With two offers out, lenders plot tactics amid expectations of greater demand Competition in the tax loan market is likely to be hotter than last year despite salary tax changes boosting the pool of potential borrowers, bankers say. So far, only two lenders have announced their offers - Bank of America (Asia) last week and Dah Sing Bank yesterday - with Wing Hang Bank's unsecured lending arm having also unveiled a special tax loan for customers transferring loan balances from other banks. While the tax loan race that traditionally peaks in late November and stretches into late February has only just begun, some observers are already baffled by what they describe as highly aggressive pricings. At 5.08 per cent, the lowest annualised percentage rate from Dah Sing - offered on loans of $400,000 or above - is only 67 basis points above the latest one-year Hong Kong interbank offered rate (Hibor). Hilda Ng Kwok-yan, assistant general manager at key tax loan player Wing Hang Credit, said she was surprised by the 'interest rate depth' of Dah Sing's offer. 'We are expecting a more uncertain market this year because of the increase in funding costs since a year ago,' said Ms Ng. 'On average, Hibor has increased by between 2.5 and three [percentage points], which is why many banks have been adopting a wait-and-see attitude. 'I expected the lowest rate we would have seen at this time to be between 6 and 7.5 per cent. So, frankly, I'm a bit surprised by Dah Sing's offer.' And while history suggested that Wing Hang would soon join in, Ms Ng refused to disclose when her bank would unveil its own offer or whether it would match Dah Sing's. Vivian Chan Wai-see, head of products and marketing at Dah Sing Bank's personal banking division, expects the overall tax loan interest rate this year will rise by two to four percentage points compared to last year. Both Ms Chan and Ms Ng agreed that lenders are looking at a bigger pie this year, thanks to increases in personal salary tax allowances and tax rates. 'The economy is getting better now,' said Ms Chan, who predicted a 20 to 30 per cent increase in tax loan volume for her bank compared to last year. 'And if you look at the tax bills, many people are paying higher taxes because of the changes in the tax scheme.' However, Ms Ng estimates 15 per cent volume growth for Wing Hang. 'While we still believe the market has grown quite a lot compared to last year, the public response we've received so far suggested that some potential applicants have been put off by the high interest rates,' she said. Ms Chan said she expected 'fierce competition' between banks for tax loan customers and they would use different strategies and market gimmicks to fight for business.