THE first mortgage securitisation to be conducted in Hong Kong for five years could herald a flood of other such arrangements on to the market in potentially the most significant shake-up in the banking industry for years. Investment bank Salomon Brothers is responsible for underwriting the issue, which will be presented within the next month. The name of the issuer has not been announced, although John Lim, director of fixed interest products at Salomon, refused to rule out a major bank. Most analysts familiar with the product believe the offering is likely to draw a yield of about 6.5 per cent and be structured on a variety of short-and long-term notes. Bankers across Hong Kong have expressed their support for the development of what is potentially a massive new capital market offering high-quality bonds with yields at a premium to existing fixed-interest securities. Clint Marshall, assistant general manager of corporate banking at the Hongkong Bank, said the instrument could also perform a social role by liberating banks from the constraints capital adequacy ratios place on their ability to satisfy mortgage demand. He confirmed that Hongkong Bank had been looking seriously at the option of securitising part of its portfolio, an idea he said was unthinkable a decade ago. Anticipating the development of a highly capitalised liquid secondary market, Chase Manhattan Bank's Jim Brew said the mortgage bond could become the preferred product for companies forced to hold large amounts of cash in Hong Kong dollars. Although banks have long been ambivalent to the idea of securitising their high-yielding mortgage assets, attitudes are changing. Most have loan books severely overweight in mortgage assets, which, measured against a short-term and mercurial-deposit base, make the logic of a liquidity raising exercise compelling. A keen advocate of securitisations, Mr Brew said banks in Hong Kong were caught in a ''structural squeeze'' between their unpredictable deposit base and the strong retail demand for mortgages. The main problem in pricing this kind of product is predicting the likely rate of redemption of mortgage holders. If a large portion of the underlying asset is cashed in by home owners refinancing up the property ladder, the yield-to-maturity calculations have the habit of going awry. Admitting the problem, Salomon's Mr Lim said the lack of historical statistics relating to redemption and delinquency figures among mortgage-holders made the issue more complicated. The history of mortgage securitisations in Hong Kong is an unspectacular one. Chase Manhattan made an offering in 1988 with the assets placed to a small group of institutional investors, but subsequent attempts by Citibank, Standard Chartered and First Pacific never made the grade, running into underwriting problems of putting a pool together. Other likely candidates for a mortgage bond offering are mass residential developers, such as Cheung Kong and Henderson Land, which have been issuing their own mortgages to compensate for banks' reluctance. While their exposure to mortgage lending represents only a small percentage of total mortgage assets, Franklin Lam, Salomon's head of research, said: ''Banks' current policy on lending means the corporate sector will need to develop its own solutions.'' He said de facto securitisation had been going on with developers issuing convertible bonds with one hand and granting home mortgages with the other. Critical to the success of Saloman's product would be the composition of the mortgages on offer, said Mr Marshall. He wanted the prospectus to reveal the underlying assets.