Minimum Mortgage Rates

(Source: Bloomberg 2010.03.03)

HKMA Set Minimum on Home Mortgage Rates, ICBC Says
 
The Hong Kong Monetary Authority told lenders to price new home loans above its "reference rate," as concerns grow that a price war may further erode their profit margins, a bank executive said.

At meetings with the city’s lenders last week, the HKMA set the reference levels at 0.7 of a percentage point above the one-month Hong Kong interbank offered rate and 3.1 percentage points below the prime mortgage rate, Stanley Wong, deputy general manager at ICBC Asia Ltd., said in an interview today. The Hibor is 0.07964 percent at present.

Hong Kong banks have cut mortgage rates to the lowest in at least 20 years, fueling an almost 30 percent gain in home prices last year, as capital inflows into the city kept interbank lending rates down. The HKMA said in a statement yesterday risks linked to mortgages must be "vigilantly managed."

"They're expecting banks to follow these guidelines fully," Wong said. "When they brought that up in September it was more like a friendly reminder, but this time their tone was much firmer."

The HKMA met and discussed reference rates with lenders last week, Peggy Lo, a spokeswoman, said. She declined to say what the levels were.

The HKMA in September said that "intense price competition" isn't sustainable and may erode the industry’s profit margins and increase risks.

HSBC Holdings Plc, Hong Kong’s biggest bank by deposits and assets, said February 18 it will offer mortgage rates as low as 0.65 of a percentage point above the one-month Hibor until April 30, the first time it has priced new mortgages based on interbank rates. The bank has the fourth-biggest mortgage market share in Hong Kong, according to mReferral Mortgage Brokerage Services. BOC Hong Kong (Holdings) Ltd. is the biggest.

Hang Seng Bank Ltd., the city’s second-biggest provider of such loans, said the profitability of the mortgage business in Hong Kong will erode if borrowing costs drop further.

"Mortgage rates are already at a very low level and banks need to be able to make a reasonable profit," Hang Seng Chief Executive Officer Margaret Leung said at a briefing March 1.

New mortgage loan approvals in Hong Kong rose 22.3 percent to HK$29.6 billion in January from December, the HKMA said last week.



(Jack's comment: What the hell HKMA is doing?  Price control!)