“Reports of my death have been greatly exaggerated” is a famous misquote of American literary icon Mark Twain. The same could be said about Australian households with the latest major bank profit reporting/trading updates suggesting households so far by and large are managing the transition to higher interest rates.
In this Weekly, we delve into the latest major bank profit reporting/trading updates from NAB, CBA, ANZ, WBC, SUN and BEN, and look at what insights they give on Australian households and the economy in general. The analysis is heavily weighted to CBA, SUN & BEN who reported earnings, as opposed to trading updates.
Insight 1: Housing mortgage arrears have increased slightly, but remain very low, and still below where they were prior to the pandemic. One bank reported that housing 90+ day arrears were 0.47% compared to 0.68% in June 2019. The narrower 30+ arrears also remain low at 0.92%. That same bank noted around 2/3rds of the rate increases had been felt through higher repayments, with 1/3rd of the impact to come.
Insight 2: Fixed rate loan expiries are behaving like the existing variable book, reducing fears of a ‘fixed rate mortgage cliff’. One bank noted the 30+ arrears for those fixed rate loans that had already expired was hovering at 0.92%, the same as the total book. Given the much-publicised mortgage cliff, it is likely households have been preparing for a higher rate environment.
Insight 3: Repayment buffers remain substantial. One bank noted buffers (payments in advance including offset facilities) were worth more than 6 months of minimum repayments for 45% of borrowers and that for 33% they were more than 2 years ahead. Those with no repayment buffers were about 5% of borrowers (excl. fixed and investment loans), though there are 16% of borrowers with less than 1 month buffer.
Insight 4: The impact of elevated inflation and higher interest rates does not look to be leading to a sharp deterioration from a lending point of view with households in aggregate managing the transition to higher rates. However, it is important not to focus too narrowly on bank profit reporting for macro-outcomes. It is also clear household spending is slowing as real disposable income is being squeezed. NAB’s consumption forecasts are for -0.1% y/y in 2023 and 0.6% in 2024.