Commonwealth Bank of Australia

Hello and welcome to the results briefing for the Commonwealth Bank of Australia for the half year ended 31 December 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 a business update and an overview of the financial results. Our CFO Alan Docherty will provide details of the financial results and then Matt will 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 to everyone. It's great to be with you today to present the bank's half year results. During the half, we continued to focus on supporting our customers, investing to protect the community and providing strength and stability for the broader economy. Every day we lend to more than 200 businesses, help almost 400 households buy a home, process more than 20 million payments and send customers 18,000 alerts about suspicious account activity. We know that many Australians are continuing to deal with cost of living pressures. This half, we maintained our focus on supporting our customers with a range of options, which have included improved access to hardship assistance, more than 65,000 tailored payment arrangements for those most in need of support, and to help more than 3 million customers each month to better manage their finances through our digital money management tools. We kept our promise to keep all of our regional CBA branches open to support communities and jobs in regional Australia. Keeping our customers' accounts safe and secure is our top priority. We invested $450 million and a half to combat fraud, scams, financial and cyber crime to better protect our customers. Our continued investment has reduced customer fraud and scam losses by more than 70% over the past two years. Our name-check technology has been used 80 million times and prevented more than $650 million in mistaken and scam payments. All Australians benefit from strong and stable banks. This half, we lent $21 billion to businesses to help them grow, helped more than 70,000 households buy a home and paid $11 billion in interest to Australian savers. We maintained a strong balance sheet and we remain well positioned to support our customers and the broader economy. The Commonwealth Bank's future is tied to Australia's future. It is in our shared interest to see living standards improve, businesses grow, and for the country to prosper. We have the privilege of serving 16 million Australian customers and to provide employment to over 35,000 Australians. In the half, we paid $2 billion to over 3,700 suppliers, the majority Australian small businesses, And we continue to be one of Australia's largest taxpayers, with $2.2 billion in Australian government payments in the half. And we returned $4.2 billion to shareholders, benefiting more than 13 million Australians, either directly or through their superannuation. It's been a challenging four years for Australians. Prices are up 20%, including rents up 18% and food up 22%. we hear from our customers all the time that they have been making real sacrifices. During COVID, households saw real disposable incomes increase substantially due to the stimulus. It has been painful for households as this unwound in 2022 and 23, primarily due to higher prices. Disposable income appear to have now stabilised, helped by the Stage 3 tax cuts. Spend on essentials has reduced, driven by lower inflation and energy rebates. And households have been able to increase saving and spending slightly more on discretionary items. The spending and savings gap between younger and older Australians has reduced. Continuing to make progress on inflation over the next 12 months will be very important. We expect further relief for households as inflation returns sustainably to the target band and interest rates start to fall. There has been interest in the impact of the Stage 3 tax cuts on households and the economy more broadly. The tax cuts have been mostly saved, not spent, and we can see these savings flowing through to deposit and offset accounts. Offset account balances grew $10 billion in the half, almost double the prior corresponding period. However, we know the experience of all Australians is not even. And while we've been encouraged to see levels of hardship assistance reduced by 15% in the half, we're committed to doing more to help our customers manage their finances. This includes making it easier for our customers to access support. We build a brighter future for all in a number of ways. We aim to help improve the standard of living by growing the economy and supporting our customers. We've increased business lending balances by 12 per cent to $152 billion to help businesses create jobs. To help our customers achieve their life goals, we aspire to be the trusted partner at the centre of their financial lives. We've maintained strong MFI share and growth segments, but did see a softening in retail MFI from changes in immigration volumes and mix, and increased competition. Through technology and digital, we deliver superior customer experiences. We've increased investment in technology to record levels during the half. This includes Australia's first GenAI-powered messaging service for bank customers. We also recognise that we must continue to execute consistently so we are safe, strong and always there when most needed. We've continued to maintain our key balance sheet settings. We continue the disciplined execution of our strategy to build and extend our competitive advantages. The strength of our core franchise starts with customer focus and enduring customer relationships. Deep, trusted relationships lead to a higher frequency of engagement, a better understanding of customer needs and superior customer experiences, leading to value creation for our shareholders. Technology allows us to turn this flywheel faster. It changes customer expectations of what a deep and trusted relationship looks like, including how we protect customers from more sophisticated threats like scams and cyber. We've increased our technology investments this year to accelerate that progress. Net promoter score is a key way we measure the strength of our customer relationships. In consumer MPS, we've maintained the number one position for 26 consecutive months and achieved the highest score of any major bank since tracking began. In business MPS, we've returned to number one. We also have peer-leading digital MPS for our digital offerings, including the CommBank app, which is used by more customers than any other financial services app in Australia. Our focus on deepening customer relationships is evident through our leading retail and business MFI share. Nearly 35% of Australians and more than 26% of businesses consider the Commonwealth Bank to be their main financial institution. We've continued to grow transaction accounts in both our retail and business banks. These increases translate into home and business lending growth of 6% and 12% respectively over the past 12 months. More than 97% of home loans and 90% of business loans are linked to a CBA transaction account. Turning now to our performance, which has been underpinned by operational and strategic execution. Volume growth has been a particular highlight. We've seen record lending to Australian businesses and home buyers in the half, with $144 billion in fundings. We've continued to invest in AI to improve the customer experience, leading to reduced contact centre wait times and faster business loan decisioning. And we've been very focused on disciplined capital management with strong organic capital generation. Strategically, we continue to build direct primary relationships through a differentiated proposition. The Commonwealth Bank now accounts for more than 45% of all proprietary home lending in Australia. We've launched a range of new products to deliver superior experiences for customers. Turning to our results, we've delivered for all stakeholders through our customer focus and disciplined execution. The 2% growth in cash NPAT was supported by volume growth in our core businesses and a lower loan impairment expense. 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 $2.25, an increase of 10 cents on the prior corresponding period. And for the ninth consecutive half, we will be neutralising the dividend reinvestment plan. Operating income has increased 3% for the half, supported by strong volume growth and stable underlying margins. Operating expenses were 6% higher, driven by inflation and investment in technology. We've consciously increased our investment envelope to accelerate the continued modernisation of our technology and our broader AI agenda. Our pre-provision profit was up 1%, reflecting strong operational performance across all of our business units. And as a result, cash net profit was up 2% on the prior comparative period. Our balance sheet remains strong with 77% deposit funding and strong provision coverage. Our weighted average maturity of long-term funding is 5.1 years and liquid assets are $175 billion. Our capital ratio of 12.2% is well above the minimum regulatory requirement. The credit environment remains benign. Our portfolio quality remains sound with steady arrears and impairments below long-term averages, supported by a strong labour market and savings buffers. Troublesome and non-performing exposures remain stable over the past 12 months. Home loan arrears have also stayed stable with most home lending customers remaining in advance of scheduled repayments. We remain well provisioned for a range of economic scenarios. We hold total provisions of $6.2 billion, which is $2.4 billion above our central economic scenario. We've seen consistent, disciplined volume growth in all of our business units this half. In our retail bank, we've grown home lending and deposits at 1.2 times system and 1 times system respectively. We're continuing to grow our business banking franchise. We now hold 1.3 million business transaction accounts, an 8% increase, and we're continuing to lead the market in business deposit market share and hold $7 billion more deposits than our next closest peer. We've also continued to grow business lending above system at 1.3 times. And our institutional bank has continued to play an important role in net deposit funding, contributing more than $60 billion. We've also reduced total risk-weighted assets by more than $30 billion over the past eight years and continue to generate good risk-adjusted returns. ASB has maintained strong reputation scores in the quarter, higher than the average of the New Zealand banks. And ASB has also seen strong growth in both business and rural lending and deposits. Looking at our business bank in more detail, we've continued to innovate to differentiate our customer proposition, launching new market-first transaction banking innovations. This is translating into consistent growth in main bank relationships and customer advocacy. This growth in primary customer relationships has seen a 45% increase in business transaction accounts in the past four years. We hold $30 billion more business banking deposit balances than we did in December 2020, and we are number one in deposit market share. We've also continued to increase business lending volumes above system, with lending balances increasing by $55 billion since December 2020. This is additional lending that is helping Australian businesses to grow. The deepening of primary customer relationships and prudent lending growth is driving strong earnings performance. The business bank now contributes approximately 40% of the bank's profit after tax. A core part of our strategy is delivering global best digital experiences for our customers. Our CommBank app, Australia's number one banking app, has more than 8.8 million users with over 12.3 million daily logins. Since its launch over a decade ago, the number of customers using the app has tripled and the frequency of their use has also tripled. Through the app, we're focused on building distinctive customer experiences. An example of this is CommBank Yellow, Australia's largest loyalty program and the only program of its kind in Australia. We have over 6.4 million customers now engaging with Yellow, which is delivering millions of personalised benefits, discounts and cashbacks. Customers who are engaging with CommBank Yellow are engaging with our app twice as often as other customers. Digital scams are a scourge on society, and anyone can be a target. Any loss to a customer through a fraud or scam is unacceptable. While losses for CBA customers have dropped, we acknowledge there is much more that needs to be done. This half, we've proactively contacted 8.7 million customers to build scams awareness, and we now have more than 4,500 staff dedicated to fighting financial crime. We've also launched a range of new measures to protect our customers and are working with others on cross-industry initiatives. Our Name Check technology is now being used by three other banks and a number of other institutions. It has saved their customers more than $40 million in scams and mistaken payments. And it continues to create value for our business and retail customers. Last October, Namecheck enabled our team to step in and help a business customer avoid a $2 million loss via a business email compromise scam. Reducing the incidence of scams requires a whole of ecosystem effort to disrupt them as close as possible to the source. This is because most scams originate outside of the regulated banking system. Over the next year, we want to extend this ecosystem approach to disrupt fraud and scam campaigns in real time, helping to make all Australians safer. And we'll continue to invest to keep our customers safe. And through collective effort between banks, government and other industries, we must stamp out this criminal activity in Australia. I'll now hand to Alan to take you through the result in more detail.

Thank you, Matt, and good morning to everyone dialed in. I will begin with an overview of how our operating context is evolving and our response, how that translates into key measures of our franchise health over the long term, and how this manifested in our latest financial results and returns to our shareholders. So looking firstly at our operating context, we are seeing evidence of improving conditions for stretched households as tax cuts, energy rebates, and a gradual moderation in inflation have led to a modest but welcome rise in disposable incomes over recent months. We are also attentive to several global thematics which have implications for Australia. On the technology front, we are seeing an evolution of the capabilities of generative AI. But to take full advantage of the opportunities in the years ahead requires an AI-ready workforce, data set and technology infrastructure. We also live in a world of rising macroeconomic imbalances and geopolitical uncertainties. Australia remains relatively well placed and retains strong fundamentals as an attractive destination for both people and financial capital. But of course, we're not immune to the risk of exogenous shocks emerging from other parts of the world. So how are we responding to this context? Firstly, we continue to focus on supporting those customers most in need of assistance, providing tailored help to those in hardship. Secondly, we remain disciplined in our approach to volume and rate trade-offs, as can be seen in our rising share of industry net interest income. And we continue to exercise care around how we utilise our shareholders' capital, always with a view to long-term shareholder value accretion. Thirdly, we decided the time was right to again increase the level of investment of shareholders' capital behind our strategy. This will help accelerate the time period over which we refresh our technology infrastructure and level of AI readiness, and ultimately drive an improved experience for our people and our customers. And lastly, we have maintained strong balance sheet settings to further underpin the flexibility of the franchise to support our customers and the economy under a range of future economic scenarios. Key measures of our long-term franchise health remain in good shape. This strengthening of the franchise translates into shareholder returns, and you can see some of the key financial outcomes for the period on the bottom half of this slide. Our pre-provision profits have grown strongly this half, and that is a reflection of strong operational performance, delivering above system volume growth in both home and business lending. All of our balance sheet settings have remained at the conservative end of the spectrum. And that combination of profitability and balance sheet strength has provided the board with the opportunity to distribute a higher interim dividend. I will now step through the result in more detail. Both statutory and cash profits from continuing operations were $5.1 billion with little to no non-cash items in the current half. Breaking down the components of that cash profit, operating income showed an improving trend over both the prior comparative period and the sequential half. we chose to reinvest some of that top-line momentum into higher operating expenses, while still preserving growth and pre-provision profits. Loan and permanent expense reduced as the economy proved resilient to higher rates. And this translated into higher reported cash profits. Looking firstly at operating income over the prior comparative period, Overall, income grew 3.3% to a little over $14 billion. Net interest income was the key driver of that growth, increasing $530 million due to strong volume growth across all our banking businesses in Australia and New Zealand. Other operating income was a slight drag on earnings due to lower trading income versus a strong prior comparative period, partly offset by volume-driven growth in lending fees and commissions. One pleasing aspect of this result was a return to growth in our share of industry net interest income. 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 annualized revenue pool of about $75 billion. You will recall that this time last year, we were able to grow industry revenue share despite losing home loan volume share due to strong pricing disciplines. Over the last six months, we've been able to maintain that pricing discipline while also returning to above system growth and home lending. This period also demonstrated the ongoing importance of investing behind our proprietary distribution channels and executing with consistency in our operational teams. These are the essential foundations required for any bank to deliver sustainable multi-year organic capital generation. Turning to net interest margins, while reported margins were higher, underlying margins were stable over the sequential half. Reported margins were inflated by mix effects caused by lower liquid assets and also some changes to our institutional product offerings. This represents a cosmetic improvement to margins and did not drive earnings growth in the period. Excluding those items, underlying margins were stable with the impact of competition for deposits and home loans offset by higher earnings on our capital and replicating portfolio hedges. Turning now to operating expenses, they increased by 6% over the prior comparative half, Most of that growth was a function of inflationary increases in wages and supplier input costs of around 4%. Given our strong momentum and top line earnings, we chose to reinvest some of that into our tech infrastructure and frontline teams. We believe this is the right decision for the long term, extending our technology leadership and delivering better customer experiences and profitable franchise growth in the decade ahead. Pleasingly, the realization of ongoing productivity benefits were able to finance some of that extra investment after absorbing volume-related cost increases. We will now turn to our balance sheet settings, starting with credit risk. Loan impairment expenses were $320 million as loan loss rates reduced to seven basis points over the last six months. Consumer arrears rates have reduced in the last six months across the credit card and personal loan portfolios, while home loan arrears have stabilised. Arrears do, however, remain higher than they were 12 months ago, as cost of living pressures continue to weigh on some borrowers. Corporate troublesome and non-performing exposures reduced slightly over the period due to the repayment and upgrade of several single-name exposures. Overall, provisions have increased slightly to $6.2 billion, which was largely a function of growth in lending. We continue to hold a buffer of approximately $2.4 billion to our central economic scenario, and our balance sheet provisions now cover more than 75% of the expected credit loss of our downside economic scenario of a global recession. provisioning coverage reduced slightly to 162 basis points of credit risk weighted assets. As usual, we have set out how our sector level considerations have evolved over the last six months. Consumer provisions have again reduced slightly over the period due to rising house prices, as well as lower expected losses on credit cards and personal loans. Within corporate, There wasn't any significant change in the provisioning coverage for the retail trade, entertainment, leisure and tourism, or agricultural sectors. We did reduce forward-looking adjustments slightly in the construction and commercial property sectors as portfolio credit metrics improved. Turning to our funding stack, we've maintained strong settings across the board. we delivered another pleasing period of growth in retail and business transaction deposits, and our customer deposit ratio is at 77%. Looking at the full funding stack in the middle column, you can see our short-term wholesale funding mix remains well below historic levels at 8% of total funding, and long-term funding remains conservatively positioned with a weighted average maturity of 5.1 years. And on the right hand side, you can see the strong level of liquid assets that have been built over recent years with our liquidity coverage ratio now back within target range following the term funding facility repayment in the middle of last year. Our level two common equity tier one ratio was 12.2%, down 10 basis points over the past six months. As we have articulated under our capital framework, the first and best use of surplus capital is to support our customers and the economy and grow our franchise. You can see that that has again been the case with growth in credit risk weighted assets, driving 36 basis points of capital consumption. The interim dividend increased 10 cents to $2.25, and the dividend reinvestment plan will again be fully neutralized through an on-market purchase of shares. Normalizing for long run average loss rates, that represents an interim payout ratio of approximately 75%. As you can see on the bottom right of this slide, the underlying level of organic capital generated from our operations underpins the long-term sustainability of the dividends which benefit millions of Australians. And that is one example of the disciplined and balanced approach we take to capital management. The reason we attract shareholders' capital in the first place is because they trust us to deploy their capital carefully. The return on that capital helps fund a growing portfolio of lending and also allows us to continue to invest strongly behind our strategic priorities. In the last six months, we have deployed a record amount of capital to support home and business owners in Australia and New Zealand, and a record amount of franchise reinvestment to deliver better customer experiences both today and over coming years. Getting that balance right between the sources and uses of our shareholders' funds provides us with the flexibility to deploy surplus capital in the right way and at the optimal time. This long-term approach has manifested in a consistent track record of delivery. Our combination of a high return on equity and a strong payout ratio continues to compare favourably with domestic and global peers. and our strategic investments, strong operational execution, and disciplined capital management combined 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.