CBA credit losses to remain low over next two years: S&P

Share buyback will shave off reserves, but CBA should be able to remain above capital requirements.

The Commonwealth Bank of Australia’s (CBA) credit losses are expected to remain low over the next two years, according to S&P Global Ratings.

Credit losses will hover at 15 basis points (bps) during the period, which is in line with other major Australian banks, the ratings agency said.

“We believe that low unemployment levels, modest economic growth, and a change in spending patterns will shield most borrowers against the rising interest burden and prices,” S&P said in its latest commentary about the bank.

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CBA’s earnings are expected to remain a credit strength despite a 3% drop in statutory profit in the second half of 2023. 

Capital levels are also expected to remain strong. Tier 1 (CET1) ratio stood at 12.3% as of 31 December 2023.

The completion of the A$1b on-market share buyback will, however, reduce this ratio by 18bps.

Overall, CBA should manage its CET1 ratio above 11%, above the Australia Prudential Regulation Authority’s regulatory capital requirement of 10.25%, S&P said.