Commonwealth Bank Of Australia · ASX:CBA
Commonwealth Bank Of Australia — Investor Presentation (December 2006)
129 slides from Commonwealth Bank Of Australia's investor presentation, Dec 8, 2006
Slide 1: CBA Risk Management Briefing
Michael Blythe Chief Economist Mick Leonard Chief Risk Officer Financial & Risk Management Jim Evans Executive General Manager Risk Management & Compliance Wealth Management David Grafton Executive General Manager Credit Risk Management Retail Banking Services Paul Riordan Executive General Manager
Slide 2: Disclaimer
Disclaimer The material that follows is a presentation of general background information about the Bank’s activities current at the date of the presentation, 8 December 2006. It is information given in summary form and does not purport to be complete. It is not intended to be relied upon as advice t
Slide 3: Agenda
Agenda a Introduction — Mick Leonard Economic Update — Michael Blythe Overview — Mick Leonard Insurance Risk — Jim Evans Retail Credit Risk — David Grafton Market Risk — Paul Riordan Panel Questions ConmonwealthBank
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Slide 5: Michael Blythe
Michael Blythe Chief Economist i
Slide 6: Other Key Information
Other Key Information Notes Important Information and pefore This advice has neen prepared witout on the edie, you shoud consider i appronriat nsitering your objectives, francis Situation or nse 8 10 pour aarcumstences. Commanveain Bank of Ausireiia ae a onder Of investment, norrewieg any oiner Tina
Slide 7: Key Drivers: Strong Income & Spending
Key Drivers: Strong Income & Spending Index TERMS OF TRADE Index 20 20 05 05 90 90 1 15 60 : 7 : . it 60 Sep-59 Sep-68 Sep-77 Sep-86 Sep-95 Sep-04 CAPACITY MEASURES Capacity uttisation*® Unemp- 3 L----\p----------p-_ #---------- loyment . rate (ths) “Source: ACCI-WAC & NAB Business Surveys G Sep-79
Slide 8: Notes
Notes ConmonwealthBank
Slide 9: Key Outcomes
Key Outcomes AUSTRALIA: NET LENDING BY SECTOR Squaring the eircie * (% of GDP} % ® From a savings-investment perspective, the ‘ ! foe terms of trade boom encouraged global 9 investors to lend us more and allowed 4 government to become a net lender as well. ip side j | “nT ® The flip side is that bus
Slide 10: Notes
Notes ConmonwealthBank 410
Slide 11: Household Strain - Debt
Household Strain -— Debt Paying the piper % 50 45 40 35 30 Jul-@5 Jul-97 Jul-99 CREDIT CARD INDICATORS (rolling annual average) Repayments (%of balances) Balances (%of limits) Ju-O1 Jul-O3 Jul-05 % 50 45 40 36 30 pa DEBT & HOUSE SALES 50 H/hold interest payments (%of income, inverted) / {adv 2 atrs,
Slide 12: Notes
Notes ConmonwealthBank 12
Slide 13: Household Strain - Interest Rates
Household Strain - Interest Rates Consumer losurance - Part 4 we & % 30 FIXED RATE LOANS (% of total) 20 0 Jubo1 JulkeO4 = Jul-O7 — Jul-O0 — Jul-03— Jul-06 20 % Jal MORTGAGE RATES (wgtd by lender type‘s share of aprovats) Source: RBA Standard pis variable rate (ins) ~------<7-------- Qegrmeent -----
Slide 14: Notes
Notes ConmonwealthBank 44
Slide 15: Household Strain - Interest Rates
Household Strain - Interest Rates Consumer lnsurance - Part 2 $bn 26 20 ie) PRINCIPAL REPAYMENTS (cumulative overpayment) Sep-97 Sep-03 Sep-06 ‘assumes prinipal repayment ratio fixed at 1995-98 level Sep-08 Sep-04 $bn 25 20 HOUSING EQUITY WITHDRAWAL $bn 600 Cumulative increase 200 }- Cumulative - 90
Slide 16: Notes
Notes ConmonwealthBank 16
Slide 17: Demography is Destiny
Demography is Destiny HOUSING INDICATORS VACANCY RATES & RENTS %pa $bn Ypa 75 70 50 New lending so L------ fe} UPS) gf HB 25 Rs i 3 ~25 80 JukO2 JuleO3 9 JulO4 = Jub05 — Jul-06 *Source: REIA % co % Housing activity has slowed in response to higher interest rates. Demographic drivers favour a lift in
Slide 18: Notes
Notes ConmonwealthBank 18
Slide 19: Commodity Price Bust?
Commodity Price Bust? What Goe S Up Must Come perenne? COMMODITY PRICE FORECASTS index (RBA Non-Rural Index, USD) 260 Source: RBA, Jun'os > Sep'0s Access Economics ‘YN 203 |----------------------- % “\-4 M7 |------------------- 96 Sep-99 Sep-07 Sep-03 Sep-05 Sep-07 Index 260 203 47 CHINA % (share of
Slide 20: Notes
Notes ConmonwealthBank 20
Slide 21: Interest Rates
Interest Rates One ane Done [again’ 7 CASH RATE & UNEMPLOYMENT WORLD ASSET PERFORMANCE AND a (change over past year) %pts GDP GROWTH wyly , . 60 Cash IMF if rate (Ihs} 44 World GDP L 50 0.9 |--AI--al-------4------f------------ A (RHS) . 20 4 L 4.0 ~0.3 fe ---- I fA 0 i] + 3.0 14 [---------- --4 4 Un
Slide 22: Notes
Notes ConmonwealthBank 22
Slide 23: Credit Markets
Credit Markets As Good as it Gets? WORLD S&l FLOWS (exc USA) SPREAD TO SWAP (5yr) % (% of GDP) % bP bP 28 28 160 0 BBB Spectrum +00 he --A-fet---&------------- 00 26 |------ gal. ----------------------------- 26 Savings 50 50 24 [2 ----------4 mat ‘\ ~------ 24 22 |----------------------- AZ wee 22
Slide 24: Notes
Notes ConmonwealthBank 24
Slide 25: Economic outlook summary
grey morn t ® US is slowing but Japan and Asia to absorb any slack; % — Underlying commodity price outlook still favourable; » Period of low interest rates and excess global liquidity over; % Background conditions favour a repricing of risk. retains s and inflation mong * Business capex and prospect
Slide 26: Disclosure and Disclaimer
DISCLOSURE AND DISCLAIMER The Bank and the US Broker-deeler are affiliates under common control, The Bank and certain of its affifiates transact and seek fo transact business with some of the companies covered in the Bank's research reports. As a resull, investors should be aware that the Bank may h
Slide 27: For U.S. Investors
For U.S. Investors: Commonwealth Australia Securities LLC (US broker-dealer’) is a wholly owned, but non-gueranteed, subsidiary of the Bank, organized under the laws of the State of Delaware, USA, with limited liability. The US broker-dealer is not authorized to engage in the underariting of securit
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Slide 29: Mick Leonard
Mick Leonard Chief Risk Officer 2 a
Slide 30: Notes
Notes ConmonwealthBank 30
Slide 31: Our Risks
Our Risks Credit Risk Insurance Risk Market Risk Operational and Compliance Risk Economic Capital - 30 June 2006 ConmonwealthBank 34
Slide 32: Notes
Notes ConmonwealthBank 32
Slide 33: Today
Today ® Risk Management as a strategic and operational advantage ® Looking forward *® Maximising investment in Risk Management ConmonwealthBank 33
Slide 34: Notes
Notes ConmonwealthBank 34
Slide 35: A Strategic and Operational Advantage
A Strategic and Operational Advantage Our strengths: ® People * |dentification & Measurement ® Pricing for risk ® Tools = Processes Our philosophy: Together we deliver optimal customer outcomes ConmonwealthBank 35
Slide 36: Clear Risk Appetite
Notes Clear Risk Appetite “Busitese ineraged for | proftable growthto | optimise Bank earnings | - _ 21 real Loss Provisions Adjusted’ Retums used. as:! basis for internal hurd | [AA Debt Ratirg provides tor Cpe Surenes | ‘| Pconeisteit measurement ot > i @ Reguletor @ Ratngs Agerey | | economic cap
Slide 37: How We Manage Risk Bank-Wide
How We Manage Risk Bank-Wide Strategy Risk Appetite/Tolerance Governance Le a ee Li 37
Slide 38: Notes
Notes ConmonwealthBank 38
Slide 39: Looking Forward
Looking Forward Mortgage Product Balances — A$154.5bn investment Home Loan 35% Owner Occupied 55% Line of Credit 10% Personal Lending Balances - $16.8b Personal Loans 23% Credit Cards 42% Margin Loans 38% High Quality Commercial Assets’ Dec-t2 JuntlS DecOS Junt4 Doc-04 Jun-68 Dec-05 Jur-06 AAMAA A p
Slide 40: Notes
Notes ConmonwealthBank 40
Slide 41: Low Bad Debts and Well Provisioned
Low Bad Debts and Well Provisioned Gross Impaired to Risk Weighted Assets 00% Deo. Jun- Boo. dus- Oee- Jun- Dee- Juss- Dee- Jys- Dee- Jun- 09 01 01 02 o2 63 G3 OF OF 95 95 0G Source: Compary Data ~~ CB Asma ANZ “lem NAB tm VEC Asset Provisions Genera tasers fer Cuca Lass LMS) RE Colncdso Prsinon @58
Slide 42: Notes
Notes ConmonwealthBank 42
Slide 43: Key Indicators Property Cycle & CBA Writeoffs
Key Indicators 1 Property Cycle & CBA Writeoffs 5 120 CRA Morigage Westone LI] 490 4 ao 23 . Housing | a0 a Price index 2 a 40 1 | CBA Average Write-off Level 20 (LHS) 0 a 92 99 94 96 96 OF 98 99 00-0F 02 03 08 06 06 Source GBA Clobel Markets Resesroh Index Mortgage Rates & CBA Writeoffs CRA Moctgag
Slide 44: Notes
Notes ConmonwealthBank 44
Slide 45: Monitoring Sensitivities
Monitoring Sensitivities * Retail unsecured ® Automobile Industry, including Auto parts * Grape growing * Property developers ® Some aspects of agriculture * Discretionary Retail ConmonwealthBank 45
Slide 46: Notes
Notes ConmonwealthBank 46
Slide 47: Managing Sensitivities
Managing Sensitivities ® Stress Test the Portfolio * Internal “ an event driven approach i.e. a worst case economic downtum, to assess the impact on the portfolio of exceptional but plausible large loss events %@ specific parameters based on a hybrid between historical experience and a hypothetical
Slide 48: Other Key Information
Other Key Information Notes Regulatory Developments Sarbanee Oxley % —reviow or te deslgy arch opessang effectiveness af 3K Iheiral cena over Tancla reporirg was conuueLac 212 indeperdenty testecltor the 2606 Firareia! Vest % This was undertaker suppor an Faria SX cornallance nnanageinert ausectent
Slide 49: Maximising Investment in Risk
Maximising Investment in Risk Approach: oney Laundering Optimise business outcomes versus compliance # Package & price our products more competitively # Optimise capital # Improved processes & systems #* Better decisions that reflects risk # Improved risk awareness # Support our objectives of excell
Slide 50: Notes
Notes ConmonwealthBank 50
Slide 51: Key Messages
Key Messages * Strategic & Operational Advantage m—m= Bank-wide = Reduced Volatility mmm» Predictable Earnings = Investment mam) Delivering Business Growth Together we deliver optimal customer outcomes ConmonwealthBark 4 5
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Slide 53: Jim Evans
i i Jim Evans i, a Executive General Manager Risk Management & Compliance Wealth Management
Slide 54: Notes
Notes ConmonwealthBank 54
Slide 55: Today
Today ® About our business ® What we do ® How we manage risk @ Risk Management cycle 2 How we complement the Bank’s products and services ConmonwealthBank 55
Slide 56: Notes
Notes ConmonwealthBank 56
Slide 57: About Our Business
About Our Business ee zB TIER TERT, ] Z oo. La ie Co 7 - Le y ee a Ce : 2 a aE = ae Ly 7 DD y | = ce a oe ee LD CC ee YO eo y he Source: Data per Pian For Life as at 30 June 2006. CMLA Life assets as at Oct 06 $22.6 bn CMLA Life net assets as at Oct 06 $1.2 bn 57
Slide 58: Notes
Notes ConmonwealthBank 58
Slide 59: What We Do
What We Do * Insurance businesses offer products that are promises to pay * The promise is either event based or time based *® Examples are losses that arise from accident, weather, earthquakes ® For people these can be sickness, disability, temporary loss of income or time based, being superannuati
Slide 60: Notes
Notes ConmonwealthBank 60
Slide 61: How We Manage Risk
How We Manage Risk ® Governance processes ® Risk management cycle “8 Specifying the problem | Developing the solution s@ Monitoring the experience ConmonwealthBank 64
Slide 62: Notes
Notes ConmonwealthBank 62
Slide 63: Governance Process
Governance Process ® Majority of Independent Directors ® Appropriate committee structures and members superannuation trustees — majority of independents * Board and committee charters create agenda completeness. ConmonwealthBank 63
Slide 64: Notes
Notes ConmonwealthBank 64
Slide 65: Risk Management Cycle
Risk Management Cycle % — Insurers pool risks to consistently achieve required return on capital. » A three stage risk management process is adopted where risks are constantly monitored (and new ones identified) with future assumptions revised in light of past experience. The Conmercal Environment S
Slide 66: Notes
Notes ConmonwealthBank 66
Slide 67: Developing the Solution
Developing the Solution Example: Hame & Cortent insurance ® Underwriting risk ® Anti-selection risk ® Concentration risk ® Interest rate risk # Reinsurance credit risk ConmonwealthBank
Slide 68: Notes
Notes ConmonwealthBank 68
Slide 69: Monitoring the Experience
Monitoring the Experience Example: Home & Content Insurance Regular monitoring identifies where & why actual experience differs from expected: # New Business Sales * Sales Conversion & Retention ® Exposure @ Claims = Capital Refine solutions (products) to enhance growth & market share ConmonwealthBa
Slide 70: Notes
Notes ConmonwealthBank 70
Slide 71: How we Complement the Bank's Products and Services
How we Complement the Bank’s Products and Services » What is different about insurance? s Evolution of time (Create wealth) sa Event risk (Protect wealth) » Products are designed to enhance people’s lifestyles through either: = Wealth creation (Superannuation) #5 Wealth protection (Insuring assets)
Slide 72: Notes
Notes ConmonwealthBank 72
Slide 73: Key Messages
Key Messages Insurance businesses offer products that are promises = Governance processes are critical * Quality risk management is vital “ So that we can create and protect people’s wealth w Quality products ge Competitive pricing ™ Risk adjusted returns = Reduce volatility of financial results * C
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Slide 75: David Grafton
David Grafton Executive General Manager Credit Risk Management and Analytics Retail Banking Services ConmonwealthBank 75
Slide 76: Notes
Notes ConmonwealthBank 76
Slide 77: Today
Today ® What is happening in: ® Retail Credit Risk Management @ Retail Credit Portfolios * What are the improvements driving performance? ® The benefits ConmonwealthBank 77
Slide 78: Notes
Notes ConmonwealthBank 78
Slide 79: What is Happening in Retail Credit Risk Management?
What is Happening in Retail Credit Risk Management? *® Considerable investment in improving capability ® Talented team of scale and capability ® All credit scorecards rebuilt and range of new ones implemented @ New parameterised credit risk management software systems ConmonwealthBank 79
Slide 80: Notes
Notes ConmonwealthBank 80
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Commonwealth Bank of Australia — Investor Presentation (December 2006) on 6ix