Mortgage lending Data Dec 14

Another Bumper Month For Home Loans
By Martin North | January 30, 2015 | Economics and Banking​

APRA just released their monthly banking statistics, which provides a view of lending and deposit portfolios from the banks (ADI?s). Overall home lending by the banks rose $9.12 billion to $1.315 trillion. Owner Occupied loans grew by 0.59% and Investment Loans by 0.9%, with Owner Occupied Lending now accounting for 65.1% of the loan book (down from 65.2% last month). Looking in more detail at the individual bank data, we see that CBA maintains its leading position in the Owner Occupied sector, whilst WBC leads the Investment Property Lending.

All the pictures...
 
Investor growth continues as a share of total lending and to be expected a share of the total book value.

$1.315T of debt on bank books is troubling. Throw in $15T in derivatives and things look even more worrying. But then there's the punters out there that keep echoing the govt/banking BS that it's all covered.

To give an idea of the vast disconnect between our banks? ?Assets? (66% of which are loans), and their exposure to OTC derivatives, the following chart shows their total Assets versus a red line of total Off-Balance Sheet ?business?
From: Tick Tick Tick ? Aussie Banks? $15 Trillion Time Bomb

banks-onbalancesheetassets-offbalancesheetbusiness.jpg


also of interest...

Data released by the Fed shows the RBA borrowed $US53 billion in 10 separate transactions during the financial crisis, which compares to the European Central Bank?s 271 transactions, according to a report in The Australian Financial Review.

NAB borrowed $US4.5 billion, and a New York-based entity owned by Westpac borrowed $US1 billion, according to The Age.

All is clearly not as safe as we are told in our ?safe-as-houses? banking system.

Indeed!
 
So 65% OO lending and 35% IP lending, that's about the norm 70/30 split

That's not the rate of lending but what is currently on the loan book. The rate of lending (investment) is around 48% currently.

The risk here is that a sentiment change in such a large proportion of the buying market would have a fairly substantial impact on prices.

cartoon+buy+sell.png
 
Freckles - those 15T of derivatives are mostly Interest rate swaps and Foreign currency swaps.

What the banks have to do is convert all the variable rate loans into fixed rate loans so that the net interest margin they earn between the funds lent and funds borrowed (e.g term deposits or wholesale funding) is locked in and not subject to volatility.

They then need to convert the AUD loan made to people like us into whatever currency they have have borrowed the fund from.

For example if WBC or CBA uses USD wholesale funding then they need to hedge that exposure of the AUD loan book.

Would you rather the banks use 15T in derivatives to hedge all the interest rate and currency exposure, or would you rather the banks be unhedged and exposed to interest rate and currency losses?

You can see the effect of the last 12 months with the AUD collapsing. All banks would have failed many times over if they did not hedge their exposure to FX through the use of these derivatives.
 
Derivatives are a circle jerk. Banks sell and trade derivatives while they also use derivatives to hedge each other.

AIG went tits up because it couldn't cover its position. When things go south there's no way a broke bank can cover a broke bank hence the last GFC. No one knew who was cashed up and who wasn't so wouldn't lend to anyone. Derivatives were at the core of the problem and useless at de risking the financial system. Quite the contrary.
 
Yep. All forms of insurance are only good if all the parties can meet their obligations. Derivatives, CDO's and other synthetic products are all supposed to help minimise risk. The problem lies in the assumption that only one or two parties to the transaction will get in trouble and need to pay up. But when the actual risk is masked and spread much more widely, everyone is in trouble. That's how we had the GFC. The insurance is useless in that situation.
 
Banks sell the same derivative many times over. If it falls over you may have hundreds of counterparties to pay. In the normal world the losses aren't big enough to cause a system problem when something major comes along then a problem can blow out to astronomical proportions. AIG for example.

There's a few bob in derivatives tied up in shale oil. That's due to hit the fan in the coming months. It'll be interesting to see how that pans out.
 
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