Bank says it has a better understanding of potential stress points thanks to COVID loan deferral experience
Commonwealth Bank is moving to ease the impact of potential cash rate hikes on heavily indebted mortgage customers.
More than a third of CBA’s $539 billion loan portfolio is more than two years ahead on repayments, according to a report by The Australian. However, other borrowers entered the market during the recent wave of record-low rates and soaring house prices. Those borrowers could suffer financial stress when the Reserve Bank raises the target cash rate – a move many experts, including CBA boss Matt Comyn, think will come sometime this year.
CBA retail banking head Angus Sullivan told The Australian that the bank had a better understanding of potential areas of stress thanks to its loan deferral experience during the COVID-19 pandemic.
“So we’re looking at engaging with customers and offering them different approaches, like building up a buffer or switching to a fixed-rate loan,” Sullivan said. “The performance of the economy has been really strong; some customers have come through [COVID-19] well and used the opportunity to get into a stronger position. Those with a more significant change in their circumstances have also taken advantage of a pretty good property market to sell and take on a different level of commitment. But all things considered, we are in a pretty good position.”
Comyn said at CBA’s half-year result meeting on Wednesday that he expected the cash rate to rise from 10 basis points to 75 basis points by the end of this year, and to 1.25% by mid-2023. He also expected house price growth to slow to 4% to 7% this year before a price drop of 5% to 10% by mid to late 2023.
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Comyn said borrowers could absorb a gradual rise in rates, but a more aggressive approach by the RBA could be risky for the economy, The Australian reported.
“We think rates will go up quite slowly,” he said. “We expect the strong economic momentum to carry through to at least the end of 2023 and feel very optimistic about the outlook for the Australian economy.”
