Coronavirus: Why Australia’s banks are frightened

Coronavirus: Why Australia’s banks are frightened, by Robert Gottliebsen.

Australian banks are seeing a very different future to that envisaged by the sharemarket. And it’s a similar situation in the US …

Australian banks are forecasting that house prices will fall 10 per cent in the next year and, according to Australia’s largest home lender — Commonwealth Bank — that fall could extend to over 30 per cent if the downturn continues into 2022. …

So far, although residential property volumes are way down and prices are off the top, there is no widespread sustained residential property price fall.

But in both housing and small to medium business banks are frightened by what they see among their customers. The big four banks had delayed home payments for 429,000 customers worth about $150bn as at the start of April. And although the rate of distress has slowed, tens of thousands are still asking for help each week. …

The situation is made more complex because over half the Australian workforce is now on either JobKeeper or JobSeeker. Almost certainly many mortgage holders are going to seek further extensions when their deferment ends next month. The banks will then have to play God and decide who gets an extension and who does not.

Those that miss out may have to sell their houses.