Commonwealth Bank Of Australia · ASX:CBA
Commonwealth Bank Of Australia — Debt Investor Presentation (February 2012)
59 slides from Commonwealth Bank Of Australia's debt investor presentation, February 2012
Slide 1: Debt Investor Update
100 YEARS OF BANKING ON AUSTRALIA’S FUTURE Debt Investor Update FOR THE HALF YEAR ENDED 31 DECEMBER 2011 Results Presentation For the half year ended 31 December 2009 10 February Commonwealth Bank of Australia ACN 123 123 124 2010 FEBRUARY 2012 | COMMONWEALTH BANK OF AUSTRALIA | ACN 123 123 124
Slide 2: Important Notes
Important 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, 31 December 2011. It is information given in summary form and does not purport to be complete. It is not intended to be relie
Slide 3: Index
Index Overview and Results Capital, Funding & Liquidity Strategy and Outlook Housing Credit Quality Economic Indicators Additional Information 3
Slide 4: CBA overview
CBA overview Results – 6mths to 31 Dec 20111 9 Largest Australian Bank by market capitalisation Cash earnings ($m) 3,576 +7% 9 AA- / Aa2 / AA 2 ROE (Cash) 19.2% - Cash EPS ($) 2.27 +6% 9 Tier 1 Capital 9.9%; or 13.2% UK FSA DPS ($) 1.37 +4% 9 Total Assets of $702bn Cost-to-Income 45.8% +40bps 9 14 m
Slide 5: Operating performance – 6 mths to Dec 2011
Operating performance – 6 mths to 31 Dec 2011 Cash NPAT ($m) 78.9% customer satisfaction Î peer leading 2.74 products per customer C:I ratio È to 38.3% Lending Assets Ç9%1 Margin È9 bpts since June Markets income È45% Improved margins Banking income Ç12% +3% Expense growth Ç 3% C:I
Slide 6: Net interest margin
Net interest margin bpts Group NIM (10) 225 5 (6) 219 (4) (4) 215 (4) 3 215 209 209 Jun 11 Assets & Mix Wholesale Deposit Increased Other1 IFRS Dec 11 funding funding Liquids Volatility Underlying IFRS 1 Includes New Zealand and other unallocated items 6
Slide 7: Funding costs
Funding costs1 Basis Risk 38% x 1.75% Wholesale Funding Deposit Funding 62% x 1.57% Jun 07 Dec 07 Jun 08 Dec 08 Jun 09 Dec 09 Jun 10 Dec 10 Jun 11 Jan 11 Dec 12 Current Increase in Wholesale Funding2 1.30% 1.75% Increase in Deposit Funding 1.45% 1.57% Increase in Weighted Average Cost 1.39% 1.64% In
Slide 8: Sound credit quality
Sound credit quality Loan impairment expense to gross loans Consumer Arrears bpts CBA Group 1 5.0% 30+ Days 85 Six months annualised (basis points) 4.0% 61 Personal Loans 55 3.0% 40 32 28 Credit Cards 19 22 21 2.0% 28 24 1.0% Home Loans Dec 07 Jun 08 Dec 08 Jun 09 Dec 09 Jun 10 Dec 10 Jun 11 Dec 11
Slide 9: Provisioning
Provisioning Collective Provisions Overlay movement Dec 11 vs $m Jun 11 $m 3,327 3,043 2,984 Economic overlay unchanged - 1,211 Overlay 1,049 Lower modelled outcome as credit 970 (8) quality improves 704 528 Amortisation of BWA fair value 598 Bankwest provision (18) 782 808 890 Consumer Other overla
Slide 10: Index
Index Overview and Results Capital, Funding & Liquidity Strategy and Outlook Housing Credit Quality Economic Indicators Additional Information 10
Slide 11: Funding
Funding Funding – 6 Months to Dec 2011 $bn Jun 11 Dec 11 Source of funds Use of funds Transactions 79 82 $bn Savings 82 89 10 (16) Investments 176 189 62% Deposit funded 7 Other 12 10 21 (11) Total Customer 349 370 Wholesale 220 230 funding (13) Total Funding 569 600 Equity 37 39 2 4 (4) Total Funde
Slide 12: Funding - Deposits
Funding - Deposits 62% Deposit Funded Deposit Funding $bn 370 2% 1% 349 12% Customer Deposits 324 297 4% ST Wholesale Funding 62% LT Wholesale maturing <12 months 61% 58% 56% LT Wholesale maturing >=12 months 19% 62% RMBS Hybrids Jun 09 Jun 10 Jun 11 Dec 11 Customer Deposits % of funding Australian
Slide 13: Funding - Wholesale
Funding - Wholesale Wholesale Funding by Product Term maturity profile1 $bn 7% 4% 5% Structured MTN Weighted Average Maturity 3.6yrs Vanilla MTN 5% 4% Commercial Paper 38% Debt Capital 6 14 5 5 CDs 15% 20 Securitisation 13 16 12 15 13 Bank Acceptance 5% FY 2012 2013 2014 2015 2016 >2016 FI Deposits
Slide 14: Funding and liquidity
Funding and liquidity Long Term Debt Issuance Liquidity $bn $bn Six-Monthly 133 17 Month Only 14 101 86 59 40 9 7 41 7 34 30 Regulatory Minimum 26 $53bn 40 31 19 Jun 10 Dec 10 Jun 11 Dec 11 Jan 12 Jun 10 Jun 11 Current* Offshore public Internal RMBS Offshore Private Bank, NCD, Bills, RMBS, Supra Dom
Slide 15: Funding – Covered Bonds
Funding – Covered Bonds Australian parliament passed the Banking Issuer Commonwealth Bank of Australia Amendment (Covered Bonds) Bill in October Covered Bond Perpetual Corporate Trust Limited in its capacity as 2011 Guarantor Trustee of the CBA Covered Bonds Trust Legislation sets a limit of 8%
Slide 16: Funding – Proposed New US$ 3(a)2 Programme
Funding – Proposed New US$ 3(a)2 Programme CBA New York Branch intends to establish a Issuer Commonwealth Bank of Australia New York Branch US$ term debt issuance programme Program Limit U.S.$25,000,000,000 CBA New York is a full branch of Commonwealth Bank of Australia and is Terms Fixed and Fl
Slide 17: Capital
Capital Tier 1 Capital 9.9% Tier 1 Capital Movement 13.2% UK FSA equivalent of 13.2% 10.0% 0.3% 0.4% 9.9% 9.7% Common Equity 7.7% Well placed for Basel III - Global Harmonisation estimate of 9.3% Dec 10 Jun 11 Organic 1 Other 2 Dec 11 Dec 11 Common Equity growth UK FSA December 2011 Basel II
Slide 18: Capital – Basel II comparison
Capital – Basel II comparison Basel II Tier 1 Capital 1 Common Tier 1 Hybrids Top 15 European banks by market capitalisation as at 11 January 2011 Source: latest publicly disclosed company reports and other market updates. 18 1. Reflects Tier 1 Capital less hybrid Tier 1 instruments
Slide 19: Basel III in Australia
Basel III in Australia 2011 2012 2013 2014 2015 2016 2017 2018 LCR, NSFR & LCR, NSFR LCR observation LCR – effective Timetable capital - APRA and capital - draft standards APRA final NSFR - observation and review NSFR - effective and discussion standards papers Min. CET1 4.5% - 2013 Min. CET1 7.0% -
Slide 20: Index
Index Overview and Results Capital, Funding & Liquidity Strategy and Outlook Housing Credit Quality Economic Indicators Additional Information 20
Slide 21: Outlook
Outlook Continued volatility Scenario based approach with conservative settings Australian economy Fundamentals remain strong Not immune from overseas challenges: actual and perceived Volatility and weak credit growth to continue Funding costs to continue to increase Long term focus
Slide 22: Investment
Investment Investment Spend Investment Spend Profile Core $m Banking 29% 1,179 Productivity 1,075 & Growth 48% 1,020 1,036 4% Other 7% 12% Branch Refurbishment 638 538 Risk/Compliance 583 562 Technology Leader 647 537 474 541 437 FY08 FY09 FY10 FY11 1H12 1st Half 2nd Half 22
Slide 23: Core Banking Modernisation
Core Banking Modernisation 9Enhanced Customer Experience Real-time banking, 24x7 Instant account opening Customised product offers 9Greater Efficiency Straight through processing Faster speed-to-market Lower cost-to-income 9Improved Risk Management Greater system reliability Le
Slide 24: CBA in Asia
CBA in Asia Country Representation as at December 2011 China Bank of Hangzhou (20%) – 113 branches Qilu Bank (20%) – 81 branches County Banking (84%) – 3 Banks in Henan Beijing Province Beijing Representative Office Jinan BoCommLife JV (37.5%) – >150 distribution points Henan Province Tokyo Shanghai
Slide 25: Index
Index Overview and Results Capital, Funding & Liquidity Strategy and Outlook Housing Credit Quality Economic Indicators Additional Information 25
Slide 26: Australian housing market
Australian housing market Established House Prices - Index The adjustment process HOUSE PRICES HOUSE PRICES Index (Mar 05= 100) Index Index (Sep'04 = 100) Index 200 200 170 170 Source: Rismark Perth 175 175 Top 20% of suburbs Melbourne 145 145 150 150 Adelaide Brisbane Middle 60% 125 125 of suburbs
Slide 27: Australian housing market
Australian housing market Population growth has slowed But housing demand remains above supply POPULATION DRIVERS HOUSING DEMAND & SUPPLY '000 '000 '000 '000 450 450 Demand 200 200 Net 300 migration 300 150 150 150 150 Supply (rolling 4-qtr sum) Natural increase 100 100 0 0 Sep-90 Sep-94 Sep-98 Sep-
Slide 28: Australian mortgage market
Australian mortgage market Australia CBA / Australia United States Principal and interest amortising 25/30 year loan Unemployment ~5% ~8-10% Variable interest rate set at bank’s discretion Full recourse lending Yes No Limited pre-payment penalty Full recourse to borrower Variable v. Fixed ~8
Slide 29: Retail Banking Services mortgage portfolio
Retail Banking Services mortgage portfolio Portfolio Dec 11 Quality Dec 11 1 1 Total Balances - Spot ($bn) 343 Total Balances – Average ($bn) 340 1, 3 Total Accounts (m) 1.4 Actual Losses YTD ($m) 39 2 1 Fundings ($bn) 28 Loss Rate (% annualised) 0.02 Variable Rate (%) 86 LVR – Portfolio Avg (%)4 44
Slide 30: CBA mortgage portfolio
CBA mortgage portfolio 1 Home Loan Arrears Dynamic Delinquency 2.5% 1.8% 90+ Days % 30+ Days % 2.0% 1.3% 1.5% 0.8% 1.0% 0.3% 0.5% 0.0% -0.2%Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 ACT NSW NT Month of origination QLD SA TAS VIC WA Portfolio 3 Months-on-Book 6 Months-on-Book 12 Months-on-Book
Slide 31: Home loan - expected loss
Home loan - expected loss Expected Loss outcomes Six-month Movement $m Expected loss $m PD stress factor 45 45 105 Property value x1 x2 x4 x6 34 No decrease $23m $28m $37m $43m 737 576 10% decrease $55m $73m $101m $123m 20% decrease $132m $185m $272m $341m Previous Closed Market Existing New Current
Slide 32: Home loan – enhanced stress test
Home loan – enhanced stress test Enhancements (vs. Expected Loss) Key Assumptions Explicit alignment to specific macroeconomic Year 1 Year 2 Year 3 factors such as unemployment and interest Unemployment 7.0% 10.5% 11.5% rates 1 Hours under-employed 11.4% 15.8% 18.4% Assumes recession based on Ch
Slide 33: Index
Index Overview and Results Capital, Funding & Liquidity Strategy and Outlook Housing Credit Quality Economic Indicators Additional Information 33
Slide 34: Regulatory exposure mix
Regulatory exposure mix Regulatory Credit Exposure Mix1 CBA Peer 1 Peer 2 Peer 3 Residential Mortgages 56% 40% 40% 56% Corporate, SME & Spec Lending 27% 35% 40% 31% Bank 6% 7% 11% 4% Sovereign 7% 9% 6% 5% Qualifying Revolving 3% 4% 2% 3% Other Retail 1% 5% 1% 1% Total Advanced2 100% 100% 100% 100% 1
Slide 35: Sector Exposure by Industry
Sector Exposure by Industry 1 Jun 11 Dec 11 Jun 11 Dec 11 Consumer 53.1% 52.7% Agriculture 2.2% 2.1% Mining 0.8% 1.0% Manufacturing 2.0% 2.0% Energy 1.0% 1.0% Construction 1.0% 1.0% Retail & Wholesale 2.4% 2.6% Transport 1.4% 1.5% Banks 11.6% 10.9% Finance – other 3.6% 3.7% Business Services 0.9% 0.
Slide 36: Sector Exposures
Sector Exposures Commercial Exposures by Sector1 Top 20 Commercial Exposures2 ($m) BBB+ AAA to A+ to $bn to Other Total A- AA- A- BBB- A- Banks 48.5 31.4 3.2 0.5 83.6 BBB+ A- Finance Other 10.3 9.4 3.0 5.3 28.0 AA- A- Property 0.2 5.1 9.0 34.1 48.4 A- Sovereign 56.5 1.9 0.6 0.2 59.2 BBB AA+ Manufact
Slide 37: Commercial Property Market
Commercial Property Market CBD Office Supply Pipeline1 CBD Vacancy Rates Peak Previous Current 40% % of Total Stock Market 1990s 2nd Half 1st Half FY11 FY12 35% Sydney 22.4% 8.0% 8.5% 30% Perth 31.8% 5.4% 2.5% Melbourne 25.8% 6.0% 5.8% 25% Brisbane 14.3% 6.8% 6.3% 20% Adelaide 19.8% 6.9% 7.6% 15% So
Slide 38: Index
Index Overview and Results Capital, Funding & Liquidity Strategy and Outlook Housing Credit Quality Economic Indicators Additional Information 38
Slide 39: Economic Summary
Economic CBA Economists summary of key indicators Summary As at June 2008 2009 2010 2011 2012 (f) 2013 (f) Credit Growth % – Total 11.7 3.1 3.2 2.7 3-5 5-7 Credit Growth % – Housing 9.5 6.5 8.0 6.0 4-6 5-7 Credit Growth % – Business 16.9 0.5 -3.9 -2.1 2-4 5½-7½ Credit Growth % – Other Personal 3.4 -
Slide 40: Australia in perspective
Australia in perspective Growth outperformance Stronger labour market Index Real GDP % 12 Unemployment rate (Sep”08 = 100) 106 Australia 10 US US Euro Zone 102 8 UK UK NZ 6 Australia 98 Europe Japan 4 Japan 94 2 90 0 Mar-08 Mar-09 Mar-10 Mar-11 Jan-05 Jan-07 Jan-09 Jan-11 Source : CEIC 40
Slide 41: Economic mix
Economic mix Industry share of output* Employment* Exports composition Exports destination 41
Slide 42: Credit growth and spending
Credit growth and spending CREDIT & SPENDING Asian exposure provides an offset to US % % and European weakness. (annual % change) 30 30 CBA Commodity-income-capex-export (f) drivers underpin positive medium-term Credit economic backdrop. 20 20 Balance sheets in aggregate are in good shape. 10
Slide 43: Balance sheet deleveraging
Balance sheet deleveraging % HOUSEHOLD INDICATORS BUSINESS INDICATORS (change since mid 2008) % (change since mid 2008) 8 9 4 0 0 -9 -4 -18 H/hold Wages Savings Debt H/hold Business Profit Return on Debt Business debt as % share rate service credit debt as % share capital service credit of GDP ratio
Slide 44: Consumer sector
Consumer sector Households worry about their finances But income growth is strong PERSONAL CIRCUMSTANCES SENTIMENT & INCOME % (net % of respondents) % %pa 40 40 16 200 Disposable income (lhs) 20 20 8 165 Better in six months time Index 0 0 0 130 Better than six months ago -8 95 -20 -20 Consumer conf
Slide 45: Business sector
Business sector BUSINESS CREDIT % (annual % change) % 24 45 Reintermediation Business spike credit (lhs) 16 26 8 8 0 -11 Business CBA investment (f) (rhs) -8 -30 Sep-88 Sep-93 Sep-98 Sep-03 Sep-08 Sep-13 Deleveraging by large corporates offsetting underlying credit growth from SMEs. Capex strong
Slide 46: Resources sector
Resources sector AUSTRALIA: SOME KEY INDICATORS Index (1986/87=100) Index 320 1200 Capex pipeline (rhs) 240 800 Terms of trade (lhs) Resource exports 160 (lhs) 400 80 0 Mar 84 Mar 91 Mar 98 Mar 05 Mar 12 Mar 90 Mar 97 Mar 04 Mar 11 Mar 89 Mar 96 Mar 03 Mar 10 Robust income growth locked-in through
Slide 47: Policy protection
Policy protection Interest rates Fiscal policy can be used OFFICIAL INTEREST RATES GENERAL GOVERNMENT NET DEBT % % % (% of GDP) % 100 100 8 8 Advanced G-20 75 75 6 6 Australia Canada 50 50 Emerging G-20 4 4 25 25 NZ Australia US 2 2 0 0 Euro Japan UK Source: IMF Fiscal Monitor 0 0 -25 -25 Jan-07 Jan
Slide 48: Index
Index Overview and Results Capital, Funding & Liquidity Strategy and Outlook Housing Credit Quality Economic Indicators Additional Information 48
Slide 49: Solid profit growth
Solid profit growth Dec 11 Dec 10 Dec 11 vs $m $m Dec 10 Operating income 10,049 9,704 4% Operating expenses (4,602) (4,408) 4% Operating performance 5,447 5,296 3% Investment experience 56 35 60% Loan Impairment expense (545) (722) (25%) Tax and non-controlling interest (1,382) (1,274) 8% Cash NPAT
Slide 50: Additional Information: Business unit profitability
Additional Information Business unit profitability Operating Mvt Impairment Investment Tax & non- Cash Cash Mvt $m Performance Operating Expense Experience controlling NPAT NPAT Cash Performance interests Dec 11 Dec 10 NPAT RBS 2,404 7% (365) - (600) 1,439 1,397 3% BPB 897 5% (110) - (236) 551 502 1
Slide 51: Retail Banking Services
Retail Banking Services Cash Earnings $m Dec 11 vs Dec 10 Balances up 3% $m Home Loans 1,470 7% Roll off of lower margin 27 (73) fixed rate loans 27 Solid volume growth in 77 (112) Consumer both personal loans and 18% 914 9% 2% Finance credit cards 99 5% Margins improved 9% (3) 1,439 Balan
Slide 52: Business & Private Banking
Business & Private Banking Dec 11 Cash Earnings $m vs Key segments Dec 10 $m 66 (22) 25 (20) Corporate Financial Increased lending 561 15% balances and higher Services new business margins 551 Regional & Increased deposit 247 12% balances in a highly Agribusiness competitive market 9% 3% (19%)
Slide 53: Institutional Banking and Markets
Institutional Banking and Markets Cash Earnings Dec 11 $m vs Dec 10 $m Higher leasing 69 (165) Institutional income, lending 160 (5) 547 959 8% Banking margins and deposit 498 3% volumes 8% Challenging market Markets 205 (45%) conditions and (10) unfavourable CVA* (45%) Total banking 2% (83%) 1,
Slide 54: Wealth Management
Wealth Management Dec 11 Cash Earnings $m vs Dec 10 Lower FUM (È7% to $m $142bn) due to uncertain global 359 1 (46) environment; Expansion of CFSGAM 379 - capabilities and - distribution (9) (1) (61) Offset by improved (13%) 36 margins and strong (3%) (7) 272 investment - performance (23%) E
Slide 55: New Zealand
New Zealand Dec 11 Cash Earnings NZ vs $m Dec 10 NZ$m Increased income ASB 787 6% due to improvements 22 (13) in margin 9 (4) (9) (6) 44 336 Favourable claims 50% 14% 7% (61%) Lge experience 2% Sovereign 140 7% Significant growth in new business 293 Disciplined cost 6% management, productivi
Slide 56: Bankwest
Bankwest Cash Earnings Dec 11 $m vs $m Dec 10 11 (19) Above system home 54 (2) Banking loan growth 268 851 7% Income Higher Retail lending - margins (22%) 20% 224 Strong focus on efficiency and cost 7% Operating management (430) - Expenses offsetting volume related cost increases Continued I
Slide 57: Market shares
Market shares Dec 11 Jun 11 Dec 10 CBA BWA Combined CBA + BWA CBA + BWA Home loans 22.0% 3.9% 25.9% 25.8% 26.0% Credit cards 1 20.4% 2.7% 23.1% 22.9% 22.7% Personal lending 13.7% 0.9% 14.6% 14.8% 14.7% Household deposits 26.4% 3.0% 29.4% 30.0% 30.5% Retail deposits 22.7% 3.7% 26.4% 26.9% 26.6% Busin
Slide 58: How to find us
How to find us 24 Hour Global Contact Numbers… Sydney Direct Line Mobile Number Email Simon Maidment +61 2 9118 1339 +61 412 227 188 simon.maidment@cba.com.au Richard Nelson – Debt IR +61 2 9118 1343 +61 422 165 939 richard.nelson@cba.com.au Patrick Bryant +61 2 9118 1345 +61 424 754 934 patrick.bry
Slide 59: Results Presentation
100 YEARS OF BANKING ON AUSTRALIA’S FUTURE FOR THE HALF YEAR ENDED 31 DECEMBER 2011 Results Presentation For the half year ended 31 December 2009 10 February Commonwealth Bank of Australia ACN 123 123 124 2010 FEBRUARY 2012 | COMMONWEALTH BANK OF AUSTRALIA | ACN 123 123 124
Commonwealth Bank of Australia — Debt Investor Presentation (February 2012) on 6ix