Are Commonwealth Bank of Australia (ASX: CBA) shares worth buying with its improving loan book?
CBA’s loan book announcement
CBA has released August 2020 information relating to COVID-19 temporary loan repayment deferrals.
The biggest ASX bank said that its total number of loan deferrals was 174,000 in August 2020, down from 182,000 in July and 210,000 in June. The total loan deferral balance was $59 billion, down from $62 billion in July and $67 billion in June.
The above numbers represent 7.4% of the total number of loans of the portfolio, down from 7.6% in July and 8.2% in June. The amount of the home loan balance being deferred was 9.8% of the portfolio in August, down from 10.1% in July and 10.8% in June.
Of the total number of SME loans, 15.5% of the portfolio is being deferred, down from 16.4% in July and 19.4% in June. Of the total SME loan balance, 24.1% of the loan portfolio is being deferred, down from 26.4% in July and 28.4% in June.
CBA said that for home loan deferrals (that receive capital payment concessions), 32.6% are investment loans, 14.6% are interest only and 13.5% have a LVR (loan to value ratio) of more than 90%.
There were $5.7 billion of loan deferrals that were expired or exited in August, which is hopefully a good sign.
There were $2.3 billion of new approved or extended loan deferrals, with $1.7 billion of these an extension of an existing deferral.
CBA CEO Matt Comyn said: “Since the onset of the pandemic, our priority has been to do what we can to assist our customers in managing the challenges of COVID-19, including temporary loan repayment deferrals on approximately 250,000 home, personal and business loans. As we approach the end of the initial deferral periods, we have been contacting all customers with deferred loans to talk with them about their options, including returning to full or part payment, or converting their loans to interest only. Many of those contacted will be able to recommence their repayments. For customers who are facing financial hardship, we are reaching out to offer solutions tailored to their individual needs.”
Summary
This seems like promising news for CBA. The more it’s loan book can get back to normal, the better. But now deferrals are ending, we’ll have to see whether the ‘overdue’ mortgages ratio starts rising. House prices fell in Sydney and Melbourne during September, though the rest of the country is improving.
At this stage I’m not confident that banks are through the worst of it. That’s why I’d go for other ASX dividend shares first like defensive investment house Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) that I wrote about here.
