Commonwealth Bank of Australia ACN 123 123 124

1
Michael Cameron Group Executive, Retail Banking
Services
Mark Jones Regional General Manager, South
Western Australia
Fred Pollock Executive General Manager, Group
Sales Service
Geoff Austin Executive General Manager, Lending
Products
Michael Cant Executive General Manager, Trans.
Deposit Products
Vittoria Shortt General Manager, Strategy
Development
David Grafton Executive General Manager, Credit
Risk
Commonwealth Bank of Australia ACN 123 123
124 Retail Banking Services Update
28 September 2006
2
Disclaimer

• The material that follows is a presentation of
  general background information about the Banks
  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.

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
ATMs
EFTPOS
NetBank
Australia Post
Call Centre
Brokers
1,007 sites
3,173 terminals
130,000 machines
1.2m active customers
3,730 agencies
7.5m passwords
6,200 brokers
8
Notes
9
Today

• Results
• Strategy and Priorities
• Structure
• Progress
• Collaboration

10
Notes
11
Well positioned to grow
Income vs. same period last year (m)
Costs vs. same period last year (m)
1,200
7.5
6.1
11.5
0.6
1,100
1,000
900
800
2,000
Dec 04
Dec 05
Jun 06
Jun 05
Jun 05
Jun 06
Dec 04
Dec 05
Profit After Tax vs. same period last year (m)
Cost-to-Income half yearly
1,000
46.5
46.0
10.2
15.8
900
44.2
800
43.0
700
42.00
Dec 04
Jun 06
Jun 05
Dec 05
Jun 05
Jun 06
Dec 04
Dec 05
All figures reflect Retail Product costs and
income only
12
Notes
13
To be Australias finest financial services
organisation through excelling in customer
service
Retail Bank Strategy

• 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

14
Notes
15
Delivering Service
BRANCH NETWORK David Marshall
LENDING PRODUCTS Geoff Austin
PRODUCTS
SALES
DIRECT CHANNELS Vacant
GROUP FUNCTIONS
TRANSACTION DEPOSIT PRODUCTS Michael Cant
GROUP SALES SERVICE Fred Pollock
COMMUNICATIONS Stephanie Barry
RETAIL OPERATIONS Peter Abbott
MARKETING Mark Buckman
STRATEGIC DEVELOPMENT Vittoria Shortt
CHIEF FINANCIAL OFFICER Gary Thursby
PEOPLE Robyn Worthington
CREDIT RISK MANAGEMENT David Grafton
TECHNOLOGY Dave Curran
SUPPORT
16
Notes
17
Clear Priorities

• People engagement
• Customer satisfaction
• Product competitiveness
• Service efficiency

18
Notes
19
Frontline people now more passionate
Gallup Workplace Survey
(max) 5.00
Lost Time Injury Frequency Rate
4.20
4.20
4.14
4.15
20
18
4.10
16
4.05
4.00
14
4.00
12
3.95
10
3.90
8
3.85
Jul 05
Oct 05
Jan 06
Apr 06
Jul 06
2004
2005
2006
Internal Customer Service strongly agree
Absenteeism
47
50
44
5.0
37
36
40
4.5
31
30
4.0
23
3.5
20
3.0
10
2.5
0
2.0
Jul 05
Oct 05
Jan 06
Apr 06
Jul 06
Mar 05
Jun 05
Sep 05
Dec 05
Mar 06
Jun 06
20
Notes
21
Happier Customers
Customer Complaints

• 52 reduction in number of complaints since July
  2005

5000
4000
3000
2000
1000
0
Jul 05
Oct
Jan 06
Apr
Jul
Aug
Sep
Nov
Dec
Feb
Mar
May
Jun
22
Notes
23
Happier Customers

• Trend matches major banks since July 2005
• 4.3 increase in July 2006, second highest
  improvement among majors

Satisfaction Surveys
100
AC Nielsen
Roy Morgan
90
80
70
60
50
Sep 05
Jan 06
Apr
Jul
Jun
May
Mar
Feb
Dec
Nov
Oct
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
24
Notes
25
Were 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
Were 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
Positive momentum

• 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

CBA Credit Growth
1.6
1.4
1.2
1.0
Credit Growth
0.8
0.6
0.4
Total Credit
Housing Credit
0.2
0
Jan 06
Apr
Jul
Jun
May
Mar
Feb
Dec
CBA Arrears Probability of Default
4.0
110
3.5
100
3.0
90
2.5
80
Delinquency (30 days)
Probability of default index
2.0
70
1.5
60
1.0
50
0.5
40
Jan 06
Apr
Jul
Jun
May
Mar
Feb
Dec 05
Aug
Personal Loans
Home Loans
Credit Cards
PL probability of default (RHS)
30
Other Key Information
Notes
31
Collaboration were 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
Key Messages

• Business indicators support positive momentum
  going forward
• Positive people measures will result in a
  continuing uplift in engagement
• Greater understanding of customers will increase
  our ability to satisfy their needs
• Service metrics will translate into improved
  customer satisfaction
• Aligning processes around the customer experience
  will drive operational excellence

34
Notes
35
Mark JonesRegional General ManagerSouth
Western Australia
36
Notes
37
Sales and Service

• Customer Service
• Integration of Channels
• Branch Actions
• Empowerment

38
Notes
39
Customer Service - taking it seriously

• Were 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

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
Branch actions look and feel

• 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

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
Key messages
More relevant and regular measurement linked to
rewards

• 1. Customer Service

Improving our look and feel
3. Branch actions
Local ownership
4. Empowerment
48
Notes
49
Fred PollockExecutive General ManagerGroup
Sales and Service
50
Notes
51
Sales and Service

• Objective
• How will we go about it?
• What can we learn from Group?
• What are our critical success factors?

52
Notes
53
Our objective
To support the Banks 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?
.harnessing the power of an integrated network
putting the right specialist in front of the
customer at the right time
extended to support units for internal
customers
One Team
Service Advantage
Creation of a sales service engine
Breakthrough Service
One Team
Breakthrough Service
Cohen Brown SUCCESS
Cohen Brown SUCCESS
Concurrent
Time
1994
58
Notes
59
ASB
Superior Customer Satisfaction and Significant
Asset Growth
80
60
Customer Satisfaction Assets bn
40
ANZ takeover of NBNZ
20
Dec 97
Jun 99
Jun 00
Jun 01
Jun 02
Jun 03
Jun 04
Jun 05
ASB Assets
Source Auckland Business School
60
Notes
61
Sovereign Insurance
The positive impact of service culture
35
Sovereign
31
27
Breakthrough Service Performance launched In
Support Areas
Average inforce new market share
23
Next two largest
19
15
Mar-04
Sep-04
Mar-05
Sep-05
Mar-06
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 AustinExecutive General ManagerLending
Products
66
Notes
67
Lending Products

• Home Loan book in good shape.
• Significant improvement in personal loans new
  business quality.
• Some credit card market share appears value
  destroying.

68
Notes
69
Revenue and Profit Focus
Home Lending

• Revenue and profit growth more important than
  balance growth
• Avoid chasing unprofitable balance share growth
• e.g. 0 card balance transfers
• Effective margin management

11.4
11.4
16.4
16.4
Consumer Finance
3.5
11.2
Personal Loans and Credit Cards. DEET (student
loan) balances added back for comparative
purposes
70
Notes
71
Home Loan Book well positioned to withstand
stress

• LVR Profile
• Strong LVR profile
• Majority of loans lt60 LVR
• Mortgage insurance in place for most loans gt80
  LVR

80
LVR on original security value
60
LVR at current market value
40
20
0 - 60
60.1 - 75
75.1 - 80
80.1 - 90
90.1

• Mortgage Portfolio Stress Testing
• Testing on conditions similar to 80s/90s UK
  recession shows losses lt 3 months Home Loan
  revenue
• Additional insured losses of 175m covered by LMI
  in most extreme scenario shown

Potential Loss m
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
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
CBA Low Doc Loans by month as a percentage of
total mortgage approvals

• 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

4.0
4.0
3.8
3.0
2.0
0.7
1.0
Jul 05
Jun 06
Jan 06
LVR for Low-Doc Loans
0
60
80
100
LMI at customer cost
Low Doc not available
Pooled LMI coverage arranged by CBA
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

Higher Risk
120
100
Indexed Acquisition Quality (PD risk )
80
60
Lower Risk
40
Aug05
Jan 06
Aug 06
May 06
Month on Book 3
2.50
Month on Book 2
2.00
1.50
Indexed Arrears Rate
1.00
0.50
Jun 04
Oct 04
Feb 05
Jun 05
Oct 05
Feb 06
Jun 06
78
Notes
79
Why we dont offer zero percent balance transfers
Monthly Cash Flow per Card

• 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

40
110
90
30
20
50
10
10
0
-10
-10
-50
-20
-30
-90
2
4
6
8
Month
10
12
14
16
Funding Cost
Fraud
Bad Debt
Interest Income
Fee Income
Cumulative (RHS)
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
80
Notes
81
Key messages

• 1. Home Loan book in good shape

Well positioned to withstand stressed conditions
Bad and doubtful debt profile expected to improve
over time
2. Significant improvement in personal loans new
business quality
Focus on profit and risk-adjusted returns is also
good risk management
3. Some credit card market share appears value
destroying
82
Notes
83
Michael CantExecutive General ManagerTransaction
and Deposit Products
84
Notes
85
Transaction and Deposit Products

• Competitive position and strategy
• Managing the back book
• Update on recent product initiatives

86
Key Information
Notes
87
Well placed in a competitive market

• 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

Convenience
3500
3173
2500
2282
1500
1007
817
500
Branches
Branded ATMs
Market Share Balance vs. Balance Growth
Market Share - Balance v Balance Growth
35
30
NAB
25
CBA
WBC
20
Share of Balance Growth
15
ANZ
10
STG
5
0
0
5
10
15
20
25
30
35
Share of Balance
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
2700
6
2650
2600
2550
2500
2450
2400
2004/05
2005/06
Product Mix
100
NetBank Saver
80
Term Deposits
60
Transactions
40
All other
20
2004/05
2005/06
92
Notes
93
Understanding of customer is key
High

• Smart analytics
• Predictive models
• Event based triggers
• Targeted retention
• and upsell activity

Create awareness
Proactiveupsell
Retentionfocus
At Risk of External Attrition
Facilitate transfers
Passive
High
Low
At Risk of Internal Migration
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

RBS Deposit Balances (B)
7.6 growth
78
74
70
66
62
Jul 04
Oct
Jan 05
Apr
Jul
Oct
Jan 06
Apr
NetBank Saver
All other
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 structure

Number New Transaction Accounts
Average 7 increase
60,000
40,000
20,000
May
June
July
August
05
06
98
Notes
99
Key messages

• 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
Margins are holding up
3. Substitution has been modest
100
Notes
101
(No Transcript)
102
Michael Cameron Group Executive, Retail Banking
Services
Mark Jones Regional General Manager, South
Western Australia
Fred Pollock Executive General Manager, Group
Sales Service
Geoff Austin Executive General Manager, Lending
Products
Michael Cant Executive General Manager, Trans.
Deposit Products
Vittoria Shortt General Manager, Strategy
Development
David Grafton Executive General Manager, Credit
Risk
Commonwealth Bank of Australia ACN 123 123
124 Retail Banking Services Update
28 September 2006