Pre-approvals 'problematic'

ANZ had more than $750 million committed to yet-to-be drawn down home loans in the last quarter of 2013, its latest general disclosure statement shows.

Tuesday, February 18th 2014, 6:00AM

by Susan Edmunds

That was down from the $1.33 billion recorded for the six months ended March 31 last year.

Since October 2013, banks have been able to lend no more than 10% of their new loans to borrowers with equity of less than 20%.

Many pulled back to significantly less than 10% because they had already committed to preapprovals for borrowers with small deposits.

ANZ’s statement shows that, for the quarter, the bank had $3.499 billion in on-balance sheet loans to borrowers with less than 10% equity, and $307 million in loans yet to be drawn.

It had another $6.408 million in lending to borrowers with between 10% and 20% equity and another $452 million in off-balance sheets exposures.

Off-balance sheet loans include undrawn and partially drawn residential mortgage loans as well as formal commitments to lend.

Massey University banking expert Claire Matthews said the high-LVR off-balance sheet exposures could have put the brakes on the bank’s ability to do new low-equity lending during the period.

The bulk of ANZ’s lending was still to borrowers with more than 20% equity – it had almost $38 billion in lending to borrowers with an LVR of less than 80%. Significant numbers also had LVRs of up to 59% -the bank had $17 billion in lending to those customers.

Lower-LVR borrowers have been sought after by the banks of late, because the more new high-equity loans they can offer, the more room they have to move for low-deposit borrowers.

The bank had a total home loan book for the quarter of $49.8 billion, up from $49.56 billion in the previous quarter and more than $2 billion up on the same time the year before.

It made an after-tax profit for the quarter of $400 million.

Matthews said preapprovals were problematic for banks. “There’s a deadline by which they have to be picked up but they still don’t know exactly when… they have to have the money sitting there and it’s possible that it won’t be drawn down and they won’t get to lend it,” she said.

She said most of the banks had now moved to a three-month limit for new preapprovals.

They would then make some assumptions on what value limit to put on the amount of preapprovals that were issued in that time, based on the percentage that were likely to be drawn down. But she said the estimates would be conservative because they would not want to underestimate and end up with too many, pushing them over the limit.

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