‘Source of worry’: CBA chief tips softer spending as peak in $96b mortgage cliff looms

Comyn tipped a “soft landing” for the economy, but the bank is expecting slower economic growth due to weaker household spending, as interest rate rises bite.

Amid fierce political pressure on Reserve Bank governor Philip Lowe, Comyn did not comment directly on whether he thought the Reserve Bank had got it right in its pace and extent of interest rate rises. He said he could see the economic reasons for raising rates but also acknowledged the pain for borrowers.

“It’s a cause of worry and concern for our customers. They’re clearly difficult decisions for the central bank, and unpopular ones,” Comyn said.

CBA and other banks have reaped the benefits of rapid-fire interest rate rises by lifting their lending rates more quickly than deposit rates. This has caused sharply wider net interest margins, which compare bank funding costs and lending rates, and are a critical driver of profitability.

CBA’s net interest margin rose by 18 basis points compared with the six months to June, to 2.1 per cent, which it said was caused by rising interest rates.

An ongoing risk in the industry is the prospect of a fixed-rate mortgage “cliff” this year, as ultra-cheap loans written during the COVID-19 pandemic expire.

CBA has about 250,000 customers on fixed-rate loans that will expire this year, worth about $96 billion, and Comyn said these clients were on average in a slightly stronger financial position than the rest of its book.

“We see them as further in advance on their loans, higher savings buffer and overall in a stronger financial position, but clearly they will also be subject to a higher rate, particularly around that sort of mid-year point, we’ll start to see more customers coming off those fixed rates.”

CBA’s flagship retail bank posted 16 per cent growth in profits, the business bank’s profits jumped 31 per cent, institutional banking profits fell 23 per cent and its New Zealand arm posted a 6 per cent decline.

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Rising interest rates have raised fears that banks may face higher bad debt charges as more customers struggle to meet their repayments, but CBA’s results showed the percentage of consumers falling behind on mortgage or credit card repayments was lower than a year earlier.

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