Bethel Finance: Leumi Mortgage Bank: Average mortgage down 20%

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Bethel Finance news:

The financial report for the third quarter of 2011 published by Leumi Mortgage Bank, today reveals major changes in the mix of new mortgages, including a 20% drop in the average mortgage to NIS 536,000 in the third quarter from NIS 665,000 in the corresponding quarter of 2010. Bank Leumi (TASE: LUMI) subsidiary Leumi Mortgage Bank is Israel's second largest mortgage bank, after Mizrahi Tefahot Bank (TASE:MZTF), with a market share of 25%.
Leumi Mortgage Bank CEO Shuki Burshstein told "Globes", "The decline in the average mortgage is due to fewer transactions for expensive properties, a market segment that has declined lately. This is why we are granting few loans for large deals and loans for small and mid-sized deals."
"Globes": Last week, Governor of the Bank of Israel Prof. Stanley Fischer mentioned the risk to banking system from the fall in home prices, under conditions of rising supply and falling demand. How do you see the market?
Burshstein: "I won't comment directly on Fischer's remarks, and I cannot predict home prices in one or two years. At the moment, we're seeing an increase in housing supply and housing starts, and a drop in demand. The big question is whether the drop in demand is permanent, or if people are only sitting on the fence and will return to the circle of buyers soon."
Is there a risk to the bank from falling home prices?
"I won't refer to worst-case scenarios, but we know how to properly analyze individual transactions. When the bank examines a customer for a loan, it takes into account a possible drop in the value of the property and the customer's ability to repay the loan."
Leumi Mortgage Bank also reported that the proportion of high loan-to-value (LTV) ratios has increased: the proportion of LTVs of over 60% (i.e. the mortgage amounts to more than 60% of the property value) rose to 38% of all mortgages in the third quarter from 35% in the corresponding quarter. Of this figure, the proportion of LTVs of 60-70% rose to 24% from 21%, and the proportion of LTVs of over 70% rose to 14.5%, and LTVs of 80% amounted to 3.3%.
The proportion of unlinked variable interest component of new mortgages has fallen from over 60% of all mortgages in 2009 to 25% in the third quarter, as a result of the Bank of Israel's tightening of mortgage terms, capping the unlinked variable interest component of a mortgage to 33% of the total. At the same time, the proportion of Consumer Price Index (CPI) linked mortgages, in which the interest is revised every over five years, rose from 9% of new mortgages in the first quarter to 42% in the second quarter.
Leumi Mortgage Bank granted NIS 2.6 billion in new mortgages in the third quarter, 12% less than the NIS 3 billion granted in the corresponding quarter. Net profit fell 27% to NIS 43 million for the third quarter from NIS 59 million for the corresponding quarter, due to a NIS 6 million provision for doubtful debts compared with NIS 13 million income on this item for the corresponding quarter.