Half Year 2025 Commonwealth Bank of Australia Earnings Call
I'm head of Investor Relations.
Thank you for joining us for this briefing we will have presentations from assay are coming with a business update and an overview of the financial results.
Speaker Change: Our CFO Alan Docherty will provide details of the financial results.
Matt: And then Matt will provide an outlook and summary.
Matt: The presentations will be followed by the opportunity for analysts and investors to ask questions.
Speaker Change: I'll now hand over to Matt. Thank you Matt.
Matt: Well, thanks, very much Mel and good morning to everyone.
Matt: Great to be with you today to present, the bank's half year results.
Matt: During the half we continued to focus on supporting our customers investing to protect the community and providing strength and stability for the broader economy.
Matt: Every day, we lend to more than 200 businesses helped almost 400 households buy a home.
Matt: This more than 20 million payments and send customers 18000 alerts about suspicious account activity.
Matt: We know that many Australians are continuing to deal with cost of living pressures.
Matt: This half we maintained our focus on supporting our customers with a range of options, which have included improved access to hardship assistance.
Matt: More than 65000, Tyler payment arrangements for those most in need of support.
Matt: And to help more than 3 million customers each month to better manage their finances through our digital money management tools.
Matt: We kept our promise to escape all of our regional CBA branches open to support communities and jobs in regional Australia.
Matt: Keeping our customers' accounts safe and secure is a top priority.
Matt: We invested $450 million in the half to combat fraud, scams financial and cybercrime to better protect our customers.
Matt: Our continued investment has reduced customer fraud, and scam losses by more than 70% over the past two years.
Matt: Our name check technology has been used 80 million times and prevented more than $650 million in mistaken and scam payments.
Matt: Australia and benefit from strong and stable banks.
Matt: This half, we lent $21 billion to businesses to help them grow helped to more than 70000 households, buy a home and paid $11 billion in interest to Australia inside of us.
Matt: We maintained a strong balance sheet, and we remain well positioned to support our customers and the broader economy.
Matt: The Commonwealth Bank's future is tied to Australia as future.
Matt: It is an <expletive> shade interest to say living standards improve businesses grow and for the country to prosper.
Matt: We have the privilege of serving 16 million, Australia and customers and to provide employment to over 35000 Australians.
Matt: In the half we paid $2 billion to over 3700 suppliers, the majority, Australia and small businesses.
Matt: And we continue to be one of Australia's largest taxpayers with $2.2 billion in Australian government payments in the half.
Matt: And we returned $4 $2 billion to shareholders benefiting more than 13 million Australian either directly or through their superannuation.
Matt: It's been a challenging for years for Australians prices are up 20%, including rents up 18% and food up 22%.
Matt: We hear from our customers all the time that they have been making real sacrifices.
Matt: During Covid household so real disposable incomes increased substantially due to the stimulus.
Matt: It has been painful for households, as this unwound in 2022, and 23, primarily due to higher prices.
Matt: Disposable income appears who have now stabilized helped by the stage three tax cuts.
Spend on essentials has reduced driven by lower inflation and energy rebates.
Matt: And households are being able to increase saving and spending slightly more on discretionary items.
The spending and savings gap between younger and older Australians has reduced.
Matt: Continuing to make progress on inflation over the next 12 months will be very important.
Matt: We expect further relief of households, as inflation returns sustainably to the target band and interest rates start to fall.
Matt: There has been interest and the impact of the state's rate tax cuts on households, and the economy more broadly.
Matt: The tax cuts have been mostly saved not spent and we can see these savings flowing through to deposit and offset accounts.
Matt: Offset account balances grew $10 billion in the half almost double the prior corresponding period.
Matt: However, we know the experience of all Australia is not Haven.
Matt: And while we've been encouraged to see levels of hardship assistance reduced by 15% in the half we committed to doing more to help our customers manage their finances.
Matt: This includes making it easier for our customers to access support.
Matt: We build a brighter future for all in a number of ways.
Matt: We aim to help improve the standard of living by growing the economy and supporting our customers.
Matt: We've increased business lending balances by 12% to $152 billion to help businesses create jobs.
Matt: To help our customers achieve their life goals, we aspire to be the trusted partner at the center of their financial lives we.
Matt: We've maintained strong <unk> share in growth segments, but did see a softening in retail MSI from changes in immigration volumes and mix and increased competition.
Matt: Through technology, and digital we deliver superior customer experiences.
Matt: We've increased investment in technology to record levels during the half.
This includes Australia as first Gen AI powered messaging service for bank customers.
Matt: And we also recognized that we must continue to execute consistently so we are safe strong and always there when most natus.
Matt: We've continued to maintain our K balance sheet settings.
Matt: Yeah.
Matt: We continue the disciplined execution of our strategy to build and extend our competitive advantages.
Matt: The strength of our core franchise starts with customer focus and enduring customer relationships.
Matt: Deep trusted relationships late to a high frequency of engagement, a better understanding of customer needs and superior customer experiences leading to value creation for our shareholders.
Matt: Technology allows us to turn this flywheel foster.
It changes customer expectations of what a deep and trusted relationship looks like including how we protect customers for more sophisticated threats like scams and Saba.
Matt: We've increased our technology investments this year to accelerate that progress.
Matt: Net promoter score as a key way, we measure the strength of our customer relationships.
Matt: In consumer NPS, we've maintained the number one position for 26 consecutive months and achieved the highest score of any major bank since tracking began.
Matt: In business M. P. S. We've returned to number one.
Matt: So I have P, leading digital M. P S for AD digital offerings, including the Com Bank App, which is used by more customers than any other financial services App in Australia.
Matt: Our focus on deepening customer relationships is evident through our leading retail and business M F. Our share.
Matt: Nearly 35% of Australians in more than 26% of businesses considered the Commonwealth bank to be their main financial institution.
Matt: We've continued to grow transaction accounts in both our reach out and business banks.
Matt: These increases translate into home and business lending growth of 6% and 12% respectively over the past 12 months.
Matt: More than 97% of home loans and 90% of business lines are linked to a C. B a transaction account.
Matt: Turning now to our performance, which has been underpinned by operational and strategic execution.
Matt: Volume growth has been a particular highlight.
Matt: We've seen record lending to Australian businesses and homebuyers in the half with $144 billion in fundings.
Matt: We've continued to invest in AI to improve the customer experience leading to reduced content contact center wait times and foster business line Decisioning and.
Matt: And we've been very focused on disciplined capital management with strong organic capital generation.
Matt: Strategically we continue to build direct primary relationships through a differentiated proposition.
Matt: The Commonwealth Bank now accounts for more than 45% of all proprietary home lending in Australia.
Matt: We've launched a range of new products to deliver superior experiences for customers.
Matt: Turning to our results we've delivered for all stakeholders through our customer focus and disciplined execution that 2% growth in cash and Pat was supported by volume growth in our core businesses and a lower loan impairment expense.
Matt: Throughout the half we've maintained strong liquidity funding and capital positions.
Matt: Our operating performance and strong capital position has allowed the board to declare our first half dividend of $2 25, an increase of 10 cents on the prior corresponding period.
Matt: And for the ninth consecutive half, we'll be neutralizing the dividend reinvestment plan.
Matt: Operating income has increased 3% for the half supported by strong volume growth and stable underlying margins.
Matt: Operating expenses were 6% higher driven by inflation and investment in technology.
Matt: We've consciously increased our investment envelope to accelerate the continued modernization of our technology and our broader AI agenda.
Matt: Our pre provision profit was up 1%, reflecting strong operational performance across all of their business units.
Matt: And as a result cash net profit was up 2% on the prior comparative period.
Matt: Our balance sheet remains strong with 77% deposit funding and strong provision coverage at weighted average maturity of long term funding is five one years and liquid assets of $175 billion.
Matt: Our capital ratio of 12, 2% is well above the minimum regulatory requirement.
Matt: The credit environment remains benign.
Our portfolio quality remained sound with steady arrays and impairments below long term averages supported by a strong labor market and savings buffers.
Matt: Troublesome and nonperforming exposures remain stable over the past 12 months.
Matt: Home line arrays have also stayed stable with most time lending customers remaining in advance of scheduled repayments.
Matt: We remain well provisioned for a range of economic scenarios, we held total provisions of $6 $2 billion, which is $2.4 billion above a central economic scenario.
Matt: We've seen consistent disciplined volume growth in all of our business units this half an.
Matt: In our retail bank, we've gone home lending and deposits at 1.2 times system, and one time system respectively.
Matt: We're continuing to grow our business banking franchise, we now hold 1.3 million business transaction accounts, and 8% increase and we're continuing to lead the market in business deposit market share and held $7 billion more deposits than our next closest peer.
Matt: We've also continued to grow our business lending above system at 1.3 times and our institutional Bank has continued to play an important role in net deposit funding contributing more than $60 billion.
Matt: We've also reduced total risk weighted assets by more than $30 billion over the past eight years and continued to generate good risk adjusted returns.
ISP has maintained strong reputation scores in the quarter higher than the averages in New Zealand banks and ISP is also seeing strong growth in both.
Matt: Business and rural lending and deposits.
Matt: Looking at our business bank in more detail, we've continued to innovate to differentiate our customer proposition launching new market first transaction banking innovations.
Matt: This is translating into consistent growth in main bank relationships and customer advocacy.
Matt: This growth in primary customer relationships has seen a 45% increase in business transaction accounts in the past four years.
Matt: We held $30 billion more business banking deposit balances than we did in December 2020, and we are number one in deposit market share.
Matt: We've also continued to increase business lending volumes above system with lending balances increasing by $55 billion since December 2020.
Matt: This is additional lending that is helping Australia businesses to grow.
Matt: The deepening of primary customer relationships and prudent lending growth is driving strong earnings performance. The business Bank now contributes approximately 40% of the bank's profit after tax.
Matt: A core part of our strategy is delivering global best digital experiences for our customers.
Matt: <unk> Com Bank App, Australia is number one banking app has more than 8.8 million users with over $12 3 million daily logins.
Matt: Since its launch over a decade ago, the number of customers using the App has tripled and the frequency of their use has also tripled.
Matt: Through the App, we're focused on building distinctive customer experiences and example of this is comeback yellow Australia is largest loyalty program and the only program of its kind in Australia.
Matt: We've over $6 4 million customers now engaging with yellow, which is delivering millions of personalized benefits discounts and cash backs.
Matt: Customers, who are engaging with combat yellow are engaging with our app twice as often as other customers.
Matt: Digital scams or a scourge on society and anyone can be a target.
Matt: Any loss to a customer through a fraud or scam is unacceptable.
Matt: While losses for CBA customers have dropped we acknowledge there is much more that needs to be done.
Matt: This half we've proactively contacted 8.7 million customers to build scams awareness and we now have more than four and a half thousand staff dedicated to fighting financial crime.
Matt: We've also launched a range of new measures to protect our customers and are working with others on cross industry initiatives.
Our name check technology is now being used by three out of the banks and a number of other institutions. It has saved their customers more than $40 million in scams and mistaken payments.
Matt: And it continues to create value for our business and retail customers.
Matt: Last October Namecheck enabled our team to step in and help a business customer avoid a $2 million loss via business email compromise scan rich.
Matt: Reducing the incidence of scans requires a whole of ecosystem method to disrupt them as close as possible to the source.
Matt: This is because most scams originates outside of the regulated banking system.
Matt: Over the next year, we want to extend this ecosystem approach to disrupt fraud and scam campaigns in real time, helping to make all Australian safer.
Matt: And we will continue to invest to keep our customers safe.
Matt: And through a collective effort between banks government and other industries, we must stand path is criminal activity in Australia.
Allen: I will now hand to Allen to take you through the result in more detail.
Allen: Thank you, Matt and good morning to everyone dialed in.
Allen: I will begin with an overview of who operate in context is evolving and our response to that.
Allen: That translates into key measures of our franchise health over the long term.
Allen: And how this manifested in our latest financial results and returns to our shareholders.
Allen: So looking firstly at our operate in context, we are seeing evidence of improving conditions for stretched households.
Allen: Tax cuts energy rebates and a gradual moderation in inflation have led to a modest but welcome rising disposable incomes over recent months.
Allen: We're also attentive to several global semantics, which have implications for Australia.
Allen: On the technology front, we are seeing an evolution of the capabilities of generous of AI.
Allen: But to take full advantage of the opportunities in the years ahead requires an AI ready workforce dataset and technology infrastructure.
Allen: We also live in a world of rising macroeconomic imbalances and geopolitical uncertainties.
Allen: Australia remains relatively well placed and routines strong fundamentals. This is an attractive destination for both people and financial capital.
Allen: But of course, we are not immune to the risk of exogenous shocks emerging from other parts of the world.
Allen: So how are we responding to this context.
Allen: Firstly, we continue to focus on supporting those customers most in need of assistance, providing tailored help to those and hardship.
Allen: Secondly, we remain disciplined in our approach to volume and rate tradeoffs.
Allen: As can be seen in a rising share of industry net interest income.
Allen: And we continue to exercise care around who will utilize our shareholders' capital.
Allen: Always with a view to long term shareholder value accretion.
Allen: Thirdly, we decided the time was right to again increase the level of investment of shareholders' capital behind our strategy.
Allen: This will help accelerate the time period over which we would refresh of technology infrastructure and level of AI readiness.
And ultimately drive an improved experience for our people and our customers.
Allen: And lastly, we have maintained strong balance sheet settings to further underpin the flexibility of the franchise to support our customers and the economy under a range of future economic scenarios.
Allen: Key measures of over a long term franchise health remain in good shape.
Allen: The strengthening of the franchise translates into shareholder returns and you can see some of the key financial outcomes for the period on the bottom half of the slide.
Allen: Pre provision profits have grown strongly this half and that is a reflection of strong operational performance delivering above system volume growth in both home and business lending.
Allen: All of our balance sheet settings have remained at the conservative end of the spectrum.
Allen: And that combination of profitability and balance sheet strength has provided the board with the opportunity to distribute higher interim dividend.
Allen: I will now step through the result in more detail.
Allen: Both statutory and cash profits from continuing operations were $5 $1 billion with little to no noncash items and the cut in half.
Allen: Breaking down the components of that cash profit.
Allen: Operating income showed an improving trend over both the prior comparative period and the sequential half.
Allen: We chose to reinvest some of that top line momentum and to higher operating expenses, while still preserving growth in pre provision profits.
Allen: Loan impairment expense reduced as the economy proved resilient to higher rates.
Allen: This translated into higher reported cash profits.
Allen: Looking firstly, our operating income.
Over the prior comparative period.
Allen: Overall income grew 3.3% to little over $14 billion.
Allen: Net interest income was the key driver of that growth increasing $530 million due to strong volume growth across all of our banking businesses in Australia and New Zealand.
Allen: Other operating income was a slight drag on earnings due to lower trading income versus a strong prior comparative period, partly offset by volume driven growth and lending fees and commissions.
Allen: One pleasing aspect of this result was a return to growth in our share of industry net interest income.
Allen: On the left we can see the change in share of net interest income of the four largest banks in Australia, which is a total annualized revenue pool of about $75 billion.
Allen: You will recall that this time last year, we were able to grow industry revenue share despite losing home loan volume share due to strong pricing disciplines.
Allen: Over the last six months, we've been able to maintain that pricing discipline. While also returning to above system growth in home lending.
Allen: This period also demonstrated the ongoing importance of investing behind our proprietary distribution channels.
Allen: And executing with consistency and our operational teams.
Allen: These are the essential foundations required for any bank to deliver sustainable multi year organic capital generation.
Turning to net interest margins.
Allen: While reported margins were higher underlying margins were stable over the sequential half.
Allen: Reported margins were inflated by mix effects caused by lower liquid assets and also some changes to our institutional product offerings.
Allen: This represents a cosmetic improvement to margins it did not drive earnings growth in the period.
Allen: Excluding those items underlying margins were stable with the impact of competition for deposits in home loans offset by higher earnings on our capital and replicating portfolio hedges.
Allen: Turning now to operating expenses, they increased by 6% over the prior comparative half.
Allen: Most of that growth was a function of inflationary increases in wages and supplier input costs of around 4%.
Allen: Given our strong momentum in top line earnings we chose to reinvest some of that until tech infrastructure and frontline teams.
Allen: We believe this is the right decision for the long term.
Allen: Standing of technology leadership, and delivering better customer experiences and profitable franchise growth and the decade ahead.
Allen: Pleasingly the realization of ongoing productivity benefits were able to finance some of that extra investment after absorbing volume related cost increases.
Allen: We went out onto our balance sheet setting starting with credit risk.
Allen: Loan impairment expenses were $320 million as loan loss rates reduced to seven basis points over the last six months.
Allen: Consumer arrears rates have reduced in the last six months across the credit card and personal loan portfolios, while home loan arrears have stabilized.
Allen: Ah Reals do however remain higher than the way a 12 months ago as cost of living pressures continue to weigh on some bottles.
Allen: Corporate troublesome and nonperforming exposures reduced slightly over the period due to the repayment and upgrade of several single name exposures.
Allen: Overall provisions have increased slightly to $6.2 billion.
Allen: It was largely a function of growth in lending.
Allen: We continue to hold a buffer of approximately $2 $4 billion to a central economic scenario.
Allen: And their balance sheet provisions no cover more than 75% of the expected credit loss of a downside economic scenario of a global recession.
Allen: Provisioning coverage reduced slightly to 162 basis points of credit risk weighted assets.
Allen: As usual we have.
Allen: Sector level considerations have evolved over the last six months.
Allen: Consumer provisions have again reduced slightly over the period due to rising house prices as well as lower expected losses on credit cards and personal loans.
Allen: Within corporate.
Allen: There wasn't any significant change in the provision and coverage for the retail trade entertainment leisure and tourism or agricultural sectors.
Allen: We did reduce forward looking adjustments lately and the construction and commercial property sectors as portfolio credit metrics improved.
Allen: Turning to our funding stack, we've maintained strong settings across the board.
Allen: We delivered another pleasing period of growth in retail and business transaction deposits and a customer deposit ratio is at 77%.
Allen: Looking at the full funding stack in the middle column.
Allen: You can see a short term wholesale funding mix remains well below historic levels at 8% of total funding and long term funding remains conservatively positioned with a weighted average maturity of 5.1 years.
Allen: And on the right hand side, you can see the strong level of liquid assets that had been built over recent years with a liquidity coverage ratio no back within target range. Following the term funding facility repayment in the middle of last year.
Allen: Or level, two common equity tier one ratio was 12.2% down 10 basis points over the past six months.
Allen: As we have articulated under our capital framework, the first and best use of surplus capital is to support our customers and the economy and grow our franchise.
Allen: You can see that that has again been the case with growth in credit risk weighted assets driving 36 basis points of capital consumption.
Allen: The interim dividend increase 10 cents to $2 25 and.
Allen: And the dividend reinvestment plan will again be fully neutralized through an open market purchase of shares.
Allen: Normalizing for long run average loss rates that represents an interim payout ratio of approximately 75%.
Allen: As you can see on the bottom right of this slide the underlying level of organic capital generated from our operations underpins the long term sustainability of the dividends, which benefit millions of Australians.
Allen: And that is one example of the disciplined and balanced approach, we take to capital management.
Allen: The reason, we attract shareholders capital in the first place is because they trust us to deploy their capital carefully.
Allen: The return on that capital helps fund our growing portfolio of lending and also allows us to continue to invest strongly behind our strategic priorities.
Allen: And the last six months, we have deployed a record amount of capital to support home and business owners in Australia, and New Zealand.
Allen: And a record amount of franchise reinvestment to deliver better customer experiences both today and over coming years.
Allen: Getting that balance right between the sources and uses of our shareholders' funds provides us with the flexibility to deploy surplus capital in the right way and at the optimal time.
Allen: This long term approach has manifested in a consistent track record of delivery.
Allen: A combination of a high return on equity and a strong payout ratio continues to compare favorably with domestic and global peers.
Allen: I know a strategic investments strong operational execution and disciplined capital management combined to deliver continued out performance and net tangible assets and dividends per share.
Matt: I'll hand back to Matt for the economic outlook and the closing summary, thank you.
Matt: Thanks, very much Alan.
Matt: As I mentioned earlier, the past four years have been challenging.
Matt: We know many households are looking forward to low rights.
<unk>, if it will be required to get underlying inflation sustainably into the target band.
Matt: And there are some risks around the outlook.
Matt: Housing affordability remains a great concern and will no doubt be one of the dominant themes for many years.
Matt: <unk> growth will also be critical and is the only path to grow standards of living sustainably over time for all Australians.
Matt: There are a number of uncertainties in the geopolitical environment.
Matt: However, there is reason for optimism in the Australian economy.
Matt: The labor market remains robust with near record low unemployment.
Matt: The federal budget position is favorable relative to most developed economies and real disposable incomes have started to lift.
Matt: We expect them to continue to rise over the course of the year.
Matt: So in summary, we remain focused on supporting and protecting our customers, providing strength and stability to the Australian economy.
Matt: Maintaining consistent and disciplined strategic execution.
Matt: And building stronger relationships with our customers and investing to strengthen our long term franchise.
Matt: We will stay focused on our customers offering personalized support and financial flexibility and we will continue to invest in our franchise as the bank for all Australians on a hand to mail to go through your questions.
Matt: Thank you Matt.
Matt: We will be taking questions from analysts.
Speaker Change: When it's your turn I will state your name and the operator.
Matt: Hi.
Speaker Change: <unk> introduced the organization that you represent.
Speaker Change: And please limit your questions to no more than two questions to allow everyone an opportunity.
Speaker Change: We now have the first question coming from Carlos.
Speaker Change: Thanks Mel.
Let's cut shows from Macquarie. Thanks for the chance to.
Speaker Change: The question I, just wanted to start on expenses adjusting.
Speaker Change: Adjusting for the higher day count it looks like your underlying our strong.
Speaker Change: 3% on the harsh and within that <unk> spend with other Betsy.
Speaker Change: If I if I look at the investment spend which I now increased that actually went through the P&L. It looks like that was about flat half on half. So the majority of that spend looks to be supplied.
Speaker Change: As we look forward how should we think about that is that going to remain at that kind of mid single digit growth rate was there some one off in the half that.
Speaker Change: It was high I guess, how should we think about underlying cost, particularly at <unk> spend going forward, yeah, maybe I'll start and Alan can talk in more detail. Thanks, Carlos look I think I guess, the most significant overall as Alan sort of touched on we've been comfortable that we have been improving the level of sort of efficiency in app.
Speaker Change: Comes from the technology investment spend we're also conscious that it's probably gone backwards in real terms over a few years. So we consciously wanted to increase that level of an investment. So there's a number of F. T. A associated with that I think that the trend that we've also been continue is bringing more capability in house, there's obviously an offset.
Speaker Change: Some of the external providers, we've also got within that way.
Speaker Change: Wages growth probably of around.
Speaker Change: 4% I guess, they have been sort of the key drivers and yes, there's sort of changes in any period or instead of capitalization, depending on that that level of investment, but I think where we can see some opportunities at this point to accelerate some progress.
Speaker Change: Particularly on some of our longer term objectives with that though that this is an appropriate time to to step that up and over the course of this financial year.
Speaker Change: Yeah, and as we touched on in the presentation. Carlos we're going to you know we made a choice around the level of the run rate level of expenses through the half we've added more frontline teams tightly in the business bank.
Speaker Change: We brought more technologists and to the banquet, you'll see them come through and that's coming through mainly in the staff cost line that has some stockpile.
Third party providers that we've brought on to work on some of that investment spend so you see an element of that turn up on costs.
Speaker Change: So we you know we made a choice around that that plays into the run rate I think on day count So.
There's a couple of extra working days and that the first half of this financial year.
Speaker Change: Against both the prior comparative periods on the sequential periods. So that plays into some of the growth that you've seen over the sequential half, but you know as we've said in the past.
Speaker Change: We adopt a flexible approach to the cost line and partly is contingent on how we're going on the top line. So in this period, the topline momentum and our confidence in that gave us some some room to accelerate some more costs through the period, which are embedded in that run rate. So we will keep an eye on that.
Speaker Change: <unk> look and going into the balance of the financial year and beyond to continue to flex our cost approach accordingly.
Speaker Change: Great. Thank you guys. Thank you very much.
Speaker Change: Secondly, just on margins.
Speaker Change: Winding two years in first half 'twenty two you gave us that now the infamous slide on them to give the market a bit of a framework for thinking about how high rates in the RBI would flow through your <unk>.
Speaker Change: Business.
As we sit here and you know the market's wildly expecting a rate cut next week and then another three.
Speaker Change: Almost straight through the rest of this year.
Speaker Change: How are you thinking about how that flows through and is there any guidance or indications you can give the market similar to what you provided on two years ago.
Speaker Change: Well, we haven't provided any sort of additional gains since that which was the thing first half 'twenty. Two so you have a couple of years back at the beginning of the rate cycle.
Speaker Change: And we talked about the sort of sensitivities to each rate rise. The thing that's really changed slightly over that period I think the overall sensitivity I think that borrow over the last two years as you've seen the margins change in response to the rising cash rates or remain comfortable with the overall sensitivity that we.
Speaker Change: Provided.
Speaker Change: The thing that has changed slightly as we've hedged a little more of a non rate sensitive deposits and we've seen some switching out in terms of the unhedged deposit so.
Speaker Change: Probably a little bit of a mix change between the piece of it represents the replicating portfolio earnings, which obviously take longer to manifest first is the piece related to the unhedged deposits balance because that was a larger back a couple of years ago, but.
Speaker Change: You know aside from that mix change I think the overall sensitivity through the through passage of time remains similar to the gains that we provided a couple of years ago.
Speaker Change: Okay. Thank you very much.
Speaker Change: Thank you next.
Speaker Change: Our next question comes from Jonathan Mott.
Speaker Change: Yes.
Speaker Change: Especially congratulations 40 foster shares Rajiv mortgage trials I know that's something that.
Speaker Change: Sure sure.
Speaker Change: It really reflects.
Speaker Change: Really good work.
Speaker Change: Tom says.
Speaker Change: Graduations and let's see you got.
al: A question Al and then a follow up as well.
al: The retail bank very long credit impairment charge and you called out.
al: I'm, a finance coming through some of that seasonal in the second half, but also allow a collective provision, giving house trust improvements I understand there's a lag between actual healthtrust news and thanks calculations that given test process started delays in Sydney and a down in Melbourne.
al: Each day at current levels does that mean that you'll start to see a high collective provision charge.
al: Tammy charge in the retail bank.
al: Second half and into.
al: 26.
al: Thanks, John.
al: We have a dynamic approach to revaluation. So we have a very regular health.
al: Check if you like on how the carrying value of the collateral the against the mortgages moving so we we keep prey relatively current I'd say with the with the movements in house prices, what you've really seen is.
Small changes around the margin in terms of the overall amount of collective provisions that were carrying.
al: And you know as you can see on the actual provisions that we hold we've got a significant buffer to that central economic scenario.
al: And if anything I think we've got more certainty. No. Then we had six or 12 months ago around the probability of that central scenario playing out so Kevin.
al: Even with a marginal change in consumer collective provisioning will still very well provide you did relative to our base case.
al: So no I wouldn't see that as a particular source of higher loan losses in the near term.
al: As you see a sort of stabilization, maybe a slight decline in house prices because the coverage levels are very strong and we look as we as we find out more about how your customers are performing.
al: According to the extent that they go in a hardship. We can then refine the levels of all believes that we have against various segments of the consumer portfolio. So you're always going to see a little bit of movement. One period to the next that's half of it happened to be a slight decline, but I think overall, we're feeling very comfortable with the level of provisioning with gone both consumer and corporate.
al: No.
al: Just reading between the lines.
al: The very low levels of provisioning are likely to continue into the second half just effectively that's what you are saying with the council of insurance the vessel.
al: Well what you.
al: The pain on the future how of what we'll give guidance on the future of where we sit today, we're feeling pretty comfortable relative to that central scenario and I think John specifically to any relative change in sort of consumer res, which there is a little bit of seasonality, particularly in the unsecured I think that's going to have a very sort of modest.
al: A modest impact.
al: Okay.
al: Second question Matt.
al: Now the topic, we've been talking about for a long time.
al: Shell a bit over the last 12 months, especially in the young adult category. It was down about a percent.
al: Just thought if people ask how she called out 62% share of the migrant community.
al: 800000, young migrants, mainly students coming into Australia last year.
al: You've obviously dominating that sector. So if you look at the number of young customers you won from migrants. It means that you will share with non migrant community.
al: Quite a bit over the last 12 months.
al: Wanted to get a feel despite all the technology investment.
al: We're doing in the industry.
al: The school age category.
al: Just going on with that.
al: Young adult category, Yeah, no. Thanks, John.
al: I think we've ever been chatting about this slide now for just over a decade and there's a little bit as you know, there's a little bit of volatility given the survey nature of it but to your point OS I think there's some interesting things that happened certainly over the medium term I think a couple of things that we're looking at.
al: Clearly the.
al: Full year for last year was very strong we really benefited from higher migrant.
al: The numbers that they've reduced we're seeing increased competition for new Margaret's as well you might I'm sure you've seen.
al: At least one of the other banks is paying sort of a cashback.
al: Secondly, there's actually a mix effect, so there's certain Margaret.
al: Flows from India, we are we get a much larger share than some other countries said theres a little bit of a mix effect. There and then I think looking abroad, a point, where we sort of look at it every period, but also particularly over the medium term for any changes we've done very well in youth over a long period of time, we sort of see competitive intensity beauty.
al: Here you ran some maybe the deposit rights there. So we continue to watch that and win right. The way through so I mean, obviously, we have a strong starting point, it's really important we continue to win a disproportionate share of Houston migrants.
al: We started back at some of the volatility, but notwithstanding that I think there's some important observations for us that we're sort of looking into about where the Ah.
al: We need to respond because as.
al: As evidenced by the fact that we've been talking about it for more than a decade, we think it sort of directionally a good representation.
al: Tentation of one of the strategic drivers for us.
al: Thank you.
al: Thank you next question comes from Andrew Triggs.
Speaker Change: Good morning, all just a couple of questions. Please the first one just on the <unk>.
NIM walk slides thanks Ellen.
Speaker Change: A little bit surprised to the extent of deposit competition and mix impacts still coming through in the NIM more alright, it for half on half but still.
Speaker Change: Reasonably significant headwind could you. Please break out some of the key drivers of that whether it's a deposit competition credit qualifications upon its rights.
From the deposit mix slot. It doesn't look like there's been a great deal of change in mix.
Speaker Change: Mix shift during the period.
Speaker Change: Sure, Andrew and you'll recall that.
Speaker Change: I think for the last couple of halves, we've been flagging deposit competition was going to likely be the single largest headwind facing us.
Speaker Change: And the beauty of the heads of our breakdown the four points of deposit competition two points related to retail savings price competition I really there's an element of mix to that we're growing very strongly and our awards save a product go saver, that's growing around three times faster than our sort of.
Speaker Change: Traditional product the Netbank save a product.
Speaker Change: We talked last time about the you know the very high award rate the customers enjoy on that product pleased to see that that has continued to grow so more and more customers are.
Speaker Change: Qualifying for the bonus right.
Speaker Change: And so you've seen a mix effect, if you like within retail savings because the growths in the higher yielding products. So that's two points of the four points of retail term deposits was one point.
Speaker Change: Of the four points that.
Speaker Change: It's just really a function of you have seen that change in.
Speaker Change: 12 months swap rate over the period Theres been some changes to retail deposit pricing without some special was on at various parts of the curve, but that's just normal competitive attrition from a retail term deposit perspective, and then there was a basis point of competition in business deposit. So we've seen some increased competition on.
Speaker Change: Both sides of the balance sheet actually on a price basis.
Speaker Change: Business banking and so that was the other the other point.
Speaker Change: Okay. Thank you and maybe just take a step back and look at the performance of the last 12 months or so you had 6% deposit growth for the first half versus the PCP on 3% revenue growth and that was in the backdrop of very strong well.
Speaker Change: Above system credit growth and a fairly stable environment at least in the second half.
Speaker Change: As you look forward I mean, what type do you have a returning to at least somewhere close to neutral Joe's at some stage given things along you'll be it harder getting hotter on margins due to rate cuts coming through in the short term.
Speaker Change: Yeah, So look I think as Alan touched on earlier.
Speaker Change: Obviously, you tried to take a you know me.
Alan Docherty: Medium term view, we're very conscious always of the revenue environment.
Speaker Change: Which isn't to say we.
Speaker Change: We weren't necessarily solve for this sort of revenue and expense in that particular period, we but as we go into a softer environment. We were prepared to sort of scale back and look harder on the expense side, probably unlikely from an investment perspective, and where we've been prepared it for we go above.
Speaker Change: What our base case would be in terms of expense growth has tended to be opportunistic when we feel that we've gotten.
Speaker Change: Good volume or revenue outcome that was particularly evident I think during COVID-19, but we increasingly believe that the <unk>.
Speaker Change: Long term strategic positioning and performance of CVA will increasingly be determined by a relative technology execution and therefore, we want to keep the investment high end and for the reasons outlined earlier thought it was the appropriate time to just step up some of that investment, but that sort of rate of growth isn't necessarily indicative.
Speaker Change: It is of an ongoing effect.
Speaker Change: Thank you Matt.
Speaker Change: Our next question comes from Richard.
Speaker Change: Good morning, Matt Good morning, Alan.
Speaker Change: Just wanted to ask about.
Speaker Change: Mortgage competition.
Speaker Change: Obviously you.
Speaker Change: One a little bit of share in the half.
Speaker Change: <unk> originations gang will.
Speaker Change: Did you say sort of sector wide competition as in the half and what's your view on some of the recent suggestions.
Speaker Change: It's picking up again.
Speaker Change: So Richard I guess over the I mean, maybe 12 or an 18 month period, and particularly set of evidence that say in the last six or nine months I think sort of margins have stabilized. It's still very competitive I think most of that stabilization is actually they had an improvement in sort of funding costs, which have been in the totality of in vain.
Speaker Change: Pass onto there's been a slight improvement and we can say that in terms of <unk>.
Speaker Change: Average new business margins, but then also sort of you know.
Speaker Change: Marginal roadies across the industry I mean, our base cases.
Speaker Change: You know that sort of level of competitive intensity will probably stay around the same levels as risks to that as well I mean, clearly you know some of the funding.
Speaker Change: Reds are almost at record.
Speaker Change: Levels in terms of the tightness of those credit spreads, we see upside risking in cash bills or basis risk that would that would compress margins, it's not as evident I mean, they're very small moves at the moment in and.
Speaker Change: Across the market so.
Speaker Change: Think our base case is probably a stabilization but.
Speaker Change: But I think there's you know if margins, particularly from a funding or basis risk increase I think that has the potential to compress margins because generally speaking.
Speaker Change: The market doesn't necessarily adjust in terms of the level of front book discounting than in prior cycles. So it'll continue to be something that we're watching closely.
Speaker Change: That stabilization, obviously at substantially lower levels than it was.
Speaker Change: A few years ago in terms of the margins that are available.
Speaker Change: And that's putting pressure, particularly I think on some of the smaller financial institutions, which have been even larger concentration.
Speaker Change: To home lending.
Okay. Thank you Ian.
Speaker Change: And this result, you haven't made any changes to your.
Speaker Change: Capital management approach.
Speaker Change: Your savings around the dividend, you're making pretty slow progress on the buyback.
Speaker Change: <unk> million dollars in the past half.
Speaker Change: Just announced that you're going to get a new.
Speaker Change: $8 billion of benefit from the sale of a striking bank changes.
Speaker Change: The capitals building up.
Speaker Change:
Speaker Change: If the.
Speaker Change: The share price doesn't go down or in fact, it goes higher how do you manage your excess capital.
Speaker Change: Yeah, I mean, and how we'll manage it we'll come back to the capital framework that we've.
Speaker Change: Articulate in for a number of yields no and I think you sort of summarizing that person will take a long term approach here and as I mentioned in the presentation and you can see it and particularly in this result.
Speaker Change: Foster and best use of surplus capital is to grow the franchise and it was a very strong level of trade of RW way growth in fact, a record over the last six months.
Speaker Change: And so we haven't actually added to the capital surplus organically through the six month period because of the 36 basis points of capital consumption, we see an entre to R. W. A.
Speaker Change: So we're sort of geared for that growth, we're pleased with that growth.
Speaker Change: Importantly, the growth is the right kind of growth because of it. When you are growing quickly. You'll look at is are we winning on price and that's not where we're winning are we listening created nor will not listening trade have we changed the hurdle rates, nor we've kept the same hurdle rate consistently for many many years. So we're getting good risk adjusted return is good franchise.
Speaker Change: Growth, which is going to benefit shareholders over the longer term. That's the first and best use you. The Ravenna increase the investment spend I think that's a good use to the extent that you go NPV positive.
Speaker Change: Investments that you can make and we continue to see that.
Speaker Change: As we've improved I think the execution of a change portfolio the velocity the engineering mix we were.
Speaker Change: Open to increasing the level of run rate investment spend because we think we can get more done over a quicker time period. So again I think that's a good use of the surplus capital and then to the extent on valuation I mean, nothing's really changed from the conversation we had on this topic around August the signal from the market is it's still accretive to buy back shares.
Speaker Change: Because the cost of equity used Ohio than the after tax cost of debt, but the optionality value of running a higher for longer capital buffer.
Speaker Change: Ways that accretive nature over the long term of the buyback and so we're on.
Speaker Change: We're making slow progress for that reason on the on the oil market purchase.
Speaker Change: No things can change, though so if we are going to see an easing cycle and rates, which most people expect then what you're going to see is that gap start to why you didn't between the after tax cost of debt and the cost of equity.
Speaker Change: No.
Speaker Change: A few rate cuts coming through that could change that dynamic over the over the next year or two so we will continue to be cautious around that we want to make sure that our surplus capital was deployed in the right way and at the right time, and so yeah no change to the to the framework that we've outlined.
Speaker Change: Outlined over the last few years.
Speaker Change: Right.
Speaker Change: To summarize that Alan and I acknowledge that.
Speaker Change: Best uses to grow the franchise you're managing.
Speaker Change: To tell you that and you're keeping your excess capital I mean it.
Speaker Change: We think of the hanging too and your existing.
Speaker Change: Unfinished buyback.
Speaker Change: You got three and a half $4 billion of excess capital.
Speaker Change: Are you, suggesting that right Tonight to come down for you to reactivate the buyback is that which we should.
Speaker Change: Tight from from the comments you just might not.
Speaker Change: Not not specifically I think.
Speaker Change: Alan did a great job of outlining all of the different criteria I mean ultimately Richard.
Speaker Change: There's a number of different considerations the opportunity cost of having a little more excess capital at the moment as well.
Speaker Change: We never been lower we're prepared to be patient.
Speaker Change: We've got a preference in terms of how we can best deploy that from a value.
Speaker Change: Creation perspective, and so there's no need to revisit any of that at this point in time that will continue to monitor a whole range of different circumstances market conditions.
Speaker Change: Our funding costs for alternative instruments outlook on risk weighted asset growth, what we think might be going to happen in terms of loan losses franking balances and we revisit that regularly and certainly at this point in time, we don't think there's anything that we need to change.
Speaker Change: Okay. Thank you.
Matt Wilson: The next question comes from Matt Wilson.
Speaker Change: Hey, good morning team that Wilson Jarden, two questions, if I might and.
Speaker Change: Sure you can hear me okay.
Speaker Change: I'm on slide 27.
Speaker Change: <unk> share of total net interest income you present that is increasing and alongside that you sort of give you. Some data on timeline marketshare timeline movements et cetera, but the reality is it's deposits that's driving that right now.
Speaker Change: 73% of your NII improvement from the retail bank came from deposit benefit timelines around 13% and indeed, the consumer finance portfolio to drive more NII than the home line portfolio.
Speaker Change: Can you talk us through just the deposit dynamics that are actually driving this NII outcome and the increasing share.
Speaker Change: Yeah, but it doesn't obviously.
Speaker Change: Number of products that are driving the overall.
Speaker Change: In the interest income outcome. The point, we're trying to highlight on that slide I guess is the focus on proprietary distribution is important no proprietary distribution is very important for our deposit gathering.
Speaker Change: So you've seen 4% increase year on year, and a retail transaction accounts.
Speaker Change: Double that in business transaction accounts, 8%.
Speaker Change: So very strong momentum there on the proprietary deposit gathering on the liability side of the balance sheet, you've seen it obviously in the mix of the proprietary versus broker originated home lending on the asset side and again on the business Bank, we've put more frontline people law and the productivity per banker fundings payout.
Speaker Change: <unk> grown very strongly so again very comfortable with the investments we've made in proprietary distribution in the business bank paying dividends in terms of the overall business lending franchise growth. So that I guess is that there's a broader point to be made around the investments in proprietary we think are important that proprietary distribution is driven.
Speaker Change: Very strong volumes on both sides of the balance sheet and as that volume that's driven that the increase in the net.
Speaker Change: The industry income sure.
Speaker Change: So we'll continue to we think it's important we're going to continue to focus on that and invest behind to be at the deposits are part of that and that growth on the left hand side.
Speaker Change: Yeah.
Speaker Change: All right great. Thank you liabilities are you real advantage not your mortgages, but and then the second question if I may on slide eight.
Speaker Change: Pleasingly, you, saying the number of hubs hardship cases fall by 15% in the half, but you also called out in the MD&A that increased restructured home loans were the main driver of the increase in nonperforming exposures, which were up 7% half on half what percentage of those hardship cases migrate to true actual restructured lines.
Matt Wilson: I think Matt, we'd probably need to double check unless you.
Speaker Change: It would be up.
Speaker Change: Heavy proportion of the hardship cases would be would be restructured.
Speaker Change: Yeah, and I think most cases that would that would turn up as a restructured home loan this the slate.
Speaker Change: The way I hesitate, though is there's a slight difference between a nonperforming exposure and the old measure of troublesome and impaired exposures.
Speaker Change: T I as a sort of.
Speaker Change: Institution specific definition. So that's been retired because of notable with a new opera.
Speaker Change: Credit quality standard, which defines troublesome and nonperforming exposures, which is the disclosures. We've made that's comparable across institutions everyone's got the same definition. So I think that's a more helpful number the slight difference, though is you can restructure a home loan is in default and so if it's not in default it doesn't turn up in there.
Speaker Change: Nonperforming exposures. So if we look at the old definition. The OTI a definition you go very similar trend, it's actually pretty flat over the six month period, a few more home loan restructures the well on default.
Speaker Change: But let's say corporate troublesome exposures given some of the single names have improved as we've called out.
Speaker Change: In the MD&A and in the slides so yeah, if you're in hardship is more than likely you have gone through some form of restructure whether that's a payment plan arrangement an extension of time some people with entresto only for a period. So those are all good all qualifies as sort of restructured exposure that would tell nothing that patents that appeal to us.
Speaker Change: Yeah, I'm, not saying that I mean overall, the I mean, the vast majority of turbulent financial assistance. They tend to be of short duration is certainly a less than a couple of months, but I mean, as a reasonable proxy probably expect that flow.
Alan Docherty: Well certainly if the customers you're going out of financial assistance ultimately into there is that that Alan just covered and I mean, the stabilization and raise over the.
Speaker Change: Period was interesting, we probably expect a like a gradual.
Speaker Change: Well I think he would've deteriorate absent rate cuts, which are more likely so probably not a lot of movement in terms of a raise certainly on the consumer side and then just going back briefly just to your point on liabilities and certainly if you take a slightly longer term view than the six months were reporting today, yeah from a cash rate of 10 basis points.
Speaker Change: The 435, we've grown a lot out main bank relationships and particularly in business banking, we got a lot of positive leverage to a rising rate environment.
Speaker Change: The quality of that deposit franchise, obviously allows us to you know to hedge that theres been.
Speaker Change: These are the switching.
Speaker Change: As as really stabilize and really the balance sheet composition across the liabilities between atco noninterest bearing savings and term across personal and business looks a little different to the way it did.
Speaker Change: Pre Covid and then we've seen.
Speaker Change: NIM headwinds, obviously on the rate outside from either a pricing or you know we talked about at the full year increase to loading to our customers and products that golf's over to make sure they're qualifying for the bonus right and then on the business Bank side I think in particular, we've seen more competitive intensity.
Speaker Change: For some of the.
Speaker Change: Larger business deposits, which we've been prepared to let go because I looked at sort of negative margin to us. So I think that's sort of volume performance in that particular business was a bit weaker, but we feel like we're making the right trade offs.
Speaker Change: But yeah, I think sort of fundamentally that sort of growth in the deposit nine bank relationship you know given the expansion in cash rates. This has helped us certainly from an NII perspective.
Speaker Change: I'd just like to the hardship and NPA is Victoria sort of generating a disproportionate share of those outcomes.
Speaker Change: Victoria, and it's pretty clear when I come up to Sydney, It's a much broader and rosy here versus what we're seeing down in.
Speaker Change: Victoria, Yeah, that's right I think in the.
Speaker Change: Where we are not performing and not well secured which the numbers in totality a small.
Speaker Change: Very small I mean, I think Victoria is 48% from memory of that and I think it's probably broader broadly reflective of what we're saying and I think a number of.
Businesses that have even reported the economic conditions and sentiment.
Speaker Change: I'd say, maybe at wake here in Victoria relative to other states.
Speaker Change: Thank you that makes sense. Thanks.
Brian: The next question comes from Brian.
Brian: Hi, Thank you and congratulations on a great result.
Brian: I had two questions. If I may the first one is just on this AI investments.
Speaker Change: It strikes me that you've you've said today you got to have good Dara good infrastructure kind of good customers, but at this stage you seem to be investing in it but we haven't and we can see you're growing the franchise.
Speaker Change: Is there a point, where we actually see cost coming out on the back of it and does even though that's good for the cost line.
Speaker Change: This is kind of industry, what does it create asset quality problems further on down the trek across the whole sector is basically yeah.
Speaker Change: Sure.
Speaker Change: Quite a few people that are soundly employed today.
Speaker Change: Perhaps won't be employed in the future. So can we get just get a view on when we get in I O.
Speaker Change: <unk> productivity.
Speaker Change: Saving on the costs and what that does to the credit risk.
PJ: Yes sure P J.
Speaker Change: I mean look from an AI perspective.
Speaker Change: Obviously the investments over a long period of time, we are primarily focused on improving the customer experience. We've done that in things like our customer engagement engine, bringing much greater automation and convenience to customers through some of the lending application processes in some of the.
Speaker Change: Areas, where we're serving our customers for example in the contact center, where we are dealing with increasing in record numbers of a payment.
Speaker Change: Payment disputes as more transactions I think I've gone sort of all Alonso is it [noise], there's much dealing with probably some of that growth.
Speaker Change: The as you said, there's a number of elements that you need to invest in from a from the overall company's perspective, including very high quality data the technology and the architecture around that I think there's a whilst we are very.
Speaker Change: Very positive overall on a thematic and we think having capability to both improve the customer experience as well as we have to sort of Gavin and manage further risks that inevitably come with newer technologies is really really important I think the exact timing of the cash flows.
Speaker Change: Across all industries as you know is uncertain and it's one of the things that we think about and debate is.
Obviously as we're increasing there.
Speaker Change: Investment envelope and were doing that on the basis that we think theyre going to be NPV positive cash flows the timing of all of those I think will be more more gradual but for a broader reasons across the you know the economy I think that's a that's a positive but I think there you know the rate of innovation on a global level in this area.
Speaker Change: Is ease.
Speaker Change: These are only going to accelerate.
Speaker Change: Okay.
Speaker Change: The second one if my math is.
Speaker Change: If we kind of think about these calls we sit and we spent a lot of time.
Speaker Change: Talking about Lehman costs, whereas what destroy shareholder value is kind of loan loss cycles.
Speaker Change: So I'm just interested in this thing that you've got about $3 billion of surplus capital.
Speaker Change: But the flip side is that we're not having a look at the difference between your ECL and the downside scenario, which is kind of being tweaked up a little bit in this half.
Speaker Change: Well I think that looks to me to be covered but basically the excess capital.
Speaker Change: Should we be actually thinking that if we were heaven forbid do ever hit across his point and we do get the downside scenarios play out.
Speaker Change: Bank doesn't have to cut its dividend doesn't have to raise capital or is that a little bit too optimistic, whereas some of your peers are not in a position is that how we should be thinking about that surplus capital.
Speaker Change: Look rod I think maybe it's a little hard to draw that specific inclusion, but going back to the start of way you have your question I think loan loss cycles are one of the areas. There are certainly others that can be very problematic and.
Speaker Change: We think of that.
Speaker Change: Instead of it what are the areas that have created value over the last 30 years and there's been a number of them the ability to.
Speaker Change: Perform well and be able to make the best decisions at times of crosses is definitely a differentiator I think that's one of the most certainly not forecasting that in or.
Speaker Change: Expecting that but I think the increase sort of flexibility that we have in terms of capital levels our provisioning.
Speaker Change: I think put us well placed to withstand a range of different economic scenarios and the sustainability and.
Speaker Change: Long term nature of the positioning for the bank for US is is really important to be able to deal with both the short term volatility and inevitably at some point something entirely unexpected and I'm Hussain at this point in time is going to occur and if four years well placed as we can be as a financial institution to support our.
Speaker Change: Customers and where to make.
Speaker Change: You know value accretive decisions and avoid importantly value destructive.
Speaker Change: Decisions and there's enormous amount of value in that.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Next question comes from Brendan.
Speaker Change: Good morning, Brendan <unk> from Citi.
Speaker Change: Questions on business banking. The fifth question is is there any acceleration of business banking across the industry in the RV age out as shows sectors that are growing above the average of the system.
Speaker Change: Tend to be watch list 60, so banks like construction and wholesale trade and hospitality could you talk about the.
Speaker Change: The growth in your business bank, and what sectors and types of customers.
Great.
Speaker Change: Expanding their lending.
Speaker Change: Yeah, I mean look the growth in it by the system level and our relative performance to that has been strong.
Speaker Change: The credit.
Speaker Change: The settings, we're comfortable with the loan losses that have flowed from that remain very low, but we also recognize that the determination of success is much more appropriately judged over the medium and long term, we've tried to do that in a very diversified way.
Speaker Change: Banks that are far less dependent on individual sectors are looking pretty balanced growth. So I've.
Speaker Change: I've made across a number of those sectors in particular, but there there are some big differences even in terms of you know.
Speaker Change: And those categories are very broad in that they're quite broad for us internally as well I mean construction probably less so as an area. But then that has been challenged you know commercial property, but that has started to improve particularly in terms of capital cities, perhaps less so in regional areas are agriculture has been an area of growth.
Speaker Change: Now there can be some cyclical factors.
Speaker Change: Clearly, but that's been an area we've been prepared to grow in areas like entertainment leisure and tourism as an example, we've had strong growth in you know in hospitality.
Speaker Change: Which we say the trading performance still to be very strong, whereas if you probably looked into maybe say Ah cafes as a sub sector that you know that tends to be weaker.
Speaker Change: Even in wholesale trade.
Speaker Change: We're one of the T. I as we were talking about in in August was in a it was in wholesale tried but we've also had some good growth I think some of the individual decision in some of the Subsectors do matter, but typically.
Speaker Change: Very good and tight inventory management.
Speaker Change: Makes a big difference in areas like.
Speaker Change: Wholesale trade and you know even in in retail probably the trading conditions have been a bit stronger than we would've expected across a number of our customers actually.
Speaker Change: Remember in December on.
Speaker Change: On the discretionary side, we are a bit stronger than than were forecast so across the broad settings and in in most.
Speaker Change: If not all of those sectors. There are still sort of idiosyncratic names that I think we're very comfortable.
Speaker Change: Supporting so that continued growth.
Speaker Change: It's been a feature now over the last sort of four years and but it's very much just a determined on what are the opportunities where our credit settings in the market. What do we think about outlook and importantly also what's the trade off in terms of our margins and risk adjusted returns I think the business Bank has done a very good job of growing it.
Speaker Change: Across the segments as well, so not being concentrated either.
Speaker Change: The larger end of business Bank, we started to see some broader growth as I said in areas like agriculture, but also in our small and mid size.
Matt Wilson: Thanks, Matt that's a very helpful.
Speaker Change: Question.
Speaker Change: Refer to slide 56 of the presentation.
Speaker Change: One thing is sludge generally shows obviously at business lending has been the source of the acceleration of lending growth.
Speaker Change: Business deposits.
Speaker Change: I've had very slow system gross and in your answer to one of Aj's questions. Obviously some competition.
Speaker Change: In some of the more competitive posture that deposit.
Speaker Change: Just look at your overall balance sheet. It just change in the period that the funding of these business lending growth is largely countered TD shoes, which helps you out 15% during the hospitality group deposits too.
Speaker Change: I guess this is a trend that's going to continue with banks to fund this above average business credit growth, you're going to have to boldly towards wholesale funding. The most expensive form and what impact will that have on I guess the mix impact on means as we look into the second half and even if 126.
Speaker Change: On the deposit say Brendan one one important thing to us.
Speaker Change: Unpack from the balance sheet is the is the big change we had on the institutional who filling facilities product. So for many years. We had this large C. M. P F product, which is a collectively banished pilling facility.
Speaker Change: We've migrated most customers to a new product, which allows us to offset.
Speaker Change: The asset and the liability. So you had a big netting down effect on both sides of the balance sheet up primarily comes through the institutional bank segment reporting so youll see in the profile announcement with articulated a larger drop a notional drop in deposits over the six month and 12 month period, which is just a netting down.
Speaker Change: Of those product facilities.
Matt Wilson: On top of that as Matt referenced earlier, we have seen aggressive pricing for what we describe as hot money, whether that's in the corporate bank. So the top end of the business bank and some institutions that is in the institutional bank because you know so we've seen some dips.
Matt Wilson: Deposits leave which were frankly, we were you know okay to see leave because they were you know very much subject to move from a franchise value and suboptimal from a profitability perspective. So we allowed some of those balances to drift out because we were you.
Matt Wilson: We are feeling very comfortable about our funding issuance or otherwise strong growth underlying growth in both retail business and institutional deposit so combination of that netting of the of the product change.
Matt Wilson: And you can see disclosures around that and the detail of the profile announcements segment disclosures as well as some hot money.
Matt Wilson: That left so I don't so I think overall, we're happy with the underlying momentum in deposits and so broadly I think that customer deposit ratio of 77%.
Matt Wilson: You know absent a big change at the macro level spec change in monetary policy for example, and maybe an acceleration of a Q T or the light I think absent something like that which was certainly not forecasting I think you'll see that overall deposit ratio remain relatively stable and so we'll continue to fund the vast majority of our new lending.
Matt Wilson: With new deposit growth.
Speaker Change: Thank you and next question comes from the panel.
Speaker Change: Thank you for taking my questions just a couple of quick ones from me.
Speaker Change: Alan before you broke down the deposit competition in the margin. So thank you for that I was just interested with that.
Speaker Change: It looks like you still got continuing outlook for robust credit cross across business and housing do you see that deposit competition, continuing or do you see the delta starting to slow there and also just touching on the deposit mix. It was slightly positive how are you, saying that going forward.
Speaker Change: Yeah, I mean, I think that's going to be a function of two main things one is going to be the.
Speaker Change: Obviously, the magnitude of the number of cash rate cuts. So there's obviously a sensitivity on the unhedged deposits and then overtime through the replicating portfolio. So everyone will have a view.
One on the trajectory of the cash rate and the economy. So that'll be an important part of it the other important part in terms of deposit price competition.
Speaker Change: Is going to be the direction again of wholesale funding spreads. So we've had this very benign period.
Speaker Change: A very tight credit spreads for our banks issuing funding to the extent that changes and you start to see higher wholesale funding costs, whether that's through the transmission mechanism of three months of alloys through basis risk or more broadly in term funding spreads I think if you see start to see you soon.
Speaker Change: If he can entry season credit spreads I think that will bring even more price competition backend of the deposit gathering across.
Speaker Change: Across each of the bank, so I think they're going to be the two key factors around.
Speaker Change: The extent of deposit price.
Speaker Change: Price competition headwinds in the period ahead.
Speaker Change: You know I think everyone will have their own sort of perspectives on those market spreads in those market rates and I think they are going to be the key inputs around your view on deposit margins going forward.
Speaker Change: Okay.
Speaker Change: Great. Thank you and then just chicken once a small one in your risk weighted assets. She got some benefit from portfolio mix, and some daughter and methodology and what you've discussed today.
Speaker Change: Excess capital can you just talk about do you see any more benefits around that going forward to help increase your excess capital for them.
Speaker Change: I mean from time to time, you see some changes in that day and methodology driver of credit.
Speaker Change: Credit risk weighted assets there was a small a small change in the current period was that related to a new loss given default model on our home loan portfolio that we implemented during the period.
Speaker Change: So as you clean up the data and improve the modeling you'll get some refinements and sometimes that can be positive changes in terms of lower credit hour there'll be other times you can bear higher credit <unk> is you get a more accurate read.
Speaker Change: Been a relatively small amount in the current periods, but we continue to update our models refine our models you know the data and continue improve the sort of day of platforms in the measurement methodology. So from time to time, you'll see that.
Speaker Change: When we look we try and look through that when we look at what we talked about is underlying organic capital generation I think it's important to take out. This is small for us in this period, but from time to time, you can get bigger movements in that category. I think is important to sort of look through that from one off changes in your underlying.
Speaker Change: Risk weighted asset intensity and look at what through the cycle, you're delivering what's that generating in terms of surplus organic capital and then how does that feed into your dividend decision, making so we try and sort of look through some of the noise in that category and take a.
Speaker Change: Medium to long term view on risk weight intensities.
Speaker Change: Thanks will.
Speaker Change: That now brings us to the end of the briefing. Thank you for joining us and we look forward to the follow up questions and engagement.
Speaker Change: Thank you.