CBA customers well-positioned to ride out a rising interest rate cycle

A third of CBA's mortgage book customers are two years ahead on repayments, exec says

CBA customers well-positioned to ride out a rising interest rate cycle


By Mina Martin

Commonwealth Bank customers are well-positioned to weather the coming storm of rising interest rates, with many of those likely to be distressed having already cashed out of the property market.

This was according to Angus Sullivan, CBA head of retail banking and services, who said the bank started working with customers a year ago to help them get ready to withstand interest-rate increases, as well as identified those who could find themselves in distress.

A “vast majority” of CBA home loan customers had managed to “put themselves in a stronger financial position” during the COVID-19 pandemic, while those from hard-hit industries had fared reasonably well.

“Those who ... were caught in a more substantial shift around their circumstances – perhaps they work in hospitality or aviation and the work just hasn’t come back in the same way – they’ve been able to take advantage of a pretty good property market to be able to put their house on the market, sell it, take on a different level of commitment,” Sullivan told Australian Financial Review.

CBA CEO Matt Comyn said the $250 billion in accumulated household savings reflects a healthy economy as he slashed the provisions held for bad and doubtful debts, helping buoy the bank’s interim profit on Wednesday.

A CBA and Melbourne Institute report, to be released on Friday, signalled that while some 5 million customers saw their financial wellbeing go down by a bit, it remains elevated compared to two years ago, at the start of the pandemic.

“This is in part due to accumulated savings balances that remain elevated compared to pre-pandemic – with the median savings balance in December 2021 being 42% higher than December 2019,” the report said.

Surprisingly, all generations appear to be evenly impacted by the pandemic – with younger Aussies not declining at a higher rate than the older ones.

Mortgages were written and refinanced at record rates, resulting in huge volume growth in the bank’s RBS division. This growth offset margin compression borne by fierce competition.

The reopening of borders is also expected to provide a boost, given the bank’s appeal to new entrants to the market, Sullivan said.

“Obviously during COVID and this extended period of lockdown, the migrant flow hasn’t been anything near what it used to be,” Sullivan told AFR.

Sullivan said the bank’s promise not to foreclose on any mortgages during the pandemic and to use data to support early intervention had helped many customers to get ahead on their repayments during the COVID-19 period.

“This would help them with future rate rises, so long as they remained ‘modest,’ Sullivan told AFR. “So, fortunately, the passage of the last period of time has been quite helpful in putting customers in a position where they should be able to deal with a modest and prudent set of rate increases in pretty good standing.”

With a third of CBA’s mortgage book customers are two years ahead on their mortgage repayments, Sullivan said the bank was comfortable that buffers had been built and that if they “do see multiple rate increases in a short period of time,” it would have no material impact on CBA.

However, he warned that much would depend on the timing, extent, and speed of the increases.

“It really does depend on exactly how it plays out,” Sullivan told AFR.

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