Margin lending has peaked

Margin lending portfolios grew by about 40 per cent a year in 2006 and 2007, as the long Australian equity bull market climbed towards its peak. Now that the market has turned the money is pouring out of margin loan accounts almost as fast as it went in.

St George Bank reported yesterday that margin loan outstanding fell 20 per cent from $3.2 billion at September 30 to $2.5 billion at the end of March.

The average loan to valuation ratio remains conservative at 43.8 per cent, although it has gone up 4.7 percentage points over the past year.

The bank made 2700 margin calls in January, compared to its monthly average of 426.

The bank has a $25 million margin loan secured by Octaviar (formerly MFS Ltd) shares and personal guarantees. A $20 million specific provision has been raised on a single margin loan.

The bank expects growth to resume in the medium term. It reported that account numbers had increased by 7.8 per cent in the March half.