How Lombard lending helps wealth management clients stay invested with flexible financing solutions
- HSBC’s Wealth Portfolio Lending service enables clients to borrow against the value of their existing investment portfolio
- The bank says it is the first in Hong Kong to offer an end-to-end digital solution, providing clients with speed and flexibility
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HSBC is continuing to deliver digital innovation for clients in Hong Kong. It is one of the first banks globally to offer a fully digital Lombard lending solution through its mobile banking app.
“Our clients want an increasing range of wealth solutions made available via their mobile phone,” says Ryan Haugarth, head of self-directed trading, capital market platforms and wealth financing solutions, wealth and personal banking, at HSBC in Hong Kong. “Lombard lending was historically an offline service offered to private banking clients. By bringing it online, we are making this highly efficient form of financing available to a wider range of customers.”
Lombard lending, also known as wealth portfolio lending (WPL), is the practice under which banks provide loans to clients, backed by their investment portfolios. Because the loans are secured against a diversified portfolio of assets, they generally offer more attractive borrowing rates than unsecured lending, and better loan-to-value (LTV) ratios compared to traditional margin lending.
Wealthy individuals often use Lombard loans to bridge short-term liquidity gaps, or as longer-term financing solutions to strengthen portfolio returns. The current macro environment of rising interest rates, high inflation, geopolitical tensions and concerns about economic stability have produced a period of heightened asset price volatility. While the swings in markets may appear daunting, for some they create an opportunity to enter the market or build up portfolios at attractive price points.
However, the challenge for many private investors is that they lack the liquidity or buying power to take advantage of these opportunities, without cashing in some of their existing holdings.
“To counter inflation, investors want their cash invested and generating returns, yet also want to stay liquid for emerging opportunities and other personal needs,” Haugarth says. “Wealth Portfolio Lending solves this with on-demand buying power that can be deployed 24/7 through HSBC’s online and offline channels. Our clients have already activated credit lines worth several billions of dollars. This flexibility costs them nothing other than a low rate of interest on the days they make use of the funds.”
HSBC’s WPL service enables clients with investment holdings to automatically qualify for credit lines of up to HK$39 million (US$5 million) that can be activated online, to boost their liquidity and buying power. Those credit lines can be used for any purpose, such as making new investments, purchasing a piece of art, buying a car, bill and tax payments, shopping or even refinancing business needs.
Customers can use a wide range of assets as collateral, including foreign currency savings deposits, time deposits, structured investment deposits, Hong Kong-listed stocks, unit trusts, HKEX-traded funds, bonds and certificates of deposit.
This new spending power is available for use within one or two working days, and appears as an increase in the client’s available balance. The funds can be spent using a wide range of HSBC online and offline channels, including online trading and fund transfer, as well as through a branch or ATM.
“Going digital makes Lombard fast and flexible, putting our customers in full control, from the initial online set-up to ongoing spending and repaying of the loans,” Haugarth says.
HSBC’s WPL service has been designed to be user-friendly and empower its clients. For example, the banking app helps them understand how each investment contributes to their available credit limit, and where they could optimise LTV ratios with better portfolio diversification. It also monitors negative price movements and margin shortfalls, and advises clients of actions that need to be taken to maintain liquidity.
WPL, which is available to HSBC Jade and Premier customers, also boasts some of the most competitive borrowing costs in Hong Kong – currently HSBC’s Hong Kong best lending rate minus 1.75 per cent. There are no fees to set up the facility and keep it ready on standby. Interest is only charged on the actual loan amount used on any given day.
The facility also delivers high LTV efficiency to HSBC’s customers. “Many of our early clients are able to access 80 per cent-plus LTV ratios, showing the power of using portfolio-based margining as a tool to unlock new buying power,” Haugarth says.
Disclaimer from HSBC:
Risks associated with margin requirements: Wealth Portfolio Lending provides a line of credit secured against assets held in your HSBC account.
Risk of magnified losses: in instances where borrowed funds are used to increase the size of an investment portfolio, this may result in magnified losses during periods of market decline or adverse market conditions.
Interest rate risk: interest rate fluctuations may have an adverse impact on your borrowing costs. In instances where borrowed funds are used to purchase investment products, the cost of borrowing may equal or exceed your investment returns, resulting in gains being wiped out or a loss incurred.
The information contained herein is intended for persons in Hong Kong only.