Download An overview of the household debt situation in Hong Kong

An overview of the household debt situation in Hong Kong(1)
Benny Lui & Clara Liu
December 2015
Household borrowing in Hong Kong has grown considerably since the 2008-09 Global
Financial Crisis (GFC), subsequent to a period of household deleveraging after the Asian
Financial Crisis in 1997-98 (Chart 1). This development is, however, not unique to Hong
Kong. The successive large-scale quantitative easing programmes rolled out by major
central banks after the GFC have driven interest rates to record lows. The nearly-zero
borrowing cost amid the abundant global liquidity seemed to have led to visible rises in
household indebtedness across the Asian region. This note attempts to examine the
household debt situation in Hong Kong.
2.
Assessing households’ indebtedness is important due to its potential implications
on Hong Kong’s macro-economy, especially when the US is about to embark on an interest
rate upcycle. Given Hong Kong’s linked exchange rate with the US dollar, US interest rate
hikes would eventually translate into higher interest rates and hence borrowing costs in
Hong Kong. This may thus have an effect on consumption, depending on the household
debt situation.
Chart 1: Hong Kong's household debt on the rise since the 2008-09 GFC
1,800
%
Period end, HK$ million
1,600
70
Credit card advances (LHS)
Other personal loans (LHS)
Residential mortgage loans (LHS)
Share of nominal GDP (RHS)
57
1,400
54
1,200
57 57
59 60 59
65
59 58
54
61 62
60
55
51 50 51
45
48
1,000
800
75
42
38
35 36
35
30
600
400
15
Note: (*) 2014 GDP figure was used when expressing the share of household debt at end-September 2015 in terms of GDP.
Sources: Census and Statistics Department; Hong Kong Monetary Authority.
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
0
2015
09/2015*
200
0
3.
By end-September 2015, Hong Kong’s total household debt amounted to
HK$1,571 billion (or US$203 billion), equivalent to almost 70% of Hong Kong’s GDP in
2014. Residential mortgage loans formed the bulk of total household debt, at around 71%,
while the rest were other personal loans and credit card advances, at 22% and 7%
respectively (Chart 2).
(1) In this note, household debt figures of Hong Kong and other debt- related statistics (such as debt-servicing ratio and
loan-to-value ratio) are from the Hong Kong Monetary Authority (HKMA). GDP and unemployment rate figures
of Hong Kong are from the Census and Statistics Department, HKSAR Government. For household debt figures of
other economies, they are mostly from the Bank for International Settlements, unless otherwise specified.
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4.
Total household debt at end-September 2015 was up by 11% over a year earlier,
faster than the average 8% per annum growth in 2008-2014 and at a much more accelerated
pace than the average 1% per annum growth in 2003-2007 when the household sector
underwent a period of deleveraging (Chart 3).
Chart 2: Residential mortage loans formed the
bulk of Hong Kong's household debt
100
Chart 3: Hong Kong's household debt has risen
much faster after the 2008-09 GFC
Period end, %
30
Average annual rate of change, %
90
1993-1997
1998-2002
2003-2007
2008-2014
25
25
80
70
19
20
19
60
15
15
13
50
11
11
40
10
8
7
7 7
30
5
3
20
1
10
0
-1
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
09/2015
0
3
Credit card advances
Residential mortgage loans
-3
-5
Residential
mortgage loans
Other personal loans
Source: Hong Kong Monetary Authority.
Credit card
advances
Other personal
Total
loans
household debt
Source: Hong Kong Monetary Authority.
5.
Given the significant share of residential mortgage loans in Hong Kong’s
household debt, the increase in household debt since the GFC reflected, at least in part, the
rise in housing prices between 2007 and 2014, which led to a visible increase in the amount
of new residential mortgage loans (Chart 4)(2). Higher house prices could also induce a
withdrawal of equity by households from the housing stock to release funds for other
purposes, conceivably explaining in part the notable increase in lending by banks via other
personal loans during this period.
Chart 4: Notable increases in new residential mortage loans made by authorised institutions
350,000
HK$ million
Gross residential mortgage loans made by authorised institutions
300,000
Average (2003-2007)
250,000
200,000
150,000
100,000
50,000
0
2003
2004
2005
2006
2007
2008
Source: Hong Kong Monetary Authority.
2009
2010
2011
2012
2013
2014
Jan2015
Sep
2015
(2) In the third quarter of 2015, there were around 411 000 owner-occupied households in Hong Kong with mortgages
or loans. This comprised 33% of all owner-occupied households or 17% of all households in Hong Kong. Such
number of households marked a cumulative decline of 22% from the fourth quarter of 2007.
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6.
Nonetheless, in comparison to selected major Asian economies, Hong Kong’s
household debt level in terms of GDP was not particularly high (70%)(3), versus Malaysia
(88% at end-2014), Korea (84%), Taiwan (83%). The corresponding cumulative 7-year
growth since the GFC was also not particularly distinct for Hong Kong (76%), when
compared to Indonesia (271%), India (129%), Thailand (125%), Singapore (124%) and
Malaysia (122%) (Chart 5).
Chart 5: Rising household debt is generally a region-wide phenomenon
100
%
% of GDP
400
End-2007 (LHS)
88
90
84
81 83
80
350
Cumulative increase from end-2007 (RHS)
72
70
352
End-2014 (LHS)
300
69
66
65
271
61
250
60
50
50
200
45
39
40
30
125
122
36
76
20
150
129
124
100
19
66
17
12
10
11 9
50
22
0
0
Malaysia
Korea
Taiwan
Thailand Hong Kong Singapore
China
Indonesia
India
Sources: For Malaysia, CEIC; For Taiwan, Central Bank of the Republic of China (only crude estimates); For Hong Kong, Hong Kong Monetary
Authority and Census and Statistics Department; For the rest of the economies, Bank for International Settlements.
7.
The HKSAR Government is mindful of the risks associated with household
indebtedness to the banking sector and the wider economy.
Seven rounds of
macro-prudential measures on property mortgage lending were implemented by the Hong
Kong Monetary Authority (HKMA) since October 2009. A guideline on personal lending
was also issued by the HKMA to authorised institutions to strengthen banks’ risk
management and resilience.
8.
These measures were effective so far. The average loan-to-value ratio of new
mortgages was 51% in the third quarter of 2015, lower than the average of 64% in January
to October 2009 before these measures were introduced. The debt-servicing ratio for new
mortgages trended down successively to around 35% from over 40% before stricter limits
were imposed on the debt-servicing ratio of mortgage applicants. The delinquency ratios
for residential mortgage loans and credit card receivables stayed low at 0.03% and 0.24%
respectively at end-September 2015 (Chart 6). The favourable job and income conditions
of Hong Kong over the past few years or so should also help maintain the sustainability of
household debt(4) (Chart 7).
(3) Figure at end-September 2015, estimated using GDP in 2014.
(4) Hong Kong’s labour market remained in a state of full employment, with the seasonally adjusted unemployment rate
staying at a low level of 3.3% in August-October 2015. Labour incomes also sustained further growth. In the third
quarter of 2015, the median monthly household income (excluding foreign domestic helpers) grew by 4% year-on-year
in real terms.
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Chart 6: Delinquency ratios for residential
mortage loans and credit card receivables stayed
low
2.0
Chart 7: Favourable job and income conditions
crucial to maintaining
the sustainability of household debt
Period end, %
9
Residential mortgage loans
1.8
8
Credit card receivables
1.6
Year-on-year rate of
change in real terms (%)
Seasonally adjusted unemployment rate (LHS)
%
6
Median household income (excluding foreign
domestic helpers) (2Q moving average) (RHS)
7
1.4
8
4
6
2
1.2
5
1.0
0
4
0.8
-2
3
-4
-6
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
-8
2002
2015
2014
2013
2012
2011
2010
2009
2008
2007
0
2006
0.0
2005
1
2004
0.2
2003
2
2002
0.4
2003
0.6
AugOct
Source: Census and Statistics Department.
Source: Hong Kong Monetary Authority.
9.
While significant efforts were put in mitigating systemic risks in the banking sector
and Hong Kong’s financial system is sound and resilient, the Government would still need
to remain vigilant about the highly uncertain external environment which could weigh on
Hong Kong’s domestic economic performance and hence adversely affect the debt-servicing
ability of the households. Also, with the US interest rate lift-off approaching and an
expected widening of the divergence in monetary policy stances by major central banks, the
local property market may face some downward pressures amid higher mortgage rates.
This, coupled with an uncertain economic outlook, would in turn add further strains on
households’ financial positions. The Government would therefore need to monitor the
situation closely.
Disclaimer:
Views expressed in this article are those of the authors, and do not necessarily reflect the
official position of the HKSAR Government.
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