Hong Kong banks 'killing themselves' in mortgage war

Poon, 33, tried again in May and got a loan covering 70 percent of the price for the 700-square-foot (65-square-meter) apartment in Hong Kong's Sai Wan Ho district from BOC Hong Kong (Holdings) Ltd. The mortgage rate was 2.25 percent, down from the 3.5 percent that Poon was discussing with lenders last year.

Mortgage rates in the city are the lowest in at least 19 years, as far back as records are available, to offset slower demand for other types of credit during Hong Kong's worst recession in a decade. Among developed economies, only Japan offers similarly cheap loans, as its central bank has kept interest rates below 1 percent for the past 14 years, said Leland Sun, founder of Pan Asian Mortgage Co.

“Hong Kong banks are killing themselves with the low rates,” said Sun, whose Hong Kong-based firm advises homebuyers.

Average net interest margins for the city's banks — the difference between what they charge for loans and the cost to fund them — will narrow by as much as half a percentage point this year from 2008, said Lee Yuk-kei, an analyst at Core-Pacific Yamaichi International Ltd. in Hong Kong.

The aggregate margin declined to 1.62 percent in the first quarter from 1.78 percent in the previous three months, the Hong Kong Monetary Authority reported. At New York-based JPMorgan Chase & Co., the largest U.S. bank by market value, the net interest margin climbed 37 basis points to 2.76 percent in the first quarter, according to data compiled by Bloomberg. A basis point is 0.01 percentage point.

Banco Santander SA, Spain's largest bank, said its net interest margin rose to 3.34 percent in the first quarter from 3.05 percent three months earlier.

Thinner margins will slow any recovery in Hong Kong bank profits this year, Core-Pacific's Lee said. First-half results “are likely to be weak” because of pressure on loan profitability and weakening demand for credit, Citigroup Inc. analysts Simon Ho and Franco Lam wrote in a June 16 report.

The combined pretax profits of Hong Kong banks declined 28 percent in the first quarter from a year earlier, according to figures submitted last month by the central bank to lawmakers. By contrast, first-quarter earnings at JPMorgan and Citigroup in the U.S. and Deutsche Bank AG in Germany increased amid lower credit- market writedowns and higher trading profits.

1|2|Next Page>>

SharePrintEmail

Write a Comment

Enter your comments - 3000 characters max

Type in image code

Submit

 Receive China Post promos Respond to this email