Commonwealth Bank Of Australia · ASX:CBA
Commonwealth Bank Of Australia — Debt Investor Presentation (August 2014)
58 slides from Commonwealth Bank Of Australia's debt investor presentation, Aug 13, 2014
Slide 1: Debt Investor Update
Debt Investor Update FOR THE FULL YEAR ENDED 30 JUNE 2014 August 2014 COMMONWEALTH BANK OF AUSTRALIA | ACN 123 123 124 | 13 AUGUST 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, 13 August 2014. 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: Results & Strategy
Results & Strategy
Slide 4: Financial Summary
Financial Summary Largest Australian bank by market capitalisation Financial Result – FY14 v FY13 AA- / Aa2 / AA- Credit Ratings (S&P, Moodys, +12% Cash Earnings ($m) 8,680 Fitch) ~15 million customers ROE (cash) 18.7% +50 bpts ~52,000 staff +11% Cash EPS ($) 5.36 1,150 branches (includes
Slide 5: All divisions contributing
All divisions contributing Cash NPAT FY14 Markets (ex-CVA) 17% Income 2% Income 9% Avg Lending 9% Expenses 3% C:I lower - now 36.0% Deposit NIM lower Business loans 12% +12% 3 3,472 Business loans 4% Costs 2% Avg FUA 19% Lending 5% Deposit NIM lower Avg Inforce 8
Slide 6: Income and expenses
Income and expenses Operating Income $m Underlying +4.9% +1.5% +0.9% +7.3% 20,667 936 68 21,671 317 178 22,166 FY13 Underlying Underlying FY14 FX Benefit Timing 1 FY14 Banking Funds & Underlying Benefits Income Insurance Income Operating Expenses $m Underlying +1.7% +5.4% +1.7% 9,499 9,159 +0.3% +0.
Slide 7: Group NIM flat in the half
Group NIM flat in the half bpts Group NIM (Six Months) Cost-to-income 213 214 44.6% 217 214 214 43.6% 206 210 42.9% Jun 12 Dec 12 Jun 13 Dec 13 Jun 14 1 1 12 month NIM Group NIM FY12 FY13 FY14 2 (2) bpts (5) 5 214 214 1 1H14 1H14 Asset pricing Funding costs Portfolio mix Other 2H14 2H14 1 Includes T
Slide 8: Sound credit quality
Sound credit quality Loan Impairment Expense Group Consumer Arrears 90+ days CBA Group (basis points) 1 1.4% Personal Loans 2 73 Credit Cards 0.9% 3 41 25 3 Home Loans 21 20 3 16 0.4% FY09 FY10 FY11 FY12 FY13 FY14 Jun 12 Dec 12 Jun 13 Dec 13 Jun 14 Pro Forma Commercial Portfolio Quality4 Troublesome
Slide 9: Provisions
Provisions Individual Provisions Collective Provisions $m $m 2,837 2,858 2,779 823 Economic Overlay 847 762 overlay 2,008 portion unchanged 1,628 419 347 Bankwest 473 934 659 1,127 909 941 898 227 389 Consumer 157 128 847 812 610 Commercial 619 707 729 Jun 12 Jun 13 Jun 14 Jun 12 Jun 13 Jun 14 9
Slide 10: Consistent strategy
Consistent strategy Our strategy Customer Focus People Productivity Technology Strength Capabilities “One CommBank” Growth Continued growth in business and institutional banking Opportunities Disciplined capability-led growth outside Australia TSR Outperformance 10
Slide 11: Customer focus - further significant upside
Customer focus - further significant upside 2 Retail Customer Satisfaction1 CBA MFI share by age Overall 33.1% 86% CBA 45% 84% Peers MFI Share 82% 42% Opportunity 41% 80% gap 29% 29% 78% 27% 76% 14-17 18-24 25-34 35-49 50-64 65+ Customer Lifecycle (age) 74% % 32.8 33.1 MFI share 72% 70% 20.1 20.2 13
Slide 12: Productivity - Service, efficiency, reinvestment
Productivity - Service, efficiency, reinvestment Service Improvements - Examples 1 Case Study – Asset Finance Turnaround Times Approval Volumes Volume per 23% HomeSeeker time FTE Home Asset Finance loan Insurance Credit conditional (66%) +64% +188% Claims Approval approval (14%) (66%) (75%) Jun 12 J
Slide 13: Technology transformation
Technology transformation Putting the customer at the centre of everything we do Revitalised front- Best-in-class Innovating in the Securing the line customer online, mobile & back-end digital future interface social platforms Single view of customer Legacy system replacement NetBank Simplic
Slide 14: Funding, Capital & Liquidity
Funding, Capital & Liquidity
Slide 15: Funding – sources and uses
Funding – sources and uses Funding Sources $bn Source of funds Use of funds 38 (31) 49 Equity 2 136 LT wholesale 64% Deposit Funded (41) 114 ST wholesale 34 Customer 439 Deposits 3 (7) 3 1 Equity IFRS & FX Net short term Customer New long term Long term 1 Lending Other Assets funding deposits fundin
Slide 16: Funding – deposits and costs
Additional information Funding – deposits and costs Funding Australian Deposits Retail Deposit Mix $bn Total Deposits $bn Deposits +8% (excl CD’s) Jun 13 Jun 14 376 3 326 4 18 35 22 265 44 187 221 31 174 34 168 32 123 8962 86 189 152 97 98 CBA Peer 3 Peer 2 Peer 1 NBS & Goal Saver Investment account
Slide 17: Funding - Portfolio
Funding - Portfolio Funding Composition Wholesale Funding by Product 1% 2% Customer Deposits 6% 5% Structured MTN 3% 10% 10% Vanilla MTN ST Wholesale Funding Commercial Paper 2% 4% LT Wholesale Funding maturing Debt Capital < 12 months 9% 31% CDs LT Wholesale Funding maturing > 12 months Securitisat
Slide 18: Funding – Issuance and Maturity
Funding – Issuance and Maturity 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 Covered bonds capacity remains ~ 55% or $25bn $bn 60 50 9 Weighted Average Maturity 3.
Slide 19: Increased liquidity
Increased liquidity Liquid Assets 1 ♦ APRA Prudential Standard (APS210) $bn effective from 1 January 2014 135 137 139 ♦ Full Liquidity Coverage Ratio (LCR) compliance from 2015 – no phase-in ♦ RBA Committed Liquidity Facility (CLF) 52 58 58 remains a core part of LCR compliance for Australian banks
Slide 20: Strong capital position
Strong capital position 12.1% 11.0% CET1 9.8% 6.9% 9.3% 8.2% 7.5% +70bpts +107% 4.5% 47 23 12.1% 11.4% Jun 07 Jun 12 Jun 13 Jun 14 Internationally harmonised 1 52 28 9.3% APRA 8.5% 8.0% Strong organic growth Jun 14 DRP to be neutralised Dec 13 Organic Listed Property Jun 14 APRA Min Capital Trus
Slide 21: International Peer Basel III CET1
International Peer Basel III CET1 15.2 13.5 12.9 Peer bank average CET1 ratio 12.1 (ex. Australian banks): 11.5 11.3 11.3 11.1 11.1 10.9 10.7 10.6 10.5 10.5 10.5 10.4% 10.4 10.4 10.3 10.2 10.1 10.1 10.0 10.0 10.0 9.9 9.9 9.9 9.8 9.8 9.7 9.6 9.5 9.5 9.4 9.2 9.1 8.6 8.2 2 Barclays2 Nordea2 2 Deutsche2
Slide 22: APRA & international comparison
APRA & international comparison The following table provides details of the impact on CBA Group capital, as at 30 June 2014, of the differences between the APRA Basel III prudential requirements 1 and the requirements of the Basel Committee on Banking Supervision (BCBS).1 Tier 1 Total % CET1 Capital
Slide 23: Internationally harmonised
CBA CET1 under various regulatory regimes 1 +4.4% +2.2% +3.1% +3.4% 13.7% 1.3%2 1.2%2 12.4% 12.7% 12.1% 11.5% 8.0% 9.3% D-SIB buffer 1.0% CBA if regulated in Singapore CBA if regulated in Canada CBA if regulated in Europe Internationally harmonised CCB 2.5% CBA if regulated in UK CET1 min 4.5% APRA
Slide 24: D-SIB and CCB Buffer
D-SIB and CCB Buffer In December 2013, APRA announced % of earnings that the Australian major banks are able to be used for discretionary domestic systemically-important banks CET1 ratio Value payments (D-SIBs) Above top of PCR + 3.5%, 100% CCB and above From 1 January 2016, D-SIBs are Fourth qu
Slide 25: Colonial Group Debt
Colonial Group Debt Capital benefit from Colonial Group Colonial Group debt will debt maturity profile % be phased out as existing debt matures 9.3 No immediate capital 1 Impact on CET1 impact and strong capital generation will mitigate impact in future periods Timing of APRA Level 3 0.1 0.35
Slide 26: Dividend
Dividend cents per share 401 +10% 140% 364 334 120% 320 290 100% 256 266 228 80% 80% Target 78% 76% 1 76% 1 Range 74% 75% 74% 73% 75% 70% 60% 40% 20% FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 0% Column1 Cash NPAT Payout Ratio 1 FY12 and FY13 payout ratios restated following retrospective application o
Slide 27: Regulatory Change
Regulatory Change 2015 2016 2018 Leverage ratio Capital conservation buffer Capital observation period (publicly disclosed) to be implemented (CET1 2.5%) Leverage ratio Level 3 reforms D-SIB surcharge to be implemented to be implemented to be implemented (CET1 1.0%) Capital ♦ Strong capital levels i
Slide 28: Outlook
Outlook Domestically: – Strong foundations, but confidence remains fragile – Lower interest rates a positive for housing/construction, offsetting reduced investment in resource sector – Increased production from investments in resource sector Recent relative stability in global economy, but down
Slide 29: Credit & housing
Credit & housing
Slide 30: Credit Exposures by Industry
Credit Exposures by Industry 1 Jun 14 Jun 14 Jun 13 Jun 13 Consumer 55.8% 54.9% Agriculture 2.0% 2.0% Mining 1.5% 1.5% Manufacturing 1.8% 1.8% Energy 1.0% 0.9% Construction 0.8% 0.8% Retail & Wholesale 2.2% 2.2% Transport 1.5% 1.7% Banks 9.0% 9.9% Finance – other 3.4% 3.5% Business Services 1.2% 0.9
Slide 31: Sector Exposures
Sector Exposures Commercial Exposures by Industry 1,2 Top 20 Commercial Exposures2 AAA A+ BBB+ $m $bn Other Total to AA- to A- to BBB- A- Banks 35.7 39.0 5.8 1.0 81.5 BBB+ A Finance Other 10.8 13.5 3.1 3.8 31.2 A+ A- Property 0.8 6.4 11.9 39.2 58.3 A+ A- Sovereign 64.5 5.1 0.6 0.4 70.6 BBB- Manufact
Slide 32: Commercial Property Market
Commercial Property Market CBD Office Supply Pipeline1 CBD Vacancy Rates % of Total Stock 40% 1991 Recession Previous Current Peak 1990s Previous Current 40% (1st Half FY14) (2nd Half FY14) (1st Half FY14) (2nd Half FY14) 35% 35% 30% 30% 25% 25% 20% 20% 15% 15% 10% 10% 5% 5% 0% 0% Sydney Melbourne B
Slide 33: RBS Home Loan Portfolio
RBS Home Loan Portfolio Jun 14 Jun 13 Jun 14 Jun 13 Total Balances - Spot ($bn) 302 285 Total Funding ($bn)1 73 63 Total Balances - Average ($bn) 293 278 Average Funding Size ($’000)1 254 244 Total Accounts (m) 1.5 1.4 Serviceability Buffer (%)8 1.5 1.5 Variable Rate - % of balances 81 84 Variable R
Slide 34: RBS Home Loans – LVR & Arrears
RBS Home Loans – LVR & Arrears Home Loan Dynamic LVR1 Profile Home Loan Arrears Rates by Vintage 90+ days 70.0% Average Dynamic 2.0% LVR1 60.0% Jun 13 48% Dec 13 49% 50.0% Jun 14 48% 1.5% Proportion of Total Portfolio 40.0% FY09 FY08 1.0% 30.0% FY07 20.0% FY10 0.5% FY11 10.0% FY12 FY13 0.0% FY14 0.0
Slide 35: Consumer Arrears (Group)
Consumer Arrears (Group) Credit Cards 1 Personal Loans 1 90+ days 90+ days 2.0% 2.0% 1.0% 1.0% 0.0% 0.0% Jun 12 Dec 12 Jun 13 Dec 13 Jun 14 Jun 12 Dec 12 Jun 13 Dec 13 Jun 14 RBS Bankwest ASB RBS Bankwest ASB Home Loans 1 RBS Home Loans 2.0% 90+ days 2.0% 90+ days 1.0% 1.0% 0.0% 0.0% Jun 12 Dec 12 J
Slide 36: RBS Home Loans – Stress Test
RBS Home Loans – Stress Test Observations Key Assumptions Base Year 1 Year 2 Year 3 Unemployment 5.9% 7.0% 10.5% 11.5% Aggressive 3 year “stress test” scenario of Hours under-employed1 9.4% 11.4% 15.8% 18.4% cumulative 32% house price decline and Cumulative House Prices n/a -15% -32% -32% peak 11.
Slide 37: Differences between Australian and US housing markets
Significant differences between Australian and US housing markets minimise risk of a US style house price collapse CBA / Aust US Australian mortgage product Principal and interest amortising 25/30 Unemployment 6.4%1 6.2%2 year loan Variable interest rate set at bank’s No-Recourse Lending No Yes
Slide 38: Rising Australian dwelling prices
Rising Australian dwelling prices Dwelling prices Dwelling price growth DWELLING PRICES 3 Years 12 mths 6 mths Index (houses and other dwellings) Index to to to change (%) Sydney Jun 14 Jun 14 Jun 14 700 700 Sydney 19.5 15.4 5.5 Melbourne Melbourne 5.7 9.4 2.9 550 Perth 550 Brisbane Brisbane 2.5 7.0
Slide 39: Stronger household balance sheets
Stronger household balance sheets The household savings rate is below peaks Cautious approach to debt has kept but still remains high household balance sheets in good shape HOUSEHOLD CREDIT & SAVINGS HOUSEHOLD FINANCES % % % %pa 24 180 -6 24 Household Debt to credit disposable (rhs) income (rhs) 16
Slide 40: Natural correction mechanism at work
Natural correction mechanism at work Rising house prices dampen housing Rising vacancy rates and slower rental growth affordability reduces rental yields HOUSING AFFORDABILITY* VACANCY RATES & RENTS Index Index % % 80 80 9 9 * The CBA-HIA affordability measure compares household income with the 10%
Slide 41: Urbanisation rates important in assessing house prices
Urbanisation rates important in assessing house prices Urban population Density & house prices Dwelling prices URBAN POPULATION DENSITY & HOUSE PRICES (% of total) %80urban pop DWELLING PRICES Australia in 2 largest *Source: OECD/RBA (ratio to household income) New Zealand cities United States Austr
Slide 42: Economic indicators
Economic indicators
Slide 43: Economic indicators
Economic indicators Economic Summary – Australia 2015 2016 2010 2011 2012 2013 2014 (f) (f) Credit Growth % – Total 3.0 2.7 4.4 3.1 5.1 4-6 4½-6½ Credit Growth % – Housing 8.0 6.0 5.0 4.6 6.4 5¼-7¼ 5½-7½ Credit Growth % – Business -4.0 -2.2 4.4 1.0 3.5 2½-4½ 3-5 Credit Growth % – Other Personal 3.0
Slide 44: Australia in perspective
Australia in perspective The economy is set to complete 23 years of …but the unemployment rate is yet to peak continuous economic growth… AUSTRALIA: ECONOMIC GROWTH UNEMPLOYMENT RATE (annual % change) % (trend estimates) % % % 6 22 years 6 6.0 6.0 5.5 5.5 3 3 5.0 5.0 0 0 4.5 4.5 -3 -3 Jul-09 Jul-11
Slide 45: Australia in perspective
Australia in perspective Household and corporate balance sheets are The current account and Budget balance have in good shape narrowed in recent years CREDIT % (% of GDP) % % AUSTRALIA: KEY BALANCES % 100 100 (rolling annual total, % of GDP) 3 3 Household Budget balance 75 75 0 0 50 50 -3 -3 Busines
Slide 46: The global backdrop
The global backdrop Global recovery - more advanced economies Asian export market s critical to Australia. than emerging economies Exports to China continue to reach new highs MANUFACTURING PMI'S AUSTRALIA: EXPORTS TO CHINA Index Index 60 60 (rolling annual total) $bn $bn Mature economies CBA TEI &
Slide 47: Progress on the growth transition
Progress on the growth transition The non-mining economy will need to make a The targeted areas are lifting larger contribution to growth GROWTH DRIVERS FROM MINING PEAK TRANSITION INDICATORS (cumulative contribution to GDP since end 2012) % (annual % change) 60 300 % Other % Residential pts Commerc
Slide 48: Progress on the growth transition – the export boom
Progress on the growth transition – the export boom Resource exports will grow at 8-10%pa over Australia will become the largest LNG the next two years exporter before 2020 KEY RESOURCE EXPORTS LIQUEFACTION CAPACITY Mt Mt (million tonnes pa) 1000 100 Australia Qatar 750 75 Africa LNG Indonesia (rhs)
Slide 49: Progress on the growth transition – residential construction & non-mining capex
Progress on the growth transition – residential construction & non-mining capex A strong residential construction upturn is Non-mining capex is beginning to turn up underway DWELLING COMMENCEMENTS LENDING & NON-MINING CAPEX '000 '000 % (annual % change) % 40 70 Thousands Thousands Boosted by 190 190
Slide 50: Threats to the growth transition
Threats to the growth transition Potential for significant job losses in areas The Australian Dollar remains high by related to resource investment historical standards MINING CAPEX & JOBS THE AUD % % USD USD 3 9 1.20 1.20 Jobs related to resource investment (% of total employment) (lhs) 1.05 1.05 2
Slide 51: Progress on the inflation transition
Progress on the inflation transition Key inflation measures are near the top of the The convergence between domestic & RBA’s inflation target imported inflation has been to the high side CONSUMER PRICES INFLATION % (annual % change) % % (annual % change) % 9 9 Non- tradables Underlying (domestic inf
Slide 52: Other information
Other information
Slide 53: UK and US Balance Sheet Comparison
UK and US Balance Sheet Comparison United Kingdom USA Assets Liab + Equity Assets Liab + Equity Cash 7% 7% Equity 10% Equity Cash 12% Home Loans 21% Home Loans 10% 55% Deposits 53% Deposits 40% Other Lending Other Lending 43% 8% Long Term Other Fair 16% 10% Long Term Other Fair Value Assets Value As
Slide 54: Australian Banks – Safe Assets, Secure Funding
Australian Banks – Safe Assets, Secure Funding Commonwealth Bank Balance Sheet Comparisons Assets – CBA’s assets are safer because: Assets Liab + Equity 52% of balance sheet is home loans, which are stable/long Cash 4% term 6% Equity Trading securities and other fair value assets comprise just 1
Slide 55: CBA in Asia
CBA in Asia Japan ♦ Tokyo CBA branch, First State Investments China ♦ Bank of Hangzhou (20%): 149 branches ♦ Qilu Bank (20%): 93 branches ♦ County Banking - Henan: 7 Banks and 2 branches (5 Banks and 2 branches @ 80% and 2 Banks @ 100% shareholding) - Hebei: 8 Banks (5 Banks @ 80% and 3 Banks @ 100%
Slide 56: Market share
Market share % Jun 14 Dec 13 Jun 13 Home Loans Home loans 25.3 25.3 25.3 Credit cards – RBA2 24.9 24.7 24.4 Other household lending3 18.8 18.2 16.9 28% Household deposits4 28.6 28.6 28.8 25.3% 26% Retail deposits5 25.4 25.4 25.5 Business lending – RBA 17.8 18.0 18.0 24% Business lending - APRA 18.9
Slide 57: Contacts
Contacts 24 Hour Global Contact Numbers… Sydney Direct Line Email Paolo Tonucci – Treasurer +61 2 9303 7748 paolo.tonucci@cba.com.au Simon Maidment – Deputy Treasurer +61 2 9118 1339 simon.maidment@cba.com.au Richard Nelson – Debt Investor Relations +61 2 9118 1343 richard.nelson@cba.com.au Patrick
Slide 58: COMMONWEALTH BANK OF AUSTRALIA | ACN 123 123 124 | 13 AUGUST 2014
COMMONWEALTH BANK OF AUSTRALIA | ACN 123 123 124 | 13 AUGUST 2014
Commonwealth Bank of Australia — Debt Investor Presentation (August 2014) on 6ix