‘Incredibly benign’: Banks’ bad debts stay low – for now

“I think what surprised us in these bank results was the fact that the bad debt charges were almost negligible in the scheme of things,” he said.

“It just looks incredibly benign. What it’s telling us is that consumers so far have had reasonable resources which they have been able to draw upon, even as interest rates have risen.”

Westpac, for example, reported that mortgage “buffers”, which measure how customers are ahead on their repayments, were “largely unchanged” in the half. The amount held in mortgage offset balances also edged up in the half by $1 billion, to $54 billion.

ANZ Bank chief executive Shayne Elliott said at its results earlier this month that the customers feeling the most distress were not generally those with mortgages, but renters and people in lower paid or less stable employment.

“Our experience is people who are hurting the most at the moment, sadly, are those that are less likely to own their own home. They’re more likely to be renters. They’re more likely to be in less stable employment, and they’re more likely to be lower paid,” Elliott said.

“What’s been counterintuitive is that our housing customers … seem to be doing really OK still.”

The big question for many investors is how long this situation can continue. Banks acknowledge that average figures do not tell the whole story because the effects of rising interest rates have been highly uneven. Lenders indicated they think there will be a rise in mortgage delinquencies – with the next six to 12 months seen as a tougher period for the economy.

Opal Capital chief investment officer Omkar Joshi said recent bank results suggested most households’ savings buffers remained strong, and it was still early in the economic cycle for banks to be experiencing higher bad debt charges.

Joshi said the prospect of higher bad debts remained a “pretty material risk” for banks over the next two years, but he stressed banks would work with customers to minimise losses on mortgages.

“I think it’s still very early in the piece to start seeing these problems. Most of the banks are leveraged to housing, but that’s not the first thing that will come under pressure, necessarily,” Joshi said.

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