Australia's largest bank has reported a rise in the number of home loan borrowers falling behind on repayments, warning that higher interest rates and persistent inflation are placing uneven pressure on household finances. Commonwealth Bank disclosed the increase in a quarterly trading update on Wednesday, alongside a $2.8 billion profit for the three months to September 30.
Mortgage Arrears Tick Higher Across CBA's Loan Book
The update showed the share of CBA home loans with payments more than 90 days overdue rose by seven basis points, reaching 0.80 per cent of the bank's total home loan portfolio. The bank attributed the increase directly to cost-of-living pressures stemming from higher interest rates and elevated inflation.
To guard against potential losses, CBA set aside a $105 million provision during the quarter. Total provisions for bad loans across the bank remained flat at $6.5 billion, which CBA described as providing "strong" coverage, noting that other categories of loans continued to perform well. Actual losses from failed loans, which typically lag behind arrears figures, remain below pre-pandemic levels.
CBA was not alone in flagging the trend. Earlier this week, ANZ reported a comparable rise in stressed home loan customers, with the share of its loans more than 90 days overdue reaching 0.95 per cent.
Profit Holds Steady as Income and Expenses Both Rise 3 Per Cent
Despite the uptick in arrears, CBA's financial result was broadly stable. The $2.8 billion quarterly profit was flat compared to the preceding two quarters but was up 8 per cent on the same period in the prior financial year. Both operating income and expenses grew by 3 per cent over the quarter.
Markets responded positively to the update, with CBA shares rising roughly 0.8 per cent to $170 by mid-morning on Wednesday, even as the broader ASX 200 index fell.
Analysts at investment bank Citi described the result as a modest miss relative to their expectations, pointing to weaker trading income driven by rising rates and a slight increase in bad debts. They noted the result "may disappoint given the sharp run in the shares" in recent months.
Lending volumes showed mixed signals. Business loan volumes grew by a strong 13.6 per cent over the quarter, while home loan volumes rose 6.6 per cent. However, new home loan applications remained 16 per cent below the same quarter in the prior financial year, reflecting the dampening effect of rate rises on buyer demand.
Rate Rises and Falling House Prices Add to Household Pressure
The Reserve Bank of Australia lifted the cash rate to an 18-year high on November 3, its fifth increase this calendar year. Each successive hike has added hundreds of dollars per month to repayments on an average Australian mortgage. For context on the broader inflationary environment shaping these pressures, see our analysis of the current state of Australia's inflation rate and its economic implications.
RBA Governor Michele Bullock acknowledged the human toll of the tightening cycle, saying at the time of the most recent hike: "It is going to make people feel like it's a recession because they feel poorer."
Property data from analytics company Cotality shows capital city house prices have fallen 8.1 per cent over the past seven months, placing the decline just short of the largest recorded fall in 40 years.
CBA chief executive Matt Comyn used the trading update to defend the underlying resilience of the Australian economy, while acknowledging the pressures facing customers. "Higher inflation and interest rates continue to place uneven pressure on household incomes and business activity," he said. "While economic growth is slowing, the Australian economy remains resilient, supported by low unemployment and a strong public infrastructure and private investment pipeline." Comyn added that the bank remained committed to helping customers manage through the elevated cost of living.
For homeowners considering their options in a shifting property market, our guide to transferring a mortgage to a new property in Australia outlines key considerations under current conditions.
