Commonwealth Bank of Australia : September Quarter 2021 Trading Update

Cash NPAT

CET1 Ratio

Volume Growth5

More broadly, we continue to make good progress on our strategic agenda, differentiating our customer proposition with reimagined products and services that help us deliver on our purpose to build a brighter future for all."

In October, the Group released the thirteenth and final report from the Independent Reviewer on CBA's Prudential Inquiry Remedial Action Plan, with all milestones assessed as complete and effective and all recommendations now closed. We will ensure that the changes we've made are sustained and continuously improved upon.

In October, the Bank successfully completed a $6bn off-marketshare buy-back.Strong demand meant the offer was significantly oversubscribed, representing one of the largest ever tenders into a share buy-backin Australia. Through the buy- back and dividends, the Bank has returned over $12bn to shareholders in the past 12 months.

"Through the first quarter of FY22, our focus has remained on supporting our people, customers and communities as the economy recovers from the impact of COVID-19.Our focus on operational execution ensures we are well placed to provide this support as activity restrictions continue to ease. This was reflected in strong, above-systemvolume growth in core markets in 1Q22, continued sound portfolio credit quality and balance sheet strength.

Building a brighter future for all

Chief Executive Officer, Matt Comyn

1Q22 Trading Update

onlyASX Announcement use

For the quarter ended 30 September 20211 unless noted otherwise. Reported 17 November 2021. All financial comparisons are to the average of the two quarters of the second half of FY21 unless noted otherwise. Refer to Appendix for a reconciliation of key financials.

personalOverview

► Unaudited Statutory NPAT of ~$2.3bn2,3 in the quarter.

► Unaudited Cash NPAT of ~$2.2bn2,4 in the quarter, with pre-provision profits stable.

► Income down 1%, or flat excluding the divestment of Aussie Home Loans (AHL), with above system volume growth helping to

offset continued margin pressures and lower non-interest income.

► Expenses down 1%, with lower remediation costs offsetting higher staff expenses.

► Operating performance flat on the 2H21 quarterly average, and 2% higher than 1Q21.

► Loan impairment expense of $103m in the quarter, or 5 basis points of average Gross Loans and Acceptances.

► Credit provisions broadly unchanged, continuing to reflect sound portfolio credit quality and a cautious approach to provisioning

as the Australian economy recovers from the impact of COVID-19 restrictions.

For► Strong balance sheet settings maintained, with a customer deposit funding ratio of 74%, NSFR of 131% and LCR of 132%.

► CET1 Ratio of 12.5% as at 30 September 2021, up 19bpts in the quarter after allowing for $3.5bn in 2H21 final dividend payments to ~870,000 shareholders. Following the successful completion of the Group's $6bn share buy-back in October, the

pro-forma CET1 ratio was 11.2%.

unaudited					Level 2
			Sep 21 vs
		Sep 21 vs Jun 21	Sep 20
~$2.2bn		Bal Growth	System	Growth	12.5%
	($bn)	multiple	Rate
 20% vs 1Q21	Household deposits	20.4	1.1x	12.0%	19bpts vs Jun 21
 9% vs 2H21 qtr. avg	Home lending	10.1	1.2x	7.6%	ex-dividend
	Business lending	3.1	1.5x	13.0%

Commonwealth Bank of Australia │ ACN 123 123 124 │ 17 November 2021 │ Media Release 307/2021
Ground Floor Tower 1, 201 Sussex Street, Sydney NSW 2000	i

Operating performance

Operating income

Australian volume growth5

	$m			•	Divestment of AHL		Sep 21 vs Jun 21
		(1%)	•	Lower net profits from	1.1x
		6,098		minority investments
	Non-		•	Lower retail banking and	system
	1,364	(8%)		merchant fees due to
	interest
		COVID-19 related
	income				restrictions		1.2x
				•	+6.5% AIEA growth	+$20.4bn	system
	Net		+1%		(~3% ex growth in liquids)
onlyinterest	4,734		•	1.5 additional days		+$10.1bn	1.5x
use	income			•	Partly offset by NIM		system
				compression			+$3.1bn
	2H21	1Q22			Household	Home	Business
		Qtr Avg				deposits	lending	lending
		Operating expenses			Operating performance
	$m					Operating income less operating expenses
personal	2,884	(1%)			$m
	•	Lower remediation			+2%
	167	(69%)
		costs
Remediation
	costs			•	Higher staff costs		3,214	Flat
				3,153
Excluding	2,717	+3%		(impact of lower annual
remediation		leave usage due to
	costs				COVID-19 and higher
				FTEs)
				•	1.5 additional days
		2H21	1Q22			1Q21	2H21	1Q22
		Qtr Avg					Qtr Avg
• Operating income reduced by 1% in the quarter, with net interest income (NII) growing 1%, offset by lower non-interest
	income. The Bank's franchise strength and focus on operational execution continued to underpin above system growth in core
	markets, with total lending growth of $17bn in the quarter. In home lending, the Bank recorded volume growth of $10.1bn,
	driven by strong proprietary fundings and continued customer demand for fixed rate loans. Domestic business lending has
	grown by 13% over the past 12 months and continued to grow above system in the quarter on stable margins, with diversified
	growth across multiple sectors. Household deposits grew by over $20bn in the quarter. The combined benefit of strong volume
	growth and 1.5 additional days was partly offset by lower net interest margin in the quarter.

•

For•

•

The Group's net interest margin was considerably lower in the quarter. Drivers of the decline were consistent with those indicated at the Group's FY21 results in August, including higher liquid asset balances (contributing ~3.5% of the Average Interest Earning Assets (AIEA) growth but with minimal impact to NII), home loan price competition and switching to lower margin fixed rate loans, as well as the continued impact of a low interest rate environment.

Non-interest income was 8% lower, primarily driven by the divestment of AHL, the non-recurrence of gains on minority investments from the reversal of an historical impairment in 2H21, and reduced retail banking volume related fee and merchant income due to the impact of COVID-19 related restrictions in NSW and Victoria. Insurance income was higher in the quarter due to lower weather related claims, but is expected to reduce in 2Q22 due to East Coast/SA/TAS hail and storm related event claims in October 2021.

Operating expenses reduced by 1%, driven by lower remediation costs. Excluding remediation costs, expenses were 3% higher, mainly due to higher staff costs from lower annual leave usage during COVID-19 related lockdowns, increased staffing levels in response to higher volumes and to help deliver on strategic priorities, as well as 1.5 additional days in the quarter.

• Cash net profit after tax (NPAT) in the quarter was approximately $2.2bn, which is higher than for the same period last year, but lower than the 2H21 average, which benefited from the release of collective provisions.

Commonwealth Bank of Australia │ ACN 123 123 124 │ 17 November 2021 │ Media Release 307/2021
Ground Floor Tower 1, 201 Sussex Street, Sydney NSW 2000	ii

Provisions and credit quality

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				Loan loss rate6							Consumer arrears7
						bpts										90+ days
									28				5		Personal Loans	Credit Cards	Home Loans 8
73
														1.51%	1.54%
												-8
									1Q21	2H21	1Q22	1.23%			1.09%
	41
											33				1.04%			0.94%
		25
		21 20													0.64%
		16 16	19 15 15 16					0.63%	0.55%		0.58%
							7	5
																0.61%	0.58%
FY09	FY10	FY11	FY12	FY13	FY14	FY15	FY16	FY17	FY18	FY19	FY20	FY21	1Q22	Jun 20	Sep 20		Jun 21	Sep 21

Troublesome and impaired assets

$bn

% of	0.74%	0.61%	0.55%
TCE:

Provisioning

Total credit provisions	Provision coverage
$bn	% of credit risk weighted assets

		8.4	7.5	7.1
Gross	3.3
	3.4
impaired				3.6
Corporate	5.1
	4.1
		3.5
troublesome
		Sep 20		Jun 21		Sep 21

	6.2	6.2
Individual	0.9	0.9
Collective	5.3	5.3
	Jun 21	Sep 21

Collective Total provisions provisions

1.38% 1.60%

Sep 21

Sep 21

For personal

• Loan impairment expense of $103m in the September quarter equated to 5 basis points of average Gross Loans and Acceptances. Following provision releases in 2H21, total credit provisions were broadly unchanged in the quarter at $6.2bn, and continued to reflect both sound portfolio credit quality and a cautious approach to provisioning as the economy recovers from the activity restrictions introduced to manage the health outcomes from COVID-19.
• Consumer arrears were lower in the quarter, with unsecured arrears influenced by reduced spending, strong origination quality and favourable seasonal movements. Lower home loan arrears reflect sound portfolio credit quality, as well as the impact of new temporary loan repayment deferral arrangements introduced from June 2021 for a small number of customers (~10,000 facilities, or ~1% of the total home loan portfolio). As the NSW and Victorian economies re-open and spend resumes, a modest uptick in arrears is anticipated.
• Troublesome and Impaired Assets (TIA) were lower at $7.1bn or 0.55% of Total Committed Exposures (TCE), with reductions driven by larger single name exposures across sectors.

Commonwealth Bank of Australia │ ACN 123 123 124 │ 17 November 2021 │ Media Release 307/2021
Ground Floor Tower 1, 201 Sussex Street, Sydney NSW 2000	iii

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Funding and liquidity

Funding composition	Australian deposits9
% of total funding	$bn

		8%	8%	610	638
Short term	26%			492
19%	18%
wholesale		308	416
Long term	19%		Other	300		341
wholesale		deposits		244
		73%	74%				258	191
Deposits	55%		330
	Household	310	248
			deposits			158	150
	Jun 08	Jun 21	Sep 21	CBA	CBA		Peers
				Jun 21	Sep 21		Sep 21

personal

Wholesale funding10

Portfolio tenor

yrs

		5.1	5.0
	3.5
					70%
			74%			Long
			Long
	44%				Term
		Term
	Long				(6.5yrs
		(6.4yrs
	Term
			ex TFF)			ex TFF)
	Jun 08		Jun 21			Sep 21

LCR %

Qtr. Avg

129%	132%
100%
Jun 21	Sep 21

NSFR %
Spot
129%	131%
100%	Regulatory
		minimum
Jun 21	Sep 21

•

For•

•

•

Balance sheet strength was maintained in the quarter, highlighted by strong deposit funding (74%), underpinned by the Bank's franchise strength in stable household deposits (+$20.4bn this quarter).

The Bank remains well positioned from a wholesale funding perspective, with 70% of wholesale funding long term and a weighted average tenor of 5.0 years. Good progress has been made on FY22 funding requirements, with A$14.6bn of long term wholesale funding issued to 31 October 2021 across multiple markets and products.

The Bank's Net Stable Funding Ratio (NSFR) and Liquidity Coverage Ratio (LCR) remained well above regulatory minimums.

The Bank's Term Funding Facility (TFF) was fully drawn as at June 2021, with maturities commencing from June 2023. In September 2021, APRA announced a sector-wide phased reduction in usage of the Committed Liquidity Facility (CLF) to zero by the end of 2022. The Bank is well placed to manage the liquidity and funding impacts of both these changes.

Commonwealth Bank of Australia │ ACN 123 123 124 │ 17 November 2021 │ Media Release 307/2021
Ground Floor Tower 1, 201 Sussex Street, Sydney NSW 2000	iv

For personal use only

Capital
CET1 %
Movement in bpts			Level 2
							Expected uplift
							Completed in	(divestments)11
13.1%	(79)				(9)		October 2021	+39 - 49bpts
12.3%	47	(19)	12.5%	(133)
11.2%
							10.5%
			Credit12		(11)		8.0%
			Traded Market Risk	+1
			IRRBB		(9)		"Unquestionably strong"
			Operational		-		Regulatory minimum
					(19)
Jun 21	2H21		Cash	RWA	Other 15	Sep 21	Off-market	Sep 21
Level 2	Dividend13		NPAT14			Level 2	buy-back	Post buy-
								back

• The Group retains a strong capital position, with a CET1 (Level 2) ratio of 12.5% as at 30 September 2021, up 19bpts in the quarter after allowing for the impact of the 2H21 final dividend (-79bpts).
• In the quarter, capital generated from earnings (+47bpts), was partly offset by the impact of higher Risk Weighted Assets (-19bpts) and other regulatory adjustments (-9bpts). Excluding the impact of FX movements, Credit RWA consumed $3.7bn (-11bpts) of CET1 capital in the quarter, primarily related to volume growth in mortgages, corporate and specialised lending exposures, partly offset by improvements in credit quality. Higher IRRBB RWA (+$3.1bn, -9bpts) reflected changes in interest rate risk management positions and a reduction in embedded gains due to increased longer term interest rates. The significant increase in 2 and 3 year swap rates since 30 September 2021 has resulted in a further increase in IRRBB RWAs related to equity hedges with an investment term of 3 years.
• In October 2021, the Group successfully completed a $6bn off-marketbuy-back resulting in a 30 September 2021 pro- forma CET1 ratio of 11.2%, well above regulatory minimums. Strong demand meant the offer was significantly oversubscribed.
• The Group's previously announced divestments of Colonial First State (CFS) and CommInsure General Insurance are expected to collectively provide an uplift to Level 2 CET1 of approximately 39-49bpts.The Bank expects the sale of a 55% interest in CFS to be completed at the end of calendar year 2021 and the divestment of CommInsure General Insurance to be completed in the second half of calendar year 2022, subject to regulatory approvals.
• CBA's Level 2 Tier 1 and Total Capital ratios were 15.1% and 19.7% respectively as at 30 September 2021. In October 2021, the Bank redeemed AUD1.45bn CommBank PERLS VIII Capital Notes, a Basel III compliant Additional Tier 1 instrument, and a USD750m Basel III compliant Tier 2 instrument, compressing Tier 1 and Total Capital ratios by 32bpts and 54bpts respectively.

Appendix

Key financials reconciliation		2H21	Movement	Movement
2H21	Qtr Avg	1Q22 vs	1Q22 vs
	$m	$m	1Q21	2H21 Qtr Avg
Operating Income	12,195	6,098	3%	(1%)
Operating Expenses ex. Remediation costs	5,435	2,717	4%	3%
Remediation Costs16	333	167
Total Operating Expenses	5,768	2,884	4%	(1%)
Operating Performance	6,427	3,214	2%	Flat
Loan Impairment Expense	(328)	(164)	Favourable	Unfavourable
Reported Cash NPAT from continuing operations	4,785	2,393	20%	(9%)

Commonwealth Bank of Australia │ ACN 123 123 124 │ 17 November 2021 │ Media Release 307/2021
Ground Floor Tower 1, 201 Sussex Street, Sydney NSW 2000	v