Tag: CBA

CBA 1Q18 Trading Update

CBA released their latest trading update today, with a rise in profit, and volumes as well as a lift in capital. Expenses were higher reflecting some provisions relating to AUSTRAC, but loan impairments were lower. WA appears to be the most problematic state.

Their unaudited statutory net profit was approximately $2.80bn in the quarter and their unaudited cash earnings was approximately $2.65bn in the quarter, up 6% (on average of two FY17 second half quarters). Both operating income and expense was up 4%.

Operating income grew by 4%, with banking income supported by improved margins. Home lending growth was managed within regulatory limits.

Trading income was broadly flat. Funds management income decreased slightly, with lower margins partly offset by the benefit of positive investment markets, which contributed to AUM and FUA growth in the quarter.

Insurance income improved reflecting fewer weather events and the non-recurrence of loss recognition.

Group Net Interest Margin was higher in the quarter driven by asset repricing and reduced liquid asset balances, partly offset by the impact of the banking levy, higher funding costs and competition.

Expense growth of 4% includes provisions for their current estimates of future project costs associated with regulatory actions and compliance programs – including those related to the Australian Transaction Reports and Analysis Centre (AUSTRAC) proceedings. On 3 August 2017, AUSTRAC commenced civil penalty proceedings against CBA. CBA is preparing to lodge its defence in response to the allegations in the Statement of Claim and at this time it is not possible to reliably estimate any potential penalties relating to these proceedings. Any such potential penalties are therefore excluded from these provisions.

Loan Impairment Expense (LIE) of $198 million in the quarter equated to 11 basis points of Gross Loans and Acceptances, compared to 15 basis points in FY17.

Corporate LIE was substantially lower in the quarter. Troublesome and impaired assets were lower at $6.1 billion, with broadly stable outcomes across most sectors.

Consumer arrears were seasonally lower but continued to be elevated in Western Australia.

Prudent levels of credit provisioning were maintained, with Total Provisions at approximately $3.7 billion.

68% of their balance sheet is funded from deposits.

The average tenor of wholesale funding extended a little. The Group issued $9.5 billion of long term funding in the quarter, including a 30 year US$1.5bn issue –a first for an Australian major bank.

The Net Stable Funding Ratio (NSFR) was 107% at September 2017.

The Liquidity Coverage Ratio (LCR) was 131% as at September 2017, with liquid asset balances and net cash outflows moving by similar amounts in the quarter. Liquid assets totalled $132 billion as at September 2017.

The Group’s Leverage Ratio was 5.2% on an APRA basis and 5.9% on an internationally comparable basis, an increase under both measures of 10 basis points on June 17.

The Group’s Common Equity Tier 1 (CET1) APRA ratio was 10.1% as at 30 September 2017. After allowing for the impact of the 2017 final dividend (which included the issuance of shares in respect of the Dividend Reinvestment Plan), CET1 increased 55 basis points in the quarter.

Credit Risk Weighted Assets (RWAs) were lower in the quarter, contributing 16 basis points to CET1, partially offset by higher IRRBB9(-13 bpts) driven by interest rate movements and risk management activities.

The maturity of a further $350m of Colonial debt compressed CET1 by 8 basis points in the quarter. The final tranche of Colonial debt ($315m) is due to mature in the June 2018 half year, with an estimated CET1 impact of -7 basis points.

In September 2017 the Group announced the sale of its Australian and New Zealand life insurance operations to AIA Group Ltd. The sale is expected to be completed in calendar year 2018 and is expected to result in a pro-forma uplift to the CET1 (APRA) ratio of approximately 70 basis points.

CBA and Westpac launch facial recognition on the iPhone X

Commonwealth Bank says it is the first Australian bank to offer customers secure access to their accounts using Face ID, the facial recognition technology built into Apple’s new iPhone X.

iPhone X users will be able to use Face ID to securely log-in to the CommBank App.

“Our customers use secure fingerprint logins on the CommBank App about 30 million times a month,” said Pete Steel, Commonwealth Bank Executive General Manager of Digital.

“Extending that functionality to Face ID is part of our ongoing work to provide a better banking experience to our customers through simple, easy and secure features.”

Face ID is one of the most secure ways to log into an account because it performs in-depth mapping of an individual’s face using more than 30,000 points of reference. These include the spacing between, and shape of, facial features.

“While we strive towards convenience and ease of use, we don’t implement new technology without being able to guarantee security for customers,” he says.

Westpac has subsequently also announced a similar facility.

This despite neither banks offering Apple Pay.

The Next Round In The Payments Wars

The Commonwealth Bank, Westpac, and National Australia Bank are working together to build the next generation of mobile payments and wallets in Australia.  These banks are not offering the Apple Pay solution, unlike ANZ. They sought unsuccessfully  to negotiate collectively with Apple in order to gain access to the iPhone’s near-field communications (NFC) chip which would allow their own apps to make contactless payments.

The first initiative of the new joint venture will be the development of a payment app that will enable instant payments for all Australians, including small businesses, regardless of who they bank with.

Beem will be a simple and convenient free app enabling anyone to make an instant payment using their smartphone, and request payment from someone who owes them money or to split a bill. The hope is that it will become an industry-wide payment solution, and is open to interest from other banks, industry, and retail players.

Beem will work on both iOS and Android smartphones, and will be compatible across devices and different banks – users won’t need to be customers of CBA or Westpac or NAB.

Commonwealth Bank Group Executive of Retail Banking Services, Matt Comyn, said Beem will give Australians a simpler way to pay and request payments, a pain point for both consumers and small businesses.

“Two thirds of small businesses say they are owed money for completed work, with around $7,300 owed to small traders. Beem will give small businesses a cost effective and easy way to collect payments instantly and on the go for their goods and services, without having to take the larger leap into using merchant credit facilities, or issuing invoices to be paid later,” Mr Comyn said.

Beem will benefit from bank level security and encrypted user account information. Every transaction will be authenticated and subject to real-time fraud monitoring.

Westpac Chief Executive, Consumer Bank, George Frazis, said Beem expands payment choices for customers, and is the latest offering in Australia’s long history of innovative payment solutions, including EFTPOS, Pin@POS, chip, tap and pay, and wearable payment devices.

“We are committed to giving our customers more choice by supporting a range of convenient ways for them to pay and transfer their money. Customers will soon be able to ‘Beem’ free payments instantly using any smartphone, regardless of who they bank with and without the need to add account details.

Innovations such as Beem and wearables are leading the way in payment solutions because they’re convenient, easy to use, and fit in with people’s lifestyles – we firmly believe in going to where our customers are and providing them with greater choice,” Mr Frazis said.

NAB Chief Operating Officer, Antony Cahill, said the bank is continually looking for opportunities to make banking easier, simpler, and more convenient for its customers, both consumers and businesses.

“Think about all the times you’ve gone out for dinner and split the bill – this app will make it easy for Australians to pay their family and friends instantly. Or, when you go to the local market and need to pay the butcher – this means instant payment through your phone. This is the industry working together to deliver an innovative payments solution, no matter who you bank with,” Mr Cahill said.

Commonwealth Bank is currently conducting user testing of a Beem prototype, with the app to be available for download on iOS and Android smartphones later this year.

Beem will initially have a sending limit of $200 a day ($6,000 per month), with a monthly receiving limit of $10,000 as an initial risk control measure.

Beem will be available to all bank customers and small businesses that hold a global scheme debit card issued by an Australian Authorised Deposit-taking Institution (ADI).

The joint venture will be independently run, with a mandate to actively seek new participants to join the initial three participants. Future product initiatives beyond the payments facility are being planned, including digital wallet features and capabilities.

MP grills CBA on brokers, offsets and big mortgages

From The Adviser.

NSW MP Kevin Hogan said that mortgage brokers have told him that it is in their best interest to get clients to borrow as much as they can.

Mr Hogan was on the parliamentary committee that questioned CBA chief executive Ian Narev in Canberra on Friday (20 October), where he was eager to find out from the CEO how brokers were behaving.

“You have one of the most extensive broker networks in the country,” Mr Hogan said, addressing Mr Narev.

“Brokers, as well as customers, tell me it’s obviously in the broker’s interest to get the customer to borrow the maximum amount of money they can get them to borrow — they get remunerated that way — even though they might not need that much money. And then they open an offset account and put the money they don’t need in that account, but they have drawn down the maximum amount of money they can borrow.”

The MP then asked Mr Narev if he has noticed “a big difference” in the number of customers who open an offset account, with money put in it straightaway, between the broker network and their branch network.

The CBA boss took the question on notice, but provided his thoughts on debt levels and the financial wellbeing of customers.

Mr Narev said: “You are raising a different and very valid point, which is: how much should people borrow? In the context of the broader regulation on general advice versus specific advice, we have a lot of discussion about that at the bank, and it is a very live discussion both through our own channels and through proprietary channels.”

Mr Narev noted that, historically, there has generally been a view that “whatever the bank will lend me, I should borrow”.

While he stressed that CBA lends responsibly for what people can service, Mr Narev said that the question of what level of debt somebody is comfortable with is “very personal”.

“The whole industry — and we are certainly doing it, including through behavioural economics in conjunction with academics from Harvard University — is working through how, within the constraints of the law on advice, we can have richer discussions with people to go down exactly the distinction you’ve drawn.”

Mr Hogan restated his belief that brokers get incentive to put customers in larger loans, saying: “It is obviously in the broker’s interest to get that person to borrow as much money as they can possibly get them to do — which might not necessarily be in the best interest of the customer — and you have an extensive network.”

Outgoing ASIC chairman Greg Medcraft also believes that brokers encourage customers to borrow more. In fact, he even admitted that he would do it himself if he was a mortgage broker.

Speaking at a Reuters Newsmaker event on 12 September, Mr Medcraft touched on a recent report from investment bank UBS, which suggested that around $500 billion of mortgages could be based on inaccurate information.

Mr Medcraft said: “The mortgage commission is based on [the fact that] the larger their loans, the more you get. So, logically, what would you do?

“It’s human behaviour. I’d do it.”

Branch tellers not rewarded for sales – CBA

Commonwealth Bank has announced further changes to the way   frontline staff are remunerated, increasing the focus on customer service and rewarding branch staff for delivering better customer outcomes, not financial outcomes.

The nation’s largest bank and branch network will move approximately 2000 customer service representatives, also known as tellers, to a new remuneration plan focused on the individual’s contribution to providing superior customer service. Any links to financial measures have been abolished.

Commonwealth Bank Executive General Manager, Angus Sullivan, said: “This change will reward our tellers for continuing to provide superior service to the millions of customers we serve around the country.

“We have been listening to our customers and this is another step to ensure banking is fairer, simpler and more transparent. Customers can be confident that our tellers are not being paid to sell them products.

“The new remuneration plan will support and encourage our teams to have better quality conversations with customers, understand their needs and provide the best possible service.

“This will further strengthen our customer focus and align the way we reward our people with industry standards and community expectations.”

These new measures will be backdated to 1 July 2017, the start of the current CBA performance period, removing all financial measures from individual performance.

In addition, close to 200 Bankwest branch tellers will also move onto a customer-focused remuneration structure from 1 October 2017, the start of the Bankwest performance period.

Commonwealth Bank has already made a number of changes moving away from sales-based incentives and recognition programs, and towards values-based rewards.

Mr Sullivan said this is another example of our commitment to implement all Sedgwick Review recommendations ahead of the 2020 deadline.

“We understand that there is always more to do, and we have been actively participating in the independent review by Mr Sedgwick and the Australian Bankers Association,” Mr Sullivan added.

CBA To Launch New Low Rate Credit Card

Commonwealth Bank today has announced three new initiatives including a new credit card with an interest rate below 10 per cent.

The three initiatives are:

  1. A new credit card with a 9.90 per cent purchase interest rate
  2. All customers with a credit card can receive real-time alerts for credit card repayments and high cost transactions, and all transaction account customers can receive overdrawn account alerts
  3. All credit card customers will have access to an instalment feature designed to help them pay down existing balances or large purchases, in easy fixed instalments

Clive van Horen, Executive General Manager at Commonwealth Bank, said: “We’ve heard feedback from customers and consumer groups and understand there’s a need to offer a greater range of affordable and easy to manage products.”

Designed to give customers more visibility and control over their personal finances, the new credit card, real-time alerts, and instalment feature will launch in phases.

“We know there’s strong demand for a simple credit card option and we also recognise we need to help our customers avoid credit card late payment and overdrawn account fees. The real-time alerts in our CommBank App give customers even more tools to help manage their spending and avoid fees and charges,” said Mr van Horen.

New credit card

Available from early 2018, the new CommBank credit card will offer a highly competitive interest rate of 9.90 per cent, and a low account keeping fee of just $5 per month. The new credit card is suited to customers who want a low, competitive interest rate, low account keeping fee with a low maximum limit, and no access to cash advances.

Real-time alerts for credit card repayments, overdrawn accounts and high cost transactions

From November, customers will be able to take advantage of three new alerts:

  • Customers with the CommBank App will receive real-time alerts, reminding them their credit card payment is due. If their payment becomes overdue, customers will receive an additional alert advising them if they make their payment by midnight the following day they will not incur a late payment fee.
  • Customers whose transaction accounts have been overdrawn due to a scheduled payment or direct debit will receive a real-time alert and they too will not incur an overdrawn access fee if settled by midnight.
  • Customers that make a high cost credit card transaction (such as an ATM cash advance or online gambling) will be alerted in real time that these transactions incur cash advance fees and interest.

Instalment feature

From mid-2018, credit card customers can choose to pay down large purchases or a portion of their balance through fixed monthly instalments at a discounted rate, over a fixed period, allowing them greater control of their credit card repayments.

Empowering customers to manage their spending and avoid fees and charges

These latest product initiatives join the suite of online tools and features launched over the last three years to give customers more visibility over their credit card spending, including:

  • Transaction Notifications: Eligible customers automatically receive an instant notification every time they pay with their credit card.
  • Lock, Block, Limit: Gives customers real-time control over what types of transactions their card could be used for – such as ATM withdrawals and overseas spending. More than 1 million cards have enrolled for this feature since 2014.
  • Spending cap and credit limit decreases: Customers can set a spending cap to manage their spending or reduce their credit limit online. Approximately 13,000 credit limit decreases are performed each month since launch.
  • Spend Tracker: Each credit card transaction is categorised automatically in the CommBank App so customers can see where they are spending and compare expenditure across months.
  • Earlier this year CommBank also launched Click to Close: a feature which allows customers to close their credit cards online through NetBank and the CommBank App.

“We continue to innovate for our customers’ benefit and we hope these latest steps will be welcomed,” added Mr van Horen.

Banks need a ‘better cost structure’: Narev

From Investor Daily.

Australia’s major banks must use data analytics, artificial intelligence and robotics to increase productivity and reduce costs, says outgoing CBA chief executive Ian Narev.

Speaking at a Morningstar conference in Sydney on Friday, outgoing CBA chief executive Ian Narev said the major banks must “adapt or die” when it comes to new technology.

“Over five to 10 years in [the banking] industry, if you do not successfully adapt, you will not succeed,” Mr Narev said.

“I say that without any sense of hyperbole at all. And [CBA] does not feel at all complacent about where we are, because you have got to keep going, but we feel pretty good about our relative position today.”

First, banks need to realise that their customers want to do business online – and will compare their banking experience with Facebook, Apple and Amazon, Mr Narev said.

“Number two is that the opportunities to apply artificial intelligence, data analytics, robotics to fundamental productivity is critical because we need a better cost structure,” Mr Narev said.

“While we are evolving to a better cost structure, we also need to be the responsible employer of 50,000 people and help our own workforce make the transition, which we are very committed to doing.

“So for us, this has been a topic of real focus for the last few years. It will remain a topic into the future. We are committed to adapt.”

Mr Narev also took the opportunity to reiterate his apologies to CBA’s shareholders and customers for “not reaching the standards we should have” regarding AUSTRAC’s accusations of CBA’s failings relating to anti-money laundering compliance.

“We let down our stakeholders and, regardless of the ins and outs of the legal claim, I am sorry for that as the chief executive. I take accountability for it and can assure you that we are taking it extremely seriously,” Mr Narev said.

Mr Narev, who is due to leave CBA by 1 July 2018, also joked about the identity of his successor.

“We have got uncertainty with leadership succession, although I can give you a guarantee that the next chief executive of the Commonwealth Bank will be better than the current one,” he said.

 

CBA goes into damage control over claims of primary school ‘kickbacks’

From The New Daily.

The Commonwealth Bank of Australia has promised to scrap a controversial practice that sees it pay primary schools a commission for every student that signs up to its Dollarmites program.

The decision came just hours after consumer advocacy group CHOICE launched a scathing attack on school banking programs, saying banks should be banned from “flogging their products” in schools.

CHOICE was particularly critical of what it called “kickbacks” paid to participating schools.

But within hours of CHOICE’s attack, CBA – in an effort to fend off yet more bad press – had issued a statement of its own vowing to abolish these so-called “kickbacks”.

“We have heard CHOICE’s concerns about these payments and will engage with the schools, P&Cs [parent and citizens associations] and consumer groups to introduce a change to the way payments are structured from 1 January 2018 that no longer links the payment to the value of students’ deposits,” the statement read.

The bank stopped short of scrapping payments to schools altogether, arguing some sort of payment was necessary to cover the costs to schools of offering the program.

How the Dollarmites program works

CBA’s School Banking program allows primary school children to set up bank accounts through their schools.

The program appeals to children using colourful branding, including a gang of cartoon school kids called the ‘Dollarmites’, gifts, and games aimed at improving financial literacy.

It also incentivises schools to participate by paying them a 5 per cent commission on every deposit up to $10.

Around 4000 schools and 320,000 school kids across Australia are signed up to the program.

The bank sells it as a “fun, interactive and engaging way for young Australians to learn about money and develop good saving habits”.

But in a statement on Thursday, CHOICE chief executive Alan Kirkland painted the program in a more critical light, saying it was a way for the bank to gain “unfettered access” to “flog their products” in schools.

“Rewarding children for saving with cheap toys easily transitions to rewarding young adults with ‘special’ offers of high-interest personal loans and credit cards,” he said.

“It is time to take banks out of financial literacy education, and to stop them from paying schools commissions to flog their products.”

The call was part of a submission to the Productivity Commission’s ongoing inquiry into competition in the Australian financial system.

Of the big four banks, Westpac is the only other that operates a schools program.

A spokesperson for Westpac told The New Daily it does not pay commissions to schools.

ANZ and NAB both said they had no presence in schools.

CBA desperate to avoid more bad press

The Commonwealth Bank’s lightning-quick response comes two months after the bank was embroiled in a money-laundering scandal – its third major scandal of the decade – and reflects the CBA’s growing eagerness to avoid any bad press.

In August, anti-money laundering regulator AUSTRAC launched civil proceedings against CBA in the Federal Court for an alleged 53,700 “serious and systemic” breaches of money laundering and counter-terrorism legislation.

The allegations came on top of similarly high-profile scandals in the bank’s financial advice and life insurance businesses, all of which occurred under the watch of chief executive Ian Narev.

Since the AUSTRAC revelations, CBA has taken a number of bold steps to improve its public image – including announcing the deferred departure of Mr Narev next year, and scrapping ATM fees for non-customers.

Labor’s plan to hold a royal commission into the banking system if it wins the next election – which current polls suggest it will – is putting additional pressure on the banks.

CBA Reclassifies Loans

At 12:13 PM on Friday 29th September, before the long weekend, Commonwealth Bank of Australia (CBA) advised the ASX that following clarification of loan purpose reporting guidelines, certain statistical data have been reclassified as part of regulatory reporting obligations for Authorised Deposit-taking Institutions. It did not come through their normal press release channels.

The reclassification relates to mortgage-secured household lending data for the periods between October 2015 and July 2017. The approximate impacts of the reclassification as at 31 July 2017 include:

  • Restatement of Loans to Households: Housing: Owner-occupied from $278.4bn to $273.9bn;
  • Restatement of Loans to Households: Housing: Investment from $138.2bn to $134.8bn; and
  • Restatement of Loans to Households: Other from $10.1 bn to $18.0 bn

The reclassification is for statistical reporting purposes only and has no impact on customers, the security and serviceability arrangements for these loans or on CBA’s regulatory capital, risk appetite, risk-weighted assets or statutory financial statements.

The reclassification has minimal impact on CBA’s reported volumes relative to APRA’s industry benchmark for investor mortgage growth and limit for new interest-only mortgage lending.

This may go some way to explaining the weird APRA data which came out Friday, compared with the RBA data, which showed a net rise.  Here is the APRA portfolio movements in summary.

So it means CBA loans were switched from classified for property lending, to secured on property for other purposes.  The APRA guidance letter from March 2016 says:

In particular, non-housing loans that are secured by residential property mortgages should not be reported under item5.1.1.1 or 5.1.1.2, but reported under the relevant loan item elsewhere in ARF 320.0.

At very least this switching of loans is unhelpful when trying to understand the trajectory of home lending, including the $58 billion of loans reclassified according to the RBA.

Not having a trusty compass makes policy setting difficult – the recent media reports of macro-prudential biting may be overdone as a result. More reason to think the RBA may hike rates sooner.

Reclassification also masks loan portfolio growth, and also the RBA only reports the value of loans switched between owner occupied and investors, not switched away to non-property purposes.  More fog around the numbers!

CBA introduces new IO ‘simulator’

From Australian Broker.

The Commonwealth Bank of Australia (CBA) has announced a compulsory new digital tool, the Interest Only Simulator, which will be incorporated into its third party lending process.

The simulator will be accessible through CommBroker and will show customers the differences between IO and P&I repayments as well as the financial impacts over the life of the loan for both types of loans. It will be mandatory from 6 October for all customers applying for a new interest only loan.

“The new tool will make it easier for our brokers to have conversations with customers about their needs and their loan options. It will also help ensure customers understand what type of loan is best for them and their situation,” a CBA spokesperson told Australian Broker.

A compulsory Customer Acknowledgement Form will also be included in the simulator. This will be submitted with all interest only home loan applications to ensure that those payments meet the client’s needs.

Brokers are required to provide customers with a copy of this form as a record of the discussion. This can be done electronically as a pdf attachment via email.

“We encourage our customers to choose principal and interest repayments to help them build equity in their home, where this meets their needs and objectives. Customers who currently make interest only payments are encouraged, where they are able, to switch to principal and interest repayments,” the spokesperson said.