Big bank exec says repeated rate rises and cost-of-living increases are impacting household savings buffers
Australian households are feeling the strain after steep cost-of-living increases and repeated rate hikes, with borrowers preparing for further rate hikes to come, according to Commonwealth Bank chief executive Matt Comyn.
Comyn told The Australian that while he was optimistic about a soft landing for the economy, some households were feeling “significant strain” from climbing interest rates and higher prices for electricity, groceries and other necessities.
Comyn’s comments to The Australian came after CBA posted a record $5.15 billion interim cash profit. Those numbers were driven partly by rate rises and growth in business and home lending, but investor worries that the peak benefit from rate hikes may already have passed drove the bank’s stock down 5.7% on Wednesday.
Comyn told The Australian that many customers would face stress this year as rates continue to climb and house prices continue to plummet, leading to more loan losses.
“It’s somewhat circular in the context of the higher rates go, the more pressure that will put on asset prices, including housing,” Comyn said. “We actually anticipate we’re going to increasingly see a flow-through in terms of [higher rates on] consumption into other parts of the economy, but I think it will be gradual. As we continue to engage with customers we also see behaviours changing … We would expect that they would reduce expenditure outside of their everyday essentials.”
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Comyn told The Australian that borrowers were feeling about 50% of the impact of the Reserve Bank’s nine consecutive rate increases, due to the mix between variable and fixed-rate loans and the delay in transmission of the increases.
“There’s another 50% to come,” he said. “By July that number will be 75%, and if you assume a cash rate of 3.85% – let’s say the last change in the cash rate is in April – then it will take several months for that to come through … probably by the end of the calendar year it will be about 80% or 85% of the full effect.”
Comyn said that borrowers on lower incomes would feel “the brunt” of the impact from higher interest rates and rising prices.
“We’ve seen the household savings ratio fall to 7% from a COVID peak of over 23%, and house prices have fallen 9% from their peak,” he told The Australian. “We can see savings buffers being drawn down, particularly for customers at higher risk from rising cash rates, and there is more impact to come given the changes in the cash rate take time to work through.”
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