A client exits a branch of the Bank of East Asia (BEA) Ltd in Hong Kong. The bank has lifted its mortgage rate by 0.5 percentage point to a maximum rate of Hibor plus 1.75 percent to 2 percent. Jerome Favre / Bloomberg

Local lender announces that it has lifted its rates to Hibor plus 1.75% to 2%

The Bank of East Asia (BEA) has joined other local mortgage loan providers in increasing its mortgage rates, it was revealed on Wednesday.

BEA lifted its mortgage rate by 0.5 percentage point to a maximum rate of Hibor (Hong Kong interbank borrowing rate) plus 1.75 percent to 2 percent effective May 24, according to an e-mailed reply to queries from Bloomberg News. The mortgage rate was increased from Hibor plus 1.5 percent.

Starting from April, there has been a flurry of rate hikes by major mortgage loan providers.

HSBC and Standard Chartered Bank (Hong Kong) hiked their mortgage rates to Hibor plus 1.5 percent to 2 percent. Meanwhile, BOCHK (Holdings) and DBS (Hong Kong) have hiked their mortgage rates to Hibor plus 1.3 percent to 1.7 percent.

The mortgage rate hikes have come after the Hong Kong Monetary Authority (HKMA) warned last month that the city faces a "credit-fueled property bubble risk".

HKMA Chief Executive Norman Chan on Monday told the Legislative Council's financial affairs panel that banks are facing "upward" pressure on lending and deposit rates as credit demand soaks up cash from the financial system.

BOCHK (Holdings) Vice-Chairman and Chief Executive Officer He Guangbei also expressed similar views on Wednesday after the bank's annual general meeting.

"The Hibor-linked mortgage rate is showing an upwards trend as the city's robust credit demand is pushing up the cost of capital among local lenders," He said. "Moreover, accelerating global inflation will make more governments tighten their monetary policies and so liquidity may shrink. These two factors are exerting pressure on the local Hibor-linked mortgage rate to increase."

But he refused to comment on whether BOCHK will raise its mortgage rates further in the near future after having just raised them by 0.3 percent to Hibor plus 1.3 percent to 1.7 percent this month.

"BOCHK will continue to monitor the market situation to decide whether another mortgage rate hike is necessary. We are always flexible in responding to the market situation," said He.

Peter Wong, HSBC chief executive officer for the Asia-Pacific region, also said earlier this month that local mortgage rates may climb further as liquidity is tightening among local lenders.

However, one financial analyst cautioned that the local mortgage rate will rise at least 0.5 percent in the next six months.

"We predict local banks will further increase their mortgage rates as their profit margins from the mortgage lending business have been low in the past two years. Therefore, local banks will continue to raise mortgage rates to restore profitability," Referral Mortgage Services Chief Economic Analyst Sharmaine Lau told China Daily.

"Given the current mortgage rate is still low compared to the 20 to 30 year average level of 3 to 4 percent, the upward trend of local mortgage rate hikes is still evident this year," Lau added.

"However, as the salaries of local residents will also go up due to inflationary pressure in the local economy, we forecast the affordability ratio of local home buyers will still remain at a healthy ratio of 40 percent," said Lau.

China Daily

(HK Edition 05/26/2011 page2)