HKMA fears that large sweeteners designed to attract mortgage customers will expose lenders to unnecessary risk Hong Kong money lenders are trying to think of new strategies to net customers after the Hong Kong Monetary Authority imposed curbs on the cash rebate banks are allowed to offer their mortgage customers. Some small banks are considering giving clients a grace period before they cut the rebates, while others are thinking up new incentive packages in order to attract borrowers. Lately, banks have been forced to cut back on sweeteners after the banking regulator decided that large cash rebates would open lenders to high operating risks. In a circular issued on Monday, the authority said any cash rebate of more than 1 per cent of the loan would be treated as part of the loan in calculating the loan-to-value ratio. Banks, awash in cash and competing fiercely for mortgage business, have been offering cash rebates of 1 per cent to 1.5 per cent. The cash rebate is not counted as being part of the loan. Brian Cheung Nam-chung, senior manager of Liu Chong Hing Bank, one of Hong Kong's smallest lenders, said the bank was considering a one-month grace period because it was receiving lots of inquiries about the curbs. The bank offers borrowers a cash rebate of 1.6 per cent of the loan amount. 'A lot of customers have told us they are now willing to sign up for a mortgage, if they can get that incentive,' he said. Normally, homebuyers must complete a mortgage application one month after signing the formal sales and purchase agreement. Mr Cheung said the HKMA's guideline came as a surprise to the industry, and that it took the bank time to respond. 'We also have to review all our joint payment schemes with developers to see if they are in line with the regulator's rule,' he said. During the transitional period, the bank might offer a 1 per cent cash rebate and other incentives equivalent to 0.6 per cent of the loan amount to customers, Mr Cheung said. 'We will comply with the HKMA ruling after the grace period.' Alex Tang Yee-man, associate director of Centaline Mortgage Brokerage, believes banks or financial institutions will reduce their cash rebate amounts in line with the regulator's requirements. But he said the curb would not dampen the enthusiasm of banks eager to attract customers in a highly competitive market. 'One lender told us they would be introducing an innovative mortgage package shortly,' Mr Tang said. Centaline recently teamed up with home loan insurer Pan Asian Mortgage to offer homebuyers loans of up to 99.9 per cent of the purchase price of a property. A Standard Chartered Bank spokeswoman said the bank had cut its cash rebate to less than 1 per cent for a 95 per cent mortgage insurance scheme. Before the adjustment, applicants under the mortgage scheme were entitled to a 'one-off interest subsidy' of 1.1 per cent of the loan amount. She said the bank's customers had received an average cash rebate of 0.8 per cent of the loan amount. Hongkong Bank chairman David Eldon said the guideline circular was a 'prudent and conservative statement', and added that he did not foresee any problems for the bank.