Tax loan rates set to hit historic lows

Cuts in bonuses this year expected to result in surge of applications

PUBLISHED : Wednesday, 19 October, 2016, 3:30pm
UPDATED : Wednesday, 19 October, 2016, 11:26pm

Hong Kong’s banks are expected to offer record low rates on tax loans this year, the result of higher demand from consumers, and cheaper than expected access to funding for the lenders themselves.

The expected rise in number of people applying is being attributed to companies not paying, or paying less in bonuses this year, a popular way for many to pay their tax.

Income tax in Hong Kong is paid retrospectively at the start of the calendar year, and it has become customary for banks to offer loans at accessible rates around then to borrowers, theoretically for the purpose of helping them pay their bills.

A number of banks have already announced their rates, and Rachel Lam, managing director at price comparison website Money Hero, expects rates to be at a historic lows this year, with competition for customers fiercer than ever.

We expect to see fierce competition over rates in the mid market category of people looking to borrow between HK$200,000 and HK$500,000
Rachel Lam, managing director, Money Hero

“Some have launched their tax loans earlier than usual, and we are seeing APRs (annual percentage rates) 0.2 or 0.3 percentage points lower than 2015.”

Lam said she had been surprised, particularly, by rates being offered by OCBC WingHang bank, Citi and Bank of East Asia, which are offering APRs of 1.25 per cent 1.59 per cent and 1.69 per cent, respectively.

“Of course, most consumers won’t be able to get such low rates,” she added, “although we expect to see fierce competition over rates in the mid market category of people looking to borrow between HK$200,000 and HK$500,000.”

Dah Sing Bank announced on Tuesday it was offering loans at 1.28 per cent to those borrowing more than one million Hong Kong dollars, as well as other qualifications.

Mickey Tang, Dah Sing’s head of banking products, said rates are so low this year, because the banks’ funding costs are less than previously expected.

“Liquidity in Hong Kong is more free-flowing, with the Fed holding off on raising interest rates, and this has meant that banks have been able to move their prices lower,” he said.

Although the banks are likely to profit less on tax loans this year, the large number expected to apply is expected to make up the balance.

Lily Lo, an independent economist, formally at DBS, said the expected rise in the number of people applying is because many companies are cutting back this year on bonuses, traditionally used by many to pay their bills, and even “starting to think about making cuts in staff”.

Not all borrowers targeted by banks for tax loans will borrow to actually pay their tax, and ICBC is offering a loan of up to 18 times a borrower’s monthly income.

“Another the reason why tax loans are popular is their convenience,” said Lo, noting that they are often available through internet banking services.

Convenience and ease of application is another battleground in the competition between the banks for customers in this area at this time of year.

“Besides interest rates, customers are also concerned about the complexity of the application process when they select their tax loan provider,” said Hilda Ng, general manager of OCBC Wing Hang Credit.