EX-99.1

Special Note Regarding Forward-Looking Statements

Certain statements under the caption “Highlights” — Outlook” and elsewhere in this profit announcement constitute “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking statements, including economic forecasts and assumptions and business and financial projections, involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Commonwealth Bank of Australia (the “Bank”) and its consolidated subsidiaries (the “Group”) to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include demographic changes, changes in competitive conditions in Australia, New Zealand, Asia, the United States or United- Kingdom, changes in the regulatory structure of the banking and life insurance industries in Australia, New Zealand or Asia, changes in political, social, credit and economic conditions in Australia or New Zealand, legislative proposals for reform of the banking and life insurance industries in Australia, and various other factors beyond the Group’s control. Given these risks, uncertainties and other factors, potential investors are cautioned not to place undue reliance on such forward-looking statements.

Details on significant risk factors applicable to the Group are detailed on pages 30-32 of the Annual Report on Form 20-F (the “2005 Annual Report“) of the Bank for its fiscal year ended 30 June 2005.

Financial Information Definitions

In this Profit Announcement, references to “AGAAP” are to Australian generally accepted accounting principals in effect prior to the adoption of Australian equivalents to International Financial Reporting Standards (“AIFRS”) by the Bank from 1 July 2005, and references to “Australian GAAP” are to Australian generally accepted accounting principals in effect for the relevant period.

In addition to discussing the AIFRS financial information in this profit announcement, certain “non-GAAP financial measures” (as defined in Regulation G adopted by the US Securities and Exchange Commission (the “SEC”)) of the financial performance and results of the Group are included. These non-GAAP financial measures are not calculated in accordance with either AIFRS or US GAAP and are described below. This profit announcement contains certain reconciliations of these non-GAAP financial measures to our financial results prepared in accordance with AIFRS.

In this profit announcement, the Bank presents its profit from ordinary activities after tax on a “statutory basis”, which is calculated in accordance with AIFRS, and on a “cash basis”. “Cash basis” is defined by management as net profit after tax and outside equity interests, before superannuation plan expense and treasury share adjustment. Net profit after tax (“Cash basis”) represents profit derived from business operating income and operating expenses after tax. The only items excluded from the net profit after tax are the non-cash items of defined superannuation plan expense and treasury shares valuation adjustment. Management believes “cash basis” is a meaningful measure of the Group’s operating performance as it excludes certain non-cash expenses and provides the basis for the determination of the Bank’s dividends.

The Bank also presents certain performance ratios on a statutory basis as well as on a cash basis. These ratios are calculated using net profit after tax (“statutory basis”) and net profit after tax (“cash basis”), respectively. These ratios are:

Earnings per share;

Dividend payout ratio;

Dividend cover; and

Return on average shareholders’ equity.

Since these ratios are calculated using net profit after tax and since the Bank presents net profit after tax on both a statutory basis and a cash basis for the reasons described above, management believes that it is meaningful also to present these ratios on each of these bases. These ratios on a statutory basis are affected by the impact of changes in goodwill amortisation and the appraisal value of our funds management and life insurance businesses, while on a cash basis the effect of these items is excluded from the ratios. For a further explanation of these measures and ratios, refer to Appendix 18 — Definitions and to Appendix 16 — Analysis Template.

The Bank also presents an Adjusted Common Equity ratio (the “ACE ratio”). The ACE ratio is a measure of risk weighted capital and is calculated in accordance with Standard & Poor’s methodology. The ACE ratio has been provided in response to an increased focus by equity analysts on this measure.

Critical Accounting Policies and Estimates

Certain of the Group’s accounting policies are considered to be more important in the determination of the Group’s financial position, since they require management to make difficult, complex or subjective judgements, some of which may relate to matters that are inherently uncertain. These decisions are reviewed by the Board Audit Committee. These policies include judgements as to levels of provisions for impairment for loan balances and actuarial assumptions in determining life insurance policy liabilities. Accounting policies where estimates and/or assumptions are made by management are set out on pages 29-30. An explanation of all of the Group’s accounting policies is set out in Note 1 Accounting Polices to the financial statements.

3 Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation)

Financial Information Presentation

The financial statements as at and for the six months ended 31 December 2005 and 2004 included in this Profit Announcement have been prepared in accordance with AIFRS, which the Bank was required to adopt for the first time on 1 July 2005. The Bank’s consolidated financial statements at 30 June 2004 and 30 June 2005 and for each of its three fiscal years in the period ended 30 June 2005 included in the Bank’s 2005 Annual Report have been prepared under Australian GAAP in existence prior to the adoption of AIFRS (''previous Australian GAAP’’).

This Profit Announcement includes and refers to financial statements and other financial information based on both AIFRS and previous Australian GAAP. There are significant differences between AIFRS and previous Australian GAAP. See Note 1 to the financial statements as at and for the six months ended 31 December 2005 and 2004 included in this Profit Announcement and Appendix 15 hereto for a summary of the major AIFRS impacts on the Bank’s financial statements as compared with previous Australian GAAP. The information based on previous Australian GAAP is not comparable to information prepared in accordance with AIFRS.

In addition, the Bank expects that the standards, interpretations and policies adopted by us under AIFRS will vary in certain significant respects from generally accepted accounting principles in the United States (''U.S. GAAP’’). The Bank has not, however, completed a detailed analysis of the differences between AIFRS and U.S. GAAP that it expects will be applicable to the Bank’s consolidated financial statements. Therefore, until the Bank has prepared its first reconciliation of the AIFRS consolidated financial statements to U.S. GAAP, the Bank cannot predict the qualitative or quantitative effect of such differences and cannot exclude the possibility of significant differences. Based on its preliminary analysis, the Bank expects that some of the principal adjustments to the Bank’s consolidated profit after tax under U.S. GAAP will include (i) the marked-to-market of derivative instruments under SFAS 133, whereas under AIFRS all hedging derivatives are recognized at fair value and (ii) various life insurance and funds management adjustments, such as (a) the re-measurement of deferred acquisition costs under U.S. GAAP, (b) recognition as an identifiable intangible asset under U.S. GAAP of the value of businesses acquired, (c) the re-measurement of life insurance policyholder liabilities under U.S. GAAP relative to AIFRS, and (d) the re-measurement of property held within life insurance statutory funds from fair value under AIFRS to depreciated cost under U.S. GAAP. Other less significant adjustments to the Bank’s consolidated profit after tax under U.S. GAAP may include, among other things, (i) the reclassification of certain of our hybrid instruments from debt under AIFRS to equity under U.S. GAAP and (ii) the reversal of non-derivative financial instrument fair valuations under AIFRS since this option does not exist under U.S. GAAP. Although the Bank believes that these adjustments, if they occur, would be less significant than the other adjustments detailed in this paragraph, there can be no assurance that any adjustment would not be material.

Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation) 4

Highlights

Financial Performance and Business Review

Performance Highlights


	Half year ended
		31/12/05		30/06/05	31/12/04
Contributions to Profit		$M		$M	$M

NPAT (“statutory basis”)		1,999		1,688	1,712
Add back AIFRS non cash items		62		71	21

NPAT (“cash basis”) ⁽¹⁾		2,061		1,759	1,733
Less profit on sale of the Hong Kong business		(145	)	—	—

NPAT (cash basis ex HK sale)		1,916		1,759	1,733


(1)		Refer Appendix 18 Definitions.

The Bank’s net profit after tax (“statutory basis”) for the half year ended 31 December 2005 was $1,999 million, an increase of 18% on the prior half and 17% on the prior comparative period. Another record interim dividend of 94 cents has been declared.

The Bank has achieved another strong result with continued growth and good momentum. Highlights of the half year include:

•		Strong growth in banking income, following profitable growth across all banking products and a stable net interest margin;

•		Positive growth in retail deposits with stable market share;

•		Growth in Funds under Administration of 11% on the prior half and 17% on the prior comparative period to $137 billion supported by both strong inflows and continued strength in investment markets. First Choice has captured in excess of 24% of market net flows and greater than $20 billion funds under administration;

•		Further growth in insurance premiums and revenues together with favourable claims experience on general insurance;

•		The Bank has continued to meet or exceed it’s Which new Bank market commitments and has completed 84% of its critical project milestones. CommSee, the new customer management platform, was implemented four months ahead of schedule;

•		Sound expense management with continued productivity improvements; and

•		Further strengthening in the credit quality across the portfolio, and continuing moderate levels of bad debts.

The Bank’s results include the full impact of the adoption of Australian equivalents to International Financial Reporting Standards (“AIFRS”) from 1 July 2005. Comparative figures have also been adjusted to an AIFRS basis, other than for the impact of those standards related to financial instruments and insurance. The introduction of the new standards has not had a material impact on net profit. Changes to the Bank’s accounting policies and explanations of the key changes are covered in Note 1 to the Financial Statements on pages 38-65, as well as Appendix 15.

The Bank’s net profit after tax (“statutory basis”) for the half year was $1,999 million. The statutory result includes the impact of two non-cash items:

•

Defined benefit superannuation plan expense which relates to the recognition of surplus superannuation fund assets ($19 million); and

•

“Treasury shares” valuation adjustment which is the appreciation of the Bank’s own shares held in the life insurance statutory funds ($43 million).

Net profit after income tax (“cash basis”) increased by 17% to $2,061 million compared with $1,759 million for the prior half and 19% on the prior comparative period. During the half year the insurance business in Hong Kong was sold resulting in a profit on sale of $145 million.

Excluding this from the current period net profit after tax (“cash basis”), the result increased by 9% on the prior half and 11% on the prior comparative period. Earnings per share on the same basis increased by 13% to 149.5 cents compared with both the prior half and prior comparative period.

Net profit after income tax (“cash basis”) includes:

•

Shareholder investment returns of $41 million compared with $66 million for the prior half and $111 million for the prior comparative period; and

•

Nil impact for Which new Bank expenses, compared with $86 million in the prior half.

Dividends

The interim dividend declared for the half year is another record at 94 cents per share, an increase of 9 cents or 11% on the prior comparative period. The dividend has been determined based on NPAT (“cash basis”) excluding the sale of the Hong Kong business. On this basis the dividend payout ratio for the half year is 63.2%. On a statutory basis, the dividend payout profit ratio is 60.6%.

This dividend payment is fully franked and will be paid on 5 April 2006 to owners of ordinary shares at the close of business on 24 February 2006 (“record date”). Shares will be quoted ex-dividend on 20 February 2006.

The Bank issued $262 million of shares to satisfy shareholder participation in the Dividend Reinvestment Plan (“DRP”) in respect of the final dividend for 2004/05. The Bank expects to issue around $221 million of shares in respect of the DRP for the interim dividend for 2005/06.

Outlook

The discussion below includes forward-looking statements. See “Special Note Regarding Forward Looking Statements”.

The Australian economy performed well in the second half of the 2005 calendar year, despite some loss of momentum. Business credit growth has been solid, supported by infrastructure and capacity expansion while consumer credit growth has moderated.

The overall environment for financial services businesses is expected to remain highly competitive and as a result margin pressure will continue to be experienced. Domestic credit quality, high employment levels and business confidence are strong and provide a positive outlook. Offshore, economic growth is likely to remain solid although the impact of oil prices and the rate of growth in China are two factors which are particularly likely to influence the domestic economy.

In February 2005, the Bank increased its expected compound annual growth rate in cash earnings per share for the period 2003 to 2006 from exceeding 10 percent per annum to exceeding 12 percent per annum. Subject to market conditions, the Bank is reconfirming that it remains committed to at least achieving this goal. Seven months into the 2006 fiscal year, the Bank remains confident that the momentum within the business will ensure that the Bank delivers EPS growth which equals or exceeds the average of its peers. As a consequence, the Bank expects dividend per share for the second half of the year to further increase, subject to the factors considered in its dividend policy.

5 Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation)

Highlights continued


	Half Year Ended
	31/12/05			30/06/05		31/12/04		Dec 05 vs			Dec 05 vs
Contributions to Profit (after income tax)	$M			$M		$M		Jun 05 %			Dec 04 %

Net Profit after Income Tax (“statutory basis”)		1,999			1,688		1,712		18			17
Add back AIFRS non cash items ⁽¹⁾		62			71		21		(13	)	large

Net Profit after Income Tax (“cash basis”) ⁽²⁾		2,061			1,759		1,733		17			19
Less profit on sale of the Hong Kong business		(145	)		—		—		—			—

Net Profit after Income Tax (“cash basis excl HK sale”)		1,916			1,759		1,733		9			11


(1)		Includes “Treasury Shares” valuation adjustment $43 million (Dec 04: ($7) million and Jun 05: $46 million) and defined benefit superannuation plan expense $19 million (Dec 04: $28 million and Jun 05: $25 million).

(2)		Refer to Appendix 18 Definitions.


	Half Year Ended
	31/12/05			30/06/05			31/12/04			Dec 05 vs			Dec 05 vs
Contributions to Profit (after income tax)	$M			$M			$M			Jun 05 %			Dec 04 %

Net Profit after Income Tax (“cash basis”) ⁽¹⁾		2,061			1,759			1,733			17			19
Defined Benefit Superannuation Plan Expense		(19	)		(25	)		(28	)		(24	)		(32	)
Treasury Share Mismatch		(43	)		(46	)		7			(7	)	large

Net Profit after Income Tax (“statutory basis”)		1,999			1,688			1,712			18			17

Represented by:
Banking		1,570			1,415			1,366			11			15
Funds Management		145			124			186			17			(22	)
Insurance		284			149			160			91			78


(1)		Refer to Appendix 18 Definitions.


	Half Year Ended
						Dec 05 vs			Dec 05 vs
Shareholder Summary		31/12/05	30/06/05	31/12/04		Jun 05 %			Dec 04 %

Dividend per share — fully franked (cents)		94	112	85		(16	)		11
Dividend cover — statutory (times)		1.7	1.1	1.5		54.5			13.3
Dividend cover — cash (times)		1.7	1.2	1.5		41.7			13.3
Earnings per share (cents)⁽²⁾
Statutory — basic		157.1	128.1	131.4		22.6			19.6
Cash basis — basic ⁽¹⁾		160.9	132.7	132.1		21.3			21.8
Cash basis — basic excluding the sale of Hong Kong ⁽¹⁾		149.5	132.7	132.1		12.7			13.2
Dividend payout ratio (%)
Statutory		60.6	88.6	65.6		large			large
Cash basis ⁽¹⁾		58.8	84.9	64.8		large			large
Weighted average number of shares — statutory basic (M) ^{(1) (2)}		1,273	1,264	1,256		1			1
Weighted average number of shares — cash basic (M) ⁽¹⁾		1,281	1,273	1,265		1			1
Return on equity — cash (%)		21.7	18.8	19.0	290bpts			270bpts


(1)		For definitions refer to appendix 18 page 103.

(2)		Fully diluted EPS and weighted average number of shares (fully diluted) are disclosed on page 100.

Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation) 6

Highlights continued


	Half Year Ended
	31/12/05			30/06/05			31/12/04			Dec 05 vs			Dec 05 vs
Group Performance Summary	$M			$M			$M			Jun 05 %			Dec 04 %

NPAT (“statutory basis”)		1,999			1,688			1,712			18			17
NPAT (“cash basis”) ⁽¹⁾		2,061			1,759			1,733			17			19


Net interest income		3,284			3,068			2,958			7			11
Other banking income		1,416			1,462			1,383			(3	)		2
Funds management income		715			638			609			12			17
Insurance income		386			387			360			—			7

Total Operating Income		5,801			5,555			5,310			4			9
Shareholder investment returns		64			92			145			(30	)		(56	)
Profit on sale of the Hong Kong business		145			—			—			—			—

Total Income		6,010			5,647			5,455			6			10

Operating expenses		2,967			2,878			2,841			(3	)		(4	)
Which new Bank		—			122			28			—			—

Total Operating Expenses		2,967			3,000			2,869			1			(3	)

Bad and doubtful debts expense		188			176			146			(7	)		(29	)

Net profit before income tax		2,855			2,471			2,440			16			17
Corporate tax expense ⁽²⁾		776			707			702			(10	)		(11	)
Minority interests ⁽³⁾		18			5			5		large			large

NPAT (“cash basis”) ⁽¹⁾		2,061			1,759			1,733			17			19
Defined benefit superannuation plan expense		(19	)		(25	)		(28	)		24			32
Treasury shares valuation adjustment		(43	)		(46	)		7			7		large

NPAT (“statutory basis”)		1,999			1,688			1,712			18			17


(1)		Refer to Appendix 18 Definitions.

(2)		For purposes of presentation, Policyholder tax benefit and Policyholder tax expense are shown on a net basis.

(3)		Minority interests for December 2005 includes preference dividends paid to holders of preference shares in ASB Capital.

Half Year Ended

Dec 05 vs

Key Performance Indicators

31/12/05

30/06/05

31/12/04

Jun 05 %

Dec 04 %

Banking

Net interest margin (%)

2.41

2.44

2. 43

(3)bpts

(2)bpts

Average interest earning assets ($M) ⁽¹⁾

267,169

250,357

239,150

Average interest bearing liabilities ($M) ⁽¹⁾

247,129

230,352

220,919

Funds Management

Operating income to average funds under administration (%)

1.10

1.08

1. 09

2bpts

1bpt

Funds under administration — spot ($M)

136,974

123,064

117,440

Insurance

Inforce premiums ($M) ⁽²⁾

1,216

1,265

1,199

)

Capital Adequacy

Tier 1 (%)

7.54

7.46

7. 46

8bpts

Total (%)

9.81

9.75

9. 60

6bpts

21bpts

Adjusted Common Equity (%) ⁽³⁾

5.00

4.91

4. 76

9bpts

24bpts


(1)		Average interest earning assets and average interest bearing liabilities have been adjusted to remove the impact of securitisation. Refer to Average Balance Sheet Page 80.

(2)		Prior periods have been adjusted to reflect the impact of the sale of the Hong Kong Business.

(3)		Refer to Appendix 8 for information on calculation of Adjusted Common Equity.

Credit Ratings

Long-term

Short-term

Affirmed

Fitch Ratings

F1+

Jun 05

Moody’s Investor Services

Aa3

P-1

Jun 05

Standards & Poor’s

AA-

A-1+

Jun 05

The Bank continues to maintain a strong capital position which is reflected in its credit ratings which remained unchanged for the year. Additional information regarding the Bank’s capital is disclosed on pages 85 to 87.

A security rating is not a recommendation to but, sell or hold securities. Such ratings are subject revision or withdrawal at anytime by the assigning rating agency. Investors are cautioned to evaluate each rating independently of any other rating.

7 Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation)

Highlights continued


	Half Year Ended
	31/12/05		30/06/05		31/12/04		Dec 05 vs			Dec 05 vs
Balance Sheet Summary	$M		$M		$M		Jun 05 %			Dec 04 %

Lending assets		254,947		235,862		224,220		8			14

Total assets		351,193		337,404		325,359		4			8
Total liabilities		331,343		314,761		303,258		5			9

Shareholders’ equity		19,850		22,643		22,101		n/a			n/a


Assets held and FUA
On balance sheet Banking assets		321,477		304,620		292,293		6			10
Insurance funds under administration		21,217		22,959		23,221		(8	)		(9	)
Other insurance and internal funds management assets		8,499		9,825		9,845		(13	)		(14	)

		351,193		337,404		325,359		4			8


Off balance sheet Funds under administration		115,757		100,105		94,219		16			23

		466,950		437,509		419,578		7			11


(1)		Lending assets comprise Loans, Advances, and Other Receivables (gross of provisions for impairment and excluding securitisation) and bank acceptances of customers.

Half Year Ended

Dec 05 vs

Productivity and Efficiency

31/12/05

30/06/05

31/12/04

Jun 05 %

Dec 04 %

Banking

Expense to income (%) ⁽¹⁾

47.2

50.7

50.5

350bpts

330bpts

Expense to income (%) ⁽²⁾

48.1

50.7

50.5

260bpts

240bpts

Funds Management

Operating expense to average FUA (%) ⁽¹⁾

0.73

0.71

0.73

2bpts

—

Operating expense to average FUA (%) ⁽²⁾

0.70

0.71

0.73

1bpt

3bpts

Insurance

Expense to average inforce premiums (%)

40.5

46.6

44.9

610bpts

440bpts


(1)		On an AGAAP equivalent cash basis, as that was the accounting standard on which the targets were based. Refer to Appendix 14 for additional information.

(2)		On an AIFRS basis.

Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation) 8

Which new Bank Summary

Which new Bank

Background

In September 2003, the Bank launched its Which new Bank customer service vision “To excel in customer service”. The service transformation consists of three themes; customer service through engaged people supported by simple processes. The Bank estimated a spend of $1,480 million over the three years of the program to achieve this transformation.

Which new Bank has been a very successful undertaking by the Bank which has consistently exceeded its financial targets. Further improvements, especially in customer service and engaged people, are required as the Bank continues to strive to “excel in customer service”.

Progress in half year to December 2005

Progress within the major initiatives includes:

•		“CommLeader”, the Bank’s leadership program which provides a common understanding of leadership and the desired behaviours that underpin the Bank’s cultural change, has been completed by over 450 senior leaders;

•		“Service and Sales Training”, which will equip frontline people to provide higher quality service has been completed by over 30,000 staff;

•		“CommWay”, the Bank’s approach to process improvement, continues to deliver improvements in customer service and efficiency through reduced turnaround times for customers;

•		“CommSee”, the new customer management platform, is now providing all customer service staff with a single view of the customer. Training focused on integrating CommSee and Service and Sales behaviours and processes, is being delivered to frontline staff;

•		The CommSee Imaging project is saving customers time by providing staff online access to over 22 million customer documents;

•		The personal loan end-to-end process redesign provides customers with on-the-spot decisions for more applications, an expanded product offering, and access to funds and loan information via ATM, EFTPOS and NetBank;

•		Home loan end-to-end process redesign, provides customers with the option of paying interest in advance and allowing on-the-spot decisions for more applications, including customers of third party mortgage brokers;

•		A further 49 branches have been refurbished in the six months to December 2005. This brings the total number of branches modernised since 2003 to 301 which represents approximately one third of the Bank’s total branches; and

•		Implementation of a new advice platform and Centre for Adviser Development will assist financial advisers to provide more consistent higher quality advice to customers.

Key metrics

Customer service

Referrals for the December 2005 quarter are 10% higher than for the December 2004 quarter with the quality of referrals also improving.

The Internal Service Quality Index, which tracks a number of service indicators, has improved by 10% since the start of the Which new Bank program; however, customer service is yet to improve sufficiently to result in improved satisfaction ratings.

Engaged People

The annual Gallup Survey showed the Bank increasing its percentile rating from 74th in May 2003 to 77th in May 2005.

The latest internal customer service survey, which surveys the Bank’s people on the quality of service they provide each other, has risen for a fourth successive quarter. The latest results show that 89% of internal customers agree that they receive excellent service.

The culture survey indicates an improving trend towards the Bank’s desired culture. This includes staff having a clearer understanding of the Bank’s vision and how they can be engaged and contribute towards achieving this vision.

Simple processes

CommWay which is based upon Six Sigma Principles, has completed 81 projects averaging a 49% reduction in process turnaround times for customers, as well as average efficiency gains of 35%. Projects were undertaken across all major operations and support areas. In addition, the program is building competencies across the Bank, with 800 people skilled in applying the tools and methodologies as part of their everyday roles.

Customers are being provided with quicker credit decisions for home loans and personal loans. The proportion of conditional on-the-spot approvals provided in branches has increased to 72% for home loans and 90% for personal loans, compared with 47% and 0% respectively at the start of the program.

Focus for 2006

The focus for the remainder of 2006 is to embed the changes to service behaviours, tools and processes to ensure continued improvements to service for customers. Embedding these changes will enable the delivery of further improvements in service delivery for customers.

9 Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation)

Which new Bank Summary continued


	Half Year Ended
	31/12/05			30/06/05			31/12/04			Dec 05 vs			Dec 05 vs
Which New Bank	$M			$M			$M			Jun 05 %			Dec 04 %

Gross spend		148			346			255			(57	)		(42	)
Change in provision for future costs		(28	)		(40	)		(57	)		(30	)		(51	)
Investments capitalised		(35	)		(84	)		(70	)		(58	)		(50	)

Net Which new Bank expenses		85			222			128			(62	)		(34	)

Less: Normal project spend		(85	)		(100	)		(100	)		15			15

Incremental WnB expense — before tax		—			122			28		large			large
Incremental WnB expense — after tax		—			86			19		large			large

Which new Bank expense to date (gross investment)		1,383			1,235			889			12			56

Half Year Ended

31/12/05

30/06/05

31/12/04

Dec 05 vs

Incremental WnB expense by Segment

Jun 05 %

Dec 04 %

Banking

—

large

Funds management

—

large

Insurance

—

large

Incremental WnB expense — before tax

—

122

large


	Half Year Ended
	31/12/05			30/06/05			31/12/04			Dec 05 vs		Dec 05 vs
Which new Bank benefits — total	$M			$M			$M			Jun 05 %		Dec 04 %

Gross benefits — revenue		254			192			148			32		72
Less: additional operating expenses		(39	)		(36	)		(31	)		8		26

Net benefits — revenue		215			156			117			38		84
Gross benefits — expenses		291			267			184			9		58

Net benefits pre tax		506			423			301			20		68

The impact on current half year expenses represents $291 million expense benefits, less the impact of additional operating expenses of $39 million, totalling $252 million. The ratio of net benefits is: revenue 42%: expenses 58% (2005 was 38% and 62% respectively).


	Half Year Ended
	31/12/05		30/06/05		31/12/04		Dec 05 vs			Dec 05 vs
Investment capitalised under WnB	$M		$M		$M		Jun 05 %			Dec 04 %

Branch refurbishment		15		45		13		(67	)		15
IT systems (hardware and software)		20		39		57		(49	)		(65	)

Total amount capitalised		35		84		70		(58	)		(50	)

The balance of capitalised IT systems at 31 December 2005 was $188 million (June 2005: $182 million and December 2004: $163 million).

Strength of Relationship ⁽¹⁾


(1)		Customers view of their relationship with CBA. (Source: Research International)

Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation) 10

Banking Analysis

Performance Highlights

Financial Performance and Business Review

Statutory profit after tax of $1,570 million for the banking business for the half year increased 11% on the prior half and 15% on the prior comparative period.

The performance was underpinned by:

•		Strong volume growth in home loans, up 7% since June 2005 and 12% since December 2004 to $150 billion;

•		Domestic deposit volume growth of 3% since June 2005 and December 2004 to $145 billion including a 6% growth in savings accounts;

•		Continued improvement in business lending volumes, up 13% since June 2005 to $72 billion (up 21% since Dec 04), and improved market share;

•		Net interest margin has been relatively flat for the last four half years;

•		Good cost control, with operating expenses increasing 3% compared with the prior half and 4% compared with prior comparative period;

•		Nil impact of Which new Bank expenses compared with $97 million in the prior half year; and

•		Sound credit quality leading to a flat Bad Debt expense.

Australian Retail

The Australian retail banking operations continued to perform strongly over the half year, highlighted by strong revenue growth and further productivity gains.

The focus remains on profitable growth. The combination of volume growth and effective margin management resulted in strong revenue outcomes in the period.

Deposit growth was particularly strong, with the Bank responding to increased price-based competition through segmented product offers, including the launch of NetBank Saver in June 2005. Results to date have been in line with expectations, with nearly 60% of inflows being new money to the Bank. Together with growth in Term Deposits and Streamline Accounts, the Bank’s retail deposit balances grew strongly over the past six months, leading to an improved market share trend.

Asset growth was lower than the previous half consistent with the general softening in industry growth. Home loan market share remains in line with the position 12 months ago, with a slight reduction over the past six months due in part to aggressive price discounting by some competitors.

Personal lending growth was lower in the half, reflecting lower levels of consumer demand and strong competition in the low-rate credit card segment.

“Commsee”, the new customer management system has been deployed across the retail network. “Commserve”, a complementary learning program is being rolled out to assist staff in using this technology to improve customer service outcomes for customers.

Premium, Business & Corporate and Institutional

Premium Business Services provides financial services to a broad client base that incorporates the institutional, corporate and business banking segments as well as the Bank’s high-net-worth personal clients.

The Bank has increased market share in each of the key product areas of business lending, financial markets and transaction services during the half year. Activities undertaken to improve market share include the development of dedicated mobile lenders, strong servicing for third party brokers, the introduction of a dedicated acquisition sales force for corporate clients and a dedicated foreign exchange sales force, which is remunerated on a commission basis.

Specialised client service teams have been developed that are now capable of supporting all business clients centrally for most servicing activities. The average number of work items processed by these teams per week has nearly doubled between June and December. This has also provided an opportunity to upskill staff in response to customers’ increasing demand for specialised knowledge.

The capital markets businesses delivered a strong half year result raising more than $50 billion of capital for clients, both domestic and international. The businesses participated in 67 separate capital markets transactions during the half year as book runner, co-manager, underwriter or participant.

CommSec continued to perform well during the period. October was a record trading month with the average number of trades per day of 28,900 compared with 25,700 in previous months. A record day was achieved on 6 October with 45,512 trades. Typically, CommSec touches one in three trades on the ASX.

Asia Pacific

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

Notwithstanding the continued monetary policy tightening in New Zealand and increasing mortgage interest rates, both house sales activity and the lending market have remained buoyant and competition has remained intense. While the aggressive pricing in the market during the 2005 financial year has not been as evident, interest margins remain under pressure.

ASB Bank performance highlights include:

•		Lending growth at above market rates in the retail, business/ commercial and rural sectors continued. Home loan market share increased to 23.2% (December 2005) from 23.0% in June 2005; and 22.7%in December 2004.

•		ASB Bank NPAT for the half year was $201 million, an increase of 9% over the prior half (an increase of 25% on Dec 04);

•		For the fourth consecutive year, ASB Bank was recognised as New Zealand’s “Bank of the Year” by the UK based Banker Magazine; and

•		ASB Bank continued its leadership position in Personal Banking customer satisfaction among the major banks.

During the half year, the Bank acquired a 19.9% interest in Hangzhou City Commercial Bank (HZB) for A$102 million. HZB is one of the top five city commercial banks by assets in mainland China. Together with our 11% interest in Jinan City Commercial Bank (JNB), the Bank now holds minority investments in two of the top 10 city commercial banks in China by assets. The Capability Transfer Program with JNB has progressed to date with great success.

11 Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation)

Banking Analysis continued


	Half Year Ended
	31/12/05			30/06/05			31/12/04			Dec 05 vs			Dec 05 vs
Key Performance Indicators	$M			$M			$M			Jun 05 %			Dec 04 %

Net interest income		3,284			3,068			2,958			7			11
Other banking income		1,416			1,462			1,383			(3	)		2

Total operating income		4,700			4,530			4,341			4			8
Operating expenses		2,260			2,201			2,179			(3	)		(4	)
Which new Bank		—			97			15			—			—

Total operating expenses		2,260			2,298			2,194			2			(3	)
Bad and Doubtful debts expense		188			176			146			(7	)		(29	)

Net profit before income tax		2,252			2,056			2,001			10			13
Income tax expense		648			615			605			(5	)		(7	)
Minority interests		15			1			2		large				large

NPAT (“cash basis”) ⁽¹⁾		1,589			1,440			1,394			10			14

Defined Benefit Superannuation Plan Expense		(19	)		(25	)		(28	)		(24	)		(32	)

Net Profit after Income Tax (“statutory basis”)		1,570			1,415			1,366			11			15


Productivity and other measures

Net interest margin (%)		2.41			2.44			2.43		(3)bpts			(2)bpts
Expense to income (%)		48.1			50.7			50.5		260bpts			240bpts
Effective corporate tax rate (%)		28.8			29.9			30.2		(110)bpts			(140)bpts


Balance Sheet

Lending assets ($M) ⁽²⁾		254,947			235,862			224,220			8			14
Average interest earning assets ($M) ⁽³⁾		267,169			250,357			239,150			7			12
Average interest bearing liabilities ($M) ⁽³⁾		247,129			230,352			220,919			7			12


Asset Quality ⁽⁴⁾

Risk weighted assets ($M) ⁽⁵⁾		202,667			189,559			180,674			7			12
Net impaired assets ($M)		217			219			238			(1	)		(9	)
General provision/Risk weighted assets (%)		—			0.73			0.76			—			—
Collective provision plus general reserve for credit losses (pre-tax equivalent)/risk weighted assets (%)		0.71			—			—			—			—
Total provisions/Gross impaired assets (net of interest reserved) (%) ⁽⁶⁾		308.1			411.4			373.0		large			large
Total provisions plus general reserve for credit losses (pre-tax equivalent)/gross impaired assets (%)		410.1			—			—			—			—
Bad debt expense as a % of risk weighted assets annualised (%)		0.19			0.19			0.16			—		(3)bpts


(1)		Refer to Appendix 18 Definitions

(2)		Lending assets are comprised of Loans, Advances, Other Receivables (gross of provisions for impairment) and Bank Acceptances of Customers.

(3)		Average interest earning assets and average interest bearing liabilities have been adjusted to remove the impact of securitisation. Refer to Average Balance Sheet page 80.

(4)		Asset quality coverage ratios are not comparable to prior periods due to AIFRS.

(5)		No AIFRS adjustment is made to Risk Weighted Assets in the prior periods as the APRA prudential requirement is to apply previous Australian GAAP for regulatory capital purposes.

(6)		Interest/fees reserved are no longer recognised under AIFRS.

Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation) 12

Banking Analysis continued

Total Banking Income

Total banking income comprises income from the Australian Retail; Business & Corporate and Institutional; Group Treasury and Asia Pacific operations.


	Half year
	31/12/05		30/06/05		31/12/04
	$M		$M		$M

Retail products		2,563		2,396		2,297
Business, Corporate and Institutional		1,501		1,485		1,478
Other		636		649		566

Total Banking Income		4,700		4,530		4,341


Net interest income		3,284		3,068		2,958
Other banking income		1,416		1,462		1,383

Total Banking Income		4,700		4,530		4,341

•

Retail Products: Total income of $2,563 million increased by 7% compared with the prior half and 12% on the prior comparative period, reflecting growth in average interest earning assets; and

•

Business, Corporate and Institutional: Total income of $1,501 million in line with the prior half and 2% higher than the prior comparative period, reflecting continued improvement in lending asset growth.

Additional disclosures are set out on pages 16 and 17.

Net Interest Income

Net interest income increased by 7% to $3,284 million compared with the prior half and 11% compared with the prior comparative period. The growth compared with the prior half was driven by a strong increase in average interest earning assets of 7% and a stable net interest margin. The introduction of AIFRS has not had an impact on the growth rates for the period (refer page 96 and 94 for a summary of the impacts of AIFRS).

Average Interest Earnings Assets and NIM Trends

Volume

Average interest earning assets increased by $17 billion over the prior half year and $28 billion over the prior comparative period to $267 billion, reflecting a $14 billion increase in average lending assets (Dec 04: $26 billion) and a $3 billion increase compared with June 2005 in average liquid assets compared with June 2005 (Dec 04: $2 billion)

The largest contributor to the increase in average interest earning assets was the continued growth of home lending in Australia and New Zealand.

Average home loan balances increased by 6% since 30 June 2005 and 13% since 31 December 2004. Despite intense competition in both Australia and New Zealand market share in Australia has remained relatively stable while ASB Bank continued to grow ahead of the industry.

Personal lending average balances have increased by 3% since June 2005 and 14% since Dec 2004. This reflects lower levels of demand for consumer credit and strong competition in the low-rate credit card segment. Margin loans continue to experience strong growth.

Average balances for Business, Corporate and Institutional lending grew 8% since 30 June 2005 and 14% since 31 December 2004. The result has delivered market share improvement during the half year.

Net Interest Margin

The net interest margin of 2.41% was down three basis points compared with the prior period. The key drivers of the margin reduction were:

Funding mix: lending asset growth continues to outpace retail deposit growth resulting in a greater reliance of wholesale funding which has moved from 41% in June 2005 to 43% in December 2005. The change in funding mix has resulted in a one basis point margin contraction;

Asset mix: the continued moderation in home loan growth has been offset by strength in business and corporate lending. This has increased margin by one basis point; and

Other: Average non-lending interest earning assets have increased by $3 billion resulting in margin reduction of two basis points. Other factors (including asset and deposit price margin) have contributed to a further reduction of one basis point.

NIM movement since June 2005

Additional information, including the average balance sheet and the impact of AIFRS, is set out on pages 77 to 80. The application of AIFRS did not have a significant impact on net interest margins. Page 96 contains further information on the impact of AIFRS.

13 Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation)

Banking Analysis continued

Other Banking Income


	Half year
	31/12/05			30/06/05		31/12/04
	$M			$M		$M

Commissions		815			768		777
Lending fees		389			384		349
Trading income		244			221		219
Non trading derivatives		(69	)		—		—
Other income		37			89		38

Other banking income		1,416			1,462		1,383

Other banking income decreased by 3% to $1,416 million compared with the prior half and increased by 2% compared with the prior comparative period. Excluding the impact of AIFRS and several one-off items in prior periods, other banking income increased by 5% on the prior half and increased by 9% on the prior comparative period.

The introduction of AIFRS may result in increased volatility in future periods.

Other Banking Income

Factors impacting other banking income were:

•		Commissions: increased by 6% on the prior half and 5% on the prior comparative period to $815 million. The increase was driven by general volume increases together with various measures to improve fee collection rates;

•		Lending fees: increased by 1% compared with the prior period and 11% compared with the prior comparative period to $389 million. After adjusting for AIFRS, lending fee growth was up 7% compared with the prior half. The result was driven by an increase in fee volumes following strength in the business and corporate loan books together with higher volumes in overdraft facilities;

•		Trading income increased 10% on the prior period and 11% on the prior comparative period to $244 million reflecting favourable market conditions;

•		Non trading derivatives relates to volatility on the application on 1 July 2005 of AIFRS hedge accounting together with fair value adjustments on other non-trading derivatives; and

•		Other income, excluding one off items was flat compared with the prior half. The prior half included $52 million due to changes to tax consolidation legislation for leasing.

Operating Expenses

Operating expenses within the Banking business increased by 3% from the prior half and 4% from the prior comparative period to $2,260 million.

Operating expenses were impacted by:

•		Average salary increases of 4% reflecting labour market movements and other inflation-related expense increases;

•		Continued volume growth particularly within the New Zealand operation;

•		Increased expenses supporting Asian expansion;

•		Further expenses related to compliance projects, which include Basel II and the implementation of AIFRS;

•		Commencing spend on a number of post Which new Bank strategic initiatives.

Operating expenses benefited from continued savings arising from the implementation of Which new Bank initiatives.

Banking Expense to Income Ratio

On a statutory basis (AIFRS) basis, the banking expense to income ratio was 48.1% for the six months to December 2005. On an AGAAP basis, the Bank met its Which new Bank productivity target of 48%, with the expense to income ratio down to 47.2% for the six months to December 2005. The improvement reflects income growth (4%) and good expense control, including the ongoing realisation of Which new Bank savings.

Bad and Doubtful Debts Expense

The total charge for bad and doubtful debts for the half year was $188 million, which is 19 basis points of Risk Weighted Assets. This is the first period where provisions are calculated in accordance with AIFRS.

Gross impaired assets were $396 million as at 31 December 2005, which is in line with June 2005 ($395 million) and down from $445 million at December 2004.

The Bank remains well provisioned, with total provisions for impairment as a percentage of gross impaired assets of 308% ⁽¹⁾. Collective provision plus the general reserve for credit losses (pre-tax equivalent) is comparable to the prior period general provision. This total was 0.71% of risk weighted assets compared with 0.73% as at 30 June 2005 and 0.76% as at 31 December 2004 for the general provision.

Credit quality remains sound.

(1) Not comparable to prior periods due to AIFRS.

Taxation Expense

The corporate tax charge for the half year was $648 million, an effective tax rate of 28.8% compared with 29.9% in the prior half year and 30.2% in the prior comparative period.

Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation) 14

Banking Analysis continued


	31/12/05		01/07/05		30/06/05		31/12/04
Provisions for Impairment	$M		$M		$M		$M

Collective provisions		1,041		1,021		1,390		1,379
Individually assessed provisions		179		191		157		180

Total provisions		1,220		1,212		1,547		1,559
General reserve for credit losses (pre-tax equivalent)		404		369		—		—

Total provisions including general reserve for credit losses		1,624		1,581		1,547		1,559


Total provisions for impairment as a % of gross impaired assets net of interest reserved ⁽¹⁾		308.1		306.8		411.4		373.0
Individually assessed provisions for impairment as a % of gross impaired assets net of interest reserved ^{(1) (2)}		45.2		48.4		41.8		43.1
Collective provisions as a % of risk weighted assets ⁽¹⁾		0.51		0.54		0.73		0.76
Collective provision plus general reserve for credit losses (pre-tax equivalent) as a % of risk weighted assets		0.71		0.73		—		—
Bad debt expense as a % of risk weighted assets annualised ⁽¹⁾		0.19		0.19		0.19		0.16


(1)		Impairment provision ratios have changed because of the re-measurement under AIFRS.

(2)		Interest reserved no longer recognised under AIFRS.

Impairment provisions as at 31 December 2005 have been assessed under AIFRS. The prior period provisions have not been restated for AIFRS, but have been assessed using the previous Australian GAAP methodology and are not comparable to the current half year period.

Total provisions for impairment at 31 December 2005 were $1,220 million excluding the pre-tax equivalent General Reserve for Credit Losses ($404 million). The addition of the collective provision and general reserve for credit losses approximates the level of the former general provision and is 0.71% expressed as a percentage of risk weighted assets. The current level continues to reflect:

•

A major portion of the credit portfolio is in home loans which have a lower risk weighting compared with other portfolios;

•

The continuing strong asset quality in the business lending book; and

•

A level of impaired assets which is at the lower level achieved over the past decade.


Growth in Assets (spot)		Risk Weighted Assets on Balance Sheet

15 Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation)

Banking Analysis continued


	Half Year Ended
	31/12/05			30/06/05			31/12/04			Dec 05 vs			Dec 05 vs
Total Banking Assets & Liabilities	$M			$M			$M			Jun 05 %			Dec 04 %

Interest earning assets
Home loans including securitisation		159,339			150,677			140,649			6			13
Less: securitisation		(9,124	)		(10,818	)		(6,391	)		(16	)		43

Home loans		150,215			139,859			134,258			7			12
Personal		15,967			15,668			14,806			2			8
Business and corporate		71,502			63,549			58,859			13			21

Loans, advances and other receivables ⁽¹⁾		237,684			219,076			207,923			8			14

Cash and other liquid assets⁽²⁾		14,386			10,804			10,450			33			38
Assets at fair value through the Income Statement		15,617			14,631			15,884			7			(2	)
Available-for-sale investments/investment securities		9,428			10,838			11,619			(13	)		(19	)

Non lending interest earning assets		39,431			36,273			37,953			9			4

Total interest earning assets		277,115			255,349			245,876			9			13
Other assets ⁽³⁾		44,362			49,271			46,417			(10	)		(4	)

Total assets		321,477			304,620			292,293			6			10

Interest bearing liabilities
Transaction deposits		34,287			34,694			32,608			(1	)		5
Savings deposits		40,030			38,461			38,052			4			5
Investment deposits		67,462			66,087			64,312			2			5
Other demand deposits		19,573			21,806			25,438			(10	)		(23	)

Total interest bearing deposits		161,352			161,048			160,410			—			1
Deposits not bearing interest		7,371			6,978			7,013			6			5

Deposits and other public borrowings		168,723			168,026			167,423			—			1
Due to other financial institutions		9,900			8,023			9,512			23			4
Liabilities at fair value through the Income Statement		16,322			—			—			—			—
Debt issues (excluding securitisation)		60,187			58,621			51,346			3			17
Loan capital		9,129			6,291			5,801			45			57

Total interest bearing liabilities		264,261			240,961			234,082			10			13

Securitisation debt issues		9,849			12,144			7,504			(19	)		31
Non interest bearing liabilities		32,945			34,444			34,419			(4	)		(4	)

Total liabilities		307,055			287,549			276,005			7			11


(1)		Gross of provisions for impairment, which are included in Other Assets.

(2)		Includes interest earning portion only. Non interest earning portion is included under Other Assets.

(3)		Other assets include Bank acceptances of customers, provision for impairment and securitisation assets.


Australian Home Loan Balances by Product type		Lending Assets



Australian Home Loan Balances by Loan type		Origination of Home Loans funded for the half year (Aust)

Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation) 16

Banking Analysis continued

Assets & Liabilities

Retail Lending Australia


	Half Year Ended
	31/12/05		30/06/05		31/12/04		Dec 05 vs			Dec 05 vs
Major Balance Sheet Items (gross of impairment)	$M		$M		$M		Jun 05%			Dec 04 %

Lending assets — home loans (including securitisation)		135,990		129,913		121,704		5			12
Lending assets — personal loans ⁽¹⁾		10,507		10,720		10,316		(2	)		2

Total assets — retail products		146,497		140,633		132,020		4			11

Lending assets — home loans (net of securitisation)		126,866		119,094		115,313		7			10


Market Share Percentage ⁽²⁾

Home loans ⁽³⁾		18.9		19.0		18.9
Credit cards		21.8		22.8		22.8
Personal lending (APRA other households) ^{(3) (4)}		16.0		16.7		16.7


(1)		Retail personal loans includes personal loans and credit cards.

(2)		For market share definitions refer to appendix 19 page 104.

(3)		Comparatives have been restated due to a reclassification between home loans and personal loans by another ADI.

(4)		Personal lending market share includes personal loans and margin loans (refer below).

Home Loans

Home loan growth remains strong, albeit at lower levels consistent with the slowdown in system credit growth. Home loan balances (net of securitisation) increased by 7% in the half year to December 2005 to $127 billion. Growth over the prior comparative period was 12%, or 10% net of securitisation. Home lending market share has remained stable over the past twelve months, with a small reduction over the past six months due in part to aggressive price discounting by some competitors.

Personal Loans

Personal loans balances have decreased by 2% compared with the last half and increased by 2% over the prior comparative period. This is due to the repayment of low margin, government funded student loans during the half. The current half year reflects lower levels of consumer credit demand as well as product and process changes. Credit card market share has come under pressure from strong competition, particularly in the low-rate segment of the market.

Business, Corporate and Institutional Lending Australia ⁽¹⁾


	Half Year Ended
	31/12/05		30/06/05		31/12/04		Dec 05 vs			Dec 05 vs
Major Balance Sheet Items (gross of impairment)	$M		$M		$M		Jun 05 %			Dec 04 %

Interest earning lending assets		60,949		51,584		48,424		18			26
Bank acceptances of customers		17,263		16,786		16,297		3			6
Cash and other liquid assets		12,199		11,366		10,865		7			12
Assets at fair value through the Income Statement — trading		14,087		12,341		13,044		14			8
Available-for-sale investments/investment securities		9,034		10,286		11,081		(12	)		(18	)
Margin loans		4,664		4,311		3,847		8			21
Other assets ⁽²⁾		15,711		19,773		21,134		(21	)		(26	)

Total assets — Business, Corporate and Institutional products Australia		133,907		126,447		124,692		6			7


Market Share Percentage ⁽³⁾

Business lending		13.0		12.8		13.1
Asset finance		16.1		16.3		16.5
Transaction services (Commercial)		25.1		24.8		24.4
Transaction services (Corporate)		22.1		22.1		21.4


(1)		Includes Group Treasury.

(2)		Other assets include intangible assets and derivative assets.

(3)		For market share definitions refer to appendix 19 page 104.

Lending Assets

Business, Corporate and Institutional assets have increased $7 billion or 6% compared with the prior half (7% growth since December 2004). The increase has been driven by continued growth in the Australian and New Zealand syndicated loan market. In addition the Bank has entered into several structured deals. Bank acceptances have increased by 3% since June 2005 (6% growth since December 2004) with Bill facilities continuing to be a valuable source of financing for our customers. Business lending market share (including bank acceptances) increased during the six months ended December 2005 to 13.0%.

Margin Lending balances continued to grow strongly, assisted by strong equity markets.

Transaction Services

Transaction market share for medium corporations (commercial) continued to grow, increasing thirty basis points over the half, whilst transactions for large corporations (corporate) remained in line with June 2005.

17 Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation)

Banking Analysis continued

Deposits and Liabilities Australia


	Half Year Ended
	31/12/05		30/06/05		31/12/04		Dec 05 vs		Dec 05 vs
Major Balance Sheet Items (gross of impairment)	$M		$M		$M		Jun 05 %		Dec 04 %

Transaction deposits		31,233		30,501		29,394		2		6
Savings deposits		36,306		34,205		33,603		6		8
Other demand deposits		53,322		52,283		50,564		2		5
Deposits not bearing interest		6,149		5,823		5,885		6		4

Sub total deposits (excluding CD’s and other)		127,010		122,812		119,446		3		6
Certificate of deposits and other ⁽¹⁾		18,443		18,299		21,360		1		(14	)
Debt issues		69,854		63,826		52,969		9		32
Loan capital		9,129		6,291		5,801		45		57
Other liabilities ⁽²⁾		48,642		45,950		48,315		6		1

Total liabilities Australia		273,078		257,178		247,891		6		10

Total liabilities Australia — retail products		75,873		72,056		72,384		5		5
Total liabilities Australia — Business, Corporate and Institutional products		197,205		185,122		175,507		7		12


Market Share Percentage ⁽³⁾

Household deposits		29. 6		29.8		30.3
Retail deposits		22. 9		23.0		23.6


(1)		Other includes securities sold under agreement to repurchase and short sales.

(2)		Other liabilities include liabilities at fair value through the Income Statement, bank acceptances, bills payable, due to other financial institutions and other derivative liabilities.

(3)		For market share definitions refer to appendix 19 page 104.

Deposits

Total deposits excluding Certificates of Deposit (CD’s) increased by 3% in the half year (up 6% in the twelve months since 31 December 2004). Savings deposits grew strongly during the half year, rising by 6% underpinned by strong inflows into the Bank’s new NetBank Saver account as well as Term Deposits. The Bank’s main personal transaction account, Streamline, also recorded strong growth. NetBank Saver was launched in June 2005 to meet customer demand in the high interest online segment, with good results to date. Nearly 60% of NetBank Saver inflows represent new funds to the Bank. Strong deposit growth has helped stabilise the Bank’s market share of retail deposits at 22.9% (RBA). The combination of volume growth and effective margin management has underpinned strong revenue outcomes during the half year.

Asia Pacific


	Half Year Ended
	31/12/05		30/06/05		31/12/04		Dec 05 vs			Dec 05 vs
Major Balance Sheet Items (gross of impairment)	$M		$M		$M		Jun 05 %			Dec 04 %

Home lending		23,349		20,765		18,945		12			23
Other lending assets		11,157		12,132		10,906		(8	)		2
Assets at fair value through the Income Statement — trading		1,530		2,290		2,840		(33	)		(46	)
Asset at fair value — other		3,249		—		—		—			—
Available-for-sale investments/ Investment securities		395		553		538		(29	)		(27	)
Cash and liquid assets		349		821		1,469		(57	)		(76	)
Other assets		1,044		979		883		7			18

Total assets — offshore banking		41,073		37,540		35,581		9			15

Debt issues		182		6,939		5,881		(97	)		(97	)
Deposits⁽¹⁾		19,256		23,006		21,492		(16	)		(10	)
Liabilities at fair value through the Income Statement		13,691		—		—		—			—
Other liabilities		848		426		741		99			14

Total liabilities — offshore banking		33,977		30,371		28,114		12			21


Market Share Percentage ⁽²⁾

NZ lending for housing		23.2		23.0		22.7
NZ retail deposits		19.8		19.5		17.5


(1)		Asia Pacific Deposits exclude deposits held in other overseas countries (31 December 2005: $4 billion).

(2)		For market share definitions refer to appendix 19 page 104.

Lending Assets

New Zealand lending volumes were strong during the half year across all sectors, particularly in housing and business. Credit demand was strong and housing sales activity remained buoyant. ASB Bank achieved Personal lending growth of 11%, Rural lending growth of 6% and Business/Commercial lending growth of 8%.

Deposits

Retail funding within ASB Bank increased by 5% during the half year ended December 2005 ($16.8 billion). Growth in deposits has been ahead of the market with market share increasing to 19.8% at December 2005, up from 19.5% at June 2005 (17.5% at December 2004). ASB Bank’s share of household deposits has continued to grow, with market share increasing to 23.2% by December 2005 (22.7% at December 2004) from 23% at June 2005 (Source: Reserve Bank of New Zealand). Higher retail interest rates have helped deliver good funding growth.

Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation) 18

Banking Analysis continued

Banking Segments

The following table summarises banking income by major product based category. Product categories shown, span the major banking businesses and are not directly aligned to the management structure. Product revenue is shown by category with full allocation of costs excluding some group costs and adjustments.

Product category definitions are as follows:

Home loans includes investment/owner occupied home loans and secured lines of credit.

Personal loans includes personal loans and credit cards.

Retail deposits includes retail savings accounts, transaction accounts, cash management accounts and other personal investment accounts.

Corporate and Business transactions includes commercial and corporate transaction services and merchant acquiring.

Financial markets includes financial market and wholesale operations, equities broking (including CommSec) and structured products, capital markets services (including IPOs and placements) and margin lending.

Lending and finance includes asset finance, structured finance and general lending

Offshore banking includes ASB retail and entities in China, Indonesia, Fiji and others.

Other includes Group Funding, Balance Sheet Management, and other support unit costs not directly attributable to the product based segments above.

Total banking income includes the impact of internal transfer pricing and other banking income. Transfer pricing is based on wholesale market rates and is adjusted to reflect liquidity and funding costs and other specific market risks. This transfer pricing methodology is not necessarily comparable with results reported by other banks.

The current half has been affected by AIFRS as follows:

•

Hedging and derivatives, and the reclassification of dividends paid on hybrid financial instruments reduce “Other” income by $71 million.

•

Whilst the net deferral of Banking income under AIFRS is not significant overall (-$2 million), at product category level it increases Home Loan income and reduces Lending and Finance income in the current half year.

Home loan income has increased 14% over the half year ended June 2005 and 21% over the half year ended December 2004, reflecting solid volume growth and continued stable margins. The lower balance growth profile is consistent with a general slowdown in the overall system credit growth.

Personal loan income has increased 5% in the half year to December 2005 compared to the half year to June 2005 and increased 14% compared to the half year to December 2004. Balances growth has been impacted by the repayment of low margin, government funded student loans during the current half. Lower levels of consumer credit demand and strong competition in the credit card market, have also affected the growth in balances.

Retail deposits income increased 4% over the half year ended June 2005 and 6% over the half year ended December 2004, with good volume growth partially offset by slight margin contraction. Balances grew strongly underpinned by strong inflows in both existing products (including Streamline and Term Deposits) as well as the Bank’s new NetBank Saver account.

Corporate and Business Transactions income growth of 4% compared with the half year ended June 2005 and 1% over the half year ended December 2004 has been driven by higher deposit balances coupled with the benefit of the cash interest rate rise from March 2005. An improved merchant acquiring performance was supported by increased transaction volumes as well as higher merchant terminal rental income.

Financial Markets income has increased by 16% compared with the half year ended June 2005 and 8% over the half year ended December 2004 due to improved trading conditions and increased customer flows experienced. In addition, the buoyant equity markets provided income growth opportunities in both CommSec and margin lending activities.

Lending and finance performance has been impacted by lower structured transaction income. Business lending volumes however have demonstrated strong growth during the period with market share improving. The half year ended June 2005 also included income recognised in relation to tax consolidation legislation changes impacting the leasing business of $52 million.

19 Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation)

Banking Analysis continued


	Half Year to December 2005
					Total
					Banking
Banking Segments $M	Assets		Liabilities		Income

Home loans		135,990		—		701
Personal loans		10,507		—		537
Retail deposits		—		75,873		1,325

Retail products		146,497		75,873		2,563

Corporate and Business transactions		2,982		18,592		486
Financial markets		29,680		70,098		454
Lending and finance		94,671		25,145		561

Business, Corporate and Institutional products ⁽¹⁾		127,333		113,835		1,501

Offshore banking		41,073		33,977		527
Other ⁽¹⁾		6,574		83,370		109

Other products		47,647		117,347		636

Total banking		321,477		307,055		4,700


	Half Year to June 2005
					Total
					Banking
Banking Segments $M	Assets		Liabilities		Income

Home loans		129,913		—		615
Personal loans		10,720		—		512
Retail deposits		—		72,056		1,269

Retail products		140,633		72,056		2,396

Corporate and Business transactions		3,299		18,659		466
Financial markets		34,104		67,398		393
Lending and finance		85,935		21,658		626

Business, Corporate and Institutional products ⁽¹⁾		123,338		107,715		1,485

Offshore banking		37,540		30,371		472
Other ⁽¹⁾		3,109		77,407		177

Other products		40,649		107,778		649

Total banking		304,620		287,549		4,530


	Half Year to December 2004
					Total
					Banking
Banking Segments $M	Assets		Liabilities		Income

Home loans		121,704		—		579
Personal loans		10,316		—		473
Retail deposits		—		72,384		1,245

Retail products		132,020		72,384		2,297

Corporate and Business transactions		2,944		17,153		479
Financial markets		35,068		68,183		421
Lending and finance		83,450		21,401		578

Business, Corporate and Institutional products ⁽¹⁾		121,462		106,737		1,478

Offshore banking		35,581		28,114		445
Other ⁽¹⁾		3,230		68,770		121

Other products		38,811		96,884		566

Total banking		292,293		276,005		4,341


(1)		Business, Corporate and Institutional balances on page 17 and 18 includes Business, Corporate and Institutional and other.

Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation) 20

Funds management Analysis

Financial Performance and Business Review

Performance Highlights

Statutory profit after tax of $145 million increased 17% over the prior half and 22% over the prior comparative period. The performance during the half year reflects strong growth across the business. The cash net profit after tax for the period increased by 11% to $188 million compared with the prior half and 5% on the prior comparative period.

Profit after tax has been impacted by a significantly higher effective tax rate due to the loss of the transitional tax relief on investment style products within life insurance entities, which ceased at the end of last financial year.

Funds under administration grew by 11% for the prior half and 17% from the prior comparative period to $137 billion as at 31 December 2005. The growth in funds under administration was the result of favourable investment markets over the half and the continued improvement in the net funds flow position.

Business Review

The industry has again benefited in the six months to 31 December 2005 from favourable market conditions, with both the domestic and international investment markets providing significant positive returns. In addition, the continuing improvement in the net fund flows position has resulted in strong profit growth for the half year.

Funds flow performance for the half year was strong with $2.7 billion of net inflows (up $1.8 billion on prior comparative period) due to continuing success of FirstChoice, excellent sales results in our international businesses and good inflows in our domestic wholesale funds. An improvement in funds flow was achieved across most channels, including Independent Financial Advisors, Institutional Clients and the Bank Network.

Investment performance during the period was good, in both absolute returns and against benchmark, and this contributed to the improving funds flows.

Other key developments within the business during the period included:

•

Acquisition of the Gandel Group’s interests in the Colonial First State Property Retail Trust and Gandel Retail Management Trust, which provides funds management and property management services to a number of Colonial First State Retail Property trusts;

•

Organisational changes to the asset management business, bringing together the domestic, international and property management businesses and establishing a strong team to manage the combined businesses;

•

The continued rationalisation of legacy systems and products (17 administration systems reduced to 6) and significant improvement around the control environment; and

•

Unit pricing control and process improvement program with $11 million spent in the half year.

Investment Performance

Investment performance continues to improve with 16 out of 18 major funds exceeding benchmark on a one year basis.

Importantly, the investment performance of the two flagship Australian Equity funds were well ahead of benchmark on a one year basis with rankings in first and second quartiles.

Operating Income

Operating income for the half year to December 2005 increased by 12% on the prior half year and 17% over the prior comparative period. This growth was supported by an 11% increase in funds under administration to $137 billion as at 31 December 2005. The acquisition of Gandel’s Joint Venture interest in October 2005 has also contributed $15 million in revenue during the period and $9 million in expenses.

Margins improved by two basis points, against a background of increasing competition. This reflects good margins on FirstChoice, and strong flows into higher margin International products.

Operating Expenses

Operating expenses for the half year are up 15% over the prior half and 10% over the prior comparative period. Volume expenses, driven predominantly by stronger sales volumes and growth in FUA, have increased 18% on the prior half and 38% on the prior comparative period.

Key drivers of operating expenses (excluding volume) for the half year were:

•

Average salary increases of 4%;

•

Significant regulatory and compliance spend, including the Unit pricing control and process improvement program ($11 million). This is expected to incur additional expenses of $35 million in the next 12 months;

•

Acquisition of Gandel’s JV interest in October 2005, which added $9 million in expenses for the half year (3% contribution to expense growth); and

•

Increase in performance based remuneration in line with continued growth of the business.

Taxation

The corporate tax charge for the half year was $77 million, representing an effective tax rate of 28.7% compared with 24.3% for the prior half and 19.5% for the prior comparative period. The effective tax rate has been mainly impacted by the loss of transitional tax relief on investment style funds management products within life insurance legal entities (approximately $12 million) together with the utilisation of accumulated tax losses in offshore businesses in prior periods.

21 Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation)


	Half Year Ended
	31/12/05			30/06/05			31/12/04		Dec 05 vs			Dec 05 vs
Key Performance Indicators	$M			$M			$M		Jun 05 %			Dec 04 %

Operating income — external		715			638			609		12			17
Operating income — internal		5			5			5		—			—

Total operating income		720			643			614		12			17
Shareholder investment returns		7			9			24		(22	)		(71	)

Funds management income		727			652			638		12			14
Volume expense		99			84			72		(18	)		(38	)
Operating expenses		360			314			328		(15	)		(10	)
Which new Bank		—			24			12	large			large

Total operating expenses		459			422			412		(9	)		(11	)

Net profit before income tax (“cash basis”)		268			230			226		17			19

Corporate tax expense ⁽¹⁾		77			56			44		(38	)		(75	)
Minority interests		3			4			3		(25	)		—

Net profit after income tax (“cash basis”)		188			170			179		11			5

Treasury Share valuation adjustment		(43	)		(46	)		7		(7	)	large

Net profit before income tax (“statutory basis”)		145			124			186		17			(22	)


(1)		For purpose of presentation, Policyholder tax benefit and Policyholder tax expense are shown on a net basis.


Funds under Administration

Funds under administration — average	130,179	120,507		112,185		8		16
Funds under administration — spot	136,974	123,064		117,440		11		17
Net flows	2,695	(394	)	850	large		large
Total retail net flows	1,365	547		1,643	large			(17	)

Productivity and Other Measures

Operating income to average funds under administration (%)

1.10

1.08

1.09

2bpts

1bpt

Operating expenses to average funds under administration (%)

0.70

0.71

0.73

1bpt

3bpts

Effective corporate tax rate (%)

28.7

24.3

19.5

large

Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation) 22

Funds Management Analysis continued

Funds under Administration

Funds under Administration (spot balances) have increased by 11% compared with the prior half and 17% compared with the prior comparative period to $137 billion. The growth in Funds under Administration was due to a combination of strong investment markets, with investment performance, which exceeded the relevant benchmark across many of our funds, contributing $10.9 billion. Net inflows for the half year were $2.7 billion, showing a significant improvement on both prior half year periods.

Average Funds under Administration of $130 billion were 16% higher than the prior comparative period.

The key drivers of net funds flows were:

•

Continuation of market leading flows into FirstChoice capturing in excess of 24% ⁽¹⁾ of the market net flows. FirstChoice has now reached $20 billion in funds under administration in less than four years;

•

Reduced net outflows on Australian equity funds driven by improved investment performance;

•

A turnaround in net flows into wholesale products, which achieved positive net flows of $1.2 billion for the half year;

•

Good flows into higher margin equity products in the International business;

•

Net outflows from the cash management product due to competition from attractively priced retail deposit products; and

•

Net outflows in other retail products which include closed legacy products, which is consistent with prior periods.


(1)		September quarter (source: Plan for Life).

Market Share Percentage ⁽¹⁾

31/12/05

30/06/05

31/12/04

Australian retail — administrator view

14.7

14.6

14.8

New Zealand retail

15.0

15.2

15.1

Platforms (Masterfunds)

11.2

10.8

10.4

(1) For market share definitions refer to appendix 19 page 104.

Market Share

The Australian retail market share increased from 14.6% at 30 June 2005 to 14.7% at 30 September 2005 but decreased compared with 31 December 2004. The business has seen a significant turnaround in the net flow position of retail Funds under Administration in recent quarters.

The most recent Plan for Life survey (September 2005) showed the Bank ranking No. 4 for total retail net flows and No. 3 for retail flows excluding cash trusts. Improvement in investment performance has also aided market share gains.

2005 FirstChoice — Fund Manager Destination

2005 FirstChoice — Sources of Funds

23 Commonwealth Bank of Australia Profit Announcement (U.S. version – without U.S. GAAP reconciliation)

Funds Management Analysis continued


Half Year Ended 31 December 2005
	Opening												Closing
	Balance							Investment		FX⁽³⁾ & Other			Balance
	30/06/05		Inflows		Outflows			Income		Movements			31/12/05
Funds under Administration	$M		$M		$M			$M		$M			$M

FirstChoice & Avanteos		19,069		6,564		(2,628	)		1,765		—			24,770
Cash management		4,182		1,258		(1,513	)		39		—			3,966
Other retail⁽¹⁾		36,069		1,651		(3,967	)		2,894		—			36,647

Australian retail		59,320		9,473		(8,108	)		4,698		—			65,383
Wholesale		24,894		7,098		(5,909	)		1,929		—			28,012
Property		13,456		770		(1,136	)		661		(1	)		13,750
Other⁽²⁾		2,886		97		(173	)		539		—			3,349

Domestically sourced		100,556		17,438		(15,326	)		7,827		(1	)		110,494

Internationally sourced		22,508		5,464		(4,881	)		3,030		359			26,480

Total — Funds under Administration		123,064		22,902		(20,207	)		10,857		358			136,974


Half Year Ended 30 June 2005
	Opening												Closing
	Balance							Investment		FX⁽³⁾ & Other			Balance
	31/12/04		Inflows		Outflows			Income		Movements			30/06/05
Funds under Administration	$M		$M		$M			$M		$M			$M

FirstChoice & Avanteos⁽⁴⁾		16,266		5,287		(2,317	)		104		(271	)		19,069
Cash management		4,460		1,330		(1,788	)		180		—			4,182
Other retail⁽⁴⁾		35,743		1,822		(3,787	)		1,420		871			36,069

Australian retail		56,469		8,439		(7,892	)		1,704		600			59,320
Wholesale⁽⁴⁾		24,274		5,805		(6,445	)		989		271			24,894
Property⁽⁴⁾		12,797		740		(661	)		1,451		(871	)		13,456
Other		2,887		—		(674	)		673		—			2,886

Domestically sourced		96,427		14,984		(15,672	)		4,817		—			100,556

Internationally sourced		21,013		3,600		(3,306	)		912		289			22,508

Total — Funds under Administration		117,440		18,584		(18,978	)		5,729		289			123,064


Half Year Ended 31 December 2004
	Opening													Closing
	Balance							Investment			FX⁽³⁾ & Other			Balance
	30/06/04		Inflows		Outflows			Income			Movements			31/12/04
Funds under Administration	$M		$M		$M			$M			$M			$M

FirstChoice & Avanteos		12,075		5,090		(1,948	)		1,049			—			16,266
Cash management		4,414		1,631		(1,637	)		52			—			4,460
Other retail		34,705		2,595		(4,088	)		2,531			—			35,743

Australian retail		51,194		9,316		(7,673	)		3,632			—			56,469
Wholesale		23,955		5,036		(6,905	)		2,188			—			24,274
Property		12,624		467		(511	)		217			—			12,797
Other		3,033		248		(112	)		(282	)		—			2,887

Domestically sourced		90,806		15,067		(15,201	)		5,755			—			96,427

Internationally sourced		19,077		5,609		(4,625	)		1,541			(589	)		21,013

Total — Funds under Administration		109,883		20,676		(19,826	)		7,296			(589	)		117,440


(1)		Includes stand alone retail and legacy retail products.

(2)		Includes life company assets sourced from retail investors but not attributable to a funds management product (e.g. premiums from risk products). These amounts do not appear in retail market share data.

(3)		Includes foreign exchange gains and losses from translation of internationally sourced business.

(4)		Other movements represent the re-alignment of funds to correctly classify source of funds.

Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation) 24

Insurance Analysis

Financial Performance and Business Review

Performance Highlights

The Insurance business delivered good profit growth for the half year to December 2005, with statutory net profit after tax of $284 million increasing 91% on the prior half and 78% on the prior comparative period.

The net profit after tax (“cash basis”) of $284 million includes the profit on sale of the Hong Kong business of $145 million. After adjusting the operating results following the sale of the Hong Kong business, operating income increased 8% on the prior half and 15% on the prior comparative period.

The result reflects solid income growth in both Australia and New Zealand. Appendix 13 on page 95 shows the full impact of the sale of the Hong Kong business on the operating results.

Operating expenses, after adjusting for the operating results of the Hong Kong business, were in line with the prior half but up 7% on the prior comparative period.

The Bank remained the largest life insurer in the Australian, New Zealand and Fiji markets.

Business Review

Australia

The Australian business delivered a good profit result for the half year. Net profit before tax (“cash basis”) was up 81% on a very strong result in the prior half and up 57% on the prior comparative period.

Key drivers were:

•		Positive claims experience in General Insurance products, given the absence of significant weather related claims;

•		Focus on claims management processes within the business, improving efficiency of claims expense;

•		Life and General Insurance premium growth, with inforce premiums increasing by 5% for the half year;

•		Sales volume growth, particularly within General Insurance and Group Risk products; and

•		Focus on expense management, with expenses (excluding volume related) up only 2% on the prior comparative period.

The Bank maintained its number one market share position for Australian risk premiums with 13.9% of the life insurance risk market.

New Zealand

The life insurance operations in New Zealand operate predominantly under the Sovereign brand.

During the period, Sovereign has continued to focus on achieving above market business growth. Sovereign’s market position has been further enhanced, with in-force premium market share increasing to 30.7%, up from 30.3% at December 2004 (Source: ISI statistics).

Sovereign’s profit after tax was $48 million for the half year, an increase of 26% on the prior half and an increase of 33% on the prior comparative period. The main drivers of this result were:

•		Strong growth in new business sales of risk products resulting in market share growth;

•		Expense efficiencies from the legacy system consolidation project; and

•		Various customer service delivery business improvement initiatives.

Asia

Asia includes the joint venture life insurance businesses in China, Vietnam and Indonesia. The Hong Kong based life insurance, pensions administration and financial planning businesses were sold to Sun Life Financial on 18 October 2005.

The profit after tax (“cash basis”) in the Asia business was $146 million, and includes the profit on sale of the Hong Kong business ($145 million). Operating margin for the half year was $10 million, an increase of $5 million from the prior comparative period. This primarily reflects final operating profits by the Hong Kong business, partially offset by lower investment returns due to negative returns from global equities prior to the sale date.

Operating Income

Operating income of $386 million was in line with the prior half and 7% higher than the prior comparative period.

General Insurance income was significantly higher due to improved claims experience. Life insurance income growth during the current half was solid following continued volume growth. After adjusting for the lower income in Asia following the sale, life insurance income increased 3% on the prior half and 13% on the prior comparative period.

Operating Expenses

Operating expenses of $253 million were 11% lower than the prior half and 6% lower than the prior comparative period.

After adjusting for the sale of the Hong Kong business, operating expenses were in line with the prior half and 7% higher than the prior comparative period.

Volume expenses have increased in Australia as a result of increased inforce premiums.

Productivity

Operating expenses to average inforce premiums improved since June 2005 due to the impact of the sale of the Hong Kong business.

Corporate Taxation

The effective corporate tax rate (excluding the impact of the sale of the Hong Kong business) for the year was 26.8% compared with 19.5% in the prior half. The increase in the effective corporate tax rate is due to recognition of tax losses in prior periods.

25 Commonwealth Bank of Australia Profit Announcement (U.S. version – without U.S. GAAP reconciliation)

Insurance Analysis continued


Half Year Ended
	31/12/05		30/06/05		31/12/04		Dec 05 vs			Dec 05 vs
Key Performance Indicators	$M		$M		$M		Jun 05 %			Dec 04 %

Insurance Life insurance operating income		347		363		330		(4	)		5
General insurance operating income		39		24		30		63			30

Total operating income		386		387		360		—			7
Shareholder investment returns		57		83		121		(31	)		(53	)
Profit on sale of the Hong Kong business		145		—		—		—			—

Total insurance income		588		470		481		25			22

Volume expense		95		106		112		10			15
Other operating expenses⁽¹⁾				158		178		155			11	(2)
Which new Bank		—		1		1		large			large

Total operating expenses		253		285		268		11			6

Net profit before income tax		335		185		213		81			57

Income tax expense attributable to:
Corporate⁽²⁾		51		36		53		(42	)		4
Net profit after income tax (“cash basis”)⁽³⁾		284		149		160		91			78

Net profit after income tax (“statutory basis”)		284		149		160		91			78

Productivity and Other Measures

Expenses to average inforce premiums (%)

40.5

46.6

44.9

large

Effective corporate tax rate including impact of profit on sale of Hong Kong business (%)

15.2

19.5

24.9

large



(1)		Operating expenses include $5 million internal expenses relating to the asset management of shareholder funds (Jun 2005: $5 million and Dec 2004: $5 million).

(2)		For purpose of presentation, Policyholder tax benefit and Policyholder tax expense are shown on a net basis.

(3)		Refer to Appendix 18 Definitions.


Half Year Ended
	31/12/05		30/06/05			31/12/04			Dec 05 vs			Dec 05 vs
Sources of Profit from Insurance Activities	$M		$M			$M			Jun 05 %			Dec 04 %

The Margin on Services profit from ordinary activities after income tax is represented by:
Planned profit margins		69		60			62			15			11
Experience variations		19		28			(1	)		(32	)		large
Other		2		(8	)		—			large			—
General insurance operating margins		13		6			7			large			86

Operating margins		103		86			68			20			51
After tax shareholder investment returns		36		63			92			(43	)		(61	)
Profit on sale of the Hong Kong business		145		—			—			—			—

Net profit after income tax (“cash basis”)⁽¹⁾		284		149			160			91			78

Net profit after income tax (“statutory basis”)		284		149			160			91			78


(1)		Refer to Appendix 18 Definitions

Geographical Analysis of Business Performance


Half Year Ended
	Australia				New Zealand				Asia					Total
	31/12/05		30/06/05		31/12/05		30/06/05		31/12/05			30/06/05		31/12/05		30/06/05
Net Profit after Income Tax	$M		$M		$M		$M		$M			$M		$M		$M

Operating margins		55		55		38		26		10			5		103		86
After tax shareholder investment returns		35		44		10		12		(9	)		7		36		63
Profit on sale of Hong Kong business		—		—		—		—		145			—		145		—

Net profit after income tax (“cash basis”)⁽¹⁾		90		99		48		38		146			12		284		149

Net profit after income tax (“statutory basis”)		90		99		48		38		146			12		284		149


(1)		Refer to Appendix 18 Definitions

Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation) 26

Insurance Analysis continued


	Half Year Ended 31 December 2005
	Opening										Closing
	Balance		Sales/New					Other			Balance
	30/06/05		Balances		Lapses			Movements⁽¹⁾			31/12/05
Annual Inforce Premiums⁽²⁾	$M		$M		$M			$M			$M

General insurance⁽³⁾		215		35		(25	)		—			225
Personal life		785		72		(42	)		(75	)		740
Group life		265		40		(24	)		(30	)		251

Total		1,265		147		(91	)		(105	)		1,216

Australia		856		121		(83	)		1			895
New Zealand		296		26		(8	)		7			321
Asia⁽⁴⁾		113		—		—			(113	)		—

Total		1,265		147		(91	)		(105	)		1,216


	Half Year Ended 30 June 2005
	Opening										Closing
	Balance		Sales/New					Other			Balance
	31/12/04		Balances		Lapses			Movements⁽¹⁾			30/06/05
Annual Inforce Premiums⁽²⁾	$M		$M		$M			$M			$M

General insurance		205		33		(23	)		—			215
Personal life		750		84		(47	)		(2	)		785
Group life		244		42		(19	)		(2	)		265

Total		1,199		159		(89	)		(4	)		1,265

Australia		809		123		(76	)		—			856
New Zealand		281		24		(6	)		(3	)		296
Asia⁽⁴⁾		109		12		(7	)		(1	)		113

Total		1,199		159		(89	)		(4	)		1,265


	Half Year Ended 31 December 2004
	Opening									Closing
	Balance		Sales/New					Other		Balance
	30/06/04		Balances		Lapses			Movements⁽¹⁾		31/12/04
Annual Inforce Premiums⁽²⁾	$M		$M		$M			$M		$M

General insurance		192		29		(16	)		—		205
Personal life		703		80		(42	)		9		750
Group life		272		32		(68	)		8		244

Total		1,167		141		(126	)		17		1,199

Australia		815		105		(111	)		—		809
New Zealand		258		24		(9	)		8		281
Asia		94		12		(6	)		9		109

Total		1,167		141		(126	)		17		1,199


(1)		Includes foreign exchange movements (refer also footnote 4).

(2)		Inforce premium relates to risk business. Savings products are disclosed within Funds Management.

(3)		General insurance inforce premiums includes approximately $40 million of badged premium.

(4)		Other movements represent the sale of the Hong Kong life insurance business.

Inforce Premiums

Annual inforce premiums decreased by 4% for the half year to December 2005 to $1,216 million due to the sale of the Hong Kong business. Excluding the sale, inforce premiums increased by $64 million (6%) on the prior half and 12% on the prior comparative period. This was achieved through consistent growth in both Australia and New Zealand. General Insurance premiums increased by 5% for the half year.

Australia maintained its leading position of inforce premiums with 13.9% of market share in total life insurance at 30 September 2005.

Sovereign increased its leading market position in New Zealand with an increase to 30.9%, from 30.3% in December 2004.

Market Share Percentage – Annual Inforce Premiums⁽¹⁾

31/12/05

30/06/05

31/12/04

Australia (total risk)⁽²⁾⁽³⁾

13.9

13.8

Australia (individual risk)⁽²⁾⁽³⁾

12.8

13.0

New Zealand

30.9

30.7

30.3


(1)		For market share definitions refer to appendix 19 page 104.

(2)		As at 30 September 2005.

(3)		Comparatives have been restated to include stamp duty in calculations.

27 Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation)


	Half Year Ended
	31/12/05		30/06/05		31/12/04		Dec 05 vs		Dec 05 vs
Shareholder Investment Returns	$M		$M		$M		Jun 05 %		Dec 04 %

Funds management business		7		9		24		(22)		(71	)
Insurance business⁽¹⁾		57		83		121		(31)		(53	)
Profit on sale of Hong Kong business		145		—		—		—		—

Shareholder investment returns before tax		209		92		145		large		44
Taxation		23		26		34		12		32

Shareholder investment returns after tax		186		66		111		large		68


(1)		Excluding profit on sale of the Hong Kong business.


	As at 31 December 2005
	Australia		New Zealand		Asia		Total
Shareholder Investment Asset Mix (%)	%		%		%		%

Local equities		3		1		—		2
International equities		—		7		15		2
Property		24		1		8		18

Growth		27		9		23		22

Fixed interest		32		52		55		38
Cash		41		39		22		40

Income		73		91		77		78

Total		100		100		100		100


	As at 31 December 2005
	Australia		New Zealand		Asia		Total
Shareholder Investment Asset Mix ($M)	$M		$M		$M		$M

Local equities		35		2		—		37
International equities		—		25		12		37
Property		267		2		6		275

Growth		302		29		18		349

Fixed interest		348		177		42		567
Cash		451		133		17		601

Income		799		310		59		1,168

Total		1,101		339		77		1,517

Shareholder investment returns of $209 million pre tax include a $145 million profit on the sale of the Bank’s Hong Kong life insurance business. More detail is contained in appendix 13 on page 95.

Domestic and international investment markets performed strongly for the half year to December 2005, with the benchmark S&P/ASX200 price index increasing by 11.4% and the MSCI World index by 9.5%. All other asset classes (fixed interest, property and cash) posted positive returns.

Excluding the profit on sale of the Hong Kong business, shareholder investment returns of $64 million pre tax for the half year represent a decrease of 30% over the prior half due to the relative strength of the indices in the prior comparative period. This reflected lower returns in Australia due to lower levels of capital held in the business, in addition to negative returns in global equities until the date of sale of the Hong Kong business. Fixed interest returns also fell due to increasing bond yields.

Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation) 28

Critical Accounting Policies

Critical Accounting Policies and Use of Estimates

The Notes to the Financial Statements contain a summary of the Group’s significant accounting policies. Certain of these policies are considered to be more important in the determination of the Group’s financial position since management is required to make assumptions concerning the future and estimates that are inherently uncertain. Changes in these assumptions and estimates give rise to periodic adjustment to the carrying amount of assets and liabilities. Management uses assumptions and estimates in the following areas:

Provisions for Impairment

Provisions for impairment are maintained at an amount adequate to cover anticipated credit related losses.

Credit losses arise primarily from loans but also from other credit instruments such as bank acceptances, contingent liabilities, financial instruments and investments and assets acquired through security enforcement.

Provisions for impairment are comprised of both “individually significant” and “collective” provisions, as described below.

Individually Significant Provisions

Individually Significant provisions are maintained where full recovery of principal is considered doubtful.

Individually Significant provisions are made against individual relationship facilities in the credit risk rated managed segment where exposure aggregates to $1 million or more, and objective evidence of impairment is identified. The provisions are established based primarily on estimates of the realisable (fair) value of collateral taken.

Specific provisions (in bulk) are also made against each statistically managed segment to cover facilities which are not well secured and past due 180 days or more, against the credit risk rated segment for exposures aggregating to less than $250,000 and 90 days or more past due, and against emerging credit risks identified in specific segments in the credit risk rated managed portfolio. These provisions are derived primarily by reference to historical ratios of write-offs to balances in default.

Individually Significant provisions are provided for from the collective provision.

All facilities subject to a individually significant provision for impairment are classified as non-accrual.

Collective Provision

The collective provision represents management’s estimates of non-identifiable probable losses based on historical loss experience adjusted for current observable data to reflect the effects of current conditions on loans and other credit transactions.

The evaluation process is subject to a series of estimates and judgements.

In the credit risk rated managed segment, the risk rating system, including the frequency of default and loss given default rates, loss history, and the size, structure and diversity of individual credits are considered. Current developments in portfolios (industry, geographic and term) are reviewed.

In the statistically managed segment the history of defaults and losses, and the size, structure and diversity of portfolios are considered.

In addition, management considers overall indicators of portfolio performance, quality and economic conditions.

Changes in these estimates could have a direct impact on the level of provision determined.

The amount required to bring the collective provision to the level assessed is taken to profit and loss as set out in Note 6 Asset Quality.

Life Insurance Policyholder Liabilities

Life insurance policyholder liabilities are accounted for under AASB 1038: Life Insurance Contracts. A significant area of judgement is in the determination of policyholder liabilities, which involve actuarial assumptions.

All policyholder liabilities are recognised in the Balance Sheet and are measured at net present values or, if not materially different, on an accumulation basis after allowing for acquisition expenses. They are calculated in accordance with the principles of Margin on Services (“MoS”) profit reporting as set out in Actuarial Standard AS 1.04: Valuation of Policy Liabilities issued by the Life Insurance Actuarial Standards Board.

The areas of judgement where key actuarial assumptions are made in the determination of policyholder liabilities are:

•

Business assumptions including:

	•		Amount, timing and duration of claims/policy payments;

	•		Policy lapse rates; and

	•		Acquisition and long term maintenance expense levels;

•

Long term economic assumptions for discount and interest rates, inflation rates and market earnings rates.

The determination of assumptions relies on the Group’s actuaries making judgements based on a combination of short, long term and industry experience. Consideration is given to the permanence of recent experience prior to changing long term assumptions. The Group’s actuaries arrive at conclusions regarding the statistical analysis using their experience and judgement.

Provision for Which new Bank costs

On 19 September 2003, the Group launched its Which new Bank customer service vision. This is a three year transformation program and involves the Bank in additional expenditure in the key areas of staff training and skilling, systems and process simplification, and technology. The Group is required to book a provision for restructuring costs to the extent that it has announced a plan or started implementing a plan, and has no realistic alternative but to proceed with the restructuring.

There is a level of management judgement involved in estimating the planned costs involved and the level of commitment to the plan, such that it is judged that the plan will proceed to completion.

The cost estimates for the provision were determined by the businesses concerned taking into account the details of the planned initiatives and their timing. Other provisions for restructuring established in the past have proved to be appropriately estimated at the time.

The current transformation initiative is a three year program that is estimated to cost $1,480 million over the 2004 to 2006 period. Minimal additional provisions for ‘Which new Bank’ costs are expected to be established over the remaining 6 month period.

29 Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation)

Critical Accounting Policies continued

Disclosures about Fair Value of Financial Instruments

These amounts represent the fair values of the Group’s financial assets and financial liabilities at a point in time based on the following valuation methods and assumptions. Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. Market prices are used to determine fair value, where an active market (such as a recognised stock exchange) exists, as it is the best evidence of the fair value of a financial instrument. Market prices are not, however, available for a significant number of the financial assets and liabilities held and issued by the Group. Therefore, for financial instruments where no market price is available, the fair values presented in the following table have been estimated using present value or other estimation and valuation techniques based on market conditions existing at balance sheet dates.

The values derived from applying these techniques are significantly affected by the underlying assumptions made concerning economic conditions, loss experience, risk characteristics associated with particular financial instruments and other factors These assumptions are subjective in nature and involve matters of judgment. Therefore, they cannot be determined with precision. Changes in the assumptions could have a material impact on the amounts estimated.

While the estimated fair value amounts are designed to represent estimates at which these instruments could be exchanged in a current transaction between willing parties, many of the Group’s financial instruments lack an available trading market as characterised by willing parties engaging in an exchange transaction. In addition, it is the Bank’s intent to hold most of its financial instruments to maturity and therefore it is not probable that the fair values shown would be realised in a current transaction.

The estimated fair values disclosed do not reflect the value of assets and liabilities that are not considered financial instruments. In addition, the value of long-term relationships with depositors (core deposit intangibles) and other customers (credit card intangibles) are not reflected. The value of these items is significant.

Because of the wide range of valuation techniques and the numerous estimates that must be made, it may be difficult to make reasonable comparisons of the Bank’s fair value information with that of other financial institutions. It is important that the many uncertainties discussed above be considered when using the estimated fair value disclosures and to realise that because of these uncertainties, the aggregate fair value amount should in no way be construed as representative of the underlying value of the Commonwealth Bank of Australia of other financial institutions. It is important that the many uncertainties discussed above be considered when using the estimated fair value disclosures and to realise that because of these uncertainties, the aggregate fair value amount should in no way be construed as representative of the underlying value of the Commonwealth Bank of Australia.

Defined Benefit Superannuation Plans

The Group currently sponsors two defined benefit superannuation plans for its employees. The calculation of the accounting expense and fund surplus/deficit of these plans requires the use of actuarial assumptions. The key actuarial assumptions are the discount rate, estimated future salary increases and the return on assets. The return on asset assumption is determined as the weighted average of the long term expected returns of each asset class where the weighting is the benchmark asset allocations of the assets backing the defined benefit risks. The long term expected returns of each asset class are determined following receipt of actuarial advice.

The return on assets assumption for 2004/2005 was 7.50% pa (after tax) and the Bank does not expect this assumption to change for 2005/2006. A one percentage increase in the return on assets assumption for the Officers’ Superannuation Fund (“OSF”) will decrease the Bank’s 2004/2005 accounting expense by $47 million (pre tax) whilst an one percentage decrease in the return on assets assumption will increase the 2004/2005 pension accounting by $46 million (pre tax). However, this information only considers the changes to the return on assets assumption given the level and mix of invested assets at the beginning of the measurement years, without consideration of possible changes in any of the other assumptions described above that could ultimately accompany any changes in the assumed long-term rate of return.

Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation) 30

Directors’ Report

The Directors submit their report for the half year ended 31 December 2005.

Directors

The names of the Directors holding office during the half year ended 31 December 2005 and until the date of this report were:


J M Schubert		Chairman
R J Norris		Managing Director and Chief Executive Officer (Appointed 22 September 2005)
D V Murray		Managing Director and Chief Executive Officer (Retired 22 September 2005)
R J Clairs AO		Director
A B Daniels OAM		Director
C R Galbraith AM		Director
S C Kay		Director
W G Kent AO		Director
F D Ryan		Director
F J Swan		Director
B K Ward		Director

Review and Results of Operations

Commonwealth Bank recorded a net profit after tax of $1,999 million for the half year ended 31 December 2005, compared with $1,712 million for the prior comparative period, an increase of 17%. The increase was principally due to an increase in net interest income resulting from strong lending growth, a reduction in Which new Bank expenses and a $145 million profit on the sale of the Hong Kong life insurance business.

The net profit from Banking of $1,570 million (December 2004: $1,366 million), reflects strong growth in net interest income primarily due to continued growth in home loans and other personal lending, together with a reduction in Which new Bank expenses.

The net profit from funds management of $145 million (December 2004: $186 million) reflects growth in revenues from a 17% increase in funds under administration over the period. Insurance reported a net profit of $284 million (December 2004: $160 million) including the profit of $145 million on the sale of the Hong Kong life insurance business, solid premium growth and new business volumes.

In accordance with the ASX Principles of Good Corporate Governance and Best Practice Recommendations, the Chief Executive Officer and the Group Executive Financial and Risk Management, have provided the Board with a written statement that the accompanying financial report represents a true and fair view, in all material respects, of the Bank’s financial position as at 31 December 2005 and performance for the six month period ended 31 December 2005, in accordance with relevant accounting standards.

31 Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation)

Financial Statements


Consolidated Income Statement		28
Consolidated Balance Sheet		29
Consolidated Statement of Recognised Income & Expense		30
Consolidated Statement of Changes in Equity		30
Consolidated Statement of Cash Flows		31
Note 1	Accounting Policies	33
Note 2	Income from Ordinary Activities	60
Note 3	Operating Expenses	61
Note 4	Income Tax Expense	62
Note 5	Loans, Advances and Other Receivables	63
Note 6	Asset Quality	63
Note 7	Deposits and Other Public Borrowings	65
Note 8	Financial Reporting by Segments	66
Note 9	Detailed Consolidated Statement of Changes in Equity	69
Note 10	Notes to the Cash Flow Statement	71
Note 11	Events after the end of the Financial Period	72
Note 12	Contingent Liabilities	72
Note 13	Acquisition of Business Interests	72

This half year reporting period is the first under the Australian equivalent to International Financial Reporting Standards (“AIFRS”). For this reason, a full explanation of all AIFRS Accounting policies and differences from previous Australian GAAP is included in the Financial Statements. The financial impact of these changes is summarised in Note 1 (mm). The Financial Statement do not include a reconciliation of the differences between AIFRS and U.S. generally accepted accounting principles.

Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation) 32

Financial Statements

Consolidated Income Statement
For the half year ended 31 December 2005


			31/12/05			30/06/05			31/12/04
	Note		$M			$M			$M

Interest income				9,638			8,692			8,089
Interest expense				6,354			5,624			5,131

Net interest income				3,284			3,068			2,958
Other operating income				1,416			1,462			1,383

Net banking operating income				4,700			4,530			4,341

Funds management income including investment contract premiums				737			642			605
Investment revenue				1,379			722			1,234
Claims and policyholder liability expense				(1,343	)		(728	)		(1,143	)

Net funds management and investment contract operating income				773			636			696

Premiums from insurance contracts				573			557			575
Investment revenue				693			470			716
Claims and policyholder liability expense from insurance contracts				(586	)		(492	)		(751	)

Insurance contracts margin on services operating income				680			535			540


Total net operating income				6,153			5,701			5,577

Bad and doubtful debts expense				188			176			146

Operating expenses:
Comparable business		3		2,967			2,878			2,841
Which new Bank		3		—			122			28

Total operating expenses				2,967			3,000			2,869


Defined benefit superannuation plan expense				(27	)		(35	)		(40	)

Profit before income tax				2,971			2,490			2,522
Corporate tax expense		4		753			680			694
Policyholder tax expense				201			117			111

Profit after income tax				2,017			1,693			1,717
Minority interests				(18	)		(5	)		(5	)

Net profit attributable to members of the Bank				1,999			1,688			1,712


	Cents per share

Earnings per share based on net profit attributable to members of the Bank:
Basic		157.1	128.1	131.4
Fully diluted		154.4	126.1	128.2
Dividends per share attributable to shareholders of the Bank:
Ordinary shares		94	112	85
PERLS		571	557	558
Trust preferred securities (TPS) — issued 6 August 2003		3,879	4,074	3,721
PERLS II — issued 6 January 2004		465	459	449


	$M			$M			$M

Net profit after income tax comprises:
Net profit after income tax (“cash basis”)		2,061			1,759			1,733
Defined benefit superannuation plan expense		(19	)		(25	)		(28	)
Treasury share valuation adjustment		(43	)		(46	)		7

Net profit after income tax (“statutory basis”)		1,999			1,688			1,712

33 Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation)

Financial Statements continued

Consolidated Balance Sheet
As at 31 December 2005


			31/12/05		30/06/05		31/12/04
Assets	Note		$M		$M		$M

Cash and liquid assets				7,269		6,055		5,905
Receivables due from other financial institutions				5,279		6,087		6,397
Assets as at fair value through the Income Statement:
Trading				15,617		14,631		15,884
Insurance				25,141		27,484		27,965
Other				3,590		—		—
Derivative assets				8,238		—		—
Investment securities				—		10,838		11,619
Available for sale investments				9,605		—		—
Loans, advances and other receivables		5		245,606		228,346		212,755
Bank acceptances of customers				17,263		16,786		16,297
Investment property				252		252		252
Property, plant and equipment				1,143		1,132		1,063
Investment in associates				191		52		233
Intangible assets				7,740		7,656		7,638
Deferred tax assets				891		651		606
Other assets				3,368		17,434		18,745

Total assets				351,193		337,404		325,359


Liabilities

Deposits and other public borrowings		7		168,723		168,026		167,423
Payables due to other financial institutions				9,902		8,023		9,512
Liabilities at fair value through the Income Statement				16,322		—		—
Derivative liabilities				9,391		—		—
Bank acceptances				17,263		16,786		16,297
Current tax liabilities				575		833		424
Deferred tax liabilities				1,153		921		982
Other provisions				846		871		849
Insurance policy liabilities				23,055		24,694		24,967
Debt issues				70,036		70,765		58,850
Managed fund units on issue				1,031		—		—
Bills payable and other liabilities				3,917		17,551		18,153

				322,214		308,470		297,457
Loan capital				9,129		6,291		5,801
Total liabilities				331,343		314,761		303,258

Net assets				19,850		22,643		22,101


Shareholders’ Equity

Share capital:
Ordinary share capital				13,801		13,486		13,344
Preference share capital				—		687		687
Other equity instruments				—		1,573		1,573
Reserves				1,885		1,265		1,098
Retained profits				3,641		3,843		3,357

Shareholders’ equity attributable to members of the Bank				19,327		20,854		20,059

Minority interests:
Controlled entities				523		631		629
Insurance statutory funds and other funds				—		1,158		1,413

Total shareholders’ equity				19,850		22,643		22,101

Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation) 34

Financial Statements continued

Consolidated Statement of Recognised Income and Expense
For the half year ended 31 December 2005


		31/12/05			30/06/05		31/12/04
	Note	$M			$M		$M

Actuarial gains and losses from defined benefit superannuation plan			68			39		71
Gains/(losses) on cash flow hedging instruments:
Recognised in equity			23			—		—
Transferred to the income statement			11			—		—
Gains/(losses) on available-for-sale investments:
Recognised in equity			(10	)		—		—
Transferred to the income statement on sale			1			—		—
Transferred to the income statement on impairment			(3	)		—		—
Realised gains and dividend income on treasury shares held within the Bank’s life insurance statutory funds			25			21		—
Revaluation of properties			—			29		—
Transfer from FCTR to income statement on sale of entities			41			—		—
Exchange differences on translation of foreign operations			80			10		(151	)
Income tax on items taken directly to or transferred directly from equity:
FCTR			(17	)		—		—
AFS investments revaluation reserve			(1	)		—		—
Cash flow hedge reserve			(11	)		—		—

Net income recognised directly in equity			207			99		(80	)
Profit for the period			2,017			1,693		1,717

Total net income recognised for the period			2,224			1,792		1,637

Attributable to:
Members of the parent			2,206			1,787		1,632
Minority Interests			18			5		5

Total net income recognised for the period			2,224			1,792		1,637

Consolidated Statement of Changes in Equity
For the half year ended 31 December 2005


			31/12/05			30/06/05			31/12/04
	Note		$M			$M			$M

Total equity at the beginning of the period — AGAAP	1 (mm)			26,060			25,067			24,885
— Under AIFRS	1 (mm)			22,643			22,101			21,970
Net income recognised for the period
Net income recognised directly in equity				207			99			(80	)
Net profit attributable to members of the Bbank				1,999			1,688			1,712

Total net income recognised for the period				2,206			1,787			1,632

Other movements in equity for the period
Share capital:
Ordinary share capital				315			142			(15	)
Preference share capital				(687	)		—			—
Other equity instruments				(1,573	)		—			—
Retained profits				(2,294	)		(1,262	)		(1,266	)
Reserves:
General reserve				106			109			(2,937	)
Capital reserve				2			2			—
Asset revaluation reserve				(2	)		(2	)		31
Foreign currency translation reserve				27			—			205
Cash flow hedge reserve				39			—			—
General reserve for credit loss				283			—			—
AFS investments revaluation reserve				56			—			—
Equity compensation reserve				(5	)		19			4
Minority interests (outside equity interest) movement				(1,266	)		(253	)		(438	)

Total of other movements in equity for the period				(4,999	)		(1,245	)		(4,416	)

Total AIFRS — adjusted equity at the end of the period		9		19,850			22,643			22,101


Reconciliation to AGAAP closing equity:
Total adjusted equity at the end of the period				n/a			22,643			22,101
AIFRS opening after tax adjustments				n/a			2,966			2,915
AIFRS after tax adjustment to statutory profit for the year ended 30 June 2005				n/a			444			147
Other AIFRS reserve adjustments for the period				n/a			7			(96	)

AGAAP closing equity				n/a			26,060			25,067

35 Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation)

Financial Statements continued

Consolidated Statement of Cash Flows ^{(1) (2)}
For the half year ended 31 December 2005


				31/12/05			30/06/05			31/12/04
	Note			$M			$M			$M

Cash Flows from Operating Activities
Interest received					9,521			8,750			8,031
Interest paid					(6,388	)		(5,642	)		(5,078	)
Other operating income received					2,804			2,830			1,729
Expenses paid					(2,886	)		(2,931	)		(2,747	)
Income taxes paid					(1,290	)		(542	)		(443	)
Net increase in trading securities					—			1,727			(1,409	)
Assets at fair value through the Income Statement (excluding life insurance)					(790	)		—			—
Net decrease/(increase) in investment income related to life insurance assets at fair value through the Income Statement
Life contracts:
Investment income					1,626			1,138			434
Premiums received ⁽³⁾					1,224			1,625			1,558
Policy payments ⁽³⁾					(2,670	)		(2,228	)		(2,436	)
Liabilities at fair value through the Income Statement (excluding life insurance)					2,499			—			—

Net Cash provided by/(used in) Operating Activities after taxation		10	(a)		3,650			4,727			(361	)

Cash Flows from Investing Activities
Payments for acquisition of entities and management rights					—			(18	)		(64	)
Proceeds from disposal of entities and businesses (net of cash disposed)		10	(c)		553			173			—
Dividend received					1			2			1
Movement in investment securities:
Purchases					—			(11,357	)		(11,251	)
Proceeds from sale					—			166			230
Proceeds at or close to maturity					—			12,151			10,648
Movement in available for sale investments:
Purchases					(11,502	)		—			—
Proceeds from sale					416			—			—
Proceeds at or close to maturity					10,994			—			—
(Lodgement)/withdrawal of deposits with regulatory authorities					—			(13	)		6
Net (increase)/decrease in loans, advances and other receivables					(17,884	)		(15,996	)		(15,725	)
Proceeds from sale of property, plant and equipment					11			21			9
Purchase of property, plant and equipment					(119	)		(142	)		(144	)
Increase in investments in associates					(143	)		—			—
Purchase of intangible assets					(22	)		(32	)		(60	)
Net (increase)/decrease in receivables due from other financial institutions not at call					(1,013	)		(789	)		1,886
Net (increase)/decrease in securities purchased under agreements to resell					(192	)		(275	)		1,266
Net decrease/(increase) in other assets					508			(848	)		1,903
Life insurance business:
Purchase of insurance assets at fair value through the Income Statement					(5,714	)		(7,816	)		(6,349	)
Proceeds from sale/maturity of insurance assets at fair value through the Income Statement					6,486			7,487			7,794

Net cash used in investing activities					(17,620	)		(17,286	)		(9,850	)


(1)		It should be noted that the Bank does not use this accounting Statement of Cash Flows in the internal management of its liquidity positions.

(2)		Adjusted for AIFRS gross-up. Refer note 1 (mm) (ii).

(3)		These were gross premiums and policy payments before splitting between policyholders and shareholders.

Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation) 36

Financial Statements continued

Consolidated Statement of Cash Flows ⁽¹⁾ continued
For the half year ended 31 December 2005


				31/12/05			30/06/05			31/12/04
	Note			$M			$M			$M

Cash Flows from Financing Activities
Buy back of shares					(1	)		—			—
Proceeds from issue of shares (net of costs)					35			23			43
Proceeds from issue of preference shares to minority interests					—			—			323
Net increase in deposits and other borrowings					8,797			1,699			4,633
Net proceeds from issuances of debt securities					5,168			11,965			5,969
Dividends paid (excluding DRP buy back of shares)					(1,173	)		(953	)		(1,130	)
Net movements in other liabilities					(546	)		734			(1,064	)
Net increase/(decrease) in payables due to other financial institutions not at call					651			(554	)		1,003
Net increase/(decrease) in securities sold under agreements to repurchase					106			(1,095	)		(385	)
Net (purchase)/sale of treasury shares					19			48			(108	)
Issue of loan capital					767			912			321
Redemption of loan capital					(402	)		(450	)		(942	)
Other					5			(71	)		126

Net cash provided by financing activities					13,426			12,258			8,789

Net (decrease)/increase in cash and cash equivalents					(544	)		(301	)		(1,422	)
Cash and cash equivalents at beginning of period					1,276			1,577			2,999

Cash and cash equivalents at end of period		10	(b)		732			1,276			1,577



(1)		It should be noted that the Bank does not use this accounting Statement of Cash Flows in the internal management of its liquidity positions.

37 Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation)

Notes to the Financial Statements

Note 1 Accounting Policies

General Information

The financial statements of the Commonwealth Bank of Australia (the ‘Bank’) and the Bank and its subsidiaries (the ‘Group’) for the half year ended 31 December 2005, were approved and authorised for issue by the Board of Directors on 15 February 2006.

The Bank is incorporated and domiciled in Australia. It is a company limited by shares that are publicly traded on the Australian Stock Exchange. The address of its registered office is Level 7, 48 Martin Place, Sydney NSW 1155, Australia.

The Group is one of Australia’s leading providers of integrated financial services including retail, business and institutional banking, superannuation, life insurance, general insurance, funds management, broking services and finance company activities. The principal activities of the Commonwealth Bank Group during the financial period were:

(i) Banking

The Group provides retail banking services including housing loans, credit cards, personal loans, savings and cheque accounts, and demand and term deposits. The Group also offers commercial products including business loans, equipment and trade finance, and rural and agribusiness products. The Group also has full service banking operations in New Zealand, Fiji and the Philippines. The Group has wholesale banking operations in London, New York, Hong Kong, Singapore, Indonesia, China, Tokyo and Malta.

(ii) Funds Management

The Group’s funds management business comprises wholesale and retail investment, superannuation and retirement funds. Investments are across all major asset classes including Australian and International shares, property, fixed interest and cash. The Group also has funds management businesses in New Zealand, United Kingdom and Asia.

(iii) Insurance

The Group provides term insurance, disability insurance, annuities, master trusts, investment products and household general insurance. Life insurance operations are also conducted in New Zealand, where the Group has the leading market share, and in Asia and the Pacific.

There have been no significant changes in the nature of the principal activities of the Group during the financial half year.

(a) Bases of accounting

This general purpose financial report for the interim half-year reporting period ended 31 December 2005 has been prepared in accordance with the requirements of the Corporations Act 2001 and AASB 134 Interim Financial Reporting.

This half-year financial report does not include all notes of the type normally included within the annual financial report and therefore cannot be expected to provide as full an understanding of the financial position and financial performance of the consolidated entity as that given by the annual financial report.

As a result, this report should be read in conjunction with the 30 June 2005 Annual Financial Report of the Group and any public announcements made in the period by the Group in accordance with the continuous disclosure requirements of the Corporations Act 2001 and the ASX Listing Rules.

For the purpose of this half-year financial report, the half-year has been treated as a discrete reporting period.

The 30 June 2005 Annual Financial Report was prepared under the Australian Accounting Standards applicable to reporting periods beginning prior to 1 January 2005 (AGAAP). This half-year financial report, however, complies with current Australian Accounting Standards which consist of Australian equivalents to International Financial Reporting Standards (AIFRS).

Accounting policies for the Bank have changed significantly due to the adoption of AIFRS. These changes have been summarised by comparing prior periods accounting policy to the new AIFRS accounting policy. Differences in measurement, recognition and disclosure have been noted in the change in accounting policy section within each topic. The preparation of the financial report in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates although it is not anticipated that such differences would be material.

(b) Basis of preparation

The financial statements are prepared on the basis of historical cost except that the following assets and liabilities are stated at their fair value: derivative financial instruments, assets and liabilities at fair value through the Income Statement, available-for-sale investments, insurance policy liabilities, domestic bills discounted which are included in loans, advances and other receivables held by the Group, investment property and owner occupied property, defined benefit plans assets and liabilities, and employee share-based compensation liability. Recognised assets and liabilities that are hedged and are attributable to the hedged risk are stated at fair value.

The accounting policies which have changed as a result of the adoption of AIFRS, have been applied retrospectively and consistently by the Group to all periods presented in these financial statements and in preparing an opening AIFRS balance sheet at 1 July 2004, except for the following standards which were adopted and applied from 1 July 2005 onwards:-

i) AASB 132 Financial Instruments — Disclosure and Presentation;

ii) AASB 139 Financial Instruments — Recognition and Measurement;

iii) AASB 4 Insurance Contracts;

iv) AASB 1023 General Insurance Contracts; and

v) AASB 1038 Life Insurance Contracts

On this basis, comparison with prior period results should be read in conjunction with the following accounting policy notes.

AIFRS has been applied retrospectively subject to the following elections under AASB 1 First Time Adoption of AIFRS:

Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation) 38

Notes to the Financial Statements continued

Note 1 Accounting Policies (continued)

i) not to restate any past business combinations that occurred prior to 1 July 2004 in preparing the Group’s opening AIFRS balance sheet at 30 June 2005.

ii) to transfer the Foreign Currency Translation Reserve as at 1 July 2004 to Retained Earnings.

The Group has applied its previous AGAAP in the comparative information to financial instruments and insurance contracts within the scope of the above standards.

(c) Consolidation

Additional entities have been consolidated within the Group due to the adoption of AASB 127 Consolidated and Separate Financial Statements and UIG 112 Consolidation – Special Purpose Entities. These changes do not have a material impact on net assets or net profit however they have resulted in material gross ups of individual asset and liability line items of the Group.

For further details, refer to the change in accounting policy below.

(i) Current accounting policy

The consolidated financial statements include the financial statements of the Bank and all entities where it is determined that there is a capacity to control as defined in AASB 127 and UIG 112. These also include Group’s share of the financial results of all entities where the Group holds an investment in and has significant influence over the financial and operating policies of entities as defined in AASB 128 Investments in Associates.

Associated companies are defined as those entities over which the Group has significant influence but there is no capacity to control. Investments in associates are carried at cost plus the Group’s share of post-acquisition profit or loss. The Group’s share of profit or loss of associates is included in the profit from ordinary activities.

All balances and transactions between Group entities, including unrealised gains and losses, have been eliminated on consolidation.

(ii) Change in accounting policy

With the adoption of AASB 127 and UIG 112, a number of additional entities have been included in the Group. This is due to a change in what constitutes control and the inclusion of potential voting rights when considering control. Some of these entities were formed by the Group for the purpose of asset securitisation transactions and structured debt issuance, and to accomplish certain narrow and well-defined objectives. Such entities may acquire assets directly or indirectly from the Bank or its affiliates. Additionally, some of these entities are bankruptcy-remote (i.e. their assets are not available to satisfy the claims of creditors of the Group or any other of its subsidiaries). However, these entities have been consolidated in the Group’s financial statements as the variability of return from the entity resides with the Group.

The adoption of AASB 127 and UIG 112 has been applied retrospectively from 1 July 2004.

(d) Revenue recognition

The adoption of AASB 118 Revenue and AASB 139 has had an impact on the recognition and measurement of revenue. For further details, refer to the change in accounting policy below.

(i) Current accounting policy

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the entity and the revenue can be reliably measured. The principal sources of revenue are interest income and fees and commissions.

Interest income

Interest income is recognised on an accrual basis using the effective interest method. Further information is included in Note 1(j) Available-for-sale investments, Note 1(l) Loans, advances and other receivables, and Note 1(m) Leasing.

Lending fees

Fee income and direct costs relating to loan origination, financing or restructuring and to loan commitments are deferred and amortised to interest income over the life of the loan using the effective interest method. Fees received for commitments which are not expected to result in a loan are recognised in the profit and loss over the commitment period. Loan syndication fees where the Group does not retain a portion of the syndicated loan are recognised in income once the syndication has been completed. Where fees are received on an ongoing basis and represent the recoupment of the costs of maintaining and administering existing loans, these fees are taken to profit and loss on an accrual basis.

Fees and commission

When commission charges and fees relate to specific transactions or events, they are recognised in income in the period in which they are received. However, when they are charged for services provided over a period, they are recognised in income on an accrual basis.

Other income

Trading income is brought to account when earned based on changes in fair value of financial instruments and recorded from trade date. Further information is included in Notes 1(e) Foreign currency translations, 1(i) Assets at fair value through the Income Statement and Note 1(ff) Derivative financial instruments. Life insurance business income recognition is explained in Note 1(hh) below.

(iii) Change in accounting policy

Under AASB 118 and AASB 139, interest income now includes fees integral to the establishment of financial instruments using the effective interest method. Fee income and direct costs relating to loan origination are deferred and amortised to interest earned on loans, advances and other receivables over the life of the loan using the effective interest method.

There is no material change in the recognition and measurement of fees and commission and other income.

The changes have been applied from 1 July 2005.

(e) Foreign currency translations

The adoption of AASB 121 The Effects of Changes in Foreign Exchange Rates has not had a substantial impact on the reporting currency of the Group’s entities or the translation of foreign currency assets and liabilities. However, on transition under AASB 1 First-time Adoption of Australian Equivalents to IFRS, an option exists to transfer any amounts recorded within Foreign Currency Translation Reserve (FCTR) as at 1 July 2004 to retained earnings. For further details, refer to the change in accounting policy below.

39 Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation)

Notes to the Financial Statements continued

Note 1 Accounting Policies (continued)

(i) Current accounting policy

The functional currency of the domestic operations of the Bank has been determined to be Australian Dollars (AUD) as this currency best reflects the economic substance of the underlying events and circumstances relevant to the Bank. Each entity and overseas branch within the Group has also determined their functional currency based on their own primary economic indicators.

All foreign currency monetary items are revalued at spot rates of exchange prevailing at balance sheet date and changes in the spot rate are recorded in the profit and loss. Foreign currency forward, futures, swaps and option positions are revalued at the appropriate market rates applying at balance sheet date.

Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to AUD at foreign exchange rates ruling at the dates the fair value was determined. With the exception of the revaluations classified in equity, unrealised foreign currency gains and losses arising from these revaluations and gains and losses arising from foreign exchange dealings are included in the profit and loss.

The foreign currency assets and liabilities of overseas branches and controlled entities with an overseas functional currency are converted to AUD at balance sheet date in accordance with the foreign exchange rates ruling at that date. Profit and loss items for overseas branches and controlled entities are converted to AUD progressively throughout the year at the spot exchange rate at the date of the transaction. All resulting exchange differences are recognised in the FCTR as a separate component of equity.

Translation differences arising from conversion of opening balances of shareholders’ funds of overseas branches and controlled entities at year end exchange rates are reflected in the FCTR. The Group maintains a substantially matched position in assets and liabilities in foreign currencies and the level of net foreign currency exposure does not have a material impact on its financial condition.

(ii) Change in accounting policy

Under the option available within AASB 1 the Bank transferred the FCTR as at 30 June 2004 to Retained earnings.

The translation on non-monetary available-for-sale securities, the cash flow hedge reserve and net investments in foreign entities are all recorded in FTCR.

These changes have been applied retrospectively from 1 July 2004.

(f) Cash and liquid assets

The adoption of AIFRS, AASB 127 Consolidated and Separate Financial Statements and UIG 112 Consolidation – Special Purpose Entities has not had a substantial impact on the definition of cash and liquid assets. Additional entities have been consolidated into the Group, refer to Note 1(c) Consolidation. These changes have resulted in a gross-up of cash and liquid assets. For further details, refer to the change in accounting policy below.

(i) Current accounting policy

Cash and liquid assets includes cash at branches, cash at bankers, nostro balances, money at short call with an original maturity of three months or less and securities held under reverse repurchase agreements. They are brought to account at the face value or the gross value of the outstanding balance. Interest is taken to profit and loss using the effective interest method when earned.

(ii) Change in accounting policy

Under AASB 127 and UIG 112 special purpose vehicles used for the securitisation of loans and receivables by the Group will be consolidated under AIFRS. This will result in an increase in cash and liquid assets.

Under AASB 107 Cash Flow Statements, the definition of cash and liquid assets includes nostro balances. This balance was previously recorded in receivables from other financial institutions.

The change has been applied retrospectively from 1 July 2004.

(g) Receivables from other financial institutions

The adoption of AIFRS has not had a substantial impact on receivables from other financial institutions. For further details, refer to the change in accounting policy below.

(i) Current accounting policy

Receivables from other financial institutions includes loans, deposits with regulatory authorities and settlement account balances due from other banks. They are brought to account at the gross value of the outstanding balance. Interest is taken to profit and loss using the effective interest method.

(ii) Change in accounting policy

Under AASB 107 Cash Flow Statements, nostro balances, previously recorded separately in receivables from other financial institutions, have been reclassified to cash and liquid assets.

Deposits with regulatory authorities, previously recorded separately on the face of the balance sheet, have been reclassified to receivables from other financial institutions.

The change has been applied retrospectively from 1 July 2004

(h) Financial instruments

The adoption of AASB 132 Financial Instruments: Disclosure and Presentation, AASB 139 Financial Instruments: Recognition and Measurement and AASB 130 Disclosures in the Financial Statements of Banks and Similar Financial Institutions from 1 July 2005 has had a significant impact on the recognition, measurement and disclosure of financial instruments. Under these standards, the accounting policy has changed to recognise all derivatives in the balance sheet and to record all derivatives and some financial assets and liabilities at fair market value. Those financial assets and financial liabilities which are not at fair value will be carried at cost or amortised cost.

For each class of financial instrument listed below, except for restructured facilities referred to in Note 1(l) Loans, advances and other receivables, financial instruments are transacted on a commercial basis to derive an interest yield/cost with terms and conditions having due regard to the nature of the transaction and the risks involved.

Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation) 40

Notes to the Financial Statements continued

Note 1 Accounting Policies (continued)

Under AASB 132 and AASB 139, financial instruments are required to be classified into one of the following measurement categories which determines the accounting treatment of the item:

•

Assets at fair value through the Income Statement (Note 1 (i))

•

Available-for-sale investments (Note 1 (j))

•

Loans, advances and other receivables (Note 1 (l))

•

Liabilities at fair value through the Income Statement (Note 1 (x))

•

Liabilities at amortised cost

•

Equity (Note 1 (ee))

The change in accounting policy on transition to AIFRS for each class of financial instrument is detailed below. The application of AASB 139 to the recognition and measurement of financial assets and financial liabilities, including derivatives, has given rise to a transition adjustment and will increase volatility in reported profits. For a summary of the change in accounting policy for hedge accounting see Note 1(ff), Derivative financial instruments.

The Group has no held to maturity investments.

In line with the exemption provided by AASB 1, comparative information has not been restated under AASB 132 and AASB 139.

Offsetting financial instruments

The Group offsets financial assets and liabilities and reports the net balance in the Balance Sheet where there is a legally enforceable right to set off, and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.

Derecognition of financial instruments

The derecognition of a financial instrument takes place when the Group no longer controls the contractual rights that comprise the financial instrument, which is normally the case when the instrument is sold, or all the cash flows attributable to the instrument are passed through to an independent third party and the risks and rewards have substantially been transferred.

(i) Assets at fair value through the Income Statement

Assets at fair value through the Income Statement is a new class of financial asset under AASB 139. There is a substantial change in the recognition and disclosure of these financial assets, however, there is no material change in measurement. For further details, refer to the change in accounting policy below.

(i) Current Accounting policy

Assets at fair value through the Income Statement include assets that are primarily held for trading and assets that upon initial recognition are designated by the Group as at fair value through the Income Statement at origination. The assets are recognised initially at fair value and transaction costs are taken directly to profit and loss. Changes in the fair value of assets at fair value through the Income Statement are reported in other operating income. Dividends are reflected in other operating income when earned.

Assets at fair value through the Income Statement have been reclassified into three subcategories: Trading, Insurance and Other investments.

Trading

Trading assets are short and long term public, bank and other debt securities and equities that are acquired and held for trading purposes. They are brought to account at fair value based on quoted bid prices. In a trading portfolio with offsetting risk positions, quoted mid prices are used to measure the fair value. For non-market quoted assets, fair values have been determined using valuation techniques that are based on market conditions and risks existing at balance sheet date. Changes in fair value, and the reporting of interest and dividends earned are accounted for as outlined above. Trading assets are recorded on a trade date basis.

Insurance

Insurance investment assets include investment securities that back life insurance contracts and life investment contracts. They have been classified as “Assets at fair value through the Income Statement”. Refer to Note 1(hh), Life insurance business for further details.

Other investments

Other investments include financial assets which the Group has designated as assets at fair value through the Income Statement. They are brought to account at fair value based on quoted bid prices. Quoted mid prices are used to measure assets with offsetting risk positions in a portfolio at fair value.

For non-market quoted instruments, fair values have been determined using various methods and assumptions that are based on market conditions and risks existing at balance sheet date. Changes in fair value, and the reporting of interest and dividends earned are accounted for as outlined above. Other investments are recorded on a trade date basis.

(ii) Change in accounting policy

Under AASB 132 and AASB 139, there is a substantial change in the disclosure, recognition, measurement and presentation of financial assets. The standards have been applied from 1 July 2005. The changes are summarised below:

Assets at fair value through the Income Statement is a new category of financial asset.

Trading securities have been reclassified into assets at fair value through the Income Statement.

Insurance investment assets have been reclassified into Assets at fair value through the Income Statement.

Other investments is a new category of financial assets which is disclosed under Assets at fair value through the Income Statement. Other investments are measured at fair value. They were previously carried at cost or amortised cost predominantly in investment securities.

Quoted bid prices where available, are used to account for the fair value of assets. Quoted mid prices where available, are used to account for fair value of assets where there is an offsetting risk position in a portfolio. There is no material change in the measurement of assets at fair value.

Realised gains and losses on disposal and unrealised fair value adjustments are reflected in other operating income. Interest on other investments is reported in net interest earnings using the effective interest method. Dividends are reflected in other operating income when earned.

Other investments are recorded on a trade date basis.

41 Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation)

Notes to the Financial Statements continued

Note 1 Accounting Policies (continued)

(j) Available-for-sale investments

The adoption of AASB 132 and AASB 139 has had a substantial impact on the measurement and disclosure of those financial instruments now classified as available-for-sale investments. Additional entities have been consolidated into the Group, refer to Note 1(c) Consolidation. These changes have resulted in a material gross up of available-for-sale investments. For further details, refer to the change in accounting policy below.

(i) Current accounting policy

Available-for-sale investments are short and long term public, bank and other securities and include bonds, notes, bills of exchange, commercial paper, certificates of deposit, equities and rolling originations and syndications.

Available-for-sale investments are initially recognised at fair value including direct and incremental transaction costs and thereafter at fair value. Unquoted equities and investments whose fair value cannot be reliably measured are valued at cost. Gains and losses arising from changes in the fair value are reported in the available-for-sale revaluation reserve net of applicable income taxes until investments are sold, collected, otherwise disposed of, or until such investments become impaired. Interest, premiums and dividends are reflected in other operating income when earned.

Available-for-sale investments are tested for lasting impairment in line with Note 1(n) Provisions for impairment.

On disposal, the accumulated change in fair value within the available-for-sale revaluation reserve is transferred to profit and loss and reported under other operating income in available-for-sale investments.

(ii) Change in accounting policy

Under AASB 139, financial assets previously disclosed as investment securities have predominantly been reclassified to Available-for-sale investments and Loans, advances and other receivables.

Under AASB 139, the Group recognises available-for-sale investments initially at fair value, including direct and incremental transaction costs and thereafter at fair value. Investment securities which were previously recognised at cost or amortised cost have been restated to fair value. Changes in fair value have been included as a separate component of equity (available-for-sale revaluation reserve) until sale when the cumulative gain or loss is transferred to profit and loss. The change in measurement has been applied from 1 July 2005.

(k) Repurchase agreements

There is no material change in accounting policy.

Securities sold under agreements to repurchase are retained within the Available-for-sale investments or Assets at fair value through the Income Statement line items and accounted for accordingly in line with Note 1 (j) and (i) respectively.

Liability accounts are used to record the obligation to repurchase and disclosed as Deposits. Securities held under reverse repurchase agreements are recorded within Cash and liquid assets.

(l) Loans, advances and other receivables

The adoption of AASB 127, AASB132, AASB139 and UIG 112 has had a substantial impact on the recognition, measurement and disclosure of those financial instruments classified as loans, advances and other receivables. Additional entities have been consolidated into the Group, refer to Note 1(c) Consolidation. These changes have resulted in a material gross up of loans, advances and other receivables. For further details, refer to the change in accounting policy below.

(i) Current accounting policy

Loans, advances and other receivables are financial assets with fixed and determinable payments that are not quoted in an active market.

They include overdrafts, home loans, credit card and other personal lending, term loans, bill financing, redeemable preference shares, securities and finance leases. Loans, advances and other receivables are initially recognised at fair value including direct and incremental transaction costs. They are subsequently valued at amortised cost using the effective interest method. Where loans, advances and other receivables are originated with the intent to be sold immediately or in the short term, they are recorded in Assets at fair value through the Income Statement.

Note 1(m) and Note 1(n) provides additional information with respect to leasing and impairment respectively. For more details on revenue recognition refer to Note 1(d) Revenue recognition.

Non Performing Facilities

Individual provisions for impairment are recognised to reduce the carrying amount of loans and advances to their estimated recoverable amounts. Individually significant provisions are calculated based on discounted cash flows.

The unwinding of the discount from initial recognition of impairment through to recovery of the written down amount is recognised through ‘Interest Income’. In subsequent periods, interest in arrears/due on non performing facilities is taken to profit and loss when a cash payment is received/ realised and the amount is not designated as a principal payment.

Restructured Facilities

There is no change in accounting policy.

When facilities (primarily loans) have the original contractual terms modified, the accounts become classified as restructured. Such accounts will have interest accrued to profit and loss as long as the facility is performing on the modified basis in accordance with the restructured terms. If performance is not maintained, or collection of interest and/or principal is no longer probable, the account will be returned to the non performing classification. Facilities are generally kept as non performing until they are returned to a performing basis.

Assets Acquired Through Securities Enforcement

(“AATSE”)

There is no change in accounting policy.

Assets acquired in satisfaction of facilities in default (primarily loans) are recorded at net market value at the date of acquisition. Any difference between the carrying amount of the facility and the net market value of the assets acquired is represented as an individually assessed provision or written off. AATSE are further classified as Other Real Estate Owned (“OREO”) or Other Assets Acquired Through Security Enforcement (“OAATSE”). Such assets are classified in the appropriate asset classifications in the balance sheet.

Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation) 42

Notes to the Financial Statements continued

Note 1 Accounting Policies (continued)

Impairment of loans, advances and other receivables

There has been a change in the recognition and measurement of impairment of loans, advances and other receivables as explained in Note 1(n) Provisions for impairment.

(ii) Change in accounting policy

Under AASB 139, loans are measured at amortised cost using the effective interest rate method.

As explained in Note 1(n), the Group has individually assessed provisions and collective provisions for impairment. In addition, the measurement and recognition of those provisions has changed, which is also explained in Note 1(n).

The change in measurement has been applied from 1 July 2005.

The change in recognition associated with AASB 127 and UIG 112 has been applied retrospectively from 1 July 2004.

(m) Leasing

The adoption of AASB 117 Leases has not had a significant impact on the recognition, measurement or disclosure of leases. The changes are minimal except and so far as leveraged leases that were ‘grandfathered leveraged leases’ are now measured and disclosed as finance leases. For further details, refer to the change in accounting policy below.

(i) Current accounting policy

Leveraged leases are accounted for with income being brought to account at the rate which yield a constant rate of return on the outstanding investment balance over the life of the transaction so as to reflect the underlying assets, liabilities, revenue and expense that flowed from the arrangements. Where a change has occurred in the estimated lease cash flows or available tax benefits at any stage during the term of the lease, the total lease profit is recalculated for the entire lease term and apportioned over the remaining lease term.

Leases where the Group transfers substantially all the risks and rewards incident to ownership of an asset to the lessee are classified as finance leases. A receivable at an amount equal to the present value of the lease payments, including any guaranteed residual value, is recognised.

AASB 117 requires income on finance lease transactions to be recognised on a basis reflecting a constant periodic return based on the lessor’s net investment outstanding in respect of the finance lease.

The difference between the gross receivable and the present value of the receivable is unearned finance income and is recognised over the term of the lease using the effective interest method. Finance lease receivables are included in loans, advances and other receivables.

Leveraged leases are accounted for with income being brought to account at the rate which yield a constant rate of return on the outstanding investment balance over the life of the transaction so as to reflect the underlying assets, liabilities, revenue and expenses that flowed from the arrangements. Where a change has occurred in the estimated lease cash flows or available tax benefits at any stage during the term of the lease, the total lease profit is recalculated for the entire lease term and apportioned over the remaining lease term.

Leases where the Group retains substantially all the risk and rewards incident to ownership of an asset are classified as operating leases.

Operating lease rental revenue and expense is recognised in profit and loss on a straight-line basis over the lease term. The Group includes assets leased out under operating leases in property, plant and equipment. These assets are depreciated over their expected useful lives on a basis consistent with similar fixed assets.

(ii) Change in accounting policy

Previously, only leveraged leases with a lease term beginning from 1 July 1999 were accounted for as finance leases with income brought to account progressively over the lease term. With the adoption of AASB 117 Leases, all leveraged leases, including those written prior to 1 July 1999 will now be measured and disclosed as finance leases.

(n) Provisions for impairment

The adoption of AASB 139 Financial Instruments: Recognition and Measurement and AASB 136 Impairment of Assets has had a substantial impact on the measurement and recognition of impairment of financial and non-financial assets. For further details, refer to the change in accounting policy below.

(i) Current accounting policy

Financial assets

Financial assets, excluding derivative assets and assets at fair value through the Income Statement, are reviewed at each balance sheet date to determine whether there is objective evidence of impairment. A financial asset or portfolio of financial assets is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more loss events that occurred after the initial recognition of the asset and prior to the balance sheet date (“a loss event”) and that loss event or events has had an impact on the estimated future cash flows of the financial asset or the portfolio that can be reliably estimated. If any such indication exists, the asset’s carrying amount is written down to the asset’s estimated recoverable amount.

Loans, advances and other receivables

The Group assesses at each balance date whether there is any objective evidence of impairment.

If there is objective evidence that an impairment loss on loans, advances and other receivables has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of the expected future cash flows (excluding future credit losses that have not been incurred), discounted at the financial asset’s original effective interest rate. Short-term balances are not discounted.

Loans and advances are presented net of provisions for loan impairment. The Group has Individually Assessed provisions and Collectively Assessed provisions. Individually assessed provisions are made against individually significant financial assets and those that are not individually significant, including groups of financial assets with similar credit risk characteristics.

All other loans and advances that do not have an individually assessed provision are assessed collectively for impairment.

43 Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation)

Notes to the Financial Statements continued

Note 1 Accounting Policies (continued)

Collective provisions are maintained to reduce the carrying amount of portfolios of similar loans and advances to their estimated recoverable amounts at the balance sheet date.

The expected future cash flows for portfolios of similar assets are estimated on the basis of historical loss experience, for assets with credit risk characteristics similar to those in the group. Loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the loss experience is based and to remove the effects of conditions in the period that do not currently exist. Increases or decreases in the provision amount are recognised in the profit and loss.

Available-for-sale investments

When a decline in the fair value of an available-for-sale investment has been recognised directly in equity and there is objective evidence that the asset is impaired, the cumulative loss that had been recognised directly in equity (refer Note 1(j)) shall be removed from equity and recognised in the profit and loss.

If in a subsequent period the amount of an impairment loss for an available-for-sale debt security decreases and the decrease can be linked objectively to an event occurring after the impairment event, the impairment is reversed through the profit and loss. However impairment losses on available for sale equity securities are not reversed while the asset is still recognised.

Goodwill and other non-financial assets

Goodwill balances and intangible assets with an indefinite useful life are assessed for impairment at each reporting date or more regularly where an indication of impairment exists. Please refer to Note 1(t) Intangibles for more details on goodwill and intangibles impairment testing. If any such indication exists, the asset’s carrying amount is written down to the asset’s estimated recoverable amount and this loss is recognised in the profit and loss in the period in which it occurs.

The carrying amounts of the Group’s other non-financial assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated.

The recoverable amount of an asset (other than goodwill) can be the greater of their fair value less cost to sell or value in use. The Group’s policy is to use the fair value less costs to sell in assessing recoverable amount. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the profit and loss.

A previously recognised impairment loss (except for goodwill) is reversed if there has been a change in the estimates used to determine the recoverable amount. However, the reversal is not to an amount higher than the carrying amount that would have been determined, net of amortisation or depreciation, if no impairment loss had been recognised in prior years.

Off-balance sheet items

Under AASB 137 Provisions, Contingent Liabilities and Contingent Assets, provisions for impairment on off-balance sheet items such as a commitment are reported in other provisions. Measurement of provisions is discussed further in Note 1(aa) Provisions.

The amounts required to bring the provisions for impairment to their assessed levels are charged to profit and loss.

(ii) Change in accounting policy

Under previous AGAAP and in line with market practice, the Group’s general provision for bad and doubtful debts was maintained to cover non identified probable losses and latent risks inherent in the overall portfolio of advances and other credit transactions.

Under AIFRS, the Group must raise impairment provisions in respect of only those advances and credit transactions, for which there is ‘objective evidence’ of impairment as at each balance sheet date.

As a result of this change, there will be a reduction in the amount of the Bank’s collective provisioning for impaired loans.

Specific provisions will now be known as individually assessed provisions and are established where objective evidence of impairment has been identified via an individual assessment of a financial asset or group of financial assets.

Individually significant provisions are assessed as the difference between the assets carrying amount and the present value of estimated future cash flows discounted at the assets original effective interest rate.

Loans and advances that do not have an individually assessed provision are assessed collectively for impairment.

The transitional provisions for loan impairment will result in adjustments to existing provisions being taken to Retained profits.

The difference between the post-tax equivalents of the previous general provision and new collective provision has been appropriated from Retained profits to a separate component of equity, general reserve for credit losses.

(o) Bank acceptances of customers

There is no change in accounting policy.

The exposure arising from the acceptance of bills of exchange that are sold into the market is brought to account as a liability. An asset of equal value is raised to reflect the offsetting claim against the drawer of the bill. Bank acceptances generate fee income that is taken to profit and loss when earned.

(p) Shares in and loans to controlled entities

There has been no substantial change in accounting policy.

Shares in controlled entities are carried in the Bank’s financial statements at the lower of cost of acquisition or recoverable amount, and loans to controlled entities are measured at amortised cost using the effective interest method.

These assets are brought to account at fair value when impaired and a provision is raised as per Note 1(n) Provisions for impairment.

(q) Investment property

The adoption of AASB 116 Property, Plant and Equipment and AASB 140 Investment Property have not had a material impact on the recognition and measurement of these assets. There have however been some disclosure changes in relation to investment property. For further details, refer to the change in accounting policy below.

(i) Current accounting policy

Investment properties are classified as properties held to earn rental income and/or for capital appreciation.

Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation) 44

Notes to the Financial Statements continued

Note 1 Accounting Policies (continued)

The Group carries investment properties at fair value based on a valuation performed by professional valuers. Valuations are carried out annually. Fair value movements are taken to the profit and loss in the year in which they arise.

Investment properties are separately disclosed on the face of the balance sheet and in the notes to the financial statements.

(ii) Change in accounting policy

Investment properties were previously included within Property, Plant and Equipment and are now split out and separately disclosed on the face of the balance sheet and in the notes to the financial statements.

The changes in disclosure have been applied from 1 July 2005.

(r) Assets classified as held for sale

The adoption of AASB 5 Non-Current Assets Held for Sale and Discontinued Operations, and AASB 116 Property, Plant and Equipment have not had a material impact on the recognition and measurement of these assets. There have been some disclosure changes in relation to assets classified as held for sale. For further details, refer to the change in accounting policy below.

(i) Current accounting policy

Assets are classified as held for sale when their carrying amounts will be recovered principally through sale within 12 months. They are measured at the lower of carrying amount and fair value less costs to sell and if material are disclosed separately on the face of the balance sheet.

Assets classified as held for sale are neither amortised nor depreciated.

(ii) Change in accounting policy

Assets classified as held for sale were previously included within Property, Plant and Equipment and are now split out and if material, separately disclosed on the face of the balance sheet and in the notes to the financial statements.

The changes in disclosure have been applied from 1 July 2005.

(s) Property, Plant and Equipment

The adoption of AASB 5 Non-Current Assets Held for Sale and Discontinued Operations, AASB 116 Property, Plant and Equipment and AASB 140 Investment Property have not had a material impact on the recognition and measurement of these assets. There have been some disclosure changes in relation to investment property and assets classified as held for sale. For further details, refer to the change in accounting policy below.

(i) Current accounting policy

The Group measures its property assets (land and buildings) on a fair value measurement basis which is based upon independent market valuations.

Any increments in fair value is recognised in the profit and loss to the extent that it reverses a revaluation decrease of the same asset previously recognised in the profit and loss. Gains or losses on disposals are determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item. Realised amounts in the Asset Revaluation Reserve are transferred to Retained profits.

Equipment is shown at cost less accumulated depreciation and provision for impairment, if any. Depreciation is calculated principally on a category basis at rates applicable to each category’s useful life using the straight-line method. It is treated as an operating expense and charged to the profit and loss. The amounts charged for the year are shown in Note 3 Operating Expenses.

Computer software is capitalised at cost and classified as Property, Plant and Equipment where it is deemed integral to the operation of associated hardware.

The useful lives of major depreciable asset categories are as follows:


Buildings

Shell		Maximum 30 years
Integral plant and equipment
Carpets		10 years
All other (air-conditioning, lifts)		20 years
Non integral plant and equipment
Fixtures and fittings		10 years

Leasehold improvements

Leasehold Improvements		Lesser of unexpired lease term or
		lives as above
Equipment

Security surveillance systems		10 years
Furniture		8 years
Office machinery		5 years
EFTPOS machines		3 years

Depreciation rates and methods underlying the calculation of depreciation of items of property, plant and equipment are kept under review to take account of any change in circumstances.

No depreciation is provided on freehold land, although, in common with all long-lived assets, it is subject to impairment testing, if deemed appropriate.

Property, plant and equipment are periodically reviewed for impairment. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately through profit and loss to its recoverable amount.

Where the Group expects the carrying amount of assets held within property, plant and equipment to be recovered principally through a sale transaction in the short-term rather than through continuing use, these assets are classified as held for sale.

(ii) Change in accounting policy

Under AASB 116 Property, Plant and Equipment, property revaluations were previously recognised on a class of asset basis where increments and decrements are offset against each other when they relate to the same class of assets. Under AIFRS, such increments and decrements can now be only offset when they relate to the same asset. This has led to revaluation amounts that were previously offset being allocated back to assets.

45 Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation)

Notes to the Financial Statements continued

Note 1 Accounting Policies (continued)

Investment properties and assets classified as held for sale previously included within property, plant and equipment have been split out and if material, are separately disclosed on the face of the balance sheet and in the notes to the financial statements. For further details refer to Note 1(q) and Note 1(r) on Investment property and Assets classified as held for sale respectively.

Previously, realised amounts in the Asset Revaluation Reserve were transferred to Capital Reserve, but are now transferred to Retained profits.

The changes in disclosure have been applied from 1 July 2004.

(t) Intangibles

The adoption of AASB 138 Intangible Assets has had a substantial impact on the recognition, measurement and disclosure of Intangibles. For further details, refer to the change in accounting policy below.

(i) Current accounting policy

Goodwill

Goodwill, representing the excess of purchase consideration plus incidental expenses over the fair value of the identifiable net assets at the time of acquisition of an entity, is capitalised and brought to account in the balance sheet.

Goodwill is reviewed annually for impairment at each reporting date, or more frequently if events or changes in circumstances indicate that it might be impaired. For the purposes of impairment testing, goodwill is allocated to cash-generating units or groups of units. A cash-generating unit is the smallest identifiable group of assets that generate independent cash flows. Goodwill is allocated by the Group to cash generating units or groups of units based on how goodwill is monitored by management.

An impairment loss is recognised for a cash-generating unit if the recoverable amount of the unit/ group of units is less than the carrying amount of the unit/group of units. The recoverable amount of the cash-generating units is calculated as the fair value less costs to sell measured using readily available market data and assumptions. Impairment losses on goodwill are not subsequently reversed.

Gains and losses on the disposal of an entity are net of the carrying amount of the goodwill relating to the entity sold.

Computer software costs

Where computer software costs are not integrally related to associated hardware, the Group recognises them as an intangible asset where they are clearly identifiable, can be reliably measured and it is probable they will lead to future economic benefits that the Group controls.

The Group carries capitalised software assets at cost less amortisation and any impairment losses, if any.

These assets are amortised over the estimated useful lives on a straight-line basis at a rate applicable to the expected useful life of the asset, but which is usually 2¹/2 years. Software maintenance costs continue to be expensed as incurred.

Any impairment loss is recognised in the profit and loss when incurred.

Other Intangibles

Other intangibles comprise acquired management fee rights and customer lists where they are clearly identifiable, can be reliably measured and where it is probable they will lead to future economic benefits that the Group controls.

The Group carries capitalised management fee rights and customer lists at costs less amortisation and any impairment losses. These assets are either deemed indefinite and assessed annually for impairment or amortised over the estimated useful lives on a straight-line basis over a period not usually exceeding ten years.

Any impairment loss is recognised in the profit and loss when incurred.

Under AASB 138, the acquired component of any excess of the net market value over net assets of the Group’s life insurance controlled entities is classified to goodwill.

(ii) Change in accounting policy

Under AASB 138, goodwill is no longer required to be amortised, but is subject to an annual impairment test, or more frequent tests if events or changes in circumstances indicate that it might be impaired. On transition, goodwill is included on the basis of its deemed cost as at 1 July 2004 which represents the carrying amount recorded under previous AGAAP.

The AIFRS standards have not been applied retrospectively to business combinations that occurred prior to 1 July 2004 in preparing the Group’s opening AIFRS balance sheet at 30 June 2005. The only adjustment made to goodwill has been the recognition of other separately identifiable intangible assets for capitalised management fee rights and customer lists.

Computer software cost was previously included in Other assets, but has either been reclassified to intangible assets or property, plant and equipment.

Under AASB 138 the asset representing the excess of the net market value over net assets of the Group’s life insurance controlled entities can no longer be recognised in full. The acquired component has been reclassified to goodwill and the write off of the internally generated component has been reflected on transition at 1 July 2004 against the General Reserve. For further details, refer to Note 1(hh) Life Insurance Business.

(u) Other assets

The adoption of AASB 132, AASB 138 and AASB 1038 Life Insurance Contracts, has resulted in the reclassification of derivative assets, computer software costs and the asset representing the excess of the net market value of net assets of the Group’s Life Insurance controlled entities. For further details, refer to the change in accounting policy below.

(i) Current accounting policy

Other assets include all other financial assets and include interest, fees and other unrealised income receivable, and securities sold not delivered. These assets are recorded at the cash value to be realised when settled.

The net surpluses or deficits that arise within defined benefit superannuation plans are recognised and disclosed separately in other assets and bills payable and other liabilities. As the bank carries a net surplus, no funding of the Australian defined benefit superannuation plan is required, therefore the related expense has been treated as a non cash item.

Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation) 46

Notes to the Financial Statements continued

Note 1 Accounting Policies (continued)

(ii) Change in accounting policy

Capitalised computer software cost has been reclassified to Intangible assets. Trading derivatives have been reclassified to Derivative assets.

Under AASB 138 the asset representing the excess of the net market value over net assets of the Group’s life insurance controlled entities can no longer be recognised in full.

The acquired component has been reclassified to goodwill and the write off of the internally generated component has been reflected on transition at 1 July 2004 against the General Reserve. For further details, refer to Note 1(hh) Life Insurance Business.

Under AASB 119, the surplus within the defined benefit superannuation plan has been recognised and disclosed within other assets. The change in measurement has been applied retrospectively from 1 July 2004.

(v) Deposits from Customers

The adoption of AASB 132 and AASB 139 has not had a substantial impact on deposits and other public borrowings. The changes relate to measurement and recognition. For further details, refer to the change in accounting policy below.

(i) Current accounting policy

Deposits and other public borrowings includes certificates of deposits, term deposits, savings deposits, cheque and other demand deposits, debentures and other funds raised publicly by borrowing corporations. They are brought to account at fair value plus directly attributable transaction costs at inception. Deposits and other public borrowings are subsequently stated at amortised cost. Interest and yield related fees are taken to profit and loss based on the effective interest method when incurred.

Where the Group has hedged the deposits with derivative instruments, hedge accounting rules are applied (refer to Note 1(ff) Derivative financial instruments).

(ii) Change in accounting policy

Interest and yield related fees are taken to profit and loss based on the effective interest method when incurred, whereas previously interest was taken to profit and loss on an accrual basis when incurred. There has been no substantial change in the carrying value of deposits and other public borrowings as a result of this change.

The change has been applied from 1 July 2005.

(w) Payables to other financial institutions

The adoption of AASB 132 and AASB 139 has not had a substantial impact on payables to other financial institutions. The changes relate to measurement and recognition. For further details, refer to the change in accounting policy below.

(i) Current accounting policy

Payables to other financial institutions includes deposits, vostro balances and settlement account balances due to other banks. They are brought to account at fair value plus directly attributable transaction costs at inception.

Payables to other financial institutions are subsequently stated at amortised cost. Interest and yield related fees are taken to profit and loss using the effective interest method when incurred.

(ii) Change in accounting policy

Interest and yield related fees are taken to the profit and loss based on the effective interest method when incurred, whereas previously interest was taken to profit and loss on an accrual basis when incurred. There has been no substantial change in the carrying value of Payables to other financial institutions as a result of this change.

The liabilities are measured at fair value plus directly attributable transaction costs at inception. They are subsequently stated at amortised cost. They were previously carried at the gross value of the outstanding balance. The change has been applied from 1 July 2005.

(x) Liabilities at fair value through the Income Statement

Liabilities at fair value through the Income Statement is a new class of financial liabilities under AASB 139. There is a substantial change in the recognition, measurement and disclosure of these liabilities. For further details, refer to the change in accounting policy below.

(i) Current accounting policy

The Group designates certain liabilities as at fair value through the Income Statement on origination where those liabilities are managed on a fair value basis. Changes in the fair value of liabilities through the Income Statement are reported in profit and loss. For quoted liabilities quoted offer prices are used to measure fair value. Quoted mid prices are used to measure liabilities at fair value through the Income Statement with offsetting risk positions in a portfolio at fair value. For non-market quoted liabilities, fair values have been determined using valuation techniques.

(ii) Change in accounting policy

Under AASB 139, certain financial liabilities that were predominantly disclosed as deposits from customers and debt issues at amortised cost under previous AGAAP, are now reclassified to liabilities at fair value through the Income Statement. The change in measurement has been applied from 1 July 2005.

(y) Income taxes

The adoption of AASB 112 Income Taxes and UIG 1052 Tax Consolidation Accounting has had an impact on the measurement and disclosure of income taxes of the tax-consolidated Group, and thus, of various members of the Group. For further details, refer to the change in accounting policy below.

(i) Current accounting policy

Income tax on the profit and loss for the year comprises current and deferred tax.

Income tax is recognised in the profit and loss, except to the extent that it relates to items recognised directly to equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

47 Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation)

Notes to the Financial Statements continued

Note 1 Accounting Policies (continued)

The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date and are expected to apply when the deferred tax asset is realised or the deferred tax liability is settled.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

The Commonwealth Bank of Australia elected to be taxed as a single entity under the tax consolidation system with effect from 1 July 2002.

The Bank has formally notified the Australian Taxation Office of its adoption of the tax consolidation regime. In addition to the Bank electing to be taxed as a single entity under the tax consolidation regime, the measurement and disclosure of deferred tax assets and liabilities has been performed in accordance with the principles in AASB 112, and on a stand alone basis under UIG 1052.

Any current tax liabilities/assets (after the elimination of intra-group transactions) and deferred tax assets arising from unused tax losses assumed by the Bank from the subsidiaries in the tax consolidated group are recognised in conjunction with any tax funding arrangement amounts (refer below). Any difference between these amounts is recognised by the Bank as an equity contribution to or distribution from the subsidiary.

The Bank recognises deferred tax assets arising from unused tax losses of the tax-consolidated group to the extent that it is probable that future taxable profits of the tax-consolidated group will be available against which the asset can be utilised.

Any subsequent period adjustments to deferred tax assets arising from unused tax losses assumed from subsidiaries are recognised by the Bank only.

The members of the tax-consolidated group have entered into a tax funding arrangement which sets out the funding obligations of members of the tax-consolidated group in respect of tax amounts.

(ii) Change in accounting policy

A “balance sheet” approach to tax-effect accounting is followed under AIFRS replacing the previous “liability method”. This approach recognises deferred tax balances when there is a difference between the carrying value of an asset or liability and its tax base. Also, unused tax losses are now recognised as deferred tax assets to the extent that it is probable that future taxable profits will be available, whereas previously the tax losses had to be virtually certain of being utilised. As at 1 July 2004 these changes in approach did not result in any material adjustment to Shareholders’ Equity other than as a result of other AIFRS transition adjustments.

In addition, deferred tax assets/liabilities are now separately disclosed on the face of the Balance Sheet. Additional disclosures have been provided in the notes to the financial statements.

(z) Employee benefits

The adoption of AASB 119 Employee Benefits and AASB 2 Share-based Payments have had a substantial impact on the recognition, measurement and disclosure of net surpluses and/or deficits of the defined benefit superannuation plans. For further details, refer to the change in accounting policy below.

(i) Current accounting policy

Annual leave

The provision for annual leave represents the current outstanding liability to employees at balance sheet date.

Long service leave

The provision for long service leave is discounted to the present value and is subject to actuarial review and is maintained at a level that accords with actuarial advice.

Other employee benefits

The provision for other employee entitlements represents liabilities for staff housing loan benefits, a subsidy to a registered health fund with respect to retired employees and current employees, and employee incentives under employee share plans and bonus schemes.

The level of these provisions has been determined in accordance with the requirements of AASB 119.

Under AASB 2 Share-based Payments, the Group engages in equity settled share-based compensation in respect of services received from certain of its employees. The fair value of the share-based compensation is calculated at grant date and amortised to profit and loss against the Equity Compensation Reserve over the vesting period, subject to service and performance conditions being met.

When allocating share based payments, the Bank purchases shares on market and recognises them at cost as a deduction to Share capital (Treasury Shares). On settlement the shares are issued and recognised against the Equity Compensation Reserve.

Defined benefit superannuation plan

The Group currently sponsors two defined benefit superannuation plans for its employees. The assets and liabilities of these plans are legally held in separate trustee-administered funds. They are calculated separately for each plan by assessing the fair value of plan assets and deducting the amount of future benefit that employees have earned in return for their service in current and prior periods discounted to present value. The discount rate is the yield at balance sheet date on government securities which have terms to maturity approximating to the terms of the related liability. The defined benefit superannuation plan surpluses and/or deficits are calculated by fund actuaries. Contributions to all superannuation plans are made in accordance with the rules of the plans. As the Australian plan is in surplus, no funding is currently necessary.

Actuarial gains and losses related to defined benefit superannuation plans are directly recorded in retained profits. The net surpluses or deficits that arise within defined benefit superannuation plans are recognised and disclosed separately in other assets and bills payable and other liabilities.

Defined contribution superannuation plan

The Group sponsors a number of defined contribution superannuation plans. Certain plans permit employees to make contributions and earn matching or other contributions from the Group. The Group recognises contributions due in respect of the accounting period in the profit and loss. Any contributions unpaid at the balance sheet date are included as a liability.

Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation) 48

Notes to the Financial Statements continued

Note 1 Accounting Policies (continued)

Superannuation plan expense

Under AIFRS, an additional non-cash expense is recognised reflecting the accrual accounting charge to profit and loss associated with defined benefit superannuation plans.

(ii) Change in accounting policy

The Group sponsors two defined benefit superannuation plans on behalf of its employees. Previously, the net surpluses and/or deficits of these plans were not included in the financial statements.

Under AASB 119, the surpluses or deficits that arise within defined benefit superannuation plans are recognised and disclosed separately in other assets and bills payable and other liabilities. From 1 July 2004, the actuarial gains and losses relating to defined benefit superannuation plans are recorded in retained profits. On transition to AIFRS, the comparative period beginning 1 July 2004 recorded an opening Retained profits adjustment where an additional non-cash expense is recognised reflecting the accrual accounting charge to profit and loss associated with defined benefit superannuation plans.

Under previous AGAAP, the Bank accrued all share-based compensation on a cost basis and amortised it to expense over the vesting period where there were performance hurdles to be met. Shares in the Bank were purchased by a Trust when the shares were granted and held until they are vested to the employee. Under AASB 2, AASB 119 and AASB 132 the fair value of the share-based compensation is calculated at grant date and amortised to the profit and loss over the vesting period, subject to service and performance conditions being met.

Shares in the Bank held by the Trust will be consolidated, reclassified as ‘Treasury Shares’ and accounted for as a deduction from Share capital.

(aa) Provisions

The adoption of AASB 137 Provisions, Contingent Liabilities and Contingent Assets has not had any material impact on provisions.

(i) Current accounting policy

A provision is recognised in the balance sheet when the Group has a legal or constructive obligation as a result of a past event, and where it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made.

Provision for dividend

A provision for dividend payable is recognised when dividends are declared in the period in which they are approved by the Group’s shareholders.

Provisions for restructuring

Provisions for restructuring are brought to account where there is a detailed formal plan for restructure and a demonstrated commitment to that plan.

Provision for ‘Which new Bank’ costs

On 19 September 2003, the Group launched its “Which new Bank” customer service vision. This is a three year transformation programme and involves the Bank in additional expenditure in the key areas of staff training and skilling, systems and process simplification, and technology. Such expenses provided for principally comprise redundancies and process improvements.

Provision for self-insurance

The provision for self-insurance covers certain non-lending losses and non-transferred insurance risks. Actuarial reviews are carried out at regular intervals with provisioning effected in accordance with actuarial advice.

(bb) Debt issues

The adoption of AASB 127 and AASB 139 and UIG 112 has had a substantial impact on the recognition and measurement of debt issues.

Additional entities have been consolidated into the Group, refer to Note 1(c) Consolidation. These changes have resulted in a material gross up of debt issues.

Certain debt issues are designated within fair value hedging relationships and as a result the debt hedge has been measured at fair value for the risk that has been hedged.

For further details, refer to the change in accounting policy below.

(i) Current accounting policy

Debt issues are short and long term debt issues of the Group including commercial paper, notes, term loans and medium term notes. Commercial paper, floating, fixed and structured debt issues are recorded at cost or amortised cost using the effective interest method. Premiums, discounts and associated issue expenses are recognised using the effective interest method through the profit and loss from the date of issue to ensure that securities attain their redemption values by maturity date.

Interest is charged against profit and loss using the effective interest method when incurred. Any profits or losses arising from redemption prior to maturity are taken to the profit and loss in the period in which they are realised.

Hedging

The Group hedges interest rate and foreign currency risk on certain debt issues. When hedge accounting is applied to fixed rate debt issues, the carrying values are adjusted for changes in fair value related to the hedged risks rather than carried at amortised cost. Refer to Note 1(ff) Derivative financial instruments.

(ii) Change in accounting policy

Premiums, discounts and associated issue expenses are recognised using the effective interest method through the profit and loss each year from the date of issue to ensure securities attain their redemption values by maturity date.

Under previous AGAAP, these items were recognised on an accrual basis through the profit and loss.

The requirement to separate embedded derivatives from debt issues is new under AASB 139. The change has been applied from 1 July 2005.

Debt issued by entities used to securitise assets of the Group, and certain asset-backed conduit entities, are consolidated under AIFRS. This results in material gross-ups of debt issues and the related interest expense (assets and related income are similarly grossed up). This change has been applied retrospectively from 1 July 2004.

49 Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation)

Notes to the Financial Statements continued

Note 1 Accounting Policies (continued)

(cc) Bills payable and other liabilities

The adoption of AASB 119, AASB 127 and AASB 139 and UIG 112 has not had a substantial impact on Bills payable and other liabilities. For further details, refer to the change in accounting policy below.

(i) Current accounting policy

Bills payable and other liabilities includes interest, fees, defined benefit superannuation plan deficit, other unrealised expenses payable and securities purchased not delivered.

The superannuation plan deficit is recorded in line with Note 1(z) Employee benefits while the remaining liabilities are recorded at amortised cost using the effective interest method.

(ii) Change in accounting policy

Additional entities have been consolidated into the Group, refer to Note 1(c) Consolidation. These changes have resulted in a reduction of bills payable and other liabilities due to inter company eliminations.

Market revaluation of trading derivatives previously recorded in bills payable and other liabilities have been reclassified to derivative financial instruments from 1 July 2005.

Under AASB 119, the deficit within one defined benefit superannuation plan has been recognised and disclosed in bills payable and other liabilities. The change in measurement has been applied retrospectively from 1 July 2004.

(dd) Loan capital

The adoption of AASB 132 and AASB 139 has had a substantial impact on the disclosure and measurement of loan capital. Certain hybrid financial instruments of the Group previously classified as equity instruments, have now been classified as loan capital. For further details, refer to the change in accounting policy below.

(i) Current accounting policy

Loan capital is debt issued by the Group with terms and conditions, such as being undated or subordinated, which qualify the debt issue for inclusion as capital under APRA Prudential Standards. Loan capital debt issues are initially recorded at fair value plus transaction costs that are directly attributable to the loan capital debt issue. After initial recognition the loan capital debt issue shall be measured at amortised cost using the effective interest method.

Interest inclusive of premiums, discounts and associated issue expenses are recognised using the effective interest method over the expected life of the instrument through the profit and loss each year from the date of issue so that they attain their redemption values by maturity date. Any profits or losses arising from redemption prior to expected maturity are taken to the profit and loss in the period in which they are realised.

(ii) Change in accounting policy

From 1 July 2005, under AASB 132, certain hybrid financial instruments of the Group which were previously classified as equity with the associated distribution reported as dividends paid, are now classified as loan capital and the associated distribution reported as interest expense.

Interest, inclusive of premiums, discounts and associated issue expenses are amortised through profit and loss each year using the effective interest method.

Previously, they were taken to the profit and loss on a straight line basis when incurred.

(ee) Shareholders’ equity

The adoption of AASB 132 has had a substantial impact on the recognition and disclosure of shareholder’s equity. For further details, refer to the change in accounting policy below.

(i) Current accounting policy

Ordinary share capital is the amount of paid up capital from the issue of ordinary shares.

Under AASB 132, Treasury Shares are deducted from Ordinary share capital. Gains or losses on the reissue of Treasury Shares are recognised in Shareholders’ Equity within Other contributed capital.

Other contributed capital represents the movement between acquisition and reissue price of Treasury Shares.

General reserve is derived from revenue profits and is available for dividend except for undistributable profits in respect of the Group’s life insurance businesses.

Capital reserve was derived from capital profits and is available for dividend.

A General Reserve for Credit Loss has been appropriated from Retained profits to comply with APRA’s proposed prudential requirements.

(ii) Change in accounting policy

From 1 July 2004, under AASB 127 Treasury Shares are deducted from ordinary share capital. The gain or loss on reissue of Treasury Shares is recognised in Other contributed capital. The minority interests in controlled unit trusts of the life insurance companies no longer qualify as equity. As a result, the Group has, on adoption of AIFRS, reclassified outside equity interests in life insurance statutory funds and other funds as liabilities.

From 1 July 2005 certain hybrid financial instruments previously recorded in Shareholders’ Equity have been reclassified as Loan capital.

(ff) Derivative financial instruments

The adoption of AASB 132 and 139 has had a substantial impact on the recognition, measurement and disclosure of derivative financial instruments. For further details, refer to the change in accounting policy below.

(i) Current accounting policy

The Group has a significant volume of derivative financial instruments that include foreign exchange contracts, forward rate agreements, futures, options and interest rate, currency, equity and credit swaps.

Derivative financial instruments are used as part of the Group’s trading activities and to hedge certain assets and liabilities. All derivatives that do not meet the hedging criteria under AASB 139 are classified as derivatives held for trading.

The Group initially recognises derivative financial instruments in the balance sheet at the fair value of consideration given or received. They are subsequently remeasured to fair value based on quoted market prices, broker or dealer price quotations. A positive revaluation amount of a contract is reported as an asset and a negative revaluation amount of a contract as a liability.

Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation) 50

Notes to the Financial Statements continued

Note 1 Accounting Policies (continued)

Changes in fair value of trading derivatives are reflected in the profit and loss immediately as they occur unless a derivative is designated within a hedging relationship.

Derivative financial instruments utilised for hedging relationships

The Group also uses derivative instruments as part of its asset and liability management activities to manage exposures to interest rate, foreign currency and credit risks, including exposures arising from forecast transactions. Hedge accounting can be applied subject to certain rules for fair value hedges, cash flow hedges and hedges of foreign operations. Cash flow and fair value hedges are the predominant hedging models applied by the Group.

Swaps

Interest rate swap receipts and payments are accrued to the profit and loss using the effective interest method as interest of the hedged item or class of items being hedged over the term for which the swap is effective as a hedge of that designated item.

Similarly with cross currency swaps, interest rate receipts and payments are brought to account on the same basis outlined in the previous paragraph. In addition, the initial principal flows are revalued to market at the current market exchange rate with revaluation gains and losses taken to profit and loss against revaluation losses and gains of the underlying hedged item or class of items.

Fair value hedges

For fair value hedges, the change in fair value of the hedging derivative, and the hedged risk of the hedged item, is recognised in the Income Statement within Other operating income. If the fair value hedge relationship is terminated for reasons other than the derecognising of the hedged item, fair value hedge accounting ceases and the fair value of the hedged item is amortised to profit and loss over the remaining term of the original hedge. If the hedged item is derecognised the unamortised fair value adjustment is recognised immediately in the profit and loss.

Cash flow hedges

A fair valuation gain or loss associated with the effective portion of a derivative designated as a cash flow hedge is recognised initially in Shareholders’ Equity within the cash flow hedge reserve. Amounts from the cash flow hedge reserve are transferred to the profit and loss when the cash flows on the hedged item are recognised in profit and loss. Gains and losses resulting from cash flow hedge ineffectiveness are recorded in the profit and loss.

This represents the amount by which changes in the fair value of the expected cash flow of the hedging derivative differ from the fair value of the changes (or expected changes) in the cash flow of the hedged item.

Where the hedged item is derecognised, the cumulative gain or loss is recognised immediately in the profit and loss. If for reasons other than the derecognition of the hedged item, cash flow hedge accounting ceases, the cumulative gains or losses are amortised over the remaining term of the original hedge.

Embedded derivatives

A derivative may be embedded within a host contract. If the host contract is not already carried at fair value with changes in fair value reported in the profit and loss, the embedded derivative is separated from the host contract where the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract. This is then accounted for as a stand-alone derivative instrument at fair value.

(ii) Change in accounting policy

The adoption of AASB 132 and AASB 139 has had a substantial impact on the recognition, measurement and disclosure of derivative financial instruments. The changes are summarised below:

Derivative assets and derivative liabilities are to be recognised at fair value and disclosed separately on the face of the balance sheet.

The Group complies with new hedge accounting rules which include the use of predominantly fair value or cash flow hedges, the designation of hedging relationships and the documentation of these relationships.

Embedded derivatives are now required to be identified, separated and fair valued provided they are not closely related to their host contract.


(gg)		Commitments to extend credit, letters of credit, guarantees, warranties and indemnities issued

The adoption of AASB 132 and AASB 139 has had a substantial change in the disclosure, recognition, measurement and presentation of certain financial liabilities which were previously treated as contingent liabilities. For further details, refer to change in accounting policy below.

(i) Current accounting policy

Contingent liabilities are possible obligations whose existence will be confirmed only by uncertain future events or present obligations where the transfer of economic benefit is uncertain or cannot be reliably measured. Contingent liabilities are not recognised but are disclosed unless they are remote.

Financial guarantees are given to banks, financial institutions and other bodies on behalf of customers to secure loans, overdrafts and other banking facilities, and to other parties in connection with the performance of customers under obligations related to contracts, advance payments made by other parties, tenders, retentions and the payment of import duties.

Financial guarantee contracts are initially recognised in the financial statements at fair value on the date that the guarantee was given.

Subsequent to initial recognition, the bank’s liabilities under such guarantees are measured at the higher of the initial measurement, less amortisation calculated to recognise in the profit and loss the fee income earned over the period, and the best estimate of the expenditure required to settle any financial obligation arising as a result of the guarantees at the balance sheet date.

Any increase in the liability relating to guarantees is taken to the profit and loss. Any liability remaining is recognised in the profit and loss when the guarantee is discharged, cancelled or expires.

(ii) Change in accounting policy

Under AGAAP, credit related instruments (other than credit derivatives) were treated as contingent liabilities and these are not shown on the balance sheet unless, and until, the Group is called upon to make a payment under the instrument.

51 Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation)

Notes to the Financial Statements continued

Note 1 Accounting Policies (continued)

Fees received for providing these instruments are taken to profit over the life of the instrument and reflected in fees and commissions receivable.

Under AIFRS, the Group recognises financial guarantee contracts as financial liabilities, initially at fair value through profit and loss and subsequently at the higher of the initial measurement, less amortisation calculated to recognise in the profit and loss the fee income earned over the period, and the best estimate of the expenditure required to settle any financial obligation arising as a result of the guarantees at the balance sheet date.

(hh) Life Insurance Business

The adoption of AASB 4 Insurance Contracts and AASB 1038 Life Insurance Contracts has impacted on the measurement, recognition and disclosure of the life insurance business.

Under AASB 4, life insurance contracts are accounted for in accordance with AASB 1038 (which is largely consistent with previous AGAAP except there is a change in determination of discount rates) while investment contracts are accounted for a as financial instruments with a separate management services element in accordance with AASB 139 and AASB 118. For further details, refer to the change in accounting policy below.

(i) Current accounting policy

The Group’s life insurance business is comprised of insurance contracts and investment contracts as defined by AASB 4.

Insurance contracts are accounted for in accordance with the requirements of AASB 1038. Investment contracts are accounted for in accordance with AASB 139. Details are set out below.

All assets, liabilities, revenues, expenses and equity are included in the financial report irrespective of whether they are designated as relating to policyholders or to shareholders.

All assets backing insurance liabilities are classified as assets at fair value through the Income Statement. They are brought to account at fair value based on quoted bid prices or using valuation techniques.

Life insurance contract liabilities are measured at net present value of future receipts from and payments to policyholders using a risk free discount rate (or expected fund earning rate where benefits are contractually linked to the asset performance), and are calculated in accordance with the principles of Margin on Services (MoS) profit reporting as set out in Actuarial Standard AS 1.04: Valuation of Policy Liabilities issued by the Life Insurance Actuarial Standards Board.

Life investment contract liabilities are measured in accordance with AASB 139 as liabilities with changes in fair value taken to the Income Statement.

Premiums and claims are separated on a product basis into their revenue, expense and change in liability components unless the separation is not practicable or the components cannot be reliably measured.

Returns on all investments controlled by life insurance entities within the Group are recognised as revenues. Investments in the Group’s own equity instruments held within the life insurance statutory funds and other funds, are treated as Treasury Shares in accordance with Note 1(ee) Shareholders’ Equity.

Initial entry fee income on investment contracts issued by life insurance entities is recognised upfront where the Group provides financial advice. Other fees are deferred over the life of the underlying investment contract.

Participating benefits vested in relation to the financial year, other than transfers from unvested policyholder benefits liabilities, are recognised as expenses.

Reinsurance contracts entered into are recognised on a gross basis.

Premiums and Claims

(i) Life insurance contracts

Premiums received for providing services and bearing risks are recognised as revenue. Premiums with a regular due date are recognised as revenue on an accruals basis. Premiums with no due date are recognised on a cash received basis. Insurance contract claims are recognised as an expense when a liability has been established.

(ii) Investment contracts

Premiums received, include the fee portion of the premium recognised as revenue over the period the underlying service is provided and the deposit portion recognised as an increase in investment contract liabilities. Premiums with no due date are recognised on a cash received basis. Fees earned for managing the funds invested are recognised as revenue. Claims under investment contracts represent withdrawals of investment deposits and are recognised as a reduction in investment contract liabilities.

Life Insurance Liabilities and Profit

Insurance contract policy liabilities are calculated in a way that allows for the systematic release of planned profit margins as services are provided to policyowners and the revenues relating to those services are received. Selected profit carriers including premiums and anticipated policy payments are used to determine profit recognition.

Investment assets are held in excess of those required to meet life insurance contract and investment contract liabilities. Investment earnings are directly influenced by market conditions and as such this component of profit will vary from year to year.

Participating Policies

Insurance contract policy liabilities attributable to participating policies include the value of future planned shareholder profit margins and an allowance for future supportable bonuses.

The value of supportable bonuses and planned shareholder profit margins account for all profit on participating policies based on best estimate assumptions.

Under Margin on Services profit recognition methodology, the value of supportable bonuses and the shareholder profit margin relating to a reporting year will emerge as planned profits in that year.

Life Insurance Contract Acquisition Costs

Acquisition costs for life insurance contracts include the fixed and variable costs of acquiring new business. These costs are effectively deferred through the determination of life insurance contract liabilities at the balance date to the extent that they are deemed recoverable from premium or contract charges.

Deferred acquisition costs are effectively amortised over the expected life of the life insurance contract.

Investment Contract Acquisition Costs

Acquisition costs for investment contracts include the fixed and variable costs of acquiring new business.

Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation) 52

Notes to the Financial Statements continued

Note 1 Accounting Policies (continued)

However, the deferral of investment contract acquisition costs is limited by the application of AASB 118 and 139 to the extent that only incremental transaction costs (for example commissions and volume bonuses) are deferred and minimum investment contract liability is no less than the contract surrender value.

Managed Fund Units on Issue — held by minority unitholders

The life insurance statutory funds and other funds include controlling interests in trusts and companies, and the total amounts of each underlying asset, liability, revenue and expense of the controlled entities are recognised in the consolidated financial statements.

When a controlled unit trust is consolidated, the share of the unit holder liability attributable to the controlling entity is eliminated but amounts due to external unit holders remain as liabilities in the consolidated balance sheet. The share of the net assets of controlled companies attributable to minority unit holders is disclosed separately on the balance sheet. In the Income Statement, the net profit or loss of the controlled entities relating to minority interests is removed before arriving at the net profit or loss attributable to shareholders of the parent entity.

(ii) Change in accounting policy

The changes in the accounting policy for the life insurance business apply retrospectively from 1 July 2004 and the remainder on 1 July 2005.

The following are changes which have been applied retrospectively from 1 July 2004:

(a) Under AASB 1038, the asset representing the excess of the net market value over net assets of the Bank’s life insurance controlled entities is no longer recognised in full. As a result, the Group has ceased to recognise any movement in this asset. The internally generated component has been written off against the General Reserve; and the acquired component has been reclassified as Goodwill within the balance sheet and subjected to annual impairment test. For further details on goodwill, refer to Note 1(t) Intangibles.

(b) Under previous AGAAP, direct investments in the Group’s own equity securities by the Group’s life insurance statutory funds are recognised in the balance sheet at market value. Under AASB 127 these assets have been reclassified as ‘Treasury Shares’ and accounted for as a deduction from Ordinary share capital. For further details, refer to Note 1(ee) Shareholders Equity.

The following are changes which have been applied from 1 July 2005:

(a) AASB 1038 requires income from investment contracts sold by life insurance businesses to be shown separately from income from insurance contracts sold by insurance companies. Insurance contracts are accounted for in accordance with the requirements of AASB 1038, and investment contracts are accounted for in accordance with AASB 118, 139 and 1038.

(b) Under AIFRS, the actuarial calculation of insurance contract liabilities is affected by a change in the determination of the discount rate applied for some contracts.

(c) Certain acquisition costs related to investment contracts which were deferred under previous AGAAP can no longer be deferred under AIFRS.

(d) On transition to AIFRS, the minority interests in controlled unit trusts of the life insurance companies no longer qualify as equity. As a result, the Group has, on adoption of AIFRS, reclassified outside equity interests in life insurance statutory funds and other funds as liabilities.

(e) Initial entry fee income on investment contracts issued by life insurance entities is recognised upfront where the Group provides financial advice. Other fees are deferred over the life of the underlying investment contract.

(f) AASB 1038 requires separate disclosure of investment contract and insurance contract liabilities.

(ii) Asset Securitisation

The adoption of AASB 127, 132, 139 and UIG 112 has had a substantial impact on the recognition of asset securitisation. However there is no material change in disclosure and measurement of asset securitisation. For further details, refer to the change in accounting policy below.

(i) Current accounting policy

The Group conducts an asset securitisation program through which it packages and sells assets as securities to investors. The Group is entitled to any residual income of the program after all payments due to investors and costs of the program have been met. Therefore the Group is considered to hold the majority of the residual risks and benefits within the entities through which asset securitisation is conducted and therefore consolidates these entities.

Additional entities have been consolidated into the Group, refer to Note 1(c) Consolidation. These changes have resulted in material gross-ups of individual asset, liability and profit and loss line items of the Group.

The liabilities associated with the asset securitisation entities and related issue costs are accounted for on an amortised cost basis using the effective interest method. Interest rate swaps and liquidity facilities are provided at arm’s length to the program by the Group in accordance with APRA Prudential Guidelines.

The derivatives return the risks and rewards of ownership of the securitised assets to the Bank and consequently the Bank cannot derecognise these assets. An imputed liability is recognised inclusive of the derivative and any related fees.

For further details on the treatment of the securitisation entities, refer to Note 1(c) Consolidation.

(ii) Change in accounting policy

AIFRS requires the consolidation of certain asset securitisation entities that were not consolidated under previous AGAAP. AIFRS also requires the recognition by the Bank of assets and liabilities that were not recognised under the previous AGAAP. This has resulted in the gross up of the entities’ assets and liabilities recorded within the Balance Sheet. The changes have been applied from 1 July 2004.

(jj) Fiduciary activities

(i) Current accounting policy

There is no change in accounting policy.

The Bank and designated controlled entities act as Responsible Entity, Trustee and/or Manager for a number of Wholesale, Superannuation and Investment Funds, Trusts and Approved Deposit Funds.

53 Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation)

Notes to the Financial Statements continued

Note 1 Accounting Policies (continued)

The assets and liabilities of these Trusts and Funds are not included in the consolidated financial statements as the Group does not have direct or indirect control of the Trusts and Funds as defined by AASB 1024. Commissions and fees earned in respect of the activities are included in the Income Statement of the Group and the designated controlled entity.

(kk) Comparative figures

Where necessary, comparative figures have been adjusted to conform with changes in presentation in these financial statements.

Comparative figures have been prepared in accordance with AIFRS as outlined in Note 1(a) and (b) except for the adoption of AASB 132 Financial Instruments: Disclosure and Presentation, AASB 139 Financial Instruments: Recognition and Measurement, AASB 4 Insurance Contracts, AASB 1023 General Insurance Contracts and AASB 1038 Life Insurance Contracts. These standards have not been applied against comparative information in line with the exemption provided by AASB 1 First-time adoption of Australian Equivalents to International Financial Reporting Standards.

The Group has continued to apply its previous AGAAP in preparing the comparative information within the scope of the above standards.

(ll) Roundings

The amounts contained in this report and the financial statements are presented in Australian Dollars and have been rounded to the nearest million dollars unless otherwise stated, under the option available to the Company under ASIC Class Order 98/100 (as amended by ASIC Class Order 04/667).

(mm) Explanation of transition to Australian equivalents to IFRS

As stated in Note 1(a), these are the Group’s first consolidated financial statements prepared in accordance with Australian equivalents to IFRS.

As required by AASB 1, the accounting policies set out in Note 1 have been applied in preparing the financial statements for the half year ended 31 December 2005, the comparative information presented in these financial statements for the half years ended 31 December 2004 and 30 June 2005 and in the preparation of an opening Australian equivalents to IFRS balance sheet at 1 July 2004 (the Group’s date of transition).

As noted in Note 1(b) and 1(jj) comparative figures and the opening Australian equivalents to IFRS balance sheet at 1 July 2004 have been prepared in accordance with IFRS as outlined in Note 1(a) and 1(b) except for the adoption of AASB 132 Financial Instruments: Disclosure and Presentation, AASB 139 Financial Instruments: Recognition and Measurement, AASB 4 Insurance Contracts, AASB 1023 General Insurance Contracts and AASB 1038 Life Insurance Contracts.

These standards have not been applied against comparative information in line with the exemption provided by AASB 1 First-time adoption of Australian Equivalents to International Financial Reporting Standards.

In preparing its opening Australian equivalents to IFRS balance sheet, the Group has adjusted amounts reported previously in financial statements prepared in accordance with the previous basis of accounting (Australian GAAP).

An explanation of how the transition from previous GAAP to Australian equivalents to IFRS has affected the Group’s financial position and financial performance is set out in the following tables and the notes that accompany the tables.

Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation) 54

Notes to the Financial Statements continued

Note 1 Accounting Policies (continued)

Explanation of AIFRS Transition Adjustments

In the following reconciliations, AIFRS impacts have been shown as Reclassifications, Gross-Ups and Re-Measurements. The major impacts are as follows:

(i) Reclassifications

Relates to the reclassification of various assets and liabilities in line with AIFRS disclosure requirements.

Significant items reclassified for periods prior to 1 July 2005 included:

•		Investment properties reclassified from Property, Plant and Equipment to a separate line on the face of the Balance Sheet (refer note 1 (q));

•		Capitalised computer software reclassified from Other assets to Intangible assets – computer software costs (refer note 1 (t));

•		The acquired portion of excess market value over net assets is reclassified from Other assets to Intangible assets – goodwill (refer note 1 (t)); and

•		Separation and reclassification of deferred tax assets and tax liabilities (refer note 1 (y)).

Additional items reclassified with effect from 1 July 2005 include:

•		Derivative assets and liabilities reclassified from Other assets and Other liabilities to separate lines on the face of the Balance Sheet (refer note 1 (ff));

•		Insurance and trading assets reclassified to Assets at fair value through the Income Statement (refer note 1 (i));

•		Investment securities predominately reclassified to Available-for-sale investments (refer note 1 (j));

•		Some Deposits from customers and Debt issues reclassified to Liabilities at fair value through the Income Statement (refer note 1 (x));

•		Reclassification of minority interests in Insurance Statutory funds and other funds to liabilities (refer note 1 (hh)); and

•		Reclassification of preference share capital and other equity instruments from shareholders’ equity to loan capital (refer note 1 (dd)).

There is no net impact on net assets, shareholders’ equity nor net profit.

(ii) Gross-up

Impact of the consolidation of certain special purpose vehicles related to the securitisation of Bank assets, and certain other customer asset securitisations. On transition to AIFRS, consolidation of these vehicles has the effect of grossing up individual asset, liability and profit and loss line items. This has no net impact on net assets, shareholders’ equity nor net profit.

(iii) Re-measurements

Relates to AIFRS transition adjustments which involve a change in the measurement basis relative to previous Australian GAAP. Affected line items are explained by reference to the relevant accounting policy note. Material impacts are further explained in the tables on page 62 to 65, and referenced to the re-measure column of the following AIFRS transition tables.

55 Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation)

Notes to the Financial Statements continued

Note 1 Accounting Policy (continued)

(mm) Effect of Transition to Australian Equivalents of IFRS

Balance Sheet reconciliation


	1 Jul 2004
									Transition Adjustments
	Policy			AGAAP		Reclass			Gross-up			Re-Measure
	Note⁽²⁾			Group $M		$M			$M			$M ⁽¹⁾				Total $M			AIFRS Group $M

Assets
Cash and liquid assets		(f	)		6,453		168			153			—				321			6,774
Receivables from other financial institutions		(g	)		8,369		(130	)		—			—				(130	)		8,239
Assets at fair value through Income Statement:
Trading		(i	)		14,896		—			3			—				3			14,899
Insurance	(i),(hh		)		28,942		(16	)		—			(301	)	A		(317	)		28,625
Investment securities					11,447		—			531			—				531			11,978
Loans, advances, and other receivables		(l),(m),(n	)		189,391		—			7,605			24				7,629			197,020
Bank acceptances of customers		(o	)		15,019		—			—			—				—			15,019
Deposits with regulatory authorities		(g	)		38		(38	)		—			—				(38	)		—
Investment property		(q	)		—		252			—			—				252			252
Property, plant and equipment		(s	)		1,204		(228	)		—			31				(197	)		1,007
Investment in associates		(c	)		239		—			—			—				—			239
Intangible assets		(t	)		4,705		2,836			—			—				2,836			7,541
Deferred tax assets		(y	)		—		564			—			23		H		587			587
Other assets		(u	)		25,292		(3,408	)		(17	)		(2,512	)	I		(5,937	)		19,355

Total assets					305,995		—			8,275			(2,735	)			5,540			311,535


Liabilities

Deposits from customers		(v	)		163,177		—			24			—				24			163,201
Payables to other financial institution		(w	)		6,641		—			—			—				—			6,641
Bank acceptances		(o	)		15,019		—			—			—				—			15,019
Income tax liability		(y	)		811		(811	)		—			—				(811	)		—
Current tax liabilities		(y	)		—		426			—			—				426			426
Deferred tax liabilities		(y	)		—		385			—			188		L		573			573
Other provisions	(z),(aa		)		1,011		—			—			(85	)	M		(85	)		926
Insurance policyholder liabilities	(hh		)		24,638		—			—			—				—			24,638
Debt issues	(bb		)		44,042		—			8,732							8,732			52,774
Bills payable and other liabilities	(cc		)		19,140		—			(481	)		77		P		(404	)		18,736
Loan capital	(dd		)		6,631		—			—			—				—			6,631

Total liabilities					281,110		—			8,275			180				8,455			289,565

Net assets					24,885		—			—			(2,915	)			(2,915	)		21,970


Shareholders’ Equity

Share capital:
Ordinary share capital	(ee		)		13,359		—			—			(371	)	R		(371	)		12,988
Preference share capital					687		—			—			—				—			687
Other equity instruments					1,573		—			—			—				—			1,573
Reserves	(ee		)		3,946		492			—			(3,045	)	S		(2,553	)		1,393
Retained profits					2,840		(492	)		—			501		T		9			2,849

Shareholders’ equity attributable to members of the Bank					22,405		—			—			(2,915	)			(2,915	)		19,490
Minority interests:
Controlled entities					304		—			—			—				—			304
Insurance statutory funds and other funds	(hh		)		2,176		—			—			—				—			2,176

Total shareholders’ equity					24,885		—			—			(2,915	)			(2,915	)		21,970


(1)		References relate to explanations of the key AIFRS re-measure adjustment set out on pages 57 to 60.

(2)		References relate to key Accounting Policies as set out on pages 33 to 49.

Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation) 56

Notes to the Financial Statements continued

Note 1 Accounting Policy (continued)

(mm) Effect of Transition to Australian Equivalents of IFRS

Balance Sheet reconciliation


	31 Dec 2004
									Transition Adjustments
	Policy			AGAAP		Reclass			Gross-up			Re-Measure
	Note ⁽¹⁾			Group $M		$M			$M			$M				Total $M			AIFRS Group $M

Assets
Cash and liquid assets		(f	)		5,648		90			167							257			5,905
Receivables from other financial institutions		(g	)		6,456		(59	)		—							(59	)		6,397
Assets at fair value through Income Statement:
Trading		(i	)		15,881		—			3			—				3			15,884
Insurance	(i),(hh		)		28,232		(16	)		—			(251	)	A		(267	)		27,965
Investment securities					11,022		—			597			—				597			11,619
Loans, advances, and other receivables		(l),(m),(n	)		206,346		—			6,391			18				6,409			212,755
Bank acceptances of customers		(o	)		16,297		—			—			—				—			16,297
Deposits with regulatory authorities		(g	)		32		(32	)		—			—				(32	)		—
Investment property		(q	)		—		252			—			—				252			252
Property, plant and equipment		(s	)		1,262		(229	)		—			30				(199	)		1,063
Investment in associates		(c	)		233		—			—			—				—			233
Intangible assets		(t	)		4,555		2,922			—			161		G		3,083			7,638
Deferred tax assets		(y	)		—		579			—			27		H		606			606
Other assets		(u	)		24,988		(3,507	)		(30	)		(2,706	)	I		(6,243	)		18,745

Total assets					320,952		—			7,128			(2,721	)			4,407			325,359


Liabilities

Deposits from customers		(v	)		167,425		—			(2	)		—				(2	)		167,423
Payables to other financial institution		(w	)		9,512		—			—			—				—			9,512
Bank acceptances		(o	)		16,297		—			—			—				—			16,297
Income tax liability		(y	)		1,195		(1,195	)		—			—				(1,195	)		—
Current tax liabilities		(y	)		—		424			—			—				424			424
Deferred tax liabilities		(y	)		—		771			—			211		L		982			982
Other provisions	(z),(aa		)		904		—			—			(55	)	M		(55	)		849
Insurance policyholder liabilities	(hh		)		24,967		—			—			—				—			24,967
Debt issues	(bb		)		51,346		—			7,504			—				7,504			58,850
Bills payable and other liabilities	(cc		)		18,438		—			(374	)		89		P		(285	)		18,153
Loan capital	(dd		)		5,801		—			—			—				—			5,801

Total liabilities					295,885		—			7,128			245				7,373			303,258

Net assets					25,067		—			—			(2,966	)			(2,966	)		22,101


Shareholders’ Equity

Share capital:
Ordinary share capital	(ee		)		13,647		—			—			(303	)	R		(303	)		13,344
Preference share capital					687		—			—			—				—			687
Other equity instruments					1,573		—			—			—				—			1,573
Reserves	(ee		)		3,959		492			—			(3,353	)	S		(2,861	)		1,098
Retained profits					3,159		(492	)		—			690		T		198			3,357

Shareholders’ equity attributable to members of the Bank					23,025		—			—			(2,966	)			(2,966	)		20,059
Minority interests:
Controlled entities					629		—			—			—				—			629
Insurance statutory funds and other funds	(hh		)		1,413		—			—			—				—			1,413

Total shareholders’ equity					25,067		—			—			(2,966	)			(2,966	)		22,101


(1)		References relate to key Accounting Policies as set out on pages 33 to 49.

57 Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation)

Notes to the Financial Statements continued

Note 1 Accounting Policy (continued)

(mm) Effect of Transition to Australian Equivalents of IFRS

Balance Sheet reconciliation


	30 Jun 2005
	Transition Adjustments
	Policy			AGAAP		Reclass			Gross-up			Re-Measure							AIFRS
	Note ⁽¹⁾			Group $M		$M			$M			$M				Total $M			Group $M

Assets

Cash and liquid assets		(f	)		5,715		163			177			—				340			6,055
Receivables from other financial institutions		(g	)		6,205		(118	)		—			—				(118	)		6,087
Assets at fair value through Income Statement:
Trading		(i	)		14,628		—			3			—				3			14,631
Insurance	(i),(hh		)		27,837		(16	)		—			(337	)	A		(353	)		27,484
Investment securities					10,272		—			566			—				566			10,838
Loans, advances, and other receivables		(l),(m),(n	)		217,516		—			10,818			12				10,830			228,346
Bank acceptances of customers		(o	)		16,786		—			—			—				—			16,786
Deposits with regulatory authorities		(g	)		45		(45	)		—			—				(45	)		—
Investment property		(q	)		—		252			—			—				252			252
Property, plant and equipment		(s	)		1,344		(237	)		—			25				(212	)		1,132
Investment in associates		(c	)		52		—			—			—				—			52
Intangible assets		(t	)		4,394		2,941			—			321		G		3,262			7,656
Deferred tax assets		(y	)		—		627			—			24		H		651			651
Other assets		(u	)		24,241		(3,567	)		(37	)		(3,203	)	I		(6,807	)		17,434

Total assets					329,035		—			11,527			(3,158	)			8,369			337,404


Liabilities

Deposits from customers		(v	)		168,029		—			(3	)		—				(3	)		168,026
Payables to other financial institution		(w	)		8,023		—			—			—				—			8,023
Bank acceptances		(o	)		16,786		—			—			—				—			16,786
Income tax liability		(y	)		1,550		(1,550	)		—			—				(1,550	)		—
Current tax liabilities		(y	)		—		833			—			—				833			833
Deferred tax liabilities		(y	)		—		717			—			204		L		921			921
Other provisions	(z),(aa		)		895		—			—			(24	)	M		(24	)		871
Insurance policyholder liabilities	(hh		)		24,694		—			—			—				—			24,694
Debt issues	(bb		)		58,621		—			12,144			—				12,144			70,765
Bills payable and other liabilities	(cc		)		18,086					(614	)		79		P		(535	)		17,551
Loan capital	(dd		)		6,291		—			—			—				—			6,291

Total liabilities					302,975		—			11,527			259				11,786			314,761

Net assets					26,060		—			—			(3,417	)			(3,417	)		22,643


Shareholders’ Equity

Share capital:
Ordinary share capital	(ee		)		13,871		—			—			(385	)	R		(385	)		13,486
Preference share capital					687		—			—			—				—			687
Other equity instruments					1,573		—			—			—				—			1,573
Reserves	(ee		)		4,624		492			—			(3,851	)	S		(3,359	)		1,265
Retained profits					3,516		(492	)		—			819		T		327			3,843

Shareholders’ equity attributable to members of the Bank					24,271		—			—			(3,417	)			(3,417	)		20,854
Minority interests:
Controlled entities					631		—			—			—				—			631
Insurance statutory funds and other funds	(hh		)		1,158		—			—			—				—			1,158

Total shareholders’ equity					26,060		—			—			(3,417	)			(3,417	)		22,643


(1)		References relate to key Accounting Policies as set out on pages 33 to 49.

Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation) 58

Notes to the Financial Statements continued

Note 1 Accounting Policy (continued)

(mm) Effect of Transition to Australian Equivalents of IFRS

Balance Sheet reconciliation


	1 Jul 2005
	Transition Adjustments
	Policy			AGAAP		Reclass			Gross-up			Re-Measure							AIFRS
	Note ⁽¹⁾			Group $M		$M			$M			$M				Total $M			Group $M

Assets
Cash and liquid assets		(f	)		5,715		163			177			—				340			6,055
Receivables from other financial institutions		(g	)		6,205		(627	)		—			—				(627	)		5,578
Assets at fair value through Income Statement:
Trading		(i	)		14,628		(436	)		3			—				(433	)		14,195
Insurance	(i),(hh		)		27,837		(16	)		—			(352	)	A		(368	)		27,469
Other		(i	)		—		3,402			—			—				3,402			3,402
Derivative assets	(ff		)		—		12,096			—			(2,292	)	B		9,804			9,804
Investment securities					10,272		(10,838	)		566			—				(10,272	)		—
Available-for-sale investments		(j	)		—		9,706			—			85		C		9,791			9,791
Loans, advances, and other receivables		(l),(m),(n	)		217,516		(1,146	)		10,818			574		D-F		10,246			227,762
Bank acceptances of customers		(o	)		16,786		—			—			—				—			16,786
Deposits with regulatory authorities		(g	)		45		(45	)		—			—				(45	)		—
Investment property		(q	)		—		252			—			—				252			252
Property, plant and equipment		(s	)		1,344		(238	)		—			25				(213	)		1,131
Investment in associates		(c	)		52		—			—			—				—			52
Intangible assets		(t	)		4,394		2,941			—			321		G		3,262			7,656
Deferred tax assets		(y	)		—		627			—			241		H		868			868
Other assets		(u	)		24,241		(16,165	)		(37	)		(3,670	)	I		(19,872	)		4,369

Total assets					329,035		(324	)		11,527			(5,068	)			6,135			335,170


Liabilities

Deposits from customers		(v	)		168,029		(8,272	)		(3	)		66		J		(8,209	)		159,820
Payables to other financial institution		(w	)		8,023		(16	)		—			—				(16	)		8,007
Liabilities at fair value through the Income Statement		(x	)		—		12,437			—			—				12,437			12,437
Derivative Liabilities	(ff		)		—		11,913			—			(609	)	K		11,304			11,304
Bank acceptances		(o	)		16,786		—			—			—				—			16,786
Income tax liability		(y	)		1,550		(1,550	)		—			—				(1,550	)		—
Current tax liabilities		(y	)		—		833			—			—				833			833
Deferred tax liabilities		(y	)		—		717			—			444		L		1,161			1,161
Other provisions	(z),(aa		)	895		16						(24	)		M	(8	)		887
Insurance policyholder liabilities	(hh		)	24,694		—			—			342			N	342			25,036
Debt issues	(bb		)		58,621		(4,240	)		12,144			(1,046	)	O		6,858			65,479
Managed fund units on issue	(hh		)		—		1,158			—			—				1,158			1,158
Bills payable and other liabilities	(cc		)		18,086		(12,162	)		(614	)		(282	)	P		(13,058	)		5,028
Loan capital	(dd		)		6,291		2,260			—			(194	)	Q		2,066			8,357

Total liabilities					302,975		3,094			11,527			(1,303	)			13,318			316,293

Net assets					26,060		(3,418	)		—			(3,765	)			(7,183	)		18,877


Shareholders’ Equity

Share capital:
Ordinary share capital	(ee		)		13,871		—			—			(385	)	R		(385	)		13,486
Preference share capital					687		(687	)		—			—				(687	)		—
Other equity instruments					1,573		(1,573	)		—			—				(1,573	)		—
Reserves	(ee		)		4,624		750			—			(3,729	)	S		(2,979	)		1,645
Retained profits					3,516		(750	)		—			349		T		(401	)		3,115

Shareholders’ equity attributable to members of the Bank					24,271		(2,260	)		—			(3,765	)			(6,025	)		18,246
Minority interests:
Controlled entities					631		—			—			—				—			631
Insurance statutory funds and other funds	(hh		)		1,158		(1,158	)		—			—				(1,158	)		—

Total shareholders’ equity					26,060		(3,418	)		—			(3,765	)			(7,183	)		18,877


(1)		References relate to key Accounting Policies as set out on pages 33 to 49.

59 Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation)

Notes to the Financial Statements continued

Note 1 Accounting Policy (continued)

(mm) Effect of Transition to Australian Equivalents of IFRS

Income Statement Reconciliation


	Half Year Ended 31 Dec 2004
										Transition Adjustments
														AIFRS
	Policy			AGAAP			Gross-up			Re-Measure				Transition			AIFRS
	Note ⁽²⁾			Group $M			$M			$M				$M			Group $M

Interest Income		(m	)		7,840			255			(6	)			249			8,089
Interest Expense					4,907			224							224			5,131

Net Interest Income					2,933			31			(6	)			25			2,958
Other operating income					1,412			(29	)		—				(29	)		1,383

Net banking operating income					4,345			2			(6	)			(4	)		4,341

Funds management income including investment contract premiums					611			—			(6	)			(6	)		605
Investment revenue	(hh		)		1,223			—			11		U		11			1,234
Claims and investment contract liability expense					(1,143	)		—			—				—			(1,143	)

Net funds management and investment contract operating income					691			—			5				5			696

Premiums from insurance contracts					575			—			—				—			575
Investment revenue					716			—			—				—			716
Claims and policy liability expense from insurance contracts					(751	)		—			—				—			(751	)

Insurance contracts margin on services operating income					540			—			—				—			540

Net funds management and insurance operating income					1,231			—			5				5			1,236


Total net operating income					5,576			2			(1	)			1			5,577

Bad and doubtful debts expense					146			—			—				—			146
Operating expenses:
Comparable business					2,828			2			11				13			2,841
Which new Bank					28			—			—				—			28

Total operating expenses					2,856			2			11				13			2,869


Defined benefit superannuation plan expense		(z	)		—			—			(40	)	V		(40	)		(40	)
Appraisal value uplift	(hh		)		265			—			(265	)	W		(265	)		—
Goodwill amortisation		(t	)		(162	)		—			162		X		162			—

Profit before income tax					2,677			—			(155	)			(155	)		2,522
Income tax expense		(y	)		813			—			(8	)			(8	)		805

Profit after income tax					1,864			—			(147	)			(147	)		1,717
Minority interest					(5	)		—			—				—			(5	)

Net profit attributable to members of the Bank					1,859			—			(147	)			(147	)		1,712


Net profit after income tax comprises:
Net profit after income tax (“underlying basis”)					1,664			—			(23	)			(23	)		1,641
Shareholder investment returns					111			—			—				—			111
Which new Bank					(19	)		—			—				—			(19	)

Net profit after income tax (“cash basis”)					1,756			—			(23	)			(23	)		1,733

Defined benefit superannuation plan expense		(z	)		—			—			(28	)			(28	)		(28	)
Treasury share valuation adjustment	(hh		)		—			—			7				7			7

Net profit after income tax (“statutory basis”) ⁽¹⁾					1,756			—			(44	)			(44	)		1,712


(1)		AGAAP Net profit after income tax (“statutory basis”) excludes the impact of appraisal value and goodwill amortisation.

(2)		References relate to key Accounting Policies as set out on pages 33 to 49.

Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation) 60

Notes to the Financial Statements continued

Note 1 Accounting Policy (continued)

(mm) Effect of Transition to Australian Equivalents of IFRS

Income Statement Reconciliation


				Half Year Ended 30 Jun 2005
										Transition Adjustments
														AIFRS
	Policy			AGAAP			Gross-up			Re-Measure				Transition			AIFRS
	Note ⁽²⁾			Group $M			$M			$M				$M			Group $M

Interest Income		(m	)		8,354			343			(5	)			338			8,692
Interest Expense					5,321			303			—				303			5,624

Net Interest Income					3,033			40			(5	)			35			3,068
Other operating income					1,503			(41	)		—				(41	)		1,462

Net banking operating income					4,536			(1	)		(5	)			(6	)		4,530

Funds management income including investment contract premiums					650			—			(8	)			(8	)		642
Investment revenue	(hh		)		785			—			(63	)	U		(63	)		722
Claims and investment contract liability expense					(728	)		—			—				—			(728	)

Net funds management and investment contract operating income					707			—			(71	)			(71	)		636

Premiums from insurance contracts					557			—			—				—			557
Investment revenue					470			—			—				—			470
Claims and policy liability expense from insurance contracts					(492	)		—			—				—			(492	)

Insurance contracts margin on services operating income					535			—			—				—			535

Net funds management and insurance operating income					1,242			—			(71	)			(71	)		1,171

Total net operating income					5,778			(1	)		(76	)			(77	)		5,701


Bad and doubtful debts expense					176			—			—				—			176
Operating expenses:
Comparable business					2,869			(1	)		10				9			2,878
Which new Bank					122			—			—				—			122

Total operating expenses					2,991			(1	)		10				9			3,000

Defined benefit superannuation plan expense		(z	)		—			—			(35	)	V		(35	)		(35	)
Appraisal value uplift	(hh		)		513			—			(513	)	W		(513	)		—
Goodwill amortisation		(t	)		(163	)		—			163		X		163			—

Profit before income tax					2,961			—			(471	)			(471	)		2,490
Income tax expense		(y	)		824			—			(27	)			(27	)		797

Profit after income tax					2,137			—			(444	)			(444	)		1,693
Minority interest					(5	)		—			—				—			(5	)

Net profit attributable to members of the Bank					2,132			—			(444	)			(444	)		1,688


Net profit after income tax comprises:
Net profit after income tax (“underlying basis”)					1,802			—			(23	)			(23	)		1,779
Shareholder investment returns					66			—			—				—			66
Which new Bank					(86	)		—			—				—			(86	)

Net profit after income tax (“cash basis”)					1,782			—			(23	)			(23	)		1,759

Defined benefit superannuation plan expense		(z	)		—			—			(25	)			(25	)		(25	)
Treasury share valuation adjustment	(hh		)		—			—			(46	)			(46	)		(46	)

Net profit after income tax (“statutory basis”) ⁽¹⁾					1,782			—			(94	)			(94	)		1,688


(1)		AGAAP Net profit after income tax (“statutory basis”) excludes the impact of appraisal value and goodwill amortisation.

(2)		References relate to key Accounting Policies as set out on pages 33 to 49.

61 Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation)

Notes to the Financial Statements continued

Note 1 Effect of Transition to Australian Equivalents to IFRS

(mm) Explanation of AIFRS Re-measure Transition Adjustments

AIFRS Balance Sheet Impacts


Re-measure
Adjustment
Reference	Transition Date	Adjustment $M			Explanation of material AIFRS re-measurements


A	Insurance Assets at Fair Value through Income Statement (refer note 1 (i) and (hh))

	1 July 2004		(301	)	The recognition of direct investments in Commonwealth Bank shares by the Bank’s life insurance statutory funds as ‘Treasury Shares’ results in the reversal of the fair value of these shares from consolidated Insurance assets while the cost of these shares is reversed from ordinary share capital (refer adjustment R). The associated insurance policyholder liability is not reversed, resulting in an accounting mismatch (see Adjustment U).
	31 December 2004		(251	)	As above.
	30 June 2005		(337	)	As above.
	1 July 2005		(352	)	As above, also includes impact of valuing assets held by life insurance using bid prices rather than mid prices (-$15m).

B	Derivative assets (refer note 1 (ff))

	1 July 2004	—
	31 December 2004	—
	30 June 2005	—
	1 July 2005		(2,292	)	Principally relates to the elimination of internal swaps; and an adjustment to re-measure derivatives that were previously accrual accounted.

C	Available-for-sale investments (refer note 1 (j))

	1 July 2004	—
	31 December 2004	—
	30 June 2005	—
	1 July 2005		85		Revaluation of available-for-sale (‘AFS’) assets from cost to fair value. AFS assets are principally comprised of those assets classified as investment securities under previous Australian GAAP, which were measured on a cost basis.

D	Loans, advances and other receivables — gross (refer note 1 (l))

	1 July 2004	—
	31 December 2004	—
	30 June 2005	—
	1 July 2005		295		Principally relates to two adjustments: (1) re-measurement to fair value of loan assets designated within fair value hedging relationships. Such loan assets are initially measured on an amortised cost basis, and then adjusted to fair value to offset the mark-to-market movement on the associated fair value hedge derivative(+$399m); and (2) capitalisation of the net fee income integral to the yield of an originated loan results in the recognition of an unamortised deferred income balance (-$122m).

E	Loans, advances and other receivables — collective provision for impairment (refer note 1 (n))

	1 July 2004	—
	31 December 2004	—
	30 June 2005	—
	1 July 2005		294		Reflects the difference between the previous Australian GAAP general provision for impairment and the AIFRS collective provision for impairment, net of reclassifications. Under AIFRS, collective provisions are recognised where there is objective evidence of impairment, and includes an estimate of losses which have been incurred but not reported as at balance date.

F	Loans, advances and other receivables — individually assessed provisions for impairment (refer note 1 (n))

	1 July 2004	—
	31 December 2004	—
	30 June 2005	—
	1 July 2005		(15	)	Reflects the difference between the previous Australian GAAP specific provision for impairment and the AIFRS individually assessed provisions. This difference relates to the impact of discounting of expected cash flows on recovery.

G	Intangible assets (refer note 1 (t))

	1 July 2004	—
	31 December 2004		161		Goodwill no longer amortised under AIFRS. Reflects the reversal of amortisation of goodwill for the half year ended 31 December 2004.
	30 June 2005		321		As above for the full year ended 30 June 2005.
	1 July 2005		321		As above.

Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation) 62

Notes to the Financial Statements continued

Note 1 Effect of Transition to Australian Equivalents to IFRS

(mm) Explanation of AIFRS Re-measure Transition Adjustments

AIFRS Balance Sheet Impacts


Re-measure
Adjustment
Reference	Transition Date	Adjustment $M			Explanation of material AIFRS re-measurements


H	Deferred tax assets (refer note 1 (y))

	1 July 2004		23		Principally relates to the deferred tax asset recognised on the defined benefit superannuation plan deficit liability, under the AIFRS “balance sheet” approach to tax-effect accounting.
	31 December 2004		27		As above.
	30 June 2005		24		As above.
	1 July 2005		241		As above, and also includes deferred tax assets related to various AIFRS adjustments such as hedge accounting, loan impairment provisioning and revenue and expense recognition.

I	Other assets (refer note 1 (u))

	1 July 2004		(2,512	)	Principally relates to two adjustments: (1) the reversal of internally generated appraisal value excess (-$3,123m); and (2) the recognition of the defined benefit superannuation plan surplus asset (+$633m). Refer to adjustments R and S.
	31 December 2004		(2,706	)	As above, though adjustments become (1) -$3,388m; and (2) +$706m.
	30 June 2005		(3,203	)	As above, though adjustments become (1) -$3,901m; and (2) +$717m.
	1 July 2005		(3,670	)	As above, also includes hedging impact of -$473 m, which relates to the elimination of interest receivable on hedged derivatives.

J	Deposits from customers (refer note 1 (v))

	1 July 2004	—
	31 December 2004	—
	30 June 2005	—
	1 July 2005		66		Represents the revaluation of deposits designated within fair value hedge relationships.

K	Derivative liabilities (refer note 1 (ff))

	1 July 2004	—
	31 December 2004	—
	30 June 2005	—
	1 July 2005		(609	)	Principally relates to the elimination of internal swaps; initial recognition of embedded derivatives at fair value; and an adjustment to re-measure derivatives that were previously accrual accounted.

L	Deferred tax liabilities (refer note 1 (y))

	1 July 2004		188		Principally relates to the deferred tax liability recognised on the defined benefit superannuation plan surplus asset, under the AIFRS “balance sheet” approach to tax-effect accounting. Refer adjustment I above.
	31 December 2004		211		As above.
	30 June 2005		204		As above.
	1 July 2005		444		As above, and also includes deferred tax liabilities related to various AIFRS adjustments such as hedge accounting, re-measurement of available-for-sale assets, and revenue and expense recognition.

M	Other provisions (refer note 1 (z) and (aa))

	1 July 2004		(85	)	Principally relates to the reversal of accrued liabilities in respect of employee share-based compensation. This is a one-off adjustment in the comparative period due to the discontinuance of the mandatory component of the Equity Participation Plan.
	31 December 2004		(55	)	As above.
	30 June 2005		(24	)	As above.
	1 July 2005		(24	)	As above.

N	Insurance policyholder liabilities (refer note 1 (hh))

	1 July 2004	—
	31 December 2004	—
	30 June 2005	—
	1 July 2005		342		Relates to measurement differences in the actuarial calculation of policyholder liabilities under AIFRS. Impact primarily driven by a change in the discount rates applied to some contracts, and the write off of deferred acquisition costs related to investment-style products of the Wealth Management business.

63 Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation)

Notes to the Financial Statements continued

Note 1 Effect of Transition to Australian Equivalents to IFRS

(mm) Explanation of AIFRS Re-measure Transition Adjustments

AIFRS Balance Sheet Impacts


Re-measure
Adjustment
Reference	Transition Date	Adjustment $M			Explanation of material AIFRS re-measurements


O	Debt issues (refer note 1 (bb))

	1 July 2004	—
	31 December 2004	—
	30 June 2005	—
	1 July 2005		(1,046	)	Represents the revaluation of debt issues designated within fair value hedge relationships.

P	Bills payable and other liabilities (refer note 1 (cc))

	1 July 2004		77		Relates to the recognition of the defined benefit superannuation plan deficit liability.
	31 December 2004		89		As above.
	30 June 2005		79		As above.
	1 July 2005		(282	)	As above, also includes impact of the elimination of interest payable on hedge derivatives.

Q	Loan Capital (refer note 1 (dd))

	1 July 2004	—
	31 December 2004	—
	30 June 2005	—
	1 July 2005		(194	)	Relates to the impact of fair value hedging and foreign currency re-translation of hybrid instrument reclassified from equity.

R	Ordinary share capital (refer note 1 (ee))

	1 July 2004		(371	)	Relates to two adjustments: (1) recognition of direct investments in Commonwealth Bank shares by the Bank’s life insurance statutory funds as ‘Treasury Shares’ results in the reversal of the cost of these shares from ordinary share capital (-$245m, being fair value of $301m less market value appreciation $46m (less $10m tax effect)); and (2) the consolidation of the Employee Share Scheme Trust, which holds shares in the Bank on behalf of employees, results in the reversal of the cost of these shares from ordinary share capital (-$126m).
	31 December 2004		(303	)	As above, though adjustments become (1) ($205m); and (2) ($98m).
	30 June 2005		(385	)	As above, though adjustments become (1) ($253m); and (2) ($132m).
	1 July 2005		(385	)	As above.

S	Reserves (refer note 1 (ee))

	1 July 2004		(3,045	)	Principally relates to the reversal from general reserve of the internally generated appraisal value excess (-$3,123m).
	31 December 2004		(3,353	)	As above (-$3,388m).
	30 June 2005		(3,851	)	As above (-$3,901m).
	1 July 2005		(3,729	)	As above, also includes the impact of the recognition of available-for-sale revaluation reserve; cash flow hedge reserve; and the retranslation of certain hybrid financial instruments on reclassification from equity to loan capital.

T	Retained profits

	1 July 2004		501		Principally relates to three adjustments: (1) Recognition of the net after tax surplus on the Bank’s defined benefit superannuation plans (+$389m) comprising an opening surplus of ($443m) less an opening deficit of (-$54m); (2) adjustment related to employee share-based compensation accounting under AIFRS (+$141m); and (3) the reversal of the cumulative market value appreciation on life insurance treasury shares (-$46m).
	31 December 2004		690		As above, though adjustments become (1) +$432m; (2) +$126m; and (3) -$39m, together with (4) the reversal of goodwill amortisation for the half year (+$161m)
	30 June 2005		819		As above, though adjustments become (1) +$447m; (2) +$112m; and (3) -$66m, together with (4) the reversal of goodwill amortisation for the full year (+$321m)
	1 July 2005		349		As above, also includes the impact of (1) the initial recognition of derivative financial instruments on initial application of hedge accounting and recognition of embedded derivatives (-$282m); (2) change in calculation of life insurance policy holder liabilities and DAC (-$260m); (3) revenue and expense recognition adjustments (-$167m); and (4) recalculation of loan impairment provisions (+$195m).

U	Funds Management Investment Revenue (refer note 1 (hh))

	31 December 2004		11		Relates to reversal of net losses on treasury shares held in the life insurance statutory funds.
	30 June 2005		(63	)	Relates to reversal of net gains on treasury shares held in the life insurance statutory funds.

Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation) 64

Notes to the Financial Statements continued

Note 1 Effect of Transition to Australian Equivalents to IFRS

(mm) Explanation of AIFRS Re-measure Transition Adjustments

AIFRS Balance Sheet Impacts


Re-measure
Adjustment
Reference	Transition Date	Adjustment $M			Explanation of material AIFRS re-measurements


V	Defined Benefit Superannuation Plan Expense (refer note 1 (hh))

	31 December 2004		(40	)	Relates to the additional, non-cash expense item reflecting the accrual accounting charge to profit and loss associated with accounting for defined benefit superannuation plans.
	30 June 2005		(35	)	As above.

W	Appraisal Value Uplift (refer note 1 (t))

	31 December 2004		(265	)	Relates to the reversal of the appraisal value uplift on cessation of appraisal value accounting under AIFRS.
	30 June 2005		(513	)	As above.

X	Goodwill Amortisation (refer note 1 (t))

	31 December 2004		162		Relates to the reversal of goodwill amortisation under AIFRS.
	30 June 2005		163		As above.

Note 2 Income from Ordinary Activities


	Half Year Ended
	31/12/05			30/06/05			31/12/04
	$M			$M			$M

Banking
Interest income		9,638			8,692			8,089
Fees and commissions		1,204			1,152			1,126
Trading income		244			221			219
Gain/loss on disposal of non-trading instruments		1			(11	)		2
Other financial instruments (including hedging derivatives)		(69	)		—			—
Dividends		1			2			1
Other income		35			98			35

		11,054			10,154			9,472


Funds Management, Investment contract and Insurance contract revenue
Funds management and investment contract income including premiums		737			642			605
Insurance contract premiums and related income		573			557			575
Investment income ⁽¹⁾		2,072			1,193			1,950

		3,382			2,392			3,130

Total income from ordinary activities		14,436			12,546			12,602


(1)		December 2005 includes profit on sale of the Hong Kong business $145 million.

65 Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation)

Notes to the Financial Statements continued

Notes 3 Operating Expenses


	Half Year Ended
	31/12/05		30/06/05		31/12/04
	$M		$M		$M

Staff Expenses
Salaries and wages		1,182		1,132		1,142
Superannuation contributions		4		6		1
Provisions for employee entitlements		35		40		27
Payroll tax		61		56		59
Fringe benefits tax		17		16		16
Other staff expenses		65		52		52

Comparable business		1,364		1,302		1,297
Which new Bank		—		43		7

Total staff expenses (excluding share based compensation)		1,364		1,345		1,304
Share Based Compensation		22		37		37

Total staff expenses		1,386		1,382		1,341


Occupancy and Equipment Expenses
Operating lease rentals		169		163		168
Depreciation
Buildings		11		11		10
Leasehold improvements		28		29		29
Equipment		33		36		27
Operating lease assets		4		8		—
Repairs and maintenance		34		36		35
Other		31		25		36

Comparable business		310		308		305
Which new Bank		—		10		3

Total occupancy and equipment expenses		310		318		308


Information Technology Services
Projects and development		185		165		166
Data processing		118		120		128
Desktop		76		71		79
Communications		102		103		101
Software amortisation (intangible)		16		13		4
IT Equipment Depreciation		5		4		2

Comparable business		502		476		480
Which new Bank		—		39		13

Total information technology services		502		515		493


Other Expenses
Postage		58		56		56
Stationery		51		52		56
Fees and commissions		314		295		319
Advertising, marketing and loyalty		146		152		136
Amortisation of other intangible assets (excluding software)		2		1		2
Non lending losses		52		63		40
Other		146		136		113

Comparable business		769		755		722
Which new Bank		—		30		5

Total other expenses		769		785		727


Comparable business		2,967		2,878		2,841
Which new Bank		—		122		28

Total Operating Expenses		2,967		3,000		2,869

Which new Bank

On 19 September 2003, the Bank launched the Which new Bank service vision. This is a three year transformation program and results in the Bank incurring additional expenditure in the key areas of staff training and skilling, systems and process simplification, and technology.

Total Full Time Equivalent (FTE) numbers have reduced to 34,918 at 31 December 2005 (includes domestic and offshore staff, as well as staff employed on Which new Bank projects). This compares to 35,313 at 30 June 2005. Total FTE’s (excluding those working on Which new Bank projects and offshore) have reduced by 2,513 since the commencement of Which new Bank. This includes 3,528 redundancies.

Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP recouncilation) 66

Notes to the Financial Statements continued

Note 4 Income Tax Expense


	Half Year Ended
	31/12/05			30/06/05			31/12/04
	$M			$M			$M

Profit from Ordinary Activities before Income Tax
Banking		2,252			2,056			2,001
Funds management		319			220			289
Insurance		427			250			272
Superannuation plan expense		(27	)		(35	)		(40	)

		2,971			2,491			2,522

Prima Facie Income Tax at 30%
Banking		676			617			600
Funds management		96			66			87
Insurance		128			75			82
Superannuation plan expense		(8	)		(11	)		(12	)

		892			747			757

Tax effect of expenses that are non-deductible/income non-assessable in determining taxable profit:


Current period
Tax consolidation adjustment	(1	)	—		—
Individually assessed provisions for offshore impairment losses on financial instruments not tax affected	—		2		2
Taxation offsets (net of accruals)	(18	)	(22	)	(26	)
Tax adjustment referable to policyholder income	141		82		78
Non assessable income — life insurance surplus	—		(14	)	(16	)
Non—assessable capital gains	(45	)	—		—
Tax losses recognised	(3	)	(7	)	(2	)
Other	(13	)	2		19

	61		43		55


Prior periods
Other	1		7		(7	)
Total income tax expense	954		797		805


Income Tax Attributable to Profit from Ordinary Activities
Banking	640		604		593
Funds management	62		40		48
Insurance	51		36		53

Corporate tax	753		680		694
Policyholder tax	201		117		111

Total income tax expense	954		797		805


Effective Tax Rate	%		%		%
Total — corporate	27.2		28.7		28.8
Banking — corporate	28.8		29.9		30.2
Funds management — corporate	29.5		23.8		20.3
Insurance — corporate	15.2		19.5		24.9

New Zealand Subsidiaries

Certain subsidiaries of the Bank in New Zealand are being audited by the Inland Revenue Department as part of the normal Inland Revenue Department procedures, with a particular focus on structured finance transactions. No tax assessments have been issued.

67 Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP recouncilation)

Notes to the Financial Statements continued

Note 5 Loans, Advances and Other Receivables


	Half Year Ended
	31/12/05			30/06/05			31/12/04
	$M			$M			$M

Australia
Overdrafts		2,220			2,564			2,271
Housing loans		135,990			129,913			121,704
Credit card outstandings		6,870			6,682			6,456
Lease financing		4,906			5,055			5,572
Bills discounted		3,898			3,399			2,964
Term loans		51,938			46,451			43,329
Redeemable preference share financing		6			9			39
Other lending		401			389			334

Total Australia		206,229			194,462			182,669


Overseas
Overdrafts		2,694			2,660			2,521
Housing loans		23,349			20,765			18,945
Credit card outstandings		478			406			409
Lease financing		124			195			165
Term loans		12,839			12,804			11,018
Redeemable preference share financing		894			—			247
Other lending		34			192			18
Other securities		1,726			—			—

Total overseas		42,138			37,022			33,323

Gross loans, advances and other receivables		248,367			231,484			215,992


Less:
Provisions for impairment:
Collective provision ⁽¹⁾		(1,041	)		(1,390	)		(1,379	)
Individually assessed provisions ⁽¹⁾		(179	)		(157	)		(180	)
Unearned income:
Term loans		(921	)		(889	)		(824	)
Lease financing		(620	)		(683	)		(827	)
Interest reserved ⁽²⁾		—			(19	)		(27	)
		(2,761	)		(3,138	)		(3,237	)

Net loans, advances and other receivables		245,606			228,346			212,755


(1)		Collective provision and individually assessed provisions re-calculated under AIFRS for 31 December 2005.

(2)		Interest reserved are not recognised under AIFRS from 1 July 2005.

Note 6 Asset Quality


	Half Year Ended
	31/12/05			30/06/05			31/12/04
	$M			$M			$M

Total Impaired Assets
Gross non—accruals		396			395			445
Less interest reserved ⁽¹⁾		—			(19	)		(27	)

		396			376			418
Less individually assessed provisions for impairment		(179	)		(157	)		(180	)

Total net impaired assets		217			219			238


Net impaired assets by geographical segment Australia		214			218			238
Overseas		3			1			—

Total		217			219			238


(1)		Interest and fees reserved are not recognised under AIFRS from 1 July 2005.

Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP recouncilation) 68

Notes to the Financial Statements continued

Note 6 Asset Quality (continued)


	Half Year Ended
	31/12/05			30/06/05			31/12/04
	$M			$M			$M

Provisions for impairment
Collective provisions
Opening balance ⁽¹⁾		1,021			1,379			1,393
Charge against profit and loss		188			176			146
Transfer to individually assessed provisions		(200	)		(180	)		(172	)
Impairment losses recovered		57			41			40
Adjustments for exchange rate fluctuations and other items		1			2			—

		1,067			1,418			1,407
Impairment losses written off		(26	)		(28	)		(28	)

Closing balance		1,041			1,390			1,379


Individually assessed provisions
Opening balance ⁽¹⁾		191			180			143
Transfer from collective provision for:
New and increased provisioning		214			205			203
Less write—back of provisions no longer required		(14	)		(25	)		(31	)

Net transfer		200			180			172


Adjustments for exchange rate fluctuations and other items		(3	)		—			(3	)
Impairment losses		(209	)		(203	)		(132	)

Closing balance		179			157			180

Total provisions for impairment		1,220			1,547			1,559
General reserve for credit losses (pre-tax equivalent)		404			—			—
Total provisions including general reserve for credit losses		1,624			1,547			1,559


(1)		The opening balance at 1 July 2005 includes the impact of adopting AIFRS 132, AIFRS 137 and AIFRS 139 which have not been applied to the 2005 comparatives in accordance with AASB 1.


	%		%		%

Provision Ratios
Specific provisions for impairment as a % of gross impaired assets net of interest reserved ⁽¹⁾		—		41.8		43.1
Total provisions for impairment as a % of gross impaired assets net of interest reserved ⁽¹⁾		308.1		411.4		373.0
General provisions as a % of risk weighted assets		—		0.73		0.76
Individually assessed provisions for impairment as a % of gross impaired assets		45.2		—		—
Total provisions for impairment plus general reserve for credit losses (pre-tax equivalent) as a % of gross impaired assets		410.1		—		—
Collective provision plus general reserve for credit losses (pre-tax equivalent) as a % of risk weighted assets		0.71		—		—


(1)		Interest reserved not recognised under AIFRS.

Coverage Ratios under AIFRS

The re-measurement of impairment provisions under AIFRS has resulted in a lower level of total provisions previously assessed using Australian GAAP. However the Australian prudential regulator, APRA, has proposed that banks maintain a provisioning benchmark of 0.5% of risk weighted assets to adequately cover potential credit losses. The Group has subsequently established a General Reserve for Credit Losses, which together with the Collective Provisions (net of deferred tax) will satisfy this requirement.


Impaired Asset Ratios
Gross impaired assets net of interest reserved as % of risk weighted assets	0.20	0.20	0.23
Net impaired assets as % of:
Risk weighted assets	0.11	0.12	0.13
Total shareholders’ equity	1.09	0.97	1.08

Provisioning Policy

Provisions for impairment are maintained at an amount adequate to cover incurred credit related losses.

The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant and individually or collectively for financial assets that are not individually significant. If there is objective evidence of impairment, the amount of the loss is measured as the difference between the assets carrying amount and the present value of the expected future cash flows discounted at the financial assets original effective interest rate. Short term balances are not discounted.

For credit risk management purposes both collective provisions ($1,041 million) and general reserve for credit losses (pre-tax equivalent) ($404 million) are available to support possible credit losses and the total of $1,445 million equates to 0.71% of risk weighted assets. This percentage can be compared with the previous general provisions assessed under AGAAP of 0.73% at 30 June 2005 and 0.76% at 31 December 2004.

69 Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP recouncilation)

Notes to the Financial Statements continued

Note 6 Asset Quality (continued)


	Half Year Ended
	31/12/05		30/06/05		31/12/04
	$M		$M		$M

Impaired Assets
Income received:
Current period		—		2		3
Prior period		—		2		2

Total income received ⁽¹⁾		—		4		5


Interest income forgone ⁽¹⁾		—		7		6


(1)		Interest reserved is no longer recognised under AIFRS


Movement in Impaired Asset Balances
Gross impaired assets at period beginning	395		445		363
New and increased	365		383		386
Balances written off	(209	)	(216	)	(134	)
Returned to performing or repaid	(155	)	(217	)	(170	)

Gross impaired assets at period end	396		395		445

Half Year Ended

31/12/05

30/06/05

31/12/04

Loans Accruing but Past Due 90 Days or More (consumer segment)

Housing loans

154

183

176

Other loans

119

119

Total

273

302

270

Note 7 Deposits and Other Public Borrowings


	Half Year Ended
	31/12/05		30/06/05		31/12/04
	$M		$M		$M

Australia
Certificates of deposits		17,351		16,041		18,594
Term deposits		42,959		41,582		40,738
On demand and short-time deposits		77,902		75,407		72,853
Deposits not bearing interest		6,149		5,823		5,855
Securities sold under agreements to repurchase and short sales		1,092		2,258		2,766

Total Australia		145,453		141,111		140,806


Overseas
Certificates of deposits		935		3,105		3,213
Term deposits		13,992		13,617		13,719
On demand and short-time deposits		7,024		8,633		7,662
Deposits not bearing interest		1,222		1,155		1,158
Securities sold under agreements to repurchase and short sales		97		405		865

Total overseas		23,270		26,915		26,617

Total deposits and other public borrowings		168,723		168,026		167,423

Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP recouncilation) 70

Notes to the Financial Statements continued

Note 8 Financial Reporting by Segments

This note sets out segment reporting in accordance with statutory reporting requirements. Refer to the business analysis at the front of this report for detailed profit and loss accounts by segment.

Half Year Ended 31 December 2005

Funds

Banking

Management

Insurance

Total

Primary Segment

Business Segments

Income Statement

Interest income

9,638

—

9,638

Premium and related revenue

—

573

Other income

1,416

2,116

693

4,225

Total revenue

11,054

2,116

1,266

14,436

Interest expense

6,354

—

6,354

Segment result before income tax

2,225

319

427

2,971

Income tax expense

(640

)

(171

)

(143

)

(954

)

Segment result after income tax

1,585

148

284

2,017

Minority interests

(15

)

—

(18

)

Segment result after income tax and minority interests

1,570

145

284

1,999

Net profit attributable to shareholders of the Bank

1,570

145

284

1,999

Non—Cash Expenses

Intangible asset amortisation

—

Bad and doubtful debts expense

188

—

188

Depreciation

Superannuation plan expense

—

Which new Bank initiative

—

Balance Sheet

Total assets

321,477

19,650

10,066

351,193

Acquisition of property, plant & equipment, intangibles and other non—current assets

122

223

Associate investments

119

191

Total liabilities

307,055

16,500

7,788

331,343

71 Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation)

Notes to the Financial Statements continued

Note 8 Financial Reporting by Segments (continued)


	Half Year Ended 31 December 2004
				Funds
	Banking			Management			Insurance			Total
	$M			$M			$M			$M

Primary Segment
Business Segments
Income Statement

Interest income		8,089			—			—			8,089
Premium and related revenue		—			—			575			575
Other income		1,383			1,839			716			3,938

Total revenue		9,472			1,839			1,291			12,602


Interest expense		5,131			—			—			5,131


Segment result before income tax and goodwill impairment		1,961			289			272			2,522
Income tax expense		(593	)		(100	)		(112	)		(805	)

Segment result after income tax and before goodwill impairment		1,368			189			160			1,717
Minority interest		(2	)		(3	)		—			(5	)

Segment result after income tax and minority interests before goodwill impairment		1,366			186			160			1,712

Net profit attributable to shareholders of the Bank		1,366			186			160			1,712


Non—Cash Expenses
Intangible asset amortisation		6			—			—			6
Bad and doubtful debts expense		146			—			—			146
Depreciation		60			4			4			68
Superannuation plan expense		40			—			—			40
Which new Bank initiative		15			12			1			28

Balance Sheet
Total assets		292,293			16,779			16,287			325,359
Acquisition of property, plant & equipment, intangibles and other non—current assets		134			4			6			144
Associate investments		188			1			44			233
Total liabilities		276,005			17,152			10,101			303,258

Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation) 72

Notes to the Financial Statements continued

Note 8 Financial Reporting by Segments (continued)


	Half Year Ended
	31/12/05				31/12/04
	$M		%		$M		%

Secondary Segment
Geographical Segment
Financial Performance

Revenue
Australia		11,574		80. 2		10,106		80. 2
New Zealand		1,982		13. 7		1,561		12. 4
Other countries ⁽¹⁾		880		6. 1		935		7. 4

		14,436		100. 0		12,602		100. 0

Net Profit Attributable to Shareholders of the Bank
Australia		1,547		77. 4		1,429		83. 5
New Zealand		192		9. 6		173		10. 1
Other countries ⁽¹⁾		260		13. 0		110		6. 4

		1,999		100. 0		1,712		100. 0

Assets
Australia		287,191		81. 8		265,746		81. 7
New Zealand		45,401		12. 9		39,269		12. 1
Other countries ⁽¹⁾		18,601		5. 3		20,344		6. 2

		351,193		100. 0		325,359		100. 0


Acquisition of Property, Plant & Equipment and Intangibles and Other Non—current Assets
Australia		201		90. 1		129		89. 6
New Zealand		17		7. 6		11		7. 6
Other countries ⁽¹⁾		5		2. 3		4		2. 8

		223		100. 0		144		100. 0


(1)		Other countries were: United Kingdom, United States of America, Japan, Singapore, Malta, Hong Kong, Grand Cayman, Fiji, Indonesia, China and Vietnam.

The geographical segment represents the location in which the transaction was booked.

73 Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation)

Notes to the Financial Statements continued

Note 9 Detailed Consolidated Statement of Changes in Equity


	31/12/05			30/06/05			31/12/04
	$M			$M			$M

Equity reconciliations
Ordinary Share Capital
Opening balance		13,486			13,344			13,359
AIFRS transition adjustment ⁽¹⁾		—			—			(371	)

Restated opening balance		13,486			13,344			12,988
Buy back		(1	)		—			—
Dividend reinvestment plan		262			200			246
Employee share ownership schemes		35			23			43
(Purchase)/sale and vesting of treasury shares ⁽²⁾		19			(81	)		68
Issue costs		—			—			(1	)

Closing balance		13,801			13,486			13,344

Preference Share Capital
Opening balance		687			687			687
AIFRS transition adjustments ⁽³⁾		(687	)		—			—
Restated opening balance		—			687			687

Closing balance		—			687			687

Other Equity Instruments
Opening balance		1,573			1,573			1,573
AIFRS transition adjustments ⁽³⁾		(1,573	)		—			—
Restated opening balance		—			1,573			1,573

Closing balance		—			1,573			1,573

Retained profits
Opening balance		3,843			3,357			2,840
AIFRS transition adjustments ⁽⁴⁾		(728	)		—			9

Restated opening balance		3,115			3,357			2,849
Actuarial gains and losses from defined benefit superannuation plan		68			39			71
Realised gains and dividend income on treasury shares held within the bank’s life insurance statutory funds ⁽²⁾		25			21			—
Operating profit attributable to members of the Bank		1,999			1,688			1,712

Total available for appropriation		5,207			5,105			4,632
Transfers to general reserve ⁽⁵⁾		(106	)		(109	)		101
Transfers to general reserve for credit loss		(25	)		—			—
Interim dividend — cash component		—			(883	)		—
Interim dividend — dividend reinvestment plan		—			(200	)		—
Payment of final dividend — cash component		(1,173	)		—			(1,069	)
Payment of final dividend — dividend reinvestment plan		(262	)		—			(246	)
Other dividends		—			(70	)		(61	)

Closing balance		3,641			3,843			3,357

Reserves
General Reserve
Opening balance		982			873			3,810
AIFRS transition adjustments ⁽⁶⁾		—			—			(2,836	)

Restated opening balances		982			873			974
Appropriation from profits		106			109			(101	)

Closing balance		1,088			982			873

Capital Reserve
Opening balance		282			280			280
Reversal of revaluation surplus/(deficit) on sale of property		2			2			—

Closing balance		284			282			280


(1)		Relates to the initial recognition of treasury shares held within the employee share scheme trust and the Bank’s life insurance statutory funds

(2)		Relates to movements in treasury shares held within life insurance statutory funds and the employee share scheme trust.

(3)		Reclassification of hybrid financial instruments from equity to liabilities

(4)		Comprises:

•		Actuarial and other movements within the defined benefit surplus superannuation plan;

•		Net movement in the calculation of life insurance policyholder liabilities;

•		Adjustment in respect of realised gains and dividend income on treasury shares;

•		Deferral of initial entry fee income earned by life insurance entities;

•		Adjustment to the fair value calculation for assets held by the life insurance business;

•		Adjustment in respect of derivative financial instruments;

•		Deferral of previously recognised net income and expenses within the banking business;

•		Foreign exchange adjustment on the reclassification of hybrid financial instruments; and

•		Adjustment to fair value calculation for trading assets within the banking portfolios and for other financial instruments designated as fair value through profit and loss.

(5)		Appraisal Value Uplift of $265 million has been removed from the appropriation line of the General Reserve for the six months ended December 2004.

(6)		Net write down of the internally generated appraisal value of the life insurance and funds management business.

Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation) 74

Notes to the Financial Statements continued

Note 9 Detailed Consolidated Statement of Changes in Equity (continued)


	31/12/05			30/06/05			31/12/04
	$M			$M			$M

Asset Revaluation Reserve
Opening balance		119			92			61
AFRIS transition adjustment ⁽¹⁾		—			—			31

Restated opening balance		119			92			92
Revaluation of investments and properties		—			29			—
Transfers on sale of properties		(2	)		(2	)		—

Closing balance		117			119			92

Foreign Currency Translation Reserve
Opening balance		(141	)		(151	)		(205	)
AIFRS transition adjustments ⁽²⁾		27			—			205

Restated opening balances		(114	)		(151	)		—
Currency translation adjustments		80			10			(151	)
Transfer to the Income Statement		41			—			—
Tax on translation adjustments		(17	)		—			—

Closing balance		(10	)		(141	)		(151	)

Cash Flow Hedge Reserve
Opening balance		—			—			—
AIFRS transition adjustments ⁽³⁾		39			—			—

Restated opening balance		39			—			—
Gains/(losses) on cash flow hedging instruments:
Recognised in equity		23			—			—
Transferred to income statements		11			—			—
Tax on cash flow hedging instruments								(11	)
Current Period movement		23			—			—

Closing balance		62			—

Employee Compensation Reserve
Opening balance		23			4			—
AIFRS transition adjustments ⁽⁴⁾		—			—			47

Restated opening balance		23			4			47
Current period movement		(5	)		19			(43	)

Closing balance		18			23			4

General Reserve for Credit Loss ⁽⁵⁾
Opening balance		—			—			—
AIFRS transition adjustment ⁽⁶⁾		258			—			—

Restated opening balance		258			—			—
Current period movement appropriation from/(to) retained profits		25			—			—

Closing balance		283			—			—

Available-for-Sale Investments					—			—
Opening balance		—			—			—
AIFRS transition adjustments ⁽⁷⁾		56			—			—

Restated opening balance		56			—			—
Net gains/(losses) on available-for-sale investments		(10	)		—			—
Net gain/(loss) on available-for-sale investments transferred to the income statement on disposal		1			—			—
Impairment of available-for-sale investments transferred to the income statement		(3	)		—			—
Tax on available-for-sale investments		(1	)		—			—
Current period movement		(13	)		—			—

Closing balance		43			—			—

Total Reserves		1,885			1,265			1,098

Shareholders’ Equity Attributable to Members of the Bank		19,327			20,854			20,059

Shareholders’ Equity Attributable to Minority Interests		523			1,789			2,042

Total Shareholders’ Equity		19,850			22,643			22,101


(1)		Change in valuation methodology for owner-occupied property.

(2)		Transfer to retained profits on 1 July 2004; and re-translation on 1 July 2005 due to change in recognition and measurement of financial instruments.

(3)		Initial recognition of the cash flow hedge reserves on 1 July 2005.

(4)		Initial recognition of employee (equity) compensation reserve on 1 July 2004.

(5)		The opening balance of the general reserve for credit loss has been appropriated from retained profits. The amount is the tax effected difference between the former general provision at 30 June 2005, $1,390 million, and the opening transition balance of the collective provision, $1,021 million. The general reserve for credit loss has been established to satisfy the proposed APRA prudential requirement for banks to maintain a general reserve for credit loss, and allowable collective provisions, at a minimum level of 0.5% of risk weighted assets.

(6)		Initial recognition of a general reserve for credit loss arising in the recalculation of loan impairment provisions on 1 July 2005.

(7)		Initial recognition of the available-for-sale investment reserve on 1 July 2005.

75 Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation)

Notes to the Financial Statements continued

Note 10 Statement of Cash Flows

(a) Reconciliation of Operating Profit after Income Tax to Net Cash Provided by Operating Activities


	Half Year Ended
	31/12/05			30/06/05			31/12/04
	$M			$M			$M

Net profit after income tax		2,017			1,693			1,717
Decrease/(Increase) in interest receivable		(120	)		94			(111	)
Increase/(decrease) in interest payable		(34	)		(43	)		107
Net decrease/(increase) in trading securities		—			1,727			(1,409	)
Net (increase) in assets at fair value through the Income Statement (excluding life insurance)		(1,060	)		—			—
Net (gain)/loss on sale of investments		—			(7	)		(1	)
Net (gain)/loss on sale of controlled entities and associates		(145	)		13			—
(Increase)/decrease in derivative assets		1,566			—			—
(Gain)/loss on sale property plant and equipment		(5	)		(3	)		(1	)
Charge for bad and doubtful debts		188			176			146
Depreciation and amortisation		99			102			74
Increase in liabilities in liabilities at fair value through Income Statement (excluding life insurance)		3,704			—			—
Increase in derivative liabilities		(1,874	)		—			—
(Decrease)/increase in other provisions		(46	)		4			(90	)
(Decrease)/increase in income taxes payable		(258	)		410			(4	)
(Decrease)/increase in deferred income taxes payable		(12	)		(54	)		386
(Increase)/decrease in deferred tax assets		(66	)		(74	)		(12	)
(Increase)/decrease in accrued fees/reimbursements receivable		(136	)		(24	)		(17	)
Increase/(decrease) in accrued fees and other items payable		217			281			(175	)
Amortisation of premium on investment securities		—			(7	)		3
Unrealised (gain)/loss on revaluation of trading securities		—			689			(281	)
Unrealised (gain)/loss on revaluation of assets at fair value through the Income Statement (excluding life insurance)		10			—			—
Change in life insurance contract policy liabilities		16			(272	)		328
Revaluation of life insurance assets		(272	)		80			(745	)
Gain on sale of life insurance assets		(26	)		(158	)		(396	)
Increase/(decrease) in managed fund units on sale		(123	)		—			—
Other		10			100			120

Net Cash used in Operating Activities		3,650			4,727			(361	)

(b) Reconciliation of Cash

For the purposes of the statement of cash flows, cash includes cash, money at short call, at call deposits with other financial institutions and settlement account balances with other banks.


	Half Year Ended
	31/12/05			30/06/05			31/12/04
	$M			$M			$M

Notes, coins and cash		3,023			1,723			1,999
Other short term liquid assets		581			859			615
Receivables due from other financial institutions — at call ⁽¹⁾		2,754			2,893			4,096
Payables due to other financial institutions — at call ⁽¹⁾		(5,626	)		(4,199	)		(5,133	)

Cash and Cash Equivalents at end of half year		732			1,276			1,577

(1)

At call includes receivables and payables due from and to financial institutions within three months.

(c) Disposal of Controlled Entities

Half Year Ended

31/12/05

30/06/05

31/12/04

Disposal proceeds

608

—

Net cash disposed on sale of controlled entities

(55

)

—

Net cash inflows

553

—

Fair value of net tangible assets disposed

—

Net book value of assets disposed

463

—

Profit/(loss) on sale

145

—

608

Inflow of cash from disposal

608

—

Cash proceeds

608

—

Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation) 76

Notes to the Financial Statements continued

Note 11 Events after the end of the Financial Period

Dividends

The Directors have declared a fully franked dividend of 94 cents per share — amounting to $1,211 million for the half year ended 31 December 2005.

The Directors are not aware of any other matter or circumstance that has occurred since the end of the half year that has significantly affected or may significantly affect the operation of the Bank, the results of those operations or the state of affairs of the Bank in subsequent financial years.

Note 12 Contingent Liabilities

There have been no material changes in contingent liabilities since those disclosed in the financial statements for the year ended 30 June 2005, refer to note 38 of the 2005 Annual Report.

Note 13 Acquisitions of Business Interests

Hangzhou City Commercial Bank

During the half year, the Bank acquired a 19.9% interest in Hangzhou City Commercial Bank (HZB) for A$102 million. HZB is one of the top five city commercial banks by assets in mainland China.

Acquisition of CFS PRT Limited and GRM Ltd

On 6 October 2005, the Bank acquired of 40% of Colonial First State Property Retail Trust Limited and 60% of Gandel Retail Management Trust Ltd for A$367 million, principally representing the purchase of management rights. These acquisitions brought the Bank’s total holding in these entities to 100%.

These entities engage in property and funds management and were previously jointly held by the Bank and the Gandel group. Completion of this acquisition, being cash settlement and the finalisation of the independent fair valuations on the acquired assets, will occur during the half year ending 30 June 2006.

77 Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation)

Appendices

1. Net Interest Income


	Half Year Ended
	31/12/05		30/06/05		31/12/04		Dec 05 vs			Dec 05 vs
	$M		$M		$M		Jun 05 %			Dec 04 %

Interest Income
Loans		8,555		7,703		7,143		11			20
Other financial institutions		175		128		101		37			73
Cash and liquid assets		103		91		107		13			(4	)
Investment securities		—		379		344	large			large
Assets at fair value through the Income Statement		511		391		394		31			30
Available-for-sale investments		294		—		—		—			—

Total interest income		9,638		8,692		8,089		11			19


Interest Expense
Deposits		3,891		3,626		3,437		(7	)		(13	)
Other financial institutions		213		131		126		(63	)		(69	)
Liabilities at fair value through the Income Statement		261		—		—		—			—
Debt issues		1,667		1,681		1,403		1			(19	)
Loan capital		322		186		165		(73	)		(95	)

Total interest expense		6,354		5,624		5,131		(13	)		(24	)

Net interest income		3,284		3,068		2,958		(7	)		(11	)

2. Net Interest Margin


	Half Year Ended
	31/12/05		30/06/05		31/12/04
	%		%		%

Australia
Interest spread ⁽¹⁾		2. 30		2. 33		2. 33
Benefit of interest free liabilities, provisions and equity ⁽²⁾		0. 26		0. 27		0. 23

Net interest margin ⁽³⁾		2. 56		2. 60		2. 56


Overseas
Interest spread ⁽¹⁾		0. 97		0. 94		1. 12
Benefit of interest free liabilities, provisions and equity ⁽²⁾		0. 65		0. 71		0. 65

Net interest margin ⁽³⁾		1. 62		1. 65		1. 77


Total Bank
Interest spread ⁽¹⁾		2. 05		2. 07		2. 09
Benefit of interest free liabilities, provisions and equity ⁽²⁾		0. 36		0. 37		0. 34

Net interest margin ⁽³⁾		2. 41		2. 44		2. 43

(1)		Difference between the average interest rate earned and the average interest rate paid on funds.

(2)		A portion of the Bank’s interest earning assets is funded by interest free liabilities and shareholders’ equity. The benefit to the Bank of these interest free funds is the amount it would cost to replace them at the average cost of funds.

(3)		Net interest income divided by average interest earning assets for the year.

79 Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation)

Appendices

3. Average Balances and Related Interest

The following table lists the major categories of interest earning assets and interest bearing liabilities of the Bank together with the respective interest earned or paid and the average interest rate for each of the periods ending 31 December 2005, 30 June 2005 and 31 December 2004. Averages used were predominately daily averages. Interest is accounted for based on product yield, while all trading gains and losses are disclosed as trading income within other banking income.

Where assets or liabilities are hedged, the amounts are shown net of the hedge, however individual items not separately hedged may be affected by movements in exchange rates.

The overseas component comprises overseas branches of the Bank and overseas domiciled controlled entities.

Non-accrual loans were included in interest earning assets under loans, advances and other.

There was no increase in the official cash rate in Australia during the six months ended 31 December 2005, while rates in New Zealand increased by a total of 50 basis points during the period.

Average Balances


	Half Year Ended 31/12/05						Half Year Ended 30/06/05						Half Year Ended 31/12/04
	Avg Bal		Income		Yield		Avg Bal		Income		Yield		Avg Bal		Income		Yield
Interest Earning Assets	$M		$M		%		$M		$M		%		$M		$M		%

Home loans excluding securitisation		144,879		4,925		6. 74		136,102		4,529		6. 71		128,135		4,240		6. 56
Personal ⁽¹⁾		15,878		868		10.84		15,342		810		10.65		13,901		731		10.43
Business and corporate		64,975		2,410		7. 36		60,261		2,021		6. 76		57,226		1,918		6. 65

Loans, Advances and Other Receivables		225,732		8,203		7. 21		211,705		7,360		7. 01		199,262		6,889		6. 86

Cash and other liquid assets		10,965		278		5. 03		10,969		219		4. 03		10,986		208		3. 76
Assets at fair value through Income Statement (excluding life insurance)		18,822		511		5. 39		14,960		391		5. 27		15,803		394		4. 95
Investment Securities		—		—		—		12,723		379		6. 01		13,099		344		5. 21
Available-for-sale investments		11,650		294		5. 01		—		—		—		—		—		—

Non Lending Interest Earning Assets		41,437		1,083		5. 18		38,652		989		5. 16		39,888		946		4. 70

Total interest earning assets (excluding securitisation) ⁽²⁾		267,169		9,286		6. 89		250,357		8,349		6. 73		239,150		7,835		6. 50
Securitisation home loan assets		10,013		352		6. 97		9,932		343		6. 96		7,227		254		6. 97
Non interest earning assets		67,613						70,197						70,448

Total Average Assets		344,795						330,486						316,825


Interest Bearing Liabilities

Transaction deposits		33,259		466		2. 78		32,454		414		2. 57		31,132		356		2. 27
Savings deposits		39,075		695		3. 53		38,193		638		3. 37		38,249		636		3. 30
Investment deposits		64,948		1,984		6. 06		65,577		1,870		5. 75		62,498		1,748		5. 55
Certificates of deposits and other		19,500		746		7. 59		25,467		704		5. 57		26,193		697		5. 28

Total Interest Bearing Deposits		156,782		3,891		4. 92		161,691		3,626		4. 52		158,072		3,437		4. 31

Payable due to other financial Institutions		8,982		213		4. 70		8,181		131		3. 23		7,820		126		3 .20
Liabilities at fair value through the Income Statement		15,084		261		3. 43		—		—		—		—		—		—
Debt issue		57,696		1,352		4. 65		54,277		1,378		5. 12		48,556		1,179		4. 82
Loan Capital		8,585		322		7. 44		6,203		186		6. 05		6,471		165		5. 06
Other interest bearing liabilities

Total Interest Bearing Liabilities		247,129		6,039		4. 85		230,352		5,321		4. 66		220,919		4,907		4. 41
Securitisation debt issues		11,231		315		5. 56		11,124		303		5. 49		8,718		224		5. 10
Non Interest Bearing Liabilities		65,161						66,609						65,524

Total Average Liabilities		323,521						308,085						295,161

(1)		Personal includes personal loans, credit cards, and margin loans.

(2)		Used for calculating net interest margin.

Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation) 80

Appendices

3. Average Balances and Related Interest (continued)


	Half Year Ended 31/12/05						Half Year Ended 30/06/05						Half Year Ended 31/12/04
	Avg Bal		Income		Yield		Avg Bal		Income		Yield		Avg Bal		Income		Yield
Net Interest Margin	$M		$M		%		$M		$M		%		$M		$M		%

Total interest earning assets excluding securitisation		267,169		9,286		6. 90		250,357		8,349		6. 73		239,150		7,835		6. 50
Total interest bearing liabilities excluding securitisation		247,129		6,039		4. 85		230,352		5,321		4. 66		220,919		4,907		4. 41

Net interest income & interest spread (excluding securitisation)				3,247		2. 05				3,028		2. 07				2,928		2. 09

Benefit of free funds						0. 36						0. 37						0. 34

Net interest margin						2. 41						2. 44						2. 43


							Dec 05 vs		Dec 05 vs
Reconciliation of Net Interest Margin	31/12/05		30/06/05		31/12/04		Jun 05 %		Dec 04 %

Net interest income on AGAAP equivalent basis⁽¹⁾($M)		3,241		3,033		2,933		7		11
Average interest earning assets (excl securitisation) ($M)		267,169		250,357		239,150		7		12
Net interest margin pro-forma basis %		2. 41		2. 44		2. 43	(3)bpts		(2)bpts

(1)

Refer page 96 for a reconciliation of Net Interest Income (AIFRS to AGAAP equivalent)

Geographical analysis of key categories


	Half Year Ended 31/12/05						Half Year Ended 30/06/05						Half Year Ended 31/12/04
	Avg Bal		Income		Yield		Avg Bal		Income		Yield		Avg Bal		Income		Yield
Loans, Advances and Other	$M		$M		%		$M		$M		%		$M		$M		%

Australia		186,994		6,797		7. 21		176,197		6,080		6. 96		166,382		5,742		6. 85
Overseas		38,738		1,406		7. 20		35,508		1,280		7. 27		32,880		1,147		6. 92

Total		225,732		8,203		7. 21		211,705		7,360		7. 01		199,262		6,889		6. 86


Non Lending Interest Earning Assets
Australia		23,560		628		5. 29		21,633		574		5. 35		22,399		564		4. 99
Overseas		17,877		455		5. 05		17,019		415		4. 92		17,489		382		4. 33

Total		41,437		1,083		5. 18		38,652		989		5. 16		39,888		946		4. 70


Total Interest Bearing Deposits
Australia		134,212		3,083		4. 56		135,402		2,756		4. 10		133,344		2,666		3. 97
Overseas		22,570		808		7. 10		26,289		870		6. 67		24,728		771		6. 19

Total		156,782		3,891		4. 92		161,691		3,626		4. 52		158,072		3,437		4. 31


Other Interest Bearing Liabilities
Australia		56,359		1,498		5. 27		44,260		1,289		5. 87		40,027		1,177		5. 83
Overseas		33,989		650		3. 79		24,401		406		3. 36		22,820		293		2. 55

Total		90,348		2,148		4. 72		68,661		1,695		4. 98		62,847		1,470		4. 64

The overseas component comprises overseas branches of the Bank and overseas domiciled controlled entities. Overseas intragroup borrowing’s have been adjusted into the interest spread and margin calculations to more appropriately reflect the overseas cost of funds. Non—accrual loans were included in interest earning assets under loans, advances and other receivables.

In calculating net interest margin, assets, liabilities, interest income and interest expense related to securitisation vehicles have been excluded. This has been done to more accurately reflect the Banks underlying net margin.

81 Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation)

Appendices

4. Interest Rate and Volume Analysis


	Half Year Ended
	31/12/05			31/12/05
	vs 31/12/04			vs 30/06/05
	Increase/			Increase/
	(Decrease)			(Decrease)
Change in Net Interest Income	$M			$M

Due to changes in average volume of interest earning assets and interest bearing liabilities		342			206
Due to changes in interest margin		(23	)		(37	)
Due to variation in time period		—			50

Change in net interest income		319			219


	Dec 05 vs Jun 05									Dec 05 vs Dec 04
	Volume			Rate			Total			Volume			Rate			Total
Interest Earning Assets	$M			$M			$M			$M			$M			$M

Home loans		295			101			396			562			123			685
Personal		29			29			58			106			31			137
Business and corporate		166			223			389			274			218			492

Loans, advances and other receivables		499			344			843			939			375			1,314

Cash and other liquid assets		—			59			59			—			70			70
Assets at fair value through Income Statement (excluding life insurance)		103			17			120			78			39			117
Investment securities		(189	)		(190	)		(379	)		(173	)		(171	)		(344	)
Available-for-sale investments		(30	)		(55	)		(85	)		(37	)		(13	)		(50	)

Non lending interest earning assets		72			22			94			39			98			137

Total interest earning assets		572			365			937			946			505			1,451
Securitisation home loan assets		3			6			9			98			—			98


Interest Bearing Liabilities

Transaction deposits		11			41			52			27			83			110
Savings deposits		15			42			57			14			45			59
Investment deposits		(19	)		133			114			72			164			236
Certificates of deposits and other		(197	)		239			42			(217	)		266			49

Total interest bearing deposits		(116	)		381			265			(30	)		484			454

Payable due to other financial institutions		16			66			82			23			64			87
Liabilities at fair value through Income Statement		131			130			261			131			130			261
Debt issues		83			(109	)		(26	)		218			(45	)		173
Loan capital		80			56			136			67			90			157
Other interest bearing liabilities		—			—			—			—			—			—

Total interest bearing liabilities		399			319			718			611			521			1,132

Securitised debt issues		3			9			12			68			23			91

Commonwealth Bank of Australia Profit Announcement (U.S. Version — without U.S. GAAP reconciliation) 82

Appendices

4. Interest Rate and Volume Analysis (continued)

These volume and rate analyses were for half year periods. The calculations were based on balances over the half year. The volume and rate variances for total interest earning assets and liabilities have been calculated separately (rather than being the sum of the individual categories).


	Dec 05 vs Jun 05									Dec 05 vs Dec 04
	Volume			Rate			Total			Volume			Rate			Total
Geographical analysis of key categories	$M			$M			$M			SM			$M			$M

Loans, Advances and Other
Australia		383			334			717			730			325			1,055

Overseas		117			9			126			208			51			259


Total		499			344			843			939			375			1,314


Non Lending Interest Earning Assets
Australia		51			3			54			30			34			64
Overseas		21			19			40			9			64			73


Total		72			22			94			39			98			137


Total Interest Bearing Deposits
Australia		(26	)		353			327			19			398			417
Overseas		(128	)		66			(62	)		(72	)		109			37


Total		(116	)		381			265			(30	)		484			454


Other Interest Bearing Liabilities
Australia		337			(128	)		209			457			(136	)		321
Overseas		171			73			244			178			179			357


Total		525			(72	)		453			649			29			678

5. Other Banking Operating Income


	Half Year Ended
	31/12/05			30/06/05			31/12/04		Dec 05 vs			Dec 05 vs
	$M			$M			$M		Jun 05 %			Dec 04 %

Lending fees		389			384			349		1			11
Commission and other fees		815			768			777		6			5
Trading income		244			221			219		10			11
Net (loss)/gain on disposal of non-trading instruments:
Loans		—			(14	)		1		—			—
Available-for-sale investments		1			—			—		—			—
Net revaluation gain transferred from equity		3			—			—		—			—
Funding specific provision		(3	)		—			—		—			—
Other financial instruments (incl hedging derivatives)		(69	)		—			—		—			—
Dividends		1			2			1		(50	)		—
Net profit/(loss) on sale of property, plant and equipment		—			3			1	large			large
Other		35			98			35		(64	)		—

Total other banking operating income		1,416			1,462			1,383		(3	)		2

83 Commonwealth Bank of Australia Profit Announcement (U.S. Version — without U.S. GAAP reconciliation)

Appendices

6. Operating Expenses


	Half Year Ended
							Dec 05 vs			Dec 05 vs
	31/12/05		30/06/05		31/12/04		Jun 05			Dec 04
Expenses ⁽¹⁾	$M		$M		$M		%			%

Operating expenses		2,967		2,878		2,841		(3	)		(4	)
Which new Bank		—		122		28	large			large

Total		2,967		3,000		2,869		1			(3	)


	Half Year Ended
							Dec 05 vs			Dec 05 vs
	31/12/05		30/06/05		31/12/04		Jun 05			Dec 04
Expenses by Segment ⁽¹⁾	$M		$M		$M		%			%

Operating expenses
Banking		2,260		2,201		2,179		(3	)		(4	)
Funds management		459		398		400		(15	)		(15	)
Insurance		248		279		262		11			5

		2,967		2,878		2,841		(3	)		(4	)

Which new Bank
Banking		—		97		15	large			large
Funds management		—		24		12	large			large
Insurance		—		1		1	large			large

		—		122		28	large			large

Total		2,967		3,000		2,869		1			(3	)


	Half Year Ended
							Dec 05 vs			Dec 05 vs
	31/12/05		30/06/05		31/12/04		Jun 05			Dec 04
Expenses by Category ⁽¹⁾	$M		$M		$M		%			%

Staff		1,364		1,302		1,297		(5	)		(5	)
Share based compensation ⁽²⁾		22		37		37		41			41
Occupancy and equipment		310		308		305		(1	)		(2	)
Information technology services		502		476		480		(5	)		(5	)
Other expenses		769		755		722		(2	)		(7	)

Operating expenses		2,967		2,878		2,841		(3	)		(4	)

Which new Bank		—		122		28	large			large

Total		2,967		3,000		2,869		1			(3	)


(1)		For further breakdown of operating expenses refer to Note 3 on page 66.

(2)		Reduction in share based compensation reflects the cessation of the mandatory component of the equity participation plan in February 2005, which is now paid in cash and included within salaries and wages.

Capitalisation of Computer Software Costs

Capitalised computer software costs (net of amortisation) totalled $188 million as at 31 December 2005 (June 2005: $182 million and December 2004: $163 million). Expenditure in the period principally comprises development of Which new Bank customer focussed systems.

Commonwealth Bank of Australia Profit Announcement (U.S. Version — without U.S. GAAP reconciliation) 84

Appendices

7. Integrated Risk Management (Excludes Insurance and Funds Management)

The major categories of risk actively managed by the Bank include credit risk, liquidity and funding risk, market risk and other operational risks. The 2005 Annual Report pages 30 to 32, Integrated Risk Management, detail the major risks managed by a diversified financial institution.

Credit Risk

The Bank uses a portfolio approach for the management of its credit risk. A key element is a well diversified portfolio. The Bank is using various portfolio management tools to assist in diversifying the credit portfolio. The 8.1% exposure to ‘Property and Business Services’ in the table below includes 0.6% of commercial property exposure for which the risk has effectively been transferred to third party investors by way of a synthetic securitisation transaction. The commercial portfolio remains well rated and we experience low actual bad debts during the year.


	31/12/05		30/06/05		31/12/04
Industry on Balance Sheet Exposure	%		%		%

Accommodation, cafes and restaurants		1.0		1.2		1.1
Agriculture, forestry and fishing		3.0		3.2		3.2
Communication services		0.3		0.3		0.3
Construction		1.4		1.4		1.4
Cultural and recreational services		0.6		0.7		0.8
Electricity, gas and water supply		1.9		1.7		1.4
Finance and insurance		11.4		11.6		10.7
Government administration and defence		1.4		1.6		2.5
Health and community services		1.6		1.8		1.7
Manufacturing		2.9		3.2		3.1
Mining		0.8		0.7		0.6
Personal and other services		0.5		0.5		0.4
Property and business services		8.1		8.4		8.1
Retail trade		1.8		2.0		2.0
Transport and storage		2.0		2.1		2.0
Wholesale trade		1.4		1.3		1.1
Consumer		59.9		58.3		59.6

		100.0		100.0		100.0

The Bank is traditionally a large home loan provider in both Australia and New Zealand (see “Consumer” above), where historically losses have been less than 0.03% of the portfolio in most years.


	31/12/05		30/06/05		31/12/04
Regional Credit Exposure	%		%		%

Australia		82.9		83.8		83.4
New Zealand		13.5		11.7		12.7
Europe		2.2		3.1		2.2
Americas		0.7		0.7		1.3
Asia		0.6		0.6		0.3
Other		0.1		0.1		0.1

		100.0		100.0		100.0

The Bank has the bulk of committed exposures concentrated in Australia and New Zealand.


	31/12/05		30/06/05		31/12/04
Commercial Portfolio Quality	%		%		%

AAA/AA		29		32		32
A		22		18		18
BBB		16		16		16
Other		33		34		34

		100		100		100

As a percentage of commercial portfolio exposure (including finance and insurances) which has been individually risk rated, the Bank has 67% of commercial exposures at investment grade quality.

Consumer Portfolio Quality

31/12/05

30/06/05

31/12/04

Housing loans accruing but past 90 days or more ($M)

154

183

176

Housing loan balances ($M) ⁽¹⁾

150,215

139,859

134,258

Arrears rate (%)

0.10

0.13


(1)		Housing loan balances are net of securitisation and include home equity and similar facilities.

85 Commonwealth Bank of Australia Profit Announcement (U.S. Version — without U.S. GAAP reconciliation)

Appendices

7. Integrated Risk Management (continued)

The Bank in its daily operations is exposed to a number of market risks (which are detailed in the 2005 Annual Report under Integrated Risk Management (pages 30 to 32) and Note 39 Market Risk).

Interest Rate Risk

Interest rate risk in the balance sheet is discussed within Note 39 of the 2005 Annual Report.

Next 12 months’ Earnings

The potential impact on net interest earnings of a 1% parallel rate shock and the expected change in price of assets and liabilities held for purposes other than trading is as follows:


	31/12/05		30/06/05		31/12/04
Interest Rate Risk	%		%		%

(expressed as a % of expected next 12 months’ earnings)
Average monthly exposure		1.2		1.1		1.0
High month exposure		1.8		1.5		1.5
Low month exposure		0.2		0.5		0.5

Value at Risk (VaR)

VaR within Financial Markets Trading is discussed in the 2005 Annual Report (page 36 Integrated Risk Management). The following table provides a summary of VaR by type.

Average VaR

During

December 2005

June 2005

December 2004

Half Year

VaR Expressed based on 97. 5% confidence

Group

Interest rate risk

2.65

3.44

3.68

Exchange rate risk

0.53

0.26

0.58

Implied volatility risk

0.61

0.49

0.53

Equities risk

0.08

0.04

0.22

Commodities risk

0.36

0.18

0.34

Prepayment risk

0.28

0.38

0.54

ASB Bank

0.36

0.22

0.26

Diversification benefit

(1.40

)

(0.98

)

(1.64

)

Total general market risk

3.47

4.03

4.51

Credit spread risk

5.74

4.85

4.67

Total

9.21

8.88

9.18

Average VaR

During

December 2005

June 2005

December 2004

Half Year

VaR Expressed based on 99. 0% confidence

Group

Interest rate risk

3.36

4.78

4.72

Exchange rate risk

0.62

0.31

0.70

Implied volatility risk

0.95

0.73

0.70

Equities risk

0.09

0.05

0.30

Commodities risk

0.45

0.21

0.41

Prepayment risk

0.28

0.38

0.54

ASB Bank

0.48

0.32

0.34

Diversification benefit

(1.93

)

(1.28

)

(2.01

)

Total general market risk

4.30

5.50

5.70

Credit spread risk

6.81

5.75

5.54

Total

11.11

11.25

11.24

Commonwealth Bank of Australia Profit Announcement (U.S. Version — without U.S. GAAP reconciliation) 86

Appendices

8. Capital Adequacy


	31/12/05			30/06/05			31/12/04
Risk-Weighted Capital Ratios	%			%			%

Tier One		7.54			7.46			7.46
Tier Two		3.28			3.21			3.13
Less deductions		(1.01	)		(0.92	)		(0.99	)

Total		9.81			9.75			9.60

Adjusted Common Equity ⁽¹⁾		5.00			4.91			4.76


	31/12/05			30/06/05			31/12/04
Regulatory Capital	$M			$M			$M

Tier One capital
Shareholders’ equity		19,850			26,060			25,067
Reverse effect to shareholder’s equity of AIFRS transition ^{(2) (3)}		7,183						—
Reverse effect AIFRS during 6 months to 31 December 2005: ⁽²⁾
Purchase/(sale) and vesting of treasury shares ⁽⁴⁾		(18	)		—			—
Actuarial gains and losses from defined benefits superannuation plan ⁽⁴⁾		(68	)		—			—
Realised gains and dividend income on treasury shares held with in the Bank’s life insurance statutory funds ⁽⁴⁾		(25	)		—			—
Cash flow hedge reserve ⁽⁴⁾		(23	)		—			—
Employee compensation reserve ⁽⁴⁾		5			—			—
General reserve for credit loss ⁽⁴⁾		(25	)		—			—
Available-for-sale investments ⁽⁴⁾		13			—			—
Defined benefit superannuation plan expense ⁽⁵⁾		19			—			—
Treasury share valuation adjustment ⁽⁵⁾		43			—			—
Other		31			—			—

Adjusted shareholders’ equity per APRA’s transitional arrangements		26,985			26,060			25,067
Eligible loan capital		317			304			298
Estimated reinvestment under Dividend Reinvestment Plan ⁽⁶⁾		221			272			206
Foreign currency translation reserve related to non-consolidated subsidiaries		160			211			216
Deduct:
Asset revaluation reserve ⁽⁷⁾		(117	)		(92	)		(61	)
Expected dividend		(1,211	)		(1,434	)		(1,083	)
Goodwill ⁽⁸⁾		(4,392	)		(4,394	)		(4,555	)
Intangible component of investment in non–consolidated subsidiaries ⁽⁹⁾		(5,397	)		(5,397	)		(4,964	)
Minority interest in entities controlled by non–consolidated subsidiaries		—			(111	)		(111	)
Minority interest in insurance statutory funds and other funds		(1,158	)		(1,158	)		(1,413	)
Capitalised expenses		(107	)		(107	)		(98	)
Other		(11	)		(13	)		(15	)

Total Tier One capital		15,290			14,141			13,487


Tier Two capital
Collective provision for impairment losses ⁽¹⁰⁾		1,041			—			—
General reserve for credit loss (pre-tax equivalent) ⁽¹⁰⁾		404			—			—

General provision for bad and doubtful debts		1,445			1,389			1,379
FITB related to general provision for bad and doubtful debts		(434	)		(414	)		(411	)
Asset revaluation reserve ⁽⁷⁾		117			92			61
Upper Tier Two note and bond issues		232			237			250
Lower Tier Two note and bond issues ^{(11) (12)}		5,349			4,783			4,374
Other		(65	)		—			—

Total Tier Two capital		6,644			6,087			5,653

Total Capital		21,934			20,228			19,140


(1)		Adjusted Common Equity (“ACE”) is one measure considered by Standard & Poor’s in evaluating the Bank’s credit rating. The ACE ratio has been calculated in accordance with the pre AIFRS Standard & Poor’s methodology.

(2)		APRA requires regulatory capital to continue to be calculated in accordance with AGAAP accounting principles until 1 July 2006. As such, all material changes to capital resulting from the Bank adopting AIFRS accounting standards on 1 July 2005 have been reversed from regulatory capital.

(3)		Refer to page 59 for details of the 1 July 2005 changes to Shareholders’ Equity upon transition to AIFRS.

(4)		Refer to pages 74 and 75 for details of changes to Shareholders’ Equity during the 6 months to 31 December 2005.

(5)		Refer to page 33 for details of the AIFRS profit adjustments during the 6 months to 31 December 2005.

(6)		Based on reinvestment experience related to the Bank’s Dividend Reinvestment Plan.

(7)		The Bank agreed with APRA to adopt AIFRS on 1 July 2005 for the reporting of the Asset Revaluation Reserve.

(8)		Consistent with APRA requirements goodwill is reported on an AGAAP basis.

(9)		Per APRA’s transitional arrangements, it was agreed to deduct the value as at 30 June 2005 of the intangible component of the carrying value of the life insurance and funds management business from Tier 1 capital, until 1 July 2006.

(10)		APRA requires the Bank to continue loan impairment provisioning on an AGAAP basis until 1 July 2006. As such the Bank has established a General Reserve for Credit Loss. The addition of the Collective Provision and the General Reserve for Credit Loss approximates the level of the former provision.

(11)		APRA requires these Lower Tier Two note and bond issues to be included as if they were un–hedged.

(12)		For regulatory capital purposes, Lower Tier Two note and bond issues are amortised by 20% of the original amount during each of the last five years to maturity.

87 Commonwealth Bank of Australia Profit Announcement (U.S. Version — without U.S. GAAP reconciliation)

Appendices

8. Capital Adequacy (continued)


	31/12/05			30/06/05			31/12/04
Regulatory Capital	$M			$M			$M

Total capital		21,934			20,228			19,140
Deduct:
Investment in non–consolidated subsidiaries (net of intangible component deducted from Tier One capital):
Shareholders’ net tangible assets in life and funds management businesses		(1,517	)		(2,513	)		(2,460	)
Reverse effect of transition to AIFRS ⁽¹⁾		(592	)		—			—
Capital in other non-consolidated subsidiaries		(321	)		(348	)		(404	)
Value of acquired inforce business ⁽²⁾		(1,339	)		(1,152	)		(1,152	)
Less: non-recourse debt		1,851			2,292			2,240

		(1,918	)		(1,721	)		(1,776	)
Other deductions		(130	)		(28	)		(27	)

Capital base		19,886			18,479			17,337


(1)		APRA requires regulatory capital to continue to be calculated in accordance with AGAAP accounting principles until 1 July 2006. As such, all material changes to capital resulting from the Bank adopting AIFRS accounting standards on 1 July 2005 have been reversed from regulatory capital.

(2)		Per APRA’s transitional arrangements, it was agreed to deduct the value as at 30 June 2005 of acquired in force business from Total Capital, until 1 July 2006. However, values as at 30 June 2005 have been adjusted to reflect the acquisition of the Gandel Group interests in Colonial First State Property Retail Trust and Gandel Retail Management Trust.


	31/12/05			30/06/05			31/12/04
Adjusted Common Equity ⁽¹⁾	$M			$M			$M

Tier One capital		15,290			14,141			13,487
Deduct:
Eligible loan capital		(317	)		(304	)		(298	)
Preference share capital		(687	)		(687	)		(687	)
Other equity instruments		(1,573	)		(1,573	)		(1,573	)
Minority interest (net of minority interest component deducted from Tier One capital)		(523	)		(520	)		(518	)
Investment in non–consolidated subsidiaries (net of intangible component deducted from Tier One capital)		(1,918	)		(1,721	)		(1,776	)
Other deductions		(130	)		(28	)		(27	)

Total Adjusted Common Equity		10,142			9,308			8,608


(1)		Adjusted Common Equity (“ACE”) is one measure considered by Standard & Poor’s in evaluating the Bank’s credit rating. The ACE ratio has been calculated in accordance with the pre AIFRS Standard & Poor’s methodology.


							Risk
	Face Value						Weights				Risk–Weighted Balance
	31/12/05		30/06/05		31/12/04				31/12/05			30/06/05		31/12/04
	$M		$M		$M		%		$M			$M		$M

Risk-Weighted Assets
On balance sheet assets
Cash, claims on Reserve Bank, short term claims on Australian Commonwealth and State Government and Territories, and other zero–weighted assets		25,677		27,447		27,741		0		—			—		—
Claims on OECD banks and local governments		18,771		14,754		14,718		20		3,754			2,951		2,944
Advances secured by residential property		154,274		143,746		137,589		50		77,137			71,873		68,795
All other assets		99,794		92,510		87,961		100		99,794			92,510		87,961

Total on balance sheet assets – credit risk		298,516		278,457		268,009				180,685			167,334		159,700

Total off balance sheet exposures – credit risk										18,626			19,371		18,300

Risk-weighted assets – market risk										3,356			2,854		2,674

Total risk-weighted assets										202,667			189,559		180,674

Commonwealth Bank of Australia Profit Announcement (U.S. Version — without U.S. GAAP reconciliation) 88

Appendices

8. Capital Adequacy(continued)

Active Capital Management

The Bank maintains a strong capital position. The Tier One Capital Ratio increased from 7.46% to 7.54% and the Total Capital Ratio increased from 9.75% to 9.81% during the six months to 31 December 2005. The Bank’s credit ratings remained unchanged.

During the period, the Bank achieved strong growth in Risk Weighted Assets from $190 billion to $203 billion.

The Bank adopted the Australian equivalent of International Financial Reporting Standards (“AIFRS”) on 1 July 2005. However, APRA requires reporting under AGAAP accounting principles to continue for regulatory capital purposes until the expected introduction of revised prudential standards on 1 July 2006. The Bank has agreed transitional reporting arrangements with APRA whereby all material impacts of the adoption of AIFRS are reversed for regulatory reporting purposes.

The following significant initiatives were undertaken to actively manage the Bank’s capital:

Tier One Capital

•		Issue of $262 million shares in October 2005 to satisfy the Dividend Reinvestment Plan (“DRP”) in respect of the final dividend for 2004/05;

•		In accordance with APRA guidelines, the estimated issue of $221 million shares to satisfy the DRP in respect of the interim dividend for 2005/06.

Further details of these transactions are provided in Appendix 9

Tier Two Capital

•		Issue of the equivalent of A$767 million Lower Tier Two capital;

•		In accordance with APRA guidelines, the reduction in Tier Two note and bond issues of A$197 million due to amortisation;

•		The call and maturity of the equivalent of A$78 million of Tier Two note and bond issues; and

•		Increase in Tier Two note and bond issues of $71 million resulting from changes in foreign exchange movements (whilst these notes are hedged, the unhedged value is included in the calculation of regulatory capital in accordance with APRA regulations).

Deductions from Total Capital

The following movements in deductions have occurred during the period:

•		The Bank acquired a 19.9% interest in Hangzhou City Commercial Bank for A$102 million.

•		$182 million increase in retained profits of the insurance and funds management business.

•		As a result of the sale of CMG Asia in October 2005, the $145 million profit realised on the sale of the business was repatriated to the Bank and $463 million was used to repay part of the non-recourse debt funding in the Bank’s life and funds management business.

As required by APRA, the Bank’s investment in its life insurance and funds management companies is deducted from regulatory capital to arrive at the Bank’s Capital Ratios. The Bank’s insurance and funds management companies held an estimated A$208 million excess over regulatory capital requirements at 31 December 2005 in aggregate. The decrease in surplus capital reflects the liability arising upon the acquisition of Gandel in October 2005. Upon funding of the acquisition in January and April 2006, the surplus capital of the insurance and funds management companies will increase by $367 million.

89 Commonwealth Bank of Australia Profit Announcement (U.S. Version — without U.S. GAAP reconciliation)

Appendices

9. Share Capital


	Half Year Ended 31 December 2005
Ordinary Share Capital	Shares Issued			$M

Opening balance 1 July 2005 (including treasury shares deduction)		1,266,764,403			13,486
Dividend reinvestment plan: 2004/2005 Final Dividend		7,032,857			262
Share buy back		(25,000	)		(1	)
Exercise of executive options		1,278,700			36
(Purchase)/sale and vesting of treasury shares		2,744,268			18

Closing balance 31 December 2005		1,277,795,228			13,801


	31/12/05			30/6/05
Shares on Issue	Shares Issued			Shares Issued

Opening balance (excluding treasury share deduction)		1,280,276,172			1,273,876,008
Dividend reinvestment plan issue:
2004/2005 Final dividend fully paid ordinary shares at $37.19		7,032,857			—
2004/2005 Interim dividend fully paid ordinary shares at $39.90		—			5,581,364
Share buy back		(25,000	)		—
Exercise under executive option plan		1,278,700			818,800

Closing balance (excluding treasury shares deduction)		1,288,562,729			1,280,276,172
Less treasury shares		(10,767,501	)		(13,511,769	)

Closing balance		1,277,795,228			1,266,764,403

Terms and Conditions of Ordinary Share Capital

Ordinary shares have the right to receive dividends as declared and in the event of winding up the company, to participating in the proceeds from sale of surplus assets in proportion to the number of and amount paid up on shares held.

A shareholder has one vote on a show of hands and one vote for each fully paid share on a poll. A shareholder may be present at a general meeting in person or by proxy or attorney, and if a body corporate it may also authorise a representative.

Dividend Franking Account

After fully franking the interim dividend to be paid for the half year ended 31 December 2005 the amount of credits available, as at 31 December 2005 to frank dividends for subsequent financial years is $324 million (June 2005: $194 million). This figure is based on the combined franking accounts of the Bank at 31 December 2005, which have been adjusted for franking credits that will arise from the payment of income tax payable on profits for the half year ended 31 December 2005, franking debits that will arise from the payment of dividends proposed for the year and franking credits that the Bank may be prevented from distributing in subsequent financial periods. The Bank expects the future tax payments will generate sufficient franking credits for the Bank to be able to fully frank future dividend payments. These calculations have been based on the taxation law as at 31 December 2005.

Dividends

The Directors have declared a fully franked interim dividend of 94 cents per share amounting to $1,211 million. The dividend will be payable on 5 April 2006 to shareholders on the register at 5pm on 24 February 2006.

Dividends per share are based on net profit after tax (“cash basis” excluding the profit on sale of the Hong Kong business) per share, having regard to a range of factors including:

•		Current and expected rates of business growth and the mix of business;

•		Capital needs to support economic, regulatory and credit ratings requirements;

•		The rate of return on assets; and

•		Investments and/or divestments to support business development.

Dividends paid since the end of the previous financial year:

•

As declared in last year’s Annual Report, a fully franked final dividend of 112 cents per share amounting to $1,435 million was paid on 23 September 2005. The payment comprised cash disbursements of $1,173 million with $262 million being reinvested by participants through the Dividend Reinvestment Plan.

Share Buy Back

On 28 October 2005 the Bank announced an on-market buy back of up to $500 million of the Bank’s ordinary shares. The buy back is being undertaken as part of the Bank’s active capital management.

Dividend Reinvestment Plan

The Bank expects to issue around $221 million of shares in respect of the Dividend Reinvestment Plan for the interim dividend for 2005/06.

The Dividend Reinvestment Plan continues to be capped at 10,000 shares per shareholder.

Record Date

The register closes for determination of dividend entitlement and for participation in the DRP at 5:00pm on 24 February 2006 at Link Market Services, Locked Bag A14, Sydney South, 1235.

Ex Dividend Date

The ex-dividend date is 20 February 2006.

Commonwealth Bank of Australia Profit Announcement (U.S. Version — without U.S. GAAP reconciliation) 90

Appendices

10. Life Company Policy Liabilities

Policy Liabilities

Appropriately qualified actuaries have been appointed in respect of each life insurance business and they have reviewed and satisfied themselves as to the accuracy of the policy liabilities included in this financial report, including compliance with the regulations of the Life Insurance Act (Life Act) 1995 where appropriate.


	31/12/05			30/06/05			31/12/04
Components of Policy Liabilities	$M			$M			$M

Future policy benefits ⁽¹⁾		24,861			27,790			27,701
Future bonuses		1,106			1,385			1,362
Future expenses		1,851			1,829			1,757
Future profit margins		1,224			1,795			1,596
Future charges for acquisition expenses		(450	)		(540	)		(542	)
Balance of future premiums		(5,604	)		(7,660	)		(6,966	)
Provisions for bonuses not allocated to participating policyholders		67			95			59

Total policy liabilities		23,055			24,694			24,967


(1)		Including bonuses credited to policyholders in prior years.

Taxation

Taxation has been allowed for in the determination of policy liabilities in accordance with the relevant legislation applicable in each territory.

Actuarial Methods and Assumptions

Policy liabilities have been calculated in accordance with AASB 1038 (Life Insurance Contracts), AASB 139 (Financial instruments: Recognition and Measurement) and the Margin on Services (MoS) methodology as set out in Actuarial Standard 1.04 — Valuation Standard (‘AS1.04’) issued by the Insurance Actuarial Standards Board (‘LIASB’). The principal methods and profit carriers used for particular product groups were as follows:


Product Type	Method	Profit Carrier

Individual

Conventional	Projection	Bonuses or expected claim payments
Investment account	Projection	Bonuses or funds under management
Investment linked	Accumulation	Not applicable
Lump sum risk	Projection	Premiums/claims
Income stream risk	Projection	Expected claim payments
Immediate annuities	Projection	Annuity payments


Group

Investment account	Projection	Bonuses or funds under management
Investment linked	Accumulation	Not applicable
Lump sum risk	Accumulation	Not applicable
Income stream risk	Projection	Expected claim payments

The ‘Projection Method’ measures the present values of estimated future policy cash flows to calculate policy liabilities. The policy cash flows incorporate investment income, premiums, expenses, redemptions and benefit payments.

The ‘Accumulation Method’ for investment linked measures the accumulation of amounts invested by policyholders plus investment earnings less fees specified in the policy to calculate policy liabilities.

Bonuses were amounts added, at the discretion of the life insurer, to the benefits currently payable under Participating Business. Under the Life Act, bonuses are a distribution to policyholders of profits and may take a number of forms including reversionary bonuses, interest credits and terminal bonuses (payable on the termination of the policy).

Actuarial assumptions

Set out on the next page is a summary of the material assumptions used in the calculation of policy liabilities.

Discount rates

These were the rates used to discount future cash flows to determine their net present value in the policy liabilities. The discount rates were risk free rates or were determined with reference to the expected earnings rate of the assets that support the policy liabilities adjusted for taxation where relevant. The following table shows the applicable rates for the major classes of business in Australia and New-Zealand. The changes relate to changes in long term earnings rates and asset mix.

91 Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation)

Appendices

10. Life Company Policy Liabilities (continued)


	December 2005		June 2005
Class of Business	Rate Range %		Rate Range %

Traditional — ordinary business (after tax)		5.59 — 6.34		5.52 — 6.26
Traditional — superannuation business (after tax)		6.82 — 7.76		6.74 — 7.67
Annuity business (after tax)		5.61 — 5.88		5.71 — 6.49
Term insurance — ordinary business (before tax)		5.02 — 5.32		5.11 — 5.50
Term insurance — superannuation business (before tax)		5.02 — 5.32		5.11 — 5.50
Income Protection business (before tax)		5.02 — 5.32		5.11
Investment linked — ordinary business (after tax)		4.03 — 5.80		4.98 — 5.69
Investment linked — superannuation business (after tax)		4.89 — 6.81		6.50 — 6.71
Investment linked — exempt (after tax)		5.75 — 7.72		7.38 — 7.61
Investment account — ordinary business (after tax)		3.80		3.74
Investment account — superannuation business (after tax)		4.63		4.55
Investment account — exempt (after tax)		5.40		5.31

Bonuses

The calculation assumes that the long-term supportable bonuses will be paid, which is in line with company bonus philosophy. There have been no significant changes to these assumptions.

Maintenance expenses

The maintenance expenses are based on an internal analysis of experience and are assumed to increase in line with inflation each year and to be sufficient to cover the cost of servicing the business in the coming year after adjusting for one off expenses. For Participating Business, expenses continue on the previous charging basis with adjustments for actual experience and are assumed to increase in line with inflation each year.

Investment management expenses

There have been no significant changes to the investment management expense assumptions.

Inflation

The inflation assumption is consistent with the investment earning assumptions.

Benefit indexation

The indexation rates were based on an analysis of past experience and estimated long term inflation and vary by business and product type. There have been no significant changes to these assumptions.

Taxation

The taxation basis and rates assumed vary by territory and product type.

Voluntary discontinuance

Discontinuance rates were based on recent company and industry experience and vary by territory, product, age and duration in force. There have been no significant changes to these assumptions.

Surrender values

Current surrender value bases were assumed to apply in the future. There have been no significant changes to these assumptions.

Unit price growth

Unit prices were assumed to grow in line with assumed investment earnings assumptions, net of asset charges as per current company practice. There have been no significant changes to these assumptions.

Mortality and morbidity

Rates vary by sex, age, product type and smoker status. Rates were based on standard mortality tables applicable to each territory e.g. IA90-92 in Australia for risk, IM/IF80 for annuities, adjusted for recent company and industry experience where appropriate.

Solvency

Australian life insurers

Australian life insurers are required to hold prudential reserves in excess of the amount of policy liabilities. These reserves are required to support capital adequacy requirements and provide protection against adverse experience. Actuarial Standard AS2.04 ‘Solvency Standard’ (‘AS2.04’) prescribes a minimum capital requirement and the minimum level of assets required to be held in each insurance fund. All controlled Australian insurance entities complied with the solvency requirements of AS2.04. Further information is available from the individual statutory returns of subsidiary life insurers.

Overseas life insurers

Overseas insurance subsidiaries were required to hold reserves in excess of policy liabilities in accordance with local Acts and prudential rules. Each of the overseas subsidiaries complied with local requirements.

Managed assets & fiduciary activities

Arrangements were in place to ensure that asset management and other fiduciary activities of controlled entities were independent of the insurance funds and other activities of the Bank.

Disaggregated information

Life Insurance business is conducted through a number of life insurance entities in Australia and overseas. Under the Australian Life Insurance Act 1995, life insurance business is conducted within one or more separate statutory funds that were distinguished from each other and from the shareholders’ funds.

Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation) 92

Appendices

12. ASB Bank Group


	Half Year Ended
	31/12/05		30/06/05		31/12/04		31/12/05		30/06/05		31/12/04
Income Statement	NZ$M		NZ$M		NZ$M		A$M		A$M		A$M

Interest income		1,534		1,403		1,279		1,419		1,295		1,129
Interest expense		1,142		1,008		898		1,056		930		793

Net interest earnings		392		395		381		363		365		336
Other income		175		137		131		162		127		116

Total operating income		567		532		512		525		492		452
Impairment losses on advances		10		8		8		9		7		7

Total operating income after debt provisions expense		557		524		504		516		485		445
Total operating expense		243		234		236		225		216		208
Salaries and other staff expense		134		130		128		124		120		113
Building occupancy and equipment expense		43		40		40		40		37		35
Information technology expense		26		25		27		24		23		24
Other expenses		40		39		41		37		36		36

Net surplus before taxation		314		290		268		291		269		237

Taxation		97		93		86		90		86		76

Net surplus after taxation		217		197		182		201		183		161


	As At
	31/12/05		30/06/05			31/12/04			31/12/05		30/06/05			31/12/04
Balance Sheet	NZ$M		NZ$M			NZ$M			A$M		A$M			A$M


Assets
Cash and liquid assets		123		53			140			115		49			128
Due from other banks		1,500		521			1,159			1,401		478			1,057
Money market advances		1,540		—			—			1,438		—			—
Securities at fair value through Income Statement		2,323		—			—			2,169		—			—
Derivative assets		326		—			—			304		—			—
Investment securities		—		399			414			—		366			377
Other securities		—		2,497			3,076			—		2,291			2,804
Advances to customers		35,611		—			—			33,250		—			—
Advances		—		34,978			31,554			—		32,089			28,764
General provisions for bad and doubtful debts		—		(123	)		(115	)		—		(113	)		(105	)
Property, plant and equipment		146		149			132			136		137			120
Intangible assets		16		15			17			15		14			15
Other assets		164		293			238			153		269			217
Deferred taxation benefit		—		14			10			—		13			9

Total assets		41,749		38,796			36,625			38,981		35,593			33,386


Total interest earning and discount bearing assets		40,943		38,395			36,205			38,229		35,225			33,004


Liabilities
Deposits and other borrowings
Money and market deposits		14,532		—			—			13,568		—			—
Derivative liabilities		291		—			—			272		—			—
Deposits from customers		19,447		—			—			18,158		—			—
Deposits		—		31,959			28,978			—		29,320			26,416
Due to other banks		4,482		4,091			4,834			4,185		3,753			4,407
Other liabilities		295		463			493			275		425			449
Deferred taxation liabilities		14		—			—			13		—			—
Provision for taxation		37		14			45			35		13			41
Subordinated debt		—		—			151			—		—			138


Total liabilities		39,098		36,527			34,501			36,506		33,511			31,451


Shareholder Equity
Contributed capital — ordinary shareholder		323		323			323			302		296			294
Asset revaluation reserve		18		18			14			17		17			13
Cash flow hedge reserves		57		—			—			53		—			—
Accumulated surplus		1,703		1,378			1,237			1,590		1,264			1,128
Ordinary shareholders’ equity		2,101		1,719			1,574			1,962		1,577			1,435
Contributed capital — perpetual preference shareholders		550		550			550			514		505			501
Total shareholders’ equity		2,651		2,269			2,124			2,476		2,082			1,936


Total liabilities and shareholders’ equity		41,749		38,796			36,625			38,982		35,593			33,387


Total interest and discount bearing liabilities		37,164		34,802			32,718			34,700		31,928			29,825


	31/12/05		30/06/05		31/12/04
Exchange Rates	A$M		A$M		A$M

Closing rate		1. 071		1. 090		1. 097
Average rate		1. 081		1. 083		1. 133

Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation) 94

Appendices

13. Sale of the Hong Kong Business

The Bank sold its life insurance and financial planning business in Hong Kong on 7 July 2005. The transaction was completed on 18 October 2005, and a profit of A$145 million was realised. To assist with the period-on-period comparison of the Bank’s operating performance, the operating result of the Hong Kong business set out below needs to be excluded from the Insurance segment and the consolidated result.


	Half Year Ended
	31/12/05		30/06/05		31/12/04
	$M		$M		$M

Insurance income		42		67		61

Total income		42		67		61
Operating expenses		33		62		63

Total expenses		33		62		63

Operating performance		9		5		(2	)
Shareholder investment returns — pre tax		1		16		34

Shareholder operating profit before tax		10		21		32
Operating profit after tax		10		21		32

Net profit after tax — cash		10		21		32

14. Associates and joint ventures (ASX Appendix 4D)


Details of entities over which control was lost during the year	Date control lost	Ownership Interest Held (%)

CMG Asia Limited	18 October 2005		100	%
Commserve Financial Limited	18 October 2005		100	%
Financial Solutions Limited	18 October 2005		100	%

Details of associates and joint ventures


As at 31 December 2005	Ownership Interest Held (%)

Computer Fleet Management		50	%
Cyberlynx Procurement Services		50	%
PT Astra CMG Life		50	%
AMTD Group Limited (formerly Allday Enterprises Limited)		30	%
China Life CMG Life Assurance Company		49	%
Bao Minh CMG Life Insurance Company		50	%
CMG CH China Funds Management Limited		50	%
Colonial First State Private Ltd		50	%
BAC Airports Pty Ltd		33	%
Hangzhou City Commercial Bank		20	%
452 Capital Pty Limited		30	%

95 Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation)

Appendices

15. Summary of Major AIFRS Impacts


	Half Year Ended
	31/12/05			30/06/05			31/12/04			Dec 05 vs			Dec 05 vs
	$M			$M			$M			Jun 05 %			Dec 04 %

Net Interest Income (AIFRS basis)		3,284			3,068			2,958			7			11
AIFRS Impacts:
Reclassification of Securitisation OBI⁽¹⁾		(37	)		(40	)		(31	)
Income Deferral — Banking⁽²⁾		(8	)		5			6
Hybrid Instruments ⁽³⁾		57			—			—
Hedging & Derivatives⁽⁴⁾		(55	)		—			—

Net Interest Income (AGAAP equivalent)		3,241			3,033			2,933			7			11


Other Banking Income (AIFRS basis)		1,416			1,462			1,383			(3	)		2
AIFRS Impacts:
Reclassification of Securitisation to NIE⁽¹⁾		37			41			29
Income Deferral — Banking⁽²⁾		6			—			—
Hedging & Derivatives⁽⁴⁾		69			—			—

Other Banking Income (AGAAP equivalent)		1,528			1,503			1,412			2			8


Total Banking Income (AIFRS basis)		4,700			4,530			4,341			4			8
Total AIFRS Impacts		69			6			4

Total Banking Income (AGAAP equivalent)		4,769			4,536			4,345			5			10


Funds Management Income (AIFRS cash basis)		715			638			609			12			17
AIFRS Impacts:
Income Deferral — Funds Management⁽⁵⁾		20			8			6

Funds Management Income (AGAAP equivalent)		735			646			615			14			20


Insurance Income (AIFRS cash basis)		386			387			360			—			7
AIFRS Impacts:
Income Deferral & DAC — Insurance⁽⁵⁾		(8	)		—			—

Insurance Income (AGAAP equivalent)		378			387			360			(2	)		5


Operating Expenses — comparable business (AIFRS basis)		2,967			2,878			2,841			3			4
AIFRS Impacts:
Volume Expense Deferral — Funds Management⁽⁵⁾		18			8			6
Share-Based Compensation & Other — Banking⁽⁶⁾		(10	)		(17	)		(19	)

Operating Expenses (AGAAP equivalent)		2,975			2,869			2,828			4			5


Bad and Doubtful Debts Expense (AIFRS basis)		188			176			146			7			29
AIFRS Impacts:
Movement in General Reserve for Credit Losses⁽⁷⁾		35			—			—

Bad and Doubtful Debts Expense (AGAAP equivalent)		223			176			146			27			53


Total AIFRS Impact on Net Profit Before Tax (“cash basis”)		38			23			23


Total AIFRS Impact on Net Profit After Tax (“cash basis”) ⁽⁸⁾		45			23			23
AIFRS Non-cash items:
Defined benefit superannuation plan expense		19			25			28
Treasury share valuation adjustment		43			46			(7	)

Total AIFRS Non-Cash Items After Tax		62			71			21

Total AIFRS Impact on Net Profit After Tax (“statutory basis”)		107			94			44


Description of AIFRS Impacts:

(1)		Reclassification of Securitisation income from other banking income to net interest income.

(2)		Includes the netting of Fees and Commissions against Interest Income , and measuring on an effective yield basis.

(3)		On reclassification of hybrid instruments from equity to loan capital, preference share dividends paid are reclassified to interest paid.

(4)		Reclassification of interest expense on non-hedged derivatives to other banking income, and measuring all derivatives on a Fair Value basis.

(5)		Capitalisation and amortisation of certain funds management and insurance revenue and expense items.

(6)		Principally relates to share-based compensation expense arising on the final issue under the mandatory Equity Participation Plan.

(7)		Recalculation of loan impairment provisions.

(8)		Due to the tax treatment of distributions on some hybrid instruments, and non-deductibility of other expenses (e.g. share based compensation) the tax effected AIFRS impact is larger than the pre-tax impact.

Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation) 96

Appendices

15. Summary of Major AIFRS Impacts (continued)


	Half Year Ended
	31/12/05		30/06/05		31/12/04		Dec 05 vs		Dec 05 vs
	$M		$M		$M		Jun 05 %		Dec 04 %

Net Profit ex HK sale After Tax (“cash basis”) (AIFRS)		1,916		1,759		1,733		9		11
AIFRS Impact		45		23		23

Net Profit ex HK sale After Tax (“cash basis”) (AGAAP equivalent)		1,961		1,782		1,756		10		12


Net Profit After Tax (“statutory basis”) (AIFRS)		1,999		1,688		1,712		18		17
AIFRS Impact		107		94		44

Net Profit After Tax (“statutory basis”) (AGAAP equivalent)⁽¹⁾		2,106		1,782		1,756		18		20


	Half Year Ended
	31/12/05			30/06/05			31/12/04
	$M			$M			$M

Weighted average number of shares — cash basic (number)

AIFRS		1,281			1,273			1,265
AIFRS Adjustments⁽²⁾		4			4			4

AGAAP		1,285			1,277			1,269


Weighted average number of shares — cash diluted (number)

AIFRS		1,333			1,329			1,331
AIFRS Adjustments⁽³⁾		(47	)		(51	)		(61	)

AGAAP		1,286			1,278			1,270


Weighted average number of shares – statutory basic (number)

AIFRS		1,273			1,264			1,256
AIFRS Adjustments⁽⁴⁾		12			13			13

AGAAP		1,285			1,277			1,269


Net Assets ($M)

AIFRS		19,850			22,643			22,101
AIFRS Adjustments⁽⁵⁾		—			3,417			2,966

AGAAP		19,850			26,060			25,067


Intangible Assets ($M)

AIFRS		7,740			7,656			7,638
AIFRS Adjustments⁽⁶⁾		—			(3,262	)		(3,083	)

AGAAP		7,740			4,394			4,555


Average Interest Earning Assets ($M)

AIFRS		267,169			250,357			239,150
AIFRS Adjustments⁽⁷⁾		—			(771	)		(748	)

AGAAP		267,169			249,586			238,402


Description of AIFRS Impacts:

(1)		Net profit after tax (“statutory basis”) (AGAAP equivalent) excludes the impact of appraisal value uplifts and goodwill amortisation from comparative periods.

(2)		Relates to the deduction of “Treasury Shares” held within the employee share scheme trust.

(3)		Relates to the dilutive impact under AIFRS which requires inclusion of hybrid instruments which have any probability of conversion to ordinary shares.

(4)		Relates to the deduction of all Treasury Shares.

(5)		Relates principally to the write-off of internally-generated appraisal value excess.

(6)		Relates principally to the reclassification of acquired appraisal value excess from Other assets to Intangible assets.

(7)		Average interest earning assets are increased under AIFRS due to the consolidation of non-home loan securitisation assets.

97 Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation)

Appendices

16. Analysis Template


				Half Year Ended

	31/12/05			30/06/05			31/12/04			Page
Profit Summary — Input Schedule	$M			$M			$M			References

Income
Net interest income		3,284			3,068			2,958		Page 7
Other banking operating income		1,416			1,462			1,383		Page 7

Total banking Income		4,700			4,530			4,341		Page 12
Operating income		715			638			609		Page 22
Shareholder investment returns		7			9			24		Page 22

Funds management income		722			647			633		Page 22
Operating income — life insurance		347			363			330		Page 26
Operating income — general insurance		39			24			30		Page 26

Operating income insurance		386			387			360		Page 26
Shareholder investment returns		57			83			121		Page 28
Profit on sale of the Hong Kong business		145			—			—		Page 6
Insurance income		588			470			481		Page 26

Total income		6,010			5,647			5,455		Page 7

Expenses
Banking		2,260			2,201			2,179		Page 12
Funds management		459			398			400		Page 22
Insurance		248			279			262		Page 26

Operating expenses		2,967			2,878			2,841		Page 7
Banking		—			97			15		Page 12
Funds management		—			24			12		Page 22
Insurance		—			1			1		Page 26

Which new Bank expenses		—			122			28		Page 7

Total expenses		2,967			3,000			2,869		Page 7

Profit before bad and doubtful debt expense		3,043			2,647			2,586		Page 7
Bad and doubtful debt expense		188			176			146		Page 7

Profit before tax expense		2,855			2,471			2,440		Page 7
Income tax — corporate		776			707			702		Page 7

Operating profit after tax		2,079			1,764			1,738		Page 7
Minority interest (OEI)		18			5			5		Page 7

Net profit after tax & OEI — cash basis		2,061			1,759			1,733		Page 7

Defined benefit superannuation plan expense		(19	)		(25	)		(28	)	Page 7
Treasury share valuation adjustment		(43	)		(46	)		7		Page 7

Net profit after tax & OEI — statutory		1,999			1,688			1,712		Page 7

Investment return on shareholder funds		209			92			145		Page 28
Tax expense on shareholder investment returns		23			26			34		Page 28

Which new Bank transformation expenses		—			122			28		Page 10
Tax expense on Which new Bank transformation expenses		—			(36	)		(9	)	Page 10

Which new Bank expenses — after tax		—			86			19		Page 10

Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation) 98

Appendices

16. Analysis Template (continued)


	Half Year Ended
	31/12/05			30/06/05			31/12/04			Page
Profit Summary — Input Schedule	$M			$M			$M			References

Other Data
Net interest income (excluding securitisation)		3,247			3,028			2,928		Page 82
Average interest earning assets		267,169			250,357			239,150		Page 83
Average net assets ⁽¹⁾		21,247			22,372			22,036		Page 34
Average minority interest ⁽¹⁾		1,156			1,916			2,261		Page 34
Average preference shares & other equity instruments ⁽¹⁾		1,130			2,260			2,260		Page 34
Average treasury shares ⁽¹⁾		(376	)		(344	)		(337	)	Page 90
Average defined benefit superannuation plan net surplus ⁽¹⁾		471			440			411		Page 33
Preference dividends		80			70			61		Page 33
Preference dividends (after tax)		46			45			45		Page 33
Average number of shares — statutory		1,273			1,264			1,256		Page 6
Average number of shares — fully diluted — statutory		1,324			1,320			1,323			—
Average number of shares — cash		1,281			1,273			1,265			—
Average number of shares — fully diluted — cash		1,333			1,329			1,331			—
Dividends per share (cents)		94			112			85		Page 6
No of shares at end of period		1,289			1,280			1,274		Page 87
Average funds under administration		130,179			120,507			112,185		Page 22
Operating expenses — internal		5			5			5		Page 22
Average inforce premiums ⁽¹⁾		1,241			1,232			1,183		Page 27
Net assets		19,850			22,643			22,101		Page 34
Total intangible assets		7,740			7,656			7,638		Page 34
Minority interests		523			1,789			2,042		Page 34
Preference share capital		—			687			687		Page 34
Other equity instruments		—			1,573			1,573		Page 34
Tier one capital		15,290			14,141			13,487		Page 87
Eligible loan capital		317			304			298		Page 88
Preference share capital		687			687			687		Page 88
Minority interest (net of minority interest component deducted from Tier One capital)		523			520			518		Page 88
Investment in non consolidated subsidiaries (net of Intangible component deducted from Tier One capital)		1,918			1,721			1,776		Page 88
Other deductions		130			28			27		Page 88
Risk-weighted assets		202,667			189,559			180,674		Page 88


(1)		Average of opening & closing balance

99 Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation)

Appendices

16. Analysis Template (continued)


	Half Year Ended
	31/12/05			30/06/05			31/12/04
Ratio’s — Output Summary	$M			$M			$M

EPS

Earnings per share — cash basis		160.9			132.7			132.1

Earnings per share — statutory basis		157.1			128.1			131.4

Net profit after tax — cash basis		2,061			1,759			1,733
less preference dividends		—			(70	)		(61	)
Adjusted profit for EPS calculation		2,061			1,689			1,672
Average number of shares		1,281			1,273			1,265
Add back preference dividends (after tax)		46			45			45
Adjusted diluted profit for EPS calculation		2,107			1,734			1,717
Diluted average number of shares		1,333			1,329			1,331
EPS diluted — cash basis		158.1			130.6			128.9

EPS diluted — statutory basis		154.4			126.1			128.2

DPS

Dividends

Dividends per share		94			112			85
No of shares at end of period		1,289			1,280			1,274
Total dividend		1,211			1,434			1,083
Dividend payout ratio — cash basis

Net profit after tax — cash basis		2,061			1,759			1,733
less preference dividends		—			(70	)		(61	)
NPAT — ordinary shareholders		2,061			1,689			1,672
Total dividend		1,211			1,434			1,083
Payout ratio — cash basis		58.8			84.9			64.8

Payout ratio — statutory basis		60.6			88.6			65.6

Dividend cover

NPAT — ordinary shareholders		2,061			1,689			1,672
Total dividend		1,211			1,434			1,083
Dividend cover — cash		1.7			1.2			1.5

Dividend cover — statutory		1.7			1.1			1.5

ROE

Return on equity — cash

Average net assets		21,247			22,372			22,036
Less:
Average minority interests		(1,156	)		(1,916	)		(2,261	)
Preference shares		(1,130	)		(2,260	)		(2,260	)

Average equity		18,961			18,196			17,515
Less average treasury shares		(376	)		(344	)		(337	)
Less average defined benefit superannuation plan net surplus		471			440			411

Net average equity		18,866			18,100			17,442
NPAT (“cash basis”)		2,061			1,759			1,733
less preference dividends		—			(70	)		(61	)

Adjusted profit for ROE calculation		2,061			1,689			1,672
Return on equity — cash		21.7			18.8			19.0
Return on equity — statutory		20.9			17.9			18.7

NIM

Net interest income (excluding securitisation)		3,247			3,028			2,928
Average interest earning assets (excluding securitisation)		267,169			250,357			239,150
NIM % pa		2.41			2.44			2.43

NIM % pa (including securitisation)		2.35			2.38			2.38

Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation) 100

Appendices

16. Analysis Template (continued)


	Half Year Ended
	31/12/05			30/06/05			31/12/04
Ratio’s — Output Summary	$M			$M			$M

Productivity
Banking expense to income ratio
Expenses including Which new Bank expenses		2,260			2,298			2,194
Banking Income		4,700			4,530			4,341
Expense to Income		48.1			50.7			50.5

Funds management expenses to average FUA ratio

Total operating expenses		459			422			412
Average funds under administration		130,179			120,507			112,185
Expenses to average FUA		0.70			0.71			0.73

Insurance expenses to average in-force premiums ratio

Operating expenses — external		248			280			263
Operating expenses — internal		5			5			5
Total expenses		253			285			268
Average inforce premiums		1,241			1,232			1,183
Expenses to average in-force premiums		40.5			46.6			44.9

Net Tangible Assets (NTA) per share

Net assets		19,850			22,643			22,101
Less:
Intangible assets		(7,740	)		(7,656	)		(7,638	)
Minority interests		(523	)		(1,789	)		(2,042	)
Preference share capital		—			(687	)		(687	)
Other equity instruments		—			(1,573	)		(1,573	)

Total net tangible assets		11,587			10,938			10,161
No of shares at end of period		1,289			1,280			1,274
Net tangible assets (NTA) per share ($)		8.99			8.54			7.98

ACE ratio

Tier one capital		15,290			14,141			13,487
Deduct:
Eligible loan capital		(317	)		(304	)		(298	)
Preference share capital		(687	)		(687	)		(687	)
Other equity instruments		(1,573	)		(1,573	)		(1,573	)
Minority Interest (net of minority interest component deducted from Tier One capital)		(523	)		(520	)		(518	)
Investment in non-consolidated subsidiaries (net of intangible component deducted					(1,721	)		(1,776	)
from Tier One capital)		(1,918	)
Other deductions		(130	)		(28	)		(27	)

Total Adjusted Common Equity		10,142			9,308			8,608
Risk weighted assets		202,667			189,559			180,674
ACE ratio (%)		5.00			4.91			4.76

101 Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation)

Appendices

17. Summary


			Half Year Ended
																Dec 05					Dec 05
Total			Page		31/12/05			30/06/05			31/12/04					v Jun 05 %					v Dec 04 %

Net profit after tax — cash basis	$	M		3		2,061			1,759			1,733		302			17		328			19
Defined benefit superannuation plan expense	$	M		4		(19	)		(25	)		(28	)	6			24		9			32
Treasury shares valuation adjustment	$	M		4		(43	)		(46	)		7		3			7		(50	)	large
Net profit after tax — statutory	$	M		3		1,999			1,688			1,712		311			18		287			17
Earnings per share cash basis — basic	cents			3		160.9			132.7			132.1		28.2			21.3		28.8			21.8
Earnings per share statutory basis — basic	cents					157.1			128.1			131.4		29.0			22.6		25.7			19.6
Dividend per share	cents			3		94			112			85		(18	)		(16	)	9			11
Dividend pay-out ratio cash basis		%		3		58.8			84.9			64.8
Dividend pay-out ratio statutory basis		%				60.6			88.6			65.6
Tier 1 capital		%		4		7.54			7.46			7.46					8bpts					8bpts
Total capital		%		4		9.81			9.75			9.60					6bpts					21bpts
Adjusted common equity		%		4		5.00			4.91			4.76					9bpts					24bpts
Number of full time equivalent staff	No.			—		34,918			35,313			35,442		(395	)		(1	)	(524	)		(1	)
Return on equity — cash		%		3		21.7			18.8			19.0					290bpts					270bpts
Return on equity — statutory		%				20.9			17.9			18.7					300bpts					220bpts
Weighted average number of shares — statutory	No.			3		1,273			1,264			1,256		9			1		17			1
Net tangible assets per share		$		98		8.99			8.54			7.98		0.45			5.3		1.01			12.6


Banking

Net profit after tax — cash basis	$	M		9		1,589			1,440			1,394		149			10		195			14
Net profit after tax — statutory basis	$	M		6		1,570			1,415			1,366		155			11		204			15
Net Interest Income	$	M		9		3,284			3,068			2,958		216			7		326			11
Net Interest Margin		%		6		2.41			2.44			2.43					(3)bpts					(2)bpts
Other banking income	$	M		9		1,416			1,462			1,383		(46	)		(3	)	33			2
Other banking income/total bank income		%		—		30.1			32.3			31.9					(215)bpts					(173)bpts
Average interest earning assets	$	M		9		267,169			250,357			239,150		16,812			7		28,019			12
Average interest earning liabilities	$	M		9		247,129			230,352			220,919		16,777			7		26,210			12
Bad and doubtful debts expense	$	M		4		188			176			146		(12	)		(7	)	(42	)		(29	)
Bad and doubtful debts expense to risk-weighted assets (annual)		%		9		0.19			0.19			0.16					—					(3)bpts
Collective provision plus general reserve for credit losses (pre-tax equivalent) to risk weighted assets		%		9		0.71			—			—		n/a			n/a		n/a			n/a
General provision to risk weighted assets		%		9		—			0.73			0.76					—					—
Total provisions ⁽¹⁾plus general reserve for credit losses (pre-tax) to gross impaired assets		%		9		410.1			—			—		n/a			n/a		n/a			n/a
Total provision ⁽¹⁾ to gross impaired assets		%		9		308.1			411.4			373.0					large					large
Individually provisioned to Impaired Assets		%		12		45.2			41.8			43.1				340bpts					210bpts
Risk weighted assets	$	M		9		202,667			189,559			180,674		13,108			7		21,993			12


Funds Management

Net profit after tax — cash basis	$	M		19		188			170			179		18			11		9			5
Net profit after tax — statutory basis	$	M		6		145			124			186		21			17		(41	)		(22	)
Shareholder investment returns	$	M		19		7			9			24		(2	)		(22	)	(17	)		(71	)
Average funds under administration	$	M		19		130,179			120,507			112,185		9,672			8		17,994			16
Net (outflows) / inflows	$	M		19		2,695			(394	)		850		3,089			large		1,845			large
Income to average funds under administration		%		19		1.10			1.08			1.09					2bpts					1bpt
Expenses to average funds under administration		%		19		0.70			0.71			0.73					1bpt					3bpts


Insurance

Net profit after tax — cash basis and statutory basis	$	M		23		284			149			160		135			91		124			78
Shareholder investment returns	$	M		23		202			83			121		119			large		81			67
Inforce premiums	$	M		24		1,216			1,265			1,199		(49	)		(4	)	17			1


(1)		Impairment provision ratios have changed because of the re-measurement under AIFRS.

Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation) 102

Appendices

18. Definitions


Term		Description
Banking		Banking operations includes retail; business, corporate and institutional; Asia Pacific banking; treasury and centre support functions. Retail banking operations include banking services which were distributed through the Premium and Retail distribution divisions. Business, Corporate and Institutional banking includes banking services which were distributed to all business customers through the Premium Business Services division and the small business customers which were serviced through the Premium and Retail divisions and funding operations. Asia Pacific banking includes offshore banking subsidiaries, primarily ASB Bank operations in New Zealand.

Borrowing Corporation		‘Borrowing Corporation’ as defined by Section 9 of the Corporations Act 2001 is CBFC Limited, Colonial Finance Limited and their controlled entities.

Dividend Payout Ratio		Dividends paid on ordinary shares divided by earnings (earnings are net of dividends on preference shares).

Cash Basis		Before defined benefit superannuation plan expense and treasury share valuation adjustment.

DRP		Dividend reinvestment plan.

DRP Participation		The percentage of total issued capital participating in the dividend reinvestment plan.

Earnings Per Share		Calculated in accordance with the revised AASB 1027: Earnings per Share. Dividends paid on preference shares and other equity instruments are deducted from earnings to arrive at earnings per share (30 June 2005: $70 million and 31 December 2004: $61 million).

Funds Management		Funds management business includes funds management within the Wealth Management division and International Financial Services division.

Insurance		Insurance business includes the life risk business within the Wealth Management division and the International Financial Services division and general insurance financial results. The insurance segment as reported on page 25 includes the operating performance of the Hong Kong business up to the effective date of sale (18 October 2005). Refer to appendix 13.

Net Profit after Tax (“Cash Basis”)		Represents profit after tax and minority interests, before superannuation plan expense and treasury share adjustment.

Net Profit after Tax (“Statutory Basis”)		Represents profit after tax, minority interests, defined benefit superannuation plan expense and treasury shares. This is equivalent to the statutory item “Net Profit attributable to Members of the Group”.

Net Tangible Assets per Share		Net assets excluding goodwill, Minority interests, preference shares and other equity instruments divided by ordinary shares on issue at the end of the period.

Overseas		‘Overseas’ represents amounts booked in branches and controlled entities outside Australia.

Return on Average Shareholders’ Equity		Based on net profit after tax, minority interests applied to average shareholders equity, excluding minority interests.

Return on Average Shareholders Equity Cash		As per the return on average shareholder equity, excluding the effect of defined benefit

Basis		superannuation plan expense and treasury shares valuation adjustment.

Return on Average Total Assets		Based on profit after tax and Minority interests. Averages were based on beginning and end of period balances.

Staff Numbers		Staff numbers include all permanent full time staff, part time staff equivalents and external contractors employed by 3rd party agencies.

Weighted Average Number of Shares (“Statutory Basis”)		Includes an adjustment to exclude “Treasury Shares” related to investments in the Bank’s shares held by both the life insurance statutory funds and by the employee share scheme trust.

Weighted Average Number of Shares (“Cash Basis”)		Includes an adjustment to exclude only those “Treasury Shares” related to the investment in the Bank’s shares held by the life insurance statutory funds.

103 Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation)

Appendices

19. Market Share Definitions

Banking


Retail
Home Loans		Total Household Loans(APRA) – MISA (Pre Sep 04) + Securitised Assets (APRA) + Homepath.
		Total Housing Loans (incl securitisations) (from RBA which includes NBFI’s unlike APRA). ⁽¹⁾

Credit Cards		CBA Total Credit Card Lending (APRA).
		Total Credit Cards with Interest Free + Total Credit Cards without Interest Free (from RBA which includes NBFI’s unlike APRA). ⁽¹⁾

Retail Deposits		CBA Current Deposits with banks + Term (excl CD’s) + Other (All as reported to RBA)
		Total Current Deposits with banks + Term (excl CD’s) + Other with banks. ⁽¹⁾

Household Deposits		CBA Household Deposits (as reported to APRA) — MISA (Pre Sep 04)
		Total Bank Household Deposits (from APRA monthly banking statistics)

Non-revolving personal lending		CBA Household Other Personal Term Loans + Leasing (as reported to APRA)
		Total Bank Other Personal Lending Fixed Loans (from RBA monthly bulletin statistics)

APRA Other Household Lending		CBA Term Personal Lending + Margin Lending net balances + Personal Leasing + Revolving credit (i.e. line of credit & overdrafts)
		Total Market Term Personal Lending + Margin Lending for most banks but not all of them (i.e. Adelaide Bank’s Leverage Equities business is not a banking entity and thus not in APRA’s figures) + Personal Leasing Revolving credit, i.e. line of credit & overdrafts. Some banks put part of their Home Equity loan product balances in other lending (e.g NAB, WBC & SGB, but not CBA & ANZ)

Business

Business Lending		CBA business lending and credit (specific ‘business lending’ categories in lodged APRA returns - 320.0, 320.1 and 320.4)
		Total of business lending and credit to the private non-financial sector by all financial intermediaries (sourced from RBA table Lending & Credit Aggregates which is in turn sourced from specific ‘business lending’ categories in lodged APRA returns — 320.0, 320.1 and 320.4) (includes bills on issue and securitised business loans). ⁽¹⁾

Funds Management

Retail market share (admin view):		Total funds in CBA Wealth Management retail investment products (including WM products badged by other parties)
		Total funds in retail investment products market

Platforms/ masterfunds:		Total funds in CBA Wealth Management platforms and masterfunds (including WM platforms badged by other parties)
		Total funds in platform/masterfund market

New Zealand retail		Total ASB + Sovereign + JMNZ Retail net Funds under Management
		Total Market net Retail Funds under Management

Insurance

Australia (Total Risk)		Total risk inforce premium of all CBA Group Australian life insurance companies
		Total risk inforce premium for all Australian life insurance companies (from Plan for Life)

Australia (Individual Risk)		(Individual lump sum + individual risk income) inforce premium of all CBA Group Australian life insurance companies
		Individual risk inforce premium for all Australian life insurance companies (from Plan for Life)

New Zealand		Total Sovereign (inforce annual premium income + new business – exits – other)
		Total inforce premium for New Zealand (from ISI statistics)


(1)		The RBA restates the total of all financial intermediaries retrospectively when required. This may be due to a change in definition, the inclusion of a new participant or correction of errors in prior returns. CBA restates its market share where the RBA total has changed based on current balances less implied percentage growth rates now reported by the RBA for previous months.

20. Auditor Independence

For information on the U.S. Securities and Exchange Commission’s (the “SEC”) request for information relating to the Bank’s relationship with Ernst & Young since 1 July 2000 and certain activities undertaken by Ernst & Young professionals that may have been impermissible under the SEC’s rules, refer to the discussion under “Corporate Governance” beginning on page 71 of our Annual Report on Form 20-F for the year ended 30 June 2005.

Commonwealth Bank of Australia Profit Announcement (U.S. version — without U.S. GAAP reconciliation) 104


Interim dividend payment date		5 April 2006
Final result and final dividend announcement		9 August 2006
Ex-dividend		14 August 2006
Record Date		18 August 2006
Final dividend payment date		5 October 2006
Annual General Meeting		3 November 2006


Phone:		+612 9378 5130
Facsimile:		+612 9378 2344
Email:		ir@cba. com. au


Special Note Regarding Forward Looking Statements			3


Highlights			5

Financial Performance and Business Review			5
Shareholder Summary			6
Key Performance Indicators			7
Balance Sheet Summary			8
Productivity and Efficiency			8
Which new Bank Summary			9

Banking Analysis			11

Financial Performance and Business Review			11
Key Performance Indicators			12
Provisions for Impairment			15
Assets and Liabilities			16
Banking Segments			19

Funds Management Analysis			21

Financial Performance and Business Review			21
Key Performance Indicators			22
Funds under Administration			23

Insurance Analysis			25

Financial Performance and Business Review			25
Key Performance Indicators			26
Annual Inforce Premiums			27

Shareholder Investment Returns			28


Critical Accounting Policies			29


Directors’ Report			31


Financial Statements			27

Consolidated Income Statement			28
Consolidated Balance Sheet			29
Consolidated Statement of Recognised Income and Expense			30
Consolidated Statement of Changes in Equity			30
Consolidated Statement of Cash Flows			31

Notes to the Financial Statements			33


Appendices			78


First Released 15 February 2006


1	Net Interest Income	79

2	Net Interest Margin	79

3	Average Balances and Related Interest	80

4	Interest Rate and Volume Analysis	82

5	Other Banking Operating Income	83

6	Operating Expenses	84

7	Integrated Risk Management	85

8	Capital Adequacy	87

9	Share Capital	90

10	Life Company Policy Liabilities	91

11	Intangible Assets	93

12	ASB Bank Group	94

13	Sale of the Hong Kong Business	95

14	Associates and Joint Ventures (ASX Appendix 4D)	95

15	Summary of Major AIFRS Impacts	96

16	Analysis Template	98

17	Summary	102

18	Definitions	103

19	Market Share Definitions	104

20	Auditor Independence	104