Top banks forced to pull back on higher rates

Big four lenders offer better mortgage terms to some clients as small players gain market share

PUBLISHED : Saturday, 01 June, 2013, 12:00am
UPDATED : Saturday, 01 June, 2013, 4:19am

Leading banks in Hong Kong are being forced to step back from their mortgage rate increases to defend their market share from smaller players.

The top four mortgage banks - Bank of China (Hong Kong), HSBC, Hang Seng Bank and Standard Chartered - are now resuming offering lower rates to selected customers or adding flexibility to the loan plans after raising the official rates in March.

"We are facing a net outflow of business as new loans shrink and existing clients repay their loans," a senior executive at a leading bank said.

The market share of the top four banks in residential and commercial property loans fell slightly to 69 per cent in April from 69.2 per cent in March, Centaline Mortgage Broker research based on Land Registry data shows. Banks are watching anxiously for the market share report for last month, in case they need to extend discounts further.

HSBC and Hang Seng have started to unofficially offer rates as low as 2.15 per cent to some clients. HSBC offers that rate to Premier account holders, people familiar with the situation said. Hang Seng is also doing so for its best clients. The best official lending rates remain at 2.85 to 3.15 per cent for HSBC and 2.4 to 3 per cent for Hang Seng.

The Hong Kong Monetary Authority ordered banks in February to hold more capital to back up their mortgage lending. The four banks raised their mortgage rates by 0.25 percentage point in March because their costs of capital had increased.

Few smaller banks followed.

However, even as property deals remain sluggish, money lenders are luring customers who fail the banks' stress tests. Figures from brokerage mReferral show the number of mortgage applications to non-bank institutions soared 48.7 per cent to 2,639 in this year's first four months from the same period last year.

Anthony Hong, an executive director of Hitachi Capital (HK), said mortgages were much larger in size than their vehicle leasing loans and "could bring a pretty good return to us, as the cost of funds remains quite low under quantitative easing".

The senior bank executive said: "At this stage, we still hope to keep the shelf price unchanged, so we offer lower rates only to our high-end clients."

Standard Chartered launched a new fixed-rate mortgage plan on Thursday, following HSBC and BOCHK. It offers a fixed rate of 3.25 per cent for the first 10 years, and prime minus 2.85 per cent for the rest of the term. BOCHK and Standard Chartered also are allowing borrowers to transfer their fixed-rate mortgages to a new home loan when they sell a flat and buy a new one.