Detailed Performance Report: Commonwealth Bank of Australia Analysis

This report presents an analysis of the financial performance of the Commonwealth Bank of Australia (CBA), focusing on key financial metrics from 2010 to 2019. It examines Net Interest Margin (NIM), Cost to Income (CTI), Return on Equity (ROE), Return on Assets (ROA), and other relevant ratios to assess the bank's performance. The report highlights trends such as the declining NIM and the bank's operational efficiency, reflected in its CTI. Furthermore, it considers the impact of regulatory bodies like APRA and RBA, discussing criticisms and operational issues. The report concludes with an overview of the bank's recent performance and future outlook, based on its annual reports and market data. The analysis provides a comprehensive overview of CBA's financial health and its position within the Australian banking sector, drawing on data from various sources, including Reuters and the bank's own annual reports. This report is available on Desklib, a platform offering study tools for students.

Performance Report of Commonwealth Bank of Australia
Objective & Introduction
The report has been written with an objective to analyse the financial performance and
strength of the bank in Australian Market based on historical data and other information
available in public domain.
Commonwealth Bank of Australia is listed on Australian Stock Exchange and is engaged in
providing financial services encompassing retail, business, institutional banking, funds
management, superannuation, general insurance, broking services and finance company
activities. The Bank has following segments of business:
(a) Retail Banking Services;
(b) Business and Private Banking;
(c) Institutional banking and markets;
(d) Wealth Management.
The market capitalisation of the bank as on 17-04-2020 is 108.44 Billion AUD with shares
price of 61.06 AUD. (Reuters.com, 2019)
Analysis of Financial Performance of the bank
(a) Based on Financials and Annual Report
Commonwealth Bank of Australia is one of the popular banks of Australia. The bank has a
very good last decade performance with a positive growth witnessed every year. For the
purpose of analysing the performance, the following ratios have been considered significant:
(a) Net interest Margin (NIM);
(b) Cost to income (CTI);
(c) Return on Equity (ROE);
(d) Return on Asset (ROA);
(e) Operating Income/ Total Assets(%) (OP/TA);
(f) NII/ Total Operating Income (NII/TOI);
(g) Loans/Total Assets; (L/TA)
(h) Equity to Total Assets (E/TA);
A comparison of these parameters over the period of 2010 to 2019 is presented as under:
Year NIM CTI ROE ROA OI/TA NII/T OI L/TA (%) E/TA
2010 2.12 49.12 16.91 0.92 2.96 62.38 76.35 5.50
2011 2.17 47.92 18.60 1.02 3.03 62.29 74.87 5.58
2012 2.11 48.53 17.34 0.99 2.92 62.58 73.19 5.79
2013 2.07 48.42 17.40 1.04 3.04 60.80 73.84 6.03
2014 2.07 47.77 17.96 1.11 3.14 60.77 75.53 6.24
2015 2.00 47.85 17.43 1.05 2.98 60.71 73.19 6.07
2016 2.02 46.13 15.70 1.01 2.81 64.54 74.53 6.51
2017 1.96 44.64 15.65 1.01 2.80 64.34 74.95 6.53
2018 2.04 39.67 15.23 1.05 2.58 72.99 76.23 6.96

Year NIM CTI ROE ROA OI/TA NII/T OI L/TA (%) E/TA
2019 1.98 41.59 12.93 0.92 2.37 78.32 77.33 7.13
Further, a graphical representation of above data is presented as under:
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
0.00
10.00
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40.00
50.00
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70.00
80.00
90.00
Graphical Comparison
Net Interest Margin (%) Cost-to-Income (%) ROE (%)
ROA (%) Op Income/Total Assets (%) NII/Total Op Income (%)
Loans/Total Asssets (%) Equity to Total Assets (%)

On perusal of the above table and graphical representation, following inference has been
drawn:
 Net Interest Margin: Net Interest margin of the bank has shown a downward trend over
the years which is not a good sign for the company;
 Cost to Income %: The company has witnessed a decline in cost to income percentage
over years which speaks about operational excellence and cost control carried out by
the company over the years;
 Return on Equity (%): The return on equity percentage has fallen over the years but yet
the same is good enough to provide stable return to its shareholder and any return above
10% is good return on capital;
 Return on Asset: Return on Asset of the bank has seen high volatility over the year and
has been over 1 in most years. A return of 1% on total assets is fair but does not
symbolise good for the company. Further, it has been given to understand that globally
the rate is 1.16% and rate of 1% has been considered pretty good. (Remi Lukosiunas,
2017)
 Operating Income/Total Assets: Operating Income over total assets over the years have
been more or less stable in the range of 2.3% to 3% but has declined in the last years
showing weaker performance. However, when compared to global performance the
results are still pleasant;
 NII/Total Operating Income: The percentage of Net Interest Income has grown very
strongly over the years showing that non-interest income of the bank has declined
symbolising that banks product sales are declining over the period;
 Loans/Total Assets: The ratio has become more or less stable and symbolise that bank
is moving more into interest income category and focussing on primary role of banks;
 Equity to Total Assets: Equity has increased over the period symbolising good return
and issue of shares by banks over the period. A higher equity percentage ensures faith
of the masses in the bank.
(b) Based on Australian Prudential Regulation Authority (APRA)
APRA had conducted a prudential enquiry in 2017 to examine the framework and
practices in relation to governance, culture and accountability within the CBA group.
The progress report was released in 2018 with lot of negative comments. Some of the
gaps identified has been highlighted here-in-under:
 There is an inadequate oversight and challenge by the board on emerging non-
financial risks; (Australian Prudential Regulation Authority, 2020)
 There are unclear accountabilities and lack of risk ownership at Executive Level;
 Weak identification of risk and resolution;
 Complexity and bureaucracy;
 Immature compliance function of operational risk management;
Based on above, it may be inferred that APRA does not recognise CBA in very good
view.

(c) Reserve Bank of Australia
Reserve Bank of Australia has slammed the CBA at many instances for various
operational issues. The recent issue came in 2019 wherein the Reserve Bank of
Australia has slammed the CBA for stalling new payment platform and there was
imposition of fines based on operational inefficiency of the bank. (BAjkowski, 2019)
(d) Annual Report of Commonwealth Bank of Australia
The annual report of the company depicts a very promising future for the company with
and strategies to regain trust and competence in the market depicting its true mettle.
The bank shows a promising future and how it is going to cope up with uncertainties
prevailing and dynamism involved in the market. (Commonwealth BAnk, 2019)
Conclusion
Based on above, it may be inferred that company has strong foothold in the market and has
recent troubles recently but it shall soon step back again on its foot hold in times to come.
References
Australian Prudential Regulation Authority, 2020. APRA releases CBA Prudential Inquiry Final Report
and accepts Enforceable Undertaking from CBA. [Online]
Available at: https://www.apra.gov.au/news-and-publications/apra-releases-cba-prudential-inquiry-
final-report-and-accepts-enforceable
[Accessed 19 April 2020].
BAjkowski, J., 2019. CBA slammed by RBA for stalling New Payments Platform. [Online]
Available at: https://www.itnews.com.au/news/cba-slammed-by-rba-for-stalling-new-payments-
platform-535245
[Accessed 17 April 2020].
Commonwealth BAnk, 2019. Annual Report. [Online]
Available at: https://www.commbank.com.au/content/dam/commbank/about-us/shareholders/
pdfs/annual-reports/CBA-2019-Annual-Report.pdf
[Accessed 17 April 2020].
Remi Lukosiunas, 2017. greyhouse.weissratings.com. [Online]
Available at: https://greyhouse.weissratings.com/ROA-ROE-and-What-These-Key-Measures-Mean-
for-YOUR-Bank
[Accessed 17 April 2020].
Reuters.com, 2019. Commonwealth Bank of Australia. [Online]
Available at: https://www.reuters.com/companies/CBA.AX
[Accessed 17 April 2020].