Hang Seng Bank, Hong Kong’s third-largest mortgage lender, expects the HIBOR-based mortgage rate to achieve a HIBOR plus 1.5 percent in the next six months.

The highest HIBOR offer now is HIBOR plus 1.2 percent, mainly due to a fall in liquidity in Hong Kong, said William Leung Wing-cheung, Executive Director and Head of Personal Banking.

Banks in the Special Administrative Region (SAR), including the five leading lenders, have increased their HIBOR-based mortgage rates in the last two months. The new mortgage rates are now between HIBOR plus 0.9 percent and HIBOR plus 1.2 percent, compared with its previous rate of between HIBOR plus 0.8 percent and HIBOR plus 1 percent.

In associating the rate hikes with the yuan, Mr. Leung said, “Many people are turning their Hong Kong dollar deposits into yuan ones.”

“But there is no cash flow in Hong Kong where the yuan is concerned, which means liquidity is actually being sucked out of the SAR. Banks find it harder to lend out Hong Kong dollars, such as mortgage loans.”

Loan applications dropped 35 percent in the previous month, after the bank began to offer HIBOR-based mortgage plans.

Mr. Leung hopes other personal financial services can make up for the drop in loan growth this year.

“We will continue to focus on wealth management. Unsecured loans – personal loans and credit cards- will continue to run,” Mr. Leung added.

“Hong Kong equity products are becoming popular, with many clients taking advantage of the recent volatility in the market.”

According to Hong Kong’s Monetary Authority, the new mortgage loans drawn down in February fell 15.9 percent in January to HK$18.3 billion. Approved mortgages increased by 8.2 percent to HK$30.3 billion.