The Hong Kong Monetary Authority (HKMA) issued today (Friday) a circular to banks in Hong Kong requiring them to implement a set of prudential measures for residential mortgage loans. These measures include the following major requirements:
The above three measures take effect immediately. However, borrowers who have already signed a provisional sale and purchase agreement on or before today will not be affected. As banks need time to amend their operational procedures before they can implement the stress testing requirement and other measures mentioned in the circular, these measures will come into effect from 15 September 2010.
Mr Norman Chan, the Chief Executive of the HKMA, said "As property prices continue to rise, the risks of residential mortgage loans are increasing. Since mortgage loans constitute a major part of banks' loan portfolios, there is a need for the HKMA to take further measures to safeguard banking stability. The above measures will help banks manage credit risks more prudently." He reminded prospective buyers of properties to take fully into account the impact on their repayment ability when interest rates return to more normal levels and avoid overstretching themselves. He also urged banks to continue to manage risks associated with residential mortgage lending prudently, and not to relax their underwriting standards because of the abundant liquidity in the banking system and the intense competition for residential mortgage business at the moment.
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Anissa Wong, Manager (Communications), at 2878 1802 or
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Hong Kong Monetary Authority
13 August 2010
1 This is to avoid the anomaly that a purchaser of a property with a value slightly below $12 million could borrow a larger amount of loan than a purchaser of a property valued at just above $12 million. For example, a purchaser of a property valued at $11 million could borrow $7.7 million ($11 million x 70%), while a purchaser of a property valued at $12.5 million would only be able to borrow $7.5 million ($12.5 million x 60%).