Wing Lung Bank, a subsidiary of China Merchants Bank, says it wants to double or triple its personal unsecured loan portfolio to achieve better interest income returns.
It has lifted its debt-servicing ratio, the monthly repayment obligations of borrowers as a percentage of monthly income, to 70 per cent from 50 per cent previously, while industry rivals are using 50 per cent to 60 per cent as a benchmark. The higher the ratio, the more money a bank lends out, including all forms of debt, ranging from mortgages to credit card loans.
Banks' mortgage lending has been subdued following the government's introduction of several rounds of cooling measures targeting the property market. In order to maintain the size of their outstanding loan portfolios, banks are having to deploy the capital to other businesses.
"It is quite hard for increased unsecured lending volume to fill in the gap from the loss of mortgage lending," Wing Lung Bank's head of retail banking, assistant general manager Derek Chung, said at a conference yesterday.
The average size of a personal loan amounts to hundreds of thousands of dollars against millions in a mortgage loan. "However, it is positive to the bank in terms of return," he said.
Personal loans often have a higher interest rate than mortgage loans because they do not require collateral.
Wing Lung's mortgage lending rate is 2.15 per cent per annum, while its personal lending rate is at least 2.66 per cent, depending on the size of the loan and the repayment period.
The maximum loan amount offered by Wing Lung, the fourth-largest mainland bank subsidiary in the city in terms of asset size, has been increased to 10 times the borrower's monthly salary or HK$1 million, up from three times the monthly salary or HK$100,000.
Chung said the relaxation in underwriting criteria could divert some lending business from money lenders and deposit-taking, non-bank financial institutions in the city to Wing Lung.
He said the bank wanted to see personal lending grow to 10 per cent of its total loan portfolio, without disclosing the present contribution or the time frame being looked at.
Wing Lung aimed to keep its net credit-loss ratio below the market average of about 3 per cent, Chung said.
This article appeared in the South China Morning Post print edition as Wing Lung aims to triple personal loans
