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Renters are facing more financial pressure than households with a mortgage at the moment, Commonwealth Bank chief executive Matt Comyn says.
Key points:
- A little more than 60 per cent of the RBA's rate increases have been felt by households so far
- Renters are facing more financial pressure than households with mortgages
- There has been a small increase in customers with personal loans who have overcommitted
Australians aged between 30 and 34 are facing the greatest strains of all age groups, with the least strain being felt by those between 60 and 74, he said.
Appearing before a parliamentary committee via videolink, as he recovers from COVID, Mr Comyn said he expected Australian households to feel more financial pressure over the next six months.
He said that's because the full effect of the RBA's interest rate hikes had yet to work their way through the economy, and energy prices and rents were forecast to keep rising this year, adding to household bills.
He said CBA's internal data showed households were clearly cutting back on spending, but different groups in society were under more pressure than others.
"Many households are pulling back on discretionary spending and dipping into accumulated savings," he said.
Renters under the most pressure right now
Mr Comyn said households with a mortgage were bearing the brunt of monetary policy at the moment but, as a group, they weren't under the most financial pressure.
"We see renters under more pressure, actually, than those with a mortgage, and of course those that own their own home outright the least," he told MPs on Thursday.
The number of CBA customers who were failing to make mortgage repayments was still low by historical standards, he said, but it was clear many were feeling under pressure, especially younger homebuyers.
"For example, among younger people who bought their first home during the pandemic, the majority have now reduced their spending, and a third have reduced it by more than 30 per cent year-on-year," he said.
Mr Comyn said a little more than 60 per cent of the Reserve Bank's increases in the cash rate have been felt by households, but by the end of this year it will be around 85 per cent.
The cash rate target has increased from 0.1 per cent to 4.1 per cent in the past 14 months.
"So, you'll continue to see more pressure on households over the course of ... the next six months, even if there isn't further increases in the cash rate, just simply as more customers are coming off fixed rates, rents are continuing to increase, energy prices will continue to go up," he said.
"We see very sharply the pressure that many customers are under ... even if they're not actually technically in financial difficulty or stress, they're definitely making changes to their spending patterns, to their circumstances," he said.
"We have a range of support measures available, including payment deferrals, interest only loans, and repayment plans. We are proactively contacting customers and I encourage any of our customers who are facing difficulty to talk with us about these options," he said.
Younger age groups cutting back the most
Mr Comyn said the age group that was seeing the greatest financial strain at the moment was between the ages of 30 and 34, and the least strain was between 60 and 74.
But David Cohen, CBA's deputy chief executive, said the biggest reductions in household expenditure were occurring in the 25 to 29 age group.
He said CBA published a report in May showing expenditure across different cohorts, and the bank's early observation was that that 25-to-29 age group was probably being hit most by rental increases and other new costs they may not have had to bear before moving out of home.
Mr Cohen said the 25-to-29 age group was "an interesting area to watch."
"There, we're seeing considerable reductions in a number of areas, in retail, travel [and other things], more so than the other cohorts in the sub-35 age band," Mr Cohen said.
"That could be impacted considerably by people who are facing rental increases, which you would expect in that 25 to 29 point."
Mr Comyn said when it comes to personal loans, the bank had seen an increase in calls coming through from customers with personal loans who had overcommitted.
He said that was an area of the bank's portfolio that tended to show distress earlier, and the banks was concentrating on this area of its business to help customers, but it was still at very low levels.
"It's very much related to some aspects of the community, and renters in particular, who are finding it very challenging at the moment," he said.
But he said the level of customers who were behind in their credit cards repayments was still at record low levels.
He said the bank crossed below 50 basis points of arrears in credit cards earlier in the financial year, and it's "probably one of the lowest arrears rates anywhere in the world for credit cards."
"It's not giving us any cause of concern, in terms of [any] rapid growth in credit card debt or customers who would seem to be struggling," he said.
On Wednesday, ANZ chief executive Shayne Elliott told the same parliamentary committee that half of ANZ customers had contacted the bank to renegotiate their home loan during this rate-hiking cycle.