Commonwealth Bank of Australia

Hello and welcome to the results briefing for the Commonwealth Bank of Australia for the year ended 30 June 2024. I'm Melanie Kirk and I'm Head of Investor Relations. Thank you for joining us. For this briefing, we will have presentations from our CEO, Matt Common, with an overview of the business and the results. Our CFO, Alan Docherty, will provide the details on 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.

Thank you, Mel. And good morning, everyone. It's great to be with you today. This year, we've continued to focus on supporting our customers, investing to protect the community and providing strength and stability to the broader economy. We know many of our customers are finding it harder and harder to deal with the higher cost of living. We are doing more to help, making that help easier to access, and we are encouraging people to reach out to us early if they need assistance. We've taken a deliberate strategy to proactively contact customers and have provided 132,000 tailored payment arrangements to those most in need. As a financial safety net, More than 6 million Australians can now access up to $2,000 in credit with no interest and no monthly fee. To maintain service levels in regional Australia, we've delivered on our commitment to keep all of our CBA regional branches open. We've also adapted how we use branches to support regional jobs and maintain branch services. Safe and secure banking remains a priority for all Australians. We invested more than $800 million in the past year to combat fraud, scams, financial and cyber crime to protect our customers. This investment has enabled us to reduce customer scam losses by more than 50% in the last financial year. During the year, we rolled out five market-first innovations and we are sharing our technology and intelligence with other institutions. Using Namecheck, we screened 57 million account-to-account payments preventing $410 million in mistaken payments and scams. All Australians benefit from strong and stable banks. To support economic growth, this year we lent $39 billion to businesses to help them grow and helped 120,000 households buy a home. We further strengthened our balance sheet and we remain well positioned to support our customers and the broader economy. We have been rated by Moody's as one of only five banks globally with the highest financial strength. This year, we delivered $8 billion in dividends benefiting more than 13 million Australians. Households and businesses have experienced a number of extreme shocks in the past few years. Lockdowns, a demand surge, inflation, and rapid interest rate rises. The effects are still being felt. The cash rate has increased 425 basis points since May 2022, and the impact on households has been substantial. Last financial year, the Commonwealth Bank actually paid $33 billion more in interest to depositors and funding providers than in the two years prior. This is equivalent to 80% of the one-off government support package in the GFC. At the time, it was Australia's largest ever stimulus. This has resulted in a large redistribution of interest expense, interest income and expense across the economy. Households are net borrowers in the economy, which makes a rising rate environment particularly tough, with the increases in mortgage repayments predominantly impacting households aged 25 to 55. Rates have moved higher in response to price inflation. The consumer price index has increased by 19% since the start of the pandemic. One quarter of this increase has been driven by housing, with new dwelling prices up 38% and rents up 15%. Households continue to respond to higher prices and are finding it even harder than six months ago. More spend is being directed towards essentials and discretionary spend is being cut back. We can also see that savings are being depleted, particularly for working families. Younger Australians who tend to have lower incomes and smaller savings buffers are the most sensitive to changes in prices. Those aged between 35 to 44 have the highest share of mortgage balances and are most exposed to higher rates. The same data over a longer time period shows the impact of the pandemic, which is still being absorbed by households and the economy. Government stimulus had a disproportionate impact on younger Australians who saw rapid increases in savings balances. Their spend levels increased substantially, but both spending and savings have been pulling back over the past two years. It has been a particularly challenging two years for households with real disposable income declining until recently. We expect a recovery in GDP growth and a rebound in disposable income over the next 12 months. Our role as the Bank for All Australians is to support all customers through good times and bad. Our purpose, building a brighter future for all, recognises that the Commonwealth Bank's performance and future is inextricably linked with Australia's prosperity. We think about our purpose in the following ways. We want standards of living to continuously improve for Australians by growing the economy and supporting customers. We've grown business lending balances 11% this year to help small businesses create jobs. And we've grown sustainable lending 74% to $7.4 billion to help decarbonise the economy. We want to help customers achieve their life goals and aspire to be the trusted partner at the centre of their financial lives. We've scaled yellow to be one of Australia's largest rewards programs with over 5 million engaged customers. We are now considered the main financial institution for 62% of migrants and 46% of young adults. Through technology and digital, we seek to deliver superior customer experiences. Through our market-leading app, we continue to drive engagement with in-app messaging preferred by customers and now accounting for twice as many interactions as over the phone. We significantly increased the number of technology changes delivered this year while reducing operational incidents. We also recognise that it's important that we continue to execute consistently, that we are safe, strong and there when most needed. This year we repaid the $50 billion of the term funding facility and further strengthened our balance sheet. Our strategy aims to build on and strengthen our sources of competitive advantage. The strength of our core franchise starts with customer focus and strong relationships. Deep, trusted relationships leads to a higher frequency of engagement, a better understanding of our customers' needs and superior customer experiences, leading to value creation for our shareholders. We're Australia's leading transaction bank for both households and businesses. This favourable business mix results in more stable and lower cost deposit funding and better risk identification. We maintain conservative funding and capital settings and have market leading provision coverage. This stability and consistency of earnings is reflected in a lower cost of capital and allows us to invest more than our peers over the long term. It also allows us to steadily grow the balance sheet while consistently delivering strong, fully frank dividends and managing down our share count. One of the key ways we measure the strength of our relationship we have with our customers is through the Net Promoter Score. Retail NPS has increased for eight consecutive months, and we achieved the highest score for a major bank since tracking began. We also have peer-leading digital NPS for our digital offerings, including the CommBank app, which is used by more customers than any other financial services app in Australia. We also now hold the leading major bank NPS for our mortgages, transaction accounts and the contact centre. Our focus on deepening customer relationships is evident through our leading MFI shares, which leads peers by a considerable margin. More than 35 per cent of Australians and 25 per cent of businesses consider the Commonwealth Bank to be their main financial institution. This has translated into an increase in transaction accounts. Over the past five years, retail accounts have increased by 29 per cent and business accounts by 55 per cent. We now hold the largest share of stable household deposits in Australia, which have grown over $110 billion since June 2019 and are 65 per cent higher than the nearest peer bank. Turning now to our performance. Operational performance has been strong. We've been disciplined on volume margin management in home loans, where we led a number of changes and increased net interest income share across the market, but we also seeded 61 basis points of market share. We've implemented a number of changes and scaled operational capacity to respond to a very substantial increase in disputed transactions, scams and other emerging threats. and we've been very focused on disciplined capital management. Strategically, we continue to build direct primary relationships through a differentiated proposition. Proprietary new lending mix increased seven percentage points to 66%, compared with only 28% for the overall market. We've continued to extend our digital ecosystem, launching new propositions in travel, auto and real estate, and growing our telco energy and health propositions. And we were the only Australian company named in Kantar's Global 100 Most Valuable Brands with consideration at 54 per cent in retail and 58 per cent in business. Our customer focus, combined with consistent and disciplined strategic and operational execution, has delivered good outcomes for all of our stakeholders. Net profit after tax was supported by our volume growth in our core business. The 2% reduction in NPAT was driven by the impact of inflation on our operating expenses, partly offset by a lower loan impairment expense. Throughout the year, we've maintained strong liquidity, funding and capital positions. Our operating performance and strong capital position has allowed the board to declare a fully franked full year dividend of $4.65 up 15 cents on the prior year. For the eighth consecutive half, we will neutralise the dividend reinvestment plan. Operating income was flat for the year, supported by volume growth, but offset by falling margins. Operating expenses were 3% higher, driven by inflation and increased technology spend. Our cash net profit was down 2% on the prior year on lower loan loss provisions. we remain well positioned heading into a lower growth environment. We continue to strengthen our balance sheet with high levels of provision coverage, surplus capital and conservative funding settings. Our balance sheet is now 77 per cent deposit funded, up from 75 per cent last year. Our weighted average maturity of our long-term funding is 5.2 years, and liquid assets are $177 billion. Our capital ratio of 12.3% is well above regulatory requirements. Our portfolio credit quality has remained sound, supported by a strong labour market and savings buffers. As anticipated, troublesome and impaired assets have increased in the quarter to $8.7 billion, reflecting movements in four well-secured single name exposures and higher home loan restructures. The TIA ratio remains well below the historic average. We expect to see further increases in arrears in the months ahead, given continued pressure on real household disposable incomes. 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. In our retail bank, our peer-leading MFI share has seen retail transaction accounts increase 5% versus the prior corresponding period. We are continuing to grow our business bank franchise. We now hold 1.25 million business transaction accounts, which is a 9% increase. We are leading the market in business deposits, which have grown by $68 billion over five years. We have continued to grow business lending above system at 1.2 times, with more than 90 per cent of our lending customers also holding a transaction account with us. And our institutional bank also plays an important role and has contributed net deposit funding of over $66 billion. Our total risk-weighted assets have reduced by $30 billion over seven years, and risk-adjusted returns have improved. Looking at our business bank in more detail, we've continued to innovate to differentiate our proposition for our customers. We've enhanced our health proposition and recently launched CommBank Smart Health for pharmacies and have 3,400 health providers enrolled. Our capital growth account allows customers to withdraw funds with just 48 hours or seven days notice and now has more than $1 billion in balances after its first year in market. In May this year, we launched a new term deposit product to help our small business customers withdraw up to 20% at any time without interest adjustment or fees. We're also extending our CommBank Yellow program to eligible business customers to provide personalised benefits on business-related purchases. And to make rental payments simple and easy for tenants and property managers, we've partnered with MRI, the leading real estate software provider. Another core part of our strategy is delivering global best digital experiences. Our CommBank app is used by more customers than any other financial services app in Australia, with over 8.5 million active users. Since the app was launched over a decade ago, the number of customers using the app has close to trebled, and the frequency of their use has also trebled. Every year, over the past 10 years, we've invested and innovated to meet more and more customer needs digitally. This has resulted in consistent year-on-year growth in overall customer usage and engagement. Our unique customer recognition program, CommBank Yellow, is central to our strategy, delivering millions of personalised benefits, discounts and cashbacks to customers every day. Yellow is the only recognition program of its kind run by a big bank in Australia with more than 8 million customers now eligible to receive benefits. As in many other countries, Australia has seen a substantial increase in criminal activity focused on fraud, scams, cyber and financial crime. We are working harder than ever to prevent, detect and disrupt this activity and protect our customers and the broader community. We are spending more than $800 million a year and have over 4,000 people working full time across these areas. It is one of the largest areas of operational activity within the Commonwealth Bank. This year, we have rolled out a number of market first innovations, improved controls, increased alerting to customers and continued customer education and awareness. We've also made our technology and intelligence available to others, including globally, and are piloting new approaches with three of the telcos. In June, we became the first bank to share information into a new anti-scam intelligence loop to enable faster action to take down scams across banks, digital platforms and telcos. We have decreased scam losses to customers by more than 50% in the last financial year. However, we also acknowledge that there is more that we can do and we are absolutely committed to making as much progress as possible. I'll now hand over to Alan to go through the financials in more detail.

Thank you, Matt, and good morning to everyone dialed in. I will cover the financial aspects of our result in some more detail, starting with an overview of key changes in our operating context, how we have responded, and how that manifests in key measures of our franchise health. So looking firstly at our operating context, the Australian economy continues to show resilience as strong migration flows and higher depositor incomes continue to offset the fall in disposable incomes felt by renters and borrowers. We continue to see competitive intensity in our banking businesses, which can be seen in both lending and deposit margins. Industry revenue shares have been relatively stable over the most recent six months after a particularly volatile period in the previous calendar year. As we look at the global and domestic economic outlook, there is still uncertainty around the forward trajectory of inflation and interest rates. However, the Australian economy continues to be positioned well and benefiting from strong fundamentals. So how are we responding to this context? Firstly, as Matt has already talked about, we continue to focus on supporting our customers and keeping their money safe and secure. Secondly, we've been consistent in the strong level of investment of shareholders' capital behind our strategy. This work is driving improvements in enterprise-wide measures of better digital experiences for millions of our customers. Thirdly, we have remained disciplined in our approach, not just to volume and rate trade-offs, but also across the broader potential uses of shareholders' capital, such as M&A and our execution of capital management activities. And lastly, we have continued to strengthen our balance sheet settings to further underpin the flexibility of the franchise to support our customers and the economy when needed. As a result of these actions, the long-term health of our franchise has improved. Our main financial institution share has again increased across both retail and business bank customers, and we have delivered a new major bank record customer net promoter score in the retail bank. This strengthening of the franchise translates into shareholder returns. and you can see some of the key financial outcomes for the year on the bottom half of this slide. Our level of organic capital generation reached $10 billion over the last 12 months, and that represents a significant widening of the gap to the next highest peer. We have again strengthened our levels of deposit funding, interest rate risk hedging, loan loss provisioning, and capital. That long-term balance sheet strength has been recognised by Moody's this year, who upgraded CBA to an A1 baseline credit rating. There are only four other banks in the world with that rating, and we are the only bank to have achieved an A1 rating on the strength of our financial settings. And that combination of profitability and balance sheet strength allowed the board to again distribute a higher dividend. I'll now unpack the result in a little more detail. Statutory profit from continuing operations were $9.5 billion. The largest non-cash item was the loss on the announced divestment of our Indonesian bank subsidiary, PTBC. Excluding those items, continuing cash profit was $9.8 billion. The overall P&L line item trends were relatively consistent at the headline level over both the full year and the sequential six-month period. Operating income was relatively flat over both the year and the half, although there were important compositional differences between the two periods that I will cover in a moment. Operating expenses increased while loan and permanent expense reduced, and we have seen a small decline in both pre-provision profit and cash profit. Looking firstly at operating income over the year, overall income was relatively flat at a little over $27 billion. Net interest income fell despite 3.4% growth in average interest earning assets due to competitive pressure on margins. Volume growth was particularly strong in business lending over the year, as momentum continued in our business bank. This was more than offset by higher other operating income, due to volume-driven growth in fee income across our retail, business and institutional divisions, as well as another strong year within our global markets business. I mentioned earlier that the drivers of operating income growth were different year on year versus half on half. You can see here that net interest income turned from a headwind over the year to a tailwind over the most recent half, as net interest margins stabilised over recent months. By contrast, other operating income grew strongly over the year due to growth in fee and commission income, however reduced over the most recent half on lower trading revenues and dividends for minority interests. If we look more closely at the change in net interest margin over the sequential half, home lending margins were down one basis point, and the pricing and mix of term deposit and savings products drove six of the seven basis points of funding cost increases. Higher earnings on our replicating portfolio and equity hedges added eight basis points, and there were minor changes in the other items. We don't normally comment on quarterly margin trends. However, given the large buildup of liquid assets to fully repay the RBA term funding facility, there was some volatility in headline margins over the last two quarters. Excluding those impacts, the underlying quarterly margin trend was stable. Turning now to operating expenses, they increased by 4.1% over the year, including one-off restructuring provisions, expenses increased by 3%. This was largely driven by inflationary increases in wages and supplier input costs. We continued to invest strongly in our technology estate and related to that incurred a higher software amortization charge. Pleasingly, growth in these costs were offset by ongoing business simplification and productivity benefits. If we now turn to our balance sheet settings, starting with credit risk, loan impairment expenses were $802 million, as loan loss rates reduced to nine basis points this year. As we previously indicated, arrears rates increased across home loan, credit card and personal loan products as pressure continued to build on household disposable incomes. We also expected corporate troublesome and impaired exposures to trend higher in the second half, and that has been the case. Over the most recent six months, gross impaired assets increased $700 million. Most of that increase relates to thousand more home loans which were restructured during the period to assist owner occupiers suffering under cost of living pressures. Given the very strong subsequent cure rate and security position of these mortgages, the expected loss on that cohort of loans is very low. Corporate troublesome exposures increased by approximately one billion dollars over the year, principally due to the downgrade of four single names. These loans are well secured and no significant loan losses are expected. We edged up our provisioning coverage to 166 basis points of credit risk weighted assets. Overall, provisions have been kept above $6 billion with lower expected losses in our consumer book and slightly higher provisioning of our corporate portfolio. We continue to hold a buffer of $2.2 billion to our central economic scenario, which provides nearly 80% coverage of our downside scenario. As usual, we have set out how our sector level considerations have evolved over the last six months. Consumer provisions have reduced slightly over the period due to rising house prices, as well as lower expected losses on credit cards and personal loans. This led to a reduction in our modelled base collective provisioning in the retail bank. Within corporate, there wasn't any significant change in the provisioning coverage for the retail trade, ELT or commercial property sectors. We did reduce forward-looking adjustments slightly in the construction and agriculture sectors as portfolio credit metrics improved and expected drought conditions did not materialise. Going the other way, we rebalanced our multiple economic scenario weightings to take account of slightly higher geopolitical risks. This led to the small increase in corporate portfolio provisioning in the half. Taking a look at our funding settings, we've seen another pleasing period of growth in retail, business and institutional transaction account balances. This has taken our customer deposit ratio to a new high of 77% of total funding. Looking at the full funding stack in the middle column, following the full repayment of the RBA term funding facility, you can see our short-term wholesale funding mix remains below historic levels and long-term funding remains conservatively positioned with a weighted average maturity of 5.2 years. On the right-hand side, it's worth noting at this point in the rate cycle the relative cost of different equity and debt instruments. We obviously monitor these variances very closely as we seek to carefully manage the balance between the cost of capital and the after-tax cost of issuance of new-term funding. For example, we estimate that the current spread between the shareholder cost of senior debt and capital is around 3%. That's at the lower end of the range we've seen in that spread over the last 15 or so years. That will be one factor, among others, that influences the choices we make around the quantum and timing of share buybacks, the level of new debt issuance, and the optionality value that comes from running higher capital levels. Our Level 2 Common Equity Tier 1 ratio was 12.3%, unchanged over the past six months. We completed another DRP neutralisation in the period, buying $480 million of shares at an average price of $117. And we made some more progress on our $1 billion on-market share buyback programme. We have today announced a 12-month time extension of that programme until August 2025. The final dividend increased 10 cents to $2.50, and the dividend reinvestment plan will again be fully neutralized through an on-market purchase of shares. This takes our full-year dividend to $4.65, up 15 cents on last year. Our payout ratio has moved to 79% at the upper end of our target range, supported by that strong level of capital generation. Our continued preference is to pay strong and sustainable, fully franked, ordinary dividends, rather than small and temporary top-ups to dividends. This is one example of the long-term approach we take to our business strategy and our key financial settings. Our funding composition remains conservative. Our structural hedges of interest rate risk now total $170 billion. we have the appetite and the track record to continue to invest strongly behind our strategic priorities. Our franking surplus is at a stable and healthy level, and we continue to manage our investors' capital and share count carefully. This long-term approach manifests in a track record of delivering strong and sustainable shareholder returns. Our combination of a high return on equity and a strong payout ratio compares favorably with domestic and global peers. And our strategic investments, strong operational execution, and disciplined capital management continue to deliver continued outperformance in net tangible assets and dividends per share. I'll hand back to Matt for the economic outlook and a closing summary. Thank you.