Bloomberg
Hang Seng and rivals including BOC Hong Kong (Holdings) Ltd. and Bank of East Asia Ltd. have cut rates to the lowest in at least 20 years, fueling an almost 30 percent gain in home prices last year. The Hong Kong Monetary Authority in September warned that such “intense price competition” isn’t sustainable and may erode the industry’s profit margins and increase risks.
“We have heard about rumors and reports that the HKMA may set a lower limit on mortgage rates,” Leung told reporters yesterday at a briefing in Hong Kong to discuss the bank’s 2009 earnings report. “Mortgage rates are already at a very low level and banks need to be able to make a reasonable profit.”
The HKMA proposed that local banks shouldn’t price their mortgage products below a given reference interest rate as the regulator seeks to limit risks to lenders, the Apple Daily reported yesterday, citing unidentified people. The HKMA has held meetings with banks since last week about the proposal, the Chinese-language newspaper said.
Feel the Width
Hang Seng is seeking to increase the volume of lending this year to compensate for the impact of low interest rates.
“We always feel mortgages are our main business and we have never initiated a price war, but at the same time we have to adjust our price to match rivals’ in order to maintain our market leading position,” said William Leung, an executive director and head of personal banking at Hang Seng.
The value of mortgages approved by Hong Kong banks rose 22 percent in January from a month earlier, snapping six straight months of declines, according to the central bank. The surge was mainly driven by sales of used apartments, Sharmaine Lau, an analyst at mReferral Mortgage Brokerage Services, said in a statement Feb. 25 on the company’s Web site.
Hang Seng accounted for the second-biggest share of Hong Kong’s mortgage market, with 15.4 percent of total loans at the end of January, according to mReferral. BOC Hong Kong was the biggest with 15.8 percent and Standard Chartered Plc was the third with 12.9 percent.
The Hong Kong Monetary Authority, concerned about the risk of a home-price bubble, last month warned there could be “sharp corrections” after an inflow of money from speculators in mainland China and overseas. Prices for new mass-market homes in Hong Kong may climb 15 percent to 20 percent this year, Justin Chiu, an executive director at Cheung Kong (Holdings) Ltd., the city’s second biggest builder, said in January.
Low Rate Future
The likelihood of the Federal Reserve holding down interest rates for an extended period adds to the pressure in Hong Kong, where the local currency’s peg to the U.S. dollar tends to keep rates in lockstep with the U.S.
The Fed has anchored its target rate for overnight loans between banks to a range of zero to 0.25 percent since December 2008. Fed Chairman Ben S. Bernanke said last week in his semi- annual testimony to Congress that rates will remain low for “an extended period” because the economy’s “nascent” recovery isn’t strong enough to bear higher borrowing costs.
London-based HSBC Holdings Plc owns about 62 percent of Hang Seng Bank.
--Editors: Ben Richardson, Chitra Somayaji
-0- Mar/01/2010 16:01 GMT
To contact the reporter on this story: Kelvin Wong in Hong Kong at kwong40@bloomberg.net
To contact the editor responsible for this story: Brett Miller at bmiller30@bloomberg.net
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