‘A fragile sector’: Bank bosses warn on construction risks

Commonwealth Bank chief executive Matt Comyn, appearing at the same event as McEwan after a recent trip to the US, said the economy was in far better shape than the US, but he also indicated CBA was cautious towards the housing market.

“As rates go up there’s going to be downward pressure on prices. I don’t think it’s going to be a problem, I think clearly the labour market is still extremely strong, but I think consistent with probably a number of indicators we are seeing, it’s probably a time to be slightly more cautious,” Comyn said.

Loans for commercial property and construction are among the higher-risk types of lending for banks, and Elliott said there was no easy answer to the problems faced by construction companies.

“It is a fragile sector,” he said. “And we shouldn’t be terribly surprised, history shows us that in any sort of crisis or downturn, sadly construction and commercial property are two of the most prone to failure because of that structure of the way they run their businesses. So I don’t know the answer to that, clearly there’s a lot of complexity,” Elliott said.

Credit Suisse analyst Jarrod Marin recently reported construction exposure had been dropping across most of the big four banks in recent quarters, and such loans were generally under 1 per cent of the big four’s total lending.

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