Commonwealth Bank Australia of ANNUAL REPORT 2016 ANNUAL REPORT 2016 REPORT ANNUAL WHEN WE BELIEVE, WE CAN. CBA1421 011016 COMMONWEALTH BANK OF AUSTRALIA | ACN 123 123 124 Contents Chairman’s Statement 2 Chief Executive Officer’s Statement 6 Highlights 9 Group Performance Analysis 13 Group Operations and Business Settings 23 Corporate Responsibility 33 Directors’ Report 38 Five Year Financial Summary 72 Financial Statements 74 Income Statements 75 Statements of Comprehensive Income 76 Balance Sheets 77 Statements of Changes in Equity 78 Statements of Cash Flows 80 Notes to the Financial Statements 82 Directors’ Declaration 182 Independent Auditor’s Report 183 Shareholding Information 185 International Representation 189 Corporate Directory 191 Contact Us 192 Commonwealth Bank of Australia – Annual Report 2016 1 Chairman’s Statement The past year has been dominated by political and economic after tax on a cash basis was $9,450 million, up 3% on last uncertainty. In Australia and beyond we’ve seen a splintering year. The final dividend for the year was $2.22, taking the full of consensus around how countries and economies should be year dividend to $4.20 per share fully franked. Earnings per managed. This is resulting in outcomes that diverge from share on a cash basis was flat on the prior year at $5.55 per what we had come to consider the norm, such as Britain share. Return on equity was 16.5%, down 170 basis points, deciding to leave the EU, and central banks setting interest due to the increased equity base following the Group’s rates below zero in a range of advanced economies. $5.1 billion capital raising in the first half of the year. While questions remain about the outlook for Australia, we Capital and Funding are in a position of relative strength. The transition from the To reinforce our ability to support our customers for the long- mining investment boom to a broader based economy, plus term, we continue to strengthen our capital and funding the relatively lower Australian dollar, are supporting positions. As at 30 June 2016, the Group had a Common employment and moderate growth; and with competitive Equity Tier 1 (CET1) capital ratio of 10.6% on an APRA basis, advantages in industries like education, tourism, agribusiness up from 9.1% at 30 June 2015. On an internationally and health, we should be well-positioned for the future. comparable basis our CET1 capital ratio was 14.4%, up from Against this backdrop, in the Commonwealth Bank we remain 12.7%. This bolsters our position at the top end of the top steadfast in our vision, to excel at securing and enhancing the quartile of international peer bank capital rankings. Our financial wellbeing of people, businesses and communities. capital position has been strengthened by our $5.1 billion We employ 51,700 people, support nearly 16 million entitlement offer to all shareholders, and through sound (1) customers, are the largest taxpayer in Australia , and pay organic capital growth. We are also one of a very small dividends to more than 800,000 shareholders. We will number of global banks with ratings in the AA band which continue to work hard to deliver security and performance for allows us to secure lower cost funding for our customers. all our stakeholders. With regulators both domestically and internationally now In doing so, we are committed to acting in accordance with taking a broader view of the necessary foundations for a our values of integrity, accountability, collaboration, strong and resilient banking system, we have also excellence and service. Over the last three years we have strengthened our funding and liquidity positions. The Group’s been implementing a long-term program to strengthen these Liquidity Coverage Ratio of 120% is significantly higher than values and embed them in the culture of the Group. Most the APRA requirement of 110%, and our net stable funding recently this has included providing our people with further ratio, on current calculations, exceeds 100%. The regulatory guidance on the behavioural expectations for each of our outlook will evolve and towards the end of the 2016 calendar values; and ensuring our vision and values are reflected in year the Basel enhancements are expected to be announced. recruitment, training and performance management practices. We are confident that we will maintain our position of strength In terms of customer facing measures we have established a across all required metrics. new Customer Advocate function in the Group, to drive fair Dividends customer outcomes and complaint resolution, and to improve our prevention and remediation processes. We are also The Group’s dividend policy seeks to deliver: continuing to evolve our remuneration structures to ensure . Cash dividends at strong and sustainable levels; alignment with our values. A full-year payout ratio of between 70% and 80%; and In the broader arena there has been heightened scrutiny of . The maximum use of franking by paying fully franked the financial services industry in the past year. We welcome dividends. this scrutiny because trust is critical to our business. Our In keeping with this policy, the Board determined a final industry is committed to a wide range of measures to address dividend of $2.22 per share for the second half year of the concerns and improve practices. This includes moving to a year, representing a dividend payout ratio of 82.3%. This user-pays model whereby the industry will contribute to brings the total dividend for the year to $4.20, flat on the prior ASIC’s funding to enhance its ability to exercise its regulatory year, and represents an overall dividend payout ratio (cash powers. An independent review of product sales-commissions basis) of 76.5%. Our dividend policy has again been and product based payments is already underway, with a supported by the Group’s consistently strong financial view to removing or changing them where they could lead to performance. poor customer outcomes; and the industry is working with Customer satisfaction consumer organisations to strengthen commitments to customers in the Code of Banking Practice. Over a number of years, our most important metric has been customer satisfaction and this remains the case. Serving our An industry register is being established to help prevent the customers and acting in their best interests is what makes our recruitment of individuals who have breached the law or a business sustainable. code of conduct, with the aim of removing them from the industry; and protections for bank employees who speak out Our people have been working tremendously hard in recent against poor conduct will be standardised. At the years to deliver the service, products and innovation that Commonwealth Bank we have had a long-standing customers expect. A mark of their success is that we have Whistleblower Protection Policy and in 2014 introduced an held the top spot for retail customer satisfaction for 13 external, independently run SpeakUp Hotline which is consecutive months to June 2016, and ranked outright or available 24/7 to any employees who wish to raise a concern. equal first for small business satisfaction for 22 consecutive months. We rank first or equal first for customer satisfaction in Operating and Financial Results all key business banking segments, mobile and online Detailed commentary on the operating and financial results banking, and adviser satisfaction in Wealth Management. for 2016 is included in the CEO’s statement. In summary, the While these are all real achievements, we know that customer Group delivered a solid performance for the year. Net profit (1) Source: Bloomberg 2 Commonwealth Bank of Australia – Annual Report 2016 Chairman’s Statement expectations will continue to grow and evolve, so we must As a mark of our progress we have again been awarded an keep raising our standards and maintain our focus on the Employer of Choice for Gender Equality citation from the satisfaction and financial wellbeing of every customer. Workplace Gender Equality Agency. We have also been named the second-most inclusive employer in the 2016 Innovation Australian Workplace Equality Index Awards, and the Group’s Another area where we continue to work extremely hard is employee network Unity was named the 2016 LGBTI innovation. Innovating purposefully and for the benefit of our Employee Network of the Year. customers has been at the centre of our strategy for the last Looking ahead we will be focusing on improving the Group’s 10 years. This focus has seen Commonwealth Bank deliver ethnic diversity, so that we better represent our customers unparalleled digital banking capabilities, including our and communities. industry-leading CommBank app which is now regularly used by 3.7 million customers. In addition to providing frequent Environment, Social and Governance (ESG) improvements for existing customers such as new “photo a priorities bill” functionality for easy bill payment, new-to-bank We actively consider the environmental, social and economic customers can now download the CommBank app, open an impacts of our activities. We are committed to operating account and start transacting immediately. sustainably and to making a positive contribution beyond our Business customers are benefitting from services like Daily core business. IQ, our award-winning data analytics app which provides In the first half of the 2016 financial year we revised our insights about their business, customers and market. Our Group Environment Policy to acknowledge international state-of-the-art Innovation Lab network, established across efforts to limit global warming to two degrees Celsius, and to Sydney, Hong Kong and London, now allows us to partner define the role we play in supporting the transition to a low with clients, to workshop bespoke solutions for their needs, carbon economy and in tackling climate change.