of

we hear you we respond...... the bank for all Australians

Commonwealth Bank of Australia ACN 123 123 124 Our objectives are Who We Are 2 straightforward Highlights 4 Message to Shareholders 5

Satisfied customers Our Business 11

Satisfied employees Financial & Statutory 23 Satisfied shareholders

The is dedicated to helping customers manage and build wealth.

As Australia’s foremost provider of banking and financial services and Australia’s most

accessible bank, we provide a wide range of services to over 7.5 million customers

through more than 90,000 points of representation. Our services include retail, business

and , , broking services and funds management.

The Bank’s success in building the business, in generating profits and in positioning for

the future, allows us to meet the lifetime financial needs of customers; provide fair, safe,

challenging and rewarding employment for staff; and reward all shareholders through

dividends and capital growth. Who We Are who we are The Commonwealth Bank is an integrated financial services business, providing a full range of banking and financial services to over 7.5 million Australians. The Bank’s operations are conducted primarily in Australia. The Bank is represented internationally through ASB Bank Limited, a successful retail bank in New Zealand of which we are a 75% shareholder, and through branches in London, New York, Singapore, Tokyo, Hong Kong and Grand Cayman and representative offices in Beijing, Shanghai, Hanoi and Jakarta.

whoDistribution Network we Crareedit Cards The Bank’s distribution network is the The Commonwealth Bank is the largest in the country, making the largest issuer of credit cards in Commonwealth Bank Australia’s most Australia, with more than 2.25 million accessible bank. credit card holders at 30 June 1998. The Bank has more than 90,000 points More than 480,000 credit card holders of representation throughout are now benefiting through Australia, including : membership of the True Awards Loyalty Program.

● 1,218 branches ● 4,015 agencies (including more than 3,700 through Australia Post offices) ● 2,501 ATMs ● 83,038 EFTPOS terminals ● 33,000 points of service in regional Home Lending and rural areas The Commonwealth Bank is With the Bank’s ATM network, which is Australia’s leading home loan Home Owner’s Insurance more than double the number of any provider, helping more than 800,000 Commonwealth Connect Insurance major competitor, and various Limited provides complete interchange arrangements, customers Australians achieve their dream homeowner’s insurance with flexible now have access to approximately of owning their home. cover and payment options, 8,000 ATMs Australia-wide. Over the past year, the most popular supported by 24-hour claims Through arrangements with owner-occupied home loan product assistance. We have provided Mastercard Cirrus and Visa Plus was the “One Year Guaranteed”, International, customers have access to accounting for more than 40% of insurance for more than 440,000 more than 375,000 ATMs worldwide. all new home loans. building and contents risks. 2 Telephone Banking Mobile Bankers The number of password holders A team of mobile bankers is able using the 13 2221 customer service to call on customers at their home telephone number has increased by or office, 7 days a week between more than 50% to 1.9 million. More 8:00 a.m. and 9:30 p.m. During the than 1.1 million telephone calls are past 12 months, mobile bankers answered each week, with a growing conducted almost 50,000 home loan number of customers using the interviews, with over 24% of all home automated service. loan approvals generated by mobile bankers. Funds Management The Commonwealth Bank Group is a leading provider of funds management, superannuation and life insurance products and as at 30 June 1998 was the fourth largest fund manager and second largest retail fund manager in Australia. Approximately 570 trained and licensed investment advisers are Stockbroking available to meet the financial advice (www.comsec.com.au) needs of customers. During the past Over the past year the number of year more than 160,000 customers Year 2000 customers using the Commonwealth were referred to the advisers through The Commonwealth Bank has Securities Limited stockbroking service, the branch network. been working on ensuring all Share Direct, has doubled to 206,000. technical systems are Year 2000 Southern Cross Community Fund Commonwealth Securities is Australia’s compliant. A project team of to Established in November 1997, the largest Internet stockbroker, with more 200 people has been involved in Southern Cross Community Fund than 4 million hits to the site each this work over the past two years. The receives charitable contributions from month. More than 14,000 clients project objective is for substantially all staff and retirees by way of regular access the Internet site each day and applications to be Year 2000 wage or pension deductions, and the over 4,200 calls are received per day on compliant by 31 December 1998. Bank matched donations dollar for the 13 15 19 telephone service. Over 75% of testing has already been dollar. By 30 June 1998, staff and Bank completed. contributions were almost $280,000. Internet Banking (www.commbank.com.au) The Bank has recently advised the Australian charities and organisations Australian Stock Exchange of its Year which assist sick children were the The Bank’s Internet site receives more 2000 program, reassuring main beneficiaries of the Fund, with than 4.5 million hits per month. shareholders and customers that the children’s hospitals in Adelaide, Perth, NetBank, the Bank’s Internet banking Bank will be ready for Year 2000. Brisbane, Melbourne and Katherine service, has more than 37,000 receiving grants. Support was also registered customers, with a further given to help children with asthma, 2,500 new applications being cancer, cerebral palsy and deafness. received each month. 3 Highlightshighlights of 1997-98 Profits Financial Calendar 1999 • $1,251 million, before abnormal Interim profit result and interim dividend announced 10 February 1999 items, up 4% on 1996/97 Ex-dividend date 15 February 1999 • $1,090 million, after abnormal Record date 23 February 1999 items, up 1% on 1996/97 Interim dividend paid 26 March 1999 Final profit result and final dividend announced 11 August 1999 Earnings per Share Ex-dividend date 16 August 1999 • 134.5 cents, before abnormal items, Record date 24 August 1999 up 2% on 1996/97 Final dividend paid 30 September 1999 • 117.2 cents after abnormal items Annual General Meeting, Sydney 28 October 1999

Assets Notice of Meeting • $130.5 billion, up 9% on 1996/97 The Annual General Meeting of the Commonwealth Bank will be held at the Melbourne Dividends Sports and Entertainment Centre, Batman Avenue, Melbourne, on Thursday, • Final dividend 58 cents per share, fully franked 29 October 1998 at 11.00 a.m. A notice of meeting is enclosed for shareholders. • Total dividend for 1997/98 Corporate Directory 104 cents, up 2 cents Registered Office Share Registrar Dividend payout ratio 77.3%, • Level 1, 48 Martin Place Perpetual Registrars Limited before abnormal items Sydney NSW 1155 (formerly Coopers & Lybrand) Return on Equity Telephone (02) 9378 2000 Securities Registration Services Facsimile (02) 9378 3317 Locked Bag A14 • 18.5% before abnormal items, Company Secretary SYDNEY SOUTH NSW 1232 up from 18.2% in 1996/97 JD Hatton Telephone Freecall 1800 022 440 16.1% after abnormal items • Investor Relations or (02) 9285 4999 Facsimile (02) 9261 8489 Return to Shareholders Level 7, 48 Martin Place Sydney NSW 1155 Internet Combining dividends and the • Telephone (02) 9378 2747 www.au.coopers.com/srs/index.htm appreciation in the value of our Facsimile (02) 9378 2344 Email stock, total shareholder return for Email [email protected] the year was 25.3% [email protected] Australian Stock Shareholder Information Exchange Listing www.commbank.com.au/today Fully Paid Ordinary Shares: CBA Annual Report To request a copy of the annual report please call (02) 9378 3229 4 Message to Shareholders

1998 was a successful year for the Commonwealth Bank

MA (Tim) Besley AO CHAIRMAN David Murray MANAGING DIRECTOR

Throughout the year, the relevance of volumes increased in the second half Commonwealth Bank’s financial of the year in response to new services brand for customers was product offerings. reinforced through continued In corporate and wholesale lending, innovation in product choice and the Bank’s strategy is to focus less on delivery options, competitive pricing asset growth, preferring an emphasis and a focus on service. Staff were on growing fee revenues from financial required to respond to an increasingly structuring and advisory services. competitive environment, with more Credit quality has remained sound, on a tax effected basis. In an changes ahead as the Government with arrears in consumer portfolios environment of modest credit growth progressively implements the remaining at historically low levels. and an array of new entrants to our recommendations of the Wallis Inquiry. There is some evidence of an increase markets, competition in all aspects of For shareholders there was continued in impaired assets in the Asian the Bank’s activities was intense. The growth in earnings per share and a business and corporate loan resultant pressure on margins was strong return on equity was portfolios.The overall level, however, mitigated by the extent of the Bank’s maintained. The Bank is positioned to remains low. As would be expected, retail activity, and returns were continue this success into the future, the financial turmoil in a number of maintained by growing non-interest with a commitment to remain the Asian countries has led to increased revenues and active cost management. most accessible financial institution to credit risk. Accordingly, this segment During the year, assets increased by our extensive and diverse customer of the portfolio has attracted 9% to $130,547 million, matching base. particular scrutiny, and specific domestic market growth. This was provisions have been established for Financial Performance underpinned by particularly strong impaired assets. Aggregate exposures Operating profit before abnormal growth in home lending, where the to the Asian region reduced over the items increased by 4% to a record Commonwealth Bank retained its period, and represent approximately $1,251 million. From this, an amount leadership position, with 20.67%* of $161 million was deducted.This market share. In Australia and New 4% of the Group’s overall credit risk. related to abnormal restructuring Zealand, the Group has more than The use of statistical techniques, known costs and the impact of the move to a 850,000 home loan customers, with as dynamic provisioning, was recently statistical approach to loan loss aggregate outstandings exceeding introduced by the Bank, allowing for provisioning of the credit portfolios $47.4 billion. Business lending more timely identification of credit risk. 5 * Home loan outstandings, RBA All Lenders, June 1998 Message to Shareholders

we deliver

Funding sources remain well Major outsourcing programmes were including changing demographics, diversified. The Bank has retained its put in place for information the breaking down of regulatory leading market share in domestic technology and supply services. and geographic barriers, and rapid retail deposits, with more than 60% of Significant productivity increases were advances in technology. For the funding coming from this source. In achieved in a range of processing Commonwealth Bank to remain the wholesale markets, our high credit areas, and overall staffing levels successful in this environment, it standing continues to be recognised reduced reflecting the business must continue to understand through low issue margins. restructure. This restructure has customer needs and be positioned to better aligned our businesses with respond quickly to opportunities as Whilst net interest revenues have the needs of the market.The Bank they arise. Preserving and enhancing been held steady by the competitive has committed to further our brand positioning as the strongest pressure, there has been a strong rationalisation of processing and financial products and services brand increase in other revenue sources administration functions, as well as in Australia will be a critical success which were up 24% over the year. the reconfiguration of delivery factor for the Bank. The careful structuring of retail systems. As a result, an abnormal In the retail sector, as the population transaction fees has delivered both restructuring charge of $200 million ages and employment patterns increased revenues and reduced ($128 million after tax) was made in change, the requirements of our over-the-counter transaction activity. the financial year. customers for financial products and Funds management and other During the year, capital was reduced services that manage and build financial services continue to be a key through a successful buy-back wealth will evolve accordingly. In the area of growth with the Bank’s strong program. Going forward, capital will business banking sector, there is a market position reflected in a steady be actively managed to reflect the demand for flexible products to help increase in revenues. Financial underlying economic risk in our our clients grow their businesses; this markets trading increased in response businesses. is an area of greatly increased to foreign exchange and interest rate The Financial Services competition as new providers enter volatility, but activity was well Challenge the market. within prudent risk tolerances. Throughout the world, there is In Institutional Banking, client needs Cost containment remained a key unprecedented change occurring in are becoming far more sophisticated. area of focus with the cost to income the financial services industry. This is The Bank provides a range of ratio reducing to 58.5% for the year. being driven by a range of factors, integrated products that reflect the 6 Bank’s significant presence in the options, and a range of delivery financial markets. channels to meet their service The Commonwealth Bank Group has requirements with the convenience continued to respond to the required; opportunity to broaden its product ● organising the Bank’s businesses to range to encompass the full spectrum reflect the needs of the market, and which bank of financial services. As at 30 June allow more comprehensive 1998, the Group was the second benchmarking of our performance; gives school largest retail fund manager in ● building alliances to extend Australia. Annual life insurance customer reach and utilise the children their premiums have grown by 21% during Bank’s processing scale; first savings the year. Commonwealth Securities ● remaining at the forefront of Limited stockbroking service, technology, both to improve account ... conducted under the business name customer service and to reduce cost Share Direct, has more than 200,000 of delivery; and ...providing more than customers utilising both telephone ● continually refining processes, 2 million children with and internet delivery channels. including outsourcing where this Commonwealth Connect Insurance facilitates access to global best an introduction to Limited provides home and contents practice. banking? The Bank’s insurance and has insured more than Two major strategic initiatives 440,000 buildings and contents risks. epitomise the Bank’s willingness to Dollarmite and Club Notwithstanding all this change, the embrace change. A 10 year contract Commonwealth Bank’s aim is to with renewal options was entered Australia accounts are remain the most accessible financial into with EDS Australia to provide the provided free of account services provider, with a significant Bank’s information technology presence in Australasia. In achieving requirements. This is the world’s fees and all Government this, the focus of the Bank is on: largest information technology charges are absorbed ● customer segmentation to alliance within the financial services understand customer needs, industry. The benefits include: better by the Bank. developing cost-effective product application of technology; increased 7 Message to Shareholders

we deliver

speed to market for new products; emphasis include health and medical, The Commonwealth Bank has the greatly improved cost management; education, youth, science and most comprehensive financial services and access to the global leading edge technology, the arts, charitable network in Australia, with more than technical resources of EDS. At the organisations and the environment. 90,000 points of representation. The same time, recognising the strategic The Bank is quick to respond in Bank remains committed to its opportunities, the Bank acquired a times of need, providing assistance extensive branch and agency network 35% interest in EDS Australia which to the victims of flood and other to meet the needs of those customers will provide an earnings stream from natural disasters. who prefer face-to-face service. It is the rapidly growing technology also important to meet the increasing Stakeholders outsourcing industry in Australia. preference of customers for the convenience and speed of self-service The Bank has entered into a strategic Our Customers electronic delivery channels. alliance with Woolworths, which The Commonwealth Bank remains represents a new era for in-store Australia’s most accessible bank. We Our People delivery of financial services in are the bank for all Australians with The Bank’s staff are critical to the Australia. The combined customer more than 7.5 million customers – achievement of the vision. The Bank is base will benefit from an even more 40% of the adult population has a committed to providing fair, safe, convenient one-stop shopping financial relationship with the challenging and rewarding work for all experience. As the alliance develops, Commonwealth Bank. The Bank’s goal employees. Customer service is it will provide customers with is to help customers efficiently dependent on employees being increased accessibility, flexibility and manage their financial transactions motivated and having the skills to choice in their day-to-day financial and build wealth through the meet customer expectations, which in services needs. provision of information, advice and turn drives shareholder value. The Commonwealth Bank is a long products. This is achieved by a focus The Commonwealth Bank is one of standing supporter of community on customer needs, rather than a “one Australia’s largest employers and will activities and organisations.This size fits all”approach. continue to offer significant support is directed at a broad range Achieving this vision requires the Bank employment opportunities as long as of activities which yield long term to remain the lowest cost provider in the Bank remains strong and benefits to Australians and reflect key customer segments, utilising its continues to meet the changing community values. Areas of particular scale in the markets which it serves. needs of its customers. This requires 8 the Bank to ensure employees achieve accumulation index over the same their personal best, by recognising period. Since June 1995, returns to and developing their talents to meet shareholders based on the Banks & the challenges faced by the Bank. Finance accumulation index have which bank Executive management is been in the top quartile, and our accountable for ensuring that overall goal is to retain this position is a long time succession plans are in place for going forward. critical leadership positions, and that Return on shareholders’ equity supporter of development programs align before abnormal items for the year the Arts...? individual and organisational needs. was 18.5%, with earnings per share The Enterprise Bargaining Agreement of 134.5 cents. After the abnormal ...Our purchase of an concluded during the year provides items, return on shareholders’ equity was 16.1% and earnings per share 18th Century employees and the Bank with a 117.2 cents. framework to ensure mutual Guadagnini violin, on objectives are met. Importantly, in this The Directors have declared a fully franked final dividend of 58 cents time of change, the agreement loan to Richard per share, bringing the dividend provides for greater flexibility in Tognetti, leader of the for 1997/98 to 104 cents per share. staffing arrangements. This represents a payout ratio Australian Chamber Our Shareholders (before abnormals) of 77%, which The Commonwealth Bank has an maintains the Bank’s record of Orchestra,together extensive shareholder base of more strong payout ratios. Investor yield with our support of the than 415,000, including many retail for the 12 months to 30 June 1998 investors who acquired their shares in was 5.47%. Australian Ballet Youth the initial Public Offering. Since the The final payment on instalment Education Program, initial listing, returns to shareholders, receipts for the third tranche of based on the accumulation index, Commonwealth Bank shares was are just some of the have grown at an annual compound made in November 1997. rate of 24%, compared to the 13% During the period July 1996 to ways we support the growth in the All Ordinaries October 1997 return to these Australian community. 9 Message to Shareholders

we deliver

shareholders was 73% compared to This takes account of the prudent be driven by growing revenue the 15% growth in the All Ordinaries levels required having regard to the streams, continued control of costs accumulation index over the same risk profile, and the mix of capital and active management of capital. period. instruments that are now available. The Directors expect modest growth

Capital Management Future capital management will take in earnings and a continuation of the account of the long term growth in dividend payout ratio during 1998/99. The Bank continues to generate high the business, and the need to The Bank will remain alert to global levels of capital, reflecting its strong optimise returns to shareholders. developments in financial services, earnings streams in a low inflationary and be positioned to maximise period. Notwithstanding the high The Future opportunities as they emerge. dividend payout ratio, retained capital The Bank is committed to maintaining continues to grow due to the total shareholder returns in the top In Conclusion extensive participation in the dividend quartile among its peer group The progress achieved by the Bank is reinvestment plan. After careful as measured by the Banks & a reflection of the continued actions analysis of the capital required to Finance accumulation index. of all the people who make up our sustain competitiveness, the Bank To achieve this, the Bank will remain results and work together to provide undertook a very successful $651 the People’s Bank, continuing to re- service to customers.Their effort is million buy-back of its shares in define its business to meet the very much appreciated by the Board. December 1997. This represented lifetime financial needs of all Finally, the Board would like to thank approximately 4% of issued capital. Australians and delivering value in the shareholders for their continuing The offer was over-subscribed, and most cost-effective way. Success will support and encouragement. each acceptance was scaled back by approximately 30%. As a result, Credit Rating Short Term Long Term shareholders who offered 15% of their Standard & Poor’s Corporation A-1+ AA- shareholding into the buy-back had Moody’s Investors Service, Inc. P-1 Aa3 approximately 10.5% bought back. Fitch IBCA Ltd A-1+ AA- A framework for managing capital Moody’s Bank Financial Strength Rating B going forward has been developed.

10 A bank that is very different...... which bank?

Banking Made Easy 12

Products that Meet Customer Needs 14

Institutional Banking 16

Operations in New Zealand 17

Delivering for all Stakeholders 18

Managing Risk 19

Building for the Future 20

Organisational Structure 22

11 Our Business

Banking made easy

whichThe Commonwealth Bank is ● an award winning telephonebankprograms aimed at introducing a committed to meeting the financial banking system; more customer focussed culture,

service needs of all its customers. The ● the leading Australian Internet with an emphasis on identifying and Bank’s vision is to help customers banking site; satisfying the full range of customer effectively manage and build their financial needs. ● mobile bankers; wealth through the provision of The Bank continues to make ● the largest agency network in information, advice and products. This significant investments in new Australia, including long established is an ongoing commitment that technology to develop innovative links with Australia Post; commenced upon foundation in 1911. and more efficient ways of delivering ● access to more than 375,000 ATMs The need to continually focus on the full range of financial services. worldwide. customers was integral to the internal To make banking easy for customers, reorganisation of the Bank’s businesses Across the distribution network, one of the Bank is continuing a during the year. The Customer Service the major achievements has been the comprehensive customer Division was formed to focus on continuing improvement in the quality communication program highlighting ensuring the best possible delivery of of sales and service provided to the convenience of new and financial services to all customers customers. This improvement has flexible methods of banking using across the Bank’s distribution network. resulted from ongoing staff training electronic channels. The Commonwealth Bank is Australia’s most accessible bank, having the largest and most comprehensive financial services distribution network with more than 90,000 points of service. This includes over 33,000 points of service in regional and rural areas. The distribution network is being continually improved to meet the changing needs and preferences of customers. It includes:

● Australia’s largest network of branches, ATMs and EFTPOS terminals; 12 The extensive network of branches is for a home loan or a credit card. The critical to the provision of banking Bank’s call centres now answer over and financial services and remains 1.1 million calls per week and the central to the Bank’s distribution Internet site receives more than 4.5 strategy. The traditional branch is million hits each month. complemented by a wide range of A team of mobile bankers is available access options for customers. The to call on customers, both personal Bank’s experience has been that some and business, at their home or office, which bank customers prefer the convenience of seven days a week. the new banking technology, is Australia’s The agency relationship with Australia appreciating the added flexibility and speed of self service that these Post, which commenced more than most accessible alternative channels offer. This is 80 years ago, provides customers with bank...? demonstrated through the rapid and access via more than 3,700 Australia enthusiastic acceptance of new Post offices around the country. This banking alternatives throughout relationship is another example of the Australia. Bank’s commitment to meeting the ...With the largest branch, needs of our customers by providing Over 72% of all banking transactions Australia-wide accessibility. The are now conducted through ATM and EFTPOS network electronic channels, such as Commonwealth Bank is the only in Australia,together with telephone, the Internet or ATMs major bank participant in Australia and EFTPOS terminals. Post’s nationwide giroPost facility, a longstanding agency giving customers the ability to Through telephone banking, conduct a range of banking services, arrangement with 1.9 million password holders have including deposits, withdrawals and access to a wide range of services. The Australia Post, we provide home loan repayments. business phone line offers a full range financial services to more of business banking solutions and The Bank’s business is driven by packages tailored to meet individual customer needs. We pride ourselves Australians,wherever they customer needs. Customers can also on being Australia’s most accessible access the Bank’s Internet site to bank and will continue to provide a may be, than any other transfer funds between accounts, pay range of delivery service points for all financial institution. bills, view statements or even apply customers. 13 Our Business

Products that meet customer needs

whichThe Bank’s challenge is to grow its customers the con veniencbanke and The Bank is the largest provider of relationships with all customers. flexibility they expect from the credit cards in Australia, with more The Banking and Financial Services Commonwealth Bank. than 2.25 million accounts. In July division was established to create and Home lending forms a major part of 1997, the True Awards Loyalty enhance financial products and the Bank’s business and we continue Program was launched to reward services to satisfy customer needs. to be Australia’s leading home loan credit card customers for their The Bank and its subsidiaries provide provider. As market leader, the Bank continuing loyalty. This program has a full range of financial services to over offers a variety of home loan products been well received, with more than 7.5 million customers throughout to meet the requirements of over 480,000 members, and is recognised Australia, including savings and a full 800,000 Australians. The one-year as providing significant rewards. range of transaction investment guaranteed interest rate of 5.99% has The Bank’s leading position in the accounts, credit cards, personal loans proved very popular. This was Personal Loan market was maintained and housing loans, superannuation, complemented during the year by a during the year. Strong growth in and investment and life insurance series of fixed-interest rate offers that personal lending reflected the products. The Bank offers a full range provided certainty to customers increased demand for new and used of commercial products including concerned about future volatility in motor vehicles and increased use of equipment and trade finance, and rural interest rates. personal loans for share investment and agribusiness products. A team of purposes. Special product offerings trained and licensed Investment were available during the year to meet Advisers, conveniently located the requirements of the Telstra and throughout the branch network, NSW TAB privatisations. provide information and advice on A full range of products is offered to financial and retirement planning. meet the diverse needs of the Bank’s The scale and the extent of the Bank’s business customers. The distribution channels allow it to be BetterBusiness Package offers reduced more efficient than its competitors. overdraft rates and an innovative The Bank is able to use its size to range of product solutions, transaction benefit all customers, through accounts and business planning competitive pricing of products, software. The Bank’s Quickline greater accessibility and levels of software product provides business service, and through leadership in customers with the convenience of technology and innovation. This gives completing banking transactions 14 quickly and easily, anywhere and at and the leading rollover and personal anytime. This puts customers in superannuation manager in Australia. control of their banking in ways they Significant growth in our unit trust find cheaper and more efficient. and retirement income products was The recently introduced banking achieved during the year, indicating a options for personal accounts reflect growing acceptance of the Group’s the Bank’s commitment to choice. credentials as a fund manager. which bank This program is designed to align the Commonwealth Connect Insurance transaction needs of customers, the Limited, the Group’s general insurance is creating a service point used and cost. More company, has continued to focus on than 75% of customers have chosen providing home and contents new level of the rebate option, which provides protection for customers. The simple- rewards for customers having other service for to-understand and competitive business, such as a home loan, with policies have been well received. the Bank. customers...? The recently announced alliance with A range of rural and agribusiness Woolworths will offer significant products along with equipment and growth opportunities through the ...Our alliance with trade finance is offered to meet combination of the convenience of various business needs. The launch of Woolworths, unique in Woolworths stores and the factoring business also expanded Commonwealth Bank’s leading Australia,will provide the Bank’s commitment to provide businesses with a flexible range of financial product development and customers with more financing options. distribution capabilities. This alliance will offer customers greater accessibility, flexibility The Bank’s financial services business accessibility, flexibility, convenience and is continuing to grow strongly. As at and choice in their choice in their day-to-day banking. 30 June 1998, the Commonwealth day-to-day banking. Bank Group was the fourth largest The Commonwealth Bank’s leading fund manager and the second largest market position reflects the success in retail fund manager in Australia. offering a wide range of banking and Commonwealth Life Limited, the financial services for all Australians, Group’s life insurance company, is the adapting the business in line with the fifth largest life insurance company choices customers make. 15 Our Business

Institutional Banking

whichresult of market vola tility, bankcaused by doubled to 206,000. Commonwealth the Asian downturn, and increased Securities is now the largest Internet customer demand were factors stockbroker in Australia with over driving this growth. 4,000,000 hits to the site each month. Corporate Finance has a well A Client Advisory service has also recognised team designing, arranging been established, offering clients a and implementing financing comprehensive securities and Institutional Banking services a diverse structures to address clients’ complex portfolio service. range of clients, including major financial needs. In the increasingly Developments in transaction banking corporations, institutions, government competitive infrastructure and continued, with the successful and semi-government authorities and privatisation markets, successful bids implementation of the Real Time retail clients. The division has a for Southern Hydro and Envestra were Gross Settlement system and the number of specialist areas, engaging achieved. acceleration of the Bank’s strategy to in financial markets activities, In Property Finance, more than move clients from paper-based to corporate finance, securities $1.5 billion in new financings were electronic transactions. This year saw underwriting, trading and distribution, arranged. This included a 50% the continued rollout of Diammond payments and transaction services underwriting of a $265 million facility Services, the electronic payments and equities. for the development of the Citibank services system which provides clients Through the Bank’s partnership Centre, Sydney; a $210 million facility with Windows-based electronic approach to relationship banking, to finance the purchase of the banking services to meet a range of innovative, tailored financial solutions RG Casey building in Canberra and a transaction initiation and reporting are able to be delivered to all clients. $200 million facility to finance the requirements. The Bank’s global network provides development of 88 Phillip Street and The Equities division has expanded full financial markets servicing on a 155 Macquarie Street, Sydney. The into new product areas, with the 24-hour basis, including the Bank has been active in the launch of the Group’s first listed index structuring and delivery of foreign syndicated loan, securities and share fund, the Commonwealth exchange, together with money underwriting securitisation business. Diversified Share Fund. The Fund aims market and short-term securities Share Direct, Commonwealth to provide investors with a diversified trading and fixed-interest trading. Securities Limited’s stockbroking exposure to the Australian equities Revenue from financial markets business, continued to grow rapidly market. Instalment warrants over the trading increased by more than 40% throughout the year. Revenue has Fund are also offered, allowing during the year. Increased activity in increased by 89% compared with last investors to leverage their investment in the Fund. 16 the foreign exchange markets as a year and the number of clients has Operations in New Zealand

The Bank’s operations in New Zealand increasing home lending by more are conducted through ASB Bank, of than 16%. Innovation has kept ASB which we are a 75% shareholder. ASB at the forefront of technological is New Zealand’s fastest growing bank advances and customer service in and oldest locally established bank, the rapidly changing banking last year celebrating its 150th environment. During the year ASB anniversary. launched New Zealand’s first direct which bank ASB is a full service bank, meeting the banking service, BankDirect, the transaction, financial services and country’s most advanced concept in is meeting the investment requirements of more personal banking. than 800,000 New Zealanders in retail, A further demonstration of ASB’s diverse needs business, rural and corporate banking. commitment to customer satisfaction of business This year, ASB achieved a record is the range of Unit Trust and after-tax operating profit of Investment Advisory Services now customers ...? NZ$107.9 million, an increase of 17% offered, together with the new “Orbit” lending product, enabling customers on the same period last year. This was ...With products like achieved in a home mortgage market to package their loan and characterised by faltering house transactional banking into one Quickline and account. values and sales numbers, rapidly BetterBusiness Planner changing home mortgage rates, and a ASB Bank Community Trust, holder of local market feeling the pressure of the 25% minority shareholding in ASB, we are leading the the economic decline in Asia. provides substantial community market in providing A key strength of ASB is its ability to support throughout Auckland and fund its activities through customer surrounding areas. the right business support, with customer deposits The outlook for the future of ASB is packages and facilities increasing by more than 20% during both exciting and challenging. Its the year. Home lending remains an vision is to be New Zealand’s best at the right price for important feature of the retail bank, helping customers achieve their small businesses. business, and amid intense financial goals through long term competition, ASB continued to relationships, and the provision of successfully grow its market share, superior customer service. 17 Our Business

Delivering for all stakeholders

whichThe Bank’s technology, operations and bankenhanced career opportunities within property areas have been combined the technology industry. into one division to support the The Bank has continued to review and systems, services and processes of the test systems for Year 2000 compliance. Bank. This division manages the The program remains on schedule information technology strategy, the with over 75% of testing already partnership with EDS Australia, the complete. processing and support functions Staff productivity in operations including transaction and loan processing areas improved processing, the insourcing and significantly over the past year. Based outsourcing of back office operations on external research, we believe the and the Bank’s property portfolio. Bank’s item and loan processing Combining these areas has enabled centres are operating at the lowest the Bank to service customers more with increased speed and less risk. unit cost in the Australian financial effectively and efficiently. The investment in EDS Australia will services industry. This cost advantage Based on independent surveys, the also provide a future earnings stream has allowed customers to continue to Bank is leading the market in its from the rapidly growing technology benefit from competitively priced application of information technology. outsourcing industry. products and services. Leveraging from this position, in The outsourcing has achieved savings Commonwealth Property comprises October 1997 a ten year contract with on information technology and both corporate real estate and renewal options was entered into telecommunications. The transition property investment portfolios.The with EDS Australia, a global phase has gone according to plan Group’s real estate portfolio is a technology leader, for the provision of with improvements in operations and significant one and consists of both all information technology services service levels already apparent. EDS leased and owned property with the and the management of the Bank’s Australia is now working with the latter being valued at more than $1.2 telecommunications. Taking a 35% Bank to identify further strategic billion. Based on the value of assets interest in EDS Australia, the strategic opportunities. As well as the benefits managed, the Commonwealth Bank partnership formed provides the Bank to shareholders through improved Group is the third largest property with access to world class technology operational efficiencies and fund manager in Australia, managing expertise, enabling new products and capabilities, the staff who transferred funds worth more than $2.7 billion for capabilities to be brought to market to EDS Australia now have access to both retail and wholesale investors.

18 Managing risk

The Bank places great importance on Dynamic provisioning, a statistical managing its risk and has a technique, has been implemented to comprehensive range of procedures help assess the provisioning to monitor and control risk, measure requirements. Techniques such as this risk adjusted performance and assess are considered international best the shareholder value potential of practice and have further enhanced business improvements and other the systems for monitoring the credit opportunities. portfolio. which bank During the year, a world class integrated In conjunction with the move to is Australia’s risk management system was dynamic provisioning, a system of introduced to quantify and aggregate credit portfolio management has largest all risks across the Bank. This covers been introduced to ensure there is an credit, liquidity, market and operational appropriate mix of credit assets. This sponsor of risks and the controls in place to allows the Bank to pro-actively mitigate these risks. The system is monitor the credit portfolio in order women’s integral to the Bank’s reporting to avoid undue concentrations of risk. sport...? framework as it allows total risk to Exposures to Asia have reduced and be quantified for each business area. are the lowest of the major Australian Capital is allocated to business banks. Almost 70% of debts are rated ...Our sponsorship of areas according to risk, improving as investment grade equivalent or performance monitoring and better. Where credit losses are netball benefits over optimising the use of capital across expected to occur, the policy is to 1.2 million Australians, the Bank. raise an appropriate provision. High credit standards were maintained The corporate governance framework, bringing together the throughout the year in an increasingly described on pages 24-27, is a key best players in Australia, competitive marketplace, and the component in ensuring risk is managed credit quality of assets remains sound. to optimise shareholder returns. The and assisting young Risk and Audit Committees receive Some deterioration in the credit Australians starting out portfolio has occurred, particularly in regular reports and oversee the Asia where exposures continue to be development and enhancement of in the sport. monitored closely. risk reporting systems.

19 Our Business

Building for the future

which bankThe Bank is part of a fast changing and growing industry that offers exciting opportunities. Customer needs are continually changing and the Bank’s success requires us to understand these changes and to position the Bank to meet customer needs. The Bank’s traditional strengths provide a strong platform on which to build. The Commonwealth Bank brand is one of the strongest in the Australian financial services industry, standing for Australian values, strength, security, trust, accessibility and customer choice. All Commonwealth Bank products and services embody these qualities. The onset of a new century presents many challenges. Rapidly evolving technologies, globalisation, a new regulatory system, new competitors and changing customer needs mean the Bank must continually reposition itself to retain its leadership position. The Bank is focussed on building new capabilities that will keep it ahead of the competition. The internal restructuring of the Bank’s businesses

20 undertaken during the year provides a is vital to providing the highest quality focussed, specialised and integrated customer service. As one of Australia’s response to customer needs. largest employers, the Bank will Ongoing innovation is the hallmark of continue to educate, encourage and a leading company. The Bank has develop our employees. The Bank made significant technology provides challenging and rewarding investments in sophisticated systems career options, so that people can which bank to help in better understanding the meet their personal goals, while use of customer information. These continuing to deliver quality solutions is Australia’s systems will drive our strong focus on for all customers. The Enterprise the development and management Bargaining Agreement concluded leading of customer relationships. By during the year provided employees home loan understanding their different needs, with improved remuneration solutions which add value can be arrangements while providing provider...? developed for all customers. increased staffing flexibility to meet ...We are helping over In this competitive environment, the changing customer requirements. ability to identify and successfully As one of Australia’s largest and most 800,000 Australians implement alliances with successful companies, the Bank has an achieve their dream of complementary partners is very important role to play in the important. The Bank’s partnerships Australian community. The support of owning their own with EDS Australia and Woolworths community issues and events home. We provide are examples of relationships that add continued during the year through value for customers and shareholders, active sponsorship of sporting and regular financial health with each partner contributing best in cultural events, the establishment of checks to ensure our class capabilities. the Southern Cross Community Fund The Bank’s business reflects the and the financial assistance provided customers are building quality and commitment of all to victims of natural disasters both in wealth for the future, employees. Their motivation and skill Australia and overseas. and can manage their financial obligations. 21 Organisational Structure

TECHNOLOGY,OPERATIONS AND PROPERTY Russell Scrimshaw

PRODUCTS Neville Cox

MANAGING DIRECTOR David Murray

FINANCIAL AND RISK MANAGEMENT Michael Ullmer

BANKING AND FINANCIAL SERVICES John Mulcahy

INSTITUTIONAL BANKING Michael Katz

CUSTOMER SERVICE DIVISION Alf Long

GROUP HUMAN RESOURCES Les Cupper

22