Commonwealth Bank of Australia

Hello and welcome to the Commonwealth Bank of Australia's results briefing for the half year ended 31 December 2023. I'm Melanie Kirk and I'm Head of Investor Relations. Thank you for joining us for this briefing. We will be having presentations from our CEO Matt Common with an update on the business and an overview of the results. Our CFO, Alan Docherty, will provide the details of the results, and Matt will then provide an outlook and summary. The presentations will be followed by the opportunity for analysts and investors to ask questions. I'll now hand over to Matt. Thank you, Matt.

Well, thanks very much, Mel, and good morning, everyone. It's good to be with you today to present the bank's half-year results. Throughout the half, we've continued to focus on supporting our customers and communities, investing for the future and providing strength and stability for the broader economy. We know that many Australians are feeling under pressure and are finding it harder and harder to deal with the current cost of living. So let me say directly to those customers who are facing hardship or are feeling stretched, we are here to support you. This includes home loan repayment pauses for up to 12 months, loan deferrals, interest-only loans and flexible payment plans. Each month, our digital tools also help 3 million customers save on everyday expenses, better manage their money and plan for the future. This half, we've helped more than 60,000 Australians buy a new home and prevented and recovered more than $100 million in scams. Safety and security remains a priority for all Australians and we're investing more than $750 million each year to protect customers from fraud, scams, financial and cyber crimes. We also recognise how important small businesses are to our economy and this half we've lent $18 billion to help them create jobs and grow. And all Australians benefit from strong and stable banks. We further strengthened our balance sheet to ensure we remain well positioned to support our customers, communities and the economy both today and into the future. We continue to have the largest ATM and branch network in the country and all of our call centres are based in Australia. We've also made a commitment to keep every one of our CommBank regional branches open for at least three years. We also recognise that many Australians rely on us for dividends to support their income. And this half, we delivered $4 billion in dividends to over 12 million Australians. Well, last week's statement of monetary policy showed that households have decreased consumption in real terms, as well as reduced their savings. Our own data shows that those impacts continue to be felt unevenly across our customers and the economy. Fortunately, unemployment remains near record lows. We realise that many people are needing to take on second jobs or work additional hours to supplement their incomes. Overall spending per capita has only risen by about 1% as people cut back on both essential and discretionary spend in real terms. We can see customers using savings buffers to cope with higher prices and mortgage rates. and we recognise our younger customers have been impacted most heavily. Overall household disposable income in Australia fell by approximately 3.5% last financial year. Pre-tax salaries increased disposable incomes by 8%, but rising prices offset most of these gains. Net interest payable also decreased disposable income by 2%. This is because Australian households hold $1.2 trillion more loans than deposits. We are here to support our customers who need it. We offer more options today than ever before, and we've made them easier to access. We've contacted every customer coming off a fixed rate mortgage and discussed options with those looking for help. And 99% of these customers are continuing to make their repayments on time. Higher rates continue to flow through the economy. Deposit customers received almost $7 billion in additional interest payments in the half, nearly three times more than in the prior corresponding period. The average interest rate earned by depositors has increased by more than the average rate paid by home loan customers. For the Commonwealth Bank, expenses increased 4.5% due to inflation, but this has been absorbed, with shareholder profit decreasing 3%, or approximately $150 million. And because unemployment remains low, loan losses have too. In most years we write off around $1 billion in loans, but this figure was $320 million in the half. Australia is more sensitive to the impact of rising rates, given high household debt levels. According to the Reserve Bank data, Australian banks have passed on less of the rate increases to home loan customers compared with other markets, while passing on more of these increases to depositors. Australian banks also hold higher levels of capital than offshore banks to ensure we can support our customers during challenging times. This additional strength does come at a cost though, which we estimate to be between $7 billion to $11 billion per annum across the major Australian banks. We often get questions about the scale of CBA's business and how this has changed over time. We lend over $900 billion directly to customers and provide $75 billion of funding to federal and state governments for critical public services like education and health. We also safeguard over $800 billion in customer deposits and hold over $140 billion of low-cost international funding, which benefits Australian households. Our strength allows us to continue investing to improve the experience we provide and to attract more customers. Over the past 10 years, the Commonwealth Bank has grown significantly larger, with customer deposits almost doubling and loans to customers increasing 57%. We're also significantly stronger, holding twice as much Tier 1 capital. CBA's profits have increased by around 18%, which is well below inflation of 30% over that period. Now, turning to our results, our focus on deepening customer relationships has seen us finish the half with peer-leading net promoter scores across all key customer segments. This customer focus, coupled with consistent, disciplined execution, has delivered positive outcomes for all stakeholders. Throughout the half, we've maintained strong liquidity, funding and capital positions. Our operating performance and strong capital position has allowed the Board to declare a first-half dividend of $2.15, an increase of 5 cents on the prior corresponding period. Operating income was flat for the half, supported by volume growth and falling margins. Operating expenses were 4% higher, driven by inflation and increased technology spend. Cash net profit was down 3% on the prior year. we remain well placed heading into a lower growth environment. We've continued to strengthen our balance sheet with high levels of provision coverage, surplus capital and conservative funding settings. The balance sheet is 75 per cent deposit funded. Weighted average maturity of our long-term funding is 5.3 years and liquid assets are $187 billion. Our capital ratio of 12.3 per cent is well above regulatory requirements. Our portfolio remains sound with arrears and impairments below long-term averages supported by a strong labour market and savings buffers. Troublesome and impaired assets decreased to $6.9 billion, primarily driven by upgrades and repayments across a small number of exposures. Home loan arrears have increased in recent months but remain near historic lows at 52 basis points, reflecting ongoing pressures from higher interest rates and costs of living. We remain well provisioned for a range of economic scenarios. We hold total provisions of $6.1 billion, which is $2.2 billion above our central economic scenario. We continue the disciplined execution of our strategy which seeks to broaden and deepen our competitive advantages. We've talked before about how deep trusted relationships lead to a higher frequency of engagement, a better understanding of customers' needs and superior customer experiences. However, I thought I might also talk briefly about how this leads to value creation for our shareholders. 35% of Australians and more than 26% of businesses now consider the Commonwealth Bank to be their main financial institution. This MFI share leads peers by a considerable margin and continues to grow. We're Australia's leading transaction bank for both households and businesses. This business mix results in more stable and lower cost deposit fundings and better risk identification. This underpins a structurally advantaged balance sheet with lower loan losses, higher franking and higher, more stable capital generation. We maintain conservative funding settings, hold excess capital and market leading provision coverage. And this stability and consistency of earnings is reflected in a lower cost of capital and allows us to invest more than peers over the long term. It also allows us to steadily grow the balance sheet while consistently delivering strong, fully franked dividends and managing down our share count. One of the key ways we measure the strength of relationship we have with our customers is through the Net Promoter Score. For 13 consecutive months, we've held the leading NPS across all three of our business segments. And strong relationships underpin growth and performance across all of our businesses. Leading Net Promoter Score underpins our leading MFI, which has increased. This has translated into an increase in transaction accounts, with retail accounts increasing 6% and business accounts up 10% versus the prior corresponding period. We've continued to grow business lending volumes above system in the half, with more than 90% of lending customers also holding a transaction account with us. Our institutional bank continues to play a very important role. It has contributed over $70 billion in funding over the past five years, and its cash NPAT has now returned to 2019 levels with substantially lower risk-weighted assets. ASB continues to see strong deposit growth and has been very disciplined with asset origination. There's been interest in the competitive dynamics in retail banking. Home loan rates have increased by substantially less than the cash rate. The Reserve Bank has estimated that the interest rate paid by customers on variable mortgages in Australia has been discounted by around 70 basis points relative to the cash rate. However, the marginal home loan is wholesale funded and these funding costs have increased by even more than the cash rate. This has resulted in significant margin compression in retail banking in Australia. This has disproportionately impacted banks with more reliance on wholesale funding. We have the strongest retail franchise with the highest level of household deposits relative to the size of our home lending business. Our favourable business mix and disciplined execution mean that we've grown net interest income share in retail by four percentage points over the past two years. Our home buying business continues to perform well operationally. There's also been interest in the record period of fixed rate maturities that occurred in the half. We've contacted every customer coming off a fixed-rate loan to offer support and have made personalised pricing offers using our customer engagement engine. 90-day arrears for customers rolling off ultra-low rates have been better than the portfolio average. We've also seen large inflows of deposits as customers come off fixed rates and are now able to pay down or offset their loan balances. The performance of our business bank has again been a highlight in the period. We've had a strategy for several years to build a high-quality franchise through deep transaction banking relationships. We've grown our MFI share by 272 basis points since March 2020 and have a sizeable lead to our next competitor. We use our transactional banking relationships to continue disciplined growth above system in business lending and have increased share by more than 170 basis points since March 2020. We now hold $10 billion more business banking deposits than our next competitor, and more of our lending is funded by stable transaction deposits. Our leading transaction banking franchise means we capture a larger share of the non-retail deposit revenue pool in Australia. Our deposit gathering franchise is a clear differentiator in this part of the economic cycle, and its performance has been a highlight for the half. It's underpinned by our leading MFI share, digital and physical distribution assets, and strong payments propositions. CBA now holds approximately 40% of stable deposits among the four major banks. We've further extended our market leading digital offering this half. Our CommBank app is used by more customers than any other financial services app in Australia with over 8 million users. Daily logins are up 28% year on year and a peer leading net promoter score. On average, customers are now logging in around 45 times a month. We continually invest in tools in our CommBank app to help customers manage their money. For example, Benefits Finder has already helped CBA customers claim more than $1.2 billion in rebates and entitlements. And later this year, the tool will be made available to all Australians. In an Australian banking first, we're also rewarding our customers through CommBank Yellow, our customer loyalty and recognition program. In the three months since its launch, more than 3 million customers have actively engaged with the program. We know that safe and secure banking is critical. The combination of our digital app and customer engagement engine helps us to protect customers from scams, fraud and cyber incidents. We've invested in a number of digital innovations which have enabled us to prevent and recover over $100 million from scams targeted at our customers in the last six months. We bring our customers an extra level of assurance that the person they are speaking to is from the Commonwealth Bank and that their payment is going to the right place. We're also piloting facial recognition identity verification in our app. And because this problem impacts every Australian, we're also working closely with the government, banks, telcos and social media companies on a national approach to scams and fraud. We welcome the government's focus in this area, including mandatory scammed codes for key industries. And looking ahead, we'll continue to invest to support our customers and communities. And I'll now hand over to Alan, who's going to take you through the result in more detail.

Thank you, Matt, and good morning to everyone who has dialed in. I will cover the various drivers of our financial results in a bit more detail, starting with an overview of key changes in our operating context, how we have responded and what the implications have been. So looking firstly at our operating context, as you heard Matt talk about, it's been a period of falling disposable incomes and increasing cost of living pressure. In aggregate, though, the economy continues to show resilience, given both the divergent impact on households and also the fact that last year we had the largest net overseas migration to Australia since records began. As expected, it was also a period of increased deposit competition, which is a normal feature of a rising rate environment. As a result, many Australians are now benefiting from higher deposit rates after many years of enduring a very low interest rate environment. On the global and domestic macro outlook, there is still uncertainty around the outlook for inflation and interest rates. So how are we responding to these changes in our operating context? First and foremost, we have focused on supporting our customers in a number of different ways. Secondly, we have continued to invest strongly behind our strategy and made measurable improvements to the efficiency, efficacy and yield of our $2 billion in annual investment spend. Thirdly, we have remained disciplined in our approach to volume and rate trade-offs across each of our businesses in Australia and New Zealand. And lastly, we have continued to strengthen our balance sheet settings in the context of continued uncertainty in the macro outlook. As a result of these actions, the long-term health of our franchise has improved. We've had continued improvements in customer net promoter scores, and that is a key driver of the extension of our leadership and main financial institution share across the retail and business banks. Our economically rational approach to volume and rate trade-offs has driven an increase in our share of industry net interest income, and we have further widened our return on equity premium to the rest of the banking sector. Our balance sheet strength also means that we can continue to weather a broad range of economic scenarios with greater relative earnings stability. We demonstrated this most recently during the COVID recession, and our strength allowed us to continue to support our customers and the economy while still delivering sustainable returns to our shareholders. Looking at the shorter time horizon on the bottom half of the slide. You can see the key financial outcomes for the current half included very strong organic capital generation, another increase in interim dividends and strengthened buffers in funding capacity, loan loss provisioning and capital. I'll now unpack the result in a little more detail. Statutory profit from continuing operations was $4.8 billion. The largest non-cash item was the loss on the announced investment of our Indonesian bank subsidiary, PTBC. Excluding those items, continuing cash profit was a little above $5 billion for the half. On the prior comparative half, both cash profit and pre-provision profit were 3% lower due to competitive pressure on margins and inflationary increases in our cost base. Pleasingly, loan impairment expenses fell on the current half as the credit quality of our retail, business and institutional lending portfolios continued to show resilience in the face of tighter economic conditions. Over the sequential six-month period, both cash profit and pre-provision profit were 3% higher due to improving revenue trends and the non-recurrence of prior period one-off costs. Looking firstly at the change in operating income over the prior comparative half, overall income was flat at $13.6 billion. Net interest income fell despite a 4% growth in average interest earning assets due to competitive pressure on margins. This was offset by volume-driven growth in fee income across our retail, business and institutional divisions, as well as another strong period for our global markets business. Over the sequential half, income growth was 1%. As anticipated, we have seen continued margin pressure, and this slide decomposes the six basis point reduction in margin over the most recent six month period. The main driver was higher deposit funding costs. Price competition for term deposit products contributed three basis points of margin decline, and there was another three points of decline from customer switching from low rate transaction accounts. Wholesale funding was only slightly more expensive this half, driving one basis point of decline. Our choices around volume and rate trade-offs resulted in only a couple of points of asset margin compression within our retail banking portfolio, despite continued heavy levels of discounting by some banks. Our replicating portfolio and capital hedges delivered a four basis point increase in margin, and competitive pressures in New Zealand drove a one basis point decline. For some time, we have used publicly available information from APRA and the RBA, together with peer bank disclosures, to allow us to track our market share of industry revenues. This provides all market participants, including each bank's management team, with transparency on the impact of volume and rate trade-offs on earnings. On the left, we can see the change in share of net interest income of the four largest banks in Australia, which is a total revenue pool of about $75 billion. The clear divergence of outcomes across the industry is very stark. We have grown our market share of that revenue pool by 50 basis points, which generated an additional $390 million of annual net interest income. Now part of that revenue gain relates to our structurally advantaged mix of liabilities. If we just look at the net interest earnings on home loans, which is the chart on the right, we have also grown our revenue share there by 50 basis points, or $80 million, over the same period. We made a choice not to participate in unprofitable mortgage lending, and that shows up in the divergence between balance share and revenue share over the past year. Turning now to operating expenses, they increased by 4.1% on the prior comparative half. This was largely a result of inflationary increases in wages and supplier input costs. We continued to invest strongly in our technology capabilities, the digitisation agenda, and in other areas such as cloud computing and scam prevention. Growth in these costs were more than offset by ongoing business simplification and productivity benefits. Turning to our balance sheet settings and looking firstly at credit risk, loan impairment expenses were $415 million as loan loss rates reduced to nine basis points in the half. Consumer arrears increased off a low base and remained below long-run averages. Consistent with our past guidance on this item, we expect to see further increases in arrears as pressure continues to build on household disposable incomes. Corporate troublesome and impaired exposures dropped slightly over the half due to a combination of upgrades to some single name exposures and external refinancing of others. As you can see in the call out box on the top right, TIAs remain well below long run averages. However, we would expect directionally higher levels of TIAs in the year ahead. Our provisioning coverage remains steady at 164 basis points of credit risk-weighted assets. Overall provisions increased to over $6 billion, reflective of volume growth in our lending portfolio and a marginal increase in forward-looking adjustments. We continue to hold a buffer of more than $2 billion to our central economic scenario, and this gives us approximately 75% coverage of our stagflationary downside scenario. In August, I provided some details about our forward-looking approach to provisioning through the cycle. We build our provisions bottom-up, taking a very granular, data-driven view at the individual customer level, and then overlaying top-down judgements based on probable outcomes for the whole economy and each industry sector. I've included here some of our sector-level considerations. Every sector will experience the economic cycle differently, and in many cases over a non-overlapping timeframe. Broadly speaking, our base provisioning and our multiple economic scenarios haven't changed much over the past six months. We have slightly increased forward-looking adjustments across elements of our consumer book, entertainment, leisure and tourism, and the agriculture sector. The rest of our balance sheet settings remain conservatively positioned, with our deposit funding ratio stable at 75%. Deposits grew faster than lending over the six-month period, which allowed us to both retire some expensive long-term debt and at the same time repay $19 billion of the RBA term funding facility. Short-term wholesale funding remains at a historically low proportion of total funding of 7%. This will naturally increase over the year ahead as we use some of that spare capacity as well as $20 billion of excess liquids to fund the final round of TFF maturities over the next four months. On capital, we've delivered a common equity tier 1 ratio at 31 December of 12.3%. This is 10 basis points higher over the half due to strong organic capital generation. We commenced our on-market buyback during the period and also completed another DRP neutralisation. This marked the ninth neutralisation of our last ten dividends and the longest streak of consecutive neutralisations in CBA's post-IPO history. That approach has saved our shareholders from a dilution of their holdings equivalent to 60 million shares or 3.3% of our share count. The interim dividend of $2.15 represents a 5 cent increase on the prior comparative half, taking our interim payout ratio up to 72%. Given our very strong capital position, the Board have decided to again neutralise the DRP in respect of the interim dividend. In closing, we have again positioned our key financial settings to ensure we remain resilient and can continue to support our customers, the economy and our shareholders through a broad range of macroeconomic scenarios. We have again strengthened provisioning and maintained significant spare funding capacity and capital surpluses as the economy begins to slow under the effects of higher rates. In addition, our $159 billion structural hedge of interest rate risk represents a source of significant support to net interest earnings over the next few years. Our return on equity remains strong, supported by earnings growth and buybacks. That has allowed us to generate strong levels of organic capital, which funds the extension of credit to our retail and business customers. For our shareholders, we aim to provide sustainable dividends while efficiently distributing their franking credits and continuing our post-IPO track record of long-term growth of our investors' capital. I'll now hand back to Matt, who will take you through the economic outlook and a closing summary. Thank you.