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sancho panza

Where do the bad debts lie in the British Banking system?

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Posted (edited)

As per title.Looking at Barclays chart the other day,felt the urge to buy first banking shares in ten years since Northern Rock.I've been reading variously that big UK banks are in better shape than before(wouldn't be hard).Also been noticing the same names popping up in the best buys taking up the slack in Buy to Let/FTB where the big boys have held back.

I reason the likeliest to default loans will be those two categories.

Grateful for any articles/links etc

From 22/5/19

https://www.yourmoney.com/mortgages/nationwide-mortgage-lending-hits-record-high/

Nationwide mortgage lending hits record high

Nationwide Building Society grew its mortgage lending by 10% to a record high of £36.3bn in its 2018-19 financial year.

The UK’s second biggest mortgage lender grew its market share of prime mortgage lending to 13.4%, from 12.8%, while internal product switching also continued to grow.

Nationwide is also investing heavily in technology, however the competitive mortgage market hit the mutual’s income and its savings rates.

The average rate paid by prime mortgage borrowers fell during the year to 2.34% from 2.45% in 2018.

This included more than £4bn of base mortgage rate loans moving off, while £26.5bn of prime mortgages switched onto a new mortgage deal at the lender.

LTV up as house price rises slow

Overall the society’s profit fell to £788m from £977m last year, but this drop included a deduction of £227m for asset write-offs and additional investment in technology.

Nationwide said it helped a record 77,000 first-time buyers into their own homes, up from 76,000 in 2018.

Total net mortgage lending for the year increased by £2.8bn to £8.6bn.

Arrears performance has remained stable during the year, with cases more than three months in arrears at 0.43% of the total portfolio.

The average (loan to value) LTV of the portfolio increased to 58% from 56% reflecting new lending, offset to a lesser degree this year by house price growth.

“While there are no signs of deterioration in the residential mortgage portfolio, with the immediate outlook for the UK and the house price index (HPI) being less certain, the expectation is for a gradual rise in LTV from current low levels,” Nationwide said.

It also noted that there had been a slight shift in new business type from its prime to specialist lending “reflecting an increase in buy to let low LTV remortgage business and, following a successful pilot, the embedding of our lending to limited companies”.

Nationwide also reduced its level of lending at income multiples of 4.5 or higher to 7.7% of new business in the year, down from 8.3% last year and well below the 15% limit.

Edited by sancho panza

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22/5/19

https://www.mortgagesolutions.co.uk/news/2019/05/22/paragon-reports-h1-mortgage-lending-up-16-to-834m/

Paragon, the specialist banking group, has reported a 16% increase in first half mortgage lending driven mainly by new buy-to-let business to £834m.

 

Of the total, buy-to-let business dominated new mortgage lending at £788m, and the percentage of complex buy-to-let completions – comprising customers operating through corporate structures or running large portfolios – jumped from 72% to 88% of first half lending.

Underlying profits in the mortgage segment grew by 17% to £85m and the net interest margin – which measures the difference between Paragon’s funding costs and what it earns from lending – improved from 1.55% in the first half last year to 1.69%.

By the end of the period, Paragon’s mortgage loan book had increased by seven per cent to £10.8bn.

Alongside mortgage lending, Paragon delivered an 89% year-on-year increase in its commercial lending portfolio to £1.3bn. It said this ‘demonstrated good progress in its strategic transformation to a more broadly-based banking group focussed on supporting British SMEs and consumers in specialist lending markets.’

The increase in lending was funded principally through an increase in the group’s savings deposits which grew 37% to £5.9bn.

John Heron, managing director of mortgages at Paragon (pictured) said: “Complexity around the private rented sector resulting from fiscal changes and increased regulation has resulted in a shift in balance with professional landlords providing a greater proportion of the supply of rented homes.

“Paragon’s experience of lending in this segment over the last 20 years has helped to consolidate a leading market position and grow market share where others have seen their positions eroded.

“Private landlords are vital to the UK’s housing provision and we continue to develop our product and service capability to support them in developing their business.”

Paragon lends to private individuals and limited companies and offers financing for single, self-contained properties, as well as houses in multiple occupation (HMOs) and multi-unit blocks.

The lender can accommodate higher aggregate lending limits and more complex letting arrangements including local authority leases and corporate leases along with standard Assured Shorthold Tenancy agreements.'

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:-)..."NW helped 77000 First time buyers into their `own` homes

9 hours ago, sancho panza said:

22/5/19

https://www.mortgagesolutions.co.uk/news/2019/05/22/paragon-reports-h1-mortgage-lending-up-16-to-834m/

Paragon, the specialist banking group, has reported a 16% increase in first half mortgage lending driven mainly by new buy-to-let business to £834m.

 

Of the total, buy-to-let business dominated new mortgage lending at £788m, and the percentage of complex buy-to-let completions – comprising customers operating through corporate structures or running large portfolios – jumped from 72% to 88% of first half lending.

Underlying profits in the mortgage segment grew by 17% to £85m and the net interest margin – which measures the difference between Paragon’s funding costs and what it earns from lending – improved from 1.55% in the first half last year to 1.69%.

By the end of the period, Paragon’s mortgage loan book had increased by seven per cent to £10.8bn.

Alongside mortgage lending, Paragon delivered an 89% year-on-year increase in its commercial lending portfolio to £1.3bn. It said this ‘demonstrated good progress in its strategic transformation to a more broadly-based banking group focussed on supporting British SMEs and consumers in specialist lending markets.’

The increase in lending was funded principally through an increase in the group’s savings deposits which grew 37% to £5.9bn.

John Heron, managing director of mortgages at Paragon (pictured) said: “Complexity around the private rented sector resulting from fiscal changes and increased regulation has resulted in a shift in balance with professional landlords providing a greater proportion of the supply of rented homes.

“Paragon’s experience of lending in this segment over the last 20 years has helped to consolidate a leading market position and grow market share where others have seen their positions eroded.

“Private landlords are vital to the UK’s housing provision and we continue to develop our product and service capability to support them in developing their business.”

Paragon lends to private individuals and limited companies and offers financing for single, self-contained properties, as well as houses in multiple occupation (HMOs) and multi-unit blocks.

The lender can accommodate higher aggregate lending limits and more complex letting arrangements including local authority leases and corporate leases along with standard Assured Shorthold Tenancy agreements.'

"NW `helped` 77000 First time buyers into their `own` homes"...wonder if they will `help` them become homeless when they default?!

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Excellent discussion on the FT(no paywall) between Core Equity Tier One ratios and Leverage ratios.By the former measure banks are safer now than 2008,by the latter measure,less safe.

The major difference being that the former allows banks to game the ratio via distortion of risk profiles for the weighting of assets ie loans.

https://www.ft.com/content/cbb12522-f632-11e8-8b7c-6fa24bd5409c

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https://en.wikipedia.org/wiki/Capital_requirement

Common capital ratios[edit]

  • CET1 Capital Ratio = Common Equity Tier 1 / Credit risk-adjusted asset Value ≥ 4.5%
  • Tier 1 capital ratio = Tier 1 capital / Credit risk-adjusted assets value ≥ 6%
  • Total capital (Tier 1 and Tier 2) ratio = Total capital (Tier 1 + Tier 2) / Credit risk-adjusted assets ≥ 8%
  • Leverage Ratio = Tier 1 capital / Average total consolidated assets value ≥ 4%

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Riskiest large  banks - NW n Coventry BS.

Too much exposure to io btl.

Uk banks are about 5x safer than 07.

Various reason. Saner regulation. All credibility burnt away. Less wholesale funding.

Two biggies for banks

1 After a TFS has finushed, banks have to compete for capital.

2 Shift in loan portfolio. Older mortgages paid, off, fewer new mortgages with more risk.

If the number of loans keeps shrinking  then banks have to contract a lot. Banks struggle to lend money. Low IR means tyey struggle to make money too.

Uk banking is pretty dead now.

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On 26/05/2019 at 19:43, sancho panza said:

https://en.wikipedia.org/wiki/Capital_requirement

Common capital ratios[edit]

  • CET1 Capital Ratio = Common Equity Tier 1 / Credit risk-adjusted asset Value ≥ 4.5%
  • Tier 1 capital ratio = Tier 1 capital / Credit risk-adjusted assets value ≥ 6%
  • Total capital (Tier 1 and Tier 2) ratio = Total capital (Tier 1 + Tier 2) / Credit risk-adjusted assets ≥ 8%
  • Leverage Ratio = Tier 1 capital / Average total consolidated assets value ≥ 4%

If the data doesn't fit the model `refit` the model! :-) :-) :-)

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