Bank's head for a bleak year of bad debts and this will affect your mortgage

Commonwealth Bank of Australia Ltd first-half profit figures were better than expected, taking much of the suspense out of its results announcement this week.
Nevertheless, investors and analysts will be looking closely at the report on February 11 to see how much bad debts have increased because of the economic slowdown.
Mortgage lenders and home buyers want to know whether loan margins have suffered because of the higher funding costs, or grown because of the increased market power the Sydney-based bank has gained, as competitors went bust or got taken over.
The reality will be that relative to central bank interest rate movements, mortgage rates will be higher because the CBA and other major bank are unlikely to pass through any future interest rate cuts.
On February 2, Sydney-based CBA said first-half cash profit after tax was likely to be around $2 billion, 16 per cent lower than the year before, but more than 20 per cent higher than the consensus estimate.
CBA also said total operating income for the six months to December 31, 2008 would increase by 15 per cent to $8 billion, while operating costs had fallen about two per cent.
"It does look like the revenue is substantially higher than everyone expected, and the cost side looks pretty good too,'' Tyndall Investment Management portfolio manager Craig Young said.
Mr Young, who helps manage $4 billion in assets, including CBA shares, said the first thing to look for in CBA's result was how the bad debts were going.
"CBA is a little less provisioned than the other banks and it will be interesting to see if that's still an issue,'' he said.
The bank said on February 2 that impairment charges would rise to $1.6 billion, in line with market consensus.
"The loan losses are going to go up even more,'' Southern Cross Equities analyst TS Lim said. But Mr Lim said the problems with bad debts were likely to hit harder in the second half.
"Small businesses are going to get into strife,'' he said.
In December CBA increased its forecast for full-year impairment expense to gross loans and acceptances to 60 basis points, prompting Mr Lim to raise his estimate for the ratio to around 70 basis points.
The bank was criticised at the time for trying to alert prospective institutional investors to the updated impairment ratio without informing the market as a whole.
CBA said income growth was driven by a 20 per cent rise in banking income, as demand for deposits and lending remained strong.
The growth in banking income would be offset by the 12 per cent decline in funds management income, the bank said.
Tyndall's Mr Young said CBA had probably benefited from its increased market dominance, and that was likely to show through in improved margins.
The stronger market position "will come through in both the asset growth and margin,'' Mr Young said.
"It's very hard to see how much they're passing on to their business customers.''
CBA said statutory net profit after tax would rise about nine per cent to $2.5 billion, boosted by a post-tax gain of $550 million on the acquisition of BankWest, a key competitor the bank was able to take out of the market.
That may have offset higher wholesale funding costs, Mr Young said.