Banks' move follow on the heels of HSBC and BOCHK

Citigroup announced that it is raising its mortgage rates effective today after HSBC and BOC Hong Kong, the city's two major mortgage loan providers, reported on Friday that their mortgage rates would be raised effective Monday.

Citigroup will raise its mortgage rate from the Hong Kong interbank offered rate (Hibor) plus 2.2 percentage points (ppts) to 2.7 ppts. It will also increase the mortgage rate linked to the prime rate tomorrow to prime rate minus 2.95 ppts, the lender said in an e-mailed statement on Monday.

Separately, Bloomberg reported late Monday night that DBS also increased its mortgage rate in Hong Kong to prime-linked minus 2 percent for loans on or above HK$3 million. The new rate is effective today. No further details were available.

Meanwhile, HSBC Asia-Pacific Chief Executive Officer Peter Wong said that the bank is increasing its rates due to tighter liquidity and rising capital costs on the back of inflation.

On Friday, HSBC said it would raise rates on Monday to Hibor plus 2.3 to 2.7 ppts from Hibor plus 1.8 to 2.3 ppts. It will also lift its listed price for mortgages based on the prime lending rate to prime minus 2.1 to 2.4 ppts from prime minus 2.7 ppts.

On the same day, BOC Hong Kong announced that it would also lift the mortgage rate by 20 basis points to Hibor plus 2 to 2.5 ppts starting Monday. Its prime lending rate increased to prime minus 2 to 2.7 ppts from prime minus 2.55 to 2.7 ppts.

However, growth in new bank loans is "still too fast," with lending increasing at an annualized rate of more than 18 percent in June and July, the Hong Kong Economic Times reported Monday, citing Hong Kong Monetary Authority Deputy Chief Executive Arthur Yuen.

Higher rates reflect tightening liquidity in banking systems in August. And as with past increases, it will likely prompt other banks to follow suit, Barclays Capital analyst Andrew Lawrence wrote in a note on Monday. The bank remains strong in its conviction that the outlook for local property prices is weak due to rising rates, weak buying sentiment, increased land supply, and the possible reintroduction of a subsidized housing program. Barclays also maintains its forecast of a drop in home prices of some 25 to 30 percent over 2012-13.

During the week of September 12-18, the city recorded 112 home transactions in 35 key residential real estates, down 13.2 percent from 129 a week earlier, which was the lowest in five weeks, Midland Holdings said in an email statement on Monday.

The broker attributes declining home transactions to the recent mortgage rate hikes by banks and the upcoming launch of major residential real estate projects in the city.

litao@chinadailyhk.com

China Daily

(HK Edition 09/20/2011 page2)