We can.
Together.

2020 Annual Report

CONTENTS

How we create value

Overview

Our strategic priorities

8

Focus on financial
performance

18

Responding to
COVID-19 risks

2020

We have taken action to ensure
operational resilience and toaddress the risks associatedwith COVID-19.

P.14

ServiceP.6

Innovation
Strength

Delivering for ourcustomers andcommunities

P.56

We have been focused on
supporting our customers andcommunities, especially throughthis year’s challenges.

2020 highlights

2

Chairman’s message

4

CEO’s message

6

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to enhance your experience. The
best way to view this report is with
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to navigate the report.

Our commitment
to sustainability

28

Focus on sustainability
performance

46

Managing our changing
risk landscape55

Responding to COVID-19 risks

56

Our current risk priorities

58

Our approach tocorporate governance

62

Board priorities during 2020

63

Board of Directors

67

Executive Leadership Team

70

Best indigitalWe aim toprovide the best
digital banking
experience bybringing together
market-leading
service, technology
and innovation.

The release of this announcement was authorised by Kara Nicholls, Group Company Secretary.
Commonwealth Bank of Australia | ACN 123 123 124 | Ground Floor Tower 1, 201 Sussex Street, Sydney NSW 2000 | 12 August 2020
161/2020

Directors’ report
Directors’ report72

Remuneration report

78

Financial report
Financial statements

106

Notes to the financial statements

113

Directors’ declaration

268

Independent auditor’s report

269

Additional information
Security holder information

278

Five-year financial summary

285

Profit reconciliation

288

Glossary of terms

290

Contact information

301

Building a more focusedbank to deliver for ourcustomers, underpinned
by innovation and astrong balance sheet.

We can.
Together.

2

3

Value
createdGroup

Customers

Statutory net profit
after tax (NPAT)

Our targets

OVERVIEW

Financialhighlights

COMMONWEALTH BANK
2020 ANNUAL REPORT

2020
highlights$9,634m
 12.4%$7,296m
 11.3%

Our purpose
To improve the financial wellbeing of our customers
and communities.

We do what is right

Retail Banking Services

We are accountable

Business and Private Banking

We are dedicated to service

Institutional Banking and Markets

We pursue excellence

New Zealand (ASB)

We get things done

 0.8%Net interest margin

2.07%

 2 basis points

Capital ratio

CET1 (APRA, Level 2)

Our brands
Commonwealth Bank is the largest bank and best known
financial services brand in Australia.

11.6%

Top quartile among
peer companies for
reputation improvement

Top 10% globallyfor our employee
engagement score

Top quartile TSR
outperformance
relative to peers

Our progress

RepTrakreputation score

Employeeengagement

Total shareholder
return (TSR)

61.6#3 business NPS

Average of peer
companies: 67.1

81%

Global top 10%
threshold: 84%

151% 10-year
8% 5-year(11%) 1-year

17m

$3bn

89%

888,000+

customers served

tax expense – one ofAustralia’s largest taxpayersof employees are proud
to work at the Bank

shareholders,
78% Australian owned$106bn377,214$5.8bn$2.98

of new lending forAustralian home buyers

students enrolled in Start
Smart financial education

paid to our 41,778
people in salaries andsuperannuation

dividend per share,
fully franked

$27bn

$10m

39,000+$5.3bnof new lending forAustralian businesses

commitment to bushfire
recovery grants

people and delivery
partners enabled to work
remotely during COVID-19

returned to shareholders
as dividends$650m+

100%

41%$2,420in loans under theGovernment’s Coronavirus
SME Guarantee Scheme,>50% of scheme lendingof Australianelectricity needsfrom renewableenergy sources

women in
Executive Manager
and above roles

dividend amountreceived by
the averageretail shareholder#1 mobile app andinternet banking NPS#2 consumer NPS

 90 basis points

Deposit funding

74%

FY19 69%

Financials are presented on a continuing operations basis, except statutory NPAT, dividend per share and Common Equity Tier 1 (CET1) which include discontinued
operations. All figures relate to the full year ended 30 June 2020 and comparisons are to the year ended 30 June 2019, except employee engagement which is
30 April 2020 compared to 30 April 2019. For data sources, see Glossary on page 293.

ADDITIONAL INFORMATION

Our business areas$23,758m#1 Net Promoter Score(NPS) in consumer
and business banking

FINANCIAL REPORTOur values

Operating income

Shareholders

DIRECTORS’ REPORT

Cash NPAT

Our people

HOW WE CREATE VALUE

Our strategy is to become asimpler, better bank that delivers
balanced and sustainable outcomesfor our customers, community,
our people and shareholders.

Community

4

5
COMMONWEALTH BANK
2020 ANNUAL REPORTCHAIRMAN’S MESSAGE

OVERVIEW

Strength inuncertain times

A simpler, better bankThroughout the year, the Bank’s
leadership team has continued todeliver on our strategic priorities,
with a focus on becoming a simpler,better bank. We have made substantial

The business performed well in 2020,
with the strong focus on operational
excellence driving growth in our corebanking businesses. Cash net profit after
tax was, however, lower primarily due
to the $1.5 billion impairment provision
taken for the expected impacts of
COVID-19 on our customers and theeconomy and consequent credit losses.
Prudent balance sheet management
underpinned the Bank’s resilient
funding and liquidity positions. Strong
capital discipline resulted in a Common
Equity Tier 1 capital ratio of 11.6%
at 30 June, well above the Australian
Prudential Regulation Authority(APRA) ‘unquestionably strong’benchmark of 10.5%, and substantiallyabove the regulatory minimum of 8%.
The Bank’s strong capital position andoperational performance continues

Regulatory andcompliance update

We have made significant progress on
implementing the recommendations
from the 2018 APRA Prudential Inquiry
into CBA, and have now submitted morethan three-quarters of the milestones
outlined in our resulting Remedial
Action Plan (RAP). The Prudential Inquiry
Report, information on our RAP, and the
independent reviewer’s (Promontory)
quarterly progress reports are available
at: commbank.com.au/APRA.
We are also well advanced on
implementing the recommendationsof the Financial Services Royal
Commission. We are engaging
constructively and transparently on
matters that are being consideredby regulators as a result of the Royal
Commission or otherwise underinvestigation. Meanwhile, we continue
to focus on remediating processes
and systems, and have deliveredrefunds of more than $730 million
to customers since 2015. Our priorities
have included significant ongoinginvestment in our financial crime
prevention and detection capabilities.

Culture, accountability andremuneration

Over the past two years, considerable
attention has been given to culturalchange within the organisation.
The change has been values-led withstrong leadership from the Board, theCEO and his renewed management
team. There has been an acute
focus on the skills and behaviours
required of our people to deliver better
stakeholder and risk outcomes. This
includes our Code of Conduct, which
incorporates our purpose, values andthe ‘Should We?’ test, and guides ourpeople on how they should act andmake decisions to address customer
and community expectations.
The changes we have made toincorporate risk considerations into
our remuneration framework andassessment have delivered substantial
improvements to both accountability
and risk management maturity
within the Bank. Unsatisfactoryrisk management outcomes
and behaviours have negative
remuneration consequences.
Equally, to reinforce a positive risk
culture, a significant proportion ofsenior leaders’ short-term variable
remuneration is tied to the successful
delivery of our APRA RAP, andemployees who rate ‘exceptionallymanaged’ for risk are formallyrecognised and rewarded.
We have continued to review the
Bank’s remuneration framework toensure that it supports our strategic
objectives of attracting and retaining

exceptional talent, meets the spiritof anticipated regulatory change andis fit-for-purpose for the years ahead.
For more details see the Remuneration
report on page 78.

Sustainable business practice

We are committed to sustainable andresponsible business practices, inaccordance with the commitments
outlined in our Environmental andSocial Policy. We have continued totake the actions necessary to support
the responsible transition to a net
zero emissions economy by 2050,
including ensuring that our business
lending activities are aligned with thisintent. This year, we reached our goalof sourcing 100% of our Australianelectricity needs from renewableenergy, and increased our lending
to low carbon and renewableenergy projects.
We also continued to support ourcustomers and clients by providing
products that incentivise emissions
reduction and increase climate
resilience. This year, our institutionalbank has provided sustainability-linked
loans that tie the borrower’s cost offunding to the achievement of theiremissions reduction targets, andour green mortgage initiative gave
cashbacks to eligible customers withsolar panels installed on their homes.
We have been embedding ourhuman rights commitments inour operations and supply chain
management, as well as in ourlending and investing activities.

Board renewal

The program of Board renewal
continues. Sir David Higgins retiredon 31 December 2019, after more than
five years of service and contribution
to the Board. Wendy Stops has been
an integral member of the Board
since March 2015 and will retire at theconclusion of the 2020 Annual General
Meeting on 13 October. In June, weannounced that Simon Moutter will
become a Non-Executive Director
on 1 September 2020. Simon waspreviously Managing Director of Spark
New Zealand Limited (New Zealand’s
largest telecommunications anddigital services company) and has abackground in science and engineering.
He brings a deep understanding oftechnology, process effectiveness andbusiness strategy to the Board.

Looking ahead

Although the year ahead will bemarked by challenges and uncertainty,
your Board and management teamare very clear about the role the Bank
must and will play in supporting
our customers and the economy,
while also maintaining a strong
and resilient balance sheet anddelivering operational performancefor shareholders.
Thank you for your ongoing support.

Catherine Livingstone AO
Chairman

ADDITIONAL INFORMATION

Our people and the Bank’s leadershipteam have done an extraordinary
job and responded quickly andeffectively to the demands of
COVID-19 – by meeting customer
needs and supporting the delivery of
the Government’s stimulus initiatives.
This has included helping businesses
access JobKeeper and being the largest
lender to small and medium sizedenterprises through the Government’s
coronavirus loan guarantee scheme.

Business performanceand dividends

to support returns for shareholders.
The final dividend of 98 cents per
share reflects the guidance issued by
APRA in July, that for the remainder ofthe calendar year, banks should retain
at least half of their earnings. The final
dividend payout ratio is 49.95% of theBank’s second half statutory earnings.
Combined with the interim dividend of$2.00, this takes the full year dividend
to $2.98 per share, fully franked.

FINANCIAL REPORTThis past year has been extremely
challenging for many of our customers,
the economy and the Australiancommunity at large – initially due
to bushfires and drought, and more
recently due to the coronavirus
pandemic. We have therefore been
determined to provide financial relief
to households, keep working capital andcredit flowing for businesses, deliver
performance for our shareholders, andfacilitate economic activity and financial
stability more broadly.

progress on divesting and ceasing
our wealth management businesses,
which has allowed management tofocus on the performance of our corebanking businesses and on providing
the best banking experiences forcustomers. It has also created capacity
for ongoing investment in our marketleading digital assets and in innovation
for future growth. We have continued
to make significant improvementsin the management of non-financial
risk, including better operational risk
and compliance practices, thereby
supporting balanced and sustainableoutcomes for all of our stakeholders.

DIRECTORS’ REPORT

Shortly after the Commonwealth Bank
of Australia commenced operationsin 1912, the world was gripped by the
Spanish flu pandemic of 1918. Now,
as then, the Bank’s purpose is tosupport the financial wellbeing of ourcustomers and the community, and toprovide strength in uncertain times.

HOW WE CREATE VALUE

Our progress on key strategic, risk and governancepriorities, together with the strength of our balance
sheet and capital position, mean the Bank is wellplaced to deliver for our stakeholders.

67Outlook
Our absolute priority is to help ourcustomers and the broader economy
recover. We will continue to work closelywith our customers and undertake
regular reviews and check-ins, tounderstand and support their needs.

As the Bank for all Australians, we’ve taken decisive
action to support customers, businesses, communities
and the nation during one of the most challenging
periods we’ve faced. By contributing to economic stability,
we also advance the Bank’s long-term success.

We are dedicated to being there forour customers during some of the mostsignificant events in their lives, andespecially when we’re needed most.

Contributing to our communities
Improving the financial wellbeing ofcommunities is central to the Bank’s
purpose. This year we have been
helping those impacted by bushfires
and drought, as well as continuing
to support local organisations, improvefinancial education and address
financial abuse. To help communities
rebuild after this year’s devastating
bushfires, we pledged $10 million

Engaging our people

The improvements we’ve made in
our management of non-financial risk
have underpinned our ability to makehigh-quality decisions and implement
them rapidly during the pandemic.
This has enabled our people to go aboveand beyond to support customers andcommunities during challenging times.
Our people have been energised by our
purpose and feel a strong sense of prideand confidence in the organisation.
Employee engagement is up 13% thisyear and is now the highest it’s been
for more than four years.

Executing our strategy

Throughout the year, we have pursued
our strategic priorities to simplify ourbusiness, lead in retail and businessbanking, and be the best in digital.
By divesting and exiting our wealthmanagement businesses we have

Our retail bank extended its leadin home lending as our emphasison operational excellence delivered
consistent decisions and turnaroundtimes for customers. Deposits
continued to grow strongly, thanks
to the strength of our branch networkand digital assets. We have also been
investing in more business bankers,
and delivering faster, better service– including through our BizExpress
facility, which provides businesscustomers with same-day decisions
on eligible business loans.
The current environment has
accelerated the shift to digital banking
and electronic payments. With thebest digital assets in the market weare able to deliver richer and more
personalised digital experiences andservices. This includes our Benefits
finder tool in the CommBank app
which connects our customers to morethan 230 government and third party
benefits. Our customers clearly value
the investments we’ve been making.
We rank #1 for our internet banking
and mobile app Net Promoter Score,and for the 11th consecutive year,
we’ve been rated #1 for online banking
by Canstar. Independent researchfirm Forrester has also rated the
CommBank app as the overall digital
experience leader among mobilebanking apps in Australia for the
fourth year in a row.

Delivering performance

Our financial results this year
demonstrate the underlying strengthsof our business, as well as theimpacts of the coronavirus pandemic.
Operating income increased 1%, due
to strong operational performance,
including above market growth inhome lending and record growthin transaction deposits. This offset
the impact of lower interest rates,
COVID-19 related fee waivers, andreduced income from credit cards andinternational transactions due to lower
consumer spending. Loan impairment
expense increased significantly, due
to the additional $1.5 billion provision
taken for estimated future loan losses
related to the pandemic. As a result,cash net profit after tax was 11% lower.
The strength of our balance sheet
was a key highlight as it underpins
our ability to serve our customers,
drive core business outcomes anddeliver returns for shareholders.
We are now 74% deposit funded,
up from 69% just last year and almost
20 percentage points higher since
the global financial crisis. We alsosignificantly increased our loan loss
provisioning. We ended the yearwith a very strong capital position,
putting us in the top quartile ofinternational peer banks for capital.
Our strong capital position, combinedwith our strong statutory profit,
has allowed us to return $5.3 billion
in dividends to shareholders this year.

Customers

Engaging with our customers
to understand what ismost important to themand helping them throughchallenging times.
For details see pages 30–31.

Community

Making a meaningful
contribution to Australia andinvesting in the communities
in which we operate.
For details see pages 32–33.

Strategy

Delivering a simpler, betterbank that leads in retail andbusiness banking – supportedby the best digital experiencefor customers.
For details see pages 8–17.

Even in this challenging environment,
operational performance in thebusiness has remained strong.
We will maintain our focus on retail,business and digital banking to further
extend our franchise strength, and will
innovate for future growth. We will
also continue to work with our industry
peers, the government and regulators
to support initiatives that stimulate
economic activity and jobs.
Throughout the year, andparticularly in the last few months,
our people have shown tremendous
commitment to our customers, ourstrategic priorities, and to keeping the
Bank running safely during a periodof significant uncertainty. I thank themfor their dedication, and am proud ofwhat we have been able to do together
to support our customers and thecountry at this time.
We remain focused on supporting
our customers, driving operational
excellence and delivering balanced
outcomes. I am confident that given
our digital leadership, balance sheet
strength, and our people’s careand commitment, we will continue
delivering for our customers andcommunities, and for you, ourshareholders.

Performance

Focusing on financial
performance and balance
sheet strength to drive corebusiness outcomes andsustainable returns.
For details see pages 18–27.

Matt ComynCEOADDITIONAL INFORMATION

To provide immediate cash flow
relief to households and businesses,
we processed over 250,000 home,personal and business loan deferrals;
and to get much-needed cash tobusinesses, we funded more than$650 million of new loans under
the Government’s Coronavirus SME
Guarantee Scheme. Our digital channels
managed 10.2 million peak daily logins,
and we sent 130,000 debit cards tocustomers unfamiliar with digitalbanking to ensure they could makepurchases and pay bills from home.

For more than five years, we havebeen playing our part to address
domestic and family violence andfinancial abuse. This has included
equipping our frontline staff tohelp customers, providing direct
financial assistance, and funding
financial counsellors. Most recently,
we funded the establishment ofa Financial Independence Hub
to help those impacted achieve
long-term financial independence,no matter who they bank with.

been reducing complexity and riskin the Bank, and increasing our focus
on driving performance in our corebanking businesses.

FINANCIAL REPORTThis year, in response to thecoronavirus pandemic, our priority has
been to do what we can to support
our customers through the financial
and business impacts of the crisis. We
were able to act quickly because of
the commitment of our people, ourtechnology capabilities, and our strong
financial position.

in recovery grants, and also donatedto and raised funds for the Australian
Red Cross and Rural Aid.

DIRECTORS’ REPORT

Serving our customers

We are, however, prepared fora range of economic scenarios.
We’ve made provisions accordingly,
and will monitor our lending portfolios
closely as the situation evolves.
We anticipate that lower credit growthand low interest rates will continue
to put pressure on revenue, requiring
increased focus on performance,
efficiency and capital allocation.

HOW WE CREATE VALUE

While the duration and impact of
the health crisis is unclear, Australia
is relatively well positioned. We arestarting from a position of fiscal andeconomic strength, and significant
stimulus measures will continue
to support the economy. There isa pipeline of infrastructure projects,
and the outlook for mining andagriculture exports is strong.

OVERVIEW

Delivering for ourcustomers andcommunities

COMMONWEALTH BANK
2020 ANNUAL REPORTCEO’S MESSAGE8

9COMMONWEALTH BANK
2020 ANNUAL REPORTHOW WE CREATE VALUE

Delivering balanced
and sustainableoutcomes
Achieving our strategic goals
enables us to create value
for our stakeholders.

HOW WE CREATE VALUE

We are building on ourstrong foundations to drive
performance and to position
the Bank for long-term success.

Customers

We have the leading retailbank in Australia and arefocused on growing ourposition in business banking.

Our goal is to continue providing
the best digital banking
experience by making banking
simple, smart and secure.

We have made substantial
progress on divesting our wealthmanagement businesses. This is
reducing risk, cost and complexity,
which together with the capital
generated, supports reinvestment
in our banking businesses and future
returns. We have been simplifying
our systems and processes to makeit easier for customers and ourpeople to get things done.

We continue to strengthen our
retail bank franchise by investingin exceptional customer service,
the best distribution channels,
leading technology and strong
operational performance.
We are also investing in betterbusiness and institutional bankcustomer experiences throughenhancements to our service,data and technology capabilities.

We invest in customer-facing
and back-end technology todeliver easy to use, personalised,value-add and secure digitalbanking services. We aremodernising and digitising
our systems and processes toincrease our capabilities. We
continue to innovate both within
our business and with partners.

Trusted and reputable

Our people

ADDITIONAL INFORMATION

We are becoming a simpler
bank by focusing on ourcore banking businesses andsimplifying how we do business.

Community

FINANCIAL REPORTBest in digital

DIRECTORS’ REPORT

Better outcomes

Lead in retail andbusiness banking

Simplify our business

OVERVIEW

Ourstrategic
priorities

Energised, accountable

Shareholders
Long-term sustainable returns

10

11

We have kept our branches
open with physical distancing
measures in place to protect customers and our people, and have
surged resources into our customer contact centres to meet the increasein demand for help. We have also used our digital channels to send
personalised messages to customers to alert them to the support available.
To help households manage their cash flows, we quickly added newfunctionality to enable customers to apply for home loan repayment
deferrals online, dropped the rates on fixed rate home loans, andreduced repayments on principal and interest variable rate home loans
to the minimum required. We also offered repayment deferrals on
personal loans and a special term deposit rate for our deposit customers.
We will continue to focus on relieving financial stress and supporting
customers as we work towards economic recovery.

800%

#1

1,118

1,500+

home loan specialists

2,000+
customer contact
centre staff – alllocated in Australia

1 See Glossary on page 293
for source information.

Our retail bank holds leading market shares in home loans,household deposits and credit cards. We aim to strengthen thisposition by offering innovative products and services, backed
by the best systems and processes.
We are committed to providing exceptional service. Our retail bank service
promise is ‘simple and easy everyday, brilliant when it matters’.
Our leading distribution network enables us to serve our customers acrossmultiple channels, including the Bank’s extensive network of branches,mobile banking specialists, ATMs, and Australia-based customer contact
centres, as well as our online services and apps.

Bank less with Bankwest

Rayen Gouli and his wife Sabina Lama kept
a close eye on the property market and had
saved for years, but thought a 20% deposit
to buy their first home in Melbourne wasout of reach.

Bankwest’s mission is to do more forcustomers by asking them to do less.
To deliver frictionless, customer-friendly
banking, Bankwest provides a new signing
service that allows customers to sign theirhome loan contracts digitally, from any
device, in minutes – greatly reducing the time
taken to prepare a home loan for settlement.

That changed when Rayen spoke witha home lending specialist at his local
Commonwealth Bank branch who
explained that the couple qualified for
the First Home Loan Deposit Scheme.
The home lender helped them throughthe loan approval process, and shortly after,
Rayen and Sabina launched their house hunt.
Today, the couple are enjoying being
homeowners and having a place tocall their own.

To deliver a seamless experience for customers across all channels, we
continue to invest in our technology, data capabilities and digital assets.
We assess our performance using Net Promoter Score (NPS),
which is a measure of our customers’ willingness to recommend
us to their family and friends. We have seen a seven point improvementin the last 12 months in consumer NPS, indicating that customers arevaluing the support and service we are providing.
New home owners, Sabina Lama and Rayen Gouli.

Bankwest has also continued to innovatefor brokers and was voted ‘Bank of theYear’ in the Mortgage Professional Australia
2020 Brokers on Banks awards. The award
recognises Bankwest’s investment in digital
tools and support. This includes a portalthat enables brokers to track their clients’applications in real-time, and a dedicatedsingle point of contact for brokers
throughout the application process.

ADDITIONAL INFORMATION

branches (Group total)– largest networkin Australia

With over 10 million retail customers, including the largest
share of youth and new migrant customers, we help more
Australians manage their finances than any other bank.

Helping first home buyers

FINANCIAL REPORT

in home lending,household deposits
and credit cards 1

Our retail banking strengths

home loans
deferred at peak

DIRECTORS’ REPORT

increase in calls to ourfinancial assistance line

154,000

HOW WE CREATE VALUE

More than one in three Australians
call the Commonwealth Bank
their main financial institution.

Our priority has
been to provide
safe, continuous andproactive essentialbanking services
to our customers.

OVERVIEW

Leading inretail banking

Support for retail customers during COVID-19

COMMONWEALTH BANK
2020 ANNUAL REPORTOUR STRATEGIC PRIORITIES

12

13

We have been helping small
business customers adapt to thecurrent environment.

Our teams also worked with small business customers to quickly movetheir business online. Using the Bank’s digital capabilities, we helped
customers build e-commerce enabled websites with the ability to takeorders, process secure payments and arrange delivery.

$27bnof new lending for Australianbusinesses in FY20 1

Our institutional bank and Wesfarmers
recently signed a $400 million three-year
bilateral sustainability-linked loan – the firstin Australia to be linked to achieving bettersocial outcomes and the largest to be offered
by a single lender.

Business owners need to act quickly whencircumstances change or when opportunities
arise. That’s why we are using our leading
digital capabilities to provide them with smarter
everyday banking, faster access to funds, andmore support when and where they need it.

Wesfarmers will receive a margin discount on
its loan if the company meets its ambitioussocial and environmental targets, linked to
Indigenous employment and reduced carbon
emissions intensity.

Through our BizExpress facility we are providing
existing customers with same-day lending
decisions for unsecured loans up to $250,000
and secured loans up to $1 million.

Sustainability-linked loans deliver widespreadbenefits by incentivising improved organisational
behaviours that build a better Australia andlead to more sustainable outcomes.

By using existing customer information toautomate and streamline the application
process, BizExpress cuts the paperwork
for customers and enables our teams to
get funds into customers’ accounts faster.

Backing Australian businesses
This year we have focused on supporting Australianbusinesses to facilitate the critical role they playin the economy.
Our business bank serves business, corporate and agribusinesscustomers. To build on the Bank’s strengths as the leading
payments provider and merchant acquirer in Australia, we have been
adding dedicated business bankers and providing more tailored
and responsive everyday banking, deposit and lending services.
Improvements have also been made to end-to-end processes andtechnology to enhance customers’ banking experiences.
Our institutional bank serves the commercial and wholesalebanking needs of large corporate, institutional and government
clients. To help clients navigate the rapidly changing businessenvironment, the institutional bank has been using its expertisein capital structuring, financial markets and risk management. This
increasingly includes advising clients on end-to-end financing andhelping them access alternative domestic and international sourcesof capital. The institutional bank is also leveraging insights from theBank’s data and analytics capabilities to help clients stay on top of
emerging trends in their industries and the economy.

#1

payments provider
with largest
merchant base 12,500+
business bankers
and specialists

240+

locations supporting
business customers$650m+

in loans under theGovernment’s Coronavirus
SME Guarantee Scheme,>50% of scheme lending
1 See Glossary on page 293 forsource information.

ADDITIONAL INFORMATION

Keeping businesses
moving forward

FINANCIAL REPORT

Incentive-based financefor sustainable outcomes

DIRECTORS’ REPORT

business loans
deferred at peak

We are investing in service,data and technology to become
Australia’s leading business bank.

HOW WE CREATE VALUE

We funded more than $650 million in
new lending under the Government’s Coronavirus SME Guarantee
Scheme, equivalent to over 50% of all fundings through the scheme.

OVERVIEW

Strength inbusiness banking

To help customers deal with thesudden shut down of the economy, we
automatically enrolled eligible small
business customers into our loan repayment
deferral program. We also expanded our
24/7 support teams, adding further options
and a dedicated helpline to help themaccess funds and pay their staff aheadof the Government’s JobKeeper payments.

86,000COMMONWEALTH BANK
2020 ANNUAL REPORTOUR STRATEGIC PRIORITIESSupport for businesscustomers during COVID-19

14

15

Australia’s #1 banking app
Our award-winning CommBank app, used by 6.1 million
active customers, now delivers personalised services andalerts to help customers better manage their money andmake smarter financial decisions.

Bill prediction, the latest feature, uses data and machine learning to
identify recurring bills and provide a timeline of upcoming payments.
The app also extends beyond banking to provide customers withintegrated shopping and benefit features. This includes CommBank
Rewards which matches customers with personalised offers andcashback rewards on everyday spending.

 online banking– 11 years in a row(Canstar) banking app inAustralia (Forrester)66%

of CommBank transactions
made digitally (by value)

See Glossary on page 293 forsource information.

We have built our leadership position in digitalbanking through decades of investment in digital
infrastructure, assets and innovation.

We are focusing on six key areas:

We have prioritised the customer experience to deliver intuitive
and user-friendly digital banking services.

Deeppersonalisation

Integrated digital
experiences

Digitising
end-to-end

We continue to invest in our Customer Engagement Engine
which uses artificial intelligence, machine learning andinsights from customer activity to drive highly relevant
and personalised experiences.

We are deploying artificial
intelligence, machinelearning and data insights
to drive personalised
and seamless service
across all channels.

We are building new digitalbanking services, partneringwith market leading providers
and building x15ventures todeliver the best integrated
digital bank experience.

We are automating anddigitising processes tomake things simpler, fasterand more user-friendly
for customers andour people.

Intelligent
protection

Modern, resilient
platforms

Globally leading
capability

We are using real-time
intelligent analytics todetect suspicious activity,
send real-time alerts
and automatically block
fraudulent transactions.

We are leveraging
platform-as-a-service todeliver resilient systems,
cutting applications andmoving 95% of computing
to the public cloud.

We are partnering with
global technology leaders
and talent to support 24/7
operations, and providing
remote working capabilities
for a distributed workforce.

We also continue to develop new features and functionality,and partner with other innovative companies, to add morevalue for customers.
Our mobile app and internet banking platform have consistently
ranked number one for Net Promoter Score. We aim to maintainthis position by anticipating customers’ needs and expectations
and by ensuring that their banking experience with us compares
favourably to their best digital experience with any other productor service provider.

ADDITIONAL INFORMATION mobile banking– five years in a row(Canstar)

Extending our technology advantage

FINANCIAL REPORT mobile app andinternet banking NPS(Roy Morgan Research)

Delivering the best digital bank

DIRECTORS’ REPORT#1

HOW WE CREATE VALUE

Our goal is to provide the best digitalbanking experience globally.

OVERVIEWBest in digital

Smart features include transaction notifications, reminders
for upcoming credit card payments, budgeting tools
and a month-to-month spend tracker. We have also strengthened
security and fraud detection to keep our customers safe and secure.

COMMONWEALTH BANK
2020 ANNUAL REPORTOUR STRATEGIC PRIORITIES

17

16

COMMONWEALTH BANK
2020 ANNUAL REPORTOUR STRATEGIC PRIORITIESWe launched x15ventures to build a portfolio of new digitalbusinesses by combining the agility of a start-up with thesupport and reach of the Bank, to better serve our retailand business customers.

In July, x15ventures hosted Xccelerate 2020, a virtual pitch
event for start-ups to battle it out in front of industry experts toreceive mentoring and funding. The inaugural event is part of ourcommitment to partner with the fintech community, and to launch
25+ ventures over the next five years.

HOW WE CREATE VALUE

Our objective is to stay at theleading edge of innovation.

This year’s winner is givvable,
led by Frances Atkins andNaomi Vowels. Their platform
helps companies find andsource sustainable suppliers.

25+

OVERVIEW

Drivinginnovation

x15ventures has launched four ventures already: Home-in(e-conveyancing), Vonto (data insights for businesses), Credit Savvy(credit-score and marketplace), and Backr (start-a-business platform).

new venturesin five years

 4 in market
 12 in development

Sophie Gilder and Simon Gireau fromx15ventures at the inaugural Xccelerate event.
DIRECTORS’ REPORT

Innovating for growth

Customers can create a Klarna accountthrough the CommBank app, and oncea purchase is made can track orders andupcoming payments via the app. Klarnaalso provides special offers and sends
price drop notifications on wish list items.

The small business-in-a-box service
simplifies the process of setting up abusiness, giving step-by-step instructions
and in-app tools to support businessregistration, business plan formulation,
invoice creation and more.
Developed through x15ventures, Backr’s
official launch has been brought forward
to September 2020 to help the next
generation of small businesses contributeto Australia’s economic recovery.

Hire contractors
Create website
Register for an ABN

Reimaginingbanking

Reengineering
processes

Growing strategic
partnerships

Our innovation is structured
around our core businesses –everyday banking, home buying
and business banking – to enhance
the services we offer today andto anticipate and lead how ourcustomers will bank tomorrow.

By taking a new approach
to existing processes andinformation, we aim to deliver
simpler ways of working
and improved efficiency andperformance for our customers
and our own business.

To drive step change innovation
we partner with start-ups, fintechs,
scientists, research institutes andlarge market-leading companies.
This allows us to strategically pooltalent, resources and expertise.

We continue to simplify the homebuying experience and are working
with Home-in to provide customers
with an end-to-end digital homebuying assistant. Through Credit
Savvy, our customers can track
their credit score and compare
products. We are helping small
business customers access andinterpret their data through Vonto
so they can optimise and growtheir business. We also launched
CommSec Pocket to provide new
ways to invest.

We have invested in PEXA which
digitises home loan settlement.
By building direct interfaces
between our systems and the
PEXA settlement hub, we haveachieved greater settlementcertainty for our customers andsignificant productivity benefits
for our people. As a result, fourout of five CommonwealthBank and Bankwest homeloans are now digitally settled
through PEXA.

By collaborating with organisations
such as the CSIRO’s Data61 andHarvard STAR Lab we have used
multi-disciplinary thinking todevelop solutions that improve
our customers’ financial wellbeing.
We have established our own
vehicle for innovation, x15ventures,in partnership with Microsoft and
KPMG. We have also partneredwith SquarePeg and Zetta to help
identify and launch future digitalsolutions for our customers.

ADDITIONAL INFORMATION

Through the Klarna app, customers canshop at almost any online store andpay with instalments using their linked
CommBank debit or credit card.

Backr is a go-to portal for aspiring
entrepreneurs and micro-businesses
looking to set up shop.

FINANCIAL REPORT

We have partnered with Klarna
to offer a shop now, pay later
experience that is used by over85 million shoppers worldwide.

We invest in innovation to offer compelling customer experiences, to stand out
amid increasing competition and to position the business for future growth. We
innovate within our business and with strategic partners to improve our customerfacing applications as well as our back-end processes and systems.

18

19

Our financial results for the 2020 financial year reflect the
impact of COVID-19 on our customers and the economy,
however, our business performance remained strong. 1

Our banking businesses continued to perform well, with strong operational
execution delivering above market growth in domestic home lending anddeposits. This volume growth supported operating income and helped tooffset the impact of historically low interest rates on our net interest margin.

Group profit – Impacted by COVID-19
Cash NPAT

Statutory NPAT 2
 12.4% on FY19

Cash NPATFY19 $8,221m$2,518m

Statutory NPAT

 $1,317m on FY19

1.70%

Provision coverage ratio

 11.3% on FY19

NPAT was supported by strong business performancebut impacted by higher loan impairment expense due
to COVID-19. Statutory NPAT increased due to gains
on sale from divestments.

The loan loss rate increased to 33 basis points 3(bpts),
inclusive of the COVID-19 provision. Peer leading total
provision coverage ratio of 1.70%, up from 1.29% in FY19 4.

Volume growth in core business

Net interest margin

Home lending 5
Home lending

Household deposits 6
Household deposits+5.1%+$18.4bn

1.3x system$9,634m
FY19 $8,571m

2.07%
 2bpts on FY19Group NIM declined due to the impact of lower interest
rates, partly offset by lower short term funding costs.

+$25.0bn +9.8%

Operating income – Volume growth offset margin decline
OperatingincomeCash basis

Dividend

11.6%

$2.98

 90bpts on FY19

 31% on FY19

Above APRA’s ‘unquestionably strong’ benchmark
of 10.5%. CET1 capital ratio of 17.4% on aninternationally comparable basis.

The final dividend was 98 cents per share, fully franked.
The interim dividend was $2.00 per share, fully franked.

Per share, fully franked 2$23,758m
FY19 $23,577m

Net interest
marginNet interest income increased 2%. This was
driven by above market growth in domestic
home lending and household deposits, partly
offset by a decrease in net interest margin
due to the impact of lower interest rates.
Net interest margin (NIM) is an importantmeasure of our financial performance.
It represents the return on our interest earning
assets (e.g. home loans) after accounting for thecosts of funding these assets (e.g. deposits).
NIM was 2 basis points lower due to theimpact of lower interest rates on deposit
margins, partly offset by lower short-term
funding costs.

2.07%

2 Includes discontinued operations.

5 As reported in RBA Lending and Credit Aggregates (Home lending and Business lending). RBA collection data was aligned to the new regulatory definitions
set by APRA from July 2019, therefore the home lending system multiple has been calculated for the 11 months to June 2020 annualised. Business lending
includes Business and Private Banking, Bankwest and Institutional Banking and Markets (ex. CMPF) and growth is calculated for 12 months.
6 As reported in APRA Monthly ADI Statistics (MADIS) (Household deposits).

• Lower commissions from lower credit cardand international transaction volumes,
from a decline in spend due to COVID-19.
• Impairment losses on our aircraft leaseportfolio due to the impact of COVID-19
on the aviation industry.
• Lower volumes of initial advice fees, theremoval of ongoing service fees andgrandfathered trail commissions, and thewind down of our aligned advice businesses.
For more details on operating income
refer to Note 2.1, 2.2 and 2.3 on pages
119 to 127 in the Financial report.

1 Unless otherwise stated, all information in this section is presented on a continuing operations basis.

4 Total provisions as a percentage of credit risk weighted assets.

• The removal of certain fees and charges
plus fee waivers in response to the impact
of COVID-19 on our customers.

• Higher insurance claims related to bushfires.

FY19 2.09%

3 Cash loan impairment expense as a percentage of average gross loans and acceptances.

Other operating income decreased 4%.
The key drivers were:

Net interest income
Other banking income
Funds management income
Insurance income
Total operating income – cash basis

FY20

FY19

% change

18,61018,224

 2%

4,837
172

139

23,758

4,951

 2%

255

 33%

147

 5%

23,577

 1%

ADDITIONAL INFORMATION

Common Equity Tier 1 capital ratio

APRA (Level 2) 2

For more details and a reconciliation between
statutory and cash NPAT, refer to page 73
in the Directors’ report.

FINANCIAL REPORTBusiness lending 5+$7.0bnincluding
discontinued
operations

Cash NPAT is management’s preferredmeasure of the Group’s financial
performance. It excludes items thatare non-recurring in nature and are notconsidered representative of the Group’s
ongoing financial performance.

Statutory NPAT includes non-cash items.
In FY20, this included significant gains
realised on the sale of businesses divested
as part of our strategy to become a simpler,better bank, divestment-related transaction
costs, and costs associated with the cessationof our aligned advice businesses. It also
included hedging gains, mostly driven by
the foreign exchange volatility observed
during the year.

DIRECTORS’ REPORTBusiness lending$7,296m

Loan impairment expense, provisions

Cash NPAT was 11% lower, largely due tohigher COVID-19 related loan impairment
expense. Operating income was up 1%,
operating expenses increased by 1% and loan
impairment expense increased by 110%.

HOW WE CREATE VALUE$7,296m$9,634m

OVERVIEW

Financialperformance overview

Net profit after tax

COMMONWEALTH BANK
2020 ANNUAL REPORTGroup financial performance

FOCUS ON FINANCIAL PERFORMANCE

21

20

COMMONWEALTH BANK
2020 ANNUAL REPORT

Provisions and credit quality
Operating expenses – Impacted by increased staff and IT costs
Operatingexpenses$10,895m

16

 2%

1,070

 1%

1,770

 7%

1,561

1,528

 2%

9,776

 3%

853

1,048

 19%

10,824

 1%

10,042

10,895

Consumer arrears

Consumer arrears show the proportion of our consumer
portfolio where customers have fallen behind on theircontractual loan repayments.
Arrears on home loans and personal loans remained low.
In line with APRA’s regulatory approach, loans deferred as partof our COVID-19 support packages are not included in arrears
where the loans were otherwise performing.
Credit card arrears were higher, driven by lower card balances
and increased hardship due to the impact of COVID-19.

1.44

Tax Transparency Code

1.51
1.23

1.03

1.02

0.70

0.68

0.63

JUN 18JUN 19JUN 20

Personal loans

Credit cards

The increase in troublesome and impaired assets to$8,710 million from $7,799 million in FY19 was mainly due tothe impact of COVID-19 on corporate customers in transportand storage, manufacturing, culture and recreation, businessservices, and retail and wholesale trade, as well as continued
weakness in sectors impacted by discretionary spending. There
was also a small number of individual corporate impairments.

Troublesome and impaired assets ($m)
FY19
FY20

4,177

3,622
5,162

 Troublesome

Home loans

7,799

3,548

8,710

 Impaired

ADDITIONAL INFORMATIONCBA is one of Australia’s largest tax payers.
Our Tax Transparency Code provides further
information on our approach to tax risk
management and additional tax disclosures– see commbank.com.au/policies.

1.56

Troublesome and impaired assets include loans where
customers are experiencing financial difficulties that could
result in credit losses for the Group, loans to customers notmeeting their repayment obligations such as loans in default
and loans restructured on non-commercial terms.

Loan impairment provisions
During the financial year, we took an additional credit
provision of $1.5bn for the potential impacts of COVID-19
on our lending portfolios. This took into account the stressto the economy introduced by COVID-19 and the mitigating
impacts of Government and industry assistance packages
and support, such as loan repayment deferral arrangements.
Our coverage ratio – which is the ratio of total provisions tocredit risk weighted assets – has increased to 1.70% from
1.29% in FY19.

Total impairment provisions ($m)
FY19
FY20

FINANCIAL REPORTTax expense

Troublesome and impaired assets

DIRECTORS’ REPORT

5,408

Portfolio credit quality – Monitoring closely for signs of stress

HOW WE CREATE VALUE

15

FY20

5,525

For more details on operating expenses refer to Note 2.4 on pages 128 to 129 in the Financial report.

For more details on tax expense refer to Note 2.5
on pages 130–132 in the Financial report.

15

FY19

% change

Consumer arrears >90 days (%)

FY19 $3,321m

19

FY18

45.9%

$3,052m16

FY17

Other expenses
Notable items

Cash basis

16

FY16

FY19

1,896

Information technology
Operating expenses excluding notable items – cash basis

Tax expense

20

FY15

FY20

1,060

Occupancy and equipment

Income tax expense for the year decreased
8% mainly due to lower profits. The effective
tax rate for the year was 29.5%. This is below
the Australian company tax rate of 30%
primarily as a result of profits earned by
the offshore banking unit and in offshore
jurisdictions that have lower corporate
tax rates.

21

1 FY09 includes Bankwest on a pro forma basis.

Cash basis

FY19 45.9%

33

FY14

Notable items included provisions for
remediation and risk and compliance costs.

Staff costs

Total operating expenses – cash basis

Loan impairment expense increased
as a result of forward looking
adjustments made to provisions forthe expected impact of COVID-19. The
loan loss rate increased to 33 basis
points, up from 16 basis points in FY19.

25

FY13

Cost-to-income
ratio

FY19 $1,201m

FY11

FY19 41,458

Including notable items, operating expenses
were 1% higher.

41

FY10

41,778$2,518m73

FY09

Full-timeequivalent staff

Occupancy and equipment expenses
decreased 1% due to continued branch network
optimisation and lower development costs forcorporate offices, offset by higher cleaning
and maintenance costs due to COVID-19.

Loan impairment
expenseOther expenses increased 2% primarily due tocosts associated with our domestic violence
programs and bushfire recovery grants.

Loan loss rate (bpts) 1

Loan impairment expense reflects
changes in our estimates of expectedloan losses, as well as bad debts
incurred during the year net ofany recoveries. The loan loss ratemeasures loan impairment expense
as a percentage of average gross loans
and acceptances.

FY12

FY19 $10,824m

Staff expenses increased 2% as a result of wage
inflation, higher annual leave costs due to lower
annual leave usage, and an increase in full-time
equivalent staff. The staff increases were due
to higher levels of resourcing in call centres,
operations and financial assistance; as wellas in areas related to remediation and risk
and compliance.

Information technology expenses
increased 7% due to higher IT infrastructure
costs and higher investment spend on risk
and compliance.

OVERVIEW

Cash basis

Excluding notable items, operating expenses
were 3% higher:

Loan impairment expense – Higher due to the expected impact of COVID-19

4,799
6,363

We continue to monitor our lending portfolios closely andreassess our provisioning levels as the situation around
COVID-19 evolves.
For more details on loan impairment provisions, loan impairment expense and credit quality refer to Note 3.2 on pages 143–153 and Note 9.2
on pages 208–227 in the Financial report.

22

23

Balance sheet strength is critical to our ability to serve our customers, drive core business outcomes
and deliver strong and sustainable returns for our shareholders. Our key capital, liquidity and funding
metrics strengthened further during FY20. The strength of our balance sheet means the Bank has beenwell-positioned to support customers and the Australian economy through challenging and uncertain times.

Our aim is to deliver
sector leading returns anda sustainable dividend. We
achieve this by focusing on
both operating performanceand capital generation.
We understand the importanceof delivering shareholder returns
at strong and sustainable levels,and that many Australians relyon the income they receivefrom dividends.

Capital – Unquestionably strong
Common Equity
Tier 1 capital
ratio

APRA (Level 2) 1
FY19 10.7%

During the year, the Group’s CET1 capital was
supported by:• Risk-adjusted profits generated in theordinary course of business (organic
capital) as business fundamentals
remained strong.

The Bank is an Authorised Deposit-taking
Institution (ADI) regulated by APRA. To
ensure banks hold sufficient capital to protect
deposit holders against unexpected losses,
APRA sets minimum capital requirements
for ADIs based on the Basel Committeeon Banking Supervision guidelines. These
requirements influence the Bank’s ability
to pay dividends.
The Bank’s dividend policy seeks to:• pay cash dividends at strong andsustainable levels• target a full-year payout ratio of 70–80%• maximise the benefits to shareholders
by paying fully franked dividends.

74%
FY19 69%

155%
FY19 132%

The Group continued to satisfy a significant
portion of its funding requirements from
customer deposits, accounting for 74% of
total funding. This was due to the growthin customers’ transaction and savings accountbalances and mortgage offset accounts.

Net stable
funding ratio

120%
FY19 112%

1 Common Equity Tier 1 capital ratio including discontinued operations.

shareholders hold CBAshares directly, millions more
hold CBA shares throughtheir superannuation

Including the interim dividend of $2.00 per share, the full year dividend was $2.98
per share, fully franked. The Dividend Reinvestment Plan continues to be offered
to shareholders. No discount will be applied to shares allocated under the plan for
the final dividend.

78%
Australian ownership

Dividend per share (cents)

52%

500
400

320

334

300

The liquidity coverage ratio (LCR)
represents the level of high quality liquid
assets available to meet short-term
obligations in a liquidity stress scenario.
The Group’s average LCR for the quarter
ended 30 June 2020 was 155% which wassignificantly above the minimum regulatory
requirement of 100%. The increase in LCR
during the year was driven by strong deposit
growth and the Term Funding Facility
introduced by the Reserve Bank of Australia
to stimulate business lending as part of the
COVID-19 economic support package.
The net stable funding ratio (NSFR) shows
to what extent our long-term assets arecovered by stable sources of funding.
The Group’s NSFR as at 30 June 2020 was
120%, well above the regulatory minimumof 100%. The increase in the ratio was due tothe growth in customer deposits, the benefitof the Term Funding Facility, and our strong
capital position.

$5.3bn200

returned to shareholders
as dividends in FY20100
0$2,420

401

364

218

200

(%)

151

420

429

431

431

222

222

230

231

231

98

197

132

137

164

183

198

198

199

200

200

200

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

InterimReturn on equity

Cash, continuing operations (%)
13.1

12.1

Final

Earnings per share

Cash, continuing operations (cents)

10.3

491.5

465.5

FY20

FY18

FY19

54
(11) (32)
1yr

CBA

8

298

188

dividend amount received by
the average retail shareholder

Total shareholder return

420

412.5

(24)
5yr

10yr

Peer average (ex. CBA)

Total shareholder return (TSR)
combines both share priceappreciation and dividends
paid. It shows the total returnto shareholders over time.

FY18

FY19

Return on Equity (ROE)measures the Bank’s profitability.
It represents the net profit
generated as a percentage of theequity shareholders have invested.

FY20

Earnings per share (EPS)
measures the Bank’s earnings
growth. It is calculated by dividing
net profit after tax by the numberof shares on issue.

ADDITIONAL INFORMATION

Liquidity
coverage ratio

The final dividend of 98 cents per share reflects APRA’s July 2020 guidance,
which applies until the end of the calendar year, that banks should retain
at least 50% of earnings. The final dividend payout ratio was 49.95% of theBank’s statutory earnings for the second half of this financial year.

FINANCIAL REPORT

Depositfunding ratio

The deposit funding ratio represents
the proportion of home loans and otherincome-producing assets that are funded bycustomer deposits. Customer deposits are
considered the most stable source of funding.
The strength of our banking business has
allowed us to maintain the highest shareof stable, household deposits in Australia.
Ensuring we are well funded has been criticalto our ability to support our customers
during COVID-19.

Dividends

888,000+

direct ownership byretail shareholders

Funding and liquidity – Continued to strengthen

As the outlook for the economy is uncertain we remain focused on managing
the business, our credit decisioning and our balance sheet carefully, to ensurethat we remain well-positioned to continue supporting customers and performing
for shareholders.

DIRECTORS’ REPORT• The benefits from proceeds received
in relation to the sales of Colonial First
State Global Asset Management andPT Commonwealth Life and the phased
divestment of CommInsure Life.

Additional outstanding divestments are
expected to provide further capital uplifts
in FY21.

The quality of the Bank’s franchise, including our customer, distribution
and technology strengths, has supported strong and consistent operating
performance over time. The strength of our deposits franchise means that wehave reliable access to lower cost funding. We also manage our balance sheet
prudently to mitigate earnings volatility, and focus on risk-adjusted returns toefficiently allocate capital across our businesses.

HOW WE CREATE VALUE

11.6%

The Group has a strong capital position witha Common Equity Tier 1 (CET1) capital ratio
as at 30 June 2020 of 11.6%, above APRA’s‘unquestionably strong’ benchmark of
10.5%, notwithstanding the payment of theinterim dividend and the adverse impact of
the additional $1.5 billion provision for the
expected impact of COVID-19.

Sustaining performance

OVERVIEW

Delivering for shareholders

COMMONWEALTH BANK
2020 ANNUAL REPORT

Balance sheet strength

24

25

Retail Banking Services
Cash NPATFY19 $3,907m

Contribution to Group profit

Net interest margin

2.63%
FY19 2.55%

Financial performanceContribution to Group profit

Cash net profit after tax was $3,997 million, an increase of $90 million or 2% on
2019. The result was driven by higher home lending volumes and lower shortterm funding costs. Income from credit cards and international transactions
declined as spend volumes were lower due to COVID-19. Costs increased,largely due to higher staff and IT expenses as resources were boosted tomeet customer needs during the coronavirus pandemic. RBS’ result was also
impacted by significantly higher loan impairment expense which reflects the
expected increase in home loan, personal loan and credit card bad debts dueto the expected impacts of COVID-19 on our customers.

Operating performance

We continued to focus on driving operational excellence in our home lending
business. Our ability to deliver quick and consistent decisions for our customers
allowed us to grow above market, despite competitive pricing from other
lenders and low levels of housing turnover. We provided $106 billion of new
home loans during the year, including to over 3,200 first home buyers whobought a home through the Government’s First Home Loan Deposit Scheme.
Our strong franchise combined with our investment in digital banking helped
to drive above market growth in deposits. With interest rates at historic lows,
more customers chose to keep their money in at-call accounts. Customers
opened more than 1 million new personal transaction accounts with us during
the year. Personal loan and credit card activity was lower as customers choseto reduce debt and spend less during the coronavirus-related shutdown.

FY19 $2,931m

36%

Net interest margin

3.10%
FY19 3.10%

BrandsFinancial performance

Cash net profit after tax was $2,654 million, a decrease of $277 million or 9%
on 2019. Income from volume growth in deposits was offset by the impactof lower interest rates on deposit margins. Other banking income increased
due to higher trading volumes through CommSec, partly offset by lower
merchant income due to fee waivers during the coronavirus pandemic andthe introduction of fee-free business transaction accounts. The cost of new
dedicated business bankers and our investments to improve the customer
experience and technology was offset by lower remediation costs. Loan
impairment expense was significantly higher, as additional provisions weretaken to provide for the potential impact of COVID-19 on certain businesssectors and the economy.

Operating performance

Business momentum continued to grow this year as we simplified how we
do things, improved our customers’ banking experience and tailored oursolutions to better meet their needs.
Delivering on our commitment to do better for small businesses, we added
100 new dedicated business bankers and Business Banking Managers in key
branches. We also expanded the capabilities of our 24/7 Australia-based
contact centres and worked to improve the end-to-end customer experiencethrough investment in technology, digital assets and analytics.
Our new Digital Handover Tool has simplified our lending processes, enabling
our teams to work more efficiently. Our ability to make high quality decisionsat speed allowed us to increase lending to business customers. We also
improved and extended our same-day lending facility, BizExpress, to get funds
to customers faster.

ADDITIONAL INFORMATION

Our ability to make credit decisions quickly also helped us to support
business customers impacted by the coronavirus pandemic. We fundedover 7,300 loans, totalling more than $650 million in new funding under theGovernment’s Coronavirus SME Guarantee Scheme. Using our technology
capabilities, we were also able to automatically enrol all eligible small businesscustomers into our loan repayment deferral program.

FINANCIAL REPORT

More customers than ever chose to use our digital channels and phonebanking services. During the second half of the financial year we saw a peak of
10.2 million daily logins to our CommBank app and NetBank due to COVID-19,
and an 800% increase in calls to our financial assistance line. Our technology
capabilities also enabled us to quickly develop online home loan repayment
deferral application functionality for customers.

$2,654m

Business and Private Banking (BPB) serves the banking needs ofbusiness, corporate and agribusiness customers across the fullrange of financial services solutions as well as providing banking
and advisory services for high net worth individuals. BPB also
provides Australia’s leading equities trading and margin lending
services through CommSec. BPB includes the financial results ofbusiness banking activities conducted under the Bankwest brand.

DIRECTORS’ REPORT

BrandsCash NPAT

HOW WE CREATE VALUE

55%

Retail Banking Services (RBS) provides simple, convenient andaffordable banking and general insurance products and services
to personal customers, helping them manage their everyday
banking needs, buy a home, protect their assets or invest for
the future. RBS includes the retail banking businesses under the
Commonwealth Bank and Bankwest brands, general insurance,
mortgage broking and Commonwealth Financial Planning.

OVERVIEW$3,997m

Business and Private Banking

COMMONWEALTH BANK
2020 ANNUAL REPORTBusiness unit performance

26

27

New Zealand

Cash NPAT

Cash NPAT$655m
FY19 $1,117m

9%

1.00%
FY19 1.11%

Financial performance

11%

Cash net profit after tax was $655 million, a decrease of $462 million or 41% on 2019.
Income from growth in deposit volumes was offset by lower margins due to thelower interest rate environment. Other banking income was lower as the impact of
COVID-19 on travel volumes led to the impairment of certain aircraft assets ownedby the Group and leased to clients. Costs were higher due to investment in systems
infrastructure and risk and compliance. Profit was also impacted by significantly
higher loan impairment expense related to expected loan losses in industry sectors
most at risk from COVID-19.

Operating performance

The institutional lending market remained highly competitive and recent monetaryand fiscal stimulus by central governments around the world increased the amountof liquidity in the market. Investment in uplifting our capital markets capabilities
has allowed IB&M to meet client needs through a combination of traditional
lending products and capital-light structuring and distribution activities.

Financial performanceContribution to Group profit

Net interest margin 1

2.11%
FY19 2.23%

BrandsCash NPAT 1

Contribution to Group profit

2%

Financial performance

Cash net profit after tax from continuing operations was $131 million, a decreaseof $119 million or 48% on 2019. The result was driven by lower other banking
income reflecting lower net profits from Chinese minority investments and higher
loan impairment expense reflecting the deterioration in the economic outlook
mainly due to COVID-19.

To find innovative solutions to complex customer problems, ASB continued tocollaborate with industry partners and fintechs. This resulted in the launch ofTradeWindow, developed out of ASB’s innovation program. TradeWindow uses
distributed ledger technology to reduce the time, cost, risk and complexity
surrounding international trade documentation.

$137m
FY19 $528m

As part of becoming a simpler, better bank we have been divesting the Group’s
Wealth Management businesses. We have sold Colonial First State Global AssetManagement and Sovereign, the New Zealand life insurance business. We havealso sold Count Financial and ceased the financial advice businesses, Financial
Wisdom and CFP-Pathways. The sale of CommInsure Life is underway and wehave announced the sale of a 55% interest in the superannuation and investment
business, Colonial First State. All Wealth Management businesses are nowclassified as discontinued operations.

Financial performance

Wealth Management cash net profit after tax was $137 million, a decrease of$391 million or 74% on the prior year. The result was largely driven by the fact thatprofits from Colonial First State Global Asset Management are only included up
to 2 August 2019 when the business was sold, and the results of CommInsure Life
are only included up to 1 November 2019 when the business was deconsolidated.
The result was also driven by lower earnings in Colonial First State due to lower
funds management income as a result of increased competitive pressures,
and an increase in provisions for remediation, compliance and legal matters.
1 Cash NPAT including discontinued operations.

For more information on discontinued operations, refer to Note 11.3 on pages 258–261
in the Financial report.

ADDITIONAL INFORMATIONCash NPATFY19 $250m

Throughout the year, ASB continued to advance its digital strategy to help
customers save time and deliver more guidance, advice and tools to reach financial
goals faster. This included adding a Save-the-Change feature in the ASB mobilebanking app, digitising business term deposits and launching Josie, the chatbot.

FINANCIAL REPORT

Wealth Management

During the year, we completed the sale of PT Commonwealth Life, the Indonesianlife insurance businesses. The sale of the Group’s equity stake in BoCommLife, theChinese life insurance business, remains subject to regulatory approval. Both areincluded in discontinued operations.

ASB continued to deliver growth in home lending and above system growth indeposits. A key focus in the second half of the year was supporting customers
impacted by COVID-19 through personal and business customer relief packages that
included loan repayment deferrals and temporary overdrafts.

1 Net interest margin is ASB Bank only and is calculated in New Zealand dollars.

International Financial Services$131m

Operating performance

ASB enhanced its market leading KiwiSaver and investments offering through thelaunch of a Positive Impact Fund, a portfolio with a preference for investmentsthat generate positive and measurable social and/or environmental impact,
alongside a financial return. For the second year in a row, ASB received Canstar’s
Outstanding Value KiwiSaver Scheme of the Year award.

IB&M continued to build its capabilities to offer insights and customer solutions
based on real-time data analytics that reveal trends shaping industries. Using theBank’s Household Spending Intentions research, IB&M kept clients up-to-dateon changes to income and spending through the pandemic.

International Financial Services (IFS) includes the Group’s Indonesian retailand business banking operations (PT Bank Commonwealth), and minority
investments in China (Bank of Hangzhou and Qilu Bank) and Vietnam(Vietnam International Bank).

Cash net profit after tax was $811 million, a decrease of $248 million or 23%
on 2019. Income from growth in lending and deposit volumes was offset by lower
margins due to the low interest rate environment. Other banking income declined
due to lower fees from cards and merchants as a result of the impact of COVID-19
on consumer spending. Operating expenses increased due to higher staff andIT costs, and investment in risk and compliance. Profit was also impacted bya significant increase in loan impairment expense due to the expected impact
of COVID-19 on customers and the economy.

DIRECTORS’ REPORTTo help clients manage through the impacts of COVID-19, IB&M has offereda variety of support such as facility increases and extensions, covenant waivers
and new funding. Deposit inflows have been significantly higher as clients
have been managing their liquidity needs. Volatility in financial markets haspresented additional risks and opportunities for Global Markets’ sales and tradingbusinesses. The fourth quarter trading result was especially strong on the backof tighter credit spreads, increased volatility, market dislocations and a large
increase in new bond issuance.

FY19 $1,059m

HOW WE CREATE VALUE

Net interest margin$811m

New Zealand includes the banking and funds management businesses
operating in New Zealand under the ASB brand. ASB provides a rangeof banking, wealth and insurance products and services to its personal,
business, rural and corporate customers in New Zealand.

OVERVIEW

Contribution to Group profit

Institutional Banking & Markets (IB&M) serves the commercial
and wholesale banking needs of large corporate, institutionaland government clients across a full range of financial services
solutions including access to debt capital markets, transaction
banking, working capital and risk management throughdedicated product and industry specialists.

COMMONWEALTH BANK
2020 ANNUAL REPORT

Institutional Banking and Markets

28

29

Supporting
our customers

As the Bank for all Australians,
we have a responsibility to improve
the financial wellbeing of thecommunities we serve and to makea positive contribution to society.

Global principles and goals
We are signatories to international initiatives,principles and goals.

HOW WE CREATE VALUE

Investing in ourcommunities

Our
commitment
to sustainability

OVERVIEW

To improve our customers’ financial
wellbeing, we are focused on beinga simpler, better bank and supporting
our customers through uncertain
and challenging times.

Our approach is guided by evolving
global practices and feedback fromour stakeholders on material matters.

COMMONWEALTH BANK
2020 ANNUAL REPORTHOW WE CREATE VALUE

Delivering balanced andsustainable outcomesfor our stakeholders.

Our policies and targets

Commitment
to our people• Environmental and Social Policy• Supplier Code of Conduct

Our people are our greatest asset andhaving an engaged, energised andaccountable workforce delivers better
outcomes for our stakeholders.

• Diversity and Inclusion Policy

DIRECTORS’ REPORTWe develop policies and targets to drive progresson our commitments. Key policies include:

View our policies at commbank.com.au/policies

Good businesspractice

We report our progress in line with global frameworks
and standards.

Assessing our performance

Our approach toclimate change

We benchmark our progress using leading sustainability
indices and surveys, including:

We are committed to supporting the
responsible global transition to a net
zero emissions economy by 2050.
Dr Scott Sleap and Jordarna Barber
Commonwealth Bank Teaching Award winner
Dr Scott Sleap pictured with Cessnock High School
student Jordarna Barber, working on her team’s
entry for the F1 in Schools STEM Challenge.

ADDITIONAL INFORMATION

By conducting our business
responsibly and transparently, we
contribute to a strong economy and atrusted and resilient financial system.

FINANCIAL REPORT

Providing transparency

30

31

$153m+

benefits for customers in FY20

We continue to focus on being asimpler, better bank and supporting
our customers through uncertain
and challenging times.

250,000+

This year, we have worked to maintainessential banking services and provide
additional support to customers
impacted by bushfires, drought
and COVID-19.

250m

personalised in-app messages
offering COVID-19 support

Helping customers in needThrough our Emergency Assistance
Package for customers affected bybushfires, floods and storms, weexpedited more than $100 million
in insurance claims, deferred loan
repayments, restructured small
business loans, and waived certain
fees and charges. We also extended
the package to all volunteer firefighters.
We made a Drought Assistance
Package available to farmers
and regional businesses affectedby drought. Support measures
included a loan repayment pause,
waiving of fees and charges andaccess to a confidential telephonecounselling service.

Learn more atcommbank.com.au/benefitsfinder

Listening to customers
COVID-19 support
To meet the surge in demandfor phone and online banking,we reskilled support and frontline
employees and added new temporary
recruits from the aviation industry tohelp in our customer contact centres.
We kept our branch network openwith measures in place to protect
our customers and our people.
To meet the needs of customers mostat risk from visiting branches, weprioritised calls from customers aged
over 70, sent debit cards to those
who rely on passbooks and cash, andproactively called 250,000 customers
to discuss alternative ways to bank.
At the height of the crisis, we
automatically deferred repaymentson all eligible small business loans
and quickly processed deferral
requests for our home loan customers.
We will continue to work with our
retail and business customers toprovide the support that best meets
their individual circumstances
going forward.

This year, our Executive Leadership
Team prioritised directly talking
with customers, to understand what
is most important to them, andget their feedback on the Bank’s
performance. This included open
customer forums, individual
customer meetings, spending timein our branches and listening tocustomer calls in our contact centres.
At the forums, customers asked
about our deposit and lending
rates, how we are rewarding loyalty,plans for our branch network, andwhat we are doing on financial
education. Customers also wanted
to hear what we learnt from theRoyal Commission and how weare rebuilding trust and improving
our culture.

Responding to complaints
We take customers’ complaints
seriously and seek to resolve
any problems quickly, fairly andtransparently. If customers are
dissatisfied with the outcome of acomplaint investigation, they canturn to our Customer Advocate

Helping customers
in hardship
Customers experiencing financial
hardship are supported by our Financial
Assistance Solutions (FAS) team.
This year, the FAS team worked with
45,787 customers to provide solutions
tailored to their situations. To help
customers experiencing financial stressdue to COVID-19, the team has morethan doubled to approximately 1,500
frontline staff. Loans deferred due to
COVID-19 impacts are not included in
the hardship figure.

Compassionate
care for mortgage
customers
Matt Comyn talks to customers at anopen forum in Brisbane in November.

team for an independent review.
The Customer Advocate’s decisions
are final and binding for the Bank,but customers can take their disputeto an external resolution body,such as the Australian Financial
Complaints Authority, if they remain
unhappy with the outcome.
The Customer Advocate teamalso analyses complaint data to
fix problems before they become
systemic issues. This helps us toproactively improve our products,
processes and decision-making.
Key complaint and Customer Advocate
metrics are provided on page 47.

When our customers face a terminal
illness diagnosis or lose a spouse ordependant, they need to focus on
their health and caring for their family.
To ensure they do not worry about
making their mortgage payments, welaunched Home Loan Compassionate
Care in February. This complimentary
insurance policy covers up to 12 monthsof mortgage repayments for eligible
owner-occupied home loan customers.
Learn more atcommbank.com.au/compassionate-care

Relevant UN Sustainable
Development Goals

ADDITIONAL INFORMATION

home, business andpersonal loans deferredat peak

To help customers who run
a business, Benefits finder
now includes COVID-19 related
business support packages
provided by State and Federal
governments. Through thetool customers can now accessfacilities including instant asset
write offs, cash flow assistance,
tax relief options and apprenticeand trainee support.

FINANCIAL REPORT

calls and online requests
for help during COVID-19

Each year, Australians miss out on
millions of dollars in benefits andrebates offered by government
agencies and third parties, such asenergy rebates, toll relief and carerallowances. Our Benefits finder toolin the CommBank app and on NetBank
uses data insights and machine learning
to match customers with relevant
rebates and benefits. Over 690,000
claims have been started through thetool since launch. This financial year,
customers have saved $69 million
in utility bills and over $84 million
in additional government payments.

DIRECTORS’ REPORT

We can. Together.

Benefits finder
for businesses

HOW WE CREATE VALUE

1m+

Connecting
customers with
unclaimed benefits

We use our technology, data andinsights to help customers better
manage their finances. This year
we sent over 27 million smart
alerts through the CommBank app
and NetBank to enable our retailand business customers to avoid
unnecessary overdraft and credit cardfees. We provide additional resources
where we have identified areas ofcustomer vulnerability. This includes
our ‘Safe and Savvy’ guide to help
prevent elder financial abuse. We also
provide fee-free banking for customers
with low incomes and a dedicatedIndigenous Customer Assistance Linefor customers in remote communities.

OVERVIEW

Supporting
our customers

Delivering better
customer outcomes

COMMONWEALTH BANK
2020 ANNUAL REPORTOUR COMMITMENT TO SUSTAINABILITY

32

33

Awarding great teachers

Through our Reconciliation Action
Plan, we are committed to achieving
parity for Indigenous representationin our workforce.

Investing in ourcommunities

We are committed to increasing
Aboriginal and Torres Strait Islander
representation in our domestic
workforce to 3% by 2026.
Indigenous workforce
2020

1.5%

$332m
377,214$10m

commitment to bushfire
recovery grants

For more than 100 years, the
CommBank Staff Foundation – ourpeople’s charity – has been supporting
Australians’ wellbeing. As part of theFoundation’s 2020 grants program,
more than 200 grants of $10,000
have been awarded to community
organisations to enable them tocontinue the important work they
are doing to help communities inneed. Recipient organisations of thisyear’s grants are working to address
a diverse range of issues across ourcommunity – including homelessness,
Indigenous disadvantage, domestic
violence and cancer support.
This year, to raise money forcommunities impacted by drought,
we launched the Christmas Drought
Appeal. Customers and staff donatedgenerously through our branches
and the CommBank app, adding to
the $1.6 million donated by the Bank.
The donations were provided to fourcommunity partners including Rural
Aid which delivered over 4,500 bales of
hay to more than 440 affected farmers.
Other beneficiaries included the BushChildren’s Education Foundation, NSW
Rural Financial Counselling and theAustralian Red Cross.

Our commitment to education
We have a longstanding commitment
to financial education to help the next
generation make smart decisions
about their financial wellbeing,
through our school banking andStart Smart programs.
More than 3.9 million school-aged
students have now received financial
education through Start Smart, ouraward-winning financial education
initiative. The free program was foundedin 2007 and is designed to give young
Australians the skills and confidence
to make good decisions about money.
This year, with schools closed due to
COVID-19, we created Start Smart
Digital to take facilitators into online
classrooms across the nation. Morethan 11,000 students have participatedin online learning sessions to date.

Students and teachers at Quaama Public School.

From the start of the bushfire
season, we used our branch networkand the CommBank app to help
gather donations from customers
and employees. Thanks to theirgenerosity, nearly $6 million was
raised for affected communities.
To help with the rebuild andprovide practical, on the groundsupport, we committed up to $10
million to bushfire recovery grants.
Community groups were able toapply for a grant of up to $50,000 to
replace lost or damaged equipment
or support community wellbeing.

One bushfire grant recipient is
Quaama Public School in the Bega
Valley Shire. The town’s residents
had spent years raising money
to build a teaching garden at theirlocal public school. Less than two
weeks after the garden was officiallyopened, fire swept through.
The grant will now allow the school
to rebuild the garden, replace theirrigation system and get backto teaching the students how
to grow food.

We have also worked with otherfinancial services companies
and industry bodies to identify
and stop abuse via digitalbanking platforms, such as theuse of transaction descriptions
to threaten and intimidate.

Focusing on
reputationand trust
It is critical that we meet thecommunity’s expectations and aretrusted. To rebuild trust, we havebeen focused on demonstrating
through our actions that we arecapable and reliable, doing the rightthing and improving outcomesfor all of our stakeholders. To
emphasise the importance of
rebuilding the Bank’s reputation,
executive leaders’ long-term
variable remuneration granted since
FY18 is in part linked to relative
improvements in our RepTrak score.
See page 90 for more details.

Relevant UN Sustainable
Development Goals

ADDITIONAL INFORMATION

students enrolled in Start
Smart financial education

As the Bank for all Australians, wehave a responsibility to improve thefinancial wellbeing of the communities
we serve and to make a positive
contribution to society.

Fostering green shoots

We have partnered withleading experts and community
organisations to develop theresources and support networks
required to help those affected getback on their feet.

FINANCIAL REPORTin community investment

Making a positive contribution

3%

This year, we established a
Community and Customer
Vulnerability team to identify andrespond to those in need withsensitivity and skill. Our frontline
branch staff are also trained toprovide support and affectedcustomers can speak confidentiallyto our specialist Community
Wellbeing team.

DIRECTORS’ REPORTTARGET2026

For several years we haveinvested in programs that support
customers, employees andmembers of the community who
are affected by financial abusein the context of domestic andfamily violence.

HOW WE CREATE VALUE

Together with Australian
Schools Plus, the Bank
continues to celebrate
outstanding Australianeducators through theCommonwealth Bank Teaching
Awards. Now in its fourth year,
the 12 selected teachers andschool leaders each receive
a $45,000 Teaching Fellowshipto fund a strategic project intheir school and further theirown professional development.
This year’s winners include
Dr Scott Sleap, deputy principalof Cessnock High School in
the Hunter Valley. Dr Sleap
helps his students see newcareer possibilities in science,technology, engineering andmaths through The Cessnock
Academy of STEM Excellence.

Training and employment pathways are
critical to accomplishing this goal. To
that end, we sponsor several traineeshipprograms and launched an Indigenous
Training Academy to encourage thetake-up of careers in technology. Morethan 30 trainees and interns have now
graduated from the Academy and manyare pursuing their careers with us inareas such as engineering, end user
experience and cyber security.

Tackling
financial abuse

OVERVIEW

Farmers in Armidale received hay donated through the Bank’s
Christmas Drought Appeal and partnership with Rural Aid.

Advancingreconciliation

COMMONWEALTH BANK
2020 ANNUAL REPORTOUR COMMITMENT TO SUSTAINABILITY

34

35

Prioritising health,wellbeing

Commitment toour people

90%

confident in the futureof the Bank

women in Executive
Manager and above roles

We track and measure employee
engagement through the Your Voicepeople and culture survey. Our
goal is to be among the top 10% ofcompanies globally for our employee
engagement score. Our most recent
results show a significant improvement
in engagement, with our peopleindicating they feel proud of thework we have been doing to provide
essential services to customers,
communities and the broader economy
during this year’s bushfires and
COVID-19. During the pandemic, we
conducted additional, focused surveys
to assess our people’s key concerns.
In the April survey, employee
engagement was 81%, up 13% on
April 2019. 89% of our people said they
feel proud to work for the Bank, 90%
expressed confidence in the futureof the Bank, and 82% said they felt
a personal sense of accomplishment
in the work we are doing.

Creating a diverse, inclusive culture
Strengthening culture
and accountability
Our Code of Conduct incorporates
our purpose and values, and sets
expectations on how our people shouldact. It includes the ‘Should We?’ test toensure our people do the right thingby our customers and the community.
This year, further work was done toembed our Code of Conduct into ourprocesses to support the skills andmindset required to deliver the best
customer and risk outcomes. Our
new recognition programs celebratecolleagues who are living our values,
and allow our people to nominate
those who have gone above andbeyond for Excellence Awards.
Employee Engagement Index score
68%

CBA
APR 2019

72%

CBA
OCT 2019

81%

CBA
APR 2020

84%

GLOBALTOP 10%
THRESHOLD

When our people and leaders reflect
the diversity of our customers andwhen our people feel respected andsupported, we can deliver the best
outcomes for all of our stakeholders.

Manager and above roles by 2025.
We are also committed to gender
pay equity and review it throughout
the year as part of our remuneration
review process.

Our employee-led networks play animportant role in promoting inclusion
and informing solutions for our people
and customers. They include WeCAN(gender equality), Yana Budjari(Aboriginal and Torres Strait Islander
peoples and cultures), Unity (sexual
orientation and gender identity), Mosaic(cultural diversity), AdvantAge (life-stage
and age) and Enable (accessibility andinclusion for people with a disability).

While we are proud that the Bank
overall is more culturally diverse thanthe Australian population, we willcontinue to focus on cultural diversity
across our senior leadership roles.

We know that sharing child caring
responsibilities promotes workforce
participation and are happy to see male
employees continue to access parental
leave this year. Parents at Work, anorganisation that provides work andfamily education and policy advice,featured the Bank in a case study
on our gender-neutral parental leave.
We also created Financial Wellbeing
Guides to further support parents.
We have achieved the goals set in 2015
to increase the number of women in
leadership roles, and so this year haveset a new ambitious goal to achieve
47–50% of women in Executive

Our key workforce metrics
are provided on page 50–51.

Women in leadership
2020
target2020
actualExecutive
Manager andabove roles

40% 41%

Manager
and aboveroles

45% 45%

New goal

47–50% womenin Executive Manager
and above roles by 2025

Support for staff
impacted bydomestic andfamily violence
Due to the size of our workforce
and the scale of the issue, weknow that many of our people are
directly impacted by domestic andfamily violence. To support affected
employees, we offer as much paid
leave as they need to navigate theirsituation. We also provide up to
five days’ paid leave to employees
helping an immediate family orhousehold member.

Relevant UN Sustainable
Development Goals

ADDITIONAL INFORMATION41%

Our people are the Bank’s mostimportant asset and an engaged,energised and accountable workforce
is essential to delivering better
outcomes for all of our stakeholders.

Molly Beveridge, Scott Thompson andLouis Diamond have joined the Bank
from the aviation industry.

FINANCIAL REPORT

proud to work for the BankEngaged and energised

Learn more atcommbank.com.au/policies

DIRECTORS’ REPORT89%

It is important that our people
feel they can raise any issue or
conduct that concerns them,and know that they will betaken seriously. This year, weenhanced our whistleblower
policy to meet the requirementsof ASIC Regulatory Guide 270
and provided additional avenues
for our people to raise concerns,
including the introduction ofan anonymous online channel.
The policy was also expanded toinclude spouses, dependants andrelatives of employees, in addition
to current and former employees,
contractors, consultants andsuppliers. As a result of thesechanges, whistleblower cases
raised through our SpeakUP
program increased to 103 from30 in FY19. More broadly, general
SpeakUP cases decreased to 284
for the year, from 311 last year.

HOW WE CREATE VALUE

To help our people manage
coronavirus-related health, anxiety
or financial concerns, we provided a
range of wellbeing and family support
resources via podcasts, webinars,
videos and our Thrive wellness portal.
Employees were able to book freehealth checks through our online
health hub, and access confidential
counselling through our MyCoachtelephone service. We also offered
an interest-free cash advance toemployees who were having difficulty
meeting expenses due to the impact
of COVID-19 on them or their families.

Promoting a
SpeakUP culture

We hired new colleagues from theaviation industry to help our contact
centres manage the increased volume
of customer assistance requests
during the coronavirus pandemic.
The temporary recruits, from Qantas
and Virgin, bring customer service
skills that transfer well from aviation
to banking. To prepare them forsupporting customers, we launcheda 15-day training program. We also
provided dedicated coaching andobservation, so that our new recruits
had the confidence and capability
to take calls with customers.

OVERVIEWThis year, more than ever, ourpriority has been the safety, healthand wellbeing of our people. To
ensure we maintained essentialbanking services and met the surge
in customer demand for assistanceduring COVID-19, we quickly adapted
our branches and offices to maintainphysical distancing and keep our
people and customers safe. We also
quickly scaled our remote working
technologies allowing more than
39,000 of our people and delivery
partners to work from home.

Welcome aboard

COMMONWEALTH BANK
2020 ANNUAL REPORTOUR COMMITMENT TO SUSTAINABILITY

36

37

Managing
environmental
and social risks

100%

in low carbon project financing

11 daysaverage time to payment
for small business suppliers;
moved to immediatepayment terms for small
businesses during COVID-19

During the coronavirus pandemic, wehave been working with the industry,
the government and regulators toquickly mobilise a broad range of
support and stimulus measures. By
working together, we have been able
to get money into the economy andtake pressure off households andbusinesses by offering lower costloans and loan repayment deferrals.
This collaborative environment has
also enabled unprecedented change
and accelerated innovation in the
sector, including increased adoptionof electronic payments and digital
engagement by the community.
To help the government and regulators
get a gauge on how the economy,businesses and individuals are faring,
we are providing access to aggregatedreal-time banking and payments data.
This data will continue to help policy

makers design policies that support
economic recovery over the longer-term.
To drive increased customer choice,competition and innovation, we
have been an active participant
in initiatives such as Open Banking,Comprehensive Credit Reporting
and the New Payments Platform.
To support financial and economic
stability more broadly, we contributeto initiatives that address financial
crime and cyber security. As a memberof the Fintel Alliance we work with
Australian and international regulators
to combat money laundering andterrorism financing; and throughour cyber security program weinvest in cyber skills education andcapacity building to strengthen
system-wide resilience.
We are also committed to making
the changes necessary to restore
and maintain trust in the Bank andour industry. We have participatedin more than 65 government inquiries
in recent years which have led tochanges in legislation, regulationand industry practice.

ESG risks are also incorporated into
our investment decisions to deliver
sustainable, long-term outcomes.
For more information on how we manage
climate change risk and opportunities,
see pages 38–45.

Responsible
investingOur investment andsuperannuation business, Colonial
First State (CFS), has exited
all investments in companies
associated with the productionof tobacco and controversial
weapons across its bond andequity portfolios. The exclusion
applies to all fund managers
engaged by CFS, and wasachieved as at 31 December 2019.

Our approach to human rights andmodern slavery is guided by ourEnvironmental and Social Policy.
We engage with new and existing
suppliers to actively identify, manage
and mitigate these issues. This year we
added detailed questions on modern
slavery to our tender questionnaires for
all new supplier arrangements; and we
updated our Supplier Code of Conduct
to provide guidance to suppliers on
how we will work with them whenissues are suspected or identified.
We undertook country and industry
level risk analysis of key suppliers. For
our property operations, this identified
that the high risk suppliers were in
construction, catering, cleaning andsecurity services. We then asked
these suppliers to provide detailed
information on their policies, processes
and remediation mechanisms. We
also sought advice from the Mekong
Club on supply chain due diligenceand invited Be Slavery Free to present
to key property services suppliers
to build awareness.
We will release our Modern Slavery
Statement in the 2021 financial year as
required under the Modern Slavery Act
2018 (Cth).
Our annual Modern Slavery and Human
Trafficking statement which responds
to UK requirements is available atcommbank.com.au/CRreporting

Our Group External Communications
and Engagement Policy explicitly
precludes the Bank from making
political donations. We may, however,
pay to attend some political events
aimed at the business community.
To attend these events in the 2020
financial year we contributed $70,500
to the Australian Labor Party, $70,000
to the Liberal Party of Australia
and $11,175 to the National Partyof Australia. These payments aredisclosed in line with the requirementsof Federal and State governments.

Industry associations
The Bank is a member of a numberof industry associations and weparticipate both through those
associations and directly with policy
makers in the development andadvocacy of public policy positions.
Industry associations represent
a range of members with diverse
interests so the policy positions
adopted by an industry association
should not be assumed to represent
the views of the Bank.

Relevant UN Sustainable
Development Goals

ADDITIONAL INFORMATION$5.4bnThe Bank’s heritage and scalemeans that we have a responsibility
to contribute to a strong economy
and a trusted and resilient financial
system. We can achieve this when we
work transparently and constructively
with government, regulators, industry
associations and the community.

Minimising the riskof modern slavery

Political donations

FINANCIAL REPORTof Australian electricity
needs now sourced fromrenewable energy, 10 years
ahead of target

Building partnerships

All institutional bank loans, as wellas large loans in other business units,
are evaluated through a compulsory
ESG Risk Assessment Tool. Annual
training is undertaken by the relevantclient, risk and product teams toensure they are up-to-date withrequirements.

Our Supplier Code of Conduct outlines
how we manage supply-chain risks
such as data security and privacy,
human rights, modern slavery,
environmental impact, and bribery andcorruption. We require all suppliers to
acknowledge this code as part of theircontractual agreement with us.

DIRECTORS’ REPORTWe are committed to playing our partin limiting climate change in line withthe goals of the Paris Agreement andsupporting the responsible global
transition to net zero emissions by
2050. This year, we achieved our target
to source 100% renewable electricity
for our Australian power needs, 10
years ahead of our 2030 deadline. As at
30 June 2020, we had total committed
exposures of $5.4 billion to low carbon
projects, including $4.2 billion in
renewable energy exposure.

We are a signatory to the Australian
Supplier Payment Code which requires
us to pay eligible Australian small
business suppliers on time and within
30 days of receiving an invoice. This
year, our average payment time forthese suppliers was 11 days; and tokeep cash flowing during COVID-19 wechanged all payment terms for small
businesses to immediate payment.

As a member of the Australian
Banking Association wehelped develop the new
Banking Code of Practicewhich came into effect on
1 July 2019. The code adds
new protections for vulnerable
customers, loan guarantors,
co-borrowers and small
business customers.

HOW WE CREATE VALUE

Our Environmental and Social Policy
outlines our commitments andtargets, as well as how we manage
the risks and identify opportunities.

We have more than 7,200 Australianand international suppliers so
it is important that we fulfil our
responsibilities to those businesses aswell as manage potential risks.

Banking
Code of
Practice

OVERVIEWGood businesspractice

We manage environmental and social
risks in our operations, lending
activities, and superannuation andinvestment business. This includes
minimising our environmental footprint
and supporting the transition to a low
carbon economy, as well as identifying
and improving human rights impacts
through our value chain.

Managing our
supply chain

COMMONWEALTH BANK
2020 ANNUAL REPORTOUR COMMITMENT TO SUSTAINABILITY

38

39
COMMONWEALTH BANK
2020 ANNUAL REPORTOur progress

OUR COMMITMENT TO SUSTAINABILITY

ActionGovernancePhase 3Pre-FY19

FY19

Phase 4FY20

FY21

Oversight of climate risks by the Board Risk & Compliance
Committee and Executive Leadership Team (ELT) throughthe Risk Management Framework
OVERVIEWGroup Environmental and Social (E&S) Policy clarifying
Board and subsidiary Boards’ oversight and Management
accountability for E&S risk, including climate change

Our approach toclimate change

Phase 1–2

Group E&S Framework outlining climate commitments(reviewed on an ongoing basis)
Review and update Responsible Investment Policyin Colonial First State (CFS)Commitment to support the objectives of theParis Agreement
Climate scenario analysis:• Business lending: transition risks.
Home lending and insurance: physical risks.
FirstChoice Australian Share Fund: transition risks.

HOW WE CREATE VALUE

Strategy• Agribusiness lending: physical risks.

• Retail (home lending) and insurance: transition risks.

To achieve the goals of the Paris Agreement, action over the next decade to 2030
is crucial while supporting the financial wellbeing of our customers, communities
and the Australian economy.

FY19

Since 2018 we have been disclosing our progress, performance and plans inline with the recommendations of the Task Force on Climate-related Financial
Disclosures (TCFD). The first three phases of our approach to climate change
focused on establishing the governance and deep analysis required to better
understand climate risks and opportunities. In the current fourth phase,
we are focused on incorporating climate considerations into our strategy acrossall business units, and enhancing our approach to risk management.
The recent bushfires resulted in heightened attention from customers, investors,
regulators and the community on the role businesses play in addressing andmanaging environmental and social impacts. This year, we have continued
to take proactive steps to support our customers and clients, and contributeto economy-wide initiatives that support a sustainable and resilient economy.

Pre-FY18

Policy, due diligence,
governance

Risk
Climate incorporated into the Risk Management
management Framework as a strategic risk and a driver of financial
and non-financial risksGroup Risk Appetite Statement annual review

Phase 2Update our business lending policies in the E&S
Framework to support the responsible transition
to a net zero emissions economy by 2050

Analysis of portfolio
risks and opportunities

Undertake analysis of emissions intensity of our business
lending portfolio and Energy Value Chain to track
performance of supporting the transition to a net zero
emissions economy

FY18

Phase 3Extending scenario
analysis, developing
strategic responses,
capability building

Ongoing development and evolution of our ESG Risk
Assessment tool for business lending
Expansion of climate change metrics aggregatedacross the entire CFS portfolio
Metrics andtargets

Emissions reduction targets (Scope 1 and 2)
RE100 commitment to source 100% renewable energy by2030 (achieved for Australian operations)Phase 4
FY20–21

Targeting an average emissions intensity decrease of ourbusiness lending portfolio

Embedding climate
considerations into
strategy, businessand risk management
processes

Set new emissions reduction targets:• Science-based emissions reduction target (Scope 1 and 2)• Scope 3 emissions reduction target

Key:

Complete

Ongoing

Future activity

ADDITIONAL INFORMATION

Phase 1FINANCIAL REPORTClimate change poses a significant risk
to our environment, our economy and ourcommunity, and is a source of both risks andopportunities for the Bank. We are committed
to playing our part in limiting climate change
in line with the goals of the Paris Agreement
and supporting the responsible global
transition to net zero emissions by 2050.

Develop and integrate strategic responses to address
climate change through our own business actions,as well as through our broader role with our customers
and communities

DIRECTORS’ REPORT• Business lending: physical risks.

40

41

The Board oversees the management ofclimate-related risks and opportunities,
as outlined in the Board Charter.
Specifically, the Board:• Considers the social, ethicaland environmental impactof the Group’s activities.

• Approves climate-related disclosures.

• Overseeing of progress,
performance and reporting.

The E&S Policy also prescribes theprocess for subsidiary Board oversight.
See our E&S Framework at
commbank.com.au/policies• Leading external engagement
and advocacy.
The Group E&S Policy releasedin August 2019 outlines the governanceand oversight in place to support
embedding environmental and social
considerations into our businessprocesses and decision-making.
This is supported by the GroupE&S Framework outlining the

We are addressing climate change through our own business actions as well as
our broader role with customers and communities.
We are aligning our business
lending portfolio to a net zero
emissions economy by 2050 by:• Developing climate-related products
and increasing our lending to low
carbon projects, tracked throughour Low Carbon Target.
• Partnering with our clients andincentivising measurable action
through sustainability-linked loans.
• Supporting increased renewableenergy generation, while
reducing our exposure to coalover time.
• Using the business lending
assessed emissions analysis
to identify priority areas
for reducing emissions(see page 44 for details).

Supporting ourcustomers and clients

We are developing innovative
climate-related products to help
customers with mitigation andadaptation. We have launched agreen term deposit pilot for wholesaleclients in Australia. The investment
proceeds contribute to the Bank’spool of funding used to finance‘green’ assets certified by the Climate
Bonds Initiative. In New Zealand,
ASB has developed and launched
two new Positive Impact Funds
available through the ASB KiwiSaver
Scheme and ASB Investment Funds
for customers who want a stronger
approach to responsible investment.
The funds have a preference forassets making a positive social andenvironmental impact with a lower
carbon intensity than the wider market.

Sustainable financeThis year, the Bank was a joint
lead manager for the AUD300
million QIC Shopping Centre
Fund (QSCF) Green Bond,certified by the Climate Bonds
Initiative. QSCF has committed
to achieve a minimum 4-star
NABERS energy rating for
its core retail assets by 2023
and are targeting zero net
emissions by 2028.

Scenario analysis – areas of focus
PhysicalFlooding

StormsExtremeheat

Bushfires

Sea level
rise

Grains, livestockand dairy
agriculture
portfolios

Building
insurance
policies

Home loan
portfolio

Potential impacts
on profitability andadaptation options
to reduce impact.

Potential impacts
on insurance claims
and affordability of
insurance.

Potential damage
to properties at an
aggregated level
due to natural perils.
Home loan
portfolio exposure
concentrations.

MarketPolicy andRegulation

FirstChoice
Australian
Share Fund

Exposure of fund to
growth and contraction
sectors.

Legal

Reputation Technology

Business
lending
portfolio

Economic growth andcontraction by sector.
Sector heat maps.
Exposure of portfolio to
growth and contractionof sectors.

More information on our climate scenario analysis is available at commbank.com.au/TCFD2018 and commbank.com.au/TCFD2019

Green mortgage
initiative

Last year, we undertook
climate scenario analysis
to better understand thepotential impacts that achanging climate may haveon farm productivity andthe long-term outlook forthe sector. Separately, we
have also used historicalindustry data to map
productivity levels forregions in Australia forthe grains, livestock anddairy sectors. A closer
focus on productivity
levels across these threesectors and regions
helps us understand andbetter support individual
customers’ needs andcircumstances. We used
these insights to guide ourapproach to agribusiness
lending for these sectors,
to help our customers
manage sustainability
through agricultural cycles.

To help home loancustomers benefit from
more affordable andsustainable energy,
we ran a pilot offering$500 cash-back to our
retail customers withan installed and certified
solar PV system of fivekilowatts (kW) or greater.
During the six-week offer
period, 4,703 customers
took up the offer. The
initiative prompted
16% of participating
customers to install
new solar panels.

Incentivising thetransition to a low
carbon economy
Sustainability-linked
loans tie a borrower’s
cost of funding to theirenvironmental andsocial performance.
In July 2019, we provided$150 million of debt
funding to Queensland
Airports Limited (QAL)
for the Gold Coast
Airport redevelopment,with $75 million
provided in the form ofa sustainability-linked
loan. The Gold Coast
Airport financing is the firstin Australia to be directly
linked to a reduction
in carbon emissions,aligning to a widelyadopted carbon emission
industry framework,
the Airport Carbon
Accreditation Program.

ADDITIONAL INFORMATION

Drought

Transition

Supporting ouragribusiness customers

FINANCIAL REPORTWe are committed to playing our role in the responsible transition to a net zero emissions economy by 2050. To achieve this,we remain focused on reducing our own emissions and continuing to progress our actions in the institutional bank, ensuring
our business lending activities are aligned and supporting our clients. Going forward, we recognise the opportunity to leverage
our business banking and retail banking franchise to support our customers to reduce their emissions and adapt to the impactsof climate change. We will continue to evolve our approach over time. In 2018 and 2019, we undertook scenario analysis
to better understand the climate change impacts, risks and opportunities for the Bank and to build the resilience of ourcustomers and business. The insights from the analysis inform our approach to managing the short and medium term impacts,and having the right tools in place to reshape each of our portfolios to be more resilient to the long-term impacts identified.

DIRECTORS’ REPORTClimate strategy

HOW WE CREATE VALUE• Approves with input frommanagement, the strategic,
business and financial plans to be
implemented by management.

• Directing the development andimplementation of environmental
and social policies.

minimum standards, targets andcommitments we are working towards.
Accountabilities for the E&S Policy are
set out in the relevant Business Unit
and Support Unit Procedures.

OVERVIEW• Sets, approves and oversees theGroup’s approach to managing
risk, including the managementof financial and non-financial risks
and of strategic and emerging
material risks.

The Executive Leadership Team (ELT)
is responsible for climate-related
matters, including:

COMMONWEALTH BANK
2020 ANNUAL REPORTClimate governance

42

43

Playing our role in creating a resilient and sustainable economy
Supporting community
recovery and resilience

We are actively contributing to the
Climate Measurement Standards
Initiative. Through the initiative,
Australian banks, insurers, scientists
and asset owners have beendeveloping open-source technical andbusiness standards for the assessment
and disclosure of physical climate risks
on infrastructure and real estate assets.

In December 2019, we updated ourGroup Risk Appetite Statement toprovide greater clarity on non-financial
risk indicators and capture theimportance of environmental andsocial risks as a driver of franchise value.
To support a strategic and coordinatedresponse on E&S matters across all
business areas, we are developing
an E&S Risk Roadmap, focusing
initially on climate risk.

To monitor the climate-related risks of its investments,
CFS assesses two metrics for the equity allocation of Assets
Under Management (AUM) at a whole of portfolio level 1:

LNG terminals

Gas

–6%

–22%

–13%

CFS also measures the carbon emissions of its investments byassessing forward-looking metrics such as low carbon transition andemissions management scores. This information is reported to the
CFS Board Investment Committee. As CFS investments are managed
by external investment managers, CFS monitors the climate-related
risk within individual funds and aggregated portfolios at the selection,
appointment and monitoring stages of portfolio management.

1 Excluding Avanteos Investments Limited (AIL) and Bankwest bank deposits.

$2.2bnThermal coal

$0.6bnRenewables$0.35bn$4.2bn–6%+14%

Thermal coal
within diversified
miners 3

Coal terminals

Coal

–25%

–5%

–13%

$0.16bn

Uranium$0.0bnOil 4$2.3bn+7%

Network and retailers$0.9bn$0.004bn

Electricity andgas transmission,
distribution andretailing 5$5.2bn+4%

Nuclear$0.0bnOil distribution
and refining$1.1bn+41%

1 All figures are Total Committed Exposures (TCE) excluding Commitment at Offer as at 30 June 2020. Figures represented have been specifically derived basedon material client exposures, and have not been netted off against any insurance or guarantees that mitigate the Bank’s risk exposure to clients. Not included
are ‘Other energy-related’ exposures ($0.1 billion) which comprise smaller loans and exposure to energy trading entities.
2 Exposures to metallurgical coal mining ($0.02 billion), and metallurgical coal mining within diversified miners ($0.06 billion) not included.
3 Thermal coal exposure within each diversified miner is calculated as the Group’s exposure to the miner, excluding exposure to coal subsidiaries, multipliedby the percentage EBITDA contribution of thermal coal in its latest annual financial statements. Exposures to coal subsidiaries of diversified miners,
i.e. subsidiaries whose business activities are predominantly related to coal mining, are allocated to thermal coal.
4 Exposures in Oil (Natural resources) for 30 June 2019 have been revised due to reclassification of some clients, which impacts the year-on-year change percentages.
5 Electricity and gas transmission, distribution and retailing includes exposures to companies that operate across the electricity and gas supply chain, including
vertically integrated gentailers; exposures to entities that operate domestic gas pipeline, processing and storage facilities; and exposures to companies thatprovide retail electricity and gas products to end-customers.

ADDITIONAL INFORMATION

Equities comprise approximately 60% of CFS’ total AUM.

Electricity generation

Gas• Carbon emissions footprint per $100,000 invested:
20.77tCO 2 e/$100k AUD (FY20).

• The weighted average carbon intensity per US$M sales:
235.47tCO 2 e/$1M sales USD (FY20).

Infrastructure

Key: +/– change since FY19

FINANCIAL REPORT

Colonial First State (CFS) is the Group’s investment andsuperannuation business. CFS assesses climate-related risks
in line with its Responsible Investment Policy.

Our support for the transition to a low
carbon economy is reflected in our
declining exposure to coal, and ourincreasing exposure to renewables.
The increase in oil-related exposures
is substantially due to foreign exchange
movements in derivative hedging
exposures for a single existing client.

DIRECTORS’ REPORTAll Institutional Bankloans, as well as largeloans in other business
units, are evaluatedthrough our compulsory
ESG risk assessment tool.
Medium or high ESG risk
profiles are subject toadditional due diligenceand escalated dependingon the level of risk. We
continue to provide
guidance to our bankers
on executing the business
lending commitmentsin the E&S Framework.
This year’s ESG training
provided bankers withprompts to understandclients’ plans for climatetransition and resilienceto physical climate risks.

Responsible investing

The energy value chain graphic
below shows our exposure
to energy-related assets.

Energy value chain exposures as at 30 June 2020 1$1.2bnResponsible
business lending• Recognising and supporting gas asa transition fuel, while working withour customers in accordance with ourown climate scenario analysis, whichis informed by the Intergovernmental
Panel on Climate Change guidance.

More information about the Bank’s
current risk priorities including climatechange and the key actions we are taking
is on page 61.

Natural resources 2

CO2

Our E&S Framework outlines our
climate commitments, including:• Continuing to reduce our exposures
to thermal coal mining and coal
fired power generation, witha view to exiting the sectors by
2030, subject to Australia having
a secure energy platform.
• Only providing Banking and Financing
activity to new oil, gas or metallurgicalcoal projects if supported by anassessment of the environmental,social and economic impacts of suchactivity, and if in line with the goalsof the Paris Agreement.

HOW WE CREATE VALUE

We are actively collaborating withother organisations to lift national
resilience. This work allows us toproactively invest in building resilient
communities, disaster reduction anddisaster response.

We are a member of the Australian
Sustainable Finance Initiative, which
supports the development of a roadmap
to a more resilient and sustainableeconomy for Australia. In New Zealand,
ASB has joined with more than 100
companies as part of the Climate
Leaders Coalition.

The Bank is also a signatory to theEquator Principles III (EPIII) – a global
set of principles and guidance toassess, mitigate, manage and monitor
environmental and social risks inproject-related financing. CBA co-leads
the Climate Change Working Groupto develop additional climate change
assessment requirements in the next
iteration of the Equator Principles(EPIV). This will include deeper
guidance to support implementationof the principles by global financial
institutions.

Monitoring our exposures

OVERVIEWThis year’s extreme weather events
including drought, floods andbushfires, tested the resilience of thecommunities impacted. The Bank’s
Emergency Assistance package
provided immediate support toour customers. We also supported
recovery efforts for communities.
See pages 32–33 for more information.

Collaborating on new banking
and industry standards

Environmental and social risk,
including climate change, is a strategicrisk managed under the Group’s Risk
Management Framework and has thepotential to impact the achievementof our purpose and strategy.

COMMONWEALTH BANK
2020 ANNUAL REPORTClimate risk management

44

45
COMMONWEALTH BANK
2020 ANNUAL REPORT

Metrics and targets
Measuring the emissions intensityof our business lending

Group business lending

We are committed to continually
reducing the environmental impactof our operations and aim to reduce
our emissions by investing in smart
technologies and practices. Key
milestones achieved this year include:% of assessed emissions
by sector (FY19)• Reaching our target to source
100% of our electricity needs fromrenewable sources for Australian
operations, consistent with our 2030
RE100 commitment.
• Increasing our onsite renewableenergy generation capacity using
solar photovoltaic (PV) panels
to 1,510kW at 80 sites across thecountry, exceeding our 2020 targetof 1,250kW.
 Agriculture, forestry
and fishing

An increase in the proportion of our lending exposure to theAgriculture, forestry and fishing sector offset the broader decline
in other sectors’ emissions intensity. The Electricity, gas andwater supply sector’s emissions intensity continues to decline
year-on-year, partially driven by reduced exposure to coal electricity
generation. In addition, several renewable energy projects became
operational, and this phase is typically less carbon intensive thanthe construction phase.

44%
14%

 Transport and storage
 Electricity, gas andwater supply

13%

In the 2017 financial year we set a Low
Carbon Target to make $15 billionof funding available to Low Carbon
Projects by 2025. Eligible projects
include renewable energy, 6-star
rated commercial green buildings,
energy efficiency projects and low
carbon transport.

10% Manufacturing
 Property andbusiness services

7%
DIRECTORS’ REPORT

Within the Mining sector, metal ore mining had the largest drop
in emissions intensity. The Bank’s exposures to thermal coal mining
also decreased in the period.

• Our New Zealand operations (ASB)
have achieved Toitū carbonzero
certification from Toitū Envirocare.
The certification validates ASB
as a carbon neutral organisation
for its 2019 operational emissions.

In February 2020, we released ourGreen, Social and Sustainability
Funding Framework outlining thegovernance and asset eligibility criteria
for Sustainable Funding Instruments
issued by CBA. This framework provides
the guidelines to support capital
deployment toward new sustainableproducts, services and business models.

5%

 Mining2%

 Construction
 Personal and otherservices1%4% Other

FY19

FY20

Emissions per FTE

2.0tCO 2 -e/FTE
by 2020

2.1tCO 2 -e/FTE

1.9tCO2-e/FTE

RE100 – renewable energy(Australia)

Sourcing 100%
renewable energy
by 2030

65%

100% (1 Jan 2020)

2.0

Low Carbon Target$15 billion by2025$5.13 billion
committed
exposure$5.37 billion
committed exposure

1.5

Assessed emissions in our business
lending portfolio

Net zero by 2050

0.26kgCO 2 -e/$of expenditure(2018 financial year)

0.26kgCO 2 -e/$of expenditure(2019 financial year)

Key:

Commenced

Group business lending emissions intensity of expenditure (kgCO2 -e/$AUD)

1.0

0.5

0.0

Other

FY19

The full assessed emissions analysis including the detailed findings and methodology is available at commbank.com.au/CRreporting

FY18

Property andbusiness
services

FY17

FY16

FY15

FY19

FY18

FY17

FY16

Construction

FY15

FY19

FY18

FY17

FY16

Personal andother services

FY15

FY19

FY18

FY17

FY16

Manufacturing

FY15

FY19

FY18

FY17

FY16

FY15

Mining

FY19

FY18

FY17

FY16

Transport andstorage

FY15

FY19

FY18

FY17

FY16

FY15

FY19

FY18

FY17

FY16

FY15

FY19

FY18

FY17

FY16

FY15

Electricity,
gas and watersupplyComplete

Progress

ADDITIONAL INFORMATION

Target

FINANCIAL REPORT

MetricAgriculture,
forestry andfishing

HOW WE CREATE VALUE

Our sixth iteration of this annual assessment has demonstrated
overall stability in the emissions intensity of the Group’s business
lending portfolio, at 0.26kgCO 2 -e/$AUD of expenditure. With the
exception of Property and business services, the emissions intensityof expenditure in each sector across our portfolio decreased in FY19.
The Agriculture, forestry and fishing, and Electricity, gas and watersupply sectors continue to represent the most emissions intensive
sectors in the Bank’s lending portfolio.

We remain committed tooffsetting unavoidable emissions
to achieve carbon neutrality, andintend to achieve Climate Active
carbon neutrality certification for
our Australian FY21 emissions.

Supporting the low
carbon economy

OVERVIEW

We continue to assess the emissions arising from our business
lending across Commonwealth Bank, ASB and Bankwest. The insights
garnered from this analysis provide us with a quantitative basis
to identify key priorities to reduce the emissions arising from ourbusiness lending portfolio.

We continue to track the overall
performance of our Scope 1 and 2
emissions reduction target, and havecommitted to setting science-based
emissions reduction targets for Scope
1 and 2, as well as a Scope 3 emissions
reduction target.

46

47
COMMONWEALTH BANK
2020 ANNUAL REPORTFOCUS ON SUSTAINABILITY PERFORMANCE
Limited assurance report
PwC has provided limited assurance on these metrics(pages 47–52), for the year ended 30 June 2020,
unless otherwise indicated.

Sustainability
performance overview

The PwC Limited Assurance Report is provided
on pages 53–54.

We aim to deliver the best products, service and outcomes for our customers. We believe Net
Promoter Score is a good overall measure of our customers’ experience with us, as it subtracts
our detractors from our promoters. We do not always get things right so we also measure how
many complaints our Group Customer Relations team resolves. In addition, our Customer
Advocate is an independent voice for customers within the Bank, and if customers are not happy
with how we have resolved an issue, they can choose to have the Customer Advocate investigate
and make a determination that is binding on the Bank.

Women in leadershipin Executive Manager
and above roles by 2025

Mobile app NPS

2Target: #1 in mobile app NPS

40%

Key

Targetby 2020

New target

47–50%
by 2025

Low carbon funding 3

Target

$15bn

CBA

20

Peers

0

JUL 17

JUL 18

 7.1 on FY19

Target: #1 in consumer NPS

20

By focusing on delivering better
customer outcomes we haveseen a seven point improvementin the last 12 months.

Business NPS 5

CBA

Peers

10

We are narrowing the gap inbusiness NPS, gaining eight
points in the last 12 months.

TargetJUN 20

(2.9)

0
-10
-20

JUL 17

JUL 180-5

JUL 19JUN 20(14.3)

-10
-15
-20
-25
-30

Key

CBA

Peers

-35

JUL 17

JUL 18JUL 19per FTE by 2020

1 All metrics capture data of the wholly owned and operated entities of the Group, associates and joint ventures unless otherwise stated.
2 Roy Morgan Research Mobile app Net Promoter Score. See Glossary on pages 294–300 for details.
3 For definition see Glossary on pages 294–300.
4 DBM Consumer Net Promoter Score. See Glossary on pages 294–300 for details.
5 DBM Business Net Promoter Score. See Glossary on pages 294–300 for details.

30 Jun 1830 Jun 1730 Jun 16

(2.9)
2nd
(14.3)
3rd
31.1
1st
37.6
1st

(10.0)
3rd(22.4)
3rd
30.9
1st
37.2
1st

(2.7)
2nd
(19.6)
4th
31.3
1st
37.8
1st

(0.3)
3rd
(13.1)
1st
–
–
–
–

(0.7)
3rd
(13.0)
3rd
–
–
–
–

(4.6)
5th
(0.2)
3rd

(11.4)
5th
0.9
3rd

–
–
–
–

–
–
–
–

–
–
–
–

32.0
3rd
4.2
1st

–
–
–
–

–
–
–
–

–
–
–
–

–
–
–
–

30 Jun 20

30 Jun 19

30 Jun 18

Resolved 7
Escalated to an external dispute resolution (EDR) scheme 8– Privacy complaints

45,3245,480
22

40,5884,695
2233,530–22

Customer Advocate

30 Jun 20

Commonwealth Bank – Net Promoter Score
Consumer NPS 2,3– RankBusiness NPS 2– RankInternet banking NPS 4– RankMobile app NPS 4– RankBankwest – Net Promoter Score 3
Consumer NPS– RankBusiness NPS– Rank
ASB – Net Promoter Score
Retail banking 5– RankBusiness and rural banking 6– RankCustomer complaints

 8.1 on FY19

Target: #1 in business NPS

JUL 1930 Jun 19

JUN 20Complaints reviewed by the Office of the Customer
Advocate
Average business days to review complaint
Outcomes from review process:– Upheld bank decision– Upheld bank decision, enhanced outcome for customer– New decision
1
2
3
4
5
6
7

#

#
days

1,035
14

%
%
%

54
35
11

Customer advocacy metrics have not been assured by PwC as they are sourced from independent third-party providers.
Net Promoter Score (NPS) metrics are provided by DBM Consumer Atlas.
NPS methodology and service provider changed to DBM Consumer Atlas in 2019.
NPS metrics are provided by Roy Morgan Research. Not available prior to FY18.
NPS methodology and service provider changed to Retail Market Monitor in 2019. The results prior to FY20 are not comparable.
NPS methodology and service provider changed to Business Finance Monitor in 2019. The results prior to FY20 are not comparable.
Complaints based on ASIC RG165 guidance. Methodology revised in FY20 to consider only those complaints resolved after five business days, and FY19 andFY18 have been restated. FY20 complaints increased due to the CEO writing to customers and inviting feedback, a technology outage in October 2019 as wellas hardship complaints due to COVID-19.
8 FY19 number restated to exclude complaints that have not been through the Group's internal dispute resolution process, based on the percentage ofcomplaints in FY20. Excludes Bankwest complaints.

ADDITIONAL INFORMATIONGreenhouse gas emissions

2.0tCO2-e

30

Customer NPS4

Key

per FTE

37.6

10

by 2025

1.9tCO2-e5040

30 Jun 20

FINANCIAL REPORT$5.4bn 0.4 on FY19#

DIRECTORS’ REPORT

41.2%

We continue to extend our
digital leadership and havemaintained our #1 position.

Customer advocacy1

HOW WE CREATE VALUE

To achieve our objective of balanced andsustainable outcomes, we set targets for,measure and report a range of material customer,
environmental, social and governance metrics. 1

OVERVIEW

Customer metrics

48

49

We manage our operations to ensure we minimise our carbon footprint, use resources efficiently
and minimise costs associated with those resources. We report the Scope 1 and 2 (direct) and
Scope 3 (indirect) carbon emissions for our operations in Australia, New Zealand and otheroverseas locations. We are also committed to supporting the transition to a low carbon economy
and report our progress against our target to fund $15 billion of low carbon projects by 2025.

tCO 2 -e

Greenhouse gas emissions

1,124

Scope 1: Natural gas and diesel stationary 1
Scope 2: Purchased electricity: property portfolio 1– Renewable energy lending exposure 1$mBusiness lending emissions intensity 2

kgCO 2 -e/AUD

Climate bond arrangement 3

Greenhouse gas emissions
Group
Scope 1 emissions 4,5
Scope 2 emissions 5
Scope 3 emissions 5,6
Total

Australia

Scope 1 emissions

5

Scope 2 emissions 5
Scope 3 emissions 5,6
Total

Scope 1 and 2 per FTE 8
New ZealandScope 2 emissions
Scope 3 emissions
Total

Other overseas
Scope 1 emissions
Scope 2 emissions

–

–

3,644

3,716

2,800

2,200

0.26

0.26

0.28

0.29

$m

9,490

1,845

2,014

1,018

50

tCO 2 -e

30 Jun 20

30 Jun 19

30 Jun 1830 Jun 1730 Jun 16

10,84047,151

161,519

1.8

8,306

96,262

43,341

147,909

7,624

8,740

9,694

9,063

78,75787,27796,595

107,762

99,580 785,754

91,15093,622

Scope 3: Transmission and distribution losses

185,961 7

181,771

197,439

210,447

1.9

2.1

2.3

2.6

6,983

7,257

7,411

7,682

71,12876,866

83,723

94,25588,282

72,43077,55378,961

166,393

156,553

168,687

180,898

1.9

2.1

2.3

2.6

2.9

2,046

82

733

1,348

436

1,938

2,462

2,661

3,213

1,266

4,259

5,834

3,813

4,950

6,279

9,029

7,822

8,599

1,614

4,926

488

559

750

935

945

5,652

5,690

7,949

10,211

10,294

7,039

7,490

9,784

9,711

8,684

13,28816,18920,93020,9502,544

76,866

83,723

94,255

1,475

38,182

39,64744,052

41,261

73

79

116

133

10,581

20,531

21,34921,57623,451

10,572

8,272

10,021

10,503

12,453

30

–

–

–

18,116

19,793–––

127,827

112,675

112,671

129,671

142,418

281,356

313,065

339,270

365,617399,781279,932

–

–

–

–

–

–

–

–

157,578

168,620

173,281

189,456

174,796

572,867

594,360

625,222684,744716,995

177,047

216,102

172,134

171,477

114,608

570

629

750

–

204

Scope 3: Office paper use 4
Scope 3: Base building

Energy – Australia

gigajoules

Fuels – natural gas, diesel and transport– Renewable energy via power purchase agreement
or retail contracts 3Electricity generated from on-site solar panels

71,1282,191

Scope 3: Hotel accommodation 3

Purchased electricity – property portfolio
103,52862,4436,106

3Purchased electricity – data centre electricity
Total energy consumption

Water and paper – Australia
Water 5
Office paper usage (A3 and A4)

kilolitres
tonnes483

ADDITIONAL INFORMATION

Scope 3 emissions
Total

N/A

4,575

663
7,019

FINANCIAL REPORT

Scope 1 emissions 4

4,225

5,134

541
6,870

1 Prior year numbers have not been assured.
2 See commbank.com.au/CRreporting for methodology. Current period data is not available as the methodology relies on published client-specific data which
is time delayed. Not assured by PwC. EY has provided limited assurance on the pool of assets backing the Green Liabilities in August 2020.
3 Not assured by PwC. Includes the full value of the transactions where CBA has acted as an Involved Party. FY20 number has increased due to higher demand
for green bonds.
4 New Zealand operations has reclassified a proportion of their leased fleet fuel usage from Scope 3 emissions to Scope 1 emissions.
5 In FY20, CBA assumed operational control of two data centres. Emissions from these locations have been reclassified from Scope 3 to Scope 1 or 2 emissions,depending on source.

DIRECTORS’ REPORT

Scope 1 and 2 per FTE 8

5,374

30 Jun 16

389
6,868

HOW WE CREATE VALUE$m

30 Jun 1730 Jun 16

OVERVIEW

Low carbon funding 1

30 Jun 1830 Jun 17

357

202

Scope 3: Natural gas and diesel stationary
30 Jun 19

30 Jun 18

33,819

Scope 2: Purchased electricity: data centres 1

Scope 3: Transport 2
30 Jun 20

30 Jun 19

6,626

7,182

Scope 1: Transport

Scope 3: Purchased electricity: data centres 1

Low carbon transition

30 Jun 20

COMMONWEALTH BANK
2020 ANNUAL REPORT

Operations – Australia

Environmental metrics

1 In FY20, CBA assumed operational control of two data centres. Emissions from these locations have been reclassified from Scope 3 to Scope 1 or 2 emissions,depending on source.
2 Emissions reduced due to travel restrictions as a result of COVID-19.

6 FY20 Scope 3 emissions exclude emissions from waste to landfill. From FY19, Scope 3 emissions include emissions from base buildings and paper use.

3 Reported for first time in FY20.

7 Restated due to summation error in FY19 Scope 3 emissions.

4 Paper use emissions increased as a new supplier of office products also includes non-carbon neutral paper in their range.

8 Emissions intensity calculations for FY20 exclude the reclassified Scope 2 emissions from the two data centres now under operational control.

5 FY20 and FY19 commercial water use includes both new commercial buildings and old commercial buildings that have not been vacated.

50

51

Employee training

Employees are the Bank’s most important asset and having an engaged, well-trained andaccountable workforce is essential to the delivery of the Bank’s strategy and delivers tangible
benefits for our customers, shareholders and the communities we operate in. Flexible working
practices help our people balance their goals and commitments and support a performance
culture. Diversity and inclusion are an integral part of the Bank’s culture, values and the way
we do business.

hrs

Executive Managers and above roles
Total

#

5,122

– New Zealand

2,133– Other

30 Jun 17

Per employee

45,16545,75345,614

45,12937,13736,44635,70135,273

5,038

5,538

5,409

5,518

2,990

3,769

4,504

4,338

183

188

149

119

#

Employee turnover – voluntary%

Employee turnover – involuntary%

Employment type (headcount) 2#

48,16750,482

51,371

51,77951,120

11.3

11.8

10.1

11.3

4.0

4.2

–

–

10.1
4.2

32,178Full-time

–

–

–

7,900

–

–

–

399

438

–

–

–

0.9

1.6

1.4

1.6

1.6

7.2

6.0

5.9

6.0

49,977

–

–

–

7,565

Part-time
CasualSafety and wellbeing
Lost Time Injury Frequency Rate 3

rate

Absenteeism

days
#
%

Employee engagement index – CBA 6

7.8

49,385

Employees working part-time or job-sharing#

1,475,242

31.6

29.7

30.4

27.2

22.3

24.9

27.1

27.4

22.8

25.2

30 Jun 20

30 Jun 19

30 Jun 1830 Jun 1730 Jun 16

1,560

4,043

3,577

2,768

1,786

30 Jun 20

30 Jun 19

30 Jun 1830 Jun 1730 Jun 16

%

ratio

66.0

73.9

73.7

69.4

43.4

–

47.5

50.7

53.0

–

–

30 Jun 20

30 Jun 19

30 Jun 1830 Jun 1730 Jun 16

19.0

19.5

19.7

19.4

19.8

30 Jun 20

30 Jun 19

Team Member

Age diversity%

4 FY19 number has been restated. The health, safety and wellbeing training number is higher than FTE as the training is assigned annually and to new employees.

58.0
43.6

39.1

37.6

36.7

35.2

27.3

22.2

20.0

–

–

31 Mar 20

31 Mar 19

31 Mar 18

31 Mar 17

0.90

0.95

0.94

0.95

0.97

0.99

1.00

1.00

0.98

0.99

0.98

0.98

0.98

1.00

1.00

1.00

1.00

30 Jun 20

30 Jun 19

30 Jun 1830 Jun 1730 Jun 16

7.4

7.3

8.1

8.3

33.2

34.8

35.9

31.8

31.0

29.7

29.5

19.9

19.5

18.9

18.5

8.4

8.0

7.6

7.2

1.0

0.9

0.8

0.6

0.6

Oct 19Apr 19Apr 18Apr 172016

CBA Indigenous workforce (ancestry) 4

1.5

0.9

1.0

0.8

–

2016 Australian Census(Aboriginal or Torres Strait Islander)

–

–

–

–

2.8

8.7

10.5

11.9

–

–

3.4

3.4

–

–

31.9

35–44 years

19.6

45–54 years

8.6

55–64 years
65+ years%

Employees who identify as having a disability

3.3

Employees who identify as LGBTI
Australia,
CulturalDiversity NZ, British,
Irish
Index
%
#

Europe%Africa,Asia Middle East%%

Indigenous,
Pacific
IslandersAmericas%%

CBA overall

0.72

57.37

11.04

23.87

3.42

1.39

2.91

General Manager and above

0.49

75.38

12.16

6.38

2.74

2.43

0.91

Executive Manager and above

0.57

70.59

13.78

9.52

3.06

1.97

1.09

2016 Australian Census (ancestry)

0.59

69

12

14

4

1

1

1 FY19 number restated due to incorrect capture of training modules. FY20 number has decreased due to postponement of training as a result of COVID-19.

5 Sourced from the Group's people and culture survey. Survey provider changed in FY20 to Qualitrics. Due to COVID-19 not all metrics were surveyed in April 2020.

2 Methodology changed in FY20, to improve representation of management levels. Reported values exclude employees seconded to their role at the time ofreporting. All prior year numbers have been restated.

6 Employee engagement showed a significant improvement due to the Bank's support of customers, people and communities during COVID-19.

3 Sourced from the Group's people and culture survey. Survey provider changed in FY20 to Qualitrics. Due to COVID-19 not all metrics were surveyed in April 2020.

7 Reported for first time in FY20.

4 Metric can be volatile due to small sample size.

ADDITIONAL INFORMATION

3 Prior year numbers have been restated due to claims received after year-end reporting date.

57.8
44.4

31.4

Cultural diversity based on ancestry(Oct 2019) 3

2 Excludes fixed term contractors and contingent workers.

57.4
44.6

30.8

25–34 years

Other diversity dimension 3

1 Includes discontinued operations.

57.2

7.9

<25 years

27.5

45.0

0.98

Manager/Professional

20.5

45.0

0.98

Executive Manager

77

25.2

1.00

General Manager

78

19.9

25.6

41.2

Executive General Manager

72

649,055 1,505,974

56.9

Gender pay equity(female to male base salary) 2

68–

1,373,393

638,469

Women in Executive Manager and above roles

72

1,825

Employees who have returned to work and arestill employed after 12 months 7

577,415

836,773

Women in Senior Leadership (Group Executives)

81

917

795,978

690,115 1,576,057

Women in Manager and above roles

Apr 16913

101,849

Women in workforce

Apr 17

Male employees who have accessedparental leave

61,05428.8

Gender diversity

Apr 181,479

40,795

ESG training 1

Apr 191,433

70,083#

Oct 19Female employees who have accessedparental leave

41,060FINANCIAL REPORT%

29,023

29.1

Average per employee

Apr 20–

Employees working flexibly
Employees with caring responsibilities

Total

DIRECTORS’ REPORT

33,125

Male

21.3

Others30 Jun 16

Female

HOW WE CREATE VALUE

Headcount

Parental leave

30 Jun 18

153

Graduates

Employee engagement and flexible working 5

43,58536,330– Australia

Health, safety and wellbeing training 430 Jun 19

Total

OVERVIEW

Total full-time equivalent (FTE)

30 Jun 20

Male885,942

Executive Managers and above roles

Employees 1

Female856,919

Others30 Jun 19

COMMONWEALTH BANK
2020 ANNUAL REPORT

30 Jun 20

Social – our people metrics

52

53

Social – community metrics
We contribute to our communities through community investment and financial education.
We also provide support for Indigenous communities in keeping with our purpose of improving
the financial wellbeing of customers and communities.

30 Jun 1830 Jun 1730 Jun 16

332.3

$m

Total community investment

1,2– Cash contributions 2– Time volunteering

30 Jun 19

290.0

266.0

262.6

41.6

55.5

37.2

37.8

– Forgone revenue 1

1.1

1.1

1.2

1.4

261.4

231.5

220.3

215.9

211.8

To: the Board of Directors of the Commonwealth Bank of Australia– Program implementation costs

12.7

14.2

13.2

11.7

11.6

Community investment as a percentage of pre-tax
profit 4

Scope

%

3.2

2.4

2.2

2.0

2.0

Financial literacy programs#

School banking students (active)

3

Start Smart students (booked) 3,5

174,997

Indigenous community support
Indigenous Customer Assistance Line (calls received)
Australian Indigenous supplier spend – first tier

#
$’000

244,636

299,074

321,389

325,797377,214427,527

568,649574,246

557,475

In accordance with the terms of our engagement letter dated 18 May 2020, we were engaged by Commonwealth Bank
of Australia and its subsidiaries (the Group) to perform an independent limited assurance engagement in respect of theNon-financial Performance metrics (Customer, Environmental, Social and Governance metrics) (the Performance Metrics)
for the Group for the year ended 30 June 2020 (the Period), presented on pages 47 to 52 of the 2020 Annual Report.
The definitions (the Criteria) against which we assessed the Performance Metrics are established by management andare presented on pages 294 to 300 of the 2020 Annual Report.

206,436

202,444

180,225

168,218

170,789

Management’s responsibilities

2,959

–

–

–

4,395

We have complied with relevant ethical requirements related to assurance engagements, which include independence andother requirements founded on fundamental principles of integrity, objectivity, professional competence and due care,confidentiality and professional behaviour.

Strong governance is key to the Bank’s ability to deliver on our purpose and strategy.
Having independent and diverse Non-Executive Directors supports strong oversightand quality decision-making by our Board. It is also important that our people knowwhat is expected of them and are confident to speak up about any issues or concerns.

30 Jun 1830 Jun 1730 Jun 16

9

10

10

10

12

– Female

5

5

4

4

4

5

6

6

8

8

9

9

9

11

56

50

40

40

33

92.7

96.7

99.4

97.6

–

96.4

• Enquiries about the design of the internal controls and systems used to collect and process the Performance Metrics;

93.6

94.4

96.9

–

• Where applicable, enquiries of third parties responsible for the preparation of data included in the Performance Metrics;

1,851

1,869

1,259

1,022

–

• Comparing the Performance Metrics to relevant underlying sources on a sample basis; and

187

–

–

–

311

143

171

–

30

33

44

–

4

– MaleIndependent Directors
Female Directors on Board%
7%

Training completion rate – Code of Conduct
Training completion rate – mandatory learning
Conduct and whistleblowing
Substantiated misconduct cases
Misconduct cases resulting in termination
SpeakUP Program cases– Whistleblower cases 8

284
103

Our responsibility is to express a limited assurance conclusion based on the procedures we have performed and the evidence
we have obtained.
Our engagement has been conducted in accordance with the Australian Standard on Assurance Engagements (ASAE 3000)
Assurance Engagements Other Than Audits or Reviews of Historical Financial Information. That standard requires that weplan and perform this engagement to obtain limited assurance about whether anything has come to our attention to indicatethat the Performance Metrics have not been prepared, in all material respects, in accordance with the Criteria, for the Period.
The procedures we performed were based on our professional judgement and included:• Enquiries of relevant staff responsible for preparing the Performance Metrics;#
136

Our responsibilities• Enquiries about the design of the systems used by third parties to collect and process the Performance Metrics;• Reading the Performance Metrics to determine whether they are in line with our overall knowledge of, and experience with,the corporate responsibility performance.

1 Forgone revenue methodology has changed in FY20. The FY19 number has been restated. Increase in FY20 is mainly due to expanding the age eligibility forfee waivers on Smart & Complete accounts in October 2019, increase in Streamline accounts and pricing changes to transaction fees in November 2019.
2 The FY20 increase is mainly due to the launch of the Next Chapter program to address domestic and financial abuse, and donations for bushfire and drought relief.
3 FY20 metrics impacted by COVID-19.
4 Cash net profit from continuing operations before tax.
5 Start Smart program for vocational students ceased in FY19.
6 As numbers are actuals, no assurance by PwC is provided.
7 The training completion rates are not 100% as allocated training may be scheduled for completion after 30 June or training may be overdue. There are
remuneration consequences for employees who do not meet their training obligations.
8 The FY20 increase in whistleblower cases is in part attributable to an expanded definition of an Eligible Person and Reportable Conduct as per changes to the
Corporations Act applicable from 1 July 2019.

PricewaterhouseCoopers, ABN 52 780 433 757
One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY NSW 2001
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Level 11, 1PSQ, 169 Macquarie Street, Parramatta NSW 2150, PO Box 1155 Parramatta NSW 2124
T: +61 2 9659 2476, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.

ADDITIONAL INFORMATION

30 Jun 19

FINANCIAL REPORT

30 Jun 20#

Total Directors

Group compliance training

In accordance with Auditing Standard ASQC 1 Quality Control for Firms that Perform Audits and Reviews of Financial Reports
and Other Financial Information, Other Assurance Engagements and Related Services Engagements the firm maintains acomprehensive system of quality control including documented policies and procedures regarding compliance with ethicalrequirements, professional standards and applicable legal and regulatory requirements.

DIRECTORS’ REPORTOur Independence and Quality control

Governance metrics

6

The Management of the Group is responsible for the Performance Metrics and for the preparation of the Performance
Metrics in accordance with the Criteria.

HOW WE CREATE VALUE

288.4

57.5
0.7

3

Board composition

OVERVIEW

Community investment

30 Jun 20

For the year ended 30 June 2020

COMMONWEALTH BANK
2020 ANNUAL REPORT

Independent assurance report onsustainability performance metrics

54

55
COMMONWEALTH BANK
2020 ANNUAL REPORTHOW WE CREATE VALUE

The procedures performed in a limited assurance engagement vary in nature and timing from, and are less in extent than for,a reasonable assurance engagement and consequently the level of assurance obtained in a limited assurance engagement
is substantially lower than the assurance that would have been obtained had a reasonable assurance engagement been
performed. Accordingly, we do not express a reasonable assurance opinion.
We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our conclusion.
This report was prepared for the Board of Directors of the Commonwealth Bank of Australia. We disclaim any assumption of
responsibility for any reliance on this report to any persons or users other than the Board of Directors of the CommonwealthBank of Australia, or for any purpose other than that for which it was prepared.

Inherent limitations

Conclusion

Based on our review, which is not an audit, nothing has come to our attention that causes us to believe that the Performance
Metrics have not been prepared, in all material respects, in accordance with the Criteria for the year ended 30 June 2020.

Matthew Lunn
Partner

Events of the last year haveintroduced new risks or alteredexisting risks:
COVID-19 impacts – uncertainty
exists regarding the duration andseverity of COVID-19 impacts and theassociated disruption to the domestic
and global economy. While there has
been significant government supportand stimulus, we expect challenging
economic conditions ahead. In
the longer term we anticipate
increased credit losses from businessinsolvencies, higher consumer
defaults due to unemployment andslower overall growth.

Global tensions – geopoliticalissues and trade disputes are
creating uncertainty for Australianand global businesses, which could
further exacerbate economic
conditions and increase cyberand privacy risks.

The Board and Managementof the Bank understand theimportance of good risk
management to the financial
wellbeing of our customers,
shareholders, the community
and the broader economy.

Increase in financial crime –the availability of financial
support packages creates newopportunities for financial
criminals to exploit the larger
number of vulnerable people
and businesses.

We therefore remain focusedon improving the Bank’s risk
management discipline. Thisfocus in recent years, including on
business continuity planning, has
equipped our teams to exercise
sound judgement and mobilise
rapidly to support customers
through the challenges of thebushfires, drought and the
COVID-19 pandemic.

Climate change risk – thisyear’s bushfires and floods havehighlighted the physical impactsof climate change and theincreased frequency and severityof extreme weather events.
Increased regulatory
scrutiny – the Bank and its
operations are subject toheightened regulatory scrutiny
and requirements as wellas potential regulatory andlegal action.

Our historically sound credit
risk management practices andresilient systems have also enabled
the Bank to offer a range of relief
measures to support individuals
and businesses. Positive customer
feedback has reinforced that theinvestment and efforts being madeto improve the Bank’s risk culture
are driving meaningful change.

ADDITIONAL INFORMATION

Sydney12 August 2020

In recent years, banks
have been adapting toa range of new and evolving
risks such as uncertain
macroeconomic conditions,the advancement of newtechnologies and competitors,
and increasing societal andregulatory expectations.

FINANCIAL REPORT

PricewaterhouseCoopers

DIRECTORS’ REPORT

Because of the inherent limitations of any assurance engagements due to the selective testing of the information being
examined, it is possible that fraud, error or non-compliance may occur and not be detected. A limited assurance engagement
is not designed to detect all instances of non-compliance of the Performance Metrics with the Criteria, as it is limited
primarily to making enquiries, of management, and applying analytical procedures. The limited assurance conclusion
expressed in this report has been formed on this basis.

The external operating environment alteredmaterially this year, resulting in rapid anddynamic changes to the risk landscape. The recent
strengthening of our risk framework has positioned
the Bank well to respond to these risks and support
our customers and the community.

HOW WE CREATE VALUE

Use of report

OVERVIEWManaging ourchanging risklandscape56

57

Employee health and safety

The framework is delivered throughgovernance and reporting processes,
risk policies and procedures, risk
infrastructure (risk systems, tools
and processes), and people with therisk skills and capabilities appropriate
to managing the varying risk types.
The specific risks we manage withineach of our Material Risk Types will beeither existing risks or forward-looking
emerging risks that require action now
to minimise their impacts in the future.

• A data centre and network
modernisation program, which is
improving the security and resilienceof our technology infrastructure.
• Initiatives to improve the quality
and automation of data used in
non-retail credit risk reportingand portfolio management.
Underpinning each of these initiatives
is the Bank’s strategic imperative of
becoming simpler and better. These
initiatives are being managed throughstrong governance and accountability
structures and by setting clear
priorities for business areas.
For further details on our Risk
Management Framework refer to Note 9
on page 201 in the Financial report.

CBA Board

Ongoing monitoring

Group Strategy

Group Risk Appetite Statement

Board People &Remuneration Committee

Board Risk & Compliance Committee

Financial risks

Executive
Leadership
Team (ELT)

Financial Risk Committee
(FRC)
BU/SU
Leadership
Teams

Strategic
Risk

Asset andLiability
Committee(ALCO)

Business Unit (BU)
Leadership Teams

Credit risk

Market risk

Liquidity risk

Non-financial risks

Insurance
Subsidiary
Boards

Non-Financial Risk Committee(NFRC)

Risk &
Remuneration
ReviewCommittee(RRRC)

Leadership
Teams

BU/SU NFRC Committees

BU/SU RRRC
Committees

Insurance risk

Compliancerisk

Operational
risk

Operating environment
Macroeconomic

Competition

Technology

Regulatory

Political

Customer
expectations

Values Expectations and Risk Behaviours

Climate andenvironment

Societal

ADDITIONAL INFORMATIONThe COVID-19 situation continues to
evolve both locally and globally andwill likely present new challenges andrisks in the short to medium term.
The Board and Management continue
to actively monitor the situation
and adapt our response as required
to maintain our financial strengthand ensure our customers and thecommunity are supported throughthese challenging times.

• A cyber security program toenhance the Bank’s cyber defences
against a continually increasing
threat environment.

FINANCIAL REPORT

Volatility is expected to continue
in the current environment,
requiring ongoing closemonitoring by management.

and embedding a new Anti-Bribery& Corruption (AB&C) framework.
• Implementing data quality
initiatives to improve the structureand quality of data to support
reporting and decision making.

Risk skills andcapabilities

There has been a global increasein cyber crime during COVID-19 as
cyber criminals seek to gain financiallyfrom people’s vulnerability, or exploit
potential weaknesses introduced
through rapid operational changes
implemented by businesses. Throughour cyber security program, we
continue to enhance the Bank’s
cyber defences and have focused on
educating staff and customers on thedangers of cyber crime activities.

• The Group Strategy that
articulates the Group’s approachto the implementation of its
strategic objectives.

We have developed and improved
the Bank’s Risk Management
Framework to ensure it is robust andfit-for-purpose. This means evolving
our risk management practices forbetter risk and compliance outcomes,
and to take account of changes in the
Bank’s operating context. This includes
heightened regulatory change andshifting consumer preferences – twotrends that are likely to continue into
the foreseeable future. Significant
investment is underway in a numberof areas, including:• Our comprehensive Remedial
Action Plan to strengthen the
Bank’s operational and compliancerisk framework is in its third year,
after the 2018 APRA Prudential
Inquiry exposed a lack of maturity
in the Bank’s non-financial risk
management practices. Progress has
been made on enhancing our risk
governance and business ownershipof risk outcomes, elevating the statusof the Risk Management function
within the organisation, and investingin risk systems for improved analytics,
reporting and better decision making.
• Strengthening our financial
crime policies, standards andcontrols, improving our Know Your
Customer operational practices

Risk Framework Enablers

Cyber risk

In early March, global markets
experienced extreme volatility,
mainly due to COVID-19 and theoil price shock. In response, theBoard approved a temporary
three-month increase in the Market
Risk intervention levels outlined in
the Group Risk Appetite Statement.

• The Group Risk Appetite
Statement that articulates thetype and degree of risk the Board
is prepared to accept and the
maximum level of risk that theinstitution must operate within.

Strengthening our risk framework

Risk infrastructure

During the initial stages of COVID-19,
the Bank had to respond quickly
to changing circumstances. This
increased the risk of introducing
operational vulnerabilities into ourprocesses, and created general
uncertainty over the stability of
global supply chains and the potential
impact on third-party suppliers. The
shift to remote working also added alevel of disruption to our operations,and increased our cyber, privacy andconduct risk profiles.

In anticipation of the potential
impact on our customers, we haveincreased our forward-looking loan
loss provisions. These have been
determined based on a range ofplausible economic and industry stressfactors, and take into account the
mitigating impacts of Government
and industry assistance packages andsupport, including loan repayment
deferral arrangements. We continue
to monitor our lending portfolios
closely, with stress testing forming
the basis for ongoing re-assessments
of provisioning levels as thesituation evolves.

Managing market volatility

The diagram below outlines the Risk
Management Framework – including
risk governance structures – formanaging the Group’s Material Risk
Types. It incorporates the requirementsof APRA’s prudential standard forrisk management (CPS 220). Integral
to our approach to managing risk is:

Risk policies andprocedures

Operational resilienceNotwithstanding the range ofrelief measures made available
to businesses and individuals,
the depth and severity of COVID-19
related impacts on the economy
are uncertain.

The significant number of financial
support packages made available
to millions of Australians whose
employment has been impacted
by COVID-19 has increased theopportunity for those seeking tocommit financial crimes. This new riskhas been factored into our financial
crime detection processes and staff
financial crime compliance education
and awareness programs.

Overview

Risk governanceand reporting

The long term prosperity of the
Bank ultimately depends onthe financial wellbeing of ourcustomers. The prolonged closureof businesses, particularly in theservice industry, combined with
the impact of restrictions onregional and international travel,
has threatened the livelihoods ofmillions of Australians. We havebeen committed to supporting ourcustomers during this time, while still
focusing on maintaining responsible
credit risk decisions. The assistanceand relief measures we are providing
are outlined in Supporting ourcustomers on pages 30–31.

Financial strength

Social distancing restrictions during
the height of the pandemic madecomplying with customer verification
obligations under the Anti-Money
Laundering and Counter-Terrorism
Financing (AML/CTF) regime difficult
where customers are required topresent in person at a branch. Special
relief was provided by AUSTRAC
to allow alternative verification
procedures in these situations,such as video calls.

DIRECTORS’ REPORT

Customer welfare

We also implemented infrastructurechanges to increase the reliability andspeed of remote working operations
for critical functions, and increased
our oversight of critical suppliers.
To enable our teams to prioritisecustomer support, we slowed certain
non-essential projects – excluding
those with regulatory commitments– and temporarily moderated risk
framework requirements for lower
risk activities. We also hired new
employees and redeployed almost
500 team members to service
increased customer queries andhardship requests.

Financial crime

HOW WE CREATE VALUE

The increased risk to the safety andwelfare of our workforce has beenof paramount concern during the
COVID-19 pandemic. The measures
introduced to support and protect
our people, and to ensure they are
equipped with the information andresources they need, are outlinedin Commitment to our people and
Board priorities during 2020 on pages
34–35 and 63, respectively.

During this time, our focus was onprotecting the stability of the Bank’s
critical operations and supporting ourcustomers. To ensure there was no
disruption of services to customers,
we initiated a temporary technology
production change freeze.

OVERVIEWThe COVID-19 pandemic rapidly
introduced an array of new andelevated risks to the safety ofour people, the resilience of ouroperations, the strength of ourbalance sheet and the financial
security of our customers andthe community. Action has beenrequired to address these risks,particularly in the following areas:

Our risk framework

COMMONWEALTH BANK
2020 ANNUAL REPORT

Responding to COVID-19 risks

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59
COMMONWEALTH BANK
2020 ANNUAL REPORTOur current risk priorities
This section describes the specific risks within our material risk types where the Board and the
Executive Leadership Team are focusing their efforts. It includes a mix of existing and emerging
risks that could materially impact our ability to serve our customers or deliver our strategy.

OVERVIEW

Macroeconomic environment

The COVID-19 pandemic has resulted in prolonged
closures of businesses, predominantly in service
industries. We expect challenging economic conditions
ahead. In the longer term we anticipate increased
credit losses from business insolvencies, and higher
consumer defaults due to unemployment.

Uncertainty exists regarding the duration and severityof COVID-19 impacts and the associated disruption to
the local and global economy.
Geopolitical tensions and trade disputes are creating
uncertainty for businesses, which could further
exacerbate economic conditions.

Information security risks for the Group have increased
in recent years due to the evolution and developmentof new technologies, the Group’s increasing use ofdigital channels, and the increased sophistication andbroadened activities of cyber criminals.

Key actions we are taking

Key actions we are taking• Improvements being made through ourmulti-year Program of Action include:– Enhanced financial crime policies and procedures.
– Investment in new technology, including
enhanced transaction monitoring systems
and processes, aimed at the detection offinancial crime.
– Establishing mechanisms and processes toimprove customer data integrity throughcore systems.
– Revision of our Anti-Bribery & Corruption(AB&C) Policy and Standard, developmentof new tools, and implementation of a Group
AB&C control framework.
– A significant increase in specialised Financial
Crime Compliance team members andenhanced financial crime complianceeducation and training for staff aimed atdeterring and detecting financial crime.
– A high level of engagement with the
Fintel Alliance.
– Constructive engagement with AUSTRAC
and international regulators.
• Given the links between human trafficking andfinancial crime, we continue to strengthen our
supply chain due diligence by embedding newmodern slavery requirements into procurement
policies, processes and capabilities.

• Being ‘Best in digital’ is a key pillar of theBank’s strategy. We continue to invest to deliver
the best digital banking experiences for ourcustomers through new digital services, marketleading technology, seamless service acrosschannels and data driven insights.
• We have invested in digital infrastructure andassets over many years to achieve a leadership
position in digital banking. Most recently, thisincludes our Customer Engagement Engine whichuses AI and machine learning to drive personalised
and innovative services for customers.
• Our mobile banking app and internet banking
platform both consistently score highest amongmajor bank peers for Net Promoter Score and inindependent surveys.
• We are investing in digital businesses that
add to our core product offering and extend
our ‘Best in digital’ leadership. This includes
the launch of our x15ventures incubator which
is working with innovators to identify, fundand build new digital banking businesses.
• We are modernising and simplifying oursystems and digitising our end-to-end processes
to reduce risk and cost and to improve system
availability and resilience.
• We have developed tools and guidelines
for the safe and fair use of AI across ourbusiness. We are also actively engaged in thedevelopment of national and international
standards regarding the safe and fair use of AI.
• We monitor emerging technologies andresearch and test the adoption of new, innovative
capabilities to maintain our technology leadership.

• A cyber security program is in place to enhance
the Bank’s cyber defences against a continually
increasing threat environment. This includes
focus on enhanced detection and monitoring
infrastructure, as well as security configurationand vulnerability management capabilities.

• Investment is underway to enhance thesystems and data necessary for credit reportingand portfolio management, particularlyin the non-retail parts of our business.
• We regularly discuss the macroeconomic
challenges with both regulators and government.

• We also collaborate with a range of government,
community and industry bodies to strengthen
system-level resilience and to reduce thepossibility of cyber attacks and the impactof fraud and scams on the community.
• Our data management program of work
is focused on strengthening our DataManagement Framework across the Group.
This involves enhancing our methodology,architecture, tools, standards and procedures
across all business areas, to ensure the quality
and integrity of data throughout its lifecycle.
As part of this work, we are prioritising the data
management practices for the most critical data
elements across the Group.
• The Bank has a privacy strategy to enhance
our data privacy processes, capabilities
and awareness to ensure compliance in all
jurisdictions where we have a presence.

• We also collaborate with not-for-profit
organisations that work with the private
sector to detect and end modern slavery,
including the Mekong Club.

ADDITIONAL INFORMATION

Currently, cyber criminals are also motivated to exploit
potential or perceived weaknesses introduced throughrapid operational changes implemented in thisenvironment.

FINANCIAL REPORT

Cyber attacks have the potential to cause financial
system instability. A successful cyber attack could
result in a serious disruption to customer banking
services or compromise customer data privacy.

• The Bank has the backing of a strong balance
sheet with strong deposit funding, significant
excess liquidity and unquestionably strong capital.

• We have increased our loan loss provisions in
anticipation of the potential impact of COVID-19
on our customers, and continue to monitor
our lending portfolios closely, with detailed
stress testing forming the basis for ongoing reassessments of provisioning levels.

The emergence of new technologies, like Artificial
Intelligence (AI), is driving the digitisation andautomation of processes and requires a different
set of skills that may be difficult for the Bank
to attract and retain.
The adoption of AI can be a differentiator. However,
if poorly implemented or managed in areas such as
lending decisions, the use of AI could create data
privacy concerns or deliver incorrect results withpotentially poor financial, regulatory, conduct orreputational outcomes.

Key actions we are taking• We will continue to support our customers
whilst adhering to, and if necessary, revisingcredit policies, procedures and tools to support
responsible credit decisions in this newenvironment.

The Bank’s Program of Action continues to address theunderlying causes of the Anti-Money Laundering andCounter-Terrorism Financing (AML/CTF) Act failings
that resulted in AUSTRAC commencing enforcement
action against the Bank in 2017.

Emerging technologies and regulatory changes suchas Open Banking and Comprehensive Credit Reportingare making it easier for neobanks, fintechs andtechnology companies to compete directly in banking.

There is currently a higher risk of financial crime
because of increased opportunities through thenumber of financial support packages available,
combined with an increase in the number ofvulnerable people and businesses.

Key actions we are taking• We undertake regular stress tests tounderstand how our business performs andto prepare alternative action plans for a rangeof economic scenarios.

Banks have a critical role to play in combating financial
crime and protecting the integrity of the financial system.
Not detecting or preventing financial crimes can havea significant impact on our customers and the communityand can result in material fines and penalties for the Bank.

Digital disruption

DIRECTORS’ REPORT

Credit growth has slowed and house prices may
decline due to increasing unemployment and a sharp
fall in immigration rates.

The Bank manages a large volume of sensitive data.
The regulatory landscape is increasingly focused on theprivacy, integrity and appropriate management of data
throughout its lifecycle. Data governance tools, standards
and procedures to meet these expectations are currently
not consistently embedded across the Group.

Financial crime

HOW WE CREATE VALUE

Our business performance is closely linked to theperformance of the Australian and New Zealandeconomies, which in turn are impacted by eventsin the global economy.

Cyber security and data management

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61
COMMONWEALTH BANK
2020 ANNUAL REPORTThe continuity and resilience of our operations
are crucial for serving our customers, upholding
community trust, and maintaining our reputation.
The extended outage of the Bank’s payments
platform in October 2019 highlighted the impact
such disruptions can have on customers andthe community.

Trust and reputation

Our people are critical to the success of our strategy
and an inability to attract or retain the right talentand capabilities could prevent us from delivering ourlong-term goals.

Trust in the Bank and our reputation was impacted by
the failings identified in the APRA Prudential Inquiry
Report into CBA and highlighted by the Financial
Services Royal Commission.

The progression of new technologies, changing
macroeconomic conditions, and increasing regulatory
expectations, increases the need for leaders withnew and different skill sets, as well as deep banking
expertise, to deliver the performance expected byour stakeholders.

We recognise that trust takes time to build and caneasily be eroded through poor decisions, failure to meetcustomer and community expectations, or by notcomplying with our regulatory obligations. As a providerof financial services, the Bank and its operations are
currently subject to heightened regulatory scrutiny andrequirements, particularly those relating to productdevelopment and distribution practices, privacy andcustomer complaints management.

These skills may become more difficult to attract
and retain, particularly with the emergence of
non-traditional technology competitors who aim
to compete directly in banking.

• We continue to invest in our value proposition
as an employer through:– Offering flexible working models, competitive
benefits, wellbeing programs and fostering
an inclusive and diverse workforce.
– Leadership initiatives to develop thecapabilities of our leaders and to equipthem with the skills and approaches required
to lead cultural and behavioural change
throughout the organisation.
– Strengthening our culture and remuneration
frameworks to ensure employees are clear
on expectations and accountabilities, always
do what is right, are empowered to address
issues, and demonstrate risk behaviours
that lead to appropriate outcomes forall stakeholders.
• We have targeted training programs to develop
our people, including senior management, andour talent and career approach seeks to attract
and retain high-calibre people by providing
career opportunities that recognise people’s
expertise, potential and aspiration.
• We are piloting opportunities to re-skill
and support our people to be ready for theworkforce of the future, and are engaging witheducators, government and the community
to build these changes into our long-term
workforce plan and capability roadmaps.
• We continue to review the Bank’s remuneration
framework to ensure that it supports our
strategic objectives of attracting and retaining
exceptional talent.

We seek to identify, assess and manage climatechange risk in our core business areas, including
lending and insurance.
We also seek to manage the risk that the Bank’s
assets, including those held as collateral orinvestments, could become impaired as a resultof permanent physical damage or misalignment
with new policy or community expectations.
Importantly, the transition to a low carbon
economy also creates opportunities for the Bank.

Key actions we are taking

Key actions we are taking• Through our Remedial Action Plan, good
progress is being made in driving towards
a risk culture of accountability, empowerment,
constructive challenge, reflection and striving
for best practice risk management.

• We have implemented policy frameworks
for considering environmental, socialand governance (ESG) issues, including
climate change.

• We are addressing the Royal Commission
recommendations and implementing thenecessary changes.
• Our Code of Conduct ensures all staff havea clear understanding of what it means to do
the right thing by asking ‘Should We?’ when
making decisions.
• Trust and reputation is a performance measurein Group Executives’ long-term variable
remuneration.
• We work with government and regulators
to deliver industry-wide improvements andinitiatives to support a trustworthy and reliablefinancial services sector.
• Our SpeakUP/Whistleblowing program allows
current employees – their spouses, dependants
and relatives – as well as former employees,
contractors, consultants and suppliers,
to anonymously raise a conduct issue.

• We are progressively performing climatechange scenario analyses on our credit andinsurance portfolios to understand potential
impacts and opportunities.
• We are developing strategic responses toclimate change, which includes strengthening
our due diligence processes, considering ourrange of products and services, and building
internal and customer capabilities to support
the economy’s transition to net zero emissions
by 2050.
• Our approach to climate governance, strategy,
risk management and metrics and targets, inline with the recommendations of the Task
Force on Climate-related Financial Disclosures,is discussed in detail on pages 38–45.

ADDITIONAL INFORMATION• The safety and welfare of our employees is ofparamount importance. To manage risks fromCOVID-19, physical distancing measures havebeen implemented at branches to protect staff
and customers, and we have implemented arange of measures to provide our non-branchteam members with the necessary tools andskills to maximise productivity in a remote
working environment.
• We monitor the health of our systems andperform contingency planning for disruptions
to critical systems and processes.
• A data centre and network modernisation
program is improving the security and resilienceof our technology infrastructure.
• We are driving greater agility and alignment
in our supplier partnerships to ensure weeffectively mitigate risks across the supply chain.
• Our supplier initiatives are driving greater
consistency and rigour over supplier governanceand performance monitoring, especially overpartners supporting critical systems, or the
infrastructure on which those systems rely.

There is also an increasing risk of financial impacts toour business and our customers’ businesses as a resultof the policy, legal, technology and market changes
associated with the transition to a low carbon economy.

FINANCIAL REPORTKey actions we are taking

Australia has been experiencing frequent andextreme weather events, including the recent
bushfires and east coast floods. This highlights therisks to our customers and our business of damage
to property and assets.

DIRECTORS’ REPORTKey actions we are taking

The current high volume of new and proposed
legislation will impact a number of areas in ourbusiness and will require material changes tooperational processes. Failure to effectively
implement these changes within the required
timeframes could result in severe penalties andloss of trust by regulators and the community.

Climate change

HOW WE CREATE VALUE

The risk of potential disruption to parts of ouroperations is currently elevated due to: the possibility
that COVID-19 clusters could impact the safetyof employees, disrupt operations and reduce
productivity; uncertainty over the stability of global
supply chains and the impact on third-party suppliers;
and natural disasters such as bushfires and floods.

Skills and capabilities

OVERVIEWBusiness resilience

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63

To strengthen corporate governancepractices across the Group, an
entity governance framework has
been developed to apply to all CBA
entities. The Audit and Nominations
Committees are responsible
for monitoring and oversightof the framework.
The Final Report of the APRA Prudential
Inquiry into CBA, our Remedial Action
Plan, and the independent reviewer’s
progress reports can be read at:commbank.com.au/APRA

From the onset of the COVID-19 pandemic, the Board received regular
updates to ensure it was well informed and in a position to provide
oversight and guidance to management during the challenging andrapidly changing environment. The Board’s key areas of focus included:Health, safety and wellbeing

The health and safety of our people, their families, our customers andcommunities has been paramount. The Board has encouraged and supported
management’s efforts to establish frequent and transparent communications
to help our people feel safe, act responsibly, and stay fully informed
about the Bank’s support for employees, customers and communities.

Operational and risk oversight

The Board received daily updates from the CEO, and met as required toensure it was equipped to oversee management’s efforts to identify,
prioritise and manage potentially significant risks to business operations.
The ELT met daily during the first six weeks of COVID-19 to ensure they
had a comprehensive view of operational and risk matters and tomonitor the wellbeing of our people and the impact on customers.

Business continuity and crisis management

The Bank’s Crisis Management Team was activated. The Board reviewed
the Group Business Continuity Management Policy in February to ensure
it was fit-for-purpose. Changes were also made to provide employeeswith the resources and support required to work remotely with limited
or no impact on customers.

Continuous disclosure
Policies, systems and processes
Key

Delegation

Accountability

Corporate Governance Statement
Our Corporate Governance Statement (Statement) provides detailed information on our corporate governance frameworks.
The Statement and the Board and Board Committee Charters are available at commbank.com.au/corporategovernanceTemporary delegations were approved by the Board to allow decisions
regarding disclosure to be made in the event the full Board was unable
to convene promptly due to unexpected circumstances.

New ways of working

Drawing on feedback and insights shared by our customers and ourpeople, the Board and management have been considering what ways
of working were well executed during COVID-19. The changes that havebeen well received will be leveraged to support simpler, better banking
for our customers and new ways of working for our people.

ADDITIONAL INFORMATION

Strategy and risk management

The Board has also continued
to exercise greater oversightand scrutiny of the risks facing
the Bank. In particular, the Board
focused on the identification andmanagement of non-financial risks,
including regulatory compliance,
conduct and cyber security.

Governance during COVID-19

FINANCIAL REPORTOur people

Promontory is the independent
reviewer of the Bank’s RAP. On
30 June, Promontory issued their final
assessment of Recommendation 1
and deemed it closed, with the target
state achieved and the sustainability
plan operationalised.

DIRECTORS’ REPORT

Executive Leadership Team

Executive
Leadership
Team
Non-Financial
Risk Committee

Purpose, values and cultureCEO

Including internaland external audit

Under the Bank’s Remedial Action
Plan (RAP) the Board has designed
and implemented target states foreach recommendation. This year, thefocus was on embedding changes
and developing sustainability
plans to ensure that the target
states are consistently achieved
and continuously improved.

Regular reporting was provided to theBoard on customer complaints andmanagement’s program in identifying
and proactively remediating systemic
issues with a view to continuously
improving the Bank’s products,
services and processes. Ongoing
consideration was also given to the
Bank’s sustainability commitments.

The Board increased its focus on
people matters, including the health,safety and wellbeing of employees.
The Remuneration Committee’s remit
was expanded to include a greater
focus on people matters and thecommittee was renamed the People& Remuneration Committee.

HOW WE CREATE VALUE

5. Reporting to Board
on non-financial risks.

Independent
assurance
and advice
People &Remuneration
Committee

The Board remained focused on
ensuring the Bank is positioned tooperate safely and effectively, andimplemented further measures toelevate the prominence of compliancematters at the Board and Committee
level. This included emphasising
the compliance oversight role of theBoard’s Risk Committee and renaming
it the Risk & Compliance Committee.

4. Enforcement of accountability
through the Audit Committee.

Our Corporate Governance Framework is based on
accountability, effective delegation and adequate oversightto support sound decision-making. The Board is responsible
for setting the strategic direction and risk appetite of theBank, and for leading the culture, values and behavioursof our people. The Chief Executive Officer (CEO) and
Executive Leadership Team (ELT) are responsible for the
management of the Bank and for bringing important issues
to the attention of Board. The Board monitors and assesses
performance and holds management to account.

Risk &
Compliance
Committee

Nominations
Committee

The Board regularly considered therelevance and effectiveness of theBank’s strategy in the context of current
and potential future market conditions.
In accordance with its recurring
schedule of strategic updates, the Board
considered new product initiatives,
emerging opportunities in new digitalbusinesses, and the Bank’s technology
and innovation strategies. Business andSupport Units also provided regular
updates on the key strategic issues
pertaining to their areas.

3. Coordination between
Board Committees.

Stakeholders

Audit
Committee

The Final Report of the 2018 APRA
Prudential Inquiry into CBA sets out
five key recommendations relating
to the role of the Board.
2. Board practices and processes.

Our Corporate Governance Framework

CBA Board

Operations

1. Board visibility.

Good governance is key to the Bank’s ability
to deliver on our purpose and strategy.
We are continuing to improve governance,accountability and risk management. Clearer linesof accountability and stronger risk management
practices are improving our ability to meet
regulatory and compliance obligations anddeliver on the expectations of our customers
and the community more broadly.

Strategy

OVERVIEWOur approach tocorporate governance

Governance

COMMONWEALTH BANK
2020 ANNUAL REPORTBoard priorities during 2020

HOW WE CREATE VALUE

64

65

The Board recognises the importanceof continuously monitoring andimproving its performance and theperformance of its Committees.

Year 1

Externally facilitated(we are here)

This year, as a result of the internal evaluation conducted in 2019, the Board focusedon the following four areas:

The working relationshipbetween the Boardand managementof reflection, constructive challenge
and accountability to drive betterrisk outcomes.

The Board strengthened governanceand oversight between the Boardand management through increased
engagement, including: management
inclusion at the Board’s annual
strategy education and offsite strategy
sessions; scheduled one-on-one
meetings between the Chairman andeach member of the ELT; Board and
ELT workshops; the Chairman joining
the ELT meetings on a quarterly basis;and management attendance at Board
and Committee meetings. As a result,the Board continues to have a positive
influence on the behaviours within
the Group, and is engaged and visible
with management.

3 Longer-term strategy and1outcomes, conduct,
compliance and reputation

Internal review

Year 2

Internal review

4 Enhanced Board reportingand processes

The Board increased its examination,
identification, and understandingof non-financial risks and new
and emerging risks. The Board
receives a regular Non-Financial
Risk Committee update from the
CEO and Chief Risk Officer, which
informs discussions and decisions
on the management of non-financial
risk. The Board has observed
an improvement in the quality
and quantity of non-financial
risk information, as well as an
improvement in insights provided.

The matrix is reviewed annually by the Nominations Committee to ensure theprescribed skills and experience address the Bank’s existing and emerging
business and governance issues. The matrix is also used to guide the identificationof potential director candidates as part of the ongoing Board renewal process.

Skills and experience

Enhanced customer outcomes

Financial acumen
Proficiency in financial accounting and reporting,capital management and/or actuarial experience

Financial services

After more than five years serving
the Board, Sir David Higgins
retired as a Non-Executive Director
and Chairman of the People &Remuneration Committee on 31
December 2019. Paul O’Malley wasappointed Chairman of the People &Remuneration Committee with effectfrom 1 January 2020. Paul ceased
as a member of the Nominations
Committee on 31 October 2019 andwas appointed a member of the Risk
& Compliance Committee with effectfrom 1 November 2019.
Under the Board Appointment,
Renewal and Performance Policy, theChair of each Board Committee, otherthan the Nominations Committee Chair,is required to rotate after a term, usually
every three years. Accordingly, Shirish
Apte retired as Chairman of the Risk
& Compliance Committee with effectfrom 31 October 2019. He remains amember of both the Risk & Compliance
Committee and the Audit Committee.
Rob Whitfield AM was appointed as
Chairman of the Risk & Compliance
Committee and a member of the
Audit Committee with effect from

1 November 2019. He remains a memberof the Nominations Committee.
Anne Templeman-Jones remains
the Chairman of the Audit Committee,
and Catherine Livingstone AO remains
the Chairman of the Nominations
Committee. Genevieve Bell AO wasappointed a member of the Nominations
Committee with effect from 1 November
2019. On 12 June 2020, it was announced
that Simon Moutter will be appointed as
an independent Non-Executive Director
with effect from 1 September 2020.
On 10 August 2020, it was announced
that Wendy Stops will not be standing
for re-election at the 2020 Annual
General Meeting. Wendy has been a
Non-Executive Director since March 2015.

Having a global perspective through exposure or
responsibility for international operations

 Male45%

Exceeds 2020 targetof 40% female

6

4

2

Leadership73

Held CEO or similar position in an organisationof significant size

Legal acumen

Listed company

6

5Proven ability and understanding in the applicationof legal principles

2

1

3

Risk management
Proven ability in identifying, assessing and managing
macro, strategic, operational and financial risks that
could impact our business

Stakeholder engagement
Demonstrated ability to build and maintain key
relationships with industry, government or regulators

Strategy
Demonstrated experience in developing, implementing
and delivering strategic business objectives

Technology
Experience in technology strategies and innovation

Practised/direct experience

55%

Board tenure

Global perspectiveKey Female

3

6

4

5

3

3

6

4

High competency and experience 0–1 year– 1–3 years56%

 3–6 years33%

 6–9 years

11%
ADDITIONAL INFORMATION

It is essential that Non-Executive
Directors are independent,
collectively have the relevant skills
and experience, and represent adiverse range of views and thinking.
This supports sound decision making
and enables the Board to effectively
discharge its responsibilities.

1

1

Experience in banking, as relevant to CBA,and financial regulation

Experience as a Non-Executive Director of at least
two other listed entities (Australia or overseas)

Board composition and renewal

9

Demonstrated ability to understand the needs ofcustomers and enhance their experience and outcomes

FINANCIAL REPORT

Year 3

The Board focused on building an
accountable, customer-focused andtransparent culture, and on achieving
better customer and risk outcomeswith an emphasis on capability,
accountability and consequences. The
Board’s annual risk culture assessment
was conducted in February 2020, andtargeted initiatives were developed tofurther mature the risk culture of thebank in areas of need. This includes
reinforcing senior leader behaviours

More opportunities for strategic
discussions on innovation wereincorporated into the Board’s planning
cycle. The Board received regular
updates from management on projects
and programs across technology,
cyber security and data management.
This enabled the Board to address
weaknesses and consider investment
prioritisation, while maintaining a focus
on improving IT risk management
governance, operations and processes.

Board diversity

DIRECTORS’ REPORT

2 Culture including customer

the impact of emerging
technology and innovation

The Board Skills Matrix sets out the skills and experience consideredessential to the effectiveness of the Board and its Committees.

HOW WE CREATE VALUE

Evaluation cycle

Performance focus areas

OVERVIEW

An independent external evaluationof the Board and its Committees isconducted every three years. The CEO,each of the CEO’s direct reports, each
Non-Executive Director, and the Group
Company Secretary are interviewed
and surveyed. An independent
external review was held in 2020
and the results will be available inAugust 2020. Internal evaluations areundertaken in the intervening years.

Board skills and experience

COMMONWEALTH BANK
2020 ANNUAL REPORT

Assessing board effectiveness

66

67

Board of Directors

The Board Committees assist the Board with discharging its duties. The Charter for each Committee sets out its role,
responsibilities, powers and authorities, and is reviewed at least annually.

Nominations Committee

Committee members: Catherine Livingstone AO(Chairman), Genevieve Bell AO, Mary Padbury and
Rob Whitfield AM.

Board Committees: Nominations (Chairman), Audit, Risk & Compliance, People & Remuneration

2020 focus areas• Reviewing the induction and ongoing education
program for Directors.
• Considering and setting out the governance policies
that apply to key operating subsidiaries.
• Measuring progress against the board gender diversity
target across nominated Group subsidiaries.
• Enhancing entity governance and the endorsementof an entity governance framework.

• The Committee’s remit was expanded to support
the Nominations Committee to oversee and monitor
the efficient management of entity formation andliquidation governance arrangements under the entity
governance framework.
• Achieving improvements in reporting on the Group’s
internal control environment.
• Following-up on progress with the remediation ofaudit findings, and reporting from the Group Audit
and Assurance function.

• Consideration of the Group’s risk frameworks andpolicies for managing financial and non-financial risks.
• Endorsing the risk culture roadmap.
• Financial risk focus areas included key industry
sector and portfolio reviews, the potential impacts of
COVID-19, climate change and stress testing.
• Non-financial risk focus areas included financial crime
prevention, conduct, data management, supplier
governance and increased reporting of cyber security
and technology risks.

The Board Committees’ charters are available atcommbank.com.au/corporategovernanceMatt ComynManaging Director and Chief Executive Officer

BAv, MCom, EMBA, GMP

Appointed: 9 April 2018
Board Committees: Nil
Matt has 20 years’ experience in banking across business, institutional, retail and wealth management
and has held a number of senior leadership roles since joining the Bank in 1999. As CEO, Matt is
focused on building a simpler bank fully aligned to meeting the needs of customers in core markets,
underpinned by stronger risk management and a continuing commitment to innovation and customer
service. From 2012 until his appointment as CEO, Matt was Group Executive Retail Banking Services,
the Bank’s largest operating division, which accounts for more than half of the Bank’s profit and also
leads the development of digital products and services for the Bank. Between 2006 and 2010, Matt
was Managing Director of the Bank’s biggest digital business, CommSec, overseeing a significant
modernisation of its technology platform and growing market share and profitability.
Matt is the Chair of the Australian Banking Association and serves on the Board of UNICEF Australia
and the Financial Markets Foundation for Children.
Directorships of other listed entities in the last three years: Nil

Shirish Apte

Independent Non-Executive Director

ACA, BCom, MBA

Appointed: 10 June 2014
Board Committees: Audit, Risk & Compliance
Shirish has more than three decades of international banking experience at Citi, where he focused on
corporate, investment banking, and risk management, and managed commercial and retail banking
businesses at country and regional level. His roles included Co-Chairman of Citi Asia Pacific Banking,Chief Executive Officer of Citi Asia Pacific, Co-Chief Executive Officer of Europe, Middle East andAfrica, and Country Manager and Deputy Chairman of Citi Handlowy, Poland.

2020 focus areas• Reviewing the Group’s remuneration strategies andperformance within the Risk Management Framework.
• Reviewing relevant policies and share plans.
• Ongoing assessment of senior leader talent.
• Development and succession.
• Continued delivery of the Group’s cultural change roadmap.
• Reporting on the health, safety and wellbeingof employees.

Shirish is an Advisor to Virtusa Corporation, a Director of Fullerton India Credit Company Limited,a Director of Clifford Capital Holdings, and a Director of Keppel Infrastructure Pte Ltd.
Directorships of other listed entities in the last three years: IHH Healthcare Berhad(September 2014 – present) and Citi Handlowy (Member of the Supervisory Board)(March 2016 – present)

ADDITIONAL INFORMATION

Committee members: Paul O’Malley (Chairman),
Catherine Livingstone AO, Mary Padbury andWendy Stops.

Directorships of other listed entities in the last three years: WorleyParsons Ltd(July 2007 – October 2019)

FINANCIAL REPORT

2020 focus areas

People & Remuneration Committee
Responsibilities: Remuneration strategy and policy,
remuneration arrangements and outcomes, andperformance management frameworks. Early in thefinancial year, the Committee’s remit was expanded
to provide an enhanced focus on people matters,
and health, safety and wellbeing.

Catherine is Chancellor of the University of Technology Sydney. She is also a member of the Steering
Committee for the CSIRO Australia Telescope National Facility and the Growth Centre Advisory Committee.

DIRECTORS’ REPORT

Committee members: Rob Whitfield AM(Chairman), Catherine Livingstone AO, Shirish Apte,
Paul O’Malley and Anne Templeman-Jones.

Catherine has extensive business, finance and executive leadership experience and has contributed
to the development of Australia’s banking, telecommunications, science, technology and innovation
sectors. She has held a number of senior roles, including as Chairman of Telstra Corporation Ltd
and of the CSIRO, and as Managing Director and Chief Executive Officer of Cochlear Ltd. Catherine
has also served on the boards of WorleyParsons Ltd, Macquarie Bank Ltd, Macquarie Group Ltd,
Goodman Fielder Ltd and Rural Press Ltd and is a former President of the Business Council ofAustralia and the Australian Museum.

2020 focus areas

Risk & Compliance Committee
Responsibilities: The oversight and governanceof risks impacting the Bank and its subsidiaries;
the design, implementation and operation of theGroup’s Risk Management Framework, and Risk
Management Approach; monitoring of the Group’s
risk appetite and assessing the overall risk profileof the Group; monitoring the effectiveness of thecompliance management framework; oversight of
the Group’s risk management function, and risk
culture.

BA Hons (Accounting), FCA, FTSE, FAICD, FAA

HOW WE CREATE VALUE

Committee members: Anne Templeman-Jones(Chairman), Catherine Livingstone AO, Shirish Apte,
Wendy Stops and Rob Whitfield AM.

ChairmanAppointed: Non-Executive Director from 1 March 2016, Chairman from 1 January 2017

Audit Committee
Responsibilities: The external reporting of financial
information for the Group and its subsidiaries, theinternal control framework, the internal auditor andthe internal audit function, the external auditors,
and the Group’s Risk Management Framework in
conjunction with the Risk & Compliance Committee.

Catherine Livingstone AOOVERVIEW

Responsibilities: Board and Board Committee
composition; succession planning and Board
renewal; CEO performance review; Non-Executive
Director induction and appointment; election andre-election of Non-Executive Directors of the Group
Board and CBA subsidiary boards.

COMMONWEALTH BANK
2020 ANNUAL REPORT

Committee priorities

68

69
COMMONWEALTH BANK
2020 ANNUAL REPORT

Genevieve Bell AO

Independent Non-Executive Director

PhD, MA, MPhil, BA

Wendy Stops

Independent Non-Executive Director

BAppSc (Information Technology), GAICD

Appointed: 9 March 2015

Board Committees: Nominations

Board Committees: Audit, People & Remuneration

Genevieve is a cultural anthropologist, technologist and futurist with deep knowledge andunderstanding of technology in society and business. She is adept at bringing together social
science, design, computing and engineering to enhance customer experiences. Genevieve is also
an experienced business executive, having spent 18 years working at Intel Corporation in Silicon
Valley, including as Vice President. She remains a Senior Fellow at Intel and is Vice President ofIntel’s Product Assurance and Security Group.

Wendy has significant experience in the information technology and consulting sectors. She has a
deep understanding of digital trends, business strategy and risk and quality management. Wendy has
worked across multiple industries, geographies and cultures, particularly in the Asia-Pacific region.
She has held a number of senior leadership positions at Accenture Ltd, including Senior Managing
Director, Technology (Asia Pacific), Director of Operations (Asia Pacific), and Global Managing
Director of Technology Quality & Risk Management and of Outsourcing Quality & Risk Management.
Wendy also served on Accenture’s Global Leadership Council.

Directorships of other listed entities in the last three years: Nil

Paul O’Malley

Independent Non-Executive Director

Wendy is Chairman of the Melbourne Business School’s Centre for Business Analytics Advisory Board,a Council Member of the University of Melbourne, a Director of Fitted for Work Ltd, a member of theAustralian Institute of Company Directors Technology Governance & Innovation Panel, a memberof the Digital Technology Taskforce Advisory Committee for the Department of Prime Minister andCabinet and a member of Chief Executive Women.
Directorships of other listed entities in the last three years: Coles Group Ltd(November 2018 – present) and Altium Ltd (February 2018 – November 2019)

BCom, M. App Finance, ACA

Anne Templeman-Jones

Independent Non-Executive Director

BCom, EMBA, MRM, CA, FAICD

Appointed: 5 March 2018

Board Committees: People & Remuneration (Chairman), Risk & CompliancePaul has broad executive leadership and operational experience. He served as Managing Director
and Chief Executive Officer of BlueScope Steel Ltd for 10 years, after joining the company as Chief
Financial Officer. Previously, Paul was the Chief Executive Officer of TXU Energy, a subsidiary of
TXU Corp based in Dallas, Texas. He also has a strong background in finance and accounting andworked in investment banking and audit. Paul is a former Director of the Worldsteel Association,
Chair of its Nominating Committee, and Trustee of the Melbourne Cricket Ground Trust.
Directorships of other listed entities in the last three years: BlueScope Steel Ltd(August 2007 – December 2017)

Anne is an experienced listed company director with substantial operational risk, banking and strategy
experience. Anne is a Director of G.U.D. Holdings Ltd and WorleyParsons Ltd. During her 30-year
executive career, Anne held a number of leadership positions in corporate and private banking withdomestic and offshore banks including Westpac Banking Corporation, Australia and New Zealand Banking
Group Ltd and Bank of Singapore. Anne is the former Chairman of Commonwealth Bank’s financial advice
companies and has served on the boards of The Citadel Group Ltd, Cuscal Ltd, HT&E Limited, Pioneer
Credit Ltd, TAL Superannuation Fund and HBF’s private and general insurance companies.
Anne is a Director of the Cyber Security Research Centre Ltd and a member of the Cyber Security
Research Committee.
Directorships of other listed entities in the last three years: HT&E Limited (June 2013 – May 2018),
G.U.D Holdings Ltd (August 2015 – present), The Citadel Group Ltd (September 2017 – May 2020)and WorleyParsons Ltd (November 2017 – present)

Mary Padbury

Independent Non-Executive Director

BA LLB (Hons), GAICD

Board Committees: Nominations, People & Remuneration
Mary is an intellectual property and trade practices lawyer with over 35 years’ international legal,
governance and technology experience. Mary served as the Chairman of Ashurst Australia before
its full merger with Ashurst LLP, and was the global Vice Chairman of the post-merger firm.
She retired as a Partner of Ashurst at the end of April 2018.
Mary is the Chairman of the Macfarlane Burnet Institute for Medical Research and Public HealthLtd, and Clinical Genomics Technologies Holdings Pty Ltd, a private technology company. Mary is amember of Chief Executive Women as well as a member of the Victorian Legal Admissions Committee.

Rob Whitfield AM

Independent Non-Executive Director

Appointed: 4 September 2017

BCom, Grad Dip Banking, Grad Dip Fin,
AMP, SF Fin, FAICD

Board Committees: Risk & Compliance (Chairman), Nominations, Audit
Rob has extensive leadership experience across banking, finance and risk in both the private andpublic sectors. During Rob’s 30-year executive career with Westpac Banking Corporation he held
a number of senior leadership positions including Chief Executive Officer of the Institutional Bank,
Chief Risk Officer, Group Treasurer and Chairman of the Asia Advisory Board. In these roles, Rob
developed a deep knowledge of equity and capital markets and was instrumental in developing
Westpac’s risk management function and strategies.
Rob is a Director of GPT Group. He is a former Chairman and Director of New South Wales
Treasury Corporation, former Secretary of NSW Treasury, former Secretary of NSW Industrial
relations, and a former Deputy Chair of the Australian Financial Markets Association.
Directorships of other listed entities in the last three years: GPT Group (May 2020 – present)
Simon Moutter will be appointed to the Board as an independent Non-Executive Director with effect from 1 September 2020.
Wendy Stops will retire as a Non-Executive Director at the conclusion of the 2020 Annual General Meeting.

ADDITIONAL INFORMATION

Appointed: 14 June 2016

Directorships of other listed entities in the last three years: Nil

FINANCIAL REPORTPaul serves as the Chairman for Australian Catholic Redress Ltd.

Board Committees: Audit (Chairman), Risk & Compliance

DIRECTORS’ REPORT

Appointed: 1 January 2019

HOW WE CREATE VALUE

Genevieve is a Distinguished Professor at the College of Engineering and Computer Science at theAustralian National University (ANU) and is the university’s inaugural Florence Violet McKenzie
Chair. She is also the Director of the Autonomy, Agency and Assurance Innovation Institute at ANU,a member of the National Science and Technology Council, and an Engelbart Distinguished Fellowof SRI International. In 2020, Genevieve was awarded the Order of Australia and has been nominatedto contribute her expertise to the Global Partnership on Artificial Intelligence.

OVERVIEW

Appointed: 1 January 2019

70

71

Pascal Boillat

Priscilla Brown

David CohenGroup Executive, Enterprise Services
and Chief Information Officer

Group Executive, Marketing andCorporate Affairs

Deputy Chief Executive Officer

Andrew Hinchliff

Sian Lewis

Group Executive, Financial Services
and Chief Financial Officer

Group Executive, Institutional
Banking and Markets

Group Executive, Human Resources

Appointed: August 2018
Priorities: Andrew is responsible
for serving the banking andfinance needs of large corporates,
governments and institutions inAustralia and select international
markets, by providing a full rangeof financial markets, capitalraising, transactional banking andrisk management solutions andservices. His priority is to ensurethat IB&M leverages its network,
capabilities and insights to bringnew perspectives to clients to help
build a better Australia.
Experience: Andrew joined the
Bank in 2015 as Executive General
Manager, Global Markets. His careerin institutional banking and markets
spans more than 20 years, having
held various leadership positions
with Goldman Sachs and Credit
Suisse First Boston.

Appointed: August 2018
Priorities: Sian is focused on helping
the Bank maintain an energised andaccountable team; integrating theBank’s values to guide behaviours;
and strengthening and supporting
a diverse and inclusive workforce.
She is also committed to promoting
employee wellbeing and skilling theBank’s workforce for the future.
Experience: Sian joined the Bankin 2014 and has been Executive
General Manager, Direct Channels
where she led 2,500 people acrossthe Bank’s customer contact
centres. Previously, Sian spent nine
years at Westpac, leading retail andcommercial banking, marketing andcall centre teams. Sian also spent
10 years in senior HR consulting
roles in the UK and two years
in Australia consulting to APRA.

Appointed: July 2018

Mike Vacy-Lyle

Scott Wharton

Nigel Williams

Group Executive, Businessand Private Banking

Group Executive, Program Delivery

Group Chief Risk Officer

Appointed: February 2020
Priorities: Mike is responsible
for serving the banking needsof business, corporate andagribusiness customers, and for
the Bank’s online equities trading
platform, CommSec. Mike’s focus
is on extending the Bank’s businessbanking and payments capabilities,
and on making banking simpler andbetter for customers by providing
market-leading service, products
and technology.
Experience: Prior to joining theBank, Mike was Chief Executive
Officer of FNB Commercial
Banking in South Africa. He spentalmost 20 years working at FNB
Commercial Banking holding
various roles across finance, pricing,product, capital management, sales
and relationship management.

Appointed: August 2019
Priorities: Scott is responsible foroverseeing the implementationof major Group-wide programs.
These include the Bank’s Remedial
Action Plan which responds to the
APRA Prudential Inquiry into CBA,
cost reduction and other programs
helping CBA to become a simpler,better bank.
Experience: Scott joined the Bankin 2016 from Citigroup in New York
where he was Managing Director
and Global Head of Enterprise
Supply Chain. He has 20 years’international financial services
experience, with broad knowledgeof technology, operations andproject management.

Appointed: November 2018
Priorities: Nigel is focused on
ensuring our people manage risk
well to maintain the trust placedin the Group by our customers,
shareholders and the community.
He is accountable for ensuring
the effective governance andmanagement of all risk types– including credit risk, operationalrisk, compliance, liquidity, financial
crime compliance and insurance.
Experience: Nigel has over 35 years
of international banking experience,
having held Directorships andexecutive business and risk
management leadership roles. Prior
to joining the Bank, Nigel was theChief Risk Officer at Australia and
New Zealand Banking Group (ANZ).

Priorities: Vittoria is responsible forleading the Group’s New Zealandbanking business, operating underthe ASB brand. Her priorities
are to provide leading customer
experiences and outcomes;
harnessing new technology
to provide innovative solutions;and supporting programs thathave a significant positive impact
for New Zealanders.
Experience: Vittoria joined the
Bank in 2002 and has held various
executive and senior leadership
positions, including Group Executive
Marketing and Strategy, Chief
Marketing Officer of CommonwealthBank, and Chief Executive Retailat Bankwest. Vittoria started hercareer in corporate finance andmergers and acquisitions with
Deloitte and Carter Holt Harvey.

Adam Bennett ceased as Group Executive, Business and Private Banking on 31 January 2020.

Priorities: Angus is responsible
for providing market-leading
services to the retail customers
of Commonwealth Bank andBankwest. His priorities are to deliver
exceptional customer service andoutcomes, leading technology andinnovation in products and services.
Experience: Angus joined the
Bank in 2012 as Executive General
Manager, Group Strategy and has
held a number of senior positionsin RBS across products, payments
and the branch network. Previously,
he was a Partner at McKinsey & Co.
in New York, specialising in retailand commercial banking, wealthmanagement, payments andgeneral insurance.

ADDITIONAL INFORMATION

Appointed: October 2018
(Acting CFO from May 2018)
Priorities: Alan is responsible for
the Group’s finance, treasury, tax,
investor relations, property andsecurity functions. His priorities are
ensuring his teams provide accurate,
independent and objective analysis
to drive sound decision making andperformance; managing balance
sheet settings in a sustainable andconservative manner; and delivering
capital generation that supports
better outcomes for all stakeholders.
Experience: Alan joined the Bank in2003 and has held numerous senior
roles in finance, including CFO of
IB&M. He started his career with
PwC’s Financial Services practicein the UK before joining Arthur
Andersen in Australia. Alan is amember of the Institute of Chartered
Accountants of Scotland.

Appointed: February 2018

Priorities: Carmel is responsible for
the Group’s legal and governancefunctions and advises the Chief
Executive Officer and the Board.
Her priorities are to ensure thefair and efficient resolution of theGroup’s legal matters and to support
the effectiveness of the Board.
Experience: Carmel has over
25 years’ legal experience. Prior
to joining the Bank, she was theGroup General Counsel and Group
Executive Legal & Corporate Affairs
at Telstra, where she was responsible
for legal matters, government
relations, communications,
regulatory engagement, complianceand corporate sustainability.
At Telstra, Carmel also held thepositions of General Counsel Financeand Company Secretary. Carmel
is a Fellow of the Governance Instituteof Australia.

FINANCIAL REPORT

Alan Docherty

Appointed: January 2020

DIRECTORS’ REPORT

Appointed: November 2018
Priorities: David’s key priority
is supporting the Chief Executive
Officer on Group-wide initiatives tobuild a simpler and better bank forthe future. He also has responsibility
for Customer and Community
Advocacy, Mergers and Acquisitions,Group Investigations, Aussie Home
Loans, Colonial First State and PT
Bank Commonwealth in Indonesia.
Experience: David joined the Bankin 2008 and held a number of senior
roles, including Group GeneralCounsel, Group Executive Corporate
Affairs and Chief Risk Officer.
Previously, he was General Counsel
for AMP and a partner with Allens
Arthur Robinson for 12 years.

Group Executive,
Retail Banking Services

HOW WE CREATE VALUE

Appointed: August 2019
Priorities: Priscilla is accountablefor customer insights, marketing,brand, government relations,communications and corporate social
responsibility. She is focused on
restoring trust and pride in the Bank.
Experience: Priscilla has over
30 years’ financial services sector
experience. She has held senior
executive positions in strategy,
marketing and corporate affairs with
AXA, Sun Life Financial and Lincoln
Financial Group. Before joining theBank, she was Chief Executive Officerof Emerge, a digital health insurance
broker, and advisor to several digital
start-ups. Priscilla is a Member of theBoard of TIAA, a US-based financial
services company.

Angus Sullivan

Chief Executive and Managing
Director, ASB Bank Ltd

OVERVIEW

Appointed: October 2018
Priorities: Pascal is responsible
for IT, cyber security, technology
infrastructure, digital delivery,
operations and IT procurement.
He is focused on the safe, soundand secure provision of theBank’s technology and enhancing
operations to deliver the best
digital services for customers.
Experience: Pascal has more than
30 years’ international experiencein financial services. Prior to joining
the Bank, Pascal was Group Chief
Information Officer at Deutsche
Bank with accountability fortechnology strategy and delivery of
IT. He also held technology-focused
executive roles at Fannie Mae,
Citibank and Credit Suisse.

Vittoria Shortt

Group General Counsel and Group
Executive, Legal & Group Governance

COMMONWEALTH BANK
2020 ANNUAL REPORT

Executive Leadership Team

Carmel Mulhern

72

73

The Directors of the Commonwealth Bank of Australia present their report, together with
the Financial report of the Commonwealth Bank of Australia (the Bank) and of the Group,
being the Bank and its controlled entities, for the year ended 30 June 2020.

A review of the above operations and their results for the financial year ended 30 June 2020 can be found on pages 24–27.

On 21 September 2017, the Group entered into an agreement to sell 100% of its life insurance businesses in Australia(CommInsure Life) and New Zealand (Sovereign) to AIA Group Limited (AIA). The sale of Sovereign completed on 2 July 2018
and includes a long-term partnership with AIA for the provision of life insurance products to customers in New Zealand.
On 23 May 2018, the Group announced the sale of its 37.5% equity interest in BoCommLife Insurance Company Limited(BoCommLife) to MS&AD Insurance Group Holdings (MS&AD) 1, which is subject to Chinese regulatory approvals. The saleis expected to complete in the second half of calendar year 2020.
On 1 November 2018, the Group completed the sale of Commonwealth Bank of South Africa (Holding Company) Limited(TymeDigital SA) to the minority shareholder, African Rainbow Capital.
On 1 October 2019, the Group completed the sale of its 100% interest in Count Financial Limited (Count Financial) to
CountPlus Limited (CountPlus).

Group profit

The Group’s statutory net profit after tax including discontinued operations for the financial year ended 30 June 2020 was$9,634 million, an increase of $1,063 million or 12% on the prior year. Statutory net profit after tax from continuing operations
for the financial year ended 30 June 2020 was $7,459 million, a decrease of $630 million or 8% on the prior year. This was
driven by a 2% increase in operating income, flat operating expenses and a significant increase in loan impairment expense.
Statutory net profit after tax from discontinued operations for the financial year ended 30 June 2020 was $2,175 million,
an increase of $1,693 million on the prior year. It includes the following items:• The results of CFSGAM up to 2 August 2019 when the business was sold and deconsolidated and the related gain on sale
• The results of CommInsure Life up to 1 November 2019 when the Group entered into the JCA with AIA and subsequently
deconsolidated CommInsure Life, and the related loss on deconsolidation• The results of PTCL up to 4 June 2020 when the business was sold and deconsolidated, and the related gain on sale
• The results of CFS which was classified as a discontinued operation during the year.
Statutory net profit after tax complies with the requirements of the Corporations Act 2001 (Cth), Australian AccountingStandards and International Financial Reporting Standards (IFRS). The cash net profit after tax is management’s preferredmeasure of the Group’s financial performance. It excludes items that are non-recurring in nature and are not considered
representative of the Group’s ongoing financial performance (non-cash items). We use the cash net profit after tax to present
a clear and consistent view of our financial performance from period to period.
The Group’s cash net profit after tax including discontinued operations for the year ended 30 June 2020 was $7,449 million,a decrease of $1,257 million or 14% on the prior year. Excluding discontinued operations, cash net profit after tax for the year
ended 30 June 2020 was $7,296 million, a decrease of $925 million or 11% on the prior year. For further detail on the driversof cash net profit after tax refer to pages 18–21.

Cash to statutory profit reconciliation

Statutory net profit after tax includes the following non-cash items:

On 1 November 2019, the Group announced the implementation of a joint cooperation agreement (JCA) which resulted in the fulleconomic interests associated with CommInsure Life being transferred to AIA, and AIA obtaining direct management and controlof the business (excluding the Group’s 37.5% equity interest in BoCommLife). As a result, CommInsure Life (excluding BoCommLife)
was deconsolidated and derecognised on 1 November 2019. The aggregate proceeds are being received in instalments.
Net profit after tax – cash basis
Gain/(loss) on acquisition, disposal, closure and demerger of businesses
Hedging and IFRS volatility
Bankwest non-cash items

Total including
discontinued operations

FY20

FY19

FY20

FY19

7,296

8,221

7,449

8,706

70

93
–

(52)
(79)
(1)

2,092

(61)

93

(79)

–

(1)

On 28 April 2020, the Group announced the sale of its subsidiary, Australian Investment Exchange Limited (AUSIEX), to Nomura
Research Institute (NRI). The sale is subject to regulatory and other conditions, and is expected to complete in the first halfof calendar year 2021.

Treasury shares valuation adjustment

–

–

–

6

On 13 May 2020, the Group entered into an agreement to sell a 55% interest in Colonial First State (CFS) to KKR. The saleis subject to regulatory approvals, and is expected to complete in the first half of calendar year 2021.

Net profit after tax statutory basis

7,459

8,089

9,634

8,571

Non-cash items include:

On 4 June 2020, the Group completed the sale of its 80% interest in its Indonesian life insurance business, PT CommonwealthLife (PTCL), to FWD Group (FWD). As part of the sale, CBA’s Indonesian banking subsidiary, PT Bank Commonwealth (PTBC),
has entered into a 15-year life insurance distribution partnership with FWD.
The Group ceased providing licensee services through Commonwealth Financial Planning Limited-Pathways (CFP-Pathways)
in March 2020 and through Financial Wisdom Limited (Financial Wisdom) in June 2020.
CFS, CommInsure Life, BoCommLife, CFSGAM and PTCL have been classified as discontinued operations in the Group’s
financial statements for the year ended 30 June 2020. The assets and liabilities of CFS, AUSIEX and the Group’s interest
in BoCommLife are classified as held for sale as at 30 June 2020.
There have been no other significant changes in the nature of the principal activities of the Group during the financial year.
For further details, refer to Note 1.1 and Note 11.3 in the Financial report on pages 113 and 258–261, respectively.
1 MS&AD Insurance Group Holdings is the ultimate parent company of Mitsui Sumitomo Insurance Co. Ltd• Gain/(loss) on acquisition, disposal, closure and demerger of businesses: Gains and losses on these transactions
are inclusive of foreign exchange impacts, impairments, restructuring, separation and transaction costs and cover bothcontrolled businesses and associates.

• Hedging and IFRS volatility: Hedging and IFRS volatility represents timing differences between fair value movementson qualifying economic hedges and the underlying exposure. To qualify as an economic hedge the terms and/or risk profile
must match or be substantially the same as the underlying exposure.
• Bankwest non-cash items: The acquisition of Bankwest resulted in the recognition of assets at fair value, some of whichhave been amortising over their useful life. The transaction was considered one-off in nature.
• Treasury shares valuation adjustment: Valuation adjustments represent the elimination of gains and losses on CBAshares that were held through funds in the Wealth Management business.

ADDITIONAL INFORMATIONThe Group and AIA remain fully committed to completing the divestment of CommInsure Life through either a share saleor a statutory asset transfer. In the event of a share sale, the divestment is expected to complete shortly following thecompletion of the sale of the Group’s 37.5% equity interest in BoCommLife. In the event of a statutory asset transfer, thedivestment is expected to complete in the first half of the calendar year 2021.

Continuing operations

FINANCIAL REPORTOn 2 August 2019, the Group completed the sale of CFSGAM to Mitsubishi UFJ Trust and Banking Corporation (MUTB).

Operating and financial review

DIRECTORS’ REPORT

Becoming a simpler bank

For further details on how we are responding to COVID-19 risks, refer to pages 55–56.

HOW WE CREATE VALUE

We are one of Australia’s leading providers of financial services and operate predominantly in Australia and New Zealand, witha small presence in Europe, North America and Asia. Our products and services are provided through the following divisions:• Retail Banking Services (RBS) provides banking and general insurance products and services to personal customers. RBS
includes retail banking activities conducted under the Bankwest brand, the Group’s general insurance business in Australia,
the Group’s mortgage broking operations and Commonwealth Financial Planning.
• Business and Private Banking (BPB) serves the banking needs of business, corporate and agribusiness customers andprovides banking and advisory services to high net worth individuals through Commonwealth Private. BPB also includes theonline equity trading business, CommSec, and business banking activities conducted under the Bankwest brand.
• Institutional Banking and Markets (IB&M) serves the commercial and wholesale banking needs of large corporate,institutional and government clients.
• ASB New Zealand (ASB) includes banking and funds management businesses operating in New Zealand.
• Wealth Management provides superannuation, investment, and retirement products and services.
• International Financial Services (IFS) includes the Indonesian retail and business banking operations and minority
investments in China and Vietnam.

During the financial year we have seen the onset of the COVID-19 pandemic, with the depth and duration of an economic
downturn dependent on the effectiveness of containment measures and the Government, prudential and industry response
and support measures. During the financial year, the Bank announced an additional credit provision of $1.5 billion for the
potential longer term impacts of COVID-19. This further reinforces our already strong provisioning and balance sheet settings
that position the bank well for a range of possible economic scenarios. Given the unprecedented set of circumstances which
are still evolving, a definitive assessment of the longer term outcomes of the COVID-19 pandemic and the consequenteconomic and societal impacts is difficult at this stage. The Bank’s lending portfolios continue to be monitored closely, withdetailed portfolio stress testing as the situation continues to evolve. The focus for the Bank continues to be supporting ourcustomers through continued operational excellence underpinned by the commitment and pride of our people.

OVERVIEW

Principal activities

Impact of COVID-19

COMMONWEALTH BANK
2020 ANNUAL REPORT

Directors’ report

74

75

Change in state of affairs

Assets and liabilities

Home loans increased $20 billion or 4%, driven by strong operational execution of credit-decisioning processes.
Australian home loan balance growth of 4% was above market growth.
Deposits increased $64 billion or 10%, primarily driven by strong growth in transaction and savings deposits, partly offset
by lower investment deposits. The increase in transaction and savings deposits is driven by customer preference for at-calldeposits due to the low interest rate environment, continued growth in mortgage offset accounts and clients managing theirliquidity needs in response to COVID-19 in Institutional Banking and Markets.

As atTotal Group assets and liabilities ($m)

Home Loans
Consumer financeBusiness and corporate loans
Other assets (including held for sale)
Total assets
Deposits
Debt issues
Other liabilities (including held for sale)
Total liabilities

30 June 2019% change542,880

522,942

4%

18,21721,993(17%)

214,953

1%

777,792

759,8882%

216,6149%

216,695

236,268

1,014,060
699,413

142,503
100,131

942,047

976,5024%

635,31210%

164,022(13%)

107,519(7%)

906,853

4%

Other than the information included in the operating and financial review and throughout this Annual Report by cross reference,
information on other likely developments, business strategies and prospects for future financial years of the Group’s operations
has not been included in this report as it would be likely to result in unreasonable prejudice to the Bank.

Dividends

Litigation and regulatory matters

Consistent with an industry-wide trend, there has been an increase in litigation and regulatory actions against the Group.
The actions include:• four separate ASIC civil penalty proceedings against the Group, one of which has been resolved. Each of these relate
to matters considered by the Financial Services Royal Commission.
There are also a number of ongoing matters where regulators are investigating whether CBA or a Group entity has breachedlegal or regulatory obligations. Where a breach has occurred, regulators are likely to impose, or apply to a Court for, fines
and/or other sanctions. These matters include investigations by APRA and ASIC of issues which were considered by the
Financial Services Royal Commission, as well as a number of other matters notified to, or identified by, regulators. The Groupalso continues to receive various notices and requests for information from its regulators as part of both industry-wide andGroup-specific reviews.
In addition to possible regulatory action, there may also be financial exposure to claims by customers and this could include
further class actions, customer remediation or claims for compensation. The outcomes and total costs associated with such
regulatory reviews and possible customer claims remain uncertain.
The Board continues to monitor each of these actions, investigations and reviews. CBA also continues to actively work with
its regulators in response to these matters.
For information about some of the litigation and regulatory matters referred to above, refer to Note 7.1 in the Financial report on
pages 183–189.

The Bank expects the Dividend Reinvestment Plan (DRP) for the final dividend for the year ended 30 June 2020 to besatisfied by the issuance of shares of approximately $260 million.

Environmental reporting

We are subject to the Federal Government’s National Greenhouse and Energy Reporting (NGER) scheme. The scheme makes
it mandatory for controlling corporations to report annually on greenhouse gas emissions, energy production and energy
consumption, if they exceed certain threshold levels. Our NGER submission is independently audited and submitted before
the deadline to ensure that the Group meets the NGER requirements.
We do not believe that we are subject to any other significant environment reporting regulations under the law of theCommonwealth or of a State or Territory of Australia. Our environmental policies are updated to manage risks appropriately.
For more information on our voluntary environmental reporting, see the Our approach to climate change section on pages 38–45 and ourenvironmental metrics on pages 46–52.

Human rights supply chain reporting

We will fulfil the reporting requirements of the Modern Slavery Act 2018 (Cth) with the Modern Slavery Statement that will
be released in the 2021 financial year. This statement shows the steps we are actively taking to enhance the work undertaken
to identify, manage and mitigate modern slavery risks and human rights abuses in our business operations and supply chainsfrom the 2020 financial year onwards.

ADDITIONAL INFORMATION• the defence of nine class actions, four of which were commenced in financial year 2020. These include two separate
shareholder class action proceedings, four class action claims in relation to superannuation products, a class action that wascommenced by Bankwest customers, a class action in relation to consumer credit insurance for credit cards and personalloans, as well as a class action commenced in the United States relating to the BBSW benchmark; andEvents subsequent to reporting date

FINANCIAL REPORT

Details of dividends paid and dividends determined are outlined in Note 8.4 in the Financial report on pages 199–200.

Other than the changes outlined above and discussed in this Annual Report, there have been no other significant changes
in the state of affairs during the financial year.

DIRECTORS’ REPORT

Further information and analysis on the financial performance of the Group for the financial year ended 30 June 2020 can befound in the Focus on financial performance section on pages 18–27 of this Annual Report. Details on our risk management
framework, material risk types and approach to managing them, including a description of the material trends in our current
external operating context and more information on our business strategies and prospects for future financial years can befound in the Overview (pages 2–7), How we create value section (pages 8–71), including the Managing our changing risklandscape section (pages 55–61) of this Annual Report.

For more information on the TFF, refer to Note 5.2 in the Financial report on pages 159.

HOW WE CREATE VALUE

Total Group lending

30 June 2020

OVERVIEW

Debt issues decreased $22 billion or 13%, reflecting lower wholesale funding requirements due to growth in deposit funding.

Significant changes in the state of affairs of the Group during the financial year include:• Changes in the nature of principal activities outlined above.
• Changes to the Board as outlined in the Our approach to corporate governance section on pages 62–71.
• COVID-19 related impairment provisions as outlined on pages 18–21.
• During the financial year, we have participated in the RBA’s Term Funding Facility (TFF) scheme to access long-term
funding to help support Australian households and businesses during this unprecedented time. The TFF is a three-year
facility with a fixed interest rate of 0.25% per annum. As at 30 June 2020, the Group has drawn $1.5 billion of its total
available TFF allocation of $26.6 billion, composed of $19.1 billion of Initial Allowance and $7.5 billion of Additional
Allowance. As at 7 August 2020, the Group’s total available allocation was $31.4 billion.

COMMONWEALTH BANK
2020 ANNUAL REPORT

Directors’ report (continued)

76

77

Directors and Directors’ meetings

The Board of the Commonwealth Bank of Australia met 18 times during the year ended 30 June 2020. In addition, Directors
attended Board strategy sessions and special purpose committee meetings during the year.

Directors’ and officers’ indemnity and insurance
Constitution• the number of scheduled and unscheduled Board and Board Committee meetings held during the financial year that each
Director was a member of the Board or relevant Board Committee and eligible to attend, and the number of meetings
attended by each Director.

The indemnity extends to such other Officers or former Officers of the Bank, or of its related bodies corporate, as the Directors
in each case determine (each, including the Directors and Company Secretaries, is defined as an ‘Officer’ for the purposeof this section).

All Directors may attend Board Committee meetings even if they are not a member of the relevant Committee. The below
table excludes the attendance of those Directors who attended Board Committee meetings of which they are not a member.

The Officers are indemnified on a full indemnity basis and to the full extent permitted by law against all losses, liabilities,
costs, charges and expenses incurred by the Officer as an Officer of the Bank or of a related body corporate.

Board

Committees

Scheduledmeetings

Unscheduled
meetings 1

Risk &
ComplianceHeld 2 Attended

Held 3 Attended

Held 2 Attended

Deeds of indemnity

Audit

People &Remuneration

Nominations

Concurrent

Held 2 Attended

Held 2 Attended

Held 2 Attended

Held 4 Attended

Deeds of Indemnity, which include indemnification in substantially the same terms to that provided in the Constitution, havebeen executed by the Bank in favour of each Director and Company Secretary of the Bank.
An Indemnity Deed Poll, which includes indemnification in substantially the same terms to that provided in the Constitution,
has been executed by the Bank in favour of each:• company secretary and senior manager of the Bank

8

5

Matt Comyn

10

10

8

8

Shirish Apte

10

10

8

8

Genevieve
Bell AO

10

10

8

7

Sir David
Higgins 5

6

6

1

1

3

3

3

3

Paul O'Malley 6

10

10

8

8

4

4

6

Mary Padbury

10

10

8

8

Wendy Stops 7

10

10

8

7

Anne
Templeman-Jones

10

10

8

7

6

Rob
Whitfield AM 8

10

10

8

8

6

6

6

6

6

6

6

6

6

6

6

6

6

6

6

4

4

6

6

6

6

2

2

2

2

6

6

2

2

6

2

2

2

2

6

6

6

6

2

2

6

6

2

2

2

2

2

2

6

6

1 Out of cycle Board meetings typically called for a special purpose that do not form part of the Board approved yearly planner.
2 The number of scheduled meetings held during the time the Director was a member of the Board or of the relevant committee.
3 The number of unscheduled meetings held during the time the Director was a member of the Board.
4 The number of concurrent meetings held during the time the Director was a member of the relevant committee.
5 Sir David Higgins was appointed a Non-Executive Director between 1 September 2014 and 31 December 2019. Sir David Higgins retired from the Risk &Compliance Committee, People & Remuneration Committee and the Board effective 31 December 2019.

7 On 10 August 2020, it was announced that Wendy Stops will not be standing for re-election at the 2020 Annual General Meeting.
8 Rob Whitfield AM was appointed a member of the Audit Committee on 1 November 2019.

Details of current Directors, their experience, qualifications, Directorships of other listed entities and any special responsibilities,
including Board Committee memberships, are set out in the Our approach to corporate governance section on pages 62–71.

Options and share rights outstanding

There are no options over Bank shares on issue as at the date of this report. As at the date of this report there are 965,095
share rights outstanding in relation to Bank ordinary shares and no employee options. Holders of outstanding share rights
in relation to the Bank’s ordinary shares do not have any rights under the share rights to participate in any share issue orinterest of the Bank.

Directors’ interests in contracts

A number of Directors have given written notices stating that they hold office in specified companies and accordingly are
to be regarded as having an interest in any contract or proposed contract that may be made between the Bank and anyof those companies.

• person who, at the prior formal request of the Bank or a related body corporate, acts as Director, secretary or senior
manager of a body corporate which is not a related body corporate of the Bank (in which case the indemnity operates only
in excess of protection provided by that body corporate)• person who, at the request of a related body corporate of the Bank, acts as a member of the compliance committee
of a registered scheme for which the related body corporate of the Bank is the responsible entity.
In the case of a partly-owned subsidiary of the Bank, where a Director, company secretary or a senior manager of that entity
is a nominee of an entity which is not a related body corporate of the Bank, the Indemnity Deed Poll will not apply to that
person unless the Bank’s CEO has certified that the indemnity will apply to that person.

Insurance

The Bank has, during the financial year, paid an insurance premium in respect of a Directors’ and Officers’ liability andcompany reimbursement insurance policy for the benefit of the Bank and persons defined in the insurance policy who
include Directors, Company Secretaries, Officers and certain employees of the Bank and related bodies corporate. The
insurance is appropriate pursuant to section 199B of the Corporations Act 2001 (Cth). In accordance with commercial practice,the insurance policy prohibits disclosure of the terms of the policy, including the nature of the liability insured against and theamount of the premium.

Proceedings on behalf of the Bank

No application has been made under section 237 of the Corporations Act 2001 (Cth) in respect of the Bank, and there are noproceedings that a person has brought or intervened in on behalf of the Bank under that section.

Rounding and presentation of amounts

Commonwealth Bank is an entity to which ASIC Corporations Instrument 2016/191 dated 24 March 2016, relating to therounding of amounts in directors’ reports and financial reports, applies. Pursuant to this Instrument, amounts in this Directors’
report and the accompanying financial report have been rounded to the nearest million dollars, unless indicated otherwise.

Company secretaries

Kara Nicholls was appointed Group Company Secretary of the Bank on 8 January 2019. Kara has extensive listed company
expertise with over 20 years’ of global equity markets, commercial and corporate governance experience. She was previously
Company Secretary of Caltex Australia Limited and prior to that was Company Secretary of Woolworths Limited, Arrium
Limited and Global Head of Company Secretariat for Macquarie Capital Funds. Prior to those roles Kara spent almost six years
at the ASX. Kara is the Chair of Gidget Foundation Australia. She is a Fellow of the Governance Institute of Australia (GIA),
and a member of the Australian Institute of Company Directors (AICD) and the GIA Legislative Review Committee.
FGIA, MAICD, B.Bus, MLS, JP.
Kristy Huxtable was appointed Company Secretary of the Bank on 20 March 2019. Kristy is an experienced company
secretary and brings extensive corporate governance experience, having previously worked as Company Secretary with other
ASX Top 50 companies, including Suncorp and the ASX. Kristy is a Fellow of the GIA, and a Member of the AICD and the GIA
Legislative Review Committee.
FGIA, MAICD, MBA, Grad.Dip.Corp.Gov, Grad.Dip.HR

ADDITIONAL INFORMATION

6 Paul O’Malley was appointed a member of the Risk & Compliance Committee on 1 November 2019 and was a member of the Nominations Committee between
1 July 2019 and 31 October 2019.

• Director, secretary or senior manager of a related body corporate of the BankFINANCIAL REPORT10DIRECTORS’ REPORT10HOW WE CREATE VALUE

Director
Catherine
Livingstone AOOVERVIEW• names of the Directors holding office at any time during, or since the end of, the financial year

The Directors, as named on pages 67–69 of this report, and the Company Secretaries of the Bank, referred to below, areindemnified under the Constitution of the Commonwealth Bank of Australia (the Constitution), as are all current or former
Directors or Executive Officers of the Bank.

The following table includes:

COMMONWEALTH BANK
2020 ANNUAL REPORT

Directors’ report (continued)

78

79
COMMONWEALTH BANK
2020 ANNUAL REPORT

Remuneration report
Dear Shareholder

Remuneration
overview
Executive
remunerationin detail88

2. Variable remuneration
outcomes forthe financial year
ended 30 June 2020 92
3. Executive statutory
remuneration
94
4. Non-Executive Director
arrangements
100
5. Loans and othertransactions

102

Executive remuneration
outcomes for the 2020
financial year

The remuneration outcomes
for the 2020 financial year
reflect the intended operationof the remuneration framework.
This framework is designed
to accommodate a range ofperformance and risk outcomes,
adjust for risk matters and,
where appropriate, apply Board
discretion. The outcomes thisyear also reflect the exemplary
leadership shown by the Chief
Executive Officer (CEO) andhis leadership team during

The Group achieved a cash
Net Profit After Tax (NPAT)of $7,449 million, below
threshold, therefore eliminating
any Short-Term Variable
Remuneration (STVR) outcomes
for this element of the financial
measure, and reducing theGroup’s overall STVR pool.
Performance against key
non-financial measuresexceeded expectations witha notable increase in employee
engagement. At 81%, employee
engagement improved markedly
by 13% over last year, reflecting
the pride and commitment

The CEO’s STVR outcome forthe 2020 financial year reflects
the Group’s financial andnon-financial performance, andtakes into account the significant
leadership he has displayed
both within the Bank, and at
a national level, particularly overthe past six months. His final
outcome is 73% of maximum.
STVR outcomes for the Group
Executives and CEO ASB
ranged between 49% and 76%
of maximum, with an averageof 59%. These outcomes
are inclusive of STVR risk
adjustments applied to twoof 11 Executives.
The 2017 financial year
Long-Term Variable
Remuneration (LTVR) award
reached the end of its four-year
performance period on 30 June
2020 with 84.04% vestingoverall. 80% vesting against
the TSR performance hurdle
reflects our strong and positive
shareholder returns relative tocomparator organisations overthe longer term. The portion of
the award subject to customer
satisfaction vested at 97%,

Throughout the 2020 financial
year we have continued our
focus on implementing andembedding the Australian
Prudential Regulation Authority
Remedial Action Plan (APRA
RAP) into our ways of working.
With the delivery of 79% of
milestones, as at 30 June
2020, including 22 in relation
to risk and remunerationconsequences, there is
growing evidence of clearerlines of accountability andmore effective application of
remuneration consequences.
As required by APRA, the RAP
also continues to be a significant
component of the Executive
STVR scorecards to ensure
adequate focus on the deliveryof milestones. Employees arealso recognised where they
contribute to a positive risk
culture. More information
on risk and remunerationconsequence outcomes canbe found on page 82.
The Bank has continued to
implement the recommendationsof the Sedgwick Retail Banking
Remuneration Review acrosscustomer-facing employees andtheir leaders.
As part of ongoing monitoringand in line with the RAP
milestones, during the 2020
financial year the People &Remuneration Committee
conducted a formal review ofthe effectiveness of the Group
Remuneration Policy.

More information on these changes
will be provided ahead of the2020 Annual General Meetingand in the 2021 financial year
Remuneration Report.
We invite you to read theRemuneration Report andwelcome your feedback.

Paul O’Malley

People & Remuneration Committee Chairman

ADDITIONAL INFORMATION

1.

80

While the external environmenthas been challenging, theExecutives (CEO, Group Executives
and CEO ASB) delivered strong
results across both financial
and non-financial performancemeasures. The Group’s
performance reflects two yearsof concentrated effort. However,
we have taken a $1.5 billion
forward-looking provision forloan impairments related to the
expected impact of the coronavirus
pandemic on our customers andthe economy. These have had amaterial negative impact on theGroup’s 2020 financial results.

The formulaic outcomes ofresults were considered against
an after-the-fact discretionary
assessment of the extent towhich the outcomes reflect
our values, the current
operating environment, andimpacts on our customers andother stakeholders.

The Board concluded that change isrequired. Therefore, our Executive
remuneration framework has evolved
to ensure we continue to deliver acompetitive remuneration framework
to retain and attract high calibre leadersduring a time of intense competition
for capable and values-led banking
talent. At the same time a revised
framework will continue to enhance thealignment of management incentives
with our key stakeholders andmeet new regulatory requirements.
Changes to be implemented in the2021 financial year will include:• Reducing overall remuneration
quantum and re-balancing the
remuneration mix to lower theleverage of the variable components.
• Extending vesting timelines
to reflect risk and performancehorizons, and to meet anticipatedregulatory remuneration
requirements regarding risk anddeferral periods.
• Updating policy and procedures
relating to malus and clawback.
• Introducing a new LTVR component
that supports additional long-term
share ownership, together with thecurrent LTVR that has been reduced.
• Increasing alignment with theshareholder experience.

FINANCIAL REPORTIn this section

Throughout this challenging
period, the Bank’s leadershipteam has maintained a clear
focus on and dedication to our
purpose. As a Board, we would
like to acknowledge the way
all of our employees have
responded to these challenges,
guided by our values.

the bushfires, drought andcoronavirus pandemic, andongoing commitment tosupporting customers and otherstakeholders through this unique
combination of events.

Over the past two years, therenewed Executive team has
been charged with deliveringa significant cultural andbusiness transformation. CBA
has made considerable progressto enhance its risk maturity, withleadership demonstrating a very
positive values-led tone fromthe top. This is contributing
to stronger business resilience.

Notwithstanding our assessmentthat the 2020 financial year
Executive remuneration framework
was sound, due to the likely new
APRA regulatory standard on
remuneration (CPS511), together
with the strategic challenges ahead
for the sector, the Board conducted
a wide-ranging review to assess
whether the framework will remain
fit for purpose for the years ahead.

DIRECTORS’ REPORTThe 2020 financial year has seen
unprecedented health, economicand environmental events,from the devastating bushfires
to the current coronavirus
pandemic. Our shareholders,
employees, customers and thecommunities we serve havebeen directly impacted.

The Group was well positioned
coming into this volatileenvironment, with prudent
management of the businessleading to solid and resilientbalance sheet settings,
continued outperformancein our core banking business,and strong execution of oursimpler, better banking strategy,
including divestments. Our strong
capital position and operational
performance continues tosupport returns for shareholders.

Governance, risk, culture
and accountability

Looking ahead – changes
for the 2021 financial year

HOW WE CREATE VALUE

On behalf of the Board, I am
pleased to present the 2020
Remuneration Report.

Substantial progress has also
been made on divesting andceasing our wealth managementbusinesses, which has allowed
the Bank’s leadership team tofocus on driving growth in ourcore banking businesses.

reflecting performance relative
to our major competitors. See
page 93 for further details.

OVERVIEW

During these uncertain times, the Bank’s
leadership team have delivered strong
underlying performance, and continue
to support the financial wellbeing of ourcustomers and communities.

of our people as they worked
in difficult conditions to support
the financial wellbeing of
our customers. Such positive
feedback from our people
during the second half of the2020 performance period
suggests that we have operated
in accordance with our values
and purpose.

81
COMMONWEALTH BANK
2020 ANNUAL REPORT

Remuneration overview
Executive remuneration framework for the 2020 financial year
Our values
We pursue excellence

We get things done

Remuneration outcomes snapshot
CEO remuneration

Our remuneration principles

Group Executive and CEO ASB remuneration0%

FR increase

Recognise the roleof non-financial
drivers in longer-termvalue creation

Risk and values assessment(gate/modifiers):
Outcomes subject to Board 1
consideration of values, risk
and reputation (via Executive
risk scorecards).
1 Board is to be read as ASB Boardfor the CEO ASB.

The graphs and table below illustrate the relationship between Executive remuneration outcomes and the Group’s
financial performance over the past five financial years (including the 2020 financial year).

Risk and values assessment(gate/modifiers):
Outcomes subject to Board considerationof conduct and risk and reputation matters.

All variable remuneration is subject to malus adjustment

Mandatory shareholding requirement (MSR)
The CEO must accumulate CBA shares equal to 300% of FR, and Group Executives and the CEO ASB must
accumulate 200% of FR, over a five-year period from the date of their appointment to the respective roles.
More detail on Executive shareholding is provided in on page 84.

19

20

16

17

18

19

20

1

Group Cash NPAT includes discontinued operations.

2

CBA opening share price on 1 July 2015 was $84.79.

Remuneration outcomes

16

17

18

19

20

19

20

16

17

18

19

16.53

18

11.39
18

20.51

17

50.75

16

TSR: Four-year period
to 30 Jun (%)
74.74

4.31

Dividends per share
($)

2.98

69.42

82.78

72.87

82.81

17

5,783

16

Share price as at
30 Jun 2 ($)

4.31

Business performance measures:• For the CEO and Group Executives, relative
total shareholder return (TSR) (75%);
relative trust and reputation (12.5%); andemployee engagement (12.5%).
• For the CEO ASB, relative TSR (50%);
ASB relative trust and reputation (25%);and ASB employee engagement (25%).
• A positive TSR gateway applies to thetrust and reputation and employee
engagement measures.
• Relative TSR is measured against
a comparator group of the 20 largest
companies on the ASX by market
capitalisation, excluding resources
companies and CBA.

Group PACC($m)

Group Cash NPAT 1($m)

Quantum:• Maximum face value allocation of 180%
of FR (150% for Group CRO).

LTVR relative TSR measure

4.29

STVR scorecard measure

6,525

Rationale

Remuneration outcomes reflect short and long-term performance

4.20

Business performance measures:• Financial measures (30%; 10%
for Group CRO).
• Non-financial measures (70%;
90% for Group CRO), being
customer, people and strategic
measures, including deliveryof the RAP (or Risk and Conduct
agenda for CEO ASB).

Rights to shares with no dividend
equivalent payments, with vesting
subject to performance overa four-year period.

Group financial performance

6,187

deferredintoequity for
two years

Rewards participants for creating
sustainable and superior longterm shareholder value, improving
engagement of our people, andre-building trust and reputation withour customers and the community.

8,706

Quantum:• Target opportunity of 100%of FR (75% for Group Chief
Risk Officer (CRO)).
• Maximum opportunity of 150%
of FR (112.5% for Group CRO).

deferredintoequity forone year

25%

LTVR (at risk)

7,449• Reviewed annually
against relevant
comparator group
remuneration
benchmarks.
• Primarycomparator groupis the other threemajor Australianbanks, with further
business andtalent comparators
included as
relevant. For
the CEO ASB,
the primarycomparator groupis the other New
Zealand banks.

paid ascash

25%Long-Term Variable Remuneration

9,412

50%

84.04% of the award vested

LTVR which reached the end of its performance period on 30 June 2020

9,881

Base
remuneration andsuperannuation.

The values and risk and reputation
modifiers adjust overall STVR for
how performance was achieved.

49% to 76%

20

30 Jun 1630 Jun 1730 Jun 1830 Jun 19

30 Jun 20

STVR outcome (average % of maximum)

75%

0%1

19% 2

44%

60%

LTVR vesting outcome (% of maximum)

20%

67%

24%

24%

84%

1 The STVR outcomes for the CEO and Group Executives were adjusted downwards to zero, reflecting collective accountability for the overall
reputation of the Group and risk and reputation matters.
2 As a consequence of the APRA Prudential Inquiry Report, the Board applied a negative adjustment of 20% to the 2018 financial year performance
scorecard outcomes for each current Group Executive and assessed individual risk outcomes as partially met to reflect collective accountability for
the APRA Prudential Inquiry Report findings. Further negative risk adjustments to STVR outcomes were also made in respect of certain individualGroup Executives to reflect individual accountability for other risk and reputation matters separate from the APRA Prudential Inquiry Report findings.

ADDITIONAL INFORMATION

Rewards for achieving key
strategic and stakeholder annual
performance outcomes.

STVR % of maximum$3.9m

FINANCIAL REPORT

Provides market
competitive
remuneration to
attract and retain
high quality talent
while reflectingrole size andaccountabilities.

STVR (at risk)

Total remuneration received

DIRECTORS’ REPORT

Short-Term Variable Remuneration

FR

Reflect theGroup’s
strategy andvaluesHOW WE CREATE VALUE

Fixed Remuneration

Simple andtransparent

9,445

Reward sustainable
outperformanceand discourage poor
performance

Structure

Marketcompetitive toattract and retain
high calibre talent

1.4%
OVERVIEW

Aligned withshareholder
value creation

FR average increase73%

STVR % of maximum

74.37

We are dedicated to service

3,913

We are accountable

4,333

We do what is right

Approach

80

82

83
COMMONWEALTH BANK
2020 ANNUAL REPORT

Remuneration report (continued)

Remuneration governance

The Board has continued to oversee enhancements to CBA’s management of risk and remuneration consequence
through its guidance, procedures and governance, including reinforcing the Board’s expectations of risk outcomes
and behaviours in support of a positive risk culture. There were two risk-related adjustments to CEO and Group
Executive STVR outcomes in the 2020 financial year. Remuneration adjustments for remaining employees
in relation to the 2020 financial year will be finalised in September 2020 in line with the CBA-wide annual
remuneration review process and will be outlined in the 2021 Remuneration Report.

From 1 July 2019, the Remuneration Committee was renamed the People & Remuneration Committee to reflect its
role in the oversight of talent and succession in addition to remuneration related matters. The People & Remuneration
Committee is the governing body for developing, monitoring and assessing remuneration strategy, policies and practices
across CBA on behalf of the Board. The role of the People & Remuneration Committee is to review, challenge, assess and,as appropriate, endorse the recommendations made by management for Board approval. It oversees CBA’s remuneration
framework and assists the Board to ensure CBA’s remuneration strategy and policy are appropriate and effective.

The remuneration adjustments made in the 2019 and 2018 financial years follow. Due to a change in reporting
methodology, 2019 financial year data provided below includes employees eligible for a performance review.

The People & Remuneration Committee met formally six times during the 2020 financial year with the following
members (as at 30 June 2020): Paul O’Malley (Chairman), Catherine Livingstone AO, Mary Padbury and Wendy Stops.

2019 financial year2018 financial year

Employees rated ‘exceptionally managed’ for risk
309 employees

Employees rated ‘partially met’ or ‘not met’ for risk
4,515 employees(including 121 General Managers and above)

2,462 employees(including 73 General Managers and above)

CBA’s consequence management framework was further embedded in the current financial year, with instancesof unacceptable conduct resulting in termination. In the 2020 financial year there were 1,851 instancesof substantiated unacceptable conduct, including 10 senior leaders (General Managers and Executive General
Managers), with 136 resulting in termination.

In addition to Board oversight, the Group Risk & Remuneration Review Committee, a management Committee thatadvises the Group CRO, oversees assessment of accountability for material risk matters, including those impacting CBA’s
reputation, and application of remuneration adjustments as applicable for Executive General Managers and below.
During the 2020 financial year, external advisors were engaged by management to provide information to thePeople & Remuneration Committee to assist the Committee with making remuneration decisions. The People &Remuneration Committee did not seek or receive any remuneration recommendations from the external advisors
in the 2020 financial year.

CBA’s remuneration governance framework

Our remuneration framework has continued to evolve over the past year, enabling us to achieve better alignment
between risk, performance and remuneration.

Alignment of remuneration with prudent risk‑taking• Continued embedding a risk mindset through the
deployment of a leadership assessment program
to all General Managers and above, and the launchof a new Recognition Platform anchored in our values.
The maturity of our risk culture continued to be assessed
via the annual Board Risk Culture Assessment process.

• Oversight by business unit CROs was strengthened
to support the consistent application of risk
assessment ratings and STVR adjustments througha constructive challenge process.

Risk assessment in performance review process

Malus/clawback• Executive risk assessments were supported bycomprehensive reporting and governance, as partof the interim and annual performance assessment
processes for the CEO and Group Executives.

• Malus is the ability to reduce (including to zero)a variable remuneration award and/or lapse or
postpone vesting of variable remuneration awards
granted, but yet not vested.

• Enhanced remuneration guidance was introduced
to help people leaders consistently determine theappropriate level of STVR adjustments for risk outcomes
and behaviours not fully meeting expectations, anddocument the reasons for their assessment.

• Guidance and enhanced processes to support theapplication of malus have been implemented across
CBA during the 2020 financial year.
• Clawback will apply to all CEO and Group Executive
variable remuneration from the 2021 financial year.

Board
Committees

Risk & Compliance
Committee

People & Remuneration
Committee

Concurrent
meetings areheld to determine
CEO and Group
Executive
outcomes.

Advises the People& Remuneration
Committee of material
risk matters which
may impact collective
and/or individual
remuneration
outcomes.

Oversees CBA’s remuneration
framework and assists theBoard to ensure the Group’s
remuneration strategy andpolicy are appropriate andeffective.

Audit Committee
Assesses andadvises the People& Remuneration
Committee of any
audit matters which
may impact collective
and/or individual
remuneration
outcomes.

Risk & Remuneration Review Committee

Independent Remuneration Consultant

The management committee that advises theGroup CRO on material risk matters that may
impact remuneration outcomes for Executive
General Managers and below.

The People & Remuneration Committee
may engage external advisors to provide
information to assist the Committee inmaking remuneration decisions.

People & Remuneration Committee Charter

The responsibilities of the People & Remuneration Committee are outlined in its Charter and reviewed annually.
The Charter is available at commbank.com.au/peopleandremuneration

ADDITIONAL INFORMATION• The Recognition Award, first introduced in 2019,
continued to recognise and reward employees rated‘exceptionally managed’ for risk, whose risk behaviours
and outcomes were considered exemplary. Out of the
500 employees rated ‘exceptionally managed’ in the2019 financial year, 62 employees received additionalrecognition to acknowledge their outstanding
contribution to the positive risk culture of the Group.

• Comprehensive reporting was provided to theBoard to support oversight of remuneration and risk
consequences and their effectiveness, and to assist
in informing the Board’s guidance for the 2020
performance and remuneration review.

CBA Board
FINANCIAL REPORT

Risk culture

DIRECTORS’ REPORT

In both the 2019 and 2018 financial years, STVR outcomes were reduced by a minimum of 10% for ‘partially met’
ratings, ranging up to 100% for ‘not met’. Malus adjustments were also applied to unvested deferred variable
remuneration in relation to poor risk outcomes and/or misconduct (2019: 10 employees with adjustments ranging
from 20% to 100%; 2018: six employees with 100% adjustment and approximately 470 employees with 10% to 20%
malus adjustment related to collective accountability).

Information provided to the Board Committees to support their determinations of collective and/or individual
remuneration impacts includes risk scorecards for the CEO and Group Executives, details of material risk matters,
outcomes of internal audit reviews conducted during the year, and consideration of the quality of CBA’s financial
results. The Board reviews, challenges, applies judgment and, as appropriate, approves the People & Remuneration
Committee’s recommendations.

HOW WE CREATE VALUE

500 employees

As part of the performance and risk review, and to support the determination of remuneration outcomes for the
CEO and Group Executives, the People & Remuneration Committee met concurrently with the Risk & Compliance,
Audit and Nominations Committees in February 2020 and June 2020. These concurrent meetings provided
an opportunity for the Committees to review and discuss relevant risk and audit matters that may warrant
consideration in the People & Remuneration Committee’s determination of remuneration outcomes, including
any in-year or malus adjustments for the CEO and Group Executives (including former Group Executives).

OVERVIEW

Risk and remuneration consequences

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85
COMMONWEALTH BANK
2020 ANNUAL REPORT

Remuneration report (continued)

Key Management Personnel

Executive appointment arrangements

Key Management Personnel (KMP) are defined as persons having authority and responsibility for planning,
directing and controlling the activities of an entity, directly or indirectly, including any Director (whether Executive
or otherwise) of that entity.

In the 2020 financial year, Mike Vacy-Lyle (Group Executive, Business and Private Banking) was appointed to the
Executive Leadership Team as KMP.

Name

Position

Term asCurrent
KMP shareholding 1

Progress against
MSR and deadline

Chairman 2

Mike is responsible for leading the Bank’s strategy and operations for the Business and Private Banking business
unit. This is a critical portfolio and a core strategic priority for the Group. He brings extensive banking experience,
including experience from his previous role as CEO of First National Bank Commercial Banking in South Africa.
The Board determined it was appropriate to provide a competitive remuneration package, including a sign-on
award to compensate for unvested awards granted by his former employer, forfeited or forgone upon terminationof his previous employment. Relocation benefits were also provided to Mike to support his relocation to Australia.
The table below outlines the sign-on award offered to Mike:

Catherine Livingstone Chairman
AO

Full year

104%

Meets

Director

Full year

256%

Meets

Genevieve Bell AO

Director

Full year

22%

On track, 1 Jul 2024

Paul O’Malley

Director

Full year

182%

Meets

Mary Padbury

Director

Full year52%

On track, 1 Jul 2024

Wendy Stops

Director

Full year

546%

Meets

Anne TemplemanJones

Director

Full year

53%

On track, 1 Jul 2024

Rob Whitfield AM

Director

Full year50%

On track, 1 Jul 2024

Part year

n/a

n/a

Full year264%

On track, 9 Apr 2023

Grant details

Vesting schedules

Vesting conditions

31 January 2020

Cash award(final value of $153,435).

Cash award vested in April 2020.

Subject to:

21,262 deferred shares(grant date fair valueof $1.803m).

Deferred shares vesting in two
tranches in September 2020and September 2021.

• continued employment• Board risk and reputation
review• malus provisions.
Eligible for dividends paidon deferred shares during
the deferral period.

More information on the remuneration package and relocation benefits are provided on pages 94 and 95.

Former Non-Executive Director 2
Director (ceased as KMP on
31 December 2019)

Managing Director and CEO 3
Matt ComynManaging Director and Chief
Executive Officer

Current Group Executives and CEO ASB 4
Full year

349%

Meets

David Cohen

Deputy Chief Executive Officer

Full year

347%

Meets

Alan DochertyGroup Executive, Financial Services
and Chief Financial Officer

Full year

115%

On track, 15 Oct 2023

Andrew HinchliffGroup Executive, Institutional Banking
and Markets

Full year

158%

On track, 1 Aug 2023

Sian Lewis

Group Executive, Human Resources

Full year

119%

On track, 1 Aug 2023

Vittoria Shortt

Chief Executive Officer, ASB

Full year

231%

Meets

Angus SullivanGroup Executive, Retail Banking Services Full year150%

On track, 1 Jul 2023

Mike Vacy-Lyle

Group Executive, Business and Private
Banking (from 31 January 2020)

Part year160%

On track, 31 Jan 2025

Nigel Williams

Group Chief Risk Officer

Full year

266%

Meets

Part year

n/a

n/a

Former Group Executive
Adam Bennett

Group Executive, Business and Private
Banking (ceased as KMP on
31 January 2020)

1 For the Non-Executive Directors, the percentage shown represents the individual’s percentage of CBA shares as a proportion of their individual
base fees. For the CEO, Group Executives and CEO ASB the percentage shown represents the individual’s percentage of CBA shares as aproportion of their FR as at 1 July 2019.
2 Non-Executive Directors are required to hold CBA shares equivalent to 100% of base Board member fees for Non-Executive Directors and 100%of Board Chairman fees for the Chairman. This is to be accumulated over five years based on base Board member fees or Board Chairman fees as
at 1 July 2019 (when the new MSR for Non-Executive Directors was introduced) or date of appointment, whichever is later.
3 The CEO is required to hold CBA shares equivalent to 300% of FR. This is to be accumulated over five years from appointment to the role.
4 Group Executives and the CEO ASB are required to hold CBA shares equivalent to 200% of FR. This is to be accumulated over five years from thetime appointed to the role or for the CEO ASB, the time the role was determined to be KMP (1 July 2018).

• Payment in lieu of balance of contractual notice period.
• Provision of benefits and payments in accordance with his employment agreement, law and Group Policy
including in respect of past service (six months’ FR).
• Eligible for pro-rated 2020 financial year STVR award 1. Not eligible for 2020 financial year LTVR award.
Unvested deferred STVR and LTVR awards remain on-foot 2.
1 In line with the Banking Executive Accountability Regime, for any payment determined and paid in ordinary course (subject to performance and
Board risk and reputation review), 60% of any award will be paid in cash and remaining 40% deferred as cash vesting at least four years after thedecision is made to make the relevant award.
2 No accelerated or automatic vesting upon ceasing employment. The on-foot STVR awards will be assessed in the ordinary course at the endof the vesting period related to each award (as applicable). Final deferred STVR outcomes will be subject to performance, and Board risk andreputation review. While Adam’s LTVR awards remained on foot at cessation, the Board exercised its post-cessation discretion to lapse hisunvested deferred 2018 and 2019 financial year LTVR awards upon his commencing employment with a competitor of the Group.

ADDITIONAL INFORMATIONGroup Executive, Enterprise Services
and Chief Information Officer

Adam Bennett (Former Group Executive, Business and Private Banking) ceased as KMP on 31 January 2020.
His exit arrangements were as follows:
FINANCIAL REPORT

Pascal Boillat

Executive exit arrangements

DIRECTORS’ REPORT

Shirish Apte

Grant date

HOW WE CREATE VALUE

Current Non-Executive Directors 2

David Higgins

OVERVIEW

The table below outlines the Group’s KMP for the financial year ended 30 June 2020. It also shows each individual’sshareholding and corresponding progress against their MSR as at 30 June 2020.

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87
COMMONWEALTH BANK
2020 ANNUAL REPORT

Remuneration report (continued)

Executive remuneration mix

The remuneration outcomes table below provides a summary of the remuneration that was received by thecurrent Executives in their KMP roles during the financial year ended 30 June 2020. We believe that presenting thisinformation provides shareholders with greater clarity and transparency of Executive remuneration. This table differsfrom the statutory remuneration table on page 94, which presents remuneration in accordance with accounting
standards (i.e. on an accruals basis), and instead is prepared in accordance with the basis of preparation noted below.
All remuneration presented in this report is in Australian dollars.

The following diagram illustrates the remuneration mix at maximum potential for the Executives. For the CEO,Group Executives (excluding the Group CRO) and the CEO ASB, approximately three-quarters of maximum
remuneration is variable and at risk. The Group CRO’s remuneration mix has a greater emphasis on FR thanvariable remuneration compared to other Group Executives to support the role’s independence from the Group’sbusiness activities.

FR

Cash STVR

Other cash
remuneration

a

b

c

Total cash
payments

Deferredequityawards 1

Total
remuneration
received

Previous
years' awards
forfeited orlapsedd=a+b+c

e

f=d+e

g

CEO
30 Jun 20

2,200,000 1,210,000–

3,410,000

486,2433,896,243(1,307,409)

30 Jun 19

2,200,000

747,450–

2,947,450

464,108

3,411,558(1,270,151)–

CEO, Group Executives
and CEO ASB(excluding Group CRO)

23%

17.5%

17.5%

42%
HOW WE CREATE VALUE

Matt Comyn

Maximum remuneration mix

Variable remuneration (77%)

Current Group Executives and CEO ASB
Pascal Boillat 2David Cohen
Alan Docherty

30 Jun 20

1,500,000

618,954–

2,118,954

1,149,354

3,268,308

30 Jun 19

1,12 1,9 18

353,825–

1,475,743

1,052,765

2,528,508–

30 Jun 20

1,200,000

469,243–

1,669,243

555,783

2,225,026(1,114,563)

30 Jun 19

1,200,000

348,218–

1,548,218

405,514

1,953,732(1,109,864)

30 Jun 20

1,025,000

475,072–

1,500,072

200,884

1,700,956–

945,277

291,296–

1,236,573

233,096

1,469,669–

1,050,000

388,229–

1,438,229

437,897

1,876,126–

30 Jun 19

915,068

302,888–

1,217,956

378,283

1,596,239–

30 Jun 20

850,000

381,212–1,231,212

214,437

1,445,649–

30 Jun 19754,932

260,829–

1,015,761

223,942

1,239,703–

30 Jun 20

976,834

385,239–

1,362,073

589,998

1,952,071(1,046,457)

Sian Lewis 2
Vittoria Shortt 3
Angus Sullivan
Mike Vacy-Lyle 4

965,550

940,777–

1,906,327

309,688

2,216,015(345,461)

30 Jun 20

1,100,000

625,826–

1,725,826

256,709

1,982,535–

30 Jun 19

1,050,000

374,500–

1,424,500

409,280

1,833,780–

30 Jun 20
30 Jun 20

1,450,000

456,831

209,882

153,435–

1,995,381

1,069,362

3,064,743

820,148–

30 Jun 19

945,479

276,819–

1,222,298

1,294,553

2,516,851–

545,381820,148––

1 Deferred equity awards : This reflects the portions of the 2016 financial year LTVR award (performance period ended 30 June 2019), and the2016 and 2017 financial year deferred STVR awarded under Executive General Manager arrangements that vested in the 2020 financial year.
For Pascal Boillat and Nigel Williams, this also represents the portion of their sign-on awards that vested in the 2020 financial year.

2 Pascal Boillat was appointed as KMP effective 1 October 2018, Andrew Hinchliff was appointed as KMP effective 1 August 2018, Sian Lewis
was appointed as KMP effective 1 August 2018 and Nigel Williams was appointed as KMP effective 5 November 2018. Prior year comparison
reflects time in KMP role.
3 Vittoria Shortt has an additional payment of $11,557 of KiwiSaver payable on her cash STVR component.

Basis of preparation
Cashpaymentsa) FR: Base remuneration plus superannuation (for the CEO ASB, contributions are made in linewith the KiwiSaver employer contribution requirements) paid for the period as KMP.
b) Cash STVR: 50% of the 2020 financial year STVR (relates to performance during the 12 months
to 30 June 2020). For 2019: 50% of the 2019 financial year STVR (relates to performance during
the 12 months to 30 June 2019).
c) Other cash remuneration: Includes cash components of sign-on awards received during therelevant financial year.

Vestinge) Deferred equity awards: The value of all equity awards (STVR, LTVR or sign-on awards) thatvested during the period as KMP plus any dividends accrued during the deferral period. The valueof prior
shown is based on the volume weighted average closing price (VWACP) of the Group’s ordinary
year awards
shares over the five trading days preceding the vesting date.
Awardsforfeitedor lapsedg) Previous years’ awards forfeited or lapsed: The value of all unvested deferred equity awards
that were forfeited or lapsed during the 2020 financial year as the performance, risk andreputation conditions were not met. The value shown is based on VWACP of the Group’s ordinary
shares over the five trading days preceding the date of forfeiture or lapse.

41%

Variable remuneration (72%)

 FR

 STVR Cash STVR Deferred Equity

 LTVR

Remuneration time horizon
The following diagram provides an illustrative indication of how 2020 financial year remuneration will be delivered
to the Executives.
Fixed remuneration
STVR cash (50%)
STVR deferred equity(25%)

STVR deferred equity

(25%)

LTVR
FY20

 Date granted

FY21

FY22

 End of deferral/performance period

FY23

 Date paid/eligible for vesting

FY24

ADDITIONAL INFORMATION

4 Mike Vacy-Lyle was appointed as KMP effective 31 January 2020, therefore no prior year comparison is shown and amounts reflect time in KMP role.

15.5%

FINANCIAL REPORT

Nigel Williams 2

30 Jun 19

15.5%

DIRECTORS’ REPORT

30 Jun 19
Andrew Hinchliff 2 30 Jun 20

28%

Group CROOVERVIEW

Remuneration received by current Executives

88

89

1.

Long-term variable remuneration

Executive remuneration in detail

The table below outlines key features of the 2020 financial year LTVR for the Executives. Refer to page 99 for treatmentof LTVR on cessation of employment.

Fixed remuneration
Fixed remuneration is delivered in accordance with contractual terms and conditions of employment. Executive fixed
remuneration is reviewed annually against relevant comparator group remuneration benchmarks.

Short-term variable remuneration
The table below outlines key features of the 2020 financial year STVR award for the Executives. Refer to page 99 fortreatment of STVR on cessation of employment.

Participants

Varies remuneration outcomes in line with the extent of annual performance achievement,with a balanced focus on customer, people, strategic and shareholder measures, incorporating
both risk scorecard and values assessments. Recognises both the “how” and the “what”
of performance.
All Executives.

Opportunity

Maximum STVR

CEO, Group Executives and CEO ASB (excluding Group CRO)

100% of FR

150% of FR

Group CRO

75% of FR

112.5% of FR

Individual STVR outcomes are determined on the basis of Group (or ASB for the CEO ASB)
performance and individual performance through a balanced scorecard. The performancemeasures comprise a mix of financial and non-financial metrics linked to Group and business
unit targets. Together they provide a balanced assessment of performance and support thedelivery of the Group’s strategy. The weightings vary by role. More information on the CEO’s
STVR scorecard can be found on page 92.

Risk and values
assessment(gate/modifiers)

30%

70%

Group CRO

10%

90%

Opportunity

The maximum face value of LTVR that can be granted for the Executives, excluding the GroupCRO is 180% of FR. The maximum face value of LTVR that can be granted for the Group CRO
is 150% of FR. The minimum potential outcome value is zero.

Performance period

Four years from 1 July 2019 to 30 June 2023.

Business
performancemeasures andweightings

TSR Trust and reputation Employee engagement(relative)(relative) 1(absolute) 1

CEO and Group Executives (excluding the CEO ASB)

75%

12.5%

12.5%

CEO ASB

50%

25%

25%

2

Instrument

Rights – each right entitles the participant to receive one CBA share (or cash equivalent at theBoard’s discretion), subject to meeting performance measures.

Maximum face value
allocation approach

The number of rights granted are calculated as follows for the Executives:FR $(at time of grant)x

180% 3÷Share price $(no discount applied)

Number of rights

The share price used was the volume weighted average price of CBA’s ordinary shares over the five
trading days up to 1 July 2019.
Board discretion

The Board has discretion to determine that some or all of the award will lapse in certain
circumstances (malus), including where, in the opinion of the Board:• The vesting of rights is not justified or supportable, having regard to the participant’s
performance and/or conduct, the performance of the business unit or function (as relevant
having regard to the participant’s accountability or role), or the overall Group performance.
• The vesting of rights will impact on the financial soundness of the Group or a member of the Group.
• The Group is required or entitled to reclaim remuneration or reduce an Executive’s remuneration
outcome under law, regulation or Group policy.
• A significant unexpected or unintended consequence or outcome has occurred, including
where original expected performance outcomes have not been realised.
Prior to vesting, LTVR awards are also subject to Board risk and reputation review, and should
any issues be identified the award can be reduced, including to zero.

Performance outcomes determined through assessment of the balanced scorecard are subject
to the following assessments (gate/modifiers):• Risk and reputation: via the Executive risk scorecard2 the Board 3 has the discretion to adjust
Executive STVR outcomes upwards or downwards, including to zero, where appropriate.

Performance measures

Approach• Values: the Board 3 has the discretion to adjust Executive STVR outcomes upwards or downwards
including to zero, where appropriate.

Relative TSR• TSR measures share pricemovement, dividends paid
and any return of capital overa specific period.

Relative TSR peer group• The peer group is made up of the 20 largest companies on the ASX by market
capitalisation at the beginning of the performance period, excluding resources
companies and CBA. This cross-industry peer group has been chosen as it represents
the typical portfolio of companies in which CBA’s shareholders invest, and so provides
valid benchmarks for measuring against CBA’s TSR.

STVR awards for the Executives are calculated as follows:

FR $Scorecard
resultx

Target STVR
opportunity%x

Business
performance
result % 4

Risk and values
assessment

x

Risk
scorecard
result 5x

ValuesresultAdjustedoutcome=Value ofadjusted
STVR award$

50% of the STVR award is deferred and delivered in deferred shares that vest in equal tranches over
one and two years. Deferred shares have rights to dividends declared during the deferral period.
All deferred STVR awards are subject to applicable Board 3 risk and reputation review prior to vesting.
See page 99 for an overview of the treatment of deferred STVR awards on termination.

1
2
3
4
5

All Executives.

Non-financial(including customer,
people and strategy) 1

CEO, Group Executives and CEO ASB (excluding Group CRO)

Opportunity

DeferralParticipants

Strategic initiatives include 30% weighting required by APRA to be allocated to the delivery of the RAP.
Executive risk scorecard assessments include: risk culture and leadership; risk strategy/appetite; incidents and issues; and risk and control environment.
‘Board’ is to be read as ASB Board in respect of discretion for the CEO ASB’s STVR outcomes.
The Board retains discretion to adjust scorecard outcomes.
Also subject to risk and reputation review.

• Relative TSR compares the
ranking of CBA’s TSR over the
performance period with the
TSR of other companies ina peer group.

• The peer group at the beginning of the performance period for the relative TSR
performance hurdle comprised:– Suncorp Group Limited– Amcor Limited– Goodman Group– Sydney Airport– Aristocrat Leisure Limited – Insurance Australia
Group Limited– Telstra Corporation– ASX Limited
Limited– Macquarie Group Limited– Australia & New Zealand– Transurban Group
Banking Group Limited– National Australia
Bank Limited– Wesfarmers Limited– Brambles Limited– QBE Insurance– Westpac Banking– Coles Group Limited
Group Limited
Corporation– CSL Limited– Scentre Group– Woolworths Limited

1 Trust and reputation and employee engagement measures are subject to a gateway of positive absolute CBA TSR.
2 For ASB this means ASB Trust and Reputation (relative) and ASB Employee Engagement (absolute).
3 150% for the Group CRO.

ADDITIONAL INFORMATION

Calculationof awards

Varies remuneration outcome in line with the extent of longer-term (four-year) performanceachievement, with a balanced focus on relative shareholder returns, customer and community trust andreputation, and employee engagement to support creation of sustainable long-term shareholder value.

FINANCIAL REPORT

Financial

PurposeDIRECTORS’ REPORTBusiness
performancemeasures andweightings

Target STVR

Approach

HOW WE CREATE VALUE

PurposeApproachFeatures

OVERVIEW

Fixed remuneration comprises base remuneration (i.e. cash salary) and superannuation (KiwiSaver for the CEO ASB).

Features

COMMONWEALTH BANK
2020 ANNUAL REPORT

Remuneration report (continued)

91

Performance measures

Approach

Performance measures

Relative TSR(continued)

A reserve bench company will be substituted (in order of market capitalisation as at the
beginning of the performance period) into the peer group when a peer group company
ceases to be listed on the ASX as a result of an acquisition, merger or other relevant
corporate action or delisting. The reserve bench comprised: Ramsay Health Care Limited,
Cimic Group Limited, Dexus, AGL Energy Limited and Sonic Healthcare Limited.

Relative trust
and reputation(continued)

Between the median and 75th percentile

Pro-rata vesting from 50% to 100%
50%

Below the median0%– Fonterra Co-operative– ANZ Bank New ZealandGroup Limited
Limited– Foodstuffs (combined– Air New Zealand Limited
North Island and South– Bank of New Zealand– BP Oil New Zealand Limited Island)– Fulton Hogan Limited– Fletcher Building Limited– Kiwibank Limited– Spark New Zealand
Limited– Westpac New Zealand
Limited– Woolworths New Zealand
Limited– Z Energy Limited

A reserve bench company will be substituted (in order of revenue as at the beginning of theperformance period) into the peer group when a peer group company ceases to operate asa result of an acquisition, merger or other relevant corporate action or delisting. The reserve
bench comprised: The Warehouse Group Limited and Meridian Energy Limited.
• These cross-industry peer groups have also been chosen to ensure that the focus is ondelivering trust and reputation outcomes that are among the best in class for all customerfocused industries, not just financial services.

At the median

50%

Below the median0%

Subject to positive absolute TSR gateway

Reason for selection
The Board recognises the critical importance for the Group and the industry of rebuilding
and improving the trust of customers and the broader community. This is a key factor inenhancing long-term financial performance and shareholder value.
Employee engagement(absolute)• Employees are invited
to participate in an
externally conducted
online survey.

Target setting• For the CEO and Group Executives, the target and stretch levels of performance havebeen set by the Board having regard to the IBM Kenexa gap closure method and global
benchmark scores provided by IBM Kenexa, and CBA’s EEI baseline relevant to the award.

• For the CEO and Group
Executives, Employee
Engagement Index(EEI) is calculated using
particular questions
from the survey.

Vesting framework• EEI is based on
the proportion of
employees respondingthat they “strongly
agree” or “agree”
with the four equallyweighted questions
relating to satisfaction,commitment,
advocacy and pride.
• For the CEO ASB, thePeak On methodology
provides an employee
engagement score
which can becompared to the ‘True
Benchmark’. The True
Benchmark reflects
an adjustment for
demographic factorsthat typically play a rolein determining scores(e.g. tenure, gender,
geography).

• For the CEO ASB, the target and stretch levels of performance have been set by the ASB
Board, having regard to ASB’s baseline relevant to the award and benchmark levels.
CBA EEI score

ASB EEI Score

Vesting %78% or higher

8.30 or higher

100%

Between 72% and 78%

Between 8.10 and 8.30

Pro-rata vesting from 50% to 100%

72%

8.10

50%

Below 72%

Below 8.10

0%Calculation of results
The surveys will be conducted by an independent provider who will facilitate and collate the
EEI results. For the CEO and Group Executives (excluding the CEO ASB), the change in CBA’s
EEI scores between the March 2019 EEI score of 68% and the March 2023 score will be used
to determine the level of vesting. For the CEO ASB, the change in ASB’s EEI scores between
the base year (the August 2019 EEI score of 8.10) and the end year (the last score prior to July2023) will be used to determine the level of vesting.
Reason for selection
The Board considers that an engaged workforce results in greater productivity and a better
customer experience, and that builds overall value for the Group. It is important the Group’s
employees are its advocates, committed to its purpose, values and strategy.

An positive absolute TSR gateway is applied to the non-financial performance measures (trust and reputation,
employee engagement), such that no vesting on these measures occurs unless TSR is positive over the relevant period.

ADDITIONAL INFORMATION• For the CEO ASB, the peer group at the beginning of the performance period for thetrust and reputation performance hurdle comprised:100%
Pro-rata vesting from 50% to 100%

FINANCIAL REPORT• For the CEO ASB, the peer group is made up of the four largest financial institutions in
NZ, excluding ASB (sourced from Deloitte’s Top 30 Financial Institutions Index), and thenine largest consumer-facing companies in NZ by revenue on the Deloitte Top 200 Index,
and are included on the Reputation Institute Annual Reputation Index.

At the 75th percentile or higher

DIRECTORS’ REPORTCEO and Group Executives: relative trust and reputation peer group
Relative trust
and reputation• For the CEO and Group Executives (excluding the CEO ASB), the peer group is made up• Measured against theof the 16 largest consumer-facing companies listed on the ASX by market capitalisation at
independent RepTrak®
the beginning of the performance period, excluding resources companies, companies that
pulse score survey
are not familiar to the general public, companies that do not operate nationally, and CBA.
conducted quarterly• For the CEO and Group Executives (excluding the CEO ASB), the peer group at the beginningby the Reputationof the performance period for the trust and reputation performance hurdle comprised:Institute.
– Medibank Private Limited – Suncorp Group Limited– AGL Limited• The survey comprises– Telstra Corporation– National Australia– Australia & New Zealandfour equally-weighted
Bank Limited
LimitedBanking Group Limited– Qantas Limited– Wesfarmers Limited– Coles Group Limited
questions to test
– QBE Insurance Group– Westpac Banking– Crown Resorts Limited
the trust, respect
Corporation
Limited– Insurance Australia
and admiration a– Stockland Corporation– Woolworths Limited
Group Limited
respondent has for
Limited– Macquarie Group Limiteda particular company.
A reserve bench company will be substituted (in order of market capitalisation as at the• CBA’s score over the
beginning of the performance period) into the peer group when a peer group company ceases
performance period
to be listed on the ASX as a result of an acquisition, merger or other relevant corporate action
is compared with theor delisting. The reserve bench comprised: Coca-Cola Amatil Limited, Lendlease Group, AMP
performance over
Limited, and Bendigo and Adelaide Bank Limited.
the same periodof a peer group.
CEO ASB: relative trust and reputation peer group

Vesting %HOW WE CREATE VALUE

Calculation of results
Each company in the peer group will be given a percentile ranking based on thegrowth in its TSR over the four-year performance period. TSR outcomes are calculatedby an independent provider, Orient Capital.
Reason for selection
Provides a direct link between Executive remuneration and shareholder returns, providingalignment with our shareholders.

Peer group ranking

Calculation of results
Each company in the peer group will be given a percentile ranking based on the change in its
pulse score over the four-year performance period. The opening pulse score for each company
will be calculated based on the average of the March, June and September 2019 surveys (orSeptember 2018, March and August 2019 surveys conducted in NZ for the CEO ASB), and theclosing pulse scores will be calculated based on the average of the surveys anticipated to bearound November 2022, March and June 2023.

100%

At the median

Vesting framework

OVERVIEW

Vesting %At the 75th percentile or higher

Approach

Between the median and 75th percentile

Vesting framework
Peer group ranking

COMMONWEALTH BANK
2020 ANNUAL REPORT

Remuneration report (continued)

Subject to positive absolute TSR gateway

90

92

93

2.

Executive STVR performance outcomes

Variable remuneration outcomes for the financial year ended
30 June 2020

The following table provides the 2020 financial year STVR outcomes for Executives for the period they were KMP.
The minimum potential outcome is zero.
STVR actual

CEO STVR performance outcomes
Reflective of Group performance, the CEO’s 2020 financial year STVR outcome is:

STVR
maximum$

Total$

Cash 1$

Deferred$

WeightThreshold50%

Target100%

Stretch150%% of STVR
maximum

Financial

3,300,000

2,420,000

1,210,000

1,210,000

73%

8,122

8,520

Pascal Boillat

2,250,000

1,237,908

618,954618,954

55%

David Cohen

1,800,000

938,486

469,243

469,243

52%

Alan Docherty

1,537,500

950,144475,072

475,072

62%

Andrew Hinchliff

1,575,000

776,458

388,229

388,229

49%

Sian Lewis

1,275,000

762,424

381,212381,21260%

Vittoria Shortt

1,465,252

770,478385,239385,239

53%

Angus Sullivan

1,650,000

1,251,652

625,826

625,826

76%

Current Group Executives and CEO ASB

8,919

0%

15%
3,730

4,214

4,699

15%

7%

Customer

NPS outcomes for consumer, business and IB&M customers, withreference to complaints remediation:• Consumer, business & IB&M NPS ranked #2 or higher for majorityof the 2020 financial year.
• Progress addressing systemic challenges and underlying causes.

6%

10%

419,764

209,882

209,88261%

1,090,762

545,381545,38167%

924,835

492,558

295,535

197,023

53%

9%

10%

1 Cash amounts will be paid in or around September 2020.
2 The percentage of 2020 financial year STVR forfeited (as a percentage of STVR maximum): Matt Comyn 27%, Pascal Boillat 45%, David Cohen 48%, Alan
Docherty 38%, Andrew Hinchliff 51%, Sian Lewis 40%, Vittoria Shortt 47%, Angus Sullivan 24%, Mike Vacy-Lyle 39%, Nigel Williams 33%, Adam Bennett 47%.
3 Mike Vacy-Lyle’s remuneration reflects his time in the role (31 January 2020 to 30 June 2020).

DIRECTORS’ REPORT

Adam Bennett 4

4 Adam Bennett’s remuneration reflects his time in the role (1 July 2019 to 31 January 2020).

LTVR performance outcomes

19%

63%

• Clear tone from the top on risk compliance and the control environment,with notable progress in Financial Crime, data management and the RAP.

Percentage
of award

Performance outcome

Vesting
outcomeRelative TSR

76.25%

65th percentile ranking relative to TSR peer group80%

Relative customer satisfaction 1

23.75%

Average result by business over performance period:97%– retail main financial institution (MFI) customer
satisfaction = 1.02
– wealth management customer satisfaction = 1.13
– business MFI customer satisfaction = 1.00

Values assessment• Role modelled the Group’s ‘Should We’ test through the bushfire, drought andcoronavirus pandemic responses, displaying national and Bank leadership.
• Demonstrated personal care and support for customers and communities,
including through Compassionate Care and Financial Abuse support initiatives.

Performance measure

Total weighted average ranking = 1.06
Exceptionally Demonstrated

No
adjustment

Fully Met

No
adjustment

Board discretion• Industry leadership and contribution at a national policy level to the challenges faced by our customers,
communities and the economy particularly over the second half of the 2020 financial year and the practicaland ongoing steps taken to assist our customers, people and their communities.

10%

Overall adjusted CEO STVR outcome

73%

1 Vesting outcome for relative customer satisfaction is calculated based on the weighted average ranking across the three independent surveys (weighted by thebusiness area’s contribution to NPAT at the beginning of the performance period). Relative customer satisfaction vests at 50% if the weighted average ranking
is 2nd and 100% if the weighted average ranking is 1st.

ADDITIONAL INFORMATION

Overall CEO STVR outcome

The 2017 financial year LTVR award reached the end of its four-year performance period on 30 June 2020 and vested at
84.04%, with 15.96% of the LTVR award lapsing.

FINANCIAL REPORT

22%

30%

Significant progress on the delivery of Group strategic priorities:• Continued focus on innovation with the launch of Vonto, Home-In
and CommSec Pocket, and innovation capability (x15 ventures, Klarna). 20%• Strengthened leadership position in digital (online, Banking app).
• Significant progress on targeted divestments and simplificationof portfolio.

Risk and reputation assessment

685,246
1,631,250

Former Group Executive

Strategy

Progress on and quality of implementation of the APRA RAP:
• All APRA RAP milestones delivered on plan to the Independent
Reviewer, with the Second Foundational Review approved.

Mike Vacy-Lyle

3

Nigel Williams

PeopleGroup People measure results (focus on culture, wellbeing, talentand capability):• Significant increase in employee engagement indicating strong
pride, satisfaction and connection with the Bank.
• Ongoing renewal of executive and senior leadership teams, withtargeted growth in critical capability, and delivery of cultural change.

Matt Comyn

HOW WE CREATE VALUE

Strong underlying financial performance, however NPAT outcome
materially impacted by significant provisions for expected futureloan impairments. PACC outcome impact less material given long-tailnature of potential impact:• Group cash NPAT – below threshold (Actual: $7,449 million).
• Group underlying PACC – above threshold (Actual: $3,913 million).

CEO

OVERVIEW

73% of max

STVR actual
as a %of STVRmaximum 2%

Scorecard result
Measure, rationale and commentary

COMMONWEALTH BANK
2020 ANNUAL REPORT

Remuneration report (continued)

94

95

3.

Executive statutory remuneration

1 FR comprises base remuneration and superannuation (post-employment benefit). Superannuation contributions for Vittoria Shortt are made in line with the
KiwiSaver employer contribution requirements (this includes the additional payment of $18,421 payable on her cash STVR component and deferred awards).

COMMONWEALTH BANK
2020 ANNUAL REPORT

Remuneration report (continued)

2 Total cost of salary including cash salary, short-term compensated absences and any salary sacrificed benefits.
3 Cost of car parking (including associated fringe benefits tax). This includes an adjustment to 2019 car parking benefits for Pascal Boillat and Angus Sullivan.
4 KiwiSaver is payable on the CEO ASB’s cash STVR.

Executive statutory remuneration accounting expense

5 Includes company-funded benefits (including associated fringe benefits tax where applicable) and the net change in accrued annual leave. 2019 financial year
accrued annual leave figures have been restated due to change in reporting methodology. For Pascal Boillat, this also includes costs in relation to a housing
allowance. For Mike Vacy-Lyle, this also includes costs in relation to his relocation to Sydney and the cash component of his sign-on award which vested during
the 2020 financial year.

Fixed remuneration 1

Other short-term benefits

$

$

$

Cash
STVR
(at risk) 4$

Other 5$Longterm 6$

Deferred
STVR(at risk) 7$

7 The deferred portion of the 2020 financial year STVR outcome for Adam Bennett will be deferred into cash vesting four years after the decision is made to
make the relevant award.

Share-based payments
Deferredequity(at risk) 8$

LTVR
equity(at risk) 9$

Termination
benefits$

Total
statutory
remuneration 10$

8 2020 financial year expense for deferred STVR awarded under Group Executive and Executive General Manager arrangements as well as sign-on awards received
as deferred rights and/or shares in prior years. These equity awards are subject to forfeiture if the Executive is dismissed or ceases to be employed by the Group asa result of resignation prior to the vesting date. Deferred 2020 financial year STVR will be expensed over the vesting period commencing 1 July 2020.
9 2020 financial year expense for the 2017, 2018, 2019 and 2020 financial year LTVR awards.
10 The percentage of 2020 financial year remuneration related to performance was: Matt Comyn 59%, Pascal Boillat 61%, David Cohen 64%, Alan Docherty 51%,
Andrew Hinchliff 51%, Sian Lewis 52%, Vittoria Shortt 42%, Angus Sullivan 54%, Mike Vacy-Lyle 58%, Nigel Williams 55%, Adam Bennett 60%.
11 For Vittoria Shortt, remuneration was paid in New Zealand dollars. The value shown was impacted by movements in exchange rates.
12 For Mike Vacy-Lyle and Adam Bennett, remuneration reflects the time in their KMP roles.

CEO
Matt Comyn
30 Jun 20

2,178,997

21,003

17,3991,210,000

14,813

105,112–30 Jun 19

2,179,469

20,531

16,928

747,450

150,925

98,034–

467,155 1,667,697–

1,204,552–

5,682,176–

4,417,889

Current Group Executives and CEO ASBFair value assumptions for awards granted in the 2020 financial year

Pascal Boillat
21,003

15,602618,954431,541

12,734– 1,843,450

585,408–

5,007,689

30 Jun 19

1,106,561

15,356

11,368353,825

325,325

6,612–

2,357,718

183,916–

4,360,681

30 Jun 20

1,178,997

21,003

17,399469,243(8,972)

29,463–

304,767 1,387,959–

3,399,859

30 Jun 19

1,177,914

22,086

16,928348,218

26,48338,147–

163,350

1,133,049–

2,926,175

30 Jun 20 1,003,997

21,003

17,399475,072

32,97724,098–268,262400,041–

2,242,849

30 Jun 19

20,531

16,928291,296

11,732

237,972–

167,426

125,676–

1,796,307

David Cohen

Alan Docherty

In the 2020 financial year, a face value allocation approach was used to determine the number of rights granted under the
LTVR (refer to page 96). The table below is provided in accordance with statutory requirements. The fair value has been
calculated using a Monte Carlo simulation method. The exercise price is nil across all LTVR and STVR awards.
The fair value of rights under the trust and reputation and employee engagement performance measures is higher than for
the relative TSR performance measure. This reflects that the likelihood of achieving a positive TSR over the performance
period (i.e. the gate opener that applies to the trust and reputation and employee engagement tranches) is greater than thelikelihood of achieving a relative TSR ranking higher than the median across the peer group.

Andrew Hinchliff
21,003

17,399388,229

28,39926,824–

398,714396,763–2,306,328

30 Jun 19

896,281

18,78815,520302,888

66,42633,247–331,132

122,606–

1,786,888

30 Jun 20

828,997

21,003

17,399381,212

11,31824,296–

256,331

325,226–

1,865,782

30 Jun 19

736,144

18,78815,520260,829

11,88635,812–

151,824

101,156–

1,331,959

948,383

46,872

10,293385,239

19,78429,377-300,21290,862-

1,831,022

30 Jun 19

937,427

56,346

9,926

940,777

24,021

28,772–

310,192529–

2,307,991

30 Jun 20 1,078,997

21,003

15,602625,826(6,877)

48,782–319,238

416,286–

2,518,857

30 Jun 19

FY20 LTVR rights

20,531

15,165374,500

48,18997,018–183,493

128,740–

1,897,104

8,722

7,323

209,882

344,8972,202–

817,166

116,192–

1,954,492

Angus Sullivan
1,029,469

FY20 LTVR rights(for Mike Vacy-Lyle andVittoria Shortt) 1

Mike Vacy-Lyle 1230 Jun 20

448,108

Nigel Williams
30 Jun 20

1,428,997

21,003

17,399545,381

29,467

12,035–

832,735

471,561–

3,358,578

30 Jun 19

932,092

13,388

11,162276,819

182,2425,604–

2,117,055

148,148–

3,686,510

Former Group Executive
Adam Bennett

Sign-on award (deferred shares)– Mike Vacy-Lyle
1

12,13

30 Jun 20

601,871

14,686

10,083

295,535

6,774(6,179)197,023

164,794

1,407,913

767,733

3,460,232

30 Jun 19

1,024,580

25,00016,928244,684

7,992

34,629–141,240

1,018,078–

2,513,131

Service

1 Sep 19

77.87

100%

1 Sep 21

Relative TSR

18 Nov 19

31.79

75%

30 Jun 23

Relative trust and reputation(positive TSR gateway)

18 Nov 19

56.60

12.5%

30 Jun 23

Employee engagement(positive TSR gateway)

18 Nov 19

56.60

12.5%

30 Jun 23

Relative TSR

18 Feb 20

43.96

75%

30 Jun 23

Relative trust and reputation(positive TSR gateway)

18 Feb 20

61.58

12.5%

30 Jun 23

Employee engagement(positive TSR gateway)

18 Feb 20

61.58

12.5%

30 Jun 23

Service

31 Jan 20

84.78

100%

30 Sep 21

FY19 STVR deferred shares

For Vittoria Shortt, the performance measures for the 2020 financial year LTVR rights have the following weightings: 50% relative TSR, 25% ASB trust andreputation and 25% ASB employee engagement. ASB trust and reputation and ASB employee engagement measures are both subject to the positive TSR gateway.

ADDITIONAL INFORMATION

30 Jun 20

Weighting

Performance measure

Sian Lewis

Vittoria Shortt 11

Fair value$

Equity plan

FINANCIAL REPORT

30 Jun 20 1,028,997

Grant date

Performance
periodend/final
vesting date

DIRECTORS’ REPORT

30 Jun 20 1,478,997

924,746

13 The LTVR rights value for Adam Bennett reflects the disclosable accruals for all previously granted LTVR awards that remain unvested following cessation of
employment up to the end of each performance period. This means that up to three years of each unvested LTVR award expense has been brought forward anddisclosed in total for the 2020 financial year, including those amounts which would otherwise have been included in future year disclosures and that may notvest. While Adam’s awards remained on foot at cessation and the amortised value brought forward, the Board exercised its post-cessation discretion to lapse hisunvested deferred 2018 and 2019 financial year LTVR awards upon his commencing employment with a competitor of the Group.

HOW WE CREATE VALUE

Baseremunera- SuperanNontion 2 nuation monetary 3Long-term benefits

6 Long service leave entitlements accrued during the year as well as the impact of changes to long service leave valuation assumptions, which are determined inline with Australian Accounting Standards. This includes an adjustment to 2019 long service leave accrual for Vittoria Shortt.

OVERVIEW

The following statutory table details the statutory accounting expense of all remuneration-related items for the Group’s
Executives. This includes remuneration costs in relation to both the 2019 and 2020 financial years. The tables are different
from the remuneration outcomes table on page 86, which shows the remuneration received in the 2020 financial year rather
than the accrual accounting amounts determined in accordance with the Australian Accounting Standards. The tables havebeen developed and audited against the relevant Australian Accounting Standards. Refer to the footnotes below each table
for more detail on each remuneration component.

96

97

Equity awards received as remuneration

Overview of unvested equity awards

The table below details the value and number of all equity awards that were granted, vested, forfeited or lapsed to Executives
during their time in a KMP role in the 2020 financial year. It also shows the number of previous years’ awards that vested
during the 2020 financial year – some of which relate to past non-KMP roles.
Granted during 2020
financial year 2
Class 1COMMONWEALTH BANK
2020 ANNUAL REPORT

Remuneration report (continued)

Awards vested during2020 financial year 3

Forfeited or lapsed during2020 financial year4

Performance period/
vesting schedule
Grant date

Start dateEnd date

Performance measures/vesting conditions

FY18 Executive STVR

1 Sep 18

1 Jul 1730 Jun 18

FY19 Executive STVR

1 Sep 19

1 Jul 1830 Jun 19

Equal tranches vesting after one and two years,
subject to:• continued employment• Board risk and reputation review• malus provisions.

$

Units

$

Units

$

LTVR rights

47,957

1,821,975

5,236

486,243

16,2981,307,409

Deferred STVR shares

9,599

747,474

–

–

–

–

FY17 Executive
General Manager STVR

1 Sep 17

1 Jul 1630 Jun 17

LTVR rights

32,6981,242,266

–

–

–

–

1 Sep 18

1 Jul 1730 Jun 18

Deferred STVR shares

4,544

353,841

–

–

–

–

FY18 Executive
General Manager STVR––

14,052

1,149,354––

26,157993,7394,463

414,458

13,894

1,114,563

FY18 LTVR

17 Nov 17

1 Jul 1730 Jun 21

CEO
Matt ComynCurrent Group Executives and CEO ASB
Pascal Boillat

Sign-on equity
David Cohen

LTVR rights
Deferred STVR shares

4,472

348,235

1,815

141,325––

FY19 LTVR

12 Nov 18

1 Jul 1830 Jun 22

Alan Docherty

LTVR rights

22,344

848,904

–

–

–

–

3,741

291,312915

71,247––

FY20 LTVR

18 Nov 19and
18 Feb 20

1 Jul 1930 Jun 23

18 Feb 20

1 Jul 19

Deferred STVR shares
Deferred STVR rights
Andrew Hinchliff

Vittoria Shortt

Angus Sullivan

Nigel Williams

1,459

129,637––

869,604

–

–

–

–

Deferred STVR shares

4,368

340,136

2,006

156,197––

Deferred STVR rights

–

–

3,167

281,700––

LTVR rights

18,529703,957

–

–

–

–

Deferred STVR shares

3,589

279,475

833

64,862––

Deferred STVR rights

–

–

1,681

149,575––

LTVR rights

21,0481,110,703

4,190

389,106

13,045

1,046,457

Deferred STVR shares

8,055

627,243

–

–

–

–

Deferred STVR rights

–

–

2,580

200,892––

LTVR rights

23,978910,972

–

–

–

–

Deferred STVR shares

4,810

374,555

800

62,292––

Deferred STVR rights

–

–

2,184

194,417––

23,978

1,159,687

–

–

–

–

Sign-on equity

21,262

1,802,592

–

–

–

–

LTVR rights

26,3391,000,666

–

–

–

–

Deferred STVR shares

3,555

276,828

–

–

–

–

–

–

13,365

1,069,362

–

–

–

–

4,860

451,325

15,1281,213,553

2,514

195,765

1,569

122,170––

Sign-on equity
Former Group Executive
Adam Bennett

LTVR rights
Deferred STVR shares

1 Deferred STVR shares/rights represents STVR previously awarded under the Group Executive or Executive General Manager arrangements in prior years. Mike
Vacy-Lyle was awarded sign-on equity in the 2020 financial year in the form of deferred shares. Approval was given for the granting of the CEO’s 2020 financial
year LTVR award at the 2019 Annual General Meeting.
2 Represents the maximum number of equity awards that may vest to each Executive in respect of their time as KMP. The values represent the fair value at grant
date. The minimum potential outcome for the equity awards is zero.
3 Awards that vested include the 2016 financial year LTVR award (granted 17 November 2015), deferred STVR awards (vested in full) (tranches granted 1 September
2016, 1 September 2017 and 1 September 2018) and sign-on shares/rights (granted 1 October 2018 and 5 November 2018) that vested during time in KMP role.
The value of the awards vested is calculated using VWACP for the five trading days preceding the vesting date, and includes the value of dividends accrued overthe vesting period on rights. Executives receive one ordinary share in respect of each right that vests during the financial year.
4 This includes the portion of the 2016 financial year LTVR award (75.69%) that did not meet the performance hurdle and lapsed. The value of the lapsed award
is calculated using the VWACP for the five trading days preceding the lapse date.

30 Jun 23

Three tranches vesting after four years(following a Board risk and reputation review) being:• 50% TSR ranking relative to peer group• 25% ASB trust and reputation (relative to peer group)• 25% ASB employee engagement.
The non-financial measures are subject to a positive
TSR vesting gateway.

Pascal Boillat
sign-on equity

1 Oct 18n/a

1 Mar 23

Mike Vacy-Lylesign-on equity

31 Jan 20

30 Sep 20

30 Sep 21

Nigel Williams
sign-on equity

5 Nov 18n/a

22 Nov 21

No performance measures. Subject to:• continued employment• Board risk and reputation review• malus provisions.

ADDITIONAL INFORMATIONLTVR rights

FY20 LTVR (CEO ASB)

The non-financial measures are subject to a positive
TSR vesting gateway.

FINANCIAL REPORT

Mike Vacy-Lyle–

22,889Three tranches vesting after four years(following a Board risk and reputation review) being:• 75% TSR ranking relative to peer group• 12.5% trust and reputation (relative to peer group)• 12.5% employee engagement.

DIRECTORS’ REPORT

Sian Lewis–

LTVR rights

Equal tranches vesting after one, two and three years,
subject to:• continued employment• Board risk and reputation review• malus provisions.

HOW WE CREATE VALUE

Units

OVERVIEW

Equity plan

98

99

Shares and other securities held by Executives
Details of the shareholdings and other securities held by Executives (or close family members or entities controlled, jointly
controlled, or significantly influenced by them, or any entity over which any of the aforementioned hold significant voting
power) are set out below relating to time in KMP role.

Adam Bennett

–

5,236

–

60,633

LTVR rights

120,948

47,957(5,236)(16,298)

147,371

–

9,599

–

–

9,599

–

–

14,052(9,052)5,000

37,06632,698––69,764

–

4,544

–

–

4,544

Sign-on equity

67,781–(14,052)–

53,729Ordinary

37,733

-

6,278

–

44,011

Executive employment arrangements

LTVR rights

99,214

26,157(4,463)(13,894)

107,014

The table below provides the employment arrangements for Executives.

Deferred STVR shares

3,630

4,472

(1,815)–

6,287

Ordinary

5,142

–

2,374

312

7,828

LTVR rights

25,32922,344––47,673

Deferred STVR shares

2,745

3,741

(915)

–

5,571

Deferred STVR rights

2,259

–

(1,459)–800

Ordinary

4,831

–

5,173

–

LTVR rights

24,70922,889–Deferred STVR shares

6,019

4,368

(2,006)

Deferred STVR rights

4,807

–

Ordinary

Deferred STVR shares

1 Ordinary shares include all CBA shares held by the Executive’s closely related parties. LTVR rights are subject to performance hurdles. Deferred rights/shares
represent the deferred STVR awarded under Group Executive and Executive General Manager arrangements in prior years. Both LTVR rights and deferred
rights/shares are unvested as at 30 June 2020. The maximum potential outcome for LTVR rights and deferred rights/shares is subject to CBA share price attime of vesting.
2 LTVR rights and deferred rights/shares become ordinary shares or cash equivalent upon vesting. Executives receive one ordinary share in respect of each rightthat vests during the financial year.
3 Net change other incorporates changes resulting from purchases, sales, forfeitures during the year and shares or rights held by an Executive prior to their
appointment as KMP.
4 Opening balance has been restated from 55,881 to 37,733 to include a correction to CBA ordinary shares.
5 Opening balance has been restated from 2,936 to 3,596 to include a correction to CBA ordinary shares.

CEOGroup Executives

CEO ASB

Contract type 1

Permanent

Permanent

Permanent

Notice period

12 months

Six months

Six months

10,004

Severance

n/a

n/a 2

12 months 2–

47,598

–

8,381

STVR

In general, unless otherwise determined by the Board (or ASB Board in respect of the CEO ASB):(3,167)

–

1,640

LTVR

In general, unless otherwise determined by the Board:

3,596

–

2,514

–

6,110

LTVR rights

20,386

18,529––38,915

Deferred STVR shares

2,500

3,589

(833)

–

5,256

Deferred STVR rights

2,534

–

(1,681)–

853

Ordinary

15,026

–

4,190

–

19,216

LTVR rights

54,01321,048(4,190)(13,045)

57,826

Deferred STVR shares

–

8,055

–

–

8,055

Deferred STVR rights

7,064

–

(2,580)–4,484

Ordinary

9,469

–

2,984

–

12,453

LTVR rights

25,94623,978––49,924

Deferred STVR shares

2,402

4,810

(800)

–

6,412

Deferred STVR rights

3,266

–

(2,184)–

1,082

Ordinary

n/a

–

–

–

–

LTVR rights

n/a

23,978––23,978Sign-on equityn/a21,262––

21,262

Ordinary

18,538–13,365–31,903

LTVR rights

29,85826,339––56,197

–

3,555

–

–

3,555

24,574–(13,365)–

11,209Sign-on equity

n/aContract term

Ordinary

Deferred STVR sharesn/a–treatmenton termination

treatmenton termination• Executives who resign or are dismissed are not eligible to receive an STVR award and will forfeit any
unvested deferred STVR awards.
• Where an Executive’s exit is related to any other reason (e.g. retrenchment, retirement or death), theExecutive remains eligible (unless the Board determines otherwise) to be considered for an STVR award
with regard to actual performance against performance measures (as determined by the Board in theordinary course following the end of the performance period).
• Where an Executive’s exit is related to any other reason (e.g. retrenchment, retirement or death),
unvested deferred STVR awards will remain on-foot subject to the original terms and conditions andwill vest in the ordinary course, as though the Executive had not ceased employment.
• Executives who resign or are dismissed before the end of the performance period will forfeit all
unvested LTVR awards.
• Where an Executive’s exit is related to any other reason (e.g. retrenchment, retirement or death), any
unvested LTVR awards continue on-foot with performance measured at the end of the performance
period related to each award.

1 Permanent contracts continue until notice is given by either party.
2 Contractual severance pay is no longer offered in Group Executive employment arrangements. Group Executives remain entitled to statutory redundancy
pay if retrenched. For Group Executives on grandfathered arrangements, they are eligible for severance payments of six months’ base remuneration if
their employment is terminated by the Group, other than for misconduct or unsatisfactory performance. For the CEO ASB, contractual severance allows forminimum 12 months’ base salary (inclusive of notice) or a maximum of 64 weeks in accordance with ASB Policy.

ADDITIONAL INFORMATION

Nigel Williams

n/a

FINANCIAL REPORT

Mike Vacy-Lyle(7,000)(15,128)

DIRECTORS’ REPORT

Angus Sullivan

6,429(4,860)HOW WE CREATE VALUE

Vittoria Shortt(1,569)Balance30 Jun 2020

OVERVIEW

Sian Lewis 5

2,514

55,397

Deferred STVR shares

Andrew Hinchliff

3,139

Ordinary

LTVR rights

Alan Docherty–

Balance30 Jun 2020

Deferred STVR shares

David Cohen–

89,664

Net change
other 3Current Group Executives and CEO ASB

424,271

LTVR rights

Awards vested
during the 2020
financial year 2

CEO

Pascal Boillat

Ordinary

Net change
other 3Former Group Executive

Acquired/
granted asremuneration

Class

Matt Comyn

Acquired/
granted asremuneration

Balance
1 Jul 20191

Awards vested
during the 2020
financial year 2

Balance
1 Jul 2019

Class 1COMMONWEALTH BANK
2020 ANNUAL REPORT

Remuneration report (continued)

100

101

4.

Non-Executive Director arrangements

Non-Executive Director fees

The following table outlines the Non-Executive Directors’ fees for the Board and the Committees as at 30 June 2020.
There has been no change to Board fees during the 2020 financial year. Fees are inclusive of base fees and statutory
superannuation. The Chairman does not receive separate Committee fees.

Short-term
benefits

Post-employment
benefits

Share-based
payments

1

Cash
$

2

Superannuation$

Non-Executive
Directors'
Share Plan 3$

Total statutory
remuneration$

183,066

10,724–

193,790

Former Non-Executive Director
David Higgins 5
30 Jun 20

30 Jun 19

313,052

20,531–

333,584

Board/Committee

Chairman$Member
$1 Cash includes Board and Committee fees received as cash, as well as the provision of additional benefits (including associated fringe benefits tax).

Board

870,000

242,000

Audit Committee

65,00032,5003 The values shown in the tables represent the post-tax portion of fees received as shares under the NEDSP. Shares granted under the NEDSP are granted on current
share price as at grant date and paid for out of pre-tax fee sacrifice (to a maximum of $5,000 p.a.) or after-tax fees, and were not provided as compensation.

Risk & Compliance Committee

65,00032,50030,00060,00011,60011,600

United Kingdom Remuneration Assurance Committee (UK RAC) 1

30,00018,0001 David Higgins served as Chair of the UK RAC during the 2020 financial year. Board members who also serve as members of the UK RAC receive fees in relation
to that service, and these fees are set appropriately below fees for UK RAC independent members given a small portion of UK RAC matters overlap with People& Remuneration Committee matters.

Non-Executive Director statutory remuneration

Short-term
benefits

Post-employment
benefits

Share-based
payments

Cash$

Superannuation$

Non-Executive
Directors'
Share Plan 3$

1

2

Total statutory
remuneration$

Chairman
30 Jun 20

30 Jun 19

30 Jun 20

30 Jun 19

30 Jun 20

30 Jun 19

Paul O'Malley4
30 Jun 20

30 Jun 19

Mary Padbury
30 Jun 20

30 Jun 19

Wendy Stops
30 Jun 20
30 Jun 19

Anne Templeman-Jones
30 Jun 20

30 Jun 19

Rob Whitfield AM
30 Jun 20
30 Jun 19

The MSR for Non-Executive Directors was reviewed during the 2019 financial year. From 1 July 2019, Non-Executive Directors are
required to hold CBA shares equivalent to 100% of Board Chairman fees for the Chairman and 100% of Board member fees for NonExecutive Directors. This is to be accumulated over five years commencing the later of 1 July 2019 or date of appointment, valued withreference to the prevailing CBA share price at the date of appointment. For existing Non-Executive Directors, the number of sharesrequired is calculated based on the prevailing CBA share price as at 1 July 2019 rather than the appointment date. This will also be thestarting date for compliance with the revised MSR within five years. Progress against the MSR for each individual is shown on page 84.

Shares and other securities held by Non-Executive Directors

Details of the shareholdings and other securities as well as interests in registered schemes made available by CBA, or a related body
corporate of CBA held by Non-Executive Directors (or close family members or entities controlled, jointly controlled, or significantly
influenced by them, or any entity over which any of the aforementioned hold significant voting power) are set out below relating totime in KMP role. All shares were acquired by Non-Executive Directors on normal terms and conditions or through the Non-Executive
Directors’ Share Plan (NEDSP). Other securities acquired by Non-Executive Directors were on normal terms and conditions.
Balance
1 Jul 2019

Acquired 1

Net change
other 2

Balance30 June 2020

Ordinary

7,337

3,598

–

10,935

Shirish Apte

Ordinary

7,500

–

–

7,500

Genevieve Bell AO

Ordinary

141

500

–

641

PERLS 5

1,020

–

–

1,020

Paul O'Malley

Ordinary

5,330

–

–

5,330

Mary Padbury 3

Ordinary

1,279

248

–

1,527

PERLS 5

1,600

–

–

1,600

Wendy Stops

Ordinary

16,000––16,000Anne Templeman-Jones

Ordinary

1,038

512

–

1,550

Rob Whitfield AM

Ordinary

858

613

–

1,471

Ordinary

10,878

–

–

n/a

150

–

–

n/a

Class

870,108
864,01321,003
20,531––

891,111884,544314,694
349,010

196,617
95,031

292,542
112,266

252,575

236,674

21,003
20,531

20,724
9,905

21,003
10,09921,003––33,55014,320––

11,233335,697369,541

250,891
119,256

313,545
122,365284,811

20,531

25,618284,797

21,003–305,800

306,732

21,003
20,53130,136

13,213340,948

266,263

21,00343,014330,280

287,028

271,568

231,314

20,531

20,531–

33,471

282,823

307,559

322,235

285,316

Catherine Livingstone AO
Current Non-Executive Directors

Former Non-Executive Director
David Higgins 4

PERLS

5

1 Incorporates shares and other securities acquired during the year. In the 2020 financial year, under the NEDSP, Genevieve Bell AO acquired 500 shares, Mary Padbury
acquired 248 shares, Anne Templeman-Jones acquired 272 shares and Rob Whitfield AM acquired 613 shares.
2 Net change other incorporates changes resulting from sales of securities.
3 Mary Padbury also holds an interest in 158,162.747 units in the Commonwealth Specialist Fund 15, a registered scheme made available by a related body
corporate of the Bank, as at 12 August 2020. Varying interests in this Fund have been held by Mary Padbury since 2015. CBA identified that it omitted todisclose these interests in its Annual Reports from 2016 in error.
4 David Higgins retired from the Group effective 31 December 2019 and therefore his shareholding balance as at 30 June 2020 is not included.
5 Includes cumulative holdings of PERLS securities issued by the Group.

ADDITIONAL INFORMATION

Genevieve Bell AO 4

Non-Executive Director MSR

Chairman

Current Non-Executive Directors
Shirish Apte

5 David Higgins retired from his Non-Executive Director role effective 31 December 2019 and his remuneration reflects time in the role. He was appointed as the Chairmanof the United Kingdom Remuneration Assurance Committee from 1 July 2019. His remuneration includes the fees paid for this role during the period he was KMP.

FINANCIAL REPORTCatherine Livingstone AO

4 Genevieve Bell AO and Paul O’Malley were appointed as Non-Executive Directors effective 1 January 2019 and their remuneration reflects time in the role.

DIRECTORS’ REPORTThe statutory table below details individual statutory remuneration for the Non-Executive Directors for both the 2019 and2020 financial years.

2 Superannuation contributions are capped at the superannuation maximum contributions base as prescribed under the Superannuation Guarantee legislation.

HOW WE CREATE VALUE

People & Remuneration Committee
Nominations Committee

OVERVIEW

Non-Executive Directors receive fees to recognise their contribution to the work of the Board and the associated Committees
on which they serve. Non-Executive Directors do not receive any performance-related remuneration. The total amountof Non-Executive Directors’ fees is capped at a maximum fee pool that is approved by shareholders. The current fee poolis $4.75 million, which was approved by shareholders at CBA’s 2015 Annual General Meeting on 17 November 2015.

COMMONWEALTH BANK
2020 ANNUAL REPORT

Remuneration report (continued)

102

5.

Directors’ report (continued)
Non-audit services

Loans and other transactions

Amounts paid or payable to PricewaterhouseCoopers (PwC) for audit, review, assurance and non-audit services provided
during the year, are set out in Note 12.3 to the Financial report on page 264.

Auditor’s Independence Declaration

Loans to KMP

We have obtained an independence declaration from our external auditor as presented on page 104.

All loans to KMP (including close family members or entities controlled, jointly controlled, or significantly influenced bythem, or any entity over which any of those family members or entities held significant voting power) have been made in
the ordinary course of business on normal commercial terms and conditions no more favourable than those given to other
employees, including the term of the loan, security required and the interest rate (which may be fixed or variable). No loans
were written down during the period.

Auditor independence

The Audit Committee has considered the provision, during the year, of non-audit services by PwC and has concluded that theprovision of those services did not compromise the auditor independence requirements of the Corporations Act 2001 (Cth).

$

12,402,631

Closing balance (30 Jun 20) 1

7,942,387

Interest charged (during 2020 financial year)

308,403

The Audit Committee is satisfied that the provision of the non-audit services by PwC during the year is compatible with thegeneral standard of independence for auditors imposed by the Corporations Act 2001 (Cth).
The Directors are satisfied that the provision of the non-audit services by PwC during the year is compatible with the generalstandard of independence for auditors and did not compromise the auditor independence requirements of the Corporations
Act 2001 (Cth). The reasons for this are as follows:• The effective operation of the Group External Auditor Services Policy during the year to restrict the nature of non-audit
services engagements, to prohibit certain services and to require Audit Committee pre-approval for all such engagements; and• The relative quantum of fees paid for non-audit services compared to the quantum for audit, and audit related services wasappropriate.

1 The aggregate loan amount at the end of the reporting period includes loans issued to 11 KMP and their closely related parties.

The above Directors’ statements are in accordance with the advice received from the Audit Committee.

Loans to KMP exceeding $100,000 in aggregate during the 2020 financial year
Interest
charged$Interest not
charged$Write-off$

Balance30 Jun 2020$

Adam Bennett

1,014,436

7,772

–

–

n/a

1,022,961

Alan Docherty

1,447,903

45,453––

1,298,389

1,452,190

Sian Lewis

776,528

29,781––

777,066

817,095

3,300,739

41,007––

138,7745,600,432

Angus Sullivan

5,654,483

178,606––

5,601,320

5,814,816

Total

12,194,090

302,618––

7,815,549

14,707,493

Incorporation of additional material

The following sections of this report form part of the Directors’ report and should be read in conjunction.
• Directors’ shareholdings, share rights and options can be found on pages 98 and 101; and• The Remuneration report can be found on pages 78–102.
This Directors’ report is made in accordance with a resolution of the Directors.

1 Opening balances at 1 July 2019 have been restated due to a change in reporting methodology.
2 Represents the sum of highest balances outstanding at any point during the 2020 financial year for each individual loan held by the KMP and their closely
related parties.

Other transactions of KMP
Financial instrument transactions

All such financial instrument transactions that have occurred between entities within the Group and KMP, their close family
members and entities controlled or significantly influenced by them, were in the nature of normal personal banking anddeposit transactions.

Transactions other than financial instrument transactions

All other transactions with KMP, their close family members, related entities and other related parties are conducted in
the ordinary course of business on normal commercial terms and conditions no more favourable than those given to other
employees and customers. These transactions principally involve the provision of financial and investment services by entities
not controlled by the Group.

Matt ComynManaging Director and Chief Executive Officer
12 August 2020

ADDITIONAL INFORMATION

Financial instrument transactions (other than loans and shares disclosed within this report) of KMP, their close family
members and entities controlled or significantly influenced by them, occur in the ordinary course of business on normal
commercial terms and conditions no more favourable than those given to other employees.

FINANCIAL REPORTCatherine Livingstone AO
Chairman

DIRECTORS’ REPORT

Balance
1 Jul 2019 1$

Highestbalancein period 2$

HOW WE CREATE VALUE

Opening balance (1 Jul 19)

OVERVIEWThe operation of the Group External Auditor Services Policy assists in ensuring the independence of the Group’s
external auditor.

Total loans to KMP

Vittoria Shortt

COMMONWEALTH BANK
2020 ANNUAL REPORT

Remuneration report (continued)

103

104

105
COMMONWEALTH BANK
2020 ANNUAL REPORT

Auditor’s Independence Declaration
For the year ended 30 June 2020

Financial report contents
Financial statements
106(a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; andStatements of Comprehensive Income

107

Balance Sheets

108

Statements of Changes in Equity

109

Statements of Cash Flows

111(b) no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of the Commonwealth Bank of Australia and the entities it controlled during the period.

8.

Our capital, equity and reserves

191

Capital adequacy
Loan capital
Shareholders’ equity
Dividends

191
192
194
199

9.

Risk management

201

2.

Our performance

119

2.1
2.2
2.3
2.4
2.5
2.6
2.7

Net interest income
Average balances and related interest
Other operating income
Operating expenses
Income tax expense
Earnings per share
Financial reporting by segments

119
121
126
128
130
133
134

9.1
9.2
9.3
9.4
9.5
9.6
9.7

Risk management framework
Credit risk
Market risk
Liquidity and funding risk
Disclosures about fair values
Collateral arrangements
Offsetting financial assets andfinancial liabilities

202
208
228
231
235
241

10.

Employee benefits

245

3.

Our lending activities

139

3.1
3.2

Loans, bills discounted and other receivables
Provisions for impairment

139
143

10.1 Share-based payments
10.2 Retirement benefit obligations
10.3 Key management personnel

245
247
250

4.

Our deposits and funding activities

154

4.1
4.2

Deposits and other public borrowings
Liabilities at fair value throughIncome Statement
Debt issues
Securitisation, covered bonds andtransferred asset

154

5.5

Our investing, trading andother banking activities
Cash and liquid assets
Receivables due from and Payables
due to financial institutions
Assets at fair value through Income Statement
Derivative financial instruments andhedge accounting
Investment securities

155
156
158

159
159
159
160
161
174

6.

Other assets

176

6.1
6.2
6.3

Property, plant and equipment
Intangible assets
Other assets

176
179
182

11.

Group structure

242

252

11.1 Investments in subsidiaries and other entities 252
11.2 Related party disclosures257
11.3 Discontinued operations
258
12.

Other

12.1 Contingent liabilities, contingent assets
and commitments arising from thebanking business12.2 Notes to the Statements of Cash Flows
12.3 Remuneration of auditors
12.4 Future accounting developments
12.5 Accounting policies applicable forcomparative periods
12.6 Subsequent events

262

262
263
264
265
266
267

Directors’ declaration

268

Independent auditor’s report

269

Additional information

277

ADDITIONAL INFORMATION

113

FINANCIAL REPORTGeneral information, basis of accounting,changes in accounting policies

DIRECTORS’ REPORT

1.1

5.3
5.4

Liability limited by a scheme approved under Professional Standards Legislation.

183
190

113

5.1
5.2

Level 11, 1PSQ, 169 Macquarie Street, Parramatta NSW 2150, PO Box 1155 Parramatta NSW 2124
T: +61 2 9659 2476, F: +61 2 8266 9999, www.pwc.com.au

Other provisions
Bills payable and other liabilities

Overview

5.

One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY, NSW 2001
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au

7.1
7.2

1.

4.3
4.4

PricewaterhouseCoopers, ABN 52 780 433 757

183

HOW WE CREATE VALUE

Sydney12 August 2020

Other liabilities

8.1
8.2
8.3
8.4

Notes to the financial statements

Matthew Lunn
Partner
PricewaterhouseCoopers

7.

OVERVIEWAs lead auditor for the audit of the Commonwealth Bank of Australia for the year ended 30 June 2020, I declare that to thebest of my knowledge and belief, there have been:

Income Statements

106Statements of Comprehensive Income

For the year ended 30 June 2020

For the year ended 30 June 2020

30 Jun 20

Group 1, 2, 3
30 Jun 19

30 Jun 18

Bank 2, 3
30 Jun 20 30 Jun 19

Note

$M

$M

$M

$M

$M

Effective interest income

2.1

29,72634,08933,64326,651

30,953

Other interest income

2.1

436

620

629

485

660

2.1

(11,552)(16,485)(15,807)(10,660)(15,434)

18,61018,224

18,465

16,476

16,179(Losses)/gains on debt investment securities at fair value through
Other Comprehensive Income net of tax

Interest income:

5,002

4,877

5,299

9,154

5,919

23,612

23,101

23,76425,63022,0982.3

Net banking operating income
Net funds management operating income

2.3

173

254

314

–

–

Net insurance operating income

2.3

141

150

241

–

–

23,92623,50524,31925,63022,098Operating expenses

2.4(10,929)(10,928)(10,687)(10,745)(10,633)

Loan impairment expense

3.2(2,518)(1,201)(1,079)(2,155)(1,058)

10,47911,376

12,553

12,73010,407(3,020)(3,275)(3,811)(2,562)(2,624)

Net profit after income tax from continuing operations

7,459

8,101

8,742

10,168

7,783

Non-controlling interests in net profit after income tax fromcontinuing operations

–

(12)

(13)

–

–

7,459

8,089

8,729

10,168

7,783

Net profit before income tax
2.5

$M

$M

$M

$M

$M

7,459

8,101

8,742

10,168

7,783

Foreign currency translation reserve net of tax

(186)

488

(12)

(51)

214

Gains/(losses) on cash flow hedging instruments net of tax

726

947

(53)

694

1,003

(199)

103

–

(200)

(5)

Net profit after income tax from discontinued operations

11.3

2,178

489

606

–

–

Non-controlling interests in net profit after income tax fromdiscontinued operations

11.3

(3)

(7)

(6)

–

–

9,634

8,571

9,329

10,168

7,783

Net profit attributable to equity holders of the Bank

The above Income Statements should be read in conjunction with the accompanying notes.

Other comprehensive income/(expense):
Items that may be reclassified subsequently to profit/(loss):

–

–

(68)

–

–

341

1,538

(133)

443

1,212

116

(49)

161

115

(50)

Losses on liabilities at fair value due to changes in own credit risk
net of tax

–

–

(2)

–

–

Gains/(losses) on equity investment securities at fair value through
Other Comprehensive Income net of tax

34

(6)

–

40

(1)

Losses on available-for-sale investments net of tax
Total of items that may be reclassified
Items that will not be reclassified to profit/(loss):
Actuarial gains/(losses) from defined benefit superannuation plans netof tax

Revaluation of properties net of tax
Total of items that will not be reclassified
Other comprehensive income net of income tax from continuing
operations
Total comprehensive income for the period from continuing
operations
Net profit after income tax for the period from discontinued operations
Other comprehensive income/(expense) for the period fromdiscontinued operations net of income tax 4
Total comprehensive income for the period

34

31

15

33

(21)

190

170

(18)

510

1,517

57

613

1,194

7,969

9,618

8,799

10,781

8,977

2,178

489

606

–

–

(56)

(17)

(6)

–

–

10,091

10,0909,399

10,781

8,977

10,088

10,071

9,380

10,781

8,977

3

19

19

–

–

10,091

10,0909,399

10,781

8,977

Total comprehensive income for the period is attributable to:Equity holders of the Bank
Non-controlling interests

Earnings per share for profit attributable to equity holders of the Bank during the year:
Group 1, 2
30 Jun 20
30 Jun 19
Cents per share

Total comprehensive income net of tax
30 Jun 18

1 Information has been restated and presented on a continuing operations basis. For details on the Group’s discontinued operations refer to Note 11.3.
2 Comparative information has been restated to conform to presentation in the current year and to reflect the changes in accounting policies detailed in Note 1.1.
3 Current year amounts reflect the adoption of AASB 16 Leases on 1 July 2019. As permitted by AASB 16 comparative information has not been restated. For details
on the adoption of AASB 16 refer to Note 1.1.

Earnings per share from continuing operations:421. 8458. 3500. 0

Diluted408. 5443. 2485. 5

Basic

544. 8485. 6534. 3

Diluted523. 2468. 6517. 7

Earnings per share:

4 Includes $48 million loss on foreign currency translation net of tax (30 June 2019: $24 million loss; 30 June 2018: $3 million gain) and $8 million loss on revaluationof debt investment securities measured at fair value through other comprehensive income net of tax (30 June 2019: $7 million gain). The year ended 30 June 2018
includes $9 million loss on revaluation of available-for-sale investments net of tax.

The above Statements of Comprehensive Income should be read in conjunction with the accompanying notes.

Group

1 Information has been restated and presented on a continuing operations basis. For details on the Group’s discontinued operations refer to Note 11.3.

30 Jun 20

2 Comparative information has been restated to conform to presentation in the current year and to reflect the changes in accounting policies detailed in Note 1.1.
3 Current year amounts reflect the adoption of AASB 16 Leases on 1 July 2019. As permitted by AASB 16 comparative information has not been restated. For details
on the adoption of AASB 16 refer to Note 1.1.
4 Other banking income is presented net of directly associated depreciation and impairment charges.

Note

30 Jun 18

Cents per share

Dividends per share attributable to shareholders of the Bank:
Ordinary shares

106

30 Jun 19

8.4

298

431

431

107

ADDITIONAL INFORMATIONBasicFINANCIAL REPORT19169

DIRECTORS’ REPORTNet profit attributable to equity holders of the Bank fromcontinuing operations

Bank 2, 3
30 Jun 20 30 Jun 19

HOW WE CREATE VALUE

Total net operating income before operating expenses
and impairment

Income tax expense

30 Jun 18

Net profit after income tax for the period from continuing operations

Net interest income
Other banking income 4Group 1, 2, 3
30 Jun 19

OVERVIEWInterest expense

30 Jun 20

COMMONWEALTH BANK
2020 ANNUAL REPORT

Income Statements

107

108

Statements of Changes in Equity

As at 30 June 2020

For the year ended 30 June 2020
Group
30 Jun 20

1, 2, 31, 3

30 Jun 19

Group

Bank
30 Jun 20 30 Jun 19

$M

$M

$M

Cash and liquid assets

5.1

44,16529,38740,30026,912

Receivables from financial institutions

5.2

8,547

8,093

8,309

7,334

Assets at fair value through Income Statement

5.3

46,54533,67746,284

33,128Derivative assets

5.4

30,28525,21529,322

24,311At amortised cost

5.5

5,173

7,355

5,167

7,349

At fair value through Other Comprehensive Income

5.5

79,54978,912

72,33573,212Loans, bills discounted and other receivables

3.1

771,547

755,173

677,268

660,508

Shares in and loans to controlled entities

11.2

–

–

66,792

63,943

Property, plant and equipment

6.1

5,602

2,383

4,051

1,389

Investments in associates and joint ventures

11.1

3,034

3,001

1,082

Intangible assets

6.2

6,944

7,965

Deferred tax assets

2.5

2,060

1,675

Other assets

6.3

8,839

Assets held for sale

11.3

Assets

(955)

–

(955)

66,351

554

66,905

Net profit after income tax from continuing
operations 1

–

–

8,089

8,089

12

8,101

Net profit after income tax from discontinued
operations 1

–

–

482

482

7

489

Net Other Comprehensive Income fromcontinuing operations 1

–

1,566

(49)

1,517

–

1,517

1,017

Net Other Comprehensive Income fromdiscontinued operations 1

–

(17)

–

(17)

–

(17)

3,951

4,317

Total comprehensive income for the period

–

1,549

8,522

10,071

19

10,090

1,968

1,570

7,115

6,917

5,860

Transactions with equity holders in their capacity
as equity holders: 2

1,770

16,5511

11,014,060

976,502

963,747

910,851

Dividends paid on ordinary shares
Dividend reinvestment plan (net of issue costs)
Share-based payments

636,040

631,301

573,851

16,42923,37015,35022,618

Sale and vesting of treasury shares

Liabilities at fair value through Income Statement

4.2

4,397

8,520

3,888

7,961

Derivative liabilities

5.4

31,347

22,77736,24826,654––53,072

49,610
129

326

716

2.5

30

–

30

–

Provisions

7.1

3,408

2,968

2,914

2,554

Debt issues

4.3

142,503

164,022

113,323

131,094

Bills payable and other liabilities

7.2

13,18810,068

11,866

8,687

Liabilities held for sale

11.3

594

15,796––914,690883,887

868,708

823,158

27,35722,966

26,96422,569Total liabilities

942,047

906,853

895,672

845,727

Net assets

72,01369,64968,075

65,124

Shareholders' Equity
8.3

38,131

38,02038,18038,212

Reserves

8.3

2,666

3,092

2,444

3,813

Retained profits

8.3

31,211

28,482

27,451

23,09972,00869,59468,075

65,124

5

55

–

–

72,01369,64968,075

65,124

Total Shareholders' Equity

1 Comparative information has been restated to conform to presentation in the current year and to reflect the changes in accounting policies detailed in Note 1.1.
2 Current year balances have been impacted by the announced disposals of AUSIEX and Colonial First State, completed disposals of CFSGAM, Count Financial, PT
Commonwealth Life, and deconsolidation of CommInsure Life. For details on the Group’s discontinued operations, refer to Note 11.3.
3 Current year balances reflect the adoption of AASB 16 Leases on 1 July 2019. As permitted by AASB 16 comparative information has not been restated. For details
on the adoption of AASB 16 refer to Note 1.1.

(7,606)–(7,606)

–

748

–

748

–

16

–

16

–

16

(93)

–

–

(93)

–

(93)

95

–

–

95

–

95

–

(149)

161

12

(518)

(506)

3,092

28,482

69,59455

69,649Change on adoption of AASB 16 3

–

–

(146)

(146)

–

(146)

38,0203,092

28,33669,44855

69,503

Net profit after income tax from continuing
operations

–

–

7,459

7,459

–

7,459

Net profit after income tax from discontinued
operations

–

–

2,175

2,175

3

2,178

Net Other Comprehensive Income fromcontinuing operations

–

394

116

510

–

510

Net Other Comprehensive Income fromdiscontinued operations

–

(56)

–

(56)

–

(56)

Total comprehensive income for the period

–

338

9,750

10,0883

10,091(7,629)

Restated opening balance

Transactions with equity holders in theircapacity as equity holders: 2
Dividends paid on ordinary shares––(7,629)(7,629)–Dividend reinvestment plan (net of issue costs)

(1)

–

–

(1)

–

(1)

Share-based payments

–

(23)

–

(23)

–

(23)

Purchase of treasury shares

(65)

–

–

(65)

–

(65)

Sale and vesting of treasury shares

98

–

–

98

–

98

Decrease in treasury shares on deconsolidationof CommInsure Life

79

–

–

79

–

79

Other changes 4
As at 30 June 2020

–

(741)

754

13

(53)

(40)

38,131

2,666

31,211

72,0085

72,013

1 Information has been restated to reflect reclassification of Colonial First State as a discontinued operation during the current year.
2 Current year and prior year include discontinued operations.

The above Balance Sheets should be read in conjunction with the accompanying notes.

3 The Group adopted AASB 16 Leases on 1 July 2019. As permitted by AASB 16, the Group recognised the cumulative effect of initially applying the newrequirements as an adjustment to opening Retained profits at 1 July 2019. Comparative information has not been restated. For details on the adoption of AASB 16
refer to Note 1.1.
4 Includes $733 million transfer from General reserve to Retained profits.

The above Consolidated Statements of Changes in Equity should be read in conjunction with the accompanying notes.

108

109

ADDITIONAL INFORMATION

Ordinary share capital(7,606)–

FINANCIAL REPORT

795

Deferred tax liabilities–

38,020

Other changes
As at 30 June 2019–
748

DIRECTORS’ REPORT

701,999

5.2

Non-controlling interests

67,860(955)

4.1

Shareholders' Equity attributable to equity holders of the Bank

554

27,405

Payables to financial institutions

8.2

67,306–

Restated opening balance

Deposits and other public borrowings

Loan capital

28,3601,676

Change on adoption of AASB 9 and AASB 15Purchase of treasury shares

Current tax liabilities

1,676

Total
Shareholders'Equity$M–

Liabilities

Due to controlled entities

37,270Total$MNoncontrollinginterests$M

37,270Investment securities:

Total assets

As at 30 June 2018

Reserves$M

Retained
profits$M

HOW WE CREATE VALUE$M

OVERVIEW

Note

Ordinary
share
capital$M

COMMONWEALTH BANK
2020 ANNUAL REPORT

Balance Sheets

109

110

111

For the year ended 30 June 2020

For the year ended 30 June 2020

1, 2

Bank

As at 30 June 2018
Change on adoption of AASB 9 and AASB 15

Reserves

Retained
profits

Total
Shareholders'Equity

$M

$M

$M

$M

37,533

2,568

23,81963,920

–

–

(868)

(868)

37,533

2,568

22,951

63,052

Note

35,801

27,81732,366(15,356)(10,947)(16,743)

Other operating income received

5,237

5,808

6,181

3,618

3,971

Expenses paid 3(9,749)(10,784)(10,340)(9,228)(9,693)

Income taxes paid

(3,171)(4,878)(4,791)(2,728)(4,453)(4,009)

2,482

5,270

(2,668)

6,915

7,783

(50)

1,194

Total comprehensive income for the period

–

1,244

7,733

8,977

Net (outflows)/inflows from assets at fair value throughIncome Statement (excluding insurance)––(7,606)(7,606)

Net inflows/(outflows) from liabilities at fair value throughIncome Statement:

–

748

–

22

Purchase of treasury shares

(69)

–

–

(69)

–

(21)

21

–

38,212

3,813

23,09965,124

–

–

(146)

(146)

38,212

3,813

22,95364,978Other changes
As at 30 June 2019
Change on adoption of AASB 16 1
Restated opening balance––

10,168

10,168Net Other Comprehensive Income from continuing operations

–

498

115

613

Total comprehensive income for the period–

498

10,283

10,781

Transactions with equity holders in their capacity as equity holders:
Dividends paid on ordinary shares––(7,629)(7,629)Dividend reinvestment plan (net of issue costs)

(1)

–

–

(1)

Share-based payments

–

(23)

–

(23)

Investment income

198

340

225

–

–

Premiums received 4

1,135

2,414

3,241

–

–

(2,087)(3,061)(3,453)––

Other liabilities at fair value through Income Statement(4,312)

126

(208)

(3,963)(410)

Cash flows from operating activities before changes
in operating assets and liabilities

2,230

11,50916,570

1,901

11,953Purchases(42,088)(41,925)–(38,397)(39,020)

Proceeds

44,35843,239–43,09939,556––(51,783)––

Policy payments and commission expense

4

Changes in operating assets and liabilities arising fromcash flow movements
Movement in investment securities:

Movement in available-for-sale investments:
Purchases

(65)

–

–

(65)

34

–

–

34

Net increase in loans, bills discounted and other receivables

Other changes 2–(1,844)

1,844–

Net (increase)/decrease in receivables from financial institutions

38,1802,444

27,451

68,075

1 The Bank adopted AASB 16 Leases on 1 July 2019. As permitted by AASB 16, the Bank recognised the cumulative effect of initially applying the new requirements as
an adjustment to opening Retained profits at 1 July 2019. Comparative information has not been restated. For details on the adoption of AASB 16 refer to Note 1.1.

–

52,832––(9,465)(16,105)(17,745)(4,585)

Net (increase)/decrease in securities purchased underagreements to resell

(584)

1,345

884

(1,069)1,210(4,126)

930

9,258

(4,753)933

Insurance business:

2 Includes $586 million transfer from General reserve and $1,254 million transfer from Capital reserve to Retained profits.

Purchase of insurance assets at fair value through Income Statement(903)(1,383)(1,594)––

The above Statements of Changes in Equity should be read in conjunction with the accompanying notes.

Proceeds from sales and maturities of insurance assets atfair value through Income Statement

1,415

2,512

2,671

–

–

(1,560)

525

(11)

(449)

524

69,214

4,891

(876)

59,334

1,949

Net (decrease)/increase in payables to financial institutions(6,970)2,154(8,279)(7,257)2,319

Net (decrease)/increase in securities sold under agreements
to repurchase(2,222)

4,402(1,574)(2,131)

4,408

482

(648)

(884)

547

(137)

36,630

6,577(15,461)

31,1797,157

38,86018,086

1,109

33,08019,110Net increase/(decrease) in other liabilities
Changes in operating assets and liabilities arising fromcash flow movements
Net cash provided by operating activities

12.2 (a)1 It should be noted that the Group does not use these accounting Statements of Cash Flows in the internal management of its liquidity positions.
2 Includes discontinued operations. For the cash flows from discontinued operations refer to Note 11.3.
3 Includes cash outflows due to lease payments, under AASB 16 Leases, which was implemented on 1 July 2019. As permitted by AASB 16 comparative information
has not been restated.
4 Represents gross premiums and policy payments before splitting between policyholders and shareholders.

110

111

ADDITIONAL INFORMATION

Net (increase)/decrease in other assets
Net increase/(decrease) in deposits and other public borrowings

FINANCIAL REPORTAs at 30 June 2020–
(20,386)

Proceeds

Purchase of treasury shares
Sale and vesting of treasury shares

DIRECTORS’ REPORTNet profit after income tax from continuing operations

Insurance:

HOW WE CREATE VALUE–$M

34,757

7,783

22

$M

(15,695)––$M

30,920

1,244

748

$M

(11,932)–

Dividend reinvestment plan (net of issue costs)

$M

Bank
30 Jun 20 30 Jun 19

Interest received–

Share-based payments

30 Jun 18

Interest paid 3

Net Other Comprehensive Income from continuing operations

Dividends paid on ordinary sharesGroup
30 Jun 19

Cash flows from operating activities

Net profit after income tax from continuing operations

Transactions with equity holders in their capacity as equity holders:1

30 Jun 20

OVERVIEW

Restated opening balance

Ordinary
share
capitalCOMMONWEALTH BANK
2020 ANNUAL REPORTStatements of Cash Flows

Statements of Changes in Equity (continued)

112

For the year ended 30 June 2020

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

Statements of Cash Flows (continued)

For the year ended 30 June 2020
1, 2

130 Jun 18

$M

$M

$M

$M

$M

–

–

26

–

–

5,011

1,259

–

–

–

Dividends received

95

141

68

4,809

1,473

Net amounts paid to controlled entities 3
Proceeds from sales of property, plant and equipment

–

–

–

(789)

(1,906)

200

151

155

26

89

Purchases of property, plant and equipment

(910)

(326)

(477)

(238)

(271)

Net cash flows from (acquisitions)/sales of associates and joint ventures

(18)

72

(271)

–

29

Net purchase of intangible assets

(682)

(314)

(503)

(529)

(597)

Net cash provided by/(used in) investing activities

3,696

983

(1,002)

3,279(1,183)(7,629)(6,853)(5,366)(7,629)(6,853)

–

(505)

–

–

–

Note

Bank
30 Jun 20 30 Jun 19

Cash flows from investing activities
Cash inflows from acquisitions
Net proceeds from disposal of entities and businesses (net ofcash disposed of)Cash flows from financing activities
Dividends paid (excluding Dividend Reinvestment Plan)
Redemption of other equity instruments

37,63056,44868,27332,88946,685

Redemption of debt securities(64,661)(73,747)(67,809)(55,706)(63,343)

Purchases of treasury shares

(65)

(93)

(95)

(65)

(69)

Sales of treasury shares

93

22

55

–

–

Proceeds from issuance of loan capital

5,849

1,579

4,445

5,845

1,571

Redemption of loan capital(2,871)(2,637)(464)(2,876)(2,263)

Payments for the principal portion of lease liabilities

(463)

–

–

(428)

–

Other

(115)

47

27

33

(70)

Net cash used in financing activities(32,232)(25,739)(934)(27,937)(24,342)

Net increase/(decrease) in cash and cash equivalents

10,324(6,670)

(827)

8,422

(6,415)

17

675

715

54

598

Effect of foreign exchange rates on cash and cash equivalents
Cash and cash equivalents at beginning of year
12.2 (b)17,01023,005

23,117

15,534

21,351

27,351

17,01023,00524,01015,534

1.1

Overview
General information, basis of accounting, changes in accounting policies

General information
The Financial Report of the Commonwealth Bank of Australia (the Bank) and the Bank and its subsidiaries (the Group) for the year
ended 30 June 2020, was approved and authorised for issue by the Board of Directors on 12 August 2020. The Directors have thepower to amend and reissue the financial statements.
The Bank is a for-profit entity incorporated and domiciled in Australia. It is a company limited by shares that are publicly traded on theAustralian Securities Exchange. The registered office is Ground Floor, Tower 1, 201 Sussex Street, Sydney, NSW 2000, Australia.
The Financial Report includes the consolidated and standalone financial statements of the Group and the Bank, respectively. Notes
accompanying the financial statements and the Independent Auditor’s Report form part of the Financial Report.
On 21 September 2017, the Group entered into an agreement to sell 100% of its life insurance businesses in Australia (CommInsureLife) and New Zealand (Sovereign) to AIA Group Limited (AIA). The sale of Sovereign completed on 2 July 2018 and includes along-term partnership with AIA for the provision of life insurance products to customers in New Zealand.
On 23 May 2018, the Group announced the sale of its 37.5% equity interest in BoCommLife Insurance Company Limited (BoCommLife)
to MS&AD Insurance Group Holdings (MS&AD)1, which is subject to Chinese regulatory approvals. The sale is expected to complete in
the second half of calendar year 2020.
On 1 November 2018, the Group completed the sale of Commonwealth Bank of South Africa (Holding Company) Limited (TymeDigitalSA) to the minority shareholder, African Rainbow Capital.
On 2 August 2019, the Group completed the sale of CFSGAM to Mitsubishi UFJ Trust and Banking Corporation (MUTB).
On 1 October 2019, the Group completed the sale of its 100% interest in Count Financial Limited (Count Financial) to CountPlus Limited(CountPlus).
On 1 November 2019, the Group announced the implementation of a joint cooperation agreement (JCA) which resulted in the fulleconomic interests associated with CommInsure Life being transferred to AIA, and AIA obtaining direct management and control of thebusiness (excluding the Group’s 37.5% equity interest in BoCommLife). As a result, CommInsure Life (excluding BoCommLife) was
deconsolidated and derecognised on 1 November 2019. The aggregate proceeds are being received in instalments.
The Group and AIA remain fully committed to completing the divestment of CommInsure Life through either a share sale or a statutory
asset transfer. In the event of a share sale, the divestment is expected to complete shortly following the completion of the sale of theGroup’s 37.5% equity interest in BoCommLife. In the event of a statutory asset transfer, the divestment is expected to complete in thefirst half of calendar year 2021.

2 Includes discontinued operations. For the cash flows from discontinued operations refer to Note 11.3.
3 Amounts paid to controlled entities are presented in line with how they are managed and settled.

On 13 May 2020, the Group entered into an agreement to sell a 55% interest in Colonial First State (CFS) to KKR. The sale is subject toregulatory approvals, and is expected to complete in the first half of calendar year 2021.

The above Statements of Cash Flows should be read in conjunction with the accompanying notes.

On 4 June 2020, the Group completed the sale of its 80% interest in its Indonesian life insurance business, PT Commonwealth Life(PTCL), to FWD Group (FWD). As part of the sale, CBA’s Indonesian banking subsidiary, PT Bank Commonwealth (PTBC), has enteredinto a 15 year life insurance distribution partnership with FWD.

CFS, CommInsure Life, BoCommLife, CFSGAM and PTCL have been classified as discontinued operations in the Group’s financial
statements for the year ended 30 June 2020. The assets and liabilities of CFS, AUSIEX and the Group’s interest in BoCommLife areclassified as held for sale as at 30 June 2020.
There have been no other significant changes in the nature of the principal activities of the Group during the year.

Basis of accounting
The Financial Report:• is a general purpose financial report;• has been prepared in accordance with the Australian Accounting interpretations adopted by the Australian Accounting Standards Board(AASB) and International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB);• has been prepared in accordance with the requirements of the Corporations Act 2001 (Cth);• is presented in Australian dollars, which is the Bank’s functional and presentation currency, with all values rounded to the nearest
million dollars ($M) in accordance with ASIC Corporations Instrument 2016/191 unless otherwise indicated;• includes foreign currency transactions that are translated into the functional currency, using the exchange rates prevailing at the dateof each transaction;112

1 MS&AD Insurance Group Holdings is the ultimate parent company of Mitsui Sumitomo Insurance Co. Ltd.

113

ADDITIONAL INFORMATIONThe Group ceased providing licensee services through Commonwealth Financial Planning Limited-Pathways (CFP-Pathways) in March
2020 and through Financial Wisdom Limited (Financial Wisdom) in June 2020.

FINANCIAL REPORTOn 28 April 2020, the Group announced the sale of its subsidiary, Australian Investment Exchange Limited (AUSIEX), to Nomura
Research Institute (NRI). The sale is subject to regulatory and other conditions, and is expected to complete in the first half of calendar
year 2021.

1 It should be noted that the Group does not use these accounting Statements of Cash Flows in the internal management of its liquidity positions.

DIRECTORS’ REPORT

Proceeds from issuance of debt securities

1.

HOW WE CREATE VALUE

Group
30 Jun 19

OVERVIEW

30 Jun 20

Cash and cash equivalents at end of year

113

114

115

Notes to the financial statements

1.1

1.1

For the year ended 30 June 2020

For the year ended 30 June 2020

General information, basis of accounting, changes in accounting policies (continued)

Basis of accounting (continued)• has been prepared on a going concern basis using a historical cost basis, except for certain assets and liabilities (including derivative
instruments) measured at fair value;• presents assets and liabilities on the face of the Balance Sheets in decreasing order of liquidity;• where required, presents restated comparative information for consistency with the current year’s presentation in the Financial Report;

General information, basis of accounting, changes in accounting policies (continued)

LeasesThe Group assumes lease residual value risk on assets such as industrial, mining, rail, aircraft, marine, technology, healthcare andother equipment. A lease residual value guarantee exposes the Group to the movement in second-hand prices of these assets. Severe
disruption to the global shipping market resulted in a $17 million reduction in the estimated residual values in relation to the lease ofshipping vessels. This was recognised as an immediate loss in Net interest income.

Impact of coronavirus (COVID-19)
BackgroundConsideration of the financial statements and further disclosures
The Group has carefully considered the impact of COVID-19 in preparing its financial statements for the year ended 30 June 2020. The
key impacts on the financial statements, including the application of critical estimates and judgements, are as follows:

Provisions for impairment
In March 2020, the IASB published IFRS 9 and COVID-19, a document which highlights the requirements within IFRS 9 Financial
Instruments relevant to the impact of COVID-19 on the recognition of expected credit losses. The publication reinforces the fact thatIFRS 9 does not provide a mechanistic approach in accounting for impairment provisions.

Assessment of impairment of non-financial assets
The Group tested goodwill and indefinite life intangible assets for impairment, updating the assumptions, and cash flow forecasts, where
relevant, to reflect the potential impact of COVID-19. No impairment losses were recognised on these assets.
The Group assessed Property, plant and equipment, right-of-use assets, and assets held as lessor for indicators of impairment. Severe
disruption to the aviation sector caused by international travel bans was deemed an indicator of impairment, and therefore required
aircraft held by the Group as lessor to be tested for impairment. A total impairment loss of $81 million was recognised in Other banking
income relating to aircraft leased to financially distressed airlines, where the assets were considered likely to be repossessed, or where
the leases were close to expiry. Lower demand for used aircraft and a decline in asset prices resulted in a reduction in these assets’expected recoverable values below their carrying values. There remains significant uncertainty regarding the severity of the impact of
COVID-19 on the aviation sector, and the duration of restrictions on domestic and international travel. Refer to Notes 6.1. and 6.2.

114

Changes in comparatives
Discontinued operations
The financial results of businesses reclassified as discontinued operations are excluded from the results of the continuing operations
and are presented as a single line item Net profit/(loss) after tax from discontinued operations in the Income Statement, and Other
comprehensive income/(expense) from discontinued operations in the Statement of Comprehensive Income.
The Income Statements and the Statements of Comprehensive Income for comparative periods are also restated. Assets and liabilities
of discontinued operations subject to disposal have been presented on the Balance Sheet separately as assets and liabilities held forsale. The Balance Sheet is not restated when a business is reclassified as a discontinued operation.

Re-segmentation
During the year ended 30 June 2020, the Group made the following structural changes to its operating segments:• enhancing the classification of its business banking portfolios which resulted in a transfer of some customers from Retail Banking
Services to Business and Private Banking and Institutional Banking and Markets;• Aligned Advice related businesses (including Financial Wisdom Limited, Count Financial Limited and Commonwealth Financial
Planning Limited-Pathways) were transferred out of the Wealth Management division and consolidated into the Retail Banking
Services division; and• other re-segmentations, allocations and reclassifications, including refinements to the allocation of support unit and other costs.
These changes have not impacted the Group’s net profit, but have resulted in changes to the presentation of the Income Statement andthe Balance Sheet of the affected segments. These changes have been applied retrospectively.

Changes in accounting policies
Adoption of AASB16 Leases
On 1 July 2019, the Group adopted AASB 16 Leases, replacing AASB 117 Leases. AASB 117 required leases to be classified as
operating leases or finance leases according to their economic substance at inception of the lease. Finance leases were recognised on
the Balance Sheet. Operating leases were not recognised on the Balance Sheet and rent payable was recognised as an expense overthe lease term.
AASB 16 introduced a single accounting model for recognising and measuring lease arrangements. Lessor accounting remains largely
unchanged from the previous standard. Under lessee accounting, AASB 16 requires all leases to be recognised on the Balance Sheet,as a lease liability and right-of-use asset, unless the underlying asset is of low value or the lease has a term of 12 months or less. The
total lease expense recognised over the life of the lease remains unchanged as compared to AASB 117, however the timing of expense
recognition changes. A higher expense is recognised in the earlier stages of a lease due to the interest expense being determined on
the lease liability that amortises over the lease term.
115

ADDITIONAL INFORMATION

Fair value measurement
The Group has considered the impact of economic and market disruptions on fair value measurement assumptions and theappropriateness of the valuation inputs. These included valuation adjustments, notably credit valuation adjustments (CVA), and funding
valuation adjustments (FVA). The Group has also considered the impact of COVID-19 on the classification of exposures in the fair value
hierarchy. There was a reduction in the availability of quoted prices for certain Investment securities at fair value through othercomprehensive income and trading securities during the current reporting period. This resulted in a transfer of $16,777 million of
Investment securities at fair value through other comprehensive income and $4,979 million of trading securities from Level 1 to Level 2
since their fair values ceased to be determined by using unadjusted quoted prices. There were no other material transfers of financial
instruments between levels within the fair value hierarchy as a consequence of COVID-19. Refer to Note 9.5.

Events subsequent to reporting date
There remains significant uncertainty regarding how the COVID-19 pandemic will evolve, including the duration of the pandemic, theseverity of the downturn and the speed of economic recovery. In accordance with AASB 110 Events after the Reporting Date, the Groupconsidered whether events after the reporting period confirmed conditions existing before the reporting date. Consideration was given to
the macro-economic impact of lockdowns implemented across Victoria, the closure of state borders, and the extension of further
government support measures. The Group did not identify any subsequent events precipitated by COVID-19 related developments,
which would require adjustment to the amounts or disclosures in the financial statements. Further, no other material non-adjusting
subsequent events relating to COVID-19 were identified requiring disclosure in the financial statements. Given the fluid nature of thecurrent situation, the Group will continue to regularly review forward looking assumptions and forecast economic scenarios.

FINANCIAL REPORTIn assessing forecast conditions, the Group has incorporated the effects of COVID-19 and government support measures on areasonable and supportable basis. The AASB 9 impairment methodology, and the definition of default have remained consistent withprior periods. Forward looking adjustments have been determined based on a range of plausible economic and industry stress factors,
taking into account the mitigating impacts of government and industry assistance packages, including loan repayment deferralarrangements. Stress testing has formed the basis for ongoing re-assessments of provisioning levels as the situation evolves. The
circumstances are unique in that many of the deferred loans were performing prior to COVID-19, and either continue to perform, or havegenuine prospects of recovery once government restrictions are eased and lockdowns are discontinued. COVID-19 repayment deferrals
were not borrower specific, but rather addressed to broad ranges of customers, and have therefore not been classified automatically asStage 2 loans. Refer to Note 3.2 and 9.2.

Receivables from and payables to financial institutions
On 19 March 2020, the Reserve Bank of Australia (RBA) announced a Term Funding Facility (TFF) for ADIs, to support lending toAustralian businesses. The TFF is a three year facility with a fixed interest rate of 0.25% per annum. The funding is collateralised byresidential mortgage-backed securities issued by the Group. The TFF is initially recognised at fair value and subsequently measured atamortised cost using the effective interest rate method. As at 30 June 2020, the carrying value of the TFF was $1,500 million. Refer toNote 5.2.

DIRECTORS’ REPORT

Loans, bills discounted and other receivables
The Group has introduced a number of support measures for customers impacted by COVID-19, which include loan repayment
deferrals to retail and small business customers, and the origination of loans under the Government's Small and Medium Enterprises(SME) guarantee scheme. The repayment deferral arrangements were deemed continuations of customers’ existing loans and were
therefore accounted for as non-substantial loan modifications. A total modification loss of $6 million was recognised in relation to
repayment deferrals on home loans, where interest over the deferral period was charged on a simple interest, rather than compounding
basis. No other modification gains or losses were recognised as a result of the repayment deferrals. Refer to Note 3.1 and 3.2.

Hedge accounting
The Group has considered the impact of COVID-19 on its existing hedges, and whether they continue to meet the criteria for hedge
accounting. In most cases, the hedged future cash flows remained highly probable. The Group reassessed the forecast sales ofparticular aircraft and expected future lease payments, which due to disruption in the aviation sector, were no longer considered to behighly probable within the designated time period. The hedging relationships were therefore discontinued and a loss of $11 million wasreclassified from the Cash flow hedge reserve to Other banking income. The repayment deferrals granted to retail and SME customers
did not impact the Group’s cash flow hedges. Refer to Note 5.4.

HOW WE CREATE VALUEThe COVID-19 pandemic and the measures undertaken to contain it have dramatically changed the global economic outlook, causinglarge-scale economic disruption and pronounced volatility in financial markets. The market disruption is expected to lead to rising levelsof unemployment, elevated levels of credit losses from business insolvencies and higher consumer defaults. In an attempt to mitigate
the economic effect of the COVID-19 pandemic, governments, prudential regulators and central banks have offered significant fiscal,
regulatory and monetary support to allow businesses to remain liquid and solvent, and to support retail customers. The extent to whichthese efforts will reduce the adverse financial effects of the COVID-19 pandemic remains uncertain.

OVERVIEWIn June 2020, AASB 16 Leases was amended to provide lessees with an exemption from the requirement to determine whether a
COVID-19 related rent concession is a lease modification. While the Group did not receive rent concessions, it elected to early adopt
the amendments in the 2020 financial year.

• contains accounting policies that have been consistently applied to all periods presented, unless otherwise stated.

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

116

117

Notes to the financial statements

1.1

1.1

For the year ended 30 June 2020

For the year ended 30 June 2020

General information, basis of accounting, changes in accounting policies (continued)

Lease liability
Lease liabilities are initially measured at the net present value of the following lease payments (if applicable):

General information, basis of accounting, changes in accounting policies (continued)

The following table reconciles the operating lease commitments disclosed under AASB 117 as at 30 June 2019 to the opening leaseliabilities recognised under AASB 16 as at 1 July 2019.

• fixed payments, less any lease incentives receivable;Group• variable lease payments that are based on an index or a rate;• amounts expected to be payable by the lessee under residual value guarantees;

Operating lease commitments as at 30 June 2019 under AASB 117

Bank

$M

$M

536

• payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.

Inclusion of technology contracts not recognised as a lease under AASB 117

71

71

Lease liabilities are remeasured when there is a change in future lease payments arising from a change in the above. Lease liabilities
are measured at amortised cost using the effective interest method. Interest is recognised as part of Interest expense in the
Income Statement.

Exclusion of leases with a remaining term of less than one year and low value leases

(96)

(92)

Exclusion of service components

(738)

(738)

Exclusion of operating lease commitments regarding contracts not yet commenced

(610)

(610)

Exclusion of GST

(274)

(226)

Total undiscounted lease payments

2,997

2,701

Right-of-use asset
Right-of-use assets are initially measured at cost comprising the following:• the initial amount of the lease liability measured at the present value of the future lease payments;• any lease payments made at or before the commencement date, less any lease incentives received;• any initial direct costs; and• an estimate of the costs to be incurred upon disassembling or restoring the underlying asset to the condition required by the terms of
the lease.

Effect of discounting at a weighted average incremental borrowing rate of 2.8%

(267)

(231)

Total lease liabilities as at 1 July 2019 under AASB 16

2,730

2,470

135

121

2,865

2,591

Provision for lease restoration obligations
Total liabilities recognised on adoption of AASB 16

Adoption of interpretations and amendments to existing standards

The right-of-use asset is depreciated over the lease term on a straight-line basis.

Excluded leases
A scope exemption has been applied to short-term leases with a lease term of 12 months or less, and low value leases. These continue
to be expensed on a straight-line basis.

Other amendments
The following amendments to existing standards were adopted during the current year but did not have an impact on the Group:• AASB 128 Investments in Associates and Joint Ventures was amended to clarify that an entity should first apply the measurement
and expected credit loss requirements of AASB 9 to its long-term debt investments that form part of the net investment in an equity
accounted investee, before applying the loss allocation and impairment requirements of AASB 128; and• adjusting lease terms for extension or termination options which are reasonably certain of being exercised with the benefit of hindsight;

Other minor amendments to existing standards were adopted in the current reporting period.

• excluding from the right-of-use asset any initial direct costs incurred prior to 1 July 2019; andCommodity financing transactions• accounting for leases whose remaining term will end within 12 months from the transition date of 1 July 2019 as short-term leases.

During the financial year ended 30 June 2020, the Group amended its accounting policy in respect of certain short-term commodity
financing transactions, which are not clearly captured within the scope of any accounting standard. The Group reclassified a portfolio ofphysical commodities, previously accounted for as inventories under AASB 102 Inventories, to loans designated at fair value throughprofit or loss under AASB 9. Significant judgement has been applied in assessing whether control of the commodities transfers to theGroup on inception of the transaction. In line with evolving technical interpretation of the accounting requirements for commodity
transactions, it has been determined that control of the commodities does not transfer to the Group. The transactions are therefore more
fairly presented as loans. The change has been applied retrospectively and impacted the prior year financial statements of both theGroup and the Bank, as follows:

The impact of adopting AASB 16 on the Group’s and the Bank’s Balance Sheets at 1 July 2019 is as follows:
Group

Bank

$M

$M

Opening retained profits at 1 July 2019

28,48223,099Right-of-use assets

2,659

2,385

Net deferred tax asset

60

60(2,730)(2,470)

(135)

(121)

Provision for lease restoration obligations
Net impact on retained profits
Adjusted retained profits at 1 July 2019

(146)

(146)

28,336

22,953• an increase in Interest income, and a corresponding decrease in Other banking income, for the year ended 30 June 2019 of$121 million (30 June 2018: $128 million); and• an increase in Commodities financing and other lending, and a corresponding decrease in Commodities, presented within Assets atfair value through income statement, as at 30 June 2019 of $6,854 million (30 June 2018: $7,353 million).
Where relevant, comparative information has been restated. All changes have been footnoted throughout the financial statements.

Upon transition, judgement has been applied by the Group in assessing which arrangements contain a lease, the period over which thelease exists and the variability of future cash flows.
Lease liabilities are presented within Bills payable and other liabilities and right-of-use assets are presented within Property, plant andequipment. Provisions for lease restoration obligations are included within Provisions. The depreciation charge for right-of-use assets ispresented within Depreciation of Property, plant and equipment. The interest charge on lease liabilities is presented within Interest
expense.

116

117

ADDITIONAL INFORMATION• reliance on assessments performed under AASB 117 of whether a lease contract is onerous;• AASB 119 Employee Benefits was amended to specify the treatment of a plan amendment, curtailment or settlement that occurs
during a reporting period. An entity should use the assumptions applied in the remeasurement of the net defined benefit liability orasset when determining the current service cost and the net interest in the period following the plan event.

The Group applied the following practical expedients on transition to AASB 16, as permitted by the standard, where the Group is alessee in a lease previously classified as an operating lease:

FINANCIAL REPORT

Impact of AASB 16
The Group has adopted AASB 16 on a modified retrospective basis without restating prior periods. Under the modified retrospective
approach, the Group elected to measure the right-of-use asset at the same amount as the lease liability, except for larger property
leases where the Group elected to measure the right-of-use asset on a retrospective basis. This resulted in a decrease in the Group’s
Retained profits on transition of $146 million, net of tax. (Bank: $146 million, net of tax).

AASB Interpretation 23 Uncertainty over Income Tax Treatments (Interpretation 23)
Interpretation 23 clarifies the application of the recognition and measurement criteria in AASB 112 Income Taxes where there is
uncertainty over income tax treatments. It requires an assessment of each uncertain tax position to determine whether it is probable thata taxation authority will accept the position. Where it is not considered probable, the effect of the uncertainty will be reflected indetermining the relevant taxable profit or loss, tax bases, unused tax losses, unused tax credits or tax rates. The amount will be
determined as either the single most likely amount or the sum of the probability weighted amounts in a range of possible outcomes,
whichever better predicts the resolution of the uncertainty. Judgements will be reassessed as and when new facts and circumstances
are presented. The previous recognition and measurement requirements applied by the Group are aligned with Interpretation 23 andhence no transition adjustment to retained earnings was required.

DIRECTORS’ REPORT

Determining the lease term
Extension options are included in a number of leases. In determining the lease term, management considers all facts and circumstancesthat create an economic incentive to exercise an extension option. Extension options are only included in the lease term if the lease isreasonably certain to be extended. The assessment is reviewed if a significant event or a significant change in circumstances occurs
which affects this assessment and is within the control of the Group.

HOW WE CREATE VALUE

3,760

566

OVERVIEW

4,078

Increase in the lease term for extension options• the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; andLease liabilities

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

118

119

Notes to the financial statements

For the year ended 30 June 2020
1.1

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

For the year ended 30 June 2020

General information, basis of accounting, changes in accounting policies (continued)

Intergroup transactions with consolidated special purpose entities• a decrease in Shares in and loans to controlled entities as at 30 June 2019 of $56,250 million (30 June 2018: $56,250 million);• a decrease in Due to controlled entities as at 30 June 2019 of $56,164 million (30 June 2018: $56,173 million);

Our performance

OVERVIEWThe Group earns its returns from providing a broad range of banking and wealth management products and services to retail andwholesale customers in Australia, New Zealand and other jurisdictions.
Lending and deposit taking are the Group’s primary business activities with Net interest income being the main contributor to theGroup’s results. Net interest income is derived from the difference between interest earned on lending and investment assets andinterest incurred on customer deposits and wholesale debt raised to fund these assets.

OVERVIEW

During the financial year ended 30 June 2020, the Group amended its accounting policy in respect of certain intergroup positions withconsolidated securitisation vehicles where it holds all of the issued instruments of the securitisation vehicle. The transactions between
the entities will no longer be accounted for as imputed loan liabilities, and debt securities held by the Bank. The revised treatment more
fairly represents the economic substance of the arrangement and therefore provides more reliable and relevant information. There has
been no change to the consolidated financial statements of the Group as a result of this accounting policy change. The change has
been applied retrospectively and impacted the prior year financial statements of the Bank as follows:2.

The Group further generates income from lending fees and commissions, general insurance products and trading activities. It also
incurs costs associated with running the business such as staff, occupancy and technology related expenses.

• a decrease in Other assets as at 30 June 2019 of $50 million (30 June 2018: $61 million);• a decrease in Bills payable and other liabilities as at 30 June 2019 of $136 million (30 June 2018: $138 million);

The Performance section provides details of the main contributors to the Group’s returns and analysis of its financial performance bybusiness segments and geographical regions.

• a decrease in Interest income for the year ended 30 June 2019 of $1,967 million;• a decrease in Interest expense for the year ended 30 June 2019 of $1,971 million; and2.1

Where relevant, comparative information has been restated. All changes have been footnoted throughout the financial statements.

Net interest income
1, 2, 32, 3

30 Jun 20Group
30 Jun 19

30 Jun 18

Bank
30 Jun 20 30 Jun 19

$M

$M

$M

$M

$M

Loans and bills discounted 4

28,144

31,44931,31524,83027,744

Other financial institutions

110

181

140

105

171

Cash and liquid assets

356

572

459

335

528

Interest income

HOW WE CREATE VALUE• a decrease in Other banking income for the year ended 30 June 2019 of $4 million.

Effective interest income:At amortised cost
At fair value through Other Comprehensive Income
Available-for-sale investments
Controlled entities
Total effective interest income

114

199

–

114

199

1,002

1,688

–

911

1,559

–

–

1,729

–

–

–

–

–

356

752

29,72634,08933,64326,651

30,953

436

620

629

436

620

DIRECTORS’ REPORT

Investment securities:

Other:
Controlled entities
Total other interest income
Total interest income

–

–

–

49

40

436

620

629

485

660

30,162

34,70934,272

27,136

31,613

Interest Expense
9,965

9,848

5,851

8,394

391

464

418

382

435

Liabilities at fair value through Income Statement

74

172

167

66

162

Deposits

Debt issues

2,529

4,563

4,169

1,877

3,625

Loan capital

825

951

836

811

917

Lease liabilities

71

–

–

63

–

Bank levy

358

370

369

358

370

–

–

–

1,252

1,531

Total interest expense

11,552

16,48515,807

10,66015,434

Net interest income

18,61018,224

18,465

16,476

16,179Controlled entities

1 Information has been restated and presented on a continuing operations basis.
2 Current year amounts reflect the adoption of AASB 16 Leases on 1 July 2019. As permitted by AASB 16 comparative information has not been restated. For details
on the adoption of AASB 16 refer to Note 1.1.
3 Information has been restated to conform to presentation in the current year and to reflect the changes in accounting policies detailed in Note 1.1.
4 Includes $17 million loss from the reduction in estimated residual values in relation to leases of shipping vessels. The loss was driven by the severe disruption to theglobal shipping market as a result of COVID-19.

118

119

ADDITIONAL INFORMATION

7,304

Other financial institutions

FINANCIAL REPORT

Assets at fair value through Income Statement

120

121

Notes to the financial statements

2.1

2.2

For the year ended 30 June 2020

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

For the year ended 30 June 2020

Net interest income (continued)

ACCOUNTING POLICIESInterest expense also includes payments made under a liquidity facility arrangement with the Reserve Bank of Australia, the Major Bank
Levy (Bank Levy) expense and other financing charges.

Group 1, 2
30 Jun 19

30 Jun 20
Averagebalance$M

Australia
Overseas

Interest earning
assetsInterest$M

Averagerate%

Averagebalance$M

23,468244

1. 0

22,539112

0. 5

30 Jun 18

Interest$M

Averagerate%

Averagebalance$M

Interest$M

Averagerate%

18,415367

2. 0

19,087313

1. 6

20,238205

1. 0

18,898146

0. 8

Cash and liquid assets

Receivables from financial
institutions
1. 5

2,095

52

2. 5

2,290

50

2. 2

72

1. 1

5,799

129

2. 2

5,997

90

1. 5

Australia

34,237422

1. 2

31,895609

1. 928,381572

2. 0

Overseas

2,070

14

0. 7

822

11

1. 3

4,070

57

1. 4

Australia

6,272

114

1. 8

6,887

199

2. 9

–

–

–

Overseas

6

–

0. 6

5

–

0. 6

–

–

–

Australia

56,929716

1. 3

57,088

1,329

2. 3

–

–

–

Overseas

19,996286

1. 4

18,640

359

1. 9

–

–

–

Australia

–

–

–

–

–

–

66,241

1,479

2. 2

Overseas

–

–

–

–

–

–

17,011250

1. 5Australia 4614,980

23,563

3. 8

603,394

26,5244. 4597,343

26,711

4. 5

Overseas108,031

4,581

4. 2

106,140

4,925

4. 6

102,566

4,604

4. 5

897,40930,162

3. 4

871,418

34,7094. 0

861,884

34,272

4. 0

Assets at fair value throughIncome Statement(excluding life insurance)

Investment Securities:
At amortised cost

At fair value through OCI

Available-for-saleinvestments

Loans, bills discounted andother receivables 3

Total interest earning
assets and interest income

1 Information has been restated and presented on a continuing operations basis.
2 Comparative information has been restated to conform to presentation in the current year.
3 Loans, bills discounted and other receivables include bank acceptances.
4 Net of average mortgage offset balances that are included in Non-interest earning assets. Mortgage offset balance is $48,807 million (30 June 2019: $45,175 million,
30 June 2018: $40,824 million). While the balances are required to be grossed up under accounting standards, they are netted down for the calculation of customer
interest payments and the Group’s net interest margin.

120

121

ADDITIONAL INFORMATION

38

6,420

FINANCIAL REPORT

2,461

Overseas

DIRECTORS’ REPORT

Australia

HOW WE CREATE VALUEInterest income and expense on financial assets and liabilities that are classified at fair value through the Income Statement are
accounted for on a contractual rate basis and include amortisation of premium/discounts. Fees, transaction costs and issue costs
integral to the financial assets and liabilities are capitalised and included in the interest recognised over the expected life of the
instrument. This includes fees for providing a loan or a lease arrangement.

The following tables have been produced using statutory Balance Sheet and Income Statement categories. The tables list the major
categories of interest earning assets and interest bearing liabilities of the Group together with the respective interest earned or paid andthe average interest rate for each of the full years ended 30 June 2020, 30 June 2019 and 30 June 2018. Averages were predominately
daily averages. Interest is accounted for based on product yield. Where assets or liabilities are hedged, the amounts are shown net ofthe hedge, but individual items not separately hedged may be affected by movements in exchange rates and interest rates. The
overseas component comprises overseas branches of the Bank and overseas domiciled controlled entities. Non-accrual loans areincluded in interest earning assets under Loans, bills discounted and other receivables. The official cash rate in Australia has decreased
100 basis points on a spot basis, while in New Zealand the official cash rate has decreased 125 basis points on a spot basis during thefinancial year ended 30 June 2020 (2019: 25 basis points decrease for both Australia and New Zealand on a spot basis, 2018: nochanges).

OVERVIEWInterest income and interest expense on financial assets and liabilities measured at amortised cost, and debt financial assets measured
at fair value through OCI, are recognised using the effective interest rate method. Interest income is calculated on financial assets
classified within Stage 1 and Stage 2 by applying the effective interest rate to the gross carrying amount of the assets. Interest income
on financial assets in Stage 3 is recognised by applying the effective interest rate to the gross carrying amount net of provisions for
impairment. Interest income on finance leases is recognised progressively over the life of the lease, consistent with the outstanding
investment and unearned income balance.

Average balances and related interest

122

123

Notes to the financial statements

2.2

2.2

For the year ended 30 June 2020

For the year ended 30 June 2020

Average balances and related interest (continued)

Average balances and related interest (continued)

Group 130 Jun 19
Averagebalance30 Jun 18
Averagebalance

$M

$M

$M

Australia–––

Australia 3

192,671

Overseas

–

–

377

Overseas

56,599Australia

4,577

2,208

2,344

Australia 3

160,031

Overseas

597

244

252

Overseas

15,655Australia 4

86,39879,16987,901

Australia

126,355

Overseas

10,236

10,175

11,924

Overseas

9,910

Australia

10,659Overseas

Assets at fair value through Income Statement - Insurance

2

Averagerate%

Averagebalance
$M

3,896

2. 0

203,750

1,589

2. 8

53,836950

0. 6

144,686146

0. 9

14,335

601

0. 5

122

1. 2

164

14,258Australia
Overseas

30 Jun 18
Averagerate%

Averagebalance
$M

5,181

2. 5

203,694

5,043

2. 5

1,746

3. 2

51,291

1,532

3. 0

1,588

1. 1

146,346

1,812

1. 2

167

1. 2

14,414205

1. 4

114,193

1,151

1. 0

112,195

1,120

1. 0

8,765

132

1. 5

8,136

136

1. 7

1. 5

8,852

221

2. 5

10,292

196

1. 9

227

1. 6

12,709243

1. 9

16,648

222

1. 3

5,090

66

1. 3

9,372

162

1. 7

7,557

141

1. 9

700

8

1. 1

1,054

10

0. 9

1,332

26

2. 0

Australia

129,461

2,106

1. 6

140,447

3,846

2. 7

138,666

3,463

2. 5

Overseas

23,499423

1. 8

26,676717

2. 7

28,450706

2. 5Australia

18,066608

3. 4

15,655668

4. 3

13,788556

4. 0

Overseas

6,439

217

3. 4

6,785

283

4. 2

6,774

280

4. 1

Australia

2,232

60

2. 7

–

–

–

–

–

–

Overseas

357

11

3. 1

–

–

–

–

–

–

Australia

–

358

–

–

370

–

–

369

–

Overseas

–

–

–

–

–

–

–

–

–

771,982

11,552

1. 5

761,115

16,485

2. 2759,583

15,807

2. 1

Interest bearing
liabilities

Averagebalance$M

Interest$M

Interest$M

Interest$M

Averagerate%

Time deposits

Property, plant and equipment 3

Savings deposits

Other assets

Other demand deposits

Australia(4,561)(4,026)(3,203)

Overseas

(613)

(599)

(466)

96,63487,171

99,129Total non-interest earning assets
2

5,043

15,12813,046

Overseas

691

1,829

2,228

Total assets

999,777

975,546976,287

17. 0

16. 7

16. 7

Percentage of total assets applicable to overseas operations (%)
1 Comparative information has been restated to conform to presentation in the current year.

2 During the years ended 30 June 2020 and 30 June 2019, Insurance assets of CommInsure Life and PT Commonwealth Life are presented as Assets held for sale.
During the year ended 30 June 2018, Insurance assets of CommInsure Life and Sovereign are presented as Assets held for sale.
3 Current period amounts reflect the adoption of AASB 16 Leases on 1 July 2019. As permitted by AASB 16 comparative information has not been restated. For
details on the adoption of AASB 16 refer to Note 1.1.
4 For the purpose of reconciling to total average assets, other assets include average mortgage offset balances of $48,807 million (30 June 2019: $45,175 million,
30 June 2018: $40,824 million) as these balances were excluded from average loans and interest earning assets.

Liabilities at fair value
through Income Statement

Debt issues

4

Loan capital

Lease liabilities 5

Total interest bearing
liabilities and interest
expense2 Comparative information has been restated to conform to presentation in the current year.
3 Net of average mortgage offset balances that are included in Non-interest bearing liabilities.
4 Debt issues include bank acceptances.
5 Current period amounts reflect the adoption of AASB 16 Leases on 1 July 2019. As permitted by AASB 16 comparative information has not been restated. For
details on the adoption of AASB 16 refer to Note 1.1.

123

ADDITIONAL INFORMATION

1 Information has been restated and presented on a continuing operations basis.

FINANCIAL REPORTBank levy

122

DIRECTORS’ REPORT

Australia

Payables to financial
institutions

HOW WE CREATE VALUE

Provisions for impairment

Assets held for saleGroup 1, 2
30 Jun 19

30 Jun 20

OVERVIEW

30 Jun 20
Averagebalance

Non-interest earning assets

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

124

125

Notes to the financial statements

2.2

2.2

For the year ended 30 June 2020

For the year ended 30 June 2020

Average balances and related interest (continued)Group
30 Jun 18
Averagebalance

$M

$M

$M

Australia 1

105,261

91,316

83,949Overseas

6,301

4,897

4,193

Australia–––

Overseas

–

–

466

Australia

29,13425,532

37,250Overseas

11,193

9,430

10,255

151,889

131,175

136,113

4,515

13,855

13,413

Changes in Net interest income: volume and rate analysis
The following tables show the movement in interest income and expense due to changes in volume and interest rates. Volume
variances reflect the change in interest from the prior year due to movement in the average balance. Rate variances reflect the change
in interest from the prior year due to changes in interest rates. Volume and rate variance for total interest earning assets and interest
bearing liabilities have been calculated separately (rather than being the sum of the individual categories).

Deposits not bearing interest

June 2020 vs June 2019

Insurance policy liabilities

Other liabilities

Total non-interest bearing liabilities
Liabilities held for sale
Australia

1,025

1,308

928,888907,170

910,417

Shareholders' Equity

70,88968,37665,870Total liabilities and Shareholders' Equity

999,777

975,546976,287

15. 7

15. 4

15. 7

Overseas

Percentage of total liabilities applicable to overseas operations (%)
1 Includes average mortgage offset balance.

Interest earning assets
Cash and liquid assets
Australia
Overseas
Receivables from financial institutions
Australia
Overseas

June 2019 vs June 2018 1, 2
Volume
Rate
Total

Total

$M

$M

$M

$M

$M

$M

53
11

(176)
(104)

(123)
(93)

(13)
14

67
45

54
59

6
7

(20)
(64)

(14)
(57)

(5)
(4)

7
43

2
39

29
8

(216)
(5)

(187)
3

67
(43)

(30)
(3)

37
(46)

(10)
19

(687)
(93)

(697)
(74)

(54)
31

103
78

49
109

444
80
874

(3,405)(424)(5,421)(2,961)(344)(4,547)

266
166
380

(453)
155
57

(187)
321
437

(224)
78

(1,061)(235)(1,285)
(157)

1
83

137
131

138
214

91
12

(729)
(33)

(638)
(21)

(18)
(1)

(206)
(37)

(224)
(38)

58
14

(608)
(24)

(550)
(10)

20
9

11
(13)

31
(4)

28
25

(85)
(41)

(57)
(16)

(36)
(75)

61
96

25
21

(56)
(4)

(40)
2

(96)
(2)

31
(3)

(10)
(13)

21
(16)

(179)
(57)

(1,561)(237)(1,740)
(294)

49
(48)

334
59

383
11

81
(12)

(141)
(54)

(60)
(66)

80
–

32
3

112
3

60
11

–
–

60
11

–
–

–
–

–
–

–
–
163
539

(12)
–
(5,096)
(153)

(12)
–
(4,933)
386

–
–
33
199

1
–
645
(440)

1
–
678
(241)

Assets at fair value through Income Statement(excluding life insurance)
Australia
Overseas
Investment securities: 3
Australia
Overseas
Loans, bills discounted and other receivables
Australia
Overseas
Changes in interest income
Interest bearing liabilities and loan capitalTime deposits
Australia
Overseas
Savings deposits
Australia
Overseas
Other demand deposits
Australia
Overseas
Payables to financial institutions
Australia
Overseas
Liabilities at fair value through Income Statement
Australia
Overseas
Debt issues
Australia
Overseas
Loan capital
Australia
Overseas
Lease liabilities
Australia
Overseas
Bank levy
Australia
Overseas
Changes in interest expense
Changes in net interest income
1 Information has been restated and presented on a continuing operations basis.
2 Comparative information has been restated to conform to presentation in the current year.
3 Investment securities at fair value through other comprehensive income and Investment securities at amortised cost have been compared to available-for-saleassets in the prior period.

124

125

ADDITIONAL INFORMATION

Rate

FINANCIAL REPORT

VolumeDIRECTORS’ REPORT

502

Total liabilities

Changes in net interest income:Volume and rate analysis

HOW WE CREATE VALUE

30 Jun 19
Averagebalance

Average balances and related interest (continued)

OVERVIEW

30 Jun 20
Averagebalance

Non-interest bearing liabilities

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

126

127

Notes to the financial statements

2.3

2.3

For the year ended 30 June 2020

For the year ended 30 June 2020

Other operating income
Group 1, 2
30 Jun 19

30 Jun 18

Bank 230 Jun 20 30 Jun 19

$M

$M

$M

$M

$M

Commissions

2,557

2,677

2,716

2,148

2,277

Lending fees

986

992

1,109

904

922

Trading income

940

853

897

822

753

Net gain/(loss) on non-trading financial instruments 3

139

(113)

58

29

(205)

Other banking income

Net gain/(loss) on sale of property, plant and equipment

32

(9)

(17)

11

(11)

Net (loss)/gain from hedging ineffectiveness

(14)

13

12

(93)

16

–

–

–

4,721

1,229

Dividends - Controlled entities 4
Dividends - Other
5, 6

3

5

10

88

122

170

296

317

49

27

189

163

197

475

789

Total other banking income

5,002

4,877

5,299

9,154

5,919

Funds management income

196

292

330

–

–

ACCOUNTING POLICIES
Lending fees and commission income are accounted for as follows:• facility fees earned for managing and administering credit and other facilities for customers are generally charged to the customer ona monthly or annual basis and are recognised as revenue over the service period. Annual fees are deferred on Balance Sheet in Bills
payable and Other liabilities and recognised on a straight-line basis over the year. Transaction based fees are charged andrecognised at the time of the transaction;• commitment fees and fees in relation to guarantee arrangements are deferred and recognised over the life of the contractual
arrangements;• fee income is earned for providing advisory or arrangement services, placement and underwriting services. These fees arerecognised and charged when the related service is completed which is typically at the time of the transaction; and• trail commissions are recognised at the start of a contract when the performance obligation has been met, typically when a customer
is introduced to a new project. The Group recognises the net present value of expected future trail commission income. For
investment referral services, the Group is unable to forecast the trail commission revenue in line with the highly probable test in
AASB 15. Therefore, trail commission revenue on investment referral balances is recognised when received or paid.
Establishment fees on financing facilities are deferred and amortised to interest income over the expected life of the loan and are notrecognised when the commitment is issued.
Trading income represents both realised and unrealised gains and losses from changes in the fair value of trading assets, liabilities andderivatives, which are recognised in the period in which they arise.

(23)

(38)

(16)

–

–

Net funds management operating income

173

254

314

–

–

698

682

687

–

–

Net gain/(loss) on the disposal of property, plant and equipment is the difference between proceeds received and its carrying value.

2

5

4

–

–

Net hedging ineffectiveness is measured on fair value, cash flow and net investment hedges.

(559)

(537)

(450)

–

–

Dividends received on non-trading equity investments are recognised on the ex-dividend date or when the right to receive payment isestablished.

Net insurance operating income
Premiums from insurance contracts
Investment revenue
Claims, policyholder liability and commission expense frominsurance contracts
Net insurance operating income
Total other operating income

141

150

241

–

–

5,316

5,281

5,854

9,154

5,919

1 Information has been restated and presented on a continuing operations basis.
2 Information has been restated to conform to presentation in the current year and to reflect the changes in accounting policies detailed in Note 1.1.
3 Includes gains/(losses) on non-trading derivatives that are held for risk management purposes.

5 Includes depreciation of $83 million in relation to assets held for lease as lessor by the Group (30 June 2019: $72 million, 30 June 2018: $74 million). Includes
depreciation of $6 million in relation to assets held for lease as lessor by the Bank (30 June 2019: $8 million).
6 Current year includes a $92 million impairment loss recognised by the Group in relation to certain aircraft owned by the Group and leased to various airlines. The
impairment loss was driven by the impact of COVID-19 on the aviation sector. This includes a loss of $11 million that was reclassified from the Cash flow hedge reserve.

Bank 130 Jun 20 30 Jun 19

30 Jun 18

$M

$M

$M

$M

$M

Hedging instruments

3,297

3,251

2,537

2,186

1,164

Hedged items(3,302)(3,242)(2,529)(2,268)(1,154)

Net hedging ineffectiveness comprises:
Gain/(loss) on fair value hedges:

Cash flow and net investment hedge ineffectiveness

(9)

4

4

(11)

6

Net hedging ineffectiveness

(14)

13

12

(93)

16

General insurance premiums received and receivable are recognised as revenue when they are earned, based on actuarial assessmentof the likely pattern in which risk will emerge. The portion not yet earned based on the pattern assessment is recognised as an unearned
premium liability. Claims are recognised as an expense when the liability is established.
The Group equity accounts for its share of the profits or losses of associate or joint venture investments, net of impairment recognised.
Dividends received are recognised as a reduction of the investment carrying amount.
Other income includes rental income on operating leases which is recognised on a straight-line basis over the lease term. This is offset
by depreciation and impairment expense on the associated operating lease assets held by the Group.
Other income also includes the impact of foreign currency revaluations for foreign currency monetary assets and liabilities. These assets
and liabilities are retranslated at the spot rate at balance date. Exchange differences arising upon settling or translating monetary items
at different rates to those at which they were initially recognised or previously reported, are recognised in the Income Statement.

Critical accounting judgements and estimates
The amount of trail commission revenue is dependent on assumptions about the behavioural life of the underlying transaction
generating the commission. Trail commission income is only recognised to the extent it is highly probable it will not reverse in future
periods.

1 Comparative information has been restated to conform to presentation in the current year.

126

127

ADDITIONAL INFORMATION

30 Jun 20

Group 130 Jun 19

Funds management operating income includes fees earned where the Group acts as the Responsible Entity, Trustee or Manager for anumber of wholesale, superannuation and investment funds or trusts. Fund management services are a single performance obligationand fees are recognised over the service period. Management fees are calculated and deducted from the funds on a monthly basis.
Performance fees are deemed to be a variable component of the fund management service and only recognised when it is highly
probable that a significant reversal of the fees will not occur.

FINANCIAL REPORT

4 Current year includes $2,327 million dividend from the repatriation of ASB Bank Limited retained profits. During the current year, the Bank increased its investment
in ASB Bank Limited by $2,327 million.

Net gain/(loss) on non-trading financial instruments includes realised gains and losses from non-trading financial assets and liabilities,
as well as realised and unrealised gains and losses on non-trading derivatives that are held for risk management purposes.

DIRECTORS’ REPORT

Claims, policyholder liability and commission expense

HOW WE CREATE VALUE

Share of profit from associates and joint ventures net of impairment

Other operating income (continued)

OVERVIEW

30 Jun 20

Other

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

128

129

Notes to the financial statements

2.4

2.4

For the year ended 30 June 2020

For the year ended 30 June 2020

Operating expenses
Bank 230 Jun 20 30 Jun 19

$M

$M

$M

$M

Salaries and related on-costs

5,239

5,224

4,806

4,772

4,998

Share-based compensation

103

96

66

107

115

Superannuation

409

385

392

403

388

5,751

5,705

5,264

5,282

5,501

Lease expenses 3

163

639

650

153

580

Depreciation of property, plant and equipment

726

270

271

651

247

Other occupancy expenses

167

173

197

139

164

1,056

1,082

1,118

943

991

Application maintenance and development

567

586

429

659

734

Data processing

182

183

200

177

179

Desktop

118

142

153

102

129

Communications

192

217

179

178

205

925

585

551

869

563

Software write-offs

14

13

71

14

13

IT equipment depreciation

133

93

80

118

79

2,131

1,819

1,663

2,117

1,902

Postage and stationery

148

156

171

142

151

Transaction processing and market data

135

146

130

119

131

Professional fees

404

492

679

374

470

Other

262

232

129

79

65

424

443

478

326

362

5

10

12

–

–
617

Staff expenses

Occupancy and equipment expenses

Total occupancy and equipment expenses
Information technology services

Amortisation of software assets

4

Total information technology services
Other expenses

Fees and commissions:

Advertising, marketing and loyalty
Amortisation of intangible assets (excluding software and merger
related amortisation)
Non-lending losses 5

615

838

541

–

–

–

405

–

Other

16

124

171

127

148

Total other expenses

1,957

2,218

2,608

2,113

1,944

Operating expenses before restructuring, separationand transaction costs

10,895

10,824

10,653

10,455

10,338

Restructuring, separation and transaction costs
Total operating expenses 6

34

104

34

290

295

10,92910,928

10,687

10,745

10,633

Salaries and related on-costs include annual leave, long service leave, employee incentives and relevant taxes. Staff expenses arerecognised over the period the employee renders the service. Long service leave is discounted to present value using assumptions
relating to staff departures, leave utilisation and future salary.
Share-based compensation includes plans which may be both cash or equity settled. Cash settled share-based remuneration isrecognised as a liability and re-measured to fair value until settled. The changes in fair value are recognised as staff expenses. Equity
settled remuneration is fair valued at the grant date and amortised to staff expenses over the vesting period, with a corresponding
increase in the Employee compensation reserve.
Superannuation expense includes expenses relating to defined contribution and defined benefit superannuation plans. Defined
contribution expense is recognised in the period the service is provided, whilst the defined benefit expense, which measures current andpast service costs is determined by an actuarial calculation.
Occupancy and equipment expenses include depreciation which is calculated using the straight-line method over the asset’s estimateduseful life. The right-of-use assets recognised under AASB 16 Leases are depreciated over the shorter of the lease term or the usefullife of the underlying asset, with the depreciation presented within depreciation of Property, plant and equipment.
IT services expenses are recognised as incurred, unless they qualify for capitalisation as computer software due to the expenditure
generating probable future economic benefits. If capitalised, the computer software is subsequently amortised over its estimated usefullife. The Group assesses, at each Balance Sheet date, useful lives and residual values and whether there is any objective evidence ofimpairment. If an asset’s carrying value is greater than its recoverable amount, the carrying amount is written down immediately to its
recoverable amount.
Other expenses are recognised as the relevant service is rendered. Operating expenses related to provisions are recognised for present
obligations arising from past events where a payment to settle the obligation is probable and can be reliably estimated.

Critical accounting judgements and estimates
Actuarial valuations of the Group’s defined benefit superannuation plans’ obligations are dependent on a series of assumptions set out
in Note 10.2, including inflation rates, discount rates and salary growth rates. Changes in these assumptions impact the fair value of theplans’ obligations, assets, superannuation expense and actuarial gains and losses recognised in other comprehensive income.
Measurements of the Group’s share-based compensation is dependent on assumptions, including grant date fair values. Information onthese is set out in Note 10.1.
Refer to Note 6.2 for more information on the judgements and estimates associated with goodwill.

ADDITIONAL INFORMATION

563

Impairment on investments in subsidiaries

ACCOUNTING POLICIESFINANCIAL REPORT$M

1 Information has been restated and presented on a continuing operations basis.
2 Current year amounts reflect the adoption of AASB 16 Leases on 1 July 2019. As permitted by AASB 16 comparative information has not been restated. For details
on adoption of AASB 16 refer to Note 1.1.
3 Current year includes rentals of $86 million in relation to short-term leases and low value leases, and variable lease payments based on usage or performance of$44 million.
4 The year ended 30 June 2020 includes approximately a $220 million one-off impact of accelerated amortisation following a review of the amortisation method anduseful lives of certain technology assets. The year ended 30 June 2020 also includes $170 million of amortisation of prepaid software licences (30 June 2019: $161
million; 30 June 2018: $136 million).
5 The year ended 30 June 2019 includes $145 million professional indemnity insurance recovery in relation to AUSTRAC civil penalty. The year ended 30 June 2018
includes $700 million AUSTRAC civil penalty.
6 The year ended 30 June 2020 includes additional provisions for historical Aligned Advice remediation issues and associated program costs of $300 million, Wealthand Banking customer refunds and associated program costs of $94 million and other remediation of $60 million (30 June 2019: Aligned Advice remediation of $534
million, Wealth and Banking customer refunds and associated program costs of $301 million).

128

DIRECTORS’ REPORT

30 Jun 18

HOW WE CREATE VALUE

Group 1, 2
30 Jun 19

Operating expenses (continued)

OVERVIEW

30 Jun 20

Total staff expenses

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

129

130

131

Notes to the financial statements

2.5

2.5

For the year ended 30 June 2020

For the year ended 30 June 2020

Income tax expense

Income tax expense (continued)
1

The income tax expense for the year is determined from the profit before income tax as follows:
1

Bank

Group
30 Jun 19$M

30 Jun 18$M

30 Jun 20$M

30 Jun 19$M

Profit before income tax

10,47911,376

12,553

12,73010,407

Prima facie income tax at 30%

3,144

3,413

3,766

3,819

3,122

Effect of amounts which are non-deductible/(assessable) in
calculating taxable income:–(7)(1,416)

(365)

(16)

(40)

(36)

7

(8)

Offshore banking unit

(19)

(32)

(39)

(20)

(32)

–

1

15

–

1

(53)

(101)

(70)

(39)

(105)

–

–

210

–

–

(74)

–

–

(5)

–

Effect of changes in tax rates
Income tax over provided in previous years
Non-deductible expense provision 2
Loss on disposals

38

34

(28)

216

11

Total income tax expense

3,020

3,275

3,811

2,562

2,624

Effective tax rate (%)

28. 8

28. 8

30. 4

20. 1

25. 2

Other

1 Information has been restated and presented on a continuing operations basis.
2 Relates to the AUSTRAC civil penalty, which is non-deductible for tax purposes.

Income tax expense attributable to profit from ordinary activities

Bank

30 Jun 20

30 Jun 1830 Jun 20

30 Jun 19

$M

$M

$M

$M

$M

Australia
Current tax expense

3,017

3,110

3,496

2,963

2,755

30 Jun 18

Bank
30 Jun 20 30 Jun 19

$M

$M

$M

$M

$M

952

–

–

882

–

472

425

452

418

398

1,758

1,345

991

1,580

1,230

Other provisions not tax deductible until expense incurred

674

497

221

592

331

Defined benefit superannuation plan

360

357

339

360

357

Unearned income

221

250

267

221

250

Intangible assets

184

76

45

184

76

216

236

251

110

232

4,837

3,186

2,566

4,347

2,874

Cash flow hedge reserve

117

142

114

16

19

Other reserves

176

41

22

180

46

293

183

136

196

65

Total deferred tax assets (before set off)

5,130

3,369

2,702

4,543

2,939

Set off to tax(3,070)(1,694)(1,263)(2,575)(1,369)Net deferred tax assets

2,060

1,675

1,439

1,968

1,570

Provision for employee benefits
Provisions for impairment on loans, bills discounted and otherreceivables

Other
Total amount recognised in the Income Statement and opening
retained profits 2, 3

Amounts recognised directly in Other Comprehensive Income:

Total amount recognised directly in Other Comprehensive Income

Deferred tax liability balances comprise temporary differences
attributable to:Amounts recognised in the Income Statement and opening
retained profits: 2, 3

(557)

(380)

(137)

(631)

(256)

Total Australia

2,460

2,730

3,359

2,332

2,499

Current tax expense

577

464

453

161

87

Right-of-use assets

875

–

–

809

–

Deferred tax expense/(benefit)

(17)

81

(1)

69

38

Lease financing relating to lessor activities

137

162

200

90

91

Intangible assets

66

68

73

56

56

Overseas

Total Overseas
Income tax expense attributable to profit from ordinary activities
1

560

545

452

230

125

3,020

3,275

3,811

2,562

2,624

Information has been restated and presented on a continuing operations basis.

13

3

30

16

13

Investments in associates

170

148

131

–

–

257

106

66

78

38

1,518

487

500

1,049

198

Revaluation of properties

84

82

81

89

84

Foreign currency translation reserve

28

36

18

–

–

Cash flow hedge reserve

787

481

48

784

479

Defined benefit superannuation plan

502

487

498

502

487

Investment securities revaluation reserve

181

121

–

181

121

–

–

118

–

–

1,582

1,207

763

1,556

1,171

Other
Total amount recognised in the Income Statement and opening
retained profits 2, 3
Amounts recognised directly in Other Comprehensive Income:Available-for-sale investments reserve
Total amount recognised directly in Other Comprehensive Income
Total deferred tax liabilities (before set off)

3,100

1,694

1,263

2,605

1,369

Set off to tax(3,070)(1,694)(1,263)(2,575)(1,369)

30

–

–

30

–

Net deferred tax liabilities
1 Comparative information has been restated to conform to presentation in the current year.

2 The adoption of AASB 16 on 1 July 2019 resulted in an increase in the Group’s Deferred tax asset of $859 million (Bank: $777 million) and an increase in theGroup’s Deferred tax liability of $799 million (Bank: $717 million) recognised through opening Retained profits.
3 The adoption of AASB 9 and AASB 15 on 1 July 2018 resulted in an increase in the Group’s Deferred tax asset of $435 million (Bank: $353 million) and an increasein the Group’s Deferred tax liability of $101 million (Bank: $27 million) recognised through opening Retained profits.

130

131

ADDITIONAL INFORMATION

Financial instruments

FINANCIAL REPORT

Deferred tax benefit

DIRECTORS’ REPORT

1

Group
30 Jun 19Group
30 Jun 19

HOW WE CREATE VALUE–

Offshore tax rate differential

Deferred tax asset balances comprise temporary differences
attributable to:Amounts recognised in the Income Statement and opening
retained profits: 2, 3
Lease liability

1

30 Jun 20

OVERVIEW

30 Jun 20$M

Taxation offsets and other dividend adjustments

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

132

133

Notes to the financial statements

2.5

2.6

For the year ended 30 June 2020

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

For the year ended 30 June 2020

Income tax expense (continued)

Deferred tax assets have not been recognised in respect of the following items because it is not considered probable that future taxable
profit will be available against which they can be realised:
Group

Bank

30 Jun 20

30 Jun 19

30 Jun 1830 Jun 20

30 Jun 19

$M

$M

$M

$M

$M

Deferred tax assets not taken to account

30 Jun 20

Earnings per ordinary share 1

Group 330 Jun 19

30 Jun 18

Cents per share

Earnings per share from continuing operations: 2
Basic421. 8458. 3500. 0

Diluted408. 5443. 2485. 5

Expire under current legislation

–

–

–

–

–

Do not expire under current legislation

25

–

47

25

–

Basic

544. 8485. 6534. 3

25

–

47

25

–

Diluted523. 2468. 6517. 7

Total

Earnings per share:

Tax consolidation

1 EPS calculations are based on actual amounts prior to rounding to the nearest million.

The Bank has recognised a tax consolidation contribution to the wholly-owned tax consolidated entity of $98 million (30 June 2019: $98
million).

3 The difference between earnings per share from continuing operations and earnings per share represents earnings per share from discontinued operations.

ACCOUNTING POLICIES

2 The information has been restated and presented on a continuing operations basis.

Reconciliation of earnings from continuing operations
used in calculation of earnings per share 1
Profit after income tax from continuing operations
Less: Non-controlling interests

Income tax on the profit or loss for the period comprises current and deferred tax.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the Balance Sheet date, and any
adjustment to tax payable in respect of previous years.

The amount of deferred tax recognised is based on the expected manner of realisation or settlement of the carrying amount of assets
and liabilities (i.e. through use or through sale), using tax rates which are expected to apply when the Deferred tax asset is realised or
the Deferred tax liability is settled.
The Group recognised and disclosed separate deferred tax assets and deferred tax liabilities arising from arrangements where theGroup is lessee. Deferred tax assets and liabilities are offset where they relate to income tax levied by the same taxation authority on
either the same taxable entity or different taxable entities within the same taxable group.

Any current tax liabilities/assets and deferred tax assets from unused tax losses from subsidiaries in the tax consolidated group arerecognised by the Bank legal entity and funded in line with the tax funding arrangement.
The measurement and disclosure of deferred tax assets and liabilities have been performed on a modified stand-alone basis under
UIG 1052 Tax Consolidation Accounting.

Critical accounting judgements and estimates

$M

7,459

8,101

8,742

–

(12)

(13)

7,459

8,089

8,729

290

323

267

7,749

8,412

8,996

Continuing operations earnings used in calculation of basic earnings per share

7,459

8,089

8,729

Discontinued operations earnings used in calculation of basic earnings per share

2,175

482

600

Earnings used in calculation of basic earnings per share

9,634

8,571

9,329

Add: Profit impact of assumed conversions of loan capital

290

323

267

9,924

8,894

9,596

Add: Profit impact of assumed conversions of loan capitalContinuing operations earnings used in calculation of fully diluted earnings per share
Reconciliation of earnings used in calculation of earnings per share

Earnings used in calculation of fully diluted earnings per share
1 The information has been restated and presented on a continuing operations basis.

Number of shares (in millions)

Weighted average number of ordinary shares used in the calculation of basic earnings per share
Effect of dilutive securities – executive share plans and convertible loan capital instruments
Weighted average number of ordinary shares used in the calculation of fully diluted earnings per
share

30 Jun 20

30 Jun 19

30 Jun 18

1,768

1,765

1,746

127

132

106

1,895

1,897

1,852

ACCOUNTING POLICIESBasic earnings per share (EPS) amounts are calculated by dividing the net profit for the year attributable to ordinary equity holders of
the Bank by the weighted average number of ordinary shares on issue during the year, adjusted for any bonus element included inordinary shares issued and excluding treasury shares held.
Diluted EPS is basic EPS adjusted for the impact of all securities on issue that can convert to CBA ordinary shares and would dilutebasic EPS on conversion. It is calculated by dividing net profit attributable to ordinary equity holders of the Bank (after adding backinterest on the convertible redeemable loan capital instruments) by the weighted average number of ordinary shares issued during theyear (as calculated under basic earnings per share adjusted for the effects of dilutive convertible non-cumulative redeemable loan
capital instruments and shares issuable under executive share plans).

132

133

ADDITIONAL INFORMATION

Provisions for taxation require significant judgement with respect to outcomes that are uncertain. For such uncertainties, the Group has
estimated the tax provisions based on the expected outcomes. A deferred tax asset is only recognised to the extent that it is probablethat future taxable profits will be available for it to be used against.

30 Jun 18$M

FINANCIAL REPORTThe Bank and its wholly owned Australian subsidiaries elected to be treated as a single entity (“the tax consolidated group”) under thetax consolidation regime from 1 July 2002. CommInsure Life will remain a member of the tax consolidated group until final completion of
the share sale. The members of the tax consolidated group have entered into tax funding and tax sharing agreements, which set out thefunding obligations and members.

30 Jun 19$M

DIRECTORS’ REPORT

Deferred tax is calculated using the Balance Sheet method where temporary differences are identified by comparing the carrying
amounts of assets and liabilities for financial reporting purposes to their tax bases.

Continuing operations earnings used in calculation of basic earnings per shareGroup
30 Jun 20

HOW WE CREATE VALUE

The amount receivable by the Bank under the tax funding agreement was $209 million as at 30 June 2020 (30 June 2019: $320 million
receivable). This balance is included in ‘Other assets’ in the Bank’s separate Balance Sheet.

OVERVIEW

Tax losses and other temporary differences on revenue account that:

Earnings per share

134

135

Notes to the financial statements

2.7

2.7

For the year ended 30 June 2020

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

For the year ended 30 June 2020

Financial reporting by segments

Financial reporting by segments (continued)

The principal activities of the Group are carried out in the business segments described below. These segments are based on the
distribution channels through which customer relationships are managed.

Businessand Private
Banking

Institutional
Banking andMarkets

$M

$M

New
Zealand

IFS and
Corporate
CentreWealthManagement

Total

$M

$M

$M

$M

$M

9,388

5,654

1,403

1,927

238

–

18,610Commissions

1,219

878

158

287

15

–

2,557

Lending fees

157

440

332

63

(6)

–

986

Trading and other income

249

247

407

25

366

–

1,294

Total other banking income

1,625

1,565

897

375

375

–

4,837

Total banking income

23,447

During the year, the Group announced the sale of its funds management business, CFS. The Group’s business segment performance has
been updated and presented on a continuing operations basis to exclude CFS businesses, which is disclosed as a discontinued operation.
During the year ended 30 June 2020, the Group made the following structural changes to its operating segments:• enhancing the classification of its business banking portfolios which resulted in a transfer of some customers from Retail Banking
Services to Business and Private Banking and Institutional Banking and Markets;• Aligned Advice related businesses (including Financial Wisdom Limited, Count Financial Limited and Commonwealth Financial
Planning Limited-Pathways) were transferred out of the Wealth Management division and consolidated into the Retail Banking
Services division; and• other re-segmentations, allocations and reclassifications, including refinements to the allocation of support unit and other costs.

The Group’s primary sources of revenue are interest and fee income (Retail Banking Services, Business and Private Banking,Institutional Banking and Markets, New Zealand and International Financial Services (IFS)) and insurance premiums (Retail Banking
Services) and funds management income (Retail Banking Services, New Zealand).
Revenues and expenses occurring between segments are subject to transfer pricing arrangements. All intra-group transactions are
eliminated on consolidation.

(i) Retail Banking Services
Retail Banking Services provides banking and general insurance products and services to personal customers. Retail Banking Services
also includes the financial results of retail banking activities provided under the Bankwest brand.

(ii) Business and Private Banking
Business and Private Banking serves the banking needs of business, corporate and agribusiness customers across the full range offinancial services solutions as well as providing banking and advisory services for high net worth individuals. It also provides equities
trading and margin lending services through the CommSec business. Business and Private Banking also includes the financial results ofbusiness banking activities conducted under the Bankwest brand.
Institutional Banking and Markets serves the commercial and wholesale banking needs of large corporate, institutional and government
clients across a full range of financial services solutions including access to debt capital markets, transaction banking, working capitaland risk management through dedicated product and industry specialists.

(iv) Wealth Management

11,013

7,219

2,300

2,302

613

–

Funds management income

67

–

–

136

(31)

–

172

Insurance income

140

–

–

–

(1)

–

139

11,220

7,219

2,300

2,438

581

–

23,758

Total operating income
2

16

–

–

–

(13)

–

3

Total income

11,236

7,219

2,300

2,438

568

–

23,761

Operating expenses(4,529)(2,606)(1,022)(1,021)(1,717)–(10,895)

Loan impairment expense(1,010)

(814)

(347)

(292)

(55)

–

(2,518)Investment experience

5,697

3,799

931

1,125

(1,204)–

10,348

Corporate tax (expense)/benefit(1,700)(1,145)

(276)

(314)

383

–

(3,052)

Non-controlling interests

–

–

–

–

–

–

–

Net profit after tax fromcontinuing operations- "cash basis"

3,997

2,654

655

811

(821)

–

7,296

Net profit after tax fromdiscontinued operations

–

–

–

–

16

137

153

3,997

2,654

655

811

(805)

137

7,449

Gain/(loss) on disposal andacquisition of entities net oftransaction costs

41

(16)

–

8

161

1,898

2,092

Hedging and IFRS volatility

–

–

–

126

(33)

–

93

Other non-cash items

–

–

–

–

–

–

–

4,038

2,638

655

945

(677)

2,035

9,634

(194)

(181)

(71)

(124)

(1,219)–(1,789)Total assets 4406,962

196,710

171,110

98,539138,253

2,486

1,014,060

Total liabilities 4

266,685

178,192

186,387

91,796210,034

8,953

942,047

Net profit after tax- "cash basis" 3

Wealth Management provides superannuation, investment and retirement products.

Net profit after tax- "statutory basis"(v) New Zealand

Additional information

New Zealand includes the banking and funds management businesses operating in New Zealand primarily under the ASB brand. ASB
provides a range of banking, wealth and insurance products and services to its personal, business, rural and corporate customers in
New Zealand.

Balance Sheet(vi) International Financial Services and Corporate Centre
International Financial Services (IFS) include the Indonesian retail and business banking operations (PT Bank Commonwealth), andminority investments in China (Bank of Hangzhou and Qilu Bank) and Vietnam (Vietnam International Bank).
Corporate Centre includes the results of unallocated Bank support functions such as Treasury, Investor Relations, Group Strategy,
Legal and Corporate Affairs. It also includes Bank wide elimination entries arising on consolidation, centrally raised provisions and otherunallocated revenue and expenses. Treasury is primarily focused on the management of the Bank’s interest rate risk, funding andliquidity requirements, and management of the Bank’s capital.

Amortisation and depreciation

1 Information is presented on a continuing operations basis unless otherwise stated.
2 Investment experience is presented on a pre-tax basis.
3 This balance excludes non-cash items, such as unrealised gains and losses relating to hedging and IFRS volatility, gains and losses net of transaction and separation
costs associated with disposal of Aegis, AUSIEX, CFS, CFSGAM, Count Financial, PT Commonwealth Life and other businesses, the dilution of the Group’s interest in
Bank of Hangzhou, the deconsolidation of CommInsure Life, and other non-cash items.
4 Total assets and total liabilities reflect the adoption of AASB 16 Leases on 1 July 2019. As permitted by AASB 16, comparative information has not been restated.
For details on the adoption of AASB 16 refer to Note 1.1.

The Treasury function includes:• Portfolio management: manages the interest rate risk of the Bank’s non-traded Balance Sheet using transfer pricing to consolidate
risk into Treasury, and hedging the residual mismatch between assets and liabilities using swaps, futures and options; and• Group funding and liquidity: manages the Bank’s long-term and short-term wholesale funding requirements, and the Bank’s prudent
liquidity requirements; and• Capital and regulatory strategy: manages the Bank’s capital requirements.

134

135

ADDITIONAL INFORMATION

Net profit before income tax

FINANCIAL REPORT(iii) Institutional Banking and Markets

Other banking income:

DIRECTORS’ REPORTBusiness segments are managed on the basis of net profit after income tax (“cash basis”). Management uses “cash basis” to assess
performance and it provides the basis for the determination of the Bank’s dividends. The “cash basis” presents the Group’s underlying
operating results, excluding a number of items that introduce volatility and/or one-off distortions of the Group’s current period
performance. These items, such as hedging and IFRS volatility, are calculated consistently year on year and do not discriminate
between positive and negative adjustments.

Net interest income

HOW WE CREATE VALUE

These changes have not impacted the Group’s net profit, but have resulted in changes to the presentation of the Income Statement andthe Balance Sheet of the affected segments. These changes have been applied retrospectively.

30 Jun 20 1

OVERVIEW

RetailBankingServices

136

137

Notes to the financial statements

2.7

2.7

For the year ended 30 June 2020

For the year ended 30 June 2020

Financial reporting by segments (continued)
RetailBankingServices

Businessand Private
Banking

Institutional
Banking andMarkets

$M

$M

8,748

5,655

30 Jun 19 1, 2
New
Zealand

IFS and
Corporate
CentreWealthManagement

$M

$M

$M

1,533

1,909

379

Total

RetailBankingServices

Businessand Private
Banking

Institutional
Banking andMarkets

$M

$M

$M

$M

–

18,224

Other banking income:Commissions

1,357

813

176

302

Lending fees

168

418

345

Trading and other income

147

293

426

1,672

1,524

947

Total other banking income
Total banking income
Insurance income
Total operating income

2,677

New
Zealand

IFS and
Corporate
CentreWealthManagement

Total

$M

$M

$M

$M

$M

18,465

Net interest income

9,070

5,646

1,605

1,760

384

–

Other banking income

1,756

1,498

1,104

415

318

–

5,091

Total banking income

10,826

7,144

2,709

2,175

702

–

23,556

29

–

60

1

–

992

Funds management income

199

–

–

112

2

–

313

80

336

–

1,282

Insurance income

242

–

–

–

(4)

–

238

442

366

–

4,951

Total operating income

11,267

7,144

2,709

2,287

700

–

24,107

3

10,420

7,179

2,480

2,351

745

–

23,175

139

–

–

130

(14)

–

255

149

–

–

–

(2)

–

147

10,708

7,179

2,480

2,481

729

–

23,577330 Jun 18 1, 2

8

–

–

–

(4)

–

4

Total income

11,275

7,144

2,709

2,287

696

–

24,111

Operating expenses(4,267)(2,406)(1,035)(860)(2,085)–(10,653)

(632)

(262)

(80)

(74)

(31)

–

(1,079)Investment experience

Loan impairment expense

–

–

–

(24)

–

2

Net profit before income tax

6,376

4,476

1,594

1,353

(1,420)–12,37910,734

7,179

2,480

2,481

705

–

23,579Corporate tax (expense)/benefit(1,911)(1,342)

(368)

(378)

220

–

(3,779)Operating expenses(4,462)(2,604)(1,014)(912)(1,832)–(10,824)

Non-controlling interests

–

–

–

–

(13)

–

(13)

Loan impairment expense

(672)

(384)

(17)

(102)

(26)

–

(1,201)

Net profit before income tax

5,600

4,191

1,449

1,467

(1,153)–

11,554

4,465

3,134

1,226

975

(1,213)–8,587

Corporate tax (expense)/benefit

Net profit after tax fromcontinuing operations- "cash basis"
Net profit after tax fromdiscontinued operations

–

–

–

96

(53)

782

825

4,465

3,134

1,226

1,071

(1,266)

782

9,412

58

–

–

(18)

(84)

(139)

(183)

(1,260)

(332)

(408)

372

–

(3,321)

–

–

–

–

(12)

–

(12)

Net profit after tax fromcontinuing operations- "cash basis"

3,907

2,931

1,117

1,059

(793)

–

8,221

Net profit after tax fromdiscontinued operations

–

–

–

–

(43)

528

485

Gain/(loss) on disposal andacquisition of entities netof transaction costs

3,907

2,931

1,117

1,059

(836)

528

8,706

Hedging and IFRS volatility

–

–

–

87

14

–

101

Other non-cash items

(3)

–

–

–

–

2

(1)

4,520

3,134

1,226

1,140

(1,336)

645

9,329

Net profit after tax- "cash basis" 4(Loss)/gain on disposal andacquisition of entities netof transaction costs

(32)

–

13

179

(13)

(208)

(61)

–

–

–

(48)

(31)

–

(79)

(1)

–

–

–

–

6

5

3,874

2,931

1,130

1,190

(880)

326

8,571

(198)

(162)

(38)

(80)

(480)

–

(958)

Total assets

390,976

197,047

148,027

94,320125,563

20,569976,502

Total liabilities

247,919

159,057

158,579

88,466229,264

23,568906,853

Net profit after tax- "statutory basis"
Additional information
Amortisation and depreciation

Net profit after tax- "statutory basis"

1 Information has been restated and presented on a continuing operations basis. For details on the Group’s discontinued operations refer to Note 11.3.
2 Information has been restated to conform to presentation in the current year and to reflect changes in accounting policy detailed in Note 1.1.
3 Investment experience is presented on a pre-tax basis.
4 This balance excludes non-cash items, such as unrealised gains and losses relating to hedging and IFRS volatility, gains and losses net of transaction andseparation costs associated with disposal of CommInsure Life, Sovereign, and other businesses, net gains on acquisition of AHL and other businesses, animpairment due to the reclassification of TymeDigital SA as a discontinued operation, the demerger costs for NewCo, and other non-cash items.

ADDITIONAL INFORMATION

Hedging and IFRS volatility
Other non-cash items

Net profit after tax- "cash basis" 4

Balance Sheet

1 Information has been restated and presented on a continuing operations basis. For details on the Group’s discontinued operations refer to Note 11.3.
2 Information has been restated to conform to presentation in the current year and to reflect changes in accounting policy detailed in Note 1.1.
3 Investment experience is presented on a pre-tax basis.
4 This balance excludes non-cash items, such as unrealised gains and losses relating to hedging and IFRS volatility, gains and losses net of transaction and separation
costs associated with disposal of CFSGAM, Count Financial, PT Commonwealth Life, Sovereign, TymeDigital SA and other businesses, the deconsolidation and planned
divestment of CommInsure Life, the demerger costs for NewCo, and other non-cash items.

136

FINANCIAL REPORT(1,693)

Non-controlling interests

DIRECTORS’ REPORT

26

Total income

Investment experience

HOW WE CREATE VALUE

Funds management income

Financial reporting by segments (continued)

OVERVIEW

Net interest income

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

137

138

139

Notes to the financial statements

For the year ended 30 June 2020
2.7

For the year ended 30 June 2020

Financial reporting by segments (continued)

3.

Group 130 Jun 19

30 Jun 20

Financial performance and position

30 Jun 18

%

$M

%

$M

%

20,39185. 2

20,16285. 8

21,026

86. 5

New Zealand
2

2,504

10. 5

2,444

10. 4

2,297

9. 4

Our lending activities

OVERVIEW
Lending is the Group’s primary business activity, generating most of its Net interest income and lending fees. The Group satisfies
customers’ needs for borrowed funds by providing a broad range of lending products in Australia, New Zealand and other jurisdictions.
As a result of its lending activities the Group assumes credit risk arising from the potential that borrowers will fail to meet their
obligations in accordance with agreed lending terms.

1,031

4. 3

899

3. 8

996

4. 1

23,926100. 023,505100. 024,319100. 0This section provides details of the Group’s lending portfolio by type of product and geographical region, analysis of the credit quality of
the Group’s lending portfolio and the related impairment provisions.

14,48893. 0

12,45393. 2

13,473

93. 3

New Zealand

857

5. 5

635

4. 8

581

4. 0

3.1

Other locations 2

235

1. 5

261

2. 0

387

2. 7

15,580100. 013,349100. 014,441100. 0

Other locations
Total Income

Non-current assets

3

Australia

1 Information has been restated and presented on a continuing operations basis. For details on the Group’s discontinued operations refer to Note 11.3.

Loans, bills discounted and other receivables
1Group
30 Jun 20 30 Jun 19
Note

$M

$M

1

Bank
30 Jun 20 30 Jun 19$M$M

Australia

2 Other locations include: United Kingdom, Netherlands, United States, Japan, Singapore, Malta, Hong Kong, Indonesia, China and Vietnam.
3 Non-current assets include Property, plant and equipment, Investments in associates and joint ventures, and Intangibles.

The geographical segment represents the location in which the transaction was recognised.

ACCOUNTING POLICIESOverdrafts

27,593

26,297

27,593

26,297

Home loans 2, 3

485,795

467,361

478,419459,690

Credit card outstandings

9,005

11,271

9,005

11,271

Lease financing

4,073

4,410

3,487

3,532

1,955

354

1,955

Term loans and other lending

146,225

141,727

146,238

141,711

Total Australia

673,045

653,021665,096644,456

All transactions between segments are conducted on an arm’s length basis, with inter-segment revenue and costs being eliminated in‘Corporate Centre’.

Overseas

Bills discounted

Overdrafts

1,481

1,842

257

306

Home loans 2, 3

57,08555,581

259

341

911

1,069

–

–

6

8

1

1
20,662Credit card outstandings
Lease financing

49,492

18,061

105,630

107,992

18,57821,310Gross loans, bills discounted and other receivables

778,675

761,013683,674

665,766(5,277)(3,820)(4,766)(3,455)

(967)

(895)

(813)

(801)

Term loans

(627)

(739)

(621)

(730)

Lease financing

(257)

(386)

(206)

(272)

(7,128)(5,840)(6,406)(5,258)771,547

755,173

677,268

660,508

Less
Provisions for loan impairment:

3.2

Collective provision
Individually assessed provisions
Unearned income:Net loans, bills discounted and other receivables
1 Comparative information has been restated to conform to presentation in the current year.

2 Home loans balance includes residential mortgages that have been assigned to securitisation vehicles and covered bond trusts. Further details on these residential
mortgages are disclosed in Note 4.4.
3 These balances are presented gross of mortgage offset balances as required under accounting standards.

Based on behavioural terms and current market conditions, the amounts expected to be repaid within 12 months of the Balance Sheet
date are $178,113 million (2019: $185,208 million) for the Group, and $159,783 million (2019: $167,316 million) for the Bank.

138

139

ADDITIONAL INFORMATION

46,147

Total overseas

FINANCIAL REPORT

Term loans and other lending

DIRECTORS’ REPORT

354

Operating segments are reported based on the Group’s organisational and management structures. Senior management review theGroup’s internal reporting based around these segments, in order to assess performance and allocate resources.

HOW WE CREATE VALUE

Total non-current assets

OVERVIEW$M

IncomeAustralia

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

140

141

Notes to the financial statements

3.1

3.1

For the year ended 30 June 2020

For the year ended 30 June 2020

Loans, bills discounted and other receivables (continued)

Finance lease receivables

Loans, bills discounted and other receivables (continued)

Contractual maturity tables

The Group and the Bank provide finance leases to a broad range of clients to support financing needs in acquiring transportation assets
such as trains, aircraft, ships and major production and manufacturing equipment.

Group
Maturity Period at 30 June 2020
Maturing
after
5 years

Group 130 Jun 20
Grossinvestment infinance leasereceivable

30 Jun 19

Total

$M

$M

$M

Unearned
incomePresent valueof minimum
lease payment
receivable

Gross
investment infinance leasereceivable

Unearned
incomePresent valueof minimum
lease payment
receivable$M

Sovereign

22,376711

434

23,521

$M

$M

$M

$M

$M

$M

Agriculture

3,417

5,969

294

9,680

Bank and other financial

9,474

3,404

258

13,136

Not later than one year

1,584

(130)

1,454

1,665

(176)

1,489

One to two years

1,047

(66)

981

939

(66)

873

Home loans

16,452

68,258401,085

485,795

Two to three years

668

(34)

634

792

(51)

741

Construction

1,454

1,729

417

3,600

Other personal

5,996

10,363

1,336

17,695Three to four years

480

(16)

464

487

(41)

446

Four to five years

160

(6)

154

413

(40)

373

140

(5)

135

122

(12)

110

4,079

(257)

3,822

4,418

(386)

4,032

Bank

30 Jun 20

30 Jun 19

Australia

Asset financing

1,175

8,556

703

10,434

Other commercial and industrial

34,877

66,2678,040

109,184

Total Australia

95,221

165,257

412,567

673,045

Overseas
Sovereign

69

–

–

69

Agriculture

3,882

4,648

1,071

9,601

Bank and other financial

2,686

3,635

61

6,382

Home loans

4,729

8,233

44,12357,085

Unearned
incomePresent valueof minimum
lease payment
receivable

Gross
investment infinance leasereceivable

Unearned
incomePresent valueof minimum
lease payment
receivable

Construction

188

218

187

593

$M

$M

$M

$M

$M

$M

Other personal

1,061

408

407

1,876

Asset financing

48

495

236

779

14,980

8,406

5,859

29,24526,043

51,944

105,630

191,300

464,511778,675

(102)

1,329

1,363

(127)

1,236

844

(54)

790

791

(39)

752

Other commercial and industrial

Two to three years

607

(28)

579

589

(39)

550

Total overseas

27,643
122,864

Maturing

Maturing

Maturing

1 yearor less

between 1
and 5 years

after
5 years

Total

$M

$M

$M

$M

85,170142,694

319,877

547,741

Not later than one year

Three to four years

318

(12)

306

421

(32)

389

Gross loans, bills discounted and other receivables

Four to five years

152

(5)

147

257

(24)

233

1 The industry split has been prepared in line with industry exposures in Note 9.2.

Over five years

136

(5)

131

112

(11)

101

3,488

(206)

3,282

3,533

(272)

3,261

1 Comparative information has been restated to conform to presentation in the current year.

Interest rate

ACCOUNTING POLICIESAustralia

Loans, bills discounted and other receivables are recognised on settlement date, when funding is advanced to the borrowers. They are
initially recognised at their fair value plus directly attributable transaction costs such as broker fees. Subsequent to initial recognition,
they are measured at amortised cost using the effective interest rate method and are presented net of provisions for impairment. For theaccounting policy for provisions for impairment, refer to Note 3.2. For information on the Group’s management of credit risk, refer toNote 9.2.

Overseas

23,202

16,156

9,163

48,521

Total variable interest rates

108,372

158,850

329,040596,262

Australia

10,051

22,563

92,690125,304

Overseas

4,441

9,887

42,781

57,109Total fixed interest rates

14,49232,450135,471

182,413Gross loans, bills discounted and other receivables

122,864

191,300

464,511778,675

Finance leases, where the Group acts as lessor, are also included in Loans, bills discounted and other receivables. Finance leases arethose where substantially all the risks and rewards of the lease asset have been transferred to the lessee. Lease receivables arerecognised at an amount equal to the net investment in the lease. Finance lease income reflects a constant periodic return on this net
investment and is recognised within interest income in the Income Statement.

Critical accounting judgements and estimates
When applying this effective interest method the Group has estimated the behavioural term of each loan portfolio by reference tohistorical prepayment rates and the contractual maturity.

140

141

ADDITIONAL INFORMATION

Loans, bills discounted and other receivables include overdrafts, home loans, credit card and other personal lending, term loans, anddiscounted bills. These financial assets are held within a business model whose objective is to hold financial assets in order to collectcontractual cash flows. The contractual cash flows on these financial assets comprise the payment of principal and interest only. These
instruments are accordingly measured at amortised cost.

FINANCIAL REPORT

1,431

One to two years

DIRECTORS’ REPORT

Grossinvestment infinance leasereceivable

1

Industry 1

HOW WE CREATE VALUE

Maturing
between 1
and 5 years

OVERVIEW

Maturing
1 yearor less

Finance lease receivables are included within Loans, bills discounted and other receivables.

Over five years

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

142

143

Notes to the financial statements

3.1

3.2

For the year ended 30 June 2020

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

For the year ended 30 June 2020

Loans, bills discounted and other receivables (continued)

Provisions for impairment

1

Group

Group
Maturity Period at 30 June 2019

Industry2

Maturing
1 yearor less

Maturing
between1 and 5 years

Maturing
after
5 years

Total

$M

$M

$M

$M

Provisions for impairment losses

21,303592

509

22,404Agriculture

3,631

5,066

443

9,140

Bank and other financial

7,857

3,854

241

11,952Home loans

11,85951,092404,410467,361

Construction

1,492

1,248

454

3,194

Other personal

6,848

12,978

1,682

21,508Asset financing

969

8,960

542

10,471Other commercial and industrial

36,28961,0969,606

106,991

Total Australia

90,248144,886

417,887

653,021

Overseas
81

1

–

82

Agriculture

4,076

5,116

1,420

10,612

Bank and other financial

1,940

3,811

23

5,774

Home loans

4,954

7,082

43,54555,581

Construction

255

105

213

573

Other personal

1,264

378

282

1,924

Asset financing

44

436

242

722

Other commercial and industrial

16,307

9,288

7,129

32,724

Total Overseas

28,921

26,21752,854

107,992

Gross loans, bills discounted and other receivables

119,169

171,103

470,741

761,01330 Jun 20

30 Jun 19

$M

$M

$M

$M

$M

Collective provision
3,904

2,763

2,747

3,537

2,510

Change on adoption of AASB 9

–

1,055

–

–

979

Net collective provision funding

2,043

724

716

1,804

629

Impairment losses written off

(763)

(901)

(871)

(690)

(818)

Impairment losses recovered

185

206

201

172

191

Opening balance

Other
Closing balance

27

57

(30)

56

46

5,396

3,904

2,763

4,879

3,537

895

870

980

801

779

Individually assessed provisions
Opening balance
Net new and increased individual provisioning

658

619

625

519

556

Write-back of provisions no longer required

(183)

(142)

(262)

(168)

(127)

Discount unwind to interest income

(16)

(23)

(25)

(16)

(23)

Impairment losses written off

(444)

(500)

(548)

(371)

(446)

Other

57

71

100

48

62

Closing balance

967

895

870

813

801

Total provisions for impairment losses

6,363

4,799

3,633

5,692

4,338

Less: off Balance Sheet provisions

(119)

(84)

(28)

(113)

(82)

Total provisions for loan impairment

6,244

4,715

3,605

5,579

4,256

Of the total $1,207 million loans written-off by the Group during the year ended 30 June 2020 (30 June 2019: $1,401 million), $475
million remain subject to enforcement activity (30 June 2019: $424 million). Of the total $1,061 million loans written-off by the Bank
during the year ended 30 June 2020 (30 June 2019: $1,264 million), $397 million remain subject to enforcement activity(30 June 2019: $394 million).

1 Comparative information has been restated to conform to presentation in the current year.

Group

2 The industry split has been prepared in line with industry exposures in Note 9.2.

Maturing
between1

Provision ratios

Maturing
after

1

Total provisions for impaired assets as a % of gross impaired assets

Australia

76,743

126,963332,718

536,424

Overseas

25,363

16,89010,36852,621

Total variable interest rates

102,106

143,853

343,086

589,045

Australia

13,505

17,92385,169116,597

Overseas

3,558

9,327

42,48655,371

Loan impairment expense

Total fixed interest rates

17,06327,250127,655

171,968

Net collective provision funding

Gross loans, bills discounted and other receivables

119,169

171,103

470,741

761,013

Net new and increased individual provisioning

5 years
$M

Total
$M

1 Comparative information has been restated to conform to presentation in the current year.

142

Total provisions for impairment losses as a % of gross loans andacceptances

30 Jun 19

30 Jun 1830 Jun 20

30 Jun 19

%

%

%

%

%

35. 37

32. 77

33. 6037. 74

35. 36

0. 82

0. 63

0. 49

0. 83

0. 65

1 Gross impaired assets include non-performing facilities, restructured facilities and unsecured retail managed facilities 90 days or more past due. For impaired assets
classification refer to Note 9.2.

Group

Bank

30 Jun 20

30 Jun 19

30 Jun 1830 Jun 20

30 Jun 19

$M

$M

$M

$M

$M

2,043

724

716

1,804

629

658

619

625

519

556

Write-back of individually assessed provisions

(183)

(142)

(262)

(168)

(127)

Total loan impairment expense

2,518

1,201

1,079

2,155

1,058

143

ADDITIONAL INFORMATIONInterest rateor less 1 1 and 5 years
$M
$M

1

Bank

30 Jun 20

FINANCIAL REPORT

Maturing
1 year

DIRECTORS’ REPORT

Sovereign

30 Jun 18

HOW WE CREATE VALUE

Sovereign

30 Jun 19

OVERVIEW

Australia

Bank

30 Jun 20

144

145

Notes to the financial statements

3.2

3.2

For the year ended 30 June 2020

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

For the year ended 30 June 2020

Provisions for impairment (continued)

Provisions for impairment (continued)

Movement in provisions for impairment and credit exposures by ECL stage
The tables below provide movements in the Group’s and the Bank’s impairment provisions and credit exposures by expected credit loss
(ECL) stage for the year ended 30 June 2020.
Movements in credit exposures and provisions for impairment in the tables below represent the sum of monthly movements over theyear and are attributable to the following items:• Net re-measurement on transfers between stages: movements in provisions for impairment due to re-measurement between 12
months and lifetime ECL as a result of transfers of credit exposures between stages.
• Net financial assets originated: net movements in credit exposures and provisions for impairment due to new financial assets
originated as well as changes in existing credit exposures due to maturities, repayments or credit limit changes.
• Movements in existing IAP (including IAP write-backs): net movements in existing Individually Assessed Provisions (IAP)
excluding write-offs.

Opening balance as at
1 July 2018
Transfers to/(from)

Stage 2

Collectively assessedGrossexposure Provisions

4

Group

1, 2

Collectively assessedStage 3 5
Collectively andindividually assessed

Total

Gross
exposure Provisions

Gross
exposure Provisions

Gross
exposure Provisions

$M

$M

$M

$M

$M

$M

$M

$M

709,924873

191,009

2,525

5,976

1,290

906,909

4,688

111,753

1,312(111,687)(1,309)

(66)

(3)

–

–

(135,041)(607)

138,440

935(3,399)

(328)

–

–

Stage 3

(350)

(10)

(7,088)

(460)

7,438

470

–

–

–

(1,072)

–

1,596

–

568

–

1,092

• Movement due to risk parameter and other changes: movements in provisions for impairment due to changes in credit risk
parameters, forward looking economic scenarios or other assumptions as well as other changes in underlying credit quality that do
not lead to transfers between Stage 1, Stage 2 and Stage 3.

Net re-measurement on transfers
between stages

56,075341(47,598)(999)(1,953)

(143)

6,524

(801)

• Write-offs: derecognition of credit exposures and provisions for impairment upon write-offs.

Movement in existing IAP (including IAP
write-backs)

–

–

–

–

–

358

–

358

Movements due to risk parameters andother changes

–

57

–

191

–

304

–

552

• Recoveries: increases in provisions for impairment due to recoveries of loans previously written off.
• Foreign exchange and other movements: other movements in credit exposures and provisions for impairment including the impact
of changes in foreign exchange rates.

Net financial assets originated

Loan impairment expense for theyear
Write-offs

–

–

–

–

(1,401)(1,401)(1,401)(1,401)

Recoveries

–

–

–

–

–

206

–

206

5,408

11

1,216

40

102

54

6,726

105

747,769

905

164,292

2,519

6,697

1,375

918,758

4,799

Stage 1

92,253

1,384(92,543)(1,372)

290

(12)

–

–

Stage 2

(179,232)(636)

182,069

1,011(2,837)

(375)

–

–

Stage 3

(393)

(8)

(6,027)

(413)

6,420

421

–

–

–

(1,079)

–

1,614

–

535

–

1,070

Closing balance as at 30 June 2019

(46)

1,226

1,201

Transfers to/(from)Net financial assets originated75,315376(49,188)(765)(2,351)(188)

23,776(577)

Movement in existing IAP (including IAP
write-backs)

–

–

–

–

–

399

–

399

Movements due to risk parameters andother changes

–

618

–

736

–

272

–

1,626

Loan impairment expense for theyear
Write-offs

–

–

–

–

(1,207)(1,207)(1,207)(1,207)

Recoveries

–

–

–

–

–

185

–

185

(435)

9

(60)

16

(77)

43

(572)

68

735,277

1,569

198,543

3,346

6,935

1,448

940,755

6,363

Closing balance as at 30 June 2020

811

1,052

2,518

1 Comparative information has been restated to conform to presentation in the current year.
2 Refer to Note 9.2 for further analysis of provisions for impairment and credit exposures.
3 Movements in credit exposures exclude Cash and liquid assets and Receivables from financial institutions. Movements in provisions for impairment losses include
provisions in relation to Cash and liquid assets and Receivables from financial institutions. As at 30 June 2020, collective provisions in Stage 1 include $12 million in
relation to these financial assets (30 June 2019: $9 million).
4 The assessment of significant increase in credit risk includes the impact of forward looking adjustments for emerging risks at an industry, geographical location or aparticular portfolio segment level, which are calculated by stressing an exposure’s internal credit rating grade at the reporting date. This accounts for approximately
65% of Stage 2 credit exposures for the Group as at 30 June 2020 (30 June 2019: 65%).
5 As at 30 June 2020, Stage 3 includes $4,598 million of collectively assessed (30 June 2019: $4,604 million) and $2,337 million of individually assessed credit
exposures (30 June 2019: $2,093 million). Stage 3 provisions for impairment include $481 million of collective provisions (30 June 2019: $480 million) and $967
million of individually assessed provisions (30 June 2019: $895 million).

144

145

ADDITIONAL INFORMATION

Foreign exchange and othermovements

655

FINANCIAL REPORTNet re-measurement on transfers
between stages

DIRECTORS’ REPORT

Foreign exchange and othermovements

21

HOW WE CREATE VALUE

Stage 1
Stage 2OVERVIEW• Transfers to/(from): movements due to transfers of credit exposures between Stage 1, Stage 2 and Stage 3. Excludes the impact ofre-measurements of provisions for impairment between 12 months and lifetime ECL.

Stage 1 3

146

147

Notes to the financial statements

3.2

3.2

For the year ended 30 June 2020

For the year ended 30 June 2020

Provisions for impairment (continued)
Stage 1 3

Stage 2 4

Collectively assessedGrossexposure Provisions

Bank 1, 2

ACCOUNTING POLICIESCollectively assessedStage 3 5
Collectively andindividually assessed

Total

Gross
exposure Provisions

Gross
exposure Provisions

Gross
exposure Provisions

$M

$M

$M

$M

$M

$M

$M

$M

631,818783

171,198

2,313

5,177

1,172

808,193

4,268

107,627

1,268(107,567)(1,266)

(60)

(2)

–

–

(129,835)(572)

132,931878(3,096)

(306)

–

–

Stage 3

(203)

(9)

(6,636)

(445)

6,839

454

–

–

–

(1,037)

–

1,562

–

528

–

1,053

49,839323(46,367)(981)(1,843)

(122)

1,629

(780)

–

–

–

–

–

311

–

311

–

34

–

202

–

238

–

474

Net financial assets originated

–

–

–

–

(1,264)(1,264)(1,264)(1,264)

Recoveries

–

–

–

–

–

191

–

191

2,410

11

456

30

74

44

2,940

85

661,656801

144,015

2,293

5,827

1,244

811,498

4,338

Foreign exchange and othermovements
Closing balance as at 30 June 2019

7

(50)

1,101

1,058

Transfers to/(from)91,183

1,333(91,097)(1,327)

(86)

(6)

–

–

(172,270)(599)

175,655946(3,385)

(347)

–

–

Stage 3

(311)

(6)

(6,302)

(372)

6,613

378

–

–

–

(1,038)

–

1,559

–

474

–

995

70,949342(47,613)(746)(2,140)(162)

21,196(566)

Movement in existing IAP (including IAP
write-backs)

–

–

–

–

–

296

–

296

Movements due to risk parameters andother changes

–

569

–

581

–

280

–

1,430

Net re-measurement on transfers
between stages
Net financial assets originated

–

–

–

–

(1,061)(1,061)(1,061)(1,061)

Recoveries

–

–

–

–

–

172

–

172

1,305

16

384

35

–

37

1,689

88

652,5121,418

175,042

2,969

5,768

1,305

833,322

5,692

Foreign exchange and othermovements
Closing balance as at 30 June 2020

601

641

913

2,155

1 Comparative information has been restated to conform to presentation in the current year.

The ECL model applies to all financial assets measured at amortised cost, debt securities measured at fair value throughother comprehensive income, finance lease receivables, loan commitments and financial guarantee contracts not measured at fair value
through profit or loss (FVTPL). The model uses a three-stage approach to recognition of expected credit losses. Financial assets
migrate through these stages based on changes in credit risk since origination:• Stage 1 - 12 months ECL - Performing loans
On origination, financial assets recognise an impairment provision equivalent to 12 months ECL. 12 months ECL is the credit losses
expected to arise from defaults occurring over the next 12 months.
• Stage 2 - Lifetime ECL - Performing loans that have experienced a significant increase in credit risk (SICR)
Financial assets that have experienced a SICR since origination are transferred to Stage 2 and recognise an impairment provisionequivalent to lifetime ECL. Lifetime ECL is the credit losses expected to arise from defaults occurring over the remaining life offinancial assets. If credit quality improves in a subsequent period such that the increase in credit risk since origination is no longer
considered significant the exposure is reclassified to Stage 1 and the impairment provision reverts to 12 months ECL.
• Stage 3 - Lifetime ECL - Non-performing loans
Financial assets in default recognise a provision equivalent to lifetime ECL. This includes assets that are considered impaired as wellas assets that are considered to be in default but are not impaired because, for example, no loss is expected based on the security
position.
Credit losses for financial assets in Stage 1 and Stage 2 are assessed for impairment collectively, whilst those in Stage 3 are subjected
to either collective or individual assessment of expected credit losses.

Significant increase in credit risk (SICR)
SICR is assessed by comparing the risk of default occurring over the expected life of the financial asset at reporting date to thecorresponding risk of default at origination. The Group considers all available qualitative and quantitative information that is relevant toassessing SICR.
For non-retail portfolios, such as the corporate risk rated portfolio and the asset finance portfolio, the risk of default is defined using theexisting Risk Rated Probability of Default (PD) Masterscale. The PD Masterscale is used in internal credit risk management andincludes 23 risk grades that are assigned at a customer level using rating tools reflecting customer specific financial and non-financial
information and management’s experienced credit judgement. Internal credit risk ratings are updated regularly on the basis of the mostrecent financial and non-financial information.
The Group has developed a Retail Masterscale for use in the ECL measurement on personal loans, credit cards, home loans and SME
retail portfolios. The Retail Masterscale has 15 risk grades that are assigned to retail accounts based on their credit quality scores
determined through a credit quality scorecard. Risk grades for retail exposures are updated monthly as credit quality scorecards arerecalculated based on new behavioural information.
For significant portfolios, the primary indicator of SICR is a significant deterioration in an exposure’s internal credit rating grade between
origination and reporting date. Application of the primary SICR indicator uses a sliding threshold such that an exposure with a higher credit
quality at origination would need to experience a more significant downgrade compared to a lower credit quality exposure before SICR is
triggered. The level of downgrade required to trigger SICR for each origination grade have been defined for each significant portfolio.
The assessment of significant increase in credit risk includes the impact of forward looking adjustments for emerging risks at anindustry, geographic location or a particular portfolio segment level, which are calculated by stressing an exposure’s internal credit rating
grade at the reporting date. This accounts for approximately 65% of Stage 2 exposures for the Group and 64% for the Bank as at
30 June 2020 (30 June 2019: 65% for the Group and the Bank).
The Group also uses secondary SICR indicators as backstops in combination with the primary SICR indicator, including:

2 Refer to Note 9.2 for further analysis of provisions for impairment and credit exposures.
3 Movements in credit exposures exclude Cash and liquid assets and Receivables from financial institutions. Movements in provisions for impairment losses include
provisions in relation to Cash and liquid assets and Receivables from financial institutions. As at 30 June 2020, collective provisions in Stage 1 include $10 million in
relation these financial assets (30 June 2019: $9 million).
4 The assessment of significant increase in credit risk includes the impact of forward looking adjustments for emerging risks at an industry, geographical location or aparticular portfolio segment level, which are calculated by stressing an exposure’s internal credit rating grade at the reporting date. This accounts for approximately
64% of Stage 2 credit exposures for the Bank as at 30 June 2020 (30 June 2019: 65%).
5 As at 30 June 2020, Stage 3 includes $3,950 million of collectively assessed (30 June 2019: $4,168 million) and $1,818 million of individually assessed credit
exposures (30 June 2019: $1,659 million). Stage 3 provisions for impairment include $492 million of collective provisions (30 June 2019: $443 million) and $813
million of individually assessed provisions (30 June 2019: $801 million).

• arrears status, including the AASB 9 rebuttable presumption of 30 days past due;
• a retail exposure entering a financial hardship status;• a non-retail exposure’s referral to Group Credit Structuring.
The offer or uptake of a COVID-19 related repayment deferral does not itself constitute a SICR event unless the exposure is considered
to have experienced a SICR based on other available information. For most retail exposures on repayment deferrals, SICR has beenassessed with reference to credit quality score that is strongly associated with a heightened loan-to-value ratio and low levels of
prepayment. The Group reassessed the internal credit risk ratings for the majority of non-retail exposures in segments most impacted by
COVID-19 in the last quarter of the financial year 2020, including those on repayment deferrals, to determine if changes in customers’
circumstances were sufficient to constitute SICR.
For a number of small portfolios, which are not considered significant individually or in combination, the Group applies simplified provisioning
approaches that differ from the description above. 30 days past due is used as a primary indicator of SICR on exposures in these portfolios.

146

147

ADDITIONAL INFORMATION

Loan impairment expense for theyear
Write-offs

Expected credit loss (ECL) model

FINANCIAL REPORTStage 1
Stage 2A description of the key components of the Group’s AASB 9 impairment methodology is provided below.

DIRECTORS’ REPORT

Movement in existing IAP (including IAP
write-backs)
Movements due to risk parameters andother changes
Loan impairment expense for theyear
Write-offs

By providing loans to customers, the Group bears the risk that the future circumstances of customers might change, including theirability to repay their loans in part or in full. While the Group’s credit and responsible lending policies aim to minimise this risk, there will
always be instances where the Group will not receive the full amount owed and hence a provision for impaired loans will be necessary.

HOW WE CREATE VALUE

Stage 1
Stage 2
Net re-measurement on transfers
between stages

Provisions for impairment (continued)

OVERVIEW

Opening balance as at
1 July 2018
Transfers to/(from)COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

148

149

Notes to the financial statements

3.2

3.2

For the year ended 30 June 2020

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

For the year ended 30 June 2020

Provisions for impairment (continued)

Definition of default, impaired and write-offs
The definition of default used in measuring ECL is aligned to the definition used for internal credit risk management purposes across all
portfolios. This definition is also in line with the regulatory definition of default. Default occurs when there are indicators that a debtor isunlikely to meet contractual credit obligations to the Group in full, or the exposure is 90 days past due.

• Severe downside scenario: This scenario is included to account for a potentially severe impact of less likely, extremely adverse
macro-economic conditions. Relative to the Central and Downside scenarios, this scenario features a sharper contraction with a slow
recovery in economic output, heightened and prolonged weakness in the labour market, and more severe declines in house prices
and the share market. In addition to this, the scenario features a more severe and prolonged contraction in business investment and aweaker exchange rate, while interest rates remain accommodative.
The table below provides a summary of macro-economic variables used in the Central and Downside scenarios as at 30 June 2020.
CentralCalendar year

The offer or uptake of a COVID-19 related repayment deferral does not constitute a default or credit impairment unless the exposure isconsidered to be in default or impaired based on the criteria outlined above.

ECL measurement
ECL is a probability weighted expected credit loss estimated by evaluating a range of possible outcomes and taking into account thetime value of money, past events, current conditions and forecasts of future economic conditions.
The Group uses the following AASB 9 collective provisioning models in calculating ECL for significant portfolios:• Non-retail lending: Corporate Risk rated model, Asset Finance model.

1• Probability of default (PD): The likelihood that a debtor will be unable to pay its obligations in full without having to take actions suchas realising on security or that the debtor will become 90 days overdue on obligation or contractual commitment;• Exposure at default (EAD): Expected Balance Sheet exposure at default. The Group generally calculates EAD as the higher of thedrawn balance and total credit limit, except for the credit cards portfolio, for which EAD calculation also takes into account theprobability of unused limits being drawn down; and• Loss given default (LGD): The amount that is not expected to be recovered following default.

Lifetime of an exposure
For exposures in Stage 2 and Stage 3 impairment provisions are determined as a lifetime expected loss. The Group uses a range ofapproaches to estimate expected lives of financial instruments subject to ECL requirements:• Non-revolving products in corporate portfolios: Expected life is determined as a maximum contractual period over which theGroup is exposed to credit risk;• Revolving products in corporate and retail portfolios: For revolving products that include both a loan and an undrawn
commitment, such as credit cards and corporate lines of credit, the Group’s contractual ability to cancel the undrawn limits anddemand repayments does not limit the exposure to credit losses to the contractual notice period. For such products, ECL is measured
over the behavioural life.

Forward-looking information

Forward looking PD and LGD factors are modelled for each significant portfolio based on macro-economic factors that are most closely
correlated with credit losses in the relevant portfolios. Each of the four scenarios (refer below) includes a forecast of relevant
macro-economic variables which differ by portfolio:

2021

2022

(6.0)

6.0

3.0

(7.1)

1.4

2.3

9.0

7.5

6.3

10.0

8.5

6.9

0.25

0.25

0.25

0.25

0.25

House prices (annual % change)

(7.0)

(1.4)

3.8

(12.8)(12.5)(2.5)

Business investment (annual % change)(13.0)

4.0

4.4(14.0)

(7.5)

0.6
0.60

Cash rate (%) 1

1

0.64

0.64

0.64

0.60

0.60

Disposable income (annual % change)

(1.8)

1.7

1.8

(3.6)

(3.1)

0.1

ASX 200 (annual % change)

(5.7)

8.7

5.5

(27.0)(7.5)

3.4

NZ unemployment rate (%) 1

7.8

6.4

5.5

9.0

8.0

6.8

1

0.25

0.25

0.25

0.25

0.25

0.25

NZ house prices (annual % change)

(3.9)

0.6

2.3

(9.5)

(7.5)

(0.1)

NZ cash rate (%)

1 Spot rate at December of each year, unless otherwise stated.

The requirement to probability-weight possible future outcomes captures the uncertainty inherent in the credit outlook, and changes inthat uncertainty over time. Weights are assigned to each scenario based on management’s best estimate of the proportion of potential
future loss outcomes that each scenario represents. The same economic scenarios and probability weights apply across all portfolios.
The Group’s assessment of SICR also incorporates the impact of multiple probability-weighted future forecast economic scenarios on
exposures’ internal risk grades using the same four forecast macro-economic scenarios as described above.
In estimating impairment provisions on individually significant defaulted exposures, the Group generally applies conservative
assumptions in estimating recovery cash flows. Incorporating multiple forecast economic scenarios in estimates is not expected tosignificantly affect the level of impairment provisions on these credit exposures.

Incorporation of experienced credit judgement
Management exercises credit judgement in assessing if an exposure has experienced SICR and in determining the amount of
impairment provisions at each reporting date. Where applicable, credit risk factors (PD and LGD) are adjusted upwards to incorporate
reasonable and supportable forward looking information about known or expected risks for specific segments of portfolios that would
otherwise not have been considered in the modelling process. Credit judgement is used to determine the degree of adjustment to be
applied and considers information such as emerging risks at an industry, geographical and portfolio segment level.

Sensitivity of provisions for impairment to changes in forward looking assumptions
As described above, the Group applies four alternative macro-economic scenarios (Central, Upside, Downside and Severe downside
scenarios) to reflect unbiased probability-weighted range of possible future outcomes in estimating ECL.
The table below provides approximate levels of provisions for impairment under the Central and Downside scenarios for the Group andthe Bank assuming 100% weighting was applied to each scenario and holding all other assumptions constant. As noted above, thesescenarios and their associated weights have been selected based on the expected range of potential future loss outcomes.
Group

Bank

$M

$M

100% Central scenario

5,262

4,659

100% Downside scenario

9,014

8,220

• Retail portfolios: Cash rate, unemployment rate, GDP per capita and House price index.
• Non-retail lending: Unemployment rate, business investment index, disposable income, ASX 200 and the AUD/USD exchange rate.
New Zealand equivalents of a subset of the above macro-economic variables are used for retail credit exposures originated in New Zealand.
The Group uses the following four alternative macro-economic scenarios to reflect an unbiased probability-weighted range of possible
future outcomes in estimating ECL for significant portfolios:• Central scenario: This scenario considers Central Bank forecasts as well as the Group’s base case assumptions used in businessplanning and forecasting.
• Downside scenario: This scenario is set relative to the Central scenario based on macro-economic conditions that represent
plausible but less likely alternatives to the Central scenario.
• Upside scenario: This scenario is included to account for the potential impact of less likely, more favourable macro-economic
conditions. Relative to the Central scenario, the Upside scenario features a more rapid recovery in economic output and return tonormal labour market conditions over the short-term with further improvement over the medium-term. In addition to this, the scenario
features a stronger exchange rate, consistent growth in house prices, business investment, disposable income and the share market
as well as modest increases in interest rates over the medium-term.

148

Sensitivity of provisions for impairment to SICR assessment criteria
If 1% of Stage 1 credit exposures as at 30 June 2020 was included in Stage 2 provisions for impairment would increase byapproximately $108 million for the Group and $96 million for the Bank.
If 1% of Stage 2 credit exposures as at 30 June 2020 was included in Stage 1 provisions for impairment would decrease byapproximately $29 million for the Group and $26 million for the Bank.

149

ADDITIONAL INFORMATION

Credit risk factors of PD and LGD used in ECL calculation are point-in-time estimates based on current conditions and adjusted toinclude the impact of multiple probability-weighted future forecast economic scenarios.

2020

FINANCIAL REPORT• Non-revolving retail products: For fixed term products such as personal loans and home loans, expected life is determined using
behavioural term analysis and does not exceed the maximum contractual period; and2022

DIRECTORS’ REPORT

Secured retail exposures and defaulted non retail exposures are assessed for impairment through an Individually Assessed Provisions(IAP) process if expected losses are in excess of $20,000. Impairment provisions on these exposures are calculated directly as thedifference between the defaulted asset’s carrying value and the present value of expected future cash flows including cash flows fromrealisation of collateral, where applicable.

2021

0.25

Unemployment rate (%)

AUD/USD exchange rate

For each significant portfolio ECL is calculated as a product of the following credit risk factors at a facility level:

2020

HOW WE CREATE VALUE• Retail lending: Personal Loans model, Credit Cards model, Home Loans model, Retail SME model;

GDP (annual % change)

Downside
Calendar year

OVERVIEW

Facilities are classified as impaired where there is doubt as to whether the full amounts due, including interest and other payments, will
be received in a timely manner. Loans are written off when there is no reasonable expectation of recovery.

Provisions for impairment (continued)

150

151

Notes to the financial statements

3.2

3.2

For the year ended 30 June 2020

For the year ended 30 June 2020

Provisions for impairment (continued)

Provisions for impairment (continued)

Modifications relating to COVID-19

Group

The Group has introduced a number of support measures for customers impacted by COVID-19, which include loan repayment
deferrals for retail and small business customers. The Bank recognised approximately $310 million of interest related to retail loans indeferral and approximately $150 million of interest related to non-retail loans in deferral.

Loans with a gross carrying value of approximately $26,886 million were subject to COVID-19 related repayment deferrals when they
were included in either Stage 2 or Stage 3. Of these exposures, loans with a gross carrying value of approximately $25,179 million
remained in either Stage 2 or Stage 3 as at 30 June 2020.
The table below provides a summary of gross carrying values of credit exposures subject to COVID-19 related modifications as at
30 June 2020.
Bank

$M

$M

Stage 135,88931,313

Stage 2

19,992

18,734

Stage 3

1,228

1,120

57,10951,167Retail unsecured

30 Jun 1730 Jun 16

$M

$M

$M

$M

$M

Australia
Sovereign

–

–

–

–

–

Agriculture

54

51

56

47

42

4

14

16

27

29

Home loans

207

246

236

249

193

Construction

40

76

21

25

25

Other personal

3

3

6

9

7

Bank and other financial

Asset financing

35

10

16

18

28

Other commercial and industrial

311

369

343

442

483

Total Australia

654

769

694

817

807

591

39

Stage 2

127

81

Stage 3

17

4

735

124

Stage 1

6,400

6,157

Stage 2

10,508

9,281

Stage 3251236

17,15915,674

Non–retail

Sovereign

–

–

–

–

–

Agriculture

19

46

25

25

23

Bank and other financial

–

–

–

–

4

Home loans

4

4

5

4

6

Construction

1

–

1

1

8

Other personal

4

3

–

–

1

Asset financing

1

–

–

10

10

Other commercial and industrial

284

73

145

123

85

Total overseas

313

126

176

163

137

Total individually assessed provisions

967

895

870

980

944

Stage 142,88037,509

Stage 2

30,62728,096

Stage 3

1,496

1,360

75,003

66,965Total

FINANCIAL REPORT

Total credit exposures

DIRECTORS’ REPORTStage 1

Total non-retail

30 Jun 18

Overseas

Retail secured

Total retail unsecured

30 Jun 19

HOW WE CREATE VALUE

Group

Individually assessed provisions by industry classification

30 Jun 20

OVERVIEW

The repayment deferral arrangements were considered to be continuations of the existing loans and were therefore accounted for as
non-substantial loan modifications. A total modification loss of $6 million was recognised in relation to payment deferrals on home loans
in Net interest income. No other modification gains or losses were recognised as a result of the payment deferral arrangements.

Total retail secured

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

ADDITIONAL INFORMATION

150

151

152

153

Notes to the financial statements

3.2

3.2

For the year ended 30 June 2020

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

For the year ended 30 June 2020

Provisions for impairment (continued)

Provisions for impairment (continued)

Group

Group

30 Jun 20

30 Jun 19

30 Jun 1830 Jun 1730 Jun 16

$M

$M

$M

$M

$M

Sovereign

–

–

–

–

–

Agriculture

1

59

28

17

84

Loans written off by industry classification
Australia

30 Jun 20

30 Jun 19

30 Jun 1830 Jun 1730 Jun 16

$M

$M

$M

$M

$M

Sovereign

–

–

–

–

–

Agriculture

4

–

–

–

1

Loans recovered by industry classification
Australia

1

3

1

10

Bank and other financial

–

–

1

1

27

117

134

126

115

82

Home loans

4

4

2

3

3

Construction

35

44

13

16

11

Construction

1

1

–

1

1

Other personal

655

787

764

792

747

Other personal

152

169

165

170

154

17

23

41

54

Asset financing

2

2

5

7

4

221

126

179

210

249

Other commercial and industrial

9

14

14

12

21

1,049

1,168

1,136

1,192

1,237

172

190

187

194

211

Sovereign

–

–

–

–

–

Sovereign

–

–

–

–

–

Agriculture

36

2

3

15

7

Agriculture

–

–

–

–

–

Bank and other financial

4

5

5

5

–

Bank and other financial

–

–

–

–

1

Home loans

4

2

2

4

7

Home loans

1

1

1

1

1

Construction

2

2

1

8

–

Construction

–

–

1

1

–

Other personal

61

70

65

60

54

Other personal

12

11

10

11

10

Asset financing

–

–

–

–

–

Asset financing

–

–

–

–

–

Other commercial and industrial

51

152

207

64

112

Other commercial and industrial

–

4

2

3

2

Total overseas

158

233

283

156

180

Total overseas

13

16

14

16

14

1,207

1,401

1,419

1,348

1,417

Total loans recovered

185

206

201

210

225

Australia

172

190

187

194

211

Overseas

13

16

14

16

14

Total amounts recovered

185

206

201

210

225

1,022

1,195

1,218

1,138

1,192

Total Australia

Overseas

Overseas

Gross loans written off

Total Australia

Less recovery of amounts previously written off:

Net loans written off

DIRECTORS’ REPORT

19

Other commercial and industrial

HOW WE CREATE VALUE

Asset financing

OVERVIEW

1Home loans

Bank and other financial

FINANCIAL REPORTADDITIONAL INFORMATION

152

153

154

155

Notes to the financial statements

For the year ended 30 June 2020

4.

For the year ended 30 June 2020
4.1

Our deposits and funding activities

Deposits and other public borrowings (continued)Group
At 30 June 2019

OVERVIEW

Maturing
between3 and 6monthsMaturing
between
6 and 12monthsMaturing
after 12months

Total

$M

$M

$M

$M

Our main sources of funding include customer deposits and term funds raised in domestic and offshore wholesale markets via issuingdebt securities and loan capital. The Group also relies on repurchase agreements as a source of short-term wholesale funding. Refer toNote 9.4 for the Group’s management of liquidity and funding risk.

$M

Certificates of deposit 1

14,674

13,182

1,232

1,836

30,924

Term deposits

92,82539,38913,8352,264

148,313

Deposits and other public borrowings
Group

Bank

Total Australia

107,499

52,571

15,0674,100

179,237

30 Jun 19

30 Jun 20

30 Jun 19

$M

$M

$M

$M

5,938

3,156

3,005

45

12,144Australia

Overseas
Certificates of deposit 1
Term deposits

17,82013,129

6,127

2,071

39,147

Total overseas

23,75816,285

9,132

2,116

51,291

Total certificates of deposits and term deposits

131,257

68,85624,1996,216

230,528

30,12630,92430,26133,331

Term deposits

129,338

148,313

129,388

148,491

On-demand and short-term deposits

371,165

308,299371,200

308,338

Deposits not bearing interest

69,14349,274

69,122

49,245

Securities sold under agreements to repurchase

14,717

19,09915,01819,215

Total Australia

614,489555,909

614,989

558,620

Certificates of deposit

13,66912,144

9,818

8,818

Term deposits

35,40839,147

3,931

5,869

On-demand and short-term deposits

28,49623,491307

481

Deposits not bearing interest

7,777

5,349

190

63

Securities sold under agreements to repurchase

2,160

–

2,066

–

Total overseas

87,51080,131

16,312

15,23130 Jun 20

30 Jun 19

30 Jun 20

30 Jun 19

Total external deposits and other public borrowings

701,999

636,040

631,301

573,851

$M

$M

$M

$M

97

6,217

97

6,217

Overseas

1 All certificates of deposit issued by the Group are for amounts greater than $100,000.

ACCOUNTING POLICIES
Deposits from customers include certificates of deposit, term deposits, savings deposits, other demand deposits and debentures.
Deposits are initially recognised at their fair value less directly attributable transaction costs. Subsequent to initial recognition, they aremeasured at amortised cost. Interest incurred is recognised within Net interest income using the effective interest method.
Securities sold under repurchase agreements are retained on the Balance Sheet where substantially all the risks and rewards of ownership
remain with the Group. A liability for the agreed repurchase amount is recognised within Deposits and other public borrowings.

4.2

Liabilities at fair value through Income Statement
Group

Deposits and other borrowings

The contractual maturity profile of Certificates of deposit and Term deposits are shown in the table below:Group
At 30 June 2020
Maturing
3 monthsor less

Maturing
between3 and 6monthsMaturing
between
6 and 12monthsMaturing
after 12months

Total

$M

$M

$M

$M

$M

Certificates of deposit 1

20,056

8,862

1,138

70

30,126

Term deposits

78,43424,80823,702

2,394

129,338

Total Australia

98,49033,67024,8402,464

159,464

Overseas
Certificates of deposit 1

8,513

4,194

914

48

13,669Term deposits

17,38010,947

5,060

2,021

35,408

Total overseas

25,893

15,141

5,974

2,069

49,077

Total certificates of deposits and term deposits

124,383

48,81130,814

4,533

208,541

661

714

152

155

Trading liabilities

3,639

1,589

3,639

1,589

Total liabilities at fair value through Income Statement

4,397

8,520

3,888

7,961

As at 30 June 2020, $4,363 million of the Group’s total Liabilities at fair value through Income Statement (Bank: $3,854 million) are
expected to be settled within 12 months of the Balance Sheet date. As at 30 June 2019, $5,201 million of the Group’s total Liabilities atfair value through Income Statement (Bank: $4,642 million) were expected to be settled within 12 months.
The amount that would be contractually required to be paid at maturity to the holders of the financial liabilities designated at fair value
through Income Statement for the Group is $4,397 million (2019: $8,524 million) and for the Bank is $3,888 million(2019: $7,960 million).

ACCOUNTING POLICIESThe Group designates certain Liabilities at fair value through the Income Statement on origination when doing so eliminates or reduces
an accounting mismatch, or where the liabilities contain embedded derivatives which must otherwise be separated and carried at fairvalue. Trading liabilities are incurred principally for the purpose of repurchasing or settling in the near term.
Subsequent to initial recognition, these liabilities are measured at fair value. Changes in fair value (except those due to changes incredit risk) are recognised in Other banking income. Changes in fair value relating to the Group’s own credit risk are recognised in othercomprehensive income. Interest incurred is recognised within Net interest income using the effective interest method.

1 All certificates of deposit issued by the Group are for amounts greater than $100,000.

154

155

ADDITIONAL INFORMATION

Australia

Debt instruments

FINANCIAL REPORTThe majority of the amounts are due to be settled within 12 months of the Balance Sheet date.

Bank

DIRECTORS’ REPORT

Certificates of deposit

HOW WE CREATE VALUE

30 Jun 20

Australia

OVERVIEW

Maturing
3 monthsor less

Stable and well diversified funding sources are critical to the Group’s ability to fund its lending and investing activities, and support
growing its business.

4.1

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

156

157

Notes to the financial statements

4.3

4.3

For the year ended 30 June 2020

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

For the year ended 30 June 2020

Debt issues
1Group
30 Jun 20 30 Jun 19
Note

Debt issues (continued)

1

Group

Bank
30 Jun 20 30 Jun 19

30 Jun 20

Short-term borrowings by commercial paper program 1

30 Jun 19

30 Jun 18$M (except where indicated)

$M

$M

$M

Medium-term notes

80,877

98,342

67,60284,014

Total

Commercial paper

12,46820,158

12,104

17,596

Outstanding at year end 2

12,46820,15826,868Maximum amount outstanding at any month end

19,93724,55732,336

Average amount outstanding

16,546

21,59230,007

Outstanding at year end 2

12,406

20,12026,792

Maximum amount outstanding at any month end

19,68324,481

32,127

Average amount outstanding

16,392

21,49429,887

Securitisation notes

4.4

11,677

12,177––

Covered bonds

4.4

37,45633,31333,592

29,452

Bank acceptances

25

32

25

32

Total debt issues 2

142,503

164,022

113,323

131,094

Short-term debt issues by currency

US Commercial Paper Program

12,41020,147

12,047

17,585

AUD

29

42

29

42

Weighted average interest rate on:

GBP

5,175

3,470

5,175

3,470

Average amount outstanding

1. 9%

2. 6%

1. 8%

Outstanding at year end

0. 8%

2. 7%

2. 3%

28

227

28

227

17,642

23,886

17,27921,324

Other currencies
Total short-term debt issues
Long-term debt issues by currency 3Euro Commercial Paper Program
Outstanding at year end 2

38

76

39,56848,293

34,77943,802

Maximum amount outstanding at any month end

390

163

219

EUR

33,55636,17225,99228,601

Average amount outstanding

154

98

120

AUD

34,91237,90923,015

24,770Weighted average interest rate on:

GBP

4,938

3,653

4,298

2,510

Average amount outstanding

0. 9%

2. 2%

1. 5%

NZD

3,351

3,596

494

834

Outstanding at year end

0. 4%

2. 7%

2. 2%

JPY

1,662

2,115

1,534

1,989

Other currencies

6,806

8,331

5,864

7,197

68

67

68

67

124,861

140,136

96,044

109,770

Less than twelve months

36,40650,12731,02943,025

Greater than twelve months

106,097

113,895

82,29488,069Total debt issues

142,503

164,022

113,323

131,094

Offshore loans (all JPY)
Total long-term debt issues
Maturity distribution of debt issues 4

1 Short-term borrowings include callable medium-term notes of $5,149 million (2019: $3,696 million) which have been excluded from the table above.
2 The amount outstanding at year end is measured at amortised cost.

Exchange rates utilised 1
AUD 1.00 =2 Debt issues include unrealised movements of $3,095 million predominantly due to foreign exchange gains and losses and fair value hedge adjustments.
3 Long-term debt disclosed relates to debt issues which have a maturity at inception of greater than 12 months.

As at

As at

30 Jun 20

30 Jun 19

USD

0.68540.7013EUR

0.61140.6170GBP

0.5584

0.5533NZD

1.07051.0460JPY73.800275.6460

1 End of day, Sydney time.

4 Represents the remaining contractual maturity of the underlying instrument.

Guarantee arrangement
Guarantee under the Commonwealth Bank Sale Act
Historically, the due payment of all monies payable by the Bank was guaranteed by the Commonwealth of Australia under section 117
of the Commonwealth Banks Act 1959 (as amended) at 30 June 1996. With the sale of the Commonwealth’s shareholding in the Bank
this guarantee has been progressively phased out under transitional arrangements found in the Commonwealth Bank Sale Act 1995.
Demand deposits are no longer guaranteed by the Commonwealth under this guarantee. However, debt issues payable by the Bank
under a contract entered into prior to 19 July 1996 remain guaranteed until maturity.

ACCOUNTING POLICIESDebt issues include short and long-term debt issues of the Group and consist of commercial paper, securitisation notes, covered bonds
and medium-term notes.
Debt issues are initially measured at fair value and subsequently measured at amortised cost.
Premiums, discounts and associated issue expenses are recognised in the Income Statement using the effective interest method fromthe date of issue, to ensure the carrying value of securities equals their redemption value by maturity date. Interest is recognised in the
Income Statement using the effective interest method. Any profits or losses arising from redemption prior to maturity are taken to the
Income Statement in the period in which they are realised.
The Group hedges interest rate and foreign currency rate risk on certain debt issues. When fair value hedge accounting is applied to
fixed rate debt issues, the carrying values are adjusted for changes in fair value related to the hedged risks.

156

157

ADDITIONAL INFORMATIONThe Group’s long-term debt issues include notes issued under the: USD70 billion Euro Medium Term Note Program; the USD50 billion
US Medium Term Note Program; USD30 billion Covered Bond Program; Unlimited Domestic Debt Program; Unlimited ASB Domestic
Medium Term Note Program; USD25 billion CBA New York Branch Medium Term Note Program; EUR7 billion ASB Covered Bond
Program; USD10 billion ASB US Medium Term Note Program and other applicable debt documentation. Notes issued under debt
programs are both fixed and variable rate. Interest rate risk associated with the notes is incorporated within the Bank’s interest rate risk
framework. The Bank, from time to time, as part of its Balance Sheet management, may consider opportunities to repurchaseoutstanding long-term debt pursuant to open-market purchases or other means. Such repurchases help manage the Bank’s debt
maturity profile, overall funding costs and assist in meeting regulatory changes and requirements.

FINANCIAL REPORT

1 Comparative information has been restated to conform to presentation in the current year.

Currency

DIRECTORS’ REPORT

62

USD

HOW WE CREATE VALUEUSDOVERVIEW

$M

158

159

Notes to the financial statements

For the year ended 30 June 2020
4.4

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

For the year ended 30 June 2020

Securitisation, covered bonds and transferred assets

The Group enters into transactions in the normal course of business that transfers financial assets to counterparties or to Special
Purpose Vehicles (SPVs). Transferred financial assets that do not qualify for derecognition are typically associated with repurchaseagreements and our covered bonds and securitisation programs. The underlying assets remain on the Group’s Balance Sheet.
At the Balance Sheet date, transferred financial assets that did not qualify for derecognition and their associated liabilities are as follows:Group
Covered bonds

Securitisation 1
30 Jun 20 30 Jun 19

30 Jun 19

30 Jun 20

30 Jun 19

$M

$M

$M

$M

$M

$M

Carrying amount of transferred assets

19,11919,12943,19039,12912,791

13,521

Carrying amount of associated liabilities

16,876

19,09937,45633,313

11,677

12,177

Fair value of transferred assets

12,813

13,524

Fair value of associated liabilities

11,693

12,177

1,120

1,347

For those liabilities that have recourse only to the transferredassets:Net positionBank
Repurchaseagreements

2, 3, 4

Covered bonds

Securitisation
30 Jun 20 30 Jun 19

30 Jun 19

30 Jun 20

30 Jun 19

$M

$M

$M

$M

$M

$M

Carrying amount of transferred assets

19,326

19,24538,35934,16012,791

13,871

Carrying amount of associated liabilities

17,084

19,21533,592

29,452

12,514

13,637For those liabilities that have recourse only to the transferredassets:Fair value of transferred assets

12,813

13,874

Fair value of associated liabilities

12,514

13,637299

237

Net position

In addition to loans, the Group holds other assets to support its activities. Cash and liquid assets, Receivables from financial institutions,trading assets and investment securities are held for liquidity purposes, to generate returns and to meet customer demand. The mix andnature of assets is driven by multiple factors including the Board’s risk appetite, regulatory requirements, customer demand and thegeneration of shareholder returns.
The Group also transacts derivatives to meet customer demand and to manage its financial risks (interest rate, foreign currency,
commodity and credit risks).
Refer to Note 9.1 for additional information relating to the Group’s approach to managing financial risks through the use of derivatives.

5.1

Cash and liquid assets
Group

Bank

30 Jun 20

30 Jun 19

30 Jun 20

30 Jun 19

$M

$M

$M

$M

Notes, coins, cash at banks and money at short call

27,307

16,65524,01015,534

Securities purchased under agreements to resell

16,85812,732

16,29011,378

Total cash and liquid assets

44,16529,38740,30026,912

ACCOUNTING POLICIESCash and liquid assets include cash at branches, cash at banks, nostro balances, money at call with an original maturity of three months
or less and securities purchased under agreements to resell. Cash and liquid assets are initially recognised at fair value andsubsequently measured at amortised cost. Interest is recognised in the Income Statement using the effective interest method.
Securities, including bonds and equities, purchased under agreements to resell are not recognised in the financial statements where
substantially all the risks and rewards of ownership remain with the counterparty. An asset for the agreed resale amount by thecounterparty is recognised within Cash and liquid assets.

5.2

Receivables from and payables to financial institutions

1 Securitisation liabilities of the Group include RMBS notes issued by securitisation SPVs and held by external investors.

Group

2 Information has been restated to reflect the change in accounting policy detailed in Note 1.1.

Bank
30 Jun 20

30 Jun 19

$M

$M

$M

$M

Collateral placed

7,425

4,184

7,576

4,132

ACCOUNTING POLICIESOther receivables

1,122

3,909

733

3,202

Repurchase agreements

Receivables from financial institutions

8,547

8,093

8,309

7,334

Collateral received

4,820

5,484

4,070

4,905

Term funding facility from RBA

1,500

–

1,500

–

Other payables

10,10917,886

9,780

17,713

Payables to financial institutions

16,42923,37015,35022,6183 Securitisation liabilities of the Bank include borrowings from securitisation SPVs, recognised on transfer of residential mortgages by the Bank. The carrying amountof associated liabilities from securitisation SPVs is recorded under loans due to controlled entities.

Securities sold under agreement to repurchase are retained on the Balance Sheet when substantially all the risks and rewards ofownership remain with the Group, and the counterparty liability is included separately on the Balance Sheet when cash consideration isreceived.

Securitisation programs
The Group pools and equitably assigns residential mortgages as securities to investors through a series of wholly controlled
securitisation vehicles. Where the Bank and ASB retain substantially all of the risks and rewards associated with the mortgages, theBank and ASB continue to recognise the mortgages on their Balance Sheets. The Group is entitled to any residual income of the
securitisation programs after all payments due to investors have been met, where the Group is the income unitholder. The investors
have recourse only to the pool of mortgages in the SPV they have invested in.

Covered bonds programs
To complement existing wholesale funding sources, the Group has established two global covered bond programs for the Bank and
ASB. Certain residential mortgages have been assigned to SPV’s associated with covered bond programs to provide security on thepayments to investors. Similarly to securitisation programs, the Group is entitled to any residual income after all payments due tocovered bond investors have been met. As the Bank and ASB retain substantially all of the risks and rewards associated with themortgages, the Bank and ASB continue to recognise the mortgages on their Balance Sheets. The covered investors have dual recourse
to the Bank and the covered pool assets.

ACCOUNTING POLICIES
Receivables from and payables to financial institutions include cash collateral, short-term deposits and other balances. Cash collateralincludes initial and variation margins in relation to derivative transactions and varies based on trading activities. Receivables from andpayables to financial institutions are measured at amortised cost.
The Term Funding Facility (TFF) is provided by The Reserve Bank of Australia, and is collateralised by residential mortgage backed
securities issued by the Group. The TFF is initially recognised at its fair value and subsequently measured at amortised cost using theeffective interest rate method.

Critical accounting judgements and estimates
The Group exercises judgement at inception and periodically thereafter, to assess whether a structured entity should be consolidated
based on the Bank’s power over the relevant activities of the entity and the significance of its exposure to variable returns of thestructured entity. Such assessments are predominantly required for the Group’s securitisation programs, and structured transactions
such as covered bond programs.
158

159

ADDITIONAL INFORMATION

30 Jun 19

FINANCIAL REPORT

30 Jun 20

4 Securitisation assets exclude $129,124 million of assets (30 June 2019: $56,403 million), where the Bank holds all of the issued instruments of the securitisation vehicle.

DIRECTORS’ REPORT

30 Jun 20

OVERVIEWHOW WE CREATE VALUE

30 Jun 20

Our investing, trading and other banking activities

OVERVIEW

Repurchaseagreements

5.

160

161

Notes to the financial statements

5.3

5.4

For the year ended 30 June 2020

For the year ended 30 June 2020

Assets at fair value through Income Statement
Group 130 Jun 20 30 Jun 19

Assets at fair value through Income Statement

Bank 130 Jun 20 30 Jun 19

Derivative financial instruments and hedge accounting

Derivatives are classified as “held for trading” or “held for hedging”. Held for trading derivatives are contracts entered into in order tomeet customers’ needs, to undertake market making and positioning activities, or for risk management purposes that are not designatedin hedge accounting relationships. Held for hedging derivatives are instruments held for risk management purposes, which meet thecriteria for hedge accounting. Derivative financial instruments are contracts whose values are derived from one or more underlying
prices, indexes or other variables.

$M

$M

$M

Government bonds, notes and securities

31,255

21,95531,24521,949Corporate/financial institution bonds, notes and securities

3,750

3,264

3,750

3,264

Commodities

3,418

404

3,418

404

–

29

–

5

38,42325,652

38,41325,622

7,869

7,272

7,871

7,271

Receivables from corporate/financial institutions

159

434

–

235

Government securities

77

81

–

–

Forwards–

Swaps
Options

Trading

Total trading assets
Other
Commodities financing and other lending

17

238

–

Total other assets at fair value through Income Statement

8,122

8,025

7,871

7,506

Total assets at fair value through Income Statement

46,54533,67746,284

33,128More than twelve months
Total assets at fair value through Income Statement

Derivatives assets and liabilities

30 Jun 19

Fair value
asset

Fair value
liability

Fair value
asset

Fair value
liability

$M

$M

$M

$M

6,899

(6,677)

5,404(5,492)

7,443(12,638)

4,078(7,327)

441

(455)

349

(346)

14,783(19,770)

9,831(13,165)

Held for trading
Foreign exchange rate related contracts:

Total foreign exchange rate related contracts
Interest rate related contracts:

Maturity distribution of assets at fair value through Income Statement
Less than twelve monthsGroup
30 Jun 20

45,54833,45045,36432,947

Swaps

8,732

(4,252)

6,978(3,758)Futures

148

(69)

46

(132)

997

227

920

181

46,54533,67746,284

33,128

(572)

554

(463)

(4,893)

7,578(4,353)

1 Comparative information has been restated to reflect the change in accounting policy detailed in Note 1.1.

31

(74)

21

(49)

Swaps

5

–

10

(26)

Options

–

–

1

(3)

5

–

11

(29)

Swaps

558

(407)

207

(193)

Options

103

(66)

57

(76)

661

(473)

264

(269)

Credit related swaps

ACCOUNTING POLICIESEquity related contracts:

Assets at fair value through Income Statement include financial assets held for trading, commodity financing transactions, and otherfinancial assets designated at fair value through profit or loss. Trading assets are those acquired principally for sale in the near term.
Commodity inventories are measured at fair value less costs to sell in accordance with the broker trader exemption under AASB 102
Inventories. Commodity financing and other lending are mandatorily recognised at fair value through profit or loss, because thecontractual cash flows are not solely payments of principal and interest. Other financial assets are designated at fair value through profit
or loss, because they are managed with the objective of realising cash flows through sale. Assets at fair value through Income
Statement are measured at fair value with changes in fair value recognised in Other banking income.

Total equity related contracts
Commodity related contracts:

Identified embedded derivatives
Total derivative assets/(liabilities) held for trading

95

(70)

160

(60)

25,300(25,280)

17,865(17,925)

Held for trading derivatives are expected to be recovered or due to be settled within 12 months of the Balance Sheet date.
Group
30 Jun 20

30 Jun 19

Fair value
liability

Fair value
asset

Fair value
liability

$M

$M

$M

$M

3,797

(3,842)5,089(2,384)

Interest rate related swaps

493

(977)

379

(1,440)Total fair value hedges

4,290(4,819)5,468(3,824)Foreign exchange rate related swaps

531(1,007)

1,470

(643)

Interest rate related swaps

156

(211)

411

(365)

–

(30)

–

(5)

687

(1,248)1,881(1,013)Foreign exchange rate related forwards

8

–

1

(15)

Total net investment hedges

8

–

1

(15)

4,985

(6,067)7,350(4,852)

Cash flow hedges

Commodity price related swaps
Total cash flow hedges
Net investment hedges

Total derivative assets/(liabilities) held for hedging

The majority of hedging derivatives are expected to be recovered or due to be settled more than 12 months after the Balance Sheet date.
161

ADDITIONAL INFORMATION

Fair value
asset

Fair value hedges
Foreign exchange rate related swaps

FINANCIAL REPORT

Total commodity related contracts

160

DIRECTORS’ REPORT

845
9,725

Options
Total interest rate related contracts

HOW WE CREATE VALUE

Shares and equity investments

The fair value of derivative financial instruments is set out in the following tables:

OVERVIEW$M

Shares and equity investments

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

162

163

Notes to the financial statements

5.4

5.4

For the year ended 30 June 2020

For the year ended 30 June 2020

Derivative financial instruments and hedge accounting (continued)

Derivative financial instruments and hedge accounting (continued)

Bank
30 Jun 20

Derivatives assets and liabilities

Bank
30 Jun 20

30 Jun 19

30 Jun 19

Fair value
liability

Fair value
asset

Fair value
liability

Fair value
asset

Fair value
liability

Fair value
asset

Fair value
liability

$M

$M

$M

$M

$M

$M

$M

$M

2,341

(2,852)

3,707(1,670)Fair value hedges
Foreign exchange rate related contracts:

Foreign exchange rate related contracts:
Forwards

6,881(6,633)

5,392(5,465)

Swaps

8,254

(13,736)

5,036(8,161)

Derivatives held with controlled entities

Options

439

(452)

348

(345)

Total foreign exchange rate related contracts

Derivatives held with controlled entities

22(2,127)41(2,015)

15,596(22,948)

10,817(15,986)

Swaps

9(2,791)–(1,948)2,350(5,643)

3,707(3,618)

457

(950)

333

(1,393)

–

(82)

–

(68)

457

(1,032)333(1,461)

2,807(6,675)4,040(5,079)

Swaps

413

(862)

1,329

(471)

Derivatives held with controlled entities

129

(128)

–

(97)

Total foreign exchange rate related contracts

542

(990)

1,329

(568)

Interest rate related contracts:
Swaps

Swaps

8,483

(4,174)

6,735(3,653)Futures

148

(69)

47

(132)

Total fair value hedges

Options

845

(572)

554

(463)

Cash flow hedges

Derivatives held with controlled entities

20

(1)

16

(91)

Foreign exchange rate related contracts:

9,496(4,816)

7,352(4,339)

31

(74)

21

(49)

Swaps

5

–

10

(26)

Options

–

–

1

(3)

Swaps

79

(172)

316

(255)

5

–

11

(29)

Derivatives held with controlled entities

2

–

–

–

81

(172)

316

(255)

Swaps

557

(407)

207

(193)

Options

104

(66)

57

(76)

–

(30)

–

(5)

661

(473)

264

(269)

–

(30)

–

(5)

623

(1,192)

1,645

(828)

8

–

1

(15)

Total interest rate related contracts
Credit related swaps
Equity related contracts:

Total interest rate related contracts

Commodity related contracts:

Total commodity related contracts
Identified embedded derivatives
Total derivative assets/(liabilities) held for trading

Interest rate related contracts:

Commodity price related contracts:
Swaps
Total commodity price related contracts

95

(70)

160

(60)

Total cash flow hedges

25,884(28,381)

18,625(20,732)

Net investment hedges
Total net investment hedges
Total derivative assets/(liabilities) held for hedging

8

–

1

(15)

3,438

(7,867)

5,686(5,922)The majority of hedging derivatives are expected to be recovered or due to be settled more than 12 months after the Balance Sheet date.

162

163

ADDITIONAL INFORMATIONThe Bank will be required to post collateral on hedging derivatives with securitisation and covered bond trusts, its controlled entities, or
novate the derivatives to other appropriately rated counterparties in the event that the Bank’s credit rating falls below specified
thresholds. The thresholds for collateral posting vary between two and three notches from the current rating, depending on the ratings
agency. The thresholds for novation vary between four and six notches from the current rating, depending on the ratings agency. The
fair value of funding these collateral arrangements has been recognised by the Bank as a funding valuation adjustment. The adjustment
did not have a material impact on the Bank’s Income Statement for the year. As the arrangement is between the Bank and the trusts,
the fair value is eliminated on consolidation and will only be recognised by the Group if the trusts are deconsolidated.

FINANCIAL REPORT

Foreign exchange rate related forward contracts

Held for trading derivatives are expected to be recovered or due to be settled within 12 months of the Balance Sheet date.

DIRECTORS’ REPORT

Total equity related contracts

Total interest rate related contracts

HOW WE CREATE VALUE

Derivatives held with controlled entities

Interest rate related contracts:

OVERVIEW

Fair value
asset

Held for trading

Total foreign exchange rate related contracts

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

164

165

Notes to the financial statements

5.4

5.4

For the year ended 30 June 2020

For the year ended 30 June 2020

Derivative financial instruments and hedge accounting (continued)

The table below shows the deferred gains and losses, which are expected to be transferred to the Income Statement in the same period
when the hedge items impact the Income Statement:
Group
Total

Bank
Total

Risk components
In some hedging relationships, the Group and the Bank designate risk components of hedged items as follows:

30 Jun 19

30 Jun 20

30 Jun 19

$M

$M

$M

$M

(89)

47

(43)

57

(173)

(103)

(59)

(32)

1–2 years

(40)

(340)

224

(215)

2–5 years

2,320

1,476

2,126

1,516

161

53

287

207

2,179

1,133

2,535

1,533

Derivatives transacted for hedging purposes
Derivatives are initially measured at fair value. Subsequent to initial recognition, gains or losses on derivatives are recognised in the
Income Statement, unless they are entered into for hedging purposes and designated in a cash flow hedge.

Hedging the benchmark interest rate risk or spot exchange rate risk components results in other risks, such as credit risk and liquidity
risk, being excluded from the hedge accounting relationship.

Economic relationships and hedge effectiveness
The Group performs both prospective and retrospective tests to determine the economic relationship between the hedged item and thehedging instrument, and to assess hedge effectiveness. At inception of the hedge relationship, prospective testing is performed on amatched terms basis. This test checks that the critical terms are matched between the hedging instrument and the hedged item. At thesame time a hedging ratio is established by matching the notional of the derivatives with the principal of the portfolio or financial
instruments being hedged, in most cases the ratio is 100%. Retrospective testing for each reporting period uses a regression model,
which compares the change in the fair value of the hedged item and the change in the fair value of the hedging instrument. For a hedge
to be deemed effective, the change in fair values should be within 80% to 125% of each other. Should the result fall outside this range
the hedge would be deemed ineffective and recognised immediately through the Income Statement in line with each hedge relationshippolicy above.
Sources of hedge ineffectiveness affecting hedge accounting are:• differences in discounting between the hedged item and the hedging instrument. Collateralised derivatives are discounted using
Overnight Indexed Swaps (OIS) discount curves, which are not applied to the hedged item;

Hedging strategy and hedge accounting• change in the credit risk of the hedging instrument; andThe Group risk management strategy (refer to notes 9.1 and 9.3) is to manage market risks within risk limits to minimise profit andcapital volatility. The use of derivative and other hedging instruments for hedging purposes gives rise to potential volatility in the
Income Statement because of mismatches in the accounting treatment between derivatives and other hedging instruments and theunderlying exposures being hedged. The Group’s and the Bank’s objective is to reduce volatility in the Income Statement by applying
hedge accounting.

• mismatches between the contractual terms of the hedged item and the hedging instrument.

Fair value hedges are used by the Group to manage exposure to changes in the fair value of an asset, liability or unrecognised firm
commitments, predominantly associated with investment securities, debt issues and loan capital. Changes in fair values can arise fromfluctuations in interest or foreign exchange rates. The Group principally uses interest rate swaps, cross currency swaps and futures toprotect against such fluctuations.

No other sources of hedge ineffectiveness have arisen during the year.

Embedded derivatives
In certain instances, a derivative may be embedded within a host contract. It is accounted for separately as a stand-alone derivative atfair value, where:• the host contract is not carried at fair value through the Income Statement; and• the economic characteristics and risks of the embedded derivative are not closely related to the host contract.

FINANCIAL REPORT

Changes in the value of fair value hedges are recognised in the Income Statement, together with changes in the fair value of the hedged
asset or liability that are attributable to the hedged risk. All gains and losses associated with the ineffective portion of fair value hedge
relationships are recognised immediately as Other banking income.
If the hedge relationship no longer meets the criteria for hedge accounting, it is discontinued. For fair value hedges of interest rate risk,
the fair value adjustment to the hedged item is amortised to the Income Statement from the date of discontinuation over the period tomaturity of the previously designated hedge relationship using the effective interest method. If the hedged item is sold or repaid, theunamortised fair value adjustment is recognised immediately in the Income Statement.

Cash flow hedges

ADDITIONAL INFORMATIONCash flow hedges are used by the Group to manage exposure to variability in future cash flows, which could affect profit or loss andmay result from fluctuations in interest and exchange rates or in commodity prices on financial assets, financial liabilities or highly
probable forecast transactions, predominantly associated with floating rate domestic loans and deposits. The Group principally uses
interest rate swaps, cross currency swaps, futures and equity related swaps to protect against such fluctuations.
Changes in fair value associated with the effective portion of a cash flow hedge are recognised through other comprehensive income in
the Cash flow hedge reserve within equity. Ineffective portions are recognised immediately in the Income Statement. Amounts deferredin equity are transferred to the Income Statement in the period in which the hedged forecast transaction takes place.
When a hedging instrument expires or is sold, terminated or exercised, or when the hedge no longer meets the criteria for hedge
accounting, any cumulative gain or loss existing in equity at that time remains in equity and is reclassified to profit or loss in the period inwhich the hedged item affects profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss thatwas reported in equity is recycled immediately to the Income Statement. Where it is appropriate, non-derivative financial assets andliabilities are also designated as hedging instruments in cash flow hedge relationships.

Net investment hedges
The Group holds investments in foreign operations, where changes in net assets resulting from changes in foreign currency rates arerecognised in Foreign currency translation reserve and results in volatility in shareholders’ equity. To protect against the foreign
currency risk, the Group enters into foreign currency forwards that are designated as hedging instruments in net investment hedges.
Gains and losses on derivative contracts relating to the effective portion of the net investment hedge are recognised in the Foreign
currency translation reserve in equity. Ineffective portions are recognised immediately in the Income Statement. Gains and losses
accumulated in equity are included in the Income Statement when the foreign subsidiary or branch is disposed of.

164

DIRECTORS’ REPORTFair value hedges

HOW WE CREATE VALUEACCOUNTING POLICIES• spot exchange rate risk as a component of foreign currency risk for foreign currency financial assets and liabilities.
OVERVIEW

30 Jun 20

6 months–1 year

Net deferred gains/(losses)

Derivative financial instruments and hedge accounting (continued)• benchmark interest rate risk as a component of interest rate risk, such as the Bank Bill Benchmark Rate component; andWithin 6 months

After 5 years

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

165

166

167

Notes to the financial statements

5.4

5.4

For the year ended 30 June 2020

For the year ended 30 June 2020

Derivative financial instruments and hedge accounting (continued)

Hedging instruments
The following table provides details of the Group’s and the Bank’s hedging instruments by the type of hedge relationship in which they
are designated and the type of hedged risk.
Group
30 Jun 20

Derivative financial instruments and hedge accounting (continued)

The table below provides maturity analysis of expected notional values of the Group’s hedging instruments by the type of hedge
relationship in which they are designated and the type of hedged risk.
Group
30 Jun 20
Notional amounts

Bank
30 Jun 20
Fair value
derivative
liability

$M

$M

$M

Notional

Fair value
derivative
assetsFair value
derivative
liability

$M

$M

$M

Fair value hedges

Interest rate

Due from
1 to 5 years

Due beyond
5 years

Total

Hedged risk

$M

$M

$M

$M

Interest rate

12,54542,75941,70397,007

405

–

–

405

4,940

26,364

14,69445,998258,881

179,3025,225

443,408
14,946

Foreign exchange

97,007493(977)

80,899457(1,032)

405

23

(3)

–

–

–

Interest rate and foreign exchange
Cash flow hedges

Interest rate

Interest rate and foreign exchange

45,9983,774(3,839)45,0632,350(5,643)Foreign exchange

6,762

4,179

4,005

Total fair value hedges

143,4104,290(4,819)125,962

2,807(6,675)

Commodity price

5

32

38

75

Foreign exchange

524

–

–

524

Net investment hedges

Cash flow hedges
Interest rate

443,408

156

(211)

397,136

81(172)

Foreign exchange

14,946531(1,007)

16,221

542(990)

Commodity priceTotal cash flow hedges

75

–

(30)

75

–

(30)

458,429687(1,248)413,432623(1,192)

Group 130 Jun 19
Notional amounts

Net investment hedges
524

8

–

524

8

–

Total net investment hedges

524

8

–

524

8

–

602,363

4,985(6,067)539,918

3,438(7,867)

Total hedging instrument assets/(liabilities)

Group
30 Jun 19

Bank
30 Jun 19
Fair value
derivative
liability

Notional

Fair value
derivative
liability

$M

$M

$M

$M

$M

$M

112,725379(1,440)98,365333(1,461)

Fair value hedges
Interest rate

709

7

(6)

–

–

–

Interest rate and foreign exchange

Foreign exchange

59,0705,082(2,378)55,587

3,707(3,618)

Total fair value hedges

172,504

5,468(3,824)

153,952

4,040(5,079)Total

Hedged risk

$M

$M

$M

$M

Interest rate

16,71445,24850,763112,725

709

–

–

709

Interest rate and foreign exchange

12,57529,577

16,91859,070Interest rate

338,071

185,9635,397

529,431

Foreign exchange

12,386

4,722

2,292

19,400Commodity price

5

23

52

80

Foreign exchange

481

–

–

481

Foreign exchange
Cash flow hedges

Fair value
derivative
assetsDue beyond
5 years

Net investment hedges

1 Comparative information has been restated to conform to presentation in the current year.

As at 30 June 2020, the weighted average fixed interest rate of interest rate swaps hedging interest rate risk was 1.36% (30 June 2019:2.00%). The major currency pairs of cross currency swaps designated in hedge relationships are receive USD/pay AUD and receive
EUR/pay USD with weighted average foreign currency rates of: AUD/USD 0.75 and USD/EUR 0.83 (30 June 2019: AUD/USD 0.85,
USD/EUR 0.82).

Cash flow hedges
529,431

411

(365)

481,685

316

(255)

Foreign exchange

19,400

1,470

(643)

16,835

1,329

(568)

Commodity price

80

–

(5)

80

–

(5)

548,9111,881(1,013)498,600

1,645

(828)

Foreign exchange

481

1

(15)

481

1

(15)

Total net investment hedges

481

1

(15)

481

1

(15)

721,896

7,350(4,852)653,033

5,686(5,922)

Total cash flow hedges

ADDITIONAL INFORMATIONInterest rate

Net investment hedges

Total hedging instrument assets/(liabilities)

In addition to derivative instruments used to hedge foreign currency risk, the Group and the Bank designate debt issues as hedging
instruments of certain foreign exchange risk exposures. The carrying value of debt issues designated as cash flow hedging instruments as
at 30 June 2020 was $1,136 million with average maturity of five years for the Group (30 June 2019: $949 million with average maturity offour years) and $54 million with average maturity of one year for the Bank (30 June 2019: $62 million with average maturity of two years).

166

FINANCIAL REPORT

Notional

Fair value
derivative
assetsFair value hedges

Due from
1 to 5 years

DIRECTORS’ REPORT

Foreign exchange

Due within
1 year

HOW WE CREATE VALUE

Due within
1 yearOVERVIEW

Notional

Fair value
derivative
assetsFair value hedges
Foreign exchange

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

167

168

169

Notes to the financial statements

5.4

5.4

For the year ended 30 June 2020

For the year ended 30 June 2020

Derivative financial instruments and hedge accounting (continued)

The table below provides maturity analysis of expected notional values of the Bank’s hedging instruments by the type of hedge
relationship in which they are designated and the type of hedged risk.
Bank
30 Jun 20
Notional amounts
Due from
1 to 5 years

Due beyond
5 years

Total

Hedged risk

$M

$M

$M

$M

Interest rate

9,952

32,216

38,73180,899––––Interest rate and foreign exchange
Cash flow hedges

1, 2

$M

49,892

Interest rate andforeign exchange

Hedged items

Hedged risk

Investment securities at fair value through
Other Comprehensive Income

Interest rate

Investment securities at fair value through
Other Comprehensive Income

Carrying
amountFair Value
1, 2

$M

adjustment
$M

5,901

44,381

5,893

4,557

555

4,318

555

23,662

14,63345,063150,029

4,949

397,136

Foreign exchange

6,177

6,039

4,005

16,221Loans, bills discounted and other receivables

Interest rate

1,743

109

1,585

104

Commodity price

5

32

38

75

Shares in and loans to controlled entities

Interest rate

–

–

1,546

78

Foreign exchange

524

–

–

524

Shares in and loans to controlled entities

Interest rate andforeign exchange––

21,3001,447

Deposits and other public borrowings

Interest rate

(58)

(8)

(58)

(8)

Deposits and other public borrowings

Interest rate andforeign exchange

(50)

(3)

(50)

(3)

Due from
1 to 5 years

Due beyond
5 years

Total

Hedged risk

$M

$M

$M

$M

Interest rate

14,68536,05047,63098,365––––

Assets held for sale

Foreign exchange

403

24

–

–

Debt issues

Interest rate

(27,139)(2,146)(18,740)(1,810)Debt issues

Interest rate andforeign exchange(55,444)(3,449)(39,366)(2,596)

Interest rate and foreign exchange

10,64929,85015,08855,587

Loan capitalInterest rate

Interest rate

316,484

160,217

4,984

481,685(9,757)(1,212)(9,371)(1,200)Loan capital

9,955

4,588

2,292

16,835Interest rate andforeign exchange(9,274)(474)(9,274)(474)

Commodity price

5

23

52

80

Foreign exchange

481

–

–

481

Carrying
amount1 Comparative information has been restated to conform to presentation in the current year.

Bank
30 Jun 19
Fair value
1, 2

$M

adjustment$M44,493

Interest rate andforeign exchange

Loans, bills discounted and other receivables
Shares in and loans to controlled entities

Carrying
amountFair value
1, 2

4,438

40,064

4,425

10,130201

10,130201

Interest rate

2,136

63

1,900

57

Interest rate

–

–

1,533

65

Shares in and loans to controlled entities

Interest rate andforeign exchange––

19,690853

Deposits and other public borrowings

Interest rate

(557)

(7)

(557)

(7)

Deposits and other public borrowings

Interest rate andforeign exchange

(49)

(5)

(49)

(5)

Hedged items

Hedged risk

Investment securities at fair value through
Other Comprehensive Income

Interest rate

Investment securities at fair value through
Other Comprehensive Income

Assets held for sale

Foreign exchange

1,161

49

–

–

Debt issues

Interest rate

(26,319)(746)(17,713)(573)

Debt issues

Interest rate andforeign exchange(63,566)(2,155)(47,585)(1,368)

Loan capitalInterest rate

(5,974)(326)(5,582)(316)

Loan capitalInterest rate andforeign exchange(9,443)(192)(9,443)(193)

1 Represents the accumulated amount of the fair value adjustment included in the carrying amount. The cumulative amount that is related to ceased hedge relationships
where the risk being hedged was interest rate and foreign exchange risk is nil.
2 Changes in fair value of the hedged item used as a basis to determine effectiveness. The changes in fair value of the hedged items are recognised in Other banking income.
3 Comparative information has been restated to conform to presentation in the current year.

168

169

ADDITIONAL INFORMATION$M

adjustment$M

FINANCIAL REPORTAs at 30 June 2020, the weighted average fixed interest rate of interest rate swaps hedging interest rate risk was 1.36% (30 June 2019:2.00%). The major currencies of cross currency swaps designated in hedge relationships are receive USD/pay AUD and receive
EUR/pay USD with weighted average foreign currency rates of: AUD/USD 0.73 and USD/EUR 0.83 (30 June 2019: AUD/USD 0.84,
USD/EUR 0.83).

3

Group
30 Jun 19

DIRECTORS’ REPORT

Due within
1 yearForeign exchange
Net investment hedges

Fair value
adjustment
$M

6,768

Foreign exchange
Cash flow hedges

Carrying
amountBank
30 Jun 20

242,158

Interest rate

Bank 130 Jun 19
Notional amounts

Fair value hedges

The table below provides details of the Group’s and the Bank’s hedged items designated in fair value hedge relationships by the type ofhedged risk.

HOW WE CREATE VALUE

Net investment hedges

Hedged items in fair value hedges

Group
30 Jun 20

Due within
1 yearForeign exchange

Derivative financial instruments and hedge accounting (continued)

OVERVIEW

Fair value hedges

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

170

171

Notes to the financial statements

5.4

5.4

For the year ended 30 June 2020

For the year ended 30 June 2020

Derivative financial instruments and hedge accounting (continued)

Derivative financial instruments and hedge accounting (continued)

Hedge items in cash flow hedges and net investment hedges

Group
30 Jun 19

The table below provides details of the Group’s and the Bank’s hedged items designated in cash flow and net investment hedge
relationships by the type of hedged risk.
Group
30 Jun 20

Hedged risk
Foreign exchange

Loans, bills discounted and other receivables

Interest rate

Loans, bills discounted and other receivables

Foreign exchange

Shares in and loans to controlled entities

Interest rate

Foreigncurrencytranslation

Cash flow
hedge

reserve$M

reserve$M

2

1

Foreigncurrencytranslation
reserve 2$M

Hedged items

Hedged risk

Cash flow hedges
Investment securities at fair value through
Other Comprehensive Income

Foreign exchange

Cash flowhedge

Foreigncurrencytranslation

Cash flowhedge

Foreigncurrencytranslation

15

–

15

–

reserve 1$M

reserve 2$M

reserve 1$M

reserve 2$M

Loans, bills discounted and other receivables

Interest rate

4,085

–

3,834

–

Shares in and loans to controlled entities

Interest rate

–

–

3

–

26

–

26

–

Shares in and loans to controlled entities

Foreign exchange

–

–

68

–

4,906

–

4,471

–

Deposits and other public borrowings

Interest rate

(2,741)–(2,447)

–

19

–

19

–

Debt issues

Interest rate

(7)

–

(6)

–

3

–

Debt issues

Foreign exchange

(117)

–

76

–

–

–

Foreign exchange

–

–

88

–

Loan capitalInterest rate

(3)

–

(3)

–

Interest rate

(2,665)–(2,194)–

Loan capital

Foreign exchange

10

–

10

–

Debt issues

Interest rate

(60)

–

(55)

–

Highly probable forecast transactions

Foreign exchange

(92)

–

–

–

–

Highly probable forecast transactions

Commodity price

(17)

–

(17)

–

Foreign exchange

–

(33)

–

(33)

1,133

(33)

1,533

(33)

Debt issues

Foreign exchange

(18)

–

140

Loan capitalInterest rate

(4)

–

(4)

–

Net investment hedges

Loan capital

Foreign exchange

85

–

85

–

Foreign operations

Foreign exchange

(66)

–

–

–

Total

Commodity price

(44)

–

(44)

–

Highly probable forecast transactions
Highly probable forecast transactions

3

Net investment hedges
Foreign operations
Total

Foreign exchange

–

(14)

–

(14)

2,179

(14)

2,535

(14)

1 Represents the accumulated effective amount of the hedging instrument deferred to Cash flow hedge reserve. The cumulative amount related to ceased hedge
relationships where the risk being hedged was interest rate and foreign exchange risk is a loss of $13 million for the Group and the Bank. A cumulative loss of$1 million related to ceased hedge relationships was amortised to Income Statement during the period.
2 Represents the accumulated effective amount of the hedging instrument deferred to Foreign currency translation reserve. The cumulative amount related to ceased
hedge relationships where the risk being hedged was foreign exchange risk is nil.

DIRECTORS’ REPORT

Shares in and loans to controlled entities
Deposits and other public borrowings

HOW WE CREATE VALUE

Cash flow hedges
Investment securities at fair value through
Other Comprehensive Income

reserve 1$M

Bank
30 Jun 20

Bank
30 Jun 19

OVERVIEW

Cash flow
hedge

Hedged items

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

1 Represents the accumulated effective amount of the hedging instrument deferred to Cash flow hedge reserve. The cumulative amount related to ceased hedge
relationships where the risk being hedged was interest rate and foreign exchange risk is a loss of $11 million for the Group and the Bank. A cumulative gain of$5 million related to ceased hedge relationships was amortised to Income Statement during the period.
FINANCIAL REPORT

2 Represents the accumulated effective amount of the hedging instrument deferred to Foreign currency translation reserve. The cumulative amount related to ceased
hedge relationships where the risk being hedged was foreign exchange risk is nil.
3 A cumulative loss of $12 million was reclassified to the Income Statement during the period as a result of highly probable forecast transactions no longer meeting therequired criteria.

ADDITIONAL INFORMATION

170

171

172

173

Notes to the financial statements

5.4

5.4

For the year ended 30 June 2020

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

For the year ended 30 June 2020

Derivative financial instruments and hedge accounting (continued)

Derivative financial instruments and hedge accounting (continued)

Hedge effectiveness

IBOR reform

The table below details effectiveness of the Group’s and the Bank’s hedges by the type of hedge relationship and the type of hedged
risk.

The Group has designated hedging relationships where hedged items and/or hedging instruments reference LIBOR. These rates are in
the process of being transitioned to RFRs, as discussed in note 12.4. The table below provides more information on the hedge
accounting relationships that are impacted by IBOR reform.

Group
30 Jun 20

Bank
30 Jun 20$M

Statement
$M

item
$M

(590)

606

16

(2,687)

2,666

(25)

25

(3,302)

3,297

1

item
$M

Change invalue ofhedging
instrument2

1

Change invalue ofhedging
instrument

Interest rate and foreign exchange
Foreign exchange
Total fair value hedges

Notional designated beyond 31 Dec 2021

2

$M

Statement
$M

(553)

510

(43)

(21)

(1,715)

1,676

(39)

–

–

–

–

(5)

(2,268)

2,186

(82)

Fair value hedges
Interest rate

Hedging instruments

USD Libor

GBP Libor

CHF Libor

JPY Libor

$M

$M

$M

$M

Other notimpacted by

31 Dec 2021 2$M

IBOR reform 3$M

Total notional$M

Cash flow hedges

5,785

–

–

–

5,785

13,049439,595

458,429

Fair value hedges

38,534

3,169

2,305

705

44,713

12,78885,909143,410Hedged items
Carrying values of financial
instruments designated ashedged items beyond 31 Dec 2021 4

Cash flow hedges and net
investment hedges
(954)

945

(9)

(955)

944

(11)

Foreign exchange

(175)

175

–

Commodity prices

29

(29)

–

(90)

90

–

29

(29)

–

(1,100)

1,091

(9)

(1,016)

1,005

(11)

1 Changes in value of hedged item for Fair value hedges is recognised in Other banking income. Changes in value of the hedged item for Cash flow hedges is onlyused as basis for recognising ineffectiveness and represents the lower of the change in the hedged item and the hedging instrument. During the year, the unrealised
gains deferred to the Cash flow hedge reserve were $1,042 million for the Group and $1,001 million for the Bank, and no gain or loss was recognised in the Net
investment hedge reserve for the Group and the Bank.
2 Hedge ineffectiveness is recognised in Other banking income.

CHF Libor

JPY Libor

$M

$M

$M

Investment securities through OCI

10,346

1,946

–

–

Debt issues

27,077

1,527

2,360

261

Loan capital

8,635

–

–

541

Deposits and other public borrowings

1,030

–

–

–

Loans

2,207

–

–

–

1 Hedging instrument notional directly impacted by IBOR reform.
2 Hedging instrument notional linked to IBOR (impacted by the IBOR reform) that matures before 1 January 2022.

Change invalue ofhedging
instrument

4 Hedged item carrying value directly impacted by IBOR reform.

1Bank
30 Jun 19
Hedge
ineffectivenessrecognised in
Income3$M

Statement$M

Change invalue ofhedgeditem 2$M

Change invalue ofhedging
instrument

Hedge
ineffectivenessrecognised in
IncomeFINANCIAL REPORT

item 2$M

GBP Libor$M

3 Hedging instrument notional not impacted by IBOR reform.
1Group
30 Jun 19
Change invalue ofhedgedUSD Libor

3$M

Statement$M

Fair value hedges
1,257(1,269)

(12)

1,384

(1,397)(13)(4,548)4,569

21(2,538)

2,561

23

49

(49)

–

–

–

–

(3,242)3,251

9(1,154)

1,164

10

6

Total fair value hedges

ADDITIONAL INFORMATIONInterest rate
Interest rate and foreign exchange
Foreign exchange
Cash flow hedges and net
investment hedges
Interest rate

(1,279)1,283

4(1,302)

1,308

Foreign exchange

(669)

669

–

(667)

667

–

Commodity prices

(5)

5

–

(5)

5

–

(1,953)1,957

4(1,974)

1,980

6

Total cash flow hedges and net
investment hedges

DIRECTORS’ REPORTInterest rate

Total cash flow hedges and net
investment hedges

1

Total
$M

Notional
designated
up to

HOW WE CREATE VALUE

Change invalue ofhedgedChange invalue ofhedgedHedge
ineffectivenessrecognised in
IncomeOVERVIEW

Hedge
ineffectivenessrecognised in
Income1 Comparative information has been restated to conform to presentation in the current year.
2 Changes in value of hedged item for Fair value hedges is recognised in Other banking income. Changes in value of the hedged item for Cash flow hedges is onlyused as basis for recognising ineffectiveness and represents the lower of the change in the hedged item and the hedging instrument. During the year, the unrealised
gains deferred to the Cash flow hedge reserve were $1,355 million for the Group and $1,428 million for the Bank, and a loss recognised in the Foreign currencytranslation reserve was $20 million for the Group and the Bank.
3 Hedge ineffectiveness is recognised in Other banking income.

172

173

174

175

Notes to the financial statements

5.5

5.5

For the year ended 30 June 2020

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

For the year ended 30 June 2020

Investment securities

Investment securities (continued)

Maturity distribution and yield analysis
Group

Group
Maturity period at 30 June 2020

Bank

30 Jun 20

30 Jun 19

30 Jun 20

30 Jun 19

$M

$M

$M

$M

0 to 1 year

Investment securities at fair value through OCI
50,56053,55848,454

Corporate/financial institution bonds, notes and securities

12,971

18,075

11,502

16,407

Covered bonds, mortgage backed securities and SSA 1

8,818

10,210

6,719

8,306

570

67

556

45

79,54978,912

72,33573,212

5,168

7,349

5,167

7,349

Shares and equity investments
Total investment securities at fair value through OCI
Investment securities at amortised cost
Covered bonds, mortgage backed securities and SSA 1

5

6

–

–

Total investment securities at amortised cost

5,173

7,355

5,167

7,349

Total investment securities

84,722

86,26777,50280,561Government bonds, notes and securities

1 Supranational, Sovereign and Agency Securities (SSA).

As at 30 June 2020, Investment securities at fair value through other comprehensive income expected to be recovered within 12 monthsof the Balance Sheet date were $12,679 million (2019: $10,409 million) for the Group, and $10,494 million (2019: $8,639 million) for the
Bank. As at 30 June 2020, Investment securities at amortised cost amounts expected to be recovered within 12 months of the Balance
Sheet date were $1,655 million (2019: $1,622 million) for the Group and the Bank.

10 or more years

Nonmaturing
$M

Total

$M

%

$M

%

$M

%

$M

%

$M

9,239

0. 37

18,6720. 78

24,262

0. 95

5,017

1. 47

–

57,190

2,479

0. 53

10,377

0. 90

110

1. 95

5

1. 66

–

12,971

687

1. 03

6,234

1. 18

1,078

0. 99

819

1. 66

–

8,818

–

–

–

–

–

–

–

–

570

570

570

79,549Investment securities
at fair value throughOCI

12,40535,28325,450

5,841

10

2. 20

–

–

163

1. 38

4,995

1. 34

–

5,168

5

0. 61

–

–

–

–

–

–

–

5

15

–

163

4,995

–

5,173

12,42035,28325,613

10,836570

84,722

DIRECTORS’ REPORTFINANCIAL REPORT

Government bonds,
notes and securities
Corporate/financial
institution bonds, notes
and securities
Covered bonds,
mortgage backed
securities and SSA
Shares and equity
investments
Total investment
securities at fair value
through OCI
Investment securities
at amortised cost
Covered bonds,
mortgage backed
securities and SSA
Government bonds,
notes and securities
Total investment
securities at amortised
cost
Total investment
securities

HOW WE CREATE VALUE

57,1905 to 10 years

OVERVIEW

Government bonds, notes and securities

1 to 5 years

ACCOUNTING POLICIESInvestment securities primarily include public debt securities held as part of the Group’s liquidity portfolio.

Investment securities at fair value through other comprehensive income
Debt securities

Interest income and foreign exchange gains and losses on these securities are recognised in the Income Statement. The securities areassessed for impairment using the expected credit loss approach described in Note 3.2. Impairment is recognised in the Loan
impairment expense line in the Income Statement.
When debt securities at fair value through other comprehensive income are derecognised, the cumulative gain or loss recognised inother comprehensive income is reclassified to the Other banking income line in the Income Statement.

Equity securities
This category also includes non-traded equity instruments designated at fair value through other comprehensive income. Fair value
gains and losses and foreign exchange gains and losses on these equity instruments are recognised in other comprehensive income
and are not reclassified to the Income Statement on derecognition.

Investment securities at amortised costThis category includes debt securities held within the business model whose objective is to hold financial assets in order to collectcontractual cash flows. The contractual cash flows on these financial assets comprise the payment of principal and interest only. These
securities are initially recognised at their fair value plus directly attributable transaction costs. Subsequent to initial recognition, they aremeasured at amortised cost using the effective interest rate method and are presented net of provisions for impairment. For theaccounting policy for provisions for impairment, refer to Note 3.2.

174

175

ADDITIONAL INFORMATIONThis category includes debt securities held within the business model whose objective is achieved by both collecting contractual cash
flows and selling the assets. The contractual cash flows on these financial assets comprise payments of principal and interest only.
These securities are initially recognised at their fair value plus directly attributable transaction costs. Subsequent to initial recognition,
they are measured at fair value through other comprehensive income.

176

177

Notes to the financial statements

For the year ended 30 June 2020

6.

For the year ended 30 June 2020
6.1

Other assets

Property, plant and equipment (continued)

Reconciliation of movements in the carrying amount of Property, plant and equipment is set out below:
Group

OVERVIEW

Property, plant and equipment
Group

Bank

30 Jun 19

30 Jun 20

30 Jun 19

$M

$M

$M

$M

At cost

3,505

–

3,195

–

Accumulated depreciation

(521)

–

(470)

–

Closing balance

2,984

–

2,725

–

At 30 June valuation

438

442

394

399

Total land and buildings

438

442

394

399

Right-of-use assets 1

Land and buildings

Leasehold improvements
1,645

1,587

1,465

1,409

Accumulated depreciation(1,109)(1,041)

(999)

(935)

536

546

466

474

Closing balance
Equipment

2,171

2,163

1,823

1,857

Accumulated depreciation(1,671)(1,653)(1,456)(1,446)

500

510

367

411

4,458

1,498

3,952

1,284

At cost

1,503

1,202

136

136

Accumulated depreciation and impairment

(359)

(317)

(37)

(31)

Closing balance

1,144

885

99

105

Total property, plant and equipment

5,602

2,383

4,051

1,389

Closing balance
Total right-of-use assets and property, plant and equipment held for own use
Assets held as lessor

1 The adoption of AASB 16 Leases on 1 July 2019 resulted in recognition of $2,659 million right-of-use asset by the Group (the Bank: $2,385 million). For details on
the adoption of AASB 16, refer to Note 1.1.

30 Jun 19

$M

$M

$M

$M

Right-of-use assets 1
Adoption of AASB 16 2

2,659

–

2,385

–

Additions

963

–

894

–

Disposals

(111)

–

(82)

–

Depreciation

(521)

–

(470)

–

(6)

–

(2)

–

2,984

–

2,725

–

Carrying amount at the beginning of the year

442

440

399

397

Additions

15

10

15

9

Disposals

(8)

(18)

(5)

(15)

Foreign currency translation adjustment
Carrying amount at the end of the period
Land and buildings

Net revaluations

24

38

20

37

Depreciation

(34)

(34)

(34)

(34)

Foreign currency translation adjustment

(1)

6

(1)

5

Carrying amount at the end of the year

438

442

394

399

Carrying amount at the beginning of the year

546

537

474

444

Additions

117

154

102

140

Disposals

(5)

(12)

(4)

(13)

Depreciation(117)

Leasehold improvements

(118)

(135)

(105)

Reclassification to assets held for sale

–

(23)

–

–

Foreign currency translation adjustment

(4)

25

(1)

20

Carrying amount at the end of the year

536

546

466

474

Carrying amount at the beginning of the year

510

531

411

457

Additions

146

170

81

122

Disposals

(6)

–

(3)

(4)

Depreciation(175)

Equipment

(186)

(194)

(159)

Reclassification to assets held for sale

–

(14)

–

–

Foreign currency translation adjustment

36

17

37

11

Carrying amount at the end of the year

500

510

367

411

Carrying amount at the beginning of the year

885

1,068

105

162

Additions

567

–

–

–
(49)

FINANCIAL REPORTAt cost30 Jun 20

DIRECTORS’ REPORTAt cost30 Jun 19

HOW WE CREATE VALUE

30 Jun 20

Bank

30 Jun 20

OVERVIEWThe Group’s other assets comprise of assets not included in its lending, investing, trading and other banking activities. Other assets
include right-of-use assets and Property, plant and equipment held for own use and for lease through our asset finance businesses.
Other assets also include software, brand names and goodwill. These assets support the Group’s business activities.

6.1

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

Assets held as lessor

(144)

(111)

–

(81)

–

–

–

Depreciation

(83)

(72)

(6)

(8)

Foreign currency translation adjustment

–

–

–

–

Carrying amount at the end of the year

1,144

885

99

105

1 Right-of-use assets primarily relate to leases of commercial and retail premises.
2 The adoption of AASB 16 Leases on 1 July 2019 resulted in recognition of $2,659 million right-of-use asset by the Group (the Bank: $2,385 million). For details on
the adoption of AASB 16, refer to Note 1.1.
3 Due to the impact of COVID-19 on the aviation sector, a total impairment of $81 million was recognised in Other banking income relating to aircraft which are ownedby the Group and leased to various airlines.

176

177

ADDITIONAL INFORMATION

Disposals

Impairment losses 3

178

179

Notes to the financial statements

6.1

6.2

For the year ended 30 June 2020

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

For the year ended 30 June 2020

Property, plant and equipment (continued)

Intangible assets
Group

ACCOUNTING POLICIES

30 Jun 20

30 Jun 19

$M

$M

$M

$M

Purchased goodwill at cost

5,284

5,974

2,522

2,522

Closing balance

5,284

5,974

2,522

2,522

Goodwill

Other property, plant and equipment assets are stated at cost, including direct and incremental acquisition costs less accumulated
depreciation and impairment if required. Subsequent costs are capitalised where it enhances the asset. Depreciation is calculated using
the straight-line method over the asset’s estimated useful economic life.

Computer software costs
Cost

4,438

4,837

3,960

4,396

Accumulated amortisation(3,089)(3,125)(2,807)(2,842)

Closing balance

1,349

1,712

1,153

1,554

201

203

186

186

–

(2)

–

–

201

201

186

186

Brand names

1

Indefinite, not depreciated

Buildings

Up to 30 years

Equipment

3–8 years

Leasehold improvements

Lower of unexpired lease term or lives as above

Assets held as lessor:
Aircraft25 yearsRail

35–40 years

Closing balance

Ships

25–40 years

Total intangible assets

Cost
Accumulated amortisation
Closing balance
Other intangibles 2• the initial amount of the lease liability measured at the present value of the future lease payments;• any lease payments made at or before the commencement date less any lease incentives received;

267

351

231

219

Accumulated amortisation

(157)

(273)

(141)

(164)

110

78

90

55

6,944

7,965

3,951

4,317

1 Brand names predominantly represent the value of royalty costs foregone by the Group through acquiring the Bankwest brand name. The royalty costs that would
have been incurred by an entity using the Bankwest brand name are based on an annual percentage of income generated by Bankwest. The Bankwest brand namehas an indefinite useful life, as there is no foreseeable limit to the period over which the brand name is expected to generate cash flows. This balance also includes
the Aussie Home Loans brand name ($16 million) which has an indefinite useful life. They are not subject to amortisation, but require annual impairment testing. No
impairment was recognised during the year. The Count Financial brand name of $3 million was impaired during the year ended 30 June 2019.
2 Other intangibles include the value of customer and credit card relationships acquired from Bankwest and Aussie Home Loans. This value represents future net
income generated from the relationships that existed at Balance Sheet date. The assets have a useful life of between 6 and 10 years based on the attrition rates ofcustomers. Other intangibles also include prepaid software licences with a net book value of $99 million (30 June 2019: $54 million). Customer relationshipintangibles in relation to Count Financial of $13 million were impaired during the year ended 30 June 2019.

DIRECTORS’ REPORTRight-of-use assets are initially measured at cost comprising the following:

Cost

HOW WE CREATE VALUE

Land

Leases are entered into to meet the business needs of entities in the Group. Leases are primarily over commercial and retail premises
and plant and equipment. Where the Group is a lessee, all leases will be recognised on the Balance Sheet as a lease liability and rightof-use asset, unless the underlying asset is of low value or the lease has a term of 12 months or less. Rentals of leases with low value
underlying assets or where the lease term is 12 months or less are recognised over the lease term as Operating expenses in the
Income Statement.

OVERVIEW

30 Jun 19

The Group measures its land and buildings at fair value, based on annual independent market valuations performed during the year.
These fair values fall under the Level 3 category of the fair value hierarchy as defined in Note 9.5. Revaluation adjustments are reflectedin the Asset revaluation reserve, except to the extent they reverse a revaluation decrease of the same asset previously recognised in
the Income Statement. Upon disposal, realised amounts in the Asset revaluation reserve are transferred to Retained profits.

The useful lives of major depreciable asset categories are as follows:
Right-of-use assets
Unexpired lease term

Bank

30 Jun 20

Impairment tests for goodwill and intangible assets with indefinite lives• any initial direct costs; andThe right-of-use asset is depreciated over the lease term on a straight-line basis within Operating expenses in the Income Statement.
When the lease liability is remeasured, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or isrecognised in the Income Statement if the carrying amount of the right-of-use asset has been fully written down.

Critical accounting judgements and estimates
Judgement has been applied by the Group in assessing which arrangements contain a lease, the period over which the lease exists andthe variability of future cash flows when recognising right-of-use assets. The Group assesses at each Balance Sheet date useful lives
and residual values and whether there is any objective evidence of impairment.

If an asset’s carrying amount is greater than its recoverable amount, the carrying amount is written down immediately to its recoverable
amount.

Earnings multiples relating to the Group’s banking cash-generating units are sourced from publicly available data associated with
Australian businesses displaying similar characteristics to those cash-generating units, and are applied to current earnings. The key
assumption is the Price-Earnings (P/E) multiple observed for these businesses, which for the banking businesses were in the range of
11.8x–12.7x (2019: 11.6x–12.0x).
Goodwill allocation to cash generating unitsGroup
30 Jun 19

30 Jun 20

30 Jun 19

$M

$M

$M

$M

Retail Banking Services

3,744

3,744

1,988

1,988

Business and Private Banking

1,267

1,271

534

534

–

679

–

–

262

269

–

–

Wealth Management
New Zealand
IFS and Other
Total

178

Bank

30 Jun 20

11

11

–

–

5,284

5,974

2,522

2,522

179

ADDITIONAL INFORMATIONIn determining the value in use of assets held as lessor, the Group incorporates the cash inflows over the lease term, as well as the
expected selling price on expiry of the lease. Market disruption, lower demand for assets, decline in asset prices as well as credit events
specific to individual lessees can result in a reduction of the asset’s recoverable values. There remains significant uncertainty regarding
the severity of the impact of COVID-19 on the aviation sector, and the duration of restrictions on domestic and international travel.

To assess whether goodwill and other assets with indefinite useful lives are impaired, the carrying amount of a cash-generating unit or agroup of cash-generating units are compared to the recoverable amount. The recoverable amount is determined based on fair valueless cost to sell, primarily using an earnings multiple applicable to that type of business. The category of this fair value is Level 3 asdefined in Note 9.5.

FINANCIAL REPORT• an estimate of the costs to be incurred upon disassembling or restoring the underlying asset to the condition required by the terms of
the lease.

180

181

Notes to the financial statements

6.2

6.2

For the year ended 30 June 2020

For the year ended 30 June 2020

Intangible assets (continued)

Reconciliation of the carrying amounts of Intangible assets is set out below:
Group

$M

5,974

6,941

2,522

2,522

–

–

–

–

Transfers/disposals/other adjustments 1

(690)

(967)

–

–

Closing balance

5,284

5,974

2,522

2,522

1,712

1,819

1,554

1,682

Additions 2

407

343

384

287

Amortisation and write-offs 3

(769)

(450)

(785)

(415)

(1)

–

–

–

1,349

1,712

1,153

1,554

201

205

186

186

–

–

–

–

–

(4)

–

–

201

201

186

186

Opening balance

78

125

55

76

Additions

210

140

209

142

Amortisation and impairment 5

(178)

(187)

(174)

(163)

Closing balance

110

78

90

55

Goodwill

Computer software costs
Opening balance

Reclassification to assets held for sale
Closing balance
Brand names
Opening balance
Additions
Impairment

4

Closing balance
Other intangibles

1 Includes reclassifications to Assets held for sale and foreign currency revaluation.

Intangible assets are identifiable non-monetary assets without physical substance. They are recognised only if it is probable the asset
will generate future benefits for the Group. Those assets with an indefinite useful life are tested for impairment annually. All intangible
assets must be tested for impairment when there is an indication that its carrying amount may be greater than its recoverable amount.

Goodwill
Goodwill arises on the acquisition of a business and represents the excess of the consideration paid over the fair value of the net assets
and liabilities acquired. Goodwill is tested for impairment annually through allocation to a group of Cash Generating Units (CGUs). The
CGUs’ recoverable amount is then compared to the carrying amount of the CGUs including goodwill and an impairment is recognised
for any excess carrying value.

Computer software costs
Certain internal and external costs directly incurred in acquiring and developing software, are capitalised and amortised over theestimated useful life on a straight-line basis. The majority of software projects are amortised over two to five years. Software
maintenance is expensed as incurred.
During the year ended 30 June 2020, the Group changed the amortisation method for its core banking software, which was previously
amortised on a straight-line basis over ten years. The core banking software is now amortised applying a diminishing balancemethodology, over a useful life of approximately nine years. The financial impact of this change is presented in Note 2.4.

Brand names
Brand names acquired in a business combination include Aussie Home Loans, Bankwest and Count Financial Limited and these were
initially recognised at fair value. Aussie Home Loans and Bankwest brand names are assessed as having an indefinite useful life as
there is no foreseeable limit to the period over which the brand names are expected to generate cash flows. Count Financial brandname was fully impaired during the year ended 30 June 2019.

Other intangibles
Other intangibles predominantly comprise customer relationships and prepaid software licences. Customer relationships acquired aspart of a business combination are initially measured at fair value. They are subsequently measured at cost less accumulated
amortisation and any impairment losses. Amortisation is calculated based on the timing of projected cash flows associated with thoserelationships.

Critical accounting judgements and estimates

DIRECTORS’ REPORT

30 Jun 19$M

HOW WE CREATE VALUE

30 Jun 20$M

OVERVIEW

30 Jun 19$M

AdditionsIntangible assets (continued)

ACCOUNTING POLICIESBank

30 Jun 20

Opening balance

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

Goodwill is allocated to CGUs whose recoverable amount is calculated for the purpose of impairment testing. The recoverable amountcalculation relies primarily on publicly available earnings multiples, which are disclosed on page 179.

2 Primarily relates to internal development costs.
3 Includes amounts associated with discontinued operations.
4 The Count Financial brand name of $3 million was impaired during the year ended 30 June 2019.

FINANCIAL REPORT

5 Customer relationship intangibles in relation to Count Financial of $13 million were impaired during the year ended 30 June 2019.

ADDITIONAL INFORMATION

180

181

182

183

Notes to the financial statements

For the year ended 30 June 2020
6.3

For the year ended 30 June 2020

Other assets
1

Group

Bank
30 Jun 20 30 Jun 19

30 Jun 19

$M

$M

$M

$M

Accrued interest receivable

1,901

2,421

1,980

2,527

Accrued fees and reimbursements receivable 2

1,067

1,117

216

258

Securities sold not delivered

3,640

1,893

3,002

1,323

Intragroup current tax receivable

–

–

209

320

Current tax assets

16

624

10

609

333

291

217

190

681

462

681

462

Prepayments
Other

3

1,201

307

602

171

8,839

7,115

6,917

5,860

Other liabilities

OVERVIEWOther liabilities include provisions, interest payable, fees and bills payable and unsettled trades. Provisions principally cover annual
leave and long service leave employee entitlements as well as general insurance claims, provisions for customer remediation,compliance and regulation programs and litigations. It also includes provisions for impairment losses on financial guarantees and otheroff Balance Sheet instruments issued by the Group.
Certain provisions involve significant judgement to determine the likely outcome of events as well as a reliable estimate of the outflow.
Where future events are uncertain, or where the outflow cannot be reliably determined, these are disclosed as contingent liabilities.
Contingent liabilities are not recognised on the Group’s Balance Sheet but are disclosed in Note 12.1. Contingent liabilities in respect of
litigation, investigations and reviews are disclosed in Note 7.1.

7.1

Provisions
1Group
30 Jun 20 30 Jun 19

1 Information has been restated to reflect the change in accounting policy detailed in Note 1.1.
2 Accrued fees and reimbursements receivable as at 30 June 2020 include trail commission receivable of $453 million for the Group (30 June 2019: $442 million).

Note

3 As at 30 June 2020, other assets include $654 million of proceeds receivable in relation to divestments of businesses.

Employee entitlements

ACCOUNTING POLICIESCustomer remediation

Other assets include interest and fee receivables, current tax assets, prepayments receivables on unsettled trades and the surplus
within defined benefit plans. Interest receivables are recognised on an accruals basis, fees and reimbursements receivable arerecognised once the service is provided and trade date accounted securities sold not delivered are recognised between trade execution
and final settlement. The remaining other assets are recognised on an accrual or service performed basis and amortised over the period
in which the economic benefits from these assets are received. Further defined benefit plan details are provided in Note 10.2.

Compliance and regulation

$M

$M

$M

$M

1,039

970

910

906

338

292

–

–

1,031

959

1,034

901

121

119

121

119

188

213

188

213

Restructuring

324

240

321

242

Off Balance Sheet instruments

119

84

113

82

Other 2

248

91

227

91

3,408

2,968

2,914

2,554

General insurance claims
Dividends

Total provisions

8.4

1 Comparative information has been restated to conform to presentation in the current year.
2 The adoption of AASB 16 Leases on 1 July 2019 resulted in an increase of $135 million in the Group’s make-good provisions in relation to property leases (Bank:$121 million). As permitted by AASB 16 comparative information has not been restated. For details on the adoption of AASB 16, refer to Note 1.1.

DIRECTORS’ REPORT

Except for the defined benefits superannuation plan surplus, the majority of the above amounts are expected to be recovered within
12 months of the Balance Sheet date.

1Bank
30 Jun 20 30 Jun 19

HOW WE CREATE VALUE

Total other assets

10.2

7.

OVERVIEW

30 Jun 20
Note

Defined benefit superannuation plan surplus

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

Maturity distribution of provisions
Bank 130 Jun 20 30 Jun 19

$M

$M

$M

$M

Less than 12 months

2,826

2,501

2,416

2,042

More than 12 months

582

467

498

512

3,408

2,968

2,914

2,554

Total provisions

FINANCIAL REPORTGroup 130 Jun 20 30 Jun 19

1 Comparative information has been restated to conform to presentation in the current year.
ADDITIONAL INFORMATION

182

183

184

185

Notes to the financial statements

7.1

7.1

For the year ended 30 June 2020

For the year ended 30 June 2020

Provisions (continued)
Group 130 Jun 20 30 Jun 19

Reconciliation

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

Bank 130 Jun 20 30 Jun 19

Provisions (continued)

Provisions for employee entitlements (such as long service leave, annual leave and other employee benefits)
This provision is calculated based on expected payments. Where the payments are expected to be more than one year in the future,these provisions factor in the expected period of service by employees, as well as salary increases. These future obligations are
discounted using a market observable rate.

$M

$M

$M

Opening balance

292

219

–

–

General insurance claims

Movement in reinsurance and other recoveries on outstanding claims

61

19

–

–

Net claims incurred

573

528

–

–

This provision is to cover future claims on general insurance contracts that have been incurred but not reported and reinsurance
arrangements. The provision will be realised upon settlement of claims whose maturities were uncertain at the reporting date.

Customer remediation

General insurance claims:

(16)

7

–

–

Amounts utilised during the year

(572)

(481)

–

–

Closing balance

338

292

–

–

Opening balance

959

162

901

134

Additional provisions 2

445

963

448

903

Amounts utilised during the year

(327)

(166)

(315)

(136)

Customer remediation:

This provision covers customer remediation costs and related program costs.

Compliance and regulation
This provision relates to project and other administrative costs associated with certain compliance and regulatory programs of the Group.

Restructuring provision
The provision includes direct expenditures arising from changes in the scope of the Group’s business relating primarily to divestment
transactions. The provision includes costs, which are both necessarily entailed by the divestment and are not associated with theongoing activities of the Group. A provision for restructuring costs is only recognised when the Group has a detailed formal restructuring
plan and the restructuring has either commenced or has been publicly announced.

(46)

–

–

–

1,031

959

1,034

901

Opening balance

213

283

213

283

Additional provisions 3

107

125

107

125

Amounts utilised during the year

(132)

(188)

(132)

(188)

–

(7)

–

(7)

188

213

188

213

Provisions are held in respect of a range of future obligations, some of which involve significant judgement about the likely outcome ofvarious events and estimated future cash flows.

240

174

242

172

Customer remediation

Reclassification to liabilities held for sale
Closing balance
Compliance and regulation:

Closing balance
Restructuring:
Opening balance

223

220

218

222

Amounts utilised during the year

(115)

(154)

(115)

(152)

Release of provisions

(24)

–

(24)

–

Closing balance

324

240

321

242

Opening balance

84

28

82

28

Changes on adoption of AASB 9

–

87

–

84

Additional provisions

48

–

44

–

Amounts utilised during the year

(13)

–

(13)

–

Off Balance sheet instruments:

(31)

–

(30)

84

113

82

Opening balance

91

155

91

150

Changes on adoption of AASB 16 4

135

–

121

–

Other:

Additional provisions

46

32

43

31

Amounts utilised during the year

(24)

(90)

(28)

(90)

–

(6)

–

–

248

91

227

91

Reclassification to liabilities held for sale
Closing balance

Provisions for customer remediation require significant levels of estimation and judgement. The amount raised depends on a number ofdifferent assumptions, such as the number of years impacted, the forecast refund rate and the average cost per case. The Group iscommitted to comprehensively and efficiently addressing the full range of remediation issues impacting customers of the Banking and
Wealth Management businesses. Significant resources have been committed to a comprehensive program of work, to ensure that allissues are identified and addressed.

Aligned Advice remediation – ongoing service fees
Aligned advisors were not employed by the Group but were representatives authorised to provide financial advice under the licences of
the Group’s subsidiaries, Financial Wisdom Limited (FWL), Count Financial Limited (Count Financial) and Commonwealth Financial
Planning Limited - Pathways (CFP-Pathways).
The Group completed the sale of Count Financial to CountPlus Limited (CountPlus) on 1 October 2019, and ceased providing licensee
services through CFP-Pathways and Financial Wisdom in March and June 2020, respectively. The Bank entered into reimbursementagreements with Financial Wisdom and CFP-Pathways, and an indemnity deed with CountPlus, to cover potential remediation of pastissues including ongoing service fees. For details on the reimbursement agreements and the indemnity deed, refer to Note 11.2.
During the year ended 30 June 2020, the Group recognised a net increase in the provision for Aligned Advice remediation issues andprogram costs of $300 million, including ongoing service fees charged where no service was provided. As at 30 June 2020, theprovision held by the Group in relation to Aligned Advice remediation was $804 million (30 June 2019: $534 million). The provision
includes $418 million for customer fee refunds (30 June 2019: $251 million), $280 million for interest on fees subject to refunds (30 June
2019: $123 million) and $106 million for costs to implement the remediation program (30 June 2019: $160 million).
The Group’s estimate of the proportion of fees to be refunded is based on sample testing and assumes a refund rate of 37%(30 June 2019: 24%). This compares to a refund rate of 22%, which was paid for our salaried advisors. An increase/(decrease) in the
failure rate by 1% would result in an increase/(decrease) in the provision of approximately $20 million (30 June 2019: $15 million).

1 Comparative information has been restated to conform to presentation in the current year.

The Group is continuing to engage with ASIC in relation to its remediation approach.

2 Customer remediation includes provisions for Aligned Advice, Banking and other Wealth Management remediation including related program costs.

Banking and other Wealth customer remediation

3 Compliance and regulation includes additional provisions recognised during the current year for Financial Crimes Compliance Program of Action, Better Risk
Outcomes Program (BROP) and litigation related costs.
4 The adoption of AASB 16 Leases on 1 July 2019 resulted in an increase of $135 million in the Group’s make-good provisions in relation to property leases(Bank: $121 million). As permitted by AASB 16 comparative information has not been restated. For details on the adoption of AASB 16, refer to Note 1.1.

ACCOUNTING POLICIESProvisions are recognised for present obligations arising from past events where a payment to settle the obligation is probable and canbe reliably estimated. Where the effect of the time value of money is material, the amount of the provision is measured as the present
value of expenditures required to settle the obligation, based on a market observable rate.

184

During the year ended 30 June 2020, the Group raised an additional $94 million provision for Banking and other Wealth customer
remediation programs (30 June 2019: $384 million). As at 30 June 2020, the provision held by the Group in relation to Banking andother Wealth customer remediation was $227 million (30 June 2019: $384 million).
The provision for Banking remediation includes an estimate of customer refunds (including interest) relating to business banking
products (including bank guarantees, cash deposit accounts, merchants billing and certain commercial lending products), retail banking
products (including home loans and other retail products), and the related program costs.
The Wealth remediation provision includes an estimate of customer refunds (including interest) relating to advice quality, transactions
with deceased estates, the Loan Protection Insurance product, certain superannuation and other products, and the related program
costs.
185

ADDITIONAL INFORMATION–
119

Release of provisions
Closing balance

Critical accounting judgements and estimates

FINANCIAL REPORT

Additional provisions

Other provisions include self-insurance provisions, make-good provisions in relation to property leases, and provisions for certain othercosts.

DIRECTORS’ REPORT

Release of provisions

Other provisions

HOW WE CREATE VALUE

Movement in prior year claims

OVERVIEW

$M

186

187

Notes to the financial statements

7.1

7.1

For the year ended 30 June 2020

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

For the year ended 30 June 2020

Provisions (continued)

Provisions (continued)

It is currently not possible to determine the ultimate impact of this claim, if any, on the Group. The Group has provided for legal costs
expected to be incurred in the defence of this class action.

The Group is party to a number of legal proceedings, and the subject of various investigations and reviews. Provisions have been raised
where indicated in accordance with the principles outlined in the accounting policy section of this note.

Consumer credit insurance class action
On 10 June 2020 a class action was commenced against CBA and CMLA in the Federal Court of Australia. The claim relates to
consumer credit insurance for credit cards and personal loans that was sold between 1 January 2010 and 7 March 2018. The classaction alleges that CBA and CMLA engaged in unconscionable and misleading or deceptive conduct, failed to act in the best interests ofcustomers and provided them with inappropriate advice. In particular, it is alleged that some customers were excluded from claiming
certain benefits under the policies and the insurance was therefore unsuitable or of no value. Allegations are also made in relation to themanner in which the insurance was sold. The Court has made orders requiring CBA and CMLA to file their responses to the claim by 21
September 2020. It is currently not possible to determine the ultimate impact of this claim, if any, on the Group. The Group has provided
for legal costs expected to be incurred in the defence of this class action.

Litigation
The main litigated claims against the Group as at 30 June 2020 are summarised below.
Shareholder class actions
In October 2017 and June 2018 two separate shareholder class action proceedings were filed against CBA in the Federal Court ofAustralia, alleging breaches of CBA’s continuous disclosure obligations and misleading and deceptive conduct in relation to the subject
matter of the civil penalty proceedings brought against CBA by the Australian Transaction Reports and Analysis Centre (AUSTRAC).
The AUSTRAC proceedings concerned contraventions of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth).

It is alleged in the class actions that CBA shareholders who acquired an interest in CBA shares between 16 June 2014 and3 August 2017 suffered losses as a result of the alleged conduct. The two class actions are being case managed together, with a single
harmonised statement of claim. CBA denies the allegations made against it, and it is currently not possible to determine the ultimate
impact of these claims, if any, on the Group. The Group has provided for legal costs expected to be incurred in the defence of theclaims.
Superannuation class actions
The Group is also defending four class action claims in relation to superannuation products.

On 22 January 2020, a fourth class action was filed against CFSIL and The Colonial Mutual Life Assurance Society Limited (CMLA) in
the Federal Court of Australia. The class action alleges that CFSIL did not act in the best interests of members and breached its trustee
duties when taking out group insurance policies obtained from CMLA. The key allegation is that CFSIL entered into and maintained
insurance policies with CMLA on terms that were less favourable to members than would have reasonably been available in the market.
It is alleged that CMLA was knowingly involved in CFSIL’s contraventions as trustee and profited from those contraventions. The
allegations are denied and CFSIL and CMLA are defending the class action.
The Group has provided for the legal costs expected to be incurred in the defence of the claims.
US BBSW class action
In 2016 a class action was commenced in the United States District Court in New York against CBA, other banks and two brokers,
claiming a conspiracy among competitors to manipulate the BBSW benchmark for mutual gain. The claims include allegations that
United States racketeering and antitrust legislation have been contravened. In November 2018, the Court dismissed the claims against
CBA and the other foreign defendants, but in April 2019, an amended complaint was filed that included new allegations and added a
new named plaintiff. The defendants applied to the Court to dismiss the amended complaint. In February 2020, the judge determinedthat the new named plaintiff’s claims could proceed against CBA and nine other banks. CBA denies the allegations and will bedefending the class action. The breadth of the putative class (if any) that may be allowed to claim against CBA will not be determineduntil at the earliest August 2021. The preparation of the substantive proceedings has now commenced.
186

Commonwealth Essential SuperOn 22 June 2020 ASIC commenced civil penalty proceedings against CFSIL and CBA in the Federal Court of Australia for alleged
contraventions of the conflicted remuneration provisions in the Corporations Act relating to the arrangements between CFSIL and CBA forthe distribution of Commonwealth Essential Super (CES). CES is a superannuation product issued by CFSIL. It is currently not possible todetermine the ultimate impact of this claim, if any, on the Group. The Group has provided for legal costs expected to be incurred in the
defence of this claim.

Ongoing regulatory investigations and reviews
The Group undertakes ongoing compliance activities, including breach reporting, reviews of products, advice, conduct and services
provided to customers, as well as interest, fees and premiums charged. Some of these activities have resulted in remediation programs
and where required the Group consults with the relevant regulator on the proposed remediation action.
Provisions have been recognised by the Group where the criteria outlined in the accounting policy section of this note are satisfied.
Contingent liabilities exist with respect to these matters where it is not possible to determine the extent of any obligation to remediate or
the potential liability cannot be reliably estimated.
There are also a number of ongoing matters where regulators are investigating whether CBA or a Group entity has breached legal or
regulatory obligations. Where a breach has occurred, regulators are likely to impose, or apply to a Court for, fines and/or othersanctions. These matters include investigations by APRA and ASIC of issues which were referred to them by the Financial Services
Royal Commission, as well as a number of other matters notified to, or identified by, regulators.
In addition to possible regulatory action, there may also be financial exposure to claims by customers and this could include further
class actions, customer remediation or claims for compensation. The outcomes and total costs associated with such regulatory
investigations and possible customer claims remain uncertain.
These investigations include ASIC’s investigation regarding the AUSTRAC proceedings noted above. In September 2017, following thecommencement of the civil proceedings against CBA by AUSTRAC, ASIC launched an investigation in relation to the Group’s disclosure
concerning the matters the subject of the AUSTRAC proceedings. ASIC is also investigating, among other things, whether the directors
and officers of CBA complied with other specific obligations under the Corporations Act. It is currently not possible to determine theultimate impact of this investigation, if any, on the Group. The Group has provided for the legal costs expected to be incurred in relation
to this investigation.
Fair Work Ombudsman (FWO) investigation
The FWO’s investigation in relation to CBA’s self-disclosure of discrepancies in employee arrangements and entitlements is ongoing,
and CBA continues to engage with FWO and respond to its requests for information. It is currently not possible to determine the ultimate
impact of this investigation on the Group.
CBA is continuing with its broad review of employee entitlements and is remediating impacted current and former employees as thereview progresses. We continue to update both the FWO and the Finance Sector Union and will provide a broader update on progressin due course. The Group holds a provision for remediation and program costs related to this matter.

187

ADDITIONAL INFORMATIONOn 24 October 2019 a third class action was filed against CFSIL and a former executive director of CFSIL in the Federal Court ofAustralia, relating to alleged contraventions of statutory obligations under superannuation law and trustee breaches in the period 2013
to 2017. The class action relates to the transfer of certain default balances held by members of FirstChoice Employer Super to a
MySuper product. The key allegation is that members should have been transferred to a MySuper product earlier than they were, andthat the alleged failure to effect the transfer as soon as reasonably practical caused affected members to pay higher fees and receive
lower investment returns during the point of delay. The allegations are denied and CFSIL and its former director are defending the classaction. The Court has ordered the parties to participate in a mediation which will take place on 20 November 2020.

CFSIL filed its response to the claim on 17 July 2020. It is currently not possible to determine the ultimate impact of this claim. The
Group has provided for legal costs expected to be incurred in the defence of this claim.

FINANCIAL REPORTOn 18 October 2019 another class action was commenced against CFSIL in the Federal Court of Australia. The claim relates to certain
fees charged to members of the Colonial First State First Choice Superannuation Trust. It is alleged that CFSIL breached its duties astrustee and acted unconscionably because it failed, between 2013 and 2019, to take steps to avoid the payment of grandfatheredcommissions to financial advisers, which would have resulted in a reduction of the fees paid by members in respect of whom thosecommissions were paid. CFSIL denies the allegations and is defending the proceedings. The Court has ordered the parties toparticipate in a mediation of this matter by 18 December 2020.

CFSIL My SuperOn 17 March 2020 ASIC commenced civil penalty proceedings against CFSIL in the Federal Court of Australia for alleged breaches of
the Australian Securities and Investments Commission Act 2001 (Cth) and Corporations Act 2001 (Cth) (Corporations Act) arising from
communications with members of the FirstChoice Fund. In 2012, the Australian government passed legislation requiring trustees, suchas CFSIL to allocate member contributions to a default “MySuper” superannuation product in certain circumstances. ASIC alleges,
amongst other things, that CFSIL communicated with members both in template letters and on telephone calls, in a misleading or
deceptive manner regarding the provision of investment directions to stay with CFSIL’s FirstChoice Fund rather than transitioning to
CFSIL’s MySuper product.

DIRECTORS’ REPORTOn 9 October 2018, a class action was filed against Colonial First State Investments Limited (CFSIL) and CBA in the Federal Court ofAustralia. The claim initially related to investment in cash and deposit options (which are cash and deposit products provided by CBA) in
the Colonial First State First Choice Superannuation Trust and Commonwealth Essential Super. A second further amended statement ofclaim and amended application was filed on 2 June 2020, joining Avanteos Investments Limited (AIL) as a party in respect of claims
regarding the FirstWrap Pooled Cash Account and expanding the existing claims made against CFSIL and CBA. The main claims arethat members invested in these cash and deposit options received lower interest rates than they could have received had CFSIL/AIL
offered similar products made available in the market by another bank with comparable risk and that CFSIL/AIL retained the margin thatarises through the internal transfer pricing process in respect of deposits made with CBA, for their own benefit. It is claimed CFSIL/AIL
breached their duties as a trustee of the funds, CFSIL breached its duties as a Responsible Entity of the underlying managed
investment schemes and that CBA was involved in CFSIL/AIL’s breaches. CBA, CFSIL and AIL deny the allegations and are defending
the proceedings. The Court has ordered the parties to participate in a mediation of this matter, which is scheduled to take place on 3
September 2020.

ASIC regulatory enforcement proceedings

HOW WE CREATE VALUE

The resolution of the AUSTRAC civil penalty proceedings was approved by the Federal Court on 20 June 2018 with CBA paying apenalty of $700 million and legal costs.

OVERVIEW

Litigation, investigations and reviews

188

189

Notes to the financial statements

7.1

7.1

For the year ended 30 June 2020

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

For the year ended 30 June 2020

Provisions (continued)

Home loan pricing inquiry
In October 2019, the ACCC commenced an industry-wide inquiry into home loan pricing. The inquiry involves consideration of a wide
range of issues including the interest rates paid by new and existing customers, how the cost of financing for banks has affected bankdecisions on interest rates and barriers to customers switching home loans with the focus on the period since 1 January 2019. CBA is
co-operating with the ACCC in its requests for information. The ACCC published an interim report on 27 April 2020. The final report fromthe inquiry is due by 30 November 2020.
The following matters were significant regulatory investigations and reviews, which have been completed, but have resulted in ongoingaction required by the Group.
Enforceable undertaking to ASIC (foreign exchange)
In December 2016 CBA provided an enforceable undertaking (EU) to ASIC arising from an investigation into wholesale spot foreignexchange (FX) trading between 2008 and 2013. The EU included the engagement of an independent expert, to review and assess thechanges we have made to our trading operating model in recent years, including in training, procedures and oversight.
It also included a voluntary contribution of $2.5 million to support the further development of financial literacy education relating tochanges to delivery of care in the aged care sector.

Enforceable undertaking to the Office of Australian Information Commissioner (OAIC)
In June 2019, the Australian Information Commissioner (Commissioner) accepted an EU offered by CBA, which requires further
enhancements to the management and retention of customer personal information within CBA and certain subsidiaries.
The EU follows CBA’s work to address two incidents: one relating to the disposal by a third party of magnetic data tapes containing
historical customer statements and the other relating to potential unauthorised internal user access to certain systems and applications
containing customer personal information. CBA reported the incidents to the Commissioner in 2016 and 2018 respectively and hassince been working to address these incidents. CBA found no evidence that its customers’ personal information was compromised by
the incident reported in 2016, and has found no evidence to date that there have been any instances of unauthorised access by CBA
employees or third parties as a result of the incident reported in 2018.
The Group has provided for certain costs associated with implementation and compliance with the EU provided to the Commissioner.

Other matters

Exposures to divested businesses
The Group has potential exposures to divested businesses, including through the provision of services, warranties and indemnities.
These exposures may have an adverse impact on the Group’s financial performance and position. The Group has recognised
provisions where payments in relation to the exposures are probable and reliably measurable.

FINANCIAL REPORT

Prudential inquiry into CBA and enforceable undertaking to APRAOn 28 August 2017 APRA announced it would establish an independent prudential inquiry (the Inquiry) into the Group focusing on thegovernance, culture and accountability frameworks and practices within the Group. The final report of the Inquiry was released on 1 May
2018 (the Final Report). The Final Report made a number of findings regarding the complex interplay of organisational and cultural
factors within the Group and the need for enhanced management of non-financial risks. In response to the Final Report, the Groupacknowledged that it will implement all of the recommendations and agreed to adjust its minimum operational risk capital requirements
by an additional $1 billion (an impact to risk weighted assets of $12.5 billion) until such time as the recommendations are implemented
to APRA’s satisfaction.

EY delivered its report on CBA’s Final BBSW Program on 30 August 2019. Once the terms of the Final BBSW Program are agreed toby ASIC, that program will be implemented. The Group has provided for costs associated with implementation of the BBSW program.

CBA has entered into an EU under which CBA’s remedial action (Remedial Action Plan) in response to the Final Report would be
agreed and monitored regularly by APRA. The Remedial Action Plan provides a detailed program of change outlining how CBA will
improve the way it runs its business, manages risk, and works with regulators. The Remedial Action Plan also provides acomprehensive assurance framework, with Promontory Australasia (Sydney) Pty Ltd (Promontory) having been appointed as theindependent reviewer, and which is required to report to APRA on the Group’s progress against committed milestones every 3 months.

ADDITIONAL INFORMATION

Promontory is continuing to provide APRA with quarterly progress reports, and CBA is committed to report publicly on its progressagainst the Remedial Action Plan twice a year. Six Promontory reports have been released by CBA. Promontory has noted that theRemedial Action Plan program of work remains on track and CBA’s commitment to implementing the Inquiry’s recommendations in atimely and comprehensive way continued to be strong with all 176 milestones on schedule to be delivered by the applicable due dates.
The Group has provided for costs associated with the implementation of the Remedial Action Plan.
Financial crime compliance
As noted above, in 2018 the Group resolved the AUSTRAC proceedings relating to contraventions of anti-money laundering/counterterrorism financing (AML/CTF) laws.
Recognising the crucial role that the Group plays in fighting financial crime, it continues to strengthen and invest significantly in its
financial crime capabilities, including in its AML/CTF Compliance team and through the Program of Action with coverage across all
aspects of financial crime (including anti-money laundering/counter-terrorism financing, sanctions and anti-bribery and corruption) andall business units. The Group has provided for costs of running the Program of Action.
The Group provides updates to AUSTRAC and the Group’s other regulators on the Program of Action implemented by the Group
following the civil penalty proceedings commenced against it by AUSTRAC.
However, there is no assurance that AUSTRAC or the Group’s other regulators will agree that the Group’s Program of Action will beadequate or that the Program of Action will effectively enhance the Group’s financial crime compliance programs across its business
units and the jurisdictions in which it operates. While the Group is not currently aware of any other enforcement action by other domestic
or foreign regulators in respect of its financial crime compliance, there can be no assurance that the Group will not be subject to suchenforcement actions in the future.
188

DIRECTORS’ REPORTCBA provided details of the implementation of its Final FX EU Program to ASIC in March 2019. The independent expert conducted anassessment of CBA’s implementation and submitted its final expert report on 31 May 2019. The report highlighted certain terms of theconsolidated Final FX EU Program, which were yet to be implemented, certain matters that could not be assessed and some otherareas for improvement. CBA has steps underway to address the matters raised in the independent expert’s report and is having ongoing
discussions with ASIC in respect of the FX EU Program.

As part of the settlement CBA also entered into an EU with ASIC under which CBA undertook to engage an independent expert toassess changes it has made (and will make) to its policies, procedures, controls systems, training, guidance and framework for themonitoring and supervision of employees and trading in Prime Bank Bills and CBA’s BBSW-referenced product businesses. On
5 October 2018, CBA appointed EY as the independent expert. CBA provided its BBSW Program of remediation work to ASIC and EY
on 21 December 2018. EY reviewed the BBSW Program and provided certain recommendations in its report dated 23 April 2019. CBA
considered those recommendations with ASIC and EY and delivered its Final BBSW Program to ASIC and EY on 23 July 2019.

HOW WE CREATE VALUE

Other regulatory matters

Enforceable undertaking to ASIC (BBSW)
On 21 June 2018, the Federal Court approved an agreement between CBA and ASIC to resolve proceedings concerning alleged market
manipulation and unconscionable conduct in respect of the bank bill market. CBA paid a civil penalty of $5 million and a community
benefit payment of $15 million to Financial Literacy Australia. It also agreed to pay ASIC’s costs of the investigation and legal costs. The
Group provided for these costs in an earlier period.
OVERVIEWNew Zealand compliance audit findings
The Labour Inspectorate in New Zealand is undertaking a programme of compliance audits on a number of organisations in respect of
the Holidays Act 2003 (Holidays Act). On 18 December 2018, ASB Bank Limited (ASB) received the Labour Inspectorate’s report of its
findings on ASB’s compliance with the Holidays Act. The findings, based on a sample of employees, include that ASB has not compliedwith the requirements of the Holidays Act by not including certain incentive payments in ASB’s calculation of gross earnings under theHolidays Act. ASB’s position in relation to that finding is that the application of the law is yet to be finally determined. That finding, if
extrapolated to ASB’s entire workforce, would result in an estimated liability of NZD 33 million in total for the preceding six years’ annual
holiday payments. ASB continues to engage with the Labour Inspectorate on the matter. The Group holds a provision for this matter.

Provisions (continued)

189

190

191

Notes to the financial statements

For the year ended 30 June 2020
7.2

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

For the year ended 30 June 2020

Bills payable and other liabilities
Group 130 Jun 20 30 Jun 19

Bank 1, 2
30 Jun 20 30 Jun 19

8.

Our capital, equity and reserves

$M

$M

$M

OVERVIEW

657

756

582

664

Accrued interest payable

1,693

2,676

1,366

2,238

Accrued fees, employee incentives and other items payable 3

1,738

2,173

1,434

1,689

The Group maintains a strong capital position in order to satisfy regulatory capital requirements, provide financial security to its
depositors and creditors and adequate return to its shareholders. The Group’s shareholders’ equity includes issued ordinary shares,
retained earnings and reserves.

Securities purchased not delivered

3,850

2,414

3,061

1,774

This section provides analysis of the Group’s shareholders’ equity including changes during the period.

1,011

Bills payable

Unearned income

4

Lease liabilities 5
Other
Total bills payable and other liabilities

1,415

1,439

888

3,112

–

2,861

–

723

610

1,674

1,311

13,18810,068

11,866

8,687

8.1

Capital adequacy

The Bank is an Authorised Deposit-taking Institution (ADI) regulated by APRA under the authority of the Banking Act 1959. APRA has
set minimum regulatory capital requirements for banks based on the Basel Committee on Banking Supervision (BCBS) guidelines.

2 Comparative information has been restated to reflect the change in accounting policy detailed in Note 1.1.
3 Accrued fees payable as at 30 June 2020 include trail commissions payable of $200 million for the Group (30 June 2019: $265 million).
4 Unearned income includes annual facility fees, commitment fees and upfront fees that are deferred and recognised over the service periods. Of the unearned
income recognised at the beginning of the period, the Group and the Bank has recognised $616 million and $592 million, respectively, as income for the period
ended 30 June 2020 (30 June 2019: $643 million for the Group and $622 million for the Bank).
5 Current period amounts reflect the adoption of AASB 16 Leases on 1 July 2019. As permitted by AASB 16 comparative information has not been restated. For
details on the adoption of AASB 16 refer to Note 1.1.

The regulatory capital requirements are measured for the Extended Licenced Entity Group (known as “Level 1”, comprising the Bank
and APRA approved subsidiaries) and for the Bank and all of its banking subsidiaries, which includes ASB Bank (known as “Level 2” orthe “Group”).
All entities which are consolidated for accounting purposes are included within the Group capital adequacy calculations except for:• the insurance and funds management operating subsidiaries; andACCOUNTING POLICIESHOW WE CREATE VALUE

The Basel III measurement and monitoring of capital has been effective from 1 January 2013. APRA has adopted a more conservative
approach than the minimum standards published by the BCBS and also adopted an accelerated timetable for implementation. The
requirements define what is acceptable as capital and provide methods of measuring the risks incurred by the Bank.

1 Comparative information has been restated to conform to presentation in the current year.

OVERVIEW$M• the entities through which securitisation of Group assets are conducted.

Where the Group is a lessee, all leases will be recognised on the Balance Sheet as a lease liability and right-of-use asset, unless theunderlying asset is of low value or the lease has a term of 12 months or less. Rentals of leases with low value underlying assets or
where the lease term is 12 months or less are recognised over the lease term as Operating expenses in the Income Statement. Leaseliabilities are initially measured at the net present value of the following lease payments (if applicable):• fixed payments, less any lease incentives receivable;

Regulatory capital is divided into Common Equity Tier 1 (CET1), Additional Tier 1 Capital and Tier 2 Capital. CET1 primarily consists ofshareholders’ equity, less goodwill and other prescribed adjustments. Additional Tier 1 Capital is comprised of high quality capitalproviding a permanent and unrestricted commitment of funds, is freely available to absorb losses, ranks behind the claims of depositorsand other more senior creditors and provides for fully discretionary capital distributions. Tier 1 capital is the aggregate of CET1 andAdditional Tier 1 Capital. Tier 2 Capital is hybrid and debt instruments that fall short of necessary conditions to qualify as Additional Tier
1 to APRA. Total Capital is the aggregate of Tier 1 and Tier 2 Capital.
The tangible component of the investment in the insurance and funds management operations are deducted 100% from CET1.

DIRECTORS’ REPORT

Bills payable and Other liabilities include accrued interest payable, accrued incentives payable, accrued fees payable, lease liabilities
and unearned income. Bills payable and Other liabilities are measured at the contractual amount payable. As most payables are shortterm in nature, the contractual amount payable approximates fair value.

Capital adequacy is measured by means of risk based capital ratios. The capital ratios reflect capital (CET1, Additional Tier 1, Tier 2
and Total Capital) as a percentage of total Risk Weighted Assets (RWA). RWA represents an allocation of risks associated with theGroup’s assets and other related exposures.

• variable lease payments that are based on an index or a rate;• amounts expected to be payable by the lessee under residual value guarantees;• payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.
Lease liabilities are remeasured when there is a change in future lease payments arising from a change in the above. When leaseliabilities are remeasured, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recognised in the
Income Statement if the carrying amount of the right-of-use asset has been fully written down. Lease liabilities are measured atamortised cost using the effective interest method.

The Group has a range of instruments and methodologies available to effectively manage capital. These include share issues andbuybacks, dividend and DRP policies, hybrid capital raising and dated and undated subordinated loan capital issuances. All major
capital related initiatives require approval of the Board.
The Group’s capital position is monitored on a continuous basis and reported monthly to the Executive Leadership Team, Asset andLiability Committee and at regular intervals throughout the year to the Board.
The Group’s capital ratios throughout the 2018, 2019 and 2020 financial years were in compliance with both APRA minimum capital
adequacy requirements and the Board approved minimums. The Group is required to inform APRA immediately of any breach or potential
breach of its minimum prudential capital adequacy requirements, including details of remedial action taken or planned to be taken.

FINANCIAL REPORT• the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; andADDITIONAL INFORMATION

190

191

192

193

Notes to the financial statements

8.2

8.2

For the year ended 30 June 2020

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

For the year ended 30 June 2020

Loan capital
Group

Currency

Bank

30 Jun 20

30 Jun 19

30 Jun 20

30 Jun 19

amount (M)Endnotes

$M

$M

$M

$M

Tier 1 loan capital
FRN

USD 100

1

146

143

146

143

UndatedPERLS VII

AUD 3,000

2

2,991

2,985

2,991

2,985

UndatedPERLS VIII

AUD 1,450

2

1,446

1,441

1,446

1,441

UndatedPERLS IX

AUD 1,640

2

1,633

1,628

1,633

1,628

UndatedPERLS X

AUD 1,365

2

1,358

1,356

1,354

1,352

UndatedPERLS XIAUD 1,590

2

1,581

1,580

1,578

1,576

UndatedPERLS XIIAUD 1,650

2

1,636

–

1,634

–

10,791

9,133

10,782

9,125

Tier 2 loan capital
AUD denominated

3

1,364

1,774

1,364

1,774

USD denominated

4

8,362

4,616

8,362

4,616

5

993

968

993

968

6

372

379

–

–

EUR denominated

7

3,674

5,259

3,674

5,259

Other currencies denominated

8

114

318

114

318

Total Tier 2 loan capital

14,87913,314

14,507

12,935

Fair value hedge adjustments

1,687

519

1,675

509

Total loan capital 1

27,35722,966

26,96422,5691 Loan capital includes unrealised movements of $1,350 million predominantly due to foreign exchange gains and losses and fair value hedge adjustments.

• USD750 million subordinated EMTN issued October 2016, due October 2026;• USD1,250 million subordinated notes issued January 2018, due in January 2048;• USD1,250 million subordinated Medium Term Notes (MTN) issued September 2019, due September 2034; and• USD1,250 million subordinated MTN issued September 2019, due in September 2039.

5. JPY denominated Tier 2 loan capital issuances• JPY20 billion perpetual subordinated EMTN, issued February 1999;• JPY40 billion subordinated EMTNs issued December 2016 (three tranches JPY20 billion, JPY10 billion and JPY10 billion), due
December 2026; and• JPY13.3 billion subordinated EMTN issued March 2017, due March 2027.

6. NZD denominated Tier 2 loan capital issuances• NZD400 million subordinated, unsecured notes, issued November 2016, due December 2026:
On 30 November 2016, ASB Bank Limited issued NZD400 million subordinated, unsecured notes (ASB Notes 2) with a face value of
NZD1 each. ASB Notes 2 are listed on the New Zealand Stock Exchange (NZX) debt market and are subject to New South Walesand New Zealand law. They qualify as Tier 2 Capital of the Bank and ASB under Basel III as implemented by APRA and the RBNZ.

7. EUR denominated Tier 2 loan capital issuances• EUR1,000 million subordinated notes, issued August 2009, and redeemed in August 2019;• EUR1,250 million subordinated notes issued April 2015, due April 2027; and• EUR1,000 million subordinated EMTN, issued October 2017, due October 2029.

8. Other foreign currency denominated Tier 2 loan capital issuances• CNY1,000 million subordinated notes issued March 2015, and redeemed in March 2020; and• HKD608 million subordinated EMTN issued March 2017, due March 2027.
All Tier 2 Capital securities issued prior to 1 January 2013 qualify as Tier 2 Capital of the Bank under the Basel III transitionalarrangements for capital instruments as implemented by APRA. All Tier 2 Capital securities issued after 1 January 2013 qualify as Tier
2 Capital of the Bank under Basel III as implemented by APRA.

1. USD100 million floating rate notes

PERLS VII, PERLS VIII, PERLS IX, PERLS X, PERLS XI and PERLS XII, and all Tier 2 Capital securities issued after 1 January 2013,
are subject to Basel III, under which these securities must be exchanged for a variable number of CBA ordinary shares or written down
if a capital trigger event (PERLS VII, PERLS VIII, PERLS IX, PERLS X, PERLS XI and PERLS XII only) or a non-viability trigger event(all securities) occurs. Any exchange will occur as described in the terms of the applicable instrument documentation.

On 15 October 1986, the State Bank of Victoria issued USD125 million of floating rate notes, the current outstanding balance is
USD100 million. The floating rate notes are perpetual but were able to be redeemed from October 1991. They were assigned to the
Bank on 1 January 1991.
The Bank entered into an agreement with the Commonwealth of Australia on 31 December 1991 which provides that, if certain eventsoccur, the Bank may either issue CBA ordinary shares to the Commonwealth of Australia, or (with the consent of the Commonwealth ofAustralia) conduct a renounceable rights issue for CBA ordinary shares to all shareholders. The capital raised must be used to pay any
amounts due and payable on the floating rate notes.
The floating rate notes were issued into the international markets and are subject to English law. They qualify as Additional Tier 1
Capital of the Bank under the Basel III transitional arrangements for capital instruments as implemented by APRA.

ACCOUNTING POLICIESLoan capital consists of instruments issued by the Group, which qualify as regulatory capital under the Prudential Standards set by theAustralian Prudential Regulation Authority (APRA) and the Reserve Bank of New Zealand (RBNZ). Loan capital is initially measured atfair value and subsequently measured at amortised cost using the effective interest rate method. Interest expense incurred isrecognised in Net interest income.

ADDITIONAL INFORMATION

2. PERLS VII, PERLS VIII, PERLS IX, PERLS X, PERLS XI and PERLS XII
On 1 October 2014, the Bank issued $3,000 million of CommBank PERLS VII Capital Notes (PERLS VII). On 30 March 2016, the Bank
issued $1,450 million of CommBank PERLS VIII Capital Notes (PERLS VIII). On 31 March 2017, the Bank issued $1,640 million of
CommBank PERLS IX Capital Notes (PERLS IX). On 6 April 2018, the Bank issued $1,365 million of CommBank PERLS X Capital
Notes (PERLS X). On 17 December 2018, the Bank issued $1,590 million of CommBank PERLS XI Capital Notes (PERLS XI). On
14 November 2019, the Bank issued $1,650 million of CommBank PERLS XII Capital Notes (PERLS XII). PERLS VII, PERLS VIII,PERLS IX, PERLS X, PERLS XI and PERSL XII are subordinated, unsecured notes.
PERLS VII, PERLS VIII, PERLS IX, PERLS X, PERLS XI and PERLS XII are listed on the ASX and are subject to New South Wales
law. They qualify as Additional Tier 1 Capital of the Bank under Basel III as implemented by APRA.

3. AUD denominated Tier 2 loan capital issuances• $25 million subordinated floating rate notes, issued April 1999, due April 2029;• $1,000 million subordinated notes issued November 2014, and redeemed in November 2019
• $750 million subordinated notes issued June 2016, due June 2026;• $100 million subordinated Euro Medium Term Notes (EMTN) issued September 2019, due September 2034;• $280 million subordinated notes issued March 2020, due March 2035; and• $210 million subordinated notes issued May 2020, due May 2035.

192

FINANCIAL REPORTAs at 30 June 2020, there were no securities issued by the Group and the Bank that were contractually due for redemption in the next
12 months (30 June 2019: $1,604 million for the Group, $1,620 for the Bank). The Group has the right to call some securities before thecontractual maturity.

DIRECTORS’ REPORTJPY denominated
NZD denominated• USD1,250 million subordinated notes issued December 2015, due December 2025;

HOW WE CREATE VALUE

Total Tier 1 loan capital

4. USD denominated Tier 2 loan capital issuances

OVERVIEW

UndatedLoan Capital (continued)

193

194

195

Notes to the financial statements

8.3

8.3

For the year ended 30 June 2020

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

For the year ended 30 June 2020

Shareholders’ equity
Group

Shareholders’ equity (continued)
Group

Bank

Bank

30 Jun 19

30 Jun 20

30 Jun 19

Retained profits

$M

$M

$M

$M

Ordinary share capital

Opening balance

28,48228,36023,09923,819

Shares on issue:

Changes on adoption of AASB 16 1

(146)

–

(146)

–

–

(955)

–

(868)

30 Jun 19

30 Jun 20

30 Jun 19

$M

$M

$M

$M

38,283

Opening balance
Dividend reinvestment plan (net of issue costs) 1, 2

38,28137,53537,533

(1)

748

(1)

748

38,28238,28338,28038,281Less treasury shares:
Opening balance
Purchase of treasury shares

3, 4Decrease in treasury shares on deconsolidation of CommInsure Life
Closing balance

(265)

(69)

–

(65)

(93)

(65)

(69)

98

95

34

–

79

–

–

–

(151)

(263)

(100)

(69)

38,131

38,02038,18038,212

1 The DRP in respect of the interim 2019/2020, final 2018/2019 and interim 2018/2019 dividends were satisfied in full through the on-market purchase and transfer of
7,080,363 shares at $73.37, 7,810,285 shares at $78.61 and 8,080,558 shares at $73.21 respectively to participating shareholders.
2 The determined dividend includes an amount attributable to the final 2017/2018 dividend reinvestment plan of $749 million. The value of shares issued under planrules net of issue costs was $748 million.
3 Relates to the movements in treasury shares held within the employee share plans and treasury shares held within life insurance statutory funds (prior todeconsolidation of CommInsure Life on 1 November 2019).

Group

Bank
30 Jun 20

30 Jun 19

SharesSharesSharesShares

1,770,239,507

1,759,842,930

1,770,239,507

1,759,842,930

2017/2018 Final dividend fully paid ordinary
shares $72.05–

10,396,577–

10,396,577

2018/2019 Interim dividend fully paid ordinary
shares $73.21 1

–

–

–

–

2018/2019 Final dividend fully paid ordinary
shares $78.61 1

–

–

–

–

2019/2020 Interim dividend fully paid ordinary shares$73.37 1

–

–

–

–

Closing balance (excluding treasury shares deduction)

1,770,239,507

1,770,239,507

1,770,239,507

1,770,239,507(2,095,440)(3,503,541)(1,365,183)(994,913)

1,768,144,067

1,766,735,966

1,768,874,324

1,769,244,594

Number of shares on issue
Opening balance (excluding treasury shares deduction)
Dividend reinvestment plan issues:

Less: treasury shares 2, 3
Closing balance

22,951

115(50)

Realised gains and dividend income on treasury shares

13

12

–

–

Net profit attributable to equity holders of the Bank

9,634

8,571

10,168

7,783

Total available for appropriation

38,09935,93933,23630,684

733

126

586

(2)

–

–

1,254

–

Transfers from/(to) general reserve 2
Transfer from capital reserve 3
Transfers from asset revaluation reserve
Interim dividend – cash component
Interim dividend – dividend reinvestment plan 4
Final dividend – cash component
Final dividend – dividend reinvestment plan 4, 5
Closing balance

8

23

4

23

(3,021)(2,949)(3,021)(2,949)

(519)

(592)

(519)

(592)

(3,474)(3,316)(3,474)(3,316)

(615)

(749)

(615)

(749)

31,211

28,482

27,451

23,0991 The Group adopted AASB 16 Leases on 1 July 2019. As permitted by AASB 16, the Group recognised the cumulative effect of initially applying the newrequirements as an adjustment to opening Retained profits at 1 July 2019. Comparative information has not been restated. For details on the adoption of AASB 16
refer to Note 1.1.
2 Following deconsolidation of CommInsure Life on 1 November 2019, the Group is no longer required to quarantine undistributable profits in general reserve. As aresult, general reserve was reclassified to Retained profits.
3 The capital reserve previously held by the Bank was related to historic internal restructuring of the Group’s life insurance and funds management businesses. The
reserve was eliminated on consolidation. The reserve was reclassified to the Bank’s retained earnings following deconsolidation of CFSGAM and CommInsure Lifeduring the year ended 30 June 2020.
4 The DRP in respect of the interim 2019/2020, final 2018/2019 and interim 2018/2019 dividends were satisfied in full through the on-market purchase and transfer of
7,080,363 shares at $73.37, 7,810,285 shares at $78.61 and 8,080,558 shares at $73.21, respectively to participating shareholders.
5 The determined dividend includes an amount attributable to the final 2017/2018 dividend reinvestment plan of $749 million. The value of shares issued under planrules net of issue costs was $748 million.

ADDITIONAL INFORMATION

30 Jun 19

22,953(49)

FINANCIAL REPORT

30 Jun 20

27,405116

1 The DRP in respect of the interim 2019/2020, final 2018/2019 and interim 2018/2019 dividends were satisfied in full through the on-market purchase and transfer of
7,080,363 shares at $73.37, 7,810,285 shares at $78.61 and 8,080,558 shares at $73.21, respectively to participating shareholders.
2 Relates to treasury shares held within the employee share plans and life insurance statutory funds (prior to deconsolidation of CommInsure Life on 1 November 2019).
3 Comparative information has been restated to conform to presentation in the current year.

Ordinary shares have no par value and the Company does not have a limited amount of share capital.
Ordinary shares entitle holders to receive dividends payable to ordinary shareholders and to participate in the proceeds available toordinary shareholders on winding up of the Company in proportion to the number of fully paid ordinary shares held. On a show of hands
every holder of fully paid ordinary shares present at a meeting in person or by proxy is entitled to one vote, and upon a poll one vote foreach share held.

194

DIRECTORS’ REPORT

4 Movement in treasury shares includes 649,480 shares acquired at an average price of $79.62 for satisfying the Company’s obligations under various equity settled
share plans (30 June 2019: 1,178,102 shares acquired at an average price of $69.95). Other than shares purchased as part of the Non-Executive Director fee
sacrifice arrangements disclosed in Note 10.3, shares purchased were not on behalf of or initially allocated to a director.

28,336

Actuarial gains/(losses) from defined benefit superannuation plans

Restated opening balance

HOW WE CREATE VALUE

Sale and vesting of treasury shares

3, 4

(263)

Changes on adoption of AASB 9 and AASB 15

OVERVIEW

30 Jun 20

30 Jun 20

195

196

197

Notes to the financial statements

8.3

8.3

For the year ended 30 June 2020

For the year ended 30 June 2020

Shareholders’ equity (continued)
Group

Reserves

Shareholders’ equity (continued)
Group

Bank

Bank

30 Jun 20

30 Jun 19

30 Jun 20

30 Jun 19

30 Jun 20

30 Jun 19

30 Jun 20

30 Jun 19

$M

$M

$M

$M

$M

$M

$M

$M

733

859

586

584

253

–

221

–

(733)

(126)

(586)

2

–

149

–

227

–

733

–

586

Restated opening balance

253

149

221

227

Net (losses)/gains on revaluation of investment securities

(200)

140

(184)

18

Net losses on investment securities transferred to Income Statement on disposal

(49)

(42)

(49)

(42)

Income tax effect

76

6

73

18

Closing balance

80

253

61

221

–

149

–

227
(227)

Investment securities revaluation reserve

General reserve
Opening balance
1

Closing balance
Capital reserve
Opening balance

–

–

1,254

1,254

Transfer to retained profits 2––(1,254)–

Closing balance

–

–

–

1,254

Opening balance
Change on adoption of AASB 9

Opening balance

246

235

216

Revaluation of properties
Transfer to retained profits

24

38

(8)

(23)

Income tax effect(5)

Closing balance

206

Opening balance

20

37

Change on adoption of AASB 9

–

(149)

–

(4)

(23)

Restated balance

–

–

–

–

(4)

(5)

(4)

Total reserves

2,666

3,092

2,444

3,813

257

246

227

216

Shareholders' Equity attributable to equity holders of the Bank

72,00869,59468,075

65,124

Opening balance

912

448

302

88

Currency translation adjustments of foreign operations

(237)

491

(46)

233

(5)

(20)

(5)

(19)

Shareholders' Equity attributable to non-controlling interests

Foreign currency translation reserve

Income tax effect

8

(7)

–

–

Closing balance

678

912

251

302

787

(160)

1,073

70

1,243

1,603

1,505

1,928

Interest income(2,008)(859)(1,979)(875)

Interest expense

1,854

1,044

1,487

771

(44)

(433)

(11)

(396)

Income tax effect

(319)

(408)

(308)

(425)

Closing balance

1,513

787

1,767

1,073

Opening balance

161

145

161

139

Current period movement

(23)

16

(23)

22

Closing balance

138

161

138

161

5

55

–

–

72,01369,64968,075

65,124

DIRECTORS’ REPORT

Currency translation on net investment hedge

Total Shareholders' Equity

Cash flow hedge reserve 3
Opening balance
Gains/(losses) on cash flow hedging instruments:
Recognised in Other Comprehensive Income

HOW WE CREATE VALUE

Available-for-sale investments reserve

Asset revaluation reserve

OVERVIEW

Transfer (to)/from retained profits

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

Transferred to Income Statement:
FINANCIAL REPORT

Other banking income

Employee compensation reserve

ADDITIONAL INFORMATION

1 Following deconsolidation of CommInsure Life on 1 November 2019, the Group is no longer required to quarantine undistributable profits in general reserve. As aresult, general reserve was reclassified to Retained profits.
2 The capital reserve previously held by the Bank was related to historic internal restructuring of the Group’s life insurance and funds management businesses. The
reserve was eliminated on consolidation. The reserve was reclassified to the Bank’s retained earnings following deconsolidation of CFSGAM and CommInsure Lifeduring the year ended 30 June 2020.
3 Comparative information has been restated to conform to presentation in the current year.

196

197

198

199

Notes to the financial statements

8.3

8.4

For the year ended 30 June 2020

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

For the year ended 30 June 2020

Shareholders’ equity (continued)

Dividends
Group

ACCOUNTING POLICIES

30 Jun 19

30 Jun 1830 Jun 20

30 Jun 19

$M

$M

$M

$M

$M

3,021

2,949

2,969

3,021

2,949

Note

Shareholders’ equity includes Ordinary share capital, Retained profits and Reserves. Policies for each component are set out below:

Bank

30 Jun 20

Ordinary shares

Ordinary share capital

Retained profits
Retained profits includes the accumulated profits for the Group including certain amounts recognised directly in retained profits lessdividends paid.

Interim ordinary dividend paid – cash component only
1

519

592

536

519

592

Total dividend paid

3,540

3,541

3,505

3,540

3,541

Other provision carried

121

119

113

121

119

1,735

4,089

4,065

1,735

4,089

Interim ordinary dividend paid – Dividend Reinvestment Plan

Dividend proposed and not recognised as a liability (fully franked)(2020: 98 cents; 2019: 231 cents; 2018: 231 cents) 2

General reserve

Provision for dividends

In prior periods General reserve was derived from profits and was available for dividend payments except for undistributable profits in
respect of the Group’s life insurance business. Following deconsolidation of CommInsure Life on 1 November 2019, the Group is no longer
required to quarantine undistributable profits in General reserve. As a result General reserve was reclassified to Retained profits.

Opening balance

119

113

100

119

113

Provision made during the year

7,630

7,606

7,484

7,630

7,606

Capital reserve

Provision used during the year

(7,628)(7,600)(7,471)(7,628)(7,600)

Closing balance

121

119

113

121

119

The Capital reserve previously held by the Bank was related to historic internal restructuring of the Group’s life insurance and funds
management businesses. The reserve was eliminated on consolidation. The reserve was reclassified to the Bank’s retained earnings
following deconsolidation of CFSGAM and CommInsure Life during the year ended 30 June 2020.

Asset revaluation reserve

Foreign currency translation reserve
Exchange differences arising on translation of the Group’s foreign operations are accumulated in the Foreign currency translation
reserve. Specifically assets and liabilities are translated at the prevailing exchange rate at Balance Sheet date; revenue and expenses
are translated at the transaction date; and all resulting exchange differences are recognised in the Foreign currency translation reserve.
When a foreign operation is disposed of, exchange differences are recycled out of the reserve and recognised in the Income Statement.

Cash flow hedge reserve

Employee compensation reserve
The Employee compensation reserve is used to recognise the fair value of shares and other equity instruments issued to employees
under the employee share plans and bonus schemes.

Investment securities revaluation reserve
The Investment securities revaluation reserve includes changes in the fair value of Investment securities measured at fair value throughother comprehensive income. For debt securities, these changes are reclassified to the Income Statement when the asset isderecognised. For equity securities, these changes are not reclassified to the Income Statement when derecognised.

2 The 2020 final dividend will be satisfied by cash disbursements with the DRP anticipated to be satisfied by the issuance of shares. The 2019 final dividend was
satisfied by cash disbursements with the DRP satisfied in full through the on-market purchase and transfer of 7,810,285 shares. The 2018 final dividend was
satisfied by cash disbursements of $3,316 million and $749 million being reinvested by the participants through the DRP.

Final dividend
The Directors have determined a fully franked (30%) final dividend of 98 cents per share amounting to $1,735 million. The dividend will
be payable on 30 September 2020 to shareholders on the register at 5pm AEST on 20 August 2020. The ex-dividend date is
19 August 2020.

Dividend policy
In determining the dividend, the Board considers a range of factors in accordance with Bank’s dividend policy including:• paying cash dividends at strong and sustainable levels;• targeting a full-year payout ratio of 70% to 80%; and• maximising the use of its franking account by paying fully franked dividends.
In light of the heightened economic risk caused by COVID-19, the Bank has taken into consideration APRA’s guidance on capital
distributions outlined in its letter on 29 July 2020. For 2020, APRA expects that ADIs will retain at least half of their earnings, andactively use dividend reinvestment plans and/or other capital management initiatives to at least partially offset the diminution in capitalfrom distributions.

Dividend franking account

The Bank expects that future tax payments will generate sufficient franking credits for the Bank to be able to continue to fully frank future
dividend payments. These calculations have been based on the taxation law as at 30 June 2020.

198

199

ADDITIONAL INFORMATION

After fully franking the final dividend to be paid for the year, the amount of credits available at the 30% tax rate as at 30 June 2020 tofrank dividends for subsequent financial years, is $2,007 million (2019: $1,190 million). This figure is based on the franking accounts of
the Bank at 30 June 2020, adjusted for franking credits that will arise from the payment of income tax payable on profits for the year andprior years, franking debits that will arise from the payment of dividends proposed, and franking credits that may not be available to be
distributed in subsequent financial periods.

FINANCIAL REPORTThe Cash flow hedge reserve is used to record fair value gains or losses associated with the effective portion of designated cash flow
hedging instruments. Amounts are reclassified to the Income Statement when the hedged transaction impacts profit or loss.

1 The DRP in respect of the interim 2019/2020 and interim 2018/2019 dividends were satisfied in full through the on-market purchase and transfer of 7,080,363 and
8,080,558 shares, respectively to participating shareholders. The DRP in respect of the interim 2017/2018 dividend was satisfied by the issue of shares.

DIRECTORS’ REPORTThe Asset revaluation reserve is used to record revaluation adjustments on the Group’s property assets. Where an asset is sold or
disposed of, any balance in the reserve in relation to the asset is transferred directly to Retained profits.

7.1

HOW WE CREATE VALUE

Reserves

Interim ordinary dividend (fully franked)(2020: 200 cents; 2019: 200 cents; 2018: 200 cents)

OVERVIEW

Ordinary shares are recognised at the amount paid up per ordinary share, net of directly attributable issue costs. Where the Bank orentities within the Group purchase shares in the Bank, the consideration paid is deducted from total shareholders’ equity and the sharesare treated as treasury shares until they are subsequently sold, reissued or cancelled. Where such shares are sold or reissued, any
consideration received is included in shareholders’ equity.

200

201

Notes to the financial statements

For the year ended 30 June 2020
8.4

For the year ended 30 June 2020

Dividends (continued)

9.

Dividend history
Half year
payoutCents perCOMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

1

Full year
payoutratio 1
%

DRP
price

DRP
participation–

75. 38

15. 3

81. 1572. 0518. 4

76. 98–73. 2116. 7102. 95

89. 02

78. 61

15. 0

57. 47–73. 3714. 7

49. 95

54. 76––

Half year ended

share

Payment date

31 December 2017200

28/03/2018

71. 4530 June 2018231

28/09/2018

91. 9331 December 2018200

28/03/2019

30 June 2019231

26/09/2019

31 December 2019200

31/03/2020

30 June 202098

30/09/2020

2

OVERVIEWThe Group is exposed to financial risks, non-financial risks and strategic risks arising from its operations. The Group manages theserisks through its Risk Management Framework (the Framework), which evolves to accommodate changes in the business operating
environment, better practice approaches, and regulatory and community expectations. The components of the Framework are illustrated
below, including the governance that enables executive and Board oversight of these risks.

OVERVIEW

$

rate
%

ratio
%

Risk management

HOW WE CREATE VALUE

1 Dividend payout ratio: dividends divided by statutory earnings (earnings are net of dividends on other equity instruments).
2 DRP participation rate: the percentage of total issued share capital participating in the DRP.

ACCOUNTING POLICIESDividends represent a distribution of profits that holders of ordinary shares receive from time to time. Dividends determined by the Boardof the Bank are recognised with a corresponding reduction of retained earnings when the dividend is paid. The Board takes into
consideration factors including the Group’s relative capital strength and the Group’s existing dividend payout ratio guidelines indetermining the amount of dividends to be paid.

DIRECTORS’ REPORTFINANCIAL REPORTADDITIONAL INFORMATION

Further details on each of the material risks, and how the Group manages them, are outlined in this note.

200

201

202

203

Notes to the financial statements

9.1

9.1

For the year ended 30 June 2020

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

For the year ended 30 June 2020

Risk management framework

The Framework enables the appropriate development and implementation of strategies, policies and procedures to manage risk. The
Framework incorporates the requirements of APRA Prudential Standard CPS 220 “Risk Management” supported by the three key
documentary components:• The Group Risk Appetite Statement (RAS) articulates the type and degree of risk the Board is prepared to accept and the
maximum level of risk that the institution must operate within.

• The Group Business Plan (Plan) summarises the Group’s approach to the implementation of its strategic objectives. The Plan has arolling three year duration and reflects material risks arising from its implementation.
The Framework is underpinned by the following Risk Framework Enablers that allow the Group to effectively identify, record, manage
and monitor risks:

Risk governance and reporting

Risk culture is the beliefs, values and practices within the organisation that determine how risks are identified, measured, governed, andacted upon. A positive risk culture drives the right risk decisions and helps the Group make sound judgements in new and unfamiliar
circumstances. The risk behaviours that demonstrate a positive risk culture and are expected of employees by the Board, senior
management, customers, communities, shareholders and regulators, are guided by CBA values that emphasise doing what is right,
accountability, service, excellence and getting things done the right way.
The Board’s RAS in relation to conduct risk requires business practices that are fair to customers, protect the fair and efficient operationof the market and engender confidence in our products and services. Annually, the CBA Board forms a view regarding the effectivenessof the Group’s risk culture in keeping risk-taking within appetite. Action plans are initiated and monitored to drive positive risk culturechanges in areas of need.

Responding to COVID-19 risks
At times, changes in the Bank’s external and internal operating environments may have an impact on the nature of one or more of ourmaterial risk types, including our strategic risks. An example is the COVID-19 pandemic, which rapidly introduced an array of new andelevated risks to the safety of our people, the resilience of the Group’s operations, the strength of our Balance Sheet and the financial
security of our customers and the community. A number of actions were taken to address these risks, such as:• measures to support and protect our people;• relief measures to support our customers;• monitors the Group’s risk profile (including identification of emerging risks); and• infrastructure changes to ensure stability of key services;• reviews regular reports from management on the measurement of risk and the adequacy and effectiveness of the Group’s risk
management and internal control systems.

• increased oversight of critical suppliers;• continued enhancement of the Bank’s cyber defences;

At management level, risk governance is undertaken by a structured hierarchy of personal delegations and management committees
and forums across the Group and within the Business Units (BUs) and Support Units (SUs).

• increased forward looking loan loss provisions; andRegular management information is produced that allows financial and non-financial risk positions to be monitored against approved risk
appetite and policy limits. At Board level, the majority of risk reporting is provided to the Board Risk and Compliance Committee;
although select matters are reported directly to the Board as required. Controls reporting is provided to the Board Audit Committee.

The Board and Management continue to actively monitor the situation and adapt the Group’s response as required.

HOW WE CREATE VALUEThe Group is committed to ensuring that its risk management practices reflect a high standard of governance. This enables
management to undertake, in an effective manner, prudent risk-taking activities. The Board operates as the highest level of the Group’s
risk governance. The Board Risk and Compliance Committee is responsible for the oversight and governance of risks impacting theGroup. It oversees the design, implementation and operation of the Framework and helps formulate the Group’s risk appetite forconsideration by the Board. In particular it:

Risk culture and conduct risk

OVERVIEW• The Group Risk Management Approach (RMA) describes the Group’s approach to ensure comprehensive management of its risks
in support of achieving its strategic goals and objectives.

Risk management framework (continued)• ongoing monitoring of the Group’s lending portfolios.
DIRECTORS’ REPORTThe Group operates a Three Lines of Accountability model that places the accountability for risk ownership with the Line 1 BUs andSupport Units (SUs), while focusing the mandate of Line 2 Risk teams on risk appetite and the Framework, assurance, approval or
acceptance of risk decisions of Line 1 and advice. Line 3 Internal Audit provides independent assurance to the Board, regulators andother stakeholders on the effectiveness of risk management, internal controls and governance.

Risk policies & procedures
Risk policies and procedures provide guidance to the business on the management of each material risk. They support the framework by:
FINANCIAL REPORT• summarising the principles and practices to be used by the Group in identifying and assessing its material risks; and• quantifying the operating tolerances for material risks.

Risk management infrastructure
The Framework is supported by key infrastructure systems and processes for the management of the Group’s material risks. The keyrisk management systems and processes in place include:• Risk processes to identify, assess, escalate, monitor and manage risks and issues;• Management information systems to measure and aggregate risks across the Group;

ADDITIONAL INFORMATION• Risk models and tools;• A Risk-Adjusted Performance Measurement (RAPM) process that is a means of assessing the performance of a business after
adjustment for its capital consumption and is used as a basis for executive incentives; and• An Internal Capital Adequacy Assessment Process (ICAAP) used alongside other risk techniques (including stress testing), toquantify the Group’s risks for use in risk decisions, capital plans and strategic decisions.

Risk skills and capabilities
In addition to having the necessary risk skills and capabilities for their roles, it is important for all Group employees to have anawareness of the Framework as it relates to their role, as well as the need to adopt the CBA risk behaviours to ensure a positive CBArisk culture. Risk skills and capabilities are developed through:• Communication of the Group RAS and the CBA RMA: Following approval by the Board, the updated RAS and RMA are
communicated to all employees. Employees are also made aware of the Group and BU/SU RASs via the remuneration process(which highlights that individual employee performance will be assessed in light of their compliance);• Group Mandatory Learning modules;• The Operational Risk and Compliance Training program;• Induction and ongoing learning; and• Talent sourcing and acquisition.

202

203

204

205

Notes to the financial statements

9.1

9.1

For the year ended 30 June 2020

For the year ended 30 June 2020

Risk management framework (continued)

Risk management framework (continued)

Material risk types

Description

Governing Policies andKey Management
Committees• Residential mortgage lending;• Unsecured retail lending;Liquidity and funding risk

• Group and BU Credit
Risk Policies
Key Management
Committee:• Large corporate (institutional) lending• Financial Risk
and markets exposures.
Committee• BU/SU Financial Risk
Committees.

• Defined credit risk indicators set in the Group RAS;
• Transacting with counterparties that demonstrate the ability
and willingness to service their obligations throughperformance of due diligence and thorough credit quality
assessments;• Applications assessed by credit decisioning models, withmore complex or higher risk applications referred to credit
authority holders;• Taking collateral where appropriate;• Pricing appropriately for risk;

Liquidity risk is the combined risks of not Governing Policies:
being able to meet financial obligations as • Group Liquidity Policy
they fall due (funding liquidity risk), andthat liquidity in financial markets, such as Key Management
the market for debt securities, may reduce Committee:
significantly (market liquidity risk).

• ALCOThe Group is exposed to liquidity risk
primarily through:• The funding mismatch between theGroup’s loans, investments and sourcesof funding.

• Maintaining a diverse, yet stable, pool of potential funding
sources across different currencies, geographies, entities
and products;• Limiting the portion of wholesale funding sourced from
offshore;• Credit concentration frameworks that set exposure limits tocounterparties, groups of related counterparties, industry
sectors and countries;• Conservatively managing the mismatch between asset andliability maturities;• Maintaining a conservative mix of readily saleable or repoeligible liquid assets;• Working with impaired counterparties, or those in danger of
becoming so, to help them rehabilitate their financial
positions; and• Daily monitoring of liquidity risk exposures, including
Liquidity Coverage Ratio (LCR) and Net Stable Funding
Ratio (NSFR);• Stress testing, either at a counterparty or portfolio level.

• Market and idiosyncratic stress test scenarios; and• The Contingency Funding Plan provides strategies foraddressing liquidity shortfalls in a crisis situation.

• Interest Rate Risk in the Banking Book
• Asset and Liability(IRRBB);
Committee (ALCO)• Structural Foreign Exchange Risk;(Oversight of IRRBB)• Lease Residual Value Risk; andOperational risk is the risk of loss arising Governing Policies:
from inadequate or failed internal • Operational Risk
processes, people and systems or fromManagement
external events.
Framework (ORMF)• Defined operational risk indicators in the Group RAS;

• Back-testing of Value at risk (VaR) models against
hypothetical profit and loss;

The Group is exposed to operational risk • Group Outsourcing
primarily through:Policy• Regular Risk and Control Self-Assessment (RCSA) toassess key risks and controls for each BU/SU;• Daily monitoring and attribution of traded market risk
exposures including risk sensitivities, VaR and stresstesting;• Process execution errors;• Group Model Policy• Cyber security losses;• Group Fraud
Management Policy• Routine Controls Assurance Program tests to assess
whether controls are designed and operating effectively tomaintain risk exposures within acceptable levels;• Technology failures;• Data management issues;• Monthly monitoring of residual value risk exposures versus
limits;• Accounting, legal and taxation risks;• Managing the Balance Sheet with a view to balancing Net
Interest Income profit volatility and market value;• Daily monitoring of IRRBB market risk exposures including
risk sensitivities, credit spread risk, VaR and stress testing;• Monthly monitoring of Net Interest Earnings at Risk versus
limits; and• Transfer pricing for risk.

• Model risks;• Third parties;• People (employment
workplace safety);

practice• Fraud (external and internal); and• Non-technology business disruption.

• Group Policy on
Business Continuity
Management• Group Whistle-blower
Policyand • Group Protective
Security Policy• Group Data Quality
Management Policy
Key Management
Committee:• Non-Financial Risk
Committee• BU/SU Non-Financial
Risk Committees• Model Risk
Governance Committee

204• Incident management processes to identify, assess,record, report and manage actual operational orcompliance events that have occurred. This data is used to
guide management to strengthen processes and controls;• Issue management processes to identify, assess, record,
report and manage weaknesses or gaps in controls;• Risk in Change process to effectively understand andmanage the risks from changes to the business throughprojects or initiatives;• Quantitative Risk Assessments are scenarios conducted toprovide an understanding of potential unexpected losses;• Establishment of Key Risk Indicators
movements in risk exposures over time; andtomonitor• Assurance undertaken by Line 2 Risk teams to assess that
operational risks are appropriately identified and managed
across the Group.

205

ADDITIONAL INFORMATION• Weekly monitoring of VaR and stress test measures forderivative valuation adjustments (XVAs);• Implementation of manual and automated controls toprevent, detect and mitigate the specific operational risks
that the Group is exposed to;

FINANCIAL REPORT

Committee (Oversightof traded market risk)

Operational risk

DIRECTORS’ REPORT• Regular monitoring of credit quality, concentrations,arrears, policy exceptions and policy breaches;

Market risk is the risk that market rates and Governing Policies:• Defined market indicators set in the Group RAS;
prices will change and that this may have • The Group Market Risk • Minimal appetite for proprietary trading;an adverse effect on the profitability and/or
Policy• Conservative market risk limits with granular concentration
net worth of the Group.
Key Management
limits at a position level including currency/index, tenor and
The Group is primarily exposed to market Committee:
product type;risk through:• Pricing appropriately for risk;• Financial Risk

• Non-Traded Equity Risk.

• The Annual Funding Strategy (the Group’s wholesalefunding strategy based on a three year funding plan);• Maintaining sufficient liquidity buffers and short-term
funding capacity to withstand periods of disruption in
long-term wholesale funding markets and unanticipatedchanges in the Balance Sheet funding gap;

Market risk (including equity risk)• Traded Market Risk;• Defined liquidity risk indicators in the Group RAS;

HOW WE CREATE VALUE• Commercial lending; andFramework andGovernanceKey controls and risk mitigation strategies

OVERVIEWThe Group is primarily exposed to credit
risk through:Governing Policies andKey Management
Committees

Description

Key controls and risk mitigation strategies

Credit risk
Credit risk is the potential for loss arising Governing Policies:
from the failure of a counterparty to meet • Group Credit Risk
their contractual obligations to the Group.
Policies, Principles,

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

206

207

Notes to the financial statements

9.1

9.1

For the year ended 30 June 2020

For the year ended 30 June 2020

Risk management framework (continued)

Description

Governing Policies andKey Management
Committees

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

Key controls and risk mitigation strategies

Risk management framework (continued)

Description

Compliance risk

Governing Policies andKey Management
Committees

Key controls and risk mitigation strategies

Insurance risk

• Non-Financial Risk
Committee• BU/SU Non-Financial
Risk Committees• Regulatory change management to establish compliant
business practices;• Maintenance of obligation registers;• Compliance risk profiling through the RCSA;• Review of key compliance and conduct processes andcontrols through the regulatory assurance program andcompliance monitoring;

Insurance risk is the risk of loss due to the Governing Policies:
potential for events the Group has insured • Product Management
against occurring more frequently or with
Policygreater severity than anticipated. The• Underwriting PolicyGroup is primarily exposed to insurance
risk through home and motor events • Claims Management
Policythrough a wholly-owned subsidiary inAustralia.
• ReinsuranceManagement Policy
Key Management
Committee:• Group wide minimum standards in key compliance areas;• Co-operative and transparent relationships with regulators;• Executive Committees
of insurance writing
businesses• Board and management governance and reporting;• Pre-employment due diligence on the Group’s employees
and enhanced screening for high risk roles;• Training and awareness sessions to staff highlighting thecommunity impact of financial crime and the Group’s role
to detect, deter and disrupt money laundering, terrorist
financing and other serious crime;• Customer on-boarding processes to meet AML/CTF
identification and screening requirements;• Ongoing customer due diligence to ensure information theGroup maintains on customers is accurate;• Risk assessments on customers, products and channels toensure the Group understands the money laundering andterrorist financing risks;• Enhanced customer
segments;

due

diligenceonhigherrisk• Undertake statutory reporting requirements includingInternational Funds Transfer Instructions, ThresholdTransaction Reports and Suspicious Matter Reports;• Controls to prevent corruption of public officials by
employees, representatives, suppliers or third party
agents, including disclosure and approval of gifts andentertainment, charitable donations and sponsorships; and• Limits, standards and underwriting authorities to ensure
acceptance of appropriate risks;• Regular monitoring of loss ratios, aggregations andconcentrations;• Catastrophe modelling and stress testing;• Actuarial review of claims provisions;• Controls to ensure valid claims are paid without undue
delay; and• Reinsurance to manage the volatility of insurance risk andlimit exposure to significant, individual or aggregate risks orrisk concentrations.

Strategic risk
Strategic risk is the risk of material Governing Policies:
stakeholder value destruction or less than • Group Strategic Risk
planned value creation. The Group isManagement Policy
exposed to strategic risk primarily through:• Environmental & Social• Changes in the Group’s external andPolicyinternal
operatingenvironments
Key
Management(including macro-economic conditions,competitive
forces,technology, Committee:
regulatory, political and social trends, • Executive Leadershipcustomer
expectations
and
the
Team
environment); and• Risk associated with the process forstrategy development and monitoring ofstrategy implementation.

Strategic risk:• Strategy development, approval and review;• Identifying and monitoring changes and potential changes
to the operating environment; and• Monitoring execution progress of strategies.
In developing the strategy, the following is considered:• Impact of strategy on the Group’s risk profile andmeasures of risk appetite;• Recent execution progress; and• Assumptions concerning the operating environment.
Climate risk represents a strategic risk due to the potential
material transition and physical climate related impacts to theGroup, if not managed effectively. The potential adverse
impacts of climate change manifest, and are therefore
measured and managed, as an outcome of the other material
risk types. In order to understand these potential impacts, andin support of our commitment to limiting the impacts of climatechange the Group:• Develops scenario analyses to understand the impacts ofboth transition and physical climate-related risks on thebusiness and the implications for strategic and tactical
portfolio decisions; and• Develops strong policy frameworks which consider
Environmental, Social and Governance issues, including
climate change impacts in assessing our relationships withcustomers and suppliers.
Corporate Responsibility programs outline the objectives for
safeguarding the environment, while supporting economic
growth and development and provide guidelines in monitoring
and reducing the Group’s own greenhouse gas emissions
and energy use.

206

207

ADDITIONAL INFORMATION• Conduct Risk strategy and Code of Conduct, supported bymandatory training for all staff.

• Sound product design and pricing to ensure that customers
understand the extent of their cover and that premiums are
sufficient to cover the risk involved;

FINANCIAL REPORT• Monitoring customer payments, trade and all transactions
to manage the AML/CTF and sanctions risks identified;• Defined insurance risk indicators set in the Group RAS;DIRECTORS’ REPORT• Financial crime (Anti Money Laundering
Corruption Policy,(AML), Counter Terrorism Financing • Group Economic Trade(CTF), Anti-Bribery and Corruption, andSanctions Policy
Sanctions); and• Code of Conduct• Poor conduct (product design anddistribution,marketconductand • Product Development
and Distribution
employee misconduct).
Key Management
Committee:• Mandatory online compliance training for all employees;

HOW WE CREATE VALUE• Regulatory and licencing obligations, • AML/CTF Group
including privacy and conflicts of interest
Program,obligations;• Anti-Bribery &• Compliance risk indicators included in the Group RAS;OVERVIEW

Compliance risk is the risk of sanctions Governing Policies:
and financial loss the Group may suffer as • Group Compliancea result of the Group’s failure to complyManagementwith laws, regulations, rules, statements ofFramework (CMF) andregulatory policy, and codes of conduct
policies
applicable to its business activities.
• Group and BU
The Group is exposed to compliance risk
Compliance policies
primarily through:and standards

208

209

Notes to the financial statements

9.2

9.2

For the year ended 30 June 2020

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

For the year ended 30 June 2020

Credit risk

Credit risk management principles and portfolio standards

Credit risk (continued)(i) Expected loss (continued)
EAD is the estimate of the amount of a facility that will be outstanding under a facility in the event of default. Estimates are based on a
downturn in economic conditions. The estimate is based on the actual amount outstanding, plus the undrawn amount multiplied by acredit conversion factor (CCF). The CCF represents the potential rate of conversion from undrawn 12 months prior to default to drawn atdefault. For most committed facilities, the Group applies a CCF of 100% to the undrawn amount.

The Group’s credit policies and frameworks include concentration limits, which are designed to achieve portfolio outcomes that areconsistent with the Group’s risk appetite and risk/return expectations.

For uncommitted facilities, the EAD will generally be the drawn balance only. For defaulted facilities, it is the actual amount outstandingat default. For retail exposures, a modelling approach can be used based on factors including limit usage, arrears and loan type tosegment accounts into homogeneous pools to calculate EAD.

The Credit Portfolio Assurance unit, part of Group Financial Risk, reviews credit portfolios and business unit compliance with credit
policies, frameworks, application of credit risk ratings and other key practices on a regular basis.
The credit risk portfolio has two major segments:

LGD expressed as a percentage, is the estimated proportion of a facility likely to be lost in the event of default. LGD is impacted by:

OVERVIEWThe Group has clearly defined credit policies for the approval and management of credit risk. Credit policies apply to all credit risks, withspecific portfolio standards applying to all major lending areas. These set the minimum requirements in assessing the integrity andability of counterparties to meet their contracted financial obligations for repayment, acceptable forms of collateral and security and thefrequency of credit reviews.

• type and level of any collateral held;• liquidity and volatility of collateral;(i) Retail managed segment

Auto-decisioning is used to approve credit applications for eligible counterparties in this segment. Auto-decisioning uses a scorecard
approach based on a combination of factors, which may include the Group’s historical experience on similar applications, informationfrom a credit reference bureau, the Group’s existing knowledge of a counterparty’s behaviour and updated information provided by thecounterparty.
Loan applications that do not meet scorecard auto-decisioning requirements may be referred to a Personal Credit Approval Authority(PCAA) for manual decisioning.
After loan origination, these portfolios are managed using behavioural scoring systems and a delinquency band approach, such as
actions taken when loan payments are greater than 30 days past due differ from actions when payments are greater than 60 days pastdue. Loans past due are reviewed by the relevant Arrears Management or Financial Assistance Team.
This segment comprises non-retail exposures, including bank and sovereign exposures. Each exposure is assigned an internal Credit
Risk-Rating (CRR) based on Probability of Default (PD) and Loss Given Default (LGD).

• realisation costs.
Various factors are considered when calculating PD, EAD and LGD. Considerations include the potential for default by a borrower due
to economic, management, industry, other risks, and the mitigating benefits of any collateral held as security.

(ii) Unexpected loss
In addition to EL, a more stressed loss amount is calculated. This Unexpected Loss estimate directly affects the calculation of regulatory
and internal economic capital requirements. Refer to the Performance Overview section and Note 8.1 for information relating toregulatory capital.

Climate related risk
Climate risk is a risk for the Group. The impacts of climate change have the potential to affect our customers’ ability to service and repay
their loans, and the value of collateral the Group holds to secure loans. These impacts include long-term changes in climatic conditions,extreme weather events, and the action taken by governments, regulators or society more generally to transition to a low carbon
economy.

• influence decisions on approval, management and pricing of individual credit facilities; andCredit risk mitigation, collateral and other credit enhancements

Either a PD Rating Tool or expert judgement is used to determine the PD for customers in this segment. Expert judgement is used
where the complexity of the transaction and/or the counterparty is such that it is inappropriate to rely completely on a statistical model.
External ratings may be used for benchmarking in the expert judgement assessment.
The CRR is designed to:• provide the basis for reporting details of the Group's credit portfolio.

The Group has policies and procedures in place setting out the circumstances where acceptable and appropriate collateral is to betaken to mitigate credit risk. These include valuation parameters, review frequency and independence of valuation.

• “Pass” – these credit facilities qualify for approval of new or increased exposure on normal commercial terms; andThe general nature of collateral that may be taken, and the balances held, are summarised below by financial asset classes.

• “Troublesome or Impaired Assets (TIAs)” – these credit facilities are not eligible for new or increased exposure, unless it facilitates
rehabilitation to “pass grade” or protects or improves the Group’s position by maximising recovery prospects. Where a counterparty isin default but no loss is expected based on an assessment of the security position and other factors, the facility may be classed astroublesome but not impaired. Where a loss is expected, a facility is classified as impaired. Restructured facilities, where the originalcontractual arrangements have been modified outside commercial terms to provide concessions for the customer’s financial
difficulties, are classified as impaired.

Cash and liquid assets

Default is to be recorded with one or more of the following:

Collateral is not usually sought on the majority of Cash and liquid asset balances as these types of exposures are generally considered
low risk. However, securities purchased under agreement to resell are collateralised by highly liquid debt securities. The collateralrelated to agreements to resell has been legally transferred to the Group subject to an agreement to return them for a fixed price.
The Group’s Cash and liquid asset balance included $25,562 million (2019: $14,527 million) deposited with Central Banks and isconsidered to carry less credit risk.

Receivables from other financial institutions• the customer is 90 days or more overdue on a scheduled credit repayment; or• the customer is unlikely to repay their credit obligation to the Group in full without taking action, such as realising on available security.

Collateral is usually not sought on these balances as exposures are generally considered to be of low risk. The exposures are mainly
short-term, to investment grade banks and include collateral posted by the Group.

Credit risk measurement
The measurement of credit risk uses analytical tools to calculate both: (i) Expected, and (ii) Unexpected Loss probabilities for the credit
portfolio. The use of analytical tools is governed by the Model Risk Governance Committee.

(i) Expected loss
Expected loss (EL) is the product of:

Trading assets at fair value through Income Statement and investment securities at fair value through OCI
These assets are carried at fair value, which accounts for the credit risk. Investment securities at amortised cost are measured atamortised cost and presented net of provisions for impairment. Collateral is not generally sought from the issuer or counterparty but
collateral may be implicit in the terms of the instrument (such as an asset-backed security).

Insurance assets• PD;

These assets are carried at fair value, which accounts for the credit risk. Collateral is not generally sought or provided on these types ofassets, other than a fixed charge over properties backing Australian mortgage investments. In most cases the credit risk of insurance
assets is borne by policyholders. However, on certain insurance contracts the Group retains exposure to credit risk.

• Exposure at Default (EAD); and• LGD.
The PD, expressed as a percentage, is the estimate of the probability that a client will default within the next 12 months.

208

209

ADDITIONAL INFORMATION

Credit risk-rated exposures are generally reviewed on an individual basis, at least annually, and fall within the following categories:

FINANCIAL REPORT• aid in assessing changes to counterparty credit quality;

The Group is a major provider of non-retail loans. A key step in credit risk due diligence for non-retail lending is the assessment ofpotential transactions for environmental, social and governance (ESG) risks, including climate risk, through our ESG Risk Assessment
Tool. All Institutional Bank loans, as well as large loans in other business units, are evaluated through the Group’s compulsory ESG risk
assessment process. The risk of climate change is assessed at origination and during the annual review process for Institutional Bankloans. Exposures with medium or high risk profile are subject to additional due diligence and heightened consideration and assessmentin the credit process. During the year ended 30 June 2020, the Group recognised provisions for impairment of $90 million reflecting theimpact of extreme weather events on the credit quality of the Group’s loan portfolio.

DIRECTORS’ REPORT(ii) Risk-rated segment• carrying costs (effectively the costs of providing a facility that is not generating an interest return); andHOW WE CREATE VALUEThis segment has sub-segments covering housing loans, credit cards, personal loans, and personal overdrafts. It also covers most
non-retail lending where the aggregated credit exposure to a group of related obligors is less than $1 million.

210

211

Notes to the financial statements

9.2

9.2

For the year ended 30 June 2020

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

For the year ended 30 June 2020

Credit risk (continued)

Other assets at fair value through Income Statement

Credit risk (continued)

Maximum exposure to credit risk by industry and asset class before collateral held or other credit enhancements

These assets are carried at fair value, which accounts for the credit risk.

Group
At 30 June 2020

Derivative assets

The fair value of collateral held and the potential effect of offset obtained by applying master netting agreements are disclosed in Note 9.7.

Due from controlled entities

The Group applies fundamentally the same risk management policies for off Balance Sheet risks as it does for its on Balance Sheetrisks. Collateral may be sought depending on the strength of the counterparty and the nature of the transaction. Of the Group’s off
Balance Sheet exposures, $103,325 million (2019: $99,936 million) are secured.

Loans, bills discounted and other receivables
The principal collateral types for loans and receivable balances are:• mortgages over residential and commercial real estate; and• charges over business assets such as cash, shares, inventory, fixed assets and accounts receivables.

The collateral mitigating credit risk of the key lending portfolios is addressed in the table ‘Collateral held against Loans, Bills Discounted
and Other Receivables’ within this note.

Construction

Other
personal

Assetfinancing

Othercomm andindust.

Other

Total

$M

$M

$M

$M

$M

$M

$M

$M

$M

$M

8,611

–

14,113

–

–

–

–

–

–

22,724

–

–

2,127

–

–

–

–

–

–

2,127

34,672Credit risk exposures relating
to on Balance Sheet assets:
Cash and liquid assets

Other
Derivative assets

28,071

–

842

–

–

–

–

5,759

–

77

105

1,188

–

–

–

–

6,708

44

8,122

1,268

76

22,649

–

26

–

–

4,801

–

28,820Investment securities:
At amortised cost
At fair value through Other
Comprehensive Income
Loans, bills discounted and otherreceivables 1
2
Other assets
Assets held for sale
Total on Balance Sheet Australia

9

–

5,159

–

–

–

–

–

–

5,168

47,601–

12,366

–

–

–

–

570

–

60,537

23,521

9,680

13,136

485,795

3,600

17,695

10,434

109,184–

673,045

637

1

8,876

9

1

14

–

189

14,65624,383

–

–

772

–

–

–

–

12

984

1,768

109,795

9,862

81,228

485,804

3,627

17,70910,434

127,223

15,684

861,366

Credit risk exposures relating
to off Balance Sheet assets:
Guarantees

492

20

1,465

–

259

–

–

3,067

–

5,303

Loan commitments
Other commitments

636

1,969

6,479

71,313

2,355

21,346–

38,594–

142,692

Total Australia

66

9

1,162

–

1,521

–

–

3,768

–

6,526

110,989

11,86090,334557,117

7,762

39,055

10,434

172,652

15,684

1,015,887

13,937

–

7,504

–

–

–

–

–

–

21,441

61

–

6,359

–

–

–

–

–

–

6,420

3,184

–

274

–

–

–

–

293

–

3,751

–

–

–

–

–

–

–

–

–

–

128

22

939

–

–

–

–

376

–

1,465

5

–

–

–

–

–

–

–

–

5

17,068

–

1,944

–

–

–

–

–

–

19,012

69

9,601

6,382

57,085

593

1,876

779

29,245–

105,630

24
–

–
–

19
–

4
–

1
–

5
–

4
–

347
–

1,692
2

2,096
2

34,476

9,623

23,421

57,089

594

1,881

783

30,261

1,694

159,822

DIRECTORS’ REPORTCollateral security is generally taken except for government, bank and corporate counterparties that are often externally risk-rated andof strong financial standing. Longer term consumer finance, such as housing loans, are generally secured against real estate, while
short-term revolving consumer credit is generally not secured by formal collateral.

Home
loans

HOW WE CREATE VALUE

Credit commitments and contingent liabilities

Bank andother
financial

Australia

Receivables from financial institutions
Assets at fair value through Income
Statement:
Trading

Collateral is not generally taken on these intergroup balances.

Sovereign

Agriculture

OVERVIEWThe Group’s use of derivative contracts is outlined in Note 5.4. The Group is exposed to counterparty credit risk on derivative contracts.
The counterparty credit risk is affected by the nature of the trades, the counterparty, netting, and collateral arrangements. Credit risk
from derivatives is mitigated where possible (typically for financial institutions counterparties, but less frequently for corporate or
government counterparties) through netting agreements, whereby derivative assets and liabilities with the same counterparty can beoffset and cleared with Central Counterparties (CCPs). The International Swaps and Derivatives Association (ISDA) Master Agreement(or other derivative agreements) are used by the Group as an agreement for documenting Over-the-Counter (OTC) derivatives.

Overseas

Cash and liquid assets
Receivables from financial institutions
Assets at fair value through Income
Statement:
Trading
Other
Derivative assets

FINANCIAL REPORT

Credit risk exposures relating
to on Balance Sheet assets:

Investment securities:

Total on Balance Sheet overseas
Credit risk exposures relating
to off Balance Sheet assets:
Guarantees

–

2

754

–

52

–

–

337

–

1,145

415
1

764
1

6,300
243

7,805
–

210
1

2,144
–

99
–

8,108
586

–
–

25,845832

Total overseas

34,892

10,39030,71864,894

857

4,025

882

39,292

1,694

187,644

Total gross credit risk

145,881

22,250121,052

622,0118,619

43,08011,316211,944

17,3781,203,531

Loan commitments
Other commitments

1 Loans, bills discounted and other receivables is presented gross of provisions for impairment and unearned income in line with Note 3.1.
2 For the purpose of reconciling to the Balance Sheet, “Other assets” predominantly comprises assets which do not give rise to credit exposure, including Property,
plant and equipment, Investment in associates and joint ventures, Intangible assets, Deferred tax assets and Other assets.

210

211

ADDITIONAL INFORMATIONAt amortised cost
At fair value through Other
Comprehensive Income
Loans, bills discounted and otherreceivables 1
Other assets 2
Assets held for sale

212

213

Notes to the financial statements

9.2

9.2

For the year ended 30 June 2020

For the year ended 30 June 2020

Credit risk (continued)
Group

Sovereign

Agriculture

$M

$M

$M

Credit risk (continued)

Large exposures

1

At 30 June 2019
Bank andother
financial

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

Home
loans

Construction

Other
personal

$M

$M

$M

Concentrations of exposure to any counterparty or counterparty group are controlled by a large credit exposure policy, which defines a
graduated limit framework that restricts credit limits based on the internally assessed CRR, the type of client, and facility tenor. All
exposures outside the policy limits require approval by the Executive Credit Authority.

Assetfinancing

Othercomm andindust.

Other

Total

$M

$M

$M

$M

Australia

Group

Credit risk exposures relating
to on Balance Sheet assets:
Cash and liquid assets
Receivables from financial institutions
Assets at fair value through Income
Statement:
Trading
Derivative assets–

11,930

–

–

–

–

–

–

16,505

–

–

3,037

–

–

–

–

–

–

3,037

Total on Balance Sheet Australia

Number

5% to less than 10% of the Group's capital resources––

10% to less than 15% of the Group's capital resources

–

–

–

941

–

–

–

–

2,454

–

24,749

81

–

434

–

–

–

–

7,268

242

8,025

1,414

64

18,550

–

4

–

–

1,150

–

21,182Distribution of financial assets by credit classification

9

–

7,341

–

–

–

–

–

–

7,350

43,540–16,893

–

–

–

–

67

–

60,50022,4049,140

11,952

467,361

3,194

21,508

10,471

106,991–

653,021

When doubt arises as to the collectability of a credit facility, the financial instrument is classified and reported as impaired. Provisions for
impairment are raised where there is objective evidence of impairment and for an amount adequate to cover assessed credit related
losses. The Group regularly reviews its financial assets and monitors adherence to contractual terms. Credit risk-rated exposures areassessed, at least at each Balance Sheet date, to determine whether the financial asset is impaired.

488

3

5,496

–

–

10

–

230

14,175

20,402

1,423

–

5,633

–

–

–

–

3,943

4,211

15,21095,2889,207

82,207467,361

3,198

21,518

10,471

122,103

18,628

829,981

The tables on pages 214 to 221 provide information about the gross carrying amount of the Group’s and the Bank’s loans, bills
discounted and other receivables by credit rating grade and ECL stage.
This segmentation of loans in retail and risk-rated portfolios is based on the mapping of a counterparty’s internally assessed PD to S&P
Global ratings, reflecting a counterparty’s ability to meet their credit obligations. In particular, retail PD pools have been aligned to theGroup’s PD grades which are consistent with rating agency views of credit quality segmentation.

Credit risk exposures relating
to off Balance Sheet assets:

The Group has a high quality, well diversified credit portfolio, with 62% of the gross loans and other receivables in domestic mortgage
loans and a further 7% in overseas mortgage loans, primarily in New Zealand. Overseas loans account for 14% of loans and advances.

Distribution of financial instruments by credit quality

Guarantees

36

20

1,584

–

324

–

–

3,195

–

5,159

Loan commitments

605

1,975

7,675

67,8742,331

21,207–34,156–

135,823

Other commitments

58

11

1,362

–

1,390

214

12

2,963

–

6,010

Credit grade

S&P rating equivalent

95,987

11,21392,828535,235

7,243

42,93910,483

162,417

18,628976,973

Investment

AAA to BBB-

Total Australia
Overseas
Credit risk exposures relating
to on Balance Sheet assets:
Cash and liquid assets

Other
Derivative assets

9,952

–

2,930

–

–

–

–

–

–

12,882

–

–

5,056

–

–

–

–

–

–

5,056

602

–

251

–

–

–

–

50

–

903

–

–

–

–

–

–

–

–

–

–

169

12

2,110

–

–

–

–

1,742

–

4,033

5

–

–

–

–

–

–

–

–

5

16,092

–

2,320

–

–

–

–

–

–

18,412

82

10,612

5,774

55,581

573

1,924

722

32,724–

107,992

BB+ to B-

Weak

CCC and below, in default
FINANCIAL REPORT

Receivables from financial institutions
Assets at fair value through Income
Statement:
Trading

Pass

Investment securities:

other receivables 2
Other assets 3
Assets held for sale

Total on Balance Sheet overseas

30

–

338

–

–

4

8

49

1,308

1,737

683

–

469

–

–

–

–

23

166

1,341

27,615

10,624

19,24855,581

573

1,928

730

34,5881,474

152,361

ADDITIONAL INFORMATIONAt amortised cost
At fair value through Other
Comprehensive Income
Loans, bills discounted andCredit risk exposures relating
to off Balance Sheet assets:
Guarantees
Loan commitments
Other commitments

–

10

949

–

54

–

–

334

–

1,347

419

834

5,034

7,875

222

2,098

48

9,849

–

26,379

–

–

473

–

3

–

–

612

–

1,088

Total overseas

28,034

11,46825,70463,456

852

4,026

778

45,383

1,474

181,175

Total gross credit risk

124,021

22,681

118,532

598,691

8,095

46,965

11,261

207,800

20,102

1,158,148

1 Comparative information has been restated to conform to presentation in the current year.
2 Loans, bills discounted and other receivables is presented gross of provisions for impairment and unearned income in line with Note 3.1.
3 For the purpose of reconciling to the Balance Sheet, “Other assets” predominantly comprises assets which do not give rise to credit exposure, including Property,
plant and equipment, Investment in associates and joint ventures, Intangible assets, Deferred tax assets and Other assets.

212

DIRECTORS’ REPORT

21,354

Investment securities:
At amortised cost
At fair value through Other
Comprehensive Income
Loans, bills discounted andother receivables 2
Other assets 3
Assets held for sale

30 Jun 19

Number

HOW WE CREATE VALUE

Other

4,575

30 Jun 20

OVERVIEW

The following table shows the number of the Group’s non-retail (excluding banks and sovereign) aggregated counterparty exposures (including
direct and contingent exposures), which individually were greater than 5% of the Group’s capital resources (Tier 1 and Tier 2 capital):

213

214

215

Notes to the financial statements

9.2

9.2

For the year ended 30 June 2020

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

For the year ended 30 June 2020

Credit risk (continued)

Credit risk (continued)

Distribution of financial instruments by credit quality

Group
30 Jun 20Group
30 Jun 20
Stage 2collectively
assessedStage 3collectively
assessedStage 3individuallyassessed

Total

$M

$M

$M

$M

$M

387,863

39,677––427,540

Pass

219,819

110,821––330,640

Weak

2,569

10,384

4,490

2,168

19,611

610,251

160,882

4,490

2,168

777,791

Gross carrying amountCredit grade
Investment

78,651

16,443––95,094Pass

32,916

14,293––47,209

Weak

255

497

81

86

919

Total undrawn credit commitments

111,822

31,233

81

86

143,222

Total credit exposures

722,073

192,115

4,571

2,254

921,013

Impairment provision

1,549

3,249

479

967

6,244

0. 2

1. 7

10. 5

42. 9

0. 7

Total

$M

$M

$M

$M

$M

Retail secured
Investment

346,983

28,658––375,641

Pass 2

193,030

35,643––

228,673

Weak 2

1,626

4,589

3,197

815

10,227

Total retail secured

541,639

68,8903,197

815

614,541

Impairment provision

663

628

153

237

1,681

Provisions to credit exposure, %

0. 1

0. 9

4. 8

29. 1

0. 3

Retail unsecured
Credit grade
Investment

13,395

2,564

–

–

15,959Pass

13,000

2,572

–

–

15,572

898

1,165

270

10

2,343

27,293

6,301

270

10

33,874

Weak
Total retail unsecured
Impairment provision

592

937

216

3

1,748

Provisions to credit exposure, %

2. 2

14. 9

80. 0

30. 0

5. 2

Non-retail
Credit grade

Credit grade
9,877

1,380

–

–

11,257

Investment

116,013

26,278––142,291

50,00591,633––

141,638

Pass

3,300

4,734

–

–

8,034

Pass

Weak

27

314

27

83

451

Weak

Total financial guarantees and other off Balance
Sheet instruments

Stage 3individuallyassessed

Total non-retail

327

5,441

1,131

1,512

8,411

166,345

123,352

1,131

1,512

292,340

6,428

27

83

19,742

Impairment provision

314

1,781

112

727

2,934

Impairment provision

20

97

2

–

119

Provisions to credit exposure, %

0. 2

1. 4

9. 9

48. 1

1. 0

Provisions to credit exposure, %

0. 2

1. 5

7. 4

–

0. 6

Total credit exposures––

533,891
385,883

Total credit exposures

Credit grade

Credit grade

476,391

57,500476,391

57,500––533,891

Pass

256,035

129,848

–

–

Pass

256,035

129,848––

385,883

Weak

2,851

11,195

4,598

2,337

20,981

Weak

2,851

11,195

4,598

2,337

20,981

Total credit exposures735,277

198,543

4,598

2,337

940,755

735,277

198,543

4,598

2,337

940,755

Impairment provision

1,569

3,346

481

967

6,363

1,569

3,346

481

967

6,363

0. 2

1. 7

10. 5

41. 4

0. 7

0. 2

1. 7

10. 5

41. 4

0. 7

Total credit exposures
Total impairment provision
Provisions to credit exposure, %1 The assessment of significant increase in credit risk includes the impact of forward looking adjustments for emerging risk at an industry, geographical location or aparticular portfolio segment level, which are calculated by stressing an exposure’s internal credit rating grade at the reporting date. This accounts for approximately
65% of Stage 2 credit exposures for the Group as at 30 June 2020.

214

Provisions to credit exposure, %1 The assessment of significant increase in credit risk includes the impact of forward looking adjustments for emerging risk at an industry, geographical location or aparticular portfolio segment level, which are calculated by stressing an exposure’s internal credit rating grade at the reporting date. This accounts for approximately
65% of Stage 2 credit exposures for the Group as at 30 June 2020.
2 During the year ended 30 June 2020, the Group revised the Australian residential mortgage regulatory capital models which resulted in movements of credit
exposures across PD bands. There was a reduction in weak grade and an increase in pass grade home loans exposures as a result of this change.

215

ADDITIONAL INFORMATION

Investment

Investment

FINANCIAL REPORT

13,204

DIRECTORS’ REPORT

Financial guarantees and other off Balance Sheet
instruments
Investment

Stage 3collectively
assessed

HOW WE CREATE VALUE

Undrawn credit commitments

Provisions to credit exposure, %1Credit grade

Credit grade
Investment

Stage 2collectively
assessed

OVERVIEW

Loans, bills and discounted and other receivables

1

Stage 1collectively
assessedStage 1collectively
assessed

216

217

Notes to the financial statements

9.2

9.2

For the year ended 30 June 2020

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

For the year ended 30 June 2020

Credit risk (continued)

Credit risk (continued)

Group 130 Jun 19

Loans, bills and discounted and other receivables

Group
30 Jun 19

Stage 1collectively
assessedStage 2collectively
assessed2

Stage 3collectively
assessedStage 3individuallyassessed

$M

$M

$M

$M

1

Total

Stage 1collectively
assessedStage 2collectively
assessedStage 3collectively
assessedStage 3individuallyassessed

Total

$M

$M

$M

$M

$M

$M

Credit grade

Investment

380,594

30,263––410,857

Pass

231,037

87,357––318,394

Investment

329,299

27,685––356,984

Weak

9,146

14,997

4,499

1,995

30,637

Pass

183,379

32,949––216,328

620,777

132,617

4,499

1,995

759,888

Weak

7,628

8,840

3,276

794

20,538Gross carrying amount

Total retail secured

520,306

69,474

3,276

794

593,850

Credit grade

Impairment provision

265

393

132

271

1,061

0. 1

0. 6

4. 0

34. 1

0. 2

Investment

78,35014,446

Pass

35,634

11,332

Weak

742

422

Total undrawn credit commitments

114,726

26,200Total credit exposures

735,503

158,817

Impairment provision

897

2,444

Provisions to credit exposure, %

0. 1

1. 5

–

92,796

Provisions to credit exposure, %––46,966

Retail unsecured

86

79

1,329

Credit grade

86

79

141,091

Investment

13,746

2,603

–

–

16,349

4,585

2,074

900,979

Pass

13,426

2,353

–

–

15,779

479

895

4,715

Weak

1,858

2,057

292

6

4,213

10. 4

43. 2

0. 5

Total retail unsecured

29,030

7,013

292

6

36,341–Credit grade
1,553

–

–

10,418

Pass

3,356

3,686

–

–

7,042

Weak

45

236

19

19

319

12,266

5,475

19

19

17,779

8

75

1

–

84

0. 1

1. 4

5. 3

–

0. 5

Provisions to credit exposure, %Total credit exposures

217

3

1,629

13. 3

74. 3

50. 0

4. 5

Credit grade
Investment

124,764

15,974––

140,738

Pass

73,222

67,073––140,295

4,758

1,036

1,293

7,534

87,805

1,036

1,293

288,567

Impairment provision

165

1,192

131

621

2,109

Provisions to credit exposure, %

0. 1

1. 4

12. 6

48. 0

0. 7

Investment

467,80946,262––514,071

Pass

270,027

102,375––

372,402

Weak

9,933

15,655

4,604

2,093

32,285

Total credit exposures

747,769

164,292

4,604

2,093

918,758

Impairment provision

905

2,519

480

895

4,799

Provisions to credit exposure, %

0. 1

1. 5

10. 4

42. 8

0. 5

Total non-retail

Investment

467,80946,262––514,071

Pass

270,027

102,375––

372,402

Weak

9,933

15,655

4,604

2,093

32,285

747,769

164,292

4,604

2,093

918,758

Total impairment provision

905

2,519

480

895

4,799

Provisions to credit exposure, %

0. 1

1. 5

10. 4

42. 8

0. 5

1 Comparative information has been restated to conform to presentation in the current year.
2 The assessment of significant increase in credit risk includes the impact of forward looking adjustments for emerging risk at an industry, geographical location or aparticular portfolio segment level, which are calculated by stressing an exposure’s internal credit rating grade at the reporting date. This accounts for approximately
65% of Stage 2 credit exposures for the Group as at 30 June 2019.

216

Credit grade

1 The assessment of significant increase in credit risk includes the impact of forward looking adjustments for emerging risk at an industry, geographical location or aparticular portfolio segment level, which are calculated by stressing an exposure’s internal credit rating grade at the reporting date. This accounts for approximately
65% of Stage 2 credit exposures for the Group as at 30 June 2019.

217

ADDITIONAL INFORMATION

447
198,433

Weak

Total credit exposures

Credit grade

Total credit exposures

934

1. 6

FINANCIAL REPORT

8,865

Impairment provision

475

Provisions to credit exposure, %Non–retail

Investment

Total financial guarantees and other off Balance
Sheet instruments

Impairment provision

DIRECTORS’ REPORT

Financial guarantees and other off Balance Sheet
instruments

HOW WE CREATE VALUE

Undrawn credit commitments

OVERVIEW

Retail secured

Credit grade

218

219

Notes to the financial statements

9.2

9.2

For the year ended 30 June 2020

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

For the year ended 30 June 2020

Credit risk (continued)

Credit risk (continued)

Bank
30 Jun 20

Loans, bills and discounted and other receivables

Bank
30 Jun 20

Stage 1collectively
assessedStage 2collectively
assessed1

Stage 3collectively
assessedStage 3individuallyassessed

$M

$M

$M

$M

1

Total

Stage 1collectively
assessedStage 2collectively
assessedStage 3collectively
assessedStage 3individuallyassessed

Total

$M

$M

$M

$M

$M

$M

Retail secured

Investment

362,516

35,868––398,384

Credit gradePass

173,30994,608––267,917

Investment

323,862

26,888––350,750

Weak

2,141

8,813

3,867

1,725

16,546

Pass 2

154,41230,913––

185,325

537,966

139,289

3,867

1,725

682,847

Weak 2Gross carrying amount
Undrawn credit commitments

Total retail secured

Investment

75,38816,167

Pass

26,045

12,993

Weak

234

433

Total undrawn credit commitments

101,667

29,593

Total credit exposures639,633

168,882

Impairment provision

1,400

2,876

0. 2

1. 7

Provisions to credit exposure, %

3,632

2,677

753

8,250

61,433

2,677

753

544,325

Impairment provision

616

475

203

225

1,519

–

91,555

Provisions to credit exposure, %

0. 1

0. 8

7. 6

29. 9

0. 3

–

–

39,038Retail unsecured

59

59

785

59

59

131,378

Investment

13,395

2,564

–

–

15,959

3,926

1,784

814,225

Pass

10,270

2,335

–

–

12,605

490

813

5,579

Weak

887

1,130

228

9

2,254

12. 5

45. 6

0. 7

24,552

6,029

228

9

30,818–Credit grade

Total retail unsecured
Impairment provision

547

891

184

3

1,625

Provisions to credit exposure, %

2. 2

14. 8

80. 7

33. 3

5. 3

Non–retail

9,803

1,369

–

–

11,172

Pass

3,049

4,495

–

–

7,544

Investment

110,450

23,952

–

–

27

296

24

34

381

134,402

Weak

Pass

37,721

78,848––

116,569

12,879

6,160

24

34

19,097

Weak

Impairment provision

18

93

2

–

113

Provisions to credit exposure, %

0. 1

1. 5

8. 3

–

0. 6

Total financial guarantees and other off Balance
Sheet instruments

Total credit exposures
447,70753,404––501,111Pass

202,403

112,096––

314,499

Weak

2,402

9,542

3,950

1,818

652,512175,042

3,950

1,418

2,969

0. 2

1. 7

Provisions to credit exposure, %

4,780

1,045

1,056

7,208

107,580

1,045

1,056

258,179

Impairment provision

255

1,603

105

585

2,548

Provisions to credit exposure, %

0. 2

1. 5

10. 0

55. 4

1. 0

Credit grade
Investment

447,70753,404––501,111

17,712

Pass

202,403

112,096––

314,499

1,818

833,322

Weak

2,402

9,542

3,950

1,818

17,712

492

813

5,692

12. 5

44. 7

0. 7

Total credit exposures

652,512175,042

3,950

1,818

833,322

Impairment provision

1,418

2,969

492

813

5,692

0. 2

1. 7

12. 5

44. 7

0. 7

1 The assessment of significant increase in credit risk includes the impact of forward looking adjustments for emerging risk at an industry, geographical location or aparticular portfolio segment level, which are calculated by stressing an exposure’s internal credit rating grade at the reporting date. This accounts for approximately
64% of Stage 2 credit exposures for the Bank as at 30 June 2020.

Provisions to credit exposure, %1 The assessment of significant increase in credit risk includes the impact of forward looking adjustments for emerging risk at an industry, geographical location or aparticular portfolio segment level, which are calculated by stressing an exposure’s internal credit rating grade at the reporting date. This accounts for approximately
64% of Stage 2 credit exposures for the Bank as at 30 June 2020.
2 During the year ended 30 June 2020, the Bank revised the Australian residential mortgage regulatory capital models which resulted in movements of credit
exposures across PD bands. There was a reduction in weak grade and an increase in pass grade home loans exposures as a result of this change.

218

219

ADDITIONAL INFORMATION

Investment

Total impairment provision327
148,498

Total non-retail

Total credit exposures

Credit grade

Total credit exposures

Credit grade

FINANCIAL REPORT

Investment

DIRECTORS’ REPORT

Financial guarantees and other off Balance Sheet
instruments

Credit grade

HOW WE CREATE VALUE

Credit grade

1,188
479,462

OVERVIEW

Credit grade

220

221

Notes to the financial statements

9.2

9.2

For the year ended 30 June 2020

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

For the year ended 30 June 2020

Credit risk (continued)

Credit risk (continued)

Bank 130 Jun 19

Loans, bills and discounted and other receivables

Bank
30 Jun 19

Stage 1collectively
assessedStage 2collectively
assessed2

Stage 3collectively
assessedStage 3individuallyassessed

$M

$M

$M

$M

1

Total

Stage 1collectively
assessedStage 2collectively
assessedStage 3collectively
assessedStage 3individuallyassessed

Total

$M

$M

$M

$M

$M

$M

Credit grade

Investment

354,071

28,159––382,230

Pass

182,520

72,182––

254,702

Investment

306,487

26,017––

332,504

Weak

8,669

13,502

4,080

1,580

27,831

Pass

145,240

28,253––

173,493545,260

113,843

4,080

1,580

664,763

Weak

7,143

7,889

2,957

760

18,749524,746

Gross carrying amount

Total retail secured

458,870

62,1592,957

760

Credit grade

Impairment provision

233

353

122

262

970

0. 1

0. 6

4. 1

34. 5

0. 2

Investment

75,004

14,371

Pass

28,803

10,130

Weak

722

380

Total undrawn credit commitments

104,529

24,881

Total credit exposures

649,789

138,724

Impairment provision

793

2,220

Provisions to credit exposure, %

0. 1

1. 6

–

89,375

Provisions to credit exposure, %––38,933Retail unsecured

70

60

1,232

Credit grade

70

60

129,540Investment

13,746

2,603

–

–

16,349

4,150

1,640

794,303

Pass

10,355

2,183

–

–

12,538

442

801

4,256

Weak

1,847

2,019

264

5

4,135

10. 7

48. 8

0. 5

Total retail unsecured

25,948

6,805

264

5

33,022–Credit grade
1,553

–

–

10,314

Pass

3,061

3,508

–

–

6,569

Weak

45

230

18

19

312

11,867

5,291

18

19

17,195

8

73

1

–

82

0. 1

1. 4

5. 6

–

0. 5

Provisions to credit exposure, %Total credit exposures

200

3

1,543

13. 3

75. 8

60. 0

4. 7

Credit grade
Investment

117,603

15,463––133,066

Pass

58,78955,384––

114,173

4,204

947

894

6,491

75,051

947

894

253,730

Impairment provision

134

1,034

121

536

1,825

Provisions to credit exposure, %

0. 1

1. 4

12. 8

60. 0

0. 7

Investment

437,836

44,083––481,919

Pass

214,384

85,820––300,204

Weak

9,436

14,112

4,168

1,659

29,375

Total credit exposures

661,656

144,015

4,168

1,659

811,498

Impairment provision

801

2,293

443

801

4,338

Provisions to credit exposure, %

0. 1

1. 6

10. 6

48. 3

0. 5

Total non-retail

Investment

437,836

44,083––481,919

Pass

214,384

85,820––300,204

Weak

9,436

14,112

4,168

1,659

29,375

661,656

144,015

4,168

1,659

811,498

Total impairment provision

801

2,293

443

801

4,338

Provisions to credit exposure, %

0. 1

1. 6

10. 6

48. 3

0. 5

1 Comparative information has been restated to conform to presentation in the current year.
2 The assessment of significant increase in credit risk includes the impact of forward looking adjustments for emerging risk at an industry, geographical location or aparticular portfolio segment level, which are calculated by stressing an exposure’s internal credit rating grade at the reporting date. This accounts for approximately
65% of Stage 2 credit exposures for the Bank as at 30 June 2019.

220

Credit grade

1 The assessment of significant increase in credit risk includes the impact of forward looking adjustments for emerging risk at an industry, geographical location or aparticular portfolio segment level, which are calculated by stressing an exposure’s internal credit rating grade at the reporting date. This accounts for approximately
65% of Stage 2 credit exposures for the Bank as at 30 June 2019.

221

ADDITIONAL INFORMATION

446
176,838

Weak

Total credit exposures

Credit grade

Total credit exposures

906

1. 7

FINANCIAL REPORT

8,761

Impairment provision

434

Provisions to credit exposure, %Non–retail

Investment

Total financial guarantees and other off Balance
Sheet instruments

Impairment provision

DIRECTORS’ REPORT

Financial guarantees and other off Balance Sheet
instruments

HOW WE CREATE VALUE

Undrawn credit commitments

OVERVIEW

Retail secured

Credit grade

222

223

Notes to the financial statements

9.2

9.2

For the year ended 30 June 2020

For the year ended 30 June 2020

Credit risk (continued)

Impaired assets by classification

Credit risk (continued)

Impaired assets by size

Assets in credit risk rated portfolios and retail managed portfolios are assessed for objective evidence that the financial asset is impaired.

Group

Impaired assets are split into the following categories:• non-performing facilities;

Impaired assets by size
Less than $1 million• unsecured retail managed facilities 90 days or more past due.
Non-performing facilities are facilities against which an individually assessed provision for impairment has been raised and facilities
where loss of principal or interest is anticipated. Interest income on these facilities is reserved and taken to the Income Statement only if
paid in cash or if a recovery is made.
Restructured facilities are facilities where the original contractual terms have been modified to non-commercial terms due to financial
difficulties of the borrower. Interest on these facilities is taken to the Income Statement. Failure to comply fully with the modified terms
will result in immediate reclassification to non-performing.

The Group does not manage credit risk based solely on arrears categorisation, but also uses credit risk rating principles as describedearlier in this note.
Group
30 Jun 20

30 Jun 19

30 Jun 1830 Jun 1730 Jun 16

$M

$M

$M

$M

$M

Australia
1,845

2,217

1,711

1,962

2,002

Less provisions for impairment

(695)

(826)

(694)

(817)

(807)

1,150

1,391

1,017

1,145

1,195

363

428

264

174

221

Australia
30 Jun 19

Overseas
30 Jun 19

Total
30 Jun 19

$M

$M

$M

$M

$M

$M

1,460

386

1,846

1,698

266

1,964

603

187

790

628

147

775

353

559

912

564

319

883

1,132

3,548

2,890

732

3,622

30 Jun 20

30 Jun 19

30 Jun 1830 Jun 1730 Jun 16

$M

$M

$M

$M

$M

Gross impaired assets – opening balance

3,622

3,179

3,187

3,116

2,855

New and increased

2,631

2,289

2,136

2,164

2,370

Balances written off(1,054)(1,245)(1,196)(1,225)(1,328)Returned to performing or repaid(2,221)(1,328)(1,666)(1,637)(1,460)

570

727

718

769

679

3,548

3,622

3,179

3,187

3,116

Total 1, 2

Movement in impaired assets
Group

Movement in gross impaired assets

Portfolio managed – new/increased/return to performing/repaid

1 As at 30 June 2020, impaired assets include those assets in Stage 3 that are considered impaired, as well as $77 million of restructured assets in Stage 2(30 June 2019: $139 million). Stage 3 assets include impaired assets and those that are defaulted but not impaired as they are well secured.
2 Includes $3,382 million of loans and advances and $166 million of other financial assets (30 June 2019: $3,454 million of loans and advances and $168 million ofother financial assets).

Restructured assets:
Gross balances

(4)

(13)

(4)

–

–

359

415

260

174

221

Gross balances

208

245

254

251

252

Less provisions for impairment

(185)

(199)

(161)

(157)

(169)

23

46

93

94

83

1,532

1,852

1,370

1,413

1,499

Less provisions for impairment
Net restructured assets

DIRECTORS’ REPORT

Gross balances

Total
30 Jun 20

2,416Greater than $10 million

Gross impaired assets – closing balance 1, 2

Non–performing assets:

Overseas
30 Jun 20

HOW WE CREATE VALUE

Unsecured retail products 90 days or more past due are credit cards, personal loans and other unsecured retail products which are 90
days or more past due. These loans are collectively provided for.

$1 million to $10 million

Australia
30 Jun 20

OVERVIEW• restructured facilities; andNet non-performing assets

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

Unsecured retail products 90 days or more past due:

Net Australia impaired assets

FINANCIAL REPORTNet unsecured retail products 90 days or more past dueOverseas
Non–performing assets:

824

518

695

686

560

Less provisions for impairment

(326)

(126)

(176)

(163)

(138)

498

392

519

523

422

Gross balances

278

196

242

101

67

Less provisions for impairment

(15)

(6)

(20)

–

–

263

190

222

101

67

Net non-performing assets

ADDITIONAL INFORMATION

Gross balances

Restructured assets:

Net restructured assets
Unsecured retail products 90 days or more past due:Gross balances

30

18

13

13

14

Less provisions for impairment

(30)

(17)

(13)

(12)

(13)

Net unsecured retail products 90 days or more past due
Net overseas impaired assets
Total net impaired assets

–

1

–

1

1

761

583

741

625

490

2,293

2,435

2,111

2,038

1,989

222

223

224

225

Notes to the financial statements

9.2

9.2

For the year ended 30 June 2020

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

For the year ended 30 June 2020

Credit risk (continued)

Credit risk (continued)

Impaired assets by industry and statusGroup
30 Jun 19Group
30 Jun 20

$M

$M

1

assets$M

Net
impaired
assets$M

Total
2

Write-offs$M

Recoveries 2$M

Net
Write-offs$M

2

Loans – Australia
23,521

–

–

–

–

–

–

9,680

95

(54)

41

1

(4)

(3)

Bank and other financial

13,136

6

(4)

2

1

–

1

Home loans

485,795

1,362

(235)

1,127

117

(4)

113

Construction

3,600

52

(42)

10

35

(1)

34

Other personal

17,695

249

(188)

62

655

(152)

503

Asset financing

10,434

106

(35)

71

19

(2)

17

Other commercial and industrial

109,184

518

(326)

192

221

(9)

212

Total loans – Australia

673,045

2,388

(884)

1,505

1,049

(172)

877

Loans – Overseas
Sovereign
Agriculture

69

–

–

–

–

–

–

9,601

152

(19)

133

36

–

36

6,382

–

–

–

4

–

4

57,085

307

(32)

275

4

(1)

3

Construction

593

3

(1)

2

2

–

2

1,876

28

(34)

(7)

61

(12)

49

Other personal
Asset financing
Other commercial and industrial

779

15

(1)

14

–

–

–

29,245

489

(284)

205

51

–

51

Total loans – Overseas

105,630

994

(371)

622

158

(13)

145

Total loans

778,675

3,382(1,255)

2,127

1,207

(185)

1,022

$M

3

Recoveries$M

Net
Write-offs$M

Loans – Australia
Sovereign

22,404

–

–

–

–

–

–

Agriculture

9,140

114

(52)

62

59

–

59

Bank and other financial

11,952

6

(15)

(9)

1

–

1

Home loans

467,361

1,596

(272)

1,324

134

(4)

130

Construction

3,194

82

(84)

(2)

44

(1)

43
618

Other personal

21,508

276

(202)

74

787

(169)

Asset financing

10,471

78

(10)

68

17

(2)

15

Other commercial and industrial

106,991

626

(403)

223

126

(14)

112

Total loans – Australia

653,021

2,778(1,038)

1,740

1,168

(190)

978

Loans – Overseas
Sovereign

82

–

–

–

–

–

–

Agriculture

10,612

298

(46)

252

2

–

2

Bank and other financial

5,774

10

–

10

5

–

5

Home loans

55,581

204

(10)

194

2

(1)

1

Construction

573

1

–

1

2

–

2

Other personal

1,924

16

(20)

(4)

70

(11)

59

Asset financing

722

2

–

2

–

–

–
148

Other commercial and industrial

32,724

145

(73)

72

152

(4)

Total loans – Overseas

107,992

676

(149)

527

233

(16)

217

Total loans

761,013

3,454(1,187)

2,267

1,401

(206)

1,195

Credit commitments

146,992

111

–

111

–

–

–

Derivatives

21,182

1

–

1

–

–

–

Total other balances – Australia

168,174

112

–

112

–

–

–

Other balances – Australia

154,521

64

–

64

–

–

–

Derivatives

28,820

3

–

3

–

–

–

Total other balances – Australia

183,341

67

–

67

–

–

–

Other balances – Overseas
Credit commitments

28,814

9

–

9

–

–

–

Derivatives

4,033

47

–

47

–

–

–

Total other balances – Overseas

32,847

56

–

56

–

–

–

Total other balances

201,021

168

–

168

–

–

–

Total

962,034

3,622(1,187)

2,435

1,401

(206)

1,195

Credit commitments
Derivatives

27,822

50

–

50

–

–

–

1,465

49

–

49

–

–

–

Total other balances – Overseas

29,287

99

–

99

–

–

–

Total other balances

212,628

166

–

166

–

–

–

Total

991,303

3,548(1,255)

2,293

1,207

(185)

1,022

1 Includes $967 million of individually assessed provisions and $288 million of collective provisions.
2 Write-off, recoveries and net write-offs are not recognised against credit commitments or derivatives as these exposures are closed out and converted to loans andreceivables on impairment. Write-offs and recoveries take place subsequent to this conversion.

224

1 Information has been restated to conform to presentation in the current year.
2 Includes $895 million of individually assessed provisions and $292 million of collective provisions. Provisions for impaired assets include $9 million for restructured
assets in Stage 2.
3 Write-off, recoveries and net write-offs are not recognised against credit commitments or derivatives as these exposures are closed out and converted to loans andreceivables on impairment. Write-offs and recoveries take place subsequent to this conversion.

225

ADDITIONAL INFORMATION

Credit commitments

Other balances – Overseas

3

FINANCIAL REPORT

Other balances – Australia$M

3

Write-offs$M

DIRECTORS’ REPORTBank and other financial
Home loans

Industry2

assets$M

Net
impaired
assetsHOW WE CREATE VALUE

Sovereign
Agriculture1balance$M

Total
provisionfor impaired

OVERVIEW

Industry

TotalbalanceGross
impaired
assetsTotal
provisions
for impaired

Gross
impaired
assets226

227

Notes to the financial statements

9.2

9.2

For the year ended 30 June 2020

For the year ended 30 June 2020

Credit risk (continued)

Collateral held against loans, bills discounted and other receivables
Other

Home loans

Asset

Commercial

personal

financingand industrial

Total

621,998

43,061

11,312

270,841

947,212Secured (%)

99. 2

5. 3

95. 3

51. 8

81. 4

Partially secured (%)

0. 8

–

4. 7

14. 7

4. 8

–

94. 7

–

33. 5

13. 8

1

Collateral classification:

Unsecured (%)

Personal lending
Personal lending (such as credit cards and personal loans) are predominantly unsecured, whilst margin lending is secured.

Asset financeGroup 130 Jun 19

Other commercial and industrial lending

Home

Other

Asset

Commercial

loans

personal

financingand industrial

Total 2598,691

46,737

11,241

266,546923,215

Secured (%)

99. 2

5. 7

96. 2

49. 8

80. 2

Partially secured (%)

0. 8

–

3. 8

15. 5

5. 1

–

94. 3

–

34. 7

14. 7

Collateral classification:

Unsecured (%)

The Group’s main collateral types for other commercial and industrial lending consists of secured rights over specified assets of theborrower in the form of: commercial property; land rights; cash (usually in the form of a charge over a deposit); guarantees by company
Directors; a charge over a company’s assets (including debtors, inventory and work in progress); or a charge over shares. In otherinstances, a client’s facilities may be secured by collateral with value less than the carrying amount of the credit exposure. Thesefacilities are deemed partly secured or unsecured.

DIRECTORS’ REPORT

1 Comparative information has been restated to conform to presentation in the current year.
2 As at 30 June 2019, total exposures in ECL Stage 3 were $6,697 million. 57% of these exposures were secured, 29% partially secured and 14% unsecured.

Bank
30 Jun 20
Home

Other

Asset

Commercial

loans

personal

financingand industrial

Total

549,145

37,844

10,387

239,023

836,399

Secured (%)

99. 2

5. 7

98. 6

52. 4

81. 7

Partially secured (%)

0. 8

–

1. 4

12. 6

4. 1

–

94. 3

–

35. 0

14. 2

Maximum exposure ($M)

HOW WE CREATE VALUEThe Group leases assets to corporate and retail clients. When the title to the underlying assets is held by the Group as collateral, thebalance is deemed fully secured. In other instances, a client’s facilities may be secured by collateral valued at less than the carrying
amount of the credit exposure. These facilities are deemed partly secured or unsecured.

1 As at 30 June 2020, total exposures in ECL Stage 3 were $6,935 million. 57% of these exposures were secured, 27% partially secured and 16% unsecured.

Maximum exposure ($M)

Home loans are generally secured by fixed charges over borrowers’ residential properties. In limited circumstances, collateral in theform of cash or commercial property may be provided in addition to residential properties. Further, with the exception of some relatively
small portfolios, for loans with a Loan to Valuation Ratio (LVR) of higher than 80% either a Low Deposit Premium or margin is levied, orLenders Mortgage Insurance (LMI) is taken out to cover the difference between the principal plus interest owing and the net amountreceived from selling the collateral post default.

OVERVIEW

loans

Maximum exposure ($M)

Credit risk (continued)

Collateral held against loans, bills discounted and other receivables (continued)Group
30 Jun 20

Home

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

1

Collateral classification:
FINANCIAL REPORT

Unsecured (%)

1 As at 30 June 2020, total exposures in ECL Stage 3 were $5,768 million. 64% of these exposures were secured, 20% partially secured and 16% unsecured.

Bank 130 Jun 19
Other

Asset

Commercial

loans

personal

financingand industrial

Total

527,059

42,704

10,419232,066

812,248

Secured (%)

99. 1

6. 0

98. 6

50. 6

80. 5

Partially secured (%)

0. 9

–

1. 4

13. 0

4. 3

–

94. 0

–

36. 4

15. 2

Maximum exposure ($M)

2

ADDITIONAL INFORMATION

Home

Collateral classification:

Unsecured (%)

1 Comparative information has been restated to conform to presentation in the current year.
2 As at 30 June 2019, total exposures in ECL Stage 3 were $5,827 million. 63% of these exposures were secured, 23% partially secured and 14% unsecured.

For the purposes of the collateral classification above, home loans are classified as secured unless they are defaulted in which casethey are classified as partially secured. For other types of credit exposures, a facility is determined to be secured where its ratio of
exposure to the estimated value of collateral (adjusted for lending margins) is less than or equal to 100%. A facility is deemed to be
partly secured when this ratio exceeds 100% but not more than 250%, and unsecured when either no security is held (e.g. can include
credit cards, personal loans, small business loans, and exposures to highly rated corporate entities), or where the secured loan toestimated value of collateral exceeds 250%.

226

227

228

229

Notes to the financial statements

9.3

9.3

For the year ended 30 June 2020

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

For the year ended 30 June 2020

Market risk

Market risk (continued)

Market risk measurement

Non-traded market risk

The Group uses Value-at-Risk (VaR) as one of the measures of traded and non-traded market risk. VaR measures potential loss using
historically observed market movements and correlation between different markets.

Interest rate risk in the banking book

VaR is modelled at a 99.0% confidence level. This means that there is a 99.0% probability that the loss will not exceed the VaR
estimate on any given day.

A 10-day holding period is used for trading book positions. A 20-day holding period is used for interest rate risk in the banking book.
VaR is driven by historical observations and is not an estimate of the maximum loss that the Group could experience from an extreme
market event. As a result of this limitation, management also uses stress testing to measure the potential for economic loss at
confidence levels significantly higher than 99.0%. Management then uses these results in decisions to manage the economic impact ofmarket risk positions.

1

As at
June
2020

Average
June

As at
June

2019

$M

$M

2019
$M

1, 2

2

Total market risk VaR (10-day 99.0% confidence)

2020
$M

Traded market risk

48. 9

39. 3

40. 3

39. 0

Non-traded interest rate risk 3258. 4479. 7137. 9136. 4

1 Average VaR calculated for each 12 month period.
2 Comparative information has been restated to conform to presentation in the current year. This includes a change in the confidence interval in the VaR from 97.5%
to 99.0% and a change in the holding period from one day to ten days.

Traded market risk
Traded market risk is generated through the Group’s participation in financial markets to service its customers. The Group trades anddistributes interest rate, foreign exchange, debt, equity and commodity products, and provides treasury, capital markets and risk
management services to its customers globally.
The Group maintains access to markets by quoting bid and offer prices with other market makers and carries an inventory of treasury,
capital market and risk management instruments, including a broad range of securities and derivatives.
Average
June

Average
June

$M

$M

2019 2$M

The prospective change to the Net interest income is measured by using an Asset and Liability Management simulation model which
incorporates both existing and anticipated new business in its assessment. The change in the Balance Sheet product mix, growth,funding and pricing strategies is incorporated.
Assets and liabilities that reprice directly from observable market rates are measured based on the full extent of the rate shock that is
applied.
Products that are priced based on Group administered or discretionary interest rates and that are impacted by customer behaviour aremeasured by taking into consideration the historic repricing strategy of the Group and repricing behaviours of customers. In addition toconsidering how the products have been repriced in the past the expected change in price based on both the current and anticipatedcompetitive market forces are also considered in the sensitivity analysis.
The figures in the following table represent the potential unfavourable change to the Group’s net interest earnings during the year basedon a 100 basis point parallel rate shock. As the official cash rate in both Australia and New Zealand was 0.25% as at 30 June 2020, a
downward rate shock of 100 basis points implies a 0.75% negative interest rate. The analysis does not take into account management
actions that may be taken to mitigate the unfavourable impact of falling interest rates.
June
2020

June
2019

$M

$M

AUD

1,008. 7421. 9

NZD

5. 5

8. 0

AUD

1,682. 0558. 0

NZD

19. 9

15. 5

AUD

506. 7217. 8

NZD

0. 1

1. 1

AUD

1,682. 0450. 3

NZD

3. 5

8. 3

Net interest earnings at risk 1
Average monthly exposure
High monthly exposure

2020 1$M

Interest rate risk

23. 8

21. 1

27. 2

14. 5

Foreign exchange risk

21. 2

3. 0

5. 9

8. 7

Equities risk

0. 3

–

-

0. 1

Commodities risk

8. 5

10. 1

9. 8

9. 6

19. 4

35. 5

6. 8

5. 4

1 Exposures over a 12 month period. NZD exposures are presented in NZD.

Net interest earnings at risk increased during the period due to decreases in the official cash rate, which resulted in additional deposit
balances becoming subject to interest rate floors.

Credit spread risk
3

41. 0

18. 0

11. 4

40. 8

Diversification benefit(73. 1)(53. 0)(30. 4)(48. 4)

Total general market risk

41. 1

34. 7

30. 7

30. 7

Undiversified risk

7. 1

4. 0

8. 2

8. 0

Other market risk

ASB Bank

0. 7

0. 6

1. 4

0. 3

Total

48. 9

39. 3

40. 3

39. 0

1 Average VaR calculated for each 12 month period.
2 Comparative information has been restated to conform to presentation in the current year. This includes a change in the confidence interval in the VaR from 97.5%
to 99.0% and a change in the holding period from one day to ten days.

Low monthly exposure
As at balance date(b) Economic value
Interest rate risk from the economic value perspective is based on a 20-day 99.0% VaR measure.
Measuring the change in the economic value of equity is an assessment of the long-term impact to the earnings potential of the Group
present valued to the current date. The Group assesses the potential change in its economic value of equity through the application of
the VaR methodology.
A 20-day 99.0% VaR measure is used to capture the net economic value impact over the long-term or total life of all Balance Sheet
assets and liabilities to adverse changes in interest rates.
The impact of customer prepayments on the contractual cash flows for fixed rate products is included in the calculation. Cash flows fordiscretionary priced products are behaviourally adjusted and repriced at the resultant profile.

3 Includes volatility risk and basis risk.

The figures in the following table represent the net present value of the expected change in the Group’s future earnings in all future
periods for the remaining term of all existing assets and liabilities.

228

229

ADDITIONAL INFORMATION

Traded market risk VaR (10-day 99.0% confidence)

2019

1, 2

As at
June

Earnings risk is measured through sensitivity analysis, which applies an instantaneous 100 basis point parallel shock in interest rates
across the yield curve.

FINANCIAL REPORT

As at
June
2020

The risk to Net interest income over the next 12 months from changes in interest rates is measured on a monthly basis.

DIRECTORS’ REPORT

3 The risk of these exposures has been represented in this table using a ten day holding period. In practice however, these ‘non-traded’ exposures are managed to alonger holding period.

(a) Next 12 months’ earnings
Interest rate risk from an earnings perspective is the impact based on changes to the Net interest income over the next 12 months.

HOW WE CREATE VALUE

AverageJune

The Group measures and manages the impact of interest rate risk in two ways:

OVERVIEWThe VaR measured for traded market risk uses two years of daily movement in market rates. The VaR measure for non-traded banking
book market risk uses six years of daily movement in market rates.

Interest rate risk is the current and prospective impact to the Group’s financial condition due to adverse changes in interest rates to which
the Group’s Balance Sheet is exposed. The maturity transformation activities of the Group create mismatches in the repricing terms of asset
and liability positions. These mismatches may have undesired earnings and value outcomes depending on the interest rate movements.
The Group’s objective is to manage interest rate risk to achieve stable and sustainable net interest income in the long-term.

230

231

Notes to the financial statements

For the year ended 30 June 2020
9.3

For the year ended 30 June 2020

Market risk (continued)

Non-traded interest rate risk VaR (20-day 99.0% confidence)
Average daily exposure

9.4
June

June

2020 1$M2019 1, 2$M365. 4194. 8804. 2214. 3224. 1178. 6As at balance date

678. 4193. 4

Non-traded equity risk
Non-traded equity includes all equity instruments outside the trading portfolio with the exception of the Group’s structural and strategic holdings.
As at
June
1

$M

2019
$M

13. 4

22. 4

1 Non-traded equity VaR as at 30 June 2019 includes holdings in CFSGAM. The Group completed the sale and deconsolidated CFSGAM on 2 August 2019.
Excluding CFSGAM, non-traded equity VaR as at 30 June 2019 was $9.8 million.

Liquidity and funding risk management framework
The CBA Board is ultimately responsible for the sound and prudent management of liquidity risk across the Group. The Group’s liquidityand funding policies, structured under a formal Group Liquidity and Funding Risk Management Framework, are approved by the Boardand agreed with APRA. The Group Asset and Liability Committee (ALCO) charter includes reviewing the management of assets andliabilities, reviewing liquidity and funding policies and strategies, as well as regularly monitoring compliance with those policies acrossthe Group. Group Treasury manages the Group’s liquidity and funding positions in accordance with the Group’s Liquidity Policy andsupporting standards, and has ultimate authority to execute liquidity and funding decisions should the Group Contingency Funding Planbe activated. Risk Management provides oversight of the Group’s liquidity and funding risks, compliance with Group policies andmanages the Group’s relationship with prudential regulators.

The Group deconsolidated and derecognised CommInsure Life (excluding BoCommLife) on 1 November 2019. The following is theinformation about the Group’s exposure to market risk in insurance business as at 30 June 2019.

Liquidity and funding policies and management

The Group had two main sources of market risk in the life insurance businesses: (i) market risk arising from guarantees made topolicyholders; and (ii) market risk arising from the investment of shareholders’ capital.

Guarantees (to policyholders)

The Group’s liquidity and funding policies provide that:• an excess of liquid assets over the minimum prescribed under APRA’s LCR requirement is maintained. Australian ADIs are required
to meet a 100% LCR, calculated as the ratio of high quality liquid assets to 30 day net cash outflows projected under a prescribedstress scenario;

All financial assets within the life Insurance Statutory Funds directly supported either the Group's life insurance or life investment
contracts. Market risk arose for the Group on contracts where the liabilities to policyholders were guaranteed by the Group. The Groupmanaged this risk by having an asset and liability management framework which included the use of hedging instruments. The Groupalso monitored the risk on a monthly basis.

• a surplus of stable funding from various sources, as measured by APRA’s Net Stable Funding Ratio (NSFR), is maintained. The
NSFR is calculated by applying factors prescribed by APRA to assets and liabilities to determine a ratio of required stable funding toavailable stable funding which must be greater than 100%;

Shareholders’ capital• short and long-term wholesale funding limits are established, monitored and reviewed regularly;

A portion of financial assets held within the insurance business, both within the statutory funds and in the shareholder funds of the life
insurance company represented shareholder (Group) capital. Market risk also arose for the Group on the investment of this capital.
Shareholders’ funds in the Australian life insurance businesses were invested 99.0% in income assets (cash and fixed interest) and 1%
in growth assets as at 30 June 2019.

• the Group’s wholesale funding market capacity is regularly assessed and used as a factor in funding strategies;• Balance Sheet assets that cannot be liquidated quickly are funded with stable deposits or term borrowings that meet minimum
maturity requirements with appropriate liquidity buffers;

A 20-day 97.5% VaR measure is used to capture the non-traded market risk exposures.

• the Group has three categories of liquid assets within its domestic liquid assets portfolio. The first includes cash, government andAustralian semi-government securities. The second includes Negotiable Certificates of Deposit, bank term securities, supranationalbonds, Australian Residential Mortgage Backed Securities (RMBS) and other securities that meet RBA criteria for purchases under
repurchase agreements. The final category is internal RMBS, being mortgages that have been securitised but retained by the Bank,
that are repo-eligible with the RBA using the Committed Liquidity Facility (CLF) and Term Funding Facility (TFF); andShareholder funds 2
Guarantees (to policyholders)

1. 1
3

22. 8

1 Average VaR calculated for the 12 month period.

• liquid assets are held in Australian dollar and foreign currency denominated securities in accordance with expected requirements;• offshore branches and subsidiaries adhere to liquidity policies and hold appropriate foreign currency liquid assets to meet required
regulations.
The Group’s key funding tools include:• consumer retail funding base, which includes a wide range of retail transaction accounts, savings accounts and term deposits forindividual consumers;

2 VaR in relation to the investment of shareholder funds.
3 VaR in relation to product portfolios where the Group has guaranteed liabilities to policyholders.

• small business customer and institutional deposit base;

Structural foreign exchange risk
Structural foreign exchange risk is the risk that movements in foreign exchange rates may have an adverse effect on the Group’s Australian
dollar earnings and economic value when the Group’s foreign currency denominated earnings and capital are translated into Australian
dollars. The Group’s only material exposure to this risk arises from its New Zealand, Asian and US operations.

Lease residual value risk

• wholesale domestic and international funding programmes, which include Australian dollar Negotiable Certificates of Deposit, US andEuro Commercial Paper programmes, Australian dollar Domestic Debt Programme, US Extendible Notes programmes, US MediumTerm Note Programmes, Euro Medium-Term Note Programme, multi jurisdiction Covered Bond programme and Medallion
securitisation programmes; and• access to the RBA Term Funding Facility (TFF).

The Group takes lease residual value risk on assets such as industrial, mining, rail, aircraft, marine, technology, healthcare and other equipment. A
lease residual value guarantee exposes the Group to a potential fall in prices of these assets below the guarantee level at lease expiry.

Commonwealth Bank Group Super Fund
The Commonwealth Bank Group Super Fund (the Fund) has a defined benefit portion that creates market risk for the Group.
Risk management and Human Resources provide oversight of the market risks of the Fund held and managed on behalf of theemployees receiving defined benefit pension funds on behalf of the Group (refer to Note 10.2).
230

231

ADDITIONAL INFORMATION

1

Non-traded VaR in Australian life insurance business (20-day 97.5% confidence)• additional internal funding and liquidity metrics are calculated and stress tests additional to the LCR are run;
FINANCIAL REPORT

AverageJune 2019$M

DIRECTORS’ REPORT

Market risk in insurance businesses

Subsidiaries within the Group apply their own liquidity and funding strategies to address their specific needs. The Group’s New Zealandbanking subsidiary, ASB, manages its own domestic liquidity and funding needs in accordance with its own liquidity policy and thepolicies of the Group. ASB’s liquidity policy is also overseen by the RBNZ.

HOW WE CREATE VALUE

VaR

The Group’s liquidity and funding policies are designed to ensure it will meet its obligations as and when they fall due by ensuring it isable to issue debt on an unsecured or secured basis, has sufficient liquid assets to borrow against under repurchase agreements or sellto raise immediate funds without adversely affecting the Group’s net asset value.

The Group’s funding policies are designed to achieve diversified sources of funding by product, term, maturity date, investor type,
investor location, currency and concentration, on a cost effective basis. This objective applies to the Group’s wholesale and retailfunding activities.

2 Comparative information has been restated to conform to presentation in the current year. This includes a change in the confidence interval in the VaR from 97.5% to 99.0%.

Non-traded equity VaR (20-day 97.5% confidence)

OVERVIEWThe Group’s liquidity policies are designed to ensure it maintains sufficient cash balances and liquid asset holdings to meet its
obligations to customers, in both ordinary market conditions and during periods of extreme stress. These policies are intended to protect
the value of the Group’s operations during periods of unfavourable market conditions.

1 Average VaR calculated for each 12 month period.

As at
June
2020

Liquidity and funding risk

OVERVIEWHigh daily exposure
Low daily exposure

A 20-day, 97.5% confidence VaR is used to measure the economic impact of adverse changes in value.

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

232

233

Notes to the financial statements

9.4

9.4

For the year ended 30 June 2020

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

For the year ended 30 June 2020

Liquidity and funding risk (continued)

The Group’s key liquidity tools include:• a regulatory liquidity management reporting system delivering granular customer and product type information to inform businessdecision making, product development and resulting in a greater awareness of the liquidity risk-adjusted value of banking products;

Liquidity and funding risk (continued)

Maturity analysis of monetary liabilities
Amounts shown in the tables below are based on contractual undiscounted cash flows for the remaining contractual maturities.
Group
Maturity period as at 30 June 2020

• a liquidity management model that allows forecasting of liquidity needs on a daily basis;• Central Bank repurchase agreement facilities including the RBA’s CLF that provide the Group with the ability to borrow funds on asecured basis, even when normal funding markets are unavailable; and• a robust Contingency Funding Plan that is regularly tested so that it can be quickly activated when required.

1 to 5years

Over 5years

Not
specified

Total

$M

$M

$M

$M

$M

$M

605,174
11,820769

91,162
3,105
178

5,944
1,548
746

1,057
–
2,906

–
–
–

703,337
16,473
4,599

25,280
115

–
244

–
718

–
91

–
–

25,280
1,168

6,535(3,521)
13,255
132
6,580
414
666,553
6,448
168,624
7,358
182,430
848,983

9,380(8,816)25,978411
370–
122,012––––122,01244,008(41,966)
83,8711,807
80–96,756––––96,756

24,410(23,036)
60,4081,155
59–
67,050––––67,050

–
–
–
–
–
–
–
–
–
–
–
–

84,333(77,339)
183,512
3,505
7,089
414
952,371
6,448
168,624
7,358
182,430
1,134,801

Monetary liabilities

Deposits and other public borrowings 1
Payables to financial institutions
Liabilities at fair value through Income Statement
Derivative financial instruments:
Held for trading
Held for hedging purposes (net-settled)
Held for hedging purposes (gross-settled):
Outflows
Inflows
Debt issues and loan capital
Lease liabilities
Other monetary liabilities
Liabilities held for sale
Total monetary liabilities

Guarantees 2
Loan commitments 2
Other commitments 2
Total off Balance Sheet items
Total monetary liabilities and off Balance Sheet items

Group 3Maturity period as at 30 June 2019
1 to 5years

Over 5years

Not
specified

Total

$M

$M

$M

$M

$M

$M

525,933
19,511
4,612

106,037
3,919
2,334

7,065
42
736

91
–
1,244

–
–
–

639,126
23,472
8,926

17,925
120

–
385

–
1,025

–
163

–
–

17,925
1,693

3,548(2,990)18,592
5,657
561
593,469
6,506
162,202
7,098
175,806
769,275

16,619(15,418)
37,817374
169
152,236––––
152,236

40,211(37,846)
94,619495
956
107,303––––107,30329,726(27,686)
53,48858
491
57,575––––57,575––––
13,052
13,052––––
13,052

90,104(83,940)
204,516
6,584
15,229923,635
6,506
162,202
7,098
175,806
1,099,441

Monetary liabilities

Deposits and other public borrowings 1
Payables to financial institutions
Liabilities at fair value through Income Statement
Derivative financial instruments:
Held for trading
Held for hedging purposes (net-settled)
Held for hedging purposes (gross-settled):
Outflows
Inflows
Debt issues and loan capital
Other monetary liabilities
Liabilities held for sale
Total monetary liabilities

Guarantees 2
Loan commitments 2
Other commitments 2
Total off Balance Sheet items
Total monetary liabilities and off Balance Sheet items

1 Includes deposits that are contractually at call, customer savings and cheque accounts. These accounts provide a stable source of long-term funding.
2 All off Balance Sheet items are included in the 0 to 3 months maturity band to reflect their earliest possible maturity.
3 Comparative information has been restated to conform to presentation in the current year.

232

233

ADDITIONAL INFORMATION

3 to 12monthsFINANCIAL REPORT

0 to 3months

DIRECTORS’ REPORT

3 to 12monthsHOW WE CREATE VALUE

0 to 3monthsOVERVIEW• an additional liquidity management model that implements the established prudential liquidity requirements. This model is calibrated
with a series of ‘stress’ liquidity crisis scenarios, incorporating both systemic and idiosyncratic crisis assumptions, such that the Groupwill have sufficient liquid assets available to ensure it meets all of its obligations as and when they fall due;

234

235

Notes to the financial statements

9.4

9.5

For the year ended 30 June 2020

For the year ended 30 June 2020

Liquidity and funding risk (continued)

Disclosures about fair values

Fair value hierarchy for financial assets and liabilities measured at fair value

Bank
Maturity period as at 30 June 2020
0 to 3months3 to 12months1 to 5years

Over 5years

Not
specified

Total

$M

$M

$M

$M

$M

$M

The classification in the fair value hierarchy of the Group’s and the Bank’s financial assets and liabilities measured at fair value ispresented in the tables below. An explanation of how fair values are calculated and the levels in the fair value hierarchy, is included in
the accounting policy within this note.
Group
Fair value as at 30 June 2020
Level 1
Level 2
Level 3

Deposits and other public borrowings 1

552,273

75,120

3,917

991

–

632,301

Payables to financial institutions

10,741

3,105

1,548

–

–

15,394

260

178

746

2,906

–

4,090

Financial assets measured at fairvalue on a recurring basis

28,381––––

28,381

114

267

767

95

–

1,243

Assets at fair value through Income
Statement:

Derivative financial instruments:
Held for trading
Held for hedging purposes (net-settled)

565

79,54977,193

1,666

53

78,912

–

260

–

260

934

7,631

2,339

10,904

93,60662,288745

156,639

103,104

43,1282,476

148,708

3,615

782

–

4,397

1,583

6,937

–

8,520

Derivative liabilities

69

31,24830

31,347132

22,57966

22,777

Liabilities held for sale 2

–

–

–

–

3

6,325

496

6,824

3,684

32,03030

35,744

1,718

35,841

562

38,121

6,400

26,315

13,670–53,072

121

381

1,680

1,051

–

3,233

Other monetary liabilities

6,496

238

106

32

–

6,872

Total monetary liabilities

619,919

107,467

101,826

73,594–

902,806

5,974

–

–

–

–

5,974

Total off Balance Sheet items

166,011

–

–

–

–

166,011

Total monetary liabilities and off Balance Sheet items

785,930

107,467

101,826

73,594–

1,068,817

3

Assets held for sale2

Total financial assets measured atfair value
Financial liabilities measured at fairvalue on a recurring basis
Liabilities at fair value through Income
Statement

Total financial liabilities measured
at fair value

Bank
Maturity period as at 30 June 2019
3 to 12months1 to 5years

Over 5years

Not
specified

Total

$M

$M

$M

$M

$M

$M

Deposits and other public borrowings 1

484,499

86,805

4,833

9

–

576,146

Payables to financial institutions

18,758

3,919

42

–

–

22,719Liabilities at fair value through Income Statement

4,608

1,768

736

1,244

–

8,356

1 Comparative information has been restated to conform to presentation in the current year and to reflect changes in accounting policy detailed in Note 1.1.
2 For details of the Group’s assets and liabilities held for sale refer to Note 11.3.
FINANCIAL REPORT

0 to 3monthsMonetary liabilities

Derivative financial instruments:
Held for trading
Held for hedging purposes (net-settled)

20,732––––

20,732

117

401

1,071

168

–

1,757
ADDITIONAL INFORMATION

Held for hedging purposes (gross-settled):
Outflows

2,724

15,01344,94334,320–97,000Inflows(2,293)(14,275)(43,176)(33,234)–(92,978)

Debt issues and loan capital

17,18731,45074,83245,362–

168,831

Due to controlled entities

5,195

6,311

24,49913,605–49,610

Other monetary liabilities

5,404

335

458

55

–

6,252

Total monetary liabilities

556,931

131,727

108,238

61,529–858,425

6,026

–

–

–

–

6,026
146,483

Guarantees 22

146,483

–

–

–

–

Other commitments 2

6,944

–

–

–

–

6,944

Total off Balance Sheet items

159,453

–

–

–

–

159,453

Total monetary liabilities and off Balance Sheet items

716,384

131,727

108,238

61,529

–1,017,878

Loan commitments

1 Includes deposits that are contractually at call, customer savings and cheque accounts. These accounts provide a stable source of long-term funding.
2 All off Balance Sheet items are included in the 0 to 3 months maturity band to reflect their earliest possible maturity.
3 Comparative information has been restated to conform to presentation in the current year.

234

DIRECTORS’ REPORT

18,648

6,687

7,225

25,65260,336

Due to controlled entities

Investment securities at fair value
through Other Comprehensive Income

Other commitments

–

8,025

152,559

152,812

1,053

25,215––

24,599–53,865–38,42384

65,223

–

–

7,706

21,493–

5,422

25,072

11,978–33,00159

Debt issues and loan capital

–

$M

319

Derivative assets

–

$M

8,122

(88,654)–$M

30,28594,315

–

7,225

$M

53

–

152,812$M

127

29,394(28,410)

2

$M

7,992

47,648(46,124)

Loan commitments$M

29,966

10,689(10,404)

2

Total

$M

77

6,584
(3,716)

Guarantees 2

1

192

Other

Outflows
Inflows

Lease liabilities

Fair value as at 30 June 2019
Level 1
Level 2
Level 3

HOW WE CREATE VALUE

Trading

Held for hedging purposes (gross-settled):

Total

OVERVIEW

Monetary liabilities

Liabilities at fair value through Income Statement

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

235

236

237

Notes to the financial statements

9.5

9.5

For the year ended 30 June 2020

For the year ended 30 June 2020

Disclosures about fair values (continued)

$M

$M

Total
$M

Fair value as at 30 June 2019
Level 1
Level 2
Level 3
$M

$M

1

Total

$M

Disclosures about fair values (continued)

Analysis of movements between fair value hierarchy levels

Bank
Fair value as at 30 June 2020
Level 1
Level 2
Level 3
$M

$M

Financial assets measured at fairvalue on a recurring basis

During the year ended 30 June 2020, $16,777 million of Investment securities at fair value through other comprehensive income and$4,979 million of trading securities were reclassified from Level 1 to Level 2 due to changes in the observability of inputs. The tables
below summarise movements in Level 3 balance during the year. Transfers have been reflected as if they had taken place at the end of
the reporting periods. Transfers in and out of Level 3 were due to changes in the observability of inputs.

Trading
Derivative assets

Group

Total financial assets measured atfair value

Financial Assets

32,991

5,422–

38,41324,5691,053–

25,622

–

7,818

53

7,871

–

7,506

–

7,506

192

29,003

127

29,322

56

24,171

84

24,31154,472

17,298565

72,33572,479680

5373,21287,65559,541

745

147,941

97,10433,410137

130,651

Financial liabilities measured at fairvalue on a recurring basis
Liabilities at fair value throughIncome Statement
Derivative liabilities

Available
for saleinvestments

$M

$M

$M

$M

sale
$M

403

–

3,888

1,583

6,378

–

7,961

68

36,15030

36,248132

26,45666

26,654

3,553

36,55330

40,136

1,715

32,83466

34,615

1 Comparative information has been restated to conform to presentation in the current year and to reflect changes in accounting policy detailed in Note 1.1.

Assetsheld for1

Derivative
liabilities

Liabilities
held for

1

$M

sale
$M

As at 1 July 2018

93

–

65

–

1,818

(340)

(353)

Change on adoption of AASB 9

–

65

(65)

–

–

–

–

Purchases

15

–

–

–

499

–

–

Sales/settlements

–

(8)

–

–

–

–

–

–

Recognised in the Income
Statement

(5)

–

–

–

22

198

–

Recognised in the Statement ofComprehensive Income

–

(4)

–

–

–

–

–
(143)

Transfers in

–

–

–

–

–

–

Transfers out

(19)

–

–

–

–

76

–

As at 30 June 2019

84

53

–

–

2,339

(66)

(496)

Gains/(losses) recognised in the
Income Statement for financial
instruments held as at
30 June 2019

22

–

–

–

22

175

–

As at 1 July 2019

84

53

–

–

2,339

(66)

(496)

Purchases

453

–

54

15

–

–

(4)

–

–

–

–

–

Recognised in the Income
Statement

51

–

–

(1)

(4)

1

–

Recognised in the Statement ofComprehensive Income

–

60

–

–

–

(24)

–

Gains/(losses) in the year:

34

3

–

–

–

–

(21)

(19)

–

–

–

–

59

–

–

–

–

–

(2,350)–517

As at 30 June 2020

127

565

–

53

–

(30)

–

Gains/(losses) recognised in the
Income Statement for financial
instruments held as at
30 June 2020

48

–

–

(1)

–

1

–

Derecognised on deconsolidation ofcontrolled entities

1 For details of the Group’s assets and liabilities held for sale refer to Note 11.3.

236

237

ADDITIONAL INFORMATION

Transfers inTransfers out

FINANCIAL REPORT–(23)

Sales/settlements

DIRECTORS’ REPORT

Total financial liabilities measured
at fair value

Derivative
assetsAssets at fairvalue throughIncomeStatement

Gains/(losses) in the year:
3,485

Financial Liabilities

Investment
securities atfair value
through OCI

HOW WE CREATE VALUE

Investment securities at fair value
through Other Comprehensive Income

OVERVIEW

Level 3 movement analysis for the year ended 30 June 2020

Assets at fair value through Income
Statement:
Other

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

238

239

Notes to the financial statements

9.5

9.5

For the year ended 30 June 2020

For the year ended 30 June 2020

Disclosures about fair values (continued)
Bank

The estimated fair values and fair value hierarchy of the Group’s and the Bank’s financial instruments not measured at fair value arepresented below:

Assets at fairvalue throughIncomeStatement

Available
for saleinvestments

Derivative
liabilities

$M

$M

$M

$M

$M

–

–

65

Change on adoption of AASB 9–

Purchases

15

Sales/settlements

–

65

–

(65)

–

–

–

–

–

(8)

–

–

–

Gains/(losses) in the period:

(340)

–
(5)

–

–

–

198

Recognised in the Statement ofComprehensive Income

–

(4)

–

–

–

Transfers in

–

–

–

–

–

Transfers out

(19)

–

–

–

76

As at 30 June 2019

84

53

–

–

(66)

Gains/(losses) recognised in the Income
Statement for financial instruments held as at
30 June 2019

22

–

–

–

175

30 Jun 19

Level 1

Level 2

Level 3

$M

$M

$M

$M

Investment securities atamortised cost

5,173

–

5,145

Loans, bills discounted
and other receivables

771,547–

Deposits and other publicborrowings

701,999

Debt issues
Loan capital

1

Total

Carrying
value
Total

Level 1

Level 2

Level 3

Total

$M

$M

$M

$M

$M

$M

15

5,160

7,355

–

7,330

15

7,345

–

771,763771,763755,173––755,547755,547–

702,438–

702,438

636,040–

636,46518

636,483

142,503–

142,466–

142,466

164,022–

164,327–

164,327

27,357

10,811

15,900–26,711

22,966

9,477

13,641–

23,118Investment securities atamortised cost

5,167

–

5,145

9

5,154

7,349

–

7,340

9

7,349

Group

Fair value

Fair value

Financial assets

Financial liabilities

Bank
Financial assets

53

–

–

(66)

–

453

54

–

–

(23)

(4)

–

–

–

Loans, bills discounted
and other receivables

677,268––

677,012

677,012660,508––

660,692

660,692

Recognised in the Income Statement

51

–

(1)

–

1

Recognised in the Statement ofComprehensive Income

Shares in and loans tocontrolled entities

66,792––

65,25965,25963,943––56,77956,779

–

60

–

(24)

Financial liabilities

Transfers in

34

3

–

–

–

Transfers out

(19)

–

–

–

59

Deposits and other publicborrowings

631,301–

631,551–

631,551

573,851–

574,16418

574,182

As at 30 June 2020

127

565

53

–

(30)

Debt issues

113,323–

114,081–

114,081

131,094–

132,103–

132,103

Gains/(losses) recognised in the Income
Statement for financial instruments held as at
30 June 2020

Loan capital

26,964

10,82015,512–

26,332

22,5699,483

13,237–22,720

48

–

(1)

–

1

Gains/(losses) in the period:

1 Comparative information has been restated to conform to presentation in the current year.

FINANCIAL REPORT84

DIRECTORS’ REPORTAs at 1 July 2019
Purchases
Sales/settlements

HOW WE CREATE VALUE

Recognised in the Income Statement

30 Jun 20
Carrying
value
Total

OVERVIEW

Derivative
assetsInvestment
securities atfair value
through OCI

93

Disclosures about fair values (continued)

Fair value information for financial instruments not measured at fair value

Financialliabilities

Financial assets

As at 1 July 2018

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

ADDITIONAL INFORMATION

238

239

240

241

Notes to the financial statements

9.5

9.6

For the year ended 30 June 2020

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

For the year ended 30 June 2020

Disclosures about fair values (continued)

Collateral arrangements

Collateral accepted as security for assets

ACCOUNTING POLICIESValuation

The fair value for financial instruments traded in active markets at the reporting date is based on their quoted market price or dealer
price quotations, without any deduction for transaction costs. Assets and long positions are measured at a quoted bid price; liabilities
and short positions are measured at a quoted asking price. Where the Group has positions with offsetting market risks, mid-market
prices are used to measure the offsetting risk positions and a quoted bid or asking price adjustment is applied only to the net open
position as appropriate.

The fair value of Over-the-Counter (OTC) derivatives includes credit valuation adjustments (CVA) for derivative assets to reflect thecredit worthiness of the counterparty. Fair value of uncollateralised derivative assets and uncollateralised derivative liabilities incorporate
funding valuation adjustments (FVA) to reflect funding costs and benefits to the Group. These adjustments are applied after considering
any relevant collateral or master netting arrangements.

$M

$M

$M

Cash

5,419

6,147

4,274

5,568

Securities

16,85812,732

16,29011,379Collateral held

22,277

18,87920,564

16,947

Collateral held which is re-pledged or sold

4,390

2,513

4,390

2,520

1 Comparative information has been restated to conform to presentation in the current year.

Assets pledged
As part of standard terms of transactions with other banks, the Group has provided collateral to secure liabilities. At Balance Sheet date,the carrying value of assets pledged as collateral to secure liabilities were as follows:
Group 130 Jun 20 30 Jun 19

Fair value hierarchy

$M

$M

Bank
30 Jun 20

30 Jun 19

$M

$M

Cash

8,581

6,819

7,363

5,781

Under AASB 13 Fair Value Measurement all financial and non-financial assets and liabilities measured or disclosed at fair value arecategorised into one of the following three fair value hierarchy levels:

Securities 2

19,13821,022

19,345

21,13827,71927,841

26,70826,919Quoted prices in active markets – Level 1

Assets pledged
Asset pledged which can be re-pledged or re-sold by counterparty

19,13821,022

19,345

21,138This category includes assets and liabilities for which the valuation is determined by reference to unadjusted quoted prices for identicalassets or liabilities in active markets where the quoted price is readily available, and the price represents actual and regularly occurring
market transactions on an arm’s length basis.
An active market is one in which transactions occur with sufficient volume and frequency to provide pricing information on an ongoing basis.

2 These balances include assets sold under repurchase agreements. The liabilities related to these repurchase agreements are disclosed in Note 4.1.

The Group and the Bank have pledged collateral as part of entering into repurchase and derivative agreements. These transactions aregoverned by standard industry agreements.
FINANCIAL REPORT

Financial instruments included in this category are liquid government bonds, financial institution and corporate bonds, certificates ofdeposit, bank bills, listed equities and exchange traded derivatives.

1 Comparative information has been restated to conform to presentation in the current year.

DIRECTORS’ REPORTThe Group utilises various valuation techniques and applies a hierarchy for valuation inputs that maximise the use of observable market
data, if available.

$M

Bank 130 Jun 20 30 Jun 19

HOW WE CREATE VALUE

Non-market quoted financial instruments are mostly valued using valuation techniques based on observable inputs except whereobservable market data is unavailable. Where market data is unavailable the financial instrument is initially recognised at the transaction
price, which is generally the best indicator of fair value. This may differ from the value obtained from the valuation model. The timing of
the recognition in the Income Statement of this initial difference in fair value depends on the individual facts and circumstances of eachtransaction, but is never later than when the market data becomes observable. The difference may be either amortised over the life of
the transaction, recognised when the inputs become observable or on derecognition of the instrument, as appropriate.

Group 130 Jun 20 30 Jun 19

OVERVIEW

Fair value is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. On initial recognition, the transaction price generally represents the fair value of the financial
instrument, unless there is observable information from an active market that provides a more appropriate fair value.

The Group takes collateral where it is considered necessary to support both on and off Balance Sheet financial instruments. The Groupevaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral taken, if deemed necessary, is based on
management’s credit evaluation of the counterparty. The Group has the right to sell, re-pledge, or otherwise use some of the collateral
received. At Balance Sheet date the carrying value of cash accepted as collateral (and recognised on the Group’s and the Bank’s
Balance Sheets) and the fair value of securities accepted as collateral (but not recognised on the Group’s or the Bank’s
Balance Sheets) were as follows:

Valuation technique using observable inputs – Level 2This category includes assets and liabilities that have been valued using inputs other than quoted prices as described for Level 1, butwhich are observable for the asset or liability, either directly or indirectly. The valuation techniques include the use of discounted cash
flow analysis, option pricing models and other market accepted valuation models.
Financial instruments included in this category are commercial papers, mortgage-backed securities and OTC derivatives includinginterest rate swaps, cross currency swaps and FX options.

ADDITIONAL INFORMATION

Valuation technique using significant unobservable inputs – Level 3This category includes assets and liabilities where the valuation incorporates significant inputs that are not based on observable market data
(unobservable inputs). Unobservable inputs are those not readily available in an active market due to market illiquidity or complexity of the
product. These inputs are generally derived and extrapolated from observable inputs to match the risk profile of the financial instrument, andare calibrated against current market assumptions, historic transactions and economic models, where available. These inputs may include
the timing and amount of future cash flows, rates of estimated credit losses, discount rates and volatility. Financial instruments included inthis category for the Group and Bank are certain exotic OTC derivatives and unlisted equity instruments.
As at 30 June 2020, Level 3 Investment securities at fair value through other comprehensive income include unlisted equity instruments
of $506 million. The valuation of this investment is based on a methodology that leverages significant unobservable inputs including
revenue multiples of market listed comparable entities. The range of revenue multiples applied by the Group as at 30 June 2020 was
9x-10x. The effect of adjusting these inputs to a range of reasonably possible alternatives would be to increase the fair value by up to$75 million or to decrease the fair value by up to $75 million with all of the potential effect impacting Investment securities revaluation
reserve.

Critical accounting judgements and estimates
Valuation techniques are used to estimate the fair value of securities. When using valuation techniques the Group makes maximum use of
market inputs and relies as little as possible on entity specific inputs. It incorporates all factors that the Group believes market participants
would consider in setting a price and is consistent with accepted economic methodologies for pricing financial instruments. Data inputs that
the Group relies upon when valuing financial instruments relate to counterparty credit risk, volatility, correlation and extrapolation.
Periodically, the Group calibrates its valuation techniques and tests them for validity using prices from any observable current market
transaction in the same instruments (i.e. without modification or repackaging) and any other available observable market data.
240

241

242

243

Notes to the financial statements

9.7

9.7

For the year ended 30 June 2020

For the year ended 30 June 2020

Offsetting financial assets and financial liabilities

Offsetting financial assets and financial liabilities (continued)

The table below identifies amounts that have been offset on the Balance Sheet and amounts covered by enforceable netting
arrangements or similar agreements that do not qualify for set off. Cash settled derivatives that trade on an exchange are deemed to beeconomically settled and therefore outside the scope of these disclosures.

Group
30 Jun 19
Subject to enforceable master netting or similar agreements
Amounts offset on the
Balance SheetGroup
30 Jun 20
Subject to enforceable master netting or similar agreements

Gross
BalanceSheetamountFinancial instruments

Gross
BalanceSheetamountAmounts not offset on the
Balance Sheet

Reported on
Amount the Balance
offset 1
Sheet

Financial

Financialcollateral(received)/

instruments 2

pledged 2 Net amountNot subject
to netting
agreements

Total
BalanceSheetamount

$M

$M

$M

$M

$M

$M

$M

Derivative assets

55,684(27,646)

28,038(18,618)(4,900)

4,520

2,247

30,285

Securities purchased underagreements to resell

16,858–16,858(1,313)(15,539)6–

16,858

1,031

(536)

495

–

–

495

–

495

Total financial assets

73,573(28,182)

45,391(19,931)(20,439)

5,021

2,247

47,638Derivative liabilities(57,184)

26,718(30,466)

18,6186,269(5,579)(883)(31,349)

Securities sold underagreements to repurchase(16,877)–(16,877)

1,313

15,564––(16,877)

Equity securities purchased
not delivered 3(1,245)

536

(709)

–

–

(709)

–

(709)

Total financial liabilities(75,306)

27,254(48,052)

19,931

21,833(6,288)(883)(48,935)

1 The net offset balance of $928 million relates to variation margin netting reflected on other Balance Sheet lines.

$M

$M

$M

$M

$M

$M

Derivative assets

40,913(17,801)

23,112(14,318)(5,095)

3,699

2,103

25,215

Securities purchased underagreements to resell

12,732–

12,732(565)(12,146)

21–

12,732Equity securities sold notdelivered

661

(313)

348

–

–

348

–

348

Total financial assets

54,306(18,114)

36,192(14,883)(17,241)

4,068

2,103

38,295Derivative liabilities(42,756)

20,727(22,029)

14,3184,086(3,625)(748)(22,777)

Securities sold underagreements to repurchase(19,099)–(19,099)565

18,534––(19,099)

Equity securities purchased
not delivered

(821)

313

(508)

–

–

(508)

–

(508)

Total financial liabilities(62,676)

21,040(41,636)

14,883

22,620(4,133)(748)(42,384)

1 The net offset balance of $2,926 million relates to variation margin netting reflected on other Balance Sheet lines.
2 For the purpose of this disclosure, the related amounts of financial instruments and financial collateral not set off on the Balance Sheet have been capped byrelevant netting agreements so as not to exceed the net amounts of financial assets/(liabilities) reported on the Balance Sheet, i.e. over collateralisation, where it
exists, is not reflected in the tables. As a result the above collateral balances will not correspond to the tables in Note 9.6.

Bank
30 Jun 19
Subject to enforceable master netting or similar agreements
Amounts offset on the
Balance Sheet

Financial instruments

Gross
BalanceSheetamountReported on
Amount the Balance
offset 1
Sheet

Financial

instruments 2

Financialcollateral(received)/pledged2

Net amountNot subject
to netting
agreements

Total
BalanceSheetamount

$M

$M

$M

$M

$M

$M

$M

Derivative assets

54,732(27,647)

27,085(18,588)(3,792)

4,705

2,238

29,323

Securities purchased underagreements to resell

16,290–

16,290(1,313)(14,971)

6–

16,290Total financial assets

71,022(27,647)

43,375(19,901)(18,763)

4,711

2,238

45,613

Derivative liabilities(62,127)

26,718(35,409)18,588

6,627(10,194)(840)(36,249)

Securities sold underagreements to repurchase(17,084)–(17,084)

1,313

15,771––(17,084)

Total financial liabilities(79,211)26,718(52,493)

19,901

22,398(10,194)(840)(53,333)

Reported on
Amount the Balance1
offsetSheet

Financial

Financialcollateral(received)/

instruments

pledged

Total
BalanceSheetamountNet amountNot subject
to netting
agreements

$M

$M

$M

$M

$M

$M

$M

$M

Derivative assets

39,487(17,273)

22,214(14,065)(4,697)

3,452

2,097

24,311

Securities purchased underagreements to resell

11,378–

11,378(573)(10,784)

21–

11,378Financial instruments

22

Total financial assets

50,865(17,273)

33,592(14,638)(15,481)

3,473

2,097

35,689Derivative liabilities(45,839)

19,944(25,895)

14,065

4,039(7,791)(759)(26,654)

Securities sold underagreements to repurchase(19,215)–(19,215)573

18,642––(19,215)

Total financial liabilities(65,054)

19,944(45,110)

14,63822,681(7,791)(759)(45,869)

1 The net offset balance of $2,671 million relates to variation margin netting reflected on other Balance Sheet lines.
2 For the purpose of this disclosure, the related amounts of financial instruments and financial collateral not set off on the Balance Sheet have been capped byrelevant netting agreements so as not to exceed the net amounts of financial assets/(liabilities) reported on the Balance Sheet, i.e. over collateralisation, where it
exists, is not reflected in the tables. As a result the above collateral balances will not correspond to the tables in Note 9.6.

1 The net offset balance of $929 million relates to variation margin netting reflected on other Balance Sheet lines.
2 For the purpose of this disclosure, the related amounts of financial instruments and financial collateral not set off on the Balance Sheet have been capped byrelevant netting agreements so as not to exceed the net amounts of financial assets/(liabilities) reported on the Balance Sheet, i.e. over collateralisation, where it
exists, is not reflected in the tables. As a result the above collateral balances will not correspond to the tables in Note 9.6.

242

243

ADDITIONAL INFORMATION$M

Amounts not offset on the
Balance SheetFINANCIAL REPORTBank
30 Jun 20
Subject to enforceable master netting or similar agreements

Gross
BalanceSheetamountpledged 2 Net amount

Total
BalanceSheetamount$M

3 Includes $105 million of receivables and $172 million of payables of AUSIEX presented within assets and liabilities held for sale as at 30 June 2020.

Amounts not offset on the
Balance Sheet

instruments 2

Not subject
to netting
agreements$M

2 For the purpose of this disclosure, the related amounts of financial instruments and financial collateral not set off on the Balance Sheet have been capped byrelevant netting agreements so as not to exceed the net amounts of financial assets/(liabilities) reported on the Balance Sheet, i.e. over collateralisation, where it
exists, is not reflected in the tables. As a result, the above collateral balances will not correspond to the tables in Note 9.6.

Amounts offset on the
Balance Sheet

Financial

Financialcollateral(received)/

DIRECTORS’ REPORT

Equity securities sold notdelivered 3

Reported on
Amount the Balance1
offsetSheet

HOW WE CREATE VALUE$M

Financial instruments

Amounts not offset on the
Balance SheetOVERVIEW

Amounts offset on the
Balance Sheet

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

244

245

Notes to the financial statements

9.7

10.

For the year ended 30 June 2020

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

For the year ended 30 June 2020

Offsetting financial assets and financial liabilities (continued)

Related amounts not set off on the Balance Sheet
Derivative assets and liabilities

Repurchase and reverse repurchase agreements and security lending agreements
The “Financial Instruments” column identifies financial assets and liabilities that are subject to set off under netting agreements, such as
global master repurchase agreements and global master securities lending agreements. Under these netting agreements, alloutstanding transactions with the same counterparty can be offset and close-out netting applied if an event of default or otherpredetermined events occur. Financial collateral typically comprises highly liquid securities which are legally transferred and can beliquidated in the event of counterparty default.

Financial assets and liabilities are offset and the net amount is presented in the Balance Sheet if, and only if, there is a currently
enforceable legal right to offset the recognised amounts, and there is an intention to settle on a net basis, or to realise the asset andsettle the liability simultaneously.

The Group employs over 48,000 people across multiple jurisdictions and remunerates its employees through both fixed and variable
arrangements. This section outlines details of the share-based payment and superannuation components of employee remunerationand provides an overview of key management personnel arrangements.

10.1

Share-based payments

The Group operates a number of cash and equity settled share plans as detailed below.

Long Term Variable Remuneration (LTVR)
From the 2019 financial year, the Group’s LTVR award to the CEO, Group Executives and the CEO of ASB (from the 2020 financialyear) is made under the Employee Equity Plan (EEP). LTVR awards up to and including the 2018 financial year were made under theGroup’s Leadership Reward Plan (GLRP). LTVR focuses efforts on achieving superior performance for key stakeholders – being
customers, community, employees and shareholders – in order to create sustainable long-term shareholder value and drive positive
culture and behaviours in the Group.
Participants are awarded a maximum number of rights, which may convert into CBA shares on a one-for-one basis. The Board has
discretion to apply a cash equivalent.
The Rights may vest at the end of a performance period of four years subject to the satisfaction of performance measures as follows:
For the 2017 financial year award made to the CEO and Group Executives:

HOW WE CREATE VALUEACCOUNTING POLICIESOVERVIEWOVERVIEW

The “Financial Instruments” column identifies financial assets and liabilities that are subject to set off under netting agreements, such as
the ISDA Master Agreement. All outstanding transactions with the same counterparty can be offset and close-out netting applied if an
event of default or other predetermined events occur. Financial collateral refers to cash and non-cash collateral obtained to cover the
net exposure between counterparties by enabling the collateral to be realised in an event of default or if other predetermined eventsoccur.

Employee benefits• 25% of the award is assessed against Customer Satisfaction compared to ANZ, NAB, Westpac and other key competitors for ourwealth management business by reference to independent external surveys; andFor awards made from the 2018 financial year to the CEO and Group Executives:• 75% of the award is assessed against TSR compared to the 20 largest companies listed on the ASX (by market capitalisation) at the
beginning of each respective performance period, excluding resource companies and CBA.
• 12.5% of the award is assessed against a Relative Trust and Reputation measure; andDIRECTORS’ REPORT• 75% of the award is assessed against Total Shareholder Return (TSR) compared to the 20 largest companies listed on the ASX (bymarket capitalisation) at the beginning of each respective performance period, excluding resource companies and CBA.

• 12.5% of the award is assessed against an Absolute Employee Engagement measure.
For the 2020 financial year award made to the CEO of ASB:

• 25% of the award is assessed against an ASB Relative Trust and Reputation measure; and• 25% of the award is assessed against an ASB Absolute Employee Engagement measure.
A positive TSR gateway applies to the Trust and Reputation and Employee Engagement measures. Refer to the Remuneration Reportfor further details on LTVR.

FINANCIAL REPORT• 50% of the award is assessed against TSR compared to the 20 largest companies listed on the ASX (by market capitalisation) at the
beginning of each respective performance period, excluding resource companies and CBA.

The following table provides details of outstanding awards of Rights granted under LTVR awards.
Outstanding

ExpenseGranted

VestedForfeited

30 June($'000)30 Jun 20

808,519322,283(33,009)(146,380)

951,4137,566

30 Jun 19

678,801

294,619(34,099)(130,802)

808,519

7,186

The weighted average fair value at the grant date for TSR was $34.07 and $57.86 for both Trust and Reputation and Employee
Engagement Rights issued during the year (2019: $33.57 for TSR and $49.87 for both Trust and Reputation and Employee
Engagement). The fair value of the Rights granted during the period has been independently calculated at grant date using aMonte Carlo pricing model based on market information and excluding the impact of non-market performance conditions. The
assumptions included in the valuation of the 2020 financial year award include a share price of $80.34 and $90.26, a risk-free interest
rate of 0.85% and 0.76%, a 5.23% and 4.66% dividend yield on the Bank’s ordinary shares and a volatility in the Bank share price of
15% and 25%.

244

245

ADDITIONAL INFORMATION

Outstanding

1 JulyPeriod246

247

Notes to the financial statements

10.1

10.1

For the year ended 30 June 2020

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

For the year ended 30 June 2020

Share-based payments (continued)

Share-based payments (continued)

Group Rights Plan (GRP) and Employee Equity Plan (EEP)

Salary sacrifice arrangements

The GRP and EEP facilitate mandatory short-term variable remuneration deferral, sign-on and retention awards. Participants areawarded rights or restricted shares that vest provided the participant remains in employment of the Group until vesting and subject torisk and malus review. The following table provides details of outstanding awards of rights and restricted shares granted under the GRP
and EEP.

The Group facilitates the purchase of CBA shares via salary sacrifice as follows:

Period1 JulyGranted

VestedForfeited

Outstanding

Expense30 June($'000)30 Jun 20

2,152,467

819,276(1,031,588)(104,535)

1,835,620

61,33230 Jun 19

2,246,204

1,086,280(993,435)(186,582)

2,152,467

77,136

Arrangements

Salary sacrifice• Australian based employees and Non-Executive Directors can elect to sacrifice between $2,000 and$5,000 p.a. of their fixed remuneration and/or annual STVR or fees (in the case of Non-Executive Directors).
• Restricted from sale for a minimum of two years and a maximum of seven years or earlier, if the employee
ceases employment with the Group (or retires from the Group in the case of Non-Executive Directors).

Non-Executive
Directors

The weighted average fair value at grant date of the awards issued during the year was $79.62 (2019: $71.08).

Employee Share Acquisition Plan (ESAP)The number of shares a participant receives is calculated by dividing the award amount by the average price paid for CBA sharespurchased during the purchase period preceding the grant date. Shares granted are restricted from sale until the earlier of three years
or until such time as the participant ceases employment with the Group. Participants receive full dividend entitlements and voting rights
attached to those shares.

Shares are purchased on market at the prevailing market price at that time and receive full dividend entitlements and voting rights. The
following table provides details of shares granted under the ESSSP and NEDSP (voluntary fee sacrifice).

PeriodAverage purchasepriceTotal purchase

Number ofParticipants

shares purchased$($'000)consideration

30 Jun 20

1,043

44,586

81.05

3,614

30 Jun 19

952

47,205

71.57

3,378

The following table provides details of shares granted under the ESAP:

During the year four (2019: four) Non-Executive Directors applied $123,766.70 in fees (2019: $103,151.14) to purchase 1,633 shares(2019: 1,424 shares).

Total
Number of shares

Total number ofIssue pricefair value

Participants

allocated per participant

shares allocated$($'000)PeriodAllocation date

30 Jun 20

4 Nov 19

30,65312

367,836

80.29

29,53430 Jun 19

16 Nov 18

30,9607

216,72070.86

15,357

It is estimated that approximately $34 million of CBA shares will be awarded under the 2020 grant.

Other employee awards• The Employee Share (Performance Unit) Plan and EEP Cash Settled Rights are cash-based equity awards;• EEP rights for certain employees based overseas; andTypeForm of Benefit

Date of Last Actuarial
Assessment of the Fund

Commonwealth Bank Group Super

Defined benefits andaccumulation1

Indexed pension and lump sum

30 June 2018

Commonwealth Bank of Australia (UK) Staff
Benefits Scheme (CBA (UK) SBS)

Defined benefits andaccumulation1

Indexed pension and lump sum

30 June 2019

Regulatory framework

The following table provides a summary of the movement in awards during the year:
PeriodName of Plan

1 The defined benefit formulae are generally comprised of final salary, or final average salary, and service.

• The International Employee Share Acquisition Plan, which is the cash-based version of the ESAP.
Outstanding

Retirement benefit obligations

Outstanding

Expense($'000)Granted

Vested/exercised

Forfeited

30 June30 Jun 20

381,424

192,643(203,833)(27,930)

342,304

9,449

30 Jun 19

509,927

162,180(242,026)(48,657)

381,424

15,805

Funding and contributions

The weighted average fair value at grant date of the awards issued during the year was $79.62 (2019: $71.35).

An actuarial assessment as at 30 June 2018 showed Commonwealth Bank Group Super remained in funding surplus. The Bank agreed
to continue contributions of $20 million per month to the plan. In the second half of the year ended 30 June 2020, the Bank made an
additional lump sum contribution of $60 million to ensure the Fund remained in funding surplus amid financial market volatility caused by
COVID-19. Employer contributions paid to the plan are subject to tax at the rate of 15% in the plan.
The Bank made a lump sum payment of GBP24 million ($43 million) in August 2019 to cover the potential future funding deficit in CBA(UK) SBS. An actuarial assessment of CBA (UK) SBS as at 30 June 2019 was completed in July 2020. It confirmed a funding deficit(before the lump sum payment in August 2019) of GBP21.2 million ($38.0 million).
The Group’s expected contributions to Commonwealth Bank Group Super and CBA (UK) SBS for the year ended 30 June 2021 are$240 million and GBP12 million ($21.5 million) respectively.

246

247

ADDITIONAL INFORMATION

1 JulyBoth plans operate under trust law with the assets of the plans held separately in trust. The trustee of Commonwealth Bank Group
Super is Commonwealth Bank Officers Superannuation Corporation Pty Limited. The trustee of CBA (UK) SBS is Commonwealth Bank
of Australia (UK) Staff Benefits Scheme Trustee Company Limited. Both trustees are wholly owned subsidiaries of the Group. The
trustees do not conduct any business other than trusteeship of the plans. The plans are managed and administered on behalf of themembers in accordance with the terms of each trust deed and relevant legislation. The funding of the plans complies with regulations inAustralia and the UK respectively.

FINANCIAL REPORT

A number of other plans are operated by the Group, including:

10.2

DIRECTORS’ REPORT

While the Group did not achieve the ESAP performance hurdle for the 2019 financial year, the Board exercised its discretion andapproved an award of $1,000 during the financial year ended 30 June 2020 to each eligible employee to recognise their contribution
throughout the year.

HOW WE CREATE VALUE

Under the ESAP, eligible employees have the opportunity to receive up to $1,000 worth of shares each year if the Group meets therequired performance hurdle.

• Non-Executive Directors can elect to apply a percentage of after-tax fees towards the acquisition of CBA shares.
From 1 July 2019, Non-Executive Directors are required to hold CBA shares equivalent to 100% of their Board
member base fees, or Board Chairman fees (as applicable). This shareholding is to be accumulated over five
years commencing on the later of 1 July 2019 or their respective date of appointment, valued with reference to theprevailing CBA share price at the date of appointment.

OVERVIEW

Outstanding

Type

248

249

Notes to the financial statements

10.2

10.2

For the year ended 30 June 2020

For the year ended 30 June 2020

Retirement benefit obligations (continued)

Defined benefit superannuation plan

Retirement benefit obligations (continued)

Economic assumptions
Commonwealth Bank
Group Super

CBA (UK) SBS

Commonwealth Bank
Group Super

Total

30 Jun 20

30 Jun 19%%%

Discount rate

3. 20

3. 20

1. 60

2. 30

Inflation rate

1. 30

1. 60

3. 10

3. 50

Rate of increases in salary

2. 10

2. 40

4. 10

4. 50

30 Jun 20

30 Jun 19

30 Jun 20

30 Jun 19

$M

$M

$M

$M

$M

Present value of funded obligations(2,870)(3,004)

(677)

(711)

(3,547)(3,715)The above calculations were based on the following assumptions:

Fair value of plan assets

3,344

3,438

884

739

4,228

4,177

474

434

207

28

681

462

Net pension assets/(liabilities) as at 30 June

434

207

28

681

462

474

434

207

28

681

462

(41)

(36)

(3)

(6)

(44)

(42)

Net interest income/(expense)

10

16

2

2

12

18

Gain on curtailment

–

–

7

–

7

–

(278)

(279)

–

–

(278)

(279)

(309)

(299)

6

(4)

(3,004)(2,826)(711)

Current service cost

(41)

(36)

Interest cost

(96)

Member contributions
Actuarial (losses) from changes indemographic assumptions
Actuarial gains/(losses) from changes infinancial assumptions
Actuarial gains/(losses) due to experience(6)

Gain on curtailment
Exchange differences on foreign plans
Closing defined benefit obligation
Changes in the fair value of plan assets are
as follows:
Opening fair value of plan assets

(303)

(645)

(3,715)(3,471)

(3)

(6)

(44)

(42)

(119)

(16)

(17)

(112)

(136)

(6)

–

–

(6)

(6)

–

(18)

(2)

–

(2)

(18)

112

(228)

(47)

(69)

65

(297)

(31)

45

48

–

17

45

196

184

40

39

236

223

–

–

7

–

7

–

–

–

5

(13)

5

(13)

(2,870)(3,004)

(679)

(711)

(3,549)(3,715)

3,355

739

697

4,177

4,052

106

135

18

19

124

154

(32)

165

112

34

80

199

6

6

–

–

6

6

Employer contributions
Employer financed benefits within
accumulation division
Payments from the plan

300

240

70

15

370

255

(278)

(279)

–

–

(278)

(279)

(196)

(184)

(40)

(39)

(236)

(223)

–

–

(15)

13

(15)

13

3,344

3,438

884

739

4,228

4,177

Exchange differences on foreign plans
Closing fair value of plan assets

CBA (UK)
SBS

30 Jun 20

30 Jun 19

30 Jun 20

30 Jun 19

Expected life expectancies for pensioners

Years

Years

Years

Years

Male pensioners currently aged 60

28. 9

28. 8

28. 3

28. 0

Male pensioners currently aged 65

23. 9

23. 9

23. 5

23. 2

Female pensioners currently aged 60

31. 2

31. 2

30. 1

29. 9

Female pensioners currently aged 65

26. 2

26. 1

25. 2

25. 1

Sensitivity to changes in assumptions
The table below sets out the sensitivities of the present value of defined benefit obligations at 30 June to a change in the principal
actuarial assumptions:
Commonwealth Bank
Group Super
30 Jun 20

30 Jun 20%%

0.25% decrease in discount rate

3. 59

4. 70

0.25% increase in inflation rate

2. 89

4. 40

0.25% increase to the rate of increases in salary

0. 45

0. 10

Longevity increase of 1 year

4. 95

4. 20

Commonwealth Bank
Group Super
30 Jun 20

CBA (UK)
SBS
30 Jun 20

Years

Years

12.3

19.0

Impact of change in assumptions on liabilities

CBA (UK)
SBS

Average duration
The average duration of defined benefit obligation at 30 June is as follows:

Average duration at balance date

1 Represents superannuation contributions required by the Bank to meet its obligations to members of the defined contribution division of Commonwealth Bank Group
Super.

248

249

ADDITIONAL INFORMATION

3,438

Interest income
Return on plan assets(excluding interest income)Member contributions

Commonwealth Bank
Group Super

FINANCIAL REPORT

Payments from the plan(303)

In addition to financial assumptions, the mortality assumptions for pensioners can materially impact the defined benefit obligations.
These assumptions are age related and allowances are made for future improvement in mortality. The expected life expectancies(longevity) for pensioners are set out below:

DIRECTORS’ REPORT

Employer financed benefits within
accumulation division 1
Total included in superannuation plan
expenseChanges in the present value of the defined
benefit obligation are as follows:
Opening defined benefit obligation

6.3

HOW WE CREATE VALUE

474

Net assets/(liabilities)
The amounts recognised in the Income
Statement are as follows:
Current service cost

Economic assumptions

OVERVIEW

30 Jun 19%

30 Jun 19$M

Amounts in the Balance Sheet:

CBA (UK)
SBS

30 Jun 20

30 Jun 20
Note

AssetsCOMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

250

251

Notes to the financial statements

10.2

10.3

For the year ended 30 June 2020

For the year ended 30 June 2020

Retirement benefit obligations (continued)

Key management personnel (continued)

Risk management

Security holdings

The pension plans expose the Group to longevity risk, currency risk, interest rate risk, inflation risk and market risk. The trustees
perform Asset-Liability Matching (ALM) exercises to ensure the plan assets are well matched to the nature and maturities of the defined
benefit obligations.

Details of the aggregate security holdings of KMP are set out below.

The allocation of assets backing the defined benefit portion of the Commonwealth Bank Group Super is as follows:
Commonwealth Bank Group Super
30 Jun 20
30 Jun 19% of plan

Fair value% of plan

$M

asset

$M

asset

Equities – Australian 1
Equities – Overseas 1
Bonds – Commonwealth Government 1
Bonds – Semi-Government 1
Bonds – Corporate and other1

Real Estate and Infrastructure 2
Derivatives
Other

3

5. 9

83

222

6. 7

193

5. 6

458

13. 7

591

17. 2

1,167

34. 9

967

28. 1

803

24. 0

956

27. 8

2. 4

58

1. 7

71

2. 1

310

9. 3

346

10. 1

(43)

(1. 3)(33)(1. 0)

172

5. 1

264

7. 7

3,344

100. 03,438100. 0

1 Values based on prices or yields quoted in an active market.
2 This includes listed and unlisted property and infrastructure investments.
3 These are alternative investments which are not included in the traditional asset classes of equities, fixed interest securities, real estate and cash. They include
multi-asset investments, liquid alternative investments and hedge funds.

The Australian equities fair value includes $10.3 million of Commonwealth Bank shares. The real estate fair value includes $1.2 million
of property assets leased to the Bank. The bonds – corporate and other fair value includes $14.4 million of Commonwealth Bank debt
securities.

Detailed remuneration disclosures by Key Management Personnel (KMP) are provided in the Remuneration Report of the
Directors’ Report on pages 78 to 102.
Group

Key management personnel compensation
1Bank

30 Jun 20

30 Jun 19

30 Jun 20

30 Jun 19

$'000

$'000

$'000

$'000

23,326

21,24921,413

417

457

370

400

Long-term benefits

506

864

476

836

Share-based payments

13,34014,715

12,94914,405

Total

36,87539,36235,04437,054

1 Short-term benefits includes termination benefits of $767,733 (2019: $1,294,969).

vested 3other4

30 June 20

44,954

Balance

50,361

5,471–(10,878)

PERLS

2,770

–

–

(150)

2,620

Ordinary

174,003–62,595(39,440)

197,158

LTVR rights

527,133

265,917(18,749)(128,041)

646,260

Deferred shares

20,43549,247(7,938)(4,084)

57,660

Deferred rights

19,930–(11,071)–

8,859

Sign-on equity

92,355

21,262(27,417)–

86,2005

1 LTVR rights are subject to performance hurdles. Deferred shares represent the deferred STVR awarded in the 2020 financial year. Deferred rights represent thedeferred STVR awarded under Executive General Manager arrangements received as rights in prior years, as well as the CEO ASB’s 2018 financial year STVR
award. Sign-on equity includes sign-on awards received as deferred shares. PERLS include cumulative holdings of all PERLS securities issued by the Group.
2 Due to the changes in KMP during the 2020 financial year, aggregate security holdings balance at 1 July 2019 does not align to the balance disclosed for 30 June 2019.
3 LTVR rights, deferred shares and deferred rights become ordinary shares or are cash settled upon vesting.
4 Net change other incorporates changes resulting from purchases, sales, forfeitures and appointment or departure of KMP during the year.
5 30 June 2020 balances represent aggregate shareholdings of all KMP at balance date.
6 From 1 July 2019, Non-Executive Directors are required to hold CBA shares equivalent to 100% of Board Chairman fees for the Chairman and 100% of Board
member fees for Non-Executive Directors.

Loans to KMP
All loans to KMP (including close family members or entities controlled, jointly controlled, or significantly influenced by them, or any
entity over which any of those family members or entities held significant voting power) have been made in the ordinary course ofbusiness on normal commercial terms and conditions no more favourable than those given to other employees and customers, including
the term of the loan, security required and the interest rate (which may be fixed or variable). There has been no write down of loans
during the period.
Details of aggregate loans to KMP are set out below:

Interest charged

30 Jun 20

30 Jun 19

$'000

$'000

7,942

12,337308

480

Other transactions of KMP
Financial instrument transactions
Financial instrument transactions (other than loans and shares disclosed within this report) of KMP occur in the ordinary course ofbusiness on normal commercial terms and conditions no more favourable than those given to other employees and customers.
Disclosure of financial instrument transactions regularly made as part of normal banking operations is limited to disclosure of suchtransactions with KMP and entities controlled or significantly influenced by them.
All such financial instrument transactions that have occurred between entities within the Group and their KMP have been trivial ordomestic in nature and were in the nature of normal personal banking and deposit transactions.
Transactions other than financial instrument transactions of banks
All other transactions with KMP and their related entities and other related parties are conducted on an arm’s length basis in the normal
course of business and on commercial terms and conditions. These transactions principally involve the provision of financial andinvestment services by entities not controlled by the Group.
Services agreements
The maximum contingent liability for termination benefits in respect of service agreements with the Chief Executive Officer and otherGroup KMP at 30 June 2020 was $1,756,739 (2019: $2,254,283).

250

251

ADDITIONAL INFORMATION

22,612

Post-employment benefits

Short-term benefits

remuneration

Ordinary 6

Loans

Key management personnel

2

FINANCIAL REPORT

10.3

1 July 19NetchangeDIRECTORS’ REPORT

Total fair value of plan assets

Non-Executive Directors

1

Previousyears
awardsHOW WE CREATE VALUE

197

Class

Executives

Fair value

Cash

BalanceAcquired/
Granted as

OVERVIEWThe Commonwealth Bank Group Super’s investment strategy comprises 35% growth and 65% defensive assets. Inflation and interest
rate risks are partly mitigated by investing in long dated fixed interest securities which better match the average duration of liabilities andentering into inflation and interest rate swaps.

Asset allocations

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

252

253

Notes to the financial statements

For the year ended 30 June 202011.

For the year ended 30 June 2020
11.1

Group Structure

Control and voting rights

The Group structure includes the Bank legal entity and its interests in operating and special purpose subsidiaries, joint ventures andassociates. These entities were either acquired or established and their classification is driven by the Bank’s level of control or influence.

Investments in subsidiaries and other entities

Determining whether the Group has control is generally straightforward based on ownership of the majority of the voting rights. Holding
more than 50% of an entity’s voting rights typically indicates that the Group has control over the entity. Significant judgement is involved
where either the Group is deemed to control an entity despite holding less than 50% of the voting rights, or where the Group does notcontrol an entity despite holding more than 50% of the voting rights. On 1 November 2019, the Group announced the implementation ofa joint cooperation agreement (JCA) which resulted in the full economic interests associated with CommInsure Life being transferred to
AIA and AIA obtaining direct management and control of the business (excluding in relation to the Group’s 37.5% equity interest in
BoCommLife). As a result, CommInsure Life (excluding BoCommLife) was deconsolidated and derecognised on 1 November 2019,
even though the Group remains the sole shareholder.

Agent or principal

Subsidiaries
Entity name

Australia(a) Banking

Significant restrictions

Medallion Trust Series 2015-2

Commonwealth Securities Limited

Medallion Trust Series 2016-1

Medallion Trust Series 2008-1R

Medallion Trust Series 2016-2

Medallion Trust Series 2011-1

Medallion Trust Series 2017-1

Medallion Trust Series 2012-1

Medallion Trust Series 2017-1P

Medallion Trust Series 2013-1

Medallion Trust Series 2017-2

Medallion Trust Series 2013-2

Medallion Trust Series 2018-1

Medallion Trust Series 2014-1

Medallion Trust Series 2018-1P

Medallion Trust Series 2014-1P

Medallion Trust Series 2019-1

There were no individually significant investments in associates or joint ventures held by the Group as at 30 June 2020 and
30 June 2019. In addition, there were no significant restrictions on the ability of associates or joint ventures to transfer funds to the Bankor its subsidiaries in the form of cash dividends or to repay loans or advances made.

Medallion Trust Series 2014-2

Residential Mortgage Group Pty Ltd

The Group’s investments in associates and joint ventures are shown in the table below.

On 2 April 2020, the Reserve Bank of New Zealand announced a freeze on the distribution of dividends by banks in New Zealand due to
COVID-19. As a result there is currently a restriction on payment of dividends by ASB Bank Limited, the Group’s New Zealandsubsidiary. There were no other significant restrictions on the ability to transfer cash or other assets, pay dividends or other capital
distributions, provide or repay loans and advances between the entities within the Group. There were also no significant restrictions on
the Group's ability to access or use the assets and settle the liabilities of the Group resulting from protective rights of non-controllinginterests.

Associates and joint ventures

Medallion Trust Series 2015-1(b) Insurance and funds management

All the above subsidiaries are 100% owned and incorporated in Australia.
Extent of beneficial
interest if not 100%

Incorporated in

New Zealand and other overseas

date

$M

interest %

1,812

1,816

16

18 Commercial
banking

China

31-DecQilu Bank Co., Ltd

760

771

18

18 Commercial
banking

China

31-DecVietnam International Commercial
Joint Stock Bank

294

242

20

20 Commercial
banking

Vietnam

31-Dec

Other

168

172

Various

Various

Various

3,034

3,001

Variousactivities

VariousFINANCIAL REPORT

Commonwealth Insurance Limited

Balanceincorporation

30 Jun 19$M

Bank of Hangzhou Co., Ltd

Commonwealth Insurance Holdings Limited

Country ofinterest %30 Jun 20

Capital 121 Pty Limited
Colonial Holding Company Limited

Group 130 Jun 19
Ownership Principal

30 Jun 20
Ownership

New Zealand

ASB Covered Bond Trust

New Zealand

ASB Finance Limited

New Zealand

ASB Holdings Limited

New Zealand

ASB Term Fund
Medallion NZ Series Trust 2009-1R
PT Bank Commonwealth99%

Carrying amount of investments
in associates and joint ventures

Group
30 Jun 20

30 Jun 19

New ZealandShare of associates' and joint ventures profits 1$M$M

New ZealandOperating profits before income tax

437

315

Income tax expense

(55)

(27)

382

288

Indonesia

Operating profits after income tax

2

1 Excludes information concerning associates and joint ventures classified as held for sale.
2 This amount is recognised net of impairment in the share of profits of associates and joint ventures within Other banking income.

252

253

ADDITIONAL INFORMATION

Banking
ASB Bank Limited

DIRECTORS’ REPORTCBA Covered Bond Trust

HOW WE CREATE VALUEThe Group is deemed to have power over an investment fund when it holds either the responsible entity (RE) and/or the manager
function of that fund. Whether that power translates to control depends on whether the Group is deemed to act as an agent or aprincipal of that fund. Management have determined that the Group acts as a principal and controls a fund when it cannot be easily
removed as a manager or RE by investors and when its economic interest in that fund is substantial compared to the economic interestof other investors. In all other cases the Group acts as agent and does not control the fund.

The key subsidiaries of the Bank are:

Entity name

OVERVIEWThe operating activities of these entities include banking, advice, funds management, specialised customer financing and asset backed
financing across multiple jurisdictions.

Entity name

Investments in subsidiaries and other entities (continued)

Critical accounting judgements and estimates

OVERVIEW

11.1

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

254

255

Notes to the financial statements

11.1

11.1

For the year ended 30 June 2020

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

For the year ended 30 June 2020

Investments in subsidiaries and other entities (continued)

Investments in subsidiaries and other entities (continued)

Structured entities

30 Jun 20

A structured entity is an entity in which voting or similar rights are not the dominant factor in deciding control. Structured entities are
generally created to achieve a narrow and well defined objective with restrictions around their ongoing activities. Depending on theGroup’s power over the activities of the entity and its exposure to and ability to influence its own returns, it may consolidate the entity. In
other cases it may sponsor or have exposure to such an entity but not consolidate it.

Exposures to unconsolidated structured entities

RMBS

ABS

Other
financing

Investment
funds

Total

$M

$M

$M

$M

$M

Investment securities

5,752

287

–

–

6,039

Loans, bills discounted and other receivables

5,346

1,494

4,857

6,082

17,779The Group has the following contractual arrangements which require it to provide financial support to its structured entities.

Assets held for sale

–

–

–

354

354

Securitisation structured entities
The Group provides liquidity facilities to Medallion, Medallion NZ and Swan structured entities. The liquidity facilities can only be drawn
to cover cash flow shortages relating to mismatches in timing of cash inflows due from securitised asset pools and cash outflows due tonote holders. These ‘timing mismatch’ facilities rank pari passu with other senior secured creditors. The facilities limit is $1,647 million(2019: $877 million). This includes $1,350 million (30 June 2019: $570 million) in relation to the structured entity where the Bank holds
all of the issued instruments.

Total on Balance Sheet exposures

11,098

1,781

4,857

6,436

24,172

Total notional amounts of off Balance Sheet exposures 1

1,721

1,331

490

6,191

9,733

Total maximum exposure to loss

12,819

3,112

5,347

12,62733,905

Total assets of the entities 256,406

8,585

15,660161,658

242,309

Covered bonds trust
The Group provides funding and support facilities to CBA Covered Bond Trust and ASB Covered Bond Trust (the ‘Trusts’). The Trusts
are bankruptcy remote SPVs that guarantee any debt obligations owing under the US$30 billion CBA Covered Bond Programme andthe EUR7 billion ASB Covered Bond Programme, respectively. The funding facilities allow the Trusts to hold sufficient residential
mortgage loans to support the guarantees provided to the Covered Bonds. The Group also provides various swaps to the Trusts tohedge any interest rate and currency mismatches. The Group, either directly or via its wholly owned subsidiaries, Securitisation
Advisory Services Pty Limited and Securitisation Management Services Limited, provides various services to the Trusts including
servicing and monitoring of the residential mortgages.

1 Relates to undrawn facilities.
2 Size of the entities is generally the total assets of the entities, except for Real Estate Investment Trusts where the size is based on the Group’s credit exposure of$10,414 million.

30 Jun 19

Exposures to unconsolidated structured entities

RMBS
$M

ABS
$M

Other
financing$M

Investment
funds
$M

Total
$M

–

–

–

242

242

Available-for-sale investments

7,619

476

–

–

8,095

Loans, bills discounted and other receivables

1,977

1,602

5,454

7,367

16,400Assets at fair value through Income Statement – trading

Assets held for sale

–

–

–

1,108

1,108

Total on Balance Sheet exposures

9,596

2,078

5,454

8,717

25,845

During the year ended 30 June 2020, the Bank entered into a debt forgiveness arrangement with two wholly owned structured entities
for a total of $4 million (2019: $7 million). The financial impact of the debt forgiveness was fully eliminated on consolidation.

Total notional amounts of off Balance Sheet exposures 1

2,761

729

539

4,302

8,331

Unconsolidated structured entities

Total maximum exposure to loss

12,357

2,807

5,993

13,01934,176

Total assets of the entities 255,508

9,523

17,542329,237

411,810

1 Relates to undrawn facilities.
2 Size of the entities is generally the total assets of the entities, except for Real Estate Investment Trusts where the size is based on the Group’s credit exposure of$9,073 million.

Securitisations
Securitisations involve transferring assets into an entity that sells beneficial interests to investors through the issue of debt and equity
notes with varying levels of subordination. The notes are collateralised by the assets transferred to these vehicles and pay a return
based on the returns of those assets, with residual returns paid to the most subordinated investor.

The Group’s exposure to loss depends on the level of subordination of the interest, which indicates the extent to which other parties are
obliged to absorb credit losses before the Group. An overview of the Group’s interests, relative ranking and external credit rating, forvehicles that have credit subordination in place, is summarised in the table below, and include securitisation vehicles and otherfinancing.

The Group may trade or invest in RMBS and ABS, which are backed by Commercial Properties, Consumer Receivables, Equipment
and Auto Finance. The Group may also provide lending, derivatives, liquidity and commitments to these securitisation entities.

30 Jun 20

Investment funds
The Group conducts investment management and other fiduciary activities as responsible entity, trustee, custodian, advisor or manager
for investment funds and trusts, including superannuation and approved deposit funds, wholesale and retail trusts. The Group’s
exposure to investment funds includes holding units in the investment funds and trusts, providing lending facilities, derivatives andreceiving fees for services.

Total maximum exposure to loss

Senior

1

Mezzanine

2

RMBS

ABS

Other
financing

Total

$M

$M

$M

$M

12,720

3,112

5,347

21,179

99

–

–

99

12,819

3,112

5,347

21,2781 All ABS and RMBS exposures and $2,911 million of other financing exposures are rated investment grade. $2,436 million of other financing exposures are subinvestment grade.
2 All RMBS exposures are rated investment grade.

The nature and extent of the Group’s interests in these entities are summarised below. Interests do not include derivatives and otherpositions where the Group creates rather than absorbs variability of the structured entity, for example deposits. These have been
excluded from the tables on pages 255-256.

254

255

ADDITIONAL INFORMATIONOther financing
Asset-backed entities are used to provide tailored lending for the purchase or lease of assets transferred by the Group or its clients. The
assets are normally pledged as collateral to the lenders. The Group engages in raising finance for assets such as aircraft, trains,vessels and other infrastructure. The Group may also provide lending, derivatives, liquidity and commitments to these entities.

Ranking and credit rating of exposures tounconsolidated structured entities

FINANCIAL REPORTThe Group has exposure to various securitisation vehicles via Residential Mortgage-backed Securities (RMBS) and Asset-backed
Securities (ABS). The Group may also provide derivatives and other commitments to these vehicles. The Group also has exposure toinvestment funds and other financing vehicles.

DIRECTORS’ REPORT

Structured asset finance structured entities
The Group has no contractual obligation to provide financial support to any of its structured asset finance structured entities.

HOW WE CREATE VALUEThe Group has no contractual obligations to purchase assets from its securitisation structured entities.

OVERVIEW

Consolidated structured entities

256

257

Notes to the financial statements

For the year ended 30 June 2020
11.1

For the year ended 30 June 2020

Investments in subsidiaries and other entities (continued)

11.2

30 Jun 19

RMBS
$M

ABS
$M

Senior 1

12,269

2,807

5,993

21,069

88

–

–

88

12,357

2,807

5,993

21,157

Mezzanine 2

Total
$M

1 All ABS and RMBS exposures and $3,901 million of other financing exposures are rated investment grade. $2,092 million of other financing exposures are subinvestment grade.
2 All RMBS exposures are rated investment grade.

As at 30 June 2020, the Group has not sponsored any unconsolidated structured entities.

Banking transactions are entered into with related parties in the normal course of business on an arm’s length basis. These include
loans, deposits and foreign currency transactions, upon which some fees and commissions may be earned. Details of amounts paid or
received from related parties, in the form of interest or dividends, are set out in Notes 2.1 and 2.3.
The Bank’s aggregate investments in, and loans to controlled entities are disclosed in the table below. Amounts due to controlled
entities are disclosed in the Balance Sheet of the Bank.
1Bank
30 Jun 20 30 Jun 19$M$M

Shares in controlled entities

9,212

10,728Loans to controlled entities at amortised cost

56,48552,385Loans to controlled entities at fair value through Income Statement

1,095

830

Total shares in and loans to controlled entities

66,792

63,943

1 Comparative information has been restated to conform to presentation in the current year.

As at 30 June 2020, loans to controlled entities in the table above are presented net of $1 million provisions for impairment (30 June
2019: $21 million).

ACCOUNTING POLICIESDuring the year ended 30 June 2020, the Group received fees on an arm’s length basis of $5 million from funds that were included in
Assets held for sale (30 June 2019: $61 million).

Subsidiaries

The Bank provides letters of comfort to other entities within the Group on standard terms. Guarantees include a $175 million(30 June 2019: $175 million) guarantee to AFS license holders in respect of excess compensation claims.

• power over the relevant activities of the entity, for example through voting or other rights;

As at 30 June 2020, the Bank entered into reimbursement arrangements, presently totalling $488 million (30 June 2019: $252 million),with its subsidiaries, Avanteos Investments Limited, Financial Wisdom Limited and Commonwealth Financial Planning Limited (for the
Pathways business (CFP-Pathways)), to cover potential remediation of ongoing service failures to customers, deceased estates, andinappropriate advice and other matters. This amount includes $464 million for Aligned Advice remediation and $24 million for other
wealth remediation programs (30 June 2019: $234 million for Aligned Advice remediation and $18 million for other wealth remediation
programs). The Group and the Bank have provided for these costs. As at 30 June 2019, the Bank also had a reimbursement
arrangement with Count Financial, totalling $144 million, to cover potential remediation of ongoing service failures to customers,
deceased estates, and inappropriate advice and other matters. The sale of Count completed on 1 October 2019, and therefore thereimbursement arrangement ceased at that time, and was replaced with an Indemnity Deed between the Bank, Count Financial andCountPlus with a $200 million limit effective from the time of the sale. This limit was increased to $300 million on 29 July 2020.

• exposure to, or rights to, variable returns from the Bank’s involvement with the entity; and• the ability to use its power over the entity to affect the Bank’s returns from the entity.

Consolidation of structured entities
The Group exercises judgement at inception and periodically thereafter, to assess whether that structured entity should be consolidated
based on the Bank’s power over the relevant activities of the entity and the significance of its exposure to variable returns of thestructured entity. Such assessments are predominately required for the Group’s securitisation program, structured transactions andinvolvement with investment funds.

Business combinations
Business combinations are accounted for using the acquisition method. At the acquisition date, the cost of the business is the fair valueof the purchase consideration, measured as the aggregate of the fair values of assets transferred, equity instruments issued, or
liabilities incurred or assumed at the date of exchange.

All transactions between Group entities are eliminated on consolidation.

ACCOUNTING POLICIESParties are considered to be related if one party has the ability to control the other party or exercise significant influence over the otherparty in making financial or operational decisions, or a separate party controls both. The definition includes subsidiaries, associates,
joint ventures, pension plans as well as other persons.

ADDITIONAL INFORMATION

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured at fair value on theacquisition date. Goodwill represents the excess of the fair value of the purchase consideration over the fair value of the Group’s shareof assets acquired and liabilities and contingent liabilities assumed on the date of acquisition. If there is a deficit instead, this discount on
acquisition is recognised directly in the consolidated Income Statement, but only after a reassessment of the identification andmeasurement of the net assets acquired.

The Bank is the head entity of the tax consolidated group and has entered into tax funding and tax sharing agreements with its eligible
Australian resident subsidiaries. The details of these agreements are set out in Note 2.5. The amount receivable by the Bank under thetax funding agreement with the tax consolidated entities is $209 million as at 30 June 2020 (30 June 2019: $320 million receivable). Thisbalance is included in ‘Other assets’ in the Bank’s separate Balance Sheet.

Investments in associates and joint ventures
Associates and joint ventures are entities over which the Group has significant influence or joint control, but not control. In the
consolidated financial report, they are equity accounted. They are initially recorded at cost and adjusted for the Group’s share of theassociates’ and joint ventures’ post-acquisition profits or losses and Other Comprehensive Income (OCI), less any dividends received.
At the Bank level, they are accounted for at cost less accumulated impairments.
The Group assesses, at each Balance Sheet date, whether there is any objective evidence of impairment. If there is an indication thatan investment may be impaired, then the entire carrying amount of the investment in associate or joint venture is tested for impairment
by comparing the recoverable amount (higher of value in use and fair value less disposal costs) with the carrying amount. Impairment
losses recognised in the Income Statement are subsequently reversed through the Income Statement if there has been a change in theestimates used to determine recoverable amount since the impairment loss was recognised.

256

FINANCIAL REPORTTransactions between subsidiaries in the Group are eliminated. Non-controlling interests and the related share of profits in subsidiaries
are shown separately in the consolidated Income Statement, Statement of Comprehensive Income, Statement of Cash Flows, andBalance Sheet. Subsidiaries are consolidated from the date on which control is transferred to the Group and de-consolidated whencontrol ceases. Subsidiaries are accounted for at cost less accumulated impairments at the Bank level.

DIRECTORS’ REPORTThe consolidated financial report comprises the financial report of the Bank and its subsidiaries. Subsidiaries are entities (including
structured entities) over which the Bank has control. The Bank controls an entity when it has:

HOW WE CREATE VALUE

Sponsored unconsolidated structured entities
For the purposes of this disclosure, the Group sponsors an entity when it manages or advises the entity’s program, places securities
into the market on behalf of the entity, provides liquidity and/or credit enhancements to the entity, or the Group’s name appears in the
Structured Entity.

Related party disclosures

OVERVIEW

Ranking and credit rating of exposuresto unconsolidated structured entities

Other
financing$M

Total maximum exposure to loss

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

257

258

259

Notes to the financial statements

11.3

11.3

For the year ended 30 June 2020

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

For the year ended 30 June 2020

Discontinued operations

Discontinued operations (continued)

Ongoing transactions

Life insurance business in New ZealandAustralian Investment Exchange

On 21 September 2017, the Group announced the sale of 100% of its New Zealand life insurance business (Sovereign) to AIA Group
Limited (AIA) for $1.3 billion. The sale agreement includes a long-term partnership with AIA for the provision of life insurance products tocustomers in New Zealand. The sale of Sovereign completed on 2 July 2018, resulting in a total post-tax gain of $117 million (net oftransaction and separation costs). This includes $135 million post-tax gain net of transaction and separation costs recognised during theyear ended 30 June 2019, and $18 million post-tax transaction and separation costs recognised during the year ended 30 June 2018.

On 28 April 2020, the Group announced the sale of its subsidiary, Australian Investment Exchange Limited (AUSIEX), to Nomura
Research Institute (NRI). AUSIEX trades under the brand name CommSec Advisor Services. On completion, the Group is expected toreceive proceeds of approximately $85 million, subject to completion adjustments. The sale is subject to Australian regulatory approvals
and other conditions, and is expected to complete in the first half of calendar year 2021. As AUSIEX did not constitute a major line of theGroup’s business, it was not classified as a discontinued operation.

TymeDigital SA

Colonial First StateOn 1 November 2018, the Group completed the sale of Commonwealth Bank of South Africa (Holding Company) Limited (TymeDigitalSA) to the minority shareholder, African Rainbow Capital, resulting in a total post-tax loss of $113 million.

On 13 May 2020, the Group entered into an agreement to sell a 55% interest in Colonial First State (CFS) to KKR. On completion, theGroup is expected to receive proceeds of approximately $1.7 billion, subject to completion adjustments. The sale is subject to Australian
regulatory approvals, and is expected to complete in the first half of calendar year 2021.

Colonial First State Global Asset Management

Count Financial

PT Commonwealth LifeOn 23 October 2018, the Group announced the sale of its 80% interest in its Indonesian life insurance business, PT Commonwealth Life(PTCL), to FWD Group (FWD). The sale of PTCL completed on 4 June 2020, resulting in a total post-tax gain of $109 million (net oftransaction costs). As part of the sale, CBA’s Indonesian banking subsidiary, PT Bank Commonwealth (PTBC), has entered into a 15
year life insurance distribution partnership with FWD.

Aligned Advice

On 1 November 2019, the Group announced the implementation of a joint cooperation agreement (JCA) which resulted in the fulleconomic interests associated with CommInsure Life being transferred to AIA and AIA obtaining direct management and control of thebusiness (excluding the Group’s 37.5% equity interest in BoCommLife). As a result, CommInsure Life (excluding BoCommLife) was
deconsolidated and derecognised on 1 November 2019.
The Group and AIA remain fully committed to completing the divestment of CommInsure Life through either a share sale or a statutory
asset transfer. In the event of a share sale, the divestment is expected to complete shortly following the completion of the sale of theGroup’s 37.5% equity interest in BoCommLife. In the event of a statutory asset transfer, the divestment is expected to complete in thefirst half of calendar year 2021.
The aggregate proceeds, which will be received in instalments under the JCA, are $2,375 million, before completion accountadjustments, and includes four partnership milestone payments of $50 million each. The Group recognised a total post-tax loss of $316
million on the deconsolidation and planned divestment of CommInsure Life. This includes a $116 million post-tax loss on
deconsolidation, net of transaction and separation costs recognised during the half year ended 31 December 2019. Post-tax transaction
and separation costs of $82 million and $118 million were recognised during the years ended 30 June 2019 and 30 June 2018,
respectively. As at 30 June 2020, the Group has received total proceeds of $1,608 million, including partnership milestone payments of$100 million.

FINANCIAL REPORTOn 7 August 2019, CBA confirmed it would commence the assisted closure of Financial Wisdom Limited (Financial Wisdom) and allow
Commonwealth Financial Planning Limited-Pathways (CFP-Pathways) advisers to transition to a self-licensing arrangement or move toanother licensee. The Group ceased providing licensee services through CFP-Pathways in March 2020 and through Financial Wisdom
in June 2020. As Financial Wisdom and CFP-Pathways did not constitute a major line of the Group’s business, they were not classified
as discontinued operations.

On 21 September 2017, the Group entered into an agreement to sell 100% of its life insurance businesses in Australia (CommInsureLife) and New Zealand (Sovereign) to AIA Group Limited (AIA). On 23 May 2018, the Group announced the sale of its 37.5% equity
interest in BoCommLife Insurance Company Limited (BoCommLife) to MS&AD Insurance Group Holdings (MS&AD) 1, which is subject
to Chinese regulatory approvals. The sale is expected to be completed in the second half of calendar year 2020.

DIRECTORS’ REPORTOn 13 June 2019, the Group announced the sale of its 100% interest in Count Financial Limited (Count Financial) to CountPlus Limited(CountPlus) for $2.5 million. The sale completed on 1 October 2019, resulting in a post-tax gain of $19 million (net of transaction andseparation costs). This includes a post-tax gain of $52 million (net of transaction and separation costs) recognised during the half year
ended 31 December 2019, and post-tax impairment losses of $26 million and post-tax transaction and separation costs of $7 million
recognised during the half year ended 30 June 2019. Upon completion, the Group provided an indemnity to CountPlus capped at $200
million, which was increased to $300m on 29 July 2020. Refer to Note 7.1 for further information. As Count Financial did not constitute amajor line of the Group’s business, it was not classified as a discontinued operation.

Life insurance business in Australia and BoCommLife
HOW WE CREATE VALUE

On 31 October 2018, the Group announced the sale of Colonial First State Global Asset Management (CFSGAM) to Mitsubishi UFJ
Trust and Banking Corporation (MUTB). The sale of CFSGAM completed on 2 August 2019, resulting in a total post-tax gain of $1,617
million (net of transaction and separation costs). This includes a $1,688 million post-tax gain net of transaction and separation costs
recognised during the half year ended 31 December 2019, and $71 million post-tax transaction and separation costs recognised during
the year ended 30 June 2019.

OVERVIEW

Completed transactions

ADDITIONAL INFORMATION

258

1 MS&AD Insurance Group Holdings is the ultimate parent company of Mitsui Sumitomo Insurance Co. Ltd.

259

260

261

Notes to the financial statements

11.3

11.3

For the year ended 30 June 2020

For the year ended 30 June 2020

Discontinued operations (continued)

Financial impact of discontinued operations on the Group

Discontinued operations (continued)

Earnings per share for profit from discontinued operations attributable to equity holders of the parent:
Full year ended 1
30 Jun 20 30 Jun 19 30 Jun 18

The performance and net cash flows of the Group’s interests in CFS, CommInsure Life, BoCommLife, PTCL and CFSGAM are set out
in the tables below. Comparative periods also include the performance and net cash flows of Sovereign and TymeDigital SA.
Full year ended 1
30 Jun 20 30 Jun 19 30 Jun 18
$M

Basic

123. 0

27. 3

34. 3

Diluted114. 7

25. 4

32. 2

6

–

Other banking income

41

20

21

Net banking operating income

47

26

21

Funds management income

999

2,056

2,124

Investment revenue

141

391

503

Claims, policyholder liability and commission expense

(265)

(670)

(723)

Net funds management operating income

875

1,777

1,904

Premiums from insurance contracts

459

1,256

2,066

539

367

(1,503)(1,702)

89

292

731

Total net operating income before operating expenses

1,011

2,095

2,656

Operating expenses(774)(1,383)(1,452)

Net profit before income tax

237

712

1,204

Income tax expense

(67)

(164)

(313)

Policyholder tax

(14)

(50)

(58)

Net profit after income tax and before transaction and separation costs

156

498

833

2,022

(9)

(227)

(3)

(7)

(6)

2,175

482

600

Net insurance operating income2

Non-controlling interests
Net profit after income tax from discontinued operations attributable to equity holdersof the Bank

Cash flow statement
1, 2

Full year ended
30 Jun 20 30 Jun 19 30 Jun 18$M$M

Net cash used in operating activities

(553)

(224)

(181)

Net cash from investing activities

942

841

1,019

Net cash used in financing activities

(236)

(519)

(924)

Net cash inflows/(outflows) from discontinued operations

153

98

(86)

1 Comparative information has been restated to conform to presentation in the current year.
2 Represents cash flows from the underlying businesses classified as discontinued operations and excludes proceeds from disposals.

Balance Sheet
The Balance Sheet of the Group’s interest in CFS, BoCommLife and Ausiex are set out in the table below. Comparative period includes
assets and liabilities of CFSGAM, CommInsure Life, PTCL, Count Financial and the Group’s interest in BoCommLife. Count Financial
met the held for sale criteria as at 30 June 2019 but has not been reclassified as a discontinued operation.
As at

Assets held for sale

30 Jun 20

30 Jun 19$M$M

Cash and liquid assets

44

354

Assets at fair value through Income Statement

260

10,417

Investment securities at fair value through Other Comprehensive Income

1 Comparative information has been restated to conform to presentation in the current year.
2 This includes post-completion and tax adjustments, interest earned on transaction proceeds, and additional transaction and separation costs.

$M

Property, plant and equipment
Investment in associates and joint ventures

–

260

705

2,049

1

1,510

403

607

Deferred tax assets

41

145

Other assets

313

1,207

Total assets

1,767

16,54910,854

FINANCIAL REPORT

Intangible assets

DIRECTORS’ REPORT

81
(451)

1 Comparative information has been restated to reflect the reclassification of CFS as a discontinued operation.

HOW WE CREATE VALUE

6

Claims, policyholder liability and commission expense from insurance contracts

Earnings per share from discontinued operations:$M

Net interest income

Investment revenue

Cents per ShareOVERVIEW$M

Gains/(losses) on disposals of businesses net of transaction and separation costs

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

Liabilities held for sale
–
–

404

Deposits and other public borrowings

–

1,268

Managed funds units on issue

11

2,197

Other liabilities

583

1,073

Total liabilities

594

15,796As at 30 June 2020, the Foreign currency translation reserve relating to discontinued operations was a $2 million gain
(30 June 2019: $50 million gain); the Investment securities revaluation reserve relating to discontinued operations was a $35 million loss
(30 June 2019: $27 million loss).

260

261

ADDITIONAL INFORMATION

Insurance policy liabilities
Deferred tax liabilities

262

263

Notes to the financial statements

For the year ended 30 June 202012.

For the year ended 30 June 2020
12.2

Other

Notes for the Statements of Cash Flows(a) Reconciliation of net profit after income tax to net cash provided by/(used in) operating activitiesGroup

OVERVIEW

Contingent liabilities, contingent assets and commitments arising from the banking businessGroup
Face value

Credit equivalent

30 Jun 20

30 Jun 19

30 Jun 20

30 Jun 19

$M

$M

$M

$M

6,448

6,506

5,034

5,387

272

326

210

322

Performance related contingents

5,071

4,722

2,535

2,362

Commitments to provide credit

168,537

162,202

159,761

154,408

Credit risk related instruments
Guarantees
Documentary letters of credit

Total credit risk related instruments

2,015

2,050

2,005

2,040

182,343

175,806

169,545

164,519

Bank
Face value

Credit risk related instruments
Guarantees
Documentary letters of credit

Credit equivalent

30 Jun 20

30 Jun 19

30 Jun 20

30 Jun 19

$M

$M

$M

$M

5,974

6,026

4,560

4,907

214

249

154

248

5,071

4,722

2,535

2,362

Commitments to provide credit

152,725

146,483

145,247

140,035

Other commitments
Total credit risk related instruments

1,940

1,973

1,929

1,963

165,924

159,453

154,425

149,515

ACCOUNTING POLICIES

30 Jun 20

30 Jun 19

$M

$M

$M

$M

$M

7,783

9,637

8,590

9,348

10,168Decrease/(increase) in interest receivable

523

(36)

(62)

548

537

(Decrease)/increase in interest payable

(984)

(69)

112

(872)

(104)

Net (increase)/decrease in assets at fair value through Income Statement(excluding life insurance)(13,687)(4,935)

1,536(13,551)(3,089)Net (gain)/loss on sale of controlled entities and associates(2,092)

61

184

(24)

236

Net movement in derivative assets/liabilities

6,672

6,606

3,381

8,453

8,873

Net (gain)/loss on sale of property, plant and equipment

(32)

9

17

(11)

11

Equity accounting (profit)/loss

(142)

(231)

(287)

(49)

63

Loan impairment expense

2,518

1,201

1,079

2,155

1,058

Depreciation and amortisation (including asset write downs)

1,861

1,011

968

1,748

912

(Decrease)/increase in liabilities at fair value through Income Statement(excluding life insurance)(4,123)

(603)

(258)

(4,072)(1,013)

Increase in other provisions

522

783

156

359

722

Increase/(decrease) in income taxes payable679(1,082)

(461)

202

(1,573)

Increase/(decrease) in deferred tax liabilities

374

(457)

400

30

(27)

(Increase)/decrease in deferred tax assets

(280)

67

(538)

(398)

(140)

Decrease/(Increase) in accrued fees/reimbursements receivable

276

(111)

20

42

(53)

(Decrease)/increase in accrued fees and other items payable

(711)

(340)

631

(254)

(775)

Decrease in life insurance contract policy liabilities

(905)

(787)

(836)

–

–

Cash flow hedge ineffectiveness

9

(4)

(4)

11

(6)

Loss/(gain) on changes in fair value of hedged items

14

558

(765)

82

(624)

Dividend received – controlled entities and associates

–

–

–

(4,809)(1,473)36,630

6,577(15,461)

31,1797,157

Changes in operating assets and liabilities arising from cash flow
movements
Other

2,101

1,278

1,949

2,143

635

Net cash provided by operating activities

38,86018,086

1,109

33,08019,110

1 Includes non-controlling interest.

(b) Reconciliation of cash
For the purposes of the Statements of Cash Flows, cash includes cash and money at short call.

Performance related contingencies are undertakings that oblige the Group to pay third parties should a customer fail to fulfil acontractual non-monetary obligation. Performance related contingencies are performance guarantees and do not meet the definition of afinancial guarantee, because they do not transfer credit risk. Performance guarantees are recognised when it is probable that an
obligation has arisen. The amount of any provision is the best estimate of the amount required to fulfil the obligation.
Commitments to provide credit include all obligations on the part of the Group to provide credit facilities (unutilised credit lines orundrawn portions of credit lines) against which clients can borrow money under defined terms and conditions. Such loan commitments
are made either for a fixed period, or are cancellable by the Group subject to notice conditions. As facilities may expire without being
drawn upon, the notional amounts do not necessarily reflect future cash requirements. Under AASB 9 loan commitments must be
measured with reference to the quantum of expected credit losses required to be recognised. In the case of undrawn loan commitments,
the inherent credit risk is managed and monitored by the Group together with the drawn component as a single credit exposure. The
exposure at default on the entire facility is therefore used to calculate the cumulative expected credit losses. Upon a loan drawdown by
the counterparty, the amount of the loan is accounted for in accordance with accounting policies for loans and receivables.
Other commitments to provide credit include commitments with certain drawdowns, standby letters of credit and bill endorsements. The
details of the Group’s accounting policies and critical judgements and estimates involved in calculating the AASB 9 impairment
provisions for the year ended 30 June 2020 are provided in Note 3.2.
262

Group

Bank

30 Jun 20

30 Jun 19

30 Jun 1830 Jun 20

30 Jun 19

$M

$M

$M

$M

$M

27,35016,93017,11024,195

15,633

1

80

5,895

(185)

(99)

27,351

17,01023,00524,01015,53430 Jun 20

30 Jun 19

30 Jun 18

$M

$M

$M

–

748

2,105

30 Jun 20

30 Jun 19

30 Jun 18

$M

$M

$M

Net assets

3,686

1,128

–

Cash consideration received

5,946

1,304

–

935

45

–

Notes, coins and cash at banks
Other short-term liquid assets
Cash and cash equivalents at end of year(c) Non-cash financing and investing activities
Group

Shares issued under the Dividend Reinvestment Plan(d) Disposal of controlled entities
Group

Cash and cash equivalents held in disposed entities

263

ADDITIONAL INFORMATION

Credit default financial guarantees are unconditional undertakings given to support the obligations of a customer to third parties. Other
forms of financial guarantees include documentary letters of credit which are undertakings by the Group to pay or accept drafts drawn
by a supplier of goods against presentation of documents in the event of payment default by a customer. Financial guarantees arerecognised within other liabilities and are initially measured at their fair value, equal to the premium received. Subsequent to initialrecognition, the Group’s liability under each guarantee is measured at the higher of the amount initially recognised less cumulative
amortisation recognised in the Income Statement, and the expected credit loss recognised under AASB 9. Any increase in the liability
relating to financial guarantees is recorded in the Income Statement. The premium received is recognised in the Income Statement inother operating income on a straight-line basis over the life of the guarantee.

FINANCIAL REPORT

Performance related contingents

30 Jun 18

DIRECTORS’ REPORT

Other commitments

30 Jun 19

HOW WE CREATE VALUE

Details of contingent liabilities and off Balance Sheet instruments are presented below and in Note 7.1, in relation to litigation,
investigations and reviews. The face (contract) value, as disclosed below, represents the maximum amount that could be lost if thecounterparty fails to meet its financial obligations. The credit equivalent amounts are a measure of potential loss to the Group in theevent of non-performance by the counterparty. The credit commitments shown in the table below also constitute contingent assets.
These commitments would be classified as loans and other assets in the Balance Sheet should they be drawn upon by the customer.

Net profit after income tax 1

Bank

30 Jun 20

OVERVIEWThis section includes other information about the Group’s operations that is disclosed to provide a more complete view of our business. It
includes customer related commitments and contingent liabilities that arise in the ordinary course of business through certain lending
arrangements. In addition, it covers the impact of adopting new accounting standards, notes to the Statement of Cash Flows and remunerationof auditors. Finally, details of events that have taken place subsequent to the Balance Sheet date are provided.

12.1

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

264

265

Notes to the financial statements

For the year ended 30 June 2020

12.3

For the year ended 30 June 2020
12.4

Remuneration of auditors

1

Group
30 Jun 20 30 Jun 191Bank
30 Jun 20 30 Jun 19

$'000

$'000

$'000

Audit and review of financial statements – Group

20,49917,08920,454

12,294

Audit and review of financial statements – controlled entities

4,182

6,782

2,029

1,768

Audit and review services

23,871

22,48314,062

3,323

2,771

3,138

2,252

Other assurance services

6,530

8,056

4,924

4,330

Total remuneration for assurance services

9,853

10,827

8,062

6,582

Total remuneration for audit, review and assurance services

34,534

34,69830,545

20,644

424

1,395

167

494

5,351

7,915

5,103

7,318

Other non-audit services
Taxation advice and tax compliance services
Total remuneration for other non-audit services

5,775

9,310

5,270

7,812

Total remuneration for audit, review, assurance and other services 240,30944,00835,81528,456

Existing LIBOR-linked contracts for derivatives, loans, investment and trading securities, debt issues and deposits and other publicborrowings that mature beyond the end of 2021 are generally expected to transition to RFRs. Industry working groups are currently
working with authorities and consulting with market participants to develop market practices that can be used to transition contracts.
However, there are fundamental differences between LIBORs and RFRs. RFRs are overnight rates, while LIBORs are available inmultiple tenors. Additionally, LIBORs incorporate a bank credit risk premium while RFRs do not. As a result of these differences, bothterm and spread adjustments to the applicable fall-back RFRs are required to ensure that contracts referencing LIBOR will continue tofunction as closely as possible to the original agreement, once the reference rate is changed.
Accounting amendments and the impact on financial reporting
In response to the uncertainty about the long-term viability of these benchmark rates, and LIBOR in particular, the IASB announced in2018 that it would establish a project to consider the financial reporting implications of the reform. The transition from LIBOR is expected
to have an impact on various elements of financial instrument accounting, including hedge accounting, loan modifications, as well as fairvalue methodologies and disclosures.
In October 2019, the AASB issued AASB 2019–3 Amendments to Australian Accounting Standards – Interest Rate Benchmark Reform,
which amends some specific hedge accounting requirements to provide relief from potential effects of the uncertainty caused by theinterest rate benchmark reform. These amendments address the accounting effects of uncertainty in the period leading up to the reform
and are effective for annual periods beginning on or after 1 January 2020. The Group elected to early adopt the amendments, which did
not have a significant impact on the Group.

The Audit Committee has considered the non-audit services provided by PricewaterhouseCoopers and is satisfied that the services andthe level of fees are compatible with maintaining auditors’ independence. All such services were approved by the Audit Committee inaccordance with pre-approved policies and procedures.

In April 2020, the IASB published an exposure draft on proposed amendments to various accounting standards, including IFRS 9
Financial Instruments, to address the accounting issues that will arise once the existing rate is replaced with alternative RFRs. The
proposed amendments contain guidance on a number of matters including:

Other statutory assurance services relate to engagements required under prudential standards and other legislative or regulatory
requirements. Other assurance services principally include assurance and attestation relating to sustainability reporting and comfort
letters over financing programmes as well as reviews of internal control systems.

• hedge accounting post-transition;• the accounting for the modification of financial assets and financial liabilities required for transition;• additional quantitative and qualitative disclosure requirements.
The final amendments are expected to be published during the second half of calendar year 2020. The Group is monitoring thesedevelopments and continues to assess the expected impact.

Other services include benchmarking and process reviews on the Bank’s enterprise-wide risk assessment process and response tofindings from the Royal Commission, and IT security assessments.

Note 5.4 provides further information about hedging relationships which are impacted by IBOR reform.
IBOR reform program
In October 2018, the Group formed the Interest Rate Benchmark Reform Program (the Program). The Program includes a formal
governance structure to ensure clear accountability for all decisions, and incorporates the requisite risk, treasury, finance, legal,business, and support functions. The Program will ensure that customer outcomes are appropriate and will seek to minimise any
disruption to business, and mitigate operational and conduct risks. The Group expects that transition will require the implementation ofchanges to systems, processes, and valuation models, as well as the management of tax and accounting outcomes. The Group willcontinue to monitor the impact on its capital position but expects the impact to be limited.
AASB 17 Insurance Contracts, amends the accounting for insurance contracts and will replace AASB 4 Insurance Contracts, AASB 1023
General Insurance Contracts and AASB 1038 Life Insurance Contracts. AASB 17 will apply to the Group from 1 July 2023. The impact of
AASB 17 is dependent on the Group’s composition at the time of adoption. The Group is still assessing the impact of AASB 17.
AASB 3 Business Combinations has been amended to assist entities in determining whether a transaction in which activities and assets
are acquired should be accounted for as a business combination or as an asset acquisition. The amendments will be applicable tobusiness combinations for which the acquisition date is on or after 1 July 2020.
AASB 101 Presentation of financial statements has been amended to clarify that a liability is classified as non-current if an entity has theright at the end of the reporting period to defer settlement of the liability for at least 12 months after the reporting period, and such righthas substance. The amendments also clarify that settlement of a liability refers to a transfer to the counterparty that results in theextinguishment of the liability. The amendments are effective for the Group from 1 July 2022.
Other amendments that are not yet effective are not expected to result in significant changes to the Group’s accounting policies.

265

ADDITIONAL INFORMATION

Future accounting developments

FINANCIAL REPORTTaxation services include assistance with tax software configuration as well as advice regarding tax returns and submissions, andAustralia/foreign tax legislation.

264

DIRECTORS’ REPORT

1 Comparative information has been restated to conform to presentation in the current year.
2 An additional amount of $8,132,121 (2019: $10,497,464) was paid to PricewaterhouseCoopers by way of fees for entities not consolidated into the financial
statements. Of this amount, $7,067,650 (2019: $7,521,734) relates to audit, review and assurance services.

Background
Interbank Offered Rates (IBORs), such as the London Interbank Offered Rate (LIBOR), play a critical role in global financial markets,
serving as reference rates for derivatives, loans and securities, and as parameters in the valuation of financial instruments. The
Financial Stability Board’s (FSB) Official Sector Steering Group (OSSG) coordinates international efforts on benchmark reform and thetransition from LIBOR, whose future cannot be guaranteed past 1 January 2022. Market-led working groups in respective jurisdictions
have recommended alternative risk-free reference rates (RFRs), which are gradually being adopted.

HOW WE CREATE VALUE

24,681Other statutory assurance services

Interest rate benchmark reform

OVERVIEW$'000

Other services

Future accounting developments

Adoption of new accounting standards and future accounting developments

During the financial year, the following fees were paid or payable for services provided by the auditor of the Group and the Bank, and its
network firms:

Total remuneration for audit and review services

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

266

267

Notes to the financial statements

12.5

12.6

For the year ended 30 June 2020

COMMONWEALTH BANK
2020 ANNUAL REPORT

Notes to the financial statements

For the year ended 30 June 2020

Accounting policies applicable for comparative periods

The Group adopted AASB 16 Leases on 1 July 2019, replacing AASB 117 Leases. The Group’s current accounting policies for therecognition and measurement of lessee accounting are detailed in Notes 2.1, 2.4, 6.1, 7.1 and 7.2. Lessor accounting remains largely
unchanged from the previous standard. A summary of accounting policies that applied to lessee accounting under AASB 117 Leases forthe comparative periods is provided below.

Subsequent events

Dividend Reinvestment Plan (DRP)The Bank expects the DRP for the final dividend for the year ended 30 June 2020 will be satisfied by the issuance of shares ofapproximately $260 million.

Operating leases
OVERVIEW

Operating leases are those where substantially all of the risks and rewards of the lease asset remain with the lessor. Operating leaserental is recognised on a straight-line basis over the lease term within Operating expenses in the Income Statement.

Finance leases
Finance leases are those where substantially all of the risks and rewards of the lease asset have been transferred to the lessee. A leaseasset and a finance lease liability is recognised on the Balance Sheet, representing the minimum lease payments discounted at the rateof interest implicit in the lease. Finance lease expense reflects a constant periodic return and is recognised within Interest expense in
the Income Statement.

HOW WE CREATE VALUEThe Group does not enter into material finance lease transactions as a lessee.
The following lease commitments information was included in the Financial Report for the year ended 30 June 2019 and does not reflect
the adoption of AASB 16 Leases on 1 July 2019.
Group
30 Jun 19

Bank
30 Jun 19

$M

$M

673

626

Due after one year but not later than five years

1,805

1,668

Due after five years

1,600

1,466

4,078

3,760

Lease commitments – property, plant and equipment
Due within one year

DIRECTORS’ REPORT

Total lease commitments – property, plant and equipment

Lease arrangements
Operating leases are entered into to meet the business needs of entities in the Group. Leases are primarily over commercial and retailpremises and plant and equipment.
Lease rentals are determined in accordance with market conditions when leases are entered into or on rental review dates. The total
expected future sublease payments to be received are $77 million as at 30 June 2019.

FINANCIAL REPORTADDITIONAL INFORMATION

266

267

268

To the members of the Commonwealth Bank of Australia

The Directors of the Commonwealth Bank of Australia declare that in their opinion:a)the consolidated financial statements and notes for the year ended 30 June 2020, as set out on pages 106 to 267, are inaccordance with the Corporations Act 2001 (Cth), including:

COMMONWEALTH BANKCOMMONWEALTHBANK2020 ANNUAL
ANNUAL REPORTREPORT

Independent auditor’s report

Directors’ declaration

269(i) complying with the Australian Accounting Standards and any further requirements in the Corporations Regulations
2001; andb)

Report on the audit of the financial report

there are reasonable grounds to believe that the Commonwealth Bank of Australia will be able to pay its debts as and when
they become due and payable.

Our opinion
In our opinion:

Note 1.1 of the consolidated financial statements includes a statement of compliance with the International Financial ReportingStandards.

The accompanying financial report of the Commonwealth Bank of Australia (the Bank) and its controlled entities (together
the Group) is in accordance with the Corporations Act 2001, including:(a) giving a true and fair view of the Bank’s and Group’s financial positions as at 30 June 2020 and of their financial
performance for the year then ended; andThis declaration is made in accordance with a resolution of the Directors.

(b) complying with Australian Accounting Standards and the Corporations Regulations 2001.

What we have audited

Matt ComynManaging Director and Chief Executive Officer
12 August 2020

• the Directors’ declaration.

Basis for opinion

We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards arefurther described in the Auditor’s responsibilities for the audit of the financial report section of this report.

DIRECTORS’ REPORTDIRECTORS’REPORT

The Bank and Group financial report comprises:• the Bank and the Group balance sheets as at 30 June 2020;• the Bank and the Group income statements for the year then ended;• the Bank and the Group statements of comprehensive income for the year then ended;• the Bank and the Group statements of changes in equity for the year then ended;• the Bank and the Group statements of cash flows for the year then ended;• the notes to the financial statements, which include a summary of significant accounting policies; andHOW WE CREATE VALUE
HOW
VALUE

The Directors have been given the declarations required by section 295A of the Corporations Act 2001 (Cth) for the year ended
30 June 2020.

Catherine Livingstone AO
Chairman
12 August 2020

OVERVIEW(ii) giving a true and fair view of the Group’s financial position as at 30 June 2020 and its performance for the year ended
30 June 2020;

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

We are independent of the Bank and the Group in accordance with the auditor independence requirements of the
Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110
Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of
the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.

FINANCIAL REPORTFINANCIALREPORT

Independence

Our audit approach
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial
report as a whole, taking into account the geographic and management structure of the Bank and the Group, theiraccounting processes and controls and the industries in which they operate. We also ensured that the audit team had theappropriate skills and competencies needed for the audit of a complex financial services group. This included industry
expertise in retail, business and institutional banking, and insurance and wealth management financial services, as well as
specialists and experts in IT, actuarial, tax, treasury and valuation.
The Group is structured into 5 business segments being Retail Banking Services (RBS), Business and Private Banking (B&PB),
Institutional Banking and Markets (IB&M), New Zealand (NZ), and International Financial Services and Corporate Centre (IFSand Corporate Centre).
Our audit focused on where the Group made subjective judgements; for example, significant accounting estimates involving
assumptions and inherently uncertain future events.

PricewaterhouseCoopers, ABN 52 780 433 757
One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY, NSW 2001
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Level 11, 1PSQ, 169 Macquarie Street, Parramatta NSW 2150, PO Box 1155 Parramatta NSW 2124
T: +61 2 9659 2476, F: +61 2 8266 9999, www.pwc.com.au
268

Liability limited by a scheme approved under Professional Standards Legislation.

ADDITIONAL INFORMATIONINFORMATION
ADDITIONALBank and Group audit scope

270

271

Independent auditor’s report

In designing the scope of our audit, we considered the structure of the Bank and the Group and further identified thoseentities or business activities within each business segment for which the Bank and the Group prepares financial information
for inclusion in the financial report (referred to as components).

Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall
Bank and Group materiality for the financial report, which we have set out in the table below:

The nature, timing and extent of audit work performed for each component was determined by the components’ risk
characteristics and financial significance to the Bank and the Group and consideration of whether sufficient evidence had
been obtained for our opinion on the financial report as a whole. This involved either:

Overall Bank and Groupmateriality$490 million (2019: $510 million)

How we determined it

Approximately 5% of 2020 financial year profit before tax (PBT) for the Group (2019:
approximately 5% of 2019 financial year PBT for the Bank). As the Group has a lower PBT in theyear ended 30 June 2020, we calculated materiality based on the Group PBT and applied thisduring the audit of both the Bank and the Group.

Rationale for themateriality benchmark
applied

We chose net profit before income tax because, in our view, it is the metric against which
the performance of the Bank and the Group is most commonly measured and is a generally
accepted benchmark in the financial services industry.

• an audit of one or more of the component’s account balances, classes of transactions or disclosures (specified scope);

Number of Components by Scope3
4

We performed our audit over both the Bank and the Group financial information concurrently.
We apply the lower of materiality calculated based on the Bank or the Group PBT in order toavoid duplication of work.

 Full Scope Other Procedures

Key audit matters1

Set out in the following diagram is a high-level overview of how our audit scope aligns to the identified components and our
audit report.

Scoping and Performance of Procedures

RBS

Full scope

B&PB

Full scope

IB&M

Full scope

NZ – ASB 1

Full scope

WM – Colonial First State

Specified scope

WM – Global AssetManagement 2

Other procedures

WM – Colonial MutualLife Assurance 2

Other procedures

IFS – Continuing
operations

Other procedures

Key Audit Matters

Audit opinion

How our audit addressed the key audit matter

Loan impairment provisions (Relevant components: RBS, B&PB, IB&M, NZ – ASB)

Areas in our
professional
judgement whichwere of mostsignificance in
our audit

Opinion on thefinancial reportas a whole

1 Full scope audit was also performed for the purposes of standalone legal entity statutory financial report for this entity.
2 These entities were disposed of during the year ended 30 June 2020.

Bank and Group materiality

Key audit matter

The scope of our audit was influenced by our application of materiality. An audit is designed to provide reasonable assurance
about whether the financial report is free from material misstatement. Misstatements may arise due to fraud or error.
Misstatements are considered material if individually or in aggregate, they could reasonably be expected to influence theeconomic decisions of users of the financial report in which those misstatements occur.

Insofar as it applies to loan impairment provisions, AASB 9
requires an expected credit loss (ECL) impairment model
which takes into account forward-looking informationreflecting potential future economic events. The Bank and
the Group utilise models which are reliant on internal andexternal data as well as a number of estimates including
the impact of multiple economic scenarios and otherassumptions such as defining a significant increase incredit risk.
We considered this a key audit matter due to the inherent
estimation uncertainty in this area, namely due to thesubjectivity in judgements made by the Bank and theGroup in determining when to recognise impairment
provisions including:• Models used to calculate ECL (ECL models) are inherently
complex and judgement is applied in determining theappropriate construct of each model; and• A number of assumptions are made by the Bank andGroup concerning the values of inputs to the ECL models
and how inputs correlate with one another.

We developed an understanding of the controls relevant toour audit over the following areas and assessed whether they
were appropriately designed and were operating effectively
throughout the year on a sample basis:• Review and approval of forward-looking information used in
ECL models;• Reliability and accuracy of critical data elements used in ECL
models; and• Review and approval of ECL model adjustments and the ECL
loan impairment provisions by the Bank’s and the Group’s
Loan Loss Provisioning Committee (LLPC).
In addition to controls testing, we along with PwC credit
modelling experts and PwC economics experts, performed
the following audit procedures, amongst others, on a sample
basis:• Assessed the ECL model methodology applied against
accepted theory and the results of model monitoring
performed, including back-testing of actual losses against
predicted losses. This included inspection of key modelcomponents and reperformance of certain tests within the
Bank’s and the Group’s model monitoring;

ADDITIONAL INFORMATIONINFORMATION
ADDITIONAL

Audit Scope

The key audit matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters and any commentary on the outcomes of a particular
audit procedure is made in that context. We have communicated the key audit matters to the Audit and Risk Committee. The
key audit matters identified below relate to both the Bank and the Group audit.

FINANCIAL REPORTFINANCIALREPORT

Component

Reporting

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
report for the current year. We describe each key audit matter and include a summary of the principal audit procedures we
performed to address those matters in the table below.

DIRECTORS’ REPORTDIRECTORS’REPORTWe utilised a 5% threshold based on our professional judgement, noting that it is within therange of commonly acceptable thresholds.

 Specified Scope

HOW WE CREATE VALUE
HOW
VALUE

• analytical procedures performed at the Group level and/or audit procedures at a Group level, including over the
consolidation of the Group’s components and the preparation of the financial report (other procedures).

OVERVIEW• an audit of the complete financial information of a component (full scope);

COMMONWEALTH BANKCOMMONWEALTHBANK2020 ANNUAL
ANNUAL REPORTREPORT

Independent auditor’s report272

How our audit addressed the key audit matter

Loan impairment provisions (Relevant components: RBS, B&PB, IB&M, NZ – ASB)
• Considered the Bank’s and the Group’s key judgements
including the reasonableness of forward-looking information
incorporated into the ECL models by assessing the forecasts,
assumptions and probability weightings with a particularfocus on the impact of COVID-19;

Specifically, this includes judgements regarding the impact
of COVID-19 on forward looking information, including
variables used in macroeconomic scenarios and theirassociated weightings.

• Agreed a sample of data used as inputs to the ECL models to
relevant source documentation;

Relevant references in the financial report
Refer note 1.1 and 3.2 for further information.

• Assessed the appropriateness of model adjustments
identified by the Bank and the Group against internal andexternal supporting information; and• Considered the impacts of events occurring subsequent tobalance date on the ECL.
For a selection of individually assessed provisions for specificlending assets, we performed the following audit procedures,amongst others:• Compared critical inputs in the Bank’s and the Group’s
estimates (such as valuation of collateral held) to external
information where available.
We also assessed the appropriateness of the Group’s
disclosures against the requirements of Australian
Accounting Standards.

How our audit addressed the key audit matter

Judgemental valuation of financial instruments (Relevant components: RBS, IB&M, NZ – ASB)
At 30 June 2020, the value of Level 2 financial instruments(i.e. where key inputs to the valuation are based on
observable prices in the market) held by the Group at fairvalue is $62,288m assets and $32,030m liabilities. The
value of Level 2 fair value financial instruments held by the
Bank is $59,541m assets and $36,553m liabilities.

In relation to the judgemental valuation of financial
instruments, we developed an understanding of the controls
relevant to our audit over the following areas and assessed
whether they were appropriately designed and were operating
effectively throughout the year on a sample basis:

The Level 2 financial instruments held at fair value include:• Reliability and accuracy of key market data used in the Bank’s
and the Group’s valuation model;• Derivative assets and liabilities;• Investment securities at fair value though othercomprehensive income;• Trading assets and liabilities at fair value through theIncome Statement; and• Other assets at fair value through the Income Statement.

• Assessment of valuation model at inception and periodically;• Review and approval of significant assumptions by the Bank’s
and the Group’s Valuation Committee; and• Evaluation of key position and settlement reconciliations.

The Bank and the Group also hold $565m of assets
classified as ‘Level 3’ which includes a material asset in an
investment security measured at fair value through othercomprehensive income. Level 3 is where key inputs to thevaluation require additional judgement as observable inputs
are not available in the market due to market illiquidity or
the complexity of the product. We considered this to bea key audit matter because of the additional judgement(discussed above) involved in determining its value.

Together with PwC valuation experts, we compared theBank’s and the Group’s calculations of fair value to our own
calculations across a sample of financial instruments. This
involved sourcing inputs from market data providers or externalsources and using our own valuation models. We considered
the results to assess whether there was evidence of systemic
bias or error in the Bank’s and the Group’s calculations of fairvalue by investigating the root cause for material variances.
In relation to the judgemental valuation of the Level 3 financial
asset, with the assistance of PwC valuation experts, we
performed the following audit procedures, amongst others:

Refer notes 1.1, 4.2, 5.3, 5.4, 5.5 and 9.5 for further information.

• Assessed the reasonableness of the methodology and key
inputs in the Bank’s and the Group’s estimates used to
calculate the fair value against market practices;• Further compared the key inputs to external information
where available; and• Recalculated the fair value to assess the accuracy of themodel output.

Key audit matter

How our audit addressed the key audit matter

Relevant references in the financial report

Provisions for customer remediation and project and other costs associated with regulatory compliancematters and ongoing legal proceedings (Relevant components: All)The Bank and the Group have assessed the need toraise provisions in relation to customer remediation
payments and associated project costs, project costs
related to ongoing legal proceedings, and project costs
associated with compliance matters and investigations andreviews from its regulators including APRA’s Enforceable
Undertaking, amongst others.
We considered this a key audit matter due to thesubjective judgements made by the Bank and the Group in
determining:• The probability of future uncertain outcomes based on
available information;• The estimate of customer remediation payment amounts
resulting from remediation programs whereby the Bankand the Group extrapolate the results of their sample
testing; and• The project costs associated with the remediation
activities, and regulatory proceedings, investigations andreviews.
Relevant references in the financial report
Refer note 7.1 for further information.

We developed an understanding of the Bank’s and the Group’s
processes for identifying and assessing the impact of theBank’s and the Group’s regulatory and customer-related
remediation obligations.
We read the minutes of the Bank’s main governancemeetings (i.e. Audit Committee, Risk Committee and Boardof Directors meetings), attended the Bank’s Audit Committee
and Risk Committee meetings; attended some of theunderlying remediation committee meetings; and consideredcorrespondence with relevant regulatory bodies.
We discussed ongoing legal matters with the directors andmanagement. We obtained written representations from theGroup Chief Executive Officer, Chief Financial Officer and Group
General Counsel and obtained access to relevant documents inorder to develop our understanding of the matters.
For those matters which resulted in a material provision at year
end, we developed an understanding of and evaluated thereasonableness of the key assumptions used to estimate those
provisions. This included consideration of comparable remediation
programs; results from sample testing performed up until the dateof signing the audit report; the subsequent adjustments madeto the output of the sample test results; and the status of each
remediation program and costs incurred to date.
Where the Bank and the Group determined that they were unable
to reliably estimate the possible financial impact of a remediation
activity or investigation, we considered relevant information
available in relation to the activities and investigations to assess
the appropriateness of this conclusion. We also assessed theadequacy and appropriateness of related disclosures against therequirements of Australian Accounting Standards.

ADDITIONAL INFORMATIONINFORMATION
ADDITIONAL

Key audit matterWe considered Level 2 financial instruments to be a key
audit matter due to their financial significance to the Bankand the Group. In addition, Level 2 financial instruments
require judgement in relation to the application of
appropriate models, assumptions and inputs including fairvalue adjustments.

FINANCIAL REPORTFINANCIALREPORT• Evaluated cashflow forecasts supporting the ECL provision byassessing key judgements (in particular the amount and timingof recoveries and the probability of different scenarios) madeby the Bank and the Group in the context of the borrowers’
circumstances based on the detailed loan and counterparty
information known by the Bank and the Group; andJudgemental valuation of financial instruments (Relevant components: RBS, IB&M, NZ – ASB)DIRECTORS’ REPORTDIRECTORS’REPORT

Provisions for impairment of loans that exceed specificmonetary thresholds are individually assessed by the Bankand the Group. These provisions are established basedon the expected future cash repayments and estimatedproceeds from the value of the collateral held by the Bankand the Group in respect of those loans under multiple
weighted scenario outcomes. During the financial year
ended 30 June 2020, the majority of the Bank’s andthe Group’s individually assessed provisions for specificlending assets related primarily to business and corporateloans.

• Compared the modelled outputs to our own calculated
expectations as determined by applying the model
methodology to the underlying data;

How our audit addressed the key audit matter

HOW WE CREATE VALUE
HOW
VALUE

Further, the rapidly developing COVID-19 pandemic hasmeant assumptions regarding economic outlook and theconsequent impact on the Bank and Group’s customers is
uncertain, increasing the degree of judgement required to
be exercised in calculating ECL.

Key audit matter

OVERVIEW

Key audit matter

Independent auditor’s report

COMMONWEALTH BANKCOMMONWEALTHBANK2020 ANNUAL
ANNUAL REPORTREPORT

Independent auditor’s report

273

274

How our audit addressed the key audit matter

Business disposals (Relevant components: WM – Global Asset Management, WM – Colonial Mutual Life
Assurance, WM – Colonial First State)

The accounting for these disposals is considered to be a
key audit matter due to:• CMLA: the judgement required in determining whether
the JCA meets the criteria to deconsolidate andderecognise the Bank’s and the Group’s interest in CMLA
in the absence of regulatory approval for the sale ofthe investment in BoCommLife in line with Australian
Accounting Standards.

We considered this to be a key audit matter due to thejudgements made by the Bank and the Group in:• estimating the transaction and separation costs tocomplete the divestment; and• allocating goodwill to disposal groups in accordance withthe requirements of Australian Accounting Standards.
Refer notes 1.1, 2.6, 2.7 and 11.3 for further information.

• Reperformed the Bank’s and the Group’s calculation of thegain or loss on the sale of each divestment;• Together with PwC tax experts, we evaluated the tax
calculations related to the gain or loss tax from thedivestments against the requirements of the relevant tax
legislation; and• Assessed the disclosure in the financial report relating to
the divestments against the requirements of Australian
Accounting Standards.
In relation to the sale of CFS, we performed the following audit
procedures, amongst others:• Assessed whether the requirements of Australian AccountingStandards were met regarding classification and presentationof the sale as held for sale and discontinued operations;• Compared the key inputs used to estimate the transaction
and separation costs to complete the divestment from the
Bank and the Group to similar transactions undertaken by
the Bank and the Group;• Assessed, on a sample basis, whether the carrying valuesof disposal groups (including goodwill), were equal to theirestimated fair value less cost to sell; and• Assessed the adequacy and appropriateness of related
disclosures against the requirements of Australian
Accounting Standards.

In particular, in common with all banks, access rights totechnology are important because they are intended
to ensure that changes to applications and data areappropriately authorised. Ensuring staff have appropriate
access to IT systems, and that access is monitored, are key
controls in mitigating the potential for fraud or error as aresult of a change to an application or underlying data.
The Bank’s and the Group’s controls over IT systems
include:• The framework of governance over IT systems;• Program development and changes;• Access to process, data and IT operations; and• Governance over generic and privileged user accounts.

For material financial statement balances we developed anunderstanding of the business processes, key IT systems used
to generate and support those balances and associated IT
application controls and IT dependencies in manual controls.
Our procedures included evaluating and testing the design andoperating effectiveness of certain controls over the continued
integrity of the IT systems that are relevant to financial
reporting. This involved assessing:• The technology control environment: the governanceprocesses and controls used to monitor and enforce control
consciousness throughout the Group’s technology teams;• Change management: the processes and controls used todevelop, test and authorise changes to the functionality andconfigurations within systems;• System development: the project disciplines which ensurethat new systems are developed to meet a defined business
need, are appropriately tested before implementationand that data is converted and transferred completely andaccurately;• Security: the access controls designed to enforce segregationof duties, govern the use of generic and privileged accounts
or ensure that data is only changed through authorisedmeans; and• IT operations: the controls over key operations are used toensure that any issues that arise are managed appropriately.
For IT operations within the scope of our audit where
technology services are provided by a third party, we
considered:• Assurance reports from the third party’s auditor on thedesign and operating effectiveness of controls; and• Managements monitoring control over the third party.
We also carried out tests, on a sample basis, of associated IT
application controls and IT dependencies in manual controlsthat were key to our audit testing in order to assess theaccuracy of certain system calculations, the generation ofcertain reports and the operation of certain system enforced
access controls.
Where we noted design or operating effectiveness mattersrelating to IT systems and applications controls relevant to our
audit, we performed alternative or additional audit procedures.

ADDITIONAL INFORMATIONINFORMATION
ADDITIONAL

Relevant references in the financial report• Assessed the appropriateness of the derecognition anddeconsolidation of each divested business on the financial
report to determine whether they were performed inaccordance with Australian Accounting Standards;

We considered this a key audit matter because the Bank’s
and the Group’s operations and financial reporting
processes are heavily dependent on IT systems for theprocessing and recording of a significant volume oftransactions.

FINANCIAL REPORTFINANCIALREPORT

The Bank and the Group also announced during the year anagreement to sell a 55% equity stake in Colonial First State(CFS) to KKR. CFS has been classified as held for sale and a
discontinued operation as at the financial report date.

• Inspected the underlying sale agreements, including the
JCA with AIA to develop an understanding of the terms andconditions related to the divestments;

Operation of financial reporting Information Technology (IT) systems and controls (Relevant components: All)DIRECTORS’ REPORTDIRECTORS’REPORT• CFSGAM: the financial significance of the gain on
disposal (including tax) of the business to the Bank andGroup; andWe performed the following audit procedures, amongst
others, in relation to the disposal of CFSGAM and CMLA:

How our audit addressed the key audit matter

HOW WE CREATE VALUE
HOW
VALUE

During the year, the Bank and Group announced
completion of its divestments in the Colonial First State
Global Asset Management (CFSGAM) business, and theColonial Mutual Life Assurance Society (CMLA) business.
The divestment in CMLA occurred through the Bank andGroup entering into a Joint Cooperation Agreement (JCA)with AIA Group Limited (AIA). Both businesses were partof the Wealth Management operating segment. The assets
and liabilities associated with these businesses have been
derecognised as at the financial report date.

Key audit matter

OVERVIEW

Key audit matter

Independent auditor’s report

COMMONWEALTH BANKCOMMONWEALTHBANK2020 ANNUAL
ANNUAL REPORTREPORT

Independent auditor’s report

275

276

277

Additional information contents

COMMONWEALTH BANK
2020 ANNUAL REPORT

Independent auditor’s report

Additional information
Security holder information

278

The directors are responsible for the other information. The other information comprises the information included in theannual report for the year ended 30 June 2020 but does not include the financial report and our auditor’s report thereon.

Five-year financial summary

285

Our opinion on the financial report does not cover the other information and accordingly we do not express any form ofassurance conclusion thereon, with the exception of our limited assurance report over the Non-Financial Performance Metrics
as detailed in pages 47 to 52 of the annual report.

Profit reconciliation

288

Glossary of terms

290

Contact information

301

If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report,
we conclude that there is a material misstatement of this other information, we are required to report that fact. We havenothing to report in this regard.

Responsibilities of the directors for the financial report

The directors of the Bank are responsible for the preparation of the financial report that gives a true and fair view inaccordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal controls as the
directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is freefrom material misstatement, whether due to fraud or error.

Auditor’s responsibilities for the audit of the financial report

A further description of our responsibilities for the audit of the financial report is located at the Auditing and AssuranceStandards Board website at: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part ofour auditor’s report.

Report on the Remuneration Report

FINANCIAL REPORTOur objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance but is not a guarantee that an audit conducted in accordance with the Australian AuditingStandards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error andare considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial report.

DIRECTORS’ REPORTIn preparing the financial report, the directors are responsible for assessing the ability of the Bank and the Group tocontinue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis ofaccounting unless the directors either intend to liquidate the Bank or the Group or to cease operations, or have no realistic
alternative but to do so.

HOW WE CREATE VALUE

In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in theaudit, or otherwise appears to be materially misstated.

OVERVIEWOther information

Our opinion on the Remuneration Report

In our opinion, the Remuneration Report of Commonwealth Bank of Australia for the year ended 30 June 2020 complies withsection 300A of the Corporations Act 2001.

Responsibilities

The directors of the Bank are responsible for the preparation and presentation of the Remuneration Report in accordancewith section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report,
based on our audit conducted in accordance with Australian Auditing Standards.

PricewaterhouseCoopers

Matthew Lunn
Partner
Sydney12 August 2020

ADDITIONAL INFORMATION

We have audited the Remuneration Report included in pages 78 to 102 of the Directors’ Report for the year ended 30 June 2020.

278

279

Additional information (continued)

Security holder information

Security holder information (continued)

Top 20 holders of fully paid ordinary shares as at 20 July 2020

If a person at a general meeting represents personally or by proxy, attorney or official representative more than one shareholder, on ashow of hands the person is entitled to one vote only even though he or she represents more than one shareholder.

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

HSBC Custody Nominees
J P Morgan Nominees Australia Limited
Citicorp Nominees Pty Limited
BNP Paribas Noms Pty Ltd
National Nominees Limited
Australian Foundation Investment
Bond Street Custodians Limited
Netwealth Investments Limited
Milton Corporation Limited
Argo Investments Limited
Australian Executor Trustees Limited
Navigator Australia
Nulis Nominees (Australia)
Mr Barry Martin Lambert
McCusker Holdings Pty Ltd
Invia Custodian Pty Limited
Joy Wilma Lambert
BNP Paribas Noms (NZ) Ltd <DRP>
CS Third Nominees Pty Limited
BKI Investment Company Limited

Number of shares%

398,411,636
242,160,962
99,817,390
50,441,624
48,817,928
7,900,000
7,640,244
4,672,163
3,140,470
3,103,731
3,040,780
2,881,118
1,872,713
1,643,613
1,370,000
1,275,216
1,068,250
1,067,687
1,050,513
1,030,023

22.51%
13.68%
5.64%
2.85%
2.76%
0.45%
0.43%
0.26%
0.18%
0.18%
0.17%
0.16%
0.11%
0.09%
0.08%
0.07%
0.06%
0.06%
0.06%
0.06%

Where a shareholder appoints two proxies or attorneys to vote at the same general meeting:• If the appointment does not specify the proportion or number of the shareholder’s votes each proxy or attorney may exercise, eachproxy or attorney may exercise half the shareholder’s votes;• On a show of hands, neither proxy or attorney may vote if more than one proxy or attorney attends; and• On a poll, each proxy or attorney may only exercise votes in respect of those shares or voting rights the proxy or attorney represents.

Top 20 holders of CommBank PERLS VII Capital Notes (“PERLS VII”) as at 20 July 2020
Name of holder

Number of
securities%

HSBC Custody Nominees
BNP Paribas Noms Pty Ltd
J P Morgan Nominees Australia Limited
Netwealth Investments Limited
Australian Executor Trustees Limited
National Nominees Limited
Bond Street Custodians Limited
Navigator Australia
Citicorp Nominees Pty Limited
Nulis Nominees (Australia)
Berne No 132 Nominees Pty Ltd
Mutual Trust Pty Ltd
Invia Custodian Pty Limited
Marrosan Investments Pty Ltd
Tsco Pty Ltd
Alwood Pty Ltd
Seymour Group Pty Ltd
Willimbury Pty Ltd
Limeburner Investments Pty Ltd
Eastcote Pty Limited

3,010,104
1,195,841
844,602841,942382,295
277,276
262,224
234,077
204,881
198,651
167,386
164,988
92,24984,28680,00079,73073,70070,67367,24559,30010.03%
3.99%
2.82%
2.81%
1.27%
0.92%
0.87%
0.78%
0.68%
0.66%
0.56%
0.55%
0.31%
0.28%
0.27%
0.27%
0.25%
0.24%
0.22%
0.20%

Number ofsharesPercentage ofvoting powerBlackRock Group 1

106,300,321

6

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

The Vanguard Group, Inc. 2

88,022,378

5

The top 20 PERLS VII security holders hold 8,391,450 securities which is equal to 27.97% of the total securities on issue.

The top 20 shareholders hold 882,406,061 shares which is equal to 49.85% of the total shares on issue.

Substantial shareholding
The following organisations have disclosed a substantial shareholding notice to ASX. As at 20 July 2020, the Bank has received nofurther update in relation to these substantial shareholdings.
Name

PERLS VII are subordinated unsecured notes issued by the Bank. They are listed on the ASX under the trade symbol CBAPD.

Stock exchange listing
The shares of the Commonwealth Bank of Australia (Bank) are listed on the Australian Securities Exchange (ASX) under the trade
symbol of CBA. The Bank is not currently in the market conducting an on market buy-back of its shares.

Range of shares (fully paid ordinary shares and employee shares) as at 20 July 2020
Percentage ofshareholders

Number ofshares

1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over

669,797
186,155
19,881
8,352
161

75.74
21.05
2.25
0.94
0.02

187,489,360
388,582,359
135,125,306
156,741,683
902,300,799

10.59
21.95
7.63
8.86
50.97

148
68
9
37
0

Total

884,346

100.001,770,239,507

100. 00

262

Less than marketable parcel of $500

14,728

1. 67

43,557

0. 00

–

Range

Percentage of Number of rights
issued capital
holders 1

1 The total number of rights on issue is 965,095 rights which carry no entitlement to vote.

Number of
security holders

Percentage of
security holders

Number of
securities

Percentage ofissued capital1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over

26,888
3,687
258
190
15

86.63
11.88
0.83
0.61
0.05

9,191,476
7,395,606
1,813,407
4,363,585
7,235,926

30.64
24.65
6.04
14.55
24.12

Total

31,038100. 00

30,000,000

100. 00

19

0. 06

52

0. 00

Range

Less than marketable parcel of $500

Voting rights
PERLS VII do not confer any voting rights in the Bank but if they are exchanged for ordinary shares of the Bank in accordance with theirterms of issue, then the voting rights of the ordinary shares will be as set out on pages 278 and 279 for the Bank’s ordinary shares.

Voting rights
Under the Bank’s Constitution, shareholders entitled to vote at a general meeting may vote in person, directly or by proxy, attorney or
representative, depending on whether the shareholder is an individual or a company.
Subject to any rights or restrictions attaching to shares, each ordinary shareholder present at a general meeting has:
• On a show of hands - one vote; and• On a poll - one vote for each fully paid share held. If shares are not fully paid, on a poll the number of votes attaching to the shares is
pro-rated accordingly.

278

279

ADDITIONAL INFORMATION

Number ofshareholders

Range of securities (PERLS VII) as at 20 July 2020

FINANCIAL REPORT

Stock exchange listing

1 Substantial shareholding as at 6 March 2020, as per notice lodged on 10 March 2020.
2 Substantial shareholding as at 20 July 2018, as per notice lodged on 25 July 2018.

DIRECTORS’ REPORTRank

HOW WE CREATE VALUE

Name of holder

OVERVIEW

Rank

COMMONWEALTH BANK
2020 ANNUAL REPORT

Additional information

280

281

Additional information (continued)

Security holder information (continued)

Security holder information (continued)

Top 20 holders of CommBank PERLS VIII Capital Notes (“PERLS VIII”) as at 20 July 2020

Top 20 holders of CommBank PERLS IX Capital Notes (“PERLS IX”) as at 20 July 2020

Rank

3,150,171
1,334,386
238,862
120,358
93,00083,983
83,13473,63670,07363,74050,00050,00050,00048,08447,00045,50045,00044,04939,26336,16021.73%
9.20%
1.65%
0.83%
0.64%
0.58%
0.57%
0.51%
0.48%
0.44%
0.34%
0.34%
0.34%
0.33%
0.32%
0.31%
0.31%
0.30%
0.27%
0.25%

Rank

Name of holder

Number of
securities

%

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

BNP Paribas Noms Pty Ltd
HSBC Custody Nominees
J P Morgan Nominees Australia Limited
Navigator Australia
Australian Executor Trustees Limited
Bond Street Custodians Limited
Dimbulu Pty Ltd
National Nominees Limited
Mutual Trust Pty Ltd
Netwealth Investments Limited
Nulis Nominees (Australia)
Citicorp Nominees Pty Limited
Fibora Pty Ltd
Invia Custodian Pty Limited
Ernron Pty Ltd
Sir Moses Montefiore Jewish Home
Pendant Realty Pty Ltd
Port Stephens Veterans and Aged Care Ltd
J C Family Investments Pty Limited
888 Corporation Pty Ltd

2,343,186
1,553,860
643,242
207,840
189,662
164,623
147,700
138,700
129,315
117,924
98,27372,57764,74057,62334,53030,66030,00030,00027,21825,00014.29%
9.47%
3.92%
1.27%
1.16%
1.00%
0.90%
0.85%
0.79%
0.72%
0.60%
0.44%
0.39%
0.35%
0.21%
0.19%
0.18%
0.18%
0.17%
0.15%

The top 20 PERLS IX security holders hold 6,106,673 securities which is equal to 37.24% of the total securities on issue.

Stock exchange listing

Stock exchange listing

PERLS VIII are subordinated unsecured notes issued by the Bank. They are listed on the ASX under the trade symbol CBAPE.

PERLS IX are subordinated unsecured notes issued by the Bank. They are listed on the ASX under the trade symbol CBAPF.

Range of securities (PERLS VIII) as at 20 July 2020

Range of securities (PERLS IX) as at 20 July 2020
Percentage of
security holders

Number of
securities

Percentage ofissued capital1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over

13,314
1,383
119
72
4

89.40
9.29
0.80
0.48
0.03

4,168,836
2,865,944
878,4432,014,856
4,571,921

28.75
19.76
6.06
13.90
31.53

Total

14,892100. 00

14,500,000

100.00

4

0. 03

10

0.00

Less than marketable parcel of $500

Number of
security holders

Percentage of
security holders

Number of
securities

Percentage ofissued capital1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over

17,473
1,706
110
64
11

90.23
8.81
0.57
0.33
0.06

5,562,105
3,428,049
815,120
1,428,025
5,166,701

33.92
20.90
4.97
8.71
31.50

Total

19,364100.0016,400,000

100.00

3

0.02

5

0.00

Range

Less than marketable parcel of $500

Voting rights

PERLS VIII do not confer any voting rights in the Bank but if they are exchanged for ordinary shares of the Bank in accordance with
their terms of issue, then the voting rights of the ordinary shares will be as set out on pages 278 and 279 for the Bank’s ordinary shares.

PERLS IX do not confer any voting rights in the Bank but if they are exchanged for ordinary shares of the Bank in accordance with theirterms of issue, then the voting rights of the ordinary shares will be as set out on pages 278 and 279 for the Bank’s ordinary shares.

280

281

ADDITIONAL INFORMATION

Voting rights

FINANCIAL REPORT

Number of
security holders

Range

DIRECTORS’ REPORTThe top 20 PERLS VIII security holders hold 5,766,399 securities which is equal to 39.77% of the total securities on issue.

HOW WE CREATE VALUEBNP Paribas Noms Pty Ltd
HSBC Custody Nominees
J P Morgan Nominees Australia Limited
Netwealth Investments Limited
Piek Holdings Pty Ltd
Snowside Pty Ltd
Navigator Australia
Nulis Nominees (Australia)
Australian Executor Trustees Limited
Bond Street Custodians Limited
Dimbulu Pty Ltd
Marrosan Investments Pty Ltd
Mifare Pty Ltd
V S Access Pty Ltd
Adirel Holdings Pty Ltd
Resthaven Incorporated
Federation University Australia
Mutual Trust Pty Ltd
Citicorp Nominees Pty Limited
Mr Vincent David Smart + Mrs Susan May Smart%OVERVIEW

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

Number of
securities

Name of holder

COMMONWEALTH BANK
2020 ANNUAL REPORT

Additional information (continued)

282

283

Additional information (continued)

Security holder information (continued)

Security holder information (continued)

Top 20 holders of CommBank PERLS X Capital Notes (“PERLS X”) as at 20 July 2020

Top 20 holders of CommBank PERLS XI Capital Notes (“PERLS XI”) as at 20 July 2020

Number of
securities

%

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

HSBC Custody Nominees
BNP Paribas Noms Pty Ltd
Netwealth Investments Limited
Citicorp Nominees Pty Limited
J P Morgan Nominees Australia Limited
Navigator Australia
Dimbulu Pty Ltd
Bond Street Custodians Limited
Australian Executor Trustees Limited
Marrosan Investments Pty Ltd
Rakio Pty Ltd
Eastcote Pty Ltd
Federation University Australia
Harriette & Co Pty Ltd
National Nominees Limited
Mutual Trust Pty Ltd
Mr Roni G Sikh
Mr Wei Cai
Taverners No 11 Pty Ltd
Nulis Nominees (Australia)

1,480,864
1,224,850
167,057
157,675
129,916
122,714100,000
85,66784,38580,00077,00050,00050,00050,00041,46840,78640,49238,96038,71038,48110.85%
8.97%
1.22%
1.16%
0.95%
0.90%
0.73%
0.63%
0.62%
0.59%
0.56%
0.37%
0.37%
0.37%
0.30%
0.30%
0.30%
0.29%
0.28%
0.28%

%

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

HSBC Custody Nominees
BNP Paribas Noms Pty Ltd
J P Morgan Nominees Australia Limited
Netwealth Investments Limited
Australian Executor Trustees Limited
Dimbulu Pty Ltd
Bond Street Custodians Limited
National Nominees Limited
Navigator Australia
Eastcote Pty Limited
G Harvey Investments Pty Ltd
Pamdale Investments Pty Ltd
Citicorp Nominees Pty Limited
Nulis Nominees (Australia)
V S Access Pty Ltd
Mutual Trust Pty Ltd
Edgelake Proprietary Limited
J Santini Development Pty Ltd
Margen Biggs Pty Limited
Invia Custodian Pty Limited

1,734,713
374,960
309,073
253,550
230,913150,000
136,794
128,835
111,802
100,000
100,000
89,57887,192
84,10480,00062,56249,26746,00036,00034,27510.91%
2.36%
1.94%
1.59%
1.45%
0.94%
0.86%
0.81%
0.70%
0.63%
0.63%
0.56%
0.55%
0.53%
0.50%
0.39%
0.31%
0.29%
0.23%
0.22%

Stock exchange listing

PERLS X are subordinated unsecured notes issued by the Bank. They are listed on the ASX under the trade symbol CBAPG.

PERLS XI are subordinated unsecured notes issued by the Bank. They are listed on the ASX under the trade symbol CBAPH.

Range of securities (PERLS X) as at 20 July 2020
Percentage of
security holders

Number of
securities

Percentage ofissued capital1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over

12,924
1,555
110
77
6

88.09
10.60
0.75
0.52
0.04

4,524,257
3,360,115
833,523
2,059,174
2,872,931

33.14
24.62
6.11
15.08
21.05

Total

14,672100.0013,650,000

100.00

8

0.05

20

0.00

Voting rights

282

Number of
security holders

Percentage of
security holders

Number of
securities

Percentage ofissued capital1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over

16,689
1,933
154
74
10

88.49
10.25
0.82
0.39
0.05

5,782,006
4,002,455
1,130,004
1,884,752
3,100,783

36.36
25.17
7.12
11.85
19.50

Total

18,860100.0015,900,000

100.00

9

0.05

13

0.00

Range

Less than marketable parcel of $500

Voting rights
PERLS XI do not confer any voting rights in the Bank but if they are exchanged for ordinary shares of the Bank in accordance with theirterms of issue, then the voting rights of the ordinary shares will be as set out on pages 278 and 279 for the Bank’s ordinary shares.

283

ADDITIONAL INFORMATIONPERLS X do not confer any voting rights in the Bank but if they are exchanged for ordinary shares of the Bank in accordance with theirterms of issue, then the voting rights of the ordinary shares will be as set out on pages 278 and 279 for the Bank’s ordinary shares.

Range of securities (PERLS XI) as at 20 July 2020

FINANCIAL REPORT

Number of
security holders

Less than marketable parcel of $500

Number of
securities

The top 20 PERLS XI security holders hold 4,199,618 securities which is equal to 26.41% of the total securities on issue.

Stock exchange listing

Range

Name of holder

DIRECTORS’ REPORTThe top 20 PERLS X security holders hold 4,099,025 securities which is equal to 30.03% of the total securities on issue.

Rank

HOW WE CREATE VALUE

Name of holder

OVERVIEW

Rank

COMMONWEALTH BANK
2020 ANNUAL REPORT

Additional information (continued)

284

285

Security holder information (continued)

30 Jun 20$M

Top 20 holders of CommBank PERLS XII Capital Notes (“PERLS XII”) as at 20 July 2020

Net interest income

HSBC Custody Nominees
BNP Paribas Noms Pty Ltd
Netwealth Investments Limited
Royal Freemasons Benevolent Institution
J P Morgan Nominees Australia Limited
Dimbulu Pty Ltd
Citicorp Nominees Pty Limited
Australian Executor Trustees Limited
Tandom Pty Ltd
Diocese Development Fund - Catholic Diocese of Paramatta
Bond Street Custodians Limited
National Nominees Limited
Navigator Australia
UBS Nominees Pty Ltd
Tsco Pty Ltd
Invia Custodian Pty Limited
Nulis Nominees (Australia)
Mr Bruce Hampel
Lightningedge Pty Ltd
Taverners No 11 Pty Ltd

1,912,212
305,822
228,852
202,500
200,114200,000
124,540
121,927
120,000
101,472
98,41789,427
74,16155,79948,65046,36046,11745,00040,00039,264

11.59%
1.85%
1.39%
1.23%
1.21%
1.21%
0.75%
0.74%
0.73%
0.61%
0.60%
0.54%
0.45%
0.34%
0.29%
0.28%
0.28%
0.27%
0.24%
0.24%

The top 20 PERLS XII security holders hold 4,100,634 securities which is equal to 24.85% of the total securities on issue.

Other operating income

18,61018,224

18,465

17,546

16,858

5,151

5,355

5,646

6,831

7,043

Total operating income

23,761

23,57924,111

24,377

23,901

Operating expenses(10,895)(10,824)(10,653)(10,129)(9,957)

Loan impairment expense(2,518)(1,201)(1,079)(1,095)(1,256)

Net profit before tax

10,348

11,554

12,37913,153

12,688

Income tax expense(3,052)(3,321)(3,779)(3,752)(3,497)

–

(12)

(13)

(13)

(20)

7,296

8,221

8,587

9,388

9,171

153

485

825

493

274
9,445

Non-controlling interests
Net profit after tax from continuing operations ("cash basis")
Net profit after tax from discontinued operations
Net profit after tax ("cash basis")

7,449

8,706

9,412

9,881

Treasury shares valuation adjustment

–

6

2

(23)

4

Hedging and IFRS volatility

93

(79)

101

73

(199)

2,092

(61)

(183)

–

–

–

(1)

(3)

(3)

(27)

9,634

8,571

9,329

9,928

9,223

Retail Banking Services

3,997

3,907

4,465

4,423

4,540

Business and Private Banking

2,654

2,931

3,134

2,736

1,522

655

1,117

1,226

1,360

1,190

–

–

–

201

400

811

1,059

975

871

785
778

(Loss)/gain on disposal of controlled entities/investments
Bankwest non-cash items
Net profit after income tax attributable to equity holders of the Bank
"statutory basis"
Contributions to profit (after tax)

Institutional Banking and Markets
Wealth Management

Stock exchange listing$M

New Zealand

PERLS XII are subordinated unsecured notes issued by the Bank. They are listed on the ASX under the trade symbol CBAPI.

Bankwest

–

–

–

–

Range of securities (PERLS XII) as at 20 July 2020

IFS & other

(821)

(793)

(1,213)

(203)

(44)

Net profit after tax from continuing operations ("cash basis")

7,296

8,221

8,587

9,388

9,171

Percentage of
security holders

Number of
securities

Percentage ofissued capital1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over

16,112
2,018
166
82
9

87.63
10.97
0.90
0.45
0.05

5,836,220
4,213,197
1,241,074
2,191,113
3,018,396

35.37
25.54
7.52
13.28
18.29

Total

18,387100.0016,500,000

100.00

4

0.02

15

0.00

Less than marketable parcel of $500

Investment experience after tax
Net profit after tax "underlying basis"

(4)

(3)

(2)

(7)

(24)

7,292

8,218

8,585

9,381

9,147

771,547

755,173743,744731,762695,398

Balance Sheet
Loans, bills discounted and other receivables

1,014,060

976,502

975,165

976,318

932,945

Deposits and other public borrowings

701,999

636,040622,234

626,655

588,045

Total liabilities

942,047

906,853

907,305

912,658

872,437

Shareholders' Equity

72,01369,64967,86063,66060,508

Total assets

Net tangible assets (including discontinued operations)

64,35959,58056,84453,09049,630PERLS XII do not confer any voting rights in the Bank but if they are exchanged for ordinary shares of the Bank in accordance with theirterms of issue, then the voting rights of the ordinary shares will be as set out on pages 278 and 279 for the Bank’s ordinary shares.

Risk weighted assets – Basel III (APRA)

454,948452,762

458,612437,063394,667

Average interest earning assets

897,409871,418

861,884

834,741

790,596

Average interest bearing liabilities

771,982

761,115

759,583

755,612733,754

Assets (on Balance Sheet) – Australia

855,219824,651

811,491

817,519

783,114

Assets (on Balance Sheet) – New Zealand

103,531

99,661

94,622

89,997

83,832

Assets (on Balance Sheet) – Other

55,31052,19069,05268,802

65,999Relevant exchanges
In addition to the ASX, the Bank has securities quoted on the London Stock Exchange (LSE), Swiss Exchange (SIX) and the New
Zealand Exchange (NZX).

1 Comparative information for 2019 and 2018 has been restated and presented on a continuing operations basis, and to reflect the change in accounting policy
detailed in Note 1.1 as well as refinements to the allocation of customer balances.
2 Includes investment experience.

284

285

ADDITIONAL INFORMATION

Voting rights

FINANCIAL REPORT

Number of
security holders

Range

DIRECTORS’ REPORT

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

%

30 Jun 16$M

HOW WE CREATE VALUE

Name of holder

2

30 Jun 17

OVERVIEW

Rank

Number of
securities

30 Jun 19 1 30 Jun 18 1
$M
$M

COMMONWEALTH BANK
2020 ANNUAL REPORT

Five-year financial summary

Additional information (continued)

286

287

Five-year financial summary (continued)

30 Jun 20

Shareholder summary from continuing operations

30 Jun 19

30 Jun 1830 Jun 1730 Jun 16

1

Performance ratios from continuing operations

30 Jun 20

30 Jun 19

30 Jun 1830 Jun 1730 Jun 16

1

Return on average Shareholders' Equity

Earnings per share (cents)
Basic
Statutory(cents)421. 8458. 3500. 0549. 9525. 6

Cash basis(cents)412. 5465. 5491. 5545. 4538. 3

Statutory

(%)

10. 5

11. 9

13. 4

15. 4

15. 8

Cash basis

(%)

10. 3

12. 1

13. 1

15. 3

16. 1

Return on average total assets
Statutory

(%)

0. 7

0. 8

0. 9

1. 0

1. 0

Statutory(cents)408. 5443. 2485. 5532. 9513. 3

Cash basis

(%)

0. 7

0. 8

0. 9

1. 0

1. 0

Cash basis(cents)399. 9449. 9477. 5528. 7525. 4

(%)

2. 07

2. 09

2.14

2. 10

2. 13

Statutory

(%)

13. 6

12. 6

14. 3

16. 2

16. 3

Cash basis

(%)

10. 5

12. 8

14. 4

16. 0

16. 6

Net interest margin

Shareholder summary including discontinued operations

Performance ratios including discontinued operations

Earnings per share

Return on average Shareholders' Equity

Basic(cents)544. 8485. 6534. 3577. 3542. 0Cash basis(cents)421. 1493. 0538. 8574. 1554. 5Return on average total assets

Fully diluted

Statutory

(%)

1. 0

0. 9

1. 0

1. 0

1. 0

Statutory

Cash basis

(%)

0. 7

0. 9

1. 0

1. 0

1. 0

(cents)523. 2468. 6517. 7558. 8529. 0(cents)407. 9475. 4522. 0555. 8540. 9

Capital adequacy – Common Equity Tier 1 – Basel III (APRA)

(%)

11. 6

10. 7

10. 1

10. 1

10. 6

Dividends per share – fully franked(cents)

298

431

431

429

420

Capital adequacy – Tier 1 – Basel III (APRA)

(%)

13. 9

12. 7

12. 3

12. 1

12. 3

Dividend cover – statutory(times)

1. 8

1. 1

1. 2

1. 3

1. 3

Capital adequacy – Tier 2 – Basel III (APRA)

(%)

3. 6

2. 8

2. 7

2. 1

2. 0

Capital adequacy – Total – Basel III (APRA)

(%)

17. 5

15. 5

15. 0

14. 2

14. 3
5. 0

1. 4

1. 1

1. 2

1. 3

1. 3

Leverage Ratio Basel III (APRA)

(%)

5. 9

5. 6

5. 5

5. 1

Statutory(%)

54. 7689. 02

81. 15

74. 62

78. 37

Liquidity Coverage Ratio – "Spot Basis"

(%)

145

129

131

129

120

Cash basis(%)

70. 82

87. 64

80. 4474. 97

76. 51

Net interest margin

(%)

2. 08

2. 10

2. 15

2. 11

2. 14

Dividend payout ratio

Net tangible assets per share including discontinued operations

($)

36. 4

33. 7

32. 3

30. 7

28. 9

Other information

Weighted average number of shares (statutory basis)

(M)

1,768

1,765

1,746

1,720

1,692

Full-time equivalent employees from continuing operations 1

41,77841,45841,02442,35943,178Weighted average number of shares (statutory fully diluted)

(M)

1,895

1,897

1,852

1,816

1,771

Full-time equivalent employees including discontinued operations

43,58545,16545,75345,614

45,1291,694

Branches/services centres (Australia)

967

1,014

1,082

1,121

1,131

Agencies (Australia)

3,547

3,560

3,589

3,664

3,654

ATMs

3,542

3,963

4,253

4,398

4,381

190,118

217,608219,245

217,098

217,981Weighted average number of shares (cash basis)(M)

Weighted average number of shares (cash fully diluted)(M)

Number of shareholders 1, 2

1,769

1,766

1,747

1,721

1,896

1,898

1,853

1,817

1,773

888,214

831,655

851,539

844,527

857,052

EFTPOS terminals (active)

Share prices for the year
91. 05

83. 9985. 12

87. 74

88. 88

Productivity from continuing operations 1, 2

Trading low($)

53. 4465. 23

67. 22

69. 22

69. 79Total operating income per full-time equivalent employee($)

568,744568,744587,729

579,023

552,805

End (closing price)($)

69. 42

82. 78

72. 87

82. 81

74. 37

Employee expense/total operating income

(%)

24. 3

24. 2

21. 8

22. 4

24. 1

Total operating expenses/total operating income

(%)

45. 9

45. 9

44. 2

41. 6

41. 7

Total operating income per full-time equivalent employee($)

568,361

568,449

585,033

568,685545,237

Employee expense/total operating income

(%)

24. 6

25. 3

23. 0

24. 0

24. 4

Total operating expenses/total operating income

(%)

47. 1

47. 5

45. 2

41. 7

42. 4

1 Comparative information for 2019 and 2018 has been restated and presented on a continuing operations basis, and to reflect the change in accounting policy
detailed in Note 1.1.
2 This includes employees.

Productivity including discontinued operations

1, 2

1 Comparative information for 2019 and 2018 has been restated and presented on a continuing operations basis, and to reflect the change in accounting policy
detailed in Note 1.1.
2 The productivity metrics have been calculated on a cash basis.

286

287

ADDITIONAL INFORMATION($)

FINANCIAL REPORT

Trading high

DIRECTORS’ REPORT(times)Dividend cover – cash

HOW WE CREATE VALUE

Statutory

OVERVIEW

Fully diluted

Cash basis

COMMONWEALTH BANK
2020 ANNUAL REPORT

Five-year financial summary (continued)

288

289

Profit reconciliation
Full year ended 30 June 2020

Net profit
after tax
"cash basis"(Loss)/gain on
disposal andacquisition ofcontrolled

1

Hedgingand IFRS
volatility

Bankwest
non-cash
items

Treasurysharesvaluation
adjustment

Investment
experienceNet profit
after tax
"statutory
basis"

$M

$M

$M

$M

$M

Interest income 230,162

–

–

–

–

–

30,162

Interest expense(11,552)

–

–

–

–

–

(11,552)

Profit reconciliation
Group

2

$M

entities$M

Interest income 434,709Interest expense(16,485)

Profit reconciliation

Full year ended 30 June 2019

Hedgingand IFRS
volatility

Bankwest
non-cash

3

1

Treasurysharesvaluation
adjustment

Investment
experienceNet profit
after tax
"statutory
basis"

$M

$M

$M

$M

items
$M

–

–

–

–

–

34,709

–

–

–

–

–

(16,485)
18,224Group

Net interest income

18,610

–

–

–

–

–

18,610Net interest income

18,224

–

–

–

–

–

Other banking income

4,837

29

136

–

–

–

5,002

Other banking income

4,951

42

(116)

–

–

–

4,877

Total banking income

23,447

29

136

–

–

–

23,612

Total banking income

23,175

42

(116)

–

–

–

23,101

172

–

–

–

–

1

173

255

–

–

–

–

(1)

254

Funds management income

139

–

–

–

–

2

141

23,758

29

136

–

–

3

23,926

3

–

–

–

–

(3)

–

Total income

23,761

29

136

–

–

–

23,926

Investment experience

Insurance income
Total operating income

147

–

–

–

–

3

150

23,577

42

(116)

–

–

2

23,505

2

–

–

–

–

(2)

–

Total income

23,579

42

(116)

–

–

–

23,505(10,928)

Investment experience(10,895)

(34)

–

–

–

–

(10,929)

Operating expenses(10,824)

(102)

–

(2)

–

–

(2,518)

–

–

–

–

–

(2,518)

Loan impairment expense(1,201)

–

–

–

–

–

(1,201)

Net profit before tax

10,348

(5)

136

–

–

–

10,479Net profit before tax

11,554

(60)

(116)

(2)

–

–

11,376

Income tax (expense)/benefit(3,052)

75

(43)

–

–

–

(3,020)

Income tax (expense)/benefit(3,321)

8

37

1

–

–

(3,275)

–

–

–

–

–

–

–

(12)

–

–

–

–

–

(12)

8,221

(52)

(79)

(1)

–

–

8,089

Non-controlling interests

Non-controlling interests

Net profit after income tax fromcontinuing operations

7,296

70

93

–

–

–

7,459

Net profit after income tax fromcontinuing operations

Net profit after income tax fromdiscontinued operations 3

153

2,022

–

–

–

–

2,175

Net profit after income tax fromdiscontinued operations 5

485

(9)

–

–

6

–

482

Net profit after income tax

7,449

2,092

93

–

–

–

9,634

Net profit after income tax

8,706

(61)

(79)

(1)

6

–

8,571

288

289

ADDITIONAL INFORMATION

1 Comparative information has been restated to conform to presentation in the current year.
2 Continuing operations net profit after tax includes demerger costs for NewCo and impairment loss and transaction costs associated with the disposal of Count
Financial, partly offset by a net gain on acquisition and disposals of other businesses. Discontinued operations net profit after tax includes gains and losses net oftransaction and separation costs associated with the disposal of CommInsure Life, CFSGAM, Sovereign, TymeDigital SA and a net gain on acquisition and disposalof other businesses.
3 Includes merger related amortisation.
4 Interest income includes total Effective interest income and Other interest income.
5 Statutory net profit after income tax from discontinued operations is presented net of non-controlling interests.

FINANCIAL REPORT

1 Continuing operations net profit after tax includes gains and losses net of transaction and separation costs associated with the disposal of Aegis, AUSIEX,Count Financial and other businesses, and the dilution of the Group’s interest in Bank of Hangzhou. Discontinued operations net profit after tax includes gains andlosses net of transaction and separation costs associated with the disposal of CFS, CFSGAM, PT Commonwealth Life, and other businesses, and thedeconsolidation and divestment of CommInsure Life.
2 Interest income includes total Effective interest income and Other interest income.
3 Statutory Net profit after income tax from discontinued operations is presented net of non-controlling interests.

DIRECTORS’ REPORT

Operating expenses
Loan impairment expense

HOW WE CREATE VALUE

Insurance income
Total operating income

Funds management income

OVERVIEW$M

entities$M

Net profit
after tax
"cash basis"(Loss)/gain on
disposal andacquisition ofcontrolled

COMMONWEALTH BANK
2020 ANNUAL REPORT

Profit reconciliation (continued)

290

291

Glossary of terms

Financial and remuneration related definitions

Term

Description

Term

Description

Funds Under Administration

Assets Under Management

Assets Under Management (AUM) represents the market value of assets for which the Group acts as
an appointed manager. Growth and volatility in this balance is a key performance indicator for the
Wealth Management and New Zealand businesses.

Funds Under Administration (FUA) represents the market value of funds administered by the Groupand excludes AUM. Growth and volatility in this balance is a key performance indicator for the WealthManagement business and New Zealand businesses.

Group

Commonwealth Bank of Australia and its subsidiaries.

Group Executive (GE)Members of the Executive Leadership Team (excludes the CEO and the CEO ASB).

Interest Rate Risk in the
Banking Book (IRRBB)Interest Rate Risk in the Banking Book is the risk that the Bank’s profit derived from Net Interest
Income (interest earned less interest paid), in current and future periods, is adversely impacted bychanges in interest rates. This is measured from two perspectives: quantifying the change in the netpresent value of the Balance Sheet’s future earnings potential, and the anticipated change to the Net
Interest Income earned over 12 months. This calculation is driven by APRA regulations with further
detail outlined in the Group’s Basel III Pillar 3 report.

Key Management Personnel(KMP)

Persons having authority and responsibility for planning, directing and controlling the activities of anentity, directly or indirectly, including any Director (whether Executive or otherwise) of that entity.

Long-Term Variable
Remuneration (LTVR)

A variable remuneration arrangement that grants instruments to participating Executives that may vest
over a period of four years if performance hurdles are met.

Net profit after tax(“cash basis”)

Represents net profit after tax and non-controlling interests before non-cash items including hedging and
IFRS volatility, Bankwest non-cash items, treasury shares valuation adjustment, and losses or gains on
acquisitions, disposal, closure and demerger of businesses. This is Management’s preferred measure of
the Group’s financial performance.

Net profit after tax(“statutory basis”)

Represents net profit after tax and non-controlling interests, calculated in accordance with Australian
Accounting Standards. This is equivalent to the statutory item “Net profit attributable to Equity holders of the
Bank”.

Net Promoter Score
Consumer

Refer to pages 297 - 298.

Net Promoter Score Business

Refer to pages 297 - 298.

Net Promoter Score Mobile
App

Refer to pages 297 - 298.

Net Promoter Score Internet
Banking

Refer to pages 297 - 298.

Net Stable Funding Ratio(NSFR)The NSFR more closely aligns the behaviour terms of assets and liabilities. It is the ratio of the amount ofavailable stable funding (ASF) to the amount of required stable funding (RSF). ASF is the portion of an
Authorised Deposit-taking Institution’s (ADI) capital and liabilities expected to be a reliable source of funds
over a one year time horizon. RSF is a function of the liquidity characteristics and residual maturities of an
ADI’s assets and off Balance Sheet activities.

Net tangible assets per share

Net assets excluding intangible assets, non-controlling interests and other equity instruments divided byordinary shares on issue at the end of the period (excluding Treasury Shares deduction).

Non-Executive Director

Key Management Personnel who are not Executives.

Other overseas

Represents amounts booked in branches and controlled entities outside Australia and New Zealand.

Profit after capital charge(PACC)The Group uses PACC, a risk-adjusted measure, as a key measure of financial performance. It takes into
account the profit achieved, the risk to capital that was taken to achieve it, and other adjustments.

Return on equity – cash basis

Based on cash net profit after tax (“cash basis”) and non-controlling interests less other equity instruments’
distributions applied to average shareholders’ equity, excluding non-controlling interests, other equity
instruments and the treasury shares deduction relating to life insurance statutory funds.

Return on equity – statutorybasis

Based on net profit after tax (“statutory basis”) less other equity instruments’ distributions applied toaverage shareholders’ equity, excluding non-controlling interests and other equity instruments.

Common Equity Tier 1
Capital (CET1)

The highest quality of capital available to the Group reflecting the permanent and unrestrictedcommitment of funds that are freely available to absorb losses. It comprises Ordinary share capital,
Retained earnings and Reserves less prescribed deductions.

Corporations Act

Corporations Act 2001 (Cth)Customer satisfaction – RoyMorganThis represents satisfaction with Main Financial Institution (MFI) based on the relationship with thefinancial institution as measured by Roy Morgan Research. The figures are six months rolling
averages and are based on respondents aged 14+. The measure is the percentage of customers who
answered as being either “very satisfied” or “fairly satisfied” with their MFI. Net Promoter Score (NPS)
is now the primary metric by which we assess customer satisfaction. Advocacy is measured on a scaleof 1 to 10, with 1 being “Very Unlikely” and 10 being “Very likely” to recommend. (Measuring ourcustomers’ satisfaction is important as satisfied customers usually return, they tell other people about
their experiences, and they may well pay a premium for the privilege of doing business with an
institution they trust.) Our aim is to retain our customers by providing quality service to them.

Deferred rights

Awarded from the 2018 financial year, deferred shares are ordinary shares in CBA, which are
restricted until vesting and used for deferred STVR arrangements and sign-on awards. These equity
awards are subject to forfeiture if the Executive ceases to be employed by the Group prior to thevesting date as a result of resignation or serious misconduct, Board risk and reputation review andmalus provisions.

Dividend payout ratio(“statutory basis”)

Dividends paid on ordinary shares divided by net profit after tax (“statutory basis”).

DPS

Dividends per share.

DRP

Dividend reinvestment plan.

DRP participation

The percentage of total issued capital participating in the dividend reinvestment plan.

Earnings per share (EPS)(basic)Basic earnings per share is the net profit attributable to ordinary equity holders of the Bank, divided by
the weighted average number of ordinary shares on issue during the year per the requirements ofrelevant accounting standards.

Earnings per share (EPS)(diluted)

Diluted earnings per share adjusts the net profit attributable to ordinary equity holders of the Bank andthe weighted average number of ordinary shares on issue used in the calculation of basic earnings per
share, for the effects of dilutive potential ordinary shares per the requirements of relevant accounting
standards.

Expense to income ratio

Represents operating expenses as a percentage of total operating income. The ratio is a key efficiency
measure.

Executives

Collective term referring to the individuals in the following Executive groups: CEO, Group Executives
and CEO ASB.

Full-time equivalent staff

Includes all permanent full-time staff, part-time staff equivalents and external contractors employedthrough third-party agencies.

290

291

ADDITIONAL INFORMATIONDividends paid on ordinary shares divided by net profit after tax (“cash basis”).

FINANCIAL REPORTDividend payout ratio(“cash basis”)

DIRECTORS’ REPORT

Deferred shares

Deferred rights to ordinary shares in CBA are used for deferred STVR awarded under Executive
General Manager arrangements. These equity awards are subject to forfeiture if the Executive ceases
to be employed by the Group prior to the vesting date as a result of resignation or serious misconduct,
Board risk and reputation review and malus provisions.

HOW WE CREATE VALUE

The Board of Directors of the Group.

OVERVIEW

Board

COMMONWEALTH BANK
2020 ANNUAL REPORTGlossary of terms

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293

Glossary of terms

Term

Description

Our business definitions

RightsRights to ordinary shares in CBA granted under LTVR award and subject to performance hurdles.

Statement

SourceShort-Term Variable
Remuneration (STVR)

Variable remuneration paid subject to the achievement of predetermined performance hurdles over
one financial year.

#1 banking app in Australia

Total Committed Exposure(TCE)

Total Committed Exposure is defined as the balance outstanding and undrawn components ofcommitted facility limits. It is calculated before collateralisation and excludes settlement exposures onderivatives.

The Forrester Digital Experience ReviewTM: Australian Mobile Banking Apps, Q3 2020.
Commonwealth Bank of Australia was named the Overall Digital Experience LeaderTM among mobile
apps in Australia in Forrester's proprietary Digital Experience ReviewTM. Forrester Research does notendorse any company included in any Digital Experience ReviewTM report and does not advise any
person or organization to select the products or services of any particular company based on theratings included in such reports.

#1 in home lending,household deposits andcredit cards

Home lending: RBA Lending and Credit Aggregates. Household deposits and credit cards: APRAMonthly Authorised Deposit-taking Institution Statistics (MADIS).

#1 mobile app and internet
banking Net Promoter Score

Refer to pages 297-298.

#1 mobile banking

Commonwealth Bank won Canstar’s Bank of the Year - Mobile Banking award for 2020 (for the 5thyear in a row). Awarded June 2020.

#1 online banking

Commonwealth Bank won Canstar's Bank of the Year - Online Banking award for 2020 (for the 11th
year in a row). Awarded June 2020.

#1 payments provider withlargest merchant baseTotal volume of transactions processed in Australia for credit and debit cards based on RBA andquarterly Mastercard reported data. RBA: Credit and Charge Cards – Original Series – Personal andCommercial Cards. RBA: Debit Cards – Original Series.

6.1 million active customers

The total number of customers that have logged into the CommBank mobile app at least once in themonth of June 2020. Includes Face ID logons.

CommBank transactions
made digitally (by value)

The total value ($) of transfers and BPAY payments made in digital (NetBank, the CommBank mobile
app, CommBank tablet app and old mobile app) as a proportion of the total value ($) of transfers inover-the-counter, ATM, EFTPOS and digital transactions over the period of July 2019 – June 2020.

Main Financial Institution(MFI) for more than 1 in 3
Australians

MFI Share measures the proportion of Banking and Finance MFI Customers that nominated eachbank as their Main Financial Institution. MFI definition: In the Roy Morgan Single Source Survey MFI
is a customer determined response where one institution is nominated as the primary financial
institution they deal with (when considering all financial products they hold). Peers include ANZGroup, NAB Group and Westpac Group (including St George Group). CBA Group includes Bankwest.
Source: Roy Morgan Single Source survey conducted by Roy Morgan, Australian population 14+ (12month average to June 2020), excludes unable to identify MFI.

New business lending forAustralian businesses

Includes Commercial Lending, Asset Finance and Institutional Lending (excluding other interest
earning lending assets, primarily Cash Management Pooling Facilities, Leasing, Trade Finance, andDebt Markets).

New home lending forAustralian home buyers

Includes RBS internal refinancing, excludes Viridian Line of Credit (VLOC) and excludes Bankwest
internal refinancing.

People and delivery partners
enabled to work remotely
during COVID-19

Number of people (both CBA staff and partners, e.g. IT vendors) provided with the infrastructureneeded to work remotely (e.g. Office 365, Virtual Desktop).

RepTrak score

The RepTrak Company (formerly Reputation Institute), June 2020. Reputation score amongst top 16
ASX customer-facing companies.

The largest share of new
migrant segments

Main Financial Institution (MFI) Share measures the proportion of Banking and Finance MFICustomers who were not born in Australia and have been in Australia for less than 6 years that
nominated each bank as their Main Financial Institution. MFI definition: In the Roy Morgan Single
Source Survey MFI is a customer determined response where one institution is nominated as theprimary financial institution they deal with (when considering all financial products they hold). Peers
includes ANZ Group, NAB Group and Westpac Group (including St George Group). CBA Group
includes Bankwest. Source: Roy Morgan’s Single Source survey conducted by Roy Morgan,
Australian population 14+ (12 month average to June 2020).

The largest share of youth
segments

Main Financial Institution (MFI) Share measures the proportion of Banking and Finance MFICustomers aged 14-24 that nominated each bank as their Main Financial Institution. MFI definition: In
the Roy Morgan Single Source Survey MFI is a customer determined response where one institution
is nominated as the primary financial institution they deal with (when considering all financial products
they hold). Peers includes ANZ Group, NAB Group and Westpac Group (including St George Group).
CBA Group includes Bankwest. Source: Roy Morgan’s Single Source survey conducted by Roy
Morgan, Australian population 14+ (12 month average to June 2020).

The calculation incorporates the bonus element of any rights issue, discount element of any DRP and
excludes “Treasury Shares” related to investments in the Bank’s shares held by both the life insurance
statutory funds and by the employee share scheme trust.

FINANCIAL REPORTADDITIONAL INFORMATION

293

DIRECTORS’ REPORT292

HOW WE CREATE VALUE

Weighted average number ofshares (“statutory basis”)

The calculation incorporates the bonus element of any rights issue, discount element of any DRP and
excludes “Treasury Shares” related to investment in the Bank’s shares held by the employee sharescheme trust.

OVERVIEW

Weighted average number ofshares (“cash basis”)

COMMONWEALTH BANK
2020 ANNUAL REPORTGlossary of terms

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295

Glossary of terms

Sustainability performance metrics definitions

MetricDescription

Employees who identify as
having a disability

The proportion of employees that have selected one or more of the disability conditions (including, but
not limited to, physical or intellectual conditions, vision impairment, etc.) in the Group’s biannual
people and culture survey. It excludes Aussie Home Loans, Bankwest, ASB businesses in New
Zealand, and businesses in Indonesia.

Employees who identify as
LGBTI

The proportion of employees that identify as Lesbian, Gay, Bisexual, Transgender, Intersex (LGBTI)
or other, by nominating one or more of the LGBTI options in the Group’s biannual people and culture
survey. It excludes Aussie Home Loans, Bankwest, ASB businesses in New Zealand and businesses
in Indonesia, China, Vietnam and Singapore.

Employees with caring
responsibilities

The proportion of employees that have selected any of the caring responsibility options (including, but
not limited to, caring for elderly, children, people with chronic conditions, etc.) in the Group’s biannual
people and culture survey. It excludes Aussie Home Loans, Bankwest and ASB businesses in New
Zealand.

Employees working flexibly

The proportion of employees that indicated they have used any of the flexible work options in theGroup’s biannual people and culture survey. It excludes Aussie Home Loans, Bankwest, and ASB
businesses in New Zealand, and businesses in Indonesia, China and Vietnam.

Employees who haveaccessed parental leave

Number of employees eligible for parental leave benefit who had started primary or secondary carerparental leave during the reporting period, as recorded in the Group’s human resources system. It
excludes Aussie Home Loans, and ASB businesses in New Zealand and employees of discontinued
operations.

Employees who havereturned from parental leave
and are still employed after
12 months

Number of employees who returned from a period of primary or secondary carer parental leave in theprior year and were still employed after 12 months within the reporting period, as recorded in theGroup’s human resources system. Excludes parental leave recorded prior to the introduction of a new
HR System (2 March 2018) and employees that returned to a major business or subsidiary that is now
a discontinued operation (refer to Note 11.3 on page 258 in the Financial Report for details on
discontinued operations). Also excludes Aussie Home Loans and ASB businesses in New Zealand.

Employees working part-timeor job sharing

The proportion of employees as at 30 June who are employed on a part-time or job share basis, as apercentage of permanent employees (full-time, part-time, job share or on extended leave).

Employment type

The number of Australian employees as at 30 June who are permanent employees working infull-time, part-time or casual positions, including job share or on extended leave. It excludes ASB
businesses in New Zealand, fixed contractors and contingent workers.

Environmental, Social andGovernance (ESG) training

Number of employees who have completed ESG learning modules, as recorded in CBA’s learning
management system (PeopleLink) as at 30 June, measured by headcount. This metric excludes
Aussie Home Loans, Bankwest and ASB businesses in New Zealand.

Escalated complaints to an
external dispute resolution(EDR) scheme

Number of complaints escalated to an EDR scheme for the Group, excluding Bankwest and ASB
businesses in New Zealand. This includes complaints that have been through the Bank’s internal
dispute resolution process and have been escalated to an EDR scheme. FY19 has been restatedbased on an estimate modelled on the percentage of these complaints in FY20, and to exclude
Bankwest. These complaints are recorded in the Group’s feedback management system (Firstpoint)
and are managed by Group Customer Relations. EDR schemes include, but are not limited to, theAustralian Financial Complaints Authority (AFCA) and the Office of the Australian Information
Commissioner (OAIC).

Female Directors on Board

The number of female Directors as a percentage of the number of Directors on the Board as at
30 June.

Forgone revenue

Forgone revenue consists of the aggregate value of fee-free or discounted CBA products andservices during the reporting period for customers who have been assessed as low income earners,
in vulnerable circumstances or not-for-profit organisations. It relates to monthly account andtransaction fees only and does not include discounts on interest rates.

Fuels – natural gas, diesel
and transport

Energy from the use of natural gas and diesel in retail and commercial operations, and transport fuels,
under CBA's operational control during the reporting period.

Full-time equivalent
employees (FTE)

Total FTE of the Group (excluding CBA employees based in New Zealand) by geographical work
locations as at 30 June. FTE includes full-time, part-time, job share employees, employees on
extended leave and contractors. One full-time role is equal to 38 working hours per week.

Absenteeism

Absenteeism refers to the average number of sick leave days (and carer’s leave days for CommSec
employees) per Australia-based full-time equivalent employees. Bankwest is included from FY19.

Age diversity

Percentage of permanent employees (full-time, part-time, job share or on extended leave), casuals,
employees on international assignment and those contractors paid directly by the Group, by age
group as at 30 June (excluding ASB businesses in New Zealand).

Australian Indigenous
supplier spend

Refers to direct (first tier) supplier spend with Indigenous businesses in Australia. It includes any
payments (including grant payments) made to an Indigenous business registered or certified by
Supply Nation.

Cash contributions

Total donations contributed by the Group (excluding Aussie Home Loans) through charitable gifts,
community partnerships and matched giving. Matched giving excludes staff contributions.

Community investment as apercentage of pre-tax profit

Total community investment as a percentage of the Group’s cash net profit from continuing operations
before tax as at 30 June.

Cultural diversity index (CDI)

The concentration mix of all cultures of the Group’s employees resulting in an index between 0 and 1,
where the higher the score, the more diverse the population. CDI is calculated using demographic
information disclosed in the Group’s biannual people and culture survey and benchmarked against theancestry question in the 2016 Australian Census. The CDI excludes Aussie Home Loans, Bankwest,
and ASB businesses in New Zealand, businesses in Indonesia, China and Vietnam.

Average number of business days taken to review a complaint, from the date it was received by the
Office of the Customer Advocate until the review was finalised and an outcome is provided to thecustomer. It excludes Aussie Home Loans, ASB businesses in New Zealand and other overseas
operations.

Complaints reviewed by
the Office of the
Customer Advocate(OCA)

Number of customer complaints reviewed by the OCA and recorded in the feedback management
system (Firstpoint). It excludes Aussie Home Loans, ASB businesses in New Zealand and otheroverseas operations.

Outcomes from review
process

Portion of complaints reviewed by the Office of the Customer Advocate where the internal dispute
resolution (IDR) decision was; confirmed (no further action taken), enhanced (agreed with IDR
decision but provided alternative financial/non-financial outcome) or substituted (IDR decision wasincorrect). It excludes Aussie Home Loans, and ASB businesses in New Zealand and overseas
operations.
The number of complaints resolved for the Group during the reporting period as defined by theAustralian Securities and Investments Commission Regulatory Guide 165, and recorded in the
feedback management system (Firstpoint). In FY20 the methodology has been revised to consider
only those complaints resolved after five business days. FY19 and FY18 figures have been restatedusing this revised methodology. It excludes Aussie Home Loans, Bankwest and overseas operations.

Electricity generated fromon-site solar panels

Electricity generated during the reporting period from photovoltaic solar panels installed on
approximately 80 bank branches. Electricity may be used on site or returned to the grid.

Employee engagement index– CBA

The index shows the proportion of employees replying with a score of 4 or 5 to four engagement
questions in the Group’s biannual people and culture survey. The questions relate to satisfaction,
retention, advocacy and pride on a scale of 1-5 (where 1 is ‘Strongly Disagree’ and 5 is ‘Strongly
Agree’). The index excludes Aussie Home Loans, Bankwest and ASB businesses in New Zealand.

Employee turnover –involuntary

Employee turnover –voluntary

Refers to all involuntary exits of permanent employees as a percentage of the average permanent
headcount paid directly by the Group (full-time, part-time, job share or on extended leave), excluding
ASB businesses in New Zealand. Involuntary exits include redundancies and terminations fordisciplinary reasons.
Refers to all voluntary exits of permanent employees as a percentage of the average permanent
headcount paid directly by the Group (full-time, part-time, job share or on extended leave), excluding
ASB businesses in New Zealand. Voluntary exits are determined to be resignations and retirements.

294

295

ADDITIONAL INFORMATION

Customer complaints –resolved

FINANCIAL REPORT

Average business days
to review complaint

DIRECTORS’ REPORT

Customer Advocate:

HOW WE CREATE VALUE

Description

OVERVIEW

MetricCOMMONWEALTH BANK
2020 ANNUAL REPORTGlossary of terms

296

MetricDescription

MetricGender pay equity – female
to male base salarycomparison

Gender pay equity is defined as the ratio of weighted average base salary of males and females forAustralia-based employees of the Group, as at 31 March. The data reflects roles in similar functions,role scope and responsibilities. The data refers to permanent full-time and part-time employees. It
excludes the CEO, Board members, contractors, casual employees, seconded employees andemployees who have not responded with a defined gender. Methodology changed in FY20, to
improve representation of management levels.

Graduates

The number of graduates who accepted and commenced in a graduate position with CBA or
Bankwest under the Talent Acquisition program. Graduate positions commence in February eachyear.

Greenhouse gas emissions:

Scope 2 emissions

Emissions from the electricity used by ATMs, retail, commercial, residential and data centre properties
under the Group’s operational control. Emissions are calculated using the relevant emission factors
noted in the regional definitions below.

Scope 3 emissions

Indirect greenhouse gas emissions as a result of sources outside the Group’s operational control, but
support the Group’s business activities. It includes rental car and taxi use, business use of private
vehicles, dedicated bus services, business flights, hotel accommodation, emissions associated withelectricity and diesel consumption at data centres not under CBA’s operational control, and basebuilding emissions. Emissions are calculated using the relevant emission factors noted in the regional
definitions below.

Indirect emissions from the electricity and diesel consumption in the Group’s Australian data centres
not under the Group’s operational control as defined under the National Greenhouse and Energy
Reporting Act. Source of emissions factors: NGA (2019).

Scope 3 – Transport(Australia operations)Indirect emissions from rental car and taxi use, business use of private vehicles, dedicated bus
service, business flights, and indirect emissions from business use of our tool-of-trade vehicle fleet.
Source of emissions factors: NGA (2019) and DEFRA (2019) for flights.

Scope 3 – Hotelaccommodation(Australia operations)Indirect emissions from hotel accommodation used by employees and calculated based on the valueof the spend on accommodation. Source of emissions factors: Energetics (2020).

Scope 3 – Transmission
and distribution losses(Australia operations)Indirect emissions associated with the electricity used by ATMs, retail, commercial and residential
properties under the Group’s operational control in Australia. Source of emissions factors: NGA(2019).

Scope 3 – Office paper(Australia operations)Indirect emissions generated from the Group’s use of office paper in the Group’s commercial
operations and retail branches under the Group’s operational control in Australia. Source of emissions
factors: DEFRA (2019).

Scope 3 – Base building(Australia operations)Indirect emissions generated from CBA's proportion (by net lettable area) of base building electricity
and natural gas usage for the Group’s Australian Commercial offices. Source of emissions factors:
NGA (2019).

Scope 1 and 2 emissions Greenhouse gas emissions intensity based on total Scope 1 and 2 emissions for the Group or by
per FTE
geographical locations, and divided by the relevant FTE number. Calculations for FY20 exclude thereclassified Scope 2 emissions from the two data centres now under operational control.

Health, safety and wellbeing
training

Number of employees who completed health, safety and wellbeing training, as recorded in theGroup’s learning management system (PeopleLink) as at 30 June, measured by headcount. Excludes
Aussie Home Loans, Bankwest and ASB businesses in New Zealand.

Scope 1, 2 and 3
emissions – New
Zealand

New Zealand emissions are based on emission factors sourced from Measuring Emissions: A Guide
for Organisations (2020). In FY20, ASB businesses in New Zealand have reclassified a portion of theirleased fleet fuel usage from Scope 3 emissions to Scope 1 emissions.

Indigenous Customer
Assistance Line (calls
received)

Number of calls received via the dedicated Indigenous Customer Assistance Line (ICAL) during the
12 months to 30 June. It excludes calls that were abandoned by customers.

Scope 1, 2 and 3
emissions – Other
overseas

Other overseas emissions are estimated by multiplying the Australian emissions per FTE as at
30 June by the number of FTEs of all the Group’s other overseas offices.

Indigenous workforce

Scope 1 – Natural gas
and stationary
emissions (Australia
operations)

Emissions from the consumption of diesel and natural gas in retail, commercial and data centre
properties in Australia under the Group’s operational control as defined under the National
Greenhouse and Energy Reporting Act. Source of emissions factors: National Greenhouse Accounts
Factors (NGA) (2019).

Represents the proportion of employees that have indicated they most strongly identify with Australian
Aboriginal and/or Torres Strait Islander ancestry in the Group’s biannual people and culture survey. It
excludes businesses in Indonesia. Aboriginal and Torres Strait Islander representation in Australia isbased on the 2016 Australian Census.

Lost Time Injury Frequency
Rate (LTIFR)

Scope 1 – Transport
emissions (Australia
operations)

Emissions from the consumption of diesel, ethanol E10 and petrol from our business use of our Toolof Trade vehicle fleet in Australia. Source of emissions factors: NGA (2019).

LTIFR is the reported number of occurrences of lost time arising from injury or disease that haveresulted in an accepted workers compensation claim, for each million hours worked by Australia and
New Zealand employees. The metric captures claims relating to permanent, casual and contractors
paid directly by the Group. It is reported using the information available as at 30 June. FY19 has been
restated due to claims received after year-end reporting date. New Zealand employees included from
FY18.

Scope 2 – Purchased
electricity – property
portfolio emissions(Australia operations)

Emissions from the electricity used by ATMs, retail, commercial and residential properties under theGroup’s operational control in Australia as defined under the National Greenhouse and Energy
Reporting Act. Source of emissions factors: NGA (2019).

Low carbon funding

Scope 2 – Purchased
electricity – data centre
emissions (Australia
operations)

Emissions from the electricity used by data centres under the Group’s operational control in Australia
as defined under the National Greenhouse and Energy Reporting Act. Source of emissions factors:
NGA (2019).

Financing provided to low carbon assets is based on total committed exposure (TCE) or total drawn
lending facility (TDLF) as at 30 June. The Group’s low carbon funding target is $15bn by 2025. Asset
categories include large-scale renewable energy projects (based on TCE), low carbon commercial
buildings (based on TCE and 6 star NABERS rating criteria), low carbon transport (based on TDLF)
and energy efficient assets (includes small-scale renewable energy assets, based on TDLF). For thefull definition, including definitions of each asset category, refer to the Non-financial performance
metrics excel spreadsheet at www.commbank.com.au/CRreporting

Misconduct breaches
resulting in termination

Scope 3 – Natural gas
and diesel stationary(Australia operations)Indirect emissions associated with the use of diesel and natural gas in retail, commercial and data
centre properties in Australia under the Group’s operational control as defined under the National
Greenhouse and Energy Reporting Act. Source of emissions factors: NGA (2019).

Represents closed substantiated misconduct cases which resulted in termination and were managed
in Australia by the Workplace Relations and Group Investigations teams. Various policies within theGroup govern staff conduct obligations, including the ‘Code of Conduct’ which is the guiding
framework for the Group. It excludes incidents reported by local associates and joint ventures.

Net Promoter Score (NPS)Net Promoter, Net Promoter System, Net Promoter Score, NPS and the NPS-related emoticons areregistered trademarks of Bain & Co Inc., Satmetrix Systems, Inc., and Fred Reichheld. See more on
page 298.

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297

ADDITIONAL INFORMATION

Total number of employees, including permanent headcount (full-time, part-time, job share, on
extended leave), and contractors (fixed term arrangements) paid directly by the Group as at 30 June.

FINANCIAL REPORT

Headcount

DIRECTORS’ REPORT

Relates to the consumption of natural gas and stationary fuel used in retail, commercial and data
centre properties under the Group’s operational control, and business use of Tool of Trade vehicles.
Emissions are calculated using the relevant emissions factors noted in the regional definitions below.

Scope 3 – Purchased
electricity – data centre(Australia operations)

HOW WE CREATE VALUE

Scope 1 emissions

Description

OVERVIEW

Glossary of terms

COMMONWEALTH BANK
2020 ANNUAL REPORTGlossary of terms

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Glossary of terms

MetricDescription

MetricDescription

NPS – ASB – Business andrural banking

Business Finance Monitor Net Promoter Score measures the net likelihood of recommendation toothers of the business or rural customer’s Main Financial Institution. Using a scale of 1 to 10 (1 means‘extremely unlikely’ and 10 means ‘extremely likely’), the 1-6 raters (detractors) are deducted from the
9-10 raters (promoters). Four quarter rolling average data is used. The ranking refers to ASB’s
position relative to the other main three New Zealand banks.

Purchased electricity

Purchased electricity used in Australian retail and commercial properties under operational control,
two data centres under operational control and two data centres outside operational control.

Renewable energy via powerpurchase agreements orretail contracts

Energy value of purchased electricity that has been sourced through power purchase agreements orrenewable electricity retail contracts.

School banking students(active)

The number of active students who participated in the Commonwealth Bank’s School Banking
program during the 12 months to 30 June. Active students are those who banked at least once during
the 12 month period through the School Banking Portal under the School Banking program.

SpeakUP Program cases

Number of SpeakUP cases recorded in the Group's SpeakUP Program during the 12 months to 30
June. The reports include both whistleblower and non-whistleblower disclosures.

Start Smart students(booked)Number of students booked to attend the Commonwealth Bank’s Start Smart financial education
programs during the 12 months to 30 June. Start Smart sessions cover a range of topics and thesame student may be booked to attend a number of sessions.

Substantiated misconduct
cases

Represents closed substantiated misconduct cases managed in Australia by the Workplace Relationsand Group Investigations teams. Various policies within the Group govern staff conduct obligations,
including the ‘Code of Conduct’ which is the Group’s guiding framework. It excludes incidents reported
by local associates and joint ventures.

Time volunteering

Total estimated cost of pro bono and volunteering hours contributed by Australia-based CBA
employees through volunteering activities as captured in the Group’s volunteering database. Averagehourly rates are calculated using Australia-based permanent employees' salaries as at 30 June,
excluding the salary of the executive leadership and management teams.

Total community investment

Total voluntary investment contributed to communities in the form of cash contributions, timevolunteering, forgone revenue and program implementation costs.

Training completion rates –Code of Conduct

Percentage of employees who have been assigned and completed the ‘Code of Conduct’ learning
module recorded in the Group’s learning management system (PeopleLink) as at 30 June. This metricexcludes the training completion rates of the employees of Aussie Home Loans, Bankwest and ASB
businesses in New Zealand. Numbers prior to FY19 are for completion of ‘Our Commitments’ training.

Training completion rates –mandatory learning

Percentage of employees who have been assigned and completed the Group’s mandatory learning
modules recorded in the Group’s learning management system (PeopleLink) as at 30 June. This
metric excludes the training completion rates of the employees of Aussie Home Loans, Bankwest and
ASB. The Group’s mandatory learning modules are Anti-Bribery and Corruption, Anti-Money
Laundering and Counter-Terrorism Financing, Code of Conduct, Conflicts of Interest, Fraud, Security
and Privacy, Resolving Customer Complaints, Workplace Conduct and Health and Safety.

Training hours

This represents the total completed training hours recorded in the Group’s learning management
system (PeopleLink) as at 30 June. Training hours are allocated to each training item such as face-toface or online training. Executive Managers, General Managers, Executive General Managers and theChief Executive Officer are included in 'Executive Managers and above' and 'Others' includes teammanagers and team members. This metric excludes the training completion rates of the employees of
Aussie Home Loans, Bankwest and ASB businesses in New Zealand.

Training hours per employee

This metric represents the average completed training hours per employee that is recorded in CBA’s
learning management system (PeopleLink) as at 30 June, measured by headcount. This metricexcludes the training completion rates of the employees of Aussie Home Loans, Bankwest and ASB
businesses in New Zealand.

Water

Water consumption includes tenanted usage from CBA and Aussie Home Loans commercial buildings
in Australia. As at 30 June 2020, 51% of water usage is based on invoiced amounts, the remainder isestimated based on an average usage per m2 of net lettable area. From FY18, water related metrics
are reported on all commercial buildings. FY17 and FY16 were reported for nine commercial
buildings. It includes invoiced water use for the two data centres that are under the Group’s
operational control.

Whistleblower cases

Number of whistleblower cases on-boarded into the Group's SpeakUP Program during the 12 months
to 30 June.

NPS – Bankwest – Business

NPS – CBA – Consumer

DBM Consumer Main Financial Institution (MFI) Net Promoter Score. Australian Population 14+ (fromAug 16; 18+ for data prior). Refers to customers’ likelihood to recommend their MFI using a scale from
0-10 (where 0 being ‘Not at all likely’ and 10 being ‘Extremely likely’) and is calculated by subtracting
the percentage of Total Detractors (0-6) from the percentage of Promoters (9-10). Note thatpercentage signs are not used to report NPS 6 month rolling average. The metric is based on two of
Bankwest's priority segments - Home Owner and Property Investors (HOPI) and those intending topurchase property within the next 12 months (Pre-HOPI).
DBM Business Net Promoter Score measures the net likelihood of recommendation to others of thecustomer’s Main Financial Institution. Using a scale of 0 to 10 (0 means ‘extremely unlikely’ and 10
means ‘extremely likely’), the 0-6 raters (detractors) are deducted from the 9-10 raters (promoters). A
6-month rolling average data is used.

Internet banking (via the website or mobile app on a mobile phone or tablet): Roy Morgan Research.
Australian population 14+ who used the internet banking services of their (self-nominated) Main
Financial Institution in the last 4 weeks, rolling average of the last 6 months of spot scores as at June
2020. Rank based on comparison to ANZ, NAB and Westpac (at brand level).

NPS – CBA – Mobile app

Mobile app (via mobile app on a mobile phone or tablet): Roy Morgan Research. Australian population
14+ who used the internet banking services of their (self-nominated) Main Financial Institution in thelast 4 weeks, rolling average of the last 6 months of spot scores, as at June 2020. Rank based oncomparison to ANZ, NAB and Westpac (at brand level).

Office paper

A3 and A4 office paper used in retail and commercial operations under the Group’s operational
control. Invoiced reams of paper used to estimate usage as a weight. Excludes operations outside
Australia.

Privacy complaints

Program implementation
costs

Number of privacy related complaints escalated to the Office of the Australian Information
Commissioner (OAIC) for the Group, excluding Aussie Home Loans, Bankwest and ASB businesses
in New Zealand. This includes complaints that have been through the Bank’s internal dispute
resolution process and have escalated to the OAIC, or have been raised directly with the OAIC.
These complaints are recorded in the Group’s feedback management system (Firstpoint) and aremanaged by Group Customer Relations.
Total costs incurred by the Group to implement community investment programs and manage theIndigenous Customer Assistance Line call centre, the Corporate Affairs team, Women in Focus,
school programs as well as other not-for-profit activities. These costs include salary and wages,
occupancy, IT and other administration costs. It excludes Aussie Home Loans.

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ADDITIONAL INFORMATIONNPS – CBA – Internet
banking

FINANCIAL REPORTDBM Consumer Main Financial Institution (MFI) Net Promoter Score. Australian Population 14+ (fromAug 16; 18+ for data prior). Refers to customers’ likelihood to recommend their MFI using a scale from
0-10 (where 0 being ‘Not at all likely’ and 10 being ‘Extremely likely’) and is calculated by subtracting
the percentage of Total Detractors (0-6) from the percentage of Promoters (9-10). Note thatpercentage signs are not used to report NPS. 6 month rolling average. CBA excludes Bankwest andWestpac excludes St George.

DIRECTORS’ REPORTNPS – CBA – Business

DBM Business Net Promoter Score measures the net likelihood of recommendation to others of thecustomer’s Main Financial Institution. Using a scale of 0 to 10 (0 means ‘extremely unlikely’ and 10
means ‘extremely likely’), the 0-6 raters (detractors) are deducted from the 9-10 raters (promoters). 6
month rolling average data is used. Businesses with lending under $500,000 nationally or lending
over $500,000 in West Australia are included in the metric.

HOW WE CREATE VALUENPS – Bankwest – Retail

Retail Market Monitor Net Promoter Score measures the net likelihood of recommendation to othersof the customer’s Main Financial Institution. Using a scale of 1 to 10 (1 means ‘extremely unlikely’ and10 means ‘extremely likely’), the 1-6 raters (detractors) are deducted from the 9-10 raters (promoters).
11 month rolling average data has been used pending the build-up of a continuous 12 month sample.
The ranking refers to ASB’s position relative to the other main four New Zealand banks.

OVERVIEWNPS – ASB – Retail banking

COMMONWEALTH BANK
2020 ANNUAL REPORTGlossary of terms

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Contact us

Glossary of terms
MetricRegistered office

Description

Women in Executive Manager The percentage of roles at the level of Executive Manager and above filled by women, in relation toand above roles
the total headcount at these levels as at 30 June. Excludes ASB businesses in New Zealand.
Women in Manager andabove roles
Women in Senior Leadership(Group Executives)

Women in workforce

The percentage of roles at the level of Manager and above (including Branch Managers) filled by
women, in relation to the total headcount at this level as at 30 June. Excludes ASB businesses in New
Zealand.
The percentage of executive roles that are currently filled by women as at 30 June. These roles are
direct reports of the Chief Executive Officer with authority and responsibility for planning, directing andcontrolling the Group’s activities. Excludes ASB businesses in New Zealand. For the list of current
executives, please refer to the 2020 Annual Report pages 70-71.
The percentage of roles filled by women, in relation to the total headcount as at 30 June. Excludes
ASB businesses in New Zealand.

Ground Floor, Tower 1
201 Sussex Street
Sydney NSW 2000

Telephone: +61 2 9378 2000
Facsimile: +61 2 9118 7192
commbank.com.au

International locations

commbank.com.au/internationallocations

Share Registrar

Link Market Services Limited
Level 12, 680 George Street
Sydney NSW 2000
Mail: Link Market Services Limited
Locked Bag A14 Sydney South NSW 1235
Telephone: +61 1800 022 440
Email: cba@linkmarketservices.com.au
linkmarketservices.com.au

CBA Investor Relations
Telephone: +61 2 9118 7113

Email: cbainvestorrelations@cba.com.au
commbank.com.au/investors

All other enquiriescommbank.com.au/contactus

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