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  1. 1. UBS Warburg 2003 Global Financial Services Conference Michael Cameron Chief Financial Officer 28-30 April 2003
  2. 2. <ul><li>The material that follows is a presentation of general background information about the Bank’s activities current at the date of the presentation, 29 April 2003. It is information given in summary form and does not purport to be complete. It is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any particular investor. These should be considered, with or without professional advice when deciding if an investment is appropriate. </li></ul>Disclaimer
  3. 3. Speaker’s Notes <ul><li>Speaker’s notes for this presentation are attached below each slide. </li></ul><ul><li>To access them, you may need to save the slides in PowerPoint and view/print in “notes view.” </li></ul>
  4. 4. Agenda <ul><li>Current Environment </li></ul><ul><li>Focus </li></ul><ul><li>Platforms for Growth </li></ul>
  5. 5. Current Environment
  6. 6. Australia’s Economy has been relatively resilient given global conditions Source: Commonwealth Research ECONOMIC GROWTH: 2002 China South Korea Thailand New Zealand Australia Indonesia Taiwan Canada United States Singapore Hong Kong Spain Sweden United Kingdom Norway France Belgium Italy Germany Netherlands Switzerland Japan
  7. 7. Domestic housing demand has been strong Source: Commonwealth Research, Melbourne Institute Wisest Place for New Savings? (Melbourne Institute) Sep-79 Sep-85 Sep-91 Sep-97 Sep-02 -3% -2% -1% 0% 1% Income (+1%) Mortgage rate (up 1%) Unemployment rate (up 1%) Investment returns (+1%) House Price Sensitivity (% deviation from baseline) Income ($'000pa) 5 10 15 20 <30 31-50 51-70 71-100 >100 % Debt Repayment Levels: % household income (Melbourne Institute) 200 250 300 350 400 Jul-99 Jul-00 Jul-01 Jul-02 Quarterly Monthly $'000 Established House Prices (national) Jul-03
  8. 8. Business confidence has been subdued, but is expected to gain momentum Source: Commonwealth Research
  9. 9. While equity markets have showed some resilience, returns and fund flows have declined $m Total Net Retail Fund Flows (for quarter ended) Source: Plan for Life (ex Cash) -74% Equity Markets Source: Bloomberg Index (Base 100) $m Jul-02 Aug-02 Oct-02 Dec-02 Feb-03 75 80 85 90 95 100 -10% -14% All Ordinaries MSCI World
  10. 10. Commonwealth Bank’s 1st Half result reflects modest growth in an uncertain environment <ul><li>Net Profit After Tax (cash basis)* </li></ul><ul><li>Comprising: Banking Funds Management Life Insurance </li></ul>Dec 2002 $1,208m $1,079m $135m ($6m) Dec 2001 $1,192m % Change 1% * ie excluding appraisal value uplift/reduction and goodwill amortisation. Unless otherwise stated the numbers in this presentation refer to the net profit after tax (cash basis) and all comparisons are to the prior comparative period. $975m $182m $35m 11% (26%) (117%)
  11. 11. The Bank’s credit quality and capital adequacy strengthened during the half 4% 5% 6% 7% 8% 9% 10% 11% Dec 2001 Jun 2002 Dec 2002 CBA ANZ NAB WBC Tier 1 Capital Tier 2 Capital Target Range 9.31% 9.80% 9.81% 6.75% 6.78% 7.06% Capital Adequacy Ratios Bad Debt Expense to RWA* General Provision to RWA % RWA % RWA *RWA: risk weighted assets
  12. 12. The Bank’s dividend payout ratio remains high relative to peers <ul><li>Dividends per Share </li></ul><ul><li>Dividend Payout Ratio </li></ul>Dec 2002 69cps 72.7% 95cps 12.39% 52.6% Dec 2001 68cps 72.6% 94cps 12.43% 54.2% Change 1c - 1c (4bps) (3%) Earnings per Share Return on Equity Banking Cost to Income Ratio (underlying basis) … and EPS has improved For more detail, visit:
  13. 13. Meeting the challenges in the current environment and the longer term <ul><li>Immediate focus: Productivity </li></ul><ul><li>Implementation of strategic initiatives </li></ul><ul><li>Longer-term focus: key competitive strengths </li></ul><ul><li>Scale </li></ul><ul><li>Brand </li></ul><ul><li>Risk Profile </li></ul><ul><li>Products and Businesses </li></ul><ul><li>Distribution </li></ul><ul><li>Innovation </li></ul><ul><li>People </li></ul>
  14. 14. Focus
  15. 15. Immediate focus is on improving efficiency achieve: <ul><li>A better service experience for customers, through greatly improved turnaround times </li></ul><ul><li>Elimination of duplication and inefficiencies </li></ul><ul><li>Annualised benefits of $159m, following an incremental net cost of ~$143m in FY2003 </li></ul>Four strategic initiatives... Remove back-office functions from branches Streamline Business Banking processes Rationalise investment products & systems Organisational design
  16. 16. The Bank is a leading player in Australia with the highest number of relationships... <ul><li>1st in Home Lending </li></ul><ul><li>1st in Credit Cards </li></ul><ul><li>1st in Retail Deposits </li></ul><ul><li>1st in Online Broking </li></ul><ul><li>Largest customer base </li></ul><ul><li>Most points of access </li></ul><ul><li>Best known bank brand </li></ul>% Customer Share: All Relationships Source: Research International, December 2002
  17. 17. ...and achieve consistently high ratings from retail customers Source: Research International Brand Monitor Average across all brand attributes for CBA vs average of ANZ, NAB and Westpac % <ul><li>In touch with its customers </li></ul><ul><li>Is leading the way </li></ul><ul><li>Is doing new and different things </li></ul><ul><li>Has knowledgable and competent staff </li></ul><ul><li>Has friendly and reliable staff </li></ul>
  18. 18. Australia’s Most Accessible Bank* Branches 1,000 Premium banking centres 13 Business banking centres 70 ATMs 4,000 EFTPOS terminals 126,000 Direct Banking calls per annum 146m Registered NetBank users 2m Personal lenders 700 Financial planners 700 Mobile bankers 200 3rd party advisers, brokers and agents 10,000 Postal and private agencies 4,000 EzyBanking store locations 700 * Distribution channel numbers have been rounded
  19. 19. Platforms for Growth: Banking
  20. 20. Several key trends are shaping the future of the home loan market Economic Environment <ul><li>Interest rates at historical lows - but affordability has weakened </li></ul><ul><li>Slowing housing credit demand likely </li></ul><ul><li>Historically low credit losses </li></ul><ul><li>Property sector attractive compared to other asset classes </li></ul>Customer Need <ul><li>Entrenched fast repayment psyche </li></ul><ul><li>First home buying activity brought forward by FHOG* - weaker demand likely </li></ul><ul><li>Defined service demands </li></ul><ul><li>Wealth creation mindset has fuelled investment loan growth but expect to be tempered by economic uncertainty </li></ul>Distribution <ul><li>Mortgage brokers well established - but facing first slowdown in demand </li></ul><ul><li>Continued market consolidation likely </li></ul><ul><li>Linkages likely to intensify to financial planners - increased competition </li></ul>Technology <ul><li>Broker groups also investing in front end & CRM** solutions </li></ul><ul><li>Centralised back end models utilising straight through processing </li></ul><ul><li>Intensification in use of CRM type solutions - owned and rented </li></ul><ul><li>Increased use of IVR***/web for customer servicing requests and marketing </li></ul>Competitive Environment <ul><li>Mortgage market a high demand sector </li></ul><ul><li>Low credit losses - increasing willingness by some market participants to take on risk </li></ul><ul><li>Slowing housing credit demand - propensity for increased poaching/ refinancing offers, including increasing commissions to third parties </li></ul>***IVR: interactive voice recognition **CRM: customer relationship management *FHOG: First Home Owner’s Grant
  21. 21. Share of wallet improving - cross-sell, retention and service initiatives are in train Basis: If a customer has a relationship (as a main Financial Institution or otherwise) with a Financial Institution, what proportion of their holdings do they keep with that Financial Institution? Share of Wallet by Financial Institution Source: Research International, December 2002
  22. 22. Youth Customers: Addressing the change and growth in banking needs Savings needs Transacting needs Credit Card needs Unsecured Credit needs Investing needs Secured Credit needs Complex needs 0 5 12 18 24 30 Lower involvement products Higher value products Age of Customer CompetitorActivity Banking needs change and grow as customers age and pass through different life stages
  23. 23. Premium Customers: Offering a Differentiated Business Model Banking Platform Borrowing Services Lending Services Transactional Banking Broking Platform Advisory Services Direct Investment Indirect Investment Debt Products Equity Products Client Primary Relationship Manager Secondary Relationship Manager & specialised advice Commercial Adviser Personal Adviser Investment Adviser Financial Adviser Risk/Insurance Adviser
  24. 24. Republic: Providing a comprehensive view of premium customers Please note information on these data screens has been scrambled for privacy purposes
  25. 25. Republic: Providing a comprehensive view of premium customers Please note information on these data screens has been scrambled for privacy purposes
  26. 26. Transforming Business and Corporate Banking <ul><ul><li>Segment clients and create differentiated business models to improve client service experience </li></ul></ul><ul><ul><li>Introduce streamlined credit processes </li></ul></ul><ul><ul><li>Lift performance of bottom quartile centres </li></ul></ul><ul><ul><li>Better align distribution footprint to client needs </li></ul></ul><ul><ul><li>Realise segment specific share targets </li></ul></ul><ul><ul><li>Build client service and sales skills </li></ul></ul>Transformation Agenda Structured In Three Phases Completed Status 1. Define and revitalise Business/Corporate Banking 2. Re-organise for success 3. Capture industry leadership Underway Parallel implementation with Phase 2 1 2 3 4 5 6 Initiatives
  27. 27. No change to credit standards Owner Occupied Investment $bn Dec 01 Jun 02 Dec 02 Composition of Housing Portfolio Consumer Portfolio Commercial Portfolio Bad debt charge as annualised % of unsecured lending balances Bad debt charge as annualised % of secured lending balances Dec 01 Jun 02 Dec 02 73 27 75 25 24 76 *CBA Equivalent Ratings 60% invest. grade
  28. 28. Platforms for Growth: Funds Management
  29. 29. The Bank maintains its leadership position in Australian funds under management Group Funds Under Management by Country of Source December 2002 Australian Funds Under Management** by Asset Class December 2002 Total Funds Under Management: $95bn Consisting of: retail $52bn wholesale $38bn retail CMT* $5bn Australian Funds Under Management: $72bn Consisting of: retail $39bn wholesale $28bn retail CMT* $5bn *CMT: cash management trust **Total funds managed in Australia, excluding Colonial First State Property
  30. 30. Several key trends are shaping the future of the Australian Funds Management industry <ul><li>Strong inherent growth in the funds management market expected, particularly retail </li></ul><ul><li>Growth of mastertrusts </li></ul><ul><li>Industry consolidation </li></ul><ul><li>Institutionalisation of distribution </li></ul><ul><li>Industry commoditisation </li></ul>Projected Size of Various Product Segments Source: Rice Kachor projections March 2002, include 5% post fee returns, except for DIY (7%)
  31. 31. FirstChoice has been further enhanced... and other initiatives are underway $m <ul><li>Realise integration benefits, including further rationalisation of legacy systems </li></ul><ul><li>Offer increased style diversification </li></ul><ul><li>Leverage internal distribution opportunities </li></ul><ul><li>Leverage scale to reduce costs </li></ul><ul><li>Grow alternate asset classes </li></ul><ul><li>Increase reputation as manager of international shares </li></ul>FirstChoice Other Strategic Initiatives
  32. 32. Platforms for Growth: Life Insurance
  33. 33. The Bank ranks second in the Australian life insurance market Source: Tillinghast, December 2002 By Channel Market Size* and Growth Prospects: By Product $m 2002 2007 projected 2002 2007 projected Commonwealth Bank Premiums*: By Product By Channel CBA total annual inforce premiums = $548m * Refers to annual inforce premiums $3.4bn $4.3bn $m
  34. 34. Focus is on distribution, service and risk pricing <ul><li>Increase internal distribution through: </li></ul><ul><li> Personal Insurance Consultants </li></ul><ul><li> Business Investment Managers </li></ul><ul><li>Repricing of premiums </li></ul><ul><li>Upskilling of call centre staff </li></ul><ul><li>Product rationalisation </li></ul><ul><li>Systems migration </li></ul>
  35. 35. Key Points <ul><li>Resilient Australian economy </li></ul><ul><li>Strong first half growth in our banking business </li></ul><ul><li>Strong franchise: scale, brand, distribution, innovation, </li></ul><ul><li>people </li></ul><ul><li>Cross sell, retention and service initiatives in train in retail and business bank </li></ul><ul><li>Maintenance of high credit standards </li></ul><ul><li>Leadership in Funds Management to continue </li></ul><ul><li>Insurance business well positioned </li></ul>
  36. 36. Michael Cameron Chief Financial Officer 28-30 April 2003 UBS Warburg 2003 Global Financial Services Conference
  37. 37. 9% growth in lending assets Lending Assets**: ** Excludes securitised housing loan balances $5.9b (Dec 02), $7.0b (Jun 02), $5.7b (Dec 01). Housing Personal Business & Corporate $ billion Bank Acceptances 155 161 169
  38. 38. A number of one offs impacted funds under management $bn 106 95 98 (1) (5) (2) 2 (4) (1) Underlying reduction of $8bn One off reduction of net $3bn
  39. 39. Shareholder Funds in Life Insurance Companies: investment reflect underlying nature of the business Income $0.5 billion $2.1 billion 51% 49% Growth $2.6 billion 74% 26% 54% 46% *Risk includes traditional, investment account, annuities, personal risk and group risk.
  40. 40. Continuing sound asset quality
  41. 41. * Includes Colonial $millions The Bank remains well provisioned
  42. 42. Arrears in consumer book remain at low levels <ul><li>Loans Accruing past 90 days or more </li></ul><ul><li> 30/06/01 31/12/01 30/06/02 31/12/02 </li></ul><ul><li> $m $m $m $m </li></ul><ul><li>Housing Loans 218 168 176 136 </li></ul><ul><li>Other Loans 90 79 73 75 </li></ul><ul><li>Total 308 247 249 211 </li></ul><ul><li>Housing loans arrears rate </li></ul><ul><li> 30/06/01 31/12/01 30/06/02 31/12/02 </li></ul><ul><li>Housing Loans accruing but past 90 days or more $m 218 168 176 136 </li></ul><ul><li>Housing loan balances $m 73,511 79,745 85,839 93,545 </li></ul><ul><li>Arrears rate % 0.30% 0.21% 0.21% 0.15% </li></ul>
  43. 43. Commercial Portfolio: large exposures are mostly investment grade Dec 2000 Dec 2001 Dec 2002 Top 20 Exposures as a % of Total Committed Exposure Committed Exposure ($m) 31 December 2002 Top 20 Exposures to Corporates (Committed) S&P Rating or Equivalent BBB A+ A+ BBB A BBB AAA BBB A- AA- A- A- A+ A- A- BBB- BBB BBB- A+ A+
  44. 44. Credit Exposure - Energy Sector 80% 7% 3% 10% $3,411m 278 509 1,981 643 $m Australia (73% investment grade) Asia (94% investment grade) North America (58% investment grade) Other (97% investment grade)
  45. 45. Credit Exposure - Telcos Sector 72% 13% 4% 11% $1,509m 175 186 738 410 $m Australia (72% investment grade) Asia (100% investment grade) North America (100% investment grade) Other (64% investment grade)
  46. 46. Credit Exposure - Technology Sector 86% 9% 4% $1,114m 275 35 798 6 $m Australia (68% investment grade) North America (100% investment grade) Other (99% investment grade)
  47. 47. Credit Exposure - Agriculture Sector 74% 26% $7,673m 1,540 5,569 $m Australia (10% investment grade) New Zealand (3% investment grade) 254 310