The Commonwealth Bank of Australia (OTC:CMWAY) (CBA) has reported a strong performance for the year ended June 30, 2024, with a focus on customer support, community investment, and economic strength. CEO Matt Comyn emphasized the bank's commitment to customer service and digital innovation, which has contributed to significant growth in business deposits and lending.
Despite the challenges of rising living costs and inflation, the bank has shown resilience with a net profit after tax buoyed by volume growth and lower loan impairment expenses. CBA has also maintained a solid liquidity and capital position, with a 12.3% capital ratio. The full-year dividend has increased to $4.65, up 15% from the previous year, reflecting the bank's confidence in its financial health and market position.
Key Takeaways
- CBA has focused on customer support through tailored payment arrangements and access to credit with no interest or fees.
- Investment of over $800 million to combat fraud and cybercrime, reducing customer scam losses by over 50%.
- Business lending growing above system at 1.2 times, with a 9% increase in business deposits.
- Net profit after tax supported by volume growth and lower loan impairment expense.
- Strong liquidity, funding, and capital positions maintained, with a 12.3% capital ratio.
- Final dividend increased to $2.50, resulting in a full-year dividend of $4.65, up 15%.
- Optimistic outlook despite economic challenges, with a focus on supporting customers.
Company Outlook
- Recovery in GDP growth and disposable income expected over the next year.
- Commitment to support customers through both good and bad times.
- Continued focus on delivering superior customer experiences and digital innovation.
Bearish Highlights
- Rising costs of living, interest rate increases, and inflation impacting households and borrowers.
- Near-term headwinds expected from the current rate environment on margins.
Bullish Highlights
- Moody's (NYSE:MCO) rates CBA as one of the five strongest banks globally.
- Growth in retail and business transaction accounts.
- Full repayment of the RBA term funding facility, with conservative long-term funding.
Misses
- Productivity benefits not expected to be the same or higher next year.
Q&A Highlights
- Financial resilience of recent cohorts lower compared to fixed maturities.
- Success in acquiring customers from the migrant population, accounting for 62% of new accounts.
- No change to the payout ratio, but flexibility to operate at a higher end of the range.
- Active in capital management through share buybacks and neutralizing the dividend reinvestment plan.
- The bank holds an 80% coverage for a downside scenario of a 25% fall in house prices in the first year.
The Commonwealth Bank of Australia, with its ticker CBA, has showcased a year of strong performance and strategic investment, ensuring its position as a leading financial institution in Australia. Despite the economic headwinds, the bank's robust results and optimistic outlook reflect its resilience and commitment to customer service and innovation.
Full transcript - None (CBAUF) Q4 2024:
Melanie Kirk: Hello, and welcome to the results briefing for the Commonwealth Bank of Australia for the year ended June 30, 2024. I'm Melanie Kirk, and I'm Head of Investor Relations. Thank you for joining us. For this briefing, we will have presentations from our CEO, Matt Comyn, with an overview of the business and the results as CFO, Alan Docherty, will provide the details on the results, and Matt will then provide an outlook and summary. The presentations will be followed by the opportunity for analysts and investors to ask questions. I'll now hand over to Matt. Thank you, Matt.
Matt Comyn: Thank you, Mel, and good morning, everyone. It's great to be with you today. This year, we've continued to focus on supporting our customers, investing to protect the community, and providing strength and stability to the broader economy. We know many of our customers are finding it harder and harder to deal with the higher cost of living. We are doing more to help making that help easier to access, and we're encouraging people to reach out to us early if they need assistance. We've taken a deliberate strategy to proactively contact customers and have provided 132,000 tailored payment arrangements to those most in need. As a financial safety net more than 6 million Australians can now access up to $2,000 in credit with no interest no monthly fee. To maintain service levels in regional Australia, we've delivered on our commitment to keep all of SCBA regional branches open. We've also adapted how we use branches to support regional jobs and maintain branch services. Safe and Secure banking remains a priority for all Australians. We invested more than $800 million in the past year to combat fraud, scams, financial, and cyber crime to protect our customers. This investment has enabled us to reduce customer scan losses by more than 50% in the last financial year. During the year, we rolled out five market first innovations and we are sharing our technology and intelligence with other institutions. Using NameCheck, we screened 57 million account to account payments, preventing $410 million in mistaken payments and scams. All Australians benefit from strong and stable banks. To support economic growth, this year, we lent $39 billion to businesses to help them grow and helped 120,000 households buyout. We further strengthened our balance sheet and we remain well positioned to support our customers and the broader economy. We have been rated by Moody's as one of only five banks globally with the highest financial strength. This year, we delivered $8 billion in dividends, benefiting more than 13 million Australians. Households and businesses have experienced a number of extreme shocks in the past few years. Lockdowns, demand surge, inflation and rapid interest rate rises. The effects of still being felt. The cash traders increased 425 basis points since May 2022. And the impact on households has been substantial. Last financial year, the Commonwealth Bank actually paid $33 billion more in interest to depositors and funding providers than the two years prior. This is equivalent to 80% of the one-off government support package in the GFC. At the time, it was Australia's largest ever stimulus. This has resulted in a large redistribution of interest expense, interest income, and expense across the economy. Households and net borrowers in the economy, which makes a rising rate environment, particularly tough. With the increases in mortgage repayments, predominantly impacting households, age 25 to 55. Rates have moved higher in response to price inflation. The consumer price index has increased by 19% since the start of the pandemic. One quarter of this increase has been driven by housing, with new dwelling prices up 38% and rents up 15%. Households continue to respond to the higher prices, and I find it even harder than six months ago. More spend is directed towards essentials and discretionary spend is being cut back. We can also see that savings are being depleted, particularly for working families. Younger Australians who tend to have lower incomes and smaller savings buffers are the most sensitive to changes in prices. Those aged between 35 to 44 had the highest share of mortgage balances and are most exposed to higher rates. The same data over a longer time period shows the impact of the pandemic, which is still being absorbed by households and the economy. Government stimulus had a disproportionate impact on younger Australians who saw rapid increases in savings balances. The spend levels increased substantially by both spending and savings have been pulling back over the past two years. It has been a particularly challenging to use the households with real disposable income declining until recently. We expect a recovery in GDP growth and a rebound in disposable income over the next 12 months. Our role as the bank for all Australians is to support all customers through good times and bad. Our purpose building about a brighter future for all, recognizes that the Commonwealth Bank's performance and future is inextricably linked with Australia's prosperity. We think about our purpose in the following ways: we want standards of living to continuously improve for Australians by growing the economy and supporting customers. We've grown business lending balances 11% this year to help small businesses create jobs. And we've grown sustainable lending 74% to $7.4 billion to help decarbonize the economy. We wanted to help customers achieve their life goals and aspire to be the trusted partner at the center of their financial lives. We've scaled yellow to be one of Australia's largest rewards programs with over 5 million engage customers. We are now considered the main financial institution for 62% of migrants and 46% of young adults. Through technology and digital, we seek to deliver superior customer experiences. Through our market, leading at, we continue to drive engagement with in-app messaging preferred by customers and now accounting for twice as many interactions as over the phone. We significantly increased the number of technology changes delivered this year while reducing operational incidents. We also recognize that it's important that we continue to execute consistently that we are safe, strong, and there when most needed. This year, we repaid the $50 billion of term funding facility and further strengthen our balance sheet. Our strategy aims to build on and strengthen our sources of competitive advantage. The strength of our core franchise starts with customer focus and strong relationships. Deep trusted relationships leads to a higher frequency of engagement, a better understanding of our customers' needs, and superior customer experiences, leading to value creation for our shareholders. Where Australia's leading transaction bank to both households and businesses. This favorable business mix results in more stable and lower cost deposit funding and better risk identification. We've maintained conservative funding and capital settings and have market leading provision coverage. This stability and consistency of earnings is reflected in a lower cost of capital and allows us to invest more than our peers over the long term. It also allows us to steadily grow the balance sheet while consistently delivering strong, fully franked dividends, and managing down our share count. One of the key ways we measure the strength of our relationship we have with our customers is through the Net Promoter Score. Retail MPS's increase for eight consecutive months, and we achieved the highest score for a major bank since tracking began. We also have the leading digital NPS for our digital offerings, including the CommBank GAAP, which is used by more customers than any other financial services at in Australia. We also now hold the leading major bank NPS for our mortgages, transaction accounts, and the contact center. Our focus on deepening customer relationships is evident through our leading MFI shares, which leads peers by a considerable margin. More than 35% of Australians and 25% of businesses consider the Commonwealth Bank to be their main financial institution. This has translated into an increase in transaction accounts. Over the past five years, retail accounts have increased by 29% and business accounts by 55%. We now hold the largest share of stable household deposits in Australia, which have grown over $110 billion since June 2019 and a 65% higher than the nearest peer bank. Turning now to our performance. Operational performance has been strong. We've been disciplined volume margin management in home loans, where we led a number of changes and increase net interest income share across the market. But we also stated 61 basis points of market share. We've implemented a number of changes and scaled operational capacity to respond to a very substantial increase in dispute transactions, scams, and other emerging threats. And we've been very focused on disciplined capital management. Strategically, we continue to build direct primary relationships through a differentiated proposition. Proprietary new lending mix increased 7-percentage-points to 66% compared with only 28% for the overall market. We've continued to extend our digital ecosystem, launching new propositions in travel, auto and real estate and growing our telco, energy, and health propositions. And we were the only Australian company named in Kantar's Global 100 most valuable brands with consideration at 54% in retail and 58% in business. Our customer focus, combined with consistent and disciplined strategic and operational execution, has delivered good outcomes for all of our stakeholders. Net profit after tax was supported by our volume growth in our core business. The 2% reduction in impact was driven by the impact of inflation on our operating expenses, partly offset by a lower loan impairment expense. Throughout the year, we've maintained strong liquidity, funding, and capital positions. Our operating performance and strong capital position has allowed the Board to declare a fully franked full year dividend of $4.65, up $0.15 on the prior year. For the eighth consecutive half, we will neutralize the dividend reinvestment plan. Operating income was flat for the year, supported by volume growth but offset by falling margins. Operating expenses were 3% higher, driven by inflation and increased technology spend. Our cash net profit was down 2% on the prior year on lower loan loss provisions. We remain well positioned heading into a lower growth environment. We continue to strengthen our balance sheet with high levels of provision coverage, surplus capital, and conservative funding settings. Our balance sheet is now 77%, deposit funded up from 75% last year. Our weighted average maturity of our long term funding is 5.2 years and liquid assets of $177 billion. Our capital ratio of 12.3% is well above regulatory requirements. Our portfolio credit quality has remained sound, supported by strong labor market and savings buffers. As anticipated, troublesome and impaired assets have increased in the quarter to $8.7 billion, reflecting movements in four well-secured single name exposures and high our home loan rate structures. The TIA ratio remains well below the historic ratio, the historic average. We expect to see further increases in arrears in the months ahead given continued pressure on real household disposable incomes. We remain well provisioned for a range of economic scenarios. We total provisions of $6.1 billion, which is $2.2 billion above our central economic scenario. In our retail bank, our peer-leading MFI share has seen retail transaction accounts increased 5% versus the prior corresponding period. We are continuing to grow our business bank franchise. We now hold 1.25 million business transaction accounts, which is a 9% increase. We are leading the market and business deposits, which have grown by $68 billion over five years. We have continued to grow business lending above system at 1.2 times with more than 90% of our lending customers also holding a transaction account with us. And our Institutional Bank also plays an important role and has contributed net deposit funding of over $66 billion. Our total risk-weighted assets have reduced by $30 billion over seven years and risk-adjusted returns have improved. Looking at our business bank in more detail. We've continued to innovate to differentiate our position for our customers. We've enhanced our health proposition and recently launched CommBank smart health pharmacies and have 3,400 health providers enrolled. Our capital gross account allows customers to withdraw funds was just 48 hours or seven days notice and now has more than $1 billion in balances after it's first year in market. In May this year, we launched a new term deposit product to help our small business customers withdrawal up to 20% at any time without interest adjustment or phase. We're also extending our combat yellow program to eligible business customers to provide personalized benefits on business related purchases. And make rental payments simple and easy to tenants and property managers, we've partnered with MRI, the leading real estate software provider. Another core part of our strategy is delivering global best digital experience. The CommBank app is used by more customers than any other financial services app in Australia with over 8.5 million active users. Since the app was launched over a decade ago, the number of customers using the app has close to tripled and the frequency of their use has also tripled. Every year, over the past 10 years, we've invested and innovated to make more and more customer needs digitally. This has resulted in consistent year on year growth in overall customer usage and engagement. Our unique customer recognition program, CommBank Yello is central to our strategy, delivering millions of personalized benefits, discounts, and cash backs to customers every day. Yello is the only recognition program of its kind run by a big bank in Australia with more than 8 million customers now eligible to receive benefits. As in many other countries, Australia has seen a substantial increase in criminal activity focused on fraud scams, cyber, and financial crime. We are working harder than ever to prevent, detect, and disrupt this activity and protect our customers and the broader community. We are spending more than $800 million a year and have over 4,000 people working full time across these areas. It is one of the largest areas of operational activity within the Commonwealth Bank. This year, we have rolled out a number of market first innovations, improved controls, increased alluding to customers, and continued customer education and awareness. We've also made our technology and intelligence available to others, including globally. And piloting new approaches with three as the Telcos. In June, we became the first bank to share information into a new anti-spam intelligence loop to enable faster action to take down scams across bank's, digital platforms, and telcos. We have decreased scam losses to customers by more than 50% in the last financial year. However, we also acknowledge that there is more that we can do and we are absolutely committed to making as much progress as possible. I'll now hand over to Alan to go through the financials in more detail.
Alan Docherty: Thank you, Matt, and good morning to everyone dialed in . I will cover the financial aspects of our result in some more detail. Starting with an overview of key changes in our operating context, we have responded and how that manifests in key measures of financial or franchise health. So looking firstly, at our operating context, the Australian economy continues to show resilience, strong migration flows, and higher deposits or incomes, continue to offset the fall in disposable incomes sale by renters and borrowers. We continue to see competitive intensity and our banking businesses, which can be seen in both lending and deposit margins. Industry revenue shares have been relatively stable over the most recent six months after a particularly volatile period in the previous calendar year. As we look at the global and domestic economic outlook, but there's still uncertainty around the forward trajectory of inflation and interest rates. However, the Australian economy continues to be positioned well and benefiting from strong fundamentals. So how are we responding to this context? Firstly, as Mark has already talked about, we continue to focus on supporting our customers and keeping their money safe and secure. Secondly would be consistent and strong level of investment of shareholders' capital behind our strategy. This work is driving improvements in enterprise wide measures of -- digital experiences for millions of our customers. Thirdly, we have remained disciplined in our approach, not just to volume and rate trade-offs, but also across the broader potential uses of shareholders' capital, such as M&A and our execution of capital management activities. And lastly, we have continued to strengthen our balance sheet settings to further underpin the flexibility of the franchise to support our customers and the economy where needed. As a result of these actions, the long-term health of our franchise has improved, our main financial institution share has again increased across both retail and business bank customers, and we have delivered a new major bank record customer Net Promoter Score in the retail bank. This strengthening of the franchise translates into shareholder returns. And you can see some of the key financial outcomes for the year on the bottom half of this slide. A level of organic capital generation reached $10 billion over the last 12 months, and that represents a significant widening of the gap to the next highest peer. We have again strengthened or levels of deposit funding, interest rate risk hedging, loan loss provisioning, and capital. That long-term balance sheet strength has been recognized by Moody's this year, who upgraded CBA to an A1 baseline credit rating. There were only four other banks in the world without rating. And we are the only bank to know to have achieved an A1 rating on the strength of our financial settings. And that combination of profitability and balance sheet strength allowed the Board again distribute a higher dividend. I will now unpack the result and a little more detail. Statutory profit from continuing operations were $9.5 billion. The largest non-cash item was the loss on the announced divestment of our Indonesian bank subsidiary, PTVC. Excluding those items, continuing cash profit was $9.8 billion. The overall P&L line item trends were relatively consistent at the headline level over both the full year and the sequential six month period. Operating income was relatively flat over both the year and a half, although there were important compositional differences between the two periods that we'll cover in a moment. Operating expenses increased while loan impairment expense reduced. And we have seen a small decline in both pre-provision profit and cash profit. Looking firstly, at operating income over the year, overall income was relatively flat, a little over $27 billion. Net interest income fell despite 3.4% growth and average interest earning assets due to competitive pressure on margins. Volume growth was particularly strong in business lending over the year, as momentum continued in our business bank. This was more than offset by higher other operating income due to volume driven growth and fee income across our retail, business, and institutional divisions as well as another strong year within our Global Markets business. I mentioned earlier that the drivers of operating income growth were different year on year versus half one half. You can see here that net interest income come from a headwind over the year to a tailwind over the most recent half as net interest margin stabilized over recent months. By contrast, other operating income grew strongly over the year to a growth in fee and commission income. However, reduced over the most recent half on lower trading revenues and dividends from minority interests. If we look more closely at the change in net interest margin over the sequential half, home lending margins were down 1 basis points and the pricing and mix of term deposits and savings products drove 6 basis points of funding cost increases. Higher earnings on a replicating portfolio and equity hedges added eight basis points and there were minor changes and the other items. We don't normally comment on quarterly margin trends. However, given the large buildup of liquid assets to fully repay the RBA term funding facility, there was some volatility in headline margins over the last two quarters. Excluding those impacts, the underlying quarterly margin trend was stable. Turning now to operating expenses, they increased by 4.1% over the year, including one-off restructuring provisions, expenses increased by 3%. This was largely driven by inflationary increases in wages and supplier input costs. We continue to invest strongly in our technology estate and related to that and come to higher software amortization charge. Pleasingly, growth in these costs were offset by ongoing business simplification and productivity benefits. If we now turn to our balance sheet settings, starting with credit risk. Loan impairment expenses were $802 million as loan loss rates reduced to 9 basis points this year. As we previously indicated, arrears rates increased across home loan, credit card, and personal loan products as pressure continue to build on household disposable incomes. We also expect to corporate troublesome and impaired exposures to trend higher in the second half and that has been the case. Over the most recent six months, gross impaired assets increased $700 million. Most of that increase relates to, 1,000 more home loans, which were restructured during the period to assist owner occupiers suffering under cost of living pressures. Given the very strong subsequent cure rate and secure a position of these mortgages, they expected loss on that cohort of loans is very low. Corporate troublesome exposures increased by approximately $1 billion over the year, principally due to the downgrade of four single names. These loans are well-secured and no significant loan losses are expected. We edged up our provisioning coverage to 166 basis points of credit risk-weighted assets. Overall provisions have been kept about $6 billion, with lower expected losses in our consumer book and slightly higher provisioning of our corporate portfolio. We continue to hold a buffer of $2.2 billion to a central economic scenario, which provides nearly 80% coverage of a downside scenario. As usual, we have set out our sector level considerations have evolved over the last six months. Consumer provisions have reduced slightly over the period due to rising house prices as well as lower expected losses on credit cards and personal loans. This lead to reduction in our modeled this collective provisioning in the retail bank. Within corporate, there wasn't any significant change in the provisioning coverage for the retail trade, ELT, or commercial property sectors. We did reduce forward-looking adjustments slightly in the construction and agricultural sectors as portfolio credit metrics improved and expected drought conditions did not materialize. Going the other way, we rebalanced our multiple economic scenario weightings to take account of slightly higher geopolitical risks, best led to the small increase in corporate portfolio provisioning in the half. Taking a look at our funding settings, we've seen another pleasing period of growth in retail business and institutional transaction account balances versus taken our customer deposit ratio to a new high of 77% of total funding. Looking at the full funding stack in the middle column following the full repayment of the RBA term funding facility, you can see our short term wholesale funding mix remains below historic levels and long term funding remains conservatively positioned with a weighted average maturity of 5.2 years. On the right-hand side, it's worth noting at this point in the rate cycle, the relative cost of different equity and debt instruments. We obviously monitor these variances very closely as we seek to carefully manage the balance between the cost of capital and the after-tax cost of issuance of new term funding. For example, we estimate that the current spread between the shareholder cost of senior debt and capital is around 3%. That's at the lower end of the range we've seen in that spread over the last 15 or so years. That will be one factor, among others that influences, the choices we make around the quantum and timing of share buybacks, the level of new debt issuance, and the optionality value that comes from running higher capital levels. Our level 2 common equity Tier 1 ratio was 12.3%, unchanged over the past six months. We completed another DRP neutralization in the period, buying $400 million of shares at an average price of $117. And we made some more progress on our $1 billion on-market share buyback program. We have today announced a 12 month time extension of that program until August 2025. The final dividend increase $0.1 to $2.50 and the dividend reinvestment plan will again be fully neutralized through an open market purchase of shares mistakes or full year dividend to $4.65, up 15% last year. Our payout ratio has moved to 79% at the upper end of our target range, supported by that strong level of capital generation. Our continued preference is to pay strong and sustainable fully franked, ordinary dividends rather than small and temporary top-ups dividends. This is one example of the long-term approach we take to our business strategy and our key financial settings. Our funding composition remains conservative. Structural hedges of interest rate risk now total $170 billion. We have the appetite and the track record to continue to invest strongly behind our strategic priorities. Franking surplus is stable and healthy level, and we continue to manage our investors' capital and share count carefully. This long-term approach manifests and a track record of delivering strong and sustainable shareholder returns. Or a combination of a high return on equity and a strong payout ratio compares favorably with domestic and global peers. And our strategic investments, strong operational execution, and disciplined capital management continue to deliver continued outperformance in net tangible assets and dividends per share. I'll hand back to Matt for the economic outlook and the closing summary. Thank you.
Matt Comyn: Thanks very much, Alan. The economy is still absorbing the shocks to the past few years. Higher rates have had the intended effect of lowering household demand. Inflation is falling, but the pace has slowed. Households are finding it more challenging to respond to the higher price environment. They can expect some relief this year with disposable incomes set to rebound. It will be important to keep demand constrained across the economy so that inflation returns to the target band. Domestic challenges remain around productivity growth and housing affordability. Globally, uncertainty remains around several issues. The domestic economy remains fundamentally sound and stronger than many international markets. Unemployment remains low, business investment high and exports are strong. Australia has a number of structural advantages that provide optimism for the future. So in summary, we remain focused on supporting our customers. The Commonwealth Bank remains strong and stable. This is underpinned by consistent disciplined operational and strategic execution. We have a distinct proposition and more customers are choosing to bank with us. We will stay focused on our customers, offering personalized support and financial flexibility, and we will continue to invest in our franchise. I'll now hand over to Mel to go through your questions.
A - Melanie Kirk: [Operator Instructions]. We'll now take the first call from Andrew Triggs.
Andrew Triggs: Our first question just on the deposit mix and price impact from the half-on-half. It was similar to the first half at 6 basis points instituted. Alan could separate those two impacts out. And it does look a little higher than you would expect, given the mix shift slide did appear to show a slowing in that deterioration of mix in the deposit base.
Alan Docherty: Yep, sure. Andrew answer the 6 points we can split the savings would be 4 points of that savings pricing. And one of the aspects we called out earlier in the presentation was the significant amount of bonus, the proportion of deposit of railing bonus rates above 80% and our goal saver product. And so that you've seen in our mix shift and there and favorable pricing from a deposit perspective, that's four of the six. Term deposit spreads have come in around 20 basis points over the half. We've got a slightly higher mix of retail term deposits relative to end history. So that's 2 points of the 6 point compression.
Andrew Triggs: So it sounds like it was, I guess, mix in a sense of a qualification and the bonus rates rather than movement out of transaction accounts and into high cost deposit products per se?
Alan Docherty: Yeah. That was the of the move this half.
Andrew Triggs: And maybe just to follow up, just on that same , just the replicating portfolio tailwinds, 8 basis points combined between the deposit and equity hedges. Could you talk to that was higher than I had expected in the half, should be expecting a similar level of tailwind in the first half of '25? And just also interested the increase in the size, the deposit hedge to $219 billion play at all into the margin tailwind that you achieved in second half '24.
Alan Docherty: Yeah. So I think -- I'd say the short answer would be yes, to both of those questions. So we increased the level of replication as we've seen that stabilization and the level of deposits switching from transaction accounts, we decided to hedge a little more proportionately of unknown rate-sensitive balances. You'll recall through the COVID period when we had that big increase in our core transaction accounts. We tended to wait until we see the relative stability of those floors before we hedge them in there replicating portfolio, obviously, given the timing of rate moves. I think, that was the right course of action as we look back with hindsight. But as those non rate-sensitive balances have stabilized, we decided to upsize the size of the replicating portfolio. And you've seen some of that come through as those replicated in the earnings through the period. As we look ahead, work is going to be a function, obviously of where three-year and five-year swap rates land. We've seen a lot of volatility in both the swap rates over the course of the last few weeks. You've seen something like a 40 basis point movement between low-400s and low-360s. And both of those swap rates in the last couple of weeks alone. So I wouldn't like to hazard a guess around where they're going to be able to the next 12 months. We'll watch those rates closely and with interest. And that will be the determining factor in terms of the -- or the absolute and relative level of both replicate and equity hedge returns next year. But I think the dynamics of that portfolio, I think are well known.
Matt Comyn: Probably -- maybe the base into '25, we wouldn't expect as much benefit in '25 versus '24 versus '24 to '23. So I think, Alan step through the -- lots of variables. But I guess as we look forward into name for next year, I don't think we'd that will be counting on quite the same magnitude of absolute increase.
Melanie Kirk: The next question will come from Andrew Lyons.
Andrew Lyons: Andrew Lyons, Goldman Sachs (NYSE:GS). Alan, just a quick question. Firstly on your , your group nymph was up 1.5 basis point and you noted the quarterly underlying trends were broadly stable. However, if you look at the divisional names you're two largest divisions saw name to down 5 bps in aviation and to be in business back. So can you perhaps just talk more specifically to the name performance in each of these divisions? And just the extent to which the stable group nymphs trends were also observed in these two and under these two divisions.
Alan Docherty: Yeah. I mean the small element and we called out in the walk a small element of treasury earnings, which were higher over the sequential hubs. We had 1 basis point there that sits outside of the divisional margins. The same underlying trends are evident across both retail and business bank for the period. So you've seen in retail that impact of the the higher savings pricing, the migration of the term deposits, and obviously the preponderance of the home lending mix change impacted there. On the business bank, it was actually relatively realm. We were pretty pleased with the overall margin performance in the business. Bank was down only very marginally over the sequential six month period. And -- but again, we've seen some interesting changes in competitive behavior, particularly at the larger ticket sizes on both lending and deposits within the business bank. We made the decision not to participate in some of that activity, which I think from a volume rate perspective, protective business bank earnings well in the period. So I'd say similar trends between the divisional results and the and the overall group result of the treasury on a positive aspect of the overall group margin.
Andrew Lyons: And then just a second question, just looking at slide 85 at the bottom right chart shows your FY23 and '24 mortgage books are performing somewhat worse than the pre-'22 books at the same time since origination. Can you maybe just talk to any specific trends you are seeing in those vintages should be aware of? And just to the extent to which this performance is maybe a bit worse than you would have expected, or is it broadly as expected, given the rate rises?
Alan Docherty: Actually a little bit of it would be expected as we went back 6, 12 months. We had a slightly higher trajectory that we've assumed on the home loan portfolio's overall. So a little better than expected. The performance of the recent vintages is not surprising how much lower stock of fixed rate home loans that and the more recent vintages, obviously at a higher stock of fixed rate mortgages were in the earlier vintages. And so the relative performance isn't surprising that obviously recent vintages have you got less time to build up prepayment buffer. So you would expect to hire incidence of rails given the changes in rates that we've seen over the past 12, 18 months. So they performed by vintage and the overall performance actually a little better than we would have forecast 12 months ago.
Matt Comyn: Yeah. I think as Alan said, that the factors that we found most predict given terms there is performance, which has come in slightly ahead of what we might have otherwise model is really just that financial resilience to your savings buffers. And so the more recent cohorts, that's been much more predictive of where we'd say this. Lower financial resilience versus some of the fixed maturities, which I know we've covered substantially in the pass. So we would expect a gradual deterioration going into '25, depending on obviously our outlook on rates at some point.
Melanie Kirk: The next question comes from Jonathan Mott.
Jonathan Mott: I've two questions, if I could. The first one, just on the retail banking business and just delving into the result and a bit of the detail. Consumer finance, we've seen a bit of a recovery in net interest income, even though the volume have been pretty flat over last year and a pickup in the fee income as well. Is it actually any rate movement or is it more customers now accruing interest? Why are you starting to see after an extended period a fall in consumer finance revenue recovery coming through, especially in the last half?
Matt Comyn: There's a mixture of both, Jonathan. There's some fee income, not just in that product in the retail bank that's flowing through. I mean, unlike cards, the rate environment pales is responsive to the interest rate environment. The corollary of that is younger borrowers, higher rates. We started to see as we saw in the period, the pickup in arrears, which we anticipated we sort of started tightening in December. And obviously we're watching that closely so a combination of both of those factors.
Alan Docherty: The other element particularly we've seen in the six month period was we align the amount of interest free days on a credit card product through the period. That resulted in a sort of interesting change from a volume rate perspective, so we've seen balances dropout for the overall from a volume perspective, net interest earnings were improved as a result of that change.
Jonathan Mott: Okay. So there will be a bit more of a next period or is it a one-off?
Alan Docherty: Most of that's and that's all on the half.
Jonathan Mott: Okay. The second one is a phenomenal outcome. I think, Matt, you commented on this as well. So slide 24, you highlighted that your MFI share of migrants is now running at 62%, which I've never heard of a number like that. Given there were 750,000 new arrivals into Australia last year, you're looking at 0.5 million new customers, roughly just coming through the migrants, can you give us a bit of detail on this? Obviously what is the profitability of these new customers, say, come through? How long do they tend to stay? Do they bank with you because you become more effective in Australia and a lot of people think you still owned by the government? What's going on that you've got such a phenomenal ability to acquire customers from this channel?
Matt Comyn: Yeah. And I think, John, as you know, we've spoken about this over many years. The source of new account, youth and migrants, we've done well over an extended period of time. Like you were pleased to see the share of both, young, adult. But to your question, particularly in migrant, I think as we've also said on the survey, we find that the numbers are directionally accurate, but not necessarily precisely correct. But I think the broadly it holds, as you mentioned, very large numbers of migrant. So that's been a real driver of new account growth for us. And look at mix is really reflective of the mix that's coming in. There's obviously a lot of temporary visitors to Australia, student. So I mean, that tenure of those customers would match obviously.. We have a specific focus on those that sort of pathways to permanent. Look, I think it's a long standing advantage that we have at least to date been able to hold in terms of preference and consideration. I don't know how much the name itself holds on that relationship. I do think I mean, I can remember serving and branch and 35 Burke Street, when someone came straight from the airport when I was in the retail bank and they got a mobile phone plan and came in the Commonwealth Bank with their suitcases to open an account. I think some element of that is just awareness and the benefit of scale. We're also pretty active when -- in signage arriving. And so we should think about it in the context of overall all making sure we're very visible. And that has been and continues to be a really important focus for us given those two markets in particular, such a driver of new account growth.
Alan Docherty: And just on the numbers you quoted, John, obviously it's net new migration. That's the important driver of the retail channel count net movement because we're obviously opening accounts from new migrants, but we'll close accounts from migrants who departs. So it's not quite as the 700,000 that would extrapolate that to the 60% net new migration would be more 450,000 to 500,000 on an annualized basis. So the MFI share is going to be proportionate net new migration in terms of that growth.
Jonathan Mott: Thank you.
Melanie Kirk: The next question comes from Richard Wiles.
Richard Wiles: Good morning. I have two questions. One is on mortgages and the other is on capital management. Just starting with mortgages, Matt, your growth improve in the June quarter, the annualized rate, something like 5%. That made you now more comfortable with the pricing and the returns on new home loans?
Matt Comyn: Yeah, we are a Richard. I mean, I'll take little bit of that arc of overall financial year obviously going back to pre the start removing cashbacks and we felt the pricing was unsustainable obviously at the start of the financial year. A significant proportion of that share loss came in in the first half. We've, as you said, touched on some slight growth in the last quarter. We saw margins improve and probably as much a function over that time actually is wholesale funding spreads. And therefore, just to an improvement in the overall margins, we're looking at a pretty cautiously a number of you are tracking as we do changes in terms of front book origination margins as well. So we've seen a little bit of deterioration on that front in the last month. A couple of players who has been a little more disciplined has started this ratchet up discounting again. So we're certainly a lot more comfortable than we were 12 or 18 months ago, but very watchful about margins. And clearly that's going to be one of the big swing factors in terms of how margins will play out in '25 and beyond.
Richard Wiles: Thank you. And then on capital. You haven't been particularly active on the buyback. You've done less than $300 million last year, certainly your peers have been active. So can we get some sort of sense for how you're thinking about the buyback? I mean, your previous commentary suggests that you're not particularly keen on special dividends. Is that still the case? And alternatively, why not increase your target payout ratio? I mean, you talk today about the strength of the capital generation. Why not go to a payout ratio of something like 85% to distribute that large excess balance of franking credits?
Matt Comyn: Yeah. Maybe I'll start and let Allen add If you'd like to. So I mean, no change to payout ratio, if we have said that a number of times we've talked about being prepared to operate at a higher end of that range, which we are clearly we have the flexibility if we wanted to go beyond that. We've got a healthy but not excessive franking balance. No change in posture around our views on special dividends, as you touched on. And I think Alan highlighted some of the key points as a number of different considerations that we take into account, including, obviously market conditions. When we're neutralizing the dividend, we're probably buying somewhere in the order of 4 million shares. Also there's quite a lot of buying activity. Overall, we look at the opportunity cost of holding capital. We look at the differences and spreads between various funding instruments against implied cost of capital. And so we weigh all of those factors up and -- but fundamentally, our views and core principles are unchanged. We see value, obviously in reducing the share count over time. We obviously want to embark on activities that we think it'll going to create as much value as we can based on where we are and alternatives are, in the cycle. We have been active from a capital management perspective, obviously to neutralize the DRP as well as the $300 million of progress we made on the on-market buyback. Over the course of the last 12 months, we've bought back $1.5 billion worth of shares at an average price of around $107. So I think from a shareholder sort of deployment of capital perspective, that's been sort of time and capital well spent. We showed the relativities of the market implied cost of equity versus the after-tax marginal cost of debt. Obviously, there's different spreads on those numbers between CBA versus peers. So I think that result in a different decision making around pace, quantum and timing of share buybacks. And I think you've seen that over the course of the last six months in particular. And so yeah we will continue to sort of weigh all that up. And then one other point I'd make just lastly, on the payout ratio, we've obviously got capacity there given the level of organic capital generation. However, one thing I would say is the one of the reasons for lower market and the relative market implied cost of equity is the stability of the dividend. And when you start creeping up in terms of the level of payout over a period of time, that can create some more uncertainty around the sustainability of the payout ratio at very high levels. And so again, that's another factor that we'll look at around what's there? We want the dividend to be strong, but we also want it to be sustainable. And we want to have confidence in our abilities to continue to sustain and grow at a level of the ordinary payout.
Richard Wiles: Thank you
Melanie Kirk: The next question comes from Victor German.
Victor German: Thank you, Mel. Can I please follow-up first on the hedge question? First of all, would I be right to say that shifting that additional $11 billion of deposits into replicating portfolio, is this more headwind to margins given the current cash rate is about 30 basis points above the five-year swap? And also appreciate, I don't know exactly comparing apples and apples here, but historically, you're replicating portfolio only slightly exceeded your business and retail transaction deposits, whereas now it's about $25 billion higher. Is that because you're trying to protect the P&L from future potentially lower rates and blocking high rates for now? Or has the structure of the deposit book fundamentally changed? And as you alluded Allan on there, you now don't expect any more migration, how do we sort of holistically think about those deposits? And then I have a question on that cost as well as possible?
Alan Docherty: So on the for the replicating portfolio, we start with the total balance of Northern rate-sensitive deposits for the group. That's more than just the noninterest-bearing transaction accounts. There's a large stock of non-rate sensitive balance because you apply historical behavioral experience in terms of the level of pass through rate across a number of deposit products. So there's a much larger pool, I feel like, of non-rate sensitive balances and just those non-interest bearing checking accounts. So we feel the level of hedging that we've got and the replicating portfolio, $119 billion, that's still is proportionally less than the overall stock of non-rate sensitive balances. We got plenty of headroom between the level of replicating and the level non-rate sensitive. So that -- you continue to look at how behavior changes over time and model that out and that leads to changes in the level of hedging that we apply. Yeah, the point that you started with is correct. So obviously, given where swap rates are relative to the current level of cash rate than there is a near-term headwind, if you like, from the increase in the size of the replicating on those at-call transaction account balances, obviously we're taking a view over the long run in order to create that stability in the deposit net interest earnings, as you've seen over many, many years, we've had the replicating portfolio in place since the mid-1990s. And you see a lot of obviously ebbs and flows in the rate cycle and we took the -- one of the things as you look ahead is, obviously, where do you think cash rates are going ahead and opens swap rates over the course of the next few years? And again, that's part of the thinking around why we upsized the size of the replicate.
Matt Comyn: Yeah. I guess that maybe Victor to your point than underscoring what Alan said, the growth in non-rate sensitive deposits has been really important for us to be able to support that. It seems to be most evident in the business bank. You mean compositional analysis, the deposit to be up something like $124 billion. If we compare June to say, pre-COVID at the end of '19 and at least that mix to more transactional everyday banking seems to be holding together well. And will give us, as Alan said, yes, maybe a near term, absolutely NIM headwind, but much better protection in a falling rate cycle over the medium term.
Victor German: No, that makes sense that. And obviously, that increase has happened in the last couple of years as opposed to last half. So I guess I'm reading in terms of what you're saying, it sounds to me like you have more confidence now that some of those increases in stable deposits are likely to stay with you in the medium term whereas in the past, you were not sure and you thought that they would potentially migrate out. That message it. I'm assuming, you're leaving us with?
Alan Docherty: Yes, let's say, that's the right conclusion to draw.
Victor German: Okay. Thank you. And your second question --. Appreciate you haven't specifically discuss the potential benefits of the investment that you're making in technology. But at various times throughout the year, your executives have sort of commented on some of the potential cost benefits, for example, reduced engineering time from AI and things like that. Just be interested in hearing from you how you think about the trade of between that investment and cost savings and if you see potential cost saving opportunities coming through the P&L over the next couple of years, or would you envisage to continue reinvesting those benefits into the business over the medium term?
Matt Comyn: Maybe I'll start and Alan, I certainly can expand. I mean, two elements. One, the productivity savings in year and Allan's touched on that and I'm sure happy to expand. We look at the productivity benefits that we've delivered this year. I think it's, overall, a good year. A number of those are enabled by the technique energy investments that we've made, particularly in digitization, that's going to continue to be an important theme. And so we think about it in context of what's our productivity and all the different initiatives over the course of the year and how that's going to ladder up in '25 and beyond. And then alongside that, then we sort of thinking about the investment portfolio, and we feel this year has been one of our more effective years in terms of development deployment. Obviously, we talked about the number of changes that we've made. But just in terms of yield and improvements, it's been an area of real focus for us. And so we're certainly prepared to contemplate high levels of investment where we feel like we're getting a commensurate increase in the quality and quantity of either productive or customer enhancing technology delivery. And se we sort of solve for both of those, both in the near term, but importantly, taking a long-term view, what sorts of capabilities and competitive advantages do we really want to press on over the next five years? And there's a number of elements within our broader technology strategy, which we think are really critical to that competitive position.
Alan Docherty: And then maybe just a small add to that, an important area, Vector, of the governance around these aspects of both the productivity initiatives that underpin that, the accountability that goes for delivering against productivity targets, that's a very separate process to then the strategic investment priorities and where reinvestments may or may not be made because what you don't want a sort of automatic bias to reinvest any savings because that may not necessarily be the best marginal use of the marginal piece of shareholders' capital. So we have two very separate processes around that. We've run that those processes very separately for a number of years now. That creates then confidence around the ability to deliver and continue to generate productivity. And then we can have a separate discussion around where do we want to deploy some of the capital that frees up. What does that mean in terms of the pre-provision profitability of the organization? What does that mean for -- at the end of the day to the dividend and the level of growth on the dividend over a number of years. And so I think is very important that those -- the governance around those two aspects of how we manage the investments, where we invest, how much we invest, where we want to target those investments are very separate conversation to where we delivered productivity, both get commensurate focus.
Victor German: And Alan productivity benefit around $400 million this year, not too dissimilar to last year. I mean, do you expect that number to be broadly similar next year? Or do you see scope for that to increase?
Alan Docherty: I mean, that's probably the best ways actually, it's the best in your productivity that we've generated over the course of at least the last six or seven years. I'd say that there was a -- we were pleased with the performance from a productivity initiatives perspective over the course of the period. They obviously helped offset some of the cost and the inflationary increases in costs that we've seen over the period. One of the aspects, as you know, as we look ahead, looking at the level of amortization -- software amortization, that will continue to grow commensurate with the level of strategic investment that we've had on foot for a number of years. Inflation should be a more moderate upwards driver on costs as we look out over the next couple of years. But productivity, we had a good year this year. We will continue to focus very much on it. I wouldn't be sort of banking on the same number or a higher number in the next year. We'll set very aspirational targets in and around that. But you tend to -- we'll take a multiyear view of that. We don't want sort of falls economies by chasing a productivity number that's excessive.
Victor German: Thank you very much.
Melanie Kirk: The next question comes from Brian Johnson.
Brian Johnson: The first question I'd like to ask is probably slightly unpleasant one. If we could go back to the JPMorgan (NYSE:JPM) result, they came out -- Jamie Dimon came out and quite explicitly said, we demand to buyback shares greater than 2 times booked. The share price fell about 4.5%, subsequently rally back to actually be more. But from what you're saying today, is it fair enough to conclude that the absence of the buyback basically reflects the fact that the share price was too expensive?
Alan Docherty: That wouldn't be fair to conclude the year. We know the JPMorgan commentary. I mean one of the -- slide 7, we included a number of banks and payout ratio and return on equity. The math's around the Jamie Dimon comment is a function of the profitability of the franchise. And when you include the beneficial impact of franking, CBA's return on equity is higher than JPMorgan's, therefore commensurate you would expect a higher breakeven point, if you like. on the economics of a buyback. It's still accretive. Buybacks remain accretive. The question isn't whether they're accretive or not. I mean, we you can see that when you look at the relative cost of capital versus after-tax cost of that. The question is on the -- in terms of the pace of buybacks are the accretive enough to offset the option of optionality value, which is real, which is running higher capital buffers through periods of uncertainty in avoiding dilutive capital raise from a shareholder perspective. And so it's more a question of pace optionality. But the sort of economics remain accretive, less accretive than they were 12 months ago, but still accretive.
Matt Comyn: BJ, I mean, look, it's not unpleasant, and I think Alan's touch on a number of the key factors. I think if you look at that sort of that sort of heuristic that Jamie used that you gross up the benefit of franking. Obviously in that book value would be . And then as Alan said, there's lots of other sort of temporal issues that are really important and actually bring a lot more nuance to difference in cost suggesting for tax franking of alternative funding instruments that spread the implied cost of capital, and then, as well as anyone because you've been covering the banks for a long time. If you take a sort of a 30-year view and look at what the average raising was every sort of six years and what the discount was, which is probably , you can sort of calculate an optionality of that cost of capital and simply a function of those market conditions, interest rate environment, number of different factors.
Brian Johnson: Okay. Thank you. I'm going to take it. That still means perhaps it's pushing the boundaries of relative value. The second question, if I may. And I think this is a real short coming in the regulatory capital. We've got CommBank, and NAB that have still retained much of the COVID-19 provisions whereas ANZ and Westpac have written back. Today, we've got you increasing basically you're waiting to your severe downside scenario and geopolitical risk. But when we have a look at the balance sheet, the real risk I would have thought basically sit in the home loan book. Can we just get a feeling what kind of downward movement in house prices would trigger a provisioning shortfall for CommBank?
Alan Docherty: Yes. Well, the simple answer to those, if you take the downside scenario, which has a -- I think there's a 25% fall in house prices in the first year on the downside scenario, I mentioned that the current level of provisioning that we hold, and that's across both retail and non-retail portfolio. But hopefully home loans would be a pure part of that. We're currently provided a 80% coverage for that downside scenario. If you have higher house price falls, then obviously you would potentially have higher expected credit losses. one of the reasons the capital intensity of our mortgage book has reduced over the course of the last 6 and 12 months because the equity position of the NA LVR position of the mortgage book has continued to improve in an environment of rising house prices. So you'd have to see a very significant change in the current trajectory of house prices. And obviously, many factors that go into that are included in the broader economic conditions, supply and demand, the new housing given migration flows in the country. So very significant change in house prices would be required to create anything like a material change in our what level of provisioning. So as we sit today, the level of provisions that we have on mortgages are significantly higher than the expected losses that we have under the central scenario. And obviously, the central scenario is very continued growth and post prices over the course of the next two or three years.
Brian Johnson: Fantastic. Thank you and congratulations again.
Melanie Kirk: The next question comes from Brendan Sproules.
Brendan Sproules: Good morning. Thank you for taking my questions. I have a couple of questions on NIM. Allan maybe could you tell us around the trends you're seeing in switching out of low cost deposits into higher rate deposits such is term to page 92 of the profit announcement. Keep such split of your deposits by geography and you could see their New Zealand and even other overseas are still seeing a transition towards to deposit pretty straightforward back. Maybe you could your comments on that trend?
Alan Docherty: On page 92, the profit announcement. Yeah, on the term deposit trends there, which are down in the half that, they are influenced more by the higher end of the business bank and outflows there as well as the Institute and some institutional clients. So that's really what I'd describe those low to negative margin hot money at the upper end of business bank and institutional bank that we have allowed to flow out over the course of the six month period. When I referenced earlier with where we've seen some of the competition, it was in large ticket sizes and it was large ticket sizes of the top end of the business bank and institutional, and as both lending and deposits. And so will the load some of that money to come out over the course of the last six months. So that's why you can see that trend on page 92. Those are a broader trend is very similar in the last six months to the prior period, although the rate of switching obviously slowed. So we continue to see switching over the period. The only caution I would give on the rate of switching. There is still switching and we are seeing some of that switching offset by growth in new accounts, including the new migrant account non-migrant increase in retail transaction accounts that we've talked about. There's a seasonal increase in noninterest-bearing transaction accounts in the business bank. You see that every -- at the end of financial year starting June each year. So that masks the level of switching that we continue to see in the six month period on a spot basis. But you've continued to see an element of switching. It's a much slower rate than it was this time last year. But that has an element of that remains.
Matt Comyn: Yeah. I mean, the only thing I'd add is on an absolute level of term deposits, the margins are very higher than what we'd seen sometimes. Naturally the competitive intensity has increased at least when we look at Australia looks to be the only market in the world where TD (TSX:TD)'s pricing about the cash rate. The other element that we have observed which makes sense, given where we probably are in the right cycle, customers are seeking longer duration in their term deposits. And so it's a combination of the mix, competitive intensity, low margin at the longer tenor, and the combination of those are the elements that Alan talked to obviously going to be one of the drivers in terms of NIM headwinds into '25.
Brendan Sproules: That's great. Thank you. My second question just relates to the impact of rate cuts from your NIM, obviously, it's a debate in the market, meaning distance is starting to think about this, not just in overseas jurisdictions, but even potentially Australia. During COVID, you indicated that at the time I would say roughly a 4 basis point impact on them for every 25 basis point cash. If I look at your particularly the funding at your balance sheet today as you said, you've got a lot more transaction accounts, particularly retail and business. Where you had a lot of success, you got much lower portion of TDs. Would we expect that sensitivities you can higher? And what would be somebody offsetting factors that we should be considering?
Alan Docherty: The sensitivity is obviously going to be a function of the decisions we continue to make around the level of hedging and the replicating portfolio. So the NIM protection that we have on the rate cut cycle in terms of earnings stability of the deposit interest, that was obviously the replicating portfolio. So both the size of that, our overall portfolio than the proportion of non-rate sensitive balances that we hedge, that's increased today relative to where we were through that pre-COVID period. We provided that sensitivity. I think it was February 2020 -- no February 2021 if memory serves. We have an updated that sensitivity from in terms of the current composition of the balance sheet. But we've provided a lot of information around the size and shape of the replicating. And you can see there's also disclosures in the annual report around net interest earnings sensitivity of 100 basis point rate shock across the portfolio but obviously all any --of those changes are going to be the function of pricing decisions that are made on both the asset and liability side of the balance sheet. So you can -- it's impossible for anyone, if you like, to have perfect foresight around the level of pass through on both sides of the balance sheet through changes in rates. The best thing you can do from an earnings stability perspective is giving yourself optionality by having more stable earnings, which we do through the size and the increase in the level of replicate.
Matt Comyn: Yeah. And I think I think you're right, and it was Feb '21 we gave that. So I mean the rate -- non-rate sensitive as a trend that we also given where the cash rate was more of the savings portfolio, we wouldn't have been able to pass that on because we were very low in terms of the cash rates, so the sensitivity by definition will be different for a few different factors.
Brendan Sproules: That's great. Thank you.
Melanie Kirk: The next question comes from Mattew Dango.
Mattew Dango: Yes, thank you for taking my question. You've called out the bonus savings rates is a key driver of deposit downside on deposits on NIM, just noting the deposit funding has grown to 77% of the funding mix and wholesale spreads continue to fall. So can you give us sense of what the optimal funding mix is and at what point you could optimize some of those higher-cost deposits?
Alan Docherty: Yeah. I mean we have been optimizing some of the higher-cost deposits over the six months by a low and some of the higher-cost deposits to float on the particularly in the term business and institutional term deposits. So we don't have a particular target in mind in terms of the overall deposit cut the customer deposit ratio, pleasing to see continued to grow. And we've obviously got a big focus on growing as well as customer advocacy, main financial institution share, and net new transaction accounts in both the retail and business bank. So that will continue to be a strategic focus. And you talked that would continue to support the customer deposit funding ratio. So yeah, we feel comfortable with the level of mix. If you look at the wholesale side, we're one of the things that's benefited margins. And the industry really over the last few years has been the level of basis risk has been very low. There was always spread. One of the reasons that was very low was a large amount of liquidity across the banking system, parts within the RBA's exchange settlement accounts. You've seen both for CBA and across the industry, sort of dreaming of that excess liquidity as we roll through the TFF maturities, we're getting more normal monetary and fiscal settings post pandemic. And so I think that's likely to put upwards pressure on basis risk as we look ahead in terms of the direction of wholesale funding settings. So it's going to continue to be important to manage carefully that growth in deposits. We're obviously been very the mindful around the relative pricing and the relative margin of different categories of deposits.
Mattew Dango: Thank you, Alan. And if I could just follow up on the impairments. You able to talk about had a loss development that has happened, how it evolves relative to your expectations across the sectors? You've talked about reductions in forward-looking adjustments on construction and agri, are they based with some troublesome loans eventuated or they're eventuated or they're coming up in other places?
Alan Docherty: On the corporate troublesome side, the four single , the preponderance of them are in the commercial property sector, although as we commented in both the profit enhancement and the presentation today, we're very comfortable with the level of security on those single so we don't -- we've got very low expectation of any loss on those single names. And so the construction and agriculture, we had specific forward-looking adjustments for risks in both of those sector and we've seen as we look at the sort of forward views of portfolio credit quality improvements and both those industries. And they're not large numbers, but we had a small reduction in the forward-looking adjustments that would apply to both construction and agri. And importantly, obviously, in agri, a ton of the year, the weather forecasters were assuming we would be in drought conditions this year, given us, there's been a lot of rain and wet weather, pleasingly, that's meant a really good seasonal growing conditions for a number of our agricultural clients. And so we've commensurately reduced forward-looking adjustments in agri for that particular change in the weather. So we've had small changes up and down across a number of the sectors, which would say. But overall, a small top-up for the corporate portfolio provisioning, which we feel comfortable with.
Mattew Dango: Thank you again.
Melanie Kirk: Our last question will be from Ed Henning.
Ed Henning: Thank you, Mel. Just two questions for me. Just firstly, just again on the margin walk on the 4 basis points you called out on the bonus savings. And people and the goal saver now getting that bonus saving of about 80%, is that now at record highs? And if you think about that going forward, is that potentially still filter on that going forward or that's now embedded in your in your margin walk for the next year?
Matt Comyn: Yeah, I believe it's a record high. It's certainly up over that period and reflects a concerted effort to do more loading to customers and notifying them. So I mean, we certainly have expanded the way that we do that. It's probably -- there may be a delta beyond that, but I wouldn't anticipate anything the magnitude that we've seen.
Ed Henning: Okay, that's helpful. Thank you. And then just a second one, you've called out today number headwinds creeping up a little bit in mortgages, talked about deposits and TD, pricing at all. Is there any way you'd call out going forward that you're seeing? Obviously there's competition across all your business lines, but any significant changes in delta of competition across business lines, whether it's on the lending side or the deposit side that you're seeing at the moment?
Matt Comyn: I think we've touched on many or all of them. I mean, it clearly, there was a bit -- there's an improvement over the course of the year in mortgages, as I said probably deteriorated a little more recently. Deposits, we've talked about from a TD, and particularly switching that savings. Business we're probably pleased with where the margins come out from a lending perspective. We've seen a lot of active competition, particularly at the upper end of corporate, what would consider in our major client group. I think, they have missed to let go probably $7 billion of deals at the upper end, mostly for pricing occasionally for credit. So the team's done a good job of being very disciplined there. We had a softer Q3, we had a very strong Q4, but we feel like there's certainly competitive intensity there, but we've been able to operate pretty effectively from our perspective, Alan touched on the other big trend from a deposit perspective, where we've seen some of those larger deposits with very, very low margins. We've been prepared to let those move and continue to really focus on building that sort of main bank relationship.
Ed Henning: That's great. Thank you very much.
A - Melanie Kirk: Thank you. And thank you for joining us for this briefing. Please reach out with further questions or if you'd like to state to the CBA across the afternoon and through the following week. And thank you for joining us.
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