Credit Suisse First Boston 2003 Asian Investment Conference

1
Credit Suisse First Boston2003 Asian Investment
Conference

• Stuart Grimshaw
• Chief Financial Officer
• 25-28 March 2003

www.commbank.com.au
2
Disclaimer

• The material that follows is a presentation of
  general background information about the Banks
  activities current at the date of the
  presentation, 25 March 2003. It is information
  given in summary form and does not purport to be
  complete. It is not intended to be relied upon as
  advice to investors or potential investors and
  does not take into account the investment
  objectives, financial situation or needs of any
  particular investor. These should be considered,
  with or without professional advice when deciding
  if an investment is appropriate.

3
Speakers Notes

• Speakers notes for this presentation are
  attached below each slide.
• To access them, you may need to save the slides
  in PowerPoint and view/print in notes view.

4
Agenda

• Commonwealth Bank in the Current Context
• Platforms for Growth
• Productivity

5
Commonwealth Bank in the Current Context
6
Australias Economy has been relatively
resilient given global conditions
Source Commonwealth Research
7
Domestic housing demand has been strong
Source Commonwealth Research, Melbourne
Institute
8
Business confidence has been subdued, but is
expected to gain momentum
Source Commonwealth Research
9
While equity markets have showed some resilience,
returns and fund flows have declined
Total Net Retail Fund Flows (for quarter ended)
Equity Markets
Index (Base 100)
m
105
7000
6000
100
-74
5000
95
4000
90
3000
85
2000
80
1000
75
0
Jun-02
Sep-02
Dec-02
Industry
Commonwealth Bank
Source Plan for Life (ex Cash)
Source Bloomberg
10
Commonwealth Banks 1st Half result reflects
modest growth in an uncertain environment

• Net Profit After Tax (cash basis)
• Comprising Banking Funds Management
  Life Insurance

Dec 2002 1,208m 1,079m135m(6m)
Dec 2001 1,192m
Change 1
1,092m186m31m
11(26)(117)
ie excluding appraisal value uplift/reduction
and goodwill amortisation. Unless otherwise
stated the numbers in this presentation refer to
the net profit after tax (cash basis) and all
comparisons are to the prior comparative period.
11
The Banks credit quality and capital adequacy
strengthened during the half
Bad Debt Expense to RWA
Capital Adequacy Ratios
RWA
9.81
9.80
9.31
General Provision to RWA
6.75
6.78
7.06
RWA
Tier 1 Capital
Tier 2 Capital
Target Range
CBA
ANZ
NAB
WBC
RWA risk weighted assets
12
The Banks dividend payout ratio remains high
relative to peers
Dec 2002 69cps 72.7 95cps 12.39 52.6
Dec 2001 68cps 72.6 94cps 12.43 54.2
Change 1c - 1c (4bps) (3)

• Dividends per Share
• Dividend Payout Ratio

and EPS has improved
Earnings per Share Return on Equity Banking Cost
to Income Ratio (underlying basis)
For more detail, visit www.commbank.com.au
/shareholder
13
Increasing leveraging from key competitive
strengths is important for long term growth

• Scale
• Brand
• Risk Profile
• Products and Businesses
• Distribution
• Innovation
• People

14
Platforms for Growth Banking
15
The Bank is a leading player in the Australian
market

• 1st in Home Lending
• 1st in Credit Cards
• 1st in Retail Deposits
• 1st in Online Broking
• Strong in Business Lending
• Largest customer base
• Most points of access
• Best known bank brand

Customer Share All Relationships

Source Research International, December 2002
16
Several key trends are shaping the future of the
home loan market
Economic Environment

• Interest rates at historical lows - but
  affordability has weakened
• Slowing housing credit demand likely
• Historically low credit losses
• Property sector attractive compared to other
  asset classes

• Mortgage market a high demand sector
• Low credit losses - increasing willingness by
  some market participants to take on risk
• Slowing housing credit demand - propensity for
  increased poaching/ refinancing offers, including
  increasing commissions to third parties

Competitive Environment

• Entrenched fast repayment psyche
• First home buying activity brought forward by
  FHOG - weaker demand likely
• Defined service demands
• Wealth creation mindset has fuelled investment
  loan growth but expect to be tempered by economic
  uncertainty

Customer Need

• Mortgage brokers well established - but facing
  first slowdown in demand
• Continued market consolidation likely
• Linkages likely to intensify to financial
  planners - increased competition

Distribution

• Broker groups also investing in front end
  CRM solutions
• Centralised back end models utilising straight
  through processing
• Intensification in use of CRM type solutions -
  owned and rented
• Increased use of IVR/web for customer
  servicing requests and marketing

Technology
CRM customer relationship management
FHOG First Home Owners Grant
IVR interactive voice recognition
17
The Banks strategy is to segment, sell, serve
retain

• Segments
• Acquisition
• First Home Buyers - safety, security
  reassurance. Basic product needs (Economiser,
  Fixed Rates)
• Second Home Buyers - trust and security. More
  flexible product options (Park Hold, Top ups,
  Viridian)
• Investors - financially astute. Service, advice
  and greater product flexibility (Viridian
  AddVantage Line of Credit).
• Retention
• Builders - flexible repayment structures (100
  interest offset). Build their home equity faster
  
• Lifestylers - use loan to fund renovations etc.
• Wealth Creators - benefit of diversification and
  funds to build assets

Customer Value Proposition Choice of market
leading products that build wealth backed by
superior service at all points of the relationship

• Customer Management Model
• Service. Products and services at each stage in
  customer life cycle tailored to need.
• Efficient and accurate straight through end to
  end processing, fast approvals and turnaround.
• Retention via sophisticated event based marketing
  and communication based on life cycle needs.
• Acquisition via multi branded strategy across
  channels using targeted offers to drive volume
  profitability

Customer Service Proposition Consistent expedited
end to end dealings with choice of channel.
Products to meet customers risk and lifestyle
needs
Point of Service Differentiation Ability to
provide a life cycle of wealth building products
underpinned by accurate, efficient and low cost
processing
18
Share of wallet improving - cross-sell, retention
and service initiatives are in train
Share of Wallet by Financial Institution
Basis If a customer has a relationship (as a
main Financial Institution or otherwise) with an
Financial Institution, what proportion of their
holdings do they keep with that Financial
Institution?
Source Research International, December 2002
19
Premium Customers Offering a Differentiated
Business Model
Borrowing Services Lending Services Transactional
Banking Advisory Services
Banking Platform
Client
Direct Investment Indirect Investment Debt
Products Equity Products
Broking Platform
Primary Relationship Manager
Secondary Relationship Manager specialised
advice
20
Republic Providing a comprehensive view of
premium customers
Please note information on these data screens
have been scrambled for privacy purposes
21
Republic Providing a comprehensive view of
premium customers
Please note information on these data screens
have been scrambled for privacy purposes
22
Transforming Business and Corporate Banking
Transformation Agenda Structured In Three Phases
Status
Initiatives

• Segment clients and create differentiated
  business models to improve client service
  experience
• Introduce streamlined credit processes
• Lift performance of bottom quartile centres
• Better align distribution footprint to client
  needs
• Realise segment specific share targets
• Build client service and sales skills

1. Define and revitalise Business/Corporate
Banking
1
Completed
2
2. Re-organise for success
Underway
3
4
3. Capture industry leadership
Parallel implementation with Phase 2
5
6
23
No change to credit standards
Consumer Portfolio
Commercial Portfolio
Composition of Housing Portfolio
100
bn
36
39
40
80
Owner Occupied
60
Investment
15
15
14
Dec 01
Jun 02
Dec 02
40
60
20
17
19
Bad debt charge as annualised of unsecured
lending balances
invest.
grade
20
29
29
27
0
Bad debt charge as annualised of secured
lending balances
AAA/AA
A
BBB
Other
Dec 01
Jun 02
Dec 02
CBA Equivalent Ratings
24
Platforms for Growth Funds Management
25
The Bank maintains its leadership position in
Australian funds under management
Group Funds Under Management by Country of
Source December 2002
Australian Funds Under Management by Asset
ClassDecember 2002
Total Funds Under Management 95bn Consisting
of retail 52bnwholesale 38bnretail
CMT 5bn
Australian Funds Under Management 72bn Consistin
g of retail 39bnwholesale 28bnretail
CMT 5bn
CMT cash management trust Total funds
managed in Australia, excluding Colonial First
State Property
26
Several key trends are shaping the future of the
Australian Funds Management industry

• Strong inherent growth in the funds management
  market expected, particularly retail
• Growth of mastertrusts
• Industry consolidation
• Institutionalisation of distribution
• Industry commoditisation

Projected Size of Various Product Segments
350
300
Value at 30 June 2001
250
Projected Value at 30 June 2011
200
Billion
Unit Trusts
Annuities
Personal Super
Industry Funds
Insurance Bonds
Self Managed Funds
Allocated Pensions
Public Sector Funds
Wholesale Savings Market
Corporate Standalone Funds
Corporate Super Master Trusts
Source Rice Kachor projections March 2002,
include 5 post fee returns, except for DIY (7)
27
FirstChoice has been further enhanced... and
other initiatives are underway
FirstChoice
Other Strategic Initiatives
m

• Realise integration benefits, including further
  rationalisation of legacy systems
• Offer increased style diversification
• Leverage internal distribution opportunities
• Leverage scale to reduce costs
• Grow alternate asset classes
• Increase reputation as manager of international
  shares

28
Platforms for Growth Life Insurance
29
The Bank has a strong presence in life insurance,
and a number of opportunities
Market Size and Growth Prospects By Product
Commonwealth Bank Premiums By Product
m
2002
2007 projected
By Channel
By Channel
2002
2007 projected
Source Tillinghast, December 2002
30
Focus is on distribution, service and risk pricing

• Increase internal distribution through PICs and
  BIMs
• Repricing of premiums
• Upskilling of call centre staff
• Product rationalisation
• Systems migration

31
Productivity
32
Focus is on improving efficiency
...to achieve
Four productivity initiatives...

• A better service experience for customers,
  through greatly improved turnaround times
• Elimination of duplication and inefficiencies
• Annualised benefits of 159m, following an
  incremental net cost of 143m in FY2003

Remove back-office functions from branches
Streamline Business Banking processes
Rationalise investment products systems
Organisational design
33
Credit Suisse First Boston2003 Asian Investment
Conference

• Stuart Grimshaw
• Chief Financial Officer
• 25-28 March 2003

www.commbank.com.au
34
9 growth in lending assets
169
161
155
billion

Housing
Personal
Business
Corporate
Bank Acceptances
Lending Assets
Excludes securitised housing loan balances
5.9b (Dec 02), 7.0b (Jun 02), 5.7b (Dec 01).
35
A number of one offs impacted funds under
management
Underlying reduction of 8bn
106
(2)
One off reduction of net 3bn
(5)
2
(4)
(1)
98
bn
(1)
95
36
Shareholder Funds in Life Insurance Companies
investment reflect underlying nature of the
business
74
26
49
51
54
46
2.1 billion
0.5 billion
2.6 billion
Income
Growth
Risk includes traditional, investment account,
annuities, personal risk and group risk.
37
Continuing sound asset quality
38
The Bank remains well provisioned
millions
Includes Colonial
39
Arrears in consumer book remain at low levels

• Loans Accruing past 90 days or more
• 
  30/06/01 31/12/01 30/06/02
  31/12/02
• 
  m m m
  m
• Housing Loans
  218 168 176 136
  
• Other Loans
  90 79
  73 75
• Total
  308 247
  249 211
• Housing loans arrears rate
• 30/06/01 31/12/01
  30/06/02 31/12/02
• Housing Loans accruingbut past 90 days or more
  m 218 168
  176 136
• Housing loan balances m 73,511
  79,745 85,839 93,545
• Arrears rate
  0.30 0.21 0.21 0.15

40
Commercial Portfolio large exposures are mostly
investment grade
Top 20 exposures as a of Total Committed
Exposure
Dec 2000
Dec 2001
Dec 2002
Committed Exposure (m) 31 December 2002
41
Credit Exposure - Energy Sector
m
10
3
643
7
1,981
80
509
278
3,411m
42
Credit Exposure - Telcos Sector
m
11
4
410
13
738
72
186
175
1,509m
43
Credit Exposure - Technology Sector
m
4
9
798
86
6
35
275
Australia (68 investment grade)
North America (100 investment grade)
1,114m
Other (99 investment grade)
44
Credit Exposure - Agriculture Sector
m
310
254
1,540
26
5,569
74
Australia (10 investment grade)
7,673m
New Zealand (3 investment grade)
45
Group FUM across asset classes
As at 31 December 2002