Guideline lifting likely to be ignored - as before
There are three points worth making about the decision by the Hong Kong Monetary Authority (HKMA) to scrap a guideline introduced in 1994 which restricts property lending to 40 per cent of total loans.
The first is that the banks never seem to have paid much attention to it. The latest figures show that in March property loans of all forms, including loans to developers and mortgage loans, stood at 48.9 per cent of HK dollar lending by authorised institutions.
This figure, which the chart shows has steadily risen in recent years, has been more than 40 per cent since early 1993. The only way it can be made to come close to the guideline is by excluding loans for Home Ownership Scheme (HOS) and Private Sector Participation Scheme housing on the grounds there may not be as much risk in this form of property lending.
But even then the latest figure for property to total loans was 46 per cent and it went beyond 40 per cent in early 1995.
Nor is there much prospect that the ratio will decline soon. As the second chart shows, property-related loans are still growing faster than overall lending. But they have peaked and are headed down. There are three months more data on the chart for total loans, which suggests property loans also continued to decline, but it will have had to be a very steep one to bring the property to total loans ratio down.
The second point is that the restriction may have limited the ability of the banking system to lend to other industries rather than leave more money available for them. Most banks in Hong Kong are glorified pawns shops when all is said and done. If a borrower wants to finance imports of raw materials for a factory they will ask for collateral and this invariably means property.
If the loan is then treated as a mortgage, and for smaller borrowers it would be, a property loan ceiling could mean that a perfectly reasonable loan is refused where it might otherwise be approved. This sort of restriction can hit industry as hard as it hits property speculators.
The third point is that much as the HKMA protests that the decision to drop the restriction was independent of Government measures to boost the economy, the Government certainly has reason to welcome the decision.
It faces growing numbers of prospective HOS purchasers who have walked away from their deposits rather than complete their purchases at prices higher than they can get elsewhere in the market. And this comes at a time when HOS construction is to be boosted.
The Government is already threatened with a huge fiscal deficit because of this trend in the market.
Anything that boosts property lending and sends prices back up will help it control this deficit and has to be welcomed.
But it is unlikely to make much difference. A limit which the banking system has ignored will not be much noticed when it is lifted. The value of the HKMA's announcement is to send another signal to the market that officialdom will not clamp down on rising property prices immediately this time round.