Now Nedbank cuts back on mortgage finance - again

As Nedbank (JSE: NED)chief executive Tom Boardman moved to reassure the markets that the bank was not in trouble this week, his home loans department was telling mortgage originators that it was tightening up lending criteria - again.

Investors and  sellers in lower-income areas where properties are on offer for up to R300 000 are likely to be hardest hit, as it is now very difficult to obtain 100% finance for these homes from any bank.

Boardman told Moneyweb's editor-in-chief Alec Hogg, on the SAfm Market Update with Moneyweb on Tuesday that he had "no idea at all" what had fuelled rumours in the market that his bank was in trouble.

"Normally we don't comment on speculation, but I think that (the fact that) the national carrier of news put something in a bulletin at 10 o'clock last night must have been a contributory factor."

The bottom line, said Boardman, "is the market understands, the market knows" - hence "a good, strong performance of our share price".

He said "the results are what count" and the bank had a "very solid third quarter to add to the first half, where our earnings in the first half were up on last year by just on 7%".

Boardman said he thinks "it's clear to everybody that, right now, if your bank's still profitable it's good".

Hogg pointed out that the government has stepped in to save South African banks before, letting Saambou go but they "didn't let BoE, your old bank, go".

Boardman said the bank's tier-one capital, "an absolutely crucial measure", was at 8,8% at the end of September, which is nearly 1% higher than at the beginning of the year. Total capital is at 11,7% and was at 11,2%, "so in world rankings, that's very strong capital ratios".

"But I think the most interesting thing in this quarterly update, we're still seeing strong advances growth, so our loans and advances grew year on year on an annualised basis by just over 19%."

Boardman said "there are not many countries in the world where banks are still able to lend to that degree".

Finance minister Trevor Manuel and SA Reserve Bank governor Tito Mboweni "have gone out and spoken about the fact that, given the enormous turmoil in global markets, just how stable the South African banking system actually is".

The reasons for the stability, said Boardman, included exchange control, though there are "a lot of other good reasons".

Meanwhile, Realestateweb.co.za - part of the Moneyweb network - can report that Nedbank has decided to clamp down on its residential mortgages, again.

In a directive sent to mortgage originators dated 3 November, Charles de Winnaar, general manager of origination and external channels, said the changes would be implemented immediately.

Loan-to-value criteria have been changed again, with 100% home loans being scrapped.

Borrowers in the up to R300 000 category will now have to produce a deposit of at least 5%.

Home loans for properties costing more than this are already subject to deposits, after the bank tightened up on loan-to-value criteria earlier this year.

De Winnaar said the decision was taken "in the light of the continued economic and financial pressures".

Donnie Claassen, of Quantro Homeloans, which specialises in loans for investors, said sellers in areas like the Johannesburg Central Business District were likely to be affected as buyers found it harder to obtain mortgages.

Only FNB is offering 100% mortgages in that price category but, said Claassen, it is very strict with its applications so it is not actually easy to get a 100% loan.

Absa, he said, will grant a 100% loan if the property is significantly below market value and only on request.

"If you do pick up a nice deal, you can still get a 100% bond on request," said Claassen.

Keep up-to-date with important property news and insights. Subscribe to Realestateweb's weekly newsletter by clicking here.

To read the full interview with Tom Boardman, click here.

For more information on home loan criteria at other banks read:

Another big bank tightens credit screws

Expect to beg for a property loan - FNB house price latest

D-day for Absa bond holders

Waiting to buy your dream home? You could be too late

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Comments

 

responses to this article

I'm getting worried About my money in the bank by Eek on November 05 2008, 08:59 Find this comment inappropriate? Report it

where there is smoke there is fire where there is smoke there is fire. Money in the bank is set to go up in flames ? get out now. by the fireman on November 05 2008, 09:07 Find this comment inappropriate? Report it

Its not just bonds. I just got a call from an annoying standard bank rep because my credit card is expiring. The catch is that I can't collect the new one unless I do full fica AND bring them a salary slip, I don't use this card much and it has had a positive balance for 6 . .more months or more. I think there are some very worried people at all the banks right now. . .less by Junkyard on November 05 2008, 09:22 Find this comment inappropriate? Report it

@ the fireman Bright suggestion and what exactly do you mean by it? Move to another bank? What suggestions do you have for a bank which is more stable than Nedbank and what do you base your opinion on? You seem very keen to react on the strength of a rumour. What did . .more you think about the recent changes by ABSA? Did you panic on that too? It's exactly your kind of knee-jerk reaction which leads to uncertainty. Substantiate first. . .less by Cynic on November 05 2008, 09:24 Find this comment inappropriate? Report it

This is good news Frugality is back!!! People will start saving more and spending less. An economy built on debt and consumption is doomed. Just look at the US where consumers make up 70% of the economy, and look where that got them. Strange...the "NEW" . .more requirements by banks WERE the requirements not to many years ago. Easy money is gone and that can't support the rediculous levels of capital growth in property people got used to, nor any other asset class that depends on easy credit. Credit growth is contracting from its high levels before the credit bubble popped and as a result, there is no easy money (credit) flowing around the globe to bid up prices. Japan tried the same thing (pumping money) in the early 90's and yet they continued to experience deflation. Their stock market then was at 40,000 and look where it is now 18 years later. The same happened to their property market. I however don't deny that conservative property pro's will still do well in these times. Obviously, assets are moving gradually from weak to strong hands. Unfortunately, the strong hands are a very tiny minority, so that means that there is a glut of assets out there which will take a long time to clear from the market and this will continue to depress prices. . .less by Freemarketman on November 05 2008, 09:27 Find this comment inappropriate? Report it

@ WTF Dont you want to contact me, I have some interest in CT property and would be keen to know what you have to flip. ibuyhouses@thenet.co.za by Brennan on November 05 2008, 09:34 Find this comment inappropriate? Report it

Safest place for your cash is in property. Banks do not guarantee deposits, so if they sink, your investment is gone with it! Why not invest in something you can controll and derive rental income as a return? So what if the return is less than on your bank deposit! And if (only if) . .more property prices futher decline, it won't matter if you see the investment as long term (5-15years). Property has always been a solid investment! Another alternative is to keep your deposits with variouse banks and therefore not have all your eggs in one basket! One bank goes under, then you don't lose it all! . .less by NOT RUNING WITH BULLS!! on November 05 2008, 09:54 Find this comment inappropriate? Report it

At last Glad to see the banks are starting to wake up to the risks of 100% bonds in the lower end of the market which seems to be the preferred arena for speculative activity. 5% deposit is a start - but bearing in mind we are pretty much guaranteed much larger . .more house price drops than 5%, I reckon they are still setting buyers up for negative equity. . .less by CJ Says on November 05 2008, 10:26 Find this comment inappropriate? Report it

Give it a break NRWB If a SA bank goes under it will be because of irresponsible lending to property guys like you. Just listen to you all boasting about investing with the "banks money". The banks need to tackle this with urgency because THAT is where SA's subprime type . .more disaster equivalent is waiting to happen. If a bank shows that it is lending responsibly, bank with them. If they are still throwing out 100% loans like confetti to guys like you, then get worried and look around. Even so, should a SA major bank go under, then I have no doubt one of the others will snap it up ... or the government ... or a foreign bank (hello China). . .less by CJ Says on November 05 2008, 10:48 Find this comment inappropriate? Report it

I'm getting very worried. I find myself agreeing with Freemarketman Even 5 percent deposit people will still walk away from. 20 percent deposit is more motivational. The way it used to be. As for whether you rent or buy property, I really don't care because if you are renting someone else must own it. . .more Some people run sprints, I run marathons and occasionally I bear bait for fun... . .less by Bull. on November 05 2008, 10:59 Find this comment inappropriate? Report it

@CJ - Have you lost your reading glasses in your 3 litre Ford? If you read my post I advise people with their OWN cash to invest in property and NOT with the banks money! Who said I go for 100% loans? You obviously make your own assumptions like all your previous posts on your fancy UK graphs! One thing I . .more agree with you is that 100% bonds is a mistake! I dare you to read my previous posts! My last deal was 50% cash deposit and 50% bank loan, If I could I would do it 100% cash...but the property was too much of a bargain (50% of replacement value) to let it slip! In 24 months I could make 70% on the property, repay my 50% loan and cash in R2mil. . .less by NOT RUNNING WIT BULLS!! on November 05 2008, 11:08 Find this comment inappropriate? Report it

BANKS The banking system in our contry is a very stable and sophisticated one. Suggesting something like our deposits in the banking system are not safe is completely unfound at this stage. The banks have been very resilient in recent global termoil and we can . .more thank our lucky stars that the NCA came into effect when it did. Erick and Fireman clearly uneducated readers! Maybe you two should work on that! . .less by no reason for concern...yet on November 05 2008, 11:46 Find this comment inappropriate? Report it

nedbank probably struggling. they were very aggressive on the lending side in the past 3 years trying to regain market share. how many of you receieved unsolicited calls from them offering loans etc by frontline on November 05 2008, 11:55 Find this comment inappropriate? Report it

@BANKS I agree. Our banks are so conservative at the absolute worst case they may post big losses and have massive retrenchments but there is no way any of the big four are going to go belly up. Personally I'm expecting them all to just post slightly lower . .more earnings for the next year or so. Still they are probably not going to be fun places to work a for a while and I expect some of the higher up types (at ALL the banks) may be "leaving to pursue other interests" soon. . .less by Junkyard on November 05 2008, 12:05 Find this comment inappropriate? Report it

Investec Heard some rumours re Investec in bad shape - DO you guys know what's cooking? by Gemini on November 05 2008, 12:53 Find this comment inappropriate? Report it

are you lot nuts What I love about analysts and journos is that not one ever ran, worked in a risk position in a bank. You lot all screemed for more profit. Nedbank is growing to slowly on and on and on. The reality is that their internal practices are hell of a . .more conservative. Ask any Business/corporate client that has dealt with them. Their Retail business is small by comparrison to this book. They never had massive exposure to either retail vehicle finace, residential properties or credit cards. The lending that was done was small loans Come on all the responsible reporting focused on what has been achievd and the position going forward. Clearly the national broadcaster got it wrong and never checked the validity or source. . .less by More responsible reporting on November 05 2008, 12:57 Find this comment inappropriate? Report it

Banks Guys, do you not find it strange that Manual and Tito feel the need to reassure the public at every turn how safe SA banks are? Manual has also assured everyone that government will stand behind the banks in the event of trouble. None of this inspires . .more confidence. SA sub-prime equivalent is happening right now. Collapsed property values have placed the value of most properties sold on 100 - 108% loans in the last 24 - 36 months in negative equity. Currently 70,000 mortgages are 2 months or more in arrears. It will be 700,000 in 12 months. If approx. 9% of bank loans go bad they are insolvent. In fact even a well capitalized bank is hopelessly insolvent if there is a run on it. The current world financial/banking system which is founded solely on debt relies on confidence. If that disappears the system will collapse. SA needs a drastic interest rate cut now if it is to avert a possible banking collapse due to massive loan defaults which will happen over the next 18 months. All is definitely not well in SA! . .less by Simon on November 05 2008, 13:00 Find this comment inappropriate? Report it

@MRR What bull are you writing? Defaulting retail mortgage loans have managed to collapse banks across the US and UK yet you allege that retail lending is an insignificant or small percentage of local bank's loan book. I don't have a bank's balance sheet in . .more front of me, but are you correct on this? Why would SA banks loan book makeup be so radically different to others across the Globe? . .less by Simon on November 05 2008, 13:28 Find this comment inappropriate? Report it

~Agreed Simon Time for a rate cut! Come on Tito. by Felix on November 05 2008, 13:32 Find this comment inappropriate? Report it

BUY SAAMBOU NOW!!!! Remember that classic by Tom Boardman on November 05 2008, 13:50 Find this comment inappropriate? Report it

Ooops ! I've been whining about the commercial property sector being the next shoe to drop, especially on the JSE. Will this be the catalyst? http://tinyurl.com/6blguf by Freemarketman on November 05 2008, 14:06 Find this comment inappropriate? Report it

to Simple Simon If you read the note, it Specifically refered to Nedbank, nto the other banks. The bank with the smallest retail exposure to those loan is nedbank. The bulk of the profits are not made by the retail bank at all. Regarding your comment on the mortgages . .more that collapsed the market iternationally, NOT ONE BANK COLLAPSED as a result of their own book. Yes they bought and packaged the CDO's, and resold them. Yes as the great positions began to unwind, because of the time limits on the structures, the great crooks and charlets in the investment banking arena had to re-price, this started many many months ago. I said then, the write downs in the big investment banks, are not the real losses. Those were still to come. AND THEY ARE STILL TO COME. The rest is hype and rubbish. Stop panicking and look at the reality. . .less by More reponsible reporting on November 05 2008, 14:35 Find this comment inappropriate? Report it

@MRR If you read my comment I did state that I have no bank's balance sheet to go by and therefore I was making comment via assumption. I fail to see the correlation between bank profits and bad debt? The structure of fractional reserve banking exposes an . .more institution to the reality of insolvency in the face of rapidly escalating bad debts period. Regarding the remainder of your explanation how exactly the toxic packages were made up, sold, etc is irrelevant and I don't agree with what you have written at all. Fact of the matter is toxic packages comprising defaulting residential loans have precipitated the current collapse irrespective of how well corporate banking may be performing. The message that your (first) post is attempting to convey is somewhat unclear and I would welcome some clarity on exactly what it is you wish to convey? . .less by Simon on November 05 2008, 17:21 Find this comment inappropriate? Report it

SA banking community is bankrupt... ... morally bankrupt, that is. by Theseus on November 05 2008, 17:22 Find this comment inappropriate? Report it

@simon You know, you must go back to your night job! Most banks in the world work on the capital to asset ratio, fractional reserve method. Its why they exist! Of course there is an element of risk? However, the risk gets managed by prudent people who . .more dont lend to dicy borrowers. Banks make most of their money by lending. Its their forte. The rest comes from transaction fees and some banks trade securities too. SA's big 4 are pretty solid. Its highly unlikely that any one of them will get into trouble. And the NCA has further strengthened that position. Your scare-mongering is laughable! And trying to preach reduced interest rates discloses your real goal. Btw, the big failures overseas were mainly investment houses, not commercial banks! The Bear Stearns, Lehmans etc had huge CDO exposure. . .less by Jack on November 05 2008, 18:11 Find this comment inappropriate? Report it

Big failed US banks were indeed non-regulated investment banks. So regulation ensures responsible lending? Predatory lending practices by all US banks led to money being lent to NINJAs (No Income, No Job and Assets). SA banks risk management practices led to overextended people being granted credit in much the same . .more way as US banks. It was the SA Govt regulation in the form of NCA that helped clean up the Banks poor risk management practices. To imply that SA Banks are pretty solid is pretty well unsubstantiated.SA has one of the tenth largest SSF exchange markets, derivative products are traded for all kinds of products yet we have no idea of the derivatives exposure locally and internationally of the Big Four SA Banks. Some transparency is needed to help reassure depositors. Whilst depositor reassurance is a topic we see no evidence of any of the Big Four reassuring the marketplace by insuring every deposit up to a certain limit. If they are in such good shape surely private insurance will provide an exceptionally low rate and the effect on SA Banks obscene profit margins or depositors interest rates will be minimal? . .less by Obomarama on November 05 2008, 18:34 Find this comment inappropriate? Report it

Thank you Obomarama Your comments are enlightening, if worrying. by Felix on November 05 2008, 19:09 Find this comment inappropriate? Report it

To NRWB If you are a 50% or more cash buyer then "Respect" - you are risking your own money - I have no problem with that and you aren't a risk to the banks. Most of your fellow property bulls however have the dangerous notion that you should BORROW . .more money in order to invest it - that is where the danger lies and those are the guys the banks need to be wary of in these precarious times because their thinking is that if it goes wrong they can just walk away. You are risking your OWN money and are prepared to take the hit if it goes wrong. In other words you are actually "investing" in the sense that you have money to start with. No problem ... . .less by CJ Says on November 05 2008, 19:20 Find this comment inappropriate? Report it

Obomarama Good post but I dont entirely agree with your comment about : "SA banks risk management practices led to overextended people being granted credit in much the same . .more way as US banks" You forget that one of the biggest lenders of . .more house hold mortgages in the USA was not the banks but a government agencies called "Freddy and Fanny" There are many other factors I have raised so many times that I wont go into them again. But your other points are quite valid.. . .less by Brennan on November 05 2008, 20:14 Find this comment inappropriate? Report it

Risk SA big risk is BEE , BBBEE , AA etc point system . That is SA sub prime problem . by Chuck on November 05 2008, 20:38 Find this comment inappropriate? Report it

CJ While I agree with your statements on banks acting irresponsibly , I fail to understand why you have a problem with the people who use their services. If I decide to take a 100% bond , and the bank gives it to me , and I think its a good financial . .more decision for me , surely it is free market that decides. If I made a mistake , I will pay for it (lose the house) , if the bank made a mistake , they pay for it ...seems like simple demand and supply to me . .less by Gem on November 05 2008, 21:02 Find this comment inappropriate? Report it

FM2 Mandate Summary from another source - Well one was started in 1938 by the US Government with a mandate of providing credit for housing purchases and done exceptionally well in fulfilling its mandate. It was made private in 1968 with a dual role of providing . .more private financing but with Government guarantees. The other one was started thereafter to provide some measure of competition. Because of their special role they did not have Government oversight. My judgement would be that their Management got caught up in irrational exuberance and without effective oversight made the same mistakes as others whilst trying to fulfill its societal role of providing credit for home ownership. It seems that regulation is needed to keep everyone on teh straight and narrow. We have regulations to prevent you littering, driving too fast, urinating in public and other social ills but it seems running the global economy into the ground is not important enough to be regulated. Makes no sense. . .less by Obomarama on November 05 2008, 21:07 Find this comment inappropriate? Report it

Night job replies Thanks Obomarama you've saved me reply time! To MRR, try Googling 'Northern Rock' for starters. Mmm, I wonder where FM @ FM bought their dicey mortgages from? Suspect bankers who couldn't wait to get them of their balance sheets . .more maybe?? To Jack. As a monetarist you and I will never agree. I understand exactly how the fractional reserve banking system works. 'However, the risk gets managed by prudent people who don’t lend to dicey borrowers. ' Get real jack! I can't believe I am reading this. If this was indeed so the global economy wouldn't be in the dwang it's in at the moment! As for the NCA designed to protect borrowers from themselves, what a load of BS. It's designed to protect greedy bankers from themselves! Ask an Oz banker if they provided 100% loans. We've had some comments from same on this site in the past denigrating our banks for this practice and calling the NCA an embarrassment for local banks. Lastly Jack, your one dimensional inflation targeting high interest rate policy mantra which you and some regularly espouse on a number of local websites is not universally held mate. There is no one single universally accepted model of economic policy in existence today. Let’s just leave it at that as I have a night job to go to it seems... . .less by Simon on November 05 2008, 21:13 Find this comment inappropriate? Report it

@simon What are you? Please dont say Keynesian or I will break into hysterical laughter! I was referring to banks in general when I said "prudent". Certainly ours in SA have been prudent, despite incredible ANC leftist pressure to lend money to "Ninjas." . .more What happened in the US is an anomaly. I know that the leftists there also put huge pressure on banks to provide mortgages to ninjas. However it was F . .less by Jack on November 05 2008, 22:46 Find this comment inappropriate? Report it

@ Jack Jack, Jack...monetarist policy equates to Milton Friedman not Keynes so you can save the hysterical laughter. However I am a follower of the Austrian school of economics, go to the URL, scroll down to 'Inflation" and read the theory. . .more http://en.wikipedia.org/wiki/Austrian_School I am sure this will help you to understand. Better still, read the whole web page! If you followed the run up to the US elections you may recall Senator Ron Paul's sage advice on solutions to the US and current world crises, himself a follower of Austrian economics. . .less by Simon on November 06 2008, 07:02 Find this comment inappropriate? Report it

For Gem If you lose hard earned cash in an investment then it hurts more than if you use borrowed money - stops you being reckless. If the bank takes the pain for your investment mistakes then the bank is at risk if this happens on a big scale ... and . .more that affects me. A good bank should realise that there is a very good chance house prices will be falling more - in the UK for example the Bank of England say drops of at least 15% more should be expected - so it makes obvious prudent sense that something like a 20% deposit should be taken to protect the house value from going below the loan. . .less by CJ Says on November 06 2008, 09:40 Find this comment inappropriate? Report it

Have a cold shower, FIREMAN! I am wondering whether the fireman should have a cold icy shower by ICE MAN on November 06 2008, 11:46 Find this comment inappropriate? Report it

CJ To carry on this debate - Why should I care if it affects you ? Your bank , your problem. It is your choice where you invest. I still dont see the problem with individuals using the tools which are available to them. It is rather . .more ruthless , but where do you draw the line. Yes in a perfect world we all love each other and look out for one another , but this is reality.... . .less by Gem on November 06 2008, 14:38 Find this comment inappropriate? Report it

A careful bank should not provide such tools as 100 percent bonds Buying a house in a falling market on 100% bond is risky and careless lending. Putting money into a bank as a saver is meant to be extremely low risk in comparison. If my bank chooses to be reckless with my money by lending it out in such a . .more fashion, I want nothing to do with that bank and will withdraw my cash and take it to a responsible bank. So reckless bank loses customers. Everyone with cash is weighing up the risks of the different banks. The safest banks benefit whilst the reckless banks struggle to keep deposits and risk bank runs. . .less by CJ says on November 07 2008, 02:27 Find this comment inappropriate? Report it

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