Hong Kong Monetary Authority gives banks funding plan deadline

Hong Kong banks should submit its plan by the end of the month for HKMA to avoid the risk of credit-fuelled property bubble.

Hong Kong banks were given until the end of the month to submit their funding strategies to the de facto central bank amid concerns that “rapid” credit growth will curb liquidity and reduce loan quality.

“It is clear that the same rapid pace of credit growth is unsustainable,” Norman Chan, chief executive officer of the Hong Kong Monetary Authority, said in a circular on Monday. Bank credit expanded at an annualized 26 percent in the first two months of 2011 after climbing 29 percent last year, he said.

The HKMA, concerned about the risk of a “credit-fuelled property bubble,” has tightened rules on mortgage lending three times since October 2009 and will consider more measures if needed, Chan said. Mortgage rates in Hong Kong, where housing prices have surged to the highest since 1997, are at record lows as the city’s currency peg to the dollar forces it to track U.S. borrowing costs.

“The HKMA may ask local banks to be more prudent in property lending,” said Ben Kwong, chief operating officer at KGI Asia Ltd. “That will be somewhat negative on local banks because they will have less mortgage loans, impacting their profitability.”

BOC Hong Kong (Holdings) Ltd., the unit of Bank of China Ltd., fell 2.6 percent to HK$24.65 ($3.17) at 10:34 a.m. in local trading. Hang Seng Bank Ltd. (11), the Hong Kong-based lender backed by HSBC Holdings Plc (HSBA), fell 1.4 percent to HK$123.40 ($15.87).

Total loans extended by Hong Kong banks in February reached HK$4.42 trillion ($568.38 billion), the highest level since 1981, according to data compiled by Bloomberg.

View the full story in Bloomberg.