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Westpac CEO Peter King speaks during a hearing before the House of Representatives economics committee in Canberra, Australia, on July 13 2023. Picture: BLOOMBERG/HILARY WARDHAUGH
Westpac CEO Peter King speaks during a hearing before the House of Representatives economics committee in Canberra, Australia, on July 13 2023. Picture: BLOOMBERG/HILARY WARDHAUGH

Sydney — The CEOs of Australia’s two biggest banks said on Thursday a tight labour market was keeping late home loan repayments below historic levels even after a year of rising interest rates, but warned that living costs would squeeze the economy through 2023.

The updates from Commonwealth Bank of Australia and Westpac gave a sense that the A$2-trillion ($1.4-trillion) mortgage market, a bedrock of the world’s thirteenth largest economy, may avoid a downturn that economists feared when the central bank began raising rates in May 2022.

In two days of parliamentary hearings that bank CEOs must attend periodically, the lenders and rivals National Australia Bank and ANZ Group gave near-identical takes: that 400 basis points of rate increases had barely changed on-time loan repayments but households would face more financial stress.

Economists had warned the expiry of 1-million fixed-rate mortgages to roll into higher variable rates from 2023 would leave people unable to make payments, a scenario referred to as a “mortgage cliff”. But halfway into that transition, all four banks reported little effect, citing record-low 3.5% unemployment.

“We’re bulking up the teams that take the calls from customers when they need the help [but] we haven’t seen the increase,” said Peter King, CEO of number two bank Westpac.

“The vast majority of people are in good shape but I don't think it will stay like that for the rest of the year. Employment is probably the critical issue.”

Westpac had switched A$40bn of mortgages from fixed to variable “and at this point [we’re] not seeing a lot of stress coming out”, King said.

Matt Comyn, CEO of CBA, which has a quarter of Australian home loans, said the bank's forecast of unemployment above 4% by the end of 2023 “may end up being too pessimistic”.

“The resilience has probably surprised us,” he told the inquiry.

But across-the-board cost price increases — including groceries, power and fuel, as well as mortgages — would put more pressure on household finances, he said. CBA research found that younger borrowers and renters, who have faced hefty rent increases, were cutting back on discretionary spending the most of any demographic.

“You will continue to see more pressure on households over the next six months,” he said. 

Reuters

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