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Raymond Ma

HSBC registers 40 per cent increase in mortgage loan restructuring as virus brings more economic problems

HSBC has seen a 40 per cent increase in mortgage loan restructuring as rising bankruptcies, increased taxes and the economic fallout of Sars take their toll on people's ability to pay their debts.

Hong Kong's largest bank had responded to a deteriorating negative-equity situation, caused by continuing falls in flat prices, by extending payment terms for distressed borrowers, HSBC  general manager Raymond Or Ching-fai said.

'We can see that the [bad] economy has hurt people's ability to repay loans,' Mr Or said. 'When the government announced it would raise taxes, and during the outbreak of Sars ... home loan restructuring has also shot up by more than 40 per cent at HSBC.'

Mr Or was speaking after the Hong Kong Association of Banks' weekly meeting.

Despite property prices falling more than 65 per cent in the past five years, mortgage defaults remain low as banks have generally taken a flexible approach to restructuring payment terms, a process that usually allows borrowers to extend their repayment period or arrange for interest-only payments through times of hardship.

The ratio of rescheduled loans to total outstanding mortgage loans stayed steady at 0.46 per cent in March, indicating bank asset quality remained stable.

However, analysts warn that if banks are forced to increase mortgage loan restructuring in response to worsening economic conditions, a degradation of their  loan assets could quickly follow.

'It does indicate that with rising unemployment, people are finding difficulty in repaying their mortgages ... it depends on how much more restructuring will happen,' DBS Vickers banking analyst Tony Liu said.

'The worst case is there may be some increase in delinquencies which, right now, is very low, but it may go up.'

The latest data from the Hong Kong Monetary Authority shows that 1.11 per cent of outstanding mortgages were delinquent in March, up slightly from the previous month.

Mr Or, who is also the chairman of the Hong Kong Association of Banks, admitted mortgage-asset quality had declined further last month, increasing the amount banks needed to write off.

Lower property prices and higher bankruptcies were the main reasons for the worsening situation, Mr Or said.

He said he expected the number of bankruptcy orders, which is linked to unemployment and which rose by 53 per cent last month, to continue to rise this month,  as the impact of Sars was seen  on paper.

'Bankruptcy numbers are pegged to unemployment ... if one goes up, so will the other,' he said. 'I don't think the full-year bankruptcy numbers for 2003 will be better than last year.'

On a positive note, Mr Or said credit-card spending by local consumers at HSBC had returned to March's pre-Sars levels, but he admitted that spending by tourists had dropped dramatically.

'In terms of spending by overseas tourists, that is gone. There was a great drop in that area because tourists have stopped coming to Hong Kong,' he said.

He said Hong Kong's bad credit-debt problems had probably peaked and the banks would not face substantial charge-offs this year. 'Last year, banks learned a lot about credit-card approvals, but I won't be surprised if write-offs rise a little,' he said, adding that the size of individual cases of credit-card write-offs due to personal bankruptcy had also reduced.



Borrowers suffer Sars pain