The Commonwealth Bank of Australia, the country’s largest lender, warned on Thursday that loan arrears would rise in coming months as interest rates and inflation continued to weigh on customers, and reported a decline in its cash profit in the third quarter.
CBA home loan arrears – late payment of mortgage payments – increased by 9 basis points from the end of December to 0.61% at the end of March, with arrears of personal loans having increased by 20 basis points to reach 1.34%.
“We expect a further increase in arrears in the coming months, given continued pressure on real household disposable incomes,” the CBA said in a limited quarterly update.
Australian banks have benefited from rising interest rates over the past two years, but are now sacrificing margins by underwriting new home loans at a discount and paying depositors more as high interest rates and galloping inflation reduce borrowing capacity.
“We recognize that all households are feeling the impact of rising inflation and interest rates,” said Matt Comyn, chief executive, while adding that “immigration provides structural support to the economy “.
The bank’s net interest margins fell slightly during the quarter due to “continued competitive pressures and customers moving to higher-yielding deposits.”
Its Tier 1 capital ratio – a measure of available cash – stood at 11.9% at the end of the third quarter, 4 basis points lower than three months ago, but remained ” well above” the minimum regulatory requirement.
CBA posted net profit after tax of A$2.4 billion ($1.58 billion) for the three months ending March 31, beating Visible Alpha’s consensus estimate of A$2.33 billion cited by Citi, but below the 2.6 billion Australian dollars recorded a year ago. ($1 = 1.5205 Australian dollars) (Reporting by Sameer Manekar and Rishav Chatterjee in Bengaluru; Editing by Pooja Desai and Sonali Paul)
