Hong Kong Protests Tense Banks over Easy Mortgage Rules
The rage of Hong Kong protests is continuing even now as banks complain about mortgage application standards to deal with a potential recession that can worsen things with the loaners.
Despite the falling down payment requirements to help young professionals and families buy homes, the banks in Hong Kong have not been able to deal with losing issues.
Reports in October saw Chief Executive Carrie Lam struggling to restore confidence of people in her administration. She approved rules allowing first-time homebuyers to borrow nearly 90 percent of a HK$8 million (US$1 million) home’s cost.
Prior to this, only properties worth almost HK$4 million could have such a high ratio. Due to this, sales of used homes increased.
Expressing their fears about the Hong Kong protests, two bankers said, “But as the protests take a heavy toll on the special administrative region’s economy, banks fear a deepening recession, unemployment and bankruptcies, which could make it hard for borrowers to pay them back.”
As per previous records, mortgage delinquency is a rare thing to happen in Hong Kong, with a rate of 0.02 percent.
Industry sources revealed a new guideline of one of the top mortgage lenders in Hong Kong, HSBC, that says buyers are not allowed to have a mortgage payment more than 65 percent of their monthly income. In the upcoming months, the interest rates for mortgages can potentially increase. Lenders such as Standard Chartered and Bank of China might reduce cash rebates to the borrowers.
As stated by a Hong Kong based banker with a European bank, “We have to use all the tools … to protect our profitability and asset quality in this environment. You will see more measures in the next few months.”
Standard Chartered said that it will continue its “prudent approach to risk management and returns” and will finalise on its strategy only after monitoring the market situation closely.
Analysts aware of Hong Kong protests claim that if the banks keep strict borrowing standards, there is less possibility of a systematic risk. In such a case, borrowing costs will not rise sharply in near future.
Nearly 250 bank branches were closed on November 13, the highest number of banks shut on a particular day in history, apart from typhoons.
The outlets that shut together constituted nearly 19 percent of all 1,300 branches in the city. Announcing the news, the Hong Kong Association of Banks said, “In view of special traffic conditions, some bank branches in various districts in Hong Kong are closed today and services are suspended.”
Hang Seng Bank, a subsidiary of HSBC topped the list of maximum branches shut by any bank by closing 77 branches in total.
Since the news of the police grabbing an investment banker off a sidewalk came out, most of the banks issued warnings to their staff to avoid any illegal gatherings. Employers urged bank staff to stay at home in order to ensure the safety of their family during the Hong Kong protests.
“All staff should exercise due care while commuting, remain vigilant of their surroundings and check travel plans before leaving for the office,” Deutsche Bank AG urged its employees in a text message.
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