Mortgage refinancing guideline to pressure bank margins: Merrill

Merrill Lynch said the decision to allow banks to lend more than 70 percent of property value in refinancing housing loans for homeowners with negative equity will likely have a negative impact on the banks. The Hong Kong Monetary Authority's move may encourage borrowers with negative equity to seek new financing terms. Loans in negative equity account for approximately 20 percent of the mortgage book. Assuming a decline in their yield of 200 basis points, banks' 2002 earnings could potentiallly fall by 3 percent to 8 percent. Bank of East Asia (0023) and Wing Hang Bank (0302) would be the worst affected, analysts said.

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