In recent months, small and medium-sized banks have embarked on a fierce mortgage war to lure customers, undercutting one another to a point which some industry analysts consider unhealthy.
In their defence, however, the accused banks argue that their moves have been encouraged by the Government's proposal to set up a US-style mortgage corporation in the territory.
The corporation would cut banks' loan exposure by sharing the risk. While the mortgage corporation is not yet in place, banks say they are already feeling more able to cut their profit margins to gain bigger market share.
The mortgage corporation, proposed by the Hong Kong Monetary Authority (HKMA), would operate as if it were a government-owned company. It would effectively increase the availability of mortgage funds to home buyers and reduce the liquidity risks suffered by banks.
The corporation would buy mortgage loans from banks and finance them through the issue of unsecured debt securities or mortgage-backed securities.
According to the HKMA's mortgage corporation proposal, the establishment of the new body would ensure the availability of mortgage funds, which would in turn alleviate potential upward pressure on the mortgage interest rate.
