Commonwealth Bank - Report to Shareholders 2003 - Business Overview

Business Overview

The following commentary provides an overview of the performance of the main businesses of the Group. For further information on the financial performance of these businesses, please refer to the Financial Report.



Performance was driven by a combination of strong revenue growth and expense efficiencies flowing from process simplification. The buoyant housing market and increased volumes of credit card transactions drove the strong retail revenue and balance performance for the year.

Several key initiatives were undertaken during the year to improve customer service and efficiency outcomes. These included:

During the year the Reserve Bank proposed substantial reforms to credit card schemes in Australia. The impact of these changes, combined with an expected slowing of the housing market, will reduce the opportunities for market driven revenue growth going forward.

The specific focus in the forthcoming years will be on:

Asia Pacific

Asia Pacific Banking incorporates the Bank’s retail and commercial banking operations in New Zealand, Fiji and Indonesia. ASB in New Zealand represents the majority of the Asia Pacific Banking business.

The New Zealand economy grew strongly throughout the financial year. Interest rates were increased modestly, which attracted international investors and resulted in a stronger NZ currency. As a result, lending and funding growth rates contributed to good balance sheet growth.

During the year, ASB continued to make progress in its core business objectives of quality growth, best service, best team, best processes and best distribution. Key achievements during the year were:

Banking operations in Fiji and Indonesia performed well with modest profit growth for the year.

Institutional & Business

The business climate was subdued over the year and, as a result, market competition has intensified. In light of the business environment, the focus for the year was on the continued delivery of innovative solutions and transforming the business for future growth.

During the year, a new client-servicing model, based on client need was implemented. In conjunction with this, simplified technology platforms in business banking centres and streamlined credit processes for all client segments were rolled out. These measures enable a more responsive service to clients, improved productivity and increase the focus on generating new business, while preserving the overall risk profile of the Bank.

Supporting the client-servicing model, a range of new or expanded products was launched during the year. These include specialised leasing and infrastructure financing products, environmental, agricultural and precious metal offerings. We were the first Bank in Australia to launch the “Verified by Visa” and “MasterCard SecureCode” on-line security programs to make Internet transactions safer for both clients and merchants.

Central to the success of the business over the next year will be the continued transformation of product offerings, services, processes and systems and the ongoing promotion of a high performance culture, which enables our people to excel in client service.

Funds Management

In funds management, the 2003 financial year was characterised by declining world equity markets, changing customer preferences for managed investment products and reforms to the regulatory environment. The uncertainty for consumers created by the third straight year of negative equity returns, and the effects of other world events such as the war on terrorism, placed pressure on net fund flows for the industry as a whole. The negative returns on equity markets also impacted on the existing funds under management and associated fee revenue.

In addition to these external influences, the changes in management in the earlier part of the year, and the resultant downgrading of ratings on certain Colonial First State funds by some research houses contributed to the adverse fund flow of the business. The scheduled withdrawal of funds by Winterthur in the UK and the sale of the UK private clients business had a structural impact on the business.

Against this background, increased emphasis was placed on customer retention and improving product and distribution offerings. The key initiatives included:

The key strategic initiatives implemented during the year were focused on process and system simplification and eliminating duplication. The key initiatives included:

Going forward, the funds management business is positioned well for future growth through its:

Life Insurance


The Australian business grew strongly in a difficult market to become Australia’s largest writer of Life risk premium during the year. Growth was achieved through product innovation, diversifying distribution and focusing on customer service.

During the year, CommInsure introduced some innovative new benefits and options on personal risk products, with several firsts in the market such as cash back, accidental death top-ups and loyalty benefits.

In addition, diversification of new business sales has been achieved by an increase in the business volumes being written through the network channel and also from increased telemarketing capacity.

Initiatives in improving customer service and productivity implemented during the year included:

The business was also impacted by a failure of a large investment that resulted in a $30 million loss.

New Zealand

The life insurance operations in New Zealand trade predominantly under the Sovereign brand. Sovereign maintained its market leadership position, increasing market share of in-force business premium income through product re-pricing, above-market persistency rates and the continued roll out of Sovereign’s distribution model.

The major focus during the year was streamlining and improving customer service, a review of key business processes and legacy systems, the creation of ASB Group Investments generating synergies between Sovereign and ASB’s investment business and Phase 1 of a product rationalisation and simplification program.


Asia covers our life insurance and pension administration operations in Hong Kong, and our life businesses in China, Vietnam, Indonesia and Fiji. During the year, the Philippines life insurance operation was divested. North Asian economies faced difficult market conditions during the financial year due to the impact of the SARS crisis. The life industry across the region also suffered from volatility in international equity markets.

Notwithstanding these conditions, the Asian business has improved its results, primarily as a result of the following key initiatives: