When the strongest lender reports rising arrears: CBA’s arrears reach a six-year high and the read-through for private credit

Commonwealth Bank of Australia's September 2026 quarterly trading update shows earnings resilience alongside a deteriorating loan book. According to the update, the bank delivered an unaudited cash profit of approximately $2.8 billion, an 8% increase on the previous year, while the share of home loans more than 90 days overdue climbed to its highest level in about six years. Ninety-day arrears rose from 0.73% to 0.80%, which Foresight Analytics attributes to higher borrowing costs, persistent inflation and pressure on household disposable incomes. The September increase also reflected slower resolution through late-stage collections, so not all of the 7 basis point rise reflects new deterioration.

Loan impairment expense increased to $300 million for the quarter. This compares with an average of approximately $234 million per quarter in the second half of FY2026, a rise of about 28%, or roughly 11 basis points annualised on average gross loans and acceptances. Collective provisions rose by $105 million, and CBA attributed much of that increase to lower housing prices. This matters for real estate credit because recoveries depend on collateral value as well as on whether borrowers default. CBA's FY2026 disclosures showed a residential mortgage dynamic loan-to-valuation ratio of approximately 40.7%, which Foresight cites as substantial aggregate collateral protection that does not necessarily extend to private mortgage funds lending at higher LVRs.

Corporate exposures also warrant attention. Troublesome and non-performing exposures reached approximately $6.9 billion, or about 1% of total committed corporate exposures. CBA indicated that a small number of single-name downgrades drove the increase, pointing to idiosyncratic borrower stress rather than broad-based deterioration.

For private credit, Foresight's analysis suggests that the central question is manager quality rather than an imminent default wave. Low-documentation lending is not inherently poor credit, but the reliability of serviceability verification and borrower resilience to rate shocks matter. Foresight highlights borrower and collateral correlation as a key risk, since self-employed borrowers and property developers may face simultaneous declines in income and collateral value. It also flags diligence red flags, including loans held at par despite serviceability deterioration, repeatedly extended maturities, stale collateral valuations and accrued interest treated as equivalent to cash received. Distribution risk can precede NAV impairment: a fund yielding a gross 9% in cash could see distributions fall if 10% of its loan book stopped paying cash interest, and a stable unit price is not evidence of stable credit.

The analysis also references ASIC's scrutiny of the sector. Report 820, published in November 2025, found weaknesses in credit assessment, independent oversight, impairment practices and liquidity stress testing. Report 846, released on 10 November 2026, extends the review to fund structures, fees, related-party relationships and investor disclosure. ASIC's surveillance of 24 retail and wholesale private credit funds managing a combined $18 billion found some investors were not receiving adequate information on non-performing or distressed assets, and noted that inconsistent definitions of arrears, defaults and impairments hinder fund comparison.