Commonwealth Bank CEO Matt Comyn sees ‘difficult decisions’ ahead on loans, predicts new targeted stimulus

Many borrowers will soon be urged to restart their loan payments, even though an extension is available for those that need it, CBA boss says.

Commonwealth Bank CEO Matt Comyn is navigating the COVID-19 loan repayment deferral challenge. Picture: John Feder/The Australian.

Commonwealth Bank chief executive Matt Comyn has warned of “difficult decisions” for banks and those on loan repayment pauses in the months ahead, as he tipped new federal government support measures would help Victoria deal with another wave of COVID-19 infections.

Mr Comyn told Business Weekend on Sky News many borrowers would be urged to restart their loan payments, even though an extension was available for those that genuinely required a full 10-months without repayments.

“This next (deferral) round will be much more of a case-by-case assessment. So certainly, all of the banks will be working hard,” he said.

“For a number of those, we will be advising them that their repayment deferral will be coming to an end …. clearly there are going to be some difficult decisions that will be required. And we are going to work closely with all of our customers.

“We would like as many customers who can, to come off retirement deferrals. It is ultimately in their best interest to do so, because they will pay less interest over the life of their loan.”

Australia’s top 20 lenders have approved a combined $266bn of repayment deferrals, or 10 per cent of all loans, according to the Australian Prudential Regulation Authority. The banks, government and APRA last week allowed favourable capital treatment to continue for six-month loan deferrals, for a further period of four months for borrowers unable to restart payments due to the pandemic.

Mr Comyn said he expected the federal government to announce new economic support later this month, but targeted at hard hit sectors, when the $70bn JobKeeper subsidy come to an end in late September.

“You would expect them to continue some form of support, it is obviously very expensive, but so perhaps they are going to look very closely at the qualification criteria and the targeting,” he added.

“I could imagine more tailored support, because clearly there will be sectors, education, tourism, travel, which are going to be significantly impacted for some time.”

Last week, CEOs of the other big banks conveyed a similar message on the extension of loan repayment deferrals, noting they would only be available after a thorough assessment of a borrowers’ ability to restart paying.

Mr Comyn, who is also the Australian Banking Association’s chairman, labelled the second lockdown in Melbourne “a setback” for the domestic economy. He still anticipates a recovery from Australia’s first recession in almost three decades, although it will “take some time”.

“It (second wave) is a risk that we all knew right around the country. And we have seen Australia continues to dramatically outperform countries globally. But Victoria is a very significant state and economy. It is about 25 per cent of the overall national economy.

“So clearly, going into lockdown for six weeks is going to have an impact … But I mean it is really important that we get the situation under control.”

The major banks have so far set aside almost $5bn for a spike in COVID-19 related loan losses, but as deferral periods expire the fallout will become clearer.

UBS predicts loan impairment charges across the big banks will swell to $26.9bn in the two years ended September 30, 2021, while S&P Global Ratings expects credit losses to peak at 85 basis points of gross loans by next year. S&P’s estimate is almost six times a historic low in fiscal 2019.

As part of COVID-19 measures to keep credit flowing, the Reserve Bank made a $90bn funding facility available to banks, of which $15bn has been drawn so far.

Mr Comyn attributed a deluge of deposits banks, including from the drawdown of superannuation balances, as the reason they hadn’t yet heavily tapped the facility.

“One of the reasons why it has not been necessary so much to date has been there are so many deposits and savings. People are holding onto cash,” he said.

“We are seeing big increases in deposits … A lot of the early support from both the government as well as access to super has meant that there is so much liquidity.”

CBA has originated about $700m in loans under a 50 per cent government-guaranteed scheme for small business. The bank reports annual profit in August.