China risk is the real worry for Hong Kong banks
While HKMA boss fusses over trifling mortgage delinquency ratios, exposure to borrowings from across the border should be his target
[Hong Kong Monetary Authority chief executive Norman Chan, in an article posted yesterday on the website of the city's de facto central bank, wrote that ... mortgage loan growth calculated on a yearly basis has shrunk to 4.2 per cent from 8.7 per cent in 2010.
"These figures show the growth in mortgage loans has been brought under control ..."
Front page, July 15
Let's get one thing straight about Hong Kong mortgages right away. They are among the soundest asset any bank anywhere has ever had and they have always been so.
As the first chart shows, even at the height of the property slump in 2001, with residential prices on their way to a 70 per cent collapse from their 1997 peaks, the six-month mortgage delinquency ratio never went above 1 per cent.
At the moment it runs at one hundredth of 1 per cent. Only one in every 10,000 mortgages is six months in arrears of payment. We are talking of little more than difficult probate cases or people who are in prison and can no longer make autopay.
Of course there are reasons for this other than that Hong Kong people feel their financial obligations keenly, although they do.
Traditionally, if your bank forecloses on you it can sell your property at only the value of your outstanding mortgage balance. Someone in the know - we say no more - may then just happen to buy it at that bargain price.
The painful lesson is one that mortgagors feel keenly even in prospect. So what is Norman Chan on about with this talk of mortgages brought under control?
Of all the credit risks that could possibly worry him, he frets about the one with a delinquency rate of 0.01 per cent. Here is a man who obviously needs a dictionary to look up the word "priority". Let us give him a hand.
The second chart tells you where the danger to the Hong Kong financial system really lies.
It shows that since 2006 loans for the purchase of residential properties in Hong Kong have declined from 26 per cent to 14 per cent of all loans made in Hong Kong.
It also shows that the banking sector's exposure to non-bank borrowers in China has risen over that period from less than 10 per cent of total loans in June 2006 (earlier data is not available) to 56 per cent at present.
Let's put this into context. What do you think that the top man at the Reserve Bank of New Zealand might say if lending to Australian borrowers went from nothing to 56 per cent of the loans of all New Zealand banks in the space of just eight years?
He wouldn't be moaning about sheep purchases or car loans, would he?
And given the scare stories now coming out of China about wealth management products and developer finances, even Aussie dollar lending might seem a good risk, well, it could, you know.
Norman, you're looking at a ripple of a wave that can't even move the sand on the beach while a tsunami is coming in right behind your back.