The Commonwealth Bank has warned a prolonged downturn sparked by the pandemic will cause the economy to shrink for two yeas in a row and house prices may drop.
The Commonwealth Bank has warned a prolonged downturn sparked by the pandemic will cause the economy to shrink for two yeas in a row and house prices may drop.

CBA warns pandemic could cause dramatic house price plunge

The Commonwealth Bank has warned house prices could plunge by more than 30 per cent if the coronavirus crisis produces a "prolonged" economic downturn.

The grim forecast from the nation's biggest bank came as it set aside $1.5 billion to cover an expected rise in loan losses linked to the pandemic.

The move by CBA means the nation's big four banking giants have now set aside a hefty $4.9 billion to cover the financial impact of COVID-19.

In a detailed presentation to investors, CBA this morning said it was operating on the assumption that economic growth would shrink by 6 per cent this year, before bouncing back by 6 per cent in 2021.

It expects the unemployment rate to average out to 8.25 per cent this year - including a 10 per cent peak - before easing to 8 per cent over 2021.

The Commonwealth Bank has warned house prices could plunge by more than 30 per cent.
The Commonwealth Bank has warned house prices could plunge by more than 30 per cent.

Under these conditions, house prices are expected to decline by 11 per cent from March 2020 to March 23.

But the bank warned that a "prolonged downturn" would see the economy shrink for two years in a row, with gross domestic product contracting 7.1 per cent in 2020 and 0.8 per cent in 2021.

The jobless rate would rise to 9 per cent in 2020 and stay at 8.5 per cent in 2021.

Under these conditions, the CBA's modelling shows house prices would plunge by a shattering 32 per cent from March 2020 to March 2023.

"Uncertainty exists regarding duration and severity of COVID-19 impacts, associated disruption to economy and extent of future (government and prudential) response," the bank's investor presentation cautions.

The forecasts were provided as CBA reported a 26 per cent fall in net profit to $1.3 billion for the three months to March compared to the same period a year earlier.

Chief executive Matt Comyn said CBA had approved repayment deferrals on 71,000 business loans, 144,000 home loans and 25,000 personal loans.

"The Commonwealth Bank is focused on doing everything we can to support Australia in these challenging times," he said.

"The bank is well funded, with significant levels of excess liquidity and strong capital."

Rivals Westpac has put aside $1.6 billion to cover the impact of the coronavirus crisis, while ANZ has stashed away $1 billion while National Australian has made an $807 million provision.

CBA also announced it had struck a deal to sell its 55 per cent stake in its Colonial First State wealth management unit to private equity firm KKR - formally known as Kohlberg Kravis Roberts & Co - for $1.7 billion.

john.dagge@news.com.au

Originally published as CBA warns pandemic could cause dramatic house price plunge



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