Hong Kong Regulations

BANKING (CAPITAL) RULES - SECT 65

Residential mortgage loans

(1) Subject to subsections (3) and (6), an authorized institution shall
allocate a risk-weight of 35% to a residential mortgage loan in relation to
the institution where—

   (a)  the borrower under the loan is—

        (i)    one or more than one individual; or

        (ii)   a property-holding shell company;

   (b)  the loan is secured by a first legal charge on one or more than one
        residential property;

   (c)  each residential property which falls within paragraph (b) is—

        (i)    if paragraph (a)(i) is applicable, used, or intended for use,
               as the residence of the borrower or as the residence of a
               tenant, or a licensee, of the borrower;

        (ii)   if paragraph (a)(ii) is applicable, used, or intended for use,
               as the residence of the directors or shareholders of the
               borrower or as the residence of a tenant, or a licensee, of the
               borrower;

   (d)  subject to subsections (2) and (5), the loan-to-value ratio of the
        loan does not exceed 70% at the time a commitment to extend the loan
        was made by the institution, or in relation to a
        residential mortgage loan purchased by the institution, at the time
        the loan was purchased;

   (e)  the loan-to-value ratio of the loan does not exceed 100% at any time
        after the loan is drawn by the borrower or purchased by the
        institution, as the case may be; and

   (f)  if paragraph (a)(ii) is applicable—

        (i)    all of the borrowed-monies obligations of the company arising
               under the loan are the subject of a personal guarantee— (A)
               which is entered into by one or more than one director or
shareholder (referred to in this paragraph as "guarantor") of the company; and
(B) which fully and effectively covers those obligations;

        (ii)   the institution, having due regard to the guarantor's financial
               obligations (including, in particular, all the guarantor's
               borrowed-monies obligations and obligations of suretyship), is
               satisfied that the guarantor is able to discharge all the
               guarantor's obligations under the guarantee; and

        (iii)  the loan has been assessed by reference to substantially
               similar credit underwriting standards (including loan purpose
               and loan-to-value and debt service ratios) as would normally be
               applied by the institution to an individual.

(2) Where a residential mortgage loan is made by an authorized institution to
a member of its staff (whether solely or jointly with another person), the
loan-to-value ratio of the loan shall not exceed 90% at the time a commitment
to extend the loan was made by the institution.

(3) Where, in respect of a residential mortgage loan made or purchased by an
authorized institution, any residential property which falls within subsection
(1)(b) is situated outside Hong Kong, the institution may allocate a
risk-weight to the loan generally provided for under the supervisory
treatment, or capital adequacy requirements, applicable to banks carrying on
banking business in the jurisdiction in which the residential property is
situated.

(4) An authorized institution shall allocate a risk-weight of—

   (a)  subject to subsections (5) and (9), 75% to a residential 
        mortgage loan made or purchased by the institution where—

        (i)    the loan does not fall within subsection (1) but does satisfy
               section 64(1)(a);

        (ii)   the borrower under the loan is— (A) one or more than one
               individual; (B) a property-holding shell company; or (C) a
               small business; and

        (iii)  subject to subsection (6), the loan-to-value ratio of the loan
               does not exceed 90% at the time a commitment to extend the loan
               was made by the institution, or in relation to a
               residential mortgage loan purchased by the institution, at the
               time the loan was purchased;

   (b)  100% to a residential mortgage loan made or purchased by it which does
        not fall within subsection (1) or paragraph (a).

(5) Subsections (1)(d), (2) and (4)(a)(iii) do not apply, in the case of a
residential mortgage loan secured on a property situated in Hong Kong, to—

   (a)  a commitment referred to in that subsection which was made before 1
        January 2007; or

   (b)  a purchase referred to in that subsection, of a residential 
        mortgage loan, which was made before 1 January 2007.

(6) Subject to subsection (7), an authorized institution shall, for the
purposes of the application of subsection (1)(d) and (e), (2) or

(4)(a)(iii) to a residential mortgage loan, exclude from the calculation of
the loan-to-value ratio—

   (a)  any portion of the loan amount which has been provided by a person who
        is not a member of the group of companies of which the institution is
        a member; and

   (b)  any portion of the loan amount which is—

        (i)    the subject of a guarantee referred to in section 98 whose
               guarantor has an attributed risk-weight of not more than 20%;

        (ii)   the subject of mortgage guarantee insurance given by an
               insurance firm which has an attributed risk-weight of not more
               than 20%; or

        (iii)  the subject of cash on deposit falling within section 79(a)
               which is eligible for a risk-weight of not more than 20% under
               the use of the STC approach.

(7) The Monetary Authority may, by notice in writing given to an authorized
institution, direct the institution, in calculating—

   (a)  the loan-to-value ratio of a residential mortgage loan specified in
        the notice; or

   (b)  the loan-to-value ratio of a residential mortgage loan belonging to a
        class of residential mortgage loans specified in the notice, to
        include a portion of the loan amount which would otherwise be excluded
        pursuant to subsection (6).

(8) An authorized institution given a notice under subsection (7) shall comply
with the notice.

(9) Any residential mortgage loan of an authorized institution which, but for
the fact it does not satisfy section 64(1)(a), would have been eligible for a
risk-weight of 75% under subsection (4)(a) shall be allocated a risk-weight of
100%, and may be excluded for the calculation of the maximum aggregate
exposure of the institution for the purposes of the application of
section 64(1)(a).

(10) In this section—

"loan-to-value ratio" (貸款與價值比率), in relation to a
residential mortgage  loan, means the ratio of the sum of the following
amounts to the market value of the security—

   (a)  the principal amount of that loan; and

   (b)  the principal amount of all other residential mortgage loans in
        respect of which the residential property falling within subsection
        (1)(b) is also used as security.

"loan-to-value ratio" (貸款與價值比率)