Commonwealth Bank of Australia

Hello and welcome to the results briefing for the Commonwealth Bank of Australia for the half year ended 31 December 2025. 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 results and an update on the business. Our CFO, Alan Docherty, will provide 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.

Thanks very much, Mel, and good morning, everyone. It's great to be with you today to present the bank's half-year results. We recognise the cost of living pressures, global uncertainty and rapid change are weighing on many Australians. In this environment, we've remained focused on supporting and serving our customers. That focus has delivered disciplined growth across our core customer segments. Cash net profit increased by 6% on the prior comparative period and earnings per share increased by 19 cents. We maintained strong liquidity, funding and capital positions and our operating performance and capital position has allowed the board to declare a fully franked dividend of $2.35 up 10 cents on the prior corresponding period. This marks the 11th consecutive period of DRP neutralisation. There are two features of this result that stand out. The first is the market context. We've seen high credit growth, low loan losses, supportive funding markets and intense competition. The second, which is a key strength, has been maintaining stable margins while growing volume at or above system across all major segments. Over the past 12 months, mortgage balances grew by $45 billion or 7% and business lending grew by 12.3 times system. Deposit balances increased by $44 billion in the half. Domestic deposit and lending balance growth in a half year of 2008. Australia is currently experiencing relatively strong nominal growth and private sector demand. In this environment, banks play a critical role in supporting credit growth for productive investment while maintaining unquestionably strong capital positions. Doing this sustainably requires profitable banks that can generate capital organically to support the economy. The last time credit growth was at this level, apart from a brief period during COVID, returns across the industry were materially higher. In normal conditions, such an environment would favour disciplined competition so that scarce capital is deployed where it earns an appropriate return. However, the competitive landscape is materially shifting due to differing business models, regulatory settings and architecture, customer offerings and return hurdles. Against this backdrop, we believe CBA is uniquely positioned to adapt and perform strongly. Our deep customer relationships and franchise strength allows us to compete effectively and profitably. That profitability allows us to support higher growth across the economy, invest to improve the customer experience and deliver consistent returns for our shareholders. Discipline growth and margin management drove operating income growth of 6.6%. Operating expenses increased by 5.5%, excluding restructuring and notable items. This reflected inflationary pressures and higher investment in technology, resilience and our frontline teams to improve customer experience. Credit conditions remained very benign, contributing 6.1% cash profit growth. The performance and long-term health of our franchise is underpinned by a simple relationship-led model. Deep, trusted customer relationships drive more frequent and meaningful engagement. That engagement provides deeper insights into customer needs, enabling us to deliver superior customer experiences. Over time, this creates enduring value for customers and sustainable returns for our shareholders. This model has long underpinned our leadership in retail banking and over the past year, over the past several years, has accelerated growth in our business bank. Technology continues to amplify this advantage, enabling more personalised, timely and scalable customer engagement. Our financial performance reflects customer focus, disciplined execution and investment in our franchise. We track the strength of our customer relationships through Net Promoter Score, and this remains an important indicator of trust and advocacy. We currently hold leading NPS positions among major banks in consumer and institutional banking. Following 15 months at number one, we dropped to the second position in business banking in the half. Operationally, this is translating into scale and momentum across the group. On average, each week, we settle more than 3,000 home loan purchases, lend around $900 million to businesses, and process almost 150 million payments, and alert customers around 280,000 times to suspicious card activity. We continue to build scale and depth of primary customer relationships, which underpins long-term franchise health. We've consciously increased investment in data, technology and AI to improve customer experience, safety, security and operational resilience. The retail bank has performed well with pre-provision profit growth of 5%. We've maintained the leading net promoter score for 38 consecutive months. Retail MFI share has increased slightly to 33.5% but remains below its 35% peak. Customer engagement remains a core strength with 9.4 million CommBank app users and 14 million daily logins. We now hold 12 million retail transaction accounts, a 35% increase since the start of COVID and an increase of 585,000 in the past year. As a result, our deposit growth has been strong. Home loan balances increased by 7% in the past year to $622 billion. 97% of these customers hold a transaction account with us. Digitisation and technology continue to drive performance in home lending. 70% of proprietary home loan applications are auto-decision on the same day. We're focused on continuing to strengthen our MFI share and investing in AI-enabled digital experiences. The business bank has had another period of strong performance. Pre-provision profit growth was 8% and cash profit growth was 14%. MFI share increased to 26.9, which is a 310 basis point increase since the start of COVID. We added 85,000 transaction accounts in the past year, which is a 7% increase. And the business bank is now the Commonwealth Bank's largest source of transactional deposits. We grew lending at 1.3 times system, increasing balances by $18 billion in the year. Business banking lending balances have increased by 87% or $78 billion in the past six years, supporting growth and jobs in our economy. Approximately 90% of business loans are linked to a CBA transaction account, reflecting the depth of our primary relationships. This supports credit quality with loan losses of six basis points in the half. It also allows us to use data and automation to substantially improve lending and servicing processes. For small businesses, we've doubled the volume of loans auto-approved through BizExpress over the past two years and have reduced annual loan maintenance activity by 85%. We also launched a national AI cybersecurity and digital capability initiative, supporting up to 1 million small businesses to lift productivity and competitiveness. The combination of deep customer relationships and prudent lending growth is delivering sustained earnings performance. Our institutional business is also performing well, with pre-provision profit increasing by 13%. We've regained the number one position in NPS, supported by improvements in client experience and execution. Our institutional bank plays an important role in providing $64 billion in net deposit balances and supporting markets activity. We've seen growth in new transaction banking mandates, enabling the institutional bank to further support the group in deposit funding. The markets business has had a particularly strong half. We led the market in debt capital market performance and last year topped the Bloomberg combined lead table. In New Zealand, ASB performed well with operating income growth of 8%. ASB is the highest reputation score of the major banks in New Zealand and has been a digital bank of the year for the past four years. ASB saw 1.3 times system growth in home lending and business and rural lending. Deposits grew at 1.2 times system. Customer deposits and home lending balances have both increased by 41% in the last six years, by $26 billion and $24 billion, respectively. The credit environment remains benign. Troublesome and non-performing exposures decreased following upgrades or external refinancing activity. The number of home loan customers in hardship declined by 28% since June 2024. And we remain well provisioned for a range of economic scenarios. We hold total provisions of $6.3 billion, which is $2.8 billion above our central economic scenario. Our balance sheet remains strong with 79% deposit funding. Our weighted average maturity of long-term funding is 5.2 years and liquid assets are $199 billion. Our capital ratio of 12.3% is $10 billion above minimum regulatory requirements. A strong balance sheet allows us to invest for the long term and respond to any deterioration in market conditions. We've seen record inflows of deposits in the half. We've also seen $15 billion increase in redraw balances and offset accounts. Customers having surplus funds available is a significant predictor of arrears performance and so this behaviour has a positive capital impact. 87% of home loan customers are now in advance of their scheduled repayments, on average 35 payments in advance. When adjusted for redraw and offset savings, household debt has now returned to levels not seen since 2015. The transmission of monetary policy in Australia means that our banks pay very competitive interest rates on at-call household deposits compared with other markets. On average, at-call deposits in Australia attract an interest rate which is five times higher than in the US and 10 times higher than in Europe. We've seen a strengthening in the economy in the past six months driven by consumer demand. Spend has been increasing across all customer age cohorts. Most age groups are broadly maintaining discretionary spending and increasing savings levels. GDP growth in mid-2026 was 2%, more than double the same period a year ago. Most noticeably, economic growth has shifted from being primarily driven by public demand to being driven by household consumption. Last week, we saw the Reserve Bank raise interest rates to 3.85% in response to inflation, which is running higher than the target band. Almost one third of the increase in the CPI basket is driven by housing, with utilities a substantial contributor to that category. Our purpose, building a brighter future for all, guides how we allocate capital, manage risk and invest for the long term. It reflects our long term commitment to Australia, our customers and our communities. Some of the ways we're delivering on our purpose include significantly increasing funding for new residential housing development, delivering $190 million in benefits to consumers through CommBank Yellow, migrating our core banking system to the cloud to improve resilience, delivering 30% more technology changes, reducing critical incidents and improving recovery times by 65%, rolling out new AI tools and training programs to our teams to build capability and deliver better customer experiences. and maintaining our strong balance sheet settings, sending around 40,000 alerts a day to customers about suspicious activities and deploying more than 2,900 AI bots to engage and disrupt scammers. Importantly, our strong performance enables us to continue supporting our 18 million customers, protect communities, support Australia's economy and invest for the long term. As cost of living pressures persist, we are providing targeted support to households under strain, including 63,000 tailored payment arrangements for customers most in need. We've supported more than 79,000 households to buy a home, including through dedicated support for first home buyers. And we lent $25 billion to businesses supporting growth, jobs and economic activity. We're investing a billion dollars a year to help more people protect themselves from scams and fraud. Our strong balance sheet allows us to support customers and communities while delivering sustainable long-term returns for shareholders, including $4.4 billion in dividends this half, benefiting more than 14 million Australians. we will continue to support our customers, protect communities, and invest for the long term to provide strength and stability to the Australian economy. I'll now hand to Alan to take you through the result in more detail.

Thank you, Matt, and good morning, everyone. Starting with the results overview, we've set out the key aspects of our current operating context, how we are responding, and how those actions are contributing to the long-term strengthening of our franchise. At a macro level, we are seeing strong system growth in both credit and money supply. Competitive intensity within the banking sector remains elevated. Technological innovations continue at pace, and geopolitics remains a source of potential tail risks. Against that backdrop, our response has been deliberate and disciplined. We have carefully managed volume and margin trade-offs, continued to invest and extend our leadership in both technology and proprietary distribution, and maintained conservative balance sheet settings. This approach is yielding strong financial outcomes. Pre-provision profit growth is healthy, Our dividend per share continues to reflect the strong compositional quality of our earnings. And our balance sheet settings give us confidence in our ability to continue supporting customers, growing the franchise and delivering sustainable returns to shareholders over the long term. This slide sets out the usual reconciliation between statutory and cash profits for the half. there were only modest movements in the usual non-cash items during the period. As such, both statutory and cash profits on a continuing operations basis totaled around $5.4 billion. Breaking down the components of that cash profit, Operating income grew 6.6% year-on-year as our investments in technology and proprietary distribution continue to yield strong operational outcomes. That top-line performance allows us to continue to invest in the franchise with underlying operating expenses increasing 5.5% on the prior comparative period. Notable expense items totaled $170 million over the last six months largely due to the settlement of a long-standing legal proceeding in New Zealand during the September quarter. Loan impairment expense was flat year on year and lower versus the second half, reflecting the benefits of our conservative settings and the resilience we continue to see in customer and portfolio credit quality. This resulted in growth in cash profits of a little over 6% on both the prior corresponding period and the second half of last year. It's worth noting that the effective tax rate for the half was 30.3%. Looking ahead, you can assume that will settle closer to 30% for the 2026 financial year. On operating income, we delivered growth of 6.6% over the prior comparative period, Net interest income increased strongly, up $761 million, supported by profitable above-system growth in lending and deposits. Other operating income also contributed, growing $163 million over that period, assisted by one-off gains. This slide sets out some of the drivers of long-term franchise strength that we have been targeting. deeper customer relationships, deposit-led growth in our core segments that underpins and precedes lending growth, and productivity improvements within our frontline teams. Our retail bank continues to build foundational banking relationships, adding 3 million net new transaction account customers over the past five years. In home lending, we continue to prioritise and grow proprietary distribution, with $55 billion of new fundings originated over the last six months through our own channels. And our strategic focus on business banking continues to deliver strong outcomes with double-digit compound annual growth in both deposits and lending over recent years. Our investments in building a more digital, customer-focused and streamlined business bank for our people and our customers can be seen in the productivity improvements delivered over the last five years, with fundings per banker up 65% over that period. Turning to the net interest margin and looking at the movement over the most recent six-month period. The main driver of the four basis point reduction over the half was the increased mix of low margin liquid assets and institutional repos. Excluding those items, margins were one basis point lower with competitive pressures and the impact of a lower cash rate largely offset by the replicating portfolio and the favourable portfolio mix effect of strong deposit growth. Margins were a little stronger in the December quarter, largely due to the benefit of higher swap rates on our replicating portfolio. You can see here that we're managing margin outcomes carefully, balancing competitiveness with returns and staying focused on building lasting primary relationships with our customers rather than chasing unprofitable volume growth. On operating expenses, they increased 5.5% on the prior corresponding period. The drivers are largely unchanged over recent years. We are seeing inflationary impacts on wages and IT vendor cost inflation continues to run higher than CPI. At the same time, we continue to invest behind the franchise with higher cloud consumption and software licensing costs and our ongoing investment in technology infrastructure and AI capabilities alongside enhanced frontline capacity and operational resilience. We are self-funding much of that investment through productivity initiatives, realising approximately $222 million in incremental cost savings over the past six months. Turning to credit risk, loan impairment expense for the half was $319 million, broadly consistent with the prior comparative period and improving versus the second half. Across the portfolio, we continue to see broadly stable to improving conditions. Households have been supported by the strength of the labour market and rising disposable incomes. We have seen this reflected in higher prepayments and lower consumer arrears. In the corporate portfolio, troublesome assets and non-performing exposures continue to trend lower as a proportion of the portfolio. Given the uncertainty in global macro and geopolitics, we've maintained strong provisioning coverage. Total recognized provisions are approximately $6.3 billion, and importantly, we continue to hold the material buffer above the central scenario. This slide provides the usual additional detail on sectoral considerations, we marginally reduced base provisioning and forward-looking adjustments in areas where conditions have improved, including consumer, construction and retail trade. This was partly offset by an increased level of provisioning relating to our downside economic scenarios, where we take into account the risk of exogenous shocks to the domestic economy. Overall, our approach to provisioning remains grounded, forward-looking and appropriately conservative. Our funding and liquidity profile has continued to strengthen. We continue to be predominantly deposit funded, supported by a strong deposit gathering franchise. Total customer deposits grew at an annualized rate of 10% over the last six months, taking our customer deposit ratio to 79%. We also maintained a historically low proportion of short-term wholesale funding. This combination of deposit growth, consistent term issuance across diverse funding markets and strong liquidity buffers mean we remain well positioned to support the current strong level of customer demand for lending growth. On capital, our common equity tier one ratio remained at 12.3%, with organic capital generation continuing to support franchise growth and dividends. Growth in risk-weighted assets was largely a function of lending volume growth, with credit risk weightings remaining broadly stable over the past six months. The interim dividend increased 10 cents to $2.35, representing a headline payout ratio of 72% and a normalized payout of 74% after adjusting for the benign first half loan loss rate. The dividend will be fully franked and the dividend reinvestment plan will be offered with no discount and fully neutralised. Delivering franchise growth while maintaining returns above our shareholders' cost of capital allows sustainable and consistent accretion in dividend per share over the long term. This slide sets out our long-term approach to capital management. We prioritise profitable franchise growth as the first and best use of organic capital generation. We invest in line with our strategic priorities, aim to pay sustainable dividends, and we carefully manage our share count and surplus capital in a disciplined way. Over time, you can see we've balanced capital generation with capital distribution, supporting franchise growth when lending demand is elevated, while also returning excess capital to shareholders primarily through dividends as well as through the selective utilization of buybacks. Ultimately, we remain focused on optimizing long-term shareholder outcomes while maintaining the balance sheet resilience that underpins our ability to support our customers and the broader economy through the cycle. In closing, this long-term approach has again assisted in delivering consistent and superior shareholder returns. Our combination of a high return on equity and strong payout ratio continues to compare favourably with domestic and global banking peers. Our strategic investments are yielding measurable improvements in franchise growth and productivity, underpinning our continued outperformance in net tangible assets and dividends per share. I'll now hand back to Matt for the economic outlook and closing remarks. Thank you.

Thanks very much, Alan. Australian economic growth has strengthened more quickly and proven more resilient than expected. This was driven by increases in consumer demand and rising investment in AI and energy infrastructure. Household consumption has risen, including across discretionary categories. Supply side constraints mean that the economy is struggling to meet this increased demand. And as a result, inflation is now expected to remain above the Reserve Bank's target band for some time, placing further upwards pressure on interest rates. Australia has remained highly resilient despite a volatile global environment. To date, there has been limited economic impact from trade and tariff disruptions. A global AI investment cycle is supporting growth. Elevated geopolitical risks are likely to generate ongoing shocks, reinforcing the importance of economic and operational resilience. We will continue supporting our customers with their financial resilience during this period. We're optimistic about the prospects of the economy and will play our part in building a brighter future for all. So in summary, the market has seen a period of high growth, low loan losses and intense competition. The Commonwealth Bank is well placed to adapt and perform against this backdrop. We remain committed to supporting and protecting our customers, reimagining customer experiences by investing in technology and AI and providing strength and stability for the Australian economy and delivering sustainable returns. We will stay focused on consistent, disciplined execution and investment for the long term to deliver for our customers and build a brighter future for all. On that hand to Mel to go through your questions.

Thank you, Matt. For this briefing, we will take questions from analysts and investors. When the line opens for you, please introduce the organisation that you represent and limit your questions to one to two maximum questions. The briefing will then have the, excuse me, sorry, will then take the first question from Andrew Triggs. Thank you.

Thank you, Mel, and good morning. Matt, in your prepared remarks for the first quarter trading update, you talked about the competition concerns you had and potential responses on settings. Could you sort of elaborate on those? You seem to have sort of reiterated some of those comments this morning. Specifically, what size of the balance sheet are you referring to there? It does seem at odds with the stable underlying margin in the half and the slight improvement in NIM that you've seen in the December quarter.

Yeah, no, thanks and good morning. Look, I guess I'd contrast between, as I said in the opening remarks, I think the strength of this result has been our ability to maintain a very good and disciplined volume growth and a part of that is underlying stability and the margin performance across all of our customer-facing segments. You know, I think when we look at, let's say, last year, calendar year, I think the market is and the competitive context is shifting. I think clearly this demonstrates our ability to be able to perform well in that. But I mean, if you look at the period of the last five years, we've seen the most rapid growth by one competitor and household deposit share growth. In fact, I think it'll be close to double previous growth rate. I think we've seen a pretty sharp reduction in household balances. I think the greatest over that five-year period outside the major banks. I think even if you went back to 2008, And I think that's interesting in the context of the backdrop. We've got, as we talked about, higher system credit growth. We've seen that clearly in retail and also in non-retail. We expect that there's going to be a maintenance of higher credit growth on the back of higher nominal growth and, of course, I hope, a pickup in investment. If you look at the organic capital generation across peers and really the sort of volume and NII returns that are being generated, I think that sort of marks, you know, quite a shift against that sort of credit environment you'd actually expect there to be much greater pricing discipline. And clearly there are different choices that are being made around business model and customer proposition. Some part of that's being informed by the regulatory architecture and choices. I mean it's for us to understand and adapt to the environment, to be able to execute as well as we can. both in the six or the 12-month period, but also most importantly to position the organisation for the future. We think a lot about how do we build on the scale, durability, resilience, investment in the franchise while continuing to perform well in any given period and deliver sustainable, reliable returns to our shareholders.

Thanks Matt and maybe perhaps for Alan, just the pick apart maybe a little bit more the slide improvement you referred to in NIM in the second quarter. You put that down to the replicating portfolio but that tends to come through more slowly. What were the other drivers and given we've had a rate hike in February, potentially another one in May, what does it mean for the outlook for the NIM into the second half?

Yep, thank you Andrew. Q1 and Q2, I guess there was a couple of things that changed. I mean, importantly, the replicating is a major factor. The five-year swap rate, I think, increased 30 basis points between Q1 and Q2. And as the tractors ground through over that period, we've seen the pickup there. Also, there was a bit more of a cash rate headwind in Q1. So if you look at the weighted average overnight cash rate, that was down, I think, 40 basis points Q1 to the second half of last year, only down a dozen basis points over the second quarter relative to the first. So you had that cash rate headwind in Q1, so it would be much more neutral, I guess, in Q2. And the other aspect was very strong growth, as we've reported in, particularly business transaction accounts in that December quarter. So that was pleasing. And so we picked up a bit of a mixed benefit on BTA growth through Q2. Now, an element of that seasonal, we get seasonally stronger growth in the December quarter. But, you know, you can see what, you know, the changes we've seen in swap rates. So that will continue to feed through in our tractors in the period ahead.

Great, thank you. Thank you. Thank you. The next question comes from John Mott.

Thank you, John Mott here from Banjoe. I've got a question on slide 96. It's a long way in, but if we can just click over there. Just looking at the deposit side, and well done, just really shows the strength of the franchise with the great growth, the deposits coming through. But I wanted to drill down into it. So if you look at the growth in retail transaction accounts, Pretty steady, you know, good numbers growing 3% in the half, 5% year-on-year. It's been growing pretty steadily. But then when we look over at the retail deposit mix, a big jump, and I think this is the biggest jump you've ever had in transaction deposits in the retail bank, and if you go on the average balance sheet, you can also see they're coming in non-interest-bearing deposits, so excluding offset accounts. You're seeing a huge growth. Given the comments from the first quarter, it didn't appear to be there. So it really looks like it's come through in the December quarter. To put it into perspective, I'll just back-solve it. The average transaction account in Australia jumped by $700 from just over $10,000 to $10,700. So what happened in that December quarter to see such massive growth, not in the number of transaction accounts, but in the balance? And when you think about how it's going to go going forward... Is this just in a seasonal and then get drained into savings or higher interest rate accounts over this next half? Or are you going to see really strong growth in non-interest bearing deposits really support the NIN through the second half of 26 and into 27? So can you just explain what happens?

Yeah, I mean, one element of that transaction account growth is growth in the offset accounts. We've seen very strong, consistent growth in offset through both Q1 and Q2. I mean, that's, you know, I think a healthy sign of continued growth in excess savings across the economy. And we called out in one of the macro slides the improvement that you can see in the savings rate that we continue to see through the course of that half. Yeah, and in terms of the performance of the underlying ex-offset growth in the retail bank, that's continued to improve. I mean, we've seen relatively consistent growth in average balances per retail customer account, so that's continued to grow in the period. And, of course, we've continued to attract more customers, and so very strong growth. Another, you know, I think year-on-year 600,000 growth in customer transaction accounts in the retail bank. Retail customer numbers are up 3 million over the five-year period. So, again, that's been relatively steady. But I think it's a function of just that continued growth in savings across the broader economy. We've seen a large share of that come through the retail bank.

Okay, just digging into that a bit more, I'm just going over to the retail bank in the actual result. And if you look at the non-interest-bearing transaction accounts in the – You can see there, this obviously excludes offset accounts. Big jump again there by, you know, $4 billion. So is there anything in particular that happened in that fourth quarter that just drives this so much higher? Because this isn't quite your steady customer account growth. Yeah. It's unusual. And then obviously this implies what happens in the next half.

Yeah. No, I mean, it's very pleasing. I think a more like-for-like comparison is going to be December-to-December growth in non-interest bear and TRAN and the retail bank. We do get a fair amount of seasonality into that June period. So going into June, as you come out of the March quarter into June, you tend to have a higher level of spot non-retail transaction account deposits, which then dip. quite significantly into the 30 June period. We see a lot of switching, particularly small business owners injecting cash into their businesses as they get to their 30 June financial year end. So we've been pleased with the growth, probably the better underlying measure of that growth, I think, is the year-on-year 6% growth between the £47.5 billion we had this time last year and the £50 billion that we landed at 31 December. So, yes, strong growth, but I wouldn't annualise the six-month growth.

Yeah, I think there's a bit of seasonality for sure, John. I don't think Alan's touched on it at all. I mean obviously we'd like to think with all the work that we're doing around the engagement and main bank proposition that's attracting higher balances. We did see obviously a run-up in incomes across the across the economy, but I think it's hard to then just extrapolate. The fourth quarter was strong for us in a number of areas including both in business and retail deposit growth at an account and average balance number. Thank you.

Thank you. The next question comes from Richard.

Good morning Matt. I've got a couple of questions. The first relates to the mortgage market and the second relates to benefits of scale. So on the mortgage market your major bank competitors have been pretty clear in communicating their desire to invest in and grow their proprietary distribution. So that leads me to ask whether your expectation that you can grow at or above the system in the mortgage market is premised on a belief that you won't lose any share of proprietary distribution or that the party broker share of the industry's mortgage origination will fall from its current levels?

Yeah, look, Richard, I mean, we don't, as you know, sort of at any period seek to grow sort of at or around system, we're going to make lots of different choices. I think there's a couple of different sides to it. Clearly the proprietary distribution has been a strength for some time and the team have executed really well. I think we're now, we think 54% of proprietary mortgage origination. On one side, the other bank's joining and having a greater focus on that. Maybe that helps a little bit to change the perception or customer preference more broadly in the market. I mean, secondly, the broker channel is a really important distribution for us and it will be going into the future. I mean, it's predicated really on the continuation of what we have been doing. And I think we'll be able to maintain between both our CBA Yellow brand, Bank West, which is obviously heavily concentrated in broker and our digital proposition, you know, a balanced approach. portfolio in terms of distribution. And then, of course, while serving our customers, we've sought to, you know, optimise for cohorts and individual segments where there's, you know, structurally higher margins like there are in investor.

Okay, thank you. And my second question really relates to some of the slides and your comments pointing to very strong growth in the franchise since 2019 whether it be deposit balances or number of customers or number of accounts, you called that out in your opening remarks, that should suggest that you'll get increasing benefits from scale but if we look at the cost to income ratio In rough terms it's somewhere in the mid 40s. That's where it is today. That's where it was back in 2019. Do you think it's fair to view the cost to income ratio as a measure of whether you're delivering benefits from scale and can investors expect cost to income ratio at CommBank over the coming years?

Yeah, look, I mean, it's a... And, look, I'm certainly a believer in increasing returns to scale and how they might compound over a long period of time. I think the drivers, particularly on the cost side, for us, I guess, as we reflect over the last, whatever, five or eight years, have been, you know, deliberately targeted in a couple of areas. You know, first and foremost, we've significantly increased the investment and we think that's really important to both underpin But I think that's one of the major sources of scale. And we've substantially increased sort of regulatory risk management. Of course, without giving any sort of clear guidance. You might recall early on in our collective tenure, we gave some cost-to-income ratio guidance and then the cash rate promptly fell several times after that. So we're not likely to repeat with it.

I think that was early 2019.

It was. It was, Richard. We remember it well, I'm sure you do. So, look, I think we definitely have aspirations perhaps over the medium term, definitely shift the trajectory of that cost. But we also, I guess in any period, we're prepared to sacrifice near-term returns if we believe that we can deliver the best long-term outcome. And I do think the next... five years will be quite different in terms of where the investments will come from. I do think there's a lot of consistency around technology. Probably the other area that I think occurs to Alan and I in this result is in terms of where the increased investment over and above the areas that we're used to calling out is there's just a lot more going into resilience more broadly and cyber's been a So we do think the importance of being able to continue to invest in differentiated experiences but also just core resilience and protection of our customers. You need to be able to generate a strong organic return profile to be able to fund that investment, to be able to simultaneously provide lending to the economy and distribute dividends. So it's probably a long-winded way of saying no change to guidance. Believe in returns to scale strongly. I think there will be opportunities for us to improve our cost trajectory and ratios over time. Thank you.

Thank you. The next question comes from Andrew Lyons.

Thanks and good morning. Andrew Lyons from Jefferies. Alan, just a question on costs. Firstly, at the first quarter, you spoke to seasonally low IT vendor costs, but the first half cost performance was a particularly good one and it wasn't particularly apparent that that came through in the second quarter. How should we sort of think about that seasonality comment from the first quarter? Should we be seeing a bit of a step up in those costs being expensed through the P&L in the second half just as you continue to invest in the business?

Yeah, you'll notice in the detail of the investment spend disclosures, we have dropped the capitalisation rate in the current period. We're capitalising less, more of that's flowing through into the P&L. You know, that goes with the slight change in mix that we've seen from a strategic investment perspective, so more weighting towards capital. productivity and growth initiatives a little bit less proportionately on some of the infrastructure spending. The infrastructure spending by nature is more capitalization heavy than other forms of spend. There is a little bit of seasonality in Q1. We've seen some of that reverse in Q2. It's fair to say that we've called out IT vendor cost inflation pretty consistently over the past 12, 18 months. It's an area that we continue to be very cognizant of, very focused on. You know, we see that as a, you know, over the medium to long term potential source of above CPI, above domestic inflation, source of cost growth. So it's something that we're managing carefully, but something we keep an eye on. And that's why we made the comment in the first quarter, because you didn't really see it as a source of cost inflation there. But again, that was a quarterly timing issue.

Yeah, okay, thank you. And perhaps the question for Matt, it was a particularly strong result in business banking. Your loans are up 9% on PCP, NIMS up three bips over the same period and five bips in the half. That does somewhat fly in the face of, you know, the view that the market's facing elevated competition driven by both the Big Four and also other players in the space. So can you perhaps just talk about the competitive environment in business banking? How do you see it playing out and what is CBA basically doing to... sort of try and insulate the margin as much as possible as you do grow.

Yeah, look, I mean, I think the... Competitive context is intense, and against that, I think the team have executed extremely well. I mean, some of the things I think that stand out to us is a continuation of what we've now seen for many years in terms of transaction liability-led strategy, strong growth in account numbers, strong growth in balances, as Alan touched on, particularly in the fourth quarter. I think a very good track record over the last five or six years of high quality risk identification in terms of lending, really leveraging the main bank relationship and having a much broader relationship with our customers. We've seen also capabilities that the team have developed is probably one of the things that stood out to us as well as like very good performance in small business. I touched on some of the growth in products like BizExpress which is largely unsecured and we've gone from sort of $30 million to $130 million now. At some level they're still relatively small numbers but it's been the diversification of the lending growth that's been good. Small business would probably be roughly twice the margin of some of the other segments. They've been very disciplined up and down throughout all of the segments. We monitor closely in terms of the value of deals that we won't originate due to pricing, the value of deals we won't originate due to credit conditions. And I think leveraging some of the technology both in the decisioning, speed of decision as well through to funding, but also in terms of giving us the confidence to be able to originate across broader cohorts of customers where we've got that main bank relationship. We've also been able to, again, leveraging some of the technology to automate some of the account management processes, substantially free up banker time and so we're seeing much improved productivity in terms of facilities per banker. So I think in aggregate the team have executed extremely well and I think the result is another very strong one. Thank you.

Thank you. The next question comes from Carlos.

Thanks. I'm Carlos Cacho from Macquarie. You spoke to in the retail section, lower deposit margins due to competition and shifting into high yielding savings deposits. Can you give us any colour on the mix shift you're seeing there from lower rate products like net bank saver into the higher gold saver or potentially higher rates on some of the net bank saver accounts that's driving that?

Yes. I mean, I guess that's been a consistent trend. I mean, I talked earlier about the things that had changed between the first quarter and the second quarter. But one thing that didn't change was the very strong level of growth that we continue to see into the goal saver product. So that's running multiples of the growth rate. And we're still growing in net bank saver, but the key driver of savings account growth in the retail bank has continued to be goal saver. And so The sort of mix effect, and we've called out previously the very strong level of balances that are attracting that high, the bonus rate on Goal Saver, so that's now up to 87% of balances attracting that high rate. We can see then on the quarterly trends on margin, it's a consistent headwind, so very consistent over Q1 and Q2. It was about a basis point headwind in each of those periods due to the mix effect of the growth in that higher rate product.

Yeah, I think specifically we're using the gold saver product particularly. We've got some targeted offers in market. I think we see a little bit more switching into the saving, but there's probably less churn than we would have seen in other periods from savings into TD, and I think, again, The team have done a good job of optimising across the various customer segments in trying to make sure we're getting the right overall margin outcomes whilst growing a bit above system as well.

Great. The other question I want to ask is more around thinking longer term at these investments you're making. You're clearly investing a lot of money into technology and AI. And I spoke to those vendor inflation headwinds, which appear to be as the tech companies wanting a return on their investment. How do you think about the return on those investments you're making? And I guess particularly how you think about that flowing through higher revenues versus potentially more productivity or lower costs in time?

Yeah, I mean, we've been very... pleased with the yield from the investment and I think it's particularly there's a number of proof points in this result that we've called out that I think show that we are getting a measurable return on those investments. We called out the productivity that we've seen as we've continued to digitise importantly the work of a business banker. We've got much better mobile and digital platforms for our business banking customers, getting them to the sort of levels that we'd achieved in previous years for retail customers. And you see that coming through. I mean, that's a big driver of the MFI growth that we've continued to see within the business bank, continue to underpin the transaction account growth. And then we've got a 97% conversion of those TRAN accounts into lending relationships, which is seen as continuing to grow well above system in the business bank over the last 12 months. So, yeah, the yield from the technology investments, we're seeing measurable returns, both on the revenue side and on the cost side. So we've been pleased with that. To your point, And again, it's why we call it the IT vendor cost inflation. There is, you know, over the next few years, we're going to continue to see where the returns emerge from newer technologies between the technology companies themselves and the corporates who deploy those tools. Certainly over the past period of time, we've been pleased with the return that we're generating through our franchise, but that's something that we'll continue to manage and ensure we've got compatibility with lots of different vendors. We're able to switch providers in various areas, maintain that flexibility to ensure we maintain competitive, you know, have a competitive tension with some of our key technology providers, which I think is going to be important for every corporate over the next five, ten years.

Thank you. The next question comes from Matt Wilson.

Yeah, good morning, team. Matt Wilson, Chardon. Two questions, if I may. If you look through the long term, CBA's key point of differentiation has been, you know, your larger, stickier, low, no-cost deposit base, and you're very effective at growing it, as we can see today, and your major bank peers have failed to close that gap through the decades for various reasons. But today we have sort of two new challenges out there. Macquarie, who's the fourth peer and perhaps should appear in every slide where there's a peer comparison now going forward, have put a line in the sand. And then you've got AI. If we embrace your enthusiasm for AI, then does it follow that we'll all have a personal AI bot that will automatically direct our savings and transaction accounts into the highest yielding accounts and a machine will do that for us and if on that basis today they move to Macquarie. I've got a second question.

Yeah but look Matt I think on your first question, I mean look I think what the result demonstrates is our ability to perform in the current context we think we've got. see good strategic assets and sources which the team have executed really well. We're, of course, alert to lots of different shifts in the competitive context. I mean, specifically, maybe it's a little bit of a flow-on to Carlos'. In terms of AI and technology, we have a balance between sort of flexibility and scale. I think in the near term for heavily regulated institutions, I think it adds both complexity and governance. I do think one of the important things that we're certainly spending time on is where do we think AI has the potential to change the economics of the industry? What might the impact be around sort of competitive moats or enduring sources of advantage, how might that show up? I think there's lots of different ways that we envisage that we can compete extremely effectively in that environment. So I think we're both planning for the long term, lots of different sort of scenarios. We think we've got the scale to invest. We think we're uniquely placed and, you know, I think the team are highly motivated and very focused on execution, at least in this period. I think it's a good example of it and we certainly intend to maintain that focus, discipline and execution ability.

Thank you. And then a second question, probably linked to Richard's second question as well. If we look back over the last five years or so, headcount at the enterprise is up nearly 20%, despite investments in AI and technology that should be driving efficiencies. At some stage in the future, there's obviously a big dividend to be reaped by taking people out of the organisation. Could you comment on that opportunity?

Yeah, look, I mean, I think that's right. In banking in Australia, there's been a significant increase in headcounts, at least in some of our areas, though, as well. I mean, it's, you know, our approach to the management of important risk types like financial crime has strengthened considerably. There's large operational and FTA requirements with that today. When we think about that more broadly, economic crime across scams, fraud, cyber, clearly the vector of threats that we need to be able to deal with is increasing on a daily basis and absolutely some of the technology that we're deploying at the moment in time I think we'll be able to make a meaningful improvement to the level of automation and efficiency with which we're able to to deliver those services. A lot of the other increases have been in and around technology. Obviously that's supported much higher levels of investment. Also into key frontline roles, notwithstanding the fact that we've been able to improve productivity on a per-role basis, but I think that's enabled us to grow at a faster revenue rate than peers, which we think is important. So I guess to Alan's point, I think there's both revenue and cost benefits that are being delivered in this period. We're obviously, and Alan is tracking those benefits very carefully and clearly. We think it's really important to continue to sort of push for further sources of competitive advantage. I think that takes time. But clearly we think there's some opportunities to manage the cost base over the medium term.

I'd just add one point, Matt, around the five-year growth in the FTE. Of course, about half of that growth just related to the insourcing that we had within our technology team. So we've moved away from third-party suppliers in many respects, brought our own engineers in-house. We're seeing a much greater velocity, much greater quality, much greater productivity. Over that four or five year period as we've conducted that insourcing, so that's been a big part of the overall FTE growth. But actually we're seeing again, we've called out some of the benefits we're seeing in terms of the engineering capability. Changes deployed up 30% on the past 12 months. We're seeing that deployments at greater pace, greater speed and greater quality. And so the work that we've done to insource into our FTE base, the engineering capability, we think is paying dividends.

Excellent. Thanks, guys.

Thank you. Our next question comes from Brian.

Hi, thank you. And first of all, congratulations on the stonking result. But more to the point, since you've been speaking, you've put on a lazy three or four bucks a share. So I had two questions. The first one is that if we have a look at CommBank, we can see that you've got excess liquidity, long-term funding, you look at your software, you're increasing the expensing profile, you've got incredibly strong provisioning. When I have a look at the profit after capital charge, it's up. You're saying that you normalise the dividend payout ratio for the current low loan losses. I just would be interested to hear what is the scenario where we'd start to see you harvesting the latency And does that basically mean that we see a continued dividend growth even when the system becomes more adverse? And then I have another question as well, please.

Yeah, maybe I'll start and then Alan can add to it specifically. BJ, as I know we've had this conversation before, I mean a lot of the way we think about things is sort of maximising value over the long term. We're consistently trying to find ways to invest in the earnings potential. We're prepared to... not seek to sort of maximise our performance in a particular period because we want to have the flexibility over a long period of time to both deliver very strong earnings growth and momentum, but also to have substantial flexibility to be able to deal with a range of different scenarios. And so, look, I think this is clearly above the central scenario. I think the largest excess we've had at $2.8 billion. There's clearly still tail risks, particularly on a global basis, and some of those are hard to... accurately predict and price but I mean I think there's a number of different areas where we've got a lot of flexibility in the organisation but most importantly we want to translate a lot of the investments into long-term earnings potential you know going well beyond 2030.

Yeah I mean the balance sheets are things we continue to Take us sort of through the cycle views, as Matt says, I mean, the provisioning, we're pleased to hold the provisioning at the, you know, broadly around stable levels, albeit, you know, we're growing the lending side of the balance sheet very quickly. We've seen record levels of lending growth. So the coverage ratio, the provisions as a proportion of the risk-weighted assets has drifted a little lower. And so you've seen some unwind of the provisioning that we'd held maybe 12, 18 months ago. But, yep, we take a through-the-cycle view. We like having that latency, and I think that gives us a more stable through-the-cycle performance, which our shareholders really value.

Just a second question, if I may. Once again, I really want to congratulate the entire management team on the results. If we have a look at some of the global in financial services in particular, as they seem to hit a kind of more adverse environment, they basically seem to be pulling the pin quite aggressively to shed labour. I'm just wondering, when we have a look at CommBank, How close are we at the point to which technology replaces people? And I'm not saying that you necessarily have to go out and retrench people, but natural attrition probably gets you. But do we actually get to the point where we actually see basically the headcount element of the total operating costs fall. And in that context, can you see a point, Matt, and I never thought I'd ask this question, where it's difficult to find more incremental to spend on technology?

I think in terms of tech spend and investment and software, I think demand across the economy is still sort of outstripped supply, but clearly the potential to be able to deliver a lot more change, significantly more than we're currently doing in-year, and I think some of the leading firms globally outside of banking are already seeing some of that automation. Look, I think there's going to be multiple sort of speeds for how AI is adopted across the organisation, how it's able to improve and automate some of the processes. I do think also it's important and certainly the approach that we're taking is thinking through that very carefully and thinking about individual tasks and skills. I think it's really important to build the capability across the organisation. Anything that is disruptive like this technology is, it's really important to engage inside the organisation, maintain the very high levels of engagement and motivation. I don't think some of the more pessimistic scenarios around labour force disruption are I think it does take quite a bit of time. I think that sort of the performance of the models is quite jagged. There's also a number of different things that you can do really well. There's others that you candidly you can't. But I think the potential over time to improve certainly the performance of every individual, provide greater output, and then in time through more automation. And there's also just a number of customer processes we think we can manage on an automated basis. believe in having to be able to service our customers in real time dealing with scams and disputes and fraud and to be able to perform and close those tasks out through an agentic framework to be able to serve many of our customers. more directly and comprehensively. We've already got the capability to be able to monitor the environment and to, on an automated basis, deploy new rules in to pick up and detect fraud. I think we're just scratching the surface of the potential here and I don't think we're going to be talking about it very significantly different ways at our four year results in August but I think in a sort of three and a five year timeframe I think there certainly is some significant potential and there's a lot of things that need to be managed as a highly regulated industry. I mean I do think sort of governance and transparency and explainability and most importantly trust with customers and with employees. That'll be a very important part of what we need to do. Well, we've obviously started communicating externally with some of the work that we're doing and I think we're trying to think about this comprehensively and over a long period of time and we believe it's going to be a source of competitive advantage for CBA.

Thank you. Thank you. Our next question comes from Brendan.

Good morning, Brendan Sprouse from Goldman Sachs. I just have a couple of questions. Just in terms of the impact of high interest rates as we look forward into the second half, obviously looking backwards this half has had record lending growth, particularly strong deposit growth in business banking as was touched on earlier on the call. But when you look back to when the cash rate was last 4.35 you showed us a number of slides similar to slide 18 which showed negative spending and cost of living pressures in the household sector and you also saw quite a slowdown in business credit. I just want to get your view on how sensitive you think the current system growth rate in both lending and deposits will be to these higher rates over the next 6 to 12 months.

Yeah, I mean, it's going to be, to your point, I mean, one of the things I called out in my opening was very strong level of credit growth leads to very strong growth in broad money and money supply. And that's a factor that we look closely at in terms of, I mean, we see a lot of that money supply growth come through our deposit accounts. That puts more money in people's hands ultimately across the economy. And there's an inflationary element, obviously, to that. So, of course, the reason that rates are being hiked is in order to maybe slow down some of that demand more broadly across the economy, slow down that spending. And so we would expect to see some impact to that. We've had a very strong period for system growth across both home lending and retail. non-retail lending across the system. Our economics team's got a range of between 6% and 8% across the total system credit over the next couple of years. Obviously we're running at the top end of that as we sit here today. So I think there's Maybe you would expect some impact on system levels of credit growth in a higher rate environment. I guess the big question will be how many rate rises do we see from here because that will determine the size of the slowdown you see from a credit perspective.

Yeah, I think, I mean, if you assume there's a couple of rate hikes, I think it's going to have a modest impact. I mean, even if it took a percentage point off housing credit growth, I think the non-retail credit growth has been very strong. Certainly everything that we see is there. We think sort of higher nominal growth is going to support that. I think boosting investment... is going to be an important driver of productivity. I think there's certainly investments in technology across the economy that are going to support that. And I think that's the importance of having the right sort of capital settings and deploying that lending growth into the right risk adjusted returns. And we've certainly we've kind of extended out the sort of credit growth that we've seen over the last couple of years. And I guess that's sort of our base case to make sure we're going to perform optimally in that environment.

That's great, thank you. And the second question just on NIMS on slide 27, obviously one of the better parts of today's result is the lack of compression on your funding costs. To what extent is this a timing issue? in terms of the switch in the rate cycle that sort of happened towards the end of the fourth quarter. Obviously, with the RBA pushing rates higher earlier this month, we have seen some deposit product pricing move higher with that. To what extent is that going to play out in the second half, a bit of catch-up in terms of deposit pricing for these higher rates?

Yeah, I mean, I think that, as we've long said, I think the... I mean, deposits are very competitive, and we're going to continue to see the mix, the unfavorable mix impact of that growth in our high-rate products. I think that's likely to continue. The other element that we watch closely is wholesale funding spreads. I mean, I guess you've seen a very benign period. I mean, in the last six months, the five-year funding costs in the wholesale funding markets fall on another 10 basis points. you tend to find there's a real correlation between what happens in wholesale funding markets and the level of competitive intensity in deposit pricing. And so one of the forward indicators or lead indicators that we'll be looking carefully at around the likely outlook for deposit pricing and competition is that level of wholesale funding spread. We've had a benign period. We're below historic averages in a number of those long-term funding products. So we'll keep a close eye on that in terms of how that, there's a potential for that to revert and that to lead to more deposit competition in the second half. But we don't know that today. We'll keep a close watch on that.

Terrific. Thanks for that.

Thank you. Our next question comes from John Story.

Thanks very much. And a good set of results, as Brian was saying. I just wanted to touch quickly just on the business model and potential disruption to business models. You've seen it in the last few days. Insurance broking firms have obviously been impacted by... the threat of AI, right, in terms of distribution. Just thinking about it in terms of the mortgage market share in Australia, how prevalent brokers have become, I mean, what are your views on the likelihood of AI disrupting, you know, mortgage brokers so they're disintermediated or could be becoming disintermediated? And around that, how well or how prepared is CBA in terms of its own business model for something like that that could potentially eventuate?

Yeah, no, I mean, look, we've tried to think through all the various sort of potential sources of disruption, not limited to mortgages and how to most effectively prepare for that. I think we feel... We've got the right combination of distribution assets to perform well in that particular environment. I mean, I know from speaking to a number of mortgage brokers and some of the leaders of those mortgage broker firms, that's definitely on their mind. I think like a lot of businesses, perhaps the sort of speed and rate of disruption is also a question of debate. I think one of the things that has been important in terms of why customers will still preference a face-to-face experience with either a mortgage broker or a proprietary lender. It's a significant decision. I think people still value that. I would have incorrectly forecast the proportion of mortgages that would have gone to digital when we started thinking about this 15 years ago. It's been a lot slower. But, look, I think it's important to think things through and assume they're going to happen more rapidly. I think in our case, we think we're well prepared and I think there's very few sectors of the economy that aren't thinking about some of the disruptive potential and, you know, obviously the rate and pace of change, particularly some of the, you know, agentic services that are out even in the last month. Certainly there's been some pretty significant changes our share price reactions to a number of global industry and software providers.

Just quickly on a second question, I see a lot of talk I guess this morning, certainly over the last few weeks, months, around increased levels of competition. within the market, and obviously you've got a very interesting slide, slide 73, 74, just around your new business volumes that are up, you know, significantly 24%, half on half, right? I wanted to just get your views on, you know, to what extent, you know, this growth that you've ultimately seen reflects some of the competitors actually stepping back from the market, right? So I'm thinking specifically around some of the regional banks and obviously AMZs, as going through a period of restructuring. How sustainable is this level of new business growth that CBA is showing?

Well, I mean, we'll see. It remains to be seen. But, I mean, I think we executed... We're certainly planning to continue to do that. I mean, look, I do think it's quite interesting in terms of some of the share shifts on the deposit side and then on the asset side. I think, you know, where your returns are under pressure and you're not able to generate returns above the cost of capital, it's pretty hard still to grow its system. Yes, there's disruption. I guess the other point as it occurs to us as we look at both capital ratios across the industry and what we would anticipate the DPS profiles might be at some of those institutions, it would tend to support pretty disciplined pricing. And so I think Clearly where there's volume share shifts between institutions, that tends to at times lead to not particularly disciplined pricing. I think it's been a really good period for the half. I think it's quite a, you know, I think it's an interesting equation at least as we look forward and think about, well, if it's higher credit growth and the RWA, the consumption that comes with that, shouldn't plan as your base case that, you know, record low loan losses are going to continue. certainly for us, we're increasing and we think that's important from a competitive perspective as well as to be able to support, you know, broader resilience objectives. I think maybe that financial equation looks a little challenged perhaps for some. And so, I mean, I think we're thinking about how best to to compete in that environment and I think hopefully at least this six-month period has been probably one of our better periods of execution in market.

Thank you.

Our next question comes from Matt Dunger.

Yes, thank you for taking my questions. Can I ask a deposit question in a different way? The 79% deposit funding stands out versus the peers, you flagged you're expecting higher growth in higher rate deposits and we noticed that NetBank Saver didn't reprice as much as some of your peers through 2025. So why compete on price when you're already leading deposit growth? Is there a target at CBA to continue to strengthen the deposit funding mix?

Yeah, I mean, we're predominantly deposit-funded, and we want to keep it that way. We've been impressed with the execution on the deposit gathering, and it's a foundational... Relationship, it drives MFI, it drives, as you can see in the numbers we've disclosed, 90% relationship between retail TRAN account and home lending, propensity to have your home loan with CBA higher in the business bank. So we, you know, it's an important part of the franchise. We want to continue to gather deposits. We're in a competitive market for deposits and hence we've got a very attractive offer on not only goal saver, you know, very attractive rate on goal saver with very high proportion of balances that achieve that rate. We've also got very competitive term deposit offers. So the 12-month term deposit special that you've seen across the industry, I mean, they're up 45 basis points in the last six months. So You know that you know this important part of the franchise were prepping. You know we will compete effectively and there we've got. we've been happy with the improvement in the deposit ratio. I think it's a game of inches, though, on the deposit ratio. It's a large balance sheet. We continue to compete well for deposits. We don't have particular targets that we set around that particular ratio. We want to keep funding as much of our lending growth as possible through deposits, and pleasingly, in the six-month period, deposit growth outpaced lending growth. even though we had a very high level of lending growth relative to a very high system. So we were able to retire a couple of billion dollars of long-term wholesale funding, which again helps in terms of the overall earnings profile and interest margins. So we don't have particular targets that we set around that. We just try and keep things in balance and make sure we've got a strong deposit gathering franchise.

Thank you very much and if I could just follow up on the credit quality side. Talking about bad debt charges being low, you just referenced some of the peer-setting capital returns policies based on that. You've seen the external refinancing of corporate exposures bringing down the arrears. Just wondering if this reflects your conservative lending settings or you're seeing competition for this corporate business as it refires out?

Yeah, we've continued to see – I mean, there's always going to be an element of external refinancing across each of the banks' portfolios. So we've seen some of that over the last sort of six and 12 months in particular within our – Business Bank in particular, it's a competitive market. We've seen some continued aggressive pricing offers in market, particularly that top end of the business bank. I think we called that out six and 12 months ago. That's continued into the last couple of quarters. We are seeing some banks compete more on credit risk appetite and we've seen some external refinancing from our portfolio. So I think that's a function of the competitive market for business banking that we're in at the moment.

Thank you. The next question comes from Ed Henning. Ed, do we have you on the line? We might just move to the next question and perhaps we can come back to Ed if the line comes back. The next question we'll take is from Tom Strong.

Thanks Mel. Tom Strong from Citi. Just a couple of questions. The first on the replicating portfolio, it contributed a basis point in the half and your commentary suggested that much of that came in the December quarter. How should we think about the replicating portfolio over the next couple of halves as given the material step up in swaps that sits at 50 to 100 basis points above the tractor rates now?

Yeah, the tractors will perform well at current swap rates. Now, the swap rates have proven to be, obviously, fairly volatile over the past 12, 18 months. But at current levels of swap rate, I mean, there will be a pickup in each of the tractors. If you think about the size of a replicating portfolio, it's something like $2 billion that will reinvest at current swap rates each month. And so, yeah, that will be a function of the where swap rates move, expectations for interest rates more broadly, and the level of the deposits that we choose to hedge at any point in time. So, yeah, that will be a supportive element. I mean, the equity tractor we called out last time around. And if you go back three years where swap rate was then, it's pretty similar to where swap rate is today in the three-year part of the curve. And so we're not going to see much tailwind on equity tractor, but replicating portfolio given it's a five-year tractor. We've probably got another two, three halves of positive earnings momentum as those, if you go back sort of four or five years, we were still in some pretty low rate environment. Some of the tractors that we put on there are coming up for reinvestment at much higher current rates. So, yeah, two or three halves of earnings momentum from replicating remain.

Right. Thanks, Alan. And just a second question. at the strong growth in the business bank but net of offset accounts a lot of this growth has come from more expensive TDs and the business MFI did sort of slip slightly half on half. How are you seeing competition for business deposits more broadly given a number of your peers are spending pretty considerably to emulate your success here?

Yeah, I mean it's a competitive market for deposits both on the retail side and the business bank side. We've been pleased with the deposits that we've gathered. I mean the new business transaction account openings have continued at pace. I think we're up 7% in net BTA accounts opened over the past 12 months. So pleased with that. Yeah, we did. I think there's a little bit of volatility. It's a six-month moving average on MFI. I think we're up 40 basis points year on year in the longer-term trend. I think we're up 300 basis points over the last five years. So you'll see some oscillation one half to the next, but the overall momentum within MFI I think goes to the you know, the good execution within that franchise over multiple years. And, yep, there's been, you know, I think some, as I mentioned earlier, we've got some attractive rates on the term deposit product as well, and that did particularly well in the six-month period within the business bank, which, you know, we're pleased with. It's a good stable source of funding for the strong lending growth that we're doing in that division. Great. Thanks, Alan.

Thank you. That brings us to the end of the briefing. Thank you for joining us and please reach out if you have any follow-up questions. Thank you.