Hello, and welcome to the Commonwealth Bank of Australia's results briefing for the full year ended 30 June 2025. I'm Melanie Kirk, and I'm Head of Investor Relations. Thank you for joining us. For this briefing, we will have presentations from our CEO, Matt Comyn, with a business update and an overview of the results. Our CFO, Alan Docherty, will provide details of the financial results; and Matt will then provide an outlook and summary. The presentations will be followed by the opportunity for analysts and investors to ask questions. I'll now hand over to Matt. Thank you, Matt.

Thanks very much, Mel, and good morning to everyone. It's good to be with you today to present the bank's full year results. We recognize cost of living remains a challenge for many and global issues are creating uncertainty. We've been focused on consistent operational execution and investing for the long term. This year, we've chosen to increase lending across all of our key segments with record risk-weighted asset growth of $29 billion and disciplined margin management, accelerated investment by $300 million in line with our strategic priorities, strengthen our balance sheet and pay a $4.85 sustainable dividend with a fully neutralized reinvestment plan. We've been able to provide our customers with a range of support options, including tailoring more than 139,000 payment arrangements for those most in need. We've helped more than 140,000 households buy a home and have provided support for first-time buyers. We've extended our commitment to regional Australia, operating the largest branch and ATM network in the country. Safe and secure banking remains a top priority. Over the past year, we've invested more than $900 million to combat fraud, scams, cyber threats and financial crime to better protect our customers. These efforts have led to a 76% reduction in customer losses from scams since the peak in late 2022. Our NameCheck technology has been used 110 million times, preventing over $880 million in mistaken and scam payments. Strong, safe and resilient banks benefit all Australians. This year, we lent $42 billion to businesses to help them grow and paid $22 billion in interest to Australian savers. We've further strengthened our balance sheet and remain well positioned to support our customers and the broader economy. And this year, we paid $8 billion in dividends, benefiting more than 13 million Australians. We know many Australians have found the past 4 years challenging, particularly dealing with cost of living pressures. This past year has brought some relief through easing inflation, lower interest rates and tax cuts. Many households are now experiencing a rise in disposable income. The financial gap between younger and older Australians has narrowed. Savings have increased across all age groups with younger Australians now rebuilding their financial buffers. And discretionary spending has also picked up, reflecting growing consumer confidence. While we recognize many are still finding the context challenging, there is some positive momentum. The economy is at an important juncture. And as a country, we need to make the most of our structural advantages, government stability and available opportunities to improve prosperity for generations to come. We welcome the government's focus on economic growth and productivity. We believe it is important to make a constructive contribution on behalf of the more than 10 million personal customers and 1 million business customers who choose to bank with us. Economic growth will require both small and large businesses to thrive and invest for the future. Small businesses play a very important role in economic dynamism and job creation and will be most responsive to changes in incentives. When I meet with our small business customers, I'm often struck by their energy, optimism and new ideas for the future. Australia's large companies also have a substantial role to play. These are our most productive institutions and provide critical infrastructure the economy relies on. They are investing to build a better Australia, whether that be laying in city optic fiber, mining resources for export to underpin our prosperity, building and financing new infrastructure or investing in cybersecurity or AI capability. These investments benefit all Australians and help small businesses help the economy. 36% of Australia's corporate tax base comes from 20 of our largest companies. Our miners and banks are the largest taxpayers in the country, while our retailers are some of the largest employers. We need to make sure that the economic dividend from technology is captured by Australia for Australians and not shifted offshore. We observe many overseas markets, actively supporting their domestic institutions in the interest of economic growth and resilience. It will be strong domestic institutions that support Australia in times of crisis. We support the Productivity Commission's focus on reforms to encourage greater private sector investment. We do, however, think a simpler and faster way to achieve this outcome would be through an accelerated investment incentive, which should be time-bound, apply to all businesses and allow immediate investment write-offs. We understand well the high expectations on the Commonwealth Bank. We are proud of our role as the bank for all Australians and how we contribute to our country. We are 1 of Australia's largest corporate taxpayers with an implied tax rate of approximately 36%. As a domestically significant institution, we hold an additional capital buffer to protect depositors and provide stability to the broader economy. And we are required to invest significantly in national infrastructure without a return on capital like the new payments platform and open banking, which benefits all Australians. We estimate these obligations amount to almost $6 billion per year. We also make a range of voluntary contributions to support the financial system, our customers and the broader community, some of which are illustrated on the slide. We provide fee waivers and goodwill payments to support customers in vulnerable circumstances. We subsidize the provision of cash and regional services to support low-cost access. And this year, we stepped in financially to support Armaguard, Australia Post as well as helping to protect Australia's interest in the Pacific. To provide further stability to the financial system, we also choose to hold an additional capital buffer. Australia's banking market is stronger and more efficient than international markets. We already have among the lowest consumer banking fees and lowest credit and debit interchange rates globally. We seek to strike the right balance between strength, security, efficiency, customer outcomes and investment for the long term. We believe Australia compares very favorably with global markets and that our financial system is working well for the country. Our purpose, to build a brighter future for all, reflects our enduring commitment to Australia. This year, we refreshed our strategy to reflect changes in the context and also emphasis. At this time, it is critical to support national growth and prosperity, unlock the potential of AI for our customers and increase economic resilience for the country. Our strategy is built on 4 key pillars

the first, building Australia's future economy. This is about helping the nation prosper and improving living standards for all Australians. We played an active role during COVID and are now actively involved in supporting growth and resilience of the Australian economy. Second, reimagining customer experiences that are more seamless, personalized and rewarding. We're focused on building deep, trusted relationships, offering a distinctive proposition and digital experiences that our customers love. Third, leading in technology and AI reflects our commitment to technology leadership and particularly AI, which is likely to play a more prominent role across the economy into the future. We've accelerated the modernization of our technology estate, and the use of AI to drive better experiences for customers as well as quality and speed of execution. And finally, delivering simpler, safer and better reflects our commitment to delivering customers experiences, which are underpinned by security and reliability. We've increased our focus on operational resilience in particular. Our strategy aims to build on our sources of competitive advantage. The strength of our core franchise starts with a deep commitment to customer focus and deep, trusted relationships. These relationships drive more frequent and meaningful engagement, a deeper understanding of customer needs and superior customer experiences. This creates long-term value for our shareholders. This model has always underpinned our performance in retail banking, and we are using that same model to drive growth in business banking. Technology is accelerating this momentum. It's reshaping what customers expect from a trusted relationship, including how we protect them from increasingly sophisticated threats like scams and cyber-attacks. Net Promoter Score is an important way that we track the strength of our customer relationships. In consumer banking, we've maintained the #1 position for 32 consecutive months and achieved the highest score of any major bank since tracking began. In business banking, we've regained the #1 position with our highest score since June 2023, the second highest ever recorded by a major bank. Our digital NPS leads peers across key platforms, including the CommBank mobile app, which continues to be the most widely used financial services app in Australia. When customers know us and trust us, they choose to bank with us. Today, 1 in 3 Australians and more than 1 in 4 businesses call the Commonwealth Bank their main financial institution. This has led to continued growth. Retail transaction accounts increased 4% since June 2024 and by 35% over the past 6 years. Business transaction accounts grew 7% and since June 2024 and 65% over the last 6 years. These increases have translated into home and business lending growth, 6% and 11%, respectively, over the past 12 months. And importantly, more than 97% of home loans and 90% of business loans are linked to a CBA transaction account. Turning now to our performance. We've sought to be disciplined on volume and margin management in home loans. We increased net interest income share and gained 7 basis points of market share. We're enhancing the customer experience through GenAI-powered messaging, reduced contact center wait times and faster business loan decisioning. Our focus on disciplined capital management is supporting franchise growth and dividends. Strategically, we're deepening direct primary relationships. Our proprietary home lending flows remained strong at 66%, now accounting for 52% of proprietary loans in Australia. We continue to leverage technology data and AI to provide superior differentiated customer experiences. We've delivered for all stakeholders through our customer focus and disciplined execution. The 4% growth in cash net profit after tax was driven by strong operating performance and lower loan impairment expense. Throughout the year, we've maintained strong liquidity, funding and capital positions. Our operating performance and strong capital position has allowed the Board to declare a fully franked dividend of $4.85, an increase of $0.20 on the prior corresponding period. Our operating income increased 5%, supported by a disciplined approach to volume growth and stable underlying margins. Operating expenses were 6% higher, driven by inflation and investment in technology and our frontline. Loan impairment expense decreased 9.5% in the period, and as a result, cash net profit after tax increased 4% on the prior year. The credit environment is stable. Our portfolio quality remains sound, supported by a strong labor market and savings buffers. Troublesome and nonperforming exposures as a percentage of total committed exposures were stable over the past 12 months. And as we've made help easier to access, we've seen a number of home loan customers in hardship come down by 19%. We remain well provisioned for a range of economic scenarios. We hold total provisions of $6.4 billion which is $2.6 billion above our central economic scenario. Our balance sheet remains strong with 78% deposit funding. Our weighted average maturity of long-term funding is 5.1 years and liquid assets are $184 billion. Our capital ratio of 12.3% is $10 billion above the minimum regulatory requirement. We've delivered consistent and disciplined execution across all of our business units this year. In our retail bank, we've grown home lending and deposit volumes broadly in line with the market. We're continuing to grow our business banking franchise above system. We hold 1.3 million business transaction accounts, a 7% increase from June 2024. We remain the market leader in business deposit market share and hold $15 billion more deposits than the nearest peer. Our institutional bank continues to play an important role in net deposit funding, contributing more than $65 billion. Over the past 9 years, we've reduced total risk-weighted assets by more than $38 billion while maintaining strong risk-adjusted returns. ASB has also seen strong growth in both business and rural lending and deposits. Notwithstanding clear leadership in retail MFI share, we've seen increased competitive intensity, and building stronger and deeper relationships with customers will be a focus in 2026. Our consistent investment in our digital ecosystem enables us to offer distinct and differentiated customer experiences. Our CommBank app now has more than 9 million active users and sees more than 12.7 million daily logins. The app incorporates leading AI capabilities, including AI-powered messaging and new features like everyday investing to offer highly personalized and rewarding digital experiences. This year, we launched -- or relaunched CommBank Yello, Australia's largest loyalty program, to offer customers even more value through their relationship with us. So far, CommBank Yello has delivered more than $135 million in benefits, rewards and discounts to CommBank customers. This year, Bankwest successfully transformed into a digital bank and has acquired more than 90,000 new-to-bank customers. Central to the business bank's continued growth has been an increased focus on deepening customer relationships and differentiated digital experiences. For example, CommBank Yello for business is now available to more than 360,000 business customers, helping them unlock discounts and reduce costs. We've also provided easier lending access with more than 10,000 loans to small businesses written through BizExpress and auto decisioning resulting in as little as 10 minutes between instant approval and funding. The time it takes to conduct a customer's annual review has been reduced by 85%, further enhancing efficiency. The deepening of primary customer relationships and prudent lending growth is driving strong earnings performance. The business bank contributed approximately 40% of group net profit after tax. To deliver better outcomes for our customers and people, over the past year, we've continued to invest in strengthening our AI capabilities and enhancing our technology delivery. To accelerate innovation through artificial intelligence, we've partnered with global leaders and established our own tech hub in Seattle. We're using AI to increase the speed and quality of code reviews, alert customers to suspicious activity, help process disputed transactions and create more personalized experiences for our customers. This year, we've delivered 35% more technology changes, reduced critical incidents by 30% and improved recovery time by 25%. To leverage the full benefits of AI, we've chosen to accelerate the modernization of our technology estate. We completed one of the largest and fastest data migrations of its kind in the Southern Hemisphere, moving 10 petabytes of data to AWS Cloud. Building world-class AI and engineering talent and capability is central to our technology ambitions, and we've hired 2,000 engineers in the past year. We're also providing all of our people with AI skills and tools, so we can deliver the best customer experiences and outcomes. We're also investing in AI partnerships, including with Anthropic and OpenAI to try to bring the best of AI to our customers and our teams. Digital scammers continue to prey on our communities. We've scaled up our alert system sending 10x more alerts to customers this year via the CommBank app to warn them of suspicious transactions. We're intercepting frauds and scans earlier and have seen the number of disputed transactions fall by more than 30% as a result. We've also introduced a QR code-based feature for cardless withdrawals and deposits, offering a safer and more secure way to access funds. And an Australian banking first, we've deployed thousands of AI-powered bots to actively engage scammers on voice calls and WhatsApp chats. But we must be vigilant. We know there is still more for us to do to protect Australians from financial harm. We remain committed to keep delivering our own innovations as well as working on a broader ecosystem approach. I'll now hand to Alan to take you through the results in some more detail.

Thank you, Matt, and good morning, everyone. I will take you through the results in some more detail, focusing on 3 key themes

firstly, how we are responding to changes in our current operating context, including choices around the level of investment deployed towards our strategic priorities and the financial outcomes that's delivering; secondly, how the changing global and domestic environment shapes our approach to balance sheet settings around credit risk, funding, interest rate risk and capital management; and thirdly, how today's combination of management actions and balance sheet settings seeks to position us to continue to deliver shareholder value over the years ahead. Starting with our headline numbers. Statutory profits after tax were $10.1 billion. That included some noncash losses on divestments, principally relating to the sale of our interest in the Bank of Hangzhou and a modest amount of hedge accounting volatility. Excluding those items, cash profits after tax were $10.25 billion. Breaking down the components of that cash profit. Operating income increased by 4.8% over the year or approximately $1.3 billion. That growth in the top line gave us the opportunity to increase the level of investment in the business, resulting in growth in operating expenses of 6% over the year. After absorbing some further restructuring costs and other notable items in the fourth quarter, we delivered 3.4% growth in pre-provision profits over the year. Loan impairment expenses reduced by nearly 10% to $726 million, and this resulted in growth in cash profits of 4.2%. Looking firstly at operating income. Overall, income grew by almost 5% to approximately $28.5 billion. Net interest income was the key driver of that growth, increasing $1.2 billion due to strong lending growth across all of our banking businesses in Australia and New Zealand. Importantly, that growth did not come at the cost of margin contraction. Margins were broadly stable to improving on an underlying basis, reflecting our ability to compete effectively while maintaining our pricing discipline. Other operating income increased modestly over the year due mainly to the soft first half trading income that we reported in February. The second half growth was stronger, reflecting continued volume-driven growth in lending fees and the rebound in trading income. This slide illustrates the results of our decision-making around the all-important trade-off between volume and rate. In this context, it was pleasing to see continued growth in our share of industry net interest income. This was achieved by growing volumes at or above system in most of our key segments while maintaining our focus on higher-return proprietary distribution across all of our businesses. One example of this can be seen in the performance of our network of retail lenders. The middle chart shows our share of proprietary home lending in Australia growing from 34% 2 years ago to more than 50% today. By continuing to invest in our digital capabilities, customer experience and our frontline and operational teams, we're meeting more needs of more customers. Turning to net interest margin and looking at the movements over the most recent 6-month period. Despite 2 cash rate cuts in February and May and ongoing competitive intensity, margins remained broadly stable over the half. On the asset side, we continue to see elevated levels of discounting across the industry for both home and business lending. As you can see, that did not translate into any material margin compression for CBA over the half. Our business bank has continued to show good discipline, walking away from over $4 billion of new lending to large corporate customers due to competitor pricing being below cost of capital. Deposit margins were under pressure due to competition and lower rates, driving most of the 4 basis point headwind in funding costs. This was offset by our hedges of interest rate risk, which delivered 5 basis points of margin accretion. If 3-year swap rates remain around their current levels, our equity hedge earnings will likely be relatively stable from here. And so we wouldn't expect to see that particular tailwind repeat in the next financial year. Turning now to operating expenses. They increased by 6% over the year. This reflected a combination of inflation as well as strategic choices about where and how much to invest in the franchise for long-term outcomes. As we flagged in our results announcement in February, we've accelerated our investments in our technology infrastructure and software assets as well as the frontline teams supporting our proprietary distribution channels. These choices were made possible due to our strong top line momentum and our continuing delivery of productivity benefits. Looking ahead, we'll continue to adopt a flexible and responsive approach to our cost growth. This will take into account factors such as our top line growth, realized productivity improvements and our targeted level of pre-provision profit and dividend growth. Turning now to our balance sheet settings starting with credit risk. Our lending portfolio continues to perform well from a credit quality perspective. Loan impairment expenses fell for the third successive year to $726 million as loan loss rates reduced to 7 basis points over the year. Consumer arrears rates have stabilized in recent months, and we're seeing reduced levels of hardship amongst our customer base as real household disposable incomes continue to improve as inflation and interest rates eased. Corporate, troublesome and nonperforming exposures were also stable with relatively small movements in a few single name exposures. Overall, loan loss provisions increased slightly to $6.4 billion, which was principally a function of lending growth, and that led to a slight decline in provisioning coverage to 160 basis points of credit risk-weighted assets. We now hold a buffer of approximately $2.6 billion to our central economic scenario and our balance sheet provisions cover 75% of the expected credit loss of our downside economic scenario of a global recession. As usual, we have set out here how our provisioning considerations have evolved at the sectoral level over the last 6 months. In response to heightened global trade and geopolitical tensions, we increased the weighting to our downside scenario by 2.5%, with a commensurate reduction in our central scenario. As a result, consumer provisions were overall largely unchanged as the increase in mezz provisioning was offset by reduced forward-looking adjustments for those customers most exposed to higher interest rates. Within corporate, provisioning overall increased marginally due to portfolio growth and the increased mezz overlay. Our funding profile remains conservatively positioned for the long term. Customer deposits now cover 78% of our funding needs, providing structural cost advantages and funding stability. Short-term wholesale funding currently represents just 7% of total funding, well below historical levels and provides substantial franchise protection against volatility in funding markets. We have long said that the first and best use of surplus capital is to support our customers and the economy and grow our franchise. The capital deployed to grow risk-weighted assets totaled 31 basis points over the last 6 months. Notwithstanding that high level of franchise growth and a strong first half dividend, our Level 2 Common Equity Tier 1 ratio was 12.3%, up 10 basis points. This was a function of strong profitability as well as the capital benefit of recent divestments. The final dividend increased $0.10 to $2.60. That brings our full year dividend to $4.85, an increase of 4% year-on-year and represents a full year payout ratio of 79%. The dividend reinvestment plan will again be fully neutralized through an on-market purchase of shares, ensuring no dilution to our existing shareholders. We have also extended our on-market share buyback program by a further 12 months. As you know, we are currently seeing historical lows in the cost of CBA equity relative to the after-tax cost of our debt, and we responded by pausing activity on our buyback. That said, the flexibility provided by this form of capital return mechanism means we still see value in maintaining an open-ended buyback program with execution remaining subject to changes in market conditions. I wanted to share some additional considerations around our current and future balance sheet settings. The guiding principle across our approach to balance sheet management is to underpin and protect our long-term franchise value and in doing that, support our customers and the economy through good times and bad. On the left-hand chart, we have sought to show a broader perspective on the capital buffers held to fund organic growth and absorb losses. Firstly, we have the current level of common equity Tier 1 in excess of the APRA regulatory minimum. Secondly, our forward-looking approach to loan loss provisioning means we can set aside provisions on our balance sheet to absorb losses if economic conditions worsen relative to our central scenario. Thirdly, we're holding an unrealized loss reserve on our liquid asset portfolio of high-quality domestic government bonds. Holding these bonds to maturity will see their mark to market revert to par value in the years ahead. And lastly, we have an embedded gain, which reduces our overall capital requirement for interest rate risk in the banking book. These gains will reverse over time, and therefore, they are deducted. It is important to understand that the composition of our aggregate capital buffers currently totaling $13 billion will move in response to changing market conditions. Turning to the second chart. Under Australian prudential requirements for IRRBB, we have long had to make trade-offs between earnings volatility and capital volatility. Changes to the prudential standard scheduled for implementation on 1 October will introduce new capital considerations related to the size and composition of our replicating portfolio hedge. This will introduce an additional aspect to the Board's calibration of our capital target, depending on our appetite for earnings volatility through an interest rate cycle. And the third chart highlights the unique nature of CBA's funding stack that embeds resilience through a combination of deposits and low-risk long-term wholesale funding. In summary, our balance sheet settings are deliberately conservative and calibrated to optimize for long-term outcomes as opposed to short-term earnings. As the global operating context becomes increasingly uncertain, we believe that this approach is even more important today and remains a key focus of both Board and management. This long-term approach has again assisted in delivering consistent superior shareholder returns. Our combination of a high return on equity and a strong payout ratio continues to compare favorably with domestic and global banking peers. Our strategic investments helped generate the franchise growth, which underpins our continued outperformance in net tangible assets and dividends per share. I'll now hand back to Matt for the economic outlook and closing remarks. Thank you.

Thanks very much, Alan. Economic growth remains below trend but is recovering. Inflation is back within the target band, and what we expect to be a modest rate cutting cycle is underway. Consumer confidence has improved, but households remain stretched. We continue to watch global events closely, which remain unpredictable and volatile. We're yet to feel the full impact of trade and tariff disruption. Australia is well placed on an absolute and relative basis. Our fiscal position is relatively strong, unemployment low, and real disposable incomes are now growing. Australia has a number of structural advantages, including vast land and natural resources, attractiveness as a destination to live and work and a stable social and political environment. We must not take this for granted. Unlocking growth and building resilience will be critical to create a brighter future for generations to come. So in summary, we remain committed to supporting and protecting our customers, to reimagining customer experiences by investing in technology and AI, in providing strength and stability for the Australian economy and delivering sustainable returns. We'll stay focused on disciplined execution and investment for the long term to deliver for our customers and build a brighter future for all. I'll now hand back to Mel to go through your questions.

.

Alan, just a question on your margin firstly. Over the course of FY '25, you've had broadly flat NIMs with the replicating portfolio offsetting deposit competition and the impact of lower rates. I guess, looking into FY '26, you've noted that you lose the equity hedge and you are faced with some headwinds from your unhedged deposits. And I guess it would be unusual to have another year of neutral impact from asset pricing. So would you say that those characterizations are broadly fair? And if so, are there any potential offsets that might provide some insulation to the NIM next year?

Yes. Thanks, Andrew. I mean I think they are some of the key moving parts as we look into '26. Obviously, we're not providing specific guidance around the margin outlook. But obviously, key to that is going to be the extent of the easing cycle in Australia. And I think there's a fair degree of consistency now between market pricing and many economists' views. So the number of rate cuts that we are yet to see through the balance of the financial year will be an important driver, ongoing competitive dynamics across both sides of the balance sheet and across both retail and business. Banking will continue to play an important part. I did call out, I think it's -- as we know, given it's a 3-year hedge on the equity side, if we go back 3 years, we're now back to a pretty consistent roll-on and roll-off rates around that equity tractor. And so that's likely to be fairly neutral. And obviously, that provided a tailwind in the last financial year but still continue to be an offsetting tailwind from the replicating hedge. Obviously, that's a 5-year hedge and the rates that are rolling off 5 years ago are significantly lower than the current level of rates. So the replicating portfolio will continue to provide an offset. And then obviously, the other moving part will be wholesale funding spreads, credit spreads. We have seen over recent months and recent weeks, a slight tick-up on basis risk, the bill is always spread, and so we're watching that closely. Credit spreads more broadly around term funding have been pretty benign and actually narrowed over the last 6 months. But I mean that will be the other key moving parts. So I think your characterization of the things you're looking at are the right things to be focused on in '26.

Alan, maybe a question for you. You've announced today that you've extended the buyback, but you've considered that market conditions make it difficult to return capital to shareholders this way. At the same time, you've reiterated that your franking neutral payout ratio remains greater than 90% -- 80%. So can you perhaps just talk to how the Board sort of, I guess, assesses these various issues. And just under what conditions would a special dividend or some alternative form of capital return be considered?

Yes. No, happy to. And maybe the one thing, not so much as an offset to NIM but I guess one of the other constraints that we're certainly aware of and watching in the market is sort of to the competitive pricing perspective given where some of our peers are on capital and the requirement to either start issuing shares to keep their dividends. So I think they come under pressure. So be a question of whether that slightly improves some of the competitive pricing given how much some of that's moved in the last couple of years. Look, I think, I mean, overall, the conversation with the Board has been very consistent over some time and a lot of which we've shared previously. We sort of obviously look at our buffers over the regulatory minimum, having a view around risk-weighted assets. We're thinking about sort of what losses could be looking at various sort of scenarios for that. As Alan has touched on, our risk-weighted asset growth this period was very strong. It's a record year and clearly being able to deploy capital at that scale well above our hurdle rate, which is, again, above where our cost of capital would be is a very effective use of that capital. We decided to pick up investment. You're right insofar as -- well, one of the things we also think about is, well, with that capital that we're now holding as a surplus, what's the opportunity cost of holding that capital. We look at the after-tax expense of alternative sort of funding instruments. That's very narrow. That opportunity cost of capital is very low. And so I think we've got a lot of flexibility clearly in terms of the balance sheet and our capital levels. We're conscious of all of those factors, but we feel that the path that we've been on, which has been trying to deploy it effectively organically while supporting high fully franked sustainable dividends, I think, gives us a lot of flexibility. Particularly, I guess, in an era of increased volatility and uncertainty, I think being well prepared puts us in a very strong position. But as you would expect, it remains an ongoing topic of dialogue, and we've certainly put a lot of thought into what that overall plan could be over many years.

Thank you. The next question comes from Jonathan Mott.

Two questions if I could. The first one on -- goes on to what you're talking about, Alan, was competition, especially on the deposit side. And what we're seeing now, it looks like a lot more competition coming in the Online Saver, the GoalSaver area and some of your competitors are now waiving some of the requirements to grow the balance each period and not make a deposit or able to make withdrawals, especially in Macquarie. And given how their success is seen on the mortgage side, now looks like they're rolling that out on the deposit side. So I wanted to sort of get your thoughts on that. Is this another area that you need to look at? And what percentage of your current savings customers don't qualify for the bonus rate in each period? Is that an area that could potentially come under threat?

Yes. I mean we've continued to see very high levels and actually growing levels of customers who are earning the bonus savings rate, which we've called out in previous results. We're now around in the high 80s percent of customers who are earning that bonus rate. So that -- I think that's much higher than the industry average. So that should provide us a degree of protection from a competitive pricing perspective because most of our customers, the vast majority are enjoying that higher rate. We give very proactive notifications to our customers, importantly, digitally through the app to ensure that they do the things that they need to do to earn that higher rate and demonstrate the sticky behaviors that allow us to offer that, the level of pricing that we offer on the award product. But it's undoubtedly a new form of competitive focus across the industry. We've seen deposit pricing emerge as the single biggest headwind from a margin perspective over recent halves. I think we'll continue to see competitive pressure on margins. Obviously, we're passing the peak of the cash rate cycle, so there will be a degree of offset in that regard as rates come down. If you look at pricing of certain standard base rate products across the industry, there'll be less degrees of freedom for some industry participants relative to others given where those base rates are at the moment, heading into -- in the middle of an easing cycle. But I think that's -- it's a fair observation. There's continued competitive intensity in deposits, and that's -- we can certainly see that.

And the second question, probably for Matt. If I go to Slide 45, one of the charts we've been talking about many, many, many years goes to the retail bank and main financial institution. And it's fallen very sharply over the last 6 months basically across every category. And on some of these categories, you're back to where you were when it actually started being disclosed all the way back in 2013. So just wanted to get some explanation on what's happened over the last little while. It's not migration. I can't really explain it given the rapid change. Is this just a sample error? Or is there anything that could explain why this very sharp fall in the MFI has come through?

Yes. No, thanks, Jon. Yes. And as you noted, we've been talking about this slide for 12 years. Look, I think, and as we've said many times, we -- it's survey based. So it's not precisely accurate, but it's been directionally accurate. So it's certainly an area of focus for us, has been for some time, and we're not entirely satisfied with the performance over FY '25. So it's a big focus, and maybe I'll link it to the -- your question on deposits in a moment. I think it's across the year, business banks had a very strong MFI share growth, retail after a very strong FY '24, weaker as you said. Look, I think there's a number of factors, and I guess in a survey-based result, it's hard to get the actual levels of sort of like causality across some of these drivers. But look, we do really well in migrants. Migrants is down 11%. Accept your point there. Some of that is also a mix effect as well. I know we've touched on this earlier. We do particularly well when migration is higher from markets like India, not so well with, say, New Zealand and the U.K. So I mean there's a number of factors. That's one of them that contributes to it. Look, we have seen in some of the cohorts increased competitive intensity. And I think predominantly on the deposit side, we've seen cash back for migrants. We've seen some very aggressive and sharp pricing offers in youth and maybe in young adult. It's perhaps a consequence of having a focus on the performance last year. We've certainly seen some competitive intensity responses on the back of that. Then maybe then we're into sort of like more perhaps minor issues overall in terms of just execution and timing. So there's a bit of a loss in and around Bankwest as we did the migration, but that's a big shift in the business model and strategy. We think that's gone very well, and obviously, we plan to execute as a digital only. But -- so ultimately, as you quite rightly pointed out, it hasn't been a strong year in our retail MFI share. We think a lot of the factors are around competitive intensity, and we're very focused on having both improvements around offer proposition and being very targeted. And as you'd expect, it's a big area of focus for me, the team, for Angus going into FY '26.

The next question comes from Carlos.

Carlos Cacho from Macquarie. I just first wanted to ask about your investment spend. So you ended up investing $2.3 billion, well up from last year. Should we expect that level of investment spend going forward? Or was it more opportunistic that you saw good opportunities and we'll just take advantage of them, and it might pull back in FY '26?

Yes. I mean you certainly shouldn't see that level of increase in FY '26. It's not going to go backwards in FY '26, just to be clear and specifically in terms of the sort of technology investment as well. I think we've been talking about for some time a focus on wanting to increase the throughput of productivity for the dollars that we're investing. We -- as we said previously, we've been holding that investment envelope basically flat for many years, so going backwards in real terms. We felt much more confident about throughput and ultimately, output for dollars of investment spend and so wanted to increase the investment. And then we decided to take some additional discretionary investments, specifically NII. We see a very close linkage between modernization of some of our technology estate, and that's a broad piece of work. We've been able to leverage the capability of GenAI. So we wanted to increase the pace of that, so we put some additional investment across that. So I think we're -- Alan and I obviously talk about this quite a bit. We're open to continuing to increase it, but we wouldn't want there to be an assumption that, that level of growth would be something we'd be contemplating in FY '26.

I guess kind of staying on that topic, when do you expect to start to see the benefits coming through? Obviously, productivity has come through, but even with that, you still saw 6% expense growth for the year. Is this really building for a 3- to 5-year benefit? Or do you think we should -- could start seeing those benefits of technology and AI investments coming through sooner?

Yes. I mean, I take a sort of broader view of all of the investments. I mean, obviously, the infrastructure modernization work, what we're really doing is accelerating that work that you would otherwise do over maybe a 4- or a 5-year time horizon. We're trying to get that done within 3 years and therefore, accelerating the amount of engineers that are working on that. We -- I spend a lot of time personally looking at what's the measurable efficacy improvements and the measurable yield that we're seeing from the last number of years of investment. And as we get more velocity, lower rework rates, more efficacy in the technology change work that we're deploying and we can see a number of measures, many of which we've talked about in the body of the pack, that's manifested in a number of lead indicators that we measure quality of retail deposits, the improvements in NPS, the improvements that we see in business lending market share growth, the automation of a number of the credit origination processes and annual review processes. So we can see the productivity. We can see the better customer outcomes, and we can see the translation to the top line revenue. The work that we're doing now around infrastructure refresh and generative AI, we'd expect, again, to see a forward profile of benefits in that regard emerging in the years ahead. And we're continually calibrating. We're seeing the benefits. We've got some room to invest a little more at this point in time, and we're managing to that pre-provision profit outcome and dividend per share growth outcome. So we're pleased with the yield that we've seen over recent years, and we've got very measurable targets around the assumed benefits profile that we'll see from the current investments that we're making over the years ahead. So we'll continue to sort of watch that and manage that very closely.

Yes. Maybe just a couple of very quick thoughts, maybe like between the different types of investment that we're making and then maybe a slightly different productivity benefit profile. So in engineering, which I think is the most easy to sort of measure and realize productivity benefit in GenAI, I mean, we talked about the increase in terms of the velocity of change. I mean if we could increase by 50% in FY '26, we would. So we -- but we wouldn't seek to reduce our engineering. So I think we're going to continue to just try and push for more and more volume and quality of change and speed of execution. As Alan said, already across lots of different use cases, whether it's in fraud or in home loan verification, content synthesis in some of our service tasks or supporting our bankers. Some of those benefits, they're, I think, incrementally small and they're a bit nearer term. I think where maybe there's some larger benefits, that will take many years. One of those would be some of the -- I think, the hardest areas of financial services. And certainly, where we've put huge amounts of both CapEx and OpEx like financial crime, scams, fraud, to some extent, cyber in that area is where we talk about sort $930 million of investment. It's a huge part of our -- at least on a relative basis, our operating expenditure. That's not going to be realizable in the next couple of years. I think that's going to take some time. But I think the technologies that are available today and obviously are going to keep getting better, are going to enable just a different -- a very different and I think, much more effective approach at delivering better outcomes in that case for our customers and the community at a much lower cost.

The next question comes from Andrew Triggs.

Just a first question on cost just to pick up that last point. You saw 3% half-on-half growth in FTEs in the second half. Alan, wondered if you can unpack some of the drivers there. And are they sort of more expensive people you're bringing onboard given the likes of data and engineer type stuff that's coming on to the platform?

Yes. Yes, happy to sort of break that down a little bit. So yes, there's a 3% growth in spot FTE in the second half. There's a component of that, that relates to the in-sourcing that we've continued to do. We'll continue to build out our in-house engineering capability within our Bangalore team. There's an offsetting reduction in the -- over the year. That would be around 700 engineers of the 2,000 that we've hired are housed in Bangalore. There's an offset in reduction in some of the third-party ASPs. And so you'll see the run rate cost of those in-sourced engineers roll through the full year next year within staff expenses, but there's also a commensurate reduction of the third-party costs that we've seen in the IT cost line through the course of this year, so there'll be commensurate offset. We're really happy with the capability, the productivity, the efficacy, the quality of the engineering talent that we're bringing in to the Bangalore team. And so that pays off through the execution metrics that we continue to track around the loss and work quality and rework rates, so continue to be pleased with that. The other source of -- we've also added, obviously, domestic engineers, many of whom are working on some of the technology infrastructure modernization and the GenAI platform builds that we've referred to. Some of that cost, obviously, given the nature of it, is capitalized. You won't see that necessarily emerge in OpEx in the next financial year. That work will be capitalized over the period where we'd expect to receive -- accrue the benefit of the work that we're producing. So you'll see that gradually emerge through amortization in the years ahead, matching the benefits profile that we see from that investment. And so yes, we've seen -- you will see that growth in FTE was a function of the [indiscernible] that posture we've taken towards investment spend. The other component is the growth in proprietary lending. You've seen that, particularly in the retail bank through the course of the last financial year. We continue to invest strongly behind the proprietary distribution. The productivity of our retail lenders and our business bankers, we're continuing to see improvements there. Decision again this year was we're not going to harvest that productivity by reducing the amount of proprietary lending that we have in the front line. We actually slightly increased it over the period and with a greater productivity. We're pleased with the results of that, that we see through the volume growth and the top line performance in the next year.

And just the second question on trading income, it was described as a rebound in the second half after weak first half, but the full year number is still towards probably the top end of what the historical range has been. Could you maybe just describe sort of the trading income conditions that you found and whether we should be expecting something more positive going forward than perhaps what we've previously expected with CBA?

Yes. I mean it's hard to just isolate the trading income within other operating income. There's an offsetting, we've referred to in a couple of places, an offsetting funding cost attached to that trading income. So when you see higher periods of trading income, as you've seen in the second half, there's actually a commensurate increase in funding costs related to that trading that appears with a net interest income. So I wouldn't want to overstate the importance of the second half trading income in terms of the overall operating performance. It's certainly higher second half than first half, although it's a little more modest on a net basis when you take into account the funding costs for some of the -- for example, our commodities business where we've got higher physical inventories of precious metal holdings. So it's been part of the second half revenue momentum, but I won't overstate the importance of it on a net basis. And then I think when you take total income into account, we're pleased with the second half, pleased with the overall trading income performance, and we'll seek to maintain that level of performance in the period ahead.

Thank you. The next question comes from Richard.

Richard E. Wiles: It's Richard Wiles from Morgan Stanley. I've got a question on sort of the expense environment generally, Matt. So for the economy, inflation has come down. It's now in the target range. But could you say cost pressures have eased much for the bank sector? Are you able to sort of give us a yes or no answer to that? And it would be great if you could specifically talk about salary inflation for frontline bankers and IT staff as well as other IT vendor costs. So are the pressures easing in the bank sector the way they are for the economy more broadly?

I mean in totality, whether yes or no, I'd say no. I think you'll see similar easing of some of the increases across a broad base of employees. I think some of the enterprise agreements, obviously, they were structured around higher increases in the earlier years, which clearly we're through. And I think we'll see perhaps lower wage growth there. But then it's a question then of sort of like mix effect on a relative basis in some of the roles that we're hiring, particularly in technology, and you can imagine all of the sort of sub skill sets. There's clearly a lot of pressure in -- on wages. It's not a huge market in the context of Australia. Frankly, there's very high inflation in some of those job types internationally. And then I think as you look at technology, one of the other things that has drawn our attention is just you can see a lot of software repricing globally as well. So we're kind of watching that very closely as well in terms of what inflation there might be from some of our external software and licensing expenses. But we've made deliberate choices to bring much more engineering in-house. That's been -- I think, really important strategically lower cost as well because we're moving from -- some of that was provided by external parties. And so yes. I mean, I think we're certainly going to continue to feel wage pressures. There's obviously been a lot of disruption across the other banks. There's a lot of hiring in -- at both sort of senior levels but also in some of those key areas, and we expect to have to compete for talent and obviously continue to focus on trying to grow talent even if that occasionally means we're providing that for some of our competitors.

The next question comes from [ Brian ].

Matt, 2 questions if I may. The first one just on AI. Your messaging today seems to be that revenue is strong. We can invest so you can have like a -- you can fund a higher cost number. I was just wondering, can you give us a feel whether AI is basically a cost-out story or a growing revenue story? And when -- if it is a cost-out story, when do you feel that we'll start to see it really flowing through?

Yes. So I mean, look, a couple of things, [ BJ ]. And Alan touched on this. We sort of -- we're looking obviously at pre-provision profit. We're very conscious of the performance that we would like to deliver in-year, but we're also really focusing on trying to invest in long-term earnings potential. And so this year, there's a number of things that we could have done differently if we wanted to deliver a stronger result, but we wanted to make those conscious choices and if we feel like we've got that flexibility and we think it's just a really important maybe period as some of the technology transitions. And then specifically to your point, look, I think it's both a revenue opportunity. In some areas, it may be an expense opportunity. I think it's also just really important to be used defensively. If you think about from a threat perspective, like the quality, sophistication, frankly, velocity of some of the sort of cyber-attack vectors, so -- is increasing very rapidly. So I guess we sort of see it as being a cornerstone of being able to support a great customer proposition but also position the organization competitively. And I think sort of speed of execution is going to really matter over the long term. And then I guess my answer in terms of the productivity or cost savings, I think, will be similar to what I said before. In some areas, we will just continue to try to deliver more in engineering. In the near term, we see, just about across all parts of the organization, an opportunity for all of our people to be using AI tools, and we certainly like to see that to do their job more effectively to a high level of quality so that our customers, I think, there'll be some nearer-term incremental maybe cost opportunities. But where we sort of reallocate that will depend again to the sort of first point. And then, yes, on the longer term, yes, you can imagine that there are some much more efficient ways of delivering some of the things that we currently do. But I do think that's going to take some time, some years to work through some of the -- like the accuracy and quality that's required. Obviously, there will be a very high standard, standard of regulation placed upon us. But we do think that having core capabilities, learning by doing, delivering benefits is a structural underpinning of being able to perform well over the next decade or more.

Second question, if I may, Matt, just Bankwest, which now becomes like the digital brand of CommBank. Does that mean anything for this kind of long-running strategy that you'd rather originate stuff proprietary? Does it actually become the broker channel as well?

Well, I mean, look, it's heavily -- there's multiple parts to the overall strategy. I think the team has done a very good job of executing from -- because, look, I think the economics of a subscale universal bank, given the competitive change in the landscape, I think that's very difficult. And we did think, competitively, it would be good to have a digital low-cost proposition, which works very, very closely as very limited proprietary distribution, particularly in mortgages less so. Obviously, the digital experience really matters. Full-service, Yello CBA brand, which we're focused on proprietary, of course, the broker channel remains a very important channel. So we get that sort of balance, right? And then I think we feel like it gives us more strategic flexibility to pursue some targeted propositions in different markets because certainly, in our view, the competitive context and intensity has shifted quite a bit over the last 5 years as in it's increased. I mean, you can see that even in the CoFR paper recently in terms of regional banking, that sort of myth that there wasn't much competition in banking because it was a concentrated industry structure. It's just that. It's a myth. I mean, we look at some of the challenges that may be facing sort of smaller institutions. So I guess we're cognizant of that and adjusting for the future and want to make sure we can position to serve our customers as effectively as possible and obviously capture a large share of the economic profit that will be available in the market.

Matt, just on that, if you guys had, had peer #5 in that Slide 45, which is Macquarie, which has grown its share, which in APRA's recent paper about small- and medium-sized banks, that put Macquarie in the medium-sized bank bucket. Are they the one that's picking up that kind of cohort MFI share from CommBank? Or is it...

They're not actually in -- yes, they're not in the survey. If I unpack the survey for you, actually, the MFI share is very modest. But I think, again, there may be -- I'd say that's more survey error. But they aren't winning MFI share at least through that lens. They are a formidable competitor. I mean, yes. We would see them in a category that's beyond a medium bank. And I think there's a number of I guess, issues from a competitive context and the way that they go to market, but we recognize the benefits that they have in terms of their structure. And they have a slightly different, I guess, motivation and posture, and they're a good and strong competitor. And we think and worry about them at least as much as we do any of the other majors.

As an observation, your only competitor.

Thank you. The next question comes from John Storey.

John S. Storey: I just wanted to get a little bit more into the drivers of net interest margin at a divisional level, particularly around your retail business. And you obviously called out a few times today how you've grown your proprietary channels. But if you go into your actual pack itself, you'll have to see that in the second half of this financial year. Your NII on home lending was down quite significantly. I wanted to just get a little bit of your interpretation of what's happening there. And then just within the margin discussion, too, just your deposit margins have obviously been a very big tailwind around the retail division over the last few years. How should we think about that and the timing of deposit margins coming off in a low interest rate environment?

Yes. So on your first question around the retail bank, the retail bank overall had a 1 basis point improvement in net interest margin over the period. As you say, the home loan net interest income, I mean, we continue to see an elevated level of discounting across the front book of home lending over the course of the year. So that did result in some additional margin pressure from a discounting perspective over the period. You don't see it in the group net interest margin because there's some offset in timing differences around the February and May cash rate cuts. But the retail bank continues to operate in a very competitive front book housing market in particular. The other elements of the net interest margin in the retail bank, which goes to that -- the home loan margin as a product margin as there was an increase in basis risk that I mentioned in the presentation through the second half, so that manifests most directly in the home loan product margin. And the group net interest margin, we called that out. That's 1 basis point of that 4 basis point funding cost headwind that we've seen at the group level. And so that put a bit of pressure on the margin on the retail bank. Obviously, the retail bank benefits as does the group from those interest rate risk hedges that we have on from both an equity and a replicating portfolio perspective. So that provides a good degree of offset to the overall outcome. Your second question, John, could you just repeat that?

John S. Storey: Yes. It's just obviously if you go and have a look at the detailed disclosure that you provide, deposit margins within your NII, so it's obviously been a big tailwind to that overall NIM and provided quite a big cushion, right, despite all the competition and all the other drivers of margin, I guess, particularly around mortgages. Just how should we think about the timing, right, of how those deposit margin benefits could change in a lower cash interest rate environment?

Yes. So again, by deposit margin benefits, you're referring to the tractor, the interest rate risk hedges?

John S. Storey: Well, it's really just the disclosure that you provided. So I appreciate the benefits around the replicating portfolio but obviously, the way that you provide the cap in the retail division. Obviously, 50% of NII comes from your deposit margin. I assume that must be interrelated if that's what you're talking to, but just on the -- yes.

So the -- those bits -- yes, that's right, John. So the benefits of those hedges turn up in the deposit revenue so that we allocate the replicating portfolio benefits to the deposit product. I mean the underlying momentum within deposit margins is deposit margin pressure due to the competitive environment and the mix shift within deposits, more customers enjoying those higher rate bonus saver balances, for example, and the ongoing competitive pressure that we covered earlier in the call. So I think that, that between the competitive aspect and also the easing environment, how many more cash rate cuts are we likely to see over the next financial year, they will be the key factors around deposit margin competition and the trajectory of that in the period ahead. On the offsetting hedges, I mentioned, I think, equity hedge is going to be pretty neutral. In earnings terms between this year and the next financial year, if you go back 5 years on the replicating tractor, we did enjoy a period of very low 5-year swap rate 5 years ago. And so those are the hedges that will continue to roll off and roll back on at the current more elevated level of 5-year swaps. So you'll continue to see a tailwind from replicating portfolio into the next financial year and indeed then the financial year after that until a couple of years before the swap rate that rolls off is close to where we're at current level. So you continue to see that into the next year.

The next question comes from Matt Dunger.

Yes. Matt Dunger from Bank of America. Just looking at the Slide 37, which Alan you called out, Matt, you're right in saying the opportunity cost of holding capital is pretty significant. It looks like about a 250 basis point drag on ROE on my numbers. Are you saying this is the right level of buffers? And could you confirm the macro is driving the higher buffers? Are you also concerned around the regulatory environment?

No, we're not concerned about the regulatory environment, and I wouldn't seek to imply that the current surplus that we're running above the regulatory minimum is the buffer that we think is going to be necessary. I think, obviously, what buffer we would like to hold is a function of a whole range of different factors, as I said earlier. Ultimately, yes, we could boost ROE by having less capital. But the opportunity cost of that capital over the long term versus where we've seen the differences between cost of equity, alternative cost of funding instruments, outlook on RWA, on growth on certainly sort of stress losses, which, as we've seen today, the credit environment is very benign, and so with all of those factors taken into account, that's the position that we're -- we believe is optimal at this point. Obviously, we revisit it very frequently. We talk about it twice a year, but we're revisiting it every month in terms of alternative and best uses of capital. Which of those are likely to deliver the best overall outcomes? I think we'd certainly acknowledge the uncertainty in the environment, but it's obviously impossible to predict the future. But in terms of near term or sort of impact or pressure on credit losses, as you've seen, it's been pretty benign over the period. And given the provision coverage that we've got versus the central scenario, we've got quite a bit of flexibility there, too.

Great. Just a follow-up on that. It seems like buying just about anything would be EPS accretive. Can you give us any thoughts on what's stopping you on M&A? Any potential criteria you would have to look at M&A?

Yes. No, look, I know you've been flipping, but just to use part of your question, I think there's probably plenty of people who've been down that path and found a way to destroy a lot of value through M&A. So look, obviously, we recognize the premium. We review and challenge ourselves regularly. It's a high bar as it should be for -- certainly for anything of any sort of scale within our core markets where we believe we've got real capability that we think would be good use of shareholder capital. Of course, beyond the risk-weighted asset sort of lending growth, increases in our investment, look, we've made some small acquisitions to augment our technology and our customer experience. They're always on the table. But I mean, ultimately, to your point, yes, I think it's incumbent on us to consider lots of different opportunities. But I think our experience and what we've observed over decades of M&A is that any of that should be approached with a great deal of humility given the realized benefits in just about all instances.

Thank you. The next question comes from Matthew Wilson.

I have 2. The good story in this result, which is a pretty soft result is the business bank, which has been long growing and winning market share. Could you tell us what percentage of the new 2 business bank customers are coming from the broker channel? And I have a second question.

Yes. I mean, Matt, we've talked about that before in terms of it's like 19% of our customers [ through ] broker and the mix of flow will vary. So it's very low in MCG at the top end. I think it's just below 10%. Then as you go down to a small business where maybe there's a higher concentration of products like asset finance, it would be a higher proportion. We haven't seen that really change over the period.

Okay. That's good. And then secondly, you're obviously a clear leader in technology. Your perspective on stablecoins would be valuable. If they become a means of exchange, a store of value, then they become money. I mean such a scenario, it appears that we don't need household transaction accounts. There's no reason for us to give you our money. We just hold it in a digital wallet and transact accordingly. How do you see this scenario playing out?

Well, I mean, it's -- there's a lot of different assumptions in what you're sort of looking at, Matt. I mean as you...

There's only 2 really.

Well -- but I mean, let's talk about the variations between that. So I mean, strategically, we've thought about this quite a bit. I mean, some proportion of that we're working obviously with the Central Bank on a wholesale digital currency. I think there's little appetite at least at the moment for a retail digital currency or deposits that would compete with the banking system. Yes, stablecoins have grown enormously internationally. Yes, we're sort of interested in that. I think a lot of that money is coming from emerging markets, where understandably some of those countries and flows are getting pegged -- would rather be pegged against the U.S. dollar. Look, I think there's certainly the opportunity for that technology more broadly to sort of lower transaction costs and particularly cross-border. So I don't see something that's quickly going to be competing directly with the ADIs from a deposit perspective, but that's not to say that we aren't and shouldn't be thinking about how the tokenization more broadly but in this case of currency, what that looks like from -- versus fiat currency and what the impacts might be on the domestic banking system.

The only thing I'd add to that, Matt, is that...

Would it be fair to say that -- yes.

Sorry, Matt. The only thing I'd add to that is just the regulatory response has been interesting to watch around the world as well. So you've obviously seen the GENIUS Act in the U.S. A really important component of the GENIUS Act was the stablecoins in the U.S. -- for the U.S. dollar stablecoins operating in the U.S. are now not permitted to pay interest. And so -- I mean, I think the regulatory posture, although it's made it much clearer and simpler from a stablecoin perspective, I think there was clearly a focus on maintaining the financial stability and maintaining the important role of banks in the U.S. economy. You've seen a very similar -- a very -- actually a very different posture but with a similar intent with the Bank of England. And they're working papers around stablecoins in the U.K. context. To back a stablecoin in the U.K., you have to deposit the equivalent dollar at the Bank of England, and you won't be earning any interest on that deposit at the Bank of England. And again, it strikes me that those regulators in the U.S. and the U.K., in particular, are very focused on the advent of stablecoins, what the use cases are and how they interact side by side with a healthy banking system, which is important from a national capability perspective. So it's an interesting one to watch. I know -- I think you might subscribe to Russell Napier's newsletter. He had a very interesting and informative piece on stablecoins in the last couple of weeks. So I think Russell's conclusion was actually similar that he didn't see it as a direct competitive threat to banking but obviously a marginal source of new treasury security purchase over the next few years in the U.S. economy, which could be [ important ].

He also said that retail deposits become wholesale deposits, which is consistent with the McKinsey's paper as well. So this thing is evolving faster than any of us would have thought 2 years ago given we have legislation now in both the U.S. and Europe and the banking system is still very much paper-based versus the digital trends that we're starting to see emerge globally.

Yes.

Thank you, Matt. The next question comes from Ed.

Just one thing you haven't mentioned and you didn't call out in your NIM walk was around deposit mix. You call that deposit competition. In the retail and business bank margin comments, you did make a comment around deposit mix. Can you just talk about historically in -- as we kind of come to more rate cuts in a cycle, how you're seeing deposit mix at the moment and how you see it going forward, please, in a NIM context?

Yes. I mean the -- you can see most clearly what's happened in deposit mix terms probably on Slide 61, where you can see both for the retail bank and the business bank how that deposit mix has evolved. There hasn't been dramatic moves in deposit mix over the period. You have seen, I'd say, a stabilization in noninterest-bearing transaction deposits as an overall proportion of the deposit -- deposits in both the retail bank and the business bank. We've seen a slight reduction in term deposit mix within the retail bank. Much of that increase was absorbed in the at-call savings products. Again, I mentioned earlier the higher rate of customers that are achieving the bonus rate, the award rate. And so there's been an impact on both the retail bank and the business bank. The business bank distinct from the retail bank, actually seen a slight increase in TD mix over the period. So I mean, the -- it's hard to separate the mix effect from the competitive effect because if the competitive effect has to offer generous attractive bonus rates to a customer perspective then that engenders some of the mix change that you see. So the 2 factors are sort of 1 and the same in my mind. We've noted in the divisional commentary the -- that switching that we're seeing at a customer level and at the group level, that's one and the same as the competitive effect that attracts more savings into higher yield products.

And then just one very quick one on cost just to clarify. Today, you talked about increase in FTE and obviously, staff costs still going up, but it's more of a mix impact. You talked about software replacement -- or sorry, increasing costs coming through there. You've got the capitalized software balance has gone up, so amortization will increase, I imagine, over time. It all sounds like you've got costs growing above inflation. And I imagine, you've talked about historically looking at pre-provision profit over necessary costs of managing the bank that way. But if revenue does start to fall a little bit, do you believe you've got the capability to pull back the costs if required?

I mean I wouldn't so much say it's a question of the first lever is pulling back the costs that we're obviously investing behind our strategic priorities and pleased with the return that we're seeing on that investment. It's more of a question of the productivity that we continue to deliver. So if you look at that last 12-month period, we delivered the productivity dividend, which was 3.4% of the group's overall cost base. And that's actually pretty close to the inflationary effect that we've seen over the period. And then we made some conscious choices, as we talked about, to invest behind the technology modernization, the additional investment spend, the GenAI and the proprietary distribution spend. And so that's where you -- the productivity creates the optionality. And so the focus is to continue to generate the productivity that continues to generate that optionality so that we can continue to absorb inflationary increases and then make decisions around the investment agenda. And so I think we've got a good muscle built over many years from a productivity perspective. We'll continue to focus on that and then make choices commensurate with how top line is moving, how the productivity improvements are going and where the NPV accretive options are from an investment perspective.

Thank you. The last question comes from Tom strong.

Just another question around business banking. You had another strong half of lending growth, but your business transaction accounts actually stalled in the half in terms of the growth. Does this reflect more of doing a better job lending to existing customers? Or is this more new to bank lends only?

No. I mean no change in strategy. I think the team have executed extremely well. And I guess one of the things we look at it over the arc of time, particularly over the last sort of like 4 or 5 years, I mean, really big gains in MFI. I think it was 180 basis points even in the last 12 months, very strong share of transactional deposits. You can see that in terms of the relative growth in tran balances, which, I think, must be something like $30 billion over that sort of 5 years. You can see the mix effect of that and then the leverage, big focus on lending into the customer base and providing a full range of products and services. Another strong period of asset growth. I think we're observing -- we saw the last set of results from peers, some pretty sharp margin deterioration, and I think the team has done a good job of balancing both a strong volume but staying out of some of that really competitive pricing. So it will be interesting to see how that sort of plays out across peers, particularly given what we were talking about earlier in terms of their capital position and constraints. And so no, I mean, I think, overall, that underpinning of strong transaction account balance, notwithstanding maybe some mix effects in terms of deposits but then growing into the existing customer base, is our primary focus.

Yes, Tom, maybe just to add, the business bank transaction accounts have grown and transaction deposit balances have grown both over the year and over the half. What you might be referring to is in the institutional bank we've seen a headline reduction in transaction deposits year-on-year. That's actually just a product change. So in the past, we've had a product which -- a pooling facility product that grosses up both sides of the balance sheet. We've switched that to a new product over the course of the first half of the financial year, which resulted in a netting down of transaction deposits and associated lending against that deposit, effectively an offset account. And so that led to a headline reduction in institutional bank and transaction deposit balances. But ex the mix effect of the product change is actually underlying growth in those underlying transaction deposit balances. So pleased with the growth in transaction accounts and balances over each of the businesses over the course of the year.

Thank you. That brings us to the end of our time. Thank you for joining us for this briefing, and we look forward to continuing the discussions. Thank you.