Retail Banking Services Update
Transcript of Retail Banking Services Update
Commonwealth Bank of Australia ACN 123 123 124
Retail Banking Services Update
Michael CameronGroup Executive, Retail Banking Services
28 September 2006
Mark JonesRegional General Manager, South & Western Australia
Fred PollockExecutive General Manager, Group Sales & Service
Michael CantExecutive General Manager, Trans. & Deposit Products
Vittoria ShorttGeneral Manager, Strategy Development
David GraftonExecutive General Manager, Credit Risk
Geoff AustinExecutive General Manager, Lending Products
2
The material that follows is a presentation of general background
information about the Bank‟s activities current at the date of the
presentation, 28 September 2006. It is information given in summary
form and does not purport to be complete. It is not intended to be relied
upon as advice to investors or potential investors and does not take into
account the investment objectives, financial situation or needs of any
particular investor. These should be considered, with or without
professional advice when deciding if an investment is appropriate.
Disclaimer
3
Today
Strategy
Michael Cameron
Sales and Service
Mark Jones and Fred Pollock
Products
Geoff Austin and Michael Cant
Panel Questions
Including Vittoria Shortt and David Grafton
4
Notes
5
45% of Australians have a relationship with us
6
Notes
7
Huge scale of interactions
Branches
1,007
sites
ATMs
3,173
terminals
EFTPOS
130,000
machines
NetBank
1.2m
active
customers
Australia
Post
3,730
agencies
Call
Centre
7.5m
passwords
Brokers
6,200
brokers
8
Notes
9
Today
Results
Strategy and Priorities
Structure
Progress
Collaboration
10
Notes
11
Well positioned to grow
1,0671,101
800
900
1,000
Dec 04 Dec 05 Jun 06
Costs vs. same period last year ($m)
1,100
1,200
2,000
2100
2,200
2,562
Jun 05
2,576
Jun 06
2,297
Dec 04
2,300
Income vs. same period last year ($m)*2,700
2,400
700
800
900
1,000
Profit After Tax vs. same period last year ($m)
2,500
2,396
Dec 05
2,600
1,1081,132
Jun 05
* All figures reflect Retail Product costs and income only
894
Jun 05
900
Jun 06
772
Dec 04
817
Dec 05
+11.5% +7.5% +6.1%+0.6%
+15.8% +10.2%
42.00%
43.00%
44.00%
45.00%
47.00%
Cost-to-Income – half yearly
Dec 04 Jun 06
46.00%
Jun 05 Dec 05
46.5%
46.0%
44.2%
43.0%
12
Notes
13
Invest in the capabilities of our
frontline people to improve
customer experience
Offer competitive and
value-for-money products
Leverage our natural advantage
of convenience
Build a culture of service and
operational excellence
To be Australia’s finest financial services
organisation through excelling in customer service
Retail Bank Strategy
14
Notes
15
GROUPFUNCTIONS
PEOPLERobyn Worthington
COMMUNICATIONSStephanie Barry
MARKETINGMark Buckman
TECHNOLOGYDave Curran
BRANCHNETWORKDavid Marshall
DIRECT CHANNELS
Vacant
GROUP SALES& SERVICEFred Pollock
LENDING PRODUCTS
Geoff Austin
TRANSACTION& DEPOSIT PRODUCTSMichael Cant
RETAILOPERATIONS
Peter Abbott
STRATEGICDEVELOPMENT
Vittoria Shortt
CREDIT RISKMANAGEMENT
David Grafton
CHIEF FINANCIAL OFFICER
Gary Thursby
SALES PRODUCTS
SUPPORT
Delivering Service
16
Notes
17
People engagement
Customer satisfaction
Product competitiveness
Service efficiency
Clear Priorities
18
Notes
19
Frontline people now more passionate
Lost Time Injury Frequency Rate
8
10
12
14
16
18
20
Jul 05 Oct 05 Jan 06 Apr 06 Jul 06
Absenteeism
Jul 05 Oct 05 Jan 06 Apr 06 Jul 06
3.85
3.90
3.95
4.00
4.05
4.10
4.15
4.20
2004 2005 2006
4.00
4.14
4.20
Gallup Workplace Survey
Internal Customer Service [strongly agree]
23%
31%
36% 37%
44%47%
0%
10%
20%
30%
40%
50%
Mar 05 Jun 05 Sep 05 Dec 05 Mar 06 Jun 06
2.0
2.5
3.0
3.5
4.0
4.5
5.0
(max) 5.00
20
Notes
21
Happier Customers
0
1000
2000
3000
4000
5000
Customer Complaints 52% reduction in number of
complaints since July 2005
Jul
05
Oct Jan
06
Apr JulAug Sep Nov Dec Feb Mar May Jun
22
Notes
23
Happier Customers
* Nielsen Media Research – Percentage of customers very or quite satisfied with their MFI
^ Roy Morgan Research – Percentage of customers very or fairly satisfied with their MFI
Trend matches major banks
since July 2005
4.3% increase in July 2006,
second highest improvement
among majors50%
60%
70%
80%
90%
100%
Roy Morgan^
AC Nielsen*
Satisfaction Surveys
Sep
05
Jan
06
Apr JulJunMayMarFebDecNovOct
24
Notes
25
We’re listening
Products
NetBank saver
„Yellow‟ card
Removal of NetBank fees
New streamline accounts
Travel Plus
NetBank saver fast start (youth)
Business online saver
Know Your Money
26
Notes
27
We’re listening
Service
550 additional frontline people
65 branches open on Saturdays
Extended operating hours
New branches
Shorter queue times
New Customer Service
Measurement program
Auto coin counting machines
28
Notes
29
Credit growth
Total credit growth steady at 1.2% (monthly) since 01/2006
Housing credit growth for June at a two year high of 1.4%
Credit quality
Arrears stable or decreasing
Quality improving for new personal loans
Cre
dit
Gro
wth
%
Total Credit Housing Credit
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Delin
qu
en
cy %
(30+
days)
40
50
60
70
80
90
100
110
CBA Arrears & Probability of Default
Credit Cards
Personal Loans Home Loans
PL probability of default (RHS)
Pro
bab
ilit
y o
f d
efa
ult
in
dex
0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
Jan
06
Apr JulJunMayMarFebDec
05
Aug
Jan
06
Apr JulJunMayMarFebDec
Positive momentum
CBA Credit Growth
30
Other Key Information Notes
31
Collaboration – we’re all talking
Sales & Service Reinvigoration of Cohen Brown
Insurance specialists in branches
Business Bankers in branches
People Standardised approach to leadership,
talent management, safety and learning
Trust and Team Spirit
Operational Efficiency CommWay bank-wide approach
Co-ordinated purchasing
Systems stability
32
Notes
33
1. Business indicators support positive momentum going forward
2. Positive people measures will result in a continuing uplift in engagement
3. Greater understanding of customers will increase our ability tosatisfy their needs
4. Service metrics will translate into improved customer satisfaction
5. Aligning processes around the customer experience will driveoperational excellence
Key Messages
34
Notes
35
Mark Jones
Regional General Manager
South & Western Australia
36
Notes
37
Customer Service
Integration of Channels
Branch Actions
Empowerment
Sales and Service
38
Notes
39
We‟re asking the customer
Independently measuring queue times and customer experience
Results linked to performance
Being there when the customer needs us
Staff recruitment and induction programs re-built to focus on core sales and service competencies
Customer Service - taking it seriously
40
Notes
41
Integration of channels - convenience
Convenient access supports channel choice
CommSee – single view of customers
One Team Referral
Increased focus on in-branch general insurance
sales, with 25% increase from August 2005 to August 2006
Alignment of KPIs to encourage channel integration
42
Notes
43
388 branches refurbished over the last three years
Three branches in new markets opened in the last nine months
Rolling out open-plan branch designs in suitable locations
Rolling out auto coin counting technology
New corporate wardrobe introduced February 2006
Branch actions – look and feel
44
Notes
45
Empowerment trial – local ownership
Trial commenced on Sunshine Coast in March 2006 with
positive trends in sales and service outcomes
Connecting with local communities
Business ownership mindset and culture emerging
Greater flexibility around
Local area marketing
Staffing
Campaigns
Opening hours
Uncapped bonus scheme for branch managers
aligned to profit and customer experience targets
Business Bankers in branches
46
Notes
47
1. Customer ServiceMore relevant and regular measurement linked to rewards
2. Integration of channelsGiving the customer the choice – supported by technology
3. Branch actions Improving our look and feel
4. Empowerment Local ownership
Key messages
48
Notes
49
Fred Pollock
Executive General Manager
Group Sales and Service
50
Notes
51
Objective
How will we go about it?
What can we learn from Group?
What are our critical success factors?
Sales and Service
52
Notes
53
Our objective
To support the Bank‟s vision by creating a world
standard sales and service culture
54
Notes
55
How will we support execution?
Significant investment
State-based support model
Partnership with Cohen Brown
Consistent and group-wide focus
56
Notes
57
What drove the change at ASB?
Cohen Brown SUCCESS
Serv
ice A
dvanta
ge
Ti me
Creation of a
sales & service
engine…
…extended to
support units
for internal
customers…
…putting the
right specialist
in front of the
customer at
the right time…
Concur r ent1994
Breakt hrough Se
rvi ceOne Team
One Team
Breakt hrough Se
rvi ce
Cohen Brown SUCCESS
….harnessing
the power of an
integrated
network
58
Notes
59
ASB
20
40
60
80
Dec
97
Jun
99
Jun
00
Jun
01
Jun
02
Jun
03
Jun
04
Jun
05
Custo
me
r S
atisfa
ctio
n %
& A
sse
ts $
bn
ANZ takeover of
NBNZ
ANZ Assets NBNZ Assets ASB Assets BNZ Assets
Westpac Assets ASB Satisfaction* Other Major Banks Satisfaction*
Superior Customer Satisfaction and Significant Asset Growth
* Source: Auckland Business School
60
Notes
61
Sovereign Insurance
15%
19%
23%
27%
31%
35%
Mar-04 Sep-04 Mar-05 Sep-05 Mar-06
Sovereign
Next two largest
Breakthrough Service Performance
launched In Support Areas
Ave
rage
in
forc
e +
ne
w m
ark
et sh
are
The positive impact of service culture
62
Notes
63
What are the critical success factors?
Passionate leadership from the top down.
Line driven training and mastery of the process.
Rewards and recognition linked directly to
sales and service outcomes.
Smart use of technology.
Clear expectations and effective follow up.
64
Notes
65
Geoff Austin
Executive General Manager
Lending Products
66
Notes
67
Home Loan book in good shape.
Significant improvement in personal loans new business
quality.
Some credit card market share appears value destroying.
Lending Products
68
Notes
69
Revenue and profit growth
more important than balance
growth
Avoid chasing unprofitable
balance & share growth
e.g. 0% card balance transfers
Effective margin
management
Consumer Finance*
+11.2%
+3.5%
* Personal Loans and Credit Cards. DEET (student loan) balances
added back for comparative purposes
+11.4% +16.4%
Home Lending
+11.4% +16.4%
Revenue and Profit Focus
70
Notes
71
Home Loan Book: well positioned to withstand stress
LVR Profile
Strong LVR profile
Majority of loans <60% LVR
Mortgage insurance in place for most loans >80% LVR
* Australian Owner Occupied and Investment Housing only, excludes Lines of Credit.
Number of loans as at 30 June 06 and market value as at 31 Mar 06. Market value marked
against the APM or Residex database
20%
40%
60%
80%
0 - 60 60.1 - 75 75.1 - 80 80.1 - 90 90.1+
LVR on original security value*
LVR at current market value*
Property ValueExpected Default Rate (PD)
PD x2 x4 x6
No decrease 10.3 14.1 20.1 24.8
10% decrease 27.3 38.4 56.7 70.6
20% decrease 58.6 84.8 128.6 161.8
30% decrease 103.6 153.1 236.4 299.4
Potential Loss $m
Mortgage Portfolio Stress Testing
Testing on conditions similar to 80‟s/90‟s UK recession shows losses < 3 months‟ Home Loan revenue
Additional insured losses of $175m covered by LMI in most extreme scenario shown
72
Other Key Information Notes
Underwriting – Low Doc criteria
All Low-Doc loans must have manual decisioning
(through specialist credit cell)
Credit cell does reasonableness test on declared
income vs. stated occupation and on asset holdings
relative to income declared
All Low Docs require external valuations
Applicant must have been self employed for at least
two years
Must be able to service loan according to Income
Serviceability test
Refinancing customers must provide satisfactory
evidence of repayment over last 6 months (aimed at
avoiding problem debts being recycled through
industry)
Credit Bureau checks are conducted on all Low Doc
facilities regardless of LVR
No Credit Underwriting Standard exceptions apply to
Low Doc loans
73
Low Doc Loans Prudently Managed
Low Doc pricing changes
have seen new business
mix settle at 3% - 4% of
new approvals
Low Doc specific credit
criteria in place to ensure
risks are minimised
Extra LMI protection
ensures risk profile
remains low
LVR for Low-Doc Loans
0% 60% 80% 100%
CBA Low Doc Loans by month as a
percentage of total mortgage approvals
0.7%
4.0%
3.8%
1.0%
2.0%
3.0%
4.0%
Jul
05
Jun
06
Jan
06
Pooled LMI coverage arranged by CBA LMI at customer cost Low Doc not available
74
Notes
75
Home Loan Initiatives: focus on risk
Valuation fraud risk is an increasing industry issue.
Systems and decision rules introduced to manage a significant expense.
Decision rules upgraded for new fraud environment.
Recent review of LMI arrangements confirmed continuation of external insurer rather than partial / full captive.
New APRA capital requirements inhibit acceptable risk-adjusted return on capital-intensive business.
LMI investment underway to deliver B2B solution.
Delivers efficiencies and improved operational controls.
76
Notes
77
Personal Loans: New Business Quality Improved
A number of
initiatives taken
Significant
improvements in the
expected Probability
of Default (PD)
This translates into
lower arrears levels
for more recently
approved loans
Month on Book = 2Month on Book = 3
Ind
exe
d A
rre
ars
Ra
teIn
de
xe
d A
cq
uis
itio
n Q
ua
lity
(PD
ris
k %
)
40%
60%
80%
100%
120% Higher
Risk
Lower
RiskAug
05
Jan
06
Aug
06
May
06
0.50%
1.00%
1.50%
2.00%
2.50%
Jun
04
Oct
04
Feb
05
Jun
05
Oct
05
Feb
06
Jun
06
78
Notes
79
Why we don’t offer zero percent balance
transfers
0% offers appear value
destroying with roll-over
to low-rate card margins
On marginal cost basis,
customer break-even for
“genuine” customers
between 12-24 months
(est.)
Significant risks of
obtaining transient,
expensive balances
^ Balance Transfer 0% for 6 Months then 50% retained at 10.99%
Spend $750 per month with 95% repaid each following month
* Cumulative costs at month 16 - ignores operating costs of card establishment/maintenance
$
-30
-20
-10
0
10
20
30
40
2 4 6 8 10 12 14 16
-90
-50
-10
10
50
90
110
Month
$
Funding Cost Fraud
Bad Debt Interest Income
Fee Income Cumulative^ (RHS)
Monthly Cash Flow per Card*
80
Notes
81
1. Home Loan book in good shape
Well positioned to withstand stressed conditions
2. Significant improvement in personal loans new business quality
Bad and doubtful debt profile expected to improve over time
3. Some credit card market share appears value destroying
Focus on profit and risk-adjusted returns is also good risk management
Key messages
82
Notes
83
Michael Cant
Executive General Manager
Transaction and Deposit Products
84
Notes
85
Competitive position and
strategy
Managing the back book
Update on recent product
initiatives
Transaction and Deposit Products
86
Key Information
Notes
87
Well placed in a competitive market
Convenience
1007
3173
817
2282
500
1500
2500
3500
Branches Branded ATMs
CBA Nearest major
Market Share: Balance vs. Balance Growth
No. 1 Branch Footprint
No. 1 ATM Network
Large retail customer base
Award winning product set
Most to gain in a rising
interest rate environment
Solid recent financial
performance
Number one share of
industry growth
Market Share - Balance v Balance Growth
NAB
ANZ
WBC
STG
CBA
0%
5%
10%
15%
20%
25%
30%
35%
0% 5% 10% 15% 20% 25% 30% 35%
Share of Balance %
Sh
are
of
Bala
nce
Gro
wth
%
88
Notes
89
Key elements of deposits strategy
Customer segmentation Understand customer
preferences and propensity
Targeted offerings by segment
Distribution Leveraging convenience
Outbound retention contact
Product and pricing Competitive products
Differentiated pricing strategies
Sales & Service roll-out will
underpin success
90
Notes
91
Effectively managing back book
substitution
Modest substitution to date
1.8% NetBank Saver
3.5% Streamline
Significant number of passive
customers
Product eligibility criteria
Use of targeted offerings by
segment
Overall deposits margin is
holding up
Deposit Revenue $M
2400
2450
2500
2550
2600
2650
2700
2004/05 2005/06
Product Mix %
NetBank Saver
Term Deposits
Transactions
All other20%
40%
60%
80%
100%
+6%
2004/05 2005/06
92
Notes
93
Understanding of customer is key
Smart analytics
Predictive models
Event based triggers
Targeted retention
and upsell activityLow
At Risk of Internal Migration
High
At R
isk o
f
Exte
rnal A
ttri
tion
High
Passive
Create
awareness
Proactive
upsell
Facilitate
transfers
Retention
focus
94
Notes
95
NetBank Saver:
growth with modest substitution
Significant improvement in
deposit balances growth
63% funds from external
sources
Only 1.8% of existing customer
balances have switched into
NetBank Saver (at June 06)
“Cost” of internal churn for 2006
approximately $15m (2bp)
Accompanied by an increase in
Streamline balances
62
66
70
74
78
Jul
04
Oct Jan
05
Apr Jul Oct Jan
06
Apr
All other
NetBank Saver
RBS Deposit Balances ($B)
7.6% growth
96
Notes
97
New Streamline: another success
7% increase in new accounts
per month vs. last year
55% of accounts are from
external sources
Fee revenue for many
customers not impacted by
“all you can eat” fee structure05 06
20,000
40,000
60,000
May June July August
Average 7% increase
Number New Transaction Accounts
98
Notes
99
1. We have improved our competitive position
Leading to good growth in balances and revenue
2. Management of the back book remains a key
Smart customer analytics and segmentation will help in managing the volume / margins trade off
3. Substitution has been modest
Margins are holding up
Key messages
100
Notes
101
Commonwealth Bank of Australia ACN 123 123 124
Retail Banking Services Update
Michael CameronGroup Executive, Retail Banking Services
28 September 2006
Mark JonesRegional General Manager, South & Western Australia
Fred PollockExecutive General Manager, Group Sales & Service
Michael CantExecutive General Manager, Trans. & Deposit Products
Vittoria ShorttGeneral Manager, Strategy Development
David GraftonExecutive General Manager, Credit Risk
Geoff AustinExecutive General Manager, Lending Products