The chief executive of the nation’s largest bank anticipates most people on a mortgage holiday could get back to making repayments soon, that the most vulnerable of them could swap over to interest only loans, and that house prices could dip by double digits.
Commonwealth Bank’s full year results, released yesterday, revealed the impact COVID-19 measures have taken on its bottom line, and offered its projections on the financial wellbeing of workers, the housing market and the country.
“It has been a challenging six months for many Australians, from bushfires at the start of the year, right the way through to the pandemic,” chief executive Matt Comyn said.
“...From our perspective, we’ve been very focused on doing what we can … to make sure that we’re in the best possible position to respond to a variety of different economic scenarios.
“Overall, we’re lucky that we came into this period in a very strong position so the bank’s been able to operate very effectively during that time, but of course we have been impacted.”
Profit fell, but was better than expected
The bank’s cash profit fell 11.3 per cent in the financial year to $7.3 billion. A $1.5 billion deduction -- included in the financial result -- was set aside to deal with the costs associated with the pandemic.
Investors were paid a fully franked dividend of 98 cents per share, effectively the maximum possible under guidance from the regulator. The dividend payment, at the upper limits of what’s permitted under APRA rules, was seen as a sign of confidence.
“For the Commonwealth Bank, we feel very well positioned for a range of different economic scenarios,” Mr Comyn said.
People on a mortgage holiday are resuming repayments
Commonwealth Bank had 154,000 customers request their mortgage be deferred at the peak of the coronavirus pandemic in March. Since then, 19,000 have resumed making full loan repayments.
About a quarter of the 135,000 still on a mortgage holiday are making partial repayments.
The bank considers 12 per cent of them to be in a higher risk category.
“We are now contacting all customers with deferred loans to talk with them about their options,” the bank said in its financial results, “including returning to full or part payment, or converting their loans to interest only.”
The number of deferred business loans has also dropped from a peak of 86,000 to 59,000 -- representing about 15 per cent of all business loans.
Property prices are expected to dip
The bank has been preparing for a dip in the property market as severe as 29 per cent, Mr Comyn said, but he said this was a precautionary measure and unlikely to happen.
“I think a reduction ... in the order of 10 to 12 per cent is still a reasonable assumption," he told the SMH.
"We do have an expectation that in some areas, particularly in inner-city areas, there has been downward pressure on rental yields, so we think that that’s going to weigh on house prices.”
He said the market had responded to the disruption of the COVID-19 pandemic better than expected.
"We would say overall, and looking at the numbers in the last few months, the housing market has been more robust than perhaps we would have anticipated from March.”
Unemployment could hit double digits as the economy contracts: CBA
Australia’s handling of the COVID-19 pandemic fared well compared to many other countries in the world, Mr Comyn said, though he added the financial outlook ‘remains highly uncertain’.
“We have seen a sharp economic contraction during the course of the year as a result of the pandemic,” he said.
“Not quite as bad as we’d first feared, but certainly the pace of recovery does look like it will be longer.”
CBA estimates the gross domestic product will fall by about four per cent over the calendar year, before bouncing back by two per cent by the end of 2021.
“Unemployment is likely to peak towards the end of this calendar year at close to 10 per cent,” Mr Comyn said, “which is clearly a significant economic impact overall.”
The projection is in line with estimates from the Reserve Bank of Australia.