Banks remove $20 billion

[brokerman]

Heard today from the head of a non bank funder that in the last year $20 billion has been withdrawn from the NZ lending market by the main Banks. No wonder criteria is so tight. Also heard that the majority of claims made to the Mortgage Insurers were the result of Mortgagee sales falling short of the outstanding amount and almost all on 'Lo Doc' cases. I find this interesting because to me a self employed person is in a position to fight harder in times of recession and historically Lo Doc loans have performed well.

[Keithw]

Do you know what proportion of normal lending that $20 bill constitutes ?
it sounds a lot, but its hard to know if it is a significant proportion or not.

I guess there's self employed that can fight harder, & there's those that used lo doc because it was the only way to get a loan, who may not have substantial reserves or the ability to make considerable extra money in times of crisis

[brokerman]

All the Banks with the exception of the Nationwide escapade have always been in mainstream lending so the $20 billion will be predominately that. As a % I don't know but its a significant figure. Show me anyone who can make considerable money in a time of crisis!

[asdr]

The total of all housing loans (including some refinancing) has been $40-50 billion per year for the last three years (from the spreadsheet on this page) so $20 billion would be about half a year's worth of lending, assuming the OP is referring to money removed from the housing loan market. So far loan approvals are down 25% Y/Y based on the last 13 weeks.

[PC]

Crank the printing presses up and make some more of the stuff.
At least it'll keep the (Australian) printers employed...

[muppet]

If the banks have withdrawn $20b from the NZ lending market, then what have they done with it.
Ahh, I know they are using it to pay big bonuses to the bosses.eg Telecoms

[captaincrab]

Muppet
"withdrawn" is the wrong word. All it means is that they havent gone offshore and borrowed that 20 bio to onlend to the market.

[muppet]

Then we need more savers.
Too much money going into Kiwisaverr then.

[Perry]

If the banks have withdrawn $20b from the NZ lending market, then what have they done with it.
Ahh, I know they are using it to pay big bonuses to the bosses.eg Telecoms

Those who oversaw the inception of the
XT Notwork? Are those the ones whom
you mean? Of course. The blame is passed
down to the lowest, who are sacrificed at
the Tyburn Tree, and the $$$ gains are
passed up to the highest, who are lauded
at shareholder meetings. So it has ever
been, grasshopper.
.

[roseneath_rat]

It is true that the total amount of new lending provided by banks has reduced in the last year. In the business-banking arena the amount of total loans outstanding reduced- this means that the amount of new lending was lower than the amount of loan repayments. I believe in the biz-bank space there were only two banks that grew their loan book - Westpac & BNZ. Even Kiwibank went backwards.

I think the term 'remove' is somewhat misleading. Banks are not calling up loans, they just aren't lending it with the same voracious appetite of prior years.

[Perry]

So is the reality that - in the general
throughput of loans made and repaid,
the total indebtedness has reduced by
some $20B, rather than that amount
being actively 'withdrawn?'

RR, when you say:

. . . this means that the amount of new
lending was lower than the amount of
loan repayments

how are principal and interest repayments
differentiated, in your scenario?
.

[roseneath_rat]

Income is an income/expense, whereas principal movements is capital.
In an extremely simplistic way, think of banking as a set of financial statements:

Profit & Loss-

$100 Interest Income received from loans
$ 20 Net margin on FX
$ 10 Fee Income
$ 10 Other Income
$140 Total Revenue
$ 90 Less interest paid on deposits
$ 50 Gross Profit
$ 40 Operating Costs, salaries, property, bad loans
$ 10 Profit Before Tax


Balance Sheet

Assets-
$1,000 Loans
$ 200 Property, other assets
$1,200 Total Assets

Liabilities-
$ 300 Deposits
$ 300 Bonds
$ 300 Offshore funding
$ 100 Provision for doubtful/bad debts
$1,000 Total Liabilities

$ 200 Capital & Shareholder Funds


Now this doesn't actually bear any real semblance to a real bank balance sheet, but as a hypothetical example it demonstrates the difference between interest received on loans (which is income), income paid on deposits, bonds etc (which is an expense), the value of loans (an asset) and the value of deposits (liabilities).

If more loans are repaid, then the value of assets reduces, income contracts, and liabilities such as bonds & other funding sources are repaid.

[brokerman]

Good analogy. I guess a better way for me to have said this was that the $20 billion was not being re-lent to the marketplace. This is also true of most other countries but in NZ the figure is a reasonable % of total borrowing. So a double wammy really because second tier lending is a shadow of its former self and will probably never return in the same guise again.

[Perry]

I understand that, RR, thanks. But I wonder
if I made my question unduly enigmatic?
You said:

I think the term 'remove' is somewhat
misleading. Banks are not calling up loans,
they just aren't lending it with the same
voracious appetite of prior years.

That seems to suggest that the total value of
the 'loan book' (if that be the right expression)
shrank by $20B.

Whether that's because there was less to lend,
less borrowers, more stringent lending criteria,
on and on, becomes almost another topic that
we can exposit on.
.

[Viking]

Guess where its gone to?

Big bank lowers lending hurdle

• George Lekakis
• From: Herald Sun
• April 10, 2010 12:50AM

ANZ Bank has signalled it will continue to ramp up its home lending after notifying mortgage brokers across the country that it will loosen lending criteria for existing customers later this month.

In a memo sent to brokers this week ANZ revealed it would relax maximum loan to value ratios for customers looking to upgrade their houses or acquire an investment property.
At the moment ANZ customers can only borrow up to 90 per cent of the value of the property they are buying or upgrading, but this will rise to 95 per cent from April 26.
Under its new head of retail banking, Phil Chronican, ANZ has emerged this year as the fastest-growing home lender among the major banks after generating $1.54 billion of new home loans in February.
ANZ's growth is coming at the expense of Westpac and CBA, both of which have begun slowing home lending due to funding problems.
"In 2009, ANZ tightened lending standards in response to the softening in the economic environment because as a responsible lender, we did not want to put customers in a situation where they were over-extended," the bank said in its memo to brokers.


"As the economic outlook has improved and customers continue to manage repayments well overall, we are now in a position to moderate these standards for existing mortgage customers with good credit histories."
Leading mortgage brokers responded positively to the ANZ move which they said would help position the bank to overtake Westpac and CBA as the country's largest home lender this year.
Australia's second biggest mortgage broker, Mortgage Choice, said the renewed ANZ push into mortgages became apparent four months ago.
"ANZ is now our number one lender in our network - they took that mantle in December," said Mortgage Choice chief executive, Mike Russell.
"They've told us they have no caps or restrictions on mortgage growth this year and that is important for the industry because there are clearly a couple of big lenders who are suffering from indigestion."
In February, Westpac tightened lending standards and also withdrew its RAMS-branded mortgage products from the broker market.
Mr Russell said National Australia Bank was also poised to boost its share of home lending following its aggressive pricing strategy and heavy investment in its processing systems.

NAB has had the cheapest home loan among the majors for more than six months but has missed out on winning a bigger slice of the market owing to delays in approving applications from brokers.

According to Mr Russell, NAB's turnaround times have improved significantly since February when the bank embarked on a new program to improve its approval systems and eliminate red tape.

The program, known internally as the Mortgage Transformation Project, is aiming to simplify the bank's mortgage approval process.

Mortgage brokers were told at a briefing last week that NAB was preparing to streamline its credit policies on home lending which will improve turnaround times.

"The bank is trying to break down internal silos which have led to delays for approving loan applications," Mr Russell said.

"They have told us they want to reduce the 234 credit policies affecting loan approvals to four."

NAB is expected to complete the overhaul of its mortgages business at the end of June.

AUSTRALIA'S fifth-largest retail bank, ING Direct, yesterday increased the rate on its standard variable home loan by 30 basis points to 6.49 per cent.