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FINS3630 Group Assignment – Instructions and Guidelines 2021 Term 3

Banks are subjected to a wide array of risks during their operations. Risk management is about understanding and managing the Bank's risk environment and taking measures, where necessary, to ensure that risks are contained to acceptable levels, while making sure loss-absorption buffers are sufficient. In addition, the analysis of banks must also consider the current status of a country’s financial system and overall economy. Financial statements offer a window into the operation and management of a bank. The financial statements for banks can look very different from those reported by most companies. The nature of banking operations means that there will be unique items on a bank’s balance sheet. In addition, banks are also subject to some unique accounting standards and financial regulations. As an expert team in banking, you and your team members are asked to identify and analyse bank financial risk by the usage of information provided by financial statements and other public disclosures. Your team are required to read Commonwealth Bank of Australia (CBA)’s 2021 Annual Report and its Pillar 3 capital disclosures, conduct relevant research, and write a detailed report addressing the following questions: a) Credit Risk 1. Examine the composition of the bank’s asset portfolio and analyse the credit exposures and credit quality of assets held. 2. CBA uses provision coverage ratio (total loan provisions as a % of credit risk weighted assets) as one of its credit risk measures. Compare CBA’s data to its peers (the other ‘big four’ banks in Australia), assess and comment on whether CBA’s credit risk is within or below peer range. 3. What are the main strategies that the bank has used to control/manage credit risk in the context of the COVID pandemic? b) Liquidity Risk 1. Analyse and comment on the composition of the bank’s total funding. 2. Comment on the bank’s Net Stable Funding Ratio and Liquidity Coverage Ratio relative to the minimum regulatory requirements. 3. What are the strategies used by the bank to keep these ratios in compliance with the regulatory requirements in the context of the COVID pandemic?

c) Capital Adequacy 1. Present the key capital ratios for each quarter in the 2021 reporting year and the preceding year. 2. Comment on the trajectory of the capital ratios over the 2-year period. What does this tell you about the capital risk of the Bank relative to the APRA requirements in the context of the COVID pandemic? 3. On Wednesday, 11 August 2021, CBA announced its intention to undertake a $6 million off-market share buy-back. Comment on the impact of the buyback on the bank’s capitalisation.

General Instructions: • •

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This is a group assignment. Each group should have a minimum of 4 to a maximum of 5 members. You are expected to work collaboratively on this assignment. You are required to register yourself into a group via the group builder tool on Moodle. Group formations must be finalized by 5pm Friday of Week 3. The sooner you finalize your group, the more time you can work on this assignment. You are encouraged to include tables and graphs in your report. You may also use the textbook or other online resources as references. All sources must be carefully cited in a reference list. To write a successful report, please carefully read the marking criteria in the last page.

Format: •

Your written report should have a maximum of 12 pages in length. Tables and graphs are counted into the page limit. Reference list, table of content, and cover page are not included in the page limit.

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Line spacing should be at least 1.5. Front should be Arial or Calibri with a size of 12. Margin should be Moderate or Normal.

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A general report structure should be used. Your report should include an introduction and conclusion with appropriate headings to facilitate reading.

Submission: • •

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Due date: the assignment should be submitted electronically on Moodle by the Friday of Week 10 on the 19th of November at 11:59 pm. You are required to submit your assignment as a group TWICE: 1) Submit through the Turnitin link to check for copying and plagiarism. 2) Submit through the Assignment Submission link for grading purpose. The submission should be done by one member from your team and only assignments with BOTH submissions will be graded.

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A penalty of 20% grade deduction will apply for each day of late submission after the due date.

Evaluation: You will each provide a confidential evaluation of each of your fellow group members by completing a team evaluation survey. A 5% penalty will apply for not completing the survey. Please make sure your response in the survey is a fair reflection of each group member's contribution. If you give a too high or too low rating, you will provide an explanation of your reasons for doing so.

Some Useful Links: https://www.commbank.com.au/about-us/investors/annual-reports.html https://www.commbank.com.au/about-us/investors/regulatory-disclosure/pillar-3-capitaldisclosures.html https://www.commbank.com.au/about-us/investors/regulatory-disclosure.html https://www.apra.gov.au/news-and-publications

Detailed Marking Criteria Criteria

Poor

Below Average

Average

Above Average

Exceptional...