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CBA braces for $1.5b in bad debts from ‘substantial’ shock

“We’re going to do everything that we can to support and facilitate a stronger economic recovery to the extent that we can, and I think that it’s going to be a case of governments and businesses and communities doing everything we can to manage both the health crisis and the economic challenges that come with that,” Mr Comyn told The Sydney Morning Herald and The Age.

“We’re hoping for a better outcome than the downturn but then from a banking perspective it’s prudent to plan for a more substantial contraction in economic activity.”

In a third-quarter trading update, the bank reported a 41 per cent plunge in unaudited cash profit to $1.3 billion, as otherwise solid results were dragged down by a $1.5 billion provision for bad and doubtful debts.

CBA said after assessing its mortgage portfolio, looking at factors such as the occupations of borrowers and where they lived, loans to households accounted for $860 million, or more than half of the COVID-19 bad debt charge. Corporate loans made up the remaining $640 million of the provision.

As entire industries ground to a halt in recent months due to the pandemic, CBA said it had received requests to defer repayments on 144,000 home loans worth a combined $50 billion.

CBA shares rose more than rivals, gaining 1.9 per cent to $60.85.

Analysts said the bank’s provisioning for bad debts was similar to rivals, though debate continues over whether the banks are being overly optimistic about the looming bad debts they face.

Evans and Partners analyst Matthew Wilson said he expected CBA’s provisions to climb higher, as they were currently not consistent with the bleak economic scenarios being modelled by banks.

CBA said its deposits and loans rose by more than the industry average in the quarter, operating income was flat, and operating costs excluding notable items fell 1 per cent.

With banks’ balance sheet strength in focus, CBA’s closely-watched capital ratio was 10.7 per cent of risk-weighted assets, above the “unquestionably strong” level regulators required until the crisis sparked a reprieve.

Bell Potter analyst TS Lim said that if the provision for COVID-19 was excluded, CBA’s results showed the bank was performing well against a tough backdrop. “If you look at the underlying numbers, income was flat but it’s a challenging environment, so that’s OK,” Mr Lim said.

While other banks have deferred or slashed their dividends amid pressure from regulators to retain capital, CBA does not need to make a decision on the payout until August due to its June financial year. Mr Comyn said the bank would continue to revisit different scenarios between now and its full-year results, reviewing its provisions and engage with the regulator.

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