HKMC to provide mortgage services in Malaysian venture
Government-run Hong Kong Mortgage Corp yesterday said that in March next year it would begin providing mortgage insurance services in Malaysia through a new joint venture, hoping to expand to other Asian and Middle Eastern countries in the future.
James Lau, chief executive at HKMC, said the move also could facilitate Hong Kong's aspirations of establishing itself as an Islamic financial centre.
HKMC and Cagamas, Malaysia's National Mortgage Corp, signed an agreement yesterday to establish a 50-50 joint venture company in Malaysia, with paid up capital of 100 million ringgit (HK$232.6 million).
The joint venture expects to commence operations in the first quarter of next year, providing mortgage guarantee cover - a kind of mortgage insurance - for conventional and sharia-compliant or Islamic home loans offered by banks in Malaysia.
'We can leverage Cagamas' expertise in Islamic finance to explore the opportunities in Middle Eastern countries next year,' said Mr Lau, adding that the joint venture may help make Hong Kong become a focal point for other Islamic financial services.
Chief Executive Donald Tsang Yam-kuen, in his policy address in October, called for the development of an Islamic finance market in the city in a bid to capture a share of Muslim investment worth an estimated US$700 billion to US$1 trillion.
'It could be a help in the long run when HKMC has established its relationship with Cagamas and extended the co-operation into other business areas,' said Billy Mak Sui-choi, an associate professor at Hong Kong Baptist University's department of finance and decision sciences.
Cagamas, which buys mortgage loans from lenders, had outstanding housing loans worth 12 billion ringgit or 9 per cent of the home loan market at the end of last month. It is also the largest private debt issuer in Malaysia and since 1987 has issued 209.9 billion ringgit of conventional and Islamic debt to finance its purchase of housing and property loans.
One analyst said HKMC's move was more aimed at diversifying its income stream. If the government agency simply wanted to establish an Islamic finance market, it could issue Islamic bonds in Hong Kong.
'The only concern is whether they might face a hit like the US subprime problem in the new market,' the analyst added.
The average loan-to-value ratio for mortgages in Malaysia is about 80 per cent to 90 per cent, while the non-performing loan ratio is about 3 per cent.
Steven Choy, president and chief executive at Cagamas, said the company knew the market well and had a good record of earnings.
Mr Choy added that the mortgage market in Malaysia was about 140 billion ringgit and expected new loans to increase 40 billion ringgit a year.
He said it was difficult to predict earnings for the joint venture, but that 'the break-even point would not take long'.
