Commonwealth Bank Of Australia · ASX:CBA
Commonwealth Bank Of Australia — Debt Investor Presentation (February 2019)
64 slides from Commonwealth Bank Of Australia's debt investor presentation, Feb 6, 2019
Slide 1: For the half year ended 31 December 2018
For the half year ended 31 December 2018
Slide 2: First Half Summary
First Half Summary ► Results show continued core business momentum ►Addressing issues and earning trust ►Business resilience in a challenging period ► Discipline on costs and capital 2
Slide 3: Australia – a favourable starting point
Australia – a favourable starting point Economy in good shape – growth at trend, at full …with major economic imbalances …and the drag from falling mining capex at an employment, stable inflation… narrowing… end Key Indicators1 Key balances1,5 Mining Capex1 % % (rolling annual total, % of GDP) (% of
Slide 4: Australia – some risks easing, some lifting
Australia – some risks easing, some lifting Wages growth slowly lifting The long awaited pick up in non-mining Demographics limit the residential capex is underway construction downside Wage Price Index1 Non-Mining Capex1 Population Growth1 % $bn ‘000 ‘000 (annual % change) (rolling annual) (annual
Slide 5: First half result to 31 December
First half result to 31 December1 1H19 vs 1H19 vs 1H19 1H18 2H18 Statutory profit ($m) 4,599 (6.3%) +4.0% Cash NPAT ($m) 4,676 +1.7% +8.3% ROE (cash, %) 13.8% (40)bpts +70bpts CET1 (%) 10.8% +40bpts +70bpts EPS (cash, cents) 265.2c +0.9c Dividend per share ($) 2.00 Flat 1. Statutory profit, CET1 and
Slide 6: Addressing issues and earning trust
Addressing issues and earning trust ►Focus on customer remediation ►Implementing program to address APRA report ►Consultation with regulators ►APRA - International comparability ►APRA - TLAC ►RBNZ - Capital ►Royal Commission ►Political environment – election in May 6
Slide 7: Key outcomes
Key outcomes1 Operating Income Operating Expenses LIE Cash NPAT $m $m bpts of GLAA $m -1.9% -3.1% 15bpts +1.7% 12,643 12,408 5,539 16 4,676 12,271 5,456 4,598 5,289 13 4,317 Volume growth One-off costs in Generally offset by lower prior periods – benign, some NIM, markets remediation costs pockets o
Slide 8: Franchise strength
Franchise strength Group Lending Lending Growth2 Home Lending Growth CBA growth as a multiple of system growth4 +2% +4% +5% (6%) 0.9x BPB +2% 0.7x 758 0.6x 740 Home Business Insto. Lending Lending 3 Lending $bn 1H18 2H18 1H19 Dec 17 Dec 18 Group Deposits5 Transaction Balances5 Deposit Funding +2% +8
Slide 9: Group margin
Group margin1 Last 5 halves This half bpts Deposits bpts Repricing +3 214 Replicating (2) -4 bpts 216 214 210 210 210 (3) 1 (2) 1 (1) 210 Home Loans bpts Switching (2) Discounting (1) SVR +3 Fixed (2) Other Pers. (1) 1H17 2H17 1H18 2H18 1H19 2H18 Asset Deposit Portfolio Basis Treasury 1H19 Pricing P
Slide 10: Balance sheet resilience
Balance sheet resilience Credit Risk Funding Liquidity Capital • Disciplined approach • Peer leading deposits • Sound liquidity position • Focus on risk-adj. returns • Higher AASB 9 provisioning • Increased NSFR (112%) • LCR well above minimum • Enhanced risk models Total Provision Deposit Balances2
Slide 11: Credit risk
Credit risk Group LIE/GLAA TIA Basis Points of GLAA1 BPB – Small number of larger impairments Single large institutional impairment; IB&M – Ongoing portfolio optimisation higher home loan impairments 85 % of Consumer 15 bpts 1H18 1H19 TCE 0.56% 0.60% 0.62% Corporate 15 RBS 17 16 6.5 6.7 BPB 13 19 6.
Slide 12: Credit risk – consumer arrears & provisions
Credit risk – consumer arrears & provisions % Arrears1 $m Collective Provisions 90+ days Provision Coverage3 Personal Loans 1.41% 1.44% 1.44% 0.76% 1.03% 1.28% 1.21% 3,814 Credit Cards 1.03% 1.03% 0.88% 0.88% v 0.94% 2,772 2,350 Consumer 0.70% Home Loans2 0.67% 1,473 0.60% 0.59% 0.53% 1,299 1,464 Co
Slide 13: Operating expenses
Operating expenses1 AUSTRAC penalty (375) Remains elevated; Higher IT amortisation • Financial Crimes Compliance 7,000 Regulatory Costs (110) 6,500 • Customer remediation • Better Risk Outcomes Program 6,000 (485) -3.1% 5,500 121 76 5,456 (145) 200 5,000 66 5,289 4,500 4,000 3,500 $m 3,000 1H18 1H18
Slide 14: Investment spend
Investment spend1 Investment spend Investment spend $m $m 1,282 676 +13% Total 597 2nd Half 685 292 -2% Capitalised 298 1st Half 597 676 384 +28% Expensed 299 FY18 1H19 1H18 1H19 Investment spend Capitalised software balance % of total $bn 8% 2.23 Average amortisation Branches & Other 12% period 3.9
Slide 15: Remediating customers
Remediating customers Remediation and Program Costs Cumulative spend and provisions $1,460m Banking customers • Package Fees 245 Wealth customers • Interest and fee remediation • Open Advice Review 1,215 • Service Delivery Review • Credit Card Plus • CommInsure Life Insurance • CommInsure Loan Prote
Slide 16: Funding costs
Funding costs % Basis Risk Indicative Funding Costs1 Every 5 bpts = 1 bpt of NIM 1.0% 2H18 1H19 10yr market 3.0% funding cost 2.5% Dec 17 Jun 18 Dec 18 2.0% 0.5% v Avg 30bpts 1.5% 1.0% 5yr market 0.0% 0.0% funding cost Jun 07 Jun 08 Jun 09 Jun 10 Jun 11 Jun 12 Jun 13 Jun 14 Jun 15 Jun 16 Jun 17 Jun
Slide 17: Capital
Capital bpts CET1 Organic1 +66 bpts Estimated 107 31 (2) 10.8% divestment uplift 3 10.1% (21) 27 (72) bpts CFSGAM +60 Credit Risk - CMLA +38 IRRBB 24 BoComm +18 Market Risk 7 PTCL +7 Op Risk - Jun 18 Jun 18 AASB Sovereign 2H18 Dividend Cash Risk Other Dec 18 Dec 18 2 9 & 15 Divestment (Net of DRP) N
Slide 18: Home and Consumer Lending
Home and Consumer Lending
Slide 19: Home lending – system overview
Home lending – system overview Housing credit growth …with much of the slowing reflecting Regulation and softer market conditions has slowed…. tighter regulatory control are weighing on house prices… Housing Credit1 % Credit & Regulation1 % Dwelling Prices2 % (annual % change) p.a (% change) p.a (8
Slide 20: Home lending - CBA
Home lending - CBA1 CBA took early measures to manage ….ceding some market share as a Growth is now broadly in line with regulatory requirements… result, particularly in FY18 system ….. 12 month rolling growth Market share CBA Lending growth as a 28% multiple of system growth CBA Investment Loans CB
Slide 21: Borrowing capacity relatively stable
Borrowing capacity relatively stable1 Maximum borrowing capacity stable over …few borrowers utilise their full …with minimal change in average loan the last 12 months for average income capacity size and approval rates Change in maximum borrowing capacity2 CBA applicants with additional capacity to
Slide 22: Portfolio quality remains sound
Portfolio quality remains sound1 Approximately 61%2 of the book ….with significant interest rate buffers in Despite recent house price softening, originated under tightened standards… place LVR’s remain strong… 10% Mortgage portfolio by year of origination Interest rate buffers Portfolio Dynamic LVR
Slide 23: Serviceability Assessment
Serviceability Assesment1 All income used in application to assess serviceability is verified Applicant Gross Income Band 80% or lower cap on less stable income sources (e.g. rent, 45% Fundings3 $ Income bonuses) 6 months to Dec 18 40% Limits on investor income allowances, e.g. RBS restrict re
Slide 24: Home loan portfolio – CBA
Home loan portfolio – CBA Portfolio1 Dec 17 Jun 18 Dec 18 New Business1 Dec 17 Jun 18 Dec 18 Total Balances - Spot ($bn) 444 451 458 Total Funding ($bn) 49 45 49 Total Balances - Average ($bn) 440 443 455 Average Funding Size ($’000)6 320 319 326 Total Accounts (m) 1.8 1.8 1.8 Serviceability Buffer
Slide 25: Portfolio mix and growth
Portfolio mix and growth1 % Portfolio Balances by State2 % State Profile SA/NT Dec18 vs Jun18 Balance Growth 5% WA 2.5% NSW 16% 34% 2.4% 1.2% 0.7% QLD 18% VIC/TAS (0.4%) 27% NSW/ACT VIC/TAS QLD WA SA/NT $bn Balance growth $bn Fundings OO IHL 18 (51) 49 49 49 (9) 45 451 458 14 13 14 35 32 35 Jun 18 N
Slide 26: Interest only (IO) home loans
Interest only (IO) home loans1 IO loans accounting for a reducing proportion of total A recent modest uptick in IO arrears rates in part driven by the portfolio balances “denominator” effect of reduced IO balances IO % of total home loans Arrears 90+ days Offset balances ($bn) $bn Interest Only 300
Slide 27: Home loan arrears
Home loan arrears Arrears by Portfolio Arrears by Product Arrears by Year 1.8% Group 90+ days Group 90+ days1 Group 90+ days 1.0% Bankwest 1.0% CBA 1.2% ASB 0.5% 0.5% 0.6% Owner Occupied 2014 0.70% 0.67% 2015 0.60% 0.59% Portfolio 2016 2017 Investment Loans 2018 0.0% 0.0% 0.0% Dec 16 Jun 17 Dec 17 J
Slide 28: Consumer arrears
Consumer arrears Credit Cards Group Personal Loans Group Group 90+ days Bankwest Group 90+ days Bankwest CBA CBA 1.8% 1 1.8% 1 ASB ASB 1.2% 1.2% 0.6% 0.6% 0.0% 0.0% Dec 16 Jun 17 Dec 17 Jun 18 Dec 18 Dec 16 Jun 17 Dec 17 Jun 18 Dec 18 2014 2014 Credit Cards 2015 Personal Loans 2015 3.0% 2016 Group 3
Slide 29: Business and Corporate Lending
Business and Corporate Lending
Slide 30: Business and Corporate Lending
Business and Corporate Lending Total lending balances remain …driven in large part by portfolio IB&M Credit RWA’s have reduced relatively flat… optimisation in the Institutional book significantly over recent years Business and BPB +2% Business and Corporate Lending Credit RWA – IB&M NZ/Other +13% I
Slide 31: Portfolio quality
Portfolio quality1 Exposures by Industry Corporate Portfolio Quality Group TCE by Geography Investment Grade BBB+ Dec 17 Jun 18 Dec 18 AAA A+ TCE $bn to Other Dec 18 to AA- to A- BBB- Australia 77.7% 77.6% 77.9% Sovereign 100.0 7.7 0.6 - 108.3 68.0% 67.9% 67.9% New Zealand 9.9% 10.0% 10.4% Property
Slide 32: Credit exposure summary
Credit exposure summary Group TCE TIA $m TIA % of TCE Jun 18 Dec 18 Jun 18 Dec 18 Jun 18 Dec 18 Consumer 57.4% 57.8% 1,659 1,832 0.27% 0.29% Sovereign 9.3% 10.0% - - - - Property 6.2% 6.2% 632 652 0.94% 0.97% Banks 5.5% 4.6% 9 9 0.01% 0.02% Finance – Other 5.2% 4.9% 31 78 0.05% 0.15% Retail, Wholesa
Slide 33: Commercial property
Commercial property Group Exposure Dec 17 Exposure has remained flat in the half year. 67.8 67.2 67.2 Jun 18 Diversified across sectors and by counterparty. Dec 18 Lower apartment development exposures. Top 20 counterparties primarily investment grade 33 34 34 (weighted average rating of BBB
Slide 34: Residential apartments – weighted to Sydney
Residential apartments – weighted to Sydney Profile Apartment Development1 exposure reduced by $1.2bn Total Residential Apartment Development1 in the 6 months to Dec 18. $10.0bn (15% of CP) $2.6bn (0.2% of TCE) Other Facilities being repaid on time from pre-sale Perth $0.3bn $0.2bn settlements.
Slide 35: Agriculture
Agriculture Group agriculture exposure of $22.4bn (2.1% of Group Group Exposure Dec 17 TCE) – well diversified by geography, sector and client 21.5 21.8 22.4 Jun 18 base. Dec 18 Australian agriculture portfolio performance stable with 14 13 12 some headwinds from weak seasonal and drought condit
Slide 36: Drought affected areas
Drought affected areas Drought has become more pronounced in NSW and Victoria, with conditions drier than long term averages. Past droughts have not materially impacted the portfolio’s performance due to diversification by geography, industry and exposure size. The impact on clients is being c
Slide 37: Retail trade
Retail trade Group Exposure The retail trade sector remains challenged by low wage 12.2 11.711.7 Dec 17 Jun 18 growth, pressure on consumer disposable income, online 31 Dec 18 disrupters and continued subdued consumer sentiment 27 23 (despite an improvement in employment conditions). 2.8 3.1 2.7
Slide 38: Deposits, Funding, Liquidity and Capital
Deposits, Funding, Liquidity and Capital
Slide 39: Funding overview
Funding overview $bn Sources of funds Uses of funds Long term - 66% of total wholesale funding Wholesale funding WAM at 5yrs 69% Deposit Funded LCR at 131% 5.1 5.0 67% 68% 69% 67% 66% 66% 135% 133% 131% 58% 60% 3.8 4.1 4.1 121% 124% 51% 63% Jun 15 Jun 16 Jun 17 Jun 18 Dec 18 Jun 15 Jun 16 Jun 17 Jun
Slide 40: Deposit funding
Deposit funding Deposit Funding Deposits vs Peers1 Deposits in NSFR5 69% 495 As at 31 December 2018 ($bn) 68% 421 Peers as at 30 September 20186 67% Other 342 250 66% 233 CBA deposits 206 267 Peer 1 63% 211 148 Peer 2 Household 262 215 200 Peer 3 deposits 131 119 CBA overweight Jun 15 Jun 16 Jun 17
Slide 41: Wholesale funding
Wholesale funding Weighted Average Maturity Average long term funding costs Indicative funding cost curves Portfolio, Years1 200 2.00 Margin to BBSW (bpts) Margin to BBSW (bpts) 1.75 Dec 17 Jun 18 Dec 18 5.1 5.0 140 126 150 1.50 120 112 115 108 1.25 111 4.1 100 90 102 108 67% 66% 100 1.00 80 100 Lon
Slide 42: Wholesale funding – issuance and maturity
Wholesale funding – issuance and maturity 1H19 benchmark issuance New term issuance New term issuance by currency by tenor Date Type Tenor (yr) Volume (m) Spread at Issue (bpts) 25% 23% 21% Jul-18 GBP Senior 3 GBP 250 3m GBP Libor +45 44% 38% 42% >5 years 50% Jul-18 USD Covered 5 USD 1,250 MS +40 58
Slide 43: Funding and Liquidity Metrics
Funding and Liquidity Metrics1 NSFR 112% NSFR (%) Dec 18 643 572 (0.8) 112% Wholesale 2.0 Liquids and Other Assets 2 (0.3) Funding & Other 112% (1.1) 1.0 Other Loans Retail/SME Deposits Residential Mortgages ≤ 35% risk weight 3 $bn Capital Required Stable Funding Available Stable Funding Jun 18 Jun
Slide 44: Capital Overview
Capital Overview CET1 CET1 CET1 433% International APRA 16.3% 16.5% 10.8% 15.5% 10.4% 10.1% Assets 123% 2007 2009 2011 2013 2015 2017 1H19 Dec 17 Jun 18 Dec 18 Dec 17 Jun 18 Dec 18 22.0 International CET1 ratios 16.8 16.8 16.5 16.1 15.5 14.9 G-SIBs in dark grey 14.7 14.6 14.5 14.3 14.2 14.1 13.4 13.
Slide 45: Total capital levels
Total capital levels 22.6% 3.5% 2.6% 15.8% 14.7% 15.0% 2.9% 2.4% 2.7% 1.9% 2.2% 2.1% 16.5% 10.4% 10.1% 10.8% Dec 17 Jun 18 Dec 18 Dec 18 APRA APRA APRA INTL CET1 Tier 1 Tier 2 45
Slide 46: APRA’s LAC proposal
APRA’s LAC proposal 18.5% - 19.5% • APRA commenced consultation on a proposed Capital Surplus 3.0% 4%-5% increase in LAC for D-SIBs by 2023. • The 4 majors are collectively engaging with APRA 14.5% on the proposal. CCB, 3.5% • APRA proposes Tier 2 as the primary instrument Capital Surplus 3.0% to me
Slide 47: Leverage ratio
Leverage ratio Leverage ratio introduced to constrain the build-up of leverage in $m Dec 18 the banking system. Tier 1 Capital 57,518 Leverage ratio = Tier 1 Capital Total Exposures 1,026,240 Total Exposures Leverage Ratio (APRA) 5.6% $m Dec 18 6.1% 6.3% 6.4% Group Total Assets 980,430 5.4% 5.5% 5.6
Slide 48: Regulatory capital change timetable
Regulatory capital change timetable 2018 2019 2020 2021 2022 2023 Capital to exceed APRA’s unquestionably unquestionably strong strong benchmark of CET1 >10.5% by 1 Jan 2020 APRA commenced consultation in 2018 on: APRA’s revisions the ADI • Revisions to risk-based capital requirements for credit, in
Slide 49: Group Overview
Group Overview
Slide 50: CBA overview
CBA overview Over 16 million customers1 Largest share of MFI customers2 Leading digital assets and advocacy Mobile App Net Promoter Score3 35.1% +40 33.1 Including 6.7m digital customers 16.1 All others combined 23.0% +30 17.9% +20 12.7% 11.3% +10 CBA Peers +0 Dec Dec Dec Dec Dec Dec Dec Dec Dec CBA
Slide 51: Our strategy
Our strategy Become a simpler, better bank for our customers To deliver balanced and sustainable outcomes Simplify our business Lead in retail and commercial banking Customers Better outcomes Best in digital People Shareholders Energised, Long-term Supported by stronger capabilities accountable sust
Slide 52: A simpler bank
A simpler bank Divestments/demerger/reviews A simpler, better bank • Sovereign – completed • Focused core businesses • TymeDigital – completed • Bankwest integrated into RBS • BoComm Life – announced • Small Business consolidated in BPB • CommInsure Life – announced • CFSGAM – announced • Discipline
Slide 53: Business Units
Business Units ~ 95% of Group NPAT1 Divestments/Demerger/ Strategic Reviews Movements are 1H19 vs 1H18 Life 12 (8%) IFS Discontinued (30) Sovereign - 2,212 Eliminations (5) (3%) 1,407 ASB +6% (5%) 7% 82% (44%) 7% (23%) (70%) (large) 580 574 $m 118 (336) 147 115 13 (23) 2 RBS BPB IB&M NZ IFS Other Ne
Slide 54: Best in Digital
Best in Digital CommBank App users Monthly unique customers (m)5 5.3m 5.0 4.8 4.4 4.1 3.7 3.4 3.0 Jun 15 Dec 15 Jun 16 Dec 16 Jun 17 Dec 17 Jun 18 Dec 18 6.7m Active digital customers 1 Digital transactions 6.7m Digitally active customers 1 % of total transactions - by value6 60% 6.5m Digital logons
Slide 55: Doing business sustainably
Doing business sustainably 1st Australian 65% of the Group’s $7.86 million raised in 5 year Bank@Post corporate to join the national electricity conjunction with our partnership with global Renewable needs sourced from people, customers and Australia Post to provide Energy 100 initiative renewable e
Slide 56: Doing business sustainably
Doing business sustainably Community investment Employee engagement Renewable energy Total community investment ($m)1 CBA Employee Engagement Index (%)2 Exposure ($bn)3 152 81 3.7 131 132 140 77 78 73 3.3 122 67 2.3 1.7 1H15 1H16 1H17 1H18 1H19 1H15 1H16 1H17 1H18 1H19 1H16 1H17 1H18 1H19 Start Smar
Slide 57: Task Force on Climate-related Financial Disclosures
Task Force on Climate-related Financial Disclosures1 Delivered first TCFD disclosures in 20182 Updated disclosures to be published in 2019 Annual Report Governance Strategy Risk management Metrics and targets • Board oversight of climate • First phase of scenario • Risk identification and • Source 1
Slide 58: New Zealand
New Zealand
Slide 59: New Zealand
New Zealand Dairy prices have remained relatively NZ’s terms of trade expected to remain Inflation is likely to range between 1-2% steady since late 2016 near record highs over next few years Global dairy trade auction results1 NZ Terms of Trade2 % NZ CPI inflation3 Index 6,000 (USD/tonne) 6 1500 (f
Slide 60: ASB
ASB NPAT Margin Volume growth Revenue 575 568 608 Increased margin pressures Solid volume growth in lending and deposits $m +7% 1H18 2H18 1H19 12 months to Dec 18 +3% 1H19 vs 1H18 227 1,363 220 221 7% 1,277 1,323 6.7% 6% 5.7% 4.6% Rev. Exp. NPAT 1H18 2H18 1H19 Deposits Lending 1H18 2H18 1H19 bpts NZ
Slide 61: Key economic indicators (June FY)
Key economic indicators (June FY) 2013 2014 2015 2016 2017 2018 2019 2020 World GDP 3.5 3.6 3.5 3.3 3.8 3.7 3.5 3.6 Australia Credit Growth % – Total 3.1 5.0 5.9 6.2 5.4 4.5 3-5 3½-5½ Credit Growth % – Housing 4.6 6.4 7.3 6.7 6.6 5.6 3½-4½ 4-6 Credit Growth % – Business 1.2 3.4 4.5 6.6 4.3 3.2 5-7 4
Slide 62: Sources, Glossary & Notes
_ WAN ~ SY ‘ ‘4 i f a Sources, Glossary & . Notes
Slide 63: Glossary
Glossary Capital & Other Funding & Risk Risk Weighted Assets or The value of the Group’s On and Off Balance Sheet assets are Liquidity coverage ratio The LCR is the first quantitative liquidity measure that is part of the Basel III RWA adjusted by risk weights calculated according to various APRA (L
Slide 64: Notes
Notes Disclaimer The material in this presentation is general background information about the Group and its activities current as at the date of the presentation, 6 February 2019. It is information given in summary form and does not purport to be complete. Information in this presentation is not in
Commonwealth Bank of Australia — Debt Investor Presentation (February 2019) on 6ix