The 2020 annual report of the Commonwealth Bank of Australia (CBA)is available at:
Carefully examine the annual report and answer the following questions.To answerthesequestions, please consult the relevant concepts in the lecture materials and specified financial report notes.
Question 1:Segment analysis (Notesto the financial statements, Note2.7)(25marks)(a)Identify the most and the least profitable segments of CBA for the 2020financial year. How do they compare to the rest of the segments? (8marks)(Tips: Calculate the net profit before income tax/total income for each bank segment for the2020financial year)(b)What are the factors responsible for the results in (a)? (5marks)(c)Will the factors idenrified in (b) continue to the 2021 financial year or do you see changes to the most and least profitable segments for 2021? Explain your answer. (5marks)(d)Which segment experienced highest credit risk in 2020?Discuss how this should be managed. (7 marks)
Question 2: Industry analysis (Notesto the financial statements,Notes 3.1 & 3.2) (25marks)(a)Calculate the duration of ‘Gross Loans, bills discounted and other receivables’ of CBAfor the 2020 Financial year. (For each maturity period, use the minimum maturity. For instance, assume all loans maturing between 1 and 5 years have a maturity of 1 year for this exercise). (8marks)(b)Repeat (a) for the 2019Financial year. (5 marks)(c)Compare part (a) and part (b). Explain changes, if any,of duration between 2019 and2020.(5 marks)(d)Identify the industy lendings with the longest and the shortest duration.What are the inherent risk of such a pattern and how should this be managed? (7 marks)
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Question 3: Market risk (Notesto the financial statements, Note9.3) (25marks) (a)Estimate CBA’s 30-day Total market risk VaR at the top 5% worst caseas at June 30 2020.(9 marks)(b)On page 228 of Notes 9.3,the last tableprovidestwo types of VaRsforthe 2020Financial Year. One is the year average VaR for the period ended at30 June2020. The other is the VaRas at 30 June 2020. The difference captures the current market riskas at 30 June 2020versus the average risk in the past whole year. Compare the traded market risk VaRs for average June 2020and as at June 2020. Discuss the changes in the following market risk conditions: (1) Interest rate risk (2) Forex risk, and(3) Credit risk.(9 marks)(c)Read through page 229 of Non-traded market risk section and explain why the interest rate risk for the 2020 financial year is higher than the interest rate risk for the 2019 financial year.(7 marks)
Question 4Fintech risk(25marks)What Fintech risks are faced by CBA,and what havebeen their responses? Do you feel their responses have been adequate? If not, how would they improve their current strategies?
