AFTER adopting more stringent mortgage measures on the runaway property market to limit its exposure, Hongkong Bank has recorded for the first time in months a drastic fall in loan applications. The major mortgage-lending bank said it had seen a 30 to 40 per cent fall in August in loan applications for luxury flats, which it defines as those above HK$5 million. Edwin Lau, Hongkong Bank's assistant general manager for retail banking, said: ''Our new measures have taken noticeable effects.'' Earlier in July, the bank lowered from 70 to 60 per cent the maximum amount it would lend to buyers of homes priced above $5 million. Other loan applications have dived by 60 per cent since the bank, in conjunction with Hang Seng Bank, implemented six anti-speculative measures late last month. ''We expect the loan figures in September to have only marginal growth, if not negative growth - that is, repayment exceeding the draw-down amount,'' he said. Before taking the tough stand, Hongkong Bank recorded a 33 per cent rise in new accounts and a 60 per cent increase in loan balances in July. ''We were so overwhelmed by loan applications at that time. Though it is a profitable business on the retail side, we don't want to sacrifice the health of the banking business as a whole,'' Mr Lau said. The six-point package includes restricting pre-sale flat purchase mortgages to those less than six months ahead of completion date, levying heavier penalties on early redemption, and withdrawing finance from property with tenancy agreements. Furthermore, loans have to be drawn within 60 days of their approval. Borrowers were previously allowed six to nine months. These measures, introduced in late August, not only underline the inherent risk in lending to a rocketing property market, but also the bank's reluctance to overstretch in long-term lending. ''A mortgage loan is a long-term liability, sometimes over 20 years. Unless banks have sufficient core deposits to service the lending, maturity mismatches will occur when banks use short-term funds to cover long term lending,'' Mr Lau said. The bank did not want a portfolio in which home mortgages played a disproportionate part, he said. Plagued by slow deposit growth, banks' lending ability has been arrested. ''Banks' loan-to-deposit ratio in Hong Kong dollars is already well above 100 per cent. That's why a lot of small to medium-sized banks have to issue certificates of deposit,'' Mr Lau said.
