Conservative Lending

Consensus still believes Australian banks are among the most conservatively run institutions in the world.  Funny how easily these “conservatively run” banks can get caught up in America’s past time.  This particular piece from brings to light some questionable lending practices in place about a year ago, or right around the peak of the Australian housing bubble:

  • Mortgage House will offer a home loan equivalent to 105 per cent of the property’s value.
  • The company also offers a 99 per cent loan-to-value ratio loan
  • Westpac raised its LVR for new customers from 87 per cent to 92 per cent.
  • ANZ also last week raised the maximum LVRs from 95 per cent to 97 per cent for existing customers, and from 90 per cent to 92 per cent for new borrowers.
  • Commonwealth Bank has left its LVRs unchanged, at 97 per cent.

It’s worth noting that these LVR’s are substantially different than the “average” LVRs the bank’s claim on their current books.  As we learned in the states, “average” doesn’t mean a whole lot, if say, half of your loans are “money good” . . . while the other half are something less than “good.”  Time will tell.

Disclosure: At the time of publication, the author was short various Australian financials via traditional and derivative investment vehicles, although positions may change at any time.