HONG KONG MONETARY AUTHORITY Annual Report 1996
HONG KONG MONETARY AUTHORITY
PROPERTY-RELATED LENDING
Property lending in 1996 experienced a very significant rise. The growth in lending was accompanied in the last quarter of 1996 by a sharp rise in residential property prices, particularly at the upper end of the market, and renewed signs of speculative activities.
In the light of these developments, the HKMA issued a general warning note in December 1996 urging authorised institutions to exercise extra care in relation to their property exposure and to look critically at their lending criteria, particular in relation to the more expensive properties. This was followed up in January 1997 with a specific recommendation that institutions should reduce the maximum loan-to-value ratio on properties with a value of more than $12 mn from 70% to 60%.
In 1996, many banks cut mortgage rates to compete for residential mortgages and the price war intensified in the second half of the year. It was anticipated that increased competition would put pressure on spreads, although generally the impact has not so far been great. There has also been a growing trend for the use of personal loans by authorised institutions to compete for residential mortgage business. In response to this development, the HKMA urged authorised institutions to exercise care in promoting personal loans packaged with residential mortgages which might undermine the integrity of the 70% mortgage ceiling.
LEGISLATIVE CHANGES
The legal framework for banking supervision in Hong Kong continues to be under regular review and updating to improve its working in the light of practical experience and to take account of developments in the banking industry.
Stored value cards
The past year has seen an increasing interest in the issue of multi-purpose stored value cards which have the potential to substitute to a significant degree for cash and cheques. One of the major objectives of what eventually became the Banking (Amendment) Ordinace 1997 is therefore to provide a legal framework for the regulation of the issue of these cards, with a view to maintaining the stability of the payment system and providing a measure of protection to cardholders. At the same time, the new legal framework provides some flexibility for product innovation by service providers to improve the efficiency of their services to the public.
Briefly, the Ordinance provides that only licensed banks should be able to issue multi-purpose cards which are unrestricted in terms of goods and services they can buy (that is, having the characteristic of "generally accepted purchasing power"). This recognises that at present, only banks can participate in the cheque clearing system and offer current accounts.