Smaller banks quit mortgage lending
With Hong Kong lenders continuing to suffer falling mortgage margins as they fight over a shrinking pie, it emerged yesterday that more banks will exit the new home-loan market.
Alex Tang, associate director of Centaline Mortgage Brokerage, a subsidiary of Centaline Property, said it had signed to refer home buyers to a group of 20 banks, but some had since told it they would no longer be offering home loans, at least until mortgage margins returned to healthier levels.
'Last year, particularly during the second half, some of the banks approached us and said they would not be offering mortgages any more because the profit margin was very low,' he said.
Mr Tang declined to name the banks or say how many, but said they had only small retail branch networks.
In December, Citibank said it was quitting the local mortgage market, citing unfavourable market conditions.
Meanwhile, the number of mortgages granted by banks fell 27.3 per cent last year to 102,724, from 141,233 in 2001, according to Centaline Property.
The agency said the fall was due to the government's halt to Home Ownership Scheme (HOS) sales and the general weakness in the property market.
The drop was led by a 52.9 per cent plunge in HOS sales, followed by a 19.7 per cent fall in industrial and commercial properties and a 12.4 per cent drop in private residences, it said.
According to Hong Kong Monetary Authority figures, the number of residential mortgages fell 7.8 per cent to 83,447 last year, compared with 90,475 in 2001.
The revelation that more banks are putting their mortgage business on the back-burner will come as no surprise to investment analysts, who have predicted that Hong Kong's smaller banks are set to be priced out of the market.
'The repricing of mortgages [for major banks] is done at the same time as the savings rate,' said UBS Warburg banking analyst Tracy Yu, adding that the large lenders had large pools of deposits and could immediately pass on any movement in the cost of funds.
'For the small banks, because their deposit franchise is not strong enough and the average funding cost is much higher than the major banks, they run a higher mis-match risk.'
Mr Yu said some banks were likely to exit the mortgage market by selling off their home-loan books.
Hong Kong banks pay only 0.01 per cent for deposits, so large banks have access to cheap funds, compared with smaller banks which must raise their cash on the money markets at rates of about 1.41 per cent.
According to Centaline Property, the top seven mortgage lenders in Hong Kong account for 75.7 per cent of the home-loan market, up from 75 per cent a year ago.
Centaline declined to identify the banks planning to withdraw from the mortgage market or give their number
Because their deposit franchise is not strong enough, small banks have higher funding costs
The top seven mortgage lenders in Hong Kong account for 75.7 per cent of the market