Hello, and welcome to the results briefing for the Commonwealth Bank of Australia for the year ended 30 June 2024. 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 an overview of the business and the results. Our CFO, Alan Docherty, will provide the details on the 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, Mel, and good morning, everyone. It's great to be with you today. This year, we've continued to focus on supporting our customers, investing to protect the community, and providing strength and stability to the broader economy. We know many of our customers are finding it harder and harder to deal with the higher cost of living. We are doing more to help, making that help easier to access, and we are encouraging people to reach out to us early if they need assistance. We've taken a deliberate strategy to proactively contact customers and have provided 132,000 tailored payment arrangements to those most in need. As a financial safety net, more than 6 million Australians can now access up to AUD 2,000 in credit with no interest and no monthly fee.
To maintain service levels in regional Australia, we've delivered on our commitment to keep all of our CBA regional branches open. We've also adapted how we use branches to support regional jobs and maintain branch services. Safe and secure banking remains a priority for all Australians. We invested more than AUD 800 million in the past year to combat fraud, scams, financial and cyber crime to protect our customers. This investment has enabled us to reduce customer scam losses by more than 50% in the last financial year. During the year, we rolled out five market-first innovations, and we are sharing our technology and intelligence with other institutions. Using NameCheck, we screened 57 million account-to-account payments, preventing AUD 410 million in mistaken payments and scams. All Australians benefit from strong and stable banks.
To support economic growth, this year we lent AUD 39 billion to businesses to help them grow and helped 120,000 households buy a home. We further strengthened our balance sheet, and we remain well positioned to support our customers and the broader economy. We have been rated by Moody's as one of only five banks globally with the highest financial strength. This year, we delivered AUD 8 billion in dividends, benefiting more than 13 million Australians. Households and businesses, businesses have experienced a number of extreme shocks in the past few years: lockdowns, a demand surge, inflation, and rapid interest rate rises. The effects are still being felt. The cash rate has increased 425 basis points since May 2022, and the impact on households has been substantial.
Last financial year, the Commonwealth Bank actually paid AUD 33 billion more in interest to depositors and funding providers than in the two years prior. This is equivalent to 80% of the one-off government support package in the GFC. At the time, it was Australia's largest-ever stimulus. This has resulted in a large redistribution of interest expense, interest income and expense across the economy. Households are net borrowers in the economy, which makes a rising rate environment particularly tough, with the increases in mortgage repayments predominantly impacting households aged 25- 55. Rates have moved higher in response to price inflation. The Consumer Price Index has increased by 19% since the start of the pandemic. One quarter of this increase has been driven by housing, with new dwelling prices up 38% and rents up 15%.
Households continue to respond to higher prices and are finding it even harder than 6 months ago. More spend is being directed towards essentials, and discretionary spend is being cut back. We can also see that savings are being depleted, particularly for working families. Younger Australians, who tend to have lower incomes and smaller savings buffers, are the most sensitive to changes in prices. Those aged between 35- 44 have the highest share of mortgage balances and are most exposed to higher rates. The same data over a longer time period shows the impact of the pandemic, which is still being absorbed by households and the economy. Government stimulus had a disproportionate impact on younger Australians, who saw rapid increases in savings balances. Their spend levels increased substantially, but both spending and savings have been pulling back over the past 2 years.
It has been a particularly challenging 2 years for households, with real disposable income declining until recently. We expect a recovery in GDP growth and a rebound in disposable income over the next 12 months. Our role as the bank for all Australians is to support all customers through good times and bad. Our purpose, building a brighter future for all, recognizes that the Commonwealth Bank's performance and future is inextricably linked with Australia's prosperity. We think about our purpose in the following ways: We want standards of living to continuously improve for Australians by growing the economy and supporting customers. We've grown business lending balances 11% this year to help small businesses create jobs, and we've grown sustainable lending 74% to AUD 7.4 billion to help decarbonize the economy.
We want to help customers achieve their life goals and aspire to be the trusted partner at the center of their financial lives. We've scaled Yello to be one of Australia's largest rewards programs, with over 5 million engaged customers. We are now considered the main financial institution for 62% of migrants and 46% of young adults. Through technology and digital, we seek to deliver superior customer experiences. Through our market-leading app, we continue to drive engagement, with in-app messaging preferred by customers and now accounting for twice as many interactions as over the phone. We significantly increased the number of technology changes delivered this year while reducing operational incidents. We also recognize that it's important that we continue to execute consistently, that we are safe, strong, and there when most needed.
This year, we repaid the AUD 50 billion of the Term Funding Facility and further strengthened our balance sheet. Our strategy aims to build on and strengthen our sources of competitive advantage. The strength of our core franchise starts with customer focus and strong relationships. Deep, trusted relationships leads to a higher frequency of engagement, a better understanding of our customers' needs, and superior customer experiences, leading to value creation for our shareholders. We're Australia's leading transaction bank for both households and businesses. This favorable business mix results in more stable and lower-cost deposit funding and better risk identification. We maintain conservative funding and capital settings and have market-leading provision coverage. This stability and consistency of earnings is reflected in a lower cost of capital and allows us to invest more than our peers over the long term.
It also allows us to steadily grow the balance sheet while consistently delivering strong, fully franked dividends and managing down our share count. One of the key ways we measure the strength of our relationship we have with our customers is through the Net Promoter Score. Retail NPS has increased for eight consecutive months, and we achieved the highest score for a major bank since tracking began. We also have peer-leading digital NPS for our digital offerings, including the CommBank app, which is used by more customers than any other financial services app in Australia. We also now hold the leading major bank NPS for our mortgages, transaction accounts, and the contact center. Our focus on deepening customer relationships is evident through our leading MFI shares, which leads peers by a considerable margin.
More than 35% of Australians and 25% of businesses consider the Commonwealth Bank to be their main financial institution. This has translated into an increase in transaction accounts. Over the past five years, retail accounts have increased by 29% and business accounts by 55%. We now hold the largest share of stable household deposits in Australia, which have grown over AUD 110 billion since June 2019, and are 65% higher than the nearest peer bank. Turning now to our performance. Operational performance has been strong. We've been disciplined on volume margin management in home loans, where we led a number of changes and increased net interest income share across the market, but we also ceded 61 basis points of market share.
We've implemented a number of changes and scaled operational capacity to respond to a very substantial increase in disputed transactions, scams, and other emerging threats, and we've been very focused on disciplined capital management. Strategically, we continue to build direct primary relationships through a differentiated proposition. Proprietary new lending mix increased 7 percentage points to 66%, compared with only 28% for the overall market. We've continued to extend our digital ecosystem, launching new propositions in travel, auto, and real estate, and growing our telco, energy, and health propositions. We were the only Australian company named in Kantar's Global 100 Most Valuable Brands, with consideration at 54% in retail and 58% in business. Our customer focus, combined with consistent and disciplined strategic and operational execution, has delivered good outcomes for all of our stakeholders.
Net profit after tax was supported by our volume growth in our core business. The 2% reduction in NPAT was driven by the impact of inflation on our operating expenses, partly offset by a 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 franked full-year dividend of AUD 4.65, up AUD 0.15 on the prior year. For the eighth consecutive half, we will neutralize the dividend reinvestment plan. Operating income was flat for the year, supported by volume growth, but offset by falling margins. Operating expenses were 3% higher, driven by inflation and increased technology spend. Our cash net profit was down 2% on the prior year on lower loan loss provisions. We remain well-positioned heading into a lower growth environment.
We continued to strengthen our balance sheet with high levels of provision coverage, surplus capital, and conservative funding settings. Our balance sheet is now 77% deposit funded, up from 75% last year. Our weighted average maturity of our long-term funding is 5.2 years, and liquid assets are AUD 177 billion. Our capital ratio of 12.3% is well above regulatory requirements. Our portfolio credit quality has remained sound, supported by a strong labor market and savings buffers. As anticipated, troublesome and impaired assets have increased in the quarter to AUD 8.7 billion, reflecting movements in four well-secured single name exposures and higher home loan restructures. The TIA ratio remains well below the historic ratio, the historic average. We expect to see further increases in arrears in the months ahead, given continued pressure on real household disposable incomes.
We remain well provisioned for a range of economic scenarios. We hold total provisions of AUD 6.1 billion, which is AUD 2.2 billion above our central economic scenario. In our retail bank, our peer-leading MFI share has seen retail transaction accounts increase 5% versus the prior corresponding period. We are continuing to grow our business bank franchise. We now hold 1.25 million business transaction accounts, which is a 9% increase. We are leading the market in business deposits, which have grown by AUD 68 billion over five years. We have continued to grow business lending above system at 1.2 times, with more than 90% of our lending customers also holding a transaction account with us. And our institutional bank also plays an important role and has contributed net deposit funding of over AUD 66 billion.
Our total risk-weighted assets have reduced by AUD 30 billion over 7 years, and risk-adjusted returns have improved. Looking at our business bank in more detail, we've continued to innovate, to differentiate our proposition for our customers. We've enhanced our health proposition and recently launched CommBank Smart Health for pharmacies and have 3,400 health providers enrolled. Our Capital Growth Account allows customers to withdraw funds with just 48 hours or 7 days notice, and now has more than AUD 1 billion in balances after its first year in market. In May this year, we launched a new term deposit product to help our small business customers withdraw up to 20% at any time without interest adjustment or fees. We're also extending our CommBank Yello program to eligible business customers to provide personalized benefits on business-related purchases.
To make rental payments simple and easy for tenants and property managers, we've partnered with MRI, the leading real estate software provider. Another core part of our strategy is delivering global best digital experiences. Our CommBank app is used by more customers than any other financial services app in Australia, with over 8.5 million active users. Since the app was launched over a decade ago, the number of customers using the app has close to trebled, and the frequency of their use has also trebled. Every year, over the past 10 years, we've invested and innovated to meet more and more customer needs digitally. This has resulted in consistent year-on-year growth in overall customer usage and engagement. Our unique customer recognition program, CommBank Yello, is central to our strategy, delivering millions of personalized benefits, discounts, and cash backs to customers every day.
Yello is the only recognition program of its kind, run by a big bank in Australia, with more than 8 million customers now eligible to receive benefits. As in many other countries, Australia has seen a substantial increase in criminal activity focused on fraud, scams, cyber, and financial crime. We are working harder than ever to prevent, detect, and disrupt this activity and protect our customers and the broader community. We are spending more than AUD 800 million a year and have over 4,000 people working full-time across these areas. It is one of the largest areas of operational activity within the Commonwealth Bank. This year, we have rolled out a number of market-first innovations, improved controls, increased alerting to customers, and continued customer education and awareness.
We've also made our technology and intelligence available to others, including globally, and are piloting new approaches with three of the telcos. In June, we became the first bank to share information into a new Anti-Scam Intelligence Loop to enable faster action to take down scams across banks, digital platforms, and telcos. We have decreased scam losses to customers by more than 50% in the last financial year. However, we also acknowledge that there is more that we can do, and we are absolutely committed to making as much progress as possible. I'll now hand over to Alan to go through the financials in more detail.
Thank you, Matt, and good morning to everyone dialed in. I will cover the financial aspects of our result in some more detail, starting with an overview of key changes in our operating context, how we have responded, and how that manifests in key measures of our franchise health. So looking firstly at our operating context, the Australian economy continues to show resilience as strong migration flows and higher depositor incomes continue to offset the fall in disposable incomes felt by renters and borrowers. We continue to see competitive intensity in our banking businesses, which can be seen in both lending and deposit margins. Industry revenue shares have been relatively stable over the most recent six months after a particularly volatile period in the previous calendar year.
As we look at the global and domestic economic outlook, there is still uncertainty around the forward trajectory of inflation and interest rates. However, the Australian economy continues to be positioned well and benefiting from strong fundamentals. So how are we responding to this context? Firstly, as Matt has already talked about, we continue to focus on supporting our customers and keeping their money safe and secure. Secondly, we've been consistent in the strong level of investment of shareholders' capital behind our strategy. This work is driving improvements in enterprise-wide measures of better digital experiences for millions of our customers. Thirdly, we have remained disciplined in our approach, not just to volume and rate trade-offs, but also across the broader potential uses of shareholders' capital, such as M&A and our execution of capital management activities.
Lastly, we have continued to strengthen our balance sheet settings to further underpin the flexibility of the franchise to support our customers and the economy when needed. As a result of these actions, the long-term health of our franchise has improved. Our Main Financial Institution share has again increased across both retail and business bank customers, and we have delivered a new major bank record customer Net Promoter Score in the retail bank. This strengthening of the franchise translates into shareholder returns, and you can see some of the key financial outcomes for the year on the bottom half of this slide. Our level of organic capital generation reached AUD 10 billion over the last 12 months, and that represents a significant widening of the gap to the next highest peer. We have again strengthened our levels of deposit funding, interest rate risk hedging, loan loss provisioning, and capital.
That long-term balance sheet strength has been recognized by Moody's this year, who upgraded CBA to an A1 baseline credit rating. There are only four other banks in the world with that rating, and we are the only bank to have achieved an A1 rating on the strength of our financial settings. That combination of profitability and balance sheet strength allowed the board to again distribute a higher dividend. I'll now unpack the result in a little more detail. Statutory profit from continuing operations were AUD 9.5 billion. The largest non-cash item was the loss on the announced divestment of our Indonesian bank subsidiary, PT Bank Commonwealth. Excluding those items, continuing cash profit was AUD 9.8 billion. The overall P&L line item trends were relatively consistent at the headline level over both the full year and the sequential six-month period.
Operating income was relatively flat over both the year and the half, although there were important compositional differences between the two periods that we'll cover in a moment. Operating expenses increased while loan impairment expense reduced, and we have seen a small decline in both pre-provision profit and cash profit. Looking firstly at operating income over the year, overall income was relatively flat at a little over AUD 27 billion. Net interest income fell despite 3.4% growth in average interest earning assets due to competitive pressure on margins. Volume growth was particularly strong in business lending over the year as momentum continued in our business bank. This was more than offset by higher other operating income due to volume-driven growth in fee income across our retail, business, and institutional divisions, as well as another strong year within our global markets business....
I mentioned earlier that the drivers of operating income growth were different year-on-year versus half-on-half. You can see here that net interest income turned from a headwind over the year to a tailwind over the most recent half, as net interest margin stabilized over recent months. By contrast, other operating income grew strongly over the year due to growth in fee and commission income, however, reduced over the most recent half on lower trading revenues and dividends from minority interests. If we look more closely at the change in net interest margin over the sequential half, home lending margins were down 1 basis point, and the pricing and mix of term deposit and savings products drove six of the seven basis points of funding cost increases.
Higher earnings on our replicating portfolio and equity hedges added 8 basis points, and there were minor changes in the other items. We don't normally comment on quarterly margin trends. However, given the large buildup of liquid assets to fully repay the RBA Term Funding Facility, there was some volatility in headline margins over the last 2 quarters. Excluding those impacts, the underlying quarterly margin trend was stable. Turning now to operating expenses. They increased by 4.1% over the year. Including one-off restructuring provisions, expenses increased by 3%. This was largely driven by inflationary increases in wages and supplier input costs. We continued to invest strongly in our technology estate, and related to that, incurred a higher software amortization charge. Pleasingly, growth in these costs were offset by ongoing business simplification and productivity benefits.
If we now turn to our balance sheet settings, starting with credit risk. Loan impairment expenses were AUD 802 million, as loan loss rates reduced to nine basis points this year. As we previously indicated, arrears rates increased across home loan, credit card, and personal loan products as pressure continued to build on household disposable incomes. We also expected corporate troublesome and impaired exposures to trend higher in the second half, and that has been the case. Over the most recent six months, gross impaired assets increased AUD 700 million. Most of that increase relates to 1,000 more home loans, which were restructured during the period to assist owner-occupiers suffering under cost of living pressures. Given the very strong subsequent cure rate and security position of these mortgages, the expected loss on that cohort of loans is very low.
Corporate troublesome exposures increased by approximately AUD 1 billion over the year, principally due to the downgrade of four single names. These loans are well secured, and no significant loan losses are expected. We edged up our provisioning coverage to 166 basis points of credit risk-weighted assets. Overall, provisions have been kept above AUD 6 billion, with lower expected losses in our consumer book and slightly higher provisioning of our corporate portfolio. We continue to hold a buffer of AUD 2.2 billion to our central economic scenario, which provides nearly 80% coverage of our downside scenario. As usual, we have set out how our sector-level considerations have evolved over the last 6 months. Consumer provisions have reduced slightly over the period due to rising house prices, as well as lower expected losses on credit cards and personal loans.
This led to a reduction in our modeled base collective provisioning in the retail bank. Within corporate, there wasn't any significant change in the provisioning coverage for the retail trade, ELT, or commercial property sectors. We did reduce forward-looking adjustments slightly in the construction and agriculture sectors as portfolio credit metrics improved and expected drought conditions did not materialize. Going the other way, we rebalanced our multiple economic scenario weightings to take account of slightly higher geopolitical risks. This led to the small increase in corporate portfolio provisioning in the half. Taking a look at our funding settings, we've seen another pleasing period of growth in retail, business, and institutional transaction account balances. This has taken our customer deposit ratio to a new high of 77% of total funding.
Looking at the full funding stack in the middle column, following the full repayment of the RBA Term Funding Facility, you can see our short-term wholesale funding mix remains below historic levels, and long-term funding remains conservatively positioned, with a weighted average maturity of 5.2 years. On the right-hand side, it's worth noting at this point in the rate cycle, the relative cost of different equity and debt instruments. We obviously monitor these variances very closely as we seek to carefully manage the balance between the cost of capital and the after-tax cost of issuance of new term funding. For example, we estimate that the current spread between the shareholder cost of senior debt and capital is around 3%. That's at the lower end of the range we've seen in that spread over the last 15 or so years.
That will be one factor, among others, that influences the choices we make around the quantum and timing of share buybacks, the level of new debt issuance, and the optionality value that comes from running higher capital levels. Our Level 2 Common Equity Tier 1 ratio was 12.3%, unchanged over the past six months. We completed another DRP neutralization in the period, buying AUD 480 million of shares at an average price of AUD 117, and we made some more progress on our AUD 1 billion on-market share buyback program. We have today announced a 12-month time extension of that program until August 2025. The final dividend increased AUD 0.10 to AUD 2.50, and the dividend reinvestment plan will again be fully neutralized through an on-market purchase of shares.
This takes our full year dividend to AUD 4.65, up AUD 0.15 on last year. Our payout ratio has moved to 79%, at the upper end of our target range, supported by that strong level of capital generation. Our continued preference is to pay strong and sustainable, fully franked ordinary dividends, rather than small and temporary top-ups to dividends. This is one example of the long-term approach we take to our business strategy and our key financial settings. Our funding composition remains conservative. Our structural hedges of interest rate risk now total AUD 170 billion. We have the appetite and the track record to continue to invest strongly behind our strategic priorities. Our franking surplus is at a stable and healthy level, and we continue to manage our investors' capital and share count carefully.
This long-term approach manifests in a track record of delivering strong and sustainable shareholder returns. Our combination of a high return on equity and a strong payout ratio compares favorably with domestic and global peers. Our strategic investments, strong operational execution, and disciplined capital management continue to deliver continued outperformance in net tangible assets and dividends per share. I'll hand back to Matt for the economic outlook and a closing summary. Thank you.
Well, thanks very much, Alan. The economy is still absorbing the shocks of the past few years. Higher rates have had the intended effect of lowering household demand. Inflation is falling, but the pace has slowed. Households are finding it more challenging to respond to the higher price environment. They can expect some relief this year, with disposable incomes set to rebound. It will be important to keep demand constrained across the economy so that inflation returns to the target band. Domestic challenges remain around productivity growth and housing affordability. Globally, uncertainty remains around several issues. The domestic economy remains fundamentally sound and stronger than many international markets. Unemployment remains low, business investment high, and exports are strong. Australia has a number of structural advantages that provide optimism for the future. So in summary, we remain focused on supporting our customers. The Commonwealth Bank remains strong and stable.
This is underpinned by consistent, disciplined, operational and strategic execution. We have a distinct proposition, and more customers are choosing to bank with us. We will stay focused on our customers, offering personalized support and financial flexibility, and we will continue to invest in our franchise. I'll now hand over to Mel to go through your questions.
Thank you, Matt. For this briefing, we will be taking questions from analysts and investors. I'll state your name, and the operator will open your line. Please state the organization that you represent, and to allow as many people as possible to ask questions, please limit it to no more than two questions. We'll now take the first call from Andrew Triggs.
Thanks, Mel, and good morning, Matt. A question... and Alan. Our first question, just on, deposit mix and price impacts on the half-on-half NIM walk. It was similar to the first half at six basis points. Interested if, Alan, perhaps you could separate those two impacts out? And it does look a little bit higher than you would expect, given the mix shift slide did appear to show a slowing in that deterioration of mix in the deposit base.
Yep, sure, Andrew. So the 6 points, we can split that. Savings would be 4 points of that, savings pricing, and one of the aspects we called out earlier in the presentation was the significant amount of bonus, the proportion of depositors that are earning bonus rates above 80% in our GoalSaver product. And so that, you've seen a mix shift in there and the, and, you know, favorable pricing from a depositors perspective. That's 4 of the 6. Term deposit spreads have come in around 20 basis points over the half. We've got slightly higher mix of retail term deposits relative to industry, so that's 2 points of the 6-point compression.
Okay, so it sounds like it was, I guess, mix in a sense of a qualification for bonus rates rather than, movement out of transaction accounts and into high-cost, deposit products per se?
Yeah. Yeah, that was the preponderance of the move this half.
Excellent. Maybe just to follow up just on that same NIM walk, just the Replicating Portfolio tailwinds-
Mm-hmm.
eight basis points combined between the deposit and equity hedges. Could you talk to that? That was higher than I had expected in the half. Should we be expecting a similar level of tailwind in the first half of 2025?
Mm-hmm.
Just also interested, did the increase in the size of the deposit hedge to AUD 119 billion play at all into the margin tailwind that you achieved?
Mm-hmm
in second half 2024?
Yeah. So yeah, I think I'd say the short answer would be yes to both of those questions. So we increased the level of replication. As we've seen that stabilization in the level of deposit switching from transaction accounts, we decided to hedge a little more proportionately of our non-rate sensitive balances. You'll recall through the COVID period, when we had that big increase in our core transaction accounts, we tended to sort of wait until we'd seen the relative stability of those flows before we hedged them in the replicating portfolio. Obviously, given the timing of rate moves, I think that was the right course of action as we look back with hindsight.
But as those non-rate sensitive balances have stabilized, we decided to upsize the size of the replicating portfolio, and you're seeing some of that come through those replicating earnings through the, through the period. As we look ahead, look, it's going to be a function obviously of where three-year and five-year swap rates land. We've seen a lot of volatility in both those swap rates over the course of the last few weeks. You've seen something like 40 basis point movement between low 400s and low 360s in both those swap rates in the last couple of weeks alone. So I wouldn't like to hazard a guess around where they're going to be over the course of the next 12 months.
We'll watch those rates closely and with interest, and, you know, that will be the big determining factor in terms of the absolute and relative level of both replicating and equity hedge returns next year. But I think the dynamics of that portfolio, I think, are well known.
Probably only
Can you help on the base?
Maybe the base into 2025, we wouldn't expect as much benefit in 2025 versus 2024 versus, yeah, 2024 to 2023. So I think you,
Mm.
Alan sort of stepped through. Lots of, lots of variables, but I guess as we look forward into NIM for next year, I don't think we'd be counting on quite the same magnitude of absolute increase.
Okay, thank you.
Thank you. The next questions will come from Andrew Lyons.
Thanks, Mel. Andrew Lyons from Goldman Sachs. Alan, just a quick question, firstly, on your NIM. Your group NIM was up one basis point in the half, and you noted that the quarterly underlying trends were broadly stable. However, if you look at the divisional NIMs, your two largest divisions saw NIMs down five basis points in RBS and two basis points in business banking. So can you perhaps just talk more specifically to the NIM performance in each of these divisions and just the extent to which the stable group NIM trends were also observed in these two divisions?
Yeah, I mean, there's a small element, and we were called out in the walk, a small element of treasury earnings, which were higher over the sequential half. So we had one basis point there that sits outside of the divisional margins. The same underlying trends were evident across both the retail and business bank for the period. So you're seeing in retail, you know, that impact of the higher savings pricing, the migration of the term deposits, and obviously, the preponderance of the home lending mix change impacted there. And the business bank, it was actually relatively. You know, we were pretty pleased with the overall margin performance in the business bank. It was down only very marginally over the sequential six-month period.
But, you know, again, we've seen some interesting changes in competitive behavior, particularly at the larger ticket sizes on both lending and deposits within the business bank. We made the decision not to participate in some of that activity, which I think from a volume rate perspective, protected business bank earnings well in the period. So I'd say similar trends between the divisional results and the overall group result, albeit, you know, treasury within a positive aspect of the overall group margin.
That's great. Thanks, Alan. And then just a second question. Just looking at slide 85, the bottom right chart shows your FY 2023 and 2024 mortgage books are performing somewhat worse than the pre-2022 books at the same time since origination. Can you maybe just talk to any specific trends you are seeing in those vintages that we should be aware of, and, and just to the extent to which this performance is maybe a bit worse than you would have expected, or is it broadly as expected, given the rate rises?
I mean, it's actually a little better than we expected. If we went back sort of 6, 12 months, we had a, we had a slightly higher trajectory that we'd assumed on the home loan portfolio, so overall, a little better than expected. The performance of the recent vintages is not surprising. You know, we've got a much lower stock of fixed-rate home loans that are in the more recent vintages. Obviously that higher stock of low rate fixed rate mortgages were in the earlier vintages, and so the relative performance isn't surprising. Obviously, recent vintages, you've got less time to build up prepayment buffers, so you would expect a higher incidence of arrears given the changes in rates that we've seen over the past 12-18 months.
The performance by vintage and the overall performance actually a little better than we would have forecast 12 months ago.
Yeah, and look, I think as Alan said, the factors that we found most predictive in terms of arrears performance, which has, you know, come in slightly ahead of what we might have otherwise modeled, is really just that sort of financial resilience, fewer savings buffers, and so the more recent cohorts, that's been much more predictive of where we'd say there's lower financial resilience versus some of the, you know, the fixed rate maturities, which I know we've covered substantially in the past. So, I mean, we would expect a gradual deterioration going into 2025, depending on obviously outlook on rates at some point.
Thanks so much.
Thank you. The next question comes from Jonathan Mott.
Hi, guys. Two questions, if I could. The first one, just on the retail banking business and just delving into the result in a bit of detail. Consumer finance has seen a bit of a recovery in net interest income, even though the volumes have been pretty flat over the last year and a pickup in the fee income as well. Is this actually any rate movement or is it more customers now accruing interest? Why are you starting to see, after an extended period of a fall in consumer finance revenue, a recovery coming through, especially in the last half?
Yeah. Yeah. There's a bit, a mixture of a bit of both, John. I mean, there's, there's some fee income, not just in that product, in the retail bank that's flowing through. I mean, unlike cards, the rate environment PLs is, you know, is responsive to the, the interest rate environment. I mean, the corollary of that is, you know, younger borrowers, higher rates. We started to see, as we saw in the period, the, the pickup in, arrears, which we anticipated. We sort of started tightening in, in December, and obviously we're, we're watching that closely. So combination of both of those factors.
I mean, the other element that particularly we've seen in the six-month period was that we aligned the amount of interest-free days on our credit card product through the period. That resulted in a sort of interesting change from a volume rate perspective. So we've seen balances drop out, but the overall, from a volume rate perspective, net interest earnings were improved as a result of that change.
Okay. So is that, and there'll be a bit more of a follow through in the next period, or is that a one-off?
Most of that's all on the half.
Okay. The second one is a phenomenal outcome, and I think, Matt, you commented on this as well. So in 544, you highlight that your MFI share of migrants is now running at 62%, which I've never heard of a number like that. Given there were 750,000 arrivals into Australia last year, you're looking at 500,000 new customers, roughly, just coming through as a migrant. Can you give us a bit of detail on this? Obviously, you know, what are the profitability of these new customers as they come through? How long do they tend to stay? Do they bank with you because, you know, you are the Commonwealth Bank of Australia, and a lot of people think you're still owned by the government?
What's going on that you've got such a phenomenal ability to acquire customers from this channel?
Yeah, no, thanks, John. As you know, we've spoken about this over many years. You know, the sources of new accounts, youth and migrant, we've done well over an extended period of time. Like you, we were pleased to see the share of both young adult, but to your question, particularly in migrant. I think as we've also said on this survey, we find that the numbers are directionally accurate, but not necessarily precisely correct, but I think you know, broadly it holds, and as you mentioned, very large numbers of migrants, so that's been a real driver of new account growth for us. And look, that mix is really reflective of the mix that's coming in. There's obviously a lot of temporary visitors to Australia, students. So, I mean, our tenure of those customers would match.
Obviously, we have a specific focus on those with sort of pathways to permanence. Look, I think it's a long-standing advantage that we've at least to date been able to hold in terms of preference and consideration. I don't know how much the name itself holds on that relationship. I do think... I mean, I can remember serving in branch in 385 Bourke Street when someone came straight from the airport when I was in the retail bank, and they got a mobile phone plan and came into the Commonwealth Bank with their suitcases to open an account. I think some element of that is just awareness and the benefit of scale.
We're also pretty active when in signage and, you know, arriving, and so we sort of think about it in the context of overall, you know, making sure we're, we're very visible. And that has been and continues to be a really important focus for us, given those two markets in particular are such a driver of new account growth.
Just on the numbers you quoted, John, obviously, it's net new migration that's the important driver of the retail transaction account net movement, because we're obviously opening accounts for new migrants, but we'll close accounts for migrants who depart. So it's not quite as, you know, the 700,000, I wouldn't be extrapolating that to the 60%. Net new migration would be more 450,000-500,000 on an annualized basis. So, the MFI share is going to be a proportion of net new migration in terms of that growth.
. Thank you.
Thank you. The next question comes from Richard Wiles.
Good morning. I have two questions. One on, is on mortgages, and the other is on capital management. Just starting with mortgages, Matt, your growth improved, in the June quarter. The annualized rate was something like 5%. Does that mean you're now more comfortable with the pricing and the returns on new home loans?
Yeah, we are, Richard. I mean, maybe I'll take a little bit of that arc of the overall financial year. Obviously, you know, going back to prior to the start, removing cashbacks, and we felt the pricing was unsustainable. Obviously, at the start of the financial year, you know, a significant proportion of that share loss came in the first half, of course, as you said, touched on, some slight growth in the last quarter. We saw margins improve, probably as much a function over that time, actually, as, you know, wholesale funding spreads, and therefore just a, you know, an improvement in the overall margins. We're looking at it pretty cautiously. A number of you are tracking, as we do, changes in terms of, you know, front book, origination margins as well.
And so we've seen a little bit of deterioration on that front in the last month. A couple of players who perhaps been a little more disciplined have started to ratchet up discounting again. So we're certainly a lot more comfortable than we were 12 or 18 months ago, but, you know, very watchful about margins, and clearly, that's gonna be one of the big swing factors in terms of, you know, how margins will play out in 25 and beyond.
Thank you. Then on capital, you haven't been particularly active on the buyback. You've done less than AUD 300 million in last year. Certainly, your peers have been more active. So can we get some sort of sense for how you're thinking about the buyback? I mean, your previous commentary suggests that you're not particularly keen on special dividends. Is that still the case? And alternatively, why not increase the target payout ratio? I mean, you talked today about the strength of your capital generation. Why not go to a payout ratio of something like 85% to distribute that large excess balance of franking credits?
Yeah, maybe I'll start and let Alan add, if he'd like to. So I mean, no, no change to the payout ratio, and we've, we've said that, you know, a number of times. We've talked about being prepared to operate at the higher end of that range, which we are. Clearly, we have the flexibility if we wanted to, to go beyond that. We've got a healthy but not excessive, franking balance. No change in posture around, our views on special dividends, as you touched on, and I think, you know, Alan highlighted some of the key points. There's a number of different considerations that we take into account, including, obviously, market conditions. When we're neutralizing the dividend, we're probably buying somewhere in the order of 4 million shares or so. There's, quite a lot of buying, activity.
Overall, we look at the, you know, the opportunity cost of holding, capital. We look at the differences in spreads between various funding instruments against implied cost of capital. And so, you know, we weigh all of those, factors up and, you know... But fundamentally, our views and core principles are unchanged. You know, we see value, obviously, in reducing the share count over time. We obviously want to embark on activities that we think are gonna create as much value as we can, based on where we are and alternatives are in the, in the cycle.
Mm.
I mean, we have, we have been active from a capital management perspective, obviously, to neutralize the DRP as well as the 300 million of progress we made on the on-market buyback. Over the course of the last 12 months, we've bought back AUD 1.5 billion worth of shares at an average price of around AUD 107. So I think from a shareholder sort of deployment of capital perspective, that's been sort of time and capital, well spent. You know, we showed the relativities of the, you know, market-implied cost of equity versus the after-tax marginal cost of debt.
You know, obviously, there's different spreads on those numbers between CBA versus peers, so I think that does result in different decision-making around pace, quantum, and timing of share buybacks, and I think you've seen that over the course of the last six months in particular. And so, yeah, we'll continue to sort of weigh all of that up. And, you know, the one other point I'd make, just lastly, on the payout ratio, you know, we've obviously got capacity there, given the level of organic capital generation. However, one thing I would say is that one of the reasons for that lower market, the relative market-implied cost of equity, is the stability of the dividend.
When you start creeping up in terms of the level of payout over a period of time, that can create some more uncertainty around the sustainability of the payout ratio at very high levels. So again, that's another factor that we'll look at around what's the—we want the dividend to be strong, but we also want it to be sustainable, and we want to have confidence in that ability to continue to sustain and grow at a level of the ordinary payout.
Thank you.
Thank you. The next questions come from Victor German.
Thank you, Mel. Can I please follow up first on the hedge question? First of all, would I be right to say that shifting that additional AUD 11 billion of deposits into Replicating Portfolio is a small headwind to margins, given the current cash rate is about 30 basis points above the 5-year swap? And also, I appreciate that I'm not exactly comparing apples and apples here, but historically, your Replicating Portfolio only slightly exceeded your business and retail transaction deposits, whereas now it's about AUD 25 billion higher. Is that because you're trying to protect the PNL from future potentially lower rates and lock in high rates for now? Or has the structure of your deposit book fundamentally changed, and as you alluded, Alan, earlier, you know, you now don't expect any more migration?
How do we sort of holistically speak, think about, about those deposits? And then I have a question on cost as well, if possible.
Yep. So on the replicating portfolio, we start with the total balance of non-rate sensitive deposits for the group. That's more than just the non-interest-bearing transaction accounts. There's a larger stock of non-rate sensitive balance because you apply, you know, historical behavior, behavioral experience in terms of the level of pass-through rate across a number of deposit products. So there's a much larger pool, if you like, of non-rate sensitive balances than just those non-interest-bearing transaction accounts. So we feel that the level of hedging that we've got in the replicating portfolio, the AUD 119 billion, that's still a proportion that's proportionately less than the overall stock of non-rate sensitive balances. So we've got plenty of headroom between the level of replicating and the level of non-rate sensitive.
So that's, you know, and you continually look at how behavior changes over time and model that out, and that leads to, changes in the level of hedging, that we apply. Yeah, the, the point that, that you started with is correct. So obviously, given where swap rates are relative to the current level of cash rate, then there is a, a near-term headwind, if you like, from the increase in the size of the replicating on those, at-call transaction account balances. Obviously, we're taking a view over the long run in order to create that stability in the deposit net interest, earnings. As you've seen over many, many years, we've had the replicating portfolio in place since the mid-1990s.
You see a lot of, obviously, ebbs and flows in the rate cycle, and we took, you know, one of the things as you look ahead is obviously, where do you think cash rates are going to head and, and swap rates over the course of the next few years? And then, you know, again, that's part of the thinking around why we upsize the size of the replicate.
Yeah, and I guess maybe, Victor, to your point and underscoring what Alan said, that that growth in non-rate, rate-sensitive deposits has been really important for us to, you know, to be able to support that. And it seems to be most evident in the business bank. I mean, compositionally, I think the deposits would be up something like AUD 124 billion if we compared June to, say, pre-COVID at the end of 2019. And at least that mix to, you know, more transactional, everyday banking, seems to be holding together well and will give us, as Alan said, maybe a near term, absolutely, NIM headwind, but much better protection in a falling rate cycle over the medium term.
Now, that makes perfect sense. I mean, obviously, that increase has happened, in the last couple of years as opposed to last half.
Yeah.
So I guess I'm reading, in terms of what you're saying, it sounds to me like you have more confidence now that some of those increases in stable deposits are likely to stay with you-
Mm-hmm.
in the medium term, whereas in the past you were not sure, and you thought that they would potentially migrate out. That's subtle message I, I'm assuming, you know, you are leaving us with?
Yeah. That's the right conclusion to draw.
Okay, thank you. And then the second question, I appreciate you haven't specifically discussed the potential benefits of the investment that you're making in technology. But at various times throughout the year, your executives have sort of commented on some of the potential cost benefits. For example, you know, reduced engineering time from AI and things like that. Just be interested in hearing from you, how you think about the trade-off between that investment and cost savings, and if you see potential cost-saving opportunities coming through the PNL over the next couple of years, or do you envisage to continue reinvesting those benefits into the business over the medium term?
Maybe I'll start, and Alan will certainly expand. I mean, there's two elements. One, the productivity savings this year, and Alan's touched on that, and I'm sure happy to expand. We know, we look at the productivity benefits that we've delivered this year. I think it's overall a good year. A number of those are enabled by the technology investments that we've made, particularly in, you know, digitization. That's going to continue to be an important theme. And so we think about it in the context of, you know, what's our productivity and what are all the different initiatives over the course of the year, and how that's going to ladder up in 25 and beyond.
And then alongside that, we're sort of thinking about the investment portfolio, and we feel this year's been one of our more effective years in terms of, development, deployment. Obviously, we talked about the number of changes that we've made, but just in terms of yield and improvements, it's been an area of real focus for us, and so we're certainly prepared to contemplate higher levels of investment where we feel like we're getting a commensurate increase in the, you know, the quality and quantity of either productive or, you know, customer-enhancing, technology delivery. And so we sort of solve for both of those, both in the near term, but, you know, importantly, taking a long-term view, what, what sorts of capabilities and competitive advantages do we really wanna press on over the next, five years?
There's, you know, there's a number of elements within our broader technology strategy, which we think are really critical to that competitive position.
Mm-hmm. And then maybe just a small add to that, an important area, Victor, of the governance around these aspects of both the productivity, the initiatives that underpin that, the accountability that goes for delivering against productivity targets. That's a very separate process to then the strategic investment priorities and where reinvestments may or may not be made. Because what you don't want is a sort of automatic bias to reinvest any savings, because that might not necessarily be the best marginal use of the marginal piece of shareholders' capital. So we have two very separate processes around that. We've run those processes very separately for a number of years now.
That creates then confidence around the ability to deliver and continue to generate productivity, and then we can have a separate discussion around where do we wanna deploy some of the capital that that frees up. What does that mean in terms of the pre-provision profitability, the organization? What does that mean for, you know, this, you know, at the end of the day, to the dividend and the level of growth on the dividend, over a number of years? And so I think it's very important that those... the governance around those two aspects of how we manage the investments, where we invest, how much we invest, where we wanna, you know, target those investments, is a very separate conversation to where we deliver the productivity. Both get, you know, commensurate focus.
Yeah.
Alan, productivity benefits are, you know, around AUD 400 million this year, not too dissimilar to last year. I mean, do you expect that number to be broadly similar next year, or do you see scope for that to increase?
I mean, that's probably the best. Well, it is actually. It's the best end year productivity that we've generated over the course of the last, at least the last six or seven years. I'd say that that was a—we were pleased with the, with the performance from a productivity initiatives perspective over the course of the period. It obviously helped offset some of the cost and the inflationary increases in costs that we've seen over the period. One of the aspects, as you know, as we look ahead, looking at the level of amortization, excuse me, software amortization, that will continue to grow, commensurate with the level of strategic investment that we've had on foot for a number of years. Inflation should be a more moderate upwards driver on costs, as we look out over the next couple of years.
But productivity, you know, we had a good year this year. We'll continue to focus very much on it. I wouldn't be sort of banking on, you know, the same number or a higher number in the next year. We'll set very aspirational targets in and around that, but, you know, you tend to, you know... We'll take a multi-year view of that. We don't want sort of false economies by chasing a productivity number that's excessive.
Thank you. Thank you very much.
Thank you. The next questions come from Brian Johnson. Brian, can you hear us? Brian?
Can you hear me?
Oh, we can hear you.
Can you hear me?
Thank you.
Okay, my apologies. The first question I'd like to ask is probably a slightly unpleasant one. If we're to go back to the JPMorgan result, they came out, Jamie Dimon came out and quite explicitly said, "We'd be mad to buy back shares at greater than two times book." The share price fell about 4.5%, subsequently rallied back to actually be more. But, from what you're saying today, is it fair enough to conclude that the absence of the buyback basically reflects the fact that the share price is too expensive?
It wouldn't be fair to conclude that. Yeah, we noted the JP Morgan commentary. I mean, the one of the slide 37, we included a number of banks and payout ratio and return on equity. The math around the Jamie Dimon comment is a function of the profitability of the franchise. And when you include the beneficial impact of franking, CBA's return on equity is higher than JP Morgan's, therefore, commensurately, you would expect a higher breakeven point, if you like, on the economics of a buyback. It's still accretive. Buybacks remain accretive. The question isn't whether they're accretive or not. I mean, you can see that when you look at the relative cost of capital versus after-tax cost of debt.
The question is, are they, in terms of the pace of buybacks, are they accretive enough to offset the optionality value, which is real, which is running higher capital buffers through periods of uncertainty and avoiding dilutive capital raisings from a shareholder perspective? And so it's more a question of pace, optionality, but the sort of economics remain accretive. Less accretive than they were 12 months ago, but still accretive.
Yeah, BJ, I mean, look, it's not unpleasant. And I think, you know, Alan's touched on a number of the key factors. I think if you look at that sort of heuristic that Jamie used, but you gross up for the benefit of franking, obviously, then that book value would be maybe AUD 200, AUD 2.5, AUD 2.6. And then, as Alan said, there's lots of other sort of temporal issues that are really important and actually bring a lot more nuance to it, like the difference in the cost adjusting for, you know, tax franking of alternative funding instruments, that spread, the implied cost of capital, and then you know as well as anyone, because you've been covering the banks for a long time.
You know, if you take a sort of a 30-year view and look at what the average raising was, you know, every sort of six years and what the discount was, which is probably mid-20s, you know, you can sort of calculate an optionality of that cost of capital, and it's going to be a function of those market conditions, the interest rate environment, number of different factors.
Okay, thank you. I'm going to take it. That still means it's, perhaps it's pushing the boundaries of relative value. The second question, if I may, and I think this is a real shortcoming in the regulatory capital. We've got CommBank and NAB that have still retained much of their COVID-19 provisions, whereas ANZ and Westpac have written it back. Today, we've got you increasing, basically, your weighting to your severe downside scenario on geopolitical risk. But when we have a look at the balance sheet, the real risk I would have thought basically sits in the home loan book. Can we just get a feeling, what kind of downward movement in house prices would trigger a provisioning shortfall for CommBank?
Well, the simple answer to that is if you take the downside scenario, which has, I think there's a 25% fall in house prices in the first year on the downside scenario. I mentioned that the current level of provisioning that we hold, and that's across both retail and non-retail portfolios, but obviously, home loans would be a part of that. We're currently provided at 80% coverage for that downside scenario. If you have higher house price falls, then obviously you would conventionally have higher expected credit losses. One of the reasons the capital intensity of a mortgage book is reduced over the course of the last six and 12 months is because, you know, the equity position of the, of the...
and the LVR position of the mortgage book has continued to improve in an environment of rising house prices. So you'd have to see a very significant change in the current trajectory of house prices, and obviously many factors that go into that, including the broader economic conditions, supply and demand, the new housing, given migration flows in the country. So yeah, a very significant change in house prices would be required to create anything like a material change in our level of provisioning. So as we sit today, the level of provisions that we have on mortgages are significantly higher than the expected losses that we have under the central scenario. And obviously, the central scenario is a very, you know, continued growth in house prices over the course of the next two or three years.
Fantastic. Thank you, and congratulations again.
Thank you. The next question comes from Brendan Sproules.
Good morning. Thank you for taking my questions. I have a couple of questions on NIM. Alan, maybe could you tell us around the trends you're seeing in switching out of low-cost deposits into higher rate deposits, such as term?
Mm-hmm.
Page 92 of the profit announcement gives a split of your deposits by geography, and you can see there, New Zealand and even other overseas are still seeing a transition towards term deposit, but in Australia, it's fallen back. Maybe you could-
Yeah.
Give some comments on that trend.
In page 92 of the profit announcement. Yeah, on the term deposit trends there, which are down in the half, they're influenced more by the higher end of business bank and outflows there, as well as some institutional clients. So that's really what I'd describe as low to negative margin, hot money, at the upper end of business bank and institutional bank that we've allowed to flow out over the course of the six-month period. When I referenced earlier, where we'd seen some of the competition, it was in large ticket sizes, and it was large ticket sizes at the top end of business bank and institutional, and it's both lending and deposits.
And so we've allowed some of that hot money to come out over the course of the last six months, so that's why you can see that, trend on page 92. The sort of broader trend is very similar, you know, to the, you know, in the last six months to the prior period, although the rate of switching obviously slowed. So we continued to see switching over the period. The note of caution I would give on the rate of switching, there is still switching, and we're seeing some of that switching offset by growth in new accounts, including the new migrant accounts and non-migrant increase in retail transaction accounts that we've talked about. There's a seasonal increase in non-interest-bearing transaction accounts in the business bank. You see that every end of financial year, 30 June each year.
So that masks the level of switching that we continue to see in the six-month period on a spot basis. But you've continued to see an element of switching. It's at a much slower rate than it was this time last year, but there is an element of that that remains.
Yeah, I mean, the only thing I'd add is, you know, on an absolute level of term deposits, the margins will be higher than what we'd seen, for some time. So naturally, the competitive intensity has increased, at least when we look, Australia looks to be the only market in the world where TDs are pricing above the cash rate. The other element that we've observed is, which makes sense, given where we probably are in the rate cycle, customers are seeking, longer duration in their term deposits. And so it's a combination of the mix, competitive intensity, lower margin at the longer tenor. And, you know, the combination of those and the elements that Alan talked to are obviously going to be one of the drivers in terms of NIM, NIM headwinds into 25.
That's great. Thank you. And my second question just relates to the impact of rate cuts on your NIM. Obviously, it's a debate in the market, and many investors are starting to think about this, not just, you know, overseas jurisdictions, but even potentially in Australia. During COVID, you indicated that at the time, it's roughly a 4 basis point impact on NIM for every 25 basis point cut. As I look at your, particularly the funding of your balance sheet today, you know, as you said, you've got a lot more transaction accounts, particularly in retail and business, where you've had a lot of success. You've got much lower portion of TDs. Would we expect that sensitivity to be higher? And what would be some of the offsetting factors that we would- we should be considering?
I mean, the sensitivity is obviously going to be a function of the decisions we continue to make around the level of hedging and the replicating portfolio. So the main protection that we have on the rate cut cycle in terms of earnings stability of the deposit and interest earnings, obviously the replicating portfolio. So both the size of that overall portfolio, then the proportion of non-rate sensitive balances that we hedge, that's increased today relative to where we were through that pre-COVID period. We provided that sensitivity, I think in the... I think it was February 2020, or February 2021, if memory serves.
We haven't updated that sensitivity from, you know, in terms of the current composition of the balance sheet, but, you know, we've provided a lot of information around the size and shape of the replicating. And you can see there's also disclosures in the annual report around the net interest earnings sensitivity of 100 basis points rate shock across the portfolio. But obviously, all, any of those changes are going to be the function of pricing decisions that are made on both the asset and liability side of the balance sheet. So you can't... It's impossible for anyone, if you like, to have perfect foresight around the level of pass-through on both sides of the balance sheet through changes in rates.
The best thing you can do from an earnings stability perspective is give yourself optionality by having more stable earnings, which we do through the size and the increase in the level of replicating.
Yeah, and I think, I think you're right. I think it was that February 2021 we gave that. So, I mean, the rate, non-rate sensitive of the trend deposits, but we also, given where the cash rate was, more of the savings portfolio, we wouldn't have been able to pass that on because they were-- we were very low in terms of the cash rate. So the sensitivity, by definition, will be different for a few different factors.
Thank you.
That's great. Thank you.
Thank you. The next question comes from Matthew Dunger.
Yes, thank you for taking my question. You've called out the bonus savings rates as, as a key driver of, deposit, the downside on deposits on the NIM. Just noting the deposit funding has grown to 77% of, of the funding mix, and wholesale spreads continue to fall. So can you give us a sense of what the optimal funding mix is, and at what point you could optimize some of those higher cost deposits?
Yeah, I mean, that we have been optimizing some of the higher cost deposits over the six months by, you know, allowing some of the higher cost deposits to flow out, particularly in the term business and institutional term deposits. So we don't have a particular target in mind in terms of the overall deposit-to-customer deposit ratio. Pleasing to see it continue to grow. And we've obviously got a big focus on growing, as well as customer advocacy, Main Financial Institution share, and net new transaction accounts in both the retail and business bank. So that will continue to be a strategic focus, and you'd hope that that would continue to support the customer deposit funding ratio. So yeah, we feel comfortable with the level of mix.
If you look at the wholesale side, well, one of the things that's benefited margins in the industry, really, over the last few years has been the level of basis risk. It's been very low, the BBSW spread. One of the reasons that was very low was there was a large amount of liquidity across the banking system parked within the RBA's Exchange Settlement accounts. You've seen, both for CBA and across the industry, a sort of draining of that excess liquidity as we, you know, roll through the TFF maturities, we get more normal monetary and fiscal settings, post-pandemic. And so I think that's likely to put upwards pressure on basis risk, as we look ahead in terms of the direction of wholesale funding settings.
It's going to continue to be important to manage carefully that growth in deposits, but obviously, being very mindful around the relative pricing and the relative margin of different categories of deposit.
Thank you, Alan. If I could just follow up on the impairments. Are you able to talk about how the loss development has happened, how it evolved relative to your expectations across the sectors? You've talked about reductions in forward-looking adjustments on construction and agri. Are these-
Mm-hmm
... where some troublesome loans have eventuated, or they're coming up in other places?
On the corporate troublesome side, the four single names, the preponderance of them are in the commercial property sector. Although, as we commented in both the profit announcement and the presentation today, we're very comfortable with the level of security on those single names, so we're not. We don't expect. We've got very low expectation of any loss on those single names. And so the construction and agriculture, we had specific forward-looking adjustments for risks in both of those sectors, and we've seen, as we look at the sort of forward views of portfolio credit quality improvements in both those industries. And so we had. They're not large numbers, but we had a small reduction in the forward-looking adjustments that were applied to both construction and agri.
Importantly, obviously, in agri, at the turn of the year, the weather forecasters were assuming we would be in drought conditions this year, and given it's, there's been a lot of rain and wet weather, pleasingly, that's meant a really good seasonal growing conditions for a number of our agricultural clients, and so we've commensurately reduced forward-looking adjustments in agri for that particular change in the weather. So we've had small changes up and down across a number of the sectors, which we've set out, but overall, you know, a small top up to corporate portfolio provisioning, which, you know, we feel comfortable with.
Thank you.
Thank you.
Thank you. Our last question will be from Ed Henning.
Lucky last. Thank you, Mel. Just two questions from me. Just firstly, just again, on the margin walk and the four basis points you called out on the bonus saving and people on the GoalSaver now getting that bonus saving is about 80%. Is that now at record highs? And if you think about that going forward, is there potentially still a delta on that going forward, or that's now embedded in your margin walk for the next year?
Yeah, I believe—I mean, I believe it's a record high. It, it's certainly up over the period and reflects a concerted effort to do more alerting to customers and notifying them. So I, and we certainly have expanded the way that we do that. It's probably... There may be a delta beyond that, but I wouldn't anticipate it's anything like the magnitude that we've, that we've seen.
Okay. Now, that's helpful. Thank you. And then just the second one, like you, you've called out today, you know, a number of headwinds, you know, creeping up a little bit in mortgages, talked about deposits and TD pricing it all. Is there anywhere, you know, you'd call out going forward that you're seeing, you know... Obviously, there's competition across all your business lines, but any significant changes in delta of competition, across business lines, whether it's on the lending side or the deposit side, that you're seeing at the moment?
I think we've touched on many or all of them. I mean, there's clearly an improvement over the course of the year in mortgages, but as I said, it's probably deteriorated a little more recently. Deposits, we've talked about from a TD and particularly switching to savings. Business, we're probably pleased with where the margins come out on from a lending perspective. We've seen a lot of active competition, particularly at the upper end of corporate, what we'd consider in our Major Client Group. I think they've, you know, missed or let go probably AUD 7 billion of deals at the upper end, mostly for pricing, occasionally for credit. So the team's done a good job of being, you know, very disciplined there.
We had a softer Q3, and we've had a very strong Q4, but we feel like there's certainly competitive intensity there, but we've been able to operate pretty effectively from our perspective. And I think Alan's touched on the other big trend from a deposit perspective, where we've seen you know, some of those larger deposits with very, very low margins. We've been prepared to let those move and continue to really focus on building that sort of main bank relationship.
Okay. That's great. Thank you very much.
Thank you, and thank you for joining us for this briefing. Please reach out with further questions or if you'd like to speak to the CBA team across the afternoon and through the following week, and thank you for joining us.