Commonwealth Bank Of Australia · ASX:CBA
Commonwealth Bank Of Australia — Debt Investor Presentation (August 2013)
67 slides from Commonwealth Bank Of Australia's debt investor presentation, Aug 14, 2013
Slide 1: Debt Investor Update
Debt Investor Update For the full year ended 30 June 2013 0 14 AUGUST 2013 | COMMONWEALTH BANK OF AUSTRALIA | ACN 123 123 124 FIND OUT MORE VIA OUR APP
Slide 2: Notes
Notes Disclaimer The material that follows is a presentation of general background information about the Group’s activities current at the date of the presentation, 14 August 2013. It is information given in summary form and does not purport to be complete. It is not intended to be relied upon as ad
Slide 3: Index
Index Results and Strategy 4 Capital, Funding and Liquidity 19 Sector Exposure and Home Loans 31 Economic Indicators 39 Housing Market 51 Covered Bonds 57
Slide 4: CBA overview
CBA overview 9 Largest Australian Bank by market capitalisation Result – 12 months to 30 Jun 20131 9 AA- / Aa2 / AA- Credit Ratings (S&P, Moodys, Fitch) Cash earnings ($m) 7,819 10% 9 ~14.6 million customers ROE (Cash) 18.4% (20) bpts 9 ~52,000 staff Cash EPS ($) 4.86 8% 9 Over 1,100 branches, leadi
Slide 5: Cash NPAT drivers
Cash NPAT drivers 12 months to 30 Jun 2013 9 Income Ç8% 9 Operating performance Ç12% 9 Lending balances Ç9% 9 Expenses Ç3% 9 CVA turnaround +$215m 9 C:I ratio È180 bpts 8 Deposit income È11% 8 NII È10% 8 LIE Ç$9m (19%) +13% 9 Business loans Ç4% 1 9 Avg FUA Ç13% 9 Income Ç5% 9 Expenses flat 9 Net op.
Slide 6: Expense growth
Expense growth Group Cost-to-Income ratio (6 mth) Operating Expenses Jun 12 Dec 12 Jun 13 $m 46.2 45.1 44.9 Underlying +1.8% 36 9,605 64 62 80 86 9,363 47 9,196 254 (220) FY12 Productivity Inflation IT Other FY13 Growth and Software Investment Defined FY13 (ex amortisation underlying Volume Amortisa
Slide 7: Group NIM
Group NIM 12 Month Movement bpts Wholesale (10) Deposits (11) 15 (21) 3 3 1 3 bpts 6 month NIM 213 209 209 213 217 212 217 206 210 Jun 11 Dec 11 Jun 12 Dec 12 Jun 13 12 month NIM FY12 Asset Funding Basis Portfolio Replicating Other1 FY13 pricing costs risk mix portfolio 1 Includes Treasury, New Zeal
Slide 8: Retail bank funding costs
Retail bank funding costs Basis 35% x 1.37% Risk Wholesale funding 3 Deposit 65% x 2.01% funding Jun 07 Dec 07 Jun 08 Dec 08 Jun 09 Dec 09 Jun 10 Dec 10 Jun 11 Dec 11 Jun 12 Dec 12 Jun 13 Dec 12 Jun 13 Increase in wholesale funding1 1.43% 1.37% Increase in deposit funding 1.96% 2.01% Increase in wei
Slide 9: Credit quality
Credit quality Loan Impairment Expense (Cash) to Gross Loans1 Group Consumer Arrears 90+ days CBA Group1 (basis points) 1.4% 2 73 0.9% 41 3 25 21 3 20 0.4% Jun 11 Dec 11 Jun 12 Dec 12 Jun 13 FY09 FY10 FY11 FY12 FY13 Home Loans Personal Loans Credit Cards Pro Forma PD Ratings Migration Risk-Rated Por
Slide 10: Provisioning
Provisioning Individual Provisions Collective Provisions $m $m 3,461 Economic overlay unchanged 3,043 2,837 2,858 Overlay 1,192 1,049 847 823 2,125 1,992 2,008 758 419 1,628 Bankwest 473 979 598 956 934 659 830 909 177 898 116 227 Consumer 808 157 920 969 847 812 Commercial 681 707 588 619 Jun 10 Ju
Slide 11: Provisioning ratios
Provisioning ratios Collective Provisions1 to Credit RWA2 Provisions for Impaired Assets3 to Impaired Assets4 50.00% 1.45% 1.25% 40.00% 1.05% 30.00% 0.85% 0.65% 20.00% FY08 FY09 FY10 FY11 FY12 FY13 FY08 FY09 FY10 FY11 FY12 FY13 CBA Peer 1 Peer 2 Peer 3 CBA Peer 1 Peer 2 Peer 3 Total Provisions1 to C
Slide 12: Our strategy
Our strategy Customer Focus Capabilities People Technology Strength Productivity opportunities “One CommBank” Growth Continued growth in business and institutional banking Disciplined capability-led growth outside Australia TSR Outperformance 12
Slide 13: Our strategy – customer focus
Our strategy – customer focus Retail Customer Satisfaction Products per Customer 84.0% CBA CBA 82.0% Peers 3.00 Peers 80.0% 2.80 78.0% 2.60 76.0% 74.0% 2.40 72.0% 2.20 70.0% 68.0% 2.00 Jun 07 Jun 13 Jun 07 Jun 13 Average Number of Banking and Finance Products held by % Satisfied ('Very Satisfied' or
Slide 14: Our strategy – technology
Our strategy – technology 14 Commonwealth Bank of Australia / Presentation Title / Confidential
Slide 15: Our strategy - productivity
Our strategy - productivity Examples1 Investment Spend Customer Service FY13 Transactions per FTE Ç 4% ~$1.2bn Sales and Converted Referrals per FTE Ç 10% 16% % Personal Loans funded same day Ç 11% 12% 53% Direct Banking call handling È 3% time 19% % Deposit customers receiving e-statements Ç 5% Num
Slide 16: CBA in Asia
CBA in Asia Country Representation as at June 2013 China Bank of Hangzhou (20%) – 133 branches Qilu Bank (20%) – 85 branches County Banking – 7 banks in Henan (5 Beijing Hebei Banks @ 80% and 2 Banks @ 100% Jinan shareholding) and 3 banks in Hebei (100% Henan Jiangsu Tokyo shareholding) Hubei Shangh
Slide 17: Summary and Outlook
Summary and Outlook A strong, good quality, strategy-driven result: – Revenue growth underpinned by peer leading customer satisfaction – Productivity focus enabling investment – Technology-led innovation Already conservative settings further strengthened Strong ROE notwithstanding significantl
Slide 18: Index
Index Results and Strategy 4 Capital, Funding and Liquidity 19 Sector Exposure and Home Loans 31 Economic Indicators 39 Housing Market 51 Covered Bonds 57
Slide 19: Funding and Liquidity
Funding and Liquidity 1 Funding Liquidity $bn Source of funds Use of funds $bn 25 (29) 135 137 128 63% 58 58 Deposit 57 Funded 26 (27) 30 Reg 33 min 31 $62bn 7 2 (8) 44 49 40 4 Equity IFRS & FX Net short Customer New long Long term Lending Other Assets Jun 12 Dec 12 Jun 13 term funding deposits term
Slide 20: Funding – portfolio
Funding – portfolio Funding Composition Wholesale Funding by Product 1% 1% Customer Deposits Structured MTN 3% 4% 5% 11% 11% Vanilla MTN ST Wholesale Funding Commercial Paper 4% 2% LT Wholesale Funding maturing Debt Capital < 12 months 7% CDs LT Wholesale Funding maturing 33% 17% >= 12 months 4% Sec
Slide 21: Funding – deposits
Funding – deposits Australian Deposits Funding composition of Australian Banks* $bn Total Deposits (excl CD’s) Share of total funding 350 309 177 245 172 204 158 114 173 137 87 90 CBA Peer 3 Peer 2 Peer 1 Household deposits Other deposits Source : APRA Source : RBA, APRA, S&P Retail Deposit mix Depo
Slide 22: Funding – term wholesale profile
Funding – term wholesale profile 1 Funding strategy driven by market and investor diversity, appropriate maturity profile and overall cost Term wholesale funding requirement has eased materially since FY 2010 $bn 60 50 9 Weighted Average Maturity 3.8yrs 40 Expected funding 30 requirement 5 12 10
Slide 23: Funding – term wholesale costs
Funding – term wholesale costs 1 2 Marginal Funding Costs Average Long Term Funding Costs bpts Indicative Long Term Wholesale Funding Costs % Margin to BBSW 200 2.00 Peak 169 1.75 Dec 13 Jun 12 153 150 137 1.50 115 Jun 13 1.25 Margin to BBSW 106 99 Dec 12 100 109 1.00 82 92 0.75 51 74 50 43 0.50 54
Slide 24: Funding – Covered Bonds
Funding – Covered Bonds Banking Act amendment of Oct 2011 set a legislative limit of 8% of Australian assets Limits equates to ~30% of LT wholesale debt Multi-jurisdiction programme Covered bonds offer alternative issuance options, especially during periods of market dislocation Issuance o
Slide 25: Capital position
Capital position Basel III CET1 (International) of 11.0%* vs global peer average 9.6% Up 60% since Jun 07 Basel III CET1 (APRA) 8.2% DRP neutralisation for 2013 final dividend Basel III CET1 (International) Basel III CET1 (APRA) Mvts in bpts Mvts in bpts 244 (151) 268 (167) (51) 26 11.0% 34
Slide 26: APRA and international comparison
APRA and international comparison The following table provides details of the impact on CBA Group capital, as at June 2013, of the 1 differences between the APRA Basel III prudential requirements and the requirements of the Basel 2 Committee on Banking Supervision (BCBS) . 30 June 2013 Tier One Tota
Slide 27: Leverage ratio
Leverage ratio ♦ Supplementary measure to the risk based capital requirements proposed APRA’s view of industry levels by the Basel Committee (November 2011) – Monitors build up of excessive leverage – Ratio is Tier 1 Capital as a percentage of total exposures (on and off balance sheet) – Observation
Slide 28: Regulatory change
Regulatory change Area 2013 2014 2015 2016 2017 2018 Bank capital Leverage ratio Capital Leverage ratio (Basel III) – observation conservation – to be – implemented period buffer implemented (CET1 min 4.5%) (publicly – to be disclosed) implemented Capital (CET1 2.5%) Life and general Level 3 reforms
Slide 29: International capital benchmark
International capital benchmark Peer Basel III CET1 (International) 13.2 12.1 11.4 11.2 11.1 11.0 10.6 10.6 10.4 10.3 10.2 10.1 10.0 10.0 10.0 Peer bank average CET1 ratio 9.7 9.6 9.6 (ex. Australian banks): 9.6% 9.4 9.4 9.3 9.3 9.3 8.7 8.6 8.5 8.5 8.5 8.4 8.4 8.2 8.1 8.0 7.7 1 1 1 Bank of America D
Slide 30: Index
Index Results and Strategy 4 Capital, Funding and Liquidity 19 Sector Exposure and Home Loans 31 Economic Indicators 39 Housing Market 51 Covered Bonds 57
Slide 31: Credit exposure by industry
Credit exposure by industry 1 2 2 Jun 13 Jun 13 Jun 12 Jun 12 Consumer 54.9% 54.6% Agriculture 2.0% 2.0% Mining 1.5% 1.0% Manufacturing 1.8% 2.0% Energy 0.9% 1.1% Construction 0.8% 0.9% Retail & Wholesale 2.2% 2.3% Transport 1.7% 1.5% Banks 9.9% 10.7% Finance – other 3.5% 3.4% Business Services 0.9%
Slide 32: Sector exposures
Sector exposures Commercial Exposures by Sector1 Top 20 Commercial Exposures 2 AAA to A+ BBB+ to $bn Other Total AA- to A- BBB- A+ Banks 38.4 41.8 4.8 0.7 85.7 A+ A- Finance Other 11.5 11.3 2.4 4.9 30.1 AA+ BBB Property - 6.4 11.0 38.3 55.7 A- A- Sovereign 64.4 1.5 0.6 0.2 66.7 BBB+ A- Manufacturing
Slide 33: CBA home loan portfolio profile
CBA home loan portfolio profile Jun Dec Jun Jun Dec Jun 13 12 12 13 12 12 Total Balances - Spot ($bn)1 373 359 353 Portfolio Dynamic LVR (%)6 48 49 48 Total Balances - Average ($bn)1 361 356 345 Customers in advance (%)7 80 81 82 Total Accounts (m) 1.4 1.4 1.4 Payments in advance (#)8 7 7 7 Fundings
Slide 34: Home lending growth profile
Home lending growth profile 1 Home Loan Balances Balance Growth by Channel $bn % Six Monthly (Annualised) 8.5 28 (72) 63 6.7 (6) 5.8 5.2 5.8 5.1 4.6 4.2 3.6 3.2 3.0 3.6 2.6 3.0 2.4 2.2 272 285 Jun 12 New Redraw Repayments External Jun 13 Dec 11 Jun 12 Dec 12 Jun 13 fundings & interest / Other refina
Slide 35: RBS home loans – LVR and arrears by vintage
RBS home loans – LVR and arrears by vintage Home Loan Dynamic LVR1 Profile Home Loan Arrears Rates by Vintage 90+ days 70% Average 2.0% Dynamic LVR Jun 12 48% 60% Dec 12 49% Jun 13 48% 1.5% Proportion of Total Portfolio 50% FY08 40% FY09 1.0% 30% FY07 20% FY10 0.5% FY11 10% FY12 FY13 0% 0.0% 0-60% 6
Slide 36: RBS home loans – stress test
RBS home loans – stress test Observations Key Assumptions Base Year 1 Year 2 Year 3 Aggressive 3 year “stress test” scenario of Unemployment 5.3% 7.0% 10.5% 11.5% cumulative 32% house price decline and Hours under-employed1 7.9% 11.4% 15.8% 18.4% Cumulative House Prices n/a -15% -32% -32% peak 11.
Slide 37: Commercial property market
Commercial property market CBD Office Supply Pipeline1 CBD Vacancy Rates % of Total Stock 1991 Recession Previous Current Peak 1990s Previous Current 40% 40% (1st Half FY13) (2nd Half FY13) (1st Half FY13) (2nd Half FY13) 35% 35% 30% 30% 25% 25% 20% 20% 15% 15% 10% 10% 5% 5% 0% 0% Sydney Melbourne B
Slide 38: Index
Index Results and Strategy 4 Capital, Funding and Liquidity 19 Sector Exposure and Home Loans 31 Economic Indicators 39 Housing Market 51 Covered Bonds 57
Slide 39: Economic Summary
Economic Summary 2010 2011 2012 2013 2014 (f) 2015 (f) Credit Growth % – Total 3.0 2.7 4.4 3.1 4-6 4½-6½ Credit Growth % – Housing 8.0 6.0 5.0 4.6 5-7 5½-7½ Credit Growth % – Business -4.0 -2.2 4.4 0.9 2½-4½ 3-5 Credit Growth % – Other Personal 3.0 0.7 -1.3 0.2 1½-3½ 2-4 1 GDP % 2.1 2.4 3.4 2.9 2.8
Slide 40: Growth
Growth Real GDP (Sep 08 = 100) GDP GDP forecasts Forecasts 2013-14 Employment by sector Industry share of output Employment by sector Source: RBA 40
Slide 41: Credit
Credit Credit and spending CREDIT & SPENDING Credit growth by sector % (annual % % change) % (annual change) 30 30 CBA (f) Credit 20 20 10 10 0 0 Domestic spending -10 -10 Sep-80 Sep-86 Sep-92 Sep-98 Sep-04 Sep-10 Balance sheet pressures easing Household debt service CBA H/Hold CBA H/HOLD wealth ind
Slide 42: Leverage
Leverage Household Gearing Housing equity withdrawal Source: CBA Listed corporates’ gearing ratio Business finance Source: RBA 42
Slide 43: Policy flexibility
Policy flexibility OFFICIAL INTEREST RATES GENERAL GOVERNMENT NET DEBT % Interest rates can be cut % % Fiscal policy can be used (% of GDP) % 100 100 8 8 Advanced G-20 75 75 6 6 UK Australia 50 50 Emerging G-20 4 4 25 25 NZ US Australia 2 2 Euro Canada 0 0 Japan Source: IMF Fiscal Monitor 0 0 -25 -2
Slide 44: Commodities
Commodities Bulk commodity prices Base metals, Rural and Oil prices (FOB basis) (weekly) Source: RBA Source: RBA AUD – deviation from fair value CBA Commodity price index (USD) 44
Slide 45: Resources investment
Resources investment The mining pipeline is dominated by large multi-year, multi-billion $ projects. Of the A$268bn of committed resource projects, some A$195bn is in LNG The real value of oil & LNG projects is equivalent to the Apollo Moon Program. Because these projects are of long duratio
Slide 46: China slowdown scenario
China slowdown scenario “In terms of the risk emanating from China, we believe only a very steep slowdown in China – which we consider unlikely to occur (5% chance)– would be enough to potentially lower the credit ratings on Australia” . Standard & Poors – 13 August 2013 ChinaGDP CHINA GDPGROWTH G
Slide 47: China’s policy response
China’s policy response China: GDP and Policy China: FAI & Iron Ore prices (annual % change) (change in growth rate) China: Construction and Policy China: Steel and Policy (% change) (change) 47
Slide 48: Urbanisation in China
Urbanisation in China China & Exports Path of urbanisation % of country’s exports that remain in China Source: RBA Steel consumption Energy consumption Source: RBA Source: RBA 48
Slide 49: China slowdown scenario
China slowdown scenario China GDP Growth % Impact on Australia of a (2003 prices) China Investment Slowdown shock to trading partner GDP China grew at an average pace of 11% pa over 2003-12 Chinese GDP (or commodity IMF research indicates a 1% IMF research shows greatest demand) increased by
Slide 50: Index
Index Results and Strategy 4 Capital, Funding and Liquidity 19 Sector Exposure and Home Loans 31 Economic Indicators 39 Housing Market 51 Covered Bonds 57
Slide 51: House prices
House prices House price growth Real residential property prices 3 Years 12 mths 6 mths to to to change (%) June 13 June 13 June 13 Sydney 6.9 6.2 5.1 Melbourne 0.8 6.7 5.9 Brisbane (3.3) 4.5 3.3 Adelaide (3.6) 1.2 3.4 Perth 6.1 10.3 6.3 Australia 2.7 6.3 4.9 * Source: RP-Data Rismark, stratified me
Slide 52: Urbanisation density and prices
Urbanisation density and prices Urban population Density & house prices Dwelling prices URBAN POPULATION DWELLING PRICES DENSITY & HOUSE PRICES (ratio to household income) (% in two largest cities) %80urban pop in 2 largest *Source: OECD/RBA New Zealand cities Australia Australia 6 6 NZ France Capit
Slide 53: Supply and demand
Supply and demand POPULATION DRIVERS Housing demand and supply '000 Population drivers '000 CBA: HOUSING DEMAND & SUPPLY '000 '000 HII 2012 450 annualised 450 200 200 Supply Net migration 300 300 100 100 Demand Pent-up demand 150 150 0 0 Excess supply Natural increase -100 -100 0 0 Sep-90 Sep-96 Sep
Slide 54: House price-to-income
House price-to-income Dwelling price to income ratios* Source: RBA 54
Slide 55: Australian vs. US housing market
Australian vs. US housing market CBA / Aust US Australian mortgage product Principal and interest amortising 25/30 Unemployment 5.7%1 7.6%2 year loan Variable interest rate set at bank’s No-Recourse Lending No Yes discretion Limited pre-payment penalty Variable vs Fixed ~85%/15% ~15%/85% Ful
Slide 56: Index
Index Results and Strategy 4 Capital, Funding and Liquidity 19 Sector Exposure and Home Loans 31 Economic Indicators 39 Housing Market 51 Covered Bonds 57
Slide 57: Australian Covered Bond legislation
Australian Covered Bond legislation The Australian parliament passed the Banking Amendment (Covered Bonds) Bill in October 2011 Issuance only allowed under the legislative framework Segregation of cover assets achieved via a special purpose vehicle Maximum issuance cap of 8% of ADI assets in
Slide 58: Covered Bond structural enhancements
Covered Bond structural enhancements The Asset Coverage Test (ACT) is performed monthly by the Trust Manager to test the Adjusted Aggregate Asset Coverage Test Mortgage Loan Amount is at least equal to the A$ equivalent of all outstanding covered bonds (see Slide 41) The Amortisation Test is perform
Slide 59: House price indexation
House price indexation Indexation is used in the Asset Coverage Test ABS House Price Index and the Amortisation Test to protect investors from a downward move in property prices 160.0 150.0 Indexation is applied to the LVR Adjusted 140.0 Mortgage Loan Balance (see Slide 41) in the 130.0 ACT and
Slide 60: Covered bond pool summary
Covered bond pool summary 30-Jun-13 Owner Occupied Investment Total Geographic Distribution Pool Size 20,784 8,215 28,999 ACT, 1.3% No. of Loans 95,482 32,311 127,793 QLD, 11.0% TAS, 2.2% Average Loan Size 217,675 254,245 226,921 NSW, 34.1% NT, 1.0% Maximum Loan Size 1,273,054 1,642,000 1,642,000 SA
Slide 61: Covered bond pool summary
Covered bond pool summary* Seasoning (Months) Current LVR Profile 25% 25% 20% 20% 15% 15% 10% 10% 5% 5% 0% 0% Origination Year Distribution Current Principal Balance Distribution 25% 30% 25% 20% 20% 15% 15% 10% 10% 5% 5% 0% 0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 * As at 30 Ju
Slide 62: CBA mortgage products
CBA mortgage products Package Max Package Low Doc Product Benefits Rate p.a. Medallion rates LVR availability availability Standard • Unlimited extra repayments 5.90% 5.10% 95% 9 9 9 Variable Rate • 100% offset (SVR) • Split option No Fee • No Fees for the life of the loan 5.20% - 95% 8 8 9 • Simple
Slide 63: Sources of origination
Sources of origination Population Inflows % of Channel Description Size (2012/13) Portfolio Branch Network Customer can apply through any of our 1000+ 1,000+ $23b (37%) 42% branches. Mobile Banking Our Mobile Lenders are trained specialists with 180 $7b (11%) 7% years of experience, they are availab
Slide 64: Mortgage decisioning process
Mortgage decisioning process Applications in CommSee Home Loans (CHL) are system credit scored. Credit Analysts Application received rely on the credit score and referral reason to determine what level of assessment is from Lender via CHL required. Team Leader allocates Types of assessment can be: A
Slide 65: Mortgage broker accreditation
Mortgage broker accreditation There are two requirements for CBA Broker Accreditation as follows: 1. Legislative licensing requirements Must be National Credit Regulation compliant, through any of the following: hold an Australian Credit License be appointed as a Credit Representative of a licen
Slide 66: Home loan collections
Home loan collections “Arrears” are defined as a monthly payment or a proportion of a monthly payment, which has fallen due but has not been paid Broadly speaking there are two stages of arrears management and they are segmented by the number of days an account is in arrears Pre - Collections Co
Slide 67: Contact us
Contact us 24 Hour Global Contact Numbers… Sydney Direct Line Email Simon Maidment +61 2 9118 1339 simon.maidment@cba.com.au Richard Nelson – Debt IR +61 2 9118 1343 richard.nelson@cba.com.au Patrick Bryant +61 2 9118 1345 patrick.bryant@cba.com.au Ed Freilikh – Secured Funding +61 2 9118 1337 edwar
Commonwealth Bank of Australia — Debt Investor Presentation (August 2013) on 6ix