Hong Kong Banks May Slow Credit Growth, HKMA’s Chan Says
May 23, 2011, 3:05 AM EDTBy Stephanie Tong and Sophie Leung
(Updates with analyst comment in fourth paragraph.)
May 23 (Bloomberg) -- Hong Kong banks may slow lending this year after the Hong Kong Monetary Authority said expectations for deposit and loan growth were aggressive.
“For some banks, the assumptions for their deposit and loan business growth may be quite aggressive,” HKMA Chief Executive Norman Chan told lawmakers in Hong Kong today. “We are talking to them to see if they need to slow the growth in their loan business.”
Hong Kong dollar lending has been growing faster than deposits, pushing the local currency loan-to-deposit ratio for lenders in the city to 81.7 percent by the end of March from 71 percent in early 2010, the HKMA said this month. The city’s de- factor central bank is in talks with some lenders on their deposit levels, as concern grows over credit growth, the government said last week.
“The system’s loan-to-deposit ratio of 81.7 percent is not worrying in itself, however among smaller banks the HK-dollar- LDR is in some cases now above 90 percent,” Tom Quarmby, Barclays Capital’s analyst for regional banks, said in an e- mailed reply to queries from Bloomberg News.
Bank credit expanded at an annual rate of 26 percent in the first two months of this year, after climbing 29 percent last year, according to a statement from the HKMA in April.
More Measures
“If necessary, we will adopt more measures to stabilize the banking industry,” Chan said today, adding that demand for loans remains strong in the near term.
The HKMA, also the banking regulator, last month asked lenders to submit their business plans and funding strategies for it to review by April 30. The HKMA said that credit growth was “very rapid” and may lead to funding problems for banks.
HSBC Holdings Plc and other lenders raised mortgage rates in Hong Kong this month after the central bank in April warned of the risk of a “credit-fueled property bubble.”
“I believe the larger banks, such as HSBC Holdings, Hang Seng Bank Ltd. and Standard Chartered Plc have higher growth aspirations,” Quarmby said. “Although I would not consider these aggressive given their relatively strong funding position compared to peers in the Hong Kong market.”
Home prices in Hong Kong have surged about 70 percent since the start of 2009 on record-low mortgage rates and the influx of Chinese buyers. Hong Kong’s currency peg to the U.S. dollar robs the city of an independent monetary policy and the HKMA has held the base rate at 0.5 percent since December 2008.
“If there is change in our interest rate cycle, for sure it will rise and won’t fall,” Chan said today. “I constantly remind residents to carefully manage the interest-rate risk.”
Average mortgage rates were more than 10 percent in 1997, compared with the current rates of 1 percent or less, according to Chan.
--Editors: Tan Hwee Ann, Andreea Papuc
To contact the reporters on this story: Sophie Leung in Hong Kong at sleung59@bloomberg.net; Stephanie Tong in Hong Kong at stong17@bloomberg.net
To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net
