The Hong Kong Monetary Authority is looking to rein in personal lending ahead of a widely expected increase in borrowing costs later this year.
Banks have been ordered to conduct internal stress tests on their personal loan portfolios based on a rise of 3 percentage points in interest rates. They will have to review personal loan exposures and approval procedures, and by March, bring them in line with the parameters set by the authority.
The HKMA said that while the growth of property mortgage loans had moderated, the size of loans and advances for other private purposes had soared to HK$343 billion in September last year from HK$209 billion in December 2007.
The ratio of household indebtedness to gross domestic product rose to 61.2 per cent from 50.4 per cent over the same period, according to the HKMA.
The higher the ratio, the more vulnerable banks are to an increase in interest rates or an economic downturn.
The latest clampdown on personal lending has come as a jolt to bankers, who worry it may hurt interest income.