Commonwealth Bank Of Australia · ASX:CBA
Commonwealth Bank Of Australia — Debt Investor Presentation (August 2020)
68 slides from Commonwealth Bank Of Australia's debt investor presentation, Aug 12, 2020
Slide 1: Debt Investor Discussion Pack
Debt Investor Discussion Pack For the full year ended 30 June 2020 CommonwealthBark 9
Slide 2: Disclaimer
The material in this presentation is general background information about the Group and its activities current as at the date of the presentation, 12 August 2020. It is information given in summary form and does not purport to be complete. Information in this presentation is not intended to be relie
Slide 3: Financial, balance sheet, capital & funding
Financial Balance sheet, capital & funding Statutory NPAT2 ($m) 9,634 +12.4% Capital – CET12,4 (Int’l) 17.4% +120 bpts Cash NPAT3 ($m) 7,296 (11.3%) Capital – CET12 (APRA) 11.6% +90 bpts ROE3 % (cash) 10.3 (180) bpts Total assets ($bn) 1,014 +3.8% EPS3 cents (cash) 413 (53c) Total liabilities ($bn)
Slide 4: Executing our strategy
Simplify our business Lead in retail & business Best in digital banking Majority sale of CFS (55%) #1 share – MFI, home loans, deposits Australia’s #1 banking app3 Core franchise >97% of Cash NPAT >50% of SME Guarantee Lending Innovating for future growth FY20 Cash NPAT Market shares Net
Slide 5: Funding, provisioning and capital
Funding Provisioning Capital 74% deposit funded, NSFR 120% $1.5bn COVID-19 provision (in 3Q20) CET1 ratio of 11.6% (Level 2) $191bn of liquid assets, LCR 155%1 Peer leading coverage ratio of 1.70% Another 58-68bpts expected (divestments) CET1 % Divestments Deposit funding % Total credit
Slide 6: CET1 and dividend per share
CET1 CET1 CET1 Dividend per Share International 489% (cents) APRA Level 2 Level 2 Payout Ratio (cash NPAT basis) Level 1 17.4% Assets 431 431 11.9% 420 420 429 11.6% 130% 298 11.2% 16.2% 10.7% 88% 77% 80% 75% 75% 71% Jun 19 Jun 20 Jun 19 Jun 20 Jun 19 Jun 20 FY15 FY16 FY17 FY18 FY19 FY20 17.4 17.2 1
Slide 7: COVID-19 loan deferrals by product
Home Loans Personal Loans Business Loans Total home loans Total personal loans Total business loans Ongoing reviews 0.3% 1k active 8% 135k active deferrals 15% 59k active deferrals deferrals Proactive assistance Regular check-in via digital platforms 154k 86k 145k 135k 67k Direct contact wit
Slide 8: Most impacted sectors
Most impacted sectors Early impacts predominantly in Institutional exposures, Retail Trade Manufacturing with consumer and SME portfolios benefiting from loan repayment deferrals TIA $319m $541m TIA $487m $660m TIA % of TCE TIA % of TCE Bottom-up, granular assessment of likely stress at customer
Slide 9: Loan loss rate, arrears and troublesome and impaired assets
Loan Loss Rate1 - Group Arrears3 TIA FY19 FY20 • HL & PL’s insulated by loan deferrals Consumer 17 26 • Emerging stress across a range of • Signs of stress in credit cards + lower Corporate 14 50 sectors impacted by COVID-19 balances (denominator effect) bpts Group 16 33 73 1.56% 1.44% 1.51% 1.44% %
Slide 10: Market share, provisioning, capital and shareholder metrics
MFI share1 Home Lending share2 Household Deposits share3 Net Promoter Scores CBA Change in FY20 (bpts) Deposit Funding Mobile App Net Promoter Score4 74% Peers as at Mar 20 37.6 23 40 35.5% 24.9% -31 -21 27.1% 68% 62% 61% -88 Peers CBA Peer 3 Peer 2 Peer 1 CBA Peer 3 Peer 1 Peer 2 30 16.8% 22.1% 21.
Slide 11: Financial Overview
! Financial Overview a
Slide 12: Operating income
• Core volume growth • COVID-19 impacts: (234) • Lower margin ‒ Impairment of aircraft assets in SAF portfolio2 (108) ‒ Lower credit card & retail FX income from lower spend (95) ‒ Lower Merchant fee income due to fee waivers (31) • Higher CommSec equities income from higher trading volumes +137 +2.
Slide 13: Net interest income
$m Volume: +3.0% Margin: (2) bpts +7 bpts (8) bpts +3 bpts +5 bpts (6) bpts (3) bpts 628 449 (538) (718) +2.1% 269 (269) 565 18,610 18,224 Home Loan Cash rate Strong growth in Lower earnings on Higher pricing, partly reductions not transaction and free equity, lower New liquid and offset by passed o
Slide 14: Net interest margin and cash rate headwinds
Cash Rate Headwinds2 This half FY21 vs FY20 7bpts 2 (5) (3) (4) 3 (7bpts) 211 1 1 1 Home loans: - SVR +6 Transactions (4) Savings (4) 204 - Discounting (2) R. Portfolio +2 Bus. Lending (2) Wholesale +1 1H20 Asset Deposit Pricing Capital Higher Portfolio Basis Risk Global 2H20 Pricing & Funding Earni
Slide 15: Operating expenses
Notable items +2.7% (ex. notable items) 145 (358) +0.7% 585 (381) 41 39 10,824 10,895 Additional COVID-19 related costs, higher staff, IT & amortisation costs +300 Avg. FTE Cumulative cost savings realised: • FY20 $548m • FY19 $190m $m FY19 Non-recurrence Customer Risk & Enhanced risk Staff, IT, Bus
Slide 16: Provisions and economic scenarios
Collective Provisions Total Provisions Alternate Economic Scenarios3 Provision Coverage1 Provision Coverage2 Current provisioning $1.1 billion higher 1.05% 1.44% 1.29% 1.70% than base case scenario Consumer Corporate Collective Individual 9.0 $bn $bn 6.4 $bn 5.4 +38% 1.0 4.8 6.4 3.9 2.2 +48% 0.9 5.3
Slide 17: Macroeconomic assumptions and provisions
Macroeconomic assumptions reflect forward Central - Downturn Downside looking scenarios updated for current assessments of the impacts of COVID-19 CY20 CY21 CY22 CY20 CY21 CY22 Key assumptions: Collective Provisions include the impact of four GDP (annual % change) -6.0% 6.0% 3.0% -7.1% 1.4% 2.3%
Slide 18: Investment spend
FY20 vs FY20 vs $m $m Investment spend FY19: Investment spend FY19: 1,437 +8% 1,437 +8% Total Total 1,334 1,334 695 798 +15% 731 771 +5% Expensed 2nd Half 1st Half 639 639 Flat 603 666 +10% Capitalised FY19 FY20 FY19 FY20 Investment spend $bn Capitalised software balance % of total Branches 2.23 Ave
Slide 19: Divestment status and CET1 impact
Divestment Status CET1 Impact Core Business Completed Sovereign Jul-18 Level 2 FY20 Cash NPAT TymeDigital Nov-18 $m CFSGAM Aug-19 12.1-12.2% Pro-forma Count Financial Oct-19 CFP Pathways Cessation completed Mar-20 Remaining Colonial First State 30-40 Financial Wisdom CommInsure Life1 10 Assisted clo
Slide 20: Funding, Liquidity and Capital
! Funding, Liquidity and Capital <>
Slide 21: Funding composition, liquidity and profile
Funding composition Wholesale funding Funding profile Deposit growth supporting 74% of funding Wholesale funding weighted to Long Term Balanced maturity profile reducing refinancing risk FY20 Maturity % of total funding Weighted Average Maturity2, years issuance Short term 8% 5.3 $14.5bn $19.8bn who
Slide 22: Deposit funding
Deposit funding $bn Deposits vs peers1 Deposits in NSFR2 552 As at 30 Jun 2020 ($bn) 74% 453 Peers as at 31 March 20203 Other 273 372 deposits 307 250 CBA 69% 232 67% 68% 234 Peer 3 178 66% Household 279 Peer 1 deposits 221 138 129 200 CBA Peer 2 overweight Jun 16 Jun 17 Jun 18 Jun 19 Jun 20 CBA Pee
Slide 23: Short and long term funding portfolio mix
Portfolio mix Short term funding by product¹ Short term Certificates of Deposits 59% 34% 34% 31% funding¹ Commercial Paper 18% 66% 66% 69% Long term FI Deposits 15% funding2 5.1 5.4 5.3 WAM3 WAM3 WAM3 MTN 8% Other 0% Jun 19 Dec 19 Jun 20 Long term funding by currency2 Long term funding by product2 J
Slide 24: FY20 benchmark issuance and funding costs
Group FY20 benchmark issuance New term issuance by currency New term issuance by tenor Tenor Volume Spread at Date Entity Type 21% (yr) (m) Issue (bpts) 25% 30% 38% 42% 45% >5 years Aug-19 ASB NZD Senior 3 NZD 600 MS + 85 50% 55% AUD Sep-19 CBA USD Tier 2 15NC10/20 USD 2,500 T+205 / T+170 USD 41% 3-
Slide 25: CET1 movement
CET1 % -10bpts in 2H20 Expected uplift Expected uplift (divestments)1 (divestments)1 (absorbing -17bpts of provisions/divestments & -11bpts interim dividend neutralisation) 58-68bpts 47-57bpts CommInsure Life 19 COVID-19 (32) Credit Risk 3 PTCL 7 Remediation (11) Market Risk (18) IRRBB (5) 17.4% Op
Slide 26: Internationally comparable CET1
bpts Internationally comparable1 CET1 CET1 APRA 11.6% Equity investments 0.8% Capitalised expenses 0.1% 17.5% (99) 121 (12) 9 17.4% Deferred tax assets 0.5% 16.5% 17 (46) IRRBB RWA 0.3% Residential mortgages 2.3% Other retail standardised exposures - Unsecured non-retail exposures 0.4% Non-retail un
Slide 27: Regulatory capital changes
Change Details Implementation APRA commenced consultation on: • Revisions to risk-based capital requirements for credit, interest rate risk in banking book and operational risk; 1 Jan 2023 APRA’s revisions to the ADI • Transparency, comparability and flexibility of the ADI capital framework; and (AP
Slide 28: Loss absorbing capacity requirements
18.0% • Additional 3% of RWA in Total Capital applicable to all 17.5% 14.5% Capital Surplus domestically systemically important banks (D-SIBs) by 1 Jan 24. 15.0% Tier 2 • CBA requires an additional $6.3bn of LAC qualifying issuance by 1 Jan 24. Capital Surplus Capital • FY20 LAC qualifying issuances
Slide 29: RBNZ capital requirement changes
RBNZ capital requirement changes 16.0% 18.0% Minimum • Due to COVID-19 implementation was delayed by one year until 2.0% Tier 2 Tier 1 July 2021 with a transitional period of 7 years. 2.5% AT1 • Under APRA’s proposed revisions to APS111, any equity 1.5% CCYB Buffer injections of additional capital i
Slide 30: Leverage ratio
Leverage ratio introduced to constrain the build-up of leverage in $m Jun 20 the banking system Tier 1 Capital 63,414 Leverage ratio = Tier 1 Capital Total Exposures 1,073,131 Total Exposures Leverage Ratio (APRA) 5.9% 7.0% 6.7% $m Jun 20 6.5% 6.1% 5.9% Proposed Group Total Assets 1,014,060 5.6% 3.5
Slide 31: Asset Quality
! Asset Quality
Slide 32: Home loan arrears
Group portfolio arrears relatively stable Continued downward trends on …with interest only arrears improved year-on- this half Owner Occupied year, with minor deterioration in the last quarter Group Arrears by Portfolio Arrears by Product Arrears by Repayment Type Bankwest 0.90% 1.2% Group 90+ days
Slide 33: Credit card and personal loan arrears
Group Credit Cards Credit Cards Group 5.4% Bankwest 1.8% Bankwest 4.8% CBA Group 30+ days Group 90+ days CBA 4.2% ASB ASB 1 3.6% 1.2% 3.0% 2.4% 1.8% 0.6% 1.2% 0.6% 0.0% 0.0% Jun 18 Dec 18 Jun 19 Dec 19 Jun 20 Jun 18 Dec 18 Jun 19 Dec 19 Jun 20 Group Personal Loans Personal Loans Group Bankwest Bankw
Slide 34: Credit card and personal loan arrears trends
2.0% Credit Cards1 2016 2017 Group 90+ days 2018 Credit Cards arrears rates increased in 4Q20 driven by 1.5% 2019 2020 Adjusted for portfolio reduced portfolio balances and emerging COVID-19 balance decline2 related stress. 1.0% Personal Loan arrears were broadly unchanged, with arrears paused f
Slide 35: Losses and portfolio insurance profile
Losses to average gross loans2 Portfolio Insurance Profile3 2.5% % of Home Loan portfolio Current Historical Avg.4 Insurance with Genworth or 2.0% Group Total Loans 0.13% 0.31% Excess of loss re- QBE for higher risk loans insurance 3% above 80% LVR CBA Home Loans 0.02% 0.02% 21% 1.5% Group Total Loa
Slide 36: Total committed exposure and troublesome and impaired assets
Group TCE1 TIA $m TIA % of TCE1 Dec 19 Jun 20 Dec 19 Jun 20 Dec 19 Jun 20 Consumer 60.0% 58.8% 2,111 1,952 0.32% 0.30% Sovereign 9.9% 11.7% - - - - Property 6.5% 6.6% 835 714 1.17% 0.97% Finance – Other 4.9% 4.7% 33 45 0.06% 0.09% Banks 3.0% 2.8% - - - - Transport, Air Transport & Storage 2.0% 2.1%
Slide 37: Business lending deferrals profile
Business lending deferrals Profile3 Deferrals by Sector Deferrals by State Commercial Property ~86k at peak (~73k auto-deferred) 20% 15% Agriculture & Forestry Accommodation, Cafes and Restaurants Other 13% NSW Retail Trade WA 33% ~59k active deferrals 5% 11% Business Services 12% Total business
Slide 38: Commercial property exposure
Group exposure Jun 19 Increased exposure this half primarily to investors. 73.4 Dec 19 71.1 68.2 Jun 20 Diversified across sectors and by counterparty with the top 20 counterparties representing 17% of the portfolio and having a weighted average rating of BBB equivalent. 35 37 37 Stable credit
Slide 39: Residential apartment development
Sound credit quality with TIA for the Total Residential segment <0.3% of total Total Residential Profile Apartment Development1 Commercial Property exposure. $8.8bn (12% of CP) $1.6bn (0.14% of TCE) Apartment Development1 exposure has reduced 65% since June 17, with the concentration to Sydney d
Slide 40: Air transport and services exposure
The Air Transport and Services sector includes aviation and airport Group exposure2 Jun 19 exposures which have been heavily impacted by passenger reductions 23.5 22.5 21.9 Dec 19 resulting from COVID-19 restrictions, reducing credit ratings. Jun 20 TIAs have increased materially and are expecte
Slide 41: Agriculture exposure
Group agriculture exposure of $22.2bn (2.0% of Group TCE) – Group exposure Jun 19 22.5 22.6 22.2 diversified by geography, sector and client base. Dec 19 NZ Dairy sector milk prices for 2019/20 season closing strong and, Jun 20 although outlook for 2020/21 is slightly softer, remains supportive
Slide 42: Retail trade exposure
The retail trade sector remains weak, challenged by COVID-19 and Group exposure1 Jun 19 11.3 Dec 19 ongoing, long term competitive pressures. 10.811.0 Jun 20 COVID-19 has increased sector challenges particularly in discretionary segments where some store networks remain closed. 24 22 21 Tradin
Slide 43: Accommodation, cafes and restaurants exposure
Group exposure Jun 19 The closure of international borders and restrictions on Dec 19 10.0 domestic tourism, combined with social distancing rules 9.2 9.6 Jun 20 has materially impacted the sector. 134 135 122 Pubs, clubs, cafes and restaurants are trading subject to 4.8 4.6 6.9 7.0 6.2 social d
Slide 44: Construction exposure
Group exposure Jun 19 Exposure is higher in the half, while TIAs have reduced. 8.2 8.1 8.6 Dec 19 Jun 20 Risk appetite continues to be cautious. 18 18 17 As a designated essential industry, the sector has continued to operate through COVID-19 with varying levels 7.1 6.5 of disruption across regi
Slide 45: Mining and energy exposure
Group exposure Jun 19 Exposures of $10.5bn (0.9% of Group TCE), reduced by 11.4 Dec 19 11.010.5 $0.5bn over the past 6 months mainly from reduced Oil & Jun 20 Gas facilities. 75 76 73 Stable performance over the past 6 months: ‒ Investment grade marginally down to 73% of portfolio; 183 ‒ Diversi
Slide 46: Culture and recreation exposure
Group exposure Jun 19 Diverse industry with many sub-sectors (including Casinos 6.2 6.2 6.3 Dec 19 58 55 and Cinemas) impacted by government restrictions, including 48 Jun 20 shutdowns and social distancing initiatives. Certain sectors, particularly those focused on entertainment, 4.9 remain vul
Slide 47: Home Lending
! Home Lending
Slide 48: Housing market conditions
A strong recovery saw a pause in lending pre- Dwelling prices started falling in May after Number of auctions collapsed on uncertainty COVID-19 which accelerated during COVID-19 previous strong gains and restrictions HOUSING LOAN APPROVALS1 % DWELLING PRICES2 % Auctions TOTAL AUCTIONS2 $bn (excludin
Slide 49: Home loan balance growth and fundings
Consistent balance growth Growth driven by new fundings Assisted by process efficiencies System multiple1 Home Loan Fundings ($bn)2 Proprietary - % of loans auto-decisioned same day4 1.3x 2H20: 58% Proprietary3 75% Owner-Occupied +23% 86% Principal & Interest 30% 459 461 456 458 49 45 49 53 53 Manua
Slide 50: Home lending portfolio and new business metrics
Portfolio1 Jun 19 Dec 19 Jun 20 New Business1 Jun 19 Dec 19 Jun 20 Total Balances - Spot ($bn) 467 477 485 Total Funding ($bn) 43 53 53 Total Balances - Average ($bn) 462 472 482 Average Funding Size ($’000)7 320 343 354 Total Accounts (m) 1.8 1.8 1.8 Serviceability Buffer (%)8 2.25 2.5 2.5 Variable
Slide 51: Home lending deferrals
Home lending deferrals1 Profile5 8% of accounts in deferral (~135,000) By State Interest Type Loan Type JobSeeker6 $48bn in balances Other WA 7% NSW IO 16% IHL JobSeeker ~ 14% 16% 33% 28% <20% in higher risk occupations2 QLD VIC P&I OO ~58% of which are 18% 26% 84% 72% joint accounts with 67
Slide 52: Stricter loan assessment criteria
Stricter assessment criteria applied progressive from April 20202 New Loan Assessment All income used in application to assess serviceability is verified Additional cap on overtime, bonus & commission income 80% or lower cap on less stable income sources (e.g rent, bonus, Manual assessment w
Slide 53: Impaired home loans
Impaired home loans $bn Overview • Exits outpaced new impairments in the six months to Jun-20 1.81 1.85 1.67 • New impairment volumes reduced as a result of the take up of COVID-19 deferrals, where arrears are paused • Highest proportion of exits from WA and QLD (~55%), reflecting improved condition
Slide 54: Balanced Outcomes
! Balanced Outcomes
Slide 55: Customer remediation, better outcomes and Royal Commission
$m Customer Remediation Better Customer Outcomes Royal Commission Committed to remediating customers quickly Delivering better customer outcomes through Well progressed on implementing the Cumulative spend & provisions eliminated or reduced fees and charges recommendations of the Royal Commission In
Slide 56: Remediation and program costs
Remediation and program costs Composition Cumulative spend and provisions Cumulative spend and provisions $2,653m $2,653m $2,174m Refunds made 732 $1,178m Refunds remaining 914 Program costs 1,007 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY20 Customer Refunds Aligned Advice remediation – key assumptions $
Slide 57: Regulatory engagement and milestones
• APRA – delivering all 176 milestones of the Remedial Action Plan, with updates to APRA by the Independent Reviewer every 3 months. Delivering on APRA requirements and recommendations as part of their ongoing prudential supervision. Responding to APRA on investigations and additional license condit
Slide 58: Our climate commitment
Our climate commitment Our lending commitments Seizing opportunities We are committed to playing our part in Exit thermal coal mining and coal-fired power $5.4bn in low carbon project funding, up 5%, limiting climate change in line with the generation by 2030, subject to Australia including $4.2bn
Slide 59: Economic Overview
Economic Overview CBA Chief Economist 59
Slide 60: CBA Global Markets Research
1. CBA Global Markets Research 60
Slide 61: Economic forecasts
GDP % Trimmed Mean CPI % Unemployment rate % GDP Nominal GDP 1.6 1.7 1.6 1.5 1.5 8.9 8.5 3.8 1.3 2.4 2.9 2.0 6.2 4.9 5.3 5.3 5.7 5.5 5.6 5.1 0.0 -3.6 1.9 -3.4 2017 2018 2019 2020 2021 2022 2017 2018 2019 2020 2021 2022 2017 2018 2019 2020 2021 2022 2017 2018 2019 2020 2021 2022 Cash rate % Total cre
Slide 62: Tourism, confidence and spending impacts
Border closures impacting international tourism Business confidence retreated more than State lockdown measures impacting spending consumer confidence 000's SHORT TERM OVERSEAS ARRIVALS1 CONFIDENCE2 % % CBA: CARD SPEND IN-STORE3 Index (Index, January 2020 = 100) (annual % change) 1200 40 100 Consume
Slide 63: Labour market and household incomes
Spare capacity in the labour market to remain Some % industries will take longer to recoup than Household incomes being supported by elevated others, judged by job losses to date government payments % AUST. LABOUR FORCE1 EMPLOYMENT CHANGE1 WAGES & GOVT BENEFITS PAID INTO CBA ACC 2 (% of total) (May
Slide 64: Australian recession, unemployment and inflation
Australia is in recession – growth of -4.2% The unemployment rate to peak ~9% and take Inflation rates to weaken expected in calendar 2020 a long period to retreat % CBA FORECAST: GDP1 % CBA FORECAST: CBA FORECAST: CPI1 UNEMPLOY. RATE (%)1 % (% change) (% change) 6 9.0 6 Annual 2 4 Annual 7.0 2 -2 Q
Slide 65: Government stimulus and external sector
Government share of the economy is rising Stimulus has been large and extended Public debt was low going into crisis % FISCAL SUPPORT MEASURES2 GOVERNMENT NET DEBT IN 20193 PUBLIC SPENDING1 20.5 (% of GDP) A$bn Australia (% of GDP) Arts sector HomeBuilder Canada 19.5 Aged Care Germany ChildCare reli
Slide 66: Sources, Glossary & Notes
! Sources, Glossary & Notes Y
Slide 67: Notes and sources
Executing our strategy Slide 4 1. MFI Share measures the proportion of Banking and Finance MFI Customers that nominated each bank as their Main Financial Institution. Main Financial Institution (MFI) definition: In the Roy Morgan Single Source Survey MFI is a customer determined response where one i
Slide 68: Glossary
Capital & Other Funding & Risk Risk Weighted Assets or The value of the Group’s On and Off Balance Sheet assets are adjusted by risk Liquidity Coverage Ratio The LCR is the first quantitative liquidity measure that is part of the Basel III RWA weights calculated according to various APRA prudential
Commonwealth Bank of Australia — Debt Investor Presentation (August 2020) on 6ix