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Edited Transcript of CBA.AX earnings conference call or presentation 12-Feb-20 12:00am GMT

Half Year 2020 Commonwealth Bank of Australia Earnings Presentation

Sydney Feb 15, 2020 (Thomson StreetEvents) -- Edited Transcript of Commonwealth Bank of Australia earnings conference call or presentation Wednesday, February 12, 2020 at 12:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Alan Docherty

Commonwealth Bank of Australia - CFO

* Matthew Comyn

Commonwealth Bank of Australia - CEO, MD & Executive Director

* Melanie Kirk

Commonwealth Bank of Australia - Head of IR

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Conference Call Participants

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* Andrew Lyons

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Andrew Triggs

JP Morgan Chase & Co, Research Division - Research Analyst

* Brendan Sproules

Citigroup Inc, Research Division - VP

* Brian D. Johnson

Jefferies LLC, Research Division - Equity Analyst

* Jarrod Martin

Crédit Suisse AG, Research Division - Director and Joint Lead Analyst

* Jonathan Mott

UBS Investment Bank, Research Division - MD and Banking Analyst

* Matthew Wilson

Evans & Partners Pty. Ltd., Research Division - Executive Director of Financials

* Richard E. Wiles

Morgan Stanley, Research Division - MD

* Victor German

Macquarie Research - Analyst

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Presentation

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Melanie Kirk, Commonwealth Bank of Australia - Head of IR [1]

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Hello, and welcome to the Commonwealth Bank of Australia's results presentation for the half year ended 31 December 2019. I'm Melanie Kirk, and I'm Head of Investor Relations.

Thank you for joining us. Today, we will have, during this briefing, presentations from our CEO, Matt Comyn, giving an overview of the financial results and an update on the business; our CFO, Alan Docherty, will provide details on the financial results; and Matt will provide an outlook and summary.

The presentations will be followed by the opportunity for questions and answers. I'll now hand over to Matt. Thank you, Matt.

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Matthew Comyn, Commonwealth Bank of Australia - CEO, MD & Executive Director [2]

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Thanks very much, Mel, and good morning, everybody. I think the result overall, from my perspective, good operational execution across the business as (inaudible) in the period. We're pretty pleased overall with the progress that we're making in a number of areas, both strategically as well as the day-to-day challenges. I feel like the business is well positioned. I'm going to talk through some of the areas and give a bit of an update on some of the areas where we're investing. And of course, it's been front and center for us recently, it has been how we've been supporting our customers and communities, particularly on the tragic bushfires recently.

So a couple of things in the way we can now, using our technology, particularly our customer engagement engine, it enables us to actually reach a couple of hundred thousand of our customers. We can build next best conversation and deploy that out to contact all of those customers in 150 post codes within a couple of hours to make sure that they know about all the availability of support and help via our emergency assistance package. We can also make sure that any customers who are calling us in those affected areas in our contact centers, who are coming into branch, we can be having very personalized conversations and supporting them through such a difficult time.

From our perspective as well, we've been very fortunate to use our technology, but again, really benefiting from the generosity of our customers who've contributed more than $4.5 million, which we've donated to the Australian Red Cross. The Commonwealth Bank also announced that we would be dollar matching any of our customer donations or employee donations. We expect to contribute more than $10 million as part of that via either our community grants or some tailored donations, including the purchase of Shane Warne's Baggy Green. And we feel that this is, of course, a critical part of what we stand for as an organization, supporting our customers in real times of need and making sure that we're there to help in the rebuild and the recovery efforts.

Now turning to the result. The statutory profit up 34% was assisted by the $1.7 billion of gain on sale of CFSGAM. The cash net profit after tax of $4.5 billion was down 4.3%. A couple of things are really driving that, in particular, the $83 million of bushfire-related claims. We took a $100 million provision as well for drought and bushfire during the period. And the flow-through of previously announced changes, particularly to noninterest income, which I'll talk about in a little bit more detail.

I think one of the highlights of the result has been overall is the strength of the balance sheet in a number of different ways. But clearly, our Level 2 Common Equity Tier 1 at 11.7% is very strong. It's enabled us to declare today a fully franked $2 interim dividend and also that we will be neutralizing the dividend reinvestment program.

Maybe just talking through the result again, a little bit more detail. The net interest income was up 1.7%. During the period, we had strong volume growth across a number of our core business lines. At deposit and transaction banking, performance was very good again. Home lending, which I'm going to talk to subsequently was strong performance. And business lending up 3%. Our net interest margin was stable during the period. Of course, the headwinds from lower interest rates was offset in this particular period by a sharp reduction in basis risk or that cash/bills spread. We had about a 23-basis-point improvement during the period. Alan is going to talk, obviously, about the net interest margin movements as well as some of the outlook elements for that as well.

And overall, as I mentioned, particularly in our noninterest income. In Q3 last year, we talked about improvements to customer outcomes. We called out that, at that stage, the $275 million in FY '19 will grow to $415 million in FY '20. We saw that. So we've seen that sort of $207 million of impact in the half. And we believe now we've sort of stabilized our noninterest income, we expect to see some modest growth from here, mainly volume related.

Turning now to expenses. I think we've better momentum in the half around our cost savings program. Alan will talk to that a little bit more detail at $222 million. So increasing momentum, but clearly much more to do here offset by wage inflation of 2.5%, an uptick in amortization for the period, delivering that overall operating expense growth of 2.6%.

Our loan impairment, up 12.5%, is really a function of the $100 million provision that I mentioned around bushfires and droughts. I think most pleasingly, when we look at the -- particularly the arrears performance across our consumer portfolios all down across the period and a stabilization of our troublesome and impaired assets in our business and corporate bank. So overall, as I said, that delivers our cash net profit of down 4.3%.

A couple of other things maybe just worth calling out. We look at MFI share very closely, both in terms of some of the published surveys, but really what we can see in terms of the engagement that we're having with our customers. We've seen a continuing and strong uptick now, particularly for some of our younger customers who are choosing us as their main financial institution. We see that in the context of them using our transaction account as their primary transaction account, either with salary credits. So you can see the bill payments coming in and out. We think that's obviously at the heart of our overall business. It's a functional reflection, I think, of our everyday banking proposition and our continued investments in digital.

As I've already mentioned, I think, very good volume growth across the period there. In particular, we were pleased to see deposit funding now at 71% as a function of that strong transaction and deposit performance. That's broadly up 14 percentage points over the last decade. And again, the very strong Common Equity Tier 1 and a pro forma of 12.2% has enabled that interim dividend and a payout ratio of 79%.

So I thought I'd spend a little bit of time just on home lending in a few areas. So in particular, look at our system lending growth at 1.5x, it's probably slightly above that. There's been a bit of restatements and noise during the period. So we sort of estimate that, that's right. That's obviously unusual, given our size, to be growing at system -- above system at that level. We've seen good strong fundings growth, particularly in owner occupier and principal and interest. We've seen a slight uptick in average borrowing size, which is really a reflection of an increased number of loan applications have come through in Sydney and Melbourne. And as I mentioned, the improved arrears performance, I think, has been very good. When we've tried to deconstruct what's driving that, we think about 60% of that performance is due to portfolio quality and the other 40% is really a function of -- we called out that we'd added extra resources into our teams that are managing our financial assistance areas. And I think that's clearly paid a strong return.

I do want to spend a few minutes just talking about, there's been a lot of inquiry understandably around the sort of differential between the front book and the back book. And maybe just to try and help dimension it upfront. Generally, where there's a lot of inquiry, it's looking at the level of discounting particularly off the standard variable rate product. So that's about 60% of our loans. So you have to exclude fixed rate loans and other basic products, which for us, we have an extra product, which I think is priced around sort of life of loan 3.32. So if you think about sort of the 60% of our loans, one of the ways that we've looked at it is really looking at the spot level of discounting in a particular month and then comparing that against the average over the whole book.

When we looked at that in August, just to give you a sense of what that differential is and how it moves around, that was 21 basis points. That was 18 basis points for owner occupier and clearly, slightly higher for investor. When we looked again at that spot level of discounting versus the average of the book in December that improved to -- well, it increased rather than improved to 26 basis points. There's clearly quite a bit of volatility in and around what level of pricing is going on in the market. It gives you a sense of the level of competition. And in particular, there's obviously a number of new entrants, but just increasing levels of competition, really over the last decade in home lending. There's also from my perspective, I think a number of factors that explain price differences in the context of loan sizes, our funding costs, which print at the time of origination change over time, LVRs, borrower and risk characteristics. But clearly, I think this is an issue that is going to continue to gain attention. It's something that we've been focused on for some time. I mentioned here, we've repriced approximately $130 billion over the last 3 years, just trying to manage that differential. And we think it's really important that we -- there's an adequate gap that also aligns with those sort of borrower and security characteristics rather than per se tenure. But we recognize that's an area of ongoing scrutiny. And as mentioned there, we anticipate the ACCC interim report will come out at the end of March.

So turning briefly, just to talk about some of the sort of highlights against some of our key areas of focus. I think we've made good progress around divestments, particularly the completion of the sale of CFSGAM. I've mentioned the cost savings momentum of $222 million in the half. That remediation continues to be a big focus, making sure that we're refunding our customers as quickly as possible. There's another $100 million that were refunded to customers in the 6 months. If I look at the remaining balance sheet provision which is broadly $900 million, almost 60% of that relates to Aligned Advice, which is probably the key area of uncertainty in the context of completion and time frame. But we have a large team, very focused on making sure we complete that remediation.

We also, this morning, put out the remedial action plan, the update from Promontory as our independent expert. It shows that we have completed 62% of the milestones. We feel like we're on track, making good progress. But I think the other thing I'd say is that we still feel like there's more work to do, some of the hardest milestones are ahead of us. And we have set ourselves a higher standard from where we are today in terms of the management of nonfinancial risk. So it continues to be a real area of focus. And of course, getting on and implementing all of the 23 applicable recommendations from the Royal Commission.

I'm going to talk in a couple of subsequent slides, more about sort of digital and technology. Clearly, that's been an area of focus and investment for us. We're seeing very strong engagement with customers, more than 7 million customers using us digitally, almost 6 million customers regularly on a monthly basis using our mobile banking app. That's a huge focus for us, both strategically and the way we think about the future of the organization. And we've also enhanced both our product offering and we've seen some improvements in our net promoter scores across all of our businesses. But we also recognize, again, there is much more to do on a go-forward basis.

Just briefly, a couple of the new products that we put in market. We really wanted to strengthen our FX proposition. We released a World Debit card and now an Ultimate Awards card to strengthen again our value proposition in the cards market. The feedback so far from customers is pretty early on in the launch has been very positive. We, again, looked at our pricing in the context of our fee structure for particularly digital accounts for businesses, repriced that. We've seen strong volume growth in our business customer accounts as well as transaction balances. And later this month, we'll be bringing out a new produc, which will be new to the Australian market for all of our home lending customers who will receive 12 months of cover should they suffer a permanent illness or death.

Moving on, as I mentioned, a huge part of our focus have been continuing to make sure we've got the best digital experience in the market bar none. We continue to focus on using our customer engagement engine, which I've spoken about before, making sure that we're delivering nudges and tools to help our customers manage their overall financial well-being. We've also rolled out a new rewards proposition to reward loyalty of our customers. We've got about 100 different offers that are live at the moment. We've had 200,000 redemptions from our customers within the app, and we plan to continue to expand and enhance that program.

And as you'd expect, just the safety and security of our customers' information is a critical importance to us. Unfortunately, we've seen an increase in scams, in particular, in Australia. In recent times, we've built out a dedicated team that's working around preventing and detecting scams, and of course, fraud. We've held more than 1,000 educational sessions around the country with our customers to help better inform them. And I think it's another just a good example of where we're using technology to increase engagement, deliver better outcomes for our customers in terms of avoidance of those scams, but also, of course, reducing fraud losses.

Again, I'd like to spend just a couple of minutes and maybe just give a broader sense of how we're thinking about technology. Yes, digital is an incredibly important part of it. But actually, our ambitions are really making sure that we have a modernized real-time and very resilient top to bottom technology stack. I think we come from an advantaged position. We've got a strong a history of leadership in this area and some very good assets that we're going to build upon. When we think about it more broadly, there's a number of different focuses here. First and foremost is really just continuing the modernization theme that the bank has been investing in for more than a decade.

When we look at the overall systems landscape, an easy way to think about it is we've got too many applications running on too much infrastructure. We've got about 3,500 applications. We want to take that footprint down by 25%. Those simplification, obviously, deliver some real benefits. We've got a big cloud or public cloud migration underway. We've got about 25% of that footprint in the public cloud. We'd like to get that to about 95%. Of course, that comes with lower cost to run, lower cost to compute, but also improvements around resilience. Given the amount that our customers are engaging with us digitally and just the reliance on our systems, it's just critical that we have an incredibly high level of availability and resilience. And of course, there's some engineering that we need to make sure that we're building into the way we develop, run and deploy our software.

Digitization, obviously, a big theme for us and many other institutions. Maybe a few quick focus points for us. Home lending, 80% of our home lending now is sort of digital end-to-end using PEXA on the back end. We want to continue to invest, and particularly, our business underwriting process and business express at the moment, that's unsecured. We'd like to really improve both speed to decision and fulfillment process in business lending. And our institutional bank, big investments actually in the underpinning infrastructure and systems, everything from the KYC onboarding process to the institutional lending system.

On data, if you look at any of the issues that we've had in regulatory and compliance, data quality and reconciliation and lineages has often been at the center of a number of those. Actually improving the data quality at source is a really important priority for us. We're making, as you know, big investments in areas like financial crime. One of those elements is making sure that, as I said, we've got high-quality at source and we've got complete coverage, accurate data with high-quality lineage. It's not only about, of course, making sure that we're meeting any of our regulatory and compliance obligations. We see that as a foundational asset that we come, again, from a very strong starting position that we'll be able to build upon and build differentiated customer experiences that will help in engagement and retention. And of course, we need the best people, so best people internally. We also want to work with the best partners, both domestically and locally.

And overall, I mean, execution here is a higher, I think, of value creation for the group, for our customers, for our shareholders. It's going to be a really important area for us to actually execute incredibly well. And we want to build differentiated experiences relative to our competitors that are hard to replicate at a lower risk, lower cost, much greater velocity than we currently build software and at a higher level of security.

And just touching briefly now on a couple of things more recently. I think everybody knows the investments that we've made previously in businesses such as PEXA, Beem It now is scaled to more than 1 million customers. A couple of weeks ago, slightly less than 2 weeks ago, we announced our 50-50 joint venture partnership with Klarna. We're pleased with the progress. We haven't really started to promote that at all. I think we've had about 25,000 registrations in less than 2 weeks. We obviously will see that to continue to grow. About 1/4 of those from what we can see are existing Commonwealth Bank customers, which is probably slightly lower than we'd otherwise anticipated. We had Appliances Online announced yesterday as our first merchant partner. Australia Post will be announcing another merchant partnership today, and we want to continue to build on a number of merchant partnerships in time to come. And of course, X15, which is only last week, we just see that is another way that we want to just invest in increasing the innovation and particularly the velocity of innovation. Some of that we want to do inside the group. We also want to find ways that we can build out ventures and just increase again, the pace of technology improvement and the differentiated experiences that we can deliver for our customers.

On that point, I'm going to hand over to Alan, who's going to talk through the result in more detail.

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Alan Docherty, Commonwealth Bank of Australia - CFO [3]

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Thank you, Matt, and good morning. I will step through our half year outcomes in some more detail. But I wanted to start by giving you a sense about how we think about our current operating context, what actions we're taking in response and how that manifests in the outcomes that we deliver for our shareholders.

As we enter a new decade, it's clearly going to be very different to the last one. Interest rates in Australia are likely to remain at historical lows for an extended period of time. Household income growth remains subdued and constrained consumer spending weighs on businesses and business' appetite to invest. We're adapting our business in support of the objectives that we share with our regulators. The financial well-being of our customers is best served by a stable, fair, efficient and safe banking industry, and we are mindful of our responsibilities in that regard. And all of this adds up to pressure on our earnings.

And in response to that new context, we're both focused on building upon our franchise trends and also building the new disciplines that we'll need in order to deliver strong shareholder outcomes over the next decade.

As I step through the results in more detail, you'll see both the impact of the changed context and also the outcomes achieved from how we've responded in terms of operational execution, how we are managing our balance sheet, the progress that we're making on cost and capital disciplines and how we're seeking to underpin consistent returns for our shareholders over coming years.

Let me start off as usual with the reconciliation of total statutory profits to cash profits from continuing operations. Statutory profits were $6.2 billion for the 6-month period, much higher than normal due to the one-off gain on the sale of Global Asset Management. All of the usual adjustments apply in arriving are cash profits from continuing operations of $4.5 billion, though it's worth noting that the cash profits from our discontinued operations have now virtually all been divested away during the half. And so we're now in the position that the cash used to pay our dividends is generated from the cash profits of our continuing operations. And as Matt has described, those cash profits are 4% lower on the prior comparative half with operating income flat, costs up 2.6% and loan impairment is up 12.5%.

Decomposing operating income. You can see that net interest income that reflects the core of our franchise increased by $159 million. And that was offset by derivative volatility within other banking income, the repricing that we flagged last year and our Colonial First State funds management business and higher general insurance losses booked in the current half due to the bushfires.

If we look more closely at the components of net interest income, you can see that home loan volumes continue to grow above system and transaction deposit growth remains robust and reflective of our franchise strength and the quality of our digital platforms.

Business lending across Australia and New Zealand grew 3% on average. With domestic growth a little below system due to spike in runoffs in the December month. Institutional lending balances were 9% lower on average on the same half last year. Due to the reduction in spot exposures that we've seen during the 2019 financial year with institutional lending increasing slightly over the past 6 months. Net interest margins were stable at headline level. And if we unpack that over the past 6 months, you can see that there were some large offsetting swings due to the recent volatility in interest rates.

Firstly, asset pricing contributed 5 basis points due to repricing of home loan, business lending and consumer finance portfolios and the timing benefits associated with the July and October cash rate cuts. Competition within home lending remains intense, costing us 2 basis points of margin in the period. And that level of margin pressure has been consistent now for each of the past 4 halves.

Deposit margins were impacted by the cash rate reductions, costing us 4 basis points. And that's net of a 3 basis point benefit from a replicating portfolio deposit hedge. Portfolio mix improved 1 basis point as customer deposits grew to 71% of our funding base. Basis risk spreads fell back in line with post-GFC norms, giving us a one-off tailwind of 4 basis points and earnings on our Australian capital balances and the New Zealand fail in response to lower interest rates in both countries.

Looking ahead, we expect the previously announced cash rate reductions to impact our net interest margin by 4 basis points over the full year ending June 2020 and by a further 4 basis points in the following financial year.

Operating expenses increased 2.6% on the prior comparative half. Changes in notable items were broadly offsetting across those 2 periods, although I wanted to highlight a few noteworthy items within those categories. Firstly, customer remediation charges were minimal during the current half with no new issues identified. The major remaining uncertainty within customer remediation relates to the ongoing service fees charged by our aligned adviser groups. We raised $534 million provision for that matter in the prior financial year, and that remains our best estimate pending finalization of our remuneration methodology.

Secondly, the cost of running our major risk and compliance programs to enhance our key non-financial risk capabilities has plateaued. Those costs have stabilized around $200 million per half for 2 consecutive halves, an increase of $34 million on the same half last year. These elevated risk and compliance costs will continue to be born over the medium term.

Pleasingly, we benefited from a one-off reduction in expenses during the period that was partly due to the release of a historical provision following resolution of a long-standing matter and partly due to the realization of one-off rebates. Those benefits were offset in the period by an accelerated amortization of software balances as we adjusted their amortization methodology to better reflect the faster pace of technological change.

Growth in underlying staff and IT costs outweighed the additional savings realized from business simplification. This was the softest aspect of our financial performance in the half, albeit we are encouraged by the growing momentum and cost reduction achieved over the past 3 halves with $222 million of cost savings realized during the last 6 months, double the rate of savings achieved during the prior half.

Turning to our balance sheet settings and looking firstly at credit risk. The loan loss rate for the group was slightly higher at 17 basis points due to the extra provisioning for drought and bushfire-affected customers. At divisional level, loan loss rates reduced in the retail bank due to lower arrears across home loan, personal loan and credit card products. Loan loss rates increased in the business bank due to higher collective provisioning for regional customers and then the agriculture of discretionary retail and construction sectors. And there were some small movements off a low base in both IB&M and ASB. Troublesome and impaired assets were flat on the prior half at $7.8 billion with lower corporate impaired assets, offset by higher troublesome assets due to downgrade of a small number of large exposures across different sectors.

And if we look more closely at consumer credit quality, you can see a consistent trend of improved consumer arrears across all products compared with both the prior half and the prior comparative period. Notwithstanding that, we've continued to adopt a conservative approach to provisioning and have increased both consumer and corporate collective provisions as we continue to make forward-looking adjustments for the potential deterioration in macroeconomic conditions.

On wholesale funding, we further extended the maturity profile of our long-term debt issuance. Market conditions have been favorable, and we've taken the opportunity to issue debt of longer tenor to further reduce future refinancing risk and also make good progress against the new requirements for total loss-absorbing capital.

On capital, we've delivered a Level 2 Common Equity Tier 1 capital ratio of 11.7%. This represents a significant surplus above APRA's unquestionably strong capital benchmark, and we now expect pro forma capital of 12.2% as we finalize our remaining divestments.

During the half, capital generated from divestments totaled 83 basis points, and we've delivered 37 basis points of organic capital despite the elevated payout ratio due to lower credit risk-weighted assets from improved retail portfolio credit quality and lower traded market risk capital for modeling improvements.

As we are the first major bank to report under the unquestionably strong requirement, we wanted to provide you with some more clarity on our capital targets. We manage our capital at both Level 1 parent entity and Level 2 banking group basis. Both capital measures are required to be unquestionably strong. However, as we have higher Level 1 capital, our key binding constraint is currently Level 2 capital. Our target, in line with APRA's expectations is to remain at or above the 10.5% unquestionably strong benchmark for the majority of each year. So for 7 months or more of each year. As you can see, we intend to manage our capital levels on the basis that we dipped below 10.5%, following the declaration of the interim and final dividends spending the rest of the year at or above 10.5%. We will manage our capital settings on a conservative basis. Our strong franchise capital generation and DRP mechanism provides us with the added flexibility to ensure we remain well capitalized at all times.

The surplus capital position provides us with the opportunity to consider capital management initiatives. We've today announced our third successive DRP neutralization, which involves a $500 million on market share buyback. Following that and subject to prevailing operating conditions, the Board will consider future capital management initiatives to lower share count and underpin dividends.

We are targeting a gradual return to a 70% to 80% full year payout ratio. And we're comfortable that the top end of that range, we can continue to generate organic capital and excess franking credits. Finally, we're prepared for a range of possible macroeconomic outcomes. Should operating conditions deteriorate, we have a number of capital management tools available to ensure we remain unquestionably strong. And our Board will continue to reassess the sustainable level of the dividend at each reporting period.

Matt will now take you through the outlook and a closing summary.

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Matthew Comyn, Commonwealth Bank of Australia - CEO, MD & Executive Director [4]

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Thanks very much, Alan. Look, I mean, overall, in terms of economic outlook, we still remain optimistic and confident about the fundamentals for the Australian economy. We continue to see, obviously, growth in population, government's in a very strong fiscal position. Trade, notwithstanding outlook maybe for some softness on commodity prices. We see continued underpinnings from investments in infrastructure. We've seen an improvement in the housing market. We believe that's going to continue. Supply has been well absorbed. Today, we're probably likely to see a slight uptick in construction in the back half. Notwithstanding that, of course, there are some near-term uncertainties and risks. And in particular, obviously, on the back of the bushfire, coronavirus, we do see a softening in this particular quarter and the next one. But we believe the growth outlook and trajectory for the second half of this calendar year is still quite strong.

I mean, from our perspective, we're very focused, of course, on supporting our customers, doing what we can to facilitate economic growth. Clearly, the housing market has been strong. We'd also like to continue to lend into the business market, in particular, to help support and facilitate increased investment for many of our small to medium enterprises. And of course, we're going to continue to invest in innovation and growth. We're investing at the moment, approximately $1.3 billion. Obviously, a huge proportion of that is within IT. If there are opportunities for us to invest that efficiently and get a good return in the future, we'll certainly look to be prepared to do so.

And just a very quick summary. As I said, I think some of the most pleasing elements, just good momentum and operational execution, growth in some of the metrics that really matter from our perspective in terms of MFI share, customer engagement, good trend banking performance and good performance in a couple of our key businesses like home lending, certainly some areas for us to improve. Margin overall has been, as Alan said, stable. We feel like better momentum in cost, but clearly, much more to do there. Pleasing from a credit quality perspective. Overall, very strong balance sheet and capital position. And hopefully, just an increasing velocity of improvement in customer experience related to our technology and the way we serve our customers.

Look forward to your questions.

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Questions and Answers

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Melanie Kirk, Commonwealth Bank of Australia - Head of IR [1]

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Great. Thank you, Matt. For this briefing, we'll be taking questions from analysts and investors. We'll be starting in the room and then we'll move to the phones. To ensure everyone can hear you, please wait for the microphone, state your name and the organization you represent. And to give everyone an opportunity, please limit your question to no more than 2 questions. We'll take the first question from Jon.

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Jonathan Mott, UBS Investment Bank, Research Division - MD and Banking Analyst [2]

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Jon Mott from UBS. With the NIM, you called out a number of moving parts. But one you didn't really mention was during the period, the July and October rate cut, you held on to the mortgage rate reductions for a period of about 3 weeks on each occasion. So your funding costs, a lot of your deposit costs fell, but you actually got an elevated NIM for 6 of the 26 weeks in that period. Can you tell us how much that elevated NIM for almost, what's that, almost a 1/5 of a period, helped your margin during the period? And going forward, do you think it's appropriate that you hold on to mortgage rate cuts for a period of 3 weeks? Given your technology investment, I'm sure you can change rates a bit faster than that. Do you think you can, in future, commit to passing rate cuts on by the RBA faster to your customer base?

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Matthew Comyn, Commonwealth Bank of Australia - CEO, MD & Executive Director [3]

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Yes, look, Jon, let me start, and if Alan wants to add anything more specific. I mean you're quite right in the context of when there are rate changes and the timing of those rate changes. From our perspective, the time frame that we applied there is consistent with the rate changes that we've made in the past. And I accept the question about whether it could be done with greater speed and urgency. It is also, given there have been a number of problems in and around fee and interest accuracy, it's a large-scale of technology change as well. So we want to make sure we do that with quality.

And so we've tried to keep a very consistent sort of time frame. In previous instances where rates have actually been going up, we've given customers extensive notice. So there is some benefit. I think Alan sort of alluded to that. And you're right, in the period, there is some benefit, of course, from both the pricing changes and the timing of those.

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Jonathan Mott, UBS Investment Bank, Research Division - MD and Banking Analyst [4]

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So will you be able to do that faster going forward?

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Matthew Comyn, Commonwealth Bank of Australia - CEO, MD & Executive Director [5]

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Well, Jon, I think it's one of those things that we'll continue to monitor on an ongoing basis.

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Melanie Kirk, Commonwealth Bank of Australia - Head of IR [6]

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We'll take the next question from Richard.

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Richard E. Wiles, Morgan Stanley, Research Division - MD [7]

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Rich Wiles, Morgan Stanley. A couple of questions. Firstly, on expenses. You're clearly doing more on the cost savings. Good progress this year versus last year. But your costs are still growing around 3% per annum. So what's happening with your ambition to lower the absolute cost base, is that a realistic target? And when could we expect that to actually happen?

Second question is on capital. Even if you exclude the pending proceeds from insurance, you got about a $5 billion excess above your 10.5% target. Is an off-market buyback the most likely form of capital management given that it distributes franking credits and it lowers the share count, which are 2 of the things you've flagged as important for your shareholders?

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Matthew Comyn, Commonwealth Bank of Australia - CEO, MD & Executive Director [8]

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Sure. So look, on cost, I would say, better progress, but clearly a lot more to do and increasing momentum and that will continue to be a focus for us going forward. In terms of our aspiration, it's unchanged. I mean it's literally 12 months ago since we talked about that. And I remember the day after we said that sub 40% cost to income, the RBA neutralized the rate stance and we had 3 rate cuts, which -- so I see the perils of providing guidance specifically, but we recognize that that's such as life. So I feel like we've -- it's still realistic. It's clearly more challenging than it was 12 months ago. I mean, ultimately, we're going to make the best decisions that we can for the long term of the group.

I realize it's not particularly helpful, but we still say that's a medium-term objective. What you should expect from us and what we're certainly going to intend to deliver is increasing momentum in that particular expense reductions. We meet, as a management team, on a weekly basis. It's a huge focus. There's obviously a number of other things that we're working on and we need to get better at it, at least at this -- for this period, it was better than it has been in prior periods.

On capital, clearly, I'm not going to sort of foreshadow either size or particular type. But I mean what we tried to do -- and feel free to add in, Alan, provide additional disclosure in terms of the way we're thinking about unquestionably strong. It enables obviously you to be able to try and calculate what you think that level of surplus capital would be plus there's future divestments that are coming. We've said, obviously, the Board is actively considering that. And one of those considerations is we have surplus franking credits. And so we provide additional disclosure, both at the size of the surplus franking credits and the franking credits for tax purposes as well. So there's not really much more we can say at this point in time. But I think it probably is hopefully helpful in the context of you be able to calculate it.

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Alan Docherty, Commonwealth Bank of Australia - CFO [9]

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Yes. I mean an immediate focus from a capital management perspective is this neutralization of the DRP. So that's going to involve an on-market share buyback during February and March. So that's sort of a near-term focus. We've also flagged that we're expecting to receive some further divestment proceeds during the third quarter of this financial year. So in the near term, that's our focus. And as Matt says, the Board will continue to consider the future of capital management...

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Richard E. Wiles, Morgan Stanley, Research Division - MD [10]

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The $500 million of DRP neutralization, I mean it's small being compared with the $5 billion of excess that you've got. And just to be clear, you've clarified today that the target is 10.5%. You don't think you need to run with a buffer above that?

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Matthew Comyn, Commonwealth Bank of Australia - CEO, MD & Executive Director [11]

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I think what Alan...

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Richard E. Wiles, Morgan Stanley, Research Division - MD [12]

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My math sounds correct, isn't it? $5 billion of surplus above 10.5%?

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Matthew Comyn, Commonwealth Bank of Australia - CEO, MD & Executive Director [13]

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You could calculate it. It's a relatively easy calculation. I mean what Alan said is that we're going to run about 10.5% for the majority of the year. So that's at least 7 months. So you can then sort of calculate how far above that is across the -- across the period. And when the timing and the size, yes, $500 million is the context of the number that you're putting forward, but that's what's immediately ahead of us. And so over that sort of mid-February into March, we'll be on market purchasing shares. But at this stage, it's under active consideration. And certainly, the flexibility that we've got enables us to think about that in the near term.

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Melanie Kirk, Commonwealth Bank of Australia - Head of IR [14]

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We'll take the next question from Jarrod.

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Jarrod Martin, Crédit Suisse AG, Research Division - Director and Joint Lead Analyst [15]

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Jarrod Martin from Crédit Suisse. Can we just go back to the margin slide, a bit of clarification. If I take in the blue box in the top right-hand corner, the second half margin down 5 basis points, that sort of implies [2.06] But then if I use the second line in that with full year '20 margin down 4 basis points, that implies 2.06 for the full year, which implies a second half margin below 2.06 . So there seems to be a disconnect between what you're saying around second half using either the top line or the second line.

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Alan Docherty, Commonwealth Bank of Australia - CFO [16]

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No, no. So what I'm providing there is the flow-on effect of the previous financed cash rate reductions, including the lower swap rates and the impact that has on the unwind of our replicating portfolio and equity hedges. I'm not trying to predict an absolute net interest margin number between periods. It's the flow-on effect and how that unwinds between 1 half and a financial year.

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Melanie Kirk, Commonwealth Bank of Australia - Head of IR [17]

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We'll take the next question from Victor.

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Victor German, Macquarie Research - Analyst [18]

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Victor German from Macquarie Bank. Matt, if I were just able to follow-on from your comment around noninterest income that you feel like you've reached the floor and you can grow from here. And I appreciate, thank you for all the disclosure you've provided. Just be interested in perhaps a little bit further color in terms of why you think that's the case. I appreciate that you've obviously done a lot of rebasing. But there's still presumably underlying pressure in that line item. And I know you have quite good disclosures showing deposit fees, but you still have about $400 million per year contribution. Just interested in sustainability of that.

And then second question, it's quite unusual for one of the major banks to sustainably deliver superior growth in mortgages relative to 3 other peers. But just interesting in your observation as to why do you think you're able to do that and how sustainable is that?

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Matthew Comyn, Commonwealth Bank of Australia - CEO, MD & Executive Director [19]

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Sure. Yes, I mean, in the noninterest income line, I said modest growth. Obviously, that's right. And of course, that considers all things being equal. So it's not to say that there won't be changes in the competitive context, et cetera. But in the work that we did last year, we sort of looked top to bottom across our business and made some decisions about what products we no longer offer, how we want to charge for those. We introduced a number of alerting features to help our customers understand what they're being charged and when, which had a direct impact. We forecast at that time that $275 million would grow to $415 million. We've seen that flow through. And we feel like there's some modest growth opportunities which is really just a function of growth from here.

Of course, as you go over into the medium and long term, is there potentially downward pressure on interchange rates? Are there potentially downward pressure on other fee types? Absolutely. But we would consider, at least from what we can see. We believe there's still modest opportunities from here.

And to your second question, yes, look, I mean, given our size, you're right, it's unusual. We have not seen it before since sort of GFC. It surprised us that it persisted. I can't speak for all of the other institutions. I feel we've had a good start to the year. So I feel good about January and February, but we wouldn't expect our system performance or our volume performance in home lending to persist at these levels.

And I think the main driver -- sorry, to come back to the other part of your question has really been -- we've been very consistent around operational execution and turnaround times. And obviously, one of the other competitors gave a briefing yesterday. Similarly, we've seen they've done a very good job around operational execution. And there's been, obviously, greater variance in the market. And so those that have been consistent, in particular, have been rewarded because others haven't. So particularly in the broker market, that's where flow has shifted between institutions, which is always the case, brokers will move to institutions where they know they can get a speed to decision in same day or within 48 hours versus perhaps waiting much longer than that.

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Victor German, Macquarie Research - Analyst [20]

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Sorry, just one thing on that. I mean some of your competitors mentioned that perhaps you haven't implemented some of the changes and been delayed on that. Are you able to just confirm that, that's not the case, and you've implemented everything that you needed to implement into the processing?

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Matthew Comyn, Commonwealth Bank of Australia - CEO, MD & Executive Director [21]

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Yes, that's not the case. Yes, I've heard those suggestions and that's not right.

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Melanie Kirk, Commonwealth Bank of Australia - Head of IR [22]

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We'll take the next question from Matt Wilson.

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Matthew Wilson, Evans & Partners Pty. Ltd., Research Division - Executive Director of Financials [23]

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Matt Wilson, Evans & Partners. You talked about the front book/back book issue in your mortgage book. Can you add some color to the inertia rents that exist in your deposit book?

And then secondly, you've gone from spending $750 million a year on productivity and growth initiatives to now only $300 million a year. Yet you aspire to maintain your technology edge, et cetera. And then can you talk about the issues that have constrained the investment there?

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Matthew Comyn, Commonwealth Bank of Australia - CEO, MD & Executive Director [24]

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Yes. I think -- why don't I come back to deposits or maybe, Alan, if you want to take it? I mean on the productivity and tech side, Matt, I think it's a really important question. The way we think about it, of that $1.3 billion, basically $1 billion of that is tech spend. We've got 5,500 people working on projects. Clearly, we would like more of them against productivity and growth. We've had a big regulatory agenda. I mean financial crime is a good example. We've got more than 1,000 people across our financial crimes team. We're probably spending $200 million circa cash investment in that area. As one of the points that I was trying to make is that, yes, absolutely, we see that as regulatory and compliance. And when we deem something as regulatory and compliance, it also triggers a slightly different accounting treatment. We'll expense a much greater proportion of that over a shorter time frame. But we've also -- the way we're sort of trying to pivot that spend is making sure that we're building sustainable assets which don't just deliver benefits in the context of, say, financial crime per se, but also have additional benefits in the context of having high-quality at source information, which you can flow through at the organization reliably and reconcile is valuable.

Absolutely, what I like to be. Once we've got to the level of management of nonfinancial risk that we think we should be delivering, move more of that investment into productivity and growth. Absolutely.

And the second part of that equation is, would we be prepared to invest more into our technology because we sit it at the heart of our competitive advantage. Yes, we would. The binding constraint for us at the moment isn't so much trying to constrain the financial envelope. It's all about actually access to high-quality resources and even on the portfolio that we've got at the moment. We feel like we're not executing optimally, and we want to make sure that for every dollar that we're spending that we're getting a good and efficient return on that. And so to the extent that we're -- obviously, we're working hard on strengthening that. We feel like there's good opportunity to scale that, then we'd be prepared to do that.

Yes. You want to talk on the deposits?

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Alan Docherty, Commonwealth Bank of Australia - CFO [25]

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Yes. Sure. So on deposits, obviously, we called out during the time of the last cash rate reduction, it was around $160 billion of deposits that we couldn't reprice due to the low levels of interest rates. I mean one of the interesting things, though, that you've seen in this result is given the really strong growth in both transaction and savings deposits, you've seen a substitution effect between term deposits which is obviously higher yielding and lower margin and lower-yielding and higher-margin transaction and savings accounts as customers increasingly value the convenience and functionality of the transaction at-call online accounts. And so that's one of the reasons our net interest margins held up pretty well over the past 6 months. So it substituted both more expensive or less expensive forms of deposit funding. It's also allowed us to retire some expensive wholesale funding during the period.

And so yes, deposit pricing is going to continue to be an issue in a lower rate environment, where we're seeing some pleasing momentum in underlying customer deposit growth.

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Matthew Wilson, Evans & Partners Pty. Ltd., Research Division - Executive Director of Financials [26]

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I actually didn't mean that they're in the deposit book, there would be instances where your back booking deposits are earning much less than what the current rate would be if they're new-to-bank customer today. And this is something the FCA is currently investigating in the U.K. Given the nature of our policy development, we'll probably copy them. Can you comment on that one?

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Matthew Comyn, Commonwealth Bank of Australia - CEO, MD & Executive Director [27]

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Yes. Look, I understand your question, Matt. Look, I think one of the issues for banking as it is for every other industry is, to what extent is it acceptable to have promotional offers, rates to attract new customers. In any highly competitive market and industry, competitors will compete for new customers. Now that has to be done in a way which isn't unfair to existing customers and, of course, doesn't -- you come up with second-order effects.

I think in deposits, there's certainly been less attention on that as an issue. And hence, why I focus more today in and around home lending. That's another area that we look at. It's probably, I think, overall, at an industry level, it's probably reduced. There's a relatively small number of products where there's a pricing construct that's quite different.

And yes, you're right. Any of those regulatory environments, we watch closely. There will be a focus in a number of these areas. But I think it's much around awareness. As there is a focus around sort of vulnerability of customers. We've got a lot of work underway there. And so we try to, as best we can, understand and get ahead of those sorts of trends.

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Melanie Kirk, Commonwealth Bank of Australia - Head of IR [28]

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We'll take the next question from Andrew Triggs.

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Andrew Triggs, JP Morgan Chase & Co, Research Division - Research Analyst [29]

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Andrew Triggs from JPMorgan. Just to follow-on from your comment there, Alan, on the substitution effect. But do you say this as a long life NIM tailwind on the coming halves, or is it sort of mostly being penetrated in this half?

And the follow-up question just on term deposit pricing. From what we can see, it hasn't led to a lot of pulling down of rates in the term deposit market. Is that something that you would naturally expect to follow later on?

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Alan Docherty, Commonwealth Bank of Australia - CFO [30]

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Yes. I mean if you have a look at the average balance sheet disclosure, you'll see the fall effect and the net interest margins during the current half. And so yes, I'm not viewing it as a tailwind in the future period. We did well in the current half on that basis. And sorry, your second question?

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Andrew Triggs, JP Morgan Chase & Co, Research Division - Research Analyst [31]

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Just whether that substitute effect then leads to better spreads on term deposits for the bank? As in there's less money chasing term deposits? Can you pull those lower?

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Matthew Comyn, Commonwealth Bank of Australia - CEO, MD & Executive Director [32]

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Yes, I think what we've seen is that -- particularly, if you look at just TD pricing, last year, when rates move, the yield curve moved, that put a lot of pressure on TD margins. They really contracted. I think you've seen as a function of that, our TD prices moved down over the course of calendar 2019. The customer forum that I had in Brisbane, it would have been, 70% of the customers there were asking about their TD pricing, not their home loan pricing. So I think for customers out there, they're really -- they're feeling the impacts of a low interest rate environment quite sharply. So I think we're very conscious of that. If you look at sort of TD pricing, it's come down quite substantially across the market as you would expect it too, given rates. Not a little bit of substitution out of TDs, not much, though, in terms of our customers chasing other sort of high-yielding investments, equities, et cetera, maybe at the margin a little bit of that. Probably less mix shifting between transactions and savings accounts, given a low-rate environment, probably overall helps the transaction balance growth.

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Melanie Kirk, Commonwealth Bank of Australia - Head of IR [33]

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We'll take the next question from Andrew Lyons.

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Andrew Lyons, Goldman Sachs Group Inc., Research Division - Equity Analyst [34]

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Andrew Lyons from Goldman. Just 2 questions. Firstly, on your IB&M NIM was down 10 basis points in the half. I just wondered just how much of that related to portfolio optimization that you're doing within that division versus the broader competitive market?

And then secondly, you've also spoken about being relatively underweight in commercial banking and the business lending within your Business and Private Banki went backwards in the half. Could you perhaps just talk about strategies you have to rectify the market position and what the competitive environment looks like in that space?

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Alan Docherty, Commonwealth Bank of Australia - CFO [35]

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Yes. In terms of the Institutional Banking margins, we've seen a couple of things in there. So firstly, the -- that lower earnings on our equity, we transmit that to each of the business units. So you see that manifest in the IB&M results. So that's certainly in there. We've also got a bit of switch of revenue between P&L line items in this period. So we've got lower yields on some of our commodities financing income, and that's offset by some stronger performance from a mark-to-market perspective that you see come through other banking income. So there's a -- you see a bit of a gross up of a netting between net interest income and other bank, in particular, in this current period.

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Matthew Comyn, Commonwealth Bank of Australia - CEO, MD & Executive Director [36]

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And in commercial lending, in particular, I mean, nothing untoward. There's probably a higher level of runoff in the -- particularly in the last sort of couple of months. I think we would describe -- I mean our overall business lending is okay. Clearly, our aspiration would be slightly stronger performance there. I think it's a combination of, I think, we can improve our offering. I talked a bit about business express and just faster speed to decision, turnaround time, particularly for sort of sub-million dollar lines. There's a number of things that we are working on and we'll continue to. We've got a very good sort of customer base and deposit franchise in business lending. We've historically not been able to convert that into the commercial lending opportunities that would otherwise be there. Obviously, it's going to be a very competitive context in that particular area as well.

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Melanie Kirk, Commonwealth Bank of Australia - Head of IR [37]

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We'll take the next question from Brendan.

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Brendan Sproules, Citigroup Inc, Research Division - VP [38]

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It's Brendan Sproules from Citi. I just wanted to ask about your consumer finance revenue volumes and margin this particular period. Just the volumes have been falling for a number of periods. And obviously, you're now investing in Klarna, but you've also launched a debit card, which I mentioned somewhat competes with credit cards. So just the outlook for volumes, but also, what sort of pricing initiatives that you take that revenue obviously grew even though volumes fall? And have you sort of included that in your forward-margin guidance when you talk about sort of announced repricing? Or is that something different?

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Matthew Comyn, Commonwealth Bank of Australia - CEO, MD & Executive Director [39]

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Yes. So let me talk about consumer finance. You're quite right. I think it's one of the sort of softer areas of performance. And maybe I'll just talk about it in a couple of different ways. So I mean we look at cards business, and both have been strong contributors to profit and profit after capital. A number of different changes. I think there's a structural shift that continues away from credit to debit. I think buy now, pay later is an element of that. But frankly, that was underway before then.

A number of both regulatory changes in the -- domestically in the context of both no longer able to offer credit limit increases. We used to run, for example, our cards business, a pretty conservative line assignment. And credit limit worked very effectively, we think for both customers as well as overall returns. Obviously, changes around responsible lending, particularly the amount of repayment that you need to include in the application process. So there's a number of things have tightened, interchange has come down. So I think the proposition in Australia vis-à-vis other markets as cards actually aren't falling substantially in a market like the U.S., for example, they're much higher interchange.

So the Ultimate Awards card, we want to have a better product available for transactors. We think the structural shifts there in the context of debit over credit client is part of that. But there's, I think, more to it. And then on -- so I'd say there's demand and supply. And then on personal loans, more bias towards tightening, combination of both probably the regulatory settings, had similar application rates, but actually approval rate is quite well down.

One of the things that we're thinking about in the context of that is our overall pricing strategy as you would expect. And we see that as an area of real focus. It's been a real strength for the best part of a decade and in the last period. For a number of those different reasons, it has come together to be a soft point.

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Alan Docherty, Commonwealth Bank of Australia - CFO [40]

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In terms of the margin implications of consumer finance, I mean, one of the things you'll see as well, there's a mix shift within the credit card portfolio from growth in some of our newer low rate card products. And so that has, if you like, an offset with the mix of that consumer finance portfolio. So I wouldn't -- you wouldn't expect to see material margin tailwind from that.

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Melanie Kirk, Commonwealth Bank of Australia - Head of IR [41]

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We'll take the next question from Brian.

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Brian D. Johnson, Jefferies LLC, Research Division - Equity Analyst [42]

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Brian Johnson, Jefferies. First is congratulations on the actual execution, which has probably got not much to do with where the share price is, but it's very noticeable. You're at executing your peers.

Two questions. The first one is that when we have looked right at the back Slide 127 and the following slides, there's a lot of stuff about share count and the value of franking credits. And also, when I have a look at the NIM slide, I can see a fairly substantial NIM headwind coming forward. And that's not unreasonable to think that EPS and DPS is going to fall. The argument between maintaining the dividend versus off-market structured buybacks. I'd just be interested if we could just get an explanation of how you think about maintaining a dividend in the face of earnings falling and saying that the share count is going up versus basically reducing the share count by more by doing a bigger structured buyback. It kind of seems if you're running a private business as opposed to a public company in Australia, all that matters is dividend. I think you'd be opting for a buyback except the share price is too high. So I'd be interested if you could explore that.

And then the second one is an even more esoteric question. Slide 61, for the first time, I can recall, you've actually disclosed your cost of capital of 10%. Your ROE is sitting at 12.7%. If we were to go back last year, we saw an environment where basis risk rise -- rose and all the banks used this as an excuse to basically disenfranchise the back book housing by increasing the rate. Basically, as we saw basis risk improve. Basically, we didn't see any banks passing it back on. The central issue on Australian banks remains have you got the pricing power to keep on raising basically back book housing rates particularly now that you've told us your cost of capital is 10%, you're doing an ROE of 12.5%. I'm just wondering -- I'd like to get a feel how those dynamics play out.

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Matthew Comyn, Commonwealth Bank of Australia - CEO, MD & Executive Director [43]

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Why don't I take a stab at both of those, Brian, and I'll throw to Alan. Maybe the second one first. Yes, cost of capital, a number of people, I think, particularly, you, have been asking for that for a while. So we decided to include it. I think it has more of an impact, frankly, in our businesses like institutional, where obviously there's pricing. And we've elected to keep it above the way we would calculate our cost of capital at this point in time because we want to drive. And I think Andrew is doing an excellent job of having a lot of discipline there. I don't really want to speculate too much about sort of pricing power, particularly as it relates to home lending. It doesn't have a huge impact in the sort of day-to-day management of -- to other businesses. In context of price settings, that's an area of huge focus for us in terms of making the best decisions for our customers and for the long term.

Then maybe going back to the first part of your question. Yes, look, that disclosure towards the back of the slides. I mean, clearly, management of the share count has created value in the context of CBA. We're very conscious of that. But I guess, to go to your broader question, how do we think about the context of potential capital management, dividend, dividend sustainability. I mean between the management team and RMC have this regular discussion with the Board. We sort of think about over multiple years of projection. What level of credit growth are we assuming. What do we expect happening with net interest margin. You're right, you're quite right, we assume base case, interest rates are going to stay low for a long period of time. We've got a big headwind that's coming. But we feel that there's a number of things that we can still manage within that, including our expense line. We think a lot about the organic capital generation. Some of that's our business mix and our settings. That's one of the strengths that I think of this result of 37 basis points, notwithstanding a high payout ratio. It's a very good organic capital generation. That's one of the reasons why our share count has been able to remain low.

So we factored that all into the way we think about potentially capital management as well as the dividend decision each 6 months. And based on all the information that we have in front of us today, we feel very comfortable that the appropriate decision has been made. I think Alan sort of set out some of those considerations. If at any point, and yes, absolutely, it wouldn't be an insignificant move to reduce the dividend for the Commonwealth Bank given the broad retail shareholder base. But if at any point in the future, we felt that it was in the best interest of the organization, then we would do it. And the other factors I'd like to add in would be, obviously, credit outlook, movement, risk-weighted assets, et cetera. So we've sort of done that modeling, as you would expect, going out multiple years and tried to consider all of those factors.

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Alan Docherty, Commonwealth Bank of Australia - CFO [44]

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Yes, I mean, in the additional disclosures, Brian, what we're really trying to do is give people a sense that we're very focused on earnings per share and dividend per share, there is both a numerator and earnings component to that. It was also a denominator and share count component to that. That goes to the capital intensity of your earnings and how much franchise capital generation you can provide subject to a certain level of payout ratios. So it's more to get a sense that we're very focused on both aspects of earnings per share and dividend per share.

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Melanie Kirk, Commonwealth Bank of Australia - Head of IR [45]

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Great. Thank you very much to everyone for joining. That brings to the end of our briefing. If you have any follow-up, please come back to the Investor Relations team. Thank you.