CBA ramps up effort to avoid cliff for economy

Commonwealth Bank has ramped up efforts to assist the economy avoid a financial cliff.

Commonwealth Bank’s retail banking chief, Angus Sullivan.

Commonwealth Bank has ramped up efforts to assist the economy avoid a financial cliff as loan repayment deferrals and bumper government assistance ends in September, with the lender preferring a scenario where borrowers navigate a series of “mini hills”.

CBA’s retail banking chief, Angus Sullivan, said that at last count the nation’s biggest home lender had about 127,000 customers who had pressed pause on mortgage repayments as COVID-19 gripped the economy. Some 15,000 who initially asked for information on a deferral — where repayments are not required but continue to accrue and attract interest — decided not to take it up.

Mr Sullivan said CBA had mobilised an army of bankers to contact the 127,000 customers and talk through options from the three-month mark, well ahead of a September end to deferral arrangements.

“For us to be able to work out solutions that avoid a cliff, we are going to need to work with them very closely around a solution,” he said. “We want to support them in avoiding a cliff that we have a series of mini hills maybe as the analogy.”

CBA’s hardship and collections team dealing with loan deferral customers, or those in any form of financial difficulty, has doubled in size to about 1450 people. That level, including some staff who were redeployed out of branches, will stay in place until at least early next year.

“We’ve got to make sure that process come September, October, works really well such that it’s a gradual step down of support on many fronts to see the economy come back to life rather than something that provides a shock,” Mr Sullivan said.

The big four banks have already earmarked a combined COVID-related spike in loan losses of about $5bn.

Across the sector, about $236.7bn worth of loans had repayments deferred as at June 19, with $175.6bn representing mortgages and the remainder business loans, according to the Australian Banking Association.

The federal government’s $70bn JobKeeper program also comes to an end in September, and Australia is now in its first recession in almost three decades, with expectations unemployment will soon hit 8 per cent.

Mr Sullivan said he was not too focused on CBA’s economic assumptions.

“I need to prepare myself 80 per cent for a bad case scenario because I’ve got to make sure I’ve got enough people on the phones and we’ve got enough solutions ready to go,” Mr Sullivan said.

“Less of my time is spent trying to get a precise read, which is very difficult to do at this point.”

CBA wants to wean some customers off loan deferral arrangements. Early this month, the bank stopped providing automatic ­approval of requests for mortgage repayment pauses, and is now ­assessing every application.

The bank is urging borrowers to restart paying their loans, if they are able to, but has options in place — such as moving to interest-only repayments or having the deferral extended — for those not in a position to resume.

Mr Sullivan said about 15-20 per cent of those on loan repayment pauses were continuing to make some sort of payment, with some exiting the deferral early.

“We are starting to talk about what they are going to do, obviously restarting payments being the best of that, from their perspective as well as ours,” he said.

“There may be customers where, even though they are three months into the deferral, there’s something structural in the nature of the situation they are in. They may be needing to think about ­alternative arrangements sooner rather than later.

“We want to see as many people as possible stay in their home.”

Mr Sullivan said if someone with several investment properties had lost their job they may need to “look at” liquidating property and deleveraging.

He said industry talk about one-in-five borrowers on repayment pauses being in real financial trouble was probably overstated.

“My sense would be probably slightly lower than that,” he said. “As (stimulus) support level pulls back it’s going to give us a much better sense of what’s the genuine underlying position of the customer and what does the forecast look like for them.”

Industry sources said the major banks remained in discussions with the Australian Prudential Regulation Authority on how deferred repayment loans would be treated from a capital perspective after September. The riskier a loan, the more capital banks typically have to hold against it.

APRA in March said banks did not need to report loans in a repayment pause as being restructured or in arrears.

Mr Sullivan said it was too early for CBA to reassess its branch presence. He noted a record level of home loan appointment requests in recent weeks, with 25 per cent of calls reflecting enquiries about the government’s HomeBuilder and renovation support package.