HONG KONG'S smaller banks have lobbied banking commissioner David Carse to raise the 70 per cent mortgage ceiling but had their request denied, it has emerged. They asked the Hong Kong Monetary Authority (HKMA) to raise the ceiling as fewer people are taking out loans and lending margins are tightening. Mr Carse confirmed informal approaches had been made to the HKMA by several small banks. However, he said no change was imminent, and did not reveal which banks had made the request. Mr Carse said the HKMA constantly monitored opinions in the marketplace and if the ceiling were raised it would be based on prudent banking practice. He said the 70 per cent rule was a guideline for the territory's banks, and most did not want to increase their proportion of lending against the value of property. Earlier this month, David Li Kwok-po, chief executive of the Bank of East Asia, suggested the mortgage lending limit be raised to 75 per cent. Mortgage lending has been a primary source of profit for many of Hong Kong's smaller banks, but since the property market dropped fewer people have been taking out loans. Mortgage approvals fell 31 per cent year-on-year in December. Loans approved but not yet drawn declined 38.7 per cent to $3.02 billion. Bankers doubted the HKMA would change the guidelines, given the fragile state of the property market and the possibility that many households were moving towards negative equity - where they faced paying off properties whose value had plunged. 'If the banking system collapses under a mass of bad property debt, people will blame the Monetary Authority, not a group of small banks,' Peregrine banking analyst Bruce Freedman said. James Brew, head of retail banking at Chase Manhattan, said the suggestion to raise the ceiling was reckless. With an increasing number of households having loans of greater value than the value of their homes, the HKMA should resist change. He said change was highly unlikely and that the policy had stood for long enough to render speculation pointless. Mr Carse said the HKMA would not encourage banks to increase loan-value lending to halt the slide in house prices, even though protracted falls could threaten the viability of assets. Encouraging banks to raise the mortgage limit would have little effect on the housing market since housing demand determined the demand for mortgage lending, he said. Guoco Group managing director Werner Makowski said banks would be foolish to increase loan-value ratios during such uncertainty in the property market. The 70 per cent rule existed as a guide for aggregate mortgage lending but was not strictly enforced. When an applicant displayed above-average financial security, the limit could be exceeded, he said. Alan Hutchison, deputy research director at Morgan Grenfell Securities, said both Hongkong and Hang Seng banks - the largest lenders - had reduced their mortgage exposure as a percentage of total assets in the past two years.
