Full Year 2025 Commonwealth Bank of Australia Earnings Call

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Melanie Kirk: Hello and welcome to the Commonwealth Bank of Australia's Results Briefing for the full year ended 30 June 2025. I'm Melanie Kirk, and I'm Head of Investor Relations. Thank you for joining us. For this briefing, we will have presentations from our CEO, Matt Comyn, with a business update and an overview of the results. Our CFO, Alan Docherty, will provide details of the financial results, and Matt will then provide an outlook and summary. The presentations will be followed by the opportunity for analysts and investors to ask questions. I'll now hand over to Matt. Thank you, Matt.

The Commonwealth Bank of Australia's results briefing for the full year ended 30 June 2025.

I'm, Melanie Kirk and I'm head of Investor Relations.

Thank you for joining us for this briefing, we will have presentations from our CEO, Matt common with a business update and an overview of the results.

Our CFO Alan Docherty will provide details of the financial results.

And Matt will then provide an outlook and summary.

The presentations will be followed by the opportunity for analysts and investors to ask questions.

I'll now hand over to Matt. Thank you Matt.

Thank you very much bill and good morning to everyone.

Matt Comyn: Thanks very much, Mel, and good morning to everyone. It's good to be with you today to present the bank's full year results. We recognise cost of living remains a challenge for many, and global issues are creating uncertainty. We've been focused on consistent operational execution and investing for the long term. This year, we've chosen to increase lending across all of our key segments, with record risk-weighted asset growth of $29 billion and disciplined margin management. Accelerated investment by $300 million in line with our strategic priorities, strengthened our balance sheet, and paid a $4.85 sustainable dividend with a fully neutralised reinvestment plan. We've been able to provide our customers with a range of support options, including tailoring more than 139,000 payment arrangements for those most in need. We've helped more than 140,000 households buy a home and have provided support for first home buyers.

Good to be with you today.

At present, the bank's full year results.

We recognized cost of living remains a challenge for many and global issues are creating uncertainty.

We've been focused on consistent operational execution and investing for the long term.

This year, we've chosen to increase lending across all of that case segments with record risk weighted asset growth of $29 billion and disciplined margin management.

Accelerated investment by $300 million in line with our strategic priorities Star.

Strengthen our balance sheet and pay a $4 85 sustainable dividend with a fully neutralized reinvestment plan.

We've been able to provide our customers with a range of support options, including tailoring more than 139000 payment arrangements for those most in need.

We've helped more than 140000 households, buy a home and have provided support for first time buyers.

Matt Comyn: We've extended our commitment to regional Australia, operating the largest branch and ATM network in the country. Safe and secure banking remains a top priority. Over the past year, we've invested more than $900 million to combat fraud, scams, cyber threats, and financial crime to better protect our customers. These efforts have led to a 76% reduction in customer losses from scams since the peak in late 2022. Our name check technology has been used 110 million times, preventing over $880 million in mistaken and scam payments. Strong, safe, and resilient banks benefit all Australians. This year, we lent $42 billion to businesses to help them grow and paid $22 billion in interest to Australian savers. We've further strengthened our balance sheet and remain well positioned to support our customers and the broader economy. And this year, we paid $8 billion in dividends, benefiting more than 13 million Australians.

We've extended our commitment to regional Australia operating the largest branch and ATM network in the country.

Safe and secure banking remains a top priority.

Over the past year, we've invested more than $900 million to combat fraud, scams cyber threats and financial crime to better protect our customers.

These efforts have led to a 76% reduction in customer losses from scans since the peak in late 2022.

Ah Namecheck technology has been used 110 million tonnes, preventing over $880 million in mistaken and scan payments.

Strong safe and resilient, thanks benefit all Australia ends this.

This year, we learnt $42 billion to businesses to help them grow and paid $22 billion in interest to Australian savers.

We further strengthened our balance sheet and remain well positioned to support our customers and the broader economy.

And this year, we paid $8 billion in dividends benefiting more than 13 million Australians.

We know many Australia and have found the past four years challenging, particularly dealing with cost of living pressures.

Matt Comyn: We know many Australians have found the past four years challenging, particularly dealing with cost of living pressures. This past year has brought some relief through easing inflation, lower interest rates, and tax cuts. Many households are now experiencing a rise in disposable income. The financial gap between younger and older Australians has narrowed. Savings have increased across all age groups, with younger Australians now rebuilding their financial buffers. And discretionary spending has also picked up, reflecting growing consumer confidence. While we recognise many are still finding the context challenging, there is some positive momentum. The economy is at an important juncture, and as a country, we need to make the most of our structural advantages, government stability, and available opportunities to improve prosperity for generations to come. We welcome the government's focus on economic growth and productivity.

This past year has brought some relief through easing inflation low interest rates and tax cuts.

Many households are now experiencing a rise in disposable income.

The financial gap between younger and older Australians has narrowed.

<unk> have increased across all age groups with younger Australians now rebuilding their financial buffers.

And discretionary spending has also picked up reflecting growing consumer confidence.

While we recognize many is still finding the context challenging there is some positive momentum.

The economy is at an important juncture and as a country, we need to make the most diverse structural advantages governments stability and available opportunities to improve prosperity for generations to come.

We welcome the government's focus on economic growth and productivity.

Matt Comyn: We believe it is important to make a constructive contribution on behalf of the more than 10 million personal customers and 1 million business customers who choose to bank with us. Economic growth will require both small and large businesses to thrive and invest for the future. Small businesses play a very important role in economic dynamism and job creation and will be most responsive to changes in incentives. When I meet with our small business customers, I'm often struck by their energy, optimism, and new ideas for the future. Australia's large companies also have a substantial role to play. These are our most productive institutions and provide critical infrastructure the economy relies on. They are investing to build a better Australia, whether that be laying intercity optic fibre, mining resources for export to underpin our prosperity, building and financing new infrastructure, or investing in cybersecurity or AI capability.

We believe it is important to make a constructive contribution on behalf of the more than 10 million personal customers and 1 million business customers, who choose to bank with us.

Economic growth will require both small and large businesses to thrive and invest for the future.

Small businesses play a very important role in economic dynamism and job creation and will be most responsive to changes in incentives.

When I meet with our small business customers I'm, often struck by the energy optimism and new ideas for the future.

Australia is large companies also have a substantial role to play.

These are our most productive institutions and provide critical infrastructure the economy relies on.

They are investing to build a better Australia, whether that be lying in the city optic fiber mining resources for export to underpin our prosperity building and financing new infrastructure or investing in cyber security or <unk> or AI capability. These.

Matt Comyn: These investments benefit all Australians and help small businesses help the economy. 36% of Australia's corporate tax base comes from 20 of our largest companies. Our miners and banks are the largest taxpayers in the country, while our retailers are some of the largest employers. We need to make sure that the economic dividend from technology is captured by Australia for Australians and not shifted offshore. We observe many overseas markets actively supporting their domestic institutions in the interests of economic growth and resilience. It will be strong domestic institutions that support Australia in times of crisis. We support the Productivity Commission's focus on reforms to encourage greater private sector investment. We do, however, think a simpler and faster way to achieve this outcome would be through an accelerated investment incentive, which should be time-bound, apply to all businesses, and allow immediate investment write-offs.

These investments benefit all of Australia, and help small businesses help the economy.

36% of Australia as corporate tax space comes from 20 of our largest companies.

I'm honest and banks are the largest taxpayers in the country, while all retailers are some of the largest employers.

We need to make sure that the economic dividend from technology is captured by Australia for Australians and not shifted offshore.

We observed many overseas markets actively supporting their domestic institutions in the interest of economic growth and resilience it.

It will be strong domestic institutions that support Australia in times of crisis.

We support the productivity Commission is focused on reforms to encourage greater private sector investment.

We do however think a simpler and faster way to achieve this outcome would be through an accelerated investment incentive which should be time bound apply to all businesses and allow immediate investment write offs.

We understand well the high expectations on the Commonwealth Bank.

Matt Comyn: We understand well the high expectations on the Commonwealth Bank. We are proud of our role as the Bank for All Australians and how we contribute to our country. We are one of Australia's largest corporate taxpayers, with an implied tax rate of approximately 36%. As a domestically significant institution, we hold an additional capital buffer to protect depositors and provide stability to the broader economy. And we are required to invest significantly in national infrastructure without a return on capital, like the new payments platform and open banking, which benefits all Australians. We estimate these obligations amount to almost $6 billion per year. We also make a range of voluntary contributions to support the financial system, our customers, and the broader community, some of which are illustrated on the slide. We provide fee waivers and goodwill payments to support customers in vulnerable circumstances.

We are proud of our role as the bank for all Australia, and how we contribute to our country.

We are one of Australia's largest corporate taxpayers with an implied tax rate of approximately 36%.

As it domestically significant institution, we hold an additional capital buffer to protect depositors and provides stability to the broader economy.

And we are required to invest significantly in national infrastructure without a return on capital like the new payments platform and open banking, which benefits all of Australia ins. We estimate these obligations amount amount to almost $6 billion per year.

We also make a range of voluntary contributions to support the financial system.

Our customers and the broader community some of which are illustrated on this slide.

We provide fee waivers and goodwill payments to support customers in vulnerable circumstances, we subsidize the provision of cash in regional services to support low cost access and this year, we stepped in financially to support or got Australia post as well and as well as helping to protect Australia is interest in the Pacific.

Matt Comyn: We subsidise the provision of cash and regional services to support low-cost access. And this year, we stepped in financially to support Armaggard, Australia Post, as well as helping to protect Australia's interests in the Pacific. To provide further stability to the financial system, we also choose to hold an additional capital buffer. Australia's banking market is stronger and more efficient than international markets. We already have among the lowest consumer banking fees and lowest credit and debit interchange rates globally. We seek to strike the right balance between strength, security, efficiency, customer outcomes, and investment for the long term. We believe Australia compares very favourably with global markets and that our financial system is working well for the country. Our purpose to build a brighter future for all reflects our enduring commitment to Australia. This year, we refreshed our strategy to reflect changes in the context and also emphasis.

To provide further stability to the financial system, we also choose to hold an additional capital buffer.

Australia is banking market is stronger and more efficient than international markets.

We already have among the lowest consumer banking fees and lowest credit and debit interchange rates globally.

We seek to strike the right balance between strength security efficiency customer outcomes and investment for the long term.

We believe Australia compares very favorably with global markets and that our financial system is working well for the country.

Our purpose to build a brighter future for all reflects our enduring commitment to Australia.

This year, we refreshed our strategy to reflect changes in the context and also emphasis.

Matt Comyn: At this time, it is critical to support national growth and prosperity, unlock the potential of AI for our customers, and increase economic resilience for the country. Our strategy is built on four key pillars. The first, building Australia's future economy. This is about helping the nation prosper and improving living standards for all Australians. We played an active role during COVID and are now actively involved in supporting growth and resilience of the Australian economy. Second, reimagining customer experiences that are more seamless, personalised, and rewarding. We're focused on building deep, trusted relationships, offering a distinctive proposition and digital experiences that our customers love. Third, leading in technology and AI reflects our commitment to technology leadership and particularly AI, which is likely to play a more prominent role across the economy into the future.

At this time it is critical to support national growth and prosperity unlock the potential of I offer our customers and increased economic resilience for the country.

Our strategy is built on four key pillars. The first building Australia as future economy. This is about helping the nation prosper and improving living standards for all of Australia, and we played an active role during Covid and are now actively involved in supporting growth and resilience of the Australian economy.

Second re imagining customer experiences in a more seamless personalized and rewarding we're focused on building deep trusted relationships.

<unk> distinctive proposition and digital experiences that our customers love.

Third leading in technology and AI reflects our commitment to technology leadership, and particularly I R, which is likely to play a more prominent role across the economy into the future.

Matt Comyn: We've accelerated the modernisation of our technology estate and the use of AI to drive better experiences for customers, as well as quality and speed of execution. And finally, delivering simpler, safer, and better reflects our commitment to delivering customer experiences which are underpinned by security and reliability. We've increased our focus on operational resilience in particular. Our strategy aims to build on our sources of competitive advantage. The strength of our core franchise starts with a deep commitment to customer focus and deep, trusted relationships. These relationships drive more frequent and meaningful engagement, a deeper understanding of customer needs, and superior customer experiences. This creates long-term value for our shareholders. This model has always underpinned our performance in retail banking, and we are using that same model to drive growth in business banking. Technology is accelerating this momentum.

We've accelerated the modernization of our technology estate and the use of AI to drive better experiences for customers as well as quality and speed of execution.

And finally, delivering simpler safer and better reflects our commitment to delivering customers experiences, which are underpinned by security and reliability.

We've increased our focus on operational resilience in particular.

Our strategy aims to build on our sources of competitive advantage the strength of our core franchise starts with a deep commitment to customer focus and deep trusted relationships.

These relationships drive more frequent and meaningful engagement.

Deeper understanding of customer needs and superior customer experiences. This creates long term value for our shareholders.

This model is always underpinned outperformance in rates, how banking and we're using that same model to drive growth in business banking.

Technology is accelerating this momentum it's reshaping what customers expect from a trusted relationship, including how we protect them from increasingly sophisticated threats like scams and cyber attacks.

Matt Comyn: It's reshaping what customers expect from a trusted relationship, including how we protect them from increasingly sophisticated threats like scams and cyber attacks. Net Promoter Score is an important way that we track the strength of our customer relationships. In consumer banking, we've maintained the number one position for 32 consecutive months and achieved the highest score of any major bank since tracking began. In business banking, we've regained the number one position with our highest score since June 2023, the second highest ever recorded by a major bank. Our digital NPS leads peers across key platforms, including the Combank mobile app, which continues to be the most widely used financial services app in Australia. When customers know us and trust us, they choose to bank with us. Today, one in three Australians and more than one in four businesses call the Commonwealth Bank their main financial institution.

Net promoter score is an important way that we track the strength of our customer relationships and consumer banking. We've maintained the number one position for 32 consecutive months and achieved the highest score of any major bank since tracking began.

In business banking, we've regained the number one position with our highest score since June 2023, the second highest ever recorded by major bank our.

Our digital M. P S hps across key platforms, including the Con Bank mobile App, which continues to be the most widely used financial services App in Australia.

When customers know us and trust us they choose to bank with US today, one in three Australia and more than one in four businesses Cola Commonwealth Bank their main financial institution.

Matt Comyn: This has led to continued growth. Retail transaction accounts increased 4% since June 2024 and by 35% over the past six years. Business transaction accounts grew 7% since June 2024 and 65% over the last six years. These increases have translated into home and business lending growth, 6% and 11% respectively, over the past 12 months. And importantly, more than 97% of home loans and 90% of business loans are linked to a CVA transaction account. Turning now to our performance, we've sought to be disciplined on volume and margin management in home loans. We increased net interest income share and gained seven basis points of market share. We're enhancing the customer experience through GenAI-powered messaging, reduced contact centre wait times, and faster business loan decisioning. Our focus on disciplined capital management is supporting franchise growth and dividends. Strategically, we're deepening direct primary relationships.

This has led to continued growth.

Retail transaction accounts increased 4% since June 'twenty, 'twenty, four and by 35% over the past six years.

Business transaction accounts grew 7% since June 2024, and 65% over the last six years they.

These increases have translated into home and business lending growth, 6% and 11% respectively over the past 12 months and.

And importantly, more than 97% of timelines and 90% of business lines are linked to a see a transaction account.

Turning now to outperformance.

We've still got to be disciplined on volume and margin management in home loans, we increased net interest income share and gained seven basis points of market share.

We're enhancing the customer experience through Jan AI powered messaging.

<unk> contact center wait times and foster business line Decisioning.

Our focus on disciplined capital management is supporting franchise growth and dividends strategically.

Strategically we're deepening direct primary relationships.

Matt Comyn: Our proprietary home lending flows remain strong at 66%, now accounting for 52% of proprietary loans in Australia. We continue to leverage technology, data, and AI to provide superior, differentiated customer experiences. We've delivered for all stakeholders through our customer focus and disciplined execution. The 4% growth in cash net profit after tax was driven by strong operating performance and lower loan impairment expense. Throughout the year, we've maintained strong liquidity, funding, and capital positions. Our operating performance and strong capital position has allowed the board to declare a fully frank dividend of $4.85, an increase of $0.20 on the prior corresponding period. Our operating income increased 5%, supported by a disciplined approach to volume growth and stable underlying margins. Operating expenses were 6% higher, driven by inflation and investment in technology and our frontline.

Our proprietary home lending flows remained strong at 66% now accounting for 52% of proprietary lines in Australia.

We continue to leverage technology day data and AI to provide superior differentiated customer experiences.

We've delivered for all stakeholders through our customer focus and disciplined execution.

The 4% growth in cash net profit after tax was driven by strong operating performance and lower loan impairment expense.

Without the E. We've maintained strong liquidity funding and capital positions.

Our operating performance and strong capital position has allowed the board to declare a fully franked dividend of $4.95 an increase of 20 cents on the prior corresponding period.

Our operating income increased 5% supported by a disciplined approach to volume growth and stable underlying margins.

Operating expenses were 6% higher driven by inflation and investment in technology and our frontline.

Matt Comyn: Loan impairment expense decreased 9.5% in the period, and as a result, cash net profit after tax increased 4% on the prior year. The credit environment is stable. Our portfolio quality remains sound, supported by a strong labour market and savings buffers. Troublesome and non-performing exposures, as a percentage of total committed exposures, were stable over the past 12 months. And as we've made help easier to access, we've seen the number of home loan customers in hardship come down by 19%. We remain well provisioned for a range of economic scenarios. We hold total provisions of $6.4 billion, which is $2.6 billion above our central economic scenario. Our balance sheet remains strong with 78% deposit funding. Our weighted average maturity of long-term funding is 5.1 years, and liquid assets are $184 billion. Our capital ratio of 12.3% is $10 billion above the minimum regulatory requirement.

Loan impairment expense decreased nine 5% in the period and as a result cash net profit after tax increased 4% on the prior year.

The credit environment is stable our portfolio quality remains sound supported by a strong labor market and savings buffers.

Troublesome and nonperforming exposures as a percentage of total committed exposures were stable over the past 12 months.

And as we've might help easier to access we've seen the number of heinlein customers in hardship come down by 19%.

We remain well provisioned for a range of economic scenarios.

We hold total provisions of $6 $4 billion, which is $2 $6 billion above a central economic scenario.

Our balance sheet remains strong with 78% deposit funding.

Our weighted average maturity of long term funding is five one years and liquid assets are $184 billion.

Our capital ratio of 12, 3% is $10 billion above the minimum regulatory requirement.

Matt Comyn: We've delivered consistent and disciplined execution across all of our business units this year. In our retail bank, we've grown home lending and deposit volumes broadly in line with the market. We're continuing to grow our business banking franchise above system. We hold 1.3 million business transaction accounts, a 7% increase from June 2024. We remain the market leader in business deposit market share and hold $15 billion more deposits than the nearest peer. Our institutional bank continues to play an important role in net deposit funding, contributing more than $65 billion. Over the past nine years, we've reduced total risk-weighted assets by more than $38 billion, while maintaining strong risk-adjusted returns. ASB has also seen strong growth in both business and rural lending and deposits.

We've delivered consistent and.

Disciplined execution across all of our business units this year.

In our retail bank, we've grown home lending and deposit volumes broadly in line with the market.

We're continuing to grow our business banking franchise above system.

We hold 1.3 million business transaction accounts, a 7% increase from June 2024.

We remain the market later in business deposit market share and hold $15 billion more deposits than the nearest peer.

Our institutional bank continues to play an important role in knit deposit funding contributing more than $65 billion.

Over the past nine years, we've reduced total risk weighted assets by more than $38 billion, while maintaining strong risk adjusted returns.

I S Bay has also seen strong growth in both business and rural lending and deposits.

Notwithstanding clear leadership in retail M. F. I sure, we've seen increased competitive intensity and building stronger and deeper relationships with customers will be our focus in 2026.

Matt Comyn: Notwithstanding clear leadership in retail MFI share, we've seen increased competitive intensity, and building stronger and deeper relationships with customers will be a focus in 2026. Our consistent investment in our digital ecosystem enables us to offer distinct and differentiated customer experiences. Our Combank app now has more than 9 million active users and sees more than 12.7 million daily logins. The app incorporates leading AI capabilities, including AI-powered messaging and new features like everyday investing, to offer highly personalised and rewarding digital experiences. This year, we launched or relaunched Combank Yellow, Australia's largest loyalty programme, to offer customers even more value through their relationship with us. So far, Combank Yellow has delivered more than $135 million in benefits, rewards, and discounts to Combank customers. This year, Bank West successfully transformed into a digital bank and has acquired more than 90,000 new-to-bank customers.

Our consistent investment in our digital ecosystem enables us to offer distinct and differentiated customer experiences.

At Com Bank App now has more than 9 million active users and sees more than 12.7 million daily logins.

The app incorporates leading IR capabilities, including AI powered messaging and new features like everyday investing to offer a highly personalized and rewarding digital experiences this year.

This year, we launched a relaunch comeback yellow Australia is largest loyalty program to offer customers, even more value through their relationship with us.

Sofa combat yellow has delivered more than $135 million in benefits rewards and discounts to come bank customers.

This year bank West successfully transformed into a digital bank and has acquired more than 90000, new to bank customers.

Central to the business banks continued growth has been an increased focus on deepening customer relationships and differentiated digital experiences.

Matt Comyn: Central to the business bank's continued growth has been an increased focus on deepening customer relationships and differentiated digital experiences. For example, Combank Yellow for Business is now available to more than 360,000 business customers, helping them unlock discounts and reduce costs. We've also provided easier lending access with more than 10,000 loans to small businesses written through BizExpress and auto-decisioning, resulting in as little as 10 minutes between instant approval and funding. The time it takes to conduct a customer's annual review has been reduced by 85%, further enhancing efficiency. The deepening of primary customer relationships and prudent lending growth is driving strong earnings performance. The business bank contributes approximately 40% of group net profit after tax. To deliver better outcomes for our customers and people, over the past year, we've continued to invest in strengthening our AI capabilities and enhancing our technology delivery.

For example, comeback yellow if a business is now available to more than 360000 business customers, helping them unlock discounts and reduce costs.

We've also provided easier lending access with more than 10000 lines to small businesses written through <unk> Express and auto Decisioning, resulting in as little as 10 minutes between instant approval and funding.

The time it takes to conduct a customer's annual review has been reduced by 85% further enhancing efficiency.

The deepening of primary customer relationships and prudent lending growth is driving strong earnings performance.

Business Bank contributes approximately 40% of group net profit after tax.

To deliver better outcomes for our customers and people over the past year, we've continued to invest in strengthening our IR capabilities and enhancing our technology delivery.

Matt Comyn: To accelerate innovation through artificial intelligence, we've partnered with global leaders and established our own tech hub in Seattle. We're using AI to increase the speed and quality of code reviews, alert customers to suspicious activity, help process disputed transactions, and create more personalised experiences for our customers. This year, we've delivered 35% more technology changes, reduced critical incidents by 30%, and improved recovery time by 25%. To leverage the full benefits of AI, we've chosen to accelerate the modernisation of our technology estate. We completed one of the largest and fastest data migrations of its kind in the Southern Hemisphere, moving 10 petabytes of data to AWS Cloud. Building world-class AI and engineering talent and capability is central to our technology ambitions, and we've hired 2,000 engineers in the past year.

To accelerate innovation through artificial intelligence with partner with global leaders and established our own tech hub in Seattle, we're using I ought to increase the speed and quality of code reviews alert customers to suspicious activity help process disputed transactions and create more personalized experiences for our customer.

Yes.

This year, we've delivered 35% more technology changes reduced critical incidents by 30% and improved recovery time by 25%.

To leverage the full benefits of AI, we've chosen to accelerate the modernization of our technology estate.

We completed one of the largest and fastest out of migrations of its kind in the southern hemisphere, moving 10, better petabytes of data to AWS cloud.

Building World Class, AI, and engineering talent and capability is central to our technology ambitions and we've hired 2000 engineers in the past year.

Matt Comyn: We're also providing all of our people with AI skills and tools so we can deliver the best customer experiences and outcomes. We're also investing in AI partnerships, including with Anthropic and OpenAI, to try to bring the best of AI to our customers and our teams. Digital scammers continue to prey on our communities. We've scaled up our alert system, sending 10 times more alerts to customers this year via the Combank app to warn them of suspicious transactions. We're intercepting frauds and scams earlier and have seen the number of disputed transactions fall by more than 30% as a result. We've also introduced a QR code-based feature for cardless withdrawals and deposits, offering a safer and more secure way to access funds. And in Australian banking first, we've deployed thousands of AI-powered bots to actively engage scammers on voice calls and WhatsApp chats. But we must be vigilant.

We're also providing all of our paper with IR skills and tools. So we can deliver the best customer experiences and outcomes.

We're also investing in AI partnerships, including with Anthropic, an open eye to try to bring the best of IR to our customers and our teams.

Digital scam us continue to pray on our communities.

We've scaled up our alert system, sending 10 times more alerts to customers. This year via Com bank app to warn them of suspicious transactions.

We're intercepting frauds and scams earlier and have seen the number of disputed transactions fall by more than 30% as a result.

We've also introduced a QR code based feature for Cabo withdrawals and deposits offering a safer and more secure way to access funds.

And it in Australian banking first we've deployed thousands of AI powered bots to actively engage scam us on voice calls and Whatsapp chats.

But we must be vigilant, we know there is still more for us to do to protect Australians from financial harm, we remain committed to keep delivering on innovations as well as working on a broader ecosystem approach.

Matt Comyn: We know there is still more for us to do to protect Australians from financial harm. We remain committed to keep delivering our own innovations, as well as working on a broader ecosystem approach. I'll now hand to Alan to take you through the result in some more detail.

I'll now hand to Allen to take you through the result in some more detail.

Thank you, Matt and good morning, everyone.

Alan Docherty: Thank you, Matt, and good morning, everyone. I will take you through the results in some more detail, focusing on three key themes. Firstly, how we are responding to changes in our current operating context, including choices around the level of investment deployed towards our strategic priorities and the financial outcomes that's delivering. Secondly, how the changing global and domestic environment shapes our approach to balance sheet settings around credit risk, funding, interest rate risk, and capital management. And thirdly, how today's combination of management actions and balance sheet settings seeks to position us to continue to deliver shareholder value over the years ahead. Starting with our headline numbers, statutory profits after tax were $10.1 billion. That included some non-cash losses on divestments, principally relating to the sale of our interest in the Bank of Hangzhou, and a modest amount of hedge accounting volatility.

I will take you through the results in some more detail focusing on three key themes.

Firstly, how we are responding to changes in our current operating context, including choices around the level of investment deployed towards our strategic priorities and financial outcomes that's delivering.

Secondly, who the changing global and domestic environment shapes out approach to balance sheet settings around credit risk funding interest rate risk and capital management.

And thirdly, how today's combination.

Management actions and balance sheet settings seeks to position us to continue to deliver shareholder value over the years ahead.

Starting with the headline numbers.

That should tree profits after tax were pinpoint $1 billion.

That included some noncash losses on divestments, principally relating to the sale of our interest in the bank of Hangzhou.

Modest amount of hedge accounting volatility.

Alan Docherty: Excluding those items, cash profits after tax were $10.25 billion. Breaking down the components of that cash profit, operating income increased by 4.8% over the year, or approximately $1.3 billion. That growth in the top line gave us the opportunity to increase the level of investment in the business, resulting in growth in operating expenses of 6% over the year. After absorbing some further restructuring costs and other notable items in the fourth quarter, we delivered 3.4% growth in pre-provision profits over the year. Loan impairment expenses reduced by nearly 10% to $726 million, and this resulted in growth in cash profits of 4.2%. Looking firstly at operating income, overall income grew by almost 5% to approximately $28.5 billion. Net interest income was the key driver of that growth, increasing $1.2 billion due to strong lending growth across all of our banking businesses in Australia and New Zealand.

Excluding those items cash profits after tax were $10.25 billion.

Yeah.

Breaking down the components of that cash profit.

Operating income increased by four 8% over the year or approximately $1.3 billion.

That growth in the top line gave us the opportunity to increase the level of investment in the business, resulting in growth in operating expenses of 6% or for the year.

After absorbing some further restructuring costs and other notable items in the fourth quarter, we delivered three 4% growth in pre provision profits over the year.

Lord impairment expenses reduced by nearly 10% to $726 million.

And this resulted in growth in cash profits of 4.2%.

Looking firstly at operating income.

Overall income grew by almost 5% to approximately $28 $5 billion.

Net interest income was the key driver of that growth, increasing $1.2 billion due to strong lending growth across all of our banking businesses in Australia and New Zealand.

Alan Docherty: Importantly, that growth did not come at the cost of margin contraction. Margins were broadly stable to improving on an underlying basis, reflecting our ability to compete effectively, while maintaining our pricing discipline. Other operating income increased modestly over the year, due mainly to the soft first-half trading income that we reported in February. The second-half growth was stronger, reflecting continued volume-driven growth in lending fees and a rebound in trading income. This slide illustrates the results of our decision-making around the all-important trade-off between volume and rate. In this context, it was pleasing to see continued growth in our share of industry net interest income. This was achieved by growing volumes at or above system in most of our key segments, while maintaining our focus on higher return proprietary distribution across all of our businesses.

Importantly that growth did not come at the cost of margin contraction.

Margins were broadly stable to improving on an underlying basis, reflecting our ability to compete effectively while maintaining our pricing discipline.

Other operating income increased modestly over the year due mainly to the soft first half trading income that we reported in February.

The second half growth was stronger, reflecting continued volume driven growth and lending fees and the rebound in trading income.

Yeah.

This slide illustrates the results of her decision, making around the all important trade off between volume and rate.

In this context it was pleasing to see continued growth in our share of industry net interest income.

This was achieved by growing volumes at or above system in most of our key segments, while maintaining a focus on higher return proprietary distribution across all of our businesses.

Alan Docherty: One example of this can be seen in the performance of our network of retail lenders. The middle chart shows our share of proprietary home lending in Australia growing from 34% two years ago to more than 50% today. By continuing to invest in our digital capabilities, customer experience, and our frontline and operational teams, we're meeting more needs of more customers. Turning to net interest margin and looking at the movements over the most recent six-month period. Despite two cash rate cuts in February and May and ongoing competitive intensity, margins remained broadly stable over the half. On the asset side, we continued to see elevated levels of discounting across the industry for both home and business lending. As you can see, that did not translate into any material margin compression for CBA over the half.

One example of this can be seen in the performance of our network of retail lenders.

The Middle chart shows our share of proprietary home lending in Australia growing from 34% two years ago to more than 50% today.

By continuing to invest in our digital capabilities customer experience under frontline and operational teams, we're meeting more needs of more customers.

Turning to net interest margin and looking at the movements over the most recent six month period.

Despite two cash rate cuts in February and me and ongoing competitive intensity margins remained broadly stable over the half.

On the asset side, we continue to see elevated levels of discounting across the industry for both home and business lending.

As you can see that did not translate into any material margin compression for CBA over the half.

Alan Docherty: Our business bankers continued to show good discipline, walking away from over $4 billion of new lending to large corporate customers due to competitor pricing being below cost of capital. Deposit margins were under pressure due to competition and lower rates, driving most of the four basis point headwind in funding costs. This was offset by our hedges of interest rate risk, which delivered five basis points of margin accretion. If three-year swap rates remain around their current levels, our equity hedge earnings will likely be relatively stable from here, and so we wouldn't expect to see that particular tailwind repeat in the next financial year. Turning now to operating expenses, they increased by 6% over the year. This reflected a combination of inflation as well as strategic choices about where and how much to invest in the franchise for long-term outcomes.

Our business bankers continued to show good discipline walking away from over $4 billion of new lending to large corporate customers due to competitive pricing being below cost of capital.

Deposit margins were under pressure due to competition and lower rates driving most of the four basis point headwind in funding costs.

This was offset by our hedges of interest rate risk, which delivered five basis points of margin accretion.

A three year swap rates remain around their current levels or equity hedge earnings will likely be relatively stable from here and so we wouldn't expect to see that particular tailwind repeat in the next financial year.

Turning now to operating expenses, they increased by 6% over the year.

This reflected a combination of inflation as well as strategic choices about where and how much to invest in the franchise for long term outcomes.

Alan Docherty: As we flagged in our results announcement in February, we've accelerated our investments in our technology infrastructure and software assets, as well as the frontline teams supporting our proprietary distribution channels. These choices were made possible due to our strong top-line momentum and our continuing delivery of productivity benefits. Looking ahead, we'll continue to adopt a flexible and responsive approach to our cost growth. This will take into account factors such as our top-line growth, realised productivity improvements, and our targeted level of pre-provision profit and dividend growth. Turning now to our balance sheet settings, starting with credit risk. Our lending portfolio continues to perform well from a credit quality perspective. Loan impairment expenses fell for the third successive year to $726 million, as loan loss rates reduced to seven basis points over the year.

As we flagged in our results announcement in February we've accelerated our investments in technology infrastructure and software assets as well as the frontline teams supporting our proprietary distribution channels.

These choices were made possible due to our strong top line momentum and are continuing delivery of productivity benefits.

Looking ahead, we will continue to adopt a flexible and responsive approach to our cost growth.

This will take into account factors such as a top line growth realized productivity improvements under our targeted level of pre provision profit and dividend growth.

Turning now to our balance sheet setting starting with credit risk.

Our lending portfolio continues to perform well from a credit quality perspective.

Loan impairment expenses fell for the third successive year to $726 million as loan loss rates reduced to seven basis points over the year.

Consumer arrears rates have stabilized in recent months and we are seeing reduced levels of hardship amongst our customer base is real household disposable incomes continue to improve as inflation and interest rates eased.

Alan Docherty: Consumer arrears rates have stabilised in recent months, and we're seeing reduced levels of hardship amongst our customer base, as real household disposable incomes continue to improve as inflation and interest rates eased. Corporate troublesome and non-performing exposures were also stable, with relatively small movements in a few single-name exposures. Overall, loan loss provisions increased slightly to $6.4 billion, which was principally a function of lending growth, and that led to a slight decline in provisioning coverage to 160 basis points of credit risk-weighted assets. We now hold a buffer of approximately $2.6 billion to our central economic scenario, and our balance sheet provisions cover 75% of the expected credit loss of our downside economic scenario of a global recession. As usual, we have set out here how our provisioning considerations have evolved at the sectoral level over the last six months.

Corporate troublesome and nonperforming exposures were also stable with relatively small movements in a few single name exposures.

Overall loan loss provisions increased slightly to $6 $4 billion, which was principally a function of lending growth.

And that led to a slight decline in provisioning coverage to 160 basis points of credit risk weighted assets.

We now hold a buffer of approximately $2.6 billion to a central economic scenario.

And our balance sheet provisions cover 75% of the expected credit loss of a downside economic scenario of a global recession.

As usual, we have set out here a provisioning considerations have evolved at the sectoral level over the last six months.

Alan Docherty: In response to heightened global trade and geopolitical tensions, we increased the weighting to our downside scenario by 2.5%, with a commensurate reduction in our central scenario. As a result, consumer provisions were overall largely unchanged, as the increase in mezz provisioning was offset by reduced forward-looking adjustments for those customers most exposed to higher interest rates. Within corporate, provisioning overall increased marginally due to portfolio growth and the increased mezz overlay. Our funding profile remains conservatively positioned for the long term. Customer deposits now cover 78% of our funding needs, providing structural cost advantages and funding stability. Short-term wholesale funding currently represents just 7% of total funding, well below historical levels, and provides substantial franchise protection against volatility in funding markets. We have long said that the first and best use of surplus capital is to support our customers and the economy and grow our franchise.

In response to heightened global trade and geopolitical tensions we increased the weighting to a downside scenario by two 5% with a commensurate reduction in our central scenario.

As a result consumer provisions, but overall largely unchanged as the increase in Mezz provisioning was offset by reduced forward looking adjustments for those customers most exposed to higher interest rates.

Within corporate provisioning overall increased marginally due to portfolio growth and the increased Mays overly.

Our funding profile remains conservatively positioned for the long term.

Customer deposit snow cover 78% of our funding needs, providing structural cost advantages and funding stability.

Short term wholesale funding currently represents just 7% of total funding well below historical levels and provides substantial franchise protection against volatility in funding markets.

We have long said that the first and best use of surplus capital is to support our customers and the economy and grow our franchise.

Alan Docherty: The capital deployed to grow risk-weighted assets totaled 31 basis points over the last six months. Notwithstanding that high level of franchise growth and a strong first-half dividend, our Level 2 Common Equity Tier 1 ratio was 12.3%, up 10 basis points. This was a function of strong profitability, as well as the capital benefit of recent divestments. The final dividend increased $0.10 to $2.60. That brings our full-year dividend to $4.85, an increase of 4% year-on-year, and represents a full-year payout ratio of 79%. The dividend reinvestment plan will again be fully neutralised through an on-market purchase of shares, ensuring no dilution to our existing shareholders. We have also extended our on-market share buyback programme by a further 12 months.

The capital deployed to grow risk weighted assets totaled 31 basis points over the last six months.

Notwithstanding that high level of franchise growth and a strong first half dividend at a level two common equity tier one ratio was 12, 3% up 10 basis points.

This was a function of strong profitability as well as the capital benefit of recent divestments.

The final dividend increase 10 cents to $2 60 that brings our full year dividend to $4 85, an increase of 4% year on year and represents a full year payout ratio of 79%.

The dividend reinvestment plan will again be fully neutralized through an open market purchase of shares ensuring no dilution to our existing shareholders.

We have also extended our on market share buyback program by a further 12 months.

Alan Docherty: As you know, we are currently seeing historical lows in the cost of CBA equity relative to the after-tax cost of our debt, and we responded by pausing activity on our buyback. That said, the flexibility provided by this form of capital return mechanism means we still see value in maintaining an open-ended buyback programme, with execution remaining subject to changes in market conditions. I wanted to share some additional considerations around our current and future balance sheet settings. The guiding principle across our approach to balance sheet management is to underpin and protect our long-term franchise value, and in doing that, support our customers and the economy through good times and bad. On the left-hand chart, we've sought to show a broader perspective on the capital buffers held to fund organic growth and absorb losses.

As you know we are currently seeing historical lows and the cost of CB equity relative to the after tax cost of debt.

We responded by pausing activity on a buyback.

That said the flexibility provided by the best form of capital return mechanism means we still see value in maintaining an open ended buyback program with execution remaining subject to changes in market conditions.

I wanted to share some additional considerations around their current and future balance sheet settings.

The guiding principle will crossover approach to balance sheet management is to underpin and protect or long term franchise value and in doing that support our customers and the economy through good times and bad.

On the left hand chart, we have sought to Shaw a broader perspective on the capital buffers held to fund organic growth and absorb losses.

Firstly, we have the current level of common equity tier one in excess of the app for a regulatory minimum.

Alan Docherty: Firstly, we have the current level of Common Equity Tier 1 in excess of the APRA regulatory minimum. Secondly, our forward-looking approach to loan loss provisioning means we can set aside provisions on our balance sheet to absorb losses if economic conditions worsen relative to our central scenario. Thirdly, we're holding an unrealised loss reserve on our liquid asset portfolio of high-quality domestic government bonds. Holding these bonds to maturity will see their mark-to-market revert to par value in the years ahead. And lastly, we have an embedded gain, which reduces our overall capital requirement for interest rate risk in the banking book. These gains will reverse over time, and therefore they are deducted. It is important to understand that the composition of our aggregate capital buffers, currently totaling $13 billion, will move in response to changing market conditions.

Secondly, a forward looking approach to loan loss provisioning means we can set aside provisions on our balance sheet to absorb losses, if economic conditions Watson relative to our central scenario.

Thirdly, we're holding an unrealized loss reserve on a liquid asset portfolio of high quality domestic government bonds.

Adding these bonds to maturity will see their mark to market revert to par value in the years ahead.

And lastly, we have an embedded gain which reduces our overall capital requirement for interest rate risk in the banking book These gains will reverse over time and therefore they are deducted.

It is important to understand that the composition of our aggregate capital buffers currently totaling $13 billion will move in response to changing market conditions.

Turning to the second chalk under Australian Prudential requirements for IRR P. B, we have long had to make trade offs between earnings volatility and capital volatility.

Alan Docherty: Turning to the second chart, under Australian credential requirements for IRRBB, we have long had to make trade-offs between earnings volatility and capital volatility. Changes to the credential standard scheduled for implementation on 1 October will introduce new capital considerations related to the size and composition of our replicating portfolio hedge. This will introduce an additional aspect to the board's calibration of our capital target, depending on our appetite for earnings volatility through an interest rate cycle. And the third chart highlights the unique nature of CBA's funding stack that embeds resilience through a combination of deposits and low-risk long-term wholesale funding. In summary, our balance sheet settings are deliberately conservative and calibrated to optimise for long-term outcomes as opposed to short-term earnings.

Changes to the Prudential standards scheduled for implementation on one October we'll introduce new capital considerations related to the size and composition of our replicating portfolio hedge.

This will introduce an additional aspect to the board's calibration of our capital target depending on their appetite for earnings volatility through an interest rate cycle.

And the third chart highlights the unique nature of Cba's funding stack that Embeds reserve Williams through a combination of deposits and low risk long term wholesale funding.

In summary, our balance sheet settings are deliberately conservative and calibrated to optimize for long term outcomes as opposed to short tailed mailings.

Alan Docherty: As the global operating context becomes increasingly uncertain, we believe that this approach is even more important today and remains a key focus of both board and management. This long-term approach has again assisted in delivering consistent superior shareholder returns. Our combination of a high return on equity and a strong payout ratio continues to compare favourably with domestic and global banking peers. Our strategic investments help generate the franchise growth, which underpins our continued outperformance in net tangible assets and dividends per share. I'll now hand back to Matt for the economic outlook and closing remarks. Thank you.

As the global operating context becomes increasingly uncertain. We believe that this approach is even more important today and remains a key focus of both board and management.

This long term approach is again assessed it and delivering consistent superior shareholder returns.

A combination of a high return on equity and a strong payout ratio continues to compare favorably with domestic and global banking peers.

Our strategic investments helped generate the franchise growth, which underpins our continued out performance and net tangible assets and dividends per share.

I will now hand back to Matt for the economic outlook and closing remarks. Thank you.

Thanks, very much Alan.

Matt Comyn: Thanks very much, Alan. Economic growth remains below trend, but is recovering. Inflation is back within the target band, and what we expect to be a modest rate cutting cycle is underway. Consumer confidence has improved, but households remain stretched. We continue to watch global events closely, which remain unpredictable and volatile. We're yet to feel the full impact of trade and tariff disruption. Australia is well placed on an absolute and relative basis. Our fiscal position is relatively strong, unemployment low, and real disposable incomes are now growing. Australia has a number of structural advantages, including vast land and natural resources, attractiveness as a destination to live and work, and a stable social and political environment. We must not take this for granted. Unlocking growth and building resilience will be critical to create a brighter future for generations to come.

Economic growth remains below trend, but is recovering inflation is back within the target band and what we expect to be a modest rate cutting cycle is underway.

Consumer confidence has improved but households remain stretched we continue to watch global events closely which remain unpredictable and volatile.

We get to feel the full impact of trade and tariff disruption.

Australia is well placed on an absolute and relative basis, our fiscal position is relatively strong unemployment low and real disposable incomes and now growing.

Australia has a number of structural advantages, including vast land and natural resources attractiveness as a destination to live and work and a stable social and political environment, we must not take this for granted.

Unlocking growth in building resilience will be critical to create a brighter future for generations to come.

So in summary, we remain committed to supporting and protecting our customers to re imagining customer experiences by investing in technology, and AI and providing.

Matt Comyn: So, in summary, we remain committed to supporting and protecting our customers, to reimagining customer experiences by investing in technology and AI, in providing strength and stability for the Australian economy, and delivering sustainable returns. We'll stay focused on disciplined execution and investment for the long term to deliver for our customers and build a brighter future for all. I'll now hand back to Mel to go through your questions.

Strength and stability for the Australian economy, and delivering sustainable returns.

We will stay focused on disciplined execution and investment for the long term to deliver for our customers and build a brighter future for all I'll now hand back to Mel to go through your questions.

Thank you Matt for this briefing, we will be having questions from analysts and investors.

Melanie Kirk: Thank you, Matt. For this briefing, we will be having questions from analysts and investors. I'll state your name and the operator will open your line. Please announce the organisation or the institution that you represent, and please limit your questions to no more than two questions to allow as many as possible the chance to ask questions. The questions will wrap up at the end, and we'll have time to answer questions this afternoon. We'll now have the first question from Andrew Lyons. Thank you.

State your name any operator, we'll open your line.

Please announce the organization on the institution that you represent and please limit your questions to no more than two questions to allow as many as possible the chance to ask questions.

The questions, we'll wrap up at the end and we'll have time to.

And to answer questions. This afternoon will now have the first question from Andrew Lyons.

Thanks, Thanks morning, everyone. Alan just a question on your margin firstly over the course of FY 'twenty five you've had broadly flat names with the replicating.

Speaker 5: Thanks, thanks, Mel. Morning, everyone. Alan, just a question on your margins firstly. Over the course of FY25, you've had broadly flat NIMs with the replicating portfolio offsetting deposit competition and the impact of lower rates. I guess looking into FY26, you've noted that you lose the equity hedge and you are faced with some headwinds from your unhedged deposits. And I guess it would be unusual to have another year of neutral impact from asset pricing. So, would you say that those characterisations are broadly fair? And if so, are there any potential offsets that might provide some insulation to the NIM next year?

Portfolio offsetting deposit competition and the impact of lower right. So I guess looking into FY 'twenty six.

How did that you lose the equity hedging you are faced with some headwinds from you show me on hedge deposits.

And I guess it would be unusual to have another year of mutual impact from asset pricing. So would you say, there's always characterize our characterization to broadly fair and if so are there any potential outfits.

To me installation to the to the NIM next year.

Alan Docherty: Yeah, thanks, Andrew. I mean, I think they're some of the key moving parts as we look into 26. Obviously, we're not providing specific gains around the margin outlook, but obviously key to that is going to be the extent of the easing cycle in Australia. And you know, I think there's a fair degree of consistency now between market pricing and many economists' views. So, the number of rate cuts that we are yet to see through the balance of the financial year will be an important driver, ongoing competitive dynamics across both sides of the balance sheet and across both retail and business. Banking will continue to play an important part.

Yeah. Thanks, Andrew I mean, I think there are some of the key moving parts as we look into 'twenty six obviously, we're not providing specific guidance around the margin outlook, but obviously key to that is going to be the extent of the easing cycle in Australia and you know I think there's a fair degree of consistency now between market pricing and.

Many economists views so the number of rate cuts that we have yet to see through the balance of the financial year will be an important driver ongoing competitive dynamics across both sides of the balance sheet and across both retail and business.

Banking will continue to play an important part of that Colo kits.

Alan Docherty: I did call out, you know, I think it's, as we know, given it's a three-year hedge on the equity side, if we go back three years, we're now back to pretty consistent roll-on and roll-off rates around that equity tractor. And so, that's likely to be fairly neutral. And obviously, that provided a tailwind in the last financial year. There still continued to be an offsetting tailwind from the replicating hedge. Obviously, that's a five-year hedge, and you know, the rates that rolling off five years ago are significantly lower than the current level of rates. So, the replicating portfolio will continue to provide an offset. And then obviously, the other moving part will be wholesale funding spreads, credit spreads. We have seen over recent months and recent weeks a slight tick up on basis risk. The bill's always spread, and so we're watching that closely.

You know given it's a three year hedge.

On the equity side. If you go back three years, when I look back to pray consistent rule in and rule off rates around the equity.

<unk> children, so that slight with to be fairly neutral and obviously that provided the tailwind in the last financial year.

<unk> continued to be a an offsetting tailwind from the replicating hedge obviously, that's a five year hedge and the rates that ruling or five years ago is significantly lower than the current level of rates. So the replicating portfolio will continue to provide an offset and then obviously the other moving part will be wholesale funding spreads tighter.

Spreads we have seen over recent months and recent weeks a slight tick up one basis risk here that there was always spread and so we're watching that closely credit spreads more broadly or in term funding has been pretty benign and actually narrowed over the last six months, but I mean.

Alan Docherty: Credit spreads more broadly around term funding have been pretty benign and actually narrowed over the last six months, but I mean, that'll be the other key moving part. So, I think your characterisation of the things you're looking at are the right things to be focused on in the 26.

That would be the other key move in part so I think your characterization of the things you are looking at all of the right things to be focused on end of 'twenty six.

Thanks, Ellen and Matt maybe a question for you you've announced that you've extended the buyback.

Speaker 5: Thanks, Alan. And Matt, maybe a question for you. You've announced today that you've extended the buyback, but you've know, you've conceded that market conditions make it difficult to return capital to shareholders this way. At the same time, you've reiterated that your frankly neutral payout ratio remains greater than 80%. So, can you perhaps just talk to how the board sort of, I guess, assesses these various issues and just under what conditions would a special dividend or some alternative form of capital return be considered?

You can say to that market conditions make it difficult to return capital to shareholders. This why at the same time.

<unk> reiterated that you're frankly neutral payout ratio remains greater than.

So can you, perhaps just talk to how the board sort of I guess assesses a serious issues and just under what conditions would have with a special dividend or some alternative form of capital return vacancy did.

Matt Comyn: Yeah, no, happy to. And maybe the one thing, not so much as an offset to NIM, but I guess one of the other constraints that we're certainly aware of and watching in the market is sort of, you know, to the competitive pricing perspective, given where some of our peers are on capital and, you know, the requirements are to start issuing shares to keep their dividends. I think they come under pressure. So, the question of whether that slightly improves some of the competitive pricing, given how much some of that's moved in the last couple of years. Look, I think, I mean, overall, the conversation with the board's been very consistent over some time, and a lot of which we've shared previously. We sort of obviously look at our buffers over the regulatory minimum. We're having a view around risk-weighted assets.

Yeah, no happy to and maybe the one thing not as much as an offset to our NIM, but I guess one of the other constraints that were certainly aware of and watching and the market is sort of you know.

To the competitive pricing perspective, given where some of that piece of our own capital and.

You know the requirement to either start issuing shares to keep their dividends and I think they come under pressure. So the question of whether that's slightly improves.

Some of the competitive pricing given how much some of that some news in the last couple of years look I think I mean overall the conversation with the board being very consistent for some time and a lot of which we've shared previously we sort of obviously look at al buffer over the regulatory minimum and might get having a view around risk weighted assets were thinking.

Matt Comyn: We're thinking about sort of what losses could be, looking at various sort of scenarios for that. As Alan's touched on, you know, our risk-weighted asset growth this period was very strong. It was a record year and clearly being able to deploy capital at that scale well above our hurdle rate, which is again above where our cost of capital would be, is a very effective use of that capital we've decided to pick up investment. You're right insofar as, well, one of the things we also think about is, well, with that capital that we're now holding as a surplus, what's the opportunity cost of holding that capital? We look at the, you know, after-tax expensive alternative sort of funding instruments. You know, that's very narrow. That opportunity cost of capital is very low.

About sort of what the losses could be looking at various set of scenarios for that as Alan's touched on you know a risk weighted asset growth. This period was very was very strong.

Record year, and clearly being able to deploy capital.

At that scale well above our.

Hurdle right, which is again above where our cost of capital would be is a very effective use of that capital we've decided to pick up our investment.

You're right in so far as well one of the things. We also think about as well with that capital in that way now housing as a surplus what's the opportunity cost of holding that capital we look at the <unk>.

After tax expensive alternative sort of funding instruments.

That's very narrow that opportunity cost of capital is very low and so I think we've got a lot of flexibility clearly in terms of the balance sheet and our capital levels. We're conscious of all of those factors, but we feel that the path that we've been on which has been try to deploy it effectively organically, while supporting high fully franked.

Matt Comyn: And so, I think we've got a lot of flexibility clearly in terms of the balance sheet and our capital levels. We're conscious of all of those factors, but we feel that the path that we've been on, which has been trying to deploy it effectively organically while supporting, you know, high, fully frank, sustainable dividends, I think gives us a lot of flexibility, particularly, I guess, in an era of increased volatility and uncertainty. I think being well prepared puts us in a very strong position, but as you would expect, it remains an ongoing topic of dialogue, and we've certainly put a lot of thought into what that overall plan could be over many years.

Sustainable dividends I think gives us a lot of flexibility.

<unk>, particularly I guess in an era of increased volatility and uncertainty I think being well prepared.

Puts us in a very strong position, but as you would expected. It remains an ongoing topic of a dialogue and we've certainly put a lot of thought into what that overall plan could be over many years.

Thank you.

Melanie Kirk: Thank you. The next question comes from Jonathan Mott.

Your next question comes from Jonathan Mott.

Two questions if I could.

Alan Docherty: Two questions, if I could. The first one goes on to what you were talking about, Alan, was competition, especially on the deposit side. And what we're seeing now, it looks like a lot more competition coming in the online saver, goal saver area, and some of your competitors are now waiving some of the requirements to grow the balance each period and not make a deposit or able to make withdrawals, especially in the quarry. And given how the success that you've seen on the mortgage side now looks like they're rolling that out on the deposit side. So, I wanted to sort of get your thoughts on that. Is this another area that you need to look at? And what percentage of your current savings customers don't qualify for the bonus rate each period? Is that an area that could potentially come under threat? Yeah.

First one on geis until it you were talking about competition, especially on the deposit side and what we're saying now it looks like a lot more competition coming in.

Outside of golf say the area or in some of your competitors and now why easing some of the requirements to grow the balance H period.

No Mike deposit.

Withdrawals, especially Macquarie and <unk>.

Given the success, you're seeing on the mortgage side now it looks like they're rolling that out on the deposit side I wanted to.

Get your thoughts on that is this another area that you need to look at and what percentage of your current savings customers don't qualify should that bonus right in each period.

Is that an area that.

How much of a threat yeah. I mean, we we've continued to see very high levels and actually grew in levels of customers, who are reopening the bonus savings rate, which we've called out in previous results were around in the high <unk> in high Eighty's of percentage of customers, who are running that bonus rates. So that I think that as much.

Alan Docherty: I mean, we've continued to see very high levels and actually growing levels of customers who are earning the bonus savings rate, which, you know, we've called out in previous results, we're now around in the high 80s of percents of customers who are earning that bonus rate. So, I think that's much higher than the industry average. So, that should provide us a degree of protection from a competitive pricing perspective because most of our customers, the vast majority, are enjoying that higher rate. We give very proactive notifications to our customers, importantly, digitally through the app to ensure that they do the things that they need to do to earn that higher rate and demonstrate the sticky behaviours that allow us to offer the level of pricing that we offer on the award product. But it's undoubtedly a new form of competitive focus across the industry.

Higher than the industry average so that should provide us a degree of protection from a competitive pricing perspective, because most of our customers. The vast majority are enjoying that higher rate.

Get very proactive notification to our customers importantly, digitally through the app to ensure that we do the things that they need to do to you on that high array and demonstrate the sticky behaviors that allow us to offer that the level of pricing that we offer on the award product, but it's undoubtedly a new form of competitive.

Focus across the industry.

Alan Docherty: You know, we've seen deposit pricing emerge as the single biggest headwind from a margin perspective over recent halves. I think we'll continue to see competitive pressure on margins. Obviously, we're passing the peak of the cash rate cycle, so there will be a degree of offset in that regard as rates come down. You know, if you look at pricing of certain standard base rate products across the industry, there'll be less degrees of freedom for some industry participants relative to others, given where those base rates are at the moment, heading into, you know, the middle of an easing cycle. But, you know, I think that's a fair observation. There's continued competitive intensity in deposits, and we can certainly see that. And. Thank you.

Seen deposit pricing a mail just the single biggest headwind from a margin perspective over recent halves I think we'll continue to see.

Pressure on margins, obviously, we're passing the peak of the cash rate cycle. So there will be a degree of I'll say in that regard as rates come down.

If you look at pricing of certain standard base rate products across the industry there will be.

Less degrees of freedom for some industry participants relative to all those given where those base rates out of the moment heading into <unk>.

The middle of an easing cycle, but you know I think that's a that's a fair observation those continued competitive intensity in deposits and that's how we can certainly see that.

Yeah.

And thank you and the second question Felicia that.

Alan Docherty: And the second question probably from that, if I go to slide 45, one of the charts we've been talking about for many, many, many years, goes to the retail bank and main financial institution. And it's fallen very sharply over the last six months, basically across every category. And on some of these categories, you're back to where you were when it actually started being disclosed all the way back in 2013. So, just a bit, I wanted to get some explanation on what's happened over the last little while. It's not migration that can't really explain it, given the rapid change. Is this just a sample error, or is there anything that could explain why this very sharp fall in the MSI has come through?

Go to slide 45 wanted to chat <unk> been talking about for many many many years.

Rachel.

Extra institution.

It's totally very sharply over the last six months.

Really across every category and then some of these categories you back to where you were when it actually started paying disclosed all the way back in 2013.

Just.

Wanted to get some.

It's an explanation on what's happened over the last little while it's not migration that can't really explain it.

Change is there.

Yes.

Our sample error or is there anything that could explain why this very sharp fall in the initialized country. Yeah, no. Thanks, John Yeah, and as you noted we've been talking about this slide for 12 years.

Matt Comyn: Yeah, no, thanks, John. Yeah, and as you noted, we've been talking about this slide for 12 years. Look, I think, Adams, we've said many times, you know, it's survey-based, so it's not precisely accurate, but it's been directionally accurate. So, it's certainly an area of focus for us, has been for some time, and you know, we're not entirely satisfied with the performance over FY25. So, it's a big focus, and maybe I'll link it to your question on deposits in a moment. I think it's across the year, business banks had a very strong MFI share growth, retail after a very strong FY24, weaker, as you said. Look, I think there's a number of factors, and I guess in a survey-based result, it's hard to get the actual levels of sort of like causality across some of these drivers. But look, we do really well in migrants.

Look I think Adam as we've said many times, we just its survey based so it's not precisely accurate, but it's been directionally accurate. So it's certainly an area of focus for US has been for some time and you know we're not entirely satisfied with the performance of our FY 'twenty five so it's a big focus and maybe I'll link it to.

The your question on deposits in a moment I think it's across the year business banks had a very strong I'm, if I share growth retail after a very strong FY 'twenty four waker as you said look I think there's a number of factors and I guess you know a survey based resolved. It's it's it's hard to get the.

The actual levels of sort of like causality across some of these drivers that look we do really well on migrants margaret's down 11%.

Matt Comyn: Migrants down 11%, you know, except your point there. Some of that is also a mix effect as well. I know we've touched on this earlier. You know, we do particularly well when migration's high from markets like India, not so well with, say, New Zealand and the UK. So, I mean, there's a number of factors. That's one of them that contributes to it. Look, we have seen in some of the cohorts increased competitive intensity, and I think, you know, predominantly on the deposit side, you know, we've seen cashback for migrants. We've seen some very aggressive and sharp pricing offers in youth and maybe in young adults. It's perhaps a consequence of having a focus on the performance last year. We've certainly seen some, you know, competitive intensity responses on the back of that.

Accept your point there is some of that is also a mix effect as well I know we've touched on this earlier you know, we do particularly well.

Migration is high from markets like India, not so well, we'd say in New Zealand and the U K. So I mean, there's a number of factors. That's one of them that contributes to it look we have seen in some of the.

The cohorts are increased competitive intensity and I think you know predominantly on the on the deposit side you know we've seen cashback for migrants we've seen some very aggressive aggressive and sharp pricing offers.

In in use and maybe in young adult it's perhaps a consequence of.

Having a focus on the performance last year, we've certainly seen some competitive intensity our responses on the back of that then maybe then went to sit a lot more perhaps minor issues overall in terms of just execution and timing. So there's a bit of a loss in and around bank west as we did the migration, but that's a big <unk>.

Matt Comyn: Then, maybe then we're into sort of like more perhaps minor issues overall in terms of just execution and timing. So, there's a bit of a loss in and around Bank West as we did the migration, but that's a big shift in the business model and strategy. We think that's gone very well, and obviously we plan to execute as a digital only. But so, ultimately, you know, as you quite rightly point out, it hasn't been a strong year in our retail MFI share. We think a lot of the factors are around competitive intensity, and we're very focused on having both, you know, improvements around offer, proposition, and being very targeted. And, you know, as you'd expect, it's a big area of focus for me, the team, for Angus going into FY26.

Shift in the business model and strategy, we think that's gone very well and obviously, we plan and execute as it digital only but ultimately as you quite rightly pointed out it hasn't been as strong.

A year and am Ray Cal M F. Our share we think a lot of it the factors or around competitive intensity and we are very focused on having both.

Movements around off proposition of being very targeted and.

As you'd expect it's a it's a big area of focus for me the team for Angus.

Going into FY 'twenty six.

Okay.

Melanie Kirk: Thank you. The next question comes from Carlos.

Thank you. Our next question comes from Carlo.

Thanks Mel.

Speaker 5: Thanks, Mel. Carlos Tacho from Macquarie. This first slide asks about your investment spend. So, you ended up investing $2.3 billion, well up from last year. Should we expect that level of investment spend going forward, or was it more opportunistic that you saw good opportunities and wanted to take advantage of them, and it might pull back in FY26?

From Macquarie.

So I just wanted to ask about your investment spend so you ended up investing $2 $3 billion.

Well up from last year should we expect that level of investment spend going forward or was it more opportunistic. If you saw good opportunities in order to take advantage of them and it might pull back on in FY 'twenty six yeah. I mean, you certainly shouldn't say that level of increase in in FY 'twenty six it's not it's not going to go backwards in FY 'twenty six needs to be.

Matt Comyn: Yeah, I mean, you certainly shouldn't see that level of increase in FY26. It's not going to go backwards in FY26, just to be clear. And specifically in terms of the sort of technology investment as well. I think we've been talking about for some time a focus on wanting to increase the throughput or productivity for the dollars that we're investing. We, as we said previously, we've been holding that investment envelope basically flat for many years. So, going backwards in real terms, we felt much more confident about throughput and ultimately output for dollars of investment spend, and so wanted to increase the investment. And then we decided to take some additional discretionary investments, specifically in AI. We see a very close linkage between modernisation of some of our technology estate, and that's a broad piece of work.

Clear not specifically in terms of the sort of technology investment as well I think we've been talking about for some time and our focus on wanting to.

Increase the throughput of our productivity for the dollars that we're investing we as.

As we said previously we've been holding that investment envelope basically flat for many years going backwards in real terms, we feel much more confident about throughput.

Ultimately output for $1 of investment spend and so wanted to.

Increase the investment and then we decided to take some additional discretionary investments specifically NII, we say a very close linkage between modernisation of some of that technology estate and that's a that's abroad.

Pace of work, we'd be able to leverage the capability of Gen. II. So we wanted to increase the pace of that so we put some additional investment across that so was it were you know Alan obviously talk about this quite a bit what we're open to continuing to increase it but we wouldn't want there to be an assumption that that level of growth.

Matt Comyn: We've been able to leverage the capability of GenAI, so we wanted to increase the pace of that. So, we put some additional investment across that. So, I think we're, you know, Alan and I obviously talk about this quite a bit, we're open to continuing to increase it, but we wouldn't want there to be an assumption that that level of growth would be something we'd be contemplating in FY26.

Would be something we'd be contemplating in FY 'twenty six.

Thank you.

Speaker 5: Thank you. I guess kind of staying on that topic, when do you expect to start to see the benefits come through? Obviously, productivity has come through, but even with that, you still saw 6% expense growth for the year. Is this really building for a three to five-year benefit, or do you think we could start to see those benefits of technology and AI investments coming through sooner?

I guess kind of staying on that topic.

When do you expect.

We expect to start to see the benefits coming through obviously productivity has come through but even with that you still saw 6% expense growth.

For the year.

Is this really building for three to five year finish sooner or do you think.

Could start to see those benefits of technology investments coming here soon.

Alan Docherty: Yeah, I mean, I'd take a sort of broader view of all of the investments. I mean, obviously, the infrastructure modernisation work, what we're really doing is accelerating that work that you would otherwise do over maybe a four or a five-year time horizon. We're trying to get that done within three years, and therefore accelerating the amount of engineers that are working on that. I spend a lot of time personally looking at what's the measurable efficacy improvements and the measurable yield that we're seeing from the last number of years of investment. And as we get more velocity, lower rework rates, more efficacy in the technology change work that we're deploying, and we can see a number of measures, many of which we've talked about in the body of the pack.

Yeah, I mean, I think I'd take a sort of a broader view of the all of the investments I mean, obviously the infrastructure modernization work. What we're really doing is accelerating that work that you would otherwise do over maybe a four or a five year time horizon, we're trying to get that done within three years, and therefore accelerating the ammonia of engineers.

The walking on that we I spend a lot of time personally looking at whats the measurable way efficacy improvements in the measurable yield that we're seeing from the last number of years of investment and as we get more velocity lower reward creates more efficacy and the technological.

Did you change that we're deploying and we can see a number of measures many of which we've talked about in the body of the pack. That's manifest in a number of lead indicators that we measure quality of retail deposits. The improvements in N. P. S. The improvements that we see in business lending market share growth the automation of a number of it.

Alan Docherty: You know, that's manifested in a number of lead indicators that we measure: the quality of retail deposits, the improvements in NPS, the improvements that we see in business lending market share growth, the automation of a number of the credit origination processes and annual review processes. So, we can see the productivity, we can see the better customer outcomes, and we can see the translation for the top-line revenue. The work that we're doing now around infrastructure refresh and generative AI, we'd expect again to see a forward profile of benefits in that regard emerging in the years ahead. And we're continually calibrating. We're seeing the benefits. We've got some room to invest a little more at this point in time, and we're managing to that pre-provision profit outcome and dividend per share growth outcome.

Credit origination processes and annual review processes. So we can see the productivity, we can see the beta customer outcomes and we can see the translation for the top line revenue. The work that we're doing now around infrastructure refresh in general to be I would expect again to see a forward profile of benefits in that regard in Belgium, and the yields are.

Head and were continually calibrating.

We've seen the benefits we've got some room to invest a little more at this point in time, and we're managing to that pre provision profit trauma and dividend per share growth outcome. So we're pleased with the yield of seeing over recent years and we've got you know very.

Alan Docherty: So, we're pleased with the yield that we're seeing over recent years, and we've got very measurable targets around the assumed benefits profile that we'll see from the current investments that we're making over the years ahead. So, we'll continue to sort of watch that and manage that very closely.

You know bill got very measurable targets around the the assumed benefits profile that we see from the current investments that we're making over the years ahead. So we'll continue sort of watch that and manage that very closely.

Matt Comyn: Yeah, maybe just a couple of very quick thoughts there. Maybe like between the different types of investments that we're making and then maybe a slightly different productivity benefit profile. So, in engineering, which I think is the most easy to sort of measure and realise productivity benefit in GenAI, I mean, we talked about the increase in terms of the velocity of change. I mean, if we could increase by 50% in FY26, we would. So, we wouldn't seek to reduce our engineering. So, I think we're going to continue to just try and push for more and more volume and quality of change and speed of execution.

Maybe just a couple of very quick thoughts that he likes to.

Between the different types of investments that we're making and then maybe a slightly different productivity benefit profile.

So in engineering, which I think is the most easy to sort of measure and realized productivity benefit in Gen. II I mean, we talked about the increase in terms of the velocity of change I mean, if we could increase by 50% in FY 'twenty six we would so we and we wouldnt seek to reduce our engineering so.

I think we're going to continue to just try and push for more and more volume and quality if change in speed of execution, you know as Alan said already across lots of different use cases, whether it's in for order in online verification content synthesis and some of that service has or supporting our bankers that that some of those benefits.

Matt Comyn: You know, as Alan said, already across lots of different use cases, whether it's in fraud or in homeland verification, content synthesis, in some of our service tasks or supporting our bankers, some of those benefits are, you know, they're, I think, incrementally small when they're a bit nearer term. I think where maybe there's some larger benefits, that'll take many years. You know, one of those would be some of the, I think, the hardest areas of financial services and certainly where we've put huge amounts of both CapEx and OpEx, like financial crime, scams, fraud, to some extent cyber in that area as well. We talk about sort of $930 million of investment. It's a huge part of our, at least on a relative basis, our operating expenditure. That's not going to be realisable in the next couple of years.

I think incrementally small when their bit nearer term I think we're maybe there's some larger benefits that will take many years are you know one of those would be some of it though I think the hottest areas of financial services, and certainly where we've put huge amounts of both capex and opex like financial crime scams fraud to some extent sabra in there.

Area as well, where we talk about sort of $930 million of investment. It's a huge part of that Oh, they sort of a relative basis, our operating expenditure that's not gonna be realizable in the you know in the next couple of years I think that's going to take some time, but I think the technologies that are available today, and obviously, you're going to keep getting better again.

Matt Comyn: I think that's going to take some time, but I think the technologies that are available today and obviously are going to keep getting better are going to enable just a different, a very different, and I think much more effective approach at delivering, you know, better outcomes in that case for our customers and the community at a much lower cost.

I will just sit you'd just a different a very different and I think much more effective approach are delivering better outcomes in that case, so that our customers and the community at a.

Much lower cost.

Thanks.

Melanie Kirk: Thanks. Thank you. The next question comes from Andrew Treigs.

Thank you.

The next question comes from Andrew Triggs.

I think you know when you guys started just a quick question on costs just to pick up that last point.

Speaker 5: Thank you, Mel. Morning, guys. Just the first question on cost, just to pick up that last point. You saw 3% half-on-half growth in FTEs in the second half. Alan, I wondered if you could unpack some of the drivers there. And are they sort of more expensive people you're bringing on board, given the likes of, you know, data and engineer type staff that's coming onto the platform?

You saw 3% half on half growth in Ftes in the second half.

Alan wanted if you could unpack some of the drivers there.

Sort of more expensive people, you're bringing on board given it's the likes of the daughter and engineer type stuff, that's coming onto the platform Yep Yep.

Alan Docherty: Yep. Yeah, I have to sort of break that down a little bit. So, yeah, there's that 3% growth in spot FTE in the second half. There's a component of that that relates to the insourcing that we've continued to do. We're continuing to build out our in-house engineering capability within our Bangalore team. There's an offsetting reduction in the over the year that would be around 700 engineers of the 2,000 that we've hired are housed in Bangalore. There's an offsetting reduction in some of the third-party ASPs. And so, you'll see, you know, the run rate cost of those insourced engineers roll through the full year next year within staff expenses, but there's also a commensurate reduction of the third-party costs that we've seen in the IT cost line through the course of this year. So, there'll be a commensurate offset.

Yep, it sort of break that down a little bit so the yeah. Those are the three.

<unk>, 3% growth in spore FTE in the second half, there's a component of that that relates to the in sourcing that would continue to do we'll continue to build out.

In house engineering capability within our Bangalore team, there's an offsetting reduction in the over the year that would be around 700 engineers of the two thousands that with high yield are housed in Bangalore.

Offsetting reduction in some of the Subpart E. S piece and so you see you know the run rate cost of those and source engineers rules through the full year next year within staff expenses, but there's also a commensurate reduction of third party costs that we that we'd seen in the I T.

Cost line through the course of us use of a commensurate offset.

Alan Docherty: We're really happy with the capability, the productivity, the efficacy, the quality of the engineering talent that we're bringing into the Bangalore team. And so, that pays off through the execution metrics that we continue to track around velocity and what quality and rework rates. So, we continue to be pleased with that. The other source of, we've also added obviously domestic engineers, many of whom are working on some of the technology infrastructure modernisation and the GenAI platform builds that we've referred to. Some of that cost, obviously, given the nature of it, is capitalised. You won't see that necessarily emerge in OpEx in the next financial year. That work will be capitalised over the period where we'd expect to accrue the benefit of the work that we're producing.

We're really happy with the capability the productivity the efficacy the quality of the engineering talent that we're bringing in to the Bangalore team and so that piece of it through the you know the execution.

Metrics that we continue to track around velocity and work quality and reward right. So continue to be pleased with that the other source of we've also added obviously domestic engineers many of whom are working on some of the technology infrastructure modernization and the G&A I platform builds that we've referred to.

Some of that cost oversleep given the nature of it is capitalized you won't see that necessarily a MAGE <unk>.

And Opex in the next financial year about what can be capitalized over the periods, where with where we'd expect to.

[noise] accrue to the benefit of the work that we're producing and so youll see that gradually emerge through amortization and the years ahead matching the benefits profile that we see from that investment.

Alan Docherty: So, you'll see that gradually emerge through amortization in the years ahead, matching the benefits profile that we see from that investment. And so, yeah, we've seen, you'll see that that growth in FTE was a function of the posture we've taken towards investment spend. The other component is the growth in proprietary lending. You've seen that particularly in the retail bank through the course of the last financial year. We continue to invest strongly behind the proprietary distribution. The productivity of our retail lenders and our business bankers, we're continuing to see improvements there. Our decision again this year was we're not going to harvest that productivity by reducing the amount of proprietary lending that we have in the front line.

And so yeah. We've we've seen you will see that that growth in FTE was a function of the agreed that posture, we've taken towards investment spend the other component is the growth in proprietary lending you've seen that particularly in the retail bank through the course.

The last financial year.

We continue to invest strongly behind the proprietary distribution the productivity of our retail lenders under business bankers will continue to see improvements there of decision again. This year was we're not going to harvest the productivity by reducing the amount of proprietary lending that we have in the frontline or actually slightly up.

Alan Docherty: We've actually slightly increased it over the period, and with a greater productivity, we're pleased with the results of that that we see through the volume growth and the top line performance in the next year.

Increased over the period and the degree of productivity well.

Pleased with the results of that that we see through the volume growth on the top line performance in the next year.

Thanks, Alan and just the second question on trading income. It was described as a rebound in the second half after a weak first half, but the full year numbers still towards probably the top end of what the historical ranges Zane could you maybe just describe.

Speaker 5: Thanks, Alan. And just the second question on trading income. It was described as a rebound in the second half after a weak first half, but the full year number is still towards probably the top end of what the historical range has been. Could you maybe just describe some of the trading income conditions that you found and whether we should be expecting something more positive going forward than perhaps what we've previously expected of CBA?

Trading income conditions that you've found and whether we should be expecting something more positive going forward than perhaps what we've previously expected at CVI. Yeah. I mean, it's hard to just isolate the the trading income within other operating income those are north setting we've referred to in a couple of places with an offsetting funding cost attached to that trading income. So when you see higher PD.

Alan Docherty: Yeah, I mean, it's hard to just isolate the trading income with another operating income. There's an offsetting, we've referred to in a couple of places, with an offsetting funding cost attached to that trading income. So, when you see higher periods of trading income, as you've seen in the second half, there's actually a commensurate increase in funding costs related to that trading that appears with a net interest income. So, I wouldn't want to overstate the importance of the second half trading income in terms of the overall operating performance. It's certainly higher second half than first half, although it's a little more modest on a net basis when you take into account the funding costs for some of the, for example, our commodities business where we've got higher physical inventories of precious metal holdings.

Words of trading income as you've seen in the second half virtually a commensurate increase in funding costs related to that trading that appeals with a net interest income.

So I wouldn't want to overstate the importance of the second half trading income in terms of the overall operating performance and certainly higher second half than first half, although it's a little more modest on a net basis. When you take in account the funding costs for some of the for example, or commodities business for both go higher physical inventories of precious metal holdings.

Alan Docherty: So, it's been part of the second half revenue momentum, but I wouldn't overstate the importance of it on a net basis. And I think when you take total income into account, you know, we're pleased with the second half, pleased with the overall trading income performance, and we'll seek to maintain that level of performance in the period ahead.

It's been part of the second half revenue momentum, but I wouldn't overstate the importance of it.

On a net basis.

And then I think when you take total income into account, we're pleased with the second half pleased with the overall.

Aiding income performance and we will seek to maintain that level of performance in the period ahead.

Thank you. Thank you. The next question comes from Richard.

Speaker 5: Thank you.

Melanie Kirk: Thank you. The next question comes from Richard.

Good morning, everyone, It's Richard Wiles from Morgan Stanley.

Speaker 5: Good morning, everyone. It's Richard Wiles here for Morgan Stanley. I've got a question on sort of the expense environment generally, Matt. So, for the economy, inflation has come down. It's now in the target range. But could you say cost pressures are these much for the bank sector? Are you able to sort of give us a yes or no answer to that? And it'd be great if you could specifically talk about salary inflation for frontline bankers and IT staff, as well as other IT vendor costs. So, are the pressures easing in the bank sector the way they are for the economy more broadly?

A question on <unk>.

So does the expense environment generally Matt said for the economy inflation has come down.

<unk>.

But could you say cost pressures.

Much for the bank sector.

Able to sort of give us a yes or no answer to that and it'll be great. If you could specifically talk about salary inflation frontline bankers know I'd say stuff as well as other savings across the pressures easing in the bank sector wide IR for the economy.

Matt Comyn: I mean, in totality, with a yes or no, I'd say no. You know, I think you'll see similar easing of some of the increases across a broad base of employees. I think some of the enterprise agreements, obviously, they were structured around higher increases in the earlier years, which clearly wear through. And I think we'll see perhaps lower wage growth there. But then it's a question then of sort of like mixed effects on a relative basis. And some of the roles that we're hiring, particularly in technology, and you can imagine all of the sort of sub-skill sets, there's clearly a lot of pressure on wages. It's not a huge market in the context of Australia. And frankly, there's very high inflation in some of those job types internationally.

I mean in totality.

With a yes or no I'd say no.

You know I think you'll see similar.

Easing of some of the increases across a broad base of employees I think some of the enterprise agreements. Obviously they were structured around higher increases in the early years, which clearly we're through and I think we'll see perhaps lower.

Wage growth there, but then it then it's a question that I've sort of like mix effects on a relative basis in some of the roles that we're hiring particularly in technology and you can imagine all of the sort of sub skill sets that there's clearly a lot of them.

Pressure in.

On wages is not not a huge market in the context of Australia Franklin is very high.

Inflation in some of those job types internationally, and then I think as you look at technology one of the other things are.

Matt Comyn: And then I think as we look at technology, one of the other things that has drawn our attention is just you can see a lot of software repricing globally as well. So, you know, we're kind of watching that very closely as well in terms of what inflation there might be from some of our external software and licensing expenses. But you know, we've made deliberate choices to bring much more engineering in-house. That's been, I think, really important strategically, lower costs as well, because we're moving from some of that was provided by external parties. And so, yeah, I mean, I think we're certainly going to continue to feel wage pressures. There's obviously been a lot of disruption across the other banks. There's a lot of hiring at both sort of senior levels, but also, you know, in some of those key areas.

Is drawn our attention is just a you can see a lot of software every pricing globally as well. So you know where we're kind of watching that very closely as well in terms of what inflation there might be from a from some of our external.

Software and licensing expenses, but you know we've made deliberate choices to bring much more engineering in house that's been.

I think really important strategically lower costs as well because we're moving from some of that was provided by external parties and so yeah. I mean, I think we're certainly going to continue to feel wage pressures. It's obviously been a lot of disruption across the other banks, there's a lot of hiring.

In at both the senior levels that also you know in some of those key areas.

Matt Comyn: And you know, we expect to have to compete for talent and obviously continue to focus on trying to grow talent, even if that occasionally means we're providing that for some of our competitors.

We expect to have to compete for talent and obviously continue to focus on trying to grow.

<unk> talent, even if that occasionally means we're providing that for some of our competitors.

Thank you.

Speaker 5: Thank you.

Thank you.

Melanie Kirk: Thank you. The next question comes from.Good

Next question comes from Brian.

Good morning, and thanks for reporting a good result meant that two questions. If I may the first one just on AI and.

Melanie Kirk: morning and thanks for reporting a good result, Matt. Matt, two questions if I may. The first one just on the AI. Your messaging today seems to be that revenue is strong, we can invest, so you can have like a, you can fund a higher cost number. I was just wondering, can you give us a feel whether AI is basically a cost-out story or a growing revenue story? And when, if it is a cost-out story, when do you feel that we'll start to see it really flowing through?

Messaging today seems to be that revenue was strong we can invest so you can have.

You can find a high cost number.

I was just wondering can you give us your feel with AI is basically a cost out story.

Growing revenue story.

When if it is a cost story when do you feel that will start to see it really flowing through.

Matt Comyn: Yeah, so I mean, look, a couple of things, BJ, and you know Alan touched on this. We sort of, you know, we're looking obviously at pre-provision profit. You know, we're very conscious of the performance that we would like to deliver in year, but we're also really focusing on trying to invest in long-term earnings potential. And so, you know, this year there's a number of things that we could have done differently if we wanted to deliver a, you know, a stronger result, but we wanted to make those conscious choices. And if we feel like we've got that flexibility, and we think it's just a really important maybe period as some of the technology transitions. And then specifically to your point, look, I think it's both a revenue opportunity in some areas, it may be an expense opportunity.

Yeah. So I mean look a couple of thing P J and Alan touched on as we sort of you know we're looking obviously at pre provision profit you know, we're very conscious of the performance that we would like to deliver in year, but we're also really focusing on trying to invest in long term earnings potential.

And so you know this year, there's a number of things that we could've done differently. If we wanted to deliver a stronger result, but we wanted to make those conscious choices and if we feel that we've got that flexibility and we think it's just an important really important maybe period as some of the.

Technology transitions and then specifically to your point.

I think it's both a revenue opportunity in some areas. It may be an expense opportunity I think it's also just really important to be used.

Matt Comyn: I think it's also just really important to be used defensively. If you think about it from a threat perspective, like the quality, sophistication, frankly, velocity of some of the sort of cyber attack vectors, so it's increasing very rapidly. So I guess we sort of see it as being, you know, a cornerstone of being able to support a great customer proposition, but also position the organization competitively. And I think sort of speed of execution is going to really matter over the long term. And then I guess my answer in terms of the productivity or cost savings, I think will be similar to what I said before. In some areas, we would just continue to try to deliver more in engineering.

Defensively.

In the U S from a threat perspective like thick quality sophistication frankly velocity of some of the.

Sort of cyber attack vectors, so as increasing very rapidly. So I guess, what you sort of say it as being.

You know cornerstone of being able to support a great customer proposition, but also position the organization competitively and I think sort of speed of execution is going to really matter.

Over the long term and then I guess my answer in terms of the.

Productivity or cost savings I think it will be similar to what I said before in some areas. We would just continue to try to deliver more in engineering.

In the near term, we see you know.

Matt Comyn: In the near term, we see, you know, just about across all parts of the organization, an opportunity for all of our people to be using AI tools, and we'd certainly like to see that to do their job more effectively to a high level of quality, serve our customers. I think there'll be some nearer term incremental, maybe cost opportunities, but where we sort of reallocate that will depend again to the sort of first point. And then, yeah, on the longer term, yes, you can imagine that there are some much more efficient ways of delivering some of the things that we currently do. But I do think that's going to take some time, like some years to work through some of the accuracy and quality that's required. Obviously, there will be a very high standard and standard of regulation placed upon us.

Just about across all parts of the organization and opportunity for all of our people to be.

Using AI tools, and we'd certainly like to say that to to do their job more effectively to a high level of quality serve our customers I think there'll be some are nearer term incremental maybe cost opportunities that where we sort of reallocate that will depend again to the sort of first.

Point and then you are taught on the longer term, yes, you can imagine.

That there are some much more efficient ways of delivering some of the things that we that we currently do but I do think that's going to take some time my some years to work through some of the like the accuracy and quality that's required.

Obviously, there will be a very high standard.

And standard of regulation placed upon us, but we but we do think that having cold capabilities learning by doing delivering benefits is a structural underpinning of being out and perform well over the next decade or more.

Matt Comyn: But we do think that, you know, having core capabilities, learning by doing, delivering benefits is a structural underpinning of being able to perform well over the next decade or more.

Second question for a moment, just think list, which now becomes like the digital brand of cone bank.

Melanie Kirk: Second question, if I may, Matt, just Bank West, which now becomes like the digital brand of CommBank. Does that mean anything for this kind of long-running strategy that you'd rather originate stuff proprietary? Does it have to become the broker channel as well?

Does that mean anything for this kind of long running strategy that you'd rather original stuff proprietary does it actually become the broker channel as well.

Matt Comyn: Well, I mean, look, it's heavily, there's multiple parts to the overall strategy. And I think the team has done a very good job of executing from, because look, I think the economics of a subscale universal bank, given the competitive change in the landscape, I think that's very difficult. And we did think competitively it would be good to have a digital low-cost proposition, which works very, very closely as very limited proprietary distribution, particularly in mortgages. Less so, obviously, the digital experience really matters. You know, full service, yellow CBA brand, which we're focused on proprietary, of course, the broker channel remains a very important channel. So we get that sort of balance, right? And then I think we feel like it gives us more strategic flexibility to pursue some targeted propositions in different markets.

Well I mean look it's heavily there's multiple parts of the overall strategy I think the team has done a very good job of executing.

Because I think the the economics of a subscale Universal bank given the competitive changes in the landscape I think that's very difficult and we did think competitively it would be good to have the digital low cost proposition.

Proposition, which works very very closely as you know very limited proprietary.

Distribution, particularly in mortgages less so obviously the digital experience really matters.

Full service yellow CVA brand, which.

Which we're focused on proprietary of course, the broker channel remains a very important.

Channel, So we get that sort of a balance.

Balance right and then I think we feel like it gives us more strategic flexibility.

To pursue some targeted propositions in different markets, because you know certainly in our view the competitive context and intensity.

Matt Comyn: Because certainly in our view, the competitive context and intensity has shifted quite a bit over the last five years, as in it's increased. I mean, you can see that even in the COFA paper recently in terms of regional banking, that sort of myth that there wasn't much competition in banking because it was a concentrated industry structure is just that it's a myth. I mean, look at some of the challenges that may be facing sort of like smaller institutions. So I guess we're cognizant of that and adjusting for the future and want to make sure we can position to serve our customers as effectively as possible and obviously capture a large share of the economic profit that will be available in the market.

Has shifted quite a bit over the last five years as an it's increased I mean, you can say that even in the type of paper recently in terms of regional banking that that sort of meet that there wasn't much competition in banking because it wasn't just concentrated industry structure is just that it's a myth I mean, when you look at.

Some of the challenges that may be facing so a smaller institution, so like well I guess, we're cognizant of that and that and adjusting.

For the future and want to make sure we can position to serve our customers as effectively as possible and obviously capture a large share of the economic profit there'll be available in the market.

Matt just on that if you guys had had peer number five in that slide 45, which is Macquarie, which has grown its share.

Melanie Kirk: Matt, just on that, if you guys had had here number five in that slide 45, which is Macquarie, which has grown its share, which in APRA's recent paper about smaller and medium-sized banks, they put Macquarie in the medium-sized banks bucket. Are they the one that's picking up the kind of cohort share, MFI share from Combank, or is it?

In an effort duration paper about small and medium sized banks.

Macquarie in the medium sized bank market as either one picking up.

Cohort <expletive> in the Polish it from combat.

There.

Matt Comyn: They're not actually in the.

They're not actually.

Melanie Kirk: Slide 45.

Yeah, they're not in the survey if I unpack the survey for your extra them. If I share is very modest, but I think again.

Matt Comyn: Yeah, they're not in the survey. If I unpack the survey for you, actually, the MFI share is very modest. But I think, again, that may be, I'd say that's more survey error. But they aren't winning MFI share, at least through that lens. They are a formidable competitor. I mean, yeah, we would see them in a category that's beyond a medium bank. And I think, you know, there's a number of, I guess, issues from a competitive context and the way that they go to market. But, you know, we recognize the benefits that they have in terms of their structure. And they have a slightly different, I guess, motivation and posture. And, you know, they're a good and strong competitor. And, you know, we think and worry about them at least as much as we do any of the other majors.

And then maybe said I'd say, that's more survey era.

But that they aren't.

Winning M F. Our share at least through that lens. They are a formidable competitor I mean.

Yeah.

We would see them in a category that's beyond.

Our medium our bank and I think.

You know, there's there's a number of.

I guess issues from a competitive context.

Context, and the and the way that they go to market, but we recognize the benefits that they have in terms of the structure.

And that have a slightly different I guess motivation in posture in there.

Good and strong competitor and you know, we think and worry about them at least as much as we do any of the other majors.

But as an observation that your only competitor. Thank you.

Melanie Kirk: As an observation, they are your only competitor. Thank you.

Thank you. The next question comes from John story.

Alan Docherty: Thank you. The next question comes from John Story.

Okay. Thanks, so much.

Melanie Kirk: Hey, thanks very much, Mel, and thanks, Matt, for having the chance to ask a question. I just wanted to get a little bit more into the drivers of net interest margin at a divisional level, particularly around your retail business. And you obviously called out a few times today how you've grown in your proprietary channels. But if you go into your actual pact itself, you'll have a see that in the second half of this financial year, your NII on home lending was down quite significantly. I wanted to just get a little bit of your interpretation of what's happening there. And then just within the margin discussion too, just your deposit margins have obviously been a very big tailwind around the retail division over the last few years.

Thanks for that and I don't have any chance to ask a question.

Wanted to get a little bit more into the drivers of the net interest margin at a divisional level, particularly around your retail business and then.

You, obviously called out a few times today, how you're growing your proprietary channels, but if you go into your actual packed itself doesn't have to see that in the second half of this financial year Your NII.

Home lending was down quite significantly I wanted to just get a little bit of your interpretation of what's happening there and then just within the margin discussion to just your deposit margins and will obviously be in a very big tailwind.

Around the retail division over the last few years, how should we think about that and the timing of deposit margins coming off in a lower interest rate environment. Thanks, Yeah. So on your first question around the retail bank.

Melanie Kirk: How should we think about that and the timing of deposit margins coming off in a lower interest rate environment? Thanks.

Speaker 5: Yeah, so on your first question around the retail bank, you know, the retail bank overall had a one basis point improvement in the interest margin over the period. As you say, the home loan net interest income, I mean, we continued to see an elevated level of discounting across the front book of home lending over the course of the year. So that did result in some additional margin pressure from a discounting perspective over the period. You don't see it in the group net interest margin because of some offset in time and differences around the February and May cash rate cuts. But the retail bank continues to operate in a very competitive front book housing market in particular.

The retail bank overall had a one basis point improvement.

And net interest margin over the period.

As you say the home loan net interest income I mean, we continue to see an elevated level of discounting.

Across the front book of home lending over the course of the year. So that did result in some additional margin pressure from a discounting perspective over the period you don't see it in the group net interest margin because those are more certain timing differences around the February and may cash rate cuts.

But the you know our retail bank continues to operate in a very competitive front book housing market in particular.

The other elements of the net interest margin in the retail bank, which goes to that.

Speaker 5: The other elements of the net interest margin in the retail bank, which goes to that, the home loan margin as a product margin, there was an increase in basis risk that I mentioned in the presentation through the second half. So that manifests most directly in the home loan product margin. In the group net interest margin, we called that out. That's one basis point of that four basis point funding cost headwind that we've seen at the group level. And so that put a bit of pressure at the margin on the retail bank. Obviously, the retail bank benefits, as does the group, from those interest rate risk hedges that we have on from both an equity and a replicating portfolio perspective. So that provides a good degree of offset to the overall outcome. Your second question, John, could you just repeat that?

The home loan margin as a product margin as there was an increase in basis risk that I mentioned in the presentation.

Through the second half so that stuff that manifests.

Most most directly in the home loan product margin.

And the group net interest margin, we called out that's one basis point of about four basis point funding cost headwind that we've seen at the group level and so that's the pressure of the margin on the retail bank, obviously, the retail bank benefits as opposed to the group from those entry Street risk hedges that we have on from a both in equity and replicate.

Portfolio perspective, so that provides a good degree of all set.

And to the overall outcome and your second question John could you just repeat that.

Yeah, it's just the opposite.

Melanie Kirk: Yeah, it's good to actually go to the issue again and have a look at the detailed disclosure that you provide. Deposit margins within your NII disclosure has obviously been a big tailwind to that overall and then provided quite a big cushion, right? Despite all the competition and all the other drivers of margin, I guess particularly around mortgages. Just how should we think about the timing, right, of how those deposit margin benefits could change in a lower cash interest rate environment?

She doesn't have a look at the detailed disclosure that you provide deposit margins within your NII.

So, it's obviously been a big tailwind.

The amendment provided quite a bit Christian right. Despite all the competition and all the other drivers of margin I get stickier on mortgages, just how should we think about the timing of.

Those deposit margin benefits could change and a lower cash interest rate environment Yep, So again and by deposit margin benefits, you're referring to the track to the interest rate risk cages.

Speaker 5: Yeah, so again, and by deposit margin benefits, you're referring to the tracked till, the interest rate risk hedges?

Well, it's really just the disclosure that you provided.

Melanie Kirk: Well, it's really just a disclosure that you provided. So I appreciate the benefits around the replicating portfolio, but obviously the way that you provide the cap in the retail division, obviously 50% of NII comes from your deposit margin. I assume that must be interrelated if that's what you're talking to, but just.

The benefits are on the replicating portfolio, but obviously the way that you provide to catch in the retail division obviously, 50% of NII comes from your deposit margin am I assume there must be interrelated, if that's what you're talking to but just yeah.

Speaker 5: Yeah, so there was, yeah, that's right, John. So the benefits of those hedges come up in the deposit revenue. So that we allocate the replicating portfolio benefits to the deposit product. I mean, the underlying momentum within deposit margins is deposit margin pressure due to the competitive environment and the mix shift within deposits. You know, more customers enjoying those higher rate bonus saver balances for example, and the ongoing competitive pressure that we covered earlier in the call. So I think that, you know, that between the competitive aspect and also the easing environment, how many more cash rate cuts are we likely to see over the next financial year? They'll be the key factors around deposit margin competition and the trajectory of that into the period ahead.

Yeah, Yeah, that's right John so the benefits of those hedge he is talking about and the deposit revenue. So that we allocate the replicating portfolio benefits because of deposit product I mean, the underline.

The underlying momentum within deposit margins as deposit margin pressure due to the competitive environment and the mix shift within deposits.

More customers enjoy in those higher rate bonus S. Ive ore balances for example, and the ongoing competitive pressure.

We cover daily out in the cold So I think that you know.

That between the competitive aspect and also.

The easing environment, how many more cash rate cuts will be light with to see over the next financial year there'll be the key factors around deposit margin competition and the trajectory of that in the period ahead on the offsetting hedges I mentioned I think equity hedge is going to be pregnant true in earnings terms between the sheet in the next financial year.

Speaker 5: On the offsetting hedges, I mentioned, I think equity hedge is going to be pretty neutral in earnings terms between this year and the next financial year. If you go back five years on the replicating tractor, we did enjoy a period of very low five-year swap rate five years ago. And so those are the hedges that will continue to roll off and roll back on at the current more elevated level of five-year swap. So you'll continue to see a tailwind from replicating portfolio into the next financial year and indeed into the financial year after that, you know, until a couple of years before the swap rate that rolls off is close to where we're at at current levels. So you'll continue to see that into the next year.

If you go back.

Five years on the replicating track so we.

We did enjoy a period of very low five year swap rate five years ago and so those are the hedges that will continue to roll off and roll back on at the current more elevated level of five year swaps. So you'll continue to see a tailwind from replicating portfolio into the next financial year and indeed, the end of the financial year after that.

You know until you know.

A couple of hours to a couple of years before the swap rate the rules awful close to where we're at in current levels. So you'll continue to see that into the next year.

Okay. Thank you.

Melanie Kirk: Okay, thank you.

Alan Docherty: Thank you. The next question comes from Matt Dunger.

Thank you. The next question comes from Matt Duncan.

Yes, Matt Dunger from Bank of America. Thanks for taking my questions just looking at the slide 37, which Alan you called out.

Melanie Kirk: Yes, Matt Dunger from Bank of America. Thanks for taking my questions. Just looking at the slide 37, which Alan, you called out, Matt, you're writing saying the opportunity cost of holding capital is pretty significant. It looks like about a 250 basis point drag on ROE on my numbers. Are you saying this is the right level of buffers? And could you confirm that the macro is driving the higher buffers? Are you also concerned around the regulatory environment?

Matt.

Routing sign the opportunity cost of holding capital is pretty significant it looks like about a 250 basis point drag on ROA my numbers.

This is the right level of buses and could you confirm.

The macro is driving the higher buffers that you also concerned around the regulatory environment.

No we're not concerned about the regulatory environment and I wouldnt seek to imply that the current surplus that we're running above the regulatory minimum is a buffer that we think it's going to be necessary I think obviously.

Matt Comyn: No, we're not concerned about the regulatory environment. And I wouldn't seek to imply that the current surplus that we're running above the regulatory minimum is a buffer that we think is going to be necessary. I think obviously what buffer we would like to hold is a function of a whole range of different factors, as I said earlier. Ultimately, yes, we could boost ROE by having less capital, but the opportunity cost of that capital over the long term versus, you know, where we've seen the differences between cost of equity, alternative cost of funding instruments, outlook on RWA, on growth, on certainly sort of stress losses, which, you know, as we've seen today, the credit environment is very benign. And so with all of those factors taken into account, that's the position that we believe is optimal at this point. Obviously, we revisit it very frequently.

What Buffalo, we would like to hold is a function of a whole range of different factors as I as I said earlier ultimately, yes, we could.

This is troy by having less capital, but the opportunity cost of that capital over the long term versus.

You know, where we've seen the differences between cost of equity alternative cost of funding instruments outlook on out of the way on growth on.

Certainly sort of stress losses, which you know as we've seen today the credit environment is very benign and so with all of those factors taken into account.

That's the position that where we believe is optimal at this point, obviously, we revisit it very frequently we talk about it twice the EBIT. We're revisiting. It every month in terms of alternative and best uses of capital, which which of those are likely to deliver the best overall.

Matt Comyn: We talk about it twice a year, but we're revisiting it every month in terms of alternative and best uses of capital, and which of those are likely to deliver the best overall outcomes. I think we've certainly acknowledged the uncertainty in the environment, but you know, it's obviously impossible to predict the future. But in terms of near-term or sort of impact or pressure on credit losses, as you've seen, it's been pretty benign over the period. And given the provision coverage that we've got versus the central scenario, I think we've got quite a bit of flexibility there too.

Outcomes I think we'd certainly acknowledge the uncertainty in the environment.

But it's obviously impossible to predict the future, but in terms of near term or sort of impact or pressure on on credit losses.

As you've seen it's been it's been pretty benign over the period and given the provision coverage that we've got versus the central scenario.

Got quite a bit of flexibility there too.

Alright. Thank you just to follow up on that it seems like buying just about anything would be.

Melanie Kirk: Great, thank you. Just to follow up on that, it seems like buying just about anything would be EPS are creative. Can you give us any thoughts on what's stopping you on M&A, any potential criteria you would have to look at M&A?

Creative.

Can you give us any any thoughts on what's stopping you on M&A any potential criteria you would have to look.

We look at M&A.

Yeah, and I love and I know, you've a flippant, but to see as part of your question I think there's.

Matt Comyn: Yeah, and I look, I know you've been flipping, but just to use part of your question, I think there's probably plenty of people who've been down that path and found a way to destroy a lot of value through M&A. So look, obviously we recognize the premium. We review and challenge ourselves regularly. You know, it's a high bar, as it should be, certainly for anything of any sort of scale within our core markets where we believe we've got real capability that we think would be a good use of shareholder capital. Of course, you know, beyond the risk-weighted assets, sort of lending growth, increases in our investment. Look, we've made some small acquisitions to augment our technology and our customer experience. They're always on the table. But I mean, ultimately, to your point, yeah, I think it's incumbent on us to consider lots of different opportunities.

There are plenty of people who've been down that path.

And found a way to destroy a lot of value through M&A.

So look obviously, we recognize the premium we review and challenge ourselves regularly.

It's a it's a high bar as it should be for certainly for anything of any sort of scale within our core markets, where we believe we've got real capability that we think would be.

Good use of shareholder capital of course beyond the risk weighted asset sort of lending growth increases now investment look we've made some small acquisitions.

To augment.

Our technology and our customer experience there, they're always on the table, but I mean ultimately to your point, Yeah. I think it's incumbent on us to consider lots of different opportunities, but I think our experience and what we've observed over.

Matt Comyn: But I think our experience and what we've observed over decades of M&A is that any of that should be approached with a great deal of humility, given the realized benefits in just about all instances.

Decades of our M&A is that any of that she'd be approach with a great deal of humility.

Given.

The realized benefits in just a battle instances.

Thank you. The next question comes from Matthew Wilson.

Alan Docherty: Thank you. The next question comes from Matthew Wilson.

Good morning. Thank you for taking my question I have two.

Melanie Kirk: Good morning, team. Thank you for taking my question. I have two. The good story in this result, which is a pretty soft result, is the business bank, which has been long growing and winning market share. Could you tell us what percentage of the new two business bank customers are coming from the broker channel? And I have a second question.

The good starting this result, which is a pretty soft result is the business bank, which is trained long growing and winning market share could you tell us what percentage of the new two business bank customers coming from the broker channel.

Second question, Yeah, we've met we've talked about.

Matt Comyn: Yeah, I mean, with Matt, we've talked about that before in terms of it's like 19% of our customers through a broker. And the mix of flow will vary. So it's very low in MCG at the top end. I think it's just below 10%. Then as you go down into small business, where maybe there's a higher concentration of products like asset finance, it'd be a higher proportion. We haven't seen that really change over the period.

That before in terms of its like 19% or that person.

Okay and the mix of flow will vary so it's very low in M. C. J that at the top end and I think that's just below 10% then as you go down to small business, where maybe there's a higher concentration of products like asset finance that'd be a high proportion of it we haven't seen that really change.

Over the period.

Okay. That's good and then secondly, you're obviously a clear later in technology.

Melanie Kirk: Okay, that's good. And then secondly, obviously a clear leader in technology. Your perspective on stable coins would be valuable. If they become a means of exchange, a store of value, then they become money. I mean, such a scenario, it appears that we don't need household transaction accounts. There's no reason for us to give you our money. We just hold it in a digital wallet and transact accordingly. How do you see this scenario playing out?

Our perspective on stable coins would be valuable if I become a means of exchange a store of value then they become money.

Such a scenario where the piece that we don't need household transaction accounts. There's no reason for us to give you out money, we just hold it in our digital wallet and transact Accordingly, how do you see this scenario playing out.

Well I mean, it's.

Matt Comyn: Well, I mean, there's a lot of different assumptions in what you're sort of looking at, Matt. I mean, as you.

There's a lot of different assumptions in what you're sort of looking at Matt I mean, as you because I need to really well, but I mean, let's say that that's sort of where the variations between that so I mean strategically we've thought about this quite a bit I mean, some proportion of that but we're working obviously with the central bank on a wholesale.

Melanie Kirk: There's only two, really.

Matt Comyn: Well, but I mean, let's talk about the variations between that. So I mean, strategically, we've thought about this quite a bit. I mean, some proportion of that, like we're working obviously with the central bank on a wholesale digital currency. I think there's a little appetite, at least in the moment, for retail digital currency or, you know, deposits that would compete with the banking system. Yes, stable coins have grown enormously internationally. Yes, you know, we're sort of interested in that. I think a lot of that money is coming from emerging markets where, understandably, you know, some of those countries and flows are getting pegged, would rather be pegged against the US dollar. Look, I think there's certainly the opportunity for that technology more broadly to sort of lower transaction costs and particularly cross-border.

Digital currency I think there is little appetite at least at the moment for retail digital currency or.

Deposit so that would compete with the banking system, yes stable coins are grown enormously internationally, yes.

We're sort of interested in that I think a lot of that money is coming from emerging markets were understandably you know some of those countries and flows are getting pegged, we'd rather be pegged against the U S. Dollar look I think there's certainly the opportunity.

So that technology more broadly to settle lower transaction costs, and particularly cross border.

Matt Comyn: So I don't see something that's quickly going to be competing directly with the ADIs from a deposit perspective. But that's not to say that we aren't and shouldn't be thinking about, you know, how the tokenization more broadly, but in this case of currency, what would that look like from, you know, versus fiat currency and, you know, what the impacts might be on the domestic banking system.

I don't see something that's quickly going to be competing directly with the.

The idea is from a deposit perspective, but that's not to say that we aren't and shouldn't be thinking about you know.

How the token ization more broadly, but in this case of currency what would that look like from you know versus Fiat currency and you know what the impacts might be on the domestic banking system.

The only thing I'd add to that Matt is that they decided.

Speaker 5: The only thing I'd add to that, Matt, is that.

Melanie Kirk: Is it fair to say that, yep.

Yep, sorry, Matt the only thing I'd add to that is just the regulatory response has been interesting to watch around the world as well so you've obviously seen the the genius Act in the U S and really important component of the Genius Act was the stable coins in the U S for the U S dollar stable coins operate in the U S.

Speaker 5: Sorry, my only thing I'd add to that is just the regulatory response has been interesting to watch around the world as well. So you've obviously seen the Genius Act in the US. A really important component of the Genius Act was that stable coins in the US, for the US dollar, stable coins operating in the US, are now not permitted to pay interest. And so, I mean, I think the regulatory posture, although it's made it much clearer and simpler from a stablecoin perspective, I think there was clearly a focus on maintaining the financial stability and maintaining the important role of banks in the US economy. You've seen a very similar, well, a very, actually a very different posture, but with a similar intent with the Bank of England and their working papers around stablecoins in the UK context.

Oh, no not permitted to pay interest and so I mean, I think the regulator reposted or Louis made it much clearer and simpler from a stable climate perspective, I think that was clearly.

Our focus on maintaining the financial stability and maintaining the important role of banks in the U S economy, you've seen you've seen a very similar very actually very different posture, but with a similar intent with the bank of England and there what can pay for their own stable coins in the U K context.

Speaker 5: To back a stablecoin in the UK, you have to deposit the equivalent dollar at the Bank of England, and you won't be earning any interest on that deposit at the Bank of England. And again, it strikes me that those regulators in the US and the UK in particular are very focused on the advent of stablecoins, what the use cases are, and how they interact side by side with a healthy banking system, which is important from a national capability perspective. So it's an interesting one to watch. I know, I think you might subscribe to Russell Napier's newsletter. He had a very interesting and informative piece on stablecoins in the last couple of weeks.

Tobacco stable coin in the U K you have to deposit.

The equivalent Dole or at the bank of England, and you won't be on an any interest on that deposit of the bank of England and again it strikes me that those regulators in the U S and the U K and protect killer.

We're very focused on the advent of stable coins, what the use cases are and how they interact.

Side by side with a healthy banking system, which is important from a national capability perspective. So it's an interesting one to watch I know I think you might subscribe to Russell knee feels newsletter. He had a very interesting and informative stable coins in the last couple of weeks or I think if I can.

Speaker 5: So I think Russell's conclusion was actually similar that he didn't see as a direct competitive threat to banking, but obviously a marginal source of new treasury security purchase over the next few years in the US economy, which could be.

Russell's conclusion was absolutely seminal over that you didn't see as a direct competitive threat to banking, but obviously a marginal source of new Treasury securities purchase over the next few years in the U S economy, which could be what I'll say. He also said that you did.

Melanie Kirk: He also said that retail deposits become wholesale deposits, which is consistent with a McKinsey's paper as well. So you know this thing is evolving faster than any of us would have thought two years ago. Even we have legislation now in both the US and Europe, and the banking system, you know, is still very much paper-based versus, you know, the digital trends that we're starting to see emerge globally.

Great talent deposits become wholesale deposits.

Which is consistent with the Mckinsey is piper as well sorry.

This thing is evolving faster than any of us would have thought to use a guy given we have legislation narrowed by the U S and in Europe and the banking system is still very much type of base versus you know the digital trends that we're starting to see emerge globally.

Alan Docherty: Yeah. Yeah. Thank you, Matt. The next question comes from Ed.

Yep.

Thank you Matt. The next question comes from Ed.

Thanks for taking my questions and I'll make them quick.

Speaker 5: Thanks for taking my questions, and I'll make them quick. Just one thing you haven't mentioned and you didn't call out in your NIM work was around deposit mix. You called out deposit competition, but in the retail and business bank margin comments, you did make comments around deposit mix. Can you just talk about historically, and as we kind of come to more rate cuts in a cycle, how you're seeing deposit mix at the moment and how you see it going forward, please, in a NIM context? Yes, I mean, you can see most clearly what's happened in deposit mix terms, probably on slide 61, where you can see both for the retail bank and the business bank how that deposit mix has evolved. There haven't been dramatic moves in deposit mix over the period.

Just one thing you haven't mentioned and you didn't call out in your NIM walk was around deposit makes you called out deposit competition in the retail and business Bank margin comments, you did make comments around deposit mix can you just talk about historically and as we kind of come to more rate cuts in the cycle, how youre, saying to pulse. It makes the moment and how you see.

Going forward, please and the name context, yes, I mean, the you can see most clearly what's happened in deposit makes terms probably on slide 61.

You can see both for the retail bank and business bank that deposit mix has evolved there hasnt been dramatic moves in deposit mix over the periods you have seen I'd say, a stabilization and noninterest bearing transaction deposits as an overall proportion of the deposit.

Speaker 5: You have seen, I'd say, a stabilization in non-interest-bearing transaction deposits as an overall proportion of the deposits in both the retail bank and the business bank. You know, we've seen a slight reduction in term deposit mix within the retail bank. Much of that increase was absorbed in the at-call savings products. Again, I mentioned earlier the higher rate of customers that are achieving the bonus rate, the award rate. And so there's been an impact in both the retail bank and the business bank. The business bank, distinct from the retail bank, actually seen a slight increase in TD mix over the period. So, I mean, the competitor, it's hard to separate the mix effect from the competitive effect because if the competitive effect has to offer, you know, generous, attractive bonus rates to the customer perspective, then that engenders some of the mix change that you see.

In both the retail bank and business Bank, you know, we've seen a slight reduction in term deposit mix within the retail bank and much of that increase was absorbed in the atco savings products.

Dan mentioned daily of the higher rate of customers that achieving the bonus rate The award right.

And so there's been an impact in both the retail bank and the business Bank business Bank.

From the retail bank actually seen a slight increase in TD mix over the periods. So I mean, the competitor is hard to separate the mix effect from the competitive effect because if the competitive effect has to offer.

Generous attractive bonus rates to the customer perspective and that in general some of the mix change that you see so the two factors I sort of one and the same in my mind. We've noted in the divisional commentary the switching that was seen at customer level and at the group level. Yeah. That's that's one and the same as the comparative effect that attracts more.

Speaker 5: So the two factors are one and the same in my mind. We've noted in the divisional commentary that that switching that we're seeing at customer level and at the group level, yeah, that's one and the same as the competitive effect that attracts more savings into higher yield products.

Savings into higher yield products.

Thanks, and then just one very quick one on costs just to clarify today, you talked about increasing if T and obviously staff costs still going up but it's more of a mix impact you talked about software.

Melanie Kirk: Thanks. And then just one very quick one on cost, just to clarify. You know, today you talked about increase in FTA and obviously staff costs still going up, but it's more of a mix impact. You talked about software replacement or, sorry, increasing costs coming through there. You know, you've got the capitalized software balance has gone up, so amortization will increase, I imagine, over time. It all sounds like, you know, you've got costs growing above inflation. And I imagine, you know, you've talked about historically looking at pre-provision profit over necessary costs and managing the bank that way. But if revenue does start to fall a little bit, do you believe you've got the capability to pull back the costs if required?

Replacement or sorry increase in costs coming through the you've got the capitalized software balance has gone up so much transactional increase I imagine imagine either torn it all sounds like you know you've got cost growing above inflation and I imagine you've talked about historically mined.

Looking at pre provision profit.

The necessary cost of managing the bank that way, but if revenue does start to fall a little bit do you believe you've got the capability to pull back the costs if required.

Speaker 5: I mean, I wouldn't so much say it's a question of the fossil levers pulling back the costs that we're obviously investing behind our strategic priorities and pleased with the return that we're seeing on that investment. It's more of a question of the productivity that we continue to deliver. So if you look at that last 12-month period, we delivered a productivity dividend which was 3.4% of the group's overall cost base. And that's actually pretty close to the inflation rate effect that we've seen over the period. And then we made some conscious choices, as we talked about, to invest behind the technology modernization, the additional investment spend, the Gen AI, and the proprietary distribution spend. And so that's where the productivity creates the optionality.

I wouldn't say much much say so equation of the fossil leavers pulling back the costs that we're obviously investing.

Behind our strategic priorities and pleased with the return that we'll see and on that investment. It's more of a question of the productivity that we continue to deliver so if you look at that last 12 months period with the levels of productivity.

Dividend, which was three 4% of the group's overall cost base and that's actually pretty close to the inflationary effects that we've seen over the period.

We made some conscious choices as we talked about to invest behind the technology modernization and the additional investment spend the journey I in the proprietary distribution spend.

So that's where you.

The productivity creates the optionality and so the focus is to continue to generate the productivity that continues to generate that optionality. So that we can continue to absorb inflationary increases and then make decisions around the investment agenda and so I think we've got good muscle Boe over many years from a productivity perspective will continue.

Speaker 5: And so the focus is to continue to generate the productivity that continues to generate that optionality so that we can continue to absorb inflationary increases and then make decisions around the investment agenda. And so I think we've got a good muscle built over many years from a productivity perspective. We'll continue to focus on that and then make choices, commensurate with how top line's moving, how the productivity improvements are going, and where the NPV creative options are from an investment perspective.

To focus on that and then make choices.

Commensurate with her top lines moving has a productivity improvements are going and where the NPV accretive options off from an investment perspective.

Thank you.

Alan Docherty: Thank you. The last question comes from Tom Strong.

The last question comes from Tom strong.

Thanks, Bill and good morning, just had another question around business banking get another strong house of lending growth Youll business transaction accounts actually stalled.

Melanie Kirk: Thanks, Mel. Good morning. Just had another question around business banking. You had another strong half of lending growth, but your business transaction accounts actually stalled in the half in terms of the growth. Does this reflect more of doing a better job lending to existing customers, or is this more new to bank lends only?

In the half in terms of the growth does this reflect more more doing a better job of lending to existing customers or is this more new to bank lender friendly.

No I mean, no no change in strategy I think the team have executed extremely well and I guess one of the things we look about look at it over the arc of time, particularly over the last sort of like four or five years really big gains in M. F. I think it was 190 basis once they've been in the last 12 months very strong share of trans.

Matt Comyn: No, I mean, no change in strategy. I think the team have executed extremely well. And I guess one of the things we look at it over the arc of time, particularly over the last sort of like four or five years, I mean, really big gains in MFI. I think it was 180 basis points even in the last 12 months. Very strong share of transactional deposits. You can see that in terms of the relative growth in trend balances, which I think must be something like 30 billion over that sort of five years. You can see the mix effect of that and then the leverage. Big focus on lending into the customer base and providing a full range of products and services. Another strong period of asset growth. I think we're observing, we saw the last set of results from peers, some pretty sharp margin deterioration.

<unk> deposits you can see that in terms of the.

Relative growth and trend balances, which I think must be something like 30 billion over that sort of five years, you can see the mix effect of that and then the leverage big focus on lending into the customer base.

Base.

And providing a full range of <unk>.

Products and services now.

Another strong period of asset growth I think you know we're observing we saw on the last set of results from peers.

Some pretty sharp margin the margin deterioration and you know I think that the team has done a good job of balancing both a strong volume, but staying out of.

Matt Comyn: And I think the team has done a good job of balancing both a strong volume but staying out of some of that really competitive pricing. So it'll be interesting to see how that sort of plays out across peers, particularly given what we were talking about earlier in terms of their capital position and constraints. And so, no, I mean, I think overall that underpinning of strong transaction account balance, notwithstanding maybe some mixed effects in terms of deposits, but then growing into the existing customer base is our primary focus.

Some of that really competitive pricing, so it'll be interesting to see how that sort of plays out across peers, particularly given what we were talking about earlier in terms of the capital position and constraints and so no I mean, I think that overall that.

Underpinning a strong transaction account balance notwithstanding maybe some mix effects in terms of.

Our deposits, but then growing into the existing customer base is now is our primary focus.

Speaker 5: Yeah, Tom, maybe just to add, the business bank transaction accounts have grown and transaction deposit balances have grown both over the year and over the half. What you might be referring to is in the institutional bank, we've seen a headline reduction in transaction deposits year on year. That's actually just a product change. So in the past, we've had a product, which a pooling facility product that grosses up both sides of the balance sheet. We've switched that to our new product over the course of the first half of the financial year, which resulted in a netting down of transaction deposits and associated lending against that deposit, effectively an offset account. And so that led to headline reduction in institutional bank and transaction deposit balances. But X, the mix effect of the product changes is actually underlying growth in those underlying transaction deposit balances.

Maybe just to.

Just to add the business bank transaction accounts have grown and transaction deposit balances have grown both over the year and over the half where you might be referring to is in the institutional bank. We've seen a headline reduction in transaction deposits year on year, that's absolutely just that product change, though in the possible had a product.

[noise] appealing facility product the grosses up both sides of the balance sheet with switch that to our new product over the course of the first half of the financial year, which resulted in a netting down of transaction deposits and associated lending against that deposit effectively an offset.

And so that led to a headline reduction in institutional banking transaction deposit balances, but ex the mix effect of the product changes is actually underlying growth in those those underlying transaction deposit balances. So pleased with the growth in transaction accounts and balances over each of the businesses over the course of the year.

Speaker 5: So pleased with the growth in transaction accounts and balances over each of the businesses over the course of the year.

Great. Thanks very much.

Melanie Kirk: Great, thanks very much.

Thank you that brings us to the end of our time. Thank you for joining us for this briefing and we look forward to continuing the discussion. Thank you.

Alan Docherty: Thank you. That brings us to the end of our time. Thank you for joining us for this briefing, and we look forward to continuing the discussion. Thank you.

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