Men with personal loans
How can some Hong Kong borrowers make monkeys of local personal loans?
If you work and live in Hong Kong, I’m pretty sure many of you must have received dozens of cold calls from commercial banks like HSBC and Standard Chartered already this year.
For what? They want to offer you personal loans. In some cases, you can get even more than one million Hong Kong dollars.
On average, I get at least one of these calls a day -- and that makes me wonder if those Hong Kong banks are drowning in deposits as liquidity swamps the city’s banking system. Otherwise, why would they bother to phone perfect strangers, begging them to take some money off their hands (even if it’s only for a set term and they get charged interest)?
The telephone conversation usually starts like this: first, a bank sales representative will say “congratulations” to you because the bank has offered a so-called “preliminary approval” for your personal loan. If you want to know more details, the sales person will be very happy to try to convince you how low the interest rates will be.
Our banking reporter Lulu Chen noted that in Hong Kong, lending profitability already stabilised this year after many local banks experienced a tough squeeze in its net interest margin in 2011.
This year some Hong Kong banks are hesitated to provide loans to small- and medium-sized private companies amid growing worries about global economic outlook. Several commercial banks, including Singapore's DBS that has been expanding its business aggressively in Hong Kong in the past one to two years, already said that their loan growth could slow down for the rest of the year.
In this case, some of the banks apparently decided to turn to high-quality individual clients. Typically, those target customers for personal loans are individuals who have healthy credit record at the banks and also have good and stable jobs that can make sure their payrolls are secured to repay the loans in the future.
Technically speaking, when the banks provide you personal loans, they should ask you what you will use the loans for, but it is just difficult in practice for the banks to follow up and monitor how the money is spent from the beginning to the end.
And indeed, Hong Kong’s lending rates are low enough these days – particularly when you compare them with benchmark rates on the mainland. That’s why one of my friends, who is originally from Shanghai and now has a decent job in Hong Kong, recently decided to take up one of these personal loan offers from a major bank in the city.
Here’s his plan: he took out a personal four-year loan of about HK$1.5 million with a fixed annual interest rate of just over 3 per cent. Then he took the loan back to Shanghai and bought an apartment with his own savings and the personal loan he got in Hong Kong as his first downpayment.
How’s that for smart? The benchmark mortgage rate on the mainland is more than 7 per cent these days, compared with my friend’s Hong Kong personal loan repayment rate of just over 3 per cent.
You may well ask how he gets the money back to Shanghai -- because we all know China’s foreign exchange controls are strict. They’re strict, but far from watertight. You’ve probably heard about “underground banks”, which are doing a booming business despite repeatedly coming under attack from regulators in Hong Kong and mainland China.
Could it be that many more people like my friend are making monkeys of the banks in Hong Kong?
Photo: A bus terminal in Wan Chai district, Hong Kong, seen on Nov. 7, 2009 (George Chen/SCMP)
George Chen is the financial services editor at the South China Morning Post. The opinions expressed in the column Mr. Shangkong are all his own. Follow him on twitter.com/george_chen or weibo.com/georgeschen