Banking industry cautious about end of Jobkeeper and rise in mortgage defaults

The heads of two of Australia’s biggest banks are alert but not alarmed by rapidly rising house prices and the potential for a burst of mortgage defaults.

CBA CEO Matt Comyn. Picture: Adam Yip

Australia’s biggest bank is bracing for “difficult decisions” from its customers as a booming housing market faces the end of government support.

The risk arising from deferred loans also came in for some attention, with the ABA noting 91 per cent of borrowers who had deferred in the peak of the pandemic had returned to making payments.

Commonwealth Bank still has 24,000 customers on some type of deferral, but the bank is closely looking at the signs from business insolvencies.

At the Australian Banking Association Trans-Tasman Business Circle, CBA chief executive Matt Comyn said the bank was wary of the end of JobKeeper, noting the current shortfall of defaults, despite the deferrals.

“Even though the numbers in aggregate look extremely good, much better than any of us realistically could have hoped, we recognise there will be some difficult decisions throughout the year.

“At the end of calendar 2020, the number of insolvencies across Australia is broadly half what it was in a normal year,” Mr Comyn said.

Mr Comyn said a rate rise was not on the cards, but warned “this won’t be the last of this issue”.

Mr Comyn noted the Reserve Bank was aware of the red-hot housing market, which CBA expected to grow 8 per cent in the year. “It’s been a remarkable recovery over the past six months,” he said.

“I think it’s really underscored the effective management overall of the pandemic.”

Stories from the housing market were at the forefront of discussions at the event, with Accenture Australia managing director Andrew Charlton noting: “There is something here that feels like it does not compute.”

He said the economy was being pumped up by record consumer spending, rising asset prices, and a “bucket load” of liquidity. “At any time in our lifetime that would have caused the inflation light to start blinking,” he said.

Bendigo and Adelaide Bank CEO Marnie Baker said last year had been marked by a boom in regional real estate prices, a trend the bank expected to continue this year.

“That’s not a new phenomena, that’s something that’s been happening since the last two census surveys,” she said.