Consumer loan impairments spike but CBA still likes the business

Commonwealth Bank will continue to pursue growth in the unsecured consumer finance market despite an increase in credit card and personal loan arrears contributing to a spike in bad debt charges in the June half.

CBA has a A$16.9 billion Australian personal loan and credit card portfolio. The book grew by three per cent over the 12 months to June, with all of that growth in the first half.

Personal loans with payments overdue by 90 days or more rose from 1.2 per cent in 2013/14 to 1.34 per cent in the year to June. Credit card arrears rose from 1.01 per cent to 1.05 per cent over the same period.

CBA chief financial officer David Craig said rising unemployment, particularly in Western Australia and Queensland, was the main factor in the weakening of credit quality in the unsecured consumer finance book.

Craig said the 25 per cent spike in loan impairment expenses in the June half was due mostly to higher arrears in the consumer portfolio.

Craig said it was important to keep in mind that impairment rose from an "abnormally low" level in 2013/14 and the actual numbers were small ($548 million in total impairment in the June half).

CBA group executive for retail banking services, Matt Comyn, said consumer lending was still an attractive business for the bank.

"We price for the risk and we still see it as an attractive part of our mix," Comyn said.

CBA chief executive Ian Narev defended the bank's credit card interest rates, saying it was unsecured debt and the bank set its rates for the expected credit experience through the cycle.