Financiers blame increase in applications on economic downturn and annual bonus cut-back
Some banks are forecasting a 20 per cent increase in tax loan applications amid the economic downturn.
They predict workers who have either been laid-off or told they will not be receiving the traditional Christmas or year-end bonus - will be applying for the loans.
Hong Kong Chinese Bank head of consumer finance Albert Yip Chin-yung said they had reduced their loan rates.
Mr Yip said they had forecast a 20 per cent increase in tax loan applications because of the tough times.
He said most customers applying for tax loans were civil servants, teachers and professionals who borrowed on average $80,000 each.
Bank of America (Asia) first vice-president of marketing and planning Katty Leigh said the number of applications for tax loans to the bank had increased by more than 20 per cent since they launched a new programme last month.
But in general the bank had forecast a drop in the amount of total tax loans for the Hong Kong market.
'Customers used to borrow for investment purposes but given that investment sentiment is weak, we expect borrowing this year will be reduced by 10 to 15 per cent,' Ms Leigh said.
'I think during this period customers would rather save,' she said adding that 'the encouraging thing is we have experienced an overwhelming response since we introduced our new programme last month'.
A Shanghai Commercial Bank spokesman said they also expected more people to apply for tax loans because of the economic downturn.
'We have heard that a lot of employers are cutting double pay and bonuses which are a traditional source of funds for individuals to make their tax payments,' the spokesman said.
Cathay Pacific announced last month that staff bonuses would be withheld, citing financial difficulties resulting from the September 11 terrorist attacks in the United States and the global economic slowdown. The move was then followed by ATV and there are fears other companies will follow.
Ms Leigh said most applications were for loans of $50,000 to $100,000.
Financial planners advise consumers not to ignore the annualised percentage rate (APR) when comparing the costs of tax loans.
When banks calculate the APR they include all costs incurred, such as handling fees or insurance benefits.
Ms Leigh said the APR showed the true borrowing costs and provided a better picture of how much money consumers would have to pay.
'Be aware of what you're paying for - you need to be careful when looking at the fine print for hidden fees,' the Bank of America official said.
