Homebuyers may face tougher mortgage stress test
Stress tool helps banks screen out people at risk of loan defaults as interest rates rise
Homebuyers could face a tougher stress test on interest rates to screen out people who cannot afford loan payments when rates rise, a top banker says.
Miranda Kwok, the chief executive and president of China Construction Bank (Asia) in Hong Kong, said a tougher stress test would be an option for the regulators if the government got worried about the long-term ability of homebuyers to make their mortgage payments as property prices kept rising.
The Monetary Authority, the city's de facto central bank, has already rolled out five rounds of measures to rein in the soaring home prices.
As property prices keep rising, commercial banks are anxious about when the sixth, which is likely to include a tougher stress test, will come. If such a measure is taken, people may find it more difficult to get mortgages from banks.
A person applying for a mortgage loan now has to pass a stress test showing his or her ability to meet payments should interest rates rise 2 per cent.
Kwok suggested that a more prudent way to screen out buyers at risk of defaulting on mortgages would be to raise the threshold to "3 or 4 per cent".
HKMA chief executive Norman Chan Tak-lam has warned interest rates may bottom soon.
"The mortgage business is down compared with 2011," Kwok said, without giving any figures.
To make up for the decline in mortgage business, CCB (Asia) plans to launch a pilot scheme in the second quarter to make unsecured loans to small and medium-sized enterprises (SMEs).
Kwok said SMEs would have to meet certain criteria to get the funding, "like having a minimum turnover and an underwriter".
She said the bank's SME loans used to start at US$1 million, but to compensate for the drop in mortgage loans, larger deals of HK$3 million to HK$4 million would also be "our cup of tea".
The pilot scheme would have a target of about HK$1 billion in total loans, without a specific timeframe to achieve it, she said.
Kwok said more than 20 per cent of consumer loans and deposits, including certificates of deposit, were denominated in yuan. This proportion would climb to about one third in two to three years.
CCB (Asia) has 51 branches in Hong Kong. Two new branches will be added this year.