Commonwealth Bank Of Australia · ASX:CBA
Commonwealth Bank Of Australia — Debt Investor Presentation (February 2014)
65 slides from Commonwealth Bank Of Australia's debt investor presentation, Feb 12, 2014
Slide 1: Debt Investor Update
Debt Investor Update FOR THE HALF YEAR ENDED 31 DECEMBER 2013 COMMONWEALTH BANK OF AUSTRALIA | ACN 123 123 124 | 12 FEBRUARY 2014
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, 12 February 2014. It is information given in summary form and does not purport to be complete. It is not intended to be relied upon as
Slide 3: Index
Index Results and Strategy 4 Capital, Funding and Liquidity 20 Sector Exposure and Home Loans 31 Housing market 38 Economic Indicators 44 Covered Bonds 53
Slide 4: CBA overview
CBA overview Financial Result – 6mths to 31 Dec 20131 Largest Australian bank by market capitalisation AA- / Aa2 / AA- Credit Ratings (S&P, Moodys, Fitch) Cash earnings ($m) 4,268 2 14% Basel III CET1 (International) 11.4% ROE (Cash) 18.7% 80 bpts Total assets of $782bn ~14.5 million custo
Slide 5: Operating performance by division
Operating performance by division All businesses performing well Operating Cash Cash NPAT Divisions Performance1 NPAT Drivers ($m) ($m) 1H14 v 1H13 Retail Banking Income +9% 2,674 1,671 +10% Services Home loan balances +7% Business and Private Business loan balances 2 +5% 1,226 797 +10% Bankin
Slide 6: Income and Expenses
Income and Expenses Operating Income $m Underlying +5.4% +1.6% +8.4% 150 11,067 454 94 10,753 164 10,205 1H13 Underlying Banking Underlying 1H14 FX Benefit Timing 1 1H14 Income Funds & Insurance Underlying Benefits Income Operating Expenses $m Underlying +1.7% +6.4% +1.7% +1.5% 68 4,751 181 18 46 (2
Slide 7: Group NIM
Group NIM 6 month NIM bpts 213 209 217 212 214 210 206 Dec 11 Jun 12 Dec 12 Jun 13 Dec 13 12 month NIM 7
Slide 8: Retail bank funding costs
Retail bank funding costs Increase in retail bank funding costs since Jun 07 Basis Risk 33% x 1.37% Wholesale funding 2 Deposit 67% x 1.94% 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 13 Dec 12 Dec 13 (6 month average) (6 month average) Incr
Slide 9: Credit quality
Credit quality Loan Impairment Expense Group Consumer Arrears Loan Impairment Expense (Cash) to average GLA 90+ days (basis points)1 1.4% 73 2 0.9% 3 41 25 21 3 20 16 4 0.4% Jun 11 Dec 11 Jun 12 Dec 12 Jun 13 Dec 13 FY09 FY10 FY11 FY12 FY13 1H14 Home Loans Personal Loans Credit Cards Pro-forma PD Ra
Slide 10: Provisioning
Provisioning Individual Provisions Collective Provisions $m $m 2,837 2,858 2,858 2,870 Economic 823 overlay 847 892 875 Overlay portion unchanged 2,008 1,845 419 377 1,628 473 470 934 Bankwest 780 1,416 659 547 909 906 898 853 227 199 Consumer 157 149 847 866 812 712 720 Commercial 619 643 707 Jun 1
Slide 11: Provisioning ratios
Provisioning ratios Collective Provisions1 to Credit RWA2 Provisions for Impaired Assets3 to Impaired Assets4 50.0% 1.45% 1.25% 40.0% 1.05% 30.0% 0.85% 0.65% 20.0% FY08 FY09 FY10 FY11 FY12 FY13 1H14 FY08 FY09 FY10 FY11 FY12 FY13 1H14 CBA Peer 1 Peer 2 Peer 3 CBA Peer 1 Peer 2 Peer 3 Total Provisions
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 8 Retail customer satisfaction Products per customer 86% 3.04 2.83 2.90 CBA 2.71 84% 0.53 2.55 0.48 Peers 2.36 0.49 0.50 82% 2.20 0.48 0.21 0.20 0.46 0.22 80% 0.21 0.44 0.20 0.70 0.74 78% 0.20 0.56 0.65 0.18 0.51 76% 0.44 0.42 74% 1.40 1.42 1.47 1.52 72% 1.22 1.31 1.10
Slide 14: Our strategy – technology
Our strategy – technology New CommBank app Simplified Processes Over 1 million registered users CBA led the market, first with cards and then with Simplified processes reducing 1 terminals since launch Dec-13 Now ~20% of total card transactions and growing online account opening times by 80% Exp
Slide 15: Our strategy – productivity
Our strategy – productivity Sustained Improvements1 Case Study – WM Unit Pricing Customer Service Average 1 Yr +8% Turnaround Time Volumes Headcount Transactions per FTE 2 Yr +13% (8%) +10% flat % Personal Loans 1 Yr +6% funded same day 2 Yr +15% % Deposit 1 Yr +4% customers with e-statements 2 Yr +
Slide 16: CBA in Asia
CBA in Asia Country Representation as at December 2013 China Bank of Hangzhou (20%) – 140 branches Qilu Bank (20%) – 85 branches County Banking – 7 County Banks and 1 County Bank branch in Henan (5 Banks and Beijing Hebei Tokyo 1 County Bank branch @ 80% and 2 Banks Jinan @ 100% shareholding) and 3
Slide 17: Summary and outlook
Summary and outlook Summary Continuing momentum from a long-term strategy Still considerable upside from effective execution of the strategy Outlook Positive on medium term outlook - short term improvements likely to be gradual rather than dramatic Domestic confidence slow to rebuild Key q
Slide 18: Index
Index Results and Strategy 4 Capital, Funding and Liquidity 20 Sector Exposure and Home Loans 31 Housing market 38 Economic Indicators 44 Covered Bonds 53
Slide 19: Funding
Funding Funding movement Funding sources $bn $bn Source of funds Use of funds 17 (12) 63% (24) Customer Deposit 21 426 deposits Funded (16) 118 ST wholesale 8 4 137 LT wholesale1 2 47 Equity Equity IFRS & FX Net short term Customer New long term Long term Lending Other Assets funding deposits fundin
Slide 20: Funding – Liquidity
Funding – Liquidity Liquidity1 ♦ APRA Prudential Standard (APS210) $bn finalised December 2013 effective from 1 137 January 2014 133 128 ♦ Full Liquidity Coverage Ratio (LCR) compliance from 2015 – no phase-in 53 ♦ RBA Committed Liquidity Facility (CLF) 59 57 remains a core part of LCR compliance fo
Slide 21: Funding – Portfolio
Funding – Portfolio Funding Composition Wholesale Funding by Product 1% 1% Customer Deposits 5% Structured MTN 3% 5% 7% 10% Vanilla MTN ST Wholesale Funding 2% Commercial Paper 5% LT Wholesale Funding maturing Debt Capital 8% < 12 months CDs LT Wholesale Funding maturing 5% 34% > 12 months Securitis
Slide 22: Funding – Deposits and LT wholesale
Funding – Deposits and LT wholesale Australian Deposits Australian deposit market growth rates $bn Total Deposits Smoothed annual growth rate (excl CD’s) 30% 366 320 261 182 219 20% Other 172 167 122 Household 184 10% 148 94 97 CBA Peer 3 Peer 2 Peer 1 0% Household deposits Other deposits 2007 2008
Slide 23: Funding – Issuance and Maturity
Funding – Issuance and Maturity 1 Issuance Average Long Term funding costs 2 60 $bn 9 % Margin to BBSW 40 2.00 Predicted 6 mths funding costs if 20 45 12 5 2 rates remain 1.75 23 20 unchanged 17 15 0 1.50 Jun-10 Jun-11 Jun-12 Jun-13 Dec-13 Current Market Rates LT wholesale Govt Guarnateed Covered bo
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 CET1 (International)1 CET1 (International) of 11.4% well 10.6% 11.0% 11.4% above international peer average of 10% 6.9% +65% Strong organic growth in the half year with CET1 +40 bps and up over 65% since Jun 07 Jun 07 Dec 12 Jun 13 Dec 13 CET1 (APRA) of 8.5%. APRA CET1 (APRA)
Slide 26: Dividends and Return on Equity (Cash)
Dividends and Return on Equity (Cash) Dividends per share 84% 89% 81%1 70% 84% 71%1 Payout 88% 87% 61% ratio (cash) 62% 63% 74% 63% 61% 84% 183 107 149 113 153 113 115 120 170 132 188 137 197 164 200 2007 2008 2009 2010 2011 2012 2013 2014 Return on Equity 600 20.4% 19.5% 18.7% 18.6% 18.2% 18.7% 500
Slide 27: Internationally harmonised capital position
Capital position CET1 (International) of 11.4% well above international peer average of 10% Strong organic growth in the half year with CET1 (International) +40 bps and up over 65% since Jun 07 CET1 (APRA) of 8.5% APRA adopts a more conservative measurement of capital than other jurisdiction
Slide 28: 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 29: Regulatory Change
Regulatory Change 2013 2014 2015 2016 2017 2018 Capital conservation Bank capital (Basel III) Leverage ratio buffer - implemented (CET1 Capital - observation period - to be implemented min 4.5%) Leverage ratio (publicly disclosed) (CET1 2.5%) Life and general - to be implemented Level 3 reforms D-SI
Slide 30: Index
Index Results and Strategy 4 Capital, Funding and Liquidity 20 Sector Exposure and Home Loans 31 Housing market 38 Economic Indicators 44 Covered Bonds 53
Slide 31: Credit Exposure by Industry
Credit Exposure by Industry 1 Dec 13 Dec 13 Jun 13 Jun 13 Consumer 54.9% 54.9% Agriculture 2.0% 2.0% Mining 1.6% 1.5% Manufacturing 1.8% 1.8% Energy 0.8% 0.9% Construction 0.7% 0.8% Retail & Wholesale 2.2% 2.2% Transport 1.6% 1.7% Banks 9.4% 9.9% Finance – other 3.4% 3.5% Business Services 1.2% 0.9%
Slide 32: Retail Banking Services home loan portfolio
Retail Banking Services home loan portfolio RBS Portfolio Dec 13 Jun 13 Dec 12 RBS Portfolio Dec 13 Jun 13 Dec 12 Total Balances - Spot ($bn) 293 285 276 Total Funding ($bn)1 37 63 29 Total Balances - Average ($bn)1 289 278 274 Average Funding Size ($’000)1 252 244 243 Total Accounts (m) 1.4 1.4 1.4
Slide 33: RBS Lending Growth
RBS Lending Growth RBS Home Loan Balances RBS Balance Growth1 by Channel $bn % Six Monthly (Annualised) 37 14 (40) 8.5 (3) 8.0 6.7 285 293 5.7 5.1 5.6 5.5 4.5 3.7 4.0 3.1 2.2 Jun 13 New Redraw Repayments External Dec 13 Dec 12 Jun 13 Dec 13 fundings & interest / Other refinance Brokers Proprietary C
Slide 34: 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 LVR1 60% Dec 12 49% Jun 13 48% 1.5% Proportion of Total Portfolio 50% Dec 13 47% 40% FY09 1.0% FY08 30% FY07 20% 0.5% FY10 FY11 10% FY12 FY13 0% 0.0% 0-60%
Slide 35: RBS Home Loans – Stress Test
RBS Home Loans – Stress Test Observations Key Assumptions Base Year 1 Year 2 Year 3 Unemployment 5.5% 7.0% 10.5% 11.5% Aggressive three-year “stress test” scenario Hours under-employed1 8.1% 11.4% 15.8% 18.4% of cumulative 32% house price decline and Cumulative House Prices n/a -15% -32% -32% peak
Slide 36: Commercial Property Market
Commercial Property Market CBD Office Supply Pipeline1 CBD Vacancy Rates % of Total Stock Peak 1990s Previous Current 40% 1991 Recession Previous Current (2ndt Half FY13) (1st Half FY14) (2nd Half FY13) (1st Half FY14) 40% 35% 35% 30% 30% 25% 25% 20% 20% 15% 15% 10% 10% 5% 5% 0% 0% Sydney Melbourne
Slide 37: Index
Index Results and Strategy 4 Capital, Funding and Liquidity 20 Sector Exposure and Home Loans 31 Housing market 38 Economic Indicators 44 Covered Bonds 53
Slide 38: Australian housing prices
Australian housing prices Dwelling prices Dwelling price growth DWELLING PRICES 3 Years to 12 mths to Index Index Dec 13 Dec 13 700 Sydney 700 % CAGR % change Melbourne Sydney 4.3 14.5 Melbourne 0.3 8.5 550 Perth 550 Brisbane Brisbane (0.8) 5.1 Adelaide (0.7) 2.8 400 400 Adelaide Regional Perth 2.2
Slide 39: Housing supply and demand
Housing supply and demand Stronger population growth is lifting Prior underbuilding has led to a demand for housing significant level of pent-up demand POPULATION DRIVERS CBA: HOUSING DEMAND & SUPPLY '000 '000 '000 '000 450 450 200 200 Supply Net migration 300 300 100 100 Demand Pent-up demand 150 1
Slide 40: Urbanisation rates and density
Urbanisation rates and density Urban population Density & house prices Dwelling prices URBAN POPULATION DWELLING PRICES (% in two largest cities) DENSITY & HOUSE PRICES (ratio to household income) %80urban pop NZ in 2 largest *Source: OECD/RBA cities Australia Australia 6 6 France NZ Capital Belgium
Slide 41: The transmission of higher house prices
The transmission of higher house prices Rising house prices boosts wealth, encourages Higher house prices are positive for wealth construction activity and lifts sentiment positions HOUSING & THE CONSUMER CBA H/HOLD WEALTH INDICATOR % (annual % change) % (annual % change) 40 9 % % Dwelling prices (l
Slide 42: Australia v US housing market
Australia v US housing market CBA / Aust US Australian mortgage product Principal and interest amortising 25/30 Unemployment 5.8%1 6.7%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% Full r
Slide 43: Index
Index Results and Strategy 4 Capital, Funding and Liquidity 20 Sector Exposure and Home Loans 31 Housing market 38 Economic Indicators 44 Covered Bonds 53
Slide 44: Economic Summary
Economic Summary 2010 2011 2012 2013 2014 (f) 2015 (f) Credit Growth % – Total 3.0 2.7 4.4 3.1 3½-5½ 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 1.0 1-3 3-5 Credit Growth % – Other Personal 3.0 0.6 -1.4 0.4 1-3 2-4 GDP % 2.0 2.2 3.6 2.7 2.6 2.9
Slide 45: The global backdrop
The global backdrop Synchronised recovery in Trend improvement in the key advanced economies Chinese growth drivers ADVANCED ECONOMY PMI's CHINA: KEY ECONOMIC INDICATORS Index (3-month moving average) Index % (monthly % change) % 65 65 3 3 UK CBA TEI & THE CASH RATE %pa %pa 55 US 7.0 55 8 trend Fixe
Slide 46: Australia in perspective
Australia in perspective Unemployment remains at The period of rising leverage relatively low levels has finished % UNEMPLOYMENT RATE % CREDIT % % (% of GDP) 12 12 100 100 Euro zone Household US 75 75 8 8 UK Australia 50 50 4 4 Business Japan 25 25 Source: CEIC 0 0 0 0 Jan 05 Jan 07 Jan 09 Jan 11 Ja
Slide 47: The resources boom is the defining feature of the Australian landscape
The resources boom is the defining feature of the Australian landscape over the past 10 years 3 Booms (start = 100) Mining capex & jobs THREE BOOMS MINING CAPEX & JOBS % % (start=100) Index Index 3 9 210 440 Jobs related to Commodity resource investment prices (% of total employment) 180 (RBA USD) 3
Slide 48: Transition from mining led growth
Transition from mining led growth: Construction => production => export Ichthys $34bn Gorgon $62bn Australia Pacific $24bn CBA TEI & THE CASH RATE %pa %pa 7.0 8 Cash rate 6.4 (lhs) 5 5.7 2 Wheatstone Gladstone $29bn $20bn 5.1 -2 4.4 -5 CB A TEI* (adv 9 mnths ,rhs) * Deviation from trend 3.8 -8 Jul-9
Slide 49: Australian policy settings are stimulatory and are working
Australian policy settings are stimulatory and are working Official Interest rates OFFICIAL INTEREST RATES The AUD % % THE AUD Index USD 90 1.20 8 8 80 1.05 6 6 UK Australia TWI (lhs) 70 0.90 4 4 NZ AUD/USD US (rhs) 2 2 60 0.75 Euro Canada Japan 0 0 50 0.60 Jan-07 Jan-09 Jan-11 Jan-13 Jul 05 Jul 07
Slide 50: Transition from mining to non-mining led growth: capex
The transition from mining to non-mining led growth: non-mining business capex The fundamentals favour a lift in A lower currency should assist non-mining investment non-mining capex activity CAPITAL STOCK THE AUD & CAPEX %pa %pa % (% of nominal GDP) % 320 36 -30 50 Non-mining capex momentum Mining
Slide 51: Credit growth is slowly edging higher
Credit growth is slowly edging higher Credit growth is lifting slowly, But, elevated savings means that particularly housing credit consumer caution remains RBA CREDIT AGGREGATES HOUSEHOLD CREDIT & SAVINGS % (annual % change) % % %pa 30 30 -6 24 Household Housing credit credit (rhs) Business 20 20 0
Slide 52: Index
Index Results and Strategy 4 Capital, Funding and Liquidity 20 Sector Exposure and Home Loans 31 Housing market 38 Economic Indicators 44 Covered Bonds 53
Slide 53: Australian Covered Bond legislation
Australian Covered Bond legislation The Australian parliament passed the Banking Amendment (Covered Bonds) Bill in October 2011 Issuance only allowed under the legislative framework Segregation of cover assets achieved via a special purpose vehicle Maximum issuance cap of 8% of ADI assets in
Slide 54: Structural enhancements
Structural enhancements The Asset Coverage Test (ACT) is performed monthly by the Trust Manager to test the Adjusted Aggregate Asset Coverage Test Mortgage Loan Amount is at least equal to the A$ equivalent of all outstanding covered bonds (see Slide 41) The Amortisation Test is performed monthly by
Slide 55: 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 160.0 from a downward move in property prices 150.0 Indexation is applied to the LVR Adjusted 140.0 Mortgage Loan Balance (see Slide 41) in the 130.0 120.0 AC
Slide 56: Covered bond pool summary
Covered bond pool summary 31-Dec-13 Owner Occupied Investment Total Geographic Distribution Pool Size 19,158 7,589 26,748 ACT, 1.3% No. of Loans 89,578 30,285 119,829 QLD, 11.1% TAS, 2.2% Average Loan Size 213,871 250,602 223,215 NSW, 34.0% NT, 1.0% Maximum Loan Size 1,745,045 2,000,000 2,000,000 SA
Slide 57: Covered bond pool summary
Covered bond pool summary Seasoning (Months) Current LVR Profile 20% 25% 20% 15% 15% 10% 10% 5% 5% 0% 0% Origination Year Distribution Current Principal Balance Distribution 20% 30% 25% 15% 20% 15% 10% 10% 5% 5% 0% 0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 57
Slide 58: Sources of origination
Sources of origination Channel Description % Portfolio Proprietary Channel 44% Branch Network Customer can apply through any of our 1000+ branches 32% Provides a premium service offering to high net worth individuals and families through Premier Banking the provision of specialist financial advice 9
Slide 59: CBA has a diverse mortgage product suite
CBA has a diverse mortgage product suite Package Max Package Low Doc Product Benefits Rate p.a. Medallion rates LVR* availability availability Standard • Unlimited extra repayments 5.90% 5.10% 95% Variable Rate • 100% offset (SVR) • Split option No Fee • No Fees for the life of the loan 5.20%
Slide 60: CBA mortgage broker accreditation
CBA 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 l
Slide 61: Branch Decisioning Process
Branch 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. Credit Analyst self allocates Applications Types of a
Slide 62: Third Party Decisioning Process
Third Party Decisioning Process Application received from Broker Application is input by the Broker into their system and submitted to the Bank. This & uploaded to CHL results in Broker receiving an initial unverified system decision. Separately the Broker sends supporting documents to the Bank. Nat
Slide 63: Collections
Collections Collections Process • Account becomes delinquent 60 Plus • Account to be realised Post Settlement • Early identification and • Legal Process to Sale resolution • Accounts 60 plus days • Employ Gadens, • Post Settlement • Automated Channels delinquent Property Presenter and • Write-off (D
Slide 64: Contact us
Contact us 24 Hour Global Contact Numbers… Sydney Direct Line Email Simon Maidment – Deputy Treasurer +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 +6
Slide 65: Debt Investor Update
Debt Investor Update FOR THE HALF YEAR ENDED 31 DECEMBER 2013 COMMONWEALTH BANK OF AUSTRALIA | ACN 123 123 124 | 12 FEBRUARY 2014
Commonwealth Bank of Australia — Debt Investor Presentation (February 2014) on 6ix