Inquiry raises questions about ANZ margin loan practices
The Parliamentary Joint Committee (PJC) on Corporations and Financial Services has quizzed the representatives of ANZ Bank on the loan to value ratios (LVR) involved in its margin lending practices.
Speaking at the public hearings on the PJC inquiry in Melbourne, the inquiry questioned the representatives on what they considered a safe LVR to be in the context of margin loans.
According to ANZ representatives, LVRs vary from stock to stock, with blue chip stocks receiving a LVR of 75 per cent, while other stocks could be limited to 45 per cent. The LVR also depended on the assets that an investor held.
However, the chairman of the inquiry, Bernie Rippoll, questioned those levels of LVRs, saying those ratios “went out the window” in a situation such as the global financial crisis.
A more significant issue for managing the risks of a margin loan than LVRs was encouraging the use of margin loans for diversified investments only, ANZ representatives said. Margin loans for diversified investments lowered the risk “dramatically”, they added.
The ANZ Bank head of government and regulatory affairs, Jane Nash, said the relevant issue for a margin loan was instituting responsible lending practices, including asking the client what the loan would be used for.
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