– 1,325,679
487,149
1,804,997
–
938,990
61,850
50,603
111,426
179,691
–
–
–
–
–
–
–
–
–
1,886,892
405,480
292,698
555,842
846,737
97
Commonwealth Bank of Australia Annual Report 2019 Strategic
report
Financial
performance
Risk
management
Corporate
governance
Directors’
report
Financial
report
Other
information
Remuneration
report
1
2
3
4
FR comprises base remuneration and superannuation (post-employment benefit). Superannuation contributions for Vittoria Shortt are made in line with the
KiwiSaver employer contribution requirements (this includes the additional payment of $28,223 payable on her cash STVR component). Superannuation
contributions for Coen Jonker were made in line with Hong Kong Mandatory Provident Fund regulations.
Total cost of salary including cash salary, short-term compensated absences and any salary sacrificed benefits.
Cost of car parking (including associated fringe benefits tax).
For the CEO and Group Executives, 50% of the 2019 financial year STVR for performance during the 12 months to 30 June 2019 (payable in September 2019).
For the Other Executives, two-thirds of the 2019 financial year STVR for performance during the 12 months to 30 June 2019 (payable in September 2019).
For the CEO ASB, 60% of the 2019 financial year STVR for performance during the 12 months to 30 June 2019 (payable in August 2019). KiwiSaver is payable
on cash STVR.
Includes company-funded benefits (including associated fringe benefits tax where applicable) and the net change in accrued annual leave. For Adam Bennett,
this includes an adjustment to 2018 financial year accrued annual leave. For Coen Jonker this includes costs in relation to his Hong Kong assignment. For Pascal
Boillat and Nigel Williams this includes costs in relation to relocation to Sydney. For Pascal Boillat, this also includes costs in relation to a housing allowance.
6 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
5
7
8
with Australian Accounting Standards.
The deferred portion of the 2019 financial year STVR outcome for Anna Lenahan and Coen Jonker is deferred into cash over a two year period. The deferred
portion of the 2018 financial year STVR outcome for Vittoria Shortt was also deferred into cash over a two year period.
2019 financial year expense for deferred STVR awarded under Group Executive and Executive General Manager arrangements, as well as sign-on and retention
awards received as deferred rights and/or shares. These equity awards are subject to forfeiture if the Executive is dismissed or ceases to be employed by the
Group as a result of resignation prior to the vesting date. Deferred 2019 financial year STVR will be expensed over the vesting period commencing 1 July 2019.
9 2019 financial year expense for the 2016, 2017, 2018 and 2019 financial year LTVR awards.
10 The percentage of 2019 financial year remuneration related to performance was: Matt Comyn 45%, Adam Bennett 56%, Pascal Boillat 12%, David Cohen 56%,
Alan Docherty 33%, Andrew Hinchliff 42%, Anna Lenahan 66%, Sian Lewis 38%, Vittoria Shortt 54%, Angus Sullivan 36%, Nigel Williams 12%, George Confos 48%,
Coen Jonker 44%, Melanie Laing 73%, Paul Newham 43% and Michael Venter 44%.
11 Remuneration reflects the individual’s time in their respective KMP role(s). For Vittoria Shortt, prior year comparison reflects her previous role of Group Executive,
Marketing and Strategy (for which she ceased as KMP on 2 February 2018).
12 The LTVR rights value for Anna Lenahan, Coen Jonker and Melanie Laing 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 2019 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 Board risk and reputation review.
13 For Vittoria Shortt and Coen Jonker, remuneration was paid in New Zealand and Hong Kong dollars respectively and was impacted by movements in
exchange rates.
Fair value assumptions for awards granted in the 2019 financial year
In the 2019 financial year a face value allocation approach was used to determine the number of rights granted under the LTVR (refer
to page 99). 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 (i.e. the
gate opener that applies to the trust and reputation and employee engagement tranches) is greater than the likelihood of achieving a
relative TSR ranking higher than the median across the peer group.
Equity plan
Performance measure Grant date
Fair value
$
Performance
period end/final
vesting date
Expected
life
(years)
Expected
volatility
%
Risk free
rate
%
Dividend
yield
%
FY19 LTVR rights
Relative TSR
Trust and reputation
(positive TSR gateway)
Employee engagement
(positive TSR gateway)
12 Nov 18
12 Nov 18
33.57
49.87
30 Jun 22
30 Jun 22
3.63
3.63
12 Nov 18
49.87
30 Jun 22
3.63
FY18 STVR Deferral1
Service
Sign-on Award –
Pascal Boillat
Sign-on Award –
Nigel Williams
Service
Service
1 Sep 18
1 Oct 18
72.00
70.87
1 Sep 21
1 Mar 23
5 Nov 18
68.52
22 Nov 21
n/a
n/a
n/a
15
15
15
n/a
n/a
n/a
2.29
2.29
5.83
5.83
2.29
5.83
n/a
n/a
n/a
n/a
n/a
n/a
1
For the Group Executive 2018 financial year STVR deferral, final vesting date will occur on 1 September 2020. For the Executive General Manager 2018 financial
year STVR deferral, final vesting will occur on 1 September 2021.
98
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 2019 financial year. It also shows the number of previous years’ awards that vested during the 2019 financial
year – some of which relate to past non-KMP roles.
Class1
Units
$
Units
$
Units
$
Granted during
2019 financial year2
Awards vested during
2019 financial year3
Forfeited or lapsed during
2019 financial year4
CEO
Matt Comyn
LTVR reward rights
54,364
2,046,516
5,394
464,108
17,251
1,270,151
Current Executives
Adam Bennett
LTVR reward rights
25,936
976,361
2,390
205,639
7,645
562,884
Deferred STVR shares
3,139
226,008
–
–
Deferred STVR rights
–
–
2,056
167,345
Pascal Boillat
LTVR reward rights
37,066
1,395,341
–
–
Sign-on equity
82,660
5,858,114
14,879
1,052,765
–
–
–
–
–
–
–
–
David Cohen
LTVR reward rights
29,652
1,116,233
4,713
405,514
15,074
1,109,864
Deferred STVR shares
3,630
261,360
Alan Docherty
LTVR reward rights
25,329
953,506
Deferred STVR shares
2,745
197,640
–
–
–
–
–
–
Deferred STVR rights
–
–
2,950
233,096
Andrew Hinchliff
LTVR reward rights
24,709
930,150
Deferred STVR shares
6,019
433,368
–
–
–
–
Deferred STVR rights
Anna Lenahan
LTVR reward rights
Deferred STVR shares
Sign-on equity
–
21,373
3,460
–
–
4,831
378,283
804,566
249,120
–
–
–
–
–
9,234
719,170
Sian Lewis
LTVR reward rights
20,386
767,423
Deferred STVR shares
2,500
180,000
Deferred STVR rights
Vittoria Shortt5
LTVR reward rights
–
–
–
–
Deferred STVR rights
7,064
508,608
Angus Sullivan
LTVR reward rights
Deferred STVR shares
Deferred STVR rights
25,946
2,402
–
976,729
172,944
–
–
2,848
1,468
2,253
–
–
–
–
223,942
126,309
183,379
–
–
–
5,153
409,280
Nigel Williams
LTVR reward rights
29,858
1,123,996
–
–
Sign-on equity
43,112
2,954,034
18,538
1,294,553
Former Executives
George Confos
Deferred STVR shares
4,298
309,456
–
–
Deferred STVR rights
–
–
7,786
619,619
Coen Jonker
Deferred STVR shares
2,960
213,120
Deferred STVR rights
Melanie Laing
LTVR reward rights
–
–
–
–
Paul Newham
Deferred STVR shares
3,860
277,920
–
1,599
4,425
–
–
124,749
380,734
–
Deferred STVR rights
–
–
6,158
490,144
Michael Venter
Deferred STVR shares
3,805
273,960
–
–
Deferred STVR rights
–
–
6,262
524,970
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4,692
345,461
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
14,153
1,042,053
–
–
–
–
–
–
–
–
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1
2
3
4
5
Deferred STVR shares/rights represent STVR previously awarded under the Group Executive or Executive General Manager arrangements. Sign-on equity
was awarded in the 2019 financial year in the form of deferred shares for Pascal Boillat and Nigel Williams, and deferred rights from prior years for Anna Lenahan.
Represents the maximum number of equity awards that may vest to each Executive in respect of their time as KMP. The values represent the fair value at grant
date. The minimum potential outcome for the equity awards is zero.
Awards that vested include the 2015 financial year LTVR award (granted 18 September 2014, except for Adam Bennett the grant date was 12 February 2015
and for Vittoria Shortt the grant date was 7 May 2015), deferred STVR awards (vested in full) (tranches granted 1 September 2015, 1 September 2016 and
1 September 2017) and sign-on shares/rights (granted 28 November 2016, 1 October 2018 and 5 November 2018) 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.
This includes the portion of the 2015 financial year LTVR award (76.18%) 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.
Vittoria Shortt’s LTVR awards are in relation to her Group Executive role prior to her becoming the CEO ASB.
Overview of unvested equity awards
Performance period/
vesting schedule
Equity plan
FY17 LTVR
Grant date
Start date
End date
Performance measures/vesting conditions
22 Feb 17
1 Jul 16
30 Jun 20
Each award is split and tested:
75% TSR ranking relative to peer group
25% customer satisfaction average ranking relative
to peer group.
Subject to Board risk and reputation review and malus provisions.
FY18 LTVR
FY19 LTVR
17 Nov 17
12 Nov 18
1 Jul 17
1 Jul 18
30 Jun 21
Each award is split and tested:
30 Jun 22
75% TSR ranking relative to peer group
12.5% trust and reputation (relative to peer group) and
12.5% employee engagement (both measures are subject
to a positive TSR gateway).
Subject to Board risk and reputation review and malus provisions.
FY18 STVR
1 Sep 18
1 Jul 17
30 Jun 18
Vesting to occur after 1 and 2 years, subject to:
Continued employment;
Board risk and reputation review; and
Malus provisions.
FY16 Executive
General Manager STVR
FY17 Executive
General Manager STVR
FY18 Executive
General Manager STVR
Pascal Boillat
sign-on equity
Nigel Williams
sign-on equity
1 Sep 16
1 Jul 15
30 Jun 16
Vesting to occur after 1, 2 and 3 years, subject to:
1 Sep 17
1 Jul 16
30 Jun 17
Board risk and reputation review; and
1 Sep 18
1 Jul 17
30 Jun 18
Malus provisions.
Continued employment;
1 Oct 18
1 Apr 19
1 Mar 23
No performance measures. Subject to:
5 Nov 18
1 Jan 19
22 Nov 21
Board risk and reputation review; and
Continued employment;
Malus provisions.
100
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.
Balance
1 Jul 18
Acquired/
granted as
remuneration
Awards
vested during
the 2019
financial year2
Net change
other3
Balance
30 Jun 19
Class1
CEO
Matt Comyn
Ordinary
LTVR reward rights
Current Executives
Adam Bennett
Ordinary
LTVR reward rights
Deferred STVR shares
Deferred STVR rights
Pascal Boillat
Ordinary
LTVR reward rights
Sign-on equity
David Cohen
Ordinary
LTVR reward rights
Deferred STVR shares
Alan Docherty
Ordinary
LTVR reward rights
Deferred STVR shares
50,003
89,229
19,825
73,763
–
2,056
n/a
n/a
n/a
56,944
89,349
–
2,192
–
–
Deferred STVR rights
5,209
Andrew Hinchliff
Ordinary
LTVR reward rights
Deferred STVR shares
Deferred STVR rights
Anna Lenahan
Ordinary
LTVR reward rights
Deferred STVR shares
Sign-on equity
Sian Lewis
PERLS
Ordinary
LTVR reward rights
Deferred STVR shares
Deferred STVR rights
Vittoria Shortt4
Ordinary
LTVR reward rights
Deferred STVR rights
n/a
n/a
n/a
n/a
13,852
36,911
–
9,234
2,000
n/a
n/a
n/a
n/a
11,384
60,173
2,253
–
54,364
–
–
25,936
3,139
–
–
37,066
82,660
–
29,652
3,630
–
25,329
2,745
–
–
24,709
6,019
–
–
21,373
3,460
–
–
–
20,386
2,500
–
–
–
7,064
5,394
(5,394)
–
4,446
(2,390)
–
(2,056)
14,879
–
(14,879)
4,713
(4,713)
–
2,950
–
–
(2,950)
4,831
–
–
(4,831)
9,234
–
–
(9,234)
–
2,848
–
–
(2,848)
3,642
(1,468)
(2,253)
–
(17,251)
–
(7,645)
–
–
(14,879)
–
–
(5,776)
(15,074)
–
–
–
–
–
–
–
–
9,638
(4,617)
–
–
–
(2,000)
88
–
–
5,382
–
(4,692)
–
55,397
120,948
24,271
89,664
3,139
–
–
37,066
67,781
55,881
99,214
3,630
5,142
25,329
2,745
2,259
4,831
24,709
6,019
4,807
18,469
58,284
3,460
–
–
2,936
20,386
2,500
2,534
15,026
54,013
7,064
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Class1
Angus Sullivan
Ordinary
LTVR reward rights
Deferred STVR shares
Deferred STVR rights
Nigel Williams
Ordinary
LTVR reward rights
Sign-on equity
Former Executives
George Confos
Ordinary
Deferred STVR shares
Deferred STVR rights
PERLS
Coen Jonker
LTVR reward rights
Deferred STVR shares
Deferred STVR rights
Melanie Laing
Ordinary
LTVR reward rights
Paul Newham
Ordinary
Deferred STVR shares
Deferred STVR rights
Michael Venter
Ordinary
Deferred STVR shares
Balance
1 Jul 18
4,316
–
–
8,419
n/a
n/a
n/a
1,685
–
12,332
330
18,658
–
4,164
63,490
72,238
4,932
–
9,729
–
–
Deferred STVR rights
10,191
Acquired/
granted as
remuneration
Awards
vested during
the 2019
financial year2
Net change
other3
Balance
30 Jun 19
–
25,946
2,402
–
–
29,858
43,112
–
4,298
–
–
–
2,960
–
–
–
–
3,860
–
–
3,805
–
5,153
–
–
(5,153)
18,538
–
(18,538)
7,786
–
(7,786)
–
–
–
(1,599)
4,425
(4,425)
6,158
–
(6,158)
1,270
–
(6,262)
–
–
–
–
–
–
–
(8,636)
–
–
200
–
–
–
(4,425)
(14,153)
–
–
–
(1,270)
–
–
9,469
25,946
2,402
3,266
18,538
29,858
24,574
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
1
2
3
4
Ordinary shares include all CBA shares held by the Executive’s related parties. LTVR reward rights are subject to performance hurdles. Deferred rights/shares
represent the deferred STVR awarded under Group Executive and Executive General Manager arrangements, sign-on and retention awards. Both LTVR rights
and deferred rights/shares are unvested as at 30 June 2019. The maximum potential outcome for LTVR rights and deferred rights/shares is subject to CBA share
price at time of vesting.
LTVR rights and deferred rights/shares become ordinary shares or cash equivalent upon vesting.
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.
Vittoria Shortt’s LTVR awards are in relation to her Group Executive role prior to her becoming the CEO ASB.
Executive employment arrangements
The table below provides the employment arrangements for current Executives.
Contract term
CEO
Group Executives
CEO ASB
Other Executives
Contract type1
Notice period
Severance
Permanent
12 months
n/a
Permanent
6 months
n/a2
Permanent
6 months
12 months2
Permanent
3 months
3 months3
Treatment of STVR
on termination
Unless otherwise determined by the Board (or ASB Board in respect of the CEO ASB), Executives who resign
or are dismissed are not eligible to receive an STVR award and will forfeit any unvested deferred STVR awards.
Unless otherwise determined by the Board, where an Executive’s exit is related to any other reason (e.g., retrenchment,
retirement or death), the Executive may be eligible for an STVR award with regard to actual performance against
performance measures (as determined by the Board in the ordinary course 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.
Treatment of LTVR
on termination
In general, unless otherwise determined by the Board:
Executives who resign or are dismissed before the end of the performance period will forfeit all unvested LTVR
awards; and
Where an Executive’s exit is related to any other reason (e.g., retrenchment, retirement or death), any unvested LTVR
awards continue on-foot with performance measured at the end of the performance period related to each award.
The CEO ASB and Other Executives are not eligible for LTVR.
1
2
3
Permanent contracts continue until notice is given by either party.
Contractual severance pay is no longer offered in Group Executive employment arrangements. Group Executives remain entitled to statutory redundancy
pay if retrenched. For Group Executives on grandfathered arrangements, they are eligible for severance payments of six months’ base remuneration if their
employment is terminated by the Group, other than for misconduct or unsatisfactory performance. For the CEO ASB, contractual severance allows for minimum
12 months’ base salary (inclusive of notice) or a maximum of 64 weeks in accordance with ASB Policy.
Contractual severance pay applies where employment is terminated due to redundancy.
7. Non-Executive Director arrangements
Non-Executive Director fees
Non-Executive Directors receive fees to recognise their contribution to the work of the Board and the associated Committees on which
they serve. Non-Executive Directors do not receive any performance-related remuneration.
The total amount of Non-Executive Directors fees is capped at a maximum fee pool that is approved by shareholders. The current fee
pool is $4.75 million, which was approved by shareholders at the AGM on 17 November 2015.
The following table outlines the Non-Executive Directors fees for the Board and the Committees as at 30 June 2019.
Fees are inclusive of base fees and statutory superannuation. The Chairman does not receive separate Committee fees.
Board/Committee
Board
Audit Committee
Risk Committee
Remuneration Committee
Nominations Committee
Due Diligence Committee1
Chairman
$
870,000
65,000
65,000
60,000
11,600
4,0002
Member
$
242,000
32,500
32,500
30,000
11,600
Nil
1
2
The Due Diligence Committee did not meet during the 2019 financial year.
Represents fees for each full day meeting.
Mandatory shareholding requirement
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 under the Non-Executive Directors’ Share Plan
(NEDSP) until a holding of 5,000 shares is reached. These shares are subject to a 10-year trading restriction (the shares will be released
earlier if the Non-Executive Director leaves the Board).
The Non-Executive Directors’ mandatory shareholding requirement was reviewed during the 2019 financial year. From 1 July 2019,
Non-Executive Directors are required to hold CBA shares equivalent to 100% base fees for Non-Executive Directors and 100% of
Chairman fees for the Chairman. This is to be accumulated over five years. Progress against the new requirement will be disclosed
from the 2020 financial year.
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Non-Executive Director statutory remuneration
The statutory table below details individual statutory remuneration for the Non-Executive Directors for both the 2019 and 2018 financial years.
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 NEDSP. Other securities acquired
by Non-Executive Directors were on normal terms and conditions.
Short-term benefits
Post-employment
benefits
Cash1
$
Superannuation2
$
Share-based
payments
Non-Executive
Directors’ Share
Plan3
$
Total statutory
remuneration
$
864,013
749,201
349,010
353,970
20,531
20,049
20,531
15,037
-
-
-
-
884,544
769,250
369,541
369,007
95,031
9,905
14,320
119,256
313,052
246,570
20,531
20,049
112,266
10,099
236,674
225,584
287,028
225,434
271,568
66,165
231,314
184,703
161,242
259,777
103,109
223,073
20,531
20,049
20,531
19,554
20,531
6,516
20,531
16,567
10,266
20,049
8,173
19,650
-
-
-
25,618
30,657
-
-
30,136
9,045
33,471
26,945
-
-
-
-
333,584
266,619
122,365
282,823
276,290
307,559
244,988
322,235
81,726
285,316
228,215
171,508
279,826
111,282
242,723
Chairman
Catherine Livingstone AO4,5
30 Jun 19
30 Jun 18
Current Non-Executive Directors
Shirish Apte4,6
30 Jun 19
30 Jun 18
Genevieve Bell7
30 Jun 19
David Higgins4
30 Jun 19
30 Jun 18
Paul O’Malley7
30 Jun 19
Mary Padbury4,8
30 Jun 19
30 Jun 18
Wendy Stops4
30 Jun 19
30 Jun 18
Anne Templeman-Jones8,9
30 Jun 19
30 Jun 18
Robert Whitfield8,9
30 Jun 19
30 Jun 18
Former Non-Executive Directors
Brian Long4,10
30 Jun 19
30 Jun 18
Andrew Mohl4,10
30 Jun 19
30 Jun 18
Class
Balance
1 Jul 18
Acquired1
Net change
other2
Balance
30 Jun 19
Chairman
Catherine Livingstone AO
Ordinary
5,337
2,000
Current Non-Executive Directors
Shirish Apte
Genevieve Bell
David Higgins
Paul O’Malley
Mary Padbury
Wendy Stops
Anne Templeman-Jones
Robert Whitfield
Former Non-Executive Directors
Brian Long3
Andrew Mohl3
Ordinary
Ordinary
PERLS4
Ordinary
PERLS4
Ordinary
Ordinary
PERLS4
Ordinary
Ordinary
Ordinary
Ordinary
PERLS4
Ordinary
7,500
n/a
n/a
10,878
150
n/a
834
1,600
16,000
358
309
14,956
6,850
82,234
–
141
–
–
–
5,330
445
–
–
680
549
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7,337
7,500
141
1,020
10,878
150
5,330
1,279
1,600
16,000
1,038
858
n/a
n/a
n/a
1
2
3
4
Incorporates shares and other securities acquired during the year. In the 2019 financial year, under the Non-Executive Directors’ Share Plan, Genevieve Bell
received 141 shares, Mary Padbury received 376 shares, Anne Templeman-Jones received 427 shares and Robert Whitfield received 480 shares.
Net change other incorporates changes resulting from sales of securities.
Brian Long and Andrew Mohl retired from the Group effective 31 December 2018 and 7 November 2018 respectively and their shareholding balance as at
30 June 2019 is not included.
Includes cumulative holdings of PERLS securities issued by the Group.
1
2
3
4
Cash includes Board and Committee fees received as cash, as well as the provision of additional benefits (including associated fringe benefits tax).
Superannuation contributions are capped at the superannuation maximum contributions base as prescribed under the Superannuation Guarantee legislation.
The values shown in the tables represent the post-tax portion of fees received as shares under the NEDSP.
Base and committee fees for the 2018 financial year were reduced by an amount equivalent to 20% of individual 2017 financial year fees, reflecting collective
accountability for the trust and reputational issues that promoted the need for the APRA Prudential Inquiry.
For Catherine Livingstone, 2018 financial year cash fees have been adjusted to reflect the provision of car parking benefits (including associated fringe benefits tax).
5
6 For Shirish Apte, 2018 financial year cash fees have been adjusted to reflect payments in relation to fringe benefits tax on additional benefits.
7
8
Genevieve Bell and Paul O’Malley were appointed as Non-Executive Directors effective 1 January 2019 and their remuneration reflects time in the role.
For Mary Padbury, Anne Templeman-Jones and Robert Whitfield the proportion between cash fees and NEDSP shares has been adjusted for the 2018
financial year.
9 Anne Templeman-Jones was appointed as a Non-Executive Director effective 5 March 2018 and Robert Whitfield was appointed as a Non-Executive Director
effective 4 September 2017. Their 2018 financial year remuneration reflects time in the role.
10 Brian Long and Andrew Mohl retired from their Non-Executive Director roles effective 31 December 2018 and 7 November 2018 respectively and their
remuneration reflects time in the role.
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8. Loans and other transactions
Non-Audit Services
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 Balance1
Interest Charged
1 The aggregate loan amount at the end of the reporting period includes loans issued to 12 KMP.
Loans to KMP exceeding $100,000 in aggregate during the 2019 financial year
Adam Bennett
David Cohen
Alan Docherty
Andrew Hinchliff
Sian Lewis
Paul Newham
Vittoria Shortt
Angus Sullivan
Michael Venter
Total
Interest
charged
$
Interest not
charged
$
Write-off
$
Balance
1 Jul 18
$
18,464
451,334
1,580,187
n/a
n/a
4,008,128
4,736,951
5,639,759
1,185,195
3,540
12,909
57,044
1,699
29,733
70,311
15,476
239,781
41,333
17,620,018
471,826
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
30 Jun 19
$
17,681,018
12,376,700
480,435
Balance
30 Jun 19
$
Highest balance
in period1
$
1,011,887
1,038,577
43,481
490,188
1,447,903
1,587,312
44,368
775,808
121,287
836,187
n/a
4,176,522
3,327,450
5,889,636
5,652,632
5,866,364
n/a
1,206,891
12,303,529
21,212,964
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 report are as follows:
Taxation services
Other services
Total non-audit services1
Total audit and audit related services
2019
$’000
1,395
7,915
9,310
34,698
1
An additional amount of $2,975,730 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 page 108.
Auditor Independence
The Group has an External Auditor Services Policy 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 (Cth).
The Audit Committee recommended 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 (Cth).
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 (Cth). The reasons for this are as follows:
The operation of the External Auditor Services Policy during the year to restrict the nature of non-audit services 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 recommendation received from the Audit Committee.
Incorporation of Additional Material
This Report incorporates the Strategic report (pages 2 – 39) including the Chairman's and CEO's messages, Financial performance
(pages 40 – 49), Risk management (pages 50 – 63), Corporate governance (pages 64 – 75), Shareholder information (pages 286 – 291)
and the Environmental, customer, social and governance metrics (pages 297 – 306) sections of this Annual Report.
1
Represents the sum of highest balances outstanding at any point during the 2019 financial year for each individual loan held by the KMP.
Other transactions of KMP
Financial instrument transactions
Financial instrument transactions (other than loans and shares disclosed within this report) of KMP, their close family members and
entities controlled or significantly influenced by them, occur in the ordinary course of business on normal commercial terms and
conditions no more favourable than those given to other employees.
All such financial instrument transactions that have occurred between entities within the Group and KMP, their close family members
and entities controlled or significantly influenced by them, 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.
Catherine Livingstone AO
Chairman
7 August 2019
Matt Comyn
Managing Director and Chief Executive Officer
7 August 2019
106
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Commonwealth Bank of Australia Annual Report 2019 Strategic
report
Financial
performance
Risk
management
Corporate
governance
Financial
report
Other
information
Directors’
report
Auditor’
Independence
Declaration
Auditor’s Independence Declaration
As lead auditor for the audit of the Commonwealth Bank of Australia for the year ended 30 June 2019,
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 the Commonwealth Bank of Australia and the entities it controlled
during the period.
Matthew Lunn
Partner
PricewaterhouseCoopers
Sydney
7 August 2019
Financial
report
PricewaterhouseCoopers, ABN 52 780 433 757
One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY
NSW 2001//www.pwcactuarial.com
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.
108
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Commonwealth Bank of Australia Annual Report 2019 Strategic
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Financial
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Risk
management
Corporate
governance
Directors’
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Financial
report
Contents
Other
information
Contents
Income statements
Statements of comprehensive income
Balance sheets
Statements of changes in equity
Statements of cash flows
Notes to the financial statements
1. Overview
1.1 General information, basis of accounting, changes in accounting policies
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. Our investing, trading and other banking activities
5.1 Cash and liquid assets
5.2 Assets at fair value through income statement
5.3 Derivative financial instruments and hedge accounting
5.4
Investment securities
6. Other assets
6.1
Intangible assets
6.2 Other assets
7. Other liabilities
7.1 Other provisions
7.2 Bills payable and other liabilities
110
Commonwealth Bank of Australia Annual Report 2019
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 framework
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
11. Group structure
11.1
Investments in subsidiaries and other entities
11.2 Related party disclosures
11.3 Discontinued operations
12. Other
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 Future accounting developments
12.6 Accounting policies applicable for comparative periods
12.7 Subsequent events
Directors’ declaration
Independent auditor’s report
Other information
112
113
114
115
117
119
119
119
130
130
132
137
139
1 4 1
144
145
149
149
153
160
160
1 6 1
162
164
166
166
167
168
179
181
1 81
184
185
185
190
191
191
192
194
199
201
202
205
226
228
232
241
242
246
246
248
251
253
253
259
260
264
264
265
266
267
268
269
271
272
273
285
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Financial
performance
Risk
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Corporate
governance
Directors’
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Other
information
Financial
report
Income
statements
For the year ended 30 June 2019
For the year ended 30 June 2019
Note
30 Jun 19
$M
30 Jun 18
$M
Group (1) (2) (3)
30 Jun 17
$M
30 Jun 19
$M
Bank (2) (3)
30 Jun 18
$M
Net profit after income tax for the period from continuing operations
8,372
9,070
9,471
7,783
8,875
Group (1) (2)
30 Jun 19
$M
30 Jun 18
$M
30 Jun 17 30 Jun 19
$M
$M
Bank (2)
30 Jun 18
$M
34,089
33,643
32,705
32,960
32,531
499
501
490
499
465
Other comprehensive income/(expense):
(16,468)
(15,802)
(15,649)
(17,405)
(16,585)
Items that may be reclassified subsequently to profit/(loss):
Interest income:
Effective interest income
Other
Interest expense
Net interest income
Other banking income
Net banking operating income
Net funds management operating income
Net insurance operating income
Total net operating income before impairment and
operating expenses
Loan impairment expense
Operating expenses
Net profit before income tax
Income tax expense
2.1
2.1
2.1
2.3
2.3
2.3
3.2
2.4
2.5
18,120
4,994
23,114
1,073
150
18,342
17,546
5,423
5,721
23,765
23,267
1,124
241
1,038
178
16,054
6,044
22,098
-
-
16,411
7,365
23,776
-
-
24,337
25,130
24,483
22,098
23,776
(1,201)
(1,079)
(1,095)
(1,058)
(963)
(11,373)
(11,029)
(10,133)
(10,633)
(10,703)
11,763
(3,391)
13,022
13,255
10,407
12,110
(3,952)
(3,784)
(2,624)
(3,235)
Net profit after income tax from continuing operations
8,372
9,070
9,471
7,783
8,875
Non-controlling interests in net profit after income tax from
continuing operations
Net profit attributable to equity holders of the Bank
from continuing operations
Net profit after tax from discontinued operations
Non-controlling interests in net profit after income tax from
discontinued operations
(12)
(13)
(13)
-
-
8,360
9,057
9,458
7,783
8,875
218
(7)
278
(6)
481
(11)
-
-
-
-
Net profit attributable to equity holders of the Bank
8,571
9,329
9,928
7,783
8,875
Foreign currency translation reserve net of tax
Gains/(losses) on cash flow hedging instruments net of tax
Gains/(losses) on debt investment securities at fair value through other
comprehensive income net of tax
Losses on available-for-sale investments net of tax
Total of items that may be reclassified
457
947
103
-
1,507
(12)
(53)
-
(68)
(133)
(256)
(577)
-
(52)
(885)
214
1,003
(5)
-
1,212
53
4
-
(34)
23
Items that will not be reclassified to profit/(loss):
Actuarial (losses)/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
Losses on equity investment securities at fair value through other
comprehensive income net of tax
Revaluation of properties net of tax
Total of items that will not be reclassified
Other comprehensive income/(expense) net of income tax from
continuing operations
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 (3)
(49)
161
175
(50)
159
-
(6)
34
(21)
1,486
(2)
-
31
190
57
(3)
-
23
195
-
(1)
33
(18)
(690)
1,194
(2)
-
29
186
209
9,858
9,127
8,781
8,977
9,084
218
14
278
481
(6)
(29)
-
-
-
-
The above Income Statements should be read in conjunction with the accompanying notes.
Total comprehensive income for the period
10,090
9,399
9,233
8,977
9,084
Earnings per share for profit attributable to equity holders of the Bank during the year:
Earnings per share from continuing operations: (1)
Basic
Diluted
Earnings per share:
Basic
Diluted
30 Jun 19
30 Jun 18
Cents per share
473. 7
457. 5
485. 6
468. 6
518. 8
503. 2
534. 3
517. 7
Group
30 Jun 17
549. 9
532. 9
577. 3
558. 8
Information has been restated and presented on a continuing operations basis. For details on the Group’s discontinued operations refer to Note 11.3.
(1)
(2) Comparative information has been restated to conform to presentation in the current year.
(3) Current year amounts reflect the adoption of AASB 9 ‘Financial Instruments’ and AASB 15 ‘Revenue from contracts with customers’ on 1 July 2018. As permitted by
AASB 9 and AASB 15 comparative information has not been restated. For details on the adoption of AASB 9 and AASB 15 refer to Note 1.1.
Total comprehensive income for the period is attributable to:
Equity holders of the Bank
Non-controlling interests
10,071
9,380
9,209
8,977
9,084
19
19
24
-
-
Total comprehensive income net of tax
10,090
9,399
9,233
8,977
9,084
(1)
(2)
(3)
Information has been restated and presented on a continuing operations basis. For details on the Group’s discontinued operations refer to Note 11.3.
Current year amounts reflect the adoption of AASB 9 ‘Financial Instruments’ and AASB 15 ‘Revenue from contracts with customers’ on 1 July 2018. As permitted by
AASB 9 and AASB 15 comparative information has not been restated. For details on the adoption of AASB 9 and AASB 15 refer to Note 1.1.
Includes $7 million gain on foreign currency translation net of tax (30 June 2018: $3 million gain; 30 June 2017: $29 million loss) and $7 million gain on revaluation of
debt investment securities measured at fair value through other comprehensive income net of tax. The year ended 30 June 2018 includes $9 million loss on revaluation
of available-for-sale investments net of tax.
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
30 Jun 19
30 Jun 18
Cents per share
Group
30 Jun 17
431
431
429
Note
8.4
112 Commonwealth Bank of Australia Annual Report 2019
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performance
Risk
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Corporate
governance
Directors’
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Other
information
Financial
report
Balance
sheets
As at 30 June 2019
For the year ended 30 June 2019
Assets
Cash and liquid assets
Receivables due from other financial institutions
Assets at fair value through Income Statement:
Trading
Insurance
Other
Derivative assets
Investment securities:
At amortised cost
At fair value through other comprehensive income
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
Investments in associates and joint ventures
Intangible assets
Deferred tax assets
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
Other provisions
Insurance policy liabilities
Debt issues
Bills payable and other liabilities
Liabilities held for sale
Loan capital
Total liabilities
Net assets
Shareholders' Equity
Ordinary share capital
Reserves
Retained profits
Shareholders' Equity attributable to equity holders of the Bank
Non-controlling interests
Total Shareholders' Equity
Note
5.1
5.2
5.2
5.2
5.3
5.4
5.4
5.4
3.1
11.2
11.1
6.1
2.5
6.2
11.3
4.1
4.2
5.3
7.1
4.3
7.2
11.3
8.2
8.3
8.3
8.3
11.1
Group (1) (2) (3)
30 Jun 18
$M
36,417
9,222
30 Jun 19
$M
29,387
8,093
30 Jun 19
$M
26,912
7,334
Bank (1) (3)
30 Jun 18
$M
33,581
8,376
32,506
-
1,171
25,215
7,355
78,912
-
755,141
32
-
2,383
3,001
7,965
1,675
7,115
16,551
976,502
636,040
23,370
8,520
22,777
32
-
326
2,751
-
163,990
10,285
15,796
883,887
22,966
906,853
69,649
38,020
3,092
28,482
69,594
55
69,649
32,254
372
258
32,133
-
-
82,240
743,365
379
-
2,576
2,842
9,090
1,439
6,924
15,654
975,165
622,234
20,899
10,247
28,472
379
-
952
1,860
451
172,294
11,625
14,900
884,313
22,992
907,305
67,860
37,270
1,676
28,360
67,306
554
67,860
32,476
-
652
24,311
7,349
73,212
-
660,476
32
120,193
1,389
1,017
4,317
1,570
5,910
1
967,151
573,851
22,618
7,961
26,654
32
105,774
129
2,337
-
131,062
9,040
-
879,458
22,569
902,027
65,124
38,212
3,813
23,099
65,124
-
65,124
29,993
-
-
30,885
-
-
77,731
656,650
379
118,252
1,460
1,118
4,466
1,430
6,212
19
970,552
566,200
20,014
9,106
30,871
379
105,327
796
1,561
-
139,984
10,145
-
884,383
22,249
906,632
63,920
37,533
2,568
23,819
63,920
-
63,920
As at 30 June 2017
Net profit after income tax from continuing
operations (1)
Net profit after income tax from discontinued
operations (1)
Net other comprehensive income from
continuing operations (1)
Net other comprehensive income from
discontinued operations (1)
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
Change on adoption of new accounting
standards (3)
Restated opening balance
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 2019
Ordinary
share
capital
$M
34,971
Reserves
$M
1,869
Retained
profits
$M
26,274
Non-
controlling
interests
$M
546
Total
$M
63,114
Group
Total
Shareholders'
Equity
$M
63,660
-
-
-
-
-
-
2,105
164
-
(95)
125
-
-
-
-
-
-
-
748
-
-
(93)
95
-
38,020
-
-
(102)
(6)
(108)
-
-
-
(19)
-
-
-
-
-
16
-
-
9,057
9,057
272
159
-
9,488
272
57
(6)
9,380
(7,484)
(7,484)
-
-
-
-
-
-
-
-
-
-
2,105
164
(19)
(95)
125
16
66,351
8,360
211
1,486
14
748
-
16
(93)
95
12
69,594
(66)
82
37,270
1,676
28,360
67,306
-
-
(955)
(955)
37,270
1,676
27,405
-
-
1,535
14
8,360
211
(49)
-
1,549
8,522
10,071
(7,606)
(7,606)
(149)
3,092
161
28,482
13
6
-
-
19
-
-
-
-
-
-
(11)
554
-
554
12
7
-
-
19
-
-
-
-
-
-
(518)
55
9,070
278
57
(6)
9,399
(7,484)
2,105
164
(19)
(95)
125
5
67,860
(955)
66,905
8,372
218
1,486
14
10,090
(7,606)
748
-
16
(93)
95
(506)
69,649
(1) Comparative information has been restated to conform to presentation in the current year.
(2) Current year balances have been impacted by the announced sale of CFSGAM, PT Commonwealth Life, Count Financial and completed sales of Sovereign and
TymeDigital SA. For details on the Group’s discontinued operations, refer to Note 11.3.
(3) Current year balances reflect the adoption of AASB 9 ‘Financial Instruments’ and AASB 15 ‘Revenue from contracts with customers’ on 1 July 2018. As permitted by
AASB 9 and AASB 15 comparative information has not been restated. For details on the adoption of AASB 9 and AASB 15 refer to Note 1.1.
The above Balance Sheets should be read in conjunction with the accompanying notes.
(1)
(2)
(3)
Information has been restated to reflect reclassification of CFSGAM and PT Commonwealth Life as discontinued operations during the current year.
Current year and prior year include discontinued operations.
The Group adopted AASB 9 ‘Financial Instruments’ and AASB 15 ‘Revenue from contracts with customers’ on 1 July 2018. The carrying amounts of assets and
liabilities impacted by the adoption were adjusted through opening retained profits and reserves on 1 July 2018 as if the Group has always applied the new requirements.
As permitted by AASB 9 and AASB 15, comparative information has not been restated. For details on the adoption of AASB 9 and AASB 15, refer to Note 1.1.
The above Statements of Changes in Equity should be read in conjunction with the accompanying notes.
114 Commonwealth Bank of Australia Annual Report 2019
115
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Risk
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Corporate
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Directors’
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Financial
report
Other
information
Statements of
changes in equity
For the year ended 30 June 2019
As at 30 June 2017
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)
Issue of shares (net of issue costs)
Share-based payments
Other changes
As at 30 June 2018
Change on adoption of new accounting standards (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)
Issue of shares (net of issue costs)
Share-based payments
Purchase of treasury shares
Other changes
As at 30 June 2019
Bank
Total
Shareholders'
Equity
$M
60,074
8,875
209
9,084
(7,484)
2,107
164
(25)
-
63,920
(868)
63,052
7,783
1,194
8,977
For the year ended 30 June 2019
Cash flows from operating activities
Interest received
Interest paid
Other operating income received
Expenses paid
Income taxes paid
Net inflows from assets at fair value through Income Statement
(excluding life insurance)
Net inflows/(outflows) from liabilities at fair value through Income
Statement:
Insurance:
Investment income
Premiums received (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 investment securities:
Purchases
Proceeds
(7,606)
(7,606)
Movement in available-for-sale investments:
Ordinary
share
capital
$M
35,262
-
-
-
-
2,107
164
-
-
Reserves
$M
2,556
Retained
profits
$M
22,256
-
52
52
-
-
-
(25)
(15)
8,875
157
9,032
(7,484)
-
-
-
15
37,533
2,568
23,819
(868)
22,951
7,783
(50)
7,733
-
37,533
-
-
-
-
748
-
-
(69)
-
-
2,568
-
1,244
1,244
-
-
-
22
-
(21)
-
-
-
-
21
748
-
22
(69)
-
(1)
The Bank adopted AASB 9 ‘Financial Instruments’ and AASB 15 ‘Revenue from contracts with customers’ on 1 July 2018. The carrying amounts of assets and liabilities
impacted by the adoption were adjusted through opening retained profits and reserves on 1 July 2018 as if the Bank has always applied the new requirements. As
permitted by AASB 9 and AASB 15, comparative information has not been restated. For details on the adoption of AASB 9 and AASB 15 refer to Note 1.1.
The above Statements of Changes in Equity should be read in conjunction with the accompanying notes.
38,212
3,813
23,099
65,124
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 decrease/(increase) in other assets
Net increase/(decrease) in deposits and other public borrowings
Net increase/(decrease) in payables due to other financial
institutions
Net increase/(decrease) in securities sold under agreements to
repurchase
Net (decrease)/increase in other liabilities
Changes in operating assets and liabilities arising from
cash flow movements
Note
30 Jun 19
$M
30 Jun 18
$M
Group (1) (2)
30 Jun 17
$M
30 Jun 19
$M
Bank (1) (2)
30 Jun 18
$M
34,757
35,801
33,536
32,366
34,679
(15,695)
(15,356)
(15,006)
(16,743)
(16,100)
5,808
6,181
(10,784)
(10,340)
(4,878)
(4,791)
5,556
(9,763)
(3,976)
3,971
(9,693)
(4,453)
4,217
(8,739)
(3,892)
2,482
5,270
4,220
6,915
7,185
340
2,414
225
3,241
186
3,366
(3,061)
(3,453)
(3,854)
-
-
-
126
(208)
156
(410)
-
-
-
12
11,509
16,570
14,421
11,953
17,362
(41,925)
43,239
-
-
-
-
(39,020)
39,556
-
-
-
-
(51,783)
(54,608)
52,832
49,392
-
-
(50,501)
51,673
(9,465)
(16,105)
(38,744)
(4,585)
(10,420)
1,345
884
1,100
1,210
583
930
9,258
(13,993)
933
9,723
(1,383)
(1,594)
(1,789)
2,512
525
4,891
2,154
2,671
3,152
(11)
(876)
(174)
39,821
(8,279)
666
-
-
524
1,949
2,319
-
-
(35)
(4,984)
(8,451)
4,402
(1,574)
(648)
(884)
(853)
802
4,408
(1,695)
(137)
(1,664)
6,577
(15,461)
(15,228)
7,157
(15,771)
116 Commonwealth Bank of Australia Annual Report 2019
117
Net cash provided by/(used in) operating activities
12.3 (a)
18,086
1,109
(807)
19,110
1,591
It should be noted that the Group does not use these accounting Statements of Cash Flows in the internal management of its liquidity positions.
(1)
(2)
Includes discontinued operations. For the cash flows from discontinued operations refer to Note 11.3.
(3) Represents gross premiums and policy payments before splitting between policyholders and shareholders.
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Statements of
cash flows
For the year ended 30 June 2019
Cash flows from investing activities
Cash inflows/(outflows) from acquisitions
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
Net cash flows from sales/(acquisitions) of associates/joint
ventures
Net purchase of intangible assets
Net cash (used in)/provided by investing activities
Cash flows from financing activities
Note
30 Jun 19
$M
30 Jun 18
$M
Group (1) (2)
30 Jun 17
$M
Bank (1) (2)
30 Jun 19 30 Jun 18
$M
$M
-
1,259
141
-
151
(326)
72
(314)
983
26
-
68
-
155
(477)
(271)
(503)
(1,002)
(31)
1
94
-
381
(602)
(25)
(495)
(677)
-
-
-
-
1,473
2,085
(1,906)
(2,993)
89
(271)
29
42
(321)
-
(597)
(405)
(1,183)
(1,592)
Dividends paid (excluding Dividend Reinvestment Plan)
(6,853)
(5,366)
(6,084)
(6,853)
(5,364)
Redemption of other equity instruments (net of costs)
(505)
-
-
-
-
Proceeds from issuance of debt securities
56,448
68,273
94,560
46,685
57,708
Redemption of issued debt securities
(73,747)
(67,809)
(81,758)
(63,343)
(56,692)
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
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
12.3 (b)
(93)
22
1,579
(2,637)
-
47
(25,739)
(6,670)
675
23,005
17,010
(95)
55
4,445
(464)
-
27
(934)
(827)
715
(92)
34
(69)
-
-
-
3,757
1,571
4,436
(2,263)
(467)
-
(6)
61
-
(70)
10,472
(24,342)
8,988
(6,415)
(318)
598
-
36
(343)
(344)
746
23,117
23,005
14,447
23,117
21,351
15,534
20,949
21,351
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. For the cash flows from discontinued operations refer to Note 11.3.
(1)
(2)
(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.
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 2019, was approved and authorised for issue by the
Board of Directors on 7 August 2019. 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 Financial Statements and the Independent
Auditor’s Report form part of the Financial Report.
On 21 September 2017, the Group entered into an agreement to sell
100% of its life insurance businesses in Australia (CommInsure Life)
and New Zealand (Sovereign) to AIA Group Limited (AIA). The sale
of Sovereign completed on 2 July 2018. The sale of CommInsure
Life remains subject to completion of the transfer of the Group’s
stake in BoCommLife Insurance Company Limited (BoCommLife)
out of CommInsure Life and its associated Chinese regulatory
approvals.
The Group and AIA remain fully committed to completing the
CommInsure Life transaction. The Group and AIA are also well
progressed in exploring an alternative path to complete the
CommInsure Life transaction prior to the transfer of the Group’s
stake in BoCommLife. The alternative path is expected to be subject
only to Australian regulatory approvals. The Group expects to be
able to provide further details of this alternative path by the end of
the first quarter of the financial year 2020, if the sale of BoCommLife
has not substantially progressed in that timeframe.
On 23 May 2018, the Group announced the sale of its 37.5% equity
interest in BoCommLife to Mitsui Sumitomo Insurance Co. Ltd (MSI).
The sale of BoCommLife is subject to Chinese regulatory approvals
and is the final condition precedent for the sale of CommInsure Life.
The sale of BoCommLife is expected to be completed in the second
half of the calendar year 2019.
On 25 June 2018, the Group announced its intention to demerge its
wealth management and mortgage broking businesses, and
undertake a strategic review of its general
insurance business,
including a potential sale. On 14 March 2019, the Group announced
suspension of its preparation for the demerger in order to focus on
the
implementation of Royal Commission recommendations,
refunding customers and remediating past issues.
life
the sale of
in its Indonesian
the Group announced
On 23 October 2018,
its
insurance business, PT
80% interest
Commonwealth Life (PTCL), to FWD Group (FWD). As part of
the sale, CBA’s
Indonesian banking subsidiary, PT Bank
Commonwealth (PTBC), will enter into a 15 year life insurance
distribution partnership with FWD. The sale is subject to regulatory
approvals in Indonesia and is now expected to complete in the
second half of calendar year 2019.
On 31 October 2018, the Group announced the sale of Colonial First
State Global Asset Management (CFSGAM) to Mitsubishi UFJ Trust
and Banking Corporation (MUTB). The sale completed on
2 August 2019.
the Group completed
the sale of
On 1 November 2018,
Commonwealth Bank of South Africa (Holding Company) Limited
(TymeDigital SA) to the minority shareholder, African Rainbow
Capital (ARC).
On 13 June 2019, the Group announced the sale of its 100% interest
in Count Financial Limited (Count Financial) to CountPlus Limited
(CountPlus). Completion is expected to occur in October 2019.
CommInsure Life, Sovereign, BoCommLife, CFSGAM, PTCL and
TymeDigital SA have been classified as discontinued operations in
the Group’s financial statements for the year ended 30 June 2019.
The assets and liabilities of Count Financial are classified as held
for sale as at 30 June 2019.
There have been no other significant changes in the nature of the
principal activities of the Group during the year.
Basis of accounting
The Financial Report:
adopted by
interpretations
in accordance with
is a general purpose financial report;
the Australian
has been prepared
Accounting
the Australian
Accounting Standards Board (AASB) and International Financial
Reporting Standards (IFRSs) as issued by the International
Accounting Standards Board;
has been prepared in accordance with the requirements of the
Corporations Act 2001 (Cth);
is presented in Australian dollars, which is the Bank’s functional
and presentation currency, with all values rounded to the
accordance with
nearest million
ASIC Corporations Instrument 2016/191 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;
dollars
($M)
in
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.
118 Commonwealth Bank of Australia Annual Report 2019
119
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Notes to the
financial
statements
Change in comparatives
Discontinued operations
The financial results of businesses reclassified as discontinued
operations are excluded from the results of the continuing
operations and are presented as a single line item ‘Net profit/(loss)
after tax from discontinued operations’ in the Income Statement, and
‘Other
from discontinued
operations’ in the Statement of Comprehensive Income.
income/(expense)
comprehensive
The Income Statements and Statements of Comprehensive Income
for comparative periods are also restated. Assets and liabilities of
discontinued operations subject to disposal have been presented on
the Balance Sheet separately as assets and liabilities held for sale.
The Balance Sheet is not restated when a business is reclassified
as a discontinued operation.
Re-segmentation
In line with the Group’s commitment to becoming a simpler, better
bank, a number of changes to the Group’s operating model have
been made during the year:
The General Insurance business has been placed under
strategic review and moved to be part of Retail Banking
Services, while the review is underway;
The Small Business banking segment has been transferred out
of Retail Banking Services to Business and Private Banking in
order to consolidate the Group’s business banking operations;
and
Bankwest and Commonwealth Financial Planning have been
consolidated into Retail Banking Services, aligning all retail
businesses within one division.
The comparative information has been restated.
Change in accounting policies
AASB 9 ‘Financial Instruments’
The Group adopted AASB 9 Classification and Measurement, and
Impairment requirements and amendments in AASB 2017-6 related
to prepayment features on 1 July 2018. The Group has elected an
accounting policy choice in AASB 9 to retain AASB 139 hedge
accounting requirements. The Group can commence applying
AASB 9 hedging at the beginning of any future reporting period.
Impairment
AASB 9 Classification and Measurement and
requirements have been applied on a retrospective basis. The
Group has adjusted the carrying amounts of financial instruments
impacted by the adoption of AASB 9 through opening retained
profits and reserves on 1 July 2018 as if it has always applied the
new requirements. As permitted by AASB 9, the Group has not
restated the comparative period financial statements.
The key changes to the Group’s accounting policies and resultant
impacts 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 provisioning methodology. A
description of the key components of the Group’s AASB 9
impairment methodology is provided below.
Expected credit loss (ECL) model
fair value
The ECL model applies to all financial assets measured at amortised
cost, debt securities measured at
through other
comprehensive income, lease receivables, loan commitments and
financial guarantee contracts not measured at fair value through
profit or loss (FVTPL). The model uses a three-stage approach to
recognition of expected credit losses. Financial assets migrate
through these stages based on changes in credit risk since
origination:
Stage 1 – 12 months ECL – Performing loans
On origination,
financial assets recognise an impairment
provision equivalent to 12 months ECL. 12 months 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 months ECL.
Stage 3 – Lifetime ECL – Non-performing Loans
Financial assets in default recognise a provision equivalent to
lifetime ECL. This includes assets that are considered credit
impaired as well as assets that are considered to be in default
but are not credit impaired.
Credit losses for 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 assessment of expected
credit losses.
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.
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’s experienced credit
judgement.
Internal credit risk ratings are updated regularly on the basis of the
most recent financial and non-financial information.
AASB 9 ‘Financial Instruments’ (continued)
Significant increase in credit risk (SICR) (continued)
The Group has developed a Retail Masterscale for use in the ECL
measurement on personal loans, credit cards, home loans 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 quality
scorecards are recalculated based on new 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 exposure before SICR is triggered. The level of
downgrade required to trigger SICR for each origination grade
have been defined for each significant portfolio.
The assessment of significant increase in credit risk includes the
impact of forward looking adjustments for emerging risks at an
industry, geographic location or a particular portfolio segment
level, which are calculated by stressing an exposure’s internal
credit rating grade at the reporting date. This accounts for
approximately 65% of Stage 2 exposures for the Group and the
Bank as at 30 June 2019.
The Group also uses secondary SICR indicators as backstops in
combination with the primary SICR indicator, including:
Arrears status;
A retail exposure entering a financial hardship status; and
A non-retail exposure’s referral to Group Credit Structuring.
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
above. 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.
Facilities are classified as credit impaired where there is doubt as
to whether the full amounts due, including interest and other
payments, will be received in a timely manner. Loans are written
off when there is no reasonable expectation of recovery.
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.
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.
Impairment provisions on
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.
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 (refer below) 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 a subset of
the above macro-
economic variables are used for retail credit exposures originated
in New Zealand.
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 considers the Group’s base
case assumptions used in business planning and forecasting.
This scenario considers continued growth in GDP per capita,
the share market and the labour market
investment,
supported by exchange rates and interest rate reductions over
the short term. House prices see further modest declines from
currently observed levels;
120 Commonwealth Bank of Australia Annual Report 2019
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Notes to the
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statements
AASB 9 ‘Financial Instruments’ (continued)
Forward-looking information (continued)
Upside and Downside scenarios: These scenarios are set
relative to the Central scenario and based on macro-
economic conditions which would lead to the lowest/highest
impairment losses expected over an approximate 10 year
economic cycle. Under the Upside scenario the economy
strengthens from current state where several metrics,
including house prices, return to above average growth and
the central bank increases interest rates in the next year. The
Downside scenario represents a deterioration from current
state where the economy observes moderate declines across
most metrics, including further house prices declines, as well
as additional decreases in official interest rates; and
Severe Downside scenario: This scenario has been included
to account for a potentially severe impact of less likely,
extremely adverse macro-economic conditions which would
lead to the highest impairment losses expected over a longer
horizon such as a 30 year economic cycle. Under this
scenario the economy sees a significant deterioration from
current state. The scenario contemplates a breakdown in
typical economic relationships reflected by significant
declines in GDP per capita, investment, house prices and the
share market as well as increases in unemployment, interest
rates and exchange rates.
Weights are assigned to each scenario based on management’s
best estimate of the proportion of potential future loss events that
each scenario represents. The same economic scenarios and
probability weights apply across all portfolios. The Group’s
assessment of SICR also incorporates the impact of multiple
probability-weighted future forecast economic scenarios on
exposures’
internal risk grades using the same four forecast
macro-economic scenarios as described above.
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
to significantly effect the level of impairment provisions on these
credit exposures.
Lifetime of an exposure
For exposures in Stage 2 and Stage 3 impairment provisions are
determined as a lifetime expected loss. The Group uses 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
impairment provisions at each reporting date. Where
of
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 risks at
an industry, geographical location or a particular portfolio segment
level.
to
Governance
The Group’s Loan Loss Provisioning Committee (LLPC) is
responsible for approving forecast economic scenarios and their
associated 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 provisions for impairment,
loan impairment expense and any areas of judgement are
reported to the Group’s Board Audit Committee.
Classification and measurement
Under AASB 9, the classification and subsequent measurement
of financial assets depends on:
the business model within which the financial assets are
managed; and
the contractual cash flow characteristics of the asset, that is,
whether the cash flows represent ‘solely payments of principal
and interest’ (SPPI).
Business model assessment
The business model reflects how the Group manages financial
assets in order to generate returns. This is assessed at the level
which best reflects the manner in which risk and returns are
managed, and information is provided to management. The
factors considered in determining the business model include:
how the financial assets’ performance is evaluated and
reported to management;
how the risks within the portfolio are assessed and managed;
and
the
for past sales, sales
timing
expectations in future periods, and the reasons for such sales.
frequency, volume,
Assessment of whether contractual cash flows meet the
SPPI test
In making the assessment of whether the contractual cash flows
have SPPI characteristics, the Group considers whether the cash
flows represent solely the payment of principal and interest.
Principal
is the fair value of the financial asset on initial
recognition. Interest typically comprises compensation for the time
value of money, credit risk and other basic lending costs, such as
liquidity risk and administrative costs. Where the contractual terms
include exposure to risk or volatility that is inconsistent with a basic
lending arrangement, the cash flows would not be considered to
be SPPI and the assets would be measured at fair value through
profit or loss.
AASB 9 ‘Financial Instruments’ (continued)
Assessment of whether contractual cash flows meet the
SPPI test (continued)
Refer to Note 12.6 for the accounting policies that applied to
financial instruments for comparative periods.
In making the assessment, the Group considers contingent events
that would change the amount and timing of cash flows,
prepayment and extension terms, leverage features, terms that
limit the Group’s claim to cash flows from specified assets
(e.g. non-recourse asset arrangements), and features that modify
consideration of the time value of money.
The Group is required to differentiate between financial asset debt
instruments and financial asset equity instruments.
Financial assets – debt instruments
There are three classification models for financial asset debt
instruments under AASB 9:
Amortised cost – Financial assets are classified within this
measurement category if they are held within a portfolio
whose primary objective is the collection of contractual cash
flows, where the contractual cash flows on the instrument are
SPPI, and that are not designated at fair value through profit
or loss.
Fair value through other comprehensive income (FVOCI) –
This classification applies to financial assets which meet the
SPPI test, and are held within a portfolio whose objectives
include both the collection of contractual cash flows and the
selling of financial assets. These financial assets are
subsequently measured at fair value with movements in the
fair value recognised in other comprehensive income, with the
exception of interest income, ECL and foreign exchange gains
and losses that are recognised within profit or loss. When the
financial asset is derecognised, the cumulative gain or loss
previously recognised in other comprehensive income is
reclassified to the income statement.
Fair value through profit or loss (FVTPL) – Financial assets
that do not meet the criteria for classification as amortised
cost or FVOCI are measured at FVTPL. The Group may also
irrevocably designate financial assets that would otherwise
meet the requirements to be measured at amortised cost or
at FVOCI, as at FVTPL,
if doing so would eliminate or
significantly reduce an accounting mismatch that would
otherwise arise.
Financial assets – equity instruments
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. 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. These instruments are not subject to
impairment assessment.
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 15 ‘Revenue from contracts with customers’
On 1 July 2018, the Group adopted AASB 15 ‘Revenue from
Contracts with Customers’, replacing the previous standard,
AASB 118 ‘Revenue’. Under AASB 118, revenue was recognised
when risks and rewards 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:
Identify the contract with a customer;
Identify the separate performance obligations;
1.
2.
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 has not restated 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, are recognised at the start of a contract when the
performance obligation has been met. This has resulted 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 are 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
are amortised over the expected life of the contracts. This has
also resulted in a reclassification of the fees from other
banking income to interest income.
Refer to Note 12.6 for the accounting policies that applied to
revenue recognition for comparative periods.
122 Commonwealth Bank of Australia Annual Report 2019
123
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Adoption of 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 (Bank: $77,686 million). $7,121 million of the
Group’s HQLA (Bank: $7,121 million) previously included in
Available-for-Sale assets were 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 by the Group (Bank: $4 million
unrealised gain) 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 has
increased by $1 million (Bank: $1 million increase) and the
reserves have decreased by $3 million (Bank: $3 million
decrease).
the Group’s HQLA (Bank: $70,561 million)
$71,020 million of
previously included in Available-for-Sale assets were held within
the business model held to collect and sell and have been
reclassified to Investment securities at FVOCI under AASB 9. The
reclassification did not have an impact on retained profits or
reserves.
The fair value of HQLA reclassified from Available-for-Sale
Investments to Investment Securities at amortised cost on
adoption of AASB 9 and held as at 30 June 2019 was
$5,316 million. The fair value loss that would have been
recognised on these securities in Other comprehensive Income
as at 30 June 2019 was $9 million.
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
FVTPL. These financial assets were held within the business
model held to collect and sell and have been reclassified to
Investment
under AASB 9. The
at FVOCI
reclassification did not have a material impact on retained profits
or reserves.
securities
As at 30 June 2019, the Group did not hold any of the NZD liquid
assets reclassified from Assets at FVTPL to Investment securities
at FVOCI on adoption of AASB 9. The average interest rate on
these instruments on 1 July 2018 was 1.91% and the interest
income recognised for the year ended 30 June 2019 was
$7 million.
Non-traded equity instruments: the Group had $298 million of
non-traded equity instruments included in Available-for-sale
investment under AASB 139 (Bank: $45 million). One of the
Group’s equity securities of $235 million was reclassified to
Assets at FVTPL under AASB 9. The Group’s remaining
$63 million (Bank: $45 million) of equity securities have been
reclassified to Investment securities at FVOCI under AASB 9. The
reclassifications did not have a material impact on retained profits
or reserves.
Loans with embedded derivatives: the Group and the Bank
issued loans with embedded derivative features. Under AASB
139, the embedded derivatives were bifurcated and accounted for
as standalone derivatives at FVTPL; 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 FVTPL together with the related embedded derivative
features. The reclassification did not have an impact on retained
profits.
NZD Certificate of Deposits (CD): Under AASB 9, $1,141 million
of the Group’s NZD CDs have been reclassified from liabilities at
FVTPL to liabilities at amortised cost, as the CDs are not held for
trading. The reclassification did not have a material
impact on
retained profits or reserves.
As at 30 June 2019, the Group did not hold any of NZD CDs
reclassified from liabilities at FVTPL to liabilities at amortised cost
on adoption of AASB 9. The average interest rate on these
instruments on 1 July 2018 was 2.0% and the interest expense
recognised for the year ended 30 June 2019 was $3 million.
Adoption of AASB 9 Impairment
The adoption of AASB 9 impairment requirements resulted in a
$1,058 million increase in the Group’s collective provisions
(Bank: $1,004 million increase). This includes $968 million for
loans, bills discounted and other receivables, $87 million for off-
balance sheet instruments (recognised in other provisions),
$3 million for investment securities at FVOCI (recognised in
reserves) (Bank: $895 million for loans, bills discounted and other
receivables, $23 million for loans to controlled entities, $84 million
for off-balance sheet instruments and $2 million for investment
securities at FVOCI). In addition, the Group recognised a
$10 million provision in relation to non-lending assets that are not
in scope of AASB 9 collective provisioning models
(Bank: $7 million). The transition resulted in a $299 million
increase in the Group’s deferred tax assets (Bank: $279 million
increase), a $2 million increase in deferred tax liabilities (Bank: nil)
and a corresponding $771 million decrease in retained profits
(Bank: $732 million decrease) as at 1 July 2018.
The increase in impairment provisions was mostly driven by the
AASB 9 requirement to hold provisions equivalent to lifetime
expected losses for all loans that have experienced a significant
increase in credit risk since origination and the impact of forward
looking factors on expected credit losses estimates.
Adoption of AASB 9 Impairment (continued)
The following tables provide a reconciliation between provisions for impairment under AASB 139 as at 30 June 2018 and provisions for
impairment determined in accordance with AASB 9 on 1 July 2018 for the Group and the Bank:
Financial assets under AASB 9
Investment securities:
At amortised cost
At fair value through other comprehensive income (1)
Loans, bills discounted and other receivables (2)
Financial guarantees and other off-balance sheet items
Total
Previous
measurement
category under
AASB 139
Provision for
impairment
under AASB
139
Remeasure-
ment
Group
Impairment
provision under
AASB 9
Available-for-sale
Available-for-sale
Amortised cost
-
-
3,605
28
3,633
-
3
968
87
1,058
-
3
4,573
115
4,691
(1)
Impairment losses in relation to Investment securities at fair value through Other Comprehensive Income are recognised in Other Comprehensive Income and are not
included in total impairment provisions.
(2) Under AASB 9, Loans, bills discounted and other receivables are measured at amortised cost.
Financial assets under AASB 9
Investment securities:
At amortised cost
At fair value through other comprehensive income (1)
Loans, bills discounted and other receivables (2)
Loans to controlled entities (2)
Financial guarantees and other off-balance sheet items
Previous
measurement
category under
AASB 139
Provision for
impairment
under AASB
139
Remeasure-
ment
Bank
Impairment
provision under
AASB 9
Available-for-sale
Available-for-sale
-
-
Amortised cost
3,261
Amortised cost
-
28
-
2
895
23
84
-
2
4,156
23
112
4,293
Total
3,289
1,004
(1)
(2)
Impairment losses in relation to Investment securities at fair value through Other Comprehensive Income are recognised in Other Comprehensive Income and are
not included in total impairment provisions.
Under AASB 9, Loans, bills discounted and other receivables, and Loans to controlled entities are measured at amortised cost.
126 Commonwealth Bank of Australia Annual Report 2019
127
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Adoption of AASB 9 Impairment (continued)
The table below presents the Group’s total impairment provisions on lending assets by ECL stage as at 1 July 2018.
Adoption of AASB 15
liabilities have
Trail Commission: The Group’s Other assets and Bills payable
increased by $351 million and
and other
to reflect the recognition of trail
$223 million, respectively,
commission receivable and payable across various arrangements
across the Group (Bank: $91 million increase in Other Assets).
This reflects the upfront recognition of certain future trail
commission
income and expenses when a performance
obligation has been met, such as when a new customer is
introduced into a product. This change also led to a $72 million
decrease in the Group’s goodwill on the acquisition of Aussie
Home Loans, a $64 million and $102 million increase in deferred
tax
respectively
(Bank: $27 million increase in deferred tax liability). The impact of
this change on the Group’s retained profits as at 1 July 2018 was
an increase of $18 million (Bank: an increase of $64 million).
liabilities,
deferred
assets
and
tax
Portfolio (1)
Retail
Secured lending
Unsecured lending
Total retail
Non-retail
Corporate and business lending, bank and
sovereign entities (2)
Total
Impairment provisions, $M
Stage 1
12 months ECL
Collectively
assessed
Stage 2
Lifetime ECL
Collectively
assessed
Stage 3
Lifetime ECL
Collectively
assessed
Stage 3
Lifetime ECL
Individually
assessed
206
525
731
145
876
410
847
1,257
1,268
2,525
113
233
346
74
420
253
3
256
614
870
Group
1 Jul 18
Total
982
1,608
2,590
2,101
4,691
(1)
(2)
Exposures subject to impairment provisions include drawn balances, undrawn credit commitments, financial guarantees and debt securities classified at fair value
through OCI.
Stage 1 provision includes $3 million ECL in relation to investment securities at fair value through OCI.
The table below presents the Bank’s total impairment provisions on lending assets (excluding loans to controlled entities) by ECL stage as at
1 July 2018.
Portfolio (1) (2)
Retail
Secured lending
Unsecured lending
Total retail
Non-retail
Corporate and business lending, bank and
sovereign entities (3)
Total
Impairment provisions, $M
Stage 1
12 months ECL
Collectively
assessed
Stage 2
Lifetime ECL
Collectively
assessed
Stage 3
Lifetime ECL
Collectively
assessed
Stage 3
Lifetime ECL
Individually
assessed
174
482
656
129
785
372
818
1,190
1,123
2,313
105
219
324
69
393
236
3
239
540
779
Bank
1 Jul 18
Total
887
1,522
2,409
1,861
4,270
(1)
(2)
(3)
Exposures subject to impairment provisions include drawn balances, undrawn credit commitments, financial guarantees and debt securities classified at fair value
through OCI.
Impairment provisions exclude $23 million recognised in relation to the Bank’s loans to controlled entities.
Stage 1 provision includes $2 million ECL in relation to investment securities at fair value through OCI.
Upfront fees: Upfront fees in relation to lending and guarantee
arrangements are no longer recognised upfront. Instead, income
is recognised over the life of the contractual arrangements.
Establishment fees on financing facilities are deferred on the
Group’s and the Bank’s Balance Sheets 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 has also resulted in a reclassification of income from
other banking income to interest income. In addition, other annual
fees are deferred on the 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 for the
Group as at 1 July 2018 includes a reduction in Loans, bills
$151 million
discounted
(Bank: $134 million reduction), a reduction in Other assets of $8
million (Bank: $ nil), and an increase in Bills payable and other
liabilities of $118 million (Bank: $124 million increase). It has also
led to a $16 million increase in the Bank’s balances Due to
controlled entities. The deferral of upfront fees from existing
customer contracts resulted in a one-off increase in the Group’s
deferred tax assets of $72 million (Bank: $74 million) and a
decrease in deferred tax liabilities of $3 million (Bank: $ nil). The
impact of this change on the Group’s retained profits as at 1 July
2018 was a reduction of $202 million (Bank: $200 million).
receivables
other
and
of
128 Commonwealth Bank of Australia Annual Report 2019
129
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.
Interest income is recognised on gross carrying amounts for financial assets in Stage 1 and Stage 2, and gross carrying amounts net of
impairment provisions for financial assets in Stage 3.
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. This includes fees for providing a loan or a lease arrangement.
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.
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The Group earns its returns from providing a broad range of banking and wealth management 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 from 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, general insurance products and trading activities. It also incurs costs
associated with running the business such as staff, occupancy and technology 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 and geographical regions.
Interest Income
Effective interest income:
Loans and bills discounted
Other financial institutions
Cash and liquid assets
Investment securities:
At amortised cost
At fair value through Other Comprehensive Income
Available-for-sale investments
Controlled entities
Total effective interest income
Other:
30 Jun 19
$M
30 Jun 18
$M
Group (1) (2) (3)
30 Jun 17
$M
30 Jun 19
$M
Bank (2) (3)
30 Jun 18
$M
31,449
31,315
30,628
27,744
27,861
181
572
199
1,688
-
-
140
459
-
-
149
321
-
-
1,729
1,607
-
-
34,089
33,643
32,705
171
528
199
1,559
-
2,759
32,960
121
427
-
-
1,639
2,483
32,531
Assets at fair value through Income Statement
499
501
490
499
465
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
34,588
34,144
33,195
33,459
32,996
9,948
9,843
10,409
8,394
8,380
464
172
418
167
4,563
4,169
951
370
-
16,468
18,120
836
369
-
15,802
18,342
300
102
4,159
679
-
-
15,649
17,546
435
162
379
142
3,625
3,286
917
370
3,502
17,405
16,054
801
369
3,228
16,585
16,411
Information has been restated and presented on a continuing operations basis.
Information has been restated to conform to presentation in the current year.
(1)
(2)
(3) Current year amounts reflect the adoption of AASB 9 ‘Financial Instruments’ and AASB 15 ‘Revenue from contracts with customers’ on 1 July 2018. As permitted by
AASB 9 and AASB 15 comparative information has not been restated. For details on the adoption of AASB 9 and AASB 15 refer to Note 1.1.
130 Commonwealth Bank of Australia Annual Report 2019
131
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Notes to the
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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 (mostly daily averages). Where assets or liabilities are hedged, the amounts are shown net of the hedge, but 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 both Australia and New Zealand (which is reflected in overseas) decreased 25 basis points in financial
year 2019 (2018: no changes, 2017: 25 basis points decrease for Australia, and 50 basis points decrease for New Zealand).
Average
Balance
$M
Interest
$M
30 Jun 19
Average
Rate
%
Average
Balance
$M
Interest
$M
30 Jun 18
Average
Rate
%
Average
Balance
$M
Interest
$M
Group
30 Jun 17
Average
Rate
%
Interest earning
assets (1) (2)
Cash and liquid assets
Australia
Overseas
Receivables due from other
financial institutions
Australia
Overseas
Assets at fair value through
Income Statement (excluding life
insurance)
Australia
Overseas
Investment Securities:
At amortised cost
Australia
Overseas
At fair value through OCI
Australia
Overseas
Available-for-sale
investments
Australia
Overseas
18,415
20,238
2,095
5,799
24,651
822
6,887
5
367
205
52
129
488
11
199
-
57,088
1,329
18,640
359
2. 0
1. 0
2. 5
2. 2
19,087
18,898
2,290
5,997
2. 0
1. 3
20,761
4,070
2. 9
0. 6
2. 3
1. 9
-
-
-
-
313
146
50
90
444
57
-
-
-
-
-
-
-
-
-
-
66,241
1,479
17,011
250
Loans, bills discounted and other
receivables (3)
Australia (4)
Overseas
Total interest earning assets
and interest income
603,394
26,524
106,140
4,925
864,174
34,588
4. 4
4. 6
4. 0
597,343
26,711
102,566
4,604
854,264
34,144
4. 0
834,741
33,195
66,615
1,458
13,870
149
581,093
26,160
99,061
4,468
274
47
17
132
422
68
-
-
-
-
1. 6
0. 8
2. 2
1. 5
17,734
19,626
2,266
8,850
2. 1
1. 4
21,731
3,895
-
-
-
-
-
-
-
-
2. 2
1. 5
4. 5
4. 5
1. 5
0. 2
0. 8
1. 5
1. 9
1. 7
-
-
-
-
2. 2
1. 1
4. 5
4. 5
4. 0
Non-interest earning assets
Assets at fair value through Income Statement - Insurance (1)
30 Jun 19
Average
Balance
$M
30 Jun 18
Average
Balance
$M
Australia
Overseas
Property, plant and equipment
Australia (2)
Overseas
Other assets
Australia (2) (3)
Overseas
Provisions for impairment
Australia
Overseas
Total non-interest earning assets
Assets held for sale
Australia
Overseas
Total assets
Percentage of total assets applicable to overseas operations (%)
Group
30 Jun 17
Average
Balance
$M
12,105
2,477
3,743
289
-
377
2,344
252
95,521
11,924
108,931
13,774
(3,203)
(466)
(3,303)
(424)
106,749
137,592
13,046
2,228
-
-
-
-
2,208
244
86,413
10,175
(4,026)
(599)
94,415
15,128
1,829
975,546
976,287
972,333
16. 7
16. 7
16. 6
(1) As at 30 June 2019, Insurance assets of CommInsure Life and PT Commonwealth Life are presented as assets held for sale. As at 30 June 2018, Insurance assets of
CommInsure Life and Sovereign are presented as assets held for sale.
(2) Comparative information has been restated to conform to presentation in the current year.
(3)
Includes average mortgage offset balances.
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) Loans, bills discounted and other receivables include bank acceptances.
(4) Net of average mortgage offset balances that are included in Non-interest earning assets. Gross Australian loan balance is $648,569 million (2018: $638,167 million,
2017: $616,418 million).
132 Commonwealth Bank of Australia Annual Report 2019
133
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Interest bearing
liabilities (1) (2)
Time deposits
Australia (3)
Overseas
Savings deposits
Australia (3)
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 (4)
Australia
Overseas
Loan capital
Australia
Overseas
Bank levy
Australia
Overseas
30 Jun 19
30 Jun 18
Average
Balance
$M
Interest
$M
Average Average
Rate Balance
$M
%
Interest
$M
Average Average
Rate Balance
$M
%
Interest
$M
Group
30 Jun 17
Average
Rate
%
203,750
53,836
5,164
1,746
144,686
1,588
14,335
167
114,193
1,151
8,765
132
8,852
12,709
9,372
1,054
221
243
162
10
140,447
3,846
26,676
717
15,655
6,785
-
-
668
283
370
-
2. 5
3. 2
1. 1
1. 2
1. 0
1. 5
2. 5
1. 9
1. 7
0. 9
2. 7
2. 7
4. 3
4. 2
-
-
203,694
51,291
5,038
1,532
2. 5
3. 0
207,501
48,461
5,535
1,357
146,346
1,812
14,414
205
1. 2
1. 4
147,705
2,059
16,136
313
112,195
1,120
8,136
136
1. 0
1. 7
103,193
8,154
987
158
158
142
63
39
11,098
19,235
7,049
1,467
136,614
3,323
32,307
836
11,239
5,453
-
-
447
232
-
-
10,292
16,648
7,557
1,332
196
222
141
26
138,666
3,463
28,450
706
13,788
6,774
-
-
556
280
369
-
1. 9
1. 3
1. 9
2. 0
2. 5
2. 5
4. 0
4. 1
-
-
2. 7
2. 8
1. 4
1. 9
1. 0
1. 9
1. 4
0. 7
0. 9
2. 7
2. 4
2. 6
4. 0
4. 3
-
-
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
Australia
Overseas
Total liabilities
Shareholders' Equity
Total liabilities and Shareholders' Equity
Total liabilities applicable to overseas operations (%)
(1)
Includes average mortgage offset balance.
30 Jun 19
Average
Balance
$M
91,316
4,897
-
-
25,532
9,430
131,175
13,855
1,025
907,170
68,376
975,546
15. 4
30 Jun 18
Average
Balance
$M
Group
30 Jun 17
Average
Balance
$M
83,949
4,193
-
466
37,250
10,255
72,303
3,671
11,190
1,368
53,418
12,796
136,113
154,746
13,413
1,308
910,417
65,870
976,287
15. 7
-
-
910,358
61,975
972,333
16. 4
Total interest bearing liabilities
and interest expense
761,115
16,468
2. 2
759,583
15,802
2. 1
755,612
15,649
2. 1
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) Net of average mortgage offset balances that are included in Non-interest bearing liabilities.
(4) Debt issues include bank acceptances.
134 Commonwealth Bank of Australia Annual Report 2019
135
Strategic
report
Financial
performance
Risk
management
Corporate
governance
Directors’
report
Other
information
Financial
report
Notes to the
financial
statements
Changes in Net Interest Income: Volume and Rate Analysis
The following tables show the movement in interest income and expense due to changes in volume and interest rates. Volume variances
reflect the change in interest from the prior year due to movement in the average balance. Rate variances reflect the change in interest from
the prior year due to changes in interest rates.
Volume and rate variance for total interest earning assets and interest bearing liabilities have been calculated separately (rather than being
the sum of the individual categories).
Changes in net interest income:
Volume and rate analysis (1) (2)
Interest Earning Assets
Cash and liquid assets
Australia
Overseas
Receivables due from other financial institutions
Australia
Overseas
Assets at fair value through Income Statement (excluding
life insurance)
Australia
Overseas
Investment Securities: (3)
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
June 2019 vs June 2018
June 2018 vs June 2017
Volume
$M
Rate
$M
Total
$M
Volume
$M
Rate
$M
Total
$M
(13)
14
(5)
(4)
77
(43)
(54)
31
266
166
397
1
83
(18)
(1)
20
9
(36)
(75)
31
(3)
49
(48)
80
-
-
-
33
208
67
45
7
43
(33)
(3)
103
78
(453)
155
47
125
131
(206)
(37)
11
(13)
61
96
(10)
(13)
334
59
32
3
1
-
633
(430)
54
59
2
39
44
(46)
49
109
(187)
321
444
126
214
(224)
(38)
31
(4)
25
21
21
(16)
383
11
112
3
1
-
666
(222)
22
(6)
1
(43)
(21)
2
(8)
46
727
157
780
(94)
85
(17)
(24)
90
-
(15)
(34)
9
(3)
51
(96)
103
55
-
-
83
419
17
105
32
1
43
(13)
29
55
(176)
(21)
169
(403)
90
(230)
(84)
43
(22)
53
114
69
(10)
89
(34)
6
(7)
369
-
70
377
39
99
33
(42)
22
(11)
21
101
551
136
949
(497)
175
(247)
(108)
133
(22)
38
80
78
(13)
140
(130)
109
48
369
-
153
796
(1)
(2)
(3)
Information has been restated and presented on a continuing operations basis.
Comparative information has been restated to conform to presentation in the current year.
Investment securities at FVOCI and investment securities at amortised cost have been compared to available-for-sale assets in the prior period.
Other Banking Income
Lending fees
Commissions
Trading income
Net gain/(loss) on non-trading financial instruments (3)
Net gain/(loss) on sale of property, plant and equipment
Net gain from hedging ineffectiveness
Dividends - Controlled entities
Dividends - Other
Share of profit from associates and joint ventures net of
impairment
Other (4)
Total other banking income (5)
Net Funds Management Operating Income
Funds management income
Claims, policyholder liability and commission expense
Net funds management operating income
Net Insurance Operating Income
Premiums from insurance contracts
Investment revenue
Claims, policyholder liability and commission expense
from insurance contracts
Net insurance operating income
Total other operating income
Group (1) (2)
Bank (2)
30 Jun 19
30 Jun 18
30 Jun 17
30 Jun 19
30 Jun 18
$M
$M
$M
$M
$M
4,994
5,423
5,721
6,044
992
2,673
974
(113)
(9)
13
-
5
296
163
1,109
2,712
1,025
58
(17)
12
-
10
317
197
1,078
2,601
1,149
433
6
62
-
10
270
112
1,233
(160)
1,073
682
5
1,259
(135)
1,124
1,200
(162)
1,038
687
4
643
4
(537)
(450)
(469)
150
6,217
241
6,788
178
6,937
926
2,277
874
(205)
(11)
16
1,032
2,363
916
71
(17)
-
1,229
2,029
122
27
789
-
-
-
-
-
-
-
56
(7)
922
7,365
-
-
-
-
-
-
-
6,044
7,365
Information has been restated and presented on a continuing operations basis.
(1)
(2) Current year amounts reflect the adoption of AASB 15 ‘Revenue from contracts with customers’ on 1 July 2018. As permitted by AASB 15 comparative information has
(3)
(4)
not been restated. For details on the adoption of AASB 15 refer to Note 1.1.
Inclusive of non-trading derivatives that are held for risk management purposes.
Includes depreciation of $72 million in relation to assets held for lease by the Group (30 June 2018: $74 million, 30 June 2017: $88 million). Includes depreciation of $8
million in relation to assets held for lease by the Bank (30 June 2018: $9 million).
(5) The year ended 30 June 2019 includes $280 million income from the consolidation of AHL Holdings Pty Ltd (trading as Aussie Home Loans) and eChoice (30 June 2018:
$233 million).
Net hedging ineffectiveness comprises:
Gain/(loss) on fair value hedges:
Hedging instruments
Hedged items
Cash flow and net investment hedge ineffectiveness
Net hedging ineffectiveness
Group
Bank
30 Jun 19
30 Jun 18
30 Jun 17
30 Jun 19
30 Jun 18
$M
$M
$M
$M
$M
567
(558)
4
13
(757)
765
4
12
841
(799)
20
62
(614)
624
6
16
(759)
763
(4)
-
136 Commonwealth Bank of Australia Annual Report 2019
137
Strategic
report
Financial
performance
Risk
management
Corporate
governance
Directors’
report
Other
information
Financial
report
Notes to the
financial
statements
Lending fees and commission income include:
Facility fees earned for managing and administering credit and other facilities for customers. These fees are generally charged to the
customer on a monthly or annual basis and are recognised as revenue over the service period. Annual fees are deferred on Balance Sheet
in Bills payable and other liabilities and recognised on a straight line basis over the year. Transaction based fees are charged and
recognised at the time of the transaction.
Commitment fees and upfront fees in relation to lending, lease and guarantee arrangements are deferred and recognised over the life of
the contractual arrangements. Commitment fees to originate a loan that is unlikely to be drawn down are charged upfront to the customer
and are recognised when the commitment is issued.
Establishment fees on financing facilities are deferred and amortised to interest income over the expected life of the loan and are not
recognised in Other banking income.
Fee income earned for providing advisory or arrangement services, placement and underwriting services. These fees are recognised and
charged when the related service is completed which is typically at the time of the transaction.
Trail commissions are recognised at the start of a contract when the performance obligation has been met, typically when a customer is
introduced to a new product. The Group recognises the net present value of expected future trail commission income. 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 on investment referral balances are recognised when received or paid.
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.
Net gain/(loss) on non-trading financial
instruments includes realised gains and losses from non-trading financial assets and liabilities
(i.e. investment securities in the year ended 30 June 2019; available-for-sale securities in the years ended 30 June 2018 and 2017), as well
as realised and unrealised gains and losses on non-trading derivatives that are held for risk management purposes.
30 Jun 19
$M
30 Jun 18
$M
Group (1) (2)
30 Jun 17
$M
30 Jun 19
$M
Bank (2)
30 Jun 18
$M
Staff Expenses
Salaries and related on-costs
Share-based compensation
Superannuation
Total staff expenses
Occupancy and Equipment Expenses
Operating lease rentals
Depreciation of property, plant and equipment
Other occupancy expenses
5,418
99
398
5,915
654
270
174
4,963
4,885
69
407
106
468
5,439
5,459
4,998
115
388
5,501
665
271
198
635
260
177
Total occupancy and equipment expenses
1,098
1,134
1,072
Information Technology Services
Application maintenance and development
Data processing
Desktop
Communications
Amortisation of software assets (3)
Software write-offs
IT equipment depreciation
721
183
142
217
598
13
93
553
200
153
179
563
71
80
431
200
183
179
903
6
60
4,587
91
400
5,078
591
245
185
1,021
588
198
140
155
517
71
67
580
247
164
991
734
179
129
205
563
13
79
Net gain/(loss) on the disposal of property, plant and equipment is the difference between proceeds received and its carrying value.
Total information technology services
1,967
1,799
1,962
1,902
1,736
Net hedging ineffectiveness is measured on fair value, cash flow and net investment hedges.
Dividends received on non-trading equity investments are recognised on the ex-dividend date or when the right to receive payment is
established.
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. Fund management services are a single performance obligation and fees are
recognised over the service period. Management fees are calculated and deducted from the funds on a monthly basis. Performance fees are
deemed to be a variable component of the fund management service and only recognised when it is highly probable that a significant reversal
of the fees will not occur.
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 an unearned premium
liability. Claims are recognised as an expense when the liability is established.
The Group equity accounts for its share of the profits or losses of associate or joint venture investments, net of impairment recognised.
Dividends received are recognised as a reduction of the investment carrying amount.
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.
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.
Critical accounting judgements and estimates
The amount of trail commission revenue is dependent on assumptions about the behavioural life of the underlying transaction generating the
commission. Trail commission income is only recognised to the extent it is highly probable it will not reverse in future periods.
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 (4)
Impairment on investments in subsidiaries
Other
Total other expenses
Operating expenses before restructuring, separation and
transaction costs
Restructuring, separation and transaction costs (5)
Total operating expenses (6) (7)
159
156
490
239
453
11
656
-
125
177
138
671
133
496
13
838
-
157
183
143
379
73
462
11
122
-
263
151
131
470
65
362
-
617
-
148
163
120
651
5
400
-
829
231
242
2,289
2,623
1,636
1,944
2,641
11,269
10,995
10,129
10,338
10,476
104
11,373
34
4
11,029
10,133
295
10,633
227
10,703
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 2019 includes $161 million of amortisation of prepaid software licences (30 June 2018: $136 million; 30 June 2017: $141 million). The year
ended 30 June 2017 includes a $393 million one-off expense for acceleration of amortisation on certain software assets.
(4) The year ended 30 June 2019 includes $145 million professional indemnity insurance recovery in relation to the AUSTRAC civil penalty. The year ended 30 June 2018 includes
$700 million AUSTRAC civil penalty.
(5) The year ended 30 June 2019 includes $102 million of separation and transaction costs (30 June 2018: $30 million) and $2 million of merger related amortisation
(30 June 2018: $4 million; 30 June 2017: $4 million).
(6) The year ended 30 June 2019 includes $269 million of expenses due to the consolidation of AHL Holdings Pty Ltd (trading as Aussie Home Loans) and eChoice mortgage
broking operations (30 June 2018: $199 million).
(7) The year ended 30 June 2019 includes a $534 million provision for historical Aligned Advice remediation issues and associated program costs, and $384 million of Wealth
and Banking customer refunds and associated program costs.
138 Commonwealth Bank of Australia Annual Report 2019
139
Strategic
report
Financial
performance
Risk
management
Corporate
governance
Directors’
report
Other
information
Financial
report
Notes to the
financial
statements
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. Operating expenses related to provisions are recognised for present
obligations arising from past events where a payment to settle the obligation is probable and can be reliably estimated.
Critical accounting judgements and estimates
Actuarial valuations of the Group’s defined benefit superannuation 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.
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
Total income tax expense
Effective tax rate (%)
Information has been restated and presented on a continuing operations basis.
(1)
(2) Relates to the AUSTRAC civil penalty, which is non-deductible for tax purposes.
30 Jun 19
$M
30 Jun 18
$M
11,763
3,529
13,022
3,907
Group (1)
30 Jun 17
$M
13,255
3,977
30 Jun 19
$M
10,407
3,122
Bank
30 Jun 18
$M
12,110
3,633
-
-
(40)
(32)
1
(101)
-
34
3,391
28. 8
(7)
-
(36)
(39)
15
(70)
210
(28)
(11)
(56)
(46)
(42)
3
(70)
-
29
3,952
3,784
30. 3
28. 5
(365)
(612)
-
(8)
(32)
1
(105)
-
11
2,624
25. 2
-
(9)
(38)
15
(69)
210
105
3,235
26. 7
Income tax expense attributable to profit from
ordinary activities
30 Jun 19
$M
30 Jun 18
$M
Group (1)
30 Jun 17
$M
30 Jun 19
$M
Bank
30 Jun 18
$M
Australia
Current tax expense
Deferred tax benefit
Total Australia
Overseas
Current tax expense
Deferred tax expense/(benefit)
Total Overseas
Income Tax Expense attributable to profit from
ordinary activities
(1)
Information has been restated and presented on a continuing operations basis.
3,238
(380)
2,858
452
81
533
3,916
(416)
3,500
937
(485)
452
3,687
(292)
3,395
359
30
389
2,755
(256)
2,499
87
38
125
3,312
(157)
3,155
77
3
80
3,391
3,952
3,784
2,624
3,235
140 Commonwealth Bank of Australia Annual Report 2019
141
Strategic
report
Financial
performance
Risk
management
Corporate
governance
Directors’
report
Other
information
Financial
report
Notes to the
financial
statements
30 Jun 19
$M
30 Jun 18
$M
Group
30 Jun 17
$M
30 Jun 19
$M
Bank
30 Jun 18
$M
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 asset balances comprise temporary
differences attributable to:
Amounts recognised in the Income Statement and opening
retained profits: (1)
Provision for employee benefits
Provisions for impairment on loans, bills discounted and
other receivables
Other provisions not tax deductible until expense incurred
Defined benefit superannuation plan
Unearned income
Other
Total amount recognised in the Income Statement and
opening retained profits (1)
Amounts recognised directly in Other Comprehensive
Income:
Cash flow hedge reserve
Other reserves
Total amount recognised directly in Other
Comprehensive Income
Total deferred tax assets (before set off)
Set off to tax
Net deferred tax assets
Deferred tax liability balances comprise temporary
differences attributable to:
Amounts recognised in the Income Statement and opening
retained profits: (1)
Lease financing
Intangible assets
Financial instruments
Insurance
Investments in associates
Other
Total amount recognised in the Income Statement and
opening retained profits (1)
Amounts recognised directly in Other Comprehensive
Income:
Revaluation of properties
Foreign currency translation reserve
Cash flow hedge reserve
Defined benefit superannuation plan
Investment securities revaluation reserve
Available-for-sale investments reserve
Total amount recognised directly in Other
Comprehensive Income
Total deferred tax liabilities (before set off)
Set off to tax
Net deferred tax liabilities
425
1,345
497
357
250
312
452
991
221
339
267
296
493
1,032
201
320
228
225
398
1,230
331
357
250
308
391
913
154
339
267
273
3,186
2,566
2,499
2,874
2,337
142
41
183
3,369
(1,694)
1,675
114
22
136
2,702
(1,263)
1,439
200
56
30
-
131
83
500
81
18
48
498
-
118
763
162
56
3
-
148
118
487
82
36
481
487
121
-
1,207
1,694
(1,694)
-
123
12
135
2,634
(1,728)
906
235
64
179
485
122
246
1,331
76
8
70
445
-
130
729
19
46
65
2,939
(1,369)
1,570
91
56
13
-
-
38
198
84
-
479
487
121
-
1,171
1,369
(1,369)
-
11
28
39
2,376
(946)
1,430
100
56
10
-
-
39
205
80
-
45
498
-
118
741
946
(946)
-
1,263
(1,263)
-
2,060
(1,728)
332
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 19
$M
30 Jun 18
$M
Group
30 Jun 17
$M
30 Jun 19
$M
Bank
30 Jun 18
$M
-
-
-
-
47
47
52
29
81
-
-
-
-
-
-
The Bank has recognised a tax consolidation contribution to the wholly-owned tax consolidated entity of $98 million (2018: $98 million).
The amount receivable by the Bank under the tax funding agreement was $320 million as at 30 June 2019 (2018: $283 million receivable).
This balance is included in ‘Other assets’ in the Bank’s separate Balance Sheet.
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.
(1)
The adoption of AASB 9 and AASB 15 on 1 July 2018 resulted in an increase in the Group’s deferred tax asset of $435 million (Bank: $353 million) and an increase in
the Group’s deferred tax liability of $101 million (Bank: $27 million) recognised through opening retained profits. As permitted by AASB 9 and AASB 15, comparative
information has not been restated. For details on the adoption of AASB 9 and AASB 15, refer to Note 1.1.
142 Commonwealth Bank of Australia Annual Report 2019
143
Strategic
report
Financial
performance
Risk
management
Corporate
governance
Directors’
report
Earnings per ordinary share (1)
Earnings per share from continuing operations: (2)
Basic
Diluted
Earnings per share:
Basic
Diluted
Other
information
Financial
report
Notes to the
financial
statements
30 Jun 19
30 Jun 18
Cents per Share
473. 7
457. 5
485. 6
468. 6
518. 8
503. 2
534. 3
517. 7
Group (3)
30 Jun 17
549. 9
532. 9
577. 3
558. 8
(1) EPS calculations are based on actual amounts prior to rounding to the nearest million.
(2) The information has been restated and presented on a continuing operations basis.
(3) The difference between earnings per share from continuing operations and earnings per share represents earnings per share from discontinued operations.
Reconciliation of earnings from continuing operations used in calculation of
earnings per share (1)
Profit after income tax from continuing operations
30 Jun 19
$M
8,372
30 Jun 18
$M
Group
30 Jun 17
$M
9,070
9,471
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
Reconciliation of earnings used in calculation of earnings per share
Continuing operations earnings used in calculation of basic earnings per share
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
-
(12)
8,360
323
8,683
8,360
211
8,571
323
8,894
-
(13)
9,057
267
9,324
9,057
272
9,329
267
9,596
-
(13)
9,458
218
9,676
9,458
470
9,928
218
10,146
30 Jun 19
$M
Number of Shares
30 Jun 17
$M
30 Jun 18
$M
1,765
1,746
1,720
132
106
96
Weighted average number of ordinary shares used in the calculation of fully diluted earnings
per share
1,897
1,852
1,816
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 ordinary 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).
(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, Japan, Singapore, Malta, Hong
Kong, New Zealand, Beijing and Shanghai.
(iv) Wealth Management
Wealth Management
includes Platform Administration and
Financial Advice. CFSGAM (including operations in Asia and
Europe) and CommInsure Life have been presented as
discontinued operations.
(v) New Zealand
New Zealand
includes Banking and Funds Management
businesses operating in New Zealand (excluding Institutional
Banking and Markets). The sale of New Zealand life insurance
business, Sovereign, was completed on 2 July 2018.
(vi) IFS and Corporate Centre
The following parts of the business are included in IFS and
Corporate Centre:
International Financial Services includes the Indonesian retail
and business banking operations, and associate investments
in China and Vietnam. It does not include the Business and
Private Banking, Institutional Banking and Markets and
CFSGAM businesses in Asia;
Indonesian
life
presented as a discontinued operation;
The sale of TymeDigital SA was
completed on
1 November 2018. It has been presented as a discontinued
operation.
insurance operation, PTCL, has been
Corporate Centre includes the results of unallocated Group
support functions such as Investor Relations, Group Strategy,
Secretariat and Treasury; and
Group wide elimination entries arising on consolidation,
centrally raised provisions and other unallocated revenue and
expenses.
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 global asset
management business, CFSGAM, and Indonesian life insurance
operation, PTCL. 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.
Retail
Banking Services,
During the year, the Group also made a number of structural
changes to its operating segments. This includes merging
transferring
Bankwest with
Commonwealth Financial Planning and General
Insurance
businesses from Wealth Management to Retail Banking Services
and migrating Small Business banking customers from Retail
Banking Services to Business and Private Banking. In addition,
refinements have been made to the allocation of support units and
other costs. These changes have not impacted the Group’s 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, Business and Private Banking,
Institutional Banking and Markets, New Zealand and International
Financial Services (IFS)) and insurance premium and funds
management income (Wealth Management, New Zealand and
IFS).
Revenues and expenses occurring between segments are
subject
intra-group
transfer pricing arrangements. All
transactions are eliminated on consolidation.
to
it provides the basis for
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 number of
items that introduce volatility and/or one-off distortions of the
Group’s current period performance. These items, such as
hedging and IFRS volatility, are calculated consistently year on
year and do not discriminate between positive and negative
adjustments.
(i) Retail Banking Services
Retail Banking Services provides home loan, consumer finance
and retail deposit products and servicing to all Retail Banking
Services’ customers. Retail Banking Services also includes the
Group’s General Insurance business in Australia, which is under
strategic review and Commonwealth Financial Planning.
(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, margin
lending and trading through CommSec, and retail banking
products and servicing to non-relationship managed small
business customers.
144 Commonwealth Bank of Australia Annual Report 2019
145
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t
s
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v
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1
(
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2
(
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3
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Financial
performance
Risk
management
Corporate
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Other
information
Financial
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Notes to the
financial
statements
Financial performance and position
30 Jun 19
$M
30 Jun 18
$M
%
30 Jun 17
$M
%
Income
Australia
New Zealand
Other locations (2)
Total Income
Non-Current Assets
Australia
New Zealand
Other locations (2)
Total non-current assets (3)
Group (1)
%
87. 1
9. 1
3. 8
20,994
2,444
899
86. 3
10. 0
3. 7
21,837
86. 9
21,321
2,297
996
9. 1
4. 0
2,231
931
24,337
100. 0
25,130
100. 0
24,483
100. 0
12,453
93. 2
13,473
93. 3
15,301
635
261
4. 8
2. 0
581
387
4. 0
2. 7
1,045
329
91. 8
6. 2
2. 0
13,349
100. 0
14,441
100. 0
16,675
100. 0
Information has been restated and presented on a continuing operations basis. For details on the Group’s discontinued operations refer to Note 11.3.
(1)
(2) Other locations include: United Kingdom, United States, Japan, Singapore, Malta, Hong Kong, Indonesia, China and Vietnam. Comparative periods also includes 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.
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”.
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. As a result of its
lending activities the Group assumes credit risk arising from the potential that borrowers will fail to meet their obligations in accordance with
agreed lending terms.
This section provides details of the Group’s lending portfolio by type of product and geographical regions, analysis of the credit quality of the
Group’s lending portfolio and the related impairment provisions.
Note
30 Jun 19
$M
Group
30 Jun 18
$M
30 Jun 19
$M
Bank
30 Jun 18
$M
Australia
Overdrafts
Home loans (1) (2)
Credit card outstandings
Lease financing
Bills discounted (3)
Term loans and other lending
Total Australia
Overseas
Overdrafts
Home loans (1)
Credit card outstandings
Lease financing
Term loans and other lending
Total overseas
Gross loans, bills discounted and other receivables
Less
Provisions for Loan Impairment: (4)
3.2
Collective provision
Individually assessed provisions
Unearned income:
Term loans
Lease financing
26,297
467,361
11,271
4,410
1,955
141,695
652,989
1,842
55,581
1,069
8
49,492
107,992
760,981
(3,820)
(895)
(739)
(386)
25,217
451,367
11,877
4,318
4,280
147,028
644,087
1,657
50,298
993
25
50,969
103,942
748,029
(2,735)
(870)
(692)
(367)
26,297
459,690
11,271
3,532
1,955
141,679
644,424
306
341
-
1
20,662
21,310
25,217
444,186
11,877
3,268
4,280
147,009
635,837
281
397
-
4
24,348
25,030
665,734
660,867
(3,455)
(801)
(730)
(272)
(2,482)
(779)
(692)
(264)
(5,840)
(4,664)
(5,258)
(4,217)
Net loans, bills discounted and other receivables
755,141
743,365
660,476
656,650
(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) These balances are presented gross of mortgage offset balances as required under accounting standards.
(3) On adoption of AASB 9 on 1 July 2018, bills discounted were reclassified from the trading category under AASB 139 to the amortised cost category under AASB 9 as the
bills no longer meet the definition of a trading asset and they are held under the business model to collect. The reclassification did not have an impact on the Group’s
retained profits. As permitted by AASB 9, comparative information has not been restated.
(4) The adoption of AASB 9 impairment requirements on 1 July 2018 resulted in $968 million increase in the Group’s collective provisions on loans, bills discounted and
other receivables (Bank: $895 million) and $87 million increase in collective provisions for off-balance sheet instruments (Bank: $84 million). As permitted by AASB 9,
comparative information has not been restated. For details on the adoption of AASB 9 refer to Note 1.1.
148 Commonwealth Bank of Australia Annual Report 2019
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Based on behavioural terms and current market conditions, the amounts expected to be recovered within 12 months of the Balance Sheet
date are $185,208 million (2018: $175,826 million) for the Group, and $167,316 million (2018: $159,688 million) for the Bank.
Contractual maturity tables
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
Receivable
$M
1,586
2,656
176
4,418
Unearned
Income
$M
(167)
(207)
(12)
(386)
30 Jun 19
Present Value
of Minimum
Lease Payment
Receivable
$M
1,419
2,449
164
4,032
Gross
Investment in
Finance Lease
Receivable
$M
1,706
2,455
182
4,343
Unearned
Income
$M
(162)
(190)
(15)
(367)
Gross
Investment in
Finance Lease
Receivable
$M
Unearned
Income
$M
30 Jun 19
Present Value
of Minimum
Lease Payment
Receivable
$M
Gross
Investment in
Finance Lease
Receivable
$M
1,284
2,084
165
3,533
(118)
(143)
(11)
(272)
1,166
1,941
154
3,261
1,248
1,864
160
3,272
Unearned
Income
$M
(116)
(135)
(13)
(264)
Group
30 Jun 18
Present Value
of Minimum
Lease Payment
Receivable
$M
1,544
2,265
167
3,976
Bank
30 Jun 18
Present Value
of Minimum
Lease Payment
Receivable
$M
1,132
1,729
147
3,008
Not later than one year
One year to five years
Over five years
Not later than one year
One year to five years
Over five years
lending, term loans, and
Loans, bills discounted and other receivables include overdrafts, home loans, credit card and other personal
discounted bills. These financial assets are held within a business model whose objective is to hold financial assets in order to collect
contractual cash flows. The contractual cash flows on these financial assets comprise the payment of principal and interest only. These
instruments are accordingly measured at amortised cost.
Loans, bills discounted and other receivables are recognised on settlement date, when funding is advanced to the borrowers. They are initially
recognised at their fair value plus directly attributable transaction costs such as broker fees. Subsequent to initial recognition, they are
measured at amortised cost using the effective interest rate method and are presented net of provisions for impairment. For the accounting
policy for provisions for impairment, refer to Note 3.2. For information on the Group’s management of credit risk, refer to Note 9.2.
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.
Industry (1)
Australia
Sovereign
Agriculture
Bank and other financial
Home loans
Construction
Other personal
Asset financing
Other commercial and industrial
Total Australia
Overseas
Sovereign
Agriculture
Bank and other financial
Home loans
Construction
Other personal
Asset financing
Other commercial and industrial
Total overseas
Group
Maturity Period at 30 June 2019
Maturing 1
Year
or Less
$M
Maturing
Between 1
and 5 Years
$M
Maturing
After
5 Years
$M
404,410
467,361
14,139
3,647
5,470
11,859
1,381
6,848
3,065
41,763
88,172
446
3,201
2,253
3,155
295
1,264
22
9,119
19,755
2,117
5,273
3,046
51,092
1,494
12,978
4,757
66,223
146,980
982
5,874
4,295
709
164
378
191
14,780
27,373
506
371
159
363
1,682
125
10,221
417,837
8
1,392
89
51,717
242
282
203
6,931
60,864
Total
$M
16,762
9,291
8,675
3,238
21,508
7,947
118,207
652,989
1,436
10,467
6,637
55,581
701
1,924
416
30,830
107,992
760,981
Total
$M
536,454
52,127
588,581
116,535
55,865
172,400
760,981
Gross loans, bills discounted and other receivables
107,927
174,353
478,701
(1)
The industry split has been prepared in line with industry exposures in Note 9.2.
Interest rate
Australia
Overseas
Total variable interest rates
Australia
Overseas
Total fixed interest rates
Maturing 1
Year
or Less
$M
Maturing
Between 1
and 5 Years
$M
74,978
18,408
93,386
13,194
1,347
14,541
128,798
21,952
150,750
18,182
5,421
23,603
Gross loans, bills discounted and other receivables
107,927
174,353
Maturing
After
5 Years
$M
332,678
11,767
344,445
85,159
49,097
134,256
478,701
150 Commonwealth Bank of Australia Annual Report 2019
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Group
Maturity Period at 30 June 2018
Maturing 1
Year
or Less
$M
Maturing
Between 1
and 5 Years
$M
Maturing
After
5 Years
$M
Industry (1)
Australia
Sovereign
Agriculture
Bank and other financial
Home loans
Construction
Other personal
Asset financing
Other commercial and industrial
Total Australia
Overseas
Sovereign
Agriculture
Bank and other financial
Home loans
Construction
Other personal
Asset financing
Other commercial and industrial
Total overseas
13,745
3,589
6,805
9,861
1,223
7,663
3,188
42,482
88,556
1,023
2,533
3,684
3,202
273
1,190
23
7,954
19,882
2,490
5,078
5,818
41,930
1,465
13,976
5,263
65,382
141,402
466
5,371
3,206
657
148
333
173
17,153
27,507
Total
$M
16,823
8,998
12,951
588
331
328
399,576
451,367
340
2,019
130
10,817
414,129
82
2,026
185
3,028
23,658
8,581
118,681
644,087
1,571
9,930
7,075
46,439
50,298
217
321
261
7,022
56,553
638
1,844
457
32,129
103,942
748,029
Total
$M
524,622
54,000
578,622
119,465
49,942
169,407
748,029
Gross loans, bills discounted and other receivables
108,438
168,909
470,682
(1) The industry split has been prepared in line with industry exposures in Note 9.2.
Interest rate
Australia
Overseas
Total variable interest rates
Australia
Overseas
Total fixed interest rates
Maturing 1
Year
or Less
$M
Maturing
Between 1
and 5 Years
$M
73,612
18,035
91,647
14,944
1,847
16,791
122,146
22,730
144,876
19,256
4,777
24,033
Gross loans, bills discounted and other receivables
108,438
168,909
Maturing
After
5 Years
$M
328,864
13,235
342,099
85,265
43,318
128,583
470,682
Provisions for impairment losses
Collective provision
Opening balance
Change on adoption of AASB 9 (1)
Net collective provision funding
Impairment losses written off
Impairment losses recovered
Other
Closing balance
Individually assessed provisions
Opening balance
Net new and increased individual provisioning
Write-back of provisions no longer required
Discount unwind to interest income
Impairment losses written off
Other
Closing balance
Total provisions for impairment losses
Less: Off Balance Sheet provisions
Total provisions for loan impairment
30 Jun 19
$M
30 Jun 18
$M
Group
30 Jun 17
$M
30 Jun 19
$M
Bank
30 Jun 18
$M
2,763
1,055
724
(901)
206
57
2,747
2,818
2,510
2,482
-
716
(871)
201
(30)
-
617
(894)
210
(4)
979
629
(818)
191
46
-
646
(789)
182
(11)
3,904
2,763
2,747
3,537
2,510
870
619
(142)
(23)
(500)
71
895
4,799
(84)
4,715
980
625
(262)
(25)
(548)
100
870
3,633
(28)
3,605
944
670
(192)
(31)
(454)
43
980
3,727
(34)
3,693
779
556
(127)
(23)
(446)
62
801
4,338
(82)
4,256
897
559
(242)
(25)
(473)
63
779
3,289
(28)
3,261
(1) The adoption of AASB 9 impairment requirements on 1 July 2018 resulted in $968 million increase in the Group’s collective provisions on loans, bills discounted and
other receivables (Bank: $895 million) and $87 million increase in collective provisions for off-balance sheet instruments (Bank: $84 million). As permitted by AASB 9,
comparative information has not been restated. For details on the adoption of AASB 9 refer to Note 1.1.
Of the total $1,401 million loans written-off by the Group during the year ended 30 June 2019, $424 million remain subject to enforcement
activity. Of the total $1,264 million loans written-off by the Bank during the year ended 30 June 2019, $394 million remain subject to
enforcement activity.
Provision ratios
Total provisions for impaired assets as a % of gross
impaired assets (1)
Total provisions for impairment losses as a % of gross loans
and acceptances
30 Jun 19
%
30 Jun 18
%
Group
30 Jun 17
%
30 Jun 19
%
Bank
30 Jun 18
%
32. 77
33. 60
36. 05
35. 36
37. 18
0. 63
0. 49
0. 51
0. 65
0. 50
(1)
Gross impaired assets include non-performing facilities, restructured facilities and unsecured retail managed facilities 90 days or more past due. For impaired assets
classification refer to Note 9.2.
Loan impairment expense
Net collective provision funding
Net new and increased individual provisioning
Write-back of individually assessed provisions
Total loan impairment expense
30 Jun 19
$M
30 Jun 18
$M
Group
30 Jun 17
$M
30 Jun 19
$M
Bank
30 Jun 18
$M
724
619
(142)
1,201
716
625
(262)
1,079
617
670
(192)
1,095
629
556
(127)
1,058
646
559
(242)
963
152 Commonwealth Bank of Australia Annual Report 2019
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Movement in provisions for impairment and credit exposures by ECL stage
Movement in provisions for impairment and credit exposures by ECL stage (continued)
The tables below provide movements in the Group’s and the Bank’s impairment provisions and credit exposures by ECL stage for the year
ended 30 June 2019.
Movements in provisions for impairment in the tables below are attributable to the following items:
Net transfers between stages: net movements in provisions for impairment due to transfers of credit exposures between Stage 1, Stage 2
and Stage 3 prior to re-measurement between 12-month and lifetime ECL.
Net re-measurement on transfers between stages: net movements in provisions for impairment due to re-measurement between 12 month
ECL and lifetime ECL as a result of transfers between stages.
Impact of transfers between 12 months and lifetime ECL: a total of net transfers between stages and net re-measurement on transfers
between stages.
Net financial assets originated: net movements in provisions for impairment due to financial assets originated as well as exposure changes
for existing credit exposures due to maturities, repayments or credit limit changes as well as changes in foreign exchange rates.
Movements in existing IAP including write-backs: net movements in existing Individually Assessed Provisions (IAP) excluding movements
to or from collective provisions and write-offs.
Write-offs: decreases in the provisions for impairment due to the de-recognition of loans when there is no reasonable expectation of
recovery.
Movement due to risk parameter and other changes: movements in provisions for impairment due to changes in credit risk parameters,
forward looking economic scenarios or other assumptions as well as other changes in underlying credit quality that do not lead to transfers
between Stage 1, Stage 2 and Stage 3.
Movements in credit exposures in the tables below are attributable to the following items:
Net transfers between stages and financial assets originated: net movements in credit exposures due to transfers between Stage 1,
Stage 2 and Stage 3 and due to financial assets originated as well as changes in existing credit exposures due to maturities, repayments
or credit limit changes as well as changes in foreign exchange rates.
Write-offs: the de-recognition of credit exposures when there is no reasonable expectation of recovery.
Stage 1
Stage 2
Stage 3
Collectively Collectively Collectively
Assessed
Assessed
$M
$M
Assessed
$M
Provisions for impairment losses (2)
Opening balance
Net transfers between stages
Net re-measurement on transfers between stages
Impact of transfers between 12 months and lifetime ECL
Net financial assets originated
Movements in existing IAP including write-backs
Write-offs
Movements due to risk parameter and other changes
Closing balance
Credit exposures (2) (3)
Opening balance
Net transfers between stages and financial assets
originated
Write-offs
Closing balance
873
700
(1,072)
(372)
341
-
-
63
905
2,525
(833)
1,596
763
(999)
-
-
230
2,519
709,231
190,688
38,727
(26,418)
-
-
747,958
164,270
420
14
568
582
(77)
-
(901)
456
480
4,017
1,490
(901)
4,606
Group (1)
30 Jun 19
Total
$M
4,688
-
1,092
1,092
(735)
406
(1,401)
749
4,799
Stage 3
Individually
Assessed
$M
870
119
-
119
-
406
(500)
-
895
2,020
905,956
698
(500)
14,497
(1,401)
2,218
919,052
Stage 2
Stage 1
Stage 3
Collectively Collectively Collectively
Assessed
Assessed
$M
$M
Assessed
$M
Provisions for impairment losses (2)
Opening balance
Net transfers between stages
Net re-measurement on transfers between stages
Impact of transfers between 12 months and lifetime ECL
Net financial assets originated
Movements in existing IAP including write-backs
Write-offs
Movements due to risk parameter and other changes
Closing balance
Credit exposures (2) (3)
Opening balance
Net transfers between stages and financial assets
originated
Write-offs
Closing balance
783
692
(1,037)
(345)
323
-
-
40
801
2,313
(832)
1,562
730
(981)
-
-
231
2,293
631,044
170,870
30,762
(26,871)
-
-
661,806
143,999
393
23
528
551
(40)
-
(818)
357
443
3,746
1,241
(818)
4,169
Bank (1)
30 Jun 19
Total
$M
4,268
-
1,053
1,053
(698)
351
(1,264)
628
4,338
Stage 3
Individually
Assessed
$M
779
117
-
117
-
351
(446)
-
801
1,578
807,238
681
(446)
5,813
(1,264)
1,813
811,787
Refer to Note 9.2 for further analysis of provisions for impairment and credit exposures.
(1)
(2) Movements in credit exposures exclude cash and liquid assets and receivables from other financial institutions. Movements in provisions for impairment losses include
(3)
provisions in relation to these financial assets. As at 30 June 2019, collective provisions in Stage 1 include $9 million in relation these financial assets.
The assessment of significant increase in credit risk includes the impact of forward looking adjustments for emerging risk at an industry, geographical location or a
particular portfolio segment level, which are calculated by stressing an exposure’s internal credit rating grade at the reporting date. This accounts for approximately 65%
of Stage 2 credit exposures for the Bank as at 30 June 2019.
Movements in provisions for impairment during the year were due to the following:
A net increase in the Group’s Stage 1 credit exposures of $38,727 million (Bank: $30,762 million) driven by home loans portfolio
growth, partly offset by net transfers from Stage 1 to Stage 2 and Stage 3 reflecting increases in corporate troublesome assets,
heightened consumer finance arrears and forward looking adjustments.
A net reduction in the Group’s Stage 2 credit exposures of $26,418 million (Bank: $26,871 million) mainly driven by corporate
portfolio optimisation, partly offset by net transfers to Stage 2, mainly from Stage 1 reflecting increases in corporate troublesome
assets, heightened consumer finance arrears and forward looking adjustments. The impact of forward looking adjustments accounts
for approximately 65% of the Group’s and the Bank’s Stage 2 credit exposures.
A net increase in the Group’s Stage 3 credit exposures of $787 million (Bank: $658 million) driven by net transfers to Stage 3 from
Stage 1 and Stage 2 reflecting increases in corporate troublesome assets and impaired home loans, partly offset by write-offs.
Refer to Note 9.2 for further analysis of provisions for impairment and credit exposures.
(1)
(2) Movements in credit exposures exclude Cash and liquid assets and Receivables from other financial institutions. Movements in provisions for impairment losses include
(3)
provisions in relation to these financial assets. As at 30 June 2019, collective provisions in Stage 1 include $9 million in relation to these financial assets.
The assessment of significant increase in credit risk includes the impact of forward looking adjustments for emerging risk at an industry, geographical location or a
particular portfolio segment level, which are calculated by stressing an exposure’s internal credit rating grade at the reporting date. This accounts for approximately
65% of Stage 2 credit exposures for the Group as at 30 June 2019.
154 Commonwealth Bank of Australia Annual Report 2019
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Sensitivity of provisions for impairment to changes in forward looking assumptions
As described in Note 1.1, the Group applies four alternative macro-economic scenarios (Central, Upside, Downside and Severe Downside
scenarios) to reflect unbiased probability-weighted range of possible future outcomes in estimating ECL.
Assuming 100% weighting on the Central scenario and holding all other assumptions (including forward looking adjustments) constant the
Group’s provisions for
to $4,799 million
(Bank: $4,338 million) provisions for impairment recognised as at 30 June 2019.
impairment would be approximately $3,639 million (Bank: $3,290 million) compared
Assuming 100% weighting on the Downside Scenario and holding all other assumptions (including forward looking adjustments) constant the
Group’s total provisions for impairment would be approximately $4,802 million (Bank: $4,338 million).
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.
On 1 July 2018, the Group adopted the AASB 9 impairment requirements, which resulted in the implementation of an expected credit loss
impairment model. As a result, from 1 July 2018 provisions are recognised in accordance with the AASB 9 expected credit loss approach.
The details of the Group’s accounting policies and critical accounting judgements and estimates involved in calculating AASB 9 impairment
provisions for the year ended 30 June 2019 are provided in Note 1.1.
156 Commonwealth Bank of Australia Annual Report 2019
Individually assessed provisions by
industry classification
30 Jun 19
$M
30 Jun 18
$M
30 Jun 17
$M
30 Jun 16
$M
Group
30 Jun 15
$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
-
51
14
246
76
3
10
369
769
-
46
-
4
-
3
-
73
126
895
-
56
16
236
21
6
16
343
694
-
25
-
5
1
-
-
145
176
870
-
47
27
249
25
9
18
442
817
-
25
-
4
1
-
10
123
163
980
-
42
29
193
25
7
28
483
807
-
23
4
6
8
1
10
85
137
944
-
133
36
148
20
10
28
400
775
-
14
-
10
1
-
10
77
112
887
157
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Risk
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Other
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Notes to the
financial
statements
Loans written off by industry classification
30 Jun 19
$M
30 Jun 18
$M
30 Jun 17
$M
30 Jun 16
$M
Group
30 Jun 15
$M
Loans recovered by industry classification
30 Jun 19
$M
30 Jun 18
$M
30 Jun 17
$M
30 Jun 16
$M
Group
30 Jun 15
$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
Less recovery of amounts previously written off:
Australia
Overseas
Total amounts recovered
Net loans written off
-
59
1
134
44
787
17
126
-
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
Australia
Sovereign
Agriculture
Bank and other financial
Home loans
Construction
Other personal
Asset financing
Other commercial and industrial
1,168
1,136
1,192
1,237
1,322
Total Australia
-
2
5
2
2
70
-
152
233
-
3
5
2
1
65
-
207
283
1,401
1,419
190
16
206
187
14
201
-
15
5
4
8
60
-
64
156
1,348
194
16
210
-
7
-
7
-
54
-
112
180
1,417
211
14
225
-
3
69
8
-
42
-
35
157
1,479
165
11
176
1,195
1,218
1,138
1,192
1,303
Overseas
Sovereign
Agriculture
Bank and other financial
Home loans
Construction
Other personal
Asset financing
Other commercial and industrial
Total overseas
Total loans recovered
-
-
-
4
1
169
2
14
190
-
-
-
1
-
11
-
4
16
206
-
-
1
2
-
165
5
14
187
-
-
-
1
1
10
-
2
14
201
-
-
1
3
1
170
7
12
194
-
-
-
1
1
11
-
3
16
210
-
1
27
3
1
154
4
21
211
-
-
1
1
-
10
-
2
14
225
158 Commonwealth Bank of Australia Annual Report 2019
-
-
9
3
-
125
4
24
165
-
-
-
1
-
10
-
-
11
176
159
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Notes to the
financial
statements
Stable and well diversified funding sources are critical to the Group’s ability to fund its lending and investing activities and support growing its
business.
Our main sources of funding include customer deposits and term funds raised in domestic and offshore wholesale markets via issuing debt
securities and loan capital. The Group also relies on 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.
30 Jun 19
$M
Group (1)
30 Jun 18
$M
30 Jun 19
$M
Bank
30 Jun 18
$M
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
Total overseas
30,924
148,313
308,299
49,274
19,099
555,909
12,144
39,147
23,491
5,349
80,131
31,405
149,924
300,607
46,082
14,696
542,714
8,509
43,896
22,640
4,475
79,520
Total external deposits and other public borrowings
636,040
622,234
33,331
148,491
308,338
49,245
19,215
558,620
8,818
5,869
481
63
15,231
573,851
33,496
150,086
300,768
46,058
14,806
545,214
6,069
13,707
1,154
56
20,986
566,200
Maturing
Three
Months or
Less
$M
Maturing
Between
Three and
Six Months
$M
Maturing
Between Six
and Twelve
Months
$M
Maturing
after
Twelve
Months
$M
Australia
Certificates of deposit (1)
Term deposits
Total Australia
Overseas
Certificates of deposit (1)
Term deposits
Total overseas
Total certificates of deposits and term deposits
15,321
83,431
98,752
3,425
22,758
26,183
124,935
9,286
25,576
34,862
2,441
10,033
12,474
47,336
2,351
32,222
34,573
2,601
7,901
10,502
45,075
(1) All certificates of deposit issued by the Group are for amounts greater than $100,000.
Group
At 30 June 2018
Total
$M
31,405
149,924
181,329
8,509
43,896
52,405
4,447
8,695
13,142
42
3,204
3,246
16,388
233,734
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 is recognised within deposits and other public borrowings.
30 Jun 19
$M
6,217
714
1,589
8,520
Group
30 Jun 18
$M
8,124
399
1,724
10,247
30 Jun 19
$M
6,217
155
1,589
7,961
Bank
30 Jun 18
$M
7,118
264
1,724
9,106
(1) Current year balances reflect the adoption of AASB 9 ‘Financial Instruments’ on 1 July 2018. As permitted by AASB 9, comparative information has not been restated.
For details on adoption of AASB 9, refer to Note 1.1.
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:
Deposits and other borrowings (1)
Debt instruments
Trading liabilities
Total liabilities at fair value through Income Statement
Group
At 30 June 2019
(1) Current period balances reflect the adoption of AASB 9 ‘Financial Instruments’ on 1 July 2018. As permitted by AASB 9, comparative information has not been restated.
For details on adoption of AASB 9, refer to Note 1.1.
Maturing
Three
Months or
Less
$M
Maturing
Between
Three and
Six Months
$M
Maturing
Between Six
and Twelve
Months
$M
Maturing
after
Twelve
Months
$M
Australia
Certificates of deposit (1)
Term deposits
Total Australia
Overseas
Certificates of deposit (1)
Term deposits
Total overseas
14,674
92,825
107,499
5,938
17,820
23,758
Total certificates of deposits and term deposits
131,257
(1)
All certificates of deposit issued by the Group are for amounts greater than $100,000.
13,182
39,389
52,571
3,156
13,129
16,285
68,856
1,232
13,835
15,067
3,005
6,127
9,132
24,199
1,836
2,264
4,100
45
2,071
2,116
6,216
Total
$M
30,924
148,313
179,237
12,144
39,147
51,291
230,528
As at 30 June 2019, $5,201 million of the Group’s total liabilities at fair value through Income Statement (Bank: $4,642 million) are expected
to be settled within 12 months of the Balance Sheet date. As at 30 June 2018, the majority of the Group’s and the Bank’s liabilities at fair value
through Income Statement were expected to be settled within 12 months.
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 $8,524 million (2018: $10,093 million) and for the Bank is $7,960 million (2018: $8,949 million).
The Group designates certain liabilities at fair value through the Income Statement on origination when doing so eliminates or reduces an
accounting mismatch, or where the liabilities contain embedded derivatives which must otherwise be separated and carried at fair value.
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.
160 Commonwealth Bank of Australia Annual Report 2019
161
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Notes to the
financial
statements
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
4.4
4.4
30 Jun 19
$M
98,342
20,158
12,177
33,313
Group
30 Jun 18
$M
99,579
26,868
13,089
32,758
163,990
172,294
30 Jun 19
$M
84,014
17,596
-
29,452
131,062
Bank
30 Jun 18
$M
87,474
23,922
-
28,588
139,984
20,147
27,008
17,585
24,061
10
3,470
227
1,009
2,949
335
10
3,470
227
1,009
2,949
335
23,854
31,301
21,292
28,354
48,293
36,172
37,909
3,653
3,596
2,115
8,331
67
51,472
33,057
35,066
4,701
3,954
3,505
9,175
63
43,802
28,601
24,770
2,510
834
1,989
7,197
67
48,017
26,842
20,875
3,614
1,028
3,390
7,801
63
140,136
140,993
109,770
111,630
50,095
113,895
163,990
59,980
112,314
172,294
42,993
88,069
50,994
88,990
131,062
139,984
(1) Debt issues include unrealised movements of $8,994 million in 2019 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 Group’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; USD30 billion Covered Bond Program; Unlimited Domestic Debt Program; Unlimited ASB Domestic Medium
Term Note Program; USD25 billion CBA New York Branch Medium Term Note Program; EUR7 billion ASB Covered Bond Program;
USD10 billion ASB US Medium Term Note Program and other applicable debt documentation. Notes issued under debt programs are both
fixed and variable rate. Interest rate risk associated with the notes is incorporated within the Bank’s interest rate risk framework. 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.
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 19
$M (except where indicated)
30 Jun 18
Group
30 Jun 17
20,158
24,557
21,592
20,120
24,481
21,494
2. 6%
2. 7%
38
163
98
2. 2%
2. 7%
26,868
32,336
30,007
26,792
32,127
29,887
1. 8%
2. 3%
76
219
120
1. 5%
2. 2%
28,800
33,779
29,226
28,393
31,460
27,593
1. 2%
1. 5%
407
2,789
1,633
1. 0%
1. 2%
(1) Short-term borrowings include callable medium term notes of $3,696 million (2018: $4,433 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
As At
30 Jun 19
As At
30 Jun 18
USD
EUR
GBP
NZD
JPY
0. 7013
0. 6170
0. 5533
1. 0460
0. 7387
0. 6350
0. 5635
1. 0909
75. 6460
81. 7215
(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.
162 Commonwealth Bank of Australia Annual Report 2019
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Notes to the
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Debt issues include short and long-term debt issues of the Group and consist 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.
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 SPV’s 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 structured transactions such as covered bond
programs.
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.
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:
Carrying amount of transferred assets
Carrying amount of associated liabilities
For those liabilities that have recourse only to the
transferred assets:
Fair value of transferred assets
Fair value of associated liabilities
Net position
Carrying amount of transferred assets
Carrying amount of associated liabilities
For those liabilities that have recourse only to the
transferred assets:
Fair value of transferred assets
Fair value of associated liabilities
Net position
Repurchase
Agreements
30 Jun 18
$M
Covered Bonds
30 Jun 18
$M
30 Jun 19
$M
Securitisation (1)
30 Jun 18
$M
30 Jun 19
$M
14,696
14,696
39,129
33,313
37,012
32,758
13,521
12,177
14,661
13,089
30 Jun 19
$M
19,129
19,099
Group
13,524
12,177
1,347
14,667
13,089
1,578
Bank
Repurchase
Agreements
30 Jun 18
$M
Covered Bonds
30 Jun 18
$M
30 Jun 19
$M
Securitisation (2)
30 Jun 18
$M
30 Jun 19
$M
14,806
14,806
34,160
29,452
32,210
28,588
70,274
69,800
71,136
70,484
30 Jun 19
$M
19,245
19,215
70,281
69,800
481
71,155
70,484
671
(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.
164 Commonwealth Bank of Australia Annual Report 2019
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Notes to the
financial
statements
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 investment 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.
Notes, coins, cash at banks and money at short call
Securities purchased under agreements to resell
Total cash and liquid assets
(1) Comparative information has been restated to conform to presentation in the current year.
30 Jun 19
$M
16,655
12,732
29,387
Group (1)
30 Jun 18
$M
22,897
13,520
36,417
30 Jun 19
$M
15,534
11,378
26,912
Bank (1)
30 Jun 18
$M
21,351
12,230
33,581
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 purchased under agreements to resell. Cash and liquid assets are initially recognised at fair value and subsequently
measured 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.
Assets at Fair Value through Income Statement
Trading
Government bonds, notes and securities
Corporate/financial institution bonds, notes and securities
Shares and equity investments
Commodities
Total trading assets
Insurance (2)
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
Shares and equity investments
Other lending
30 Jun 19
$M
Group (1)
30 Jun 18
$M
30 Jun 19
$M
Bank (1)
30 Jun 18
$M
21,955
3,264
29
7,258
32,506
-
-
-
81
434
238
418
18,078
6,108
116
7,952
32,254
21
351
372
49
209
-
-
21,949
3,264
5
7,258
32,476
16,923
5,112
6
7,952
29,993
-
-
-
-
235
-
417
652
-
-
-
-
-
-
-
-
33,128
29,993
Total other assets at fair value through Income Statement
Total assets at fair value through Income Statement
1,171
33,677
258
32,884
Maturity Distribution of assets at fair value through income statement
Less than twelve months
More than twelve months
Total assets at fair value through Income Statement
33,450
227
33,677
32,247
637
32,884
32,947
181
33,128
29,724
269
29,993
(1) Current year balances reflect the adoption of AASB 9 ‘Financial Instruments’ on 1 July 2018. As permitted by AASB 9, comparative information has not been restated.
For details on the adoption of AASB 9, refer to Note 1.1.
(2) Life insurance assets have been reclassified to assets held for sale following the announced sale of PT Commonwealth Life.
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.
166 Commonwealth Bank of Australia Annual Report 2019
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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
Total foreign exchange rate related contracts
Interest rate related contracts:
Swaps
Futures
Options
Total interest rate related contracts
Credit related swaps
Equity related contracts:
Swaps
Options
Total equity related contracts
Commodity related contracts:
Swaps
Options
Total commodity related contracts
Identified embedded derivatives
Fair Value
Asset
$M
30 Jun 19
Fair Value
Liability
$M
Fair Value
Asset
$M
Group (1)
30 Jun 18
Fair Value
Liability
$M
5,404
4,078
349
9,831
6,978
46
554
7,578
21
10
1
11
207
57
264
160
(5,492)
(7,327)
(346)
8,118
7,457
462
(7,961)
(8,505)
(415)
(13,165)
16,037
(16,881)
(3,758)
(132)
(463)
(4,353)
(49)
(26)
(3)
(29)
(193)
(76)
(269)
(60)
4,834
6
531
5,371
46
12
1
13
397
146
543
229
(3,458)
(57)
(736)
(4,251)
(65)
(40)
(5)
(45)
(386)
(85)
(471)
(58)
Total derivative assets/(liabilities) held for trading
17,865
(17,925)
22,239
(21,771)
(1)
Comparative information has been restated to conform to presentation in the current year.
Held for trading derivatives are expected to be recovered or due to be settled within 12 months of the Balance Sheet date.
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
Commodity price related swaps
Total cash flow hedges
Net investment hedges
Foreign exchange rate related forwards
Total net investment hedges
Fair Value
Asset
$M
30 Jun 19
Fair Value
Liability
$M
Fair Value
Asset
$M
5,089
379
5,468
1,470
411
-
1,881
1
1
(2,384)
(1,440)
(3,824)
(643)
(365)
(5)
(1,013)
(15)
(15)
6,538
278
6,816
2,335
734
-
3,069
9
9
Group (1)
30 Jun 18
Fair Value
Liability
$M
(3,783)
(1,672)
(5,455)
(744)
(493)
-
(1,237)
(9)
(9)
Total derivative assets/(liabilities) held for hedging
7,350
(4,852)
9,894
(6,701)
(1)
Comparative information has been restated to conform to presentation in the current year.
The majority of hedging derivatives are expected to be recovered or due to be settled more than 12 months after the Balance Sheet date.
168 Commonwealth Bank of Australia Annual Report 2019
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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 19
Fair Value
Liability
$M
Fair Value
Asset
$M
Bank (1)
30 Jun 18
Fair Value
Liability
$M
5,392
5,036
348
41
(5,465)
(8,161)
(345)
(2,015)
8,081
8,291
460
16
(7,937)
(9,197)
(413)
(1,734)
Total foreign exchange rate related contracts
10,817
(15,986)
16,848
(19,281)
Interest rate related contracts:
Swaps
Futures
Options
Derivatives held with controlled entities
Total interest rate related contracts
Credit related swaps
Equity related contracts:
Swaps
Options
Total equity related contracts
Commodity related contracts:
Swaps
Options
Total commodity related contracts
Identified embedded derivatives
6,735
(3,653)
4,610
(3,226)
Total interest rate related contracts
47
554
16
(132)
(463)
(91)
6
531
73
(57)
(736)
(87)
Total fair value hedges
Cash flow hedges
7,352
(4,339)
5,220
(4,106)
Foreign exchange rate related contracts:
21
10
1
11
207
57
264
160
(49)
(26)
(3)
(29)
(193)
(76)
(269)
(60)
46
12
1
13
397
146
543
229
(65)
(40)
(5)
(45)
(386)
(85)
(471)
(58)
Fair value hedges
Foreign exchange rate related contracts:
Swaps
Derivatives held with controlled entities
Total foreign exchange rate related contracts
Interest rate related contracts:
Swaps
Derivatives held with controlled entities
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
Commodity price related contracts:
Swaps
Total commodity price related contracts
Total cash flow hedges
Net investment hedges
Foreign exchange rate related forward contracts
Total net investment hedges
Fair Value
Asset
$M
30 Jun 19
Fair Value
Liability
$M
Fair Value
Asset
$M
3,707
-
3,707
333
-
333
(1,670)
(1,948)
(3,618)
(1,393)
(68)
(1,461)
5,087
35
5,122
213
13
226
Bank (1)
30 Jun 18
Fair Value
Liability
$M
(3,052)
(1,365)
(4,417)
(1,477)
(27)
(1,504)
4,040
(5,079)
5,348
(5,921)
1,329
-
1,329
316
-
316
-
-
(471)
(97)
(568)
(255)
-
(255)
(5)
(5)
2,011
16
2,027
602
-
602
-
-
(586)
(30)
(616)
(299)
-
(299)
-
-
1,645
(828)
2,629
(915)
1
1
(15)
(15)
9
9
(9)
(9)
Total derivative assets/(liabilities) held for trading
18,625
(20,732)
22,899
(24,026)
(1)
Comparative information has been restated to conform to presentation in the current year.
Held for trading derivatives are expected to be recovered or due to be settled within 12 months of the Balance Sheet date.
Total derivative assets/(liabilities) held for hedging
5,686
(5,922)
7,986
(6,845)
(1)
Comparative information has been restated to conform to presentation in the current year.
The majority of hedging derivatives are expected to be recovered or due to be settled more than 12 months after the Balance Sheet date.
170 Commonwealth Bank of Australia Annual Report 2019
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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:
Within 6 months
6 months - 1 year
1 - 2 years
2 - 5 years
After 5 years
Net deferred gains/(losses)
30 Jun 19
$M
47
(103)
(340)
1,476
53
1,133
Group
Total
30 Jun 18
$M
(39)
29
16
(131)
(95)
(220)
30 Jun 19
$M
57
(32)
(215)
1,516
207
1,533
Bank
Total
30 Jun 18
$M
(33)
38
68
(25)
57
105
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.
Hedging strategy and hedge accounting
The Group risk management strategy (refer notes 9.1 and 9.3) is to manage market risks within risk limits to minimise profit and capital
volatility. The use of derivative and other hedging instruments for hedging purposes gives rise to potential volatility in the Income Statement
because of mismatches in the accounting treatment between derivative and other hedging instruments and the underlying exposures being
hedged. The Group’s and the Bank’s objective is to reduce volatility in the Income Statement by applying hedge accounting.
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
commitments, predominantly associated with investment securities, debt issues and loan capital. 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, predominantly associated with floating rate domestic loans and deposits. 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.
Derivatives transacted for hedging purposes (continued)
Net investment hedges
The Group holds investments in foreign operations, where changes in net assets resulting from changes in foreign currency rates are
recognised in foreign currency translation reserve and results in volatility in shareholders’ equity. To protect against the foreign currency risk,
the Group enters into foreign currency forwards that are designated as hedging instruments in 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.
Risk components
In some hedging relationships, the Group and the Bank designate risk components of hedged items as follows:
Benchmark interest rate risk as a component of interest rate risk, such as the Bank Bill Benchmark Rate component; and
Spot exchange rate risk as a component of foreign currency risk for foreign currency financial assets and liabilities.
Hedging the benchmark interest rate risk or spot exchange rate risk components results in other risks, such as credit risk and liquidity risk,
being excluded from the hedge accounting relationship.
Economic relationships and hedge effectiveness
The Group performs both prospective and retrospective tests to determine the economic relationship between the hedged item and the
hedging instrument, and to assess hedge effectiveness. At inception of the hedge relationship, prospective testing is performed on a matched
terms basis. This test checks that the critical terms are matched between the hedging instrument and the hedged item. At the same time a
hedging ratio is established by matching the notional of the derivatives with the principal of the portfolio or financial instruments being hedged,
in most cases the ratio is 100%. Retrospective testing for each reporting period uses a regression model, which compares the change in the
fair value of the hedged item and the change in the fair value of the hedging instrument. For a hedge to be deemed effective, the change in
fair values should be within 80 to 125% of each other. Should the result fall outside this range the hedge would be deemed ineffective and
recognised immediately through the income statement in line with each hedge relationship policy above.
Sources of hedge ineffectiveness affecting hedge accounting are:
Differences in discounting between the hedged item and the hedging instrument. Collateralised derivatives are discounted using Overnight
Indexed Swaps (OIS) discount curves, which are not applied to the hedged item;
Change in the credit risk of the hedging instrument; and
Mismatches between the contractual terms of the hedged item and the hedging instrument.
No other sources of hedge ineffectiveness have arisen during the year.
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.
172 Commonwealth Bank of Australia Annual Report 2019
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Hedging instruments
Hedging instruments (continued)
The following table provides details of the Group’s and the Bank’s hedging instruments by the type of hedge relationship in which they are
designated and the type of risk being hedged.
The table below provides maturity analysis of expected notional values of the Group’s hedging instruments by the type of hedge relationship
in which they are designated and the type of risk being hedged:
Group
30 Jun 19
Fair Value
Derivative
Liability
$M
Fair Value
Derivative
Assets
$M
Fair Value
Derivative
Assets
$M
Notional
$M
Bank
30 Jun 19
Fair Value
Derivative
Liability
$M
379
7
5,082
5,468
411
1,470
-
1,881
1
1
(1,440)
98,365
(6)
(2,378)
(3,824)
(365)
(643)
(5)
-
55,587
153,952
481,685
16,835
80
(1,013)
498,600
(15)
(15)
481
481
333
-
3,707
4,040
316
1,329
-
1,645
1
1
(1,461)
-
(3,618)
(5,079)
(255)
(568)
(5)
(828)
(15)
(15)
Notional
$M
112,725
709
59,070
172,504
529,431
19,400
80
548,911
481
481
Fair value hedges
Interest rate
Hedged Risk
Foreign exchange
Interest rate and foreign exchange
Cash flow hedges and
net investment hedges
Interest rate
Foreign exchange
Commodity price
Notional Amounts
Due within
1 year
$M
Due from 1
to 5 years
$M
Due beyond
5 years
$M
Group
30 Jun 19
Total
$M
16,714
709
12,575
338,071
12,867
5
45,248
50,763
112,725
-
29,577
185,963
4,722
23
-
16,918
5,397
2,292
52
709
59,070
529,431
19,881
80
The weighted average fixed interest rate of interest rate swaps hedging interest rate risk is 2.00%. The major currency pairs of cross currency
swaps designated in hedge relationships are receive USD / pay AUD and receive EUR / pay USD with weighted average foreign currencies
rates of: AUD/USD 0.85 and USD/EUR 0.82.
The table below provides maturity analysis of expected notional values of the Bank’s hedging instruments by the type of hedge relationship in
which they are designated and the type of risk being hedged:
Hedged Risk
Notional Amounts
Due within
1 year
$M
Due from 1
to 5 years
$M
Due beyond
5 years
$M
Bank
30 Jun 19
Total
$M
721,896
7,350
(4,852)
653,033
5,686
(5,922)
Fair value hedges
Interest rate
14,685
36,050
47,630
98,365
Fair value hedges
Interest rate
Foreign exchange
Interest rate and foreign exchange
Total fair value hedges
Cash flow hedges
Interest rate
Foreign exchange
Commodity price
Total cash flow hedges
Net investment hedges
Foreign exchange
Total net investment hedges
Total hedging instrument
assets/(liabilities)
In addition to derivative instruments used to hedge foreign currency risk, the Group and the Bank designate debt issues as hedging instruments
of certain foreign exchange risk exposures. The carrying value of debt issues designated as cash flow hedging instruments as at 30 June 2019
was $949 million with average maturity of 4 years for the Group and $62 million with average maturity of 1 year for the Bank.
Foreign exchange
Interest rate and foreign exchange
Cash flow hedges and
net investment hedges
Interest rate
Foreign exchange
Commodity price
-
10,649
316,484
10,436
5
-
29,850
160,217
4,588
23
-
15,088
4,984
2,292
52
-
55,587
481,685
17,316
80
The weighted average fixed interest rate of interest rate swaps hedging interest rate risk is 2.00%. The major currencies of cross currency
swaps designated in hedge relationships are receive USD / pay AUD and receive EUR / pay USD with weighted average foreign currencies
rate: AUD/USD 0.84 and USD/EUR 0.83.
174 Commonwealth Bank of Australia Annual Report 2019
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Notes to the
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Hedged items in fair value hedges
Hedge items in cash flow hedges and net investment hedges
The table below provides details of the Group’s and the Bank’s hedged items designated in fair value hedge relationships by the type of risk
being hedged:
The table below provides details of the Group’s and the Bank’s hedged items designated in cash flow and net investment hedge relationships
by the type of risk being hedged:
Hedged Items
Investment securities at fair value through
other comprehensive income
Investment securities at fair value through
other comprehensive income
Loans, bills discounted and other
receivables
Hedged Risk
Interest rate
Interest rate and
foreign exchange
Interest rate
Shares in and loans to controlled entities
Interest rate
Shares in and loans to controlled entities
Interest rate and
foreign exchange
Deposits and other public borrowings
Interest rate
Deposits and other public borrowings
Assets held for sale
Debt issues
Debt issues
Loan capital interest bearing
Loan capital interest bearing
Interest rate and
foreign exchange
Foreign exchange
Interest rate
Interest rate and
foreign exchange
Interest rate
Interest rate and
foreign exchange
Group
30 Jun 19
Fair Value
Adjustment (1) (2)
$M
Bank
30 Jun 19
Fair Value
Adjustment (1) (2)
$M
Carrying
Amount
$M
4,438
40,064
4,425
201
63
-
-
7
5
49
746
2,155
326
192
10,130
57
1,533
19,690
557
49
-
17,713
47,585
5,582
9,443
201
57
65
853
7
5
-
573
1,368
316
193
Carrying
Amount
$M
44,493
10,130
2,136
-
-
557
49
1,161
26,319
63,566
5,974
9,443
(1)
(2)
Represents the accumulated amount of the fair value adjustment included in the carrying amount. Positive amounts represent increases in the carrying amount of the
asset or liability. The cumulative amount that is related to ceased hedge relationships where the risk being hedged was interest rate and foreign exchange risk is nil.
Changes in fair value of the hedged item used as a basis to determine effectiveness. The changes in fair value of the hedged items are recognised in Other Banking
Income.
Cash Flow
Hedge
Group
30 Jun 19
Foreign
Currency
Reserve (1) Translation
Reserve (2)
Cash
Flow
Bank
30 Jun 19
Foreign
Currency
Hedge Translation
Reserve (2)
Reserve (1)
Hedged Items
Cash Flow Hedges
Hedged Risk
Investment securities at fair value
through other comprehensive income
Loans, bills discounted and other
receivables
Foreign exchange
Interest rate
Shares in and loans to controlled entities Interest rate
Shares in and loans to controlled entities Foreign exchange
Deposits and other public borrowings
Interest rate
Debt issues
Debt issues
Interest rate
Foreign exchange
Loan capital interest bearing
Interest rate and Foreign exchange
Highly probable forecast transactions
Foreign exchange
Highly probable forecast transactions
Commodity price
Net Investment Hedges
Foreign Operations
Foreign exchange
Total
$M
15
4,085
-
-
(2,741)
(7)
(117)
7
(92)
(17)
-
1,133
$M
-
-
-
-
-
-
-
-
-
-
$M
15
3,834
3
68
(2,447)
(6)
76
7
-
(17)
$M
-
-
-
-
-
-
-
-
-
-
(33)
(33)
-
1,533
(33)
(33)
(1)
(2)
Represents the accumulated effective amount of the hedging instrument deferred to Cash Flow Hedge Reserve. The cumulative amount related to ceased hedge
relationships where the risk being hedged was interest rate and foreign exchange risk is a loss of $13 million for the Group and the Bank. A cumulative loss of $1 million
related to ceased hedge relationships was amortised to Income Statement during the period.
Represents the accumulated effective amount of the hedging instrument deferred to Foreign Currency Translation Reserve. The cumulative amount related to ceased
hedge relationships where the risk being hedged was foreign exchange risk is nil.
176 Commonwealth Bank of Australia Annual Report 2019
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Hedge effectiveness
The table below details effectiveness of the Group’s and the Bank’s hedges by the type of hedge relationship and the type of risk being
hedged:
Change in
Value of
Hedged
Item (1)
Change in
Value of
Hedging
Instrument
$M
$M
1,257
49
(1,269)
(49)
(1,864)
1,885
Fair value hedges
Interest rate
Foreign exchange
Interest rate and Foreign
exchange
Total fair value hedges
(558)
567
Cash flow hedges and
net investment hedges
Interest rate
Foreign exchange
Commodity prices
Total cash flow hedges
and net investment
hedges
(1,279)
1,283
(51)
(5)
51
5
(1,335)
1,339
Group
30 Jun 19
Hedge
Ineffectiveness
recognised in
Income
statement (2)
$M
(12)
-
21
9
4
-
-
4
Change in
Value of
Hedged
Item (1)
Change in
Value of
Hedging
Instrument
$M
$M
1,384
(1,397)
-
(760)
624
(1,302)
(101)
(5)
-
783
(614)
1,308
101
5
(1,408)
1,414
Bank
30 Jun 19
Hedge
Ineffectiveness
recognised in
Income
statement (2)
$M
(13)
-
23
10
6
-
-
6
(1)
(2)
Changes in value of hedged item for fair value hedges is recognised in Other Banking Income. Changes in value of the hedged item for cash flow hedges is only used
as basis for recognising ineffectiveness and represents the lower of the change in the hedged item and the hedging instrument. During the year, the unrealised gains
deferred to the Cash flow hedge reserve were $1,355 million for the Group and $1,428 million for the Bank, and a loss recognised in the Net investment hedge reserve
was $20 million for the Group and the Bank.
Hedge ineffectiveness is recognised in Other Banking Income.
Investment securities at fair value through OCI
Government bonds, notes and securities
Corporate/financial institution bonds, notes and securities
Shares and equity investments
Covered bonds, mortgage backed securities and SSA (2)
Total investment securities at fair value through OCI
Investment securities at amortised cost
Government bonds, notes and securities
Covered bonds, mortgage backed securities and SSA (2)
Total investment securities at amortised cost
Total investment securities
Available-for-Sale Investments (AASB 139)
Government bonds, notes and securities
Corporate/financial institution bonds, notes and securities
Shares and equity investments
Covered bonds, mortgage backed securities and SSA (2)
Total available-for-sale investments (AASB 139)
30 Jun 19
$M
Group (1)
30 Jun 18
$M
30 Jun 19
$M
Bank (1)
30 Jun 18
$M
50,560
18,075
67
10,210
78,912
6
7,349
7,355
86,267
-
-
-
-
-
-
-
-
-
-
-
-
-
-
46,363
21,372
298
14,207
82,240
48,454
16,407
45
8,306
73,212
-
7,349
7,349
80,561
-
-
-
-
-
-
-
-
-
-
-
-
-
-
44,701
20,356
45
12,629
77,731
(1)
(2)
Current year balances reflect the adoption of AASB 9 ‘Financial Instruments’ on 1 July 2018. As permitted by AASB 9, comparative information has not been restated.
Supranational, Sovereign and Agency Securities (SSA).
As at 30 June 2019, Investment Securities at Fair Value through OCI expected to be recovered within 12 months of the Balance Sheet date
were $10,409 million (2018: $14,772 million) for the Group, and $8,639 million (2018: $13,478 million) for the Bank. As at 30 June 2019,
Investment Securities at Amortised Cost amounts expected to be recovered within 12 months of the Balance Sheet date were $1,622 million
(2018: Nil) for the Group and the Bank. As at 30 June 2018, Available for Sale investments expected to be recovered within 12 months of the
Balance Sheet date were $14,772 million for the Group, and $13,478 million for the Bank.
178 Commonwealth Bank of Australia Annual Report 2019
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0 to 1 Year
%
$M
1 to 5 Years
%
$M
5 to 10 Years
$M
%
Group
Maturity Period at 30 June 2019
10 or
more Years
%
$M
Non-
Maturing
$M
Total
$M
Investment securities at fair value
through OCI
Government bonds, notes and securities
3,712
1. 99
16,221
1. 46
24,978
1. 70
5,649
2. 77
Corporate/financial institution bonds, notes
and securities
4,805
1. 59
12,934
2. 58
336
2. 52
Shares and equity investments
-
-
-
-
-
-
-
-
-
-
-
-
50,560
18,075
67
67
1,849
1. 92
6,349
1. 72
1,340
1. 78
672
3. 34
-
10,210
10,366
35,504
26,654
6,321
67
78,912
Covered bonds, mortgage backed
securities and SSA
Total investment securities at fair value
through OCI
Investment securities at amortised cost
Government bonds, notes and securities
Covered bonds, mortgage backed
securities and SSA
Total investment securities at
amortised cost
Total investment securities
10,372
6
-
6
0. 66
-
-
-
22
22
-
-
-
-
-
2. 72
256
2. 39
7,071
2. 32
256
7,071
-
-
-
6
7,349
7,355
35,526
-
26,910
-
13,392
-
67
86,267
Investment securities primarily include public debt securities held as part of the Group’s liquidity portfolio.
Investment securities at Fair Value through OCI (FVOCI)
Debt securities
This category includes debt securities held within the business model whose objective is achieved by both collecting contractual cash flows
and selling the assets. The contractual cash flows on these financial assets comprise payments of principal and interest only. These securities
are initially recognised at their fair value plus directly attributable transaction costs. Subsequent to initial recognition, they are measured at fair
value through Other Comprehensive Income.
Interest income and foreign exchange gains and losses on these securities are recognised in the Income Statement. The securities are
assessed for impairment using the expected credit loss approach described in Note 1.1. Impairment is recognised in the Loan Impairment
Expense line in the Income Statement.
When FVOCI debt securities are derecognised, the cumulative gain or loss recognised in Other Comprehensive Income is reclassified to the
Other Banking Income line in the Income Statement.
Equity securities
This category also includes non-traded equity instruments designated at fair value through Other Comprehensive Income. Fair value gains
and losses and foreign exchange gains and losses on these equity instruments are recognised in Other Comprehensive Income and are not
reclassified to the Income Statement on derecognition.
Investment securities at amortised cost
This category includes debt securities held within the business model whose objective is to hold financial assets in order to collect contractual
cash flows. The contractual cash flows on these financial assets comprise the payment of principal and interest only. These securities are
initially recognised at their fair value plus directly attributable transaction costs. Subsequent to initial recognition, they are measured at
amortised cost using the effective interest rate method and are presented net of provisions for impairment. For the accounting policy for
provisions for impairment, refer to Note 1.1.
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.
Goodwill
Purchased goodwill at cost
Closing balance
Computer Software Costs
Cost
Accumulated amortisation
Closing balance
Brand Names (2)
Cost
Accumulated amortisation
Closing balance
Other Intangibles (3)
Cost
Accumulated amortisation
Closing balance
Total Intangible assets
30 Jun 19
$M
Group (1)
30 Jun 18
$M
30 Jun 19
$M
Bank (1)
30 Jun 18
$M
5,974
5,974
6,941
6,941
2,522
2,522
2,522
2,522
4,837
(3,125)
1,712
4,633
(2,814)
1,819
4,396
(2,842)
1,554
4,122
(2,440)
1,682
203
(2)
201
351
(273)
78
206
(1)
205
342
(217)
125
186
-
186
219
(164)
55
186
-
186
192
(116)
76
7,965
9,090
4,317
4,466
(1) Comparative information has been restated to conform to presentation in the current year.
(2) Brand names predominantly represent the value of royalty costs foregone by the Group through acquiring the Bankwest brand name. The royalty costs that would have
been incurred by an entity using the Bankwest brand name are based on an annual percentage of income generated by Bankwest. The Bankwest brand name has an
indefinite useful life 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 Home Loans 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 of $3 million was impaired during the year ended 30 June 2019.
(3) Other intangibles include the value of customer and credit card relationships acquired from Bankwest and Aussie Home Loans. 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.
Other intangibles also include prepaid software licences with a net book value of $54 million (30 June 2018: $67 million). Customer relationship intangibles in relation to
Count Financial of $13 million were impaired during the year ended 30 June 2019.
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, primarily 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 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 were in the range of 11.6x – 12.0x
(2018: 10.9x – 11.2x). The goodwill allocated to the Wealth Management and IFS cash-generating units is not significant.
180 Commonwealth Bank of Australia Annual Report 2019
181
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Financial
performance
Risk
management
Corporate
governance
Directors’
report
Goodwill allocation to cash generating units
Retail Banking Services
Business and Private Banking
Wealth Management
New Zealand
IFS and Other
Total
(1)
Comparative information has been restated to conform to presentation in the current year.
Reconciliation of the carrying amounts of Intangible Assets is set out below:
Other
information
Financial
report
Notes to the
financial
statements
30 Jun 19
$M
Group (1)
30 Jun 18
$M
3,744
1,271
679
269
11
5,974
3,841
1,271
1,551
258
20
6,941
Goodwill
Opening balance
Additions
Transfers/disposals/other adjustments (2)
Closing balance
Computer Software Costs
Opening balance
Additions (3)
Amortisation and write-offs (4)
Reclassification to assets held for sale
Closing balance
Brand Names
Opening balance
Additions
Impairment (5)
Closing balance
Other Intangibles
Opening balance
Additions
Amortisation and impairment (6)
Closing balance
30 Jun 19
$M
Group (1)
30 Jun 18
$M
30 Jun 19
$M
Bank (1)
30 Jun 18
$M
6,941
-
(967)
5,974
7,872
446
(1,377)
6,941
2,522
2,522
-
-
-
-
2,522
2,522
1,819
1,934
1,682
1,735
343
(450)
-
486
(553)
(48)
287
(415)
-
399
(452)
-
1,712
1,819
1,554
1,682
205
-
(4)
201
125
140
(187)
78
189
16
-
205
100
178
(153)
125
186
-
-
186
76
142
(163)
55
186
-
-
186
77
139
(140)
76
(1)
(2)
(3)
(4)
(5)
(6)
Comparative information has been restated to conform to presentation in the current year.
Includes reclassifications to assets held for sale and foreign currency revaluation.
Primarily relates to internal development costs.
Includes amounts associated with discontinued operations.
The Count Financial brand name of $3 million was impaired during the year ended 30 June 2019.
Customer relationship intangibles in relation to Count Financial of $13 million were impaired during the year ended 30 June 2019.
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 the CGUs including 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 on a straight line basis. 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.
Brand names
Brand names acquired in a business combination include Aussie Home Loans, Bankwest and Count Financial Limited and these were initially
recognised at fair value. Aussie Home Loans 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. Count Financial brand name has been fully
impaired during the year. 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 associated with those relationships.
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 181.
182 Commonwealth Bank of Australia Annual Report 2019
183
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performance
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management
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governance
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Other
information
Financial
report
Notes to the
financial
statements
Note
30 Jun 19
$M
Group (1) (2)
30 Jun 18
$M
30 Jun 19
$M
Bank (1) (2)
30 Jun 18
$M
Accrued interest receivable
Accrued fees/reimbursements receivable (3)
Securities sold not delivered
Intragroup current tax receivable
Current tax assets
Prepayments
Defined benefit superannuation plan surplus
10.2
Other
Total other assets
2,421
1,117
1,893
-
624
291
462
307
2,377
1,255
1,823
-
24
253
581
611
2,577
258
1,323
320
609
190
462
171
3,114
205
1,398
283
3
143
581
485
7,115
6,924
5,910
6,212
(1)
(2)
(3)
Comparative information has been restated to conform to presentation in the current year.
Current period balances reflect the adoption of AASB 15 ‘Revenue from Contracts with Customers’ on 1 July 2018. As permitted by AASB 15 comparative information
has not been restated. For details on adoption of AASB 15 refer to Note 1.1.
Accrued fees/reimbursements receivable as at 30 June 2019 include trail commission receivable of $442 million for the Group.
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.
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.
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, provisions for customer
remediation, compliance and regulation programs and litigations. Also, it includes provision for impairment losses on financial guarantees and
other off-balance sheet instruments issued by the Group. 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 other provisions and contingent liabilities are given in Note 7.1.
Employee entitlements
General insurance claims
Customer remediation
Dividends
Compliance and regulation
Off-balance sheet instruments (2)
Other
Total other provisions
Note
30 Jun 19
$M
Group (1)
30 Jun 18
$M
30 Jun 19
$M
Bank (1)
30 Jun 18
$M
8.4
958
292
959
119
213
84
126
880
219
162
113
283
28
175
906
-
901
119
213
82
116
839
-
134
113
283
28
164
2,751
1,860
2,337
1,561
(1)
(2)
Comparative information has been restated to conform to presentation in the current year.
The adoption of AASB 9 impairment requirements on 1 July 2018 resulted in an $87 million increase in the Group’s collective provisions for off-balance sheet instruments
(Bank: $84 million). As permitted by AASB 9, comparative information has not been restated. For details on the adoption of AASB 9 refer to Note 1.1.
Maturity distribution of other provisions
Less than twelve months
More than twelve months
Total other provisions
(1)
Comparative information has been restated to conform to presentation in the current year.
30 Jun 19
$M
2,284
467
2,751
Group (1)
30 Jun 18
$M
1,606
254
1,860
30 Jun 19
$M
1,825
512
2,337
Bank (1)
30 Jun 18
$M
1,352
209
1,561
184 Commonwealth Bank of Australia Annual Report 2019
185
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Other
information
Financial
report
Notes to the
financial
statements
Reconciliation
General insurance claims:
Opening balance
Additional provisions
Amounts utilised during the year
Closing balance
Customer remediation:
Opening balance
Additional provisions (2)
Amounts utilised during the year
Release of provision
Closing balance
Compliance and regulation:
Opening balance
Additional provisions (3)
Amounts utilised during the year
Release of provision
Closing balance
Off-balance sheet instruments:
Opening balance
Changes on adoption of AASB 9 (4)
Additional provisions
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 19
$M
Group (1)
30 Jun 18
$M
30 Jun 19
$M
Bank (1)
30 Jun 18
$M
219
637
(564)
292
162
963
(166)
-
959
283
125
(188)
(7)
213
28
87
-
(31)
84
175
57
(100)
-
(6)
126
273
530
(584)
219
202
162
(157)
(45)
162
69
389
(175)
-
283
25
-
3
-
28
264
135
(131)
(56)
(37)
175
-
-
-
-
134
903
(136)
-
901
283
125
(188)
(7)
213
28
84
-
(30)
82
164
49
(97)
-
-
116
-
-
-
-
194
135
(162)
(33)
134
69
389
(175)
-
283
25
-
3
-
28
227
93
(113)
(43)
-
164
(1) Comparative information has been restated to conform to presentation in the current year.
(2) Customer remediation includes provisions recognised during the current year for Aligned Advice, Banking and other Wealth Management remediation including related
program costs.
(3) Compliance and regulation includes additional provisions recognised during the current year for Financial Crimes Compliance Program of Action, ASIC investigation,
Better Risk Outcomes Program (BROP) and litigation related costs.
(4) The adoption of AASB 9 impairment requirements on 1 July 2018 resulted in an $87 million increase in the Group’s collective provisions for off-balance sheet instruments
(Bank: $84 million). As permitted by AASB 9, comparative information has not been restated. For details on the adoption of AASB 9 refer to Note 1.1.
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.
Customer remediation
This provision covers customer remediation costs and related program costs.
Compliance and regulation
This provision relates to project and other administrative costs associated with certain compliance and regulatory programs of the Group.
Other provisions
Other provisions include provisions for redundancy and restructuring costs, self-insurance provisions, make-good provisions in relation to
property leases, and provisions for certain other costs.
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
provisions factor in the expected period of service by employees, as well as salary increases. These future obligations are discounted using
a market observable rate.
Provisions are recognised for present obligations arising from past events where a payment to settle the obligation is probable and can be
reliably estimated. Where the effect of the time value of money is material, the amount of the provision is measured as the present value of
expenditures required to settle the obligation, based on 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.
Customer remediation
Provisions for customer remediation require significant levels of estimation and judgement. The amount raised depends on a number of
different assumptions, such as the number of years impacted, the forecast refund rate and the average cost per case. The Group is committed
to comprehensively and efficiently addressing the full range of remediation issues impacting customers of the Banking and Wealth
Management businesses. Significant resources have been committed to a comprehensive program of work, to ensure that all issues are
identified and addressed.
Aligned Advice remediation
During the current year, the Group raised a provision for Aligned Advice remediation issues and program costs, including ongoing service
fees charged where no service was provided. Aligned advisors are not employed by the Group but are representatives authorised to provide
financial advice under the licences of the Group’s subsidiaries, Financial Wisdom Limited, Count Financial Limited and Commonwealth
Financial Planning Limited (Pathways only). As at 30 June 2019, the Group holds a provision of $534 million in relation to Aligned Advice
remediation. This includes $251 million for customer fee refunds, $123 million for interest on fees subject to refunds and $160 million for costs
to implement the remediation program.
The Group’s estimate of the proportion of fees to be refunded is based on sample testing and assumes a refund rate of 24%. This compares
to a refund rate of 22% which was paid for our salaried advisors. An increase/(decrease) in the failure rate by 1% would result in an
increase/(decrease) in the provision of approximately $15 million.
The Group is finalising its remediation approach in consultation with ASIC.
Banking and other Wealth customer remediation
During the year ended 30 June 2019, the Group recognised provisions of $384 million for Banking and other Wealth Management customer
remediation programs. The provision raised for banking remediation includes an estimate of refunds and interest to customers relating to
business banking products, including bank guarantees, cash deposit accounts, merchants billing and certain commercial lending products.
The wealth remediation provision includes an estimate of refunds and interest relating to advice quality, fees where no service was provided
in the Commonwealth Financial Planning business, the Loan Protection Insurance product and certain other products.
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 2019. Provisions have been raised where indicated in line with the principles outlined in the accounting policy section of this note.
Litigation
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 civil penalty proceedings
brought by Australian Transaction Reports and Analysis Centre (AUSTRAC). The AUSTRAC proceedings concerned contraventions of the
Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth). The resolution of the proceedings was approved by the Federal
Court on 20 June 2018 with CBA paying a penalty of $700 million and legal costs. In the shareholder class action, 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.
186 Commonwealth Bank of Australia Annual Report 2019
187
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Other
information
Financial
report
Notes to the
financial
statements
Litigation, investigations and reviews (continued)
Litigation (continued)
Shareholder class actions (continued)
On 29 June 2018 a similar second shareholder class action in relation to the subject matter of the AUSTRAC 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. On 10 July
2019, court orders were made confirming the two class action proceedings would continue, would be case managed together and proceed by
way of one harmonised statement of claim.
It is currently not possible to determine the ultimate impact of these claims, if any, on the Group. The Group denies the allegations and
continues to defend both claims. The Group has provided for legal costs expected to be incurred in the defence of the claims.
Superannuation class action
On 9 October 2018, a class action claim was filed against CBA and Colonial First State Investments Limited (CFSIL) in the Federal Court of
Australia. The claim relates to investment in cash and deposit options (which are cash and deposit products prioritised by CBA) in Colonial
First State FirstChoice Superannuation Trust and Commonwealth Essential Super. The main allegation is that members with these options in
the funds received lower interest rates on them than they would have received had CFSIL put them in equivalent products with higher interest
rates obtainable on the market. It is alleged that CBA was involved in CFSIL’s breaches as trustee of the funds and CFSIL’s breaches as
Responsible Entity of the underlying managed investment schemes. Both CBA and CFSIL deny the allegations and filed a defence to the
claim on 20 December 2018. The class action lawyers made further amendments to the claim filing an amended statement of claim on 16
April 2019. The amendments introduced additional allegations relating to another term deposit and a breach of trust in respect of adviser
commissions, however the commissions claim is made against CFSIL only. CBA and CFSIL filed a defence to the amended claim on 7 June
2019 denying the new claims. It is currently not possible to determine the ultimate impact of this claim, if any, on the Group. The Group has
provided for the legal costs expected to be incurred in the defence of the claim.
ASIC bank bill swap rate
On 21 June 2018 the Federal Court approved the agreement between CBA and the Australian Securities and Investment Commission (ASIC)
to resolve the proceedings concerning alleged market manipulation and unconscionable conduct in respect of the bank bill market. Accordingly
CBA has paid a civil penalty of $5 million and a community benefit payment of $15 million to Financial Literacy Australia. It also agreed to pay
ASIC’s costs of the investigation and legal costs. The Group provided for these costs in the prior period.
As part of the settlement CBA also entered into an Enforceable Undertaking with ASIC under which CBA undertook to engage an independent
expert to assess changes it has made (and will make) to its policies, procedures, controls systems, training, guidance and framework for the
monitoring and supervision of employees and trading in Prime Bank Bills and CBA’s BBSW referenced product businesses. On
5 October 2018, CBA appointed EY as the independent expert. CBA provided its BBSW Program of remediation work to ASIC and EY on
21 December 2018. EY reviewed the BBSW Program and provided certain recommendations in their report dated 23 April 2019. CBA
considered those recommendations with ASIC and EY and delivered its Final BBSW Program to ASIC and EY on 23 July 2019. EY are due
to report on CBA’s Final BBSW Program on 30 August 2019. The Group has provided for costs associated with implementation of the BBSW
program.
Investigations and reviews
ASIC investigation
In September 2017, following the commencement of the civil proceedings against CBA by AUSTRAC, ASIC launched an investigation in
relation to the Group’s disclosure in respect of the matters the subject of the AUSTRAC proceedings. ASIC is also investigating, among other
things, whether the officers and directors at CBA complied with other specific 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 impact 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.
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 final report of the Inquiry was released on 1 May 2018 (the Final Report). The Final Report made 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 acknowledged that it will implement all of the recommendations and 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 (Remedial Action Plan) in response to the Final Report
would be agreed and monitored regularly by APRA. 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 also provides a comprehensive
assurance framework, with Promontory Australasia (Sydney) Pty Ltd (Promontory) having been appointed as the independent reviewer and
which is required to report to APRA on the Group’s progress against committed milestones every 3 months.
Litigation, investigations and reviews (continued)
Investigations and reviews (continued)
APRA’s prudential inquiry into CBA (continued)
Promontory has submitted two reports in September 2018 and December 2018 which have also been released by CBA. Promontory has
noted that the Remedial Action Plan program of work remains on track and CBA’s commitment to implementing the Inquiry’s recommendations
in a timely and comprehensive way continued to be strong with all 156 milestones on schedule to be delivered by the due date. Promontory
is providing APRA with quarterly progress reports, and CBA is committed to report publicly on its progress against the Remedial Action Plan
twice a year. The Group has provided for costs associated with the implementation of the Remedial Action Plan.
The Royal Commission
The Royal Commission was established on 14 December 2017 and was authorised to inquire into misconduct by financial service entities
(including CBA). Seven rounds of hearings into misconduct in the banking and financial services industry were held throughout 2018, covering
a variety of topics including consumer and business lending, financial advice, superannuation, insurance and a policy round. The Royal
Commission’s final report was delivered on 1 February 2019. The final report included 76 policy recommendations to the Australian
Government and findings in relation to the case studies investigated during the hearings, with a number of referrals being made to regulators
for misconduct by financial institutions, which is expected to result in heightened levels of enforcement action across the industry.
The 76 recommendations covered many of CBA’s business areas, and also canvassed the role of the regulators and the approach to be taken
to customer focus, culture and remuneration. The recommendations regarding the role of regulators and their approach to enforcement may
increase enforcement activity, costs and reputational impact for financial institutions. CBA released a statement to the ASX on 8 March 2019
welcoming the final report and committing to actions to deliver on the recommendations. The Government has accepted 75 of the 76
recommendations.
Ongoing service fees in Commonwealth Financial Planning
Following an ASIC investigation, Commonwealth Financial Planning (CFP) entered into an Enforceable Undertaking (EU) with ASIC in
April 2018 and agreed to certain variations on 20 December 2018. Under the EU, as varied, CFP agreed, among other things, to provide an
attestation to ASIC in relation to remediation of ongoing service over the period July 2015 to January 2018 and in relation to CFP’s current
ongoing service compliance systems and processes. Although CFP was not in a position to sign the attestation in January 2019, CFP provided
the attestation to ASIC on 30 May 2019. ASIC has since confirmed that it is satisfied with the attestation and compliance with the obligations
under the EU is now finalised (save for the payment of some remaining refunds due to customers by 30 September 2019).
CFP has not charged ongoing service fees since 1 February 2019, and has not entered into new ongoing service agreements since that date.
CFP is moving to a new model where customers will pay for advice once they have received it.
Fair Work Ombudsman (FWO) Investigation
The FWO has commenced an investigation in relation to CBA’s self-disclosure of discrepancies in employee arrangements and entitlements.
CBA continues to engage with the FWO in respect of the investigation and respond to requests made by the FWO. It is currently not possible
to predict the ultimate impact of this investigation, if any, on the Group.
New Zealand compliance audit findings
The Labour Inspectorate in New Zealand is undertaking a programme of compliance audits on a number of organisations in respect of the
Holidays Act 2003 (the “Holidays Act”). On 18 December 2018 ASB Bank Limited (ASB) received the Labour Inspectorate’s report of its
findings on ASB’s compliance with the Holidays Act. The findings, based on a sample of employees, include that ASB has not complied with
the requirements of the Holidays Act by not including certain incentive payments in ASB’s calculation of gross earnings under the Holidays Act.
ASB’s position in relation to that finding is that the application of the law is uncertain and yet to be definitively determined. That finding, if
extrapolated to ASB’s entire workforce, would result in an estimated liability of NZD31 million in total for the preceding six years’ annual holiday
payments. ASB will continue to engage with the Labour Inspectorate on the matter.
Enforceable Undertaking accepted by Office of Australian Information Commission
The Australian Information Commissioner (Commissioner) has accepted an Enforceable Undertaking (EU) offered by CBA. The EU underpins
execution of further enhancements to the management and retention of customer personal information within CBA and certain subsidiaries.
The EU follows CBA’s ongoing work to address two incidents: one relating to the disposal by a third party of magnetic data tapes containing
historical customer statements and the other relating to potential unauthorised internal user access to certain systems and applications
containing customer personal information. CBA reported both incidents to the Commissioner in 2016 and 2018 respectively and has since
been working to address these incidents and respond to inquiries made by the Commissioner. CBA has found no evidence to date, as a result
of these incidents, that our customers’ personal information was compromised, or that there have been any instances of unauthorised access
by CBA employees or third parties.
It is not currently possible to estimate the financial impact of the Group’s response under the EU.
188 Commonwealth Bank of Australia Annual Report 2019
189
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Risk
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Corporate
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Directors’
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Other
information
Financial
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Notes to the
financial
statements
Litigation, investigations and reviews (continued)
Investigations and reviews (continued)
Program of Action
The Group continues to strengthen its financial crime capabilities, and has invested significantly, recognising the crucial role that it plays,
including through the Program of Action with coverage across all aspects of financial crime (including anti-money laundering/counter-terrorism
financing, sanctions and anti-bribery and corruption) and all business units. The Group has provided for certain costs of running the Program of
Action.
Remediation and Compliance Programs
The Group undertakes ongoing compliance activities, including review of products, advice, conduct and services provided to customers, as
well as interest, fees and premiums charged.
Some of these investigations and reviews have resulted in remediation programs and where required the Group consults with the respective
regulator on the proposed remediation action. There is a risk that where a breach has occurred, regulators may also impose fines and/or
sanctions.
Provisions are recognised when it is probable an outflow will be required to address a past event and where a reliable estimate is available.
There remains a contingent liability with respect to these matters, however the aggregate potential liability of the above matters cannot be
reliably estimated.
Other matter
Financial Wisdom Limited, a subsidiary of the Group, has agreements pre-dating 2013, which provide authorised representatives with the
ability to sell their client book to the subsidiary in certain circumstances contingent upon a number of key conditions being met. The agreements
provide for the sale at a multiple of ongoing revenue subject to a range of criteria (including potential discount factors). The authorised
representative must apply to commence the conditional sale process. No applications have been received to date. It is not currently possible
to reliably estimate the financial impact of these agreements.
30 Jun 19
$M
Group (1)
30 Jun 18
$M
30 Jun 19
$M
Bank (1)
30 Jun 18
$M
Bills payable
Accrued interest payable
Accrued fees, employee incentives and other items payable (2) (3) (4)
Securities purchased not delivered
Unearned income (3) (5)
Other
756
2,676
2,390
2,414
1,439
610
931
2,745
3,194
2,456
1,389
910
Total bills payable and other liabilities
10,285
11,625
664
2,059
1,906
1,774
1,011
1,626
9,040
827
2,163
2,523
1,942
968
1,722
10,145
(1) Comparative information has been restated to conform to presentation in the current year.
(2) The balance as at 30 June 2018 includes a payable for AUSTRAC civil penalty of $700 million.
(3) Current period balances reflect the adoption of AASB 15 Revenue from Contracts with Customers’ on 1 July 2018. As permitted by AASB 15 comparative information
has not been restated. For details on adoption of AASB 15 refer to Note 1.1.
(4) Accrued fees payable as at 30 June 2019 include trail commissions payable of $265 million for the Group.
(5) Unearned income includes annual facility fees, commitment fees and upfront fees that are deferred and recognised over the service periods. Of the unearned income
recognised at the beginning of the period, the Group and the Bank has recognised $177 million and $174 million, respectively, as income for the period ended
30 June 2019.
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.
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 Shareholders’ Equity including changes during the period.
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
for
the BCBS and also adopted an accelerated
implementation. The requirements define what is acceptable as
capital and provide methods of measuring the risks incurred by the
Bank.
timetable
The regulatory capital requirements are measured for the Extended
Licenced Entity Group (known as “Level 1”, comprising the Bank and
APRA approved subsidiaries) and for the Bank and all of its banking
subsidiaries, which includes ASB Bank (known as “Level 2” or the
“Group”).
All entities which are consolidated for accounting purposes are
included within the Group capital adequacy calculations except for:
The insurance and funds management operating subsidiaries;
and
The entities through which securitisation of Group assets are
conducted.
Regulatory capital is divided into Common Equity Tier 1 (CET1),
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 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 issuances. 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.
The Group’s capital ratios throughout the 2017, 2018 and 2019
financial years were in compliance with both APRA minimum capital
adequacy requirements and the Board approved minimums. The
Group is required to inform APRA immediately of any breach or
potential breach of its minimum prudential capital adequacy
requirements, including details of remedial action taken or planned
to be taken.
190 Commonwealth Bank of Australia Annual Report 2019
191
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Notes to the
financial
statements
Currency
Amount (M)
Endnotes
30 Jun 19
$M
Group
30 Jun 18
$M
30 Jun 19
$M
Bank
30 Jun 18
$M
FRN
USD 100
PERLS VI
AUD 2,000
PERLS VII
AUD 3,000
PERLS VIII
AUD 1,450
PERLS IX
AUD 1,640
PERLS X
AUD 1,365
PERLS XI
AUD 1,590
Tier 1 Loan Capital
Undated
Undated
Undated
Undated
Undated
Undated
Undated
Total Tier 1 Loan Capital
Tier 2 Loan Capital
AUD denominated
USD denominated
JPY denominated
GBP denominated
NZD denominated
EUR denominated
Other currencies denominated
Total Tier 2 Loan Capital
Fair value hedge adjustments
Total Loan Capital (1)
(1)
(2)
(3)
(3)
(3)
(3)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
143
-
2,985
1,441
1,628
1,356
1,580
9,133
1,774
4,616
968
-
379
5,259
318
135
1,999
2,978
1,436
1,622
1,356
-
9,526
1,773
4,380
896
266
729
5,107
309
143
-
2,985
1,441
1,628
1,352
1,576
9,125
1,774
4,616
968
-
-
5,259
318
135
1,999
2,978
1,436
1,622
1,352
-
9,522
1,773
4,380
896
266
-
5,107
309
13,314
13,460
12,935
12,731
519
6
509
(4)
22,966
22,992
22,569
22,249
(1)
Loan Capital includes unrealised movements of $220 million in 2019 predominantly due to foreign exchange gains and losses.
As at 30 June 2019, $1,604 million of securities issued by the Group and $1,620 million of securities issued by the Bank were contractually
due for redemption in the next 12 months (the Group has the right to call some securities earlier than the contractual maturity).
(1) USD100 million Floating Rate Notes
the State Bank of Victoria
On 15 October 1986,
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
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 consent of
(with
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
On 17 October 2012, the Bank issued $2,000 million of Perpetual
Exchangeable Resaleable Listed Securities (PERLS VI). All PERLS
VI were redeemed for cash on 17 December 2018.
(3) PERLS VII, PERLS VIII, PERLS IX, PERLS X and
PERLS XI
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). On 17 December 2018, the Bank issued $1,590
million of CommBank PERLS XI Capital Notes (PERLS XI). PERLS
VII, PERLS VIII, PERLS IX, PERLS X and PERLS XI are
subordinated, unsecured notes.
PERLS VII, PERLS VIII, PERLS IX, PERLS X and PERLS XI 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.
(4) 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.
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.
(9) EUR denominated Tier 2 loan capital issuances
EUR1,000 million subordinated notes, issued August 2009, due
August 2019;
(5) USD denominated Tier 2 loan capital issuances
USD1,250 million subordinated notes issued December 2015,
due December 2025;
EUR1,250 million subordinated notes issued April 2015, due
April 2027; and
EUR 1,000 million subordinated EMTN, issued October 2017,
USD750 million subordinated Euro Medium Term Notes (EMTN)
due October 2029.
(10) Other foreign currency denominated Tier 2 loan
capital issuances
CNY1,000 million subordinated notes issued March 2015, due
March 2025; and
HKD608 million subordinated EMTN issued March 2017, due
March 2027.
All Tier 2 Capital securities issued prior to 1 January 2013 qualify as
Tier 2 Capital of the Bank under the Basel
III transitional
arrangements for capital instruments as implemented by APRA. All
Tier 2 Capital securities issued after 1 January 2013 qualify as
Tier 2 Capital of the Bank under Basel III as implemented by APRA.
PERLS VII, PERLS VIII, PERLS IX, PERLS X and PERLS XI, 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 VII, PERLS VIII, PERLS IX, PERLS X and
PERLS XI only) or a non-viability trigger event (all securities) occurs.
Any exchange will occur as described in the terms of the applicable
instrument documentation.
issued October 2016, due October 2026; and
USD 1,250 million subordinated notes issued January 2018, due
in January 2048.
(6) JPY denominated Tier 2 loan capital issuances
perpetual
subordinated EMTN,
JPY20 billion
February 1999;
JPY40 billion subordinated EMTNs issued December 2016
(three tranches JPY20 billion, JPY10 billion and JPY10 billion),
due December 2026; and
JPY13.3 billion subordinated EMTN issued March 2017, due
March 2027.
issued
(7) GBP denominated Tier 2 loan capital issuances
GBP150 million subordinated EMTN, issued June 2003, and
redeemed in December 2018.
(8) NZD denominated Tier 2 loan capital issuances
NZD400 million subordinated, unsecured notes, issued April
2014, and redeemed in June 2019:
On 17 April 2014, a wholly owned entity of the Bank (ASB Bank
Limited) issued NZD400 million subordinated, unsecured notes
(ASB Notes) with a face value of NZD1 each. All ASB Notes
were redeemed for cash on 17 June 2019; and
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.
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
Interest expense incurred is recognised in Net Interest
subsequently measured at amortised cost using the effective interest rate method.
Income.
192 Commonwealth Bank of Australia Annual Report 2019
193
Changes on adoption of new accounting standards (1)
Restated opening balance
Actuarial (losses)/gains from defined benefit superannuation plans
Losses on liabilities at fair value due to changes in own credit risk
Realised gains and dividend income on treasury shares
30 Jun 19
$M
Group
30 Jun 18
$M
30 Jun 19
$M
Bank
30 Jun 18
$M
28,360
26,274
23,819
22,256
(955)
-
(868)
-
27,405
26,274
22,951
22,256
(49)
-
12
161
(2)
16
(50)
-
-
159
(2)
-
Net profit attributable to Equity holders of the Bank
8,571
9,329
7,783
8,875
Total available for appropriation
Transfers from/(to) general reserve
Transfers from asset revaluation reserve
Interim dividend - cash component
Interim dividend - Dividend reinvestment plan (2) (3)
Final dividend - cash component
Final dividend - Dividend reinvestment plan (3)
Closing balance
35,939
35,778
30,684
31,288
126
23
47
19
(2)
23
(4)
19
(2,949)
(2,969)
(2,949)
(2,969)
(592)
(3,316)
(749)
(536)
(2,406)
(1,573)
(592)
(3,316)
(749)
(536)
(2,406)
(1,573)
28,482
28,360
23,099
23,819
(1) The Group adopted AASB 9 ‘Financial Instruments’ and AASB 15 ‘Revenue’ on 1 July 2018. The carrying amounts of assets and liabilities impacted by the adoption were
adjusted through opening retained profits and reserves on 1 July 2018 as if the Group has always applied the new requirements. As permitted by AASB 9 and AASB 15,
comparative information has not been restated. For details on the adoption of AASB 9 and AASB 15 refer to Note 1.1.
(2) The DRP in respect of 2018/2019 interim dividend was satisfied in full through the on-market purchase and transfer of 8,080,558 shares to participating shareholders.
(3) The determined dividend includes an amount attributable to the dividend reinvestment plan of $749 million (final 2017/2018), $536 million (interim 2017/2018), and $1,573
million (final 2016/2017). The value of shares issued under plans rules net of issue costs for the respective periods was $748 million, $533 million, and $1,572 million.
Strategic
report
Financial
performance
Risk
management
Corporate
governance
Directors’
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Other
information
Financial
report
Notes to the
financial
statements
30 Jun 19
$M
Group
30 Jun 18
$M
30 Jun 19
$M
Bank
30 Jun 18
$M
Retained Profits
Opening balance
Ordinary Share Capital
Shares on issue:
Opening balance
Issue of shares (net of issue costs) (1)
Dividend reinvestment plan (net of issue costs) (2) (3)
Less treasury shares:
Opening balance
Purchase of treasury shares (4)
Sale and vesting of treasury shares (4)
37,535
-
748
38,283
(265)
(93)
95
(263)
35,266
164
2,105
37,535
(295)
(95)
125
(265)
37,533
-
748
38,281
-
(69)
-
(69)
35,262
164
2,107
37,533
-
-
-
-
Closing balance
38,020
37,270
38,212
37,533
(1)
(2)
(3)
(4)
During the year ended 30 June 2018, shares issued relate to the acquisition of the remaining 20% interest in AHL Holding Pty Limited.
The determined dividend includes an amount attributable to the dividend reinvestment plan of $749 million (final 2017/2018), $536 million (interim 2017/2018) and
$1,573 million (final 2016/2017). The value of shares issued under plans rules net of issue costs for the respective periods was $748 million, $533 million and
$1,572 million.
The DRP in respect of 2018/2019 interim dividend was satisfied in full through the on-market purchase and transfer of 8,080,558 shares to participating shareholders.
The movement in treasury shares relate to amounts held within life insurance statutory funds, and 1,178,102 shares acquired at an average price of $69.95 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.
Number of shares on issue
30 Jun 19
Shares
Group
30 Jun 18
Shares
30 Jun 19
Shares
Bank
30 Jun 18
Shares
Opening balance (excluding treasury shares deduction)
1,759,842,930
1,729,868,161
1,759,842,930
1,729,868,161
Issue of shares (1)
Dividend reinvestment plan issues:
2016/2017 Final dividend fully paid ordinary
shares $75.73
2017/2018 Interim dividend fully paid ordinary
shares $75.38
2017/2018 Final dividend fully paid ordinary
shares $72.05
2018/2019 Interim dividend fully paid ordinary
shares $73.21 (2)
-
-
-
2,087,604
20,772,433
7,114,732
-
-
-
10,396,577
-
-
-
10,396,577
-
2,087,604
20,772,433
7,114,732
-
-
Closing balance (excluding treasury shares deduction)
1,770,239,507
1,759,842,930
1,770,239,507
1,759,842,930
Less: treasury shares (3) (4)
Closing balance
(2,508,628)
(3,489,325)
-
-
1,767,730,879
1,756,353,605
1,770,239,507
1,759,842,930
(1) During the year ended 30 June 2018, the number of shares issued relates to the acquisition of the remaining 20% interest in AHL Holdings Pty Limited.
(2) The DRP in respect of 2018/2019 interim dividend was satisfied in full through the on-market purchase and transfer of 8,080,558 shares at $73.21 to participating
shareholders.
(3) Comparative information has been restated to conform to presentation in the current year.
(4) Relates to treasury shares held within the life insurance statutory funds and the employees share scheme.
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.
194 Commonwealth Bank of Australia Annual Report 2019
195
Strategic
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Financial
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Risk
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Corporate
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Other
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Notes to the
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statements
Reserves
General Reserve
Opening balance
Transfer (to)/from retained profits
Closing balance
Capital Reserve
Opening balance
Closing balance
Asset Revaluation Reserve
Opening balance
Revaluation of properties
Transfer to retained profits
Income tax effect
Closing balance
Foreign Currency Translation Reserve
Opening balance
Currency translation adjustments of foreign operations
Currency translation on net investment hedge
Income tax effect
Closing balance
Cash Flow Hedge Reserve
Opening balance
Gains/(losses) on cash flow hedging instruments:
Recognised in other comprehensive income
Transferred to Income Statement:
Interest income
Interest expense
Income tax effect
Closing balance
Employee Compensation Reserve
Opening balance
Current period movement
Closing balance
30 Jun 19
$M
Group
30 Jun 18
$M
30 Jun 19
$M
Bank
30 Jun 18
$M
859
(126)
733
-
-
235
38
(23)
(4)
246
448
491
(20)
(7)
912
906
(47)
859
-
-
223
35
(19)
(4)
235
457
(9)
15
(15)
448
(160)
(107)
584
2
586
1,254
1,254
206
37
(23)
(4)
216
88
233
(19)
-
302
70
1,087
(260)
1,356
(630)
898
(408)
787
145
16
161
(960)
1,160
7
(160)
164
(19)
145
(674)
746
(425)
1,073
139
22
161
580
4
584
1,254
1,254
196
33
(19)
(4)
206
35
39
14
-
88
66
6
(975)
985
(12)
70
164
(25)
139
Investment Securities Revaluation Reserve
Opening balance
Change on adoption of AASB 9 (1)
Restated opening balance
Net gains on revaluation of investment securities
Net gains on investment securities transferred to Income Statement on
disposal
Income tax effect
Closing balance
Available-for-sale Investments Reserve
Opening balance
Change on adoption of AASB 9 (1)
Restated opening balance
Net losses on revaluation of available-for-sale investments
Net losses on available-for-sale investments transferred to Income Statement
on disposal
Income tax effect
Closing balance
Total Reserves
Shareholders' Equity attributable to Equity holders of the Bank
Shareholders' Equity attributable to Non-controlling interests
Total Shareholders' Equity
30 Jun 19
$M
Group
30 Jun 18
$M
30 Jun 19
$M
Bank
30 Jun 18
$M
-
149
149
140
(42)
6
253
149
(149)
-
-
-
-
-
3,092
69,594
55
69,649
-
-
-
-
-
-
-
226
-
226
(185)
87
21
149
1,676
67,306
554
67,860
-
227
227
18
(42)
18
221
227
(227)
-
-
-
-
-
3,813
-
-
-
-
-
-
-
261
-
261
(135)
87
14
227
2,568
65,124
63,920
-
-
65,124
63,920
(1)
The Group and the Bank adopted AASB 9 ‘Financial Instruments’ on 1 July 2018. The carrying amounts of assets and liabilities impacted by the adoption were adjusted
through opening retained profits and reserves on 1 July 2018 as if the Group and the Bank have always applied the new requirements. As permitted by AASB 9,
comparative information has not been restated. For details on the adoption of AASB 9 refer to Note 1.1.
196 Commonwealth Bank of Australia Annual Report 2019
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statements
Shareholders’ equity includes ordinary share capital, retained profits and reserves. Policies for each component are set out below:
Ordinary Shares
Note
30 Jun 19
$M
30 Jun 18
$M
Group
30 Jun 17
$M
30 Jun 19
$M
Bank
30 Jun 18
$M
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 the Income Statement 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.
Investment securities revaluation reserve
The investment securities revaluation reserve includes changes in the fair value of investment securities measured at fair value through other
comprehensive income. For debt securities, these changes are reclassified to the Income Statement when the asset is derecognised. For
equity securities, these changes are not reclassified to the Income Statement when derecognised.
Interim ordinary dividend (fully franked) (2019: 200 cents;
2018: 200 cents; 2017: 199 cents)
Interim ordinary dividend paid - cash component only
Interim ordinary dividend paid - Dividend Reinvestment Plan (1)
Total dividend paid
Other provision carried
Dividend proposed and not recognised as a liability
(fully franked) (2019: 231 cents; 2018: 231 cents;
2017: 230 cents) (2)
Provision for dividends
Opening balance
Provision made during the year
Provision used during the year
2,949
592
3,541
2,969
536
3,505
2,871
558
3,429
2,949
592
3,541
2,969
536
3,505
119
113
100
119
113
4,089
4,065
3,979
4,089
4,065
113
7,606
100
7,484
90
7,237
113
7,606
100
7,484
(7,600)
(7,471)
(7,227)
(7,600)
(7,471)
Closing balance
7.1
119
113
100
119
113
(1) The DRP in respect of the 2018/2019 interim dividend was satisfied in full through the on-market purchase and transfer of 8,080,558 shares to participating shareholders.
(2) The 2019 final dividend will be satisfied by cash disbursements with the Dividend Reinvestment Plan (DRP) anticipated to be satisfied in full through an on-market
purchase of shares. The 2018 final dividend was satisfied by cash disbursements of $3,316 million and $749 million being reinvested by the participants through the DRP.
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.
Final dividend
The Directors have declared a franked final dividend of 231 cents per share amounting to $4,089 million. The dividend will be payable on 26
September 2019 to shareholders on the register at 5pm AEST on 15 August 2019. The ex-dividend date is 14 August 2019.
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;
Competitors comparison and market expectations; and
Earnings per share growth.
Investments and/or divestments to support business development;
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 2019 to frank
dividends for subsequent financial years, is $1,190 million (2018: $1,464 million). This figure is based on the franking accounts of the Bank at
30 June 2019, 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 2019.
198 Commonwealth Bank of Australia Annual Report 2019
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Dividend history
Half year ended
31 December 2016
30 June 2017
31 December 2017
30 June 2018
31 December 2018
30 June 2019
Cents Per
Share
199
230
200
231
200
231
Half-year
Payout
Ratio (1)
%
Full Year
Payout
Ratio (1)
%
Payment Date
04/04/2017
29/09/2017
28/03/2018
28/09/2018
28/03/2019
70. 1
79. 0
71. 4
91. 9
77. 0
26/09/2019
103. 0
-
74. 6
-
81. 2
-
89. 0
DRP
Price
$
83. 21
75. 73
75. 38
72. 05
73. 21
-
DRP
Participation
Rate (2)
%
16. 3
39. 5
15. 3
18. 4
16. 7
-
(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.
The Group is exposed to business, 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, including the governance
that enables executive and Board oversight of these risks.
Our Risk Principles
Trust and Reputation
Risk Culture and Conduct Risk
Group Strategy
Group Risk Appetite Statement
CBA Group Board
Board Risk Committee
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.
Executive
Leadership
Team (ELT)
Executive Risk
Committee
(ERC)
Insurance
subsidiary
boards
Asset and Liability
Committee
(ALCO)
Non-Financial Risk
Committee
(NFRC)
BU Leadership
Teams
Business Unit (BU) Leadership
Teams
BU NFRC Committees
Strategic
Risk
Value destruction
or less than planned
value creation
due to changes in
the external and
internal operating
environments
The Board
approves Group
and BU strategies,
monitors strategy
execution progress
and operating
environment
changes and
regularly appraises
the strategy
Credit
Risk
Insurance
Risk
Market
Risk
Liquidity
Risk
Operational
Risk
Losses from failure
of counterparties
to pay their debts
to CBA
Unplanned losses
from events that
we provide
insurance for
Losses from
unexpected
changes in market
rates and prices
Not being able
to meet fnancial
obligations as they
fall due
Losses from
failure of internal
processes, systems
or people
Compliance
Fines or
sanctions from
non-compliance
with laws and
regulations
Managed through
assessments
of counterparty
quality, obtaining
collateral and
by diversifying
portfolios via
our strategy and
concentration
limits.
Managed through
underwriting
standards and
limits, claims
controls,
catastrophe
modelling and
reinsurance to limit
large loss
exposure.
Managed through
conservative
market risk limits,
daily monitoring
of market risk
exposures, hedging
strategies, stress
testing and regular
tests of Value at
Risk models.
Managed through
a diverse and
stable pool of
funding sources,
maintaining
suffcient liquidity
buffers, conducting
regular stress tests
and daily monitoring
of liquidity ratios.
Our Operational
Risk Management
Framework applies
a range of tools
and techniques to
identify and assess
risks, design and
monitor controls and
report and manage
issues.
Compliance and
conduct controls
are embedded
in business
processes,
routinely monitored
and supported
by mandatory
compliance training
for all staff.
Financial Risks
Non-Financial Risks
Business Risks
(may include impacts across one or more fnancial or non fnancial risk types)
Macroeconomic
Competition
Technology
Regulatory
Political
Customer
preferences
Climate and
environment
Societal
Further details on each of the material risks, and how the Group manages them are outlined in this note.
G
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v
e
r
n
a
n
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e
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r
t
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e
s
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s
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200 Commonwealth Bank of Australia Annual Report 2019
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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) 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 and the
maximum level of risk that the institution must operate within.
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 beliefs, values and practices within the
organisation that determine how risks are identified, measured,
governed, and acted upon. A strong risk culture guides our actions
in a resilient and flexible way when we need to react and make
sound judgements in new and unfamiliar circumstances. The
organisation’s culture influences employee behaviours and has the
potential to lead to poor conduct. The Board’s RAS in relation to
conduct requires business practices that are fair to our customers,
protects the fair and efficient operation of the market and engender
confidence in our products and services. The Group’s risk culture
emphasises doing what is right, accountability, service, excellence
and getting things done the right way. Annually the CBA Board forms
a view regarding the effectiveness of the Group’s risk culture in
keeping risk taking within appetite. Action plans are initiated and
monitored to drive positive risk culture changes in areas of need.
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, shareholders,
investors, debt holders, market analysts, 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
mitigated by managing our material risks well, living by our Code of
Conduct and actively focusing on transparency in business
decisions and engagement with our customers. In addition the
Group has a corporate responsibility plan focused on driving positive
change through education, innovation and good business practice.
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. 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 risk and the adequacy and effectiveness of the Group’s risk
management and internal controls systems;
Forms a view on the independence of the risk function by
meeting with the Group Chief Risk Officer (CRO) at the will of
the Committee or the CRO.
The Group operates a 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, approval or
acceptance of risk and advice. 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 non-financial 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 but regulatory
relationships, strategic risk and reputational matters, capital and
liquidity risk are reported directly. Controls reporting is provided to
the Audit Committee. The Chairs of the Board Risk and Audit
Committees report to the Board post Committee meetings.
Risk management infrastructure
The Framework is supported by key infrastructure systems and
processes for the management of the Group’s material risk types.
The key risk management systems and processes in place include:
Established risk identification and assessment processes;
Risk controls and mitigation plans;
A Management Information System to measure and aggregate
risks across the Group;
Risk models and tools;
A Risk-Adjusted-Performance Measurement (RAPM) process
that is a means of assessing the performance of a business after
adjustment for its capital consumption and is used as a basis for
executive incentives; and
An Internal Capital Adequacy Assessment Process (ICAAP)
used in combination with other 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.
Material risk types
Risk Type
Description
Governing Policies and Key
Management Committees
Credit Risk
Market Risk
(including Equity
Risk)
Liquidity and
Funding Risk
to
meet
obligations
Credit risk is the potential for loss
arising from the failure of a
counterparty
their
to
the
contractual
Group. At a portfolio level, credit
risk includes concentration
risk
from interdependencies
arising
between
and
concentrations of exposures to
geographical regions and industry
sectors.
customers,
Governing Policies:
Group Credit Risk Principles,
Framework and Governance
Group and Business Unit
Credit Risk Policies
Key Management Committee:
Executive Risk Committee
Loan Loss Provisioning
Committee
The Group Market Risk Policy
Market risk is the risk that market Governing Policies:
rates and prices will change and
that this may have an adverse effect
on the profitability and/or net worth Key Management Committee:
includes
of
the Group. This
foreign
changes in interest rates,
exchange
and
equity
commodity prices, credit spreads,
and the resale value of operating
leased assets at maturity (lease
residual value risk).
rates,
Asset and Liability Committee
Liquidity risk is the combined risks Governing Policies:
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).
Group Liquidity Risk
Management Policy
Key Management Committee:
Asset and Liability Committee
Operational Risk
Operational risk is the risk of loss
resulting from inadequate or failed
internal processes, people and
systems or from external events.
Governing Policies:
Operational Risk
Management Framework
(ORMF)
Operational Risk Policies and
Standards
Compliance Risk
Key Management Committee:
Executive Leadership Team
Non- Financial Risk
Committee.
loss,
Compliance risk is the risk of Governing Policies:
sanctions,
or
financial
reputational damage we may suffer
as a result of the Group’s failure to
regulations,
comply with
laws,
regulatory
rules,
policy, and codes of
conduct
applicable to its business activities
risk
(not
including
societal
and
failures)
expectations.
Group Compliance
Management Framework
(CMF)
Group and Business Unit
Compliance Policies
Key Management Committee:
Executive Leadership Team
Non- Financial Risk
Committee.
statements of
operational
includes
Financial crime represents a sub-
component of Compliance Risk and
covers risks including Anti Money
Terrorism
Laundering, Counter
Financing,
and
Anti-Bribery
Corruption, and Sanctions.
Key Limits, Standards and Measurement
Approaches
The following credit concentration frameworks set
credit portfolio concentration limits:
Large Credit Exposure Policy;
Country Risk Exposure Policy; and
Industry Sector Concentration Policy.
Credit risk indicators with associated intervention
levels 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.
The Group Market Risk Policy sets limits and
standards with respect to the following:
Traded Market Risk;
Interest Rate 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
Earnings at Risk;
Aggregate Residual Value Risk Margin;
Aggregate Portfolio Limit; and
Value at Risk.
Interest
The Group Liquidity Policy sets limits and
standards with respect to the following:
The Liquidity Coverage Ratio, which sets
minimum levels for liquid assets;
The Net Stable Funding Ratio, which
encourages stable funding of core assets;
Market
and
scenarios; and
Limits that set tolerances for the sources
and tenor of funding.
idiosyncratic
stress
test
The measurement of liquidity risk uses scenario
analysis, covering both adverse and ordinary
operating circumstances.
A range of Operational Risk indicators are
included in the Group Risk Appetite Statement
(RAS).
The measurement of operational risk capital is
based on an APRA accredited Advanced
Measurement Approach. The approach combines
loss experience and
internal and external
business judgements captured through Scenario
Analysis.
The CMF sets the standards on how the Group
identifies, assesses, manages, monitors and
reports on Compliance management.
The CMF is supported by a number of key policies
which are set out in the Group Risk Management
Approach (RMA).
Compliance statements and indicators are
included in the Group Risk Appetite Statement
(RAS).
202 Commonwealth Bank of Australia Annual Report 2019
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Material risk types (continued)
Risk Type
Description
Insurance Risk
Strategic Risk
Insurance risk is the risk of loss due
to the potential for events the Group
has insured against occurring more
frequently or with greater severity
than anticipated.
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.
Strategic Risk is the risk of material
stakeholder value destruction or
less than planned value creation
due to changes in the Group’s
external and internal operating
environments (including
macroeconomic conditions,
competitive forces, technology,
regulatory, political and social
trends, customer preference and
the environment).
Governing Policies and Key
Management Committees
Governing Policies:
Product Management Policy
Underwriting Policy
Claims Management Policy
Reinsurance Management
Policy
Key Management Committee:
of
Executive Committees
insurance writing businesses
Governing Policies:
Group Strategic Risk
Management Policy
Key Management Committee:
Executive Leadership Team
Key Limits, Standards and Measurement
Approaches
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;
Controls to ensure payment of valid claims
without undue delay;
Regular review of insurance experience (as
loss ratios, new business volumes and
lapse rates), so that product design, policy
liabilities and pricing remains sound; 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.
The Group assesses, monitors and responds to
Strategic Risk throughout its processes for:
strategy development, approval and review;
identifying and monitoring changes and
potential changes to the operating
environment; and
monitoring execution progress of strategies.
In developing the strategy, the following is
considered:
impact of strategy on the Group’s risk profile
and measures of risk appetite;
recent execution progress; and
assumptions around the operating
environment.
Climate Change is an important component of
strategic risk. As for all other strategic risks, the
potential adverse impacts of climate change
manifest, and are
therefore measured and
managed, as an outcome in the Group’s other
material risks.
In order to understand these
potential
impacts, and 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 on our business and
the implications for strategic and tactical
portfolio decisions; and
Have developed policy frameworks which
consider Environmental,
and
Governance
including
climate change impacts in assessing our
relationships with customers and suppliers.
issues,
(ESG)
Social
In addition, Corporate Responsibility programs:
Outline our objectives for safeguarding the
environment, while supporting economic
growth and development; and
Provide guidelines in monitoring and
reducing our own greenhouse gas
emissions and energy use.
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
financial obligations for repayment, acceptable forms of collateral
and security and the frequency of credit reviews.
The Group’s credit policies and frameworks include concentration
limits, which are designed to achieve portfolio outcomes that are
the Group’s risk appetite and risk/return
consistent with
expectations.
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, and personal overdrafts. It also covers
most non-retail lending where the aggregated credit exposure to
a group of related obligors is less than $1 million.
Auto-decisioning is used to approve credit applications for eligible
counterparties in this segment. Auto-decisioning uses a scorecard
approach based on a combination of factors, which may include
the Group’s historical experience on similar applications,
information from a credit reference bureau, the Group’s existing
knowledge of a counterparty’s 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,
such as 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
Arrears Management or Financial Assistance Team.
(ii) Risk-rated segment
This segment comprises non-retail 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 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
“Troublesome or Impaired Assets (TIAs)” – these credit
facilities are not eligible for new or increased exposure, unless
it facilitates rehabilitation to “pass grade” or protects or
improves the Group’s position by maximising recovery
prospects. Where a counterparty is in default but no loss is
expected based on an assessment of the security position
and other factors, the facility may be classed as troublesome
but not impaired. Where a loss is expected, a facility is
classified as impaired. Restructured facilities, where the
original contractual arrangements have been modified outside
commercial terms to provide concessions for the customer’s
financial difficulties, are classified as impaired.
Default is to be recorded 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.
(i) Expected loss
Expected Loss (EL) is the product of:
PD;
Exposure at Default (EAD); and
LGD.
The PD, expressed as a percentage, is the estimate of the
probability that a client will default within the next 12 months.
204 Commonwealth Bank of Australia Annual Report 2019
205
Derivative assets (continued)
The fair value of collateral held and the potential effect of offset
obtained by applying master netting agreements are disclosed in
Note 9.7.
Due from controlled entities
Collateral is not generally taken on these intergroup balances.
Credit commitments and contingent liabilities
The Group applies fundamentally the same risk management
policies for off Balance Sheet risks as it does for its on Balance
Sheet risks. Collateral may be sought depending on the strength
of the counterparty and the nature of the transaction. Of the
Group’s
off Balance Sheet exposures, $103,713 million
(2018: $100,110 million) are secured.
Loans, bills discounted and other receivables
The principal collateral types for loans and receivable balances
are:
Mortgages over residential and commercial real estate; and
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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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
rate of conversion from undrawn
represents the potential
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
it is the actual amount
balance only. For defaulted facilities,
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
for default by a
LGD. Considerations include the potential
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.
Climate related risk
Climate risk is a risk for the Group. The impacts of climate change
have the potential to affect our customers’ ability to service and
repay their loans, and the value of collateral the Group holds to
secure loans. These impacts include long-term changes in
climatic conditions, extreme weather events, and the action taken
by governments, regulators or society more generally to transition
to a low carbon economy.
The Group is a major provider of non-retail loans. A key step in
credit risk due diligence for non-retail lending is the assessment
of potential transactions for environmental, social and governance
(ESG)
risks, including climate risk, through our ESG Risk
Assessment Tool. All Institutional Banking and Markets loans, as
well as large loans in other business units, are evaluated through
the Group’s compulsory ESG risk assessment process.
The risk of climate change is assessed at origination and during
the annual review process. Exposures with medium or high risk
profile are subject to additional due diligence and heightened
consideration and assessment in the credit process. As at 30 June
2019, there is considered to be no material risk of loss due to
climate-related risk in our client exposures.
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.
that may be taken, and the
The general nature of collateral
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 $14,527
million (2018: $21,148 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 Investment securities at fair value through OCI
These assets are carried at fair value, which accounts for the
credit risk. Investment securities at amortised cost are measured
at amortised cost and presented net of provisions for impairment.
Collateral is not generally sought from the issuer or counterparty
but collateral may be implicit in the terms of the instrument (such
as an 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 5.3.
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
institutions counterparties, but less frequently for
for financial
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.
206 Commonwealth Bank of Australia Annual Report 2019
207
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Maximum exposure to credit risk by industry and asset class before collateral held or other credit enhancements
Sovereign
$M
Agri-
culture
$M
Bank and
Other
Financial
$M
Home
Loans
$M
Constr-
uction
$M
Other
Personal
$M
Asset
Financ-
ing
$M
Other
Comm and
Indust.
$M
Group
At 30 June 2019
Other
$M
Total
$M
Australia
Credit risk exposures relating to on Balance Sheet assets:
Cash and liquid assets
Receivables due from other
financial institutions
Assets at fair value through
Income Statement:
Trading
Other
Derivative assets
Investment securities:
At amortised cost
At fair value through Other
Comprehensive Income
Loans, bills discounted and
other receivables (1)
Bank acceptances
Other assets (2)
Assets held for sale
Total on Balance Sheet
Australia
4,575
-
21,354
81
1,414
9
43,540
-
-
-
-
11,930
3,037
941
434
64
18,550
-
-
7,341
16,893
-
-
-
-
-
-
-
-
-
-
-
4
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
9,308
414
1,150
-
67
16,762
9,291
8,675
467,361
3,238
21,508
7,947
118,207
-
-
-
242
-
-
-
-
-
488
1,423
3
3
-
-
5,496
5,633
-
-
-
2
-
-
-
10
-
-
-
-
27
230
3,943
-
14,175
4,211
16,505
3,037
31,603
1,171
21,182
7,350
60,500
652,989
32
20,402
15,210
89,646
9,361
78,930
467,361
3,244
21,518
7,947
133,346
18,628
829,981
Maximum exposure to credit risk by industry and asset class before collateral held or other credit enhancements
(continued)
Group
At 30 June 2018
Sovereign
$M
Agri-
culture
$M
Bank and
Other
Financial
$M
Home
Loans
$M
Constr-
uction
$M
Other
Personal
$M
Asset
Financ-
ing
$M
Other
Comm and
Indust.
$M
Other
$M
Total
$M
Australia
Credit risk exposures relating to on Balance Sheet assets:
Cash and liquid assets
Receivables due from other
financial institutions
Assets at fair value through
Income Statement:
Trading
Other
Derivative assets
Available-for-sale
investments
Loans, bills discounted and
other receivables (1)
Bank acceptances
Other assets (2)
Assets held for sale
Total on Balance Sheet
Australia
4,461
-
15,917
49
1,371
39,906
-
-
-
-
45
-
10,974
2,644
2,780
209
20,865
26,525
-
-
-
-
-
-
-
-
-
-
4
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10,223
-
1,736
298
16,823
8,998
12,951
451,367
3,028
23,658
8,581
118,681
-
-
-
-
-
-
-
-
1,030
1,521
2
4
-
-
4,272
4,585
-
-
-
2
1
-
-
7
-
-
-
-
35
237
4,172
-
15,100
3,136
15,435
2,644
28,920
258
24,021
66,729
644,087
39
20,651
13,414
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
Loan commitments
Other commitments
20
1,975
11
36
605
58
1,584
7,675
1,362
-
67,874
-
Total Australia
90,345
11,367
89,551
535,235
324
2,331
1,390
7,289
-
21,207
214
42,939
-
-
12
3,195
34,156
2,963
-
-
-
7,959
173,660
18,628
Overseas
Credit risk exposures relating to on Balance Sheet assets:
Cash and liquid assets
9,952
-
Receivables due from other
financial institutions
Assets at fair value through
Income Statement:
Trading
Insurance
Other
Derivative assets
Investment securities:
At amortised cost
At fair value through Other
Comprehensive Income
16,092
-
-
602
-
-
169
5
-
-
-
12
-
-
2,930
5,056
251
-
-
2,110
-
2,320
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
50
-
-
1,742
-
-
Loans, bills discounted and
other receivables (1)
Bank acceptances
Other assets (2)
Assets held for sale
Total on Balance Sheet
Overseas
1,436
10,467
6,637
55,581
701
1,924
416
30,830
-
30
683
-
-
-
-
338
469
-
-
-
-
-
-
-
4
-
-
8
-
-
49
23
28,969
10,479
20,111
55,581
701
1,928
424
32,694
Credit risk exposures relating to off Balance Sheet assets:
Guarantees
10
-
Loan commitments
Other commitments
Total Overseas
Total gross credit risk
419
-
29,388
119,733
834
-
11,323
22,690
949
5,034
473
-
7,875
-
26,567
63,456
54
222
3
980
116,118
598,691
8,269
-
2,098
-
4,026
46,965
-
48
-
472
8,431
334
9,849
612
-
-
-
-
-
-
-
-
-
-
1,308
166
1,474
-
-
-
5,159
135,823
6,010
976,973
12,882
5,056
903
-
-
4,033
5
18,412
107,992
-
1,737
1,341
152,361
1,347
26,379
1,088
43,489
217,149
1,474
20,102
181,175
1,158,148
(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.
Credit risk exposures relating to off Balance Sheet assets:
Guarantees
Loan commitments
Other commitments
44
907
54
82,083
18
1,750
22
10,839
Total Australia
Overseas
Credit risk exposures relating to on Balance Sheet assets:
Cash and liquid assets
16,688
-
991
7,837
736
95,369
6
66,483
1
517,857
307
2,439
1,357
7,138
-
21,783
-
45,448
-
-
10
8,591
3,059
34,995
3,021
176,457
-
-
-
18,236
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 (1)
Bank acceptances
Other assets (2)
Assets held for sale
Total on Balance Sheet
Overseas
-
-
2,161
358
-
348
12,515
-
-
-
16
-
4,294
6,578
1,085
14
-
4,586
2,995
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
88
-
-
3,162
1
1,571
9,930
7,075
50,298
638
1,844
457
32,129
-
30
-
-
-
-
-
798
1,788
-
2
-
-
-
-
-
3
-
-
10
-
340
43
-
33,671
9,946
29,213
50,300
638
1,847
467
35,763
Credit risk exposures relating to off Balance Sheet assets:
Guarantees
Loan commitments
Other commitments
1
349
9
34,030
9
1,007
5
10,967
Total Overseas
1,486
4,266
607
35,572
-
7,268
-
57,568
40
230
1
909
-
1,977
-
3,824
-
-
-
467
304
10,799
1,018
47,884
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.
4,425
136,194
5,201
962,018
20,982
6,578
3,334
372
-
8,112
15,511
103,942
340
2,220
2,240
163,631
1,840
25,896
1,640
193,007
-
-
-
-
-
-
-
-
-
1,334
452
1,786
-
-
-
1,786
208 Commonwealth Bank of Australia Annual Report 2019
209
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Large exposures
Distribution of financial instruments by credit quality
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):
5% to less than 10% of the Group's capital resources
10% to less than 15% of the Group's capital resources
30 Jun 19
Number
-
-
Group
30 Jun 18
Number
-
-
The Group has a high quality, well diversified credit portfolio, with 61% 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 exposures are assessed, at
least at each Balance Sheet date, to determine whether the financial asset is impaired.
Distribution of financial instruments by credit quality
The tables on pages 211 to 213 provide information about the gross carrying amount of the Group’s and the Bank’s loans, bills discounted
and other receivables by credit rating grade and ECL stage as at 30 June 2019.
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. Specifically, Investment grade corresponds to S&P
ratings AAA to BBB-, Pass grade corresponds to S&P ratings BB+ to B-, Weak grade corresponds to S&P ratings below CCC. For Stage 3,
weak grade includes exposures in default.
Loans, bills and discounted and other receivables
Credit grade
Investment
Pass
Weak
Gross carrying amount
Undrawn credit commitments
Credit grade
Investment
Pass
Weak
Total undrawn credit commitments
Total credit exposures
Impairment provision
ECL coverage %
Financial guarantees and other off Balance Sheet
instruments
Credit grade
Investment
Pass
Weak
Total financial guarantees and other off Balance Sheet
instruments
Impairment provision
ECL coverage %
Total Credit Exposures
Credit grade
Investment
Pass
Weak
Total credit exposures (1)
Total impairment provision
ECL coverage %
Stage 2
Stage 1
Stage 3
Collectively Collectively Collectively
Assessed
Assessed
$M
$M
Assessed
$M
380,159
231,412
9,159
30,212
87,280
15,024
620,730
132,516
78,502
35,709
748
114,959
735,689
897
0. 1
8,866
3,358
45
12,269
8
0. 1
14,470
11,381
425
26,276
158,792
2,444
1. 5
1,553
3,689
236
5,478
75
1. 4
467,527
270,479
46,235
102,350
9,952
15,685
747,958
164,270
905
0. 1
2,519
1. 5
-
-
4,500
4,500
-
-
87
87
4,587
479
10. 4
-
-
19
19
1
5. 3
-
-
4,606
4,606
480
10. 4
Group
30 Jun 19
Total
$M
410,371
318,692
30,793
759,856
92,972
47,090
1,348
141,410
901,266
4,715
0. 5
10,419
7,047
320
17,786
84
0. 5
513,762
372,829
32,461
919,052
4,799
0. 5
Stage 3
Individually
Assessed
$M
-
-
2,110
2,110
-
-
88
88
2,198
895
40. 7
-
-
20
20
-
-
-
-
2,218
2,218
895
40. 4
(1)
The assessment of significant increase in credit risk includes the impact of forward looking adjustments for emerging risk at an industry, geographical location or a
particular portfolio segment level, which are calculated by stressing an exposure’s internal credit rating grade at the reporting date. This accounts for approximately
65% of Stage 2 credit exposures for the Group as at 30 June 2019.
210 Commonwealth Bank of Australia Annual Report 2019
211
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Distribution of Financial Instruments by Credit Quality (continued)
Distribution of financial instruments by credit quality (continued)
Loans, bills and discounted and other receivables
Credit grade
Investment
Pass
Weak
Gross carrying amount
Undrawn credit commitments
Credit grade
Investment
Pass
Weak
Total undrawn credit commitments
Total credit exposures
Impairment provision
ECL coverage %
Financial guarantees and other off Balance Sheet
instruments
Credit grade
Investment
Pass
Weak
Total financial guarantees and other off Balance Sheet
instruments
Impairment provision
ECL coverage %
Total Credit Exposures
Credit grade
Investment
Pass
Weak
Total credit exposures (1)
Total impairment provision
ECL coverage %
Stage 2
Stage 1
Stage 3
Collectively Collectively Collectively
Assessed
Assessed
$M
$M
Assessed
$M
353,676
182,819
8,681
28,113
72,105
13,529
545,176
113,747
75,156
28,875
728
14,395
10,180
383
104,759
24,958
649,935
138,705
793
0. 1
2,220
1. 6
8,762
3,064
45
11,871
8
0. 1
1,553
3,511
230
5,294
73
1. 4
437,594
214,758
9,454
44,061
85,796
14,142
661,806
143,999
801
0. 1
2,293
1. 6
-
-
4,081
4,081
-
-
70
70
4,151
441
10. 6
-
-
18
18
2
11. 1
-
-
4,169
4,169
443
10. 6
Bank
30 Jun 19
Total
$M
381,789
254,924
28,019
664,732
89,551
39,055
1,246
129,852
794,584
4,255
0. 5
10,315
6,575
313
17,203
83
0. 5
481,655
300,554
29,578
811,787
4,338
0. 5
Stage 3
Individually
Assessed
$M
-
-
1,728
1,728
-
-
65
65
1,793
801
44. 7
-
-
20
20
-
-
-
-
1,813
1,813
801
44. 2
The tables below present the Group’s and the Bank’s total impairment provisions on lending assets by ECL stage as at 30 June 2019.
Portfolio (1)
Retail
Secured lending
Unsecured lending
Total retail
Non-retail
Corporate and business lending, bank and
sovereign entities (2)
Total (3)
Impairment provisions, $M
Stage 1
12 months ECL
Collectively
assessed
Stage 2
Lifetime ECL
Collectively
assessed
Stage 3
Lifetime ECL
Collectively
assessed
Stage 3
Lifetime ECL
Individually
assessed
266
474
740
168
908
393
934
1,327
1,192
2,519
132
217
349
131
480
271
3
274
621
895
30 Jun 19
Total
1,062
1,628
2,690
2,112
4,802
(1)
(2)
(3)
Exposures subject to impairment provisions include drawn balances, undrawn credit commitments, financial guarantees and debt securities classified at fair value
through OCI.
Stage 1 provision includes $3 million ECL in relation to investment securities at fair value through OCI.
The assessment of significant increase in credit risk includes the impact of forward looking adjustments for emerging risk at an industry, geographical location or a
particular portfolio segment level, which are calculated by stressing an exposure’s internal credit rating grade at the reporting date. This accounts for approximately
65% of Stage 2 credit exposures for the Group as at 30 June 2019.
Portfolio (1) (2)
Retail
Secured lending
Unsecured lending
Total retail
Non-retail
Corporate and business lending, bank and
sovereign entities (3)
Total (4)
Impairment provisions, $M
Stage 1
12 months ECL
Collectively
assessed
Stage 2
Lifetime ECL
Collectively
assessed
Stage 3
Lifetime ECL
Collectively
assessed
Stage 3
Lifetime ECL
Individually
assessed
234
434
668
135
803
353
906
1,259
1,034
2,293
122
200
322
121
443
261
3
264
537
801
Bank
30 Jun 19
Total
970
1,543
2,513
1,827
4,340
(1)
(2)
(3)
(4)
Exposures subject to impairment provisions include drawn balances, undrawn credit commitments, financial guarantees and debt securities classified at fair value
through OCI.
Impairment provisions exclude $21 million recognised in relation to the Bank’s loans to controlled entities.
Stage 1 provision includes $2 million ECL in relation to investment securities at fair value through OCI.
The assessment of significant increase in credit risk includes the impact of forward looking adjustments for emerging risk at an industry, geographical location or a
particular portfolio segment level, which are calculated by stressing an exposure’s internal credit rating grade at the reporting date. This accounts for approximately
65% of Stage 2 credit exposures for the Bank as at 30 June 2019.
(1)
The assessment of significant increase in credit risk includes the impact of forward looking adjustments for emerging risk at an industry, geographical location or a
particular portfolio segment level, which are calculated by stressing an exposure’s internal credit rating grade at the reporting date. This accounts for approximately 65%
of Stage 2 credit exposures for the Bank as at 30 June 2019.
212 Commonwealth Bank of Australia Annual Report 2019
213
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Notes to the
financial
statements
Prior year comparative credit risk disclosures
The credit risk disclosures on pages 214 to 219 were included in the Financial Report for the year ended 30 June 2018 and do not reflect the
adoption of AASB 9 on 1 July 2018. These tables are not directly comparable to the credit risk information as at 30 June 2019 provided under
AASB 9 on pages 211 to 213 above.
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.
Neither Past Past due
Due nor
but not
Im paired Im paired
$M
$M
Im paired
Assets
$M
36,417
9,222
32,254
372
258
32,081
82,240
-
-
-
-
-
-
-
-
-
-
-
-
52
-
Gross
$M
36,417
9,222
32,254
372
258
32,133
82,240
Total Provisions
for Im pairm ent
Losses
$M
-
-
-
-
-
-
-
Group
30 Jun 18
Net
$M
36,417
9,222
32,254
372
258
32,133
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
1,110,097
15,223
3,179
1,128,499
(3,633)
1,124,866
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
Prior year comparative credit risk disclosures (continued)
Distribution of financial instruments by credit quality (continued)
Due nor
Neither Past Past Due
but not
Im paired Im paired
$M
$M
33,581
8,376
29,993
-
-
30,834
77,731
-
-
-
-
-
-
-
Im paired
Assets
$M
-
-
-
-
-
Gross
$M
33,581
8,376
29,993
-
-
51
-
30,885
77,731
Total Provisions
for Im pairm ent
Losses
$M
-
-
-
-
-
-
-
Bank
30 Jun 18
Net
$M
33,581
8,376
29,993
-
-
30,885
77,731
620,641
13,066
2,130
635,837
(3,171)
632,666
24,681
379
118,252
159,521
23
326
25,030
(90)
24,940
-
-
-
-
-
379
118,252
-
-
379
118,252
85
159,606
(28)
159,578
Cash and liquid assets
Receivables due from other financial
institutions
Assets at fair value through Income
Statement:
Trading
Insurance
Other
Derivative assets
Available-for-sale investments
Loans, bills discounted and other
receivables:
Australia
Overseas
Bank acceptances
Shares in and loans to controlled
entities
Credit related commitments
Total
1,103,989
13,089
2,592
1,119,670
(3,289)
1,116,381
214 Commonwealth Bank of Australia Annual Report 2019
215
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Notes to the
financial
statements
Prior year comparative credit risk disclosures (continued)
Prior year comparative credit risk disclosures (continued)
Credit quality of loans, bills discounted and other receivables which were neither past due nor impaired
Credit quality of loans, bills discounted and other receivables which were neither past due nor impaired (continued)
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
(1) For New Zealand Housing Loans, PDs reflect Reserve Bank of New Zealand requirements resulting in higher PDs on average and lower grading.
Credit grading
Australia
Investment
Pass
Weak
Total Australia
Overseas
Investment
Pass
Weak
Total overseas
Home
Loans
$M
Other
Asset
Personal Financing
$M
$M
Bank
30 Jun 18
Total
$M
Other
Commercial
and Industrial
$M
307,974
4,603
641
70,727
383,945
117,245
13,847
7,386
83,066
221,544
7,539
4,039
243
3,331
15,152
432,758
22,489
8,270
157,124
620,641
65
295
-
360
-
2
-
2
1
-
-
1
18,711
18,777
5,544
5,841
63
63
24,318
24,681
Total loans which were neither past due nor
impaired
433,118
22,491
8,271
181,442
645,322
216 Commonwealth Bank of Australia Annual Report 2019
217
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Notes to the
financial
statements
Prior year comparative credit risk disclosures (continued)
Prior year comparative credit risk disclosures (continued)
Other financial assets which were neither past due nor impaired
Age analysis of loans, bills discounted and other receivables that are past due but not impaired
The majority of all other financial assets of the Group and the Bank that were neither past due nor impaired as at 30 June 2018 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
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.
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
Home
Loans
$M
Other
Personal (1)
$M
Asset
Financing
$M
Other
Commercial
and Industrial
$M
4,701
1,769
1,005
1,409
1,291
550
180
121
-
2
146
38
11
2
-
1,170
199
93
140
239
Bank
30 Jun 18
Total
$M
6,567
2,186
1,230
1,551
1,532
10,175
853
197
1,841
13,066
20
2
-
-
-
22
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1
1
20
2
-
-
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.
Impaired Assets by Classification
Assets in credit risk rated portfolios and retail managed portfolios are assessed for objective evidence that the financial asset is impaired.
Impaired assets are split into the following categories:
Non-Performing Facilities;
Restructured Facilities; and
Unsecured retail managed facilities 90 days or more past due.
Non-performing facilities are facilities against which an individually assessed provision for impairment has been raised and facilities where
loss of principal or interest is anticipated. 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.
218 Commonwealth Bank of Australia Annual Report 2019
219
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Impaired assets by classification (continued)
Impaired assets by size
Impaired assets by size
Less than $1 million
$1 million to $10 million
Greater than $10 million
Total (1) (2)
Movement in impaired assets
Movement in gross impaired assets
Gross impaired assets - opening balance
New and increased
Balances written off
Returned to performing or repaid
Portfolio managed - new/increased/return to
performing/repaid
Gross impaired assets - closing balance (1) (2)
Australia
30 Jun 19
$M
Overseas
30 Jun 19
$M
Total
30 Jun 19
$M
Australia
30 Jun 18
$M
Overseas
30 Jun 18
$M
1,698
628
564
2,890
266
147
319
732
1,964
775
883
3,622
1,418
569
242
2,229
139
197
614
950
30 Jun 19
$M
30 Jun 18
$M
30 Jun 17
$M
30 Jun 16
$M
3,179
2,289
(1,245)
(1,328)
727
3,622
3,187
2,136
(1,196)
(1,666)
3,116
2,164
(1,225)
(1,637)
2,855
2,370
(1,328)
(1,460)
718
769
679
651
3,179
3,187
3,116
2,855
Group
Total
30 Jun 18
$M
1,557
766
856
3,179
Group
30 Jun 15
$M
3,367
2,095
(1,355)
(1,903)
(1)
(2)
As at 30 June 2019, impaired assets include those assets in Stage 3 that are considered impaired, as well as $139 million of restructured assets in Stage 2. Stage 3
assets include impaired assets and those that are defaulted but not impaired as they are well secured.
Includes $3,454 million of loans and advances and $168 million of other financial assets (30 June 2018: $3,037 million of loans and advances and $142 million of other
financial assets).
Australia
Non-Performing assets:
Gross balances
Less provisions for impairment
Net non-performing assets
Restructured assets:
Gross balances
Less provisions for impairment
Net restructured assets
Unsecured retail products 90 days or more past due:
Gross balances
Less provisions for impairment
Net unsecured retail products 90 days or more past due
30 Jun 19
$M
30 Jun 18
$M
30 Jun 17
$M
30 Jun 16
$M
Group
30 Jun 15
$M
2,217
(826)
1,391
428
(13)
415
245
(199)
46
1,711
(694)
1,017
264
(4)
260
254
(161)
93
1,962
(817)
1,145
174
-
174
251
(157)
94
2,002
(807)
1,195
221
-
221
252
(169)
83
1,940
(775)
1,165
144
-
144
251
(130)
121
Net Australia impaired assets
1,852
1,370
1,413
1,499
1,430
Overseas
Non-Performing assets:
Gross balances
Less provisions for impairment
Net non-performing assets
Restructured assets:
Gross balances
Less provisions for impairment
Net restructured assets
Unsecured retail products 90 days or more past due:
Gross balances
Less provisions for impairment
Net unsecured retail products 90 days or more past due
518
(126)
392
196
(6)
190
18
(17)
1
695
(176)
519
242
(20)
222
13
(13)
-
686
(163)
523
101
-
101
13
(12)
1
560
(138)
422
67
-
67
14
(13)
1
454
(112)
342
54
-
54
12
(9)
3
Net Overseas impaired assets
Total net impaired assets
583
2,435
741
2,111
625
2,038
490
1,989
399
1,829
220 Commonwealth Bank of Australia Annual Report 2019
221
Total loans - Australia
652,989
2,778
(1,038)
1,740
1,168
Total loans - Australia
644,087
2,151
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Notes to the
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Impaired assets by industry and status
Impaired assets by industry and status (continued)
Gross
Impaired
Assets
$M
Total Provisions
for Impaired
Assets (1)
$M
Net
Impaired
Assets
$M
Write-offs (2)
$M
Net
Recoveries (2) Write-offs (2)
$M
$M
Group
30 Jun 19
Gross
Impaired
Assets
$M
Total Provisions
for Impaired
Assets (1)
$M
Net
Impaired
Assets
$M
Write-offs (2)
$M
Net
Recoveries (2) Write-offs (2)
$M
$M
Group
30 Jun 18
Industry
Loans - Australia
Sovereign
Agriculture
Bank and other financial
Home loans
Construction
Other personal
Asset financing
Other commercial and
industrial
Total
Balance
$M
16,762
9,291
8,675
-
114
6
467,361
1,596
3,238
21,508
7,947
118,207
82
276
78
626
-
(52)
(15)
(272)
(84)
(202)
(10)
(403)
-
62
(9)
1,324
(2)
74
68
223
-
59
1
134
44
787
17
126
Loans - Overseas
Sovereign
Agriculture
Bank and other financial
Home loans
Construction
Other personal
Asset financing
Other commercial and
industrial
Total loans - Overseas
Total loans
Other balances - Australia
Credit commitments
Derivatives
Total other balances -
Australia
Other balances - Overseas
Credit commitments
Derivatives
Total other balances -
Overseas
Total other balances
Total
1,436
10,467
6,637
55,581
701
1,924
416
30,830
107,992
760,981
146,992
21,182
168,174
28,814
4,033
32,847
201,021
962,002
-
298
10
204
1
16
2
145
676
-
(46)
-
(10)
-
(20)
-
(73)
(149)
-
252
10
194
1
(4)
2
72
527
-
2
5
2
2
70
-
152
233
3,454
(1,187)
2,267
1,401
111
1
112
9
47
56
168
3,622
-
-
-
-
-
-
-
(1,187)
111
1
112
9
47
56
168
2,435
-
-
-
-
-
-
-
-
-
-
(4)
(1)
(169)
(2)
(14)
(190)
-
-
-
(1)
-
(11)
-
(4)
(16)
(206)
-
-
-
-
-
-
-
-
59
1
130
43
618
15
112
978
-
2
5
1
2
59
-
148
217
1,195
-
-
-
-
-
-
-
Industry
Loans - Australia
Sovereign
Agriculture
Bank and other financial
Home loans
Construction
Other personal
Asset financing
Other commercial and
industrial
Loans - Overseas
Sovereign
Agriculture
Bank and other financial
Home loans
Construction
Other personal
Asset financing
Other commercial and
industrial
Total loans - Overseas
Total loans
Other balances - Australia
Credit commitments
Derivatives
Total other balances -
Australia
Other balances - Overseas
Credit commitments
Derivatives
Total other balances -
Overseas
Total other balances
Total
Balance
$M
16,823
8,998
12,951
-
94
7
451,367
1,256
3,028
23,658
8,581
118,681
16
289
63
426
1,571
9,930
7,075
50,298
638
1,844
457
32,129
103,942
748,029
145,820
24,021
169,841
29,376
8,112
37,488
207,329
955,358
-
365
9
89
1
11
4
407
886
3,037
75
3
78
15
49
64
142
3,179
-
(56)
(16)
(236)
(21)
(171)
(16)
(343)
(859)
-
(25)
-
(5)
(1)
(33)
-
(145)
(209)
-
38
(9)
1,020
(5)
118
47
83
-
28
3
126
13
764
23
179
1,292
1,136
-
340
9
84
-
(22)
4
262
677
-
3
5
2
1
65
-
207
283
(1,068)
1,969
1,419
-
-
-
-
-
-
-
(1,068)
75
3
78
15
49
64
142
2,111
-
-
-
-
-
-
-
-
-
(1)
(2)
-
(165)
(5)
(14)
(187)
-
-
-
(1)
(1)
(10)
-
(2)
(14)
(201)
-
-
-
-
-
-
-
-
28
2
124
13
599
18
165
949
-
3
5
1
-
55
-
205
269
1,218
-
-
-
-
-
-
-
1,401
(206)
1,195
Total
1,419
(201)
1,218
(1)
Includes $895 million of individually assessed provisions and $292 million of collective provisions. Provisions for impaired assets include $9 million for restructured assets
in Stage 2.
Includes $870 million of individually assessed provisions and $198 million of collective provisions.
(1)
(2) Write-off, recoveries and net write-offs are not recognised against credit commitments or derivatives as these exposures are closed out and converted to loans and
(2) Write-off, recoveries and net write-offs are not recognised against credit commitments or derivatives as these exposures are closed out and converted to loans and
receivables on impairment. Write-offs and recoveries take place subsequent to this conversion.
receivables on impairment. Write-offs and recoveries take place subsequent to this conversion.
222 Commonwealth Bank of Australia Annual Report 2019
223
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Collateral held against loans, bills discounted and other receivables
Collateral held against loans, bills discounted and other receivables (continued)
Personal lending
Personal lending (such as credit cards and personal loans) are predominantly unsecured, whilst margin lending is secured.
Asset finance
The Group leases assets to corporate and retail clients. When the title to the underlying assets is held by the Group as collateral, the balance
is deemed fully secured. In other instances, a client’s facilities may be secured by collateral valued at less than the carrying amount of the
credit exposure. These facilities are deemed partly secured or unsecured.
Other commercial and industrial lending
The Group’s main collateral types for other commercial and industrial lending consists of secured rights over specified assets of the borrower
in the form of: commercial property; land rights; cash (usually in the form of a charge over a deposit); guarantees by company Directors; a
charge over a company’s assets (including debtors, inventory and work in progress); or a charge over shares. In other instances, a client’s
facilities may be secured by collateral with value less than the carrying amount of the credit exposure. These facilities are deemed partly
secured or unsecured.
Maximum exposure ($M)
Collateral classification:
Secured (%)
Partially secured (%)
Unsecured (%)
Home
Loans
522,942
Other
Personal
23,432
Asset
Financing
8,363
Commercial
and Industrial
206,244
99. 1
0. 9
-
12. 2
-
87. 8
98. 7
1. 3
-
49. 0
15. 7
35. 3
Group
30 Jun 19
Total (1)
760,981
83. 4
4. 8
11. 8
(1)
As at 30 June 2019, total exposures in ECL Stage 3 were $6,610 million. 60% of these exposures were secured, 26% partially secured and 14% unsecured.
Maximum exposure ($M)
Collateral classification:
Secured (%)
Partially secured (%)
Unsecured (%)
Maximum exposure ($M)
Collateral classification:
Secured (%)
Partially secured (%)
Unsecured (%)
Home
Loans
501,665
Other
Personal
25,502
Asset
Financing
9,038
Commercial
and Industrial
211,824
99. 1
0. 9
-
12. 4
-
87. 6
99. 4
0. 6
-
44. 7
15. 3
40. 0
Home
Loans
460,031
Other
Personal
21,497
Asset
Financing
7,900
Commercial
and Industrial
176,306
99. 0
1. 0
-
13. 0
-
87. 0
98. 4
1. 6
-
46. 5
15. 2
38. 3
Group
30 Jun 18
Total
748,029
81. 2
4. 9
13. 9
Bank
30 Jun 19
Total (1)
665,734
82. 9
4. 6
12. 5
(1)
As at 30 June 2019, total exposures in ECL Stage 3 were $5,809 million. 65% of these exposures were secured, 20% partially secured and 15% unsecured.
Maximum exposure ($M)
Collateral classification:
Secured (%)
Partially secured (%)
Unsecured (%)
Home
Loans
444,583
Other
Personal
23,633
Asset
Financing
8,531
Commercial
and Industrial
184,120
99. 1
0. 9
-
13. 4
-
86. 6
99. 2
0. 8
-
40. 7
14. 7
44. 6
Bank
30 Jun 18
Total
660,867
79. 6
4. 8
15. 6
For the purposes of the collateral classification above, home loans are classified as secured unless they are impaired in which case they are
classified as partially secured. For other types of credit exposures, 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. In limited circumstances, collateral in the form of
cash or commercial property may be provided in addition to residential properties. 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.
224 Commonwealth Bank of Australia Annual Report 2019
225
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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. The VaR measure for the insurance business is a
forward-looking measure based on ten thousand simulations, which
are calibrated to current market conditions and past price
movements.
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.
Total Market Risk
VaR (1-day 97.5%
confidence)
Traded Market Risk
Non-Traded Interest Rate
Risk (2)
Non-Traded Equity
Risk (2)
Non-Traded Insurance
Market Risk (2)
Average As at Average As at
June
2018
$M
June
June
2019 (1) 2019
$M
June
2018 (1)
$M
$M
9. 9
9. 5
11. 1
13. 3
36. 7
36. 3
43. 1
37. 6
4. 9
5. 0
5. 3
4. 7
5. 1
5. 6
5. 4
5. 6
(1) Average VaR calculated for each 12 month period.
(2) The risk of these exposures has been represented in this table using a one
day holding period. In practice however, these ‘non-traded’ exposures are
managed to a longer holding period.
Traded market risk
Traded market risk is generated through the Group’s participation in
financial markets to service its customers. The Group trades and
distributes interest
rate, foreign exchange, debt, equity and
commodity products, and provides treasury, capital markets and risk
management services 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.
Traded Market Risk
VaR (1-day 97.5%
confidence)
Interest rate risk
Foreign exchange
risk
Equities risk
Commodities risk
Credit spread risk
Diversification
benefit
Total general
market risk
Undiversified risk
ASB Bank
Total
Average As at Average
June
June
2018 (1)
2019
$M
$M
June
2019 (1)
$M
7. 6
1. 9
0. 1
3. 1
1. 7
9. 0
3. 6
0. 1
3. 3
1. 3
8. 4
2. 2
0. 2
3. 2
2. 0
As at
June
2018
$M
12. 5
2. 7
0. 1
3. 6
1. 4
(6. 9)
(10. 0)
(7. 7)
(9. 4)
7. 5
2. 2
0. 2
9. 9
7. 3
2. 1
0. 1
9. 5
8. 3
10. 9
2. 5
0. 3
2. 3
0. 1
11. 1
13. 3
(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
changes in interest rates is measured on a monthly basis.
income over the next 12 months from
interest
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.
Non-Traded Market Risk (continued)
Interest rate risk in the banking book (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.
in
figures
the potential
The
unfavourable change to the Group’s net interest earnings during the
year based on a 100 basis point parallel rate shock.
table represent
following
the
Net Interest
Earnings at Risk
Average monthly exposure
High monthly exposure
Low monthly exposure
As at balance date
June
2019 (1)
$M
June
2018
$M
421. 9
229. 2
8. 0
23. 3
558. 0
311. 5
15. 5
44. 3
217. 8
120. 2
1. 1
4. 3
450. 3
231. 4
8. 3
10. 5
AUD
NZD (2)
AUD
NZD (2)
AUD
NZD (2)
AUD
NZD (2)
(1) Exposures over a 12 month period. NZD exposures are presented in NZD.
(2) 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
Non-traded equity risk
The Group retains Non-Traded equity risk primarily through
business activities in Wealth Management.
A 20-day, 97.5% confidence VaR is used to measure the economic
impact of adverse changes in value.
Non-Traded Equity VaR
(20 day 97.5% confidence)
VaR
As at
June
2019
$M
22. 4
As at
June
2018
$M
21. 2
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 2019.
Interest rate risk from the economic value perspective is based on a
20-day 97.5% VaR measure.
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 (1)
(20 day 97.5% confidence)
Shareholder funds (3)
Guarantees (to Policyholders) (4)
Average
June
2019 (2)
$M
1. 1
22. 8
Average
June
2018 (2)
$M
1. 1
23. 6
(1) On 21 September 2017, the Group announced the sale of 100% of its
Australian life insurance business (CommInsure Life) to AIA. CommInsure
Life is presented as a discontinued operation with assets and liabilities
reclassified as held for sale as at 30 June 2019 and 30 June 2018. For further
details, see Note 11.3.
(2) Average VaR calculated for each 12 month period.
(3) VaR in relation to the investment of shareholder funds.
(4) VaR in relation to product portfolios where the Group has guaranteed
liabilities to policyholders.
Measuring the change in the economic value of equity is an
assessment of the long-term impact to the earnings potential of the
Group present valued to the current date. The Group assesses the
potential change in its economic value of equity through the
application of the VaR methodology.
A 20-day 97.5% VaR measure is used to capture the net economic
value impact over the long-term or total life of all Balance Sheet
assets and liabilities to adverse changes in interest rates.
The impact of customer prepayments on the contractual cash flows
for fixed rate products is included in the calculation. Cash flows for
discretionary priced products are behaviourally adjusted and
repriced at the resultant profile.
The figures in the following table represent the net present value of
the expected change in the Group’s future earnings in all future
periods for the remaining term of all existing assets and liabilities.
Non-Traded Interest Rate VaR
(20 day 97.5% confidence) (2)
AUD Interest rate risk
NZD Interest rate risk (3)
Average Average
June
2018 (1)
$M
192. 9
June
2019 (1)
$M
164. 1
2. 2
3. 3
(1) Average VaR calculated for each 12 month period.
(2) VaR is only for entities that have material risk exposure.
(3) ASB data (expressed in NZD) is for the month-end date.
226 Commonwealth Bank of Australia Annual Report 2019
227
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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
is
APRA’s Liquidity Coverage Ratio (LCR) requirement
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 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
funding and liquidity metrics are also
internal
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;
in accordance with
Balance Sheet assets that cannot be liquidated quickly are
funded with stable deposits or term borrowings that meet
liquidity
minimum maturity requirements with appropriate
buffers;
Liquid assets are held in Australian dollar and foreign currency
denominated securities
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,
bonds, Australian
bank
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
term securities, supranational
Offshore branches and subsidiaries adhere to liquidity policies
and hold appropriate foreign currency liquid assets to meet
required obligations.
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.
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).
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.
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
Its wholesale international and domestic funding programs
which include its Australian dollar Negotiable Certificates of
Deposit; Australian dollar bank bills; Asian Transferable
Certificates of Deposit program; Australian, U.S. and Euro
Commercial Paper programs; 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 policies. This model
liquidity management model that implements
the agreed prudential
is
calibrated with a series of “stress” liquidity crisis scenarios,
incorporating both systemic
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;
idiosyncratic
and
Central bank repurchase agreement facilities including the
RBA’s 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.
228 Commonwealth Bank of Australia Annual Report 2019
229
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Maturity analysis of monetary liabilities
Maturity analysis of monetary liabilities (continued)
Amounts shown in the tables below are based on contractual undiscounted cash flows for the remaining contractual maturities.
Total monetary liabilities and off Balance Sheet items
766,711
149,436
100,595
57,207
13,052
1,087,001
Bank (3)
Maturity Period as at 30 June 2018
Monetary liabilities
Deposits and other public borrowings (1)
Payables due to other financial institutions
Liabilities at fair value through Income Statement
Derivative financial instruments:
Held for trading
Held for hedging purposes (net-settled)
Held for hedging purposes (gross-settled):
Outflows
Inflows
Bank acceptances
Insurance policy liabilities
Debt issues and loan capital
Managed funds units on issue
Other monetary liabilities
Liabilities held for sale
Total monetary liabilities
Guarantees (2)
Loan commitments (2)
Other commitments (2)
Total off Balance Sheet items
Group
Maturity Period as at 30 June 2019
0 to 3
Months
$M
524,555
19,486
4,590
17,925
59
2,391
(2,264)
32
-
17,913
-
5,657
561
590,905
6,506
162,202
7,098
175,806
3 to 12
Months
$M
105,532
3,902
2,299
-
293
14,346
(13,642)
-
-
36,163
-
374
169
149,436
-
-
-
-
1 to 5
Years
$M
6,903
41
621
-
829
35,918
(34,332)
-
-
89,164
-
495
956
100,595
-
-
-
-
Over 5
Years
$M
Not
Specified
$M
676
-
1,244
-
714
26,791
(26,250)
-
-
53,483
-
58
491
57,207
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
13,052
13,052
-
-
-
-
Total
$M
637,666
23,429
8,754
17,925
1,895
79,446
(76,488)
32
-
196,723
-
6,584
15,229
911,195
6,506
162,202
7,098
175,806
Monetary liabilities
Deposits and other public borrowings (1)
Payables due to other financial institutions
Liabilities at fair value through Income Statement
Derivative financial instruments:
Held for trading
Held for hedging purposes (net-settled)
Held for hedging purposes (gross-settled):
Outflows
Inflows
Bank acceptances
Insurance policy liabilities
Debt issues and loan capital
Managed funds units on issue
Other monetary liabilities
Liabilities held for sale
Total monetary liabilities
Guarantees (2)
Loan commitments (2)
Other commitments (2)
Total off Balance Sheet items
Group (3)
Maturity Period as at 30 June 2018
0 to 3
Months
$M
502,021
18,064
6,622
21,771
19
644
(614)
331
-
18,597
-
6,582
182
574,219
6,265
162,090
6,841
175,196
3 to 12
Months
$M
103,788
2,827
1,747
-
155
13,185
(11,825)
48
-
43,784
-
903
572
155,184
-
-
-
-
1 to 5
Years
$M
17,587
-
524
-
1,238
34,427
(32,652)
-
-
96,080
-
96
274
117,574
-
-
-
-
Over 5
Years
$M
Not
Specified
$M
489
44
1,441
-
838
20,938
(19,651)
-
-
46,296
-
23
143
50,561
-
-
-
-
-
-
-
-
-
-
-
-
451
-
-
-
12,886
13,337
-
-
-
-
Total
$M
623,885
20,935
10,334
21,771
2,250
69,194
(64,742)
379
451
204,757
-
7,604
14,057
910,875
6,265
162,090
6,841
175,196
Total monetary liabilities and off Balance Sheet items
749,415
155,184
117,574
50,561
13,337
1,086,071
Includes deposits that are contractually at call, customer savings and cheque accounts. These accounts provide a stable source of long-term funding.
(1)
(2) All off Balance Sheet items are included in the 0 to 3 months maturity band to reflect their earliest possible maturity.
(3) Comparative information has been restated to conform to presentation in the current year.
230 Commonwealth Bank of Australia Annual Report 2019
Bank
Maturity Period as at 30 June 2019
Over 5
Years
$M
Not
Specified
$M
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
0 to 3
Months
$M
483,254
18,734
4,588
20,732
19
1,846
(1,744)
32
16,603
5,196
5,539
554,799
6,026
146,483
6,944
159,453
3 to 12
Months
$M
86,453
3,902
1,736
-
167
13,444
(12,767)
-
30,046
6,311
335
129,627
-
-
-
-
1 to 5
Years
$M
4,781
41
621
-
917
41,604
(39,565)
-
70,125
24,499
458
103,481
-
-
-
-
Total monetary liabilities and off Balance Sheet items
714,252
129,627
103,481
119,024
Over 5
Years
$M
Not
Specified
$M
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
0 to 3
Months
$M
464,588
17,197
5,480
24,026
11
644
(614)
331
15,333
6,174
6,274
539,444
5,835
147,098
6,673
159,606
3 to 12
Months
$M
88,005
2,808
1,747
-
47
17,173
(15,189)
48
37,730
6,070
779
139,218
-
-
-
-
1 to 5
Years
$M
14,496
-
524
-
996
34,868
(33,192)
-
78,067
24,411
65
120,235
-
-
-
-
Total monetary liabilities and off Balance Sheet items
699,050
139,218
120,235
112,113
Includes deposits that are contractually at call, customer savings and cheque accounts. These accounts provide a stable source of long-term funding.
(1)
(2) All off Balance Sheet items are included in the 0 to 3 months maturity band to reflect their earliest possible maturity.
(3) Comparative information has been restated to conform to presentation in the current year.
594
-
1,244
-
697
31,830
(30,526)
-
45,362
69,768
55
119,024
-
-
-
-
468
44
1,441
-
822
22,579
(21,302)
-
39,379
68,672
10
112,113
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
$M
575,082
22,677
8,189
20,732
1,800
88,724
(84,602)
32
162,136
105,774
6,387
906,931
6,026
146,483
6,944
159,453
1,066,384
Total
$M
567,557
20,049
9,192
24,026
1,876
75,264
(70,297)
379
170,509
105,327
7,128
911,010
5,835
147,098
6,673
159,606
1,070,616
231
Strategic
report
Financial
performance
Risk
management
Corporate
governance
Directors’
report
Other
information
Financial
report
Notes to the
financial
statements
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.
Financial assets measured at fair
value on a recurring basis
Assets at fair value through Income
Statement:
Trading
Insurance (1)
Other
Derivative assets
Investment securities at fair value
through Other Comprehensive Income
Available-for-sale investments
Bills discounted
Assets held for sale (1)
Total financial assets measured at fair
value
Financial liabilities measured at fair
value on a recurring basis
Liabilities at fair value through Income
Statement
Derivative liabilities
Life investment contracts (1)
Liabilities held for sale (1)
Total financial liabilities measured at
fair value
Group
Total
$M
32,254
372
258
32,133
-
82,240
4,280
-
-
-
93
-
65
-
Fair Value as at 30 June 2019
Fair Value as at 30 June 2018
Level 1
$M
Level 2
$M
Level 3
$M
Total
$M
Level 1
$M
Level 2
$M
Level 3
$M
24,599
7,907
-
319
59
-
852
25,072
77,193
1,666
-
-
-
-
-
-
-
84
53
-
-
32,506
22,078
10,176
-
49
42
-
372
209
31,998
-
74,234
7,941
4,280
2,012
-
934
7,631
2,339
10,904
8,061
1,818
11,891
103,104
43,128
2,476
148,708
102,695
58,757
1,976
163,428
1,583
6,937
132
22,579
-
3
-
6,325
1,718
35,841
-
66
-
496
562
8,520
1,724
8,523
-
10,247
57
28,075
340
28,472
-
5
337
6,985
-
353
693
337
7,343
46,399
38,121
1,786
43,920
-
1,171
25,215
78,912
-
-
22,777
-
6,824
Fair value hierarchy for financial assets and liabilities measured at fair value (continued)
Fair Value as at 30 June 2019
Fair Value as at 30 June 2018
Level 1
$M
Level 2
$M
Level 3
$M
Total
$M
Level 1
$M
Level 2
$M
Level 3
$M
Financial assets measured at fair
value on a recurring basis
Assets at fair value through Income
Statement:
Trading
Other
Derivative assets
Investment securities at fair value
through Other Comprehensive Income
Available-for-sale investments
Bills discounted
Total financial assets measured at fair
value
Financial liabilities measured at fair
value on a recurring basis
Liabilities at fair value through Income
Statement
Derivative liabilities
Total financial liabilities measured at
fair value
24,569
7,907
-
56
652
24,171
72,479
680
-
-
-
-
-
-
84
53
-
-
32,476
20,813
9,180
652
24,311
73,212
-
41
-
-
30,751
-
-
-
69,988
7,678
4,280
-
-
-
93
-
65
-
97,104
33,410
137
130,651
95,122
47,609
158
142,889
1,583
6,378
132
26,456
1,715
32,834
-
66
66
7,961
1,724
7,382
-
9,106
26,654
57
30,474
34,615
1,781
37,856
340
340
30,871
39,977
Bank
Total
$M
29,993
-
30,885
-
77,731
4,280
(1)
As at 30 June 2019, assets and liabilities of CommInsure Life, CFSGAM, PT Commonwealth Life, Count Financial and the Group’s investment in BoCommLife are
presented as held for sale. As at 30 June 2018, assets and liabilities of CommInsure Life, Sovereign and the Group’s investment in BoCommLife are presented as held
for sale.
232 Commonwealth Bank of Australia Annual Report 2019
233
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Financial
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Notes to the
financial
statements
Analysis of movements between fair value hierarchy levels
During the year ended 30 June 2018, $1,722 million of trading securities were reclassified from Level 2 to Level 1 due to changes in the
observability of inputs. The tables below summarise movements in Level 3 balance during the year. Transfers have been reflected as if they
had taken place at the end of the reporting periods. Transfers in and out of Level 3 were due to changes in the observability of inputs.
Level 3 movement analysis for the year ended 30 June 2019
Financial Liabilities
Group
Derivative
Liabilities
Life
Investment
Contracts
Insurance Derivative
Assets
Assets
$M
1,530
618
(208)
$M
67
-
(18)
As at 1 July 2017
Purchases
Sales/(settlements) (2)
Gains/(losses) in the year:
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
As at 1 July 2018
Changes on adoption of new
accounting standard (3)
Purchases
Sales/(settlements)
Gains/(losses) in the year:
Recognised in the Income
Statement
Recognised in the Statement
of Comprehensive Income
Transfers in
Transfers out
As at 30 June 2019
Gains/(losses) recognised in
the Income Statement for
financial instruments held as
at 30 June 2019
(122)
(15)
-
-
(1,818)
-
-
59
-
93
(103)
(15)
-
-
-
-
-
-
-
-
-
-
93
-
15
-
(5)
-
-
(19)
84
22
Financial Assets
Investment
Securities at
Fair Value
through OCI
Available
for Sale
Investments
$M
-
-
-
-
-
-
-
-
-
-
65
-
(8)
-
(4)
-
-
53
-
$M
139
-
(100)
-
-
26
-
65
-
65
(65)
-
-
-
-
-
-
-
-
Assets
held for
Sale (1)
$M
-
-
-
-
-
1,818
-
1,818
$M
(102)
-
14
(144)
-
(108)
-
(340)
-
(144)
1,818
(340)
-
499
-
-
-
-
22
198
-
-
-
2,339
-
-
76
(66)
22
175
Liabilities
held for
Sale (1)
$M
-
-
-
-
-
(353)
-
(353)
-
(353)
-
-
-
-
-
(143)
-
(496)
-
$M
(565)
-
212
-
-
-
353
-
-
-
-
-
-
-
-
-
-
-
-
Analysis of movements between fair value hierarchy levels (continued)
Level 3 movement analysis for the year ended 30 June 2019 (continued)
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.
Financial Assets
Investment
Securities at
Fair Value
through OCI
$M
-
-
-
-
-
-
-
-
-
-
65
-
(8)
-
(4)
-
-
53
-
Derivative
Assets
$M
67
-
(18)
(15)
-
59
-
93
(15)
93
-
15
-
(5)
-
-
(19)
84
22
Bank
Financial
Liabilities
Derivative
Liabilities
Available
for Sale
Investments
$M
139
-
(100)
-
-
26
-
65
-
65
(65)
-
-
-
-
-
-
-
-
$M
(103)
-
15
(144)
-
(108)
-
(340)
(144)
(340)
-
-
-
198
-
-
76
(66)
175
As at 1 July 2017
Purchases
Sales/(settlements)
Gains/(losses) in the period:
Recognised in the Income Statement
Recognised in the Statement of Comprehensive Income
Transfers in
Transfers out
As at 30 June 2018
Gains/(losses) recognised in the Income Statement for
financial instruments held as at 30 June 2018
As at 1 July 2018
Changes on adoption of new accounting standard (1)
Purchases
Sales/(settlements)
Gains/(losses) in the period:
Recognised in the Income Statement
Recognised in the Statement of Comprehensive Income
Transfers in
Transfers out
As at 30 June 2019
Gains/(losses) recognised in the Income Statement for
financial instruments held as at 30 June 2019
(1)
Current year balances reflect the adoption of AASB 9 ‘Financial Instruments’ on 1 July 2018. As permitted by AASB 9 comparative information has not been restated.
For details on the adoption of AASB 9 refer to Note 1.1. Level 3 available-for-sale securities were reclassified to Investment securities measured at fair value through
other comprehensive income on adoption of AASB 9 on 1 July 2018.
(1)
(2)
(3)
As at 30 June 2019, assets and liabilities of CommInsure Life, CFSGAM, PT Commonwealth Life, Count Financial and the Group’s investment in BoCommLife are
presented as held for sale. As at 30 June 2018, assets and liabilities of CommInsure Life, Sovereign and the Group’s investment in BoCommLife were presented as
held for sale.
Sales/ settlements includes the impact of changing fund ownership percentage held via the Group’s life insurance operations.
Current year balances reflect the adoption of AASB 9 ‘Financial Instruments’ on 1 July 2018. As permitted by AASB 9 comparative information has not been restated.
For details on the adoption of AASB 9 refer to Note 1.1. Level 3 available-for-sale securities were reclassified to Investment securities measured at fair value through
other comprehensive income on adoption of AASB 9 on 1 July 2018.
234 Commonwealth Bank of Australia Annual Report 2019
235
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Financial
performance
Risk
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Other
information
Financial
report
Notes to the
financial
statements
Fair value information for financial instruments not measured at fair value
Fair value information for financial instruments not measured at fair value (continued)
The estimated fair values and fair value hierarchy of the Group’s and the Bank’s financial instruments not measured at fair value are presented
below:
Financial assets not measured at fair value on a
recurring basis
Cash and liquid assets
Receivables due from other financial institutions
Investment securities at amortised cost
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
Bills payable and other liabilities
Loan capital
Liabilities held for sale
Total financial liabilities
Financial guarantees, loan commitments and other off
Balance Sheet instruments
Group
30 Jun 19
Fair value
Level 1
$M
Level 2
$M
Level 3
$M
Total
$M
16,655
-
-
-
32
1,893
354
12,732
8,093
7,330
-
-
3,532
326
-
-
15
29,387
8,093
7,345
755,515
755,515
-
6
19
32
5,431
699
Carrying
value
Total
$M
29,387
8,093
7,355
755,141
32
5,431
699
806,138
18,934
32,013
755,555
806,502
636,040
23,370
32
163,990
8,236
22,966
3,963
858,597
171,084
-
-
32
-
2,414
9,477
-
636,465
23,370
-
164,295
5,822
14,168
1,831
11,923
845,951
18
-
-
-
-
-
2,132
2,150
636,483
23,370
32
164,295
8,236
23,645
3,963
860,024
Financial assets not measured at fair value on a
recurring basis
Cash and liquid assets
36,417
22,896
13,521
Carrying
value
Total
$M
Fair value
Level 1
$M
Level 2
$M
Level 3
$M
Total
$M
Group
30 Jun 18
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
379
172,294
9,326
22,992
2,621
-
-
379
-
2,459
9,566
13
622,327
20,899
-
173,895
6,867
14,131
923
850,745
12,417
839,042
-
-
-
-
-
-
1,685
1,685
622,327
20,899
379
173,895
9,326
23,697
2,621
853,144
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
Bills payable and other liabilities (1)
Loan capital
Liabilities held for sale
Total financial liabilities
-
-
171,084
171,084
(1)
Comparative information has been restated to conform to presentation in the current year.
Financial guarantees, loan commitments and other off
Balance Sheet instruments
170,586
-
-
170,586
170,586
236 Commonwealth Bank of Australia Annual Report 2019
237
Strategic
report
Financial
performance
Risk
management
Corporate
governance
Directors’
report
Other
information
Financial
report
Notes to the
financial
statements
Fair value information for financial instruments not measured at fair value (continued)
Fair value information for financial instruments not measured at fair value (continued)
Financial assets not measured at fair value on a recurring
basis
Cash and liquid assets
Receivables due from other financial institutions
Investment securities at amortised cost
Loans and other receivables
Bank acceptances of customers
Loans to controlled entities
Other assets
Total financial assets
Financial liabilities not measured at fair value on a
recurring basis
Deposits and other public borrowings
Payables due to other financial institutions
Bank acceptances
Due to controlled entities
Debt issues
Bills payable and other liabilities
Loan capital
Total financial liabilities
Financial guarantees, loan commitments and other off
Balance Sheet instruments
Carrying
value
Total
$M
26,912
7,334
7,349
660,476
32
120,193
4,158
826,454
573,851
22,618
32
105,774
131,062
6,403
22,569
862,309
154,731
Bank
30 Jun 19
Fair value
Level 1
$M
Level 2
$M
Level 3
$M
Total
$M
15,534
-
-
-
32
-
11,378
7,334
7,340
-
-
-
1,324
16,890
2,829
28,881
-
-
9
26,912
7,334
7,349
660,660
660,660
-
32
113,029
113,029
5
4,158
773,703
819,474
-
-
32
-
-
1,774
9,483
574,164
22,618
-
-
132,071
4,629
13,764
18
-
-
105,774
-
-
-
11,289
747,246
105,792
574,182
22,618
32
105,774
132,071
6,403
23,247
864,327
Financial assets not measured at fair value on a recurring
basis
Cash and liquid assets
Receivables due from other financial institutions
Loans and other receivables
Bank acceptances of customers
Loans to controlled entities
Other assets
Total financial assets
Financial liabilities not measured at fair value on a
recurring basis
Deposits and other public borrowings
Payables due to other financial institutions
Bank acceptances
Due to controlled entities
Debt issues
Bills payable and other liabilities (1)
Loan capital
Total financial liabilities
Financial guarantees, loan commitments and other off
Balance Sheet instruments
Bank
30 Jun 18
Fair value
Level 1
$M
Level 2
$M
Level 3
$M
Total
$M
21,351
-
-
379
-
12,230
8,376
-
-
-
1,398
23,128
3,317
23,923
-
-
33,581
8,376
652,794
652,794
-
379
106,509
106,509
2
4,717
759,305
806,356
-
-
379
-
-
1,942
9,561
566,200
20,014
-
-
142,064
5,513
13,373
-
-
-
105,309
-
-
-
566,200
20,014
379
105,309
142,064
7,455
22,934
11,882
747,164
105,309
864,355
-
-
155,012
155,012
Carrying
value
Total
$M
33,581
8,376
652,370
379
106,431
4,717
805,854
566,200
20,014
379
105,327
139,984
7,455
22,249
861,608
155,012
-
-
154,731
154,731
(1)
Comparative information has been restated to conform to presentation in the current year.
238 Commonwealth Bank of Australia Annual Report 2019
239
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Risk
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Other
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Notes to the
financial
statements
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 derecognition 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.
Critical accounting judgements and estimates
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.
Collateral accepted as security for assets
The Group takes collateral where it is considered necessary to support both on and off Balance Sheet financial instruments. The Group
evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral taken, if deemed necessary, is based on
management’s credit evaluation of the counterparty. The Group has the right to sell, re-pledge, or otherwise use some of the collateral
received. At Balance Sheet date the carrying value of cash accepted as collateral (and recognised on the Group’s and the Bank’s Balance
Sheets) and the fair value of securities accepted as collateral (but not recognised on the Group’s or the Bank’s Balance Sheets) were as
follows:
Cash
Securities
Collateral held
30 Jun 19
$M
6,147
12,732
18,879
Group
30 Jun 18
$M
6,884
13,520
20,404
30 Jun 19
$M
5,568
11,379
16,947
Bank
30 Jun 18
$M
6,155
12,230
18,385
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:
Cash
Securities (1)
Assets pledged
30 Jun 19
$M
5,837
21,022
26,859
Group
30 Jun 18
$M
6,064
15,495
21,559
30 Jun 19
$M
5,781
21,138
26,919
Bank
30 Jun 18
$M
5,679
15,604
21,283
Asset pledged which can be re-pledged or re-sold by counterparty
21,022
15,495
21,138
15,604
(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 into repurchase and derivative agreements. These transactions are
governed by standard industry agreements.
240 Commonwealth Bank of Australia Annual Report 2019
241
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D
Strategic
report
Financial
performance
Risk
management
Corporate
governance
Directors’
report
Other
information
Financial
report
Notes to the
financial
statements
The Group employs over 50,000 people across multiple jurisdictions 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.
The Group operates a number of cash and equity settled share plans as detailed below.
Long Term Variable Remuneration (LTVR)
The Group’s 2019 LTVR award for the CEO and Group Executives is made under the Employee Equity Plan (EEP). LTVR awards up to and
including the 2018 financial year were made under the Group Leadership Reward Plan (GLRP). LTVR focuses efforts on achieving superior
performance for key stakeholders – being customers, community, employees and shareholders – in order to create sustainable long-term
shareholder value and drive positive culture and behaviours in the Group.
Participants are awarded a maximum number of Rights, which may convert into CBA shares on a 1-for-1 basis. The Board has discretion to
apply a cash equivalent.
The Rights may vest at the end of a performance period of four years subject to the satisfaction of performance measures as follows:
For awards up to and including the 2017 financial year:
25% of the award is assessed against Customer Satisfaction 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 to the 20 largest companies listed on the ASX (by
market capitalisation) at the beginning of each respective performance period, excluding resource companies and CBA.
Group Rights Plan (GRP) and Employee Equity Plan (EEP) (continued)
Period
30 Jun 19
30 Jun 18
Outstanding
1 July
2,246,204
2,125,927
Granted
1,086,280
1,045,179
Vested
(993,435)
(849,508)
Forfeited
(186,582)
(75,394)
Outstanding
30 June
2,152,467
2,246,204
Expense
($'000)
77,136
67,725
The weighted average fair value at grant date of the awards issued during the year was $71.08 (2018: $75.67).
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.
While the Group did not achieve the ESAP performance target for the 2018 financial year, the Board exercised its discretion and approved a
partial award of $550 during the financial year ended 30 June 2019 to each eligible employee to recognise their contribution through-out the
year.
The following table provides details of shares granted under the ESAP:
Period
Allocation date
Participants
30 Jun 19
16 Nov 2018
30 Jun 18
8 Sep 2017
30,960
31,780
Number of Shares
Allocated per Participant
Total Number of
Shares Allocated
Issue Price $
7
12
216,720
381,360
70.86
79.11
Total
Fair Value $
15,356,779
30,169,390
For awards made from the 2018 financial year:
It is estimated that approximately $34 million of CBA shares will be purchased on market at the prevailing market price for the 2019 grant.
75% of the award is assessed against TSR compared to the 20 largest companies listed on the ASX (by market capitalisation) at the
beginning of each respective performance period, excluding resource companies and CBA.
12.5% of the award is assessed against a Relative Trust and Reputation measure; and
12.5% of the award is assessed against an Absolute Employee Engagement measure.
A positive TSR gateway applies to the Trust and Reputation and Employee Engagement measures. Refer to the Remuneration Report for
further details on LTVR.
The following table provides details of outstanding awards of Rights granted under LTVR awards:
Period
30 Jun 19
30 Jun 18
Outstanding
1 July
678,801
1,174,899
Granted
294,619
215,356
Vested
(34,099)
(174,139)
Forfeited
(130,802)
(537,315)
Outstanding
30 June
808,519
678,801
Expense
($'000)
7,186
4,329
The weighted average fair value at the grant date for TSR was $33.57 and $49.87 for both Trust and Reputation and Employee Engagement
Rights issued during the year (2018: $36.94 for TSR and $57.11 for both Trust and Reputation and Employee Engagement). The fair value of
the Rights granted during the period has been independently calculated at grant date using a Monte Carlo pricing model based on market
the
information and excluding the impact of non-market performance conditions. The assumptions included in the valuation of
2019 financial year award include a share price of $71.77, a risk-free interest rate of 2.29%, a 5.83% dividend yield on the Bank’s ordinary
shares and a volatility in the Bank share price of 15%.
Group Rights Plan (GRP) and Employee Equity Plan (EEP)
The GRP and EEP Restricted Shares facilitate mandatory short-term variable remuneration deferral, sign-on incentives and retention awards.
Participants are awarded rights or restricted shares that vest provided the participant remains in employment of the Group until vesting date.
The following table provides details of outstanding awards of rights and shares granted under the GRP and EEP.
Other employee awards
A number of other plans are operated by the Group, including:
The Employee Share (Performance Unit) Plan and Employee Equity Plan (EEP) Cash Settled Rights are cash-based versions of the GRP
and EEP; and
The International Employee Share Acquisition Plan, which is the cash-based version of the ESAP.
The following table provides a summary of the movement in awards during the year:
Period
30 Jun 19
30 Jun 18
Outstanding
1 July
509,927
458,764
Granted
162,180
251,284
Vested
(242,026)
(168,925)
Forfeited
(48,657)
(31,196)
Outstanding
30 June
381,424
509,927
Expense
($'000)
15,805
21,405
The weighted average fair value at grant date of the awards issued during the year was $71.35 (2018: $75.70).
Salary sacrifice arrangements
The Group facilitates the purchase of CBA shares via salary sacrifice as follows:
Type
Arrangements
Salary Sacrifice
(ESSSP)
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 (or retires from the Group in the case of Non-Executive Directors).
Non-Executive
Directors
(NEDSP)
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.
246 Commonwealth Bank of Australia Annual Report 2019
247
Strategic
report
Financial
performance
Risk
management
Corporate
governance
Directors’
report
Other
information
Financial
report
Notes to the
financial
statements
Salary sacrifice arrangements (continued)
Defined benefit superannuation plan
Shares are purchased on market at the prevailing market price at that time and receive full dividend entitlements and voting rights. The
following table provides details of shares granted under the ESSSP and NEDSP (voluntary fee sacrifice).
Period
30 Jun 19
30 Jun 18
During the year
(2018: 988 shares).
four
Participants
952
983
Number of
shares purchased
Average purchase
price $
Total purchase
consideration $
47,205
41,390
71.57
77.68
3,378,462
3,215,222
(2018: four) Non-Executive Directors applied $103,151 in fees (2018: $74,991)
to purchase 1,424 shares
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 (CBA
(UK) SBS)
Defined Benefits
and Accumulation(1)
Indexed pension and lump sum
30 June 2018
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.
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 2018 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 ($47.4 million). The Bank agreed to pay deficit reduction contributions of GBP5 million ($9 million) per annum, paid monthly
from 1 January 2018 to 31 December 2022. The Group’s expected contributions to the Commonwealth Bank Group Super and the CBA (UK)
SBS for the year ended 30 June 2020 are $240 million and GBP7.5 million ($13.6 million) respectively.
Note
6.2
Commonwealth Bank
Group Super
30 Jun 18
$M
30 Jun 19
$M
(3,004)
(2,826)
3,438
434
434
434
(36)
16
(279)
(299)
3,355
529
529
529
(36)
13
(289)
(312)
Present value of funded obligations
Fair value of plan assets
Net pension assets/(liabilities) as at 30 June
Amounts in the Balance Sheet:
Assets
Net assets/(liabilities)
The amounts recognised in the Income
Statement are as follows:
Current service cost
Net interest income/(expense)
Employer financed benefits within accumulation
division (1)
Total included in superannuation plan
expense
Changes in the present value of the defined
benefit obligation are as follows:
Opening defined benefit obligation
(2,826)
(2,910)
Current service cost
Interest cost
Member contributions
Actuarial (losses) from changes in
demographic assumptions
Actuarial gains/(losses) from changes in financial
assumptions
Actuarial gains from changes in other
assumptions
Payments from the plan
Exchange differences on foreign plans
(36)
(119)
(6)
(18)
(228)
45
184
-
(36)
(122)
(6)
-
57
216
-
Closing defined benefit obligation
(3,004)
(2,826)
Changes in the fair value of plan assets are as
follows:
CBA(UK)SBS
30 Jun 18
$M
30 Jun 19
$M
30 Jun 19
$M
Total
30 Jun 18
$M
(711)
739
28
28
28
(6)
2
-
(4)
(645)
(6)
(17)
-
-
-
39
(13)
(711)
(645)
(3,715)
(3,471)
697
52
52
52
(6)
-
-
(6)
4,177
462
462
462
(42)
18
(279)
(303)
4,052
581
581
581
(42)
13
(289)
(318)
(656)
(3,471)
(3,566)
(6)
(17)
-
-
29
-
35
(30)
(645)
(42)
(136)
(6)
(18)
(297)
45
223
(13)
(42)
(139)
(6)
-
4
57
251
(30)
(3,715)
(3,471)
(25)
(69)
Opening fair value of plan assets
3,355
3,336
697
645
4,052
3,981
Interest income
Return on plan assets (excluding interest income)
Member contributions
Employer contributions
Employer financed benefits within accumulation
division
Payments from the plan
Exchange differences on foreign plans
135
165
6
240
(279)
(184)
-
135
143
6
240
(289)
(216)
-
Closing fair value of plan assets
3,438
3,355
19
34
-
15
-
(39)
13
739
17
17
-
22
-
(35)
31
697
154
199
6
255
(279)
(223)
13
152
160
6
262
(289)
(251)
31
4,177
4,052
(1) Represents superannuation contributions required by the Bank to meet its obligations to members of the defined contribution division of Commonwealth Bank Group
Super.
248 Commonwealth Bank of Australia Annual Report 2019
249
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Notes to the
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Economic assumptions
Risk management
Economic assumptions
The above calculations were based on the following assumptions:
Discount rate
Inflation rate
Rate of increases in salary
Commonwealth Bank
Group Super
30 Jun 18
%
30 Jun 19
%
30 Jun 19
%
CBA(UK)SBS
30 Jun 18
%
3. 20
1. 60
2. 40
4. 20
2. 10
2. 90
2. 30
3. 50
4. 50
2. 70
3. 30
4. 30
In addition to financial assumptions, the mortality assumptions for pensioners can materially impact the defined benefit obligations. These
assumptions are age related and allowances are made for future improvement in mortality. The expected life expectancies (longevity) for
pensioners are set out below:
Expected life expectancies for pensioners
Male pensioners currently aged 60
Male pensioners currently aged 65
Female pensioners currently aged 60
Female pensioners currently aged 65
Sensitivity to changes in assumptions
Commonwealth Bank
Group Super
30 Jun 18
Years
30 Jun 19
Years
30 Jun 19
Years
CBA(UK)SBS
30 Jun 18
Years
28. 8
23. 9
31. 2
26. 1
28. 8
23. 8
33. 1
28. 1
28. 0
23. 2
29. 9
25. 1
27. 6
23. 1
29. 8
25. 0
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
Commonwealth Bank
Group Super
30 Jun 19
%
CBA(UK)SBS
30 Jun 19
%
3. 70
2. 96
0. 47
4. 76
4. 90
3. 30
0. 30
3. 70
Commonwealth Bank
Group Super
30 Jun 19
Years
CBA(UK)SBS
30 Jun 19
Years
13
19
The pension plans expose the Group to longevity risk, currency risk, interest rate risk, inflation risk and market risk. The Trustees perform
Asset-Liability Matching (ALM) exercises to ensure the plan assets are well matched to the nature and maturities of the defined benefit
obligations.
The Commonwealth Bank Group Super’s investment strategy comprises 41% growth and 59% 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:
Asset allocations
Cash
Equities - Australian (1)
Equities - Overseas (1)
Bonds - Commonwealth Government (1)
Bonds - Semi-Government (1)
Bonds - Corporate and other (1)
Real Estate and Infrastructure (2)
Derivatives
Other (3)
Total fair value of plan assets
Commonwealth Bank Group Super
30 Jun 19
30 Jun 18
Fair value
$M
% of plan
asset
Fair value
$M
% of plan
asset
83
193
591
967
956
71
346
(33)
264
3,438
2. 4
5. 6
17. 2
28. 1
27. 8
2. 1
10. 1
(1. 0)
7. 7
100. 0
81
253
570
679
1,179
79
334
(17)
197
3,355
2. 4
7. 5
17. 0
20. 2
35. 1
2. 4
10. 0
(0. 5)
5. 9
100. 0
(1) Values based on prices or yields quoted in an active market.
(2) This includes listed and unlisted property and infrastructure investments.
(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 $15.3 million of Commonwealth Bank shares. The real estate fair value includes $1.4 million of
property assets leased to the Bank. The bonds – corporate and other fair value includes $0.4 million of Commonwealth Bank debt securities.
The other asset allocation includes $0.5 million of Commonwealth Bank shares and $0.1 million debt securities held in a multi-asset fund.
Detailed remuneration disclosures by Key Management Personnel (KMP) are provided in the Remuneration Report of the Directors’ Report
on pages 82 to 106.
Key Management Personnel compensation
Short-term benefits (1) (2)
Post-employment benefits
Long-term benefits
Share-based payments (1)
Total
30 Jun 19
$'000
Group
30 Jun 18
$'000
30 Jun 19
$'000
Bank
30 Jun 18
$'000
23,326
23,127
21,413
23,127
457
864
14,715
39,362
421
854
11,235
35,637
400
836
14,405
37,054
421
854
11,235
35,637
(1)
(2)
Non-Executive Director fees for the 2018 financial year have been restated to reflect car parking benefits (including associated fringe benefits tax) and the proportion
between cash fees and Non-Executive Directors’ share plan shares for some individuals.
Short-term benefits includes termination benefits of $1,294,969 (2018: $4,700,917)
250 Commonwealth Bank of Australia Annual Report 2019
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Notes to the
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statements
Security holdings
Details of the aggregate security holdings of KMP are set out below.
Non-Executive Directors
Executives
Class (1)
Ordinary (6)
PERLS
Ordinary
LTVR Rights
Deferred Shares
Deferred Rights
Sign-on equity
PERLS
Balance
1 July 18 (2)
138,406
8,600
228,623
440,321
-
54,353
9,234
2,330
Acquired/
Granted as
Remuneration
9,145
-
-
96,267
(114,930)
294,619
(18,390)
(131,133)
38,818
7,064
125,772
-
-
(14,923)
(41,896)
(42,651)
409
-
-
(2,330)
209,960
585,417
23,895
19,930
92,355
-
(1) LTVR rights are subject to performance hurdles. Deferred shares represent the deferred STVR awarded in the 2019 financial year. Deferred rights represent the deferred
STVR awarded under Executive General Manager arrangements and retention awards received as rights in prior years, as well as the CEO ASB’s 2018 financial year
STVR award. Sign-on equity includes sign-on awards received as deferred rights or shares. PERLS include cumulative holdings of all PERLS securities issued by the
Group.
(2) Due to the changes in KMP during the 2019 financial year, aggregate security holdings balance at 1 July 2018 does not align to the balance disclosed for 30 June 2018.
(3) LTVR rights, deferred shares and deferred rights become ordinary shares or are cash settled upon vesting.
(4) Net change other incorporates changes resulting from purchases, sales, forfeitures and appointment or departure of KMP during the year.
(5) 30 June 2019 balances represent aggregate shareholdings of all KMP at balance date.
(6) Non-Executive Directors who hold fewer than 5,000 Commonwealth Bank shares are required to receive 20% of their total after-tax base fees as CBA shares. These
shares are subject to a 10-year trading restriction (the shares will be released earlier if the Non-Executive Director leaves the Board).
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:
Previous
Years
Awards
Vested (3)
-
-
Net
Change
Other (4)
(97,190)
(5,830)
Balance
30 June 19 (5)
50,361
2,770
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.
Subsidiaries
The key subsidiaries of the Bank are:
Entity Name
Australia
(a) Banking
CBA Covered Bond Trust
Commonwealth Securities Limited
Medallion Trust Series 2008-1R
Medallion Trust Series 2011-1
Medallion Trust Series 2013-1
Medallion Trust Series 2013-2
Medallion Trust Series 2014-1
Medallion Trust Series 2014-2
Medallion Trust Series 2015-1
Entity Name
Medallion Trust Series 2015-2
Medallion Trust Series 2016-1
Medallion Trust Series 2016-2
Medallion Trust Series 2017-1
Medallion Trust Series 2017-1P
Medallion Trust Series 2017-2
Residential Mortgage Group Pty Ltd
Medallion Trust Series 2018-1
Loans
Interest charged
Other transactions of KMP
Financial Instrument Transactions
30 Jun 19
$'000
12,337
480
30 Jun 18
$'000
12,914
476
(b) Insurance and Funds Management
Capital 121 Pty Limited
Colonial Holding Company Limited
Commonwealth Insurance Holdings Limited
(1)
This subsidiary is classified as a discontinued operation.
Commonwealth Insurance Limited
The Colonial Mutual Life Assurance Society Limited (1)
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.
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 2019 was $2,254,283 (2018: $3,096,820).
All the above subsidiaries are 100% owned and incorporated in Australia.
252 Commonwealth Bank of Australia Annual Report 2019
253
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Notes to the
financial
statements
Subsidiaries (continued)
Entity Name
New Zealand and Other Overseas
(a) Banking
ASB Bank Limited
ASB Covered Bond Trust
ASB Finance Limited
ASB Holdings Limited
ASB Term Fund
CommBank Europe Limited
Medallion NZ Series Trust 2009-1R
PT Bank Commonwealth
(b) Insurance and Funds Management
PT Commonwealth Life (1)
First Gas Limited (1)
(1) As at 30 June 2019, PT Commonwealth Life and First Gas Limited are classified as discontinued operations.
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 19
$M
55
55
Group
30 Jun 18
$M
554
554
New Zealand Perpetual Preference Shares of AUD505 million issued by ASB Capital Limited and ASB Capital No.2 Limited, the Group’s
New Zealand subsidiaries, were bought back and subsequently cancelled in May 2019.
As at 30 June 2019, non-controlling interests include minority shareholders’ interest in the Group’s subsidiaries, PT Bank Commonwealth,
PT Commonwealth Life and First Gas Limited.
Extent of Beneficial
Interest if not 100%
Incorporated in
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.
Significant restrictions
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
Malta
New Zealand
80%
12%
Indonesia
New Zealand
99%
Indonesia
Bank of Hangzhou Co., Ltd
1,816
1,680
30 Jun 19
$M
30 Jun 18
$M
30 Jun 19
30 Jun 18
Ownership Ownership
Interest % Interest %
Associates and joint ventures
There were no individually significant investments in associates or joint ventures held by the Group as at 30 June 2019 and 30 June 2018. In
addition, there were no significant restrictions on the ability of associates or joint ventures to transfer funds to the Bank or its subsidiaries in
the form of cash dividends or to repay loans or advances made.
The Group’s investments in associates and joint ventures are shown in the table below.
First State European Diversified
Infrastructure Fund FCP-SIF (1)
Qilu Bank Co., Ltd
Vietnam International Commercial
Joint Stock Bank
Other
Carrying amount of investments
in associates and joint ventures
-
771
242
172
121
638
210
193
3,001
2,842
Share of Associates' and Joint Ventures profits (2)
Operating profits before income tax
Income tax expense
Operating profits after income tax (3)
Group
Principal
Activities
Commercial
Banking
Funds
Management
Commercial
Banking
Commercial
Banking
Country of Balance
Date
Incorporation
China
31-Dec
Luxembourg
31-Dec
China
31-Dec
Vietnam
31-Dec
18
4
18
20
18
3
18
20
Various
Various
Various
Various
Various
30 Jun 19
$M
Group
30 Jun 18
$M
315
(27)
288
321
(52)
269
(1) The investment in First State European Diversified Infrastructure Fund FCP-SIF has been classified as held for sale following the announced sale of CFSGAM.
(2) Excludes information concerning associates and joint ventures classified as held for sale.
(3) 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.
254 Commonwealth Bank of Australia Annual Report 2019
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Structured entities (continued)
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’
is $877 million
(2018: $857 million).
facilities rank pari passu with other senior secured creditors. The facilities limit
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.
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 2019, the Bank entered into a debt forgiveness arrangement with two wholly owned structured entities for the
total of $7 million (2018: $17 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 derivatives and other positions
where the Group creates rather than absorbs variability of the Structured entity, for example deposits. These have been excluded from the
below table.
Unconsolidated structured entities (continued)
Exposures to unconsolidated structured entities
Assets at fair value through income statement - trading
Investment securities
Loans, bills discounted and other receivables
Other assets
Assets held for sale
Total on Balance Sheet exposures
Total notional amounts of off Balance Sheet exposures (1)
Total maximum exposure to loss
Total assets of the entities (2)
ABS
$M
-
476
Other
Financing
$M
Investment
Funds
$M
-
-
242
-
30 Jun 19
Total
$M
242
8,095
1,602
5,454
7,367
16,400
-
-
2,078
729
2,807
9,523
-
-
5,454
539
5,993
-
1,108
8,717
4,302
13,019
-
1,108
25,845
8,331
34,176
17,542
329,237
411,810
RMBS
$M
-
7,619
1,977
-
-
9,596
2,761
12,357
55,508
(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
$9,073 million.
Exposures to unconsolidated structured entities
Assets at fair value through income statement - trading
Available-for-sale investments
Loans, bills discounted and other receivables
Other assets
Assets held for sale
Total on Balance Sheet exposures
Total notional amounts of off Balance Sheet exposures (2)
Total maximum exposure to loss
Total assets of the entities (3)
Other
ABS Financing (1)
$M
$M
Investment
Funds
$M
-
652
-
-
43
224
30 Jun 18
Total
$M
65
8,109
1,576
5,576
8,089
18,297
-
-
2,228
674
2,902
9,869
-
-
5,576
1,068
6,644
401
824
9,581
4,302
13,883
401
824
27,696
8,071
35,767
16,101
332,443
410,643
RMBS
$M
22
7,233
3,056
-
-
10,311
2,027
12,338
52,230
(1)
In prior years, Other Financing included exposures to structured entities where the Group had recourse only to assets of the structured entities. Comparative information
has been restated to conform to presentation in the current year and includes all exposures to structured entities.
(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
$9,688 million.
256 Commonwealth Bank of Australia Annual Report 2019
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Notes to the
financial
statements
Unconsolidated structured entities (continued)
The Group’s exposure to loss depends on the level of subordination of the interest, which indicates the extent to which other parties are
obliged to absorb credit losses before the Group. An overview of the Group’s interests, relative ranking and external credit rating, for vehicles
that have credit subordination in place, is summarised in the table below, and include securitisation vehicles and other financing.
Ranking and credit rating of exposures
to unconsolidated structured entities
Senior (1)
Mezzanine (2)
Total maximum exposure to loss
ABS
$M
2,807
-
Other
Financing
$M
5,993
-
30 Jun 19
Total
$M
21,069
88
RMBS
$M
12,269
88
12,357
2,807
5,993
21,157
(1) All ABS and RMBS exposures and $3,901 million of other financing exposures are rated investment grade. $2,092 million of other financing exposures are sub-investment
grade.
(2) All RMBS exposures are rated investment grade.
Ranking and credit rating of exposures
to unconsolidated structured entities
Senior (2)
Mezzanine (3)
ABS
$M
2,902
-
Other
Financing
$M
6,644
-
30 Jun 18 (1)
Total
$M
21,800
84
RMBS
$M
12,254
84
Total maximum exposure to loss
12,338
2,902
6,644
21,884
(1)
In prior years, Other Financing included exposures to structured entities where the Group had recourse only to assets of the structured entities. Comparative information
has been restated to conform to presentation in the current year and includes all exposures to structured entities.
(2) All ABS exposures, $12,240 million of RMBS exposures and $4,067 million of other financing exposures are rated investment grade. $14 million of RMBS and
$2,577 million of other financing exposures are sub-investment grade.
(3) All RMBS exposures are rated investment grade.
Sponsored unconsolidated structured entities
For the purposes of this disclosure, the Group sponsors an entity when it manages or advises the entity’s program, places securities into the
market on behalf of the entity, provides liquidity and/or credit enhancements to the entity, or the Group’s name appears in the Structured
Entity.
As at 30 June 2019, the Group has not sponsored any unconsolidated structured entities.
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. 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.
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 Notes 2.3 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.
Shares in controlled entities
Loans to controlled entities
Total shares in and loans to controlled entities
30 Jun 19
$M
10,728
109,465
120,193
Bank
30 Jun 18
$M
11,821
106,431
118,252
As at 30 June 2019, loans to controlled entities in the table above are presented net of $21 million provisions for impairment.
258 Commonwealth Bank of Australia Annual Report 2019
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financial
statements
The Group receives fees on an arm’s length basis of $61 million (2018: $118 million) from funds included in assets held for sale.
to other entities within the Group on standard terms. Guarantees include a $175 million
The Bank provides letters of comfort
(2018: $175 million) guarantee to AFS license holders in respect of excess compensation claims. During the year ended 30 June 2019, the
Bank entered into reimbursement arrangements totalling $396 million with its subsidiaries, Avanteos Investments Limited, Count Financial
Limited, Financial Wisdom Limited and Commonwealth Financial Planning Limited (for the Pathways business (CFPL)), to cover potential
remediation of ongoing service failures to customers, deceased estates, and inappropriate advice and other matters. This amount includes
$374 million for Aligned Advice remediation and $22 million for other wealth remediation programs. The Group and the Bank have provided
for these costs.
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 details 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 $320 million as at 30 June 2019 (2018: $283 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.
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.
Completed transactions
Life insurance business in New Zealand
On 21 September 2017, the Group announced the sale of 100% of its New Zealand life insurance business (Sovereign) to AIA Group Limited
(AIA) for $1.3 billion. The sale agreement includes a long-term partnership with AIA for the provision of life insurance products to customers
in New Zealand. The sale of Sovereign completed on 2 July 2018, resulting in a total post-tax gain of $117 million (net of transaction and
separation costs). This includes $135 million post-tax gain net of transaction and separation costs recognised during the year ended
30 June 2019, and $18 million post-tax transaction and separation costs recognised during the year ended 30 June 2018.
TymeDigital SA
On 1 November 2018, the Group completed the sale of Commonwealth Bank of South Africa (Holding Company) Limited (TymeDigital SA) to
the minority shareholder, African Rainbow Capital, resulting in a total post-tax loss of $113 million.
Colonial First State Global Asset Management
Ongoing transactions (continued)
PT Commonwealth Life
On 23 October 2018, the Group announced the sale of its 80% interest in its Indonesian life insurance business, PT Commonwealth Life
(PTCL), to FWD Group (FWD). As part of the sale, CBA’s Indonesian banking subsidiary, PT Bank Commonwealth (PTBC), will enter into a
15-year life insurance distribution partnership with FWD. On completion, CBA is expected to receive $426 million in consideration for the sale
of PTCL and entering the distribution partnership. The sale is subject to regulatory approvals in Indonesia and is now expected to complete
in the second half of calendar year 2019.
Count Financial
On 13 June 2019, the Group announced the sale of its 100% interest in Count Financial Limited (Count Financial) to CountPlus Limited
(CountPlus) for $2.5 million. Completion is expected to occur in October 2019. Upon completion, the Group will provide an indemnity to
CountPlus capped at $200 million. This indemnity amount represents a potential contingent liability of $56 million in excess of a $144 million
Count Financial remediation provision included in the Group’s total Aligned Advice provision of $534 million as at 30 June 2019. Refer to Note
7.1 for further information.
The assets and liabilities of Count Financial have been presented as held for sale as at 30 June 2019. Count Financial has not been classified
as a discontinued operation.
Financial impact of discontinued operations on the Group
The performance and net cash flows of the Group’s interests in CommInsure Life, Sovereign, BoCommLife, PTCL, CFSGAM and TymeDigital
SA are set out in the tables below:
Net interest income
Other banking income
Net banking operating income
Funds management income
Investment revenue
Claims, policyholder liability and commission revenue/(expense)
Net funds management operating income
Full Year Ended (1)
30 Jun 19
30 Jun 18
30 Jun 17
$M
6
20
26
1,102
391
(548)
945
1,256
539
$M
-
21
21
1,194
503
(604)
1,093
2,066
367
$M
(9)
20
11
1,138
513
(644)
1,007
2,305
216
On 31 October 2018, the Group announced the sale of Colonial First State Global Asset Management (CFSGAM) to Mitsubishi UFJ Trust and
Banking Corporation (MUTB). The sale of CFSGAM completed on 2 August 2019, resulting in final sale proceeds of $4.2 billion and a total
post tax gain of $1.5 billion (inclusive of separation costs and subject to final tax calculations and completion adjustments).
Premiums from insurance contracts
Investment revenue
Ongoing transactions
Life insurance businesses in Australia
On 21 September 2017, the Group announced the 100% sale of its Australian life insurance businesses (CommInsure Life) to AIA for
$2.5 billion. The sale agreement includes a long-term partnership with AIA for the provision of life insurance products to customers in Australia.
The sale of CommInsure Life remains subject to the completion of the transfer of the Group’s stake in BoCommLife out of CommInsure Life
and its associated Chinese regulatory approvals.
The Group and AIA remain fully committed to completing the CommInsure Life transaction. The Group and AIA are also well progressed in
exploring an alternative path to complete the CommInsure Life transaction prior to the transfer of the Group’s stake in BoCommLife. The
alternative path is expected to be subject only to Australian regulatory approvals. The Group expects to be able to provide further details of
this alternative path by the end of the first quarter of the financial year 2020, if the sale of BoCommLife has not substantially progressed in
that timeframe.
BoCommLife
On 23 May 2018, the Group announced the sale of its 37.5% equity interest in BoCommLife to Mitsui Sumitomo Insurance Co. Ltd (MSI). On
completion, CBA is expected to receive proceeds of approximately $891 million. The sale of BoCommLife is subject to Chinese regulatory
approvals, and is expected to be completed in the second half of the calendar year 2019.
260 Commonwealth Bank of Australia Annual Report 2019
Claims, policyholder liability and commission expense from insurance contracts
(1,503)
(1,702)
(1,861)
Net insurance operating income
Total net operating income before operating expenses
Operating expenses
Net profit before tax
Income tax expense
Policyholder tax
Net profit after tax and before transaction and separation costs
Losses on disposals of businesses net of transaction and separation costs
Non-controlling interests
Net profit after income tax from discontinued operations attributable to Equity
holders of the Bank
(1) Comparative information has been restated to conform to presentation in the current year.
292
1,263
(938)
325
(48)
(50)
227
(9)
(7)
211
731
1,845
(1,110)
735
(172)
(58)
505
(227)
(6)
272
660
1,678
(989)
689
(176)
(32)
481
-
(11)
470
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Notes to the
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statements
Earnings per share for profit from discontinued operations attributable to equity holders of the parent:
Balance sheet
Earnings per share from discontinued operations:
Basic
Diluted
(1) Comparative information has been restated to conform to presentation in the current year.
Cash flow statement
Net cash used in operating activities
Net cash from investing activities
Net cash used in financing activities
Net cash (outflows)/inflows from discontinued operations
Full Year Ended (1)
30 Jun 19
30 Jun 18
30 Jun 17
Cents per Share
11. 9
11. 1
15. 5
14. 5
27. 4
25. 9
Full Year Ended (1) (2)
30 Jun 19
30 Jun 18
$M
(563)
809
(180)
66
$M
(543)
1,080
(659)
(122)
30 Jun 17
$M
(739)
1,120
(122)
259
(1) Comparative information has been restated to conform to presentation in the current year.
(2) Represents cash flows from the underlying businesses classified as discontinued operations and excludes proceeds from disposal.
The balance sheet of the Group’s interest in CommInsure Life, Sovereign, BoCommLife, PTCL, CFSGAM and Count Financial are set out in
the table below. TymeDigital SA did not meet the held for sale classification criteria as at 30 June 2018. Count Financial met the held for sale
criteria as at 30 June 2019 but has not been reclassified as a discontinued operation.
Assets held for sale
Cash and liquid assets
Assets at fair value through Income Statement
Investment securities at fair value through other comprehensive income
Available-for-sale investments
Intangible assets
Property, plant and equipment
Investment in associates and joint ventures
Deferred tax assets
Other assets
Total assets (2)
Liabilities held for sale
Insurance policy liabilities
Deferred tax liabilities
Deposits and other public borrowings
Managed funds units on issue
Other liabilities
Total liabilities
As at (1)
30 Jun 19
30 Jun 18
$M
354
$M
108
10,417
11,867
260
-
2,049
1,510
607
145
1,207
16,549
-
10
1,372
1,225
401
13
630
15,626
10,854
11,188
404
1,268
2,197
1,073
15,796
763
871
1,698
380
14,900
(1)
(2)
Intragroup balances have been eliminated; however it will impact the final gain/loss on disposal of the discontinued operations.
Includes assets of Count Financial classified as held for sale as at 30 June 2019 and assets of the businesses classified as discontinued operations. Excludes other
assets classified as held for sale.
As at 30 June 2019, the foreign currency translation reserve relating to discontinued operations was $69 million (30 June 2018: $63 million,
30 June 2017: $61 million); the investment securities revaluation reserve relating to discontinued operations was $11 million.
As at 30 June 2018 and 30 June 2017, the available-for-sale investments revaluation reserve relating to discontinued operations was
$4 million and $13 million respectively.
262 Commonwealth Bank of Australia Annual Report 2019
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Notes to the
financial
statements
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.
Details of contingent liabilities and off Balance Sheet instruments are presented below and in Note 7.1. The face (contract) value, as disclosed
below, represents the maximum 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
Total credit risk related instruments
Credit risk related instruments
Guarantees
Documentary letters of credit
Performance related contingents
Commitments to provide credit
Other commitments
Total credit risk related instruments
Group
30 Jun 19
$M
Face Value
30 Jun 18
$M
Credit Equivalent
30 Jun 18
$M
30 Jun 19
$M
6,506
326
4,722
6,265
761
4,610
5,387
322
2,362
5,185
753
2,531
162,202
162,090
154,408
157,636
2,050
1,470
2,040
1,470
175,806
175,196
164,519
167,575
Bank
30 Jun 19
$M
Face Value
30 Jun 18
$M
Credit Equivalent
30 Jun 18
$M
30 Jun 19
$M
6,026
249
4,722
5,835
720
4,593
4,907
248
2,362
4,754
715
2,514
146,483
147,098
140,035
144,102
1,973
1,360
1,963
1,360
159,453
159,606
149,515
153,445
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 are initially measured at their fair value, equal to 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 expected credit loss recognised under AASB 9. 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 contingencies are undertakings that oblige the Group to pay third parties should a customer fail to fulfil a contractual non-
monetary obligation. Performance related contingencies 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. Such loan commitments are made either
for a fixed period, or are cancellable by the Group subject to notice conditions. As facilities may expire without being drawn upon, the notional
amounts do not necessarily reflect future cash requirements. Under AASB 9 loan commitments must be measured with reference to the
quantum of expected credit losses required to be recognised. In the case of undrawn loan commitments, the inherent credit risk is managed
and monitored by the Group together with the drawn component as a single credit exposure. The exposure at default on the entire facility is
therefore used to calculate the cumulative expected credit losses. Upon a loan drawdown by the counterparty, the amount of the loan is
accounted for in accordance with accounting policies for loans and receivables.
Other commitments to provide credit include commitments with certain drawdowns, standby letters of credit and bill endorsements.
The details of the Group’s accounting policies and critical judgements and estimates involved in calculating the AASB 9 impairment provisions
for the year ended 30 June 2019 are provided in Note 1.1.
Lease Commitments - Property, Plant and Equipment
Due within one year
Due after one year but not later than five years
Due after five years
Total lease commitments - property, plant and equipment
Lease arrangements
30 Jun 19
$M
Group
30 Jun 18
$M
30 Jun 19
$M
Bank
30 Jun 18
$M
673
1,805
1,600
4,078
681
1,764
1,811
4,256
626
1,668
1,466
3,760
619
1,593
1,658
3,870
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 $77 million as at 30 June 2019 (2018: $88 million).
264 Commonwealth Bank of Australia Annual Report 2019
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Notes to the
financial
statements
(a) Reconciliation of net profit after income tax to net cash provided by/ (used in) operating activities
(c) Non-cash financing and investing activities
Net profit after income tax
(Increase)/decrease in interest receivable
(Decrease)/increase in interest payable
Net (increase)/decrease 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)/loss
Loan impairment expense
Depreciation and amortisation (including asset
write downs)
(Decrease)/increase in liabilities at fair value through
Income Statement (excluding life insurance)
Increase in other provisions
(Decrease)/increase in income taxes payable
(Decrease)/increase in deferred tax liabilities
Decrease/(increase) in deferred tax assets
(Increase)/decrease in accrued fees/reimbursements
receivable
(Decrease)/increase in accrued fees and other items
payable
Decrease in life insurance contract policy liabilities
Cash flow hedge ineffectiveness
Loss/(gain) on changes in fair value of hedged items
Dividend received - controlled entities and associates
Changes in operating assets and liabilities arising from cash
flow movements
Other
Net cash provided by/(used in) operating activities
61
6,606
9
(231)
1,201
1,011
(603)
783
(1,082)
(457)
67
(111)
(340)
(787)
(4)
558
-
6,577
1,278
18,086
30 Jun 19
$M
8,590
30 Jun 18
$M
Group
30 Jun 17
$M
9,348
9,952
(36)
(69)
(62)
112
(14)
(26)
30 Jun 19
$M
7,783
537
(104)
(4,935)
1,536
2,788
(3,089)
Bank
30 Jun 18
$M
8,875
(17)
243
2,079
172
4,830
17
7
963
777
(41)
205
(484)
-
(106)
(68)
801
-
4
236
8,873
11
63
1,058
912
(1,013)
722
(1,573)
(27)
(140)
(53)
(775)
-
(6)
184
3,381
17
(287)
1,079
968
(258)
156
(461)
400
(538)
20
631
(836)
(4)
(765)
-
(2)
(492)
(6)
(292)
1,095
1,229
121
114
603
(14)
(573)
(238)
18
(1,240)
(20)
799
-
(624)
(1,473)
(763)
(2,085)
(15,461)
(15,228)
7,157
(15,771)
1,949
1,109
619
(807)
635
19,110
1,953
1,591
(b) Reconciliation of cash
For the purposes of the Statements of Cash Flows, cash includes cash and money at short call.
Notes, coins and cash at banks
Other short-term liquid assets
Cash and cash equivalents at end of year
30 Jun 19
$M
16,930
80
17,010
30 Jun 18
$M
17,110
5,895
23,005
Group
30 Jun 17
$M
14,836
8,281
23,117
30 Jun 19
$M
15,633
(99)
15,534
Bank
30 Jun 18
$M
15,586
5,765
21,351
Shares issued under the Dividend Reinvestment Plan
748
2,105
1,143
30 Jun 19
$M
30 Jun 18
$M
Group
30 Jun 17
$M
(d) Disposal of controlled entities
Net assets
Cash consideration received
Cash and cash equivalents held in disposed entities
30 Jun 19
$M
30 Jun 18
$M
1,128
1,304
45
-
-
-
Group
30 Jun 17
$M
-
-
-
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:
30 Jun 19
$'000
Group
30 Jun 18
$'000
30 Jun 19
$'000
Bank
30 Jun 18
$'000
a) Audit and audit related services
Audit services
PricewaterhouseCoopers Australian firm
Network firms of PricewaterhouseCoopers Australian firm
Total remuneration for audit services
Audit related services
PricewaterhouseCoopers Australian firm
Network firms of PricewaterhouseCoopers Australian firm
Total remuneration for audit related services
23,858
5,334
29,192
3,809
1,697
5,506
21,292
5,939
27,231
4,416
2,133
6,549
Total remuneration for audit and audit related services
34,698
33,780
b) Non-audit services
Taxation services
PricewaterhouseCoopers Australian firm
Network firms of PricewaterhouseCoopers Australian firm
Total remuneration for tax related services
Other Services
PricewaterhouseCoopers Australian firm
Network firms of PricewaterhouseCoopers Australian firm
Total remuneration for other services
Total remuneration for non-audit services
Total remuneration for audit and non-audit services (1)
925
470
1,395
7,315
600
7,915
9,310
44,008
757
1,508
2,265
10,955
66
11,021
13,286
47,066
16,776
1,204
17,980
2,630
34
2,664
20,644
228
266
494
7,315
3
7,318
7,812
28,456
14,040
1,027
15,067
3,736
145
3,881
18,948
561
481
1,042
10,933
-
10,933
11,975
30,923
(1) An additional amount of $10,497,464 (2018: $11,850,256) was paid to PricewaterhouseCoopers by way of fees for entities not consolidated into the Financial Statements.
Of this amount, $7,521,734 (2018: $8,093,111) relates to audit and audit-related services.
266 Commonwealth Bank of Australia Annual Report 2019
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Notes to the
financial
statements
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 include assurance and attestation relating to sustainability reporting and comfort letters over financing
programmes as well as reviews of internal control systems.
Taxation services include assistance with tax software configuration as well as advice regarding tax returns and submissions, and
Australia/foreign tax legislation.
Other services include benchmarking and process reviews on the Bank’s response to the Royal Commission, IT security assessments, and
consulting services related to corporate transactions.
Adoption of AASB 16 ‘Leases’
On 1 July 2019, the Group adopted AASB 16 ‘Leases’ replacing the previous standard AASB 117 ‘Leases’. AASB 117 required leases to be
classified as operating leases or finance leases according to their economic substance at inception of the lease. Finance leases were
recognised on the Balance Sheet. Operating leases were not recognised on the Balance Sheet and rent payable was recognised as an
expense over the lease term.
AASB 16 introduces a single accounting model for recognising and measuring lease arrangements. A contract contains a lease if it conveys
the right to control the use of an identified asset for a period of time. Lessor accounting remains largely unchanged from the previous standard.
Under lessee accounting, AASB 16 requires all leases to be recognised on the Balance Sheet, unless the underlying asset is of low value or
the lease has a term of 12 months or less.
From 1 July 2019, the Group will recognise a ‘right-of-use asset’ representing its right to use leased assets and a ‘lease liability’, measured
as the present value of future lease payments. The income statement will include depreciation of the right-of-use asset and interest expense
on the lease liability over the lease term. Total lease expense recognised over the life of a lease remains unchanged as compared to
AASB 117, however the timing of expense recognition changes, with a higher expense recognised in the earlier stages of a lease due to the
interest expense being determined on the lease liability that amortises over the lease term.
The Group has applied the modified retrospective approach in adopting AASB 16, and measured the right-of-use asset for certain existing
premises as if AASB 16 has always been applied. The resulting transition adjustments will be recognised in opening retained profits. For other
leases, the right-of-use asset is measured as equal to the lease liability. Under this approach no restatement to comparative information is
required. The adoption of AASB 16 is expected to increase assets by approximately $2,755 million and increase liabilities by approximately
$2,951 million. This will result in a post-tax decrease in retained profits of $138 million and an increase in deferred tax asset of $58 million.
This predominantly relates to leases over the Group’s commercial and retail premises. Management judgement applied in determining these
values includes the determination of whether an arrangement contains a lease, the term of the lease, the discount rate and future lease cash
flows.
Interest Rate Benchmark Reform
Interbank offered rates (IBORs), such as LIBOR, play a critical role in global financial markets, serving as reference rates for derivatives, loans
and securities, and as parameters in the valuation of financial instruments. The global regulatory community has initiated various programmes
to develop alternative benchmarks (known as “IBOR reform”) within certain jurisdictions. In response to the uncertainty about the long-term
viability of these benchmark rates, the IASB announced in 2018 that it would establish a project to consider the financial reporting implications
of the reform. It is expected to have an impact on various elements of financial instrument accounting, including hedge accounting, loan
modifications, as well as fair value methodologies and disclosures. In May 2019, the IASB published an Exposure Draft Interest Rate
Benchmark Reform which proposes exceptions to specific hedge accounting requirements in IFRS 9 and IAS 39. The IASB expects to issue
final guidance later in 2019. The Group is monitoring these developments and continues to assess the expected impact.
Other Accounting Developments
AASB 17 ‘Insurance Contracts’, amends the accounting for insurance contracts and will replace AASB 4 ‘Insurance Contracts’, AASB 1023
‘General Insurance Contracts’ and AASB 1038 ‘Life Insurance Contracts’. AASB 17 will apply to the Group from 1 July 2021. The impact of
AASB 17 is dependent on the Group’s composition at the time of adoption. The Group is still assessing the impact of AASB 17.
AASB Interpretation 23 ‘Uncertainty over Income Tax Treatments’ (Interpretation 23) clarifies the recognition and measurement criteria where
there is uncertainty over income tax treatments. It requires an assessment of each uncertain tax position to determine whether it is probable
that a taxation authority will accept the position. Where it is not considered probable, the effect of the uncertainty will be reflected in determining
the relevant taxable profit or loss, tax bases, unused tax losses, unused tax credits or tax rates. The amount will be determined as either the
single most likely amount or the sum of the probability weighted amounts in a range of possible outcomes, whichever better predicts the
resolution of the uncertainty. Judgements will be reassessed as and when new facts and circumstances are presented. Interpretation 23 will
apply to the Group from 1 July 2019, and is not expected to have a significant impact on the Group.
A revised conceptual framework has been issued, which contains new definitions and recognition criteria for assets, liabilities, income and
expenses in the framework. These changes will apply to the Group from 1 July 2020, where the criteria are not inconsistent with the specific
requirements of an accounting standard. The changes are not expected to have a significant impact on the Group.
Other amendments to existing standards that are not yet effective are not expected to result in significant changes to the Group's accounting
policies.
The Group adopted AASB 9 and AASB 15 on 1 July 2018. The Group’s current accounting policies for the recognition and measurement of
financial assets are detailed in Notes 3.1, 3.2, 5.2, 5.3 and 5.4 and the recognition of revenue from contracts with customers is detailed in
Note 2.3. A summary of accounting policies that applied to financial instruments and revenue recognition for the comparative periods is
provided below.
Financial instruments
The Group classifies its financial assets in the following categories:
available-for-sale investments;
loans and receivables;
financial assets at fair value through the Income Statement; and
derivative assets.
The classification of financial instruments at initial recognition depends on their purpose, characteristics and management’s intention when
acquiring them.
Available-for-sale investments
The Group 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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Financial instruments (continued)
Loans and receivables
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 method and are presented net of
provisions for impairment. 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.
The Group assesses at each Balance Sheet date whether there is any objective evidence of impairment. If there is objective evidence that an
impairment loss on loans and other receivables has been incurred, the amount of the loss is measured as the difference between the asset's
carrying amount and the present value of the estimated future cash flows (excluding future credit losses that have not been incurred),
discounted at the financial asset's original effective interest rate. Short-term balances are not discounted. Loans and other receivables are
presented net of provisions for loan impairment.
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 Sheet.
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. Increases or decreases in the provision amount are recognised in the Income Statement.
Financial assets at fair value through the Income Statement
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.
Derivative financial instruments
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.
Revenue recognition
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 which 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.
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 their carrying values.
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.
Revenue recognition (continued)
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.
Dividend Reinvestment Plan (DRP)
The Bank expects the DRP for the final dividend for the year ended 30 June 2019 will be satisfied in full by an on-market purchase and transfer
of shares of approximately $683 million.
Completion of CFSGAM Sale
On 31 October 2018, the Group announced the sale of Colonial First State Global Asset Management (CFSGAM) to Mitsubishi UFJ Trust and
Banking Corporation (MUTB). The sale of CFSGAM completed on 2 August 2019, resulting in final sale proceeds of $4.2 billion and a total
post tax gain of $1.5 billion (inclusive of separation costs and subject to final tax calculations and completion adjustments).
Update on Aligned Advice businesses
Ceasing to provide licensee services through Financial Wisdom
The Group has decided to cease providing licensee services through Financial Wisdom and will proceed with an assisted closure. The Group
will support advisers through an orderly transition to alternative arrangements, including self-licensing or joining another licensee. The Group
will also continue to manage customer remediation arising from past issues at Financial Wisdom. The cost of customer remediation for
Financial Wisdom has been included in customer remediation provisions recognised by the Group during the year.
Commonwealth Financial Planning Limited-Pathways (CFP-Pathways) advisers to transition to new licensee arrangements
In July 2019, the Group reached a decision to allow CFP-Pathways advisers to transition to self-licensing arrangements or move to another
licensee.
The estimated pre-tax costs of supporting the Financial Wisdom and CFP-Pathways businesses, their advisers and their customers through
this transition, as well as other internal project costs, is approximately $26 million.
Investment in Klarna Holding AB (Klarna)
The Group has committed an investment of US$100 million into Klarna Holding AB (Klarna), as part of their US$460 million capital raise.
The Group will become Klarna’s exclusive partner in Australia and New Zealand and intends to further invest at the parent and local level to
support this partnership.
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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 2019, as set out on pages 112 to 271, are in
accordance with the Corporations Act 2001 (Cth), including:
(i) complying with the Australian Accounting Standards and any further requirements in the Corporations Regulations 2001;
and
(ii) giving a true and fair view of the Group’s financial position as at 30 June 2019 and its performance for the year ended
30 June 2019;
(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 (Cth) for the year ended 30
June 2019.
This declaration is made in accordance with a resolution of the Directors.
Catherine Livingstone AO
Chairman
7 August 2019
Matt Comyn
Managing Director and Chief Executive Officer
7 August 2019
272 Commonwealth Bank of Australia Annual Report 2019
Independent auditor’s report
To the members of the Commonwealth Bank of Australia
Report on the audit of the financial report
Our opinion
In our opinion:
The accompanying financial report of the Commonwealth Bank of Australia (the Bank) and its
controlled entities (together the Group) is in accordance with the Corporations Act 2001, including:
a. giving a true and fair view of the Bank's and Group's financial positions as at 30 June 2019 and
of their financial performance for the year then ended; and
b. complying with Australian Accounting Standards and the Corporations Regulations 2001.
What we have audited
The Bank and Group financial report comprises:
the Bank and the Group balance sheets as at 30 June 2019;
the Bank and the Group income statements for the year then ended;
the Bank and the Group statements of comprehensive income for the year then ended;
the Bank and the Group statements of changes in equity for the year then ended;
the Bank and the Group 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 this 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 Bank 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, 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
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Our audit approach
Bank and 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 Bank and the Group, their accounting processes and controls and the industries in
which they operate. 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 financial services, as well
as specialists and experts in IT, actuarial, tax, treasury and valuation.
The Group is structured into 6 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), International Financial Services and Corporate Centre (IFS and Corporate Centre).
In designing our scope we considered the structure of the Bank and the Group and further identified
those entities or business activities within each business segment for which the Bank and the Group
prepares financial information for inclusion in the financial report (referred to as components).
The nature, timing and extent of audit work performed for each component was determined by the
components’ risk characteristics and financial significance to the Bank and 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
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 Bank and Group audit approach highlighting key aspects
of our audit.
1 Full scope audits are performed for the purposes of standalone legal entity statutory financial reports as required.
Bank and 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 Bank and Group materiality for the financial report, which we have set out in
the table below:
Overall Bank and
Group materiality
How we determined it
$510 million (2018: $615 million)
Approximately 5% of 2019 financial year profit before tax (PBT) (2018:
approximately 5% of 2018 financial year PBT) for the Bank.
Rationale for the
materiality
benchmark applied
We chose net profit before income tax because, in our view, it is the metric
against which the performance of the Bank and the Group is most commonly
measured and is a generally accepted benchmark in the financial services
industry.
We performed our audit over both the Bank and the Group financial
information concurrently. We apply the lower of materiality calculated based
on the Bank or the Group PBT in order to avoid duplication of work. As the
Bank has a lower PBT, we calculated materiality based on the Bank PBT and
applied this during the audit of both the Bank and the Group.
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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Key audit matters
Key audit matter
How our audit addressed the key audit matter
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 year. 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 to the Audit and Risk Committee. The key audit matters
identified below relate to both the Bank and the 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 (Bank and Group Level; Relevant components: RBS, B&PB, IB&M, NZ -
ASB)
AASB 9 Financial Instruments was adopted by
the Bank and the Group for the financial year
beginning 1 July 2018.
Insofar as it applies to loan impairment provisions,
AASB 9 introduces an expected credit loss (ECL)
impairment model which takes into account forward-
looking information reflecting potential future
economic events. The Bank and the Group developed
new models which are reliant on data as well as a
number of estimates including the impact of multiple
economic scenarios and other assumptions such as
defining a significant increase in credit risk.
We considered this a key audit matter due to
the subjective judgements made by the Bank
and the Group in determining when to
recognise impairment provisions including:
· Models used to calculate ECLs (ECL
models) are inherently complex and
judgement is applied in determining the
appropriate construct of model to be
applied; and
A number of assumptions are made by
the Bank and Group concerning the
values of inputs to the ECL models and
how inputs correlate with one another.
·
Provisions for impairment of loans that exceed
specific thresholds are individually assessed by
the Bank and the Group. These provisions are
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
on a sample basis:
·
·
·
Review and approval of forward
looking information used in ECL
models;
Reliability and accuracy of critical data
elements used in ECL models; and
Review and approval of ECL model
adjustments and the ECL loan
impairment provisions by the Bank’s
and the Group’s Loan Loss
Provisioning Committee (LLPC).
In addition to controls testing, we along with
PwC actuarial experts, performed the
following audit procedures, amongst others on
a sample basis:
·
·
Assessed the ECL model methodology
applied against general market
practice and the results of model
monitoring performed, including
back-testing of actual losses against
predicted losses;
Considered the Bank’s and the
Group’s judgements including the
reasonableness of forward-looking
information incorporated into the ECL
Loan impairment provisions (Bank and Group Level; Relevant components: RBS, B&PB, IB&M, NZ -
ASB)
established based on the expected future cash
repayments and estimated proceeds from the
value of the collateral held by the Bank and the
Group in respect of those loans. During the
financial year ended 30 June 2019, the
majority of the Bank’s and the Group’s
individually assessed provisions for specific
lending assets related primarily to business and
corporate loans.
Relevant references in the financial
report
Refer notes 1.1 and 3.2 for further information.
models by assessing the forecasts,
assumptions and probability
weightings applied in the multiple
economic scenarios;
Agreed a sample of data used as input to
the ECL models to relevant source
documentations;
Compared the modelled calculations to our
own calculated expectations as determined by
independently applying the model
methodology; and
Assessed the appropriateness of model
adjustments identified by the Bank and the
Group against internal and external
supporting information.
·
·
·
For a selection of individually assessed
provisions for specific lending assets, we
performed the following audit procedures,
amongst others:
·
·
Examined cashflow forecasts
supporting the impairment calculation
by assessing judgements (in particular
the amount and timing of recoveries)
made by the Bank and the Group in
the context of the borrowers’
circumstances based on the detailed
loan and counterparty information
known by the Bank and the Group;
and
Compared inputs in the Bank’s and
the Group’s estimates (such as
valuation of collateral held) to external
information where available.
We also assessed the appropriateness of the
Group’s disclosures against the requirements
of Australian Accounting Standards.
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How our audit addressed the key audit matter
Key audit matter
How our audit addressed the key audit matter
Judgemental valuation of financial instruments (Bank and Group Level; Relevant components: IB&M,
NZ – ASB, WM – Colonial Mutual Life Assurance)
Judgemental valuation of financial instruments (Bank and Group Level; Relevant components: IB&M,
NZ – ASB, WM – Colonial Mutual Life Assurance)
The Bank and Group hold financial
instruments measured at fair value
representing 14% of the total assets and 4%
of the total liabilities of the Bank and 15% of
the total assets and 4% of the total liabilities
of the Group. The financial instruments held
at fair value include:
· Derivative assets and liabilities;
·
Investment securities at fair value
though other comprehensive income;
Life insurance assets and liabilities;
and
Bills discounted and other assets and
liabilities designated at fair value.
·
·
The majority of the Bank’s and the Group’s
financial instruments are considered to be
non-complex in nature as fair value is based
on prices and rates that can be easily
observed in the relevant markets. On this
basis the majority of the Bank’s and 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 Bank and the Group.
The Group also holds a limited number of
financial instruments considered to be ‘Level
3’ in nature under Australian Accounting
Standards (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 Bank’s and the Group’s holdings of
such instruments is limited relative to total
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:
·
·
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 Bank and Group’s assessment of its
own models used to measure fair value.
In relation to the fair value of financial instruments
as at 30 June 2019, together with PwC valuation
experts, we compared the Bank’s and 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 or external
sources and using our own valuation models. We
considered the results to assess whether there was
evidence of systemic bias or error in the Bank and
the Group’s calculation of fair value.
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, 5.2, 5.3, 5.4 and 9.5 for further
information.
Key audit matter
How our audit addressed the key audit matter
Provisions for customer remediation and project costs associated with regulatory compliance
matters (Bank and Group level; Relevant components: All)
The Bank and the Group have assessed the
need to raise provisions in relation to
customer remediation payments, legal
proceedings, project costs associated with
compliance matters and investigations and
reviews from its regulators including APRA’s
Enforceable Undertaking, amongst others.
We considered this a key audit matter due to
the subjective judgements required by the
Bank and the Group in determining:
·
·
·
the probability of financial outcomes
based on available information;
the estimate of customer remediation
payment amounts; and
the project costs associated with the
remediation activities, and regulatory
proceedings, investigations and reviews.
Relevant references in the financial
report
Refer notes 1.1 and 7.1 for further information.
We developed an understanding of the Bank’s
and the Group’s processes for identifying and
assessing the impact of customer remediation
payments, legal proceedings and project costs
associated with compliance matters and
investigations and reviews from its regulators.
We read the minutes of the Bank’s main
governance meetings (i.e. Audit Committee, Risk
Committee and Board of Directors), attended the
Bank’s Audit and Risk Committee meetings and
considered correspondence with relevant
regulatory bodies.
We discussed ongoing legal matters with the
directors and management. We obtained written
representations from the Group Chief Executive
Officer, Chief Financial Officer and Group
General Counsel and obtained access to relevant
documents in order to develop our
understanding of the matters.
For material provisions, we considered the
judgement as to whether there is potential
material financial exposure for the Bank and the
Group, and if so, the amount of any provision
required. This included
·
inspecting the Bank’s and the Group’s
underlying calculations and assumptions made
against available information; and
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Key audit matter
How our audit addressed the key audit matter
Provisions for customer remediation and project costs associated with regulatory compliance
matters (Bank and Group level; Relevant components: All)
Valuation of insurance policyholder liabilities (Group Level; Relevant components: WM - Colonial
Mutual Life Assurance)
·
·
assessing assumptions in light of historical
trends, if possible; or
developing an understanding of the basis of
estimating the provisions and discussing the
assumptions, including costs of identifying and
remediating affected customers.
Where the Bank and the Group determined that
they were unable to reliably estimate the
possible financial impact of a remediation
activity or investigations, we considered relevant
information available in relation to the activities
and investigations to assess the appropriateness
of this conclusion.
We also assessed the adequacy of related
disclosures against the requirements of
Australian Accounting Standards.
Key audit matter
How our audit addressed the key audit matter
Valuation of insurance policyholder liabilities (Group Level; Relevant components: WM - Colonial
Mutual Life Assurance)
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
To assess the appropriateness of a selection of
actuarial assumptions used to determine the
value of insurance policyholder liabilities, we
along with PwC actuarial experts performed
the following audit procedures, amongst
others:
·
Compared the methodology and
models used by the Group to those
commonly applied in the insurance
industry and recognised by regulatory
standards;
· Developed an understanding of and
evaluated the relevant controls the
Group has in place over processes
relating to the valuation of insurance
policyholder liabilities. This included
the Group’s use of models, the quality
of oversight and controls over
assumptions within those models, and
the Group’s preparation of the
·
Long term economic assumptions
including inflation rates.
Relevant references in the financial
report
Refer note 1.1 and 11.3 for further information.
WM – Colonial Mutual Life Assurance
business segment was classified as a
discontinued operation as at 30 June 2019.
·
·
·
·
manually calculated components of the
liability;
Compared inputs (for example
inflation rates) used by the Group in
calculating the insurance policy
liability to relevant supporting
evidence, such as external market
data;
Considered the impact of changes in
assumptions and methodologies over
the year and compared these to
historical experience and industry
trends;
Compared the underlying supporting
data relating to policyholder
information used in the Group's
valuation to source documentation;
and
Tested that all relevant policy data was
included in the Group’s valuation
models by reference to source systems.
Key audit matter
How our audit addressed the key audit matter
Operation of financial reporting Information Technology (IT) systems and controls (Bank and
Group Level; Relevant components: All)
We considered this a key audit matter because
the Bank’s and the Group’s operations and
financial reporting processes are heavily
dependent on IT systems for the processing
and recording of a significant volume of
transactions.
In particular, in common with all banks, access
rights to technology are important because
they are intended to ensure that changes to
applications and data are appropriately
authorised. Ensuring staff have appropriate
access to IT systems, and that access is
monitored, are key controls in mitigating the
potential for fraud or error as a result of a
change to an application or underlying data.
For material financial statement balances we
developed an understanding of the business
processes, key controls and IT systems used to
generate and support those balances. 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. This involved assessing:
·
·
The technology control environment:
the governance processes and
controls used to monitor and enforce
control consciousness throughout the
Group’s technology teams;
Change management: the processes
and controls used to develop, test and
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auditor’s report
Key audit matter
How our audit addressed the key audit matter
Other information
Operation of financial reporting Information Technology (IT) systems and controls (Bank and
Group Level; Relevant components: All)
The Bank’s and 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.
·
·
·
authorise changes to the functionality
and configurations within systems;
System development: the project
disciplines which ensure that new
systems are developed to meet a
defined business need, are
appropriately tested before
implementation and that data is
converted and transferred completely
and accurately;
Security: the access controls designed
to enforce segregation of duties,
govern the use of generic and
privileged accounts or ensure that
data is only changed through
authorised means; and
IT operations: the controls over key
operations are used to ensure that any
issues that arise are managed
appropriately
For IT operations within the scope of our audit where
technology services are provided by a third party, we
considered:
·
Assurance reports from the third
party’s auditor on the design and
operating effectiveness of controls;
and
· Managements monitoring control
over the third party.
We also carried out 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.
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 2019, 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, with the exception of our limited assurance report
over the Non-Financial Performance Metrics as detailed in pages 297 to 304 of the annual report.
In connection with our audit of the financial report, our responsibility is to read the other information
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 on the other information that we obtained prior to the date of
this auditor’s report, 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 Bank are responsible for the preparation of the financial report that gives a true
and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and
for such internal 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 Bank 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
Bank or the Group or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial report.
A further description of our responsibilities for the audit of the financial report is located at the
Auditing and Assurance Standards Board website at:
http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our
auditor's report.
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Report on the Remuneration Report
Our opinion on the Remuneration Report
We have audited the information on pages 87 to 106 included as part of the Remuneration Report on
pages 82 to 106 of the Directors’ Report for the year ended 30 June 2019.
In our opinion, the Remuneration Report complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Bank 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 2019
Other
information
Shareholder information
Five year financial summary
Profit reconciliation
Environmental, customer,
social and governance metrics
Glossary of terms
Contact information
286
292
295
297
307
319
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information
Shareholder
information
Top 20 holders of fully paid Ordinary Shares as at 15 July 2019
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Name of holder
HSBC Custody Nominees
J P Morgan Nominees Australia
Citicorp Nominees Pty Limited
National Nominees Limited
BNP Paribas Noms Pty Ltd
Bond Street Custodians Limited
Australian Foundation Investment
Netwealth Investments Limited
Navigator Australia
Milton Corporation Limited
Argo Investments Limited
Nulis Nominees (Australia)
Mr Barry Martin Lambert
McCusker Holdings Pty Ltd
Invia Custodian Pty Limited
Australian Executor Trustees Limited
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