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Peggy Sito

The continuing mortgage war between banks could be unhealthy for the sector, according to the Hong Kong Monetary Authority.

 HKMA figures revealed that mortgage lending continued to decline in August with gross new loans plunging 20.2 per cent to $9.7 billion.

 This compared with a decline of 13.5 per cent recorded in July.

 New loans approved during the month decreased 16.6 per cent bringing the value to $8.8 billion.

 The authority said refinancing loans accounted for $2.3 billion, or 25.7 per cent of the new loans approved.

 David Carse, acting chief executive of the HKMA, said the proportion of refinancing loans had risen significantly in recent months.

 This indicated that the aggressive marketing efforts of banks, including the use of cash rebates or equivalent to property agents for business referrals, tended to increase the amount of switching of existing mortgages rather than generating new business, Mr Carse said.

 'The effect, therefore, is to increase the volatility of banks' loan portfolios while driving down the return from mortgage business.

 'The HKMA believes that this is a potentially unhealthy situation, and that greater restraint by banks in their marketing efforts may be called for.'  On the pricing front, 82.5 per cent of the new loans were granted at the best lending rate.

 Loans granted at below the best lending rate for the whole term of the mortgage amounted to 1.3 per cent of the new loans approved, reflecting the keen competition for mortgage business, the HKMA said.

 Hong Kong Property Services (Agency) managing director Michael Choi Ngai-min said the declining mortgage business reflected the stagnation of the local property sector.

 Mr Choi said transactions on property could see an improvement in the next couple of months assuming Chief Executive Tung Chee-hwa announced encouraging news to boost the economy and property market in his third policy address next Wednesday.

 Mortgage lending was unlikely to pick up until there was a firm recovery in the real estate sector, he said.

 Loans approved during the month but not yet drawn fell 13.7 per cent from $7.7 billion in July to $6.6 billion in August.

 The loan delinquency ratio declined to 1.11 per cent in August, compared with 1.13 per cent in July.

 The ratio is measured by the number of mortgage loans overdue for more than three months compared with outstanding mortgage loans.

 'The decline in the loan delinquency ratio for the third consecutive month indicates that the quality of the mortgage portfolio is improving,' Mr Carse said.

MORTGAGE LENDING 



HKMA warns on bank war