Annual Review 2019 - of helping Australians get ahead - ME Bank
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Annual Review 2019
of helping Australians
get ahead.
ME awards.
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Canstar’s Outstanding Canstar’s Outstanding
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Money magazine’s Money magazine’s Finder Awards’
Money Minder of the Year Best of the Best Best Savings Account
Mozo’s Experts Choice Mozo’s Experts Choice
Award Term Deposit Award Regular Saver
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Contents.
01 Highlights 3
Message from the Chairman 4
02
03 Message from the CEO 5
04 25 Years of ME 6
05 Strategy 10
06 Operating environment 12
07 FY19 performance 14
08 Customer growth 20
09 Governance 30
10 People 46
11 Community 56
12 Environment 58
13 Key financial information 60
ANNUAL REVIEW 2019 CONTENTS 1
ME remains one of Australia’s most trusted banks at a time when integrity is at a premium. 2
01.
Highlights.
ME turned ME’s statutory profit ME’s total assets grew
25 years old. was $67.1 million by 10% to $31.1 billion
and after adjusting – it settled over $6.3
for impact of billion of home loans,
non-recurring items, growing the home
underlying net profit loan portfolio by 7.3%
after tax (NPAT) was to $26.3 billion or 2.5
$99.8 million, up 3%. x system growth.
Household deposit
portfolio grew
13% to $8.6 billion
or 2.6 x system
growth. Household
deposits now fund
43% of ME’s loan
assets (excluding Customer numbers Net interest margin
securitisation) and increased by (NIM) was 1.59%,
are forecast to fund 9% to 517,868. return on equity
the majority of the (ROE) was 7.2%, and
bank’s asset growth cost-to-income (CTI)
for the foreseeable ratio was 64.8%.
future. The bank
met its stable
funding targets
earlier than planned.
ANNUAL REVIEW 2019 HIGHLIGHTS 3
02.
Message from
the Chairman.
ME was set up in 1994 by industry super funds to During the year, the Chairman Ken Hodgson retired
help Australians buy a home and it has continued in March 2019 and non-executive director Justin
with this purpose. The bank has always prioritised Milne retired in October 2018. The board wishes to
consumer outcomes in its decision-making and ME acknowledge the contribution made by both directors
remains one of Australia’s most trusted banks at a during their time with the board.
time when integrity is at a premium.
Three new directors were appointed during March and
ME has a strong employee culture characterised by April 2019; myself as Chairman, along with David Issa
a genuine belief in the bank’s core purpose and the and Peter Everingham as directors.
values of diversity and inclusion. This has enabled it
We collectively bring some different and additional
to build a loyal customer base who act as advocates.
skills to the board and look forward to contributing
This strong customer connection is an important asset
to the growth and success of the bank.
that will continue to stand ME in good stead.
ME is well positioned to manage the challenges ahead.
Banking has become complicated and while many
These include record low interest rates, which require
financial institutions grapple with vertical integration,
disciplined management, and record low credit growth,
in some cases divesting extraneous business, ME has
which requires close attention to asset quality. The bank
kept it simple – improving its simple suite of transparent
will invest in its brand and ensure its simple suite of
and competitively priced personal banking products.
products stays competitive, maintaining strong customer
Technology is becoming a competitive differentiator demand as competition among banks intensifies. ME will
between banks and years ago, ME made a decision to also continue to invest in the capabilities of its people,
modernise its core banking system. While technology systems and processes so it can manage the increased
transformation programs are inherently complex and regulation and compliance that is expected to remain
take many years to complete, ME’s foresight will allow elevated over the longer-term. In addition, the bank will
it to add new products and services more quickly and continue to build out its technology platforms, improving
at a lower cost. their reliability and flexibility, while building new services
to meet the expectations of our consumers.
ME’s unique ownership structure adds to the strength of
the brand. Over the course of the financial year, the bank ME acquired its banking licence in 2001 when it was
achieved a $150 million capital commitment and I would little more than a home loan provider with big ambitions.
like to take the opportunity to thank and acknowledge Today it is a fully-fledged bank with the infrastructure and
the support of our shareholders. During the financial year, operational maturity of a modern financial organisation.
ME successfully completed a $100 million Additional Tier 1 By continuing to refine its capabilities, the bank will
(AT1) capital issue into the general market. ME expects keep growing in relevance as one of Australia’s most
to manage its capital position largely through retained trusted banks.
earnings and the management of risk-weighted assets.
The board acknowledges with gratitude the ongoing
The bank’s balance sheet has continued to strengthen, support of its shareholders, customers and employees
with household deposits now constituting 43% of and looks forward to a successful year in FY20.
the total funding pool and are projected to fund the
majority of asset growth. The rapid expansion of deposit
funding illustrates ME’s ability to pursue a growth agenda
which allowed the bank to meet its APRA-mandated
‘stable funding targets’ during FY19. ME offered its first
deposit product 15 years ago and up until the Global
Financial Crisis, funded the vast majority of its assets James Evans
through securitisation. Chairman
4
03.
Message from
the CEO.
Despite challenging operating conditions, ME NIM fell three basis points to 1.59% due to intense
experienced above-system growth over the 12 months competition for home loans. The lower NIM and increased
to 30 June 2019. The bank’s home loan portfolio regulatory and compliance costs resulted in a fall in ROE
increased 7.3% to $26.3 billion compared to market to 7.2%. On an underlying basis, the cost-to-income (CTI)
growth of 3%, a growth rate of 2.5 times system. ratio increased 30 basis points to 64.8% while credit
As of June 2019, ME had a 1.53% share of the home quality remained healthy with 90+ day delinquent home
loan market, up from 1.46% 12 months ago. loans remaining favourable to the industry at 0.71%.
Home loan write-offs remained low at $456,133.
ME also experienced strong growth in household
deposits, which reached $8.6 billion, an increase of ME launched its new portfolio funding business to finance
13.4% or a growth rate of 2.6 times system. Market loans and other receivables originated and managed by
share of household deposits over the last year increased partner businesses. This helps to diversify ME’s income
from 0.85% to 0.92%. Household deposits now fund stream by building on ME’s existing securitisation skills
43% of ME’s loan assets (excluding securitisation), up and provides innovative funding opportunities for a new
from 39% in June 2018, and are forecast to fund the range of business partners. ME established an initial
majority of the bank’s asset growth for the foreseeable $100 million facility for Household Capital, an ‘equity
future. Customer numbers at 30 June 2019 were 517,868 release’ lending business, and acquired a minority stake
(up 9% year-on-year). in the organisation. ME anticipates more partnerships
with other third-party lending organisations.
Assisting in achieving the strong growth was ME’s
investment in marketing, advertising and public relations At ME we are proud of our values-based employee
activities, which increased ME’s brand awareness to 59%, culture which will continue to assist the bank in attracting
an all-time high. talent. ME’s annual employee survey had its highest
participation rate on record – 94% – and reported an
During the year ME invested in the home loan broker
increase in overall employee engagement from 68%
channel, and publicly supported the channel in the
in FY18 to 69% in FY19.
face of recommended changes following the Royal
Commission. ME maintained its third-place industry ME continued to invest in improving the digital services
ranking with brokers, who provided 72% of ME’s record offered to customers – including the mobile apps,
$6.3 billion in home loan settlements. internet banking and online application services. The
decommissioning of our legacy Ultracs banking platform
ME’s statutory net profit after tax was $67.1 million,
was further progressed, resulting in a simpler and more
down from $89.1 million the previous year. This result
robust platform.
included non-recurring items comprising unrealised
losses on hedging instruments (-$3.2 million); IT system ME will keep investing in building on our digital channels,
remediation and decommissioning costs that are providing customers with an improved banking experience
forecast to be completed in the next 12 months and improving our efficiency through leveraging
(-$15.1 million); as well as impairment losses on ME’s technology and automating manual processes.
credit card business, after the bank took the strategic
decision to stop its investment in a new credit card
platform and associated new credit card products as,
among other factors, it was not economically feasible
to continue due to the expectation of the significant
disruption the credit card market is undergoing
(-$14.4 million). After excluding non-recurring
items, ME’s underlying NPAT was $99.8 million, Jamie McPhee
up 3% on the previous corresponding period. Chief Executive Officer
ANNUAL REVIEW 2019 MESSAGE FROM THE CHAIRMAN AND CEO 5
04.
25 years of ME.
ME’S HISTORY DEFINES IT ME’S SHAREHOLDERS
Super Members Home Loans (now ME) was created From a shareholder perspective, ME is now successfully
by the industry super funds to be a fairer home loan growing its loan book at a rate above system, is profitable
lender, helping Australians reach the dream of owning and has been funding its capital requirements to support
their own home. ME originally only offered home loans its growth through retained earnings.
and was a non-bank lender that funded its lending
The bank’s benefits go back to the 26 industry super
through securitisation, keeping assets and funding
funds that own it, which are listed on the next page:
off the balance sheet.
In 2001, ME acquired its banking licence. In 2019,
25 years later, it is a fully-fledged bank, funding the
majority of its lending growth through very stable
and reliable household deposits. It now holds its assets
and funding on balance sheet, and it offers a full range
of personal banking products.
ME’s objective is to help Australians get ahead financially.
As a bank, it is proud to stand for something different.
Its purpose is focused on ensuring customers are at
the heart of everything it does. ME stays true to this
proposition by keeping a unique set of promises to
its customers, supported by values that empower and
motivate employees to make a difference every day.
6
Figure 1 The 26 industry super fund shareholders of ME
ANNUAL REVIEW 2019 25 YEARS OF ME 7
Timeline. Members Equity obtains an Australian
banking licence and is approved to
act as an authorised deposit-taking
institution by the Australian Prudential
Regulation Authority (APRA).
2001
Industry Fund Services (IFS)
is founded and Super Members
Home Loans is launched by the
ACTU with National Mutual. Members Equity obtains an
Australian financial services licence
The Australian
1994 to offer financial services, including
bank deposit accounts.
Council of Trade
Unions (ACTU) Members Equity achieves $10 billion
Through IFS, industry super
is formed. in funds under management.
funds enters into an agreement
1927 with AXA Asia Pacific Holdings
Limited (formerly National
2003
Mutual) to establish a 50/50
joint venture company.
1999
Members Equity
Industry super funds and AXA relaunches as ‘Members
Asia Pacific Holdings Limited Equity Bank – The
The ACTU launches the campaign Super Funds’ Bank’
for universal fully vested launch the joint venture entity,
Members Equity. to increase awareness
superannuation for Australians. as a banking institution.
Industry super funds are 2000
established in a range of sectors 2005
including health, hospitality,
building and construction,
manufacturing and transport.
1985 Industry super funds
become 100% owners
of Members Equity.
Super Members Home Loans
achieves $1 billion in
funds under management.
2002
1995
Figure 2 25 years of ME
8ME Bank’s ‘genuinely fairer banking’
position is launched, reinforcing the bank’s
role as the genuine banking alternative for Fresh new internet banking.
members of industry super funds, unions
and employer associations. ME partners with Capgemini.
2012 2016
ME Bank launches the Member Benefits
Program, offering market-leading
products directly to members.
Members Equity
Bank is rebranded ME Bank offers home loans to all Australians.
as ME Bank.
2009
ME Bank gets a new identity that reflects
the bank’s digital and growth aspirations.
2014
ME hits
400,000 customers.
ME Bank achieves $20 billion
in funds under management. 2017
2013
ME Bank realigns with industry
super fund and union members ME hits
signalling the launch of the 500,000 customers.
‘ME Bank Is Your Bank’ campaign. ME turns 25.
ME introduces the lowest rate
2010 Mastercard® in Australia – Frank. 2019
New mobile app launched.
2015
ANNUAL REVIEW 2019 25 YEARS OF ME 905.
Strategy.
ME’s long-term strategic objective is to continue to grow 4. ENABLE CUSTOMERS TO INTERACT
in relevance by creating a genuine banking alternative. WITH THE BANK DIGITALLY
To that end, the bank will continue to pursue the following
strategic priorities. ME will strive to enhance customers’ main channel of
choice, improve the customer experience and drive
1. FOCUS ON A CORE SET OF PRODUCTS efficiency through the digitisation of customers’ sales
and service processes.
ME will help Australians get ahead by offering a core set
of retail banking products that meet the personal banking 5. PROVIDE SIMPLE
needs of the majority of Australians. These include: PRODUCT PROCESSES
• home loans ME will ensure a frictionless and simple application
• personal loans process for customers across its products. ME will
continually improve its services for the mortgage
• credit cards segment by striving to make it easy for both brokers
• an everyday transaction account and customers to obtain and manage a mortgage at ME.
and online savings account
6. EXECUTE EFFECTIVELY
• term deposits.
ME will enable the organisation to rapidly and effectively
2. LEVERAGE ITS CORE PURPOSE deliver the capabilities required in a fast changing and
competitive environment through empowered teams
ME will deliver on its core purpose of ‘helping all and agile and flexible business architecture.
Australians get ahead’, with an overall value proposition
that improves the financial position of its customers, 7. OPERATE EFFICIENTLY
using this to differentiate relative to its competitors.
ME will target a ROE of 8+% in a challenging environment
3. BE CUSTOMER-FOCUSED by driving efficiency through an operating model that
drives digitisation and automation in parallel
ME will be customer-focused in everything it does with improving the customer experience.
both internally and externally to drive an experience
that is intuitive to the way customers behave and
make decisions.
10PRODUCTS AND SERVICES
ME’s focus is on providing retail banking products The bank has a national team of mobile lenders who
to help Australians save, transact and borrow. It is specialise in home loans and visit customers at a time
committed to providing products that enable people and place convenient to the customer. ME also offers
to meet their financial goals, including achieving their its home loans through a national network of mortgage
dream of owning a home. The bank offers these brokers and aggregators as well as a direct sales team
products through a variety of channels. which accepts home loan applications over the phone.
Credit card, transaction products and deposit products
can be opened online.
Personal banking products Business products Servicing customers
• Home loans • 11am account • Australia-based national
• Personal loans • Term deposits customer contact centre
• Credit cards • Electronic certificates • Mobile-friendly website
• Transaction accounts of deposit • Internet banking
• Online savings accounts • Business online • Mobile app
savings accounts
• Term deposits
• Cash notice accounts
• Portfolio funding
(specialised lending)
PORTFOLIO FUNDING
ME launched a new portfolio funding business in FY19
to finance loans and other receivables originated and
managed by partner businesses as well as to diversify
its income stream.
The portfolio funding business builds on ME’s existing
securitisation and credit skills and provides innovative
funding opportunities for a new range of business
partners, including third-party lenders and fintechs.
ANNUAL REVIEW 2019 STRATEGY 1106.
Operating environment.
INTEREST RATES CREDIT GROWTH
The first half of 2019 was characterised by a shift in Credit growth and the housing market have experienced
the approach of the RBA to monetary policy settings, significantly lower growth than in past years. While the
resulting in two rate reductions totalling 50 basis points. correction in house prices seen over the last 18 months
The key domestic driver for the rate cuts has been the appears to have run its course, weak consumer confidence
view that there remains excess capacity in the labour is likely to constrain house price growth over the next
market, with the unemployment rate at around 5.2% 1–2 years. Housing credit growth has fallen to its lowest
and a significant level of underemployment. The excess level since 1977, proving headwinds on business growth.
capacity means there has been minimal wages growth 2019 data showed housing credit growth was a bit
pressure and flow-on effects to inflation more broadly. below 4% year-on-year. There have been a number of
With the broader target for unemployment being closer actions taken more recently by APRA and the RBA to
to 4.5% and a concern that unemployment could increase provide support and stimulus to credit growth over the
going forward, the RBA will likely maintain an easing bias. planning period. These include reducing the interest rate
Lower interest rates put pressure on margins, given the floor for mortgage affordability calculations, easing of the
asymmetry in the repricing profiles of assets and liabilities. quantitative controls on investor lending, and the 50 basis
points cut in the cash rate. Lower credit growth will require
banks to put greater focus on maintaining asset quality.
12COMPETITIVE ENVIRONMENT REGULATORY DEVELOPMENTS
Given the historic low cycles for both the official cash In the aftermath of the Royal Commission and in the
rate and Australian credit growth environment, strong context of regulators more closely scrutinising banks,
competition has persisted for both deposit and home work on enhancing risk management controls continues
loan customers. This has been exacerbated by the across the industry. Changing requirements include
emergence of neobanks and non-traditional lenders maintaining capital ratios in the top quartile globally
who have introduced product and service innovations, and in the future, the likelihood of further developments
including digital and payment ecosystems, and small around responsible lending reforms. This heightened
business lending. This has increased pressure on banks risk management environment is increasing regulatory
to maintain competitive interest rates and service and compliance costs.
offerings in order to drive targeted balance sheet
and customer growth.
CUSTOMER
Customer expectations continue to centre on the need
for greater self-service and digital access. The latter has
driven a shift in focus across competitors toward product
simplification and customer remediation activities. ME
continued to maintain focus on simplification of its T24
core product set, as well as investing in an overhaul of
its digital ecosystem which will include a completely
new mobile app and upgraded internet banking,
enhanced by integrated digital payments and new
payment platform functionality.
ANNUAL REVIEW 2019 OPERATING ENVIRONMENT 1307.
FY19 performance.
FINANCIAL PERFORMANCE
ME’s statutory profit after tax was $67.1 million, a For the year ended 30 June 2019, the following
decrease of 25% on the previous year, noting the impact reconciling differences between net profit after tax
of losses on hedging instruments and an impairment (underlying) and net profit after tax (statutory) existed:
loss on statutory profit (refer to Tables 1 and 2). ME’s
underlying NPAT was $99.8 million for the year, 3% Table 2 Reconciliation of statutory profit to underlying profit
up on the previous year, reflecting strong ongoing
home loan growth. ME maintained a healthy asset Reconciliation of statutory profit to underlying profit
growth trajectory over the 12 months to 30 June 2019, FY19 ($m) FY18 ($m)
increasing its home loan portfolio by 7.3% to $26.3
billion compared to market growth of 3%, a growth Net profit after tax (statutory) 67.1 89.1
rate of 2.5 times system for the 12-month period.
Net profit after tax (underlying) 99.8 96.5
Table 1 FY19 key financial metrics
Realised and unrealised gains/
(3.2) 3.6
(losses) on hedging instruments
Key Metrics FY19 FY18 Change
Impairment losses – other (14.4) -
Total on and off-balance
$31.1 $28.3 10%
sheet assets($bn) IT system remediation and
(15.1) (11.0)
decommissioning costs
Lending assets
$26.2 $24.2 8%
on-balance sheet ($bn)
Customer deposits
$16.3 $14.8 10%
($bn)
Profit – statutory
67.1 89.1 -25%
(after tax)* $m
Profit – underlying
99.8 96.5 3%
(after tax) $m
Return on equity
7.2% 8.1% -0.90%
– underlying
Net interest margin 1.59% 1.62% -3bps
Cost-to-income –
64.8% 64.5% 0.30%
underlying
*As statutory profit includes realised and unrealised gains and losses on
hedging instruments (primarily interest rate swaps) and other one-off items,
ME uses underlying NPAT as its key profit measure.
14Gain/(loss) on hedging instruments
99.8
Effective 1 July 2014, the bank adopted hedge accounting 96.5
85.2
and as a result, any mark to market movement of interest
74.7
rate swaps from that date has been reflected in the cash
flow hedge reserve in the equity section of the balance 58.1
sheet. The losses for the year ended 30 June 2019
represent an unfavourable movement in fair value
of ME’s interest rate basis swaps.
Impairment loss – other FY15 FY16 FY17 FY18 FY19
During the year, ME took the strategic decision to Figure 3 Underlying net profit after tax ($m)
stop its investment in a new credit card platform and
associated new credit card products. Among other
factors, it was not economically feasible to continue due
to the expectation the credit card market is undergoing
significant disruption. As a result, an impairment loss
relating to the value of the associated development
costs (intangible asset) has been recognised.
IT systems remediation and decommissioning costs
These represent the:
• costs of decommissioning ME’s legacy home loan
system, Ultracs, as a result of the implementation
of the new core banking system, T24
• one-off transition costs of consolidating
multiple service providers for IT infrastructure,
application solutions and support services with
ME’s partner, Capgemini
• work focused on improving the customer
experience and driving productivity benefits
in the bank’s operations
• technical cost of meeting new regulatory
and compliance requirements
• costs of fixing system errors and associated
customer remediation.
ANNUAL REVIEW 2019 FY19 PERFORMANCE 15Operational efficiency 69.2
The primary measure of operational efficiency is
the CTI ratio. In the past four years, this ratio has seen
a relatively steady reduction from 65.8% to 64.8% (refer 65.8
to Figure 4). Pressures on NIM and cost management will
64.8
remain as the bank continues to improve its core systems. 64.5
63.5
The overarching objective of the focus efficiency area is
to achieve a 50% CTI ratio within five years. The discrete
areas of focus are:
• Cost growth: the objective is to limit the cost growth FY15 FY16 FY17 FY18 FY19
over the next three years through efficiency gains Figure 4 Cost-to-income ratio (%)
within each business unit.
• Program of work (PoW): the PoW initiatives will start 20.8
to accrue annual benefits and cost savings across all 25.2 1.6
400 2.9
business units. 414.1
45.5 32.1
6.0
• Initiative cost buckets: ME will define and accelerate 61.2 10.4
397.1
300
optimisation of large-cost categories to realise benefits 16.8 336.3
in FY20 and beyond. 314.6
200 279.0
Balance sheet
The migration of loans from ‘off-balance sheet’ to 100
‘on-balance sheet’ is nearly complete (with a residual
$200 million of off-balance sheet assets remaining as
at 30 June 2019). ME is currently only originating loans 0
FY15 FY16 FY17 FY18 FY19
from its own balance sheet. This change is reflected in
the management fee income decreasing and net interest ■ Net interest income ■ Management fee income ■ Other income
income increasing (refer to Figure 5). Net interest income Figure 5 Revenue ($m)
increased 4% (or $17 million) to $414.1 million in FY19.
Assets 31.1
28.3
Total assets under management (on-balance and 26.5
off-balance sheet excluding offset account balances) 24.7
23.3
grew by 10% to $31.1 billion in FY19.
Total on-balance sheet assets grew by 11% from
$27.9 billion to $30.9 billion, which was driven by
increases in lending assets (loans and advances)
of $1.7 billion. Home loans remain a core focus, and
account for 99% of all lending assets. In FY19, the
bank settled over $6.3 billion of home loans.
FY15 FY16 FY17 FY18 FY19
Figure 6 Total assets ($bn)
16Funding
6,209
Strong growth in household deposits occurred over the 4,537
4,981
full year as they reached $8.6 billion, an increase of 13.4%
5,059 6,416
or a growth rate of 2.6 times system. Market share of 4,949
6,842
household deposits increased from 0.85% to 0.92%. 6,856
6,230
The quality of funding improved with household 6,071
deposits funding 43% of ME’s loan assets (excluding 14,787 16,287
12,574
securitisation), up from 39%. Household deposits are 8,836 10,480
forecast to fund the majority of the bank’s asset growth
for the foreseeable future. The bank met
its stable funding targets earlier than planned. FY15 FY16 FY17 FY18 FY19
Securitisation continues to be an important source ■ Customer deposits ■ Wholesale ■ Securitisation
of funding (refer to Figure 7), representing 22% of Figure 7 Funding mix ($m)
total funding. In May 2019, a new home loan warehouse
was settled, providing a funding facility limit of $1.0
billion. The most recent securitisation vehicle was
launched in June 2019 with an issue size of $1.75 billion.
The transaction represents the largest deal by an
issuer outside of the major banks post the Global
Financial Crisis.
As part of the transition to the net stable funding
ratio (NSFR), ME has realigned its definition of customer
deposits to align with APRA’s definition under NSFR.
The chart on the right illustrates this change.
ANNUAL REVIEW 2019 FY19 PERFORMANCE 17Capital management 18% 300
250
The bank manages its capital in line with the requirements
16%
of APRA and is very focused on the requirements of the 200
rating agencies to at least maintain its credit rating. 14% 150
Management has developed and employed systems 100
and processes to identify and measure risks to ensure 12%
50
the bank is appropriately capitalised. In managing its 200 100 40
10% 0
capital, the bank is committed to increasing the internal
Jul 17 Jan 18 Jul 18 Jan 19 Jul 19 Jan 20 Jul 20 Jan 21 Jul 21 Jan 22 Jul 22
generation of capital commensurate with the increased
business risks that are inherent in growing its business. ■ Capital issuance ($m) RAC ratio (inc. forecasted capital draws)
The bank monitors the structure of capital through the ■ ATD1 issues ($m) RAC ratio – S&P minimum
Asset and Liability Committee (ALCO) to make sure the
Figure 8 S&P’s rating agency capital ratio until July 2022
capital held meets the requirements of APRA.
Externally imposed capital requirements 12.5%
APRA guidelines require capital to be allocated against 12%
credit, market and operational risks. The bank must
11.5%
maintain a minimum ratio of qualifying capital (comprising
Tier 1 and Tier 2 capital) to assets and off-balance sheet 11%
exposures determined on a risk-weighted basis.
10.5%
The bank has met the minimum capital ratio
requirements at all times during the financial year. 10%
9.5%
Capital adequacy ratio Jun 17 Jun 18 Jun 19 Jun 20 Jun 21 Jun 22
The minimum internal capital adequacy ratio set by the ■ Capital issuance ($m)
board remained at 11.5% during the financial year ended Moody’s capital calculation Moody’s minimum rating (M rating band)
30 June 2019.
Figure 9 Moody’s capital ratio until June 2022
The Standard & Poor’s (S&P) capital ratio methodology
differs from APRA as the bank is required to maintain The year-end prudential capital ratio was as follows:
a 15% ratio rather than the internal minimum of 11.5%.
Table 3 Capital adequacy ratios
The Moody’s capital ratio methodology also differs
from APRA as the bank is required to maintain an FY19 % FY18 %
11% ratio rather than the internal tier 1 capital minimum
of 9.5%. Moody’s does not recognise AT1 capital in Tier 1
its methodology.
Common Equity Tier 1 9.5 9.7
Additional Tier 1 2.9 2.0
Tier 2 3.4 3.4
Total capital ratio 15.8 15.1
18For customers
looking to
purchase their
own home, ME’s
core home loan
products offer
competitive rates
and features.
ANNUAL REVIEW 2019 FY19 PERFORMANCE 1908.
Customer growth.
Over the last financial year, ME grew its customer 518,000
474,000
base by 9% from 474,490 to 517,868 (refer to
420,000
Figure 10). This growth is reflective of the breadth
366,000
and competitiveness of the ME product offering. 338,000
For customers looking to purchase their own home,
ME’s core home loan products offer competitive rates
and features. ME offers two core deposit products – an
online savings account, which pays a bonus interest rate
to retail customers who meet the qualifying criteria, and
term deposits which offer competitive rates. In FY19, ME
significantly grew its term deposit base via clients who FY15 FY16 FY17 FY18 FY19
use wealth intermediaries. ME also offers operational and
Figure 10 Customer numbers
innovative cash solutions for various industry super funds.
20KEY CUSTOMER ACHIEVEMENTS
1. ME launched national marketing campaign
post-Royal Commission
In the face of negative customer sentiment post-Royal Despite the level of distrust uncovered by the research,
Commission, ME came up with a term that captured the ME found only 14% of Australians were doing something
essence of how disenfranchised Australians were feeling about their primary banking relationship. The term
about their finances – ‘bank-xiety’. The campaign was ‘bank-xiety’ became the basis of a nationwide marketing
based on research findings that revealed Australian’s campaign based around prompting Australians to talk
distrust toward banks is almost universal: about their bank-xiety and take action on these feelings
of distrust by reconsidering one of their most important
• 95% of Australians agree bank products and rates
institutional relationships.
aren’t as simple and transparent as they should be
The campaign reached 12.1 million Australians.
• 95% agree banks sometimes put profits
before customers
• 94% agree banks don’t act in their best interest.
ANNUAL REVIEW 2019 CUSTOMER GROWTH 212. Internal customer forum The bank established an internal customer forum to review customer feedback and elevate the voice of customers across the bank. Chaired by ME’s customer advocate, the forum has focused on identifying key pain points for customers, exploring the drivers of these pain points, and implementing changes to policies, processes and products that will deliver better customer experiences. 22
3. ME helps older Australians get ahead
In December 2018, ME finalised a $100 million funding
facility for Household Capital. This facility enables
Household Capital to provide equity release mortgages
to retirees who are seeking to use the equity in their
home. While Household Capital’s primary focus is on
creating an annuity stream for retirees, it also lends
towards aged care needs, debt consolidation, house
maintenance costs and inter-generational wealth transfer.
ME’s partnership with Household Capital is an important
way of helping all Australians get ahead – in this case,
older Australians looking to improve their standard of
living in retirement while remaining in their home.
ANNUAL REVIEW 2019 CUSTOMER GROWTH 234. ME reaches significant CCR milestone
Under the Comprehensive Credit Reporting (CCR) Other benefits include:
regime, positive customer information is now available
• better matching of loan types and amount
through Australia’s national credit bureaux – including
according to borrower capacity
accounts that have been opened, the credit limits on
those accounts and repayment history. • fairer access to loans
In an important milestone, ME is now sharing its • reduced risk of over-extended customers.
customers’ home loan and personal loan data with
On the back of CCR, it is expected that a significant
the major credit bureaux. This means ME will be able to
proportion of customers will have their good credit
consume data from many other credit providers when
behaviour reflected in their credit score – a great
assessing a credit application, which will allow it to have
development for customers looking to obtain credit.
a more complete and balanced picture of a customer’s
credit position.
245. Helping first home buyers through credit policy
During the year, ME altered its credit policy to help more
first home buyers get ahead. The policy allows those who
want to buy a high-density property in a development
up to 50 units to take out a ME loan with an increased
loan-to-value ratio of 95%. Previous policy restricted
lending in high-density locations to 85% when there
were more than 10 units in a development. First home
buyers are often less able to accumulate sizeable
deposits and high-density apartments are an affordable
entry point into the property market.
ANNUAL REVIEW 2019 CUSTOMER GROWTH 256. Helping more home owners who use brokers
ME showed its strong support for the mortgage broker November 2018 marked seven years since ME launched
community throughout the Royal Commission, working its broker channel. Brokers now contribute around 70%
closely with policymakers on how best to implement final of home loan sales and have provided the ability for ME
changes around broker remuneration. to connect with customers who would prefer to engage
with a broker.
In May 2019, ME joined Mortgage Choice’s lending
panel. Mortgage Choice is Australia’s second largest
mortgage broker with over 500 brokers, and this new
partnership has allowed ME to build on its position
as a lender of choice through all major broker and
aggregator groups.
267. Digital service improvements for customers
ME continues to invest in new technology to improve • the ability for customers to view their bank statements
the customer experience. Achievements in this in their mobile app, in addition to internet banking
sphere include:
• the ability for new customers who open a credit card
• the option for ME’s Android users to log on to their account as their first account to activate their card
mobile app using their fingerprint, a feature previously immediately on the app
only available to iPhone users
• the ability for Everyday Transaction Account and
• a series of new icons in the mobile app to assist people Online Savings Account customers to see their
who like dividing their money into separate buckets pending transactions, both in internet banking
and the app.
• the ability for ME customers to reduce their credit card
limit or close their credit card accounts through internet ME’s website was recognised as the joint top financial
banking, in line with new ASIC credit card reforms services website alongside BankSA in Google’s
benchmarking study Masters of Mobile: Australia
and New Zealand Report.
ANNUAL REVIEW 2019 CUSTOMER GROWTH 278. ME relaunches content hub to help Australians get ahead ME relaunched its personal finance blog ‘The Feed’, which publishes lifestyle and financial insights as well as the latest trends in money and property buying. The relaunch involved a user experience re-design and optimisation of content to be more engaging, useful and relevant to the financial education customers’ wants. The relaunched content hub has seen a 91% increase in traffic, with more and potential customers accessing information to improve their financial knowledge. 28
9. Australia’s leading social bank
ME was Australia’s fastest growing and most engaging
bank on social media due to its consistently compelling
content that spoke to customers’ interests, values and
trending topics of conversation. Examples of this include
ME’s April Fool’s Day post which reached more than
176,000 people on Facebook, Twitter and Instagram.
The post was picked up by a total of 29 media outlets,
including Channel Nine National News, and reached
more than two million Australians.
ANNUAL REVIEW 2019 CUSTOMER GROWTH 2909.
Governance.
CORPORATE GOVERNANCE
ME is committed to fulfilling its corporate governance The bank’s approach to corporate governance recognises
obligations and responsibilities in the best interests a range of principles and frameworks. These include the
of the bank and its shareholders. Good corporate ASX Corporate Governance Council Corporate Governance
governance is based on a set of values and behaviours Principles and Recommendations and APRA Prudential
that: a) underpin day-to-day activities, b) provide Standards. The board is conscious that best practice
transparency and fair dealing, and c) promote financial in the area of corporate governance is continuously
stability and healthy economic growth that can deliver evolving and will continue to anticipate and respond
better outcomes for customers. to further corporate governance developments.
In performing its role, ME’s board is committed to a The bank’s Corporate Governance Statement outlines
high standard of corporate governance practice as well the key components of ME’s corporate governance
as fostering a positive and engaging high performance framework. This provides guidance for the board,
culture. This encourages values-based leadership to executives and employees, and defines their respective
enable the execution of the bank’s strategy and to roles, responsibilities and the conduct expected of
create a diverse and inclusive workplace. them. The framework establishes the structure through
which the bank sets its objectives and ensures strategic
guidance of the bank, as well as the effective monitoring
of the ongoing performance of management by the
board, and the board’s accountability to the bank and
its shareholders.
30BOARD Table 4 Criteria for ME board directors
As of 30 June 2019, the board comprised eight Skills, knowledge
independent directors. Attributes and experience
ME is committed to ensuring that the composition • Desire to contribute to • Retail banking
of the board continues to have the right mix of long-term success as
individuals with relevant attributes, skills, knowledge • Superannuation
opposed to short-term
and experience, with the overall competence collectively expediency • Industrial relations
to deal with the current and emerging issues of the
business and to effectively review the performance of • Commitment to • Human resource
management. These criteria are summarised to the right: the bank’s values management
• Willingness to embrace • Sales
change and resolve
• Marketing and branding
dilemmas
• Accounting and finance
• Ability to confront
and defuse political • Risk management
interference so that it and controls
does not prevent sound
• IT
decision-making
• Digital
• Ability to focus on the
big picture and strategic • Governance
context of decisions
• Communications
• Capacity to build
harmonious, productive • Auditing
working relationships • Compliance
• Confidence to express
views openly at all levels
• Strong desire to see
the management team
develop and succeed
• Ability to focus on the
process by which results
are achieved as well as
the results themselves
• Ability to consider
various alternatives
when faced with
complex situations
ANNUAL REVIEW 2019 GOVERNANCE 31Cheryl Bart AO Christine Christian
The board has a diverse range of Non-Executive Director Non-Executive Director
experience in banking and financial Director since July 2016 Director since November 2012
services as well as in other sectors. Cheryl is Chair of the Digital Committee, Christine is the Chair of the Risk and
The experience of the board a member of the Audit and Governance Compliance Committee, Chair of the
members is set out here. Committee (from 12 April 2019) and a Nominations Committee (from 4
member of the Risk and Compliance October 2018 until that committee
Committee (to 15 May 2019). She was dissolved on 15 May 2019) and a
is currently Chair of Powering member of the Audit and Governance
Australian Renewables Fund, and a Committee. Christine is an independent
non-executive director of SG Fleet company director; she is currently
Group Ltd, Audio Pixels Holding Ltd, Chair of Kirwood Capital and Deputy
TEDxSydney, and was a non-executive Chair of FlexiGroup Ltd. She is a
director for the Invictus Games 2018. director of State Library of Victoria,
Cheryl has a diverse director portfolio Lonsec Financial Group, La Trobe
background, chairing both committees University, the Cranlana Programme
James Evans and boards across the utilities, funds and the Victorian Managed Insurance
Chairman management, auto-finance and Authority. She also has more than 30
Director since April 2019 leasing, broadcasting, technology and years’ experience in senior executive
Chairman since April 2019 infrastructure sectors. Her previous roles in Australia and overseas, primarily
non-executive directorships include in the credit risk, financial services and
In addition to his role as Chairman
Chairman of ANZ Trustees Ltd, South global business publishing sectors –
of the board, Jim is a member of the
Australian Environment Protection including 14 years as CEO of Dun &
People and Remuneration Committee
Authority and South Australian Film Bradstreet Australia and New Zealand,
(from 15 May 2019). Jim has over 40
Corporation, as well as a non-executive Chairman of Dun & Bradstreet Consumer
years’ experience, including 30 years
director of the Australian Broadcasting Credit Services, and Executive Director
in banking and financial services.
Corporation, Football Federation of Dun & Bradstreet India.
He is currently Chairman of ASX
Australia, Prince’s Trust Australia and
100-listed company Pendal Group
Spark Infrastructure Ltd.
Limited and its major subsidiary J O
Hambro Capital Management Holdings
Limited. He is also a non-executive
director of Investa Wholesale Funds
Management Limited and ICPF
Holdings Limited. Jim worked at Peter Everingham
Commonwealth Bank for more than Non-Executive Director
10 years, including five as Chief Risk David Issa Director since April 2019
Officer of Wealth Management, during Non-Executive Director Peter is a member of the Digital
which time he held directorships Director since March 2019 Committee (from 1 May 2019) and the
in funds management, general David is a member of the Digital People and Remuneration Committee
insurance, life insurance and lease Committee (from 12 April 2019) and (from 15 May 2019). He has over 25
financing businesses. Jim has the Audit and Governance Committee years’ corporate experience including
served as the Chairman of Suncorp (from 15 May 2019). He is currently 18 years in the digital sector. Peter is
Portfolio Services Limited and as a a director at Industry Fund Services currently a director of Super Retail
non-executive director of Australian and has over 30 years’ experience in Group and iCar Asia. He is also a
Infrastructure Fund Limited as well as the digital, technology, banking and governor and Director of the World
Hastings Funds Management Limited. insurance industries. His previous roles Wide Fund for Nature Australia. He
include director of Superpartners, CEO was formerly Managing Director of
of online consumer networks One Big SEEK Limited’s International Division
Switch and FiftyUp Club as well as and served as a non-executive director
CEO of Personal Insurance and CIO at of its education businesses IDP
Insurance Australia Group. At Westpac Education, Online Education Services
Banking Corporation, David held roles and Think Education. He was also
including CIO at Institutional Banking Chairman of SEEK’s China subsidiary,
Group, Program Director at Westpac Zhaopin Limited. Prior to SEEK, Peter
Investing, and CEO of the bank’s wholly was Director of Strategy for Yahoo! in
owned software incubator Qvalent. Australia and Southeast Asia.
32DIRECTORS WHO
RETIRED DURING
THE YEAR
Greg Combet John Nesbitt
Non-Executive Director Non-Executive Director
Director since November 2014 Director since February 2017
Greg is a member of the Risk and John is Chair of the Audit and
Compliance Committee and the People Governance Committee as well as a Ken Hodgson
and Remuneration Committee (to 15 member of the Risk and Compliance Chairman
May 2019), and Chair of the Investments Committee, the Investments and Retired March 2019
and Partnerships Strategy Committee Partnerships Strategy Committee In addition to his role as Chairman of the
(until that committee was dissolved (until that committee was dissolved board, Ken was the Chair of the People
on 15 May 2019). He is Chair of IFM on 15 May 2019) and the Nominations and Remuneration Committee and a
Investors and Industry Super Australia, Committee (until that committee member of the Audit and Governance
and Director of Greg Combet Pty Ltd. was dissolved on 15 May 2019). Committee, the Investments and
He also holds a number of consultancy John is a non-executive director
and advisory roles. Greg held various Partnerships Strategy Committee and
and Independent Chairman of AMP the Nominations Committee until his
cabinet, ministerial and parliamentary Capital Holdings Limited as well as
roles within the Australian Government retirement from the board in March
a non-executive director of General 2019. He is a director of Hydro Tasmania
from 2007 to 2013, including as Minister Reinsurance Life Australia Limited,
for Industry and Innovation, Minister for and spent 28 years working at Westpac
General Reinsurance Australia Limited and National Australia Bank in their
Climate Change and Energy Efficiency, and Evolve Housing Limited (previously
and Minister for Defence Personnel, retail banking divisions – including as
Affordable Community Housing General Manager, Consumer Financial
Science and Materiel. He was formerly
Limited). John has over 40 years’ Services at Westpac and as General
Secretary of the ACTU and a director
experience across broader financial Manager, Personal Financial Services at
of AustralianSuper. During the year,
services, property, infrastructure, National Australia Bank. Ken previously
he was a patron of Mine Dust
technology and chartered accounting worked for AGL Energy Ltd as Group
Victims Group.
experience through his previous General Manager, Retail Energy.
roles as CEO of Suncorp Banking
and Wealth, Group Chief Financial
Officer (CFO) of Suncorp Group
Limited as well as Group CFO and
Group Executive Private Wealth at
Perpetual Limited and CFO roles at
Elana Rubin Lend Lease Corporation Limited.
Non-Executive Director He has previously been Chair of the Justin Milne
Director since October 2016 Perpetual Superannuation Board and Non-Executive Director
Elana is a member of the People and has had memberships at a number of Retired October 2018
Remuneration Committee and was complex joint venture and industry
Justin was a member of the Digital
appointed Chair of that committee on representative boards.
Committee until his retirement from the
15 May 2019. Elana is also a member of board in October 2018, after which he
the Risk and Compliance Committee remained a consultant to the committee
(from 15 May 2019). She was a member until January 2019. He is a non-executive
of the Digital Committee (to 15 May director of Tabcorp Holdings Ltd and
2019), the Investments and Partnerships NBN Co Ltd. Justin is a former Chairman
Strategy Committee (until that of NetComm Wireless Limited, MYOB
committee was dissolved on 15 May Group Limited, Australian Broadcasting
2019) and the Nominations Committee
Corporation and pieNETWORKS
(until that committee was dissolved
Limited, and was a director of SMS
on 15 May 2019). She is currently a
Management and Technology Limited,
director of Mirvac Group, Afterpay
Basketball Australia Limited. He was
Touch Group, Slater and Gordon as well
also CEO of OzEmail and the Microsoft
as several unlisted and/or government
Network. Justin had an executive career
bodies in insurance, funds management,
in telecommunications, marketing and
infrastructure and property sectors.
Elana has over 20 years’ experience media. From 2002 to 2010, he was
as a non-executive director on private, Group Managing Director of Telstra’s
government and not-for-profit boards. broadband and media businesses and
Previous non-executive directorships headed up Telstra’s BigPond New Media
include Chair of AustralianSuper. businesses in China.
ANNUAL REVIEW 2019 GOVERNANCE 33BOARD RESPONSIBILITIES
The bank has laid solid foundations • reviewing and approving • overseeing the appointment, and
for the management and oversight the Business Plan and budget when necessary, replacement of
of its operations and administration, other senior executives
• agreeing on strategy
including clear guidelines on
• supporting the CEO in
who the board comprises; well • providing strategic direction to
nurturing staff and developing
understood delineations on the roles the bank by engaging with the
succession plans
of Chairman, Company Secretary CEO in the development and
and CEO; and clear enunciation of oversight of the execution of • approving the remuneration
the board’s priorities. the Business Plan and budget framework
The composition of the board is • monitoring performance against • performing other such functions
determined in accordance with the Business Plan and budget and as prescribed by law or assigned
the ME Constitution and the reviewing that performance with to the board.
following guidelines: the CEO
The Board Charter, which is reviewed
• The board maintains a majority • setting the bank’s risk appetite from time to time to ensure it remains
of independent non-executive and ensuring the bank has consistent with the board’s objectives
directors. in place an appropriate risk and responsibilities, and the ME
management framework and Constitution, are available on the ME
• The board comprises directors
processes which support that corporate website mebank.com.au
with an appropriate range of
appetite and within which
qualifications and experience. The primary role of the board is to
management must operate
protect the rights and interests of
• In accordance with the Board
• approving any major corporate the bank and to create value for
Renewal Policy, the directors are
initiatives its shareholders and their members,
rotated through the mechanisms having due regard to the interests
contained in the ME Constitution, • ensuring that management of other stakeholders. The board has
which require a third of directors decisions are consistent with overall responsibility for overseeing
to retire in each year, with a delegated authorities and the the effective management and
three-year rotation period for interests of shareholders control of the bank and supervising
each director. Directors retiring management’s conduct within a
• overseeing the integrity of
by rotation may stand for control and authority framework,
the bank’s accounting and
re-appointment. This process which is designed to enable risk
corporate reporting, including
is used to periodically review to be prudently and effectively
the external audit
and recommend changes in the assessed, monitored and managed.
composition of the board. • monitoring the effectiveness of The role of the board is to approve
the bank’s governance practices strategic direction, guide and
The board’s authority level is
described in ME’s Constitution monitor management in achieving
• assisting the CEO in creating
its strategic plans, and oversee good
and in the bank’s Authorities and the desired staff culture
governance practice.
Delegations Policy and Matrix. The
• fostering an environment of
Board Charter, on the other hand, The board meets at least 11 times a
innovation and deep customer
sets out the roles and responsibilities year and follows meeting protocols
understanding
of the board as set out below: designed to ensure all directors are
• ensuring the bank’s shareholders appropriately informed and properly
• appointing and, if necessary,
are provided with the appropriate consider all agenda items.
removing the CEO
information in a timely manner
34CHAIRMAN BOARD COMPOSITION INDEPENDENCE
AND COMPANY The board is conscious of the need The board recognises the
SECRETARY’S DUTIES to ensure proper processes are in importance of directors bringing
The Chairman is elected from the place to deal with succession issues independent judgement to all board
independent non-executive directors. at a board level. The board believes decisions. In board deliberations,
The responsibilities of the Chairman succession and renewal planning directors are expected to be free of
are set out in the Board Charter. should be managed over the any business or other relationship
medium to longer-term, and that the that could materially interfere with
The Company Secretary is appointed
length of service of each director is – or could reasonably be perceived
by the board. The Company Secretary
appropriately balanced. The current to materially interfere with – the
attends board and board committee
directors possess an appropriate independent exercise of their
meetings and is responsible for
mix of skills, experience, expertise judgement. The directors regularly
providing directors with advice on
and diversity to enable the board confer without management present.
corporate governance and other
to discharge its responsibilities and
issues affecting the functioning
deliver the bank’s strategic priorities.
and operations of the board. The
Company Secretary is responsible The board may establish a
for monitoring compliance with the Nominations Committee, with
board’s procedures and implementing the responsibility to identify new
the governance framework to directors as required. An external
give practical effect to the board’s independent recruitment firm may
decisions. The Company Secretary is be engaged as part of the process
also responsible for facilitating good of recruiting and evaluating suitable
information flows between the board candidates for appointment as
and its committees and between a director.
the directors and management,
Furthermore, before any letter of
as well managing the induction
appointment is issued to a new
of new directors and the ongoing
director, enquiries, reference checks,
professional development of directors.
checks of bankruptcy and criminal
records, and validation of other
records are carried out to affirm
to the board that the person is
of sound character and has the
relevant attributes desired by the
board to be a director of ME. In
addition, directors must satisfy any
other requirements as set out in,
or made in accordance with, the
Fit and Proper Requirements in
the Fit and Proper Policy and their
letter of appointment.
ANNUAL REVIEW 2019 GOVERNANCE 35You can also read
