Hello, and welcome to the results briefing for the Commonwealth Bank of Australia for the full year ended 30 June 2026. 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 financial results.

Our CFO, Alan Docherty, will provide details of the financial results. Matt will then come back and provide a summary and outlook.

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 very much, Mel, and good morning, everyone. This is a strong full year result, which has enabled us to continue to support customers, protect communities, and invest in Australia.

This year, we delivered disciplined growth across all domestic franchises: home lending, business lending, consumer finance, household deposits, and business deposits. We were able to grow earnings while continuing to invest materially in the future capacity of the bank.

Our competitive advantage begins with trusted primary customer relationships. Each wave of technology has allowed us to deepen these relationships, while modernizing the bank's core infrastructure.

We're creating more value for customers by combining the scale of our customer base with proprietary technology and data capabilities to personalize experiences and to deliver new products and services. The growth in customer numbers, engagement, and new products across retail and business, in turn, generates higher returns.

The next wave of technology will require us to adapt further, deploying generative and agentic AI safely to transform customer service, and deliver higher levels of productivity. As AI changes the banking landscape, maintaining customer trust and ensuring fair outcomes for the community will also require regulation to keep pace.

Similar financial activities and risks should attract equivalent customer protections and obligations, whether they are delivered by a regulated bank or through an AI platform. Disciplined execution of our strategy over many years has delivered sustainable performance.

Customer advocacy is an important measure. We also assess franchise strength through a broader set of measures, which includes the number of customers who choose us as their main bank, active transaction relationships, engagement and retention, deposits, and risk-adjusted earnings generated by those relationships.

Over the past decade, household and business deposit balances have doubled. More than 97% of home lending customers and more than 90% of business lending customers also hold a Commonwealth Bank transaction account.

Business lending balances have also more than doubled over the decade, while home loan balances have increased by approximately two-thirds. The growth in business lending is particularly important because it supports investment, employment, and productive capacity across the economy.

The result is a bank that is larger and stronger, but also more digitally capable and more deeply engaged with our customers. Customer focus, disciplined execution, and investment in the franchise continues to deliver better outcomes.

We've held the leading consumer Net Promoter Score for 44 consecutive months. We also retain leading positions in institutional banking, and for retail and business digital banking.

More Australians chose us as their main bank during the year. We added 655,000 retail and 90,000 business transaction accounts.

Proprietary channels represent 65% of home lending flows, and 79% of business lending balances. We also improved lending turnaround times, automated more decisions, increased the speed at which we deliver technology change, and reduced the incidence and duration of technology disruption.

The Retail Bank performed well, with operating performance increasing by 6%. More than one in three Australians identify CBA as their main financial institution, with retail MFI share increasing to 34.2%.

Retail transaction accounts increased by 6%, and home lending balances by 7%. More than 9.6 million customers now use the CommBank app, generating more than 14 million logins each day.

That engagement creates an opportunity to make the bank more useful in customers' everyday financial lives. CommBank Companion is an early example.

It is a secure, AI-powered conversational experience designed to help customers better understand their finances and make better decisions about spending and saving. Our priorities are to deepen those main bank relationships, make the app the place customers manage more of their financial lives, and keep improving our service offering.

The Business Bank delivered another strong year. Operating performance increased by 10%, and business banking now contributes over 40% of the Group's cash profit.

Over the past 12 months, we've reduced time to credit decision by 30%, and increased funding per banker by 15%. We've extended CommBank Companion to more small business customers, and we've started using agentic capability across our lending process, including our first controlled end-to-end business loan pilot.

The opportunity here is to make better and faster decisions, reduce administrative work for our customers and our bankers, and allow our people to spend more time helping businesses invest and grow. Institutional Banking and Markets had another solid year, with operating performance up 5%.

We hold the leading institutional Net Promoter Score among the major banks, added 33 transaction banking mandates, and grew operational deposits by 13%. The institutional franchise also contributes $70 billion of net deposit funding, while supporting customers' financing and risk management needs.

CommBank IQ, our data and analytics venture, continues to deepen client insights, with five times more client engagement compared with 2022. Momentum moderated in the second half as markets income softened, and competition and mix affected margins.

Our focus is to convert client activity into deeper relationships, greater cross-sell, and better capital efficiency. ASB continued to grow its customer franchise, with more lending and customer deposits both increasing by approximately 6%.

Full year operating performance was broadly stable, although earnings conversion weakened through the second half as margins declined and loan impairment expenses increased. ASB retains a strong customer franchise and a leading reputation in New Zealand.

Technology leadership is fundamental to how we serve and protect customers, how we operate efficiently, and how quickly we can adapt. We've been investing heavily to better protect our customers, improve customer experiences, and to modernize technology and automate processes.

We've committed significant resources to cyber and security, including in safely deploying frontier cyber models and automated patching tools. We're using AI to help customers take more control over their banking activity.

We recently expanded access to a new agentic feature called Companion in the CommBank app, and one-third of customers that have been given access have adopted it, and half of their queries relate to managing their spending and saving. Our virtual messaging now handles 86% of conversations end-to-end.

We've launched a range of tools to help our frontline teams better serve customers, and have seen improvements in banker productivity. New AI tools and greater investment have also accelerated our technology modernization agenda.

This year, we moved our core banking system to the cloud, replatformed our data estate, and built a range of new modern applications that support key customer systems. In financial year 2027, we're pursuing three outcomes: stronger protection for customers and in the community; faster and more personalized service to deepen primary relationships; and better performance through lower unit costs, greater capacity, and faster change.

We will measure progress through customer engagement, service quality, and resolution times, losses prevented, delivery speed, unit costs, realized financial benefits, and risk-adjusted earnings. We're already seeing value from our AI agenda and expect gross benefits to exceed investment levels next financial year.

We'll continue to calibrate our investment settings to the external context, overall capacity, and to the financial and non-financial benefit realization. Loan losses remain low, although leading indicators softened during the second half.

Troublesome and non-performing exposures were 0.94% of total committed exposures, higher than December, but lower than a year ago. The number of home loan customers in hardship increased in the past six months, but remains 15% below its recent peak.

We remain well provisioned for a range of economic scenarios. Total provisions are $6.5 billion, which is $2.7 billion above our central economic scenario.

Our balance sheet remains strong, with 79% deposit funding. The weighted average maturity of long-term funding is 5.2 years, and we hold $191 billion of liquid assets.

Our Common Equity Tier 1 capital ratio is 12%, comfortably above the regulatory minimum. This strong position allows us to continue to support our customers, to fund growth, and invest for the long term.

The effects of inflation and higher interest rates have been substantial, but they've not been evenly distributed. Global shocks and low productivity have led to persistent inflation.

As a result, the cash rate has increased 425 basis points since May 2022. The impact on households has been significant.

Compared with five years ago, Australian banks pay an additional $164 billion in interest to depositors and wholesale funding providers, and receive approximately $139 billion more in interest on loans. This represents a significant redistribution of interest income across the economy.

The increase in mortgage repayments has been concentrated among households aged approximately 25 to 55. These households are consuming fewer goods and services than five years ago.

Our retail offset balances also declined during the half as some customers drew on accumulated savings. There's been a lot of interest in home loan application volumes.

We've seen application levels decrease by 15% since May, but subsequently have stabilized. National dwelling prices have fallen by approximately 2.8% since their March 2026 peak, having increased nearly 70% in the past seven years.

We've stayed focused on supporting customers, protecting communities, and investing in Australia. We've helped our customers buy more than 150,000 homes, and provided $17 billion in finance for new housing supply.

For customers experiencing difficulty, we've established 147,000 payment arrangements during the year. We provided $50 billion of new lending to businesses, supporting investment, growth, productive capacity, and employment across the economy.

We're also helping our employees build skills for the future. This year, we announced a three-year, $90 million program to help our teams build skills and capabilities as technology reshapes the way we work and the way we serve our customers.

Before I hand to Alan, I wanted to give some sense of the scale and complexity that our people support. Each day, we process approximately 25 million payments, analyze 38 billion signals for potential cyber threats, lend $135 million to businesses, and help 600 customers settle a home purchase.

The other figures on the slide show the breadth of our responsibilities across customer support, financial crime, fraud, scams, cybersecurity, and the operation of the payments system. That scale does not lower the standard expected of us.

It illustrates both the responsibility we carry and the continuing investment required to meet it. Australians should expect broad access to banking, safe and reliable service, prompt identification and resolution of issues, and support when they need it most.

Meeting those expectations requires sustainable returns, pricing that reflects cost and risk, the capacity to continue investing, and the ability to evolve how we serve customers as their needs continue to change. We aim for very high reliability.

When issues do arise, we focus on how quickly the issue is identified and how effectively it is resolved, rather than an assumption that every risk can be eliminated or prevented. Equivalent obligations must be applied to all market participants.

This balance is essential if we are to continue serving all Australians, investing at scale, and financing productive growth. With that, I'll hand to Alan to go through the results in more detail.

Thank you, Matt, and good morning, everyone. Starting with the results overview.

We've set out here the aspects of our current operating context that are front of mind, how we are responding to changes in our context, and the long-term franchise implications of our actions. At a macro level, household disposable incomes are under increasing pressure, and we have seen a softening in housing credit applications.

Technological innovations are accelerating rapidly, creating both new risks and new opportunities. Geopolitical developments remain a source of risk to the global and domestic economies.

Against that backdrop, our response continues to be deliberate and disciplined. We have again carefully managed volume and margin trade-offs, and our operational and financial performance helps us create the capacity to invest in maintaining and extending our competitive advantage in technology and deepening customer relationships.

This approach has yielded consistently strong financial outcomes, and that has again been the case over this most recent financial year. We are acutely aware of the risks inherent in our current operating environment.

For some time, we have been alert to the risk of an exogenous global event, and more recently, we have seen some risks emerge in the domestic macro outlook. That's why we continue to strengthen our balance sheet in order to both support customers and protect shareholder returns under a broad range of economic scenarios.

As set out in the bottom right chart, we are carrying historically low levels of refinancing risk in our funding stack. Our credit provisions have capacity to absorb losses.

Through our interest rate hedging, we are balancing short-term consumption of capital against long-term earnings stability. This slide sets out the usual reconciliation between statutory and cash profits for the year.

There were modest movements in the usual non-cash items during the period, which resulted in statutory profits of $10.9 billion, and a slightly higher cash profit of $11 billion. Breaking down the components of cash profit.

Operating income grew 6.2% over the year, reflecting strong operational outcomes in lending and deposit growth. This allowed us to continue to invest in the franchise, with underlying operating expenses increasing 5.6% over the year.

Notable expense items of $170 million were recognized in the first six months of the financial year, largely due to the settlement of a long-standing legal proceeding in New Zealand during the September quarter. Loan impairment expense increased 8.5% over the year, with a larger increase in the second half reflecting higher collective provisioning for forward-looking risks, with incurred losses remaining low as our retail and business customers continue to demonstrate resilience despite softening economic conditions.

The effective tax rate for the year was 30%, and that is also our expectation for the 2027 financial year. This resulted in cash profit growth of 7.1% over the year.

Looking firstly at operating income. We delivered growth of 6.2% over the year.

Net interest income increased strongly, up approximately $1.6 billion, supported by strong and profitable growth in lending and deposits. Other operating income also contributed, growing $196 million over that period.

Revenue momentum was slightly weaker in the sequential half, growing 1.2% at a headline level, or 2.9% after adjusting for a lower second half day count. Other operating income reduced slightly in the second half, largely due to weaker retail foreign exchange revenues and lower trading income.

Turning to the net interest margin, and looking at the movement over the most recent six-month period. Margins increased two basis points over the half, of which one basis point related to treasury and markets.

Underlying margins were one point higher, with the benefits from deposit hedging and portfolio mix more than offsetting lower lending margins. The pressure on lending margins over the sequential half was a combination of cash rate lag, competition, and the effect of new business mix.

In home lending, we have written more fixed rate loans, which are at tighter spreads to floating rate loans. In the institutional bank, our loan origination was skewed to lower risk investment grade borrowers with a commensurately lower margin.

Operating expenses increased 5.6% over the year. The drivers are largely unchanged over recent years.

We are seeing inflationary impacts on wages, IT vendor cost inflation continues to run at mid-single digits, and cloud computing volumes have increased. At the same time, we continue to invest in technology infrastructure and AI capabilities alongside enhanced frontline capacity and operational resilience.

We continue to self-fund much of that investment through productivity initiatives, realizing approximately $400 million in incremental cost savings over the past 12 months. As a management team, we have long been mindful of our responsibility to ensure not just that we grow the franchise, but that we grow in a sustainable and profitable manner.

Over the last five years, while we have seen a variety of operating conditions and changes in competitors' postures, we have sought to maintain discipline on volume and rate trade-offs, and as a result have grown our share of industry net interest income. We have also built strong management accountabilities and rigor around the identification and delivery of productivity savings.

These two elements combined have created the capacity for us to invest in the franchise. Annual investment spend has grown approximately 30% over the last five years, and this has made a demonstrable contribution to our strong growth in operating profitability.

It's important to stress that our appetite for discretionary spending is contingent upon the creation of that capacity. In the event of deterioration in operating conditions and weaker top line outcomes, we retain the flexibility to manage our cost envelope and pre-provision profit outcomes.

Turning to credit risk. Loan impairment expense was $788 million, representing a loan loss rate of eight basis points.

This compares with seven basis points in the prior financial year. Home loan arrears have increased over the course of the last six months, up 10 points to 73 basis points.

Some of that increase is seasonal. However, there are clearly pockets of customer stress, given cost of living pressures and higher interest rates.

If we take a longer view, our current mortgage arrears are only five basis points higher than pre-COVID levels, at which time the cash rate was approximately 300 basis points lower. This is reflective of strong portfolio credit quality and customer resilience.

As ever, the key variable for consumer credit quality is the overall health of the jobs market, which remains in robust condition. Personal loan arrears increased noticeably, up 31 basis points in the last six months.

This reflects pressure on household disposable incomes, as well as our deliberate portfolio risk appetite settings, and the risk-adjusted returns for this portfolio have increased strongly over the course of the year. In the corporate portfolio, troublesome exposures increased by approximately $600 million over the last six months, while non-performing exposures remained relatively stable.

The increase in troublesome largely relates to downgrades to six single names across a variety of industry sectors. We do not expect to incur losses, given either our high level of security coverage or the strong equity position of the underlying counterparty.

Overall, corporate troublesome and non-performing exposures as a percentage of our portfolio remain modest at 95 basis points, still below the levels we have seen over each of the last two financial years. Given the softening domestic macro environment and continued global geopolitical uncertainty, we have maintained strong loan loss provisions, increasing collective provisioning by $140 million over the last six months.

Individually assessed provisions remain unchanged over the period. Total recognized provisions are now $6.5 billion, and we continue to hold a material buffer above our central economic scenario.

Our funding and liquidity profile has continued to strengthen. We continue to be predominantly deposit funded, supported by a strong deposit gathering franchise.

Total customer deposits grew 8% over the year, taking our customer deposit ratio to 79%. We also maintained a historically low proportion of short-term wholesale funding, and a conservative weighted average maturity of long-term funding.

This provides us with a relatively longer tenor and more stable base of liabilities, which provides additional protection should credit spreads widen from the benign levels that exist today. On capital, our Common Equity Tier 1 ratio reduced by 30 basis points to 12.0%, with strong capital generation net of dividends, offset by the high level of franchise lending growth.

IRRBB risk-weighted assets increased by $6.5 billion over the last six months, consuming 16 basis points of Common Equity Tier 1. Over the year, and adjusting for the impact of the new regulatory standard, the impact was 28 basis points.

This was a result of our approach to structural hedging that aims to provide earnings stability through the cycle at the cost of short-term capital headwinds in periods of rising rates. The final dividend increased 10 cents to $2.70, taking the full year dividend to $5.05.

This represents a payout ratio of 77%. The dividend will be fully franked, and the dividend reinvestment plan will be offered with no discount and fully neutralized.

On the top right chart, you can see our headline payout ratio is moderating back towards the middle of our payout range. On the bottom right chart, you can see that periods of stronger credit growth have traditionally involved activation of share issuance under our dividend reinvestment plan.

Given strong capital surpluses, that hasn't been the case in recent years, but it's a tool that remains available to us in the years ahead. In closing, this slide sets out our long-term approach to support growth and returns.

Our balance sheet strength lays the foundation to support franchise growth and investment. That investment and continued discipline in the management of our capital base positions us well to continue to deliver sustainable returns to our investors.

I'll now hand back to Matt for the economic outlook and closing remarks. Thank you.

Thank you, Alan. Let me close with a few words on the economy.

Economic growth was strong in 2025, but inflation emerged due to productive capacity constraints across the economy. Global supply shocks drove inflation higher in early 2026.

We saw the peak of house prices in March this year, coinciding with the second of three cash rate rises. These higher rates had the intended effect of slowing household consumption and the economy more broadly.

Higher interest rates and inflation are placing uneven pressure on household incomes and economic activity. Inflation remains too high, but should moderate as the economy slows.

There is understandably a lot of focus on short-term movements in house prices, given they represent a large share of household wealth. Australia's deeper housing challenge is our inability to build enough homes quickly and affordably.

Residential construction productivity has declined materially. Construction times have increased, and taxes, charges, regulation, infrastructure, and labor constraints have raised the cost of new supply.

Sustainable increases in living standards require stronger productivity and greater productive capacity. Australia needs faster and more coherent execution across housing, energy, infrastructure, technology, and skills.

That means confronting trade-offs, measuring outcomes, and ensuring that individual policies make sense collectively. The economy remains resilient, and we should be optimistic about Australia's long-term potential.

Existing wealth does not guarantee future living standards. It depends on our ability to invest, adapt, and build the capabilities required for the future.

Financial year 2026 demonstrated the value of sustained investment in our customer franchise. We grew across every major domestic product category, maintained stable underlying margins, strengthened primary customer relationships, and continued investing in technology, resilience, and customer protection.

This translated into stronger earnings, a higher dividend, and a strong starting position for this financial year. The external environment is now more demanding and less predictable.

Growth has slowed and geopolitical risks remain elevated. In financial year 2027, we will focus on deepening customer relationships, converting franchise growth into sustainable, risk-adjusted earnings, maintaining discipline in volume, margin, and capital choices, and improving productivity.

We remain focused on supporting customers, protecting communities, and investing in Australia. We will continue to take a long-term approach, make deliberate trade-offs, and adapt as quickly as possible as conditions change.

We will continue working to earn the trust of our customers and the community. None of this is possible without the commitment of our people.

I'll now hand to Mel, and we look forward to your questions.

Thank you, Matt. For this briefing, we will be taking questions from analysts and investors.

I will say your name and the operator will open your line. Please introduce the organization that you represent.

To allow as many opportunities for questions, please limit your questions to no more than two questions. I'll now take the first question from Andrew Lyons.

Andrew?

Can you hear me, Mel?

We can. Thank you.

Sorry about that. You've spoken to a 17% decline in mortgage applications on PCP, and despite this, your macro team still expects mortgage credit growth in the 4 to 6% range, which at the top end would appear optimistic.

Just given the various moving parts in assessing how applications translate to credit growth, can you perhaps talk to how the management team expects credit growth to sort of play out over the next 12 to 24 months?

Sure. Hey, look, and as you can see, the applications did fall during that period, but you can see have stabilized.

We think the weakest week was I think the last week of June, the spot even of the first week of August slightly above that. I think Alan and our collective view would be we'd be in a tighter range, probably in the 4 to 5% over the course of the year.

I think probably at that lower point before you start to adjust for offsets, which seem to be growing much less than in prior years. Also the repayment profile we think is going to change slightly.

I'm not exactly sure between a few of us who'll be closest to pin, but I think we're probably in that 4 to 5 percent range over the course of the year, accepting that there of course will be some volatility around that. At least things seem to have stabilized, and we expect an improvement into later stages of FY 2027.

That's great. Thanks for that context.

Alan, maybe a question for you. Your total provisions to credit risk-weighted assets fell slightly in the half.

However, since December '25, we've obviously had a number of rate rises, tension accelerate in the Middle East, some policy-induced house price declines, and I guess broader softening macro trends. The reduction in the CP perhaps appeared a little surprising.

Can you maybe just talk to the various drivers that have seen you come to this outcome, please?

Yeah. There's always a number of moving parts within the provisioning estimate that we make in each period.

You'll recall that in the March quarter, you'd already seen two of the rate rises by the time our quarterly came out. The third rate rise was pretty much baked.

We'd seen the change in the geopolitical environment. We'd moved, I think, ahead of where maybe you've seen some of the June quarter provisioning changes across the industry.

Over the six-month period, as I mentioned, strong increase in collective provisioning over that time. Obviously, it's a period of strong credit growth as well, you've got the denominator effect of a higher credit risk-weighted assets over the both the March quarter and the June quarter.

Overall, we've been, in terms of collective provisioning coverage to credit risk-weighted assets, at the top end of industry for many years. We're comfortable with the level of provisions that we hold.

We get very granular in terms of the different customer cohorts where we think there are forward-looking risks that we need to be alive to. We're very comfortable with the level of provisions that we currently hold, well above the central economic scenarios.

Thank you. Thank you.

The next question comes from Jon Mott.

Hey, can I just ask a question on the mortgage pricing? We've seen wholesale funding costs come in quite substantially to post-GFC lows.

This appears to have been used to cut mortgage pricing in June, and open a bit of a price war across the industry in recent weeks and months. You've been adamant, Matt, over time that you need the industry to write mortgages above the cost of capital.

If funding costs do start to normalize, and we actually move out from post-GFC lows, what would the strategy be there? Is it possible for you to start moving your mortgage pricing back out, or are we effectively just locking in lower returning mortgages if funding costs start to normalize somewhat?

No, thanks, John. Maybe I hope it's not the latter.

Let me maybe go back a little bit, because you're right. Origination margins improved over the course of the year, but it's a function of funding costs, as you touched on.

I think as we look at sort of flow origination ROE, end of the financial year, up on the start, sort of flat on December. In some detail, I'm sure Alan looking forward to going through in the one-on-ones.

There's a lot of pricing activity in the market. We did increase in June, we would say on the back of a number of other pricing changes, a little bit more of the re-emergence of cash back.

One institution didn't ever fully take it away. We've seen some interesting tactics, as well, around just various pricing strategies and $500,001 to sort of drop out of quickly, which I think a lot of you are using to track.

Look, ultimately, we take a step back from that and say, yes, there's a risk around funding costs. We're watching the profitability very closely.

When you've got the five largest players, one presumably wanting to continue to grow well above, all of the others wanting to probably be there or thereabouts on system, and obviously noticed the comments from Westpac. Underlying that, if the question is, is there a change in our strategy where we're going to be preferencing volume over margin and risk-adjusted returns?

No. We expect that with that market construct and dynamic, we need to manage that very carefully, including one of the risks that you mentioned.

We certainly have reduced discounting at various points of time. Of course, it's a very competitive market.

I think we've all seen as volume slows, that typically, at least for a period of time, does see maybe more of a focus on volume. Look, we'll just continue to go to market as effectively as we can, balancing all of those areas.

We're acutely conscious of the return and the distribution of returns across both channel, borrower characteristics, and LVR.

Just a follow-up question on the brokers, because the flows through the broker channel is up to a 10-year high at 49%. It's obviously a very rapidly changing environment, but over the half, what we saw was broker originations flow appears to be down 4% half-on-half, but proprietary is down 14.

You're seeing a bigger slow down in prop versus broker. Is that behavioral, where brokers just appear to be working harder in a slowing environment to eat what they kill, to write more business and keep going, or is it what's driven that change in the broker versus prop flow?

Look, I think again there's a combination of factors. I think that's broadly right in the context of the market, and I guess the structure of payments, the way the broker channel is obviously very dependent on activity.

Look, and I'd say, see over a long period of time the broker channel has established itself in terms of growth of distribution. Look, I think the other factor for us as well during that period, we certainly made some tightening of a variety of things, including to some of our settings to restrict some flow in some areas where we were seeing higher indications of irregularities.

They're easier to sort of detect in the proprietary channel, even though they would be present across the market. We expect there'll be a gradual improvement in that over time.

Again, we will obviously support our customers through the broker channel, but if we have the opportunity to serve our customers directly, then of course, that will continue to be a priority for us.

Thank you.

Thank you. The next question comes from Carlos.

Thanks, Mel. I'm Carlos Cacho from Macquarie.

On slide 68, you call out an expectation that you'll double your gross benefits from AI to sort of $400 million in FY 2027. That'll be greater than investment.

Can you give any color in terms of how you expect to see that flowing through, if that's cost avoidance or revenue or how we'll see those benefits in the income?

Yes. Thanks, Carlos.

Look, we've got a number of use cases that some are mature, some are in-flight and in pilot, and we're expecting to have a number that are coming to fruition over the course of the next 12 months and beyond. I guess the summary answer would be, it's going to be a number of things.

What we're talking about there is the gross benefits, and so, for example, we've disclosed over the last couple of years some of the improvements we've made to engineering velocity, which we're really pleased with, and we're getting a lot more done with our investment envelope. That's one of the reasons why we feel comfortable maintaining the dollar amount.

Our target is to maintain the dollar amount of the investment envelope over the next 12 months, because we think within that lower real term spend, we're actually going to get a lot more done given the velocity improvement. That's one of the benefits that we measure.

Obviously, there are also realized revenue and realized cost benefits that form part of that number. We've seen some of that in the current financial year.

You've seen that emerge. That's part of the reason why we've delivered record annual productivity saves in the current period.

We're also seeing revenue benefits emerging in both the Retail Bank and the Business Bank in particular. We're excited about a number of the pilot programs that we've got in place right now.

We talked about Business Banker Workbench, which takes a lot of the pressure off the business bankers. They can spend more time with customers.

We can continue to improve our fundings per banker. It's one of the reasons we've driven consistent above-system performance on business lending growth.

There's a number of things that we are investing in, and we're seeing bearing fruit, and we've got a reasonable degree of expectation that'll continue to bear fruit over the years ahead.

Great. Thanks.

Then just my second question's about the economic forecasts that drive your provisioning. I know that you did increase the weighting towards your downside in the period.

I also note that your forecast only incorporate a 1.3% fall in house prices this financial year, which, one month in we're halfway there. It would seem there's probably a risk.

I'm just wondering what's the sensitivity, if we were to see a larger fall in house prices like peers are starting to expect now, Yeah. for your provisionings?

Yeah. Our central scenario, we changed a number of elements to the central base case, and that led to near enough a $300 million increase in the expected credit loss under the central scenario.

That's part of the overall loan loss provisioning increase that we've seen over the six months and over the 12 months. Direct answer to your question, it's not particularly sensitive to the change in house prices.

You're talking low-single digit changes in house prices, given the very strong security coverage and very low levels of actual losses that we've seen in that portfolio historically. It's not particularly sensitive to that.

It's much more sensitive to things like the unemployment rate, as you can imagine, and the broader macro indicators. We've increased the unemployment rate outlook in line with some of the Reserve Bank forecasts that we've seen and other market observers.

We've also obviously reflected the slow in real GDP growth. Those things have already led to a reasonable increase in the central scenario.

As you observed, we increased the weighting to the downside scenario over the first quarter, which was a material driver of why overall provisioning levels were up. Direct answer to the question is, the house price changes won't move the needle very much at all.

Thank you.

Thank you. The next question comes from Andrew Triggs.

Thanks, Mel. Good morning, Matt and Alan.

Perhaps to Alan, just interested in slide 26 on the group margin walk. Alan didn't provide a lot in terms of the outlook there, and I appreciate there's a whole host of positives and negatives heading in to next half.

Perhaps, could you elaborate on what you're seeing in both terms of mortgage competition, deposit competition and mix, basis risk, and then some of the tailwinds that you also see, including some roll-off of rate lag headwinds?

Yeah. I think from a competition perspective, that's something that everyone will have a view on in terms of the ongoing competition across home loans.

We're seeing some price-based competition within business lending as well. That's been relatively persistent over the last sort of three halves.

You haven't seen much of that emerge in terms of our divisional net interest margins or in our group margin walk, but that's an area we're continuing to focus on. Within deposits, look, I think term deposit spreads, you've seen some compression in term deposit spreads with some of the good offers that are available to term deposit customers, and there's the ongoing churn towards higher-yielding savings deposits within the deposit mix.

Against that, I'd say wholesale funding spreads, look, they're very benign. They remain benign.

Basis risk, BBSW spread has remained benign. We're also seeing very strong growth in business lending, and we get a positive mix effect with strong growth in business lending relative to lower margin home lending, and given the changes in system outlook around housing credit versus business credit, I think that's a source of positive margin performance in the period ahead.

We're also going to enjoy, I think, another 12 months of tailwind from our replicating portfolio settings. If you go back and look at five-year swap and how that's moved over the last four, five years, we've still got significant tailwind to come in the year ahead.

We can know there's a number of estimates around how each of those factors are going to move. I'm not going to add to that here by providing specific guidance, but I think we're all very well aware of all the moving parts, how they apply across the industry, and how they apply to CBA.

They're all the factors that we're watching.

Yep. Thank you.

Maybe just another one on costs. The IT expense growth was 16% this year, and the three-year CAGR looks to be around 11%.

It's about 20% of total opex. You referenced some improved benefits from AI coming through, but just broadly speaking, how do you sort of think about the annual pace of tech spend growth in the medium-term?

Yeah. I've sort of touched on it earlier.

We've got productivity saves within our technology team, but we've decided to reinvest that and get more done. While we're seeing good gross productivity there, we've decided not to realize that, so that's one of the reasons why the technology, both the technology labor cost and also the IT cost, the functional IT cost that you see, is continuing to grow above inflation.

Vendor IT inflation is a factor we've talked about. I think that's going to continue to be a feature of this space.

As we migrate more of our platforms and processes onto a cloud environment, that's been a volume-related cost, which is one of the reasons why we're significantly above inflation in the technology line. Look, I think technology costs as an overall proportion of our cost base have been on an upward trend for a number of years.

I think that trend is very likely to continue.

Thanks, Alan.

Thank you. The next question comes from Richard.

Good morning. It's Richard Wiles, Morgan Stanley.

I've got a couple of questions. Firstly, Matt, slide 74 shows that the four-week rolling average for mortgage applications, sort of stabilizing, as you've called out.

What's interesting in that chart is the trends at the start of the year were pretty similar to last year, even though rates were rising this year. The divergence has actually occurred since May.

Can I ask you, do you think it's the budget rather than the rates that have caused this fundamental shift in the demand for mortgages? Can you highlight any sort of reasons why investors in established properties will come back into the market over the course of FY 2027, unless we see some very significant house price falls?

No, thanks, Richard. Look, clearly there's a number of factors contributing.

I think applications actually peaked in October. Obviously, house prices peaked in March, and have reduced in the four months since then.

I think you can generally see applications that are falling obviously from October 2025, and over time increasingly both from affordability constraints, clearly inflation expectations and the first rate hike in Feb, and then two more subsequents, the last being on the, I think it's the 5th of May, to 4.35%. Then you overlay that with economic uncertainty on a global basis, an oil shock, and, yes, taxation changes.

I think we're also coming off a very high prior year. Because I think if we look at Q3, sequentially, it's weak, but actually versus the prior corresponding period, it's actually sort of significantly above that.

I think '26 was financial year, and particularly the first half was a very strong year in terms of credit growth. I think it sort of exceeded our expectations, and particularly obviously in the context of investor lending.

That overall mix, clearly we're not going to see credit growth like that in '27. I think now we've seen some stabilization, as we've called out this morning.

Clearly there's likely to be some volatility. Like many markets, it can be quite sentiment driven.

Seasonally, we tend to see a bit more of a pick up. I guess part of our base case would be, if you believe that rates are on hold for the rest of this year, which obviously opinions vary, and a couple of cuts into '27, we'd expect some demand to be going into the market in expectation of rate cuts.

We've tried to provide useful sort of time series. We can see obviously we've split out in terms of owner occupier and investor.

We can see a reduction in terms of refis as well as subsequent purchases. I think it's just one of those things where we're going to continue to keep an eye on.

As I said earlier, I guess our base case is probably a couple of percentage points lower credit growth in '27. Ballpark, that's to about $50 million NII for every percentage point, a little bit of the offset, as I said earlier, was a lower growth in offsets.

We're seeing that. We saw that dip, retail offsets, for the first time as we sort of cast that forward.

We think that's a lower, and obviously the repayment profile has started to slow down, so that probably just helps a little bit both of those factors to get closer to the 5% than the 4%.

Okay. Thank you.

My second question relates to sort of mortgage pricing, spreads and profitability. A few years ago, you pulled back from the mortgage market quite noticeably because you thought pricing was irrational.

You had a quarter where your home loan balances actually fell. How far are mortgage margins above that level today, or alternatively, how far would you need to see mortgage rates fall from current levels before you got back to that type of situation again where you thought that returns just didn't justify growth?

Look, clearly we're not at that stage from our perspective. As I said, I sort of touched on the ROE and origination over the course of the year and relative to December.

Now, there's a lot of granularity within that, as I said, in terms of borrower characteristics and channel. We're still seeing the vast majority across the industry above hurdle rates, but well, that's not signaling that we're hoping margins have got further to fall.

I think for a variety of factors, we will continue to compete effectively. We're certainly not going to be preferencing volume over margin.

As you mentioned, Richard, that period, we could see a rapid acceleration in discounting. I think on the back of a rapid expansion on net interest margins from liabilities or deposits during the cash rate hikes.

We were probably surprised that there wasn't much of a reaction to a reduction in volume. Look, I think, as I said earlier to John, we're acutely conscious of both being able to support customers and to be able to focus on risk-adjusted returns, and margins are an incredibly important aspect to that, and we're going to need to operate deftly in the year ahead.

Okay. Thanks, Matt.

Thank you. Our next question comes from Matt Wilson.

Good morning, team. Matt Wilson at Jarden.

Just looking at your rate of software capitalization, it's running at two times the rate of peers. Look, over the last couple of years, you've capitalized $1.6 billion of costs.

Peers are actually down $100 million. Your cap rate's 52%, your peer average is 25%.

I know you'll tell me that you're investing in IT ahead of your customers, but IT has a shorter and shorter life, and the reality is your peers are also investing in technology. Can you walk us through the differences in policy?

I don't think there's any differences particularly in policy, Matt. I think there's been a difference in investment appetite and capacity to invest.

I think on the top line performance and as well as the incremental productivity savings have enabled us to continue with the investment appetite that we've had. We keep a close eye on capitalized software, the gap between the annual amortization charge and the amount that we're capitalizing.

You've obviously seen over each of the last three years, I think we're something like $130 million of additional annual amortization that's come through as we continue to sort of deploy some of that technology. The point of amortization is that you're recognizing the expense at the same time that you're realizing the benefits.

That's why, from a pre-provision profitability perspective, we've delivered strong financial outcomes as the combination of those two things. We're investing, we're comfortable with the net present value that we're generating from those investments.

We understand that the cash spend is the drag on Common Equity Tier 1, and that's the drag on organic capital generation. It's the gross cash spend that we focus on.

Are we getting bang for buck on that spend? We're comfortable that we are.

As I mentioned in the talk track, we're adjusting our appetite dependent on the productivity that we're generating within our own teams as well as the broader operating conditions. That's one of the reasons why, despite we're going to see obviously inflationary impacts on wages and vendor IT cost inflation over the course of the next 12 months, we're going to hold that annual cash spend at the $2.4 billion level.

That means a real terms drop in the amount that we're investing, but we're comfortable we can actually get even more done in 2027 than we got done in 2026. We're pleased with that.

We're pleased with the work that we're getting done, the processes that we're building, and we're keeping a close eye on managing the amortization headwind that we'll see over the next two or three years.

Thanks for that. That's good clarity.

Secondly, you actually touched on this slightly in response to your answer to Jon Mott on the sort of prop versus broker channel dynamics. Could you provide an update and some clarity on the issues of money laundering that appear to be affecting the home loan market?

Is there something simmering away there? It's obviously been in the press over the last 6 months.

You haven't made a comment, yet you're the largest operator in the home loan market in Australia.

No, happy to, Matt. Look, I think, as you said, it's been covered in the press, and we don't provide a running commentary, but I think it's well-established that we, as you would expect, are monitoring the market very, very closely, and potential cases of fraud have been a factor for as long as financial institutions have been around.

We saw some particular typologies that would in our mind fall into potential loan irregularities. We reported those to the relevant parties and stakeholders.

We, along with many financial institutions, have been working with AUSTRAC and the Fintel Alliance, which I think's been extremely useful. I think it's a great asset for the nation to be able to pull together data from so many different sources to seek to understand that.

Specifically to your question, based on our investigations today, haven't identified evidence of professional money laundering or links to organized crime. As you would expect, at any point in time, we're looking at all sorts of different changes in the risk environment.

Some of those through lending, and obviously the Tranche 2 changes to the law, which bring in scope assets like home lending and real estate agents, I think help to even provide a fuller picture. It continues to be an area of focus for us, narrowly in the areas that we've covered, but also more broadly.

I'd say the risk landscape, obviously in areas like cyber, but not limited to that, in economic crime, scams, fraud, financial crime, I think significant changes over the last 12 months, and I think the reality is that is likely to continue, both domestically and internationally. I think the environment which we're all operating in is more complex and more demanding, and that's one of the factors.

Yeah. Thanks for that, team.

Thank you. The next question comes from Brian.

Hi, and congratulations to everyone on a high quality result. That said, and I just want to go back to Matt Wilson's question, slightly different interpretation of the capitalized software.

If we have a look on page 17 of the results, we can see that just in the second half you start off with $2.84 billion, you spent 634, amortized away 433. If we annualize that $433 million second half charge, it suggests that you're amortizing this software over about a 3.5-year life, which actually seems really, really short.

I appreciate the fact that everything is accelerating quite quickly, but if we have a look at some of the IT developments you're doing, potentially they've got a much longer life, I would have thought, than 3.5 years. Could you just give us an explanation of what's driving that relatively short amortization life versus the narrative, which is that we're continuing to invest right to create long-term competitive advantage?

There's quite a spectrum of useful lives within the capitalized software, you can imagine. We've talked about the multi-year tech modernization program that we're running, which is building a lot of the refresh in the entire technology estate.

We've moved our main Omnia data platform onto the cloud, for example, during the course of the past 6 months. Our core banking systems have been migrated onto that sort of next generation platform.

When you make those sorts of infrastructure changes, they tend to have a longer useful life. You can go well north of 5 years.

In fact, the core banking system, when we first built it, the amortization period was 10 years. We've got a similar program going on in the ASB in New Zealand at the moment, where there's basically a core banking modernization as well as a number of other technology modernizations.

They're in that infrastructure category, they've got useful lives 5 years plus. Then on the other side of the coin, to the extent that you're improving your digital applications, your digital distribution channels, I think we've seen the pace of change there continue to increase.

We've shortened the useful lives, if you look at some of those types of investments. The weighted average comes back to I think what's a relatively conservative useful life across the broader portfolio, given the mix of investments that we have.

To Matt's point, it's an area we focus on. We obviously take the capital deduction the minute we spend the money.

In some ways, it doesn't matter from an accounting point of view what the amortization looks like. What matters is, what's the capital that you're generating on each of the investments that you're making, and are you getting value for money?

That's very much our focus.

That cloud infrastructure stuff is going through the capitalized software line?

The migration to cloud itself, we expense, but to the extent that you're rebuilding technology platforms, a new cloud-based platform, which we have done for a lot of the AI foundations that we've built, for example, then they are treated as infrastructure. Infrastructure is about, I think, half a billion dollars of gross spend in this period, and that attracts a longer useful life than the weighted average.

Alan, the second question is kind of an obscure one. You've got a fantastic slide that talks about the interest rate risk in the banking book.

What we can see is that it seems to me the embedded gain is probably more driven by three-year bond rates. We can see three-year bond rates going up over the period, but the embedded loss move was probably slightly positive from memory?

Yeah.

Just going back on that, I'd like to understand why. Also, above that, the high quality liquid assets that all of the banks own probably will be much more state government debt than basically federal government debt.

While I appreciate that it doesn't necessarily flow through the P&L, it does flow into the reserves. Could you talk to us about the practical impact, because it's been speculated this week, of what would happen if we saw a rating downgrade on New South Wales and Victorian state debt, earnings and capital?

Yep. The overall trend on IRRBB is very sensitive, as you say, to three-year swap rates.

We've seen those swap rates increase 30 basis points in the last 6 months. They peaked probably around March time, and have come in a little bit from March.

You'd have seen in our quarterly Pillar 3 report that the interest rate risk in the banking book's down $2 billion or $3 billion over the June quarter. The swap rate moves have been the key sensitivity there.

To the point on semi-government holdings, look, it's a large proportion, and I think all the major banks in Australia have got their fair share of semi-government bond holdings. We continue to support that bond issuance.

The credit spreads on all state governments has actually improved over both the 12-month period and the 6-month period, and you've seen that come through as a sort of positive mark-to-market on our investment securities revaluation reserve, which has been a sort of tailwind to capital over the last 6 and 12 months. To the extent that you'd first of all see market weakening to the extent there was any issues around state government finances manifesting.

You'd see that in a widening credit spread. That would translate through our mark-to-market on those assets, and you'd also see an impact on IRRBB through the credit spread risk element.

That's one of the things we take into account. We stress test our capital very regularly.

One of the key elements of that and the key areas of volatility that we monitor is IRRBB. We've seen volatility in that, which has been rate driven, but there can also be credit spread driven volatility there as well.

We continue to monitor that, stress test it, and then make sure that our weightings to the various asset classes on the HQLA stack are commensurate with the volatility that we've got risk appetite for within our capital stack.

It's capital, not earnings, and we'll wait and see. You guys are confident that you've got it covered.

This is despite the fact you think residential stamp duty, which drives most state government revenue line, is certainly set to decline. Is that a summary of it, Alan?

We take a number of stresses on credit spreads across the state government exposures that we hold. We're comfortable with the level of exposure that we have, and we can manage the volatility within either rate moves or credit moves.

Thank you very much.

Thank you.

Thank you. The next question comes from Brendan.

Good morning. Brendan Sproules from Goldman Sachs.

Alan, just had a question around your dividend slide, slide 33, where you show us that in the last 5 years you've had significant levels of capital return, obviously a high payout ratio, you've utilized the DRP. I guess when I look across this slide, I see the dividend payout peaked, obviously you said the buyback won't be extended, and we actually saw the core Tier 1 ratio fall, I think, around 30 basis points this half.

Just given the very strong credit growth, are we moving back over the next 5 years in your mind to that funding growth that we saw sort of pre-COVID where you will be using DRPs and other measures to try and to fund the growth of the balance sheet?

Thanks, Brendan. We look at different scenarios.

Certainly, one scenario would be that you continue to see a very strong level of overall credit growth across the economy. In the event that you see that strong level of credit growth and we're getting our share of that credit growth, then you'd see capital consumption from growth in credit risk-weighted assets.

Then we're managing the capital actions accordingly. One capital action you can take if you thought that was going to unfold is the dividend payout ratio, and where it sits within the broader payout policy range.

You can see we've paid at 77%. We've signaled that we're approaching the middle of that range.

DRP, whether you activate or continue to neutralize, is obviously another capital management lever. It's not a lever we've had to pull over recent years.

We've had very strong capital surpluses. It's a tool that remains available to us.

Now, there are other scenarios that you could see unfold. We've spent a bit of time on this call talking about a slow down on housing credit growth relative to the very strong levels we've seen.

Housing credit drove about a third of our volume-related credit risk-weighted asset accretion during the course of the last 12 months. That element of credit risk-weighted asset capital consumption is likely to slow over the next financial year relative to certainly the last financial year where it's been incredibly strong.

We're not signaling whether we will or we won't. That's a decision that the board will make on each reporting period depending on what we see and what we're forecasting.

All those levers are available to us, remain available to us in the years ahead, and it's a capital management tool that we've certainly used in the past.

Thank you. My second question just relates to the performance of the New Zealand division, and I'm particularly looking at page 76 of the profit release today.

Seems to be quite a turn in the momentum of operating income growth in local currency terms. Obviously you have still a bit of a hawkish central bank over there.

Just wondering what has, I guess, changed in the operating environment in that market that has seen quite a turn from, I guess, the first half performance versus the second?

That's a fair question, Brendan, cuz I think it is very much been a tale of two halves in the ASB from a top-line perspective. The big change that we've seen there was actually the increase in swap rates that you've seen in the New Zealand markets.

Swap rates there were up around 50 basis points from December through to June. Obviously, it's a very heavily fixed rate home loan market, and the combination of that increase in fixed rates and I think some real intense competitive pricing pressure amongst the banks in New Zealand, seen a compression of fixed rate home loan margins in the second half.

That's been the number one reason for that performance. Now, over the year, we grew in line with system in New Zealand over that period in the second half.

Particularly the June quarter, we grew about 0.5 times system. What you're seeing in the operating income line's a combination of weaker margins, and also weaker volumes through that period.

That was the main driver. There's a lot of focus on that from a management perspective within ASB.

We feel that we've got the volume and the pricing across both sides of the balance sheet into a reasonable shape as we head into the new financial year. Clearly a tale of two halves in terms of the operating performance in ASB this year.

Thanks, Alan. That's terrific.

Thank you. Our next question comes from John Storey.

John? Perhaps we'll come back to John.

Our next question comes from Matt Dunger.

Thanks, Mel. Thanks, all.

If I could ask about the other operating income and the commissions, which haven't had a lot of airplay. You called out, Alan, it was predominantly due to FX that the commissions were 5% lower in the half.

You're a clear leader on FX. Is there anything you're seeing here around lower activity in the FX space where household spending, you're suggesting there's been resilient?

Are you facing mounting competition here? Has there been market share loss, or just wondering if you could unpack that?

No, it's not been market share loss. I think one of the areas of consumer spending that's clearly had some impact from a discretionary spending perspective since the rate hiking cycle has been on travel-related spend.

We've seen that come through in terms of our retail foreign exchange volumes. That's one of the drivers there.

You'll recall we called out a one-off receipt on the sale of our general insurance business in the prior half. That's unwound.

Obviously, there's been non-recurrence of that sequentially, so that's probably as big a factor in terms of the sequential performance on commissions. No, not so much a market share shift, more just a change in consumer behavior.

We'll see in terms of overall consumer spending behavior and the level of rates in the economy over the next 6 and 12 months. We'd certainly expect that to continue to be a relatively softer part of consumer spending as we head into the remainder of calendar 2026, and then we'll see how the overall spending picks up in 2027.

Thank you. If I could just follow up on the gross benefits from AI you've talked about on slide 68.

You've said $200 million in '26 to double in 2027, and does this imply that you're going to get net benefits in 2027? Sort of implies what you've said that that you were not break even in 2026 on the spend versus the benefits.

Following from Andrew Triggs' question, Alan, why did you say that you held back realizing some of those gross productivity savings?

We we So, an answer to the first question, yes, we expect the gross benefits to exceed the level of investment in the next financial year. At the moment, we're still in I'd describe it as the investment phase, we're investing a little more than the benefits that we're realizing.

Through '25 and '26, we see that the inflection occurring during the next financial year and gross benefits exceeding the level of investment. The second part of your question, it really goes to what's your appetite to harvest the gains that you can, from getting more velocity in code deployment, which we've seen really impressive gains within our technology team around the quality of the code, the amount of code that we can deploy into production, the the time that that takes has continued to shorten.

I guess with a given amount of resourcing, you can get more done within a a six or a 12-month period. We've decided, frankly, to get more done.

While we can measure those productivity gains, we've chosen to continue to reinvest them through the course of '25 and '26, and we're pleased with the output that we're seeing.

Thank you.

Thank you. Our next question comes from Ed.

Hi, thanks for taking my questions. Ed Henning from CLSA.

Just one on costs. You talk about managing your cost envelope going forward, and also you're talking about investing for the long term.

Can you just talk about what do you think is discretionary within your cost base? Are you just talking about your investment spend and pulling back there, or is it things like marketing?

What is the actual discretionary spend that you can pull back on if you do need to?

There's a number of elements to discretionary spend. I think, obviously something like inflation is not discretionary.

There's also a number of commitments that we make from a regulatory perspective. When new rules and regulations come in, we have to invest behind that, there's even elements of the investment spend that you'd say are mandatory, not discretionary.

Within that, there's still obviously a lot of discretion in terms of to the earlier conversation around what level of productivity do you continue to reinvest in the franchise. The point that we were making through the course of the presentation was, you need to create capacity to make the investment.

The sort of order of operations as we think about it is, how's the operating environment, how's our revenue momentum, and are we creating the capacity through the generation of the productivity? Because once you've got those pieces in place, then that gives you the flexibility to make an investment decision around the discretionary spend.

What's important is to have that optionality, because if you don't have the optionality, then it's very difficult to create the capacity to make the spending decisions or make the investments that you think are going to be in the long-term health of the franchise. We continue to look at that as many aspects of our spending which is discretionary.

We are comfortable with that spending, but we're prepared to be flexible and adapt as operating conditions change.

Great. Just a second one, a little bit more on capital.

You've touched on a few things. Is there any other mechanical benefits or headwinds coming through from regulation changes that will see a change in your capital in the next half or year?

No, the main thing that APRA have flagged to the market is their work on the changes to the standardized floor around specific asset classes. Infrastructure lending is one element to that.

Because we're not bound by the standardized floor, practically the only implication for CBA is it will probably, to the extent that there's any relief provided on standardized risk weights, increase the headroom that we have to the standardized floor. You're well aware of the RBNZ's finalization of their capital requirements, which were a moderation of the previous requirements in terms of the transition period over the next few years.

I think at the margin, you'll have a slightly less capital-intense New Zealand operation and some changes to the standardized floor. Nothing noteworthy, I think, in terms of the overall direction of the capital requirements in Australia.

Thanks.

Thank you. Our next question comes from Tom Strong.

Great, thanks Mel. Tom Strong from Citi.

Just wanted to follow up on Matt's question around the productivity in the gross benefits. I guess in the '26 results, you saw productivity constant at $400 million a year versus FY 2025.

Should we expect that bucket to increase, Alan, as you talk to this inflection point in the gross benefits from AI in '27?

I think what I'd say is, within the productivity that we've generated, we'd hope that we can deliver more of that through some of the new investments that we're making. Within the $400 million, maybe around 10% of that has been related to some of the AI investments that we've made over the past couple of years.

I won't guide to the overall level of productivity benefits. We obviously start the year with good aspiration and budgeting and accountability around what we want to deliver, similar to our approach on other lines.

I'm not going to give specific guidance on different lines within the P&L, but we always start the year with an aspiration to do more. That's one of the reasons why we make the investments that we make.

We'd look to achieve more proportionately of those productivity savings through some of the investments that we've made in recent years.

Thanks, Alan. Just a second question on the institutional bank.

You continue to see very strong lending growth, but nine bips of NIM contraction in the half. Is this a mix thing, or are you seeing competition accelerate in that segment?

I don't think I would describe competition as accelerating. I think competition's always intense in institutional banking.

Really it's a function of the change in the new originations in terms of the mix. If you look at the proportion of our corporate portfolio that's rated investment grade, that's increased nearly a full percentage point over the course of the last 12 months, you can see there's been a skew in our origination towards some of those higher investment grade lower risk-weight customers, so that obviously has a commensurately lower margin within the mix attached to it.

We focus in the institutional bank, as we have for many years, on the risk-adjusted return. We've disclosed the revenues, the proportion of risk-weighted assets.

That's improved over the 12 months. That's up 3%.

We're pleased to see that. That continues to be a strong focus for us.

I think it's always been competitive in that part of the market. We focus very much on total relationship return.

We've seen strong growth in both lending, but also very strong growth in operational deposits. The operational deposit growth in institutional banking this year was 13%.

Very pleased with the nature and breadth of the growth that we've seen there, and the strong improvement in risk-adjusted returns.

Thanks very much.

Thank you. We're going to go back to John Storey for our final question.

Hey, thanks so much, Mel. John Storey from UBS.

Matt, Alan, thanks so much for giving me the chance to ask a question. I just wanted to kind of follow up a little bit, I guess, on what Tom was asking about, and it looks like insta and business lending very, very strong, but doesn't necessarily look like, particularly in the second half of the year, that it's translated into earnings growth, right?

There's definitely been a theme from the call that there's an expectation that retail potentially could weaken as we head into '27. I'd be interested to get your views on how you think these parts of your portfolio could offset some of the expected weakness that you might see in retail, just given the trends that are outlined in insta and business?

Maybe a couple of things just to touch on, to add to Alan's answer around IB. Look, our focus there remains on sort of risk-adjusted returns.

We saw a number of transactions that were originated really in the last four months of the year. Some of those are sort of undrawn limits.

We tend to see the risk-weighted asset growth. We don't necessarily see the revenue from a timing perspective.

I think we certainly will continue to focus from a return perspective there. To Alan's point, IB has always been competitive.

There's not usually much of a surplus between sort of cost of capital. There were some good margins as well in areas like funds finance, particularly when the US market was dislocated around Signature Bank.

Some of those are basically refinanced at, I guess, more normal levels of margin. I think, look, it's fair to say that right across the board, managing the individual businesses from a profit after capital charge is really important, and that focus has been in place for a long time within the institutional bank.

I think within business, we've seen strong growth. We've gotten a real boost to profitability from the very strong deposit franchise that Mike and the team have built up.

We're getting a bit of a mix effect there because, some of the investments in technology, we've been able to grow faster at the smaller end. Some of the smaller business lending, we continue to see some real service and underwriting enhancements, as well as productivity benefits for our bankers.

Then, look, retail, clearly home lending's going to be competitive. We've grown the consumer finance business over the course of the year.

I think across those three, and Alan already touched on New Zealand, they tend to be pretty volatile. A lot of the market there's obviously priced off fixed rate.

Big movements in swaps, you can see some very significant reductions in the margins that are available. Some of the New Zealand banks are happy to sort of originate at very low levels of margin, because they turn over probably typically every 18 months, they get an opportunity to reprice them.

We haven't done as much of that as peers, but, I guess across all of the businesses, we feel like there's opportunities to both strengthen the relationship we have with clients, as well as manage the profitability hopefully to a very high level of discipline.

That's great.

Thanks, Matt. Thanks, Alan.

Thank you. That brings us to the end of the briefing.

Thank you for joining us, and please reach out for the team with any follow-up questions.