ASB: Conservative but not under the crunch
New bank disclosure rules reveal ASB Bank's mortgage book is particularly conservative although there's also evidence the global credit crunch is starting to nibble.
Monday, June 9th 2008, 6:02AM
by Jenny Ruth
ASB is the first major bank to report under the new Basel II rules which require disclosure of loan-to-value (LVR) ratio details. They show at March 31 only 15% of ASB's $39.79 billion mortgage book had LVRs above 80% and only 3.9% was above 90%.
At the other end of the spectrum, 31.2% of the book, or $12.46 billion of home loans had LVRs below 60%.
ASB's 90-day past due assets, impaired assets and assets under administration jumped sharply to $151 million at March 31 compared with $95 million a year earlier, although that's still tiny at just 0.4% of the total book.
The bank's net profit rose 6.8% to $157 million for the March quarter and profit for the nine months ended March was also up 6.8% to $424 million.
The downside to the new rules is the figures for the mortgage book aren't comparable with what the bank reported under the Basel I rules. The $39.79 billion book includes $4.61 billion in undrawn commitments (loans approved but not drawn down) and other off-balance sheet exposures.
ASB's head of finance and risk management Stewart McRobie says the $35.17 billion figure resulting from excluding those undrawn commitments can't be compared with the $34.88 billion figure for the bank's mortgage book reported at December 31.
"Had the number been produced and computed and reported, it would have been $35.875 billion," McRobie says. In other words, the mortgage book would have grown by $1 billion under the old rules.
McRobie says a major difference now is where ASB knows loans secured by residential mortgages are being used for business purposes it now classifies them as corporate exposures to small and medium enterprises. He agrees ASB doesn't always know when home loans are being used to fund businesses.
Banks had an incentive under the old rules to classify all loans secured by residential mortgages together, regardless of what the funds were used for, because such loans required less capital. The Basel II rules allow bank's to assess the underlying credit quality of all loans and provide appropriate capital levels.
Using Reserve Bank data as a proxy for the market, $35.17 billion of home loans at March 31 would be 23.4% of the mortgage market while $35.875 billion would be 23.9%. The December figure gives a 23.8% market share figure.
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