Annual Report 2017 Commonwealth Bank of Australia | ACN 123 123 124 Contents Our business 2 Who we are 2 2017 highlights 3 Where our income and profits go 4 Chairman and CEO statement 6 Our strategy 12 Business risks 22 Performance overview 25 Corporate responsibility 39 Corporate governance 49 Our board 50 Our senior management team 52 Our governance 55 Directors’ report 59 Financial report 84 Other information 202 Annual Report 2017 Annual Commonwealth Bank of Australia 1 business Our 1 2 overview Performance 3 responsibility Corporate 4 governance Corporate 5 report Directors’ 6 report Financial 7 information Other Our vision is to excel at Our vision excel is to and enhancing securing the financialwellbeingof and businesses people, communities. 2 Who we are Commonwealth Bank Our vision is a leading provider of integrated financial Our vision is to excel at securing and enhancing the financial wellbeing of people, businesses services. We provide retail, and communities. business and institutional banking and wealth management products Our values and services. We are guided by our values in every interaction with our customers, colleagues and the broader 1 in 3 Australians call community. us their main financial institution. • Integrity • Accountability • Collaboration • Excellence • Service CBA Group Our strategy Customer focus is the overarching priority of our strategy. To support our customers we invest in four capabilities: Banking People Vibrant customer-focused culture and people Technology Application of world-leading technology to financial services Productivity Productivity and efficiency for better customer service Financial Strength and flexibility of our strength balance sheet Insurance This strategy enables us to create long-term value for customers, shareholders, our people and the broader community. Securities Investment 3 2017 highlights Report 2017 Annual Commonwealth Bank of Australia Customers, shareholders, our people and the 1 community all benefit from our performance. business Our Our customers 2 16.6m #1 330,000 overview Performance customers 1 customer new home loans 6.2m customers satisfaction 30,000 loans for using digital channels Australian first Retail, internet home buyers Equal #1 in business 3 responsibility Corporate Our shareholders 800,000+ $9,881m $4.29 shareholders net profit dividend 4 plus millions more hold after tax (cash), up 5% per share, fully franked governance Corporate CBA shares through their 10.1% Common Equity 16.0% return on equity superannuation funds Tier 1 capital ratio (APRA basis) Our people 5 report Directors’ 51,800 44% 69% employees management staff working across 11 countries roles held by flexibly women 6 39.1 hours of training report Financial 40% of Board Directors per employee are women Our community 7 $3.9bn $272m $2.8bn information Other in taxes total community lending to Australia’s largest investment renewable energy taxpayer 574,246 students projects enrolled in Start Smart 48.5% reduction in direct 326,146 School emissions since 2009 Banking students Committed to playing our Launched Teaching part in limiting climate Awards change to well below 2o Celsius 4 Where our income and profits go In 2017, Commonwealth Bank earned income of $26bn $16.1bn was spent on: $6.3bn Salaries • we employ 51,800 people in 11 countries • 41,600 are employed in Australia • we employ 1 in every 10 people working in the Australian financial services sector $4.8bn 24% Expenses • includes payments to 18% more than 5,000 SME partners and suppliers • 90% of our suppliers are Australian businesses • 1,350 branches 15% $3.9bn Tax • we are Australia’s largest taxpayer • our Australian tax expense in FY17 represents around 5% of Australia’s total company tax • we have signed the Voluntary Tax Transparency Code $1.1bn 4% Loan impairment • the cost of lending across the economy 5 Annual Report 2017 Annual Commonwealth Bank of Australia In 2017, Commonwealth Bank earned income of $26bn From profit of 1 business Our $9.9bn three quarters goes to shareholders and the rest is reinvested: 2 $7.4bn overview Performance Dividends • 75% of profits returned to shareholders • the average retail shareholder will receive 3 approximately $3,820 in dividends this year responsibility Corporate • almost 800,000 retail shareholders hold CBA shares directly, millions more hold CBA shares through their superannuation funds 4 governance Corporate 5 report Directors’ 29% 10% 6 $2.5bn report Financial Reinvested • we invest profit back into the business to make it better for our customers 7 information Other 6 Chairman and CEO statement Commonwealth Bank has again delivered strong financial performance, guided by our vision to excel at securing and enhancing the financial wellbeing of customers, shareholders, our people, and the broader community. 7 Annual Report 2017 Annual Commonwealth Bank of Australia In 2017, your bank served Ownership of Capital and funding 16.6 million customers, returned 1 75% of cash profits to our Commonwealth Bank is In 2017 we maintained our business Our shareholders, employed 51,800 first and foremost with commitment to financial strength people, and paid $3.9 billion in tax. the people of Australia, across all capital, funding and liquidity metrics. We provided $197 billion in new so when we do well as lending to businesses and individual a company, millions of From 1 July 2016, the Australian Prudential Regulation Authority (APRA) customers to help them grow their Australians also prosper. businesses and buy a home, insured requirement to hold additional capital for 2 more than 6 million customers, and Australian residential mortgages came overview Performance helped 1.8 million customers invest into effect. This regulatory change was For the 2017 financial year, cash net for the future. We sourced goods and the driver of our capital raising during the profit was $9,881 million, up 5% on the services worth $4.8 billion, including 2016 financial year. The mortgage risk prior year. Your Board determined a weight change ultimately had a 114 basis from more than 5,000 SME partners final dividend of $2.30 per share, taking and suppliers. Remaining profits were point negative impact on our Common the total dividend to $4.29 per share, up invested back into the business, to fund Equity Tier 1 (CET1) ratio in 2017. 9 cents on 2016. In total, $7.4bn of your innovation and growth. 3 company’s profits is being returned to We continued to strengthen our capital responsibility Corporate shareholders as dividends. Return on position during the year through organic Commonwealth Bank equity for the year was 16%. capital growth, resulting in a CET1 ratio of 10.1% on an APRA basis as at also continued to play its Operating income increased by 4%, 30 June 2017. role in helping secure a excluding the sale of our remaining strong economy – as an investment in Visa Inc. This was driven by 4% higher net interest income from Our CET1 ratio on enabler of employment, 4 our lending activities and 5% higher an internationally governance Corporate business opportunity, other banking income which includes comparable basis was financial security, commissions, lending fees and trading. Funds management and insurance 15.6%, so we have innovation and growth. income was flat. maintained our position Costs were kept under control, with in the top quartile of expenses increasing by 2%, excluding international peer bank the accelerated amortisation taken as a 5 Delivering for our report Directors’ one-off expense this year. The Group’s capital rankings. shareholders cost-to-income ratio on an underlying basis was reduced by a further 60 basis This year we have especially After the financial year end, in July 2017, points, to 41.8%. appreciated the ongoing support APRA provided clarity on the additional of our shareholders: the almost The credit quality of our loan portfolio capital required for the Australian 800,000 retail shareholders was sound and loan impairment banking sector to have capital ratios that who own CBA shares directly, expense remained low, with the ratio are considered ‘unquestionably strong’. 6 report Financial and the millions more who of loan impairment expense to average APRA’s expectation is that the major own CBA shares through their gross loans and acceptances at 15 Australian banks will operate with a superannuation funds. basis points. CET1 ratio average benchmark of 10.5% We understand that many shareholders or more by 1 January 2020. depend on the income they receive Our strong organic capital generation from their investment in Commonwealth and commitment to financial strength Bank, so our aim is to deliver sector- give us confidence that we will meet 7 leading earnings growth and returns, APRA’s benchmark. information Other and a stable dividend stream. As at year end, the Group’s Liquidity Coverage Ratio was 129%, our Net Stable Funding Ratio was 107%, customer deposits provided 67% of funding, and the tenor of our long-term wholesale funding was 4.1 years. 8 Chairman and CEO statement continued Delivering for our Our performance at a glance customers These sound financial outcomes Total shareholder return 5 years are the result of continued Source: Bloomberg execution of our long-term strategy. The overarching priority 104.8% of our strategy is customer focus, 3 years 20.3% so we are pleased that we ranked number one for retail customer satisfaction and equal first for 1 year 17.4% business customer satisfaction as at 30 June 2017.1 Customer satisfaction is achieved by Dividends Earnings providing customers with the best Fully franked, per share Cash basic earnings per share possible products and services. We 2017 2% 2017 4% believe this is underpinned by four capabilities – technology, people, productivity and strength. Through $4.29 574.4C consistent focus and investment we have built these capabilities over many 2016 $4.20 2016 554.8c years, making them our sources of competitive advantage, as we deploy 2015 $4.20 2015 556.9c them to drive growth over the long-term.