70% Loan to Value Ratio

There have been suggestions to relax the maximum loan to value ratio of 70% adopted by banks in their residential mortgage lending following the announcement by the Hong Kong Monetary Authority (HKMA) on 28 July to withdraw its 40% guideline on the property exposure of authorized institutions. The HKMA would wish to clarify that the removal of the 40% guideline does not fundamentally alter its supervisory stance towards banks' property exposure in Hong Kong. There are no plans, nor is it considered appropriate, to relax the 70% loan to valuation ratio for mortgage lending.

The 70% ratio was adopted by the banking industry in November 1991 and has since been fully endorsed by the HKMA as a prudent measure adopted by banks against over-exposure to the property market. It has worked well in protecting the banks from the fluctuations in property prices we have seen in recent economic cycles and helped to ensure the stability of the banking system in times of market volatility and uncertainty. The HKMA believes that this is an important risk management tool for banks and expects all authorized institutions to continue to adopt prudent criteria in respect of all types of property lending, including the strict adherence to the 70% ratio for mortgage lending.

Hong Kong Monetary Authority
31 July 1998