The fragility of Australia’s economy has been laid bare as the biggest home lender revealed the cost of troubled loans had doubled because of the coronavirus recession.
The Commonwealth Bank said it expected the value of impaired loans in the financial year ending on June 30 was $2.518billion – up from $1.201billion in 2018/19.
The ‘expected’ economic effects of COVID-19 were blamed for the increase in funds set aside for bad loans.
The Commonwealth Bank’s rate of troubled home loans has doubled as the coronavirus recession hits the ability of younger borrowers to repay their mortgages
The major banks in March offered struggling borrowers six-month mortgage repayment holidays but with unemployment rising, the lenders extended the repayment sabbaticals until March next year.
The extension indicated how many Australian mortgage holders were in no condition financially to resume payments.
The Commonwealth Bank had 135,000 deferred mortgages on its books at the end of July, but this was below the peak of 154,000 during the height of Stage 3 coronavirus lockdowns across Australia.
Australia’s biggest home lender revealed it is expecting the value of impaired loans for the last financial year to have doubled to $2.518billion – up from $1.201billion in fiscal 2019
Consequently, CBA’s cash net profit after tax plunged by 11.3 per cent to $7.296billion.
Australia’s biggest bank is expecting the national economy to shrink by four per cent in 2020 – the equivalent of two years’ worth of economic activity.
During the most recent recession three decades ago, the economy contracted by one per cent in 1991, following two quarters of negative gross domestic product.
CBA chief executive Matt Comyn said the economic recovery would take time, with Melbourne residents placed in a strict Stage 4 lockdown.
‘The economic outlook still remains highly uncertain,’ he said.
The economic effects of COVID-19 were blamed for the an increase in funds set aside for bad loans. Pictured is a deserted Lygon Street in Melbourne, once the home of thriving Italian restaurants
‘We have seen a sharp economic contraction during the course of the year as a result of the pandemic.
‘Not quite as bad as we’d first feared, but certainly the pace of recovery does look like it will be longer.’
Australia’s unemployment rate increased to a 22-year high of 7.4 per cent in June but the Reserve Bank is now expecting the jobless level to hit ten per cent by the end of 2020 – a number unseen since 1994.
In another blow to borrowers, wages during the June quarter grew by just 0.2 per cent.
The Australian Bureau of Statistics’ wage price index rose a 1.8 per cent over the year, the lowest level since the series began in 1997.