bonsai
03-29-2004, 10:39 PM
Housing Boom Lifting Banks in Hong Kong
Surging demand for loans, in decline since the late '90s, could signal the return of a major revenue source.
By Justine Lau
Financial Times
March 29, 2004
HONG KONG — Annie Wong, a mortgage advisor at a Hong Kong bank, has worked every Sunday since January to clear the piles of loan applications on her desk. They have at least doubled from a year ago as Hong Kong's property market, moribund since the last real estate bubble in 1997, has finally begun to recover.
"They [customers] want to get the approvals as soon as possible, so that they can sign the contract and own the flat. It's like back in 1997," Wong said.
This frenzy is good news for the territory's long-suffering banks. Mortgages, once the mainstay of Hong Kong banking, have been in decline since the Asian financial crisis of the late 1990s wiped 50% off the value of homes here.
The crisis left hundreds of thousands of homeowners with negative equity, or mortgages bigger than the value of their homes. It also led to record levels of unemployment and individual bankruptcies, forcing banks to book higher provisions against bad debts.
The lack of loan demand has shrunk banks' average net interest margins, which is the difference between what they pay depositors and what they earn from lending. These have fallen to below 2% last year from 2.5% in 1997.
The sector's problems were worsened by the onset of severe acute respiratory syndrome in the second quarter of last year, which led to a 22% increase in the number of borrowers with negative equity.
Recently, however, the mortgage market has shown signs of improving in line with a recovery in the wider economy. In January, new mortgage approvals rose to $1.2 billion, an 11.5% increase from the previous month, while the number of new mortgage applications increased 9.9%. In addition, the value of property sales last month was almost four times higher than a year ago.
JP Morgan said it expected bank loan volumes to rise 5% this year, driven by a 10% increase in mortgage loans. BNP Paribas Peregrine projected that loan demand would increase 4% this year and 6.8% in 2005.
"Mortgages have traditionally been a major source of revenue for the banks. But a rising property market will also lead to an increase in other types of loans, such as those directly to property developers and for other forms of property investment," said Vincent Kwan, chief economist at Hang Seng Bank Ltd.
In the absence of mortgage loan growth in the last few years, Hong Kong's banks have concentrated on generating higher fee income from products such as insurance, wealth management and mutual funds.
These efforts have helped some of them report strong results despite the economic downturn. Bank of East Asia Ltd. last month reported a 51.3% jump in net profit as non-interest income rose 28.2%. About a third of its revenue came from non-interest income in 2003, compared with 28.8% a year earlier.
Hongkong & Shanghai Banking Corp., the local arm of HSBC Holdings and the territory's largest bank, said its fee income from retail securities and stock brokerage grew 61.8% last year. Income from wealth management and insurance also rose, by 37.4% and 59.6%, respectively.
But the sector remains dependent on interest income for the bulk of its earnings, with fee income usually accounting for less than 40% of total revenue, said Anthony Lok, head of research at BOC International Inc.
The revival of the property market, therefore, means the sector will finally be firing on all cylinders again.
Last week, Dah Sing Financial Holdings Ltd., which owns lender Dah Sing Bank Ltd., showed its confidence in the market outlook by announcing plans to spin off its banking business into a separate listing.
Hang Seng's Kwan says he expects asset prices in the territory to continue rising on the back of strong inflows of foreign funds since last year.
"Some of the funds have directly gone to property investment," Kwan said.
If that is true, it looks like Wong and her colleagues at rival banks will have to work on weekends awhile longer.
Surging demand for loans, in decline since the late '90s, could signal the return of a major revenue source.
By Justine Lau
Financial Times
March 29, 2004
HONG KONG — Annie Wong, a mortgage advisor at a Hong Kong bank, has worked every Sunday since January to clear the piles of loan applications on her desk. They have at least doubled from a year ago as Hong Kong's property market, moribund since the last real estate bubble in 1997, has finally begun to recover.
"They [customers] want to get the approvals as soon as possible, so that they can sign the contract and own the flat. It's like back in 1997," Wong said.
This frenzy is good news for the territory's long-suffering banks. Mortgages, once the mainstay of Hong Kong banking, have been in decline since the Asian financial crisis of the late 1990s wiped 50% off the value of homes here.
The crisis left hundreds of thousands of homeowners with negative equity, or mortgages bigger than the value of their homes. It also led to record levels of unemployment and individual bankruptcies, forcing banks to book higher provisions against bad debts.
The lack of loan demand has shrunk banks' average net interest margins, which is the difference between what they pay depositors and what they earn from lending. These have fallen to below 2% last year from 2.5% in 1997.
The sector's problems were worsened by the onset of severe acute respiratory syndrome in the second quarter of last year, which led to a 22% increase in the number of borrowers with negative equity.
Recently, however, the mortgage market has shown signs of improving in line with a recovery in the wider economy. In January, new mortgage approvals rose to $1.2 billion, an 11.5% increase from the previous month, while the number of new mortgage applications increased 9.9%. In addition, the value of property sales last month was almost four times higher than a year ago.
JP Morgan said it expected bank loan volumes to rise 5% this year, driven by a 10% increase in mortgage loans. BNP Paribas Peregrine projected that loan demand would increase 4% this year and 6.8% in 2005.
"Mortgages have traditionally been a major source of revenue for the banks. But a rising property market will also lead to an increase in other types of loans, such as those directly to property developers and for other forms of property investment," said Vincent Kwan, chief economist at Hang Seng Bank Ltd.
In the absence of mortgage loan growth in the last few years, Hong Kong's banks have concentrated on generating higher fee income from products such as insurance, wealth management and mutual funds.
These efforts have helped some of them report strong results despite the economic downturn. Bank of East Asia Ltd. last month reported a 51.3% jump in net profit as non-interest income rose 28.2%. About a third of its revenue came from non-interest income in 2003, compared with 28.8% a year earlier.
Hongkong & Shanghai Banking Corp., the local arm of HSBC Holdings and the territory's largest bank, said its fee income from retail securities and stock brokerage grew 61.8% last year. Income from wealth management and insurance also rose, by 37.4% and 59.6%, respectively.
But the sector remains dependent on interest income for the bulk of its earnings, with fee income usually accounting for less than 40% of total revenue, said Anthony Lok, head of research at BOC International Inc.
The revival of the property market, therefore, means the sector will finally be firing on all cylinders again.
Last week, Dah Sing Financial Holdings Ltd., which owns lender Dah Sing Bank Ltd., showed its confidence in the market outlook by announcing plans to spin off its banking business into a separate listing.
Hang Seng's Kwan says he expects asset prices in the territory to continue rising on the back of strong inflows of foreign funds since last year.
"Some of the funds have directly gone to property investment," Kwan said.
If that is true, it looks like Wong and her colleagues at rival banks will have to work on weekends awhile longer.