Now Nedbank cuts back on mortgage finance - again

As Nedbank executive shrugs off rumours bank is in trouble, it clamps down on residential home loans - 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, - 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

Article by: Jackie Cameron