As recession takes hold, HK banks worry about risk of easier mortgage rules

The Bank of East Asia

14/11/2019 03:02

* Recession, unemployment may weigh on borrowers repayment
ability
    * Mortgage delinquency ratio in HK near historic lows of
0.02%
    * Banks plan to raise mortgage credit costs, reduce
discounts
    * Hong Kong banking sector risks lowest among peers - S&P   

    By Clare Jim and Sumeet Chatterjee
    HONG KONG, Nov 14 (Reuters) - Even as Hong Kong has reduced
down-payment requirements to help young professionals and
families to buy homes, banks are beefing up mortgage application
standards to ensure that a recession does not saddle them with
bad loans, bankers and mortgage brokers said. 
    Last month, Hong Kong Chief Executive Carrie Lam, struggling
to restore confidence in her administration after five months of
civil unrest, approved rules allowing first-time homebuyers to
borrow as much as 90% of a HK$8 million ($1 million) home's
cost.
    Earlier, such a high ratio was only permitted on properties
worth half as much. The move increased sales of used
homes. urn:newsml:reuters.com:*:nL3N2721EX
    But as the protests take a heavy toll on the special
administrative region's economy, banks fear a deepening
recession, unemployment and bankruptcies, which could make it
hard for borrowers to pay them back, two bankers said.
    Historically, mortgage delinquency is rare in Hong Kong,
with a rate of about 0.02%.
    HSBC  HSBA.L , one of the top mortgage lenders in Hong Kong,
recently issued a guideline that buyers cannot have a mortgage
payment that exceeds 65% of their monthly income, must hold a
full-time job and own no other property, said two industry
sources. 
    Lenders including HSBC, Standard Chartered  STAN.L  and Bank
of China Hong Kong  2388.HK  also plan to increase interest
rates for mortgages and reduce cash rebates to borrowers in the
months ahead, two bankers said.
    The cash rebate - essentially a discount - has come down to
as low as 0.5% now, compared with an average of 2% earlier this
year. Some banks are planning to phase it out completely, they
said.
    "We have to use all the tools... to protect our
profitability and asset quality in this environment. You will
see more measures in the next few months," said a Hong
Kong-based banker with a European bank. 
    All of the bankers, industry sources and mortgage brokers
declined to be named as they were not allowed to speak to the
media. 
    HSBC said in a statement that it had continued to accept new
mortgage applications "as usual" since the announcement of the
new easing initiatives, and applications are considered on a
case-by-case basis.
    Standard Chartered said it would continue its "prudent
approach to risk management and returns" and would closely
monitor the market situation to review its strategy. Bank of
China Hong Kong  did not respond to a request for comment.
    Some banks in Hong Kong have raised interest rates for new
mortgages twice since August by a total of 25 basis points, even
as they cut their best lending rates recently for the first time
since the global financial crisis.  urn:newsml:reuters.com:*:nH9N25101G
    A month after Lam's announcement, property agents said most
buyers of small to medium-sized flats are borrowing more of the
value of the home, while their financial power appears to be
weaker than previous customers'.    
    "We got more enquiries from clients who were not clear about
their repayment capability," said Cookie Wong, a managing
director of Ricacorp Mortgage Agency. "Some of their income only
reaches the bottom line of the requirements, unlike before, when
 those buying the HK$10 million flats were much more cash
sufficient."
    Hong Kong's home prices fell 4.1% from June to September,
but are still up 5.9% this year. 
    "The government measure is like giving a credit card to the
primary school students, who shouldn't be buying homes. When
they buy at this expensive level, they'll be trapped once prices
fall," said a representative of a property developer, who
declined to be named as he was not authorised to speak to the
media.
    Some analysts, however, say that as long as the banks keep
stringent borrowing standards, there will be little systemic
risk, and borrowing costs are unlikely to rise sharply in the
near term. 
    "We do not expect the banking sector to materially relax its
underwriting standards. We consider Hong Kong's banking industry
risk to be the lowest among its peers," rating agency S&P said
in a report on Oct. 29.

 (Editing by Gerry Doyle)
 ((clare.jim@thomsonreuters.com; +852 2912 6653; Reuters
Messaging: clare.jim.thomsonreuters.com@reuters.net))