Bankers urge broader guidelines to assess risk in property lending
By NOEL FUNG
RESPONDING to a call to cap property exposure, bankers say guides other than its proportion of the total loan portfolio should be used to assess risk in property lending.
The Hong Kong Monetary Authority had advised the banking community to place a ceiling on property exposure, including both residential mortgage loans and lending for property development and investment.
Banks with property lending comprising more than 40 per cent of their total loans for use in Hong Kong were asked to stabilise or reduce that percentage.
However, bankers argued that the quality of the portfolio should be taken into account in assessing risk.
''One should consider the repayment ability of the borrower, the nature of the project, the type of property and the loan structure. There is an enormous range of property lendings,'' one banker said.
''The type of property lending likely to be affected by a property market downturn are those for which the developers depend on the success of the project to repay the banks,'' he said.
The mix of various property lending should also be a crucial factor.
Mortgage lending to end-users on flats priced below $3 million is regarded as relatively low risk and it should not be a cause for concern if it makes up 30 per cent of the loan portfolio.
The 40 per cent guideline resulted from statistics showing property lending as a percentage of loans for use in Hong Kong had been steadily climbing, from 31.94 per cent in 1989 to 37.63 per cent last year.
But there are bankers who feel the percentage level as an average figure does not represent the existing exposure to the property market by most banks.
''I suspect that the true figures for most banks in Hong Kong are well above that level,'' one said.
The authority also recommended a 15 per cent annual growth rate for banks' property lending, tuning the increase to the current growth of nominal gross domestic product (GDP).
However, a banker said an individual bank's total loan growth and its loan-to-deposit ratio should be counted in judging whether the level of growth was appropriate and prudent.
''If the bank's total loan-book increases by 30 per cent, there is nothing wrong with property lending going up 20 per cent,'' he said.
Banks were also advised to follow the market practice of financing not more than 50 per cent of the site cost in individual developments or more than 60 per cent of the acquisition cost of completed investment properties.
Nor should banks finance residential mortgage loans provided by property developers.
But bankers said property developers requesting funds in the form of syndicated loans for working capital purposes made it difficult to trace where the money would go.
Residential mortgage lending rose by 15.1 per cent last year while lending for property development jumped by 25.8 per cent, drawing concern from the banking supervisor.