CBA’s late mortgage payments tick up as interest rate rises bite

More Australians are struggling with their mortgage repayments as interest rates rise and inflation stays high, the nation’s largest bank has reported in an earnings release that also came with almost $3 billion in profit.

In a trading update issued on Wednesday, the Commonwealth Bank said it recorded a seven-basis-point increase in home loans with payments more than 90 days overdue, taking the rate of overdue loans in its books to 0.80 per cent.

The update covers the quarter that ended on September 30 and showed the bank made $2.8 billion in profit, with operating income up 3 per cent but expenses up by the same amount. That profit figure was flat on preceding quarters but up 8 per cent on the same period in the last financial year.

The market greeted the news positively, sending CBA shares up about 0.8 per cent to $170 at 10.15am on Wednesday while the overall ASX200 index was down.

CBA attributed the higher home loan arrears to cost-of-living pressures from higher interest rates and inflation. It made a $105 million provision to guard against any issues in its loan book, though actual losses for the bank from failed loans – which are a lagging indicator – remain below pre-pandemic levels.

In total, the bank’s provisions for bad loans were flat at $6.5 billion as other types of loans performed well, which CBA said gave it “strong” coverage for any issues.

Earlier this week, ANZ reported a similar increase in the number of customers struggling to repay home loans, taking the percentage of loans in its book that were more than 90 days overdue to 0.95 per cent.

The Reserve Bank of Australia increased the cash rate to an 18-year-high on November 3 in its fifth hike this year. Those increases, which are designed to curb inflation, have added hundreds of dollars a month in interest payments to an average Australian mortgage.

“It is going to make people feel like it’s a recession because they feel poorer,” RBA governor Michele Bullock said at the time.

Chief executive Matt Comyn said in a statement that CBA was committed to helping its customers through the higher cost of living and defended the strength of the Australian economy.

“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.”

Data from property analysis company Cotality shows house prices in Australia’s capital cities have fallen 8.1 per cent in the last seven months, just short of the largest fall in 40 years.

CBA recorded a 13.6 per cent increase in the volume of business loans for the quarter and 6.6 per cent for home loans. Applications for new home loans though remained 16 per cent behind the same quarter last financial year.

Analysts at investment bank Citi said the result was slightly worse than they had expected because of weaker trading income, triggered by rising rates, and more bad debts.

“Overall, only a modest miss for a quarterly, but it may disappoint given the sharp run in the shares,” wrote analysts Thomas Strong and Nilesh Bhaiya in a note to clients seen by this masthead.

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